Saturday, 23 November 2019

India: A Foolproof Investment Destination

Enough has been said about the demographic potential of India. With over 130 crore people, the Indian market is any marketer’s dream project, yet the ongoing “slowdown” has deflated investor spirits and cast doubt on India’s potential. Rating agencies have lowered their outlook. All this is a temporary phenomenon, which warrants little attention.

Quite a few things are working in favor of our country today. A large young population; a huge market, where penetration is not yet deep; development that is far from reaching saturation, etc., make India a promising opportunity for both investors and entrepreneurs. In India, if your product or service is not working, that’s not likely a problem of demand but of a faulty business model or management.

Anything and everything has a market in India. All these markets are far from maturity. This evolving nature of the Indian market can accommodate just any kind of entrepreneur, at any level. If someone fails as an entrepreneur here, it’s likely not the idea but the execution. Similarly, as an investor, you can do well in this country if you simply avoid the pitfalls. As an investor in India, your job is not to look for great companies but simply avoid bad ones. The upside will take care of itself. The upside is built into the investment – such is the case of the Indian market.

This is very different from the case in developed markets where you have to try hard to find growing businesses, both as an investor or an entrepreneur. The so-called great global companies have stagnant revenues and profits in developed markets. Entrepreneurship has reached all echelons of society, with mom-and-pop stores being commonplace. That’s why foreign investors are so keen to invest in India. 

So, if you are an entrepreneur, start now. Don’t worry about how good your idea is. Focus on execution. As an investor, pick stable companies with clean managements and just sit back. With time your wealth will naturally grow. 

Sunday, 10 November 2019

Why Listening to the Management Is of Limited Use

Savvy investors actively track management commentary, CEO’s message, and other such forward-looking stuff. They think that by tracking these, they can get valuable insight into the future performance of the business. I have even seen analysts “reading” and “decoding” the management’s body language and confidence level. In my view all this is dispensable. Even if someone must pay attention to this sort of things, he should use it in conjunction with other data or sources. However, what the management does is always useful information. That’s because actions speak louder than words. 

The case of an Indian airline is exemplary. This is the largest airline in the country and has about half the market share. In an industry where it’s difficult to turn profits, it has been consistently profitable. Its IPO also saw a surge in its share price. Everything seemed to be fine with the company until the tussle between its founders broke. The founders traded barbs, acted like recalcitrant children and sought mediation at multiple forums. One founder actually questioned the business practices of the airline.

The ego war between the founders of this airline tells us a lot about the airline’s management. Companies have a tendency to sugarcoat things. Even when they are “honest” about a gloomy scenario in the future, they still tend to hold back information or juxtapose bad news with many “howevers.” That could make the analyst believe that after all the situation isn’t so bad and probably the company would recover soon. 

Broadly, what people do tells you more than what they say. When it comes to speech, we put our best foot forward. But actions are what reveal the truth. Hence, paying attention to what people are saying is of limited use. Instead, look at what they have done. That can provide you more information. Similarly, while analyzing a company, discount what the management or the CEO is saying. Instead, see what the company has done in the past. That’s more insightful.