MARKET PERSPECTIVE
By J Mulraj
Tell people the truth!
By J Mulraj
As we ring in a new year, we have hopes that the arrival and certifications of several Covid vaccines would end the nightmare of the old, 2020, and usher in economic growth. For sure, several technologies of the 4th Industrial Revolution will be introduced/expanded in 2021, and will bring about changes in lifestyles that need to be conveyed to the people, in order that they prepare for them.
These technologies are disruptive and will, in their induction, destroy existing industries whilst simultaneously ushering in new ones. There will be closures of outdated technologies (hitting employees and shareholders) and start of new ones, creating jobs with different skill sets.
But in their election manifestos, political parties keep promising more jobs. Prior to the Bihar elections, the JD (U) promised 1 m. Government jobs and the BJP 1.9 m. To be fair, Skill Development was also made an electoral promise though one is not very sure of what training facilities have been set up to teach new skills. Not enough warning of coming technological disruptions is conveyed and hence, when the time comes for new technologies for old, the citizens would not be ready for them. There can thus be a backlash.
Technology disruptions can occur surprisingly fast. As per this must watch video, Tony Seba, world renowned author, thought leader and speaker, pointed out that at the New York Easter Parade in 1900, there was only one car in a sea of horses (then the most used mode of transportation). Thirteen years later, there was one horse in a sea of cars. It took 13 years to disrupt an industry.
He points out that during these 13 years, there was a World War 1, there was a global pandemic (Spanish flu), and new industries were built (automobiles and oil) as well as new roads.
Whilst jobs were lost in the horse carriage transportation many more were created in the auto and oil industries, and in road construction. This requires proper skill development and training. Are we doing enough for these, and why are we not stressing this more in election rallies. Let us see if the election manifestos in coming state elections, e.g. West Bengal, will contain these.
Tell people the truth!
Several trends and technologies converge to result in a disruption. Today the Electric Vehicle is set to completely disrupt the ICE (Internal Combustion Engine) technology. EVs have a tenth of the moving parts of ICEs, and hence are almost maintenance free. Running costs are perhaps a tenth of ICEs. When the capital cost of an EV falls to near that of an ICE, an inflection point will be reached, and disruption will occur. Improved battery technologies (e.g. a new solid state battery developed by a US company QuantumScope) makes for safer batteries with extended range.
The stock market has already anticipated the coming disruption, and so the $ 480 b. market cap of Tesla (a month ago) is more than the combined market cap of $ 422 b. of 12 auto companies like GM, Ford, VW, BMW, Honda, Nissan and others.
Add to that is business model innovation, e.g. ride sharing companies like Uber, Lyft and others. As Seba pointed out, some 10% of people who sold cars did not replace them, but depend on ride sharing. This trend will accelerate.
This would have implications for auto companies who depend only on ICE and haven’t yet made plans to change over to EV, or, whatever future technologies emerge in the future, like hydrogen powered cars. Remember, General Electric, once a favourite of stock markets, saw its market value drop by 75% when it similarly failed to foresee technological changes. So did Kodak, which lost 90% for not spotting the disruptive change to digital.
Tesla is coming to India in 2021, so automakers should prepare themselves for disruption. So should their investors, and owners of ICE cars, whose resale value would drop with increasing acceptance of EVs.
One of the emerging technology trends is the use of digital currency, and several countries are exploring the possibility of a Central Bank Digital Currency, issued officially by their central banks. Transfer of money via a digital currency is not only quicker (instantly, on click of a button, no need to wait for clearing) but also cheaper at a fraction of the costs charged by banks. Countries like China have adopted the use of digital currency as a mode of payment and citizens there do not carry cash or credit cards but transact effortlessly, instantly and cheaply, using their phones. This is the future of money.
Yet in India, the Central Economic Intelligence Bureau is going in the opposite direction! It has proposed levying an 18% GST on bitcoin transactions! This is a move that would take India back to the stone age! It defies belief and makes us wonder whether policy makers actually think through implications of such bizarre ideas.
Stock markets are at all time highs, driven by flow of foreign portfolio investment. FPI invested Rs 48,000 crores between Dec 1-18, searching for opportunities to replace falling investment in China. Several Chinese companies like Alibaba, Tencent etc have been de-listed from NYSE and index providers like MSCI and S&P have been asked to remove them from global indices as well. Inclusion of companies in global indices causes institutional investors to invest in them, since funds are judged on their performance relative to an underlying index.
Simultaneously the US $ is also declining in value. This makes investment in other markets more attractive. A rising $ lowers FPI’s $ returns to investors.
The BSE sensex went up last week from 46,973 on Dec 24 to 47,868 on Jan 1.
The main issues for investors to look out for in the coming week are, domestically, the handling of farmer protest, and whether talks will succeed, and, globally, the joint meeting of US Congress and Senate on Jan 6, in order to count the votes.
The US constitution provides that, if election results are challenged by a congressman and a senator, a two hour debate, conducted by the Vice President, would be held. Another complication is that some States have sent a dual set of legislators, who are the ones certifying the votes.
One hopes that the counting goes peacefully, because a huge base of supporters from both sides are expected to gather in Washington.
Hopefully 2021 will allow for economic activity to resume full time. The Covid vaccines will give the economy a shot in the arm.
Picture source: Anglicanorthodoxchurch.com
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