Many industries may get disrupted in the future. Investors must be mindful of that
02-Nov-2018 •Dhirendra Kumar
Investors are agitated over NBFCs being in trouble with hidden debt bombs whose significance has been discovered too late by the markets. As it always is, the prime culprit in such cases is the disbelief that investors have for credit ratings. Investors keep panicking - sometimes for right reasons and sometimes wrong - because they do not trust ratings. Credit-rating is a business shaped by mis-designed regulations and that's where it can be fixed.
However, that's a different story and one for another day. For the moment, we should come back to what really makes or breaks businesses and investors - the deep changes that take place in economies and societies. Think of the biggest creations of business value that have taken place over the last few decades. We can keep fussing over this short-term news or that, but if we compare the Indian equity markets from when the economic reforms began in 1991 with those of today, the changes are entirely due to fundamental transformations in technology and the economy.
In India and across the world, look at the infotech and the telecom industries and the incredible value they have created. However, we are now hitting the second-order effects of these changes. What started out as changes just across these industries have now spread rapidly across many others and in ways that are quite unexpected and surprising. For example, I've written earlier at some point how the world may rapidly shift to a completely new model of personal transportation over the next couple of decades.
This will be driven not just by the shift to electric vehicles but some second-order effects of electric. It turns out that a far fewer number of cars could suffice to take care of the entire transportation demand in the future. Electric cars are radically simpler than fossil-fuel driven ones. They last for a much longer mileage and break down much less. This means that they will be much more capital- and cost-efficient if they are driven all day long by a service provider, rather than being parked 90 percent of the time as personal vehicles do. Combine that with advances in solar power and with the inevitable shift to self-driving cars that is now on the way, and a completely new personal transportation industry begins to take shape. It's a world where consumers will have full-time access to personal transportation but as a service instead of having to buy, maintain and drive a vehicle themselves. The net result will be that the world could get by with barely 10 or 20 percent of the vehicles it now needs.
As investors, this raises a further, more important, question. Which other industries will be disrupted as severely as autos? There are many possibilities. For example, personal finance could well be the next candidate. I'll be vastly surprised if the business of banking, saving and investments survives with only evolutionary changes for more than a decade. Rudimentary mobile wallets are only the beginning; the real impact is yet to come. And then, of course, looming above all this is 3D printing, which could easily be the biggest change in the world since the Industrial Revolution 250 years ago.
As investors, will we be able to cope with this rapidly changing world? I hope so.