Do you think this is the opportune time to invest in technology funds, including US technology funds?
- Dr. Anant Sardeshmukh
I greatly admire US technology companies because of two reasons. These technology companies are very unlike Indian technology services companies. Although Indian technology services companies have proved their mettle, created a new industry and generated employment opportunities over the years, US technology companies are global leaders and global businesses and most importantly, they are entirely driven by innovation. All these big technology leaders that we see, particularly in Nasdaq 100, are those companies that have created products that did not exist before and they have achieved a scale and created a market that is very difficult to replicate.
Another important part of technology companies in the US is their scalability. The admiring thing that I find in most of these businesses is that their incremental cost of serving a new customer is zero. However, it does not hold true for Indian technology services companies. Think what will happen at Google if it serves more customers. It does not need to spend more money. So, your cost remains constant but your revenue has substantial upside potential and still has a lot of room to run. Look at the Zoom application. In this lockdown which suddenly became a crash course on technology usage, we have suddenly become aware of Zoom video conferencing.
We have found that there is a growth company with a global appeal and its cost of adding more customers is not significant. In most other businesses, like when somebody produces a car, there is an input cost to it. Of course, there is also an input cost for technology businesses who are funding those innovations, making new things happen.
For example, when you buy the next version of Windows License, Microsoft doesn't spend any meaningful money but of course, it will have their R&D expenses and other things. Likewise, if you look at many things that we see there, they are completely unusual businesses and I don't think there is a replica of that. It creates a huge opportunity and I think they still have a sizable upside and this makes them very compelling.
There are not many actively managed technology funds. But the ones available are good enough. The simplest way of owning them is through the Nasdaq 100 ETF. About 60-70 per cent of the money in some of those index funds is allocated to these businesses itself. It is not about opportune time. I think it is a long-term play and I think these companies still have a lot of steam left. Performance of technology companies can carry on for the next 5-10 years and these companies will remain a very attractive opportunity.
This article was originally published on August 04, 2020.
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