Friday, May 13, 2016

Colletral damage

"Flowers are restful to look at. They have neither emotions nor conflicts."
— Sigmund Freud (Austrian, 1956-1939)
Word for the day
Eldritch (adj)
Eerie; weird; spooky.
Malice towards none
In a country where even the statements of senior ministers are often brushed aside as "personal view", not the official stand of the party or the government, why a map published by some sundry publisher should be a matter of "national interest" or "sedition".
First random thought this morning
In one of the popular David Dhawan flicks, the heroine initially falls for the bad guy. She would not listen to any sane advice, not even her father. It was only towards the climax that she realizes her mistake. All ends well but not before a great deal of drama is enacted. There is no suspense. All viewer could exactly anticipate the endgame; and there are no surprises in the end.
The traders in Indian equities are much like the front row audience of that movie. They are clapping and whistling at the good, enjoying the rhetoric of the bad, showing no nervousness of anxiety - anticipating that all is inevitably gonna end well.
But what if this script has some twist in the tail?

Colletral damage

Continuing from Tuesday (see here).
In my view, the bigger ecommerce story is unfolding in B to B segment. This story is likely to grow much bigger in the times to come.
Unlike the mostly half baked and over-enthusiastic ideas in the B to C space, the enterprises in this space are founded on strong ideas based on innovation and commercial viability. Intellectual property is a key valuation element in this segment and forms a major entry barrier.
Unfortunately, I do not find any investing opportunity in this segment where a small investor like me could fit in.
I was perhaps little early in anticipating the colossal damage that would eventually be caused as we approach the day of judgment in the whole ecommerce mania. Like a stupid who reaches the venue of an Indian wedding well in time, I have been subjected to uncharitable adjectives and ridicule. But being a veteran of NBFC mania of mid 1990s, Dotcom bubble of late 1990s and cheap credit fueled bubble in reality and infra space in mid 2000s, I still prefer to be early than being late.
Undoubtedly, this time the direct exposure of household investors to this mania is not significant. To this extent one could argue that bursting of this bubble may not hit financial markets with same intensity as the previous ones.
I am really not sure about this at this point in time. But, I certainly see huge collateral damage whenever this bubble bursts. For example, consider the following:
(a)   The sector has emerged as one of the largest provider of incremental employment, particularly to semi-skilled youth. A burst in this bubble will leave many of them unemployed; with little chance of alternative employment. Most of these are contract laborers with no social security, little savings, relatively higher personal expense level and high aspirations.
       The pain will be much higher as compared to burst of first dotcom bubble where the unemployed were mostly middle class skilled people and employable elsewhere.
(b)   Though the business model is equity based, many of these companies might have working capital and equipment loans from banks with little or no realizable value.
(c)    The stability and growth in commercial real estate space in past couple of years is mostly driven by ecommerce ventures. The burst will surely hurt the sector, and consequently the lenders too.
(d)   Fancy salaries and perks in the sector might be driving a part of sales of luxury housing, big cars and other premium articles. Expect a material slowdown there.

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