Thursday, July 27, 2017

In search of Ideas - 3

"History is mostly guessing; the rest is prejudice."
—Will Durant (American, 1885-1981)
Word for the day
Highfalutin (adj)
Pompous; bombastic; haughty; pretentious.
Malice towards none
Bankelal from Bharatpur, Rajasthan:
"Maharana Pratap defeated Akbar."
Rajesh from Agra, UP (45miles from Bharatpur):
"My history book says Maharana Pratap fought valiantly but lost to Akbar."
Bankelal: "I hate you, you are a traitor. Go to Pakistan."
Rajesh: "You bloody, Sanghi, go to hell".
First random thought this morning
I do not have any data to support this thought, but my hunch is that in past 10years or so, the weather pattern in Thar dessert has changed materially. The area has received much higher than average rains, frequent floods, and cooler winters.
I do not know if authorities have taken note of it and planned to take advantage of this change in weather pattern, for example, by way of creating water bodies to store rain water, planting shrubs etc. that will help recharging ground water. Also is someone studying the impact of oil field that started production in that area almost a decade back!

In search of Ideas - 3

As I mentioned yesterday, my buzzword for Indian businesses is "Re".
While I set out on journey to discover ideas that fit in my theme, I would like to leave the readers with the following thoughts:
Re-skilling: In view of the technological changes in global markets, many of the traditional Indian businesses, especially technology services businesses, are finding a material part of their workforce being rendered unsuitable to the new skill set requirements.
Similarly, the regulatory changes like GST, RERA, would also leave many workers unsuitable for work. The accountants and clerks in their 40s and 50s who have managed to work without computers, may need to be re-skilled to work in the changed environment. The estate agents who provided services for sale, purchase and renting of properties may need to pass qualify examination for registering with the regulatory authority.
In my view, the positive investment idea here would be to invest directly in small businesses and start ups which would undertake the onerous task of re-skilling the Indian workforce. Whereas the negative idea would be immediately exit the ITeS vendors who may find it tough to bear the cost of re-skilling their workforce.
Re-locating: The changes like Brexit, stricter H1B and L1 Visa regime and GST may make it necessary/advantageous for companies to relocate their businesses. Especially in Indian context, many industrial units and trading companies that were set to only take advantage of tax arbitrage, may relocate in next 5-7years to more advantageous locations, e.g., near ports or central India. The real estate in these areas and logistic companies that will enable this re-location exercise may worth investing in my view.
Re-structuring & re-organizing: Restructuring of balance sheets and businesses, is already a popular investment theme. Business with stressed but manageable balance sheet; businesses with loads of "non-core assets" which were acquired in the credit frenzy of the previous cycle; and financial services companies which have been struggling with poor asset quality would make a good investment theme.
I shall be looking for (i) stronger balance sheets which will be out in the market with shopping bags to lap up the distressed assets; (ii) stressed companies with good quality assets which could be off loaded to repair the balance sheet, provided the P&L is already looking decent; (iii) financials where P&L is looking good, stressed asset are manageable, capital adequacy is decent and valuation is reasonable.
Re-orienting: The businesses that re-orient fast to be in synch with the new regulatory framework (GST, RERA in particular) and the companies that will be forced to raise compliance level to fall in synch may get favorable response from investors and get rerated. Some sin industries, contractors and real estate businesses will form this universe.

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