💎 When Giants Move (7 November 2021)


The earth shakes when giants move. And yet, no one has more to lose than the giants themselves. Staying big isn’t easy. This week, let’s look at these giants as they navigate changes. Before we read on, which listed company in the world has the highest stock price per share? Scroll to the end to find out.

Debate has arisen about a recent Goldman Sachs report that questions whether China’s heavy weight in the MSCI Emerging Market (EM) index justifies breaking the world’s 2nd biggest economy out of that category and creating a separate “EM ex-China” index.

Current standings

China’s share in the MSCI emerging market index has doubled over the past five years and could rise further from the current one-third to well above 40% over the next 5 years. No other country has ever occupied such a huge allocation in the EM index.

The case for EM ex-China

- More balanced, and less risky — top 3 markets Taiwan, India and Korea make up 20% each, and are quite liquid markets too
- Relative to the current index, it has different macro exposures in terms of the negative correlation with US interest rates or positive sensitivity to commodities
- Sectorally, tech hardware and semiconductor accounts for 24% in EM ex-China but only 5% in MSCI China

Our take

Such a change will impact over USD 10 trillion worth of assets benchmarked to various MSCI indices, hence the shift might not be an easy one. Having said that – the shift would also draw global fund managers’ attention towards India. Watch this space!

Halloween marks the start of the heavy festive season, not just in the US but globally too. This year, it was anticipated to be a more exciting affair because people want to celebrate again post the pandemic, fueled by availability of vaccinations and fewer restrictions on movement.

The halloween fever

Consumers are expected to spend USD 10 billion on Halloween festive time this year, up from USD 8.05 billion in 2020 and almost triple since the past 15 years. Also, an estimated 65% of Americans plan to celebrate, up from 58% last year.

Sounds scary

- Shortages of truck drivers, container scarcity, natural disasters delaying the deliveries
- Increasing raw material prices and labor wages making the products costlier
- Quickly changing trends makes it difficult to predict which merchandise would be more popular

Our take

Supply crunches right at the beginning of the holiday season calls for action. Corporates need to analyze data better and predict the trends more accurately. On government spending, doles have been the recent focus but as with the new US infra act, it's time to upgrade ports, expand freight rail capacity, increase warehouse storage and improve highways to reduce travel times.

2021 has so far proved to be a good year for tech startups with big names like Zomato, Nykaa, and now Paytm, Policybazaar, Finopay, debuting in the Indian markets and already making a mark. The proposed Rs.18,300 crore IPO of Paytm parent, One97 Communications, will place it in the category of India’s 50 most valuable companies.

More in the making

According to a report, more than USD 60 billion was invested in India’s internet sector in the past 5 years – around USD 12 billion of that in 2020 alone. India currently has 42 unicorns, 45 soonicorns and at least 50 digital technology companies are expected to get listed in the next few years.

What has changed?

- Public markets have become deep pocketed to invest in these highly valued startups with slim or non existent profits
- Investors, especially the Robinhood and Reddit age, are more clued-in into tech and understand the scope of exponential growth
- Regulations for startups to get listed, have eased especially through Innovator Growth Platform (IGP)

Our take

Indian regulators have drawn inspiration from foreign counterparts to encourage tech startups to opt for domestic exchanges. Indian tech startups also need to learn from global counterparts on how to deal with public scrutiny and yet retain the spirit of innovation. How they deal with this balance will decide if the party continues for them.

By the way, the costliest stock in the world is Berkshire Hathaway, currently at a price of USD 4,33,102. It has grown 6 times in the past 20 years while S&P 500 has multiplied 4 times in the same period.

Let’s think bigger this week!