Investment Outlook , Published Feb 17, 2019
Founder and Managing Partner at Equanimity Investments.
India has the possibility of being home to a host of Unicorns.
Thanks to SEBI for introducing Alternative Investments Funds, of which Category 1 allows Indian investors an access to future ‘Disruptors’. Disruptors like Paytm, Flipkart, Ola, Oyo Rooms, Zomato, Swiggy, BigBasket could now be part of investor portfolios.
Whether we like it or not, the world we live in is a divided one. The most significant divide is the Social Divide between the haves and have-nots. The 2018 Global Wealth Report by Credit Suisse states that the wealthiest 10% of Indians own 77.4% of the country’s wealth of which the richest 1% own 51.5%. The Gini coefficient used to describe this wealth inequality puts India among other nations at a very high level of 85.4%.
In a world with ever-changing dynamics, there is a new divide that has emerged, one that has the potential to impact each one of us in our everyday lives, in our businesses, our relationships, and in our efforts to ensure we remain on the right side of the Social Divide. Dear reader: please meet the Technology Divide. This is a divide between those individuals, corporates and organisations that ‘get’ technology, embrace it and integrate it into their way of life and those that are unable or unwilling to do so or are simply unaware of technology’s influence and significance. This is the core distinction between the Disruptors and the Disrupted. Through this article, we would like to highlight how the use of technology can be benecial for our investments and our portfolios.
As an investor, it is extremely critical to align our portfolio so that it benefits from the swift but certain prevalence of technology and its impact on our holdings. It is essential to be cognizant of this distinction as it will have a significant impact on the portfolio returns.
This is where Indian investors get a raw deal. If we were a US investor, we could add the Disruptors to our portfolio as most of them are listed – Amazon, Google, Facebook, Netflix, Apple to name a few leading names. Similarly, if we were born in China and invested in equities, we could buy Disruptors like Alibaba, Tencent, Baidu, Ant Financial, Xiaomi, DD Chuxing, and JD.com to name some.
As an Indian investor, we are at a disadvantage as the Disruptors are not listed. The likes of Paytm, Flipkart (now Walmart owned), Ola, Oyo Rooms, Zomato, Swiggy, BigBasket, Policy Bazaar, and Byju’s are household names that we may be a customer of but have no way to get a slice of ownership. Even as these Disruptors prepare to get listed on the stock exchange, chances are they will list offshore, given the many considerations nudging them in that direction.
The only way to own these companies in our portfolio is if we catch them young before they become household names. SEBI issued certain regulations in 2012 that gave birth to a new species of funds, Alternative Investment Funds (AIF), of which Category 1 AIFs can invest in these kinds of opportunities pretty early and provide investors access to future Disruptors. It is no surprise that AIF Category 1 assets have mushroomed in the last few years as this becomes a core part of investor portfolios.
At Equanimity, we continue to remain optimistic about the investment and return potential of the early stage ecosystem. India has the possibility of being home to a host of Unicorns given the plethora of opportunities that can be capitalised on, in a cost-efficient and sustainable manner, addressing the needs and aspirations of consumers and businesses.
Does your portfolio have an allocation for these Disruptors and Unicorns?
Investment Outlook 2019