Technology fuelling the Growth in a Global Economy€¦ · Technology fuelling the Growth in a Global Economy Q3, 2017 Strategic. Global. Simple. The BSE and Nifty Indices keep going

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Technology fuelling the Growth in a Global

Economy

Q3, 2017

Strategic. Global. Simple.

The BSE and Nifty Indices keep going up even as pain

of the Demonetization and GST not going off. On the

Global stage, North Korea, Iran, China and Pakistan

keep the 24/7 news channels busy with sensational

news of war and, on top of that, Donald Trump keeps

Tweeting by keeping every one guessing as to what

has happened to the leadership role in the United

States of America. Retail clients all over the world are

waiting for the corrections in the stock markets. Every

day, we hear from people that it is the best time to

book profits and get out of stock markets. In the

normal course this was would have been a correct

assumption, unfortunately or fortunately today we are

living in a very different time due to major structural

changes are happening all over the world. So, what is

happening and what is the future of the financial

markets? In this newsletter we shall discuss the same.

On the global stage today, Internet and mobile

technology is more powerful than the President of the

United States of America or for that matter any

Government in the world. Today you cannot win a war

just by throwing a bomb. You must win the media and

technology war. So, the market knows that neither

North Korea, China or the United States will engage in

any conventional war. Secondly Companies like

Amazon, Microsoft, Apple and Facebook have become

more powerful than any government in the world.

Their technology and policies are more powerful and

influential.

Just imagine for a moment that the employees of your

local corporation or state government go on strike for

a week. You will notice that it hardly makes any impact

on your daily routine except for a little inconvenience

here and there. Now imagine that Google, Apple,

Microsoft, Facebook, the Internet and WhatsApp shut

down their services for a week. We strongly believe

that it will have more impact on your life than a

nuclear war, and stock markets would correct over

50% in just over two days. Business will come to

standstill all over the world. In short, what we are

saying is that technology today has become more

powerful than any other force on the earth.

Businesses and companies that are embracing the

technology are growing at a phenomenal pace and

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Economy

Q3, 2017


that’s why stock prices of these companies keep going

up. Traditional small businesses are suffering and

those who keep resisting change and ignore the new

way of doing business are getting bankrupt or keep

losing the market share at a fast space.

The Indian Economy is also going through a major

structural change. The Government of India is using

technology to reduce corruption and the black

economy. For last 50 years Indian people got used to

doing business in cash and in fact encouraged

corruption for personal gains. That became second

nature and those who did business only by banking

transactions were always losers as the incidence of

local taxes was very high. No one believes that

corruption will ever disappear from Indian Society.

The shadow or black economy did not allow India to

grow or build businesses of scale. Small business

flourished, and large businesses went bankrupt as

they had to pay more taxes. All that changed with

Demonetization, implantation of Aadhaar and GST. It

has caught all the small businesses by surprise. As we

all know, the most awkward thing for any human being

is to change. We will explain what is changing and how

it will impact us by way of a simple example.

Let’s assume that a 45-year-old person named Raj who

weighs about 85 kilos wants to go on a Mount Everest

Expedition. What is the probability of him achieving

that goal? The common-sense answer is “Less than

2%.” Now Raj goes for expert advice and he is told that

the first and basic step would be to reduce his weight

to a maximum of 60 kilos, even if he wants to climb

half of Mount Everest. To reduce his weight from 85

kilos to 60 kilos, Raj must make structural changes to

his life style. He must change the way he thinks, his

diet, exercise more, sleep for a minimum of 8 hours,

and prioritize his daily routine. This structural change

is very painful. He has to cut his spending on junk food

which is not easy for anyone. Now let’s replace Raj

with the Indian Economy. The Indian Economy has an

opportunity to go from a 2 trillion-dollar economy to

10 or 12 trillion-dollar economy in next 20-25 years.

Can it do this without changing the habits of its

citizens?

Just like Raj had to replace junk food with healthy

foods, the Indian population or citizens must replace

their old habits with new habits. So, what are the junk

processes in the Indian economy?

1) Cash Transactions: 60 percent of transactions

in India are done through cash. The cost of printing




Economy

Q3, 2017


and managing currency notes is 15% to the

government and the cash rotates only 4 times in a year

as against 10-12 times digital transaction turnover

which cost nothing. Cash transactions to the Indian

Economy is just like eating a cheese burger every day

for lunch - very unhealthy. Citizens should realize that

they are going to leave a very bad economy or country

for their grandkids or the next few generations.

2) The practice of hiring agents and middle men

for all kinds of work. In India people have agents for

everything, right from getting railway bookings, visas,

driver’s licenses, school and college admissions, and

birth, marriage and death certificates. Getting the

work accomplished through middle men encourages

corruption and slows down the economy.

3) The attitude towards paying taxes and doing

the business right way. If paying taxes is bad then why

are we sending our children to countries such as the

USA, Sweden, Netherlands, England, Canada, and

Australia, where direct and indirect taxes together are

more than 50% of the person’s income. If tax paying is

bad, then we should send our children to countries like

Afghanistan, Sudan, Yemen, and Pakistan, where

direct and indirect taxes are less than 10% of the

person’s income.

4) The access to education. Education is a major

factor in determining just how well the country's

economy will do. According to OECD report, providing

every child with access to education and the skills

needed to participate fully in society would boost GDP

by an average 28% per year in lower-income countries

and 16% per year in high-income countries for the

next 80 years

5) The attitude towards cleanliness, following the

laws and respecting public assets. We’re sure you

know what we are referring to here.


http://www.oecd.org/edu/universal-basic-skills-9789264234833-en.htm



Economy

Q3, 2017


As older people save more, it has a dual impact on the

markets. Long term interest rates go down and more

money comes to equity markets. This trend is going to

accelerate more going forward.

Technological advances and the ease of moving

money globally has changed in the last ten years.

The financial world has drastically changed due to

technological advances and internet. Today, money

can be moved from one country to another while

sitting at home. As a result, more investors are

investing today globally than putting all their money in

just the local market. As India is in a sweet spot of

development with positive demographics, more

money is moving to India. Secondly, investing in stock

markets and mutual funds is much easier and more

transparent as compared to any other investment

class. Even the cost of getting in and out is much lower

as compared to investments in real estate, gold and

bank deposits. The government also prefers more

investments in the capital market than land, gold or

bank deposits. The higher cost of land makes the cost

of doing business expensive in a country. Investing in

gold does not add any value to the economy, and

higher interest rates on bank deposits lowers the

profitability of banks and increases the cost of the

products.

Positive factors impacting investments in India:

Changes in Geopolitical Equations:

With China, Russia, Pakistan and other Middle Eastern

countries taking an aggressive posture, the United

States, Europe, Japan, Australia and Israel are turning

friendlier towards India. None of these developed

western countries feel comfortable sharing their

critical technical know-how with China. As a result,

more joint venture projects and defence related FDI

have started coming to India. The United States has

finally realized that India is a more natural ally to them

than Pakistan or China. India will see a sustained flow

of investments coming for the next two decades and

will be one of the major geopolitical players in Asia.

Rise of Brand India:

Indian professionals who migrated to United States

have created a favourable image of India as a Brand.

More than 30% of physicians in United States are of




Economy

Q3, 2017


Indian Origin. Global corporations like Google,

Microsoft, PepsiCo, Adobe, VISA, and Mastercard all

have Indian CEOs. We will see many Indians at the top

in many fields, even though Indian represent only 1%

of the US population.

Indians are known for their analytical and software

skills. Indians have an advantage as they speak English,

and adept the American culture easily without losing

their personal identity. All the above has helped build

India as Brand in Western Countries. With Indian

CEO’s at the top, these foreign corporations want to

do business with India. Today, India is in the most

advantageous position if we consider the last 60 years.

Strong Leadership in India:

Prime Minister Narendra Modi is known as India's

"most popular leader" of recent times. The current

government brought tough reforms like

Demonetization to eradicate the Black Economy, and

revolutionized the Indian taxation system by

implementing GST. Other than these, there are many

other campaigns initiated and implemented by the

Government. These changes are like a Junk Food

craving. When one decides to go on a healthy diet, it

hurts in the short term but is advantageous for the

long term. The world leaders think of our PM as a very

good and strong leader who can lead this country to

great heights. They highly respect him and praise him

for his achievements.

Demographic changes in India & changes in the family

structure:

India is a young country. India’s demographic profile is

also favourable, with an expected increase in the

working-age population for the next three decades.

There have been changes in the mix of population, the

marriageable age, in the caste system, the education

of girls, and the family structure going from joint

families to global families. All this has affected

behaviour patterns. Indian household savings &

investment patterns have seen a change with more

awareness, a dual family income, changes in lifestyle,

and a changing consumption model.

Urbanization & technology adoption by rural India:

Urbanization is an integral part of economic growth. It

helps in ease of access to key services, such as

healthcare, education, and banking, . Intelligent

Urbanization is about leveraging the advancements in

communication technologies while developing the




Economy

Q3, 2017


blueprint of the urban spaces across the world to

make them more liveable. Technology is a key

investment that will determine the future of cities and

their infrastructure. Urbanization is an opportunity for

growth. Many reforms have been brought by the

government, from Jan-Dhan Yojana cutting

middleman, to direct benefits to the needy, to the use

of technology to help cut corruption, to making basic

facilities available to rural areas. These are the signs of

Economic Development. The Indian IT industry is the

back office of the world.

All of this is positive for India and, as a result, we see the structural long-term bull market of India intact. So, every Indian needs to have an appropriate exposure or allocation to equity. However, at the same time we do feel that certain events can bring a correction in the stock markets and one needs to be mindful while investing in equity. Below are some of the risks: Modi government focusing on Hindutva and diverting attention from development: Pushing the Hindutva agenda gives the opposition party an opportunity to divert the attention from development. This diverts the focus of the government from Development & Governance, affecting the pace at which the economy grows. The current government, therefore, must focus on bolstering infrastructure – both physical and financial – which is critical to realizing full growth potential. The political debate should be on development, and not on religion.

Geopolitical tensions: Retail Investors will hesitate to put money in the markets in anticipation of perceived geopolitical threats by Pakistan & North Korea. When two countries are at war with each other, attention of the government and public is diverted towards the war effort. Countries have a defence budget, but these are mainly to keep the men and machinery fit. Such tensions can give rise to Black Swan Events. A crucial point to note during war is that market and economic activity is not disturbed by short wars. There are temporary ups and downs. On May 3, 1999 BSE Sensex closed the day at 3378.4. The Market had no idea about the intrusion on this day. But by July 14, 1999 it closed at 4,710.25, a gain of 39 per cent, which was the year’s highest level. There was barely any noticeable correction during this period. While a single event is too small to extrapolate future events, the present events in Jammu and Kashmir also seem to be restricted to a small location. Pakistan does not have the economic strength to engage with India on a full-scale war. Oil Prices going up: Since India is an importer of oil, increasing crude oil prices affect India’s economic growth. The concern over crude oil prices stems from India’s energy import bill of around $150 billion, which is expected to reach $300 billion by 2030. India imports around 80% of its crude oil and 18% of its natural gas requirements. India imported 202 million tonnes of oil in 2015-16. It is popular to correlate changes in major factor prices, such as oil, and the performance of major stock market indexes. Conventional wisdom holds that an increase in oil prices will raise input costs for many




Economy

Q3, 2017


businesses and force consumers to spend more money on gasoline, thereby reducing the corporate earnings of other businesses. The opposite would be true when oil prices fall. Conclusion: As the structural changes or the macro changes favoring India, the outlook for equity markets looks very good for India. Any funds not need for next 3-5 years need to be parked in the equity markets by following a systematic process. Do not try to time the market or predict the market. Overanalyzing the market or the economy will not help. At a macro-level, technological advancements have become more powerful than Government policies, wars, etc. Politicians worldwide, including in India, are using technology and promoting innovation to run the administration and service the citizens, improve processes, control bureaucracy, make decisions processes transparent where ever possible. The GDP of USA grew at 3% in the last quarter. According to historic trends, the world GDP will grow at 4% in such bullish markets, and the emerging economy like India should give the better returns in the long run. In 2008-09 the Dow Jones corrected from 14,198 to 6,443 and is now back to 23,500 levels. As against this the BSE Index corrected from 21,078 to 8,000 and is now 33,314. A rise of over 400% from the bottom of 2008. It has been a journey with lots of emotions of pain, greed and fear. Those who stayed calm and focused on their jobs and kept their savings on a

regular basis without watch the Sensex volatility made the most money. That is the power of Simplicity.

Organizational Updates (last 6 months): 1. Simplicity Investing is glad to inform you that we

are now fully Operational in Pune, Aurangabad & Mumbai. NRI clients & clients from other cities in India, are served from our Pune office.

2. Visit our updated website, clients can now directly access their portfolios through the website.

3. With the NSE platform, the online portal for transactions, clients can transact through Simplicity from anywhere in the Globe.


http://www.investopedia.com/articles/fundamental/04/042804.asp

http://www.investopedia.com/articles/fundamental/04/042804.asp



Economy

Q3, 2017


4. We are Growing!! The Simplicity team has increased to 12 employees.

5. The client servicing team ratio has increased to 10 employees.

6. Our AUM has grown by 200% due to new business and returns on the existing portfolios

Thanks to all of our Clients for trusting us & valuing our advice.

For any queries on your Investments, please send email to [email protected] Simplicity Investing Advisors India Pvt. Ltd. 6, Bhosale Heights, 1195 FC Road,

Pune - 411005 Telephone: +91 20 60603145/46/47 Follow us on social media for our regular and unique updates on Financial Planning & Investment Advisor


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Technology fuelling the Growth in a Global Economy€¦ · Technology fuelling the Growth in a Global Economy Q3, 2017 Strategic. Global. Simple. The BSE and Nifty Indices keep going