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India's potential Multibagger Tech stocks #AtomstoBitsFramework - YouTube
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Hi, everyone.
Welcome to today's video.
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So on today's video,
we are going to understand why our big
[9]
investors so bullish about
Indian tech industry.
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Right now.
There is a specific report that has come
[16]
out by motilal oswal financial
services led by Mr.
[19]
raamdeo agrawal.
[21]
He has spoken about that India is going
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to see a massive growth
in its tech landscape.
[26]
And that is where wealth
creators are going to come up.
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So through this video,
we are going to understand whether it
[32]
makes sense to invest in Indian
tech companies right now.
[36]
If yes, what type of companies should be
[39]
picked and what are some of the key
things that we should remember?
[42]
So I have structured this
video into four parts.
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One is that I am going to help
you understand more about Mr.
[48]
raamdeo agrawal investment philosophy
[50]
because he has led this
wealth creation report.
[52]
Second, we are going to understand what
[54]
has been covered by this
wealth creation report.
[56]
And why is Mr.
raamdeo agrawal
[58]
and motilal oswal Financial Services is
so bullish about Indian tech industry.
[64]
And finally, I will leave you with a very
[66]
good investment strategy across
different Indian tech companies.
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How you should do it?
Please watch the video till the very end.
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Make notes.
It's going to be a really important video
[76]
in case you are betting
on Indian tech industry.
[78]
So the first key argument in terms
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of investing in the Indian tech
landscape is fairly simple.
[84]
And according to Mr.
[85]
raamdeo agrawal, there is a value migration
that is happening to Indian tech industry.
[90]
Mr.
[91]
raamdeo agrawal gives out
really interesting frameworks.
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So I will quickly encapsulate
two specific frameworks for you.
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In case you're not interested,
you can skip this section.
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Move on to the next section.
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But super important,
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super interesting aspects that can
help you analyze other businesses.
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Also.
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So the first key framework he speaks
about is the value migration frameworks.
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What does it simply mean?
It simply means that there are certain
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industries, certain types of companies
which lose value in a changing economy.
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And then there are certain set of
companies or industries that gain value.
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So let us understand that by using a very
simple example about banks that Mr.
[126]
raamdeo agrawal frequently uses.
[128]
So in the 90s, the PSU banks in India were
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very prominent and there was a lot
of value that was there with PSU banks.
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Unfortunately, they were
not performing really well.
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Time for an SBI joke.
I'll leave it.
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I'll not make an SBI joke today.
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Basically, we are all smart enough
to understand that there was a lot of bad
[146]
stuff that was happening with PSU banks
and therefore the value migrated from PSU
[151]
banks to private sector
banks starting from mid 90s.
[155]
And that is when HDFC bank,
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ICICI Bank Cottage Bank took away
a lot of market share from PSU banks.
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So the value migration happened
from PSU banks to private banks.
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Now something similar is happening
in the economy right now.
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That a lot of value migration is
happening from Atom to bits right now.
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This is a framework that Mr.
[174]
raamdeo agrawal has suggested and he
calls it Atom to bits framework.
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So Atom companies, in simple words,
mean infrastructure driven companies.
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For example, if you talk about HUL now
[184]
what is HUL is basically would be
a collection of a bunch of factories.
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They will be producing a lot of shampoo,
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soaps, hair, oil,
and they will be selling it.
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So it's a pure physical place.
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So to say yes, even a company like HUL
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will have a digital part to it,
which I have explained subsequently.
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But to cut the long story short,
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these are called as atom companies,
which are very infrastructure driven.
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On the flip side, you have
companies like Info Edge.
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You have companies like Infosys.
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You have companies like TCS which are
bigs, which are pure digital companies.
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A classic example of this will be
Microsoft, for example, Microsoft.
[219]
What is the major power if you
calculate the market cap of Microsoft?
[223]
That market cap does not come from how
many offices Microsoft has built.
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It mostly comes from intellectual
property, which is not a tangible asset.
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So these are called as
Bits type of companies.
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And according to the value
migration framework of Mr.
[236]
raamdeo agrawal,
the value is getting transferred from Atom
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type of companies to Bits
type of companies.
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This is part A, part B.
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Even in Atom type of companies,
there are certain companies.
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For example,
if you take a look at something like Asian
[250]
paints or HUL, they have
access to a lot of data.
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They do a lot of customers study by using
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that data, analyzing that data,
they optimize their value chain their
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distribution network by using
what by using digital data.
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So to an extent,
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these companies like Asian Paints,
HUL Nestle,
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they are very good at optimizing their
processes by using digital play.
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So there are certain elements of bits.
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Even in these atom companies.
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Now you don't need to understand the exact
difference between atom and bits.
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I'm just setting the context because this
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is the wealth creation study which was
done by Motilal oswal Financial Services.
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And we have talked a lot
about atoms and bits.
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I will link this study
in the description box.
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Also, I have created
some of the small cases.
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You can take a look at it.
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Those are excellent small cases
because the markets are falling.
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There is a great buying
opportunities in these small cases.
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Okay, so let's continue our discussion.
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This is the first key framework which Mr.
[304]
raamdeo agrawal quite
extensively speaks about.
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Second, he speaks about
a framework called as QGLP.
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I will be brief in terms of explaining it.
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QGLP is an internal buying framework.
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It simply means Q stands for quality.
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G stands for growth,
L stands for longevity.
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P stands for price.
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So if you are getting a great
company at a great price, buy it.
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So that is what QGLP simply means.
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I had made a separate video on that.
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You can watch it separately.
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But again, this is Mr.
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raamdeo agrawal framework.
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Therefore, I'm bringing it up.
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So for the purpose of our discussion
today, we will limit our conversation
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to atoms to Bits framework, which is
an advanced value migration framework.
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And we will study Indian tech
companies in that context.
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Now, here are some of the key highlights
from this built creation study.
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It's very important for us to understand
this history because if we understand
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these concepts well,
we can try to replicate it and generate
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massive returns going
forward in the future.
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This is the first chart that you need
to take a look at,
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and it categorically points out
to the fastest wealth creators,
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the most consistent wealth creators,
the biggest wealth creators.
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So here you have companies like Reliance,
Hindustan Unilever, Baja's Finance.
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They have been consistent wealth creators.
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Now, one point about Reliance because you
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might get misguided by looking
at the study that between the period 2008
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to 2018, Reliance did not give any
returns literally very less return.
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It started going up from 2018 onwards.
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So there was a big dormant phase
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for Reliance, and this study has
been done from 2016 to 2021.
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Right.
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So please see Reliance in that context,
keeping that information at play.
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All these companies that are listed
on this chart are excellent companies,
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and this allows us to understand how
historically India has grown in the last
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five years and which companies
have given the most return.
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Now this is chart number two,
and this is very fascinating.
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It simply says that in the last five
years, most wealth has been added.
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Almost 71 trillion INR rupees of wealth
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has been added to Indian
companies or in Indian stocks.
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Now, this is a massive number and you
can derive a lot of information from it.
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For example, you can clearly ascribe
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to the fact that Rs71
trillion have been added.
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So India is becoming a destination where
a lot of money is flowing into India.
[435]
So this is a good news
for stock investors in India.
[438]
Second, you can look at this data
from the point of view that a lot of money
[443]
printing has happened, so probably
assets got inflated because of that.
[446]
Now, no further information
has been given.
[449]
So we can't say that which of the reasons
[451]
is here, but it's a combination
of both these things.
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But what is most important about this
historic context is fairly simple
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that India is a destination
for investors is growing.
[461]
I often talk about India is rather
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witnessing a Bull run
during the last two months.
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So it's a good time to be
an investor in India.
[467]
And going forward, the story looks very
optimistic from India's point of view.
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So let's start analyzing
the future a little bit as well.
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And here is an excellent quote that was
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given on this report and it simply says
that whatever can be digital will become
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digital and that I agree
with 100% that almost everything.
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Even if you look around,
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even local fruit wala or sabji wala
are accepting payTM and UPI payments.
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So even they are trying to go
digital to a certain extent.
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So whatever can become
digital will become digital.
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There is absolutely no doubt about that.
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But a more important point we need
to understand is, why will that happen?
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Because the more digital you go,
the more profit margins improve.
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For example,
if you take a look at the profit margins
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for companies like Microsoft, Facebook,
Google, Apple, the margins are insane
[514]
because they are selling a lot
of digital intellectual property.
[518]
For example, Microsoft,
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when it sells a piece of code or
a particular software, the marginal cost.
[523]
So marginal cost simply means the amount
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of money required to produce
that one unit of software.
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Right?
[530]
So to create one more copy
of Microsoft Excel or Microsoft Word,
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Microsoft does not have to spend
almost any money on it.
[537]
So the marginal cost is zero
for a company like Microsoft.
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And given that these tech companies have
[543]
such high profit margins,
almost all companies,
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even Atom companies are trying to digitize
everything that they can digitize.
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So everything is becoming digital.
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There is absolutely no doubt about that.
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Now, here's a very good framework that Mr.
[556]
raamdeo agrawal has suggested,
and this is a list of key trades or key
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attributes which are good
bits company should exhibit.
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For example, the market size
should be large enough.
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The problem that they are solving should
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be big enough for them
to enter and make money in it.
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Similarly, it should exhibit
some kind of network effect.
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It should have a good distribution
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and a bunch of different factors that,
yes, outline you can go through this list.
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The report also explains
a bunch of different formats.
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For example, what type of Bits business
or digital businesses are there?
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For example, there are portal plays,
there are platform plays,
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there are subscription or
feedback services that exhibit.
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So you can read all these examples.
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I'm not going into the description
of each of these services.
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All of us can easily understand
it by looking at these examples.
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So fairly easy for us to understand
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that a lot of different types
of digital businesses are coming up.
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So all these different types of digital
businesses are coming up in India.
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Now comes the question that hey,
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can these type of businesses
survive in a country like India?
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A great example would be to take a look at
how these businesses have done in the US.
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So here is a comparison between Bits
and Atoms type of companies in the US,
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what their growth rate has
been in the last one decade.
[625]
And you can clearly see that companies
like Facebook, Amazon, Netflix, Google,
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Fang companies, they have generated so
much return compared to Atom type
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of companies which are Coca Cola,
Walmart, Axxon Mobile, etcetera.
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What is the key takeaway?
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The key takeaway is that here in the US,
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the trend is very clear that if you want
to grow your money, go and invest in tech.
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People who have invested in tech
[648]
in the last one decade have become really
rich and people who have invested in atom
[653]
type of companies their
wealth has hardly grown.
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So would that same scenario play
out in a country like India?
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That is what we need to debate and a great
way to look at it is to look at some
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of the recent listing of companies
that have taken place.
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And what type of financial
history do these companies have?
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So here is a list of major companies
that got listed in India recently.
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This would be nykaa , this would be Zomato,
this would be Nazira Technologies.
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This would be
India Mart Nazara Technologies.
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So all these companies have been listed.
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So should you go and invest
in all these companies?
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I will answer this question towards
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the end, but the short answer is that it
depends on what type of an investor you
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are and how you are looking at these
technology companies and what type
[694]
of stories you are believing in about
these companies because as you can see,
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majority of these companies are currently
lossmaking companies and you can actually
[702]
get hit really badly if
you go and invest in it.
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So, for example, let us quickly understand
it by using the example of Zomato.
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Here are some of the major numbers
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associated with Zomato that has
been represented in the report.
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For example, it is said that Zomato has
[717]
a big opportunity ahead because India is
a growing nation and the Internet
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penetration compared to the US
or China is not still very high.
[725]
People are not ordering that much
[726]
from restaurants as of now and this
number is only going to pick up.
[730]
And I agree, no doubt about that.
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Second thing that has been shown is
the unit economics. Unit economics simply
[736]
means that if Zomato is selling one unit
of its product, are they making a profit?
[740]
Are they making a loss? How
much profit? How much loss?
[743]
So right now the average order
value in 2021 from Zomato is RS400.
[748]
They are charging a Commission from 15%.
[750]
They have been successfully able to grow
their revenues from restaurants and their
[754]
contribution per order
comes out to be Rs19.
[756]
So it's unit economics
has been turned positive.
[759]
So does that mean that you
should go and buy zomato?
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That's a question that you need to ask
yourself because a positive story has been
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presented, but you need to do a much more
detailed due diligence on such companies.
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I'm just using Zomato as an example.
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For example, in this growth story that has
[774]
been outlined, you need to consider
the fact that what rate the Internet
[778]
penetration will go up
in a country like India?
[781]
That's 1 second,
it has been assumed in the story
[784]
that a large chunk of people will continue
to order food outside their home
[788]
for example, US rates have
been quoted now in the US.
[792]
If you actually go and stay there
for a little bit, you yourself will see
[796]
that a large chunk of people in New York,
they will have their morning coffee also
[799]
from Starbucks, they will grab their
breakfast on their way to work.
[804]
That culture is not there in India yet.
Will it happen?
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I don't know.
But that is the story that right now
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everyone is believing in when they are
investing in Zomato,
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that same culture will get
implemented in a country like India.
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Another key aspect that we miss
is the aspect of competition.
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For example, companies like Zomato or
[821]
companies like payTM, they are
facing stiff competition.
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It is usually assumed that in digital
businesses that whenever a company attains
[829]
a scale, for example, Microsoft, Microsoft
is an intellectual property monopoly.
[834]
For example,
[835]
if you are using Microsoft Word, there is
just one thing like Microsoft Word.
[839]
There is no second company even touching
[841]
close to Microsoft Word
or Microsoft Excel.
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It's a monopoly.
[845]
It's an IP monopoly intellectual property
monopoly that is not replicable
[849]
for a company like Zomato because it has
very close competitor in the form
[852]
of Swiggy and payTM is still pivoting and
trying to discover its business model.
[857]
We don't know who exactly
is it competing with.
[859]
So this brings me to the final
section of the video.
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That what are my thought processes
[864]
and investment advice for you in case you
are looking to invest in Indian companies.
[868]
Number one, I am personally taking more
bets on the next Google, next, Amazon,
[873]
next Facebook, and those companies
are by default in the US right now.
[877]
So I'm taking more
of my technology in the US.
[880]
Second, am I bullish
about Indian tech sector?
[883]
Yes, because I do feel that businesses
are going to get digitized.
[886]
As stated in motilal oswal financial
[888]
Services report also,
but there is a small caveat, right?
[892]
And this is something that Mr.
[893]
raamdeo agrawal has also said only
[896]
a handful of these companies
are going to survive.
[898]
Now, the important point for me as
an investor is that since I don't know
[902]
what PayTM is exactly doing,
I don't know to what extent at what pace
[907]
Zomato is going to grow because every
time they miss their borderline earnings.
[911]
For example, even if Zomato revenues stay
positive, if their growth rate slows down
[916]
for whatever reasons,
then their share prices will fall.
[919]
And I genuinely feel that there will be
[921]
many such connections that will
happen along the way.
[923]
And those would be the buying
opportunities in these type of companies.
[927]
So two final thoughts.
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One is that if I'm using my brain and if
[931]
I'm trying to pick stocks in Indian tech,
it will be very difficult for me because I
[935]
don't know that which of these companies
will be clear winners between Zomato,
[940]
Swiggy, which one will win,
which one will not win?
[942]
I don't know.
[943]
Similarly, what is PayTM trying to do I
[946]
don't know to what extent it's
business model will keep on pivoting.
[949]
There is absolutely no idea.
[951]
Even market has that.
[952]
To what extent PayTM will continue to pivot.
[954]
So there are two investment
strategies that I can use.
[957]
One is that I can use my brain and try
to become a very intelligent,
[960]
smart investor who will be
great at picking companies.
[962]
But honestly, even the management of these
[964]
companies are not super clear
about the business model.
[966]
As of now.
[967]
For example, it is said that for Zomato
grocery store will become really big.
[971]
That model has not become extensive.
[973]
So there is no point in me
using my brain here too much.
[976]
What I would do and I would advise
here is to do punter investing right?
[979]
So punter investing simply means that,
[981]
for example, if you have to invest one
lakh in your tech stocks in India,
[985]
go and split it in these recently
listed ten companies equal amount.
[989]
Some of them will win.
[990]
Most of them will lose your 10,000.
[992]
That are winners out of one lakh.
[994]
Let's say nine companies closed down,
[995]
but one company survives that one
company is going to give you 20X gain
[999]
so your one lakh still becomes
two lakhs from that perspective.
[1003]
So this is pretty much breathless
[1005]
investing, in my opinion,
in a market which is driven by stories.
[1009]
I'm being honest with you, this is
the most sensible way of investing.
[1013]
That is what I am following.
[1014]
This is not an investment advice.
[1016]
I'm just telling you that this is
something that I could consider doing
[1019]
given the current landscape
of Indian tech investments.
[1022]
Thank you so much.
[1023]
I hope you enjoyed the video
and I will see you the next time.
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