Best Value For Your Money from RamaKrishnaVadlamudi: 2025

Sunday, 16 March 2025

Loss of First-mover Advantage

Loss of First-mover Advantage 16Mar2025

(This is for information purposes only. This should not be construed as a recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

There are no guarantees in markets and the corporate world. Only a handful of companies can withstand the onslaught of technology disruption. There are several instances where companies have lost their first-mover advantage:

Adam Osborne invented the first laptop computer, but failed ultimately to exploit it.

AltaVista search engine (launched by DEC in 1995) and Yahoo had lost ground to Google search engine in the end.

MySpace lost to Facebook in social media.

Most of you are familiar with how eBay lost to Amazon Inc in the e-commerce space. eBay could not withstand the Amazon's aggressive expansion. While eBay focused on sellers, Amazon did a paradigm shift with focus on ultimate buyers.

Last-mover advantage

In his 2014 book 'Zero to One: Notes on startups, or how to build the future,' Peter Thiel wrote: "Microsoft in 2002 and Nokia in 2006 released their tablets -- but they failed to click in the market because they were hard to use. But Apple released its iPad in 2010, with huge improvements in design and ease, and it became a big success. Apple enjoyed benefits as a lost mover."

Though started with a first-mover advantage in web browsers, Netscape Navigator (started in 1994) lost its dominance to Microsoft's Internet Explorer or IE. IE was bundled with Windows software resulting in the demise of Netscape Navigator (Microsoft's Internet Explorer, now Edge, itself losing later to Google Chrome, Apple Safari and Mozilla Firefox browsers is a different issue).

In the 1970s, Xerox PARC pioneered groundbreaking technologies, like, graphical user interface (GUI) but failed to commercialise them. Ultimately, Apple's Macintosh computers and Microsoft's Windows reaped the benefits of Xerox's GUI technology.

If you want to know more about Xerox PARC's GUI technology, you need to read a book titled 'Steve Jobs,' in which Walter Isaacson vividly describes Jobs' efforts to use GUI, while Xerox looked the other way.

Japan's Nintendo was an undisputed leader in the video game console market in the 1980s and early 1990s. But with the entry of Sony's PlayStation in 1994, it lost its dominance. PlayStation and Microsoft's Xbox are now the leaders.

Even though Kodak introduced the first digital camera in 1975, it failed to capitalise on its first-mover advantage by ceding ground to rivals Nikon and Canon first and to smartphones later. Kodak filed for bankruptcy in 2012.

Though a first-mover, Dunzo lost to Blinkit and Zepto in India's fast-chaing 10-minute grocery delivery.

Nissan Leaf, launched in 2010, was a pioneer in mass-market electric cars. But in the next five to 10 years, it had lost its first-mover advantage due to competition from Tesla and Chinese carmakers like BYD and others.

Nokia was a leader in mobile phones in the 1990s and early 2000s. It failed to adapt itself to smartphone revolution, resulting in loss of its first-mover advantage to Apple's iPhones and Samsung Android phones. Nokia's Symbian OS failed to upgrade to smartphone technology.

Launched in 1999, BlackBerry was a gamechanger -- it combined emails and wireless communication. BlackBerry was earlier known as Research in Motion or RIM. By late 2000s, it lost its first-mover advantage to Apple's iPhone and other smartphones.

Will DeepSeek dethrone the first-mover OpenAI's ChatGPT? Though China's DeepSeek has its cost advantages right now, any serious challenge to ChatGPT's current dominance in artificial intelligence / artificial general intelligence is some time away in my humble opinion.

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References:

Peter Thiel: "Zero to One: Notes on startups, or how to build the future

Walter Isaacson: "Steve Jobs: The Exclusive Biography"

Notes:

Netscape Navigator was earlier known as Mosaic Netscape.

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Afterthought on 17Mar2025:

Iridium / Google Loon / Facebook Aquila / Starlink

Iridium was conceived as a revolutionary idea in global mobile communication. Due to several reasons, the technology failed to catch up, though Iridium still operates satellite phones in remote areas. But ultimately, other technologies like GSM and CDMA have dominated the mobile communication.

Now, SpaceX’s Starlink is dominating the world in satellite internet. It has more than 7,000 satellites (in low earth orbit) around the globe. (There are other competitors to Starlink, like, OneWeb and Kuiper Systems).

On the other hand, Iridium has 66 working satellites now.

The use cases of Iridium satellite communication and SpaceX’s Starlink satellite communication are slightly different. Iridium satellite phones are more rugged and easy to call any phone in the world. Iridium is primarily used for voice calls and low-data services. Starlink provides high-speed internet.

In the early 2010s, Google started Project Loon to provide internet in remote and rural areas, by using high-altitude balloons. But the project failed, with Google shutting it down in 2021.

Facebook too started its own internet service called Aquila, using solar-powered drones. It ultimately disbanded the project in 2018, due mainly to technological failures.

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Read more:

Blog of Blogs Theme-wise

Weblinks and Investing

India Fixed Income Data Bank

Indian Economy Data Bank

India Forex Data Bank

India's Most-Profitable Sectors: Where Big Earnings Are Made 10Mar2025

JP Morgan Guide to Markets 28Feb2025

NSE Indices Comparison 31Dec2024

JP Morgan Guide to Markets 31Dec2024

Corporate Groups and Listed Companies 29Dec2024

Corporate Governance Concerns - Indian Companies 13Dec2024

Opinion on Maharashtra Seamless 15Nov2024

Wars and Wealth Protection

Mutual Fund Asset Class Returns 30Sep2024

Primer on Global Capability Centres - India is World's GCC Capital

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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.

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Monday, 10 March 2025

India’s Most Profitable Sectors: Where Big Earnings Are Made

India’s Most Profitable Sectors: Where Big Earnings Are Made 10Mar2025

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Investors with long term orientation tend to look for companies with high profit potential. Stock investing is a forward-looking process, and we need to look for companies in sectors that are going to do well, say in the next two to three years, relative to others.

Technology is disrupting various sectors, not only globally but also in India. In recent years, we have seen online quick commerce companies (like, Zomato, Swiggy and Zepto) have taken away market share from traditional retail stores, like, Dmart, also known as Avenue Supermarts.

Competition too can upset existing profit pools. The entry of Birla Opus paints (a division of Grasim Industries) has led to re-rating of paint stocks in India in the past one year, that too at a time when there seems to be a demand slowdown in the sector.

Highly profitable sectors / companies

Let us now see which sectors or industries are highly profitable based on profitability metrics, such as, net profit margin (NPM), operating profit margin (OPM) and high profitability ratios, like, return on capital employed (ROCE) and return or equity (ROE). Banks and non-banking financial companies (NBFCs) are not considered for the analysis.

Screener.in is used for ferreting out companies with high profitability. Filters used in Screener.in are:

Market capitalisation of more than Rs 1,000 crore
Operating profit margin (OPM) of more than 17% or 18%
Net profit margin (NPM) of more than 15% or 16%
Return on equity of more than 13% or 14%

After using the above filters, Screener.in (with data as on 07Mar2025) has given a total of 254 companies. From this list, the following sectors and individual companies are found to be having high profitability. (You need to log into Screener.in to check the full list).

The list provided here should not be construed as a recommendation. This is just for illustration purposes. Please consult your financial adviser before considering any investments.

It is not that all publicly traded companies in a given sector are profitable; investors need to do a thorough analysis of sectors and companies and their competitive position before selecting investments.

a). Most profitable sectors in the listed space in India are:

Names of some of the companies in the sectors mentioned in list (a) can be found in the blog. For example, see para 5 of the blog for wealth management firms, para 6 for stock broking services, para 7 for AMCs and para 42 for internet / digital companies.

Screenshots of some of the above companies are given as additional notes at the end of this article.

Beware of some sectors, like, wealth management firms and broking firms. These companies have high debt, with debt equity ratio of more than 1 -- these businesses have an element of lending. As such, they carry high debt equity ratios.

Examples of such firms are: Nuvama Wealth Management, Motilal Oswal Financial Services and ICICI Securities.

b). Most profitable companies other than those companies of the sectors mentioned in list (a) above:

Some companies in the list (b) above are one of the highly profitable listed companies in India, though not other companies in these sectors.

In addition to those mentioned in the list (b) above, stocks like, Bajaj Auto, Zensar Technologies, Bayer CropScience, Pidilite Industries, Castrol India, Cera Sanitaryware, Action Construction Equipment, Bhansali Engineering Polymers, Engineers India, 3M India, Bosch Ltd, Thejo Engineering, select cigarette companies and a few paint stocks have decent profitability.

This is only a representative list; but not comprehensive.

Profitability metrics are not static; they are likely to undergo changes due to disruption. Some sectors and individual companies may be highly profitable now, but that does not mean they will continue to be profitable.

Highly indebted firms are most prone to insolvency. As such, look for companies with debt equity ratio of less than 0.60 or 0.70 (the lower the ratio, the lesser the debt burden).

You know the story of Anil Ambani companies, like, Reliance Communications and Reliance Power. Not to forget companies, like, Vodafone India.

As stated above, stock investing is a forward-looking process. Sectors and companies that turn around from losses to profits are likely to generate highest shareholder value; though investors need to be cautious about potential turnaround sectors and companies.

One can also check and analyse the following Nifty indices (look for strategy indices in the dropdown menu) to find out highly profitable companies in the listed space:

Nifty 100 Low Volatility 30
Nifty 100 Quality 30
Nifty 200 Quality 30
Nifty 500 Quality 50
Nifty 500 Low Volatility 50

You've to check the profit metrics mentioned above, not in a single year or economic cycle but over a multi-year and multi-cycle period. Sustainability of profits and return on equity (RoE) is vital while considering listed companies for investment.

While compiling the above indices, index provider NSE Indices Ltd uses a lot of selection criteria, like, return on equity, financial leverage (debt equity ratio) and earnings per share or EPS growth over a five year period for its so-called Quality indices. You can check the methodology document of these indices for more.

Quality companies and low volatility will have common features. Hence, earnings of quality companies and companies with low volatility generally have potential for creating shareholder value on a long term basis.

Why are they highly profitable sustainably:

These have:

-- big moats, like, high intangible assets and intellectual properties, like, patents, trademarks, high value brands and others

-- high entry barriers

-- they are low-cost producers

-- they have networking effects

-- these have most valuable brands

-- high opportunity for growth and strong demand

-- economies of scale and global reach

-- they are from export-oriented sectors

-- companies, like, consumer goods that are immune to economic cycles (of course, consumer trends change as we have seen with quick commerce companies in recent years in India),

-- cheaper access to capital

-- select luxury goods companies

-- specialised software / digital companies, and

-- companies with monopoly or duopoly status.

Companies with low profitability

Highly indebted and asset-heavy companies, in general, are not very profitable because their interest cost burden and depreciation will be high, pulling down the profits.

Highly competitive sectors too will have low profitability. So are companies with low management bandwidth and corporate governance concerns.

It's better to avoid companies with low profitability and low profit potential.

To sum up

In the past three years, companies that did not do well in the decade prior to 2021/2022 have generated tremendous wealth for Indian investors. For example, public sector banks (PSBs) did not do well for more than a decade until 2021.

However, PSBs were one of the big wealth creators in the 2022-2024 period. So is the case with real estate companies, power sector and defence sector.

By avoiding companies with heavy debt, low profitability, asset heavy and high interest costs, disciplined investors will be better off in the long term. Mind you some sectors are traditionally capital intensive. Companies have to continuously invest in new plants to generate higher revenues.

Many a time, such capital-intensive sectors fail to generate incremental profits on their additional investments. These are the red flags investors need to keep in mind.

Names of companies and sectors are used just for illustration purposes so that readers can make connections and improve their understanding of companies.

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Additional notes:

Screenshots of companies with high profitability with profit metrics, like, NPM, OPM, ROE and ROCE, as screened from Screener.in -- based on which the analysis of the blog was made. These screenshots were taken after the above article was published. The time of the screenshots is 12.20 PM on 10Mar2025. These screenshots are being provided so that one can check how these company's profit metrics change over the next few years.

Components of Nifty 500 Quality 50 as on 28Feb2025 >

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Read more:

Blog of Blogs Theme-wise

Weblinks and Investing

India Fixed Income Data Bank

Indian Economy Data Bank

India Forex Data Bank

JP Morgan Guide to Markets 28Feb2025

NSE Indices Comparison 31Dec2024

JP Morgan Guide to Markets 31Dec2024

Corporate Groups and Listed Companies 29Dec2024

Corporate Governance Concerns - Indian Companies 13Dec2024

Opinion on Maharashtra Seamless 15Nov2024

Wars and Wealth Protection

Mutual Fund Asset Class Returns 30Sep2024

Primer on Global Capability Centres - India is World's GCC Capital

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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

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Saturday, 8 March 2025

JP Morgan Guide to Markets 28Feb2025

JP Morgan Guide to Markets 28Feb2205

Follow @vrk100

JP Morgan Asset Management publishes a comprehensive presentation every month end, containing various slides on global markets, especially those relating to the US markets.

This is a very useful and informative guide for financial market professionals or FMPs. This "JP Morgan Guide to the Markets" can be accessed here. The following are some of the highlights / images presented in this guide: all the data are at the end of 28Feb2025: