Legendary fund manager Peter Lynch had once said, “Invest in what you know”.
Sharma wakes up in the morning to the alarm on his Apple iPhone or Android phone powered by a Qualcomm chip. He goes for a morning walk or the gym in his Nike or Adidas shoes and his fitness wearable from Fitbit or Apple. He has his Kellog’s cornflakes or picks up his coffee and breakfast from Starbucks while charting the fastest way to the office on Google Maps. On the way to office, he browses his email on Microsoft Outlook or uses social media such as Facebook, Whatsapp, or LinkedIn on the way.
At the office again, the Enterprise Resource Planning (ERP) software is probably from SAP, supported by database systems from Oracle, and hardware from IBM, HP Enterprises or Dell with routers from Cisco or Juniper Networks. His office is probably running digital marketing campaigns on Google, Facebook and LinkedIn. The artificial intelligence products from IBM, Google, Intel and Cisco are under evaluation at the enterprise level.
Some of the days, for lunch, he probably orders a pizza from Pizza Hut or a sub from Subway with a Coca-Cola or Pepsi.
He probably travels for his family vacations to places internationally catered to by the likes of Hilton, Marriott etc.
The above narrative is to drive home the point that there are several products and services, which he uses in his daily life and which he cannot do without. But, most likely, what he spends his money on as a consumer or a business, he doesn’t consider those companies for investing in. So there is a serious consumer market being catered to by these companies, domestically and globally. But our consumer, Sharma, is not even considering them for investments since these companies are not listed in India.
Following Peter Lynch, one would want to consider investing in these. Of course, whether there is investment merit in these would depend on the strength of the balance sheet and market prices vis-à-vis the conservative intrinsic value of the company. However, currently, since these companies are not listed in India, Sharma doesn’t even consider them for investments.
There are thousands of such companies whose products we or our families in India cannot do without and use daily. It is time to start considering such companies for investments.
Our estimates of a typical mass affluent person’s consumption basket is in the range of 40 percent in products and services, which are actually priced in dollars (even though we might pay in rupees), and whose revenue and profits go to global companies. For high net worth individuals (HNWIs) and ultra-HNWIs the consumption percentage is probably 60 percent or higher in global products and services. It is easy to see that your future inflation is going to depend on the dollar–rupee exchange rate. However, all of your investments are probably in rupee-denominated companies listed on the Indian stock exchanges.
The biggest contributors to future consumption dollars of Indians are healthcare costs, foreign education for their children and vacation, travel and recreation abroad. These heads are not captured in the narrative above.
To future-proof your future consumption basket, you need to invest in a portfolio of well-selected global stocks.
Since the developed economies of US and Europe are much larger, there are many companies listed on global exchanges, which are catering to demand from the developed economies as well as emerging economies, including India. This provides access to a set of very different types of companies.
Some of these companies are in traditional products and services, such as defence and aerospace, or reinsurance, insurance and asset management, home improvement retailers, soft drinks, apparel retailers, etc. There are numerous large companies operating at a global scale in these sectors, which are missing from the typical Indian investor’s basket.
Further, fast growing sector, such as biotech, alternative energy, internet media, internet retailers, artificial intelligence, robotics and cybersecurity are again missing from the typical Indian investor’s basket.
An Indian investor considering global investing could start exploring and investing in many such areas and diversify their portfolio.
In short, we would like to remind themselves of Peter Lynch’s experience. He is famous for saying that some of the best stocks he picked up (or missed) were discovered by him while following the consumption behaviour of his family. Yet, we as Indian investors ignore a very large portion of our consumption basket when it comes to investing. Most HNWIs spend roughly 40-60 percent or more of their consumption on global brands. Hence, they should seriously consider investing and providing exposure to their portfolios to such companies.