Investing in the Future: The Digital Revolution

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© Suyash Maheshwari Investing in the Future: The Digital Revolution

As countries emerge from the coronavirus-induced lockdowns, the world is already looking like a different place. The “new normal” has changed the way we work, learn and even entertain.

We have adapted to work from home and have stepped into a new digital age. This digital switch is the future and investors are already tapping into this segment as part of “Investing in the Future”.

Companies that are old school, with traditional business models in contrast to the new technology-friendly models, will struggle to get back to the past turnover levels with debt weighing them down.

In contrast, most technology businesses have seen a huge increase in demand for their services as people continue to work, play and learn from their homes. This will be a significant factor contributing to the success of technology-based companies with a new-age business model.

Rajesh Kothari, Founder and Managing Director and smallcase manager, AlfAccurate Advisors, shares his perspective on this transformation.

“By digitalisation, it does not mean only the software companies like IoT or SaaS but it also includes the companies that enable this digitalisation and that benefit from digitalisation. It ranges from companies in the fintech sector, e-commerce sector, industrial automation, robotics, healthcare, logistics, etc,” he says.

So what does digitalisation mean for us,the investors?

Kothari points out the sectors being significantly affected by the digital revolution.

>> The digitalisation theme is not limited to new businesses and segments like e-commerce, fintech but even within the traditional sectors, many enterprises are driving innovation, he says.

For instance, one of the largest engineering companies implemented the longest conveyor belt in the world for one of the largest steel companies in India. It saved 3,000 road trips to transfer ore from a mine. It not only offered an efficient solution but also a sustainable green solution, he says.

AAA NEXT Generation smallcase by AlfAccurate

>> The increasing use of robotics, artificial intelligence, and controls is driving industrial automation.

>> In the logistics sector, digitalisation fuels growth through its ability to deliver personalised, customer-focused logistics, with faster cycle times and exceptional customer satisfaction.

>> The role of digital in the healthcare space is well documented. Medical technology is found across the whole care pathway, it accelerates recovery and keeps people healthy.

Ashwini Kumar Shami, Senior Portfolio and smallcase Manager, Omniscience Capital, agrees with Kothari. He, too, believes that the digital revolution will affect India on mainly two fronts.

>> On the social-economic front, “Digital Bharat” can leverage technology to drive financial inclusion, eliminate supply chain constraints, improve education and healthcare infrastructure, and generate massive employment opportunities.

A recent report by the ministry of electronics and information technology (MEITY) has estimated a trillion-dollar economic opportunity for India by 2025 while sustaining 60-65 million jobs.

>> On the business front, the digital revolution is opening global opportunities for the Indian IT services industry. India accounts for nearly 75 percent of the global digital talent and Indian companies are the largest providers of IT services for the last two decades, with a presence in more than 80 countries and nearly 800 delivery centres worldwide.

Indian IT industry is building capabilities to roll out a massive training and re-skilling programme. IBM estimates that 30 million people will have to be trained by 2030 on digital technologies. A majority of this talent pool will come from Indian IT services companies.

A study by MEITY, too, highlights the growth and the increasing significance of Indian IT services companies. The study estimated that IT services accounted for 8 percent of GDP in 2018. The number is expected to grow three to five times by 2025, accounting for 18 to 23 percent of the GDP with an annual turnover of $300-350 billion.

Omni DX – Digital Transformation smallcase by Omniscience Capital

“India is at an inflexion point. While the country has witnessed exponential growth during the last five years, we think the pace of growth will continue to accelerate and will further open up new opportunities to investors,” says Kothari. The massive increase in smartphone penetration over the last five years has had a big role in it.

“India has witnessed a doubling internet and smartphone penetration from 2015-2020, with over 45 percent of the population connected with the internet and 39 percent of people using smartphones. This rising internet ubiquity was possible due to falling data prices to Rs 10.9/GB, low-cost smartphones, and the government’s push for ‘Digital India’.

“This has resulted in the highest data consumption per user in the world at 13.5 GB/user/month vs 7 GB/user in the US and 8 GB/user in China. Enhanced internet ubiquity is leading to lower barriers to technology for businesses, thereby enabling a greater number of businesses to effectively leverage technology and to be part of the internet ecosystem.“

Aligning interests and solutions with the customer create a win-win relationship, with potentially strong customer lifetime value and possibly even stronger revenues and earnings, he says.

The result is increasing consumer adoption across all digital domains such as digital payment, online shopping, travel booking, taxi booking, food orders, online education, gaming, app-based medical consulting, etc,” he says.

The success of such business models has resulted in increased interest from venture capital and private equity to fund such enterprises.

A report by Hurun India says the country added three unicorns a month in 2021 to nearly double the overall number of startups valued at over $1 billion to 51 as of end-August, says Kothari.

At present, India is the third in the list of countries having the most unicorns trailing the US (396) and China (277) but ahead of the UK (32) and Germany (18).

Indian startups got $ 16.9 billion of venture capital funding in 2021 (till July), next only to Chinese counterparts in the Asia-Pacific (APAC) countries, he says.

This is huge for India, as more and more opportunities open up, paving the way for Indian companies to grow rapidly with the world seeking its services. Our smallcase managers believe that investors can take advantage of this new era of business and reap the rewards of wealth generation in years to come, changing the face of Digital India.

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