![]() In an increasingly knowledge based and services driven global economic expansion, the trade expansion is stagnating, he wrote. While his son was happy to buy something electronic, back in Mr Kapoor’s youth he would have bought something physical that may well have been shipped in a container from Asia. ![]() Last year, Mr Kapoor, director at shipping consultancy Drewry Financial Research Services, wrote a report using the example of his son’s excitement at buying the Pokemon Go app and comparing his own habits 15 years earlier. But the reality is that the slowing in global trade may have more profound causes - not to do with shipping or economic growth, but to do with how and what we consume. But in reality, it was structural, and they totally missed the structural problems. To start with they thought it was just a blip. Before 20 the world had been growing consistently, and after 10 years of growth no-one in the shipping industry expected demand to shrink so fast. Interest rates were low and money was cheap. There was not one but two waves of container ship ordering in 2010, and then again in 2013-14. The container shipping industry, and Hanjin in particular, has been spectacularly wrong about the financial crisis - twice. Pokemon GO and demise of shipping industry But until then, market share, profits, or anything else vaguely linked to reality simply don’t matter. Buy-buy-buy turns into a self-fulfilling prophecy. Shares will rise because stock jockeys expect them to rise, and with that expectation, they buy them and drive up their price. Everybody wins in this as long as shares continue to rise, the whole equation is perfectly validated. So, it’s okay to hype Tesla’s stock and sell it to their clients. Investment banks get rich on these deals. The amounts are huge, going back ten years: Last month, Tesla raised another $1.2 billion, after having raised $1.5 billion in May 2016. And it’s explicable by the hype – the “research” – issued by Wall Street investment banks that hope to get fat fees from Tesla’s next offerings of shares. But it’s not “inexplicable.” It’s perfectly explicable by the easy money engineered stock market that has long ago abandoned any pretext of valuing companies on a rational basis. In comparison with GM, Tesla is ludicrously overvalued. “It’s totally inexplicable, as far as its valuation,” he said. “It’s either one of the great Ponzi schemes of all time, or it’s all going to work out,” mused Mike Jackson, CEO of AutoNation, the largest dealer group in the US. This left some industry insiders wondering about tulip bulbs mania. Tesla shares rose to $313.38 this week, giving the company a market capitalisation of about $51 billion, surpassing GM for a moment as the most valuable American automaker. Tesla and problem of capital misallocation The sorry state of mutual fund industry in the US is a prime example in front of us. Institutional Investors with their superior management access will not offer any distinction in investment performance though they may suffer from their herd behaviour. Recently, my team brought to my notice that in the December 2016 quarter, there were more than 450 conference calls held by corporate bodies discussing quarterly results, with discussion note available while I remember less than 50 per quarter a decade ago. The democratisation of information will pose a serious challenge to money management business. ![]() Many such, not represented in the listed equity universe of India. Moreover, my observation is that in many areas, MNCs with technological edge, global relationship, brand, superior business processes have an edge, emerging as leaders or have gained dominant market shares in respective fields. All these factors are compounding the valuation for high quality companies to stratospheric height, leaving less room for error, if earnings projections are not met. Moreover, in many cases initial public offerings are from companies that have been, private equity funded leaving less room for upside for secondary market players. The seeds were sown few years back with the scrapping of press note, allowance of 100% FDI in most of the sectors, buyback by listed MNCs and regulatory arbitrage available to do buyback rather than paying dividend. ![]() India is likely to witness shortage of quality investable companies in the future. I must bring an interesting observation I have been having for some time to your notice. ![]()
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