BK

A common question that I get these days is about the risks of “new age” companies and business models and whether valuations are “too high” for these companies For this, it is worth reminding ourselves that the process of “creative destruction” has always been an integral part of the market and economics. “New” technologies and businesses are always emerging and creating new OR disrupting existing businesses ===================== Of the 30 companies in the BSE Sensex in 1987: ** 24 are no longer in the Sensex (80% churn) ** 8 of the original 30 don’t exist (bankrupt or taken over or merged) ** there were no FINANCIALS (banks/ NBFC/ capital market, - today 31% weight) and no TELECOM / IT companies (today 22% weight). I.e. more than 50% of sector weight is new ===================== Any new tech or business model will feel “New Age” during the initial adoption phase and growth phase - the first two legs of the “S” curve. Then it becomes so common that we don’t even talk about it being anything “special”. In the 1990-2000s, IT services companies were considered “new age”, fast-growth: now they are commodity businesses providing non-differentiated services. There are dozens of such examples. Moreover, when the sector or company is in the growth phase, valuations will look optically expensive as the market starts appreciating the longer-term growth potential. The question is whether valuations are discounting high-growth with a long runway of growth or are “euphoric / irrationa” - and that’s where wisdom, sanity checks need to be applied.