Disruptor vs. disrupted is the theme for 2018

We are seeing two trends from investor point of view, one which is in minority is looking at the past performance and coming into midcaps. There is second which is looking at the longer-term trend of midcaps outperforming largercaps in creating better value over a period of time despite volatility.

Mid-caps vs. Large-caps: in midcap there will be higher volatility, it will be either because of market movement or even because of business movement. A midcap company’s ability to absorb business cyclicality is far lower than a largecap company and which is why it is extremely important for investors to get in touch with midcap management and develop the confidence that these managements will create value over a period of time.

In largecap, there is lots of information available, there is lots of historical background available but when everything is in price and you buy it, your returns get restricted or moderated. In midcaps, you have the opportunity of backing your conviction, trusting your management, doing your homework and be ahead of others in terms of information advantage and that is where you end up making more money.

One big theme which is worth banking not only in next year but in years to come is disruptor versus disrupted. We are seeing technology and other forces creating disruption in business environment and sooner than later, it will start getting reflected into markets as well. In every single company, in every single sector, you will have to ensure that you are on the side of disruptor rather than disrupted not that every single disruptor company will be able to give you return but if you are in that side where bulk of the companies are disruptor, your chances of outperforming market increases significantly compared to investing in those companies whose businesses are getting disrupted. So the big theme for 2018 and onwards will be disruptor versus disrupted.

If you could tell us the sector, disrupting versus disruptor : I cannot talk about the companies but today disruption is not restricted to one sector. In financial services, fintechs are disrupting existing business models of banks, insurance companies, mutual funds (MFs). In manufacturing, 3D artificial intelligence is disrupting traditional modes of manufacturing. In services, robotics is disrupting human way of providing services. So there is no sector which is outside the influence of technological and other forces of disruption.

So it is not sector specific, company specific, it is across and in your portfolio you need to have companies and management which is cognisant to disruptions unleashed in future and which are taking appropriate steps to ride on the wave of disruption rather than remaining subdued and getting disrupted