I hope this communication finds you in great health and spirit. This is the first time in the last 12 months I wasn't sure about a correct topic to write, as the world is on the sprint track. Many variables across the globe are changing and having huge impact on decision-making process, from Bitcoins to chip shortage to new-gen start-ups; it's not that earlier we didn't had all these news flows, but the speed and quantum of data leads to very noisy and biased decisions. I am not sure whether it's good or bad, but the business cycle and speed of reaction has moved in different zones. Do we call it a momentum-driven process or describe it as a learning curve that is surely hard to explain. As an equity investment firm, we build financial models which derives future financial projections and valuations. Finally, we get stuck because of changes in variables as models are easy to build . Look at world economy trying to open up on one side and on other hand the Chips issue is threatening and created big worry for large supply chains.
Let me come to the challenge, which is novel and most analysts don't price such risk in their valuation models. i.e. Chip's shortage, which impacts and will continue to influence the world shortly as it's not easy to create capabilities so fast. Chips are in many products which are built-in in Electronics and cars
TSMC (Taiwan Semiconductor mfg. co.) has emerged as the world's most important chip company and greatly impacts the global economy. It's among the 15 most valuable companies globally. Still, its dominance leaves the world in vulnerable positions because the product does require mind-boggling complexity and capabilities. Still, it comes from only one company on an island, making it the focal point of tension between the USA and China trade war.
It's not easy for any other manufacturer to come and catch up with this industry because of CAPEX and complexities, design, and millions of simple and most sophisticated cips manufacturing by TSMC
I am not an expert in this subject, but I feel there is no straightforward solution to this where coordination is getting more difficult post-pandemic. It will lead to supply bottlenecks, much higher prices for consumers, and huge temporary lay-off is likely to happen in the car industry. Last week we had seen 15- 20% volatility in the stock price of Tata motors in few minutes.
Coming back to TSMC, this firm makes 92% of the world's most sophisticated chips. They make chips that are less than one-thousandth width of human hair. They are over 1.4 billion smartphone processors manufactured globally, and TSMC makes 95% of that; the second biggest is Samsung, having an appx value share of 3-4%.
Is there one more crisis in offing for a New age world? Time will tell but surely it’s an area of worry for global tech and auto giants. Coming back to the fund management, We successfully launched a Large Cap fund (benchmarked against nifty 50), in the month July 2021.
From next month onwards, we will add portfolio and benchmark performance of Large Cap Fund in the Monthly Investment communique. Thank you so much for keeping faith in our abilities. We will continue to follow the qualitative and risk-adjusted-performance model in our future investments too.
Stay safe !