Amit’s e-world

Recently, I put my mind on a big investment idea competition posted on FT. In the end, I think I got it all wrong.. rather different from what they actually wanted. They actually wanted new business ideas that will succeed, and what I understood was that they wanted investible opportunities in the market. On of the other reasons for my understanding or rather mis-understanding was that the sponsor of the competition was BNY Mellon - a fund house. Anyways, enough about goof ups, here are two ideas that I think are highly investible.

Today, most UK consumers want to see value in the market. With the growth of Web 2.0, fewer consumers rely on advertised claims by firms rather they trust in-depth consumer-centric analysis of products / services & deals readily available on popular forums like moneysavingexpert.com (4.5m hits every month). Firms that offer a compelling & unique value proposition at no huge cost disadvantage to them & can tie in customers for a subscription (not a transaction alone) will do well & are great investment avenues. McDonalds is currently offering a 2-for-1 cinema ticket offer for a large meal. While it is a compelling value proposition, it comes at a huge cost to McDonalds & also does not promote brand loyalty. Examples of two organizations that can do this effectively are BSkyB and Tesco. Sky digital TV subscription is an expensive proposition by itself. If you add free broadband that costs Sky very little to provide, free weekend / evening calling plan & Sky perks every month, it then becomes a compelling value proposition. Moreover, in the current macroeconomic climate, entertainment expense is one of the easiest ones to cut & it is likely that consumers will sacrifice cinemas for Sky Movies. Tesco with its clubcard deals on days out / restaurants (known for heavy discounting to large customer bases, hence costs Tesco very little) subtly promotes a subscription model & its perception as the cheapest retailer is its greatest asset in a price-conscious market.

With interest rates going down & house prices falling at the same time, inevitably an inflection point will be reached when property buying will start picking momentum. Banks, despite being under pressure from Bank of England, will not find this a profitable proposition given high LIBOR rates to give out loans, and will continue holding strict qualification norms. This could mean high deposit requirements & a sound credit history. This is exactly the situation that will benefit the mortgage insurance sector. Most mortgage insurance providers have delegated underwriting with lending banks. In the past, this has lead to high defaults / claims, however, with the current risk adverse climate, banks can be assumed to do a better job at qualifying prospective borrowers. The revenue of mortgage insurance providers is determined by the difference in the bank’s deposit requirement and the ability of the borrower to fulfill this. The cost base of such insurance providers is determined by the number of claims arising. Both the revenue & cost influencers will change from negative to positive once the inflection point is reached. Given the fact that most sellers have waited too long now to make a sale of their properties, one can assume that the positive cycle will last long enough (2-3 years) while the mortgage insurance companies cash in. If there is one thing that banks & borrowers will be willing to pay a premium for in these uncertain times, it is risk management & there lies the big investment opportunity.
 

I was recently posed a question on what would be the impact of the current financial situation on outsourcing. Here’s my take on it.

My sense is that organisations will be ruthless in taking outsourcing decision especially in the sensitive "call centre" and BPO space. Until now, many organisations had been testing waters or taking a brief dip in the ocean of business process outsourcing only to return wet & cold from their outsourcing experience when their customers or unions or governments revolted against such a move. With the views of most governments polarised towards sustainability of companies & those of customers polarised towards value rather than comfort, it is a fantastic opportunity for organisations to dust off their unfinished outsourcing propositions and act decisively. Job losses, if they emanate from such moves, will be taken in stride as almost every other company is cutting staff anyway - be it an outsourcing driven cut or a cash flow driven one.