holdyourthoughts

The IT sector stocks have been on a sweet spot for some time now. The US markets were improving (or rather showing signs of not going into a depression) and some semblance of business sense were returning. This was getting reflected in the valuations of the IT stocks. I think the party may be over for the time being. The currency printing frenzy in the US is more than likely to produce high inflation in the US and a weakening of the dollar. This is likely to impact the dollar arbitrage business fairly negatively for these companies. I have no idea where the dollar-rupee exchange rate will go, but even a 10% weakening of the dollar (around Rs. 40 for a greenback) would mar the prospects of remarkably. Now, let us think what what these companies can do to fend off the currency challenge. It can hedge it's currency position (net zero hedge position) Reduce it's onshore employee strength Look to increase geographic diversification (spread off into countries like Vietnam, Philippine...

I strongly believe that moat as a concept is somewhat illusory. All businesses tend to become commodity after a point, when more and more competition sets in. Look at the business history over a 100 year period and you will find it very difficult to find companies which have sustainable business advantage. A case in point is newspapers. Even the great and venerable Warren Buffet used to think that his holding in Washington Post to be a bullet proof investment because in his own words "You can't beat a good newspaper business franchise". However, 50 years down the line Washington Post is struggling to make money. Times change, consumers change, preferences change. As in life, there is nothing permanent about business, other the promise of change.

I saw a great post from Michael Hyatt today. It was about why we cannot complete our work. It's has some great tips. In fact, I can vouch for nearly all the 10 points as I practice them personally and have been greatly benefited. Read the post here .