How investing in innovation can help unlock long-term wealth

Nearly 300 million years ago, our earliest ancestors invented stone, wood and bone tools. Then came fire, wheels, automobiles, electricity, steam engines, roads, airplanes, space travel, Internet, genetic engineering, artificial intelligence, and robotics. This is just a drop in the vast repertoire of products innovated and invented by man over the course of time. Making things better and improving our lives through new products and creative inputs is one of the most basic human characteristics. This aspect of pioneering, enabling, and adapting to new ways of living is especially visible when survival is at stake. At the outbreak of coronavirus pandemic, many companies leveraging the power of technology, figured out ways to adapt to the new normal. Innovative companies have emerged, consumer markets that were not even prevalent a year ago have been created, and many existing companies have enabled and adapted to the rapid changes.

Today, there are very few lives that have been left untouched by innovation. However, innovative disruption doesn’t work in isolation. A brilliant solution that cannot be scaled up and adopted across the consumer base is either overtaken by another company or perishes in the long run. Every successful technological solution has been boosted by early enablers and adopters. Enablers are the catalysts that propel the change whereas adaptors are the early responders to the impetus brought on by creative ideation. They help promote efficiency across the value chain.

For example, while streaming service and content producer Netflix innovated the entertainment industry, it was telecommunications companies that enabled this change by providing high-speed Internet, and the adaptors of the innovation were HotStar and Amazon Prime.

Traditional investing models often tend to overlook such companies in the initial stages of growth, as their trajectory inclines to be non-linear. However, companies in the innovation spectrum are likely to be future giants of the new economy and offer a significant opportunity for investors willing to focus on long term wealth accretion. Investing in these companies allows us to proactively partake in their growth and capture value, rather than being mere consumers or bystanders to this rapidly accelerating phenomenon. Therefore, there is a need to double down on the theme, with the emphasis being on identifying such companies at their inflection points. Axis Global Innovation Fund of Fund is designed to do just that.

Even in the context of an Indian investor’s portfolio, exposure to global companies is necessary for diversification because Indian markets account for merely ~3%i of the world market cap. Getting access to innovative companies and sunrise themes the world over can enable one to tap opportunities in businesses that have massive scale, customer base, network effect, and competitive moat, which very few Indian companies can offer in the near term.

Building a solid innovation-themed portfolio with global exposure can offer the potential for better risk-adjusted returns as well.

Past performance may or may not be sustained in the future.

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Trustee: Axis Mutual Fund Trustee Ltd.

Investment Manager: Axis Asset Management Co. Ltd. (the AMC).

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This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

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