One of India’s most prominent festivals, Diwali celebrates the triumph of light over darkness. The five-day festival of lights got over with cheer and optimism. Dhanteras is the day of fortune, and Naraka Chaturdashi is celebrated as the day of knowledge. Indeed, Diwali is all about shining bright and spreading light. Annakut/Padwa/Govardhan puja depicts an auspicious start. Bhai Duj/Bhau-beej is all about love and bonding (which matters most in the end). With these festivities, there was a lot of free time (courtesy of super long weekends), and with discounts offered everywhere and on everything, it’s difficult to resist the temptation to splurge!

But now, let’s put our act together and focus on our investments with renewed energy. The need for diversification has been significantly accentuated, especially after the COVID-19 crisis, and identifying the best hedging opportunities is prominent. With the start of the 4th Industrial revolution, one can see the emergence of technology-based or digital assets, as popularly referred to, cannot be ignored when looking at alternative asset classes.

Blockchain, Artificial Intelligence (AI), Robotics, and FinTech are the outcomes of the 4th Industrial revolution era and has substantial implications in emerging economies. Blockchain technology creates an ecosystem of trust and is increasingly used in various industries, from finance to healthcare. AI and Robotics spearhead the disruption in the production process, be it healthcare, agriculture, hospitality, manufacturing, or the military. Clear evidence is a 150% increase in the shipment of robots from 2010 to 2016. Their ability to reduce the cost of production and give a fillip to innovation is substantial in the context of emerging markets. Lastly, fintech is the marriage of finance and technology. It helps unlock potential benefits by offering user-friendly, decentralized, efficient, and transparent digital-based financial services to its customer, triggering sustainable economic growth through financial inclusion and green finance. Emerging Markets, backed by high growth and weak efficiencies, make a lucrative investment for investors and are always a priority investment for foreign institutional investors.

Diversification opportunities exist for investors investing in emerging markets with technology-based funds. But over the years, higher media coverage and stronger investor interest have created closer linkages with traditional assets, leading to deteriorated diversification benefits.

Thus, do capture the diversification benefits of technology-based assets with full awareness. First, evaluate your risk tolerance, investment horizon, and objectives before investing. Moreover, let not Fear of Missing Out (FOMO) sentiment be the motivation when making investment decisions as it can understate the perception of risk.

More often than not, we suffer from the illusion of explanatory depth or knowledge, as illustrated by two researchers at Yale ‒Leonid Rozenblit and Frank Keil, some 20 years ago. It was a simple experiment where they asked a group of students to rate on a scale of 1-7 how well they understood how zippers worked. As you might expect, most responses were at the upper end of the scale. After receiving their initial reaction, they requested students first to illustrate how zippers worked and then rate their level of understanding once again on a scale of 1 to 7. Suppose you were subconsciously participating in this experiment while reading. In that case, you must have realized that the ratings were lower (by a couple of points) than the first time. What you just appreciated in the context of zippers holds for everything in life – bicycles, pandemics, economics, politics, and technology. We all assume that we understand things better than we do, even when we don’t.

To guard ourselves against this illusion, stay curious and resist the temptation to say “I know”. Lastly, as often said that teaching someone is the best way to learn. So my dear readers, remain a learner always and forever.

Best Regards
 
Ms. Tarunika Jain Agrawal Ph.D. 

Alpha Research