Parag Parikh’s PPFAS Mutual Fund’s largest holding is Google. The Fund holds 15970 ‘C’ Class (non-voting) shares worth Rs. 54.86 crore. The holding constitutes 9.32% of the AUM.
The other technology company in the portfolio is IBM. The investment here is worth Rs. 20.79 crore, representing 3.04% of the AUM.
Between them, the two foreign behemoths take up a whopping 12.36% of the AUM.
Sadly, neither of the two stocks is performing well at present.
Google is down 5.84% on a YOY basis while IBM is down 14.4% on a YOY basis.
This is a very poor show especially in the context of the stellar performance by Indian stocks at present.
This is reflected in the under-performance of the Fund. On a YOY basis, the PPFAS has gained 45.57% which is lower that the CNX 500 gain of 48.68. It is also much lower than its peers, some of which have given YOY returns of upto 90%. However, it has marginally outperformed the Nifty and Sensex.
On an earlier occasion, Parag Parikh has given an explanation on why he prefers to invest in foreign companies instead of Indian companies despite the fact that the foreign investors are making a bee-line for Indian stocks. He has also given an explanation on why he prefers Google.
While one can’t argue with the wisdom of a veteran stock picker, it should be noted that the thesis formulated by Parag Parikh with regard to the “moat/ competitive advantage” of Google may not hold true in future.
According to Heather Bellini of Goldman Sachs, Google’s dominance may no longer be “impregnable”. Worse, the rampant increase in mobile phone usage means that Google will receive less advertisement revenue.
Heather Bellini pointed out that Google thrived in the era of the desktop. However, mobile search is a “big shift” and “search economics are different” she said.
“Mobile search creates a challenge for Google” she added.
Heather Bellini also pointed out that the revenue per search that Google generates on mobile search is less because the real estate on the mobile phone is much smaller than on the desktop. She also explained that advertisers are willing to pay less for ads on a mobile phone. The rates are “significantly lower” she added, estimated at about half.
Heather Bellini also made the interesting point that while the volume of searches has increased people prefer to search through apps on their mobile phone. So, if one is searching for restaurants, one would use an app like ‘Yelp’ or ‘Open Table’.
In the Indian context, one would use an app like Zomato to search for restaurants because there are also reviews available.
We have to keep a close watch to see what action, if any, Parag Parikh takes with regard to his favourite foreign stocks.