When the story is apparent, returns are rare

How obvious stories fool investors

Stock markets are full of exceptions and peculiarities. This fact etches a super thin line between it being an illustrious career or a gamble. The one who understands the nuances takes the largest loaf home. 

Think of this as an example: Mr X thinks of making a quick return by trading the stock of Spice jet. The premise is, it is Q3 of the financial year, typically seeing high ticket booking across India. The results are published and the stock shoots up by 7%. 

He beats Fixed deposit, in a day!

He speculates, Indians are getting wealthier, fear of missing out is rising, and travel trends are widespread and therefore allocates 10% of his portfolio here . 10 years down the line, he sees pure wealth erosion, a series of company’s internal problems, a ton worth of stress, but the industry still grew, though Spice jet failed.

Every few years, new themes grip the imagination of Indian investors. A sector shows exponential growth in users, volumes, or sales, and the logic seems irresistible: “If everyone is buying airline tickets, investing in airlines will surely make me rich!” Yet the graveyard of failed stocks in every hot sector tells a different tale. At Xylem PMS, we believe true investment success means seeing past buzzwords and aligning with the industry’s real winners.

Ben Graham and his theory

“Obvious prospects for physical growth in a business do not translate into obvious profits for investors.”

~Ben Graham

Benjamin Graham was a legendary economist, professor, and investor known as the “father of value investing.” His timeless principles prioritize safety, intrinsic value, and rational decision-making in unpredictable markets. He has given this jewel of a quote and the markets stand by it. He thoroughly emphasized on the fact that great products or growing industries don’t automatically lead to great investments. This quote is his way of warning investors against blindly chasing “hot” sectors which see high customer traction. 

Further, we will deep dive into 2 widely high customer traction industries, airlines and telecom. Both have historically grown at an astonishingly rapid pace. This gives us a great premise to base our blog on, and how does the Xylem Research team perceive such industries where growth is abundant, but investor returns may/may not be. 

The temptation 

We all crave certainty. Growth in passengers, internet users, TV buyers, solar installations, or defence contracts is easy to spot and hard to ignore. But investing based solely on such metrics has burned countless portfolios:

1. Everyone sees the trend: and pays up, often at wild valuations

2. Half-baked research prevails: herd mentality replaces diligence

3. Unit economics, competitive moats, and regulatory risks are ignored

4. Only deep research reveals who will survive and thrive

At Xylem PMS, our mission is to go deeper & to differentiate real lasting value from short-term hype.

This chart shows an increasing trend in passenger traction over the years. The super common logic that airlines are bound to grow and hence the share price causes large retail inflows here. The lone survivor- Indigo. A million others faded away.

Airline Mania: Many Flew, Few Landed

Look at Indian airlines over two decades:

1. Indigo: The lone survivor, thriving through a focused strategy, standardized aircrafts, relentless cost control, disciplined expansion, and aversion to debt. Indigo’s model not only grew with the sector- it consistently protected investor capital.

2. Kingfisher, Jet Airways, Go First, Deccan: All went bankrupt or shrank to irrelevance under high costs, inefficient models, excessive debt, and management blunders, despite surging passenger demand.

3. SpiceJet: The classic “investor trap” exciting growth one quarter but a decade later, wealth erosion, operational stress, and a painful lesson.

This chart shows the trend of internet penetration in India. Once again, common logic says that the internet will boom, more and more, as and when the distribution grows. The truth unveils the fact that only 2 companies run the whole industry. RCOM and VI, the gambler’s darlings gradually faded away leaving the throne for a duopoly.

Telecom: From Boom to Duopoly

India’s telecom revolution saw meteoric internet penetration, yet only two players stand tall:

1. Bharti Airtel: Adapted nimbly to technology shifts (3G, 4G, 5G), survived regulatory storms and brutal competition, maintained financial discipline, and continues to innovate.

2. Reliance Jio:Disrupted the market at scale, building competitive moats few can replicate. Holds the market with airtel.

3. RCOM, Aircel, Tata Docomo, MTNL, VI: Once darlings of the market, now case studies in bankruptcy and capital destruction. Cheap capital, aggressive expansion, and poor strategy spelled doom.

   
   
   
   
   
   

TV Manufacturing: The Illusion of Easy Money

At once, the television hype was real too. Here is what happened:

1. Samsung, Sony, LG, Xiaomi: Global and local champions built moats through technology, branding, distribution, and cost efficiency.

2. Videocon, Onida, BPL: Faded away as margins collapsed, competition intensified, and brand relevance waned.

We at Xylem do not chase these hype driven darlings. Our purpose is solely rooted into long term wealth creation.

Why does obvious growth fail to deliver

Ben Graham says that an investor’s worst enemy is likely himself. There are 5 solid reasons for obvious stories to fade, we at Xylem Investments believe in when deep-diving into companies.

Reasons	Example	What went wrong
Valuation Premium		It was seen as a premium airline which would ride the aviation boom. Valuations were high and investors expected the story to play out. Instead, debt spiralled and operations collapsed.
Execution & Competition		Rcom entered the telecom space with aggressive pricing and scale ambitions. Jio, Airtel, VI ate up their share and left them with debt, losses and bankruptcy.
Capital Intensity & Poor cash flows		Running costs, high lease payments, fuel costs gradually ate up all their cash flows and left them with a pool of debt. Yields dropped and costs peaked causing their exit from industry.
Cyclicality & Regulations		Rising ATF cost (key airline fuel) , compliance fails, debt has hit the company multiple times. Though still operational, the shares have tumbled aggresively.
Obsolescence		Jio & Airtel, the duopoly made leaps in telecom by introducing 3g->4g->5g very quickly. MTNL, being slower, lost its monopoly status and costs killed its market share.

Further simplified

1. Valuation Premium: A person paying ₹500 for a cup of coffee because the cafe seems trendier and everyone else visits it. ( The coffee would at least satiate him, the stock would simply erode wealth).

2. Execution & Competition: Think of a great recipe. However, the chef, being incompetent keeps on burning it. ( You invest in a company which simply cannot execute and beat competition even when the industry is booming).

3. Cyclicality: You choose heavy weight training as your fitness regime at 20. Gradually, as you age and get weaker you continue lifting the same weight without considering the implications. ( A company which bends with the wind survives and grows).

4. Capital intensity and cash flows: You invest mindless hours in pursuing a career you do not even like. Eventually you make little money, are drained and wish to switch when it is too late. ( Airlines and telecom need heavy investments. Once quit, the wind up takes time. Cash flows are rare if you are not skilled enough).

5. Obsolescence: Think of it this way. You spend 3-4 hours finding data which could be found quicker by an AI software. Your colleague gets a promotion. ( The sole ability to bend does nothing. The one who bends first wins). 

Our approach

To create sustained wealth in fast-evolving sectors, you must:

1.Go beyond headlines and forecasts deeply analyze business models and competitive dynamics

2.Assess management integrity, balance sheet strength, and capital discipline

3.Be ruthless on valuations avoid chasing hype at any price

4.Monitor regulatory, technological, and macro risks, pivot when necessary

Often, for a retail investor, this approach is too hard to follow. They are occupied with their primary job/business. Here is where Xylem Investments comes into play.

At Xylem Research, we try to learn and incorporate the teachings of these legendary investors like Ben Graham and many more into our work. For our clients, we at Xylem want to be the legend’s eye and find companies which fit perfectly to grow their wealth. We try to keep things simple and follow these few strategies:

1. Our investment process dives into unit economics before every buy decision

2. We build sector-agnostic portfolios only with proven leaders

3. We focus relentlessly on price discipline and margin of safety

4. We avoid the crowd and invest where conviction is strongest and facts support the thesis

This mitigates the risks of being invested in a company where returns are uncertain. Investors are drawn to hot companies like moths to flame. We resist such temptations and look at the bigger picture several years down the line. 

Afterall, “Growth is easy to see. Returns are harder to taste.”

If you’re ready to side-step the investor frenzy and build real wealth, reach out to Xylem PMS today.

If you'd like to discuss your portfolio or explore how Xylem can help you navigate this market, consult with us here.