Earnings kickoff 🚀

PLI disclosure, fintech moves, and cheesy conflict.

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Market summary: 📊

Wednesday turned out to be a pretty solid day, with Indian markets continuing climb upwards, while US markets posted a surprise bounce back from Tuesday’s bloodbath.

US:

  • S&P 500 - up 1.74%

  • Nasdaq 100 - up 1.88%

India:

  • Nifty 50 - up 0.66%

  • Sensex - up 0.77%


Cheesier than your 9pm daily-soap 🧀

If you remember—last year Big Daddy Bezos had acquired some 49% stake in Future Coupons, hoping to pull off a Groupon type success, here in India. As part of that deal, Amazon had also gotten itself a 3.6% stake in Future Retail, under conditions that AMZN can purchase more if Future Group was ever selling.

Then COVID and a million things happened, including Biyani going broke and rushing to Mukes bhai for relief—which led to RIL buying Future’s struggling retail + logistics assets. In that, Future dumped the agreement it had going on with AMZN. 

So yesterday Amazon sends Future a “breach of contract” notice—alleging the company wasn’t supposed to sell anything to anyone per its agreement at that time. What’s cheesier? Amazon itself is reportedly close to buying a multi-billion dollar stake in RIL Retail, the umbrella that acquired Future Retail, while this goes on. 👀

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Unwrapping PLI winners 📱

The government finally disclosed names of 16 beneficiaries of its production-linked incentive scheme (the policy that was announced to boost domestic manufacturing in the wake of the China conflict) — most notably including Apple’s manufacturing partners Foxconn, Wistron, and Pegatron, as well as Samsung.

Other beneficiaries include Lava, Micromax and other domestic mobile makers and some local electronic component makers.

The government hopes about $143 billion worth of smartphone and electronic component production will be catalyzed in India over the next 5 years due to the PLI, for which its incentivizing with upto $6.65 billion in doles. Both sides seem super excited to kick-off the new alliance and if all goes well over 600,000 new job opportunities (direct, indirect) will be added. Sounds like a spectacular win!

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The big picture—while 2020 has been an absolute economic disaster otherwise, India’s manufacturing segment managed to get respectable strides in. Firstly, aided by an anti-China sentiment post COVID, GOI has been quite successful in strong-arming foreign players into either investing more in India or putting money in through local suppliers (look at Samsung with TVs or Apple’s renewed strategy locally). 

Secondly, GOI also gets some credit for loosening its purse strings judiciously, and getting the timing right to put these incentives in place. Lastly, all these moves send a consistent message that appears much polished and sharper than the tasteless Make in India battle-cry we heard come out of the government’s camp a few years ago. This hopefully means big bracket investors across the world get renewed assurance, as well as evidence of the government’s agility and seriousness to make it happen this time.

Haters gonna hate—overall, it may take some time for meaningful tailwinds to form - considering India has a long way to go before its mundane operational issues (corruption, lack or regulatory clarity, no transparency) are resolved, but change is closer than ever before and that matters!

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Latest capital talks 💰

India’s SaaS arena claimed a big victory with payment operations management software player Chargebee closing on a $55 million Series F round, led by Insight Partners, with Steadview and Tiger Global pitching in again. Chargebee simplifies the process of automating subscriptions, billing, invoicing, payments and revenue recognition processes—with a mid and lower market focus.

The company’s rise from a bootstrapped venture in 2011 to a platform used by over 2,500 clients is simply extraordinary. Fresh funds will go towards polishing the platform, as well as surprisingly experimenting with new revenue models. Interesting!

Some old school fintech

Credit Wise Capital (CWC), a tech-enabled consumer finance company, has scooped up $6 million as part of its seed round. CWC aims to disrupt the two-wheeler lending space, hoping to steadily lose its traditional past and transform into a fintech play.

So far, the company works with about 100 dealers in Pune and Mumbai and has disbursed loans for some 12,000 two-wheelers in the last 16 months with an avg. loan size of about ₹65,000. Not bad! 👏 

Takeaway: a lot of micro finance and traditional financial companies, mostly of smaller scale, are looking to invest in technology to make a lateral entry into the “fintech” arena. 

One aspect where these players inherently win is existing distribution — they have thousands of existing users and as a result don’t have to spend a lot on marketing to acquire new users, unlike disruptive startups. Can’t say how far these players will go fighting against much nimbler, more ambitious tech ventures, but the category is certainly evolving faster than we can keep pace with. Watch out. 

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Finally, a laggard raise worth mentioning

Microfinance player, CreditAccess Grameen, which focuses on micro-loans to women predominantly in rural areas across the country will be raising a whopping ₹1,000 crore by offloading some equity to bigger financial institutions. The raise is partly driven by RBI’s mandate to establish adequate liquidity position as well as key growth opportunities the company wants to chase to help its increasingly digital user base.

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TCS did not disappoint 🙌

Despite the IT industry getting served a harsh jolt during COVID, TCS managed to make an impressive comeback in 2Q — pulling in a 6.6% sequential net-profit growth, and beating analysts’ estimates for revenues.

Brightest spot of the earnings release however was margin expansion — despite billings pulling back and prices being pressured, TCS managed to improve operating margins to 26.2%, solid comeback from 23% levels of previous quarter. Investors cheered along and stock popped a few percent after print. Read more.

Investors were holding their breath for these numbers and so far the show appears to be going quite smoothly. Infosys and HDFC are next.

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While we’re on the subject ☝️

Another data-point that helped boost investor confidence this week is the Indian Services PMIan index that measures output production in the services sector by taking stock of new contracts, services delivered, hiring etc., which continued its 5th straight climb up for the month of September

Up almost 20% from August levels, the Services PMI landed at 49.8 for last month, although shy of any meaningful growth for the year of 2020 yet. At the lowest levels at the peak of lockdowns, the index had even seen troughs of single digits. Read more.

Takeaway: the India-machine is humming along, albeit not as vigorously as we hoped for, but things could’ve been far worse. Manufacturing activity particularly has comeback stronger than expected, and better than services.

Regardless, India’s IT services industry particularly has used the slump to get much leaner and widen its tentacles with key acquisitions globally, so recovery from here on out should be much more aggressive. Moving on…

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What else are we snackin’ 🍿

💰 More fuel on its way - Amazon Pay is likely to get over $1.4 billion in funding from its Singapore registered parent entity. When the move comes through, it will be the biggest investment by a payments firm in India.

🚂 Ain’t leavin’ nothing for others - Amazon has partnered with IRCTC in a bid to allow users to book reserved train tickets on Amazon. Amazon has also waived off service and payment gateway transaction charges for the introductory period.

🪑 IKEA’s big plans - Furniture retailer Ikea is planning to bring its small format stores to the city of Mumbai to accelerate its omni channel strategy starting 2021. A big Navi Mumbai store followed by 2 smaller fronts are on the charts for next year.

🍎 The Cook is ready to serve 5G - Apple’s event is scheduled for October 13 where expectations are set for the company to unveil a new version of the Iphone with 5G connectivity.


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