1. Interesting take on investing in India by Marcellus Investment Managers,
... polarised nature of corporate profitability in India — 20 Indian companies now account for over 90 per cent of profits (up from 30 per cent a decade ago). Most of these 20 companies are growing their free cash flows (FCF) at over 25 per cent per annum, despite the challenging economic circumstances in the past five years. The consolidation of the world’s fifth-largest economy in the hands of 15-20 corporate giants is a once-in-generation event, which we are focusing on.
It says volumes about the scale of wealth concentration that's happening in India and how it's distorting the country's equity markets.
2. The Indian economy demand side deficiency story that comes in the way of electric car ambitions,
“Unfortunately the technology presently available leads to electric cars being produced at a cost much higher than the conventional cars,” Maruti’s Chairman R.C. Bhargava said in the company’s annual report Monday. “This, along with the lack of charging infrastructure makes it very difficult to sell electric cars to people who can only afford small cars.” The market penetration of electric vehicles will be “very small” given that only 5% of cars sold in India are priced above 1.5 million rupees ($20,169), said Bhargava, who heads the local unit of Japan’s Suzuki Motor Corp.. The per capita income in India is only $2,000 -- 5% of that in Europe and Japan -- which puts expensive electric cars beyond the reach of most consumers, he said.
This does not prevent the country aspiring to attract manufacturing facilities for export markets.
3. Livemint on the fraudulent loans made by the once poster boy of Indian banking, Rana Kapoor.
4. Populism gone amok,
Sounding the poll bugle ahead of the 2022 elections in Punjab, Shiromani Akali Dal president Sukhbir Singh Badal Tuesday announced a 13-point pre-poll promises charter, declaring that if the SAD-BSP alliance is voted to power, it would give 400 units of free electricity to residential consumers, reduce the price of diesel by Rs 10 for every litre purchased for agricultural purposes and give Rs 2,000 every month to all women heads of blue card holder families. Sukhbir also promised a 75 per cent quota for the state’s youths in private sector jobs.
5. The Government of India has introduced a Bill in Parliament to do away with the retrospective amendment on taxation of indirect transfers. The history,
In January 2012, in a landmark judgment in Vodafone’s case, the Indian Supreme Court headed by the then Chief Justice, ruled that transfer of shares of a company incorporated outside India would not be taxable in India due to absence of situs of shares in India and more importantly, absence of charging provisions to tax such transfers. However subsequently, the UPA government in its Budget of 2012 introduced an amendment making indirect transfers taxable in India purportedly clarifying the legislative intent which in effect nullified the ruling of the Apex Court. This in essence meant that capital gains arising from transfer of shares of a foreign entity deriving substantial value from assets located in India were chargeable to capital gains tax in India. The threshold for computing ‘substantial value from India’ was later defined to be fifty percent of the value of the shares of the overseas entity sought to be transferred. This led to tax demands being raised in seventeen cases including Cairn Energy Plc and Vodafone Group and more importantly, affecting sentiments of foreign investors for lack of certainty due to government making changes retrospectively in tax laws.
6. Sandeep Goyal points to the silver medalist's remorse,
Researchers took video footage of the 1992 Summer Olympics in Barcelona, Spain. Specifically, they recorded the medal ceremonies and analysed the footage from the athletic competitions immediately following announcements of the winners. They studied the happiness displayed by each of the medalists on a 10-point scale, with 1 being “agony” and 10 being “ecstasy.” On average, the silver medalists scored a 4.8, and the bronze medalists scored a 7.1 immediately following the announcement. Later in the day, at the medal ceremony, the silver medalists scored a 4.3 on the happiness scale, while the bronze medalists scored 5.7. Statistical analyses proved that both immediately after winning, as well as later at the medal ceremony, bronze medalists were visibly happier than the silver medalists.A similar experiment was repeated post the judo matches at the 2004 Summer Olympics in Athens. Data was collected from 84 athletes and 35 countries at three different times: Immediately after their matches, when they received the medal, and when they posed on the podium. Altogether, the research found that 13 of the 14 gold medal winners smiled immediately after they completed their winning match, while 18 of the 26 bronze medalists smiled too. However, none of the silver medalists smiled immediately after their match ended. More interestingly, the facial expressions that were recorded among silver medal winners ranged from sadness (43 per cent) to contempt (14 per cent) to nothing (29 per cent).
7. Industrial electricity prices are among the highest in India, a consequence of the inverted tariff structure whereby residential consumers are subsidised by industrial consumers,
8. Michael Tory in FT points to a feature of the UK equity markets, where dividend distribution is disproportionately high among public limited companies. This, in turn, prevents capital appreciation and emergence of large companies. He holds the UK pension fund ecosystem as being partially responsible,
The UK has a pension and insurance company savings system biased in favour of dividends rather than capital appreciation. Indeed, the FTSE 100 has been the one of the poorest performing markets in the industrialised world in capital appreciation terms, rising just 14 per cent over the past 20 years. But the vast majority of the FTSE’s entire return over the period was generated by dividends (120 percentage points of a total return of 134 per cent). What is it about the UK ownership system that has led to this? On the pension side, it’s three features of typical funds: they have a finite life since they’re largely closed to new members; they’re very small, with an average size of £300m; and they are structurally risk averse. Insurers need to ensure their assets match long term liabilities, so they prioritise income in equity investment as it can be projected with more assurance than capital gains. Investment decisions made with such priorities then shape the UK corporate behaviour. British management and boards are sometimes criticised for risk aversion. But this largely reflects the aims of their owners, which are accommodated through over-distribution of dividends. This also favours incremental projects rather than moonshots and disruptive technologies, one of the reasons the UK has so little exposure to growth and innovation.
He argues in favour of longer-term risk capital investors,
Canada’s CPPIB, Ontario’s Ontario Teachers’ Pension Plan and Quebec’s PSP and CDPQ are representative examples from my home country. These funds bring scale — $100bn-$500bn assets is typical (against an average UK pension fund size of $500m); an indefinite time horizon; and an appetite for, and capability to take and manage, risk with a view to enjoying long-term capital appreciation. These are the deep-pocketed and long-term investors any large economy needs. We must start to create pension funds like these today if British capitalism is to have much hope of a thriving tomorrow.
9. Malini Goyal in Livemint on the recycling of risk capital by the successful startup firms, especially the unicorns,
According to a data analysis by Zinnov, Indian unicorns have invested in 90 plus startups in more than 110 deals over the last decade. 19 of the 50 unicorns in India have made at least one investment in an Indian startup. A majority of the investments have been made by Zerodha, Paytm and Zomato, which account for more than half of all equity investments by active unicorns. Interestingly, despite the pandemic, the investment pace of these unicorns has remained consistent. This year has already seen 14 investments in the first half from the likes of Zerodha.Take Zerodha’s Rainmatter funds for instance. Last year, it set up a dedicated team to focus on fintech startups. The Bengaluru-based fund functions more like an incubator that provides well-equipped workspaces and a funding of $100,000 to $1 million to innovative startups in the space of capital markets... Besides, being part of the Zerodha stable also helps these startups forge new connections in the industry and get relevant advice and mentorship to grow their product... Zerodha has invested in a range of startups including Streak (an end-to-end platform that creates, back-tests and deploys algos without coding), GoldenPi (India’s first online marketplace for fixed income instruments like bonds and debentures), Digio (bringing paperless documentation to business and consumers), Finception (aims to simplify all things finance for millennials from financial news to financial planning), Smallcase (a thematic investment platform that helps investors build a diversified low-cost portfolio) and Tradelab (builds cutting edge technology for capital market businesses). Through its fund, Zerodha’s attempt is to tap into adjacencies and focus on nurturing a vibrant ecosystem in the capital market with it at the centre.Lenskart’s $20 million Vision Fund plans to invest up to $2 million each in startups that are synergistic to the eyewear, eye-care and omni-channel retail sectors. With 5,000 people, 750 plus stores and a daily processing rate of 20,000 for eyewear products, “startups that engage with us will have the potential to leverage all of this," says Lenskart co-founder Peyush Bansal... In 2019, Paytm had set aside ₹500 crore to invest in early-stage startups for the purpose. While each deal varies in its construct depending on the entrepreneur’s comfort, typically, Paytm prefers to take large strategic stakes (of 50% or above) and lets these startups leverage its platform to reach customers... Dream Sports has invested in FanCode, a sports content and commerce platform. This aligns well with the parent’s ambitions to become a one-stop solution for sports... Though no longer a startup and part of retail giant Walmart, Flipkart too has set up a $100 million fund called Flipkart Ventures. Over the last decade, the home-grown e-tailer has taken minority stakes in over 12 startups, including Blackbuck, Ninjacart and Shadowfax... The fund, managed by a dedicated team of experienced investment professionals, will do early-stage investments with a cheque size of $1-3 million for the first round which can go up to $5 million.
The attractions for unicorns and other successful startups to recycle capital,
Catching them young and investing in startups at an early stage through funds offers these unicorns a good entry point. Of course, the valuations are much lower. However, it helps them enter the fray from a position of strength. With a large user base and a deeper understanding of the digital landscape, the unicorns can spot emerging trends far ahead of others. Their young discerning founders think about risks very differently than the large traditional corporates whose risk appetite is constrained. Also, culturally unicorns can relate to these startups and their entrepreneurial energy a lot better.
10. Extract from Simon Kuper's new book that charts the rise and (now) decline of Barcelona. The extract focuses on the decline and the role of the club's leadership in the fall in fortunes since its last major win in 2015.
Almost invisibly, Barcelona has been in free fall ever since the night in Berlin in June 2015 when it won its fourth Champions League final in 10 years. The club had achieved dominance on the cheap, thanks to a one-off generation of brilliant footballers from its own youth academy... Barça was used to overpaying. Whereas most clubs target a type — say, a young playmaker who costs under €30m — Barcelona until 2020 shopped at the top of the market, and could afford to target an ideal. In this case, Barça didn’t want a “De Jong type”. It wanted De Jong himself. As so often when bidding for a player, it had no alternative in mind, and the selling club understood this. “You know you will pay more than another club,” shrugged Rosell...Barcelona paid Ajax a transfer fee of €75m. According to football agent Hasan Cetinkaya, advising the Dutch club, this was nearly double what Ajax had initially hoped to get... Between 2017 and 2021, Messi earned a total of more than €555m, according to extracts from his 30-page contract published in El Mundo newspaper. Neither Messi nor senior Barcelona officials denied the figure. One senior Barça official told me Messi’s salary had tripled between 2014 and 2020. But he added, “Messi is not the problem. The problem is the contagion of the rest of the team.” Whenever Messi got a raise, his teammates wanted one too... In total, Barcelona spent over €1bn on transfers between 2014 and 2019, more than any other football club.
Kuper prophesies even worse times,
This season could be worse for Barça. La Liga has been indicating it will only let the club spend about €160m or €200m on player costs this year, less than a third the amount of three years ago. Barcelona isn’t merely paying unaffordable wages. It’s also still amortising failed transfers of years ago. The club has gone from discount shopping to only signing out-of-contract players who carry no transfer fees at all. Even then, La Liga will only register them to play and re-register Messi if Barça can first slash its wage bill.
After Kuper wrote, it has gotten worse with the exit of Messi himself.
11. Tim Harford points to "ideas behind their time", or those ideas which take time to materialise in the shape of commercialised products or services despite being on the horizon for long time.
Consider the bicycle. It was not produced in even the most primitive form until the early 1800s, and a practical version with chain drive was not widespread until the 1880s — just in time to compete with the motor car. Anton Howes, author of Arts and Minds, points to the flying shuttle, invented in 1733. “It radically increased the productivity of weaving,” he writes. “It involved no new materials . . . and required no special skill or science.” The craft that it transformed has been around long enough to be mentioned in the Old Testament. Steven Johnson, in his book Extra Life, suggests that evidence-based medicine is an idea behind its time. The idea of running experiments is centuries old, but the first properly randomised controlled trial in medicine took place in 1948. It could easily have been routine before da Vinci’s time, but instead clinical trials lagged far behind anaesthetic, antibiotics, antiseptic, pasteurisation and vaccines.
Some of the reasons,
The bicycle is not as straightforward an invention as it seems. To move from ox-hauled cart to human-powered bicycle requires smooth-rolling wheel bearings, which in turn need precisely engineered bearing balls. Modern steel ball bearings were not patented until the late 1700s, and demand from the 19th-century bicycle industry helped to improve their design. We often overrate the eureka moment of the inventor’s doodle and overlook the importance of materials to enable or inspire that idea... Another obstacle to innovation is that people don’t make the right connections. The clinical trial, for example, sits on an uneasy border between medicine and statistics. The medical tradition emphasises the expertise of the doctor and the care of the patient as an individual. The statistical tradition picks patterns out of noise and uses methods that can be applied equally to brewing the perfect pint or testing the effect of fertiliser on crops. Combining the two is not an obvious step... Another issue is that many inventive people are pushed away from the world of innovations.
12. Finally Scott Galloway has this stunning graphic of change in mortalities associated with vaccine preventable diseases.
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