1. High and rising attrition rates among India IT majors.
2. Two very interesting stories about economic clusters in Rajasthan. One is about the already established cluster of coaching institutes at Kota. The article explains the cut-throat competition among the institutes to poach star teachers with exorbitant salaries (and students with attractive offers). The competition has become more intense and dirty with the entry of VC-backed firms like Unacademy and Physicswallah, who have no compunction to poach teachers with annual salaries which often touch several crores.
The article also highlights the risks faced by the original entrepreneurs (in this case Bansal Classes and Allen Career Institute) as the industry matures and competition intensifies.
Another article is about the emerging industrial cluster of Japanese companies at Neemrana, which straddles the national highway between Jaipur and Delhi. It's reported than over 50 Japanese companies have invested over Rs 6000 Cr in the zone. The cluster has been catalysed by the Rajasthan State Industrial Development and Investment Corporation (RIICO), which apart from developing industrial parks with infrastructure also acts as a financial institution providing loans to large, medium, and small industries.
3. More on the reality of the small and undeveloped nature of the Indian markets, from the market for business software. The Ken has an article on Tally, the accounting software used by most small and medium businesses in India, to inform why business software companies will struggle to survive on Indian demand.
Depending on how you measure it, Tally has a market share of 80%. Some reports suggest that that number may be as high as 90%. I can’t think of another product that dominates a category like Tally does, apart from maybe Google in search. And this is an enterprise product which is essential for every single small, medium, and large enterprise across the breadth of India... By all rights, Tally should be an outrageously successful company, making money hand over fist by selling software that every business needs to users who love it in a market that it has a stranglehold on at an obscene profit margin. As a company, it should be worth billions of dollars. In March 2020, Tally reported an annual revenue of around Rs 500 crore. That’s a little less than US$60 million, which is what Netflix paid Dave Chappelle for two of his stand-up specials...It took the long, hard road to get to where it is today. It was started in the late 80s, and it’s taken them thirty five years to get here. We keep hearing a lot of stories about the emergence of Indian software-as-a-service (SaaS) companies. Freshworks. Zoho. Chargebee. They are all admirable examples, but what all those stories neglect to mention is that Indian SaaS companies make almost nothing from India. Take Zoho, for example. Last year, it recorded a revenue of close to Rs 4,500 crore (US$570 million). Less than 5% of that was booked from India. There’s a general theory in software and the internet that once you lock-in the users, the money will follow. Acquire now. Engage well. Monetise later... Tally shows us that you can do all of the above, and you still can’t make money.
This should be a cautionary tale for the startups who are pursuing SME business services market.
4. JP Morgan's Karen Ward sees silver lining in the inflation gloom,
“Good inflation” is a reflection of healthy demand, enough for companies to have a degree of pricing power and confidence to invest for expansion. Then there is “bad inflation” — a cost shock which serves as a tax on growth. While we are experiencing “bad inflation” now, I believe this cost shock should pass within a year. Moreover, inflation will probably settle at a modestly higher rate of good inflation since the cost shock will serve as a catalyst for more robust demand and healthier nominal growth in the future as it encourages households, governments and businesses to invest in labour and energy-saving technologies. Contrary to popular opinion, the new inflation regime should eventually prove to be a good thing for investors. Stronger nominal demand will mean stronger earnings and sustainably higher interest rates.
5. NYT article on the ring-side view (and associated influence) of Washington politics enjoyed by young interns and staff officials to Congressmen and senior government officials, including the White House.
This is a universal trend. There are at least two pathways to influence. One, the physical presence beside busy and important officials makes these people gatekeepers to them, besides being observers to important events. Two, given that their bosses are too over-burdened and generally grappling with multiple problems, logically appealing (irrespective of their merits) suggestions offered by these non-threatening smart young interns generate natural interest.
6. Peloton, which makes exercise bikes and treadmills and offers an App to manage your exercise routines, had become a big hit during the pandemic as it helped bring the gyms to people's homes. However, its fortunes have crashed after the pandemic eased - sales have fallen, share prices crashed nearly 75%, and it has laid off 20% of its employees.
Now comes news that it'll stop making bikes and treadmills at its factories and outsource all its manufacturing. Rexon Industrial, a Taiwanese company that already produces some of its bikes and treadmills will become the primary manufacturer. Peloton is an illustration of the problem with restoring and bringing back manufacturing to the United States.
7. Good long read about the Conservas Pinhais et Cia in Matosinhos, a fish-canning factory just a few miles from the center of Porto, which has been making the Nuri brand of canned sardines since 1920.
8. The era of quantitative tightening (QT) is on us. The US Fed began reversal of its bond buying program from early June and the balance sheet of major central banks are expected to shrink by $4 trillion by end of next year.
The era of central bank asset-buying began in 2001, when the Bank of Japan instituted the policy in a bid to stimulate the country’s languishing economy while benchmark rates were already close to zero. From the fringes of the monetary policy toolkit, the practice moved to the mainstream in 2008, when the Fed, BoE and later the ECB established their own bond-buying programmes in response to the crisis that engulfed the global financial system. Through large-scale purchases of government securities, the central banks helped to push up the amount of reserves sloshing around the financial system. The aim was to encourage banks to increase their lending to households and businesses to a degree that would encourage spending, investments and other activities to help ignite growth...
Over the course of last two years, the Fed snapped up some $3.3tn in US government bonds and $1.3tn in agency mortgage-backed securities. As of March, that left the US central bank owning a quarter of all outstanding Treasury debt and a third of agency MBS. The ECB and BoE each own just shy of 40 per cent of their government bonds, while the Bank of Japan, which is unique in having no intention of stopping its purchases, already owns nearly half of Tokyo’s outstanding government debt. As well as expanding the monetary base, official asset purchases also crowd commercial investors out of the world’s safest assets, and force them to support riskier parts of the economy that might otherwise struggle.
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