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Air India’s seals worlds largest deal

by Tavaga Invest

Markets this week 📊

Retail inflation has come back to haunt us with CPI rising to 6.5% after 3 months of consecutive fall. A big debate is going on whether China will start exporting some more of this inflation as it gradually opens up.

The world seems to be a strange place with US and China at each other’s throats shooting down unidentified objects and “spy balloons”. What are they drinking, seriously!

While it’s a sin to drink, the Indian states are not complaining as booze tax revenues are set to rise to 14% in FY23. That’s precisely one in every seven rupees earned by states. Bottoms up!

Love kept pouring in for Air India from around the world, thanks to the mega-deal placed. After all it was Valentine’s week. Some cheeky movies like DDLJ, Jab we met took to the theatres again to celebrate looove. So much to draw in more crowds to the big screen! We hope this trend dies down just as quickly as roses post V-Day. 

Do you also have a love-hate relationship with the markets? Then let us become your cupid. Let our experts review your portfolio while you go enjoy your movie.  

Let’s now dig deep into some of the important news that made headlines this week

Love pouring for India ❤️

Take off: This Valentine’s Day brought a lot of love for Air India from overseas as it placed an order for 470 aircrafts from Airbus (250) and Boeing (220) worth $8bn, the biggest order in the history of the aviation industry! From UK PM to US President Biden, this deal’s got everyone super happy. Even happier than the 6500-odd pilots Air India has promised to fly these planes it seems as they call it a “historic agreement”. 

Funny how tables have turned: Biden says the deal will create a “million jobs across 44 states” in the USA and Sunak feels that this will help UK “level up”. This deal could potentially strengthen its ties with them and might even convince Boeing and Airbus to set up plane assembly facilities in India. Quite interestingly, how one deal can change the lives of so many people, no? Champagne popping time!

Game plan: Why so many aircrafts? you may ask. Firstly, bulk orders get you discounts and priority. Secondly, Air India has sky-high ambitions (quite literally!) of ruling the international routes. And for that, it needs to up its fleet from 220 aircraft at present. Mind ya, Indigo has 300. The deal also includes 190 low-cost 737 max aircraft to take on the domestic battle with Indigo head-on.

What about demand? 78% of Indians want to travel in 2023 despite higher travel costs. The chaos in airports during the peak holiday season is a testament to this burgeoning metric. 

Our Take

Many airlines around the world do not buy airlines anymore. They lease instead to keep costs low and maintain profitability. That has also been the main reason behind Indigo’s success story. But Air India now is a changed entity ever since it got the backing of the Tatas. Lease rentals are also going up btw. So will this game plan help the Maharaja defeat Indigo? Only time will tell. 

Cheery start to the year? 😬

Numbers are in: India’s trade deficit narrowed in Jan and hit its yearly low at $17.7 bn with both exports and imports contracting. Weak exports due to global slowdown was a given and a visible trend for past few months. But a 3.6% yoy decline in imports came as a surprise.

Cheer or worry? On the surface this would mean a downward revision in India’s current account deficit (CAD) that was earlier pegged at 3% of GDP by more economists. But falling imports are a pain and take away all the false cheer. 

Details please: Oil and gold are major import drivers for India and gold imports were massively down. But this time non-oil, non-gold imports also shrank from a year ago for the first time since October 2020, when pandemic was deep. Signals of a domestic slowdown? Oil and electronics exports remained strong but engineered goods took a major hit this last month. Oil may be the saving grace as Russia will sell cheaper oil to friendly countries aka India.

Services a bright spot: Revenue from services shot up to $16.5 bn with most of the dough coming from consulting, software, and management services but are expected to take some recession hit. Software exports are roughly 47% of total receipts, and the surplus is due to software services export. Despite the grim global scenario, GoI predicts that services exports will grow by 31% this year.

Our Take

While some economists have taken this narrowed trade deficit as a good sign reducing their CAD predictions, the reason behind the cheer warrants caution. Going ahead, any meaningful recovery in exports looks difficult amid the expected slowdown in India’s major export destinations such as the US, UK and Euro. 


Desi jugaad not working ☠️

The struggles: Apple’s decision to shift production from China to India has not gone as planned. From tariffs to logistics and infra, everything seems to be a problem. Only 1 out of 2 components coming out of Tata’s Hosur factory met Apple’s standards, far away from it’s “zero defects” goal. Apple, anyway, has an uphill task to deal amidst global headwinds and a rare revenue decline last quarter.

Snags in the plan: Apple hoped to unwind its China-centred supply chain using the “blueprint” they used in China but it is not working. Why? Despite engineers being sent to India they have trouble training people here as they are set up 2 hours away from work. There is a clear lack of a “whatever it takes” attitude. 

What now?: China had over 300,000 people working on producing iPhones in China and Apple has been manufacturing low-range products in India since 2017. They realize the levels of efficiency are different and it will be a long road ahead for India. 

Our Take

China’s Zhengzhou factory was called “iPhone City” which India may take years to replicate. Manufacturing export potential is a huge $1tn+ in 2028, but not without the right policy support. Recent jobs ads from Apple underscore how bullish Apple is about India. Afterall, it is not common for a global MNC to mention “India” 15 times in its earnings call. We have to wait and see whether Apple will adapt to the bureaucracy or get its way out. 


Quick commerce loses its charm 🧿

Shutter down: The fad of quick commerce is wearing off. Reliance Retail has shut down its quick commerce delivery arm, JioMart Express, within a year of its launch. The venture was still taking baby steps, being launched in Navi Mumbai, and now all big plans of expanding to 200 cities are down in the drains. The app has been taken down, and the website inaccessible. Reason: high burn.

Plan B? Yes, The Meta-Jio partnership involved a $5.7 billion investment and now JioMart will accept orders through Whatsapp with delivery time being extended from 90 mins previously to atleast a few hours now. Hyperlocal delivery startup Dunzo is also back to the drawing board and reworking its cash-sucking business model and shutting down most of its dark stores. Plans to go back to delivering groceries from supermarkets and focus on B2B deliveries.  

Our Take

Quick commerce was a pandemic baby. More dark stores, minimal delivery charge, discounts nothing has worked in the favour of unit economics. Dunzo reportedly lost ₹230 on every order in the first half of 2022. Now that easy money is gone, startups’ focus has shifted from cash burn to increasing customers’ average order values. Even the big boy with deep pockets like Ambanis feel the pinch. 

What else made the news?

💸 Scrap: Adani Power will not pursue its ₹7,017 cr deal to purchase DB Power’s thermal assets in Chhattisgarh, as the group looks to curb spending after the Hindenburg rout.

😟 Pulling out of India: Twitter fired 90% of its Indian staff as it shut down its offices in Mumbai and Delhi in its cost-cutting efforts. Google India too fired 450+ employees across different verticals.

💰 In the money: HDFC raised 25k crores in India’s largest rupee bond issue to date. 

💪 Ola on a roll: Ola plans to expand to 500 experience centers by March, it currently has about 200 stores across the country.   

💰Strategy sale: Kotak Mahindra Bank may sell a minority stake sale in its insurance arm to strategic partners.

🤑Sixer: India’s opening batswoman Smriti Mandhana fetched the highest bid ( ₹3.4 crore) in the Women’s Premier League auction and went to the Royal Challengers Bangalore.

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Ruchi Mehta



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