Weekly Wrap Up

Is the tide turning for the new age tech stocks?

Markets this week 📊

The topsy-turvy of the Adani group stocks continued for another week even though the Hindenburg shock is gradually wearing off. Government in a surprise action, blocked portals of a few lending apps with probable Chinese links leading to a flutter in the fintech world. It is to be seen who will get weeded off in the wheat vs. chaff exercise. As much as we keep away from any sombre news, our heart goes out to people in Turkey and Syria who were hit by massive earthquakes this week.

On a positive note, Coke Studio, the popular music show by Coca-Cola is returning to India after 8 years in a completely new avatar. Will this marketing game help the Cola giant beat the desi favourite Pepsi? In case you don’t know, most people actually pick Pepsi over Coke in a blind taste test between the two.

Indian markets remained fairly flat with many of FIIs shifting their focus to China now.

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

Enemy No. 1 👿

Party pooper: It’s heartening to see that RBI is in no mood to celebrate that inflation is now down to sub 6% and the fact that India has the lowest inflation among major economies. RBI and its team yet again hiked policy rates by 25 bps. This takes the policy rate to 6.5%, last seen in Feb 2019 but inflation at that time was a paltry 2.6% That seems like a generation ago!

Stance maintained: RBI may or may not hit the pause button in its next meeting in April. Its peers in the US too, hold on to this cautiousness.

Our Take

The inflation outlook in India is mixed with better prospects for the rabi crop but masked with global uncertainties. The majority of the MPC members are still wary of inflation, probably because it is still near the upper tolerance mark of 6%. Bad news for all the EMI payers. Do not expect your instalments to go down any time soon!

Birds of a feather flock together 🤑

Surprise: Paytm shares zoomed early this week after reporting operating profits three quarters ahead of guidance. Net loss narrowed from ₹778 crores last year to ₹392 crores in Q3 this year. Its biggest critic, Macquarie, in a surprise move double upgraded the stock from underperform to outperform. In case you missed it, Macquarie analyst Suresh Ganapathy released his first note on Paytm just hours before the stock was to be listed which kickstarted the stock downfall. Since then, Macquarie has released multiple critical notes on the stock.

Devil is in the details: Revenues surged 42% YoY. Strong growth in lending and traction visible in high-margin services improved contribution profit margin from 51% (from 31% last year). BUT, profitability and cash flow still look like a dream. Operating numbers excluded ESOP costs which will remain a recurring feature in the fintech’s financials.

Bird of a feather: Another New-age tech company Zomato announced results. Unlike Paytm, Zomato’s woes continue as loss widened more than 5 times to ₹347 cr. But Zomato founders are excited about revenue growth of 75% and standalone profit of ₹62 cr. Despite several high-profile exits, no external hiring is on the cards.

Our Take

While markets showed enthusiasm for both these loss-making firms, the worst seems far from over. Uncertain business models, heightened competition, along with regulatory risks may remain an overhang. Unless these new-age players start delivering on profits, they shall remain a risky bet!

WORLD

To err is inhuman 💀

Rough start: Google flaunted its new ChatGPT rival aka Bard at an AI event. Just a day earlier Microsoft had launched its new ChatGPT-powered Bing amidst a heated bot battle. But this hastily staged event turned out to be a big mistake after Bard made a factual error costing Google a whopping $100 billion. To save face, Google highlighted rigorous testing process is underway but that could not stop Alphabet’s shares from tumbling ~8%, the most in over three months.

Search wars are back: AI has unleashed another battle for search dominance after Google beat Microsoft’s Bing more than a decade ago. But the problem is the breakneck speed at which each is trying to beat the other this time. AI chatbots like ChatGPT and Bard often blend fact with fiction, confidently stating incorrect information. The systems are trained on massive amounts of text and analyze patterns to determine word sequences, but they do not query a database of proven facts. As a result, they can “hallucinate” and create false information. Coined as “bulls%$#@t generators by a professor.

Our Take

As OpenAI, Google, and Microsoft all rush to launch their AI chatbots, one needs to consider the future of the internet and accuracy. These bots are trained to give fast answers and need to follow what we were taught in school “think first, then answer”. AI technology has the power to reshape the world as we know it. Will Google be able to win in this “move fast and break things” game again?

TECH

Funding error 404 ⚠️

Purse strings tighter: Funding winter looks to extend to summers. In Jan this year, Indian startups raised only $1.4 bn in VC funding, a 70% slump from last year as per the data from Tracxn. The next couple of months look grim and cost-cutting will be the obvious choice for startups to stay afloat.

Unicorns disappear: Only 3 companies, PhonePe, VLCC Wellness, and Kredit bee garnered $100 million+ compared to 11 last Jan. No startup earned the covered unicorn crown last month. In fact, unicorn sightings stopped in Sept 2022 when diagnostic company Molbio attained the tag.

Budget hit: Desi startup ecosystem was caught by surprise after the budget expanded the scope of ‘angel tax’ to include foreign investors. Unlisted companies issue shares to private Indian investors or “angels” at a high premium to their fair market value with a promise of high growth. So startups that raise money by issuing shares at a premium are liable to pay tax on the difference at the corporate tax rate. The budget brings ‘non-residents’ also under this tax which were till now exempt. This means startups raising foreign money will also come under the angel tax umbrella. The global tech meltdown has already dried foreign money and a new tax could worsen the blow.

Our Take

For the first time in 2 years, Tiger Global passed up on investing in Indian startups last month. Tech giants have also given up on ambitious dreams to focus on profitability and operating efficiency. Till now startups were floating with money, but now that the tide has turned, we would soon know who all were swimming naked. Innovation and new-age thinking are bound to be buried in the freezer.

What else made the news?

⏬Another day, another blow: MSCI will redesignate the free-float status of some of the Adani stocks causing another round of sell-off in group stocks.

✔️Painting the town blue: Twitter rolled out its premium service in India. The blue tick costs ₹900 on iOS and Android, and ₹650 for desktop users in India, steeper than the $8 dollar tag in the US.

📉Another one: Disney is slashing 7,000 jobs as it sees a drop in the number of subscribers for its streaming service.

⚖️ Lawyered up: Adani group hired Watchell, Lipton, Rosen & Katz, the lawyers who represented Musk in his Twitter deal, to fight Hindenburg in court.

🚦Green signal: RBI allows travellers from G20 nations to use UPI in India.

👎Another tycoon under debt heat: Anil Agarwal could be under debt stress as the government may thwart his plan to sell Vedanta’s international zinc business to the other group company Hindustan Zinc (govt stake of ~30%).

👝Wallet lite: PhonePe and Paytm plan to integrate a pin-less UPI offering, UPI lite – a virtual wallet that enables low-value transactions of up to ₹200.

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