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Hello, hope you are doing well!
To sum up Week 5 of July 2021, we will be reading about…
Ola might diversify its business
Rakesh Jhunjhunwala’s foray into the Indian Aviation sector
India’s growth forecast
Snippets of other things that happened
Wrap-up
Hailing cabs or selling cabs?
Ola, looking to diversify its biz., is on the verge of launching a used car retailing business in Bengaluru, said three people aware of the details of the company’s new business line. This would be the first major product launch for the Bengaluru-based company in the last two years. Ola is also preparing for a public listing and recently raised $500 million in a pre-IPO round from Temasek, Warburg Pincus, and its co-founder Bhavish Aggarwal.
The Entrackr story quotes an unnamed source, who said that the company planned to buy used cars from customers, service them, and then put them up for sale.
Ola has always been a tech company, which sold services. Its recent EV play, which mirrors its investor Didi Chuxing, is its first foray into being an OEM. BTW, nearly 90% of consumers in India are willing to pay a premium for buying an EV, according to a survey by consultancy firm EY.
Now, to get into selling used cars, Ola is trying to be a complete mobility player.
But why? India’s economy is still struggling and selling vehicles seems counterintuitive. But it may actually work out. For three reasons:
People want to buy cars because of the pandemic and may not be able to afford new cars.
The chip shortage is creating difficulties in the production of new cars.
Cab travel is down, this gives an avenue for Ola to buy the used cars from its drivers.
But while Ola claims a strong recovery post the second wave of the coronavirus pandemic, experts tracking the mobility space estimate that Ola and Uber are still some distance away from regaining their pre-Covid peak. Time to check if the founder’s OTP for success is correct or not!
‘Tujhe Ak(a)sa Beach ghuma du, aa chalti kya?’ is the only song we are hooked on to currently as famed investor, Rakesh Jhunjhunwala, announced his entry into the aviation sector with a low-cost airline, Akasa. Where just a fraction of the population takes the aerial route to travel it is definitely an under-penetrated market in India. Joining hands at the table is ex-Indigo boss, Aditya Ghosh. He has chalked out a plan for Indigo in the past and captured a significant portion of the market. A former senior executive of Delta Air Lines will also join the famed board. Rakesh Jhunjhunwala will own a 40% stake in the airline as he is poised to receive a no-objection certificate from the Aviation ministry within the next two weeks.
There are plans to add 70 aircrafts in 4 years once the dream venture takes off. It will accommodate 180 passengers as the pioneer of the project remains extremely bullish in the aviation sector. (Just like his stocks!) The contrarian bet might pay off as the economy continues to show signs of progress, keeping the pandemic in mind. Major firms faced huge losses due to travel disruptions and are still reeling under pressure. The grounded Jet Airways has found a new investor in the Kalrock Capital-Murari Lal Jalan consortium, whereas Air India’s search for a new investor will increase competition in the sector. It will be stiff competition with Indigo that has 50% of the market share.
Plans are in full swing to invest $35 million in the ultra-low-cost airline that should take off later this year or early next. Veteran aviation Jet CEO Vinay Dube will also herald the growth prospects of the firm with 82% of Indians opting for a low-cost airline in pre-pandemic travel. Indian carriers had a projected loss of ₹21,000 crores prior to the second wave. According to Forbes, Rakesh Jhunjhunwala has a net worth of ₹34,250 crores, sufficient enough to revive a particular sector. Aviation is in one of the biggest existential crises as experts question the timing of the venture. Famed British billionaire, Richard Branson, had stated that to turn into a millionaire starting with a billion-dollar and an airline is a key. However, our own Branson (Vijay Mallya) failed to prove the Brit wrong, we just have to wait until the Jhunjhunwala venture takes off!
(I)nternational (M)utual (F)eelings about the economy
While the curve of no. of active cases in India is plateauing, the growth forecast curve is sloping down. The International Monetary Fund (IMF) has started to feel a little anxious. It has warned that emerging economies will take longer to limp back to normal if they don’t get enough vaccines to battle the pandemic. Frequent waves of the virus will cause shutdowns and the longer it takes, the worse it will become.
IMF on Tuesday (27.07.2021), cut its economic growth forecast for India to 9.5% (from 12.5% projected in April before the second wave took a grip) for FY21-22, as the onset of a severe second Covid wave cut into recovery momentum. But IMF is not alone; it joins other global and domestic agencies which have cut India’s growth estimates for the current fiscal. Last month, S&P Global Ratings projected a 9.5% GDP growth in the current fiscal and 7.8% in 2022-23.
"Growth prospects in India have been downgraded following the severe second Covid wave during March-May and expected slow recovery in confidence from that setback." - IMF in its World Economic Outlook
With lockdowns being lifted and restrictions easing up, India's economy is gradually recovering from a deep contraction in the fiscal year ended March 31, 2021 (7.3%) and a subsequent severe second wave of Covid. But hopes are strong as global recovery is also expected to take place, albeit with a widening gap between advanced economies and many emerging markets and developing economies.
"Our latest global growth forecast of 6% for 2021 is unchanged from the previous outlook, but the composition has changed," IMF’s Chief Economist Gita Gopinath said in a blog post released along with the WEO.
What else happened?
Where is the admission form?: If there is a business school where all of Byju's acquisitions study valuations, we want an invite. No seriously, the no. of acquisitions by Byju’s can literally fill a classroom, and there have been new admissions this week as the education mammoth acquired Toppr and Great Learning in a deal worth $600 million in cash and stock. Curiously, Great Learning was bootstrapped and all the exit bonanza goes to the founders. Now, that's a lesson.
Port luck?: Adani Ports and Special Economic Zone (APSEZ) has announced that it has raised $750 million dollars from foreign investors via a bond offering. The senior unsecured USD notes have been issued with a maturity of 20 years (5% coupon) and 10.5 years (3.8% coupon). Its container cargo volumes showed a 16% Y-o-Y growth with its market share increasing to 41.2%.
Strong fundamentals and unique business strength has allowed APSEZ to raise funds for over 20 years from foreign investors. Its debt from overseas investors stands at 73% up by around 4%. The funds will be used for refinancing existing debt and other capital expenditures.
Raising the stakes high: With Indians confusing this pandemic with a pahad-emic, the travel & tourism sector is definitely recovering its revenues. But some related companies, are soaring higher and higher. Ixigo, a leading travel app, has raised $53mn, through a combination of primary and secondary issuance of shares, from investors, led by the Singapore sovereign wealth fund GIC, ahead of its proposed initial public offering, according to a regulatory filing. Apart from GIC, other investors include Infoedge Venture Funds, White Oak, Bay Capital, Orios Venture Partners, Trifecta Capital, and Malabar Investments, as per the filing to the Ministry of Corporate Affairs.
To wrap it up…
The week cannot be wrapped up without talking about the Chinese government’s suicidal move to kill its ed-tech sector. Yes! The same sector that raised $16 billion in 2020 and comprises of investors like Alibaba, Tencent, and Temsaek to name a few. While the intentions are not yet clear, experts believe that the drive will bring down the cost of living in the country as it works its way around the one-child per family rule. New regulations bar ed-tech companies from coming out with IPOs and also modifications in their content and delivery. Shares of major private tutoring companies plunged as much as 34% on the same day.
Four of the six weekly economic indicators dived into the red zone. The Power consumption has gone down for the second consecutive week as unemployment and vehicle sales take a tumble too. Although the July PMI numbers will give a clearer picture, fears of another wave loom large.
On the markets’ front, Nifty/Sensex were down 15.40/66.23 points (0.098%/0.13%) to close at 15,763.05/52,586.84 on Friday (30.07.2021). Most of the IPOs that hit the market during this month have done exceptionally well with Glenmark Life IPO being subscribed over 45x and Tatva Chintan shares surged over 100% on Day 1. Investors have now set their eyes on the annual Jackson Hole conference for further guidelines on the Feds tapering process for bond purchases. The Fed still believes that it is not yet time to pull back on the monetary stimulus as it reels under the pandemic.
The 10-year bond yields rose to 6.2% as the RBI stated that the said duration of bonds had more of an impact on the bond yield. From Friday’s auction, RBI raised ₹35,000 crore from the market by selling bonds. Moreover, these bonds are being sold to the respective underwriters, instead of the bidders. They however end up coming back into the market.
This Olympics is teaching us that ‘it is OK to not be OK’, however it is crucial to show up on these days as well. Be it Simone Biles, who could not show up, or PV Sindhu, who lost the battle against the world’s No. 1 shuttler, everyone has their ups and downs. And the markets or your portfolio are no different. Keep believing in your strategy, accept failures if convictions go wrong, maintain a disciplined approach to investing, and you will be rewarded in the end. The health and wealth portfolio is closely related, hence it is crucial to focus on the former as well.
Stay safe! Stay healthi-fied!
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That brings us to the end of this weekly wrap-up.
See you next weekend. Stay safe!
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Sources: Moneycontrol, The Signal, The Boring News Co., and Motilal Oswal.
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