The Weekly Wrap | Chaos in the Cosmos

In this edition, we talk about Meta firing 11,000 employees, the collapse of cryptocurrency exchange FTX, a new tussle between Ambani and Adani, and some likely changes to the capital gains tax regime.


Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance and markets.


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“Most companies that go through layoffs are never the same. They don’t recover because trust is broken,” Ben Horowitz, co-founder and general partner at the marquee venture capital firm Andreessen Horowitz, once said. “And if you’re not honest at the point where you’re breaking trust anyway, you will never recover.”


Billionaires Elon Musk and Mark Zuckerberg should take Horowitz’s words seriously, for, if they don’t, they may be in deep trouble going forward.


Less than a week after Musk fired half the employees at Twitter, Zuckerberg followed suit with a whopping 11,000 job cuts worldwide—or 13% of the workforce—at Facebook parent Meta, including many in India. The only saving grace was that Zuckerberg was, well, more graceful, than Musk.


“I want to take accountability for these decisions and for how we got here. I know this is tough for everyone, and I’m especially sorry to those impacted,” he said in a blog post. “I got this wrong.”


Meta has been facing the heat due to the rise of Chinese short-video app TikTok, Apple Inc’s privacy changes that hurt ad revenue and, perhaps most importantly, Zuckerberg’s decision to pump billions of dollars into the immersive online world called the metaverse.


To be sure, Twitter and Meta are not the only tech majors that have cut jobs. Several tech companies across the world have let people go, as funding dries up, stocks plunge and the global economy stares at a recession.


This situation could only get worse. So, as an investor betting on the Indian and global stocks in general, and tech stocks in particular, you may want to be cautious. As we always say, invest, but invest wisely!


FTX blows up



While traditional tech companies are cutting costs, cryptocurrency companies seem to be facing armageddon. 


A case in point is FTX, once the world’s second biggest cryptocurrency exchange. The company, founded by Sam Bankman-Fried in 2019 and valued at $32 billion in January this year, just exploded like a supernova.


To be sure, cryptocurrency markets have been royally hammered since the beginning of 2022, with bitcoin and other cryptocurrencies losing more than two-thirds of their value. As interest rates rose and stock markets corrected, many crypto companies and exchanges faced a liquidity crisis. But there was more to the FTX collapse. It was on a roll till July—offering to buy bankrupt crypto lender Voyager Digital and planned a new exchange in Dubai. 


But the following month things began to unravel as FTX was asked by a US regulator to stop “false and misleading” claims about its funds being insured by the country’s government. This unleashed a chain of events that spiralled out of hand. It all came to a head earlier this month when the value of its own token, FTT, plunged by as much as 72%. 


The worst part of it all is there is little hope of a bailout after FTX competitor and the world’s biggest crypto exchange, Binance, walked away from a potential deal to acquire it—just days after announcing the transaction. 


Meanwhile, marquee investors like Singapore’s Temasek, Japan’s SoftBank and US-based investors Tiger Global and Sequoia Capital may have all lost hundreds of millions of dollars in this fiasco. 


So, take our advice, stay away from cryptocurrencies for now. Invest in mutual funds, debt funds, fixed deposits, bonds and stocks. Stick to what you know and understand best. 



Ambani-Adani’s new battleground



Back home, India’s two richest men—Gautam Adani and Mukesh Ambani—are set to fight it out to acquire bankrupt retailer Future Retail. Reliance Retail Ventures and a joint venture between Adani Airport Holdings and the Flemingo Group are vying for the Kishore Biyani-founded retailer. Apart from these two, at least 13 others are also in the fray. 


The Future Group was pushed into bankruptcy after it defaulted on loans and after its lenders rejected a $3.4 billion plan to sell its assets to Reliance, as it faced a legal challenge from e-commerce giant Amazon. 


We certainly are in for some interesting times ahead, as the two Gujarati businessmen also fight for supremacy, across other sectors including renewable energy. Could Adani also enter the telecom sector to challenge Ambani’s Jio? Our guess is only as good as yours, but keep watching this space, we tell you! 



Modi’s return



No, we are not talking about Prime Minister Narendra Modi, who is very much in the country, and nor are we talking about former Indian Premier League chairman Lalit Modi, who has been outside the country for reasons known best only to him. We are talking about fugitive diamond merchant Nirav Modi, who is lodged in a UK prison. 


Last week, the UK High Court rejected Modi’s appeal against his extradition to India where he is wanted for pulling off the Rs 14,000 crore Punjab National Bank scam. 


Modi, along with his uncle Mehul Choksi, allegedly cheated PNB by creating a complex web of deception through fraudulent letters of undertaking, in collusion with bank officials.   


India has welcomed the verdict. But there is no clarity on when, and if, Modi will be back. 


Oh, but what about Choksi and that other fugitive Vijay Mallya, you ask? Come on, give us a break! 



Yellen comes calling


The US treasury secretary Janet Yellen is on her first ever trip to India, aiming to strengthen bilateral economic ties. 


Yellen is pitching for a new global trade route, calling for “like-minded countries” to come together to move away from “risky countries” such as China, on which they have been “overly dependent” for “critical inputs.”   


“We are proactively deepening economic integration with trusted trading partners like India,” she said. 


This should be music to the ears of Indian policy wonks and politicians who have been arguing pretty much the same thing. But as always, such tectonic shifts are often much slower and tougher to achieve owing to the interdependencies of the global economic world. 


Moreover, China is already the world’s second-biggest economy, and as such, no babe in the woods. Beijing will do everything in its might to defend its clout and its position in the global economic order.  



Changes coming to capital gains tax?



If you are a stock market or a mutual fund investor, this could be important for you. The government is reportedly looking to simplify the capital gains tax regime and bring parity within the assets. The government may even consider changing the tax rates, reports say. 


Currently, equities and preference shares, equity-based mutual funds and zero-coupon bonds are considered long-term assets if held for over 12 months. Debt mutual funds and jewellery are considered long-term assets if held for 36 months. And real estate is regarded as a long-term asset if held over 24 months.


As per the recommendation of a task force, the assets must be categorised into three classes—equity, non-equity financial assets and other property. It recommended that the indexation benefit must be given to all except equity. It is currently allowed on debt funds and real estate.


It further recommended a 10% capital gains tax on the sale of equity assets held for over 12 months. For equity held for less than 12 months, it asked for a 15% short-term capital gains tax. However, for non-equity financial assets, long-term capital gains were recommended to be 20% if held over 24 months. For other assets, it recommended a 20% tax with indexation on gains if held for over 36 months.


Phew! That’s a lot of mumbo jumbo, right? But this could be useful, so, watch out for some of these changes when Finance Minister Nirmala Sitharaman delivers her budget speech next year. 



Market wrap


Both the benchmark Sensex and Nifty ended the week firmly in the green, up about 1.4% each. The markets rallied owing to three main reasons. First, retail inflation in the US rose by less than 0.4% for October and 7.7% from a year ago. This was the lowest annual increase in US inflation since January. 


Second, foreign portfolio investors have bought equities worth Rs 18,979 crore in the first 10 days of November after selling shares worth Rs 7,630 crore in September and October.


Third, the US dollar index slumped, pushing the rupee up against the greenback. The rupee opened at a seven-week high of 80.71 on Friday with a 110-paise gain, the highest opening gain since September 2013.


The Nifty stocks that gained the most this week were Britannia, Adani Ports, Yes Bank, Tata Steel and UPL. Other winners were HDFC Bank, Vedanta, State Bank of India, and HDFC. 


The counters that were in the red this week included Power Grid Corp, NTPC, Eicher Motors, Mahindra & Mahindra and Sun Pharmaceuticals. Others that left investors poorer were Cipla, GAIL, Tech Mahindra, Titan and Asian Paints. 



Other headlines:


  • Elon Musk warns Twitter bankruptcy possible if cash burn doesn’t stop
  • Zomato net loss narrows to Rs 251 crore in Q2, revenue jumps 62%
  • Eicher Motors Q2 profit climbs 76% to Rs 657 crore, revenue up 56%
  • Divi’s Labs Q2 net profit falls 18.6% to Rs 493 crore, revenue slips 6.7%

  • Page Industries Q2 net marginally up at Rs 162 crore

  • Adani Green Energy Q2 profit soars 49% to Rs 149 crore
  • Trent Q2 net profit jumps 41% to Rs 193 crore
  • Private equity firm KKR to invest $400 million in Vedanta’s Serentica Renewable
  • Tata Motors to delist American Depositary Shares from January
  • Archean Chemical’s IPO sails through with more than 30 times subscription
  • KFin Technologies, Sula Vineyards get SEBI approval for IPOs.


Until next week, happy investing!



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