In this edition, we talk about iPhone maker Apple Inc’s latest gambit in India. We also talk about Reliance chairman Mukesh Ambani’s vision for the oil-to-retail-to-telecom conglomerate, mutual fund body AMFI’s new guidelines and market regulator SEBI’s warning to investors betting on SMEs.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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In late 2021, iPhone maker Apple Inc. began manufacturing its flagship smartphones in India. Since then, it has quickly expanded its production capacity in the country, shifting part of its global supply chain out of China as Asia’s biggest economy struggled in the wake of the COVID-19 pandemic. Now, the company that commands a market value of $3.44 trillion—or just a shade below India’s GDP—is taking things a step further.
This week, Apple tied up with Bharti Airtel to offer its music and video streaming services to the telecom operator’s premium customers for free. The companies said Apple TV+ will come bundled with Airtel’s premium WiFi and postpaid plans. In addition, Apple Music will be available for premium users of Airtel’s Wynk music app, which is being shut down.
But how does offering music and video content help Apple?
Well, Apple is seeking to grow its digital services in India after strengthening its handset manufacturing and retailing operations. The tie-up with Airtel deepens Apple’s presence in India and gives it a large and readymade customer base. Remember, Airtel is India’s second-biggest telecom operator with 281 million subscribers.
Apple TV+ offers mostly English-language content. It mostly offers in-house content while most of its rivals provide TV shows and movies from other studios as well as their original content. But it is a tiny player in India’s $28 billion media and entertainment market, where competition is intensifying.
India’s streaming market is dominated by the local arms of American companies Disney+Hotstar, Netflix and Amazon Prime Video. Disney+Hotstar is currently the market leader with about 38 million paid users. Amazon Prime Video likely has about 20 million users in India, thanks partly because it is available via the e-commerce giant’s Prime membership plans. Netflix has close to 10 million users in India, followed by billionaire Mukesh Ambani’s JioCinema, ZEE Entertainment’s ZEE5, and Sony Group’s Sony LIV.
In fact, Ambani’s Reliance Jio—which is India’s biggest telecom company with 489 million subscribers—is now acquiring Disney+Hotstar as part of an $8.5 billion merger of the Indian media assets of Reliance and Walt Disney. The merger got approval from the Competition Commission of India this week, despite concerns over the dominance of the combined entity in sports broadcast, especially the large and lucrative market for cricket.
Okay, but what about Apple’s strategy to offer its content for free? Isn’t that a losing proposition?
Well, in the short term, that might be true. But remember how Jio started off?
Ambani launched Jio in September 2016 and offered data and voice calls for free. Reliance’s deep pockets meant it could sustain Jio for several months even as its competitors bled dry and either shut down (Anil Ambani’s Rcom), merged with each other (Vodafone+Idea) or were acquired by Airtel (Telenor, Tata-Docomo). In 2023-24, Jio recorded revenue from operations of Rs 1.13 trillion, or about $13.5 billion, and EBITDA of Rs 56,697 crore, with an EBITDA margin of 50.1%.
Apple has billions of dollars of cash on hand, so it can afford to lose a few pennies for a few months if that’s what it takes. Can it beat Jio, Netflix and Amazon in India’s streaming market? That’s a battle we would love to stream!
JioBrain and New Energy
Staying with Reliance, India’s biggest conglomerate held its annual general meeting of shareholders this week where chairman Ambani shared his vision for the group’s future and the company announced plans to issue bonus shares in its first such move since 2017.
Reliance’s AGM is the most awaited and most watched meeting of any company’s shareholders in India. For, it’s here that Ambani and other senior leaders of Reliance offer a peek into their thinking and what lies ahead for the company that currently commands a market value of $245 billion.
In his address, Ambani unveiled steps to increase the group’s adoption of artificial intelligence. Reliance plans to develop a suite of AI tools and machine learning platforms called ‘JioBrain’ and set up data centres in Gujarat that it plans to run with green energy.
“Our goal is to create the world’s lowest AI inferencing cost, right here in India. This will make AI applications in India more affordable than anywhere else,” Ambani said, referring to the process of running live data through trained AI models to make predictions or solve various tasks.
He said Reliance was on track to more than double in size before the end of the decade and that it expects to double revenue and operating profit in its telecom and retail businesses over the next three to four years.
Reliance Retail—India’s largest retailer—now accounts for almost a third of the group’s revenue while Jio—India’s biggest telecom operator—contributes 15%. This means the two relatively newer businesses now make up for almost half of the group’s topline which was dominated until a few years ago by oil and gas, refining and petrochemicals.
Ambani also updated shareholders on Reliance’s new energy business, which comprises green hydrogen production, solar photovoltaic and fuel cell manufacturing, and energy storage.
Reliance, which operates the world’s biggest oil refining complex at Jamnagar, announced an investment of about $10 billion in 2021 into its new energy vertical.
“I foresee it [new energy business] becoming as big and profitable over the next five-seven years, as our O2C (oil-to-chemicals) business, which we had built over the past 40 years,” Ambani said.
Running After Front-running
Moving on to the latest developments in the mutual fund industry, the Association of Mutual Funds in India (AMFI) this week unveiled a new set of norms to prevent front-running, fraudulent transactions and other such unethical practices.
These guidelines come after the industry was rocked by scandals involving Quant Mutual Fund, Axis Mutual Fund and Franklin Templeton MF over the past few years, prompting the Securities and Exchange Board of India (SEBI) to step in and nudge AMFI to take corrective measures.
As per the new norms, mutual fund houses will have to create institutional mechanisms and Standard Operating Procedures (SOPs) aimed at detecting and preventing market abuse and monitoring suspicious activities.
Asset management companies will have to generate weekly alerts for any potential market abuse and examine any suspicious trades. They must also review all recorded communications, including emails, linked to suspicious alerts.
According to the guidelines, MF houses will have to implement biometric access to dealing rooms so that only authorized executives involved in trading activities can enter such areas and maintain detailed logs of entry.
Other measures being introduced by AMFI include a mandatory leave policy for fund managers, terminating agreements with brokers involved in unethical practices, and updating terms and conditions of employment to incorporate strict clauses to prevent market abuse.
AMFI hopes these steps, which will be implemented in phases starting November 2024, will build investor confidence and prevent the recurrence of unethical practices and fraud in the mutual fund industry.
Be Careful, Be Watchful
While AMFI has cracked the whip on the MF industry, capital markets regulator SEBI this week expressed its concerns over the euphoria in listings of small and medium enterprises.
SEBI noted that stock exchanges had launched their SME listing platforms in 2012 to help these businesses raise funds from the market. Since then, SMEs have raised more than Rs 14,000 crore by listing on these platforms. Of this, around Rs 6,000 crore was raised during FY24 alone.
The trend has continued in the current fiscal year, too, so much so that it has now started to raise widespread concerns. Consider this: the Rs 12-crore IPO of Resourceful Automobiles—which has only eight employees and operates two bike dealerships—was subscribed about 400 times while Aesthetik Engineers got bids worth more than 700 times its share sale of Rs 26.5 crore.
No wonder, then, that SEBI cautioned against investing in SMEs and said investors should be “careful and watchful” of certain patterns.
The market watchdog said some SMEs were presenting an “unrealistic picture” of their businesses after listing. These unrealistic announcements are typically followed up with various corporate actions such as bonus issues, stock splits and preferential allotments. These actions then induce investors to buy shares of these SMEs and allow the promoters of these companies to offload their holdings at elevated prices.
So, if you are one of those who bet on SME IPOs, please exercise caution while investing your hard-earned money.
Market Wrap
Indian stock markets hit new record highs on Friday, stretching their gains for the 11th day in a row. This helped benchmark indices to end higher for the third straight month in August, logging nearly 12% gains over the period.
The 30-stock Sensex touched an all-time high of 82,637.03 while the 50-stock Nifty hit 25,268.35. For the week, the Sensex was up almost 1.6% and the Nifty climbed nearly 1.7%.
Indian markets are benefitting from the easing of growth concerns in the US as well as expectations that the rate cut cycle is set to begin soon.
Nifty stocks that gained the most during the week included IT companies LTI Mindtree, HCL Tech, Wipro and Infosys. Bajaj Finserv, Bajaj Finance, and Bajaj Auto were also among the winners this week. Other companies that rose included Bharti Airtel, drugmakers Divi’s Labs and Cipla, and state-run firms ONGC and NTPC.
The Nifty losers this week included Grasim, Coal India, Kotak Mahindra Bank, Adani Enterprises and Adani Ports. FMCG stocks Nestle, Hindustan Unilever and ITC also ended in the red.
Other headlines
- NSE restarts IPO process, seeks no-objection from SEBI.
- Vistara to merge with Air India from November 12.
- Directorate General of Civil Aviation issues show-cause notice to Akasa Air.
- Quick commerce startup raises $340 million at a valuation of $5 billion.
- Indian unit of Italian auto component maker Carraro International files for IPO.
- Eros Investments plans to invest $1 billion to develop an AI park, movie studio in Malaysia.
- Paytm gets government approval to invest in payments arm.
- SEBI pulls up Paytm founder, director on IPO breaches.
- RBI grants self-regulatory status to fintech industry group FACE.
- GST council to discuss rationalisation of rates: Finance minister Nirmala Sitharaman.
- Unified Lending Interface for rural, small business lending to be launched soon.
- De Beers ties up with Titan’s Tanishq to promote natural diamonds in India.
- Zee Entertainment, Sony settle dispute over failed $10 billion merger.
- Rice exporter GRM Overseas buys 44% stake in Rage Coffee.
That’s all for this week. Until next week, happy investing!
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