💎 Flipverse, ONDC, Inflation (23rd October, 2022)

Our Expert Take section talks about:

1. Can ONDC be a game changer for food delivery?

2. How will Flipkart’s metaverse make a difference?

3. Why is Inflation expected to come down?

Also, in our Investment Insights section, we talk about how the Monetary Policy Committee (MPC) decides upon interest rates that impact all of us.

Expert Take

EXPERT TAKE #2 - 45 sec read ⏱

Can ONDC be a game changer for food delivery?

Some of our local favorite restaurants are not available on the Swiggys and Zomatos of the world until now. Due to different reasons: they find the 40% cut too high for these food delivery services, some wanted to deliver the food by themselves, and some didn't like the fact that the customer data was not being shared with them.

Well ONDC or the Open Network for Digital Commerce is here to help.

What will ONDC do?

Through an integrated platform, ONDC will list the local food places and delivery agents to serve the customers. Eventually, this will reduce commissions that restaurants have to pay and also get better prices for customers, enabling a better marketplace scenario.

To give you an example, in Bangalore, if you order idli from IDC at the restaurant, you end up paying only Rs. 30. But the same idli when ordered through Swiggy, charges you around Rs 120, four times the price. Now with ONDC, the exorbitant prices charged here are expected to come down.

Wondering, how will it work

• Suppose you stay in Delhi and you go on the Buyer platform (currently Paytm in a few cities) to look for your local restaurant, say Sitaram.

• Now, you can see that Sitaram is available on the app, and for food delivery, there are two options: Dunzo charging Rs 40, or XYZ (a hyperlocal delivery service) charging Rs. 35.

• You can choose whichever from the above and go ahead with placing the order.

Our take📝

Well, the above example is only for grocery and food delivery, but ONDC plans to extend further to many more categories like home & kitchen, electronics, and even financial services.

One important point to note here is, with ONDC establishing itself, many existing marketplaces might face disruption and will have to redo their strategy. Also, there might be a few others like logistics players that will benefit from the opportunity. Makes sense for the investors to keep an eye on ONDC beneficiaries and grab them in the portfolio.

EXPERT TAKE #1 - 40 sec read ⏱

How will Flipkart’s Metaverse make a difference?

Are you one of those who thinks going out to shop at stores is too much of an effort but so is ordering online only to return things when they don't turn out to be what you expected? Then Flipkart had an exciting metaverse offering for you through Flipverse.

Flipverse is a blend of online and offline shopping, where users can experience and purchase products in a three-dimensional virtual reality. The future version of the platform would also include collaborative shopping experiences, where users will be able to interact with each other’s virtual avatars when shopping.

Understanding the general trends of Metaverse adoption

• As per a survey, Gen Z and millennials reported a stronger understanding than Gen X and baby boomers.

• Consumers with an income of $100,000 or more per year tend to have a stronger understanding of the metaverse.

• 51% of shoppers would like to purchase a combination of both physical and virtual goods.

Other brands experimenting with it

Nike launched Nikeland in Nov'21. Nikeland is Nike’s purpose-built metaverse space that uses the Roblox platform to allow its fans to meet, socialize, take part in promotions and engage with a whole range of brand experiences.

According to Nike, 7 million visitors have spent time in Nikeland since it launched. While there, they have been able to enjoy celebrity appearances from sports stars, including LeBron James, as well as buy exclusive digital products to decorate their avatars with.

Our take📝

As most of us know, the most significant development in eCommerce was in the '90s when suddenly 10 million users came online. Based on this fact, Bezos started Amazon, initially as a small startup selling books online. And after the success they saw in the experiments, it took them some years to turn everything into a store.

Similarly, with Flipkart and others now venturing into the metaverse in phases, it might not deliver them RoI immediately. But definitely, learning, expertise, and experience are the investments that lead to positive RoI over time.

EXPERT TAKE #3 - 50 sec read ⏱

Why is Inflation expected to come down?

Do you see the prices of vegetables and other food/beverages getting a bit lower as compared to the sky-high rates a few months back? As per RBI, India’s inflation is finally set to ease from September levels of 7.4%, thanks to the food and beverages sector which is now stabilizing after shooting up in the first half of the year.

However, inflation will still take a while to return to the 2-6% target range set by RBI.

RBI’s recent report shows positive signs

• Automobile and real estate sales are seeing an uptick, in spite of higher borrowing costs.

• Sales of FMCG (products like shampoos, soaps, oil, etc) are seeing a 12% annual growth.

• In Sep’22, India’s unemployment rate fell to 6.4%, the lowest since Aug’18.

Impact on your investments

While inflation seems to be easing out, interest rates are still expected to rise for a while. And since bond prices have an inverse relationship with interest rates, your debt portfolio may still be negatively impacted.

However, equity holdings in the above sectors can see good returns if there is sustained growth.

Our take📝

Since chief economists of major banks are still expecting rate hikes, debt portfolios may continue to be volatile. Therefore, investors are better off sticking to liquid and money-market funds and avoiding longer-maturity debt funds (which are most impacted in such a scenario).

For their equity portfolio, investors can look at contact-intensive products that are now bouncing back after Covid, such as FMCG, jewelry, consumer durables, etc. These could prove to be turnaround sectors that can fetch good returns.

Investment Insights

INVESTMENT INSIGHTS - 60 sec read ⏱

Understand the Monetary Policy Committee

The interest rate is expected to be hiked by another 0.35% in December. But who decides the rate hike? What is the basis on which this decision is taken? And at what frequency?

Let’s see all of this today!

The decision-makers

Earlier, all decisions related to interest rates were taken by the Governor of RBI alone. In 2016 though, a Monetary Policy Committee (MPC) was established under the RBI to bring in more transparency and flexibility. Today, all these decisions are taken by this committee.

The MPC consists of 6 members - the RBI governor, deputy governor, and one RBI officer, along with 3 external experts appointed by the Central Government.

So while the inflation target is set by the central government and RBI, it is the Monetary Policy Committee's job to ensure that this target is achieved. And it does this by changing the interest rate based on the ongoing inflation numbers. If the inflation is high, for example, the interest rate is increased, so that loans get expensive, consumers spend less and inflation comes down.

Monetary Policy process

Well, there are about 60 days of effort that goes behind that one “interest rate hike” that you read in the papers:

• Starting with launching surveys 45 days prior to the policy announcement, there are various indices and metrics released by different departments.

• Post the above inflation and growth projections are done, followed by dry run presentations of Monetary Policy Strategy (MPS).

• Eventually, the governor makes the statement to the press, 14 days after which the minutes are released.

And all of this is mandated to happen at least 4 times a year (once every quarter), or more if the economic situation demands - which is why currently we see more MPC meetings happening in the present scenario.

Fun Fact: The MPC observes a “silent period” of 7 days before and after the rate decision, where members avoid making any public statements other than the official announcements.

Importance of MPC

Depending on the economic scenario, the monetary policy of the country can be expansionary or contractionary. Currently, since the total money supply is in excess, there is high inflation, and the MPC is implementing a contractionary policy by increasing interest rates and discouraging spending. The reverse happens when spending is low.

In both scenarios, the MPC does a comprehensive analysis of the situation and is therefore one of the most important parts of the machinery that drives the nation’s economy.