Is Winter Really Coming? - (26 September 2021)

The summer has been bountiful and prosperous, well for the most part. But then winter is always waiting in the shadows and will eventually show up. This Sunday we explore how sunshine may be receding for some. 

The Throne's Slipping Away

The streaming platforms were triumphant at the Emmys, with Netflix nabbing 44 awards in total. The pandemic induced streaming demand has come a long way and there is a dramatic increase in contenders over the past few years, making it a tough race to deliver quality content and grab the audience. 

In recent years, Netflix has incurred huge spends to build up its independent library, in anticipation that traditional media would eventually become rivals, rather than partners willing to license films and television series. This ever-increasing choice of content by the online streaming platforms means less of an audience for the other mainstays of the traditional broadcasters. As streaming services are picking up pace, in the US, an average of 3 million households a year have “cut the cord” of the traditional cable networks in the past decade. Last year alone, 6 million subscribers disconnected, twice the usual rate. The total number of cable subscribers in the US now stands at about 75 million, as compared to 67 million subscribers of Netflix alone.

‍

‍

‍

OUR TAKE

Netflix is going all-in to deepen customer loyalty: launching online stores to sell products related to its shows, launching podcasting and video gaming. We feel, for traditional cable networks to survive, innovation and foresightedness has to be given a fresh thought, else this game of thrones already seems lost. And the game that they are now losing is one that they once dominated: top quality content.

The Other Side of the Wall

Fitch's recent downgrade of Evergrande has sent shock waves across the global markets. One of the world’s most indebted real estate developers, which has more than USD 300 billion in dues to lenders.The amount was raised through retail property buyers and other financial instruments like stocks and bonds. A significant chunk (approx USD 6.2 billion) came from 80,000 retail investors, who were sold high yielding products by the wealth managers. In fact, Evergrande had its own wealth management arm too!

These retail investors were lured by the promise of 12% yields, and other gifts such as Dyson air purifiers and Gucci bags, plus the guarantee of China's top-selling developer. And now Evergrande wants to provide the payment with discounted apartments, offices, stores and parking units, which many retail investors have refused to accept.

OUR TAKE

Selling opaque wealth management products with the promises of high yields has been a rampant issue in the past too. In India, we witnessed a similar scenario with Yes Bank’s perpetual bonds. And eventually, investors are at the receiving end. We feel that before investing into any such products, a much greater diligence is required. On the investors’ side, controlling allocation to these high yield instruments is critical.

Are the Big Dragons Weakening?

"Capitalism without competition isn’t capitalism. It’s exploitation”, said Joe Biden as he signed an order aimed at cracking the dominance of big tech firms. In the latest regulatory setback for Google in South Korea, which has become the first country in the world to attack the lucrative commissions charged by the app store, a hefty fine of USD 177 million was imposed.

Big players like Amazon and Alibaba had failed to expand their mobile operating system, while Samsung and LG had struggled to launch devices because of Google's stance. Imagine the small fish in the pond: the startups, which faced the brunt when Google announced last year that it would charge a 30% commission on in-app purchases, and that developers will have to use only Google’s payment gateway. In India, this comes in the backdrop where Android powers 90% of India's 520 million smartphones.

OUR TAKE

The Competition Commission of India has accused Google of anti-competitive trade practices. We feel, in this tech dominated world, it's really important for big tech to create a business environment where small players could also use their platforms and flourish. Any kind of monopolistic behavior by the big tech might be closely scrutinised by the regulators, especially in the interests of the startups as Governments recognise the role of smaller businesses. Investors who are overexposed to these holdings need to track these developments closely.

The Right State of Warmth

Our podcast- "Insider Investing" aims to highlight the journey of some of the smartest individuals and thought leaders and how they grow and preserve their wealth.

“ESG has become a buzzword, which is not a bad thing. It actually will help the environment. I've seen many corporates have an entire ESG theme in their annual reports and what they are doing about it. And you know, corporates might take one or two years more, but they will deliver on this. I do see in the long term, this will have a higher return on capital. So it's not either environment or profit. It's both environment and profit. And that's what's really going to happen with the use of recyclable materials, with better combustion technologies. There are many ways to really reduce our impact on the environment. By the way, we have no choice. If the planet dies, we die. It’s as simple as that.”

Shreevar Kheruka - Managing Director, Borosil Ltd.

Your Take?

Reply to us with your views on if there is any aspect in the world of money where you think winter might be coming. The most interesting takes get a special hamper.

Armour Your Portfolios

Many economic, market and company related factors impact our portfolios. The warnings of any upcoming mishaps are visible much in advance. At dezerv., our portfolio experts use the unique Integrated Portfolio Approach built to reduce the downside. So, your portfolios stay warm and your aspirations within your reach. 

‍