Jio’s big bet on India and Blackrock’s second coming, and other top tech & startup stories this week
While the initial buzz was that JFS would start off with a lending business given that it has an NBFC licence, the joint venture announcement stumped many.
Blackrock returns to India with a major partner and Reliance gets someone with credibility, an interesting partnership indeed.
Also read | Fintech firms fear disruption as Jio Financial readies entry plan
The return of a global giant: Blackrock had exited India by selling its stake in DSP Blackrock in 2018. It left the country just before this wave of digitisation took off and led to massive growth in the Indian broking and mutual fund space.
Blackrock is the only American wealth manager that has operations in China. At a time when the US-China relationship has hit a nadir, it is not surprising that the asset manager is taking a bet on India.
Yes, India is the fastest-growing major economy with the largest youth population in the world; yes, there is a wave of tech adoption in the country; but there is a reality check needed here, as well.
The total mutual fund market in India is around Rs 45 lakh crore ($541 billion) Blackrock alone has more than $8 trillion in assets under management. So, for the global giant, India is too small a market to even find a mention in management presentations.
Just a small fraction of the country is served by asset management companies currently and there are around 42 companies vying for that pie.
Big win for Jio: For JFS, this is a big win. While every market observer knew that Jio had the firepower to grab a large chunk of the finserv market, questions were being raised about its ability to handle a highly regulated space.
“The NBFC space has been a highly treacherous one for most of the conglomerates that have entered the space,” said Macquarie research, in a report on JFS, published last November.
With Blackrock, Jio addresses such concerns.
To win in the AMC space, you need three major things:
1. Branding
2. Distribution
3. Performance
Performance is something to be attained in the future. Jio already has massive distribution heft. With Blackrock, it gets credibility and branding in one shot.
Another aspect that Blackrock brings to the table is its data-crunching capabilities. The question is, will Aladdin, its famed analytics engine, be used to manage funds here?
While that is surely an option, the JV will have to abide by Sebi’s data localisation norms on regulated entities.
While it had all the firepower it needed with a valuation of Rs 1.6 lakh crore ($20 billion approximately) at birth, JFS also got the backing of one of the richest business houses in the world through the deal. No wonder they started out with a commitment of $300 million (more than Rs 2,000 crore).
For context: You can set up an AMC in India with Rs 100 crore ($12 million).
AMCs are a tricky business: It’s an interesting time to want to become an asset manager in India. All the major broking companies, Groww, Zerodha and AngelOne, are set to become asset managers.
An AMC licence is not so hard to come by, but it will take some time. Zerodha, the largest broking house, had applied for a licence in 2020 and got in-principle approval in 2021. Groww and Navi took the inorganic route to get the licence.
Sebi, on the other hand, is looking to limit the total expense ratio (TER) charged by AMCs. According to a Jefferies report, this will have an impact of 30% to 50% on the profits of large AMCs.
“I think Jio is chasing sheer scale through its finserv operations. At a medium or small scale it will not make any difference to its massive balance sheet,” he added.
Bottomline: Jio is placing a bet on India. A recent SBI report said that India could become the third-largest economy in the world by fiscal year 2028. If that happens, the burgeoning middle class will be in need of large-scale services. Jio is building for that scale.
The math will only work at that scale. And if the country actually manages to grow at that projected pace, even if Jio grabs a large slice of the pie, there should be more than enough for the likes of Zerodha, Groww, Bajaj and perhaps a couple of other venture-backed startups to bite into.
Fintech Newsmakers
(L-R) Reliance Industries Chairman Mukesh Ambani and BlackRock CEO Larry Fink
BlackRock to re-enter India with Jio Financial Services: BlackRock Inc., the world’s largest asset manager, is set to join forces with the newly-formed Jio Financial Services (JFS) , marking a return to the country after exiting in 2018. The US-based investment giant is creating a 50:50 joint venture with (JFS) to create an asset management business, the two companies announced this week.
Credit better bet for fintechs eyeing expansion: PBFintech’s Yashish Dahiya | In a free-flowing conversation from Dubai, Dahiya, who helms the Gurugram-based company that runs the insurance marketplace Policybazaar and credit marketplace Paisabazaar, pointed out that those wishing to invest in the insurance space should put their money on people who have already shown some returns. Read the full interview here.
Fintechs fear increase in compliance burden after Delhi HC order: In a significant judgment for the payment ecosystem, the Delhi High Court this week held that US online payment platform PayPal is “liable to be viewed as a ‘payment system operator’ and consequently obliged to comply with reporting entity obligations” under the money-laundering law.
This is likely to push up the compliance cost for payment operators in India. Payment firms that offer only a technology layer on top of banks will now also have to comply with guidelines under the money laundering law, even if they are not handling the funds themselves.
Byju’s Woes Continue
Peak XV plans significant Byju’s markdown over lack of financial visibility: Peak XV Partners, formerly Sequoia Capital India, has told its limited partners (LPs), or investors in its funds, that it resigned from the Byju’s board due to a lack of internal controls at the company, and added that it will have to significantly mark down the value of its holdings in Byju’s.
This was a day after another key investor, Prosus Ventures, said in a public statement that its representative exited the edtech firm’s board due to poor corporate governance.
Byju’s shutters offices across Delhi NCR, Bengaluru: Amid continuous cost-cutting exercises, Byju’s has shuttered some of its offices in Gurugram and Bengaluru, with multiple rounds of layoffs impacting occupancy.
The edtech major also remitted its (employer’s) share to the employees’ provident fund corpus for the month of June. Initially, it had not paid this for most of the staff.
Byju’s, lenders agree to alter terms of $1.2 billion loan: The ad hoc steering committee of Byju’s lenders, which collectively owns more than 85% of the edtech’s $1.2 billion term loan B, said that both parties would work towards having an amended agreement in place by August 3. ETtech had broken this news.
Top Stories This Week
Nandita Sinha, CEO, Myntra
Myntra plans makeover of private label strategy, 50 jobs to be hit: Flipkart-owned fashion platform Myntra is undertaking an internal rejig, which will result in around 50 employees being laid off, sources said. Several employees have been briefed about the changes.
Dunzo in free fall due to severe cash crunch: Quick commerce startup Dunzo has seen its scale of operations fall to almost a fifth of the peak it hit last year as it continues to grapple with cash flow issues and scouts for a lifeline, multiple people aware of the matter said.
Also Read | Dunzo’s downfall: from startup star to sinking ship?
GST Council to meet on August 2 to discuss 28% tax on online gaming: The Goods and Services Tax (GST) Council will meet virtually on August 2 to consider the legal amendments necessary for the 28% GST levy on online gaming, casinos, and horse racing.
Tesla executives meet Invest India chief, may meet Piyush Goyal: With Tesla reviving its plans to manufacture in India, senior executives of the company met the newly appointed CEO of Invest India, Nivruti Rai, and are likely to meet commerce and industry minister Piyush Goyal in a few days.
Layoffs, redundancies hit Milkbasket as Reliance steps up integration: Subscription-based delivery firm Milkbasket is seeing a slew of layoffs and redundancies as its integration with parent Reliance Retail is now at an advanced stage, people in the know of the matter told ET.
Tech Policy
Govt will help build a chip manufacturing ecosystem: MoS IT Rajeev Chandrasekhar | “The necessary policy framework is already in place to create a vibrant component ecosystem. And if there is any need for the government to intervene and create more PLI type of schemes, we will do so,” the minister said, addressing the media ahead of the ‘Semicon India 2023’ event in Gandhinagar.
Government may turn off ‘continuous consent’ for apps in Digital India bill: The government may ask companies dealing in personal and non-personal data to obtain fresh consent from their users every time they change their terms and conditions, update their services, and change the way user data is processed.
House panel on IT readies report on Data bill, Opposition dissents: The Parliamentary Standing Committee on Information Technology has readied a 40-page report on the Digital Personal Data Protection bill slated to be tabled in parliament in the ongoing monsoon session.
Big Tech Earnings
.jpg "Founder and CEO of US online social his arrival for a meeting with European Commission vice-president in charge for Values and Transparency, in Brussels, on February 17, 2020. After years of bad press and scandal, Mark Zuckerberg is seeing his reputation spruced up in the fickle world of tech, largely thanks to the increasingly unpredictable behavior of Elon Musk. (Photo by Kenzo TRIBOUILLARD / AFP)")
Meta Q2 profit rises 16% to $7.8 billion as ad sales rebound: Fuelled by growth in its AI-powered advertising business, Meta’s revenue grew 11% to $32 billion from $28.8 billion in the year-ago period.
Every tech firm will be an AI company: Meta’s Nick Clegg | Read edited excerpts from an interview with ETtech.
Cloud, AI products help Microsoft post strong Q4 numbers: Microsoft rode on its cloud and artificial intelligence-backed products to clock $56.2 billion in the fourth quarter of FY23-24, an 8% growth compared to $51.8 billion in the year-ago period.
Revenue from ads, cloud help Google parent Alphabet beat Q2 topline, bottomline estimates: Beating estimates, Alphabet’s revenue for the quarter stood at $74.6 billion, up 7% YoY from $69.7 billion in the year-ago period.
IT Updates
Tech Mahindra reports 40% YoY drop in Q1 profit: Tech Mahindra’s subdued results come at a time when industry peers too have reported a drop in first quarter numbers due to delay in decision-making and cut in discretionary spends, and have warned of short-term demand concerns.
Wipro cutting client base to concentrate on profitable deals: CEO Thierry Delaporte | Wipro is consciously shrinking its client base for better profitability, pursuing deals with a fatter margin and bigger revenue potential to remedy its status as a relative straggler among India’s technology bellwethers.
Mega orders from UK help TCS ride out raging macro storm: The UK is now at the vanguard of revenue growth at Tata Consultancy Services (TCS) following mega orders from the likes of the Phoenix Group and Nest, helping dwarf the impact of subdued business from across the Atlantic and in continental Europe.
ETtech Deals Digest |
Weekly funding crashes to $41.5 million
The funding drought for Indian startups sent growth- and late-stage rounds to zero with venture capital funds specialising in these stages continuing to remain cautious this week.
Early stage funds, on the other hand, made small deployments accounting for the bulk of funding activity in the week of July 22-28.
Funding in the penultimate week of July plunged 88% to $41.5 million, with just one of the 18 rounds managing a multi-million ticket size ($17 million), compared to the $109 million raised in 18 rounds during the previous week.
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