BYJU’S zombie loans

Good morning! While governments in the west (as also New Zealand and, possibly, Australia) obsess over whether or not to ban TikTok, another ByteDance-owned company is escaping scrutiny… for now. The Wall Street Journal reports that video-editing app CapCut—which is heavily promoted by TikTok and whose global downloads crossed 400 million last year—is making significant inroads in the US. CapCut’s clips and effects are popular on Instagram Reels and YouTube too, and it offers cash rewards of up to $1,000 to people who create viral templates. India banned the app (and similar ones owned by Chinese companies) back in 2020. Will others follow suit?

Subscribe Now

Today’s edition also features pieces by Roshni Nair, Soumya Gupta, and Srijonee Bhattacharjee.

If you enjoy reading us, why not give us a follow at @thesignaldotco on Twitter and Instagram.

The Market Signal

Stocks: Indian equities are seen gaining ground after the sharp losses on Monday as investors globally took heart from UBS Bank's takeover of Credit Suisse and the preparedness of regulators and banks to stem further contagion to the European banking system.

Banking stocks saw heavy selling across economies; HSBC fell 6% and Standard Chartered skid 7% on Monday weighing on Hong Kong’s Hang Seng index. Asian stocks recovered in early Tuesday trade on news that the US may provide a temporary federal blanket to cover all deposits, Bloomberg reported.

Holding centerstage now would be the US central bank's interest rate decision on Wednesday where it may hike rates only by 25 bps, if at all, the fallout of steep liquidity withdrawal evident.

Back home, shares of gold financing companies may fare well after the surge in prices of the metal. Oil refiners’ stocks could gain with oil prices at multi-month lows.

EDTECH

BYJU’S Plows Through a Loanly Furrow

There’s something weird going on at India’s largest edtech company. Tens of thousands of customers who’ve cancelled their subscriptions and stopped paying equated monthly instalments (EMIs) for course loans are still seeing their credit rating being destroyed.

How?: The Morning Context reports that BYJU’S has been flouting compliance norms by paying the EMIs on its customers’ behalf, because it doesn’t have the cash to close the loans. The company has been delaying payments totalling ₹500 crore ($60.5 million) to lending partners so it can manage its cash flow. BYJU’S working capital crisis has been documented.

Meanwhile, India’s most valuable startup is finding it tough to raise money. It has offered to pay interest rates of up to 8.5% to refinance a $1.2 billion loan, per The Economic Times. But a delay in toting up its accounts is putting off potential lenders.

AUTOMOBILES

New Cars Pile Up

If many more Lamborghinis are not racing on Indian roads, that’s because the country does not have enough roads but has more than enough taxes, says Stephan Winkelmann, global CEO and chairman of the luxury carmaker.

That did not stop 92 Indians from buying one of the three models of Lamborghinis selling in India at ₹3 crore-₹9 crore (~$300,000-$1 million) in 2022, though.

Plebeian cars: Vehicles rolling out of factory gates are parked in dealers’ yards. Dealership inventories, which had shrunk to 100,000 in December 2022, jumped three times in as many months of 2023 to a four-year high.

The rate of cancellations too doubled to ~20%. Could that be because of job cuts? Startup employees were big vehicle buyers, after all. And companies may not be buying new cars for executives lest they be seen as extravagant.

BANKING CRISIS

How Big Will The Tarp Be This Time?

Nick Youngson CC BY-SA 3.0 Pix4free.org

With Switzerland hashing together a rescue deal for Credit Suisse, the focus has shifted back to US regional banks, particularly First Republican Bank.

If the $30 billion deposited by 11 banks does not stabilise it, federal funds might be required. Bank bailouts (we are not into fancy euphemisms) in the US and Switzerland have so far cost their central banks $200 billion, even as fears of a contagion abound.

Investors are switching to wait-and-watch mode and keeping their money in cash, the traditional safe haven of gold, as well as its digital challenger, Bitcoin.

Back in India, 14,000 back office jobs are at risk.

The Signal

First up, Credit Suisse’s collapse is unlike Lehman Brothers’ disintegration in September 2008. But it’s eerily like Bear Stearns’ implosion a good six months before that.

JP Morgan Chase, Wall Street’s favourite white knight, first financed and then outright bought Bear Stearns on (shivers!) March 16-17, 2008, in a slump sale for less than half its already shrunken market value.

The Federal funds rate at the time was ~3%, off its September 2007 peak of 5.25%. Lehman Brothers crumbled on September 15, 2008.

The US Treasury Department pulled a $700 billion blanket over troubled banks. The Troubled Assets Relief Programme or Tarp was bolstered with other rescue provisions, including federal guarantees. The total added up to a mammoth $7.77 trillion. The federal funds rate also dropped to near zero within weeks.

STREAMING

Are Ads Winning?

Looks like it. Netflix now has one million monthly active users on its ad tier in the US. Many of these are “new…or lapsed customers”, not those downgrading their paid plans, Bloomberg reports.

Lowball: But ad models don’t fetch valuations, apparently. Amazon may close a deal to buy Times Internet’s (mostly) ad-based streaming platform MX Player in the next two months for anywhere between $60 million and $100 million, Livemint reports. That’s a dramatic fall in valuation. In 2018, Times Internet had acquired the platform for $140 million; a year later, Tencent invested $111 million at a $500 million valuation.

Meanwhile: The Indian government has warned streaming platforms that it’ll act against “obscene and abusive content”.

Cuts: Disney has told managers to identify 4,000 employees to lay off by April, part of its plans to cut 7,000 jobs, as CEO Bob Iger gets serious about saving.

GEOPOLITICS

Common Values Versus Shared Fears

It was just another Manic Monday as four G20 members tried to cement ties and iron out kinks in a world split between the United States and China.

Common values: Chinese president Xi Jinping is meeting Russian counterpart (and International Criminal Court arrestee) Vladimir Putin. Xi may hold virtual talks with Ukrainian president Volodymyr Zelensky to embellish China as a peace broker. But as The Economist notes, China and Russia—once staunch Cold War enemies—have a common antagonist in the US over Taiwan and Ukraine. Although, infrastructural and trade hurdles are in the way of a seamless relationship.

Shared fears: India and Japan, which bond over an expansionist China, are strengthening joint security initiatives. But Japanese PM Fumio Kishida, who’s catching up with Indian PM Narendra Modi in Delhi, contends with an India that still has strong ties with Moscow, and with whom trade and investment is a relative drop in the bucket.

FYI

Lifeline: The International Monetary Fund has cleared a ~$3 billion economic rescue package for Sri Lanka.

Et tu: Microsoft will launch an app store for games on iOS and Android once its $75 billion takeover of Activision Blizzard is complete. The Xbox-maker is betting on regulations that will require Google and Apple to open up their platforms to other app stores.

SVB fallout: Indian VC firm Blume Venture Partners wants its overseas-headquartered portfolio companies to hold bank accounts in India.

Succession: Kotak Mahindra Bank will carve out its digital platform Kotak 811 into a separate business to be headed by CEO Uday Kotak’s son Jay Kotak, reports The Hindu Business Line.

More layoffs: Amazon will cut 9,000 more jobs over the next few weeks to become leaner, CEO Andy Jassy wrote in a blog post.

Plus plus: GMR Airports Infrastructure Ltd will merge with GMR Infrastructure Ltd. GMR group will hold a 33.7% stake and its French partner Aeroports de Paris SA will own 32.3% in the new company.

Watch out: Mobile users across the world could lose $58 billion to fraudulent scam calls this year, up from $53 billion in 2022, according to a report by market research firm Juniper Research.

THE DAILY DIGIT

$12 billion

What India is spending to revamp and build airports over the next two years. About $9 billion will come from private builders; the country wants to increase its airport count from 148 to 220 by 2025. (Bloomberg)

FWIW

Jim’s coat of many colours: He’s in the news for being one of two confirmed bidders for Premier League club Manchester United, but English billionaire Jim Ratcliffe is also gung-ho about… fracking. The honcho of chemicals major Ineos AG—who also owns an automotive arm, a London pub, and 23 other businesses with combined sales of about $65 billion in 2021—is investing in a Texas oil patch at a time when fossil fuel majors want to colour their businesses green. Ratty couldn’t be bothered. A critic of the UK's fracking ban, he’s been shoring up hydrocarbon deals while also acquiring sports franchises across Europe.

Goa 2.0?: Bali, the tourist-infested mecca famous for its sun, sand, and visas on arrival, is running out of patience. Indonesia’s island paradise is thinking of terminating the visa-on-arrival policy for Russians and Ukrainians because of bad behaviour and illegal overstays. Over 80,000 Russians and about 10,000 Ukrainians have flocked to Bali since 2022 to escape war and mandatory conscriptions in their countries. Phuket in Thailand is also seeing an influx of such tourists, but Balinese authorities, already fed up of nightmare tourists for years now, may enforce boundaries to their largesse sooner than not.

Bot in chief: Sci-fi exponents and anyone remotely acquainted with artificial intelligence have warned about bots overtaking humanity. The concern is pronounced when it comes to jobs, which is justified btw since AI chatbots are already coding, making music, and writing stories. Turns out the bots are also coming for execs. Chinese gaming company NetDragon Websoft has appointed an AI bot named Tang Yu as CEO of its subsidiary, Fujian NetDragon Websoft. Tang Yu was roped in to do what else but “increase efficiency” for risk management and decision-making. It worked. The company’s stock has outperformed Hang Seng Index. Watch out, (human) CEOs.