• The Core
  • Posts
  • The RBI should be nervous. Very nervous.

The RBI should be nervous. Very nervous.

Also in this edition: Doge sells for $4 million, Twitter gets a notice, Harden and Vardy are team owners.

November 30, 2022 • Estimated Reading Time: 15 minutes

Good morning! How do you respond to accusations of not paying enough tax? If you’re Elon Musk, you offer to sell your biggest house. Then you hope that a big enough family stays there. That’s one way.

Anyway, on to the day’s stories.

  1. Zuck has gaming plans.

  2. China’s Didi is having a party. A $100 billion party.

  3. Ronaldo doesn’t like coke.

 

Oil Prices Heat Up As Production Splutters

You’re likely to pay more for petrol and diesel in the coming days. US crude oil prices hit their highest mark in over two-and-a-half years, touching $71.78 a barrel on Monday. Many anticipate they may climb further.

The green sign: Big oil is stagnating. Spending on oil extraction and production is falling even as investors channel trillions of dollars towards green energy. According to research from Wood Mackenzie, the world spent $330 billion on oil extraction in 2020, less than half of what it spent in 2014. Renewable energy capacity, meanwhile, soared 45% in 2020 despite the pandemic, the largest annual growth rate in over two decades.

Experts believe that with the growing emphasis on climate change, investors are moving away from fossil fuels. The pandemic has already forced energy companies to cut back spending. Analysts believe oil production is unlikely to increase even if demand grows in the short run, and the mismatch with supply will likely keep prices high.

The other oil: Elsewhere, there is an edible oil crisis brewing. Commercial palm oil output is stressed as the world’s second-largest grower, Malaysia, battles a labour shortage. Extended lockdowns because of a third wave of Covid-19 in the country mean that production of palm oil, the world’s most popular edible oil, will be much lesser than anticipated. Lower supplies mean prices could be headed up.

 

Didi’s Post-Covid Coming Out Party

Last week, Chinese mobility company Didi Chuxing filed to go public next month. Unsurprisingly, the IPO is expected to be among the largest in the tech sector this year, second only to Coupang which listed in March. According to a Reuters report, the company is expected to raise $10 billion while seeking a valuation of $100 billion. Its current valuation is at $65 billion.

Scrutiny: The rape and murder of a Didi passenger by a driver in 2018 in Wenzhou had set back its IPO plans that year. Not only was its carpooling service suspended for nearly two years, it was also subjected to increased scrutiny from Chinese authorities. It was then valued at $56 billion. Didi, however, continues to face scrutiny amidst a wider antitrust crackdown by the Chinese government on big technology companies.

Not just ride-hailing: The Didi of 2021 is not quite the same as the money-burning Uber challenger (and Ola’s mentor) of 2016. It has since evolved into a full-fledged mobility company, diversifying into intercity freight logistics, bike-sharing, on-demand grocery, and financial services for its drivers.

Didi has been planning the launch of China’s first robotaxi (autonomous taxis) — a vertical it has poured substantial capital into, besides partnering with leading auto manufacturers like Volvo. It is also betting heavily on electric vehicles.

 

RBI’s Inflation Challenge

If your grocery bill is shooting up, do not be surprised. Retail prices rose at the rate of 6.3% and wholesale price inflation hit a record high of 12.94% in May. High food and fuel prices accounted for retail inflation and the increase in the prices of manufacturing goods and petroleum contributed to wholesale price inflation. It may get worse in the coming months.

Supply bottleneck: As the brutal Covid-19 second wave abates and states cautiously open up, demand is likely to surge. However, supply may not match up to the demand. Logistics and supply chain networks have been disrupted and may take time to return to normal. Many workers who have returned to their villages may decide to stay back for the June-August Kharif sowing season, shrinking labour supply in industrial centres. Thousands of small enterprises have reportedly shut shop, which means a lot of manufacturing capacity has vanished.

Demand surge: International oil prices are rising and that will probably inflate fuel rates in India further unless the government cuts taxes. Already petrol retails at over INR 100 per litre in many places and diesel is in the mid-nineties. That will have a cost-push effect on the prices of goods. Middle-class consumers holding jobs have seen their bank balances rise due to lockdowns and lack of spending avenues. This pent-up demand might be released once establishments open up and movement is free. Consumer sentiment in rural India is also showing signs of improvement.

The Signal

Inflation has already crossed the Reserve Bank of India’s upper tolerance limit of 6%. It has committed to keeping interest rates low to support economic recovery. High rates also make it expensive for the government to borrow. The coming months, however, could see prices rise even more which could put the central bank in a quandary. Prices had spiked around the same time last year but the RBI had held its nerve then and it paid off when prices eventually subsided. This time, that may not be possible as multiple factors are aligned to fuel inflation.

 

Bubbly Without The Pop

At a press conference ahead of his opening Euro 2020 match, Portugal captain Cristiano Ronaldo moved two Coca-Cola bottles away from the camera and emphatically asked viewers to “drink water”.

Coca-Cola paid $35 million to be one of the tournament sponsors so that its brand is in the same frame as superstars. Ronaldo’s action will put pressure on UEFA to choose its sponsors wisely.

Wholesome entertainment: Youtube has no such problems. The platform announced it will stop accepting ads for alcohol, gambling, prescription drugs, and electoral and political ads on its masthead.

Rapid Change: None of these larger changes seem to have dampened the spirits (pun not intended) of large companies. According to GroupM’s mid-year forecast for 2021, global advertising will grow by 19%, up from its previous estimate of 12%. The Indian ad industry is expected to see over 20% expansion with digital media accounting for a quarter of it. A surge in consumers adapting to e-commerce and new companies building businesses on digital platforms is contributing to the growth.

 

All In On Gaming

Facebook has been making quite a splash with recent acquisitions of a few gaming studios. Among them are BigBox VR, makers of Population: One — the Fortnite of virtual reality, and Unit 2 Games which runs Crayta — a Roblox-like game creation platform.

Oculus Studios, Facebook’s VR division, has been doing rather well. Its Oculus Quest 2 headset, priced at a low $299, is a hit with consumers and is scaring competitors into pivoting towards enterprise sales. Also, nearly a fifth of all Facebook employees are now working on VR and AR (augmented reality). Projects include a VR wristband controlled by your brain.

With its ad revenues likely to be hit by Apple’s privacy updates, and regulators seeking to hive off Instagram and WhatsApp, Facebook needs to find new ways to make money. Can it stay ahead of the game?

 

What Else Made The Signal?

Let’s settle this: The Parliamentary Standing Committee on Information Technology has summoned representatives from Twitter as well as the Ministry of Electronics and Information Technology to appear before it on June 18. Meanwhile, the social media platform has appointed an interim chief compliance officer.

Post-vaccine death: An Adverse Events Following Immunization (AEFI) report from the health ministry confirmed India’s first post-covid vaccination death. A 68-year-old man died of an extreme allergic reaction to a vaccine on March 8.

Drone race: The ICMR and Telangana are pushing efforts for the delivery of vaccines and medical supplies to remote areas using drones, with companies like Flipkart and Dunzo involved.

Bad timing: HDFC bank’s mobile app suffered a temporary outage yesterday, at a time when it’s facing intense regulatory scrutiny over its online banking operations.

Internet for sale: Tim Berners-Lee is auctioning the original code for the World Wide Web as an NFT, via Sotheby’s.

Wow: The NFT space has yet another record. This time, with the sale of the popular 'Doge' meme for $4 million, the highest ever for a meme.

Making a play: NBA star James Harden has picked up a stake in luxury retailer Saks, while Premier League footballer Jamie Vardy has become co-owner of New York-based Rochester Rhinos.

 

Fun Signals

Like father, like son: For the 1964 Olympics, Pritzker-winning architect Kenzo Tange had designed the Yoyogi National Gymnasium as a swimming arena. Decades later, it is his son, Paul Noritaka Tange’s turn to do the same. In this heartwarming story, the younger Tange reminisces about his father whose principles he followed while designing the centre, and who he calls his Master.

A goal to remember: But probably not for Scotland and definitely not for their goalkeeper David Marshall. The goal in question is Czech Patrik Schick’s Goal of the Tournament contender, the one Marshall obviously missed. Marshall’s problem, however, isn’t just that he missed the goal but how he missed it. Marshall scrambled backward to save the goal and got himself tangled in the net. Then the cruel internet took over.

Our friendly dino: T-Rex or Tyrannosaurus Rex, according to researchers at the Dutch institute and museum Naturalis, might not have been raging all the while as previously thought. It was lumbering around the later Cretaceous period at a super slow speed — 4.6 km per hour. Pasha van Bijlert, who made the discovery, says he’s yet to calculate the dinosaur’s top speed but it could be 20-29 km per hour. The internet has always portrayed T-Rex as a cute Dino with tiny hands. Turns out it really was.