ONDC Ka Zamana Hai?

Markets this week?

This week we witnessed the coronation of King Charles the Third in a show of flash and pomp as the British economy continued to struggle. Our common frenemy, Pakistan, went for a toss as their ex-leader Imran Khan got arrested.

On the domestic front, the MSCI continued to whale on Adani as 2 of the group’s stocks were removed from the MSCI India Index, another setback for Adani in its quest to beat Hindenburg.

The funding winter has started hitting very hard as more and more startups struggle to raise money. In April 2023, startups collectively raised just $980 mn in funds compared to their all-time high of $3.4 bn less than a year ago. The sleeping US economy, the geopolitical tensions and rising interest rates, and the blunders in corp governance made in tech are to blame.

Let's now give you a heads-up on some of the important news that made headlines this week.

ONDC ka zamana hai

What is it??ONDC or the Open Network for Digital Commerce is the talk of the town, it's not an app, it's a network that?anyone?can use. Similar to UPI, sellers, restaurants, and businesses can access buyers across the country via a third-party provider by tapping into the existing network. It is not owned by the GoI but is a nonprofit that the GoI supports and has attracted over 180 cr in funding from giants like SBI, BSE, and NSDL.

How does it work?

ONDC has no app, it operates using a seller app instead, which aggregates and works with all the businesses in the area. There are buyer apps like Paytm and Meesho involved in the mix, they are consumer-facing apps with lots of customers. Joining ONDC, Paytm will just have to add a food tab to its app, collaborate with delivery firms like Dunzo, or have their fleet, and voila food’s here.

The?beauty of ONDC?is that the restaurant will be visible throughout all buyer apps without collaborating with them individually!

Food delivery disrupted:?India’s food delivery biz has a duopoly with Swiggy and Zomato at the head controlling the entire market, they charge high commissions and ONDC has started to disrupt the market. How? They charge commissions between 4-10% which are split between all parties and offer?huge discounts.?Incentives of up to Rs 125 are being offered to customers when they order through apps like Paytm.

Discounts are forever??ONDC has seen orders go from 1k to 20k in just a few days since it started offering discounts and that has led to added T&Cs. The Rs 50 discount on Paytm is only available to the first 2000 customers and the Rs 75 delivery incentive has a 3750 order cap for the restaurants to reduce the cash burn. The delivery process is also fragmented and has led to tons of customer complaints about the ordering experience and ONDC is going to have to figure it out. Use it till offers last!

Our Take

ONDC has been burning cash to attract customers, just like Swiggy and Zomato once did. The GoI also realizes that food delivery cannot be a public service like UPI and ONDC will have to find a way to cover its costs. Swiggy lost 49% of its valuation and is now at $5.5 bn and this might be an early warning. Competition has gone up but Swiggy and Zomato’s control of the end-to-end process will ensure that they don't die. We’ll have to wait and see how this plays out.

World

The Buffet Way?

Some lose, some win:?Warren Buffet the pro-investor just announced a $35.5 bn profit for Q1 of 2023 at the AGM of his company Berkshire Hathway and left us all shook. The company announced a buyback of $4.4 bn worth of stock in its 5-hour-long meeting. Buffet is at 93 and his right-hand man Charlie Munger is at 99 and we have limited time to learn from them. The performance of Buffet’s eclectic portfolio has always beaten the odds and he has his reservations about the future.

The concerns:Warren Buffet is worried that the “extraordinary period” of excessive spending post-COVID has ended. Inventories have built up and the businesses are going to have to sell if they want to survive. Berkshire Hathaway dumped stocks worth $13 bn as he prepares for a recession. The money supply in the US has shrunk by 4.1%, and he expects firms to post even lower earnings and is anticipating a recession.

The holy trifecta:He feels that the economic slowdown, banking failures, and pained commercial real estate sectors are signs of trouble and can alone derail the US economy. With all 3 acting together, the outlook seems grim and he is prepping for impact as borrowing rates will soar and deposits might not remain as sticky. Buffet restored faith in the USD feeling that the currency cannot be dethroned and called AI a “hype”, reiterating the need for picking safe, well-diversified stocks to remain at the top.

Future of Berkshire:Buffet expects people to continue doing “dumb things” giving him a chance to make more money over time. Buffet and Munger reassured the investors that they are and will continue to run Berkshire Hathway, despite the rumors of a change flying. The company has a succession plan in place with Greg Abil and Ajit Jain ready to take the ropes.

Our Take

Buffet, the ace investor, had once saved Goldman Sachs in 2008 by investing $5 bn to save the bank from drowning, now he feels the sector is shaken up and is on edge. With him choosing to invest over $130 bn in Treasury securities one might want to be cautious of US equity. Tough times are underway, and the US needs to keep its head up.

TECH

Razorpay comes home

Ghar aaja pardesi:?The fintech unicorn Razorpay is in the process to move its parent entity to India from the US, ahead of its IPO in India. After PhonePe moved its HQ back home from Singapore, the option of reverse flipping seemed to have caught on. Razorpay is currently valued at $7.5 bn and has received over $780 mn in funding from VCs like Sequoia, Y Combinator, and GIC.

Why move out?20 of India’s 108 unicorns are HQed abroad and this move could be the start of a trend in the enterprise tech space. Companies often move abroad to enjoy the benefits of looser tax laws, and because a foreign-registered parent entity increases the chances of raising funds from global investors. Unlocking value overseas at a higher valuation with more liquidity, and easy exit for investors.

Heavy on the wallet:?Razorpay is focused on better governance customer experience and risk management to ensure its listing in India and has roped in ex-deputy RBI Governor NS Viswanathan to make the process smooth. The process will take time and is multifaceted but the company wishes to get it done. The move back home is a costly affair as there will be incidences of tax in the hands of investors in the US. PhonePe had to cough up 8000 cr in taxes to move from Singapore to India. Razorpay is ready to pay.

Our Take

Why move back??To enjoy the benefits the company will receive if it domiciles in India and ofc to get the IPO out. The Indian government takes steps to encourage local fintech companies and startups domiciled abroad to relocate to Gujarat International Finance Tech (GIFT) City's International Financial Services Centre. Razorpay is also one of the 32 providers who have joined hands with the ONDC with its payment reconciliation system.

Hope you liked reading this week’s wrap. See you next week. Till then, hope you have a great weekend!