Is IT Under The Weather?

?? Sh*t is back! India reported 10k + Covid-19 cases this week for the first time in nearly 8 months. The recovery rate stands at 98.7%. Masks may be back. Sob!

At 5.66%, March inflation moderated and is finally below the targeted 6% mark where it had been stuck in the previous two months, and from a high of 6.95% a year, ago.US inflation numbers were encouraging too, as it finally showed softening in home rentals.?

IT results have been not encouraging and broader indications of growth will be gleaned from the Q4 earnings underway. Management narratives on outlook will be in focus.

A long pause in rates rather than a pivot looks more likely in the months to come.

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

A wake-up call for investors ??

Funds in a dismal state: One more year, one more underperformance. During 2022, over 87% of active large-cap schemes failed to outperform the benchmark S&P BSE 100 as per a report by the S&P. Underperformance was seen across all categories be it small caps, large caps, ELSS, and even bond portfolios. This trend has been visible for quite some time now.

The Buffet way: Time and again we are reminded of Warren Buffet, the ace investor, who has always advised people to opt for passively managed funds. He had placed a bet on Protege Partners, a NY-based hedge fund, and proved that a simple Vanguard Index fund was capable of outperforming the smart hedge fund managers over a 10-year period.?

Our Take

The underperformance is quite heartening given the flexibility that active fund managers enjoy like sitting on cash or hedge positions. This underperformance is costing the active funds. Investors are increasingly moving out of actively managed funds into lost-cost passive funds and ETFs. With 97% of the funds underperforming their benchmark, it's time the mutual fund industry takes a hard look at itself. If they can't beat the benchmark, the least they can do is stop charging such high “expert” fees.?

Tupperware going stale ??

No more fresh: Once every Indian mother’s favourite dabba, Tupperware will likely shut shop due to falling revenues and liquidity concerns. The 77-year-old food-storage icon has hired advisors to find ways to survive. Last year sales dropped by 18%, and the biz ended the year with $700M+ in debt.

Party’s over: Apart from durability, and leak-proof features, Tupperware rose to fame during the 1950s because of Tupperware parties. it empowered thousands of women across the country. Entering the Indian market in ‘96 the company created thousands of loyal mompreneurs who sold its goods as a part of its direct selling program. Tupperware had about 50k Indian women acting as its salesforce in 2020.

Cracks in the airtight biz: Tupperware lost out due to a growing preference for online shopping and concern over plastic use. Younger shoppers favoured sustainable metal or glass options instead of plastic tubs.?

Our Take

Innovation is the name of the game and Tupperware could never ever make inroads from mom parties to the younger generation’s kitchens. Despite a distribution deal last year with Target, it was too late a move to revive the slump sales. The company needs a cash injection or is just waiting to be bought by the biggies like Amazon or Walmart to save the day.

IT is under a dark cloud ???

Grim report: IT results often set the mood for the broader results over the next 30-45 days. Tech giants TCS and Infosys announced their quarterly results and they clearly highlighted the global slowdown. Between headwinds from international clients, slow decisions, and project cancellations the big boys failed to live up to Dalal Street’s expectations. Investors however should cheer as both companies announced handsome dividends.

Devil in the details: Both companies won a large number of deals but that did not reflect in hiring numbers and failed to grow beyond single digits. Infosys reported profit growth of about 8% while TCS which is the market leader reported profit growth of 5% q-o-q. Operating margins to remain under pressure triggering earning downgrades for FY24. Infosys missed its own revenue estimate for FY23 due to unplanned client-side ramp-downs.?

Our Take

Client sentiments have deteriorated from Feb to March and hence the reason for this underperformance. Things are likely to get worse before they get better. Change in management in these times was probably the last thing TCS would have wished for!

WORLD

Musk’s X factor ??

It's over: Twitter does not exist anymore! Confused? Well, it is now merged into X Corp. Interestingly, there was no announcement of this merger. Yes, no press conference, no fanfare. Only silently, in one of the lawsuits Twitter was changed to X Corp. Well, Twitter is no longer a public company, so no major fanfare is needed anyway.?

Part of the plan: Musk had the idea of making X-Corp an alternative to China’s WeChat, an everything super-app that caters to everything. He formed X Holdings Corp last year to bring his ventures under one parent—or the umbrella of super app ambitions. Merging Twitter with X Corp is the first step towards this - to leverage its 14 million daily active users in the US and become their go-to app for everything.

Super ambitions: Want to book a flight? Buy groceries or plan investments? This super app will do it all. But cracking super apps is a tough job. Even India’s first super app Tata Neu is facing hiccups ever since its launch. WeChat in China is a success because of the absence of Youtube and Meta and little competition from other players. People in the US are used to using different apps for different activities. So, breaking that habit and changing their behaviour would be difficult.

Our Take

It’s been almost a year since Musk expressed his intention to acquire Twitter. Since then, Twitter has been breaking virtually every day and is nowhere close to being the free-speech platform that Musk had pitched for.?

What else made the news?

?? Ambani’s move: Reliance Retail has decided to set up an Investment Trust (InvIT) worth $2.4-3 bn to expand its warehousing network.

?? Apple on a roll: Apple has tripled its iPhone output in India to $7 bn and announced multiple stores across metro cities in its plan to shift production from China.?

?? In the money: PhonePe raised another $100 mn in funding from General Atlantic with a target to raise another $1bn this year.

??? IPO frenzy: Health startup Portea got IPO nod from SEBI.

?? Layoffs again: Amazon will lay off another 27000 people in the next few months, Google CEO Sundar Pichai hinted at more layoffs as well.

?? Lifeline: Anil Agarwal’s Vedanta is close to tying up $1.5 billion-$2 billion funding from US hedge fund Farallon.