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Electric Vehicles Charging Infrastructure, Fed Rate Hike, Facebook Cryptocurrency for Money Transfer et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 23, 2018 2:36 PM 6 min read
Editorial

Government re-energizes its push for electric vehicles, this time around focussing on the development and expansion of charging infrastructure - one of the biggest challenges for electric vehicles in India. With government's coffers somewhat relieved and an expected capital injection by the RBI on the cards, GST Council cuts rates. Big year for startups with substantial funding coming in. 

 Electric Vehicles Charging Infrastructure, Fed Rate Hike, Facebook Cryptocurrency for Money Transfer et al.

 

MACRO

Largely in-line with expectations, Fed raised short-term interest rates by 25bps; Indian markets somewhat muted - also awaiting Parliamentary approval wrt PSB bail-out. 

 

The What?: As expected, the Fed ticked up short-term interest rates by 25bps with the benchmark federal-funds rate now ranging between 2.25% to 2.50%. As such, this is the fourth such rate hike in the calendar year and perhaps the one most closely watched in light of recent choppiness in the markets as we highlighted yesterday


However, there was an equally heightened focus on commentary and "guidance'" alongside the rate hike. Fed Chairman Jerome Powell took somewhat of a dovish tone in his "We have seen developments that may signal some softening, relative to what we were expecting a few months ago" hinting towards perhaps fewer rate hikes in 2019, which should bode well for the markets, at least in the near term.   

 

What Else?: Indian markets react negatively due to reinforcement of "Flight to Quality" narrative in light of the Fed hike. Both Sensex and Nifty 50 down -0.14% by end of day. Another show-stopper is a potential Parliamentary approval to increase PSB bail-out by INR41,000cr via recapitalization bonds. These funds would be in lieu of the amount the PSBs were supposed to raise directly from the markets but were unable to do the same, as per ICRA.

 

TAXES

GST Council cuts rates on 23 items.

 

Agenda: The GST Council met today to discuss simplification of few current systems in place. Six items, including TVs (up to 32 inches), digital cameras  and video game consoles moved from 28% to 18%.

 
Zoom Out: The tax reduction comes in light of PM's recent suggestion that 99% of items should attract GST of 18% and below, leaving only "sin" or "luxury" goods within the 28% bracket. The annual revenue implication of the rate cuts would be c. INR5,500cr. 

 
What else on the agenda?: Businesses with turnover up to INR5cr may become eligible to file quarterly returns vs. monthly returns (current threshold in INR1.5cr). Seamless payment of refunds to claimants, a major process issue (consider this: INR5,300cr of c.10% of all refund claims are presently "stuck", as per a Business Standard report).
 
 

ELECTRICVEHICLES

Ministry of Power releases guidelines which enable electric vehicle owners to charge their cars and scooters at their homes. Tata Power plans to invest c. INR700m to set up 1,000 charging stations for EVs in NCR.

 

Go Green: The latest guidelines for charging infrastructure of electric vehicles(EVs) states that owners of EVs can charge them at their homes, with priority access to electricity from power utilities at the same power tariff. 

 

Also, this: A public charging station (PCS) can now be set up without the requirement of a licence if individuals or entities meet the standards drawn up by Ministry and the Central Electricity Authority.

The Big Picture: The move is in line with the govt’s push to provide an enabling framework to EV owners. Recently the govt announced that it might provide a INR1,000cr subsidy to build a nationwide charging infrastructure.
 

Zoom Out: Tata Power currently has a total of 21 charging points for EVs in Mumbai, Delhi, and Hyderabad and is planning to invest c. INR700m to set up 1,000 more charging points in NCR, catering to both personal and commercial vehicles
 

What’s the plan?: Tata plans to join hands with Hindustan Petroleum, Bharat Petroleum and Indian Oil to set up the charging stations. It would also partner with other entities, such as metro rail stations, hospitals, malls, hotels, etc, besides own franchisees.

 

MONEY

RBI to inject INR50,000cr in January 2019 via open market operations. Demonetisation shaved off GDP growth by 2% in Q4 2016, says US study. 

 

The What: As per a RBI press release, the Central Bank will inject INR50,000cr in January 2019 via 5 OMOs of INR10,000cr each.

 

Zoom Out: This will follow an injection of INR50,000cr in December 2018 as well. 

 

The Bigger Picture: The moves aims to bridge the cash crunch in the economy and is likely to raise bond prices and boost bank treasury profits when lenders need capital.

 

Electric Vehicles Charging Infrastructure, Fed Rate Hike, Facebook Cryptocurrency for Money Transfer et al.  
 
 
STARTUP
 
Swiggy raises $1bn led by existing investor, Naspers. OYO may(?) acquire competitor Treebo Hotels.
 
 

Swiggy swells: The round which increased Swiggy's value to $3.3bn was led by existing investor South African media giant Naspers, besides entry of new investors such as Tencent and hedge funds Hillhouse Capital and Wellington Management. DST Global, Meituan Dianping and Coatue also participated in the fund raising.

 

Up Close: The latest funding round will give the food delivery platform a significant capital advantage over rival Zomato. As per an ET Tech report, while Swiggy has raised a total of $1.31bn across three funding rounds in 2018, Zomato has raise around $410m in two rounds.

 

Zoom Out: Swiggy is to use the funds to bring more quality food brands closer to consumers and address gaps in supply through delivery-only kitchens under the ‘Access’ initiative for restaurant partners. Besides further pushing into the food delivery business, it will also use the proceeds to expand into new businesses such as grocery and online pharma delivery.

 
 
Treebo: Is a Bangalore-based budget hotel aggregation platform and a smaller competitor of OYO. As per a Business Standardarticle, Treebo operates c.10,000 rooms across 400 properties in India (vs. OYO's 164,000 rooms across 8,700 properties). Its investors include SAIF and Matrix Partners. 
 
 
 
OYO's interest: OYO has been growing aggressively - adding c.50,000 keys per month and becoming the world's fastest growing hotel chain. The company's footprint in China (180,000 rooms) is even larger than in India (164,000 rooms). Treebo would inorganically help in OYO's India expansion plans. The startup raised $1bn in September from SoftBank, valuing it at $5bn. 
 
 
There's no deal till its signed: Interestingly, as late as October, there was noise around a potential merger between Treebo and FabHotels (another budget hotel aggregator) to compete against OYO. However, market sources also point that both Treebo and FabHotels have been trying to fundraise in recent months without making much headway. Their lack/deficiency of a funding war-chest comparable to OYO may be a driving force behind the OYO-Treebo acquisition rationale.
 
 
 
TECH
 
Facebook is developing a cryptocurrency for money transfer on WhatsApp, as per industry rumours. Pinterest dressing up for a $12bn+ IPO in 2019 as per market grapevine. 

 
What: As per Business Standard report, Facebook is building Stablecoin, a type of cryptocurrency (digital currency) pegged to the US dollar which would allow users to transfer money via WhatsApp, Facebook's fairly popular encrypted mobile-messaging app. As per grapevine, the strategy appears to be initially focused on the fairly robust and culturally popular remittance market in India. 

 
Zoom Out: It has been long speculated that Facebook will make a noteworthy move into the financial services domain and the hiring of former PayPal president David Marcus to run its Messenger app in 2014 serves as a clear endorsement. With WhatsApp payments via UPI already in play, and heightened focus on blockchain technologies among tech companies worldwide, the move appears to be somewhat intuitive. 

 
Furthermore, WhatsApp boasts a lofty c.200 million users base in India (and growing). India is also the front-runner in the world of remittances with World Bank reporting that c.$69bn was sent to India via remittances in 2017 and as per estimates this number could see a meaningful upswing to $79bn in 2018. In that context, this is perhaps a move engineered to capitalize on several sectoral tailwinds simultaneously at play whilst leveraging the benefit of scale which Facebook (and implicitly WhatsApp) already carry.

 
Caveat: The Indian banking regulator (RBI) still has a tortuous relationship with cryptocurrencies. Hence only time will tell how Facebook's supposed plans would unleash.
 

'Pinterest'ing IPO in the offing: As per a WSJ report, Pinterest Inc. is actively preparing for an IPO in the first half of 2019. The ad-supported platform boasts of MAUs north of 250mn and is expected to generate revenues of $700mn+ implying a sharp 50% YoY growth. IPO valuations can often show perplexing ranges, driven by some clever financial engineering. Consequently, one can often see fairly steep valuation swings as early as day one of trading. However, it is fair to assume that Pinterest could be valued in excess of $12bn - a theoretical floor perhaps, given its last raise valued it at that. 

 
IPO mode on: With Uber and Lyft IPOs also looming large in 2019, Pinterest might be yet another meaningful addition to the list with other tech names such as Rackspace, Palantir, Robinhood, Slack also appearing to be bitten by the IPO bug.
 
 
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