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India’s Trade Deficit Narrows, Facebook Exposes Software Bug, Johnson and Johnson Scam et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 15, 2018 2:19 PM 5 min read

Good evening reader,


We find Yuval Noah Harari an incredibly interesting fellow. 


Born in Haifa, Israel in 1976, Harari is a PhD from Oxford and is currently a lecturer at the Department of History, the Hebrew University of Jerusalem. 


After reading Sapiens, his first book, we were enveloped by a calm sense of progressive cynicism. 


Harari credited the ability of humans to collectively mobilise towards a common goal, using what he'd termed as "stories, narratives, and frameworks", as the principal reason towards humanity's success in becoming the dominant and epoch defining species on Earth. 


So what are these frameworks? Well, according to Yuval, it is everything ranging from law, money, governments, nations, to religion itself. He argues it is all "made up" to enable us cooperate better with each other. 


His next work Homo Deus picks up on where he left, but this time assessing what's next. 


Ever the provocateur, Harari's thoughts are definitely worth studying. For starters, do check out his podcast as part of Russell Brand's Under The Skin series.


Moving on to Today's Top 6 Business Stories through our End Of Day Wrap Up:


India’s trade deficit narrows to $16.7bn in November, exports narrow to 0.8%. 

The What: India’s exports slumped to 0.8% in November vs 17.9% in October on back of an unfavourable base effect, as the trade deficit narrowed to $16.7bn during the same month on account of sliding crude oil prices. The growth rate of imports in November, grew by only 0.5%, the lowest since December 2016 primarily driven by declining gold imports which fell 15.6% to $2.8bn in November.


Up Close: Sectors like engineering, gems and jewellery, cotton/ yarn/fabrics, man-made yarn/fabrics, leather, iron ore, marine products, cashew and rice recorded negative export growth, while pharmaceuticals, electronics, textiles, carpet, petroleum and plastic showed positive growth.


Jio in advanced talks with US handset company for locally producing 100m smartphones; Infosys forms multi-faceted JV in Japan.


The What: As per an Economic Times report, Reliance Jio is in fairly advanced talks with US-based contract manufacturer Flex for locally producing 100m mobile phone handsets. The move appears to be largely in-line with Jio’s aggressive search for heightened market share in the telco sector by specifically targeting the lower end feature phone user base.


Perspective: At its core, the thesis revolves around lifting the c.500m feature phone user base to low-cost smartphones with Jio’s network being the strategic pull. With rapid gains already being made via launch of 4G and VoLTE feature phone, a low-cost smartphone offering could further catalyse Jio’s push and as such help drive a period of accelerated subscriber progression.


In addition to capitalizing on the fairly intuitive low-hanging fruit, there are tax related nuances which should work in Jio’s favour. Flex is expected to negotiate some tax benefits with the government in the SEZ near Chennai where the factory is currently located. The cost-benefits driven by these tax-breaks could result in lower price points for the handsets and consequently help Jio gain further traction.  Recall that low pricing has been a central theme in Jio’s entire push into wireless and wireline as well.


Also, this: Infosys said it has formed a joint venture with Hitachi, Panasonic and Pasona to bolster up it Japanese presence. Infosys is expected to acquire 81%of Hitachi Procurement Service Co, a full-owned Hitachi subsidiary via acquisition of shares. Hitachi will transfer 2% each to Panasonic and Pasona making it somewhat of a four-way transaction. As such, the move is largely in-line with Infosys’ strategy of serving local and international needs of Japanese companies.


Stock brokers seek 7 demands from SEBI ahead of the Budget; rationalisation of the STT and exemption of LTCG tax remain core. SEBI relaxes norms pertaining to cyber security operations for small market intermediaries.

Up Close: As per a Business Standard report, in a letter to the market regulator Securities and Exchange Board of India (SEBI), the Association of National Exchanges Members of India and the Bombay Stock Exchange Brokers Forum put forth demands to be included in the regulator’s budget recommendations to the Finance Ministry.
The demands include: 

  • Rationalisation of securities transaction tax (STT)
  • Reintroduction of rebate under Section 88E for STT paid
  • Exemption of LTCG on securities held for three years and more
  • Withdrawal of dividend distribution tax (DTT)
  • Increase in investment limit under Section 54EC
  • Exemption of interest levy on GST
  • Abolition of stamp duty on stock exchange transactions

Also, this: Considering the lack of knowledge about cyber security and the cost involved in setting up own security operations centre, SEBI said that small intermediaries can instead make use of the services of market security operations center (SOC), proposed to be set up by market infrastructure institutions (MIIs), which would provide technology perspective for cyber security guidelines.


Facebook exposes software bug that may have affected up to 6.8 million users, granting access to pictures they may not have posted.

The What: The social media giant reported that up to 1,500 apps were affected by the glitch.

The Devil is in the details: As per a TechCrunch report, Facebook reported that the bug ran for 12 days from September 13th to September 25th granting it access to users’ Timeline photos, their Facebook Stories, Marketplace photos, and even photos they’d uploaded to Facebook but never shared. Facebook shares were down 0.66% at $144.06.


Following substantial selloff, US indices enter into Correction Territory; Johnson & Johnson slumps 10%. 

The What: US markets, led by Dow Jones Industrial Average (DJIA), fell sharply on Friday largely due to weak retail sales and industrial output data from China and a somewhat weakening growth outlook emerging in the Eurozone. DJIA fell 496.87pts (-2.02%) to 24,100.51. The S&P 500 declined 50.59pts (-1.91%) to 2,599.95 and the Nasdaq Composite tanked 173.01pts (-2.56%) to 6,594.96.

In addition to the broader tech sector sell-off, health care slipped sharply driven by a 10%+ downswing in Johnson & Johnson, after Reuters reported the company knew for years that its baby powder sometimes contained asbestos.


What you need to know: Correction territory is typically defined as a fall of at least 10% from recent high. At Friday’s close The S&P 500 is down more than 11% from its recent high in September while the Nasdaq is down nearly 15% from its most recent August high. DJIA is also down more than 10% form its October high. In that context, US stock indices are all now simultaneously in correction territory.


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