This week we cover some exciting business news topics that have got everyone talking about them. First, we talk about the Fintech startup Cred as it hits $2.2 billion in valuation, becoming one of the most talked-about startups in India. Next, Reliance Jio and Airtel have made a spectrum pact that will benefit both companies in the future. Last, we take a look at the recent upgrade of India’s GDP growth forecast by IMF. What has contributed to the growth of Cred? How will the new spectrum pact benefit Jio and Airtel? and why did the IMF increase their forecast about India? Know all about it here on Business News At A Glance.
CRED has become one of the most talked about start-ups in India, in part because of the pace at which it has raised money of late, its growing valuation and the fact that it only caters to select customers.Two-year-old CRED has become the youngest Indian startup to be valued at $2 billion or higher. While valuation is a milestone that many celebrate, we view it as a responsibility and an opportunity to create member value. CRED today serves more than 6 million customers, or about 22% of all credit card holders — and 35% of all premium credit card holders — in the world’s second-largest internet market. With the latest round, the start-up has raised around $300 million in investments, in 2021 alone. Cred's eye-popping jump in valuation in just two months after it was valued at a little over $800 million in January indicates the frenzy among investors fueling growth-stage startups in India.The Bengaluru-based start-up saw its total losses widen to ₹360.31 crores in FY20 from ₹60.87 crores a year earlier. Revenues stood at ₹52 lakh, with an additional ₹17.56 crore coming from interest on deposits. Amidst this, another aspect that has occupied the share of mind of people is CRED’s over the top advertisements. For its IPL campaign, CRED has unleashed an unseen side of Rahul Dravid in its latest ad and everyone is shook. The Bangalore-based platform’s IPL ad has already started a meme fest. Last year, CRED’s ad campaign was one of the most talked about series during IPL. And this year too, CRED has taken an unconventional approach.
How do these unconventional advertisements impact its valuation?
Valuation metrics for apps are hazy but are influenced by app downloads & even by 'general buzz'-something that Cred gets a LOT of. Given a big budget media plan with high frequency, Cred will always be high on 'awareness'. These two themselves may be enough to increase valuations, even if the call-to-action of 'download cred' doesn't get acted upon. While only the brand can reveal the data about the efficacy of this ad campaign in terms of one or more of the above takeaways (and more – people who installed the app actually using it for a reasonable period of time, people telling their friends, and family to also install it… and so on); it is undeniable that CRED has managed to evoke curiosity and a mass % of Credit Card Users in India is now aware of CRED.
Reliance Jio, the leading power in Indian telecom, has bought the right to use 800 MHz spectrum from its arch-rival. Under the deal with Jio, Airtel will sell 3.75 MHz of bandwidth in Andhra Pradesh, 1.25 MHz in Delhi and 2.50 MHz in Mumbai. These three circles account for 17% of Jio's gross revenues. Through this agreement, Airtel will receive a consideration of Rs 1037.6 crores from Jio for the proposed transfer. In addition, Jio will assume future liabilities of Rs 459 crores relating to the spectrum.
Why It Is Good For Jio
Jio got the airwaves from Airtel at about half the standard spectrum auction price. That helped Ambani save around $400 million, not a small sum by any measure.The deal is set to bolster the operations of Jio, the only user of 800 MHz spectrum in all 22 circles, even further. However, it will be some time before Reliance Jio subscribers in these circles will be able to avail the benefits of the added bandwidth.
Why It Is Good For Airtel
Till the sale, Airtel was unable to unlock any value from the unutilised spectrum. This pricey spectrum was of no use to it. The 800 MHz in question was not suitable to Airtel's spectrum plans, the company said in a statement following the deal.The substantial monetisation apart, Jio's acquisition of the airwaves also brings down Airtel's spectrum liability by Rs 459 crore as any future payment will be Jio's responsibility.
How Does It Impact Jio Subscribers?
The purchase of spectrum by Jio in three key circles also underlines the company’s focus on gaining market share. Though Jio is India’s largest telco by market share, its net customer addition slowed down in the past few quarters. Higher network capacity and improved service quality in these circles may help the telco retain and add more customers. The deal shows that after years of intense, bitter rivalry, the top two telcos can still put their differences aside for a common purpose. The pact highlights that Jio and Airtel can work together for a mutually beneficial cause.
After an estimated contraction of 8% in the fiscal year that ended March 31, India is projected to grow at 12.5 % during the current year, settling down to a 6.9% growth year (FY22/23). The growth outlook for India however comes with significant downside risks because of the current pandemic wave the country is experiencing, IMF economists said. The projections for India were based on evidence to support the normalization of economic activity but these forecasts preceded the current wave of COVID-19 in India.
Global Scenario
Global growth is projected to settle at 3.3% in the medium term due to damage inflicted on supply potential as well factors that pre-date the pandemic such as aging (which has resulted in slower labor force growth in advanced economies and some emerging markets).Given the large uncertainty surrounding the outlook, IMF recommended that policymakers “prioritize policies that would be prudent, regardless of the state of the world that prevails—for instance, strengthening social protection with wider eligibility for unemployment insurance to cover the self-employed and informally employed.” It also advocated adequate resources for healthcare, education, vocational training, early childhood development programs, and investing in green infrastructure.
Indian Perspective
Noting that the Indian government took several steps to address the COVID-19 crisis, IMF said, “We have seen policy responses, which have been coordinated and in several areas. We have seen that the fiscal support, the monetary easing as well as the liquidity and regulatory measures that were taken."What makes sense is to maintain the focus on having that coordinated policy response because this is what's going to prevent long-term damage to the economy. Providing that support to small and medium-sized firms as well as vulnerable houses would be particularly important.There would not be a withdrawal of fiscal stimulus at the general government level and also the state governments would be given the temporary flexibility to go over their budget ceilings. And last, but not least, the fact that some of the other budget items on food subsidies were actually brought into the budget. Overall, the IMF is very supportive of this focus on growth.Overall, the international community also needs to work together to ensure that financially constrained economies have adequate access to international liquidity so that they can continue needed health care, other social, and infrastructure spending required for development and convergence to higher levels of income per capita.