Things we are reading today - August 17th, 2023

Peak XV Partners is in the advanced stages of deliberations to lead or fully finance a funding round in Neo Group, an asset management and financial advisory firm, three sources familiar with the matter said. The firm is finalizing an investment of as much as $50 million in Neo Group, which also runs a family office, the sources said, requesting anonymity as the deliberations are ongoing and not public. Jio Financial Services, part of Asia’s richest man Mukesh Ambani’s Reliance, last month joined forces with the U.S. giant BlackRock to form a 50:50 joint venture to launch asset management services in the South Asian market.

A BJP-friendly NRI businessman’s proposal to Niti Aayog paved the way for the creation of a task force that authored a report pushing for the corporatization of agriculture as a way to double farmers’ income. Aayog later appointed the businessman on the task force, which consulted mostly big corporations involved in agriculture commodities trade, such as the Adani Group, Patanjali, BigBasket, Mahindra Group, and ITC. But no farmers, economists, or farmer organizations were consulted before submitting the report in 2018 to the government, whose aim was to double the income of around 60% of Indians who depend on agriculture. Two years later, India saw the longest-running farmers’ protest over the Modi government’s decision to bring in three controversial laws aimed at allowing corporate players in farming and deregulating agriculture markets. Thousands of farmers sat in protest at Delhi’s borders, and at least 500 of them died from heat, cold, and Covid, forcing the government to repeal the laws.

While Foxconn insisted it had not committed to any project, the Karnataka government’s lobbying was a sign of the intense competition brewing in India to attract more investment from the world’s biggest contract electronics manufacturer, as Apple and other tech companies diversify away from their reliance on China. Multinationals’ desire for a “China plus one” strategy, following supply chain disruptions and geopolitical tensions between Washington and Beijing, is driving Foxconn to a renewed push into India, where it first invested 15 years ago but where it still only employs some 50,000 of its 1mn global workforce. China accounts for 75 percent of Foxconn’s global operations, up from 70 percent before the pandemic. Foxconn would help bring smaller suppliers to India by developing more large industrial parks. People familiar with the company’s plans said smartphone component production in India would be largely limited to Foxconn group companies for the time being because a big portion of the China-based supply chain consists of Chinese producers, which are having difficulty getting allowed into India. Another big question is how far Foxconn can make its India operation more cost-effective, which is key in a business with razor-thin profit margins. A person familiar with its India operations said that while it was “Highly unlikely” that any single India campus would house 100,000 employees or more, there was significant room for scaling up operations with a network of bases not far from one another where at least part of the staff lived on-site.

The company building their flats, Country Garden, missed $22.5 million in coupon payments on August 6th. Now the firm, one of the world’s largest homebuilders, has until early September to make the payments or follow hundreds of other developers into default and restructuring. Country Garden is renowned for building huge projects in China’s 2nd-and 3rd-tier cities. At the start of the year, Country Garden was building four times more homes than Evergrande was before it defaulted. Until recently, most thought that Country Garden was immune to default. Since late last year, officials have sought to calm the market by drawing up an informal list of healthy developers, including Country Garden, that investors could feel comfortable funding and Chinese citizens could trust. Country Garden’s issue is not one of over-leverage in the style of Evergrande. Country Gardens tumbled by 60% and the firm’s decline is forcing market watchers to confront their deepest fears about the property sector.

For many successful speculators, “Cut your losses early; let your profits run” tops the list of advice they offer to the next generation of traders, as was the case with 12 out of the 14 renowned moneymen interviewed by Jack Schwager in Market Wizards: Interviews With Top Traders. His 1988 paper, “Inefficient Dynamic Portfolio Strategies or How to Throw Away a Million Dollars in the Stock Market” argues that strategies that cut risk to zero following losses are strictly suboptimal if asset prices follow random walks and investors exhibit smoothly decreasing marginal utility of wealth. The rest of this article will explore two cases in the context of investing where the policy of cutting losses quickly and letting profits run can make sense.

There’s been a growing prevalence of subscription-based sales, with companies like Adobe using this approach for software products. From the company’s standpoint, subscriptions offer a consistent revenue stream and discourage sales spikes tied to major product releases. Subscribing to services with regular updates is more cost-effective than paying a large upfront fee for each major software update. However, there are potential downsides of subscriptions for consumers. While businesses benefit from a steady income, customers might end up paying more due to the difficulty of efficiently managing multiple subscriptions.It also touches on the concept of manual re-subscription and automatic renewal, highlighting the pros and cons of each approach.

From being an exclusive service offered only to premium credit-card holders, free access to airport lounges became the top selling point for every product in a bank’s credit-card pack; it was seen as an aspirational benefit to most. Banks even set up kiosks outside lounges to sell credit cards. Data from the Reserve Bank of India shows that in the last five years, the number of credit cards nearly doubled to 85 million as of March 2023. That growth manifested in long queues outside airport lounges, and it undid the two core ideas behind this freebie: Airport lounges-once exclusive-became overcrowded & the service became costly for banks.

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