Long-Term Investing Ideas in a Volatile Market
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Our 7investing team sets its sights on India! In Part 1, lead advisors Matt Cochrane and Simon Erickson speak with Dhaval Kotecha about India's population and its lucrative digital payments and e-commerce opportunities. Dhaval also shares his top stock idea in the country.
August 20, 2020 – By Simon Erickson
Many people might know that with a population of more than 1.3 billion, India is the world’s second most-populous country. What many probably do not know is that it is also one of the world’s youngest countries. Indeed, almost half of the country’s population is under the age of 25 and about two-thirds are under the age of 35, giving India a median age that is well under both the U.S. and China for comparison.
No wonder then that the 7investing team was growing increasingly interested in India’s stock market. But we knew we were behind the learning curve when it came to knowing where to begin to look for promising investments in India, so we had to call in for reinforcements! This week we talked to Dhaval Kotecha, Ramneek Kundra, and Saket Reddy to help, who are all experienced investors and much more familiar with India’s investment landscape than we are.
All three discussions were so good that we’re breaking this week’s podcast into two separate episodes. In this episode, Part 1, Dhaval Kotecha explains India’s young population and the important demographic trends that will drive India’s economy for the next decade and beyond, namely its rising middle class and movement towards urbanization.
Dhaval then dives into a history of Reliance Industries, an industrial and energy conglomerate that pivoted and built the most affordable mobile data plan in the world, Jio Platforms. With more than 400 million subscribers, Jio has raised more than $21 billion since April 2020, including sizable investments from some of America’s largest tech companies, including Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Intel (NASDAQ:INTC), and Qualcomm (NASDAQ:QCOM). As Jio builds up its digital platform, there is a good chance that it will become the gateway into India’s growing digital economy.
Here is a link to view Dhaval’s presentation slides.
0:00 – Introduction
4:42 – An overview of India’s demographics and geo-political structure.
5:55 – Different tiered cities in India and the growing urbanization movement.
9:37 – India’s growing middle class.11:51 – India’s retail structure and the digitization of payments.
15:36 – E-commerce in India
17:06 – Comparisons between India’s and China’s online economy
21:09 – What Amazon.com and Walmart are doing to grow their presence in India.
24:23 – The history of Reliance Industries.
26:35 – Reliance Industries, the industrial conglomerate
28:16 – Jio Platforms: “the cheapest mobile data plan in the world”
30:30 – Jio’s growing ecosystem
34:39 – How do American investors invest in Jio?
39:30 – Why foreign investments are pouring into Jio Platforms
Simon Erickson 00:00
Hi everyone. I’m 7investing founder and CEO Simon Erickson. Here at 7investing, our mission is to empower you to invest in your future. We do that by providing our seven favorite stock market opportunities every month, but also free educational content such as this podcast. I’m joined by my fellow 7investing lead advisor Matt Cochrane.
Simon Erickson 00:20
Matt, to introduce the show, it’s an important day today. It’s actually August the 15th that we’re taping this, which is India’s independence day. And we have a special podcast planned today. Could you talk a little bit about what we’ll be discussing on today’s show?
Matt Cochrane 00:35
You’re absolutely right, Simon. Listeners, as some of you might know from following us on Twitter, India’s growing economy and middle class is an area of interest for both Simon me. As US/China relations grow increasingly tense, investors are left with fewer choices to invest in stock markets and economies with relatively robust GDP growth and a relatively stable political environment.
Matt Cochrane 01:00
This search has led Simon and I both to look at India as a possible place for more of our investment dollars.
Simon Erickson 01:09
Absolutely. And in addition to Matt and I sharing our thoughts about India, we think that it’d be even more valuable to bring in some perspectives from some other Indian investors as well. And so we’ve got three guests for today’s show, who will also be sharing what they view as the biggest opportunities and risks within the country.
Matt Cochrane 01:26
Yeah, and I can’t wait to hear the presentations. later in the show. We’ll be joined by Ramneek Kundra, who can be found on twitter “@iramneek”. And Saket Reddy, who’s also on Twitter “@saketreddy”.
Matt Cochrane 01:47
But joining us first, to give us a broad overview of India’s economic and political structure before diving into his favorite India stock idea, is Dhaval Kotecha. His Twitter handle is “@dhaval_kotecha”. And I apologize to all if I mispronounced your last name. And listeners, if you’re on Twitter, all of today’s guest Twitter handles will be included in the show notes and our site’s article accompanying this episode. And all three are must follows.
Matt Cochrane 02:21
Dhaval is an IT engineer and long term investor, currently residing in Florida. Welcome to the program Dhaval!
Dhaval Kotecha 02:30
Hey, it’s nice to be here.
Simon Erickson 02:31
I really appreciate you spending the time with 7investing. Before we start talking about India specifically, could you start us off by talking about your background and what you think of as your personal investing style?
Dhaval Kotecha 02:43
Yes. So for me, I am coming from an IT background. I was born and brought up in India and I moved to the US in 2013 and I have been living in Florida since then. And I work for a company which is a DSP in ad tech. People might have heard about The Trade Desk and I work in the same space as what The Trade Desk does. I help my company build the real time bidding engines, but I am also a big fan of 7investing. And my thought process is to invest for the long term. Pick the best companies, which have secular tailwinds and keep holding them for decades.
Simon Erickson 03:42
Yeah, that’s great. Go ahead, Matt.
Matt Cochrane 03:45
Well Dhaval, we just basically want to give you the floor. You prepared a fantastic presentation for us. So our listeners are in for a special treat. Dhaval, go ahead and take it away.
Dhaval Kotecha 03:56
Absolutely. Let me share my screen and get started.
Simon Erickson 04:01
This is an incredibly impressive presentation.
Dhaval Kotecha 04:07
All right, if I can check: Are you guys able to see my screen?
Matt Cochrane 04:10
We are. And listeners, if you’re listening to the podcast, make sure you check out the video on YouTube. So you can see some of the slides Dhaval is going to take us through
Dhaval Kotecha 04:20
Alright. So I’m going to talk about investing in India. I’m going to give a perspective on the Indian market overall and talk about the growth avenues in certain spaces in India. And then talk about my favorite idea on investing in India.
Dhaval Kotecha 04:42
So before I get started, I will talk about India’s demographics. India has 28 states and union territories with a population of 1.38 billion people. Right now, there’s 50% of the population which is below 25 years of age and 60% of the population is below 35 years of age.
Dhaval Kotecha 05:08
As you can see here, a lot of states and you can predominantly divide this Indian country into five major areas: which is the Northern part, this is the Western part of India, Southern part, Eastern part, and the Central part. I come from the Western part of India. So I have the perspective from the Western side of Indian subcontinent, but I might be talking about the entire country. So there might be things where I’m I might not be accurately talking about certain things. But we will kind of go from there.
Dhaval Kotecha 05:55
So if we look at India, there’s a classification of cities based on three tiers. The tier one cities, which are the bigger cities, they have better job opportunities. They have better international connectivity and absolutely great healthcare, infrastructure, and education. The downsides being, there’s higher living expenses and more traffic and pollution. One such city which I can say is Mumbai, where I have lived for a lot of time. I started my career in Mumbai. The tier two cities are smaller cities than the tier one cities but they offer better quality of life and they have moderate living expenses when compared to the tier one cities. They have good infrastructure, healthcare, education and transportation but not as good as the tier one. They have limited or no international connectivity and obviously less job opportunities when compared to the tier one cities. So tier two cities would comprise of city called Jamnagar. And the tier three cities are the ones which are not falling under tier one and tier two. So, the tier three cities are the ones which have poor infrastructure and poor connectivity overall. And people must move to tier two cities or tier one cities for better opportunities, because there’s not great education or healthcare. So if people need to avail those facilities, then they need to either move to those cities or either go temporarily to those cities to get those benefits. Tier three cities have low population densities as compared to the other cities. So that’s a city called Veraval.
Dhaval Kotecha 07:57
Now personally, I was born in a tier three city, spent most of my life in a tier two city, and then moved to the tier one city for better opportunities. So I have the idea of tier one, tier two, and tier three cities on the whole. So this is how the position is. And if I were to compare the US cities to the cities in India, then Mumbai would be something similar to New York City, Jamnagar would be something similar to Jacksonville, Florida, and Veraval would be something like Lake City, Florida, which is not very well known. It’s a small town, but still people live there.
Dhaval Kotecha 08:43
So I’m going to talk about the urbanization and the rising incomes of India. So what’s happening here is since 2005, there has been a big shift of people moving from the rural areas to the urban areas. If you see the trend here, you will see that people are constantly moving from the rural areas to the urban areas and they will continue to do so. In 2005, the percentage of population per area in the urban areas is 28. Whereas, in 2013 it is expected to be around 40% in 2013. So that’s a big shift.
Dhaval Kotecha 09:37
The Indian middle class, if I talk about that for a moment, we see that the Indian economy is projected to grow at a base rate of 7.5% annually to 2013. And the majority of the people are moving from the lower income bracket to the upper mid and the lower middle brackets and the higher brackets. So, if I were to put it in a simple way, one of the four households today are in the high income and upper middle income segment. Whereas by 2030, we are expecting it to be one in two households, and 70 million fewer low household low income households by 2030 is what we are expecting to be the case in 2030 in India.
Dhaval Kotecha 10:29
So talking about the population and the age of the population, the median age of India’s population in 2018 was 28. So right now in 2020, it should be somewhere around 28 to 29 years. In 2030, it’s expected to be approximately 31 years of median age. Whereas, when you compare it with the United States and in China, the median age is 40 and 42.
Dhaval Kotecha 11:03
Now, if you have a median age of 28 and 30, that means a lot of people are like millennials and Generation Z. And we have seen in the US, the behavior of that generation of people [is quite different] compared to the older population, right? So that’s where the shift is happening in India. And the growth is going to be propelled by the urbanization and the favorable demographics and the innovation that’s going to happen in India. And along with that, there’s the evolving consumer attitudes towards the new and evolving technologies.
Dhaval Kotecha 11:51
So I’m going to talk about the digitalization in India. But before talking about the digitalization, I need to give an idea of our local kirana mom and pop stores. So, growing up in India in a tier two city, this was the sort of stores that I used to visit if I wanted to buy a bag of chips or buy any items that I needed for day to day use. Any sort of grocery shopping or any sort consumables that I used to buy, I used to buy from the kirana stores. And these kirana stores still exist in India. And if we look at the numbers, the kirana pie, there are approximately 12 million such kirana stores in India. Which means that still 90% of the retail market is unorganized. And we have 1 trillion is the approximate size of the market.
Dhaval Kotecha 12:57
But what we are seeing is, because of these kirana stores, they are like the local mom and pop stores, they don’t have the infrastructure and they predominantly operate using cash. So what’s happening right now is there are companies who are enabling these kirana stores to go digital to take payments. And allowing them to process payments, using the apps like PayTM or PhonePe or using credit cards. BharatPe is the pioneer in unified payment interface, which is a standard by the Indian government. So that’s the payment solutions part.
Dhaval Kotecha 13:43
And they also do digital money lending, which is exclusively for merchants. So as you can see, it says BharatPe Lagao, then Dhandha Badhao. So that means you install BharatPe and you increase your business. That’s what it means when they say BharatPe Lagao then Dhandha Badhao.
Dhaval Kotecha 13:58
And they are enabling these kirana stores to go digital by accepting the payments from any app. And they are enabling them to take the loans from BharatPe. Then they are also giving them these zero fee card machines with zero transaction charges and no rentals and they are capable of printing out the receipts.
Dhaval Kotecha 14:29
Talking about the major FinTech players. If I talk about the big ones, PayTM is the biggest one in India. And they were the beneficiary of the de-monetization in India which happened in 2016. Back in 2016, the Indian Prime Minister announced that they were going to make the 500 rupee notes and the thousand rupee notes null and void overnight. And people were lining up to take out money in ATMs. And PayTM was there at that point of time. It was the biggest beneficiary, because now people started transacting using the phones and PayTM for doing transactions. PhonePe is another big one; a FinTech player. Google Pay is also there. We have Amazon Pay, JIO Money, BHIM UPI, and MobiKwik.
Dhaval Kotecha 15:36
So talking about the growth avenues. Because everything is moving from kirana stores, India is getting into FinTech. I want to start with e-commerce, which is one of my biggest thoughts on growth in India. But let me back up and talk about how the global trajectory has been so predictable in different parts of the world. So what happens when e-commerce gets started?
Dhaval Kotecha 16:14
So we have seen that trajectory in three different stages. So the first one is the cautious early adoption stage, where there’s a less than 10% of shopper penetration. The second stage is the massification stage, where you see a kind of increase in a shopper penetration, the prices are down, there’s so many discounts and then you will see a lot of investments flowing in the businesses which operate in that space. And the third stage is where the stickiness of the business; it becomes a way of life for people to leverage e-commerce. And that’s what we saw in the United States. That’s what we saw in China. So let’s look at the China story and then we’ll compare it with the Indian story.
Dhaval Kotecha 17:06
So the China story, if we look back in 2007 to 2020 right now. The cautious early adoption phase, it started approximately from 2007 to 2010, where we see that online shopper penetration is almost like 8%. With annual purchase frequency per shopper approximately 20. And the gross merchandise volume in billions is approximately like $60 billion. So that was the cautious early adoption stage in China from 2007 to somewhere in the middle of 2010.
Dhaval Kotecha 17:48
And from that stage – from 2010 to 2016 – these are the massification stage, where online shopper penetration went from 8% to 30%. And there were a lot of investments by these big companies – Alibaba, JD.com – to build their logistics capabilities, improving the customer experience. And we see that trajectory went from almost like $60 billion to $600 billion on the gross merchandise volume. And after that, we see that from 2016ish or so to 2020, we are seeing from $600 billion go up to like $1,200 billion dollars. And the online shopper penetration increased to say 45%, compared to the 30% before the start of that stage.
Dhaval Kotecha 18:51
So when I look at the India story, I see that India is trailing China by seven years in internet users. China was there at like 41% internet users. 41% of the population of China was using the internet in 2012. And we are seeing the same thing in 2019. That’s a gap of seven years and then the number of shoppers, the percentage of the population who is shopping online in 2012 was 18% in China and 11% in 2019 in India. So approximately eight years gap there too. You can see US is very far ahead of these players. But right now, these charts look promising for India at this point, compared to any other country here.
Dhaval Kotecha 19:53
So, if we see the Indian e-commerce market. There have been significant investments made by a lot of companies in India between 2018 and 2020. And the expectation is that there will be approximately 300 to 350 million shoppers and 100 to 120 billion in gross merchandise volume by 2025. If we see the online retail penetration, we will see that there’s almost around 3.4% retail penetration right now in India, with a CAGR of 36%. If we see the two countries listed here, Thailand and Malaysia where there’s very little online retail penetration, 2% and 3%, we see there’s a company called Sea Limited that we all talk about, that is kind of making inroads in those countries.
Dhaval Kotecha 20:56
But what about India? Because India is growing at a rate of 36% here. And we will talk about the players who are in this market.
Dhaval Kotecha 21:09
So if I talk about the e-commerce players in India, there are two leaders in the space who are building the ecosystems. The first one is Walmart Flipkart. Walmart Flipkart is the combined entity. Flipkart was the one which was the first e-commerce platform in India. And then Walmart came in 2018 and bought around 77% of the stake in Flipkart for almost $16 billion. Currently, Walmart Flipkart owns approximately 30% market share in the Indian market, and they are building the ecosystem which ranges from logistics to commerce marketplace. And they have partnerships with Hotstar – which is owned by Disney – and then on the audio side they have Gaana and they have like various different things for OTA. MakeMyTrip is one company that a lot of people from the US know about. And then they also have repair services and other consumer services like Vedantu and Practo and Curo.fit. Vendantu is something very similar to online tutoring. And Practo into healthcare. Curo.fit is what I would say, fitness. And on the financial side, they have PhonePe, which is the same thing as PayTM. And they have partnerships with Axis Bank, HDFC Bank, ICICI and other financial services in India. They have the loyalty program, which is the Flipkart Plus program.
Dhaval Kotecha 23:05
The second biggest player is Amazon. And we all know about this company. And it also has made a lot of investments in India and Jeff Bezos visited India last year. He invested a billion dollars in the Indian market for the next five years to enable the small and medium enterprises to come and have their businesses set up on Amazon and leverage that platform to reach a lot of users across India, which they were previously not able to reach. So with Amazon, again, they also have approximately 30% market share. And they have their logistics commerce marketplace, which like all these businesses are very well known to people in the United States. But these are some some of the businesses that they either acquired or had partnerships with. Shopper Stop, More, Future Retail. And they are also having their standard analytics cloud, financial services platform. And Acko is one which is the insurance platform. And they have the loyalty program as Amazon Prime.
Dhaval Kotecha 24:23
So this is the ecosystem for two of the biggest players. Now, I’m not going to talk about these two players. What I’m going to talk about is Reliance Industries and its Jio platforms, which is my pure-play pick for the next decade.
Dhaval Kotecha 24:42
To begin with Reliance Industries, I’m going to give some history of this company and where it started and where it is right now. So it was founded in 1960s by visionary called Dhirubhai Ambani. And he started this company and the company IPO’d in 1977. As you know, cricket is a big thing in India, and these guys did their meetings by holding them in big cricket stadiums. This is a picture from one of their meetings.
Dhaval Kotecha 25:21
And what happened after that is Dhirubhai Ambani passed away in 2002. And after 2002 when he passed away, he did not have a will. So what happened was there were some issues between these two brothers. So he had two sons: Anil Ambani and Mukesh Ambani. And they had been running that company until that point of time. And they ran into some issues. And then, what happened is their mother brokered that deal and the company got split in 2005. And at that point of time, the market cap of Reliance Industries was $15 billion.
Dhaval Kotecha 26:05
So, Reliance Industries and Reliance Anil Dhirubhai Ambani group were the two companies that formed out of this split from Reliance Industries. Where Mukesh Ambani got the assets like the oil assets, which is the Reliance Industries and IPCL. Whereas Anil Dhirubhai Ambani group, he got into telecom, which is Reliance Communication. That’s the primary asset that he had. And then Reliance Energy and Reliance Capital.
Dhaval Kotecha 26:35
So, moving fast forward to 2010, Reliance bought a company called Infotel, which had the rights to a lot of bands in government-run spectrum auctions. And that helped them come up with Jio, which kind of launched in 2016. And then in 2016, once Jio launched, 2018 Reliance Communication ran out of business. So in 2020 as it stands right now, Reliance Industries Group, market cap of $186 billion. Reliance Anil Dhirubhai Ambani group market cap of $240 million. This is a million dollars, like not even a billion dollar company. Compared to his brother, which is Reliance Industries group Mukesh Ambani.
Dhaval Kotecha 27:32
So, the businesses that Reliance Industries is in is polymers, chemicals, polyesters, petroleum, textiles, retail in store brands. And they have partnerships with a lot of other brands. But we’re not going to talk about any of these businesses. They have their hands in almost every sector that you can name, because of COVID, people are locked down in their homes. And because oil prices went down, right now what we see is Jio is the same value as all the other businesses combined in Reliance Industries.
Dhaval Kotecha 28:16
So now what’s the Jio platform? The Jio platform in Q3 2016 is when Jio platforms was launched, they had almost a hundred million subscribers in the first six months after launch. And that was like very, very popular. They started providing internet services to the users. They enabled each and every person in India to be internet enabled. Now, if we look at the plans that they have, they give internet services to the Indian people for like 249 rupees for your data plan, for two gigabytes per day. So 249 would be something around $4 per month, for getting two gigabytes of internet data per day.
Dhaval Kotecha 29:15
And coming to 2020 here, we are looking at approximately 400 million subscribers right now on the Jio platforms. And this is a quote from Mukesh Ambani, he says that “in this new world, data is the new oil. And data is the new wealth.”
Dhaval Kotecha 29:33
And if we flip the logo for Jio, you can see that “oil” and now it is “Jio”. Which I found very interesting. And I didn’t know about this at all. And this was, I’m sure, that a lot of people would not know about this too.
Dhaval Kotecha 29:53
So we have seen some serious money flowing in these Jio platforms. There’s a lot of buzz when Facebook started. Facebook invested a lot of money in Jio and then all these other companies had their investments between April 2020 and July 2020. That’s after COVID, all these companies in total $21.5 billion. That’s an insane amount of money raised within a very short period of time by any company in the world.
Dhaval Kotecha 30:30
And these are the folks banking on India to be their next growth story. If we look at the Jio platform in total, these are some of the services which Jio has to offer. The Jio-connected intelligence is their telecommunications, a Jio TV is where they are aggregating all the video content across all PDF. So you have Amazon Prime, you have Netflix, you have Hotstar, you have your Z5, you have other services like Sony Live. And what they are trying to do is they’re providing these setup boxes to all the consumers in India and they are kind of aggregating all the content under one platform and enabling the media. You have the cross device marketing technology platform. This is very, very nascent. But it’s very similar to what Trade Desk is in the United States. You have the Jio Health Hub, and they are also making inroads in like, what Teladoc and Livongo did in the United States. You have Jio cloud store, which is very similar to Dropbox. They have partnerships with Microsoft and Azure to leverage their capabilities in India. And you have Jio money, which is the same payments platform and you have the Jio meet, which is similar to Zoom. I installed this app on my phone and I could not make out the difference between Zoom and Jio. It’s almost an exact copy of what Zoom is. And the Jio mart is the e-retail. Part of the e-commerce part of Jio. And they are coming up with a lot of things like Jio glass, where I saw a couple of months back where they were talking about AR and VR, the same type of glasses that Snap has come up with. And you see there’s a lot of other things as well. I’m not going to talk about everything here.
Dhaval Kotecha 32:41
But this just gives an idea about how many things Jio is building. So ultimately, if there’s something in India that you need to interact with, you are most likely going to use the Jio platforms.
Dhaval Kotecha 32:58
And they are the ecosystem, which is under the Reliance group and you can see the ecosystem is what they are building. It’s pretty impressive, like the logistics part, the commerce marketplace, the entertainment, the social. They are also integrating WhatsApp with the Jio mart and also enabling the kirana stores with WhatsApp. Also, what they have done is the kirana stores, they are rebuilding those kirana stores and are bringing them into their ecosystem. So what they said was “give us 48 hours and we will remodel your entire kirana stores. We will not have any impact to your existing business for those 48 hours. And we will make make sure that we manage your inventory. We help you in doing any sort of inventory management.” Because what happened during COVID was a lot of the kirana stores ran out of supply because they could not get the goods from their suppliers. But if they were integrated in the Reliance ecosystem, it is much more easier for these kirana stores to get the supplies from Reliance and Reliance has their data as well that is getting what the consumer is needing at a very, very ground level. They have a lot of services as well like the Jio Health Hub. They have the geopolitics, the financial services, Jio money, and the loyalty program like the Jio Prime.
Dhaval Kotecha 34:39
The other question is “how can I invest in it?” Like, this seems to be very impressive, but how can I invest in it. That would be the biggest question.
Dhaval Kotecha 34:48
Reliance Industries is not listed on New York Stock Exchange or NASDAQ. You can see the graphic. There’s just one direction [up and to the right]. And you can see in the past year or so, this company has grown parabolic here. But even for the long term, it’s just from the bottom left to the top right.
Dhaval Kotecha 35:11
And talking about Jio specifically, it’s not a publicly-traded company in India. So even if any person from India wanted to buy in, they just have to invest in Reliance Industries. And disclaimer, my family owns stock in Reliance Industries in India. But Jio is going to be public, like there have been talks of them going public. I’m not sure when. But I’m expecting them to be going public in the next couple of years, hopefully.
Dhaval Kotecha 35:43
But for the US investors, the best way to invest would be to buy these ETFs which have very high weightings on Reliance Industries. These were the two which I found, which is the Invesco India ETF, which is PIN (ticker symbol “PIN”). And the iShares India 50 ETF, which is “INDY”. Reliance Industries’ portfolio weightage for INDY is 14%, whereas for PIN it is 11.6%.
Dhaval Kotecha 36:19
And that concludes my presentation. We can discuss any questions that you may have.
Matt Cochrane 36:27
Dhaval, that’s just fantastic. Thanks so much for taking us through that. So how much of Reliance Industries now is made up by Jio?
Dhaval Kotecha 36:39
So Jio is still a very small part of it. But it’s growing rapidly and the new money is flowing into Jio.
Matt Cochrane 36:49
Absolutely. And so, you showed all those companies making investments. And I remember, I think Facebook kicked that off like a few months ago with like a $10 billion investment. And the next thing you know, it was like all the other American tech companies are just throwing billions of dollars at it. I mean, it essentially provides the cheapest data service in the world, right? I mean, like you said, how much does that come out to American dollars per month?
Simon Erickson 37:14
It’s like $5.
Matt Cochrane 37:16
Yeah, that’s insane. And for two gigabytes of data a day? And does that come with access to all those platforms that you were talking about, like Jio meet? Or are those extra add ons?
Dhaval Kotecha 37:29
So Jio meet is available on the Play Store. You can just download and you can install it in the US as well. It’s not necessary to be just installing from India. You can install from worldwide.
Simon Erickson 37:45
Dhaval, I hope you don’t mind that I have 88 questions prepared for you here [laughs]. Just kidding. I’ll summarize with two. Your presentation was fantastic. I wanted to ask about the kirana stores that are being retrofitted. You said that Jio was going in and just saying, “hey, we’ll set you up for digital payments.” And it definitely seems like that’s interesting.
Simon Erickson 38:05
But you’ve also got those international companies, right? Google’s interested in doing that. Amazon’s interested in doing that. When those kirana stores are retrofit, does that lock them into using one digital payments provider? Or can they accept five or six or seven different types of digital payments at those stores.
Dhaval Kotecha 38:24
So this is just to enable the kirana stores to get access to the entire infrastructure, the digital infrastructure. But they can accept PayTM. They can accept PhonePe. They can accept any form of payments. They can accept any credit cards. But the data is utilized by Jio to make the decision. So this is a win-win for everyone who is in this ecosystem.
Simon Erickson 38:52
Yeah, that’s perfect. It sounds a lot like Visa and MasterCard and Discover in the United States to choose as your payment method.
Simon Erickson 39:00
The other question I wanted to ask was what role is the government in all of this? There’s a ton of money on the table there for those telecom companies. Does the government seem to protect Indian companies to develop this space, and put restrictions on foreign companies? Or is it the opposite, where they’re actually taxing the Indian companies more, because that’s a source of tax revenue for them?
Dhaval Kotecha 39:24
I would say the Indian Government is, right now, they have a campaign called “Make in India”. So they are kind of having everyone and are pushing for everything that is made in India. And obviously Indian companies stand to benefit the most out of out of this. And Reliance, again, the owner Mukesh Ambani is a very influential figure in India. And that is one more reason why I think Reliance stands to be the biggest beneficiary of all of this.
Matt Cochrane 40:05
And on top of that too Dhaval, correct me if I’m wrong, but it’s kind of like all the American internet companies wanted to get into India because of its huge population. It’s young and it’s a growing economy. And the India government, kind of temporarily scoffed at it a little bit. Because they wanted an Indian company to be to be the gateway to the internet, right in India.
Matt Cochrane 40:32
So it’s almost like Jio really is the gateway to the internet in India. And so that’s why all these American tech companies are coming in and investing in Jio. It’s kind of like their “tax” to get access to the Indian market. I mean, is that fairly accurate to say?
Dhaval Kotecha 40:50
Yes, that is absolutely accurate. And these companies were not able to go into China for that reason. And now they’re able to invest in India and they see the growth. They could have done the same thing in China and grew from there; they could not do it because of the government intervention. But in India, they have that possibility. And that’s what they are doing.
Matt Cochrane 41:12
So if anything, the Indian government is going to support Jio. So an Indian company will remain in that top spot in India’s digital ecosystem.
Dhaval Kotecha 41:25
Yes. Yes, absolutely.
Matt Cochrane 41:28
So I know I asked how much of Reliance Industries is made up by Jio. But after all this foreign investment, how much does Reliance still own of Jio? Do you know what its stake is now, after all this money has poured in from American tech companies?
Dhaval Kotecha 41:45
I think, as far as I know, it was almost like a 45% stake in Jio. That is what the family owns. I don’t know what the entire Reliance Industries owns.
Matt Cochrane 42:02
Gotcha. Okay. Simon, you have any more questions?
Simon Erickson 42:08
Dhaval, what do you think about the Prime concept in India? You talked about e-commerce, obviously Amazon Prime is huge in the US with its two day shipping. We depend on that. Is India there yet? Do they have the logistics and infrastructure? And consumers, do they even want something where you would pay a set amount per per year for fast shipping?
Dhaval Kotecha 42:28
Yes. So again, with Amazon, you have Amazon Prime in India. They will charge you 1,000 rupees per year in order to get the Amazon Prime. That’s the number which I kind of remember off the top of my head, which comes down to around $12-$13 per year. And Flipkart has a similar service called Flipkart Plus and Jio also has Jio Prime. So Jio Prime is not exactly the same thing because they are still building that. But Flipkart Plus and Amazon Prime are in the same league. And Indian consumers are paying for it. Now for Amazon Prime right now, I talked to a lot of people in India, and what they said was they are using Amazon Prime primarily for the video content. Not for the two day delivery, at this point. Because the content they’re shelling out in India has been phenomenon, along with Netflix. So that was one reason that they were buying the Prime subscriptions. But again, that comes from the tier two and tier three cities. Tier one cities, again, they would be the beneficiary of the entire ecosystem.
Simon Erickson 43:58
Could you say that one more time? The tier one cities are benefiting the most, because they’ve got the internet connections that can handle the video and all that? But tier two and three are starting to migrate to those larger cities, and benefit from it as well. Right?
Dhaval Kotecha 44:09
Yes. And again, the two day shipping and the benefits of these two day shipping and one day shipping. That will be there. The tier one cities will be getting that first and they would be the biggest beneficiaries. And then it kind of trickles down to the smaller cities.
Simon Erickson 44:26
Matt Cochrane 44:33
Well, Dhaval, thank you so much for joining us today. Really we’re blown away by this conversation and this presentation. Thank you!
Dhaval Kotecha 44:42
Absolutely. It was my pleasure.
Simon Erickson 44:44
And once again, we’ll put up Dhaval’s Kotecha’s presentation for everyone to see. We’ll put it up on YouTube as well. Some fantastic slides he prepared here, as we continue to learn about India this week. Thank you for tuning in to this podcast.
Simon Erickson 44:59
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