💎 SEBI, Sri Lanka & Prime Day (17 July 2022)

Getting to where you are today took a good amount of hard work. Now to discover what’s next will need some more determined plans.

This week, we look at the stories of businesses, countries, and regulators prepping up for the upcoming phases.

Sri Lanka stirred the headlines again when its President fled away from the nation last week, calling for a state of emergency.

All this while, the public protests are on as the country is struggling with a 30% high inflation and a lack of essential imports such as fuel, cooking gas, and medicine.

What got them here?

The country has been spending huge on infrastructure and also at the same time curtailed taxes by one-third. It was relying heavily on the revenue from tourism but then Covid happened.

To meet its ends, it had to seek debt of $35 billion from China, India, and Japan. And later, it cut down on its imports of essentials like oil and used the foreign reserves to keep paying the interest on the borrowed money.

What all lies ahead?

• First things first: The priority for them is to get a government to restore law and order to the country.

• The piled-up debt: Next, they need to negotiate the debt repayment norms with the creditor countries.

• They need more money: Also, they are already in talks with the International Money Fund (IMF) for financial relief.

Our Take

The IMF has already stated that they will be able to help only if Sri Lanka can come up with a plan to restore the economy to a sustainable footing. Raising taxes and cutting its public spending could be one of the first few steps for Sri Lanka to get there.

But for all of it, they first need to have credible leaders. The past few years were ruled by the Rajapaksa family, which led to widespread corruption and wrong policies, influenced by countries like China.

In the first of such moves globally, SEBI, the Indian stock market regulator, plans to issue a regular "risk factor disclosure" on the market trends.

The intention here is to help investors make rational decisions by learning from reliable insights. And perhaps this comes at the right time too.

The past 2 years were different

In Mar'22, the assets for the equity mutual funds stood at Rs.14 lakh crores, surpassing that of the debt at Rs.13 lakh crore for the first time.

Just 2 years ago, in Mar'20, equity assets stood at just Rs.7 lakh crore, while debt was at Rs.10 lakh crore. Since then, there’s been a continuous monthly increase in equity assets.

And it went like this:

• 2020 to 2021: The equity market indices almost doubled from the fall in Mar'20 to Oct'21, and this portrayed huge recent returns. While interest rates at the same time went as low as sub 5% for a 2-year FD. An easy choice for the investors was to move towards equity.

• 2022: Well tables have turned again and the recent equity market returns have taken a negative tint while interest rates are rising with 2-year FDs yielding you around 5.4% and is expected to go higher only from here!

Our take

In the past 2 years, the mutual fund industry benefited from digitization, making it easy for investors to absorb information, access distribution channels, and transact. But amidst all of it, many investors also fell prey to herd mentality, blindly following the recent returns and making investment decisions.

Now when markets are changing again, it will be interesting to see how the regulator educates the investors on filtering and then deciphering the right information. After all, it is important to stick to qualitative investments in the long term for the wonders of compounding to work.

Amazon is all set for its most anticipated event of the year: the prime day sale. But this time, it's different since the e-commerce giant has been facing tough times.

Define tough times

Revenue at Amazon increased by only 7% during the first quarter of the year, compared with a 44% expansion in the year-ago period.

It marks the slowest rate for any quarter since the dot-com bust in 2001 and the second straight period of single-digit growth.

There's more to it:

• Supply chain problems: Items appearing as “out of stock” on Amazon have reached around 5%, compared with 4.4% a year ago, according to research by CommerceIQ.

• Inflation: The prices across the board on Amazon have increased by 9%, with also an attached 5% fuel surcharge to offset increased costs in its delivery network.

• The pandemic e-commerce boom is “over”: The discretionary budgets are shifting back to travel and entertainment and shoppers are comfortable in stores again.

Our take

Amazon recently raised the price of its Prime membership by 20-30% in most countries. Consequently, the number of prime members has stagnated for the past six months at 172 million. Hence, the sale day will speak not just for the total revenues from products but also for the prime memberships sold.

Meanwhile, economists and investors have their eyes glued to how the prime day goes. The former get to know the consumer sentiment and the latter get to see if the stock looks good to stick to or not!

In this episode of insider investing, we talk about the significant crash that crypto has seen. We explore the reasons why this has happened, and how should investors be thinking about crypto as a part of their portfolio?