Mutual funds in India have discovered the Hammurabi code. Demonetisation’s ghosts continue to haunt India’s citizens. India’s premier football league could go down the same route as the failed European Super League. And CRED’s drive to use up its reward points to donate oxygen finally puts a value on the much-hyped CRED coin.
We cannot put a value to oxygen—or CRED’s coins
On Tuesday, online credit card payments platform CRED partnered with Milaap, a healthcare fundraising platform, to donate one billion litres of oxygen via concentrators to hospitals and healthcare non-profits across the country.
CRED is letting users exchange 10,000 CRED coins per 1,000 litres of oxygen, which led to rejoicing among India’s elite and Twitterati. CRED’s users had finally found a purpose for their accumulated coins, earned by paying their credit card bills on the platform. Many had pronounced their CRED coins as useless otherwise. Details of the deployment will be tracked and shared by CRED via a micro-site, starting 3 May.
But as the internet is wont to, it soon presented another faction of opinion on CRED’s initiative, one that called out the lack of transparency in how coins translate to the money being contributed to Covid-19 efforts. Several back-of-the-envelope calculations are being made about how much CRED is donating and, therefore, how much its coins and the oxygen actually cost. One tweet complained, “If free coins can buy oxygen, please generate as many as you can and buy the damn oxygen. Why ask people to donate theirs?”
The Ken spoke to Vibhav Joshi, co-founder of InnAccel, a company that designs and engineers medical devices, about what a billion litres of oxygen really means.
According to Milaap’s website, it is working with Swasth, a digital health foundation, to procure oxygen concentrators. These are of two types: low-flow concentrators costing Rs 45,000 (~US$600), or high-flow concentrators costing Rs 85,000 (US$1,150) each. Based on these figures, CRED’s 100 million coins could amount to donations of anywhere between Rs 18-34 crore (US$2.3-4.4 million), only for the oxygen and not including transportation and other administrative fees. This would mean each coin is worth between Rs 1.8-3.4 (US$0.02-0.05).
If that sounds too high, that’s because it could be. According to Vibhav, even 100 oxygen concentrators can deliver one billion litres of oxygen over their lifetime of two years. In this case, the value of a CRED coin, and a litre of oxygen, drops to Rs 0.05 (0.06 cents).
By contributing and tracking in terms of litres, several variables of a complicated supply chain effort are obfuscated—how many concentrators, over what time period, and the number of patients helped. The Ken reached out to CRED and Milaap with questions on the exact monetary commitment and scope of the effort. Here’s CRED’s response:
At a time when systems are collapsing, besides reward points that allow us to buy oxygen on an app at an unknown cost, what we also need is information and clarity on where the gaps are in procuring this life-saving gas.
My colleague Maitri’s story on India’s oxygen crisis will be published in an hour.
And it explains, finally, what is really happening in our hospitals and to patients: Did you know that we have the capacity to transport only 20% of the medical oxygen that India is producing right now? That the pre-Covid demand for liquid medical oxygen went up 4X during the first wave, but is now 11X what we usually handle? That people, while trying to save their loved ones, have had to fend for themselves in India’s oxygen black market?
Anyone who wants to help India’s current healthcare crisis needs to read Maitri’s story, and share it widely.
Could Sebi’s love for the Hammurabi code kill active mutual funds?
Circa 1700 BC in Babylon, a king named Hammurabi inscribed something quite important on a piece of basalt stele. It was probably the first ever evidence of a set of laws that were written down.
And while this Hammurabi Code, as it came to be known, contained 282 laws, the best known code or rule was, “if a builder builds a house and the house collapses and causes the death of the owner of the house, the builder shall be put to death”.
In simpler terms, it’s known as ‘skin in the game’. And it’s a method of establishing symmetry between people who enter into a transaction. After all, it doesn’t seem fair that if you get all the rewards, but escape the risks.
Well, someone at India’s market regulator, the Securities and Exchange Board of India (Sebi), has been reading up on Hammurabi’s code. Because late Wednesday evening, they decided that India’s mutual fund industry could do with some skin in the game as well.
To be clear, many mutual fund companies already mandate or nudge their employees to invest in their own schemes. Purely as an internal policy. The most prominent being PPFAS Mutual Fund, which says on its website, “inspired by the Hammurabi Code, PPFAS Mutual Fund works to link its financial well-being with yours!”. Even Kotak Mutual Fund and DSP Mutual Fund have gone down that route in the past few years.
And while certain mutual fund CEOs have raised objections to this move by Sebi, mutual fund investors aren’t complaining. In fact, many think it’s well deserved. They want the chef at their favourite restaurant to eat their own cooking. And the common refrain seems to be, ‘finally, these fund managers won’t load up on poor performing stocks.’ They believe that it aligns interests if the fund manager’s compensation is tied to the performance this way.
But here’s the flipside to that incentive.
On quite a few previous occasions, we’ve written about how passive index funds that are low-cost and simply track the index (such as the Nifty 50 or Sensex 30) are better for most investors than actively managed schemes where the fund managers pick stocks. Simply because, most of these active fund managers haven’t really done a great job at beating the index consistently.
And now that a not so insignificant part of their compensation is tied to the schemes they manage, could fund managers actually get more conservative with how they manage the money?
After all, they’re emotionally invested now and constrained by law. So they could more closely replicate the index (known as closet-indexing), keep their fat salaries, and reduce the risk of their invested money being volatile in the pursuit of stock picking.
That’s not necessarily a good thing for investors in these active funds either.
Neil Parikh, the CEO of PPFAS Mutual Fund tweeted, “Skin in the Game is great if done with ones own free will.. it shows that people are confident and convinced with what they are doing. I am against this forcing people to do things. It dilutes the whole skin in the game concept.”
Did we really need Sebi to micro-manage this? No.
Tell us what you think (the poll is for our email subscribers only).
Sure, the stock market is detached from the pandemic’s reality. But is it really detached from economic reality?
- Yes, this is absurd
- No, the economy is doing fine
The ghost of demonetisation
The sudden move that India’s Prime Minister Narendra Modi took on 8 November 2016 to ban 86% of the country’s currency still sends after-shocks. The move, which was taken to flush out black money in the country, saw cash being shunned. ATMs had limits on how much cash one could withdraw. Also, to double down on its intent, the government even introduced a provision in the Income Tax Act (Section 269ST), one where any receipt of Rs 2 lakh (US$2,700) or more in cash by establishments will attract a penalty of 100%.
While the affluent simply switched to digital payments and saw a marginal impact of demonetisation, those in tier 2 and tier 3 cities who received their wages in cash, and small businesses that dealt in cash, saw their livelihoods crushed.
Cut to the pandemic, now, and it is those in tier 2 and 3 cities who are once again haunted by the policies put in place during demonetisation. Covid patients in tier 2 and 3 cities with hospital bills over Rs 2 lakh are finding that the hospitals are not accepting cash. And with little access to internet banking, patients have it hard.
Five years later, demonetisation continues to claim its pound of flesh from the same set of citizens who were impacted then.
When incumbents move
Blockchain startups building platforms to ease banks’ operations should be worried.DBS Bank, JPMorgan, and Temasek are launching their own blockchain-based platform.
This platform, named Partior, will be used to digitise commercial bank money, reduce friction and delays in cross-border payments, and trade and currency settlements—all the same pain points blockchain startups have been looking to solve for banks.
These startups could now see more consolidation, as banks might just acquire them to ease these pain points. Or face being shut out as banks turn to solutions backed by their peers.
Will India have its own ESL moment?
At the peak of the European Super League (ESL) saga, which captivated the sporting world all of last week (we wrote about it in BFO#267 and BFO#269), there were jokes on Indian football Twitter about how only India knows how to run a “Super League”.
They were referring to the Indian Super League (ISL), the country’s premier football league. Like the proposed ESL, the ISL is a closed league—the teams are fixed and can’t be relegated to a lower league depending on performance. The ESL didn’t even last 48 hours after a fierce backlash from football fans, players, governing bodies, the media, and even governments.
Now, though, the joke appears to be on Indian football.
Yesterday, Sportstar reported that the All India Football Federation, the sport’s governing body, is “likely to backtrack” on its plans to introduce relegation and promotion in the ISL from the 2024-25 season.
In 2019, the AIFF had promoted the ISL, launched only in 2014, as the country’s premier football league. This meant the I-League, which was launched in 1996 as the National Football League and then rebranded in 2007, got a demotion.
After several I-League clubs protested, the AIFF announced a roadmap in September 2020 that would see the I-League winners of the 2022-23 and 2023-24 seasons promoted to the ISL. They would not have to pay an entry fee (~US$2 million) like the original ISL clubs did, but neither would they receive a share from the central revenue pool.
Following this, the AIFF would rebrand the ISL and unify the two leagues by introducing a promotion-relegation system from the 2024-25 season, according to the roadmap.
But then, Sportstar reported that the AIFF technical director is scheduled to make a presentation regarding “non-relegation” at an executive committee meeting later today.
However, hours after the report was published, the AIFF tweeted that the presentation pertains solely to non-relegation of I-League teams for the current season because of the Covid-19 pandemic. NEROCA FC stands to be relegated to the I-League 2nd Division if this doesn’t happen. Sportstar updated its report and headline to reflect this, but did not remove the source’s quote regarding the possible change in roadmap.
The I-League is already standing on thin ice after its demotion, as my colleague Seetharaman wrote in his brilliant piece on how Reliance Industries, India’s most valuable firm and the owner of ISL, is making itself synonymous with not just Indian football, but Indian sport in general.
If the proposed transition to a promotion-relegation system does not go through, it will be the final nail in the I-League’s coffin. Being demoted to the second tier of Indian football is one thing. But what’s the point of carrying on if teams have no chance of promotion to the top tier? What are they, then, playing for?
The ESL’s short life was down to a concerted effort by stakeholders across the spectrum. Can we expect a similar rebellion if the company people in charge of Indian football go back on their promise? Don’t hold your breath.
That’s a wrap for today.
Hope you’re taking care of yourself, staying socially distant, and washing your hands frequently.
We will be back on Monday.