Facebook versus the Indian Government, Part 3
The world’s most successful “surveillance-capitalism” company went to court to prevent surveillance by the government of the world’s most populous democracy. Reuters broke the news that Facebook-owned WhatsApp took the unprecedented step of suing the Indian government. For no less than attempting to “fundamentally undermine people’s right to privacy.”
While Facebook is no stranger to controversies or adversarial positions with regulators and governments, this would be its third major fight with the same Indian government.
Facebook lost the first two.
Facebook’s first major battle against the Indian government was waged in 2015 over its ambitious proposal to offer a “zero rated” service in partnership with telcos that would make all its products work free of cost. It lost that in early 2016 when Free Basics was banned by TRAI, the telecom regulator.
This story by Rahul Bhatia in The Guardian offers the most comprehensive account of Facebook’s first loss to the Modi government. It wouldn’t be an exaggeration to say that India’s decision to ban Free Basics effectively killed its chances globally, too.
Facebook’s second battle was fought in 2019 and lost in 2020. This time, it took on India’s most powerful corporation, Reliance Industries, and its chairman, Mukesh Ambani. The data of Indians was a national resource, said Ambani and the Modi government.
Facebook insisted data was more like oxygen than oil. And that India shouldn’t turn protectionist.
Facebook lost the battle against Ambani ignominiously in April 2020 when it not only announced an investment of US$5.7 billion in Reliance Jio, but also wrote a blog post thanking Ambani for the opportunity. We wrote about it in BFO #18.
This brings us to its third battle with the Indian government, one that Facebook would not have made lightly. Not only is India Facebook’s largest market in terms of number of users, but it also has great hopes to convert WhatsApp’s nearly 400 million users to transacting customers. Here’s an earlier story from The Ken, by Arundhati Ramanathan.
Will it be third time lucky for Facebook?
Update: The story has been updated to reflect that India is the most populous democracy, not country.
Guess who’s back as a stock market index heavyweight…
Bang your steel plates—it’s Tata Steel.
Barely six months after being dropped from the 30-stock squad of the BSE Sensex, it is pushing its way back in again. Following an almost 2x jump in its stock price after its exit, it will feature once again in the Sensex 30 come June. That must be some kind of a record for exit and entry into the index.
I’ll not get into why Tata Steel was dropped or added back, since to understand that we need to look at the way stock market indices are constructed.
Instead, let’s look at what Business Standard wrote under the headline “Sensex’s costly exclusion”:
Okay, let me say this as someone who likes index funds (where there is no fund manager who picks stocks and it’s just a simple and low-cost way of buying stocks)—who cares!
I’ll get to the why in a minute. But before that, I popped into the mutual fund analysis portal Value Research to get a sense of which actively managed large cap mutual funds are invested in Tata Steel. I chose large cap mutual funds since the Sensex 30 is a bunch of large companies anyway, and it’s the alternative that investors would choose instead of a Sensex 30 index fund.
And no surprises, lots of large cap funds don’t have Tata Steel. So many fund managers missed out on the price rally. One of those funds is the DSP Top 100 Equity Fund (there is no bias here other than convenience. It was easy to obtain its list of investments from the DSP mutual fund website).
Out of the ones that are invested in Tata Steel, I picked the one which seemed to like the stock the most—based on how much of their portfolio was invested in it. That was the L&T India Large Cap Fund, which has nearly 5% of its money in Tata Steel.
How have they all performed in the past six months?
Sensex 30: 15.5%
DSP Top 100 Equity Fund: 18.6%
L&T India Large Cap Fund: 18.8%
So, there’s hardly any difference between a fund which had the stock and one which didn’t. Even the Sensex, a lowly index without a fund manager at its helm to choose stocks fared well despite missing Tata Steel.
Now back to index funds.
Index fund investors choose to avoid funds that are actively managed precisely because they can’t be bothered about which stock their fund manager has bought and sold. It’s also to avoid wasting time pondering over their thought process: “Why didn’t DSP’s fund manager pick Tata Steel, or why did L&T? Why did L&T have only 5% of its portfolio in the stock; didn’t the fund manager realise the cycle was turning in favour of steel?”
Favouring index funds is also about realising that maybe the fees charged by active funds aren’t really worth it. Because consistently beating an index is hard (we’ve written about this often–BFO#161 and BFO#261), and fund managers go through performance cycles.
The argument here could also be stocks that made it into an index such as the Sensex 30 are already past their prime, so the best years of their returns are behind them. But as I said, we’ve seen that fund managers can’t accurately predict future returns anyway.
When you invest in an index fund, just like an active fund, you get the good, the bad, and the ugly. But at a lower cost. And indices go through changes as Saurabh Mukherjea, founder of Marcellus Investment Managers, wrote:
But for most investors, it doesn’t matter too much when a stock is added or replaced in an index. Because it all evens out over a longer period of time. Even active fund managers churn and get things wrong.
Also, the regular (mom-and-pop) investor isn’t putting all their money into the index in one shot and forgetting about it. They’re probably investing a little every month, and even that helps to average out the investment value.
So, Tata Steel’s exclusion wasn’t really a costly mistake that index fund investors had to bear.
PS 1: The stock which it is knocking out, the Oil and Natural Gas Corporation (ONGC) went up by over 40% during the same period.
PS 2: If you know of other stocks which have made remarkable comebacks into any stock market index, do write in and let me know.
Where is my doctor?
The ad strikes back!
After streaming platforms like Netflix set the norm for video consumption on the back of ad-free experiences, advertisements are making a comeback in the industry.
In the US, the latest TV upfront—a gathering held by network executives and attended by major advertisers before important advertising sales periods—saw streaming giants like HBO Max, Discovery, and Disney present plans to launch cheaper, ad-supported plans for their services.
Pandemic-related lockdowns brought on the streaming binge world-over, and with it, a sea change in both consumer behaviour and advertiser needs.
According to eMarketer, the rising costs of streaming and subscription services have created a growing willingness in consumers to pay for cheaper, ad-supported versions of platforms. People also want to access a variety of content, and such plans allow consumers to afford a wider cross-section of platforms and services. As of January 2021, 34% of US households with video-streaming capability used ad-supported services, up 6% from a year ago.
The demand to advertise on OTT platforms is rising in India too, mirroring the rise of consumer time spent on them.
Starting June, YouTube India will place more ads, having updated its policy to advertise only via its YouTube partner programme for content creators. It will place ads on any content of its choice, and not share revenue from this with the creators on whose content it is hosted.
Amazon has also launched an ad-supported, free video streaming service called miniTV. Only available to Indian audiences, it will be available within the company’s Android shopping app. Amazon’s global growth via its advertising and sales unit, as of last month, was 77% year-on-year, reaching over US$6.9 billion in the first quarter.
According to analysts, Amazon’s ad business may flourish as a result of Apple’s latest privacy update, which makes it easier for users to block tracking, and Google’s deprecation of third-party cookies, which makes off-site tracking harder for advertisers.
For now, Indian advertisers believe there are not enough impressions to deliver a campaign on the AVOD (Advertising Video on Demand) side currently, as the majority of content is still being consumed on SVOD (Subscription Video on Demand).
But things could change.
Where “no ads” was once the differentiator that propelled streaming and subscription services, the industry has come full-circle for consumers. Instead of watching ads on TV in predictable slots, they can now stream content with ads that pop up at an opportune time, or are part of an overall “brand block” where a brand can “own the entire streaming experience”. Along with personalisation and targeting capabilities that traditional TV doesn’t provide, the innovation in advertising and for advertisers continues.
That’s a wrap for today.
Hope you’re taking care of yourself, staying socially distant, masking up, and washing your hands frequently.
Write in with your thoughts and observations on how this pandemic is reshaping businesses, societies, and economies. We will be back tomorrow.