Shadow banks are in hot water

Good morning! Zerodha co-founder Nikhil Kamath wrote on LinkedIn that gaming is a genuine career option now and exhorted parents to give it a serious thought. Kamath is right but it’s not likely to make him popular with parents whose kids stay glued to their gaming screens. In fact, worried moms and dads in the US are taking a bunch of gaming companies to court. They have alleged that games such as Call of Duty, NBA 2K, Fortnite and Grand Theft Auto are addictive and damage mental and emotional health, causing conditions such as ADHD and depression, Bloomberg reports. A classic case of too much? But as the Cheshire Cat said, which way you go depends a great deal on where you want to get to.

🎧 The surge in India’s ghost shopping malls. Also in today’s episode: OpenAI’s new voice assistant is creepy and fascinating. Tune in on Spotify, Apple Podcasts, Amazon Music, Google Podcasts, or wherever you get your podcasts.

Anup Semwal and Roshni Nair also contributed to this edition.

The Market Signal* 

Stocks & Economy: All eyes are back on the April US consumer price inflation number and the Federal Reserve. Fed chair Jerome Powell said current data does not indicate any reason to hike interest rates and most likely he will continue to hold them at the current level. The April producer price index rose 0.5%, sharper than expected.

Asian stocks opened mixed. The GIFT Nifty indicates a positive opening for Indian equities. Some members of drugmaker Cipla’s founding family are expected to sell a little over 2.5% of their stake in the business in the open market after a deal with Gujarat’s Torrent Pharma fell through. 

Meanwhile, finance minister Nirmala Sitharaman asked stock exchanges to be wary of “unchecked explosion” in retail futures and options trade. Sitharaman said household finances should be protected as they had structurally tilted towards equities.

PHARMACEUTICALS

Indian Pharma Can’t Divorce China’s Bulk Drugs

Covid-19 laid bare Indian pharma's Achilles' heel: a crippling overdependence on Chinese bulk drugs. A paper estimated that India completely relied on Chinese imports of at least 70 bulk drugs. Supply chain hiccups in China meant that Indian drugmakers couldn't manufacture something as basic as paracetamol.

In July 2020, the Centre launched a production-linked incentive scheme, offering incentives worth Rs 6,940 crore to local drug manufacturers. But four years later, the story hasn't changed much. China's share in India's bulk drug imports has gone up to 72% from 70% in pre-pandemic times. 

What went wrong?: Experts argue the PLI scheme was shortsighted. Without support to upgrade technology, there's little chance of Indian companies making bulk drugs as cheap as China’s. Delays in environmental approvals are another roadblock. Head to The Core to understand why India's addiction to Chinese bulk drugs is proving a hard habit to kick.

PODCAST

Tune in every Monday to Friday as financial journalist and host Govindraj Ethiraj gives you the most important take on the latest in business and economy.

In India’s pharmaceutical industry, there may be no friends but there are no enemies either. In today’s episode, he speaks to Sheetal Sapale, VP, Pharmarack, on the amazing world of pharma product and brand dealmaking.

FMCG

Bheja Fry

There’s no other way to classify the latest news about fried snacks extraordinaire Haldiram’s. Reuters reports that the bhujia giant is in talks with a consortium comprising Blackstone, Abu Dhabi Investment Authority, and GIC to sell a 75% stake in the company worth <$8.5 billion.

Why the exasperation?: Because chatter about Haldiram’s selling a majority stake to or getting acquired by everyone from GE Capital to the Tata Group has been doing the rounds since at least 2016. Talks with Tata went under last year after Haldiram’s sought a valuation of  $10 billion.

Haldiram’s itself has a patchy record as acquisitor. Case in point: the failed purchase of rival Prataap Snacks, which was last in talks with ITC as of January 2024.

Hypothetical: If this deal, unlike the others before it, goes through, the consortium will get access to over 150 Haldiram’s restaurants and packaged snacks business.

FINANCE

When Push Comes To Shove

Non-banking finance companies (NBFCs) are in a tizzy of reorganisation to align with the regulatory environment and evolving market realities. 

Gold-loan provider Muthoot FinCorp plans to expand into lending to MSMEs (medium, small and micro enterprises) and loans against property. It is targeting to grow these verticals 10 fold from the current 2% to 20% in three years. It’s adding 200 branches and 4,000 staff for this expansion. As a result, the gold-loan business will shrink to 80% but will remain its core. 

The RBI recently cracked down on the gold-loan business for dubious valuation practices and capped cash lending to Rs 20,000. It even barred IIFL Finance from giving out new gold loans. 

Chennai-based Shriram Finance is getting out of the home loan business with its board approving selling the mortgage arm to private equity firm Warburg Pincus for Rs 4,630 crore (~$554 million). 

The Aditya Birla and Tata groups are consolidating their NBFC arms to operate at scale. 

FYI

So long: Ilya Sutskever, co-founder and chief scientist, is leaving OpenAI. Sutskever is the brain behind ChatGPT, the bot that triggered artificial intelligence's ubiquity.

Split to save: In a bid to stave off rival BHP Group's overtures, mining giant Anglo American will hive off its famous De Beers diamond business and will focus solely on copper.

Raising the stakes: US President Joe Biden ratcheted up the trade war with China, hiking tariffs on a bunch of imports, including semiconductors, EVs, and medical equipment to over 100%.

AI is a job killer:  International Monetary Fund chief Kristalina Georgieva has said that artificial intelligence will eliminate 60% jobs in rich countries and 40% worldwide in two years.

Don’t believe Kirstalina? TCS CEO K Krithivasan says AI could wipe out India’s call centres…maybe within the year. That’s about 50 lakh jobs he is talking about. 

THE DAILY DIGIT

Rs 3.02 crore

The total worth of PM Narendra Modi’s assets, per his election affidavit. Of the total assets, Rs 2.85 crore are deposited as fixed deposits in the State Bank of India. (Mint)

FWIW

Cooked: How bad is this year? Let us count the ways. We aren’t being dramatic. According to a study published in Nature, 2023 was the hottest year in the Northern Hemisphere in 2,000 years. Two thousand years, y’all. And this year is going to be worse. A co-author of the study from the University of Cambridge explained that the team studied thousands of tree rings across nine regions from the southernmost limit of Europe to the North Pole. That’s because tree rings double as historical records of past temperatures. Using this method, the scientists established that the summer of 2023 was even warmer than the past record of summer 246. This year is slated to be worse because the El Nino weather phenomenon will only end in the coming weeks.