Warren Buffett Feasts On India
Berkshire Hathaway is known for being a conservative but canny investor. The firm’s 88-year-old chairman Warren Buffett, known as the Oracle of Omaha and one of the world’s wealthiest men, has stayed away from high-priced Internet stocks, especially loss-making start-ups in emerging markets like India.
Buffett’s decision to invest in Paytm therefore conveys three key messages. First, it is an endorsement of India’s start-up ecosystem. Berkshire has invested around 3.5 per cent in One97, Paytm’s parent firm, valuing the company at just under $12 billion (Rs. 86,000 crore). While Berkshire’s investment of around $400 million (Rs. 2,900 crore) in Paytm is tiny compared to the size of its global portfolio, it is nonetheless significant since it marks Buffett’s first investment in an Indian firm. Buffett clearly see the Indian digital pay industry as a major growth story.
The second inference to be drawn from Buffett’s investment in Paytm is renewed faith in the broader Indian economy among international investors. India has gone through a difficult two years. The economy was disrupted by demonetisation in November 2016 and by the uneven implementation of the Goods and Services Tax (GST) in July 2017. Annual GDP growth fell to below 6 per cent before recovering to over 7 per cent. Growth in the first quarter of 2018-19 was 8.2 per cent. With no major self-inflicted economic road blocks along the way, India’s economy can now expect to hit 8 per cent annual growth fairly consistently.
The third key takeaway from Buffett’s investment in Paytm is the indirect impetus it gives to India’s burgeoning Internet market. The number of Internet users in India last month crossed 500 million, the second highest Internet population in the world after China. Competition in the e-commerce marketplace is meanwhile heating up. Following Walmart’s acquisition of Flipkart, Amazon is upping its game, pouring money into its Indian arm. Other players are circling the incumbents in a market that is expected to cross $500 billion (Rs. 36 lakh crore) in transaction value in the next five years. Amazon is in talks to pick up a stake in Spencer’s, the Sanjiv Goenka group’s food and grocery retail chain. It is also, in a consortium with Samara Capital, buying the Aditya Birla group’s More retail chain comprising over 400 stores which were recently put on the block.
The Future group too is planning a major expansion in e-commerce. Both Amazon and Google are eyeing a stake in the Kishore Biyani-led group. Paytm Mall, backed by Alibaba, is another suitor: it could tie up with Google to invest up to Rs. 4,000 crore in Future Retail though the Future group is keeping its options open.
Other players though have already moved in. PremjiInvest, the investment division of Wipro chairman Azim Premji, bought a 6 per cent stake in Future Retail earlier this year from the Bharti Group. Amazon’s Indian arm too has shown interest in investing in the Future group’s renewed e-commerce thrust. Whichever way these moves play out, the Indian e-commerce market is set to be the battlefield for the world’s largest companies: Alibaba, Google, Amazon, Walmart, Reliance and Berkshire Hathaway.
Digital payments are also set to boom with Google Pay (formerly Tez), PhonePe, WhatsApp Pay and others competing for marketshare. Paytm is a formidable competitor. Its monthly gross transaction value is currently $4 billion (Rs. 28,500 crore). Buffett’s Investment will give the firm an edge. Founder Vijay Shekhar Sharma says: “We feel both excited and humbled by this endorsement. Berkshire’s experience in financial services, and long-term investment horizon, is going to be a huge advantage in Paytm’s journey of bringing 500 million Indians to the mainstream economy through financial inclusion.”
The surge in foreign interest in Indian tech companies has many collateral spin-offs. Uber, for example, is planning an aerial taxi service in India called Uber Elevate. The US firm has already carved a niche in the blistering Indian food delivery segment with Uber Eats. Uber Elevate is likely to launch in five selected countries (India, France, Japan, Australia and Brazil) over the next five years. The passenger drones will be small vertical take-off and landing (VTOL) aircraft with electric propulsion, flying at around 150 miles per hour at a height of 2,000 feet and with a range of 60 miles. India recently announced a comprehensive drone policy. This would need to be tweaked to allow Uber Elevate to operate in India. Minister of State for Civil Aviation Jayant Sinha says he is open to the idea of updating the country’s drone guidelines.
But it is in e-commerce that this year will see the most action. Amazon India is experimenting with a Hindi language interface for its mobile website. The idea is to tap Internet users beyond the first 150 million who are comfortable ordering online in English. Languages across India’s diverse regional landscape represent a huge untapped market. A 2017 report by KPMG and Google projects that by 2021 English Internet users will rise to 199 million and Indian language users to 536 million.
The elephant in the e-commerce room is Jio. Reliance is deploying large resources to make Jio a powerful force in last-mile fibre optic broadband, content, data and e-commerce. As the mobile telecom market coalesces following the merger of Vodafone and Idea, the pan-Indian mobile industry will be reduced to three majors: Vodafone-Idea, Bharti Airtel and Reliance Jio. The total number of mobile users in India has already crossed one billion. Cut-throat price competition, however, has plunged the industry into debt. The next phase of revenue growth will come through data and content consumption with the launch of 5G next year. The three technologies will then feed off one another: a billion mobile phones, over half-a-billion Internet users and an e-commerce marketplace set to grow in the next few years to $500 billion in transaction value.
Riding these surging numbers is the digital payment industry. As the current leader of the pack, Paytm stands most to gain as the usage of mobiles, Internet and e-commerce spurts. Paytm’s newest investor, Warren Buffett, isn’t known as the Oracle of Omaha for nothing.
