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View from India: Ed-tech, grocery delivery and gaming attract VCs

Even as the second wave of the pandemic hogs the headlines, there appears to be a faint ray of hope across the horizon. Certain verticals such as the steel sector are raking in profits. Venture capitalists are betting on sectors that carry the promise of returns.

In the last fiscal quarter, the large steel makers had reason to cheer. Their pace of operations accelerated due to which they garnered financial gains. Their share of industry capacity has remained unchanged. Yet, they’ve increased their market share by 500 basis points (bps) on-year to 58 per cent. This positive move can be attributed to supply-chain efficiencies, higher exports and captive mines that limited the impact of the shortage of iron ore.

A recent study by CRISIL Research reveals that a growing demand from the export market made up for the low key response from domestic market in the closing quarter of last fiscal and the first quarter of this fiscal. Even this changed. Large steel companies gained domestic market share, especially in the long-steel space. Consequently, they operated at over 80 per cent utilisation levels as against sub-optimum levels of 62 per cent by midsized and small steel makers.

Large steel makers benefited more from the rally in steel prices, given the dominance of flat steel in their portfolio. Statistics indicate that the prices of the domestic flat-steel have nearly doubled to Rs 72,000 per tonne in June 2021 from Rs 38,000 per tonne in June 2020. On the other hand, long-steel prices rose 1.4 times to Rs 57,900 per tonne. The price rally may have been spurred by China’s green policy. This is likely to benefit through the first half of this fiscal, too, with flat-steel prices already up 70 per cent since April. Prices are projected to soften in the second half of the year. Still they would be 40-45 per cent higher year-on-year.

Brownfield additions are expected to enrich large steelmakers. For instance, Tata Steel’s Kalinganagar plant has expanded its capacity by five million tonne per annum (MTPA). In Angul, Odisha the Jindal Steel and Power Limited has launched a plant with a capacity of six MTPA. JSW Steel in Vijayanagar Karnataka is increasing the manufacturing capacity through a plant expansion of five MTPA and has also invested in 1.5 MTPA towards the revamp of the blast furnace.

Overall, India is in the process of increasing the steel production. This is to meet the demand of ongoing government initiatives such as smart cities and the expansion of national highway networks. All this will help the steel companies to fortify their financials and contribute to the economy.

Ed-tech, grocery delivery and gaming are diverse verticals. What is common to them is that they are attracting venture capitalists (VCs). These verticals have received VC funding to the tune of $100 million+ in Q1’21 and at a rapid pace. This is another positive trend during the pandemic.

“Interest from VC investors in India is at an all-time high. The pandemic has just been a catalyst for the new age tech or consumer tech businesses, which has seen significant demand from consumers. Many deals that were put on hold and the investors were waiting to see the impact of the pandemic are now coming out of the pipe and seeing significant investor interest,” commented Nitish Poddar, partner and national leader (private equity), KPMG in India. The pandemic has elevated some of these businesses to a new higher level and this positivity is expected to continue in the near term.

'Venture Pulse Q1'2021, a KPMG Report' states that insurance as a whole is a growing sector in India. General insurance and health insurance are growth areas. Traditional insurance businesses digital insurance businesses have got a boost as the insurance portfolio has increased. Both traditional and digital insurance have been growing together as a result of societal evolution. This potential offered by the industry is expected to drive increasing VC investment over time. The initial public offering (IPO) activity is also expected to pick up. At least, going by the fact that a number of the large raises held in Q1’21 were viewed as pre-IPO rounds.

The Reserve Bank of India (RBI) has informed media persons that India’s foreign exchange (forex) reserves crossed the USD 600 billion Mark, for the first time after increasing by USD 6.842 billion in the week ended June 4. This can be attributed to the consistent flow in foreign investments. RBI is India's central banking institution, which controls the monetary policy of the Indian rupee.

Let’s hope many more verticals chalk out a tall story in the midst of the virus gloom.

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