The Indus Valley Report 2024 Explainer | Sajith Pai | Anurag Pagaria | Nachammai Savithiri [Summary + Transcript]

Nachammai Savithiri talks to Sajith Pai, the investment partner at Blume, and Associate Anurag Pagaria. They explore consumer tech trends and venture capital activities across sectors like commerce, fintech, and deep tech.

Here's a quick summary of their entire conversation:

The Indus Valley Report 2024 Explainer | Sajith Pai | Anurag Pagaria | Nachammai Savithiri | Summary powered by Fireflies.ai

Outline

Notes
  • The conversation is part of the Indus Valley annual report team meeting from Bloom Ventures, an early stage venture capital firm in India.
  • The report aims to make sense of India's unique startup ecosystem, featuring different founder types and a diverse consumer base.
  • The report has a new format, serving as a companion video guide.
  • Sajith Pai, an investment partner at Bloom, discussed the consumer survey and indicated that there are various subheadings to it.
  • Nachammai Savithiri discussed the trend of beverage and processed foods becoming a staple.
  • The report also discusses Bloom's rendition of Kishore Biani's India one, two, three, which is a sought-after slide in the report.
  • Anurag Pagaria discusses the trends observed in seed funding, particularly highlighting three key things.
  • Sajith Pai and Anurag Pagaria discussed the impact of IPOs in the Indian market, and how they're a potential source of funding or exit strategy for startups.
  • Nachammai Savithiri discussed the performance of different sectors, including ecommerce and digital native brands. She mentioned hallmark stories like the Mama Earth IPO and the large funding round for lenskart.
  • Sajith Pai discussed fintech's contribution to the new credit customer and how fintech is too important to be left to fintechs alone.
  • The team discussed the concept of merchant media and presented interesting case studies in the playbook section.
  • The team also gave their personal highlights of the report, mentioning sections like VC versus PE parallel, the consumption, IPO, SME IPO sections, and the playbook section.
  • The conversation ended with Sajith Pai discussing the idea behind creating the Kanye video guide audio guide as a companion to the Indus Valley Annual report.

Read the in-depth summary on Fireflies!

Want to know the full conversation? Read the time-stamped transcript:

The Indus Valley Report 2024 Explainer | Sajith Pai | Anurag Pagaria | Nachammai Savithiri | Transcript powered by Fireflies.ai

00:16
Nachammai Savithiri

Hi, everyone. This is the Indus Valley annual report team from Bloom Ventures, an early stage venture capital firm here india. Before we dive deeper into our report, let's do a quick round options to the team, starting off with Sajith Pai, the investment partner here at Bloom, who looks at all things consumer tech and India B to B. We also have Anurag Pagaria here, who is looking at all things India B, two B, and he's an associate with the team. This is Nachamai. I also go by NS, and I look at all things consumer and consumer tech, and I'm analyst with the team. For those that are new here, a quick introduction to our report itself.

00:53
Nachammai Savithiri

The Indus Valley Annual report is a yearly repertage taking stock of everything that has happened india and in the indian startup ecosystem, or our moniker for it, the Indus Valley ecosystem. So think Silicon Valley, but Indus Valley. To pay homage to the civilization's genesis. This report is 120 something pages of India's story extend through charts, data points, narratives, and every now and then, contradictions. The purpose of the report is to make sense of India and the colorful startup ecosystem that the country has, which is unlike any other in the world, with its elements of jugard, its different founder types, and its diverse consumer base.

01:36
Nachammai Savithiri

For those that are no stranger to the Indus Valley report, this is a new format that we're exploring, and it is essentially to serve as a companion video guide as you walk your way through the Indus Valley report itself. So without further ado, this is Bloom's annual Indus Valley Report 2024 deconstructed.

01:58
Anurag Pagaria

So we're actually doing 120 slides?

02:00
Sajith Pai

Yeah, we are. We're going to take the audience through them. Maybe not. Yeah.

02:05
Nachammai Savithiri

So I think it's only right for Sajit to kick this off. Over to you, Sajid.

Read the full transcript

00:16
Nachammai Savithiri
Hi, everyone. This is the Indus Valley annual report team from Bloom Ventures, an early stage venture capital firm here india. Before we dive deeper into our report, let's do a quick round options to the team, starting off with Sajith Pai, the investment partner here at Bloom, who looks at all things consumer tech and India B to B. We also have Anurag Pagaria here, who is looking at all things India B, two B, and he's an associate with the team. This is Nachamai. I also go by NS, and I look at all things consumer and consumer tech, and I'm analyst with the team. For those that are new here, a quick introduction to our report itself.

00:53
Nachammai Savithiri
The Indus Valley Annual report is a yearly repertage taking stock of everything that has happened india and in the indian startup ecosystem, or our moniker for it, the Indus Valley ecosystem. So think Silicon Valley, but Indus Valley. To pay homage to the civilization's genesis. This report is 120 something pages of India's story extend through charts, data points, narratives, and every now and then, contradictions. The purpose of the report is to make sense of India and the colorful startup ecosystem that the country has, which is unlike any other in the world, with its elements of jugard, its different founder types, and its diverse consumer base.

01:36
Nachammai Savithiri
For those that are no stranger to the Indus Valley report, this is a new format that we're exploring, and it is essentially to serve as a companion video guide as you walk your way through the Indus Valley report itself. So without further ado, this is Bloom's annual Indus Valley Report 2024 deconstructed.

01:58
Anurag Pagaria
So we're actually doing 120 slides?

02:00
Sajith Pai
Yeah, we are. We're going to take the audience through them. Maybe not. Yeah.

02:05
Nachammai Savithiri
So I think it's only right for Sajit to kick this off. Over to you, Sajid.

02:10
Sajith Pai
Hey, yeah.

02:11
Sajith Pai
Excited to have you both this time and on this Indus Valley annual report. So we began by looking at the indian GDP story, and India has been one of the bright stars of the global firmament. And if anyone was worried whether the indian story would continue, worry not. It continues. Well, that said, when you look at, for example, the indian growth rate, and one of the things we found was that the indian growth rate now averages 6%. And we've kind of made a remark to 6% being the new 4%, and 4% was this hindu growth rate that an economist called Krishna Raj used. So 6% is the new hindu growth rate. And why hindu? I don't know. Yeah. So that was an interesting piece, but still well below 9%. That China enjoyed all through the last four decades.

03:11
Sajith Pai
So we still have some way to go. That said, one of the things we did was we unpacked the indian GDP into its constituent parts. And instead of looking at, for example, the traditional ways to look at, say, industry through agriculture services, we act in terms of consumption and investments. And there something very interesting emerges. The way the indian GDP is structured, it's very different from way China evolved. India has a very high share of consumption and unlike China, it's almost one and a half times China as a percentage unit.

03:48
Sajith Pai
Then we try to look at why this is, and which is what brings us to the GFCF section, gross fixed capital formation section, which is just one way of saying investment, but fundamentally talks about productive investment, gross fixed capital formation as an investment into, say, bridges, for example, ports, airports, any productive asset, right? And all of you talking about, all of you kind of seeing the entire infrastructure story. And if you're in Bombay, where we're recording this, the infrastructure development of the last ten years has been incredible. But actually when you look at the numbers right, we punch well below our width. So when you tease India's GDP apart by consumption and investment here we specifically use the word GFCF, which is crossed fixed capital formation, which is nothing but investment into productive assets, we notice something very interesting.

04:44
Sajith Pai
We notice that India's consumption is a very large share and that pretty much drives India's GDP as much as 60%, just one and a half times what chinese consumption drives as a percentage of the GDP. Now we'll ask why this is so. And I think a lot of it is to do with the fact that it's pretty much how the indian economy has evolved historically, had very low GFCF as a percentage of GDP. Barring the years 2007 to 13, it's never been higher than 30%.

05:24
Sajith Pai
And for those of you who've been surprised by that, looking at the pace of infrastructure investments over the last few years, and in fact, if you're in Bombay, you'll wonder if that number is even true, because the entire Bombay story has been the relentless investment into infrastructure, right, with the coastal road, and that will say to and come. But actually it is low. Whereas in China, GFCF, which is productive assets like roads, bridges, airports, it's well above 40%. So this has been a trend that is something that is worth noting and has actually important implications.

06:07
Anurag Pagaria
When you say that we are looking at through a GFCF lens, I remember us doing a lot of work looking at through agricultural lens three different ways that we started looking at GDP. Why did we decide or why did we choose to look at it from only GFCF lens? And second, is that, is high GFCF a good way for an economy to grow, or is that a wrong way to put it?

06:32
Sajith Pai
Yeah. One reason why we decided to look at this particular deconstruction of India versus China is because it explains a lot more than a simple deconstruction like GDP by industry, agriculture and services. While that's important, this actually is a far more powerful way to kind of understand. And as we see with the GFCF section, you will see that various implications, a low GFCF and the ways to correct it are creating. Certainly. What was your second question, Andrak?

07:12
Anurag Pagaria
Essentially why if we have high GFCF, is that a good thing? So when you're saying India has always been around 30%, range in China has been around 60, close to 60%, is there some principle that you should be high in GFCF or essentially like that? Or is that not a right way to look at it?

07:30
Sajith Pai
Well, I would say that it is good to have a certain ratio now in China, which is well above 40%. The challenge is GFC financed and financing it is through debt. So whoever is financing it, typically if he has to over invest into GFCF, they have to finance it through debt. And so those are the fundamental challenges. Or you have to finance it through taxes. Okay. In a developing country, there just isn't enough tax to finance that GFCF. So the fact is, if you have a very high GFCF, like if it crosses 50%, then the next question to ask is how are you financing it? And that has implications for the economy too.

08:11
Sajith Pai
Right.

08:11
Anurag Pagaria
Got it.

08:13
Sajith Pai
So that was a good question from Andra. Now let's just come back into financing, since financing was a key question. Financing is interesting because fundamentally GFCF is low because we underinvest into productive assets. Now, who underinvests is very interesting. In India, it's typically the private sector underinvests. And what we have seen really decade is private sector's share of GFCF has actually come down by a third. It's also true for the larger corporate sector as well as true for what the SMB sector, which is typically referred to as households in this exercise. This is certainly one factor. As a result, the government has had to stay steady, right over the last few years.

09:09
Sajith Pai
What's happened is the private sector has actually reduced its borrowings and this is a result of many factors, including NPA crisis, fairly high capacity that they've had and they've not really had to invest. The COVID uncertainties all of them have led to private sector underinvesting. And this reflected in their share of debt coming down. Like private sector share of debt has actually come down to 50%. It's one of the lowest amongst our peers. So that brings us to something very interesting, which is that the government steps into spend, okay? And the government's had increased spending as we have all seen. And with the government increasing spending now it comes down to how does it finance that spending? And which is sort of the point you raised. And it's very interesting. We don't have very high taxes. And India's story of tax is very interesting.

10:06
Sajith Pai
Our tax as a share of GDP hasn't really grown much over the last few years. And a lot of it is to do with the fact that we undercollect on direct taxes to a much greater degree.

10:18
Anurag Pagaria
Can you deconstruct tax?

10:19
Sajith Pai
Yeah.

10:20
Sajith Pai
So tax is called direct and indirect. And direct is really either corporates or individuals who are paying directly for it. Okay. Indirect taxes when you and me pay taxes, but through GST, there are also related tax like excise, et cetera, which is really on by a specific person or entity, but spread across multiple people. Typically, if you have a very high indirect tax, typically more lower income folks share the burden. So it's a little inequitable in that respect. Yes, to a certain extent you pay taxes on consuming, but fundamentally, because incomes are much higher now, direct taxes are typically more equitable in sense, if you only have income, you'll pay for it. But the story of India is that direct taxes haven't really grown much. They're pretty much at 6% over the last few years. They haven't really grown much.

11:18
Sajith Pai
It's just that corporate taxes have come down as a percentage and income taxes have gone up. And what's really interesting when we unpacked was a very small number of Indians pay income tax, just 1.5% of India. It's 22 million people. And that surprised me because there were a lot of filing. Filing has been going up, but paying hasn't been going up. The other thing is a power law where a third fifth of these account for pretty much 70%, 80% of the taxes.

11:52
Anurag Pagaria
So the 70 million number that floats around is not actually.

11:56
Sajith Pai
No, it's actually filers. Yeah, thanks for asking that and clarifying that. It's actually filers, not payers. So now we come to possibly the final part of GFCF. That because taxes are low, you tend to borrow. And when you tend to borrow, what happens is as the government share of borrowings go up. And if you look at India's corporate bond market, it is pretty much India's bond market, sorry to say. It is dominated more by the government borrowing than corporate bonds, unlike other countries, for instance. So because the government has a very big role in the bond market borrowing, there is debate. And now I'm not saying it's conclusively proven, there are well written arguments on both sides that the government may be crowding out. But I've also read enough interesting literature to say that there could be crowding in.

12:50
Sajith Pai
That's happening at this stage india, which is that as the government spends more money and economic activity increases, there is more private sector investment and doesn't necessarily crowd out, but crowds in. So I think this crowds in, crowd in is that when, for example, Atul Setu. For example, in Atul setu means that the government kind of takes that burden. It finances it through borrowings. But the construction on both sides leads to a revitalization of the economy. And as a result, a factory on the other side may choose to set up a large plant. And when it sets up a large plant, it then chooses to borrow. So that's a crowding in. That is the argument that is used in favor. I think it's a fair argument. And at this point, I haven't done enough to say it's decisively one versus the other.

13:39
Sajith Pai
So that is sort of the look at GFCF. And the reason for picking up GFCF and consumption later will become clear to you because GFCF allows us to unpack so many dimensions of the economy. Very simply, we underinvest in gfs. Why do we underinvest in GFCF? Private sector does. So government shoulders a burden because the government can't tax as much or doesn't tax as much. We have more borrowings. And more borrowings lead to discussions about crowding out or crowding in. So that is the GFCF section in a nutshell. Okay, so now that GFCF is kind of unpacked, we need to look at the other part, which is the other large part, which is about as much as 60% of GDP is driven by consumption.

14:26
Anurag Pagaria
But the fun, the best chart, I think, was the fact that when we talk about GDP, right, we are 3 trillion, we are x, then we look at GDP per capita, and then we come at one 40th rank, and I'm like, wow, how can you be two things at the same time. How can you be the fourth biggest economy and also show back in per capita? Kind of, I think. I think that feels like an India thing.

14:48
Nachammai Savithiri
More of that will come in consumption.

14:50
Sajith Pai
This is sort of, I would say, the canonical statement about India. Whatever you can see of India, the opposite is also true. That's what I've heard. And I think you've kind of raised the right point about per capita income. And Nachu, I think, should cover a little bit more about the implications of that on consumption. Yeah. So why don't you take over Nachu?

15:10
Sajith Pai
Yeah.

15:10
Nachammai Savithiri
Anagh. I mean, the duality of India is sort of a great place for us to move into the consumption section of the report. So if we actually go back to our earlier thought about breaking down GDP into its many constituent parts, the largest one that we'll see there is private consumption. And interestingly, in the last couple of decades, this has always been as high as it is now. Right? 58% and above, and now it sits at about 60%. So I think it's important for us to break down the various components of consumption and really understand what is India consuming. What is India spending on?

15:51
Sajith Pai
Yeah.

15:52
Nachammai Savithiri
So a good way to look at it is spend on necessities and on discretionary spend. Right. And interestingly enough, India is spending significantly on your necessities. Discretionary is about 21%. And Sajith actually did a breakdown of this using MPCE data and went into the trenches and unconvert that at max, this is probably 29% today. Discretionary spend.

16:21
Sajith Pai
Right.

16:21
Nachammai Savithiri
What does it mean? Yeah, I am actually going to let Sajid do this because he spent many hours on this. Sajit, us through how you broke down the consumer survey.

16:32
Sajith Pai
No, absolutely.

16:33
Sajith Pai
So we got the slide ready and I think the slide got ready about nearly two, three weeks back. And then you don't revisit the slide.

16:43
Sajith Pai
And then I saw the tweets about.

16:45
Sajith Pai
India's new consumption survey and all of a sudden I think I got messages from, I think, one of you. I think maybe nacho saying is, do you want to just revisit this slide? And then in the last minute, that was another one and a half hours of work trying to see, do we need to change this slide? Is there a lot of new data? But actually, no. Reassuringly for us, but not so reassuring for the indian people, our spend on.

17:10
Sajith Pai
Discretionary, which is really what's called value added consumption.

17:16
Sajith Pai
Right. Which is spending on, for example, designer clothes or not even designer clothes, slightly more expensive stuff. Right. Or going out and having eating in restaurants, that spending has not, perhaps not more than 70% of the economy. So what I did was I actually.

17:37
Sajith Pai
Looked at the monthly per capita expenditure data, and the government released it after ten years.

17:44
Sajith Pai
So 22, 23 data. And what I did was I looked at all the constraint spends, and they.

17:51
Sajith Pai
Divided into food and non food, and.

17:54
Sajith Pai
There are various break subheadings of that. So what I did was for the food. There's a specific, interesting part about processed food spending, which is as high as 10% in urban India, which is interesting. So that, again, I gave certain weights.

18:09
Sajith Pai
To it as discretionary, nondiscretionary, teased it apart.

18:12
Sajith Pai
Then, for example, there is non food.

18:14
Sajith Pai
Which is footwear, et cetera. So, per the government, 46% of rural India spends are on food, and 39% of urban India spends are on food. But when you actually non food, a.

18:31
Sajith Pai
Lot of it is still like medical.

18:34
Sajith Pai
Education, which is essential.

18:36
Sajith Pai
Conveyance. A certain percentage of conveyance is for getting to work, so it's essential. Without that, your money won't come. So when you actually tease those apart.

18:45
Sajith Pai
You actually find that 29% to 30%. 29% is what the share of discretionary income discretionary spends, I apologize, india is today, and from 2000, it has only grown up by 800 bips.

19:05
Sajith Pai
That is, in 2000, it was 21%. In 2022, it is 29%. When we look at what is there on our chart, which is from the.

19:14
Sajith Pai
Macari.

19:18
Sajith Pai
Investment bank, Macari says 2000 was 13% and 2022, or 23 was 21%. Right. So it's again 8800 bips change. So this is sort of the dissection that you wanted me to do. Nachu, back to you.

19:35
Nachammai Savithiri
Yeah, no, I think interesting from the consumer survey as well, was when we look at pure discretionary spends, like your consumer durables, your media and entertainment, that was broadly about 15% of the discretionary portion. And interestingly, you talked about beverage and processed foods. Right. What I found very interesting about the survey was both rural and urban India spend about 10% of their household income on beverages and processed food. And were actually having a discussion about this. And it's also because things like your noodles is actually a staple in the household. Right. While it's processed food, beverages also become. Has become a staple.

20:19
Sajith Pai
Four months Red Bull. India took a Red Bull.

20:22
Nachammai Savithiri
So I think that was a very fascinating juxtaposition as well. And that's why your sort of further break of some of these discretionary components into both necessity as well as discretionary is, I think, an interesting sort of angle to go about it.

20:37
Sajith Pai
Yeah.

20:37
Sajith Pai
Thank you.

20:38
Anurag Pagaria
But why is discretionary important?

20:41
Sajith Pai
I would say discretionary is important, anurag.

20:44
Sajith Pai
Because it is the part that actually drives the economy forward. Like, if we all spend only on necessities, then all of the beautiful things, like your onitsuka tiger sneakers to your Zara clothes and all of that is discretionary. You don't really need it, but that's increasingly what drives the economy forward. So when you look at advanced economies, the share of discretionary is much higher. It's actually inverted because the incomes are so high. So in a way, it's actually interesting. You say that discretionary is important, not because discretionary spending is all. Yes, it matters in driving the economy forward because actually, higher margins in the hands of people, et cetera, all of that. But it's also a great signal to where the economy is. Discretionary as a percentage can't increase unless the incomes go up.

21:38
Sajith Pai
Okay, so why don't we kind of get nacho to kind of unpack this a little bit more?

21:43
Sajith Pai
Yeah.

21:44
Nachammai Savithiri
So when we actually broke down discretionary spend a little bit more, we wanted to look at other indicators for lower discretionary spend, and we realized India is actually under consuming in multiple. A chart that I really like here that we explored was elevator density india. Right. It's one of the lowest in the world, which is interesting because you have a limited landmass and you have a very large population, and elevators are usually in urban parts. And it really tells you how small the urban class is india and also shows you that urbanization is not where it ideally should be. Right. I think this is a really interesting chart from that perspective. Another one is also the household goods and ownership of household goods indian households. Two wheelers at about 50%, but a car at 8%. Right. That's interesting.

22:38
Anurag Pagaria
That's at a household level.

22:39
Nachammai Savithiri
At a household level, yeah. Similarly, with acs, we don't have pure AC data, if I'm not wrong. We have acs and coolers, and that's at about 24% india. I think these are great charts to really understand the many indias.

22:53
Sajith Pai
Right.

22:54
Nachammai Savithiri
And sort of segueing from that, we really drill down into these indicators to identify what is the size of or what is the percentage of households india that are the consuming class, or at least a premium, slightly premium consuming class. Right. All roads and all our indicators led to one number broadly between 30 to 35 million. And I think we've looked at taxpayers, we've looked at mature Internet users, we've looked at car ownership, credit cards, DMAT accounts.

23:33
Anurag Pagaria
Yeah, whatever data.

23:34
Nachammai Savithiri
We came out very strongly here. And, of course, this then leads into the hallmark sort of slide that everyone looks forward to in the Indus Valley report is Bloom's rendition of Kishore Biani's India one, two, three. And of course, Sajith has been the brainchild behind our segmentation of India one, two, three. And I would love for him to sort of walk us through this and also notice, Sajit, that some of the estimations this year are different from last year's. So what's changed, and how has this come about?

24:20
Sajith Pai
So when we look at India one, two, three framework, it is a concept that I think, sure, Biani pioneered in his book. It happened india. I think that's the titles. Yeah. So that's where I came across a concept of India one, two, three. And I thought it was a very powerful way to kind of illustrate India. What I've done is really adapt it.

24:45
Sajith Pai
For the needs of Indus Valley, which.

24:49
Sajith Pai
Is why the India one, two, three framework.

24:52
Sajith Pai
And the depiction that I do is.

24:55
Sajith Pai
Not a pure socioeconomic depiction.

24:57
Sajith Pai
Right.

24:58
Sajith Pai
There's a reason why I pick, for example, India one. Why size that way? And it comes from, for example, all of the numbers that talk about 25 to 40,000,030 to 35 million being in between.

25:09
Sajith Pai
Right? So effectively, that many number of people.

25:13
Sajith Pai
And a slightly lesser number of households equivalent.

25:15
Sajith Pai
Okay.

25:17
Sajith Pai
Really set the outer boundaries of the.

25:20
Sajith Pai
Consumption class india. And credit cards, 100 million ish credit cards. But with everyone having two to 2.5.

25:28
Sajith Pai
Credit cards, it's just, again, 30 to 40 million people, cars similar, and so on. Very interestingly, the data that you brought out underagapod, people have done at least one trade, 25 million, 22 million. It's dropped a little bit this year, apparently, but 25 million last year. So hence we have sized India one at that, because that becomes really the consuming set. That's a set which is digitally literate, able to transact comfortably on the Internet, mature Internet users, red share put it at 35 to 40 million.

26:00
Sajith Pai
Again, similar.

26:01
Sajith Pai
That also has a kind of affluence to buy. So that becomes like the native class for Indus Valley startups to go after. Right. That's where you begin. Then comes India two and India two, for example.

26:16
Sajith Pai
And not sure.

26:17
Sajith Pai
You spoke about what's changed and you noticed that some change.

26:20
Sajith Pai
Yes. We have expanded the size of India too.

26:23
Sajith Pai
And the reason for expanding the size of India too. Last year, I'd kept it at around 100 million. And again, like I said, India. This framework is not a socioeconomic framework. This framework is to give us the next set of users who are Indus Valley startups to go after. And this time I expanded it because various factors lead me to presume that the aspirational class has expanded india.

26:44
Sajith Pai
Thanks to digital incomes have not grown.

26:48
Sajith Pai
As much, but their willingness to spend has gone up. And we're beginning to see that in.

26:52
Sajith Pai
The new wave of Indus Valley startups.

26:56
Sajith Pai
Who, for example, are seeing lot of microtransaction incomes, whether it is dream levels of the world and the gaming companies to, for example, stage in our portfolio, cuckoo FM, they're all beginning to see India two users willing to spend. So while incomes haven't gone up, their willingness to spend on these products has gone up because the ticket size are very small. So this unlock convinced me rather that I think it's time to kind of expand this. So India two doesn't mean that lot more people have entered the middle class.

27:27
Sajith Pai
No, the middle class, as we call.

27:29
Sajith Pai
It, is really the rich class india, which is India one. India two is an aspirational class. And so we expanded this to show that the market has expanded. And so that is how we have kind of stacked it up. But otherwise, India one. If anything, the story is that India.

27:45
Sajith Pai
One'S numbers have grown slowly.

27:48
Sajith Pai
Okay, that's about 30 million households, close to 10% of the economy of India's households. And they account for about, I would say, just over 50% of the income and equivalent, maybe a little bit more on spends. So that's India one, if anything.

28:08
Sajith Pai
India one has got richer.

28:10
Sajith Pai
India two has kind of stayed the same, maybe a little less, because I've added more numbers to it from the bottom. Okay, so India two would have gone down a little bit income, on average income, and India three would be a little more lower because the top rung of India three are pushed into India two. That's sort of the India one two three framework. And what I think we've done is to give you an indicative set of startups which kind of fall in each of these buckets. But the way to understand is, when.

28:40
Sajith Pai
You look at the startups, keep in.

28:42
Sajith Pai
Mind that all India one startups may not be relevant for India three.

28:47
Sajith Pai
Right?

28:48
Sajith Pai
Or India two.

28:49
Nachammai Savithiri
Correct.

28:49
Sajith Pai
But India three startups will be relevant for India one. So that's a way to understand it. It doesn't mean that YouTube doesn't operate india one. All it means is that it kind of spans all of this.

28:59
Nachammai Savithiri
I think we're also seeing that with some of these India three or India two products having that premium version for that India one customer, even YouTube with YouTube premium, for example.

29:12
Sajith Pai
Right.

29:12
Sajith Pai
YouTube premium. And YouTube india has had to kind of adapt itself. India is one of the few countries that allow downloads, because when YouTube launched india till 16, till Geo gave us those speeds and the bandwidth, people couldn't kind of reliably enjoy YouTube. So India is one of the few countries that allow downloads, WhatsApp, for instance, and had to disable the number of forwards you could send it to, because in certain situations, rumor mongering was on the rise. India is a very interesting country where not only are there nutshells for premium versions like YouTube premium for India one and all, they've also had to adapt the product to kind of reduce misuse and to increase use. So that's the interesting thing about that, but that's a different topic entirely.

30:11
Nachammai Savithiri
And Sajit, something you mentioned which was really interesting was this willingness to pay now india too. Right. Do you think this is coming from an increased access to credit, coming from aspirations? Is it coming from just time in the market for some of these products?

30:31
Sajith Pai
Yeah. Out three points.

30:33
Sajith Pai
I think the second is less relevant for consumption of these digital products. I would say that unsecured credit has been on the rise, and that's a next topic we'll probably kind of segue to soon. But I would say that as far as consumption of digital products is concerned, I don't know if that's as relevant. But the first two that you said.

30:57
Sajith Pai
Is more this one. That one.

31:00
Sajith Pai
These products have been there in the market for a long time and they've discovered new unlocks, both behavioral as well as economic. And the economic one, interestingly, is also technological, because UPI autopay and UPI allows you small ticket items to be kind of small ticket prices. And that means that people are paying for like rs9, rs1. And that's created an entirely new set of unlocks.

31:27
Sajith Pai
Got it? Yeah.

31:28
Anurag Pagaria
And one very interesting thing that I find about all India one, two, three is the way you correlate with countries. Like, instead of looking at India as India, you say that India one is equivalent to Mexico, India two is equivalent to Indonesia. Why do you think that's a way.

31:44
Sajith Pai
To look at it? Yeah, I think it's to make it simpler to understand.

31:49
Sajith Pai
And I keep wondering whether India one, for example, is Mexico. Because for that population, that was the closest income I could find. Right. Or that income, that was the closest in population I could find. India two, I think it's harder. Sometimes it's sort of a combination of Indonesia plus Nigeria, I think, like sort of the population of Indonesia, but the incomes of Nigeria, perhaps. But when I struggle to find an exact analogy, and I feel like there are interesting countries hidden within India one is, I think, possibly one people and $35,000 per capita income. And that is sort of people like all people, like us, for example, those who have Starbucks and are watching Netflix and whatnot. Okay, so there are these worlds hidden within. Yeah, I think back at you, nachu.

32:40
Sajith Pai
Yeah.

32:40
Nachammai Savithiri
And on that, we actually have two very interesting sections in the report where we've taken some thought leaders, is further segmentation of India one and India two, which I will let you explore in the report. Okay. So we essentially talked about how India one is driving much of consumption, and to some degree, India one is also getting richer. And an indicator for this, which has been a hot topic in the last couple of months, is premiumization. We're also seeing this consuming class essentially grow over the last few years. Right. And we've sort of explored that in this particular chart where if you see in around 1956, it was about 0.8% of indian households were the consuming households. Now this has grown to 8% of indian households. So this is certainly on the rise now.

33:35
Nachammai Savithiri
We're also seeing some of these reports sort of talk about the affluent class going itself. The middle class is also going now, which is great indicators that, sure, you have a small consumption class, but at least it's going to some degree, which is good news for our industry players.

33:53
Sajith Pai
I just want to come back, come here and say that. One of interesting, not contradictions, but kind.

34:01
Sajith Pai
Of two different opposite concepts have to sit in mind.

34:05
Sajith Pai
In India, always, like highest GDP, fourth highest GDP, or fifth highest gdp at one, 40th in. Similarly, a small minority, 10% of India, is really the consuming plus. But that small minority at 120,000,000 people is bigger than many european nations, and they are driving a lot of spends. And it's really, India is really the fastest growing category for many kind of categories. So that is really the two things that you meant. While it's 10%, it's still really sizable.

34:42
Nachammai Savithiri
And we've also looked at some of the indicators for this gagoing consumer class from our end. Right. We looked at gagoing DMAT accounts, increase in broadband subscriptions. We've also seen, within categories, premiumization. For example, we looked at the revenue growth for, say, a Vmart versus a zaga india in the last three years, or Mahindra and BMW india, right. And all of these are strong indicators of premiumization within this consumption class that you can actually get more from your consumption.

35:17
Sajith Pai
Right.

35:19
Nachammai Savithiri
And economists are really calling this the k shaped recovery for India.

35:23
Sajith Pai
Right.

35:23
Nachammai Savithiri
So you're seeing entry level in categories on the decline in sales, but premium brands on the rise. For example, entry level vehicles. Right, on the decline. But suvs now have 42% market share in car sales.

35:38
Sajith Pai
I think.

35:38
Nachammai Savithiri
Super interesting here. Yeah. And another one, Apple is about to overtake hul revenues india, right. So a lot of aspiration, a lot of premiumization is happening every day india.

35:53
Anurag Pagaria
I think that's a very good. The whole car thing seems to be very intriguing.

35:58
Sajith Pai
Right.

35:58
Anurag Pagaria
The entry level vehicles are going down, the five to ten lakh vehicles are going up and two wheeler sales are going down. So entry level two wheeler sales are going down. So that essentially shows you what you are saying. That the richer are getting richer and the poor are getting sort of poorer in many ways. Seems very interesting to me.

36:18
Nachammai Savithiri
Or maybe the messy middle is aspiring for a lot more now. So we've sort of looked at how India is spending. Right. Something else on the rise is India's investment habit. So I'll let you take over Ganurgag now to sort of talk about what's happening in our equity markets.

36:37
Anurag Pagaria
So one thing that I find very interesting when we talk about indian equity or indian investing thing is that while the world has the world in the last two years, because of interest rates going up, all emerging markets draw down or basically didn't do well, India did really well. So that was a question like why did India do so well? Why has indian stock market performed so well? So I think broadly, when we start looking at where the money is flowing, we see a very clear pattern that fis or the foreign institutional investors, when they scaled back, when they took out money, the domestic institutional investors went in with more money. And that is very interesting when you that now historically fis were always higher than diIs. I'm calling a short form because why would I say always the longer version?

37:26
Anurag Pagaria
But essentially what has happened is that Di has for the first time surpassed fis also in certain ways. So if you look at the.

37:33
Nachammai Savithiri
When did this happen?

37:35
Anurag Pagaria
It is happening in the last four or five years. Five years has been crazy for the indian equity markets and the retail participation. I think it's broadly retail story. When you look at indian markets, indian equity markets, if you look at the fi ownership over the last ten years, it has broadly remained stagnant of the market. So basically it's roughly 18%. But let's look at DII's ownership. It has increased from 3% to roughly 9% of the overall stock market, free floating stock market. So essentially three x in ten years. And that's massive when you look at terms of three, $4 trillion. So that's massive in that ways. So, broadly now, what is DII? So DiI is basically a combination of mutual funds, epfos and insurance. Now, mutual funds is the majority of it. And when you look at mutual funds, why has that performed?

38:22
Anurag Pagaria
Well, you try and you look and see everywhere where you ask your friends, where you talk to them. Everybody has started doing sips. Sips has been the backbone of indian equity markets. Not because there's money flowing in, there's a systematic money flowing. It's sort of like a subscription, sort of a lay, that every month there's some money getting debited. I do an SIP and almost everybody dies.

38:45
Nachammai Savithiri
This is also like when we talked about UPI auto pay.

38:47
Anurag Pagaria
Yeah. This systemized investing has helped create a shoulder. Created a shoulder in terms of how much money is flowing in. So, coming back to numbers, right? So household value of mutual funds, that has doubled over the last three years. So what was 145 billion has become.

39:05
Sajith Pai
290 billion right now.

39:07
Anurag Pagaria
And SIP's inflows, purely on dollar terms, has gone from 6 billion in financial year 2017 to now roughly about 19 billion. And I think that's increasing. So what I read last was India mutual fund EM has reached rs50 trillion, which was about 8,000,000,000,010 years back. And that's the story of what has happened in the indian equity markets per se. Obviously, when mutual funds do well, you also see that retail investors are participating more and there's an IPO frenzy, sort of a thing. So the one very interesting one was where there was around two lakh 58,000 corros logged in for 7000 kores worth of IPO stocks. So that's the amount of oversubscription that is happening. And this is also causing a lot of the.

39:59
Anurag Pagaria
And you can see it in multiple ways, number of DMAT accounts, but also an active way of looking at how many investors are participating. So what was earlier, 4 million, roughly. Investors on NSC in FY 14 become around 25 million in FY 23. And said to also surpass that in this FY 24, which is very interesting or intriguing sort of a way. And all of this brings us to the one question and one question that everybody asks. And I asked Sajit, so many times is indian market overvalued?

40:29
Sajith Pai
Right.

40:29
Anurag Pagaria
And there are multiple ways of looking at it. One way is that if you look at MSCI index or sort of an emerging market index that uses where it tracks all emerging markets, India has done the best in last five years.

40:41
Sajith Pai
Ten years, 15 years, 20 years, that's.

40:43
Anurag Pagaria
Like in this century, India has been the best emerging market. And you're comparing to China, Korea, Indonesia, Taiwan, all of those countries, the MCAP to GDP has gone from 80% to 120%. And the valuation premium, a simple way to understand is that average valuation to current valuation is the highest amongst. Highest in the last 18 years. It's even higher than us for that matter. So yeah, you could say that we are some sort of overvalued. I would also tell you to look at Nvidia's Google or Microsoft of the world where Microsoft is at 3 trillion, Microsoft and Apple interchange between $3 trillion essentially. So these are almost as equal to indian markets. So I don't know whether we are overvalued in many ways. I don't have answer to it.

41:29
Anurag Pagaria
But I think the broader story is the SIP story that has caused indian equity to rise. So basically when we spoke about equity, that is how India is saving. But also in some ways, there's one more part to it about credit and credit. Why is credit interesting? Because in a very boring topic, like why do you want to discuss about loans, credit, all of that. But I think there's a very interesting thing that is happening indian ecosystem right now. And broadly, if you look at credit, right? So there are three parts to it, retail, government and corporate. Now the retail segment of credit is going through a transformation. And so retail broadly consists of personal loans, credit cards, home loans, all of those things constitute the retail credit, bunch of it.

42:10
Anurag Pagaria
Now in retail credit, what is happening is that personal loan has increased about two x in the last five years and that's massive when it comes into the loan book kind of a way that 3% of personal loans was. 3% of the overall credit was personal loans in 2018. Now it has become 6.7%. Now that might not sound very big, but now if you dig deep into personal loans, what you will realize is that amongst that personal loans have increased twelve x in volume. What we used to do, 8 million loans in 2018 has now become 100 million ish loans. And that 100 ish number is massive in that ways. And if you look at the main, but it has not increased in value, it has only increased about three x in value.

42:53
Anurag Pagaria
So what it means is that essentially most loans that are going out are small ticket loans and those loans are being driven by NBFCs. That is essentially the fintechs or the new age financial institutions that are coming up which is also causing overall rise in retail loans that are happening in the market which was 2018 it was around 160,000,000,000. Now it is about 450,000,000,000. And retail loan has retail percentage of overall credit has become the largest, which was earlier 19% in 15 financial year 15 now has become 30 ish percent. And that's become the biggest way that India is taking loans. That is causing a very big problem of npas, overdraft, dpds and essentially that. And I would like Sajit to step in and explain what is happening over here and also give a shout out to DPT zero.

43:44
Sajith Pai
Yeah, sure.

43:45
Sajith Pai
DPT zero is actually a portfolio company we invested in last year.

43:50
Sajith Pai
Anurag spoke about this rise in personal.

43:55
Sajith Pai
Loans and retail credit. It's also interesting to look at this.

43:59
Sajith Pai
As an India two theme. If rising consumption, the k shaped kind of recovery curve that we're seeing, the.

44:12
Sajith Pai
Investment into equities, was an India one story, then the India two story is.

44:17
Sajith Pai
Really about increasing credit. And that's another way to look at it.

44:21
Sajith Pai
And if you look at the India two story and increasing credit, what we've.

44:25
Sajith Pai
Really seen is the rise in personal.

44:28
Sajith Pai
Loans, the rise in small ticket personal loans, which is unsecured credit. Right. There's no collateral against that. And historically, if you have seen the indian economy as a very undersized credit.

44:42
Sajith Pai
Market.

44:45
Sajith Pai
Much more so than many comparable countries, now the reason for that has been a lot of the credit has been secured lending against collateral, like home loans. And not everyone can afford a home, right, or vehicle car loans, a secured credit, unsecured credit, small ticket loans has been a very small part. But what has happened is over the.

45:09
Sajith Pai
Last few years, fintechs, well funded, able.

45:13
Sajith Pai
To leverage technology like of like whether it's UPI for UPI led payments, or using enatch or account aggregator frameworks, have been able to bring in more people into the fold. And who are they bringing in? They're bringing india to typically first time what's called new to credit folks, et cetera. And when those new to credit folks.

45:40
Sajith Pai
Get a loan, they're not used to.

45:42
Sajith Pai
Loans, they're not used to repaying, always on time. They have challenges.

45:46
Sajith Pai
And that is really what has happened.

45:49
Sajith Pai
We've seen some interesting data points in the report, like the number of people who have like five loans or above, it's like 10% of the borrower base and they have like 40% of the loans go to them. So are they kind of circulating the loan amongst each other? I don't know. Okay. So we are beginning to see all of these trends. If all of those new to credit people have to kind of pay it back, not all of them are able to pay it back on time. Sometimes they don't have income, sometimes they have other challenges. As a result, npas are on the rise. So if you actually look at the story of personal credit, it's really been growth, growth, particularly in one area, unsecured small ticket personal loans.

46:36
Sajith Pai
And we saw some of the stats saying the kind of jump that we have seen there, 31 x or something like that. But all of that means that nps are going up and we are beginning to have a lot of repayment issues. I'm going to hand it over back to you to what the other implications of that are.

46:57
Anurag Pagaria
Yeah, essentially you covered it very well. So essentially what was 13 or 14%? Npas have become twice of that in small ticket loans. And that is why RBI is so worried. That is why RBI is like you are hitting the ceiling of number of people that you can lend to in a way that you can get that money back. That's creating a systematic risk in our system. And now since you have covered this, I would love for nachamai to step in and talk about India's export.

47:24
Sajith Pai
And why do we think that's an.

47:27
Anurag Pagaria
Important thing to talk about?

47:28
Nachammai Savithiri
So I think bit of a heavy section that we had with personal credit. So let's lighten it up a little. Let's talk about India's exports. Right. I think there's been this large conversation about India being a service exporter. Interestingly, we're also, or at least significantly exporting people compared to services. Right. And that's broadly sort of the way we've gone with this section of the report. We looked at India's the indian diaspora, right? So migrants from India and India is actually one of the leading countries with the most number of migrants compared to other economies. And a lot of this essentially comes back to India or gives back to India through remittances and very sort of interesting way that we've sort of broken down these diasporas. Right.

48:26
Nachammai Savithiri
For example, realized that in the US, one in three engineers and four scientists in it companies are actually Indians. So that's a great way to think about India's exports. Right. Another thing is that the household income of this indian diaspora in, say, the US, it's insane compared to India's household per capita. In India, it's about, let's say $10,000, if you look at $2,600 person. But if you multiply that by four, we're thinking broadly, 10,000, $10,800 is the indian household per capita, whereas the indian diaspora. So the indian diaspora, us household income is actually $150,000. So more than ten x, right. Fascinating stuff. We're also sort of broken down in this section, the remittances and where they're sort of coming from. What are those top diasporas that are sending remittances back home? Very interesting.

49:36
Nachammai Savithiri
One was Canada, actually, which punches well below its weight in terms of the remittances that are coming back. Probably could be an indicator that the entire families are migrating and so on and so forth. Another way we've also looked at it is that story of India being a services exporter. And here we actually compared it to Saudi's oil exports. Right. Very close, very close to Saudi's annual oil export.

50:08
Sajith Pai
It's one of those unfair but relevant comparisons, I call it, and I love these, juxtaposing these two very unlikely but seemingly kind of conceptually interesting topics. So this was one of them. Yeah, back at you, nacho.

50:24
Nachammai Savithiri
Yeah. I think another way there is to think about the indian diaspora as part of our consuming class, right. For years we've been exporting indian snacks and sweets back to the west for the indian diaspora there. So I think today a lot of Indus Valley players are also doing this. So that's a great way to think about the indian diaspora as an addition to the India one. Consuming also. I mean, I think this is one of our lighter slides in the report where India is exporting culture. Right. You're seeing indian culture more and more in popular culture today, whether it's Netflix series, whether it's the songs that are going to the oscars, the products that are going in Oscar hampers like Vadanti, for example, they're seeing UPI as something that is going to be exported. Right.

51:15
Nachammai Savithiri
So I think these are great, fascinating stories coming out of India being consumed in the global stage.

51:22
Sajith Pai
I think a good way to describe this is as India's rising soft power, right. And as a country gets richer, as we get this India, one gets richer, they start traveling, they start creating culture. Increasingly, that culture is going to get more and more eyeballs and it's going to break out of its narrow pockets in the indian diaspora to the wider mainstream. We saw that with chinese culture. We saw that with korean culture. It is going to happen. Right. With India as well. And I'm particularly fascinated by the Wikipedia chart, which looked at the most visited pages, and quite a few of them were about cricket or about indian topics. Increasingly, I think the story is about.

52:07
Sajith Pai
The indian English speaking.

52:09
Sajith Pai
And if we talk about the 120,000,000.

52:12
Sajith Pai
India one, all of them are English comfortable.

52:16
Sajith Pai
And as all of them are English comfortable, they are increasingly expressing themselves on the Internet. And if I say 120,000,000, almost 80, 90% will be English fluent at 100 million.

52:29
Sajith Pai
I think we are bigger than UK, the indian community.

52:32
Sajith Pai
And if were to be a country in Danglia, okay, or whatever you want to call it, if Indanglia were to be a country, it would be 100 million. It'd be the second largest english speaking country after us.

52:42
Sajith Pai
Yeah, that's another way to look at it.

52:44
Nachammai Savithiri
And I think this english speaking soft power is really at the center of the three exports. We talked about human capital, the export of services, and then the export of culture as well.

52:57
Sajith Pai
Absolutely.

52:57
Sajith Pai
Well put. Yeah.

52:59
Nachammai Savithiri
And since we sort of talked about India slowly thinking about exporting some of its DPI, its digital public infra, I think that should be the next section that we break down. Over to you, Sajit.

53:14
Sajith Pai
Of course. Thanks, Dachshu.

53:16
Sajith Pai
So DPI exports to DPI, and DPI.

53:19
Sajith Pai
Is essentially digital public infrastructure and refers.

53:23
Sajith Pai
To all of those protocols that have evolved india and the products that.

53:29
Sajith Pai
Have served as front ends to those protocols.

53:31
Sajith Pai
UPI, for instance, Aadhaar, which is a fundamental digital public infra product, Digilocker and so on. A good way to understand them is.

53:43
Sajith Pai
By seeing them as three aspects, really. There's an identity layer, which is Aadhaar, effectively, then there is a payments layer.

53:53
Sajith Pai
Whether it's Aadhaar enabled payment service or UPI.

53:56
Sajith Pai
And finally, there's a data exchange layer. Digilocker is part of it, and the.

54:01
Sajith Pai
Account aggregator framework is part of this and all that. But what we have really seen is that these services have kind of come to cover much of the population. Like Aadhar covers like 90, 97% of the people. UPI is increasingly used by at least.

54:17
Sajith Pai
I think, about 300 million people now, all of that.

54:20
Sajith Pai
So that has been one great success story of the last 15 years, so to say, since Aadar began in 2000 and 910.

54:31
Sajith Pai
If I were to now look at.

54:33
Sajith Pai
The use of UPI. Sorry. If I were to look at the.

54:37
Sajith Pai
Use of DPI, that's digital public infra.

54:40
Sajith Pai
And if I have to look at the government usage, it's got directed to.

54:44
Sajith Pai
A lot of welfare efforts.

54:47
Sajith Pai
And DBT, or direct benefit transfer in.

54:52
Sajith Pai
Kind as well as in cash, has.

54:54
Sajith Pai
Been an incredible success story.

54:56
Sajith Pai
We saw it during COVID when the DBT really rose.

55:03
Sajith Pai
And we've got stats about how DBT has risen in kind as well as cash. A good way to kind of understand India and always feel a good description of India is as a digital welfare state. Marrying the digital public infrared, the digital protocols with the welfare mindset of trying to bring up the India three and India two people, digital welfare state was, I think, a good way to kind of understand India and especially the government's efforts. But it's not the government alone, as we saw with startups, and that comes out on the next slide, is that startups have been able to leverage DPI as well very effectively. And if I were to kind of look at some of the examples, we've got zeroda using Adar and EKYC to kind of drive fast onboarding.

56:01
Sajith Pai
We have the story of how stage used UPI autopay to kind of drive higher retention. We've got an example of snapmint using the account aggregator framework to reduce, I would say fraud, to reduce the cost of onboarding to drive higher profitability. So for lending, it's been an incredible story, really. Okay, the account aggregate framework, then mobility, Namayatri, and for those, it's been a godsend, maybe less so in some other parts, but calcutta too, I think they're growing very. So I would say mobility via ONDC is a very interesting story. And we're going to see, with Dara coming to India from Uber and talking about ONDC, I think it might be very interesting to see what happens next there. Are they going to innovate on it, et cetera. On e commerce too, we have kind of some data. Let's see how it evolves.

56:57
Sajith Pai
A bit early to say that. So those are ways in which the digital public infra has been leveraged by startups.

57:09
Sajith Pai
That said.

57:12
Sajith Pai
This section is about government and Indus Valley. And DPI is not the only way.

57:15
Sajith Pai
In which the government has supported Indus Valley.

57:19
Sajith Pai
There are schemes which some of them involve funding. There are, for example, specific reforms targeted at sector space is one area where they've been very helpful.

57:30
Sajith Pai
The grants.

57:31
Sajith Pai
There are grants, for instance, the subsidies, such as in the EV space. So all of that has gone to kind of support, I would say startups, but with all give, it's also sometimes taken. And we also try to capture all of the kind of. I won't like to use the word hurdles, but sometimes there are hurdles, sometimes.

57:55
Sajith Pai
There are direct actions which stop startups.

58:01
Sajith Pai
From doing a specific act. Like real money gaming, for instance. The government came down very hard. Crypto, they came down very hard, effectively has posed crypto, for example, has decimated the industry in the case of real money gaming, has put serious hurdles. In case of fintech, the government has.

58:18
Sajith Pai
Taken specific, targeted actions to basically cover what you said.

58:23
Sajith Pai
Anuragan.

58:24
Sajith Pai
Personal credit, they are worried about the credit.

58:28
Sajith Pai
Small loan, unsecured credit rising. And now you'll say, why is RBI worried about that?

58:33
Sajith Pai
RBI is worried because this credit, if it is not paid, will impact an entity. And behind that entity are depositors.

58:46
Sajith Pai
And RBI is very worried about depositors'money, not coming back. So hence it puts those restrictions. But really, we've kind of looked at three sectors, which we call the government take it sector. And so effectively, that kind of brings us to the end of the government and Indus Valley section. So now I'm going to hand it back to Anurag for the next section, which is really about Indus Valley. And I think you're going to start with the valley environment funding. Right, Anurag?

59:15
Sajith Pai
Yeah.

59:15
Anurag Pagaria
So when we talk about Indus Valley per se.

59:18
Sajith Pai
Right.

59:18
Anurag Pagaria
So I think the venture ecosystem india is going through a transition period, sort of a.

59:23
Sajith Pai
Right.

59:23
Anurag Pagaria
And it is recalibrating. Well, every market, right, where there's a slide, where we have shown all the four top four markets, every country has seen a drawdown. India has seen a bigger drawdown than the rest, where it has become the quarter, essentially one fourth of what it was a couple of years back. And now when we try to take a closer look at it, so we are effectively back in 2017 levels in the amount of money that we are deploying, but with far lesser deals, where on an average, we are doing around 1000 deals right now. Earlier were doing around 2000 deals, where in 2016 17, so far fewer deals and almost the equal amount of levels. So when we try to now see what is the reason, and when we try to break down the funding into three parts.

01:00:07
Anurag Pagaria
So there are basically seed then early stage and the growth stage. And when we look at seed, particularly, there are two, three trends that come out.

01:00:15
Sajith Pai
Right.

01:00:15
Anurag Pagaria
Talking purely from a seed lens, seed has slowed down, but is still very resilient compared to everything else. While there is half, less than half of what is deployed in 21 22, like 21 22, there was about 1.8 billion sort of deployed. And in 23, it's about 0.8 billion sort of, that is being deployed. But the average seed check is larger. And there are three key things that we observe over here. And I would love to, love for Sajit to jump in and talk about what trends that seeing when he is looking at deals, because we are primarily a seed and early stage fund, per se.

01:00:49
Sajith Pai
Yeah.

01:00:50
Sajith Pai
When I look at the seed market, I think what we're really seeing is, for want of a better phrase, flight to quality. Okay, so in 21, for example.

01:01:05
Sajith Pai
Two kids out of a good engineering college.

01:01:10
Sajith Pai
After two years in a fast growing unicorn, would get like a $2 million check. But today, I think just pre revenue with just an idea, like with just a deck. But today I think that's not going to happen. Right. I think everyone is careful now about, and perhaps like an 810 year old.

01:01:30
Sajith Pai
Operator who's from a very reputed firm.

01:01:35
Sajith Pai
Growth unicorn, et cetera, can probably get.

01:01:37
Sajith Pai
A pre revenue check and maybe a.

01:01:39
Sajith Pai
Second time founder can. And so what you're seeing, really there is a whittling down seat numbers. So there's a certain kind of seat check. First time founders, et cetera, has gone out of.

01:01:52
Sajith Pai
The window.

01:01:53
Sajith Pai
And what you really have are more elite founders. And that is why you're seeing that check go up, because for them, the average ticket size hasn't gone down as much.

01:02:03
Sajith Pai
Yeah.

01:02:04
Anurag Pagaria
So essentially you're not doing more number of rounds, but the rounds that are happening are bigger because you're betting on second time founders.

01:02:11
Sajith Pai
Yeah, I would say so. Right.

01:02:15
Anurag Pagaria
When we start to look at growth rate, we see a further starker drop. While early stage Series A and B have dropped about 33% of 22 levels, late stage have been even worse, which has dropped two years continuously in a row, where it was 32 billion in 21, which became 16 in 22. Now it's about 6 billion. So about one fifth of the size it used to be in 2016. So essentially what we saw was that the main participants, or the most amount of money that was being deployed in the late stage, funding has drawn down because of lack of participants. So what? There are broadly two trends that we see over here, that people, the companies, the funds are willing to wait for more efficiency, more profitability, all of those things.

01:02:57
Anurag Pagaria
And founders are also willing to wait if they have cash reserve so that they don't have to do a flat round or a down round, which is why newer, bigger deals are not happening. Sajit, would you like to add anything on this?

01:03:10
Sajith Pai
I have covered it well. I don't have very much to say except that I'll clarify one part to.

01:03:17
Sajith Pai
Say that the later you go, the.

01:03:21
Sajith Pai
More the investor will look to the.

01:03:23
Sajith Pai
Public market for cues. Right.

01:03:27
Sajith Pai
And when you look to the public market for queues, you look at existing.

01:03:31
Sajith Pai
Public companies and benchmarks.

01:03:34
Sajith Pai
So if you are creating a product that competes with listed company, then your investors who are coming into that will look at that public company, take those benchmarks and apply it back. So, in a way, if Zomato gets higher multiples, then Swiggy's valuations, because it's private, will be taken up to reflect that Zomato's multiples get compressed. Then an investor coming to Swiggy is going to say, if they are at this stage, why should I give you this? So that is the fundamental challenge.

01:04:09
Sajith Pai
And so what happens is the exit market.

01:04:13
Sajith Pai
You're marketing to the exit, and hence the next investor who's closer to the.

01:04:20
Sajith Pai
Exit sets the broad strategy you are willing to follow.

01:04:24
Sajith Pai
Because the growth guys need to take it to IPo and the public multiple set a benchmark.

01:04:32
Sajith Pai
They come back and demand more, and.

01:04:36
Sajith Pai
Hence are more cautious. And that ripples down in our case, because we are so far removed from exit or ipo, we can afford to be a little more forward looking and give maybe richer multiples, but eventually, we'll also have to kind of be careful.

01:04:52
Sajith Pai
Yeah.

01:04:52
Anurag Pagaria
And this also reflects in the number of unicorns that have increased.

01:04:55
Sajith Pai
Right?

01:04:56
Anurag Pagaria
Like last year, it was only two, but at the same time, the number of ipos have increased. We have flipped in terms of ipo to unicorn. So to say, like, this last year was around eight venture backed unicorns. That happened. And one very interesting part has happened is the ipos of 21, like Zomatos and policy bazaar, which were doing, which got hammered for a while, have turned themselves around. What we have understood is that profitability with growth is what India values, which is what they are getting into, and they are getting back to a rich multiple.

01:05:27
Sajith Pai
Right.

01:05:28
Anurag Pagaria
Everybody, they have turned around, they've become higher than their ipo price, essentially.

01:05:34
Sajith Pai
Which.

01:05:34
Anurag Pagaria
Also is a very interesting way of looking at how there's a public private divergence. That happens sometimes, but effectively, that has been the broader story and also a story about VC versus PE.

01:05:49
Sajith Pai
Right.

01:05:49
Anurag Pagaria
That's a discussion that we always have, VC versus PE and then India versus China. When we look at the whole thing, what is happening? And one thing that has emerged out is that PE has done really well india, while vcs have not done as well compared to China. The main reasons if you have to break it down or if you have to simplify. It is basically pes while vcs are still in the process of doing that. And while in China, the technology is every few years a company that comes and goes global, where Alibaba Temu, Shein, all of those things that has not essentially happened india also in some ways. And the only or the biggest success story for India has been Flipkart.

01:06:33
Sajith Pai
In terms of exit.

01:06:36
Anurag Pagaria
Do you have any broad thoughts on this particular part?

01:06:39
Sajith Pai
No. You? Broadly?

01:06:41
Sajith Pai
Well put. I want to just double click a little bit into the differences between India and China.

01:06:50
Sajith Pai
I think in China, the private equity sector is far smaller than it should be. And I think that is a reflection.

01:07:00
Sajith Pai
Of the excitement that there is in.

01:07:02
Sajith Pai
The tech vc world.

01:07:06
Sajith Pai
And so because it's been faster growing, relatively, exits are easy to come by, a lot more listing the ipo activity.

01:07:15
Sajith Pai
Is a lot more.

01:07:16
Sajith Pai
Everybody is gravitated towards there.

01:07:19
Sajith Pai
Whereas india, I think it's somewhat.

01:07:23
Sajith Pai
Been the other way around. Not entirely, but somewhat been the other.

01:07:26
Sajith Pai
Way around where private equity has done well.

01:07:31
Sajith Pai
They've shown greater consistency of exits. And like you said, Flipkart still gives exits. Even last year, I think Axel and Tiger Global made more than a few billion dollars selling their old shares. So Flipkart is a gift that keeps on giving, but we need a lot more Flipkart type ones. And that has been one of the challenges of the indian venture market. Yeah. And I'm sure here and next year there'll be a lot more ipos and some of those questions will stop getting asked.

01:08:14
Sajith Pai
Yeah.

01:08:15
Anurag Pagaria
And I think that's a very interesting segue to when we talk about ipos.

01:08:19
Sajith Pai
Right?

01:08:19
Anurag Pagaria
Ipos are on a boom sort of a way. And if you look at purely in the last year, the ipos raised around 6 billion, which is only lesser or which is lesser than 21, 22. But if you remove, let's say, Lics and all of that, it becomes almost equal. That means ipos as a way of exiting has become very much possible. And I think that is also some ways that indian venture is adjusting to that. And we are also seeing a lot of liquidity also by ipos. Like you look at go colors, you look at Zomato, you look at PB, fintech, all of that has created liquidity for investors also in many ways, which is a very interesting way of saying.

01:08:59
Sajith Pai
That we are getting there, but it.

01:09:02
Anurag Pagaria
Is just taking us some bit more time in that.

01:09:05
Sajith Pai
And now if we look at, let's.

01:09:07
Anurag Pagaria
Say, just a step look at, let's say, what does the indian public market look like there are roughly about 4500 companies, but about 3500 companies are interestingly less than $250,000,000.

01:09:19
Sajith Pai
Fascinating.

01:09:20
Sajith Pai
Yeah.

01:09:21
Anurag Pagaria
Which does not matter because we always talk about reliance or tcs of the world. We never realize that there are so many companies that are less than, let's say, 2000 corros.

01:09:31
Sajith Pai
Right.

01:09:32
Anurag Pagaria
And that creates a very interesting thing that it's a myth that you need to be very big to actually do that, to do actually to go public sort of a way. And which I think Sajit makes a very interesting point, that SME ipos is a very interesting way to look at the next growth round, the next way to get funding or the next way to get exits. And would love for him to talk about SME ipos and his view on that.

01:10:00
Sajith Pai
Yeah.

01:10:00
Sajith Pai
So firstly, thanks to Vikram Gawande and Dagash, our colleagues, for putting together that incredible that Anurag referred to 4500 companies, but 3500 of them are under 250,000,000 in valuation. So that was an eye opener. And that also, then when we marry it with SME ipos, and there's also.

01:10:27
Sajith Pai
A chart that anrag dug up.

01:10:32
Sajith Pai
Which you won't find anywhere else, which is.

01:10:34
Sajith Pai
On the SME IPo performance versus the main.

01:10:40
Sajith Pai
And then, so we ask a provocative question, and as with all of these questions, it is designed to get a reaction. Is, are SME ipos the new growth round? Not for everyone. Okay. And I would say that certainly not for many of the companies in our portfolio, which are doing really well, but for a certain kind of company, I would say like a company which is.

01:11:02
Sajith Pai
Not the most loved in the venture world, which is not seen sexy for.

01:11:10
Sajith Pai
A founder who doesn't want to build.

01:11:12
Sajith Pai
The usual weight, I think SME ipos.

01:11:15
Sajith Pai
Are a very powerful milestone and something to work towards. Yes, there are many questions about liquidity that. Boss, this is how it is. Because the market's been on a roll. They could have market Girjagi, Iskato, katamujaga. I've heard all of that, but the data that you pulled out is very interesting. It's been consistently higher for the last five years.

01:11:37
Sajith Pai
So I think the SME IPO is.

01:11:40
Sajith Pai
A potential product, not for everyone, but for a certain kind it is. And we've seen with two of our.

01:11:46
Sajith Pai
Portfolio companies last year, Infolion, with just 36 crores revenue and five crores profit listed.

01:11:56
Sajith Pai
It was a very hot stock in the SME IPO. And before that, 66 crores revenue, ten crores profit listed. Okay. And now they've migrated to the main boars. So I'm very about the SME IPO and the potential of listing on that. It's not for everyone, but for many.

01:12:13
Sajith Pai
Founders, it's a very relevant outcome, exit outcome.

01:12:17
Anurag Pagaria
With that we broadly cover SME ipos and with that broadly funding and how indian venture ecosystem is developing and would love for nachemai to come in and step in and talk about a few sectors. Why do we think that these sectors are doing well?

01:12:31
Nachammai Savithiri
So we've also looked at some of the sectors that have done well in the last year and we've gone into them a little bit deeper. And in previous editions we've looked at ecommerce. We tried to come at it in a completely different angle, which is digital native brands, right, and digital native brands. And here we're going to call them DNBs, just for ease of information flow. Broadly, we're seeing that DNBs have increased their market share in ecommerce sales or online retail sales, right. What was around 25% in 2018 is now 40%. So they've significantly increased their share. We're also seeing online retail increase its share of India's overall retail market and it's gone from about two to 3% in FY 19 to now 6%. Essentially. We also wanted to break down why this has happened. Right.

01:13:36
Nachammai Savithiri
And a big, once again is DPI, UPI payments, as well as when geo came into the picture and everyone's access to the Internet really increased, it helped digital native brands really tap into a consumer base that it was harder for them to access when they were going up against the incumbents. And then this world of commerce and consumer enablers grew and brands really started to take off from then. And so did the funding market. Right? In fact, it was one of the higher funded subsectors of the last year, perhaps behind enterprise tech, which is usually the one that does the best india anyways. And we've seen some hallmark stories come out of this, like the Mama Earth IPO, for example, the very large lenscart round that was raised in the last year.

01:14:32
Nachammai Savithiri
We're seeing brands go global and really make hundreds of crores in global markets and really build their brands abroad as well. And on this front, something that's been very interesting that digital native brands have done is actually change the incumbent playbook, right? Many incumbents are building their own online channels, they're building their own online brands, online digital first brands, and they're also acquiring a lot of these brands to acquire some of that DNA. Some of those consumers, those market insights and so on. And really why they're doing this is also because of the gross margins that are at play in the online world compared to offline, right, where you're competing on price. And that sort of changes a little bit in online. And we've looked at some of these acquisitions, for example, the Bombay shaving company investment by Colgate Palm Olive.

01:15:27
Nachammai Savithiri
And these are not all acquisitions. They're also strategic investments. In some cases. A big one was when the Tata Group this year acquired Carrot Lane. Right. So some of these stories are also coming out. And contrast to this, we're also seeing a lot of the digital native brands, or insurgent brands, as the DST consumer partners termed it, copying or following in the footsteps of their incumbent counterparts. Right. For example, if you look at the strategy that Mama employed right before IPO, they increased their offline sales share. It broadly went from about 19 20% in FY 21% to 44% in FY 23. Right. Another thing that we're seeing here is that a lot of these brands have changed the way that they're marketing the brand itself and going about the brand building process.

01:16:21
Nachammai Savithiri
So we've seen from social media influencers, which was a big part of the consumer build, they've actually gone back to the ways of celebrity ambassadors and endorsements and so on, also from digital ads to print to television ads and so on. And of course, as these brands become more and more omnichannel and offline is an area they want to play in, we also sort of explored this a little bit about how the private equity market looks at some of these players at late stage versus how the public market looks at late stage. Right. And so they want to increase their offline as they go into these public markets. The enablers have followed suit. Right. They want to build an ecosystem that helps these digital natives become omnichannel players.

01:17:13
Nachammai Savithiri
And there we're seeing a whole host of new companies come in, which makes our jobs more fun because we have a new class or category to invest in. As we're talking about some of this online offline sort of interchange that's happening. Quickcommerce is a big part of this story. You're sort of marrying both of these worlds in some way. Right? And India actually has a higher quick commerce penetration compared to, say, China or Europe. With India, it's about 13%. China is 7%. So really, we're doing quite well on quick commerce penetration, and there's three sort of companies that are leading the charge here. I don't even think I need to name them. But Blinket, Instamart and Zepto.

01:18:04
Nachammai Savithiri
And as some of these players really change the narrative again here we're seeing some of the incumbent, both e commerce and retail players, come into building their own quick commerce channels. And from here, a good way to think of it is that quick commerce is like equal playing around because it's new, right, that both the incumbents and the digital natives sort of have an opportunity to really face each other in battle on these channels. And here I'm actually going to bring Sajit in a little bit because you've sort of seen both the consumer brand emergence as well as you're looking at a lot of these players trying to attack Quickcommerce, right, when there's already these three horses in the race. How are you sort of looking at the space?

01:18:55
Sajith Pai
Yeah, quick commerce is particularly interesting because there were a lot of skeptics about quick commerce, and some of it was, I felt, around the product, who needs something in ten minutes, right? And that sector took a fair bit of criticism.

01:19:15
Sajith Pai
But I think what Quickcommerce has been able to do is really address what we call the top up purchase as.

01:19:24
Sajith Pai
Opposed to the stock up purchase, which I think the regular commerce brands like BB, like Big Basket, address scheduled slots. So there have been innovations like order.

01:19:35
Sajith Pai
It and you'll get it next day or something.

01:19:38
Sajith Pai
Then you schedule delivery like milk basket. Now, quick commerce is ten minutes. I think India has been high and not sure you mentioned that India is higher than China. And I see the sleep frogging like UPI. We have so many real time transactions, much more than any other country, including developed country. It's not funny. Similarly, I see quick commerce as a way of leapfrog. That's one thing. Second is I think Blinket's relentless execution specifically, and it's incredible how they've executed, not to mention others haven't, but particularly is essentially testament to the fact that the basic building blocks of Quickcommerce dark store and really setting up the dark.

01:20:27
Sajith Pai
Store carefully merchandising, deciding how much reordering.

01:20:31
Sajith Pai
Many of those are beginning to get now standardized. So it's very easy to do the plug and play. And what we've seen with Zepto, with Instamart and Blinkit specifically, is that they've relentlessly executed on that playbook. And this is one of the reasons why they've been able to grow faster. And I would say that many of them are seeing that in some of the older dark stores and the older neighborhoods that they serve, they've actually become unit positive. They've become cash flow positive. Even so, this is actually what I wanted to address.

01:21:06
Sajith Pai
I feel QuickCommerce will be a bigger.

01:21:09
Sajith Pai
Portion and will move beyond grocery. Like, we met a consumer brand who said that about 20% of their revenues comes from blanket. And this is a consumer brand which is into wearables, has nothing to do with grocery. So it's incredible how they've expanded beyond just grocery to add on all of the parts. Office stationaries is one interesting category. Nachu pointed out blinket. That's printing and very interesting product and use cases that they've expanded the market to. Yeah, back at you, Nachu.

01:21:43
Sajith Pai
Yeah.

01:21:44
Nachammai Savithiri
I think on what you said, curation has been a very big game, that a lot of the Quickcommerce players have played very well, like your festival related categories or your seasonal categories, electronics, office supplies, selling galaxy phones, iPhones. And I think that also speaks to how the way we consume has also changed. Right. Like, we want things and we want them now as well, across categories.

01:22:16
Sajith Pai
So.

01:22:19
Nachammai Savithiri
Tough to segue into the next one, because in stark contrast to digital native brands, another sector that we've looked at in depth this time is deep tech. And within deep tech, specifically space tech, because we're seeing an increase in funding there as well. It's become one of the hotter sectors, in fact. And shout out to pixel. Shout out to pixel.

01:22:46
Sajith Pai
Yeah.

01:22:48
Nachammai Savithiri
And this also has been backed, as we covered in a previous section, by a lot of policy and space sector reforms that have really opened the sector up for a lot of transitions and a lot of growth. And within space sector, of course, we're seeing even the startups in space sort of follow that ISRO model of success, which has really helped. Right. And the ISRO model of success, essentially is do a lot more with a lot less small budgets, but very big dreams. And that has worked very well for ISRO. If we sort of compare some of the budgets between Hallmark space missions that India had versus their exact counterparts in the US. Right.

01:23:34
Nachammai Savithiri
For example, the Mangalyan mission india, which was about a $75 million budget, is actually much less than the Barbie movie's budget, and goes without saying, a lot less than the mass orbiter mission that NASA had, which was roughly around $600 million. Right. It's also less than what an Agbus or Boeing costs, a single agbus or single Boeing. And ISRO's low cost model is also supported by an ecosystem of enablers, which are your SMB suppliers for components for some of the subsystems and so on. Something else that ISRO is really pioneering today in the global stage is this transfer of technology between two private companies. And these are some of the startups that we're seeing as well. And, in fact, one such technology, which is now in the process of being transferred out and tenders are out, is for the SSLV technology. Right.

01:24:47
Nachammai Savithiri
Similar space bus technology was also transferred in this format. And Israel is really pioneering this. One of the only countries in the world to actually do this. So being an enabler to the startups ecosystem has been a big part of what ISRO has been doing.

01:25:01
Sajith Pai
So Fintech, now, Fintech, if you add up all of the constraint parts, right, lending, payments, wealth is actually the chunkiest sector.

01:25:11
Sajith Pai
Okay?

01:25:12
Sajith Pai
And it's actually from my last five years, that's like the inbounds that come to me. Fintech used to be a very small portion of those inbounds. Today, even though I don't cover fintech.

01:25:24
Sajith Pai
At bloom, it's actually, I think, the.

01:25:26
Sajith Pai
Biggest, I think more than a third of the inbounds cold pipeline is fintech talks about the sector. It's an interesting proxy for how big the sector is. So, in fintech, actually, if you look at it, subsector, that has done really well. And, anurag, you see how all of these are interlinked, right? You spoke about personal loans and how the rise of that, not surprisingly, within fintech lending is the single biggest sector.

01:25:51
Sajith Pai
Right?

01:25:52
Sajith Pai
Subsector. See how it all connects. Now, it wasn't so till a few years back. It was payments. Now fintech is, sorry. Now lending is so now within lending. I think we spoke about how fintechs and NBFCs are responsible for much of the loan origination. And that data can actually be seen in the slide where we've actually given you four interesting pie charts, which actually look at how fintech contributes to the new credit customer. New to credit customer origination, about a third, 36% comes from them. Then, for example, of share of personal loans by volume is more than three.

01:26:42
Sajith Pai
Fifths, but the value is only a 10th.

01:26:46
Sajith Pai
I think the point I think we're trying to say is fintech is expanding.

01:26:51
Sajith Pai
Access to retail credit, to personal loans.

01:26:55
Sajith Pai
Much the same way in which I.

01:26:57
Sajith Pai
Would say the digital brokers like Zeroja.

01:27:02
Sajith Pai
Grow, Dhan expanded the access to broking. So these two charts, one is a pie chart set of pie charts, and.

01:27:15
Sajith Pai
One is really a bar in line.

01:27:16
Sajith Pai
Chart kind of view how fintechs have expanded access to customers. Okay? So if I can look at the next few slides, they're really talking about a particular theme that fintech is now too important to be left to fintechs alone. Right. And the basic building blocks, tools, APIs, access are all there for a non fintech to kind of pick and choose and deploy. So what we are seeing is very interesting. The payment aggregator license is not for fintechs alone. Increasingly, if you have a very large customer base, a very large payment base, you want to make sure you control that too. So no wonder that Zomato applied to be a pay license payment aggregator license. Embedded fintech and really embedded lending is another interesting use case where non fintechs have kind of come in.

01:28:17
Sajith Pai
So essentially, if you have a customer base and you sit at a transaction, then one way to kind of speed up more number of transactions is to give credit, really. Right? So very simple. And we've seen that with a portfolio company of house leverage, how effectively they're becoming a quasi fintech company, because they do send students abroad and many of the students, they're sourcing the loan for a credit line and the likes. So the third one we have seen is embedded insurance. And we have a portfolio company, Zopper, who've done incredibly well servicing. Like for example, the likes of a mobility company which says you're flying. Do you want to take insurance that's powered by someone at the back end?

01:29:02
Sajith Pai
So what you're really seeing is very.

01:29:05
Sajith Pai
Interesting ways in which non fintech companies have been able to serve and address fintech use cases, whether it's lending, whether it's insurance. Right now, what's happening on the Fintech side is the fintech guys, especially on the payment side, they lack a business model because MDR india is zero. Right? So they're not making money. So no wonder when the ONTC opportunity came, both Paytm, which had Paytm mall, which didn't do so well, they've rejuvenated the brand. And phone pay with Pincoat now has gone into kind of address that cred, we all know does curation of very interesting brands meant for their audience, et cetera. So this was a very interesting set of trends that we noticed from there. We looked at three sectors. We've kind of given you the double clicks on those.

01:30:02
Sajith Pai
We want to kind of look at the final section, which is really what we call playbooks. And it's one of our favorite sections, because what we get to do here is to really compile interesting case studies by innovative companies. Right? So we've got a few of those. I'll not cover every single one. But I'll kind of highlight and talk about a couple, a little bit about the consumer tech and consumer social, consumer tech kind of products. And we've got this two axis. You can create multiple axes, but we created these two axis to kind of highlight how differing strategies are being used by this wave of consumer social, consumer tech companies. We've also gone deeper into one of them, called friend, a little bit to.

01:30:58
Sajith Pai
Kind of show how they've addressed so fundamentally.

01:31:02
Sajith Pai
Saying that the payment unlocked thanks to.

01:31:04
Sajith Pai
UPI allows you to come up with two broad strategies.

01:31:09
Sajith Pai
One is microtransactions, where you actually allow in app purchases much similar to the gaming world. And the second is to have subscriptions via UPI autopay, which creates very high retention. Nado strategy is bad. All of them work, but they work. For that to work, you have to create your product around it. With Pocket FM, what they've been able to do very cleverly is because it's microtransaction linked and you go to pay up each time. You could use the coins each time. They create these cliffhangers at the end of their stories, right? But if you don't have that like Coco FM, they don't necessarily do that as of now because they use more subscriptions. So it's very interesting how all of these elements dovetail into each other. So that's a little bit about consumer tech.

01:31:59
Sajith Pai
Last few slides really look at what we call merchant media. And that's been a fascinating segment of advertising, the media world, which is basically that much of the profits of, I would say the ecommerce companies, increasingly also your commerce companies as well as vertical commerce companies are being driven by advertising. Much of the profits, not revenues. Revenue wise, they are basically close to about 10% of revenues. This is hidden away within, and it's not easily apparent. This data is not easy to come by because they don't necessarily report it. It gets structured into the thing because a lot of this revenue is inbuilt into the way they strike an arrangement with brands. Marketplace brands strike an arrangement with participating brands. But it's been growing and it's all profitable, 80 90% margins. Right. So that's been like a bright spot.

01:33:00
Sajith Pai
And one of the interesting things was I came from print. I worked in the Times of India group for a long time. I found it particularly interesting that today merchant media, as we call it, is as big as print and much the same business model. Print gives us newspapers virtually free and monetizes through ads and merchant media, all of those groceries, not free of course, you pay for it, but they don't make much money on it. But there's bing to make money on all of this. So that was particularly interesting for me as well. And finally, zetwork, and sort of, we wanted a b two B example. And it's been a very interesting success story. And why Zitwag is particularly fascinating is.

01:33:40
Sajith Pai
Because it's unlocked a playbook of aggregating.

01:33:45
Sajith Pai
Fragmented suppliers and selling it to organized consolidated brands, which we think is a superior strategy india than the other way around.

01:33:53
Sajith Pai
Where Udan, for instance.

01:33:55
Sajith Pai
Well, I mean, they've had challenges with their model because it's a particularly challenging model where you sell into the unorganized.

01:34:01
Sajith Pai
Sector because you need a large army.

01:34:03
Sajith Pai
Of people to kind of address that for the feet on street. And you're buying from very organized consultant brands who already have the solutions to reach out to these people. So India, we feel like the network model is arguably slightly better. And that's what we wanted to highlight here. It's also particularly interesting how zetwork, the others, too, kind of paralyzed manufacturing by creating this cloud factory, which, given India's desire to kind of grow in manufacturing, could be another leapfrog model where we don't necessarily have to set up large factory but aggregate them very smartly. So that really is, I think, the last slide. Right? So I want to kind of close now by kind of asking you guys, and I want to put you on the spot by saying, like, was there any favorite section, favorite moment, or least favorite your time?

01:34:56
Sajith Pai
So, andrag, you go first and then Nachu. Yeah.

01:35:00
Anurag Pagaria
So this is coming as a surprise. I didn't know that this would come up, but I think two or three things that I really liked or came out to me was the vc versus pe parallel that we look at it. It was a different way of looking at it because it made me question a lot of things that how should we operate then? The quick commerce, essentially is something that is surprising. That's like something that I was on the naysayer sides and I've realized that, okay, you can drive efficiency by numbers. And I guess third would be how DPIs have. Actually, DPI is having second order effects. Like, first order was Aadhaar, second order Aadhaar and UPI became the first order account aggregators. ONDC becomes the second order.

01:35:43
Anurag Pagaria
That kind of stack is being created, which I felt was something that we always know about. We talk about, we use it, but we don't realize what are the implications of that. So I think those are three but I can keep rambling.

01:35:53
Sajith Pai
Yeah, go for it, Nacho.

01:35:56
Nachammai Savithiri
Yeah. I think consumption is always a highlight of this report. Right. Because just as folks who work in venture capital, our understanding of India evolves every time we take a look at the consumption section of this report this year, I really enjoyed the IPO section, and contrasting that with that being maybe Indus Valley's way to exits, way out, perhaps. I think that's been a great section as, I mean, I really enjoyed some of the sections that I got to dive deeper into, like, deep tech, digital, native brands. Yeah, I think it's overall just been a really great way for us to deepen our understanding of India. The many Indias.

01:36:46
Sajith Pai
Yeah, many Indias now. Thank you for that. And for me, I think the government plus industrial section was particularly interesting. We also got to talk to a lot of people in ONTC and Semati and kind of learn from them. And it's particularly interesting. Can't wait for the next few years and how they unfold. SME IPO was a particularly interesting one. Made me think a lot. And as always, I think the playbook section, because you're specifically writing about interesting success stories, always is an exciting one. But, yeah, this is an experiment of three of us coming together. We worked on the report over the last few months of putting together all of these data points.

01:37:28
Sajith Pai
So we thought we'd come in and kind of create this Kanye video guide audio guide for those of you who want to kind of listen in a video off mode. But I think if you watch it, you'll also see all the slides, et cetera. The idea was to kind of be a companion guide to the Indus Valley Annual report and kind of go along this. I hope you like this. You guys read the Indus Valley report. If you read it, do tweet it. Spread the love on social media, and we hope to keep coming year after year with iterations of this. Thank you.

01:38:08
Anurag Pagaria
Thank you, guys. Thank you for watching.

Source | The Indus Valley Report 2024 Explainer | Sajith Pai | Anurag Pagaria | Nachammai Savithiri