At the time of writing, the Indian markets have fallen a bit more than other emerging markets in Asia. The S&P BSE Sensex is down 3.8%, which is more than more or less all other Asian emerging markets. The possibility of a Donald Trump win is keeping markets on the edge worldwide. The extra fall in the Indian markets compared to others could be due to many factors, including high valuations, but it’s very likely that the demonetization effect is mainly responsible for the fall.
Effecting factors: rise and fall of Internet marketing in India
That is clearly seen if we dig a little deeper. The Sensex is made up of very large companies which may not be impacted as much by the demonetization process. BSE’s mid-cap and small-cap indices have fallen by over 6% each at the time of writing. And in truth, the largest impact of the government’s move will be in the unorganised sector, which isn’t represented in the markets.
India has overtaken the United States in terms of Internet usage and now stands next only to China after witnessing a phenomenal 40 per cent year-on-year growth. On the other hand, global Internet user base is shrinking.
With 277 million Internet users in 2015, India is the only big country to have registered an increase in the number of Internet users, the Mary Meeker’s 2016 Internet Trends report released on Wednesday night says.
“From 33 per cent in 2014 to 40 per cent in 2015, the country has witnessed nearly 40 per cent year-on-year increase in those taking to the medium,” the report by Mary Meeker of Kleiner Perkins Caufield & Byers, an investment firm, said.
The report says the global Internet user base grew only 9 per cent in 2015, reaching 3 billion or 42 per cent of the world’s population and goes on to add that if India is excluded from this list, the growth would come down to 7 per cent year-on-year.
The report also suggests India has huge potential to continue its phenomenal growth when it comes to internet usage as only a little over 22 per cent of the Indian market is penetrated by the new medium. Experts say this offers scope for huge growth, particularly in the mobile sector.
“The excitement about the Indian Net explosion is due to the booming market in smartphones, which are no more the prerogative of the rich.
“It is a wonderful thing that India has taken over the US in Internet usage and the report says there is huge scope for growth in smartphone market as well. Not just the urban population, even the rural masses are taking to the Internet. The number of people using Internet and smartphones is zooming and that is a good sign,” he said.
The report said the smartphone market is witnessing a slump as it registered at least 10 per cent reduction in growth with 21 percent year-on-year as opposed to 31 percent year-on-year in 2014. Asia Pacific, which includes countries like India, accounted for 52 per cent of total smartphone market, which also saw a drop.
In 2010, Germany’s clone kings, the brothers Samwer—Oliver, Alexander and Marc—were among the first global investors to spot and bet hundreds of millions of dollars on India’s e-commerce potential. They had seen a fair amount of success with Zalando (modelled after Zappos), an online portal for clothes, shoes and accessories in Germany. The trio wanted to re-create Zalando’s success in India, before Alibaba or Amazon entered the market.
Rocket Internet was founded in 2007, but its chief executive, Oliver Samwer, had early success in cloning an Internet business and selling it to the original. In 1999, he copied eBay’s auction site in Germany and sold it a few months later to the firm for $43 million.
That model continued to work for Rocket, which sees itself as a venture capital firm, incubator and consulting company all rolled into one. It created a clone of Groupon in Germany, traded it for stock in the original, and got a $170 million pay-off when the firm went public in 2011.
The true picture is reflected in sectoral indices such as the BSE Realty index, which is down as much as 15% at the time of writing. Some stocks such as DLF Ltd are down nearly 20%. This industry is known to entertain cash transactions of large magnitude. Similarly, stocks of jewellery companies such as Titan Industries Ltd have fallen by around 11% as well, perhaps because a lot of gold purchases are through cash. Besides, stocks of mid- and small-sized finance companies which collect payments in cash have fallen by 8-10%.
Information technology stocks, for now, are down around 3%, which is more or less in line with the broad markets. While these companies will be unaffected by the demonetization process, this reflects a concern about a Trump presidency and a possibility of anti-outsourcing measures.
Indeed, even as recently as April 2016, Alibaba bought a controlling stake for $1 billion in Amazon clone Lazada, which operates in several South-East Asian markets, and is in fact the most successful e-commerce firm in the region. It was founded by Rocket in 2011.
The growth that India has witnessed is not driven just by an existing low penetration, but also due to availability of low-cost smartphones as one could buy a smartphone for just $158, which is among the lowest in the world.
Yet another bright spot on the Net is the booming revenue it has been generating, as global giants like Google and Facebook gobble up almost 76 per cent of online advertisement in the US.