Investors looking past India’s Covid-19 troubles; red ocean ahead for Netflix?

Equities 7 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  The two best performing equity theme baskets this month are India and commodity sector. Despite a devastating new wave of Covid-19 in India the equity market is looking past that focusing on vaccine rollout, strong economic rebound, and the best demographic tailwind of major Asian economies. This week has also seen two big deals in the media industry which will consolidate the industry even further and put pressure on Netflix.


Despite a devastating new wave of new Covid-19 cases and death hitting rural India hard, the MSCI India Index in USD climbed to a new all-time high on the close yesterday erasing a 7.6% drawdown during the acceleration period of new Covid-19 cases. Our own India equity theme basket tracking the available GDRs (global depository receipts) on the SaxoTrader is up 6% this month making it the best performing theme basket with only the commodity sector basket being the only another basket up for the month. The India equity market performed well during the last commodity supercycle leading up to the 2008 financial crisis because rising commodity prices bolster growth and income in emerging markets and thus creating better financial conditions and positive feedback loop.

Source: Bloomberg

Despite the ongoing Covid-19 wave and selected lockdowns the country economy is expected to grow 11% during the current 2021-2022 fiscal year. One of the drivers are the general rebound in the global economy, but also that India is rolling out vaccines with currently 3% of the population being fully vaccinated. S&P Global has a bit more negative view on India saying the current Covid-19 wave could shave off 2.8%-points of GDP growth and worsen funding conditions. However, the S&P Global report is also forecasting oil demand reaching a new all-time high within the next year.

For now, the equity market is signalling a positive outlook for India, and if Chinese equities could get a sentiment boost then the MSCI Emerging Markets index could join the wider value vs growth trade which is continuing. We recent communicated on our Saxo Market Call podcast, that the value vs growth trade has turned a corner and that we believe value stocks will continue to outperform growth if inflationary expectations remain at current levels or increase.

Source: Bloomberg

How can video streaming be profitable in a red ocean?

Two big news hit the video streaming industry this week. AT&T is planning to spin off its media business and merge it with Discovery creating a new combined media company with expected revenue of $52bn in 2023; analysts expect Netflix to reach $39bn in revenue in 2023. Amazon also announced this week that it is seeking to acquire the movie studio MGM (behind the James Bond franchise) for $9bn as it is ramping up content ownership. The combined deal value in the media industry is approaching $80bn this year making it the largest deal year for media since 2000. Apple is also ramping up its presence in video streaming and Disney+ uptake of paying subscribers has surprised analysts. The trajectory also seems to be that to survive in the future, every video streaming service will have to be vertically integrated creating its own content to be relevant. This likely leads to more consolidation over time before the industry reach an equilibrium of 4-5 major players.

Source: Saxo Group

For Netflix, the question is what the long-term profitability will be in such an industry and to what extend video streaming services can set high prices. The risk is that content converges over time and people only choose two subscriptions. The industry could very well end being like the current telecommunication industry with a few big players offering recurrent promotions to lure subscribers over from a competing service to just lose them again, turning the game into a perpetual gain-and-lose of market share for every promotion done. As we alluded to back in April, Netflix should consider branching into streaming of e-sport or enter gaming more directly as the CEO Hastings has said that gaming poses the biggest threat on leisure time for video streaming.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Due to coronavirus controls, we are not able to meet with clients in our reception at present, unless by appointment in exceptional circumstances. We remain at your service on the phone and email details below. Thank you for your understanding.

Please expect very long waiting times on the line when calling us, we advise you to send us an email instead.

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.