RIL is looking to lead India's 4th Industrial Revolution

New Delhi

Similar to Alibaba and Tencent which created tech-based ecosystems in China, Reliance Industries Limited (RIL) is best positioned to create a similar ecosystem in India, according to BofA Securities.

It said that RIL is best positioned to create tech eco-system in India. "Similar to Alibaba and Tencent which created tech-based ecosystems in China, we find RIL best positioned to create a similar ecosystem in India," it added.

"In 2-3 years, we expect RIL to have a captive mobile base of 500 million users, fixed broadband users of 15 million and SME base of 5-7 million. The company has also acquired stakes in 25 start-ups and is looking to lead India's 4th Industrial Revolution," the report said.

"We also find the company well placed to create Super-App (have 4-5 successful apps) and lead SME and kirana digitization. Also Jio unlike Bharti and Vodafone Idea, doesn't use Chinese vendors," the report said.

The Indian government in the last few months has tweaked some rules impacting China's presence in India telecom, media and technology (TMT) space.

The key changes are amended the FDI policy for countries sharing a border with India by moving from the earlier automatic approval to the government, banned 59 Chinese apps to counter potential threat posed on sovereignty and security, asked e-com platforms to display the country of origin on products. Also, it has begun consultations on whether it needs to ban Chinese vendors for 5G.

"We expect these changes to potentially lead to a freeze/reduction of Chinese investments in India's tech ecosystem. We don't see much impact as there seems to be adequate liquidity chasing these start-ups," the report said.

"We note that China has invested $4 billion in the Indian start-up ecosystem and 13 out of the total 28 Unicorns have been China funded. As of now, we also don't see much impact on companies which are funded by Chinese investments," it added.

These are companies run by Indian founders and largely agnostic to where the capital comes from as long as reputation of investor is good. Over time, Chinese ownership may be diluted with capital coming from other investors. The current bans by the Indian government suggest that focus is more on software/apps that challenge India's sovereignty and where there are concerns that data may be shared outside India.

India is the fastest growing internet market in the world, with 19 billion app downloads in 2019. "Post China apps ban, we are seeing alternate apps gaining traction quickly. India's PE/VC ecosystem is looking to fund some of these Indian apps to capitalize on this opportunity. This aligns well with the govt focus on "Aatmanirbhar Bharat" (Self-reliant India)," it said.

Most traction by Chinese apps was in ‘Bharat' (Indians in tier 2/3 cities). For instance, Tiktok has more users in rural India and apps like UC browser, ShareIt etc work well in low bandwidth areas.

A few Indian apps that have gained traction since the ban are Roposo, Chingari, ShareChat and DailyHunt. "We also see Instagram/YouTube/Snap attracting most of TikTok's influencers or users," the report said.