June 2020 - Trade Brains

Posts archive for June, 2020

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ROE vs ROCE – What’s the difference?

Understanding the difference between ROE vs ROCE: As investors, the financial ratios have become an essential part of our decision-making process. This is because ratios measure and give us a more comprehensive picture of companies’ operational efficiency, liquidity, stability, and profitability in comparison to the raw financial data from various statements. Today we look at two profitability ratios namely the ROE and the ROCE with an attempt to better understand them

Return on Equity (ROE)

The Return on Equity ratio enables us to measure a company’s performance by dividing the annual net returns by the value of the shareholders’ equity. The ROE ratio helps us to judge the effectiveness of a company’s management to use the shareholder contribution available in order to generate profits

— ROE Formula

Return on equity (ROE) can be calculated as Net Income of a company divided by its Shareholder Equity.

Net Income: The Net Income considered here is the income remaining after the taxes, interest, and dividend to preference shareholders is paid out.

Shareholder Equity: Assets – Liabilities

ROE brings together two financial statements. It includes the Net income from the income statement and the shareholders’ equity from the Balance Sheet.

— Example to understand ROE

Take two companies A and B in the ice cream business. Both companies have made a profit of 20 lacs for the financial year 2019-20. But how are we to compare the greater of the two in this scenario. After taking a closer look we find that the investments received by the 2 companies are: Company A – 1 crore and Company B – 2 crores.

The ROE computed for company A is 0.2 and for company, B is 0.1.

This puts the returns from the two companies in a whole new perspective. Despite both of the companies reporting the same profits, the management of Company A is more efficient in converting the money invested into profits. Hence, it would be wise to invest in Company A as management is more efficient in generating profits.

When the ROE’s are compared over a period for a company it enables us to judge how the management had evolved in allocating the shareholders’ equity appropriately. An increasing ROE will mean that the management has been improving its efficiency of investing the shareholders’ capital over the years in order to generate higher profits.

On the other hand, a decreasing ROE represents a deficiency in the management’s ability in using the resources and poor decisions made in investing capital over the years.

Return on Capital Employed (ROCE)

The Return on Capital Employed ratio shows us the effectiveness of a company’s allocation of capital. The ROCE ratio is acquired by dividing a company’s operating income by the capital employed.

— ROCE Formula

Return on capital employed can be calculated by dividing EBIT (Operating Income) by its Capital Employed.

Operating Income: The operating income is what we get after the total sales is deducted by the operating expenses like wages, depreciation, and cost of goods sold. In other words, it is the Earnings before interest and tax charged (EBIT).

Capital Employed: Assets – Current Liabilities or Equity + Debt.

— Example to understand ROCE

Let us take a similar example as that taken in the case of ROE. The same companies A and B are in the ice cream business. They have earned a profit of 20 lacs and have an investment as follows: Company A -1 crore and Company B – 2 crores. But in addition to this, the debt taken by the companies is Company A – 3 crores in loans and Company B – 1 crore in loans.

The ROCE computed for Company A is 0.05 and Company B is 0.067.

This provides a better perspective as to how the two companies have employed the capital available with them in order to earn profits. This shows that an investment in company B would be favorable.

When it comes to ROCE, as the ratio considers capital as a whole it is also important to take into account the cost of capital when making judgments. When the Return on Capital (ROCE) is higher than the Cost of that Capital it would make a favorable investment. But a case where the Cost of Capital is higher than the return on that capital (ROCE) is a red flag. Here the existing shareholders would choose to exit and potential investors would prefer to stay away.

ROE vs ROCE: Key Differences

	ROE	ROCE
Income consideration	The income considered here is the Profit after all the Interest and Taxes are charged. In a situation where the government has increased the taxes, the ROE will take into effect its impacts.	The Income taken into consideration here is the earnings before the taxes and interests are charged. Changes in Interest and taxes do not impact the ROCE. The ROCE is only impacted by the changes in operating expenses like wages etc.
Capital	The ROE considers only the shareholder capital employed.	The ROCE considers the total capital employed (inc.debt) by the company.
Ratio Depicts?	Effective management of shareholders' capital.	It shows the efficiency of a business operation.
Stakeholder Significance	The ROE is of more significance to the shareholders as it shows them the returns the company provides for every Rs.1 they invest. It is of greater significance to shareholders as it shows them what is left for them after the debt is serviced.	The ROCE is of significance to both the shareholders and the lenders. This is because the ROCE also shows the effectiveness of the total capital employed in the company.

Using ROE and ROCE – The right way?

A shareholder may also use the ROE and the ROCE ratios in comparison to each other. When the ROCE ratio is greater than the ROE it signifies that a major portion of the profits earned is diverted to service the debt of the company. This would not be taken positively by shareholders. However, it is also important to consider that a company with a high ROCE ratio is able to raise debt at attractive terms. The high ROCE improves the valuations of a company. This is because it shows that the company can easily raise debt for its future operations.

Both the ratios even when used individually cannot be used as a comparative across various industries. The averages ROE for the computer services industry is 17.29%. Whereas the average ROE for a Biotech company is 3.83%. Hence they can only be judged effectively only when they are compared with companies in the same industry.

Also read: #19 Most Important Financial Ratios for Investors

What Warren Buffet has to say about ROE and ROCE?

In the case of judging companies on the basis of ROE and ROCE, Warren Buffet prefers companies that have ROE and ROCE which are close to each other. According to him, a good company should not have a gap of more than 100-200 basis points. A situation where the ROE and ROCE are close implies that both the equity shareholders and the lenders are taken care of. And at the same time not compromised at the cost of the other.

Aron Almeida

Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.

June 29, 2020 Aron Almeida Investment Basics, Valuations 5 comments

Bank Nifty and Other Scrips Lot Size Changed (After July 30, 2020 Expiry) cover

Bank Nifty and Other Shares Lot Size Changed (After July 30, 2020 Expiry)!

The lot size of all the Bank Nifty Contracts expiring on or after 30^th July 2020 has been changed from 20 contracts to 25 contracts. In other words, this means that the lot of Bank Nifty has increased by 25% after July 2020. (Source: NSE Circular)

Let us understand what it means with an example. Assume, if a particular strike Price of Bank Nifty Option was Price at 50 units of Premium. Here, the margin required under the old format was = 50 * 20 = Rs. 1,000. However, under the new contract size, the margin required will be = 50 * 25 = Rs. 1,250

Along with the change in lot size for Bank Nifty, the lot size for 78 other stock F&O contracts has also been revised. The list is as follows:

Symbol	Present lot size	Revised lot size
ACC	400	500
ADANIPOWER	10000	15000
AMARAJABAT	800	1000
AMBUJACEM	2500	3000
APOLLOTYRE	3000	5000
ASHOKLEY	8000	9000
AUROPHARMA	1000	1300
BANDHANBNK	1200	1800
BANKBARODA	5400	8200
BEL	6000	7600
BHARATFORG	1300	1500
BHEL	10400	21000
INFRATEL	2000	2800
BOSCHLTD	40	50
CANBK	2600	5000
CENTURYTEX	600	1400
CIPLA	1150	1300
COALINDIA	2700	3700
CUMMINSIND	900	1200
EICHERMOT	30	35
EQUITAS	4900	7600
EXIDEIND	2900	3600
GAIL	5334	6100
GLENMARK	1400	2300
GODREJCP	800	1000
GRASIM	750	950
HDFCBANK	500	550
HDFCLIFE	900	1100
HEROMOTOCO	200	300
HINDALCO	3500	4300
HINDPETRO	2100	2700
HDFC	250	300
IDFCFIRSTB	12000	19000
IBULHSGFIN	1200	3100
IOC	4000	5700
INDUSINDBK	400	800
NAUKRI	200	250
INDIGO	300	500
ITC	2400	3200
JSWSTEEL	2300	2700
L&TFH	5600	6800
LT	375	550
LICHSGFIN	1300	2000
LUPIN	700	850
M&MFIN	1600	2100
M&M	1000	1400
MARICO	1300	2000
MOTHERSUMI	5000	7000
NATIONALUM	11700	17000
NCC	9000	21000
NMDC	6000	6700
NTPC	4800	5700
ONGC	4100	7700
PAGEIND	25	30
PEL	309	550
PNB	8300	14000
RBLBANK	1500	2600
SRTRANSFIN	600	650
SAIL	15700	19000
SUNPHARMA	1250	1400
SUNTV	1200	1500
TATACHEM	900	2000
TCS	250	300
TATAMOTORS	4300	5700
TATAPOWER	9000	13500
TATASTEEL	1500	1700
FEDERALBNK	7000	8500
RAMCOCEM	800	850
TVSMOTOR	1350	1400
UJJIVAN	1700	2200
UPL	900	1300
VEDL	3500	6200
IDEA	98000	140000
ZEEL	1700	3000

Source: NSE Circular dated March 31, 2020 on Revision in Market Lot of Derivative Contracts on Individual Stocks (zip)

Implications of Increased Lot Size:

The trading activity on these scrips might take a little hit as the cost of Trading will increase
The Pricing of these contracts will be fair as the Market manipulation will reduce
The Value of Premiums on Options will also reduce to compensate for increased Lot Size

What do you think about this update in the lot size of Bank Nifty and Other Scrips After July 30, 2020 Expiry? Share your views in the comment section below.

Hitesh Singhi

Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!

www.linkedin.com/in/hitesh-singhi-46564a11/

June 26, 2020 Hitesh Singhi News, Trading 3 comments

Why Ruchi Soya Share is Increasing? +8,000% Within Six Months!

Since the start of this year, the Ruchi Soya share is rising continuously. And this resulted in most of the share market investors asking the same question: Is there a Secret Sauce due to which Ruchi’s shares increased +8,000% within 6 months? Before diving deeper into this topic, let’s try to understand the scenario of Ruchi Soya’s current share price with the help of a few examples.

All the four graphs depicting share price movements shown below are from various leading stocks trading across different industries in the Indian stock markets. Can you find any anomaly in the share price movement of the below-shown shares?

Further, even if we look into the different companies in the FMCF sector, you can find one stock that is performing particularly irregular compared to others.

It takes only seconds for our eye to catch the outlier in both, the share of Ruchi Soya Industries Ltd. But what is even more surprising is that the smooth and slick 8000% upward price movement of the stock is during the times of corona. Today, we have a closer look at Ruchi Soya Industries Ltd in order to provide an insight into what actually has led to the 8000% price increase.

Ruchi Soya Story till 2019

Ruchi Soya Industries Ltd. has been around for 34 years and is one of the largest manufacturers of edible oil in India. The shares of Ruchi Soya would be a dream stock prior to 2015 for any investor looking for dividends. This is because the company gave out dividends for 15 years consistently from 2001-2015.

Ruchi’s run, however, was cut short post-2015. The company made continuous losses in 2016,2017 and 2018. An extremely unhealthy sign for a company that has accumulated huge debt in its expansion goals. The huge debt of 12,000 crores forced Ruchi to enter the insolvency proceedings in December 2017.

— Post-Insolvency Performance of Ruchi Soya

The insolvency proceedings saw Ruchi being bid for. Here a portion of the amount bid would be used to pay off the debts and the remaining infused into Ruchi. Patanjali eventually won the bidding war against Adani. In December 2019 Patanjali completed the acquisition of Ruchi Soya with an Rs. 4350 crore resolution plan.

You may be wondering why would players take part in an aggressive bid war for a company that now had further deteriorated its sales and market grip by 2019. The answer to this lies in the already set up distribution channels and 3.3. Million tonnes per annum edible oil refining capacity in the 13 refining plants across the country. Five of these plants are port-based. The port-based refining plants are of huge significance as 70% of edible oil consumed in India is imported.

— Ruchi Soya’s Situation Post “Acquisition”

The shares of Ruchi Soya were delisted from November 2019 to 27th January 2020 due to the restructuring process. The restructuring process saw the dilution of the stake held by existing shareholders. Their shares were reduced 100:1. This can be described as a reverse stock split to understand better, where 100 shares held are now reduced to 1, but there was no Corporate Action. This was done in order to make way for Patanjali which now has an ownership of 99%.

Out of Patanjali’s total equity infusion, Rs450 crore was invested in exchange of preferential shares. Interestingly enough shares were also allotted to Ashav Advisory on a preferential basis in April. April was also the month where the shares of Ruchi Soya kept increasing from Rs.180 to Rs.413. The preference shares were allotted to Ashav Advisory at Rs.7 a piece in exchange for an Rs.1.87 crore investment after the company’s board approval.

Current Scenario of Ruchi Soya

The shares of Ruchi Ltd. were relisted on January 27th. The shares opened at Rs.17 but since then have been a nightmare for investors trying to get in on the action. Shares of Ruchi saw a continuous 5% increase every day. This has triggered the circuit breakers every day leading to the trading suspension of the shares on a daily basis.

This carried on for over a 100 day period until the shares touched Rs. 706.95. This was followed by a steady fall to Rs 519.80 which seemed like a market correction in order to touch an equilibrium price. But post-May 27th the 5% per day rally began once again. As of 24th June, the shares of Ruchi Ltd. have touched Rs. 1378.40, an 8008% increase in the value since January.

“ RSIL’s liquidity position also remains adequate as on 9MFY20, considering the absence of fixed debt obligations during FY21, a low average collection period, and the availability of unencumbered liquid 1 assets of over Rs. 380 Cr for meeting its required working capital needs.” –Brickworth rating.

Brickworth Rating agency assigned a stable outlook to the companies long term and short term borrowings this year.

Although the Preferential Shares allotment to Ashav Advisory is still pending due to Covid-19 they are still one of the biggest winners in the COVID-19 environment. Their 13 crore investment in April is now worth Rs.2577 crores

Reasons behind the 8,000% increase

The parade of Ruchi Soya has investors wishing they could somehow be a part of. The following reasons give an insight as to what were the reasons for the 8000% price increase. They would also help an observing investor take a better stand when it comes to the shares of Ruchi Soya.

— Baba Ramdev’s Vision in FMCG Industry

Patanjali first disrupted the FMCG segment when they bought their ayurvedic alternatives to the shelf. The Ayurvedic product giant now aims at completely dominating the FMCG segment in India. This would mean that Patanjali would have to take other giants like HUL head-on.

HUL in the year 2018-19 has had sales crossing over 37000 crores. Ruchi would play a crucial role in achieving this. But Patanjali however does not only aim at beating current FMCG market leaders but is aimed at per annum sales of Rs. 100,000 crores in the next two years. Current market leaders like HUL, Nestle, Procter and Gamble, Britannia, and ITC in the 320,000 crore FMCG market get over 75% of their sales from the conventional distribution channels. Whereas Patanjali, on the other hand, receives 70% of its sales from its branded franchise outlets.

Patanjali has set a target of increasing the current 5000 distributors to 25000 distributors in the next 2 years in order to achieve their sales goals. Analysts have predicted that Patanjali can achieve their 1 lakh crore sales targets by expanding their retail reach alone. In addition, Ruchi, which is part of these goals has been debt-free ever since its acquisition by Patanjali.

— Minuscule Public Shareholding and Lack of Share Supply.

(Source: Latest Shareholding Pattern of Ruchi Soya)

Post the restructuring that took place after Patanjali’s acquisition reduced the shareholding with the public shareholders by 99%. Patanjali currently owns up to 99% of the equity shares with less than 1% remaining with the public shareholders. This means that only 28.59 lakh of the 29.59 crore shares of Patanjali are held by the public. This has created a situation where there is a huge demand for investors but the supply available of shareholders willing to sell is too low.

(The graph above shows the trading volumes of the shares of Ruchi Soya Industries Ltd. This shows the lack of significant trading volumes post-February 2020: Source)

The huge increase in the share price has caused the market cap. of Ruchi to increase from Rs. 4350 crore when Patanjali bought it to 40,447.38 crores as of 24th July. Putting it at par with other giants like PNB, DLF, Cipla, etc.

This, however, raises the question as to how has Patanjali been able to legally hold 99% of the shareholding. This is because as per market regulations any majority stakeholder of a listed company cannot hold more than the permissible limit of 75%. Patanjali, however, is part of an exception as Ruchi Soya has just come out of the bankruptcy courts. Patanjali, however, has announced that they will be selling off 20-25% of their stake within the company over the next two years.

Closing Thoughts

The stocks of Ruchi Soya have been one of the biggest silver linings present in the Indian stock markets in the COVID-19 environment. But the question remains whether Ruchi will continue to be the diamond with demand exceeding the supply in the coming years. Investors after conclusively making a decision to get in will also have to decide the right time to do so.

The periods lie in either the current rally in order to be part of the Ramdev vision of which Ruchi is a part. Or to invest when Patanjali finally lets go of the 20-25% over the next 2 years when the supply will also be increased which in turn will affect the price. At the same time get an insight into role played and performance of Ruchi under Patanjali. Happy Investing!

Aron Almeida

June 25, 2020 Aron Almeida Market, News, Stocks No comments yet

What is Bharat Bond ETF? And Is it a Good Investment Option?

Understanding Bharat Bond ETF as an Investment option in India: On Dec 4, 2019, Finance Minister Nirmala Sitharaman announced the formation of India’s first Bond Exchange-Traded Fund (ETF). This first corporate bond ETF of the country was named ‘Bharat Bond ETF’. This news came nearly two years after the then FM Arun Jaitley announced a plan to launch a bond ETF in his 2018 -19 budget speech.

The FM Nirmala Sitharaman announced that this move was in order to deepen Indian bond markets and at the same time provide additional money for Public sector units. Today, we try and decode what these funds newly introduced in the Indian markets really are.

What are Bond ETFs?

Before we look into what a Bond ETF is it is actually better to look into bonds and ETF’s separately so as to understand them better.

A Bond is a financial instrument used by a company to raise funds from the stock market. Here, the investors are paid interest in exchange for the amount lent to the company. It is safe to say that bonds are a means of raising debt. Here the periodical interest is paid to the investor and the principal amount is repaid on maturity. A bond does not give any ownership right to the investor but there exists a risk of default on the loan.

An Exchange Traded Fund(ETF) is a fund that is actively traded on the stock market. If you have noticed mutual funds, on the other hand, do not trade in the stock market. An investor who wishes to invest in a mutual fund does so based on a previous day’s calculated Net Asset Value(NAV) price. In the case of these mutual funds the demand and supply forces of the stock market do not influence the fund price directly and neither can they be bought and sold through the stock market.

An ETF removes this inconvenience faced by the fund. This is because ETFs are the answer for funds that hold different types of securities to be traded on the stock exchange. This is made possible in ETFs through an arbitrage mechanism to keep the prices on the stock exchange close to the funds’ NAV.

In Bond ETFs, a fund is created that invests only in bonds and at the same time, it is made available to investors through the stock market. Bharat Bond ETF does the same while investing only in public sector bonds.

How does Bharat Bond ETF work?

Bharat Bond ETF offers a portfolio to its investors which only includes public sector bonds that have a ‘AAA’ credit rating. Bharat Bond ETF offers investors two products. A BBETF maturing in 3 years and another maturing in 10 years. The main aims of the ETF are realized due to their ability to be accessed by small retail investors. The Bharat Bond ETF allows a minimum investment amount of Rs.1000.

An investor who would otherwise choose to invest in bonds directly would require investments of significantly higher amounts. The ETFs allow a maximum investment Rs. 200,000. The ETF functions as a growth model. Here the returns that are earned on the investments in the fund are reinvested. This adds to the benefits of compounding.

Why are the benefits of BBETF?

Investing in the newly introduced Bharat Bond ETF offers the following benefits:

— Reduced Investment size

Generally, when an investor would want to invest in the bond market he would be required to make a significantly higher investment. A retail investor would find this amount to be too much to be invested in one company alone.

Tuhin Kanta Pandey, the secretary of Dept. of Investment and Public Asset Mgmt.) highlighted that prior to Bharat Bond ETF retail investors would have no means of accessing bond markets as bond issuances would be done through private placements. The amounts required to be raised here was Rs 10 lakhs.

What BBETF does is it provides investors with the option to invest with a minimum sum of Rs. 1000.

— Benefits of diversification

BBETF offers its investors the benefits of diversification. The investors receive these benefits as the ETF invests in multiple bonds. This protects the investors if a few of the investments fail as the investments that perform well set off the losses.

— Liquidity

As the Bharat Bond ETF trades in the stock market, it offers its investors liquidity as they can be bought and sold accordingly.

— Taxation Benefits

Investments in Bonds that are held for more than 3 years receive an indexation benefit. The Bharat Bond ETF also offers the benefits of indexation. Through indexation, the tax imposed on the investors will be adjusted to the amount of inflation.

— Portfolio Quality

BBETF invests only in funds that are graded as ‘AAA’ securities. ‘AAA’ is the highest rating issued to a bond by a credit rating agency. These ratings are issued based on the issuer’s ability to meet its financial requirements and at the same time have a low risk of default.

— Projected Returns

Following were the projected Yield offered by the two Bharat Bond ETFs

BHARAT Bond ETF April 2023 – 6.7%
BHARAT Bond ETF April 2030 – 7.6%

The post-tax yield after the indexation benefits are considered to stand at 6.3% and 7% for the 3 years and 10-year bonds respectively. These returns are estimates and not guaranteed. They will vary depending on the market conditions and interest rates.

Who manages the BBETF?

(Image: Nitin Jain, CEO- Edelweiss Global Investment Advisors, Radhika Gupta, CEO-Edelweiss Mutual Fund and Hemant Daga, CEO-Global Asset Management at the BHARAT Bond ETF launch)

Edelweiss was selected as the Bharat Bond ETF in its first tranche. Bharat Bond ETF has been dubbed as the world’s cheapest fund. This was because BBETF runs at almost zero cost at a 0.0005% charge per annum on the investments. This means that an investment of Rs 200,000 would have a charge of Rs. 1 per year.

Where does the BBETF invest in?

Each of the 2 BBETF products follows separate independently created indexes. The index is constructed with the help of the NSE. These indexes involve only ‘AAA’ rated stocks of public companies. The indexes are rebalanced on a quarterly basis. The maximum exposure given to a bond in the index is 15%.

Is the BBETF without any risk?

The Bharat Bond ETF is not free from risks. They include the innate risks that come with bonds.

The interest offered by a bond will remain constant until maturity. The price of a particular bond reacts on the basis of interest offered by other bond securities.

Say a year after bond ‘A’ is issued the other newly issued bonds in the marked start offering higher interest rates. This will lead to investors selling bonds ‘A’ as they would look for the higher returns from other bonds. This creates a situation where there is reduced demand for bond ‘A’ hence reducing its price.

How can I invest in BBETF?

Bharat Bond ETF is available to investors through two routes

— New Fund Offering (NFO)

An investor has the option of investing in a BBETF at the New Fund Offering. This is made available to investors twice in a year as BBETF is launched every 6 months.

— Fund of Funds (FOF)

Investors are also given the option of investing in the ETF through a FOF. This will be available to the investors throughout its tenure. The FOF also offers the investors to opt for SIP. Investors are not required to have a DEMAT account to invest via the FOF. The investor simply can do so through https://bharatbond.in/.

It should be noted that choosing the FOF route results in the increased cost charged. The added expenses of the FOF bring the cost of investment to 0.0515%.

Is there a lock-in period?

Bharat Bond ETF’s do not have a lock-in period. But they do however have an Exit load in the case of a FOF. An exit load of 0.10% is charged if an investment is withdrawn with 30 days. There is no exit load charged if the investment is withdrawn past the 30-day mark.

Bharat Bond ETF as an investment option?

Bharat Bond ETF was welcomed in the Indian markets with 1.7 times subscription. After raising Rs. 12,400 crore in its initial investment the ETF is now preparing for its second tranche. Edelweiss announced that the second tranche will take place in July for the two series maturing in 2025 and 2031.

The covid19 environment has disrupted the investment behavior of investors. Investors are now more risk-averse and look for the safety of their investments. This environment has made fixed schemes like the Bharat Bond ETF more attractive to investors. This can be owed to the mix of tax benefits, low cost, returns, liquidity, and security offered by the Bharat Bond ETF.

Aron Almeida

June 25, 2020 Aron Almeida Market, Mutual Funds, News No comments yet

What is a Company Annual Report? And How to read it Efficiently?

An overview of Company Annual Report, it’s meaning, purpose, contents and more: You might not be surprised to know that Warren Buffett, the third most richest person on this planet and one of the most successful investor of our time, reads over 500 pages each day. Most of the time, he’s busy reading the annual reports of different companies that either he’s planning to invest or already invested in. And believe me, reading the annual report of multiple companies is not an easy task as each report easily consists of 200-300 pages or more.

“So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.” – Warren Buffett

In this article, we are going to discuss what is a company annual report, its meaning, purpose, why investors read annual reports and finally how to read annual reports efficiently. Let’s get started!

What is a Company Annual Report?

While some companies publish their Annual Reports to provide necessary information about its company’s financial performance and to comply with the statutory requirements, there are some other companies that use the Annual Reports as a tool to advertise their products and services and that is reasonable too.

The Annual Report is the medium of communication between the company and its shareholders, investors and other readers. It is the best source to know about any company’s operations, services along with its financial performance in the past, present and what are its upcoming plans and goals.

Moreover, the Annual Report is a statutory compliance every company must adhere to. It is a single source of highly useful information that is used differently by a different set of users such as Shareholders, Income Tax Authorities, Investors, Securities and Exchange Board of India (SEBI), etc. Be it either financial statements or corporate governance, or company vision and mission or ratio analysis, everything is compiled and presented in an Annual Report. The financial health is measured from these reports.

What is Purpose of the Annual Reports?

Basically, the purpose of issuing an Annual Report is to communicate to the shareholders, stakeholders, media and other relevant authorities that how the company performed in the financial year, its vision and mission, whether the company is working towards its set targets, what all are its assets, liabilities, what are their main areas of operations and what other activities they are doing. The ultimate purpose is to showcase the financial performance and provide an assurance that the company’s financials have been audited by the professionals and they represent true and fair financial statements in all manner.

Contents of the Annual Report

Whilst the fundamental purpose of publishing the Annual Report is to provide company information, financial performance, significant accounting policies and related notes and future goals to its shareholders, investors and other related users, many companies use Annual Report to advertise their products and services and other achievements along with the basic necessary information as discussed above. We will be highlighting the critical and important contents of every Annual Report that is required by every company by some of the other regulatory body.

(Example: Asian Paints Annual Report for Year 2018/19 – Source)

— Director’s Report

The Director’s Report is a letter from the Board of Directors of the company to its shareholders and other investors and readers about a brief of the company’s main activity, financial performance, management’s responsibility in preparing the books of accounts and financial statements and appointment or re-appointment of auditors in the annual general meeting of the company along with other particulars of major accounting policies followed in the recently completed financial year.

The report will also communicate details if the company is planning anything major that will impact significantly on shareholders’, investors’, its payables’ or receivables’ decisions such as any merger or acquisition, or any other occurrence of extraordinary event. The Directors will also communicate the reasons if the company had losses during the financial year and their plan to recover or make it profitable.

— Auditor’s Report

The Auditor’s Report is a letter of auditor’s opinion about the truthfulness and fairness of the financial statements and that the financial statements comply with generally accepted accounting principles and any other recognized accounting standards. Auditors address the shareholders of the company and express their opinion about the financial statements to them.

Auditors are the professional Chartered Accountants recognized and authorized by the professional bodies and government authorities to issue and certify such reports. The auditor’s report contains auditor’s opinion on the financial statement, the basis of the opinion, auditor’s responsibility to carry out the audit and to issue such report, management’s responsibility and any other reporting responsibility such as compliance to legal and regulatory requirements.

For the readers of the financial statement, an auditor’s report and his opinion provide very crucial details. The opinion can be unqualified opinion, qualified opinion or the auditors may give a disclaimer of opinion.

The unqualified opinion means that in an auditor’s opinion, the financial statements give a true and fair view of the financial statements. Whereas, the qualified opinion means the auditors believe that the company has deviated from its mandatory compliance to represent true and fair financial statements or certain accounting policies and principles are not complied by the company. The disclaimer of opinion represents that the auditor is not able to give any opinion on the financial statements for certain reasons such as, the management might not allow them to qualify the report or they were refrained to carry out the audit as per their satisfaction or any other such matter.

— Statement of Financial Position or Balance Sheet

The statement of financial position is a balance sheet of a company as on the last date of the financial year. The balance sheet contains assets, liabilities and shareholders’ funds or equity. This statement will indicate what are the Non-current assets, current asset a company holds, how much non-current or current liabilities a company needs to settle and how much is shareholders fund including accumulated profits and reserves.

— Statement of Income and Comprehensive Income

This is the statement where readers of the Annual Report will find financial performance during the year for a company. The statement contains Income, Expenses and other extraordinary income or expense made by the company during the financial year. The income and expenditure from operations and major services and other general, sales and distribution expenses are covered under the first part of the income statement that will give the net income or net profit during the year. The second part will include details of unrealized income, foreign currency transaction loss or gain, dividend, transfer to reserves under comprehensive income statement.

— Statement of Cash Flow

The Income statement will include only the income and expenses of that year for a company which may also include such income or expenses that are accrued but actually not paid. For example, the receipt of payment for the revenue booked in the last week of the financial year might be pending. Hence, it may happen that actual cash has not been received or paid but it is booked as it relates to that year and to comply with the accounting principles. However, from the statement of cash flow, the readers can understand that how much cash inflow or outflow has been made by a company from operational, financial and investing activities.

Also read: How to read financial statements of a company?

— Notes Accompanying to Financial Statements and Significant Accounting Policies

This portion of an Annual Report will contain company basic information about the activities, its date of incorporation, its license number and the shareholding pattern. The significant accounting policies will contain the company’s policies for accounting income, expense, recognizing asset or liability or any other such policy as approved and issued by the relevant accounting bodies for companies to mandatorily follow. The notes will also include off-balance-sheet items such as contingencies from which the information regarding the company’s liability or gain can be guessed based on its possibility to occur.

Types of Readers of an Annual Report and their Purposes

The different kind of audience of an Annual Report would fetch different information and the focus of information will also be changing depending on who is reading the financial statement.

Shareholders: Shareholders of the company would want to know from the company’s Annual Report whether the money they invested is being utilized properly or not, whether the company is adequately utilizing its resources and utilizing them for the main activities of the company keeping in mind the vision and mission of the company and if it makes enough profits to pay dividends.

Investors: The investors would want to know whether the company is making money if they invest into their company’s stocks, what are company’s future plans that will raise its market value so that if they invest now, they can get more return, is the company paying the dividend to its shareholders.

Employees: Employees would read the Annual Report to understand how much company as a whole has performed during the financial year and if the company is making necessary profits to pay their salaries and other benefits in future. Many times, employees are working at some remote location where the corporate offices are not located, when they read the Annual Report, they can understand the ‘big picture’.

Customers: Customers would focus on the quality and new additions to the products and services. The Annual Report will provide and highlight these details and ensure the sustainability of the business.

Apart from the above, there are other readers too such as suppliers who would focus on company’s business progress and how quickly they can repay their dues and receivables would focus on whether to continue buying from them as a trusted supplier or not.

Quick Note: If you want to download the annual report of any specific publicly listed company, you can check the stock page of our Stock analysis and research portal here.

Other Key Information Provided in Annual Reports

The off-balance-sheet items in the notes to accounts will provide how much liability or any unrealized income company has which has yet not been effected into the financial statements since its possibility to occur or not to occur is remote.
The notes will also contain whether corporate governance is maintained or not and if there are deviations to it then what caused such deviations.
Audit Report’s other regulatory and legal reporting section shall provide the company’s adherence to such other statutory compliances.
The notes will also reveal if the company has changed any particular accounting policy and if the change is made then to what extent it has impacted the financials.
The notes will also communicate whether the company is undergoing any legal proceedings or not that any potential investor would want to know.

The risk analysis is also given in the notes from where various associated risks such as credit risk, interest risk, foreign currency risks are detailed. The company will also mention what steps are taken to mitigate such risks.

June 24, 2020 Team Trade Brains Investment Basics, Valuations 1 comment

CORONIL – 100% Cure for COVID-19 found by Baba Ramdeo’s Patanjali?

Patanjali launches Ayurvedic medicine ‘Coronil’ for COVID-19 treatment: As the whole world still fights the uphill battle against corona, each passing week has bought news that elevates from bad to worse. On June 22nd WHO recorded 150,000 worldwide cases of coronavirus in a single day. This brings the total count to over 9 million. Chief Scientist at WHO, Dr. Soumya Swaminathan, said that 2 million doses of vaccine would be ready by the end of next year whereas other frontrunners expect a cure in the final quarter of 2020. Unfortunately enough the news of extended periods of wait for the virus only adds grief caused by 474,000 deaths, increasing every day.

But July 23rd finally gave way to a ray of hope through the launch of a COVID-19 medicine by the Ayurvedic giant Patanjali.

The Launch of Coronil

The launch introduced ‘Coronil’ the ayurvedic drug that not only promises control and cure from the COVID-19 virus but also helps in its primary and secondary prevention. The launch was presided by Acharya Balakrishna (CEO of Patanjali), Baba Ramdev (Founder, Patanjali) along with the scientists and medical professionals who were part of the research and discovery of the cure. Acharya and Baba Ramdev have claimed a 100% success rate through the drug Coronil.

Acharya backed this by claiming that the drug had undergone human trials on 100 patients. The clinical trials found that 69% of the patients tested recovered from COVID-19 within 3 days while the remaining were cured within a week. Acharya also assured that all scientific rules were followed in the creation of the drug. The drug was made through the joint research by Patanjali Institute and National Institute of medical science in Jaipur. The kit offered by Patanjali currently costs Rs. 545.

The Drug Coronil is made out of important elements like Ashwagandha, Giloy, and Tulsi. The news that Ayurvedic medicine has beaten all the scientific advances may seem shocking to us but Patanjali has not been alone in the search of an alternative cure. In Maharashtra, the worst affected state, a task force was set up to look into traditional medicines for measures against the virus. China, where the virus initially originated from too had used traditional medicines in search of a cure. The Chinese government has heavily promoted these traditional medicines as treatment for COVID-19. These medicines were even sent to Iran and Italy as foreign aid.

Other Covid-19 Drugs

There are currently over 100 vaccines in progress around the world. Apart from Patanjali 3 other Indian pharma companies too have released drugs to cure the virus. Glenmark released an oral antiviral drug Fanipiranir under the name Fabifluwhich is priced at Rs.103 per pill. The drug is used to treat mild to moderate COVID-19 infections. Hetero has released Remdesivir under the brand name Conifor and Ciple launched Remdesivir under the brand name Cipremi.

In Closing

The Ministry of AYUSH so far has refused to comment on Coronil. In India, ICMR (Indian Council of Medical Research) is the apex body and nodal agency for COVID-19 treatment. It too has declined to be associated with the new medicine. Top sources in Patanjali claim that Coronil has received a license as a medicine.

But despite this government notifications bar companies from advertising a cure without government approval. Although the state of the pandemic has driven us to a state of desperation, it is also important that the rescue measures we resort to are genuine. This can only be verified after a certified government-backed agency officially backs Coronils usage.

Aron Almeida

June 23, 2020 Aron Almeida News 2 comments

What is Insider Trading? And What makes it illegal?

Understanding Insider Trading and its implications: Since the time the first stock exchange was established in the sixteenth century, a lot many people have tried different unethical ways to make money from it. Although a few are able to fool the market and make sustainable profits, however, most gets caught from the governing bodies. One such fraud on which most of the regulatory bodies keep an eagle eye is “Insider’s Trading”. In this article, we are going to discuss what exactly is Insider trading, why it is illegal and how you can protect yourself from it. Let’s get started!

What is Insider Trading?

The stock market is able to work in an efficient way when all the investors have the same information, this creates a level playing field. Here, the investors are rewarded for their analysis and expertise.

Insider Trading throws this level playing field out the window. In insider trading people who have access to sensitive private information take advantage of investors who are oblivious to these facts. Insider trading refers to trades made based on material price sensitive non-public information about the company.

Insider Trading in India is governed by the SEBI Act of 1992. Any individual who is proved guilty of insider trading can be imprisoned for a maximum of 5 years and fined between Rs. 5 lakh to Rs. 25 crores or 3 times of the profit made whichever is higher. The rules governing such trades and the degree of enforcement vary significantly from country to country.

What forms a part of insider trading?

The timing when the person in question makes the trade is also important. If the information in question is still non-public when the buy/sell of shares takes place it constitutes insider trading. It is also important to note that if the person accused of insider trading is linked to someone within the company or someone who is associated with the company, then both can be prosecuted. Acting on the information does not only constitute trading the share of the company in the stock market. Even further passing on the information is illegal. In India, close relatives of company officials are also considered as insiders.

Case 1: Say an employee of a company shares some price-sensitive information with his father. His father then goes onto share this information with his friend who uses it to profit from the stock market. Here all three involved can be prosecuted for insider trading.

Case 2: A person overhears material information at the cafeteria from employees of a company. He then goes onto profit based on this information. As long as he has no connection to the employees of the company he is not guilty of insider trading.

Case 3: An employee of a company enters into a disinvestment plan with his broker. According to this plan, he would sell his stake in the company over regular intervals over a period of one year. After 9 months the employee is made available with some material non-public information. According to this material information, the employee would make a loss if the shares are held by him. In this case, as long as the employee can prove his trades were part of a preexisting plan he can be acquitted of the insider trading charges.

Unfortunately enough at times, those accused of insider trading make use of ‘Case 2’ and ‘Case 3’ in their defense. Individuals who have brokers trading on behalf of them also claim that they had no idea of the trades taking place as they were acted on by the broker.

Who can be implicated for Insider Trading?

To understand insider trading better it is necessary to understand who can be implicated in insider trading. Generally, insider trading revolves around members of an organization who possess material information. But it isn’t always necessary for you to be a member of the organization to be a part of insider trading. Important decisions that may impact the share price involves parties that may not work within an organization. Say for example A company planning to undergo a merger with another company will involve many third parties like bankers, lawyers, and other professionals who offer their services to the company. If they act on the information they receive they can be prosecuted for insider trading.

The implementation of various decisions taken by the company requires prior approval from the government. Hence government officials too can be incriminated for acting on the confidential decisions they receive while executing their duties.

Insider trading, however, is not limited to white-collar relations. Members of an organization or employees may share the information with friends or family or acquaintances. If this information that is yet to be made public is acted on they will also be prosecuted under insider trading.

Infamous insider trading cases

— Dilip Pendse

Dilip Pendse served as the Managing director of Nishkalpa, a wholly-owned subsidiary of TATA Finance Ltd. (TFL). As of March 31st, 2001 Nishkalpa made a loss of 79.37 crores. This information was to be made public only a month later on April 30th. This information was price sensitive as it would lead to a fall in prices if leaked. Dilip Pendse was in access to this information due to the role he played within the company.

During this period Dilip leaked this price-sensitive information to his wife. In between this period, 90,000 shares which were held by his wife and a company jointly run by his wife and her father in law in Nishkalpa were sold in order to avoid losses. Dilip Pendse, his wife, and the company jointly owned by his wife and her father in law were found guilty of insider trading.

A penalty of Rs 500,000 was imposed on each of them and Dilip Pendse was banned from capital markets for three years.

— Martha Stewart

(Snoop Dogg and Martha Stewart on the sets of their TV Show. In 2003 Martha Stewart was charged for insider trading)

Martha Stewart is a prominent TV personality who has also won an Emmy for her work on the ‘Martha and Snoops Dinner Party’. In the year 2001 Martha Stewart owned up to 4000 shares of the BioPharma Company ‘ImClone Systems’. Her broker received a tipoff that the CEO of ImClone Systems sold all his holdings held in ImClone. The CEO did this as he received information that the FDA was about to reject one of ImClone’s cancer treatment drugs. Shortly after this news became public the shares of ImClone dropped 16% in one day.

Martha Stewart was able to save herself from losses amounting to $45,676. In 2004, Martha Stewart was convicted as the trade was made on the information that the CEO sold his stake, which was non-public info. Martha Stewart and her broker were announced guilty. She received 5 months in a federal correction facility and fined $30,000. The CEO of ImClone Systems was also convicted and sentenced for 7 years with a fine of $ 4.3 million.

— Rajesh Jhunjhunwala

Rakesh Jhunjhunwala was probed by the SEBI in January 2020 on account of alleged insider trading. These allegations were based on the trades made by him and his family in the IT education firm Aptech. Aptech is the only firm in Jhunjhunwala’s portfolio in which he owns managerial control. SEBI also questioned Jhunjhunwalas wife, brother, and mother in law. This, however, is not the first time that Rakesh Jhunjhunwala has been embroiled in insider trading controversy.

In 2018 too he was questioned over suspicion of insider trading in the shares of the Geometric. Rakesh Jhunjhunwala settled the case through a Consent order mechanism. In a consent order, SEBI and the accused negotiate a settlement in order to avoid a long drawn litigation process. Here an alleged violation can be settled by the accused by paying SEBI a fee without the admission or denial of guilt.

Also read: Pump and Dump- The Infamous and Endless Stock Market Scam!

Other Controversial Insider trading cases

— Foster Winans

Foster Winans was a columnist at the Wall Street Journal. Due to the reach of WSJ, the stocks that he wrote about would react accordingly. Winans then began leaking the contents of his columns to a group of stockbrokers who would position themselves accordingly to make a profit.

Winans in an interview with CCR, “One day, I met a stockbroker, Peter Brant, and was going to write an article about him. After a few months, that kind of fell beside the wayside. He one day said to me — that column you write is very powerful, it moves stocks, you are doing a great job, how much do they pay you, isn’t it terrible, only $25,000 a year, with all of the skill and talent that you have, if you told me what you were going to write about the day before it is published, we’d make a lot of money.”

Winans took the deal offered by Peter Brant and was eventually caught by the SEC after being involved in 24 influenced trades over 3-4 months. But in this case, the information was the personal opinion of R. Foster Winans. His defense argued in the courts that although what Winans did was wrong he still could not be considered an insider. This was because the case did not involve any insiders(people within a company or their relatives and connections).

He was still convicted as the information shared with the stockbrokers was not public until his column was published. Winans received a sentence of 18 months in prison which was later reduced.

— Barry Switzer

Barry Switzer was the football coach for Oklahoma in 1981. While at a track meet he overheard some executives talk about some sensitive insider information. This led him to buy shares of Pheonix Resources. By doing this Barry Switzer went on to make a profit of $98,000. Barry Switzer was later acquitted due to a lack of evidence. In this case, Barry Switzer would have been guilty if any of his players or someone he knew was related to the executives present at the track meet.

How to avoid being implicated in Insider trading?

After looking at the above it may be clear that dealing with data that is non-public could be just one step away from being accused of insider trading and hence become a victim of an unnecessarily long litigation proceedings. The following steps help in avoiding this:

-If you are an employee or are dealing with an organization in a role that involves dealing with sensitive data it is important that you are aware of who you share your data with. If you aren’t directly connected with the organization identify your sources ( whether they are in any way connected to insiders). Generally, organization employees and third-party players are required to sign a non-disclosure agreement.

-Even if you receive data that is important to your trade, verify that the data you have received is public. Do this by checking reliable public sources. If you find yourself in a dilemma it is best to report the information received to the authorities.

-Do not go looking for non-public information about the company from its personnel or those who deal with the company. This will further put you at risk of being investigated if the information is leaked out. You may be accused of insider trading even if you only divulge the info you have received, even if it was overheard.

Also read: Harshad Mehta Scam- How one man deceived entire Dalal Street?

Arguments for Insider Trading being legal

Foster Winans the WSJ journalist argued for insider trading asserting “ The only reason to invest in the market is that you think you know something others don’t.” Arguments have been drawn on who is actually harmed because of insider trading. As your transactions take place with parties that have already decided on the position and want to sell or buy. The Atlantic even described insider trading as “ arguably the closest thing that modern finance has to a victimless crime.”

There have also been arguments made calling to legalize insider trading that involves dealing with negative information. It is because this is the information companies generally keep from their shareholders. Milton Friedman who received the Nobel Memorial Price in Economic Sciences in 1976 said, “ You want more Insider Trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that.”

Aron Almeida

June 23, 2020 Aron Almeida Market, Trading No comments yet

Reliance Jio Stake Sales - Ambani's Quest to become DEBT-FREE cover

Reliance Jio Stake Deals: Mukesh Ambani’s DEBT-FREE Quest Story!

A study on Mukesh Ambani’s Reliance Jio Stake Deals and Right Issue: While everyone was forced to work from home during the recent pandemic, digital ecosystem transformation proves to be the need of the hour! This also caused malls and bigger retailer shops to close their premises. On the contrary, small grocery stores, vegetable and fruit vendors in India started getting more business. Simultaneously, the recent launch of JioMart, an online grocery service platform in India targets to disrupt the markets of its rivals – Amazon’s local unit and Walmart Inc’s Flipkart.

This explains the deluge of money invested into Reliance Jio Platforms in recent times. JioMart has already started delivering grocery across 200 cities all over India including Delhi, Chennai, Mumbai, Ahmedabad, Bengaluru, and Pune. Reliance locked 11 mega deals just in 2 months from Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, Abu Dhabi Investment Authority (ADIA), TPG Capital, L Catterton and Saudi Arabia’s Public Investment Fund (PIF) which comes to 24.70% stake total.

These deals have made Reliance, a net “debt-free” entity as he promised his shareholders last year and now this billionaire is in the top ten list of Forbes Magazine. Moreover, the Reliance Industries stocks is currently trading at its all-time high price and the analysts are expecting even more upsurge in the share price.

Today, in this post, we are going to discuss how these investments were planned smartly by India’s richest man, Mr. Mukesh Ambani, and what does he aim at. We’ll look into the different Reliance Jio stake deals and the ‘right issues’ from different investors all around the world.

Making RIL Net Debt-Free: Reliance Jio Stake Deals

While looking into the Reliance Jio Stake Deals, it may appear that Dollars were heavily flooding into Jio from different investors. The latest investment in Jio has now made the total fund-raising amount by Reliance to Rs. 1,15,694.33 crore with a total stake of 24.70%. If we add money raised through Rights-Issue, the total comes to Rs. 1,68,818.63 crore which is indeed a lockdown achievement by the richest man of India.

Name of Company	Amount invested in Rs.Ê In Crore	% of Stake Acquired
Facebook	43,574.00	9.99
Silver Lake	10,202.55	2.08
Vista Equity Partners	11,367.00	2.32
The General Atlantic	6,598.38	1.34
KKR	11,367.00	2.32
Mubadala Investment & Co.	9,093.60	1.85
Abu Dhabi Investment Authority (ADIA)	5,683.50	1.16
TPG Capital	4,546.80	0.93
L Catterrton	1,894.50	0.39
Public Investment Fud (PIF), Saudi Arabia	11,367.00	2.32
Total	1,15,694.33	24.7

— The Facebook – Jio Deal

Facebook bought a 9.99% stake that values at Rs. 43,574 crores in Jio Platforms – a wholly-owned subsidiary of Reliance Industries Limited. According to Facebook’s CEO Mark Zuckerberg, the deal aims to enable the platform to expand to products and technology in India that he plans to do all over the world. He also added that one of the goals is to provide a better shopping and commerce experience in India through WhatsApp’s communication and payments medium.

Further, his focus is to provide small businesses a lasting presence on Facebook, WhatsApp and Instagram which is also supported by billionaire Mukesh Ambani’s statement that suggests that he targets to use WhatsApp for delivery of the goods from local grocery stores to consumers.

According to this transaction, Jio Platform’s valuation comes to Rs. 4.62 lakh crore. Although Facebook is going to get its seat on Jio Platform’s board, WhatsApp and Jio are going to continue operating as separate entities.

— The Silver Lake – Jio Deal

An American Private Equity firm, one of the largest technology investors in the world, Silver Lake invested Rs. 5,655.75 crores which is almost 1.15% stake in Reliance Industries that comprises Jio Infocomm, its music and video streaming apps too. The deal causes Jio’s valuation to stand at Rs. 4.9 lakh crores approximately leading to extirpate Rs. 1.62 lakh crores of its net debt in the coming months.

Recently, on Friday, 5th June 2020 Reliance announced an additional Rs. 4,546.8 crore investment by Silver Lake for 0.93% additional stake in RIL’s digital unit. This makes the total investment by Silver Lake for the total amount of Rs. 10,202.55 crore.

The valuation comes to Rs. 4.91 lakh crore of Jio Platform and the enterprise value stands at Rs. 5.16 lakh crore for Silver Lake’s investment that makes it a 2.08% total equity stake in Jio Platforms that is purely on a diluted basis. Mukesh Ambani calls ‘it is a strong endorsement of intrinsic resilience of the Indian economy that will surely grow bigger with comprehensive digital enablement.’

— The Vista Equity Partners – Jio Deal

One more American Private Equity and Venture Capital firm funded Jio Platforms 2.32% stake (approx. Rs. 11,367 crores) that sights to transform the Indian digital ecosystem and to deliver expanding boom in connectivity, giving the customers and small businesses to lead to the fastest growing digital economy.

This investment values the Jio Platform at the same amount as Silver Lake’s investment valued. Mukesh Ambani is very hopeful with regards to this deal being the largest investment of all the recent deals after RIL and Facebook, he believes this Private Equity firm will enable them to bring the transformative power of technology to build a digitally sound society in India.

— The General Atlantic – Jio Deal

One of the most leading global growth equity firm, General Atlantic also invested 1.34% stake which is worth Rs. 6,598.38 crores in Jio Platforms. This deal also aimed to leverage Global Atlantic’s global expertise and strategic insights of technology for the benefit of Jio.

Once again, the Jio Platform’s valuation is the same for this investment as it was for Silver Lake’s investment and the Vista Equity Partner’s investment. Reliance Jio Infocomm operates majorly in telecom business with over 388 million users. It also covers digital properties such as Jio Saavn, Haaptik and Jio Cinema.

— RIL Rights Issue

The company also proposed to raise additional capital of Rs. 53,125 crore through rights issue in which the existing stakeholders will be given an opportunity to subscribe to these shares in proportion to their existing holdings. Reliance’s rights offering has been counted as the world’s largest being a non-financial company in the past 10 years and raised about $7 billion targeting to reduce the net debt to zero. The partly paid up rights shares are going to be listed on 15th June, 2020 with an estimated premium of 5-7%.

— The KKR – Jio Deal

An American global investment firm, KKR & Co. Inc., announced recently to buy 2.32% stake in Jio Platforms. This deal once again focuses on digital transformation of ecosystem in India and worldwide. This deal too values Jio Platforms the same as previous investors. The Co-Founder of KKR praises Jio Platform’s ability and potential to transform country’s digital ecosystem.

— The Mubadala – Jio Deal

Abu Dhabi based sovereign firm, Mubadala Investment Co., announced on 5th June 2020 to invest 1.85% stake in Jio Platforms for Rs. 9,093.60 crore. This deal once again focuses on the digital transformation of ecosystem in India and worldwide.

The valuation of Jio Platforms for this investment too is the same – equity value of Rs. 4.91 lakh crore and enterprise value of 5.16 lakh crore. First Oil then Telecom and now heading to capture the e-Commerce market, Mr. Mukesh Ambani indeed proves to be a person with great wisdom.

— The ADIA – Jio Deal

Abu Dhabi Investment Authority (ADIA), has given a cheque for Jio Platforms last week on 7th June 2020 to invest 1.16% stake for Rs. 5,683.50 crore. This deal aims to generate growth opportunities in India that will enable India to take digital leadership.

The valuation of Jio Platforms for this investment too is the same – equity value of Rs. 4.91 lakh crore and enterprise value of 5.16 lakh crore. With this investment, Mukesh Ambani had managed to raise Rs. 97,885.65 crore from seven firms with total stake stands at 21.06% that too albeit COVID-19 situations and lockdown phases. This certainly leads Reliance to reach to a zero net debt position.

— The TPG – Jio Deal

America’s Global Private Equity Firm, TPG Capital has announced to invest in Jio Platforms on Saturday 13th June 2020 0.93% stake for Rs. 4,546.80 crore. The investor aims to become a part of a group that captures one of the largest portions of internet market in the world.

The valuation of Jio Platforms for this investment too is the same. The investments now total Rs. 1,02,432.45 crore that reaches makes it 21.99% stake.

— The L Catterton – Jio Deal

Another Private Equity firm, L Catterton also announced to acquire in Jio Platforms on Saturday 13th June 2020 0.39% stake for Rs. 1,894.50 crore. L Catterton joins hands with Jio Platforms to support the long term goal of making India a leading digital society.

The valuation of Jio Platforms for this investment too is the same. This latest investment has now made the total fund-raising amount by Reliance to Rs. 1,04,326.65 crore with the total stake of 22.38%.

— The KSA’s Public Investment Fund – Jio Deal

Another sovereign wealth fund, Public Investment Fund (PIF) of Saudi Arabia, announced to acquire in Jio Platforms on Thursday 18th June 2020, 2.32% stake for Rs. 11,367 crore.

This tenth investor and its deal has made the RIL the net debt-free as Mr. Mukesh Ambani promised his shareholders last year in August. He truly aims to soar into the sky as an energy-led empire has started its move towards making the company a technology-led global player. The valuation of Jio Platforms for this investment too is the same.

In The Pursuit of Building Large Digital Ecosystem

Reliance Industries, India’s highest valued company, acquired more than nine startups in the past few years. These startups are dealing in different sectors, for example, EasyGov is a citizen service firm while C-square Info Solutions is into pharma software solutions. Similarly, Grab a Grub Services deals with logistics whereas Reverie Language Technologies is an end-to-end voice technology startup.

Clearly, these startups play a crucial role in the company’s quest to become the leading tech player and JioGenNext is the medium that connects startups and Jio Ecosystem. One more step towards the digital transformation that was taken when Reliance Jio Infocomm Limited, a subsidiary of RIL and Microsoft Corporation joined hands in 2019. The purpose of this deal was to increase the adoption of leading technologies such as Artificial Intelligence, Data Analytics, Blockchain, Internet of Things, Cognitive Services and Edge Computing.

Later in 2020, when more than $23 billion was raised by some of those biggest private equity firms the above goals are clearly justified. Mukesh Ambani also suggested in one of his talks that his company’s long-term aim is to make Indian businesses globally competitive and accelerate the digital ecosystem of India by way of adopting new technologies and innovative ideas among small and medium businesses.

AtmaNirbhar Bharat– A Bonanza for Reliance Industries

In our Prime Minister’s latest speech to the general public, the PM Modi announced the concept of ‘Atma Nirbhar Bharat Abhiyan’ that emphasizes on the development of local businesses in India and globally by creating India more self-dependent post COVID scenario. With this mission, the honorable PM suggested encouraging more and more local businesses and service providers by way of utilizing their services even more.

Also read: AtmaNirbhar Bharat – How can we turn Crisis into An Opportunity?

Mr. Mukesh Ambani too sets his goal to make small Indian businesses more self-reliant and competitive by way of introducing the latest technologies and tying up with startups and attracting more foreign investments. This Abhiyan and his goal are quite similar where the underlying idea is to create a platform to foster the expansion of small and medium local businesses.

It is gratuitous to mention that despite several uncertainties had been featured throughout COVID situations, the mastermind has taken this opportunity to not solely grow his business but also allow the native suppliers and service providers to perform at the world level to become more competitive. Mark Zuckerberg conjointly mentioned once he proclaimed Facebook-Jio deal that ‘company’s robust financial position proved to be an “important asset” that permits it to aim to a long-term growth priority in India even within the thick of a troubled world economy’.

Mukesh Ambani calls it a vote of confidence not only in his company but also in the intrinsic strength of the Indian economy both by domestic and foreign investors.

June 22, 2020 Team Trade Brains News No comments yet

Nifty Indexes Explained – Nifty50, Nifty100, Nifty Smallcap & More!

A Guide on NSE Indexes that you should know: An Index is basically the stock exchange creating a portfolio of the top securities held by it. Indexes have always played an important role for both investors and companies by offering a reliable benchmark. They have also been used as an investment strategy where Investment Managers just set up their fund portfolios to simply track the index in an attempt to gain similar market returns. Indexes play an important role as they also stand in representation of a country’s market and economy.

Today, we discuss the various indexes offered by the National Stock Exchange (NSE) and the role they play for different stakeholders with an attempt to help you get a better insight into indexes. Here, we’ll look into popular NSE indexes and sectorial indexes like Nifty50, Nifty100, Nifty largecap, Nifty midcap, Nifty smallcap etc. Let’s get started.

Indexes offered by the NSE

— Broad Market Indexes

Broad Market Indexes are used to give an indicator of the movement of the economy. They are considered suitable for this as they include stocks from all industries. The indexes are designed to reflect the movement of a group of stocks considered in that portfolio or the market as a whole. The broad market index considers the stock from various sectors. Broad market indexes consider only the top stocks in the market. Hence it can be safe to say that the broad market indexes are the buffet among indexes.

Assessing the broad market index from their names

The broad market indexes generally have the Index_name pertaining to the stock market followed by the number of stocks of different companies it considers. This allows a stakeholder to assess accordingly the degree of diversification and exposure available in that index.

Broad market indexes from NSE India

Nifty 50
Nifty 100
Nifty 150
Nifty 200
Nifty 500

Here the number next to the index name ‘Nifty’ represents the number of stocks the index considers. The greater the number of shares the more diversified the portfolio will be. But the greater the number of stocks also represents the greater exposure to risk. Indexes like Nifty 500 will have the top 500 stocks available in the NSE universe. This index will have a considerable number performing well but also a great number of stocks performing negatively. The Nifty 200 will contains the top 200 stocks from Nifty 500. The Nifty 150 will contain the top 150 stocks from Nifty 200 and so on. The Nifty 50 consists of the top 50 stocks in the NSE.

Nifty 50 is considered to be a representation of the Indian markets over other broad market indexes by NSE. This is because it represents the best-case scenario in both bullish and bearish times represented by the best companies. All companies considered in these broad market indexes are large-cap.

Also read: What is Nifty and Sensex? Stock Market Basics

— Broad market indices based on capitalization.

The broad market indexes are made available based on the extent of capitalization. Market capitalization is the total value of the companies stock. Market cap is calculated by multiplying the share price of a stock with the total number of public shares offered by the company. This ensures that both the size and prize are given consideration. Based on this computation the stock market is divided into large-cap, mid-cap, and small-cap.

How are large-cap, small-cap, and mid-cap classified?

Large-cap refers to a company with a market cap of more than 28,000 crores.
Mid-cap refers to a company with a market cap valuation of more than 8,500 crores and less than 28,000 crores.
Small-cap refers to companies with a market cap valuation of fewer than 8,500 crores.

Assessing broad market indexes from their names

Here the indexes have the Index_name followed by the cap. size further followed by the number of shares held in the index portfolio. Eg. Nifty Midcap 50 — This shows that the index holds 50 different stocks of companies from the Mid-cap category.

Broad Market Indexes based on cap size offered by NSE India?

The broad market indexes offered based on capitalization are

Nifty Smallcap (50, 100, 250)

The companies included in this index portfolio are those with relatively small market capitalization. This index is important because they include stocks that are not considered in other broad market caps like Nifty ( 50, 100, 150, 200). This is because indexes like Nifty 50 include stocks from the top-performing industries which are from the large-cap category. The Nifty small-cap includes securities from which investors can earn higher amounts of returns due to the possibility of the range of growth available to small-cap companies. However, these higher returns come with higher risk from higher volatility to investors. The risk is increased considering that the information available on these companies is low.

Nifty Mid-cap (50,100,150)

The shares of the companies included here are those whose market cap falls in between large and small-cap. Mid-cap includes shares that offer better growth potential than large-cap funds and lesser risk than those from small-cap securities. The stocks included here are for investors with moderate risk appetite. The Nifty Midcap indexes can be used by companies that have a market cap of more than 5000 crores but less than 20,000 crores to assess their performance growth rate and returns offered to their investors. The same can be done by investors.

Nifty MedSml 400

The Nifty Mid Small 400 Index includes shares of 400 companies from both the Medium and Small-cap. The Nifty Midsml 400 is a combination of the Nifty Midcap 150 and Nifty Smallcap 250 index. Hence it includes 150 companies with medium-cap and 250 companies with small-cap. It is appropriate for funds to attract and offer investors a higher growth rate and returns from the small-cap companies and some degree of increased security from mid-cap companies.

Nifty Large Midcap 250

The Nifty Large Midcap includes a portfolio of 100 large-cap and 150 mid-cap companies. It is a combination of the Nifty 100 and the Nifty Midcap 150 index. This index can be followed by funds that want to offer the least risk but low returns available from large-cap to balance off the high risk and high returns of midcap.

— Other Broad Market Indices

The Nifty Next 50

The Nifty Next 50 includes shares of stock that are from Nifty 100 but do not make it into the Nifty 50 Index. Therefore it is the Nifty 100 index excluding the Nifty 50.

Nifty VIX

The Nifty VIX stands for the Nifty volatility index. Generally, indexes only include shares of companies but this index includes derivative products. This index is based on the Nifty index option prices.

Also read: What is India VIX? Meaning, Range, Implications & More!

How have broad market indexes performed in the last 5 years?

Index	As of 01/04/2020	As of 24/01/2020	% change	As of 29/05/2020	% change since 01/2020
Nifty 50	7713.05	12248.25	58%	9580.3	-21.78%
Nifty 100	8404.15	12386.95	47.39%	9648.2	-22.11%
Nifty SmlCap 50	2696.59	3086.05	14.44%	1879.45	-39.10%
Nifty SmlCap 250	4051.1	5280	30.33%	3538.75	-32.98%
Nifty MidCap 150	4209.39	6742.45	60.18%	5053.7	-25.05%
Nifty MidSml 400	4151.76	6219.8	49.81%	4507.5	-27.50%

(Historical NSE Indexes Performance – Source Bloombergquint)

— Sectoral Indexes offered by NSE

Sectoral indexes summarise top performing stocks from the respective industry together and provide a summary of how the specific sector is performing. This acts as a benchmark for its users to either compare company performance with the respective sector index or compare the sector’s performance to the market. This is done by comparing the sectoral indexes with the broad market indexes.

Sectoral Indexes Offered by the NSE

Sectoral Index	Sector	Types of companies included	Number of companies Considered to portfolio
Nifty RealtyÊ	Real EstateÊ	Real Estate Companies	10
Nifty BankÊ	Banking	Large Indian Banks	12
Nifty Auto	Automobile	All vehicle Manufacturing, tires, and other auto auxiliaries	15
Nifty Financial Services	FinancialÊ	Banks, Financial Institutions, Housing Finance, and Other Financial Services	15
Nifty FMCG Index	FMCG	Companies that produce durable and mass consumption productsÊ	15
Nifty IT Index	IT sector	Companies included are those that have over 50% of their income from IT-related activities like IT infrastructure, IT education and software training, Telecommunication services and Networking Infrastructure, Software development, hardware manufacturing, and Support and Maintenance.	10
Nifty Media	Media and Entertainment	Stocks from printing and publishing are also included apart from Media and Entertainment.	13
Nifty Metal	MetalÊ and Mining Sector	Companies from both the metal and mining sectors.	15
Nifty Pharma	Healthcare	Healthcare and Pharma companies	15
Nifty Pvt Bank Index	Banking	Top Private Banks	10
Nifty Pub Bank Index	Banking	Top PSU Banks	13

(Historical NSE Sectorial Indexes Performance – Source Bloombergquint)

— Strategy Indices

Strategy indices involve adopting one of the following strategies to create a portfolio. They give investors the possible top stocks that suit the respective factors. The major strategy indices are

Nifty Alpa 50

Alpha is generally the difference between the returns from an investment or portfolio in comparison to the overall market. The condition for an alpha stock to be considered into the index portfolio is that it should have a pricing history of at least a year.

Nifty 100 Quality 30

A stock qualifies as quality stock if it has

A high Return on Equity (ROE = Net Income/ Shareholders Equity)
Low Debt-Equity Ratio
An average change in Profit After Tax(PAT)

The condition for the quality stock to be considered into the index portfolio is that it should have a positive PAT in the previous year.

Nifty 50 Value 20

A stock qualifies as value stock if it has

High ROCE ( Operating Profit/Capital Employed)
High Dividend Yield
Low Price to Earnings Ratio
Low Price to Book Ratio

The condition for the value stock to be considered into the index portfolio is that it should have a positive PAT in the previous year.

Nifty 100 LowVol 30

A stock qualifies as low volatility stock if it has a low standard deviation of price returns. The condition for the low volatility stock to be considered into the index portfolio is that it should have a pricing history of at least a year.

— Multi-Factor Indices

The quest to beat the returns offered by the broad market index has given rise to multi-factor indices. In investing when the fund manager follows the portfolio of an index it is known as Passive Investing. When the fund manager devises his own strategy to create a portfolio with the aim of beating the benchmark it is known as active investing.

Multi-Factor indices use the rule-based approach of following an index from passive investing and the strategy of relying on multiple factors to select stock from active investing. The factors majorly used by strategy indices are – Alpha, Quality, Value, and Low Volatility. A strategy index creates a portfolio of 30 stocks based on 2 or more of these factors.

Some of the Multi-Factor Indices are-

NIFTY Alpha Low-Volatility 30
NIFTY Quality Low-Volatility 30
NIFTY Alpha Quality Low-Volatility 30
NIFTY Alpha Quality Value Low-Volatility 30

Performance of multi factor indices in comparison to other indices

(Source: All NIFTY multi-factor indices outperformed market cap based indices over the long term)

Closing Thoughts

The indexes discussed here form a very small portion of the indexes offered by the NSE. As of data in 2016, there were 67 Indexes offered by the NSE. Just like popcorn, which is not a necessity in any staple diet, it still has a role to play during recreation. Similarly, there are various indexes offered which may not represent the market but still have an important role to play.

Aron Almeida

June 22, 2020 Aron Almeida Investment Basics, Market No comments yet

what is ponzi scheme meaning concept etc

What is Ponzi Scheme? And How to Protect Yourself from it?

Understanding what is Ponzi Scheme and how to safeguard yourself from this plague: Frauds and scams are part of our lives for a very long time. From corporate frauds, government official frauds to individual scams, our society has witnessed all. Time and again we have heard of big scams like Indian Coal Allocation Scam 2012 – Rs 1,86,000 Crore, 2G Spectrum Scam 2008 – Rs 1,76,000 Crore, Commonwealth Games Scam 2010 – Rs 70,000 Crore, Satyam Scam 2009 – Rs 14,000 Crore, etc.

However, one such scam which is quite common but never came in a lot of notice or fame for the retail people is “Ponzi Schemes”. Although a lot of people have lost lakhs of rupees in these schemes, however, most of our population still do not understand what exactly are these and how they work. In this article, we are going to demystify this fraud and discuss what is Ponzi scheme, it’s history, some infamous Ponzi Schemes and how investors and common people can safeguard themselves from such fraudulent tricks. Let’s get started.

What is Ponzi Scheme?

A Ponzi scheme is an investment scam where returns are paid to existing investors from funds contributed by new investors. In a Ponzi scheme, investors are duped by being promised high returns with little or no risk on their investments. The scammers then rely on cash flow from recent investors to provide returns to older investors. The scam runs along the lines of ‘Robbing Peter to pay Paul’.

Here the investors have no idea from where their returns come from. They are misled to believe that the returns are being generated from the success of a business opportunity or the superior skills of a portfolio manager. At the initial stages, if an investor wishes to withdraw money, the scammers ensure that this is done promptly in order to gain the investors’ trust. The liquidity coupled with the superior returns results in a social feedback loop where current investors amazed by the returns suggests it to their friends and relatives.

A Ponzi scheme, however, can only exist as long as new investors keep entering the scheme as their money is used to provide returns to the older investors. If at any time a huge number of investors demand their money back at once or if new investors stop coming in, the scheme stops functioning and the scam is unraveled. India too has had an ugly history with Ponzi schemes. 978 Ponzi schemes have been identified in India, 326 of them being from Bengal alone.

History of Ponzi Schemes

The scheme is named after a man called Charles Ponzi, an Italian who committed the fraud a century ago. He promised to pay investors a 50% profit within 45 days or 100% profit in 90 days. He claimed that he was able to raise the profits by acquiring Postal Reply Coupons from countries where it was cheaper and sell these coupons in countries where they were being sold at a higher.

However, using arbitrage could never generate such magnitude of profits in order to generate 100% returns in 90 days. The investors, however, did receive their returns initially but what Ponzi did here was just take investments that were coming in from newer investors and pay off the older investors.

As investors kept pouring in, Ponzi opened a new office and hired agents to create an aura of trust and further scale the fraud. Ponzi was soon raking in a million a per day within a year. Ponzi during this period lived a luxurious lifestyle further investing in a macaroni and wine company. The scheme eventually got too big and failed to bring in new investors.

At this point, the scam began unraveling. Investors lost close to $20 million (approx 193 million in 2019). Investors were able to recover only 30 cents to a dollar they had invested. The scam also brought down 6 banks in The United States.

How is the Ponzi Scheme different from a Pyramid scheme?

A Ponzi scheme may at times be confused with a Pyramid. A Ponzi scheme promises a high rate of return and the source of these returns is hidden from the investors (which is actually from the investments of new investors).

In a Pyramid scheme, it is made clear to investors that in order to gain returns they have to recruit new investors. The new investors further have to do the same after the initial investment and so on. In addition to this investors at times are also given a right to sell a product in exchange for a commission which also turns a pyramid scheme into a marketing and sales campaign.

Some Other Infamous Ponzi Schemes.

— Bernie Madoff

The phrase ‘ Give the devil his due’ suits no one better than Bernie Madoff and his Ponzi Scheme. This is due to the size, period, and the ruse implemented by Bernie Madoff. Bernie Madoff was a pioneer in the investing world as he brought forward the advent of trading using electronic systems, and hence NASDAQ. He was also looked up to as he served as the non- executive chairman of the NASDAQ for 3 terms( 1990-93).

Bernie Madoff was convicted in 2009 which came as a shock to the investing world. But what is even more shocking is that he was only caught in 2008 for a scam investigators believe he started as early as 1964. Bernie Madoff had been described as a very charismatic individual which definitely helped in attracting naive investors towards his scam.

We notice his brilliance as unlike other Ponzi schemes, not everyone was even allowed to invest in his scam. Madoff allowed investors to invest only if they were vouched for. This made it seem like an exclusive club and a privilege to have your money handled by Madoffs investment firms. But what enabled Madoff to sustain the scheme for so long was that unlike other Ponzi Schemes Bernie offered his clients returns of only 10%. This made it look like a conservative investment. In addition to this, he also had a backroom team that created fictitious financial statements and periodical reports to further deceive the investors.

The Bernie Madoff scheme unraveled in 2009 thanks to the housing crisis. A total of $36 billion was invested into the scam, of which $18 billion was recovered.

— Crypto Ponzi

The success of cryptocurrencies took the world by storm due to the success of Bitcoin and Ethereum. But scamsters somehow have always have managed to be a step ahead adapting to cutting edge innovations. Cryptocurrencies too have not been free from scams as con-artists take advantage of investors who evidently have lesser knowledge of the working of cryptocurrencies.

Plustoken a crypto from China received investments of $2 billion. They did this by marketing themselves as a crypto wallet service. Here the investors were promised higher returns if they exchanged Bitcoin or Ehereum in exchange for Plustoken’s own crypto. This scheme was just another Ponzi were over 3 million investors were cheated.

Plustoken scammers managed to cash out $185 million worth of bitcoin before they were caught. They even tried to cover their tracks by making 24000 transfers using 71000 different bitcoin addresses.

How do you protect yourself from Ponzi Schemes?

1. High investment returns with little or no risk

Any investment opportunity that says this is a major flag that actually says you are never getting your money back. It is best to apply one of the basic rules of investing here that only with greater risk comes with greater reward. Low risk is accompanied by lower returns. Investors should also beware of words like ‘ everyone else is doing it and profiting’ as these create a fear of missing out.

2. Overly consistent returns

Investments react to market trends barring a few outliers from time to time. If you are given proof or notice that the investments are able to generate consistent returns regardless of the market going through extended bearish periods, then it is another red flag. Bernie Madoff’s investment firm delivered consistent returns of 8-10% every year regardless of market trends. This was a major red flag that investors missed.

3. Secretive or complex strategies

When you receive investment opportunities it is best to try and understand how the business or investment opportunity works.

Scammers in the crypto world have made use of this obliviousness that investors had towards the working of a cryptocurrency.

Also read: Pump and Dump- The Infamous and Endless Stock Market Scam!

4. Believe numbers and data over individuals

“Man Lie, Woman Lie, Numbers Don’t Lie!” – Flloyd Mayweather Jr.

Scammers generally have charismatic qualities that attract people towards them. Bernie Madoff was always seen as the most genuine individual until the scam broke out. He was described as a person always reachable by phone. Investors have even claimed that he attended funerals when one of their loved ones passed away as a sign of support. This quality allowed Bernie to gain the trust of potential investors at the synagogues he prayed in and the country clubs he hung out in.

But Accountant Harry M. Markopolos claims that when he was shown Bernie Madoff’s investment firm’s data as an investment opportunity it took him 5 minutes to realize it was a fraud. Accountant Harry M. Markopolos is known as the whistle-blower to the Madoff scam. He claims that when he was shown Bernie Madoff’s investment firm’s data it took him 5 minutes to realize it was a fraud. Unfortunately, no one paid heed to his words due to Bernie Madoff’s influence in the investment world.

5. Background Checks

It is always best to perform background checks when we are presented by investment opportunities by individuals. This can be done by verifying the firm’s registration numbers.

And Finally, a lot of time going with your gut feeling can also help…

Aron Almeida

June 20, 2020 Aron Almeida Market, News, Personal Finance 2 comments

AtmaNirbhar Bharat – How can we turn Crisis into An Opportunity?

The AtmaNirbhar Bharat & Vocal for Local Concept Explained: The recent pandemic brought many changes in consumer behavior and their pattern. While shopping malls and multiplexes were closed, small grocery shop and vegetable and fruit vendors were delivering essential items at the doorstep of every citizen’s houses. Those who earlier used to buy almost everything from shopping mall and big box retailers have now turned their preference to buying from small grocery stores and vendors selling goods nearby their living area. Due to this, many multi-national retailers had to face huge revenue fall down.

The Atma Nirbhar Bharat Abhiyan (ANBA) announced by India’s honorable Prime Minister Shri Narendra Modi aims to reduce unemployment, insolvency, and poverty and increase India’s per capita GDP. According to our Prime Minister our scriptures ‘Esha Upanishadha’ talks about Self Reliance. The concept of Self-Reliant India is brought up during the times of economic slowdown with the purpose to make Indian Economy stronger and to promote local products in India as well as all over the world. This write up talks about What is Atmanirbhar Bharat Abhiyan, what is it aiming at, what is offered under this package, what will be our duty as citizens and how it will impact overall and economically.

The Mission and Vision of AtmaNirbhar Bharat Abhiyan (ANBA)

Due to the long-lasted lockdown phases, India has come to a very crucial juncture. The Indian culture and tradition have always backed the concept of being Self-Reliant. The mission of this Abhiyan was explained by our Prime Minister as not being self-centric but being self sufficient so that it can bring happiness, co-operation and peace of the world. This Abhiyan aiming to be built on the five pillars namely, economy, infrastructure, system, vibrant demography and demand. It is basically a re-packaged version of ‘Make In India’ concept with more benefits for MSME sector, encouraging private participation in various sectors, escalating FDI in the defense sector and many more. The primary mission is of the economic reform that will definitely get the economic growth back to its desired level.

Talking about the vision for this Abhiyan, The Prime Minister urged in his speech to all Indians to come up with detailed study of every sector and to think big. He added Intent, Inclusion, Investment, Infrastructure and Innovation are very important for India in responding to high growth trajectory. Such reforms according to him are systemic, planned, integrated, inter-connected and futuristic process. In his vision he not only aims to promote local products but also suggests everyone to improve quality, modernization of the supply chain and providing best products. He emphasized on inner strength and self-belief for making this Abhiyan successful.

Let’s Revise The ANBA Package – The Mega Economic Reform Package

Prime Minister in his appeal for Atma Nirbhar Bharat Abhiyan, announced an economic package of Rs. 20 lakh crore which comes to 10% of the GDP of our country which is one of the largest relief packages in the world. In order to make this plan successful, land, labor, liquidity and laws all have been specifically considered under this package. The package will be used for cottage industry, home industry, small-scale industry, MSME, laborers, farmers, middle-class people and those Indian industries which are working to boost our economy dedicatedly. The Finance Minister of India Nirmala Sitharaman announced in a press conference the package in five tranches. This package is inclusive of Rs. 1.7 Lakh crore of free food grains to the poor and cash to poor women and old people, as well as liquidity measures and interest rate cuts by Reserve Bank of India which entirely amounts to Rs. 8.01 lakh crore.

— The First Tranche

The First Tranche of Rs. 5,94,550 crore package focusing mainly on MSME sector, Provident Fund relief, NBFCs, TDS/TCS rates, DISCOMs, RERA companies and others:

Relief in Provident Fund

Statutory Provident Fund Contribution by employers has been reduced to 10% (earlier 12%) for 3 months by way of Rs. 6,750 crore liquidity relief.
The Finance Minister also announced Rs. 2,500 liquidity support to businesses and workers for the next 3 months.

Relief in MSME Sectors

Rs. 50,000 crore equity infusion for MSMEs through Fund of Funds (FoFs)
Rs. 20,000 crore Subordinate Debts
Rs. 3 lack crores Collateral free Loans for MSMEs were announced under this package
The definition of MSMEs has been revised in order to include more businesses that will be benefitted from this package

Relief in NBFC’s

Rs. 30,000 crore liquidity boosts to strengthen the collapsed financials the Finance Minister announced that are collapsed due to the COVID-19 pandemic
Rs. 45,000 crore Partial Credit Guarantee Scheme 2.0

Relief in Other Sectors

Rs. 90,000 crore liquidity is provided to DISCOM (Power Distribution Companies) to reduce the piled up debts
Rs. 50,000 crore relief fund provided to reduce TDS and TCS rates by 25% for the payments other than salaries
RERA registered projects registration and completion date extended for a period of 6 months which can be further extended for up to 3 months by the Regulatory Authorities
To promote local companies, the government has decided to disapprove global tenders up to Rs. 200 crore
Due dates of statutory payments and filing of tax returns for the Financial Year 2019-2020 have also been extended to 30th November 2020 (for income tax returns) and to 31st October 2020 (for tax audit cases)

— The Second Tranche

The Second Tranche of Rs. 3,10,000 crore package aiming to cater farmers and migrant workers:

The introduction of ‘one nation one ration card’ under this tranche is going to allow every migrant worker to buy ration from anywhere in the country.
Food and Shelter facilities to migrant workers from the disaster response fund worth Rs. 11,000 crore was allowed to the state governments by the central government.
To enable institutional credit at a concessional rate for farmers, fishermen and animal husbandry farmers, the Finance Minister allocated Rs. 2 lakh crore through Kisan credit cards.
10,000 working capital will be provided initially to all the street vendors who are around 50 lakh in numbers, making it a special credit of Rs. 5,000 crore.

— The Third Tranche

The Third Tranche of Rs. 1,50,000 crore package focusing on agriculture, dairy and its related sectors:

Under Pradhan Mantri Matsya Yojana, Rs. 20,000 will be provided to each fisherman and Rs. 10,000 crore strengthen micro food enterprises.
To develop farm-gate infrastructure considering set up for cold chains and post-harvest management infrastructure, Rs. 1,00,000 crore were allocated.
500 crore allocated for bee-keeping infrastructure development.
15,000 crore for Animal Husbandry Infrastructure Development fund was raised.
4,000 crore were allocated for herbal agricultural produce.

— The Forth & Fifth Tranche

The Forth and Fifth Tranches of Rs. 48,100 crore catering reforms for coal, minerals, air space management, defense production, MRO, DISCOMs in UTs, and atomic energy:

40,000 crore was additionally allocated for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to increase job creation. It would be worth to notice that earlier in the budget this year, Rs. 61,000 crore were already allocated to this scheme.
Setting up of a new Public Sector Enterprises Policy to enable consolidation of PSU firms in strategic sectors.
Once again to cater MSME sector, the Finance Minister said there will be no new Insolvency Proceedings for one year. Suspension of the initiation of fresh insolvency proceedings up to one year to help companies impacted by COVID-19.
Simplification of utilization of Indian air space to reduce air travel cost.
Commercialization of coal industry and privatization of discoms in metros for smooth-running of their functions.

The above package is also said to be leveraging the financial instruments that will improve India’s fiscal conditions. The mega stimulus package is equal to Pakistan’s GDP, five times of the personal wealth of Mukesh Ambani and 17% of BSE market value. However, there are about 44% respondents in MSME sector who want direct cash benefits and are not satisfied with what has been offered. There may be challenges by way of liquidity issues, non-existence of demand and escalated fiscal deficit. Though there are challenges against it sufficiency and proper utilization, the biggest impetus package is all set to make India a Self-Reliant Nation in the coming years.

Also read: How to Boycott China in India – The Right Way?

The Role of Every Indian Citizen in ANBA

While the stimulus package offers relief to many sectors, every Indian citizen has a crucial role to play. The Prime Minister urged each one of us to promote local products and use Indian products more and more. We use quite a lot of foreign products starting from our daily use to our leisure activities. The Prime Minister also stated in his speech that all famous global products have started from their local business and when local people started using them more, promoting them, proud of them, they became multi-national products.

Similarly, we too can promote our products to not only at the national level but also at the world level. The time has come for us to make our nation and its every citizen independent. When he urged everyone to buy and promote Khadi, he feels very proud to see the revenue growth and its reach to the new levels in a very short span of time. He is hopeful too now that when we will not only buy local products but also advertise them at the global level, it will be truly called a ‘Local for Vocal’. Our responsibility now lies on us to make the 21^st century – the century of India.

‘Self-Reliance leads to happiness, satisfaction and empowerment’ so says our Prime Minister.

When the crisis takes its place, it is everyone’s duty to create an opportunity out of it for the betterment of the nation. The short-term impact of this should never be considered as we all know that the crisis has hit every sector to some or the other extent. Hence, its long-term effect should be contemplated and by adopting futuristic approach. It is important to note that the Abhiyan does not suggest to cut off relations from global platform and trade only with local products, the fundamental concept of this Abhiyan is to become not only self-sufficient but also to promote local businesses and to show off and feel proud about what invaluable assets we possess.

Certainly, this is going to be one of the biggest reforms worldwide. By nourishing local manufacturers, supply chain and with diversification in services and products the Abhiyan can be made a successful mission.

June 20, 2020 Team Trade Brains News 1 comment

10 Biggest AMCs in India - Asset Management Companies List cover

10 Biggest AMCs in India – Asset Management Companies List 2020!

List of the Biggest AMCs in India 2020: An Asset Management Company (AMC) manages a pool of funds collected from investors. Investors prefer to invest their money with AMC due to the level of diversification, the skill of the investment manager offered, along with other professional services. AMC’s attract investors who either do not possess much knowledge of the markets and would benefit from an investment manager or those who would rather allocate their precious time elsewhere.

A small retail investor will be able to invest in a very few stocks with the limited savings he has. By doing so he exposes himself to the additional risk if the shares of the company he invested in make a loss. In products offered by the AMC’s the huge pool of funds collected from investors is invested in a huge number of stocks protecting its investors from the losses of focused investment. AMCs designs various products to suit the needs of different investors. They create portfolios that suit the different risk appetites, tenure, tax benefits, etc. that the investors look for.

In this post, we’re going to look into the biggest AMCs in India for 2020. We’ll also cover the Asset Under Management (AUM) size, the total number of funds, and more important pieces of information related to these AMCs. Let’s get started.

10 Biggest AMCs in India 2020

The following are the top Indian AMCs with the largest Assets Under Management (AUM) as of March 2020.

1. SBI Mutual Fund

AUM (In crore)	Number of Funds
373498.27	150

The SBI mutual fund was founded in 1987. At its inception, the MF was fully owned by State Bank of India (SBI) a public sector bank. In 2004 SBI disinvested 37% stake from its mutual funds which was taken up by global leaders Societe Generale Asset Management. In 2011 the stake held by Societe General was taken up by Amundi as part of a global movement to merge its asset management business with Crédit Agricole. SBI Mutual Fund is currently a joint venture between SBI and Amundi of France.

2. HDFC Asset Management Company

AUM (In Crores)	Number of Funds
369782.8	122

The Housing Development Finance Corporation Bank provides mutual fund services through its subsidiary HDFC Asset Management Company Limited. One of the leading AMCs in India, HDFC formed this Mutual fund company with Standard Life Investments and holds approx. 57.4% of its shares.

3. ICICI Prudential Asset Management Company

AUM (in crores)	Number of Funds
350634.37	242

ICICI Prudential Mutual Fund was established in 1993 with 2 locations and 6 employees at the inception of the joint venture in 1998, to a current strength of more than 1000 employees with around 120 locations. Due to its substantial growth, it currently boasts more than 4 million investors. The AMC is a joint venture between ICICI Bank in India and Prudential Plc, one of the largest players in the financial services sectors in the UK.

4. Birla Sun Life Mutual Fund (BSLMF)

AUM (in crores)	Number of Funds
247521.68	165

The Birla Sun Life Mutual fund was established in 1994 as a joint venture between Aditya Birla Capital Limited and Sun Life Financial Inc ( Canadian insurance provider founded in 1865)

5. Nippon India Asset Management Company

AUM (in crores)	Number of Funds
204857.79	211

Nippon India AMC, earlier known as Reliance Asset Management Limited was founded by the late Dhirubhai Ambani and is one of the most popular AMCs in India. It was later run in a joint partnership with Nippon Life Insurance from Japan. In 2019 Nippon Life Insurance went on to own a 75% stake in the mutual fund allowing Anil Ambani owned Reliance to exit the Mutual fund industry. After this, it came to be known as Nippon India Asset Management Company

6. Kotak Mahindra Asset Management Company

AUM (in crores)	Number of Funds
186081.33	100

Kotak Mahindra Asset Management Company (KMAMC) started operation in 1998. The Kotak Mahindra AMC is one of the few wholly-owned subsidiaries among the top AMCs. It is a subsidiary of Kotak Mahindra Bank Limited (KMBL) and boasts an investor base of above 1.7 million investors.

Also read: 7 Best Mutual Fund Apps for Direct Investment

7. UTI Mutual Fund

AUM (in crores)	Number of Funds
151512.5	182

UTI Asset Management is India’s oldest and largest mutual fund management company. The mutual fund industry in India originally began in 1963 with the Unit Trust of India (UTI). For a period it was the only source of mutual fund investment for Indian citizens in the 90s. UTI Mutual Fund is a Government of India and the Reserve Bank of India initiative.

8. Axis Asset Management Company

AUM (in crores)	Number of Funds
138401.62	58

Axis Asset Management Company was launched in the year 2009. It is a joint venture between Axis Bank and Schroder Singapore Holdings Private Limited.

9. Franklin Templeton

AUM (in crores)	Number of Funds
116222.95	82

The American establishment was set up as Templeton Asset Management India Pvt. Limited in India in the year 1996. Over 2 decades of consistent growth made Franklin Templeton as one of the largest foreign fund houses in India. 2020 however was seen as the worst year for Templeton Asset Management India as they ended up winding six of their debt mutual fund schemes in India. This has led to the company currently facing multiple litigations across the country.

10. IDFC Asset Management Company

AUM (in crores)	Number of Funds
103893.16	59

IDFC Asset Management Company is one of the leading AMCs in India since its inception in 2000. It formes a part of Infrastructure Development Finance Company Limited a finance company based in India

Aron Almeida

June 19, 2020 Aron Almeida Mutual Funds, News No comments yet

What is India VIX? Meaning, Range, Implications & More!

Understanding what is India Vix, meaning & its importance: Ever heard of India Vix? If you’re involved in the market for some time and particularly active in the share market in March-April 2020, then I’m sure that you would definitely have come up with this term “India Vix” at least a couple of times mentioned on different financial websites and channels.

In this post, we are going to discuss, what exactly is India Vix, it’s meaning and how exactly it is important for the traders and investors to understand this term. Let’s get started.

What is India Vix?

India VIX is a short form for India Volatility Index. It is the volatility index that measures the market’s expectation of volatility over the near term. In other words, it explains the annual volatility that the traders expect over the next 30 days in the Nifty50 Index.

The India VIX value is derived by using the Black & Scholes (B&S) Model. The B&S Model uses five important variables like strike price, the market price of the stock, time to expiry, the risk-free rate, and the volatility. India VIX was introduced by NSE in the year 2008, but the concept of VIX is a trademark of CBOE (Chicago Board Options Exchange).

One simple way of understanding India VIX is that it is the expected annual change in the NIFTY50 index over a period of 30 days. For example, if the India VIX is currently at 11, this simply means that the traders expect 11% volatility for the next 30 days. Further, say, if the current index is trading at 9,000 and India VIX trading at 20. So, expected volatility over next year over 30 days will be:

Index spot: 9000
India Vix: 20
The expected downside for the year = 9000 – 20% of 9000 = 7200
The expected upside for the year = 9000+ 20% of 9000 = 10,800

Here, the expected range for the year is between 7200 and 10, 800

Anyways, before moving further, let me mention that one should not confuse India VIX with Market Index. Market Index gives information about the direction of the market but on the other hand VIX measures the volatility of the market.

Quick Note: Originally, VIX is a trademark of the Chicago Board Options Trade (CBOE).

Why is India VIX so important?

All the major directional moves in the market are usually preceded by a lot of choppiness or a lot of range play in the market. India VIX plays a very major role in understanding the confidence or fear factor amongst traders.

A lower VIX level usually implies that the market is confident about the movement and is expecting lower volatility and stable range. A higher VIX level usually signals high volatility and lower trader confidence about the current range of the market. A major directional move can be expected in the market and a quick broadening of range can be expected.

For example, during the sub-prime crisis, India VIX was trading at 55-60 (high of 90) levels and the market was in a state of panic and indecisiveness and hence the moves were erratic and hostile. Volatility and India VIX have a positive correlation. High volatility indicated high India VIX and vice-versa.

Similarly before COVID-19. India VIX had stayed below 30 (Since 2014). But since the epidemic disease broke out, the VIX has crossed the 30 level and is trading near 50 levels (trading above 80 for few days) and we have seen Indian equity Index losing nearly 40 percent of its value and is trading near 8000 levels.

So, India VIX plays a major role in understanding the sentiment of the market. But be aware of the fact, India VIX does not give any indication of the directional move in the market, it simply indicates the volatility in the market. So, anyone with a huge investment in Equities should keep a close eye on the movement of India VIX coz a similar movement in the shares of his portfolio cannot be ruled out.

Is there an ideal range for India VIX?

Theoretically speaking, VIX ranges between 15-35. But there have been outliers case of as low as 8(very tight range) and as high as 90 (extreme volatility). If VIX moves close to Zero, then theoretically either the index can double or come to 0. However, usually, VIX has a tendency to revert back to mean.

The figure above is India Vix chart for the last 10 years. With the current global crisis of COVID-19, the global markets have faced a lot of heat and extreme volatility and all the major global indices have lost nearly 40% from their recent highs and Indian equity market is no exception. With this current level of volatility, India VIX had climbed up to all time high levels of 90 for a couple of days.

And it seemed to be stabilizing near 50 levels about a month ago. The Vix range is still on the higher side, to attain some stability in the market. For stability to return, the global factors will have to improve and the India Vix level should ideally come around 20 levels.

The Current VIX level is 30 (June 2020) and the market seems to be stabilizing for now. But for the long term stability of the market, sub 20 levels of VIX is desired.

What do these extreme Vix levels mean for Options Writers?

India VIX also plays a very major role in the pricing of Options. A higher India Vix levels usually signal more volatile prices for options and a stable range would mean that the options are priced reasonably cheaper.

Simply put, high VIX levels expose option writers to unlimited risk with limited rewards (Premium). A deep in out of money Put/Call option can become at the money or even In the money option in a matter of a couple of trading sessions.

Also read: Options Trading 101: The Big Cat of Trading World

For Example, the stock price of XYZ shares is Rs. 300, and a trader has sold 280 put option contract (2,000 shares) for a premium of Rs. 10 and the contract has still 7 days to expiry. So, with current volatility, the share price can come to Rs. 240 in 2 trading sessions. So the loss for option writer with still 5 days to expiry will be:

Strike price: Rs. 280
Spot price: Rs. 240
Premium Earned: Rs. 10

Here, the loss for option writer: Rs. (240+10-280) i.e., Rs. 30 loss per lot, which is a loss of Rs. 60,000 (2000*30) per lot. Therefore, ideally, the option writer should avoid writing contacts and even if they do, the premium charged should also be higher.

Summary

To summarize, it can be said that India Vix is a silent yet very effective indicator to gauge the range play for Index, which in turn gives us a clear view of the expected movement of the share price.

Historically, large Vix levels have always been followed by a large movement in the indexes and share prices. And even the option pricing, the premiums charged also increase or decrease because of the Vix level changes.

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

June 19, 2020 Hitesh Singhi Options Trading, Technical Analysis, Trading 8 comments

Say No to Chinese Products in India - Boycott China

How to Boycott China in India – The Right Way?

Let’s discuss how to Boycott China and Say No to Chinese Products in India the correct way: The recent announcement by The Confederation of All India Traders (CAIT) on boycotting 3,000 Chinese products has taken its toll in the entire country post the border standoffs between India and China. The CAIT believes this campaign is necessary to make China understand that they will have to bear the repercussions of standing by Pakistan. The CAIT also launched a national campaign called ‘Indian Goods- Our Pride’ to promote local goods and ban Chinese goods.

The ongoing pandemic has affected the economy so much that our Prime Minister too in his speech to the public urged everyone to support local businesses and to promote them started a ‘vocal for local’ campaign. While all of these is happening everywhere, the underlying question that remains yet to be answered is how is this campaign of boycotting Chinese products going to be effective, and what are its consequences on our GDP? Is it possible at all? If it is possible then what should be the ideal approach? Let us understand the practical impact and its impact in the future, both long-term and short-term.

Factors Accompanying and Favoring This Campaign

The Economic fall down has made everyone think twice before they buy anything from anywhere. While a lot of people are getting jobless and undergoing salary cut situations, it is also important to have a look at how compatible our infrastructure and resources are to enable those job seekers to get permanent employment that solves our country’s unemployment issue as well. Therefore, campaigns such as ‘Local for Vocal’, ‘Indian Goods – Our Pride’ are being promoted recently. Boycotting Chinese products is the first thing that comes under the Government’s eye as Chinese products share a huge market of Indian customers as they are way too cheaper than our Indian products.

The benefits of boycotting Chinese products are going to help our Indian local businesses only in the long run. When the local products and local businesses are uplifted our army will get the necessary equipment to fight for our nation. As Mr. Sonam Wangchuk explains in his video which has gone viral, the Chinese army is well equipped to fight against us as we use their products and pay very well for it. Instead, if we use local products and make our army stronger, it will not only boost our national goods but also help our soldiers to fight for us.

According to him, it is our utmost duty to stand by our country’s army and do whatever possible we can. On the other hand, when Chinese companies will lose the Indian market, there will also be a huge drop in their economy as well. The messages on uninstalling the TikTiok App are also flooding the social media sites these days which is quite encouraging to see how most of the people have accepted this campaign.

Analyzing the Flip Side

The traders’ body CAIT asked to implement 500% duty on imports from China after China supported Pakistan to remove article 370 in J&K. This will make Indian products costly reason being India imports many raw materials from China only. This move is called a politically inspired campaign as it sounds more impractical than realistic.

The primary factor why Chinese products are so popular in India is that they are sold at quite cheap rates as opposed to Indian products. It is also a fact that India imports seven times from China than it exports to them. Not only these, but India also imports smartphones, laptops, electrical devices, and medicinal drugs from them. Boycotting these products will only reduce India’s GDP to a large extent. The supply chains are interlinked geographically so much that banning Chinese products will break the entire production process. The reason being many small and medium businesses use components made in China or use the machineries to produce the goods that are made in China.

Many Chinese firms established their branches in India post-launch of ‘make in India’ campaign. These branches have provided employment to many Indian workers. Chinese products ban will have an adverse impact on these branches and that may result in a rise in the unemployment rates. Surprisingly, we all are so used to Chinese products that boycotting them would have a psychological impact on us. In fact, everything that we use daily has a bit of Chinese involvement in it.

Be it either an app or a smartphone, or a laptop, or any raw material for a product manufactured in India. The talks are also happening around Alibaba’s founder Jack Ma’s statement on India’s manufacturing companies’ work culture.

Name of the Market	Market Share (Rs. In Crores)
Start-up investments	29,000
Smart Phones	1,44,000
Other Electronics and Telecom Equipment	3,000
Television Market	12,500
Other Home Appliances	6,000
Auto Components	1,120,600
Pharma Sector	90,000

As seen from the above table, the market share of Chinese Products is huge in many sectors. Boycotting these products all of a sudden is not going to make India self-reliant. There is a still long way to go. Banning these products will not only force people to buy costlier products but also it will contract the country’s GDP drastically.

Hence, there are few reasons why we should boycott Chinese products but at the same time, strong arguments and challenges are on their ways to explain why this campaign is not going to work if a concrete strategy is not made. The trade war is not only going to decrease the market of the Chinese product in India, but it is also going to hit the Indian economy as well.

The Failure of Past such Campaigns

It is evident from the past history of such campaigns that apparently could not be successful and there were many reasons behind it. China’s campaign of boycotting Japanese goods to object against Japanese colonization, US’s campaign to ban French products to protest against France’s disagreement to send army forces to Iraq after 9/11 attack and Middle East countries’ ban on American & Israeli products to support their campaign on Palestine have witnessed failures only and did end up leaving the idea very soon.

From the above past records, it does not seem a bit pragmatic for India to implement so quickly this campaign. However, we can always look at the reasons that went wrong in the above cases and learn from that so that the implementation can be effective.

How to Boycott China and ensure the Victory on this Campaign?

Although there are some reasons and explanations argue against the idea of boycotting Chinese products, but there must be certain ways through which we all can make it possible. According to Mr. Sonam Wangchuk, in his recent video, he appeals for a ‘systematic and a phased manner’ of boycotting Chinese products.

The ‘Systematic Way’ of his appeal suggests to boycott using software that is made in China in a week’s time, hardware in one year’s time, finished products and non-essential items to be also boycotted in a year’s time and slowly and gradually once we are used to these, we can move to boycott essential products and raw materials in the coming few years. This strategy is for more than a year, and it will give the necessary time and scope for local businesses and manufacturing companies to be well prepared for the substitutes in the near future.

In China, the government provides corporate loans at much cheaper rates. The Indian government too can come up with a plan where local companies and businesses are encouraged to manufacture the products that are being imported from China also by reducing loan interest rates. The infrastructure and other related services should also be made easy and faster to enable our companies’ products to be competitive globally.

Also read: The Telecom War in India – Jio, Airtel, Vodafone?

Closing Thoughts

In the time of the global disease outbreak, when people are either losing their jobs or experiencing reduced income, boycotting cheaper products, and promoting expensive local products may not last long. The existence of a huge market share of Chinese products in the Indian market is definitely going to hit our GDP to a greater extent. However, a systemic approach of gradually stop using Chinese products where we can find its substitutes and there is a scope for our manufacturing industry to reach to high quality and low-cost expectation may lead this campaign to a new successful level.

As citizens, our contribution can be in the form of getting used to other substitutes and slowly stop using Chinese products to promote our local businesses, and it is indeed everyone’s duty. The government’s role in this is to provide necessary support – financial or otherwise, robust infrastructure and constant efforts to make our manufacturing industry compatible to produce cheaper products with no compromise on quality. With the mutual efforts and systematic boycott approach, we will be able to make it reach its expected level.

June 16, 2020 Team Trade Brains Market, News No comments yet

Pump and Dump- The Infamous and Endless Stock Market Scam!

Understand Pump and Dump scam in Share market: Starting from the Nigerian Prince in exile asking for money, us winning lotteries we never took part in, and a distant relative we never heard of trying to send us his inheritance, has bought us to a stage where we are waiting to find out how much more ridiculous these scams can get. Similarly, the stock market world with all its rules, regulations, and watchdogs is not free from scams. Today we have a look at one such method used to scam naive investors of their money called the Pump and Dump.

What’s the Pump and Dump?

In the Pump and Dump scheme, the promoter or large investors mislead the market into believing that a particular stock is valuable. They release false information which in turn gives rise to the first portion of the scheme known as ‘A Pump’. The con investors at this stage buy large portions of the valuable at cheap prices. Here due to the credibility held by the promoter or the large investor the market too begins investing in the stock.

This leads to a rise in the demand which causes the stock to be inflated with increased prices. Once the price increases the promoters begin the second phase ‘ The Dump’. Here the promoters and investors sell their stake at the higher prices making a profit. This causes a market reaction where the price falls and the naive investors who believed then news are left suffering the losses.

Furthermore, after the dump stage, the naive retail investors hold on to the stock thinking that the fall in prices is a small market corrected and still anticipate the prices to rebound. But to their misery, the stock prices keep falling to their original value making it too late for the naive retail investor to exit without losses.

At times brokerage firms and other organizations also make use of the pump and dump. Here they are either hired by the promoters or they themselves purchase a stake in the company they wish to use in their scam. Once the shares are acquired the brokerage firms then begin spreading misleading statements that attract investment in the company which leads to increased prices. At this point, they dump the stock.

— Stocks used in Pump and Dump Scams

Generally, large investors or brokerage firms target penny stocks. This is because they have low values and are easy to inflate. Large-cap stock too are at times prey to this, but even a large investor with the ability to influence a Large-cap is rare. Pump and Dump also make use of the psychological Fear Of Missing Out (FOMO). Everyone regrets not being able to invest in big multi-bagger stocks like Apple, Google and Facebook etc during their initial stages. Hence, the search for similar stocks leads retail investors to fall victim to such Pump and Dump schemes.

— Channels/Mediums used in these schemes

Pumping and dumping were traditionally done through cold calling. Here the brokers would cold call innocent investors and pressurize them into buying these stocks. They would also use strategies where they would leave a message on the answering machine with misleading information regarding the stock. This made it look like it was missed call with the information not intended for the receiver. This scheme then moved onto emails and currently even makes use of social media.

Infamous Pumpers and Dumpers

(From Left to Right: Harshad Mehta, Ketan Parekh, Jonathan Lebed, and Jordan Belfort)

1. Harshad Mehta Scam

The pumping followed by Harshad Mehta in the 1990s caused the great bull run. This earned him the nickname the Big Bull. Harshad Mehta also had tricked banks to fund the bull run. He caused the stocks of ACC by 45 times. The markets crashed the day he sold. Harshad Mehta was arrested over numerous charges ( 70 Criminal Cases and 600 Civil Action Suits).

Read more: Harshad Mehta Scam- How one man deceived entire Dalal Street?

2. Ketan Parekh Scam

Ketan Parekh a Chartered Accountant earlier worked with Harshad Mehta. Parekh made use of circular trading to pump and dump. He would have one of his companies buy a stock and have it sold to another company that he owned. He would do this involving many of his companies. This increased the trading volume of the stock which in turn attracted investors. This caused an increase in the prices and at this stage, Ketan Parekh would dump. Ketan Parekh was arrested in 2001.

3. Jonathan Lebed Scam

In 2000, Jonathan Lebed was only 15 years old when he successfully Pumped and Dumped. He would purchase penny stocks and then promote them at the message board. Once the prices increased he would sell them at a profit. He was caught by the SEC and a civil suit for security manipulation was charged against him. Lebed made $272,826 in profits. He settled his charges through these earnings.

4. Straton Oaks Scam

This may be perhaps one of the most famous pumps and dumps among millennials thanks to the movie Wolf of Wall Street. The movie is adapted from the memoir of Jordan Belfort. His brokerage firm Straton Oaks would inflate the prices of the stocks he owned through misleading statements and later sell them at profit.

Stocks that were Pumped and Dumped in Past

1. Surana Solar Ltd

In the case of Surana Solar Ltd, the shares rallied over 725% after new broke into the market that India’s most successful investor Rakesh Jhunhunwala had purchased a stake in the company. Everyone wanted a piece in the company that Jhunjhunwala believed in. It was later clarified that another investor had used conned the market by investing in the company using the ‘Rakesh Jhunjhunwala’ name. Once this news broke out the shares fell causing huge losses to naive retail investors.

2. Sawaca Business

The case of Sawaca Business Machines Ltd is special because the pump and dump scheme here was not used once but twice. In the price graph movement above we can see a rally from 2011-13 and again from 2014-15. The shares rallied over 2500% reaching heights of Rs 225.50 per share from 2011-13 and then fell again to their original figures. After the fall the shares rallied again from 2013-15 touching prices od Rs 204 and giving gains of over 1000%. As of 10th June 2020, the shares are valued at Rs 0.53 per share. A con investor who would have even invested Rs 10000 would see his wealth scale over 25 lakhs if pumped and dumped at the right time during the two periods. However, the loss to retail investors has been incomputable.

How to protect yourself from Pump and Dump?

1. Tenurity of stock being traded on the exchange

Generally, stocks that are used by scamsters for pumping and dumping will have been made available for less than a year. These stocks are generally penny stocks. Companies that are considered small-cap do not have considerable information made available to the investors to make informed decisions. Investors fall victim to their emotions and the pressure selling by brokers in these cases.

2. Look at the long term Stock Patterns

Generally in cases of Pump and Dump it is possible for investors to notice similar patterns during the pumping stage. After the stocks are influenced and are in the pumping stage an investor will be able to notice a steady increase every day in the penny stock. This sudden increase in price would be bizarre when coupled with the previous low trading volumes.

3. Shade of Influence

If a broker pressurizes you to purchase a penny stock there is a good possibility that it is a scam. Great stocks sell themselves and do not rely on large investors or broker pressure. Irrespective of the medium, be it emails/social media/brokers, such schemes generally violate the basic rule of high return high risk. The proposal generally promises high returns with no or low risk. There may also be claims of insider information available to influence the proposal to buy the stock. Investors must be aware of such red flags.

Conclusion

Scammers have adapted to the changing times but for an honest investor, the requirement to remain safe remains the same. If an investor does his own research and homework as long as he stays away from so-called tips and recommendations the possibility of him being fooled remains non-existent.

That’s all for this post on Pump and dump scam in stock market. I hope you have found this post useful and will try to stay away from these cheap scams in stock market. Take care and happy investing!

Aron Almeida

June 15, 2020 Aron Almeida Investing Psychology, Market No comments yet

Raamdeo Agarwal Success Story -The Warren Buffet of India!

A Brief Study on Raamdeo Agarwal Success Story: If you are involved in the Indian stock market for quite some time, you might already have heard the name of “Raamdeo Agarwal” somewhere on financial websites or the News Channels. Mr. Raamdeo Agarwal is one of the most renowned names in the Investing world. His influence and ‘so-called genius’ was such that he is also known as ‘Warren Buffet from India’.

Raamdeo Agarwal is also popularly known for co-founding Motilal Oswal Financial Services and his family today owns about 36% stake in the company. As of 2018, Mr. Raamdeo Agarwal had a net worth of $1 billion according to Forbes. Further, he is regularly in the spotlight where he has been even interviewed by Saif Ali Khan.

Today, we have a look at Ramdeo Agarwal’s journey in his personal life and in the investment world in search of the spark that has catapulted him to this status. We’ll particularly focus on Raamdeo Agarwal Success Story in the Indian stock market industry.

Raamdeo Agarwal’s Early life

Raamdeo Agarwal hailed from Raipur, Chhattisgarh. Being the son of a farmer he talks shares that the only investment strategy his father knew was saving and investing in his kids. Raamdeo Agarwal moved to Mumbai to complete his higher studies. He pursued Chartered Accountancy and completed the course in five years.

It was in Mumbai where he met his soon to closest associate and business partner Motilal Oswal. Their paths crossed as they lived in the same hostel. Oswal described him as a very bookish person who was very interested in reading company reports and Balance Sheets.

(Left to Right: Raamdeo Agrawal and Motilal Oswal)

Nothing so far? Let’s keep looking for that spark that one of the richest men in India must possess.

Life After entering the Stock Market

Raamdeo Agarwal and Oswal had one common interest, it was the Stock Market. In 1987 they decided to become sub-brokers in the BSE. He managed to become a stockbroker by 1990 and also began investing for himself in the stock market. By doing so he was able to develop a portfolio of over Rs 10 lac.

Over the next few years, we could say that he was lucky to have stayed invested in the stock market when the Harshad Mehta bull run arrived in 1992. His investment of 10 lac had now become 30 crores. Once the bull run was over reports of the Harshad Mehta scam broke out. This saw his investment value drop from 30 crores to 10 crores.

(Left to Right: Warren Buffet and Raamdeo Agrawal)

This was the period where he took a step back to rethink his approach to the markets. In 1994, he went to the US to attend the shareholders meeting of Berkshire Hathway and meet his idol Warren Buffet. After his meeting with Warren Buffet, the first thing he focussed on was getting the most by reading all the letters written by Warren Buffet to Berkshire Hathaway.

It was after this that he changed his investment strategy. Till then his 10 crore portfolio included 225 stocks. He sold most of them and invested in only 15 stocks. This was because he realized that it was the quality and not the quantity that mattered. H later came to call this the Focus approach. His portfolio increased its value to 100 crores by the year 2000. In 2018 Forbes listed him as a billionaire.

Some of notable investments of Raamdeo Agarwal

Here are a few of the famous and most profitable investments made by Mr. Raamdeo Agarwal in the early phase of his career:

Hero Honda – He had purchased Hero Honda stock at Rs. 30 in 1996 and sold it Rs. 2600 in the year 2016. In the 20 year period, he also received a dividend of around Rs 600 per share.
Infosys – He purchased shares of Infosys in mid-90s and sold them to get a return of over 12 times. In this holding period, he also received consistent bonuses and dividends from this stock.
Eicher Motors – He purchased Eicher at Rs. 900. The investment touched over Rs. 32,000 in 2017.

If we consider an investment of one lac in each of these stocks, the three lac portfolio would increase wealth to 1.5 crores i.e over 50 times.

Raamdeo Agarwal Success Story: Secret Sauce

(Source)

The investment strategies followed by Raamdeo Agarwal have been suited as per his experience. They are as follows

— QGLP (Quality, Growth, Longevity & Price)

QGLP stands for the four factors considered while purchasing a stock.

1. Quality

Raamdeo Agarwal realized the importance of this factor after investing in Financial Technologies. This is an example he shares as one of his poor choices. He made a loss while investing in Financial Technologies (India) Ltd. This made him realize the importance of the quality of management in a company. He purchased the shares of at Rs. 1150 and later was forced to sell at Rs. 150.

Raamdeo ensured that after this he always paid extra attention to the management. He also considers this as a deciding factor as in comparison all the other data is accessible or computable by the regular public. But it is the management that is left in the dark. He ensures that his investments have good, honest, and transparent management. The management should also take care of the shareholders and give timely dividends and at the same time also have capita for growth.

2. Growth

Raamdeo considers a growth stock as one that is of a big company that is not yet popular. By investing in these companies the returns will be high but secured at a low cost. Raamdeo says that investing is nothing but figuring out the present value of all the future earnings and deciding accordingly.

3. Longevity

This factor encourages investors to invest in companies that have been around for a long time. This not only gives the investments some stability but also gives the investors enough data to enable them to take decisions.

4. Price

According to this at the time you buy the stock, its price must be lower than its valuation.

— Raamdeo Agarwal’s Strategy with regards to portfolio

According to Raamdeo an investor for his personal purposes should have invested in a maximum of 15 stocks. According to him, 15 stocks is too much. He instead would suggest 4-5 stocks. Investing in multiple stocks gives investors the benefits of diversification.

But 90-92% of the benefits are claimed by the time the portfolio reached 15. From here on the benefits are slim. An investor wishing to tap into the final 10% would have to invest in numerous stocks. It would reach a point where it also impairs the quality judgment. This because it would not even enable him to go deep enough into finding about the stock.

— Buy and Sell Strategy

Raamdeo put forward the theory of ‘Buy Right, Sit Tight’. According to this, one should research in-depth while purchasing a stock. He should be confident enough to invest at least 10% of his portfolio. He also adds that if things go really awry the price of a quality stock will not just suddenly drop. An investor who has researched enough will see it coming and the gradual decline will give ample time for the investor to exit.

— Disciplined Approach to portfolio

The discipline Raamdeo follows with regards to his portfolio is remarkable. When he noticed that the shares of Berkshire Hathway no longer suit his portfolio filters he decided to sell them. This was despite his idol Warren Buffet remaining invested.

Also read: Rakesh Jhunjhunwala Success Story- Rs 5,000 to Rs 19,000 Crores!!

Closing Thoughts

The success story of Raamdeo Agrawal is one of hope to all investors. Throughout his journey, we never found the special greatness spark that we thought is made available to only a selected few. His story shows that at times luck may be in our favor but not to be dependant on it.

Most importantly it also shows that we are to have a disciplined approach to our investments and also to learn from our mistakes. It shows how market tests patience and reward conviction.

Aron Almeida

June 11, 2020 Aron Almeida AceInvestors, INDIAN BULLS No comments yet

Boycott China – Is it Actually Possible for India?

A Study on being real about ‘Boycott China’: Last week, the internet has blown up with #BoycottChina trends. This comes after Sonam Wangchuk released a video calling all Indians to boycott Chinese products. This has been due to the aggression shown by the Chinese Army in the Indian territory. But India has not been alone to call for such boycotts in the recent past against China, other countries like the Philippines, Vietnam, and even separatist movements within China have started too.

My patriotic sentiments (which mean good) inspire me towards this call for a few minutes. But the reality where I type these words on a Chinese branded computer keeps me grounded. It goes without saying that none of us want to fund Chinese bullets that may be fired at Indian soldiers. Hence, today we have a deeper look at facts that may help clear this dilemma and also offer possible solutions.

Why boycotting China sounds right?

In the past, boycotting China has not only been called for because of Chinese military aggression towards its neighbors but also because of its human rights violations of its own citizens. Open firing at peaceful protestors in Tiananmen Square, the Chinese government has even been accused of illegally harvesting organs from Falun Gong (religious movement practitioner) and other political prisoners. This led to activists around the world calling for a boycott of Chinese products.

Sonam Wangchuk (whose role was popularly played by Amir Khan in 3 Idiots movie) has claimed that the aggression from China is only a means for the ruling communist party to divert the attention of the people away from its internal problems.

A Trade where Chinese products and services are bought by Indian consumers to finance aggression by the Chinese troops not only on its own citizens but also towards Indian soldiers is as far as it gets from being fair.

Have boycott movements been successful?

There have been various boycott movements throughout history. The US consumer forum tried to boycott French goods in 2003 in protest of France dissuading attacks on Iran. India too has had similar Boycott China movements in the past. #BoycottChina was trending in 2016 too after China supported Pakistan post the URI attacks.

A similar fact in all these boycott movements is that they have achieved nothing. After a few weeks, people lose interest or are caught up with the next most interesting issue. In other words, these movements eventually lose momentum.

Another important factor why the Indian Boycott China movement does not follow up with greater action is economics. When a consumer goes to buy a product he would find that Chinese products are not only cheaper but also of superior quality in comparison to their Indian counterparts. In such a situation a choice made to purchase a product which is expensive and at the same time of inferior quality in comparison to the Chinese is only self-destructive.

Why an immediate boycott of China doesn’t make sense?

Trade Deficit occurs when the country’s imports are more than its exports. One of the major consequences of a large trade deficit is the weakening of one’s currency. This is precisely the case with India. In the years 2018-2019, the imports from China were at 70,319.64 Million. During the same period, the exports to China stood at 16,752.20 Million leading to a deficit of 53,567.44 Million.

But India is not the only country that has suffered this fate when dealing with China. Numerous countries around the world have faced this resulting in China becoming one of the countries with the largest trade surplus.

(Countries with the highest trade surplus in 2018)

The trade deficit not only shows the dependence of Indian consumers but also of Indian industries on Chinese exports. Indian market leaders like Bajaj, TVS Motors, Mahindra, and Tata get their parts from China. Even pesticide and fertilizer companies based in India are overtly dependant on China. Take the example of United Phosphorous where over 55% of its products are sourced from China.

China currently has an investment of 8 billion in the Indian markets. The year 2019 alone saw investments of $3.9 billion by Chinese firms in Indian startups.

BigBasket, Byju’s, Delhivery, Dream11, Flipkart, Hike, Ola, Oyo, Paytm, Quickr, Snapdeal all these startups have secured funding from China. Even banks like HDFC have received investment from China. Although it may seem as if even though we are naming all renowned Indian companies it is apparent that there is no escaping China.

Almost every company has links to China, through ownership or have raw material sourced from China to make finished products. From our food that we consume, means to travel, our access to technology all can somehow be webbed back to China.

Let’s talk about “Aathma Nirbhar”

The Prime Minister in his most recent address has pushed for an Aatma Nirbhar Bharat. Say due to this influence Indians strictly buy only Indian products. If we are to look at the 1947 -1991 environment where due to the protectionist views of the government the consumers were forced to buy only Indian. This led to the producers producing low-quality products.

This was because they were certain of receiving a market share irrespective of the quality. The 1947-91 period ended up doing more harm than good. The same period also saw the Chinese producers preparing their markets for global competition. This gave the Chinese a 40-year head start over their Indian competitors.

What would Adam Smith the father of modern economics say?

Adam Smith speaks about competitive advantage in his book the Wealth of Nations published in the year 1776. He takes the example of two countries England and Portugal and also of two products, wine, and cloth. Here, Portuguese are the best in producing wine and England in producing cloth. According to Adam Smith, Portugal should focus on creating wine instead of focussing on both wine and cloth. This would only lead to substandard products. England should focus on cloth and both countries should reduce the scarcity of cloth or wine respectively through trade.

Let us take the example of TVS Motors. They are known for producing good two-wheelers in the mid and low-priced segments. An attempt to produce the two-wheeler 100% in India would only result in more expensive vehicles of poorer quality. Hence TVS Motors taking materials manufactured in China that are of high quality and lower cost has resulted in them suiting the Indian markets today. We may be ready to purchase the more expensive Indian alternative if available in the future.

Our current situation

But if we are still are not convinced and before we decide conclusively let us take a moment and come out of our privileged shells. The recent pandemic has shed light on the poverty plights of our nation. The first relief package of Rs. 1.7 lakh crore aimed at feeding 800 million poor people. The increased price alternatives would only shove two-thirds of a section further down the wealth ladder.

Also read: The 20 Lakh Crore Relief Package – Overview!

What about “Retaliation”?

So far we have considered retaliation only from our end. Boycott China and dumping Chinese products will definitely have a two-factor effect when done on a large scale. A similar retaliation from China will further the consequences on the Indian producers and companies.

Role of the Indian Government

Why doesn’t the Indian government simply put trade restrictions on Chinese goods? India being a member of WTO is required to abide by its rules. As per the WTO, countries are not allowed to discriminate amongst their trading partners.

When it comes to investments the government of India has allowed investors from neighboring countries to invest only up to 10% in an Indian company. Despite this Chinese companies have found loopholes to invest in the Indian markets. Chinese giant Alibaba gained a stake in Paytm by investing through its non-Chinese subsidiary ‘Alibaba Singapore Holdings Pvt Ltd’.

What’s the Solution?

From all the arguments made above, it becomes clear to us than an outright boycott of China is not possible. Boycotting China would only cause the Indian industries that have received funding or use Chinese materials more harm.

An alternative here is to look for products from other countries as and when the need arises to replace the Chinese products we have in our homes over time. A long term solution would be to steadily keep improving Indian quality. The best solution for the current issue which involves a standoff would be diplomatic talks. A war waged by consumers would only be self-destructive.

Aron Almeida

June 10, 2020 Aron Almeida Economics, News No comments yet

Trading Psychology - Tensions and Emotions in trading cover

Trading Psychology: Tensions and Emotions While Trading

An overview of Trading Psychology to understand what goes inside the mind of a trader: Trading psychology is the most important aspect of trading even more important than the technical and fundamental aspects of making trades. To be able to control one’s emotion, to be able to think fast on one’s feet and being disciplined, are some of the very key features of this trading psychology that every trader needs to learn eventually.

“I don’t want to be at the mercy of my emotions. I want to use them, to enjoy them, and to dominate them.” ― Oscar Wilde

Taking quick decisions, avoiding panicking, and sticking to one’s informed resolution in times of crisis is what sets a good trader apart from an average one or should I say, the winning one from the losing ones.

Biggest Psychological Tension While Trading

Not maximizing and holding on to a trade for too long, are two sides of the same coin. When I am saying, not maximizing, all I am saying is that when a trade goes in favor, we tend to book our profits too quickly and not maximize the potential. And this is critical because, with the technical and fundamental view remaining the same, there is no reason to book just because something is making money. We should try and squeeze the maximum possible juice out of fruit i.e., the trade.

Similarly holding on too long on to a position and not booking substantial margins even though the market is showing a change in momentum, is another psychological issue with trading. We are always of the viewpoint, what if I book too early. But one should understand that “Profit in hand, is better than profit in books”.

Staying flexible and being open to opportunities around to better the trade price or hedging is an important psychological aspect of trading. As the saying goes in the market, “Bulls Make Money, Bears Make Money, Pigs Get Slaughtered.”

Trading Psychology – Few Important Points to Know

— Avoid Over-Analysis Paralysis

This is the most common psychological trait associated with trading. We tend to over-analyze and over research the trades, before executing them. And which sometimes leads to trade been missed or we don’t take that trade, because some of our technical or fundamental parameters didn’t signal the trade. Too much information sometimes overcomplicates trading.

— The Randomness of Market

We have to accept the fact that markets are random to a large extent. This statement might come as a surprise to many. But we have to understand that our technical and fundamental analysis only works to an extent in the market. And if markets were not random, the technical and fundamental parameters working so far should always be able to predict the market future.

But, that’s never the case. So as long as we are in sync, with the randomness in the market, we should maximize the possibility. Because sooner or later, the randomness will take over and we have to change the parameters.

— Knowing When to Exit

This skill is as important, as the art of knowing when to enter. Having a firm plan of when to exit is an important ability that every trader should develop. Having the mastery of this skill goes a long way in making the most of the profitable trades and exiting the wrong trades with minimum damage.

The best way to go about this strategy is to exit a part of your position when it makes to a decent profit. Doing this, locks in some profit and it also gives an opportunity to enter again if the markets correct again. And most importantly it gives confidence about one’s trading skills.

— Accepting when you are wrong

To accept when one is wrong is the most difficult art in humans. Similarly, in trading too, if we are able to accept that we have gone wrong in taking a trade, it goes a long way in prolonging one’s trading career. Its a proven fact, accepting a wrong trade, avoids the chain of wrong trades and which goes a long way in preserving one’s trading account.

Also read: 5 Common Behavioral Biases That Every Investor Should Know

— No more FREE internet tips

There are many fraudsters in the market who simply circulate a message (via SMS/email/any other social medium) spreading positive/negative rumors depending on whether they want to sell or buy. One should completely avoid falling for this honey trap, as people might lose a large chunk of their capital by trading this penny or rumor based tips. Traders should always use their informed judgment before entering any potions in the market.

— Have a Winning Attitude

This is an acquired trait over time. The winning attitude develops over time. What we need to understand here is that no trader has a 100% success rate with their trades. It’s our attitude, to do our background research (could be technical or fundamental) on each and every position/trade we take, makes a difference. Lack of discipline while trading, leads to disaster. The positivity with which we enter a trade makes a world of difference in the outcome of the trade.

— No Revenge against the Universe

The Universe here is the universe of trading. An individual trader is like grain of sand on a beach. He/she is simply not big enough to take revenge from the market. Therefore, we should never get into the mentality of taking revenge against the market. One always needs to remember, we are a part of the market and we cannot trade without the market. Moreover, it would not make any difference to the market, if a small trader like you or me is not there in it.

Closing Thoughts

“Every trader has strengths and weakness. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach.” – Michael Marcus

Trading psychology is the most important aspect of trading that every trader needs to learn. In conclusion, we can say that the whole psychological warfare of trading, is the sole pillar on which the world of trading runs. Mastery of one emotional quotient goes a long way in having a long and rewarding trading career.

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

June 9, 2020 Hitesh Singhi Investing Psychology, Trading 1 comment

What is the Difference between BSE and NSE?

In this article, we are going to discuss the difference between BSE and NSE, the two biggest stock exchanges in India. However, in order to study the Bombay stock exchange (NSE) and the National Stock Exchange (NSE), first, we need to understand what is a stock exchange and its importance. Let’s get started.

What is the Stock Exchange?

According to the Indian Securities Contracts (Regulation) Act of 1956, defines Stock Exchange as, “an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.“

The stock exchange is a very important component of the capital market for the sale and purchase of financial and industrial securities and bonds. It is a place that is well organized and systematic as it is regulated under strict conditions and rules. The stock exchange performs various functions and offers services to a wide range of investors and other borrowers.

The main features of any stock exchange market can be summed up as follows:

The stock market serves as a market for securities where bodies from the corporate sector, governmental, non-governmental or semi-governmental come together to sell and buy these securities.
It also serves as a secondary market where old and existing second-hand securities, shares and bonds are dealt with.
Stock exchange functions as the regulator of securities. It tries to ensure free and fair trading.
In order to serve as a safe haven for investors and companies, the Stock Exchange involves in trading of only official and listed securities. The securities which are not listed called the unlisted securities are not allowed to be traded on the exchange but may trade through Over the trade (OTC) counters.
The way only listed securities are allowed, in the same manner, only the authorized investors are allowed. Investors can only participate in buying or selling the securities at the Stock Market through official or authorized brokers only.
It works as a recognized indicator of the development of the economy of the country. It is also the best reflector of industrial growth and corporate stability.

Now that you understand the basics of stock exchanges, let’s discuss the difference between BSE and NSE.

In India, there are two main stock exchange markets, namely the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Let’s start with BSE.

Bombay Stock Exchange (BSE)

The Bombay Stock Exchange or BSE is the oldest which was established in 1875 in Dalal Street of Bombay (now Mumbai). It was earlier known as ‘the native share and stockbrokers association but got recognized as the only important stock market of India under the Securities Contract Regulation Act of 1956.

Here are some of the key features of the Bombay Stock Exchange:

The BSE is the first and oldest stock exchange market of Asia which offered such a huge variety of services.
It has over five thousand companies listed as of the year 2018.
“Sensex” is the benchmark index of the Bombay Stock Exchange. Other popular indexes of BSE are BSE largecap, BSE midcap, BSE 500, etc.
As of April 2018, BSE is the world’s 10th largest stock exchange with an overall market capitalization of more than $2.29 trillion dollars.

National Stock Exchange (NSE)

The National Stock Exchange or NSE is the country’s leading stock exchange marketplace. It was India’s first digitalized stock exchange in the country. NSE was established in the year 1992 to decrease the monopoly of BSE in the Indian stock market. With NSE’s coming into existence, it brought about an electronic exchange system that did away with the practice of the paper-based exchange system.

Here are some of the Key features of National Stock Exchange:

NSE was established in 1992 to end the monopoly of BSE and one of the biggest stock exchanges in India.
Over 1,800 companies are publically traded on the National Stock Exchange.
“Nifty 50″ is the benchmark index of NSE. Other popular indexes of NSE are Bank Nifty, Nifty 100, Nifty Small cap, Nifty sectoral indexes like Nifty Auto, Nifty Pharma, etc.
As of April 2018, National Stock Exchange has a total market capitalization of more than US$2.27 trillion, making it the world’s 11th-largest stock exchange.

Also read: 10 Largest Stock Exchanges in the World

The Difference between BSE and NSE

Although both of the stock exchange markets are very important in India, there are some ground differences which we need to take into account:

Both the Bombay Stock Exchange and the National Stock Exchange are the leading exchange marketplaces in India. However, the oldest one is the Bombay Stock Exchange established in 1875 and the National Stock Exchange is a younger exchange established in 1992.
Both the National Stock Exchange and the Bombay Stock Exchange were recognized by the Securities and Exchange Board of India (SEBI) in the year 1993 and 1957 respectively.
The number of listed companies on the National Stock Exchange is around 1,800 and around 5,000 for the Bombay Stock Exchange.
The electronic system of exchange was first introduced under the National Stock Exchange in the year 1992 and later in the Bombay Stock Exchange in 1995 under BOLT i.e. BSE On-Line Trading.
The official index used by the National Stock Exchange is the NIFTY 50 while for the Bombay Stock Exchange, it is the SENSEX.
The National Stock Exchange’s index — Nifty 50, computes the top fifty stocks listed on the NSE. And on the other, the Bombay Stock Index, SENSEX accounts for the top thirty stocks on BSE.
Another major difference between the two relates to the volume of trading of individual stocks which is higher in the National Stock Exchange than in the Bombay Stock Exchange.

Quick Note: While trading or investing in the Share market, you can buy stocks from either of the stock exchanges. It does not matter much about which stock exchange you prefer as most of the big and popular companies are traded on both NSE and BSE.

Closing Thoughts

Apart from the differences, we can say that both the stock exchange markets are nationally and globally well renowned. The trading mechanisms, settlements and trading hours of both the stock exchange marketplace are almost similar.

On top of it, both of them are designated as the premium stock exchange markets recognized by the Securities and Exchange Board of India (SEBI). The Bombay Stock Exchange and the National Stock Exchange are under very tight control and regulation by the SEBI implying that both are under the same provisions.

Also read: What is SEBI? And What is its role in Financial Market?

By way of conclusion, we can add that the choice of any investor to participate in the trading of security is subjected to personal choice and therefore, can be different from one investor to another.

However, it is said that the National Stock Exchange is for those investors who want to involve in high volume day trade and derivatives trading. It has better software as compared to its rival, the Bombay Stock Exchange for any high-risk transactions made online. The Bombay Stock Exchange is an ideal marketplace for those investors who are a little conservative in nature who choose to invest and wait for their investments to grow gradually.

Anyways, you can trade or invest in equities through any of the stock exchanges, NSE or BSE, and may not find a noticeable difference. According to your choice and activity, you may decide on where to sign up and participate.

June 8, 2020 Zoya Amreen Investment Basics No comments yet

The Telecom War in India – Jio, Airtel, Vodafone?

Understanding the Telecom war in India and current Scenario: The Telecom industry in India has gone from being one of the most attractive to a cruel environment to all its players. The industry currently consists of three players i.e. Jio, Airtel, and Vodafone Idea. But if we look over the last two decades there have been over 16 players who have tried their hand in the industry.

We already know about the innate challenges the industry poses due to the ever-evolving technological environment. A newly arrived technological advancement may be completely obsolete in the next five years. But these are the challenges that a telco foresees and enters the industry with. Today, we’ll discuss the telecom war in India. Here, we’ll try to find out the key factors that have brought the industry to currently operate with barely three players and also look into the current telecom scenario.

Telecom Industry – The Story So Far

In the pre-liberalization period, there existed only state-owned companies like BSNL. The operations of these companies can be dated back to the British era. Post the liberalization the government began issuing licenses to private players in exchange for a license fee.

This license fee set, however, was in accordance with The Telegraph Act of 1885 set to govern the state players. The private telcos found it hard to adhere to this and constantly defaulted on the fee payments.

Noticing this the government introduced the National Telecom Policy in 1999 where the telcos were given the option to either pay the existing license fee or share a percentage of their revenue which was called AGR ( Adjusted Gross Revenue).

— The More the Better

During this period the government believed that the greater the number of players the greater the benefits the consumers would receive. This has bought up to 16 players in the telecom industry. This, however, ended up doing much more harm to the industry due to the competitive pricing practices followed by the telcos to emerge as the top players.

Telcos kept entering the industry and vanishing from the industry at the same time. The majority of the players were acquired or forced to merge with the top players. The remaining players went bankrupt or had their licenses revoked.

(Source: Wikipedia)

— AGR Dispute

During this period the Department of Telecommunications (DoT) entered into legal disputed with the players. If must be noted that Revenue meant that any income received by the company irrespective of it making profits or losses. The companies agreed to pay AGR assuming that the revenues to be paid would be from the core(telecom related) activities of the industry. The DoT argued that a percentage of the revenue from all sources ( core and non-core) is to be paid.

This involved installation charges, value-added services, interest income, dividend, and even profit on the sale of assets, insurance claims, and forex gains. This meant that the telcos now owed 1.47 Lakh crore in AGR to the DoT. Other government entities like TRAI (Telecom Regulatory Authority of India) and TDSAT (Telecom Disputes Settlement and Appellate Tribunal) also voiced their concern over this claim.

Both TRAI and TDSAT supported the telcos in this against the DoT. The TRAI even recommended excluding non-telecom revenues from the AGR but DoT challenged the TRAI recommendations. This led to a 14 year legal battle between the telcos and the DoT. The decision ultimately came in favor of the DoT on 24th October 2019. The courts ordered the telcos to pay 1.47 Lakh crore in AGR to the DoT.

Interestingly government entities like GAIL and PGCIL also had acquired a license from the DoT. The DoT also a government entity now claims that it is owed 1.72 Lakh Crore from GAIL. This is after computing its share from any revenue that GAIL made. The amount sought by the DoT is more than 3 times the net worth of GAIL.

— Enter Jio: A Mukesh Ambani Offering

These troubles in the telecom industry seem monumental and we have not even considered other factors like the 2G scam that took place. The worst, however, was yet to come for the telcos. In 2016, a new player Jio entered the industry. The predatory pricing strategy followed by Jio offered consumers 4G data for free. This further put tremendous stress on the telecom industry.

When Reliance Jio entered the markets in 2016 there were up to 7 telcos who had a substantial footing in the industry. By the end of 2019, there were only 3 other companies competing. Out of the three only Jio was profitable by extremely slim margins and airtel running but on losses. Vodafone and Idea too in losses were barely surviving the pricing onslaught.

— Spectrum Dues

Apart from the AGR the telcos also owe the government dues from spectrum allocation auctions. The telecom industry makes the use of electromagnetic waves that are made available through a spectrum. Hence a spectrum is considered a national resource and allocated carefully by the government. The spectrum allocation charges are paid in installments to the government. With the telcos already in debt, they further started defaulting on these too.

Finance Minister Nirmala Sitharaman announced a moratorium on these installments for 2 years. But the moratorium provided by the government does not come interest-free as they will still have to pay additional interest accrued during the 2 year period. Airtel currently owes Rs. 11,476 crores on its installments with Vodafone Idea owing Rs. 23920 crores.

Telecom War in India: Current Scenario

All sympathies do not lie with the telcos. Prior to the Jio’s entrance, the telcos enjoyed a period where they charged consumers exorbitantly. This was the main reason why Jio already had their stage set in 2016. Their offer of charge-free services to customers enabled them to immediately gobble up a section of the market share.

This was followed by the telecom war in India and competitive pricing which forced existing players like Airtel, Vodafone, and Idea to lower their prices and profit margins.

How telcos are adapting to increased debt & 5G Preparation?

The telecom industry has forced its payers to adapt to raising funds from foreign investors in exchange for a stake in the company.

— Reliance Jio

After Reliance entered the telecom sector its debt shot up by 438%. Mukesh Ambani has set out to make Reliance a zero net debt company. This would mean wiping out 1.54 lakh crore of its debt. The following table shows the stakes sold and amount raised

Stake sold to	% of Stake Sold	Amount raised (Rs Cr)
Facebook	9.99	43,574
Sterling Silverlake	1.15	5,655.75
KKR	2.32	11,637
General Analytics	1.34	6,598
Vista Equity	2.32	11,637
Mubadala	1.85	9,094
Total	18.97	88,195.75

Read More: Facebook- Jio Deal: What $5.7B investment means to Stakeholders?

— Airtel

Airtel remains the only major player other than Jio which able to survive, compete, and raise capital with ease at this stage. It recently announced a 2.75% stake sale to raise 7500 crores ($1billion). In January, Airtel raised $15000 crores through qualified institutional placement and foreign currency convertible bonds for 7,500 crores ($1billion)

— Vodafone Idea

Vodafone and Idea have merged to form Vodafone Idea. This has enabled VodafoneIdea to become the top company in terms of subscribers. But this has only ensured their survival in the Indian markets.

Vodafone Group CEO Nick Read has vowed to not invest in the Indian markets. This can be justified due to the court ruling against the telcos with regard to AGR. This has made investing in India a lost cause for Vodafone as all incomes earned by the companies ill be used to pay back the existing AGR dues apart from the new AGR dues that will keep on accruing.

Also, their survival will require debt to finance 5G costs. This investment which does not generate any income in the foreseeable future will be hard to be explained to Vodafone shareholders in the UK. Vodafone Idea not only faces difficulty in raising investment but also struggles with its low 4G utilization. (Also read: Vodafone Idea has managed to attract attention from Google which eyes a 5% stake in the telco.)

In an advent, if one of the 3 players does not survive it would lead to the Indian markets turning into a duopoly. The two telcos that do survive may form cartels which will eventually result in a pricing agreement. This in addition to the AGR dues to the DoT and 5G spectrum will result in the consumers holding the burden through increased prices.

Rank	Operator	Subscribers (millions)	Market Share	Ownership
1	Jio	382.89	32.99%	Jio Platforms
2	Airtel	329.02	28.35%	Bharti Airtel Limited
3	Vodafone Idea	325.54	28.05%	Vodafone Group (45.1%), Aditya Birla Group (26%), Axiata Group Berhad (8.17%), Private Equity (20.73%)
4	BSNL	123.13	10.61%	Government of India

(Table: Mobile Operators in India as of 29 February 2020 according to TRAI)

What the Government can do?

To reduce the burden on the telecom industry the existing players have requested the Telecom Secretary to provide the 5G spectrum free of cost to existing players in an attempt to rescue the industry. The government can also ensure that cartels are not formed and players survive by benefitting the consumers.

This can be done by providing the 5G spectrums in exchange for the telcos agreeing to adhere to both floor pricing and price ceiling. By doing this the telecom industry will be provided some relief through 5G spectrum allocation as requested by telcos. The floor prices and price ceiling will ensure healthy competition and limit any adverse impacts on consumers.

Closing Thoughts

The story of the Indian Telecom Industry so far shows that the government is just inches away from slaughtering the golden duck in an attempt to increase its revenue. It is high time the Center interferes so that both the industry does not lean towards a duopoly or monopoly and at the same time the consumers do not face the brunt. Any efforts from the government to recover unreasonable amounts from AGR will push the telcos to increase debt borrowing from the banks.

This increased debt in addition to the cost of surviving by further investing in the 5G spectrum will force the burden towards the consumers. In an event of intense telecom war in India where a major player throws in the towel to quit, the already ailing banking sector will be further hit. Other stakeholders like the employees who earlier dependent on the telcos will further be added to the casualty lists.

Aron Almeida

June 7, 2020 Aron Almeida Economics, News 5 comments

ROE vs ROCE – What’s the difference?

Return on Equity (ROE)

— ROE Formula

— Example to understand ROE

Return on Capital Employed (ROCE)

— ROCE Formula

— Example to understand ROCE

ROE vs ROCE: Key Differences

Using ROE and ROCE – The right way?

What Warren Buffet has to say about ROE and ROCE?<img loading="lazy" class="aligncenter" src="https://tradebrains.in/wp-content/uploads/2020/06/warren-buffet.jpg" alt="What Warren Buffet has to say about ROE and ROCE?" width="1200" height="900"/>

Bank Nifty and Other Shares Lot Size Changed (After July 30, 2020 Expiry)!

Implications of Increased Lot Size:

Why Ruchi Soya Share is Increasing? +8,000% Within Six Months!

Ruchi Soya Story till 2019

— Post-Insolvency Performance of Ruchi Soya

— Ruchi Soya’s Situation Post “Acquisition”

Current Scenario of Ruchi Soya

Reasons behind the 8,000% increase

— Baba Ramdev’s Vision in FMCG Industry

Closing Thoughts

What is Bharat Bond ETF? And Is it a Good Investment Option?

<img loading="lazy" class="aligncenter wp-image-11943" src="https://tradebrains.in/wp-content/uploads/2020/06/nirmala-sitharaman.jpg" alt="Finance Minister Nirmala Sitharaman announced the formation of India’s first Bond Exchange-Traded Fund (ETF)" width="520" height="291"/>What are Bond ETFs?

How does Bharat Bond ETF work?

Why are the benefits of BBETF?

— Reduced Investment size

— Benefits of diversification

— Liquidity

— Taxation Benefits

— Portfolio Quality

— Projected Returns

Who manages the BBETF?

Where does the BBETF invest in?

Is the BBETF without any risk?

How can I invest in BBETF?

— New Fund Offering (NFO)

— Fund of Funds (FOF)

Is there a lock-in period?

Bharat Bond ETF as an investment option?

What is a Company Annual Report? And How to read it Efficiently?

What is a Company Annual Report?

What is Purpose of the Annual Reports?

Contents of the Annual Report

— Director’s Report

— Auditor’s Report

— Statement of Financial Position or Balance Sheet

— Statement of Income and Comprehensive Income

— Statement of Cash Flow

— Notes Accompanying to Financial Statements and Significant Accounting Policies

Types of Readers of an Annual Report and their Purposes

Other Key Information Provided in Annual Reports

CORONIL – 100% Cure for COVID-19 found by Baba Ramdeo’s Patanjali?

The Launch of Coronil

Other Covid-19 Drugs

In Closing

What is Insider Trading? And What makes it illegal?

What is Insider Trading?

What forms a part of insider trading?

Who can be implicated for Insider Trading?

Infamous insider trading cases

— Dilip Pendse

— Martha Stewart

— Rajesh Jhunjhunwala

Other Controversial Insider trading cases

— Foster Winans

— Barry Switzer

How to avoid being implicated in Insider trading?

Arguments for Insider Trading being legal

Reliance Jio Stake Deals: Mukesh Ambani’s DEBT-FREE Quest Story!

Making RIL Net Debt-Free: Reliance Jio Stake Deals

— The Facebook – Jio Deal

— The Silver Lake – Jio Deal

— The Vista Equity Partners – Jio Deal

— The General Atlantic – Jio Deal

— RIL Rights Issue

— The KKR – Jio Deal

— The Mubadala – Jio Deal

— The ADIA – Jio Deal

— The TPG – Jio Deal

— The L Catterton – Jio Deal

— The KSA’s Public Investment Fund – Jio Deal

What Warren Buffet has to say about ROE and ROCE?

What are Bond ETFs?