List of IPO Performance 2020: The year 2020 has been a very bizarre year for humanity. Even when we look back at the year being plagued by COVID-19 it still confuses many even from a financial perspective. The Indian GDP hitting all-time lows, unemployment at an all-time high, companies struggling to function normally, yet despite all this, the stock markets have touched an all-time high. The cherry on top being the successful IPO’s of 2020. Today we look back at the IPO’s of 2020 and their performance in the market.
When the severity of the pandemic was first realized governments all around the world began to go into damage control. The measures started off with flight restrictions being imposed and eventually harsh complete lockdown. This set of panic selling in the market with many investors being caught off guard. Equity markets in the US, Europe, and Asia plunged to their lowest in over a decade. The BSE Sensex Index which tracks the 30 largest and most actively traded stocks listed on its exchange in India plummeted to its lowest in 3.3 years.
The year began with some exiting IPO’s with the likes of SBI Cards in March but the fallout due to the virus made it seem as if the year would be extremely dry for IPO’s. This put companies in a tough situation where they were faced with one of the most challenging years and on top of that the markets seemed unresponsive. This almost cut of raising funds through equities a favorable source of funds in comparison to debt.
Market Reaction
The markets however began to steadily recover in the second half of the year. This was mainly in response to the stimulus and assurance provided by the respective government of various countries. The Nifty 50 Index has gained over 80% from its 52-week low in March. This led to indices surging to new levels as they broke past previous market records. This rebound attracted investors and at the same time encouraged Indian firms to sell shares. All this as the Covid-19 cases kept increasing in the country.
Indian companies have managed to raise $33.3billion since the start of the year, according to Dealogic data. The IPO market saw many major companies launch initial public offerings raising nearly $3.5 billion this year. What was considered to be a dry year for IPO’s gained momentum to produce some of the best IPO’s in the recent past. IPOs like the Mazagon Dock Shipbuilders, Burger King, and Happiest Minds Technologies were subscribed 157 times, 156 times and 151 times respectively.
When the compare IPO’s to the last financial year, the IPOs have actually performed better. In the first quarter of 2020 (between April and June) only 19 companies listed on the BSE, as opposed to 39 in 2019. IPOs began returning to the market more companies listed on the stock markets. Between June and October 46 Indian firms listed on the bourse, compared with 27 a year ago.
To make things better all the IPO’s launched were priced at the upper end of the price band and companies managed to raise almost twice that of 2019 by September. The biggest winners however are the financial institutions that have underwritten the IPO’s.
IPO Performance 2020: IPOs launched in 2020 & Performance
Here is the list of IPOs launched this year and IPO Performance 2020.
Company
Listing Date
Offer
Price
Price as of 31 Dec 20
Overall Subscription
% Change Over Issue Price
Route Mobile
21-09-202
350.00
1107.40
74.3
216.4%
Burger King
14-12-2020
60.00
175.60
156
192.67%
Happiest Minds
17-09-2020
166.00
344.65
151
51.84%
Rossari Biotech
23-07-2020
425.00
949.40
79
123.39%
Gland Pharma
20-11-2020
1500.00
2351.00
2.06
56.73%
Likhitha Infra
15-10-2020
120.00
163.00
9.5
35.83%
Mazagon Dock
12-10-2020
145.00
221.15
157.4
52.52%
Chemcon
01-10-2020
340.00
435.90
149
28.21%
CAMS
05-10-2020
1230.00
1796.35
47
46.04%
Mindspace REIT
07-08-2020
275.00
329.66
13
19.88%
Angel Broking
05-10-2020
306.00
332.35
4
5.67%
Equitas
02-11-2020
33.00
37.50
1.95
13.63%
SBI Cards
16-03-2020
750.00
850.00
22.4
13.33%
UTI AMC
12-10-2020
554.00
561.05
2.3
1.27%
How was this possible?
We still have to find an explanation as to why markets reacted this way. Coupled horrible economic reaction with some of the best financial results. One reason has been the hype caused due to the quick recovery of the markets where markets gained over 80%. It encouraged many retail investors to move back in and take advantage of the situation. This coupled with easily available cost-effective online trading platforms, increased awareness, with more time on idle cash in investors hands amidst the pandemic.
This has been a cause of concern. It raised questions on whether these IPO buys were based on the fundamentals or a reaction to the bullish trends of the market and due to the hype and media coverage. An example of this has been the Burger King IPO which almost doubled in value initially but eventually declined.
It is also important to note that 2019 was one of the worst years for IPO’s. The primary markets saw their worst performance in the four years preceding it. The 16 IPOs raised only 12,600 crores.
It is always advisable to vary of making investments in times of bullish craze. Especially when it comes to IPO’s where extra caution is a must. It is very important that investments made into IPO’s must be made after careful examination of their fundamentals. The response in 2020 has surprisingly encouraged more companies to go for IPO’s.
According to Geojit Financial Services, 80 firms have approached SEBI for approvals for tapping the primary market. These firms are planning to raise equity capital totaling Rs 51,515 crore from the primary market.
Some of the notable IPO’s coming up in 2021 include; LIC, Kalyan Jewellers, MilkBasket, Grofers, Barbeque Nation, NSE, UTI Asset Management, ESAF Small Finance, CAMS, Studds Accessories, Lodha Developers, Aakash Education, Lite Bite Foods, Indian Railways Finance Corporation. Which IPO are you most excited for, in 2021?
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.
Understanding the Role of RBI in Financial Market: In the current times while dealing with the economic slowdown news that includes the RBI has been a hot topic. This is because everyone looks up to the RBI and awaits the steps that it can take in order to revive the economy once again. Today we take a look at the responsibilities and role of RBI in financial market. Here, we’ll discuss the functions that the banker to the government plays in our financial system.
Reserve Bank of India (RBI) is the Central Bank of the country and so its roles differ from other retail banks. The Reserve Bank of India was established in 1935 and was privately owned until 1949 post which it was fully owned by the Government of India. The RBI takes on greater responsibilities like ensuring credit supply, managing payment systems with the aim of promoting economic development.
Role of RBI in Financial Market
The RBI plays the following role when it comes to the financial markets of the country
1. Ensuring stability and Growth of the Infrastructure
The financial markets play a very important role in the financial system and very few entities in the country have the power and resources to ensure their stability, one of them being the RBI. Financial Market Infrastructure (FMI) is a multilateral system that includes participating institutions where the operator looks after the clearing, settling, recording payments, securities, derivatives, or other financial transactions. The FMI includes PAyment Systems, Central Securities Depository, Securities Settlement Systems, Central counterparties, trade repositories(an entity that maintains electronic records of transaction data), etc.
It is very important that these functions work as smoothly as possible and have the right infrastructure as Financial markets are the channels that concentrate risks in the economy which if not managed properly can transmit shocks across the economy. In order to address these problems, the RBI sets up organizations and committees to look after and develop the infrastructure of the financial markets.
Some of these infrastructures include the Securities Settlement Systems (SSS), Real-Time Gross Settlement System (RTGS), and Clearing Corporation of India Ltd (CCIL), Negotiated Dealing System- Order Matching (NDS-OM), etc. The NDS-Om, for example, is owned by the RBI and is an electronic order-driven trading system for govt securities. The NDS-OM accounts for 90% of the trading volume in government securities.
2. Ensuring the growth of Payment systems in India
The RBI oversees these payment infrastructures out in place in order to ensure its efficiency and safety of its participants. This role has been of growing importance especially as the country is encouraged into adopting the electronics payment system and keeping up with international developments.
This is only possible because the RBI ensures that the payment and settlement systems are safe, efficient, and accessible throughout the country.
3. Supervising the Payment and Settlement systems
The RBI designates specific responsibilities to various other institutions it sets up in order to ensure that the system is regulated and supervised. The RBI also sets up the legal framework that governs these systems. For eg. the RBI has set up the PSS( Payment and Settlement Systems Act, 2007).
This act empowers the RBI to set standards for the format of payment instructions, timings to be maintained, manner of fund transfer, etc. The RBI is also given the power to access any information relating to the operation of any payment system, enter and inspect any premise where the payment system is operated, and carry out audits and inspections.
4. Regulating OTC Derivatives
The trade repository for Over-the-counter(OTC) derivatives are set up as required by the RBI and are regulated by two separate frameworks i.e. the Reserve Bank of India Act, 1934, and Forward Contracts (Regulation) Act, 1952.
The RBI has the power to influence the supply of money by adjusting the deposits, reserves (SLR and CRR) it expects banks to maintain, and interest rates that it charges commercial banks that wish to borrow money. These rates and requirements are changed according to the requirements of the economy.
The RBI also plays an important role when in stabilizing the value of the Indian currency by maintaining gold bullions and foreign currency reserves. Another important aspect that the RBI looks into is controlling its arch-nemesis i.e inflation.
Closing Thoughts
Today, we discussed the role of RBI in financial market. The RBI has evolved into one of the most important and dependable entities in the country over the last 85 years. This can be seen even today where the RBI is looked up to in distressing times when the economy is exposed to global and internal shocks.
Along with the rising scale of growth and scope of the Indian economy, the RBI also ensures that the internal working environment of the Indian financial markets is stable and reliable and at the same time is evolving to match global standards.
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.
List of Indian ADR’s listed on NASDAQ and Understanding why do Indian companies trade in US: If you had the opportunity to visit the NASDAQ you might be caught off guard when you find quotes of Indian companies being flashed on their screens. But why would an American stock exchange be reflecting the prices of Indian companies? The short answer is because these companies have opted for means where they can be traded in the NASDAQ.
Today we take a look at which Indian companies have listed themselves on the NASDAQ. We also take a look at why and how these companies listed on the NASDAQ.
Why do Indian companies get listed on NASDAQ?
The top two American stock exchanges are- the NYSE (New York Stock exchange) and the NASDAQ ( National Association of Securities Dealers Automated Quotations). They respectively hold the spot for the largest and the second-large stock exchanges in the world. In order to put things into perspective let us compare them with our exchanges.
The Bombay Stock Exchange which is the major trading venue for Indian companies and their stocks had an MCap of 2.056 trillion in 2019. In comparison, the NYSE and the NASDAQ had MCaps of 22.9 and 10.8 trillion respectively in 2019. The Indian companies have realized the capital and growth potential in the American markets and have been tapping its exchanges since 1999. The United States is home to the deepest and most liquid capital markets in the world. In addition, these include well to do companies from various sectors like technology, financial, pharms, and industrial.
In addition to this, the markets offer other advantages like reliability. This is because listing on these markets would require the companies to abide by stringent laws and disclosure requirements. This, in turn, increases the credibility of the company throughout the world. For companies that want to raise huge amounts of capital and be global in every way, it makes sense to list on the US bourses.
How can Indian companies list on the NASDAQ?
Although the regulations are ever-evolving presently Indian companies can access the American equity markets through ADRs (American Depository Receipts). An ADR is created so that American investors can buy foreign securities at ease. Otherwise, the process would generally involve exchanging USD for the required currency like INR. Then opening a brokerage account and purchasing the foreign security. This would most likely be done at midnight due to timezone differences. By then the exchange rate would have probably changed. ADR’s put away all this hassle for the American investor.
An ADR is a security that trades in the US but is a representation of a specified number of shares from a non-US company. These securities are offered to American investors in US dollars (regardless of the base currency of underlying shares). They also trade and settle like any other security priced in the US market.
These securities are negotiable certificates issued by a U.S. depositary bank representing a specified number of shares—often one share—of a foreign company’s stock. These ADRS’s attract American investors and their capital. These investors would otherwise would have shied away due to the hassle of buying foreign shares.
How are these ADR’s created?
As Indian companies cannot directly list their equity shares in the US markets as of now they adopt the ADR route. The first step involves the Indian company offering its shares to a U.S. bank who will purchase these shares on a foreign exchange. This bank holds these shares as deposits and issues receipts to the Indian company.
The US bank then issues ADR’s that are equal to the value of the shares deposited with the bank. The ADR issued will represent the underlying shares on a one-for-one basis. These may also be a fraction of a share or multiple shares of the underlying company. This is decided by the bank as per the value of the conversion rate. The bank does this to sure the price of the ADR price is not too high or low.
The broker then sells the ADR’s in its place in either the New York Stock Exchange (NYSE) or the Nasdaq. In order for this process to be successful, the Indian company will be required to comply with all the regulations set by the SEC for any company being listed in a US exchange.
These ADRs are then quoted and trade in US dollars. The ADR’s closely track the price of the company’s stock in its home exchange due to arbitrage. All dividend payments to the holders of ADRs are made in US dollars. The company pays out the dividend to the US bank in its native currency which is then distributed by the brokers to the investors in dollars after accounting for foreign taxes and currency conversion.
Despite India’s large size and economy, only the following handful of Indian corporations are trading as ADRs in the US NASDAQ.
Company ADR trading on NASDAQ
ICICI Bank ADR
Infosys ADR
HDFC Bank ADR
Wipro ADR
Tata Motors ADR
Vedanta Ltd
Yatra Online
MakeMyTrip
Dr Reddys Labs
WNS Holdings
Azure Power Global
Sify
Rediff.com India
Mahanagar Telephone Nigam PK
Why do exchanges like the NASDAQ allow foreign companies to list on their exchanges?
Apart from providing an opportunity for US-based investors, the exchanges have other benefits too. Foreign stock exchanges often try to pursue foreign companies. These include not just the US-based exchanges. They include the London Stock Exchange, Tokyo Stock Exchange, Bermuda Stock Exchange, Singapore Exchange, Luxembourg Stock Exchange, and the SIX Swiss Exchange sending delegations to invite Indian companies.
The Luxembourg Stock Exchange has over 100 Indian companies listed. One reason is that the Indian markets although risky are known for their growth prospects. Apart from this, about 10 to 20% of the income of many foreign stock exchanges are from their listing fees apart from the trading revenues they earn.
Closing Thoughts
Although ADRs have been a popular route of entry into foreign markets the government as of 2020 has looked and announced other possibilities. Although all the framework is still to be set, the government has announced that it is looking into allowing Indian companies to directly list on foreign exchanges without even requiring them to be listed in Indian exchanges first.
It would expand the route through which Indian capitals raise offshore capital. This, however, has raised domestic concerns about the possibility of Indian investors losing out on domestic opportunities.
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.
Understanding FII and DII meaning in Indian Share Market: Over the last few months of the COVID19 pandemic and stock market crash crisis, there have been many news sources headlining the FII sellout. Basically, FII stands for Foreign Institutional Investors and DII stands for Domestic Institutional Investors.
But what do terms such as FII and DII exactly mean? And why are they important enough in the share market to make the front page? In this article, we are going to cover that. Here, we will explain what are FII and DII and why they matter. Let’s get started.
Different Types of Investors in the Market
Individual investors like you and me who invest in our personal capacities are known as Retail Investors. But retail investors form a very small portion of the stock market. The major activity is dominated by institutional investors.
Institutional investors include hedge funds, insurance companies, pension funds, investment banks, and mutual funds. They invest in various markets using their pooled funds received from insurances bought, SIP investments, etc. from customers. These institutional investors are also known as elephants of the market because of the money power they hold in order to influence markets. In addition to this, it is also observed that when institutional investors buy the stock markets show a bullish trend and a bearish trend when they start selling.
These institutional investors are further divided into Foreign Institutional Investors [FII] and Domestic Institutional Investors[DII] depending on whether the investments are from domestic or foreign institutions in the Indian financial markets.
Why Institutions invest in Foreign Markets?
FII generally invests in emerging markets like India because investing in developing countries provides their investment a greater scope for growth which otherwise is limited in developed nations. This is done through a global mutual fund, hedge fund, etc. present in their home country.
But the economic conditions of emerging markets are not the only thing FII’s consider when it comes to making investments. They also consider the legal aspects and political climate of the country too. This is done in order to ensure the safety of the investments as they already face the risks of investing in emerging markets.
Countries with lenient laws when it comes to foreign investments and a stable political environment top the list of attractive investment destinations for the FII’s. On the other hand, protectionist local laws and politically unstable countries are ill-favored by the FII’s. One good example would be the Rs.82,575 crore Foreign Portfolio Investment ( highest in the Modi era) that followed PM Modi’s landslide victory. The opposite was noticed when WHO declared corona a pandemic.
FII however also helps the domestic economy they invest in. This is because they bring with them huge capital, boosting economic growth in capital deficient countries. FII also helps improve the Current Account Deficit situation of a country. This is why FII interest or net positive inflows are a good sign. FII outflows, on the other hand, depict a country where investments have become too risky or are a sign of an unstable government.
FII interests change immediately in response to the economic and political climate. This is particularly the reason why FII investments are known as ‘hot money’.
Investment from DII or FII regardless provides fodder. Then, why is this distinction necessary?
We have already established the volatility of FII. This volatility coupled with huge capital backing can have a detrimental impact on the economy in times of crisis.
FIIs have become one of the major drivers in the Indian Markets. But Investments from FII can be pulled out at any time, and they have been historically blamed for large withdrawals of capital leading to significant negative bearing on the domestic markets. In order to avoid such a scenario where 100% of investments in a company are from FII’s, an FII sellout would lead to a drastic reduction in the price. This has led to laws passed restricting the ownership in order to control the influence of the FII’s.
What are the regulations that FIIs are subject to?
As per the SEBI (Foreign Institutional Investors) Regulations -1995, FIIs are generally limited to a maximum investment of 24% of the paid-up capital of the Indian company receiving the investment. However, FIIs can invest up to 30% if shareholder approval is received.
DII’s and the importance of a favorable environment
DII’s refer to institutions that invest in countries they are set up in. It is very important to note that a country’s political and legal environment plays a crucial role. A government that offers financial incentives which include corporate tax reduction, tax holidays, subsidies, and other financial incentives. These create a favorable investment environment. In such a scenario not only are FII’s interested but also the DII’s are encouraged to keep investing within India instead of looking for opportunities in other countries.
In 2015 Dividends and Long Term Capital Gains (LTCG) on shares traded in stock exchanges are totally exempted from Income tax even though it is not the poor who earn them. Such moves encourage Institutional investors to add to the capital in India. But the opposite happened when in 2018 when the then Finance Minister Mr.ArunJaitely declared a 10% Long Term Capital Gain in the budget disturbing the sentiments of the market. This move led to relentless selling off of shares held by the FII’s and DII’s in February 2018.
These investments were diverted towards Brasil and Gabon where they get suitable conditions of earning i.e. 100% exemption in Income Tax and Long term capital gain were present. Hence it is also very important for the government to create a favorable investment environment to keep the capital within India
How to find out FII and DII Holdings in Stocks?
To find the FII and DII holdings in any particular stock, you can go to the shareholding pattern segment on Trade Brains Portal. Simply, go the https://portal.tradebrains.in/ and search the Company Name in the search bar. This will take you to the Stock Details page. On this page, navigate to the Shareholding pattern section.
For example, here is the latest shareholding pattern of RELIANCE INDUSTRIES (Quarter-wise). You can find the FII and DII holdings in Reliance Industries for different quarters using this detailed table.
Similarly, you can find the FII and DII holdings in any publically listed companies in India by looking into its shareholding pattern available on Trade Brains Portal.
Closing Thoughts
In this article, we discussed what are FII and DII in the share market, the difference between them, and how to find their holding details.
Basically, FII stands for Foreign Institutional Investors and DII stands for Domestic Institutional Investors. By looking into the FII and DII holdings in different stocks, you can find how confident are big investors for investing in particular stocks, industry segment, and the market overall.
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.
Debugging why do most Indians not pay Taxes: In one of his lectures, Clinical psychologist Jordan Peterson posed a question to his students- What happens if we all stop paying taxes? He comes to the conclusion that there is nothing much that the government could do in such a scenario. After pondering a little on the question that the government would find itself outmanned to go after every person not paying his taxes. Although Mr. Peterson comes to the conclusion that we pay taxes because we a good people.
If we take the case of India, the Prime Minister announced earlier this year that only 1.5 crore people of the country pay their taxes. What does this mean? Is this because of a possible boycott? Today, we analyze what this statement means and why the numbers are so low?
What Percent (%) of Indians pay taxes?
The income tax department later clarified the Prime Ministers’ statements in a series of tweets stating that actually only 1.46 crore people pay tax on their income in the country. The Indian auto industry had sold more two-wheelers (21 million) than this figure in 2019.
The CBDT tweeted that “… 5.78 crore individuals filed returns disclosing income of the financial year 2018-19”. Of these,1.03 crore have shown income below Rs 2.5 lakh and 3.29 crore individuals disclosed taxable income between Rs 2.5 lakh to Rs 5 lakh, it added. Of the 5.78 crore returns filed during this financial year,4.32 crore individuals have disclosed income up to Rs 5 lakh. Only 3.16 lakh individual taxpayers have disclosed income more than Rs 50 lakh. In addition, they also stated that the number of individual taxpayers who have disclosed income above Rs 5 crore in the whole of the country is only around 8,600. These taxpayers created Rs 24,23,020 crore gross tax revenue for the government in the budget 2020.
Who bears the brunt of the taxes?
The Budget speech of 2018-19 had noted that on average a salary earner pays three times more income tax than a non-salaried taxpayer (Rs 76,306 versus Rs 25,753). This is however is not because the entrepreneurial class earns lesser than the salary citizens.
The tax department believes the tendency to evade tax is higher among the nonsalaried. This resulted in 0.26% of the population paid close to four-fifths of the individual income tax in the Assessment Year.
Analyzing the 1%?
Before jumping to any conclusions let us analyze the 1% that actually pays taxes. According to The Economic Survey of 2015-16,“For the level of democracy, India’s ratio of taxpayers to voting-age population is significantly less than that of comparable countries. This implies that while at present about 4% of citizens who vote pay taxes, the percentage should be about 23″. This seems like a gigantic figure in comparison to reality. But let us take a closer look.
Out of the total population, a significant portion includes proportions below the age of 18. India has one of the largest proportions in the younger age groups in the world at 41%. In addition to this women make-up, half of the population but have very low participation in the workforce. Their participation stands at just over 25%. This excludes 75% of women or 37.5% of the population from the workforce.
In addition to this agricultural income is not taxable in India. This puts a majority of the i.e. 50% of the workforce not liable to pay taxes. This puts the population liable for tax at a little over 10%. And after considering that millions are automatically exempt. This is because they simply are too poor reducing the figure by a large chunk. This gives a new perspective to the 1.46% liable to pay taxes instead of being compared to 100% of the population.
One of the major reasons why individuals prefer not to pay taxes is because of the question, “Where is my tax money going?”. This is hard to answer when every year a new scam or case of corruption breaks out involving politicians. In addition to this thousands of crores are spent on creating statues and initiatives like the Central Vista project. The justification for this is given by stating that they add to the national pride. But this too passes when one’s vehicle crosses another pothole.
In addition, the healthcare system and education seem non-existent in some states, the judiciary still works at a slow pace and the system is still riddled with corruption. This makes the salaried middle class often feel cheated.
The Indian economy has always traditionally preferred cash as the mode of payment. This makes it easier to evade taxes as a majority can also under-report their incomes. Vinod Gupta, the vice president of the market’s traders’ association, confirms that income tax evasion is prevalent among businesses that rely on cash. He says the small shop owners and stall vendors who make up about 25 percent of the market evade paying altogether. On being further questioned on the role of tax inspectors investigating the local businesses he states that their services are hired through bribes.
The Economic Survey of 2015-16 pointed out: “If the state’s role is predominantly redistribution, the middle class will seek—in professor Albert Hirschman’s famous terminology—to exit from the state. They will avoid or minimize paying taxes; they will cocoon themselves in gated communities; they will use diesel generators to obtain power; they will go to private hospitals and send their children to private educational institutions.” Luckily for the government, this is not possible.
Another reason also lies in the fact that a majority of the population that depends on agriculture is not liable for any taxes. This is a very necessary initiative to support the majority of poor farmers. But it fails its purpose when there is no limit set to the tax-free nature allowing rich farmers to further avoid taxes.
Rich farmers can not only not pay taxes but also receive a subsidy. This is given for their inputs like water, seeds, and electricity. Considering the current upheaval due to the Farm Bills no changes can be expected in this area anytime soon.
Closing Thoughts
In this post, we tried to look into Why do most Indians not pay Taxes. Anyways, for any changes to be seen in the majority of the individual’s tax behaviors it is important for the government to firstly show citizens a link between good government- services and the duty to pay taxes. Otherwise, an individual would keep trying to find loopholes in the system to avoid taxes.
That is until he sees an answer to his question “Where is my tax money going?”.
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.
A Walk through Ratan Tata’s Story: Today marks the birth of one of the finest and respected industrialists in India, Ratan Naval Tata, former chairman of Tata Sons. Today Tata has its presence in almost all areas, from the cars we travel in, the clothes we wear, the hotels we vacation in, to the tea we drink.
So how did Ratan Tata manage such a colossal group? And at the same time scale it to become the country’s largest conglomerate? Today, on Ratan Tata’s 83rd birthday, we pay respect by taking a look at Ratan Tata’s Story, the journey of Ratan Tata and his achievements along the way.
Ratan Tata’s Story: Childhood and Youth
(Ratan Tata with his grandmother, Lady Navajbai Tata)
Ratan Naval Tata was born to one of the richest families on December 28, 1937. He is the great-grandson of Jamsetji Tata, the founder of Tata Group. His father Naval Tata was the adopted son of Ratanji Tata and Navajbai Tata. Despite hailing from a prominent family Ratan went through a disturbing childhood growing up. This was because of his parents splitting up when he was just 10.
Following the split, he was raised by his grandmother, Lady Navajbai Tata, at a manor called Tata Palace. His grandmother formally adopted him through the J. N. Petit Parsi Orphanage. He recalls being ragged at school over the divorce of his parents as this was uncommon in the 1950s.
As time passed the ragging only got worse when his mother remarried. It was during these tough times that his grandmother played a very important role in shaping his character. His grandmother taught him to the importance of retaining dignity at all costs. This gave him an alternative instead of fighting back.
He has been quoted multiple times stating how his grandmother helped him develop a strong set of values and ethics system which have guided him ever since he was a boy. He also recalls that it was his grandmother who helped him muster the courage to speak up and at the same time also taught him to do so in a kind and dignified manner. She always stood by his side in instances where he disagreed with his father like when he wanted to study in the US instead of the UK and when he decided to become an architect against his fathers’ wishes of him becoming an engineer.
Ratan Tata went on to study in the US at Cornell University where he received a degree in Architecture in 1959. He got an architecture job right out of college where he worked for two years. Ratan speaks of Los Angeles highly as he spent some of the best years of his life in Los Angeles. He loved the weather, had a job and owned a car.
In his post in Humans of Bombay Ratan Tata speaks about how he fell in love and almost got married in Los Angeles. Unfortunately, he was forced to move to India due to his grandmother’s failing health. Even though he expected his future spouse to move with him to India her parents weren’t comfortable with this due to the instability in India due to the Indo-China war. This meant the end of their relationship.
Ratan Tata’s Story: A New Beginnings at Tata
In 1961 after returning to India Ratan Tata joined the Tata Group. His first job involved working with the blue-collar employees at Tata Steel Ltd in Jamshedpur. “It was a total waste of time — I was shuffled around from department to department, but nobody actually told me what to do! I guess, I was looked at as a family member, so no one said anything to me — but I spent 6 months just trying to make myself look ‘useful’,” Tata said. He worked as an apprentice on the shop floor and his responsibilities included shoveling limestone and working with the furnaces.
After gaining experience he was promoted to management during the 1970s. He was made director and tasked with leading National Radio and Electronics (NELCO). He was able to turn the company around, but the company eventually collapsed during an economic slowdown. In 1977, he was tasked to turn around another troubled company, the Mumbai-based Empress Mills. He succeeded in doing so but the refusal to add investment into the company and the Mumbai textile workers’ strike led by Datta Samant eventually led to its closure in 1986.
Ratan Tata’s Story: Appointment as Chairman
(Ratan Tata with JRD Tata)
In 1991 the legendary chairman of Tata Sons JRD Tata stepped down and named Ratan Tata as his successor. This came as a surprise not only to the management of the group but also to everyone outside the company including the media. One of the existing executives like Russi Mody,(Tata Steel) Darbari Seth (Tata Tea, Tata Chemicals) Ajit Kerkar (Taj Hotels), and Nani Palkhivala (director on the boards of several Tata companies) was expected to succeed JRD Tata.
They were already established names in the industry. This led to a bitter feud within the group. Mody even went on to openly voice his disagreement over Ratan. The media too went after Ratan Tata and branded him as the wrong choice and a result of nepotism. Unfortunately for Ratan Tata, he didn’t possess the charisma of his predecessor.
One of the first reforms he put in place was setting a retirement age. According to this policy, the retirement age for directors was set at 70 and senior executives at 65. This began replacing the staff with younger talents. Mody was sacked after a messy scrap, Seth and Kerkar retired over the years as they crossed the age limits and Palkhivala quit citing ill health.
Once the succession issue was sorted Ratan Tata could now focus on what was important i.e. leading the group. He convinced group companies to pay a royalty to Tata Sons for the use of the Tata brand name and also made individual companies report operationally to the group office. Under him, the group exited businesses such as cement, textiles, and cosmetics even as it increased its focus on others such as software, and entered telecommunications, finance, and retail. Looking back this can be seen as prepping the company to lead changes that were already taking place in a developing nation. During this process, JRD Tata guided Ratan as a mentor amongst all the criticism that was thrown at him.
Ratan Tata’s Story: Achievements
“I don’t believe in taking right decisions. I take decisions and then make them right.” – Ratan Tata
Ratan Tata had set out to reestablish the groups’ identity. For this, it was very important that he welded the organization together in a more cohesive way than it had been in the past so that it could identify itself more as a group. This new identity couldn’t have the same rusty image the company had over the years. Factors that helped here were the infusion of younger talent which made way for innovation and disinvestments from several companies.
One of Tata’s biggest achievements would be of the role it played in the Indian Automobile Industry. Although one would think of Nano when it comes to Tata, it is actually Indica which brought forward this revolution. The Indian truck maker set its eyes on creating India’s first truly Indian car, ‘Indica’. The car was the brainchild of Tata. He promised a vehicle with the dimensions of a (Maruti) Zen, the cabin size of an Ambassador, and the fuel efficiency of a Maruti 800. Its launch in December 1998 transition the group into serious car-making.
Today the group has gone ahead to become one of the largest car companies in India. Despite the manufacturing and quality problems an initial loss ( ₹ 500 crore loss declared in 2001), the Indica became a bestseller and marked the real entry of Tata Motors into cars, although the company had already signaled its intent with the launch of the Sierra, which would be called a cross-over vehicle today, and the Estate, a station wagon.
Another revolutionary introduction by the Tata’s was the Nano. The Nano was the dearest project of Ratan Tata. He decided to create a car at a price-point within reach of the average Indian consumer after seeing a family of 4 on a motorbike in the heavy Bombay rains. His concern for the safety of nuclear families led to him promising to make a car that would cost only a lakh rupee. Tata implemented all means to reduce its price and maintenance cost. He was the one who suggested that the car should be fitted with just one windscreen wiper. Despite these efforts at the time of the launch, the cost of the car was still higher. But since he had made a promise he went ahead and delivered on the promise.
Today Tata also serves on the boards of Fiat SpA, Alcoa, Mitsubishi, the American International Group, and Rolls Royce.
Another one of Ratan Tata’s greatest achievements was taking the Tata group to a global stage. This was made possible over a series of acquisitions. In 2000 the group acquired London-based Tetley Tea, in 2004 it purchased the truck-manufacturing operations of South Korea’s Daewoo Motors, and Indian Hotels Co. Ltd took over management of The Pierre in New York.
Tata’s biggest acquisition was its purchase of Anglo-Dutch steelmaker Corus Group Plc in 2007. The company has since been renamed Tata Steel Europe. The acquisition of Corus, which was Europe’s second-largest second-largest steelmaker, catapulted the company into becoming the world’s seventh-largest steel producer
Under Ratan Tata, TCS went public and Tata Motors was listed in the New York Stock Exchange giving it international recognition.
During the 21 years, he led the Tata Group, revenues grew over 40 times, and profit, over 50 times.
Among many other honors accorded him during his career, He is also the recipient of two of the highest civilian awards of India, the Padma Vibhushan (2008) and Padma Bhushan (2000).
How did Ratan Tata deal with challenges?
Ratan Tata had faced many challenges during his tenure at the helm of Tata. Initially, when the group had entered the passenger car business it seemed as if it was a huge error on his part. Tata decided to sell his business struggling passenger vehicle business, Ford officials voiced their interest after a trip to Tata’s Bombay Headquarters.
But when Tata and his team visited Detroit, they were humiliated by Ford. The then chairmen Bill Ford reportedly said to Tata that he was quite out of his depth. An ex-employee employee of Tata who was presented in the meeting recalls they were told ‘you do not know anything, why did you start the passenger car division at all’. They said they will do us a favor by buying our car division.”
The humiliation ended when the group decided to return to New York the same evening. Tata was reportedly somber the whole flight.
Tata turned the tide by thriving in the Indian markets. Nine years later Ford was on the verge of bankruptcy after the 2008 global financial meltdown. Tata swooped in and acquired the auto company’s iconic Jaguar Land-Rover brands for $2.3 billion. Ford chairman Bill Ford thanked Ratan Tata, saying “you are doing us a big favor by buying JLR.”
Another testament to Tata’s leadership would be during the 26/11 attacks. Even with the risks surrounding him he stood all alone outside the Taj hotel and supervised the activities to help the victims. He also personally visiting the families of all the 80 employees who were killed or injured and even asked the families and dependents as to what they wanted him to do.
Closing Thoughts
“Ups and downs in life are very important to keep us going, because a straight line even in an E.C.G means we are not alive.” – Ratan Tata
In December 2012 Tata retired as chairman of the Tata Group at the age of 75. Despite this Tata has stated that never before has he felt the urge to do more. He has now diverted his efforts towards philanthropic activities and continues to head the groups’ charitable trusts.
Morgen Witzel states that in hindsight, Tata’s ascension in 1991 was the best thing that could have happened to the Tata group.
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.
List of Best Performing Largecap Stocks in 2020 in India: The year 2020 been a roller-coaster journey for all the equity investors. At one time during the start of the pandemic, the market saw two lower circuits of 10% within a span of 10 days which even resulted in halting trades for a few minutes on those days.
On 23rd March 2020, the broad market Index Sensex tanked by 10% or nearly 3,000 points to hit 26,924 before trading was stopped. NSE Index Nifty50 similarly fell 842 points, or 9.63%, to 7,903 on that day. However, fast forward almost nine months and today Sensex is hovering at 46,973.54 points while Nifty 50 at 13,749.25.
Moreover, if we look at Sensex, it has given a return of 34.82 percent in the last six months and 13.72% in 2020. These returns are astonishing, seeing the fact that we are still going through the pandemic, vaccines are yet to come in India and the economy has still far to go to recover significantly.
Now, if we look further, many large-cap companies have performed quite well in this period and make wealth for the people struggling in the pandemic. Here is a list of 28 big public companies in India with a market capitalization of over Rs 40,000 Cr, which has given above 30% returns in the last one year.
Disclaimer: The stocks listed above should not be considered as recommendations. Please study the companies carefully or take the help of a financial advisor before investing.
Interestingly, the top three positions are taken by Adani Green Energy(+562.96), Adani Gas (+137.77%), and Adani Enterprises (+126.68%). Pharma stocks like Divi’s Lab, Aurobindo Pharma, Cadila Healthcare, Dr. Reddy’s Lab, and Cipla have also given above 70% returns in this time period. Other blue-chip wealth creator stocks in this list are Infosys, HCL, WIPRO, Asian Paints, TCS, and Reliance.
Anyways, whether these above-mentioned companies will continue their steak in 2021 depends is yet to test. However, time and again, the share market has proved itself to be a place to create wealth, even in the times of global pandemic.
Meeting Best seller author Prasenjit Paul in an Exclusive Interview on Stock Investing: Hello investors. Recently, we interviewed the author of the best-selling book ‘How to avoid loss and earn consistently in the stock market?’ – PRASENJIT PAUL. This book is to date the highest rated book written by an Indian on Stock Market Investing in Amazon.
This interview will give a great insight to the beginners who are planning to start their journey in the exciting world of the stock market and even to the matured investors. Therefore, make sure to follow this interview closely.
Brief Introduction About Prasenjit Paul
Prasenjit Paul is an Equity investor, Entrepreneur, and as mentioned earlier, the author of the book ‘How to avoid loss and earn consistently in the stock market?’. This book was first published on 14 July 2015 (First Edition).
If we look into Prasenjit’s Background, he is a software engineer by qualification with a bachelor of engineering degree from IIEST, Shibpur. Prasenjit started investing at an age of 18. Due to his passion for the stock market, he left his job at IBM on the first day to pursue his dreams in the investing world. Fast forward a few years, currently, he works as an Equity Analyst and is running a successful Equity advisory firm- Paul Asset Consultant Private Limited, with clients from over 18 countries.
Meeting Prasenjit Paul: Best-Selling Stock Market Book “Author”! (2020)
Here’s our latest interview with Prasenjit Paul and is a MUST-WATCH video for all the aspiring stock market investors. Do watch this video till the very end because Prasenjit has got a lot of informative things to tell and share with you.
Topics discussed with Prasenjit in this Interview:
Brief Introduction & how Prasenjit started his investment journey
His inspiration to write a book?
A few best concepts/chapters covered in his book
Prasenjit’s advice to newbie investors on how to start stock investing!
Archive Interview – Conversation with Prasenjit Paul (Nov 2017)
Below is an archive interview with Prasenjit Paul which was originally published in Nov 2017. Along with the above video, the questions and answers will also help you to know his journey better and learn stock investing tricks and secrets from him.
Q. Hi Prasenjit. My first question to you is an obvious one- How did you enter the world of investing?
While I was 18, my father told me about the stock market. After that reading books like “Rich Dad Poor Dad” and few others made me determined for taking the stock market very seriously.
Since then, I had spent my entire college life learning various aspects of the stock market. Although I was pursuing B. Tech in Information Technology, still I had completed around 25-30 books and countless websites related to the stock market.
Even I had started offering equity advisory service on a Trial basis while I was in the final year. Thus even before my career took off in the IT field, I was ready for a career in the stock market solely through self-learning.
Q. Why did you quit IBM on your first day?
I had accepted the offer from IBM just to gather an idea of the working culture of the corporate world. Once I interacted with few employees and visiting the office I was sure that I couldn’t give my 100% to an IT job. Moreover, even after spending in an IT job for 5-10 years, I didn’t foresee financial freedom or any meaningful reward.
Thus, I made my mind to take the risk of quitting a fixed salary routine.
It was a very tough choice because of two reasons. Firstly, my parents, relatives, and others were never in support of business instead all of them favored corporate jobs. Secondly, during that time, I was not earning even fraction of the amount that IBM was offered.
However, I took that risk, and later it paid off very well!
Q. When did you start ‘Paul Asset’ and how long were you running the business before you started paying yourself?
I had an edge because I started Paul Asset during my college days and during those days I have no such compulsion of paying myself. Even after leaving college I had no liabilities like EMIs, paying to parents, rent etc. So, even with any amount of money, my target was to just stick to the target.
I was confident that with true dedication sooner or later your hard work pays off. So, the point is the earlier you start, the higher would be the reward. Every aspiring entrepreneur should begin the journey during their teenage or during early twenties. With the growing age, it becomes difficult.
Q. Walk me through the step-by-step process that you went through after quitting your job, to get to where you are today?
Actually, I had started the journey much before quitting my job. Apart from Paul Asset, I had even attempted two other business ventures during college days and failed badly. My target was to become an entrepreneur so within college life itself I had attempted various ventures and later Paul Asset clicked while the rest of others failed.
So, the point is to keep trying. No matter how talented you are, you can’t be successful in business with just one attempt. I just stick to the basics. Irrespective of failures, setbacks, depression, monetary loss, you have to keep trying with full dedication while keeping morals intact. Sooner or later Success will be yours.
Q. When did you decide to write a book? Tell us about your journey from a novice to the author of the best-selling book on stock market investing.
I had purchased the domain www.paulasset.com in the year 2011 while I was in the 2nd year of my Engineering. Initially, the target was to write blogs on the Stock Market and monetise via Google Adwords. Fortunately, Google rejected few times while I submitted my blog and that inspired for starting subscription-based advisory service.
Today, the advisory revenue is so big that I can’t even consider Google Adwords. In spite of rejection from Google, I noticed that almost all of my readers liked my writing style. That inspired me writing a book to reach the larger audience.
It took me more than two years to complete the book “How to Avoid Loss and Earn Consistently in the Stock Market”. The way people liked the book was also beyond my imagination. Since the last few years daily on average 50+ copies are being sold!
Writing a book is very difficult because you need months-long concentration and patience, unlike a blog post that can be completed in one day itself. After the massive success of my first book, I am also working on the second book (not directly related to the stock market but related to the Money). However, due to my current schedule, I can rarely concentrate over a very long duration of few weeks and be realising the real challenge of writing books!
If you haven’t checked out his book ‘How to avoid loss and earn consistently in stock market’ yet, here is a link on amazon. I personally recommend you to read this book if you want to learn investing in Indian stock market from scratch. – Kritesh Abhishek
Q. How do you start your workday? What’s like a day in the world of an investor?
I have a relaxed work schedule. Although with the growing business, I have to look after so many things, work on multiple things simultaneously still it never created pressure on me. I never keep sitting in front of trading terminal.
Daily price fluctuation doesn’t affect me at all.
I start my day with reading newspaper or magazines and then as usual. What I learned from my own experience is that to become a successful investor you must have a calm and cool head.
Every day you will come across so many news, so many contradicting views. Many times your stocks won’t perform, you would stare at a loss. In spite of all those, you have to keep your basics intact. I also idolize MS Dhoni and try learning a lot from his temperament.
Q. What’s your investment strategy?
I prefer growth over value. While you are investing in one of the world’s fastest-growing major economy like India, you must have to put higher focus on the growth over value. I generally prefer bottom-up analysis with a long-term investing approach. I like companies where the market size is huge enough to maintain a high growth rate with free cash flow generation while keeping a light balance sheet.
And I never attempted short-term, intraday trading, Futures, and Options, etc. The reward and peace of mind from long-term investing is sufficient enough to ignore any short term options.
Q. Who do you admire the most in the stock market world?
I can’t take one or two names. I admire and try to learn a little bit from many renowned personalities including sports person, businessman, authors and even politicians. There is something to learn from any successful person in any field.
Among Indian investors, I admire Ramdeo Agarwal, Vijay Kedia, Porinju Veliyath, and Basant Maheswari.
Outside India, I have deep respect for Warren Buffet, Charlie Munger, Peter Lynch and many others.
Having said that I never attempted following any particular investor’s principles because I know I can’t be another Warren Buffet or Ramdeo Agarwal. So, I must have to be myself, and that is very important. Thus, I admire many successful personalities, try learning a little bit from all of them and finally be myself.
Although not directly related to the stock market but the book “Rich Dad Poor Dad” motivated me a lot for starting my investment journey during my college days. I strongly recommend the book “Rich Dad Poor Dad” to all youths. Even outside stock market, I owe much of my success to the authors like Robin Sharma, Shiv Khera, Robert Kiyosaki and many others.
The biggest challenge is to maintain performance and reputation. Since 2012, the brand Paul Asset helped many retail investors for wealth creation. It makes me happy while I come to know that we helped many investors in reaching their personal goals like house, car, child’s education, marriage, etc.
The biggest challenge is to maintain our own past performance for the next many decades. It is easy to score a century on three consecutive matches but very difficult to maintain a 50+ batting average over few decades-long Cricket career. Success is a journey, not a destination.
Q. If a newbie investor walked up to asking for your advice and you only had a few minutes to give ‘em your best tip, what would it be?
Practice, Practice and Practice.
You can’t be a successful investor just by reading 2-3 books. If you do, then it is only you are lucky in a few particular instances, and it can’t be repeated, i.e. you can’t maintain the consistency. Remember from Nursery to Graduation you have spent 18+ years to become successful in your current profession. So, there is no shortcut. With the advent of the internet, everything at your fingertips but you have to work hard and give time to master any art.
Q. What’s next for you?
From the beginning, my target was to add values while keeping morals intact. Name, fame and money would automatically follow. So, the next is also value creation keeping the morals intact. Everything else would automatically follow.
Q. Thank you so much Prasenjit, for sharing your valuable time and knowledge. Anything else that you would like to share with our readers?
Keep doing whatever you believe for yourself. Successful journeys are always filled with obstacles. Successful peoples are not Lucky. Instead, Luck is attracted towards them for their honest dedication and hard work.
Whatever you are today is the result of your last 5-10 years. So, if you really want a better future for yourself in any field, make sure to dedicate at least 5-10 years while keeping morals intact. Good Luck!
Thank you so much Prasenjit for sharing your time. Your journey is truly inspiring for all the new and old investors. Let me quickly summarize a few of the learnings from Prasenjit Paul:
Prasenjit’s View on life and goals
Follow your dream.
Start as early as possible.
Prasenjit’s View on investing:
Many times your stocks won’t perform, you would stare at loss. In spite of all those, you have to keep your basics intact.
Prefer growth over value. While you are investing in one of the world’s fastest-growing major economies like India, you must have to put higher focus on growth over value.
Avoid short-term, intraday trading, Futures, and Options, etc. The reward and peace of mind from long-term investing is sufficient enough to ignore any short term options.
Finally, Practice, Practice, and Practice.
That’s all. I hope this interview is encouraging for all our readers to take their next step in the investment world. Do comment below if you have any other questions that you’ll like to ask him. We’ll forward your questions to him. #Happy Investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Understanding Regulations to Invest in US/Foreign stocks for Indians: Owning foreign shares like Tesla, Apple, Amazon, etc has been made so simple that Indian investors can now do it with the click of a mouse. All one has to do now is find a good international broker to create an account by providing details such as name, email, and mobile number to start.
This is followed by providing documentation like PAN card and address proof. The brokers take care of paper-work, authorizations from banks, getting the RBI clearances being, and opening an account. Almost seems like investing in Indian markets!
With the process now being seamless, it is easy for investors to get carried away. At times lose track of the guidelines set for investing abroad. So let us find out and understand better the guidelines that govern investing abroad. Here, we’ll look into the Regulations to Invest in the US or foreign stocks for Indians. Let’s get started.
Regulations to Invest in US or Foreign stocks
Transferring money abroad used to be complex with a lot of approvals required. The advent of globalization simplified the process with the introduction of the Liberalised Remittance Scheme (“LRS”) in 2004.
RBI’s Liberalised Remittance Scheme (LRS) allows Resident Individuals in India to acquire foreign securities without prior approval. They canfreely remit money out of India, up to the given threshold, with the help of authorized dealers and Indian banks. The threshold is currently set at $250,000 for one financial year (April to March). At the current rate (73.59) this amounts to Rs. 1.83 crore. Individuals here have to watch out for forex changes.
Current and Capital Account Transaction
It is important to understand all transactions involved in LRS other than stock market investments. This is because they too affect the remittance ability of an individual. This $250,000 is permissible for current or capital account transaction or a combination of both. The current account transaction can include gifts, donations, emigration, medical treatment, business travel, private visits to any country (except Bhutan and Nepal). The Capital account transaction include the following:-
Making investments abroad ( Debt instruments, shares, etc.)
Purchasing property abroad.
Buying objects of art.
Extending loans including loans in INR to NRI/PIO close relatives.
Setting up of wholly-owned subsidiaries and joint ventures outside India for bonafide business.
Repayment of loan acquired when you were a non-resident etc.
The LRS restricts buying and selling of foreign exchange abroad, or purchase of lottery tickets or sweepstakes, proscribed magazines, etc. An individual is also restricted from investing in a country that has been identified by the Financial Action Task Force as “non-co-operative countries and territories”.
Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme. This is even if the proceeds have been brought back into the country. The individual however can send money as many occasions as he wants. This is as long as the $250,000 cap is maintained. It is not necessary that the remittances have to be made only in US dollars, they can be made in any freely convertible currency.
In the case of investment in shares, debt instruments, and mutual funds it is not necessary that the interest or dividend earned have to be remitted back. They can be reinvested or retained or used to meet any expenses abroad. The investment and their profits too can be reinvested without being brought back to India.
Which individuals are considered as resident individuals?
Any individual that satisfies one of the following 2 conditions would qualify as a resident of India:
Stayed in India 182 days or more in a year or
Stayed in India for 365 days or more for the immediate 4 preceding years and 60 days or more in the relevant financial year.
How are taxes affected in India for income earned abroad?
According to income tax rules, the income earned anywhere in the world is taxable in India for you. However, if taxes have already been deducted at source abroad. Then the individual can make use of the Double Taxation Avoidance Agreement (DTAA) where the income was earned. According to this if the taxes have already paid in the country abroad, as long as that country has a DTAA with India the individual will not be required to pay tax on the income once again.
What are the exceptions to the LRS cap?
If the $250,000 cap is reached one may still remit more funds if it takes prior approval from the Reserve Bank. The exception also includes medical treatment where one can still remit more than USD 250,000 without approval from RBI.
This is if one can produce certain documents. In the case of education undertaken abroad too may be allowed without prior approval from the Reserve Bank. This is because students are considered NRIs from day one (of moving abroad for studies).
Closing Thoughts
Date
Feb 4, 2004
Dec 20, 2006
May 8, 2007
Sep 26, 2007
Aug 14, 2013
Jun 3, 2014
May 26, 2015
LRS limit (USD)
25,000
50,000
1,00,000
2,00,000
75,000
1,25,000
2,50,000
Despite liberalizing the economy it is important for a country like India to practice control on foreign exchange movements in and out of the country. India already spends much more on foreign exchange than we earn. The RBI keeps an eye and adjusts the cap accordingly.
The table above shows the limits adjusted by the RBI throughout the years, A situation where unlimited remittances are allowed would ruin the exchange rates of the country. This makes LRS all the more important to be implemented.
That’s all for today’s article on regulations to Invest in US or abroad. Hope it was useful to you. Please comment below what you think of these regulations to Invest in US and other foreign stocks. Happy Investing!
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.
List of Top Indian Philanthropist Businessmen: “Is the rich world aware of how four billion of the six billion live? If we were aware, we would want to help out, we’d want to get involved.” these are the words of once richest man Bill Gates who himself has donated over $36 billion. But do we have businessmen who think similarly to him when it comes to philanthropy in India? Lucky for us we do some who believe in the act of giving.
Today, we take a look at the Top 10 Indian Philanthropist Businessmen. Below are the best Indians who have made significant donations in 2020 – the year we needed it the most.
Top 10 Indian Philanthropist Businessmen for 2020!
1. Azim Premji
Wipro chairman Azim Premji has topped the list of philanthropists to become India’s most generous person for 2020. The Seventy-four-year-old tech magnates donations amount to Rs. 7,904 crore. Azim Premji is the founder-chairman of Wipro. In 2013, he signed The Giving Pledge to donate at least half of his wealth, a campaign started by Bill Gates and Warren Buffett.
So far he is well on course towards achieving this goal as he has donated $21 billion to Azim Premji Foundation, an education-focused non-profit he founded in 2001. On April 1, 2020, Azim Premji Foundation (₹1,000 crores), Wipro (₹100 crores), and Wipro Enterprises (₹25 crores) had committed ₹1,125 crores towards tackling the Covid-19 outbreak. These were in addition to Wipro’s annual Corporate Social Responsibility (CSR) activities. His donations for the last 3 years amounted to Rs. 9143 crores.
2. Shiv Nadar
HCL Technologies’ founder chairman and Padma Bhushan awardee Shiv Nadar comes second on the list. Nadar donated ₹795 crores for charitable causes. Nadar was at the top of the list of India’s most generous billionaires last year. So far Nadar is said to have donated over $900 million through the Shiv Nadar Foundation, impacting over 30,000 students directly. The foundation pursues creative philanthropy.
Among other things, the foundation supports rural education and provides scholarships for underprivileged students to study abroad. Nadar’s wife, Kiran Nadar chairs the Kiran Nadar Museum of Art, India’s first private philanthropic art museum exhibiting modern and contemporary works from India and the subcontinent. His donations for the last 3 years amounted to Rs. 2391 crores.
3. Mukesh Ambani
Asia’s richest man Mukesh Ambani came in third on the list. Mukesh Ambani is the Chairman and Managing Director of Reliance Industries and was born into the billionaire Ambani family.
A majority of his donations were directed towards disaster relief with Rs. 500 crores being donated towards the PM CARES Fund. He also donated Rs. 5 crores each to the Chief Minister’s Relief Fund of Maharashtra and Chief Minister’s Relief Fund of Gujarat to support their fights against the Covid-19. The 63-year old billionaire has donated Rs.1297 crores in the last three years.
4. Kumar Mangalam Birla
Kumar Mangalam Birla & family ranked fourth on the list. The group has donated Rs. 400 crore to the PM CARES Fund. They also have specifically allocated Rs 50 crore for supplying N95 Masks, PPE’s and ventilators. Their donations for the last 3 years amounted to Rs. 374 crores.
5. Anil Agarwal
The fifth position is occupied by the founder and chairman of Vedanta, Anil Agarwal who donated Rs 215 crore. In September 2014 Anil Agarwal pledged 75 percent of his wealth to charity.
A majority of his donations are directed towards healthcare. His foundation also works towards education and computer literacy, vocational training, women and child empowerment, and community welfare. His donations for the last 3 years amounted to Rs. 352 crores.
6. Ajay Piramal
Ajay Piramal & family rank 6th among the nation’s top philanthropists with donations of Rs. 196 crore. The Piramal family runs a conglomerate that specializes in pharma, healthcare, and financial services. They participate in philanthropic activities through the Piramal Foundation, initiating projects in areas of healthcare, education, livelihood creation, and youth empowerment. His wife Swati is vice-chairman and their children Nandini and Anand serve on the board.
On 31st March 2020, Piramal Group commits Rs. 25 crores to PM CARES Fund. In November 2019, Piramal Foundation and Gates Foundation partner to set up a Tribal Health Collaborative and will work closely with the Government of India to achieve Sustainable Development goals by 2030. Their donations for the last 3 years amounted to Rs. 596 crores.
7. Nandan Nilekani
Co-founder and chairman of Infosys and Chairman of UIDAI ranked 7th with his wife Rohini with a donation of Rs. 159 crore. They too have signed the Giving Pledge in 2017, committing to donate half of their wealth towards philanthropy.
8. Hinduja brothers
The four Hinduja brothers, Srichand, Prakash, Gopichand, and Ashok Hinduja rank 8th on the list with a donation of Rs. 133 crore. They make their donations through the Hinduja Foundation which focuses on Water Stewardship, Healthcare, Education, Rural Development, and Arts and Culture.
9. Gautam Adani
Chairman of Adani Group Gautam Adani claim the 9th spot with donations of Rs. 88 crore. The Adani group handles businesses in ports, energy, agriculture, defense, and aerospace. He is also president of the Adani Foundation, the company’s social responsibility arm founded in 1996. Adani Foundation works in four key areas such as Education, Community Health, Sustainable Livelihood, and Community Infrastructure Development, in alignment with the Sustainable Development Goals.
It has established the Adani Vidya Mandir, a school for underprivileged children in Ahmedabad, Bhadreshwar, and other states and supports 300 government schools, educating over 100,000 children. On 29 March 2020, Gautam Adani led Adani Foundation announced Rs. 100 crore donation to PM CARES Fund. Their donations for the last 3 years amounted to Rs. 138 crores.
10. Sudhir and Samir Mehta
Sudhir and Samir Mehta ranked 10th on the list with Rs. 81 crores in donations. The brothers together operate the Torrent Group. The Mehtas are the second most generous family in Gujarat after Adani’s. The brothers have donated a total of Rs. 138 crores over the last 3 years.
Honorary Mention – Ratan Tata
This top philanthropic list would never be complete without mentioning the Padma Bhushan recipient Ratan Tata and family. Ratan Tata follows in the footsteps of Jamsetji Tata and after retirement has taken up the full-time leadership role of Tata Trusts. In fact, Tata Trusts the philanthropic arm owns 66% of the group holding company – Tata Sons.
The trust donates to various causes, some of them being healthcare, education livelihood, water, sanitation and hygiene, skill development, etc. The Trust has donated over 850 million to date. Their recent donation included Rs 500 crore to procure protective equipment for frontline workers, respiratory systems for treatment of increasing cases, and testing kits in the fight against COVID-19.
Closing Thoughts
Today we covered the list of top 10 Indian Philanthropist Businessmen. The above list prepared by Hurun India and EdelGive gives us insights into the philanthropic sector.
The list also includes Binny Bansal in the 21st position. Binny Bansal became the first philanthropist under the age of 40 to enter the philanthropy list which has an average age of 66 years. The list also highlighted the role played by women in running family charitable trusts. Major philanthropic donations are directed towards Education, Healthcare, and disaster relief.
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.
List of Most Frequently Used Trading Animals in the Share Market (Bull, Bear, Stags, Wolves & More): Have you watched the movie ‘The Wolf of Wall Street” starring Leonardo DiCaprio as Jordan Belfort? If yes, then have you wondered why he has been referred to as a wolf in the movie? What’s an animal doing in the stock market-based movie?
Well, Animals in the Stock Market are commonly used terminology to define specific characteristics of the type of traders or investors or market scenario. In this article, we are going to discuss 11 of such most commonly used animals in the stock market. Please read the article till the end as there are some bonuses in the last section of this post.
11 Most Frequently Used Trading Animals in the Share market:
Here are the eleven most frequently used animals in the share market by stock analysts or the authors of investing books.
1. Bulls – The Optimistic
The bulls represent the investors or traders who are optimistic about the future prospects of the share market. They believe that the market will continue its upward trend. Bulls are the ones who drive the share price of companies higher.
2. Bears – The Pessimistic
Bears are the investors or traders who are totally opposite of the bulls. They are convinced that the market is headed for a fall. Bears are pessimistic about the future aspects of the share market and believe that the market is going to be in RED. Mostly, bears are the reasons for getting the share prices lower.
Quick note: The bulls and bears are often used to describe the market condition. A bull market is a scenario when the market appears to be optimistic and climbing new highs. On the other hand, a bear market describes a market where things are not good and appears to be a long-term decline.
3. Rabbits
The term rabbits are used to describe those traders or investors who take a position for a very short period of time. The trading time of these traders is typically in minutes.
These types of traders are scalpers and trying to scalp profits during the day. They do not want overnight (or long-term) risk and just looking for an opportunity to make some quick bucks for the market during the day.
4. Turtles
The turtles are typically those investors who are slow to buy, slow to sell, and trades for the long-term time frame. They look at the long-term frame and try to make the least possible number of traders. This kind of investor does not care about the short-term fluctuations and most concerned with long-term returns.
5. Pigs
“Bulls make money, bears make money, pigs get slaughtered”
These investors or traders are impatient, willing to take high risk, greedy, and emotional. The Pigs don’t do any kind of analysis and always look out for hot tips and want to make some quick bucks from the share market. Pigs are the biggest losers in the stock market.
6. Ostrich
Ostriches are those kinds of investors who bury their heads in the sand during bad markets hoping that their portfolio won’t get severely affected.
These kinds of investors ignore negative news with an expectation that it will eventually go away and will not impact their investments. Ostrich investors believe that if they do not know how their portfolio is doing, it might somehow survive and come out alright.
7. Chickens
Chicken refers to those investors who are fearful of the stock market and hence do not take risks. They stay away from the market risks by sticking to conservative instruments such as bonds, bank deposits, or government securities.
8. Sheeps
Sheep are those kinds of investors who stick to one investing style and do not change according to the market conditions.
They are usually the last ones to enter an uptrend and the last one to get out of a downtrend. The sheep like to be on the side of the majority (herd) and follow a guru. They are not interested to develop their own investing/trading method.
Dogs are those stocks that have been beaten down by the market due to their poor performance. Many financial analysts look into the dog stocks closely as they expect these stocks to recover in the upcoming days.
10. Stags – The Opportunistic
This kind of investors or traders are not really interested in a bull or bear market. They just lookout for opportunities. They are neither bullish nor bearish.
For example, Stags can be the traders who buy the share of a company during its initial public offering (IPO) and sell them when the stock is listed and trading commences. They do stagging with the hope to get listing gains and hence these individuals are called stags.
11. Wolves
Wolves are powerful investors/traders who use unethical means to make money from the share market. Mostly, these wolves are involved behind the scams that move the share market when it comes to light.
For example- Harshad Mehta can be considered as the wolf of Dalal Street. He was charged with numerous financial crimes that took place in the Securities Scam of 1992. Similarly, the famous Hollywood movie ‘The Wolf of Wall Street’ depicted Jordan Belfort, who was convicted on charges of stock fraud in his penny stock operation and stock market manipulation.
A lame-duck is a type of trade or investor who trades and ends up with a huge loss. Lame ducks have either defaulted on their debts or gone bankrupt due to the inability to cover trading losses. The phrase can be traced to the early years of commodity trading and the development of the London Stock Exchange during the mid-1700s.
13. Hawk & Dove
Hawks and doves are terms used to describe the types of policymakers who take critical stances on different economic situations. It basically suggests the sensitivity of a policymaker is towards an economic situation. A ‘hawk’ wants a tough stance in an economic situation, whereas a ‘dove’ wants to be easy with it.
14. Whales
These are the big investors who can move the stock price when they buy or sell in the market. You can make a lot of money if you trade alongside the right whale.
15. Sharks
Shares are those traders who are just concerned about making money. They get into the trades, make money, and exits the share market. The sharks have very little interest in big complicated methods of making money from the market.
16. Dead Cat Bounce
The dead cat bounce slang is used to refer to a temporary recovery during the bear run. Either it could mean a temporary upswing of the market in the midst of a bear run or it could refer to the particular stock behavior.
Interestingly, this phrase has been employed from the explanation that if you throw a dead cat against a wall at a high rate of speed, it will bounce – but it is still dead.
17. Dogs of the Dow
This is a popular investing strategy where the investors select the 10 highest dividend-yielding blue-chip stocks from the Dow Jones Industrial Average (DJIA) every year. The main reason to follow the Dogs is that it presents a straightforward formula designed to perform roughly in line with the Dow. This concept was originally published by Michael O’Higgins’ in his book, “Beating the Dow,” in which he also coined the name “Dogs of the Dow.” Similar to this concept, Dogs of the Sensex is used in India.
That’s all. I hope this post on trading animals in the share market is helpful to you. Let me know what kind of trading animal you are- in the comment box. #HappyInvesting.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Explaining the Harshad Mehta Scam of 1992: The magnitude of the Harshad Mehta scam was so big, that if put into perspective today, it brought a bear market in the Dalal street. If we look into the numbers, this single man deceived the entire nation with an amount of over Rs 24,000 crores (which is way bigger than Nirav Modi or Vijay Mallaya scams).
Today, we take a look at how the Harshad Mehta scam was executed and possibly try to understand how he was able to fool the entire Dalal market and even the Indian banking systems. Further, we’ll also discuss why he plays such a considerable role in our pop culture and that too not as an antagonist.
Harshad Mehta’s Rs 40 Journey
Perhaps what makes the Harshad Mehta story even more interesting is that despite migrating to Mumbai with only Rs. 40 in his pocket he managed to influence the country in such a massive way. Once he discovered his interest in the stock market he worked for broker Prasann Panjivandas in the 1980s. Harshad considered Prasann Panjivandas as his guru. Over the next decade, he went on to work for several brokerage firms eventually opening up his own brokerage under the name GrowMore Research and Asset Management.
By the 1990s, Harshad Mehta had risen to such prominence in the Stock market that he was known as the ‘Amitabh Bachchan of the Stock Market’. Terms such as ‘The Big Bull’ and ‘ Raging Bull’ were regularly used in reference to him. Over time he became particularly known for his wealth in the 1990s which he did not shy away from boasting about through his 15,000 sq. ft. penthouse and array of cars. He was described by Journalist Suchita Dalal as charismatic, ebullient, and recklessly ambitious. Perhaps it was this recklessness that led to his downfall through his ambitious schemes.
The Broken Financial Environment of the 1990s
The year 1991 marks the year of liberalization of the Indian economy. Today we are grateful for this opening-up, however, Indian businesses found their own set of challenges. The public sector was forced to face increased competition and was under pressure to display profitability in the new environment. The private sector, however, responded positively to this news as this would mean more funds from foreign investments.
The new reforms also were welcomed by the private sector as they now were allowed entry into new sectors of businesses that were earlier reserved for the government enterprises. The stock market reacted positively to this with the Bombay Stock Exchange touching 4500 points in March 1992. But liberalization was not the only factor responsible for this. The period also an increase in demand for funds. The Banks were pressured into taking advantage of the situation to improve their bottom line.
The banks are required to maintain a certain threshold of government fixed interest bonds. The governments issue these bonds with the aim of developing the infrastructure of the country. Million-dollar development projects are taken up by the government which are financed through these bonds. How much is to be invested in these bonds depends on the bank’s Demand and Time Liabilities. The minimum threshold that the banks had to maintain as bonds in the 1990s was set at 38.5%. This minimum percentage that banks have to maintain in the form of bonds or other liquid assets is known as the Statutory Liquidity Ratio(SLR).
Along with this, the banks were also pressured to maintain profitability. Banks were, however, barred from participating in the stock market. Hence they were not able to enjoy the benefits of the Stock Market leap during 1991 and 1992. Or at least they were not supposed to.
What did banks do if they couldn’t maintain the SLR ratio?
The banks at times may have temporary surges in the Net Demand and Time Liabilities. In such times banks would be required to increase their bond holdings. Instead of going through the whole process of purchasing bonds the banks were allowed to lend and borrow these liquid securities through a system called Ready Forward Deals (RFD). An RFD is a secured short term loan (15 days) from one bank to another. The collateral here is government bonds.
Instead of actually transferring the bonds the banks would transfer something called Bank Receipts (BR). This is because the bond certificates held by the banks would be of bonds worth 100 crores whereas the requirements by the banks to maintain their SLR would be much lower. Hence BR’s were a much more convenient way of short term transfer.
The BR’s were a form of short term IOU’s (I Owe You). However, when an RF deal was exercised they never looked like loan transfer but a buy and sale of securities represented by BR’s. The borrowing banks would sell some securities represented by BR’s to the lending banks in exchange for cash. Then at the end of the period say 15 days the borrowing bank would buy the BR back (securities) at a higher price from the lending bank. The difference in the buy snd sell prices would represent the interest to be paid to the lending banks. Due to the BR’s, the actual transfer of securities doesn’t take place. BR’s could simply be canceled and returned once the deal was completed.
Was the use of Bank Receipts (BR) allowed?
The RBI set up a Public Debt Office (PDO) facility to act as the custodian for such transfer of bonds. As per the RBI BR’s were not permitted to be used for such purposes. However, the PDO facility was plagued with inefficiencies. Hence the majority of the banks resorted to BR. This system existed with the knowledge of the RBI which allowed it to flourish as long as the system worked.
What roles did the brokers play here?
Brokers in the markets played the role of intermediaries between two banks in the RFD system. They were supposed to act as middlemen helping borrowing banks meet lending banks. A brokers’ role should have ended here where it is done in exchange for a commission.
Where the actual exchange of securities and payments should have taken place only between the bank’s brokers soon found a way to play a larger role. Eventually, all transfer of securities and payments were made to the broker. Banks also began welcoming these because of the following reasons
Liquidity: Brokers provided a quick and easier alternative to dealing with in comparison to dealing with another bank. Loans and payments would hence be provided on short notice in a quick manner.
Secrecy: When deals were made through a broker it would not be possible for the lending banks to find out where the loans were being moved to. Similarly, the borrowing banks too would not be concerned where the loans would be coming from. The dealings were both done only with the broker.
Credit Worthiness: When banks would deal with each other, the transaction would be placed depending on the creditworthiness of the borrowing bank. However, once brokers took over the settlement process this benefitted the borrowing banks as they would have loans available regardless of their creditworthiness. The lending banks would lend based on the trust and creditworthiness of the broker.
Brokers entering the settlement process made it possible that the two banks would not even know with whom they have dealt with until they have already entered into the agreement. The loans were viewed as loans to the brokers and loans from the brokers. Brokers were now indispensable.
The Role played by Harshad Mehta.
Harshad Mehta used to broker the RF deals as mentioned above. He managed to convince the banks to have the cheques drawn in his name. He would then manage to transfer the money deposited in his account into the stock markets. Harshad Mehta then took advantage of the broken system and took the scam to new levels.
In a normal RF deal, there would be only 2 banks involved. Securities would be taken from a bank in exchange for cash. What Harshad Mehta did here was that when a bank would request its securities or cash back he would rope in a third bank. And eventually a fourth bank so on and so forth. Instead of having just two banks involved, there were now multiple banks all connected by a web of RF deals.
Harshad Mehta and the Bear Cartels
Harshad Mehta used the money he got out of the banking system to combat the Bear Cartels in the stock market. The Bear Cartels were operated by Hiten Dalal, A. D. Narottam and others. They too operated with money cheated out from the banks. The Bear Cartels would aim at driving the prices low in the market which eventually undervalued various securities. The Bear Cartels would then purchase these securities at a cheap price and make huge profits once the prices normalized.
Harshad Mehta countered this by pumping money from the stock market to keep the demand up. He argued that the market has simply corrected the undervalued stock when it revalued the company at a price equivalent to the cost of building a similar enterprise. He put forward this theory with the name replacement cost theory. This theory was a fallacy on his behalf or an illusion he resented to the public to justify his investments. Such was his influence in the stock market that his words would be blindly followed similar to that of a religious guru.
He would use the money from the banks which was temporarily in his account to hike up the demand of certain shares. He selected well-established companies like ACC, Sterlite Industries, and Videocon. His investments along with the market reaction would result in these shares being exclusively traded. The price of ACC rose from Rs.200 to nearly Rs. 9000 in a span of 2 months.
The banks were aware of Harshad Mehta’s actions but chose to look away as they too would benefit from the profits Harshad would make from the stock market. He would transfer a percentage to the banks. This would also enable banks to maintain profitability.
Video Credits: Set in the 1980’s & 90’s Bombay, “Scam 1992” tv series based on SonyLIV follows the life of Harshad Mehta
The Scam within the Scam
Harshad Mehta noticed early on the dependence of the RF deals on BR’s. In addition to this, the RF deal system also placed a great deal of reliance on prominent brokers like Harshad Mehta. So he along with two other banks namely Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) decided to further exploit the system. With the help of these two banks, he was able to forge BR’s. The BR’s that were forged were not backed by any securities. This meant that they were just pieces of paper with no real value. This is similar to a situation where you can avail loans with no collateral. Harshad Mehta further would pump this money into the stock market increasing his amount of influence.
The RBI is supposed to conduct on-site inspections and audits of the investment accounts of the banks. A thorough audit would reveal that amount represented by BR’s in circulation was significantly higher than the government bonds actually held by the banks. When the RBI did notice irregularities it did not act decisively against Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB).
Another method through which the collateral was eliminated was by forging government bonds themselves. Here the BR’s are skipped and fake government bonds are created. This is because PSU bonds are represented by allotment letters making it easier for them to be forged. However, this forgery amounted for a very small amount of funds misappropriated.
Exposing the Harshad Mehta Scam
Journalist Sucheta Dalal was intrigued by the luxurious lifestyle of Harshad Mehta. She was particularly drawn to the fleet of cars owned by Harshad Mehta. They included Toyota Corolla, Lexus Starlet, and Toyota Sera which were rarities and a dream even for the rich in India during the 1990s. This further interest had her further investigate the sources through which Harshad Mehta amassed such wealth. Sucheta Dalal exposed the scam on 23rd April 1992 in the columns of Times of India.
It has been alleged that the Bear Cartel ganged up on Mehta and blew the whistle on him to get rid of him and the bullish run altogether.
Aftermath of Harshad Mehta Scam Exposure
— Effect on the Stock Market
Less than 2 months after the scam was exposed, the stock market had already lost a trillion rupees. The RBI created a committee to investigate the matter. The Committee was called the Janakiraman Committee. As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a trillion or 1 lakh crores.
This major fall, however, cannot be attributed to the scam alone but also to the governments’ harsh response. In an attempt to ensure that all the parties involved are brought to justice, the government did not permit the sale of any shares that had gone through the brokers in the last one year. This affected not only the brokers but also the innocent shareholders who may have gone through these brokers to purchase securities. The shares came to be known as tainted shares. Their value was reduced to pieces of paper as their holder was not allowed to sell them. This just resulted in a worsened financial environment.
— Effect on the Political environment
The opposition demanded the resignation of the then Finance Minister Manmohan Singh and the RBI Governor S. Venkitaramanan. Singh even offered his resignation but this was rejected by prime minister P. V. Narasimha Rao.
— Effect on the Banking Sector
When the scam was exposed the banks started demanding their money back and recovery efforts made them realize that there were no securities backing the loan either. The Investments in the stock market by Harshad Mehta were tainted and had reduced by a significant value. A number of bankers were convicted. It also led to the suicide of the chairman of Vijaya bank.
— Further Investigation
The investigations revealed many players like Citibank, brokers like Pallav Sheth and Ajay Kayan, industrialists like Aditya Birla, Hemendra Kothari, a number of politicians, and the RBI Governor all had played a role in the rigging of the share market. The then minister P. Chidambaram also had utilized Harshad Mehta’s services and invested in Harshad Mehtas Growmore firm through his shell companies.
— Effect on Harshad Mehta’s Life
Harshad Mehta was charged with 72 criminal offenses and more than 600 criminal action suits. After spending 3 months in custody Mehta was released on a bail. The drama however never subdued but only intensified. In a press conference, Harshad Mehta claimed that he had bribed the then Prime Minister P.V. Narasimha Rao for Rs 1 crore to secure his release.
Harshad Mehta even displayed the suitcase in which he allegedly carried the cash. However he CBI never found any concrete evidence of this. Harshad Mehta was now also barred from participating in the stock market.
Investigators felt that Harshad Mehta was not the original perpetrator who forged the bank receipts. It was clear that Harshad Mehta capitalized and made profits using these methods. They also saw the possibility of the bear cartels ganging up on Harshad Mehta to get rid of the bearish markets by blowing the whistle on him and having the scam exposed through Sucheta Dalal. This, however, drew the investigators’ attention to the bear cartel as well as they too had used the same means as Harshad Mehta. These other brokers were eventually tried too.
In addition to this, the IT department claimed an income tax owed to them Rs.11,174 crores. Harshad Mehta’s firm GrowMore had significant clientele and the IT department had linked all the transactions that may have involved Harshad Mehta or his firm with Harshad Mehta’s income. His lawyer addressed this as bizarre as Harshad Mehtas lifetime assets were worth around Rs.3000 crores. He highlighted the possibility where by making Harshad Mehta the face of the scam allowed other powerful players a chance to have the focus lifted away from them and escape or slowly be exonerated.
Life after Release and Death
Harshad Mehta made a comeback as a market guru sharing advice on his website and newspaper columns. In September 1999 the Bombay Highcourt convicted him and sentenced him to 5 years of imprisonment. Mehta died while in criminal custody after suffering from cardiac arrest in Thane Prison on 31st December at the age of 48.
— Effect on Harshad Mehta’s Family
When Harshad Mehta died he still had 27 cases pending against him. Although all criminal cases have been cleared before his death there were still several civil cases pending in court. His wife still fights cases with recent victories over the IT department and a broker who owed Harshad Mehta 6 crores. The broker was ordered to pay the amount with 18% interest which roughly accumulated to 524 crores. The cases have dragged on for so long that his brother secured the law degree in his 50’s and represents the family in court. Harshad Mehta’s son now makes headlines regarding his investments.
Despite the scam, Harshad Mehta is still looked up to in certain circles, As reported by Economic Times some financial experts believe that Harshad Mehta did not commit any fraud, “he simply exploited loopholes in the system”. When Harshad Mehta was first released out of prison in 1992 he was greeted with cheers and applause as his return would signify the return of his bullish trend. It is doubted that if businessmen who have been embroiled in scandals with the likes of Vijay Mallya, Nirav Modi will receive the same welcome.
The Harshad Mehta scam can be looked at from two sides. The first is a scam where Harshad looted the stock market and the public or the second way where Harshad Mehta was made the scapegoat as someone had to be blamed and at the same time kept other influential people away from the limelight. The Year 1991 is generally referred to as the year of progress due to liberalization but if seen from this perspective discussed here it just makes one exclaim “ What a mess!”.
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.
TATA Group bidding for Air India – The story so far: The Tata Group is no stranger to Airplanes or to the business of Aviation, nor is Ratan Tata. At the age of 17 years, the octogenarian chairman of one of the biggest business conglomerate of India (TATA Sons), once landed a plane that had lost its sole engine mid-flight. To add to the tally of Ratan Tata’s credentials, he has also piloted the supersonic F-16 fighter Jet.
Now, with the chance of becoming the biggest full-service carrier in India, TATA sons are in a foray to bid for the ever ailing Air India. If Tata’s Air India bid gets through, it will the second full-service provider (Vistara is already a full-service provider) under the wing of TATA Group. In today’s article of Market Forensics by Trade Brains, we’ll cover the story so far on TATA Group bidding for Air India. Let’s get started.
TATAs Love for Aviation Industry
There is no hidden secret about the fascination of the TATA group with the Aviation Industry, more specifically with the business of Airlines. The following timeline will give a brief snippet of the TATA sons and its association with the business of aviation:
The legendary industrialist and philanthropist J.R.D. Tata was India’s first licensed pilot. He stated TATA Airlines in 1932 as the nation’s first carrier (flying mail between Karachi in then-undivided, British-ruled India and Bombay)
In 1953, the government nationalized TATA airlines and named it Air India.
Later in the 1990s when the economy was liberalized, TATA’s interest grew again and in 1994 they came up with a plan to start airlines with 100 airplanes in collaboration with Singapore Airlines. But the government refused the entry of foreign entrants and the plan didn’t materialize.
Later in the year 2014, a low-cost airline joint venture was entered with Malaysian business tycoon Tony Fernandes’ Air Asia.
And in the year 2015, Vistara was launched as a full-service airline in collaboration with Singapore Airlines. It was started with the motto to redefine air travel in India with “Personalized flying experience”.
In both the ventures mentioned above, TATA sons have a 51% stake.
TATA Group bidding for Air India – The Challenges
— Waving a Non-compete clause with Vistara Airlines
This will probably be the biggest challenge for TATA Sons. As TATA sons have already announced that they would want to consolidate the whole business of aviation into a single entity. And if they manage to win the bid and acquire Air India, it will come under the entity of Vistara. However, the conflict of Interest could arise as Vistara and Air India are both full-service providing carrier. TATA group is willing to go out alone to bid for Air India if Singapore Airlines don’t agree, even if it results in a fallout of the merger between TATA sons and Singapore Airlines.
Essentially even if Vistara were to go ahead and bid for Air India, it would need consent from SIA and Temasek – which owns 55% of Singapore airlines. And earlier Temasek had voiced their opinion against the proposed bidding of TATA sons for Air India.
— Turning the fortunes of National Loss-making Airlines
This could be the second biggest challenge facing TATA sons. If history is to be believed then TATA Sons themselves don’t have a great history running the business of airlines. And owning Air India will come along with its own set of debts and baggage.
In the first quarter of 2020, Air India made losses of rupees 28 crores per day. Its losses widened to Rs 2,570 crore in the June quarter, from Rs 785 crore a year earlier. Moreover, Air India is also famous for its unions and bureaucratic structure, which could sometimes become a tuff nut to crack.
In February 2021, N Chandrasekaran will complete four years as group chairman at TATA sons. The revival of the group’s aviation fortune will be at the top of his priority list. And if the aviation industry experts are to be believed, “The TATA group needs Air India under its wings to salvage the group’s aviation business”
From the time N Chandrasekaran took over the reins of group chairman, Vistara and Air Asia has increased their market share to 13.2% in October 2020 from a meager 7.2% in 2017. But industry leader IndiGo has performed even better. It is an undisputed leader of the aviation industry (51% in October 2020 from 39.5% in 2017)
However, if Air India (11% of domestic market share) were to come under its wings, then the group will have a combined domestic market share of 24.2% (nearly a quarter of the aviation sector pie).
But the real meat of the deal lies in the access to international markets that comes along with Air India. IndiGo does not seem to be too interested in the long haul flights. But with Air India flights, time-slots, and other international offices, TATA will get a firm footing in the international markets. Air India, along with its low-cost unit Air India Express that flies majorly to the Middle-East destinations, has a fleet of nearly 90 aircraft. The airline flies to over 40 international destinations. Air India Express will also be sold along with its parent.
The Government Incentive to Airline Bidders
The Government has sweetened the deal whereby the buyer is supposed to absorb the Rs. 23.286.5 crores of debt and the remaining amount will have to be transferred to Air India Assets Holding Limited (AIAHL), a special purpose vehicle created after the failed sale attempt in 2018. Air India had a total debt of Rs 60,074 crore as on March 2019, as per EoI. The debt would have grown substantially since then as the national carrier suffered due to the curtailed operations during a pandemic.
TATA Group bidding for Air India – What to Conclude?
Looking at the above discussion, it makes a lot of strategic sense for the TATA group to bid for Air India and begin its ascend in the domestic and global airlines market. However, it does come at a cost (buying cost, the debts of Air India, and the bureaucracy). But TATA group has experience in handling these sort of situations. In addition, the TATA group will also get a team of staff who is well trained and has been in the business of Aviation for a long time.
Before we wrap up, here are a few facts about Vistra and Air Asia business of TATA group:
Vistara has flown more than 5 million customers in the last one year, while the fleet size has also expanded significantly.
With 31 aircrafts today, Vistara flies to 27 destinations and operates 170 flights per day.
AirAsia India has 23 aircraft, reaching 19 destinations with 165 flights.
Vistara is the only airline to offer the choice of Premium Economy class for travel between India, Dubai, and Bangkok, in addition to Economy and Business Class.
That’s all for today’s Market Forensics article on the story of TATA Group bidding for Air India. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!
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!
Understanding Cognitive vs Emotional Biases: Every day of our lives is filled with decisions we take, some may be important and some are effortless as a result of habit. Unfortunately, these decisions are influenced by the observations we make, the experiences we’ve had, how we’ve been conditioned to reach, etc.
Even when we are grocery shopping we favor some products over the others simply because we like the celebrity that advertised them. Investors suffer from these biases too. His may not come as a surprise as investors often experience a roller coaster of emotions while investing or trading.
Today we take a look at common investment biases that exist. Here, we’ll be covering Cognitive vs Emotional Biases while investing. We do this with the aim of studying what leads to wrong decisions as this would assist us in avoiding huge future losses.
Cognitive vs Emotional Biases
The economic and financial theory is based on the assumption that individuals will act rationally and consider all available information in their decision-making process, and that markets are efficient. But this is rarely the case. Studies have shown that 80% of individual investors and 30% of institutional investors are not always logical.
This brings us to Behavioral finance. Behavioral finance is a branch of economics that explains the irrational decisions of an investor. These irrational decisions are a result of strongly ingrained biases that exist deep in our psyche. These biases have been classified as cognitive and emotional.
What is Cognitive Bias?
Cognitive biases are generally related to the way a person is wired to think. These biases are said to arise from statistical, information procession, or memory errors that cause the decision to deviate from a rational decision. Because of this, they are also easy to correct with better information, education, and advice.
Take for example security of a hotel hosting a celebrity event allows a Lamborghini in, based on the assumption that one of the celebs has a Lamborghini. This is a flawed approach as this may not necessarily be true.
Types of Cognitive biases
Here are a few common types of cognitive biases in behavioral finance while investing:
1. Confirmation Bias
When you get into arguments, have you ever tried to google facts to support your argument? Confirmation bias takes this a step further as people with confirmation bias only seek out evidence that confirms their beliefs and ignore evidence that contradicts them.
Say for eg. after some research you arrived at the conclusion that Reliance is good for investment. In order to support this, you only look for confirmation from studies, research in order to support your argument without even considering any opposing argument. Your decisions are now blurred due to confirmation bias. The easiest way to counter this would be to consciously gather the information that is contrary to your opinion.
2. Gamblers Fallacy
Humans make an effort to ensure that everything makes sense to them. This often leads them to look for patterns in areas where they are nonexistent. Nobel Laureate Daniel Kahneman is one of his studies asked his participants “Which of the following sequences is more likely to occur when a coin is tossed – HHHTTT or HTHTTH?”. The majority of the people answered that the second sequence is more likely to occur. This was flawed even with people already knowing that in such a situation a coin toss held a 50-50 chance.
This happens in investing as well, people tend to invest in funds simply because they have performed well for the last 5 years. Investors may perceive this as a trend that may carry into the future as well. If a study is done statistically it may make sense but past events don’t connect to future events. If the market has been rising for the last 1 month continuously it is not necessary that it will fall tomorrow. Shorting the market only based on this information is flawed.
People are more comfortable when things remain the same and are generally averse to changes. In investing this may be seen as investing only in industries that you seem to understand. Although a deeper understanding is necessary in investing it becomes a hindrance when people do not further their appetite to educate themselves further. This would limit their profit potential only to certain opportunities.
4. Negativity Bias
This occurs when investors give more weight to bad news over good news. When corona broke out in the country in Feb-March the markets began their bearish trends. After a few months, however, the markets resumed with bullish trends. Many investors missed this rally due to negative news. This bias can diminish the possibility of rewards.
5. Over Confidence Bias
A person who possesses this bias believes that his cognitive abilities and skills in the investment field are better than that of others. They also may not necessarily be in investing as a whole. A person working in the steel industry may believe that he has a better ability to trade in steel companies because he is from the same background. These investors overestimate their ability and the control they have over the markets. They also reduce the time required to assess risks.
When investors are overconfident in markets it generally leads to excessive trading. This leads to bubbles in financial markets. Securities here are bought at high prices and later sold at low prices. These traders/ investors underperform in the markets as they overlook various factors that affect their performance.
6. Bandwagon Effect
One of the greatest investors in the world, Warren Buffet attributes much of his success to resisting the bandwagon effect. Here investors feel better when they invest along with the crowd, this also adds to their confirmation bias.
What are the Emotional Biases?
Emotional biases stem from feelings, perceptions, beliefs about elements. Unfortunately mixing emotions and investing often leads to bad decisions. Here basically the investor’s brain is distracted due to his emotions. These biases are generally tougher to fix in comparison to cognitive biases.
Common Types of Emotional Biases
Here are a few common types of emotional biases in behavioral finance while investing:
1. Loss Aversion Bias
One of our aims in investing is to avoid losses. But this has become such a big part of our nature that we try to avoid losses even when we know that by doing so we are causing more harm. This was highlighted in the disposition effect. This term was coined by economists Hersh Shefrin and Meir Statman. The disposition effect is the tendency of investors to sell winning positions and hold onto losing positions.
Take for example your portfolio includes security that has recently started making losses and is soon to hit rock bottom. But you are still holding it hoping it makes a rebound. Investors here are soo averse to losses they cannot sell a security to avoid further losses. The rational thing to do here would be to sell the security and redirect the investment into quality stocks.
2. Self Attribution bias
When investors attribute the success of outcomes to their own actions and bad outcomes to external factors they are said to possess self-attribution bias. When their investments increase in value the investors claim that it is self-attributed ignoring other factors that may have been in play. But when the stocks decrease in value it is due to external factors.
Investors who possess this bias assume that the asset they own is more valuable than what they do not own. This may lead him to hold onto securities even when there are brighter opportunities elsewhere.
Closing Thoughts
Today, we covered the difference between Cognitive vs Emotional Biases and how they affect your investment decisions. Every investor is likely to portray some bias or at times both cognitive and emotional. Being humans there is no way that these biases will be eliminated. But understanding that they exist and that we possess them is the first step in countering them. We can then include rules in our strategies that counter these biases.
One rule could be to sell a security if it makes a 15% loss irrespective of any argument. Following this threshold of 15% would require overriding our emotions. Successful investors however have realized the importance of keeping their biases in check. Happy Investing!
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.
Introduction to Nifty Financial Services Index: Good News, Good news!! A new and very exciting product has been added to the kitty of the market participants trading in the Indian trading ecosystem. We are talking about the Index “Nifty Financial Services Index”.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing all about the Nifty Financial Services Index i.e what is Nifty Financial Services Index, its constituents, F&O Contract Specifications, and more. Let’s get started.
What is Nifty Financial Services Index?
NSE in its circular published on 10th Dec 2020 made the announcement that they have got permission to allow Nifty Financial services to be traded as a derivative product. From January 11, 2021, Nifty Financial Services will be allowed to trade in Futures and Options contract.
Till now the major indices that are being allowed to trade in the Indian equity market are Nifty and Bank Nifty. However, with the addition of Nifty Financial Services, there will be a total of three indexes allowed to have Futures and Options (F&O) contracts.
Therefore, adding the ‘financial services’ as a tradeable index to the trading ecosystem provides a huge boost and impetus for traders looking for more avenues to trade. And rather than having to trade all the constituents, one can express his/her view on the same by trading Nifty Financial Services.
Constituents of Nifty Financial Services Index
The Nifty Financial Services mainly comprises 20 stocks from various sectors like Banks, Non-Banking Financial Services, Insurance, etc. The following is the comprehensive list of all the constituents along with their weightage as on November 27, 2020. (Source: nseindia.com)
S. No
Stock Name & Weightage (%)
1
HDFC Bank Ltd. (27.13%)
2
Housing Development Finance Corporation (17.51%)
3
ICICI Bank Ltd. (14.14%)
4
Kotak Mahindra Bank. (12.10%)
5
Axis Bank Ltd. (6.46%)
6
Bajaj Finance (5.64%)
7
State Bank of India (4.06%)
8
Bajaj Finserv Ltd. (2.29%)
9
HDFC Life Insurance (2.21%)
10
SBI Life Insurance (1.43%)
11
Power Finance Corporation
12
Shriram Transport Finance Company Ltd.
13
REC Ltd.
14
ICICI General Insurance Co. Ltd
15
Cholamandalam Investment and Finance Company Limited
Criteria to be a part of Nifty Financial Services Index
Here are some of the criteria for companies to be a part of this Index:
NIFTY Financial Services Index is computed using the free-float market capitalization method, wherein the level of the index reflects the total free-float market value of all the stocks in the index relative to a particular base market capitalization value.
The company has to be a part of Nifty 500 to be able to qualify to be a part of this Index. But in case the number of eligible players falls below 10, then the companies will be selected from the Nifty top 800.
The company’s trading frequency should be at least 90% in the last six months.
The company should have a listing history of 6 months. A company, which comes out with an IPO will be eligible for inclusion in the index if it fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6 month period.
The weightage of each stock in the index is calculated based on its free-float market capitalization such that no single stock shall be more than 33% and the weightage of the top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.
Finally, the rebalancing of the companies included in this index happens semi-annually.
Here are some of the key Nifty Financial Services Futures and Options Contract Specifications:
The contract size for Nifty Financial services will be 40 units.
There will be a total of 7 weekly expiring contracts and 3 monthly expiring contracts
For Option trading, there will be a total of 30 In the Money contracts,1 At the Money contract, and 30 Out of Money contracts.
The strike interval will be 100 for options trading i.e., the gap between two consecutive strike prices will be 100. Say, for example, if the current At the Money Strike Price is 14300, then the immediate Out of Money strike will be 14400, and the immediate In the Money strike will be 14200.
Both Futures and Options contracts will be Cash Settled.
The daily circuit limit for a futures contract is 10%.
Closing Thoughts
The addition of an extra index for trading Futures and Options contracts provides an extra impetus for investors and traders willing to trade in the Indian Financial spectrum. It remains to be seen whether the contract garners sufficient interest from investors. But looking at the popularity of Bank Nifty as a derivative instrument, it is expected that the Financial services contract also attracts similar interest from investors and traders.
That’s all for today’s Market Forensics article on long-short funds in India. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!
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!
List of Best Metal Stocks in India – Indian Metal Industry: Did you know that the practice of manufacturing practical metals first began in India? Archaeological sites have been found in UP which provides evidence of iron implements all the way back to 1800 BCE. The Metal industry in India already has a significant place in history and today competes to once again achieve the status in global markets as well. Today we examine the Indian metal industry and the top companies that play an important role in the industry.
Post-Independence Indian leaders realized that in order to achieve economic growth one of the sectors they would have to focus on would be the metal industry. Historically too, the metal industry has had a dominant role so much so that it is now widely regarded as an indicator of economic progress. In Order to achieve this goal, it would be necessary to develop the primary(raw material), secondary(manufacturing), and tertiary sector(services sector) simultaneously as metals( primarily steel) was the common link between all three sectors.
India has several advantages over global players in this industry. The first being its strategic location. This puts it right in the middle of fast-developing Asian markets. In addition to this, the local demand is driven by growth initiatives also provides a boost to the industry. These initiatives include expansion of railway networks, the Housing for all by 2022 scheme (20 million houses), the developing shipbuilding industry, the defense sector being opened up to private players, growth in the automobile sector Development of 100 Smart Cities, Power For All, etc. All of these rely on metals hence mandating the metal industry’s growth along with theirs.
Let us now take a look at the different metal industries and the respective top companies in these industries. Here, we’ll cover the best metal stocks in India. Let’s get started.
A) Steel Industry
In 2019 India replaced Japan to become the world’s second-largest crude steel producer at 111.2 MT. The Government realizing the importance and potential of the industry takes special consideration in assisting the improvement of its performance. Currently, the steel industry contributes slightly more than 2% of the country’s GDP. This however accounts for its direct contribution. Indirectly its contribution is much higher. According to the World Steel Association for every two jobs created in the steel industry, 13 more jobs are created across the supply chain. The Ministry of Steel aims to increase the steel production capacity to 300 MT by 2030-31, indicating the opportunities in the sector.
Following are the three best metal stocks in India leading in the steel industry. Together these players account for around 50% of the capacity of the steel industry.
Tata Steel is not only Indias largest steel company but also makes it in the top 10 globally with a capacity of 34 MnTPA. It was established in 1907 and wasAsia’s first integrated private steel company.It also operates in Europe, which accounts for 12.1 MnTPA of its capacity. The acquisition of Bhushan Steel Limited in the year 18-19 added to the size of the company.
Tata Steel has manufacturing units in Jamshedpur, Jharkhand, and Kalinganagar, Odisha. As of 2019 the company had revenues of US$22 billion.
JSW Steel is part of the JSW Group and is the second-largest steel company in India. The company began with a single facility in 1982 and today has grown to have a capacity of 18 MnTPA. Its plants are present in the states of Karnataka, Tamil Nadu, and Maharashtra. The company further plans to expand its capacity to 40 MnTPA. It is also India’s leading manufacturer and exporter of coated steel with a capacity of 1.8 MTPA.
JSW Steel also has an international presence with plates and pipes plant, and mining facilities in the United States, Chile, and Mozambique. As of 2019, the company had revenues of US$12 billion.
Steel Authority of India Limited is a Public Sector Enterprises and was formed in 1974 as part of the government’s efforts to promote the country’s economic growth. It is the 20th largest steel producer in the world and the 3rd largest in India.SAIL produces iron and steel at 5 integrated steel plants at Bhilai, Rourkela, Durgapur, Bokaro, and Burnpur(Asansol) and 3 special steel plants at Salem, Durgapur, and Bhadravathi. As of 2019 the company had revenues of US$9.5 billion.
Unlike in Steel India falls behind in the Copper Industry. The growth in this sector is mainly driven by China. Although India exports copper there is still a significant portion of copper imported into the country. The major challenges that players face in this industry are due to outdated technology, improper infrastructure, high setup cost, high funding cost, and lack of skilled professionals. The period 2011-12 to 2016-17 has seen imports tripling at a CAGR of 15.4%. Following are currently the best metal stocks in India in the Copper Industry.
Steel Authority of India Limited is a Public Sector Enterprises and was formed in 1973. HCL is the only Indian Copper producer that engages in a wide spectrum of activities ranging from Mining, Beneficiation, Smelting, Refining, and Continuous Cast Rod manufacturer. It is the first Indian Copper Producer to be accredited with ISO 9002 certification for Continuous Cast Rod Manufacturer. Its mines and plants are spread across five operating Units, one each in the States of Rajasthan, Madhya Pradesh, Jharkhand, Maharashtra, and Gujarat.
Bhagyanagar India Ltd.(BIL) was founded in 1985 and is the second largest of the companies producing copper products in India. The Company deals in Copper products such as Copper Rod, Strips, Pipes, Busbars, Sheets among others. Over the years the organization has diversified into Telecom products, Solar Products, and Real Estate. The Company has been run by three generations of the Surana family and is Headquartered in Hyderabad.
The company was initially incorporated in 1981 with the name Shri Krishna Strips Ltd before changing it to Arcotech Ltd. It manufactures Copper as well as copper alloys products and aluminum products like Plates/Bars sheets strips foils and rods. It was able to establish itself as one of the major players in the industry Industry mainly by creating a niche in producing micro-thin foils up to 0.035 mm. Apart from copper the company also produces Phosphor Bronze, Nickel Silver, Nickel Brass, Cupro Nickel, Aluminium Bronze.
C) Zinc Industry
Zinc is the fourth most widely used metal globally after steel, Aluminium, and Copper. Just like other metals this industry too is led by China. China accounts for a 33.8% share of the total world production. The Demand for Zinc in India is based on the steel market. This is because Zinc is used in galvanizing and coatings of iron and steel to protect it from corrosion. 70% of the total demand for Zinc is dependent on Steel. Following are currently the top players in the Industry.
Hindustan Zinc is India’s largest and world’s second-largest zinc-lead miner. The company was incorporated as Metal Corporation of India in 1966 as a Public sector undertaking. Today the company is a subsidiary of Vedanta Limited which owns a 64.9% stake in the Company while the Government of India holds a 29.5% minority stake. The company has a reserve base of 114.7 million MT with an average zinc-lead grade of 8.7% and mineral resources of 288 million MT. They have a mine life of over 25 years. The company currently holds a 78% market share in India’s primary zinc industry.
Mewat Zinc is a Public Sector Enterprises and was formed in 1991. It produces zinc metal and related products and conducts business out of India. The company has been promoted by Industrialists and Technocrats.
3. Sunrise Zinc Limited
Sunrise Zinc Limited is an unlisted public company and was incorporated in 1993. It is located in South Goa, Goa. The proposed activities of the company are to manufacture Electrolyte Zinc, Copper Sulphate, and GOB Zinc.
D) Aluminium Industry
In comparison to other non-ferrous metals, Aluminium is the fastest growing metal. Its distinct properties of having higher strength to weight ratio, resistance to corrosion, formability, dampness make it highly valuable. Its demand has increased primarily due to its usefulness in the automobile industry. India is improving its stance in the sector as during 2011-12 to 2016-17 transformed India from being a net importer to a net exporter of Aluminium with a CAGR of 30%. Following are the best metal stocks in India in the Aluminium industry.
Hindalco Industries Limited an Indian aluminum manufacturing company. It is a subsidiary of the Aditya Birla Group. It is also one of the most profitable of all aluminum manufacturing companies in India. Hindalco is one of the world’s largest aluminum rolling companies and one of the biggest producers of primary aluminum in Asia.
The company has plants located in Odisha, West Bengal, Nagpur in Maharashtra, Renukoot in Uttar Pradesh, and Taloja near Mumbai in Maharashtra. Its subsidiary company – Hindalco-Almex Aerospace Limited manufactures high-strength aluminum alloys for applications in the aerospace, sporting goods, and surface transport industries. As of 2019 the company had a revenue of US$18 billion.
National Aluminium Company Limited, is a Public Sector Undertaking and was incorporated in 1981. The company is managed by the Ministry of Mines. The company is one of the largest integrated Bauxite-Alumina-Aluminium-Power Complex in the country encompassing bauxite mining, alumina refining, aluminum smelting and casting, power generation, rail, and port operations. As of 2019 the company had a revenue of US$1.2 billion.
3. BALCO
Bharat Aluminium Co. Ltd. was a Public Sector Undertaking and was incorporated in the year 1965. In 2001 the company was taken over by Vedanta Resources. The company was the first to produce alloy rods for conductors used in the power transmission industry, the first to roll material for Aerospace in the country, and the first to set up the widest Hot Rolling Mill in India.
Today, we covered the Indian metal industry and the best metal stocks in India. In the last few years, India’s domestic metal industry has suffered from a slump one of the causes being that of the trade wars impacting the industry. Most recently the pandemic brought the industry to a halt. This however is temporary and the growth is expected to pick up as soon as India begins focussing on its infrastructure developmental goals.
Unfortunately, the industry being capital intensive send every domestic player in losses in times of economic downturn which reduces demand for these metals. This had made many credit agencies skeptical of lending to the industry. Sound support from the government and a credit boost would go a long way in bringing players back on track
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.
List of Indian Companies with Monopoly in their Industry: How many Indian companies can you name that are monopolies? Today we identify one of Warren Buffets’ favorite categories i.e. monopolies, but in the Indian markets. Monopoly refers to the category of companies who due to their major competitive advantage are market leaders in their industry. These companies are very difficult to compete with and maintain the highest market share for their products and services.
In investing however the stocks of these companies are known as MOAT stocks. A Moat is a hole that used to surround Medieval castles. This was done as a defense measure in order to make it harder for invaders to attack the castle. The wider and deeper is the moat, the more protected is the castle is. In the business world, these Moats are either barriers to entry like huge capital, government restrictions, or business advantage that a company has made it hard to compete with them.
Today, we take a look at the public Indian companies with monopoly in their industry. There are market leaders in their industry with zero or very less competition. Let’s get started.
Top 10 Indian Companies with Monopoly
Following are the list of monopolies in the Indian markets i.e. the companies that enjoy the status of being a monopoly: (Company – Market Share)
1. IRCTC – 100%
IRCTC is a state-owned entity and the only player in the Indian markets that operate in the Industry. This makes it a monopoly as consumers have no other alternative. The company was founded in the year 1845.It is one of the largest railways in the world and is one of the world’s largest employers. Rail networks are generally considered as ‘ Natural Monopolies’. This is because only one train can use the rack at a given time.
However, countries like the UK have bought in private players by allowing them to bid for rail lines. Earlier this year India too announced that it will be opening the sector for players.
2. HAL – 100%
The Hindustan Aeronautics India Limited represents the Indian aviation industry and plays a very important role in the Indian defense sector. The company a set up in 1940 by Walchand Hirachand and the Government of Mysore, with the aim of manufacturing aircraft in India. Today the company is state-owned and is associated with designing, fabricating, and assembling aircraft, jet engines, helicopters, and their spare parts.
3. Nestle – Cerelac – 96.5%
Cerelac is the brand of instant cereal made by Nestle for infants 6 months and older as a supplement for breast milk. Nestle is one of the worlds leading nutrition, health, and wellness company which was set up in 1866 in Switzerland. It has spent more than a century in the Indian markets over the years has become an undisputed market leader in the baby food segment. It has an undisputed market share of 96.5% despite functioning in an open to all industry.
4. Coal India – 82%
Coal India Limited is a coal mining and refining company. It is also the world’s largest coal-producing company in the world. It is owned by the Union government of India and is managed by the Ministry of Coal. The company contributes up to 82% of the total coal production in India. It was only this year that the government announced that the coal sector would now be opening up for commercial mining possibly ending its monopoly in the future.
5. Hindustan zinc – 78%
Hindustan Zinc Ltd. is the world’s second-largest zinc-lead miner and holds a 78% market share in India’s primary zinc industry. The company was incorporated as Metal Corporation of India in 1966 as a Public sector undertaking. Today the company is a subsidiary of Vedanta Limited which owns a 64.9% stake in the Company while the Government of India holds a 29.5% minority stake.
Although the company has diversified into a conglomerate in the last century. Despite this, its cigarette business still holds 77% a strong position in the Indian markets. This can be attributed to the expertise the company has developed in the field and a willingness to develop products to match the evolving taste of different types of consumers.
ITC’s wide range of brands includes Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal. Apart from a market experience, another advantage that the brand has is its supply chain and distribution network which spans across the country.
7. Marico – Oil Products – 73%
Marico is one of the well-known FMCG companies in India but the majority of its success lies in its two brands ‘Saffola’ and ‘Parachute’. The company has come a long way in the segment despite being around for only 3 decades. Safola which competes in the premium refined edible oil segment has maintained its market leadership with a share of 73%. ‘Parachute’ on the other hand holds a market share of 59%. These also form up to 90% of their income.
8. Pidilite – 70%
Pidilite’s product range includes adhesives and sealants (Fevicol and M-seal), construction and paint chemicals (Dr. Fixit), automotive chemicals, industrial adhesives, and industrial & textile resins. It is the leader in the adhesive and industrial chemical market with a market share of 70%.
9. CONCOR – 68.52%
Container Corporation of India Limited (CONCOR) is a Public Sector Undertaking managed by the Indian Ministry of Railways. The company was set up in 1966 with the aim of containerizing cargo transport in the country. Concor’s core businesses include that of cargo carrier; terminal operator, warehouse operator & MMLP operation. They hold a market share in domestic business of 68.52% in 2019-20.
10. BHEL
BHEL is India’s largest engineering and manufacturing enterprise in the energy and infrastructure sectors and also a leading power equipment manufacturer globally. Its services and products range from power-thermal, hydro, gas. Nuclear and solar PV, transmission, transportation, defense & aerospace, oil & gas, and water. It also holds the single largest market share in the emission control equipment business in India
In this post, we discussed the list of Indian Companies with Monopoly in their Industry. For a value investor, a monopoly or big Moat stock is similar to a gold mine. This is because if one can find a suitable Moat stock to invest in they provide significant returns in the long turn. But investors must watch out as these stocks just like other Blue Chip companies are generally overvalued and can lead to lower returns or losses.
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.
Understanding Long Short Funds in India -Benefits, Types, and More: During the month of February and March, when COVID-19 was heading towards being a Pandemic, all the global stock indices lost nearly 40-60% of their peak index value. The Nifty 50 index in India, from its levels of +12,000 points, came to sub 7000 levels.
During times like these, the investors are desperately on the lookout for funds that could balance out their portfolio, hedge their long positions within the portfolio, and along with generating returns in the falling market. And this is where the investment into ‘Long Short funds’ comes in handy.
Today, we’ll cover Long Short funds in India. However, before analysing more in detail, let us try and understand the basics of what does Long-Short funds mean.
What are Long-Short Funds?
“The art of investment is not to make money in the short span of time, but to ride the turbulent times and eventually when the market settles, the true investors make real money.”
As the name might suggest, a Long Short fund is a fund that has a mix of long and short positions in the market. Long Short funds are a fairly recent phenomenon in the investment market, but more than 35 fund managers have launched these funds in the last seven years and the popularity seems to be on rising. The total AUM in these funds is more than $2 bn (Rs. 15,000 crores) currently.
In this strategy, a fund manager goes long/buys those stocks or assets which have a potential of appreciation in their value and, also initiates short/sell positions in stocks or assets which are overvalued at that time. Through this strategy, the fund is expected to make money, when the market goes up or comes down.
Long Short funds are the largest hedge funds and fall under AIF category-III. These bi-directional funds have multiple ways of being In the Money for the investors. Even though the market might be going down, but the investor’s portfolio could still be going up.
130/30 fund Strategy
Long Short funds are sometimes also called 130/30 funds. This is the investing methodology used by institutional investors in which 130% of the initial capital is used for buying stocks and securities, and this is done by investing 30% in shorting the stocks/securities.
To put it in a more simplified way, the fund manager would invest 100% of the initial fund in buying stocks and short sell 30% of the security. The money received from shorting the security will again be reinvested in buying stocks/securities. The 130/30 fund strategy works efficiently in limiting the drawdown while investing.
What are AIF category-III funds?
AIF is an acronym for Alternative Investment Fund. It comprises pooled investment funds that invest in private equity, venture capital, hedge funds, etc. In other words, AIF is a different form of investment than traditional investment avenues like stocks, debt securities, etc.
Under AIF category-III, the main aim is to earn short term gains by employing complex trading strategies. These are hedge funds employing diverse and complex trading strategies. And they are currently allowed to leverage the capital to an extent of 200% of the total fund size.
Under the AIF category-III funds, the long-short funds are divided into equity and debt-risk funds. The minimum ticket size to invest in this category is Rs. 1 crore. This makes it accessible to a handful, mainly HNI’s.
Advantages of Long-Short funds
Here are a few of the best advantages of Long Short funds in India:
Diversified Investment: HNI’s looking for diversification in their portfolio have a great opportunity to park some of their money in Long Short funds. It provides stability to the portfolio and downturn in the market or economy is hedged.
Excess Returns: Because Long-Short funds don’t just rely on the market going up, it provides an opportunity to make returns from both falling and rising markets. Volatility is a friend of investors who is looking to generate higher returns. It, of course, does come at a higher risk on the portfolio.
Short Selling permitted: Unlike in any other form of Mutual fund, short selling is not permitted. But in the case of a Long-Short fund, short selling is permitted and which in turn can be used as leverage to enter a more fresh long position in the market.
Every coin has two sides. Now, let us also look into a few of the disadvantages of Long Short funds in India:
High Expense ratio: In general, the expense ratio in the case of regular Mutual funds hovers around the 0.60% levels, but in the case of a Long short fund, the expense ratio goes up to 2% levels. This ultimately impacts the final returns generated by investors.
Low return in Range bound market: A long position or short position is entered in the market with a directional view. Because this fund has both long and short positions in the market (in Long Short fund), range-bound or choppy market tend to give very low to minimal returns to investors.
Stock selection risk: Although the long-short fund has both buy and sell positions in the market, but picking the right stock to buy or sell is at the discretion of the fund manager. And selecting the right stock could still be a risky affair.
Risky Ventures: As Long-short funds are allowed to trade in the derivatives market, it makes it a little difficult to regulate. Hedge mutual funds are not allowed to be registered with SEBI, so in a way, the fund and its investors are on their own.
Long Short Funds in India
The following is a list of few Long Short funds in India. We no way encourage you to invest in them. Please use your own discretion before investing.
That’s all for today’s Market Forensics article on long short funds in India. We hope it was useful to you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
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!
5G Network in India is probably the biggest advancement in the mobile connectivity spectrum so far. 5G technology is expected to be the game-changer in the field of telecommunication & connectivity and solve the network problem among mobile users. The technology has already started to be implemented globally in 2019. According to reports published by GSM Association, 5G technology is expected to have a global user base of 1.7 billion by 2025.
Even India is not so far in building the 5G connectivity. All the major telecom players i.e. Reliance Jio, Airtel, and Vodafone are in horde to be the first one to be able to provide 5G network in India. In today’s article on Market Forensics, we’ll be covering the race to build the 5G Network in India and who’s winning. Let’s get started.
What is 5G connectivity?
Before we enter the main discussion, let’s first begin by understanding what exactly is 5G connectivity. As the name suggests, 5G is a fifth-generation technology standard for broadband cellular services and it is the successor of the 4G technology (currently being used by most telephones for connectivity). The main advantage of 5G over 4G is the fact, it has got a higher bandwidth and that will give offer higher download speeds.
Because of the higher bandwidth speed, it is believed that the network will not only serve cellphones but will also be used as general internet service providers for Laptops and Desktops. 5G data at its peak can give a download speed of 20 Mbps. To put it into perspective, by using the 5G network, a full high definition (HD) movie can be downloaded within a minute even in a crowded stadium.
5G Network in India – The Race
The second-biggest telecom market in the world is all ready to brace, the 5G spectrum and it is expected to be a part of India’s telecom ecosystem by the second half of 2021. The race for pioneering the technology seems to be heating up. And by all means, Reliance Jio seems to be in the fray to be the pioneer.
In a speech on Tuesday (8th Dec 2020) at Indian Mobile Congress 2020, the chairman of Reliance Industries, Mukesh Ambani said, “Reliance Jio will pioneer 5G technology in India and it will be available to use by the users by the second half of 2021”.
Mr. Ambani also went on to say that India is one of the most digitally connected nations in the world and 5G can be made available at affordable prices and everywhere as soon as possible. He further went on to add that 5G will not only enable India to participate in the fourth industrial revolution, but also to lead it.
What makes Jio so confident about pioneering 5G in India?
The chairman of the group, Mukesh Ambani is very confident about rolling out 5G services in India by the second half of 2021. Earlier in the month of October, Jio has made an announcement it is expanding its partnership with US wireless giant Qualcomm to roll out 5G services in India. Mr. Ambani went on to say that he is very proud to announce that Jio has designed and developed a complete 5G solution from scratch and it will be his biggest step towards his Make in India commitment.
Once Jio 5G is tested India-wide, it will not only be deployed in India but will also be in a position to be an exporter of 5G solution to other telecom operators globally. Jio as an initiative is building its own 5G solution on a new global initiative called O-RAN (Open RAN)
(Pic courtesy: www.universalnews.org)
What is O-RAN?
Open RAN (O-RAN) differentiates itself from other proprietary networks (Huawei, Samsung, Ericsson, Nokia, etc.) over the simple fact that in the case of O-RAN, the networks are open and include elements and facets (software and hardware) from different vendors. If the network has two components i.e., both hardware and software, then both the components can be bought from different vendors. But in the case of proprietary networks, all the components will have to be bought from the same vendor. So, the O-RAN network gives the obvious bargaining power over other network service providers.
To put things into context, in 2018, Jio had bought US-based software vendor Radisys (as it specializes in system integration and network virtualization capabilities). And it is a known fact that Jio specializes in the software side and it’s putting together an alliance with Qualcomm to manage the hardware side. And the move from 4G to 5G will be more hardware-driven as new antennas will have to be installed in network towers.
What do other Telecom companies have to say?
Sunil Mittal, the chairman of Bharti Airtel is of the view that getting the 5G network to India has its set of challenges. And it will take two-three years more to roll out 5G technology. “I think India, to my mind, in two or three years’ time will be ready to receive the benefit of the investment that the globe would have made onto the 5G standard and 5G ecosystem,” Even another chief executive of Airtel had earlier remarked that the India ecosystem is not ready for the 5G technology introduction yet.
India is slowly but surely becoming the talk of the town while talking about the adoption of new technologies. And India is always known for embracing new technologies. And being the 2nd biggest global player in the usage of telecom, the introduction of 5G technology in India is inevitable. But, it remains to be seen how soon. If the reports are to be believed, Jio could be the first network service provider to provide 5G telecom services in India.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
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!
Saradha Scam Case Study: Since the news of India’s biggest chit fund scam first broke out over 200 agents, depositors and executives have committed suicide. This is because those associated with Saradha belonged to the low-income strata. This meant that all their life savings were gone, they found suicide as the only way out.
The Saradha group had collected US$ 4-6 billion from over 1.7 million depositors before it collapsed in 2013. Today the scam has come to be popularly known as ‘Bonzi’ a combination of Ponzi and Bengal.
Saradha Scam Part 1: Financial scenario of Rural Bengal
The majority of the population in India belongs to the low-income category and live in rural areas. When it comes to money they face two major problems the first being a safe place to deposit their funds. The second being a just source for loans.
Sudipto Sen recognized these problems and decided to solve the first through means of a chit fund. This was basically a Ponzi scheme in the guise of a chit fund. The government, however, has tried to combat these issues by introducing the small savings scheme. These schemes were operated in postal savings banks through post offices. The government, nonetheless, still fails to compete with chit funds as they offer up to 50% returns. An investor would realize that these chit funds were less secure but Sen addressed this by adding a sprinkle of religion. He named the group Saradha.
Sarada Devi was the wife and spiritual partner of Ramakrishna Paranchamsa one of Bengals greatest mystics. His name commands respect among millions even today. Sen recruited agents from local rural communities who were tasked with selling the funds. In return, the agents received a commission that amounted to 25-40% of the deposits. This was apart from other lucrative gifts.
An aura of security, astronomical returns, and an army of motivated agents almost seemed like a magical formula Sen had figured out for success. Soon the Saradha group was able to expand outside Bengal to other states like Odisha, Assam, Tripura, Jharkhand, and Chattisgarh.
The Scam worked in the form of a Ponzi scheme where one investor’s principal and interest were paid off from new investors. A Ponzi scheme collapses when investors stop coming in.
Investors of Saradha were rarely told about the true nature of their investments. They were simply lured by being told that they would get high returns after a fixed period. In order for the scam to last it would have to keep getting a higher number of investors on a regular basis. Sen invested the money in venues that would further the marketing efforts of the Saradha brand. This included several celebrities and political endorsements.
With enormous funds at their disposal, he invested in the Bengal film industry. They recruited stars and TMC MP’s like Satabdi Roy and Mithun Chakraborty as brand ambassadors for the Saradha Groups media platforms. He also recruited TMC MP Kunal Ghosh as CEO of the media group.
The group also acquired established local television channels and newspapers. The group owned eight newspapers in 5 languages: Seven Sisters Post and Bengal Post (English dailies), Sakalbela, and Kalom (Bengali dailies). Prabhat Varta (Hindi daily), Ajir Dainik Baturi (Assamese daily), Azad Hind (Urdu daily), and Parama (Bengali weekly magazine).
It also owned Bengali news channels like Tara news and Chanel 10. Other Channels it owned included general entertainment channels Tara music and Tara Bangla, Tara Punjabi, TV Southeast Asia, and one FM radio station.
(Fig. Messi playing in Bengal in a match organized by Saradha)
To further its reach the group also sponsored popular football clubs in Bengal. This included rivals Mohun Bagan AC and East Bengal FC. Cash was also given to the club owners to fund teams and hire footballers from Africa and other parts of Asia. This also included organizing a football match involving the Argentine Superstar Lionel Messi.
The group was also able to operate for so long because they had paid large sums of money to several politicians. In an effort to prevent investors from raising alarms against the investment programs Saradha employed wives of local police officers.
Saradha Scam Part 2: SEBI vs Saradha
Although Saradha had disguised itself initially as a chit fund they began by issuing debentures and redeemable preferential bonds to the public. This was done in violation of the SEBI rules that companies raising capital from more than 50 people without issuing a prospectus and Balance Sheet. This led to SBI finally catching up with Saradha in 2009. Saradha then created up to 239 companies in an effort to mislead SEBI through its complex corporate structure.
A year later SEBI again caught up with Saradha. This time the group reacted by classifying itself as a collective investment scheme. In order to achieve this, the group began operating with tourism packages forward travel and hotel booking, timeshare credit transfer, real estate, infrastructure finance.
The group claimed that it was taking deposits from investors as advances for exotic holidays. At the same time, it gave them the option to cancel the booking at the last moment which would give the investors returns of 12-14%. Saradha would lure investors through these schemes with agents encouraging them to cancel and reinvest again in other schemes.
In order to create a front for their activities, Saradha purchased indebted companies. One such example is its purchase of Global Automobiles in 2011.
Global Automobiles was a heavily indebted motorcycle company. As soon as the purchase was made Global immediately stopped production but still kept 150 workers on the payroll. They were instructed to pretend to work whenever prospective depositors of Saradha would arrive for the inspection. Other companies included Awadhoot Agro Pvt Ltd, Landmark Cement. These were purchased to show that Sharadha had diversifying interests.
In order to further their political clout, the group donated motorcycles to the Kolkata Police. The group also persuaded Mamata Banerjee to use its Ambulances in Naxal hit areas like the Jangalmahal area of West Midnapore.
In 2011 SEBI warned the state government of Saradha’s activities but despite this, it did not comply. According to the Serious Fraud Investigation Office (SFIO), the Saradha group had offered returns as high as 100% in order to lure depositors from Villagers of Bengal.
(Fig: Sudipto Sen and Debjani Mukherjee – Director of Saradha)
Now that we look back despite Saradha’s efforts to silence policemen and politicians there were a few instances where it seemed as though the news of the scam would be broken out. These came from MPs Somendra Nath Mitra and Abu Hasem Khan Choudhury and TMC leader Sadhan Pande.
On March 14, 2013, Sachin Pilot took up the issue of Saradha Group’s involvement in a Ponzi scheme at the Lok Sabha. But unfortunately, this was already too late. This was because the groups’ outflows were eventually higher than the inflows in December 2013. This was bound to happen in a Ponzi scheme. Sudipto Sen was now finding it difficult to calm his depositors and agents who were demanding their investments.
On 6th April 2013, Sen wrote an 18-page confession to the CBI and then absconded. In the post, Sen mentioned the involvement of several TMC politicians which also included Mamata Banerjee. A Times of India report quoted that it seemed as though Dakshin Barasat was hit by a cyclone. The police began filing FIRs against Saradha Group. Over the weeks to come several officials and properties of Saradha were arrested and seized.
On 22nd April, Mamata Banerjee announced a four-member judicial inquiry commission to probe the scam. She is also quoted to have said “ “ja gechhey ta gechhey” (whatever has gone has gone). She also went on to create a $70 million relief fund for low-income depositors. The government introduced a 10% additional tax on tobacco products. Bannerjee is reported to also have made controversial statements where she asked smokers to “ light up a little more”.
In order to speed up the investigation efforts the West Bengal government also set up an SIT (Special Investigation Team). The SIT was headed by Kolkata Police Commissioner Rajeev Kumar who investigated the case for a year. The Supreme court suggested that the case be investigated by federal investigation agencies. The West Bengal government staunchly opposed this.
Other states like Assam and Tripura handed over the cases to the CBI in May 2013 itself. By April 2014, the SIT had filed around 385 FIRs against the group. Later in 2014 the case was finally transferred to the CBI on instructions from the supreme court.
Investigations soon revealed that the majority of politicians in the Saradha Scam were from the Trinamool Congress. Possibilities have also risen over the center being involved in the scam. A charge sheet has been filed against Nalini Chidambaram(wife of P. Chidambaram – former finance minister ), for allegedly accepting a bribe of Rs 1.4 crore.
Sen also confessed to money laundering as he had sent money to Dubai, South Africa, and Singapore for his purpose. TMC politicians included MP Kunal Ghosh, MP Srinjoy Bose, Transport Minister Madan Mitra who drew salaries as employees of the group. They also publicly encouraged people to invest their savings with it.
Soon Mamata Banerjee too found herself in hot water as Sudipto Sen had reportedly spent US$260,000 to buy paintings made by her. Post this the government had issued a notification that are issued a notification that public libraries should buy and display Saradha Group newspapers. Other beneficiaries also included politicians outside West Bengal like Himanta Biswa Sarma, the Health and Education Minister of Assam.
Saradha Scam Part 4: The Political Coverup?
As the scam further unraveled the CBI found several irregularities in SIT’s investigation. Sen had confessed to handing over cellphones, a laptop, a pen-drive, and a red book when he was arrested in Jammu & Kashmir. This contained evidence of his links with several political personalities. These were never transferred to the CBI.
The CBI summoned Rajeev Kumar and his colleagues for investigation. Despite summons being sent to members of the SIT on 18 occasions since September 2017, no one turned up for questioning. The SIT officials gave reasons of ill health or personal engagements in order to stay away.
(Fig. Kolkata Police Commissioner Rajeev Kumar and Bengal CM Mamata Banerjee)
When the CBI tried to approach Kumar at his residence in Kolkata, the CBI team was allegedly roughed up and detained for a few hours by the police. This led to the Supreme court ordering an interrogation of Rajeev Kumar at a location outside West Bengal. This was done in order to avoid further clashes.
The interrogation was finally held in Shilong. Rajeev Kumar arrived in the state capital with three more West Bengal cadre IPS officers and his younger brother. During this, the Bengal Chief Minister Mamata Banerjee staged a three-day protest against CBI’s move in a bid to ‘Save Democracy’.
Post this Kumar was given a new job. He was appointed as the Chief Secretary of Bengals Information Technology Department, a post that is not meant for IPS officers. Mamata Banerjee made sure that no speculation on this matter made the local news headlines.
Saradha Scam Part 5: In Closing
Sudipto Sen has over 98 cases pending against him and has already spent over 7 years in jail for Saradha Scam. He has even confessed to being guilty but there are no signs on which way the case against him is currently moving.
Sen is trying to face the cases as soon as possible as he knows that even if he is sentenced he will receive a maximum of 7 years in prison which he has already spent in jail. As the case keeps going he, unfortunately, does not have the Rs. 1.2 crore that he would require for bail as all his assets have been seized by the CBI.
The CBI officials have realized that the investments made by Saradha are lost but are still trying to recover money sent abroad through hawala transactions. Although this will not amount to much it will at least provide some relief to the farmers and fishermen who had invested in Saradha.
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.
(Source: The Wire)
(Ratan Tata with his grandmother, 
(Ratan Tata with JRD Tata)
(Fig. Messi playing in Bengal in a match organized by Saradha)
(Fig. 
