Budget 2021 Expectations Nirmala Sitharaman

Budget 2021 Expectations – What to Expect from FM in Union Budget?

Union Budget 2021 Expectations: The Union budget for the fiscal year 2021-2022 is slated to be announced just in a few day’s time. The budget is the government’s annual financial statement providing details of expenditure, revenue, fiscal deficit, policy changes, etc.

The country is going through an economic recession caused due to the Covid pandemic; hence this year’s budget will have crucial implications for the economic recovery in the coming months. In this article, we are going to discuss the Union Budget 2021 Expectations.

Sectorwise Budget 2021 Expectations

Different sectors in India have different requirements and expectations from this year’s union budget as they are hit differently by the ongoing COVID19 pandemic. Here are the expectations of various sectors from this budget.

— Banking

The banking sector in India is a major source of credit to support economic growth, but since a few years, Indian banks are grappled with a bad loan crisis that has negatively impacted their balance sheets, hit profits and has reduced their ability to lend. A sharp economic slowdown has further exaggerated their problem. The Reserve Bank of India estimates that the Gross NPA ratio may rise to 14.8 % this year.

One of the big announcements that are being expected is the setting up of a national bad bank, which would reduce some burden of the banks by absorbing bad loans and allowing banks to focus on clean their balance sheets and focus on lending. There are also expectations for reforms in the banking sector. The government may also announce merger and privatisation of some PSB’s.

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— Renewable Energy

The performance of this industry has been adversely affected due to COVID – 19. The country’s current renewable capacity is 90GW and installation pipeline for this year is more than 50 GW. Through the budget, the government can accelerate the growth by introducing positive financing, regulatory and tax policies, and other incentives for this sector.

The government can announce a separate category under the priority sector lending for renewable energy to promote direct funding by lenders like PSB and NBFC’s. This will ensure the availability of long term funds at competitive rates. Other measures to increase funding are incentives to raise green bonds and collaborate with other international financing institutions to support renewable energy developments.

The current limit for funding of rooftop projects must either removed or increased to Rs. 100 crore per project. This will allow speedy growth in the C&I and rooftop segment. In order to promote domestic module or cell manufacturing, the government can provide incentives like a capital subsidy, tax concessions, R&D subsidy, and exemption from import duties. To make it attractive for international lenders to lend to the green energy sector, the government should limit the withholding tax on external commercial borrowings (ECB’s) to 5 % only.

— MSME

The micro small and medium enterprises (MSME) are one of the largest employment generators in the country, and this sector suffered the maximum brunt due to the pandemic. The industry demands a cut in the GST on professional services to 5%, to boost the MSME sector. One of the major challenges faced by this sector is the lack of credit from the banking sector. Measures to improve the flow of credit to this sector are – temporary suspension of Basel norms that would ease lending by banks.

The government can increase the limit for collateral-free loans to Rs. 5 crores for micro units, Rs. 15 crore and Rs. 35 crore for small and medium businesses, respectively. Another measure expected is to increase the limit for NPA classification for the MSME’s from 90 days to 120-180 days. To improving efficiency, the government is expected to announce a one-stop mobile application for MSME’s for GST enrollment, registrations, compliance etc.

— Automobiles

The auto industry was severely hit by the pandemic, and many companies struggled to survive. In recent months sales have improved, but future prospects of this sector are dependent on the economic recovery post-Covid. The industry expects relief from the government in multiple areas. To boost demand, GST rates could be reduced to 18% from the current 28%.

Another measure to improve demand could be to remove restrictions for availing input tax credit on GST that is paid on automobiles. This would make automobiles purchase cheaper for businesses. The government may give some special interest deduction on auto loans.

Another industry demand is regarding scrappage policy; incentivizing new vehicles’ purchase will attract more old and new customers in the market. Another expectation is announcements of details for the Production Linked Investment (PLI) scheme, fast disbursal of incentives and pending tax refunds. Electric mobility is a major priority area. Development of infrastructure for EV usage like charging stations is needed to boost demand.

— Healthcare

The pandemic has bought into light the poor public health infrastructure in India. Though the government took some quick actions to meet the immediate needs, the industry needs more support to grow sustainably. Some expectations from the Union budget are:

Increasing expenditure on public healthcare: Compared to the last budget, the allocation towards healthcare is significantly going to increase by over 40%, to account for vaccination costs. More funds are also required to improve public health infrastructure. It is expected that that spending on healthcare will increase to 2.5% of the GDP.
Incentivizing private investment: Private sector participation is required to provide modern healthcare facilities and increase investment in rural areas. The government can announce incentives on public-private partnerships for start up India and make in India programs. Incentives are also needed to improve research collaboration between industry and academia.
Expanding health insurance: The current insurance coverage can be extended to the middle class and aiming a universal health coverage, furthermore to encourage people to take health insurance, rebates under the section 8oD should increase, and GST on can also be rationalized.
Digital health ecosystem: Increased budget allocation towards the promotion of telemedicine, national digital health mission and home-based healthcare will help in expanding healthcare facilities to rural areas, reduce the burden on limited facilities and promote innovation in healthcare ecosystem.

— Real estate

The real estate sector is experiencing a slowdown even before the pandemic struck, and is currently facing many challenges, including a liquidity crunch. More support is needed to revive this sector that contributes close to 8% of country’s GDP. A focussed tax incentive like increasing the tax rebate to Rs. 5 lakhs can improve demand for affordable residential housing.

The industry expects the government to waive GST on under construction properties that would lower the cost of acquisition of under construction homes and support demand. The government must provide incentives for more private sector investments in the affordable housing space, as developers are finding it difficult to raise funds from banks and NBFC’s.

— Startups

According to Nasscom report, close to 40% of the startups halted their operations in 2020. For recovery post the pandemic, startups are expecting relief measures in the Union budget 2021.

Increase domestic capital participation: By changing regulations that currently prevent domestic institutions like LIC and pension funds from investing in alternative investment funds (AIF).
Removing IMB certification: Startups require vetting from a board set up by DPIIT, in order to seek income tax exemption. This process takes a very long time, and the industry demands that government completely remove this obligation and provide an exemption to all registered startups.
ESOP taxation reduction: This scheme was announced in the previous budget to reduce the tax burden of the employees on ESOP’s. Till now, only 400 startups have benefitted from it. Startups are demanding to broaden these exemptions’ scope and pass the benefit to all 40,000 startups registered with DPIIT.
Tax free gains on AIF investments: Venture capital investors are demanding tax exemption on capital gains from investments made by AIF’s. This will only cause minimal loss to the exchequer but will increase flow of capital into startups, boosting asset creation and jobs.

— Aviation and tourism

In the Budget, the government is expected to announce many measures to alleviate stress in the aviation sector. The sector may be given tax sops to help reduce its costs and debt burden. There has been a demand to reduce tax rates on aviation turbine fuel (ATF), which accounts for 30 – 40% of airlines’ total costs. The industry also requires relief in terms of reduction in many levies like airport charges, parking and navigation charges and flexibility in setting fares.

The government is expected to focus on improving regional connectivity schemes to make flying affordable to masses. The budget may provide for up-gradation of airports in tier -2 cities through the PPP route. Another important announcement would be regarding Air India’s privatisation, which the government is trying for many years.

The budget may also announce efforts to support the ailing tourism sector like preserving heritage cities, improving the visitor experience, upgrading sanitization, developing iconic tourist destinations, and an expectation for expanding e-visa schemes to additional countries.

Closing thoughts

Operations in many industries have been impacted by the pandemic. Strong fiscal measures are required to boost employment and growth in the post pandemic period, India inc. is eyeing for relief measures like tax reduction, ease in regulations, increased availability of credit and reforms that would induce sustainable growth and improve future prospects.

January 31, 2021 Team Trade Brains Market, News No comments yet

How to Analyze the Management of a Company for Investing?

Tips to Analyze the Management of a Company for Investing in Stocks: “There are no bad companies, only bad managers”. You’ll hear every great investor stress the importance of a company’s management. But for retail investors like us, it is hard to directly assess the management. There is no CEO that would deny an investor like Buffet but unfortunately, that does not hold true for everyone.

In this article, we are going to discuss how to analyze the management of a company for investing in any stock. Here, we’ll identify the factors that we can look into, in order to assess the management of a company

How to Analyze the Management of a Company for Investing?

The executives that run a company are responsible for shaping the future of the company. We often don’t realize that ultimately a company is run by humans. Due to this assessment, the management quality is often overlooked.

On the other hand, management quality isn’t quantifiable and unfortunately, we cannot use interactions to judge each management. But despite this, there still are a considerable number of factors that help retail investors assess the quality of management. They are mentioned below:

1. Background of Promoters / Top managers

The very first step in assessing the management quality would be finding the background of the top management and promoters. This would include their accomplishments, the performance of the company under them, and any other relevant information.

If they have accomplished good and stable growth for a considerable period (10 years) it could be a testament to their leadership. On the other hand, if we come across news that portrays the management in a negative light it’s better to stay away from the individual. Thankfully due to technology, this can be done simply by googling the individuals’ name. This information can also be used to assess the competence of the promoters and management.

2. Promoter holding

It is also important to note the stake held by promoters in a company. Promoters holding a 50% or more stake in a company is a good sign. On the other hand, promoters holding a low stake in the business and news that they may keep selling is a red flag. Another sign could be Institutional investor holdings.

You can find the promoter’s holding of any publically listed company on Trade Brains Portal. Simply, go to Portal, search the company name and navigate to the Shareholding pattern section.

3. Future Plans, Strategy, and goals

It’s really important to check the future plans, strategy, and goals in order to analyze the management of a company for investing in any stock. For it, simply start by going through the Vision, Mission, and Value statement of the company.

Together, mission and vision guide strategy development, help communicate the company’s purpose to shareholders and inform the goals and objectives set to determine whether the strategy is on track. Hence, these defined future statements for the company can help an investor to decide whether to select a stock to invest in the Indian stock market or not.

4. Remuneration of the Managers

The remuneration paid to managers is made available through the annual reports. This parameter gives us an insight into the aims of the managers. One of the major factors to look for here is the proportion of managerial remuneration increase in comparison to profits.

If the company has performed negatively in terms of profits but the CEO gets a raise, it is a sign of poor leadership. Also, the % increase in remuneration is higher than the % increase in profits is another red flag. One can also compare the salaries of the CEO within the same industry in order to understand the difference.

Further, also look into perks to the employee. If the company is giving good perks to its staff and employees, then again it’s a sign of good management. The performance of a company depends a lot on the performance of its staff and employees. Happy employees will give their best performance. However, if there are continuous strikes or increasing worker union demands, then it means that the management is not able to fulfill the needs of its workers and employees. Such cases are a bad sign for investors in the company.

5. Communication & Transparency

Communication and Transparency are the most important factors while judging the management. The integrity of the management is the key to the growth of the company. It’s the management’s duty to give ‘fair’ quarterly and annual results to its shareholders.

Just as the management announces the good results of the company proudly; in the same way, the management should come forward in times of bad results to explain its reasons to its shareholders. Good management always maintains the transparency of its organization.

In 2018 Elon Musk received a lot of flak after he tweeted “Am considering taking Tesla private at $420. Funding secured.” This however was false and Musk had to later suffer the consequences from regulatory authorities. This was an example of poor communication.

Being at the top of a company it is important that CEOs communicate things as they are and do not hide or manipulate information or as seen above play pranks.

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6. Key Directors and chairman

It is also important to have a background check on other individuals in top posts too. This includes the board of directors, chairmen, independent directors, etc. We also often see bureaucrats appointed to the board as independent directors.

Although they may bring significant administrative experience. The post is at times offered in return for other favors like govt approvals etc.

7. Emphasis on Share Price

Often Share Price is used to measure the success of the promoter/ managers. Although the managers are expected to create wealth for investors it is not healthy for the top management to take decisions solely on the share price.

The top management obsessed with the share price is a red flag. These managers may not take decisions that might be better in the long run if it affects the shareholders in the short term. It’s also important to note that the Share Price of a company is a function of market forces.

8. Related Party transactions

Another important section of the annual reports is “Related Party Transactions”. This section represents the transaction that the company had with the promoter’s other entity or their relatives’ entity, joint ventures, etc. This section would reveal details if the promoters profit from the company at the expense of other shareholders. Hence the section must be studied in detail.

9. Management Forecast

The annual reports also include sections like the “The Directors Report”, “Management Discussion and Analysis”. These reports show the plans of the management and projections about the future of the business.

10. Capital Allocation

Capital Allocation is the manner in which the management uses the free cash flows in a company. These include reinvestment into the business, paying dividends, holding as cash, etc. The skillset of a CEO is also determined by observing how he manages to manage the cash in order to keep the investors happy and grow the business.

Generally, the cash in a business is generated through its profits. But on receiving dividends, investors must also identify the source. In 2014, companies like L&T, Hindalco paid out dividends even when the company’s net debt to Ebitda increased.

11. Promoter’s buying and share buybacks

The promoters of the company have the best knowledge about the company’s performance. The management and the top officials can understand the future aspects of the company and if they believe that the company will outperform in the future, they are mostly correct. Therefore, promoter’s buying and share buybacks are signals that the owners trust in the future of the company.

In addition, the other scenario, where the promoters or CEO is selling some of their stocks, is an independent activity and cannot be treated as a bad signal. We cannot judge the company’s future just because the promoters are selling a small portion of their stocks once in a while. Maybe, the promoters need money to start another venture, buy a new house or enjoy a vacation. Everyone has the right to sell stocks when they need them the most, and so do the founders.

In short, the promoter’s buying and share buybacks are signals of a good company. However, we cannot judge the company’s future based on the promoter’s selling some portion of their stock. Anyways, if the promoters are selling a lot of stocks continuously without explaining the reason, then it’s a matter of further investigation.

Closing Thoughts

In this article, we discussed how to analyze the management of a company for investing in any stock. The importance of a quality management team cannot be stressed more. This also forms an important part of qualitative analysis. Only considering the financial results does not give us the full picture of the business. Using the factors mentioned above will give us a clearer picture of the business. Happy Investing!

Aron Almeida

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

January 28, 2021 Aron Almeida Beginner's guide, Market No comments yet

Basics of Hedging – What is Hedging in Stock Market?

Understanding Basics of Hedging and How it can be used to reduce stock market risk: If you are an investor in the capital markets, I am sure you have across days where your portfolio has shown wild moves up or down. These fluctuations in the stock market are always something that creates a lot of anxiety and stress for the investors, Although the pundits advise ignoring such fluctuations, for a layman, it is hard to look away when things are bumpy. It is easy to become obsessive when things are on a downward slide.

In times like these, many of us may wish there was a way to insure our investment in a downturn in the same way we insure other assets like a car or a house. Hopefully, there may be some sort of an agreement where we stand to be compensated in case something bad happens. In this case, a large monetary loss in our investment amount due to some factor that was totally out of our control.

Well, the truth is that sort of thing does exist in the real world, only that it is known by a different name – Hedging. When we hedge an investment, we reduce or eliminate certain risks including but not limited to stock market crashes as a whole. It is a popular practice in investment management and some funds, known as hedge funds, even purport offering such investments through which investors can totally eliminate certain kinds of risk.

Even though globally most hedge funds tend to underperform the broader market, the allure of avoiding certain known risks from their portfolios have not stopped big and wealthy investors from loosening their purse strings for investment in these hedge funds.

But Buyer Beware! Although these are pretty handy when it comes to protecting your investment in a crash, a poorly managed hedge or a hedge fund can lead to investors losing more money than taking on the complete risk themselves. So let’s learn about hedging and it’s pros and cons in today’s article.

Basics of Hedging – What is Hedging?

When you hear the word hedging, you probably imagine your neighbor pruning his brushes in his backyard. But, the name actually originates from an older meaning for the word. The Hedge is actually synonymous with a fence, as in we are trying to contain a herd of cows or perhaps the downside of our investments within a limited space.

While the term is now commonly used to refer to financial strategies, the truth is we practice its principles on day to day basis. As mentioned earlier, a car insurance hedges your financial risk since you pay a premium to avoid a larger cost that you might incur in the case of a car accident. While a seat belt might hedge your risk of having a serious injury. Heck!, this is what you do when you adjust the time on your watch so that you leave early to work by ten minutes ( you are hedging against your impunctuality )

In each case, you are taking some sort of cost or nuisance to avoid or prevent a greater problem, be it financial or otherwise. When it comes to investing, however, the practice refers to reducing some sort of risk or exposure in our portfolio. It can be the risk of a specific stock or industry experiencing a decline, or perhaps against the interest rate rising and sometimes against inflation rising higher than expected.

How does a Hedge work and How do we employ it?

Hedging is done by adding investments in our portfolio that move in the opposite direction to the risk that we are trying to manage. In the language of mathematics, we are trying to achieve a correlation of -1 to exposure, although technically we are looking for something called the erudite quants would call a negative delta.

Negative delta is just a measure of how one asset moves whenever the other changes by a unit price. This ensures that if a risky event were to happen and our holdings lose value the hedge we invested in should appreciate in value to offset the loss.

As an oversimplified example, an investor could hedge their exposure to a specific stock by shorting the same position. By doing this, they offset their downside. If the stock falls in value then the short position will gain value and hence canceling out the loss.

Now, investors rarely prefer to have perfect hedges like this, after all, you protected yourself from any downside but you have also prevented the portfolio from gaining any profits either. This fact alone certainly might convince you why it’s not the smartest move when you are investing in the market.

So instead of taking protection against every single down move in the market, smart investors instead focus on only protecting themselves against specific risks in a way that doesn’t completely eliminate their upside but they are still protecting themselves from losses they don’t want exposure to.

As an example, assume the case of an Indian mutual fund that invests stocks in the US stock exchange. Any investor who parks their money in a foreign stock would also by default expose themselves to differences in interest rates, inflation, and currency exchange rates between the two countries.

Since differences in interest rates and inflation are usually reflected in the currency, an investor may choose to buy certain investments that will appreciate in value when the exchange rates fall. This particular arrangement would now enable them to earn returns similar to what they would gain if they were investing as Americans.

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What are Investments/Tools most commonly used for hedging?

While technically it is possible to hedge a portfolio through traditional techniques such as diversification or investment in alternate assets, explicit hedges in the market are performed through the extensive use of instruments called derivatives.

On a high level, a derivative is simply a contract whereby you as an investor enters into a bet or an arrangement with another investor to buy or sell an asset at a fixed price in the future.

There are lots of interesting things you could do with derivatives. For example, at the time of writing the article the market is significantly overvalued and there is a lot of uncertainty about the budget in the coming weeks. An investor who has exposure to equities could theoretically buy a put option that expires in two or three weeks for a premium paid upfront and could hedge against a market fall while also standing to gain from his stock holdings.

While these seem to be very simple tactics an individual could make use of, it would surprise many to learn that these are exactly the same strategies that hedge funds employ for their wealthy clients. Among other things, hedge funds also frequently use derivatives to long certain assets while shorting certain others with the intent of making a profit regardless of market conditions.

What are the cons of hedging?

While the pros of the industry may espouse hedging as some holy grail in investing, the truth is this is not without any downsides.

Firstly, the hedge most often requires an upfront investment which is lost if the market goes up. This is something that eats up your returns in a market that is trending upwards or is moving sideways, a possible implication of this is that it becomes much harder for you as an investor to beat the benchmark index in the long term.

Secondly, hedging is an imperfect science. Professionals in the industry may tell you that it is something that requires a lot of skill and experience. But truth be told, they will also agree that hedging at the end of the day is an “educated guess” based on probabilities.

Thirdly, even if you have a hedge it may still not protect you. Imagine if you bought a put (an option that gives insurance against downside) to hedge your investment if the asset were to fall by 10%. Now, if the market were to fall by 8% by your expiry date, the option would expire worthlessly and your investment in buying the hedge would be entirely lost.

For these factors, many conservative fund managers prefer to stay away from complex hedging and instead focus more on long term returns than short term losses. In their view, if you are a long-term investor short term market crashes are only an opportunity to buy more stock into your holdings and hence it doesn’t make sense to spend extra cash on a crash that may or may not happen.

Basics of Hedging – Key Takeaways

In this post, we covered the basics of hedging and how investors can employ it. While Hedge funds may not be accessible for many individuals, investors can theoretically carry out the same strategies, but the performance of their portfolios may depend a lot on the individual’s ability to make active calls and evaluate the market.

Hence, Any investor hoping to venture into actively being involved in the markets would do well to acquaint themselves with erudite concepts of hedging before employing them. However daunting it may seem, the fruits of such labor have rewarded market players with immense wealth and success.

Levin Jenson

Levin is a former investment banker and a hedge fund analyst. He is an NIT Warangal graduate with around 5 years experience in the share market.

January 27, 2021 Levin Jenson Options Trading, Technical Analysis No comments yet

What is Qualitative Analysis of Stocks? And How to Perform it?

A Guide to Qualitative Analysis of Stocks for Beginners: When you think about analyzing a strong company, the first picture that comes to your mind is most probably about an individual with high aptitude locking himself in and crushing numbers all day long. Moreover, the numbers like Total Revenue, Operating, Profitability, Margin Net Profit, etc might come in the notice. But is that all there is to investing?

Today, we take a look at the other side of the coin, known as qualitative analysis. Here, we’ll discuss what exactly is the Qualitative analysis of stocks and moreover, how you can perform it.

What is a Qualitative Analysis of Stocks?

Qualitative analysis is the use of non-quantifiable information in order to judge the investment prospects of a company. This information includes quality of management, the satisfaction of various stakeholders, ethics, brand value, etc. This is also known as soft data. This soft data deals with factors that are intangible.

What we are accustomed to is known as quantitative analysis. Here the focus is on numbers, ratios derived from statements like the Income statement, balance sheet, and cash flow statement. The biggest factor of differentiation is that quantitative data can be crunched by artificial intelligence or simply put computers. Qualitative analysis on the other hand requires a human touch.

(Image Credits: AZ Quotes)

Why Qualitative analysis of Stocks Important?

Even though we might be sitting behind a computer screen and viewing a mixture of numbers that make up important company information. It is important to remember that ultimately it is people who run these companies and not numbers. It is humans who ultimately create and buy the services or products offered by the company. Hence it is not simply possible to only look at the company as a collection of numbers.

Take for example Coca Cola. The company manages to sell 1.8 billion bottles per day. If we just look at numbers like this the company could be the greatest to ever exist. But not many would have foreseen the consumer concerns changing to consider health prospects over

How to Perform Qualitative Analysis of Stocks?

Here are the aspects of a company form part of the qualitative analysis of stocks and what investors need to look for before investing:

1. Company Management

It is very important to take into account who leads the company. These include CEO’s, Board of Directors, Chairmen, etc. If tomorrow a new CEO is being appointed analyzing if he is the right fit for the company goes a long way. One would always prefer someone who is already experienced in successfully running a company in the industry over an individual who is new to the industry.

Further background checks would include assessing their education, management style, etc. For eg., a CEO who does not believe in automation or further innovation could be a potential risk to the company.

However, it is also important to take these factors as conclusive evidence. Take for example if one were to judge Apple in its nascent stages by looking at Steve Jobs solely on the basis of educational qualification one would dismiss Apple as a potential opportunity. But Steve Jobs was a marketing genius second to none.

One can also judge the competence of the management team depending on how they react during a crisis. Take the example of Sony. In 2011 the company suffered a data breach of 77 million PlayStation users. Instead of trying to cover it up the CEO apologized personally and customers even were given a free subscription to PlayStation Plus and identity theft insurance.

2. Employee Satisfaction

Employee satisfaction is crucial as only then will their top services be carried forward to the customers. One of the means through which we can assess this is by observing the employee turnover ratios of the company. A company with a high turnover ratio could be a sign of an unhealthy or toxic work environment.

This is why companies often provide employees with the best amenities and a strong independent HR to look after their concerns.

3. Supplier Satisfaction

It is also very important that the company also ensures that they treat their suppliers fairly. As a healthy relationship with suppliers goes a long way. One example could again be that of Amazon. The company cloned the tripod product of a small company using their platform.

They however did not stop by turning themselves into competitors they also banned the company from using the platform. News like this only puts companies in a negative light.

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4. Customer Satisfaction

Every action that a company takes is in one way or the other geared towards customer satisfaction. We all have seen examples of how seriously even tweets on social media platforms are taken in order to protect the image of the company. Nobody wants to deal with a company that deals horribly with their customers.

As reported by Investopedia between 1994 and 2007 companies that please their customers are shown to create about four times the wealth.

5. Other factors

There are numerous other factors that also play an important role in qualitative analysis. These include the competitive advantages of a company, patents it possesses, brand value, moats in its industry, etc.

Although these factors may not be exactly quantifiable they still form a very important role in the analysis of a company.

6. Institutional Participation

Whenever large investments or private equity groups invest in a company, they do so after taking into account all the quantitative and qualitative factors. This means that they have already done their research. Hence companies having large institutional investors is a positive sign.

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Closing Thoughts

The information needed for quantitative analysis however is hard to come by. When it comes to numbers computers can be programmed to deliver results or analysis in a fraction of seconds. Qualitative analysis of stocks on the other hand hard and time-consuming to analyze.

Another factor is analyzing what information is relevant and what isn’t. Some sources include company websites, business publications, annual reports, shareholder meetings, etc. A well-rounded analysis is no easy task but is only complete when both quantitative and qualitative factors are considered. Let us know about your experience in the qualitative analysis below in the comments. Happy Investing!

Aron Almeida

January 26, 2021 Aron Almeida Investing Psychology, Investment Basics 1 comment

How to do Fundamental Analysis on Stocks?

A Beginner’s guide on how to do fundamental analysis on stocks (Updated): Fundamental analysis of a stock is used to determine the financial and business health of a company. It is always recommended to perform a complete fundamental analysis of the stock before investing if you are planning for long term investment.

If you’re involved in the market, you might also have about the term ‘Technical Analysis’. Well, technical analysis is a good approach to find the entry and exit time stock for intraday trading or short term. Here, we look into charts, trends, and patterns. You can make good profits using different technical indicators efficiently. However, if you want to find a multi-bagger stock to invest in, which can give you good returns year after year, then the fundamental analysis is the actual tool that you have to utilize.

This is because to get multiple times returns (say 5x or 10x), you need to remain invested in a stock for the long term. While the technical indicators will show you exit signs in the short term whenever there’s a downtrend or small setbacks, however, you have to remain invested in that stock if the company is fundamentally strong. In such cases, you have to be confident that the stock will grow and give good returns in the future and avoid short-term underperformance. Short-term market fluctuations, unavoidable factors, or mishappenings won’t affect the fundamentals of the strong company in the long term.

In this post, we are going to discuss how to do fundamental analysis on stocks. Here, we will elaborate on a few guidelines that if you follow with discipline, you can easily be able to select fundamentally strong companies.

How to do fundamental analysis on stocks?

Here are the six essential steps that you need to perform to analyze the fundamentals of a company in Indian stock market. They are really simple, yet effective to find fundamentally healthy companies. Here it goes:

Step 1: Use the financial ratios for Initial Screening

There are over 5,500 stocks listed on the Indian stock exchange. If you start reading the financials of all these companies (i.e. balance sheet, profit-loss statement, etc.), then it might take years. The annual reports of most companies are around 200-300 pages long. And it’s not worth your time to read each and every company’s report.

A better approach is first to shortlist a few good companies based on a few criteria. And then to study these screened companies one-by-one to pick the one that suits you the best.

For the initial screening of the stocks, you can use various financial ratios like Price to Earnings (PE) ratio, Price to Book Value (PBV) ratio, ROE, CAGR, Current ratio, Dividend yield, etc. If you want to know more about the best financial ratios for screening, here’s an article on 8 Financial Ratio Analysis that Every Stock Investor Should Know. In short, you need to use different financial ratios for initial screening.

Next, for performing the stock screening using financial ratios, you can use different financial websites like Trade Brains Screener, Screener.in, Investing.com, Tickertape, etc. Let me give you an example of how to screen stocks using Trade Brains Screener.

How to do a screening of stocks using Trade Brains Screener?

Step 1: Go to Trade Brains Portal.

Step 2: From the top menu, select Screener. Else, here’s the direct link.

Step 3: Add Criteria (financial ratios) to screen stocks

Step 4: Run Filter to get the list of stocks

For example, if you want to filter companies with a PE ratio between 8 to 20 and dividend yield % between 1 to 3%, and Avg ROE for the last three years greater than 12%, you can select the following criteria. Trade Brains Screener will shortlist the stocks according to the criteria mentioned and give you the list of companies.

(Source: Trade Brains Portal)

Further, you can also add a number of financial ratios in your criteria like ROCE, Current Ratio, ROA, P/Book value etc. Besides, you can also use any other financial ratio that you wish to screen stocks that suits your requirement. Here’s a demo on how to shortlist companies using Trade Brains Screener:

Step 2: Understand the company

Once you’ve screened the companies based on the above criteria, the next step is to investigate them. It is important that you understand the company in which you are investing. Because if you don’t, you won’t be able to decide whether the company is performing good or bad, whether the company is making the right decisions towards its future goal or not; whether their competitors are doing good or bad compared to them and most importantly whether you should hold or sell the stock.

Therefore, it is essential that you understand the company. Questions like what are its products/services, who are leading the company (founders/promoters), management efficiency, competitors, etc should be known to you.

A simple way to understand the company is to visit its website. Go to the company’s website and check it’s ‘ABOUT’, ‘PRODUCTS’, ‘PROMOTERS/BOARD OF DIRECTORS’ page, etc. Read the mission and vision statement of that company. Further, if you can find the annual report of the company, download and read it. This report will give the in-depth knowledge of the company.

Further, if you are able to understand the products, services & vision of the company and find it attractive, then move further to the next step. Else, ignore that company.

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Step 3: Study the financial results of the company

Once you have understood the company and found it appealing, next you need to check the financials of the company like Balance sheet, Profit loss statements, and cash flow statements.

As a thumb rule, Revenue/Sales, net profit, and margin increasing for the last five years can be considered a healthy sign for the company. After that, you also need to check the other financials like Operating cost, expenses, assets, liabilities, etc.

Now, where can you find the financials of a company that you’re interested to invest? One of the best websites to check the financial statements of a company that I would definitely recommend you to check is Trade Brains Portal. Here are the steps to check the financial results of a company on the Trade Brains portal:

Step 1: Go to Trade Brains Portal

Step 2: Enter the company’s name in the search box. The company’s details will open like key ratios, profit and loss statement, balance sheet, cash flow statement, quarterly statements, peer competition, etc.

Step 3: Study the company’s financial results for the last five years.

(Fig: Reliance Industries Financials)

It is required that you study the financials of the company carefully in order to select a good stock for long-term investment. If you do not know how to read the financials of a company, you can check out this financial statement and ratio analysis course for beginners.

Step 4: Check the Debt and Red Flags

The total debt in a company is one of the biggest factors to check before investing in a stock. A company cannot perform well and reward its shareholders if it has a huge debt. They have to repay the debt and also pay interest on the borrowed money before anything else. In short, avoid companies with huge debts.

As a thumb rule, always invest in companies with a debt/equity ratio of less than one. You can use this ratio in the initial screening of stocks or else check it while reading the financials of a company.

In addition, also other red flags in the company can be continuously declining profit/ margin, low liquidity, and pledging of shares.

Step 5. Find the company’s competitors

It’s always good to study the peers of a company before investing. Determine what this company is doing that its competitors aren’t.

Further, you should be able to answer the question that why you are investing in this company and not any of its competitors. The answer should be convincing one like Unique selling point (USP), Competitive advantage, Low-cost products, Brand Value, future prospects (upcoming projects, new plant), etc.

You can find the list of the competitors of the company on the Trade Brains Portal itself. Just enter the stock name in the search box and navigate down. You will find a peer comparison there. Else, you can do a google search to find the competitors of the company. Study the competitors in detail before investing.

(Fig: Peers Comparison | Trade Brains Portal)

Step 6: Analyze future prospects

Most good investments are based on the future aspects/potential of the company and hardly on their current situation. Investors are interested in how much returns they can get from their investments in the future. Therefore, always invest in a company with strong long future prospects. Select only those companies to invest whose product or services will still be used twenty years from now.

Moreover, there is no point in investing in a CD or pen-drive making company with no long term (say 10 years from now) prospects. With cloud drives evolving so fast, these products will become obsolete with time.

If you are planning to invest for the long term, then the long life of the company’s product is a must criterion to check. Further, check future prospects, expansion possibilities, potential sources of revenue in the future, etc.

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What is Qualitative Analysis of Stocks? And How to Perform it?

Summary

Fundamental analysis is an old and proven method to find strong companies for long term investment. In this post, we discussed how to do the fundamental analysis of stocks.

The six steps to perform fundamental analysis on stocks explained in this article are: 1) Use the financial ratios for initial screening, 2)Understand the company, 3) Study the financial reports of the company, 4) Check the debt and red signs, 5) Find the company’s competitors 6) Analyse the future prospects.

Besides, here is a video on how to do fundamental analysis on stocks to help you analyze stocks further.

Also read: How To Invest Rs 10,000 In India for High Returns?

That’s all for today. I hope this post on ‘How to do fundamental analysis on stocks’ is useful to the readers. Further, If you find this post helpful and want me to write more contents on any similar topic, please comment below. Besides, if you’ve any doubts/queries, you can also ask in the comment section. I’ll be happy to help. Take care and Happy Investing.

Kritesh Abhishek

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

www.linkedin.com/in/kriteshrules/

January 25, 2021 Kritesh Abhishek Investment Basics 26 comments

StoveKraft IPO Review 2021 – IPO Price, Offer Dates & Details!

StoveKraft IPO Review 2021: A vaccine on the rollout and the financial market at an all-time high, it seems that the companies are making up for all the lost time from 2020 for IPO’s. Stove Kraft IPO will be the fourth public issue of 2021. This follows the recently concluded IRFC IPO and Indigo Paints IPO and ongoing HFFC IPO.

In this article, we cover the Stovecraft IPO Review and look into important IPO information and find out the possible prospects of the company.

StoveKraft IPO: About the Company

Stove Kraft is an emerging global home solutions brand and is already one of the largest Kitchen appliance suppliers in India. Founded in 1999, today, the company is engaged in the manufacture and retail of over 660 kitchen solutions cookware, cooking appliances, household utilities, and others.

One would come across these products under the brand name “Pigeon” and “Gilima” in the market. The two brands have been around for 13 years and enjoy a high market recall. In 2019, the company also started manufacturing Pigeon LED products. The company is also planning to cover premium and semi-premium kitchen solutions under the brand “Black + Decker”.

Stove Kraft also has a strong distribution network of 651 distributors in 27 states and 5 union territories and 12 distributors for exports and under the “Gilima” brand, it has 65 stores across 4 states and 28 cities in India. The company also has a global presence through countries like the USA, Mexico, Kenya, Qatar, Sri Lanka, Fiji, Bahrain, Kuwait, etc.

The company has well-equipped manufacturing facilities in Bengaluru (Karnataka) and Baddi (Himachal Pradesh). The Bengaluru facility focuses on the manufacture of Pigeon and Gilima branded appliances. The Baddi facility on the other hand focuses on the Oil Company Business (OCB) to manufacture products like LPG stoves, inner lid cooker, etc.

The company has a very strong brand name in the Indian markets. The brand Pigeon was listed as one of “India’s Most Admired Brands 2016 by the White Page International. The company also has had a co-branding initiative for over 7 years with LPG companies such as Indian Oil Corporation Ltd and Hindustan Petroleum Corporation Ltd to utilize their sale and distribution channels.

Key StoveKraft IPO Information

The promoters of the company are Rajendra Gandhi and Sunita Rajendra Gandhi. They together hold 61.31% of the pre-offer paid-up equity capital. The company also has 14.92 lakh shares held by Sequoia Capital India Growth Investment Holdings I, and 60.07 lakh shares held by SCI Growth Investments II.

Particular	March 2018	March 2019	March 2020	Sept 2020 (6 Months)
Revenue	5,289.52	6,409.38	6,698.61	3,288.36
Profit/(Loss)	-120	7.33	31.6	287.73
Diluted EPS	-4.95	0.27	1.05	9.57

(Note: Source: RHP)

Stove Kraft filed for an IPO with SEBI in February last year. The company has appointed Edelweiss Financial Services and JM Financial as the book running lead managers to the offer. KFin Technologies Private Ltd will be the registrar for the IPO.

Following are the important details on the IRFC IPO

Particular	Details
IPO Size	₹412.63 Cr
Fresh Issue	₹95.00 Cr
Offer For Sale(OFS)	8,250,000 Eq Shares of ₹10
Opening Date	Jan 25, 2021
Closing Date	Jan 28, 2021
Face Value	₹10 per equity share
Price Band	₹384 to ₹385 per equity share
Lot Size	38 Shares
Minimum Lot Size	1 i.e. ₹14,630
Maximum Lot Size	13 i.e. ₹190,190
Listing Date	Feb 5, 2021

StoveKraft IPO – Purpose of the IPO

The net IPO proceeds are proposed to be utilized for the following objectives:

To make the repayment or prepayment payment of the company’s borrowings fully or partially
To meet general corporate purposes.

Stove Kraft IPO – Grey market information: The shares of Stove Kraft were reported to be carrying a grey market premium of Rs 101 i.e. 26% over the IPO price.

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Closing Thoughts

Stove Kraft despite being one of the largest Kitchen appliance suppliers but still has a few concerns. The brand Pigeon which contributes 80% of its sales is under dispute. The company broke even only two years ago and has been profitable for only 2 years.

Despite posting exceptional profits in the coming years especially in the first half of final year 21 these concerns are to be noted before investing in the IPO. Happy Investing!

Aron Almeida

January 25, 2021 Aron Almeida IPO, News 1 comment

What is a Bad Bank? And How it can Revive Banking Sector?

Understanding What is a Bad Bank and Arguments for and against a Bad Bank: For a banking sector dependent economy like India, good health of the banks is very important to ensure accessible financial services and flow of credit to support the growing economy. Unfortunately, for many years, Indian banks have been dealing with a crisis that has created problems for them and the entire economy.

The quest to find a solution to this problem has further gained momentum after the economic fallout from the Covid pandemic. One of the many measures that have been proposed is the idea of setting up a National bad bank.

This article explains the concept of a bad bank, some history of the banking sector crisis, the ongoing debate on bad banks, the bold proposal that has been made to set up a bad bank in India, and the possibility of it being considered by the Government in the upcoming Union Budget.

What is a Bad Bank?

A bad bank is an entity that acts as an aggregator of bad loans and purchases them from across the banking sector at a discounted price and then works towards their recovery and resolution.

The banking sector is the backbone of the economy as it provides credit to fund different economic activities. Sometimes these loans turn into bad loans. Bad loans, also called as non-performing assets (NPA’s) are those loans made by a bank on which the borrower has not made interest or principal repayments on time. These loans are classified as non-performing and are at the verge of or already in the state of default. These bad loans negatively impact a bank’s balance sheet.

Banks are required to set aside some reserves as provisions for these loans. It erodes the bank’s equity capital and losses arising from these loans are deducted from the bank’s earnings, reducing its profitability. An increase in the amount of such loans in the bank’s balance sheet indicates stress and poses a risk to its financial health.

The bad bank is similar to an asset reconstruction company (ARC), where they absorb these loans from the banks and then manage them to recover as much amount as possible. They help remove the burden of these loans from the banks’ books, allowing the banks to increase their profitability and solely focus on core lending while transferring risk to the bad bank. Having a clean balance sheet also enhances a bank’s ability to raise more capital and instill confidence among its investors.

The economic fallout due to the coronavirus crisis has increased the banking sector’s stress, and the demand for a bad bank is being touted as a necessary measure to restore banks’ health. But this discussion around bad banks is not new; this idea has been proposed many times in the past as a possible solution to the NPA crisis, a problem that has engulfed the Indian banking sector since years now.

The Banking NPA Saga

India’s economy has been dependent to a large extent on the banking sector. Corporates have heavily relied on bank credit to fund their growth and expansion. India experienced an economic boom starting in 2003-2004, with the GDP growing at an average rate of close to 9%.

The big companies, sensing an opportunity, borrowed heavily from the banks to fund their growth and expansion. Moreover, the banks were more than willing to lend to the corporate sector at very low interest rates and without much due diligence.

But after the 2008 financial crisis, India’s economy experienced a slowdown, and many companies found it difficult to pay back the huge loans they had taken. For many years, this did not come to light as banks kept on restructuring, giving even more loans to these companies hoping that there would be a turn-around in these companies, as the economic conditions improve. Banks, mostly the public sector banks kept on ever-greening these loans and did not recognize them as Non-performing assets in their balance sheets, did not make provisions as it would hurt their profitability.

The problem got worse day by day, and the number of bad loans kept increasing. Consequently, as a lot of bank’s resources got locked up in these loans, bank lending and credit growth started to fall. The extent of this problem came to light during the 2014 asset quality review of the banking sector by the Reserve Bank of India (RBI). The central bank took immediate actions– it scrutinized the banks and introduced new regulations regarding the recognition and reporting of non-performing assets in the banks’ balance sheet.

Gross NPA ratio is a measure of the NPA in the banking sector. It is calculated as a ratio of the non-performing loans to the total loans and advanced by scheduled commercial banks. As shown in the figure below, the gross NPA ratio drastically increased from 2.2% in 2009 to about 11.1% in 2018; the total amount of NPA surpassing Rs.10 trillion. India had among the highest NPA ratios in the world.

Most of the NPA’s were generated by the public sector banks, accounting over 70% of the NPA of the entire banking sector. The trend of high profile companies borrowing huge sums from PSB’s and then wilfully defaulting on these loans became evident. Moreover, many banking frauds came into light involving the public sector banks. The root causes of the NPA crisis were – high inefficiency and poor governance in the public sector banks, lack of due diligence and regulation and even outright fraud.

RBI and the Government took steps to address this problem, which was adversely impacting the flow of credit within the economy. Strict regulations by the RBI, reforms like The Insolvency and Bankruptcy Code (IBC -2016), and bank recapitalization efforts by the Government helped reduce the gross NPA ratio in the banking sector to 8.5% in March 2020.

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But due to the impact of Covid crisis on economic activity, many corporates find themselves in a difficult financial situation and once again the NPA ratio is poised to increase. Because of the government support, moratorium on loans and the relaxation to banks on NPA reporting, the true extent of the increase in NPA’s unknown.

But according to latest estimates by the RBI in its financial stability report, the gross NPA’s may increase to 12.5% in March 2021 or in the worst scenario it may also escalate to 14.5%.

(Banking Stock Comparison | Source: Trade Brains Portal)

Proposal for a Bad bank

In May 2020, the Indian Banks’ Association (IBA), a body representing major Indian banks submitted a proposal to the RBI and Government to set up a national Bad Bank. According to the proposal, the bad bank would initially start with a book of approximately Rs.75000 Crores worth of bad loans.

The IBA has proposed a corporate structure that would contain an asset reconstruction company (ARC), to be owned by the Government along with an alternate investment fund (AIC) and an asset management company (AMC) that would have both – public and private participation. The banks would cumulatively invest Rs.100 Crores in the AMC and the ARC would be capitalized by the Government to the tune of Rs.10,000 Crores.

Many industry trade bodies, banks and economists are in favour of creating a bad bank. Proponents argue that it is important to clean the balance sheet of the banks. Stress in the banking sector has prevented the credit growth in the past, and it will also hinder the efforts to recover the economy post-Covid.

A bad bank would allow banks to devote more time and effort to lending and flow of credit instead of being burdened with the recovery of past loans. As bad loans ratio is expected to increase in the next few months due to the damage caused by the pandemic, It is argued that the time is ripe for the Government to set up a bad bank as it would help banks to deal with the spike in NPA’s and to assess the true extent of bad loans post the pandemic.

Arguments against a Bad Bank

The case for setting up a bad bank is not so obvious; many are not in support of this idea. It is argued that creating a bad bank is just shifting the problem from one place to another. It will not help in alleviating the problem of NPA’s in the banking sector.

The bad bank would only lead to losses being shared among investors and public and it is highly likely that it will just become a warehouse for bad loans without any recovery taking place. Instead, we must focus on tackling the underlying structural problems in the banking system and make reforms to improve the public sector banks.

Furthermore, an important concern is regarding mobilizing capital for the bad bank. In an economy hit by the pandemic, it is hard to find buyers for distressed assets and the Government is also in a tight fiscal position. Also, there is no clear procedure to determine at what price and which loans should be transferred to the bad bank. This may create political challenges for the Government.

Former Governor of the reserve bank, Raghuram Rajan believes that setting a bad bank may also create moral hazard problems among the banks that would enable them to continue with their reckless lending practices, further exacerbating the NPA problem.

Recent Developments

The Government is very keen on finding solutions to strengthen the banking sector. At a webinar hosted by the CII, the Department of Economic Affairs secretary, Tarun Bajaj stated that the Government is considering various option including that of a bad bank to revive the banking sector.

The Governor of RBI, Shaktikanta Das has also supported the idea of a bad bank to tackle the NPA’s. He also mentioned that RBI already has regulatory guidelines for asset reconstruction companies. The Union Budget for 2021-2022 is slated to be presented next month, and it is being speculated that the Finance Minister may finally announce setting up a National bad bank.

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Closing Thoughts

A bad bank is an entity that takes over and manages the stressed assets in the banking sector. It has long been touted as a measure to tackle the many-year-old bad loan problem that has grappled the banking sector and prevented credit growth in the economy.

The economic fallout from the pandemic will further deteriorate the health of the banks. Restoring credit flow is essential to revive economic growth post the pandemic. Amid an ongoing debate on whether a bad bank will be helpful or not, the Government and the central bank have hinted that they would consider the idea of setting up a bad bank and it is expected that there may be some important announcement regarding this in the Union Budget for the fiscal year 2021-22.

January 24, 2021 Team Trade Brains Market No comments yet

What are Economic Indicators? Leading, Lagging & Coincident Indicators!

Understanding What are Economic Indicators – Leading, lagging, & coincident: The health of the economy impacts all businesses in it. It is extremely important for investors to keep track of the current state and anticipate future changes in the economy in order to make informed investment decisions.

The economy is a complex phenomenon, and investors rely on many economic indicators to understand it. Any single economic indicator is not enough; investors have to consider many indicators in trying to grasp the big picture.

Economic indicators are classified as leading, lagging or coincident depending on whether the indicated change in economic activity will happen in the future, has already happened or is currently underway. In this article, we describe some of the most important indicators used by investors in Indian financial markets.

A) Leading Indicators

Leading indicators are forward-looking in that they provide a signal before a change in the economy itself. This makes leading indicators extremely useful to forecast and predict the economic scenario in the future.

These indicators are difficult to estimate and may be misleading at times by producing false signals, so they must be used cautiously. Some popular leading indicators are –

1. Bank Credit growth

Bank credit refers to the lending of funds by scheduled commercial banks (SCB) to various sectors in the economy. Non-food credit forms a bulk of the total credit and comprises loan given to different sectors (Industry, Agriculture and services) along with personal loans to individuals.

The Reserve Bank of India (RBI) collects data on bank credit on a monthly basis from major commercial banks which together accounts for almost 95% of the total non-food credit. High growth in bank credit indicates that banks are lending more and corporates are confident to borrow and expand as well as high consumer sentiment.

A high credit growth translates into higher economic growth, but if the bank credit growth is consistently low or negative, it could signal an impending economic slowdown.

2. Capacity Utilization

Capacity utilization is an indicator of slack in the manufacturing sector provides insights into the state of the business cycle. In other words, it tells us as to what extent the production capacity in the economy is idle or used. It is measured as a proportion of the actual output produced to that of potential output which can be produced with the installed capacity.

Rising levels of capacity utilization indicate that production facilities are being used and increased output contributes positively to economic growth, whereas if the utilization levels are declining, it signals deceleration in the economy.

The RBI collects data on capacity utilization in the manufacturing sector through the OBICUS survey and releases it on a quarterly basis.

3. Yield curve

Yields are the interest rates of bonds traded in the market. The sovereign yield curve is a graphical representation of the interest rates of government bonds with different maturities. It describes the relation between short term interest rates and long term rates and inherently captures the market’s expectation of future interest rates.

The yield curve provides vital insights into the macroeconomic conditions. Higher long term interest rates than the short term rates lead to an upward sloping yield curve. Upward sloping yield curve indicates higher interest rates in the future.

High inflation and economic growth would create demand for money, thus raising interest rates. Similarly, an inverted yield curve indicates an economic slowdown characterized by low inflation and falling interest rates. The data on interest rates for different maturities of bonds is determined by market forces and is available at a high frequency.

4. Durable goods consumption

Durable goods are those goods that have a longer life, and high economic value. They represent a significant portion of the total retail consumption expenditure. Some examples of durable goods are furniture, jewellery, automobiles etc.

The demand for these goods is an indicator of the overall strength of demand in the economy. Slow growth or fall in consumption expenditure of durables signals a slowdown in the economy and weakness in aggregate demand. The most tracked consumer durables are two-wheeler and car sales. Tractor sales are considered an indicator of rural demand.

5. Confidence index

Consumer confidence measures the degree of confidence of consumers on the state of the economy. If consumer confidence is high, they would spend and make more purchases adding to strong aggregate demand and economic growth.

Low confidence would suggest that consumers prefer to save and spend less, indicating a fall in consumption expenditure. Similarly, business confidence measures the optimism of businesses regarding economic strength.

The Reserve Bank of India (RBI) releases monthly consumer confidence index and quarterly Business expectations index by conducting surveys of households and businesses.

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B) Lagging Indicators

Lagging indicators signal a change in the economy, usually after the change has taken place. They are not very useful in predicting future outcomes but are used as signals for conforming to the ongoing scenario.

Sometimes, an unexpected value of a lagging indicator may cause investors to change their outlook and prices respond accordingly.

1. Gross domestic product

The most popular measure for the size of the economy is the Gross Domestic Product (GDP).It is the total value of all goods and services produced within a country in a particular time period. The growth rate of GDP indicates the health of the economy.

The GDP data for India is calculated quarterly and is released by the Central Statistics Office. High growth in GDP indicates growth in income and strong aggregate demand, and corporates are likely to perform better in such an environment.

Since the GDP is released only quarterly, it only acts as a reinforcement signal to the current scenario; stock prices adjust much quickly to economic changes even before the GDP numbers are announced.

(Image Credits: Statista)

2. Unemployment rate

Another measure of economic performance is the Unemployment rate, which is measures the number of people unemployed as a percentage of the total labour force. Higher unemployment indicates a poor state of the economy – companies less willing to hire, reduced aggregate demand and further layoffs. It has been observed that the unemployment rate is negatively correlated to the prices in the stock market.

In India, the Centre for Monitoring Indian Economy (CMIE), releases monthly estimates for the unemployment rate. The unemployment data is reported with some time lag, and a high number may be a result of an already going economic slump. In India, stock prices do not react much to unemployment indicators as a lot of information is already factored in.

3. Balance of trade

Also called the Net exports, Balance of trade refers to the difference between a country’s total value of exports and imports. It tells us whether the country is in a trade surplus (higher exports) or trade deficit (higher imports).

A surplus is generally desirable as it indicates more money flowing into the country. If the surplus is due to high exports, it signals a strong demand for the country’s exports from other countries. A high trade deficit is a negative indicator of economic growth, and markets react negatively.

A country with a high trade deficit is exporting less and importing more, money flows outside the country, leading to a significant increase in debt. A high deficit also causes a fall in the value of the domestic currency.

Sometimes, too high a trade surplus can also be a cause of worry. If the trade surplus is resultant of weak imports, it may signal weak domestic demand. The data on exports and imports is released monthly by the Ministry of Commerce, Government of India.

C) Coincident Indicators

Coincident indicators change simultaneously, along with the economic conditions. These indicators help in understanding current economic conditions but do not have a predictive value. Coincident indicators are beneficial to investors as it provides real-time information on how the economy is performing.

1. Manufacturing activity

Industrial/manufacturing activity is sensitive and quickly adjusts to the current economic scenario. Increased industrial production indicates that there is a strong demand for goods, and since the industrial sector is closely linked to other sectors of the economy, higher industrial activity correlates positively with growth in other sectors.

An index that tracks the growth in manufacturing activity in the economy is theIndex of Industrial Production (IIP). The IIP is calculated monthly and released by the Central Statistics Office. Low or negative growth in the IIP is bad for corporate sales and profits; thus, stock prices fall in reaction to it.

Another forward-looking measure of industrial activity is the Purchasing Managers Index (PMI). PMI ranges from 0 to 100. A value below 50 represents a contraction, whereas a value above 50 represents an expansion compared to the previous month. A separate PMI index is also calculated for the services sector.

2. Short term interest rates

Short term interest rates are very sensitive to current economic conditions and are strongly influenced by the policy rate (Repo rate) set by the Reserve Bank of India. A rise in short term interest rates signals higher economic activity as there is more demand for money.

Similarly, lower interest rates mean that the economy is weak, and the central bank reduces its repo rate in order to spur aggregate demand. There are many short term interest rates that are determined by the market forces in the money market. The policy rate of the RBI is decided on a bi-monthly basis.

3. Inflation

This is a measure of the change in prices of goods and services over a period of time. A little positive inflation signifies strong demand that promotes economic growth, whereas very low or negative inflation is a signal of weak demand and usually coincides with low growth in the economy.

In developing countries like India, high inflation can be a cause of worry as it reduces the real disposable income of consumers and businesses may face a reduction in their profit margins due to an increase in the cost of inputs. Various indices are used to measure inflation. An index tracks the changes in the prices of a basket of goods and services.

The Consumer Price Index (CPI) is the primary index that measures retail prices of goods and services like food, transportation etc. Another index is the Wholesale Price Index (WPI), which measures the prices at a wholesale level. The data for both – CPI and WPI is released by The Central Statistics Office.

(India Inflation CPI | Image Credits: Trading Economics)

Closing Thoughts

The economic conditions are an important factor that influences prices in the stock market. To understand the economy’s current and future prospects, investors use many economic indicators when making investing decisions.

Most important are the leading indicators, which provide insights about the future economic scenario. The lagging indicators reinforce the economic trends and coincident indicators provide investors with real-time information about the economy.

January 22, 2021 Team Trade Brains Economics No comments yet

Home First Finance Company- HFFC IPO Review cover

HFFC IPO Review 2021 – IPO Price, Offer Dates & Details!

Home First Finance Company- HFFC IPO Review: Just 20 days into 2021 we will be having our third IPO, that too all in one week. Following IRFC and Indigo Paints, HFFC has decided to open its public offer for subscription on January 21.

In this article, we look into the HFFC IPO Review to cover the important information pertaining to the IPO. We also discuss the possible prospects of the company.

HFFC IPO- About the Company

Incorporated in 2010, Home First Finance Co. is a Mumbai-based technology-driven affordable housing finance company. The company primarily mainly caters to the low and middle-income groups. They do so by offering them housing loans to construct and buy homes. The company also offers other loans like loans against property, developer finance loans, and loans to buy commercial property.

One of their biggest strengths has been adapting to technological changes by rolling out their mobile app. The app helps users processing loan applications in a quick and transparent manner. In addition to this, the group has also developed a strong diversified network for gaining possible leads on loans. These include connectors, contractors, architects, affordable housing developers, and others. Over the decade the HFCC has sanctioned home loans to more than 50,000 customers.

The company also has strong penetration in the markets with 65 branches across 60 districts in 11 different states and a union territory in India. Its loan assets are spread throughout the country. Gujarat contributing 39% of the gross loan assets. This is followed by Maharashtra (21 percent), Tamil Nadu (10.5 percent), Karnataka (9.3 percent), Rajasthan (5.1 percent), and Telangana (5.0 percent). In addition, the NPA’s of the company stood at 0.74% as of September 2020.

(HFFC Mascot in an advertisement)

The company’s gross loan assets have grown at a compound annual growth rate (CAGR) of 63.4% between the fiscal year 2018-2020. According to CRISIL Research, the affordable housing outstanding credit will increase at 9% to 10% CAGR to ₹1190000 crores by 2023. As of September 2020, the company had an AUM of Rs 3,730 crore with a net worth of Rs 988 crore.

Despite being affected by the pandemic the company’s collection efficiency has recovered to 96%. The efficiency prior to the pandemic stood at 98%. According to promoter Manoj Viswanathan, only 3-4% of their customers are facing troubles. Despite this they expect their ross NPAs to increase to between 1% to 2% of total loans.

HFFC IPO Review – Key Information

Although the company had received Sebi approval last year their plans for an IPO were quashed due to the pandemic. During the period the company has reduced its fresh issue size to Rs 265 crore from Rs 344.08 crore due to its pre-IPO placement.

During this HFCC offered preferential allotment of over 22.40 lakh equity shares to Orange Clove Investments B.V. This was at a price of Rs 334.72 per share, for a consideration of Rs 75 crore. Employees were also included and allotted 1.22 lakh shares at Rs 334.72 per share, for a consideration of Rs 4.08 crore.

The IPO consists of a fresh issue of Rs 265 crore and an offer for sale of Rs 888.72 crore. The offer-for-sale consists of shares worth ₹435.61 crores by promoter True North Fund V LLP, ₹291.28 crore shares by promoter Aether (Mauritius) Ltd, ₹120.46 crores by investor Bessemer India Capital Holdings II Ltd, and ₹41.3 crores by PS Jayakumar and Manoj Viswanathan.

Following are the important details on the HFCC IPO:

Particular	Details
IPO Size	₹1,153.72 Cr
Fresh Issue	₹265.00 Cr
Offer For Sale(OFS)	₹888.72 Cr
Opening Date	Jan 21, 2021
Closing Date	Jan 25, 2021
Face Value	₹2 per equity share
Price Band	₹517 to ₹518 per equity share
Lot Size	28 Shares
Minimum Lot Size	1 i.e. ₹14,504
Maximum Lot Size	13 i.e. ₹188,552
Listing Date	Feb 3, 2021

Axis Capital, Credit Suisse Securities (India), ICICI Securities, and Kotak Mahindra Capital Company are the book running lead managers to the issue. As per updates, the grey market has set a premium of ₹90-100 for the price band set at ₹517-₹ 518 per share. Once the IPO is concluded, the shares are likely to hit the bourses on February 3. The equity shares will be listed on both the exchanges — BSE and NSE.

Purpose of the HFFC IPO

The net proceeds from the issue will be used for the following purposes.

To augment the company’s capital base to meet future capital requirements.
To achieve share listing benefits on the exchange.

Closing Thoughts

In this article, we covered the HFFC IPO Review. This IPO opens today (January 21) and closes on Jan 25, 2021. The HFCC provides an opportunity to investors to be part of the company’s growth story. But investors must beware of the bearish markets and bearish sentiments that persist in the market. Happy Investing!

Aron Almeida

January 21, 2021 Aron Almeida IPO, News No comments yet

5 Fast Growth Sectors in India to keep an Eye on!

List of Potential Fast Growth Sectors in India for the Next 5 Years: Hopefully, the Indian economy has already faced the worst or the coronavirus by now. With the number of cases reducing with every day that passes and the Sensex and Nifty higher than on pre covid levels, we can finally start focussing on other important aspects of our lives.

India luckily is en-route to bounce back and being an emerging market is also slowly gaining back the attention from developed countries. Today we take a look at the Potential Fast Growth Sectors in India for the Next 5 Years. Here, we’ll discuss those sectors that show the best prospects for growth in one of the largest growth engines in the world.

5 Fast Growth Sectors in India

1. E-Commerce Sector

The last few months have been the best for E-Commerce as the social distancing requirements have further allowed companies to expand their presence. In fact, many brands are now switching to a retail format in order to establish themselves before it is too late. This can lead to a permanent change in the behavior and mindsets of consumers towards E-commerce. In addition, many large players are also seeking entry into the segment like Reliance.

A few of the popular companies listed on the Indian stock exchange that operates in E-commerce or similar businesses are IndiaMart, Reliance (JioMart B2C), Infibeam, Justdial, Infoedge, IntraSoft Technologies etc.

2. Healthcare and Pharma Sector

COVID-19 has forced people to adopt better hygiene practices, which are expected to become a part of our behavior even post the Covid-19 world. Even prior to COVID-19 the population began looking for healthier lifestyles which have encouraged the introduction of several technological advancements in the country.

Some popular advancements are bought about by increasing consumption of nutrients, acceptance of mental health, founding of startups like CureFit, PharmEasy, Practo, etc. COVID-19 has gone a step further to expose the drawbacks of the industry forcing the medical industry to become more accessible, available, and affordable.

The Indian healthcare market is expected to be valued at $372 billion by 2022. One of the factors that are expected to aid the growth of the sector is the increasing population of the country and the increased life expectancy expected with improvements in the sector.

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10 Indian Companies with Monopoly in Their Industry!

3. Ed-Tech Sector

Ed-tech refers to the advancement of the education industry by making use of technology. The Ed-tech industry is one of the fastest-growing industries globally. One means through which parents assist their children’s success is by supporting their educational needs. They are willing to pay additional amounts for services they believe could give their children an edge.

The sector also receives a boost from the Indian environment that is culturally inclined towards education. In addition, the economic growth of the country demands higher skill development. The COVID-19 has further accelerated the growth of the Ed-tech sector as it has become essential for educators and learners to adopt more efficient digital processes and tools.

From 2014 to 2019, more than $1.8 billion has been invested into Indian ed-tech startups. Many companies like Byju’s have seen significant growth over the last few years.

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Indian EduTech Industry – How fast and big is it?

4. Infrastructure Sector

Infrastructure has been one of the cornerstones of development allowing the economy to grow exponentially. The industry includes projects like roads and expressways, railway lines, aviation, shipping, energy, power, or oil & gas. The pandemic however has had a significant impact on the infrastructure sector as it relies heavily on labor.

But despite this investors can expect healthy growth in the sector over the long term. Especially with the Make in India in India initiative taking off as companies look for alternatives in Asia. The central and state governments’ ambitious plans of smart cities and increased focus on infrastructure development will aid growth in the sector.

5. Fintech Sector

Fintech refers to companies making use of technology to provide financial services to businesses or consumers. Although the Indian market has a large number of players the industry is up for grabs a significant portion of the population still has to be captured. The fintech industry includes digital payments, and access to banking, insurance, and stock markets.

Some popular Fintech companies include Paytm, Razorpay, Google Pay, Zerodha, PhonePe, MobiKwik, PayU, ETMoney, PolicyBazaar, LendingKart, Freecharge and soon may even see Whatsapp entering the space. Last year the Fintech sector received a total funding of $3.18 billion and has emerged as the world’s second-largest fin-tech hub. One of the factors responsible for accelerated growth in this sector has been the digitalization of the economy through smartphones.

Closing Thoughts

In this article, we discussed the list of fast growth sectors in India for investors to keep an eye on. As the economy begins to recover it puts several sectors to the test on whether they should revert back to pre lockdown practices or continue with the newly set norms and pave the path for the future.

The growth however won’t be limited to the sectors above but they definitely have bright growth prospects in the long term.

Aron Almeida

January 20, 2021 Aron Almeida News 2 comments

What is Nifty and Sensex? Stock Market Basics (For Beginners) cover

What is Nifty and Sensex? Basics of Stock Market Index!

A Complete Guide on what is Nifty and Sensex: Have you ever heard of the name of Dalal street or the D-Street on any market news channel or financial magazine? I’m sure, you definitely would have heard of it, if you’re even remotely involved in the finance world.

Well, Dalal Street in Mumbai, India is the address of the Bombay Stock Exchange, the biggest stock exchange in India and several related financial firms and institutions. When the Bombay Stock Exchange was moved to this new location at the intersection of Bombay Samāchār Marg and Hammam Street, the street next to the building was renamed Dalal Street.

In Hindi Dalal means “a broker”. The term “Dalal Street” is used in the same way as “Wall Street” in the U.S., referring to the country’s major stock exchanges and overall financial system.

What is Nifty and Sensex?

In order to understand what is Nifty and Sensex, you need to understand the Indian stock exchanges first. Now, let’s discuss the two major stock exchanges in India i.e the ‘Bombay stock exchange’ and the ‘National stock exchange’ along with their indexes.

1. Bombay Stock Exchange (BSE)

Bombay stock exchange is an Indian stock exchange located at Dalal Street, Mumbai, Maharashtra.
It was established in 1875 and is Asia’s oldest stock exchange.
It is the world’s fastest stock exchange, with a median trade speed of 6 microseconds.
More than 5,500 companies are publicly listed on the BSE.
The BSE is the world’s 10th largest stock exchange with an overall market capitalization of $2.29 Trillion as of April 2018.
As of Feb 2021, 4,722 companies trading on the BSE were worth over Rs 200 Lakh Crore (Rs 2,00,47,191.31 Cr), as per data available on the exchange.

What is an Index? Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

— SENSEX

Sensex, also called BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

The 30 companies are selected on the basis of the free-float market capitalization.
These are different companies from the different sectors representing a sample of large, liquid and representative companies.
The base year of Sensex is 1978-79 and the base value is 100.
It is an indicator of market movement.
If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE has gone down. If Sensex goes up, it means that most of the major stocks in BSE went up during the given period.

For example, suppose the Sensex is 49,130 today. If Sensex drops to 48,450 tomorrow, it means that the majority of the 30 companies’ are not performing good i.e. their share price is falling.

— List of 30 Companies Consisting of Sensex

Here is the Sensex 30 Companies- Constituents of Sensex 30 by Weights – 2021

	Name	Industry	Weight
1.	Reliance Industries Ltd.	Integrated Oil & Gas	11.99%
2.	HDFC Bank Ltd.	Banks	11.84%
3.	Infosys Ltd.	IT Consulting & Software	9.06%
4.	Housing Development Finance Corporation Ltd.	Housing Finance	8.30%
5.	ICICI Bank Ltd.	Banks	7.37%
6.	Tata Consultancy Services Ltd.	IT Consulting & Software	5.76%
7.	Kotak Mahindra Bank Ltd.	Banks	4.88%
8.	Hindustan Unilever Ltd.	Personal Products	3.75%
9.	ITC Ltd.	Cigarettes,Tobacco Products	3.49%
10.	AXIS Bank Ltd.	Banks	3.35%
11.	Larsen & Toubro Ltd.	Construction & Engineering	3.13%
12.	Bajaj Finance Ltd.	Finance (including NBFCs)	2.63%
13.	State Bank of India	Banks	2.59%
14.	Bharti Airtel Ltd.	Telecom Services	2.31%
15.	Asian Paints Ltd.	Furniture,Furnishing,Paints	1.97%
16.	HCL Technologies Ltd.	IT Consulting & Software	1.89%
17.	Maruti Suzuki India Ltd.	Cars & Utility Vehicles	1.72%
18.	Mahindra & Mahindra Ltd.	Cars & Utility Vehicles	1.48%
19.	UltraTech Cement Ltd.	Cement & Cement Products	1.40%
20.	Sun Pharmaceutical Industries Ltd.	Pharmaceuticals	1.16%
21.	Tech Mahindra Ltd.	IT Consulting & Software	1.11%
22.	Titan Company Ltd.	Other Apparels & Accessories	1.11%
23.	Nestle India Ltd.	Nestle India Ltd.	1.07%
24.	Bajaj Finserv	Finance (including NBFCs)	1.04%
25.	IndusInd Bank Ltd.	Banks	1.03%
26.	POWERGRID	Electric Utilities	1.03%
27.	Tata Steel Ltd.	Iron & Steel/Interm.Products	1.01%
28.	NTPC Ltd.	Electric Utilities	0.94%
28.	Bajaj Auto Ltd.	2/3 Wheelers	0.86%
30.	Oil & Natural Gas Corporation Ltd.	Exploration & Production	0.73%

2. National Stock Exchange (NSE)

The National Stock Exchange (NSE) is the leading stock exchange of India, located in Mumbai, Maharashtra, India. It was started to end the monopoly of the Bombay stock exchange in the Indian market.

NSE was established in 1992 as the first demutualized electronic exchange in the country.
It was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system that offered an easy trading facility to the investors spread across the length and breadth of the country.
NSE has a total market capitalization of more than US$ 2.27 trillion, making it the world’s 11th-largest stock exchange as of April 2018.
NSE’s index, the NIFTY 50, is used extensively by investors in India and around the world as a barometer of the Indian capital markets.
The NSE remained the world’s largest derivatives exchange for the second consecutive year in 2020 in terms of the number of contracts traded.

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— NIFTY or Nifty 50

Nifty, also called NIFTY 50, is the market index consisting of 50 well-established and financially sound companies listed on the National Stock Exchange of India (NSE).

The base year is taken as 1995 and the base value is set to 1000.
Nifty is calculated using 50 large stocks that are actively traded on the NSE.
The 50 companies are selected on the basis of the free-float market capitalization.
Here, the 50 top stocks are selected from different 24 sectors.
Nifty is owned and managed by India Index Services and Products (IISL)

Also read: Nifty 50 fact sheet

— Nifty 50 Companies – Constituents of Nifty 50 by Weights – 2021

	Name	Industry	Weight
1.	Reliance Industries Ltd.	Energy - Oil & Gas	10.77%
2.	HDFC Bank Ltd.	Banking	10.66%
3.	Infosys Ltd.	Information Technology	7.42%
4.	Housing Development Finance Corporation Ltd.	Financial Services	7.29%
5.	ICICI Bank Ltd.	Banking	6.59%
6.	Tata Consultancy Services Ltd.	Information Technology	4.86%
7.	Kotak Mahindra Bank Ltd.	Banking	4.16%
8.	Hindustan Unilever Ltd.	Consumer Goods	3.04%
9.	AXIS Bank Ltd.	Banking	2.87%
10	ITC Ltd.	Consumer Goods	2.84%
11.	Larsen & Toubro Ltd.	Construction	2.78%
12.	State Bank of India	Banking	2.39%
13.	Bajaj Finance Ltd.	Financial Services	2.23%
14.	Bharti Airtel Ltd.	Telecommunication	2.13%
15.	Asian Paints Ltd.	Consumer Goods	1.64%
16.	HCL Technologies Ltd.	Information Technology	1.58%
17.	Maruti Suzuki India Ltd.	Automobile	1.46%
18.	Mahindra & Mahindra Ltd.	Automobile	1.23%
19.	UltraTech Cement Ltd.	Cement	1.13%
20.	Sun Pharmaceutical Industries Ltd.	Pharmaceuticals	1.03%
21.	Wipro Ltd.	Information Technology	0.97%
22.	IndusInd Bank Ltd.	Banking	0.96%
23.	Titan Company Ltd.	Consumer Goods	0.94%
24	Bajaj Finserv Ltd.	Financial Services	0.93%
25.	Nestle India Ltd.	Consumer Goods	0.92%
26.	Tata Motors Ltd.	Automobile	0.92%
27.	Tech Mahindra Ltd.	Information Technology	0.91%
28.	HDFC Life Insurance Co. Ltd.	Insurance	0.88%
29.	Power Grid Corporation of India Ltd.	Energy - Power	0.88%
30.	Dr. Reddy’s Laboratories Ltd.	Pharmaceuticals	0.86%
31.	Tata Steel Ltd.	Metals	0.86%
32.	NTPC Ltd.	Energy - Power	0.83%
33.	Bajaj Auto Ltd.	Automobile	0.79%
34.	Adani Port and Special Economic Zone	Infrastructure	0.79%
35.	Hindalco Industries Ltd.	Metals	0.79%
36.	Grasim Industries Ltd.	Cement	0.74%
37.	Divi’s Laboratories Ltd.	Pharmaceuticals	0.68%
38.	Hero MotoCorp Ltd.	Automobile	0.67%
39.	Oil & Natural Gas Corporation Ltd.	Energy - Oil & Gas	0.65%
40.	Cipla Ltd.	Pharmaceuticals	0.64%
41.	Britannia Industries Ltd.	Consumer Goods	0.63%
42.	JSW Steel Ltd.	Metals	0.61%
43.	Bharat Petroleum Corp. Ltd.	Energy - Oil & Gas	0.58%
44.	Eicher Motors Ltd.	Automobile	0.56%
45.	Shree Cement Ltd.	Cement	0.56%
46.	SBI Life Insurance Co.	Insurance	0.54%
47.	Coal India Ltd.	Energy & Mining	0.51%
48.	UPL Ltd.	Chemicals	0.49%
49.	GAIL (India) Ltd.	Energy - Oil & Gas	0.42%
50.	Indian Oil Corporation Ltd.	Energy - Oil & Gas	0.40%

Quick Note: If you want to research more about the fundamentals of these companies, you can go our Stock research and analysis PORTAL here.

Nifty and Sensex Movements Meaning

Sensex and Nifty are both indicators of market movement. If the Sensex or Nifty go up, it means that most of the stocks in India went up during the given period. With respect to NIFTY and NSE, we can say that:

If the Nifty goes up, this means that the stock price of most of the major stocks on NSE has gone up.
On the other hand, if nifty goes down, this tells you that the stock price of most of the major stocks on NSE has gone down.

The same is true in the case of Sensex. Moreover, when Sensex/Nifty goes high, it shows the economic growth of the country. Else if it keeps declining, it might mean a slow-down or depression.

For example, during the Indian recession of 2008-09, the Sensex fell over 12000 points (-60%). The fall in the Sensex was analogous to the recession. Meaning, people were selling their shares, and an economic crisis in the country.

Similarly, during the covid19 pandemic, the market crashed over 33% within a month, which was again in relation to the deteriorating economic scenario in India and the world.

Importance of Market Index

The market indexes are the barometer for market behavior. It gives a general idea about whether most of the stocks have gone up or gone down.
Often, Market Index is used as a benchmark portfolio performance.
It is used as a reflector of investor’s sentiments.
Market indexes are used for sorting and comparison of the various companies.
Indices act as an underlying for Index Funds, Index Futures, and Options.
They are used in passive fund management by Index funds.
The index can give a comparison of returns on investments in stock markets as opposed to asset classes such as gold or debt.

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That’s all. I hope this post ‘What is Nifty and Sensex?” is helpful to the readers. Please comment below if you have any doubts. Have a great day and Happy Investing!

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

January 19, 2021 Kritesh Abhishek Investment Basics 137 comments

The Azim Premji Success Story – Czar of the Indian IT Industry!

A Gist of Azim Premji Success Story: India’s most generous billionaires also known as the Czar of the Indian IT industry, Azim Premji is one of the finest business tycoons the country has ever produced. In this article, we are going to discuss Azim Premji Success Story. Here, we take a look at the reclusive billionaires’ progression through the years into what is today known as one of India’s greatest success stories.

Azim Premji – The 21-year-old CEO

“I was 21 and had spent the last few years in Stanford University Engineering School at California. Many people advised me to take up a nice, cushy job rather than face the challenges of running a hydrogenated oil business. Looking back, I am glad I decided to take charge instead. Essentially leadership begins from within. It is a small voice that tells you where to go when you feel lost. If you believe in that voice, you believe in yourself.” – Azim Premji

The company Wipro was started by his father Mohamed Premji in 1945 as Western Indian Vegetable Products Ltd. His father was already an established rice merchant known as the rice king. Although one may not expect that the company had anything to do with computers back then it will still surprise you to know that the company manufactured hydrogenated cooking fats.

After Azim Premji completed his schooling in Mumbai he was sent to Stanford University in order to pursue electrical engineering. Sadly due to the untimely death of his father he had to come back home. But on reaching home he also was thrust into the role of chairman in his fathers’ company.

This however did not sit well with the shareholders of the company who opposed a 21 year old leading the company that was valued at $2million. There was nothing much they could do as Premji owned 90% of the business. Surprisingly Premji rose up to the role and soon expanded the company to also diversify its product line to produce hydraulic cylinders, toiletries, soaps, and lighting products.

Premji Enters Computers

After diversifying and entering new markets Premji also decided to update the name of the company. He dropped ‘Vegetable Products’ from its name, creating Wipro in 1977. The year also marked a change for the Indian business climate a the Morarji Desai government began taking an aggressive stance towards FDI and foreign companies.

This forced businesses like IBM to leave the country. This is where Premji’s business acumen stood out as he was quick to identify the opportunity in the Indian IT sector. Wipro soon entered the IT space in 1980, which gave the company enough room to easily set up their business unbothered due to lack of competition.

The company began in the hardware sphere by manufacturing microcomputers under a technology-sharing agreement with Sentinel Computers a US-based company. The company soon entered the software sphere of the industry as well. In 1989, Wipro entered into a partnership with General Electric(GE). Here Wipro manufactured and distributed imaging products called Wipro GE Medical Systems.

Growth of Wipro under Azim Premji

“Success is achieved twice. Once in the mind and the second time in the real world.” – Azim Premji

Premji never rested on the laurels that the company had earned so far. Wipro soon diversified into the manufacturing of other IT products like printers, scanners, and medical and diagnostic equipment by 1991. At the same time, they also maintained and grew their other businesses to also produce lamps, powders, oil-based natural ingredients.

By 1999, Wipro successfully entered into a partnership with KPN to provide internet services in India. In 2000, Wipro was the second-largest listed company in India and also India’s largest software exporters. Wipro was India’s best-performing stock from 1998-2003. Much of Wipro’s success is also owed to its then CEO Vivek Paul.

Under Paul and Premji’s leadership, the company continued to grow with IT being the core of its business. In 2002, Wipro also became a BPO, a business it is well known for to this day. After Paul left Wipro in 2005, Premji once again became CEO. It would seem hard to believe at first but under Premji, the revenues of the group rose 3500 times in 50 years. From $2 million in the 1960s to around $7 billion by 2014.

In 2005 and 2011, Azim Premji was awarded the Padma Bhushan and Padma Vibhushan by the government of India respectively. He also has been voted as one of the 20 most powerful men in the World by Asiaweek in 2010. He also has twice been listed in Time Magazines 100 most influential people around the world. Azim Premji stepped down from the board of Wipro in 2019. He currently has a net worth of $6.6 billion.

Azim Premji Philanthropy Works

Azim Premji’s contribution to the Indian IT industry is massive and he also holds an unbeatable record of revenue growth. There is also one other aspect where Azim Premji serves as an for all Indians and that is Philanthropy.

He was the first Indian to sign up for The Giving Pledge. The initiative was led by Warren Buffet and Bill Gates. It encourages the wealthiest people to commit to giving up their wealth for charity. His lifetime donations stood at $21 billion as of June 2020. According to EdelGive Hurun India Philanthropy List, his charitable donations amounted to $22 crore per day during the year.

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Top 10 Indian Philanthropist Businessmen- Azim Premji, Shiv Nadar, More!

Closing Thoughts

“I strongly believe that those of us, who are privileged to have wealth, should contribute significantly to try and create a better world for the millions who are far less privileged.” – Azim Premji

Azim Premji success story is an inspiration to all. He rose up to the challenge at a very young age of 21 and still managed to drive his company to deliver excellence. Despite achieving so much he still has dedicated his life and wealth to the betterment of society.

Aron Almeida

January 19, 2021 Aron Almeida News No comments yet

How to choose an IPO for investing cover

How to Choose an IPO for Investing? Key Things to Know!

Tips to Choose an IPO for Investing: Do you really want to take part in an IPO but do not know what to look for before investing? Don’t worry we’ve got you covered. In this article, we discuss the important aspects to watch out for before investing in a company. Here, we’ll discuss the key things to look to choose an IPO for investing. Let’s get started.

What is an IPO?

An IPO is a process through which a private company can raise funds through the stock market, transforming itself into a public company whose shares are traded in a stock exchange.

This is a preferred means of raising funds as the company is not obligated to pay interest as in the case of loans, The company however is owned by the shareholders post the IPO. There can be a number of reasons why any company offer an IPO. Here are a few of the top ones:

To raise capital (financial benefit)
For funding a new project or expansion plan of the company
For carrying out new research and development works
To fund capital expenditures
To pay off the existing debts or reduce the debt burden
For a new acquisition
To create public awareness of the company
For the group of initial investors desiring to exit the company by selling their stakes to the public.

In addition, IPOs generate lots of publicity for the company and hence helps in creating market exposure, indirect exposure, and brand equity.

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Tips to Choose an IPO for Investing – Things to look

At the end of the day taking part in an IPO is just another form of investment. The problem however arises as companies that go for IPO’s are relatively new and there is not a lot of information available about them. In comparison companies that are public have reports, company news, and expert analysis readily available on the internet.

In order to avoid investors falling prey to companies with weak financials, the regulatory authorities have made it compulsory for companies to issue a Red Herring Prospectus (RHP). This prospectus is a summary of the company and provides important details like financial statements, revenue, earnings, risks, etc of the company. It is very important that the prospectus is read carefully before investing

Following are some important factors to look at before investing in an IPO:

— Growth Prospects and financial strength

The value of the company depends heavily on its growth rate so far and the prospective growth rate it can generate in the future. The prospectus gives a track record of its growth in various aspects and annual reports throughout the years. This will help in predicting what the company may achieve in the coming years and if it is worth investing in.

— Promoter holdings

The prospectus also includes information on whether the company is freshly issuing shares or are they an offer for sale which are shares of existing promoters. According to the law, promoters are required to maintain a minimum holding of 20% post issue. But if the promoters are selling a major portion of their business this could be a red flag. Instead, if the promoters decide to hold a significant portion of shares post the issue then it is a sign that they believe in the future of the company and want to be a part of it. Instead of using the IPO as an escape.

— Allocation of funds raised through IPO

The prospectus also gives us information on what purpose the money raised through an IPO will be used for. A good sign would be the company allocating the funds for future growth. On the other hand, if the main purpose of the IPO is to pay off existing debt or buy out promoters then these should be considered as red flags.

— Comparison with competitors

In order to assess the company’s performance, one should also compare the performance of the company with that of its peers in the same industry. The IPO price also may be compared to other companies in the same industry. Based on its performance and price with its competitors, one can assess it is a company is overvalued or worth investing in.

— Beware of the oversubscription trap

It is also very important for investors to rely on their research and not on market hype. Often IPO’s are oversubscribed. An investor must not get swayed by this information as subscriptions often replicate market trends. This means that there are greater chances of IPO’s being oversubscribed in bullish markets than in bearish. Companies being aware of this are looking for the highest valuations to make use of this.

IPO Terms to Know Before Investing in an IPO

Following are some important terms that provide vital information for investing in the stock market. Understanding these terms are crucial to choose an IPO and make a sound IPO investment decision:

1. Size: The size generally refers to the offering size. This is the number of shares offered in the IPO multiplied by the price per share. This shows the amount the company is attempting to raise from the IPO.

2. Fresh Issue: This refers to the new equity shares issued to the public.

3. OFS: Offer for Sale refers to the dilution of existing promoters’ stake which is given to the shareholders. Here no new shares are issued.

4. Opening/Closing Date: It is between these dates that investors are allowed to apply for the IPO.

5. Price Band: This refers to the lower and upper limit of the share price within which the company will offer its shares to the public.

6 Lot Size: In an IPO the total shares offered to the public is divided into lots. In an IPO the investors are not allowed to purchase shares of any quantity. They have to do it in lots. In addition, a minimum and maximum lot size is set beforehand.

For eg. say Company A going public sets a lot size of 10 shares for each lot with a minimum and maximum lot purchase set at 1 and 10 respectively. This basically means that the minimum number of shares an investor can purchase is 10 and the maximum a 100. If an investor wants 65 shares he will not be able to do so. But he can purchase 6 lots which is the closest denomination.

7. Face Value: The face value refers to the original cost of the shares.

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IRFC IPO Review 2021 – IPO Offer Price, Dates & Details!

Closing Thoughts

In this article, we discussed a few of the key aspects to look to choose an IPO for investing. IPO’s are considered to be riskier than other forms of investment as the information available is limited. But the risk can be limited to a great extent if one makes a thorough study of its prospectus. At the same time watching out for the red flags mentioned above. Happy Investing!

Aron Almeida

January 18, 2021 Aron Almeida Investment Basics, IPO No comments yet

IRFC IPO Review 2021 – IPO Offer Price, Dates & Details!

Indian Railway Finance Corporation – IRFC IPO Review: 2021 is off to a great start as markets are at an all-time high and scheduled IPO’s only add to the excitement. The first IPO for 2021 will be the huge public offering by IRFC which opens on the 18th of January.

In this article, we are going to cover the IRFC IPO Review. Here, we’ll look into important information on the IPO and find out the possible prospects of the company.

IRFC IPO Review – About the Company

Founded in 1986 the Indian Railway Finance Corporation (IRFC) is a government-owned company. The IRFC acts as the borrowing arm for the Indian Railways. Its purpose lies in financing the acquisition of rolling stock assets, leasing of railway infrastructure assets and national projects of the government, and lending to entities under the Ministry of Railways (MOR).

The MOR procures rolling stock assets and for the improvement, expansion, and maintenance of project assets and IRFC is responsible for raising the necessary funds. As per the DRHP, IRFC is registered with the RBI as an NBFC-ND-IFC (i.e. a Non-Deposit accepting Infrastructure Finance Company).

When it comes to leasing the IRFC purchases railway assets and then provides them on lease to the Ministry of Railways. The lease period is typical of the duration of 30 years comprising a primary period of 15 years. This is followed by a secondary period of 15 years. The IRFC also lends funds to companies in the Railway sector like Rail Vikas Nigam Limited (RVNL), Konkan Railway Corporation Limited, Rail Land Development Authority, Railtel Corporation of India, and Pipavav Railway Corporation Limited.

When it comes to performance as of September 30, 2020, the company did not have any Non-Performing Assets(NPA). The company also has received the highest credit ratings from the following :

CRISIL – CRISIL AAA and CRISIL A1+
ICRA – ICRA AAA and ICRA A1+
CARE – CARE AAA and CARE A1+.

In FY20, the company financed Rs 71,392 crore, which accounts for 48.22 percent of the capital expenditure of the Indian Railways. In the financial year 2020, the company’s total revenue rose 22.15% to Rs 13,421 crore from Rs 10,987 crore in 2019.

ALSO READ

Indigo Paints IPO 2021 – IPO Offer Price, Details & Review!

IRFC IPO Review – KEY IRFC IPO Information

The promoters of the company include the President of India, acting through the MOR, Government of India. DAM Capital Market Advisors, HSBC Securities, and Capital Markets, ICICI Securities, and SBI Capital Markets will be the lead managers for the public issue. Kfin Technology Private Limited will act as the registrar to the IPO. The IPO will include a fresh issue of shares and the sale of existing shareholder stakes.

Following are the important details on the IRFC IPO

Particular	Details
IPO Size	₹4,633.38 Crores
Fresh Issue	1,188,046,000 Eq Shares of ₹10
Offer For Sale(OFS)	594,023,000 Eq Shares of ₹10 (aggregating up to ₹[.] Cr)
Opening Date	Jan 18, 2021
Closing Date	Jan 20, 2021
Face Value	₹10 per equity share
Price Band	₹25 to ₹26 per equity share
Lot Size	575 Shares
Minimum Lot Size	1( 575 shares - Rs.14,950)
Maximum Lot Size	13(7475 shares - Rs. 194,350)
Listing Date:	Jan 29, 2021

IRFC IPO – Purpose of the IPO

The net IPO proceeds are proposed to be utilized for the following objects:

To augment the company’s equity capital base to meet business future growth requirements.
To meet general corporate purposes.

IRFC IPO – Grey market information

The stocks of IRFC were sold in the grey market at a premium of Rs.1.60. This however paled in comparison to the Indigo paints stock which commanded a 60% premium in the grey market. One reason for this could be the huge size of the IPO. The other being investors simply not viewing IRFC as the next IRCTC.

IRFC IPO Review – Competitors in the Industry

Indian Railway Finance Corporation is one of a kind company in its industry and faces no direct competition. There are no similar listed entities in the line of business for IRFC.

Closing Thoughts

The IRFC can be considered a settled company in the Railway industry. When it comes to the long-term prospects there is a possibility that the company will perform well. This is after considering the electrification and expansion in the railway sector. Let us know what you think about IRFC IPO by commenting below. Happy Investing.

Aron Almeida

January 16, 2021 Aron Almeida IPO, News No comments yet

How can NRI’s Invest in Indian Stocks?

Tips for how can NRI’s invest in Indian Stocks: Being Indians NRIs are allowed to invest in the Indian stock markets but with a few added restrictions. Today we take a look at the means through which NRIs can invest in the Indian stock market.

Who is an NRI?

The Indian Law considers Citizens and persons of Indian origin (PIO) as NRI’s. A person who qualifies for the following conditions is known as NRI’s.

you have to be a Person of Indian Origin (PIO), or an Indian citizen living abroad.
Your stay in India should be more than 60 days, but less than 182 days in a given financial year. Subject to fulfilling this condition, even if your stay in India is 365 days, or more, in the previous four financial years, you will still be regarded as an NRI.
You can also have NRI status if you are deputed to a foreign country for more than six months.

What are the basic requirements for NRI’s to invest in India?

Investments made by an NRI should be in the Indian Rupee. Therefore in order to invest in the Indian markets, the NRI first has to open one of the following 3 types of bank accounts.

Non-Resident (External) Rupee Account Scheme (NRE Account);
Non-Resident Ordinary Rupee Account (NRO Account); and
Foreign Currency (Non-Resident) Account (Banks) Scheme (FCNR Account).

The documents required in order to open these accounts are similar to those required for KYC by resident individuals. They include the Permanent Account Number. The 3 accounts i.e. NRE, NRO, and FCNR have various differences.

The NRE accounts is an eternal account and therefore is repatriable. This means NRE account holders are allowed to sent back to the country of their residence. The NRO account is a resident account making it non-repatriable beyond the limit of $1 million per year. The NRO account is best suited for NRI’s who have sources of income in India like pension, rental, etc.

Otherwise, it is not necessary for an NRI as investment made through an NRO Account will be regarded as an investment by a resident Indian. An FCNR account is similar to the NRE account, but the funds here are held in a foreign currency.

Once the NRI has opened a bank account the next step would involve opening a Portfolio Investment Scheme (PIS) account. The PIS is a permission letter given by the RBI permitting the NRI to open a trading account and Demat account with a broker to trade in Indian equities. The NRI is allowed to have only one PIS Account for investing in the stock markets. The PINS letter will be managed by the bank.

While opening a PIS account it is necessary to provide the name of your SEBI-registered broker. Only once the necessary documents are submitted and the PIS letter obtained for the account will the NRI be allowed to open a trading cum Demat account with a broker. In addition to the NRI will also be required to sign and execute a FATCA (Foreign Account Tax Compliance Act) declaration before the trading and Demat account can be opened.

Investing in Equities- How can NRI’s invest in Indian Stocks?

There are several restrictions placed on NRI’s over the investments they can make. They include the following

– An NRI can only transact in India through a stockbroker.

– The aggregate investment by NRIs/PIOs cannot exceed 10% of the paid-up capital in an Indian company.

– NRI’s are not allowed to trade shares on a non-delivery basis. This means that NRI’s cannot participate in intraday trading or short selling in India. If an NRI buys shares today he can only sell them after 2 days. NRI’s are barred from trading in securities like derivatives and commodities.

– NRI’s are also barred from investing in some stocks and sectors as per RBI mandate.

Here the PIS account helps the RBI ensure that the NRI investor adheres to the regulations put in place. Violation of these attracts penalties.

Are NRI’s allowed to invest in mutual funds?

Mutual funds in India are not allowed to accept investments in foreign currency. This makes it necessary for the NRI to open either an NRE, NRO, or FCNR account with an Indian bank. The NRI’s however are allowed to appoint a power of attorney (POA) in India for actually executing and redeeming the investments in India.

This is because they may not be able to track their investments and react to the market at the right time. In order to appoint a POA an agreement will have to be set up and notarized which then can be submitted as a mandate for investing. Mutual Funds recognize the POA holder and allow him to take decisions on the NRI’s behalf.

Here the NRI is allowed to have a resident Indian as a joint holder or nominee of the scheme in the mutual fund.

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3 Easy Ways to Invest in Foreign Stocks From India!

Are NRI’s allowed to participate in an IPO?

As long as the NRI has an NRE/NRO account he is allowed to subscribe to initial public offerings (IPOs). IPO’s are not covered in the PIS account. Here the company is responsible to tell the RBI of the number of shares they allot to NRI’s.

Closing Thoughts

Today, we discussed how can NRI’s Invest in Indian Stocks. From the above steps, it is clear that all an NRI needs are the right bank account and documents inorder to be able to invest in the stock markets. This allows him to invest in the stock markets which he will be forced to miss out on in his country of residence due to local regulations.

Indian stock markets despite the recent dull phase offer the added benefits of high growth of a developing economy at the same time allowing NRI’s to be a part of its success.

Aron Almeida

January 15, 2021 Aron Almeida Market 2 comments

How to Invest in Share Market in India? An Ultimate Beginner’s Guide!

A Complete Guide for Beginners to Learn How to Invest in Share Market in India: Hello Investors. Today we are going to discuss one of the most elementary topics for a newbie- How to invest in share market in India? I have been planning to write this post for a number of days as there are many people who are willing to invest, however, do not know how to invest in share market. Through this article, they will get the answers to their question and learn the step-by-step process of how a beginner can start investing in the Indian share market.

Please note that this post might be a little longer as I am trying to cover all the basics that a beginner should know before entering the stock investment world. Make sure that you read the article till the end, cause it will be definitely worthwhile reading it. Let’s get started.

Pre-requisites Before You Start Investing

For investing in the Indian stock market, there are a few pre-requisites that I would like to mention first. Here are the few things that you will need to invest in share market:

Bank Savings account
Trading and Demat account
Computer/laptop/mobile
Internet connection

(Thanks to Reliance Jio, everyone has 4G internet connection now.. 😀 )

For opening a demat and trading account (usually opened altogether and called 2-in-1 account), the following documents are required:

PAN Card
Aadhar card (for address proof)
Canceled cheque/Bank Statement/Passbook
Passport size photos

You can have your savings account in any private/public Indian bank.

Where to open your trading and demat account?– This will be discussed later in this post on the section ‘choose your stock broker’ (STEP 4).

Get your documents ready. If you do not have a PAN card, then apply as soon as possible (if you are 18 years old or above).

3 Basic Advice Before You Start Investing

When you are new to the stock market, you enter with lots of dreams and expectations. You might be planning to invest your savings and make lakhs in return.

Although there are hundreds of examples of people who had created huge wealth from the stock market, however, there are also thousands who didn’t.

Here are a few cautionary points for people who are just entering the world of investing.

— Pay down your ‘High-Interest’ debts first

If you have any kind of high-interest paying debts like personal loans, credit card dues debts, etc, then pay them first. The interests of these loans can be even as high as your returns from the market. There is no point in wasting your energy to give all the returns you made from the market as interests of your debts. Pay down these debts before entering the market.

— Invest only your additional/ surplus fund

Stop right there if you are planning to invest your next semester tuition fee, next month flat rent, savings for your daughter’s marriage which is going to happen next year or any similar reasons.

Only invest the amount that won’t affect your daily life. In addition, investing in debts/loans is really a bad idea, especially when you are new and learning how to invest in the share market.

— Keep some cash in hand

The cash in hand doesn’t just serve as your emergency fund. It also serves as your key to freedom. You can take big steps like changing your little flat, or quit your annoying job or simply shifting to a new city, only when you have cash in hand.

Do not get trapped by investing all your money and later losing your freedom. Do not sacrifice your personal freedom in the name of financial freedom.

Also read: 7 Things to do Before You Start Investing

Now that you have understood the pre-requisites and the basics, here are the seven steps to learn how to invest in share market on your own. Do follow the step sequences for an easy approach to enter the stock market world.

How to Invest in Share Market in India?

Step 1: Define your investment goals

It’s important to start with defining your investment goals. Start with end goals in mind. Know what you want.

Do you want to grow your saved money (capital appreciation) to beat inflation and get higher returns? Do you want to build a passive income from your investments through dividends? Are you investing for a specific goal? Or do you just want to have fun in the market along with creating wealth?

If you want to just have fun and want to learn, that’s okay. But make sure that you do not over-invest or get too much attracted to the market? Moreover, most people start the same way and define their goals later.

Anyways, if you are starting for Goal-Based Investing, do remember that the time frame for different investment goals will be different. Your goal can be anything like buying a new house, new car, funding your higher education, children’s marriage, retirement, etc. However, if you are investing in your retirement, then you have a bigger time frame compared to if you are investing in buying your first house.

When you know your goals, you can decide how much you want and for how long you have to remain invested.

Step 2: Create a plan/strategy

Now that you know your goals, you need to define your strategies. You might need to figure out whether you want to invest in the lump sum (a large amount at a time) or by SIP (systematic investment plan) approach. If you are planning small periodic investments, analyze how much you want to invest monthly.

There’s a common misconception among our society that you need large savings to get started. Say, one lakh or above. But that’s not true. As a thumb rule, first, build an emergency fund, and next start allocating a fixed amount let’s say 10-20% of your monthly income to save and invest. You can use the remaining portion of your earnings for paying your bills, mortgages, etc. Nevertheless, even if your allocated amount turns out to be Rs 3-5k or more, it’s good enough to build an investing habit.

Quick Note: Stockbrokers like Zerodha allow investors to schedule their investments via Systematic Investment plans for stocks.

Step 3: Read some investing books.

There are a number of decent books on stock market investing that you can read to brush up on the basics. Few good books that I will suggest the beginners should read are:

The Intelligent Investor by Benjamin Graham
One up on wall street by Peter Lynch
Common stocks and uncommon profits by Philip Fisher
The Dhandho Investor by Mohnish Pabrai
The little book that beats the market by Joel Greenblatt

Besides, there are a couple of more books that you can read to build good basics of the stock market. You can find the list of ten must-read books for Indian stock investors here.

Step 4: Choose your stock broker

Deciding on an online broker is one of the biggest steps that you need to take. There are two types of stockbrokers in India:

Full-service brokers
Discount brokers

— Full-Service Brokers (Traditional Brokers)

They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.

Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal, etc

— Discount Brokers (Budget Brokers)

Discount brokers just provide the trading facility for their clients. They do not offer advisory and hence suitable for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities, and currency derivatives.

A few examples of discount brokers are Zerodha, Upstocs, 5 Paisa, Trade Smart Online, Paytm Money, Groww, etc.

Read more here: Full service brokers vs discount brokers: Which one to choose?

I will highly recommend you to choose discount brokers (like Zerodha) as it will save you a lot of brokerage charges.

Initially, I started trading with ICICI direct (which is a full-service broker), but soon realized that it was too expensive when compared to discount brokers. It doesn’t make sense to pay extra brokerage charges even if you get similar benefits. And that’s why I shifted to Zerodha as my broker. (Related Post: Different Charges on Share Trading Explained- Brokerage, STT & More)

Zerodha (a discount broker) charges a brokerage of 0.01% or Rs 20 (whichever is lower) per executed order on Intraday, irrespective of the number of shares or their prices. For delivery, there is a zero brokerage charge in Zerodha. Therefore, the maximum brokerage that you’ve to pay per trade while using the Zerodha platform is Rs 20 and it doesn’t depend on the volume of trading.

This is way cheaper compared to ICICI direct (full-service broker) which asks a brokerage of 0.55% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 275 for delivery trading i.e. when you hold the stock for more than one day in your demat account.

Further, as this amount is charged on both sides of the delivery transaction (buying & selling), hence you have to pay a total of Rs 550 for the complete transactions in ICICI direct (way too expensive than Zerodha).

In short, if you are planning to open a new trading account, I would recommend opening accounts in a discount broker so that you can save lots of brokerages. If you’re interested to open your account with Zerodha, here’s the direct link to fill account opening application!

Step 5: Start researching common stocks and invest.

Start noticing the companies around you. If you like the product or services of any company, dig deeper to find out more about its parent company, like whether it is listed on the stock exchange or not, what is its current share price, etc.

Most of the products or services that you use in day to day life — From soap, shampoo, cigarettes, bank, petrol pump, SIM card or even your inner wears, there is a company behind everyone. Start researching about them.

For example- if you’ve been using HDFC debit/credit card for a long time and satisfied with the experience, then investigate further about HDFC Bank. The information of all the listed companies in India is publicly available. Just a simple ‘Google search’ of ‘HDFC share price’ will give you a lot of important pieces of information. (Try it now!)

Similarly, if your neighbor bought a new Baleno car lately, they try to find out more about the parent company, i.e. Maruti Suzuki. What other products it offers and how is the company performing recently- like how are its sales, profits, etc.

You do not need to start investing in stocks with hidden gems. Start with the popular large-cap companies. And once you are comfortable in the market, invest in mid and small caps.

Step 6: Select a platform to track your performance

You can simply use an excel or google spreadsheet to track your stocks. Make a spreadsheet with three tables containing:

The stocks that you are interested in and need to study/investigate,
Those stocks that you have already studied and found decent,
Miscellaneous stock- for the other stocks that you want to track.

Else, you can do this by creating multiple watchlists on our Trade Brains Portal. Our Research and Analysis Portal offers users to make up to 5 watchlists and create portfolios. You can sign up on Trade Brains Portal for free to track your stock performance.

This way, you can easily follow the stocks. In addition, there are also a number of financial websites and mobile apps that you can use to keep track of the stocks. However, I would suggest you track your stocks on Trade Brains Portal.

Step 7: Have an exit plan

It’s always good to have an exit plan. There are two ways to exit a stock. Either by booking profit or by cutting a loss. Let’s discuss both these scenarios. Basically, there are only four scenarios when you should sell a good stock in your portfolio:

When you badly need money
When the stock fundamentals have changed
When you find a better investment opportunity and
When you have reached your investment goals.

If your investment goals are met, then you can exit the stocks happily. Or at least, book a portion of the profit from your stock portfolio and shift it to other more safer investment options. On the other hand, if the stock has fallen under your risk appetite level, then again exit the stock. In short, always know your exit options before entering.

That’s all. There were seven steps that will help you learn how to invest in the share market. Now, here are a few other important points that every stock market beginner should know:

10 Additional points to take care

1. Start small

Do not put all your money on the market in the beginning. Start small and test what you have learned. You can start even with an amount of Rs 500 or 1000. For beginners, it’s more important to learn than to earn. You can invest in a large amount once you have more confidence and experience.

2. Diversify your portfolio

It’s really important that you diversify your portfolio. Do not invest all in just one stock. Buy stocks from companies in different industries.

For example, two stocks of Apollo Tyres and JK Tyres in your portfolio won’t be called a diversified portfolio. Although the companies are different, however, both companies belong to the same industry. If there is a recession/crisis in tyre sector, then your entire portfolio might be in RED.

A diversified portfolio can be something like Apollo tyres and Hindustan Unilever stocks in your portfolio. Here, Apollo Tyres is from Tyre industry and Hindustan Unilever is from FMCG industry. Both the stocks are from different industry in this portfolio and hence is diversified.

Also read: How to create your Stock Portfolio?

3. Invest in blue-chip stocks (for beginners)

Blue chips are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.

For example- HDFC banks (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company), etc. A few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India, etc.

These companies have stable performance and are very less volatile. That’s why blue-chip stocks are considered safe to invest in compared to other companies. It’s recommendable for beginners to start investing in blue chips stocks. As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.

Also read: What are large-cap, mid-cap and small-cap stocks?

4. Never invest in ‘FREE’ tips/advice

This is the biggest reason why people lose money in the stock market. They do not carry enough research on the stocks and blindly follow their friends/colleague’s tips and advice.

The stock market is very dynamic and it’s stock price and circumstances change every second. Maybe your friend has bought that stock when it was underpriced, however now it’s trading at a higher price range. Maybe, your friend has a different exit strategy than yours. There are a number of factors involved here, which may end up with you losing the money.

Avoid investing in tips/advice and do your own study.

5. Avoid blindly following the crowd

I know a number of people who have lost money by blindly following the crowd. One of my colleagues invested in a stock just because the stock has given a double return to another of my college in 3 months. He ended up losing Rs 20,000 in the market just because of his blind investing.

Related post: 6 Reasons Why Most People Lose Money in Stock Market

6. Invest in what you know and understand

Will you buy ABC company which produces Vinyl sulphone easter and dye intermediates even though you have zero knowledge of the chemical industry?

If you will, then it’s like giving some stranger a one lakh rupee and expecting him to return the money with interests. If you are lending money to someone, you ask a number of questions like what he does, what is his salary, what is his background, etc. However, while investing Rs one lakh in a company that people do not understand, they forget this common logic.

7. Know what to expect from the market

Do not set unrealistic expectations for the stock market. If you want to make your money double in one month, from the stock market, then you have set your expectations wrong. Have a logical expectation from the market.

People are happy with 4% simple interest from the savings account, but a return of 20% in a year sounds underperformance for them.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

8. Have discipline and follow your plan/strategy

Do not get distracted if your portfolio starts performing too well or too bad in the first few months of investing. Many people increase their investment amount just in few weeks if they see their stock doing too well, and end up losing in the long run.

Similarly, many people exit the market soon and are not able to get profits when their stocks start performing.   Have discipline and follow your strategy.

9. Invest regularly and continuously increase your investment amount

The stock investment gives the best returns when you invest for the long term. Do not invest in lump sump at just one time and wait for the next 10 years to see how much returns you got. Invest regularly whenever you get a good opportunity.   Further, increase the investment amount as your savings increase.

10. Continue your education

Keep learning and keep growing. The stock market is a dynamic place and changes continuously. You can only keep up with the stock market if you also continue your education.

Besides, there are a number of more lessons which you will learn with time and experience.

Ready to start your journey to become a succesful stock market investor? If yes, then here’s an amazing course for newbie investors: HOW TO PICK WINNING STOCKS?

That’s all for this post on how to invest in the share market in India. I hope this is helpful to the readers. If you still have any doubt on this topic of how to invest in share market, feel free to comment below. I’ll be glad to help. Take care and happy investing.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

January 15, 2021 Kritesh Abhishek Beginner's guide, Investment Basics 99 comments

Indigo Paints IPO 2021 – IPO Offer Price, Details & Review!

Indigo Paints IPO Review 2021: The new year has already brought several great news. Two of them being the IPO’s set for next week. This includes the IPO for Indigo Paints. Indigo Paints IPO opens next week between Jan 20-Jan 22, 2021.

In this article, we look into important information on the Indigo Paints IPO 2021 and find out the possible prospects of the company.

Indigo Paints IPO – About the Company

Indigo Paints was incorporated in the year 2000 by IITian Hemant Jalan in Jodhpur. He started the company as he felt that there was a big market for Cement Paints. Jalan faced many hurdles in scaling his business this was because the industry already had strong competitors that already had a place on retail shelves. Advertising too was made impossible when competing with these giants.

This was when Jalan decided to take a different approach towards the market. He introduced differentiated products in the industry. Indigo paints introduced Metallic paints in India which gave a unique look. This product was welcomed by retailers even with the lack of advertisement.

Since then the company has introduced many more products to the market like Floor coat paint which can withstand vehicular traffic, ceiling coat paint, tile coat paint, Dirtproof & Waterproof Exterior Laminate, Floor Coat Emulsions, Exterior, and Interior Acrylic Laminate, and PU Super Gloss Enamel.

(Hemant Jalan – Promoters)

Due to its differentiated product line, Indigo paints today is one of the fastest-growing paint companies in India. It is the 5th largest company in the decorative paint industry. The sales of their differentiated products have been continuously growing from 26.68% in 2018 increased to 28.62% in fiscal 2020.

Indigo Paints also has a strong distribution network across 27 states and seven union territories. The company also has strategically set manufacturing facilities in Jodhpur (Rajasthan), Kochi (Kerala), and Pudukkottai (Tamil Nadu). Over the years Indigo Paints has been successful in capturing 2% of the paint industry.

Effects of the Pandemic on Indigo Paints

Indigo Paints did not suffer any adverse impacts due to the pandemic. This was because of its negligible exposure the company has to big cities. They only account for 1-2% of their sales. The company predominantly operates in Tier 2-4 cities.

ALSO READ

How to apply for an IPO with Zerodha Account?

Indigo Paints IPO Information

Indigo paints received the nod from SEBI earlier this month and will be open for subscription from January 20 and close on January 22. Kotak Mahindra Capital Company, Edelweiss Financial Services, and ICICI Securities will be the book running lead managers to the public issue. The IPO will include a fresh issue of shares and the sale of existing shareholder stakes. These include Sequoia Capital, SCI Investments, and promoter Hemant Jalan.

Important Indigo Paints IPO details

Particular	Details
IPO Size	Rs. 1176 Crores
Fresh Issue	Rs. 300 Crores
Offer For Sale(OFS)	Upto 58,40,000 shares
Opening Date	Jan 20, 2021
Closing Date	Jan 22, 2021
Face Value	Rs. 10 per Equity Share
Price Band	Rs. 1480 to Rs. 1500 per Equity Share
Minimum Lot Size	10 shares (Rs.15,000)
Maximum Lot Size	130 shares (Rs. 195000)
Listing Date:	Feb 02, 2021

Indigo Paints IPO – Purpose of the IPO

The proceeds from the IPO will be used for the following purposes

The company intends to open one more manufacturing facility in Tamil Nadu. Here it will be adding capacities to manufacture water-based paints to cater to the growing demand for these paints. The manufacturing unit in Tamil Nadu will have a capacity of 50,000 KLPA and is expected to be operational during FY2023.
The proceeds will also be used to purchase tinting machines and gyroshakers.
To repay borrowings
For other corporate purposes.

Indigo Paints IPO – Competitors in the Industry

(Market Share – Paint Industry)

A few of the biggest competitors of Indigo Paints in the Paint Industry are Asian Paints, Berger Paints, Kansai Nerolac Paints, Akzo Nobel India Ltd aka Delux Paints, British Paints India Ltd, Nippon Paint India, Shalimar Paints Ltd.

Company	Market Cap	PE Ratio TTM
Akzo Nobel India Ltd.	10757.76	60.7646
Asian Paints Ltd.	259415.04	114.991
Berger Paints India Ltd.	77344.22	128.3189
Kansai Nerolac Paints Ltd.	33898.05	85.7375
Shalimar Paints Ltd.	576.67	--

(Paint Industry Stocks India – Source: Trade Brains Portal)

Closing Thoughts

Indigo Paints has come a long way especially considering the number of large players and moats present. But do you think the company will be to replicate the success of large brands like Asian Paints now that it is competing in the big leagues? Let us know what you think about Indigo Paints IPO by commenting below. Happy Investing.

Aron Almeida

January 14, 2021 Aron Almeida IPO, News 1 comment

What is the Process of IPO Share Allotment to Retail Investors?

Understanding the process of IPO share allotment to retail investors: The year 2020 was a mixed year for the Indian IPO’s. As many as 14 popular IPOs hit the market last year. A few of the big names that offered their initial public offering last year were Burger King, Happiest Minds, CAMS, Angel Broking, SBI cards, and more. (You can read the Indian IPOs performance for 2020 here).

Now, the seasoned investors may already know what is an IPO and how its allotment process works. However, for the newbie investors, many a time allotment process may look like a mystery, especially when they are not allotted any shares even if applying for multiple IPOs.

In this post, we are going to discuss the process of IPO share allotment to retail investors i.e. the common investors. Let’s get started.

Introduction to IPO Details

Let us first understand the IPO details with the help of an example. Here are the issue details of the Burger King IPO that closed last year.

IPO Dates: Dec 2 – Dec 4, 2020
Type of Issue: Book Built Issue IPO
Issue Size: 135,000,000 Eq Shares of ₹10 (aggregating up to ₹810.00 Cr)
Face Value: Rs 10 Per Equity Share
IPO Price Band: ₹59 to ₹60 per equity share
Market Lot: 250 Shares
Minimum Order Quantity: 250 Shares
Listing At: BSE, NSE

Although most of the points mentioned above can be understood logically, let me explain a few of the important ones in the IPO issue in detail.

From the term IPO date (or Issue date), you can understand that you have to apply for that IPO between those time periods to be eligible for getting the shares.

Next, the minimum order quantity is 250 shares, which is the same as the market lot. This means that you cannot apply for less than 250 shares for this IPO. If you apply for 30 shares, then your application will be rejected. Further, you can buy the shares only in a lot of 250. This means that you can buy the shares in the numbers of 250, 500, 750, 1,000… which is basically 1 lot, 2 lot, 3 lot, 4 lot… etc.

Further, from the IPO price band, you can understand that you have to place the bid between Rs 59 to 60, for each share. The upper level of the issue price is called the cut-off price (here Rs 60). To increase the chances of getting allotted to the shares, it is recommended to bid at the cut-off price of the IPO.

All these points you can easily understand just by reading the IPO details. But what about the allotment? What is the process of IPO share allotment to retail investors? Why some people receive allotment and others don’t? How exactly are the stocks allotted to the retail investors? This is what we are going to next in this article.

Nevertheless, before we learn the process of IPO share allotment to retail investors, there are a few more things that you need to understand first.

What does the Over-Subscription of an IPO mean?

The over-subscription of an IPO means that the demand for the IPO exceeds the total number of shares offered by the company.

For example, Burger King IPO (which is discussed above), evoked a huge oversubscription of 157 times. Burger King IPO received over 1,100 crore bids for its shares compared with 7.45 crore shares on the offer, data compiled by the National Stock Exchange showed.

As the Subscribers for Burger King IPO consisted of Retail investors, qualified institutional buyers, and non-institutional investors, the subscription differed for each segment. The retail individual investor’s segment of the IPO was subscribed over 68 times while the portion meant for qualified institutional buyers (QIBs) was subscribed close to 87 times and non-institutional investors 354 times.

If you’re a common investor, you’ve to look into the retail segment over-subscription, which in the case of Burger King’s IPO was 68 times. The higher the over-subscription, the lower are the chances for getting allotted to the shares of that IPO.

Who can apply for the IPOs?

The IPO applications are divided into three categories:

Institutional or qualified institutional buyers (QIB)
Non- Institutional Investors (NII) or High net worth investors (HNI)
Retail institutional investors (RII)

Each category has a fixed division of share allocation. For example, Burger King IPO is a public issue of 7,44,91,524 equity shares. The issue offers 1,36,27,118 (18.29%) shares to retail individual investors, 4,04,23,729 (54.26%) shares to qualified institutional buyers, 2,04,40,677 (27.45%) shares to non-institutional investors.

This means that 54.26% of the total share was reserved for the QIB, 27.45% of the total share was reserved for NII, and 18.29% of the total share was reserved for the RII. This ISSUE STRUCTURE can change for different IPOs. However, the company has to specify the issue allocation in the IPO details.

IPO Share Allotment Process

1. The Process of IPO Share Allotment to QIB

For QIBs, the discretion of IPO shares allotment is done by merchant bankers. Further, in the case of over-subscription, the shares are allotted proportionately to the QIBs. For example, if a QIB applied for 10 lakh shares and the IPO got 5 times over-subscribed, then it will get only 2 lakh shares.

2. The process of IPO Share Allotment to Retail Investors

For the IPO application, retail investors are allowed to apply with a smaller worth between Rs 12-18k to Rs 2 lakhs. For example, in the case of Burge King IPO

Issue Price: Rs 59-60
Minimum order quantity: 250.

Therefore, if a retail investor wanted to apply for the Burger King shares at a bid of Rs 60 (Cut-off price), then the total application amount will be= Rs 60 * 250 = Rs 15,000. Further, he/she can apply for a maximum of Rs 2 lakhs. This means that for Burger King IPO, the RII can get a maximum of 13 lots (Each lot of 250 shares).

Now, let us understand how the process of IPO share allotment to retails investors actually happens. First of all, the host calculates the total number of demands. After calculating the demands, here are the two possible scenarios:

1. Demand is less than or equal to the shares offered

If demand is less than or equal to the offered retail proportion of the IPO shares, then full allotment will be made to the RII’s for all the valid bids.

2. Demand is more than the shares offered

If demand is greater than the allocation to the retail proportion of shares offered, then the maximum number of RII’s will be allotted a minimum bid lot. These are called maximum RII allottees and is calculated by dividing the total number of equity share available for the allotment to RII by the minimum bid lot.

Let us understand this with the help of a simple example:

Suppose there are 10 lakh shares offered to the retail investors and the minimum lot size is 50. Then, the maximum retail investors will receive the minimum bid lot = 10 lakhs/50 = 20,000. This means that 20,000 participants will receive at least 1 lot.

Quick Note: In the case of over-subscription, allocation lower than a minimum lot is not possible. If the minimum lot size is 50, you will not be allotted 30 shares. Anyone who is allotted the share will receive at least 50 shares.

In the case of over-subscription, again there are two possibilities:

A) In the case of a small over-subscription, the minimum lot is distributed among all participants. Then, the rest available shares in the retail portion will be distributed proportionately to the RIIs, who have bid for more than 1 lot.

Let’s say for the above example, 18,000 people applied for the allotment. However, among all the applicants, 5000 people applied for 2 lots (1 lot consists of 50 shares).

Hence, total no of shares applied = (13,000* 1lot) + (5,000* 2lot) = (13,000* 50) + (5,000* 100) = 11.5 lakhs

Here, we have oversubscription as the total shares offered to the retail investors is 10 lakhs. In such scenarios, the first 1 lot of 50 shares will be allotted to all 18,000 applicants. Then the remaining 1 lakh shares are allotted proportionately to all those who have applied for more than 1 lot.

Also read: Is it worth investing in IPOs?

B) In case the RII applications are greater than the maximum RII allottees (big over-subscription), then the allotted bid lot shall be determined on the basis of the draw of the lot i.e lottery.

Let’s say for the same example discussed above, 1 lakh people applied for the allotment. In such a scenario, who will get the allotment will be decided by the lottery. Nevertheless, the draw of lots is computerized and hence, there is no provision for cheating or partiality. Everyone has an equal chance to get the allotment.

Overall, in the case of oversubscription, the allotment totally depends on your luck.

3. Process of IPO Share Allotment to HNI

High net worth investors are those people who invest a large amount of money (greater than 2 lakhs) in an IPO. In case of oversubscription, HNIs are also allotted the shares proportionately. Further, many a time, the financial institutions provide funding to HNIs in order to invest it in IPOs.

That’s all. This is the process of IPO share allotment to retail investors, QIBs, and HNIs.

BONUS: How to maximize the chances of getting an IPO?

Many a time, the IPO you’ll be applying for will be over-subscribed. In such cases, even if you applied for a full quota of Rs 2 lakhs, still, there’s no guarantee that you’ll get even a single lot. Even in the same example of Burger King discussed above, it got over-subscribed 157 times.

Then what to do in such cases? Here are two basic pieces of advice to maximize the chance of IPO share allotment to retail investors. First, fill the application correctly, and second, apply at the cutoff price.

That’s all. I hope this post about the process of IPO share allotment to retail investors, QIBs, and HNIs is useful to you. If you have any questions regarding the allotment process, please comment below. I’ll be happy to help you out. Happy Investing.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

January 13, 2021 Kritesh Abhishek Investment Basics, IPO 19 comments

Tata vs Reliance Group – Which one is Bigger?

Tata vs Reliance Group Comparison: Everywhere in our daily lives, from the calls we make, the internet we use, transportation, groceries, to even the seasoning of our foods we see the names of two Indian titan-sized conglomerates i.e. Tata and Reliance. But have you ever wondered which of these two conglomerates is bigger? In this article, we answer this very question in various areas like total Mcap, revenues, etc.

Tata vs Reliance this past year

In the month of November last year, Mukesh Ambani-controlled Reliance Industries (RIL) became the first Indian company to reach the $200 billion Mcap in September. This also saw a significant increase in the wealth of its promoter, Mukesh Ambani. But soon after the shares of the company fell by 17% losing the status. The reduction led to the valuation of the company dropping to $167.45 billion by November 2020.

But since then the aggregate Mcap of major TATA companies have been icing closer to the $200 billion mark. As of November 27, the total MCap of 18 Tata companies stood at Rs 14,50,502 crore ($196.11 billion). Tata Trusts control the group companies through the holding company Tata Sons.

The two companies have various differences that affect their style of operations and the way they are run. The Tata conglomerate is a diverse group of companies running different businesses independent of each other. Reliance on the other hand is run as a single company, controlled by its promoter despise having interests in several businesses. Tata is considered a global brand whereas Reliance is much more concentrated in India despite some of its companies having interests around the world.

When it comes to revenues the Tata group earns greater as they made $106 billion in comparison to Reliances $92 billion.

TCS vs Reliance Industries

Of all the companies that are part of the conglomerates, it is TCS and Reliance Industries which contribute the most to the respective groups.

TCS alone contributes up to 60% of the Tata group’s value. The company operates globally with a significant market in North America. Reliance on the other hand derives most of its value from being in the tightly regulated domestic petrochemical business. Reliance has come a long way as TCS had been leading in terms of Mcap from 2013 to 2017. It was in April 2017 that Reliance overtook TCS with a Mcap of Rs.4.60 trillion. As of 10 January, 2021 Reliance Industries exceeds TCS Rs.1170875 Crore to Rs.1307141 Crore.

ALSO READ

Ratan Tata’s Story: Biggest Achievements & Journey!

Total Mcap Tata vs Reliance Group – Jan 2021

TATA Group	Market Cap	Reliance	Market Cap
Tata Steel BSL Ltd.	4843.93 Cr	Reliance Industries Ltd.	1307141.48 Cr
Titan Company Ltd.	137535.83 Cr	Hathway Bhawani Cabletel & Datacom Ltd.	18.23 Cr
Trent Ltd.	24734.82 Cr	Alok Industries Ltd.	11320.75 Cr
Oriental Hotels Ltd.	463.46 Cr	Reliance Industrial Infrastructure Ltd.	607.47 Cr
Rallis India Ltd.	5894.35 Cr	Network 18 Media & Investment Ltd.	3894.65 Cr
Tata Power Company Ltd.	26537.29 Cr	TV18 Broadcast Ltd.	5391.66 Cr
Tata Elxsi Ltd.	12715.91 Cr	Hathway Cable & Datacom Ltd.	5974.1 Cr
Tata Steel Ltd.	85853.72 Cr	Den Networks Ltd.	3199.79 Cr
Tata Communications Ltd.	30227.1 Cr
Tata Motors Ltd.	61192.57 Cr
Voltas Ltd.	29895.44 Cr
Tata Chemicals Ltd.	12731.44 Cr
Tata Consumer Products Ltd.	56466.6 Cr
The Indian Hotels Company Ltd.	14675.45 Cr
Tata Investment Corporation Ltd.	5184.25 Cr
Nelco Ltd.	469.26 Cr
Tayo Rolls Ltd.	41.81 Cr
Tinplate Company Of India Ltd.	1878.26 Cr
Automobile Corporation of Goa Ltd.	250.76 Cr
TRF Ltd.	111.09 Cr
Tata Steel Long Products Ltd.	2898.35 Cr
Tata Metaliks Ltd.	2068.64 Cr
Automotive Stampings & Assemblies Ltd.	46.01 Cr
Artson Engineering Ltd.	141.03 Cr
Tata Coffee Ltd.	1987.24 Cr
Tata Teleservices (Maharashtra) Ltd.	1743.8 Cr
Tata Consultancy Services Ltd.	1170875.36 Cr
Tata Motors - DVR Ordinary	4162.09 Cr
Total	16,95,625.86 Cr	Total	13,37,548.13 Cr

Quick Note: You can find more about the Tata and Reliance Group Business Companies on Buckets section at Trade Brains Portal.

Closing Thoughts

Mukesh Ambani is currently the second richest man in Asia and 14 richest in the world with a net worth of US$74 billion. In comparison, Ratan Tata the patriarch of the Tata family is dwarfed as he barely makes it to the list with a net worth of $1billion.

This, however, is not due to the performance of the two companies. Mukesh Ambani owns a 49.14% stake in Reliance. Ratan Tata on the other hand owns only 0.83% of Tata. This is because 66% of the Tata group is owned by charitable trusts i.e. Sir Dorabji Tata Trust and Sir Ratan Tata Trust and their allied trusts. These trusts are headed by Ratan Tata. If this were not the case Ratan Tata today would have been one of the top three richest in the world.

But these matters are trivial to Ratan Tata as what matters most to him are philanthropic and charity works. Even though Reliance may have exceeded Tata in some other fronts they have miles to go before they catch up with Tata in philanthropy.

Aron Almeida

January 13, 2021 Aron Almeida Market, News No comments yet

What are Penny Stocks in India - Pros cons how to trade

What are Penny Stocks in India? High Risk, Explosive Returns!

A complete overview of Penny stocks in India: Hello Investors! Penny stocks are the darlings of new investors. The low market price of these stocks makes them quite attractive to beginners. However, there are a number of things that an investor should know before investing in penny stocks. In this post, we are going to discuss penny stocks, their pros and cons, and whether an investor should buy it or not. Let’s get started.

What are Penny stocks in India?

Penny stocks are those stocks that trade at a very low market price, generally with a share price less than Rs 10. These stocks have a very low market capitalization and typically under Rs 500 crores. Further, penny stocks in the Indian stock market have low liquidity and are speculative in nature.

Being smaller than Small-cap companies, these stocks belong to the microcap category. However, you can find a number of penny stocks in India listed on both the Bombay stock exchange (BSE) and the National stock exchange (NSE).

Note: If we look into history, the term Penny Stocks came from US markets. In the United States, penny stocks used to be those stocks who trade below one dollar ($1) i.e. the stock worth pennies. However, nowadays, even the stocks trading below two to five dollar are even considered penny stocks there.

Here are a few examples of penny stocks in India (Source: Trade Brains Screener):

Company	Industry	Market Cap	PE Ratio TTM	Current Price	ROE 3 Yr	Debt/Equity
Aditya Spinners Ltd.	Textile - Spinning	10.03 Cr	4.2311	Rs 5.99	12.11	0.75
Advance Multitech Ltd.	Rubber Products	1.66 Cr	14.5906	Rs 4.08	6.73	0.59
Anupam Finserv Ltd.	Finance - NBFC	8.89 Cr	16.5616	Rs 8.46	6.08	0.58
Ashirwad Capital Ltd.	Finance - Investment	11.56 Cr	24.8069	Rs 2.89	11.63	0
Asian Fertilizers Ltd.	Fertilizers	0.91 Cr	1.3112	Rs 1.15	6.79	0.64
ATV Projects India Ltd.	Engineering - Industrial Equipments	36.12 Cr	5.2401	Rs 6.80	8.66	0.35
AVI Polymers Ltd.	Trading	1.98 Cr	10.071	Rs 4.85	5.6	0
Baba Arts Ltd.	Film Production, Distribution & Entertainment	52.45 Cr	19.5554	Rs 9.99	5.29	0
Balurghat Technologies Ltd.	Logistics	14.56 Cr	22.1951	Rs 8.00	13.08	0.88
Basant Agro Tech (India) Ltd.	Fertilizers	68.15 Cr	8.1278	Rs 7.52	6.14	0.48
Bervin Investment & Leasing Ltd.	Finance - Investment	4.46 Cr	1.56	Rs 7.57	28.28	0.83
Beryl Securities Ltd.	Finance - NBFC	2.60 Cr	7.9983	Rs 5.36	5.95	0
Capital Trade Links Ltd.	Finance - NBFC	25.82 Cr	24.5419	Rs 4.79	7.01	0.03
Century Extrusions Ltd.	Aluminium & Aluminium Products	42.64 Cr	67.6825	Rs 5.33	8.54	0.85
CES Ltd.	BPO/ITeS	29.78 Cr	3.0272	Rs 8.18	12.83	0.02
Chandni Machines Ltd.	Retailing	2.01 Cr	3.8009	Rs 6.23	31.45	0.11
Corporate Courier & Cargo Ltd.	Courier Services	2.38 Cr	16.9714	Rs 3.30	30.96	0.01
Cybermate Infotek Ltd.	IT - Software	14.35 Cr	3.1045	Rs 1.45	15.02	0.05
Ekam Leasing & Finance Company Ltd.	Finance - NBFC	2.34 Cr	3.083	Rs 3.90	6.35	0.79
Enterprise International Ltd.	Textile	2.54 Cr	3.3513	Rs 8.50	5.36	0.13
Gagan Gases Ltd.	Industrial Gases & Fuels	3.16 Cr	35.1439	Rs 7.00	8.01	0.02
Golkonda Aluminium Extrusions Ltd.	Aluminium & Aluminium Products	1.60 Cr	18.1326	Rs 4.29	35.49	0
Gratex Industries Ltd.	Paper & Paper Products	2.73 Cr	29.369	Rs 9.00	5.96	0.05
GSL Securities Ltd.	Finance - NBFC	1.43 Cr	38.6486	Rs 4.40	22.08	0
Haria Exports Ltd.	Trading	1.28 Cr	3.9448	Rs 1.11	6.53	0
Intellivate Capital Advisors Ltd.	Miscellaneous	14.41 Cr	65.201	Rs 4.64	5.81	0
Interactive Financial Services Ltd.	IT - Software	2.72 Cr	13.0809	Rs 9.03	8.52	0
Jai Mata Glass Ltd.	Glass	1.90 Cr	3.8076	Rs 0.19	10.4	0
JJ Finance Corporation Ltd.	Finance - NBFC	1.68 Cr	14.1237	Rs 5.96	8.32	0
Kabsons Industries Ltd.	Industrial Gases & Fuels	8.40 Cr	8.0534	Rs 4.81	23.2	0
Krishna Capital And Securities Ltd.	Finance - NBFC	1.47 Cr	6.831	Rs 4.65	6.57	0
LKP Securities Ltd.	Finance - Stock Broking	56.93 Cr	7.7741	Rs 7.70	11.63	0.4
Modex International Securities Ltd.	Finance - Stock Broking	4.43 Cr	7.4295	Rs 3.69	5.15	0.46
Moongipa Capital Finance Ltd.	Finance - NBFC	0.81 Cr	1.1402	Rs 2.65	9.72	0.07
NCC Blue Water Products Ltd.	Aquaculture	3.76 Cr	10.7701	Rs 4.85	30.06	0
NHC Foods Ltd.	Consumer Food	9.13 Cr	6.4511	Rs 7.70	5.06	0.94
North Eastern Carrying Corporation Ltd.	Logistics	49.80 Cr	40.7161	Rs 9.92	5.86	0.83
NR International Ltd.	Steel & Iron Products	5.34 Cr	82.1107	Rs 5.00	6.21	0
One Global Service Provider Ltd.	Textile	1.28 Cr	4.3351	Rs 1.80	5.58	0.06
Orient Tradelink Ltd.	Film Production, Distribution & Entertainment	8.94 Cr	85.9276	Rs 1.63	5.83	0.23
Peeti Securities Ltd.	Trading	2.72 Cr	7.8477	Rs 7.24	12.51	0
Pervasive Commodities Ltd.	Electric Equipment	0.09 Cr	18.2822	Rs 9.60	36.76	0.93
Pioneer Agro Extracts Ltd.	Solvent Extraction	3.47 Cr	11.5144	Rs 8.00	23.7	0
RTCL Ltd.	Construction - Real Estate	5.90 Cr	36.2244	Rs 4.92	11	0.06
Sagar Productions Ltd.	Finance - Investment	31.99 Cr	81.4078	Rs 7.97	13.75	0.01
Sakuma Exports Ltd.	Trading	160.67 Cr	18.2459	Rs 6.85	12.74	0.02
Salem Erode Investments Ltd.	Finance - NBFC	2.17 Cr	9.8499	Rs 1.89	12.52	0
Sarthak Industries Ltd.	Diversified	6.77 Cr	1.6676	Rs 9.72	5.03	0.01
Shailja Commercial Trade Frenzy Ltd.	Trading	2.05 Cr	7.0806	Rs 6.32	22.18	0.05
Shyam Century Ferrous Ltd.	Ferro & Silica Manganese	146.63 Cr	20.1365	Rs 6.60	6.67	0.02
Speedage Commercials Ltd.	Trading	0.93 Cr	2.6374	Rs 9.50	7.23	0
Sri Krishna Constructions (India) Ltd.	Construction - Real Estate	6.88 Cr	8.5255	Rs 6.57	9.1	0.24
Sugal & Damani Share Brokers Ltd.	Finance - Stock Broking	5.43 Cr	2.8463	Rs 8.68	14.94	0
Super Bakers (India) Ltd.	Consumer Food	1.94 Cr	8.9809	Rs 6.42	6.24	0
Surana Telecom & Power Ltd.	Cable	75.48 Cr	15.841	Rs 5.56	5.18	0.35
Surat Textile Mills Ltd.	Textile - Manmade Fibres	100.13 Cr	19.2712	Rs 4.51	8.12	0
Swasti Vinayaka Art & Heritage Corporation Ltd.	Miscellaneous	17.60 Cr	27.7603	Rs 4.40	22.07	0.64
Syncom Formulations (India) Ltd.	Pharmaceuticals & Drugs	306.80 Cr	15.9723	Rs 3.93	8.76	0.01
Talwalkars Better Value Fitness Ltd.	Miscellaneous	6.82 Cr	2.799	Rs 2.20	7.99	0.83
Tirupati Sarjan Ltd.	Construction - Real Estate	27.11 Cr	18.6328	Rs 8.24	6.92	0.66
Umiya Tubes Ltd.	Steel & Iron Products	8.27 Cr	98.3989	Rs 8.26	6.68	0.25
Uniply Industries Ltd.	Wood & Wood Products	72.59 Cr	3.4686	Rs 4.33	8.04	0.22
Unjha Formulations Ltd.	Pharmaceuticals & Drugs	4.05 Cr	25.6069	Rs 9.03	24.65	0
Viji Finance Ltd.	Finance - NBFC	6.43 Cr	90.6338	Rs 0.78	6.41	0.36
Vikas Proppant & Granite Ltd.	Chemicals	179.11 Cr	30.6428	Rs 3.48	11.11	0.29

PROS of Penny stocks in India

Penny stocks have a high potential of rewarding its shareholder. The returns are quite high if you are able to get a good penny stock. Many penny stocks have turned out to be multi-baggers for their investors.

These stocks are able to make explosive moves. There are a number of penny stocks that have given multiple times returns in just a few months. Moreover, due to the low market price of these stocks, investors are able to buy large quantities of penny stocks.

Generally, penny stocks are not known to many as retail investors do not have information about these stocks, and institutional investors do not invest in these companies because of their low market capitalization. Therefore, if you are able to find one such stock before the market does, then it can turn out to be a great wealth creator for you.

Also read: How To Invest Rs 10,000 In India for High Returns?

CONS of Penny stocks in India

The cons list of penny stocks is too large compared to its pros. Here are a few of the common disadvantages of buying penny stocks:

High Risk: These stocks are quite risky as the percentage of a number of penny stocks outperforming the market is quite less. Many of the penny stocks become bankrupt and go out of business.
These stocks have very low liquidity. Therefore there will be troubles on both ends of transactions i.e. buying and selling. While buying these stocks, you might not be able to find a seller. In case you bought the stock, and the stock price starts falling, then you won’t be able to find a buyer to sell the stock.
There is a large bid-ask spread in these stocks.
Limited information is available to the public about the company.
Price manipulations: There have been a number of cases of price manipulations in penny stocks where the insiders try to inflate the share price. Further, one can easily manipulate the penny stocks by buying large quantities of these stocks.
Sudden delisting and regulatory scrutiny: There are multiple cases where penny stocks have been delisted from the stock exchanges. Further, these stocks are regularly under scrutiny by SEBI.
Prone to scams: There are a number of past scams in penny stocks (Ex- pump and dump).

Related post: Market Capitalization Basics: Large cap, Mid cap & Small cap companies

Who should buy penny stocks?

Penny stocks are suitable for those investors who are ready to take high risks in expectations to get high returns. If you have a low-risk appetite, do not invest in these stocks.

Rules for investing in Penny stocks in India

Here are a few guidelines that can help you to invest in penny stocks.

Look for value, not just the price: Even for penny stocks, you need to look at the value the company is giving. Understand the company’s business, product, services, etc. Investing in penny stock is not buying a lottery ticket.
Study the company’s fundamentals: Look at the company’s financials, management, debt, growth rate, etc
Check the liquidity: Buy stocks that have reasonably high trading volumes so that there is ample liquidity.
Promoter’s share and pledge: Check the promoter’s shareholding patterns and stock pledge if any.
Technical factors: If you know technical analysis, then also check the penny stock’s technicals. Moreover, if you’re purchasing penny stocks just for quick returns, do not ignore looking into factors like momentum, technical indicators like moving averages, RSI, etc.
Invest only a small portion of your investment in penny stocks: As these stocks have a high risk, you should only invest a small amount, less than 10% of your total investment amount in penny stocks.
Monitor continuously: Penny stocks are very volatile. As these stocks are known to make explosive moves, therefore monitor these stocks continuously. If the stocks are performing well, buy more. If they are continuously performing poorly, get rid of it.
Do not diversify: As you are only investing a small proportion of the amount in these stocks, diversifying will make the net investment even smaller. Select only 2 or 3 penny stocks and invest in them.
Be disciplined: Do not invest all in if your penny stocks start performing tremendously good. Similarly, do not quit if one or two of your penny stocks failed to give satisfactory returns.
Do not believe the ‘It cannot go down any further’ myth. If the prices of the stock are falling, try to find the reason behind it.

Conclusion

While there are a number of peoples who have created huge wealth by investing in penny stocks, however for many penny stocks are wealth destroyers. If you are going to invest in penny stocks, do your research carefully and do not speculate about the stock. Moreover, there are high risks involved in these stocks. So, be ready for it.

Finally, here’s a short video to summarize what are penny stocks in India and how to research and analyze them.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all for today on penny stocks. I hope this post was useful to you. If you have any doubts/queries, feel free to comment below. I’ll be glad to help. Happy Investing and Trading. Take care!

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

January 12, 2021 Kritesh Abhishek Investment Basics, Stocks 4 comments