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, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
List of 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.
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.
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, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
A 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 he 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
His 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.
“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, 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.
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.
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.
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, 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.
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.
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, 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.
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.
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.
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, 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.
Tips 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? 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 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.
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?
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.
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:
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.
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).
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.
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.
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.
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.
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. 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.
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
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.
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.
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.
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, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
Understanding the 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.
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.
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
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.
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, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
A 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.
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.
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).
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.
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!
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
List of Founder/Promoter Family Managed Companies in India: It comes naturally for a man to wish and attempt to try and get rich quick. Barring means that heavily rely on luck, there are a few that provide returns like that of entrepreneurship for the majority of the population. These businesses last for two to three generations if successful in most cases whereas a few outliers go on to become the Tata’s, Birlas, Ambani’s.
These outliers are immensely successful as promoters and play an active role in their business across generations rather than finding a way out for quick bucks. In this article, we cover the top family managed companies in India i.e. such family owned businesses that still strive along with their businesses in India.
About the family business in India
Most of the top conglomerates around the world started out as family businesses but transitioned into public held companies with the promoters taking a minority position. In India however, the promoter families still hold a majority in the company. These family business enterprises have played a crucial role in the Indian industry. Even those that are not listed create significant economic value and employment.
As of 2018, India ranked third on the list of countries with the highest number of family-owned businesses with 111 such companies. India only ranked behind China and the US which had 159 and 121 companies respectively. The study only included companies with a minimum cap of $250 million or more.
How do these companies compare to non-family owned businesses?
The most recent study conducted by Credit Suisse during the pandemic found out that family-owned businesses outperform non-family-owned companies by an annual average of 370 basis points. This was strongest in Europe and Asia where family-owned businesses outperform non-family-owned companies 470 basis points and more than 500 basis points per annum, respectively.
Even during the pandemic, it was noticed that these promoter family-owned businesses tend to have above-average defensive characteristics that allow them to perform well. Following are some more findings from the report
— Higher growth and profits
The analysis conducted by Credit Suisse shows that since 2006 revenue growth generated by family-owned companies has been more than 200 basis points higher than that of non-family-owned companies. The analysis also shows thatfamily-owned companies tend to be more profitable. These superior returns were observed globally.
— Higher ESG scores
ESG stands for Environmental, Social, and Governance. This is a modern metric introduced to analyze companies on non-financial factors. According to the Credit Suisse ‘Family, 1000’ report family-owned companies on average tend to have slightly better ESG score results than non-family-owned companies. In addition, older family-owned companies have better ESG scores than younger firms.
Top Founder/Promoter Family Managed Companies in India
Following are some of the top family-owned businesses in India. These families still play an important role in the management of the company and are a driving force in their respective industries. The list is prepared based on the Family 1000 rankings created by Credit Suisse in 2018, 2020, and the Family Capital World’s top 750 family business rankings.
1. Reliance Industries
The Reliance organization was brought into existence by the late Indian business tycoon Dhirubhai Ambani. Hailing from the state of Gujarat Dhirubhai was the son of a teacher. What is surprising is that one of the richest men at the time of his death once worked at a petrol pump in Yemen. He left Yemen in 1958 and returned to India with the aim of entering the textile market. Hence Reliance was born.
Dhirubhai’s first employees included his younger brother and nephew and former schoolmates. In 1973 the company was renamed Reliance Industries. At the time of his death in 2002 Reliance was already a conglomerate having its business in the Oil and Gas, Refining, petrochemical, Electricity, Telecom, and Financial services industry. Due to his untimely death, Dhirubhai had not left a will behind. After a bitter feud, the assets were split between the two brothers Mukesh and Anil Ambani.
Under the leadership of Mukesh Ambani, Reliance Industry slowly but steadily scaled new heights. By 2007, it was the first Indian company to exceed $100 billion in market capitalization. Today Mukesh is the Second richest man in Asia with a net worth of $76.5 billion. It is expected that the company will pass on to the third generation(Isha, Akash, and Anant Ambani) of Ambani’s in the business. All three are appointed as directors in the company.
Wipro Limited was started by the man known as the Czar of the Indian IT industry, Azim Hashim Premji. Azim was born into a family that already had its roots in business. His father Mohamed Hashim Premji was known as the Rice King of Burma and after Independence was even invited by Jinnah to live in Pakistan which he declined. Azin Premji graduated in Electrical Engineering from Stanford University, USA. He returned to India post the death of his father in 1966.
He initially took care of his father’s business but after IBM was forced to leave India in 1980 he saw an opportunity to fill a gaping hole in the IT Industry in the country giving birth to Wipro. Today Wipro has emerged as one of the global leaders in the software Industry. Premji has two sons– Rishad Premji and Tariq Premji. Both the sons serve on the board of the company but Rishad has been named as the successor.
3. Dr. Reddy’s Laboratories
(GV Prasad and Satish Reddy)
Dr. Reddy’s Laboratories is an Indian multinational pharmaceutical company founded by Dr. Kallam Anji Reddy. Dr. Reddy was the son of a turmeric farmer from Andhra Pradesh. Dr. Reddy founded Dr. Reddy’s laboratories in 1984. The company entered the Indian pharmaceutical sector by reverse-engineering the best-known drugs of western MNCs at a fraction of their prices.
During the 1990s the company began trying to discover its own patentable drugs. Dr. Reddy passed away in 2013 after suffering from cancer. His son Kalan Satish Reddy currently serves as chairman of the company. His brother-in-law G.V. Prasad serves as the co-chairman and managing director of Dr. Reddy’s Laboratories.
4. HCL Technologies
(Shiv Nadar with daughter Roshni Nadar)
HCL Technologies Limited was founded by Shiv Nadar an Indian industrialist and philanthropist. Shiv Nadar began HCL in 1976 in partnerships with several friends and colleagues from his job at Walchand group’s College of Engineering, Pune (COEP). HCL was founded with an investment of Rs. 187,000.
As of 2020, the company boasted revenues of $10 billion. His only childRoshni Nadar Malhotra serves as the chairperson of HCL Technologies and the first woman to lead a listed IT company in India.
5. Cipla
(Cipla founder Khwaja Abdul Hamied with son, Dr. Yusuf Khwaja Hamied)
Cipla has its roots in the pre-independence period. The company was founded in 1935 by Khwaja Abdul Hamied, a disciple of Mahatma Gandhi. His family had sent him to England for his Ph.D. but Hamied changed ships and chose to go to Germany. He completed his Ph.D. at the Humboldt University of Berlin in Germany.
He also met his future wife a Lithuanian Jewish with whom he fled the country after the nazi’s gained power. CIPLA) was founded in 1935 with an initial capital of Rs. 2 lakhs. The name stood for ‘The Chemical, Industrial & Pharmaceutical Laboratories’. After his death in 1972, the company was inherited by his son Hamied who led the company for the next 52 years and still serves as its chairman.
Some of the other top companies run families who are still promoters include Hinduja Group, Aditya Birla Management, Rajesh Exports, Bajaj Finance, TVS Motors, etc.
6. Tata Group
The Tata Empire was begun by Jamsetji Tata in 1868. Jamsetji Tata was born to a family of Parsi Zoroastrian priests. He broke the tradition to become the first member of the family to start a business. Before his death, he went on to scale the company in the Iron, Steel and Cotton, and Hotel Industry. He inaugurated the Taj Mahal Hotel in 1903, priding it as the only hotel in India that had electricity.
Jamsetji Tata is regarded as the legendary “Father of Indian Industry”. His eldest son Dorbji Tata and following successors which included JRD Tata and Ratan Tata played a crucial role in scaling the company to the heights it has reached today. Under Ratan Tata, the group’s revenues grew over 40 times, and profit, over 50 times. As of 2020, the group had revenues of $106 billion.
Although Tata Group has been a family managed companies in India for decades, however, currently it is professionally managed. As of 2021, Natarajan Chandrasekaran is the Chairman of the Board of Tata Sons, the holding company and promoter of more than 100 Tata operating companies with aggregate annual revenues of more than US $100 billion.
Why do these family owned-companies perform better?
One major factor that differentiates businesses is the long-term perspective. Family-owned businesses often outperform because they often have a longer-term investment focus compared to non-family-owned companies. Due to this, they end up driving significant excess returns for all shareholders.
This has particularly been the case in the Asia Pacific where returns were compounded in excess of close to 5% a year since 2006. This long-term focus could be fuelled with the aim to transfer the business to the next generation.
Another report studying family businesses by PwC showed that family businesses have a clear sense of agreed values and purpose as a company and that the family that owns the business has a clear set of family values. These values are often generic revolving around honesty, hard work, integrity, respect, and so on.
In some cases, these values were written down in the company’s mission statement which included additional aspects of family values like – community, customers, people, commitment, ethics, sustainability, quality, innovation, trust, fairness, and openness. Indian businesses are also gradually putting their value statements and purpose down on record.
90% of Family-owned businesses in India also stated that they involve themselves in philanthropic activities. This involves giving money to good causes and local communities. Family-owned businesses also focused more on social policies since the outbreak of the COVID-19 pandemic
Closing Thoughts
In this article, we covered the family managed companies in India. Even though family businesses perform better than their counterparts in a number of metrics, they still face their own set of challenges. The study conducted by PwC identifies the need to innovate as the biggest challenge for family businesses.
Another challenge they face is that of attracting professionals to their companies. Businesses face this as professionals often fear a lack of independence in decision making and the absence of a clear path to the top. These however may not include the top-tier businesses like the ones mentioned above.
In India, 92% of family businesses allow family members to work in the business. 73% of the next-gen work in the family business, which is higher than the global figure (65%). Further, 58% of the next-gen in India, compared to 43% globally, are a part of the leadership team. 50% of the next-gen are senior executives and 43% are on company boards. 60% plan to pass on management and/or ownership to the next-gen.
When it comes to diversity family-owned businesses fall behind in comparison. Women average only 15% on the board and 13% on management teams in Indian family businesses. This falls short compared to 21% on the board and 24% in management teams across the globe. In addition, fewer family-owned businesses have support groups for the lesbian, gay, bisexual, and trans (LGBT) communities.
Do you think this will impact your decisions when comparing family-owned and non-family owned companies? What do you think about promoters remaining in businesses through generations? And How important are promoters and their family’s future prospects to you when it comes to investing? Let us Know!
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.
Understand What is Short Selling & Its Implications: The terminology ‘Short Selling’ is frequently used in the capital market. It has also been a lot more talked-about on news in recent days because of the SEBI vs Mukesh Ambani Case. SEBI has imposed a penalty of Rs 25 Cr on Reliance Industries and Rs 15 Cr on Mukesh Ambani for manipulating the settlement price of Reliance Petroleum Ltd on 29th November 2007,by shorting nearly 2.7 crore shares, 10 minutes before the closing of the day. This led to a sharp decline in the share price of RPL and investors losing money in the market.
In this article, we are going to discuss exactly what is Short Selling, how market participants make money by short selling, its pros, cons, and more. Let’s get started.
What is Short Selling?
As the name might suggest, Short Selling must have got to do something with the selling of underlying security. In the stock market parlance, short selling would simply mean the selling of shares of the company before buying them i.e. selling shares of the company without having their ownership. Retail and Institutional investors are permitted to short sell.
In other words, the investors or traders are selling equity shares that are not owned by them (i.e. not available in demat account) lent by their brokers with a promise that they will be delivered back to the broker at the time of settlement.
As traders are selling before buying, the short selling concept is entirely opposite of regular investing (where we first buy and sell). And hence, Short sellers make money when they buy back the stock at a lower price. The difference in the selling price and the buying price is the profit for the short-sellers.
Short Selling Explained
Let us try and understand the concept of short selling with the help of a case-based scenario. Say, Mr. X is a regular trader in the market and he has got a bearish (pessimistic) stance on the share price of State Bank of India (SBI), and his view is supported by the following factors:
There is a bearish candle formation in the market (say, Bearish Marubuzo).
The high of the previous day is intact and the market is trading below it.
There is a significant increase in the selling activity in the market as compared to previous days.
And there are other news-driven factors that could have a negative impact on the share price of SBI.
Owing to the reasons mentioned above, Mr. X believes that the price of SBI may fall. He is expecting the immediate support levels to be tested in the market (4% below the current price levels). Therefore, to take advantage of this expected bearishness in the market, Mr. X decides to short the shares of SBI. Let us understand this trade:
Share or Stock
State Bank of India
Type of trade
Shorting or Short Selling
Duration
Intraday
Shorting price
Rs. 300
Quantity of Shares
500
Profit Target (4%)
Rs. 288
Stop Loss
Rs. 305
Total Risk in the trade (500*5)
Rs. 2500
Total Reward in the Trade (500*12)
Rs. 6000
Risk – Reward Ratio (2500:6000)
5:12
If the share price of SBI falls in accordance with the views of Mr. X, then he stands to make a gain of Rs. 6,000 on his trade. On the other hand, if the market goes against his views, he loses Rs. 2500 on his trade.
Why do Traders Short Sell in the Market?
Here are a few of the key reasons for the traders to Short sell stocks in the market:
— To Speculate: This is one of the primary reasons why does one takes a short position in the market. If one is of the view that the strength in the market is about the fizzle out and we could see some correction or weakness in the market, they will short sell.
— To Hedge: Hedging as a strategy is of prominence in the capital market. If one is having a bullish view on the market over the long term but is expecting a small correction in the market on its way up, they might short sell. Here, traders short sell to play that short-term weakness in the market, one takes a short position in the market.
— To improve the entry point: This is one interesting rationale behind short selling used by experienced traders. Say, if Mr. A is willing to buy 1,000 shares of ICICI bank at Rs. 250. The current share price of ICICI Bank is Rs. 270. Now, he ends up buying the shares of ICICI Bank at Rs. 270 each. Now to improve the entry point for shares of ICICI Bank, Mr. A shorts (sells) the shares of ICICI bank whenever he sees weakness in the market and books a small amount of profit and improves the entry point of the initial purchase of ICIC bank shares.
Shorting in the cash market comes with its own set of rules and regulations. It has to be strictly done on an intraday basis i.e. the position cannot be carried over to the next day. Therefore, whenever we sell before buying in the spot market, the position has to be bought back before the end of the day.
The short position cannot be carried over to the next day. Nevertheless, position carrying is permitted in the F&O market and to facilitate this, the exchange already keep margins in the Demat or trading account to account for Mark to Market (M2M) losses.
Advantages of Short Selling
Despite being a subject of controversy, short selling is a very important phenomenon to maintain balance in the capital market. The following are some of the advantages of short selling:
Short selling helps in correcting the irrational overpricing of the stocks
It provides liquidity in the capital market.
Short selling prevents the sudden rise in the price of the stocks which are fundamentally weak/
Drawbacks of short selling
Here are a few major drawbacks of short selling in the stock market
Short sellers might be exposed to higher risks compared to regular buying and selling.
Manipulators often use Short selling as a method to hurt the price of certain stocks which has a direct bearing on the market sentiment.
It can sometimes also be used to benefit the counter position taken in the F&O market.
Closing Thoughts
In this article, we discussed what is Short selling along with its advantages and disadvantages. Short selling simply means selling shares of the company that one does not own. By doing so one is exposed to higher risks in the market but it has the potential of earning high returns. In recent COVID-19 pandemic times, the ability and the understanding of the concept of short selling went a long way in earning handsome returns for the traders and investors.
That’s all for today’s Market Forensics. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!
What’s the SEBI vs Mukesh Ambani Case: SEBI, the regulator of capital markets in India has imposed a penalty of 25 crores on Reliance Industries and 15 crores on Mukesh Ambani for manipulating the settlement price of Reliance Petroleum Ltd (RPL) on 29th November 2007 (expiry day of the monthly futures contract). SEBI is of the view that Reliance Industries violated the trading rules and manipulated the share price of RPL and which in turn led to investors losing money in the market.
Anyways, before we get deeper into this case, let us first try and understand a few trading terminologies that will be used during the course of discussion in this article.
— Short Selling: As the name suggests, it simply means to sell the shares of the company before owning them. This is done with the intention of either lowering the price of the shares or gaining from the anticipated weakness in the share price of the company.
— Futures: A futures contract is a legal agreement to buy or sell a particular underlying asset, or security at a pre-determined price, at a specified time in the future. The buyer of the futures contract is obligated to buy and receive the underlying asset when the futures contract expires. And the seller of the futures contract is obligated to sell and deliver the underlying asset upon expiry.
What is the SEBI vs Mukesh Ambani Case?
The SEBI’s probe, in this case, is related to the trading of the scrip Reliance Petroleum Limited (RPL), which merged with RIL in 2007. Later in the same year in the month of November, the company decided to sell nearly a 5 % stake in RPL.
To undertaker the transactions, the company admittedly appointed 12 agents between October and November 2007. These agents took short positions in the futures contract on behalf of the company and RIL took positions in the cash segment of the market.
On November 2007, Reliance sold 2.25 crores shares 10 minutes before the expiry of the futures contract and which lead to a sharp decline in the share prices of RPL. This further led to a sharp reduction in the settlement price of the RPL futures contracts expiry prices.
RIL’s entire short position of nearly 8 crores shares in the futures and options (F&O) segment was cash-settled which led to a huge profit to the tune of more than 500 crores by short selling. The said profits were transferred by the agents to RIL as per a prior agreement.
Fines and Sanctions Imposed by SEBI:
The SEBI has imposed a penalty of ₹ 25 crores on Reliance Industries Limited (RIL) and a ₹ 15 crores penalty on Mukesh Ambani. The SEBI maintains that the RIL entered into a well-planned operation with its agents to corner the Open Interest position in the RPL futures contract and earn undue profits by selling shares in the cash segment and shorting the futures position.
The SEBI also maintains that Mukesh Ambani being the Chairman & Managing Director of RIL, was responsible for its day-to-day affairs and thereby, liable for the “manipulative trading” done by RIL.
The capital market regulator (SEBI) also imposed penalties of ₹20 crores and ₹10 crores on Navi Mumbai SEZ and Mumbai SEZ respectively. The Penalty has to be paid with 45 days from January 1, 2021.
According to Adjudicating Officer of SEBI, BJ Dilip, “I am of the view that Noticee-2(Ambani), being the Managing Director of the RIL, cannot absolve himself and plead ignorance about the entire scheme of manipulative transactions undertaken for the benefit of RIL in the shares of RPL in the Cash and F&O Segment. Therefore, I find that Noticee-2(Ambani) was liable for the actions of RIL resulting in violations of PFUTP Regulations, 2003 and SEBI Circular. Therefore, I find that Noticee-2 has violated the provisions of Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2) (d), (e) of PFUTP Regulations 4(1), 4(2) (d), (e) of PFUTP Regulations, 2003 and SEBI Circular no. SMDRP/DC/CIR-10/01 dated November 02, 2001”
Previous Order from SEBI
SEBI also noted that an order noted dated March 24, 2017, had directed RIL to disgorge an amount of ₹447.27 crores along with interest calculated at the rate of 12% per annum from November 29, 2007, onwards till the date of payment.
SEBI has stated that on March 24, 2017, it had directed RIL to return back Rs. 447.27 crores along with an interest of 12% per annum And further Reliance was prohibited from dealing in equity derivatives in the F&O segment of stock exchanges, directly or indirectly, for a period of one year.
Any sort of market manipulative activities that distorts the normal functioning of the market is watched carefully by SEBI, even in the case of the richest man in India. Although SEBI vs Mukesh Ambani Case is over a decade-old manipulative trading issue, but this ongoing case proves that SEBI is prepared to take corrective measures for the proper functioning of the capital market in India.
That’s all for today’s Market Forensics. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!
Introducing Digital India Stocks: One of the greatest wealth creators in the stock market has been technologically-driven digital stocks. The companies working on Digital India (and digital world) segment have been the darlings of the investors because of their tech advancement and future growth scope.
Today, we take a look at the Digital India Stocks and the top companies that fall into this theme.
What is Digital India?
Digital India is a campaign launched by the Government of India in order to ensure improved online infrastructure by increasing Internet connectivity. The government has put forward plans to connect rural areas with high-speed internet networks. Empowering citizens with access to digital services and information can emerge as one of the biggest drivers of economic growth.
The government has rightly identified this sector in order to bring greater focus to this sector. The initiatives include enhancing digital infrastructure, increasing digital literacy, and providing a sustainable living environment in urban areas through the use of technology, and building smart cities.
How well was the Digital India Initiative?
When the Digital India Week was launched by Prime Minister Narendra Modi in Delhi on 1 July 2015, top CEOs from India and abroad committed themselves towards investing US$3.1 trillion towards this initiative. These investments would be directed towards making smartphones and internet devices at an affordable price in India.
Such initiatives would lead to greater job generation in India and also reduce the cost of products. The program has been favored by multiple countries including the US, Japan, South Korea, the UK, Canada, Australia, Malaysia, Singapore, Uzbekistan, and Vietnam.
After the launch of the initiative, Indian firms got $7.4 billion in the nine months into 2017 in comparison to $4.5 billion in 2016. India is now adding 10 million daily active internet users monthly. This is is the highest rate of addiction to the internet community anywhere in the world. The Ministry of Communications & IT also revealed that Digital India was now a $1-trillion business opportunity.
Digital India Stocks – Top Companies
Below are some of the companies that fall within the Digital India Stocks Theme. The table includes companies name along with the market cap and respective industry.
#
COMPANY Name
MARKETCAP
INDUSTRY
1
Infosys Ltd.
550977.69 Cr
IT - Software
2
Reliance Industries Ltd.
1329422.49 Cr
Telecom/Refineries
3
Zee Entertainment Enterprises Ltd.
21352.01 Cr
TV Broadcasting & Software Production
4
Honeywell Automation India Ltd.
33003.06 Cr
Consumer Durables - Electronics
5
Mphasis Ltd.
29583.92 Cr
IT - Software
6
HCL Technologies Ltd.
268992.05 Cr
IT - Software
7
Bharti Airtel Ltd.
280361.09 Cr
Telecommunication - Service Provider
8
Tata Consultancy Services Ltd.
1160349.92 Cr
IT - Software
9
Sun TV Network Ltd.
19386.99 Cr
TV Broadcasting & Software Production
10
Tech Mahindra Ltd.
97138.96 Cr
IT - Software
11
Info Edge (India) Ltd.
70731.55 Cr
BPO/ITeS
12
Quess Corp Ltd.
7746.56 Cr
Miscellaneous
13
Indiamart Intermesh Ltd.
20948.42 Cr
e-Commerce
Important Note: If you want to look into many such thematic stocks like Housing India, Electric Vehicle India Stocks, Infrastructure India, etc, you can go to Trade Brains Portal – BUCKETS. Here, you can find an organized selection of stocks, categorized especially for you.
Closing Thoughts
Digital India Stocks are technologically driven and hence have been one of the biggest saviors in times of the pandemic. The current situation has also led to an increased usage of products from such companies.
This also means a change in our behaviors post the pandemic with regards to acceptance and dependence on such products. Selecting stocks that have the ability to weather the storm provides investors with the opportunity to take part in the growth of these stocks.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
Understanding How is Nifty 50 Calculated: At the start of this new Year 2021, Nifty touched the new height of 14,000 points for the first time ever. A good sign for the Indian markets as they keep soaring higher. But have you ever wondered how the index value was arrived at?
Today, we discuss the calculation of one prominent index in Indian markets called the Nifty 50. Here, we’ll discuss How is Nifty 50 Calculated and also look into the constituents of Nifty50. Let’s get started.
What is Nifty 50?
An Index is basically the stock exchange creating a portfolio of the top securities held by it. Indexes have always played an important role for both investors and companies by offering a reliable benchmark. Investors may use it to compare the performance of the index vs. their portfolio and the management of a company may use it to judge the performance of their company’s stock.
Indexes have also been used as an investment strategy where Investment Managers just set up their fund portfolios to simply track the index in an attempt to gain similar market returns. Indexes play an important role as they also stand in the representation of a country’s market and economy.
Nifty is derived from ‘National’ (National Stock Exchange) and Fifty. The Index was founded in the year 1992 and began trading in 1994. It is owned and managed by the India Index Service and Products (IISL). The Nifty 50 is a broad market index that acts as an indicator of market movements.
As the Nifty 50 includes the biggest Indian companies it captures 65% of the float-adjusted market capitalization of the NSE. It is therefore considered a true reflection of the Indian stock markets.
The Nifty 50 index is calculated using the Float-adjusted and Market Capitalization Method. This method reflects the total market value of all the 50 stocks in the index relative to the base period. The base period for the Nifty 50 is taken as November 3, 1995.
The First stepincludes the calculation of the Mcap of all the companies. This represents the total value of all the shares of a company held by investors in the market.
Market capitalization = (Shares Outstanding) x (Current Price)
The Second step includes multiplying the Mcap with the Investable Weight Factor (IWF). The Investible weight is a factor used to determine the shares available for trading. only considers shares that are available for public trading. This excludes shares held by company promoters, government, shares given to employees, etc.
Free-float Market Capitalization = (Market capitalization) x (Investable Weight Factor(IWF))
Third Step. Here, the Free Float Market Cap is then multiplied by the weight assigned to the individual stock.
Therefore the calculation for an individual stock would look as follows
Weighted Free Float Market Cap = (Market Cap) x (IWF) x (Weight)
Fourth Step. We now divide the current market value with its base value from 1995 in order to arrive at the value of the Index. The Current Market Value is the sum total of the Weighted Free-float Market Cap of all the stocks. The Base Market Capital is taken from 1995 which stands at Rs. 2.06 trillion.
Index Value = (Current Market Value/Base Market Capital) * 1000
The value of the index changes on a real-time basis in relation to changes in the stock price. Over time older companies that fail are replaced by newer companies that satisfy the requirements of the Index. The calculation shown above is restricted to the Nifty. Other Indexes like the Sensex use different base periods, base values, and are computed differently.
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.
Top White Good Industry Stocks in India 2021: First of all, let’s understand what do we mean by the White Good Industry? In short, they refer to home appliances. White good industry includes refrigerators, dishwashers, washing machines, air conditioners, and similar other appliances used at home. They were known as the white good industry as they were traditionally available only in white.
Today, we have a wide variety of choices not only when it comes to color but also companies. Let us take a look at the prospects of the industry and its top players. In this article, we’ll discuss the top White Good Industry Stocks in India. Let’s get started.
Top White Good Industry Stocks in India
— Whirlpool Corporation
Whirlpool Corporation is a multinational manufacturer and marketer of home appliances ad is headquartered in Michigan, United States. The company entered India in the late 1980s as part of its global expansion strategy and is headquartered in Gurugram. The company has entered into a joint venture with the TVS group.
Whirlpool owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry, and Pune. The company’s product portfolio includes washing machines, refrigerators, microwave ovens, and air conditioners. Whirlpool is also a Fortune 500 company. According to Yale Appliance statistics, Whirlpool is the most reliable brand in its affordable lines with the lowest percentage of service calls.
— Samsung
Samsung is a South Korean MNC headquartered in Seoul. The company initially began as a trading company and eventually diversified into other areas. As of 2020, Samsung has the 8th highest global brand value.
It’s home appliance portfolio includes a wide variety of refrigerators, air conditioners, stoves, washing machines, air purifiers, etc. According to yale lists, Samsung is one of the top luxury appliances brands in India. Excellent for people who are willing to spend a bit extra to invest in high-tech features, large appliances, and the latest designs.
— LG Electronics Inc
LG Electronics is a South Korean MNC headquartered in Seoul, South Korea. The company entered the Indian markets in 1997. According to the JD power report, LG ranks highest in appliance ratings for washers, dryers, dishwashers, oven ranges, French door refrigerators, and top-mount freezer-fridge setups. The company is also the world’s second-largest LCD television manufacturer.
Haier is one of the world’s top-selling home appliance companies. It is a Chinese MNC. It designs, develops, manufactures, and sells products including refrigerators, air conditioners, washing machines, microwave ovens, etc. According to data released by Euromonitor Haier was the number one brand globally in major appliances for 10 consecutive years from 2009–2018.
— IFB Industries
IFB Industries Limited originally known as Indian Fine Blanks Limited started their operations in India in 1974 in collaboration with Heinrich Schmid AG of Switzerland. The company currently offers appliances such as washing machines, washer dryer, laundry dryer, dishwasher, microwave oven, Chimneys, Air Conditioners, and other cooking appliances.
IFB also introduced the country’s first smart load washing machine, India’s first Dishwasher, India’s first clothes Dryer, and India’s first front load washing machine.
— Godrej
Godrej Group is an Indian conglomerate company headquartered in Mumbai. The company was established in 1897 in the locks business. Its roots can be traced back to India’s Independence and Swadeshi movement. Godrej was also the first company to introduce refrigerators in India 60 years ago.
— Philips
Koninklijke Philips N.V. is a Dutch MNC founded in the year 1891. Its first product included the lightbulb. Today Phillips is one of the largest electronics companies in the world. Philips began its operations in India in 1930. They established Philips Electrical Co. (India) Pvt Ltd in Kolkata as a sales outlet for imported lamps.
— Bosch
Robert Bosch GmbH is a German multinational engineering and technology company founded in 1886. Consumer goods form one of its four businesses.
Bosch set-up its manufacturing operation in India in 1951. These have grown over the years to include 18 manufacturing sites, and seven development and application centers. The Bosch brand is famous for cooktops and wall ovens, plus wide range microwaves. Bosch is second only to LG according to J.D. Power Rating.
— Bajaj electricals Ltd
Bajaj Electricals Limited is a renowned and trusted company Indian company. The company was founded in the year 1938. It has diversified with interests in lighting, luminaries, appliances, fans, cooking appliances, etc. The company is part of the US$5.3 billion Bajaj Group.
— Voltas Ltd
Voltas Limited (a TATA enterprise) is India’s largest air conditioning company. The company was founded in 1954 and specializes in areas such as heating, ventilation and air conditioning, refrigeration.
They are the market leaders in the manufacturing of room/split air conditioners, industrial air conditioning, refrigeration equipment, water coolers, etc.
The white good industry in India has been growing rapidly all the while keeping up with the trends and technological advances around the world. According to IBEF, the appliances and consumer electronics industry is expected to double to reach Rs. 1.48 lakh crore (US$ 21.18 billion) by 2025.
There have been many reasons for this growth. One of them being the expansion of retail stores throughout the country. Despite this, the industry still has huge untapped potential. A majority of this comes from the 400 million Indian middle-class households and the disposable income with them.
E-commerce sites have been a boon to the industry as they now allow effortless sale and purchase of white good products. Government initiative also adds to the pace as initiatives on power and electrification open up unexplored markets.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
Understanding the Why and Pros/ Cons of Privatization of PSU banks: Every year we see multiple banks getting scammed, failing, and eventually RBI and government intervening for its rescue. These instances have happened way too many times to recall all of them. Many economists have suggested the government after viewing public banks with unease to take action and now the government is in talks to privatize banks in the sector. Today, we take a closer look at this decision of Privatization of PSU banks, along with its pros and cons.
Introduction to Banking: Private vs Public
Banks play a very important role and are one of the key driving forces in our economy. Most of us are already accustomed to their basic functions of receiving deposits and providing loans to the people. But over the years banks in India have evolved to perform functions like providing lockers, insurance, mutual funds, transferring funds, and also play a key role in digital payments and transfers. They also aid the growth of the country by absorbing the excess capital from the economy and redirecting its use towards productivity and growth.
Banks are classified into 2 categories i.e. Public and Private banks. A public sector bank is one where a majority of its stake is held by the Government. On the other hand, a private sector bank is one where a majority of the shares of the bank are under the control of its shareholders.
Although the banks being public or private perform the same functions, due to their aims and period of existence customers notice significant differences depending on the banks they choose. Private banks arrived relatively late in the Indian banking sector thanks to the reforms introduced in 1991. This is one of the reasons why people find public banks secure as they already have been around longer enabling them the gain their trust. Also, the confidence that the government will not let a public bank fail adds to this security. Private banks make up for these security concerns through their technological advancements and superior customer service.
Anyways, last year (2020), the Indian government has drawn a list of five big PSU banks, namely, Punjab & Sind Bank, Bank of India, Bank of Maharashtra, UCO Bank, and IDBI Bank, in which they want to disinvest equity.
Post-Independence the banking industry was dominated by private sector banks. The government soon realized that this was leading to a major section of the population being left out by banks. This section included the poor as the banks had mainly catered to the rich. This prompted the government to take steps to nationalize 14 major banks of India in 1969 after independence.
By 1980, 6 more banks were added to the list. This allowed citizens to bank services throughout the length and breadth of the country regardless of income levels. The numbers kept increasing but after a list of mergers and acquisitions in the last few years, we now have 12 Public banks functioning in the country. Private banks were again permitted only post liberalization of the economy in the early 1990s.
Despite successfully being accessible to the population the public banks have failed in many aspects. According to the RBI as of March 2016, public sector banks accounted for over 90 percent of the ₹5.5 lakh crore gross NPAs (Non-Performing Asset). NPA’s refer to interest and principal is due for a prolonged period of time and its recovery is not expected or doubtful.
RBI data as of March 2017 showed that 9.3 percent of the industry loan book for private sector banks was stressed whereas 28.8 percent for PSBs.
As a result, the Indian government has announced a $19 billion recapitalization plan. This recapitalization may help the banks survive but are not a long term solution. This has led to the government considering privatization as a means for transforming the banks into entities that are commercially viable. Recommendations were made by the Niti Aayog to the central government about the privatization of few Indian Public Sector Banks.
Privatization refers to the sale of government-held assets or shares to the private sector. It is often achieved by listing the new private company on the stock market. This has previously been performed in other sectors.
Privatization of government-held securities was also successful in the UK where state-owned companies such as BP, BT, British Airways, electricity companies, gas companies, and rail networks were privatized. Currently, four banks that are considered to be privatized are Punjab & Sind Bank, Bank of Maharashtra, UCO Bank, and IDBI Bank.
Privatization of PSU banks: Pros of Privatization
Bank privatization is likely to provide a lot of different benefits. They include:
Most private banks are profitable, to a big extent. A lot many PSUs are not making profits and the government is thinking that the privatization of PSU banks, may convert them from loss-making ventures to profitable self-sustainable businesses.
It is found that the Private sector banks are more advanced than Public sector Banks. They are also known for their operational efficiency. One of the major motives private banks achieve this is profit. This makes them more competitive with superior service in order to gain customers. a private firm has pressure from shareholders to perform efficiently.
Privatization will also help to reduce the burden of the Government of India. This is because private banks are stricter towards loans and frauds. It is startling to see PNB being defrauded of $1.8 billion by a few junior level bank officials. Frauds of such scale do not occur in private banks like Citibank etc.
The foreign investors prefer to invest in private sector banks rather than the public sector banks.
When faced with problems governments take decisions based on what would be best for the next election. Public banks are also constantly bullied for political motives. Privatization will allow these banks to focus on their long term goals with reduced government interference.
Privatization of PSU banks: Cons of Privatization
Privatization also comes with its set of challenges.Some of these are:
This will adversely affect the poorer sections of society. This is because private banks will no longer function for the social benefits of the poor. It will also wipe out the USPs of the public banks which is trust in the government. This encourages depositors.
Public banks open branches, ATMs, banking facilities, etc even in the non-profitable rural areas of India or the poorer sides where the possibility of getting big deposits or making money is less due to the government or political demands. However, Private banks are not inclined to do so and they may prefer opening such facilities mostly in megacities or urban areas.
This is also unjust and will create added problems for employees who have specifically strived to secure government jobs. Privatization may also introduce variable income. This decision will most likely result in panic and protests across the country.
Unfortunately, the public sector has been shown in a bad light in the recent past due to the bad loans and rising NPA’s. This is like to affect the governments’ ability to raise funds through their sale.
Closing Thoughts
As the advantages outweigh the disadvantages and the fact that public banks have been a menace in the recent past, privatization would mark the start of turning the banking sector around. This does not mean that the government must sell its share and wash its hands off the sector. It is very important to consider that Privatization alone would not solve all of the problems faced by the sector.
Looking back at past failures it is also important that the government introduces adequate governance among other measures to ensure that banks do not once again enter their prior state.
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.
8 Best Discount Brokers in India – Stockbrokers List 2021 (Updated): With the rise of Zerodha, the discount broker which was founded in 2010, the Indian broking industry saw a massive disruption. As these discount brokers were offering a cheaper brokerage plan, they were able to attract a lot of customers compared to the expensive traditional brokers. After this disruption, many of the existing brokers and firms started copying the concept and offering similar cheaper plans.
After around a decade since these brokers started getting attention, discount brokers are becoming more and more popular in recent years. As a matter of fact, many of such discount brokers are able to outrank the well-determined and big ‘conventional’ trading firms. In this post, we are going to discuss eight of such best discount brokers in India.
Here, we’ll be evaluating the discount brokers in India based on the key features like their brokerage charges, account opening charges, maintenance charges, services offered, trading platforms, pros, cons and more. By the end of this article, you’ll have a better understanding of the different discount brokers in India so that you can choose the one that suits you the best. Let’s get started!
What exactly is a discount broker?
Discount brokers offer low brokerage, high speed and a fast platform for trading in stocks, commodities and currency derivatives. The brokerage charge while trading with these discount brokers are way lower compared to the traditional brokers in India like HDFC Securities, ICICI direct, SBI cap, etc.
Besides, the business model of a discount broker is quite straight forward. They offer a flat brokerage rate for every trade that their client makes, and it does not depend on the size of the trades. This rate can is usually between Rs 10 or 20 per trade.
On the other hand, full-service brokers charge a fraction of fee on the transaction volume. This commission can be as high as 0.3-0.7% of the transaction volume. Therefore, as the volume of the transaction increases, you have to pay more and more brokerage.
Now that you have a basic understanding of the discount vs full-service brokers in India, let us discuss eight of the best discount brokers in India which are worth investigating.
Top Picks For Best Demat & Trading Account in India
No 1 STOCKBROKER IN INDIA Zerodha Free equity investments | Flat ₹20 intraday and F&O trades
Zerodha, founded in 2010 by Nitin Kamath, is the biggest discount in India that offers free equity and mutual fund investments and flat brokerage on Intraday & all other traders. It has over +3 million clients and contributes to over 15% of daily retail trading volumes across the Indian Stock Market. Its mobile app ‘KITE’ has got over +1,000,000 downloads on the play store.
Quick fact— According to the Jan 2021 report by NSE, Zerodha is the biggest stockbroking firm in India (client-wise), outranking many old and big broking corporates like ICICI direct, HDFC Securities, Sharekhan, etc. Through its innovation and practical approach, Zerodha has been able to outrank all these big players.
Zerodha brokerage charges
– Free equity delivery: All your equity delivery investments (NSE, BSE), absolutely free — ₹0 brokerage.
– ₹20 intraday equity and F&O trades: ₹20 or 0.03% (whichever is lower) per executed order on intraday trades across equity, currency, and commodity trades across NSE, BSE, and MCX.
Zerodha Demat And Trading account opening Charges:
For opening a trading and demat account at Zerodha, here are the charges:
— Equity Trading Account: ₹200
— Commodity Account:₹100
So, if you wish to open the Trading, Demat & Commodity account with Zerodha, the total account opening charges will be Rs 300. Further, the annual maintenance charge (AMC) for the demat account is Rs 300.
Services offered: Zerodha offers trading and investment services in equity, derivatives, currency, mutual funds & commodities.
Incorporated in 1987, Angel broking is a big brand having +30 Years of experience in the broking world and +1 million happy customers. They have a presence in over 1800+ cities in India. Angel Broking offers the trading facility in Equity, F&O, Commodities, and currency across BSE, NSE, NCDEX & MCX.
Although Angel Broking worked as a full-service broker and offered a percentage brokerage charge to its clients for over two decades. However, they recently changed their business model (Nov 2019) from percentage brokerage to flat rates to compete with rapidly growing discount brokers like Zerodha, 5Paisa, Upstox, etc.
Angel Broking now offers a flat rate brokerage plan, named ‘Angel iTrade PRIME’. Here, the delivery trading is FREE of cost. And for all other segments i.e. Intraday, F&O, Currencies & Commodities, they charge a fixed rate of ₹20 per. The same simple rate is applicable across exchanges and segments.
One of the key advantages of trading with Angel Broking is that they provide guidance/recommendations for investing in the stock market along with research reports on companies and many other value-adding tools and services.
Services Offered: Angel Broking offers its services in Equity, Commodity, Currency, PMS, Life Insurance, ETFs, IPOs & Mutual Funds.
Angel Broking Brokerage Charge:
Delivery charges: Rs 0
Intraday Trading: Flat ₹20 Per Trade
Equity F&O: Flat ₹20 Per Trade
Currency F&O: Flat ₹20 Per Trade
Commodity F&O: Flat ₹20 Per Trade
Account Opening Charges with Angel Broking:
Account opening charge: Rs 0 (Currently Waived)
Annual Maintenance Charge: Rs 450 (Second year onwards)
Trading Platform: Angel iTrade, Angel Broking Mobile App, Angel BEE
5Paisa is a part of IIFL (India Infoline) and offers the cheapest stock brokerage in India. IIFL launched 5Paisa to offer a lower brokerage platform for its clients and to compete with the fast-growing discount broking industry.
Services offered: Apart from trading in equity, currency, commodity, 5Paisa also offers its services in mutual funds, Insurances, Personal loans.
5Paisa Brokerage charges
5Paisa offers free trading in equity and flat brokerage in other segments. Here are the brokerage charges offered by 5Paisa:
— Delivery Trading: Rs 20 per trade — Intraday Trading: Rs 20 per trade — Equity Futures: Rs 20 per trade — Equity Options: Rs 20 per trade — Currency Futures: Rs 20 per trade — Currency Options: Rs 20 per trade
5Paisa Demat And Trading account opening Charges:
— Account opening charges: FREE (Rs 650 Waived)
— Annual Maintenance charges: Rs 45 per month (only for months when you trade)
Trading Platform: Investor terminal web platform, trader terminal, 5Paisa share trading mobile app
Pros of 5Paisa:
Free delivery trading
A low brokerage of flat Rs 10 per trade
100% paperless account investing
Investment in stocks, mutual funds & insurance from the same account
Upstox is a fast-growing discount broker, backed by a group of leading investors including Kalaari Capital, Ratan Tata, GVK Davix, etc. It is also known as RKSV. Upstox started as RKSV in 2012 and rebranded to Upstox in 2015.
Services offered: Upstox offers trading services in equity, currency, and commodity
Upstox Brokerage charges
Upstox offers two different brokerage plans (basic and pro plan). Delivery trading in free in both these plans. Here are the brokerage charges:
— Delivery: Rs 0
— Intraday Trading: Rs 20 per executed trade or 0.01 whichever lower (Basic Plan)
Upstox Demat And Trading account opening Charges:
— Account opening charges: Rs 300
— Annual Maintenance charges: Rs 150
Trading Platform: Upstox Pro Web Trading Platform, Bridge for AmiBroker, Developer Console, Option Chain Tool, Upstox MF Platform
Trade smart is a Mumbai, India based discount broker good for traders and investors looking for low brokerages, high margins, and a fast trading platform. Unlike most discount brokers, Trade smart online is not a recent setup. It is a part +25 years old VNS Finance & Capital Limited, which is a traditional broker in India. It has over 50,000+ happy customers, averaging a daily turnover of over Rs. 5000 crores
Services offered: Trade smart online offers brokerage services in stock, futures & options, commodity, and currency trading segments.
Trade Smart Online Brokerage charges:
This discount broker offers a flat brokerage of Rs 15 per trade irrespective of the trading volume in its ‘Value’ trading plan.
Further, it also proposes a ‘Power’ trading plan with a brokerage of 0.007% on the transaction, which is suitable for the small volume traders. Here are the brokerage charges for delivery and intraday trading:
— Delivery: Rs 15 per trade (Power plan) or 0.07% (value plan)
— Intraday Trading: Rs 15 Per trade (Power plan) or 0.007% (Value Plan)
Trade Smart Online Demat And Trading account opening Charges:
— Account opening charges: Rs 400
— Annual Maintenance charges: Rs 300 (Second year onwards)
Incorporated in 2015, SAMCO is another low brokerage cost discount broker in India. However, SAMCO differs from other discount brokers by offering higher leverage for trading to its clients. Here, customers can get up to 4x Delivery Leverage in the Cash Markets, Upto 80x Leverage for Nifty, 33x leverage for stocks and 60x for commodity.
SAMCO Brokerage charges:
Here are the brokerage charges offered by SAMCO:
— Delivery Trading: 0.20% or ₹20 per trade whichever is lower
— Intraday Trading: 0.02% or ₹20 per trade whichever is lower
Incorporated in 2013, Wisdom Capital is an online discount brokerage firm providing services in stocks, futures, options on NSE and BSE and commodity trading on MCX & NCDEX. It also offers zero brokerage in its FREEDOM plan which attracts a lot of customers.
Wisdom Capital Brokerage charges:
Wisdom Capital offers three different brokerage plans to its customers: Freedom, Pro & Ultimate. Customers can choose whichever suits them the best. Here are the brokerage charges for each plans:
Freedom Plan:
Freedom plan offers ZERO brokerage in all segments
However, this plan does give a very little or no margin/exposure and hence might not be suitable for active traders.
Pro Plan:
The pro plan by Wisdom capital is designed for professional traders.
Suitable for the traders who need higher intraday exposures/margins
Delivery trading brokerage: 0.005% of the transaction
Intraday trading brokerage: 0.005% of the transaction
For rest, the brokerage is Rs 9 per trade (for NSE futures & options, currency & Commodity Trading at MCX).
Pro plan offers an intraday margin In NSE cash up to 40x MIS.
Ultimate Plan:
The ultimate plan is designed for high-frequency traders
Delivery trading brokerage: 0.007% of the transaction
Intraday trading brokerage: 0.007% of the transaction
For rest, the brokerage charged is Rs 15 per lot in options, 0.005% NSE futures, currency & Commodity Trading at MCX.
Ultimate plan by Wisdom capital offers intraday margin In NSE cash up to 60x MIS
Wisdom Capital Demat and Trading account opening charges:
— Account Opening Charges: FREE
— Annual maintenance charges: Lifetime 999+ Taxes
Services offered: Wisdom capital offer services in equities, future, and options, currency, and commodities on NSE, BSE, MCX & NCDEX
Trading platform:NEST Trader (trading terminal), BSE Bolt – a trading platform by BSE to trade across stocks listed on it.
Pros of Wisdom Capital:
Zero brokerage in FREEDOM Plan,
Flexible brokerage plans depending on client preference,
High exposure/margin in higher plans
Cons of Wisdom Capital:
No facility to invest in IPO, FPO, Mutual Funds, FDs, and NCDs
Incorporated in 2012, Tradejini is a Bangalore based discount broker which offers a brokerage of 0.01% or ₹20 per executed order. It offers a single integrated platform for Equity, Derivatives, Commodities & Currency trading.
Tradejini Brokerage charges:
— Delivery Trading: 0.10% or ₹20 per trade whichever is lower
— Intraday Trading: 0.01% or ₹20 per trade whichever is lower
Incorporated in 2015, Fyers is Bangalore based fast-evolving online discount stock broker founded by young entrepreneurs with broad experience in trading and the stockbroking industry. Apparently, FYERS word is an acronym of “Focus Your Energy & Reform the Self”, which represents the core philosophy of the company.
Services offered: Fyers offer services in equity Cash, F&O and Currency Derivatives segments at NSE.
Fyers Brokerage charges:
— Delivery Trading: Rs 0
— Intraday Trading: Flat brokerage fee of maximum ₹20 per executed order.
While choosing a stockbroker, look for the broker which offers a reasonable brokerage charge, low yearly maintenance cost, high-quality trading tools, active customer service, and no hidden account fees. Besides, put your priority and personal trading style in preference of the brokerage firm before opening your account.
These days, the discount brokers often start a new campaign every month to attract new customers by offering Zero account opening charges, referral clients benefits or even brokerage cashback. The competition among the brokers is challenging them to innovate faster, give more customer support and hence traders/investors are able to enjoy better trading facilities and services.
Need more guidance to help you pick the right online stockbroker. Here are the best resources to read further:
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:
(GV Prasad and Satish Reddy)
(Shiv Nadar with daughter Roshni Nadar)
