10 Best Stock Research Websites in India to Analyze Companies

10 Best Stock Research Websites in India to Analyze Companies!

List of Top Stock Research Websites in India: A good stock research tool will make your stock analysis process a lot easier along with saving tons of time for you. In this post, we are going to look into the best stock research websites in India where you can analyze Indian companies and perform complete fundamental and technical analysis of stocks. All these websites are very powerful and provide quality financial data for the users.

In addition, there’s also a bonus section at the end of this post where we have mentioned a few other stock research websites in India that you should also check out. Therefore, do read this article till the end. Now, discuss the best stock research websites in India to analyze stocks. Here it goes.

10 Best Stock Research Websites in India

Here are the best stock research websites in India that will simplify your stock research process:

1) Moneycontrol

moneycontrol stock research

Moneycontrol is the most popular stock research website in India. It provides all the essential financial data (fundamental & technical) for the stock market traders and investors. You can find information about stocks, mutual funds, IPOs, the latest news, and more on the moneycontrol website. A few of the other key pieces of information on this website are market news, trends, charts, livestock prices, commodities, currencies, personal finance, etc.

2) Screener.in

screener dot in stock website

As the name suggests, this is a screening tool for Indian stocks. Screener.in is a familiar stock research website in India. Along with the stock screening, users can find the financial details of public companies in India for the last ten years on this website.

Most of the features on Screener are absolutely free. Here, you can find key stock informations like financial ratios, charts, analysis, peers/competitors, quarterly results, annual results, profit & loss statements, balance sheet, cash flows, etc.

3) Trade Brains Portal

trade brains portal best stock research website in India equity

 

Website: https://portal.tradebrains.in/

Trade Brains Portal helps stock market investors to make efficient stock research and analysis of Indian stocks by providing quality fundamental data with interactive visuals. Here, you can find the last 5 year financial data of all publically listed companies on NSE and BSE.

Along with financial data, this Trade Brains Portal offers many useful tools for stock research like Stock Screener, Compare stock tool, portfolio analysis, backtesting, and more.

4) Marketsmojo

marketsmojo

Started by the Ex-founding team of Moneycontrol, Marketsmojo is yet another popular stock research website in India. Here, you can Research across 4,000 stocks, analyze fundamentals and technicals, track your portfolio, and more. Marketsmojo provides pre-analyzed information on all stocks, financials, news, price movement, broker recommendations, technicals, and everything that matters in the Indian stock markets.

5) Trendlyne

trendlye stock research

Trendlyne is another powerful stock research website in India for performing fundamental and technical analysis. It offers few exclusive stock research features in India like Trendlyne’s trademark DVM Stock Scores, unlimited alerts, stock recommendations from analysts, SWOT, portfolio and watchlist tools, and a real-time newsfeed, and more.

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6) Tickertape

tickertape stock research

Tickertape is a comprehensive stock research website in India that provides financial details for Stocks, ETFs, Indices, and Mutual Funds. It is powered with smart features like its informative asset pages, screener, watchlist, and more. A popular tool by Tickertape is the “Market Mood Index” which is a sentiment tool that describes the current mood in the market as emotions, ranging from extreme fear to extreme greed.

7) Investing.com

investing.com stock research website

The Indian version of Investing.com websites provides stock data along with financial news for Indian companies. Here, you can get the data of both fundamental and technical analysis of stocks. Some popular features of the Investing.com website are Stock Screener, Economic Calendar, Portfolio/watchlist, etc.

8) Yahoo Finance

yahoo finance

https://in.finance.yahoo.com/

Yahoo Finance is probably one of the oldest stock research websites in India. Along with finance and stock market news, it provides complete financial results and stock quotes on Indian public companies.

9) Finology Ticker

finology ticker

Ticker by Finology is a known stock research website in India. It provides the financial results of Indian publically listed companies for the last five years. Along with financial results, a few other key features of the Finology ticker are its featured stock bundles, indexes data and curated news.

10) StockEdge

stockedge stock research website

Stockedge Web offers financial data of Indian public companies for performing both fundamental and technical analysis of stocks. A few key features of StockEdge are Technical Tools, News & Analysis, FII/DII Activity, Investor portfolio, and Edge Reports. In addition, it also provides mutual fund information.

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Bonus: Other Popular Stock Research Websites in India

Along with the above-mentioned websites, here are a few other popular stock research websites in India to find and analyze companies.

That’s all for this list of Best Stock Research Websites in India to Analyse Companies. Do let us know which is your favorite stock research website in India by commenting below. Have a great day and Happy Investing.

A Complete List of Stock Exchanges in India

A Complete List of Stock Exchanges in India!

An overview of list of Stock Exchanges in India (Updated 2021): Most of the Indian investing population have heard of only two stock exchanges in India – the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). However, the list of stock exchanges in India is bigger than just two.

Apart from BSE and NSE, a few of the other popular stock exchanges in India are Calcutta Stock Exchange, Magadh Stock Exchange, Metropolitan Stock Exchange of India, etc.

In this post, we are going to highlight the major stock exchanges in India which are registered with the Securities and exchange board of India (SEBI) and currently active. We’ll also share a list of different commodity derivative exchanges in India.

What is the Stock Exchange?

Before we dive deep into stock and commodity exchange, first of all, let’s understand what is an exchange.

An exchange is an organization or association which hosts a market where stocks, bonds, futures and options, commodities, etc are traded. Here, buyers and sellers come together to trade the financial instruments during the specific hours of business days. (Also read: Stock market timings in India).

A stock exchange is a facility where stocks are traded. Please note that stock exchanges do not own the stocks (similar to the vegetable market where the market doesn’t own the vegetables but connects the buyers and sellers of vegetables at a location).

To trade in a stock exchange, the companies must be listed there. The exchange imposes rules and regulations on the firms & brokers for efficient trading and provides the facility for the issue and redemption of securities. (Also read: How does the stock market work?)

Those companies which are not listed on the stock exchanges are traded Over the Counter (OTC). These are the smaller, riskier, and less liquid companies. Generally, they do not meet the requirements of getting listed on the stock exchanges and hence trade over the counter.

Two Popular Stock Exchanges in India

Now, let us first discuss the two of the largest stock largest exchanges in India – the Bombay Stock Exchange and the National Stock Exchange.

— Bombay Stock Exchange

Bombay Stock Exchange (BSE) is an Indian stock exchange located at Dalal Street, Mumbai, Maharashtra.

  1. It was established in 1875 and is Asia’s oldest stock exchange.
  2. The BSE is the world’s 11th largest stock exchange with an overall market capitalization of $1.43 Trillion as of March 2016.
  3. More than 5500 companies are publicly listed on the BSE.

— National Stock Exchange

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

  1. NSE was established in 1992 as the first demutualized electronic exchange in the country.
  2. It was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system that offered an easy trading facility to the investors spread across the length and breadth of the country.
  3. NSE has a total market capitalization of more than US$1.41 trillion, making it the world’s 12th-largest stock exchange as of March 2016.
  4. NSE’s index, the NIFTY 50, is used extensively by investors in India and around the world as a barometer of the Indian capital markets.

Quick Read

BSE and NSE – Why are there two Stock Exchanges in India?

National Stock Exchange (NSE) | Stock Exchanges in India

Difference between Stock and Commodities Exchanges

The stock exchange is a place where the piece of ownership in businesses (i.e. stocks) are bought and sold among the traders. On the other hand, a commodity exchange is a market where goods that come from the earth like gold, silver, corn, soybeans, oil, cattle, coffee, pork, etc are traded among the buyers and sellers.

An important difference between both these markets is that commodity exchanges are not just for investment purposes, but also for the business purpose to carry out the operations.

The complete list of Stock Exchanges in India

Here is the list of existing stock exchanges in India as of March 2021.

Sr. No.NameAddressValid Upto
1BSE Ltd.Address: P J Tower, Dalal Street, Mumbai 400023 Website: http://www.bseindia.comPERMANENT
2Calcutta Stock Exchange Ltd.Website: http://www.cse-india.com/PERMANENT
3India International Exchange (India INX)India International Exchange IFSC Limited, 101, First Floor, Hiranandani Signature Tower, GIFT City IFSC Ð 382355, Gujarat, India.Website: http://www.indiainx.com/Dec 28, 2018
4Magadh Stock Exchange Ltd.SEBI vide order dated September 3, 2007 refused to renew the recognition granted to Magadh Stock Exchange Ltd.PERMANENT
5Metropolitan Stock Exchange of India Ltd.Website: http://www.msei.in/index.aspxOct 02, 2019
6National Stock Exchange of India Ltd.Address: Bandra Kurla Complex, Bandra (East) Mumbai 400051 Website: https://www.nseindia.comPERMANENT
7NSE IFSC Ltd.NSE IFSC LIMITED, Unit No. 46 Ð 53, 1st Floor, GIFT Aspire One Business Centre, Block 12, Road 1-D Ð Zone 1, GIFT SEZ, Gandhinagar 382355. Website: https://www.nseifsc.com/May 28, 2019

Quick Note: The following exchanges have been granted exit by SEBI vide orders

  • The Hyderabad Securities and Enterprises Ltd (erstwhile Hyderabad Stock Exchange),
  • Coimbatore Stock Exchange Ltd,
  • Saurashtra Kutch Stock Exchange Ltd,
  • Mangalore Stock Exchange,
  • Inter-Connected Stock Exchange of India Ltd,
  • Cochin Stock Exchange Ltd,
  • Bangalore Stock Exchange Ltd,
  • Ludhiana Stock exchange Ltd,
  • Gauhati Stock Exchange Ltd,
  • Bhubaneswar Stock Exchange Ltd,
  • Jaipur Stock Exchange Ltd,
  • OTC Exchange of India,
  • Pune Stock Exchange Ltd,
  • Madras Stock Exchange Ltd,
  • U.P.Stock Exchange Ltd,
  • Madhya Pradesh Stock Exchange Ltd,
  • Vadodara Stock Exchange Ltd,
  • Delhi Stock Exchange Ltd
  • Ahmedabad Stock Exchange Ltd.

The above exchanges have been granted exit by SEBI vide orders dated January 25, 2013, April 3, 2013, April 5, 2013, March 3, 2014, December 08, 2014, December 23, 2014, December 26, 2014, December 30, 2014, January 27, 2015, February 09, 2015, March 23, 2015, March 31, 2015, April 13, 2015, May 14, 2015, June 09, 2015, November 09, 2015, January 23, 2017, and April 02, 2018, respectively.

(Source: Securities and exchange board of India)

Calcutta stock exchange | Stock Exchanges in India

List of Commodity Derivative Exchanges in India

Here is the list of commodity derivative exchanges in India as of March 2021.

Sr. No.NameAddressValid Upto
1Ace Derivatives and Commodity Exchange LimitedAddress: Rawat-ni-wadi, Nr.Central Bank of India, Gandhi Road, Ahmedabad-380001 Website: http://www.aceindia.com/PERMANENT
2Indian Commodity Exchange LimitedAddress: Reliable Tech Park, 403-A, B-Wing, 4th Floor, Thane-Belapur Road, Airoli (E), Navi Mumbai-400708Website: http://www.icexindia.com/PERMANENT
3Multi Commodity Exchange of India Ltd.Address: Exchange Square, CST No.225, Suren Road, Andheri (E), Mumbai-400093 Website: https://www.mcxindia.com/PERMANENT
4National Commodity & Derivatives Exchange Ltd.Address: Akruti Corporate Park,1st Floor, Near G.E.Garden , L.B.S. Marg, Kanjurmarg(West), Mumbai 400 078 Website: http://www.ncdex.com/PERMANENT
5National Multi Commodity Exchange of India Limited.Address: 5,4th Floor,H.K. House, B/h JivabhaiChambers,Ashram Road, Ahmedabad.-380009 Website: http://www.nmce.comPERMANENT

Note:(#) Pursuant to Section 131 of Finance Act, 2015, and Central Government notification F.No. 1/9/SM/2015 dated 28th August 2015 all recognized associations (Commodity derivatives exchanges) under the Forward Contracts (Regulation) Act, 1952 (FCRA) as of September 28, 2015, are deemed to be recognized stock Exchanges under the Securities Contracts (Regulation) Act, 1956 (SCRA).

(Source: Securities and exchange board of India)

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

Closing Thoughts

The stock exchange is a place where buyers meet the sellers to trade securities. Two large and popular stock exchanges in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

To get listed on the stock exchange, the companies must meet the basic requirements and guidelines. Further, Over the Counter (OTC) is a place where unlisted stocks can be bought or sold.

That’s all for this post. Hopefully, you have liked the article. Do let us know which stock and commodity exchange you use for investments. Happy Investing!

HUL Case Study

Hindustan Unilever Limited (HUL) Case Study 2021 – Industry, SWOT, Financials & Shareholding

HUL Case Study and analysis 2021: Hindustan Unilever Limited (HUL) is India’s biggest fast-moving consumer goods company. In this article, we will look into the fundamentals of HUL, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of HUL, Michael Porter’s 5 Force Analysis, followed by looking into HUL key financials. We hope you will find the Hindustan Unilever Limited (HUL) case study helpful.

Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice. Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.

About HUL and its Business Model

HUL Case Study - Brands

With a legacy of over 80 years, Hindustan Unilever Limited (HUL) is India’s biggest fast-moving consumer goods company. Actually, the very first product of the company was launched in 1888 named Sunlight Soap. In 1931 Unilever set up its subsidiary in India and in 1956, its subsidiaries consolidated to form Hindustan Leer Limited.

In 2007, the name was renamed Hindustan Unilever Limited. In 2013, the parent company Unilever increased the market stake in HUL to 67% and in 2018, the market cap of HUL passed $50bn.

 HUL primarily has three divisions:

  • Home Care
  • Beauty and Personal Care
  • Food and Refreshment

Hindustan Unilever has a pan India access and it is found that more than 9 out of 10 households in India use a brand of HUL. Currently, the company has 14 brands in 44 different categories including Skin Cleansing, Tea, Deodrants, HFD, etc. Famous Brands like Surf Excel, Rin, Wheel, Vaseline, Pepsodent, Clinic Plus are included in the portfolio of the company.

On April 1, 2020, HUL also acquired leading brands like Horlicks and Boost. The company has 21,000 employees working under it with 31 factories, more than 1150 suppliers, and the products are available at more than 8million outlets in India.

HUL Case Study – Industry Analysis

FMCG sector is the fourth largest sector in India, which has surged from 840 Billion USD in 2017 to 1.1 Trillion USD in FY20 and is expected to grow at 10% a year. Personal Care and Household dominates with 50% of FMCG sales in India. Rapid urbanisation, increasing disposable incomes and better lifestyles have been the main growth drivers for the FMCG sector.

55% of the sales come from the urban segment, however, for the last few years, it has witnessed faster growth in the rural segment as compared to the urban segment. In rural India, the sector grew at 10.6% in the Q3 FY20, majorly due to better agricultural output.

It is expected that the rural FMCG market will rise to USD 220 billion by the end of 2025, at the same time, the market share of the unorganised market is expected to fall rapidly.

Michael Porter’s 5 Force Analysis of HUL

1. Rivalry Amongst Competitors

  • FMCG industry is a very competitive one with many brands available, and new products coming in each quarter make innovation very important. FMCG business is highly dependent on advertisement and companies spent a big percentage on it.
  • The switching costs for the customers are very low in this sector as the product differentiation is moderately low, which intensifies the competition.

2. A Threat by Substitutes

  • Substitute in the FMCG sector is highly dependent on the particular product. For example, it is way easier to find Colgate toothpaste at a local shop than a homemade organic dentifrice. On the other hand, the substitute product for biscuits is rusk which is easily available. Since switching costs are very less, the threat of substitutes is relatively on the higher side.

3. Barriers to Entry

  • Barriers to entry in the FMCG sector are far less as compared to the others. FMCG business is majorly dependent on brand identification and this can be developed with unique qualities, logo, advertisement; basically, proper market strategy.
  • The distribution network is very large and branched in the FMCG sector, which further eases out barriers of entry.

4. Bargaining Power of Suppliers

  • In FMCG business, companies have long term business with the suppliers, which helps them to negotiate the price. Moreover, the number of suppliers is ample; hence, decreasing the bargaining power of suppliers. However, companies need to make sure that they are getting the supplies at the cheapest possible prices as the industry is a high-volume, low-margin business.

5. Bargaining Power of Customers

  • Factors like a high number of similar product companies available, very low switching costs and similar products available at similar quality and in almost the same price range increase the bargaining power of customers. The only thing that can make them stay is brand loyalty for a product.

HUL Case Study – SWOT Analysis

Now, moving forward in our HUL case study, we will perform the SWOT analysis.

1. Strengths

  • HUL has a strong brand equity and a large legacy as it is a very old and well-rooted company with a variety of popular brands and products.
  • The company has its presence across the length and breadth of India with over 8 million+ retail stores where its products are available.

2. Weaknesses

  • HUL runs in a very competitive environment and there are highly established and rising companies that are little product-focused and hence, eat up the market share of the company.
  • HUL currently doesn’t have any ayurvedic or natural products in their portfolio, which is a negative aspect of the company as the current population’s trend is shifting to herbal products and many focused companies are making the best use of it.

3. Opportunities

  • With increasing disposable incomes, education and youth population, the FMCG sector in rural and semi-urban areas is expected to grow very rapidly as compared to urban areas. The company can use this very well as it already has a brand image and a wide chain of distributors.
  • The company can use its healthy cash reserve position and brand image legacy to acquire various products to diversify its portfolio.

4. Threats

  • HUL runs in a highly competitive environment, with 100% FDI allowed by the Govt. of India and new multinational companies setting their feet, the company faces a high threat from its competitors.
  • The company is highly dependent on raw material prices. Inflation can shrink the margins for the company as it runs in a sector that is a high-volume, low-margin one.
  • Population’s shift to organic and healthy products can help some unorganized and small companies to increase their market share, which can be a threat to HUL.

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HUL’s Management

There are 9 members in the board of directors committee of the company, out of which 6 are Independent Directors including one female member.

Mr Sanjiv Mehta has been serving as the Chairman and Managing Director of the company since 2018. Chartered Accountant by degree, Sanjiv Mehta is also the President of Unilever South Asia (Pakistan, Bangladesh, Sri Lanka and Nepal). In 2019, he was awarded the “Business Leader of The Year” award by the All India Management Association.

Mr Willem Uijen is the Executive Director, Supply Chain of Hindustan Unilever Limited. He has been with the company since 1999 and was a part of various demographical projects of the company, especially in Latin America. In January 2020, he joined his current position.

Financial Analysis of HUL

  • 44% of the company’s revenue comes from Beauty and Personal Care, followed by Home Care (34%). Foods & Refreshment contributes 19% and only 3% comes from others.
  • In terms of Operating profit, Beauty and Personal care products contribute the maximum (55%), 29% comes from Home Care, 14% and 3% from Foods and others respectively.
  • The company has a 54% market share in the Skin Care Segment, which makes it the market leader. In Dishwashing Detergents, 55% of the market share is dominated by the company. 47% and 37% is the respective market share which company owns in Shampoo and Personal Care Segment.
  • As of Sept’20, the company spent 9.79% on advertisements as a % of total sales, which has shown a good rise from 7.46 of June’20.
  • Net Profit Margin for the company is 14.77% as of FY20, which has surged from 13.59% as that of FY19. Current NPM is the highest of that in the last 5 financial years and the 3 Yrs. Avg. Net Profit Margin is 14.26%. Source: Trade Brains Portal]

HUL Net Profit Margin

  • In FY20, HUL showed a Revenue Growth of 1.2% from the previous FY. 3-year CAGR is 6.16%, which means that in recent years, the revenue growth has been subdued. A similar trend is visible from Net Profit Growth, 1-year CAGR is 11.46% whereas 3-year CAGR (14.66%) is higher.

hul case study revenue profit and net flow

  • The company has a very healthy and consistent cash flow from Operating Activities. Outflow in cash flow from financing activities surged in FY20 as the company paid a higher dividend than the previous year.

hul case study cashflow statement

HUL Case Study Financial Ratios

1. Profitability Ratios

  • EBITA Margin for the company has been increasing for the last 5 financial years except for FY19, in which it witnessed a small dip from 20.7 to 19.91. As of FY20, EBITDA Margin is 21.54%.
 EBITA MarginRoE
RoCERoA
HUL21.54
84.15114.6735.44
Dabur18.5323.9926.4116.3
Godrej Consumer21.319.7618.0210.71
P&G20.0242.7458.0525.63
  • Hindustan Unilever has the premium RoE of 84.15 (FY20), and a consistent rise in the same has been visible for the last 4 years. The 3 years avg RoE is 79.76%.
  • The company enjoys 3-digit RoCE, which is very well respected by the market and a similar rising trend is visible in RoCE as that of RoE. As of FY20, RoCE is 114.67% and the Avg ROCE for 3 years is 110.16%.

2. Leverage Ratios

  • As of FY20, Quick Ratio and Current Ratio for the company are 1.02 and 1.32 respectively, which indicated its good liquidity position. These levels have been more or less the same for the last 5 financial years, which is a positive sign for the company.
 Quick RatioCurrent RatioInterest Coverage RatioD/E
HUL1.021.3278.690
Dabur1.421.9835.870.08
Godrej Consumer0.681.068.710.45
P&G1.892.2398.840
  • HUL is a 100% debt-free company and its Interest Coverage Ratio is 48.69% as of FY20. Although this level is very good currently, it was 261.73 in FY19.

3. Efficiency Ratios

  • Currently, the asset turnover ratio for the company is 2.4, which is slightly lower than the previous year but this figure has been almost constant in the recent financial years.
  • The inventory turnover ratio witnessed a continuous rise from FY16 (12.04%) to FY19(17.53%), which later dipped to 17.18 in FY20 due to virus outbreak disruptions.
 Asset Turnover RatioInventory Turnover RatioReceivable DaysPayable Days
HUL2.417.1311.8392.86
Dabur1.097.2231.0879.55
Godrej Consumer0.716.0845.12120.91
P&G1.7814.721.1486.09
  • The number of receivable days has decreased (12.79% in FY19 to 11.83% in FY20) and the number of payable days has increased (90.77% in FY19 to 92.86% in FY20), indicating the company’s increased bargaining power over the buyers and suppliers.

Shareholding Pattern of HUL

  1. Promoters own 61.9% of the company as of December quarter 2020. Although it has been the same for the last 3 quarters, a fall was seen from the level of 67.18% in March 2020. The best part is that promoters do not pledge a single share.
  2. FIIs hold 14.92% of shares of the company as of December 2020, which has surged from the level of 12.32% in the same period the previous year.
  3. DIIs own nearly 10.72% shares of the company, which was around 6.68% a year back. Both FIIs and DIIs have increased their shareholding in the previous years.
  4. Public shareholding has witnessed a fall in the recent quarters, from the level of 14.95% in Jun2020 to 12.46% in Dec 2020.

Closing Thoughts

In this article, we tried to perform a quick Hindustan Unilever Limited (HUL) case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about HUL.

What do you think about HUL fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!

How Does the Government affect The Economy?

How Does the Government Affect The Economy?

Understanding how does the Government affect the economy: A Government is the largest stakeholder in the economy. Consequently, its actions have a profound impact on many macroeconomic variables.

Today, we’ll cover how does the government affect the economy. Here, we’ll explain how government policies work to influence economic growth, unemployment, inflation, interest rates and exchange rates.

Government Affect on Influencing Economic Growth

Government actions are one of the most significant factors determining the level of economic growth both in the long term and the short term. In the short term, the government is concerned with economic stability and uses fiscal policies to manage business cycle fluctuations. We can understand how the government’s fiscal policy affects economic growth through the national income accounting basic equation, which measures the Gross Domestic Product (GDP) or national income as a sum of four components.

GDP = C + I + G + NX

The left side of the equation is the GDP, which is the value of all final goods produced in a country. On the right side of the equation are the sources of aggregate demand – private consumption expenditure (C), private investment (I), Government expenditure (G), and net exports (NX) which is calculated by deducting total imports from total exports. The equation shows that governments directly control total aggregate demand and the GDP through their spending (G).

Through tax rates governments also indirectly influence consumption expenditure. Government expenditure (G), works with a multiplier effect. It means that a small increase in expenditure has a large impact on the national output. Because of this phenomenon, increasing government spending is considered one of the most effective ways to recover economic growth after a slowdown. A cut in taxes also boosts consumer spending, which is the largest contributor to aggregate demand in many countries.

Government spending on infrastructure, education, research etc. adds to the productive capacity of a nation. This, along with various welfare programs to tackle poverty and inequality, help improve living standards and achieve sustainable economic growth and development in the long term.

Reducing Unemployment

unemployement how does govenment reduces

Unemployment is both – a cause and consequence of poor economic growth. High unemployment means people have less income to spend, thus reducing aggregate demand and the GDP. Conversely, poor economic growth negatively impacts the firms’ revenue, forcing them to lay off workers, which increases unemployment. Persistently high unemployment increases poverty and inequality, and it has often created social unrest in many countries. Through its economic policies, reducing unemployment is one of the main objectives that governments intend to achieve.

Governments use fiscal policy to tackle unemployment in two major ways:

  1. Increasing investment: Governments provide incentives for companies to invest in labour-intensive sectors. Incentives like tax breaks, subsidies, infrastructure support and easing regulations are the most common ones.
  2. Welfare programs: Governments provide direct employment to skilled and unskilled workers through their welfare schemes. An example is India’s National Rural Employment Guarantee Act (NREGA) which has proven effective in providing employment in rural areas.

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How does the Government Affect Inflation to grow the economy?

Inflation is a measure of the change in price levels in the economy. A low positive inflation rate is deemed as a prerequisite for economic stability and growth. Though inflation is a monetary measure and managing it is the central bank’s responsibility, the government’s policies also influence inflation. As shown in the national accounting equation, government expenditure (G) is a component of the aggregate demand.

Governments spend to provide public goods and services, social infrastructure, healthcare, education, welfare schemes, subsidies etc. The primary source to fund this expenditure is tax revenues. The difference between expenditure and revenue is called the fiscal deficit. Politicians often resort to spend more and hesitate in raising taxes as it is unpopular. More expenditure increases the fiscal deficit and also adds to demand pressure, causing prices to rise.

A persistently high fiscal deficit is one of the main factors that cause high inflation. This deficit is typically financed through borrowing or printing more currency. Governments may borrow from the public by issuing bonds from the financial market or from international institutions.

Borrowing adds to public debt, and there are interest costs for financing. An easier option for the government is just to print more currency. While technically, printing currency is a responsibility of the monetary authority, governments can monetize their debt which is akin to printing currency.

There is a lot of debate about how does the government affect the economy. Debt monetization is a process where the government borrows money directly from the central bank by selling bonds, and the central bank pays for it simply by printing more currency. More currency in circulation causes too much money, chasing too few goods. Prices rise in nominal terms and the value of the currency falls.

Reckless spending by governments without appropriate supply-side reforms to increase productive capacity can give rise to consistent high inflation. If not controlled, an inflation spiral can lead to hyperinflation, which has devastating effects on the economy. Hyperinflation is a situation of excessive and out of control rise in price levels. A recent example of hyperinflation caused due to excessive government spending is the Venezuelan crisis which began in 2016. In 2018, Venezuela had the highest inflation rate in the world – an annual rate of 80,000%.

To maintain economic stability, governments have to limit their fiscal deficits. Having a low fiscal deficit is a sign of good economic health. Because inflation impacts the economy and financial markets, investors pay close attention to the fiscal deficit numbers in the government’s budget. Any significant rise in deficits indicates inflation risk, to which prices of fixed income securities like bonds are most sensitive and react negatively.

The chart below shows the Indian government’s success in bringing down the fiscal deficit (as a % of GDP) from 2011 – 12 to 2018-19.

how does govenment affect the economy

The government can also influence the price levels in the economy more directly through wage and price controls.  Minimum wage policy and Pay commissions set up by governments to decide wages in the public sector are factors that impact wages in the overall economy. Similarly, the government’s minimum price floors like the Minimum selling price (MSP) for agricultural crops feed into the prices of many other goods and services.

Government Affect on Interest rates

Interest rates are the price for borrowing and lending money. Primarily it is the responsibility of the monetary authority, i.e. central bank to manage the interest rates in the economy. But as it turns out, government actions can also influence the market interest rates.

A high fiscal deficit causes interest rates to rise. This is how it works – When governments face a high fiscal deficit, they have to borrow more money to finance it. To borrow money from the public, new government bonds are issued in the market. More supply of government bonds increases the demand for money and the basic law of demand and supply tells us that the higher the demand, the higher the price. Thus more demand for money raises its price, which is nothing but the interest rate.

Higher interest rates caused by a high fiscal deficit also affects the economy in another way – by reducing private investment expenditure. Investment decision by companies is highly sensitive to the cost of borrowing, i.e. interest rates. High-interest rate increases the financing costs for the companies and makes investment projects unviable. This negative impact on investment expenditure due to high levels of government borrowing is called as the crowding-out effect.

How does the Government Affect the Exchange rate?

The exchange rate is the price of the domestic currency relative to the foreign currency. The government’s fiscal policies also impact the exchange rate. A high fiscal deficit can cause an appreciation of the domestic currency in the short run. We have already seen that a high fiscal deficit increases the domestic interest rates. High interest rate attracts foreign investors, who sense an opportunity to earn more returns on their investment. As a country receives more investment inflows, demand for the domestic currency rises, causing its price to rise vis-à-vis foreign currency (exchange rate).

An appreciation in domestic currency’s value makes imports cheaper and exports more costly, causing net exports (exports – imports) to fall. But a high fiscal deficit, in the long run, can have an exact opposite impact. A persistently higher fiscal deficit increases the government’s debt burden; it also increases the risk of high inflation. If investors perceive an impending economic crisis, they sell their investments and the resulting in an outflow of foreign exchange, depreciates the value of the domestic currency.

Closing thoughts

In this article, we discussed how does the government affect the economy. In summary, the government’s fiscal policies like spending and taxation have a direct impact on economic growth through aggregate demand. Reducing unemployment is one of the main objectives of the government.

A high level of government borrowing creates demand pressure which increases the price levels and rate of inflation. A high fiscal deficit increases interest rates and crowds out private investment; it also causes depreciation of the domestic currency.

Asian Paints case Study - Fundamentals, Porter & SWOT Analysis cover

Asian Paints Case Study 2021 – Industry, SWOT, Financials & Shareholding

Asian Paints’ Case Study and analysis 2021: Asian Paints is the largest and leading Indian paint company. In this article, we will look into the fundamentals of Asian Paints, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of Asian Paints, Michael Porter’s 5 Force Analysis, followed by looking into Asian Paints’ key financials. We hope you will find the Asian Paints’ case study helpful.

Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice.  Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.

About Asian Paints and its Business Model

asian paints products

Asian Paints is India’s 1st largest, Asia’s 3rd largest and the world’s 9th largest paint company. It has been setting a high standard of operational efficiency, management, world-class innovation and technological vision for the last 7 years.

The paint industry is divided mainly into two segments viz. Decorative and Industry. The Decorative segment includes household paints (interior wall finishes, exterior wall finishes, enamels and wood finishes) and is undeniably dominated by Asian Paints in India. The Industry segment includes industrial paints, automotive coatings, OEM paints, powder coatings etc., in which Asian Paints comes at 3rd place after Kensai Nerolac and Akzo Nobel.

The decorative segment is less technology-dependent due to which some unorganized players also eat up a small fraction of the market share. However, the industry segment is highly technology-dependent and entirely have organized players.

Asian Paints holds a global presence by operating in 15 different countries and owning 26 paint manufacturing plants across the globe. In India, it has a robust distribution network of suppliers. To improve its margins and operational efficiency, the company chose dealers over distributors.

Currently, the company has 70,000+ shopkeepers across the nation. It has also been enhancing its dealers for the past 40 years. Asian Paints has a phenomenal supply chain as it carries out around 2.5 – 3 lakh deliveries per day and its trucks visit the dealers around 4 times a day.

Asian Paints’ Industry Analysis

The paint industry runs parallel to the GDP and economy. Considered as discretionary spending, as the GDP increases so does the spending capacity of the people. In the past, this industry has seen double-digit growth in terms of both, value and volume, and this is why it has always traded at premium valuations in emerging economies.

For the last two years, there has been a constant rise in the market share by organised players. Currently, the ratio is around 70:30 between organised and unorganised players, and with the technological innovation and proper GST implementation, this market share is expected to rise to 85% in the next couple of years.

The paint industry of India is expected to witness a phenomenal rise in the coming years considering India’s latest per capita consumption (of around 4kg) as compared to that of the world (15kg.) This data provides a vast scope for the paint industry to grow in India.

The paint industry is a raw material intensive industry. Especially in the case of India, most of the raw materials are imported from other countries. With the government imposing import bans and promoting the self-reliant mission, the supply is expected to come from within the country in the coming years, which will be a boon to this industry and it will see a tremendous rise in operational margins.

Michael Porter’s 5 Force Analysis of Asian Paints

1. Rivalry Amongst Competitors

  • The 70% paint industry is dominated by the organized sector which includes 4 companies (Asian Paints, Berger Paints, Kansai Nerolac and Akzo Nobel).  As it is a raw material intensive industry, the distribution network plays an important role; hence a very tough competition is observed among the competitors.

2. A Threat by Substitutes

  • In earlier days, limewash was used as an alternative to paints. However, in the modern era, the trend is entirely getting shifted to paints. Hence, the threat to substitutes is very low.

3. Barriers to Entry

  • The Industry segment is totally governed by technological developments, which limits the entry of unorganized players owing to the high R&D expenditure.
  • Established players have a well-developed and trusted distribution system, which will be very difficult for a new entrant to break.

4. Bargaining Power of Suppliers

  • Paint manufacturing requires more than 300 raw materials, of which the maximum is imported. Titanium oxide, which constitutes 25% of the raw materials, is facing a shortage of supply. 50% of the same is Petro-based products which see high volatility in prices. Hence, the bargaining power of suppliers is very high in the paint industry.

5. Bargaining Power of Customers

  • With almost similar products offered by 4 different companies of an industry, it becomes price-sensitive; hence, customers enjoy high bargaining power.
  • The industry segment attracts technologically enhanced companies with a robust supply chain, which is not offered by many; hence, customers do not possess much bargaining power in this segment.

Asian Paints’ SWOT Analysis

Now, moving forward in our Asian Paints case study, we will perform the SWOT analysis.

1. Strengths

  • Right after setting foot in the paint industry, Asian Paints chose dealers instead of distributors and wholesalers. This decision has turned out to be a boon for the company as the distributors demanded a 20% margin whereas now only 3% margin goes to the suppliers.
  • Technological Development is the sector where Asian Paints have been investing for decades. Asian Paints bought a supercomputer worth 8 crores in 1970, which is ten years before ISRO did it. It collects almost double the data than its competitors and forecasts the trend with more than 97% accuracy.

2. Weaknesses

  • The penetration of Asian Paints in the industry segment is far too low, and it faces stiff competition from already strong Kansai Nerolac and Akzo Nobel.
  • Despite being the 9th largest paint company in the world, the global business of the company is far below average with the exception of Bangladesh, Nepal and UAE.

3. Opportunities

  • Asian Paints states that they aim to enter the list of top 5 paint companies of the world. This could be achieved by focusing on the emerging economies of the world.
  • Considering the market share, Asian Paints has an opportunity to increase its market share in the industry segment as it requires world-class technology which the company can very easily afford.
  • Government policies (like the extension of CLSS), rapid urbanization and easy availability of home loans will increase the demand for paint. With its strong distribution network, innovative products and total home solutions, Asian Paints can be hugely benefitted.

4. Threats

  • With new players like Indigo Paints and already established players, Asian Paints faces stiff competition. In the global market too, the world-class technologically innovative players dominate the market share.
  • As most of the raw materials for manufacturing paint are imported, the company may face operational disruption during circumstances like a pandemic, country tensions, etc.

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Asian Paints’ Management

The visionary founder of Asian Paints, Mr Chamaklal Choksi laid the stone of efficient management in the company. From its incorporation to this date, Asian Paints has been setting standards in management qualities, and this is one of the reasons it has been one of the biggest wealth creators of all time in India.

Being a visionary and understanding the importance and future of technology, Mr Choksi bought a supercomputer worth Rs 8 Crores, back in 1970 before ISRO (after 10 years) and IIT Bombay (after 21 years) did, to collect various data, forecast the sales, efficient changes and customer interest. This custom of pure management is still going on in the company.

The newly appointed MD and CEO Mr Amit Syngle owns just 600 shares of the company (the previous one, Mr KBS Anand owned mere 270 shares). The board of Asian Paints enjoys broad expertise and vast experience.

Financial Analysis of Asian Paints

  • 84% of the company’s revenue comes from the decorative segment. In FY20 company launched various value for money emulsions which helped the company to gain more market share.
  • 2% of the company’s revenue is incurred from the Industrial coating Business. The company is a market leader in auto refinish segment and stands at the second position in the OEM segment.
  • 2% of the total revenue constitutes from the home improvement business. Recently, the company is trying to enter complete home solutions like sanity ware, kitchen and living area under the brands ap royal bathrooms.
  • International Business accounts for 11% of the total revenue generated by the company, and in FY20, the company improved the product value proposition in the key markets like Egypt, Bangladesh, Sri Lanka etc.
  • 42% market share of the Indian Paints Industry is dominated by Asian Paints, which makes it a leader of the industry, followed by Berger Paints (12%), Kansai Nerolac (7%), Akzo Nobel (5%) and Indigo Paints (2%). 33% of the market share is acquired by other small and unorganised players.

paint industry market share india asian paints

  • Asian Paints beats its competitors in profitability with an NPM of 11.66%. [Berger Paints (10.44%) and Kansai Nerolac (8.75%); Source: Trade Brains Portal]
  • Although the company has break-even cash flows, it enjoys healthy operating cashflow with a spike of Rs 495.15 crores from FY19 (Rs 99.92 crore) to FY20 (Rs 595.07 crore).

Asian Paints Case Study - cashflow statement

  • The company has a CFO to PAT (last 5 yrs. average) ratio of 1.03 which is a positive sign for the company’s cash flow position.

Asian Paints’ Financial Ratios

1. Profitability Ratios

  • Asian Paints has EBITA Margin of 17.83%, which is constantly rising from the last few years and it is the highest among its peers. The recent rise from 16.99% in FY 19 to 17.83% in FY20 is mainly due to falling crude prices.
  • Asian Paints has been constantly delivering a massive RoE of above 25% for a lot of years. The current RoE stands at 27.79%.

Asian Paints Case Study ROE

  • For the FY20 the RoCE is standing at a massive 35.83%. However, there has been a decreasing trend in RoCE for the last couple of years mainly due to increased competition, additional CAPEX and investment for future growth.

Asian Paints Case Study

 EBITA MarginRoERoCERoA
Asian Paints17.8327.7935.8316.82
Berger Paint16.6726.0630.4710.99
Kansai Nerolac13.6514.3718.4310.97
Akzo Nobel14.2420.0328.016.66
Shalimar Paints-8.86-13.22-8.53-6.9

2. Leverage Ratios

  • Current Ratio for the FY20 is 1.73% for the company, which has seen continuous improvement for the last couple of years. Current Ratio above 1.33% is considered healthy.

Asian Paints Case Study

  • The Company is almost debt-free with Debt-to-Equity ratio of a mere 0.04. It means the company is funding additional projects from the equity.

Asian Paints Case Study

  • The quick ratio of the company is 0.96 for the latest financial year. Although liquidity has not improved in the last few years, it has maintained a threshold requirement.

Asian Paints Quick Ratio

 Quick RatioCurrent RatioInterest Coverage RatioD/E
Asian Paints0.961.7334.160.04
Berger Paint0.781.4819.950.2
Kansai Nerolac1.612.7132.90.05
Akzo Nobel1.191.6435.750
Shalimar Paints0.510.84-1.830.44

3. Efficiency Ratios

  • Asset turnover Ratio has seen a continuous fall from FY 16(1.83). Currently, the ratio is 1.44%. However, there has been a similar fall for the entire peers of the industry and Asian Paints still has a better figure than the peers.
  • The inventory turnover Ratio for the FY20 is 7.14%, which is the highest among the peers. However, an entire industry has seen a fall in this ratio from the last few years.
  • The number of payable days has decreased from the previous fiscal year (52.73 to 50.51), which shows the supplier’s bargaining power over the company, whereas the receivable days are continuously increasing from the last few years indicating stiff competition.
 Asset Turnover RatioInventory Turnover RatioReceivable DaysPayable Days
Asian Paints1.447.1428.9350.51
Berger Paint1.055.0739.7261.48
Kansai Nerolac1.255.5647.7854.11
Akzo Nobel0.756.5357.6100.6
Shalimar Paints0.694.8381.584.36

Shareholding Pattern of Asian Paints

  1. Promoters hold 52.79% of the company with around 10.67% of pledging. Promoter holding has been constant for the last few quarters and pledging of shares has also reduced from 12.53% in December 2019 to 10.67 % in December 2020. Nevertheless, pledging above 10% is an alarming sign.
  2. A constant increasing trend has been seen in the case of FII holding for the last few quarters with a shareholding of 17.24% in September 2019 to 21.13% in the recent quarter.
  3. DIIs own nearly 7.10% of the company. However, a constant decreasing trend has been seen in the DII shareholding in Asian Paints for the last few quarters.
  4. Public Holding has been more or less the same in Asian Paints of around 19-20%.

Closing Thoughts

In this article, we tried to perform a quick Asian Paints’ case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about Asian Paints.

What do you think about Asain Paint fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing.

Economic Calendar Must Know Financial Events that Move the Market cover

Economic Calendar: Must Know Financial Events that Move the Market!

List of Economic/ Financial Events that Move the Market: There is a multitude of Economic factors that determine the performance of financial markets. Throughout the economic calendar, new information becomes available at periodic intervals that provides insights to better understand the present and predict the future.

Today, we’ll look into the major financial events that move the market. This article gives a brief description of the various economic events that Indian investors keep a track to assess the overall health of the economy and its impact on their investments. 

Must-Know Financial Events that Move the Market!

1. Economic Data 

Some of the most important economic data releases that impact the Indian financial markets are:

A) Inflation

india-inflation-cpi

This is a measure of the change in prices of goods and services over a period of time. Various indices are used to measure inflation. An index tracks the changes in the prices of a basket of goods and services. The Consumer Price Index (CPI) is the primary index that measures retail prices of goods and services like food, transportation etc.

Another index is the Wholesale Price Index (WPI), which measures the prices at a wholesale level. The data for both – CPI and WPI is released by The Central Statistics Office. The percentage increase in the value of the index indicates the percentage change in the aggregate price level, i.e. inflation. The impact of inflation on the stock market can be both – positive or negative.

Most often, higher inflation causes the purchasing power of consumers and fall and reduces demand. Higher inflation could also lead to a rise in interest rates that increases borrowing costs and reduced valuations (due to higher discounting rates). These factors negatively impact the markets overall.

A positive aspect of rising inflation is that some inflation is essential for economic growth. For example, countries in Europe and Japan have been trying for years to revive inflation that would help spur economic growth. Inflation also impacts different sectors and companies differently. A company’s ability to pass on higher input costs to its customers will determine the impact of inflation on its profit margin.

B) Industrial activity

Growth in the industrial/manufacturing sector is considered as a leading indicator of the overall health of the economy. Increased industrial production signals a rise in demand, and since the industrial sector is closely linked to other sectors of the economy, higher industrial activity positively impacts other sectors.

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

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

C) Economic Growth

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

High growth in GDP indicates growth in income and strong aggregate demand, and corporates are likely to perform better in such an environment. Thus high GDP growth coincides with an increase in stock prices and valuations.

Another measure of economic performance is the Unemployment rate, which is measures the number of people unemployed as a percentage of the total labour force. Higher unemployment indicates a poor state of the economy – companies less willing to hire, reduced aggregate demand and further layoffs.

It has been observed that the unemployment rate is negatively correlated to the prices in the stock market. In India, Center for Monitoring Indian Economy (CMIE), releases monthly estimates for the unemployment rate. 

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2. Monetary Policy

Monetary policy refers to the process through which the central bank (RBI) regulates and controls interest rates, money supply and credit in the economy in order to achieve its objective of price stability and economic growth.

Using various instruments at its disposal, the central bank regulates a plethora of interest rates and liquidity in the financial system. Markets prefer loose monetary policy, i.e. one where interest rates are reduced, and liquidity is increased. Lower interest rates reduce the cost of capital, increase borrowing and aggregate demand.

A fall in discount rates improves valuation in the equity markets; thus, a low interest rate environment is always bullish for stock prices. Furthermore, fixed income and money markets are very sensitive to interest rate changes; a fall in rates causes prices to rise. But there is always a risk of financial instability and high inflation that needs to be checked. The task of the Central bank is to balance and maintain interest rates that are neither too high nor too low.

Market participants pay close attention to the monetary policy decision taken by RBI’s monetary policy committee (MPC) that meets every two months. The minutes of the meeting, the RBI Governor’s speech, the stance of the policy etc. is scrutinized and have a material impact on market prices.

But the most important element of the monetary policy is the Repurchase Rate (Repo rate). It is the rate at which banks can borrow money from the RBI. Through the Repo rate, RBI tends to influence all other interest rates in the economy. A high repo rate would slow down economic growth; thus, stock markets react negatively to it. 

3. Budget

nirmala sitharam budget

The Union budget is an annual financial statement for the government’s estimated revenues and expenditures; it is a blueprint of the government’s fiscal policies, which includes the changes in taxation and economic reforms to be undertaken. The Budget has a wide-ranging impact on the economy, on companies across industries and individuals.

The Finance minister presents the Union budget to the nation every year in the month of February. It has been noted that the markets experience heightened volatility in stock prices during a few days before and after the Budget. Huge swings in prices become commonplace as market participants try to anticipate the Budget’s impact on company profitability and economy in general.

The Budget influences markets through the following channels:

A) Fiscal deficit

The fiscal deficit is the difference between total expenditure and revenue of the government. A high fiscal deficit means that the government would borrow more money from the financial markets. This increases interest rates and cost of borrowing for the corporates.

B) Tax rates

The personal disposable income of individuals is affected by personal income tax and various indirect taxes. An increase in these tax rates increases prices for consumers and reduces aggregate demand. Corporate tax rates directly affect the profitability of companies. 

Another set of taxes levied on investments is the STCG (Short term capital gains tax) and LTCG (Long term capital gains tax). A reduction of these tax rates enhances return on investments and incentivizes more people to invest in the markets. 

C) Sectoral allocation

Through the Budget, the government provides a layout of its planned expenditure in the different sectors of the economy. If the policies are in favour of a particular sector, companies in that sector stand to gain and will experience growth. Consequently, their stock prices react positively. 

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4. Elections

Political activities also influence the performance of the stock markets. The result of elections determine which governments come to power and what kind of policies will it pursue. Political uncertainty can positively or negatively affect the stock markets.

Indian general elections are held every five years, and markets react positively to the prospect of a business-friendly political party coming to power. Research shows that volatility in stock prices generally increases during the election period in India.

State elections are conducted throughout the year and serve as an indicator for the next general elections’ results. Market participants pay attention to state elections as it determines the extent to which business-friendly economic reforms can be implemented.

Indian stocks are also influenced by political activities internationally. Policy changes bought by a new government in other countries can impact the profitability of those domestic companies who do business in these countries. A recent example would be the rise in India I.T. as a result of a less protectionist government coming into power in the United States.   

Closing thoughts 

The performance of Indian financial markets depends on many economic events. In this article, we covered the major Economical/ Financial events that move the Market. In general, markets react to economic data like inflation rates, industrial production, GDP, unemployment rate etc. These indicators help in assessing the overall economic health and impact on corporate profitability.

Monetary policy sets the interest rates and liquidity in the financial system. The annual Budget in which the government announces its fiscal policies sets the tax rates and allocates resources to the different sectors of the economy.

Political events like elections – both domestically and internationally have an effect on financial markets as the fate of businesses to some extent, is determined by the political environments they operate in.  

Tata Motors Stock Study - Strengths, SWOT & Fundamental Analysis

Tata Motors Stock Study – Strengths, SWOT & Fundamental Analysis!

Tata Motors Stock Study & Analysis: Tata Motors stocks have given a return of over 390% from March 2020 to Feb 2021 (till date). In fact, currently, Tata motors stocks are being considered more popular than Tesla in terms of returns. Nevertheless, looking at just the share price is the dumbest strategy while evaluating a company.

In this post, we’ll look into the fundamentals of TATA Motors focusing on both qualitative and quantitative aspects. Here, we’ll perform the SWOT Analysis of Tata Motors, Michael Porter’s 5 Force Analysis of Tata Motors, followed by looking into Tata Motors’ key financials. Let’s get started.

Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice.  Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.

Tata Motors Stock Study – About & Business Model

Incorporated in the year 1945 as TATA Engineering and Locomotive Company (TELCO), TATA Motors used to manufacture locomotive steam engines and other engineering products. It joined hands with Daimler Benz AG in 1954 to manufacture commercial vehicles which ended in 1969.

Understanding the technological trend, the company eventually discontinued this segment and set its foot into the commercial vehicle segment independently in 1977 in Pune. Currently, the company is a market leader in the commercial vehicle segment in India with a share of over 37%. TATA Motors entered the Passenger Vehicle segment in 1991 with the launch of TATA Sierra, and in 1998 Auto Expo, the company wrote history by launching TATA Indica which became the number one car in the respective segment within the next two years.

In 2008, the company acquired the Jaguar Land Rover segment from Ford Motors to enter foreign markets completely. Currently, the company has manufacturing and R&D facilities in the leading economies of the world viz. China, the UK, the USA, South Korea, etc. The Product Range of the company includes:

  • Passenger Cars
  • Utility Vehicles
  • Trucks
  • Commercial Passenger Vehicles
  • Luxury Cars
  • Defense Vehicles

Tata Motors’ Industry Analysis

By selling 3.99 million units of the vehicle in 2019, India surpassed Germany to become the 4th largest auto market of the world, and it is expected that by 2021, India will become the third-largest auto market displacing Japan. In the last four years, domestic automobile production has witnessed a growth of CAGR 2.36% with 26.36 million vehicles being manufactured and a 1.29% CAGR sales growth.

Considering Auto Industry as a whole, two-wheelers dominate the industry by 80.8%, followed by passenger vehicles at 12.9%. Mid seized and small cars grab maximum sales in the PV category.

According to the Society of Indian Automobile Manufacturers, PV wholesales in India saw a 26.45% YoY growth in September 2020. Automobile Export has grown with a CAGR of 6.94% during FY16-20, with the export of 4.77 million.

EV sales in India witnessed a 20% growth in FY20 with sales of 1.56 lakh units. And the EV industry in India is expected to be of Rs 50,000 crore by 2025.

The Indian Automobile industry is favored by several factors like cheap skilled labor, great R&D centers, and low-cost steel production. By 2026, the industry is expected to reach 16.16 -18.18 trillion Rs.

Tata Motors’ Michael Porter’s 5 Force Analysis

1. Rivalry Amongst Competitors

  • Auto Industry of any nation faces a stiff competition, that is why companies have to be price efficient and come up with new technologically advanced cars and features. The industry is very large and the exit cost is also very high as a lot of asset investment is being done, which intensifies the competition. Also, be it any range of car price, companies have to deeply focus on R&D.

2. A Threat by Substitutes

  • With the increasing fuel prices and online booking of tickets, people find cabs and other modes of transport as a substitute to a personal vehicle. Moreover, they do not have to spend on maintenance too. Still, owning a personal four-wheeler is a sign of prestige and convenience for the most.
  • In the commercial vehicle segment, road transport is still very much dominated (59%) as it can be connected to the mountains and to sea shores unlike trains, which makes substitutes for commercial vehicle highly unfavorable.

3. Barriers to Entry

  • Auto Industry requires continuous innovation, proper raw materials, skilled labor and huge initial capital investment which makes it very difficult for new entrants to step their foot in this industry.
  • Other barriers are government policies which have become very strict in the recent period especially focusing on environmental safety and high import taxation.

4. Bargaining Power of Suppliers

  • In Auto Industry, the bargaining power of supplier depends on the size of the supplier as few small suppliers are totally dependent on few auto players, so they have to play according to the rules and regulations set by the vehicle companies, and switching from one supplier to another is very easy for big players.

5. Bargaining Power of Customers

  • Customers are very price-sensitive and would switch to other brands that offer a better car at the cheapest price as there is no switching cost involved in this industry. So, customers enjoy a high bargaining power in the auto industry. However, companies try to increase customer loyalty by offering better quality and post service.

Tata Motors’ SWOT Analysis

1. Strengths

  • TATA Motors has a well-diversified portfolio of vehicles which includes right from economical passenger vehicles to luxury cars and the penetration of TATA Motors into the commercial vehicle segment is also very impressive. It creates a brand royalty for the company.

2. Weaknesses

  • The revenue of Tata Motors is heavily dependent on the JLR segment, which can hit the business and profitability if a slowdown occurs in this segment. In 2019 such situations occurred for the company when there was a massive decline in demand for JLR in Chinese and European markets and the rest was fueled by the pandemic in 2020.

3. Opportunities

  • With the advent of Electric Vehicles in India and other nations, TATA motors can take the advantage of its innovative legacy to increase its market share in the EV segment. Its sister companies like TATA Power can create the entire EV environment by installing more charging stations.
  • With the economy coming on track and industries coming out of recession, the purchasing power of people is expected to increase which TATA Motors can use to increase their revenues and market share in the PV segment.

4. Threats

  • The government’s increasing concern for the environment has posed various threats for the company as various policies (BS-VI) have been implemented in the past to reduce pollution which has caused an overall slowdown in the industry.
  • International issues like Brexit, Chinese Economy Slowdown, US import tariff, trade wars, and pandemic can severely affect the company in the future as it has also done in recent years.
  • With the advent of foreign PV companies like MG, Kia in India, the market share of existing companies will shrink severely and TATA Motors will be the one among them.

Tata Motors’ Management Study

Mr. N Chandrasekaran, the same personality who joined TCS in 2008 and made it India’s biggest company in 2018, is the Chairman and Non-Executive Director of the company. In the annual report of FY20, he has assured the shareholders that he will make the company debt-free in the next three years and since then the price of the stock did not look back.

In Feb 2021, Tata Motors announced the appointment of new CEO. Tata Motors’ new chief executive and managing director Marc Llistosella will take over the company’s India business. Llistosella’s experience in India, as the head of Daimler India Commercial Vehicles Ltd, will help Tata Motors increase its selling volumes in the premium vehicles.

One study shows that TATA only acquires those companies which have management structure similar to that of its own. Management has shown their concern for minority shareholders and the foundation was led by the respected Ratan Tata.

Tata Motors’ Financial Analysis

TATA MOTORS REVENUE FINANCING Q2FY21

  1. JLR segment contributes 77.76% of the company’s revenues majorly coming from China, Europe, and the USA.
  2. 19.09% of the total revenue constitutes of TATA Motors Standalone business out of which 11.61% is from Commercial Vehicle segment and 7.48% is from Passenger Vehicle segment. Recently, with the launch of new passenger vehicles, TATA Motors has succeeded in increasing its market share in the PV segment.
  3. TATA Motors incurs around 2.01% of the total revenue from vehicle financing under the name TATA Motors Finance Limited (TMFL).
  4. As of 2019-20, TATA Motors dominate the CV market share by 44.41% share coming out as a leader, followed by M&M (24.68%), Ashok Leyland (18.37%), and Eicher Motors (6.13%). Tata Motors has been continuously increasing its market share in the CV and PV segment for the last few years mainly due to the launching of new vehicles.
  5. With the recent operational and leverage inefficiency, the NPM has dipped to -4.2 in FY20 making TATA Motors a loss-making company for two consecutive years. The fall is mainly due to the roller coaster commodity prices and disruption in sales.
  6. Total Borrowing of the company has increased by Rs 12,498.12 Cr. (Rs 70,817.50 Cr. in FY19 to Rs 83,315.62 Cr. in FY20)
  7. The net cash flow position for the company is in the negative region for the last few fiscal years. Although in FY19 it reported a net cash flow of Rs 8010.03 Cr., this was led by increasing huge long term and short-term debt (financing cash flow).
PARTICULAR20162017201820192020
Cash From Investing Activities-37504.43-38079.88-26201.61-19711.09-34170.22
Cash From Operating Activities37899.5430199.2523857.4218890.7526632.94
Cash From Financial Activities-3795.126205.32011.718830.373389.61
Net Cash Flow-3400.01-1675.33-332.488010.03-4147.67

Tata Motors’ Financial Ratios Analysis

A. Profitability Ratios

  • EBITDA Margin has continuously fallen from 13.21% in FY16 to 6.78% in FY20 reaching almost lowest in the industry, which is an alarming sign for the company.
  • RoE for the company in FY 2016 was 16.42% but it slumped to -37.19% in FY 2019, mainly due to profitability getting severely hit because of disruptions in sales and increasing leverage. Although the current figure has shown improvement from the previous fiscal year, it is still at a fatal level of -17.94%.
  • Trend in RoCE has been more or less same as that of RoE, from the level of 16.42% in FY16 to mere critical -37.19% in FY19. The current RoCE for FY 20 stands at -1.92%.

ROE and ROCE Tata Motors

B. Leverage Ratios

  • Current Ratio for the FY20 is 0.85% for the company. Although it has not shown any improvement, it has not deteriorated either since FY 2019. However, the current level is below the threshold level.
  • With a debt of around Rs1.1 Lakh crore, Tata Motors is a debt laden company and debt to equity ratio has been rising continuously for a lot of quarters, and at present, it is at an alarming level of 1.91.

debt to equity ratio tata motors

  • Quick Ratio has always been a headache for the company. Being 0.72 in FY 16, it has fallen to 0.58 in the present fiscal year. Issues in the profitability and increasing leverage has dangerously affected the liquidity levels of the company.
  • The Interest Coverage Ratio is at a dangerous level of -0.46, which shows the inefficiency of the company in fetching EBIT income and deterioration in solvency levels of the company.

C. Efficiency Ratios

  • Currently, the asset turnover ratio for the company is 0.84, which is down from the previous year by 0.14 points.
  • Inventory turnover Ratio has seen a continuous fall since FY16 (8.97) without a single rise in between, currently at 6.83. Evident from the rise in inventory days to 53.46.
  • The number of receivable days has increased (17.19% in FY16 to 21.09% in FY20) and number of payable days has decreased (81.53% in FY16 to 94.20% in FY20), indicating that both the buyers’ and suppliers’ bargaining power has increased.

Tata Motors’s Shareholding Pattern

  1. For the last 5 quarters promoter’s holding in TATA Motors has been at the same level of 42.39%. Also, 3.95% of the promoters’ share are pledged, which has not changed for the same period.
  2. FIIs hold 15.61% of shares of the company as of December 2020 which is more or less same since June 2020 Quarter.
  3. DIIs own nearly 12.71% shares of the company which was around 15% a year back.
  4. From 24.245 in December 2019 to 29.27% in December 2020, public holding has surged.
ParticularDec-19Mar-20Jun-20Sep-20Dec-20
Promoters42.3942.3942.3942.3942.39
Shareholding Pledge3.953.953.953.953.95
Public13.716.818.2118.117.81
FII18.3216.8415.6215.8415.61
Total DII15.0513.5813.3913.2212.73
Others10.5410.3910.3910.4511.46

Closing Thoughts

In this post, we tried to perform a quick Tata Motors Stock Study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea of Tata Motors Stocks. Do let us know what you think of Tata Motors stocks as an investment opportunity in the automobile industry by commenting below.

That’s all for today’s article. 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!

The Union Budget 2021 Highlights!!

The Union Budget 2021 Highlights

The Finance Minister Nirmala Sitharaman announced the Union budget for 2021-2022 . This budget is of great significance as it comes amid an economic recession caused by the coronavirus pandemic. All eyes were on the budget with hopes that it would provide relief and help in lifting the economy. The budget received a positive response from the markets and many experts have termed it to be pragmatic, given the underlying circumstances. Given below are some of the key highlights from this budget.

The Union Budget 2021 Highlights – Healthcare

Against the backdrop of the ongoing pandemic, healthcare took the center stage in the Budget. A total of Rs. 2,23,846 crores have been allocated for this sector, this is an increase of 137% from the previous year. An amount Rs. 35000 crores will be spent on vaccines in 2021-22, adding more funds if need arises. A new scheme titled the Prime Minister Aatmanirbhar Swastha Bharat Yojana will started with an outlay of Rs. 64,182 crores over the next six years. This will aim to strengthen the healthcare services in India. This scheme includes setting up Health wellness centers, public health labs and improving the National center for disease control (NCDC’s). Swachha Bharat Mission 2.0 will be launched with an allocation of Rs. 1,41,678 crores over the five years. The supplementary Nutritional Programme will be merged with the POSHAN scheme and a new mission named POSHAN 2.0 will be launched to improve nutritional delivery and outcomes. An increase in healthcare spending is the need of the hour and it will help build capacity and better capability to manage future health related crises.

The Union Budget 2021 Highlights – Infrastructure

The National Infrastructure Pipeline (NIP) will be expanded to 7400 projects, this programme aims to invest in social and economic infrastructure spanning across sectors, to boost growth. A whopping Rs. 5.54 lakh crore has been allocated for capital expenditure in 2021-22, an increase of 34.5% from last year. Furthermore more than Rs. 2 lakh crore will be provided to state governments and autonomous bodies for capex. To provide long term funding for the infrastructure sector, a professionally run Development Finance Institution (DFI) will be set up. A sum of Rs. 20,000 crores has been allocated for the DFI and it is expected that the DFI will build a loan portfolio of Rs. 5 lakh crore within the next three years. Monetisation of potential brownfield assets will be undertaken, as part of this five roads worth Rs.5000 crore will be transferred to NHAI InvIT and transmission assets worth Rs.7000 crore will be transferred to PGCIL. Amendments will be made to the law, to enable foreign portfolio investors (FPI’s) to provide debt finance to REIT’s and InvIT’s. 8500 Km of new highways will be built in different states and there is a total allocation of Rs. 1.18 lakh crore to augment the road infrastructure. Indian Railways have a national rail plan for 2030’s and a total of Rs. 1,07,000 crore has been allocated for railway capex. Further, Rs.18000 crore is allocated to increase the public bus transport services in cities.

The Union Budget 2021 Highlights – Financial sector

The Finance minister proposed that there will be a new securities market code that will consolidate provisions of four different regulations. Insurance FDI will be amended to increase the FDI limit for insurance companies from 49% to 74%. This will provide foreign investors with more control and ownership but with necessary safeguards. To reduce the stress of bad loans from the banking sector, the government will set up a ‘bad bank’ which will be in the form of an asset reconstruction company and an asset management company (AMC’s). As part of its recapitalization plan, the government will further infuse Rs. 20,000 crore into the banking sector. These measures will help the banks to clean up their balance sheets and improve their ability to lend thus increasing credit growth. The budget announced the governments intention to increase the privatization drive in the non strategic sectors. A roadmap for divestment of some public sector companies like LIC and Air India has also been laid out. In FY200 , The government aims to generate Rs. 1.75 lakh crore through divestments. To incentivize more startups, one-person companies can be incorporated without any restrictions on turnover or paid up capital. The one person company can be easily converted to other kind and the residency limit has also been reduced. A Rs.1500 crore scheme will be launched that would provide financial incentive to boost digital transactions. Furthermore, to encourage the development of new financial technologies, a fintech hub will be set up at the GIFT city.

The Union Budget 2021 Highlights – Agriculture

The total agricultural credit target for FY2022 has been increased to Rs. 16.5 lakh crores. The allocation towards a rural infrastructure development fund has been increased to Rs. 40,000 crores. The agriculture infrastructure fund of Rs. 1 Lakh crore will now also be available to upgrade infrastructure in the Agriculture Produce Market Committee (APMC) mandi’s. Five more fishing harbors will be established and the government will set up sea weed parks to promote sea weed farming. More than 1000 mandis will also be included into the e-Nam marketplace.

The Union Budget 2021 Highlights – Taxes

There were no changes made to the income tax rates
Senior citizen above the age of 75, who depend on pension or interest income, will be exempted from paying income tax
Faceless tax resolution mechanism will be set up for small taxpayers.
Aircraft companies will get a tax exemption for one year.
To tax holiday for startups has been increased for another one year and there will be a one year exemption on capital gains from investments in startups.
There will be an agricultural development on some items.
Affordable housing projects will get a tax exemption for one year

The Union Budget 2021 Highlights – Government Financials

Gross expenditure for FY 22 is expected to be 34 lakh crores, for FY21 it is 34.5 lakh crore.
The fiscal deficit for FY21 is revised to be 9.5% of GDP and is expected to reduce to 6.8% of GDP in FY22
The Government will be borrowing Rs.80,000 crores in the remaining two months of this fiscal year. The borrowing for FY22 is expected to be Rs.12 lakh crores.

To Conclude…

The Finance Minister has been able to deploy the resources in the best way possible. Its the classic case of making the best of available resources. And considering its a season of comebacks (Example : recently concluded Border Gavaskar trophy). And there is only way up for the Indian economy.

Budget 2021 Expectations Nirmala Sitharaman

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

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

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

Sectorwise Budget 2021 Expectations

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

— Banking

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

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

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— Renewable Energy

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

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

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

— MSME

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

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

— Automobiles

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

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

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

— Healthcare

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

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

— Real estate

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

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

— Startups

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

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

— Aviation and tourism

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

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

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

Closing thoughts

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

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

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

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

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

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

What is a Bad Bank?

bad bank meaning

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

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

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

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

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

The Banking NPA Saga

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

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

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

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

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

gross npa banks india

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

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

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

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

Bank Comparision since March 2020

(Banking Stock Comparison | Source: Trade Brains Portal)

Proposal for a Bad bank

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

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

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

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

Arguments against a Bad Bank

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

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

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

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

Recent Developments

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

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

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Closing Thoughts

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

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

What are Economic Indicators Leading, Lagging & Coincident Indicators examples

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

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

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

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

A) Leading Indicators

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

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

1Bank Credit growth

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

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

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

2Capacity Utilization

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

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

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

3Yield curve

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

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

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

4. Durable goods consumption

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

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

5. Confidence index

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

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

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

ALSO READ

How Does The Stock Market Affect The Economy?

B) Lagging Indicators

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

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

1. Gross domestic product

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

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

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

indian gdp source statista

(Image Credits: Statista)

2. Unemployment rate

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

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

3. Balance of trade

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

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

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

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

C) Coincident Indicators

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

1. Manufacturing activity

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

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

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

2. Short term interest rates

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

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

3. Inflation

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

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

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

india-inflation-cpi

(India Inflation CPI | Image Credits: Trading Economics)

Closing Thoughts

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

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

Best Performing Largecap Stocks in 2020 - Holding any of these cover

Best Performing Largecap Stocks in 2020 - Holding any of these?

List of Best Performing Largecap Stocks in 2020 in India: The year 2020 been a roller-coaster journey for all the equity investors. At one time during the start of the pandemic, the market saw two lower circuits of 10% within a span of 10 days which even resulted in halting trades for a few minutes on those days.

On 23rd March 2020, the broad market Index Sensex tanked by 10% or nearly 3,000 points to hit 26,924 before trading was stopped. NSE Index Nifty50 similarly fell 842 points, or 9.63%, to 7,903 on that day. However, fast forward almost nine months and today Sensex is hovering at 46,973.54 points while Nifty 50 at 13,749.25.

Moreover, if we look at Sensex, it has given a return of 34.82 percent in the last six months and 13.72% in 2020. These returns are astonishing, seeing the fact that we are still going through the pandemic, vaccines are yet to come in India and the economy has still far to go to recover significantly.

Now, if we look further, many large-cap companies have performed quite well in this period and make wealth for the people struggling in the pandemic. Here is a list of 28 big public companies in India with a market capitalization of over Rs 40,000 Cr, which has given above 30% returns in the last one year.

Best Performing Largecap Stocks in 2020

CompanyIndustryMarket CapPE Ratio TTM1 Yr Returns (%)
Adani Green Energy Ltd.Power Generation/Distribution162000.60 Cr644.4322562.96
Adani Gas Ltd.Trading40511.50 Cr96.7924137.77
Adani Enterprises Ltd.Trading52043.01 Cr206.2743126.68
Divis Laboratories Ltd.Pharmaceuticals & Drugs99532.13 Cr56.6141106.48
Larsen & Toubro Infotech Ltd.IT - Software63292.58 Cr39.3317104.82
Aurobindo Pharma Ltd.Pharmaceuticals & Drugs53261.82 Cr20.020897.69
Tata Consumer Products Ltd.Consumer Food55693.08 Cr98.250192.07
Cadila Healthcare Ltd.Pharmaceuticals & Drugs50127.56 Cr28.492990.36
Info Edge (India) Ltd.BPO/ITeS59410.36 Cr225.003582.82
Dr. Reddys Laboratories Ltd.Pharmaceuticals & Drugs86533.22 Cr35.237781.53
Cipla Ltd.Pharmaceuticals & Drugs67214.01 Cr29.969775.72
Infosys Ltd.IT - Software526634.14 Cr31.629769.57
Biocon Ltd.Pharmaceuticals & Drugs57816.00 Cr146.703966.42
HCL Technologies Ltd.IT - Software249589.35 Cr25.380264.02
Muthoot Finance Ltd.Finance - NBFC47657.26 Cr14.210358.28
Wipro Ltd.IT - Software218440.22 Cr24.665252.7
Torrent Pharmaceuticals Ltd.Pharmaceuticals & Drugs47101.79 Cr48.608750.99
Asian Paints Ltd.Paints254125.07 Cr112.646146.34
Berger Paints India Ltd.Paints70903.90 Cr117.63442.19
Sun Pharmaceutical Industries Ltd.Pharmaceuticals & Drugs141524.77 Cr49.117239.87
Havells India Ltd.Electric Equipment56046.94 Cr73.184639.78
Avenue Supermarts Ltd.Retailing173166.37 Cr183.976839.14
JSW Steel Ltd.Steel & Iron Products88518.61 Cr35.707436.08
Mahindra & Mahindra Ltd.Automobiles - Passenger Cars88428.29 Cr034.55
Tata Steel Ltd.Steel & Iron Products74926.33 Cr15.723833
Reliance Industries Ltd.Refineries1348288.66 Cr47.368232.84
Tata Consultancy Services Ltd.IT - Software1091362.33 Cr37.053132.13
Adani Ports and Special Economic Zone Ltd.Port97178.69 Cr50.052931.6

(Source: Trade Brains Portal)

Disclaimer: The stocks listed above should not be considered as recommendations. Please study the companies carefully or take the help of a financial advisor before investing.

Interestingly, the top three positions are taken by Adani Green Energy(+562.96), Adani Gas (+137.77%), and Adani Enterprises (+126.68%). Pharma stocks like Divi’s Lab, Aurobindo Pharma, Cadila Healthcare, Dr. Reddy’s Lab, and Cipla have also given above 70% returns in this time period. Other blue-chip wealth creator stocks in this list are Infosys, HCL, WIPRO, Asian Paints, TCS, and Reliance.

Anyways, whether these above-mentioned companies will continue their steak in 2021 depends is yet to test. However, time and again, the share market has proved itself to be a place to create wealth, even in the times of global pandemic.

zerodha success story discount stockbroking India

Zerodha Success Story: Journey to Biggest Stockbroking in India!

Zerodha Success Story in Stockbroking Industry in India: Trading and Investments are the two terms everyone wishes to experiment but are reluctant to step in due to many reasons like lack of knowledge, hefty commission and brokerage charges, uncertainties in the market and so on. 2008-2010 were the years when the biggest global financial crisis happened and the world was facing a trading hush. In India, the stockbroking companies that existed also experienced a downfall and were using old technologies to provide stockbroking services. Many young generation people were not educated enough to even think of trading at a very young age.

While all of these were encountered by almost every broker in India, Bangalore based discount broking firm, Zerodha was founded in 2010 by Mr. Nithin Kamath that provides trading services at discounted brokerage fees and user-friendly interface with reliability. This firm enjoys a massive client base of over 2.5 million users. Let us deep dive into the journey of how Zerodha success story and discuss how it became the biggest discount broker in India in this article.

Quick Note: As of October 2020, Nithin Kamath and Nikhil Kamath, the founders of Zerodha, India’s biggest stock brokerage company in terms of volume of trade, are the newcomers in the Forbes’ list of India’s 100 richest 2020. Their net worth is estimated at $1.55 billion. Read more here.

The founding of Zerodha: How did it start?

The Co-founder of Zerodha “Nithin Kamath”, before establishing Zerodha, was working in the call center in the night and he used to trade during the morning hours. At the age of 17, he got introduced to the stock markets by his friend and since then he started trading.

Although he made a good chunk of money by trading in stocks, he lost all the money during 2001 and 2002 when the markets crashed. Over a period of time, he was landed a cheque from a foreign HNI to manage his money. Eventually, he joined Reliance Money as a sub-broker and made a lot of money by adding big clients to Reliance money. Nevertheless, again lost a significant amount of money in the second market crash in the middle of the global financial crisis in 2008-09.

After trading for full time for over 10 years, this Maverick decided to become a broker when he thought that the time has come to provide a different kind of stockbroking services that he never came across during the 10 years span of his trading. He felt digitization and online user-friendly platform are the need of an hour when he first thought of starting Zerodha. Nitin Kamath also observed that the reason why the young generation is not willing to start trading is that there are high brokerage charges implemented on the transactions. His aim was to become an online broker using the latest technologies that is more people-first than profit-first.

zerodha office nithin kamath

Zerodha is derived from the Sanskrit word Rodha which means Obstructions. The name Zerodha means ‘No Obstructions’. Hence, the founder aimed at providing a hassle-free, low brokerage trading platform. He targeted clients who are young and more tech-savvy to contribute to the capital market ecosystem. According to him, he wanted more of a Google-like platform with a simplicity to use rather than a Yahoo-like platform. When he felt the need to change the system, he along with his younger brother, Nikhil, started Zerodha and the rest is the history or rather a case study for everyone.

The Secret Formula of Zerodha’s Success

It is indeed a fact that there is no short cut to success. However, Nithin Kamath, when founded this discount broking firm, decided to provide technology-efficient and cost-efficient services to its customers. He observed that there is a huge lag between the commissions charged by the other brokerage firms and the amount of money actually received by the customers.

In addition to that, the technology that was used was too old and Nithin felt the need to introduce a smart platform that enables users to trade online comfortably. He thought of providing services at a low cost where the idea of charging low commission clicked into his mind. He also wanted to attract more young customers who often do not enter into trading due to high commission charges. With this aim, he started his firm and today it has become the biggest discount broking firm. He believes if we do not depend too much on foreign capital and invest for our own companies, the day is not far when India will become an economically strong country.

Surprisingly, the firm hardly spent any money on advertising or marketing for its own firm. They do not run any advertisements. The founder believes in ‘the word of mouth is your true marketing’. Thus, with a very low operating cost Zerodha was able to capture a large number of customers. Interestingly, trading is provided free of cost at his stockbroking firm if the period of holding for shares is longer than a day.

They make money by charging a flat fee of Rs. 20 for futures, options, and intraday trading. While other competitors charge much more than this which is based on the percentage of a transaction traded. Its business model on which it works is ‘low margin – high volume’.

Innovation and New Additions

Zerodha brokerage calculator cover

In order to stay competitive, the firm launched many products to expand its reach and to overcome some challenges they were facing. Below is a brief on what each product provides:

— Console: It is a central dashboard of a customer’s account with Zerodha that will provide in-depth reports and visualizations to get more insightful idea.

— Kite: It is a sleek trading and investment platform using the latest technologies. It eases the customer’s experience to trade and transact in the stock market.

— Kite Connect API: This is mainly focused on independent traders and startups to enable them to build an innovative trading and investment platform. Using algorithms, retail traders can automate their trades.

— Sentinel: A platform that enables you to create market alerts. The alerts can be customized based on price, trade quantity, and open interest. The interesting aspect of this product is that you do not need to be a Zerodha customer in order to use Sentinel.

— Z Connect: This is a blog facility regarding stocks, trading, and investment with Zerodha. They publish articles and information on this blog and any user is allowed to ask questions and post comments.

— Varsity: One of the challenges faced by this firm was that it lacked in providing research services to its customers who are sometimes clueless about what and when to buy or sell. To overcome this, they come up with Varsity that gives a vast collection of stock market lessons on the go.

— Coin: It provides a commission-free purchase of mutual funds directly delivered into the customer’s Demat account.

— Rainmatter: It is an incubator that provides funding as well as mentorship to startup companies in capital markets and gives minority stake in exchange.

Source: Product information from Zerodha.com

In addition, Zerodha has also partnered with a lot of leading stock market platforms and portals like Streak, Sensibull, etc to create more value for their clients.

zerodha partners senseibull smallcase etc

Let us Talk about Challenges

Despite the tremendous success and huge customer base, Zerodha also had to confront a few challenges as described below:

  1. First of all, Zerodha does not provide stock advisory or any market-related calls that would enable its customers to decide on what to buy and sell.
  2. They also suffered from a lack of delivery of valuable advisory reports and analysis of one’s investments and trading activities be it either weekly or quarterly. Most of the big full-service brokers provide research reports.
  3. As Zerodha is mostly online and no offline support branches, inefficient customer support, and lack of quick customer service are the biggest challenges that this firm faces.
  4. Technical errors like app down for a few minutes or charting errors were reported previously which was basically because of the high market traffic situations.

Also read: 8 Best Discount Brokers in India – Stockbrokers List 2020

Closing Thoughts

To sum up, competing with big players like HDFC and ICICI is indeed a daunting task that the genius was able to cope up. However, there are other competitors too such as Upstox, Groww, SAS Online, Angle Broking, TradingBells, etc. However, the founder wishes to continue with his low margin strategy. This firm also developed a strategy to start selling Treasury bills, Government Securities, and Sovereign Gold Bonds which is everyone’s preference while the markets are facing a downfall.

Nithin strongly believes in not running after the money but to do the right things for a long period of time. This is what is the reason his firm has become one of the top-most broking firms in the country over the eight to nine years of time. To add to that, after facing so many challenges, the firm has made its way to persistently increase its customer base year by year. To get more insights you can read Zerodha review 2021.

That’s all for this post. I hope this Zerodha success story is inspiring for all the budding entrepreneurs and business enthusiasts who are planning to make something big in the stock market industry. Stay safe and happy investing.

Oil and Petroleum Industry in India cover

Oil and Petroleum Industry in India: Where to invest?

Understand the Oil and Petroleum Industry in India and its major players: The Oil and Petroleum Industry in India has been among the eight core industries that contribute largely to the GDP of India. India is the 3rd largest Oil Consumer in the world after USA and China. It already attained 63% of the energy self-sufficiency by 2017 due to its increased attention to the promotion of alternative sources of energy namely, wind, solar and nuclear energy.

The stock market for Oil and Petroleum products also has started showing surge due to the announcement of the Government’s privatization program resulting in more global energy players showing interest in buying a majority stake in the Bharat Petroleum Corporation.

This article aims to provide the latest trends in the Oil and Petroleum Industry in India including its market size. Later, we will talk about the big players in this industry in India. Let’s get started.

India’s Economic Growth via Oil and Petroleum Industry

It is important to note that India’s economic growth is largely related to its demand for energy. The projections reveal that the need for the energy sector in oil and gas is expected to grow and therefore, investors consider investment opportunities in this sector in India.

Additionally, the Government of India has also adopted certain policies to cater to the industry with maximum investments. Hence, it has allowed 100% Foreign Direct Investment (FDI) in this sector including petroleum, natural gas, and refineries. This is evidential from the latest developments in Reliance Industries Limited, Cairn India, and Bharat Petroleum Corporation. As the fastest-growing sector, investors see promising returns in this sector.  

Market Size of Oil and Petroleum Industry in India

Now, let us talk about the numbers to understand the market size of the oil and petroleum industry in India better:

  • India gained the position of the second highest refiner in Asia as its Oil Refining Capacity was calculated to be 249.9 million metric tons (MMT) in May 2020 of which the private companies contribute about 35.36% for the year 2020.
  • India is expected to be one of the major contributors world-wide to non-OECD petroleum consumption.
  • In the year 2020, crude oil production is recorded at 30.5 MMT and natural gas consumption is expected to reach to 143.08 million MMT by 2040. 
  • Similarly, in 2020, the import of crude oil increased to 4.54 million barrels per day (mbpd) as compared to the last year and LNG import is 33.68 billion cubic meters (bcm).
  • The consumption of petroleum products has also seen a spurt of 4.5% at 213.69 MMT.
  • The export of petroleum products from the country also has risen to USD 35.8 billion as compared to USD 34.9 billion in 2019 and the quantity-wise rise is at 65.7 MMT in 2020 as compared to 60.54 MMT in 2019.
  • Currently, India as one the largest emitter of greenhouse gases has the share of natural gas in the energy sector of 6.2% which is expected to rise to 15% by 2030.
  • As the second-largest consumer of Biogas India is planning to open 5000 CBG plants by 2023 under the SATAT scheme.
  • Minister of Petroleum and Natural Gas, Government of India sets the target to reduce oil and gas import dependency by 10% by 2022 thereby giving a wide range of opportunities to foreign investors to invest in projects worth US$ 300 billion. 
  • Gas Authority of India Limited (GAIL) as of March 2020 had the biggest share of 71.61% of the country’s natural gas pipeline network.
  • Indian Oil Corporation Limited in March 2020 was leading the segment of the product pipeline network with 51.25%.
  • The energy trade between India and the USA is going to cross US$ 10 billion by the end of the year 2020.

Investment and Government Initiatives

According to the senior-most market technical expert, CK Narayan, the crude oil prices will continue to grow as he analyzed after the biggest downfall during the recent pandemic, it has risen to $44 and will continue to rally further. Mr. MK Surana, the CMD of Hindustan Petroleum also predicts the surge in the price of crude oil in the last quarter of the year 2020 over $45. He also finds the Indian refinery sector as promising due to their ability to get established at the world-class level.

It is indeed worth to mention here that the petroleum and natural gas sectors were able to grab US$ 7.82 billion during the 10 years April 2000 to March 2020, according to the Department for Promotion of Industry and Internal Trade Policy (DPIIT). The initiative from the Government to set up bio-CNG plants has allowed them to spare US$ 1.1 billion to promote clean fuel. 

Natural Gas production also is going to be increased to 15% by 2030 and the top players of the Liquified Natural Gas producers aim to have 1,000 LNG stations across the country which is something that will attract more investors. According to Rajeev Mathur, an executive director of GAIL (India) Ltd, the natural gas demand will be increased by 3-4% by end of March 2021. ONGC has raised US$ 300 billion through the External Commercial Borrowing.

The government is planning to invest US$ 9.97 billion to expand the gas pipeline network. The Government also approved fiscal incentives to improve recovery from oil fields with an intention to lead the hydrocarbon production to Rs. 50 lakh crores in the next 20 years.

Top Players in Oil and Petroleum Industry in India

— 1) Reliance Industries Limited

As the world’s largest refining hub, RIL’s Jamnagar, Gujarat’s plant has a refining capacity of 1.24 mbpd. Until June 2020, its segment revenue from oil and gas was US$ 455.53 million.

Its Petroleum segment has a vast network of over 1300 fuel retail outlets across the country. It becomes the first company to have the market capitalization of over Rs. 13.75 lakh crores in India.  

— 2) Oil and Natural Gas Corporation (ONGC)

ONGC, as the largest crude oil and natural gas company of the country, signed a Memorandum of Understanding (MoU) with NTPC to set up a Joint Venture for the renewable energy business in India. Its market cap is more than Rs. 1.04 lakh crore.

ONGC Videsh – subsidiary of ONGC, which is India’s biggest International Oil and Gas Company, has made new oil discoveries in Colombia and Brazil as part of its Energy strategy 2040. The company also signed an MoU with ExxonMobil for offshore blocks. 

— 3) Petronet LNG Limited

This company has set up the country’s first LNG receiving and regasification terminals and has a market cap of Rs. 38,227.5 crore. The company is expecting partnerships with fuel and gas retailers on LNG stations for long haul trucks and buses. With the aim to set up 300 LNG stations by 2023, it is planning to set up 1,000 LNG stations over a period of time across the country.

— 4) Indian Oil Corporation Limited (IOCL)

IOCL focuses on the safety of India’s energy sector and self-sufficiency in refining & marketing of petroleum products with over 47,800 customer touchpoints. It has a market capitalization of Rs. 1.71 crore and contributes the highest to the national exchequer by way of duties and taxes.

In March 2020, it started supply of the world’s cleanest petrol and diesel across the country and it is also planning to invest Rs. 500 crores in Karnataka.

— 5) Oil India Limited

A public sector company and the second-largest in hydrocarbon exploration and production, Oil India Limited shares are showing increasing trends. Despite blowouts at one of its sites, there are predictions from the market experts that they will be able to recover and prices will be better gradually. It has a market cap of Rs. 10,291.01 crore.

Also read: Passenger Vehicles Industry in India: How much competitive is it?

Bottom line

Succinctly, the energy sector in an Indian economy is growing faster than any other major economies. The industry experts also predict the energy demand to double by 2035. Moreover, the country’s contribution to the global primary energy consumption is also estimated by the analysts to double by 2035.

The growth in the consumption of crude oil is projected to grow at 3.6% Compound Annual Growth Rate – CAGR and the natural gas to grow at 4.31% CAGR by 2040. The Diesel demand too will be twice by 2029-30.

Therefore, the oil and petroleum sector look promising for the country and the coming years are going to be remarkable in terms of demand, consumption as well as the growth point of view.

Passenger Vehicles Industry in India- How much competitive it is?

Passenger Vehicles Industry in India: How much competitive is it?

An Analysis of Passenger Vehicles Industry in India to understand the latest trends and the key players: Indian economy holds the fifth-largest position in the auto market in 2019 and was expected to cross Germany by 2020 in terms of a number of sales. However, the recent pandemic has flipped the side to a completely opposite direction thereby causing a drop of over 17% in the industry.

Several Government initiatives and promising actions by the major automobile players of India was helping this industry to outperform at the world-class level by making the country a leader in this industry. The domestic Indian market is predominantly ruled by two-wheelers and passenger vehicles. The growing middle-class and young population has made the two-wheelers market the dominant one in terms of volume.

This article aims to study the Passenger Vehicles Industry in India including its current trends, biggest players, recent developments, and Government initiatives.

The Passenger Vehicles Industry in India

Passenger Vehicle (PV) is a motor vehicle which has at least four wheels where no more than eight seats are allowed in addition to the driver’s seat for transporting the passengers. Generally, cars are considered as passenger vehicles.

In India, the small and mid-sized cars selling is holding the highest position in terms of sales of the passenger vehicles (PV) industry. The PV industry recorded a market share of 12.9% in India until June 2020. Out of the total automobile exports of 4.77 million, PV accounted for 677,340 exports until June 2020. In 2019, over 3 million PVs were produced and sold domestically.

Currently, Maruti Suzuki and Hyundai are the top players in this industry. Maruti Suzuki with sales of over 208,000 Alto cars, 200,000 Dzire, and 192,000 swift cars reported in 2019 domestic sales of 1.75 million.

However, domestic sales in the PV industry recorded a decline of 9.1% until March 2020. Maruti Suzuki has already started selling BS-VI compliant vehicles that include Alto, Eeco, S-Presso, Celerio, WagonR, Swift, Baleno, Dzire, Ertiga, and XL6.      

Latest Trends in the PV Industry in India

The entire automobile industry attracted Foreign Direct Investment of US$ 24.21 billion in the 10 years from April 2000 to March 2020. The growing demand has made the way for the industrialists to invest more in India’s ever-growing industry.

The announcement by Jaguar Land Rover in May 2019 of the launch of its locally assembled Range Rover Velar has made JLR cars quite affordable. The deal between the Tata AutoComp Systems (Tata Group’s Auto-component segment) and Prestolite Electric (based in Beijing) happened in January 2020 aims to enter the Electric Vehicles market by starting a joint venture of their own.

Force Motors’ investment of US$ 85.85 million focuses on the development of the two new models in the coming two years. MG Motor India is also planning to launch affordable Electric Vehicles in the next 3-4 years. 

The Indian Government announced in the Budget of 2019-20 to provide tax deduction of Rs. 1.5 lakh for the interest paid on the loan taken to buy Electric Vehicles thereby promoting sales of such EVs. It is also planning to facilitate the start-ups involved in the EV space by setting up the incubation centers. 

passenger car market share

(FIG: PV Market Share Manufacture wise – FY19)

FAME II (Faster Adoption & Manufacturing of Electric Vehicles Phase II)

It is also notable to mention here about the Government’s initiative that approved the FAME II scheme (Faster Adoption and Manufacturing of Electric Vehicles Phase II) w.e.f. April 2019 under which allocation of Rs. 10,000 crores were made to promote electric mobility in the country over the three years 2019-20 to 2021-2022.

The scheme aims to provide incentives on the purchase of such vehicles to promote electric and hybrid vehicles. They primarily aim to electrify the public transportation and shared transportation.

— Bharat Stage VI Norms

Introduced in 2000, these norms are the standards implemented by the Government to control air pollution by vehicles. The norms are based on various stages and as the stage goes up the rules become stricter.

Thus, BS-VI stage compliance would require more robust technologies and investment into such technologies to upgrade the vehicles. Consequently, the buyers will also need to pay more to buy the vehicles as the making cost goes up.   

Market Leaders in the Indian PV Industry

As mentioned earlier, the PV market is predominantly led by Maruti Suzuki with more than 50% market share. The industry analysts believe this is due to their planning to empty the BS-IV inventories and keeping the BS-VI compliant vehicles available ahead of the time.

No matter what there are other players too who are contributing not as much as Maruti Suzuki, but their little contribution makes the Indian Automobile Market the fastest-growing market to be ready to compete at the global level. Let us see who these big players are, how are they contributing and what do they have in their baskets. 

Here are the top seven passenger vehicle Makers in India:

RankOriginal Equipment Manufacturers (OEMs)PV Sales FY20PV Sales FY19
1Maruti Suzuki14,36,12417,29,826
2Hyundai Motor India4,85,3095,45,243
3Mahindra & Mahindra1,86,9782,54,351
4Tata Motors1,31,1972,31,512
5Honda Cars India1,26,8991,83,787
6Toyota1,14,0811,50,525
7Ford India66,41592,937

— 1) Maruti Suzuki India Limited

The largest car maker of India, Maruti Suzuki is a subsidiary of Japan-based Suzuki Motor Corporation. They have already launched BS-VI compliant Tour S CNG & Tour S in this year. It has already crossed the 20 million sale milestone in the year 2019. It is leading the market by reaching the target of cumulative sales of one million utility vehicles. Until June 2020 it has recorded sales of more than 1.5 million units. 

— 2) Hyundai Motor India Limited (HMIL)

The subsidiary of a South Korean parent company Hyundai Motor Corporation, HMIL is the second-largest carmaker in India. Its Santro car had been recorded as a runaway success. It was the first automotive company in India to achieve the export target of 1 million cars in just 10 years. This year, its Hyundai Venue car has been awarded as the Indian car of the year. It sold in 2019 545,243 cars however its market share declined in that year.

— 3) Mahindra & Mahindra Limited

The decades-old Indian multinational vehicle manufacturing company, Mahindra & Mahindra Limited. The largest tractors manufacturer in the world records the highest production in India of cars. With the introduction of SUVs in 2019, they reported a 2.21% growth in PV sales. In a challenging time, XUV300, Alturas G4 and Marazzo have helped M&M to add sales of about 27,000 units additionally. 

— 4) Tata Motors Limited

The world’s leading automobiles manufacturer and an automobile arm of the Tata Group, Tata Motors has extended its presence globally by setting up Joint Ventures with Fiat and Marcopolo. It holds a 45.1% market share in the commercial vehicle segment in the year 2019. To improve electric mobility infrastructure in the country it has created a separate vertical by joining hands with Tata Power. 

— 5) Honda Cars India Limited

As the leading premium car manufacturer of India, Honda Cars was established with the specific purpose to cater PV industry with the latest technology-based vehicles. It is a subsidiary company of Japan-based Honda Motor Co. Limited. It recently launched WR-V compact SUV with robust features in two different trim options and in both petrol and diesel fuel choices. 

— 6) Toyota Kirloskar Motor Private Limited

It is a subsidiary of the Japanese parent company Toyota Motor Corporation. Among the carmakers, it holds the fourth largest position in India. In 2012, it started One Make Racing Series with the Etios car and witnessed an overwhelming response from the youngsters.

— 7) Ford India Private Limited (FIPL)

It is a subsidiary of Ford Motor Company and since 2019 Mahindra and FIPL joined hands to set up a Joint Venture. It is the number 1 Passenger Vehicle Exporter in India competing with Hyundai. It exports in 35 countries almost 40% of its engine production and 25% of its car production. 

Also read:

Impact of COVID-19 on the Indian PV Industry

With the current situation of the global pandemic, the biggest challenge these car makers will face is the changing customer preferences. Due to the Work from Home concept, the demand of the Passenger Vehicles has seen a sharp fall in the six months so far as compared to the last year.

The industry experts estimate that the customers’ preference during this time has gone back to the original small and compact cars for which Maruti Suzuki is leading the market as always. However, for SUVs and MPVs the market may not be as good as for the small and affordable cars.

The luxury cars will too see a downfall. The predictions are also against the promotion of EV sales as they need advanced technology and are quite costly. Many startups are under a red zone meaning they are already falling short of cash and liquidity making it difficult for them to survive. Interestingly, the used car business will gain as the customers may face liquidity crunch to some extent.

KETAN PAREKH SCAM cover

Ketan Parekh Scam – The Infamous Stock Market Fraud!

Demystifying how Ketan Parekh Scam was executed: One of the biggest stock market frauds that became an eye-opening event for not only the equity investors but also for the Securities Exchange Board of India and such other regulatory authorities was Ketan Parekh Scam. The Market Rip-off was done in such a way that he was able to make multiple times the annual return on the stocks he manipulated.

Ketan Parekh was the God for many investors as he created a delusion that whatever he touched turned into the Gold and whatever he wished the market seemed to grant him. Just within two years of time, Ketan deceived so many investors as well as banks and the stock market that it became a case study for many these days.

The stock market has the power to make someone rich and the others lose their money in just a matter of seconds. On one hand, we have examples of people successfully trading in the stock market such as Warren Buffet, Carl Icahn and George Soros who became the multi-millionaires by investing in the stock markets. And on the other hand, we have Harshad Mehta and Ketan Parekh who not only ruled the stock markets but also found guilty of the economic crimes.

Let us understand in detail what the Ketan Parekh scam was, how did he succeed in fooling the investors and shaking the stock markets, which next-level chicanery he had planned and how he got caught.

Ketan Parekh –  Background and Foundation

ketan parekh stock market scam

Famously known as a ‘Bombay Bull’ during 1999-2000, Ketan Parekh was a mentee of Harshad Mehta (who was also involved in another scam that shook the stock market in India). Ketan, CA by profession, started his career in the late 1980s and was running a family business of NH Securities – a stockbroking firm that was started by his father. This was how he managed to thoroughly understand the inside outs of the stock market trends and the investors’ mindsets.

During his peak, marketmen literally followed his every move blindly as he used to exploit the stock prices to gain the trust of these investors. Not only this, but he also enjoyed close connections with many celebrities from Bollywood, political parties and business managers which helped him connect with Kerry Packer, leading Australian Media Entrepreneur. Kerry and Ketan joined hands to start a venture capital firm, KPV venture with $250 million that focused on investing money into the new start-ups.

How Ketan Parekh Scam was Executed

Ketan Parekh was the strong believer of the ICE sector – Information, Communication, and Entertainment and that was the time during 1999 and 2000 when the dotcom boom had just started. This enabled him to prove his predictions to be true to many other investors. Moreover, many investment firms, overseas corporates, and banks, businessmen from listed companies many of them gave their money to be managed by him as during 1999-2000, Ketan Parekh was ruling the stock market.

Ketan Parekh used Kolkata stock exchange to trade as this was the stock exchange where no strict and pivotal rules and regulations were not formed. He misused such exchange and also tied up with many other brokers to trade on his behalf and gave the commission. With these huge amounts of money, he would buy some less known companies’ 20-30% stake and suddenly such companies’ share price would skyrocket and become the talk of the town all of a sudden. Once the price would reach to a certain level, he would silently exit and sell the securities and make countless profits.

He not only manipulated stock prices but also played games with banks in order to get funds to swindle the share prices and rule over the market. He firstly bought shares of the Madhavpura Mercantile Commercial Bank’s shares so that he could gain the confidence of the bank when he approached them for a loan in the form of Pay Orders.

Pay Order is an instrument similar to the cheque but it is issued by the bank upon the payment of small advance money from the customer. When he successfully managed to rip-off the price of MMCB’s shares, he approached the other financial institutions including HCFL and UTI and pledged the pay orders with them. His loan accumulated to Rs. 750 million.

He had created a portfolio called K-10 which consists of top ten hit picks by Ketan Parekh himself. This included Aftek Infosys, Zee Telefilms, Pentamedia Graphics, Mukta Arts and so on. He was interested in low profile corporates with low market capitalization and liquidity. That is how he was able to manipulate the prices of such companies using the ‘Pump and Dump’ formula. He was also reported to have done the insider trading by purposefully influencing the stock price of certain companies who would bribe him to do so and take the advantage of the price rise to exploit the investors’ minds.

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

How Whatever Ketan Parekh Touched Turned into Gold?

  • The ICE sector was booming during that time and Ketan would invest majorly into these sectors which helped him gain the trust of the investors.
  • He was trading in Kolkata Stock Exchange which was lacking strict regulations itself. Hence, there was no one to watch his moves.
  • He would buy shares of low profile companies when they were trading at low prices and joined hands with certain other traders to frequently buy and sell the stocks of such companies which enabled the sudden price rise.
  • The financing method of buying shares and getting pay orders and later getting them pledged when the prices shoot up also helped him create a Bull Run in the stock market.
  • Many investors believed that slipshod reactions and regulations of SEBI who could have noticed the unusual price movements in the market helped the scam to accumulate more losses to them.
  • His connections with celebrities, political and religious leaders also aided him to get the majority of the fund from large corporates and businessmen.

Allegations and Unraveling of Ketan Parekh Scam

The SEBI and RBI started investigating into this case after the huge market crash of 176 points in a day in 2001 just one day post the budget was declared. Ketan Parekh was accused of being involved in the Insider Trading, Circular Trading, Pump and Dump and misrepresentation of facts to borrow from the banks.

Ketan Parekh declared to be guilty of a criminal offense for ripping off the Indian stock market and was barred from trading in the Bombay Stock Exchange (BSE) for 15 years up to 2017. He was also found to be involved in a Circular Trading with many banks and Insider Trading for which he was sentenced to rigorous imprisonment of one year.

However, SEBI investigated and found that despite being prohibited from trading, he used his network well and made certain companies trade on his behalf. Later in 2008, many such companies were traced by SEBI and were barred from trading too.

ketan_parekh scam found

The CBI in 2014 found the malpractices followed by him and sentenced him for two years rigorous imprisonment with a fine up to Rs. 50,000. He also siphoned off the money outside the country too. The SEBI in April 2001 reported that he had an outstanding amount to large corporates worth Rs. 12.73 billion and to MMCB Rs. 8.88 billion while to Global Trust Bank Rs. 2.66 billion. The said amount was reported in 2006 to touch the surprising level of Rs. 400 billion.

He was also reported to use Overseas Corporate Bodies and sub-accounts of Foreign Institutional Investors to receive shares from various corporate entities so as to move the money out of the country. To sum up Ketan Parekh scam allegations, he was found involved in cheating with banks by misrepresenting facts, falsifying accounts, ripping-off the stock market prices and exploiting investors’ decisions, mishandling public money, bribing company directors to enable him to do insider trading.

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Closing Thoughts

In this article, we discussed how Ketan Parekh was able to induce investors’ decisions by his malpractices. Not only the exchanges and investors but Ketan Parekh also bluffed with the banks. And all of that piled up to huge debt and one day in 2001 it became a historical event of the biggest scam in an Indian Stock Market.

It is still a part of the investigation as of now that how many other companies are still operating in the stock market after himself and other companies were barred from trading.

Company Bankruptcy What will happens to your shares?

Company Goes Bankrupt: What will happen to your shares?

Understanding what happens to the equity shares when a company files bankruptcy: During the economic volatility period, investors tend to become more alert with regards to their investments in the form of shares of various companies. Generally, they try to sell their stocks if they find out that the company may not do well in the future or it may take longer than expected to recover. In such cases, companies get hit quite badly because investors are reducing and the market volatility affects the share price too.

The current unprecedented time of COVID-19 too is such that the majority of the investors have already taken necessary actions in order to safeguard their investments. The fear of losing money if the company goes bankrupt has made everyone scratch their heads quite often. However, it is not necessary that if a company is bankrupt then investors will certainly lose all of their money but the fact is that the common stockholders are the last ones on the list of preference for payment. There has also been a misconception of using insolvency and bankruptcy as a synonym but they both are different.

In this write-up, we will be discussing what happens to the shares of the equity shareholders when a company files bankruptcy. Here, we’ll be covering do we mean by insolvency and bankruptcy, options under the bankruptcy, the preference of the payment when any company files bankruptcy and relaxations, and exemptions provided by the government under the stimulus package during the global disease outbreak.

Understanding Insolvency and Bankruptcy

Solvency is a financial state or a condition when a person, firm, company, or any other legal entity’s total assets exceed its total liabilities at any point in time and it can meet its long-term debts and financial obligations. The opposite of it is called “Insolvency”.

The inability to repay its debts/obligations is a state of insolvency and it can be temporary as well. Such a situation may rise from poor cash management, increased expenses, reduction in cash inflow, or because of some unpredictable accidents, mishappenings or pandemic situations resulting in huge losses to the entity/firm. Here, the person or an entity is not even able to raise enough cash in order to pay off its liabilities and obligations in the due course.

The state of insolvency usually leads to filing for bankruptcy, although, it can be avoided by taking corrective actions such as negotiating terms with credits and other lenders, cutting down overhead costs to a large extent, and by generating surplus cash.

Understanding Bankruptcy and Insolvency

The Bankruptcy, on the other hand, is a legal procedure when an insolvent person or an organization declares its inability to pay off its debts. Under bankruptcy, the person or an entity seeks help from the government to repay its debts and obligations. The bankruptcy does not mean the closure of the company as there may be a chance for the company to recover to its normal state.

When a company files for its bankruptcy, it may ask the government to help the company restructure or reorganize its debts and repayment terms to ease out the repayments. The other option the company may seek from the government is to liquidate the company and decide the order of repayment by realizing cash from its assets.

Technically, the companies themselves file for their bankruptcy but sometimes, creditors may also file the application in the relevant court to declare the company as bankrupt. The Registrar of Companies may also pass a special resolution to declare an entity as bankrupt.

Also read: Is Debt always bad for a company?

What happens when Company Goes Bankrupt?

Restructuring Debts Vs Liquidation Procedures

As discussed earlier, the two options under the Bankruptcy filing procedure provides flexibility to the corporates to either reorganize its debts and get some time to recover or to liquidate the company if the operations have already started closing down.

The Insolvency and Bankruptcy are now solely controlled by the Insolvency and Bankruptcy Code (IBC), 2016. In case of a reorganization, the relevant court appoints a resolution professional who will decide the terms of reorganization considering relevant laws and regulations of the code along with creditors’ and other lenders’ considerations.

Not only that, but the company is also given 180 days (further extended by 90 days upon presenting a valid reason) of the moratorium period. In this period, the company cannot transfer its assets or raise cash by itself, no creditor or any other lender can initiate any legal proceedings or enforcement against the company.

The common stockholders’ shares may reduce in value as the restructuring under insolvency affects the company’s share price. Also, since all other creditors and lenders will have more preference over the restructuring terms, the stock value after the reorganization may also get terribly hit. However, if the company proposes a strong plan post the restructuring then investors may be able to get the same value or more in the long term.

The second option of liquidation is more menacing and never liked by the investors. Under the liquidation procedure, the liquidator appointed by the court prepares liquidation terms and order of preference of payment where the common stockholders are the last ones to be paid back their investment. Sometimes, investors may not even get anything against the stock they hold.

— The Order of Preference for the Payment

While liquidating, an important point to mention is that everybody is not always equal in the tiers of creditors. Moreover, each tier must be paid in full before any money is repaid to the next tier. The order of preference under the Bankruptcy is provided under Section 178 of the Companies Act 2013 as provided below:

  • Firstly, the costs and expenses incurred by the bankruptcy professional appointed by the court, are paid.
  • Secured creditors are paid as they hold some security against their money receivable from the company.
  • Wages due to the employees
  • Financial debts payable to the unsecured creditors
  • Government and statutory dues
  • Any other debts of the unsecured creditors
  • Preference shareholders
  • Equity Shareholders

Quick Note: In the above order of Preference for the Payment, please note that the equity shareholders are last in the line and mentioned at the end. This is because the shareholders are practically the owners of the company and and therefore have accepted a greater risk compared to others.

Recent relaxations by the Government: COVID19 Stimulus Package

Due to the unprecedented time recently faced by everyone in our country and across the globe, the government as a part of the stimulus package announced the suspension of initiation of fresh insolvency proceedings for the next six months from 25th March. According to the stated announcement, there will be no default on the part of a company if the default is occurring out of the global disease outbreak.

Moreover, the minimum threshold amount to initiate the insolvency proceedings has also been increased from Rs. One Lakh to Rs. One Crore to cater many MSME sector companies. The government also declared sector-specific relaxations. This indicates that the investors’ money is safe for now and if the government can provide a pre-packaged resolution plan to certain companies then that will save the investors’ investments.

The Pre-Pakaged Resolution Plan (a Pre-Pack) is kind of a remedy provided by the government to the companies facing financial stress where the company and its creditors mutually agree on the sales terms with the buyer before initiating insolvency.

Companies that bounced back post Bankruptcy

Although, no investor would like his company to file bankruptcy but if that happens, there are examples of companies that filed bankruptcy and came back from the brink of the debt. Below are a few examples of such companies:

  1. General Motors: During the economic fall down in 2009, GM had filed bankruptcy due to heavy debts and pensions exceeding its total value of assets. However, post-bankruptcy it had bounced back stronger than before.
  2. Converse: The company filed for bankruptcy but later Nike acquired the stake in this company and since than the market cap of this company is rising.
  3. Marvel Entertainment: Marvel had to file for bankruptcy due to the hefty debts as comic books sales fell badly, later on, Disney bought the stake and it managed to survive.

Closing Thoughts

The Bankruptcy and Insolvency are always scary for any investor. Being a holder of common stock of a listed company gives the last priority of being paid the invested money back. This is why it is always advisable to study the company before investing.

Studying the financials, due diligence reports, and other such statutory compliance will provide information to a greater extent about the company’s financial health and if they have any plan to file insolvency if their debts are already piling up. Moreover, post insolvency if the companies get better insolvency resolution plans then too the money will be safe.

The IBC 2016 has successfully reduced the time taken for resolution plans and not only that, but the recovery rates for the creditors have also increased over the period of time. Adding to that, the recent relaxations may also prove to be a financial booster for the majority of the MSME sector companies. However, the statistics of last year’s bankruptcy filing show a huge spurt by 123% compared to 2018.

The bottom line should be to study well before investing and be always cautious of what is happening in the company you have invested your money as the bankruptcy procedures can be sometimes painful or it may turn out to be a game-changer.