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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What are NPA’s? And How do they affect Banks?

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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Why Privatization of PSU banks? Pros and Cons Explained!

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.

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B) Lagging Indicators

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

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

1. Gross domestic product

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

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

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

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.

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.

ALSO READ:

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.

Also read:

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.

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

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

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

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

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

What is a Company Annual Report?

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

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

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

What is Purpose of the Annual Reports?

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

Contents of the Annual Report

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

asian paints annual report 2018 19 contents

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

— Director’s Report

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

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

— Auditor’s Report

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

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

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

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

— Statement of Financial Position or Balance Sheet

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

— Statement of Income and Comprehensive Income

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

— Statement of Cash Flow

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

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

— Notes Accompanying to Financial Statements and Significant Accounting Policies

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

Types of Readers of an Annual Report and their Purposes

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

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

Warren Buffett quote on reading

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

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

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

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

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

Other Key Information Provided in Annual Reports

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

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

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

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

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

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

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

reliance industries share price june 2020

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

Making RIL Net Debt-Free: Reliance Jio Stake Deals

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

Name of CompanyAmount invested in Rs.Ê In Crore% of Stake Acquired
Facebook43,574.009.99
Silver Lake10,202.552.08
Vista Equity Partners11,367.002.32
The General Atlantic6,598.381.34
KKR11,367.002.32
Mubadala Investment & Co.9,093.601.85
Abu Dhabi Investment Authority (ADIA)5,683.501.16
TPG Capital4,546.800.93
L Catterrton1,894.500.39
Public Investment Fud (PIF), Saudi Arabia11,367.002.32
Total1,15,694.3324.7

— The Facebook – Jio Deal

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

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

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

— The Silver Lake – Jio Deal

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

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

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

— The Vista Equity Partners – Jio Deal

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

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

— The General Atlantic – Jio Deal

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

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

— RIL Rights Issue

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

— The KKR – Jio Deal

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

— The Mubadala – Jio Deal

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

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

— The ADIA – Jio Deal

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

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

— The TPG – Jio Deal

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

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

— The L Catterton – Jio Deal

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

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

— The KSA’s Public Investment Fund – Jio Deal

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

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

In The Pursuit of Building Large Digital Ecosystem 

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

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

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

AtmaNirbhar Bharat– A Bonanza for Reliance Industries  

Reliance Jio Stake Sales - Quest to become the Global Tech Player cover

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

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

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

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

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

aatma nirbhar bharat abhiyan meaning

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

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

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

The Mission and Vision of AtmaNirbhar Bharat Abhiyan (ANBA)

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

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

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

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

— The First Tranche

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

Relief in Provident Fund

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

Relief in MSME Sectors

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

Relief in NBFC’s

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

Relief in Other Sectors

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

— The Second Tranche

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

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

— The Third Tranche

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

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

— The Forth & Fifth Tranche

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

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

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

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

The Role of Every Indian Citizen in ANBA

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

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

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

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

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

Say No to Chinese Products in India - Boycott China

How to Boycott China in India – The Right Way?

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

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

Factors Accompanying and Favoring This Campaign

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

China-boycott- say no to chinese products

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

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

Analyzing the Flip Side

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

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

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

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

Name of the MarketMarket Share (Rs. In Crores)
Start-up investments29,000
Smart Phones1,44,000
Other Electronics and Telecom Equipment3,000
Television Market12,500
Other Home Appliances6,000
Auto Components1,120,600
Pharma Sector90,000

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

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

The Failure of Past such Campaigns

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

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

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

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

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

make in india movement

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

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

Closing Thoughts

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

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

Intraday Trading vs Long-term Investing: What are Pros and Cons?

Intraday Trading vs Long-term Investing: What are Pros and Cons?

An overview of Intraday Trading vs Long-term Investing: The stock market is risky but equally rewarding. There are basically two ways by which people make money in the stock market – trading or investing. Here, you may either invest for the long-term or trade to build wealth through day trading (also known as Intraday trading). However, both these are two different approaches to make money in the equity markets.

When you invest in stocks for the long-term, it primarily means that you hold on to the investment for a longer period of time, probably between three to five years or more. In comparison, intraday trading means that you square off all your positions before the end of trading hours on the same day. You do not hold the shares for more than a day i.e. do not take delivery of the shares when you undertake intraday trading.

In this post, we are going to discuss the difference between Intraday trading and long-term investment. Here, we’ll look into different factors like holding period, capital growth potential, risks involved, and more. Let’s get started.

Differences between Intraday Trading vs Long-term Investing

1. Holding period

Long-term stocks are held for several years and any fluctuations in the short-term do not affect your investment decision. Here, holding period may vary from two years to even several decades. In comparison, in Intraday trading you do not keep any position open at the end of the hours on a trading day. A holding period maybe between just a minute to a few hours.

2. Capital growth

When the price moves in the expected direction, the trader will exit his intraday stock position. For example, if you have purchased 100 shares of ABC Limited at INR 50 and the price increases to INR 55, you will sell the shares and book the profits. Similarly, you will cut your loss in case the price decreases, using tools like stop loss.

However, with long-term investments, short-term price fluctuations do not affect your decision. The stocks are held for several years allowing you to build wealth through capital appreciation.

3. Risks Involved

There are inherent risks to intraday trading as well as long-term investing. However, the risks in day trading are higher as price volatility can be significant in just a few hours. Because daily market fluctuations do not affect long-term stocks, risks involved with long-term investments are lower. Here, investors have the potential to create wealth through dividends and price appreciation over the years.

4. Art versus skill

Day traders require technical skills to analyze and study market trends. Moreover, Intraday trading is also related to market psychology. On the other hand, long-term investing requires skills to identify good and reliable stocks. Here, investment decisions are primarily based on the business model, financial strength, and company philosophy.

5. Investor profile

Traders want to potentially earn higher profits from the daily price fluctuations. However, here if you miss the right time, it may result in huge losses. Intraday stocks are identified based on price volatility during the trading hours. On the other hand, long-term investors do not rely on trends and invest based on the fundamentals and value of the company over the years. They patiently hold on to the shares until the desired price levels are reached.

Let us now look at the pros and cons of intraday trading and long-term investing.

Pros and Cons of Intraday Trading vs Long-term Investing

— Pros of intraday trading

  1. While Intraday trading, substantial profits may be earned in a shorter period
  2. You require a lesser principal amount and enjoy benefits of margins.
  3. You do not have to lock-in your investment for the long-term enabling you to trade more frequently for higher profits
  4. Most reliable brokers like mastertrust offer margin trading on intraday stocks providing higher leverage for your capital

— Cons of intraday trading

  1. The price volatility increases the risk of losing money
  2. Knowledge of technical analysis is necessary and you cannot rely on tips received from others

— Pros of long-term investing

  1. Historically, when you invest in the equity market for a longer period, you are able to earn returns that are more than the rate of inflation, which allows you to build wealth over the years
  2. Long-term stocks benefit from economic growth resulting in higher revenue through an increase in consumer demand, which bodes well for an increase in its share price.
  3. Long-term investing not only provides capital growth through price appreciation but also allows you to earn more returns through periodic dividends.
  4. These days, it is very easy to invest in shares for the long-term through a stockbroker or online platforms.

— Cons of long-term investing

  1. There is an inherent risk of losing the principal in case the company does not perform as per expectations resulting in the decline of its share price.
  2. Share prices change from one minute to the next. Many times, the investment may be based on emotions rather than sticking to the fundamentals.
  3. Long-term investing means a long holding period that may last for three to five years or longer. This also means that you won’t be able to leverage your money to earn higher returns, from other alternatives.

Closing Thoughts

Both intraday trading vs long-term investing are proven ways to make money from the stock market. The decision to invest for the long-term or intraday totally depends on your requirements, financial goals, investment horizon, and risk profile. Further, here the diversification to allocate your money to various assets should be based on your financial goals.

Seek expert advice from professionals at mastertrust to know the best investment strategy to meet your goals. This stockbroker offers online broking, in-depth research and analysis, and investment advice at affordable charges. Open demat account and start trading today!

Zerodha vs Angel Broking - Stockbroker Comparison cover

Zerodha vs Angel Broking: Stockbroker Comparison

Zerodha vs Angel Broking Comparison: Zerodha and Angel Broking are two of the best and biggest discount brokers in India. In this article, we are going to compare Zerodha vs Angel Broking by looking into their brokerage charges, account opening charges, maintenance charges, exposure margin, trading platforms, pros, cons, and more.

This comparison between Zerodha vs Angel Broking will highlight the major differences between these two stockbrokers and help you choose the best between them based on your preferences.

Zerodha Introduction

zerodha demat account

Zerodha, founded in 2010 by Nitin Kamath, is the biggest stock broker in India and perfect for traders & investors looking for low brokerage, easy interface, and reliable trading platform. It has over +2.2 million clients that contribute to over 15% of daily retail trading volumes across  BSE, NSE, and MCX.

In terms of brokerage charges, Zerodha offers a zero brokerage for delivery equity investment & direct mutual fund investments. For all intraday, F&O, currency, and commodity trades across NSE, BSE, MCX, it offers a flat brokerage of ₹20 irrespective of the trading volume. Therefore, you can save a lot of brokerage charges on your trades using Zerodha as your broker.

Also read: Zerodha Review 2020 – Is Free Investing Legit? [Pros and Cons]

Angel Broking Introduction

angel broking discount broker

Incorporated in 1987, Angel broking is a big brand having +30 Years of experience in the broking world and +1 million happy customers. They have a presence in over 1800+ cities in India and a strong network of 8500+ sub-brokers. Angel Broking offers the trading facility in Equity, F&O, Commodities, and currency across BSE, NSE, NCDEX & MCX.

In the past, Angel Broking worked as a full-service broker and offered a percentage based brokerage charge to its clients for over two decades. However, they recently changed their business model (Nov 2019) from percentage brokerage to flat rates to compete with rapidly growing discount brokers like Zerodha, 5Paisa, Upstox, etc.

Angel Broking now offers a flat rate brokerage plan, named ‘Angel iTrade PRIME’. Here, the delivery trading is FREE of cost. And for all other segments i.e. Intraday, F&O, Currencies & Commodities, they charge a fixed rate of ₹20 per trade. The same simple rate is applicable across all exchanges and segments.

One of the key advantages of trading with Angel Broking is that they provide investment advisory, guidance, and recommendations to their clients for investing in the stock market. Further, they also offer research reports on companies along with many other value-adding tools and services to their clients for free.

Quick link to open your FREE account with Angel Broking.

Zerodha vs Angel Broking Comparision

NameZerodhaAngel Broking
AboutZerodha is the largest stockbroker in India with +1.5 million clients and +10% of daily retail trading volumes across NSE, BSE, MCX. Located at Bangalore, Zerodha offers zerod brokerage on delivery trading and a flat rate of 0.03% or Rs 20 per executed on all other segments.Incorporated in 1987, Angel broking is a big brand having +30 Years of experience in the broking world and +1 million happy customers. They have a presence in over 1800+ cities in India and a strong network of 8500+ sub-brokers. Angel Broking offers free delivery trades and flat charge of Rs 20 for all other trades
Founded20101987
CompanyPrivatePrivate
Main OfficeBangaloreMumbai
# of Active Clients on NSE (Nov 2019)9,09,0084,12,809
Broker ServiceDiscount BrokerFull-Service Flat rate Broker
Supported ExchangeNSE, BSE, MCX, NCDEXNSE, BSE, MCX, NCDEX
Brokerage SummaryFree for Delivery Trading and Rs 20 for all other tradesFree delivery trades and flat charge of Rs 20 for all other trades
Servies offeredEquity, Derivatives, Currency, Mutual Funds & CommoditiesEquity, Derivatives, Commodity, Currency, PMS, Life Insurance, ETFs, IPOs & Mutual Funds.
Account Opening ChargeRs 200Rs 699 (Currently Waived)
Commodity Trading Opening chargeRs 100Rs 0
Annual Maintenance ChargeRs 300Rs 450 (Second years onwards)
Trading PlatformKite 3 Web baased trading platform, Kite Mobile, Kite Connect API, Console, Pi, Sentinel, CoinAngel iTrade, Angel Broking Mobile App, Angel SpeedPro, Angel BEE
Brokerage Charges
Equity DeliveryFreeFree
Equity IntradayRs 20/ trade or 0.03% whichever is lowerRs 20 per trade
Equity Future ChargesRs 20/ trade or 0.03% whichever is lowerRs 20 per trade
Equity Options ChargesFlat Rs. 20 per executed orderRs 20 per trade
Currency future chargesRs 20/ trade or 0.03% whichever is lowerRs 20 per trade
Currency options chargesRs 20/ trade or 0.03% whichever is lowerRs 20 per trade
Commodity ChargesRs 20/ trade or 0.03% whichever is lowerRs 20 per trade
Minimum brokerage fees0.03% MinimumFlat Charges Rs 20
Call & Trade ChargesRs 20 per executed orderAdditional Rs 20 per executed order
Margin Offered
Equity Margin DeliveryNo margin for delivery - Cash and carryUpto 3x for equity cash
Equity Margin IntradayUpto 20x (Based on stock)Upto 6x
Equity margin futuresIntraday - 40%(2.5x), Carry forward - 100%(1x) of Total marginUpto 10x (Buying/Selling)
Equity margin optionsIntraday - 40%(2.5x), Carry forward - 100%(1x) of Total marginUpto 10x (Selling) and 3x (Buying)
Commodity MarginIntraday - 40%(2.5x), Carry forward - 100%(1x) of Total marginUpto 5x
Currency futuresIntraday - 40%(2.5x), Carry forward - 100%(1x) of Total marginUpto 8x
Currency OptionsIntraday - 40%(2.5x), Carry forward - 100%(1x) of Total marginUpto 8x (Selling) and 3x (Buying)
Addons
3-in-1 AccountYes, with IDFC BankNo
Research & TipsNoYes
Brokeage CalculatorYesYes
Span Margin CalculatorYesYes
Training & EducationYesYes
Interactive ChartsYesYes
Margin Against Shares (Equity Cash)YesYes
Margin Against Shares (Equity F&O)YesYes
IPO ServicesYesYes
Robo advisoryNoYes
Other FeaturesDirect Mutual fund investments, Kite APIs, Sentinel, Streak, SensibullResearch reports, Portfolio management system (PMS), Insurances
ProsZero brokerage charges for delivery trading, Simple and flat brokerage model in all other segments, Excellent trading platforms, Easy & fast online account opening, Direct mutual fund investments, Maximum brokearge of Rs 20Free delivery trades; Full-Service Broker with Flat charges; Services offered in Equity, Mutual funds, Commodities, IPOs, PMS, Life insurances; Customised trading help; Robo Order, High Margin
ConsNo stock advisory or research reportsAngel Broking doesn't offer 3-in-1 account, Higher Maintenece charges
Promotion/OfferFree delivery equity trading and Rs 20 or 0.03% wihchever is lower brokerage charge on all other tradesRight now - FREE Account Opening (Opening Charges 100% Waived)
WebsiteQuick Link to Open AccountQuick Link to Open Account

*Disclaimer: All pricing data was obtained from the published stockbroker’s web site as of 02/04/2020 and is believed to be accurate, but is not guaranteed. Account opening charges, margins, etc can vary from time to time depending on the active campaigns by the brokers and hence recommended to refer to the broker’s website for the latest updates.

Also read:

Closing Thoughts

Both Zerodha and Angel Broking offers low (flat) brokerage and fast trading platforms for their clients.

Zerodha, being the biggest discount broker in India with over 22 lakh clients obviously adds trust and brand value. Moreover, Zerodha’s innovative initiatives like educational facility (Varsity), free direct mutual fund investments through COIN, investment in IPO’s from the same dashboard, partner portals like Streak, Sensibull, etc create more value for their clients.

zerodha partners senseibull smallcase etc

On the other hand, Angel broking has built its reputation with over +30 years of experience in the broking industry. Since Angel Broking is a full-service broker, it offers a lot more segments than Zerodha like Portfolio management Services & Life Insurance. Moreover, a few notable advantages of Angel Broking over Zerodha is that they offer Research reports and robo-advisory to their clients, which Zerodha don’t.

Overall, if you’re looking for full-service facilities like investment advisory, Research reports, Robo-advisory, PMS, etc, then Angel Broking is a good alternative.

Nonetheless, if you wish to trade/invest on your own, but looking for essential add-on products like learning platform, Sensibull, Streak, etc and a user-friendly innovative trading platform, Zerodha is the go-to broker. Zerodha offers a little more benefits compared to Angel Broking for independent traders and investors.