Understanding Vodafone-Idea Rebranding as Vi: Earlier this month ‘Vodafone Idea Ltd’, the resultant of a merger between Vodafone India Ltd and Idea Cellular Ltd. in 2018 rebranded itself as ‘Vi’ (read as ‘we’). With so much competition going on in the Indian telecom market, analysts were expecting Vodafone-Idea’s management to take some drastic steps. Vodafone-Idea needed some steps to fight back Reliance Jio and Bharti Airtel to grow its customers and margin.
Today, we take a look at the reasons behind the Vodafone-Idea rebranding as Vi, and the possible future of Vi.
‘Vi’ – Vodafone-Idea Rebranding: Why it was done? & Reactions?
Rebranding is a market strategy where a new name, symbol, or change in design is done for an already-established brand in order to create a new corporate image for the organization.
In the case of Vi, such reactive rebranding was done to mark the final step towards the integration of the two brands, three years after the news of the merger was first announced. Vodafone India Ltd and Idea Cellular Ltd were two brands that came together to survive the disruptions in the telecom industry post the introduction of Jio.
The rebranding luckily created a lot of social media buzz. But, not all were in favor of Vi with even Jio entering the fun.
It is clear that Vi now wants to be seen as a competitor and not just a survivor like its parent companies. But rebranding is an expensive affair and comes with added risks. When Snapdeal had created a new identity in 2016, the company spent close to 200 crores. When BP changed its logo to a Helios flower it cost the company $211 million.
In 2010 Zain, a telecom company was acquired by Airtel and renamed to Airtel Kenya. But unfortunately, the brand has undergone multiple rebrandings in the past. Starting from Kencel to Celtel in 2004, then to Zain in 2008 and finally Airtel Kenya. This brand change resulted in confused customers.
Although this cost seems excessive for a simple name change it is necessary as building awareness for a new brand in consumer minds is not easy. This includes multiple costs apart from market research. An actual implementation includes changing the signage on buildings, company letterheads, websites, and name tags. And also putting up advertisements to let the consumers know about the rebranding.
Things finally started going their way when the company finally received the much-needed relief where the nation’s apex court granted 10 years to pay the billions it owes to the government. The first step that the company is likely to take will be raising funds in order to meet its immediate operating expenses, government dues, interest payments, etc. The company plans to do this by issuing convertible bonds. The hybrid bonds will have tenures of around 10 years.
Once this is done the immediate focus of the company will be on improving its ARPU’s (Average Revenue Per User). Unfortunately for Vi, they currently have one of the lowest ARPU in the industry in comparison to Airtel and Jio. This is important because in order for the firm to achieve a cash flow breakeven it will need to generate double the ARPU’s it currently has.
In addition to this, the company will have to focus on retaining its falling active subscriber base. Vodafone Idea in the last few years has lost close to 100 million subscribers to new entrant Jio. One of the major reasons for this fall is the lack of exposure to the 4G network.
This is bound to affect retention as its competitors are currently preparing themselves for 5G networks. Once its operational efficiencies are improved the next round of financing is expected to come from equities which can be utilized to further strengthen its position in the industry.
Closing Thoughts
After Vodafone-Idea rebranding as Vi, they have also started offering many attractive deals and plans, which are somewhat similar or better than their competitors.
Although Vodafone Idea has rebranded itself to Vi in search of a fresh start, however, only time will tell about the effectiveness of the new brand. Luckily for Vi, if everything goes in its favor, it will be viewed as the underdog that rose to compete, instead of being viewed as two loss-making entities that came together for survival.
Understanding what are Preferred Stocks and why are they beneficial: The dream security for many would be one that provides you both the inherent security found in bonds and returns of an equity stock at the same time. Luckily enough for us, such financial instruments exist and not only provide security but also steady returns in the form of dividends. This flexible security is known as a Preferred Stock or a Preference Share.
Today, we are going to discuss what are preferred bonds. Here, we’ll cover their meaning and also clear out what these bond and equity hybrids are in order to better understand and decide if they can actually be preferred over their parents
What are Preferred Stock/Preference Shares?
Many of us do not know that there are two types of stocks. The first being the common stock which we are accustomed to. The second being preference shares.
Preference Shares or Preferred Stocks offer investors preferential right over common stock when it comes to earnings and asset distribution. However, in exchange for these preferential rights, preference shares do not possess the voting rights in a company that the common stock holds.
What are the benefits of Preferred Stocks?
The investors benefit in the following ways when it comes to preference shares
1. Fixed Income
This means when dividends are announced, the payments will first have to be made to preference shareholders and only then to common shareholders. The dividend rates of preference shares are fixed at a predetermined rate or some other floating factor depending on the terms of the issue.
The decision on when dividends have to be paid is at the discretion of the board. This is because the Preference shareholders do not possess and voting rights in order to influence the board members or decisions.
2. Security in the case of winding up
Also in the case of winding up of a company, it is the preference shareholders who have priority in claiming the company assets. Only after the obligations to Preference shareholders are fulfilled will the obligations to common stock begin.
It is because of the above reasons that the Preference shares are known to be a hybrid. Just like bonds they offer regular returns with no voting rights. But like equity, the shares are allowed the trade and have the potential to appreciate in price.
Hierarchy of Bonds, Preference shares, and Equity shareholders
— In terms of Returns
It is the interest on bonds that are first serviced from the profits made by the company. Only then will the preference shareholders be paid the dividends due to them. In a case where the profits made are not sufficient then the preference shareholders and common shareholders can be left out. This is because unlike for bonds if the company does not pay preference shareholders it does not mean that the company is in default.
The bonds here are treated as debt whereas preference shares are not. In a scenario where there are sufficient returns first the interest on bonds is paid. Next, the preference shareholders are paid based on the rates set. Lastly, the remaining amount is paid to the equity shareholders. Only then is the remainder paid to the common shareholders. The dividends to preferential shareholders are preferred but not guaranteed.
Unlike bonds and preference share, there is no rate set to equity. This means that there is no upper limit nor lower limit to the dividends they receive. In exchange for preferential treatment, the preference shareholders will never receive dividends in excess of the rates prescribed to them.
Despite this common stock are greater wealth creators in comparison to preferred stock and bonds. This is because there is no limit on the increase in the stock price. When it comes to Preference shares the price generally looms around the face value.
— In terms of Claim over Assets
In the case of winding up, it is the bondholders who are first paid off followed by the preference shareholders and then the common stockholders.
— In terms of Risk
Preferred stocks are less riskier in comparison to equity. But when compared to bonds preference shareholders are considered to be riskier. This is because they fall back when it comes to being compared over the claim of assets and fixed interest rates that bonds have.
Equity shareholders are the riskiest here as they get leftovers of the bondholders and preference shareholders in the case of winding up. In a case, where the company is performing poorly, the share prices of common stock are also adversely affected.
Types of Preferred stock
There are various types of preferred stock. The following are the most commonly used
1. Cumulative Preference Shares
Say a company is in a bad shape and is forced to suspend dividends for the year. Here if the shares are Cumulative Preference shares, they are still entitled to receive the dividend for the year. Such a missed dividend payment will be added to the dividend payments of the following years and paid to the cumulative preference shareholders.
Eg. Company ABC has issued Cumulative Preference shares. ABC has issued 3000 10% cumulative preference shares at Rs.100 face value. Here the dividends payments ABC is obliged to make is Rs 30,000. But due to COVID-19, the ABC can only pay Rs. 10,000 of the dividend in 2020. Here the Rs. 20,000 is carried forward as arrears and paid the next year. Hence ABC will have to make a total dividend payment of Rs. 50,000 in 2021. Amount arising from Rs. 20,000 carried forward and Rs. 30,000 accruing in 2021.
2. Convertible Preference Shares
These preference shares can be exchanged for a predetermined number of common shares. Convertible Preference Shares can be converted only when the Board of Directors decides to convert them.
3. Callable preference Shares
Callable preference shares can be called back similar to bonds. In a call, the shares issued are bought back by the company by paying its holders the par value and at times a premium. This is done by the company in situations when the interest rates in the market fall. In such a situation the company realizes that it does not have to keep servicing the preference shares at the high rates it was issued a few years ago. The company simply calls back the shares and then reissues it at lower rates.
4. Perpetual Preferred Stock
Here there is no fixed date on which the investors will receive back the capital. Here shares are issued in perpetuity.
The types of preference shares mentioned above are common examples. The company, however, may combine one variant with the other and issue a preference share eg. Convertible Cumulative Preference Shares. If there are multiple issues of preference shares the shares may be ranked by priority.
In preference shares, the highest-ranking is called prior, followed by preference, 2nd preference, etc. The dividends and final settlements will be made in the order of this ranking.
Where are these Preference Shares available?
Preference shares are traded on the same exchanges like that of common stock. However, their issues are rare as companies do not generally go for preferred stock making their market small and their liquidity limited. The price of preference shares on these exchanges are determined by a variety of factors like dividend rate, the creditworthiness of a company, type of preference share eg, cumulative, convertible, etc.
The share prices of Preference shares like bonds have an inverse relationship with interest rates.
Apart from looking at the type of preference share and the interest offered, it is also important necessary to figure out why the company issuing Preference Shares?
It is a known fact that companies issue preference shares in order to avoid dilution of capital. But it is also noticed that companies issue preference shares when they have trouble accessing other means of capital. This may be because banks are refusing loans due to their low creditworthiness. Raising money through Preference Shares is cheaper as it gives the option to the company to only serve them when they are able to, unlike other debt instruments.
Another reason may also be that preference shares do not reduce the creditworthiness of a company, unlike debt that is added to the balance sheet. The company can issue preference shares that act like debt but are shown as equities in the balance sheet. Happy Investing!
After severely disrupting the telecom sector, Mukesh Ambani led Reliance has set its eyes on the Indian retail sector. Today, we are going to discuss one of the most popular questions these days i.e. can Reliance Retail replicate the success of Jio in the retail sector similar to what they did in telecom? Here, we assess the acquisition spree undertaken by reliance and the possibility of a disruption in the retail segment. Let’s get started.
Reliance and Future group acquisition
On August 29th, Reliance Retail reached an agreement with Future Group. According to the deal, Reliance would buy Future retail, wholesale, logistics, and warehousing business for $3.4 billion (Rs. 24713 cr.)
The Future Group was founded by Indian businessman Kishore Biyani as a stonewashed fabric seller in the 1980s. Today it is known for its retail segment which includes the BigBazaar hypermarket chain, Pantaloons clothing shop, FBB, Foodhall, Easyday, Nilgiris, Central, and Brand Factory.
But unfortunately for the Future group, its success came with huge amounts of debt and the COVID-19 pandemic finally broke the last straw. The deal gives Reliance access to 1500 stores in more than 400 cities with millions of customers.
Why did Reliance Choose Future?
Future despite being a brand that used to be successful is loaded with debt and doesn’t come close to compete with Reliance retail which as of September 2019 had over 10900 stores in 6700+ cities. The answer to this could lie in Futures’ presence on a scale in the brick and mortar retailing established brands, work systems, and human resources built over the years. The sale comes with established label brands that have a vendor ecosystem that has been developed.
The deal also includes Futures supply chain solutions which offer warehousing and logistics services. Its customers include the likes of Tata which uses this company as a service provider for dealers across the country and such a deal would help Mukesh Ambani in expanding his reach.
The deal, however, fell through with restrictions placed on the man who led the organized retail revolution in India. Kishore Biyani and his family members are not allowed to re-enter the retail segment for the coming 15 years. This is part of the non-compete agreements that are valid generally for 3-5 years.
The possible reasons for the long period maybe the financials of Future. Biyani is still allowed to operate in the home retailing sector through hometown stores. He owns Praxis Retail which has around 48 stores and has a generated revenue of Rs.702 crore in the last fiscal year.
Investing and Acquisition Spree of Reliance in Retail
After disrupting the telecom spree, Reliance recognized the potential of the Indian retail sector. This began in 2018 with Reliance announcing its entry into the e-commerce space with an online and offline hybrid system. This was followed by a series of acquisitions and finally the founding of Jiomart late in 2019.
Acquisitions and Investments
One of Reliance retails biggest acquisitions includes that of Hamleys for Rs. 620 crores. The acquisition of the 259-year-old toy store chain will give reliance added foothold in global markets to compete with the likes of Wallmart and Amazon. Reliances other investments include Genesis Luxury Fashion, apparel firm Future 101 Design, GLF Lifestyle brands, GIB body care, etc. and Zivame. Reliance also acquired Rhea Retail. In the pharma, segment Reliance acquired an online pharma company Netmeds for 420 crores.
Reliance has not limited itself to only expanding into the organized retail segment. It has also taken steps to ensure that the retail segment can be easily integrated into the online market place by making some significant acquisitions in the following startups
Other Acquisitions
Company Acquired
Function
Grab
Logistics startup
C-Square
software firm
Reverie Language Technologies
A vernacular language-as-a-service platform that enables real-time delivery of online content in many vernacular languages.
EasyGov
Indian government schemes/services aggregator enables people to apply for various government schemes
SankhyaSutra Labs
A multi-physics simulation service helps to find solutions to industrial problems.
Strategy for the Retail Sector
Reliance first entered into the retail segment in 2006. At this point, Reliance has not even been partitioned between Mukesh and Anil Ambani. By 2014 Reliance already had surpassed market leaders like Future in terms of revenue. It was in 2018 that Reliance tested the eCommerce space through reliancefreshdirect.com and ajio.com. In November 2018 reliance began testing JioMart “Desh ki Nayi Dukan”. It was tested in Mumbai, Thane, and Kalyan. Here orders could be placed through the instant messaging app Whatsapp. This gives Reliance access to the massive 400 million user base through Jio and Whatsapp. In the eCommerce, space Reliance is still behind market leaders like Amazon and Walmart.
So what plans does Mukesh Ambani have in store for the retail sector?
After having fair amounts of success in the organized retail sector Reliance has turned its focus towards the unorganized sector which includes local Kiranas. Mukesh Ambani has made it clear that Reliance’s future includes prospects where 50% of the groups’ revenue would be made through consumer-facing business in a decades time. Retail currently accounts for 21% of Reliances revenue.
In order to achieve this goal through the unorganized sector Reliance place to get local merchants on its eCommerce platform. Here the digital infrastructure built by Reliance Jio will be combined with its physical retail business. This is also known as O2O (Online to Offline marketplace) a business model used by Chinese eCommerce giant Alibaba. Here the consumer searches and orders the product through an online platform but buys it through offline channels. In the midst of all this will be the Point of Sale (PoS) terminal which is still being tested.
This PoS terminal will not only help merchants carry out common debit and credit card transactions but also enable them to keep a product inventory and also order through the wholesale store network. The apps and systems that will enable this are still being tested.
After understanding the design set in place the acquisition mentioned earlier(particularly support services) look more like strategic acquisitions. Examples include the purchase of ‘Grab a Grub’ a Mumbai based hyperlocal delivery company, Csquare info solutions – a company that provides software solutions for distributors and retailers, Haptik Infotech will provide conversation AI-enabled devices to users. These strategic acquisitions will not only boost Reliance’s mission but also help the startups extend their reach and funding under Reliance.
Challenges in the Unorganized Sector
One of the challenges that Reliance would face is getting local traders to tag along. Praveen Khandelwal, Secretary-General of the Confederation of All India Traders has lobbied in the past against eCommerce MNC’s players. He also states that the same rules would apply to domestic entrants as well.
This is mainly due to the predatory pricing followed by eCommerce players. This is mainly due to the predatory pricing followed by eCommerce players. If we look at how Reliance had gained significant market share in the telecom sector it becomes clear that there is a good possibility that the same predatory pricing measures may be used in the initial stages of the retail venture.
The Big Question: Can Reliance Retail Disrupt the Retail segment?
The Indian retail market was valued at 700 billion in 2019 and is expected to grow to $1.3trillion by 2025. Out of this the organized retail sector forms only a 10% share. The online retail segment is much smaller than this and it is worth only 3% of the total retail market in India. This shows why Mukesh Ambani was towards the retail segment.
Infiltrating the unorganized sector through the means of retail offers unlimited scope for growth. This also shows how only a small portion of the market has been tapped offering room for multiple players. Reliance may be able to grow within the sector but a disruption like the one seen in telecom is far fetched.
Bloomberg reported that a 40% stake has been offered to Amazon in Reliance retail in exchange for a $20 billion investment in the company. What’s interesting is that the near future will bring the possibility that two of the wealthiest men teaming up or otherwise competing to exploit the vast Indian retail opportunity.
An analysis of a list of companies in Indian Electricity & Power Sector: The first electric street light in Asia was lit in Bangalore on 5th August 1905. Despite what seems like a headstart the electrification of India seemed like an uphill battle in the last for almost a century. However, in the last decade, India has begun to make strides not only in extending electrification throughout the country but also introducing greener alternatives.
Today, we take a look at the possible future prospect on the Indian electricity & power sector and top players that are present in the current environment.
Indian Electricity & Power Sector
India is the third-largest producer and second-largest consumer of electricity in the world. India had an installed power capacity of 371.97 gigawatts (GW) as of July 2020. When we take a look at the growth opportunities in this sector their prospects can be viewed in the two plans already put forward by the government. The first being the governments’ vision of ensuring 24×7 affordable and quality power for all.
According to the Ministry of Power, the Saubhagya mission which had begun in 2017 where 100% of households in 25 states would be electrified has already been achieved. The only states left out were Assam, Rajasthan, Meghalaya, and Chhattisgarh.
100% electrification, however, does not mean that going forward there will be limited opportunities isolated only to the remaining four states. India’s energy demand is expected to double by 2040 and also has the potential to triple. This is mainly because of the rising Indian temperatures and increased appliance ownership among consumers. This would require India to add massive amounts of power generation capacity in order to meet the demand from the 1 billion airconditioning units the country is expected to have by 2050.
Another government initiative that offers growth potential in the sector is its plan to double the electricity generation capacity of renewable energy. As of 2018, India ranked fourth in wind power, fifth in solar power, and fifth in renewable power installed capacity. If government plans are successful the shared electricity generated through renewable would increase to 40% by 2030. Currently, the electricity sector is dominated by fossil fuels like coal. In the 2018-19 fiscal these fossil fuels produced about three-quarters of the country’s electricity.
Quick Fact: Did you know that Bhadla Solar Park is located in Bhadla village, in Rajasthan’s Jodhpur district is claimed to be the largest solar power plant in the world. Spanning 14,000 acres, the fully operational power plant has been installed with a capacity of nearly 2,250 megawatts (MW).
Top companies in Indian Electricity & Power Sector
Power Grid Corporation of India Limited (POWERGRID) was incorporated on 23 October 1989 as a public limited company, wholly owned by the Government of India. The company is engaged in the power transmission business with responsibility for planning, implementation, operation, and maintenance of inter-state transmission system and operation of national and regional load dispatch centers.
Its transmission network consists of roughly 164,511 ckm Transmission Lines and 243 EHVAC and HVDC substations, which provides a total transformation capacity of 3,67,097 MVA. POWERGRID transmits about 50% of the total power generated in India on its transmission network.The government of India currently holds a 51.34% stake in the company and the balance 48.66% is held by the public.
NTPC Limited is an Indian Public Sector Undertaking company, which is engaged in the generation and sale of electricity. The company generates electric power using coal-based thermal power plants and is headquartered in New Delhi. The company has also ventured into oil and gas exploration and coal mining activities. It is the largest power company in India with an electric power generating capacity of 62,086 MW. It contributes over 25% of the total power generation of the country.
The company has approximately nine joint venture stations, which are coal-based. It also holds approximately nine renewable energy projects. The company’s subsidiaries include NTPC Electric Supply Company Limited, NTPC Vidyut Vyapar Nigam Limited, Kanti Bijlee Utpadan Nigam Limited, Bhartiya Rail Bijlee Company Limited, and Patratu Vidyut Utpadan Nigam Limited.
Adani Transmission Limited is a holding company. The Company operates as a power transmission company. It is engaged in the transmission of electric energy. Despite only being incorporated in just 2013 it is already one of the top companies in the sector. The company owns, operates, and maintains approximately 5,050 ckm of transmission lines.
NHPC Limited ( National Hydroelectric Power Corporation) is a Public Limited Company and was incorporated in the year 1975. It was created with the objective to generate hydroelectric power. The government of India and State Governments holds a 74.51% stake within the Company while the remaining 25.49% is public.
Over the years the company has diversified into other sources of energy like Solar, Geothermal, Tidal, Wind, etc.
Tata Power Company Ltd is India`s largest private sector power utility with an installed generation capacity of over 10,577 MW. The core business of the company is to generate, transmit, and distribute electricity.Tata is one of the few companies that are present in all segments of the power sector viz Generation (thermal, hydro, solar, wind, and liquid fuel), transmission, and distribution.
Adani Green Energy Limited (AGEL) is one of the largest renewable companies in India. The company was incorporated in 2015 and is part of the Adani Group.In 2017, the company took complete control of the overall solar energy portfolio of Adani Enterprises.
The Company operates and maintains utility-scale grid-connected solar and wind farm projects. AGEL broke into the news in September 2020 when the stock price of the company grew 1300% in one year and they posted a profit in the year 2019-20.
The power sector has immense opportunities in a country like India. But before investing it is also important that the investors inspect other aspects of the industry. For a long, time the power sector has found itself debt-ridden. This was primarily because of the lack of trickle-down of payments from the DISCOMS( Power Distribution companies) to the GENCOMS( Power Generation Companies). Another aspect that the investors must take caution is the viability of renewable energy companies.
Although they are marketed as a safer future, it is important to note that they too come at environmental costs and significantly higher economic costs all the while producing only a fraction of the energy in comparison to other fossils fuels. This affects both the motive i.e greener earth and the profitability prospect of the company.
A Study on top companies in Indian Auto Ancillary Industry: The Auto Ancilliary Industry includes companies that provide supporting equipment to the primary products of a vehicle company. This support may be in the form of Tyres, Battery, Brakes, Suspension, etc.
Such industries enable vehicle companies to focus on their core competencies while they are able to produce quality parts they specialize in. The high growth prospects of the Auto Ancillary Industry makes it one of the sunrise industries in the Indian markets. Today, we take a look at the Auto Ancillary Industry in India and its top players. Let’s get started.
The Auto Ancilliary Industry in India
The Auto Ancilliary sector from India is mainly focussed domestically and does not play a large role globally. But this tips the scale in its favor when we look at the strides it can make in terms of growth. An Auto Ancilliary Industry is heavily dependent on the Automobile Industry. Luckily enough the Indian Automobile industry is the world’s fourth-largest, with the country currently being the world’s fifth-largest manufacturer of cars and seventh-largest manufacturer of commercial vehicles in 2019.
As per Automobile Component Manufacturers Association (ACMA), automobile components export from India is expected to reach US$ 80 billion by 2026. The Indian auto components industry aims to achieve US$ 200 billion in revenue by 2026.
MRF Limited is India’s Largest Tyre Company in terms of total sales and MCAP. The company initially started off in Madras as a balloon factory. It was in 1952 that the company decided to enter rubber manufacturing.
MRF today has come a long way to not only have a quarter of the market share but also has extended its presence to 65 countries. MRF makes and sells tyres not just for passenger cars and motorcycles, but also for trucks and buses, farm machinery, Pickup, 3-Wheeler, etc. The company also manufactures other rubber products such as conveyor belts and toys.
Balkrishna Industries Limited (BKT) is a leading manufacturer that specializes in the Off-Highway tire market. This includes specialist segments like mining, earthmoving, agriculture, construction, and other industrial tyre segments.
The company was founded in 1987 and since then has achieved the status of one of the best quality tyre brands in India. BKT has developed into a global player in the Off-Highway tire industry with a 6% global market share. Balkrishna Industries predominantly caters to the replacement market in North America and Europe. The Italian football second division, Serie B is known as Serie BKT after Balkrishna Industries purchased naming rights.
Apollo Tyres was founded in 1972 and is headquartered in Gurgaon, India. Since then it has become one of the leading global suppliers of tyres and boasts a presence in over 100 countries. The company markets its products under two brands Apollo and Vredestein.
If tyres that come as original fitment with new vehicles are considered then Apollo Tyres takes the top spot. The company currently makes radials for cars, bikes, and a host of other commercial vehicles.
CEAT is one of India’s leading tyre manufacturers today and has a strong global dominance. It was founded in 1958 and is now headquartered in Mumbai. CEAT, however, was not originally an Indian company. It was originally founded in Italy(1924) and the name CEAT was an abbreviation for ‘Cavi Elettrici e Affini Torino’. It was in 1982 that the RPG Group acquired the company.
Today, it makes tyres for cars, bikes, trucks, SUVs, Auto-rickshaws, buses, tractors, and various other vehicles. CEAT produces over 165 million tyres every year and offers the widest range of tyres to all segments and manufacturers.
Goodyear is one of the world’s oldest and largest tyre companies. It was established in the year 1898 and is one of the most recognizable brands in today’s age. Goodyear has been in the Indian markets since 1960 and since then has developed a good understanding of what the Indian consumer wants and delivers accordingly.
Its products in the Indian markets include value offerings, high-performance radials, and rugged, off-road-ready tyres. Apart from this, Goodyear is known for supplying radials to Formula One cars and also serves airplanes.
Indian company Exide is one of the biggest manufacturers of batteries in the whole world. The company as old as independent India itself was incorporated as Associated Battery Makers (Eastern) Ltd. The company was renamed Chloride Electric Storage Co (India) Ltd and then again in 1995 the name was changed to Exide Industries.
Exide today forms a large portion of India’s battery exports. The company supplies automotive and industrial lead-acid batteries ranging from 2.5Ah to as high as 20,500Ah.
Amara Raja Batteries is one of the largest manufacturers of lead acid batteries for both industrial and automotive applications. It sells its products under the brand Amaron and Powerzone. Amaron is the second-largest selling automotive battery brand in India. Powerzone on the offers a wide range of inverters, home UPS and inverter batteries.
The company not only makes batteries for distribution in India, but exports its products Africa, Asia Pacific, and the Middle East.
HBL Power Systems LTD offers specialized batteries and finds its biggest buyers in the aviation industry. The company was founded in 1997 and successfully developed its first product i.e an aircraft battery. Over the years the company also began manufacturing custom-designed, high-quality, cost-effective batteries to meet the needs of various core industries.
Apart from airways, the firm distributes its batteries to other sectors like railways, defense, and other heavy industries.
Bosch is originally a German engineering and technology MNC founded in 1886. The company entered India in 1922 but ventured into the auto ancillary only in 1951 after purchasing a 49% stake in Motor Industries Company Ltd (MICO). In 2008 MICO was renamed to Bosch Ltd.
Although the company functions in areas like Mobility Solutions, Industrial Technology, Consumer Goods, and Energy and Building Technology 84% of its revenues from India come from its automotive business. Bosch currently has a turnover of over $3 billion and 18 manufacturing sites, and seven development and application centers.
Motherson Sumi Systems Limited (MSSL) was established in 1986 through a joint partnership between Samvardhana Motherson Group and Sumitomo Wiring Systems of Japan. MSSL is one of the leading auto component manufacturers. They specialize in automotive wiring harnesses, dashboards, door trims, bumpers, mirrors for passenger cars, and is also a leading supplier of plastic components and modules to the automotive industry.
The company recently acquired 80% of the stock of a German-based company called Peguform Group.
Endurance Technologies Limited was incorporated on December 27, 1999. The company is one of India’s leading automotive component manufacturing companies. The company manufactures and supplies a diverse range of components.
Its products include aluminum Die–Casting Products, two-wheeler aluminum alloy wheels, shock absorbers, front forks for motorcycles and hydraulic and gas-charged dampers, struts, gas springs clutches, friction plates, hydraulic disc brakes, rotary brake discs, hydraulic drum brakes, and tandem master cylinders. The company has 16 manufacturing plants within India 2 in Germany.
WABCO India Limited is a leading supplier engaged in manufacturing automotive components and related services. The Company provides safety and vehicle control solutions to the commercial vehicle segment of the automotive industry.
WABCO is also engaged in the manufacture of air brake actuation systems for commercial vehicles. The Company is also involved in various other segments, such as off-highway, defense, luxury bus, car, and trailers.
Sundaram Fasteners established in 1966 is a part of the TVS Group. Over the years they have grown into global leaders, manufacturing critical, high precision components for the automotive, infrastructure, windmill, and aviation sectors.
In Auto Ancillaries the company produces iron powder, tappets, shafts and hubs, couplings and gears, gear shifters, automotive pumps, radiator caps, hot forged components, cold extruded parts, powder metal components, and high-tensile fasteners.
The auto ancillary industry is in the growth phase and is expected to grow at a double-digit CAGR between the period 2019-2026. Although investing in the Auto ancillary industry seems to be attractive it is important to note that all rumors to the automobile sector are also felt in the auto ancillary industry. These include impacts from festival seasons, credit crunch, bank interest rates, fuel costs, etc.
Another important factor that is expected to have a significant impact on the industry in the coming years is the push for Electric vehicles. Hence for inventors looking for long term investments selecting a company that is in tune with the changing needs into the electric segment would be optimal.
Quick analysis of major shares in the Indian Pharmaceutical Industry: There is no other industry in the country that has achieved a global stature as that of the Indian Pharmaceutical Industry. The fact that the Indian Pharmaceutical industry has the possibility of soon being called the ‘Pharmacy to the World’, speaks volumes.
Today, we are going to discuss Indian Pharmaceutical Industry along with the major pharma shares in India. Here, we will give you an insight into the current state of the Indian Pharmaceutical Industry and the top-performing Indian companies.
Role Played by the Indian Pharmaceutical Industry
The Indian Pharmaceutical Industry plays a very important role in the global pharma markets. The industry supplies over 50 percent of global demand for various vaccines, 40 percent of generic demand in the US, and 25 percent of all medicine in the UK.Presently, over 80 percent of drugs used globally to combat AIDS are sourced from India.
India also constitutes 40 to 70 percent of supply to the World Health Organization’s demand for DPT and BCG vaccines and 90 percent of the global demand for the measles vaccine. Indian drugs are exported to more than 200 countries in the world making it the largest provider of generic drugs globally.
The Indian Pharma industry has been able to achieve this because of its unique characteristics. The drugs produced by Indian companies are low priced but still maintain the high regulatory standards of markets like the US and Europe. The reason for the drugs being of low price is mainly due to the large labor pool available. This also includes scientists and engineers with potential in comparison to their counterparts abroad.
The industry also reveals a highly competitive domestic environment which keeps the prices low. The low prices are one of the reasons why although India ranks tenth globally in terms of value but third in volume. The low prices coupled with the high quality offered which fall in line with the USFDA standards make the drugs not only accepted but also demanded everywhere in the world.
Growth prospects of the Indian Pharma Industry
Data from 1969 would help us better understand the growth prospects and the potential of the Indian Pharma industry. As of 1969, the Indian domestic market was dominated by foreign players holding a 95% market share. As of 2020 Indian pharma has an 85% domestic share and alone accounted for 15% of the global market. Pessimistic estimates have shown that the Indian Pharmaceutical market is expected to reach a value of between US$50 billion and US$74 billion by 2020.
This growth is mainly driven by the growth in medical infrastructure within the country. This would extend the accessibility to sections that lacked such healthcare before. The rising awareness and the ability to afford medicines will also account for a significant portion of domestic growth. India is projected to become one of the top 10 countries in terms of medical spending.
By 2040, India is also predicted to be the most populated country on earth, overtaking China. Other reasons for a boost in the global growth of Indian pharma would be the increase in branded drugs becoming off-patent over time. All these reasons coupled up would account for domestic growth making India attractive to international investors.
As global developed markets slow down, emerging markets like India, Russia, China, Brazil will account for greater roles in the pharma industry both as producers and consumers.
Pharmaceutical Industry – Best Pharma Shares in India
Sun Pharmaceuticals is Indias largest pharmaceutical company and the fifth largest specialty generic company in the world. The MNC was established by Mr. Dilip Shanghvi in 1983 offering products to treat psychiatry ailments.
Today the company offers its capabilities by producing branded generics, specialty, OTC products, antiretrovirals (ARVs), active pharmaceutical ingredients (APIs), etc. Its formulations treat various areas like cardiology, psychiatry, neurology, gastroenterology, and diabetology.
Aurobindo Pharma was established in 1986 by Mr. P. V. Ramprasad Reddy, Mr. K. Nityananda Reddy, and other committed professionals. The company first began operations in a single manufacturing unit of Semi-Synthetic penicillin in Pondicherry. Today Aurobindo Pharma sells over 300 products in over 125 countries.
About 35% of sales are generated through APIs, 65% from the formulations business, of which 63% of formulation sales are from the United States. It is noteworthy that Aurobindo Pharma has one of the highest exposure to imports of APIs from China, mainly for antiretroviral and antibiotic drugs.
Lupin Ltd. was established in 1968 and is currently amongst the top 10 generic companies in the world. Its businesses include formulations, Active Pharmaceutical Ingredients (API), drug delivery systems, and biotechnology. It is also known for growth therapies like Cardiology, Central Nervous System, Diabetology, Respiratory, Gynecology, Anti-Infective, Gastro-Intestinal, and Oncology.
Dr. Reddy’s Laboratories was founded by Anji Reddy in 1984. The MNC manufactures and markets a wide range of pharmaceuticals in India and oversea,s and has over 190 medications, 60 active pharmaceutical ingredients (APIs) for drug manufacture, diagnostic kits, critical care, and biotechnology products.
Cipla formerly known as Chemical, Industrial & Pharmaceutical Laboratories was founded by Dr. K.A. Hamied in 1935. The company has its presence around the world and is a therapy leader in India for anti-malarial with a market share of over 34%. The company also has a vast portfolio with more than 1,500 products in the market.
Cipla is known for its key role in selling HIV medicines in sub-Saharan Africa at one–twenty-fifth of the cost of medicines sold by other manufacturers.
Pharma Industry amidst COVID-19
The Covid-19 pandemic has exposed the reliance of the Indian pharma on China for the procurement of API (Active Pharmaceutical Ingredient). China was one of the leading countries to produce and sell APIs to the rest of the world until recently. The early effects of the coronavirus on China impacted the supply of such API throughout the world.
Pharma’s use Chinese ingredients to produce one-fifth of the world’s supply of medicines. For the number of medicines manufactured the reliance on Chinese APIs is as high as 70%. The figures in the manufacturing of antibiotics are much worse as they rely as high as 90% on Chinese imports.
Despite this Indian pharma’s have still strived to meet up to the added expectation during COVID-19. The industry has been able to also view the pandemic as an opportunity by providing drugs to many friendly countries. This was seen in situations when countries like the United States requested India to export the anti-malarial medicine — Hydroxychloroquine — in order to combat COVID-19. The industry rising up to the occasions have made global powers realize the potential of Indian pharma’s in becoming the Pharmacy to the world.
Despite the COVID-19 impact, the domestic pharma industry will grow between 4-6 percent in FY21. Following this it is also expected to have an 8-11% compounded annual growth rate (CAGR) in the FY 2020-2023 period.
As seen above, the Indian pharma industry has unlimited potential especially in the post corona environment as global powers become skeptical towards China. In order for the industry to take advantage of the global scenario, the government’s role is of paramount importance.
It is important that the government raises its healthcare spending to 3% of GDP YoY. The lack of focus on directing adequate spending towards healthcare was seen in the shortages of healthcare personnel, equipment, and infrastructure. It is also necessary that both the increase and reduction in prices are regulated.
Extremely low prices have the possibility of making Indian pharma’s an unattractive investment opportunity. This may wipe out up to a $20 billion market opportunity. Another aspect that requires attention is the increased focus required in the AatmaNirbhartha of API. COVID-19 has shown both the cracks and the possibilities that the Indian pharma industry possesses.
With the right policies ensuring growth and guiding the industry it is entirely possible that India becomes the “Pharmacy to the World” in the future.
Simplifying what is CAPM – Capital Asset Pricing Model: One of the most popular and prevalent laws states that “Greater the risk, greater the reward”. This holds true even when we take into account the stock market and the returns earned. Assets like government bonds come with low risk-low returns, blue-chip equities come with medium risk- medium return, and high risk-returns in equity stock is generally noticed with new entrants.
All seems well and good when we are able to compare different asset classes as above. But how would you differentiate the expected returns between stocks of the same asset class? And even when done among different asset classes how is this differentiation quantifiable?
Today, we discuss the CAPM an investment theory that provides the answers to these very problems. The model has been so integral to financial management that it has even been suggested that finance became a full-fledged scientific discipline’ only when William Sharpe published his derivation of the CAPM in 1986.
What is CAPM?
The Capital Asset Pricing Model provides us with a formula that describes the relationship between expected return and the risk of investing in that security. The CAPM formula provides investors with an expected return that they should be expecting taking up the risk on the security.
On the other hand, it is also used by the management of the company to calculate the cost of equity or the rate at which the will service the shareholder equity in order to fairly compensate its shareholders for taking up the risk.
How to Calculate returns using CAPM?
The expected return for security can be calculated using the following formula:
Where,
Rf = Risk-Free Rate
Rm = Expected return of the market
Ra = Expected return from the security.
Simplifying the Expected Return Calculation Formula
A first glimpse of the formula shown above is good enough to spin heads. Now we go ahead and simplify it in order to make it more understandable.
1. Rf = Risk-Free Rate
Generally, government-issued bonds are known to be one of the most secure investments. This is why the rate provided by these government bonds is termed as the risk-free rate.
2. Beta – Stock’s volatility Measure
Beta here is the measure of the stock’s risk which is captured by measuring the volatility a stock faces in relation to the overall market. Here the average market return is 1. Say the Beta of a company A is 1.5. This would mean that for every 1% increase in the market return the shares of A’ will increase by 1.5%. But also a 1% decrease would mean that shares of A will decrease by 1.5%. Stocks like this are highly volatile.
Take another example where the Beta of a company is 0.5. This would mean that for every 1% increase in the market return the shares of A’ will increase by 0.5%. But also a 1% decrease would mean that shares of A will decrease by 0.5%. Stocks like this are of low volatility.
3. Rm = Expected return of the market
The expected return from the market is achieved by either following what research companies estimate. Or by computing historical averages from the past say for eg. the average Nifty return for the last 10 years. This is used in the formula in order to find the market risk premium. The market risk premium is shown in the formula as (Rm-Rf). This in simpler words shows the additional return available from the market in comparison to the Risk-Free rate.
After reading the above the formula simply becomes,
Expected Return from the Mkt. = Risk-Free Rate + (Beta * Market Risk Premium)
A Simple Example to Understand it further
Let us calculate the expected rate of return for ABC company. Say the risk-free rate is 3% by looking into the current government-issued bond rates. ABC operates in the textile industry which has a Beta of 1.3%. Indian Markets, on the other hand, are expected to rise in value by 8% per year.
Here, the expected return rate can be calculated as,
In this article, we tried to simplify what is CAPM i.e. Capital Asset Pricing Model. This approach has both its pros and cons while calculating the expected rate of return of an asset.
Over the years a number of shortcomings have come about with regards to the CAPM but it still remains widely used because of its simplicity and ease of comparison of investment alternatives. The CAPM however does not remain restricted to finding expected returns but is also used in portfolio building by investors. Its key advantages however will always lie in its ability to translate into estimates of expected return, keeping it useful.
Unraveling the Magic Formula investing Strategy by Investing Ace Joel Greenblatt: Have you ever wondered if you would get an indestructible investment strategy if you combine the strategies of investment gurus in a perfect mix? The magic formula of Investing by Joel Greenblatt does exactly this. It combines the strategies of Warren Buffets value investing and Benjamin Grahams Deep value approach in order to create the winning ‘Magic Formula’.
In this article, we are going to cover this ‘The Magic Formula’ Investing Strategy by Joel Greenblatt. Here, we’ll discuss the exact magic formula approach and how it can be applied to your stock-picking technique and portfolios.
Who is Joel Greenblatt?
Joel Greenblatt is a hedge fund manager and professor at Columbia University. He runs Gotham Funds with his partner, Robert Goldstein. Joel is considered a genius by other fund managers at wall street. Such was his acumen, that post the release of his book ‘You Can Be A Stock Market Genius’, many hedge funds claimed they were following his approach.
The Magic Formula which we are about to discuss today is from his second book, ‘The Little Book That Beats the Market’. This book was specifically written by him in order to assist small investors with a simple strategy. According to Joel Greenblatt, The Magic Formula when tested by him offered 24% returns from 1988-2009.
What is Magic Formula Investing?
In the book “The Little Book that Still Beats The Market”, Joel Greenblatt focuses on his magic formula investing strategy that is based on two financial ratios- Return on capital and Earnings Yield. Let’s discuss each of these ratios.
1. Return on capital (ROC)
ROC is the ratio of the pre-tax operating earnings (EBIT) to tangible capital employed (Net working capital + Net fixed capital). It can be calculated by using the following formula: ROC = EBIT/ (Net working capital + Net Fixed capital).
Joel Greenblatt described why he used ROC in place of the commonly used financial ratios like ROE (Return on equity) or ROA (Return on assets). This is because, first of all, EBIT avoids the distortions arising from the differences in tax rates for different companies while comparing. Second, the net working capital plus net fixed capital is used in place of fixed assets as it actually tells how much capital is needed to conduct the working of the company’s business.
Overall, Return on capital tells how efficient the company is in turning your investments into profits.
2. Earnings Yield
Enterprise value is the market value of equity (including preferred shares) + net interest – bearing debt. Earning Yield can be calculated as: Earning yield = EBIT / Enterprise value.
This ratio tells how much money you can expect to make per year for each rupee you invest in the share.
In short, from the above two discussed financial rations, ROC tells how good is the company, and Earning yield tells how good is the price.
Next, here are the three steps suggested by the author Joel Greenblatt in his book ‘The little book that beats the market’ to find companies for investment:
Find the earning yields and return on capitals of the stock to evaluate stocks.
Rank the companies according to the above two factors and combine them to find the best companies for investment.
Have patience and remain invested for the long term. Lack of patience is why people fail to implement the magic formula.
How to use magic formula using the above ratios?
Find the Return on capital (ROC) and Earning yield (EY) for all the companies.
Sort all the companies in ranks by ROC.
Sort all the companies in ranks by EY.
Invest in the top 30 companies based on the combined factors.
Company Symbol
ROC Rank
EY Rank
Combined Rank
A
1
153
154
B
2
35
37
C
3
37
40
D
4
480
484
E
5
13
18
F
6
127
133
G
7
78
85
H
8
512
520
Now, we try to find the companies with the lowest combined factor rank.
For example, for company A, although it ranks 1 for the Return on capital. However, its earning yield rank is quite low and that’s why it’s combined rank is quite high. On the other hand, for company E, both ROC and EY rank are decent and hence its combined rank is good for investment.
How to use the Magic Formula Investing Strategy efficiently?
The Magic Formula is based on the simple principle that if you buy good companies at cheap prices you are going to do well. In a note of caution, Greenblatt emphasizes that for the formula to work its magic it must be applied for a period of 5 years. The following are the steps to be followed in order to implement this strategy.
1. The very first step involves deciding the total amount that you want to invest along with the number of stocks. Greenblatt suggests creating a portfolio of 20-30 stocks.
2. The next step includes setting up an investment pattern for the period when you would buy the stocks. Greenblatt expects the investments to be bought in batches spread out through the year. I.e. if you plan on investing in 20 stocks you can plan of buying stocks in batches of 5 every 3 months. Or if you plan on investing in 21 stocks you can plan of buying stocks in batches of 7 every 4 months.
3. The next step is to try and allocate the predetermined total investment amount equally among the number of stocks selected. This means that if you have decided to invest in 20 stocks with a capital of $200,000, then $10,000 must be spent on each stock.
4. Now we sort the companies in order to only include companies with a market capitalization of over $50 million, $100 million, or $200 million. This will depend on the risk an investor can stomach. On whether he would prefer to invest in stocks that have greater growth prospects in the lower Mcap or ones that are stable with higher Mcap.
5. Determine the company’s earnings yield, which is EBIT/EV.
6. Determine the company’s return on capital, which is EBIT/(net fixed assets + working capital).\
7. Based on the last two steps, rank the stocks according to earnings yield and return on capital. Once ranking them individually is on the 2 parameters is done, rank them based on the combined ranks of the two-parameter. This can be done by adding the ranks of stock in the 2 parameters.
8. Invest in the highest-ranked companies calculated whenever the predetermined dates to invest in the batches arrive.
9. Rebalance the portfolio once per year, selling losers 51 weeks after purchase and selling winners 53 weeks after purchase. This is for tax purposes, as losses can be considered for the same year, and stocks that gain are to be held for longer in order to benefit from the reduced Long term Capital Gain tax rate.
The two parameters used above i.e help us identify stocks that are of high value(earnings yield) and at the same time are below the average price(ROC).
Closing Thoughts
The Magic formula is a relatively simple investment strategy that is easy to understand. Its implementation, however, may take some toll. In order to ensure that it does not cause much of a hindrance, it is best that investors continuously keep recording.
This involves the plan and activity performed along with the appropriate dates. By doing so investors will avoid any confusion. These may arise regarding when they have to buy stocks and when they have to rebalance their portfolios. Happy Investing!
An analysis of Investing in Incredible India thematic stocks: India is one of the known tourist destinations in the world, thanks to the magnificent monuments, rich cultural heritage, and history. An added advantage has been the diversity offered in every aspect by different states that leaves tourists wondering if they even are visiting the same country.
This tourism is not only limited to options of sightseeing but also includes religious attractions and other medical/wellness tourism that involve Ayurvedic and spa therapy. Today, we have a look at the tourism industry from the perspective of an investor in order to provide insights into what picture it has to offer.
An Overview of the Tourism Sector in India
The tourism sector in India attracts close to 11 million foreign tourists every year. The Taj Mahal alone attracts nearly 6 million people. The domestic tourism industry brings in a huge contribution to the industry The Kumbh Mela saw a whopping 150 million visitors in 2019.
This has resulted in the Indian tourism industry growing at a fast pace (nearly 10% YoY). As of 2018 Tourism industry was one of the major growth drivers of India’s economy contributing close to $250 billion or 10% of the country’s gross GDP.
— What forms part of the tourism sector?
The sectors that form part of tourism include the following
1) Tours and Travel Agencies
These include tour operators, travel agents, online travel agencies, etc. They offer tours and travel services packages in a single product. These packages include travel, accommodation, and guides These services and packages are also provided online. For eg. Thomas Cook, Cox and Kings, Goibibo, Makemytrip.
2) Transportation
The transport sector connects tourists and destinations around the world. This sector is comprised of the Airline Industry, Car Rentals, Water Transport, Railways, etc. If we look into the aviation industry in India, a few of the leading companies are Indigo, Spice jet & Jet Airways. Further, in the railway, the only publically listed company in India is IRCTC.
3) Accommodation and catering
The Accommodation sector forms one of the most integral parts of the tourism industry. This is because tourists need a place to stay and rest. These may range from top-class hotels, camping, or rented accommodations. Taj Vivanta, Club Mahindra, Airbnb, etc. If we look into affordable housings, OYO has made a remarkable presence in this sector.
4) Food and Beverages
Apart from being one of the basic needs, it is also safe to say that this sector alone attracts a portion of tourists both domestic and foreign. This includes restaurants, bars, cafes, nightclubs, etc.
5) Other Connected Sectors
These include attractions, financial services (currency exchange), the entertainment sector( casino, shopping malls, theme parks), etc. For Example Goan Beaches, Imagica waterpark, UB city.
Why should you invest in the Indian tourism sector?
— General Scenario while Investing in Incredible India
Apart from the potential already mentioned above, there are multiple reasons why one should invest in the tourism sector. The most important being the government support. The government has brought forward many schemes like Incredible India in order to market and boost tourism. The government has also allocated funds and introduced policies that are aimed at preserving tourist sites.
In 2014, the government introduced the e-tourist visa which enabled tourists to get an Indian visa quickly online. The government in order to gain tourist confidence also introduced a Tourist police task force specifically established to ensure the safety and security of tourists.
In order to boost the domestic acceptance of tourists, the government also officially introduced slogans like ‘ Athithi Devo Bhava’. It is rare to find another industry where the government has taken the initiative of marketing and maintaining the assets and resources.
— Investing in Incredible India during COVID-19
It may come as a surprise if you were told that there may be a ray of opportunity in investing in the tourism-related sectors during the pandemic we are in. This is because of all the sectors it is tourism that is the worst hit. This has sent the stocks of most tourism dependant companies tumbling.
But it is also important to foresee that the pandemic will end one day with the introduction of a vaccine. This, in turn, has the possibility of leading to an explosion of tourism after people have spent months cooped up in their homes due to fear of traveling.
If not the normalization will also lead to the tourism sector reaching pre-COVID levels. This provides investors the opportunity to buy stocks in a distressed sector that have theability to weather the storm at cheaper rates increasing the probability of booking returns in the short-term.
Below are some of the companies associated with the tourism industry along. The table includes companies along with the MCAP, Debt to Equity ratio along with their respective promoters pledge.
While Investing in Incredible India theme, one should remember that the tourism industry although distressed currently will not always remain so. The major assets i.e. monuments, cultures, traditions remain despite the pandemic. Selecting stocks that have the ability to weather the storm provides investors with the opportunity to ride the profits in the short term.
An analysis of Nifty 50 Companies to learn Nifty Constituent Stocks by Weightage: Nifty 50 is the benchmark index of the National stock exchange (NSE) in India. Basically, an index is the stock exchange creating a portfolio of the top securities held by it based on market capitalization in the respective category (entire market or sector-wise).
These indexes are useful because they provide investors and companies with a reliable benchmark. They have also been used as an investment strategy. In these cases, Investment Managers just set up their fund portfolios to simply track the index. They use the same portfolio as the index in an attempt to gain similar market returns.
Indexes play an important role as they also stand in representation of a country’s market and economy. Today, we observe NSE’s benchmark index namely Nifty 50. We take a look at the companies they have included along with the weights assigned to each.
Nifty 50 – NSE Benchmark Index
The Nifty 50 index tracks the behavior of the top 50 blue-chip companies as per market capitalization that are traded on the National Stock Exchange. Although the index includes only 50 of the 1600 companies that trade on the NSE it captures 66% of its float-adjusted market capitalization. Therefore, it is considered a true reflection of the Indian stock market.
Here are a few top features of the Nifty 50 Index:
The base year is taken as 1995 and the base value is set to 1000.
Nifty is calculated using 50 large stocks that are actively traded on the NSE.
The BSE Sensex or the Sensex 30 tracks the behavior of the top 30 companies as per market-cap registered on the Bombay Stock Exchange. BSE Sensex stands for S&P Bombay Stock Exchange Sensitive Index. Here are a few top facts about Sensex 30:
The 30 companies are selected on the basis of the free-float market capitalization.
These are different companies from different sectors representing a sample of large, liquid, and representative companies.
The base year of Sensex is 1978-79 and the base value is 100.
Sensex is an indicator of market movement. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE has gone down. If Sensex goes up, it means that most of the major stocks in BSE went up during the given period.
Sensex 30 Companies- Constituents of Sensex 30 by Weights – 2020
That’s all for this post. I hope it was useful for you. In case, if you have any queries related to Sense and Nifty 50 Companies or constituent stocks, let me know by commenting below. I’ll be happy to help. Happy Investing.
List of the best FMCG companies in India 2020: All our lives depend on FMCG (Fast Moving Consumer Goods) products that satisfy our basic needs. FMCG products are those that have a short shelf life that is produced in high volumes with low cost and are made for rapid consumption.
This industry include household items, over the counter medicines, food, personal care items, and stationery and consumer electronics, etc. The fast-moving consumer goods (FMCG) sector is India’s fourth-largest sector and has created employment for more than three million people.
Today, we take a look at the top 5 FMCG companies in India that are responsible for keeping over 1.3 billion Indians on their feet every day.
HUL is one of India’s oldest FMCG companies. It is a subsidiary of Unilever, a British-dutch company. The company was established in 1933 and has headquarters in Mumbai. HUL has served over 2 billion customers for over 87 years.
HUL has over 35 brands across 20 categories such as soaps, detergent, skincare, cosmetics, tea, toothpaste. The brand includes famous names like Surf, Excel, Dove, Lux, Lifebuoy, Clinic Plus, Wheel, Sunsilk, Knorr, Axe, etc.
ITC Ltd. has flourished in the Indian markets for over 110 years giving them a deep understanding of the Indian Consumer. The ITC is known to guarantee a certain standard in production and packaging. They have broad distribution channels in India. This has allowed them to penetrate into even the most rural areas through several retail shops.
Their products include Bingo, Sunfeast, Aashirvaad, Fiama Di Wills, Vivel, Savlon soaps and handwash, Papercraft, and Classmate. ITC sells 81% of the tobacco products in Asia including brands like Wills Navy Cut, Gold Flake Kings, Silk Cut, India Kings, Bristol, Gold Flake Super Star, Gold Flake Premium Lights, Classic Menthol, etc.
Nestle is a transnational food and beverage company headquartered in Switzerland. Globally the company has been around for more than 150 years. In India, Nestle dates back to 1912 when it began operating as Nestle Anglo-Swiss Condensed Milk Company. They cater to the nutritional and wellness requirements of Indian consumers. In 2016, they were rated 33 in Forbes list of largest public companies.
Nestle sells a plethora of products including beverages, bottled water, milkshakes, breakfast cereals, instant foods, performance, and health care nutrition, etc. A few of the 2000 brands they currently own are Nescafe, Maggi, Milky Bar, Kit Kat, Bar One, Milkmaid, Nestea, etc.
Britannia Industries is one of the oldest food-producing companies in the country. It was established in 1892 in Kolkata with an initial investment of merely Rs. 295. Their products are available in more than 5 million retail outlets. More than 50% of Indian households are proud users of their range of food items. The FMCG is known as the first Zero Trans Fat Business in the country. They have an extensive distribution network in India and 60 other countries.
Their products include Good Day, Tiger, Milk Bikis, Bourbon, Marie Gold, Cake, Cheese, Milk, and Yogurt. The company is the largest brand in the organized bread market.
Marico was established in 1990 in Mumbai. It began as a brand for coconut and refined edible oil and later expanded into various kinds of consumer goods. It is currently operating in 25 countries in the emerging markets of Asia and Africa. They maintain their innovation in manufacturing and packaging to preserve the tagline “Make a difference”.
Marico’s household brand includes Parachute, Saffola, Nihar, Livon, Set Wet, Mediker. Its global products include Parachute, Haircode, Caivil, Black Chic, Isoplus, Code 10, and X-men.
Closing Thoughts
With the ever-growing needs and constantly improving standards of living the FMCG’s play an even larger role. In order to fulfill these requirements, there are several other FMCG’s too that compete for a significant spot in this market. They include Colgate Palmolive, Parle Agro, P&G, The Godrej Group, Amul, Patanjali, Dabur, etc.
In this highly competitive environment, the FMCG’s have managed to keep customers satisfied by reaching out to every nook and corner of the country making each and every FMCG an integral part of the economy.
A study on why Indian GDP Shrunk by 23.9% in the first quarter of 2020: Hit by the Covid-19 pandemic, India, the world’s fifth-largest economy has been turned into the second-worst performer in the Covid-19 hit the quarter of the financial year 2020-21. India’s Gross Domestic Product (GDP) has shrunk by 23.9% in the first quarter of the financial year 2020-21.
Generally in forecasts, it is of rare occurrence to find the negative performances beating the downward trends. But that is exactly what has happened in the first quarter as although a negative GDP was predicted but nothing close to wiping out 1/4th of the GDP. Today, we take a look at the reasons behind the decline and the possible future.
(Image Credits: BusinessToday.in)
Why did the Indian GDP Shrunk by 23.9%?
Earlier, when this issue of the state of the economy came up at the 41st GST Council Meeting on Friday, Finance Minister Nirmala Sitharaman looked into the celestial factor and stated:
“This year we are facing an extraordinary situation…we are facing an act of God which might even result in the contraction of the economy.” – Nirmala Sitharaman, Finance Minister
Now, let us look into some of the hard facts. The Indian economy suffered due to the nationwide lockdown imposed. This was during the April- June quarter of which the lockdown covered a major portion. India had one of the longest and strictest Covid-19 lockdowns in the world. And unfortunately enough also suffered is suffering through the worst economic consequences. In comparison to other countries around the globe, India has been one of the worst-hit.
In order to understand how exactly the GDP was affected and how it can recover, we must first take a look at the components that form a part of the growth. These are consumption, government expenditure, investment, and the nation’s current account deficit (imports – exports).
Consumption generally has the greatest impact on GDP. In the last quarter, consumption accounted for 56.4 percent of the country’s GDP. But when compared to figures from 2019 there is a drop of Rs 5,31,803 crore in private consumption or 27 percent. This has been one of the major reasons as to why the GDP has contracted. This is because people simply are not willing to consume more as most expect tougher times ahead.
The Investment portion made up 32 percent of India’s GDP. This portion too fell by Rs 5,33,003 crore in comparison to last year. When coupled consumption these two components made up for 88 percent of the total GDP shrinkage
The government expenditure share of the GDP stood at 11 percent. This component rose by 16% due to the relief measures provided by the government. This increase in expenditure, unfortunately, could not make up for the total decline from the consumption and investment portion.
The current account deficit which historically has always been in negative recorded positive rates. But this too was not due to exports exceeding regular imports. It was simply due to the lack of imports due to a lack of demand.
The National Statistical Office (NSO) in an official statement released that “The GDP has shrunk from Rs 35.35 lakh crore in Q1 of 2019-20 to Rs 26.90 lakh crore in the first quarter of Q1 of 2020-21, showing a contraction of 23.9 percent as compared to 5.2 percent growth in Q1 2019-20,”.
What does the future hold for the Indian economy?
The future of the Indian economy depends on how well is the purchasing capacity distributed among the general public. This is generally spread out by the income earned by the citizens.
But the pandemic has rendered millions jobless forcing them to cut back on their spending habits. This reduces the consumption portion. When there is a fall in consumption businesses avoid making investments as they already are aware of the lack of demand. These two portions, unfortunately, depend on individuals as they cannot be forced to spend. One factor that can be controlled is government expenditure in order to boost the GDP.
But unfortunately, enough even prior to the pandemic the government had already exceeded their resources by borrowing. The only option remains is to keep borrow from the RBI which has maintained amounts close to 18% of the GDP as a reserve. An infusion will provide some relief and may get the consumption portion moving as long as inflation is kept on check.
For the remaining quarters to come analysts have predicted that even though the GDP will improve but will still keep performing negatively. This recovery phase is expected to also likely extend into the first half of 2022. But these estimates depend on current figures and will change depending on how deeply COVID-19 outbreaks occur throughout the country
List of the Top Electric Vehicle Manufacturers in India: When it comes to travel new technologies just keep popping up around the world. These alternative technologies in transport are mainly based around electronic vehicles with many companies jumping on the bandwagon to get some traction before the industry gets a radical shift away from traditional fossil fuels.
This change can also be seen as catchup that existing companies are trying to play in the electric vehicle (EV) segment with companies like Tesla and the bars set by them before its too late. Today, we take a look at the electric vehicle segment in India and the top manufacturing industries for investors to watch out for in this segment.
Why electric and What is the plan ahead?
One of the major reasons why countries are forced into adopting an electric alternative is climate change. India according to Environmental Pollution Index (EPI) 2018 is ranked 178 out of 180 in terms of air quality. One of the strategies adopted to combat this has been the push for electric vehicles[EV]. This will not only improve the environment but also India’s overall economic health. India currently imports crude oil and which sets us back in a deficit of approx $60 billion.
The aim set by the government has been 100% electrification by 2030. This is a humungous target considering the early stages of adoption that we currently are in. The electric vehicle adoption rate in India is less than 1% according to a McKinsey&Company report. According to Bloomberg, in the six years leading up to October 2019, India has barely sold more than 8000 electric cars. If compared to countries like China these sales figured are achieved in less than 2 days.
Some state government realizing their role have tried to eradicate one of the major barriers to owning an EV i.e. the high initial cost. This can be seen in the example of Maharashtra where subsidies were announced amounting to 1 lakh for electric vehicles. Consequently, Maharashtra had the highest sales volume in 2017 in the Indian electric car market. The government has also realized that it is best to target their efforts towards the public transport system in the initial stages.
This is because the purchase of EV in the private sector will depend on major other factors like attractiveness etc. The public transport system being one of the most heavily used in a country like India will definitely offer a huge boost to the sector.
Top Electric Vehicle Manufacturers in India
The Indian EV industry being in its nascent stages does not have an established market leader in all vehicle types. There are 10+ major players existing in the 2 wheeler segment, 3-4 in Electric buses, and few in car manufacturing. The following are the top Electric Vehicle[EV] Manufacturers in India.
Mahindra is the pioneer for EV in the Indian space. Being the first major EV manufacturer it launched Mahindra Reva, its first EV as early as 2001. The Mahindra Reva was India’s first electric car. Over the years Mahindra has gone ahead to set up a dedicated R&D center in Bengaluru.
Some of its other EV variants include the Mahindra E20 and eVerito. Mahindra however has not only focussed on the manufacture of EV’s but also battery packs and has partnered with various institutions in order to boost EV charging.
Tata is Indias biggest automobile manufacturer It automobile segment ranges from the manufacture of cars, utility vehicles, buses, trucks, and defense vehicles. Its associate companies include Jaguar Land Rover and Tata Daewoo. But when it comes to the EV segment Tata is a new entrant when compared to Mahindra.
In India, Tata Motors has an industrial joint venture with Fiat. One of Tata’s major benefits has been its ability to use resources from around the world. Tata’s innovation efforts are focused on developing auto technologies that are sustainable as well as suited. With design and R&D centers located in India, the UK, Italy, and Korea. Tata Motors in collaboration with its subsidiary, the UK based Tata Motors European Technical Centre (TMETC), are looking to have a major play in the EVs market in India.
When it comes to EV’s, Tata has focussed on the Passenger Vehicles and Electric Buses market in India. When it comes to four-wheelers Tata offers 3 vehicles to pick from. The Tigor EV, Nano EV, and the Tiago electric variant. In the Electric bus segment, Tata expects its demand from State transport Unions. The expected demand is estimated to be around 400,000 buses in the long run.
Apart from EV’s, Tata has also focussed on setting up charging stations in its efforts to improve the industry infrastructure.
3. Hyundai
Hyundai burst into the Indian EV segment with its launch of the Hyundai Kona EV in India. The South Korean global giant in the world of automobiles has stated that Kona was specifically designed to suit Indian operating conditions. One of the USP’s of the vehicle is its 452km range in one charge. This suited perfectly with Indians ‘Kitna Deti hai’ demand when it comes to vehicles.
Just to put things in perspective the range difference of the Kona and other market leaders is in hundreds of kilometers. The Kona, however, has an Ex-showroom cost of Rs.23.8 lakhs making it extremely expensive for Indian markets. Addressing this Hyundai has however said that another EV is in developmental stages keeping affordability in mind in order to serve the mass market. This EV is expected to be ready to enter the market in the next 2-3 years.
Ashok Leyland, the Hinduja Group’s flagship company, is the 4th largest bus manufacturer in the world and a market leader for trucks in India. The company has tied up with Sun Mobility in order to enhance its expertise in the vehicle domain.
Ashok Leyland designs electric variants specifically for Indian conditions and has also introduced battery swapping in electric buses to address e-mobility needs in the country. It has launched multiple electric bus variants like the Circuit, HYBUS, Electric Euro 6 Truck, and announced the iBUS. The immediate focus of the company, however, is currently in giving more thrusts to exports.
Other leading EV Manufacturers and associated industries
The Indian EV market being in its nascent stages is viewed as an opportunity waiting to be exploited. Other players that also have products in the EV market include MG Motors, Maruti Suzuki, Renault, Audi, Volvo, Hero, Ather, etc. An expansion in the EV industry will also see other associated industries catch on too. This includes the battery and EV chargers. Interests have been shown by many companies like Siemens, Schneider, Delta, etc.
But unfortunately, these companies will only move in once a significant demand arises in the public 4 wheeler segment. On the other hand, one of the major factors for the EV industry not expanding has been consumer concerns regarding the lack of Fast Chargers in India.
Unorganized and small players are dominating due to the limited scale of business. In order to combat this, the NITI Ayog is laying a key role in setting up EV chargers. There are currently 270 units of installed EV chargers in India. NITI Aayog has partnered with NTPC in order to set up 100,000 EV charging stations across India. Other government entities like BHEL have partnered with ISRO in order to develop batteries using Lithium technologies.
Most lithium requirements are currently imported from China, South Korea, Vietnam, Singapore, and Japan. Other players who have shown interest in the Lithium battery production business in India include Reliance, Suzuki, Toshiba, Denso Corp, JSW Group, Adani, Mahindra, Hero Electric, Panasonic, Exide Batteries, Amara Raja.
Closing Thoughts
In this article, we discussed the list of the top Electric Vehicle Manufacturers in India, their current work in EV segment, and future prospects. The Indian government had set up the aim of replacing all internal combustion engines with EV’s by 2030. A report from Mckinsey and Company from 2017 indicated that 40% of electrification was a more realistic picture of mobility in 2030. This report, however, was prior to the Pandemic. This, in turn, will further set back electrification in the industry for years to come.
In addition, the steps taken in order to enable acceptance of EV will not suit their main purpose if alternative means of electricity production are not implemented. Currently, up to 60% of the electricity is produced from coal. Although the government has set major aims to bolster the growth of EVs a lot more has to be done in order to ensure they are implemented.
Paytm Money Review and it’s Demat & Trading Account Services: Recently Paytm announced its entry into stockbroking through the launch of Paytm Money. The discount broking segment which Paytm enters involves only executing orders on behalf of the clients has become synonymous with online broking.
Despite its widespread acceptance in the brokerage community it still can be debated if entering this segment was wise. This is because less than 5% of the population of the country is currently involved in the stock market. In addition, the segment already includes players like Zerodha, ET Money, Groww, Kuveram wealth, Angel Broking, Sharekhan, etc. Today we discuss this move and the features brought to the table by the new product.
Why has Paytm entered stockbroking?
Paytm received the approval from the SEBI in 2019 in order to enter the stockbroking segment. Paytm over the years has tried to establish itself as the one-stop platform for anything money-related in the recent past. After gaining traction post demonetization the online payments platform offered banking services, mutual fund, SIP, pension products. They also have acquired Raheja QBE in its plans to enter the insurance segment before expanding into the discount broking.
Paytm’s plans to enter stock broking couldn’t have come to fruition at a better time. In the months of April and May, NDSL and CDSL saw an addition of 2 lac and 12 lac new Demat accounts respectively. The lockdown imposed due to the COVID-19 pandemic has forced the work from home model to be adopted. This has led to an increase in the first time investors flocking to the stock markets with the added disposable income, as they as they are forced to spend less on leisure due to the pandemic.
The markets too favored the entry of first-time traders as after the steady fall from Feb-March the markets rebounded gaining over 45%. This allowed new entrants to gain profits making trading all the more attractive. In addition, the added information availability in the new environment has made it easier for new entrants to learn the trade.
Paytm Money, however, has not set the existing trading community as the only probable consumer base. India is expected to have 44 crore smartphone users whereas there currently exist only 1.2 crore active traders in the market. Paytm predominantly functioning on smartphones will have multi-folds of unexplored markets available for them. Paytm Money which has investors from over 98% of the pin codes in India will have the added advantage due to this existing under penetration in the country.
— Zerodha on Paytm
Zerodha which currently dominates the market with 3 million customers and a 15% share last year made a profit of over Rs.1000 crores. Nithin Kamath, CEO of Zerodha, commented on its new competitor saying,
“The big problem in India to solve is to grow the capital market ecosystem. While it has increased over the last six months, there are 90 lakh Indians who invest in the stock market. There is another one crore more who can enter the market. For that one crore to come, you need platforms with great distribution capability Paytm is one of those who can. If anyone in the country can expand fast, I think Paytm can do that.”
Paytm Money Review – Delivery and Intraday Charges
— Paytm Money Delivery Charges
Charge
Delivery Rates
Brokerage
Rs. 0.01/- per executed order
Exchange Turnover Charges
0.00325% of turnover for NSE and 0.003% of turnover for BSE
GST
18% on Brokerage and Exchange Turnover Charges
Security Transaction Charges (STT)
0.1% of turnover on buy and sell orders
SEBI Turnover Fees
0.0005% of turnover
Stamp Duty
0.015% of turnover on buy orders
— Paytm Money Intraday Charges
Charge
Intraday Rates
Brokerage
0.05% of turnover or Rs. 10/-, whichever is lower
Exchange Turnover Charges
0.00325% of turnover for NSE and 0.003% of turnover for BSE
Paytm Money Review – Attractive features offered by Paytm Money
One of the most attractive features comes with the attractive prices offered by Paytm which even trump many market leaders. They offer the lowest charges on intraday trade which is at Rs. 10 per trade.
The app also provides in-depth financial and historical price data for every listed company which enables investors to research the stock market on their own.
Using the Smart Search and notification option the users can discover and set alerts for as many as 50 stocks and get notified when the price is reached.
The app also has the added advantage of offering not only stock and derivative trading options but also offers other mutual funds and National Pension Scheme products.
The app also includes a built-in calculator that enables users to find out the transaction charges and know the precise breakeven price to sell the stocks on profit.
Users can automate stock investing by setting buy orders on a weekly or monthly basis.
Advanced charts and other options like cover order and bracket order have been offered in order to make the experience more rewarding
The brokerage fees for the segment futures are the same as those for intraday. The options brokerage offers flat Rs 20 per trade regardless of the number of lots.
Delivery segments allow the transactions you are brokering shares today on another day. No additional charges are made for these, where no purchases and sale is made on the same day.
Another advantage that Paytm offers will be with respect to data security. Paytm being in the digital walled industry comes with absolute data privacy to keep investor data safe with bank-level security.
Opening a Demat Account with Paytm Money?
Opening a Demat or Trading Account using Paytm Money can be done within 24 hrs by the following steps:
Download the Paytm Money App
Click on complete your KYC by filling in the required information.
Upload the documents i.e. PAN, Aadhaar and bank details (Cancelled cheque/Account statement)
Submit and You can start trading/investing once your account is active
Pricing comparison between Paytm and Zerodha
Activity
Paytm
Zerodha
Account Opening
Rs. 200 - One time Digital KYC + Rs 300 Account Opening Charges
Rs. 300 ( Equity and Commodity)
Delivery Charges
Rs. 0.01/- per executed order
FREE
Intraday Charges
Rs. 10 or 0.05% of turnover
Rs. 20 or 0.03% per trade
AMC (Account Maintenance Charges)
Rs. 0 *
Rs. 300/ year + GST
Pledging Charges
Rs. 32 (including the depository transaction charges)
Paytm money stockbroking and it’s demat & trading accounts are still in the early phase and yet to be tested customer’s feedbacks and expectations. Anyways, here are a few limitations of Paytm Money that it is facing or will face in the future:
Paytm Money doesn’t offer to trade in derivatives i.e. futures and options trading yet.
Unlike the trading platforms like Zerodha ‘kite’ which has been in the market for years, Paytm’s trading platform is yet to test handling large volumes and market volatility.
Other Services like Commodity and currency trading is not available for customers.
Closing Thoughts
By venturing into stockbroking Paytm has now become one of the most comprehensive wealth management platforms in the country. Their extensive existing customer base acts as their biggest leverage as they have access to the market not penetrated by other platforms. This can also be seen in the app which has a UI that is friendly and minimalistic, enhancing its approach.
Comparing Paytm to market leader Zerodha, the former makes financial inclusion a priority to suit its customer base. Zerodha on the other hand according to CEO Nitin Kamath caters to people who are more than just investors by offering a more evolved product.
Understanding the pros and cons of Investing in Foreign Stocks: Indian investors have always been known to be inward-looking. That is, they would prefer to invest in the Indian markets over foreign ones. This has been the case even though it’s been over 15 years since they were first permitted to invest in foreign equities.
One of the major reasons for this has been the fact that India being a developing nation has an economy that grows faster than many developed countries. Today we discuss the possible benefits that an investor may receive while investing in foreign markets and also the limitations of doing so.
Benefits of Investing in Foreign Stocks /International markets
1. Diversification
Generally, when we talk about diversification we generally refer to investing across various industries and different MCAP’s. But by investing in foreign markets we can receive the same benefits of diversification even if the companies that we include in our portfolio already exist in the same industry or MCAP. The main purpose of diversification is to protect the portfolio. By investing abroad the portfolio is safeguarded from any domestic risks that might affect the domestic markets as a whole.
2. Market rebound rate
We earlier mentioned that that Indian investors prefer to invest in Indian securities as they provide a better growth rate. Markets around the world at times undergo crises at the same time. Rare as this should be this has already occurred twice post 2000. Keeping the growth rate aside let us try and notice the performance of markets post such crisis.
The Recession of 2008 saw economies stagnating all around the world. Even though they were first triggered by problems in the US, the Indian economy too suffered from the crash. The Indian markets suffered a fall of 55% compared to the heights it touched at the end of 2007. It can be noticed that the period of December 2007 to December 2013 the Indian markets gained only 4.3% after rebounding. Let us compare this to the US markets. During the recession, the US markets fell by about 50%. But during the same period from December 2007 to December 2013, the US market provided close to 50% returns after rebounding to previous levels.
Let us also take the 2nd instance where we have seen markets all around the world contract. This has been due to the pandemic that we are still suffering through. If we notice the US markets since their heights in February we can see that the markets fell 30% by March but have already rebounded and touched new heights gaining 15% returns. The Indian markets, on the other hand, suffered a fall of over 35% and have still not previous levels.
3. Exposure
Another added advantage of investing in foreign markets is the exposure an investor will receive in terms of securities available to him. Let us dial back time to the early 2000s and observe the options available to Indian investors when it comes to technology-driven securities. They are limited to TCS, Infosys, and Wipro.
On the other hand, foreign markets provided the likes of Apple. Microsoft, Google. At times even legal jurisdictions bar from certain companies to operate in a country. Investors, however, have the option to simply invest in foreign countries.
Risks involved while Investing in Foreign Stocks
1. Currency Exchange
One of the major problems investors face is due to the changing exchange rates. International stocks are priced in the currency of the country they are based in. For an Indian investor, this causes is a problem because he is now not only exposed to the uncertainty of the stock but also the uncertainty of the currency.
Take for example the shares of ABC Ltd. in the US are worth $100. After the purchase is made the stock rises to $110. But at the same time, the dollar weakens by 15%. If a domestic investor sells off his position and converts it to rupees he would not only forgo the 10% gain but also suffer an additional 5% loss due to the exchange rate. But with the added risk there also exists the added opportunity of making gains during the exchange. If the rupee weakens in the above case, the investor would walk away with a 25% gain.
2. Taxability
The gains that an individual makes from foreign investments can be taxed twice. First when the shares are sold in a foreign country. And secondly in India. This, however, depends on whether the individual is considered as a resident or any other status. The rates applicable here will depend on whether the gains are considered as Long term capital gain or Short term capital gain depending on the period the asset was held. This is known as Double taxation.
This can be avoided if there exists a tax agreement between the foreign country and India. This tax agreement is known as the Double Tax Avoidance Agreement. India currently has DTAA with more than 80 countries, including the US, the UK, France, Greece, Brazil, Canada, Germany, Israel, Italy, Mauritius, Thailand, Spain, Malaysia, Russia, China, Bangladesh, and Australia.
3. Political Unrest
When investing in a foreign country the investor must be aware of the potential political risk. This makes it necessary that the investors follow up on major political events such as elections, trade agreements, tax changes, and civil unrest. A country with unfavorable factors makes investing there not worthwhile even if the company is a good performer.
4. Lack of regulation
Investors looking to invest in foreign markets must be aware that foreign governments may not have the same level of regulations that are followed in India. They may have different disclosure and accounting rules followed respectively. This makes it harder and time-consuming for investors to keep up with the inconsistencies that of regulations in different countries.
There exist numerous advantages and risks that exist while investing in foreign stocks. The existence of risks does not mean one should turn a blind eye to over half of the investment opportunities available to an investor. This is because a majority of such opportunities exist in foreign markets.
Investors should, however, pick an opportunity where the risks are considered and assessed and still remains attractive as an investment.
A hand-picked list of the top 5 stock market investors in the world: Its been over 4 centuries since the inception of the world’s first stock exchange in Amsterdam. Since then there have been many investors- some known for their success and others for their ability to loose their massive wealth.
The list below includes investors that struggled through poverty, escaped the Nazi’s and even those that worked closely with spy agencies during the Cold War. An extremely interesting list to go through and even better footsteps to follow. Today we bring to you a comprehensive list of the top 5 investors of all time.
Top 5 Stock Market Investors of All-time!
5. Benjamin Graham
There are very few investors who have not only succeeded in their investment pursuits but also have successfully influenced multiple generations of investors at the same time. Any investor on this list cannot deny being influenced by Benjamin Graham.
Benjamin Graham was born to Jewish parents in England in the year 1894. Despite experiencing poverty first hand he graduated from Columbia University on a scholarship and went on to work in Wall Street. By the age of 25, Graham was earning $500,000 annually in the 1920s.
— His transition into an Investment Guru
But he soon lost almost all of his investments during the stock market crash of 1929. It was after this that Graham took the time to put the observations he made for investing in a book called Security Analysis while working as a lecturer at the Columbia Business School. It was in this book that Graham brought forward the concept of value investing, where investments are made based on the intrinsic value of the stock and not that of the market price.
But it was Grahams’ next book “The Intelligent Investor’ which is considered mandatory in every investors’ home. It was in this book that he introduced Mr. Market. Mr. Market shows up at every investors’ door giving them an option to buy or sell. But Mr. Market is often irrational and his emotions are run by greed and fear. Graham emphasized that i is necessary for every investor to do their own research and not depend on Mr.Market. According to him, a successful investor makes Mr. Market his servant and not his friend.
— Notable Investments
Grahams’ most notable investments include his 50% purchase of GEICO in 1948 for $712,000. This position grew to $ 400 million by 1972. His teachings and work inspired many notable investors like Warren Buffet, Irving Kahn, Walter Schloss, and Bill Ackman.
His book ‘ The Intelligent Investor’ is considered the bible for investing. Although it has been over 4 decades since Benjamin Graham passed away, his contributions still remain relevant and will continue to do so for the years to come.
4. David Swensen
Yale University, an Ivy League college, the third-oldest institution of higher education in the US was founded in 1701. Its alumni list includes 5 US presidents. Ever considered who is the highest-paid at Yale? Is it the University President Peter Salovey who is paid $1.4 million in 2015. The answer is ‘No’. The highest-paid employee at the school is its Cheif Investment Officer David Swensen who makes over $4 million annually.
— Early Career
Swensen himself is an alumnus of Yale and pursued a Ph.D. in economics. Before joining Yale as a Fund Manager, Swensen spent 6 years working at Wall Street. Advising the Carnegie Corporation, the NYSE, and also worked for the Salomon and Lehman Brothers. It was in 1985 that Swensen received the offer to manage Yale’s Endowment Fund which was worth $1 billion. Swensen was only 31 years old at the time, had no experience in portfolio management, and taking the job would mean taking an 80% pay cut. Suicide if you would ask anyone at the time.
Swensen, however, took the job. It was here that he along with Dean Takahashi invented the Yale theory. Swensen succeeded in implementing the theory and now is commonly known as the Endowment Model.
— The Endowment Fund
One may think that Swensen hit the lottery by managing the Yale fund. But to provide returns of the scale he did is nothing short of herculean. Especially due to the nature of the fund was made up of donations received by the university and hence require secure investments. The fund is also used to provide scholarships. All this on top of student protests over the choice of investments made that do not fall in line with the changing social causes. This forced Swensen to move away from investing in the companies that have a large carbon footprint.
As of 2019, the endowment fund was worth $29.4 billion. Second to Harward whose endowment fund is worth $39.2billion. According to former Yale President, Richard Lenin Swensens contribution to Yale is greater than the sum of all the donations made in more than two decades.
3. Jim Simons
Jim Harris Simmons was known to be gifted in mathematics from a very early age. He joined MIT at the age of 17 and went on to receive his Ph.D. in mathematics from Berkely at the age of 23.
— Early Career
He began working at the Institute of Defence Analysis, which was a branch of the NSA in the US. It was set to break Russian codes during the cold war. Simons states that he loved the job because it paid well and he was allowed to work on his personal math projects for half of the time. The work he did here remain confidential.
He, however, was fired after he expressed his views against the Vietnam War in an interview. He later went on to work at Stony Brooke University. Jim Simmons is famous not only in the world of investing but is also a highly acclaimed mathematician. He is noted for the Chern-Simons form which contributed to the development of string theory.
— Transition into an Investment Manager
Jim Simons’s first investment was from the amount he received at his wedding in 1959. He invested this in stocks but found it boring and later invested it in Soy-beans. It was only in the 1970s that Simons began taking investing and trading seriously. He took out his investments from his friends firm in Columbia and began trading with foreign currencies. He founded his own hedge fund Rennaissance Technologies and decided to crack the market y applying his mathematical skills here. Due to this reason, both he and his fund are called Quantum Investors.
His fund did not make good returns which led to him closing it for a year in order to figure out what went wrong and to restrategize. After opening again the Medallion fund went on to become to most successful hedge fund of all time. The fund gave a staggering 66% per annum returns and a net return of 39.1% after the huge investor fees. This made the Simons a billionaire and currently has a net worth of $21.6 billion according to Forbes.
Even though the strategy used has been released in a book all employees are made to sign an NDA agreement. In addition, they are also asked to sign a non compete agreement later on in order to keep the means used to achieve these returns within the company.
2. George Soros
Soros was born in the 1930s to a Hungarian Jew family. A terrible time for the Jews in Europe. His teens were spent escaping persecution by the Nazi’s during WW2. His family did this by changing their names from Shwartz to Soros and by masquerading as Christians. Soros went on to study at the London School of Economics after which he did several odd jobs before entering Wall Street.
— The man who broke the Bank of England
In 1970, Soros founded Soros Management where he managed the Soros fund. But it was only on September 16, 1992, that Soros rose to fame. For months leading up to this date, Soros built a huge sort position of 10 billion Pounds. This day was termed as Black Wednesday in the UK. Soros, on the other hand, made a profit of $1 billion on a single day. This came at a cost of 3.4 billion pounds to the Bank of England. Hereafter he was known as the man who broke the bank of England.
— Is Soros still infamous today?
In recent times too, unfortunately, Soros is known for all the wrong reasons. He is often targeted by the rightwing politicians and has often been the center of many conspiracy theories. This has been particularly because of his economical support to the Left and his charitable organization ‘Open Society’.
The Open Society has been accused multiple times of attempting to topple governments that oppose illegal immigration and the influx of Muslim refugees in Europe. Soros, however, claims that he founded the society to ensure the building of vibrant and tolerant democracies. Soros and his NPO are currently banned in 6 countries.
1. Warren Buffett
The brilliant track record and wealth that Warren Buffet amassed from investing gives him the number one spot undisputably.
Warren Buffet was born in 1930 to a future US Congressman, Howard Buffet. Despite this Buffet spent his childhood in poverty and so the importance of money was instilled in him at a very young age. This drove him to set the aim of becoming a millionaire by the age of 30 or jumping off the tallest building in Omaha.
— Early Career
The entrepreneurship spark and his obsession with numbers were visible in him from a very young age. He adopted a paper route when young and learned the benefits of diversification as he realized that he could make more money by selling magazines as well and made $175 a month from this.
Apart from this Buffet sold CocaCola, chewing gum, golf ball, stamps, and also worked at his grandfathers grocery when young. Buffets’ infatuation with numbers got him interested in the stock market and made the first investment at the age of 11. Warren Buffet filed his first tax return at the age of 14. At around the same time he also bought a farm. Buffet went on to buy 3 shares of the Citi Service for himself.
Although Harward would have been his first choice Buffet was rejected. He then went on to study at Columbia Business School because one of the investing greats Benjamin Graham taught there. After graduating he went and achieved one of his most prized possessions a diploma for a course in Public Speaking under the legendary Dale Carnegie. Warren Buffet then went on to work under Benjamin Graham under whom he grew as an investor.
Warren Buffet retired at the age of 26 after buying a house and having $174,000 in savings. But his dream of becoming a millionnaire brought him out of retirement.
— The Berkshire Hathaway Story
His investment strategy in the initial days included Cigarette Butt Investing. In 1962 this strategy led him to invest in a textile manufacturing firm called Berkshire Hathaway. He held the shares for 3 years but later came to terms that this was the worst investment he ever made. In 1964 the company made him a tender offer at $11.50 per share.
However, when Buffet received the offer in writing 3 weeks later the price was quoted at $11.375 per share. This $0,125 reduction angered him and he bought Berkshire Hathaway and immediately fired its owner Seabury Stanton. But after this, he realized that the business would not improve. He shut down the core business of textiles in 1967 and expanded into the insurance industry and investing.
Some of the other notable investments by Buffet include Washington Post, Exxon, Geico, and CocaCola. In 1979, Warren Buffet had a net worth of $620 million due to Berkshire Hathaway. He then set a new goal of becoming a billionaire. Buffet reached the goal when the shares of Berkshire Hathaway closed at $7175 on May 29th, 1990. As of 2020, has a net worth of $69.6 billion. In the world of investing Warren Buffet is nothing short of a rock star.
Unwrapping Peter Lynch’s Investment Strategy: Peter Lynch was to the investing world what rockstars are to us. He is primarily known for his work at Fidelity Management and Research where he managed the Magellan Fund. This fund was launched in 1977 and ended when Mr. Lynch retired in 1990.
Even though 3 decades have passed since he retired, his work in Fidelity still astonishes investors as he grew the assets of the fund from $14 million in 1977 to $18 billion in 1990. With Lynch at its helm, the fund was among the highest-ranking stock funds throughout his 13 years tenure beating the S&P 500, its benchmark, in 11 of the 13 years.
Over the years there also have been debates on who was the ‘greatest investor of all time’ Buffet or Lynch? Clearly the 54 years Buffet spent at Berkshire Hathaway offering 20.9% annual return gives Buffet the greatest title. But Lynch achieving a 29% annual returns also provides solid arguments.
Just to put things in perspective a $10,000 investment that earned this return for 13 years would have grown to nearly $280,000. But it is not only this achievement that makes Lynch one of the greatest but also because he shares the strategy he used to achieve this in a simple manner gaining him considerable fame.
Peter Lynch’s Investment Strategy
Lynch was an institutional investor. Can his strategy be used for individual investors?
Lynch always believed that an average investor can generate better returns in comparison to professional or institutional investors like mutual fund managers, hedge funds, etc. This is because according to him individual investors hold a distinct advantage over Wall Street as they are not subject to the same bureaucratic rules.
Also, individual investors do not have to be bothered by short term performances. In comparison, professionals are answerable to their investors if a fund performs badly in a year. A justification saying “The assets are going through a phase and will perform better in the future” will not convince a fund’s clients.
Finally, individual investors also have the advantage of a smaller scale. It is easier to double $10,000 in the market than it is to double $10 billion.
Peter Lynch’s Investing philosophy
“Invest in what you know.” – Peter Lynch
Peter Lynch’s whole investing philosophy revolves around this. “Investing in what you already know about”. To support his argument he gives the example of a doctor. Say you are a cardiologist and are beginning your journey into the world of investing. Almost all of us have a fairly good idea of what companies like Mcdonalds and Nike do.
But would you have an edge by investing in these? Say, as required by your field you are made aware of a new heart pump being introduced. You being able to judge this will obviously be aware of the revolutionary effects the heart pump may have in saving human lives. Hence, in this case, your in-depth knowledge of the subject gives you an advantage while deciding if ever you could invest in the company or not.
Just like this, we may own experiences–for instance, within our own business or trade, or as consumers of products that provide us an edge to improve our investment judgment. Hence the quote “Buy what you know”. This is an advice that has also been advocated by Warren Buffet.
Sources that Peter Lynch Uses
The greatest stock research that we have at our disposal in order to identify superior stocks are our eyes, ears, and common sense. Also, Lynch does not believe that investors can predict actual growth rates, and he is skeptical of analysts’ earnings estimates.
Lynch was proud of the fact that many of his great stock ideas were discovered while walking through the grocery store or chatting casually with friends and family. Even when we are watching TV, reading the newspaper, driving down the street, or traveling on vacation just by noticing an investment opportunity we can do first-hand analysis over it.
Lynch is something of a ‘Story Investor’. Now that it is clear that Lynch advocates investing in what you know, and his initial research begins with his senses in the environment. The step that Lynch follows is that of finding a story behind the stock.
Often being engrossed in the investing world has led us to believe that stocks are nothing more than just a collection of blips on a screen or just numbers to be judged by ratios. But for Lynch, the stock is more than just that emphasis us to realize that behind the stock is a company with a story.
What is this ‘story’ Peter Lynch looked for?
According to Lynch a company’s plan to increase earnings and its ability to fulfill that plan is its “story,”. He lays down the 5 ways that a company can increase its earnings. Lynch points out five ways in which a company can increase earnings:
It can reduce costs.
Raise prices.
Expand into new markets.
Sell more in old markets.
Revitalize, close, or sell a losing operation.
Hence this is where is the advice of ‘Investing in what you know’ falls into place. The only way you can have a better edge to judge a company’s plans to increase earnings is if you are familiar with the company or industry. This will increase your chances of finding a good story.
For this reason, Lynch is a strong advocate of investing in companies with which one is familiar, or whose products or services are relatively easy to understand. Thus, Lynch says he would rather invest in “pantyhose rather than communications satellites,” and “motel chains rather than fiber optics.”.
How Peter Lynch Categorized Companies?
We may have come across several companies that may grab our interests after first-hand research. Peter Lynch suggests that in order to be able to judge their story potential better it is best that we categorize then by size. This will help us form reasonable expectations from the company.
This is because if the company is categorized by size we can then judge their ability to increase their value and hence their story. Large companies cannot be expected to grow as quickly as smaller companies. This will further help us decided if the expectations are what we would like to receive in our portfolio. According to him, the categorization can be done in the following 6 ways:
Slow Growers
Large and aging companies expected to grow only slightly faster than the economy as a whole. These generally make up for their growth by paying large regular dividends.
Stalwarts
These include large companies that are still able to grow, with annual earnings growth rates of around 10% to 12%. If purchased at a good price, Lynch says he expects good but not enormous returns–certainly no more than 50% in two years and possibly less.
Fast-Growers
Small, aggressive new firms with annual earnings growth of 20% to 25% a year. These do not have to be in fast-growing industries. Fast-growers are among Lynch’s favorites, and he says that an investor’s biggest gains will come from this type of stock. However, they also carry considerable risk.
Cyclicals
Companies in which sales and profits tend to rise and fall in somewhat predictable patterns based on the economic cycle; examples include companies in the auto industry, airlines, and steel. Lynch warns that these firms can be mistaken for stalwarts by inexperienced investors, but share prices of cyclical can drop dramatically during hard times. Thus, timing is crucial when investing in these firms, and Lynch says that investors must learn to detect the early signs that business is starting to turn down.
Turnarounds
Turnarounds are companies that were on the verge of bankruptcy but have been revived. This could be because the government bailed them out or another company made a strategic investment in them. Lynch calls these “no-growers”.The best example of such a company is Satyam. The stocks of successful turnarounds can move back up quickly, and Lynch points out that of all the categories, these upturns are least related to the general market.
Asset opportunities
Finding these hidden assets requires a real working knowledge of the company that owns the assets, and Lynch points out that within this category, the “local” edge–your own knowledge and experience–can be used to greatest advantage.
(Lynch would pick a David over Goliath company on any day)
The category an investor prefers for his/her portfolio may vary as per investor preference. But Lynch always preferred Fast Growers, this, however, came with considerable risk. To be more precise Fast Growers that are not from fast-growing industries.
This is because in contrast every stock in a fast-growing industry would be growing as well but not specifically because of the company. This growth is only because of investors Fear Of Missing Out due to a short hype in the industry. Over time, however, the high growth industry will also attract significant competitors. This will eventually lead to a drop in growth.
Lynch also coined in the term “Tenbagger” and these companies will clearly be found to be among the fast growers. Tenbaggers are stocks that go up in value tenfold or 1000%. These are the kind of stocks that Lynch looked out for when he was running the Magellan Fund.
The first rule that he set for the Magellan stock is that if one was identified to have the potential, then the investor must not sell the stock when it goes up 40% or 100%. Peter Lynch felt that this amounted to “pulling the flowers and watering the weeds.”
Evaluation and Selection of stocks
The simplicity of the strategy that we have gone through so far may lead us to believe that it is easy. But we are only halfway through the strategy. After classifying the stocks, we now come to its evaluation. Lynch was extremely dedicated when it came to researching. He always believed that the more he researched the greater were his odds of finding the best ones to invest in.
Peter Lynch follows what is called the ‘Bottoms-up’ approach. According to this every stock picked must be thoroughly investigated. Such analysis will expose any pitfalls in the story of the company. Also, it is important to note that if the stock was purchased at a too high of a price then the chances of making a profit will be reduced or wiped off. Hence it is important that the stocks are diligently researched and evaluated.
While looking at the company’s earning over the years one should try and assess if the earnings are stable and consistent. Ideally, the earnings should keep moving up consistently. Assessing the earnings over the years is important because this trend will eventually be reflected in the stock price revealing the stability and strength of the company.
— Earnings growth
It is also necessary that not only for the earnings to keep moving upwards consistently but also to match the company’s story. This means that if a company has the story of a fast grower its growth rate must be higher than those of slow growth rates. One must also keep an eye out for extremely high levels of earnings that are not consistent over the years.
This will also help us identify stocks that are overvalued as a result of attracting attention in that extremely high growth period. Investors here bid up the price. But if a continued growth rate is noticed then it may be factored into the price
— The price-earnings ratio
At times the market may get ahead of itself and overprice a stock even when there is no significant change in the earnings. The price-earnings ratio helps you keep your perspective, by comparing the current price to most recently reported earnings. Stocks with good prospects should sell with higher price-earnings ratios than stocks with poor prospects.
— The price-earnings ratio relative to its historical average
Studying the pattern of price-earnings ratios over a period of several years should reveal a level that is “normal” for the company. This should help you avoid buying into a stock if the price gets ahead of the earnings, or sends an early warning that it may be time to take some profits in a stock you own.
— The price-earnings ratio relative to the industry average
At this point, we may come across stocks that are undervalued in an industry. By comparing its P/E ratio with the rest of the industry we can figure out if it is because it is a bad performer or if the stock has simply been overlooked
— The price-earnings ratio relative to its earnings growth rate
Companies with better prospects should sell with higher price-earnings ratios, but the ratio between the two can reveal bargains or overvaluations. A price-earnings ratio of half the level of historical earnings growth is considered attractive, while relative ratios above 2.0 are unattractive.
For dividend-paying stocks, Lynch refines this measure by adding the dividend yield to the earnings growth [in other words, the price-earnings ratio divided by the sum of the earnings growth rate and dividend yield]. With this modified technique, ratios above 1.0 are considered poor, while ratios below 0.5 are considered attractive.
— The ratio of debt to equity
Lynch is especially wary of bank debt, which can usually be called in by the bank on demand. This is because a Balance sheet that does not have debt or minima debt will come in handy when the company chooses to expand or faces financial difficulty
— Net cash per share
Net cash per share is calculated by adding the level of cash and cash equivalents, subtracting long-term debt, and dividing the result by the number of shares outstanding. High levels provide support for the stock price and indicate financial strength.
— Dividends & payout ratio
Dividends are usually paid by larger companies, and Lynch tends to prefer smaller growth firms. However, Lynch suggests that investors who prefer dividend-paying firms should seek firms with the ability to pay during recessions (indicated by a low percentage of earnings paid out as dividends), and companies that have a 20-year or 30-year record of regularly providing dividends.
— Inventories
This is a particularly important figure for cyclical businesses. When it comes to manufacturers or retailers, an inventory buildup is a bad sign, and a red flag is waving when inventories grow faster than sales. On the other hand, if a company is depressed, the first evidence of a turnaround is when inventories start to be depleted.
Lynch keeps an eye out for ugly ducklings. These are companies that have a boring name or those that function in boring industries. He also considers companies that are in depressing and disagreeable industries. Examples being Funeral homes that are depressing or Waste Management which is disagreeable. Most investors invest in interesting companies like Tesla where cars are launched into space etc. But Lynch is aware that it is these ugly ducklings where their nature is reflected in the share price. This offers up good bargains
Spin-Offs. This is because investors are skeptical of spin-offs and hence receive lesser attention in comparison to the parent company.
Companies that operate in industries with multiple entry barriers. A niche firm controlling a market segment would be attractive
Companies that offer products that are a necessity. These companies provide stability as people tend to buy their products regardless. eg razor blades.
Companies that take advantage of technological advances in their industry but are not directly producing technology say like Google and Apple. This is because companies that produce technology are stock prices that are valued highly.
Companies with low analyst coverage as they are generally not priced too high.
The company is buying back shares. Buybacks are announced once companies start to mature and have cash flow that exceeds their capital needs. The buyback will help to support the stock price and is usually performed when management feels share price is favorable.
Characteristics Lynch finds unfavorable are:
“If I Could Avoid a Single Stock, It Would Be the Hottest Stock in the Hottest Industry.” Hot stocks in hot industries are those that attract a lot of attention in the initial stages due to its explosive growth. This growth, however, burns away as the growth achieved does not match the increase in price due to the added publicity. Over time it becomes clear that the company does not have the earnings, profits, or growth potential to back the buzz. Also as soon as a company with such hot stocks exist copy cats start to appear in the industry deflating the company’s stock value.
Companies that diversify into unrelated businesses. Lynch suggests staying away from such companies. Lynch calls this ‘Diworsefication’.
Companies in which one customer accounts for 25% to 50% of their sales.
Advice for new investors
Lynch suggests that for an investor who is just stepping into the stock market it is best that he starts off with a paper portfolio. And pick 5 companies to buy. Then he investor should ask himself why he is buying these stocks. Answers like “the sucker’s going up.” arent good enough of a reason.
And if the stock performs better for a period then he should again question himself. Why did it go up? Noticing the changes that occurred during this period is also what research is all about. One must also then notice what kind of stock is one good at picking. A person may have a better eye for cyclical while another may be good at selecting fast growers.
Lynch also lets us know that in the stock market it is not the brain that is the most important but the stomach. This is mainly because one must remain invested in stocks that are selected for the long term. There may be ups and downs on a daily basis and the waves of information made available to us do not help in this aspect. Hence being able to hear the news and still have faith in the stock for 10-30 years is necessary. Market falls occur regularly hence it one should have a significant tolerance for pain. Most people do really well because they just hang in there.
Even when it comes to professionals it is not necessary that those will grow multifold. Some may even make a loss.
“In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”
A stock may lose 100% of its value but even one great investment that grows at 1000% of its value will not only make up for the losses also change your life. This shows that you don’t have to be perfect as an investor as a handful of multi-baggers can help you create all the wealth you need.
According to the results of the study, the investor who invested on the absolute high day would have earned a compounded return of 10.6% for the 30-year period. The other investor who invests on the lowest day of the year would earn an 11.7% compounded return over the 30-year period. According to this study, the investor who invested in the worst market timings trailed only by 1.1% per year.
This led Lynch to believe that it wasn’t worth it to run around figuring the right time to invest. This time would be better invested in focussing on what was important i.e. finding great companies.
When to sell your investments?
Despite Lynch being an advocate of long term commitment and not favoring market timing, he does not believe that investors should hold one stock forever. According to Lynch investors should keep an eye on their investments and review their holdings once every 6 months. One may not expect it but just like the buys the sales also depend on the story on the company. An investor should sell his stock if he feels that the stock has played out according to the story and its performance is reflected in the price.
Another reason would be that the story itself is changed by the company or the stock fundamentally deteriorates. Or else as long as the story is as expected a price drop would only mean an opportunity to buy more. Therefore you have to define when a company is getting close to maturity, and that’s when you exit. Or the story deteriorates. If the story’s intact, you hold on.
“A good stock can take several years before it really pays off. Give your investment time to grow. No one can tell you when the right time is to sell a stock. You need to have patience. If you are averse to risk, the stock market is not for you,”
Lynch also advocates for rotation selling. According to him once a stock’s story is played and the expected returns achieved the investor should sell the shares and replace them with those of another company with similar prospects
Closing Thoughts
Peter Lynch’s performance and stock-picking ability have set him, leagues, apart from most of his peers at Wall Street. The strategies that he has provided us with not only provide us with a fresh perspective towards the investing world. One which is generally considered to be simply mundane snd a game of numbers.
His last lesson, however, can be noted in his walking away from the mutual fund industry at the pinnacle of his career. Where he chose to use his wealth to live life to the fullest instead of simply chasing money.
After the gold prices crossed Rs. 50,000 for 10g after 9 years period since 2011 in India, there seems to be no stop to how high the prices can go. The gold prices touched Rs.58,100 for 10g in Bangalore as of 7th August. This shouldn’t have come as a surprise because commodities like gold have always had exceeding demand in India. Especially after considering that India is one of the world’s largest consumer second only to China.
However, the increase seems unrealistic in times of pandemic where every investment seems to have suffered, only gold seems to have found its biggest boom. In the three year period from September 2016 to October 2019, gold saw an increase of 25% in its value. But along with the increasing troubles of 2020 in the midst of a pandemic the value of gold has already shot up 37.8% or by Rs. 15,240 with 5 more months to go.
Today, we take a look at the scenario finding possible reasons for the boom and also discuss if investing now is a good idea.
The Indian Gold Market
It would be rare to find a market in India that has consistently been in demand such as that of Indian Gold. There have been many jokes that have passed on claiming that the gold available in households is more than sufficient to cover all the deficits and debt that our country faces. But when we look at the following figures these statements may not be exaggerated. Indian households have piled up as much as 25000 tonnes of gold. To put things in perspective that alone would amount to Rs. 145.25 lakh crores in today’s rates. India’s central bank the RBI, on the other hand, has a total holding of 653.01 tonnes of gold. That too after buying additional 40.45 tonnes of gold in the current year.
For many Indians, gold has always been the favorite investment instrument traditionally apart from the land. Despite this, a significant portion is still placed in liquid assets like cash, stocks, etc. In the times of a pandemic, individuals are seeking shelter for their savings in an investment that doesn’t necessarily provide great returns but at least maintains its value and provides liquidity. This has led to the demand for gold skyrocketing to new heights.
Now we take a look at some other factors that have lead to this increase in demand.
1. Scarcity
As you may already know that gold is scarce because all gold is mined. Over time however mining for more gold has become difficult and due to its characteristics, it is safe to say most of the gold is recycled and put back into circulation. But luckily enough this gold cannot be consumed like other commodities. Enabling it to keep its value since time immemorial keeping up with the rising population. Another factor that adds to its scarcity due to its lack of consumption is what happens after the commodity is bought.
Gold, after it is bought, is taken out of the market for long periods of time only to be kept in a drawer or bank locker taking it out of the market for years. But these factors like scarcity, inability to consume, etc, have always existed. Then why have the prices increased now?
These factors have always existed at lower prices only because the increasing demand has always been checked with adequate supply. In order to limit the spread of the virus most countries had to resort to a lockdown. This has had adverse effects on not only mining but also a lack of shipments. As per some estimates, the global demand for gold is 1000 tonnes more than the supply. This rise in demand as mentioned earlier has been due to people’s search for a secure asset.
2. Culture
The demand for gold also has its roots in humans’ desire for beauty. Demand for gold in India is interwoven with culture, tradition. This is primarily because of the dependence of marriages and other functions on gold. According to a study by the World Gold Council, Indian consumers view gold as both an investment and an adornment. When asked why they bought gold, almost 77 percent of respondents cited the safety of investment as a factor, while just over half cited adornment as a rationale behind their purchase of gold.
3. Geopolitical Factors.
People search for a safe haven like gold extends to periods of geopolitical tension like war. This is the reason why crisis situations like wars have a negative impact on almost all asset classes. But when it comes to gold it has a positive impact. This increase in the price of gold was earlier also noticed during the Korean nuclear crisis. Similar trends are noticed due to tensions between India-China and US-China.
4. Exchange Rates
It has been observed that a weakened US Dollar also leads to a rise in gold rates. The same is noticed in the current situation.
5. Limited Influence by Big Market Movers.
In stock markets, it is the FII and DII’s that are termed as market movers. This is because of their ability to influence market trends due to top huge capital in possession. In the Gold market, it is the central banks that have a significant influence. This is because almost every central bank keeps reserves in the form of investment in gold. When an economy is performing well and the RBI has sufficient foreign reserves it will want to get rid of gold.
Because gold does not generate any return and a booming market will provide a better return if the money is invested elsewhere. But in this scenario, the other investors as well will not want to invest in gold as they too would prefer to earn returns. Hence central banks are caught on the wrong side of the trade leading to a fall in the value of gold.
But however, the influence the central banks like RBI have is limited. This is because of the Washington Agreement. This agreement, however, is not binding and is more like a gentleman’s agreement. According to it, central banks will not sell more than 400 metric tons a year. Limiting the influence of central banks even if they want to benefit from high prices.
In Closing: Should you Invest in Gold now?
Predicting Investments is always tricky due to the uncertainties present. Most of us may have already noted the effects of economic turmoil on gold and decided to invest in the future if we are faced with a similar scenario. But that doesn’t help today, does it? In order to help you take better decisions, let us take a look at previous gold rate highs.
If you notice in the above chart you’ll be able to see that the Gold rates boomed in the 1980s as well. But a person investing in such a high would only reap the benefits almost 3 decades later post 2008. Similarly, a person who invested in 2011 is reaping some minimal positive benefits in 2020. Hence considering this if investments were made in gold say in early 2020 is a completely different story than investing now.
However, it is also best to take a look at the forecasts predicted by analysts. Analysts, however, have been bullish and have predicted that gold prices could go up to Rs. 65,000 for 10g in the next 18-24 months. But it is necessary to note that these estimates depend on a period that COVID-19 will take a while more to be controlled. Also, public vaccine availability is not anticipated for at least months to come.
From the above arguments, it shows that when the investment is made on a long term perspective there may be other alternatives that provide better results in the same time frame. However, investing for short periods completely depends on one’s estimates for COVID control or vaccine availability oy unavailability.
An overview of the National Educational Policy (NEP) 2020: On July 29th, 2020 the Modi government announced the New Education Policy in a move that left us stunned over the sweeping changes involved. The only dismay that most of us had was that our wish to be able to study once these reforms are imposed is not possible.
In this article, we cover the key points of the NEP and their views from different perspectives with hopes that the policy is better understood and loopholes if any are addressed.
Highlights of the New Education Policy
This is the third education policy bought forward by the Indian government in its efforts to raise Indian education standards. A much-needed decision. 34 years after the last policy was implemented it is also the first Education policy by the BJP. The policy was approved by the union cabinet but is yet to be presented in the parliament.
The new National Educational Policy also requires further regulation between the state and center. However, it is still policy and not the law to be followed. The following are some of the points in the policy.
— NEP for Schools Students
1. New pedagogical and curricular structure of school education (5+3+3+4):
The education system currently follows the 10+2 structure. This will soon be replaced by the 5+3+3+4 curricular structure. The new structure can be better understood when it corresponds with a child’s age i.e. 3-8, 8-11, 11-14, and 14-18 years respectively. The first stage includes time spent in Anganwadi and preschools.
This new structure divides the existing structure as per the cognitive developmental stages of a child. These are early childhood, school years, and secondary stage. It also should be noted that this change in structure does not change the years that a child spends in formal education. They remain the same as before.
The new structure brings changes to the examination structure too. As per existing norms, a child gives an exam after every academic year. But once the NEP is implemented children will give examinations only in class 3,5, and 8. This is apart from boards which too will see considerable changes.
2. Earlier, schooling was mandatory for children aged between six and 14 years. Now education will be compulsory for children aged between the three and 18 years.
This move would allow those aged from 14-18 years to also demand the same Right to Education(RTE) that was earlier present only up till 14years. Now children above the age of 14 too can demand this. Meaning they can get educated up to 12th grade free of charges at any government educational establishment.
3. Mother tongue as the medium of instruction
It is obvious that the mother tongue is the first language that a child understands. Hence understanding newer concepts will be much easier when if done in the mother tongue itself. In order to implement this the medium of instruction in schools will change too.
This move is also inspired after observation of the medium of instruction imposed in some European countries. In these places, when a child is introduced into the schooling system he is only taught in his mother tongue be it German, Italian, Spanish, Russian, etc. depending on the country. Due to this, children are able to grasp trivial concepts easily. This will be made compulsory until 5th grade at least or preferably until the 8th.
The NEP also includes the three-language policy. Here all students will learn three languages in their school. It is mandatory that at least two of the three languages should be native to India.
The introduction of this policy is also in line with the NEP’s aim of increasing the Gross Enrollment Ratio in higher education. It has been found that the inability to cope with languages like English as the cause for dropping out.
4. Baglessdays and informal internship
According to this, students will participate in a 10-day bagless period. During this period students from Grades 6-8 will intern with local vocational experts such as carpenters, gardeners, potters, artists, etc.
This was another move, that was hugely appreciated as necessary professionals that are looked down upon by society will finally be viewed with newer outlooks in the coming generations. This move will also enable children to pick up at least one skill during the period.
5. Coding for Children
Children will now be able to learn to code from class 6 as coding will be included as a part of their curriculum. This move will put students at par with the Chinese where similar policies with regards to coding have already been implemented in their education system.
6. Multi-Stream Flexibility
Once the NEP is imposed, the compartmentalization of students post 10th into Arts, Science and Commerce will be blurred. Now students will be allowed to take up courses from varied streams depending on their interests.
For eg., A student interested in physics will be able to do so by also taking up subjects like economics and politics. This was one of the most lauded moves of the NEP. Furthermore, Bachelor’s programs too will be multidisciplinary in nature with no rigid separation between arts and sciences.
— NEP For College Students
7. Common Entrance Tests for Colleges
Students now will be judged by common SAT (present in the US) like tests that will decide the eligibility of students for different colleges. These tests will be held twice in a year.
8. 4-year bachelor degree
Funnily enough, just a few years back this move was highly criticized when implemented in Delhi. This move does not simply make bachelor degrees longer but also provides students with the option to change degrees if they feel it does not suit them. A student who realizes this and will be allowed to drop.
He also is allowed to transfer the credits he earned in the previous degree into the degree he chooses. A student who decides to drop out after completing 2 years can do so and will be provided with a diploma certificate associated with that degree. Students who drop out after 3 years will receive a bachelors missing out only on research opportunities present in the final year.
9. Fee Cap
The New policy suggests a cap on the fee charged by private institutions in the higher education space. One of the major hindrances a student faces when trying to obtain quality higher education has been affordability. A fee cap imposed would go a long way in making education more equitable.
10. Opening up higher education to foreign players
According to this the top 100 education institutions in the world will now be encouraged to come to India and set up campuses. Every year 750,000 Indian students go abroad in pursuit of higher education. This move will not only go a long way in reducing brain drain but also help in making global education more accessible. A similar move was implemented in the UAE successfully. The UAE is now home to universities like Hult International Business School, University of Wollongong, British University, American University of Sharjah and Dubai. Now that UAE can implement such a move it also shows the way to countries like India. Especially because we hold a student population much greater. Increasing the interest from foreign universities.
Differed Views over the NEP
Every point mentioned above is an advantage in itself. But post the disclosure of the NEP there have been varied viewpoints, concerns, and criticisms surfacing. We now look at these so-called loopholes in the NEP so that they can be further addressed
1. Language
There are many viewpoints directly addressed at languages i.e. medium through which students will be taught in schools, and the options available to them. First comes the problem of even introducing mother tongues into schools. India already faces a huge shortage of teachers leading to the skyrocketing teacher: student ratio in the country.
On top of this finding, a staff that is Qualified to teach is a challenge in itself. Next comes the challenge of bringing forward material in each of the mother tongues. Say for eg. bringing forward textbooks of maths, social in each of our mother tongues is a herculean task in itself.
It is completely understandable that the government wants to hold the same status as Germany, China, etc. where foreigners have to learn the language in order to better deal with the country. At the same time when the NEP is marketed in that way, it does not address that there are 22 languages active in India instead of one national language as in other countries.
The other problems that have already been raised with respect to language associates with the three-language policy. States like Tamil Nadu have already begun calling out the center and have associated the NEP as a tactic simply to implement Hindi in the state.
The three-language formula in the new National Education Policy (NEP) 2020 is “painful and saddening”, said Tamil Nadu Chief Minister Edappadi K Palaniswami, as he vowed not to implement the new policy. Unfortunately, the imposition of Hindi has been a major issue in Tamil Nadu often leading to protest and has reduced the NEP to another gimmick by the center by the current CM.
2. The increasing disparity between sections of society
The policy shows how students in government schools will be taught in the regional languages up to 5th standard if not 8th. The private schools, however, will not take a step back in introducing English from the early stages. If a student only begins to learn English 7 years later to that of students in private schools the difference will only add to those of learning a language in an environment that is not conducive to speaking, writing, and reading English.
Even when it comes to providing material to students in regional languages or mother tongues the NEP 2020 mentions that textbooks should be available in regional languages, but also must be downloadable and printable. It fails to address that less than 30% of Indians have smartphones. And if you and the people around you do have one it just shows us the fortunate category we are in and the fortunate category of people we surround ourselves with at all times. Also, there is a need for computers in order to learn to code.
3. Four-year graduation program
The four-year graduation program, unfortunately, lets go of most of the benefits after approving dropouts in the first year in order to change streams. What is the purpose of allowing dropouts in the later stages? Why should a student even wait to complete 4 years if he receives a diploma in two? If he leaves immediately he may have added 2 years of work experience instead of classwork.
And on top of all, how will a child from a lower-income background answer these questions when he is asked to take his diploma and start contributing to the family income.
Closing Thoughts
Although there may be a few minor loopholes the new National Educational Policy, nevertheless is revolutionary. Hopefully, these are further addressed in the parliament sessions to come. The next question that pops up is – By when will the policy be implemented? The implementation, however, will start immediately with the first change being the Ministry of Human Resource Development getting renamed as the Ministry of Education.
Other implementations are to be done in phases from next month. Meaning many significant changes of the over 100 action points being noticed. The complete policy, however, is meant to transform the education system by 2040. Final judgment on the extent of its success can only be made on its execution. Hopefully, it doesn’t take till 2040.
A Brief Study on Public vs Private Banks in India: Regardless of which sector one works in, it relies on the banking sector. This is the very reason why the banking sector is known as the backbone of the economy. A country with a poor banking sector is not only destructive to the banking industry but also to economic growth overall.
Due to its importance today we try and understand the banking sector through its division of public and private banks and analyze their contributions to helping the economy grow or not in the recent past
What do you mean by Public and Private banks?
Banks are classified as Public or Private depending on their ownership. First, let us understand the basic difference between Public vs Private Banks in India:
— Public Sector Banks
A Public sector bank is one where the government owns a majority stake (i.e. more than 50%). In common parlance, they are also known as government banks. Due to its ownership, the aims set for these banks revolve around social welfare and fulfillment of the country’s economic needs. These banks are formed by passing Acts in the parliament. Eg. Bank of India, Canara Bank, Punjab National Bank, Bank Of Baroda, State Bank of India.
A Private sector bank is one where the majority stake is held by private organizations and individuals. Private banks have profit maximization set as their main goals. These banks are registered under the Companies Act. Eg. HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, Yes Bank.
Differences in the working of Public vs Private Banks in India
Although the banks being public or private perform the same functions, due to their aims and period of existence customers notice significant differences depending on the banks they choose.
Private banks arrived relatively late in the Indian banking sector thanks to the reforms introduced in 1991. This is one of the reasons why people find public banks secure as they already have been around longer enabling them the gain their trust. Also, the confidence that the government will not let a public bank fail adds to this security. Private banks make up for these security concerns through their technological advancements and superior customer service.
What is it like to work for these two bank types?
In the year 2013 80,000 government bank jobs received close to 40 lakh applications making it one of the most sought after careers. The reason for this has been the job security and reduced work pressure present in these banks. This, unfortunately, has reflected on the banking sector as public banks have been known to take too long to perform duties.
This can be attributed mainly to the fact that the employees do not have any incentives to work better. The competitiveness faced here is prior to the job in the examination set during the selection process.
Working for private banks, on the other hand, increases the rewards available to an individual but with additional risk. Employees receive higher remunerations but are required to work in highly competitive environments. This too has rubbed off on how the functioning of private banks is viewed i.e. fast-paced, efficient, and easier to deal with.
Longer periods of existence in the Indian markets have allowed public banks to develop a larger customer base in comparison to the private banks. The goals set have also played a major role in achieving this. Public banks function with the aims of ensuring banking accessibility throughout the country.
This has motivated the public banks to penetrate deeper into rural areas gaining a greater customer base. Private banks, on the other hand, enter only areas where they see a potential to earn a profit. This is the reason private banks mainly function in urban areas and not rural.
— Market Share
As of 2018 public sector banks account for 62% of the total banking assets and 58% of the total income, the rest occupied by private banks. Although public banks have a greater market share, their hold has been continuously slipping. As of 2016 public sector banks accounted for 75% of the total banking assets and 71% of the total income.
Public banks are steadily losing out even when it comes to loans. Figures from 2018-19 show that private banks gave a total of ₹7.3 trillion in loans, while public sector banks gave ₹2.3 trillion in loans. In comparison the total amount of loans in 2011 which stood at ₹40.8 trillion, public sector banks had a share of 74.9% and private sector banks around 17.8%.
The one segment that we would expect public sector banks to not loose out one is deposits. Especially after considering the security of deposits it to be one of their USP’s. But unfortunately over the last few years, public sector banks have lost market share here too. As of 2011 the total amount of deposits in the Indian banking system stood at ₹53.9 trillion, public sector banks had a share of 74.6% in it. The share of private sector banks was a little over 18%. By 2019 the total amount of deposits in the Indian banking system stood at ₹125.6 trillion. Of these Public sector banks had 63.1% of these deposits and private sector banks 28.7%.
— Non-Performing Assets (NPA)
One would expect private banks to have a high number of NPA’s considering that in order to gain an edge over public banks the private banks may be more approachable when it comes to loans, leading to higher NPA’s. But this has not been the case as the NPA’s of private sector banks have been lower in comparison to private banks.
In the 5 years leading up to 2018, the NPA’s of private sector banks increased from 0.7% in 2014 to 2.4% in 2018. Figures that seems reasonable in comparison to that of the private sector where the NPA’s rose from 2.6% in 2014 to 8.00% in 2018 and have been increasing since then.
It is evident that although the public sector still holds a greater market share they have not been able to compete with the growth rate of private banks. In order to achieve this, Private banks have capitalized on the weaknesses of Public Banks. Coupling superior customer service with the inclusion of technological changes has worked out in favor of the private banks. It is good to see that these measures adopted by private banks are forcing the public banks to implement them too.
But if the public banks keep playing catch up with the private banks they will soon be seen falling behind even in terms of market share. This has called for multiple structural reforms to ensure that does not happen because at the end of the day it is the public banks that look after and perform in the interest of the economy.
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