Hindsight Bias Definition and Explanation: How many times have you caught yourself or others throwing around the term “I knew it would happen” or ” I told you so” after an event has occurred? This could be post cricked matches or when the villain is finally revealed in a movie or even in the investment world.
Today we’ll cover Hindsight bias and take a look at this “knew it all along with phenomenon” from an investment perspective and the dangers it may pose to you.
What is Hindsight Bias?
Hindsight Bias or Creeping Determinism is a common misconception where people refer to past events and assume that these events are more predictable than they actually were.
Here the individual would claim after the event that he/she knew the outcome of the event before it actually happened. This leads an individual to believe that they could possibly possess a special talent when it comes to predicting the outcome of similar events in the future.
These biases have affected humans throughout history where even historians would be biased when it came to describing the outcomes of battles as they let the knowledge of the outcome influence their description. This bias has been noticed in various situations that include politics, scientific experiments, sporting events, etc.
Although the phenomenon was prevalent, studies only began in the 1970s when psychological research emerged on the topic which soon went on to be studied in behavioral finance. Researchers believed that this bias occurs as our brain tends to draw connections anytime we learn something new with all the other information that we already know. This leads us to look for patterns prior to every result.
Studies have found the following 3 variables to be common among people who suffer from hindsight bias
– Cognitive
People tend to distort or even misremember their earlier predictions about an event.
– Metacognitive
When individuals go back and understand the process that led to the event they feel that it is easily foreseeable.
– Motivational
This stems from people’s belief that the world is a predictable place. Believing that if certain events occur in a certain order makes the outcome inevitable is comforting to many.
For example, if we take a look at the 2008 Recession considering the subprime loans if we were to speak to anyone in the investing world the general consensus would be that the signs were evidently making the event predictable. However, if we were to take a look at what actually happened we would find that the investors who actually tried to drive attention towards the nearing crisis were either ignored or laughed at. Financial bubbles are generally subject to hindsight bias.
Hindsight bias has the ability to affect our investment decisions just as the bias would affect our predictions in other aspects be it cricket matches etc. Investors are put in a pressured environment when surrounded by stocks. This is because missing potential purchases or making bad stock investments generally involves sacrificing years of accumulated wealth. This further pressures them to accurately time stocks always.
In adverse conditions when their stock investment may have declined they may even look back and convince themselves that they saw it coming. This is particularly dangerous because if similar patterns repeat themselves in the future they make take decisions based on their faulty predictions which are not backed by research.
This can be dangerous as even if they might be right due to luck they may go on believing that they earned that success. It may lead to them being overconfident with the belief that they possess foresight or intuition. This may encourage them to take up unnecessary risks in the future which may be destructive for the investor.
Following are some of the traits of investors who may suffer from this bias
They generally overestimate their intelligence. This clouds their decision making which eventually leads them to take up riskier decisions.
Investors who possess this bias constantly blame their advisors or investment managers for losses but when it comes to trades where they make profits they feel entitled to the praise. These investors also at times go ahead and label others who may have made unsuccessful decisions.
Phrases like ” It was meant to happen” are often thrown around.
Investors with hindsight bias often look for the expected outcome in any decision they take. This is flawed as firstly their decisions are not backed by research. Also they often only remember the big unexpected event that led to the outcome the last time and not the multiple small events that affected the outcome in other instances.
How can investors avoid Hindsight Bias?
Investors can avoid being trapped by their own psyche by following some simple remedies:
1. Taking decisions based on research
Sticking to objective analysis presents the investors with the pros and cons. Based on these the investor may go ahead and take the most appropriate decision.
2. Envision both the best and worst possibilities.
Investors with hindsight bias already look at the profitable future they may have based on their decisions. Generally, when we are looking at a favorable future we look for information that fits this narrative. Researchers Roese and Vohs suggested that in order to counteract this bias one may consider mentally reviewing potential negative outcomes as well which would allow people to gain a more balanced view. Envisioning the negative also helps us plan for the unexpected.
3. Maintaining an Investment diary
Investors can maintain an investment diary. Here the investor should map all the investment decisions, the reasons behind these decisions, and their respective outcomes. This would also help the investor learn from both his mistakes and his successful investments. In addition, this also rationalizes investments better as it would help keep our emotions out and our confidence in check keeping them grounded.
The ability to look back at our past allows us to better ourselves by allowing us to learn from our mistakes and also those of others allowing us to better plan our future. But unfortunately, hindsight bias is the cost that comes along with the hindsight that we possess.
But being aware that we have this bias is the first step to bettering ourselves. This introspection allows us to improve and possibly even implement the remedies stated above potentially avoiding investment mistakes.
Unraveling the Sahara Scam: For a country where 250 million people live below poverty, there sure are too many billion-dollar scams with the perpetrators eventually escaping the country. Today we discuss one of the biggest corporate scams in India i.e. The Sahara India Pariwar Investor fraud case which was worth well over $3billion.
What seems surprising about this scam is that it highlights some of the most powerful people being brought to the books by efficient regulators in India. Let’s unravel the Sahara Scam.
Who is Subrata Roy?
Subrata Roy, who is the founding chairman of the Sahara Group and was responsible for building the Sahara Group or Sahara India Pariwar.
Before Sahara, Roy had a Chit Fund business. Roy conducted his chit fund in rural areas where banks were inaccessible. He would carry out the duty of a bank in rural areas. His chit fund would provide daily wage workers with interest on the money they would deposit with him. It was the success of this chit fund that allowed Roy to build an aura of trust around him. While dealing in rural India, Roy also was able to recognize the untapped financial potential present in these areas.
He used the same principles to create the Sahara Group. He created an army of agents who would were asked to bring investors for this new establishment. Over the years Roy was able to grow his chit fund into a conglomerate. Sahara thrived in various sectors entertainment, sports, finance, real estate, household, infrastructure, and manufacturing, etc.
In 2004 the Sahara Group was the second Largest Employer in India after the Indian Railway. By 2011 Sahara had a Mcap of US$ 25.94 billion and Roy was named as one of “The 10 most powerful people in India” by India Today. All this was until he was sentenced to jail by the Supreme Court on account of fraud.
Unraveling the Sahara scam
Sahara first came to the attention of SEBI when they wanted to make one of their companies public. On 30th September 2009, the Sahara Group announced that one of its companies named Sahara Prime City (SPC) would be raising fresh capital through an IPO. The group submitted a Draft Red Herring Prospectus which had all the necessary information about the company to the SEBI in order to get listed. SEBI uploaded the DRHP online in order to allow investors access to the information.
On scrutiny of the document, the SEBI found out irregularities with two other companies in the group i.e. namely Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL). The irregularities were soon bought to light when an Indore-based chartered accountant Roshan Lal sent a note to the National Housing Bank stating that the Group was two companies i.e. SIRECL and SHICL were issuing housing bonds which were not in accordance with the law.
The NHB forwarded the complaint to the SEBI due to a lack of authority they had in this matter. According to the prospectus provided by the group, it was found out that the companies were raising money through hybrid security called an OFCD (Optionally Fully Convertible Debentures). These securities are issued as debentures but after a period of time give investors the option to be converted from debentures to shares. This allows investors to convert from debtors to shareholders.
After further investigation, SEBI found out that SIRECL, and SHICL, had raised the OFCD worth Rs.24000 crores from 2.5 crore investors and were still issuing OFCD for over 2 years without informing SEBI.
Sahara Scam: What was the problem here?
The SEBI was set up as the official regulator of Indian markets. Its duties involve protecting the interests of investors in securities and regulating and promoting the development of the securities market. What the Sahara Group had done is gone behind their back to issue securities in the market in order to raise funds.
There were many problems with this issue of OFCD’s. For a company to be allowed to raise funds it firstly has to be profitable and be of adequate net worth. One of the Sahara firms was making a loss and the net worth of the other was only Rs. 11 lakh. By finding an alternative route these companies were able to raise thousands of crores.
In addition to this, a company is also required to account for the funds carefully by forming a committee in order to prevent misuse along with audit and supervisory requirements. None of this was done. The funds collected were simply kept in a bank account of the group entity called ‘Sahara India’, which agreed to ‘share’ its bank account with the companies that raised the money.
The OFCD issued also requires interest paid till maturity upon which investors are given the option to convert. The OFCD’s issued by Sahara had no maturity date. This allowed Sahara to use the funds raised with complete autonomy without any regulation.
After finding out about this illegal process in Sahara Scam, Sebi immediately asked Sahara to return the funds to investors with 15% interest. Sahara argued that as OFCD’s were hybrid securities the Sebi had no authority over its issue. Instead of following their orders Sahara filed a case against Sebi in the Allahabad court and won. The case when then directed to the SAT( Securities Appellate Tribunal) where the company was found guilty. SAT again directed the company to follow Sebi’s orders. Sahara moved to the Supreme court crying about injustice.
The Supreme Court ruled in favor of Sebi and ordered Sahara to refund investors’ money by depositing it with SEBI. The court also instructed Sebi to provide Sebi with investor information so that the refund process may begin. Sahara then declared that they had already returned a major portion of the funds it had raised. Citing this reason Sahara deposited only $840 million out of the $3.9 billion. On being asked for proof of payment Sahara then stated that they did not have any as they had made cash payments.
When it came to providing investor information Sahara sent 127 trucks containing 31,669 cartons full of over three crore application forms and two crore redemption vouchers to the Sebi office. This resulted in a huge traffic jam on the outskirts of Mumbai. Sebi rejected 25% of investor information sent as they had reached after office hours and post the deadline. On scrutinizing these documents Sebi agents found that they were not complete and realistic.
SEBI has found that the documents Sahara provided do not provide sufficient, verifiable information, and SEBI has heard back from less than 1 percent of the 20,000 investors it contacted, with many addresses turning out to be invalid. The courts did not accept Sahara’s claim that it had already made the payments. Sahara on the other hand argued that it was being forced to make double payments.
In an attempt to locate the investors Sebi ran full and multi-page advertisements in newspapers. Sebi did this over several rounds in various newspapers. Out of the 2.5 crore investors, only 4600 came forward to claim their money. On one hand, this added weight to the argument provided by Sahara but the courts refused to accept it as the company had no proof. The Sebi now sensed that this could very well be a money laundering case. This gave rise to the possibility that the company was used to tunnel black money and also had political connections as the efforts made by regulatory bodies were met by roadblocks.
When Sahara failed to deposit the remaining money with SEBI and Subrata Roy skipped his hearing, the Supreme Court of India issued an arrest warrant for the Sahara chief in February 2014. Finally, on 28th February 2014, Subrata Roy and the other two directors of the company were arrested by the police in Sahara Scam.
In May 2016, the Supreme court granted parole to Subrata Roy as his mother had passed away. Since then, Roy has remained outside of jail as his parole got extended multiple times by the court. On November 2017, the ED (Enforcement of Directorate) filed a case of Money Laundering against the Sahara Group. Although it is yet to be proved it is speculated that Sahara schemes were simply a front to hide black money for influential donors. Unfortunately, it is the rural population that got caught up along with Sahara and were exploited.
Closing Thoughts
The name i.e. ‘Sahara India Pariwar’ translates to Sahara being Supporting someone and Pariwar, meaning family. But after decades of existence, it has come to light that the company misused the trust with which hard-working Indians placed their hard-earned money. The victory however will go down as historical for Sebi.
But despite this, the case has bought to light several major issues plaguing the system. The most important being the powers given to the Sebi. The Sebi unfortunately is significantly influenced by the government particularly the Finance ministry. Even the appointment of the Sebi board includes the chairman, who is nominated by the Central Government; one member from the Reserve Bank of India; two officials from the Finance Ministry; and five remaining members who are recommended by the Union Government.
Although Sebi is given the right to create rules, it cannot implement them without the approval of the federal government. The Sebi also does not have the power to prosecute. The Sebi should be given independent powers like the SEC in the US in order to prosecute without government interference. Scams like this erode investor trust in the markets and further create a dent in India’s image.
Thanks to Sebi this has been one of the few cases where the perpetrators were at least presented before justice. Roy who once was one of the most powerful men in India possibly faces more time in jail as the case develops and has been reduced to an episode on Netflix’s Bad Boy Billionaire’s.
Understanding Opportunity cost and its usefulness in investing: What factors do you consider before you take any decision that involves money? These factors could include affordability, returns, usefulness, pros, and cons, etc. But have you ever considered that simply not choosing an option too has a cost associated with it?
Today we take up an aspect of economics that is generally overlooked when it comes to decision making i.e. Opportunity Cost. We also try and find out its relevance in investing.
What is Opportunity Cost?
In microeconomic theory, opportunity cost or alternative cost is the loss of potential gain from other alternatives when one particular alternative is chosen over the others.
In simpler terms, it refers to the potential benefit that a person misses out on when they choose one alternative over the other. The objective of opportunity cost is to ensure the efficient usage of scarce resources. It exists even when you make no choice at all. It also uncovers the loss of not making a decision.
Opportunity cost is generally unseen and can be easily overlooked as they are not accounted for in the financial statements. However, management or Investors use this concept regularly while making decisions that involve multiple options.
In reality, the opportunity cost theory is a very important concept. This applies not only to investors and businesses but also to individuals in their personal life.
Real-life Examples of Opportunity cost
Let us take an example that includes one of our peers. He/She has decided to pursue an MBA worth Rs. 20 Lakhs (Tuition plus boarding and dining cost) for two years. She came to this decision after receiving a government scholarship of Rs. 5 Lakh. How much cost do you think she will be paying for if she actually goes through with it?
Most of us would have already arrived at the conclusion that she will be liable to pay a cost of Rs. 15 Lac. The true cost here is 15 Lakh (as she has also earned her scholarship) plus the income he/she will have to forego by attending an MBA college. If your peer would have earned Rs. 6 Lac/year (ignoring hikes or bonuses received in this period) by working then the true cost would amount to Rs. 27 Lakh.
Many of us would ignore the opportunity cost of the peer losing out on potential income. In order to arrive at an educated decision, the peer would have to compare the cost of education plus the forgone income vs. the benefits she would receive after receiving an MBA.
We calculate the opportunity cost by comparing the returns of two options. The following formula illustrates an opportunity cost calculation.
Opportunity Cost = Return of Most Lucrative Option – Return of Chosen Option.
Take for example you are provided with the option of investing Rs. 1 Lakh. You are thinking of investing in a Blue Chip Mutual fund that provides a 10% return. You also have the option to invest in a Small Cap Fund that could provide a 20% return.
Here, by applying the formula above we would arrive at:
Opportunity Cost = 20,000- 10,000 => 10,000.
The Ratio of Opportunity Cost
We can also use the ratio of opportunity cost. This uses proportions to demonstrate the value of each choice. This is done by illustrating what has been sacrificed against what’s been gained from the alternative.
Opportunity cost = What you sacrifice by making the choice / What you gain by making the choice
Taking the same example used earlier where we invest in a Blue Chip mutual fund as Small Cap funds are risky.
The Opportunity Cost is = 20,000/10,000 => 2/1 = 2.
Opportunity Cost and Investing
Investing is all about parking money in a financial product with the hopes of making more money than what was invested. Everyday investors are faced with options where they have to decide how to invest their money in order to receive the highest or safest return. While they take the decision they usually factor in returns, the risk involved in making that decision but often leave out opportunity cost.
Opportunity Cost takes into consideration that you could miss out on a great opportunity in the future because you have committed your money to another investment. It makes it easier for us to prioritize one decision over others by putting numbers to these decisions. This results in a better data-driven method that prioritizes where our money is spent.
Opportunity cost can also be used within a company or by an individual when they decide where to raise money from. This could be through equity or through debt
The following are some of the reasons why opportunity cost helps us take better decisions apart from what has been already discussed
1. Helps us realize the cost of doing nothing.
Individuals at times are led to believe that there is no cost incurred when money is left idle. This leads them to simply keep money in a safe etc.
Opportunity cost takes into consideration the potential income the money could if invested in fixed deposits, bonds, mutual funds. This helps individuals take into account the difference their funds could make if they invest it in a financial instrument.
2. Helps take into account the cost of not disinvesting.
This often happens when an investor is too emotionally invested in a stock or has not adhered to an already set stop loss. In a situation where an investor remains locked in on a stock whose price continues to decrease he is risking not only the possibility of the stock plunging further but also the possibility of salvaging some return by investing in other safer instruments.
It is important to note that disinvestment is also an investment decision and opportunity cost helps quantify this decision by taking into consideration alternative investments.
3. Helps put into perspective the cost of not borrowing
Taking on debt is generally viewed in a negative light but this does not always have to be so. Take an example that a small company has the option to take advantage of diversifying into the new industry due to its profitability. Opportunity cost then helps the management put things into perspective if the investment can be financed and still come out profitable through debt.
Although Opportunity Cost provides the possibility of earning higher returns we should always remember that it involves looking forward into the future. This can be combated by first setting our investment objectives. Then opportunity cost could be used to help navigate the options that fit within the risk class of those objectives.
If we let our investment objectives be affected by opportunity cost then there is always going to be an investment opportunity that has the possibility of providing higher returns. The beauty of opportunity cost lies in the fact that it can be used by all. These could also be situations that are not financial.
List of Wealthy Indians who went from Riches to Rags: Although it shouldn’t come as a surprise, we regularly see Billionaires who also can be horrible at managing their wealth. The answers as to why this happens are always in plain sight as most of these billionaires can be caught flaunting their wealth regularly. They can range from greed, obsession, etc.
Today we take a look at Seven Riches to Rags Indian billionaires who somehow managed to squander away their fortunes which otherwise would have taken lifetimes.
List of 7 Indians who went from Riches to Rags
1. Anil Ambani
Anil Ambani is the chairman of the Reliance Group. He was born into luxury, unlike his father who created his own wealth. After his fathers’ death and a property tussle with his brother Mukesh Anil came out on top. In the year 2008, Anil was named the Sixth richest in the world. The years that followed resulted in the one-time richest Indian somehow losing all his wealth.
He is currently fighting off multiple cases for dues owed. Anil currently claims that he is worth nothing and was recently avoided jail with the help of bail provided by his brother unlike other stories on this list.
2. Ramesh Chandra
An IIT alumni Ramesh Chandra set up Unitech a real estate company in 1971. Thanks to the real estate boom Unitech was now the second-largest real estate company worth $32 Billion. He along with his sons had a net worth of 11 Billion in 2007 that was until the Recession of 2008 hit. It was due to the recession that the company began to stagnate.
Further, it was here when Chandra made another grave error of entering the telecom sector. Although Unitech was well received by the consumers’ news soon broke out of its involvement in the 2G scam which involved bribing government officials for spectrum licenses. The failing real estate its involvement in the scam led to his sons Sanjay and Ajay Chandra being arrested.
3. Subrata Roy
Subrata Roy at the helm of Sahara was a larger than life figure. He even named among the top 10 most powerful people in India by India Today. Roy was instrumental in building one of the biggest business empires and India’s Second largest employer.
All his fame eroded when news broke of the Sahara Chit Fund Scam amounting to Rs. 24,000 crores. Subrata Roy convicted and lodged in Tihar Jail for 2 years. He was released on parole in 2017.
4. Ranbaxy Singh Brothers
Ranbaxy Singh Brothers are the next name in our list of Riches to rags billionaires. Brothers Malvinder and Shivinder inherited a 33.5% stake in Ranbaxy a pharma company founded by their grandfather. They decided to sell their inheritance in 2008 for $2 Billion. Over the years that followed the brother made a series of bad investment decisions that eroded their wealth.
Their worst investment included a Rs. 3000 crore loan to spiritual guru Gurinder Singh dhillon. The duo today owe a combined due of 500 million. They are currently being sued for siphoning off billions from their financial company-Religare and healthcare company-Fortis.
5. Nirav Modi
Nirav Modi is a luxury diamond jeweler who was also featured on Forbes list billionaires in 2017 with a fortune of $1.8 billion. The Modi brand was one of the most famous in the world with his designs even being auctioned off at Sotheby’s.
In 2018 the news of a scam broke out when it was revealed that Modi had scammed PNB of 14,000 crores over the course of 7 years. Nirav Modi fled India after the news broke out and took refuge in London. His extradition proceedings are currently underway.
Vijay Mallya, a former billionaire popularly known as the King of Good Times. He inherited his fathers’ liquor business at the age of 28 and went on to transform it into a multibillion-dollar business. Trouble started brewing for Mallya when he decided to venture into the airline sector with Kingfisher Airlines. Although the Airline took off well it soon faced trouble after the 2008 Recession.
In a desperate need for funds, Mallya duped banks for loans by placing weak collaterals. Once it was evident that Kingfisher had sunk despite his efforts, the news of the Rs. 9,000 crore scam broke out. Mallya fled the country and is currently seeking refuge in the UK. Proceedings to extradite him are underway.
Ramalinga Raju founded Satyam Computers Services Ltd in 1987. Raju went on to build it into the fourth largest IT software exporter in the country with the firm worth $2billion in 2008. In order to siphon off funds from the company, Raju began manipulating the financial records to give the impression that the company was growing well. In reality, funds were simply being taken out and being invested in real estate.
This was done in hopes of making a profit on the sales of property at higher prices but the recession of 2008 hit the real estate markets hard tarnishing Raju’s plan forcing him to come clean. Raju along with his brothers and 7 other was sentenced to prison.
Closing Thoughts
“It doesn’t matter how much money you can earn, what matters is how much you can keep.”
According to Forbes, India has 102 Billionaires as of 2020. Compared to the previous year 2019, the count of billionaires has dropped (106 in 2019). Obviously not all billionaires are able to keep their growth trajectory and status. Nevertheless, going from Billions to rags is a totally different story.
In this post, we tried to cover the list of Popular Wealthy Indians who went from Riches to Rags. In any case, if we missed any popular name, feel free to comment below. Have a great day and take care!
“I won the Election!” tweed Donald J Trump on 18th November after weeks of US election 2020 result announcement and after losing war. But why Donald Trump is not conceding US election defeat when the stats are totally against him. It has now been over two weeks since the US election day. The results declared that Democrat Joe Biden had captured enough electoral votes to be declared President-elect. This meant that President Trump would become just one of the four US Presidents to be defeated after serving a single term in the office in the last century.
Despite the results being announced President Trump has refused to accept defeat and officially concede his post to his rival. Today we take a look at why Donald Trump believes he still is meant to serve another term and what the near future holds for him.
Conceding an Election
After every election, it is customary for the incumbent president or the losing contender to officially accept defeat and yield to the new president-elect and assist in a smooth transition of power. Donald Trump, however, has claimed that the elections were rigged against him. Although it may come as a surprise Trump is well within his rights to not concede. If he has any serious doubts about the accuracy of the election results he is allowed to contest it. Trump has also demanded an audit and recount of votes in several states. The democrats too would have wanted a recount of votes if Trump had won a second time after winning by narrow margins the first time.
In fact, this is a much better stance to be taken than politicians simply claiming the elections being rigged, but doing nothing to verify their claims. This is however not the first time that a candidate has requested a recount of votes. The Bush vs. Al Gore election of 2000 disputed election was settled by a recount of votes in the state of Florida. What was even more interesting is that Bush won by a margin of 537 votes in order to gain the EV from the state.
(John McCain’s concession speech from the 2008 US election)
The country, however, may suffer from the consequences of the dispute. These could be the economic or the threat to national security that the country may face. Unfortunately, the US faces a greater threat today i.e. from the Coronavirus.
What are the Grounds for Trump not Conceding?
Trump, although defeated still, seems to be trying to hold a few aces up his sleeve. Let us take a look if these are good enough to power him into a second term.
As mentioned earlier Trump claimed that election fraud was committed in favor of Biden. Before we take a look at the allegation we need to understand the special provisions that were implemented for the 2020 elections. Voters who generally are supposed to vote in person in polling booths were allowed to mail their votes. This was done by making use of Postal Ballots. Different states have different laws on how the election is run. Some would count ballots received before election day, whereas others would count ballots as long as they were posted by election day. This has led to basically two types of lawsuits filed by Trump.
– Claims of Fraud
The first being the claim that ballots were counted irrespective of the date assigned depending on the state. The Ballots if received post respective deadlines are supposed to be left unopened. These were to be transferred to storage where they are to be destroyed. The Trump campaign claims that this was not the case.
Many ballots that were received post respective deadlines were counted too. This makes a significant difference as the majority of the republican voters are said to have voted in person at the polls. In contrast to the majority of Democratic voters preferring Mail-in Ballots due to the corona scare. In fact, trouble started brewing when the vote-counting process was stopped on election day when Trump was leading in several states. The next day Trump slowly began losing his lead in slow motion and the sheer volume of mailed ballots was concerning.
In addition to this states follow a Cure process where if they find any irregularities in the ballots like mistakes in address, occupation of a voter, etc. The voter is then allowed to correct them. The Trump campaign included irregularities in this process too.
– Barring Poll Watchers
The second lawsuit in many states pertains to Poll watchers barred from performing their duties. The Vote count in the US election allows officials from both sides to examine the process. This is done in order to ensure that there are no irregularities.
The Trump campaign had alleged in multiple affidavits filed that republican poll watchers were barred from performing their duties. The Trump campaign demanded that the vote-counting be stopped until republican poll watchers are allowed to commence their duties.
Republican officials also claimed that if they were allowed to resume, they were placed too far away citing the virus, again barring them from witnessing the vote count. These restrictions went on to add to the lawsuit mentioned in the first point. Republicans claimed that as the poll watchers were not allowed, the election officials managed to manipulate the mail ballots.
What the courts had to say?
Both the litigations were put forward in multiple states like Georgia, Michigan, Nevada, and Pennsylvania.
The courts in Georgia dismissed the lawsuit that poll watchers weren’t allowed in Georgia. The claims in Michigan were dismissed too as the poll watcher in question could not specifically name the or identify the official or board that removed him. Nevada too had claims of poll watchers being barred. The poll watchers claimed that when he arrived he was first told that the counting was already over. He later was removed from the premises.
The officials, however, claimed that the Republican poll watcher was removed as he had tried to record the event. The Trump campaign had claimed that 682,479 ballots had been counted illegally in the Pennsylvania. The court is set to hold the hearing today.
Can these irregularities make a difference?
Every vote is important but if taken into account or excluded can the election shift? In states like Georgia and Pennsylvania, it is claimed that there simply are not enough possible illegal ballot votes that can be claimed by the Trump campaign inorder to actually sway the election.
Trump would need to overturn the result in at least 3 swing states to actually have a chance at beating Biden.
Recount of Votes
The vote recount process too requires a significant amount of funds from the party initiating it. Take Wisconsin for eg. Trump will have to pay up to $7.9 million for a recount to take place. This would differ from state to state.
Recounts in Georgia, however, have found irregularities as more than 2500 uncounted ballots were found. Two out of three were in favor of Trump. This still will not be enough to change the result as Biden lead by more than 14,000 votes in Georgia.
Why does Trump’s refusal to concede gain so much momentum?
In order to understand this, it is important to review his tenure as a president and his previous opponents. The 2016 election was a surprise when Trump defeated Hillary Clinton.
Trump’s election was followed by the USA’s tolerant left using all means to get rid of him. These included his campaign being spied on, multiple lawsuits being filed against him, and even a motion to get him impeached was involved.
The worst of all was the media censorships and trials. These continued for 4 years. It soon became evident that the media in the US favored either liberals or conservative values.
Most of the news channels like CNN, NPR, MSNBC with liberal values were critical of Trump. Whereas conservative channels like Fox favored. This can be evidently seen in the media always trying to portray him as a racist despite him disavowing extreme right racist groups a number of times. This bias has been easily caught on by viewers.
The turning point came when liberal news channels and several social media sites provided extremely low coverage to the Hunter Biden Scam. The story had exposed the corrupt dealings Biden had with Russia.
Twitter went as far as to temporarily deactivate accounts of individuals who shared news of the scam exposing the Biden family. These edited narratives repeatedly pushed by media have polarised the Trump supporters further towards him.
In addition to this, the country was plagued by riots like the BLM (Black Lives Matter). These riots were intensified by the Antifa groups resulting in destruction and mass looting throughout the country. These events also added to the polarisation of groups towards Trump.
Other instances like pre-election polls predicted a blue wave. But that did not happen as Trump garnered over 73 million votes proving them wrong. All these attempts over the four years have been seen as ploys by the left doing anything and everything to get rid of Trump.
And when Trump finally goes out announcing that the elections being rigged, it simply falls into the narrative the Democrats have created for themselves over the years as just another play in their book to get rid of Trump.
What is Next for Trump?
After observing the possible outcomes it almost seems mathematically impossible for Donald Trump to overturn the elections. Even with a recount there simply do not seem to be enough votes to swing up to 3 states in his favor.
What is surprising however is that Trump has remained more or less unfazed by the results. He continues to carry on. He even signed an executive order on November 12th banning American companies from investing in Chinese entities with ties to the military.
This highlights the problems it could be viewed as Trump being an incumbent President working against the new administration who may take a different approach towards China.
(Trump went golfing as the Vote count got extended)
Many concerns have been raised on what happens if Trump does not accede? Even if Trump remains in the White House post-January 20, 2021 then simply will be an ex-president not permitted to exercise any powers which will be with Biden.
In addition, Trump will be admitted into the White House only if he is invited. For now, these concerns are simply another media hoopla.
It has been reported that Trump has been coming increasingly in terms with his defeat. A close aid has revealed that Trump expressed the possibility of him running a third time for his 2nd term in 2024. But there are doubts if the Republican donors would financially back him once again. In addition, there also have been rumors that Trump has planned to start a news network to compete with Fox News.
Either way by claiming that the elections were rigged Trump goes down as a Martyr for conservative values and manages to win regardless of what he does. The Trump following and Trump influence will remain intact if he comes back for a second term or if he moves into the News business.
In addition, a number of republicans would owe it to Trump for being elected thanks to his grip on Republican voters. In addition, Trump also gained a significant amount of Blacka and Hispanic votes in comparison to 2016. One of the very few Presidents able to do so.
The legal repercussions, however, will continue to haunt chase after Trump for years to come. A number of lawsuits were filed in a desperate attempt. These include sexual misconduct lawsuits, Tax, and bank fraud investigation, real-estate fraud investigation, etc.
President-elect Joe Biden has privately told advisers that he doesn’t want his presidency to be consumed by investigations of his predecessor.
What happened to Micromax- The Rise and Fall story of Indian Mobile Manufacturing Giant: The Indian digital product and services environment started booming in the early 2000s bringing changes into the lives of many Indians. A decade later these startups began disappearing as they were either acquired or out marketed by their Chinese competitors with deep pockets. Micromax was an Indian jewel that flourished during both periods, but it too has lost its shine on the Indian markets.
The fact that Micromax was a huge name in the hypercompetitive mobile industry may come as a surprise to many as the name is hardly heard of these days. A few years ago they were even rubbing shoulders with Samsung.
Today we take a look at the factors that led to the rise of Micromax and we also study the factors in the depressing years that followed which led to its demise.
The Story of the Rise of Micromax
Many of us would remember Micromax from its fame in the 2010s as a mobile phone manufacturer. When Micromax was founded in 1991 by Rajesh Agarwal it was never a phone company. It started out as a distributor of computer hardware for different brands like Dell, HP, and Sony.
The company was later called Micromax Informatics. In fact Rahul Sharma one of the most prominent figures in Micromax only joined the company along with Sumeet Arora and Vikas Jain as equal partners in 1999.
Micromax in the early 2000s was largely a software company known as Micromax Softwares. Rahul Sharma was introduced to the idea of fixed wireless terminals by one of his Finnish colleagues.
The 2000s were years when landline was the primary source of communication. The technology introduced to Rahul Sharma used sim cards which would have revolutionized the sector. The idea that a whole business could be set up where multiple people paid and used the single sim card to make calls was well accepted.
The main benefits were from the fact that rural areas still had no landline connectivity. This technology was perfect as it could even be used in difficult terrains.
Sharma wasted no time and soon Micromax began making specialized phones that looked like landlines but used sim cards for Nokia. Micromax was also appointed as the All India distributor for Nokia 32s and was soon installed 10,000 Nokia 32s.
Unfortunately for Micromax, Nokia sold off its business worldwide. Micromax still was able to milk profits from this idea as they then took this same technology to Airtel. They were tasked with setting up Payphones in J&K. Micromax was then allowed by Airtel to expand to the rest of India. During their peak in 2007, they were setting up 250,000 devices.
By now the founders of Micromax had already got the taste of uncertainty, changing technology, and the company’s need to evolve. The company then decided to change direction towards mobile phones.
The entry of Micromax into phones
The founders of Micromax were looking for the next big thing and luckily stumbled upon the idea. Rahul Sharma was passing through Bengal when he noticed that villagers were powering telephones using the battery from a truck.
This intrigued Rahul Sharma and on questioning the truck driver he was told by the truck driver that he actually made his living this way. He charged the battery in another village overnight, bringing it back to help power the phone the next morning.
Although astonished Sharma was able to come to terms with the electricity problems India faced. He saw an opportunity and understood how revolutionary a low budget phone with a long battery life could be in India. Sharma took this idea to the other founders at Micromax who were skeptical of its success. This was because the market was then dominated by the likes of Nokia, Samsung, Motorola, and LG. Sharma managed to convince the founders and they decided to risk entering the market.
Micromax decided to create a new phone whose battery lasted for 30 days. The manufacturing of the phone would take place in China by OEM’s( Original Equipment Manufacturer). These OEMs would produce equipment as desired which would then be shipped into India and later marketed and sold by Micromax.
Micromax relied on these OEM’s and began working with Chinese companies like Oppo, Vivo, Gionee, and Coolpad to manufacture its phones in China. By doing this Micromax launched its first mobile phone i.e. Micromax X1i. They decided to target rural areas as these were plagued by electricity cuts.
Unfortunately, they couldn’t find a new distributor as they were new entrants in an established market with the likes of Nokia. In order to resolve this Micromax turned to their existing terminal distributors who took a lot of convincing but eventually agreed. Their efforts finally bore fruit as the company sold all of the 10,000 phones in only 10 days with the market asking for more. Within a few months, Micromax had turned itself from a 10 crore/ annum business into a 100 crore/annum business.
Other innovations followed by Micromax
Taking a look above you must have already realized that that one of the core principles that Micromax relied on was fixing gaps in the Indian markets. They did not stop with the XJi model.
During this period dual sim phones were unheard of. Multiple sims were a sign of luxury as this also meant having multiple phones. Rahul Sharma realized this when he was speaking to his chef who apparently used 3 sim cards for different purposes. Micromax went on to revolutonize the industry overnight with the introduction of dual sim phones that allowed users to use services offered by competing operators allowing them to switch between data plans.
In addition to this Micromax introduced Bluetooth-enabled phones for younger generations and also further released phones specially designed for girls. These innovations further strengthened Micromax’s foothold in a market they had just entered.
Another interesting feature that Rahul Sharma introduced was the call recorder. He got this idea when he met a painter who was in need of call recording features. This was because customers of the painters regularly betrayed their word of mouth over the price after the job was done. This created another feature for Micromax.
These were particularly the reasons why Micromax was popular in the Indian industry. They identified the desires of the masses and after identifying these they realized that it did not take much effort to satisfy them. By focussing on these needs Micromax was able to develop a niche for itself in the Indian markets.
What height did Micromax reach?
By the year 2015, Micromax had grown from a supplier for Nokia into a brand that was larger than Nokia in the Indian markets. Micromax was the second-largest smartphone company in India after Samsung.
The previous year Pink Papers reported that Micromax’s founders valued the company at $3.5 Billion. It now had 40 phones ranging from Rs.5000-Rs.10,000. Micromax was also among the first three local brands that introduced the first generation android phones.
It was also the first Indian smartphone company to sign an international brand ambassador i.e. Hugh Jackman. This would be important as Micromax now had set its eyes on the global markets. It was already a top 10 brand in Russia and had active international sellers in Dubai and Sri Lanka. The founders also began hiring external managers to lead the company in a bid to challenge Samsung.
What happened to Micromax – Factors that led to the fall!
There was a brief moment in Micromax’s corporate history in August 2014 when the company became India’s biggest mobile phone brand and the tenth-largest supplier of mobile phones in the world. By 2019 the company’s valuation had fallen 90% from its 2015 peak.
Let us now find out the factors that pushed Micromax out of the Limelight forcing it into survival mode in just 5 years.
1. Entrance of Jio
The hyper-competitive smartphone industry brings forward rapid innovations in a short span of time and this is the biggest challenge a company faces. Brands in the Indian markets underestimated the speed with which the conversion from 3G to 4G would take place. Airtel had already begun investing in 4G technology. Any company wanting to adapt would study previous trends and develop their timeline accordingly. Consumers had taken years to transition from 2G to 3G and in 2015 people were still using 2G networks.
The advent of Jio revolutionized the industry. When Jio was launched every Indian went from having no internet or paying huge costs for 2G/3G directly into having the fastest internet i.e. 4G free for a number of months.
In addition to this, calls were free as Jio used VOIP with the help of 4G. Unfortunately, not everyone had phones that could access 4G. Technology is such that you cannot run 4G data on a phone that is meant for 3G. Any person looking for a new phone or trying to make use of the offer would buy a phone that had 4G accessories. Sadly for Micromax, they had 40 phones in the market none of which supported 4G.
But the company could survive this right by ordering their OEM’s to manufacture models with upgraded 4G accessories? Sadly this was not the case for Micromax. Their business practice involved using the revenues of the phones just sold to order and procure another batch of phones from China.
Overnight Micromax found itself stocked with a large inventory of 3G phones that no one wanted. Couldn’t Micromax at least try to order awesome phones with 4G accessories by mobilizing funds just to stay in the game. Sadly this was not possible as Chinese suppliers would only customize their products if they were ordered in large enough quantities. Micromax did not manufacture their own phones nor did they have the financial freedom to dump the older 3G phones and manufacture 4G devices overnight. By the end of the year, their market share had reduced to 9%.
2. Chinese Phones Competition
The Phones that were branded as Micromax were manufacture by Chinese companies. These companies included the likes of Oppo, Gionee, Vivo, and Xiaomi. Chinese companies had realized the potential of the huge customer base in the Indian markets.
These companies began studying the markets thoroughly identifying points of entry. The introduction of Jio forced established 3G phones to withdraw its inventory which allowed Chinese manufacturers to flood the markets with 4G ready phones. This created a perfect setting for Chinese devices as they already had a portfolio of devices that were compatible with 4G.
Initially, Micromax was able to hold off well against these companies as it was already an established Indian brand. But soon the ‘Make-in India’ campaign rolled out and companies like Oppo, Gionee, Xiaomi, and Vivo began assembling in India. This took away the advantage Micromax had.
Micromax was set up as a brand that sold affordable phones but unfortunately, these were outsourced from China. The Chinese companies were experts in both hardware and software, whatever was currently offered they too did but with better quality and at cheaper rates. The focus of Micromax, on the other hand, was quantity over quality. The phones offered by Micromax were average.
These Chinese brands were also backed by superior financial power. This allowed them to offer offline retailers incentives to promote their products. They also took advantage of the growing E-commerce presence by partnering with them. Every city was bombarded with hoardings of green and blue completing the Chinese invasion. By 2018 Chinese smartphones controlled 67% of Indian smartphones. Micromax’s share further fell from 9% to 3.4%.
3. Demonetization
Micromax was still trying to regroup from the fallout and also battling the influence of Chinese phones. As they were finally coming to terms and ready to release another market-ready portfolio Prime Minister Narendra Modi announced demonetization.
Just to put things into perspective the majority of Micromax’s products were ranged below Rs,10,000. This meant that they relied heavily on cash. The Indian consumer then did not actively make use of online payments and certainly not the lower-income customer base of Micromax. This blocked their plans to launch their products and further costed Micromax dearly.
Closing Thoughts
Even though Micromax does not share the limelight anymore it still planning a comeback in India with the launch of ‘In’ phones. Reclaiming markets that are currently dominated by Chinese products is going to be no easy task.
It becomes harder as now Micromax is entering segment the Rs. 20,000-25,000 segment. Only time will tell if Micromax will be able to fight the likes of RealMe, OnePlus?
Simplifying Nirav Modi Scam and PNB Fraud: If you search Nirav Modi on google, you can find a lot of his pictures with Glamorous Actress from both Bollywood and Hollywood. However, behind all those gorgeous pics, there is a big fraudster hidden. Nirav Modi Scam or The Punjab National Bank (PNB) scam of ₹11,356.84 crores is being dubbed as the biggest fraud in India’s banking history.
Today, we take a look at the what acutally happened in PNB Fraud or Nirav Modi Scam, the man behind it and how the diamond mogul was able to siphon billions from the country.
Who is Nirav Modi?
Nirav Modi is a luxury diamond jeweler and designer who featured on listed containing the diamond kings of India. He was also ranked 57th in the Forbes list of billionaires for 2017. Nirav Modi was born into the diamond business in Gujurat but was bought up in Belgium.
Modi attended the Wharton School at the University of Pennsylvania but dropped out and accompanied his father to join his uncle Mehul Choksi’s business at the age of 19. Mehul Choksi was the head of the Gitanjali Group. The Group-owned 4000 retail jewelry stores across the country.
Under him, Modi learned the tricks of the trade in the diamond industry and eventually went on to found ‘Firestar’ in 1999 a diamond sourcing and trading company. The success of the business soon saw Modi acquiring other jewelry businesses. These included the likes of Frederick Goldman in 2005, and Sandberg & Sikorski and A.Jaffe in 2007 in the USA.
In 2010 he launched a diamond store that bore his own name which eventually grew to 16 stored in locations like Delhi, Mumbai, New York, Hong Kong, London, and Macau. Modi’s popularity grew after he designed the “Golconda Lotus Necklace” with an old, 12-carat, pear-shaped diamond in 2010 and the Riviere of Perfection, featuring 36 flawless white diamonds weighing a total of 88.88 carats, being sold at Sotheby’s auction.
His store launch in New York included the likes of Donald Trump, actress Naomi Watts, and model Coco Rocha. The store sold luxury brands like Hermes, Chanel, Prada, and Gucci. Renting the store alone cost him $1.5 million for a year.
At the height of his successful business career, he was known as one of the Indian diamond kings and his jewelry was worn by Kate Winslet for the Oscars. All that was until the news of the scam broke out.
How didNirav Modi pull off the Scam?
The scam which broke out in 2018 had begun way back in 2011. In order to pull off the scam, Nirav Modi made use of a banking instrument known as the LOU (Letters of Undertakings). An LoU acts as a bank guarantee where its customers can raise short term loans. These loans can be raised from Indian banks’ foreign branches established overseas.
As Nirav Modi imported diamonds from foreign countries it meant that he had to deal with foreign currencies. For this, he had to approach foreign branches of Indian banks for loans that were received at cheaper rates. But what collateral does he have here? This is where LOUs step in. Nirav Modi approached PNB for an LOU which was used as collateral for these short term loans.
These LOUs, however, are supposed to be given out only when the client has collateral in the domestic bank issuing the LOU. But PNB ignored these requirements and gave out the LOUs on Modi’s guarantee.
(Nirav Modi in talks with Prince Charles)
As these loans were for the short term on their due date Modi was asked to pay back the loan by the foreign branches. But this is where Modi extended the scam. He simply took another LOU from PNB of a higher amount. This was used to pay back the old loan and the additional amount was reinvested. Talk about a Ponzi scheme mechanism. By 2018 Nirav Modi had received 1,212 more such LOUs.
His plan, however, was working! Modi had grown his business in a span of 5 years what would otherwise have taken 20 years. But how was he going to pay back all the debt? Modi had planned to eventually list his “successful” company, with securities being sold at a premium. These funds would then be used o pay off the billions in debt.
But unfortunately, in 2018 when the employees of his companies(Diamonds R Us, Solar Exports, and Stellar Diamonds) approached PNB once again for LOUs the bank employees demanded 100 percent cash margins. Nirav Modi’s firms contested this requirement. They claimed that they had availed LOUs without collateral before.
This led the PNB officials to finally take a closer look at their accounts after which they first found irregularities of Rs. 280.7 crores and immediately lodged an FIR with the CBI for fraudulent LOUs issued. As the officials dug deeper, by May 18, 2018, the scam had ballooned to over Rs 14,000 crore.
The fallout after the scam broke out was unprecedented. This is because citizens just could not cope with the fact that businessmen could simply squander billions. This came outpost the Vijay Mallya scandal.
But by the time the news broke out Nirav Modi, his wife, younger brother and Mehul Chowksi had already fled the country. The brunt of the scam fell on the Indian banking sector as although the loans were taken in other countries they were taken from Indian banks. Eventually, the government had to once again step in to save the banking sector.
Several PNB officials were arrested. Top PNB officials claimed that the scam took place as few PNB employees were involved. They also stated that the scam was possible due to the irregularities in the banks’ SWIFT systems. But these charades were impossible to buy as billions could not simply disappear from the bank without top bank officials being involved.
(PNB Scam Whistleblower –Hari Prasad)
The most interesting turnaround in the case occurred when news broke out of the whistleblowing attempts that took place. These attempts were made by jeweler Hari Prasad. He had sent detailed letters of the scam taking place to the PM’s office back in 2016, highlighting PNB and urging action. These letters were simply acknowledged by the PMO and transferred to the Registrar of Companies.
The RoC simply disposed off the case. This led to the scam taking a political turn. The Opposition blamed the Modi government for being an accomplice. The Modi government, on the other hand, blamed the congress as the initial LOUs were issued when they were in power.
Closing Thoughts
Needless to say that no matter who commits the scam or who’s involved in the scam, the common public is always the victim. The same is the case with the Nirav Modi scam or PNB fraud. After all, it’s the people’s money saved in PNB bank. Nirav Modi, though has been accused of scam, still is comfortably living life abroad. We can only wait and hope that PNB fraud comes to justice.
A Guide on what is a Profit & Loss Statement and how to read it: One of the most important aspects an investor looks into before investing in a business is whether the business is profitable. That is how much earnings the company is making every quarter and year, along with how much is growing in the earnings compared to the last year or so. And this can be found by reading the Profit & Loss Statement of a company.
Today, we have a look at the financial statement that provides us with this earnings info i.e. the Profit & Loss Statement in order to better understand it. Let’s get started.
What is a P&L Statement?
A profit and loss statement (P&L) or income statement is a financial report that summarizes the revenues, costs, and expenses incurred over a given period of time. The P&L statement shows a company’s ability to generate sales, manage expenses, and create profits. It is also known as the statement of operations.
Why do we need a P&L Statement?
For the sake of understanding the concept better take the example of a household that earns Rs.30,000 p.m. with the assumption that due to a tight budget it does not spend on assets. If a member of the family were to compute how he arrived at the savings for a month, how would he do so?
He would simply jot down all the incomes he receives from various sources and subtract that with the expenses say Rs 25,000 in order to arrive at the amount he has saved. Although in the case of a company we do not have savings, instead we try to find out the profit or loss from a similar but tabular method. We jot down the total revenue earned by the firm from all sources and subtract it with expenses in order to arrive at the respective profit or loss and that is exactly what the P&L statement does.
In the simplest words, the goal of a P&L statement is to measure the profits by excluding the expenses from the income and provide an overview of the financial health of the business. The profit and Loss statement shows exactly where the revenues come from to the business, and what are the costs and expenses that are paid for. It shows us the ability that a business has to manage its profits by either cutting costs or driving revenue.
The P&L Statement is very important to various stakeholders.
Within the company, the statement shows where the company could be possibly lagging behind in generating revenue or on what costs and expenses the company is overspending and should reduce. Such information also helps then plan and budget for the coming years. The statement also provides insights into whether the profit margins they have allocated on the products are sufficient.
For investors, the P&L statement answers the primary questions they have, which is whether the company is profitable or if it is making a loss? And even if it is doing so what are its prospects to breakeven or increase profits.
The P&L statements also help other government entities and the tax departments to assess the tax position of the company.
Before going through the tabular format let us have a look at the basic formula the P&L report is based on:
Revenue – Expenses = Profits
But arriving at Profits is not as simple as the formula depicts. There are various incomes and expenses that simply cannot be grouped together and they must be shown separately in order to aid future decision making. These include revenue, Income from other sources, operating expenses, other expenses, taxes, etc.
Profit before Taxes = Net Operating Profit + Other Income − Other Expense
Net Profit (or Loss) = Net Profit before Taxes − Income Taxes
Looks confusing right. In addition simply following the above would make a comparison to previous years’ data or comparison with other companies difficult. Hence the P&L statement comes in a simple tabular format that makes understanding and comparison easier.
Format of the P&L statement
STATEMENT OF PROFIT & LOSS
Name of the Company…………………….
Statement of Profit and Loss for the period ended…………….
Particulars
Note No.
Figures as at end of current reporting period
Figures as at end of previous reporting period
Analysis
1
2
3
4
I. Revenue from operations
xxxx
xxxx
Here revenue on account of company’s main operating activity is shown.
II. Other income
xxxx
xxxx
Here, other revenue not arising out of company’s main operating activity is shown.
III. Total Revenue (I + II)
xxxx
xxxx
IV. Expenses:
Cost of materials consumed
xxxx
xxxx
This section is applicable for companies that manufacture their own products. This section will include the cost pertained to manufacture those products in the form of Raw Materials, Packing Material and other material such as purchased as intermediates and components which are consumed in the manufacturing activities of the company. This section also includes Semi-Finished Goods purchased for processing and subsequent sale.
Purchases of Stock-in-Trade
xxxx
xxxx
This is applicable to trading companies and would comprise of goods purchased normally with the intention to resell or trade in, without any processing / manufacture at their end.
Changes in inventories of finished goods work-in progress and Stock-in-Trade
xxxx
xxxx
This represents the difference between opening and closing inventories of finished goods, work-inprogress and stockin-trade. Such differences would be shown separately for finished goods, workin-progress and stock-in-trade.
Employee benefits expense
xxxx
xxxx
Finance costs
xxxx
xxxx
Depreciation and amortization expense
xxxx
xxxx
Other expenses
xxxx
xxxx
Expenses not covered above are required to be aggregated here. Examples of other expenses are consumption of stores and spare parts, power and fuel rent, repairs, insurance etc.
Total expenses
xxxx
xxxx
V. Profit before exceptional and extraordinary items and tax (III-IV)
xxxx
xxxx
VI. Exceptional items
xxxx
xxxx
Here total impact of the exceptional items like gain / loss on disposals of long-term investments, legislative changes having retrospective application, litigation settlements disposals of items of fixed assets and other reversals of provisions etc are to be shown.
VII. Profit before extraordinary items and tax (V - VI)
xxxx
xxxx
VIII. Extraordinary Items
xxxx
xxxx
Here total impact of the extraordinary items like expense related to previous periods, arising out of long term settlement with the employees, loss due to fire etc are to be shown.
IX. Profit before tax (VII- VIII)
xxxx
xxxx
X Tax expense: (1) Current tax (2) Deferred tax
xxxx
xxxx
XI. Profit (Loss) for the period from continuing operations (VII-VIII)
xxxx
xxxx
XII Profit/(loss) from discontinuing operations
xxxx
xxxx
XIII. Tax expense of discontinuing operations
xxxx
xxxx
XIV. Profit/(loss) from Discontinuing operations (after tax) (XII-XIII)
xxxx
xxxx
XV. Profit (Loss) for the period (XI + XIV)
xxxx
xxxx
This represents the profit after tax
XVI. Earnings per equity share:
xxxx
xxxx
Where to find the Profit & Loss Statement of a company?
If you want to find the last five years’ profit &loss statement of any publically listed company in India, you can use Trade Brains free stock research portal here.
Here, you can read the simplified profit and loss statement of any company that you’re researching from the list of over 5,000 publically listed companies in India. For this, simply go to https://portal.tradebrains.in/ and search the name/symbol of the company in the search bar. Then, you can go to the stock details page of that company to read its profit & loss statement.
The profit and Loss statement has a very important role to play when it comes to guiding investment decisions. The Profit and Loss statement should however not be considered as the only basis for making decisions. The Profit and Loss statement includes expenses while computing Net Profit but leaves out any changes made to the assets and liabilities during the year.
Also, a high Net Profit will not necessarily mean that the company has adequate cash to spend. There is still a possibility that the company may have made a profit but still has a negative cash flow. The reasons for this can only be understood after viewing the Cash Flow Statement. A complete analysis using financial statements requires a combination of P&L Statement, Balance Sheet, and Cash Flow Statement.
List of Stock Market Manipulations: It might sound a little weird for beginners, however, the stocks in the Indian markets too get manipulated, even though under the presence of big regulatory bodies like SEBI. Sometimes these stock market manipulations are noticeable, but most of the time they are not- it can even be difficult for the authorities and regulators to detect them. This is because there are a wide variety of factors that are affecting the prices of a stock on a daily basis and not all the impacts from these factors are quantifiable.
Today, we go through some of the popular ways of Stock Market Manipulations and widely used techniques manipulators use in order to get a better understanding. This would allow us as retail investors better understand and position ourselves.
Stock Market Manipulations – Ways in which the market is manipulated!
Market manipulation refers to the creation of false inflated/deflated misleading prices of security by interfering in the operations of the market. Market manipulation involves the intent to do so with the aim of making personal gains. If stock manipulation is caught then it is subject to prosecution.
There are multiple ways in which the stock prices are manipulated. Generally, it is easier to deflate stock prices in bearish markets and inflate them in bullish markets. Most of the market manipulation involves sending misleading signals in order to influence the retail investors. By creating positive perceptions manipulators influence retail investors to buy stocks increasing the price. The opposite happens when negative perceptions are created. The following are some of the methods of market manipulation.
1. Wash Trading
Here a single stock is sold and repurchased for the purpose of generating activity and increasing the price. The rapid buying and selling pump up the volume in the stock, attracting investors who are fooled by the increasing trades. This happens as the impression of increased activity influences uninformed traders.
2. Brokers and Pledged Shares
At times promoters pledge a part of their holding as collateral for raising loans which is a standard industry practice. At times as a last resort for the necessity of funds, the promoters are forced to pledge large chunks of their holdings – not a good sign for investors. For smaller companies, this funding is facilitated by brokers as their size makes it difficult for them to be deemed credible to raise funds through other sources. Lenders here generally offer 60-70% of the value of the shares pledged.
What manipulators do here is try and influence the markets to reduce the price which in turn reduces the total price of shares pledges. This now reduces the value of shares pledged and would require promoters to make up for lost collateral due to price loss. If news breaks out that the promoters are failing to do so retail investors begin to panic assuming the company is in for the worst and the share prices begin to fall. The markets react this way as in such cases the lender loan the money to the brokers and the company. And if the prices fall and the margins required are not met the lenders simply dump the shares in the market to ensure that they themselves do not make a loss. Manipulators recognize and take advantage of this fragile system.
Some experts, however, are not fully convinced that this is what is actually happening. They feel that there is a good chance that promoters and manipulators play a well-orchestrated game to reduce prices. This is possibly done to increase holdings at cheaper rates.
3. Pump and Dump
The pumping of stocks begins with manipulators buying huge chunks and then releasing positive announcements at times even along with the company in order to increase the share price. Uninformed retail investors here are lured-in to buy these stocks with the assumption of them being the next big thing. The high demand results in inflated prices marking the completion of the pumping stage.
Once the prices are inflated enough to make profits the bear cartels then start dumping the shares. This causes the prices to fall back to pre pumping levels resulting in losses among retail investors.
This is a stock manipulation tactic employed by the bear cartels. Short selling is a completely legal practice selling borrowed stock in the hopes that the stock price will soon fall, allowing the short seller to buy it back at a profit. It is encouraged as authorities believe that it provides the markets with more information as often the short-sellers employ extensive research to uncover facts that support their suspicion that the target company is overvalued. Short selling also increases the market liquidity and provides investors with long positions an alternate source of income by lending shares. But unfortunately, bear cartels use this instrument differently.
Bear cartels target stocks that have been increasing in the recent past due to their positive results. They first artificially further pump up the price while taking short positions against the stock in the market. They then begin to spread negative information through public smear campaigns about the stock and offer poor predictions and targets. This eventually causes the price to fall where the cartels buy back the shares at lower rates earnings a profit by short selling. This is another version of the pump and dump but here the manipulators do not actually buy the stock. This scheme can only succeed if the manipulator here has credibility.
5. Spoofing the Tape
Spoofing also known as layering. Here the manipulator places orders in the market with no intention of actually buying. Other investors see the large orders waiting to be executed are led to believe that a huge investor is in the process of buying or sell at a certain price. Therefore, the uninformed retail investors to place their order at the same level to buy or sell.
Seconds before the market trades at the price of the large order, the order is pulled back from the market. But the retail investor, unfortunately, does not have the time to back out and their order is filled. This results in market drops and losses for anyone unfortunate enough to be tricked into buying.
6. Bear Raiding or Poop and Scoop
Bear raiding is when a large player forces share prices lower by placing large sell orders. The price plunges as stops are hit, adding to the selling. Once this happens, the manipulator buys the undervalued shares, thus making a profit. Although both are based on the same principle poop and scoop generally target medium or large-cap companies. It is rarer as it is harder to artificially affect the prices of a good company.
Closing Thoughts
Although Illegal, financial market manipulation is rampant in today’s stock market and has always been so. Being retail investors with lower individual influence on the markets it is easy for investors o fall prey to these schemes. But understanding the stock market manipulations and other scamming methods allows us to come to the realization that the manipulations are part of the system.
Investors who realize this become not only better and in tune in identifying stocks that are manipulated but also find means to profit through them by adjusting their positions.
A Guide to Coat Tail Investing Strategy: If you had invested Rs. 1000 in Berkshire Hathaway, in 1970 it would have grown Rs 48.6 lakh by 2014. Stunning isn’t it! How many times have you been hit with stats like this? Always leaving you wishing that you knew what Warren Buffet or your investing hero knew then.
Lucky for us there is a whole strategy based on mimicking portfolios of those whom we look up to in order to make the same gains. Today, we discuss a strategy popularly known as Coat Tail Investing which would help us mimic the investments made by our idols.
What is Coat Tail Investing?
Coattail investing refers to an investment strategy where an investor replicates the trades of well-known and historically successful investors. Smaller investors here ride the coattails of their idols in hopes of multiplying their investments. The investors that are worth replicating in this context are those who have enjoyed continuous success for a period of 20-30 years. The strategy is based on the logic that if these top investors would buy a stock for their own portfolio then it must be a great investment and hence we should buy them too.
Simple as it sounds it’s amazing that more people don’t do it. It may interest you to know that even Institutional investors tend to track several successful investors to see what they are investing in according to a report by Aite Group. In fact, even investment guru Warren Buffet admitted that much of his early success was the result of “coat-tailing” great investors like Benjamin Graham.
Thanks to regulations put in place by SEBI and media coverage individual investors like you and I are quickly informed about where these big investors are investing their money. Following are some of the means that have made this possible:
– Due to Company Disclosure requirements put in place it is mandatory for a company to disclose the names of all the shareholders holding more than a 1% stake in the company. The company reports would include the names of the major stockholders of the company.
– Mutual Funds are required to disclose their portfolios every month. This allows investors to gather information on what stocks have been bought or sold by the fund.
– Whenever there is a block or bulk deal takes place the Stock exchanges publish data of investors involved, no. of stock traded, no. of stocks that exchanged hands, and the price at which the trade took place on a daily basis on the NSE and BSE website. A bulk deal is when the total quantity of shares traded exceeds 0.5% of the equity shares of the listed company and a block deal is a trade of more than five lakh shares or a minimum amount of Rs 5 crore of a listed company.
– Media outlets, business journals, finance websites also disclose the portfolios of big investors. Of late there are even sites specifically dedicated to this purpose.
Quick Note: You can follow the investment portfolio of big investors in India using our Trade Brains Portal here.
Advantages and Disadvantages of Coat-Tail Investing?
Coat Tail Investors to date have made significant fortunes by copying the portfolio of great investors. But they also have suffered a massive loss due to this purpose. Following Advantages and Disadvantages shed some light on why this has been so
Advantages of Coat-Tail Investing
– It is easy to implement
The requirements for this strategy are to find an investor you admire, and then start copying his market moves. The heavy-duty which includes analysis and research is already done by the investors. This helps us save a lot of time and effort and at the same time reap the benefits.
– It costs us nothing
Big investors and institutional investors spend millions of dollars on creating teams specifically for identifying these stocks. The end info that they spend so much on is made available to us free of cost after they make the trade.
– Chances of Succes are high
Here investors who are already familiar with the industry or stock put in their years of expertise. Therefore following these big investors increases the odds of success.
Disadvantages of Coat-Tail Investing
– Abrupt exits may catch us off guard
Big Investors do not announce that they will be exiting the stock as this may negatively affect their gains. The news of a big investor buying or selling stock will have positive or negative effects on the share price respectively. If investors continue to hold the stock even after the big investor has sold and the price has fallen the investor may incur losses.
– Different interests
Your financial goals may not match the investors. Some investors may want to buy stock in order to make quick profits from trading, blindly copying them oud prove to be disastrous. Also, investors who want to make quick profits i.e. in the next 6-12 months may not have much to gain if they follow investors like Buffet who make investments for a lifetime. If is easy for one to confuse trading with investment picks or vice versa.
– There are too many investors already applying this strategy
Every move made by these investment gurus is constantly watched by lakhs of people. Technology has made it possible for information to be transferred in less than seconds. As mentioned earlier this now causes the prices of shares to fluctuate wildly with the smallest sign of the investors moving in or out due to market reactions. If an investor is delayed even by the shortest period of time he may end up in losses.
– Everyone makes mistakes
It is very much possible for even stock market experts to make errors. These errors, however, may result in severe consequences for those that blindly follow them. The best example, in this case, would be Warren Buffet picking IBM. He later admitted that his thesis on IBM was flawed
Closing Thoughts
After observing the disadvantages above it doesn’t take a genius to note that the stacks are piled against the common investor. Then how can one even make this strategy work?
For this, we can take notes from Mohnish Pabrai one of the most famous names in Dalal Street. Unknown to many Pabrai himself has adopted the coning approach. He is known to have joked that he’s never had an original idea in his life, but this doesn’t bother him. “ we copy the best ideas and make them our own.”
It is the latter part – ‘making them our own’ which is most important. Most of the problems that the strategy has can be eroded simply if the individual assesses and does his own research after gathering information. The investors we pick to follow are also of importance in this strategy.
Picking Buffet with the aims of making quick profits would not make any sense just like picking any other activist investor when the investor has the aims of the long term. As long as we keep ourselves updated, pick the investors whose strategies meet our aims, and do our own research after gaining trade information, Coattailing may actually lead us to personal gains.
Understanding the Roles of Depositors – CDSL and NSDL in the equity market: As investors and traders, we are well versed with the term Demat (Dematerialization) account. This is because a Demat account is one of the most basic requirements in order to trade or invest in the stock market. Today, we take a look at the organization behind these accounts in the Indian markets i.e. Indian depositories, the NSDL, and the CDSL.
Through this article, we’ll discuss the various roles of depositors in the equity market and the services provided by CDSL and NSDL to Indian investors. Let’s get started.
What are CDSL and the NSDL? And why are they Important?
The Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd.(NSDL) are depositories for the Indian markets.
In order to understand what a depository does let us compare securities to cash. The depositories are to securities what banks are to cash. Just like a bank holds your cash and allows you to access it through an electronic form, the depository holds our shares, bonds, mutual funds, etc. for all shareholders in electronic form. These entities have played a pivotal role in the digitalization of the Indian Stock Markets.
Let us go back in time to the early ’90s a period when the stock markets still were heavily dependant on the physical transfer of shares. This was done through share certificates. Thanks to the move initiated by Stock Holding Corporation of India Limited(SHCIL) in 1992 when it paid the groundwork for the NSDL through a concept paper “National clearance and Depository System”. The Government of India promulgated the Depositories Ordinance in September 1995, followed by the passing of The Depositories Act by the Parliament in August 1996.
The NSDL was soon established in 1996 followed by the CDSL in 1999. These two act as depositories to the two exchanges in the country; the NSDL to the NSE and the CDSL to the BSE. The Demat accounts mentioned earlier are actually just a front for the CDSL and NSDL holding your shares.
The transfer from a physical to digital format saw numerous benefits like:
Faster settlement cycles
Elimination of all risks associated with physical certificates
Elimination of bad deliveries
No more stamp duty
Immediate transfer and registration of securities
Faster distribution of non-cash corporate benefits like rights and bonus
Elimination of problems related to the transmission of Demat shares
Reduction in the handling of huge volumes of paper
Periodic status reports
Reduction in brokerage for trading in dematerialized securities.
Elimination of problems related to change of address of the investor
Elimination of problems related to selling securities on behalf of a minor
Ease in portfolio monitoring
The depository system effectively ensured a smooth transition to an electronic one.
Can you Choose your Depository?
An investor does not have the option to select a depository. The depository is selected by the depository participant. A Depository Participant is a financial institution, broker, bank, etc that the shareholder may be in touch with, and respectively can create a Demat account through them. The CDSL has 599 depository participants registered with itself whereas the NSDL has 278 depository participants registered with it.
For an investor or trader to choose a depository of his liking there has to be some difference between the two depositories. Apart from the exchanges, the number of depository participants and years formed there are no striking differences between the two. The services provided, their functioning, and strategy remain the same.
We, however, can find outwith which depositories we have our Demat account with using the account number. A Demat account with NSDL will begin with ‘IN’ followed by 14 numerals. A Demat account with CDSL will have 16 numerals.
What are the Roles of Depositors? Services by CDSL and NSDL!
Here are a few of the top roles and the services provided by NSDL and CDSL for Indian equity investors:
Maintenance of Demat accounts
Rematerialisation and dematerialization
Trade settlement
Share transfers
Market and off-market transfers
Distribution of non-cash corporate actions
Nomination/transmission
Account opening
Account statement
Changing account details
The Depositories also provide shareholder details to companies at the time of dividend payouts. The companies use this information to pay dividends to shareholder accounts.
The efficient functioning of an economy is highly dependant on its financial system. In this article, we discussed the key roles of depositors i.e. CDSL and NSDL in the equity market.
The CDSL and NSDL have been pivotal in not only ensuring facilitating the system but also enhancing its productivity post digitalization. It is also important to note that ever since their existence there have never been any major glitches, a testament to the efficient transformation from physical to electronic format.
Explaining the Harshad Mehta Scam of 1992: The magnitude of the Harshad Mehta scam was so big, that if put into perspective today, it brought a bear market in the Dalal street. If we look into the numbers, this single man deceived the entire nation with an amount of over Rs 24,000 crores (which is way bigger than Nirav Modi or Vijay Mallaya scams).
Today, we take a look at how the Harshad Mehta scam was executed and possibly try to understand how he was able to fool the entire Dalal market and even the Indian banking systems. Further, we’ll also discuss why he plays such a considerable role in our pop culture and that too not as an antagonist.
Harshad Mehta’s Rs 40 Journey
Perhaps what makes the Harshad Mehta story even more interesting is that despite migrating to Mumbai with only Rs. 40 in his pocket he managed to influence the country in such a massive way. Once he discovered his interest in the stock market he worked for broker Prasann Panjivandas in the 1980s. Harshad considered Prasann Panjivandas as his guru. Over the next decade, he went on to work for several brokerage firms eventually opening up his own brokerage under the name GrowMore Research and Asset Management.
By the 1990s, Harshad Mehta had risen to such prominence in the Stock market that he was known as the ‘Amitabh Bachchan of the Stock Market’. Terms such as ‘The Big Bull’ and ‘ Raging Bull’ were regularly used in reference to him. Over time he became particularly known for his wealth in the 1990s which he did not shy away from boasting about through his 15,000 sq. ft. penthouse and array of cars. He was described by Journalist Suchita Dalal as charismatic, ebullient, and recklessly ambitious. Perhaps it was this recklessness that led to his downfall through his ambitious schemes.
The Broken Financial Environment of the 1990s
The year 1991 marks the year of liberalization of the Indian economy. Today we are grateful for this opening-up, however, Indian businesses found their own set of challenges. The public sector was forced to face increased competition and was under pressure to display profitability in the new environment. The private sector, however, responded positively to this news as this would mean more funds from foreign investments.
The new reforms also were welcomed by the private sector as they now were allowed entry into new sectors of businesses that were earlier reserved for the government enterprises. The stock market reacted positively to this with the Bombay Stock Exchange touching 4500 points in March 1992. But liberalization was not the only factor responsible for this. The period also an increase in demand for funds. The Banks were pressured into taking advantage of the situation to improve their bottom line.
The banks are required to maintain a certain threshold of government fixed interest bonds. The governments issue these bonds with the aim of developing the infrastructure of the country. Million-dollar development projects are taken up by the government which are financed through these bonds. How much is to be invested in these bonds depends on the bank’s Demand and Time Liabilities. The minimum threshold that the banks had to maintain as bonds in the 1990s was set at 38.5%. This minimum percentage that banks have to maintain in the form of bonds or other liquid assets is known as the Statutory Liquidity Ratio(SLR).
Along with this, the banks were also pressured to maintain profitability. Banks were, however, barred from participating in the stock market. Hence they were not able to enjoy the benefits of the Stock Market leap during 1991 and 1992. Or at least they were not supposed to.
What did banks do if they couldn’t maintain the SLR ratio?
The banks at times may have temporary surges in the Net Demand and Time Liabilities. In such times banks would be required to increase their bond holdings. Instead of going through the whole process of purchasing bonds the banks were allowed to lend and borrow these liquid securities through a system called Ready Forward Deals (RFD). An RFD is a secured short term loan (15 days) from one bank to another. The collateral here is government bonds.
Instead of actually transferring the bonds the banks would transfer something called Bank Receipts (BR). This is because the bond certificates held by the banks would be of bonds worth 100 crores whereas the requirements by the banks to maintain their SLR would be much lower. Hence BR’s were a much more convenient way of short term transfer.
The BR’s were a form of short term IOU’s (I Owe You). However, when an RF deal was exercised they never looked like loan transfer but a buy and sale of securities represented by BR’s. The borrowing banks would sell some securities represented by BR’s to the lending banks in exchange for cash. Then at the end of the period say 15 days the borrowing bank would buy the BR back (securities) at a higher price from the lending bank. The difference in the buy snd sell prices would represent the interest to be paid to the lending banks. Due to the BR’s, the actual transfer of securities doesn’t take place. BR’s could simply be canceled and returned once the deal was completed.
Was the use of Bank Receipts (BR) allowed?
The RBI set up a Public Debt Office (PDO) facility to act as the custodian for such transfer of bonds. As per the RBI BR’s were not permitted to be used for such purposes. However, the PDO facility was plagued with inefficiencies. Hence the majority of the banks resorted to BR. This system existed with the knowledge of the RBI which allowed it to flourish as long as the system worked.
What roles did the brokers play here?
Brokers in the markets played the role of intermediaries between two banks in the RFD system. They were supposed to act as middlemen helping borrowing banks meet lending banks. A brokers’ role should have ended here where it is done in exchange for a commission.
Where the actual exchange of securities and payments should have taken place only between the bank’s brokers soon found a way to play a larger role. Eventually, all transfer of securities and payments were made to the broker. Banks also began welcoming these because of the following reasons
Liquidity: Brokers provided a quick and easier alternative to dealing with in comparison to dealing with another bank. Loans and payments would hence be provided on short notice in a quick manner.
Secrecy: When deals were made through a broker it would not be possible for the lending banks to find out where the loans were being moved to. Similarly, the borrowing banks too would not be concerned where the loans would be coming from. The dealings were both done only with the broker.
Credit Worthiness: When banks would deal with each other, the transaction would be placed depending on the creditworthiness of the borrowing bank. However, once brokers took over the settlement process this benefitted the borrowing banks as they would have loans available regardless of their creditworthiness. The lending banks would lend based on the trust and creditworthiness of the broker.
Brokers entering the settlement process made it possible that the two banks would not even know with whom they have dealt with until they have already entered into the agreement. The loans were viewed as loans to the brokers and loans from the brokers. Brokers were now indispensable.
The Role played by Harshad Mehta.
Harshad Mehta used to broker the RF deals as mentioned above. He managed to convince the banks to have the cheques drawn in his name. He would then manage to transfer the money deposited in his account into the stock markets. Harshad Mehta then took advantage of the broken system and took the scam to new levels.
In a normal RF deal, there would be only 2 banks involved. Securities would be taken from a bank in exchange for cash. What Harshad Mehta did here was that when a bank would request its securities or cash back he would rope in a third bank. And eventually a fourth bank so on and so forth. Instead of having just two banks involved, there were now multiple banks all connected by a web of RF deals.
Harshad Mehta and the Bear Cartels
Harshad Mehta used the money he got out of the banking system to combat the Bear Cartels in the stock market. The Bear Cartels were operated by Hiten Dalal, A. D. Narottam and others. They too operated with money cheated out from the banks. The Bear Cartels would aim at driving the prices low in the market which eventually undervalued various securities. The Bear Cartels would then purchase these securities at a cheap price and make huge profits once the prices normalized.
Harshad Mehta countered this by pumping money from the stock market to keep the demand up. He argued that the market has simply corrected the undervalued stock when it revalued the company at a price equivalent to the cost of building a similar enterprise. He put forward this theory with the name replacement cost theory. This theory was a fallacy on his behalf or an illusion he resented to the public to justify his investments. Such was his influence in the stock market that his words would be blindly followed similar to that of a religious guru.
He would use the money from the banks which was temporarily in his account to hike up the demand of certain shares. He selected well-established companies like ACC, Sterlite Industries, and Videocon. His investments along with the market reaction would result in these shares being exclusively traded. The price of ACC rose from Rs.200 to nearly Rs. 9000 in a span of 2 months.
The banks were aware of Harshad Mehta’s actions but chose to look away as they too would benefit from the profits Harshad would make from the stock market. He would transfer a percentage to the banks. This would also enable banks to maintain profitability.
Video Credits: Set in the 1980’s & 90’s Bombay, “Scam 1992” tv series based on SonyLIV follows the life of Harshad Mehta
The Scam within the Scam
Harshad Mehta noticed early on the dependence of the RF deals on BR’s. In addition to this, the RF deal system also placed a great deal of reliance on prominent brokers like Harshad Mehta. So he along with two other banks namely Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) decided to further exploit the system. With the help of these two banks, he was able to forge BR’s. The BR’s that were forged were not backed by any securities. This meant that they were just pieces of paper with no real value. This is similar to a situation where you can avail loans with no collateral. Harshad Mehta further would pump this money into the stock market increasing his amount of influence.
The RBI is supposed to conduct on-site inspections and audits of the investment accounts of the banks. A thorough audit would reveal that amount represented by BR’s in circulation was significantly higher than the government bonds actually held by the banks. When the RBI did notice irregularities it did not act decisively against Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB).
Another method through which the collateral was eliminated was by forging government bonds themselves. Here the BR’s are skipped and fake government bonds are created. This is because PSU bonds are represented by allotment letters making it easier for them to be forged. However, this forgery amounted for a very small amount of funds misappropriated.
Exposing the Harshad Mehta Scam
Journalist Sucheta Dalal was intrigued by the luxurious lifestyle of Harshad Mehta. She was particularly drawn to the fleet of cars owned by Harshad Mehta. They included Toyota Corolla, Lexus Starlet, and Toyota Sera which were rarities and a dream even for the rich in India during the 1990s. This further interest had her further investigate the sources through which Harshad Mehta amassed such wealth. Sucheta Dalal exposed the scam on 23rd April 1992 in the columns of Times of India.
It has been alleged that the Bear Cartel ganged up on Mehta and blew the whistle on him to get rid of him and the bullish run altogether.
Aftermath of Harshad Mehta Scam Exposure
— Effect on the Stock Market
Less than 2 months after the scam was exposed, the stock market had already lost a trillion rupees. The RBI created a committee to investigate the matter. The Committee was called the Janakiraman Committee. As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a trillion or 1 lakh crores.
This major fall, however, cannot be attributed to the scam alone but also to the governments’ harsh response. In an attempt to ensure that all the parties involved are brought to justice, the government did not permit the sale of any shares that had gone through the brokers in the last one year. This affected not only the brokers but also the innocent shareholders who may have gone through these brokers to purchase securities. The shares came to be known as tainted shares. Their value was reduced to pieces of paper as their holder was not allowed to sell them. This just resulted in a worsened financial environment.
— Effect on the Political environment
The opposition demanded the resignation of the then Finance Minister Manmohan Singh and the RBI Governor S. Venkitaramanan. Singh even offered his resignation but this was rejected by prime minister P. V. Narasimha Rao.
— Effect on the Banking Sector
When the scam was exposed the banks started demanding their money back and recovery efforts made them realize that there were no securities backing the loan either. The Investments in the stock market by Harshad Mehta were tainted and had reduced by a significant value. A number of bankers were convicted. It also led to the suicide of the chairman of Vijaya bank.
— Further Investigation
The investigations revealed many players like Citibank, brokers like Pallav Sheth and Ajay Kayan, industrialists like Aditya Birla, Hemendra Kothari, a number of politicians, and the RBI Governor all had played a role in the rigging of the share market. The then minister P. Chidambaram also had utilized Harshad Mehta’s services and invested in Harshad Mehtas Growmore firm through his shell companies.
— Effect on Harshad Mehta’s Life
Harshad Mehta was charged with 72 criminal offenses and more than 600 criminal action suits. After spending 3 months in custody Mehta was released on a bail. The drama however never subdued but only intensified. In a press conference, Harshad Mehta claimed that he had bribed the then Prime Minister P.V. Narasimha Rao for Rs 1 crore to secure his release.
Harshad Mehta even displayed the suitcase in which he allegedly carried the cash. However he CBI never found any concrete evidence of this. Harshad Mehta was now also barred from participating in the stock market.
Investigators felt that Harshad Mehta was not the original perpetrator who forged the bank receipts. It was clear that Harshad Mehta capitalized and made profits using these methods. They also saw the possibility of the bear cartels ganging up on Harshad Mehta to get rid of the bearish markets by blowing the whistle on him and having the scam exposed through Sucheta Dalal. This, however, drew the investigators’ attention to the bear cartel as well as they too had used the same means as Harshad Mehta. These other brokers were eventually tried too.
In addition to this, the IT department claimed an income tax owed to them Rs.11,174 crores. Harshad Mehta’s firm GrowMore had significant clientele and the IT department had linked all the transactions that may have involved Harshad Mehta or his firm with Harshad Mehta’s income. His lawyer addressed this as bizarre as Harshad Mehtas lifetime assets were worth around Rs.3000 crores. He highlighted the possibility where by making Harshad Mehta the face of the scam allowed other powerful players a chance to have the focus lifted away from them and escape or slowly be exonerated.
Life after Release and Death
Harshad Mehta made a comeback as a market guru sharing advice on his website and newspaper columns. In September 1999 the Bombay Highcourt convicted him and sentenced him to 5 years of imprisonment. Mehta died while in criminal custody after suffering from cardiac arrest in Thane Prison on 31st December at the age of 48.
— Effect on Harshad Mehta’s Family
When Harshad Mehta died he still had 27 cases pending against him. Although all criminal cases have been cleared before his death there were still several civil cases pending in court. His wife still fights cases with recent victories over the IT department and a broker who owed Harshad Mehta 6 crores. The broker was ordered to pay the amount with 18% interest which roughly accumulated to 524 crores. The cases have dragged on for so long that his brother secured the law degree in his 50’s and represents the family in court. Harshad Mehta’s son now makes headlines regarding his investments.
Despite the scam, Harshad Mehta is still looked up to in certain circles, As reported by Economic Times some financial experts believe that Harshad Mehta did not commit any fraud, “he simply exploited loopholes in the system”. When Harshad Mehta was first released out of prison in 1992 he was greeted with cheers and applause as his return would signify the return of his bullish trend. It is doubted that if businessmen who have been embroiled in scandals with the likes of Vijay Mallya, Nirav Modi will receive the same welcome.
The Harshad Mehta scam can be looked at from two sides. The first is a scam where Harshad looted the stock market and the public or the second way where Harshad Mehta was made the scapegoat as someone had to be blamed and at the same time kept other influential people away from the limelight. The Year 1991 is generally referred to as the year of progress due to liberalization but if seen from this perspective discussed here it just makes one exclaim “ What a mess!”.
List of Eligibility Criteria for an IPO in India: An Initial Public Offering( IPO) is a route through which a company raises funds through the market. The Indian markets saw 123companies opting for IPO’s in the FY 18-19 in order to get themselves listed on the country’s two primary exchanges, the BSE (Bombay Stock Exchange) and NSE ( National Stock Exchange).
But as open these exchanges may be for companies to apply and get listed on them there are still requirements a company has to meet in order to be considered eligible to be listed. Today, we take a look at the eligibility criteria for an IPO in India. Here, we’ll look into financial requirements and other legal & compaliance norms that a company has to meet for an IPO.
Eligibility Criteria for an IPO: What makes a company ready for an IPO?
1. Paid-up Capital
The paid-up capital of a company is the amount of money it receives from shareholders in exchange for shares in an IPO. according to the eligibility requirements, it is necessary that the company has a paid-up capital of at least 10 crores.
In addition to this, it is also necessary that the capitalization (Issue Price * No. of equity shares post issue) of the company should not be less than 25 crores.
2. Offering to be made in IPO
If the minimum requirements are met then based on the post IPO equity share capital the minimum percentage to be offered in an IPO is decided.
If the post IPO equity share capital is less than Rs. 1600 crore then at least 25% of each class of equity shares must be offered.
Ifthe post IPO equity share capital is more than Rs. 1600 crore but less than Rs. 4000 crore then a percentage of equity shares equivalent to Rs. 400 crore rupees must be offered.
Ifthe post IPO equity share capital is more than Rs. 4000 crore then at least 10 percent of each class of equity shares must be offered.
Companies that do not meet (a) and satisfy (b) and (c) are required to increase the public shareholding to at least 25% within 3 years of the securities being listed on the exchange.
3. Financial requirements of a company
The company must have a net worth (assets – liabilities) of at least 1crore for each of the last 3 years.
The company must have tangible assets of at least Rs. 3 crore in each of the 3 preceding years. Out of these assets, a maximum of 50% must be held in monetary assets.
The average operating profit for each of the last three years must be at least Rs.15 crore.
If the company has changed its name in the last one year it must have earned at least 50% of the revenue for the preceding full year from the activity indicated by the new name;
The existing paid-up share capital of the company must be fully paid or forfeited. This means that the company looking for an IPO should not have partly paid-up shares as a part of its equity.
4. Other requirements for the company
The company looking to get listed on a stock exchange must provide the annual reports of the 3 preceding financial years to the NSE. It can go ahead with the listing requirements if
The company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).
The net worth of the company has not been wiped out by the accumulated losses resulting in negative net worth.
The company has not received any winding up petition admitted by a court.
4. Promoters/Directors Requirements
The next set of requirements are pertaining to the promoters, directors, selling shareholders of the company. Promoters here are people who have experience of a minimum of 3 years in the same line of business. In order to be considered a promoter, they also have to hold at least 20% of the post IPO equity share. This 20% can be held either individually or severally.
It is necessary that these promoters/directors/selling shareholders (henceforth individuals)
Do not have any disciplinary action taken against them by the SEBI. i.e. they should not have been debarred from accessing the markets. If these individuals are still serving their debarred period then the company cannot go ahead with the IPO with them as promoters/directors. But if the period of debarment is already over at the time of filing a draft offer prior to IPO then this restriction is not applicable.
If these individuals were prior to the IPO also promoters/ directors of another company that is debarred from accessing the markets then the company cannot go ahead with the IPO with them as promoters/ directors. But if the period of debarment is already over for the other company at the time of filing a draft offer prior to IPO then this restriction is not applicable.
If these individuals have been classified as wilful defaulters by any bank or financial institution or consortium then the company can not go ahead with the IPO with them as promoters/ directors. A willful defaulter is one who has not met repayment obligations like loans to these banks, financial institutions, etc.
It is necessary that none of the promoters/ directors have been categorized as a fugitive economic offender under the Fugitive Economic Offenders Act 2018.
Note on Statutory Lock-in:
It is also necessary to note that after the IPO the post-IPO paid-up capital of the promoters is subject to a one-year lock-in period. After one year at least 20% of post-IPO paid-up capital must be locked in for at least 3 years (Since the IPO). This, however, is not applicable to venture capital funds or alternative investment funds (category I or category II) or a foreign venture capital investor that has invested in the company.
If the post IPO shareholding is less than 20 percent, alternate investment funds, foreign venture capital investors, scheduled commercial banks, public financial institutions, or IRDAI registered insurance companies may contribute for the purpose of meeting the shortfall. This contribution, however, is subject to a maximum of 10% post issue paid-up capital. This 20% statutory lock-in is not applicable if the issuer does not have any identifiable promoters.
5. Other factors that SEBI considers in an IPO Verification
The SEBI may also reject the draft offer document for the IPO for any of the following reasons.
The ultimate promoters are unidentifiable;
the purpose for which the funds are being raised is vague;
The business model of the issuer is exaggerated, complex, or misleading, and the investors may be unable to assess risks associated with such business models;
There is a sudden spurt in business before the filing of the draft offer document and replies to the clarification sought are not satisfactory; or
Outstanding litigation that is so major that the issuer’s survival is dependent on the outcome of the pending litigation.
In this article, we discussed the Eligibility Criteria for an IPO in India. After going through the requirements one would realize that these requirements hover around the financial and litigations faced by the company its directors and promoters. These requirements are put in place to ensure quality companies are offered to investors.
These requirements also go a step further to protect investors by ensuring that the company and the people managing it are credible. These restrictions filter out financially weak companies and companies that are run by those that have the potential of swindling investors of their money. Most importantly the restrictions play an important role in ensuring the quality of the Indian stock markets.
Understanding the basics of Commodity Trading in India: Commodity trading had been around in India for hundreds of years. But as history took its course we were victims of invasions, government policies, and their amendments made commodity trading a rarity even though it was flourishing in other countries.
Today with favorable laws being implemented commodity trading is once again being accepted even in rural India. And with the strengthening of our stock markets commodity trading has regained its impotence. Today we try and understand what commodity trading is and the different means through which they can be accessed.
What is a commodity?
Commodities in simple terms are raw materials or agricultural products that can be bought and sold. These are basic goods in commerce used as building blocks of the global economy. One very important characteristic of a commodity is that its quality may differ slightly but is essentially uniform across producers. These commodities are asset classes just like bonds and apart from being exchanged for money in real life they are also traded on dedicated exchanges throughout the world.
Classification of Commodities.
Commodities are classified into 4 broad categories.
Agricultural – Corn, beans, rice, wheat, cotton, etc.
Energy – Crude Oil, Coal, and other fossil fuels
Metals – Silver, Gold, Platinum, Copper.
Livestock and Meat – Eggs, Pork Cattle.
Going through the examples above the characteristics of commodities being uniform becomes clearer. The market treats all goods of the same type as equals regardless of who produced them as long as they meet certain quality requirements. This characteristic is known as fungibility regardless of who mined, farmed or produced.
Take the example of cold drinks. The demand for a Coke differs from that for Pepsi. This is because the brand too comes into play. Even if one of them loses their quality it still may be favored due to brand loyalty. Let us compare this with a commodity. Never would you have heard that “ the crude oil this year sourced from the US is bad unlike that from Saudi Arabia the previous year”. Despite them having some differentiating properties. Karl Marx describes it best:
What is commodity trading?
Now that we have gone through what commodities are let us have a look at how commodity trading comes into the picture.
1. Commodity trading by buyers and sellers
Commodity trading came into play as a means to protect the buyers and producers from price volatility that takes place. Take a farmer for eg. Inorder to protect himself from future price fluctuations what a farmer can do is enter into a futures contract. A futures contract is a legal agreement to buy or sell a commodity at a predetermined price at a specified time in the future. The buyer of the futures contract has the obligation to buy and receive the underlying commodity when the contract expires. The seller here takes on the obligation to provide and deliver the underlying commodity at the contract expiration date.
This instrument is useful to farmers as he already knows the production cost of his soft commodity is going to take. Adding the required percentage of profit he can enter into the future contract with the buyer i.e. regardless of what the price in the market 6 months hence he will sell his commodity at Rs.50/kg. The buyer in this contract agrees to buy the commodity at Rs. 50/kg. regardless of the price 6 months hence. The farmer protects himself from losses of price falls but in return also forgoes the additional profit he may make from an increase in price in exchange for guaranteed cash flow.
Such future contracts are available for all categories of commodities. These contracts are also widely used in the airline sector when it comes to fuel. This is done in order to avoid market volatility of crude oil and gasoline.
2. Commodity Speculators
Another type of commodity trader is the speculator. The speculator enters the future contract but never intends to make or take delivery of the actual commodity when the futures contract expires. These investors participate in order to profit from the volatile price movements. Investors here close out their positions before the contract is due in order to avoid making or taking actual delivery of the commodity.
These investors enter into the future contracts generally to diversify their portfolio beyond traditional securities and hedge against inflation. This is because the prices of stocks generally move in the opposite direction o commodities.
In times of inflation the prices of commodities increases. This is because the demand for goods and services increases due to investors flocking to invest in commodities for protection. With the increase in demand, the price of goods and services rises as commodities are what is used to produce these goods and services, their price rises too. This makes commodities a good asset for hedging. Over the years this has also led to various assets traded in the financial markets. These include currencies and stock market indices.
Speculative Trading in Commodities for profit
It goes without saying that commodities are extremely risky because of the uncertainties associated with it. One cannot predict weather patterns, natural calamities disasters, epidemics that may occur. But then why do speculative investors still indulge in commodities if not for hedging and diversification? This is because of the huge potential for profits. Due to the high levels of leverage that exists in a future contract small price movements can result in large returns or losses.
In order to reduce this risk, most futures contracts also provide ‘options’. In the case of options, one has the right to follow through on the transaction when the contract expires. Unlike a future where you are obligated. Hence if the price does not move in the direction that you predicted you would have limited your loss to the cost of the option you have purchased. To understand better we can look at options as placing a deposit on a purchase instead of outrightly purchasing. In case things go sideways the maximum you stand to lose is your deposit.
Commodity trading in India
Commodities just like other asset classes are bought and sold on an exchange. These exchanges are called commodity exchanges and they tend to be specialized for such securities.
The commodity exchanges present in India are:
Multi Commodity Exchange – MCX
National Commodity and Derivatives Exchange – NCDEX
National Multi Commodity Exchange – NMCE
Indian Commodity Exchange – ICEX
Ace Derivatives Exchange – ACE
The Universal Commodity Exchange – UCX
The trading of commodities in the commodity market is regulated by SEBI and facilitated by MCX. The MCX provides a platform for trading in stocks. More than 100 commodities are traded in the Indian Commodity futures markets. Some of the top traded commodities are Gold, Crude oil, Copper cathode, Silver, Zinc, Nickel, Natural Gas, and Farm Commodities.
Other Commodity investment options for individual investors.
Using futures and options to invest in commodities is often challenging for amateur investors. They may prove to be extremely risky for investors who do not have a background or understand how prices or commodities will likely move in the future. Hence investors can also opt for indirect exposure when it comes to commodities in the following ways.
1. Stocks
Investors interested in entering the market for a particular commodity can do so by investing in stocks related to that commodity. For eg. If one is looking to use gold in order to hedge, diversify or make a profit he can go ahead and invest in the stock of a jewelry company, mining company, or any firm that deals in bullion. The advantage that a new investor receives here is that of public information related to the company which will help him make decisions and predictions. The disadvantage that comes along with investing in commodities is that the price of the stock is not purely based on the commodity but is also influences by company-related matters.
2. ETF’s and ETN’s
Investors can make use of ETF’s and ETN’s in order to take advantage of the price fluctuations. Using futures contracts, commodity ETFs track the price of a particular commodity or group of commodities that comprise an index. The price of these indexes is tracked by these ETF’s. In order to simulate the fluctuations in price or commodity index supported by the issuer, ETN’s are dedicated. ETN’s are unsecured debts designed to mimic the price fluctuations of the commodity.
3. Mutual and Index Funds
Mutual funds at times invest directly in commodity-related industries like Energy, Food processing, metals, and mining giving exposure to the portfolio. There also exists a small number of commodity index mutual funds that invest in futures contracts and commodity-linked derivative instruments providing investors with greater exposure to commodity prices.
4. Physical investment in commodities.
Another method through which investors receive exposure to commodities is by investing directly in them i.e. by purchasing physical raw commodities. This is more common with metals as other commodities require a purchase in huge quantities to have any useful impact. We often see people buy gold in times of crisis. This may be done through the purchase of gold biscuits.
Closing Thoughts
Commodity trading provides investors with a vast number of benefits. These benefits range from the increased potential of returns, diversification, and a potential hedge against inflation.
But there also exist a number of disadvantages that mainly revolve around the volatile and speculative nature of the security. The increased opportunities in these markets come with increased risks.
A Case Study on ‘Satyam Scam’ Accounting Scandal: When the 2008 recession hit the world, India was only going through a financial crisis but also an ethical crisis. Imagine a hypothetical scenario in the stock market where the very basic financials provided to you by a company are manipulated. This was what happened with Satyam Computer Services.
The Satyam scam was finally exposed early in 2009. Analysts dubbed the scam as India’s own Enron. Today, we take a look at the scandal that hit the nation in the midst of a recession was carried out, its effects, and how it was dealt with.
The Flawless Public Facade
Satyam Computer Services Ltd was founded in 1987 in Hyderabad by brothers, Rama Raju and Ramalinga Raju (henceforth Raju). The name in the ancient Indian language Sanskrit meant ‘Truth’. The firm began with 20 employees offering IT and BPO services across various sectors.
The initial success of the company soon led to it getting listed and opting for an IPO in the BSE in 1991. Post this the company soon got its first Fortune 500 client- Deere and Co. This further allowed the business to grow rapidly into becoming one of the top players in the market.
Satyam soon became the fourth largest IT software exporter in the industry after TCS, Wipro, and Infosys.
At the peak of its success, Satyam employed more than 50,000 employees and operated in 60+ countries. Satyam was now seen as the prime example of an Indian Success story. Its financials too were perfect. The firm was worth $1billion in 2003. Satyam soon went on to cross the $2billion mark in 2008.
During this period the company had a CAGR of 40%, operating profits averaging 21% with a 300% increase in its stock price. Satyam was now an example to other companies as well. It was showered with accolades from MZ Consult for being a ‘leader in Indian Corporate Governance and Accountability, the ‘Golden Peacock Award’ for Corporate Accountability in 2008. Mr. Raju too was revered in the industry for his business acumen and was awarded the Ernest and Young Entrepreneur of the Year Award in 2008.
Late in 2008, the board of Satyam decided to takeover Maytas a real estate company owned by Mr. Raju. This did not sit well with the shareholders which led to the decision being reversed in 12 hours, impacting the stock price. On December 23rd the World Bank barred Satyam from doing business with any of the banks’ direct contacts for a period of 8 years.
This was one of the most severe penalties imposed by the World Bank against an Indian outsourcing company. The World Bank had alleged that Satyam had failed to maintain documentation to support fees charged to its subcontractors and the company also provided improper benefits to the banks’ staff.
But were these allegations true? At this point, Satyam was India’s crown jewel! Just 2 days later Satyam replied demanded the World Bank to explain itself and also apologize as its actions had damaged Satyams investor confidence.
Satyam Scam: What was behind the Curtains?
As the investors were still coping up with the failed acquisition of Maytas and the allegations by the World Bank on January 7th, 2009 the markets received the resignation by Mr. Raju and along with it a confession that he had manipulated accounts of Rs. 7000 crores. Investors and clients all around the World were left shocked. This just couldn’t be happening!
In order to understand the scam, we would have to go back to 1999. Mr. Raju had begun inflating the quarterly profits in order to meet the analyst expectations. For eg the results announced on October 17, 2009, overstated quarterly revenues by 75% and profits by 97%. Raju had done this along with the company’s global head for internal audit.
Mr. Raju used his personal computer to create a number of bank statements in order to inflate the balance sheet with cash that simply did not exist. The company’s global head for internal audit created fake customer identities and fake invoices in order to inflate the revenue. This, in turn, would allow the company easy access to loans and the impression of its success led to an increase in the share price.
Also, the cash that the company had raised from the markets in the US never even made to the balance sheets. But this was not sufficient for Raju, he went onto create records for fake employees and would withdraw salaries on their behalf.
The increased share price drove Raju to get rid of as many shares as possible and maintain just enough to be a part of the company. This allowed Raju to make profits from their sales at high prices. He also withdrew $3 million every month as salaries on behalf of employees that did not exist.
But where did all this money go? Although Raju had set up a great IT company, he was also interested in the real estate business. The real estate business in the early 2000s was booming in Hyderabad. It was also rumored that Raju knew the plan(route) for a metro that was to be built in Hyderabad. The foundation of the metro plans was laid in the year 2003. Raju soon diverted all the money into real estate with hopes to make a good profit once the metro was functional. He also set up a real estate company called Maytas.
But unfortunately, just like every other sector the real estate sector too was hit badly during the recession of 2008. By then almost a decade of manipulation of the financial statements had led to the hugely overstated assets and underreported liabilities. Nearly $1.04billion in bank loans and cash that the books showed was nonexistent. The gap was simply too big to fill!
By now whistleblowing attempts were also starting to arise. Company director Krishna Palepu received anonymous mails by the alias Joseph Abraham. The mail exposed the fraud. Palepu forwarded it to another director and to S. Gopalkrishnan a partner at PwC – their auditor. Gopalkrishnan assured Palepu that there were no truths in the mail and a presentation would be held before the audit committee in order to assure him on 29th December. The date was later revised to 10th January 2009.
Despite this Raju had a last resort. The plan included a takeover of Maytas by Satyam which would bridge the gap that had accumulated over the years. The new financials would justify that the cash had been used to purchase Maytas. But this plan was foiled after shareholder opposition. This forced Raju to put himself at the mercy of the law. Raju later mentioned It was like riding a tiger, not knowing how to get off without being eaten.
Satyam Scam: How Raju was able to get away with the Scandal?
The next big question while studying this big scandal is how was Ramalinga Raju able to get away with Satyam Scam in a company of over 50,000 employees?
The answer to this lies in the miserable failure of PriceWaterhouseCoopers(PwC) their auditor. PwC was the external auditors to the company and it was their duty to examine the financial records and ensure that they are accurate. It is surprising how they did not notice 7561 fake bills after auditing Satyam for almost 9 years.
There were multiple red flags that the auditors could have caught upon. Firstly a simple check with the banks would have revealed that the bills were not valid and the cash balances were overstated. Secondly, any company with that big of cash reserves as Satyam would at least invest them in an interest yielding account.
But that was not the case here. Despite these obvious signs, PwC seemed to be looking the other way. Suspicion towards PwC was later increased when it was found out that they were paid twice the fees for their services.
PwC was not able to detect the fraud for almost 9 years but Merrill Lynch discovered the fraud as part of their due diligence in merely 10 days.
The Aftermath of Satyam Scam Exposure
Two days after the confession was made Raju was arrested and charged with criminal conspiracy, breach of trust, and forgery. The shares fell to Rs.11.50 on that day compared to heights of Rs.544 in 2008. The CBI raided the house of the youngest Raju sibling where 112 sales deeds to different land purchases were found. The CBI also found 13,000 fake employee records created in Satyam and claimed that the scam amounted to over Rs. 7000 crores.
PwC initially claimed that their failure to catch the fraud was due to the reliance placed by them on information provided by the management. PwC was found guilty and its license was temporarily revoked for 2 years. Investors too became vary of other companies audited by PwC. This resulted in their share prices of these companies falling by 5-15%. The news of the scam led to the Sensex falling by 7.3%
The Indian stock markets were now in turmoil. The Indian government realizing the impact this could have on the stock markets and future FDIs immediately spurted to action. They began investigating and quickly appointed a new board to Satyam. The board’s goal was to sell the company within the next 100 days.
With this aim, the board appointed Goldman Sachs and Avendus Capital to help fast track the sale. SEBI appointed retired SC justice Barucha to oversee the transaction in order to instill trust. Several companies bid on April 13, 2009. The winning bid was placed by Tech Mahindra who went onto buy Satyam for 1/3rd of its value before the fraud was revealed.
On 4th November 2011, bail was granted to Raju and two others accused. In 2015 Raju, his 2 brothers, and 7 others were sentenced to 7 years in prison.
There has been no scam that affected the CA and audit firms like the Satyam Scam. The increasing nature of these scams has made dependence on such professionals much more crucial highlighting the importance of ethics and CG in their roles.
White-collared crimes like these do not only make the company look bad but also the industry and the country.
List of Top 10 Life Insurance Companies in India: Our lives are riddled with uncertainty. Despite being on terms with this fact we still do our best to predict the foreseeable future and live with the assumption that we can foresee ourselves growing old with our loved ones. The only things we can focus on is the immediate present where we do our best to create a safety net if not for us then at least for our loved ones which would better enable them to deal with an unpleasant situation.
One such way of trying to manage such an unforeseeable future has been life insurance. The basic premise of a life insurance policy is that in the situation of your demise the insurance company you have a policy with will pay your family a certain sum of money agreed upon in the policy. Today, we take a look at the Top 10 Life Insurance Companies in India. Here, we rank the top 10 life insurances in India in order to give you a better outlook at the top companies in the industry.
Top 10 Life Insurance Companies in India
The insurance industry of India has 57 insurance companies – 24 of which are life insurance. The following are the top 10 life insurance companies in India.
1. LIC – Life Insurance Corporation of India
LIC is the largest life insurance company in India is the only public company out of the 24 life insurers present in the Indian market. The government entity came into existence in the year 1956 is also one of the oldest insurance companies in India. The company is famous for its slogan “Zindagi Ke Saath Bhi, Zindagi Ke Baad Bhi”.
The company’s main strength lies in the trust it has among Indians due to its well-established presence for over half a century and also because of it being a government entity. LIC’s total asset under management is Rs. 3,111,847 crores (USD 450 billion). The claim settlement ratio of the life insurance policy of this company is 97.79%. LIC has so far secured over 250 million life insurance solutions.
ICICI Prudential Life Insurance Company was founded in the year 2000 and since then has maintained its status as one of the most extensively recognized insurance companies in the country. The insurance company is a joint venture between ICICI bank Prudential Corporation Holdings Limited. ICICI Bank holds a 74% stakeholding and Prudential Plc holds a 26% stake in the venture. Its customer-centric approach and strong bancassurance and distribution channels have made it the second-best insurance company in the country. The Total Assets Under Management of the company are Rs. 1,604.10 billion. The company has a Claim Settlement Ratio of 98.58%.
3. HDFC Standard Life Insurance
HDFC Standard Life Insurance company is a joint venture between HDFC Ltd, India’s biggest financial institution, and Standard Life Aberdeen, a global investment company. The company was founded in the year 2000 and went on to become one of the most reputed life insurance providers in the country. HDFC Life makes its services accessible easily to the customers through its 412 branches along with its strong digital platform. The claim settlement ratio of HDFC Standard Life Insurance is 99.04%.
4. Max Life Insurance
Max Life Insurance Company founded in the year 2000. The insurance company is a joint venture between Indian Max India Ltd, and Mitsui Sumitomo Insurance Company, a Japanese Insurance Company. Max Life Insurance Company is the largest non-bank private sector insurance company in India. One of the major reasons for its success has been the very low premium its offers making it one of the best policies in India. The company has an asset under management crossing Rs. 50,000 crores. With its high-quality customer service through its strong online presence, a wide portfolio of products, multi-distribution channels, and 1090 offices across the country, the company has accumulated a customer base of more than 30 lakhs. The claim settlement ratio of Max Life Insurance Company is 98.74%.
5. SBI Life Insurance
SBI Life Insurance is a joint venture between India’s largest bank – State Bank of India and the leading global insurance company BNP Paribas Cardiff a French multinational bank and financial services company. It was founded in the year 2001 and is well-known insurance in the country. SBI Life Insurance has an authorized capital of USD 290 million. SBI Life Insurance Company has a claim settlement ratio of 95.03%.
6. Bajaj Allianz Life Insurance
Bajaj Allianz Life Insurance Company founded in the year 2001. The company joint venture between Bajaj Finserv Limited of Bajaj Group and Allianz SE a German company. The company is popular for its innovative products and timely customer survive provided through its 759 branches across the country. The Claim Settlement Ratio of this life insurance company is 95.01%.
7. Tata AIA Life Insurance
Tata AIA Life Insurance Company is a joint venture between Tata Sons Private Limited and AIA Group Limited- Asia’s largest insurance group. The company’s strengths have been in Tata’s established position as a reliable brand in the Indian market along with AIA being the largest independent insurance group in the world crossing 18 markets in the Asia Pacific. Tata AIA Life Insurance Company’s asset under management in 2019 is Rs.28,430 crores. The Claim Settlement Ratio of this life insurance company is 98%.
8. Reliance Nippon Life Insurance
Reliance Nippon Life Insurance Company is a joint venture between Reliance Capital and Nippon Life the largest Japanese Life insurance company. The company was founded in 2001 as a Reliance Life Insurance Company. In 2006 Nippon Life went on to acquire a 26% share in the company. In 2011 Nippon went ahead to again acquire an additional stake in the company making it the majority shareholder at 75%. The company has a strong distribution network of 727 branches across the country. Reliance Nippon has assets under management is Rs.20,281 Cr and a Claim Settlement Ratio of 99.07%.
9. Bharti AXA Life Insurance
Bharti AXA Life Insurance is a joint venture between Bharti Enterprises and AXA Group – a French multinational insurance firm. The company was founded in the year 2006 and since then has developed a distribution network across 123 cities and has a customer base of more than 1 million. The company has a claim settlement ratio of 97.28%.
10. Aditya Birla Sun Life Insurance
Aditya Birla Sun Life Insurance Company was founded in the year 2000. The company is a joint venture between Aditya Birla Group and Sun Life Financial a Canadian financial services organization. The company has its presence across the country with 425 branches and 9 bancassurance partners. The company has a Claim Settlement Ratio of Birla Sun Life Insurance Company is 97.15%.
Closing Thoughts
Life insurance policies over time have also evolved to plan for unforeseen and upcoming expenses for eg. the Unit Linked Insurance Plans that provide returns through investment in the market. However, insurances although a financial decision cannot be entirely looked at from a financial perspective. This is because they are mainly emotional decisions. But still crores of people opt for insurances for reasons that are difficult to express.
The investment comes with the realization that it is not about an individual’s life but about his family. Life insurances would give the already distraught family the financial assistance when they need it the most which also allows them to buy time rather than look for other financial means right away.
Understanding what are bonus shares: Everyone loves a bonus. This may be at work or also on simple shopping purchases. These bonuses also exist in the stock market under Bonus Shares. But does a bonus share issue in the stock resembles the same ones we experience in our day do day lives?
Today we take a closer look at understanding a Bonus Shares issue. Here, we’ll look into what are bonus shares, why are they issued, their pros, cons, and more. Let’s get started.
What are Bonus Shares?
Bonus shares, also known as scrip dividends are additional shares given to shareholders without any extra cost. These shares are issued to the shareholders based on a constant ratio that decides how many shares a shareholder is to receive based on the number of shares already held by him.
These shares, however, are issued from the company’s accumulated earnings. Hence these bonus shares are issued only by companies that have accumulated retained earnings or large free reserves. As bonus shares are issued from the profits (retained earnings or reserves) it is also called capitalization of profits.
Here are a few of the recent bonus shares offered by different public companies in India:
Here are some of the reasons why a company may opt to issue shares.
Bonus shares are issued by the company when the company has performed well but has not generated enough cash that they pay out dividends. This ensures that investors who depend on dividends for income will still be able to earn from the sale of the bonus shares in the market. On the other hand, it also pleases investors who are not looking for dividend payouts.
Bonus shares also issued to encourage retail participation. At times the price per share of the company becomes so high that it becomes difficult for investors to easily sell them or to buy them in the market. By issuing bonus shares take care of this as the total worth of the shares remains the same but the price per share reduces allowing them to be easily traded on an exchange.
Another reason why a bonus share may be issued is when a company is looking to restructure its reserves.
How are bonus shares calculated?
Let us take the example of company ‘A’. Say the company announces a bonus in the ratio of 2:3. Here for every three shares held by the shareholder he receives two additional shares.
The price in the above case also gets adjusted. If the shares are at a book value of Rs. 50 per share. Post the bonus issue the value would drop to Rs. 30. This would not change the total book value of the shares held by the shareholder if he held 3 shares valued at Rs. 150 prior to the issue he would be left with 5 shares post the bonus with a book value of Rs.150.
Similarly, the stock price too is adjusted on a proportionate basis. This also answers the question that “Does a Bonus share issue increase the net worth of your holdings?”. The answer is “No”.
What is the record and Ex-date in a bonus issue?
Shares are traded on a regular basis, this would make it hard for the company to decide which investor is eligible to receive the shares.
This is also because the delivery after the purchase of the shares into the Demat account happens on a T+2 days basis( 2 days after the shares are purchased). In order to avoid confusion, an Exdate and record date is used. An Ex-date is used to decide who receives the shares.
The record date is the cut-off date set by the company. The Ex-date is always one day before the record date. You are eligible for the bonus shares if you purchase the shares one day prior to the Ex-date. If you want to sell the shares but are holding onto them you need to hang onto the shares until the ex-date.
What are the advantages and disadvantages of a Bonus Issue?
Advantages of Bonus Shares
– Bonus shares increase the liquidity of the shares which makes it easier for the shareholders to sell and buy.
– The issue of Bonus shares creates the perception that its size has increased. This due to the increase in share capital due to the transfer from reserves and due to increase in shares outstanding after the bonus issue in accordance with the ratio set.
Disadvantages of Bonus Shares
– Investors who depend on dividends from the company may have to sell their shares to ensure liquidity. This, in turn, may reduce their stake in the company in comparison to those who hold onto their shares. This reduction in stake may be viewed unfavorably.
– Bonus shares require the transfer of reserves to share capital. This may upset some shareholders as these reserves could have been paid as a dividend in later years resulting in increased dividends.
Are there any tax implications for the bonus issue?
One may be under the impression that as the bonus shares are issued out of reserves that are used to pay dividends they too may be subject to taxes. This is not the case on receipt of bonus shares.
The shareholder is not required to pay any dividend if he receives bonus shares. However, he is subject to capital gain tax if and when he chooses to sell the bonus shares received.
Top Conglomerates in India: It has been almost three decades since the Indian economy underwent liberalization and privatization and opened up to the world. Since then we have evolved into a $3 trillion economy in 2019 and have set sights on becoming a $5 trillion economy by 2025.
A portion of the achievements can be attributed to private players that have established themselves in multiple industries to form conglomerates. Today, we take a look at the top conglomerates in India.
What is a Conglomerate?
A conglomerate in simple words is a multi-industry company. A conglomerate includes one group that overlooks multiple business entities in entirely different industries.
One may wonder why companies would even want to grow into multi industries instead of maintaining a profitable lead by focussing on one industry. It is because such companies put greater emphasis on growth and they realize the impacts they can have due to their capital potentials.
It is interesting to note that Amazon one of the top global conglomerates has never been profitable because the company makes long-term growth a priority over profits. This is also because of other means of financing have enabled firms to remain afloat and grow into multiple industries.
The success of conglomerates can also be attributed to brand recognition among consumers. The success of a company in one industry makes consumers more willing to experiment with their products in other industries. Another factor that plays the most important role in the success of these conglomerates is the men leading them. These are those that even we look up to.
List of 7 Top Conglomerates in India
1. Reliance Industries Ltd.
This Indian conglomerate company was founded as Reliance commercial corp. 60 years ago by Dhirubhai Ambani. The company was partitioned after Dhirubhai Ambani’s death between his two sons. Hence came Reliance Industries headed by Mukesh Ambani. The company owns oil, petrochemical, textile, natural resource, banking, and telecommunication enterprises throughout India.
RIL is currently one of the most profitable and largest publicly-traded companies in India. The company has an MCAP of over Rs. 15 lac crore. RIL is currently the only Indian company ranking in the top 100 in the Forbes 2000 [2020] list. The company is ranked 71st in the world according to the list.
2. Tata Group
Tata Group is an Indian conglomerate giant founded in 1868 by Jamsetji Tata. The conglomerate is owned by Tata and Sons and is currently run by Natarajan Chandrasekaran.
However, it is Ratan Tata’s legacy of 21-years tenure that is admired by many. During his tenure revenues grew over 40 times and profit over 50 times. Under him Tata acquired Tetley and Tata Motors acquired Jaguar Land Rover. Tata group has companies present in automobile, airline, chemical, defense, FMCG, electric utility, Finance, home appliance, hospitals, IT, retail, eCommerce, steel, industries, etc.
Its biggest companies include TCS [over 9 lac crore] and ITC [over 2 lac crore]. Both the companies made it to the Forbes 2000 list ranked 374 and 806 respectively. ITC is currently India’s largest employer with over 4.4 lakh employees.
3. Aditya Birla Group
Birlas are one of the most popular names in the business world in India and Aditya Birla Group is one of the biggest Conglomerates in India. The group was founded by Seth Shiv Narayan Birla in 1857 and currently headed by Kumar Mangalam Birla as its chairman. The group operates in Branded Apparels, Fashion, Textiles, Cement, Carbon Black, Metals, Chemicals, Telecom, Financial Services, and more.
4. Mahindra Group
Mahindra was founded in 1945 as a steel trading company and is currently one of the largest Indian conglomerates. Its companies are present in aerospace, agribusiness, automobile, construction equipment, defense, energy, finance, insurance, industrial equipment, IT leisure and hospitality, logistics, real estate, retail, and two-wheelers.
One of the most notable chairpersons from Mahindra is Anand Mahindra. One of its most successful investments includes Kotak Mahindra Bank Ltd.
5. Bajaj Group
The Bajaj Group conglomerate company was founded in 1926. The company is currently headed by Rahul Bajaj. Bajaj initially expanded into the scooter and three-wheeler manufacturing.
Today the company has its presence in the finance, electrical, iron, steel, home appliance sector, etc. Its most notable company is Bajaj Automobile which is ranked as the world’s fourth-largest 2&3 wheeler manufacturer.
6. Adani Group
Adani was founded in 1988 as a commodity trading firm by its current chairman Gautam Adani. The company began trading coal in 1999 and began coal trading in 1999 and ventured into the market for edible oil under the Fortune brand.
The group currently holds a portfolio of companies which include the energy, resources, logistics, agribusiness, real estate, financial services, defense, and aerospace sectors. Today the group holds one of the largest electric companies in India i.e. Adani Green and is India’s largest port developer and operator.
7. L & T Group
Larsen & Toubro Limited was founded in 1938 by two Danish engineers taking refuge in India. The two engineers, Henning Holck-Larsen and Søren Kristian Toubro escaped Germany’s invasion of Denmark during WW2.
The company has business interests in basic and heavy engineering, construction, realty, manufacturing of capital goods, information technology, and financial services.
Today, in this article, we covered seven of the top conglomerates in India.
Although there are multiple advantages that the company enjoys by extending into other industries, not all companies opt for it. Take Unilever for eg. The company in its pursuit to gain a larger margin branched itself into every activity that might be necessary for its business. Unilever in its pursuit to gain a larger margin branched itself into other activities that might be necessary for doing its business. The company owned plantations, oil mills, their own shipping line, logistics business, and even ran the stores themselves.
They, however, realized that they were better off only focussing on their core business i.e. creating FMCG products. This led to them selling off their supermarkets, chemical business, and cosmetics and investing in building their brands. Some other noteworthy Indian conglomerates are the Bharti Group, Godrej Group, and Wipro.
List of Top Companies in Indian Airline Industry: The aviation industry in India is one of the fastest-growing industries and has claimed the third spot among the largest domestic markets in the world. Although the industry is struggling during COVID19, however, no depression lasts forever.
Today, we take a look at the future prospects of the Indian airline industry and the top companies in Indian Airline Industry in 2020.
Prospects of the Indian Aviation industry
This sector contributed close to $72 billion to Indian GDP and is en-route to also become the 3rd largest air passenger market by 2024. These bright prospects are mainly due to the untapped potential considering that air transport is still considered expensive for the majority of the country’s population which will change with the country’s economic growth. Today we
The Indian government realizing this potential has allowed 100% FDI in these sectors. Investments over 49% will, however, require government approval. The Indian government has also planned to invest up to $1.82 billion for the development of airport infrastructure and aviation navigation services by 2026.
The aviation industry played a very important role in assisting the government in midst of COVID-19. Under the ‘Lifeline Udan’ scheme operators like Air India, Alliance Air, IAF transported essential medical cargo throughout the country in order to combat COVID-19. 588 flights were operated as of June 20, 2020, under the scheme carrying 940 tonnes of cargo.
The civil aviation industry, unfortunately, was one of the worst-hit in the midst of the crisis. According to the Centre for Asia Pacific Aviation(CAPA) the sector is at a breaking point with domestic traffic declining by over 60% international traffic by 70-80% in FY21.
CAPA also states that 30% of the workforce is estimated to be impacted in the sector. Post the complete lockdown that took place earlier this year air travel was initially subject to only 45% capacity utilization and international flights were suspended till August 31st. Travel that does take place is currently only for essential purposes.
Top Companies in Indian Airline Industry — 2020!
1. Interglobe Aviation (Indigo)
Indigo is the leader in the Indian aviation industry with the current market cap of Rs 49,923.47 Cr. This company trades on Indian stock exchanges with the latest share price of Rs 1,364.95 per share.
Indigo is India’s largest airline by passengers carried and fleet size and boasts a 60.4% domestic market share as of July 2020. The airline was founded by Rahul Bhatia of Interglobe Enterprises and Rakesh Gangwal in 2006 after it took delivery of its first aircraft in July 2006.
The company operates in Indian domestic markets as a low-cost carrier. The company has grown its fleet to 276 aircrafts today and has been one of the few airlines that have been profitable for 10 years.
2. SpiceJet
Spice Jet is India’s 2nd largest airline in terms of domestic passengers carried and has a market share of 13.6% as of July 2020. It has the current market cap of Rs 3,085.41 Cr.
The airline was established as ModiLuft in 1994 with backing from Lufthansa but ceased operations in 1996. In 2004 Indian entrepreneur Ajay Singh acquired the company and renamed it as SpiceJet. SpiceJet started its operations with 2 aircraft on lease and currently has a fleet of over 90 aircraft.
3. Jet Airways
Jet Airways Ltd is an Indian international airline. In March 2019 it was reported that nearly a fourth of Jet Airways’ aircraft was grounded from operations due to unpaid lease rates. It is a smallcap company trading in the Indian stock market with a market cap of Rs 311.82 Cr. The stocks of Jet Airways used to trade at a share price above Rs 1,300 per share in 2005. However, as of Oct 2020, this stock is hovering at a share price of Rs 31.
4. Air India
Air India is India’s flag carrier owned by the Indian government. The airline is India’s largest international carrier with a market share of 18.6%. Domestically the airline falls behind market leaders Indigo and SpiceJet with a market share of 9.1% as of July 2020. The airline was founded in 1932 by JRD Tata and made a profit of Rs 60,000 in its first year carrying weekly mail and 155 passengers.
After WW2 Tata airlines became a public ltd company under the name Air India. Unfortunately, years of loss-making operations have turned the airline into a debt-stricken entity. The government has time and again tried to sell the airline but unsuccessfully. The new owner would have to take on a debt of US$4.7 billion.
The airline operates flights domestically and to its Asian destinations through its subsidiaries Alliance Air and Air India Express. The airline currently has a fleet of 173 aircraft.
5. Air Asia India
Air Asia India was established in 2013 as an Indian airline trough a joint venture between Tata Sons and Air Asia Investment Ltd. ( Malaysia).
The airline also marked the return of the Tata Group into the aviation industry after 60 years. Air Asia holds a 6.2% market share as of July 2020. The airline has a fleet of over 30 aircraft.
6. Vistara
Vistara is another airline that includes a Joint Venture between Tata and a global airline. The airline was founded in 2013 as a joint venture with Singapore airlines. Vistara is a name taken from the Sanskrit word meaning “ Limitless expanse”.
Vistara had a market share of 4.2% as of July 2020. The airline has a fleet of 42 aircraft.
7. GoAir
GoAir, part of the Wadia Grp. is a lowcost airline. It launched its operations in 2005 and as of July 2005 holds a market share of 3.8%. The airline has a fleet size of 55 aircraft.
The airline had earlier looked for a merger with Spicejet and later appointed JPMorgan to scout for potential investors. In its attempt to raise capital the airline had planned to go for an IPO this year but these plans been delayed.
The takeoff of the Indian Airline industry has been delayed unfortunately due to COVID-19. Industry experts CAPA expects the Indian aviation industry to shrink to 2-3 players if they do not receive additional funding. This according to them would result in sustainable damage in connectivity throughout India.
Ajay Awtaney, Founder, LiveFromALounge.com said that he expects only IndiGo, Vistara, and Air India will be able to survive post-COVID-19. “IndiGo is cash-rich. They are doing the right thing by raising liquidity and have also taken cost-cutting measures. Vistara too is in a good position right now. They are bleeding financially but have the support of two strong backers. Air India, on the other hand, has the backing of the government”. This calls for added government focus on the industry in order to ensure that the industry does not suffer irreparable damage.
List of the Biggest Mergers and Acquisitions in India: Mergers and Acquisitions (M&A) have increased in the Indian subcontinent over the years. These deals play a very important role in the growth of any company in the long term and also the economy. Today, we are going to cover the biggest Mergers and Acquisitions in India.
Here, we’ll take a look at the ever-evolving M&A environment and rank the biggest deals that included Indian companies. Let’s get started.
Mergers and Acquisitions in India
A business taking over another business occurs more frequently than you think. These takeovers are known as acquisitions. Situations, where two or more companies come together to form a single company, are known as mergers. The Indian law recognizes these mergers as ‘Amalgamation’.
The purpose of such M&A revolves around a company’s growth strategy. The M&A may take place in the company’s efforts to increase market share, geographical outreach, to reduce competition, profit from patents, or even enter new sectors or product lines. Companies often take advantage of other underperforming companies or governments looking to disinvest.
According to a report from Bain, the 3600 M&A deals that took place between 2015 and 2019 amounted to more than $310 Billion. According to the report over 60% of the deals by volume and trade were attributed to industrial goods, energy, telecom, and the media sector. One of the major reasons for the increasing competition is owed to the changing landscape after the increasing availability and use of the internet. The effects of increased competition are more evident in companies from the eCommerce industry. This industry has paved way for some of the most aggressive M&A in the recent past.
Another aspect that significantly affects the M&A environment is the political scenario of the country. This is because unfortunately for India the capital requirements do not meet the unexploited potential of the Indian markets. Foreign companies bridge this gap. Unfavorable laws present and those created against a foreign country severely impact their investment prospects in India. Initiatives by the government to quicken the M&A are examples of support given by the government. Such initiatives have assisted India to achieve the 63rd rank in Ease of doing business ranking by the World Bank.
5 Biggest Mergers and Acquisitions in India
1. Arcelor Mittal
The biggest merger valued at $38.3 billion was also one that was the most hostile. In 2006, Mittal Steel announced its initial bid of $23 billion for Arcelor which was later increased to $38.3 billion. This deal was frowned upon by the executives because they were influenced by the patriotic economics of several governments. These governments included the French, Spanish, and that of Luxembourg. The very fierce French opposition was criticized by the French, American, and British Media.
Then Indian commerce minister Kamal Nath even warned that any attempt by France to block the deal would lead to a trade war between India and France. The Arcelor board finally gave in to the deal in June for the improved Mittal offer. This resulted in the new company Arcelor-Mittal controlling 10% of global steel production.
2. Vodafone Idea Merger
Reuters reported the Vodafone Idea merger to be valued at $23 billion. Although the deal resulted in a telecom giant it is safe to say that the 2 companies were pushed to do so due to the entry of Reliance Jio and the price war that followed. Both companies struggled amidst the growing competition in the telecom industry. The deal worked both for Idea and Vodafone as Vodaphone went on to hold a 45.1% stake in the combined entity with the Aditya Birla group holding a 26% stake and the remaining by Idea.
Walmarts acquisition of Flipkart marked its entry into the Indian Markets. Walmart won the bidding war against Amazon and went onto acquire a 77% stake in Flipkart for $16 billion. Following the deal, eBay and Softbank sold their stake in Flipkart. The deal resulted in the expansion of Flipkart’s logistics and supply chain network.
Flipkart itself had earlier acquired several companies in the eCommerce space like Myntra, Jabong, PhonePe, and eBay.
4. Tata and Corus Steel
Tata’s takeover of Corus Steel in 2006 was valued at over $10 billion. The initial offers from Tata were at £4.55 per share but following a bidding war with CSN, Tata raised its bid to£6.08 per share. Following the Corus Steel had its name changed to Corus Steel and the combination resulted in the fifth-largest steel making company.
The following years were unfortunately harsh on Tata’s European operations due to the recession in 2008 followed by reduced demand for steel. This eventually resulted in a number of lay-offs and sales of some of its operations.
5. Vodafone Hutch-Essar
The world’s largest mobile operator by revenue – Vodafone acquired a 67% stake in Hutch Essar for $11.1 billion. Later in 2011 Vodafone paid $5.46 billion to buy out Essar’s remaining stake in the company. Vodafone’s purchase of Essar marked its entry into India and eventually the creation of Vi. Unfortunately, the Vodafone group was soon embroiled in a tax controversy over the purchase with the Indian Income Tax department.
Closing Thoughts
In this article, we discussed the biggest Mergers and Acquisitions in India. While acquisitions are prevalent in almost every industry only a few of them turn out to be successful. We’ve already seen above that the reasons for M&A may be extremely varied. Most of these M&A are predatory and take place when the acquirer is doing well but unfortunately, there may be multiple reasons that may turn the M&A into a disaster.
That is why companies take extra precautions before entering into M&A and ensuring they are taking on an asset and not just a liability.
( Source)
