4-Wheeler Industry in India cover

4-Wheeler Industry in India: Indian Automobile Sector Analysis!

Analysis of 4-Wheeler Industry in India: Do you know an interesting fact that if one has to assess the economic health of the nation, one of the best parameters to judge will be to the automotive health of the nation. After all, automobiles are luxury products and only a healthy economy can affording growing automobile demands. Positive growth in the auto sales number coupled with increasing demand & production, usually signals that the economy is on the ascend.

India, being one of the fastest-growing economies in the world, the segments like automobile, agriculture, textile, real estate, etc., plays a big role towards its growth. In addition, the help and support provided by the government in these sectors have been immense. Indian automotive market has remained one of the highest potential auto markets in the world. In 2019, the 4-Wheeler Industry in India was ranked fourth (taking over Germany) and is expected to take surpass Japan by the end of 2021.

Global Automobile Market Scenario

The Auto industry includes commercial vehicles, passenger vehicles and the utility vehicles. From a peak of 80 million units sold in 2017, global automobile sales are expected to be around 62 million units by end of 2020. China is the biggest player in the automobile sector both in terms of production and sales. But the Pandemic (COVID-19) took its toll on even the biggest player in the automobile sector. But the overall sales figure has been better in the last few months and the global market seems to be on-road to recovery.

Image: Automobile production in numbers (Source: Statista)

Image: Automobile production in numbers (Source: Statista)

4-wheeler industry in India Image: Car sales growth (Source: Statista)

Image: Car sales growth (Source: Statista)

Now, if we were to analyse the data above, barring the last two years, the overall growth of the automobile sector has been praiseworthy. The dip in the production and sales over the last two years can be mainly attributed to the global economic slowdown and which has eventually taken a hit on the purchasing power of the end-user.

Image: Car producing countries over time (Source: Statista)Image: Car producing countries over time (Source: Statista)

4-Wheeler Industry in India

In India, owning a four-wheeler was always considered the biggest luxury, after owning a home which comes both in necessity for some and luxury for others. But with time and the increase in consumption power, owning a car has slowly but surely becoming an item of necessity. It is no more a symbol of only status as it was earlier.

1897 was the year when the first car ran on the streets of India. And for a considerable period of time after that, cars were only imported and sold in India. At that time in India, most of the luxury cars were only owned by royalty or public figures of importance. One of the oldest 4-Wheeler manufacturer, Hindustan Motors was launched in the year 1942. Its competitor, Premier Ltd (formerly The Premier Automobiles Limited) was established in the year 1944. Mahindra & Mahindra was established in the year 1945 by two brothers.

Anyways, the growth of the 4-Wheeler Industry in India was relatively slow in the ’50s to ’70s. It was only post-economic liberalization in 1992, the Indian automobile market started to open up. Global majors like Toyota, Hyundai, Suzuki, etc., were allowed to invest in India.

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2-Wheeler Industry in India – How big is this Market!!

Market Size of 4-Wheeler Companies in India

Over the last decade, the four-wheeler market in India has been the fastest-growing in its segment. Nearly 4 million units of vehicles were sold in the year 2019 and are expected to grow at a rapid pace. Automobile export grew at a rapid rate of 14.5% during FY 19 in India. The growth in the consumption of Electric vehicles (EV) has been commendable. It witnessed a growth of 20% to reach 1.56 lakh units in 2019-20.

Further, if you closely look into the sales of the 4-Wheeler companies in India, Maruti Suzuki, Hyundai and Mahindra are clearly the leaders. They are followed by Tata, Honda and Toyota.

Image: Car sales volume by brands in India (Source: Statista)

Image: Car sales volume by brands in India (Source: Statista)

Few Other 4-Wheeler Industry in India Facts

— Emission Norms in India

In 2000, to match the international standards of emission control, the central government unveiled standards titled, “India 2000” and which was later upgraded to Bharat Stage Emission Standards. Bharat Stage IV for introduced in the year 2010, and in the year 2019, BS-VI regulations were launched to reduce vehicular pollution.

— Government Initiative in 4-Wheeler Industry

The Indian government is also trying to boost the 4-Wheeler Industry in India:

  • The Government of India plans to make India a global R&D hub.
  • Under the Union Budget of 2019-20, the government announced to provide additional Income tax relief of Rs. 1.5 lakhs on buying an Electric Vehicle.
  • A total investment of nearly Rs. 3000 crores have been made into EV Startups.

— Encouragement to local Manufacturers

To boost the local production, India levies an import duty of 125% on all the imported cars, while the import duties on the additional accessories stand at 10%.

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Top Electric Vehicle Manufacturers in India – EVs Outlook & Future!

— Investments in the Indian Automobile sector

The Indian Automobile industry is attracting a lot of FDI (Foreign Direct Investment). A total investment of nearly $24 billion between 2000 and 2019 have been made in the Indian Automobile Sector.

  • In 2020, Toyota Kirloskar Motors announced an investment of more than Rs. 2000 crores directed towards electric components and technology.
  • In September 2020, M&M signed MoU with Israel based REE automotive to collaborate and develop smart electric vehicles.
  • In September 2020, Volkswagen announced a merger of three entities in India and it will be called Skoda Auto Volkswagen India Private Limited.
  • In December 2019, Force Motors planned to invest Rs. 600 crores to develop two new models over next year.

Closing Thoughts

The 4-wheeler industry in India has been a story of growth and innovation. With the use of skilled labour and cutting edge technology, this industry has seen phenomenal growth over years and the growth is expected to continue for years to come.

  • The EV’s segment is expected to create five crore jobs by 2030.
  • There has been a constant growth in the whole automobile sector. The growth has come from both domestic consumption and exports.
  • 100% FDI investment is allowed in India under the automatic route.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 27, 2020 Market No comments yet
Atmanirbhar Bharat Rozgar Yojana (ABRY)

Atmanirbhar Bharat Rozgar Yojana (ABRY): How it can benefit Employees?

Atmanirbhar Bharat Rozgar Yojana is a new employment policy that is launched by the Government of India. The Government of India (GoI) on Thursday (12th Nov 2020) announced this scheme, to incentivize the creation of new employment opportunities.

All the employers and the employees under the lower-income segment will be benefitted from this policy. This scheme has been designed to contribute to the retirement fund by employees as well as employers for a period of two years.

Before the announcement of this scheme, the Finance Minister in the press conference on Thursday said that the Indian Economy is recovering after the lockdown. She also added that the PMI index rose to 58.9 percent in October as against 54.6 percent in the previous month. Even the FDI investment in India in April-Aug was $35.37 bn, a 13% rise on Y-O-Y (year on year) basis. The Finance Minister announced that the new scheme will create new jobs by giving subsidies to those establishments or businesses that make new hires.

What is Atmanirbhar Bharat Rozgar Yojana (ABRY) Scheme?

This scheme is a subsidy based scheme, whereby the Subsidy under this scheme would cover the retirement fund contribution by both the employers and the employees for two years.

Under the Atmanirbhar Bharat Rozgar Yojana, every organization which is registered under the EPFO (Employees Provident Fund Organisation) would be given this subsidy when they hire new employees with lower wages. Employees’ contribution (12% of wages) and Employer contribution (12% of wages), totaling 24% would be given to the establishment or business for 2 years.

This scheme will cover every newly joined employee whose monthly wage is below Rs. 15,000. In addition, this scheme will also cover employees whose monthly salary is below Rs. 15,000 and lost his job during COVID-19 pandemic after March 15, 2020, and has got a job on or post-October 1, 2020.

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Criteria for the companies to qualify for Subsidy

In order to get the benefits of the Atmanirbhar Bharat Rozgar Yojana, the companies have to meet the following conditions:

  • The organization should be registered under the EPFO (Employees Provident Fund Organisation).
  • The establishment should have employees count below 50 and a minimum of 2 employees.
  • Those establishments that have employees count more than 50, will have to add a minimum of 5 employees.

This scheme will be operational till June 30, 2021.

Rs. 18000 Crore Urban Housing Scheme

The honorable FM also announced additional Rs. 18000 crore for Urban Housing Scheme in the same conference. This is the additional money that has been pumped into the system for the urban housing scheme to help complete real estate projects. The scheme will also boost jobs in the economy. This money is over Rs. 8,000 crore that was provided earlier this year. This additional money is likely to create 12 lakh more jobs and even the demand for steel and cement is likely to increase.

The Finance Minister also announced additional Rs. 900 crore to Department of Biotechnology for COVID-19 vaccine research.

Summing up

From the discussion above it is clear that the economy is towards the revival mode. And the government is doing everything necessary and taking all measures for the smooth transition of the economy from the COVID-19 times to the economic revival times. And the creation of jobs and reducing unemployment remains the top priority of the government.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 24, 2020 Market No comments yet
2-Wheeler Industry India where should you invest

2-Wheeler Industry in India – How big is this Market!!

An analysis of 2-Wheeler Industry in India: The second highest populated country in the world, India, comprises of a lot of middle and lower class segment. With transportation still being a challenge in India, a lot of people in these segments look forwards to the 2-Wheeler Industry in India. This industry includes various vehicles like Motorbikes, scooters, and mopeds, which come in a varied range from affordable to classy bikes.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing the 2-Wheeler Industry in India and will also look into the different investment options in this industry for people planning to become a stock investor along with the consumer. Let’s get started.

History of 2-Wheeler Industry in India 

The 2-Wheeler Industry in India entered the manufacturing course in the early 1950s when Automobile Products of India (API) started manufacturing scooters in India. In 1948, Bajaj Auto began importing Vespa scooters in India. In 1960, Bajaj started a shop to manufacture scooters in India in collaboration with Piaggio of Italy. The collaboration ended in 1971.

Even the motorcycles segment also started with three manufacturers viz Enfield, Ideal Jawa, and Escorts. In the ’80s the market for two-wheeler motorbikes opened up and it buzzed the market by storm. It resulted in the expansion in the market where TVS Suzuki and Hero Honda occupied the top two spots in the Indian motorcycles segment. Since then throughout the last four decades, we have seen splendid growth in the Indian two-wheeler segment year on year basis. Moving forward from starting in the 1950s to the current time, India is the largest market for the two-wheeler segment right now.

Few Factsheet on the Global and Indian 2-Wheeler Industry

Before we move forward, here are a few interesting facts on the Global and 2-Wheeler Industry in India:

  • The total sales volume of two-wheelers in India in 2025 was 21.2 million units and it is expected to grow to about 25 million units by 2025.
  • The total number of Motorcycles, scooters, and mopeds are expected to increase to 63 million units by 2025 and at a CAGR growth of 3.7%.
  • China is the second-largest two-wheeler market and it is expected to grow at a CAGR of 5.8%. Currently, the annual consumption (16.3 million units) in China and is second only to India (19 million units)
  • The US two-wheeler market is expected to maintain a growth rate of 2.9 percent by 2025.
  • By 2025, Japan is likely to experience decent growth in the two-wheeler segment and, its market is expected to have a volume of 3.9 million units by 2025.
  • During the times of Pandemic (COVID-19), the global market has seen a decline in the overall production and sales, and the ripple effect of the same in the coming few quarters cannot be discounted.

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Current Scenario of 2-Wheeler Industry in India

Pic Credits: 2-wheeler market share in 2020 (courtesy: www.statista.com)

The rise of the two-wheeler segment in India has been a growth story in itself. The increase in the purchasing power of both the urban and semi-urban markets and to add to that, the low cost of ownership of two-wheelers have been the major growth drivers for this segment.

The sales of the Indian two-wheeler industry experienced a decline of 18% over the previous year in FY 2020. The overall sales volume was 17.5 million units. However, with the easing in the wrath of the Pandemic (COVID-19) and also with an increase in the manufacturing PMI, to an all-time high level in the past decade, the worst seems to be behind us. And this can also be judged from the fact that the overall increase in the volume of sales of two and three-wheeler vehicles has been on a rise. Here are a few other facts:

  • The top Motorcycle sellers for the year so far have been Hero MotoCorp (sold 4.4 million units), Honda (2.79 million units), TVS (1.63 million units), and Bajaj (1.47 million units).
  • The first two quarters of this year saw a massive contraction in overall sales.Q1 reported a decrease in sales by over 24% and Q2 reported a decline in sales by more than 72%.

(Source: ACG Databank)

Government Initiatives to boost 2-Wheeler Industry in India

Amma Bikes Scheme, the government initiative to entail working women in Tamil Nadu, a subsidy of 50% (up to Rs. 25,000) on the purchase of a two-wheeler. And owing to this the two-wheeler sale in the state has gone up considerably.

However, the initiative to convert all the bikes under 150cc (approx. 88% market share of overall two-wheeler production) into electric bikes has faced a lot of dissent and criticism. The aim is to convert all the bikes to electric by 2025. This transition is expected to have bearing on the business of the companies manufacturing two-wheelers.

(Source: FADA research)

Impact of BS-VI on 2-wheeler industry

Before ending this article, let us also look at the impact of the BS-VI introduction on the 2-wheeler industry in India.

Significant changes have been made in BS-VI norms effective from April 1, 2020. Owing to this and the COVID-19, the overall production has declined to nearly half. The following points highlight the impact:

  • The cost of insurance has gone up owing to an increase in the price of owing two-wheeler
  • The increased cost of manufacturing the vehicles has been passed on to the consumers and which has led to an increase in the price of two-wheelers. The prices have gone up nearly 20%.
  • The production has also taken a hit because of the transition in the norm from BS-IV to BS-VI.

2 wheeler industry in india major shares

(Image: Major Shares in 2-Wheeler Industry in India | Source: Portal)

Closing Thoughts

The increase or decline in the sales of the two-wheeler segment gives us an impression of the overall health of the economy. The Indian two-wheeler segment has been on a decline over the last couple of years. Anyways, with the current pandemic situation coming under control and various initiatives introduced by the government, there is only one way up for this industry. With India getting back on its feet and with an increase in the population of millennials, this industry has more reasons to go up.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 19, 2020 Market No comments yet
DMart Owner RK Damani Success Story cover

D’Mart Stores– What’s ahead for this Indian Retail Giant?

D’Mart Stores is a gaint retail stores in India owned by billionaire investor and business man RK Damani. In today’s article of Market Forensics by Trade Brains, we’ll be discussing the success journey of D’Mart Stores and what’s ahead in their path. Let’s get started.

D’Mart Stores Foundation

D’Mart is an acronym for DAMANI Mart. It is the biggest hypermarket retail outlet chain. D’Mart is owned by none other but, Radhakrishna Damani, the ace investor in the Indian Stock Market and one of the stock market wizards of the ’90s. The current stock market bull, Rakesh Jhunjhunwala, considers him to be his mentor and tutor.

D’Mart was established in the year 2002 on May 15. Today, D’Mart has more than 210 stores in 72 cities and across 11 states in India including states like Maharashtra, Andhra Pradesh, Gujrat, Madhya Pradesh, Rajasthan, Tamil Nadu, etc. D’Mart is managed and operated under the registered name of Avenue Supermart Limited (ASL). Avenue Supermart was listed on the National stock exchange on 21st March 2017.

dmart success story rk damani

Avenue Supermart Valuation Timeline

As mentioned above, Avenue supermart went public and got registered on Indian stock exchanges in March 2017. Here are a few important Avenue Supermart Valuation timelines:

  • On the day of the listing, the company had tremendous listing gains. And the close of the market on 22nd March 2017, D’Mart’s valuation rose to its all-time high of Rs. 39988 crores. And this made D’Mart the 65th most valuable firm in India in terms of Market Capitalisation.
  • And on 21st November 2019, the market capitalization of D’Mart stood at Rs. 1,14,000 cores. And it makes it the 33rd most valued organization in India.
  • And on 11th November 2020, the market capitalization of D’Mart stands at Rs. 1,55,275 Crores.

D’Mart Stores vs Other Retail Marts

The next big question is what differentiated D’Mart from other players in the Retail segment?

Damani founded the grocery chain store D’mart in the most unique way and employed an unheard technique in the Indian retail set up. Till date, all the major retailers would rent the premises for their operations. But, D’mart would buy the premise which they would want to use for their retailing operations. This technique of Buying (and not renting) has worked do far and they did not yet have to close any of their setups.

Another interesting difference between D’mart and other retail business players is that other players build and promote their in-house brands to boost margin and provide alternatives to consumers. But, D’mart only sells the outside brands in its outlets.

The modesty and quiet nature are the most important quality of Radhakrishna Damani. For an individual with a net worth of nearly $ 16 billion, he still wears his white shirt white jeans to work, the style which he has been carrying from the 80’s.

D’Mart Stores Structure

As mentioned earlier, D’Mart run stores are company-owned, so they don’t have to bother about paying rent. And, the stores of D’Mart are categorized into three verticals-

  • Hypermarkets, which are spread across set up of 30,000-35,000 sqft.
  • Express Group, which is spread across an area of 7,000-10,000 sqft.
  • Supercenters, which are set up in an area of more than 1 lakh sqft.

In a retail setup, three important ingredients (Customers, Vendors, and Employees). And, D’Mart runs on the philosophy of not meeting every customer’s needs, but it runs on the principle of meeting the most common needs (90% needs are common to all the shoppers) of all the shoppers.

And whatever benefit or cost which is saved by not having to pay rent or other expenses saved,  are being passed onto the vendors as limits. In general, the business of FMCG runs on the cycle of credit of 12-21 days.

However, D’Mart ends up paying its vendors on the 10-11th day. And by doing, this they end up winning the confidence of the suppliers. And since D’Mart buys all the goods in volume and pays its suppliers before time, they end up getting all their products cheaper than their customers. And this benefit is then passed on to the customers in the form of an additional discount on the products.

And D’mart believes in the philosophy of hiring a lot of tenth standard passed employees and then later trains them in the specific field according to the needs of the retail outlet.

How does D’Mart make money?

Known for his calm and composed demeanor, Radhakrishna Damani has a very sharp intellect and sharp business acumen. The following point will highlight the various ways through which D’Mart makes money:

  • Owns the setup: 90% of the stores under which D’Mart operates are company-owned and not rented. So, the cost of rent is always saved. And, the appreciation in the value of the premises is also an added advantage to D’Mart
  • Controlled pace: Damani never rushed into conducting any business. After a careful cost-benefit analysis, is when the business is conducted and which further enhances the chances of success in business.
  • Selling Cheap: One might argue, as to how does one make money, if they are selling it cheaper than others (competitors). This is done by procuring products at a cheaper price (than competitors) and passing on the discount to customers and which ultimately generates more volume for business. It’s a Win-Win situation for both customers and D’Mart.
  • Available locally: D’Mart runs on the model of procuring products from local and regional vendors. And they never go on the long supply chain route. The dependence is more on the neighborhood suppliers.

Future of D’Mart Stores

There is always a constant debate amongst the analysts, whether D’Mart will survive the competition offered from other retail and E-commerce giants like Amazon, Flipkart, Spencers, More megastore, Star Bazarr, Joi mart. Only time will tell about the exact future course of action. But judging by how the situation of the pandemic was handled and overcome by D’Mart, it can be safely said that the other retailers are in for a stiff challenge and D’Mart is here to stay.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 13, 2020 Market No comments yet

Indian EduTech Industry – How fast and big is it?

Indian EduTech Industry is considered to be one of the fastest growing industries amid COVID19. EduTech startups like Byju’s, Whitehat Jr, Unacademy etc has bloomed significantly during corona period and expected to continue growing at similar pace.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing the Indian Edutech Industry scenario, how big it is and the major players in this industry. Let’s get started!

What is EduTech?

The word Edu-Tech is a portmanteau of two English words: Education and Technology. In simple words, Educational Technology (EduTech) is an amalgamation of hardware (teacher) and software (Technology), which connects the knowledge provider and seeker, just with the click of a button.

And an EduTech company is the one which designs software to enhance teacher-led virtual classrooms and promote learning virtually.

Global EduTech Industry

Let’s start with a Fun fact. Do you know that the Global EdTech Expenditure is expected to be 10 trillion US dollars by 2030? Just check the GDP of India to understand how big this number is.

The evolution of the EduTech startup has taken the world of education by storm. Interactive whiteboards have replaced the traditional chalkboards, smart tablets and Laptops have replaced textbooks, and we see a lot of investments coming in from schools in emerging technologies like Virtual Reality.

Globally India ranks Second in terms of Edutech startups. USA obviously occupies the 1st spot. Brazil, UK, and China occupy the other three places to complete the top 5 countries.

There has been a lot of venture capital funding coming into the industry of Edu-Tech. Countries like China, Sweden, and Italy have more than half of their startups, being VC funded.

Morover, there has been a lot of acquisitions in the EduTech spectrum lately. In fact, there have been more than 200 acquisitions in this industry in the last decade and a half. The most noteworthy acquisition has been the takeover of Lynda by LinkedIn for a whopping amount of $1.5 bn.

The following image gives us a vivid idea of VC funding in the field of Edu-Tech.

(Source: www.indiaeducationdiary.in)

Indian EduTech Industry

Currently, India has more than 4400 Edu-Tech startups operational currently. The rise of the Indian Edu-Tech Industry has been a story in itself.

The Pandemic (COVID-19) has been a game-changer for this industry. The size of the industry has multiplied manifolds. By, 2022, the size of the industry is anticipated to be in access of $ 2 bn. And what also aides the growth of this industry in India is the fact 37% of the population in India is between the age group of 5-24 years.

Some of the notable international players in India in the Edu-tech domain are Linkedin, Coursera, Udemy, Edx, Khan Academy, Google classroom, etc.

The lockdown and fear had an adverse impact on classroom teaching. Schools, colleges, and educational institutions have resorted to online teaching.

According to a report published by RedSeer and Omidyar Network India, “In times of pandemic, the user base of the Edu-Tech industry has doubled, there has been a 50% increase in the time spend online (60 minutes to 90 minutes), and a massive jump of 83% in the paid users”

We see a massive jump in the B2B sector for Edu-Tech. Schools, colleges, educational institutions are aggressively expanding their foray to tech-based solutions. Technology plays a very crucial role in the continuity of education with their tech-based solutions. And technology has also played a very important role in safeguarding jobs in times of pandemic. And teachers and students have both benefitted from this.

Targetable EduTech Size in India

The current Edu-Tech population of 150 million in India is the highest in the world and with sustainable upgradation and continuous development, it is likely to go up in the future.

And as we know, in this world and age of tech innovation, change is the only constant. And tech companies need to constantly come up with new products and cutting-edge technology to be able to survive this competitive industry.

Promising EduTech Startups in India

Byju’s Bangalore Creator of India’s largest K12 learning app which offers highly effective tools and platforms for students in classes 4-12 and competitive exams like JEE, NEET, CAT, IAS, GRE, and GMAT.
Contineo Bangalore A pioneering software platform for implementation and administration of academic autonomy.
EduKart New Delhi Offering education seekers a platform to choose and enroll from 2000+ courses in degree, diploma, certificate, entrance coaching and class 4-12
Eduscation West Bengal Eduscation is the perfect solution for grievance redressal system helping administrators to access or modify data from anywhere at any time without interruptions.
Imarticus Learning Mumbai A professional education institute focused on bridging the gap between industry & academia by offering certified industry-endorsed courses in Financial Services, Business Analysis, Business Analytics & Wealth Management through classroom and online programs.

(Source: thehighereducationreview.com)

In addition, a few notable mentions in this list of EduTech Startups or leading EduTech companies in India will be Unacademy, Vedantu, Great learning etc.

Government Initiatives to promote Online Education in India

There have been a couple of initiatives by the government of India to promote digital education in India – the SWAYAM program and DIKSHA program.

  • The SWAYAM program was designed to achieve the three-degree cardinal principle of educational policy like Access, Equity and Quality. The main objective of this policy is to mainstream those students who are lagging behind because of the digital divide.
  • The DIKSHA program is a national digital infrastructure program for Teachers. The center monitors the functionality of the program and makes sure that the benefits reach the teachers in an equal and non-partial way.

Closing Thoughts

The time of Pandemic has shown us the potential of the Indian EduTech Industry. It has proven to be the single most important medium to connect the knowledge seeker and knowledge provider.

Only time will tell the exact future of this industry. But one thing is for sure, this industry is here to stay and rule. And people in the remotest corner of the country have been able to access to quality education, which otherwise might have been a far fetched dream.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 12, 2020 Market 2 comments
Jet Airways Revival Story is it a turnaround stock

Jet Airways Revival Story – Can it become a Turnaround?

The Story of Jet Airways Revival: In the last two months, the share price of Jet Airways moved from Rs 25 per share to Rs 64 per share. Seems like a great jump in prices, right? But what if I told you that the same company was trading at around Rs 800 per share in 2018. Now, that’s a big wealth destroyer. But can this wealth destroyer become a turnaround and build wealth for the investors. This is what we are going to discuss in this post.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing what went wrong with Jet Airways and Jet Airways revival story. Let’s get started.

What went wrong with Jet Airways?

After the failure of jet Airways that was once positioned to be the most valued and sought after airline in the Indian Aviation system, many observers and analysts have come up with varied theories explaining the reasons behind it. Once trading at a price of over Rs 870 per share in 2018, the stock traded even lower than Rs 20 per share by May 2020. Here is the probable list of issues that sparked the downfall of Jet Airways:

  • An Expensive Purchase: The downfall of Jet Airways started right from the time when Naresh Goyal (Air India Founder) bought debt-ridden Air Sahara for a cash deal of $500 million. Many market analysts felt it was a very expensive buy. Jet Airways rebranded it as ‘Jet Lite’. But this new investment was continuously leaking money and it was completely written off in the year 2015.
  • Budget Airlines: The main issue for Jet Airways started to happen with the introduction of budget Airlines in the Airline sector. It’s just could not match the pricing competitiveness of budget airlines. And, they had to slash the prices for their tickets that ultimately led to reduced revenues and losses. What jet airways failed to recognize is that the majority of the customers of airline sectors are price sensitive and services offered are the secondary factor.
  • Lack of Vision: This has a lot to do with Naresh Goyal’s management style. He wanted to have centralized control of both full-service carriers and budget carriers. And which ultimately backfired as complete planning and focused management was missing in both places. And which ultimately led to bad management decisions and both businesses making losses.

Jet Airways Grounded in April 2019

After Kingfisher Airlines, Jet airways became the second airlines to suspend its operations because it ran out of cash, and banks were not willing to lend any more money. Amritsar to Mumbai was the last domestic flight of Jet Airways and since April 2019 and all the operations of Jet Airways have been completely suspended since then.

Impact on Share price of Jet Airways after being grounded

As seen from the share price chart below, the peak the share price of Jet Airways used to be around Rs. 800 levels. When the news of the airline suspending its operations hit the market, the share price fell from near Rs. 250 levels to around Rs. 20 levels. Almost 90% loss in the share price, within a span of one year.

Image: The share price of Jet Airways (source: www.portal.tradebrains.in)

However, recently, we witnessed a sudden surge in the price of Jet Airways, and its share price has gained the most this year, among many other airline companies globally. According to Bloomberg, the share price of the bankrupt airlines has jumped 130% this year, without flying even once this year. The global Bloomberg Airlines Index during the same time has slumped by 42%. So, why this sudden surge in the share price of once bankrupt airlines. What is the impetus? Let us try and find out.

Jet Airways Revival: Potential Buyers

Jet airways finally found buyers in 2020. The creditors of Jet Airways have approved a revival plan presented by a consortium of UK based Kalrock Capital and a UAE-based businessman Murari Lal Jalan.

Who are these bidders?

KALROCK is a global firm operating in financial advisory and alternative asset management, managing significant partners’ assets across a number of clearly defined and diversified strategies and single investments, with a focus on private markets.

According to many in the business world, Murari Lal Jalan is a very low-profile businessman and not many people have too much information about him. He started his career as a paper trader. In 2003, he went on to extend his paper business and acquired Kolkata-based Kanoi paper and Industries. He Renamed it Agio paper. However, in 2010, the paper companies faced a lawsuit from Government agencies for pollution-related issues and the operations have been suspended since then.

According to Newsfeed, “In 2015, he approached Dr. Naresh Trehan and Associates Health Services. He went on to acquire a stake in the company for Rs 75 crore, through a secondary share sale transaction. A secondary sale means that Jalan bought-out the shares from an existing stockholder. Around the same time as the acquisition, Dr. Trehan’s Medanta Hospital had plans to establish a hospital in Dubai, with the help of Jalan. Unfortunately, this plan was not implemented,”

He is now based out of Dubai and runs a construction business (MJ Developers) and has business in Brazil, Russia, and India. He also ventures in FMCG, Mining, and Real-estate business

Where is Jet Airways headed?

In the Jet Airways revival plan, the consortium has placed a bid of Rs. ,1000 crore to buy the ailing airlines. And on November 3, the consortium has deposited the performance security of approximately Rupees 150 crores. The investors will be getting 9.5 equity in Jet Airways, along with 7.5% equity in loyalty rewards company InterMiles. Now, Jet Airways will have to submit the resolution plan before NCLT. And one the resolution is passed by NCLT, the investors will get approval from the Ministry of Civil Aviation.

What remains to be seen is, how the money will be used to revive the fortunes of Jet airways. Will it be used to pay off the existing creditors or will the money be used to get back airline into the business of flying. Moreover, how the new buyers are planning to fight the exisiting big players like INDIGO and Spicejet is still unanswered. The road ahead is long and tuff. And in terms of share price, although the share prices have gone up fold fold this year,  but it is only 10% of its peak in 2018 of nearly Rs. 800. Overall, although the company is on the path of revival, however, becoming a turnaround is still a long and difficult journey, especially being in the avaiation industry.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 10, 2020 Market 1 comment
Ecommerce Industry In India Why is it so Lucrative cover

Ecommerce Industry In India – Why is it so Lucrative?

The Ecommerce Industry in India, from $38 bn in 2017 is expected to grow to more than $200 bn by 2026. As of 2034, the Indian E-commerce industry is expected to be the only second-biggest market after that of the US. In today’s article of Market Forensics by Trade Brains, we’ll be discussing Ecommerce Industry in India, and the size of the market, why is the Indian E-commerce market is in a lot of focus, and future expectations from this industry. Let’s get started.

What is E-Commerce?

To put it in simple words, E-commerce would mean any purchase/sell transaction that is done electronically using the Internet. In other words, any buying or selling of goods or services online and any use of money or data to execute these transactions electronically will be under the purview of E-commerce. Even, any commercial transaction done via the Internet will also come under the blanket of E-commerce.

The First-ever E-commerce Transaction

The Ecommerce industry is over 25 years old as of now. The first-ever E-commerce transaction was an online sale on Aug 11, 1994, when a man sold a CD of the band, Sting to his friend by using the platform of NetMarket in the USA.

With the advent of the world of E-commerce, the world has moved to a whole new level of evolutionary buying and selling. The end-user experience, the connection and reach between buyers and sellers, small businesses, freelancers, etc, have all benefitted from the development of e-commerce. The global e-commerce market is expected to be anywhere between $26 to $30 trillion by 2020.

Types of E-commerce Business models

The  Ecommerce business models involve two parties i.e. Businesses and consumers. Here are the different business models possible in ecommerce:

  • Business to Consumers (B2C): When then business sells, goods and services to an individual consumer (Ex- buying a phone form online websites)
  • Business to Business (B2B): When a business sells goods and services to another business (Ex- selling ERP solution software to another business)
  • Consumer to Consumer (C2C): When a consumer sells goods and services to another consumer (Ex -selling your old phone to another consumer using platforms like OLX, eBay, etc.)
  • Consumer to Business (C2B): When a consumer sells their product to another business (Ex- a photographer selling his photos to other magazines or publication house)

Ecommerce Industry In India – How big is it?

The biggest and most influential factor in the growth of E-commerce business in India is the increased use of the Internet and smartphones. From $38 bn in 2017, the Indian E-commerce market is expected to grow to more than $200 bn by 2026. Another important medium towards the growth of the E-commerce market has been the introduction of UPI (Unified Payment Interface). UPI recorded nearly 1.25 bn transactions in March 2020.

Pic: E-commerce business value in India (Source: Statista)

What makes Ecommerce Industry In India so Lucrative?

­India has been garnering constant attention from most of the major retailers and e-commerce players in the world. The Walmart-backed Flipkart is the biggest e-commerce player in the world and it is being closely followed by Amazon at 2nd place. Then we have players like Paytm, Infibeam, etc. And of late we have seen Reliance Industries  (launching Jio Mart), jumping the bandwagon and wanting to be a part of the race towards the supremacy of being the E-commerce leader in India. The following are some of the factors which highlight the attractiveness of the Indian E-commerce market.

  • The Indian E-commerce market is the fastest-growing market in the world. And it is expected to grow at approximately 1200% by 2026
  • The Indian E-commerce market is expected to be around $84 billion by 2021.
  • Government initiatives like the Start-up India and Digital India is a boom for new players in this industry.
  • In B2B E-commerce, 100% FDI is allowed.
  • 100% FDI is permitted via the automatic route in the marketplace model of E-commerce.

(Pic: Top E-commerce websites in India)

Recent Developments in Indian E-commerce Industry

The Ecommerce Industry In India is growing rapidly. Here are a few of the recent Investments/Developments in Ecommerce industry in India:

  • In April 2020, Reliance Industries started deliveries of essentials in Partnership with local Kirana shops in Navi Mumbai.
  • In May 2020, PepsiCo partnered with Dunzo for its snack food brands like Lays, Quaker, Doritos, and Kurkure.
  • In May 2020, Hershey’s partnered with Swiggy and Dunzo to launch their flagship online store.
  • In August 2020, Reliance Industries acquired a 60% stake in NetMeds (online Pharmacy store), for Rs. 620 crores.
  • Reliance will invest around Rs. 20,000 cr (nearly, $2.8 bn) in its telecom business to increase the quality of 5g services.
  • In the Union budget of 2020-21, the government has allocated Rs. 8000 crore to BharatNet projects to provide broadband services to 1,50,000 gram panchayats.

Ecommerce Industry: Expectations from Future

The E-commerce industry has been growing at the rate of knots and the growth is likely to continue in foreseeable future. With the growth in Finance, Technology, and training, the sky is the limit for the E-commerce industry. And by, 2034, the Indian E-commerce industry is expected to be only second to that of the US. The growth of E-commerce also increases employment, increases revenue, increases tax collection, etc.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 9, 2020 Market 1 comment
Adani Group Airport Deals Why Adani is Interested in Airports cover

Adani Group Airport Deals – Why Adani is Interested in Airports?

The Adani Group headed by Gautam Adani has been in a lot of market news recently because of different Adani Group airport deals. In their past deals, they managed to get the right over six major Indian airports – Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvananthapuram, and Mangaluru – for 50 years. Moreover, last month, Adani Group also signed a deal to acquire Mumbai airport and to take over Navi Mumbai airport.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing different Adani Group Airport Deals and why is Adani Group Interested in Indian Airports. Let’s get started.

What is the Adani Group?

The Adani Group is an Indian multinational conglomerate company with combined revenue of $13 Bn and a market cap of $22 Bn (as of 27th May 2020). It was founded by Gautam Adani (current the second richest man in India) in 1988 as a commodity trading business headquartered in Ahmedabad, in the state of Gujarat, India.

Today, the group has grown to venture into energy, resources, logistics, agribusiness, real estate, financial services, defense, and aerospace. The Adani group is India’s largest private port company and special economic zone in India. It also is the largest private power producer and the largest solar power producer in the country.

Adani Group Listed Companies in India 2020

(Fig: The Adani Group Verticals as of October 2020)

Why is Government Privatising the Airports?

Now that we have covered the Adani Group, let’s move to the main topic of this article – Why is Government Privatising the Airports and Why Adani Group is interested in it.

Till now, the Government of India has Privatised Six Airports (Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram, and Guwahati) and plans to privatize 25-30 more in the second phase of disinvestment. One of the major reason behind this privatization is that there are a total of 123 airports in India and out of which 109 are running under losses. A few strategic reasons as to why the government is keen on Privatising the Airports in India as as follows:

  • The Financial reason: With the Privatisation of reports, the government will be able to generate revenue that could further be used in infrastructure development and also is helpful in meeting the budgetary deficit of the government.
  • The Efficiency factor: Anything which goes in the hand of private ownership is always well managed and the operations are run smoothly. Further, even the movement of goods becomes quicker and smoother with privatization.

Why Adani Group is Interested in buying Airports?

Adani Group is interested in acquiring airports as buying them gives a lot of strategic advantage to Adani Group. Here are two of the biggest reasons behind Adani Group Airport Deals and why Adani Group is interested in buying Indian Airports:

  • As the Adani group is one of the major players in the Ports segment, so the airport like Trivandrum gives them a strategic edge because of its proximity to the sea. And moreover, the Adani group has already picked up a port near Trivandrum. Even having Airports like Mumbai and Mangaluru (both have ports), gives it a tremendous advantage in terms of having a powerful grip on the airport sector.
  • Having airports under their purview gives them the advantage of being major players in both ports and the airport sector. This directly makes them a major player in the infrastructure sector.

How will the Adani group make money from Airports?

As already discussed in this article, Adani Group is interested in acquiring airports because of different strategic advantages. Here’s how Adani group may make money from these airports:

  • Service providers: Adani group will make money from service providers on Airports. The bigger the airport, the higher the rent which will be charged from these service providers. To put things into perspective, the average number of footfalls in a big airport is more than the footfalls in the biggest mall in India. The service providers at the Airport include Restaurants, Parking, Lounges, Taxi services, etc.
  • Airlines: The airports make money from airlines by providing “Aeronautical services”. These include – fuel supply, air traffic monitoring, Ground staff services, Baggage handling, aircraft parking, etc.

Adani Group Airport Deals: How Adani managed it?

The connection of Gautam Adani, with our current Prime Minister Shri Narendra Modi, is no hidden secret. Even though there has been a lot of opposition from the Chief Minister of Kerala and the labor unions of the AAI, regarding the Privatisation of airport in Thiruvananthapuram, the Adani group will soon be controlling the operations in eight airports in India.

And what also benefitted the Adani group, is that in times of COVID-19, the infrastructure sector has been badly hit, especially the Aviation sector. Even the process of Privatisation was sped up and the PMO instructed the respective departments of Economic Affairs and the NITI aayog to prepare a mechanism to remove six airports from the control of AAI (Airport Authority of India) and to hand them over to the private players. And to top it off, the lease period for the Privatisation was increased by 20 years, from 30 years to 50 years.

On December 14, 2018, the government invited bids for the Privatisation of these Airports. And the tenders for the Privatisation were processed at breakneck speed. And in Feb 2019, the government announced that the ADANI group, which had no prior experience in airport operations and development, have won the bids for all the six airports. Interestingly, all these six airports are some of the only few airports which were running under profits.

Having secured the right of private ownership of six airports in India, the Adani group has now set its eyes, on controlling the right on other major airports in India which would be privatized. And the ultimate aim is to be able to have a firm grip on the Port sector (already the biggest player) and the airports sector.

But, the path to securing these airports was never easy. They had to fight legal disputes with entities in different corners of the world, like South Africa, Mauritius, Abu Dhabi, and Canada. After a series of search and seizure raids were conducted on the GVK group (Operating second largest Airport in India i.e., Mumbai), the Hyderabad group capitulated and agreed to hand over the controlling stake in companies operating two Airports of Mumbai and the one coming up in Navi Mumbai to Adani Group.

Closing Thoughts

The initial hurdle towards being a major player the infrastructure player has been crossed by the Adani group. It remains to be seen whether they will be able to cope up with the expectation of maintaining the smooth operations of the airport functioning. This becomes more crucial especially knowing that they have no prior experience in airport operations and management sectors.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 6, 2020 Market No comments yet
Amazon Vs Reliance - Clash for India's Ecommerce Market

Amazon Vs Reliance – Clash for India’s Ecommerce Market!

Amazon Vs Reliance – this current rivalry in the biggest talk of the market. The issue initially started when Amazon, headed by Jeff Bezos, objected to the Future Group retail deal with Reliance industries that is headed by Mukesh Ambani. And what makes this rivalry so popular? Here, the world’s richest person is fighting Asia’s richest person for the fast growing Indian retail and Ecommerce industry.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing what exactly is the reason behind Amazon vs Reliance dispute. Let’s get started.

Let’s start the Story

If you look from a bird-eye view, this war between Amazon Vs Reliance can be called the battle for supremacy. Two of the world’s richest are battling it out to have a bigger foot in the Indian e-commerce market.

The battle is to acquire a giant of the Indian e-commerce and retail market (“Future Retail” who owns popular brands like Bigbazaar, FBB, Hypercity, etc), which ironically has defaulted in paying interest to the Bondholders and is on the verge of Bankruptcy. But, any small footstep in the Indian e-commerce and retail market is worth fighting for seeing the future scope of this industry

Amazon Vs Reliance – What is the Fight?

future group big bazaar

As we mentioned above, the fight is over a $3.3 Bn (Rs. 25,300 crores) deal between Reliance Industries and Indian conglomerate Future Retail. If the deal goes as planned, it gives Reliance access to many popular grocery stores and retails outlets in India. And considering the target market which the Future group entails, both Reliance and Amazon want to have it in their kitty or at least prevent the other one from acquiring it.

Amazon has 31,2% market in the Indian E-commerce market and the Walmart-owner Flipkart has a 32% market share in the Indian e-commerce segment. And with the launch of Jio-mart, Mukesh Ambani has made his intentions clear about having a portion of the Indian E-commerce pie.

The bone of contention in this matter is Future Retail Group that boasts of a cash cow like Big Bazaar, a popular hypermarket chain in India.

In August 2019, Amazon invested in Future Retail and bought a 4.8% stake in the Future group. But next, COVID-19 enters and we saw the biggest nationwide lockdown and many shops and businesses lost their business. Millions of jobs were lost and Future retail was hugely affected by that situation. It had a massive impact on their business and as per the July quarterly report submitted, they defaulted in big numbers on paying interest to Bondholders. The rating agency, Fitch downgraded their ratings and they have moved two notches to ‘C’ i.e. near default.

And in the midst of this pandemic situation, both Reliance Industries and Future group made an announcement that Reliance Industries was taking over Future retail and several other assets.

The Legal Dispute between Amazon Vs Reliance

The announcement of this takeover came as a surprise to many who were aware of the previous Amazon-Future retail deal and an interesting cluase attached with it. Amazon argued that the deal between them and Future retail included a non-compete clause. Ans that clause included a list of 30 companies with which Future Group or Future Retail could not do business. And Reliance Industries was a part of that list. To answer this takeover deal, Amazon replied by filing a complaint at Singapore International Arbitration Centre (SIAC).

— The AMAZON Stance

One of the sources from the top Amazon management team voiced out the opinion by saying, “What is the point of the clause if you are just going to ignore it”.  The SIAC emergency ruling gave a small victory to Amazon when it temporarily halted the deal between Future Retail and Reliance Industries.

To counter this, the Future group made an argument by saying that, if the deal between them and Reliance does not go through, then could lead to unemployment of around 29,000 people. To this objection, the emergency arbitrator replied, “Economic hardship alone is not a legal ground of disregarding the legal obligations”.

— The Reliance View

Both Reliance and Future group are of the view that the agreement between Amazon and Future retail is legally not bound in India. And that the deal between Reliance and Future group is fully enforceable in India. In short, both are trying the finish the takeover formalities as soon as possible, ignoring the complaint at Singapore International Arbitration Centre.

Closing Thoughts

Considering the existing size of Reliance Retail and Amazon, (Reliance operates at more than 11,000 stores in India and Amazon is the No.2 e-commerce player in India), this fight looks less for Future group Deal (1,500 stores) and more for establishing supremacy and maintaining high ground. As the final signoffs and complaints are still pending, only time will tell where this deal heads towards. Let’s simply hope but it doesn’t exaggerate the battle of ego between the two richest men in the world.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

November 5, 2020 Market No comments yet
How US Elections May Impact Indian Equity Market cover

How US Elections May Impact Indian Equity Market?

A Quick Study on How US Elections May Impact Indian Equity Market: November 09, 2016, US Election Day saw one of the most unexpected results in the political history of the world. Hillary Clinton was touted to be the firm favorite of Americans to win the US Presidential Election and was set to become the first-ever Women US president of the USA. However, Surprise-Surprise. At that time, we saw a massive turnaround and Trump emerges victorious.

When Donald Trump beat Hillary Clinton in 2016, here are some of the interesting headlines from major news houses:

trump wins clinton us elections

However, not only people were hating or celebrating this event. Even the market saw huge volatility during different sessions preceding and after the election results. In today’s article, we will discuss the US presidential results and how US Elections May Impact Indian Equity Market. Let’s get started.

2016 Elections: How did the Financial world react?

To put it into perspective, on the day of the result in 2016, the Nifty 50 was trading near 8,000 levels. On the day of the presidential election result, the market was still in shock (Donald Trump won against the firm favorite Hillary Clinton) and we saw sideways movement in the Global equity market for few sessions. But, post that, we saw a rally in the market, in which all the major indices gained more than 20% in a year’s time. What impressed the market most, was the pro financial growth and development stance of Donald Trump.

One year post the election date, nifty was trading 10,400 levels. Similarly, Dow Jones Industrial Average (DJIA) was trading near 18,300 levels (on the day of the election), and post one year of that, DJIA was trading near the 23500 levels. Growth in the value of the Index by nearly 20%. And even for the Hang Seng Index, we saw a growth of nearly 22% in the value of the Index.

Therefore, from the above figures, the selection of Trump was welcomed by all the global financial markets of the world. We saw growth not only in the absolute values of US benchmark indices but in most of the global benchmark indices.

Now, next in this article, we aim to provide an insight into the impact of the 2020 US presidential elections. Donald Trump Vs Joe Biden. Who is better for the overall economic development of the world. Considering the ongoing fight against the pandemic, we aim the discover, the political stance taken by both the leaders and the likely impact of their selection on the Global financial world.

Why is US Election important to India?

The answer to the query simply lies in their stance and economic policy. The views of US Presidential candidates are quite contrasting. Just to put in perspective, Joe Biden has a very soft stance against China and he wants to mend the tarnished relationship with China. Donald Trump, on the other hand, has very stern views against China and refers to them as the Corona Virus creator.

While the US account for 5% of the world population, but it accounts for 20% of the global income, and which highlights the economic implications of this presidential election. Therefore, till we get the final outcome of the election, we can expect a range based or sideways movement in the market. And once the results of the elections are out, we can see a fresh infusion of money in the Asian economies. India being one the biggest player in the Asian market, we can see a surge up and infusion of foreign capital in the Indian equity market.

Moreover, according to the survey conducted by Investopedia of various wall street traders and Investors, “47% of the participants are concerned about the election outcome, 35% of the participants are somewhat concerned and 18% of the participants are not concerned about the election outcome”

trump vs biden poll trade brains

Fig. According to the internal poll conducted by us on Trade Brains Instagram page, Indians have mostly equal sentiment towards both Trump & Biden (though slightly more inclined towards Biden)

How US Elections May Impact Indian Equity Market?

 

trump tweet us elections

joe biden tweet us elections

(Pic Credits: Recent Tweets by US Presidential Candidates!!)

— What if Trump Wins?

US Elections May Impact Indian Equity Market cover

As we are all aware that Trump comes from a business background. Most of his policies are pro financial development. If Trump comes back to power, the surge in global economies is expected to continue at a faster pace. And we could see record breaching levels in most of the Global stock market indices.

Moreover, Trump has been very vocal against China. He even refers to the Corona Virus as “Wuhan Virus” or “China Virus”. And he has imposed a lot of sanctions and restrictions against China. And to put his words into actions, he has imposed tariffs on $370 bn worth of goods imported from China. And these sanctions have indirectly made the Indian produced goods more competitive.

And to put the facts into perspective, in the FY 2019-20, the total estimated value of the bilateral trade between  India and China stood at a staggering, $89 bn.

— What if Biden Wins?

As mentioned earlier, policies put forth by Biden are more towards mending relations with the allies and that also includes, relations with China. Therefore, if Biden wins the election, we could see the tariff and sanctions against China lifted and which will have an adverse impact on the business volume between India and the USA.

And even the Democratic vice presidential candidate, Kamala Harris has been very vocal against the Indian Government on the Kashmir issue. She has gone to the extent of calling it, ‘Human rights abuse Inflicted by India’.

Trump has even ridiculed Pakistan and shown them their true face but, the Democrats have been very friendly and have shown support towards Pakistan.

How Indian Equity Market may move?

Since the recovery of the Indian Equity market started from the initial slump during the initial COVID-19 days, we have seen the market recovering to new high levels. Sensex has recovered over 53.66% since March 2020 COVID crash. If trump we to be re-elected, we could see the continuation of the rally in the market and new all-time highs could be achieved. However, if Biden were to be elected as president, we could see some initial negative reaction from the market. Anyways, over a long time, it is the policies and announcements of Biden that will have bearing on the Indian Equity market.

Closing Thoughts

To conclude what we discussed in this article on how US Elections may impact the Indian equity market, here are a few of the key takeaways:

  • Judging by the current term of President Donald Trump, he is believed to be pro financial growth and development.
  • And the relations between India and the US have strengthened under the leadership of our PM Narendra Modi and Donald Trump.
  • The global financial market has seen a ‘V’ shaped recovery and this has been mainly because of the joint efforts being put the top Global leaders and Donald Trump is one of it.
  • And Trump coming back to power should be music to the Indian Stock market, and it will be a major boost to the Indian manufacturing sector.
  • Only time will tell the impact of Trump selection or Biden selection on the Global and Indian Financial sector. But, we should defiantly see some volatility in the market in days to come.
  • But, clearly, the global economy would want a leader who is a visionary and shows able leadership in fighting the current Pandemic scenario.

That’s all for this article on how US Elections may impact the Indian equity market. Let me know what you think about this topic by simply commenting below. Have a great day and take care!

November 4, 2020 Market, News No comments yet
US Elections Who Is Kamala Harris Vice -Presidential Candidates Indian Connect cover

Who Is Kamala Harris? US Vice-Presidential Candidate’s Indian Connect!

Who Is Kamala Harris: Kamala Harris, is the selected candidate for Vice-president Position from Democrats party for US presidential elections, 2020. If elected, she will be serving as Vice-president and deputy to Joe Biden (democratic candidate for Presidential post) for the term of the next four years.

By occupation, she is an American Politician and Attorney since 2017. Interestingly, Kamala Harris has also a connection with India, which has made her quite popular among Indian Americans during this US election. In today’s Market Forensics, let’s find out who is Kamala Harris, and her deep connection with India. Let’s get started.

Early Life of Kamala Harris

Kamala Harris was born in Oakland, California, on Oct 20, 1964, to an Indian mother and Jamaican Father. Her mother was a biologist who worked on Cancer research. Her father, Donald J. Harris, is a Stanford University professor emeritus of economics. Her parents divorced when she was seven years old.

Kamala Harris Educational Background

If we look into the alma-mater, Kamala Harris graduated from Howard University and the University of California.

After completion of High school, Kamala Harris attended Howard University. While at Howard, she interned for California Senator, Alan Cranston. She also chaired the economics society, led the Debate team. She graduated from Howard in 1986, with a degree in Political science and Economics. After the completion of her graduation, she returned to California to attend law school at the University of California, Hastings College of Law. She graduated with a Juris Doctor and was admitted to the California Bar in June 1990.

Kamala Harris Political Career Timeline

Ms. Harris, 55, is the first of Indian origin and Black Women to be picked by a major party for a major post in US political history. Here’s a brief timeline of the political career of Kamala Harris:

  • In 1990, she was hired as the deputy district attorney in Alameda County, California. And she was touted to be one of the bright prospects going around.
  • In 1994, Ms. Harris was dating Willie Brown, and he appointed her to the State Unemployment Insurance Appeals Board And later also to California Medical Assistance Commission.
  • In 1998, she was recruited as an assistant district attorney. And later she became the chief of the Career Criminal Division, where she prosecuted homicide, burglary, robbery, and sexual assault cases.
  • And in August 2000, she took up the new role at San Francisco City Hall, where she worked for city attorney Louise Renne.
  • In 2003, she ran for district attorney against her former boss, Terence Hamilton and she won with an overwhelming margin by winning 56.5% votes. Just prior to her taking office, the felony conviction rate was only 50%, and by 2009, it was 76%. She ran unopposed in 2007.
  • In 2008, she decided to run for California Attorney General. And in 2010, she was nominated, defeating Alberto Torrico and Chris Kelley. On January 3, 2011, she became the first African American and first South Asian American to hold the office of Attorney general in United States History.
  • And in 2014, she was re-elected against Republican, Ronald Gold, and secured 57.5% votes.

In a recent interview, when asked for advice for Women, Ms. Harris said: “You never have to ask anyone permission to lead. I have in my career been told many times, ‘It’s not your time”, ‘It’s not your turn”. Let me just tell you, I eat ‘no” for breakfast. So, I would recommend the same. It’s a hearty breakfast.” And when asked about her plan for a sustainable and eco-friendly future for coming generations, she said Joe Biden led the administration has plans to make committee with deadlines to achieve net-zero emission by 2050.

Kamala Harris has been strongly against racial discrimination and crimes against women and children. In 2005, she was featured in a Newsweek report of “20 most powerful women of America”

Indian Connection of Kamala Harris

Till now, we noticed that Ms. Harris’s education and career have been centered only around the United States of America. However, as we mentioned earlier, Kamala Harris has an Indian connection from her maternal side.

The Maternal Grandfather of Kamala Harris hails from Painganadu Thulasendrapuram village in Tamil Nadu. The village is situated approx 320 km south of the city of Chennai.

During this US Election 2020, the head of this village committee mentioned that they are holding special prayers for her victory on the say of the polls. Moreover, her banners can also be found on different roads of this village.  One of the banners in the village read as “From Thulasendrapuram to America”.  Another poster is located at the popular bus stop of the village, with Ms. Harris smiling and white house in the background.

Overall, because of her maternal side, Kamala Harris is still connected with India and her maternal villagers still have love and respect towards her.

10 Lesser Known facts about Kamala Harris

Here are a few other lesser-known facts about Kamala Harris:

  1. As a child, Kamala Harris was heavily influenced by her maternal grandfather, who was a high ranked government official and also fought for India’s independence.
  2. After High school, she joined Howard University and majored in Political science and economics.
  3. Her friendship with Barack Obama can be understood from the fact that she was the first notable California officeholder to endorse him during the 2008 presidential bid.
  4. Harris has had a multicultural childhood. She grew up with traditional Indian values (India Mother) and with Jamaican vibes (Jamaican father).  She would visit India with her mother once every two years and also visit Jamaica with her father. And that makes it comfortable for her to connect to different cultures in an easy and simplified way.
  5. One of her bigger accomplishments as an attorney general was creating Open Justice, an online platform for making criminal justice data available to the public. And this also increased the accountability of police towards the public.
  6. She always has had a stern view on racial discrimination in terms of policing and using force. She participated in the protests (in Washington DC) against the death of George Floyd in police custody. And she also raised voice against the shooting of Jacob Blake.
  7. In 2014, she married Doug Emhoff, a corporate lawyer from Los Angeles in a private ceremony.
  8. She is a very enthusiastic cook and likes to try and cook various recipes. And when asked about her favorite Indian dish, she answered, ‘idli’ with well-made sambhar.
  9. She delayed endorsement of Biden till March 8, when there were no women left and Biden’s nomination couldn’t be argued against. And later she threw support behind Biden and said he was a leader who could, “Unify the people”
  10. Harris helped in starting a program with the San Francisco Department of Public Health to help them in their initiative towards child sexual abuse. She also co-founded the Coalition to End the Exploitation of Kids.

Joe Biden for the presidential role and Kamala Harris for vice president role are standing against Donald Trump and Mike Pence in the 2020 US Presidential elections. Her motto is, “You may be the first, but make sure you are no the last.”

Also read: How US Elections May Impact Indian Equity Market?

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, take care and happy investing.

November 4, 2020 Market, News No comments yet
India's October Manufacturing PMI data cover

India’s October Manufacturing PMI – Highest in a Decade!

A Short Analysis on India’s October Manufacturing PMI: The Purchasing Managers Index (PMI) that was announced yesterday (Monday) for the month of October 2020 reflected an index of 58.9 which is the highest reading since May 2010. This index was at the level of 56.8 in September. Moreover, this surge in sales was the strongest since mid-2008. The news was taken enthusiastically by the economists as it indicated that fortunate unlocking amid COVID19 and improved demands in the market conditions.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing what exactly is Purchasing Managers Index (PMI) and its implication on the financial market. Let’s get started.

What is Purchasing Managers Index (PMI)?

The Purchasing Managers Index (PMI) is an index explaining the prevailing economic trends in the manufacturing and service sectors. There are five major indicators used in explaining the Index – New orders, Inventory levels, productions, supplier deliveries, and the employment environment. The main purpose of PMI is to give a futuristic picture of the current and future business scenario and that enables the company owners, managers, and analysts to make an informed decision about the market.

How can one read PMI?

The PMI index ranges from 0 to 100 level. Any figure above 50 denotes expansion in the economy and any figure below 50 indicates contraction in the economy compared to the previous month. The further we are from the mid-point (50), it denotes more contraction and expansion in the economy. You can read more about how PMI is calculated here.

Here, the previous month’s data are very useful in doing a comparative study. Growth or decline in number as against the historical indexes for different months gives us information about the expansion or contraction in the economy.

Economic Implication of PMI

As Purchasing Managers Index (PMI) is the first data that is published every month, it is generally considered to be the leading indicator of the numbers which are yet to come. Other data like the industrial output, manufacturing output, GDP, etc., which are published later.

The Implications of PMI Data on Financial Market

The PMI data generally gives an indication of the corporate earnings. Good data indicates that the economy is lucrative to invest at current times vis-a-vis other countries having lower PMI data.

India’s October Manufacturing PMI Data

Historical Purchasing Managers Index (PMI) data india - India's October Manufacturing PMI

(Source: Historical Purchasing Managers Index (PMI)- IHS Markit)

India’s manufacturing PMI climbed to the highest ever in a decade on the back of a continuous surge in sales. The Nikkei’s Manufacturing Purchasing Manager’s Index, compiled by The IHS Markit, saw Manufacturing PMI rose to 58.9 in October, as against 56.8 in September and against market expectation of 55.4. This rise in PMI data can mainly be attributed to the following factors:

  • The relaxation in COVID-19 restrictions and phased unlocking.
  • New order hits its highest since mid-2008.
  • The highest output advanced since late 2007.
  • The rise in Export sales.

The Manufacturing PMI of 58.9 at its highest in the Last Decade, suggests that the third-largest economy of Asia is healing after a slump during the Pandemic COVID-19. According to Pollyanna DeLima, IHS Market- “Companies were convinced that the resurgence in sales will be sustained in the coming months, as indicated by a strong upturn in input buying and restocking efforts”.

That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, take care and happy investing.

November 3, 2020 Market No comments yet
4 Most Common Technical Indicators for Beginners

Most Common Technical Indicators -Trading Basics for Beginner!

A Guide to Most Common Technical Indicators for Beginners: The most common problem for anyone willing to use the technical indicators, is to select the indicator which is the easiest and commonly used. This problem also arises because of the availability of hundreds of indicators.

Through this article, we aim to solve this problem. Here, we try and understand the two most common technical indicators that are comprehensive yet easy to use. We will be understanding the concept of moving averages and Bollinger bands. By the end of this article, we are sure that you would have a clear understanding of these indicators. Let’s get started.

Most Common Technical Indicators for Beginner

1) Moving Averages

Moving average is the most simple and commonly used technical indicators. If we read any research report or any article on technical analysis, the most commonly used technical indicators is the Moving average. There are generally two types of Moving averages – Simple Moving average and Exponential Moving average, which we’ll discuss later in this article.

In simple terms, a moving average creates a series of averages of different subsets of the full data set in order to analyze data points. To illustrate it with the help of an example:

In a game of cricket, if we were to analyze the performance of a batsman, consistency is the most common parameter. And the best way to analyze the consistency is the average number of runs scored by the batsman in each innings.  For example, if the batsman scores 1,000 runs in the 20 innings, then the average number of runs scored by him in each innings is 50. This simple method of calculating the average is also known as the Simple Moving Average.

Moving Average is said to be a lagging indicator as is it is constructed with the help of the data, which is the End of day prices. Let us understand the concept with the help of a simple example:

Consider the following closing prices of shared of ITC limited:

Date Closing Prices
14/09/2020 192
15/09/2020 188
16/09/2020 180
17/09/2020 182
18/09/2020 178
Total 920

Therefore, the average price of shares of ITC limited over 5 days will be = 920/5 = Rs. 184.

The average price changes as the closing price the next day changes. Imagine if the closing price of ITC on the next day changes to 185, then the 5 days simple moving average of ITC limited will also change.

The moving averages can be calculated for any timeframe. It could be 5 minutes, 15 minutes, hours, days, weeks, and so on. Depending on one’s trading style and trading objective, one can choose the charting pattern. If we are using 13 observations within the selected time frame, it is called 13 SMA, and if we are using 34 observations within the selected time frame, it is called 34 SMA and so on.

The daily chart shown below is that of Infosys limited and the red line plotted is 50 SMA.

moving average chart

If we carefully look at the chart above, 50 SMA clearly divides the chart into two halves. Till the end of April, the bears were having a higher say and 50 SMA was acting a resistance of the market. Any move till the red line was seen as an opportunity to short.

However, once the market closed above 50 SMA on daily basis, it started acting as a support to the market. Any move towards 50 SMA was seen as an opportunity to buy in the market. So, it can be summarized that if the market is trading below SMA, it is taken as an opportunity to sell or short in the market and if the market is trading above it, can be seen as an opportunity to go long.

— Exponential Moving Average

This is the more advanced and more trusted form of moving average. The main difference between EMA and SMA is the weightage given to values. In a simple moving average, all the values are given equal weightage. But in the case of Exponential Moving Average, the more recent values are given more weightage.

The chart below is the daily chart of Kotak Bank and the red line plotted is the 50 EMA.

Exponential Moving Average

If we carefully analyze the chart above, 50 EMA gives a better signal of buying and selling. If the market is trading above the EMA, it can be taken as an opportunity to buy and the level below this line can be kept as a point of stop loss for this trade.

Similarly, if the market is trading below EMA, it can be used as an opportunity to short in the market and the level above it can be kept as a point of stop loss.

Why EMA is more preferred?

The simple answer to this question is that EMA gives comparatively less false signals (than SMA), as the more recent values are given higher weightage.

 

2) Bollinger bands

The concept of Bollinger bands was introduced by John Bollinger in 80’s. This is the most common technical indicator and widely used by traders while making day to day trading decisions. With the help of Bollinger bands, we can understand if the price of an asset is trading at overbought or oversold levels.

When the price is overbought, it is generally an indication to sell and when the price is oversold it is generally an indication to buy.

Components of Bollinger bands:

  • The Middle line, which is a 20 day Simple Moving Average
  • The Upper Band which is a 2 Sigma (i.e. 2 Standard Deviation of the middle line)
  • The Lower Band which is a 2 Sigma (i.e. 2 Standard Deviation of the middle line)

Note: The upper and the lower band can also be 3 Sigma i.e. 3 standard deviation of the middle line.

But before understanding the Bollinger bands, it is important to have a brief understanding of the concept of Standard deviation.

What is Standard Deviation?

The Standard Deviation is a statistical pillar, which measures the Variance from the mean/average price. The standard deviation in the equity/stock market represents volatility. A 10% standard deviation would mean a 10% volatility in the stock. In Bollinger Bands, the standard deviation is applied on the middle line i.e., the 20 SMA

Let us understand:

  • The 2 Sigma upper and lower band means 2 SD
  • Say, if the 20 SMA of nifty is 9500
  • And say the Standard Deviation is 1%
  • Then the Upper band SD = 2*95 = 190
  • The Lower SD = -2*95 = -190
  • So, the three components of BB will be
  • SMA = 9500
  • Upper Band= 9500+190 = 9690
  • Lower Band = 9500 – 190 = 9310

In the Last Example-

  • If the Market it trading near 9700, then a short/sell position can be initiated, by keeping a target of 9500
  • If the Market it trading near 9300, then a long/buy position can be initiated, by keeping a target of 9500

Let us understand it with the help of an example. The image below is the daily chart of Axis bank.

Let us understand it with the help of an example. The image below is the daily chart of Axis bank.

If we carefully analyze the image above, all the trade opportunities have been circled. The circles near the upper band give us an opportunity to sell in the market and the circles near the lower band give us an opportunity to buy in the market.

If we were to take the example of the circle near the lower band, it gave an opportunity to buy near the lower band, and trade gave a return of nearly 20% (i.e., Rs. 50). And similar returns were achieved while shorting near the upper band circles.

Additional read for Beginners:

Conclusion

In this article, we covered two of the most common technical indicators for beginners. Here are the key takeaways from this post:

  • Moving Average gives us a lot of buying and selling signals
  • When the price is trading above a certain MA, it usually signals strength in the market and buyers are having more say. On the other hand, When the price is trading below a certain MA, it usually signals weakness in the market and sellers are dictating in the Market
  • The Bollinger bands capture the volatility. The Upper bands and lower bands help us to understand the overbought or oversold levels
  • Bollinger bands work in all types of markets but they are better suited for Rangy markets
  • The most important thing is to have a predefined loss for every trade entered in the market.

That’s all for this post on common technical indicators for beginners. Happy Trading and making money!

October 22, 2020 Investment Basics, Technical Analysis 1 comment
4 Best Intraday Trading Strategies for Beginners cover

4 Best Intraday Trading Strategies for Beginners!!

A Guide on Best Intraday Trading Strategies for Beginners: There are hundreds of Intraday Trading Strategies for traders apply to make money in the stock market. However, not all are simple enough for beginners to implement and make money.

In this article, we are going to cover four of the best Intraday Trading Strategies for beginners. Let’s get started.

What is Intraday Trading?

As the name would suggest, the Intraday is that event which completes within the same day. Similarly, Intraday trading is that form of trading, in which the buying and selling of the shares or assets are completed within the same trading session. Intraday trading is one of the most sought after (and one with maximum volume) form trading amongst traders in the market. With proper analysis and execution, it has the potential of generating very handsome returns.

The General MYTH with Intraday Trading

It is a general Myth among many, that Intraday trading is all about buying and selling throughout the day. And one has to be on the go, all the time. No doubt, that intraday trading requires more focus and attention than investing or delivery based trading. But the level of planning which goes about in finding the stock or move for intraday trading is second to none.

About 85-90 % of day traders’ time goes into analysis and planning of trade opportunity, and the rest 10-15% of the time goes in trade execution.

Therefore, the whole world of day trading is entirely based on proper planning and execution. It has the potential of making 20-30% returns on the investment amount, but intraday trading can never be a part-time avenue of making quick money. One has to devote a lot of time and to be a successful intraday trader, it is advised to be in front of your trading screen throughout the market trading hours.

Intraday trading Factors

Choosing the shares for intraday trading is no Rocket Science. One needs to keep certain parameters, which if met, can a share/stock be chosen for Intraday trading. Following are some of the parameters which should be given due importance while choosing stocks for intraday trading:

  • Liquidity: This is the single most important factor in choosing shares for intraday trading. Illiquid shares/assets should be avoided. Even while trading commodities for Intraday trades, liquid commodities like Gold, Silver, crude oil, etc. should be traded.
  • Volatility: As the sole purpose of Intraday trading is to earn quick returns. And for this objective to be fulfilled, the stocks need to have a broader range i.e., high beta stocks should always be preferred while doing intraday trading.
  • Volume: This tells us about the quantity of stocks that have traded within the specified time frame. The higher the volume, it generally means that there is more interest in that particular share that day. And any move which happens in the share price, with volume in the market is more trusted than the moves with low volume.
  • Consistency: It is a general rule while doing intraday trading that one should be consistent in his/her approach while doing trading. One should not let emotions take over while doing intraday trading. The decisions should be based on logic, maths, and price action.
  • Patience: This is very important is all forms of trading, let alone intraday trading. One should not expect wonder trades (i.e., the hope of making all the money in one trade). One needs to bide his time and grind it out if one expects to have a long and fruitful trading career.

Intraday Trading Strategies for Beginners

Now, having understood the basics of Intraday trading the various facets which should be kept in while choosing the shares to intraday trade. One thing which should always be kept in mind that these strategies do not guarantee to make money. Let us try and understand a few intraday trading strategies:

Intraday Trading Strategy 1: Momentum Strategy

As the name suggests, the whole premise of this strategy is to catch the momentum in the market. It is imperative to track these stocks before the actual momentum starts in the market. If spotted at the right time, these stocks have the potential of generating returns of 20-30% within one session.

These movements could be because of Fundamental (Overnight news, Quarterly earnings, some big order procurement, new projects, etc.) and Technical (breakout) factors.

Intraday trading strategy 1 - Momentum Strategy

Img 1: 15 mins Chart of ESCORTS (source: www.zerodha.com)

Now, if you look at the picture above, the market opened near the previous day high, but the momentum soon fizzled out and we saw selling pressure coming in the market. And we saw a series of lower highs and lower lows in the market. And it ended the day near the lows of the day. So, this is a classic case of momentum intraday trade in the market.

Intraday Trading Strategy 2: Breakout Strategy

As the name would suggest, this strategy focuses on finding the trade which is going to trade in a new territory or has broken out of its usual territory. One thing should be kept in mind that the breakout has happened with volume (thin volume breakouts generally tend to be false breakouts).

If the breakout is on the upside, then we go long and if the breakout is on the downside, then we go short. One should always mark the supports and resistances, so as to have right stop losses for the breakout trades.

Intraday trading strategy 2 - Breakout Strategy

Image 2: 15 Mins chart of Maruti (source: www.zerodha.com)

Now, if you carefully look at the image above, we see a classical breakout trade. These trades when spotted, have the potential of generating significant returns. The Stop loss for this kind of trades is always the low of the range prior to the breakout.

Intraday Trading Strategy 3: Scalping Strategy

This strategy is the most beneficial strategy for a day trader. The whole idea to constantly keep scalping in the market for small profits. This strategy is a very common method of trading while trading commodities. This kind of trading is generally done by high-frequency traders in the market. The overall technical and fundamental setup does not have a major bearing on this trade. Price action plays a very important role while selecting the trade for scalping.

The stocks or commodities chosen for purpose of scalping should be liquid and volatile. And one important thing to always keep in mind is to have a stop loss for every trade. One should not let the position drift away. The scalping strategy is best suited when the market is stuck in a tight range. Liquidity and tighter range are two friends of scalpers.

Intraday Trading Strategy 3: Scalping Strategy

Img 3: 15 Mins chart of TCS (source: www.zerodha.com)

If we look at the image above, the market is stuck in a tight range and it provides a great opportunity for scalpers.

Intraday Trading Strategy 4: Moving Average Strategy

This Strategy can also be called as the moving average crossover strategy. This is generally a trend reversal strategy in the market.

When the price of the underlying asset goes above or below the moving average, it generally signals a change of momentum in the market. When the crossover happens from bottom to top, it is called Bullish crossover and when the crossover happens from top to bottom, it is called a Bearish crossover.

Intraday Trading Strategy 4: Moving Average Strategy

Image 4: 30 Mins chart of ICICI Bank (source: www.zerodha.com)

The image above is a 30 minutes chart of ICICI Bank. We see an obvious weakness in the market when its price is trading below the two moving averages (13 EMA and 34 EMA). And when the market starts trading over the moving average, the dips are being bought back in the market.

Therefore, when the market is trading over MA, it is advised to go long and when the market is trading below MA, it is recommended to initiate a sell position. For a long position, the stop loss is below the Moving Averages (MA) and for a short position, the stop loss is above the MA’s.

Also read: How to do Intraday Trading for Beginners In India?

Conclusion

In this article, we covered the four best Intraday Trading Strategies for beginners. Here are a few key takeaways from this post:

  • Intraday trades are those trades for which the activity of buying and selling is completed within the same day.
  • About 90% of the time in intraday Trading goes for planning and the remaining 10% goes in execution.
  • Liquidity, Volatility, Volume, Patience, and Consistency are the key ingredients of Intraday trading.
  • One has to devote complete time and dedication if one wants to be a successful intraday trader.
  • Traders need to always have good Risk management. Always place stop loss for all orders while taking intraday trades.

That’s all for this post on Intraday Trading Strategies for beginners. I hope it was useful for you. Happy Trading and Money Making.

October 13, 2020 Technical Analysis, Trading 4 comments
How to Trade Commodities in India? Step-by-Step Guide for Beginners!

How to Trade Commodities in India? Step-by-Step Guide for Beginners!

A Beginner’s Guide on How to Trade Commodities in India: In olden times, commodities like grains, cotton, oil, cattle, etc were heavily traded among the people and communities to meet their requirements. You might have seen movies of people carrying goods on the top of Camels to trade with others. Not much has still changed even in the 21st century. Even now, people and countries trade these items. And these days, anyone can trade in commodities to make substantial profits, apart from trading in traditional stocks and other derivatives instruments.

In this article, we are going to discuss the step-by-step process of how to trade commodities in India. Here, we’ll first cover the basics like what is a commodity, who are commodity buyers and sellers, the types of commodities traded in India, etc. Later, we’ll get into the technicalities like margin required and how exactly to trade in commodities in India. Let’s get started.

What is a Commodity?

In simplest words, a commodity is any raw material that has a physical form and which can be bought or sold and are interchangeable in nature with another similar commodity.  Some of the traditional examples of commodities include Grains, Wheat, corn, soybeans, or other foodstuffs, Cattle or other stock animals, Cotton, oil, gold, etc.

Investing/trading in commodities is a good way to diversify your portfolio with assets other than stocks, gold, etc. Investors or Traders can buy commodity directly in the spot (cash) market or via derivatives market by trading in Futures and Options.

Types of Commodity traders

There are generally two types of commodity traders – Hedgers and Speculators.

— Hedgers are buyers or producers of commodities that use commodities futures contracts for hedging purposes. These traders take the delivery position of the original commodity when the futures contract expires.

— The second types of trader are the Speculators who enter the market for the sole purpose of profiting from the price movement or volatility of commodity futures contract.

Commodity trading exchanges in India

In India, the commodities are traded via five exchanges. Traders are allowed to trade commodity derivative contracts from any of the following exchanges:

  • National Stock Exchange of India Limited (NSE)
  • Bombay Stock Exchange (BSE)
  • Multi Commodity Exchange of India Limited (MCX)
  • National Commodity and Derivatives Exchange Limited (NCDEX)
  • Indian Commodity Exchange Limited (ICX).

An interesting point to mention here is is that NSE and BSE launched trading in commodities only in 2018. Further, the commodities market is regulated by SEBI. (Earlier it was regulated by Forwards Markets Commission (FMC), which was later merged with the SEBI in 2015). All the commodities in India are traded via the online portals.

Margin required to trade Commodity in India

Commodities are products that require higher-margin, compared to any other product like equity futures or options. Different products under the preview of a commodity require a different amount of margins.

Here is a list of the most actively traded commodity along with the margin required for Normal (or delivery) mode and MIS (Margin Intraday Square off) mode.

Margin required to trade Commodity in India Margin required to trade Commodity in India

Pic: Intraday and Normal margin for various commodities (source: www.zerodha.com)

If we were to carefully look at the picture above, for different commodities the margin varies with the change in the price of the commodity futures contract. The images above clearly give information about the Normal margin, the Intraday margin, and the price levels for which the margins are calculated.

List of commodities traded in India

The commodity sector in India has been divided into five sectors namely – Agriculture, Metals and Materials, Precious metals and materials, Energy and, Services. These sectors are again classified and divided into various constituents.

(Image: List of various commodity sectors and its constituents (source: www.indiainfoline.com))

Tips before Entering the Commodity Trading

Here are a few factors to be kept in mind before deciding to enter the commodity trading:

  • Commodity trading is one the fastest growing product, for trading in India.
  • Although risky by nature, but if done with careful analysis and complete understanding, commodity trading adds the required pinch of diversification to the portfolio.
  • The margin required to trade commodities is slightly on the higher side.
  • The amount of margin required to trade the commodity keeps on changing depending upon changes in the price of futures contact of those commodities.

How to Trade Commodities in India? Step-by-Step Explanation

By now, you would have understood what commodity trading is, its various nuances, the margin requirements, the various players in commodity trading, and the different products. Let us now try and understand as to how does one start commodity trading in India.

For the sake of explanation, we have used Zerodha’s web (as they are the discount brokers with the highest customer base), to explain the steps.

Step 1: You need to have a trading account with one of the brokers that allow commodity trading (for example, Zerodha, Angel broking, 5Paisa, etc.). If you don’t have one, here’s an article on the best discount brokers in India, so that you can pick the one that suits you the best.

After opening the trading account, a separate form has to be filled, which activates the commodity trading along with equity trading in the same account. The margin account for equity trading and Commodity trading is different. The margin of Equity cannot be used for Commodity trading and vice-versa.

Step 2: We need to have a sufficient margin balance in our commodity trading account. Margin is the minimum amount of money required to trade. The amount of margin required varies from a Normal trade to a MIS (Margin Intraday Square off) trade.

The main difference between these two is that in case of Normal trade, the position can be carried over to the next day. However, in case of a MIS trade, the position will automatically get squared off before the end of the day.

The amount of margin required is the least for the Covered order. The covered order is that order for which the stop loss is pre-decided. And, hence the margin is least.

oil trading zerodha futures margin

Now, if we carefully look at all the images above, the first image shows the amount margin required for Crude oil October futures contract in Intraday MIS mode (Margin = Rs. 2,00,410). The second image shows the margin required when we trade NRML (Normal) contract (Margin = Rs. 4,00,882). And the third image shows the amount of margin required for a covered order (Margin = Rs. 88,026).

Step 3: The next important step that we need to consider, is to select the commodities, which we wish to trade. And upon selecting the commodities, it is advised to have all the commodities for various expiries pinned to the watch list.

Watch list of the commodities - How to Trade Commodities in India(Image: Watch list of the commodities (source: www.zerodha.com))

Step 4: After Shortlisting the commodities to be traded, the next step is to place the order. After selecting the contract, we just need to punch in the trade on the ticket.

Now, we have two ways to take the trade – Limit order & Market order. If we place the market then we end up buying or selling at the existing market price. But if we place a limit order then we can choose the price at which we want to place the order.

limit and market order commodity trading

Step 5: The next step while trading options is to check in the order book if the order has been placed.  We can do that by simply clicking on the orders tab, and we can see the list of all the order which have been placed or canceled or executed.

Step 6: The last, but the most important step is the continuous monitoring of the positions. We should always be on the constant lookout for opportunities to trade and always have a stop loss for the existing trade.

Conclusion

In this article, we discussed the step-by-step procedure on how to trade Commodities in India. Here are a few key takeaways from this post:

  • Commodity trading is done by both hedgers and speculators.
  • It is one of the most common form of portfolio diversification method used by investors or traders.
  • The amount of margin required to trade is slightly on the higher side, so the trades must be entered after doing a careful analysis of the technical and fundamental picture.
  • We can do both Intraday (MIS) trading and NRML (delivery based trading) while trading commodities.
  • It is always advised to have proper risk management (stop loss and target) for all the trades

That’s all for this post on how to trade Commodities in India for beginners. I hope it was useful to you. If you still have any queries to related to this topic, feel free to comment below. I’ll be happy to help. Happy Trading and Money Making!!

October 9, 2020 Beginner's guide, Trading 1 comment
How to do Intraday Trading for Beginners In India cover

How to do Intraday Trading for Beginners In India?

A Definite Guide to starting Intraday Trading for Beginners in India: If you want to make a livelihood from the stock market, the most popular approach is day trading or Intraday trading. Unlike investing, where you have to wait months and years to book the profits, here gains can be made within hours and sometimes even within minutes. Moreover, with the advancement of the internet and technology, day trading can be learned and started even from your phone and that too comfortably sitting on your sofa at home.

In this article, we’ll cover the step-by-step procedure to start Intraday trading for beginners in India. Here, we’ll also discuss what is intraday trading, who are intraday traders, thumb rules for day trading, and more. Let’s get started.

What is Intraday Trading?

As the name would suggest, Intraday trading is a type of trading where both the buying and selling activity in a stock (or an asset) is completed the same day i.e. in the same trading session.

Here, the trading is not done with the objective of holding or carrying a position over the next day or weeks. The main objective while intraday trading is to earn quick profits and exit your position as soon as possible. Further, the holding time for assets can vary between a few minutes to some hours.

In addition, generally, Intraday trading is done for high beta stocks i.e., the stocks that have high fluctuations in their prices on day to day basis. If the prices do not move at all in the entire day, there won’t be any opportunity for the intraday traders to make money from that stock.

— Who are Intraday Traders?

There is a proven theory on the market- “The more time you spend in the market, the more rewarding it is”. Intraday trading is generally done by traders who are very active participants in the market i.e., they have an eye on the market in every passing second.

One thing which one must keep in mind while doing intraday trading is that one should not become too greedy while taking intraday trades. If we have strict profit targets and stop-loss levels, then it goes a long way in selecting the right trades for intraday trading. Stop-loss is an advance order to sell the shares if the share price reaches a particular price point. Therefore, it helps to automate the selling process in different market scenarios.

For example, suppose I am doing intraday trading for shares of Reliance Industries Limited (RIL). The current price per share is Rs. 2200. Therefore, if I buy one share at CMP and have a target price of 2225 and stop-loss at 2185, then by rule we should stick to those levels and not increase our profit targets or trail our stop losses, as the market starts to move.

— Some Thumb Rules in Intraday Trading for Beginners

Here are some of the best rules that beginners must follow while doing Intraday trading to maximize profits and limit the losses:

  • Always chose liquid stocks for intraday trading that can easily be entered or exited.
  • Have entry and exit points in mind before entering the trade.
  • Always have a stop loss for trades, as the position might drift away and huge losses might be incurred.
  • It’s important to have a trading mentality and not the mentality of the investor while doing Intraday trading.
  • One should be willing to take multiple trades in the same companies or indices as the market might provide multiple trading opportunities.
  • Always take trades in the direction of the market. Remember “Trend is your friend.”
  • Mean reversion trades are generally not a good strategy for intraday trading.

— What products can be traded intraday?

You can do intraday trading in almost all stocks that are trading in the stock exchanges. You can also trade in Indices.

Further, Intraday trading is done not only in the cash segment but even in the derivatives segment (Futures and Options). Derivate segments are big contributors to the intraday trading market. And the margin required to trade Intraday futures contract is comparatively lesser than that of delivery contracts.

margin for different trades intraday tradingIf we look at the images above, then we see that in the window with the order type selected as MIS Intraday, the amount of margin required is 1/5th of the amount of margin required to trade in overnight (NRML) mode.

How to do Intraday Trading for Beginners In India?

Having understood the basic premise of Intraday trading and its elementary characteristics, the next important point of consideration is how does one go about doing intraday trading in India. Following is a step by step procedure which should explain the complete procedure. For the sake of explanation, we have used Zerodha’s kite trading platform to explain the steps as they are the discount brokers with the highest customer base.

Step 1: You need to have a trading account with one of the brokers (For example, Zerodha, Angel broking, 5Paisa, etc.). If you don’t have one, here’s an article on the best discount brokers in India, so that you can pick the one that suits you the best. Anyways, the steps required for Intrady trading are almost the same for any othe broker that you choose.

Step 2: You need to have a sufficient margin balance in your trading account. Margin is the minimum amount of money required to trade. The amount of margin required varies from a regular trade to a MIS (Margin Intraday Square off). The main difference between these two is that, in case of regular trade, the position can be carried over to the next day but in case of a MIS trade, the position will automatically get squared off before the end of the day.

The Margin allowed to trade for MIS trades varies anywhere between 4x to 20x depending on the nature of the stock and its expected volatility. Therefore, Margin trading gives us the power of leveraging.

margins in intraday trading

Step 3: The next important step which we need to consider is to select the share/asset we wish to intraday trade for that particular day and add those shares to one separate watch list. This step is of prime importance because it is practically not possible to keep an eye on all the shares listed on NSE and BSE.

However, having a watch list of the selected stocks gives us an opportunity to moderate and buy the stocks and take maximum advantage of all the intra-day trading opportunities.

intraday trading for beginners

Therefore, if we carefully look at the image above, it can be seen that it becomes very easy to keep a watch on the selected shares if we make a separate watch list of all the shares that we wish to intraday trade.

Step 4: The next step in this process is to select the share in which you wish to trade. And after selecting the share, we just need to punch in the trade on the ticket.

Now, we have two ways to take the trade – Limit order & Market order. If we place the market then we end up buying or selling at the existing market price. On the other hand, if we place a limit order then we can choose the price at which we want to place the order.

And the next thing to choose is the kind of order i.e., either normal order or MIS order. If we choose the limit order, then the margin required is exactly the same as the current value of the stock. But if we choose MIS order, then the margin required to trade varies anything between 5% to 20% of the current stock price.

Intraday trading for beginners

Now, if we carefully look at the image above, we see that in the window we have chosen the MIS Intraday option and hence the margin required to trade 7 shares of Marico is comparatively lesser than the actual trading price of one share.

Step 5: The next step while trading options is to check in the order book if the order has been placed.  We can do that by simply clicking on the orders tab and we can see the list of all the order which have been placed or canceled or executed.

Step 6: The last, but the most important step in Intraday trading is the continuous monitoring of the positions. We should always be on the constant lookout for opportunities to trade and always have a stop loss for the existing trade. If we follow these rules, then we always have a better chance of having a successful and rewarding trading career.

Also read: 4 Best Intraday Trading Strategies for Beginners!!

Closing Thoughts

In this article, we discussed the exact steps to start Intraday Trading for Beginners in India. To conclude, here are a few takeaways from this post.

  1. Intraday trading has been on a rise in India. And with the growing education about trading and investing, this trend is likely to grow at a faster pace in the future.
  2. While trading Intraday, buying and selling of the stocks should be completed within the same day.
  3. Intraday trading could be done for both cash stocks and in the derivatives market also.
  4. It is always advised to have proper risk management (stop loss and target) for all the trades
  5. And for a long and rewarding career, it is always advised to have a proper trading rules and discipline.

That’s all for this post on how to do Intraday trading for beginners. If you still have any queries related to this article, feel free to comment below. I’ll be happy to help. Take care and happy trading.

October 7, 2020 Beginner's guide, Trading 7 comments
how to trade options in India 2020

How to Trade Options In India? Step-by-Step Guide!

A Beginner’s Guide on How to Trade Options in India: Options Trading has been quite popular in India in recent days. Because of the pandemic situation, a lot of new and existing traders have been able to understand and learn this new craft of trading (Options Trading).

Nonetheless, as the skills and steps required to trade Options is not taught in schools or academics, most beginners find it difficult to learn how to trade options in India. Therefore today, we are going to explain the step by step process on how to trade options in India in the easiest possible words. Let’s get started.

Brief Overview of Options Trading

The most common concept that most of you must have heard about trading via options is the power to leverage.

Leveraging in terms of Options trading would simply mean, the power to trade at higher capacity then what the direct value of trade would allow. Let us understand this with the help of a simple scenario from day-to-day life.

Say, Ram has a wedding in his house two months down the line and for the purpose of the wedding, he needs to get 100 grams of Gold. The current price of 10gms of Gold is Rs. 50,000. However, Ram is a little skeptical about the volatility in the market and wants to lock in the current price of Gold, to be bought two months down the line. Therefore, with the objective of freezing the price of gold, he visits the jewelry shop and puts forward his proposition of buying the gold at the current price, two months down the line.

Why are Gold prices skyrocketing? Is it a good time to buy?

But looking at the current volatility, the jewelry shop owner is a little skeptical of taking the risk of fixing the price of Gold. Therefore, to incentivize the Jewelry shop, Ram pays him certain token money (say, Rs. 2000 per 10 gm of Gold) to fix the price of Gold. Therefore, the total money paid by Ram to enter the agreement with the jewelry shop owner is Rs. 20,000.

Let’s suppose, if upon expiry (i.e. after two months) if the price of gold goes above Rs 50,000 (per 10 gm), then Ram will exercise his right to buy the gold at Rs. 50,000. However, if the price of gold after two months remains unchanged or goes down, then Ram is not obligated to honor the agreement. He merely stands to lose the token money (Rs. 20000), which he paid to enter into the agreement. And that becomes the income of the Jewelry shop owner.

For example, if the price of Gold were to increase to Rs. 57,000 for 10 grams, then the overall benefit of Ram will be –

= Total gold * (Price after two months – Current price – Premium paid) = 10*10*(57,000-50,000-2,000) = Rs. 50,000.

Now, if I were to relate this example to options, then the Ram is the Option buyer, the Jewelry shop owner is the option seller, Gold is the underlying asset, the current price of gold is the Strike price and token money paid is the option premium.

A similar scenario is also applicable to the stock market. Here, if the option buyer believes that the price of a share may go higher in the future (through his analysis or study), he/she may pay a premium to the options seller to enter in a contract to buy the stocks at the pre-decided value. Further, the premium paid might be an expense, however, if the share price goes way above the pre-decided agreement price, then the option buyer will make profits.

Basic Options Trading Definition

To define in financial terms, Options are a derivative instrument that gives the right to option buyer to buy the underlying asset at a pre-decided price from the option seller, on or before expiry.

However, the option buyer is not obligated to honor the contract upon expiry. He has the right to buy the asset if he chooses to. However, if he does not wants to buy (in case the current price goes below the pre-decided value), he will simply lose the premium paid beforehand.

Nevertheless, the Option seller is obligated to honor the contract as he/she has taken a premium at the starting of the agreement. And the option seller is compensated in the form of this fee (or premium) to give up his right on underlying assets till the expiry of the contract.

Also read: Options Trading 101: The Big Cat of Trading World!

How to Trade Options In India?

Now that you have understood the basics of Options Trading, we’ll be covering how to trade options in India next.  For the sake of reference and explanation, I will be using the trading portal of Zerodha (Kite) in this article, as it is the most commonly used trading platform in India. Following are the step by step procedure to trade options in India.

Step 1: You need to have a trading account with one of the brokers (For example, Zerodha, Angel broking, 5Paisa, etc.). If you don’t have one, here’s an article on the best discount brokers in India so that you can pick the one that suits you the best. The steps to trade options in India are almost same in any trading platform you chose.

Step 2: We need to have a margin in our trading to be able to trade options. Based on the position taken by the investor, the margin requirement varies. Option buyer needs margin to pay for the premium required to trade options. And option seller needs margin as they have to keep certain money with brokers to account for Marked to Market (M2M).

Step 3: Next, we need to understand as to what is our view on the underlying asset. If we have a bullish view, then we can buy a call option (or sell put option) and if we have a bearish view, then we can express the same by either buying a put option (or selling a call option).

“Buying a Call option gives us the right to buy the underlying asset on or before expiry. And Buying a Put option gives us the right to sell the underlying asset on or before expiry”

Step 4: Select the underlying asset you chose to trade and also select the various strike prices that we choose to trade upon. For example, here’s a screenshot from Zerodha Kite where you can choose the asset and strike price.

zerodha kite astrike price

Now, say we are looking to trade Nifty 50 Contract via Option and we have a bullish stance on the market. Therefore, we could trade In the Money Call Option (Nifty 11450 CE), At the Money Call Option (Nifty 11500 CE) or Out of Money Call Option.

An In the Money Option is one that would make money if we were to exercise it right now at current spot levels. An Out of Money option is one that would be worthless if we were to expire it right now and an At the Money option is one that is the closest strike price to the current spot price levels.

It is advised to not to go too out of money while buying an option as the chances of them expiring in the money by expiry, is very less and more often than not, they expire worthlessly.

Step 5: Let’s say, we decide to go ahead and buy an At the Money option. Then, the next step in this process is to place an order to buy the option. We can choose to buy the option at the existing price and we can also choose to place the order at a specified price by placing a limit order.

options trading in zerodha kite

Therefore, if you look at the ticket in the image above, we have two options to buy the contract from i.e. Market or Limit.

If we choose the option of market order then the order is executed at the current market price. And if we choose Limit order, then we can choose the price at which we want to buy the contact. In the image above, the current rice of the contract 11500 call option is 90.65, but the price at which we want to buy the contract is 80.

The total number of shares in one contract of nifty is 75. If the option premium is 60, then the total amount of premium required to buy the contract will be = 75*60 = 4500. And this information is directly available on the ticket shown above.

Step 6: The next step while trading options is to check in the order book if the order has been placed.  We can do that by simply clicking on the orders tab and we can see the list of all the order which have been placed or canceled or executed.

Step 7: The last but the most important step while trading options is to monitor the existing position in the market. It is always advised to have a stop loss for every trade as it will help us in having good risk management and also prolong one’s trading career.

That’s all. This is how you trade options in India. If you still have any doubts, I will strongly recommend you to also watch the below video on how to trade options using Zerodha kite Demo. This video will help you even more to learn the steps for Options trading in India. Watch it Now!!

Closing Thoughts

In this article, we discussed how to trade options in India through a step-by-step guide. Here are the key takeaways from this article:

  • Options are derivative products that derive their value form the value of the underlying asset.
  • Call options give us the right to buy the underlying asset upon expiry. On the other hand, Put options give us the right to sell the underlying asset upon expiry
  • Bullish views can be expressed by either buying a call option or selling a put option.
  • Bearish views can be expressed by wither buying a put option or selling a call option.
  • One can use the Zerodha platform to trade option as it is very user friendly and there is rarely any delay in the order execution.

If you still have any doubts on how to trade options in India, feel free to comment below. I’ll be happy to answer all your queries. Have a great day and happy trading!

October 6, 2020 Options Trading, Trading 1 comment
mutual funds selection cover

Mutual Fund Selection – Six Key Technical Factors to Consider!

A study of Technical Factors involved during Right mutual Fund Selection: Mutual Fund as a financial product has gained a lot of dominance in recent years. With the growing education of financial products and government advertising schemes like ‘Mutual Fund Sahi hai”, people are now more aware of the various mutual fund investment avenues.

In our previous article on how to pick a mutual fund, we had given insights on the various fundamental factors, we should consider and understand before selecting a Mutual Fund to invest. Through this article, we aim to look at and explain the various technical factors that need to be considered for mutual fund selection. Thorough knowledge of both fundamental and technical factors goes a long way in picking the right funds to invest in.

Anyways, before understanding the technicalities, let us revise the concept of Mutual funds to brush up our basics. Let’s get started.

What is Mutual Fund?

mutual funds trade brains3

To put it in simple words, a Mutual fund is a pool of money which is been collected from various investors who want to invest their money in the stock market and other profitable assets but do want to go through the whole process of selecting the avenues to invest. They just park their money with a Financial Institution (in this case AMC), which in turn takes on the mantel of investing the pooled fund and generate returns for investors.

The funds are being managed by the fund managers, who use their skill and experience in generating the best possible returns for the investors. Eventually, these returns are sent back to the initial investors, after deduction of the basic costs required to run that fund.

Technical Factors to consider for Mutual Fund Selection

Here are six of the most important technical factors that the investors need to consider for mutual fund selection. Anyways, the best part about these technical factors are they are very simple to analyze. Let’s look into these technical factors:

1) Expense Ratio

This probably is one of the most important factors that is sometimes overlooked a few investors while deciding upon a mutual fund.

The expense ratio is the fee that is charged by the Asset Management Company (AMC) for managing the mutual fund. It basically includes the fee the fund manager, other operational and administrative expense which are incurred while managing the fund. Expense cost is charged on a year to year basis.

Generally, the expense ratio is also the function of the size of the fund. The type of Mutual funds (Growth and Direct) also impacts the expense ratio. The expense ratio of Direct mutual funds is lesser compared to Growth mutual funds.

In India, the expense ratio generally varies between 1% to 2.5% of the total fund value, depending on the fund house and type of fund.

2) Fund’s Portfolio

This is one very important consideration while buying a mutual fund. With the help of careful analysis and research, we can choose the fund which has a portfolio that suits our risk profile. And even the size of the portfolio makes a lot of difference in choosing a mutual fund.

Say, if we were to choose a blue-chip fund to invest. A fund that has diversified investment in 50-60 stocks, is more likely to perform in line with the performance of Nifty, and the fund which had a smaller portfolio is likely to have more volatile returns.

The quality of shares in the portfolio also makes a difference in the performance of the fund. The fund which includes sector leaders has more sable returns compared to one that is laggards of the industry.

3) Rating Agencies

The rating given by rating agencies provides valuable insight into the performance of the funds. For example, CRISIL Ratings of different mutual funds. Just to put in perspective, a rating of 5 on 5 generally means the fund has been performing better than expected in their category. They have been managing risks that are well within the acceptable limit. While rating a fund, the historical performance may be given higher weightage by different rating agencies. It a basically a consistency parameter of the mutual fund.

4) AUM (Asset Under Management)

The total value of the assets which are being managed by the fund (AUM), gives a big picture of the quality of the fund. The fund which has a large AUM has a faith of a large number of investors which in turn gives an indication that it is managed in a professional and cordial manner. And these funds are managed by professional Fund Managers. The following are some of the factors which have an impact on the AUM of the fund:

  • The Fluctuations of the market
  • The performance of the fund i.e., if the fund performs well, then the AUM of the fund increases and it attracts more investors to put money in the fund.
  • Size of the fund. If the fund is of big size, then the returns generated will be higher which in turn will increase the size of the AUM of the fund

5) Category Returns

One’s performance is always judged by how they perform compared to their peers. Similarly, in the case of mutual funds, the performance of the funds, compared to their category peers holds a lot of significance.

Again to take the example of Bluechip Funds:blue chip fund category returns

Figure : Mutual funds peer comparison (www.moneycontrol.com)

Now, if we look at the figure above, we see the performance comparison of the Blue chip funds category. And the categorical comparison helps us in understanding the fund’s performance. There are various parameters to choose from. And one can filter the funds, depending on one’s preference, and make an informed judgment while buying the fund.

6) Risk Ratios

The last on the list, but one of the most important parameters in judging the funds’ performance. The risk ratios help us in understanding the risks taken to generate returns for the investors. Through this article, we will have a look at the two risk factors: Standard deviation & Beta.

Standard Deviation (SD): This parameter judges the volatility of the fund over the last three years. If the SD value is low, it generally indicates low risk and low volatile funds and which ultimately leads to more predictable performance. Therefore, if we have two funds, Fund A and Fund B. If both the funds are giving similar returns, and if one has a lower standard deviation than others, then it is advisable to choose a fund with a lower standard deviation.

Beta: Even beta is used to understand the volatility of the fund. If the fund had a high beta, then the funds is generally more volatile. It is advised to choose funds that have low beta value.

Even while doing the risk analysis of the category of the funds, the ones which have low beta and standard deviation should always be the preferred choice.

Conclusion

In this article, we tried to cover the technical factors that you should look into during mutual fund selection for right investments. Here are the top takeaways from this article:

  • A clear understanding of both technical and fundamental factors goes a long way in choosing the right fund to invest.
  • The size of the fund along with portfolio diversification should be given due importance in choosing the fund
  • The expense ratio gives information about the cost of managing the fund. The lower the expense ratio, the higher the returns for the investors.
  • The categorical comparison helps in selecting the right fund which matches one’s risk profile
  • The risk factors that measure the volatility of the funds should be carefully analyzed and the fund with low volatility should be preferred while investing.

That’s all for this post. I hope this was helpful to you. If you’ve got any queries related to the above-discussed factors for mutual fund selection, feel free to comment below. I’ll be happy to help. Happy Investing.

September 9, 2020 Mutual Funds 1 comment
What is Open Interest(OI)? How to interpret it in Options Trading?

What is Open Interest (OI)? How to interpret it?

Understanding Open Interest: The term open interest (OI) is one of the most popular terminologies used among stock market traders. In this article, we are going to discuss what exactly is Open Interest. Here, we’ll discuss it’s definition, what does an increase or decrease in open interest implies, the difference between open interest vs volumes, and how one should interpret open interest. Let’s get started.

Open Interest Definition

Open Interest is the total number of the futures contracts (or Options) held by market participants at any given point of time. The total number of open interest contracts keeps on changing with every transaction executed. The open interest is said to be the best indicator to gauge the market sentiment and understand the reliability of the price movements.

Therefore, for an open interest to exist, there must be a buyer for every seller and vise-versa. Here, the relationship between buyer and seller creates one open interest. So, when buyers and sellers come together and initiate one new position, then open interest is increased by one unit. And when the same buyer and seller decrease their position, an open interest is reduced. But, if a buyer and seller passes their position to a new buyer and seller, then the Open interest remains unchanged, its just a transfer of position.

What does the Increase/Decrease in Open Interest Imply?

An increase in Open Interest means that new money is flowing in the market. And it generally indicates that the present trend (Bullish, Bearish, or sideways) is expected to continue.

A decline is an open interest usually implies, that the current trend is expected to halt and we could see a reversal in the market. To know the current open Interest, we just need to know the total from the buyer or seller side and not both.

Difference between Open Interest (OI) and Volumes

There is generally a common misconception that both OI and volumes mean one and the same thing. However, they are two different concepts, giving out two different sets of data. But, both the data can be used in conjuncture. Let us understand the concept of Open Interest with the help of an example.

Say, there are five traders (A, B, C, D, E) trading the Nifty futures contract. Let us understand, as to how their trading has an impact on the open interest and its calculation.

On Monday: ‘A’ buys 20 Nifty futures contract and ‘B’ also buys 10 Nifty futures contract. While ‘C’ sells 30 Nifty futures contract in the market. Therefore, we have a buying activity of 30 futures contracts and a selling activity of 30 futures contracts. Hence, the total Open Interest is 30.

TraderBuy (L = Long)Sell (S = Short)Contract held
A2020L
B1010L
C3030S
D
E
Total30

On Tuesday: C wants to get rid of half the position and ‘D’ comes into the market and takes 15 short contacts from C. Here just the mere transfer of position happened and no new contracts were added. So, the open Interest will still stand at 30.

TraderBuy (L = Long)Sell (S = Short)Contract held
A
B
C1515L
D1515S
E
Total30

On Wednesday: D wants to add 15 more short contracts. And both A & B want to add 5 long contracts each, to their existing long positions. And C wants to exit 5 more short contract position form here existing position of 15 short contracts. Therefore, 10 more long contracts (both A & B) are added in the market. And the contract between C and D would be just a mere transfer of positions. In short, the table on Wednesday would look like this:

TraderBuy (L = Long)Sell (S = Short)Contract held
A55L
B55L
C55L
D1515S
E
Total30

On Thursday: Trader E decides to enter the market. And wants to sell 50 Nifty futures contracts. Therefore, trader D decides to exit his 30 lots position and transfers his position to E. While trader A & B add position so 10 lots each to their existing positions. Overall, 20 new lots get added to the system and the final table at the end of Thursday looks like:

TraderLSContractsLSContractsLSContractsLSContracts
A2020L20L525L1035L
B1010L10L515L1025L
C3030S1515S510S10S
D1515S1530S300
E5050S

If we carefully analyze and look at the table above, it gives us a fair sense that open interest is eventually a zero-sum game. If we add all the longs and subtract them with all the shorts in the market. The end result is eventually zero.

open interest data money controlFigure 1: Open Interest data (Moneycontrol.com)

Now, if we look at the snapshot above (Fig 1), it is the data showing the shares with the highest change in the open interest for the day. With the change in the open interest, the share price has also gone up and which is usually an indication that the buying momentum is expected to continue in these ten shares.

— Open Interest and Volume interpretation

From the discussion above it is clear that OI tells us information about the contract which are open and live in the market. But, the volume gives us information about the number of trades executed in the market.

The volume data is reset at the end of the day and the new counter starts at the beginning of the next day, but the data of the OI is a continuation from the previous day. 10 lots bought and 10 lots amount to 10 volume and 10 OI for the day.

— Interpreting Open Interest

PriceOpen Interest (OI)Expectation from market
IncreaseIncreaseThe buying momentum is most likely expected to continue
DecreaseDecreaseLong unwinding can be seen i.e., buyers are exiting from the market
IncreaseDecreaseShort covering can be seen in the market.
DecreaseIncreaseWe could be a reversal in buying momentum as we can see more shorts than longs in the Market.

Conclusion

In this article, we tried to simplify the concept of open interest in share market and what it interprets. Here are a few of the top takeaways from this post:

  • Open interest gives you information about the total number of contracts which are outstanding in the market.
  • It is an excellent indicator to understand the market sentiment and expected momentum in the market.
  • When the contract switches hands, it’s just a transfer of positions and Open interest does not change.
  • The data of volume refreshes every day but Open Interest is a continuous data.

That’s all for this post. I hope it was useful for you. If you still have any queries related to open interest in the share market, please comment below. I’ll be glad to help you out. Happy trading.

September 2, 2020 Technical Analysis, Trading No comments yet
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