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What is Short Selling in Stock Market cover

Short Selling Explained – What is Short Selling in Stock Market?

Understand What is Short Selling & Its Implications: The terminology ‘Short Selling’ is frequently used in the capital market. It has also been a lot more talked-about on news in recent days because of the SEBI vs Mukesh Ambani Case. SEBI has imposed a penalty of Rs 25 Cr on Reliance Industries and Rs 15 Cr on Mukesh Ambani for manipulating the settlement price of Reliance Petroleum Ltd on 29th November 2007, by shorting nearly 2.7 crore shares, 10 minutes before the closing of the day. This led to a sharp decline in the share price of RPL and investors losing money in the market.

In this article, we are going to discuss exactly what is Short Selling, how market participants make money by short selling, its pros, cons, and more. Let’s get started.

What is Short Selling?

As the name might suggest, Short Selling must have got to do something with the selling of underlying security. In the stock market parlance, short selling would simply mean the selling of shares of the company before buying them i.e. selling shares of the company without having their ownership. Retail and Institutional investors are permitted to short sell.

In other words, the investors or traders are selling equity shares that are not owned by them (i.e. not available in demat account) lent by their brokers with a promise that they will be delivered back to the broker at the time of settlement.

As traders are selling before buying, the short selling concept is entirely opposite of regular investing (where we first buy and sell). And hence, Short sellers make money when they buy back the stock at a lower price. The difference in the selling price and the buying price is the profit for the short-sellers.

Short Selling Explained

Let us try and understand the concept of short selling with the help of a case-based scenario. Say, Mr. X is a regular trader in the market and he has got a bearish (pessimistic) stance on the share price of State Bank of India (SBI), and his view is supported by the following factors:

There is a bearish candle formation in the market (say, Bearish Marubuzo).
The high of the previous day is intact and the market is trading below it.
There is a significant increase in the selling activity in the market as compared to previous days.
And there are other news-driven factors that could have a negative impact on the share price of SBI.

Owing to the reasons mentioned above, Mr. X believes that the price of SBI may fall. He is expecting the immediate support levels to be tested in the market (4% below the current price levels). Therefore, to take advantage of this expected bearishness in the market, Mr. X decides to short the shares of SBI. Let us understand this trade:

Share or Stock	State Bank of India
Type of trade	Shorting or Short Selling
Duration	Intraday
Shorting price	Rs. 300
Quantity of Shares	500
Profit Target (4%)	Rs. 288
Stop Loss	Rs. 305
Total Risk in the trade (500*5)	Rs. 2500
Total Reward in the Trade (500*12)	Rs. 6000
Risk – Reward Ratio (2500:6000)	5:12

If the share price of SBI falls in accordance with the views of Mr. X, then he stands to make a gain of Rs. 6,000 on his trade. On the other hand, if the market goes against his views, he loses Rs. 2500 on his trade.

Why do Traders Short Sell in the Market?

Here are a few of the key reasons for traders to Short sell stocks in the market:

— To Speculate: This is one of the primary reasons why does one takes a short position in the market. If one is of the view that the strength in the market is about the fizzle out and we could see some correction or weakness in the market, they will short sell.

— To Hedge: Hedging as a strategy is of prominence in the capital market. If one is having a bullish view on the market over the long term but is expecting a small correction in the market on its way up, they might short sell. Here, traders short sell to play that short-term weakness in the market, one takes a short position in the market.

— To improve the entry point: This is one interesting rationale behind short selling used by experienced traders. Say, if Mr. A is willing to buy 1,000 shares of ICICI bank at Rs. 250. The current share price of ICICI Bank is Rs. 270. Now, he ends up buying the shares of ICICI Bank at Rs. 270 each. Now to improve the entry point for shares of ICICI Bank, Mr. A shorts (sells) the shares of ICICI bank whenever he sees weakness in the market and books a small amount of profit and improves the entry point of the initial purchase of ICIC bank shares.

ALSO READ

How to do Intraday Trading for Beginners In India?

Rules Regarding Short-Selling in Stocks

Shorting in the cash market comes with its own set of rules and regulations. It has to be strictly done on an intraday basis i.e. the position cannot be carried over to the next day. Therefore, whenever we sell before buying in the spot market, the position has to be bought back before the end of the day.

The short position cannot be carried over to the next day. Nevertheless, position carrying is permitted in the F&O market and to facilitate this, the exchange already keep margins in the Demat or trading account to account for Mark to Market (M2M) losses.

Advantages of Short Selling

Despite being a subject of controversy, short selling is a very important phenomenon to maintain balance in the capital market. The following are some of the advantages of short selling:

Short selling helps in correcting the irrational overpricing of the stocks
It provides liquidity in the capital market.
Short selling prevents the sudden rise in the price of the stocks which are fundamentally weak/

Drawbacks of short selling

Here are a few major drawbacks of short selling in the stock market

Short sellers might be exposed to higher risks compared to regular buying and selling.
Manipulators often use Short selling as a method to hurt the price of certain stocks which has a direct bearing on the market sentiment.
It can sometimes also be used to benefit the counter position taken in the F&O market.

Closing Thoughts

In this article, we discussed what is Short selling along with its advantages and disadvantages. Short selling simply means selling shares of the company that one does not own. By doing so one is exposed to higher risks in the market but it has the potential of earning high returns. In recent COVID-19 pandemic times, the ability and the understanding of the concept of short selling went a long way in earning handsome returns for the traders and investors.

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

Hitesh Singhi

Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!

www.linkedin.com/in/hitesh-singhi-46564a11/

April 7, 2021 Hitesh Singhi Market No comments yet

SGX Nifty Explained – How it affects Indian Share Market?

Understanding SXG Nifty meaning & its impact on Indian share market: If you are an active stock market trader in India, I’m sure that you would have definitely have heard of the term ‘SGX Nifty’. If you open any business news channel, then before the opening of the Indian equity market, all you will see is an hour-long discussion on the SGX Nifty and its implications on the opening of the Nifty for that day.

The importance of understanding this terminology can be seen from the fact that it is one of the most popular hashtags followed or searched over different social media platforms like Twitter, if one wants to have a better picture of the Indian Equity market. In this post, we are going to discuss what exactly is SGX nifty and how it affects Indian share market.

What is SGX Nifty?

The word SGX is an acronym for the Singapore Stock Exchange. Further, Nifty is the benchmark index of the National Stock Exchange (NSE) of India and it is comprised of the top 50 companies listed on NSE. Overall, if we were to add these two constituents, we can say that SGX Nifty is the Indian Nifty trading on the Singapore Stock Exchange. It is an actively traded futures contract on Singapore Exchange.

(Source: Sgx.com)

Who is allowed to trade SGX Nifty?

Any investor who is interested in trading Nifty, but is not able to access Indian Markets, finds trading SGX Nifty a very good alternative to trade. Even the big hedge funds who have big exposure in the Indian market find SGX Nifty as a good alternative to hedge their positions.

Further, an Indian citizen is not allowed to trade SGX Nifty contracts. For that matter, Indian citizens are not allowed to trade derivatives in any other country.

Difference between Nifty and SGX Nifty?

1. SGX nifty is Nifty futures contract trading in Singapore Stock Exchange and in India, Nifty contract trades on NSE.

2. The contract size of SGX Nifty is different compared to Nifty. In India, we have 75 shares in every Nifty contract Lot whereas the SGX nifty does not have a contract with shares in it. SGX Nifty is denominated in terms of US dollars. Say, if Nifty is trading at 9500, then the contract size of SGX Nifty will be 9500*(2 USD) i.e., 19000 USD.

For example, if the Nifty moves up by 100 points for the day, then make a profit of 100 rupees per share. Therefore, total profit in case of Nifty will be 100*75 = Rs 7,500. But in the case of SGX Nifty, we will be making a profit of 100*2 = 200 USD per contract.

3. Now, In India, in the case of Nifty, we see Open Interest as the ‘number of shares’ outstanding. But in the case of SGX Nifty the Open Interest shows the ‘number of contracts’ outstanding. Both Nifty and SGX Nifty are highly liquid and a very high volume of trading happens in that.

Also read: What is India VIX? Meaning, Range, Implications & More!

Trading Hours of SGX Nifty

(Source: SGX Nifty)

The above figure is the value of SGX Nifty from the website on the Singapore Stock Exchange. It shows the value of SGX Nifty futures traded on SGX. In Singapore Nifty trades in two tranches. One part during the day time and it is denoted by ‘T’ (as seen in the picture above). The other half during the evening time and it is denoted by ‘T+1’. The trades happening in the evening will be considered in the next day settlement prices.

(Source: SGX Nifty)

Now, the above picture gives you details about the trading hours of SGX Nifty. The Trading hours mentioned here are Singapore time and the difference between Indian Standard Time and Singapore time is 2 hr 30 minutes. Therefore, we can see that in the Morning (T) session, it trades from 9 am to 6:10 pm Singapore Standard time.

So, in Indian Standard time, the trading happens at SG Nifty from 6:30 AM to 3:40 PM. And the Evening (T+1) session, it trades from 6:40 pm to 5:15 am Singapore Standard Time, which if converted to Indian Standard time will have timings of 4.10 pm to 2:45 am.

Contract Settlements in SGX Nifty

SGX Nifty has two serial monthly contracts and it has Quarterly contracts. The contract expires on the last Thursday of Every expiring month and if the last Thursday is an Indian holiday, then it expires the preceding business day. The SGX Nifty contracts are cash-settled and the final settlement price is derived from the official closing of S&P CNX Nifty.

How SGX Nifty Impacts Indian Equity Market?

Looking at the current global scenario, with the continuous onslaught of COVID-19 pandemic or the rising tensions between US-China over trade deal, we see a continuous inflow of information and news. And these inflow of information has a direct impact on the Global Financial markets.

SGX Nifty still trading way after the closure of the Indian Nifty market, we see an impact of these global news on the SGX Nifty price movement. This further directly impacts the opening pricing of Nifty, the very next day. And that is one of the reasons we see the Indian Nifty market opening at a premium or discount over the previous day’s close.

Note: Many analysts use SGX Nifty as one of the factors to predict whether the Indian stock market will open higher or lower on a trading session.

Closing Thoughts

In this post, we explained what is SGX Nifty and its impact on Indian share market. The SGX Nifty is a perfect substitute for investors and traders looking to trade in the Indian equity market but are not able to do so. It is a perfect hedging instrument if you are already exposed to the Indian equity market.

One unique advantage that SGX Nifty has longer trading hours compared to the Indian Equity market. And all these points make it a lucrative investment and trading avenue.

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

March 19, 2021 Hitesh Singhi Market, Options Trading, Trading 23 comments

What is India VIX? Meaning, Range, Implications & More!

Understanding what is India Vix, its meaning & importance: Ever heard of India Vix? If you’re involved in the market for some time and particularly active in the share market during the COVID19 Pandemic, then I’m sure that you would definitely have come up with this term “India Vix” at least a couple of times mentioned on different financial news channels and websites.

In this post, we are going to discuss, what exactly is India Vix, its meaning, and how exactly it is important for the traders and investors to understand this term. Let’s get started.

What is India Vix?

India VIX is a short form for India Volatility Index. It is the volatility index that measures the market’s expectation of volatility over the near term. In other words, it explains the volatility that the traders expect over the next 30 days in the Nifty50 Index.

The India VIX value is derived by using the Black & Scholes (B&S) Model. The B&S Model uses five important variables like strike price, the market price of the stock, time to expiry, the risk-free rate, and volatility. India VIX was introduced by NSE in the year 2008, but the concept of VIX is quite old and is a trademark of CBOE (Chicago Board Options Exchange).

One simple way of understanding India VIX is that it is the expected annual change in the NIFTY50 index over a period of 30 days. For example, if the India VIX is currently at 11, this simply means that the traders expect 11% volatility for the next 30 days.

Further, for example, if the current index is trading at 9,000 and India VIX trading at 20. Then, expected volatility over next year over 30 days will be:

Index spot: 9,000
India Vix: 20
The expected downside for the year = 9000 – 20% of 9000 = 7200
The expected upside for the year = 9000+ 20% of 9000 = 10,800

Here, the expected range for the year is between (7,200 and 10, 800) for that index.

Quick Note: Before moving further, let me mention that one should not confuse India VIX with Market Index. Market Index gives information about the direction of the market. However, on the other hand VIX measures the volatility of the market.

Why is India VIX so important?

All the major directional moves in the market are usually preceded by a lot of choppiness or a lot of range play in the market. India VIX plays a very major role in understanding the confidence or fear factor amongst traders.

A lower VIX level usually implies that the market is confident about the movement and is expecting lower volatility and a stable range.
A higher VIX level usually signals high volatility and lower trader confidence about the current range of the market. A major directional move can be expected in the market and a quick broadening of range can be expected.

For example, during the sub-prime crisis, India VIX was trading at 55-60 (high of 90) levels and the market was in a state of panic and indecisiveness and hence the moves were erratic and hostile. Volatility and India VIX have a positive correlation. High volatility indicated high India VIX and vice-versa.

Similarly before COVID-19. India VIX had stayed below 30 (Since 2014). But since the epidemic disease broke out, the VIX has crossed the 30 level and is trading near 50 levels (trading above 80 for few days) and we have seen the Indian equity Index losing nearly 40 percent of its value and is trading near 8000 levels.

Overall, India VIX plays a major role in understanding the sentiment of the market.

But be aware of the fact, India VIX does not give any indication of the directional move in the market, it simply indicates the volatility in the market. So, anyone with a huge investment in Equities should keep a close eye on the movement of India VIX coz a similar movement in the shares of his portfolio cannot be ruled out.

Is there an ideal range for India VIX?

Theoretically speaking, VIX ranges between 15-35. But there have been outliers case of as low as 8 (very tight range) and as high as 90 (extreme volatility). If VIX moves close to Zero, then theoretically either the index can double or come to 0. However, usually, VIX has a tendency to revert back to mean.

(Source: Tradingview)

The figure above is the India Vix chart for the last 10 years. During the break of the global crisis of COVID-19 (March-April 2020), the global markets have faced a lot of heat and extreme volatility, and all the major global indices have lost nearly 35% from their recent highs and Indian equity market was no exception. With this level of volatility, India VIX had climbed up to all-time high levels of 90 for those couple of days.

Later, it seemed to stabilize after June-July 2020. For stability to return, the global factors will have to improve and the India Vix level should ideally come around 20 levels. The Current VIX level is 22 (March 2021) and the market seems to be stabilizing for now. But for the long-term stability of the market, sub 20 levels of VIX is desired.

What do these extreme Vix levels mean for Options Writers?

India VIX also plays a very major role in the pricing of Options. A higher India Vix levels usually signal more volatile prices for options and a stable range would mean that the options are priced reasonably cheaper.

Simply put, high VIX levels expose option writers to unlimited risk with limited rewards (Premium). A deep in out of money Put/Call option can become at the money or even In the money option in a matter of a couple of trading sessions.

ALSO READ:

Options Trading 101: The Big Cat of Trading World

For Example, the stock price of XYZ shares is Rs. 300, and a trader has sold 280 put option contract (2,000 shares) for a premium of Rs. 10 and the contract has still 7 days to expiry. So, with current volatility, the share price can come to Rs. 240 in 2 trading sessions. So the loss for option writer with still 5 days to expiry will be:

Strike price: Rs. 280
Spot price: Rs. 240
Premium Earned: Rs. 10

Here, the loss for option writer: Rs. (240+10-280) i.e., Rs. 30 loss per lot, which is a loss of Rs. 60,000 (2000*30) per lot. Therefore, ideally, the option writer should avoid writing contacts and even if they do, the premium charged should also be higher.

Summary

To summarize, India Vix is the volatility index that measures the market’s expectation of volatility over the near term. It can be said that India Vix is a silent yet very effective indicator to gauge the range play for Index, which in turn gives us a clear view of the expected movement of the share price.

Historically, large Vix levels have always been followed by a large movement in the indexes and share prices. Even the option pricing, the premiums charged also increase or decrease because of the Vix level changes.

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

March 15, 2021 Hitesh Singhi Options Trading, Technical Analysis, Trading 9 comments

How to Start FUTURES TRADING in India - How to Trade Futures in India cover

How to Trade Futures in India? A Step-by-Step Guide (Basics)!

A Beginner’s Guide on How to Trade Futures in India: Essentially, trading is nothing but an art to be able to foresee the future. There is joy (of profits) if we can foresee it right, and a sense of grief (losses) if our views and conviction go wrong. In simple terms, a trader is an individual or entity who buys or sells financial instruments like shares, bonds, derivatives, etc intending to make profits or to hedge the existing position.

In this post, we are going to discuss how to trade futures in India. However, before we dwell deeper into the world of futures trading, let us try and understand the mechanism of the Cash market and Forwards market, which builds the basic foundation of futures trading. Here, we try and draw their relevance to the futures market. Then, we’ll dig into the main topic of this article on the basics of how to trade futures in India. Let’s get started.

What is the cash market?

The cash market is an equity market where the buying and selling of the shares of the company listed on the exchange takes place. While trading via the cash market, the buyer of the shares of the company is essentially the part-owner of the company. He/she takes delivery of the shares of the company when they buy it from the cash market. These are regulated by exchanges.

Anyways, here, we can only buy that number of shares that our margin/capital in the trading account allows. There is no concept of leverage while trading via the cash market. The most import aspects of the cash market are delivery of the shares, ownership of the company, and no leverage allowed for delivery of the shares.

What are Forwards Market?

The concept of the forward market essentially came into the picture to protect the interest of farmers. Under this method, the agricultural produce of the farmers was pre-booked at a specified price to be delivered for a specified quantity and on a fixed date in the future.

Therefore, the forwards market is essentially a contract between two parties to buy the underlying asset at a specified price, in the specified quantity, and at a fixed price in the future. These instruments have lost their popularity because of certain glaring limitations, but are still used by banks and other financial institutions.

Some of the limitations of the Forward contracts include:

There is no third party (exchange or legal body) governing the forward contracts. So legality becomes a drawback while trading forward contracts.
Lack of liquidity is another major limitation that is plaguing the forward contracts. It can sometimes become difficult to find a counterparty willing to take opposite positions.

What are Futures Market?

The futures market are financial derivatives that derive their value from the underlying asset. The underlying asset here could be Shares, bonds, commodities, etc.

The futures market are a standardized contract that has a certain fixed quantity of shares (in the case of the equity market) per lot and they have a fixed expiry (three different expiry contracts run simultaneously) period. They are just like buying shares in the equity market but with a fundamental difference that in the case of futures contracts there is no delivery of the shares.

Another major difference between them is the leverage that one receives while trading futures contracts. In the case of the cash market, the leverage is to the tune of the amount of margin the trading account. But while trading futures, the amount of margin required varies between 20-60% of the total contract value in the case of shares and about 10-12% of the total contract value while trading index futures. So financial leverage becomes a major consideration for a futures trader.

In addition, one major advantage of trading via futures contracts is that these contracts are regulated via exchange (SEBI in India) and legality is never a factor with futures contracts. And the futures contracts are very liquid by nature i.e., it is very easy to find a counterparty willing to take opposite positions.

Now, having understood the basic premise of futures trading, let us try and understand how are futures contracts traded in India.

How to Trade Futures in India?

Futures trading in India is mainly in two forms – Stock futures and Index futures. All the futures contracts in India have three contracts running simultaneously – the near month, middle month, and the far month.

Whenever the near month expires, a new far month contract is added. The monthly contracts expire on the last working Thursday of the month. And if the last working Thursday is a holiday, then it expires the preceding day.

— Stock Futures

Stock futures are a financial derivative instrument that derives their value from the value of the underlying asset (shares of the company). The contracts have a specific size, fixed price, and specified date. Once the contract is entered, it will have to be honored. Following are some of the characteristics of Stock futures:

The size of the contract: All the stocks trading in the futures market, have a different number of shares in each lot. Partial lot trading is not permitted. A minimum of one lot has to be traded. For example, one lot of futures contract of Reliance industries has 250 shares, one lot of Maruti has 100 shares, one lot of ICICI bank has 1375 shares etc.
Expiry: All the stock futures contract has pre-decided fixed maturity. They expire on the last trading Thursday of the month. And if the last Thursday is a holiday, then they expire on the previous trading day. The stocks have three expiring contracts – near month (1-month), middle month (2-month), and far month (3-month).
Margin: The margin required to trade stock futures contract is very high to cover for Mark to Market (M2M) losses. This is basically done to protect the interest brokers and the exchange. And with the prevalence of margin, while trading futures in India, there is no chance of default in trading via futures contracts. Margin has two components – Exposure margin and SPAN margin. SPAN Margin is the minimum requisite margins required as per the exchange’s mandate and ‘Exposure Margin’ is the margin required over and above the SPAN to account for any MTM losses

— Index Futures

An index is a representation of the broader sector of the economy. In India, there are two major index which are actively traded in the futures market – Nifty Index and Bank Nifty Index. On Jan 12, 2021, SEBI also allowed trading of Nifty Financial services in the derivatives segment.

If one were to express their view on the economy then one should express their view views by trading Index futures as it shows the overall sentiment of the market. Trading Nifty futures would mean that one is expressing his views on the overall economy as Nifty 50 is a composition of the top 50 companies listed on NSE.

ALSO READ

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

A few KEY Factsheets for Index Futures

— Nifty Futures Trading

Underlying Asset: Nifty 50 Index
Total Stocks in the Nifty 50 Index: 50
Total Active Contracts anytime : 3 (Near Month, Mid Month, Far Month)
Shares in 1 futures lot: 75
Expiry: Last Thursday of Every Month (Previous day if Thursday is a holiday)

For example, if the present value of one lot of Nifty futures for near month expiry is 14476, then the total value of the contract will be – Contract value = 14476 * 75 = Rs. 10,85,700

The margin required will be equal to:

— Bank Nifty Futures Trading

Underlying Asset: Bank Nifty
Total Stocks in the Bank Nifty Index: 12
Total Active Contracts anytime : 3 (Near Month, Mid Month, Far Month)
Shares in 1 futures lot: 25
Expiry: Last Thursday of Every Month (Previous day if Thursday is a holiday)

For example, if the present value of one lot of Bank Nifty futures for near month expiry is 331628.05, then the total value of the contract will be – Contract value = 31628.05 * 25 = Rs. 790701.25

Here, the margin required will be equal to:

— Nifty Financial Services Future Trading

Underlying Asset: Nifty Financial Services
Total Stocks in the Nifty Financial Services Index: 20
Total Active Contracts anytime: 4
Shares in 1 futures lot: 40
Expiry: Last Thursday of Every Month (Previous day if Thursday is a holiday)

For example, if the present value of one lot of Bank Nifty futures for near month expiry is 15308.30, then the total value of the contract will be – Contract value = 15308.30*40 = Rs. 612332

Here, the Margin required will be equal to:

How are Futures contracts Priced?

Futures contract derive their value from the value of the underlying assets. There is always a variation/difference in the prices of the cash segment and derivatives segment. There are basically two methods of pricing the futures contract: The Cost of Carry Method & The Expectancy Method.

— The Cost Of Carry Model

Under this method, the market is assumed to be perfectly efficient. So, the profit made by trading the cash segment or futures segment is the same, as the movement in the prices are aligned. Following is the process of calculating the prices under the Cost of Carry model

Futures Price = Cash Price + Cost of Carry

The cost of carry here refers to the cost of holding the futures contract till maturity.

— The Expectancy Method

Under this method, the futures prices are the expected cash price of the underlying asset in the Future. So, if the market is positive/conducive for the underlying asset, then the futures price will be higher than the cash price. If the market has a weak sentiment towards the underlying asset, then the futures price will be lower than the underlying asset.

Quick Note: If you want to learn more about futures trading, we have launched a FREE Futures Trading Course for Beginners on Trade Brains Academy. Enroll for FREE here.

Why Trade Futures?

The following are some of the benefits of futures trading:

The contracts are well regulated: As the futures market are well regulated, there is no risk of legality and all the contracts are settled at the time of expiry
Leverage: Leverage is perhaps one of the most important reasons for which futures trading is one of the most popular derivative instruments.
Highly liquid: Liquidity is never a factor while trading via futures as there are hordes of players who are willing to trade futures or hedge their existing position in the market.

Closing Thoughts

In this article, we discussed How to Trade Futures in India for beginners. Here are a few key takeaways from this post:

Futures contract derive their value from the value of the underlying assets.
Because of the low margin requirement, futures trading is very popular amongst traders
The futures contract are exchange regulated, there is never the question of trust amongst the traders
One can exit their existing futures contract position anytime from the market by taking an opposite position in the futures market.
The Index futures are cash-settled
There are two methods of calculating the futures contract value – The cost of carry method or the Expectancy method

That’s all for today’s article on How to Trade Futures in India. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

February 11, 2021 Hitesh Singhi Market, Technical Analysis 1 comment

Option Trading Strategies For Beginners

A Beginners Guide to Basics Option Trading Strategies For Beginners: Imagine having the power to own something at a price you want and not worry about the future uncertainties. Options trading gives you this power. Before dwelling deeper into the Ocean of Option trading strategies, let us have a quick snapshot of the concept of Options and its types.

Basics of Options Trading

“Options can be defined as a derivative instrument whose value is derived from the value of some other underlying Asset or Security. Options give the Buyer the right to buy or sell the underlying asset, and the seller is obligated to bind/honor the contract.” And as mentioned above, there are two types of options – Call Options (right to buy) and Put Options (right to sell)

A call option gives the right to option buyer to buy the underlying security at a pre-decided price. The buyer of the option is expecting the price to increase in the future.
A put option gives the right to option buyer to sell the underlying security at a pre-decided price. The buyer of the option is expecting the price to decrease in future

Before understanding the options strategies, let us understand the concept of Moneyness of an option.

Moneyness of an Option

The Moneyness of an option simply means the amount of money the option contract would make if they were to be exercised today. Moneyness of options are of three types-

In the Money – An In the Money Option contract is one, which would make money if they were to be exercised today.
At the Money – An At the Money Option contract is one, whose strike price is the closest to the current/spot price.
Out of Money – An Out of Money Option contract is one, which would be worth nothing if they were to be exercised today.

Say, the spot price of Nifty is 10540, then the strike price of Call option 10400 would be called as In the money, the strike price of 10550 would be At the money and the strike price of 10650 would be an Out of Money Option.

Option Trading Strategies

Having understood the basics of options and various types of Options, let us try and understand some of the most basic and commonly used option trading strategies.

Basic Premise used while explaining these option strategies

We will be discussing strategies which work in both bullish and bearish markets
The strategies discussed here will have a minimum of two option position running simultaneously
The underlying asset which will be consistently used while discussing this strategy will be the Nifty Index
The strategies mentioned here does not guarantee to make money, nothing in the market guarantees to make money.

Option Trading Strategies – Bull Call Strategy:

Hypothesis while using this strategy:

Bull Call Spread is a two-legged strategy i.e., it has two option positions running simultaneously.
This strategy is used when one has a bullish view on the market.
The simple assumption while executing this strategy is that there will be an upside catalyst in the Underlying Asset and one is expecting strength in it, in near future. So, the overall sentiment is bullish in the market

Scenarios under which this strategy is used:

The Fundamental perspective – Say, if we are positive about the government announcing certain stimulus to boost the economy in these uncertain times of COVID-19 pandemic, but the previous announcements have not bought too much joy out of the market. So, any announcement made will be positive, but the uncertainty lingers in the market regarding the quantum of the impact of these announcements on the market
The Technical Perspective – Say, the market has been bearish and the weakness is expected to continue. But the market is coming near the technical supports of moving averages and is also nearing the all-time lows. So a relief rally is expected but again the extent of the up move is uncertain. So employing this strategy would make sense.
Quantitative Perspective – Say, if the stock price was trading at a certain range but due to some reason the market showed weakness and broke the range lows. But it is not making any fundamental and technical sense to break the range lows. So to play the pullback within the range again, this strategy can be employed and used.

Implementing Bull Call Spread:

So to implement this strategy, one has to buy One At the Money call option and sell/write one Out of money call option:

i.e., Buy One ATM call option and Sell One OTM call option.

The following are the assumptions under this strategy:

All the strikes belong to the same underlying
Both the options have the same expiry
And both the legs have the same number of contracts

Let us understand it with the help of an Example:

Say, the Spot price of Nifty is 9310

An At The Money call option bought = 9300 CE, Premium paid =75 units
An Out of Money call option sold = 9400 CE. Premium received = 20 units
So the net transfer of option units = 20-75 = -55 units.
So, in general, at the initiation of this trade, the P/L always shows negative as one has to buy ITM option and sell OTM option

Now, let us understand the impact on the P/L at various levels of expiry:

Say, if the Nifty expires at 9200, then –

So, the Net Payoff using this strategy is -55 units (-75+20)

Say, if the Nifty expires at 9300, then –

So, the Net Payoff using this strategy is -55 units (-75+20)

Say, if the Nifty expires at 9400, then –

So, the Net Payoff using this strategy is 45units (25+20)

Say, if the Market expires at 9500, then –

Graphical Representation of payoff:

Breakeven Point for this Strategy:

The Breakeven Point (BEP) for this strategy is the point when the spot price equals the summation of At the money strike price and the maximum loss (Net debit) in this strategy

i.e., BEP = Strike price of ATM + Maximum loss = 9300 + 55 = 9355. So, when the spot price reaches 9355, this strategy reaches its breakeven point.

Option Trading Strategies – Bear Put Strategy:

Hypothesis while using this strategy:

Bear Put Spread is a two-legged strategy i.e., it has two Put positions running simultaneously
This strategy is used when one has a moderately bearish view of the market
The simple assumption while executing this strategy is, there is negativity expected in the market, and selling in the market is due

Implementation of Bear Put Strategy:

To implement this strategy:

We have to buy One In the Money Put Option
Sell One Out of Money Put Option

Both the Options should have the same expiry date and same underlying Asset

The choice of option strikes depends on the aggressiveness of the trader.

Let us understand it with the help of an example:

Say the Nifty spot is trading at 10050 today.
So, any In the Money (ITM) Put Option will be 10200 PE.
And, an out of Money (OTM) Put Option will be 10000 PE.
The premium for 10200 PE is 180 units
The premium for 10000 PE is 60 units
So, this is a ‘Net Debit’ strategy
So, the P/L at the beginning of this strategy is -120 units(60-180)

Say, if the Nifty expires at 10400, then –

So, the total P/L (net payoff) in this case is -120 units (-180+60)

Say, if the Nifty expires at 10300, then –

So, the total P/L (net payoff) in this case is -120 units (-180+60)

Say, if the Nifty expires at 10080, then –

So, the total P/L (net payoff) in this case is 0 units (-60+60). This is also the BEP for this strategy

Say, if the Nifty expires at 10000, then –

So, the total P/L (net payoff) in this case is 80units (20+60)

Say, if the Nifty expires at 9800, then –

So, the total P/L (net payoff) in this case is 80units (220-140)

Graphical Representation of Payoff-

To Conclude the Option Trading Strategies…..

Options trading strategy is one of the most effective ways of hedging and having consistent return without taking too much risk
A Bull Call Strategy is best suited when one has a moderately bullish view on the market
A Bear Put Strategy is best suited when one has a moderately bearish view of the market
The two strategies are best suited if you are a risk-averse trader and don’t mind having a cap on the profit potential

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

February 5, 2021 Hitesh Singhi Market, Options Trading No comments yet

Union Budget 2021 Overview – A Budget for Everyone?

A Brief Union Budget 2021 Overview: The Budget 2021 can be widely considered as one of the most difficult times in Humankind (owing to COVID 19). While presenting her third budget (by far the most challenging), Honourable Finance minister, Nirmala Sitharaman has delivered a budget, that is expected to lay the groundwork for Indian growth and development for years to come.

The FM budget speech this year was economical in terms of time spent. A shade under an hour and 50 minutes as compared to 2 hr and 40 minutes last year. In her speech, Honourable FM laid mentioned the budget which is built on the following six pillars:

Health and well-being
Physical and financial capital and infrastructure
Inclusive development for aspirational India,
Reinvigorating human capital
Innovation and R&D
Minimum government-maximum governance

The primary focus of this budget was to create jobs primarily through big infrastructure announcements. Now, let us give you a brief Union Budget 2021 Overview.

Budget 2021 Overview – Major Budgetary Announcements

Here are some of the key announcements in this budget included:

Since the last budget, the nominal GDP has reduced to Rs. 1.94 from 2.24 lakh crore. This is owing to the increase in expenditure to handle the situation of Pandemic, COVID-19
For the first time ever, the budget went paperless and it was presented on Made In India tablet.
The total COVID support measures amounted to nearly 13% of the GDP and total COVID-19 support measures by the government and RBI amount to Rs 27.1 lakh crore
The PM Atmanirbhar Swasth Bharat Yojana is projected to outlay Rs 64,180 crores over the next six years. The aim of this scheme is to develop the overall healthcare system and develop institutions for the detection and cure of new and emerging diseases
The Jal Jeevan Mission Urban to be launched and it has an outlay of Rs. 2.87 lakh crores. The aim of this scheme is to provide Universal water supply, 2.86 crores household tap connections and liquid waste management 500 AMRUT cities
A grant of Rs. 35000 crores have been provided for COVID vaccines for the year 2021-22. And if required then the government is committed to spending more.
For Railways, a total amount of Rs. 1,10,055 crores have been committed. And this money will be used for overall railway infrastructure development and for 100% electrification of railway broad gauge by 2023
The government to allot Rs 1.03 lakh crore for National Highway Projects in Tamil Nadu. Rs 65,000 core for National Highway Projects in Kerala; Rs 25,000 crore for National Highway Projects in West Bengal. The government will also allot additional Rs 34,000 crore for National Highway Projects in Assam.
The FM also proposed to divest two PSU banks and one general insurance company in FY22. Further, divestments of BPCL, CONCOR, Pawan Hans, and Air India will be completed in FY22. FY22 Divestment target is at Rs 1.75 lakh crore.
The Government also aims at doubling the ship recycling capacity by 2024. More seven port projects worth more than Rs. 20,000 crores to be undertaken in FY 2022 via PPP
Social security benefits to be extended to gig and platform workers. Women to be allowed to work in all categories in night shift also
The ‘1 Nation 1 Ration Card’ plan is under implementation by 32 States & UTs. The Centre will launch a portal to collect data on migrant workers.
Senior citizens to be benefitted. The ones who are having income sources as Interest and Pension income are exempted. The age limit is for citizens above 75 years. Further, the timeline for re-opening of tax returns has been reduced to three years from six years.
To reduce hassle for small taxpayers a dispute resolution committee has been proposed. This will be faceless to ensure efficiency and transparency. Anyone with a taxable income up to Rs 50 Lakhs & disputed income up to Rs 10 Lakhs are eligible to approach the committee.
Custom duties are aimed at promoting domestic manufacturing and to promote that following steps have been taken: 1)Cutting duty on Copper scrap to 2.5 %, 2) Plan on bringing nylon at par with polyester with respect to taxation, 3)Duty on Naphtha reduced to 2.5%, 4)The plan is to rationalize custom duties on Gold and Silver
The power distribution companies across the country are monopolistic and a need to provide choice to the consumers. A framework will be put in place to give consumers alternatives to choose from among more than one distribution company.

Budget 2021 Overview: Major Reactions on the Budget

According to PM Narendra Modi, Budget Will Give Major Boost To Agriculture, Create Employment

Congress leader Anand Sharma said that the “nation needed a bold budget and more direct transfers to the weaker sections to revive demand, restart job creation.”

Union Defence Minister Rajnath Singh hailed Budget 2021 as the budget for an AtmaNirbhar Bharat that will strengthen the economy.

According to Tapati Ghose, Partner, Deloitte India, The budget speech had an undertone of the Government’s focus on ease of doing business in India. Towards the FM reiterated that tax systems to be transparent, efficient and promote investments in our country. The tax rates, surcharge, cess etc. have been left untouched. Even the much-debated Covid Cess was not brought out. This brings stability and certainty to the tax framework. Definitely a positive move.

According to Adar Poonawala, CEO, Serum Institute of India, “Great Budget 2021 announcements, Nirmala Sitharaman ji, especially on healthcare and vaccines; this is the best investment any country can make. A healthier India is a more productive India

According to Harsh Goenka, Chairman of RPG group, “Cong-anti poor,anti-farmer, unimaginative. BJP-innovative,pro-farmer, help all sections of society CII, FICCI-will kickstart economy, encourage investment

Some TV channels-wasted opportunity, will increase inflation Businessmen-pathbreaking, 10/10”

According to T. V. Mohandas Pai, Padma Shri Awardee and current Chairman of Manipal Global Education, “A growth-oriented,citizen-focused,job-creating budget Truly transformational @narendramodi @nsitharaman @PMOIndia @FinMinIndia @PiyushGoyal Sir starts up have been missed! pl reduce capital gains in startups to 10% from 28%“

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

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

February 1, 2021 Hitesh Singhi Market No comments yet

SEBI vs Mukesh Ambani Case – Reliance Manipulative Trading Penalty!

What’s the SEBI vs Mukesh Ambani Case: SEBI, the regulator of capital markets in India has imposed a penalty of 25 crores on Reliance Industries and 15 crores on Mukesh Ambani for manipulating the settlement price of Reliance Petroleum Ltd (RPL) on 29th November 2007 (expiry day of the monthly futures contract). SEBI is of the view that Reliance Industries violated the trading rules and manipulated the share price of RPL and which in turn led to investors losing money in the market.

Anyways, before we get deeper into this case, let us first try and understand a few trading terminologies that will be used during the course of discussion in this article.

— Short Selling: As the name suggests, it simply means to sell the shares of the company before owning them. This is done with the intention of either lowering the price of the shares or gaining from the anticipated weakness in the share price of the company.

— Futures: A futures contract is a legal agreement to buy or sell a particular underlying asset, or security at a pre-determined price, at a specified time in the future. The buyer of the futures contract is obligated to buy and receive the underlying asset when the futures contract expires. And the seller of the futures contract is obligated to sell and deliver the underlying asset upon expiry.

What is the SEBI vs Mukesh Ambani Case?

The SEBI’s probe, in this case, is related to the trading of the scrip Reliance Petroleum Limited (RPL), which merged with RIL in 2007. Later in the same year in the month of November, the company decided to sell nearly a 5 % stake in RPL.

To undertaker the transactions, the company admittedly appointed 12 agents between October and November 2007. These agents took short positions in the futures contract on behalf of the company and RIL took positions in the cash segment of the market.

On November 2007, Reliance sold 2.25 crores shares 10 minutes before the expiry of the futures contract and which lead to a sharp decline in the share prices of RPL. This further led to a sharp reduction in the settlement price of the RPL futures contracts expiry prices.

RIL’s entire short position of nearly 8 crores shares in the futures and options (F&O) segment was cash-settled which led to a huge profit to the tune of more than 500 crores by short selling. The said profits were transferred by the agents to RIL as per a prior agreement.

Fines and Sanctions Imposed by SEBI:

The SEBI has imposed a penalty of ₹ 25 crores on Reliance Industries Limited (RIL) and a ₹ 15 crores penalty on Mukesh Ambani. The SEBI maintains that the RIL entered into a well-planned operation with its agents to corner the Open Interest position in the RPL futures contract and earn undue profits by selling shares in the cash segment and shorting the futures position.

The SEBI also maintains that Mukesh Ambani being the Chairman & Managing Director of RIL, was responsible for its day-to-day affairs and thereby, liable for the “manipulative trading” done by RIL.

The capital market regulator (SEBI) also imposed penalties of ₹20 crores and ₹10 crores on Navi Mumbai SEZ and Mumbai SEZ respectively. The Penalty has to be paid with 45 days from January 1, 2021.

According to Adjudicating Officer of SEBI, BJ Dilip, “I am of the view that Noticee-2(Ambani), being the Managing Director of the RIL, cannot absolve himself and plead ignorance about the entire scheme of manipulative transactions undertaken for the benefit of RIL in the shares of RPL in the Cash and F&O Segment. Therefore, I find that Noticee-2(Ambani) was liable for the actions of RIL resulting in violations of PFUTP Regulations, 2003 and SEBI Circular. Therefore, I find that Noticee-2 has violated the provisions of Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2) (d), (e) of PFUTP Regulations 4(1), 4(2) (d), (e) of PFUTP Regulations, 2003 and SEBI Circular no. SMDRP/DC/CIR-10/01 dated November 02, 2001”

Previous Order from SEBI

SEBI also noted that an order noted dated March 24, 2017, had directed RIL to disgorge an amount of ₹447.27 crores along with interest calculated at the rate of 12% per annum from November 29, 2007, onwards till the date of payment.

SEBI has stated that on March 24, 2017, it had directed RIL to return back Rs. 447.27 crores along with an interest of 12% per annum And further Reliance was prohibited from dealing in equity derivatives in the F&O segment of stock exchanges, directly or indirectly, for a period of one year.

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Closing Thoughts

Any sort of market manipulative activities that distorts the normal functioning of the market is watched carefully by SEBI, even in the case of the richest man in India. Although SEBI vs Mukesh Ambani Case is over a decade-old manipulative trading issue, but this ongoing case proves that SEBI is prepared to take corrective measures for the proper functioning of the capital market in India.

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

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

January 7, 2021 Hitesh Singhi Market 2 comments

TATA Group bidding for Air India cover ratn tata

TATA Group bidding for Air India – What’s the Catch?

TATA Group bidding for Air India – The story so far: The Tata Group is no stranger to Airplanes or to the business of Aviation, nor is Ratan Tata. At the age of 17 years, the octogenarian chairman of one of the biggest business conglomerate of India (TATA Sons), once landed a plane that had lost its sole engine mid-flight. To add to the tally of Ratan Tata’s credentials, he has also piloted the supersonic F-16 fighter Jet.

Now, with the chance of becoming the biggest full-service carrier in India, TATA sons are in a foray to bid for the ever ailing Air India. If Tata’s Air India bid gets through, it will the second full-service provider (Vistara is already a full-service provider) under the wing of TATA Group. In today’s article of Market Forensics by Trade Brains, we’ll cover the story so far on TATA Group bidding for Air India. Let’s get started.

TATAs Love for Aviation Industry

There is no hidden secret about the fascination of the TATA group with the Aviation Industry, more specifically with the business of Airlines. The following timeline will give a brief snippet of the TATA sons and its association with the business of aviation:

The legendary industrialist and philanthropist J.R.D. Tata was India’s first licensed pilot. He stated TATA Airlines in 1932 as the nation’s first carrier (flying mail between Karachi in then-undivided, British-ruled India and Bombay)
In 1953, the government nationalized TATA airlines and named it Air India.
Later in the 1990s when the economy was liberalized, TATA’s interest grew again and in 1994 they came up with a plan to start airlines with 100 airplanes in collaboration with Singapore Airlines. But the government refused the entry of foreign entrants and the plan didn’t materialize.
Later in the year 2014, a low-cost airline joint venture was entered with Malaysian business tycoon Tony Fernandes’ Air Asia.
And in the year 2015, Vistara was launched as a full-service airline in collaboration with Singapore Airlines. It was started with the motto to redefine air travel in India with “Personalized flying experience”.
In both the ventures mentioned above, TATA sons have a 51% stake.

TATA Group bidding for Air India – The Challenges

— Waving a Non-compete clause with Vistara Airlines

This will probably be the biggest challenge for TATA Sons. As TATA sons have already announced that they would want to consolidate the whole business of aviation into a single entity. And if they manage to win the bid and acquire Air India, it will come under the entity of Vistara. However, the conflict of Interest could arise as Vistara and Air India are both full-service providing carrier. TATA group is willing to go out alone to bid for Air India if Singapore Airlines don’t agree, even if it results in a fallout of the merger between TATA sons and Singapore Airlines.

Essentially even if Vistara were to go ahead and bid for Air India, it would need consent from SIA and Temasek – which owns 55% of Singapore airlines. And earlier Temasek had voiced their opinion against the proposed bidding of TATA sons for Air India.

— Turning the fortunes of National Loss-making Airlines

This could be the second biggest challenge facing TATA sons. If history is to be believed then TATA Sons themselves don’t have a great history running the business of airlines. And owning Air India will come along with its own set of debts and baggage.

In the first quarter of 2020, Air India made losses of rupees 28 crores per day. Its losses widened to Rs 2,570 crore in the June quarter, from Rs 785 crore a year earlier. Moreover, Air India is also famous for its unions and bureaucratic structure, which could sometimes become a tuff nut to crack.

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Why is the TATA group interested in Air India?

In February 2021, N Chandrasekaran will complete four years as group chairman at TATA sons. The revival of the group’s aviation fortune will be at the top of his priority list. And if the aviation industry experts are to be believed, “The TATA group needs Air India under its wings to salvage the group’s aviation business”

From the time N Chandrasekaran took over the reins of group chairman, Vistara and Air Asia has increased their market share to 13.2% in October 2020 from a meager 7.2% in 2017. But industry leader IndiGo has performed even better. It is an undisputed leader of the aviation industry (51% in October 2020 from 39.5% in 2017)

However, if Air India (11% of domestic market share) were to come under its wings, then the group will have a combined domestic market share of 24.2% (nearly a quarter of the aviation sector pie).

But the real meat of the deal lies in the access to international markets that comes along with Air India. IndiGo does not seem to be too interested in the long haul flights. But with Air India flights, time-slots, and other international offices, TATA will get a firm footing in the international markets. Air India, along with its low-cost unit Air India Express that flies majorly to the Middle-East destinations, has a fleet of nearly 90 aircraft. The airline flies to over 40 international destinations. Air India Express will also be sold along with its parent.

The Government Incentive to Airline Bidders

The Government has sweetened the deal whereby the buyer is supposed to absorb the Rs. 23.286.5 crores of debt and the remaining amount will have to be transferred to Air India Assets Holding Limited (AIAHL), a special purpose vehicle created after the failed sale attempt in 2018. Air India had a total debt of Rs 60,074 crore as on March 2019, as per EoI. The debt would have grown substantially since then as the national carrier suffered due to the curtailed operations during a pandemic.

TATA Group bidding for Air India – What to Conclude?

Looking at the above discussion, it makes a lot of strategic sense for the TATA group to bid for Air India and begin its ascend in the domestic and global airlines market. However, it does come at a cost (buying cost, the debts of Air India, and the bureaucracy). But TATA group has experience in handling these sort of situations. In addition, the TATA group will also get a team of staff who is well trained and has been in the business of Aviation for a long time.

Before we wrap up, here are a few facts about Vistra and Air Asia business of TATA group:

Vistara has flown more than 5 million customers in the last one year, while the fleet size has also expanded significantly.
With 31 aircrafts today, Vistara flies to 27 destinations and operates 170 flights per day.
AirAsia India has 23 aircraft, reaching 19 destinations with 165 flights.
Vistara is the only airline to offer the choice of Premium Economy class for travel between India, Dubai, and Bangkok, in addition to Economy and Business Class.

That’s all for today’s Market Forensics article on the story of TATA Group bidding for Air India. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 18, 2020 Hitesh Singhi Market, News 3 comments

Nifty Financial Services Index – NSE to Launch Derivative Contract!

Introduction to Nifty Financial Services Index: Good News, Good news!! A new and very exciting product has been added to the kitty of the market participants trading in the Indian trading ecosystem. We are talking about the Index “Nifty Financial Services Index”.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing all about the Nifty Financial Services Index i.e what is Nifty Financial Services Index, its constituents, F&O Contract Specifications, and more. Let’s get started.

What is Nifty Financial Services Index?

NSE in its circular published on 10th Dec 2020 made the announcement that they have got permission to allow Nifty Financial services to be traded as a derivative product. From January 11, 2021, Nifty Financial Services will be allowed to trade in Futures and Options contract.

Till now the major indices that are being allowed to trade in the Indian equity market are Nifty and Bank Nifty. However, with the addition of Nifty Financial Services, there will be a total of three indexes allowed to have Futures and Options (F&O) contracts.

Therefore, adding the ‘financial services’ as a tradeable index to the trading ecosystem provides a huge boost and impetus for traders looking for more avenues to trade. And rather than having to trade all the constituents, one can express his/her view on the same by trading Nifty Financial Services.

Constituents of Nifty Financial Services Index

The Nifty Financial Services mainly comprises 20 stocks from various sectors like Banks, Non-Banking Financial Services, Insurance, etc. The following is the comprehensive list of all the constituents along with their weightage as on November 27, 2020. (Source: nseindia.com)

S. No	Stock Name & Weightage (%)
1	HDFC Bank Ltd. (27.13%)
2	Housing Development Finance Corporation (17.51%)
3	ICICI Bank Ltd. (14.14%)
4	Kotak Mahindra Bank. (12.10%)
5	Axis Bank Ltd. (6.46%)
6	Bajaj Finance (5.64%)
7	State Bank of India (4.06%)
8	Bajaj Finserv Ltd. (2.29%)
9	HDFC Life Insurance (2.21%)
10	SBI Life Insurance (1.43%)
11	Power Finance Corporation
12	Shriram Transport Finance Company Ltd.
13	REC Ltd.
14	ICICI General Insurance Co. Ltd
15	Cholamandalam Investment and Finance Company Limited
16	Bajaj Holdings and Investment Limited
17	Mahindra & Mahindra Financial Services Limited
18	Piramal Enterprises Limited
19	ICICI Prudential Life Insurance Company Limited
20	HDFC AMC

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Criteria to be a part of Nifty Financial Services Index

Here are some of the criteria for companies to be a part of this Index:

NIFTY Financial Services Index is computed using the free-float market capitalization method, wherein the level of the index reflects the total free-float market value of all the stocks in the index relative to a particular base market capitalization value.
The company has to be a part of Nifty 500 to be able to qualify to be a part of this Index. But in case the number of eligible players falls below 10, then the companies will be selected from the Nifty top 800.
The company’s trading frequency should be at least 90% in the last six months.
The company should have a listing history of 6 months. A company, which comes out with an IPO will be eligible for inclusion in the index if it fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6 month period.
The weightage of each stock in the index is calculated based on its free-float market capitalization such that no single stock shall be more than 33% and the weightage of the top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.
Finally, the rebalancing of the companies included in this index happens semi-annually.

Nifty Financial Services F&O Contract Specifications

Here are some of the key Nifty Financial Services Futures and Options Contract Specifications:

The contract size for Nifty Financial services will be 40 units.
There will be a total of 7 weekly expiring contracts and 3 monthly expiring contracts
For Option trading, there will be a total of 30 In the Money contracts,1 At the Money contract, and 30 Out of Money contracts.
The strike interval will be 100 for options trading i.e., the gap between two consecutive strike prices will be 100. Say, for example, if the current At the Money Strike Price is 14300, then the immediate Out of Money strike will be 14400, and the immediate In the Money strike will be 14200.
Both Futures and Options contracts will be Cash Settled.
The daily circuit limit for a futures contract is 10%.

Closing Thoughts

The addition of an extra index for trading Futures and Options contracts provides an extra impetus for investors and traders willing to trade in the Indian Financial spectrum. It remains to be seen whether the contract garners sufficient interest from investors. But looking at the popularity of Bank Nifty as a derivative instrument, it is expected that the Financial services contract also attracts similar interest from investors and traders.

That’s all for today’s Market Forensics article on long-short funds in India. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 16, 2020 Hitesh Singhi Investment Basics, Market, News, Trading 4 comments

what are long short funds in india cover

What are Long Short Funds in India? What are its benefits?

Understanding Long Short Funds in India -Benefits, Types, and More: During the month of February and March, when COVID-19 was heading towards being a Pandemic, all the global stock indices lost nearly 40-60% of their peak index value. The Nifty 50 index in India, from its levels of +12,000 points, came to sub 7000 levels.

During times like these, the investors are desperately on the lookout for funds that could balance out their portfolio, hedge their long positions within the portfolio, and along with generating returns in the falling market. And this is where the investment into ‘Long Short funds’ comes in handy.

Today, we’ll cover Long Short funds in India. However, before analysing more in detail, let us try and understand the basics of what does Long-Short funds mean.

What are Long-Short Funds?

“The art of investment is not to make money in the short span of time, but to ride the turbulent times and eventually when the market settles, the true investors make real money.”

As the name might suggest, a Long Short fund is a fund that has a mix of long and short positions in the market. Long Short funds are a fairly recent phenomenon in the investment market, but more than 35 fund managers have launched these funds in the last seven years and the popularity seems to be on rising. The total AUM in these funds is more than $2 bn (Rs. 15,000 crores) currently.

In this strategy, a fund manager goes long/buys those stocks or assets which have a potential of appreciation in their value and, also initiates short/sell positions in stocks or assets which are overvalued at that time. Through this strategy, the fund is expected to make money, when the market goes up or comes down.

Long Short funds are the largest hedge funds and fall under AIF category-III. These bi-directional funds have multiple ways of being In the Money for the investors. Even though the market might be going down, but the investor’s portfolio could still be going up.

130/30 fund Strategy

Long Short funds are sometimes also called 130/30 funds. This is the investing methodology used by institutional investors in which 130% of the initial capital is used for buying stocks and securities, and this is done by investing 30% in shorting the stocks/securities.

To put it in a more simplified way, the fund manager would invest 100% of the initial fund in buying stocks and short sell 30% of the security. The money received from shorting the security will again be reinvested in buying stocks/securities. The 130/30 fund strategy works efficiently in limiting the drawdown while investing.

What are AIF category-III funds?

AIF is an acronym for Alternative Investment Fund. It comprises pooled investment funds that invest in private equity, venture capital, hedge funds, etc. In other words, AIF is a different form of investment than traditional investment avenues like stocks, debt securities, etc.

Under AIF category-III, the main aim is to earn short term gains by employing complex trading strategies. These are hedge funds employing diverse and complex trading strategies. And they are currently allowed to leverage the capital to an extent of 200% of the total fund size.

Under the AIF category-III funds, the long-short funds are divided into equity and debt-risk funds. The minimum ticket size to invest in this category is Rs. 1 crore. This makes it accessible to a handful, mainly HNI’s.

Advantages of Long-Short funds

Here are a few of the best advantages of Long Short funds in India:

Diversified Investment: HNI’s looking for diversification in their portfolio have a great opportunity to park some of their money in Long Short funds. It provides stability to the portfolio and downturn in the market or economy is hedged.
Excess Returns: Because Long-Short funds don’t just rely on the market going up, it provides an opportunity to make returns from both falling and rising markets. Volatility is a friend of investors who is looking to generate higher returns. It, of course, does come at a higher risk on the portfolio.
Short Selling permitted: Unlike in any other form of Mutual fund, short selling is not permitted. But in the case of a Long-Short fund, short selling is permitted and which in turn can be used as leverage to enter a more fresh long position in the market.

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Disadvantages associated with Long Short funds

Every coin has two sides. Now, let us also look into a few of the disadvantages of Long Short funds in India:

High Expense ratio: In general, the expense ratio in the case of regular Mutual funds hovers around the 0.60% levels, but in the case of a Long short fund, the expense ratio goes up to 2% levels. This ultimately impacts the final returns generated by investors.
Low return in Range bound market: A long position or short position is entered in the market with a directional view. Because this fund has both long and short positions in the market (in Long Short fund), range-bound or choppy market tend to give very low to minimal returns to investors.
Stock selection risk: Although the long-short fund has both buy and sell positions in the market, but picking the right stock to buy or sell is at the discretion of the fund manager. And selecting the right stock could still be a risky affair.
Risky Ventures: As Long-short funds are allowed to trade in the derivatives market, it makes it a little difficult to regulate. Hedge mutual funds are not allowed to be registered with SEBI, so in a way, the fund and its investors are on their own.

Long Short Funds in India

The following is a list of few Long Short funds in India. We no way encourage you to invest in them. Please use your own discretion before investing.

(Image courtesy: www.moneycontrol.com)

That’s all for today’s Market Forensics article on long short funds in India. We hope it was useful to you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 11, 2020 Hitesh Singhi Market 4 comments

5G Network in India: Who is winning among Jio, Airtel, Vi?

5G Network in India is probably the biggest advancement in the mobile connectivity spectrum so far. 5G technology is expected to be the game-changer in the field of telecommunication & connectivity and solve the network problem among mobile users. The technology has already started to be implemented globally in 2019. According to reports published by GSM Association, 5G technology is expected to have a global user base of 1.7 billion by 2025.

Even India is not so far in building the 5G connectivity. All the major telecom players i.e. Reliance Jio, Airtel, and Vodafone are in horde to be the first one to be able to provide 5G network in India. In today’s article on Market Forensics, we’ll be covering the race to build the 5G Network in India and who’s winning. Let’s get started.

What is 5G connectivity?

Before we enter the main discussion, let’s first begin by understanding what exactly is 5G connectivity. As the name suggests, 5G is a fifth-generation technology standard for broadband cellular services and it is the successor of the 4G technology (currently being used by most telephones for connectivity). The main advantage of 5G over 4G is the fact, it has got a higher bandwidth and that will give offer higher download speeds.

Because of the higher bandwidth speed, it is believed that the network will not only serve cellphones but will also be used as general internet service providers for Laptops and Desktops. 5G data at its peak can give a download speed of 20 Mbps. To put it into perspective, by using the 5G network, a full high definition (HD) movie can be downloaded within a minute even in a crowded stadium.

5G Network in India – The Race

The second-biggest telecom market in the world is all ready to brace, the 5G spectrum and it is expected to be a part of India’s telecom ecosystem by the second half of 2021. The race for pioneering the technology seems to be heating up. And by all means, Reliance Jio seems to be in the fray to be the pioneer.

In a speech on Tuesday (8th Dec 2020) at Indian Mobile Congress 2020, the chairman of Reliance Industries, Mukesh Ambani said, “Reliance Jio will pioneer 5G technology in India and it will be available to use by the users by the second half of 2021”.

Mr. Ambani also went on to say that India is one of the most digitally connected nations in the world and 5G can be made available at affordable prices and everywhere as soon as possible. He further went on to add that 5G will not only enable India to participate in the fourth industrial revolution, but also to lead it.

What makes Jio so confident about pioneering 5G in India?

The chairman of the group, Mukesh Ambani is very confident about rolling out 5G services in India by the second half of 2021. Earlier in the month of October, Jio has made an announcement it is expanding its partnership with US wireless giant Qualcomm to roll out 5G services in India. Mr. Ambani went on to say that he is very proud to announce that Jio has designed and developed a complete 5G solution from scratch and it will be his biggest step towards his Make in India commitment.

Once Jio 5G is tested India-wide, it will not only be deployed in India but will also be in a position to be an exporter of 5G solution to other telecom operators globally. Jio as an initiative is building its own 5G solution on a new global initiative called O-RAN (Open RAN)

(Pic courtesy: www.universalnews.org)

What is O-RAN?

Open RAN (O-RAN) differentiates itself from other proprietary networks (Huawei, Samsung, Ericsson, Nokia, etc.) over the simple fact that in the case of O-RAN, the networks are open and include elements and facets (software and hardware) from different vendors. If the network has two components i.e., both hardware and software, then both the components can be bought from different vendors. But in the case of proprietary networks, all the components will have to be bought from the same vendor. So, the O-RAN network gives the obvious bargaining power over other network service providers.

To put things into context, in 2018, Jio had bought US-based software vendor Radisys (as it specializes in system integration and network virtualization capabilities). And it is a known fact that Jio specializes in the software side and it’s putting together an alliance with Qualcomm to manage the hardware side. And the move from 4G to 5G will be more hardware-driven as new antennas will have to be installed in network towers.

What do other Telecom companies have to say?

Sunil Mittal, the chairman of Bharti Airtel is of the view that getting the 5G network to India has its set of challenges. And it will take two-three years more to roll out 5G technology. “I think India, to my mind, in two or three years’ time will be ready to receive the benefit of the investment that the globe would have made onto the 5G standard and 5G ecosystem,” Even another chief executive of Airtel had earlier remarked that the India ecosystem is not ready for the 5G technology introduction yet.

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5G Network in India: What can be expected?

India is slowly but surely becoming the talk of the town while talking about the adoption of new technologies. And India is always known for embracing new technologies. And being the 2nd biggest global player in the usage of telecom, the introduction of 5G technology in India is inevitable. But, it remains to be seen how soon. If the reports are to be believed, Jio could be the first network service provider to provide 5G telecom services in India.

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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 10, 2020 Hitesh Singhi Market, News 5 comments

list of Indian Pharma Companies working on COVID Vaccine cover

Which Indian Pharma Companies working on COVID Vaccine? Find out!

List of Indian Pharma Companies working on COVID Vaccine: In 2020, the world has been facing its biggest viral pandemic since the Spanish Flu of 1918. The COVID-19 has created havoc among people all around the world. There has been a total of 65.2 million global cases to date with India about 9.6 million COVID cases. And to solve this pandemic, a lot of global and Indian pharma companies are working on the COVID-19 vaccine.

In this article, we are going to discuss Indian Pharma Companies working on COVID Vaccine and their recent achievements. Let’s get started.

The Global Picture of COVID-19 Vaccine

As of December 2020, the Global economic scenario seems to be improving and we see most of the global Indices are either making new highs or trading near their highs. But why do we see sudden positivity or sentimental change amongst traders and investors? The answer to this lies in the fact that a lot of global pharma companies have a good approval rate for their COVID-19 vaccines in access of over 90%.

Global pharma giant “Pfizer” has approved their first batch of vaccines and it has been packed and shipped to the UK. This news gives a lot of hope to people elsewhere who are anticipating and expecting the COVID-19 vaccine.

The UK became the first country to approve the Pfizer/BioNTech vaccine against COVID-19 on Wednesday, 3rd December 2020 after “rigorous” analysis by its independent regulator Medicines and Healthcare products Regulatory Agency (MHRA).

One travel agent based out of Mumbai in recent news said there has been a sudden surge in the demand for air tickets to the UK and this could be mainly attributed to the fact that the COVID vaccines will soon be given to the public in UK and Indians are willing to there and get an early dosage of vaccine. The demand has gone to such an extent that the tour operators are rolling out three-day tour packages to the UK for vaccines.

Indian Pharma Companies working on COVID Vaccine

All the major Pharma companies in India have been on a constant search of Vaccine for COVID-19. As many as 7 companies (Bharat Biotech, Serum Institute, Zydus Cadila, Panacea Biotec, Indian Immunologicals, Mynvax, and Biological E) have been working on Vaccine formation and Vaccines trials in India. And of late the results have been encouraging to say the least.

Let us try and understand the progress and results of different Indian Pharma companies working on the COVID vaccine.

— Covaxin, Bharat Biotech

This Vaccine is being made and manufactured in Hyderabad. It has been developed in collaboration with ICMR (Indian Council Medical Research). After successful completion of the interim analysis from the Phase 1 & 2 clinical trials of COVAXINTM, Bharat Biotech received DCGI approval for Phase 3 clinical trials in 26,000 participants in over 25 centers across India. This vaccine will be a two-dose vaccine when approved.

(Image courtesy: Barat Biotech)

— AstraZeneca, Serum Institute of India

AstraZeneca along with Oxford University are the prime contenders for developing the COVID vaccine by January 2020. The overall effectiveness of the Oxford Vaccine stood at 70%. But AstraZeneca claims that the effectiveness goes up to 90% if the first dose is a half one and it is followed by a full dose. They have recently been in the news when the effectiveness of their vaccine was questioned and their share prices took a hit.

(Image courtesy: Zee news)

— ZyCoV-D, Zydus Cadila

Zydus Cadila is another Indian Pharma Companies working on COVID Vaccine. This is an Ahmedabad based Pharma company and has successfully completed the initial trials. Zydus Cadila is expected to conduct its third phase from next month on 30000 candidates. Phase 2 trials were done on 1000 candidates and the results for same are to be submitted to Indian drug realtors this month. This vaccine when approved will be a three-dose vaccine.

The chairman of Zudus Cadila, Mr. Pankaj Patel, said that once all the regulatory approvals are in place, the company will produce 100 million doses of vaccine.

(Image courtesy: Editorji.com)

— Panacea Biotec

This Unnamed vaccine is being developed by Panacea Biotec pharma company. To manufacturer this vaccine, Panacea Biotec has entered into a Joint venture in Ireland with US-based Refsana Inc. It will manufacture over 500 million doses of Covid-19 candidate vaccine. Over 40 million doses are expected to be available for delivery early next year.

— Indian Immunologicals vaccine

Vaccine manufacturer Indian Immunologicals and Griffith University in Australia have partnered to develop a potential vaccine candidate against Covid-19. This collaboration is with the intention of creating a single-dose vaccine with a long-lasting impact.

— Mynvax

IISc, Bangalore based Mynvax has published its report to show its heat-tolerant COVID vaccine. And this vaccine is already in the process of development. Dr. Gautam Nadig (co-founder of Mynvax), said that the vaccine is near completion and the medicine has shown high tolerance and it can be stored for more than a month at a temperature of 37 degrees without losing its effectiveness. So cold chain will not be required for vaccine storage.

— Biological E

Biological E is a Hyderabad based pharma company. On November 16, 2020, Biological E along with Dynavax Technologies Corporation (Dynavax), a US-based vaccine focused biopharmaceutical company, and Baylor College of Medicine, a health sciences university in Houston, TX announced that Phase I/II of the vaccine trials have started. And the results of the clinal trial is expected to be out by February 2021.

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Closing Thoughts

In the discussion above, it is clear that there are numerous players in the Indian Pharma set up who are in the process of completing of Vaccine for COVID-19. Most of them have completed their phase I/II trials and have already started the Phase III trials. In General, developing an effective vaccine takes years of research. However, the work of years has had to be completed within the months. The world is hoping for the vaccines to be approved and available to be used soon, and normalcy prevails.

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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 8, 2020 Hitesh Singhi Market No comments yet

OTT Platforms in India What’s the Future of Hotstar, Netflix in india cover

OTT Platforms in India – What’s Future of Indian Hotstar, Netflix?

Study on future of OTT Platforms in India: In recent times, the excitement and enthusiasm for the much-anticipated web series or for the second part of the successful first season of the web-series have been unparalleled. We have seen such excitement grow more during the times of Pandemic (COVID-19). Mirzapur is a classic example of this. After the success of the first part, the much anticipated next season was a success even before it was available on OTT media for viewing. The OTT medium has become one of the sought after modes of entertainment during COVID-19.

In today’s article of market forensics by Trade Brains, we’ll cover the OTT Platforms in India, their history, current scenario, and expected future. Let’s get started.

What is OTT?

OTT or, Over-The-Top platforms are audio and video hosting platforms, which earlier started as content hosting platforms but eventually branched out to production and short movie releases, feature films, web-series, documentaries, sports, and other entertainment forms.

These platforms run on cutting edge technology and state of the art functioning. These platforms use Artificial Intelligence (AI) to figure out the content which might interest the user (depending on the previous usage or browsing history) and gives out recommendations based on them. These OTT platforms work on Trail or FREEMIUM model, where they generally give some content for free and have a premium subscription for their exclusive content that is not available elsewhere.

History of OTT Platforms in India

The first Indian OTT platform was BigFlix, which was launched by Reliance Entertainment in 2008. OTT gained momentum in Indian in 2013 when Ditto TV (Zee) and Sony Liv were launched.

Disney Hotstar was launched in the year 2015. And it is one of the highest watched OTT platforms in India. As of July 2020, it has more than 300 million active users. Soon after, Netflix began its operations in India in the year 2016 (January). Its is one of the most recognised and prominent global OTT segment player. Netflix faces stiff competition in India from players like Amazon Prime, Disney+Hotstar etc.

(Image Credits: Justwatch.com)

Market Size of OTT industry in India

There are currently more than 40 OTT service providers in India, which provide streaming services over the Internet. In the Fiscal year 2018, the OTT market in India was estimated at Rs. 2150 crores (nearly 300 million dollars) and its value grew to nearly Rs. 3,500 crores (nearly 500 million dollars) in 2019. And this market is anticipated to grow at a cruising rate in years to follow.

According to a report by E&Y, the number of OTT users in India will exceed 500 million by 2020, thereby making this country the second–biggest market after the US. In a recent report published by Boston Consulting Group, titled ‘Entertainment Goes Online’, the Indian OTT market is expected to reach US$ 5 billion by 2023 (Refer Image1 below). In India, Disney+Hotstar has the highest number of subscribers, followed by Amazon Prime, Sony Liv, Netflix, and Voot. However, this ranking figure may differ in terms of watchtime.

Image 1: Indian OTT market expected size (source: Brand Equity)

OTT Demographics in India

Here are a few more facts about the OTT platforms in India and their demographics:

Indians under the age of 35, account for nearly 90% of the time spent on OTT medium. And out of which, 79% of the viewers are male.
The top 5% of the metros account for nearly 55% of the OTT platform users.
The Indian OTT market ecosystem comprises of players from various industry segments like Televisi0n distributors (Videocon, Tata Skr, D2H, etc), telecom companies (Airtel, Reliance Jio, etc), companies with content presence (saregama, Filter copy, EROS now, etc), broadcasters (Disney+Hotstar, Zee5, etc) and independent platforms (Amazon Prime, Netflix, etc)
The OTT market is a very ad-based model. Advertisements derive a large chunk of the revenue for OTT platforms. And even subscription-based content is also on rise in India.
And in India approximately 35% of users spend anything between 0-3 hours on OTT platforms, 35% spend anything between 3-9 hours on OTT platforms and nearly 7% spend more than 21 hours per week on OTT platform (Image 2)
Salaried employees are the highest consumer of OTT platforms followed by students, business owners, housewives, and others.
The most preferred language for video content is English and Hindi. And even the regional language content has its fair market share.

Image 2: Weekly time spent on OTT media (source: India OTT Video Content Market Survey)

OTT Platforms Under the purview of Ministry of I&B

On November 9, 2020, the Government of India signed a gazette notification, to bring online films and audio-visual programs, and online news and current affairs content under the ambit of the Ministry of Information and Broadcasting (I&B) headed by Prakash Javadekar. Earlier the content of these platforms was not strictly regulated, as the audience for these platforms was limited in size. But with the growing reach and demand, these platforms have come under the regulatory purview of the GOI. The Government issued a negative list of dont’s for video streaming platforms. The list of prohibited content is as follows:

Content deliberately and maliciously disrespecting the national flag or the national emblem.
Content having any visual or storyline promoting child pornography.
Content that maliciously intends to outrage religious sentiments.
Content that deliberately and maliciously promotes or encourages terrorism.
Content that has been banned for exhibition or distribution by law or court

What does this notification mean for OTT platforms?

With tighter norms and regulations, the OTT platforms will have to be more careful about the kind and quality of content that goes on their platform for public viewing. The OTT platforms might need to apply for the certification and approval of the content they wish to stream.

Post Pandemic scenario of OTT platforms

By far the biggest challenge for the OTT platforms will come when the situation comes back to normal post Pandemic. When the other sources of entertainment like the Movie theatres, live shows, live performances, sports, gymnasium, etc resume, it remains to be seen as to how will the OTT platforms handle that situation. The OTT mediums might lose their charm amongst the viewers. This can be judged from the fact that even though the IPL tournament was scheduled without any audience in the stadium, but the viewership on the TV and other live medium (Disney+Hotstar) was more by 25-30% over the previous years.

According to Ajay Bijli, Chairman and Managing director of PVR Ltd, “Human beings are not hardwired to sit at home. That is what gives me a lot of hope and confidence. Once the Pandemic surge comes down and vaccine arrives, new films will start coming, things are going to revive and pent-up demand is going to be huge”.

The Movie theatres were the first one to close and the last one to open due to Pandemic and lockdown. But once the situation gets normal, we could see a revival of this industry. But the surge of something comes at a cost of something else. And OTT platforms might be in for a stiff fight from other entertainment modes. And it remains to be seen as to how this industry comes out fighting and maintains its place in the world of entertainment.

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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 4, 2020 Hitesh Singhi Market 2 comments

Allowing Banks for Business Houses by RBI cover

Allowing Banks for Business Houses by RBI: Is this the Right Move?

Reasons and criticisms on allowing Banks for Business Houses by RBI: The recent big news hit the market when RBI Internal Working Group’s suggested that large corporates and conglomerates could own banks. They believe that big business houses can be an important source of capital along with bringing in their experience, expertise, and strategic management to banking.

In today’s Market forensics by Trade Brains, we’ll be discussing this news allowing banks for business houses as per RBI recommendation. Let’s get started.

What is RBI and Why is it in News?

Let’s first start by defining what is RBI. Simply, RBI is an acronym for Reserve Bank of India and it is responsible for the issue and supply of the currency. RBI is also responsible for the regulation of the Indian Banking System. Its function also includes aiding Government in the overall economic development. RBI commenced its operations on 1^st April 1935 in accordance with the RBI act of 1934. And post-Independence in the year 1947, RBI was nationalized on 1^st January 1949.

The Internal working group (IWG) constituted by RBI on June 12 to review “extant” ownership guidelines and corporate structure of Indian private sector banks, submitted its report on November 20 (Friday). The following were its suggestions:

A well run Non-Banking Financial Companies (NBFC’s) with assets of Rs. 50,000 crores or more, and operations of 10 years or more could be converted into Banks. Companies like Shriram Capital, Aditya Birla Capital, etc are the prominent players in the Indian NBFC eco-system.
Payments banks can be converted into small finance banks (SFC’s) after being in business for three years. Small Finance Banks and Payments banks can be listed within 6 years from the date of reaching net worth which is equivalent to entry capital requirements for universal banks or 10 years from the date of commencement of operations, whichever is earlier.
For Universal banks, the minimum capital requirements to be enhanced to Rs. 1,000 crores from Rs. 500 crores earlier. And from SFB’s the minimum capital requirements to be increased to Rs. 300 crores.
The group has also recommended that large Industrial houses can also be converted into banks only after necessary amendments to the Banking Regulation Act, 1949.
RBI may take steps to ensure harmonization and uniformity in different licensing guidelines, to the extent possible.

Corporates as banks: Why is RBI recommending it?

Now, let us try and understand why did the IWC recommend allowing business houses to be entered into the business of banking.

A strong and robust banking system is the backbone of any economic system. And to promote the wider availability of credit and to prevent the misuse of capital, the government of India nationalized the banks first in 1969 (14 banks) and further in 1980 (6 banks). And post nationalization, private banks entered the foray and it did have a statutory impact on the credit growth (Image 1). But the growth of credit has been much lower and slower than what was actually expected. Even after three decades of constant growth, the balance sheet of Banks constitutes only 70% of the Indian GDP, which is very less when compared to other countries like China (170% of GDP), Japan, and other European banks.
Even the domestic bank credit to the private sector is very less. Only 50% of the GDP (Image 2), which is very less when compared to other major economies like China, Japan, Korea (most of them upwards of 150% of GDP).
Clearly, it is time that India needs to bolster its credit system if they have to attain global supremacy. And as seen from Image 3, it can be seen that the Public sector Banks have been losing ground to Private sector banks in terms of deposits and credit lending. And this can also be mainly attributed to the mismanagement by the public sector banks and beleaguered balance sheets on account of Non-performing assets (NPA’s)

From the above discussion, it will be safe to say, increasing the share of private banks has bought about the much-required robustness in the Indian Banking system. And further increasing their participation in the banking system could mean only one thing, more robust and fast-paced growth. So, it is safe to say that there is space for both Public and Private sector banks, for the evolution and growth of the Indian banking system.

Image 1: Banks assets as a Percentage of GDP (source: RBI)

Image 2: Domestic bank credit to the private sector (source: RBI)

Image 3: Public Sector Vs Private Sector Banks (source: RBI)

Why is this new proposal of RBI being criticized?

In a joint write-up, former RBI Governor Raghuram Rajan and former RBI deputy Governor Vishal Acharya have severely criticized the new recommendation from RBI. They went on to describe it as a “bombshell”. They expressed their view by calling it shortsightedness and also expressed their concerns regarding the governance if private players were allowed to operate banks.

Historically, RBI has been of the view that the ideal banking system should promote a balance between efficiency, equity, and financial stability. And in the past, even for private banks, the regulators have preferred diversified ownership i.e., no single owner has too much stake.

Moreover, the main concern with the business house having a total business of more than rupees 5000 crores or more, where the non-financial business of the group accounts for more than 40% of the total assets or gross income – to have a business of banking is a conflict of interest and technically, “Connected Lending”

What is Connected Lending?

In simple terms, it is a situation whereby the promoter of the banker is also the borrower from the bank. And in that condition, it is possible for the promoter to channel the money of the depositors into funding their own ventures. And which is always a risky proposition.

In the past, RBI is always been against the suggestion of private players being allowed to open banks. And even the IWG committee also met with stern opposition while proposing this policy from experts. All the experts were of the view that business houses and private players should not be allowed to promote banks.

ALSO READ

Public vs Private Banks in India: Which is performing better?

Closing Thoughts

If you are yet looking for why is Banks for Business Houses move recommended by IWG, the simple reason is that the Indian economy especially the private sector is in need of money. The Public sector banks are struggling with their issues of NPA’s. It will be easier for large corporates to fund credit in the system as they come with deep pockets. But this comes with its own sets of risks and challenges. Only time will tell, the effectiveness of private players to provide the much-needed impetus to the Indian Banking system

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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 3, 2020 Hitesh Singhi Market No comments yet

Stop Adani: What is SBI’s $1Billion Loan to Adani Controversy?

SBI’s $1Billion Loan to Adani Controversy: If you’re an active cricket fan, you might have watched that on the first ODI between India and Australia at the Sydney Cricket Ground on Friday, 27 November, two spectators from the audience ran onto the ground protesting “Stop Adani”. They barged into the field of play holding banners that said, “State bank of India, no $1bn Adani Loan”. Their t-shirts also read captions- #Stop Coal, #Stop Adani, No loan. If you’re not aware of the issue, they were simply protesting against the controversial coal project by the Adani Group.

In today’s article of Market Forensics by Trade Brains, we’ll be discussing what is this Stop Adani Movement and What is SBI’s $1Billion Loan to Adani Controversy. Let’s get started.

The SBI’s $1Billion Loan to Adani Controversy

What mired the controversy was the fact, that there has been a constant protest from the environmental groups and local authorities against setting up a coal mining facility in Carmichael Coal mine in Australia.

Adani acquired the coal mine in Galilee Basin in 2010 and was expected to produce, every year, 8-10 million tonnes of thermal coal ⁠— allegedly of low quality with high ash content⁠— to generate electricity. However, Australians are protesting against the controversial coal project by the Adani Group.

To understand this whole situation, let us understand the backdrop to this Stop Adani Controversy:

The State Bank of India is set to offer Rs. 5,000 cr loan to Adani Enterprises Limited Australian mining company.
The controversy started all the way back in 2014 when Adani group and SBI entered into an MoU (Memorandum of Understanding) for a $1 bn loan to Adani Enterprises Ltd’s Australia mining company (now named Bravus Mining & Resources).
The loan was not executed at that time as it had become a matter of political controversy. The opposition parties had questioned the loan as the mining project was mired in controversy
Even the 5 global banks – Citibank, Deutsche Bank, Royal Bank of Scotland, Barclays, and HSBC banks had declined for the loan, citing the reasons that coal mining was on the decline in Australia.

In 2014, even SBI had backed away from the loan following the backlash and it had stated it was just an MoU and no money was lent to Adani. Now, after six years, a lot has changed and all the required authoritative approvals are in place and Adani is set to start production of coal in 2021.

What’s the RISK for SBI to grant a loan to Adani?

In a report published by Financial Times, the total outstanding debt of the Adani group on November 11 was estimated at $30 bn ($7.8 bn in bonds and $22.3 bn in loans). High debt is not a new phenomenon in the Indian business market, but the rapid pace of expansion along with debt is sometimes a cause of concern.

“House of Debt”, a report published by Credit Suisse in 2015, has warned that Adani group was one of 10 conglomerates under severe stress that accounted for nearly 12% of the banking loans. However, regarding this issue, SBI can say that the Adani group has a history of always paying back their debt on time and they have never defaulted. After receiving all the regulatory clearances to set up the coal mine, why should it (SBI) miss out on an opportunity of earning profits from lending.

Further, the Adani group does not have a scarcity or lack of international conglomerates willing to join hands with their group. Earlier in the month of November, the Adani group announced a strategic collaboration in Hydrogen and biogas with Italian gas and infrastructure group, Snam.

— Amundi’s threat to SBI

Amundi is a french based Asset Management company with a total of more than 1650 billion euros of assets under management. It is one of the largest investors in State Bank of India and has threatened to sell all the green bonds investment in SBI unless it stops its schedule to loan Rs. 5,000 crores to Adani.

According to Jean Jacques Barberis, Director of the Institutional Corporate Clients Division & ESG, “We believe that SBI should not finance this project, but ultimately it’s their decision but we’ve been extremely clear on the fact that if they decide to do it, we would immediately disinvest the investment made in SBI green bond. Financing the mine would be in “total contradiction” to the SBI activities financed through its green bond.”

Why Environmental groups and locals are criticizing this project?

The project has evoked sharp criticism from the locals and environmental groups, who claim that the coal mine would produce 200 million tonnes of carbon dioxide during its life of 60 years. This coal mine is located in a very pristine area, and its approval is sharply opposed as there is a view that it can affect the Great Barrier Reef.

According to data published on www.stopadani.com, if this mine is built, Adani’s Carmichael mine will:

Have a negative impact on the ancestral lands and the cultures of Indigenous people s without their permission.
500 coal ships will travel through the Gret Barrier Reef for the next 60 years.
Have access to more than 270 billion liters of precious Queensland’s underwater without incurring any cost.
Risk damaging aquifers of the Great Artesian Basin.
Will adversely impact the environment by adding billions of tonnes of carbon pollution.

Critically, if allowed to go ahead, Adani’s Carmichael coal mine will unlock the Galilee Basin – one of the world’s largest untouched coal reserves – paving the way for at least eight more coal mines to be built. All at a time when scientists are warning we can’t build any more fossil fuel infrastructure if we want to avoid catastrophic global heating.

(Pic courtesy: thewire.in)

Other Criticisms on Adani Group Project

Here are a few other criticisms surrounding the STOP Adani movement and Adani Group coal project:

Some of the analysts are of the view that this project is sustainable only because the government of Australia is subsidizing it. The project is likely to receive a lot of favorable arrangements, subsidies, tax concessions, etc.
If for some reason Adani bails out of the project, then SBI will have to bear the brunt. This ultimately will be burdened on to the taxpayer in India.

ALSO READ

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

Closing Thoughts

It remains to be seen as to what will be the stance of SBI towards this Stop Adani issue. But one this is for sure, both Adani and SBI will have to cope with a lot of criticism and backlash they go ahead and continue with this project.

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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 2, 2020 Hitesh Singhi Market No comments yet

Margin Trading: The New Tighter Rule by SEBI (Dec 2020)!

New Margin Trading Rule by SEBI (Updated): Recently, SEBI published a new circular on margins that astonished the entire trading community along with the stockbrokers. Through this circular, SEBI announced tighter margin norms for the traders. In this article, we are going to discuss what exactly is this new margin rule introduced by SEBI and how it will affect the people trading in the share market.

What is Margin trading?

In terms of the financial market, Margin would be a direct synonym for leveraging. It simply gives you the power to buy/trade in stocks that we can’t afford to buy. Through Margin trading, one is allowed to buy the stocks by just paying the part of the actual value of shares.

The margin can be paid either in terms of cash or in shares as security. The balance amount of shares are funded by the brokers. In other words, Margin simply refers to the amount of money borrowed from the broker to buy the shares of a company. The broker acts as the lender of money and the securities in the investor’s trading account, are kept as collateral.

The margin is settled later when the positions are squared off. We receive profit if we sell the shares at profit or we stand to lose the margin if we make losses.

— How to trade using Margin?

To trade using a margin account, one must have a separate margin account and not the standard brokerage account. A margin account is a separate trading account in which the broker lends money to the investor to buy a security which otherwise he will not be able to buy. The loan or the margin money which is borrowed from the broker comes at a cost i.e., the interest. Therefore, one should use a margin account for short term trading as the interest on the margin money keeps accruing.

Say, if you deposit Rs. 1,00,000 in your margin account and you have a 50% margin in your account, which means buying power of Rs. 2,00,000. Now, if you buy stocks of Rs. 70,000, you still have the buying power of Rs. 1,30,000. And we have enough cash in our margin account to cover the transaction. We start borrowing only, once we have bought shares worth Rs. 1,00,000.

— Three steps in Margin trading

We need to maintain the Minimum Margin (MM) throughout the trading session because volatility in the stocks can push the prices (up or down) more than one’s anticipation.
The position needs to be squared off at the end of each session. If we have bought on margin, we need to sell it off before the end of the day (EOD) and vice-versa if we have sold using margin.
If we want to carry the trade onto the next session, we need to convert it to the delivery trade. And for that, we need to keep the cash ready.

If any of the above three steps are missed then the broker automatically squares off the position in the market.

New Margin Trading Rule by SEBI

The Securities and Exchange Board of India (SEBI) gave out guidelines pertaining to Margin trading (which account for nearly 90% of the daily turnover of the stock market), which has not been welcomed by the brokerage firms with open arms. These rules will put an end to intraday trading and turnover generated out of it.

The brokers have been instructed to collect VaR (value at risk) and ELM (extreme loss margin) upfront from their clients. These rules will be implemented in a phased manner starting in December 2020.

Phase 1: From December 2020, the brokers will be penalized if the margin is more than 25% of the sum of VaR and ELM.
Phase 2: From March 2021 and June 21, brokers will be penalized if the margin exceeds 50% and 70% of the sum of VaR and ELM
Phase 3: From August 2021, brokers will be penalized if the margin exceeds VaR and ELM

Also read: What is SEBI? And What is its role in Financial Market?

Reactions from the Brokerage community

The broking community feels that this will put an end to leverage based intra-day trading. Currently, some brokers collect as low as Re. 1 for every Rs. 100 worth of trade. Here are some of the reactions from Big brokerage houses:

Nithin Kamath, CEO of Zerodha Brokerage Tweeted, “Today’s SEBI circular says that all brokerage firms have to stop intraday leverage products by August 2021 in a phased manner”. In another tweet, he added:

“While many (even we) don’t like restriction on intraday leverages by SEBI, I don’t think any regulator in the world has done so much to protect retail investors. A lot of this slows brokerage business but what is good for the client eventually is good for the business as well.”

Jimeet Modi, CEO, and founder of Samco Securities said, “This was expected since last year after the December 2019 circular. Now the industry and exchanges will need to adjust to this new reality. This probably will also accelerate the market share towards discount brokers from full-service brokers. Differentiated margins was a service offering by full-service brokers which has now been arbitraged away. Our estimate is that almost 30-35 percent of the intraday turnover is based on additional leverage provided by brokers. Now assuming full margin is required, total turnover would shrink by approx 20 percent since balance part margin was still being collected from clients.”

How Market Turnover is impacted by new SEBI rule?

On July 21, SEBI gave out a circular pertaining to new rules on Margin trading. And these rules are directly going to impact the market turnover both in the cash and derivatives segment. The cash segment on NSE recorded an average daily turnover of Rs. 50,322 cr (April), Rs. 52,656 cr (May), Rs. 61,395 cr (June). And the derivatives market is nearly 18-20 times the cash market. NSE is the largest derivatives exchange in the world with an average daily turnover of more than rupees 11 lakh crore.

Some of the brokerage houses are of the view, with the new rules if VaR+ELM, the daily turnover may shrink by almost 20-30%. The clients will also have to maintain a higher margin in their account and which will also impact their return on investment. And these changes in rules will not only impact the brokers but will also impact the government, in the form of reduced Securities Transaction Tax (STT).

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

December 1, 2020 Hitesh Singhi News, Trading 3 comments

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 understand 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: 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)

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.

ALSO READ:

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)

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%.

ALSO READ:

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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

November 27, 2020 Hitesh Singhi Market No comments yet

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 (12^th 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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AtmaNirbhar Bharat – How can we turn Crisis into An Opportunity?

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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

November 24, 2020 Hitesh Singhi 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.

ALSO READ:

Indian EduTech Industry – How fast and big is it?

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.

(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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

November 19, 2020 Hitesh Singhi 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 21^st March 2017.

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 22^nd March 2017, D’Mart’s valuation rose to its all-time high of Rs. 39988 crores. And this made D’Mart the 65^th most valuable firm in India in terms of Market Capitalisation.
And on 21^st November 2019, the market capitalization of D’Mart stood at Rs. 1,14,000 cores. And it makes it the 33^rd most valued organization in India.
And on 11^th 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 10-11^th 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!!

Hitesh Singhi

www.linkedin.com/in/hitesh-singhi-46564a11/

November 13, 2020 Hitesh Singhi Market No comments yet