Greatest Traders of All Time: Top 5 Most Famous Traders in Stock Market!

List of the Most Famous Traders of All Time: Being a successful part of the world of trading already sets you apart from the rest. But have you ever wondered what it would be like to be one of the very best traders in the world? Don’t worry we have come up with a list of the greatest traders of all time that you’d probably have to take on to even contend for the title. 

Top 5 Greatest Traders of All Time

1. George Soros

George Soros in his office | Greatest Traders of All Time

Billionaire George Soros aka “the king of Forex trading” or the “The Man Who Broke the Bank of England” is, without doubt, the greatest trader. But growing up a Jew in the midst of WW2 and due to the struggles he went through no one would have predicted his rise. 

Born Gyorgy Schwartz, his family had their names changed to survive the way and fly under the Nazi radar. Making to England Soros worked jobs as a waiter or railway porter before he graduated from the London School of Economics. This finally paved the way for him into the world of banking when he got a job at Singer and Friedlander as a merchant banker. 

Thanks to his father’s help he moved to the US to work at a Wall Street Brokerage firm. After several successful stints helping him move up the ladder at various firms he decided to establish his own hedge fund in 1970 called “Quantum”. 

It is here where Soros rose to fame. His most important trade came in 1990 when he decided to short the British Pound. A couple of years before the trade took place Quantum kept buying the British Pound and accumulated 3.9 billion pounds. In addition to this Soros borrowed to bring the total pound holdings of the fund to 5.5 billion pounds.

 On September 9 the pound began to fall. This prompted Soros to short all 5.5 billion pounds against the German Mark on September 16 – the day we now know as Black Wednesday. Soror managed to make $1 billion in a single day due to this trade. This caught the Bank of England in a corner forcing them to withdraw from the European Exchange Rate Mechanism.

This earned him the title of “The Man who Broke the Bank of England”. 

Soros used a similar strategy during the ASEAN financial crisis of 1997. Here Soros targeted the Indonesian, Philippines, and Singaporean currency. The crisis financially put the countries back 15 years.  

Apart from his trading success, Soros is known for his philanthropy. Although he is currently worth $8.6 billion Soros has donated over 80% of his wealth.

2. Jesse Livermore

Jesse Livermore Portrait Image

If there’s another movie ever made on a trader it should be based on the story of Jesse Livermore. Born in 1877, Livermore ran away from home to escape the life of farming which he was otherwise destined for. 

Once he made it to Boston he began posting quotes for a stockbroker as a 15-year-old. It was here that Livermore bought his first share and earned a profit of $3.12 with a capital of just $5. He soon started making more money trading stocks than what he was paid. This prompted him to leave his job and begin placing leveraged bets at stock prices. Jesse Livermore was soo good at his trades that he was eventually banned from Bucket Shops where he placed his bets. 

He then began trading at Wall Street but faced huge losses. These however were not due to any mistake of his own but because the ticker tape was not updated fast enough. He finally got a break at the age of 24 when he converted $10,000 into $500,000. By the age of 30 Livermore was making a million a day during the Panic of 1907.

Livermore was now at the top of his game which made him a well-known elite but despite this, he went bankrupt twice by 1915.

Following WW1 Livermore began buying cotton in order to gain control of the market. He had to be stopped by the then US President Woodrow Wilson. It was on Woodrow’s request that Livermore refrained from further acting on cotton.

 “To see if I could, Mr. President.”

This famous quote came into being when President Woodrow inquired Livermore on why he was trying to corner the cotton market. What set him truly apart was during the crash of 1929. It was here when market crashes were not even known about, Livermore took huge short positions taking his fortunes to $100 million. This would have made him a billionaire today. This earned him the title “The Great Bear of Wall Street.”

What truly set him apart was his ability to bounce back to great fortunes despite facing bankruptcies 3 times in his life. Jesse Livermore however didn’t survive his third bankruptcy and died after committing suicide.

3. Paul Tudor Jones

Paul Tudor Jones during a conference | Greatest Traders of All Time

Paul Tudor Jones was one of the world’s leading hedge fund managers. Jones began his trading career as a clerk working for the biggest cotton merchants – Eli Tullis in the 1970s. Unknown to many Jones was fired by Tullis after he fell asleep at his desk after a night of partying. 

Jones found his own hedge fund in 1980 named Tudor Futures Fund. What’s astonishing to this day is that the fund managed to earn 100% returns during its first 5 years. What set him apart was when he shorted a couple of stocks before the 1987 stock market crash. This earned him around $100 million. This also earned him the nickname Black Monday Prophet.

Five years post this Jones went onto become the chairman of the New York Stock Exchange (NYSE). Today Jones is worth over $5 billion and is also known for his philanthropic works through the Robin Hood Foundation.

4. Jim Simons

Jim Simons giving lecture to students

Known as the “World smartest billionaire” or “Quant King”, Jim Simons is clearly a class apart on Wall Street. Simons, a well-regarded mathematician for his Chern-Simons theory also broke Russian codes during the Cold War.

Simons didn’t enter the stock market until his late thirties. What set him apart from the rest as he was one of the pioneers to trade based on quant, data analysis, and pattern recognition. After setting up the hedge fund Renaissance Technologies, Simons made it his mission to avoid Wall Street brains at all cost hiring only scientists and mathematicians. From 1994 to 2014 Renaissance Technologies Medallion fund gave a whopping 71.8% return. You must be wondering why you haven’t heard of the Medallion fund. This is probably because Simons closed the fund to all outsiders except employees of the company in 2005. 

Simons is today worth $24.6 billion making him one of the most successful and greatest traders of all time. 

ALSO READ

The World’s Greatest Fund – Jim Simons’ Medallion fund!

5. Steve Cohen

Steve Cohen during a conference conversation | Greatest Traders of All Time

Billionaire Steve Cohen came from an economics and poker background. He entered the stock market in 1978 after securing a job at investment banking firm Gruntal. Cohen started off by making $8,000 on his first day and eventually moved on to make $100,000 per day for the firm. 

Cohen left Gruntal in 1992 and opened his own hedge fund – SAC Capital Partners. It was here where Cohen became known for his ability to make money under any market condition. By 2011 Cohen was the 35th richest person in the US according to Forbes. Despite having a net worth of $14 billion, Cohen still works at his firm. It is reported that almost 15% of his company’s profits are due to operations performed by him. 

In Closing 

What do you think about our list of the greatest traders of all time? Let us know in the comments the names you feel should be on this list. You might also be interested to know about the world’s greatest fund. Happy Trading!

Investing in an Equity Mutual Fund? Here are the things to Consider!

List of things to consider before investing in an Equity Mutual Fund: In the last decade, Mutual Funds have become one of the most popular investment alternatives. The idea of having your funds taken care of by a legit expert in the field for a nominal fee while you can sit back and relax is attractive. But how do you further select the best fund available?

In this article, we cover some factors that a prospective investor must look into before investing in an equity mutual fund. By the end of this post, you’ll have a good idea of important factors while investing in equity mutual funds. Let’s get started.

What is an Equity Mutual Fund?

An Equity Fund is one that mainly invests in the shares of various companies. To be classified as an equity fund the scheme will have to have at least 60% of its total assets in the shares of companies. The remaining amount can be invested in other securities available like Debt securities, money market instruments, etc. as per the objectives of the fund.

Funds are further classified in the equity fund category based on the type of equity shares held. They are done on the basis of market cap i.e. large-cap, mid-cap or small-cap funds. Equity funds can also be sectoral or thematic. 

According to AMFI, the Assets Under Management (AUM) have been increased from Rs. 34,000 crores in March 2000 to Rs. 650,000 crores in March 2020. In addition to that equity funds have offered a CAGR of 16% for 2 decades ending March 2020. It is important to note that equity funds are considered to be riskier than debt alternatives available in the markets. 

Factors To Consider Before Investing In An Equity Mutual Fund

What to Consider Before Investing In An Equity Mutual Fund cover

The factors to consider before investing in an equity fund can be divided into two categories. The first includes drawing your own financial roadmap. The second list of factors helps you select the best funds to meet your needs.    

A) Drawing your own Financial Roadmap

1. What is Your Investment GOAL?

The very first factor to consider when investing in equity funds is understanding what you want to get out of this investment. And then creating a strategy or selecting investment alternatives accordingly. These goals could vary from simply looking for a good savings scheme, tax reduction, saving for a daughter’s marriage, saving for retirement, etc. Once this aim is set it becomes clear about how much time you have in your hands and the returns to expect to meet these goals.

If you have never considered this before it is best to spend a few hours setting your goals and then looking at where you stand financially. Here you can actually calculate your expenses and then arrive at what you can afford to invest. 

2.  Time Availability

Once your financial goals are set the next step is to set a timeline by which you want these goals to be achieved. This is important as this further will help you select a fund that meets your needs. Say for example you are trying to save up for a vacation down the line.

In this case, investment options like liquid or short-duration funds would best suit your goals. On the other hand Equity, Linked Savings Scheme funds would best suit you if you are saving for your long-term goals as they already have a 3-year lock-in period. 

Perfect time to invest?

When investing in funds investors often get carried away by trying to find the most optimal investment price. Although this holds true when investing in stocks. But what’s the point of going for a mutual fund when you also have to compute the optimal period as well.

The whole point of investing in mutual funds is to have someone else take the trouble of ensuring you get the best returns. The answer to this problem is Rupee Cost Averaging (RCA) and Systematic Investment Plan (SIP). 

RCA suggests that buying a fixed amount of a particular investment consistently on a regular schedule over a long period of time, regardless of price produces better results. This means that simply by using SIP regardless of the bullish or bearish markets one can still come out on top.

3. What is your Risk Appetite?

The risk appetite varies greatly from individual to individual. Hence there is no single formula that will work for everyone. The risk appetite depends greatly on an individual’s financial condition, age, needs, attitude, etc.

Take for example it wouldn’t be ideal for some in their late 40’s saving for their retirement to put all their savings in a Small Cap Fund which comes with increased risk. On the other hand, it also wouldn’t be optimal for a 20-year-old to put all his savings in a debt fund. Hence it is very important to be realistic and invest in options that suit your goals.

Here is a list of the available fund types and the risk involved in them.

Comparison of different types of investment in Mutual Funds

(Source: Paisa Bazaar)

B) Find Funds that Match Your Goals

4. Performance of the Fund

At the end of the day, the performance of the fund holds the most leverage when making investing decisions. The performance of the fund gives you an idea of how well your money will be managed in the years to come. If you take a look at the returns offered by the fund you may observe returns of 7%, 8%, 15%, etc.

But how do you determine based on these numbers you are investing in the best fund to meet your goals. The following standards will help you assess this:

a. Comparison with the benchmark

 Every fund sets a benchmark index to track and compare their fund. These benchmark indexes track the performance of a collection of top securities in the market. The basis of grouping these securities is done mostly on Mcap. Say for eg. if you consider investing in a large-cap fund. The fund managers will have set a benchmark since the inception of the fund. In this case, the benchmark would most likely be the Nifty50 or the Sensex 30 index. 

The logic behind this is the benchmark represents a collection of securities in the market. A comparison with the benchmark would show us if the manager of an actively managed fund is at least able to beat the returns offered by passively investing in the market. If the investment manager is not able to beat this benchmark then it is better to invest in a fund that simply tracks the Nifty 50 and invests in the same securities that exist in the benchmark.

b. Comparison with its peers

The next comparison that an investor can look into before investing is with the other funds in that category. Say you are investing in Large Cap there are many fund houses that provide similar funds. Here one can observe if the fund an investor is considering performing well enough or the best among its peers.

c. Consistency of these performances

Finally, the fund is worth investing in only if it has maintained its results consistently for a period of time. Hence the above comparisons must be done also for 3, 5,10 year periods. The fund consistently beating the benchmark set and performing well among its competitors is a healthy sign of a good fund. 

ALSO READ

How to Buy Mutual Funds Online in India?

5. Size and Type of the Fund

By size of the fund, we refer to the total assets under management (AUM). The assets under management refer to the subscriptions that the respective fund has received from investors. A fund with a huge AUM shows that it is highly in demand and increased investor trust in the fund. A larger AUM is also seen to be beneficial when it comes to liquidity. Smaller AUM’s are generally seen in newly set up funds. 

However, having a large AuM is not always favorable as funds with huge AUM will find it harder to move around in the market. 

There are many different types of Equity Funds. Looking into this is important as these funds hold different levels of risk. They may be classified based on the 

  • Market Capitalization: Large Cap, Medium Cap, Small Cap, Multi-Cap Funds, etc.
  • Region: Domestic or Global based on whether the fund invests only in domestic securities or in global markets as well.
  • Sectoral: these funds only invest in specific sectors like IT, Pharmaceutical, etc.
  • Focused: These funds invest in a maximum of 30 securities.

6. Expense Ratio

Another factor that equity investors must closely look at are the Expense Ratios of funds. The expense ratio includes the administration, management, promotion, and distribution expenses of a mutual fund.

Funds that are actively managed by the fund managers have a higher expense ratio than funds that are passively managed. Also, funds that generate high returns consistently charge higher fees than their counterparts. These expenses however have been capped at 2.25% by the SEBI (Securities and Exchange Board of India)

Generally, the management fee is charged as a percentage of the total AUM. But funds also levy performance fees which are variable depending upon the performance. Since these come out of the returns your capital makes it is best to keep track of them. 2% charged over the long-term compounds to huge amounts!

It is also important to consider the means available for you to invest in an equity fund. Directly investing through the equity fund offers the lowest expenses in comparison to using other intermediaries.

7. Tax Benefits

Different funds have their own unique set of features. ELSS (Equity Linked Savings Scheme) a type of equity fund that offers tax exemption up to Rs. 150,000 from your annual income each financial year under Section 80C of the Income Tax Act, 1961. Hence it is best to look into the tax benefits while investing in a fund. 

Taxes also play a role while moving out of a fund. Mutual funds in India levy capital gain taxes at the following rates:

LTCG: 10% (No tax if the amount invested is below Rs.1 lakh and held for more than one year)

STCG: 15% (Applicable on funds invested for less than one year)

8. Experience of the fund manager

Before making any investment decision it is also important to look into the background of the fund manager. An experienced fund manager who has previously also delivered results is more preferred in comparison to other alternatives available. Because at the end of the day it is the managers’ expertise and experience that will help navigate the markets to produce the best returns.

9. AMC’s Background 

The Asset Management Company (AMC) or the Fund House is a company that manages these funds. It is important to check how well AMC’s funds have performed in the past and managed its schemes. Examples in India include SBI Mutual Fund, HDFC Mutual Fund, Nippon Mutual Fund, Axis Mutual Fund, Mirae Asset Mutual Fund, ICICI Prudential Mutual Fund, etc.

10. Exit Load and Lock-In

Finding out about the Lock-in period of the Equity funds goes a long way in your financial planning. The Lock-in refers to the period for which the investor is restricted from making redemption of his units from the fund. One example we have seen earlier is ELSSs that have a lock period of 3 years.

Although a part of expenses the Exit Load charges are often overlooked at the time of investing. Exit Loads are charged at the time you exit your fund before a given period. 

ALSO READ

A Beginner’s Guide to Debt Mutual Funds

Closing Thoughts

Looking into the above factors will go a long way before investing in an equity mutual fund. But it is also important to remember your investments in a mutuals fund will be subject to market risks. You should also keep in mind the common mistakes people make while investing.

Let us know what other factors you look into and feel are important to consider before investing in an equity fund below. Happy Investing!

What is Face Value of Share? And Why is it Important?

Understand the Face Value of a Share: Some of the biggest challenges while entering the world of investing involves dealing with multiple jargons. In this article, we explain a very common confusion in the understanding of Face Value and other related terms.  

What is the Face Value of a Share?

The Face Value of a share in simple terms is the value of the share on paper i.e. the original cost of the share. The face value of the shares is also known as the nominal or par value of a share. When it comes to stocks the face value of a share will be mentioned in the share/bond certificate issued. If you already hold shares or know someone who does you can view the face value of the shares in the Demat Account. 

The face value for most shares in the Indian stock markets is set at INR 10. For example, here is the face value, market cap, and important value for ITC Ltd. (Source – TradeBrains Portal).

 

Face value from TradeBrains Portal

Who sets the Face Value?

The shares of Reliance have a face value of Rs. 10 whereas ITC has a face value of Rs. 1. If we take a look at the global markets Apple has a face value of $0.00001. So who sets this amount or through what computation do we arrive at this figure? 

First of all, it is important to understand that there is no fixed method or regulation for setting up the face value. These values are assigned arbitrarily by the company when the company gets listed on a stock exchange through an Initial Public Offer (IPO). 

The value however may affect the volatility of the shares in the market post the IPO. Take for example two companies ABC Ltd. and XYZ Ltd opt for an IPO to raise Rs. 1,00.000. ABC Ltd sets its share price at Rs. 10 and XYZ set its price at Rs. 1. This means that post the IPO ABC Ltd. will have 10,000 shares available in the market and XYZ Ltd. 1,00,000 shares. This means that there are more individual shares of XYZ Ltd. for purchase.

ALSO READ

Stock Market Basics for Dummies – What Beginner Need to Know?

What is the difference – Face Value vs Market Value?

Face value document

Another very important point to note is the difference between the face value and the market value of a share. These two have no relation and do not affect each other except in some special circumstances.

Let’s take again the example of the 3 companies mentioned above. The shares of Reliance, ITC, and Apple have a market value of Rs. 2005.35, Rs. 213.25 and $127.90 respectively. These values vary greatly from the face values we observed earlier. 

The Market Value is arrived at due to the factors of demand and supply for the particular share in the market. A greater demand oversupply would show an increase in the market value and vice versa the price will fall.

The shares we saw above have a high market price because they are highly demanded as long as they maintain good growth and give good return prospects. Their market value may fall too if the company begins performing poorly affecting the demand for the shares. The factors of demand and supply will have no impact on the face value of the shares.

Why is the Face Value Important? 

Multiple Dollar Notes

Being a prospective investor you must be wondering if the face value is not the price at which you eventually buy/sell the shares then why is it even important. The Face Value is used in the internal accounting for the company’s stock. One can find the face value used in the balance sheet to arrive at the total equity capital.

In addition to this, face-value also plays a very important role in corporate action. These include corporate actions like dividends, stock splits, reverse stock splits, etc. When it comes to dividends the face value sets a standard for the calculation of return rates or yield. Stock Splits on the other hand are one of the special occasions where both the face value and the market price are affected. 

Closing Thoughts

That’s all for this article. Let us know if the article helped in clearing doubts related Face Value of a stock.

You can read the difference between Face Value, Market Value & Book Value to get more insights. Also, comment on which other jargon you would like us to cover in our next post. Welcome to the world of investing. All the best!

What is IPO in Share Market? And Is it Worth Investing in IPOs?

Understanding what is IPO in Share Market: Everyone gets excited about new things. The new clothes, new bike, new car, new job, etc always attract the public. Investors are also like ordinary people and hence they are also tempted by the word ‘NEW’. Be it new technology, a new industry or a new company. And hence, listing on new companies in stock market always excites investors.

In this post, we are going to discuss what is IPO in share market and whether it’s worth investing in these new companies which enter the market for the first time.

What is IPO – Initial Public Offering?

When a privately held company offers its shares for the first time to the public, then it is called Initial public offering (IPO). It is a way for companies to enter the stock market. Until a company offers IPO, the public is not able to buy the company’s share.

Before the IPO of a company, its shareholders include limited people like founders, co-founders, relatives, friends and initial investors (like an angel investor, venture capitalist etc). However, after the company offers its IPO, anyone (public, institutional investors, mutual funds etc) can buy the shares of the company.

A few of the popular IPOs listed in the Indian share market in 2021 are Kalyan Jewellers, Craftsman Automation, Ease my trip, Indigo Paints, IRFC, etc.  You can get more details about the latest IPOs in India here.

what is IPO and how do ipo works

What does ‘Going public’ mean?

Going public means that a ‘privately owned company’ is conducting an initial public offer (IPO) to the public in order to enter the stock market as a ‘public company’. In short, when a company is offering an IPO, it is said that the company is going public.

Also read: #27 Key terms in share market that you should know

Why do companies conduct IPOs?

The basic reason why companies issue their shares or go for an IPO is to raise capital or funds.

Stock exchanges facilitate the exchange of shares for capital. The process involves shares being offered, shares being allotted to investors, and finally the shares being listed on an exchange where they can be bought and sold. By doing so companies can get access to a wider pool of investors which includes retail and domestic/foreign institutional investors.

There can be a number of reasons why any company offer an IPO. Here are a few of the top ones:

  1. For a new project or expansion plan of the company
  2. To raise capital (financial benefit)
  3. For carrying out new research and development works
  4. To fund capital expenditures
  5. To pay off the existing debts or reduce the debt burden
  6. For a new acquisition
  7. To create public awareness of the company
  8. For the group of initial investors desiring to exit the company by selling their stakes to the public.

In addition, IPOs generate lots of publicity for the company and hence helps in creating market exposure, indirect exposure, and brand equity.

Why are the Disadvantages of Conducting IPOs?

Here are the few disadvantages for the companies who offer their IPOs:

  1. Public disclosure: When a privately held company offers its IPO, it has to disclose a number of documents to the public like its financials, promoters list, debts etc.
  2. Entering a regulated market: Indian stock market is highly regulated by Securities and exchange board of India (SEBI) and hence the newly public company has to play by the rules of SEBI. There has been a number of cases of companies getting delisted by SEBI as they do not follow the norms of the market.
  3. Market pressure: The companies performance are closely scrutinized by the public and investors. Hence, the company’s management is consistently is pressure. Sometimes the companies focus more on short-term performance over long-term due to market pressure.
  4. Loss of control: As the shares are distributed among the investors, the decision making power is now in the hands of the shareholders.
  5. Failing of IPO: Many companies fail to attract investors during its IPO and the offered shares might remain under-subscribed. In such a scenario, the company is not able to raise enough capital that is expected to achieve the goal of IPO.

Why do most IPOs come in the bull market?

bull market ipo

The promoters of the company sell their stakes only when they are confident of getting a good price. This generally happens only in a bull market. During a bull market, the owners of the company can raise enough fund for their cause as the public is optimistic. People are willing to pay good prices to buy shares of the company.

Why do not many IPOs come in bear market?During bear market, people are pessimistic and are not willing to pay a good price for the shares of a newly public company. The owners feel that they won’t be getting the right price for their shares and hence most owners do not introduce their IPO during a bear market

Also read: What is Bull and Bear market? Stock Market Basics

Who gets MOST Benefits from IPOs?

There is a common myth that the company’s shares are undervalued during its IPO and hence the early subscribers of the IPO feel that they have made a very good deal.

However, IPOs are the by-products of a bull market and they are generally over-priced.

The owner and the initial investors of the company (like angel investors, venture capitalist etc) are the ones who get maximum profits during an IPO as they are able to sell the shares at a good price.

Why are people excited about IPOs?

There are a few common reasons why people are excited about IPOs. They are:

  1. Under-pricing myth: When a company announces its IPO, it’s presumed that the offered price is less than its true value. People are excited about the fact that they are the first one to buy the stock and will be rewarded handsomely when the company’s true price will be realized by the market. However, it’s very rare that the owners will be willingly underpricing the shares.
  2. Herd-mentality: As everyone they know will be applying for the IPO, people do not want to be missed out.
  3. Overhype by media/ underwriters: Media gets a high advertisement fee for the promotion of the IPO. Moreover, IPOs are intentionally overhyped by the investment banker and the underwriters. They make sure that these IPO’s get enough attention as this is their job to promote and sell the shares.
  4. ‘The Next …’ strategy: People compare the upcoming IPO with the Winners in the same industry and conclude that it will perform the same. ‘The next Eicher motors’, ‘The next symphony’, ‘The next Infosys’ etc. This ‘Next’ philosophy makes a lot of people excited about the upcoming IPO.

Is it worth investing in IPOs?

A lot of investors have made huge wealth by investing in IPOs. Had you invested in ‘INFOSYS’ when it got listed, you might have been sitting at a huge pile of wealth today.

Also read:

However, the performance of the majority of the IPOs in the Indian stock market is under-satisfactory. The number of IPOs underperforming in long-term are comparatively quite larger than the number of IPOs that performs well in the market.

Further, IPOs are never priced in the benefits of the public. In the case where few IPOs are fairly priced, it gets a lot of demand from the public during its offerings and gets over-subscribed. Moreover, it soon becomes over-priced once it starts trading in the market. A few IPOs might give you a good return in the one or two months of its listing as they are introduced in the bull market, however, in the long run, their performance is quite poor.

If you are willing to invest in the long-term, then be cautious about investing in IPOs. Focus on the quality of the company, not the hype generated by media or underwriters.

Nevertheless, you can always pick these companies from the secondary market once the hype is over and the price is attractive. There are over 5,000 companies listed in Indian stock market. It’s better if you pick a good one among them than picking the upcoming hyped company.

The World’s Greatest Fund – Jim Simons’ Medallion fund!

Who do you think runs the World’s Greatest Fund? Hold onto this answer. If you ask anyone in the world of investing about Renaissance’s Medallion fund you’ll find answers filled with awe due to the results they have managed to achieve – 60 to 70 percent returns for over 3 decades!!!! 

To put things in perspective at this rate you’d be a multi-billionaire over three decades just by having invested $1,000 (But it doesn’t work on a growth model). You might have to rethink your answer. Even Warren Buffet has managed an annual average of 23% in the long run. Because obviously a fund being given the title of the greatest of all time obviously will be headed by one of the greatest minds on Wall Street.

In this article, we cover the greatest fund in the world run by Rennaisance, its inception, how it works, the men behind it, and its performance amidst Covid-19. Keep Reading to find out.

How did the Rennaisance start?

The founder of Rennaisance technologies, Jim Simons is a legendary figure in the mathematics and investing community. After graduating from MIT and receiving a Ph.D. in mathematics at the age of 23, Jim Simons went on to work as a professor at MIT and Harward.

Over the years his research earned him the Geometry equivalent of the Nobel prize- the Oswald Veblen Prize in Geometry. He along with his partner professor Shiing-Shen Chern produced the breakthrough mathematical theory known as the Chern-Simons theory.

Jim Simmons - greatest investor - World's Greatest Fund

What many people do not know about Simons is that he also worked for the Pentagon’s Institute for Defense Analyses as a code breaker. The cold war had pushed both the US and Russia to try and outsmart each other. This also required some of the greatest minds to crack each other’s secret codes. Sadly Simons was fired from the IDA for voicing his opposition to the Vietnam War.  

Simons finally decided to focus on the big bucks. His initial days in trading commodities weren’t as successful. Simons had based his bets on the fundamentals of demand and supply which did not get him far.

Simons used this for much of the Renaissance’s early years when it was called Monemetrics. It however never occurred to him in his early years to apply maths to investing

The Working behind the World’s Greatest fund?

— Headhunting the Rennaisance team

Simons then tried applying statistics and maths to make trades. His experience at the IDA had helped acquaint him with several great cryptographers and other mathematicians. He began hiring them at Renaissance and they began their quest to decode the financial markets.

Among them were Elwyn Berlekamp and Leonard Baum who were his colleagues at IDA along with professor Henry Laufer and James Ax. They began looking for patterns in the market which they could exploit.

One such example of a loophole they recognized was that S&P’s options and futures closing times were 15 minutes apart which they exploited to make profits for a while. The markets were filled with many similar loopholes which they took advantage of. 

Greatest investor Jim Simmons during a lecture

They began building models which used both trend following and mean reversion while focussing exclusively on trading. Their results weren’t anything great, making 8.8% and 4.1% in 1988-89 respectively. Renaissance finally received a break in 1990 when its Medallion fund gave a 56% return. 

The Medallion was now going through heaps of data and using advanced maths and building systems that were ahead of their time into investing. On the other hand, his other counterparts were using the same old techniques which relied on the fund manager’s instinct to predict which direction the market would move in. 

— Ahead of its time – World’s Greatest Investor

The team in Renaissance included super nerds from their respective fields using some of the world’s most powerful computers to find signals to make predictions.

The scientists would keep looking for signals which they could exploit in the markets. They also teamed up with linguists and focussed on speech recognition and machine translation. Much of their work also set the scene for the creation of Google Translate and Siri. 

— Signals and Systems

The signals they identified worked on slim margins. One such signal was identified by analyzing cloud cover data. The team had found a correlation between sunny days and the market trending upwards on those days. This was observed from New York to Tokyo. The team of scientists worked day and night to identify such signals.

The Medallion fund maintains a library of over 8,000 signals. The fund then uses these signals thousands of times daily. The difference between the win and loss percentage is only 2% i.e. 51% win vs 49% loss probability. But as this edge is applied thousands of times per day their odds increase. The funds’ team keeps looking for such signals on a regular basis. 

Another example of how far ahead of their systems were was found out when Rennaisance tried to file for a Patent in 2016 for executing synchronized trades in multiple exchanges. In order to achieve this, they had to use one of the most precise time instruments on earth i.e. atomic clocks. These clocks are accurate down to a billionth of a second.

Medallion funds’ Results and Comparison

The unique strategies have helped the Medallion fund achieve 60 to 70% annual returns for over 30 years. According to Bloomberg, the fund has produced more than $US74.5 billion over a period of 28 years. This meant that the Medallion fund generated $10 billion more in profit than those run by legendary investors Ray Dalio and George Soros.

$1 invested in the fund would have earned you $20,000 after fees. Despite assessing the fund on the basis of net returns it still beats the S&P index where your investment for the same period would only result in $20. Let’s make the comparison harder and pit the returns against Warren Buffett’s Berkshire Hathaway. A dollar invested for the same period would have resulted in $100.

What Simons and his team have achieved at Medallion is nothing short of a miracle. The fund beats one of the greatest wealth creators the S&P500 index by 1,000 times and the greatest investor of all time by 200 times.

The fund has been soo profitable and consistent that Renaissance started charging its investors 5% in management fees and 44% in performance fees. This meant that in 10 years the fund itself would make more money than its investors.

Despite this, the fund received loads of interest once the word got out. However prospective investors were met by the unhelpful customer service which included the company’s legal department. 

Why is the Medallion fund only worth $10 billion?

Even the Medallion funds size is intentionally limited to only $10 billion. Simons has always believed that the funds’ size could hamper its performance. Due to this, the assets of Medallion are currently capped at $10 billion.

As the profits from Medallion are reliable the firm is able to leverage up to ten times its capital. This means that even though the fund asset is worth only $10 billion dollars they have a trading footprint of $100 billion. 

Having a fund that is too big also limits the investment alternatives. This also limits their ability to use the same Ghost Signals. The Signals used by Medallion also cannot handle a huge size. In order to maintain this size, the fund ensures that the profits are distributed every 6 months.

Employees of the Fund – ( no to wall street and riches and Simons as a manager)

Medallion fund in the midst of a crisis?

The ultimate test however comes in the face of crisis. The Medallion fund suffered a $1 billion loss in a few days during the 2008 financial crisis. But still made up for the losses and posted an 85.9% gain as the market began rebounding. In the midst of Covid when most funds were struggling to service Medallion flourished by posting a 116% gain before fund fees. 

Closing Thoughts

Most of you will be looking for the means to invest in this fund ASAP. Possibly some apps may assist you to invest in the US markets. Sadly for all of us, the Medallion fund stopped accepting money from external investors in 1993. By 2005 the firm had bought out all of the external investors.

Today access to the fund is only limited to the 300 employees working in Renaissance. Thanks to Medallion at least 100 of them are worth more than $5 million. The remaining at least worth $1 million. Despite being employees they aren’t free from the exorbitant fund charges.

From what we’ve seen so far it is clear that competing with Medallion is next to impossible. Primarily because it is a herculean task to assemble a team of the world’s greatest minds and get them to work in the stock markets and ensuring they have the best systems in place. 

Book on Jim Simons - greatest investor

That’s all for this post on the World’s Greatest Fund by Jim Simons. Find out here! If you found this interesting be sure to check out the book “The Man Who Solved the Market” by Greg Zuckerman. We think now you can answer who is the greatest investor of all time. Let us know what you think about Medallion. Are quant funds the future of trading? Let us know if you think such a fund will work in the Indian markets. Happy Investing!

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 StockState Bank of India
Type of tradeShorting or Short Selling
DurationIntraday
Shorting priceRs. 300
Quantity of Shares500
Profit Target (4%)Rs. 288
Stop LossRs. 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.

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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!

Stock Market Basics for Dummies – What Beginner Need to Know?

Understanding the Stock Market Basics for Beginners: Are you feeling caught up in the stock market frenzy where literally everyone you know has begun speaking in market jargon? This is a position I too found myself in a few years back.

Don’t worry as we have decided to cover some basics in order to get your foot in the door. This article covers the stock market basic topics like What are shares, why are they issued, why are they bought by us, and more. Keep Reading!

What are Shares?

One could say that Shares are the most popular financial instruments available for investments. A Share, also known as equity or stock, represents a unit of ownership of a particular company. The total capital of a company is divided into smaller equal units and each unit is known as a share.

The owner of the share will have a right to vote and benefit from the profits of the company and suffer the losses that the company makes. Investors who hold shares of a company are known as shareholders. The influence a shareholder will have on a vote or his profits/losses will depend on the total number of shares held.

Take for eg. ABC Ltd. has a market capitalization of Rs. 10 Lakh. Each share has a face value of Rs. 100, meaning that there are a total of 10,000 shares. A shareholder owning 1,000 shares will own 10% of the company. His vote will carry the same weight and will be entitled to the same portion of profits passed on to the shareholders as dividends. 

Let us take another example of stock from the Indian Share Market. For example, Tata Consultancy Services (TCS) has a total of 375.24 Crores of outstanding shares in the market. Out of all these shares, 72.05% are held by the promoters i.e. the Tata Group as of Jan 2021. The remaining shares are held by the Public, Domestic Institutional Investors (DII), Foreign Institutional Investors (FII), etc. If you’ve got 1,000 shares of TCS, then you own approximately (1,000/375.24 Cr)th part of the company.

As you own more shares of that company, your ownership in that company will increase and you’ll be entitled to more benefits like voting dividends, voting rights, etc. However, if the company doesn’t perform well, you’ll also be entitled to losses made by the firm as you’re also the partial owner of the company.

How many shares can be issued by a company?

There is no upper limit on the number of shares that a company can issue. They depend on the capital a company raises and the denomination it sets.

For Example, if ABC Ltd. had issued shares at a face value of Rs.10 for a total valuation of Rs 10 Lakhs, then ABC Ltd. would have a total of 100,000 shares at the same capital. However, the minimum number of shares however is 1. 

Stock market basics – How much is a share worth?

The face value or the intrinsic value of a share is set at the time when capital is raised by a company. Generally, it could be at Rs. 5, Rs. 10, Rs. 100 etc. The value of the total shares held here out of the total capital would show one’s ownership within a company. 

The market value of a share however is different. This is the value at which an investor like you and me can buy a share.

The market value of a share is dependent on the forces of demand and supply. These factors affect the price of shares just like commodities. Say the demand exceeds the supply of shares or availability of shares in the secondary market (stock exchanges) then the prices will shoot up. Vice versa and the shares will fall down.  

Once a company enters the share market, there is a share price associated with all the public companies at which investors and traders can buy and sell its stock. For example, 1 Share of TCS is currently trading at Rs 3,266.50. You can find the share price of all the public companies at any financial research websites like Trade Brains Portal.

Different Types of Shares

There however are many different types of shares. When considered on the basis of ownership:

— Preferential Shares 

These shares are preferential in nature. Investors who hold preferential shares are entitled to receive preferential treatment when it comes to profits of the company, in the event of the company winding up over equity shares. Preferential shareholders however do not have any voting rights.

— Equity Shares

In simpler terms, these are the regular shares that are available in the market. They make up most of the shares of a company. Equity Shareholders do have voting rights but are paid after preferential shareholders or in the case of the company winding up.

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Why do companies issue shares or Why do companies go for IPO?

ipo stock market

The first time when a private company enters the stock market and offers its shares to the public, it is called an Initial Public Offering or IPO or Going Public. The basic reason why companies issue their shares or go for an IPO is to raise capital or funds. 

Stock exchanges facilitate the exchange of shares for capital. The process involves shares being offered, shares being allotted to investors, and finally the shares being listed on an exchange where they can be bought and sold. By doing so companies can get access to a wider pool of investors which includes retail and domestic/foreign institutional investors.

Take the example of Tesla. Once Elon Musk sold PayPal he invested his fortunes in SpaceX, Tesla, and SolarCity. The $70 million which he invested in Tesla wouldn’t even get it close to where the company is today. For Tesla to truly grow in order to compete globally it required loads of funds. This was initially met through venture capitalists, but this too isn’t enough. The company opted for an IPO in 2010 raising $226 million. This could however only be possible if Musk was willing to let go of his ownership in the form of shares issued.

Similarly in India, there are a lot of private companies like Zomato, Paytm, Flipkart, Patanjali, etc whose shares are owned only the promoters currently, If they want to raise big money, they can offer their shares to the public via an IPO and enter the Indian stock market.

Now let’s take a look at why investors buy these shares?

Stock market basics – How do people make money from the Stock Market?

The main purpose of investors buying shares of a company is to make money. In the stock market investors make money in two ways. 

— Long Term Investing

The initial investment made by an investor in a company has the potential to grow at rates exceeding interest offered by savings accounts by multi-folds. Hence it is always advisable to stay invested in a stock for the long term.

Take the example of Bajaj Finance whose shares were worth Rs. 70.36 on 31 December 2010 is worth over Rs. 5200 today in April 2021. If you would have bought 100 shares of Bajaj Finance in 2010 at an initial investment value of Rs 7,036, your current investment value would be Rs 5.2 lakhs. Anyways, these investments must only be made after careful analysis of the company’s financials and if the shares are available at a cheaper price than their actual worth.

One of the best examples of long-term investors holding stocks for many years is Warren Buffet, whose net worth briefly exceeded $100 billion this year. 

Companies also reward those who stay invested through means dividends, bonus shares, right issues, etc. A portion of the profits of a company is distributed as dividends for each share held.

— Stock Trading 

Trading basically refers to the buying and selling of shares on a regular basis in the short term to make profits. These traders set strategies to take advantage of both rising and falling markets by buying and selling shares in a short time frame. Their profits however are infrequent and smaller per trade.  

How to Start Investing in Share Market?

Step 1: Learn the Basics

Step 2: Set up your brokerage account

Step 3: Research stocks & start investing

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How to Invest in Share Market in India? An Ultimate Beginner’s Guide!

Closing Thoughts

Now that you have understood the stock market’s basic terms like shares and why they are issued it is time to keep taking these baby steps as the world of investing is vast. Check out our article on How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Hope you have liked this small guide on some stock market basics. Let us know what other topics you would like us to cover. Welcome to the world of investing. All the best!

Lodha Developers IPO Review 2021 – IPO Price, Offer Dates & Details!

Macrotech Developers (Lodha Developers) IPO Review 2021: The Macrotech Developers IPO opens on 7th April and closes on 9th April 2021. In this article, we cover the Macrotech Developers (Lodha Developers) IPO review and look into important IPO information and find out the possible prospects of the company.

 

Lodha Developers logo

 

Lodha Developers IPO Review – About the Company

The Lodha Group was founded in 1980 and incorporated in 1995 by Mangal Prabhat Lodha as a real estate developer based in Mumbai. The company mainly focused on developing residential projects for affordable and mid-income. Its projects however were mainly concentrated in the Mumbai Metropolitan Area (MMA).

As the company kept growing they also took up projects in Pune and Hyderabad. The company also ventured into luxury housing and was well known for providing world-class standards. Their luxury projects include the Trump Towers in Mumbai.

In 2010, they set a record for India’s biggest land deal when they bought a plot from the  Mumbai Metropolitan Region Development Authority for Rs. 4,053 crores. The area is currently being developed as New Cuffe Parade.

They also went global when they entered the UK market in 2013 with an investment of 400 million pounds. They have developed the Lincoln Square project and the Grosvenor Square located in Mayfair.

Lodha – India’s largest Real Estate Developer

Lodha Developers Total Assets over the years

By 2014 they were already India’s largest real estate developer by residential sales value. They continue to be at the top to date. The flats offered by them are priced in the range of 35 Lacs to 59 Cr.

Their properties are sold under various brands. These include CASA, Crown – Lodha Quality Homes for affordable and mid-income housing projects. Lodha Luxury for luxury housing projects. However, it is the affordable and mid-income housing projects which accounted for 57.77% of their revenue in 2020. 

Much of their success is owed to their strong sales network. They are spread out across India and also in GCC countries, UK, Singapore, and the US. This is done to gain access to the NRI customers. 

Profit over the years | Lodha Developers IPO review

The company is currently implementing its plans to enter the development of logistics, industrial parks, and commercial real estate. Its logistics and industrial parks are currently being developed in Pallava over 800 acres of land.

Its commercial real estate projects include corporate offices, IT campuses, and boutique office spaces. These are sold under their brand names ‘iThink’, ‘Lodha Excelus’ and ‘Lodha Supremus’.

Lodha Developers IPO Review – Key IPO Information

The promoters of the company are Mangal Prabhat Lodha, Abhishek Mangal Prabhat Lodha, Rajendra Narpatmal Lodha, Sambhavnath Infrabuild, and the Sambhavnath Trust. Its founder Mr. Mangal Prabhat Lodha has played an important role in Lodha’s success so far. He has also served as the Member of the Legislative Assembly in Mumbai for five consecutive terms.

They have appointed Axis Capital, JP Morgan India, Kotak Mahindra Capital Company, ICICI Securities, Edelweiss Financial Services, IIFL Securities, JM Financial, YES Securities (India), SBI Capital Markets, and BOB Capital Markets as the book running lead managers to the issue. 

Link Intime India Pvt. Ltd. has been appointed as the registrar to the issue. 

ParticularDetails
IPO Size₹2,500.00 Cr
Fresh Issue₹2,500.00 Cr
Offer For Sale(OFS)---
Opening DateApr 7, 2021
Closing DateApr 9, 2021
Face Value ₹10 per equity share
Price Band₹483 to ₹486
Lot Size30 Shares
Minimum Lot1
Maximum Lots13
Listing DateApr 22, 2021

It is also important to note that this is the third time Macrotech has attempted to float its IPO. Lodha Group earlier tried to list in 2009 and 2018 but backed out citing unfavorable market conditions for the realty sector. 

Purpose of the Lodha Developers IPO

The real estate firm plans to raise money for the following purposes;

  1. Reduce outstanding borrowings of the company on a consolidated basis. Rs 1500 cr.
  2. Acquire land or land development rights. Rs 375 cr.
  3. Meet general corporate purposes

Lodha Developers IPO Review – Grey Market Information 

The shares of Macrotech Developers traded at Rs 506-511 as of 4th April 2021. This shows a premium of Rs 20-25 i.e. 4-5% over their IPO price band. 

Macrotech Developers (Lodha Developers) IPO Review – Competitors 

Their competitors include real estate developers such as:

  • Godrej Properties Limited
  • Oberoi Realty Private Limited
  • DLF Limited
  • Prestige Estates Projects Limited
  • Wadhwa Group Holdings Private Limited
  • Dosti Realty Limited
  • K Raheja Corp Private Limited
  • Hiranandani Developers Private Limited
  • Indiabulls Real Estate Limited
  • L&T Realty Limited
  • Rustomjee Builders Private Limited
  • Kalpatru Limited
  • Tata Housing Development Company Limited.

In Closing

The IPO opens on 7th April and closes on 9th April 2021. For retail investors, it can be a good opportunity to look into the company’s future prospects and apply for the IPO if they believe in the products and growth prospects of Macrotech Developers.

That’s all for this post. Do let us know what you think of the Macrotech Developers (Lodha Developers) IPO review. Are you planning to apply for this IPO or not? Comment below. Cheers!

What is Free Float Market Capitalization? MCap Methodology Explained!

FREE Float Market Capitalization: As a novice investor have you ever come across terms like Market Cap (MCpap) or the free float factor. In this article, we cover what is Market cap, how the MCap is computed, What is free-float market capitalization, and why it is necessary. Keep reading to find out.

What is Market Cap or MCap?

Stock Market Chart - Free Float Market Capitalization

Market Capitalisation (Mcap) gives investors the public perception of what a company is worth and is also used to further classify companies. It is calculated by multiplying all the company’s shares by the price of each stock in the market. Doing this gives us the total value of all the shares being traded in the market.

This figure gives investors an idea as to what the company is worth including its future prospects and what other investors are willing to pay for it in the present. Based on the MCap companies are further classified into

  • Large-cap companies – Rs 28,500 crore or more.
  • Mid-cap companies – above Rs 8,500 crore but less than Rs 28,500 crore.
  • Small-cap companies – less than Rs 8,500 crore

There are multiple ways to measure the market capitalization of a company. The two of the most commonly used methods are the total market capitalization method and free-float market capitalization. You can use TradeBrains’ portal to see the market capitalization of all the major Indian companies.

Let us have a look at how MCap is calculated in each of these methods along with examples. 

Free Float Market Capitalization Method

The shares can be further classified based on their ownership. Say shares may be held by retail investors or institutional investors, promoters, government, etc. What Free-float MCap does is it only includes shares that are readily available for trading in the secondary market.

Certain shares like those held by promoters are not freely traded in the market. The aim of this method is to distinguish between shares held for strategic control and others who invest based on the stock price.

According to the BSE, the following shares are to be excluded when computing MCap under free float:

  • Shares held by founders/directors/acquirers which have a control element
  • Shares held by persons/ bodies with “Controlling Interest”
  • The Shares held by the Government(s) as promoters/acquirers
  • Holdings through the FDI route
  • Strategic stakes by private corporate bodies/ individuals
  • Equity held by associate/group companies (cross-holdings)
  • Equity held by Employee Welfare Trusts
  • Locked-in shares and shares which would not be sold in the open market in the normal course

Therefore Free Float Mcap = (OUTSTANDING SHARES – Restricted Shares) * Price of shares in the market

For eg. ABC Ltd. has a total of 100,000 outstanding shares. Out of these 30,000 are held by the promoters. Apart from this, no other shares are restricted i.e. 70,000 shares are available to be freely traded in the market. If the shares are traded in the market at Rs. 50 it would mean that the MCap for the company under Free Float is Rs. 35,00,000. ( Rs. 50 * 70,000 shares)

Full Market Capitalization Method

Now let us understand the full market capitalization method which will help us better understand the difference between the two.

Under this method, the capitalization is computed using the total number of shares which include both the publicly available and the shares that are privately available. So under this method, the MCap of ABC Ltd. will be Rs. 50,00,000 ( Rs. 50 *100,000 shares).

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What is the Free Float Factor and How is calculated?

The free float factor gives us an idea of how many shares are freely available for trading in comparison to those total which also includes the privately held shares in the company. This gives traders and investors an idea of the number of shares that are available for trading.

Take once again the example of ABC ltd. the free float factor for the company will be 0.70. We arrive at this by dividing the shares available for trading to the public by the total shares outstanding i.e. 70,000 shares/ 100,000 shares. 

Why is Free Float MCap preferred over Total MCap?

The Free Float Market Capitalization is preferred mainly because it presents a valuation that shows the total number of shares that actually affect traders and investors who are participating in the market. Rather than include shares that are privately owned and cannot be accessed by anyone.

In addition, these restricted shares don’t play a role among the demand and supply factors for setting the price in the market. This allows the free float MCap to represent the sentiments of the market more accurately. This would not be possible in the case of Total MCap where a promoter or government holding a majority can have any influence.

Free Float is considered the best method globally in all stock exchanges. In India, both the NSE and the BSE use free float for their indexes i.e. Nifty and Sensex.

Does the Free Float Market Capitalization Matter?

The Free Float Market Capitalization allows investors to differentiate companies with the smaller free-float size and those with medium and large. It is important to note that the free float MCap is inversely proportional to the volatility of the shares in the market.

Companies with a lower free float factor would mean that it is easier for traders to influence the price. Companies having a higher free float factor would show a more stable stock as it is harder for a few large trades to influence the price.

The free float factor helps investors weed out the stocks to include only those that help meet their goals. Some investors may only prefer stocks with a large free float factor as they represent less volatile stocks.  

Closing Thoughts

The MCap and the free float factor are important criteria to look at while investing. In addition to this, they also have become exceptional instruments to ensure balance in investors’ portfolios and to weed out stocks. One must however carefully evaluate these factors before investing in a company.

Let us know your views about the post in the comments section below. If you are looking for a beginner’s guide on how to invest in the share market in India, you should check the article on our website. Happy Investing!

Top 7 Must Read Books for Trading in Stock Markets

List of Best Books For Trading: As one decides to take up trading there are several alternatives available. The best among all these alternatives being books. These would save novice traders a lot of time and money by helping them avoid several of these mistakes. Here is a list of some books which we feel are masterpieces when it comes to the world of trading.

Top 7 Books for Trading in the Stock Market

1. How to make Money in Stocks by William O’Neil

How to make millions in Stocks by William O’Neil

 The book is written by William a stockbroker and founder of the stock brokerage firm William O’Neil & Co. Inc in 1963. The book includes the CAN SLIM strategy which was invented by O’Neil and helped him become one of the top-performing brokers. Today this method is celebrated throughout the trading community worldwide.

Another fact which sets this book apart is that it is written based on research of over 100 years of stock price movements. The topics in the book include charts and notes along with a wide range of strategies and tips. 

2.  Getting Started in Technical Analysis by Jack Schwager – Best Books for Trading

Getting Started in Technical Analysis by Jack Schwager - Best Books for Trading

This is one of the best books available for any person looking to start out trading. Jack D. Schwager is a widely acclaimed trader and author.

He is also one of the founders of Fund Seeder where trading talents are discovered throughout the world and connected. The book comes with many examples and covers almost every basic topic.

However, the book is not only focused on the basics but also covers several chart patterns, technical indicators, and also explains how to identify entry and exit points. This book is one of the best starting points to set up a good foundation for trading.

3. Reminiscences of a Stock Operator by Edwin Lefèvre 

Reminiscences of a Stock Operator by Edwin Lefèvre

Just like every other genre trading too has its own set of classic books. Published in 1923, Reminiscences of a Stock Operator being one of them. The book is written by Edwin Lefèvre but is based on the legendary trader Jesse Livermore.

The book does not follow the same monotonous format by includes stories or better put the journey which provides a better insight into trading and the life of a trader. These stories also include instances that made successful trades and instances that could destroy a trader. 

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Value Investing and Behavioral Finance by Parag Parikh – Book Review

4. Technical Analysis of the Financial Markets by John J. Murphy – Best Books for Trading

Technical Analysis of the Financial Markets by John J. Murphy - Best Books for Trading

This book provides a great comprehensive introduction to technical analysis. The book is written by John J. Murphy who has worked as a technical analyst for CNBC for over 4 decades.

Although this is another important book for those entering the world of technical analysis what sets it apart is Murphy’s ability to convey complex topics in an easy-to-understand manner. You can find the book on Amazon here.

5. Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies by Andreas Clenow

Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies by Andreas Clenow

Stocks on the move is one of the most famous trading books that also gives an insight into trading strategies used by Hedge Funds. The author, Andreas Clenow has a stellar resume having worked for Reuters, founding and managing multiple hedge funds.

The book includes a detailed step-by-step explanation for his momentum trading strategy. The book also includes statistical evidence and backtested results. However, the book may be overwhelming to someone who has no base in statistics.

6. Market Wizards book series by Jack Schwager – Best Books for Trading

Market Wizards book series by Jack Schwager - Best Books for Trading

The market wizards book series is one of the most important trading books as it includes interviews with several top traders. This is the second time Jack Schwager appears on this list.

The series includes Market Wizards (1989), The New Market Wizards (1992), Stock Market Wizards (2001), and Unknown Market Wizards: The best traders you’ve never heard of (2020). These allow you to analyze the perspectives of several successful traders and also the challenges they faced.  

7. Japanese Candlestick Charting Techniques by Steve Nison

Japanese Candlestick Charting Techniques by Steve Nison

Candlestick charting technique is one of the most important tools used to analyze the market. Prior to Steve Nison’s work on this book, Candlestick charting was relatively unknown even in the west.

Thanks to this book the technique is one of the most widely used. The book gives a detailed explanation on the subject still making it easy to understand along with examples.

Bonus:  The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires

The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires

Another bonus book if you’ve made it so far into the list. The book covers the true story where 23 random stranger were included in a  2-week crash course on trading. Post the crash course the strangers were left to trade on their own. The book covers the strategies used by the 23 individuals which helped them make millions.

In Closing 

That’s all for this post. Let us know what you think about the books on the list in the comments section below. And also let us about the books you felt made the most difference in your trading journey. You may read ‘The Intelligent Investor by Benjamin Graham’ book review on our website as well. Happy Trading!

DMart Business Model and Success Mantra – How Does DMart Make Money?

DMart Business Model Explained: “One must not open any store within a 1km radius of DMart”. This is a common saying in the retail industry to avoid direct competition with DMart. So what makes DMart so special to customers or so threatening to its competition. What are the strategies that have catapulted the retail chain to where stands today? Keep reading to find out.

DMart Owner RK Damani Success Story cover 

DMart’s Growth Story

The success story of DMart is owed to its investor and trader turned entrepreneur ‘Radhakishan Damani,’ Now you know what the D stands for in DMart.

Founded in 2002, the DMart retail chain is owned by Avenue Supermarts. It started off with only two stores in the state of Maharashtra and today boasts 220 stores and 225 DMart Ready stores across 11 states and 1 union territory. DMart was also one of the few companies whose shares were listed at almost a 114% premium post its IPO.

Although DMart may fall short in terms of the number of stores it makes up for it in profitability. To put things in perspective in the FY 2014-15 Dmart booked profits of Rs. 211 crores beating both Reliance Retail and Future Retail which earned Rs. 159 crores and Rs. 153 crores.

Just a few days back you may have heard of DMart becoming an Rs. 2 trillion company. So …

What is DMart’s Business Model?

1. Product Mix

Have you ever examined the categories of products that are available in DMart? You would notice that they only sell those that fall in the category of Foods, Non-foods and General Merchandise, Apparel and other daily products. One may find this bizarre as retail chains also expand their product offerings to electronics, jewellery etc.

DMart has done this to ensure that the products they sell are in demand throughout the year. Thus maintaining consistency in sales and lower shelf life. This also meets their targeted low and middle-class’s daily household needs.

A little kid while shopping in a DMart Store | DMart Business Model

Being influenced by Walmarts in the late 90s Damani made it clear that they must follow the principles laid down by Sam Walton. Damani along with other promoters even walked other stores at the time to gain an understanding of what customers put in their trolleys and what not.

In addition to this DMart has also realised the importance of recognizing diversity in different states. DMart has identified this factor and tailored its product line to meet these expectations of consumers of the states it operates in. In order to achieve this DMart increased its dependency on local suppliers in each region. This further helps them achieve their targets instead of having a centralized model.

Although DMart sources its products locally they avoid private labels by directly connecting with the manufacturers. Although this gives customers limited options in comparison to other chains, they still are those of known brands which sell. 

2. Brick and Mortar Stores – DMart Business Model

One of the DMart Store in India | DMart Business Model

DMart may be one of the very few retail chains that actually owns the stores that they operate in. Yes, this is also something Damani has identified and adopted from Walmart. 90% of the stores are owned directly by DMart and the remaining are mostly taken on a 30-year lease. DMart so far has spent over Rs. 23 billion to buy their own land and stores.

One may think of this as retail suicide due to the huge cost involved in owning a store instead of renting. This however has helped DMart save a huge amount of money in the long term which otherwise would be paid as rent. It also saves them from the huge rents that other retailers bear in shopping malls.

This also ensures that the retail chain grows organically and only when they have the resources to do so making it stronger financially. This also provides them with a silver lining in the long term as the property value also increases in the long term. 

3. Strategic Locations and Designs

DMart has always tried to avoid malls and their inflated rents like a plague. Hence it chooses its locations in residential areas strategically. These decisions are further taking their targeted low and middle-class’s into consideration. Most of their stores are in the suburbs of metros, tier II & tier III cities. Their store size is set based on the density of the targeted customers around it.

If you enter a DMart store you would notice that DMart has decided to keep their stores simply. This has further saved up on costs that would otherwise be spent on expensive interior designs. This means that every individual who enters the store is a customer unlike those in malls taking an evening stroll. This makes DMart’s main competitors the local Kiranas who receive similar types of customers. 

3. Relationship with Suppliers

At the end of the day, it is DMarts relationship with its suppliers which sets its miles apart from any other retail chain. All retail businesses operate on credit.

DMart clears its credit payments on the 11th day itself and always maintains assured payment in about 15 days. Other players work on a 60 day credit period. This further helps them negotiate their products at a cheaper price from the suppliers. 

4. Discounted Products – DMart Business Model

All the strategies we’ve seen above finally lead to Dmarts ultimate strategy for Indian markets which is discounts. DMart offers its products at a 6-7 % lower price than other retail chains and at times 10% off MRP. This further attracts the low and middle-class’s to their stores.

Costs saved on inflated rent, designs, good relationships with suppliers are ultimately carried onto their customers. This allows them to maintain a loyal customer base as their customers already know that their desired products are available at cheaper rates at DMart. This even gives them an added advantage over local kiranas.

In Closing 

You may have observed that all the money saved through various strategies implemented were carried onto the customers further catapulting them to success. But another proponent that helped DMart was Damani’s investor mindset.

Being a value investor Damani gave importance to the long term view. In hindsight, none of the strategies would have worked if they weren’t diligently applied over the long term.

That’s all for this post. We hope the article was able to explain the DMart business model Let us know if you that Dmart has the potential to be crowned as India’s retail king. Happy Holi!

8 Biggest Bankruptcies in India in the Last 10 Years

List of Biggest Bankruptcies in India: Bankruptcies although a regular occurrence in the global business world is considered a taboo topic in India. Promoters would rather hide the fact that a company is going bankrupt and would instead create a facade of success. Understanding this government was forced to introduce the Insolvency & Bankruptcy Code. 

Petition to file for bankruptcy cover | Biggest Bankruptcies in India

This reform undertaken by the Modi government would allow creditors/lenders of a business can approach the National Company Law Tribunal (NCLT) when they have given up on receiving any of the loan amounts from the company. They would then be able to recover some amount through the sale of the company or its assets through bids to others. 

8 Biggest Bankruptcies in India

1. Dewan Housing Finance Ltd. – US$13.93 billion

Dewan Housing Finance Ltd. (DHFL) logo

Dewan Housing Finance Ltd. (DHFL) is a non-banking financial company that was established in the year 1984 by Rajesh Kumar Wadhawan. The company was set up in order to assist the lower and middle-income groups to avail housing finance in India’s tier 2 and tier 3 cities.  DHFL was the 2nd housing finance company to be set up after HDFC. 

The company performed well for over 3 decades maintaining good growth and even acquiring companies like Deutsche Postbank Home Finance. The company also took on slum development and slum rehabilitation projects in Maharashtra.

These projects and several others were financed through debt raised by the company. This orchestrated development of DHFL was however cut short after Cobrapost, a group of journalists published an expose on DHFL on 29 January 2019.

According to the expose DHFL had diverted the Rs. 31,000 crores from the loans they had taken to various shell companies for the personal gains of its promoters which included Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan.

Cobrapost also alleged that DHFL had made crores worth of donations to political parties possibly to keep them shielded. For eg. Rs. 14,282 crores worth of loans were diverted to these shell companies under slum development rehabilitation.

In addition, the Bharatiya Janta Party too received donations worth Rs. 20 crores. What earlier seemed like a well-orchestrated growth of DHFL now seemed like a well-orchestrated scam. 

DHFL Responds

Initially, the company denied these claims and Indian credit rating agencies reaffirmed their high safety rating for DHFL. However, the actions of the company spoke otherwise. They began selling a number of businesses to pay their debt. Later in 2019, DHFL defaulted in its bond payments and Rs 900 crore worth of interest payments. This forced the credit rating agencies to act. By now the stock price fell by over 97%. 

Due to their defaults, the RBI was forced to supersede the board of DHFL and began processing a resolution for DHFL under the Insolvency and Bankruptcy Code. DHFL would soon also be taken to NCLT. Investigations taking place in the background revealed further disturbing news.

Investigations following the trail of money had tracked it to Sunblink real estate in 2010. This led them to gangster Iqbal Mirchi an accomplice of Dawood Ibrahim. By December 2019 DHFL was stuck in bankruptcy courts for defaulting on Rs 90,000 crores of debt,  and their promoters were jailed on money laundering charges. Meanwhile, the RBI had approved the DHFL takeover by the Piramal Group.

2. Bhushan Power and Steel – US$6.9 billion

Bhushan Power and Steel Logo

Bhushan Power & Steel Ltd. (BPSL) was founded in 1970 and went on to become one of the top steel manufacturing companies in the country. Between 2007 and 2014 the company met most of its expansion needs through loans. These loans were used for meeting working capital requirements, purchase of plant and machinery, and other expansion related activities. This caused the company to raise over Rs. 47,204 crores from 33 banks and other institutions.

Despite this, the company maintained good growth and reasonable profits. This would have meant that at least the loans were being put to good use. BPSL however kept continuously missing payment deadlines. 

In April 2019 the CBI began investigating into the company and it was later revealed that the money was diverted to 200 shell companies. This caused the banks to suffer from huge NPA’s forcing the company into National Company Law Tribunal (NCLT). BPSL was eventually auctioned off to JSW Steel who offered an Rs. 19,700 crore repayment proposal. This meant that banks lost out on 60% of their loan amount. 

3. Essar Steel (US$6.9 billion) – Biggest Bankruptcies in India

Essar Steel Logo

Essar Steel was part of the Essar group which was set up in 1969 and is owned by the Ruia family. The company first fell into the debt trap in 2002 where it underwent Corporate Debt Restructuring for a debt of Rs. 2,800 crore. Luckily for Essar, the company survived and was back on track by 2006.

Essar once again took on its ambitious growth plans. Sadly these plans were hampered due to delay in environmental approvals and the non-availability of natural gas. By 2015 Essar was once again caught in a debt trap, but this time amounting to Rs 42,000 crore. The plans to rescue the company were met with plummeting commodity prices.

In June 2017, Essar was named among the list of 12 stressed accounts submitted by RBI that would have to undergo insolvency action under the IBC. Following this, the company was put under the National Company Law Tribunal (NCLT). Essar Steel was put up for auction and later acquired jointly by ArcelorMittal and Japan’s Nippon Steel. The company was renamed ArcelorMittal Nippon Steel India (AM/NS India).

4. Lanco Infra – US$ 6.3 billion

Lanco Infratech Limited Logo | Biggest Bankruptcies in India

Lanco Infra was founded in 1986 by Lagadapati Amarappa Naidu and his nephew Lagadapati Rajagopal who also was a member of the Lok Sabha. The Company’s growth in its initial year was unmatched as it received several large contracts primarily in construction.

Soon the company also entered other areas like power generation, transportation, solar energy, coal mining etc. By 2010 Lanco was among the fastest growing in the world. It was also India’s first Independent Power Producers and also its largest private power provider. 

Following the several policy reversals put in place in 2012 by the UPA government which were otherwise encouraged by them affected Lanco’s business drastically. According to India Energy Exchange, the monthly average merchant power tariffs in January 2012 were at around ₹ 3 per unit, down from a high of ₹ 10.78 per unit in April 2009.

Lanco’s revenue’s soon reduced which also made it difficult for the company to raise debt from banks. Due to its poor financials by March 2017, 60% of their expenses were interest payments.

In June 2017 Lanco Infra was named among the list of 12 stressed accounts submitted by RBI that would have to undergo insolvency action under the IBC. Once the largest infrastructure companies in India Lanco now faced insolvency proceedings by the NCLT.

5. Bhushan Steel (US$6.2 billion) – Biggest Bankruptcies in India

Bhushan Steel Logo

Bhushan Steel was founded in 1987 when Brij Bhushan Singal and his sons bought a steel factory in Sahibabad. The family quickly grew the business by including sophisticated Japanese machinery in their operations to manufacture steel.

What further accelerated their growth was the budding Indian automobile industry which began to take form in the country. This aided Bhushan Steel’s growth and allowed them to acquire clients like Maruti Suzuki, Mahindra and Mahindra, and Tata Motors. Its Client base further allowed Bhushan Steel to acquire loans which they used for their expansion needs. 

However, the dream run took a turn for the worst post the 2008 financial crisis when Bhushan Steel the commodity prices began to fall. Bhushan Steel already had been burdened by debt exceeding Rs. 11,000 crores. 

By 2012 the prices of steel had fallen to $300 from their heights of $1265 in 2008. This affected the steel industry as a whole but the companies were still able to avail loans as both the banks and Bhushan were optimistic that the prices would soon pick up.

Banks had extended almost Rs. 18,000 crores in fresh loans on this bet. But the good times never came. Although the company kept growing, it could not keep up with the debt as it was ₹31,839 crore, 3.5 times its equity. The company soon fell short of its debt repayment obligations. 

Bhushan Steel too was named among the 12 stressed accounts list submitted by RBI that would have to undergo insolvency action under the IBC. In 2019 the company was merged with Tata Steel and is today known as Tata Steel BSL Limited.

6. Reliance CommunicationsUS$4.6 billion

Anil Ambani | Biggest Bankruptcies in India

Reliance Communications (RCom) is today known to be Anil Ambani’s biggest failure. But Rcom once used to be one of the fiercest competitors. Anil Ambani had received RCom following the split of assets between the Ambani brothers after the death of their father.

One of the first mistakes that the company made was opting for CDMA early on over the other alternative i.e. GSM. This was a bad bet as GSM technology developed leaving CDMA behind. 

Anil Ambani however was quick to realise this and began investing in the 3G and GSM technology. This followed by an aggressive pricing strategy where he offered services often 60% cheaper than other telecom companies. This worked in his favour as RCom was India’s 2nd largest telecom provider in 2008. But by now RCom had already shelled out Rs 8,500 crore to buy 3G spectrum in over 13 circles. Trouble began brewing for RCom as it was caught amidst the 2G scam storm. 

The 2G scam had enabled almost 14 players in the industry which further skimmed profit margins. RCom slowly began losing its market share and stood 4th in the telecom sector by 2014. 

The final nail in Rcom’s coffin was the entry of Jio in Indian markets who also began providing free data services. By 2017 Rcom’s debt had ballooned to Rs 43,000 crore from Rs 25,000 crore in 2010. Estimates have shown that nearly half of the company’s debt was for buying spectrum. RCom stopped its operations in 2017 and began selling its assets to pay off its debt. The company was then sent to NCLT and Anil Ambani still faces trial over its dues. 

7. Alok Industries – US$4.1 billion

Alok Industries Limited Logo

Founded in 1986, Alok Industries was one of India’s leading textile manufacturers for world-class garments. The company maintained good growth and profitability. 

One of the first mistakes by Alok Industries was borrowing Rs. 10,000 crores for their expansion needs in 2004. The worst part was that Alok chose to use this to open new plants instead of enhancing or using their existing plant to full capacity. What Alok didn’t watch out for was the possibility of a fall in demand in the industry. These factors saw Alok’s asset turnover worsen in addition to low demand they also fell prey to cut-throat competition. 

Another one of Alok’s mistakes was entering the real estate market in 2007. It acquired properties in Lower Parel, Mumbai. The real estate market was adversely affected by post the 2008 financial crisis. 

Consistent losses and increasing debt further worsened Alok’s position. In June 2017 Lanco Infra was named among the list of 12 stressed accounts submitted by RBI that would have to undergo insolvency action under the IBC. Alok Industries had Rs.30,000 crores worth dues to be paid to its creditors. Reliance and JM Financial Asset Reconstruction Company won the bid for the company with a plan of Rs. 5000 crores.

8. Jet Airways – US$2 billion

Jet Airways Plane | Biggest Bankruptcies in India

Jet Airways was the country’s largest and longest-serving private airline. Founded in 1992, the airline was the first to fly a fleet of  Boeing 737-400 aircraft. At its peak, it even carried out 650 flights a day. When Jet failed many wondered if it was even possible for any airline to operate profitably in the Indian market. This was because Jet had followed Kingfisher’s failure. Jet too was prey to the airline industry. 

One of the major reasons for the Jets failure was the huge fuel expenses to be borne by the airline. Generally, 40% of the airline’s expenses are fuel. When aviation fuel gets expensive this is not always carried forward to the customers. This is because no player holds enough market share to influence the price. This in turn reduces the airlines’ profit margin due to competition.

In addition to this Jet suffered from depreciating rupee. This affects international airlines as they have to now pay more in dollars to other countries as rent, maintenance fees, and refuelling costs to international airports. The Rupee was also known as Asia’s worst-performing currency. 

These factors eventually led to the Jets failure.

In Closing

It makes it hard to believe at first that such huge bankruptcies have taken place. But looking back they also offer valuable lessons for businesses. A common theme occurring through all of them has been the ‘Debt’. If used correctly it may aid the growth of the business or face the same fate as the companies above.

That’s all for these biggest bankruptcies in India post, let us know in the comments what you think about the IBC and companies going bankrupt. Happy Holi!

What is Portfolio Backtesting? How to Perform it on Indian Stocks?

Portfolio Backtesting is a strategy used by investors and traders to backtest how a portfolio would have performed if they have invested in a few specific assets during a defined time frame. The results of the portfolio backtesting help investors to create their own strategy (or expectations) while investing with similar assets in an alike situations.

To perform stock research, Portfolio Backtesting is a powerful tool for stock market investors. However, there are very few quality tools available in the Indian market to backtest Indian stock portfolios. In this post, we’ll discuss how to backtest portfolio using the Portfolio Backtesting tool by Trade Brains.

Portfolio Backtesting Tool by Trade Brains

portfolio backtesting 1

Using Trade Brains’ Portfolio Backtesting tool, you can backtest your strategies to find out the returns that you might have got on any past investments. Here, you can test how portfolios would have performed if you’ve invested in different stocks with varied allocations for 5Yrs/10Yrs back, before Demonetization, amid COVID19, or any other desired time frame.

This advance portfolio backtesting feature allows you to build one or multiple stock portfolios based on different allocations and backtest their performance. Moreover, you can find the detailed result and can look into the absolute returns, CAGR, Portfolio growth, Y-O-Y or M-O-M returns in stocks on these portfolios.

Example: How to perform Portfolio Backtesting on Indian Stocks?

In this example, we’ll discuss how much returns you would have got if you’ve invested Rs One Lakh (1,00,000) in four companies Asian Paints, HDFC Bank, Hindustan Unilever (HUL), and Reliance between Jan 2014 to Jan 2019.

The allocations on all four stocks can vary in different portfolios. For example, an equally distributed portfolio will have Rs 25k invested in each stock. On the other hand, you can also give different weightage to some stocks in an unequally distributed portfolio.

portfolio allocation

Let’s backtest the return on these four stocks between 2014 to 2019. Here are the steps to perform Portfolio Backtesting on Indian stocks using Trade Brains Portal:

1. Got to Trade Brains Portal.

2. In the ‘Tools’ section on Top Menu Bar, select “Portfolio Backtesting”. Else, here is the direct link to the Trade Brains’ Portfolio Backtesting tool.

3. Enter the Start Date, End Date, and Initial Amount. For this example:

  • Start Date: 1st Jan 2014,
  • End Date: 1st Jan 2019 and
  • Initial investment amount: Rs 1,00,000

4. Next, allocate funds in different stocks to build your portfolio.

For Portfolio 1 (which is equally distributed), enter (25, 25, 25,25) which means 25% of Rs 1,00,000 allocated equally in each stock. In the other two portfolios take two different uneven allocations. For instance, (40, 40, 10, 10) and (20, 20, 30,30) allocation in stocks for Portfolio 2 and Portfolio 3.

portfolio backtesting 2 - allocations

5. Finally, Click on “Backtest”

After clicking on Backtest, a tabular result will appear that will show how much returns each portfolio would have made. Here is the result for the above example of portfolio backtesting:

portfolio backtesting result trade brains portal

From the above table, you can see that portfolio 1 has given a CAGR return of 18.81% per year. If you have an evenly distributed portfolio with the stocks of Asian Paints, HDFC Bank, HUL, and Reliance invested between Jan 2014 to Jan 2019, your investment amount of Rs 1,00,000 would have appreciated to Rs, 2,36,819.16 by 2019.

Note: You can look into the ‘Analysis’ segment on Trade Brains’ Portfolio Backtesting tool to get more details about the results of your backtest.

Further, please do notice that the second portfolio has given the best returns out of three with a CAGR of 19.81%. This shows that a better allocation can improve the final returns on the portfolio.

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Trade Brains Portal – How to use for Stock Research?

Closing Thoughts

In this post, we discussed what is portfolio backtesting and the exact steps to perform it on Indian Stocks using Trade Brains Portal. If we summarize, portfolio backtesting is a powerful tool to find the historical performance of a bundle of stocks and evaluate how much returns can be expected if a similar portfolio is made. Another important point that we learned from this post is that the returns on a good portfolio can be improved by an efficient allocation of money on different stocks, rather than investing evenly in all.

That’s all for this post. I hope this post was useful to you. If you’ve got any queries related to Trade Brains’ Portfolio Backtesting tool, do let me know by commenting below. I’ll be happy to answer your doubts. Have a great day and Happy Investing.

10 Best Stock Research Websites in India to Analyze Companies!

List of Top Stock Research Websites in India: A good stock research tool will make your stock analysis process a lot easier along with saving tons of time for you. In this post, we are going to look into the best stock research websites in India where you can analyze Indian companies and perform complete fundamental and technical analysis of stocks. All these websites are very powerful and provide quality financial data for the users.

In addition, there’s also a bonus section at the end of this post where we have mentioned a few other stock research websites in India that you should also check out. Therefore, do read this article till the end. Now, discuss the best stock research websites in India to analyze stocks. Here it goes.

10 Best Stock Research Websites in India

Here are the best stock research websites in India that will simplify your stock research process:

1) Moneycontrol

moneycontrol stock research

Moneycontrol is the most popular stock research website in India. It provides all the essential financial data (fundamental & technical) for the stock market traders and investors. You can find information about stocks, mutual funds, IPOs, the latest news, and more on the moneycontrol website. A few of the other key pieces of information on this website are market news, trends, charts, livestock prices, commodities, currencies, personal finance, etc.

2) Screener.in

screener dot in stock website

As the name suggests, this is a screening tool for Indian stocks. Screener.in is a familiar stock research website in India. Along with the stock screening, users can find the financial details of public companies in India for the last ten years on this website.

Most of the features on Screener are absolutely free. Here, you can find key stock informations like financial ratios, charts, analysis, peers/competitors, quarterly results, annual results, profit & loss statements, balance sheet, cash flows, etc.

3) Trade Brains Portal

trade brains portal best stock research website in India equity

 

Website: https://portal.tradebrains.in/

Trade Brains Portal helps stock market investors to make efficient stock research and analysis of Indian stocks by providing quality fundamental data with interactive visuals. Here, you can find the last 5 year financial data of all publically listed companies on NSE and BSE.

Along with financial data, this Trade Brains Portal offers many useful tools for stock research like Stock Screener, Compare stock tool, portfolio analysis, backtesting, and more.

4) Marketsmojo

marketsmojo

Started by the Ex-founding team of Moneycontrol, Marketsmojo is yet another popular stock research website in India. Here, you can Research across 4,000 stocks, analyze fundamentals and technicals, track your portfolio, and more. Marketsmojo provides pre-analyzed information on all stocks, financials, news, price movement, broker recommendations, technicals, and everything that matters in the Indian stock markets.

5) Trendlyne

trendlye stock research

Trendlyne is another powerful stock research website in India for performing fundamental and technical analysis. It offers few exclusive stock research features in India like Trendlyne’s trademark DVM Stock Scores, unlimited alerts, stock recommendations from analysts, SWOT, portfolio and watchlist tools, and a real-time newsfeed, and more.

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7 Must Know Websites for Indian Stock Market Investors

6) Tickertape

tickertape stock research

Tickertape is a comprehensive stock research website in India that provides financial details for Stocks, ETFs, Indices, and Mutual Funds. It is powered with smart features like its informative asset pages, screener, watchlist, and more. A popular tool by Tickertape is the “Market Mood Index” which is a sentiment tool that describes the current mood in the market as emotions, ranging from extreme fear to extreme greed.

7) Investing.com

investing.com stock research website

The Indian version of Investing.com websites provides stock data along with financial news for Indian companies. Here, you can get the data of both fundamental and technical analysis of stocks. Some popular features of the Investing.com website are Stock Screener, Economic Calendar, Portfolio/watchlist, etc.

8) Yahoo Finance

yahoo finance

https://in.finance.yahoo.com/

Yahoo Finance is probably one of the oldest stock research websites in India. Along with finance and stock market news, it provides complete financial results and stock quotes on Indian public companies.

9) Finology Ticker

finology ticker

Ticker by Finology is a known stock research website in India. It provides the financial results of Indian publically listed companies for the last five years. Along with financial results, a few other key features of the Finology ticker are its featured stock bundles, indexes data and curated news.

10) StockEdge

stockedge stock research website

Stockedge Web offers financial data of Indian public companies for performing both fundamental and technical analysis of stocks. A few key features of StockEdge are Technical Tools, News & Analysis, FII/DII Activity, Investor portfolio, and Edge Reports. In addition, it also provides mutual fund information.

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7 Best Stock Market Apps that Makes Stock Research 10x Easier!

Bonus: Other Popular Stock Research Websites in India

Along with the above-mentioned websites, here are a few other popular stock research websites in India to find and analyze companies.

That’s all for this list of Best Stock Research Websites in India to Analyse Companies. Do let us know which is your favorite stock research website in India by commenting below. Have a great day and Happy Investing.

Most Profitable Companies in India – Top 10 Largest Companies by Net Profits!

List of Most Profitable Companies in India (FY19-20): How often do you have a look at the profitability of the company before you invest? You’ll often come across rankings of the largest companies in India. But how many of these aren’t overvalued and actually generate sufficient profits for returns.

In this article, we take a look at the most profitable companies in India by comparing the Net Profit for the financial year ending March 2020.

Top 10 Most Profitable Companies in India

Here are the companies which generated the highest net profit for the financial year (FY) ending March 20. Please note that all the net profits are for the Standalone financial statements.

1. Tata Consultancy Services (TCS)

TCS profit over the years | Most Profitable Companies in India

Tata Consultancy Services (TCS) tops the list for the most profitable company in India. The Indian IT giant earned Rs. 33,260 crores for the financial year ending March 20.

TCS is a subsidiary of the Tata Group and specializes in information technology. Thanks to its profitability for several years now TCS also generated more than 70% of its parent company’s dividends for the years 2014-17.

The company also currently holds the record for the world’s largest IT company with a market capitalisation of $169.2 billion. This also makes it the most valuable IT services brand worldwide.

TCS performance in different segment

The company earns most of its revenues from software development and maintenance followed by IT enterprise consulting. Their other revenue streams are generated from banking, financial services, and the insurance sector. This make-up almost half of their revenues.

Although the company is based in India TCS makes most of its revenue from its US-based clients. For the year 2020, the company brought in around Rs. 82,000 crores from the US or 10.8 billion U.S. dollars. As of 2016 TCS held a 3% market share in the North American Market.

2. Reliance

Reliance Profit over the years | Most Profitable Companies in India

Reliance Industries Limited (RIL) bags the spot for the second most profitable company in India for the year 2019-20 after earning Rs. 30,903 crores.

The company enjoyed many years with ‘India’s Most Profitable Company’ title but was finally dethroned by TCS in 2019-20.

Reliance profit in different segment FY2020

The company is a conglomerate with businesses engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications. RIL however is the largest publicly traded company in India by market capitalisation.

3. HDFC

HDFC Profit over the years

Housing Development Finance Corporation Limited (HDFC Ltd.) is one of the most profitable companies in India. They earned Rs. 17,769 crores during the 2019-20 financial year. The company was set up in 1977 with the objective of encouraging homeownership by providing long-term finance.

Today, HDFC is a parent company to various companies engaged in the financial services sector. It is also a major housing finance provider in India.

The company has an interest in banking, life and general insurance, asset management, venture capital, realty, education, deposits, and education loans.

Its subsidiaries include HDFC Bank Limited, HDFC Standard Life Insurance Company Ltd., HDFC ERGO General Insurance Company Ltd., HDFC Asset Management Company Ltd., GRUH Finance, HDFC Venture Capital Ltd., HDFC RED, and Credila Financial Services Private Ltd.

4. Infosys

Infosys profit over the years | Most Profitable Companies in India
Infosys Ltd. is one of the most profitable companies in India having generated profits of Rs. 15,543 crores for the year 2019-20. The company is also the second-largest Indian IT company after Tata Consultancy Services (TCS).

Revenue of Infosys by segment

Despite having its core business in the IT industry the company has interests in various other industries. These include Aerospace and Defence, Agriculture, Consumer Packaged Goods, Financial Services, Healthcare, Industrial Manufacturing, Insurance, Life Science, Logistics, Mining, Oil and Gas, Retail, etc.

5. ITC

ITC profit over the years | Most Profitable Companies in India
ITC is an Indian conglomerate and the second company on the list which is part of the Tata Group. The company successfully earned revenues of Rs. 15,136.05 crores.

ITC was set up in 1910 as Imperial Tobacco Company of India Limited and comes with a rich history.


(Revenue of ITC Ltd. by segment for 2020)
Revenue of ITC in different segments

Today the company has its presence across industries like Cigarettes, FMCG, Hotels, Packaging, Paperboards & Specialty Papers, and Agribusiness. The company however still earns most of its revenue from the Cigarette Industry.

Also Read

Top 10 Companies in India by Market Capitalization

6. HDFC Bank

HDFC Bank profit over the years

HDFC Bank is an Indian banking and financial services company. It is also one of the most profitable companies in India. The company earned profits of Rs. 14,114.93 crores for the year 2019-20.

The company is India’s largest private sector bank by assets also the largest banking company by market capitalization.

7. ONGC

ONGC profit after tax over the yearsOil and Natural Gas Corporation (ONGC) is a multinational oil and gas company. It is owned by the Ministry of Petroleum and Natural Gas, Government of India.

The company entered the list after it made Rs. 13,444.54 crores despite suffering a 50% fall in its profits. ONGC produces around 70% of India’s crude oil and around 84% of its natural gas. The company is also India’s largest profit-making PSU and 7th on the list of most profitable companies in India.

ONGC also owns 51.11% shares in Hindustan Petroleum Corporation Limited (HPCL) another Indian state-owned oil and natural gas company.

8. Coal India

Coal India profit over the years | Most Profitable Companies in IndiaCoal India Limited (CIL) is a coal mining and refining entity owned by the Indian government. The company earned a profit of Rs. 11,280.88 crores for the year 2019-20.

Coal India is also the largest coal-producing company in the world. They currently have aimed at achieving an output of 1 billion tonnes by 2023-24. It currently contributes around 82% of the total coal production in India.

Its subsidiaries include Bharat Coking Coal Ltd. (BCCL), Central Coalfields Ltd. (CCL), Eastern Coalfields Ltd. (ECL), Mahanadi Coalfields Ltd. (MCL), Northern Coalfields Ltd. (NCL), South Eastern Coalfields Ltd. (SECL), Western Coalfields Ltd. (WCL), Central Mine Planning and Design Institute (CMPDI), North Eastern Coalfields, Coal, India Africana Limitada, and Dankuni Coal Complex.

Sadly the company not only ranks 8th on the list of most profitable companies but also on the list of top 20 firms responsible for a third of all global carbon emissions.

9. Power Grid Corp.

Power grid profit over the years
Power Grid Corporation of India Limited is engaged in the transmission of power. It is owned by the Government of India. The company earned a profit of Rs. 10,811.18 crores for the year 2019-20.

Income and revenue distribution of Power Grid Corporation

The company is responsible for around 50% of the total power generated in India through its transmission network. The company is also involved in the telecom business through its company POWERTEL.

10. NTPC

NTPC profit over the years | Most Profitable Companies in IndiaNational Thermal Power Corporation Limited (NTPC) is engaged in the business of generation of electricity and its allied activities. The company earned a profit of Rs. 10,112.81 crores for the year 2019-20.

NTPC is yet another government enterprise to make it into this list. The company generates and then sells electricity to state-owned power distribution companies and State Electricity Boards.

Currently, NTPC is the largest power company in India. Over the years they also have ventured into oil and gas exploration and coal mining activities.

#12 Companies with the Highest Share Price in India (Updated)

Closing Thoughts 

The profits from these firms are enough to make any accountant drool. That’s all for this post. Here we listed the most profitable Indian companies and the most profitable businesses in India which are the largest in terms of their net profit.

S.No.Company NameNet Profit in FY19-20 (₹ Crore)
1TCS33,260
2Reliance30,903
3H D F C17,769
4Infosys15,543
5ITC15,136
6HDFC Bank14,114
7ONGC13,444
8Coal India11,280
9Power Grid10,811
10NTPC10,112

Let us know what you think about the profits generated and how important they are when investing. You would also like to know who are the top 10 companies in India by market capitalization. We are almost nearing the end of the Financial year 2020-21. Which company do you think will take the top spot for most profitable this year?

Why Investing in Stocks is NOT Gambling? Myth Simplified!

Myth Solved – Why Investing in Stocks is NOT Gambling: How many times have you been discouraged from investing by being told that it is just another name for “Gambling”? For some of us if we had a dollar every time we heard that we’d have to classify it as a source of income. In this article, we take a closer look at the century-old myth and debunk why investing in stocks is NOT gambling.

But before jumping into their differences let us understand what the two words investing and gambling mean.

What is Investing?

The basic purpose of investing is directing your liquid capital towards companies that need it. This however is done with the intention of generating income or profit. But along with this while investing one’s money into a company one also boosts the wealth of the economy as it helps them commit that capital to assets to increase productivity, aid growth, hire more people, etc.

This leads to an increase in the value of the company and an increased value of our investment in it. Investing is not devoid of risk which depends on the factors like the level of research, the period of investment, etc.

Also read: How to Invest in Share Market in India? An Ultimate Beginner’s Guide!

What is Gambling?

What is Gambling?

Gambling, also known as betting is wagering money or something of value on an event whose outcome is uncertain. This is done with the aim of winning the prize money. Some examples of gambling are Lotteries, Card games(poker, blackjack), Slot machines, etc. 

Differences between Investing in Stocks and Gambling

Although both of them include a series of decisions, risks and are done with the aim of profitability they have a lot of key differences.

1. Level of Control

Investors and gamblers have varying possibilities of mitigating their losses. After deciding how much they want to invest, investors can choose the asset class they want to invest in which have varying levels of risk. For example assets like bonds have low-risk low returns whereas stocks have a high risk with the possibility of a higher return.

In addition, the size of the companies also offers varying risks, eg. blue-chip stocks have lower risk in comparison to small-cap stocks. In addition, investors also have the option to save their capital. If they find out that their investment has begun making losses they can always decide to sell their investments.

Gambling on the other hand is a sum-zero game. Out of all the money pooled it is only a few or in some cases only one person who wins big at the expense of others. It also diminishes the possibility of you winning your capital back or limiting losses. Take the lottery ticket for eg. if you do not win the lottery you have lost the complete Rs.1000 capital you poured into the ticket.

2. Environment

The environment differs massively between the two. Investing has been made so accessible that one can pursue a career in trading from the luxuries of their homes and investing can simply be done through smartphones. 

Gambling on the other hand is a completely different ball game. Although there are online means and lotteries casinos still occupy the greater share. Casinos bring shows, food, drinks, and a lot more to the table. Most casinos are designed in order to play on the weaknesses of human psychology. These include glittering lights, music, and free drinks, all these set at dulling your senses, weaken your decisions, and most importantly keep you there all night long.

3. Stock Exchange vs. The House

For investors stock exchanges simply serve as a medium or platform for investing to take place. They charge minimal amounts for every trade and strive for increased efficiency.

 The house in gambling refers to casinos, bookmakers, slot machines, etc. It is a common term in gambling that the house always wins. The games generally have different varied edge over the players with benefits going to the house. In card games, the advantage for the casino might only be 0.5%, but certain types of slot machines might have a 35% edge over a player—other games fall somewhere in between.

4. Time Factor

In investing the longer you stay the lower your odds become of making losses. This is the exact opposite of gambling. it does mean that the more you play, the more the math works against you. There are greater chances of you walking out of the casino with less money than when you came in. Take the examples of slot machines, they have odds ranging from one in 5,000 to one in about 34 million chance of winning the top prize when using the maximum coin play.

The period of participation also differs here, when investing your participation can actually span decades. At the same time even if the shares may not increase significantly in value investors are still rewarded for staying invested in the form of dividends. When it comes to gambling once the game or race or hand is over, your opportunity to profit has gone.

5. Information

Knowledge is power! Information is important for both investing and gambling but it is available in varying amounts. Investing is abundant with information that is ready to use. Company earnings, financial ratios, research analyst reports, can be easily found online before investing. When it comes to gambling the information available is extremely limited and worse it is not always quantifiable.

ALSO READ: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Closing Thoughts

In this post, we discussed why investing in stocks is NOT gambling. Despite a number of differences stock market investing can still become a gamble for many. This is because of investing without research, speculation, investing all your money ina single stock, etc.

Investing after doing a thorough study is rewarding in the long term whereas flipping a coin to select a stock makes it a gamble. Although the stock market is hard to understand it sure does make much more sense than a casino.

6 Must Watch Bollywood Stock Market Movies & Web Series!

List of Top Bollywood Movies on the Stock Market: Finally a middle ground I share with many people i.e. movies. Growing up many of us may have experienced that we, at times learned a lot simply by being glued to a screen. Take me for example, dubbed anime combined with western kid flicks played a very important role in developing my vocabulary over the years. Which I wouldn’t have learned otherwise simply by reading my grammar textbook. 

You can’t deny that these movies have played some role whatsoever in developing our likes and dislikes over the years. Or at least got us interested in something which we otherwise wouldn’t have dreamt reading about or learning in a school. One such niche genre of movies are those related to the stock market. In this article, we list the Bollywood movies on the stock market which got many lured by the razzmatazz of the investing world. 

Top Bollywood Stock Market Movies and Series

Although many of us have gotten used to gaining information and pleasure by reading a book or balance sheet probably. Here is a list of 6 Bollywood movies revolving around the stock market that anyone involved in the field must watch at some point in their lives.

1. Scam 1992

“Are you serious?”. This is how your friends would react if you stated that you still haven’t seen this masterpiece. Many may not even be surprised that this movie tops the list. Released in 2020 and available on Amazon Prime, the series is based on the life of infamous investor and trader Harshad Mehta aka the “Bachchan of BSE”.

What makes the series even more binge-worthy is the struggle portrayed by a middle-class man to make it to the top. And for many, the series also brings along with it a sense of nostalgia from “Bombay” in the early 90s. 10/10 would recommend. The series is available on SonyLiv. If you’re still not convinced, the movie has received an IMDb rating of 9.4!

2. Baazaar

Released in 2018, Bazaar is another must-watch movie that revolves around money, power and the stock market. In addition to the thrilling story, the movie also includes stars like Saif Ali Khan and Radhika Apte.

The story revolves around Rizwan Ahmed a stock trader who finally gets a break to work for his idol, Shakun Kothari. Rizwan’s life however is in for a twist. The movie is available on Amazon Prime and has received an IMDb rating of 6.7. 

3. Gafla

Gafla movie poster | Bollywood Movies on the Stock Market

If there was one movie that was ahead of its time it is Gafla. Released in 2006, Gafla too is based on the life of infamous investor and trader Harshad Mehta. If one is already familiar with the Harshad Mehta story, Gafla allows one to observe the story from a different perspective.

Luckily for us, the movie is available for free on Youtube. The movie has received an IMDb rating of 7.3 and 53% on Rotten Tomatoes.

ALSO READ

Top 10 Stock Market Movies That Every Investor Should Watch!

4. Corporate

Another must-watch movie based on the world of investing is Corporate. Released in 2006, the storyline is based on Nishi, an ambitious woman trying to make it big in the corporate world.

The movie has a star cast that includes the likes of Bipasha Basu and Kay Kay Menon. The film did well in the box office and has an IMDb rating of 6.5 and 60% on Rotten Tomatoes. Lucky for us again this movie is available for free on Youtube.

5. The Big Bull

Yes, a third film based on the life of infamous investor and trader Harshad Mehta. I’m now wondering how crazy his real life must have been to have three entertainment projects based on him. The movie however is yet to be released on 8 April 2021. The trailer however has already got many interested anticipating its release.

The movie includes a star cast of Abhishek Bachchan, Ileana D’Cruz, Saurabh Shukla and Ram Kapoor. For those waiting to see how Abhishek Bachchan will play the “Bachchan of BSE” the movie will release on Disney+hotstar.

6. Share Bazaar

Share Bazaar movie poster | Bollywood Movies on the Stock Market

It would take one a while to get a hold of this movie but it really exists!. Released in 1997, the story revolves around powerful investors the Mehta brothers who try to ruin 2 men Shakar and Raj. The movie includes a star cast of Jackie Shroff, Ravi Kishan, Anupam Kher, and Dimple Kapadia. The movie has received an IMDb rating of 5.4.

Closing Thoughts

This completes the list for Bollywood movies and series revolving around the stock market. These also play an important role in inspiring people and informing them about the stock market. You should also see the list of must-watch stock market movies.

Don’t you think we should have more movies/series in the Bollywood industry about the stock market? Let us know what you think about the list and also let us know how you would rate these movies in the comments below. Have a good time!

Why Do Companies Like MRF Don’t Split the Stock?

Ever wondered why do companies like MRF don’t split the stock? If you check the current market price of MRF Share, it’s hovering at a whopping price of Rs 84,470 per share. Its all-time high for the last 52 weeks is Rs 98,599. Even though the price of one share is too high for this company, the interesting question here is why the MRF’s management/promoters are not splitting its shares? After all, buying a stock at Rs 84,470 per share is not financially viable for most retail investors.

In this article, we are going to answer the same. Here, we are going to discuss why companies like MRF don’t split the stock. However, before we discuss these expensive stocks, let’s first study why companies split their stocks?

MRF latest Share price - most expensive share in India

Quick Note: If you are do not know what is stock split and bonus shares, then check out this post first- Stock split vs bonus share – Basics of stock market

An Interesting study on companies that Rapidly Split Stocks in Past

You might have heard about the wealth creation story of Infosys. A small investment in the 100 shares of Infosys in 1993 would be worth over Rs 6.04 crores by now. (Also read: How to Earn Rs 13,08,672 From Just One Stock?)

In the last 25 years, Infosys has given multiple bonuses and stock splits to its shareholders. And, that’s why the share price of Infosys is still in the affordable purchase rate for the average investors. In fact, if Infosys has not given so many bonuses and splits, the price of one share of Infosys might have been over multiple lacks by now. Here is the bonus and split history of Infosys from 1993 till 2018:

infosys split

(Source: Moneycontrol)

Besides, Wipro is another common stock with a similar story. Because of its consistent bonuses and splits, the Wipro share is still in the purchase range for the retail investors. Else, if the management had decided not to give any split or bonus, then the share of Wipro might also have been over multiple lakhs and maybe over crores by now. (Also read: Case Study: How 100 shares of WIPRO grew to be over Rs 3.28 crores in 27 years?)

The big question – Why do companies split a share?

Here are four common reasons why companies split their shares-

  1. Stock splits help the companies to make the share price affordable for retail investors. For example,  if a company is trading at a share price of Rs 3000 and it offers a stock split of 10:1, then it means that its price will drop to Rs 300 per share after the split. Now, which price is more affordable to the public- Rs 3,000 or Rs 300? Obviously, Rs 300.
  2. The stock split makes the stock more liquid and hence increases its trading volume. This is because the total number of outstanding shares increases after the stock split.
  3. Splitting a stock does not affect the financials of a company. Although the outstanding shares of the company will increase after the split, however, the face value will decrease in the same proportion. Overall, stock splits don’t affect the financials and hence the companies are willing to go for it.
  4. As small and retail investors are more interested in affordable shares, stock splits help in increasing their participation and overall helps the companies to build a broadly diversified investor base for their stock.

Overall, in terms of value, the stock split doesn’t matters much as the financials of the company remains the same. However, by splitting the shares- the company is able to keep the shares affordable to the public and hence maintains a wide ownership base.

Companies that do not split their shares – List of few Costliest Shares!

The reasons to split shares might be clear by reading the above paragraph. However, the next big question is why few companies do not split their shares? Why the share price of many stocks in the share market is still in the 5 figures if they have an option to split their stocks.

If you check the current market price of the companies listed on the Indian stock exchange, you can find out that there are many companies whose share price is above Rs 5,000. Here are a few of the top ones:

CompanyIndustry Market Cap (Rs Cr)Current Price (Cr)
MRF Ltd.Tyres & Allied35528.2983770.55
Honeywell Automation India Ltd.Consumer Durables - Electronics39314.5844465.85
Rasoi Ltd.Consumer Food303.231387.65
Page Industries Ltd.Textile33131.1929703.75
3M India Ltd.Diversified30843.2527379.55
Shree Cement Ltd.Cement & Construction Materials97260.3526956.3
Nestle India Ltd.Consumer Food159994.6516594.25
Abbott India Ltd.Pharmaceuticals & Drugs31139.5814654.4
Bosch Ltd.Auto Ancillary42343.1314356.7
The Yamuna Syndicate Ltd.Trading433.3514099
Tasty Bite Eatables Ltd.Consumer Food3559.8213873.05
Procter & Gamble Hygiene & Health Care Ltd.Household & Personal Products42288.0613027.45
Bombay Oxygen Investments Ltd.Industrial Gases & Fuels153.7410249
Bharat Rasayan Ltd.Pesticides & Agrochemicals4082.519608.75
Bajaj Finserv Ltd.Finance - Investment149727.659408.7
Polson Ltd.Chemicals106.638885.9
Paushak Ltd.Chemicals2479.928046.15
Indiamart Intermesh Ltd.e-Commerce24265.637991.65
Sanofi India Ltd.Pharmaceuticals & Drugs17683.377678.2
TTK Prestige Ltd.Consumer Durables - Domestic Appliances10043.827231.65
Maruti Suzuki India Ltd.Automobiles - Passenger Cars214573.517103.2
Lakshmi Machine Works Ltd.Textile - Machinery7439.486963.85
Atul Ltd.Chemicals20425.576903.55
Ultratech Cement Ltd.Cement & Construction Materials194197.976728
Procter & Gamble Health Ltd.Pharmaceuticals & Drugs10543.516351.75
Wabco India Ltd.Auto Ancillary11639.556136.55
Kama Holdings Ltd.Plastic Products3556.685512
Hawkins Cookers Ltd.Consumer Durables - Domestic Appliances29125507
Gillette India Ltd.Household & Personal Products17895.315491.85
Bajaj Finance Ltd.Finance - NBFC324743.365389.15
Alkyl Amines Chemicals Ltd.Chemicals10885.795332.85
Schaeffler India Ltd.Bearings16580.545303.95
Affle (India) Ltd.Telecommunication - Equipment13510.525299
SRF Ltd.Diversified31296.585282.55
Blue Dart Express Ltd.Courier Services12436.885241.45
Bayer CropScience Ltd.Pesticides & Agrochemicals22897.555094.9

Quick Note: The above prices and values are updated till March 2021!

All these shares are not easily affordable for the average retail investor. Even the shares of Maruti are trading at a current price of above Rs 7,100. 

Why Do Companies Like MRF Don’t Split the Stock?

Why do companies like MRF don’t split the stock

Here are a few common reasons why few companies do not split their shares:

1. They are already doing good. Why bother to split?

Many of these companies are already good. Then, why should they bother to split the share and make it cheap?

For example- MRF was trading at a share price of Rs 6,358 in March 2010. Currently, as of March 2021, it is trading at Rs 84,470. The people might have argued that the stock was expensive and not affordable even in 2010. However, it has done pretty well in the last 11 years and given a return of over 1,100% to its shareholders.

mrf latest share price march 2021

In short, if a company is doing good, they why it should bother to go through the splitting process. It’s already making money for itself and its investor, even when the share price is expensive.

2. No financial benefits

There are literally no financial benefits while splitting the shares. The value of the stock remains the same after stock splitting (the financial statements and ratios don’t change). That’s why until and unless the promoters have any good enough reason, the share splitting does not appeal much to the management and promoters.

3. Keeps Speculators away

The stock split increases liquidity and makes the stock affordable. This results in an increase in the participation of retail investors and traders. And with an increase in participation, speculation also increases. On the other hand, a high share price helps to keep the traders and speculators away from the stock. Only serious investors are the ones who can find these companies appealing and might want to enter these stocks.

Another benefit of the high share price is that it keeps the newbie investors away from them. As the new investors are mostly attracted to the affordable companies and are not willing to invest a high amount, therefore their participation is quite low in these companies.

4. Limited Public Shareholding

The high share price of a company results in limited public shareholding. Retail investors and traders can’t easily enter such stocks. Sometimes, this also helps in decreasing the volatility in the share price. Moreover, by allowing the high share price, the promoters tend to keep the voting right in their hands. This helps in maintaining a static voting right which allows the owners to make key decisions without much interference.

Besides, fewer public shareholding also helps in avoiding scenarios like creeping acquisition or in worst case hostile takeovers. Expensive stocks discourage acquisition.

5. Symbol of Status and Uniqueness

Do you know that one share of Warren Buffett’s company- Berkshire Hathaway costs around Rs 2.74 crores? Yes, that’s true. The current share price of Berkshire Hathaway Inc. Class A is $3,77,440. Similarly, MRF is known in India for such an extremely high share price.

A high share price can be sometimes regarded as a symbol of status. Splitting that share means losing this exclusiveness.

Closing Thoughts

There are no specific guidelines or rules from SEBI or any stock exchange about a stock split. Therefore, the prices of the shares can go as high as they can and the company is not obliged to offer any split.

As we discussed in this article, there are both pros and cons of a high share price. The biggest advantage of a high share price is that it helps to keep the traders and speculators away from that share. Anyways, a company might choose whether it wants to split a share or not- depending on what suits them best for their interests.

That’s all for this post on Why Do Companies Like MRF Don’t Split the Stock. I hope it was helpful to you. If you still have any doubts/queries on this topic, feel free to comment below. I’ll be happy to help. Take care and Happy Investing!

Sensex 30 Companies – List of 30 Stocks of Sensex by Weightage [2021]

List of Sensex 30 Companies: Sensex, the benchmark index of the Bombay Stock Exchange (BSE), consists of the top 30 companies listed on BSE. That’s why Sensex is also known as BSE 30. In this post, we are going to look into the Sensex 30 companies’ constituents, along with their weightage in the index. Let’s get started.

What is Sensex?

Before we look into the Sensex 30 companies’ weightage, let’s first brush up on the basics and revise what exactly is Sensex.

The BSE Sensex or the Sensex 30 tracks the behavior of the top 30 companies as per the free float market-cap registered on the Bombay Stock Exchange. BSE Sensex stands for S&P Bombay Stock Exchange Sensitive Index. Here are a few top facts about Sensex 30:

  1. The 30 companies are selected on the basis of the free-float market capitalization.
  2. The base year of Sensex is 1978-79 and the base value is 100. Currently, BSE is hovering at 50,000 points.
  3. These are different companies from different sectors representing a sample of large, liquid, and representative companies.

Sensex is an indicator of market movement. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE has gone down. If Sensex goes up, it means that most of the major stocks in BSE went up during the given period.

Constituents of Sensex 30 Companies by Weightage

Here is the list of 30 companies of Sensex along with the company’s Sensex weightage.

 NameIndustry Weight
1.Reliance Industries Ltd.Integrated Oil & Gas11.99%
2.HDFC Bank Ltd.Banks11.84%
3.Infosys Ltd.IT Consulting & Software9.06%
4.Housing Development Finance Corporation Ltd.Housing Finance8.30%
5.ICICI Bank Ltd.Banks7.37%
6.Tata Consultancy Services Ltd.IT Consulting & Software5.76%
7.Kotak Mahindra Bank Ltd.Banks4.88%
8.Hindustan Unilever Ltd.Personal Products3.75%
9.ITC Ltd.Cigarettes,Tobacco Products3.49%
10.AXIS Bank Ltd.Banks3.35%
11.Larsen & Toubro Ltd.Construction & Engineering3.13%
12.Bajaj Finance Ltd.Finance (including NBFCs)2.63%
13.State Bank of India Banks2.59%
14.Bharti Airtel Ltd.Telecom Services2.31%
15.Asian Paints Ltd.Furniture,Furnishing,Paints1.97%
16.HCL Technologies Ltd.IT Consulting & Software1.89%
17.Maruti Suzuki India Ltd.Cars & Utility Vehicles1.72%
18.Mahindra & Mahindra Ltd.Cars & Utility Vehicles1.48%
19.UltraTech Cement Ltd.Cement & Cement Products1.40%
20.Sun Pharmaceutical Industries Ltd.Pharmaceuticals1.16%
21.Tech Mahindra Ltd.IT Consulting & Software1.11%
22.Titan Company Ltd.Other Apparels & Accessories1.11%
23.Nestle India Ltd.Nestle India Ltd.1.07%
24.Bajaj FinservFinance (including NBFCs)1.04%
25.IndusInd Bank Ltd.Banks1.03%
26.POWERGRIDElectric Utilities1.03%
27.Tata Steel Ltd.Iron & Steel/Interm.Products1.01%
28.NTPC Ltd.Electric Utilities0.94%
28.Bajaj Auto Ltd.2/3 Wheelers0.86%
30.Oil & Natural Gas Corporation Ltd.Exploration & Production0.73%

Quick Note: Please note that the BSE 30 companies are updated as of March 2021 and the top 30 listed companies in BSE is subjected to change in the future, which might result in a change in the weightage of 30 companies of Sensex.

ALSO READ

Nifty 50 Companies – List of Nifty50 Stocks by Weight [2021]

Closing Thoughts

In this post, we looked into the Sensex 30 Companies by weightage. All the stocks in the BSE top 30 companies list are old and well-established companies and mostly leaders in their industry. Many of these stocks are able to move the index and the market if there is a significant movement in the share price of these companies.

That’s all for this post on the Sensex 30 companies or the Sensex stocks list. Do let us know which is your favorite stock in the top 30 listed companies in BSE list in the comment section below. Have a great day and Happy Investing.

Top Moat Companies in India – Warren Buffett Style of Stocks!

List of Top Moat Companies in India: Have you ever wondered, if the greatest investor existed in the Indian stock markets, “What stocks would he pick?”. This question got us wondering about Warren Buffet too. Hence we have created a list of Buffets favourite type of stocks existing in the Indian stock market.

In this article, we’ll cover the list of top moat companies in India, which is the Warren Buffett style of stocks for investing. Keep Reading!

Warren Buffett Photo | Moat Companies in India

What are Moats?

The term Moat was popularised by Warren Buffet in the world of investing.

A simple dictionary definition of a moat would be – a deep, wide ditch surrounding a castle or fort, typically filled with water and intended as a defence against attack. These moats were created in medieval times in order to ensure that in the case of an attack it would make it as hard as possible for an enemy to breach the castle.

However, even modern companies have moats too in their businesses.

History of Moat | Moat Companies in India

Now picture the company as a castle and the attackers as new entrants or competitors. Business moats are generally put up by the company as some sort of competitive advantage that would act as a barrier to entry for new entrants. These could be in the form of brand identity, patents, size or market share, low-cost production, etc.

Warren Buffet has time and again expressed his love for these Moats stocks. 

“The most important thing [is] trying to find a business with a wide and long-lasting moat around it … protecting a terrific economic castle with an honest lord in charge of the castle,” – Warren Buffet

Top Moat Companies in India

Here we have compiled a list of Moats existing in the Indian markets. Possibly answering the question, “If Warren Buffet participated in the Indian markets, whats stocks would he invest in?”

1. Asian Paints

Asian Paints Logo

Asian Paints is one of the most obvious stocks on this list. The company was founded in 1942 and is engaged in the manufacturing, selling and distribution of paints, coatings, products related to home decor, bath fittings and providing of related services.

Over the years the company was successful in converting the paint commodity into an Asian Paints brand. They currently are India’s largest with a market share of almost 40%. It is also Asia’s 3rd largest paint company. In addition, the company has also maintained a good track record for consistent growth.

2. Shree Cements

Shree Cements limited logo

The next one on the list of moat companies in India is Shree Cements. The shares of Shree Cements are one of the most expensive cement stocks in the world. The company was formed in 1979 and is currently one of the biggest cement manufacturers in the country.

They recently joined an elite list of companies with Rs. 1 trillion Mcap. One of the biggest moats the company has set for itself has been its low production cost in the cement industry. The company has an EBITDA/tonne of Rs. 933/tonne whereas the industry average stands at only Rs 692/tonne.

3. TCS

TCS logo

Tata Consultancy Services recently surpassed Accenture to become the worlds largest IT firm by Mcap. TCS is a subsidiary of the Tata Group. The company is specialized in information technology (IT) services and consulting. They currently operate in 46 countries.

One of the biggest advantages was being the first software and services company in India in 1968 and also being the first Indian software company to set up operations in the US. They were also the first Indian company to develop an offshore delivery model giving them a cost edge.

Apart from its size being a significant moat they also benefit hugely from switching costs their clients may face. They still benefit from the first-mover advantage in the US as 95% of their new businesses come from their existing clients.

What we’re trying to find is a business that, for one reason or another — it can be because it’s the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers’ mind, it can be because of technological advantage, or any kind of reason at all, that it has this moat around it.” – Warren Buffet.

4. Avenue Supermarts

DMart (Avenue Supermarts) Owner RK Damani

Avenue Supermarts Ltd. better known as DMart is an Indian chain of hypermarkets founded by Radhakishan Damani in 2002. They are spread across the country with 196 stores in 72 cities.

Again one of the biggest advantages the hypermarket has is its size. This helped it set up a moat by providing one of the lowest costs to its consumers. Due to their size, they are able to generate huge volumes of sales which allows them to negotiate the price of products at a cheaper rate from suppliers when buying in bulk. This results in products sold at lower costs in their stores in comparison to other competitors.

Also Read

10 Indian Companies with Monopoly in Their Industry!

5. Titan

Titan products | Moat Companies in India

Titan has been one of the greatest wealth creators in modern times. It is also responsible for creating a major chunk of the Big Bull- Rakesh Jhunjhunwala’s wealth. Titan, founded in 1984 is part of the Tata Group.

They are a lifestyle company engaged in the manufacture and sale of fashion accessories such as watches, jewellery and eyewear. They also introduced the Fastrack brand in the Indian markets and own over 60% of the domestic market share in the organized watch market. Titan is also the fifth-largest watch manufacturer in the world.

They sell jewellery through their Tanishq brand which is the largest branded jewellery maker in India. Titans brands like Tanishq enjoy strong customer loyalty giving them added advantages over their competitors.

6. Dr Lal Pathlabs

Dr Lal Path Labs Logo | Moat Companies in India

Dr Lal PathLabs Limited was founded in 1949 by Dr S. K. Lal. They perform diagnosis and testing on blood, urine and other human body viscera. The company operates on a hub and spoke distribution model which allows it to have greater flexibility and further extending its network.

The company has over 200 clinical labs across the country with 2,569 Patient Service Centers (PSC) and 6,426 Pick-up Points (PUP). This model puts it at an advantage in comparison to other standalone chains.

They also have a strong franchisee network furthering their reach and at the same time reducing their capital expenditure. The company has achieved good growth over the years and at the same time maintaining good financials.

“But we are trying to figure out what is keeping — why is that castle still standing? And what’s going to keep it standing or cause it not to be standing five, 10, 20 years from now. What are the key factors? And how permanent are they? How much do they depend on the genius of the lord in the castle?” – Warren Buffet.

7. Bajaj Finance

Bajaj Finance Limited Logo

 

Bajaj Finance has been one of the greatest wealth creators in the Indian markets in the last decade. It also makes it the most expensive NBFC stock. The company is a subsidiary of Bajaj Finserv and is one of the moat companies in India.

The company deals in consumer finance, wealth management and loans to SMEs. It has 294 consumer branches and 497 rural locations with over 33,000+ distribution points. Its attractive car, housing, small business loans and other commercial loan products have helped it achieve a customer base of 34.5 million in 2019.

One of their biggest loans has been cross-selling. Here Bajaj Finance has the ability to offer products to its existing customers. Cross-selling has helped it achieve to acquire 19.7 million customers.

8. Pidilite

Pidilite Products | Moat Companies in India

Founded in 1959, Pidilite Industries Limited is an Indian adhesives manufacturing company. Their brands include FeviKwik, Dr Fixit, M-seal, Acron etc.

Their leading brands have a 70% market share in the Indian adhesive and industrial chemical market. There are very little competitors can do when accompany owns such a large portion of the market.

And then if we feel good about the moat, then we try to figure out whether, you know, the lord is going to try to take it all for himself, whether he’s likely to do something stupid with the proceeds, et cetera.” – Warren Buffet.

9. Maruti Suzuki 

Maruti Suzuki Products | Moat Companies in India

Maruti Suzuki India Limited is the subsidiary of the Japanese auto manufacturer Suzuki Motor Corporation. The company has successfully maintained a market share of 50% for many years now in the Indian markets.

Other companies have been able to do very little over the years to capture a significant portion of the market. The runner up Hyundai only holds a market share of 17%.

10. SBI

State Bank of India (SBI) Logo

The State Bank of India (SBI) is India’s largest bank. The government-owned company holds a market share of 23% in terms of assets and 25% market share for total loans and deposits.

SBI is the biggest bank in India in terms of total assets. One of the biggest moats for the company has been the salary accounts being opened for all government employees. This also further allows them to cross-sell their products to their existing customer base. Another private equivalent to SBI has been HDFC. Recently Kotak Mahindra too signed an MoU with the Indian army to handle salary accounts. 

Closing Thoughts 

Investors like Warren Buffet make it seem too easy to find high-quality companies with wide moats. But identifying these moat stocks before they erupt and buying them at a fair price is challenging. Companies with moats can provide huge returns to their shareholders in the long run but it is very important to thoroughly research the stocks before investing as there are no guarantees.

We hope you have liked the list of best Moat companies in India. You may read about an economic moat and get more insights. Do let us know in which company you have invested or would like to invest in the comment section below. Happy Investing!