Understanding Opportunity cost and its usefulness in investing: What factors do you consider before you take any decision that involves money? These factors could include affordability, returns, usefulness, pros, and cons, etc. But have you ever considered that simply not choosing an option too has a cost associated with it?
Today we take up an aspect of economics that is generally overlooked when it comes to decision making i.e. Opportunity Cost. We also try and find out its relevance in investing.
Table of Contents
What is Opportunity Cost?
In microeconomic theory, opportunity cost or alternative cost is the loss of potential gain from other alternatives when one particular alternative is chosen over the others.
In simpler terms, it refers to the potential benefit that a person misses out on when they choose one alternative over the other. The objective of opportunity cost is to ensure the efficient usage of scarce resources. It exists even when you make no choice at all. It also uncovers the loss of not making a decision.
Opportunity cost is generally unseen and can be easily overlooked as they are not accounted for in the financial statements. However, management or Investors use this concept regularly while making decisions that involve multiple options.
In reality, the opportunity cost theory is a very important concept. This applies not only to investors and businesses but also to individuals in their personal life.
Real-life Examples of Opportunity cost
Let us take an example that includes one of our peers. He/She has decided to pursue an MBA worth Rs. 20 Lakhs (Tuition plus boarding and dining cost) for two years. She came to this decision after receiving a government scholarship of Rs. 5 Lakh. How much cost do you think she will be paying for if she actually goes through with it?
Most of us would have already arrived at the conclusion that she will be liable to pay a cost of Rs. 15 Lac. The true cost here is 15 Lakh (as she has also earned her scholarship) plus the income he/she will have to forego by attending an MBA college. If your peer would have earned Rs. 6 Lac/year (ignoring hikes or bonuses received in this period) by working then the true cost would amount to Rs. 27 Lakh.
Many of us would ignore the opportunity cost of the peer losing out on potential income. In order to arrive at an educated decision, the peer would have to compare the cost of education plus the forgone income vs. the benefits she would receive after receiving an MBA.
We calculate the opportunity cost by comparing the returns of two options. The following formula illustrates an opportunity cost calculation.
Opportunity Cost = Return of Most Lucrative Option – Return of Chosen Option.
Take for example you are provided with the option of investing Rs. 1 Lakh. You are thinking of investing in a Blue Chip Mutual fund that provides a 10% return. You also have the option to invest in a Small Cap Fund that could provide a 20% return.
Here, by applying the formula above we would arrive at:
Opportunity Cost = 20,000- 10,000 => 10,000.
The Ratio of Opportunity Cost
We can also use the ratio of opportunity cost. This uses proportions to demonstrate the value of each choice. This is done by illustrating what has been sacrificed against what’s been gained from the alternative.
Opportunity cost = What you sacrifice by making the choice / What you gain by making the choice
Taking the same example used earlier where we invest in a Blue Chip mutual fund as Small Cap funds are risky.
The Opportunity Cost is = 20,000/10,000 => 2/1 = 2.
Opportunity Cost and Investing
Investing is all about parking money in a financial product with the hopes of making more money than what was invested. Everyday investors are faced with options where they have to decide how to invest their money in order to receive the highest or safest return. While they take the decision they usually factor in returns, the risk involved in making that decision but often leave out opportunity cost.
Opportunity Cost takes into consideration that you could miss out on a great opportunity in the future because you have committed your money to another investment. It makes it easier for us to prioritize one decision over others by putting numbers to these decisions. This results in a better data-driven method that prioritizes where our money is spent.
Opportunity cost can also be used within a company or by an individual when they decide where to raise money from. This could be through equity or through debt
The following are some of the reasons why opportunity cost helps us take better decisions apart from what has been already discussed
1. Helps us realize the cost of doing nothing.
Individuals at times are led to believe that there is no cost incurred when money is left idle. This leads them to simply keep money in a safe etc.
Opportunity cost takes into consideration the potential income the money could if invested in fixed deposits, bonds, mutual funds. This helps individuals take into account the difference their funds could make if they invest it in a financial instrument.
2. Helps take into account the cost of not disinvesting.
This often happens when an investor is too emotionally invested in a stock or has not adhered to an already set stop loss. In a situation where an investor remains locked in on a stock whose price continues to decrease he is risking not only the possibility of the stock plunging further but also the possibility of salvaging some return by investing in other safer instruments.
It is important to note that disinvestment is also an investment decision and opportunity cost helps quantify this decision by taking into consideration alternative investments.
3. Helps put into perspective the cost of not borrowing
Taking on debt is generally viewed in a negative light but this does not always have to be so. Take an example that a small company has the option to take advantage of diversifying into the new industry due to its profitability. Opportunity cost then helps the management put things into perspective if the investment can be financed and still come out profitable through debt.
Although Opportunity Cost provides the possibility of earning higher returns we should always remember that it involves looking forward into the future. This can be combated by first setting our investment objectives. Then opportunity cost could be used to help navigate the options that fit within the risk class of those objectives.
If we let our investment objectives be affected by opportunity cost then there is always going to be an investment opportunity that has the possibility of providing higher returns. The beauty of opportunity cost lies in the fact that it can be used by all. These could also be situations that are not financial.
List of Wealthy Indians who went from Riches to Rags: Although it shouldn’t come as a surprise, we regularly see Billionaires who also can be horrible at managing their wealth. The answers as to why this happens are always in plain sight as most of these billionaires can be caught flaunting their wealth regularly. They can range from greed, obsession, etc.
Today we take a look at Seven Riches to Rags Indian billionaires who somehow managed to squander away their fortunes which otherwise would have taken lifetimes.
List of 7 Indians who went from Riches to Rags
Table of Contents
1. Anil Ambani
Anil Ambani is the chairman of the Reliance Group. He was born into luxury, unlike his father who created his own wealth. After his fathers’ death and a property tussle with his brother Mukesh Anil came out on top. In the year 2008, Anil was named the Sixth richest in the world. The years that followed resulted in the one-time richest Indian somehow losing all his wealth.
He is currently fighting off multiple cases for dues owed. Anil currently claims that he is worth nothing and was recently avoided jail with the help of bail provided by his brother unlike other stories on this list.
2. Ramesh Chandra
An IIT alumni Ramesh Chandra set up Unitech a real estate company in 1971. Thanks to the real estate boom Unitech was now the second-largest real estate company worth $32 Billion. He along with his sons had a net worth of 11 Billion in 2007 that was until the Recession of 2008 hit. It was due to the recession that the company began to stagnate.
Further, it was here when Chandra made another grave error of entering the telecom sector. Although Unitech was well received by the consumers’ news soon broke out of its involvement in the 2G scam which involved bribing government officials for spectrum licenses. The failing real estate its involvement in the scam led to his sons Sanjay and Ajay Chandra being arrested.
3. Subrata Roy
Subrata Roy at the helm of Sahara was a larger than life figure. He even named among the top 10 most powerful people in India by India Today. Roy was instrumental in building one of the biggest business empires and India’s Second largest employer.
All his fame eroded when news broke of the Sahara Chit Fund Scam amounting to Rs. 24,000 crores. Subrata Roy convicted and lodged in Tihar Jail for 2 years. He was released on parole in 2017.
4. Ranbaxy Singh Brothers
Ranbaxy Singh Brothers are the next name in our list of Riches to rags billionaires. Brothers Malvinder and Shivinder inherited a 33.5% stake in Ranbaxy a pharma company founded by their grandfather. They decided to sell their inheritance in 2008 for $2 Billion. Over the years that followed the brother made a series of bad investment decisions that eroded their wealth.
Their worst investment included a Rs. 3000 crore loan to spiritual guru Gurinder Singh dhillon. The duo today owe a combined due of 500 million. They are currently being sued for siphoning off billions from their financial company-Religare and healthcare company-Fortis.
5. Nirav Modi
Nirav Modi is a luxury diamond jeweler who was also featured on Forbes list billionaires in 2017 with a fortune of $1.8 billion. The Modi brand was one of the most famous in the world with his designs even being auctioned off at Sotheby’s.
In 2018 the news of a scam broke out when it was revealed that Modi had scammed PNB of 14,000 crores over the course of 7 years. Nirav Modi fled India after the news broke out and took refuge in London. His extradition proceedings are currently underway.
Vijay Mallya, a former billionaire popularly known as the King of Good Times. He inherited his fathers’ liquor business at the age of 28 and went on to transform it into a multibillion-dollar business. Trouble started brewing for Mallya when he decided to venture into the airline sector with Kingfisher Airlines. Although the Airline took off well it soon faced trouble after the 2008 Recession.
In a desperate need for funds, Mallya duped banks for loans by placing weak collaterals. Once it was evident that Kingfisher had sunk despite his efforts, the news of the Rs. 9,000 crore scam broke out. Mallya fled the country and is currently seeking refuge in the UK. Proceedings to extradite him are underway.
Ramalinga Raju founded Satyam Computers Services Ltd in 1987. Raju went on to build it into the fourth largest IT software exporter in the country with the firm worth $2billion in 2008. In order to siphon off funds from the company, Raju began manipulating the financial records to give the impression that the company was growing well. In reality, funds were simply being taken out and being invested in real estate.
This was done in hopes of making a profit on the sales of property at higher prices but the recession of 2008 hit the real estate markets hard tarnishing Raju’s plan forcing him to come clean. Raju along with his brothers and 7 other was sentenced to prison.
Closing Thoughts
“It doesn’t matter how much money you can earn, what matters is how much you can keep.”
According to Forbes, India has 102 Billionaires as of 2020. Compared to the previous year 2019, the count of billionaires has dropped (106 in 2019). Obviously not all billionaires are able to keep their growth trajectory and status. Nevertheless, going from Billions to rags is a totally different story.
In this post, we tried to cover the list of Popular Wealthy Indians who went from Riches to Rags. In any case, if we missed any popular name, feel free to comment below. Have a great day and take care!
An analysis of 2-Wheeler Industry in India: The second highest populated country in the world, India, comprises of a lot of middle and lower class segment. With transportation still being a challenge in India, a lot of people in these segments look forwards to the 2-Wheeler Industry in India. This industry includes various vehicles like Motorbikes, scooters, and mopeds, which come in a varied range from affordable to classy bikes.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing the 2-Wheeler Industry in India and will also look into the different investment options in this industry for people planning to become a stock investor along with the consumer. Let’s get started.
Table of Contents
History of 2-Wheeler Industry in India
The 2-Wheeler Industry in India entered the manufacturing course in the early 1950s when Automobile Products of India (API) started manufacturing scooters in India. In 1948, Bajaj Auto began importing Vespa scooters in India. In 1960, Bajaj started a shop to manufacture scooters in India in collaboration with Piaggio of Italy. The collaboration ended in 1971.
Even the motorcycles segment also started with three manufacturers viz Enfield, Ideal Jawa, and Escorts. In the ’80s the market for two-wheeler motorbikes opened up and it buzzed the market by storm. It resulted in the expansion in the market where TVS Suzuki and Hero Honda occupied the top two spots in the Indian motorcycles segment. Since then throughout the last four decades, we have seen splendid growth in the Indian two-wheeler segment year on year basis. Moving forward from starting in the 1950s to the current time, India is the largest market for the two-wheeler segment right now.
Few Factsheet on the Global and Indian 2-Wheeler Industry
Before we move forward, here are a few interesting facts on the Global and 2-Wheeler Industry in India:
The total sales volume of two-wheelers in India in 2025 was 21.2 million units and it is expected to grow to about 25 million units by 2025.
The total number of Motorcycles, scooters, and mopeds are expected to increase to 63 million units by 2025 and at a CAGR growth of 3.7%.
China is the second-largest two-wheeler market and it is expected to grow at a CAGR of 5.8%. Currently, the annual consumption (16.3 million units) in China and is second only to India (19 million units)
The US two-wheeler market is expected to maintain a growth rate of 2.9 percent by 2025.
By 2025, Japan is likely to experience decent growth in the two-wheeler segment and, its market is expected to have a volume of 3.9 million units by 2025.
During the times of Pandemic (COVID-19), the global market has seen a decline in the overall production and sales, and the ripple effect of the same in the coming few quarters cannot be discounted.
Pic Credits: 2-wheeler market share in 2020 (courtesy: www.statista.com)
The rise of the two-wheeler segment in India has been a growth story in itself. The increase in the purchasing power of both the urban and semi-urban markets and to add to that, the low cost of ownership of two-wheelers have been the major growth drivers for this segment.
The sales of the Indian two-wheeler industry experienced a decline of 18% over the previous year in FY 2020. The overall sales volume was 17.5 million units. However, with the easing in the wrath of the Pandemic (COVID-19) and also with an increase in the manufacturing PMI, to an all-time high level in the past decade, the worst seems to be behind us. And this can also be judged from the fact that the overall increase in the volume of sales of two and three-wheeler vehicles has been on a rise. Here are a few other facts:
The top Motorcycle sellers for the year so far have been Hero MotoCorp (sold 4.4 million units), Honda (2.79 million units), TVS (1.63 million units), and Bajaj (1.47 million units).
The first two quarters of this year saw a massive contraction in overall sales.Q1 reported a decrease in sales by over 24% and Q2 reported a decline in sales by more than 72%.
(Source: ACG Databank)
Government Initiatives to boost 2-Wheeler Industry in India
Amma Bikes Scheme, the government initiative to entail working women in Tamil Nadu, a subsidy of 50% (up to Rs. 25,000) on the purchase of a two-wheeler. And owing to this the two-wheeler sale in the state has gone up considerably.
However, the initiative to convert all the bikes under 150cc (approx. 88% market share of overall two-wheeler production) into electric bikes has faced a lot of dissent and criticism. The aim is to convert all the bikes to electric by 2025. This transition is expected to have bearing on the business of the companies manufacturing two-wheelers.
Before ending this article, let us also look at the impact of the BS-VI introduction on the 2-wheeler industry in India.
Significant changes have been made in BS-VI norms effective from April 1, 2020. Owing to this and the COVID-19, the overall production has declined to nearly half. The following points highlight the impact:
The cost of insurance has gone up owing to an increase in the price of owing two-wheeler
The increased cost of manufacturing the vehicles has been passed on to the consumers and which has led to an increase in the price of two-wheelers. The prices have gone up nearly 20%.
The production has also taken a hit because of the transition in the norm from BS-IV to BS-VI.
(Image: Major Shares in 2-Wheeler Industry in India | Source: Portal)
Closing Thoughts
The increase or decline in the sales of the two-wheeler segment gives us an impression of the overall health of the economy. The Indian two-wheeler segment has been on a decline over the last couple of years. Anyways, with the current pandemic situation coming under control and various initiatives introduced by the government, there is only one way up for this industry. With India getting back on its feet and with an increase in the population of millennials, this industry has more reasons to go up.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
“I won the Election!” tweed Donald J Trump on 18th November after weeks of US election 2020 result announcement and after losing war. But why Donald Trump is not conceding US election defeat when the stats are totally against him. It has now been over two weeks since the US election day. The results declared that Democrat Joe Biden had captured enough electoral votes to be declared President-elect. This meant that President Trump would become just one of the four US Presidents to be defeated after serving a single term in the office in the last century.
Despite the results being announced President Trump has refused to accept defeat and officially concede his post to his rival. Today we take a look at why Donald Trump believes he still is meant to serve another term and what the near future holds for him.
Table of Contents
Conceding an Election
After every election, it is customary for the incumbent president or the losing contender to officially accept defeat and yield to the new president-elect and assist in a smooth transition of power. Donald Trump, however, has claimed that the elections were rigged against him. Although it may come as a surprise Trump is well within his rights to not concede. If he has any serious doubts about the accuracy of the election results he is allowed to contest it. Trump has also demanded an audit and recount of votes in several states. The democrats too would have wanted a recount of votes if Trump had won a second time after winning by narrow margins the first time.
In fact, this is a much better stance to be taken than politicians simply claiming the elections being rigged, but doing nothing to verify their claims. This is however not the first time that a candidate has requested a recount of votes. The Bush vs. Al Gore election of 2000 disputed election was settled by a recount of votes in the state of Florida. What was even more interesting is that Bush won by a margin of 537 votes in order to gain the EV from the state.
(John McCain’s concession speech from the 2008 US election)
The country, however, may suffer from the consequences of the dispute. These could be the economic or the threat to national security that the country may face. Unfortunately, the US faces a greater threat today i.e. from the Coronavirus.
What are the Grounds for Trump not Conceding?
Trump, although defeated still, seems to be trying to hold a few aces up his sleeve. Let us take a look if these are good enough to power him into a second term.
As mentioned earlier Trump claimed that election fraud was committed in favor of Biden. Before we take a look at the allegation we need to understand the special provisions that were implemented for the 2020 elections. Voters who generally are supposed to vote in person in polling booths were allowed to mail their votes. This was done by making use of Postal Ballots. Different states have different laws on how the election is run. Some would count ballots received before election day, whereas others would count ballots as long as they were posted by election day. This has led to basically two types of lawsuits filed by Trump.
– Claims of Fraud
The first being the claim that ballots were counted irrespective of the date assigned depending on the state. The Ballots if received post respective deadlines are supposed to be left unopened. These were to be transferred to storage where they are to be destroyed. The Trump campaign claims that this was not the case.
Many ballots that were received post respective deadlines were counted too. This makes a significant difference as the majority of the republican voters are said to have voted in person at the polls. In contrast to the majority of Democratic voters preferring Mail-in Ballots due to the corona scare. In fact, trouble started brewing when the vote-counting process was stopped on election day when Trump was leading in several states. The next day Trump slowly began losing his lead in slow motion and the sheer volume of mailed ballots was concerning.
In addition to this states follow a Cure process where if they find any irregularities in the ballots like mistakes in address, occupation of a voter, etc. The voter is then allowed to correct them. The Trump campaign included irregularities in this process too.
– Barring Poll Watchers
The second lawsuit in many states pertains to Poll watchers barred from performing their duties. The Vote count in the US election allows officials from both sides to examine the process. This is done in order to ensure that there are no irregularities.
The Trump campaign had alleged in multiple affidavits filed that republican poll watchers were barred from performing their duties. The Trump campaign demanded that the vote-counting be stopped until republican poll watchers are allowed to commence their duties.
Republican officials also claimed that if they were allowed to resume, they were placed too far away citing the virus, again barring them from witnessing the vote count. These restrictions went on to add to the lawsuit mentioned in the first point. Republicans claimed that as the poll watchers were not allowed, the election officials managed to manipulate the mail ballots.
What the courts had to say?
Both the litigations were put forward in multiple states like Georgia, Michigan, Nevada, and Pennsylvania.
The courts in Georgia dismissed the lawsuit that poll watchers weren’t allowed in Georgia. The claims in Michigan were dismissed too as the poll watcher in question could not specifically name the or identify the official or board that removed him. Nevada too had claims of poll watchers being barred. The poll watchers claimed that when he arrived he was first told that the counting was already over. He later was removed from the premises.
The officials, however, claimed that the Republican poll watcher was removed as he had tried to record the event. The Trump campaign had claimed that 682,479 ballots had been counted illegally in the Pennsylvania. The court is set to hold the hearing today.
Can these irregularities make a difference?
Every vote is important but if taken into account or excluded can the election shift? In states like Georgia and Pennsylvania, it is claimed that there simply are not enough possible illegal ballot votes that can be claimed by the Trump campaign inorder to actually sway the election.
Trump would need to overturn the result in at least 3 swing states to actually have a chance at beating Biden.
Recount of Votes
The vote recount process too requires a significant amount of funds from the party initiating it. Take Wisconsin for eg. Trump will have to pay up to $7.9 million for a recount to take place. This would differ from state to state.
Recounts in Georgia, however, have found irregularities as more than 2500 uncounted ballots were found. Two out of three were in favor of Trump. This still will not be enough to change the result as Biden lead by more than 14,000 votes in Georgia.
Why does Trump’s refusal to concede gain so much momentum?
In order to understand this, it is important to review his tenure as a president and his previous opponents. The 2016 election was a surprise when Trump defeated Hillary Clinton.
Trump’s election was followed by the USA’s tolerant left using all means to get rid of him. These included his campaign being spied on, multiple lawsuits being filed against him, and even a motion to get him impeached was involved.
The worst of all was the media censorships and trials. These continued for 4 years. It soon became evident that the media in the US favored either liberals or conservative values.
Most of the news channels like CNN, NPR, MSNBC with liberal values were critical of Trump. Whereas conservative channels like Fox favored. This can be evidently seen in the media always trying to portray him as a racist despite him disavowing extreme right racist groups a number of times. This bias has been easily caught on by viewers.
The turning point came when liberal news channels and several social media sites provided extremely low coverage to the Hunter Biden Scam. The story had exposed the corrupt dealings Biden had with Russia.
Twitter went as far as to temporarily deactivate accounts of individuals who shared news of the scam exposing the Biden family. These edited narratives repeatedly pushed by media have polarised the Trump supporters further towards him.
In addition to this, the country was plagued by riots like the BLM (Black Lives Matter). These riots were intensified by the Antifa groups resulting in destruction and mass looting throughout the country. These events also added to the polarisation of groups towards Trump.
Other instances like pre-election polls predicted a blue wave. But that did not happen as Trump garnered over 73 million votes proving them wrong. All these attempts over the four years have been seen as ploys by the left doing anything and everything to get rid of Trump.
And when Trump finally goes out announcing that the elections being rigged, it simply falls into the narrative the Democrats have created for themselves over the years as just another play in their book to get rid of Trump.
What is Next for Trump?
After observing the possible outcomes it almost seems mathematically impossible for Donald Trump to overturn the elections. Even with a recount there simply do not seem to be enough votes to swing up to 3 states in his favor.
What is surprising however is that Trump has remained more or less unfazed by the results. He continues to carry on. He even signed an executive order on November 12th banning American companies from investing in Chinese entities with ties to the military.
This highlights the problems it could be viewed as Trump being an incumbent President working against the new administration who may take a different approach towards China.
(Trump went golfing as the Vote count got extended)
Many concerns have been raised on what happens if Trump does not accede? Even if Trump remains in the White House post-January 20, 2021 then simply will be an ex-president not permitted to exercise any powers which will be with Biden.
In addition, Trump will be admitted into the White House only if he is invited. For now, these concerns are simply another media hoopla.
It has been reported that Trump has been coming increasingly in terms with his defeat. A close aid has revealed that Trump expressed the possibility of him running a third time for his 2nd term in 2024. But there are doubts if the Republican donors would financially back him once again. In addition, there also have been rumors that Trump has planned to start a news network to compete with Fox News.
Either way by claiming that the elections were rigged Trump goes down as a Martyr for conservative values and manages to win regardless of what he does. The Trump following and Trump influence will remain intact if he comes back for a second term or if he moves into the News business.
In addition, a number of republicans would owe it to Trump for being elected thanks to his grip on Republican voters. In addition, Trump also gained a significant amount of Blacka and Hispanic votes in comparison to 2016. One of the very few Presidents able to do so.
The legal repercussions, however, will continue to haunt chase after Trump for years to come. A number of lawsuits were filed in a desperate attempt. These include sexual misconduct lawsuits, Tax, and bank fraud investigation, real-estate fraud investigation, etc.
President-elect Joe Biden has privately told advisers that he doesn’t want his presidency to be consumed by investigations of his predecessor.
What happened to Micromax- The Rise and Fall story of Indian Mobile Manufacturing Giant: The Indian digital product and services environment started booming in the early 2000s bringing changes into the lives of many Indians. A decade later these startups began disappearing as they were either acquired or out marketed by their Chinese competitors with deep pockets. Micromax was an Indian jewel that flourished during both periods, but it too has lost its shine on the Indian markets.
The fact that Micromax was a huge name in the hypercompetitive mobile industry may come as a surprise to many as the name is hardly heard of these days. A few years ago they were even rubbing shoulders with Samsung.
Today we take a look at the factors that led to the rise of Micromax and we also study the factors in the depressing years that followed which led to its demise.
Table of Contents
The Story of the Rise of Micromax
Many of us would remember Micromax from its fame in the 2010s as a mobile phone manufacturer. When Micromax was founded in 1991 by Rajesh Agarwal it was never a phone company. It started out as a distributor of computer hardware for different brands like Dell, HP, and Sony.
The company was later called Micromax Informatics. In fact Rahul Sharma one of the most prominent figures in Micromax only joined the company along with Sumeet Arora and Vikas Jain as equal partners in 1999.
Micromax in the early 2000s was largely a software company known as Micromax Softwares. Rahul Sharma was introduced to the idea of fixed wireless terminals by one of his Finnish colleagues.
The 2000s were years when landline was the primary source of communication. The technology introduced to Rahul Sharma used sim cards which would have revolutionized the sector. The idea that a whole business could be set up where multiple people paid and used the single sim card to make calls was well accepted.
The main benefits were from the fact that rural areas still had no landline connectivity. This technology was perfect as it could even be used in difficult terrains.
Sharma wasted no time and soon Micromax began making specialized phones that looked like landlines but used sim cards for Nokia. Micromax was also appointed as the All India distributor for Nokia 32s and was soon installed 10,000 Nokia 32s.
Unfortunately for Micromax, Nokia sold off its business worldwide. Micromax still was able to milk profits from this idea as they then took this same technology to Airtel. They were tasked with setting up Payphones in J&K. Micromax was then allowed by Airtel to expand to the rest of India. During their peak in 2007, they were setting up 250,000 devices.
By now the founders of Micromax had already got the taste of uncertainty, changing technology, and the company’s need to evolve. The company then decided to change direction towards mobile phones.
The entry of Micromax into phones
The founders of Micromax were looking for the next big thing and luckily stumbled upon the idea. Rahul Sharma was passing through Bengal when he noticed that villagers were powering telephones using the battery from a truck.
This intrigued Rahul Sharma and on questioning the truck driver he was told by the truck driver that he actually made his living this way. He charged the battery in another village overnight, bringing it back to help power the phone the next morning.
Although astonished Sharma was able to come to terms with the electricity problems India faced. He saw an opportunity and understood how revolutionary a low budget phone with a long battery life could be in India. Sharma took this idea to the other founders at Micromax who were skeptical of its success. This was because the market was then dominated by the likes of Nokia, Samsung, Motorola, and LG. Sharma managed to convince the founders and they decided to risk entering the market.
Micromax decided to create a new phone whose battery lasted for 30 days. The manufacturing of the phone would take place in China by OEM’s( Original Equipment Manufacturer). These OEMs would produce equipment as desired which would then be shipped into India and later marketed and sold by Micromax.
Micromax relied on these OEM’s and began working with Chinese companies like Oppo, Vivo, Gionee, and Coolpad to manufacture its phones in China. By doing this Micromax launched its first mobile phone i.e. Micromax X1i. They decided to target rural areas as these were plagued by electricity cuts.
Unfortunately, they couldn’t find a new distributor as they were new entrants in an established market with the likes of Nokia. In order to resolve this Micromax turned to their existing terminal distributors who took a lot of convincing but eventually agreed. Their efforts finally bore fruit as the company sold all of the 10,000 phones in only 10 days with the market asking for more. Within a few months, Micromax had turned itself from a 10 crore/ annum business into a 100 crore/annum business.
Other innovations followed by Micromax
Taking a look above you must have already realized that that one of the core principles that Micromax relied on was fixing gaps in the Indian markets. They did not stop with the XJi model.
During this period dual sim phones were unheard of. Multiple sims were a sign of luxury as this also meant having multiple phones. Rahul Sharma realized this when he was speaking to his chef who apparently used 3 sim cards for different purposes. Micromax went on to revolutonize the industry overnight with the introduction of dual sim phones that allowed users to use services offered by competing operators allowing them to switch between data plans.
In addition to this Micromax introduced Bluetooth-enabled phones for younger generations and also further released phones specially designed for girls. These innovations further strengthened Micromax’s foothold in a market they had just entered.
Another interesting feature that Rahul Sharma introduced was the call recorder. He got this idea when he met a painter who was in need of call recording features. This was because customers of the painters regularly betrayed their word of mouth over the price after the job was done. This created another feature for Micromax.
These were particularly the reasons why Micromax was popular in the Indian industry. They identified the desires of the masses and after identifying these they realized that it did not take much effort to satisfy them. By focussing on these needs Micromax was able to develop a niche for itself in the Indian markets.
What height did Micromax reach?
By the year 2015, Micromax had grown from a supplier for Nokia into a brand that was larger than Nokia in the Indian markets. Micromax was the second-largest smartphone company in India after Samsung.
The previous year Pink Papers reported that Micromax’s founders valued the company at $3.5 Billion. It now had 40 phones ranging from Rs.5000-Rs.10,000. Micromax was also among the first three local brands that introduced the first generation android phones.
It was also the first Indian smartphone company to sign an international brand ambassador i.e. Hugh Jackman. This would be important as Micromax now had set its eyes on the global markets. It was already a top 10 brand in Russia and had active international sellers in Dubai and Sri Lanka. The founders also began hiring external managers to lead the company in a bid to challenge Samsung.
What happened to Micromax – Factors that led to the fall!
There was a brief moment in Micromax’s corporate history in August 2014 when the company became India’s biggest mobile phone brand and the tenth-largest supplier of mobile phones in the world. By 2019 the company’s valuation had fallen 90% from its 2015 peak.
Let us now find out the factors that pushed Micromax out of the Limelight forcing it into survival mode in just 5 years.
1. Entrance of Jio
The hyper-competitive smartphone industry brings forward rapid innovations in a short span of time and this is the biggest challenge a company faces. Brands in the Indian markets underestimated the speed with which the conversion from 3G to 4G would take place. Airtel had already begun investing in 4G technology. Any company wanting to adapt would study previous trends and develop their timeline accordingly. Consumers had taken years to transition from 2G to 3G and in 2015 people were still using 2G networks.
The advent of Jio revolutionized the industry. When Jio was launched every Indian went from having no internet or paying huge costs for 2G/3G directly into having the fastest internet i.e. 4G free for a number of months.
In addition to this, calls were free as Jio used VOIP with the help of 4G. Unfortunately, not everyone had phones that could access 4G. Technology is such that you cannot run 4G data on a phone that is meant for 3G. Any person looking for a new phone or trying to make use of the offer would buy a phone that had 4G accessories. Sadly for Micromax, they had 40 phones in the market none of which supported 4G.
But the company could survive this right by ordering their OEM’s to manufacture models with upgraded 4G accessories? Sadly this was not the case for Micromax. Their business practice involved using the revenues of the phones just sold to order and procure another batch of phones from China.
Overnight Micromax found itself stocked with a large inventory of 3G phones that no one wanted. Couldn’t Micromax at least try to order awesome phones with 4G accessories by mobilizing funds just to stay in the game. Sadly this was not possible as Chinese suppliers would only customize their products if they were ordered in large enough quantities. Micromax did not manufacture their own phones nor did they have the financial freedom to dump the older 3G phones and manufacture 4G devices overnight. By the end of the year, their market share had reduced to 9%.
2. Chinese Phones Competition
The Phones that were branded as Micromax were manufacture by Chinese companies. These companies included the likes of Oppo, Gionee, Vivo, and Xiaomi. Chinese companies had realized the potential of the huge customer base in the Indian markets.
These companies began studying the markets thoroughly identifying points of entry. The introduction of Jio forced established 3G phones to withdraw its inventory which allowed Chinese manufacturers to flood the markets with 4G ready phones. This created a perfect setting for Chinese devices as they already had a portfolio of devices that were compatible with 4G.
Initially, Micromax was able to hold off well against these companies as it was already an established Indian brand. But soon the ‘Make-in India’ campaign rolled out and companies like Oppo, Gionee, Xiaomi, and Vivo began assembling in India. This took away the advantage Micromax had.
Micromax was set up as a brand that sold affordable phones but unfortunately, these were outsourced from China. The Chinese companies were experts in both hardware and software, whatever was currently offered they too did but with better quality and at cheaper rates. The focus of Micromax, on the other hand, was quantity over quality. The phones offered by Micromax were average.
These Chinese brands were also backed by superior financial power. This allowed them to offer offline retailers incentives to promote their products. They also took advantage of the growing E-commerce presence by partnering with them. Every city was bombarded with hoardings of green and blue completing the Chinese invasion. By 2018 Chinese smartphones controlled 67% of Indian smartphones. Micromax’s share further fell from 9% to 3.4%.
3. Demonetization
Micromax was still trying to regroup from the fallout and also battling the influence of Chinese phones. As they were finally coming to terms and ready to release another market-ready portfolio Prime Minister Narendra Modi announced demonetization.
Just to put things into perspective the majority of Micromax’s products were ranged below Rs,10,000. This meant that they relied heavily on cash. The Indian consumer then did not actively make use of online payments and certainly not the lower-income customer base of Micromax. This blocked their plans to launch their products and further costed Micromax dearly.
Closing Thoughts
Even though Micromax does not share the limelight anymore it still planning a comeback in India with the launch of ‘In’ phones. Reclaiming markets that are currently dominated by Chinese products is going to be no easy task.
It becomes harder as now Micromax is entering segment the Rs. 20,000-25,000 segment. Only time will tell if Micromax will be able to fight the likes of RealMe, OnePlus?
D’Mart Stores is a gaint retail stores in India owned by billionaire investor and business man RK Damani. In today’s article of Market Forensics by Trade Brains, we’ll be discussing the success journey of D’Mart Stores and what’s ahead in their path. Let’s get started.
Table of Contents
D’Mart Stores Foundation
D’Mart is an acronym for DAMANI Mart. It is the biggest hypermarket retail outlet chain. D’Mart is owned by none other but, Radhakrishna Damani, the ace investor in the Indian Stock Market and one of the stock market wizards of the ’90s. The current stock market bull, Rakesh Jhunjhunwala, considers him to be his mentor and tutor.
D’Mart was established in the year 2002 on May 15. Today, D’Mart has more than 210 stores in 72 cities and across 11 states in India including states like Maharashtra, Andhra Pradesh, Gujrat, Madhya Pradesh, Rajasthan, Tamil Nadu, etc. D’Mart is managed and operated under the registered name of Avenue Supermart Limited (ASL). Avenue Supermart was listed on the National stock exchange on 21st March 2017.
Avenue Supermart Valuation Timeline
As mentioned above, Avenue supermart went public and got registered on Indian stock exchanges in March 2017. Here are a few important Avenue Supermart Valuation timelines:
On the day of the listing, the company had tremendous listing gains. And the close of the market on 22nd March 2017, D’Mart’s valuation rose to its all-time high of Rs. 39988 crores. And this made D’Mart the 65th most valuable firm in India in terms of Market Capitalisation.
And on 21st November 2019, the market capitalization of D’Mart stood at Rs. 1,14,000 cores. And it makes it the 33rd most valued organization in India.
And on 11th November 2020, the market capitalization of D’Mart stands at Rs. 1,55,275 Crores.
D’Mart Stores vs Other Retail Marts
The next big question is what differentiated D’Mart from other players in the Retail segment?
Damani founded the grocery chain store D’mart in the most unique way and employed an unheard technique in the Indian retail set up. Till date, all the major retailers would rent the premises for their operations. But, D’mart would buy the premise which they would want to use for their retailing operations. This technique of Buying (and not renting) has worked do far and they did not yet have to close any of their setups.
Another interesting difference between D’mart and other retail business players is that other players build and promote their in-house brands to boost margin and provide alternatives to consumers. But, D’mart only sells the outside brands in its outlets.
The modesty and quiet nature are the most important quality of Radhakrishna Damani. For an individual with a net worth of nearly $ 16 billion, he still wears his white shirt white jeans to work, the style which he has been carrying from the 80’s.
D’Mart Stores Structure
As mentioned earlier, D’Mart run stores are company-owned, so they don’t have to bother about paying rent. And, the stores of D’Mart are categorized into three verticals-
Hypermarkets, which are spread across set up of 30,000-35,000 sqft.
Express Group, which is spread across an area of 7,000-10,000 sqft.
Supercenters, which are set up in an area of more than 1 lakh sqft.
In a retail setup, three important ingredients (Customers, Vendors, and Employees). And, D’Mart runs on the philosophy of not meeting every customer’s needs, but it runs on the principle of meeting the most common needs (90% needs are common to all the shoppers) of all the shoppers.
And whatever benefit or cost which is saved by not having to pay rent or other expenses saved, are being passed onto the vendors as limits. In general, the business of FMCG runs on the cycle of credit of 12-21 days.
However, D’Mart ends up paying its vendors on the 10-11th day. And by doing, this they end up winning the confidence of the suppliers. And since D’Mart buys all the goods in volume and pays its suppliers before time, they end up getting all their products cheaper than their customers. And this benefit is then passed on to the customers in the form of an additional discount on the products.
And D’mart believes in the philosophy of hiring a lot of tenth standard passed employees and then later trains them in the specific field according to the needs of the retail outlet.
How does D’Mart make money?
Known for his calm and composed demeanor, Radhakrishna Damani has a very sharp intellect and sharp business acumen. The following point will highlight the various ways through which D’Mart makes money:
Owns the setup: 90% of the stores under which D’Mart operates are company-owned and not rented. So, the cost of rent is always saved. And, the appreciation in the value of the premises is also an added advantage to D’Mart
Controlled pace: Damani never rushed into conducting any business. After a careful cost-benefit analysis, is when the business is conducted and which further enhances the chances of success in business.
Selling Cheap: One might argue, as to how does one make money, if they are selling it cheaper than others (competitors). This is done by procuring products at a cheaper price (than competitors) and passing on the discount to customers and which ultimately generates more volume for business. It’s a Win-Win situation for both customers and D’Mart.
Available locally: D’Mart runs on the model of procuring products from local and regional vendors. And they never go on the long supply chain route. The dependence is more on the neighborhood suppliers.
Future of D’Mart Stores
There is always a constant debate amongst the analysts, whether D’Mart will survive the competition offered from other retail and E-commerce giants like Amazon, Flipkart, Spencers, More megastore, Star Bazarr, Joi mart. Only time will tell about the exact future course of action. But judging by how the situation of the pandemic was handled and overcome by D’Mart, it can be safely said that the other retailers are in for a stiff challenge and D’Mart is here to stay.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
Indian EduTech Industry is considered to be one of the fastest growing industries amid COVID19. EduTech startups like Byju’s, Whitehat Jr, Unacademy etc has bloomed significantly during corona period and expected to continue growing at similar pace.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing the Indian Edutech Industry scenario, how big it is and the major players in this industry. Let’s get started!
Table of Contents
What is EduTech?
The word Edu-Tech is a portmanteau of two English words: Education and Technology. In simple words, Educational Technology (EduTech) is an amalgamation of hardware (teacher) and software (Technology), which connects the knowledge provider and seeker, just with the click of a button.
And an EduTech company is the one which designs software to enhance teacher-led virtual classrooms and promote learning virtually.
Global EduTech Industry
Let’s start with a Fun fact. Do you know that the Global EdTech Expenditure is expected to be 10 trillion US dollars by 2030? Just check the GDP of India to understand how big this number is.
The evolution of the EduTech startup has taken the world of education by storm. Interactive whiteboards have replaced the traditional chalkboards, smart tablets and Laptops have replaced textbooks, and we see a lot of investments coming in from schools in emerging technologies like Virtual Reality.
Globally India ranks Second in terms of Edutech startups. USA obviously occupies the 1st spot. Brazil, UK, and China occupy the other three places to complete the top 5 countries.
There has been a lot of venture capital funding coming into the industry of Edu-Tech. Countries like China, Sweden, and Italy have more than half of their startups, being VC funded.
Morover, there has been a lot of acquisitions in the EduTech spectrum lately. In fact, there have been more than 200 acquisitions in this industry in the last decade and a half. The most noteworthy acquisition has been the takeover of Lynda by LinkedIn for a whopping amount of $1.5 bn.
The following image gives us a vivid idea of VC funding in the field of Edu-Tech.
Currently, India has more than 4400 Edu-Tech startups operational currently. The rise of the Indian Edu-Tech Industry has been a story in itself.
The Pandemic (COVID-19) has been a game-changer for this industry. The size of the industry has multiplied manifolds. By, 2022, the size of the industry is anticipated to be in access of $ 2 bn. And what also aides the growth of this industry in India is the fact 37% of the population in India is between the age group of 5-24 years.
Some of the notable international players in India in the Edu-tech domain are Linkedin, Coursera, Udemy, Edx, Khan Academy, Google classroom, etc.
The lockdown and fear had an adverse impact on classroom teaching. Schools, colleges, and educational institutions have resorted to online teaching.
According to a report published by RedSeer and Omidyar Network India, “In times of pandemic, the user base of the Edu-Tech industry has doubled, there has been a 50% increase in the time spend online (60 minutes to 90 minutes), and a massive jump of 83% in the paid users”
We see a massive jump in the B2B sector for Edu-Tech. Schools, colleges, educational institutions are aggressively expanding their foray to tech-based solutions. Technology plays a very crucial role in the continuity of education with their tech-based solutions. And technology has also played a very important role in safeguarding jobs in times of pandemic. And teachers and students have both benefitted from this.
Targetable EduTech Size in India
The current Edu-Tech population of 150 million in India is the highest in the world and with sustainable upgradation and continuous development, it is likely to go up in the future.
And as we know, in this world and age of tech innovation, change is the only constant. And tech companies need to constantly come up with new products and cutting-edge technology to be able to survive this competitive industry.
Promising EduTech Startups in India
Byju’s
Bangalore
Creator of India’s largest K12 learning app which offers highly effective tools and platforms for students in classes 4-12 and competitive exams like JEE, NEET, CAT, IAS, GRE, and GMAT.
Contineo
Bangalore
A pioneering software platform for implementation and administration of academic autonomy.
EduKart
New Delhi
Offering education seekers a platform to choose and enroll from 2000+ courses in degree, diploma, certificate, entrance coaching and class 4-12
Eduscation
West Bengal
Eduscation is the perfect solution for grievance redressal system helping administrators to access or modify data from anywhere at any time without interruptions.
Imarticus Learning
Mumbai
A professional education institute focused on bridging the gap between industry & academia by offering certified industry-endorsed courses in Financial Services, Business Analysis, Business Analytics & Wealth Management through classroom and online programs.
(Source: thehighereducationreview.com)
In addition, a few notable mentions in this list of EduTech Startups or leading EduTech companies in India will be Unacademy, Vedantu, Great learning etc.
Government Initiatives to promote Online Education in India
There have been a couple of initiatives by the government of India to promote digital education in India – the SWAYAM program and DIKSHA program.
The SWAYAM program was designed to achieve the three-degree cardinal principle of educational policy like Access, Equity and Quality. The main objective of this policy is to mainstream those students who are lagging behind because of the digital divide.
The DIKSHA program is a national digital infrastructure program for Teachers. The center monitors the functionality of the program and makes sure that the benefits reach the teachers in an equal and non-partial way.
Closing Thoughts
The time of Pandemic has shown us the potential of the Indian EduTech Industry. It has proven to be the single most important medium to connect the knowledge seeker and knowledge provider.
Only time will tell the exact future of this industry. But one thing is for sure, this industry is here to stay and rule. And people in the remotest corner of the country have been able to access to quality education, which otherwise might have been a far fetched dream.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
Simplifying Nirav Modi Scam and PNB Fraud: If you search Nirav Modi on google, you can find a lot of his pictures with Glamorous Actress from both Bollywood and Hollywood. However, behind all those gorgeous pics, there is a big fraudster hidden. Nirav Modi Scam or The Punjab National Bank (PNB) scam of ₹11,356.84 crores is being dubbed as the biggest fraud in India’s banking history.
Today, we take a look at the what acutally happened in PNB Fraud or Nirav Modi Scam, the man behind it and how the diamond mogul was able to siphon billions from the country.
Table of Contents
Who is Nirav Modi?
Nirav Modi is a luxury diamond jeweler and designer who featured on listed containing the diamond kings of India. He was also ranked 57th in the Forbes list of billionaires for 2017. Nirav Modi was born into the diamond business in Gujurat but was bought up in Belgium.
Modi attended the Wharton School at the University of Pennsylvania but dropped out and accompanied his father to join his uncle Mehul Choksi’s business at the age of 19. Mehul Choksi was the head of the Gitanjali Group. The Group-owned 4000 retail jewelry stores across the country.
Under him, Modi learned the tricks of the trade in the diamond industry and eventually went on to found ‘Firestar’ in 1999 a diamond sourcing and trading company. The success of the business soon saw Modi acquiring other jewelry businesses. These included the likes of Frederick Goldman in 2005, and Sandberg & Sikorski and A.Jaffe in 2007 in the USA.
In 2010 he launched a diamond store that bore his own name which eventually grew to 16 stored in locations like Delhi, Mumbai, New York, Hong Kong, London, and Macau. Modi’s popularity grew after he designed the “Golconda Lotus Necklace” with an old, 12-carat, pear-shaped diamond in 2010 and the Riviere of Perfection, featuring 36 flawless white diamonds weighing a total of 88.88 carats, being sold at Sotheby’s auction.
His store launch in New York included the likes of Donald Trump, actress Naomi Watts, and model Coco Rocha. The store sold luxury brands like Hermes, Chanel, Prada, and Gucci. Renting the store alone cost him $1.5 million for a year.
At the height of his successful business career, he was known as one of the Indian diamond kings and his jewelry was worn by Kate Winslet for the Oscars. All that was until the news of the scam broke out.
How didNirav Modi pull off the Scam?
The scam which broke out in 2018 had begun way back in 2011. In order to pull off the scam, Nirav Modi made use of a banking instrument known as the LOU (Letters of Undertakings). An LoU acts as a bank guarantee where its customers can raise short term loans. These loans can be raised from Indian banks’ foreign branches established overseas.
As Nirav Modi imported diamonds from foreign countries it meant that he had to deal with foreign currencies. For this, he had to approach foreign branches of Indian banks for loans that were received at cheaper rates. But what collateral does he have here? This is where LOUs step in. Nirav Modi approached PNB for an LOU which was used as collateral for these short term loans.
These LOUs, however, are supposed to be given out only when the client has collateral in the domestic bank issuing the LOU. But PNB ignored these requirements and gave out the LOUs on Modi’s guarantee.
(Nirav Modi in talks with Prince Charles)
As these loans were for the short term on their due date Modi was asked to pay back the loan by the foreign branches. But this is where Modi extended the scam. He simply took another LOU from PNB of a higher amount. This was used to pay back the old loan and the additional amount was reinvested. Talk about a Ponzi scheme mechanism. By 2018 Nirav Modi had received 1,212 more such LOUs.
His plan, however, was working! Modi had grown his business in a span of 5 years what would otherwise have taken 20 years. But how was he going to pay back all the debt? Modi had planned to eventually list his “successful” company, with securities being sold at a premium. These funds would then be used o pay off the billions in debt.
But unfortunately, in 2018 when the employees of his companies(Diamonds R Us, Solar Exports, and Stellar Diamonds) approached PNB once again for LOUs the bank employees demanded 100 percent cash margins. Nirav Modi’s firms contested this requirement. They claimed that they had availed LOUs without collateral before.
This led the PNB officials to finally take a closer look at their accounts after which they first found irregularities of Rs. 280.7 crores and immediately lodged an FIR with the CBI for fraudulent LOUs issued. As the officials dug deeper, by May 18, 2018, the scam had ballooned to over Rs 14,000 crore.
The fallout after the scam broke out was unprecedented. This is because citizens just could not cope with the fact that businessmen could simply squander billions. This came outpost the Vijay Mallya scandal.
But by the time the news broke out Nirav Modi, his wife, younger brother and Mehul Chowksi had already fled the country. The brunt of the scam fell on the Indian banking sector as although the loans were taken in other countries they were taken from Indian banks. Eventually, the government had to once again step in to save the banking sector.
Several PNB officials were arrested. Top PNB officials claimed that the scam took place as few PNB employees were involved. They also stated that the scam was possible due to the irregularities in the banks’ SWIFT systems. But these charades were impossible to buy as billions could not simply disappear from the bank without top bank officials being involved.
(PNB Scam Whistleblower –Hari Prasad)
The most interesting turnaround in the case occurred when news broke out of the whistleblowing attempts that took place. These attempts were made by jeweler Hari Prasad. He had sent detailed letters of the scam taking place to the PM’s office back in 2016, highlighting PNB and urging action. These letters were simply acknowledged by the PMO and transferred to the Registrar of Companies.
The RoC simply disposed off the case. This led to the scam taking a political turn. The Opposition blamed the Modi government for being an accomplice. The Modi government, on the other hand, blamed the congress as the initial LOUs were issued when they were in power.
Closing Thoughts
Needless to say that no matter who commits the scam or who’s involved in the scam, the common public is always the victim. The same is the case with the Nirav Modi scam or PNB fraud. After all, it’s the people’s money saved in PNB bank. Nirav Modi, though has been accused of scam, still is comfortably living life abroad. We can only wait and hope that PNB fraud comes to justice.
The Story of Jet Airways Revival: In the last two months, the share price of Jet Airways moved from Rs 25 per share to Rs 64 per share. Seems like a great jump in prices, right? But what if I told you that the same company was trading at around Rs 800 per share in 2018. Now, that’s a big wealth destroyer. But can this wealth destroyer become a turnaround and build wealth for the investors. This is what we are going to discuss in this post.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing what went wrong with Jet Airways and Jet Airways revival story. Let’s get started.
Table of Contents
What went wrong with Jet Airways?
After the failure of jet Airways that was once positioned to be the most valued and sought after airline in the Indian Aviation system, many observers and analysts have come up with varied theories explaining the reasons behind it. Once trading at a price of over Rs 870 per share in 2018, the stock traded even lower than Rs 20 per share by May 2020. Here is the probable list of issues that sparked the downfall of Jet Airways:
An Expensive Purchase: The downfall of Jet Airways started right from the time when Naresh Goyal (Air India Founder) bought debt-ridden Air Sahara for a cash deal of $500 million. Many market analysts felt it was a very expensive buy. Jet Airways rebranded it as ‘Jet Lite’. But this new investment was continuously leaking money and it was completely written off in the year 2015.
Budget Airlines: The main issue for Jet Airways started to happen with the introduction of budget Airlines in the Airline sector. It’s just could not match the pricing competitiveness of budget airlines. And, they had to slash the prices for their tickets that ultimately led to reduced revenues and losses. What jet airways failed to recognize is that the majority of the customers of airline sectors are price sensitive and services offered are the secondary factor.
Lack of Vision: This has a lot to do with Naresh Goyal’s management style. He wanted to have centralized control of both full-service carriers and budget carriers. And which ultimately backfired as complete planning and focused management was missing in both places. And which ultimately led to bad management decisions and both businesses making losses.
Jet Airways Grounded in April 2019
After Kingfisher Airlines, Jet airways became the second airlines to suspend its operations because it ran out of cash, and banks were not willing to lend any more money. Amritsar to Mumbai was the last domestic flight of Jet Airways and since April 2019 and all the operations of Jet Airways have been completely suspended since then.
Impact on Share price of Jet Airways after being grounded
As seen from the share price chart below, the peak the share price of Jet Airways used to be around Rs. 800 levels. When the news of the airline suspending its operations hit the market, the share price fell from near Rs. 250 levels to around Rs. 20 levels. Almost 90% loss in the share price, within a span of one year.
However, recently, we witnessed a sudden surge in the price of Jet Airways, and its share price has gained the most this year, among many other airline companies globally. According to Bloomberg, the share price of the bankrupt airlines has jumped 130% this year, without flying even once this year. The global Bloomberg Airlines Index during the same time has slumped by 42%. So, why this sudden surge in the share price of once bankrupt airlines. What is the impetus? Let us try and find out.
Jet Airways Revival: Potential Buyers
Jet airways finally found buyers in 2020. The creditors of Jet Airways have approved a revival plan presented by a consortium of UK based Kalrock Capital and a UAE-based businessman Murari Lal Jalan.
Who are these bidders?
KALROCK is a global firm operating in financial advisory and alternative asset management, managing significant partners’ assets across a number of clearly defined and diversified strategies and single investments, with a focus on private markets.
According to many in the business world, Murari Lal Jalan is a very low-profile businessman and not many people have too much information about him. He started his career as a paper trader. In 2003, he went on to extend his paper business and acquired Kolkata-based Kanoi paper and Industries. He Renamed it Agio paper. However, in 2010, the paper companies faced a lawsuit from Government agencies for pollution-related issues and the operations have been suspended since then.
According to Newsfeed, “In 2015, he approached Dr. Naresh Trehan and Associates Health Services. He went on to acquire a stake in the company for Rs 75 crore, through a secondary share sale transaction. A secondary sale means that Jalan bought-out the shares from an existing stockholder. Around the same time as the acquisition, Dr. Trehan’s Medanta Hospital had plans to establish a hospital in Dubai, with the help of Jalan. Unfortunately, this plan was not implemented,”
He is now based out of Dubai and runs a construction business (MJ Developers) and has business in Brazil, Russia, and India. He also ventures in FMCG, Mining, and Real-estate business
Where is Jet Airways headed?
In the Jet Airways revival plan, the consortium has placed a bid of Rs. ,1000 crore to buy the ailing airlines. And on November 3, the consortium has deposited the performance security of approximately Rupees 150 crores. The investors will be getting 9.5 equity in Jet Airways, along with 7.5% equity in loyalty rewards company InterMiles. Now, Jet Airways will have to submit the resolution plan before NCLT. And one the resolution is passed by NCLT, the investors will get approval from the Ministry of Civil Aviation.
What remains to be seen is, how the money will be used to revive the fortunes of Jet airways. Will it be used to pay off the existing creditors or will the money be used to get back airline into the business of flying. Moreover, how the new buyers are planning to fight the exisiting big players like INDIGO and Spicejet is still unanswered. The road ahead is long and tuff. And in terms of share price, although the share prices have gone up fold fold this year, but it is only 10% of its peak in 2018 of nearly Rs. 800. Overall, although the company is on the path of revival, however, becoming a turnaround is still a long and difficult journey, especially being in the avaiation industry.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
The Ecommerce Industry in India, from $38 bn in 2017 is expected to grow to more than $200 bn by 2026. As of 2034, the Indian E-commerce industry is expected to be the only second-biggest market after that of the US. In today’s article of Market Forensics by Trade Brains, we’ll be discussing Ecommerce Industry in India, and the size of the market, why is the Indian E-commerce market is in a lot of focus, and future expectations from this industry. Let’s get started.
Table of Contents
What is E-Commerce?
To put it in simple words, E-commerce would mean any purchase/sell transaction that is done electronically using the Internet. In other words, any buying or selling of goods or services online and any use of money or data to execute these transactions electronically will be under the purview of E-commerce. Even, any commercial transaction done via the Internet will also come under the blanket of E-commerce.
The First-ever E-commerce Transaction
The Ecommerce industry is over 25 years old as of now. The first-ever E-commerce transaction was an online sale on Aug 11, 1994, when a man sold a CD of the band, Sting to his friend by using the platform of NetMarket in the USA.
With the advent of the world of E-commerce, the world has moved to a whole new level of evolutionary buying and selling. The end-user experience, the connection and reach between buyers and sellers, small businesses, freelancers, etc, have all benefitted from the development of e-commerce. The global e-commerce market is expected to be anywhere between $26 to $30 trillion by 2020.
Types of E-commerce Business models
The Ecommerce business models involve two parties i.e. Businesses and consumers. Here are the different business models possible in ecommerce:
Business to Consumers (B2C): When then business sells, goods and services to an individual consumer (Ex- buying a phone form online websites)
Business to Business (B2B): When a business sells goods and services to another business (Ex- selling ERP solution software to another business)
Consumer to Consumer (C2C): When a consumer sells goods and services to another consumer (Ex -selling your old phone to another consumer using platforms like OLX, eBay, etc.)
Consumer to Business (C2B): When a consumer sells their product to another business (Ex- a photographer selling his photos to other magazines or publication house)
Ecommerce Industry In India – How big is it?
The biggest and most influential factor in the growth of E-commerce business in India is the increased use of the Internet and smartphones. From $38 bn in 2017, the Indian E-commerce market is expected to grow to more than $200 bn by 2026. Another important medium towards the growth of the E-commerce market has been the introduction of UPI (Unified Payment Interface). UPI recorded nearly 1.25 bn transactions in March 2020.
What makes Ecommerce Industry In India so Lucrative?
India has been garnering constant attention from most of the major retailers and e-commerce players in the world. The Walmart-backed Flipkart is the biggest e-commerce player in the world and it is being closely followed by Amazon at 2nd place. Then we have players like Paytm, Infibeam, etc. And of late we have seen Reliance Industries (launching Jio Mart), jumping the bandwagon and wanting to be a part of the race towards the supremacy of being the E-commerce leader in India. The following are some of the factors which highlight the attractiveness of the Indian E-commerce market.
The Indian E-commerce market is the fastest-growing market in the world. And it is expected to grow at approximately 1200% by 2026
The Indian E-commerce market is expected to be around $84 billion by 2021.
Government initiatives like the Start-up India and Digital India is a boom for new players in this industry.
In B2B E-commerce, 100% FDI is allowed.
100% FDI is permitted via the automatic route in the marketplace model of E-commerce.
The Ecommerce Industry In India is growing rapidly. Here are a few of the recent Investments/Developments in Ecommerce industry in India:
In April 2020, Reliance Industries started deliveries of essentials in Partnership with local Kirana shops in Navi Mumbai.
In May 2020, PepsiCo partnered with Dunzo for its snack food brands like Lays, Quaker, Doritos, and Kurkure.
In May 2020, Hershey’s partnered with Swiggy and Dunzo to launch their flagship online store.
In August 2020, Reliance Industries acquired a 60% stake in NetMeds (online Pharmacy store), for Rs. 620 crores.
Reliance will invest around Rs. 20,000 cr (nearly, $2.8 bn) in its telecom business to increase the quality of 5g services.
In the Union budget of 2020-21, the government has allocated Rs. 8000 crore to BharatNet projects to provide broadband services to 1,50,000 gram panchayats.
Ecommerce Industry: Expectations from Future
The E-commerce industry has been growing at the rate of knots and the growth is likely to continue in foreseeable future. With the growth in Finance, Technology, and training, the sky is the limit for the E-commerce industry. And by, 2034, the Indian E-commerce industry is expected to be only second to that of the US. The growth of E-commerce also increases employment, increases revenue, increases tax collection, etc.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
The Adani Group headed by Gautam Adani has been in a lot of market news recently because of different Adani Group airport deals. In their past deals, they managed to get the right over six major Indian airports – Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvananthapuram, and Mangaluru – for 50 years. Moreover, last month, Adani Group also signed a deal to acquire Mumbai airport and to take over Navi Mumbai airport.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing different Adani Group Airport Deals and why is Adani Group Interested in Indian Airports. Let’s get started.
Table of Contents
What is the Adani Group?
The Adani Group is an Indian multinational conglomerate company with combined revenue of $13 Bn and a market cap of $22 Bn (as of 27th May 2020). It was founded by Gautam Adani (current the second richest man in India) in 1988 as a commodity trading business headquartered in Ahmedabad, in the state of Gujarat, India.
Today, the group has grown to venture into energy, resources, logistics, agribusiness, real estate, financial services, defense, and aerospace. The Adani group is India’s largest private port company and special economic zone in India. It also is the largest private power producer and the largest solar power producer in the country.
(Fig: The Adani Group Verticals as of October 2020)
Why is Government Privatising the Airports?
Now that we have covered the Adani Group, let’s move to the main topic of this article – Why is Government Privatising the Airports and Why Adani Group is interested in it.
Till now, the Government of India has Privatised Six Airports (Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram, and Guwahati) and plans to privatize 25-30 more in the second phase of disinvestment. One of the major reason behind this privatization is that there are a total of 123 airports in India and out of which 109 are running under losses. A few strategic reasons as to why the government is keen on Privatising the Airports in India as as follows:
The Financial reason: With the Privatisation of reports, the government will be able to generate revenue that could further be used in infrastructure development and also is helpful in meeting the budgetary deficit of the government.
The Efficiency factor: Anything which goes in the hand of private ownership is always well managed and the operations are run smoothly. Further, even the movement of goods becomes quicker and smoother with privatization.
Why Adani Group is Interested in buying Airports?
Adani Group is interested in acquiring airports as buying them gives a lot of strategic advantage to Adani Group. Here are two of the biggest reasons behind Adani Group Airport Deals and why Adani Group is interested in buying Indian Airports:
As the Adani group is one of the major players in the Ports segment, so the airport like Trivandrum gives them a strategic edge because of its proximity to the sea. And moreover, the Adani group has already picked up a port near Trivandrum. Even having Airports like Mumbai and Mangaluru (both have ports), gives it a tremendous advantage in terms of having a powerful grip on the airport sector.
Having airports under their purview gives them the advantage of being major players in both ports and the airport sector. This directly makes them a major player in the infrastructure sector.
How will the Adani group make money from Airports?
As already discussed in this article, Adani Group is interested in acquiring airports because of different strategic advantages. Here’s how Adani group may make money from these airports:
Service providers: Adani group will make money from service providers on Airports. The bigger the airport, the higher the rent which will be charged from these service providers. To put things into perspective, the average number of footfalls in a big airport is more than the footfalls in the biggest mall in India. The service providers at the Airport include Restaurants, Parking, Lounges, Taxi services, etc.
Airlines: The airports make money from airlines by providing “Aeronautical services”. These include – fuel supply, air traffic monitoring, Ground staff services, Baggage handling, aircraft parking, etc.
Adani Group Airport Deals: How Adani managed it?
The connection of Gautam Adani, with our current Prime Minister Shri Narendra Modi, is no hidden secret. Even though there has been a lot of opposition from the Chief Minister of Kerala and the labor unions of the AAI, regarding the Privatisation of airport in Thiruvananthapuram, the Adani group will soon be controlling the operations in eight airports in India.
And what also benefitted the Adani group, is that in times of COVID-19, the infrastructure sector has been badly hit, especially the Aviation sector. Even the process of Privatisation was sped up and the PMO instructed the respective departments of Economic Affairs and the NITI aayog to prepare a mechanism to remove six airports from the control of AAI (Airport Authority of India) and to hand them over to the private players. And to top it off, the lease period for the Privatisation was increased by 20 years, from 30 years to 50 years.
On December 14, 2018, the government invited bids for the Privatisation of these Airports. And the tenders for the Privatisation were processed at breakneck speed. And in Feb 2019, the government announced that the ADANI group, which had no prior experience in airport operations and development, have won the bids for all the six airports. Interestingly, all these six airports are some of the only few airports which were running under profits.
Having secured the right of private ownership of six airports in India, the Adani group has now set its eyes, on controlling the right on other major airports in India which would be privatized. And the ultimate aim is to be able to have a firm grip on the Port sector (already the biggest player) and the airports sector.
But, the path to securing these airports was never easy. They had to fight legal disputes with entities in different corners of the world, like South Africa, Mauritius, Abu Dhabi, and Canada. After a series of search and seizure raids were conducted on the GVK group (Operating second largest Airport in India i.e., Mumbai), the Hyderabad group capitulated and agreed to hand over the controlling stake in companies operating two Airports of Mumbai and the one coming up in Navi Mumbai to Adani Group.
Closing Thoughts
The initial hurdle towards being a major player the infrastructure player has been crossed by the Adani group. It remains to be seen whether they will be able to cope up with the expectation of maintaining the smooth operations of the airport functioning. This becomes more crucial especially knowing that they have no prior experience in airport operations and management sectors.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
Amazon Vs Reliance – this current rivalry in the biggest talk of the market. The issue initially started when Amazon, headed by Jeff Bezos, objected to the Future Group retail deal with Reliance industries that is headed by Mukesh Ambani. And what makes this rivalry so popular? Here, the world’s richest person is fighting Asia’s richest person for the fast growing Indian retail and Ecommerce industry.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing what exactly is the reason behind Amazon vs Reliance dispute. Let’s get started.
Table of Contents
Let’s start the Story
If you look from a bird-eye view, this war between Amazon Vs Reliance can be called the battle for supremacy. Two of the world’s richest are battling it out to have a bigger foot in the Indian e-commerce market.
The battle is to acquire a giant of the Indian e-commerce and retail market (“Future Retail” who owns popular brands like Bigbazaar, FBB, Hypercity, etc), which ironically has defaulted in paying interest to the Bondholders and is on the verge of Bankruptcy. But, any small footstep in the Indian e-commerce and retail market is worth fighting for seeing the future scope of this industry
Amazon Vs Reliance – What is the Fight?
As we mentioned above, the fight is over a $3.3 Bn (Rs. 25,300 crores) deal between Reliance Industries and Indian conglomerate Future Retail. If the deal goes as planned, it gives Reliance access to many popular grocery stores and retails outlets in India. And considering the target market which the Future group entails, both Reliance and Amazon want to have it in their kitty or at least prevent the other one from acquiring it.
Amazon has 31,2% market in the Indian E-commerce market and the Walmart-owner Flipkart has a 32% market share in the Indian e-commerce segment. And with the launch of Jio-mart, Mukesh Ambani has made his intentions clear about having a portion of the Indian E-commerce pie.
The bone of contention in this matter is Future Retail Group that boasts of a cash cow like Big Bazaar, a popular hypermarket chain in India.
In August 2019, Amazon invested in Future Retail and bought a 4.8% stake in the Future group. But next, COVID-19 enters and we saw the biggest nationwide lockdown and many shops and businesses lost their business. Millions of jobs were lost and Future retail was hugely affected by that situation. It had a massive impact on their business and as per the July quarterly report submitted, they defaulted in big numbers on paying interest to Bondholders. The rating agency, Fitch downgraded their ratings and they have moved two notches to ‘C’ i.e. near default.
And in the midst of this pandemic situation, both Reliance Industries and Future group made an announcement that Reliance Industries was taking over Future retail and several other assets.
The Legal Dispute between Amazon Vs Reliance
The announcement of this takeover came as a surprise to many who were aware of the previous Amazon-Future retail deal and an interesting cluase attached with it. Amazon argued that the deal between them and Future retail included a non-compete clause. Ans that clause included a list of 30 companies with which Future Group or Future Retail could not do business. And Reliance Industries was a part of that list. To answer this takeover deal, Amazon replied by filing a complaint at Singapore International Arbitration Centre (SIAC).
— The AMAZON Stance
One of the sources from the top Amazon management team voiced out the opinion by saying, “What is the point of the clause if you are just going to ignore it”. The SIAC emergency ruling gave a small victory to Amazon when it temporarily halted the deal between Future Retail and Reliance Industries.
To counter this, the Future group made an argument by saying that, if the deal between them and Reliance does not go through, then could lead to unemployment of around 29,000 people. To this objection, the emergency arbitrator replied, “Economic hardship alone is not a legal ground of disregarding the legal obligations”.
— The Reliance View
Both Reliance and Future group are of the view that the agreement between Amazon and Future retail is legally not bound in India. And that the deal between Reliance and Future group is fully enforceable in India. In short, both are trying the finish the takeover formalities as soon as possible, ignoring the complaint at Singapore International Arbitration Centre.
Closing Thoughts
Considering the existing size of Reliance Retail and Amazon, (Reliance operates at more than 11,000 stores in India and Amazon is the No.2 e-commerce player in India), this fight looks less for Future group Deal (1,500 stores) and more for establishing supremacy and maintaining high ground. As the final signoffs and complaints are still pending, only time will tell where this deal heads towards. Let’s simply hope but it doesn’t exaggerate the battle of ego between the two richest men in the world.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
A Quick Study on How US Elections May Impact Indian Equity Market: November 09, 2016, US Election Day saw one of the most unexpected results in the political history of the world. Hillary Clinton was touted to be the firm favorite of Americans to win the US Presidential Election and was set to become the first-ever Women US president of the USA. However, Surprise-Surprise. At that time, we saw a massive turnaround and Trump emerges victorious.
When Donald Trump beat Hillary Clinton in 2016, here are some of the interesting headlines from major news houses:
However, not only people were hating or celebrating this event. Even the market saw huge volatility during different sessions preceding and after the election results. In today’s article, we will discuss the US presidential results and how US Elections May Impact Indian Equity Market. Let’s get started.
Table of Contents
2016 Elections: How did the Financial world react?
To put it into perspective, on the day of the result in 2016, the Nifty 50 was trading near 8,000 levels. On the day of the presidential election result, the market was still in shock (Donald Trump won against the firm favorite Hillary Clinton) and we saw sideways movement in the Global equity market for few sessions. But, post that, we saw a rally in the market, in which all the major indices gained more than 20% in a year’s time. What impressed the market most, was the pro financial growth and development stance of Donald Trump.
One year post the election date, nifty was trading 10,400 levels. Similarly, Dow Jones Industrial Average (DJIA) was trading near 18,300 levels (on the day of the election), and post one year of that, DJIA was trading near the 23500 levels. Growth in the value of the Index by nearly 20%. And even for the Hang Seng Index, we saw a growth of nearly 22% in the value of the Index.
Therefore, from the above figures, the selection of Trump was welcomed by all the global financial markets of the world. We saw growth not only in the absolute values of US benchmark indices but in most of the global benchmark indices.
Now, next in this article, we aim to provide an insight into the impact of the 2020 US presidential elections. Donald Trump Vs Joe Biden. Who is better for the overall economic development of the world. Considering the ongoing fight against the pandemic, we aim the discover, the political stance taken by both the leaders and the likely impact of their selection on the Global financial world.
Why is US Election important to India?
The answer to the query simply lies in their stance and economic policy. The views of US Presidential candidates are quite contrasting. Just to put in perspective, Joe Biden has a very soft stance against China and he wants to mend the tarnished relationship with China. Donald Trump, on the other hand, has very stern views against China and refers to them as the Corona Virus creator.
While the US account for 5% of the world population, but it accounts for 20% of the global income, and which highlights the economic implications of this presidential election. Therefore, till we get the final outcome of the election, we can expect a range based or sideways movement in the market. And once the results of the elections are out, we can see a fresh infusion of money in the Asian economies. India being one the biggest player in the Asian market, we can see a surge up and infusion of foreign capital in the Indian equity market.
Moreover, according to the survey conducted by Investopedia of various wall street traders and Investors, “47% of the participants are concerned about the election outcome, 35% of the participants are somewhat concerned and 18% of the participants are not concerned about the election outcome”
Fig. According to the internal poll conducted by us on Trade Brains Instagram page, Indians have mostly equal sentiment towards both Trump & Biden (though slightly more inclined towards Biden)
How US Elections May Impact Indian Equity Market?
(Pic Credits: Recent Tweets by US Presidential Candidates!!)
— What if Trump Wins?
As we are all aware that Trump comes from a business background. Most of his policies are pro financial development. If Trump comes back to power, the surge in global economies is expected to continue at a faster pace. And we could see record breaching levels in most of the Global stock market indices.
Moreover, Trump has been very vocal against China. He even refers to the Corona Virus as “Wuhan Virus” or “China Virus”. And he has imposed a lot of sanctions and restrictions against China. And to put his words into actions, he has imposed tariffs on $370 bn worth of goods imported from China. And these sanctions have indirectly made the Indian produced goods more competitive.
And to put the facts into perspective, in the FY 2019-20, the total estimated value of the bilateral trade between India and China stood at a staggering, $89 bn.
— What if Biden Wins?
As mentioned earlier, policies put forth by Biden are more towards mending relations with the allies and that also includes, relations with China. Therefore, if Biden wins the election, we could see the tariff and sanctions against China lifted and which will have an adverse impact on the business volume between India and the USA.
And even the Democratic vice presidential candidate, Kamala Harris has been very vocal against the Indian Government on the Kashmir issue. She has gone to the extent of calling it, ‘Human rights abuse Inflicted by India’.
Trump has even ridiculed Pakistan and shown them their true face but, the Democrats have been very friendly and have shown support towards Pakistan.
How Indian Equity Market may move?
Since the recovery of the Indian Equity market started from the initial slump during the initial COVID-19 days, we have seen the market recovering to new high levels. Sensex has recovered over 53.66% since March 2020 COVID crash. If trump we to be re-elected, we could see the continuation of the rally in the market and new all-time highs could be achieved. However, if Biden were to be elected as president, we could see some initial negative reaction from the market. Anyways, over a long time, it is the policies and announcements of Biden that will have bearing on the Indian Equity market.
Closing Thoughts
To conclude what we discussed in this article on how US Elections may impact the Indian equity market, here are a few of the key takeaways:
Judging by the current term of President Donald Trump, he is believed to be pro financial growth and development.
And the relations between India and the US have strengthened under the leadership of our PM Narendra Modi and Donald Trump.
The global financial market has seen a ‘V’ shaped recovery and this has been mainly because of the joint efforts being put the top Global leaders and Donald Trump is one of it.
And Trump coming back to power should be music to the Indian Stock market, and it will be a major boost to the Indian manufacturing sector.
Only time will tell the impact of Trump selection or Biden selection on the Global and Indian Financial sector. But, we should defiantly see some volatility in the market in days to come.
But, clearly, the global economy would want a leader who is a visionary and shows able leadership in fighting the current Pandemic scenario.
That’s all for this article on how US Elections may impact the Indian equity market. Let me know what you think about this topic by simply commenting below. Have a great day and take care!
Who Is Kamala Harris: Kamala Harris, is the selected candidate for Vice-president Position from Democrats party for US presidential elections, 2020. If elected, she will be serving as Vice-president and deputy to Joe Biden (democratic candidate for Presidential post) for the term of the next four years.
By occupation, she is an American Politician and Attorney since 2017. Interestingly, Kamala Harris has also a connection with India, which has made her quite popular among Indian Americans during this US election. In today’s Market Forensics, let’s find out who is Kamala Harris, and her deep connection with India. Let’s get started.
Table of Contents
Early Life of Kamala Harris
Kamala Harris was born in Oakland, California, on Oct 20, 1964, to an Indian mother and Jamaican Father. Her mother was a biologist who worked on Cancer research. Her father, Donald J. Harris, is a Stanford University professor emeritus of economics. Her parents divorced when she was seven years old.
Kamala Harris Educational Background
If we look into the alma-mater, Kamala Harris graduated from Howard University and the University of California.
After completion of High school, Kamala Harris attended Howard University. While at Howard, she interned for California Senator, Alan Cranston. She also chaired the economics society, led the Debate team. She graduated from Howard in 1986, with a degree in Political science and Economics. After the completion of her graduation, she returned to California to attend law school at the University of California, Hastings College of Law. She graduated with a Juris Doctor and was admitted to the California Bar in June 1990.
Kamala Harris Political Career Timeline
Ms. Harris, 55, is the first of Indian origin and Black Women to be picked by a major party for a major post in US political history. Here’s a brief timeline of the political career of Kamala Harris:
In 1990, she was hired as the deputy district attorney in Alameda County, California. And she was touted to be one of the bright prospects going around.
In 1994, Ms. Harris was dating Willie Brown, and he appointed her to the State Unemployment Insurance Appeals Board And later also to California Medical Assistance Commission.
In 1998, she was recruited as an assistant district attorney. And later she became the chief of the Career Criminal Division, where she prosecuted homicide, burglary, robbery, and sexual assault cases.
And in August 2000, she took up the new role at San Francisco City Hall, where she worked for city attorney Louise Renne.
In 2003, she ran for district attorney against her former boss, Terence Hamilton and she won with an overwhelming margin by winning 56.5% votes. Just prior to her taking office, the felony conviction rate was only 50%, and by 2009, it was 76%. She ran unopposed in 2007.
In 2008, she decided to run for California Attorney General. And in 2010, she was nominated, defeating Alberto Torrico and Chris Kelley. On January 3, 2011, she became the first African American and first South Asian American to hold the office of Attorney general in United States History.
And in 2014, she was re-elected against Republican, Ronald Gold, and secured 57.5% votes.
In a recent interview, when asked for advice for Women, Ms. Harris said: “You never have to ask anyone permission to lead. I have in my career been told many times, ‘It’s not your time”, ‘It’s not your turn”. Let me just tell you, I eat ‘no” for breakfast. So, I would recommend the same. It’s a hearty breakfast.” And when asked about her plan for a sustainable and eco-friendly future for coming generations, she said Joe Biden led the administration has plans to make committee with deadlines to achieve net-zero emission by 2050.
Kamala Harris has been strongly against racial discrimination and crimes against women and children. In 2005, she was featured in a Newsweek report of “20 most powerful women of America”
Indian Connection of Kamala Harris
Till now, we noticed that Ms. Harris’s education and career have been centered only around the United States of America. However, as we mentioned earlier, Kamala Harris has an Indian connection from her maternal side.
The Maternal Grandfather of Kamala Harris hails from Painganadu Thulasendrapuram village in Tamil Nadu. The village is situated approx 320 km south of the city of Chennai.
During this US Election 2020, the head of this village committee mentioned that they are holding special prayers for her victory on the say of the polls. Moreover, her banners can also be found on different roads of this village. One of the banners in the village read as “From Thulasendrapuram to America”. Another poster is located at the popular bus stop of the village, with Ms. Harris smiling and white house in the background.
Overall, because of her maternal side, Kamala Harris is still connected with India and her maternal villagers still have love and respect towards her.
10 Lesser Known facts about Kamala Harris
Here are a few other lesser-known facts about Kamala Harris:
As a child, Kamala Harris was heavily influenced by her maternal grandfather, who was a high ranked government official and also fought for India’s independence.
After High school, she joined Howard University and majored in Political science and economics.
Her friendship with Barack Obama can be understood from the fact that she was the first notable California officeholder to endorse him during the 2008 presidential bid.
Harris has had a multicultural childhood. She grew up with traditional Indian values (India Mother) and with Jamaican vibes (Jamaican father). She would visit India with her mother once every two years and also visit Jamaica with her father. And that makes it comfortable for her to connect to different cultures in an easy and simplified way.
One of her bigger accomplishments as an attorney general was creating Open Justice, an online platform for making criminal justice data available to the public. And this also increased the accountability of police towards the public.
She always has had a stern view on racial discrimination in terms of policing and using force. She participated in the protests (in Washington DC) against the death of George Floyd in police custody. And she also raised voice against the shooting of Jacob Blake.
In 2014, she married Doug Emhoff, a corporate lawyer from Los Angeles in a private ceremony.
She is a very enthusiastic cook and likes to try and cook various recipes. And when asked about her favorite Indian dish, she answered, ‘idli’ with well-made sambhar.
She delayed endorsement of Biden till March 8, when there were no women left and Biden’s nomination couldn’t be argued against. And later she threw support behind Biden and said he was a leader who could, “Unify the people”
Harris helped in starting a program with the San Francisco Department of Public Health to help them in their initiative towards child sexual abuse. She also co-founded the Coalition to End the Exploitation of Kids.
Joe Biden for the presidential role and Kamala Harris for vice president role are standing against Donald Trump and Mike Pence in the 2020 US Presidential elections. Her motto is, “You may be the first, but make sure you are no the last.”
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, take care and happy investing.
A Short Analysis on India’s October Manufacturing PMI: The Purchasing Managers Index (PMI) that was announced yesterday (Monday) for the month of October 2020 reflected an index of 58.9 which is the highest reading since May 2010. This index was at the level of 56.8 in September. Moreover, this surge in sales was the strongest since mid-2008. The news was taken enthusiastically by the economists as it indicated that fortunate unlocking amid COVID19 and improved demands in the market conditions.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing what exactly is Purchasing Managers Index (PMI) and its implication on the financial market. Let’s get started.
Table of Contents
What is Purchasing Managers Index (PMI)?
The Purchasing Managers Index (PMI) is an index explaining the prevailing economic trends in the manufacturing and service sectors. There are five major indicators used in explaining the Index – New orders, Inventory levels, productions, supplier deliveries, and the employment environment. The main purpose of PMI is to give a futuristic picture of the current and future business scenario and that enables the company owners, managers, and analysts to make an informed decision about the market.
How can one read PMI?
The PMI index ranges from 0 to 100 level. Any figure above 50 denotes expansion in the economy and any figure below 50 indicates contraction in the economy compared to the previous month. The further we are from the mid-point (50), it denotes more contraction and expansion in the economy. You can read more about how PMI is calculated here.
Here, the previous month’s data are very useful in doing a comparative study. Growth or decline in number as against the historical indexes for different months gives us information about the expansion or contraction in the economy.
Economic Implication of PMI
As Purchasing Managers Index (PMI) is the first data that is published every month, it is generally considered to be the leading indicator of the numbers which are yet to come. Other data like the industrial output, manufacturing output, GDP, etc., which are published later.
The Implications of PMI Data on Financial Market
The PMI data generally gives an indication of the corporate earnings. Good data indicates that the economy is lucrative to invest at current times vis-a-vis other countries having lower PMI data.
India’s October Manufacturing PMI Data
(Source: Historical Purchasing Managers Index (PMI)- IHS Markit)
India’s manufacturing PMI climbed to the highest ever in a decade on the back of a continuous surge in sales. The Nikkei’s Manufacturing Purchasing Manager’s Index, compiled by The IHS Markit, saw Manufacturing PMI rose to 58.9 in October, as against 56.8 in September and against market expectation of 55.4. This rise in PMI data can mainly be attributed to the following factors:
The relaxation in COVID-19 restrictions and phased unlocking.
New order hits its highest since mid-2008.
The highest output advanced since late 2007.
The rise in Export sales.
The Manufacturing PMI of 58.9 at its highest in the Last Decade, suggests that the third-largest economy of Asia is healing after a slump during the Pandemic COVID-19. According to Pollyanna DeLima, IHS Market- “Companies were convinced that the resurgence in sales will be sustained in the coming months, as indicated by a strong upturn in input buying and restocking efforts”.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, take care and happy investing.
A Guide on what is a Profit & Loss Statement and how to read it: One of the most important aspects an investor looks into before investing in a business is whether the business is profitable. That is how much earnings the company is making every quarter and year, along with how much is growing in the earnings compared to the last year or so. And this can be found by reading the Profit & Loss Statement of a company.
Today, we have a look at the financial statement that provides us with this earnings info i.e. the Profit & Loss Statement in order to better understand it. Let’s get started.
Table of Contents
What is a P&L Statement?
A profit and loss statement (P&L) or income statement is a financial report that summarizes the revenues, costs, and expenses incurred over a given period of time. The P&L statement shows a company’s ability to generate sales, manage expenses, and create profits. It is also known as the statement of operations.
Why do we need a P&L Statement?
For the sake of understanding the concept better take the example of a household that earns Rs.30,000 p.m. with the assumption that due to a tight budget it does not spend on assets. If a member of the family were to compute how he arrived at the savings for a month, how would he do so?
He would simply jot down all the incomes he receives from various sources and subtract that with the expenses say Rs 25,000 in order to arrive at the amount he has saved. Although in the case of a company we do not have savings, instead we try to find out the profit or loss from a similar but tabular method. We jot down the total revenue earned by the firm from all sources and subtract it with expenses in order to arrive at the respective profit or loss and that is exactly what the P&L statement does.
In the simplest words, the goal of a P&L statement is to measure the profits by excluding the expenses from the income and provide an overview of the financial health of the business. The profit and Loss statement shows exactly where the revenues come from to the business, and what are the costs and expenses that are paid for. It shows us the ability that a business has to manage its profits by either cutting costs or driving revenue.
The P&L Statement is very important to various stakeholders.
Within the company, the statement shows where the company could be possibly lagging behind in generating revenue or on what costs and expenses the company is overspending and should reduce. Such information also helps then plan and budget for the coming years. The statement also provides insights into whether the profit margins they have allocated on the products are sufficient.
For investors, the P&L statement answers the primary questions they have, which is whether the company is profitable or if it is making a loss? And even if it is doing so what are its prospects to breakeven or increase profits.
The P&L statements also help other government entities and the tax departments to assess the tax position of the company.
Before going through the tabular format let us have a look at the basic formula the P&L report is based on:
Revenue – Expenses = Profits
But arriving at Profits is not as simple as the formula depicts. There are various incomes and expenses that simply cannot be grouped together and they must be shown separately in order to aid future decision making. These include revenue, Income from other sources, operating expenses, other expenses, taxes, etc.
Profit before Taxes = Net Operating Profit + Other Income − Other Expense
Net Profit (or Loss) = Net Profit before Taxes − Income Taxes
Looks confusing right. In addition simply following the above would make a comparison to previous years’ data or comparison with other companies difficult. Hence the P&L statement comes in a simple tabular format that makes understanding and comparison easier.
Format of the P&L statement
STATEMENT OF PROFIT & LOSS
Name of the Company…………………….
Statement of Profit and Loss for the period ended…………….
Particulars
Note
No.
Figures
as at end
of
current
reporting
period
Figures
as at end
of
previous
reporting
period
Analysis
1
2
3
4
I. Revenue from
operations
xxxx
xxxx
Here revenue on
account of company’s
main operating
activity is shown.
II. Other income
xxxx
xxxx
Here, other revenue
not arising out of
company’s main
operating activity is
shown.
III. Total Revenue (I
+ II)
xxxx
xxxx
IV. Expenses:
Cost of materials
consumed
xxxx
xxxx
This section is applicable for companies that manufacture their own products. This section will include the cost pertained to manufacture those products in the form of Raw Materials, Packing Material and other material such as purchased as intermediates and components which are consumed in the manufacturing activities of the company. This section also includes Semi-Finished Goods purchased for
processing and
subsequent sale.
Purchases of
Stock-in-Trade
xxxx
xxxx
This is applicable to
trading companies
and would comprise
of goods purchased
normally with the
intention to resell or
trade in, without any
processing /
manufacture at their
end.
Changes in
inventories of
finished goods
work-in progress
and Stock-in-Trade
xxxx
xxxx
This represents the
difference between
opening and closing
inventories of finished
goods, work-inprogress and stockin-trade. Such
differences would be
shown separately for
finished goods, workin-progress and
stock-in-trade.
Employee benefits
expense
xxxx
xxxx
Finance costs
xxxx
xxxx
Depreciation and
amortization
expense
xxxx
xxxx
Other expenses
xxxx
xxxx
Expenses not
covered above are
required to be
aggregated here. Examples of other
expenses are
consumption of stores and spare parts,
power and fuel rent,
repairs, insurance
etc.
Total expenses
xxxx
xxxx
V. Profit before
exceptional and
extraordinary items
and tax
(III-IV)
xxxx
xxxx
VI. Exceptional
items
xxxx
xxxx
Here total impact of
the exceptional items
like gain / loss on
disposals of long-term
investments,
legislative changes
having retrospective
application, litigation
settlements disposals
of items of fixed
assets and other
reversals of provisions etc are to
be shown.
VII. Profit before
extraordinary
items and tax (V -
VI)
xxxx
xxxx
VIII. Extraordinary
Items
xxxx
xxxx
Here total impact of
the extraordinary
items like expense
related to previous
periods, arising out of
long term settlement
with the employees,
loss due to fire etc
are to be shown.
IX. Profit before tax
(VII- VIII)
xxxx
xxxx
X Tax expense:
(1) Current tax
(2) Deferred tax
xxxx
xxxx
XI. Profit (Loss) for
the period
from continuing
operations
(VII-VIII)
xxxx
xxxx
XII Profit/(loss)
from
discontinuing
operations
xxxx
xxxx
XIII. Tax expense of discontinuing
operations
xxxx
xxxx
XIV. Profit/(loss)
from
Discontinuing
operations
(after tax) (XII-XIII)
xxxx
xxxx
XV. Profit (Loss) for
the period
(XI + XIV)
xxxx
xxxx
This represents the
profit after tax
XVI. Earnings per
equity share:
xxxx
xxxx
Where to find the Profit & Loss Statement of a company?
If you want to find the last five years’ profit &loss statement of any publically listed company in India, you can use Trade Brains free stock research portal here.
Here, you can read the simplified profit and loss statement of any company that you’re researching from the list of over 5,000 publically listed companies in India. For this, simply go to https://portal.tradebrains.in/ and search the name/symbol of the company in the search bar. Then, you can go to the stock details page of that company to read its profit & loss statement.
The profit and Loss statement has a very important role to play when it comes to guiding investment decisions. The Profit and Loss statement should however not be considered as the only basis for making decisions. The Profit and Loss statement includes expenses while computing Net Profit but leaves out any changes made to the assets and liabilities during the year.
Also, a high Net Profit will not necessarily mean that the company has adequate cash to spend. There is still a possibility that the company may have made a profit but still has a negative cash flow. The reasons for this can only be understood after viewing the Cash Flow Statement. A complete analysis using financial statements requires a combination of P&L Statement, Balance Sheet, and Cash Flow Statement.
List of Stock Market Manipulations: It might sound a little weird for beginners, however, the stocks in the Indian markets too get manipulated, even though under the presence of big regulatory bodies like SEBI. Sometimes these stock market manipulations are noticeable, but most of the time they are not- it can even be difficult for the authorities and regulators to detect them. This is because there are a wide variety of factors that are affecting the prices of a stock on a daily basis and not all the impacts from these factors are quantifiable.
Today, we go through some of the popular ways of Stock Market Manipulations and widely used techniques manipulators use in order to get a better understanding. This would allow us as retail investors better understand and position ourselves.
Stock Market Manipulations – Ways in which the market is manipulated!
Market manipulation refers to the creation of false inflated/deflated misleading prices of security by interfering in the operations of the market. Market manipulation involves the intent to do so with the aim of making personal gains. If stock manipulation is caught then it is subject to prosecution.
There are multiple ways in which the stock prices are manipulated. Generally, it is easier to deflate stock prices in bearish markets and inflate them in bullish markets. Most of the market manipulation involves sending misleading signals in order to influence the retail investors. By creating positive perceptions manipulators influence retail investors to buy stocks increasing the price. The opposite happens when negative perceptions are created. The following are some of the methods of market manipulation.
Table of Contents
1. Wash Trading
Here a single stock is sold and repurchased for the purpose of generating activity and increasing the price. The rapid buying and selling pump up the volume in the stock, attracting investors who are fooled by the increasing trades. This happens as the impression of increased activity influences uninformed traders.
2. Brokers and Pledged Shares
At times promoters pledge a part of their holding as collateral for raising loans which is a standard industry practice. At times as a last resort for the necessity of funds, the promoters are forced to pledge large chunks of their holdings – not a good sign for investors. For smaller companies, this funding is facilitated by brokers as their size makes it difficult for them to be deemed credible to raise funds through other sources. Lenders here generally offer 60-70% of the value of the shares pledged.
What manipulators do here is try and influence the markets to reduce the price which in turn reduces the total price of shares pledges. This now reduces the value of shares pledged and would require promoters to make up for lost collateral due to price loss. If news breaks out that the promoters are failing to do so retail investors begin to panic assuming the company is in for the worst and the share prices begin to fall. The markets react this way as in such cases the lender loan the money to the brokers and the company. And if the prices fall and the margins required are not met the lenders simply dump the shares in the market to ensure that they themselves do not make a loss. Manipulators recognize and take advantage of this fragile system.
Some experts, however, are not fully convinced that this is what is actually happening. They feel that there is a good chance that promoters and manipulators play a well-orchestrated game to reduce prices. This is possibly done to increase holdings at cheaper rates.
3. Pump and Dump
The pumping of stocks begins with manipulators buying huge chunks and then releasing positive announcements at times even along with the company in order to increase the share price. Uninformed retail investors here are lured-in to buy these stocks with the assumption of them being the next big thing. The high demand results in inflated prices marking the completion of the pumping stage.
Once the prices are inflated enough to make profits the bear cartels then start dumping the shares. This causes the prices to fall back to pre pumping levels resulting in losses among retail investors.
This is a stock manipulation tactic employed by the bear cartels. Short selling is a completely legal practice selling borrowed stock in the hopes that the stock price will soon fall, allowing the short seller to buy it back at a profit. It is encouraged as authorities believe that it provides the markets with more information as often the short-sellers employ extensive research to uncover facts that support their suspicion that the target company is overvalued. Short selling also increases the market liquidity and provides investors with long positions an alternate source of income by lending shares. But unfortunately, bear cartels use this instrument differently.
Bear cartels target stocks that have been increasing in the recent past due to their positive results. They first artificially further pump up the price while taking short positions against the stock in the market. They then begin to spread negative information through public smear campaigns about the stock and offer poor predictions and targets. This eventually causes the price to fall where the cartels buy back the shares at lower rates earnings a profit by short selling. This is another version of the pump and dump but here the manipulators do not actually buy the stock. This scheme can only succeed if the manipulator here has credibility.
5. Spoofing the Tape
Spoofing also known as layering. Here the manipulator places orders in the market with no intention of actually buying. Other investors see the large orders waiting to be executed are led to believe that a huge investor is in the process of buying or sell at a certain price. Therefore, the uninformed retail investors to place their order at the same level to buy or sell.
Seconds before the market trades at the price of the large order, the order is pulled back from the market. But the retail investor, unfortunately, does not have the time to back out and their order is filled. This results in market drops and losses for anyone unfortunate enough to be tricked into buying.
6. Bear Raiding or Poop and Scoop
Bear raiding is when a large player forces share prices lower by placing large sell orders. The price plunges as stops are hit, adding to the selling. Once this happens, the manipulator buys the undervalued shares, thus making a profit. Although both are based on the same principle poop and scoop generally target medium or large-cap companies. It is rarer as it is harder to artificially affect the prices of a good company.
Closing Thoughts
Although Illegal, financial market manipulation is rampant in today’s stock market and has always been so. Being retail investors with lower individual influence on the markets it is easy for investors o fall prey to these schemes. But understanding the stock market manipulations and other scamming methods allows us to come to the realization that the manipulations are part of the system.
Investors who realize this become not only better and in tune in identifying stocks that are manipulated but also find means to profit through them by adjusting their positions.
A Guide to Coat Tail Investing Strategy: If you had invested Rs. 1000 in Berkshire Hathaway, in 1970 it would have grown Rs 48.6 lakh by 2014. Stunning isn’t it! How many times have you been hit with stats like this? Always leaving you wishing that you knew what Warren Buffet or your investing hero knew then.
Lucky for us there is a whole strategy based on mimicking portfolios of those whom we look up to in order to make the same gains. Today, we discuss a strategy popularly known as Coat Tail Investing which would help us mimic the investments made by our idols.
Table of Contents
What is Coat Tail Investing?
Coattail investing refers to an investment strategy where an investor replicates the trades of well-known and historically successful investors. Smaller investors here ride the coattails of their idols in hopes of multiplying their investments. The investors that are worth replicating in this context are those who have enjoyed continuous success for a period of 20-30 years. The strategy is based on the logic that if these top investors would buy a stock for their own portfolio then it must be a great investment and hence we should buy them too.
Simple as it sounds it’s amazing that more people don’t do it. It may interest you to know that even Institutional investors tend to track several successful investors to see what they are investing in according to a report by Aite Group. In fact, even investment guru Warren Buffet admitted that much of his early success was the result of “coat-tailing” great investors like Benjamin Graham.
Thanks to regulations put in place by SEBI and media coverage individual investors like you and I are quickly informed about where these big investors are investing their money. Following are some of the means that have made this possible:
– Due to Company Disclosure requirements put in place it is mandatory for a company to disclose the names of all the shareholders holding more than a 1% stake in the company. The company reports would include the names of the major stockholders of the company.
– Mutual Funds are required to disclose their portfolios every month. This allows investors to gather information on what stocks have been bought or sold by the fund.
– Whenever there is a block or bulk deal takes place the Stock exchanges publish data of investors involved, no. of stock traded, no. of stocks that exchanged hands, and the price at which the trade took place on a daily basis on the NSE and BSE website. A bulk deal is when the total quantity of shares traded exceeds 0.5% of the equity shares of the listed company and a block deal is a trade of more than five lakh shares or a minimum amount of Rs 5 crore of a listed company.
– Media outlets, business journals, finance websites also disclose the portfolios of big investors. Of late there are even sites specifically dedicated to this purpose.
Quick Note: You can follow the investment portfolio of big investors in India using our Trade Brains Portal here.
Advantages and Disadvantages of Coat-Tail Investing?
Coat Tail Investors to date have made significant fortunes by copying the portfolio of great investors. But they also have suffered a massive loss due to this purpose. Following Advantages and Disadvantages shed some light on why this has been so
Advantages of Coat-Tail Investing
– It is easy to implement
The requirements for this strategy are to find an investor you admire, and then start copying his market moves. The heavy-duty which includes analysis and research is already done by the investors. This helps us save a lot of time and effort and at the same time reap the benefits.
– It costs us nothing
Big investors and institutional investors spend millions of dollars on creating teams specifically for identifying these stocks. The end info that they spend so much on is made available to us free of cost after they make the trade.
– Chances of Succes are high
Here investors who are already familiar with the industry or stock put in their years of expertise. Therefore following these big investors increases the odds of success.
Disadvantages of Coat-Tail Investing
– Abrupt exits may catch us off guard
Big Investors do not announce that they will be exiting the stock as this may negatively affect their gains. The news of a big investor buying or selling stock will have positive or negative effects on the share price respectively. If investors continue to hold the stock even after the big investor has sold and the price has fallen the investor may incur losses.
– Different interests
Your financial goals may not match the investors. Some investors may want to buy stock in order to make quick profits from trading, blindly copying them oud prove to be disastrous. Also, investors who want to make quick profits i.e. in the next 6-12 months may not have much to gain if they follow investors like Buffet who make investments for a lifetime. If is easy for one to confuse trading with investment picks or vice versa.
– There are too many investors already applying this strategy
Every move made by these investment gurus is constantly watched by lakhs of people. Technology has made it possible for information to be transferred in less than seconds. As mentioned earlier this now causes the prices of shares to fluctuate wildly with the smallest sign of the investors moving in or out due to market reactions. If an investor is delayed even by the shortest period of time he may end up in losses.
– Everyone makes mistakes
It is very much possible for even stock market experts to make errors. These errors, however, may result in severe consequences for those that blindly follow them. The best example, in this case, would be Warren Buffet picking IBM. He later admitted that his thesis on IBM was flawed
Closing Thoughts
After observing the disadvantages above it doesn’t take a genius to note that the stacks are piled against the common investor. Then how can one even make this strategy work?
For this, we can take notes from Mohnish Pabrai one of the most famous names in Dalal Street. Unknown to many Pabrai himself has adopted the coning approach. He is known to have joked that he’s never had an original idea in his life, but this doesn’t bother him. “ we copy the best ideas and make them our own.”
It is the latter part – ‘making them our own’ which is most important. Most of the problems that the strategy has can be eroded simply if the individual assesses and does his own research after gathering information. The investors we pick to follow are also of importance in this strategy.
Picking Buffet with the aims of making quick profits would not make any sense just like picking any other activist investor when the investor has the aims of the long term. As long as we keep ourselves updated, pick the investors whose strategies meet our aims, and do our own research after gaining trade information, Coattailing may actually lead us to personal gains.
Understanding the Roles of Depositors – CDSL and NSDL in the equity market: As investors and traders, we are well versed with the term Demat (Dematerialization) account. This is because a Demat account is one of the most basic requirements in order to trade or invest in the stock market. Today, we take a look at the organization behind these accounts in the Indian markets i.e. Indian depositories, the NSDL, and the CDSL.
Through this article, we’ll discuss the various roles of depositors in the equity market and the services provided by CDSL and NSDL to Indian investors. Let’s get started.
Table of Contents
What are CDSL and the NSDL? And why are they Important?
The Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd.(NSDL) are depositories for the Indian markets.
In order to understand what a depository does let us compare securities to cash. The depositories are to securities what banks are to cash. Just like a bank holds your cash and allows you to access it through an electronic form, the depository holds our shares, bonds, mutual funds, etc. for all shareholders in electronic form. These entities have played a pivotal role in the digitalization of the Indian Stock Markets.
Let us go back in time to the early ’90s a period when the stock markets still were heavily dependant on the physical transfer of shares. This was done through share certificates. Thanks to the move initiated by Stock Holding Corporation of India Limited(SHCIL) in 1992 when it paid the groundwork for the NSDL through a concept paper “National clearance and Depository System”. The Government of India promulgated the Depositories Ordinance in September 1995, followed by the passing of The Depositories Act by the Parliament in August 1996.
The NSDL was soon established in 1996 followed by the CDSL in 1999. These two act as depositories to the two exchanges in the country; the NSDL to the NSE and the CDSL to the BSE. The Demat accounts mentioned earlier are actually just a front for the CDSL and NSDL holding your shares.
The transfer from a physical to digital format saw numerous benefits like:
Faster settlement cycles
Elimination of all risks associated with physical certificates
Elimination of bad deliveries
No more stamp duty
Immediate transfer and registration of securities
Faster distribution of non-cash corporate benefits like rights and bonus
Elimination of problems related to the transmission of Demat shares
Reduction in the handling of huge volumes of paper
Periodic status reports
Reduction in brokerage for trading in dematerialized securities.
Elimination of problems related to change of address of the investor
Elimination of problems related to selling securities on behalf of a minor
Ease in portfolio monitoring
The depository system effectively ensured a smooth transition to an electronic one.
Can you Choose your Depository?
An investor does not have the option to select a depository. The depository is selected by the depository participant. A Depository Participant is a financial institution, broker, bank, etc that the shareholder may be in touch with, and respectively can create a Demat account through them. The CDSL has 599 depository participants registered with itself whereas the NSDL has 278 depository participants registered with it.
For an investor or trader to choose a depository of his liking there has to be some difference between the two depositories. Apart from the exchanges, the number of depository participants and years formed there are no striking differences between the two. The services provided, their functioning, and strategy remain the same.
We, however, can find outwith which depositories we have our Demat account with using the account number. A Demat account with NSDL will begin with ‘IN’ followed by 14 numerals. A Demat account with CDSL will have 16 numerals.
What are the Roles of Depositors? Services by CDSL and NSDL!
Here are a few of the top roles and the services provided by NSDL and CDSL for Indian equity investors:
Maintenance of Demat accounts
Rematerialisation and dematerialization
Trade settlement
Share transfers
Market and off-market transfers
Distribution of non-cash corporate actions
Nomination/transmission
Account opening
Account statement
Changing account details
The Depositories also provide shareholder details to companies at the time of dividend payouts. The companies use this information to pay dividends to shareholder accounts.
The efficient functioning of an economy is highly dependant on its financial system. In this article, we discussed the key roles of depositors i.e. CDSL and NSDL in the equity market.
The CDSL and NSDL have been pivotal in not only ensuring facilitating the system but also enhancing its productivity post digitalization. It is also important to note that ever since their existence there have never been any major glitches, a testament to the efficient transformation from physical to electronic format.
Explaining the Harshad Mehta Scam of 1992: The magnitude of the Harshad Mehta scam was so big, that if put into perspective today, it brought a bear market in the Dalal street. If we look into the numbers, this single man deceived the entire nation with an amount of over Rs 24,000 crores (which is way bigger than Nirav Modi or Vijay Mallaya scams).
Today, we take a look at how the Harshad Mehta scam was executed and possibly try to understand how he was able to fool the entire Dalal market and even the Indian banking systems. Further, we’ll also discuss why he plays such a considerable role in our pop culture and that too not as an antagonist.
Table of Contents
Harshad Mehta’s Rs 40 Journey
Perhaps what makes the Harshad Mehta story even more interesting is that despite migrating to Mumbai with only Rs. 40 in his pocket he managed to influence the country in such a massive way. Once he discovered his interest in the stock market he worked for broker Prasann Panjivandas in the 1980s. Harshad considered Prasann Panjivandas as his guru. Over the next decade, he went on to work for several brokerage firms eventually opening up his own brokerage under the name GrowMore Research and Asset Management.
By the 1990s, Harshad Mehta had risen to such prominence in the Stock market that he was known as the ‘Amitabh Bachchan of the Stock Market’. Terms such as ‘The Big Bull’ and ‘ Raging Bull’ were regularly used in reference to him. Over time he became particularly known for his wealth in the 1990s which he did not shy away from boasting about through his 15,000 sq. ft. penthouse and array of cars. He was described by Journalist Suchita Dalal as charismatic, ebullient, and recklessly ambitious. Perhaps it was this recklessness that led to his downfall through his ambitious schemes.
The Broken Financial Environment of the 1990s
The year 1991 marks the year of liberalization of the Indian economy. Today we are grateful for this opening-up, however, Indian businesses found their own set of challenges. The public sector was forced to face increased competition and was under pressure to display profitability in the new environment. The private sector, however, responded positively to this news as this would mean more funds from foreign investments.
The new reforms also were welcomed by the private sector as they now were allowed entry into new sectors of businesses that were earlier reserved for the government enterprises. The stock market reacted positively to this with the Bombay Stock Exchange touching 4500 points in March 1992. But liberalization was not the only factor responsible for this. The period also an increase in demand for funds. The Banks were pressured into taking advantage of the situation to improve their bottom line.
The banks are required to maintain a certain threshold of government fixed interest bonds. The governments issue these bonds with the aim of developing the infrastructure of the country. Million-dollar development projects are taken up by the government which are financed through these bonds. How much is to be invested in these bonds depends on the bank’s Demand and Time Liabilities. The minimum threshold that the banks had to maintain as bonds in the 1990s was set at 38.5%. This minimum percentage that banks have to maintain in the form of bonds or other liquid assets is known as the Statutory Liquidity Ratio(SLR).
Along with this, the banks were also pressured to maintain profitability. Banks were, however, barred from participating in the stock market. Hence they were not able to enjoy the benefits of the Stock Market leap during 1991 and 1992. Or at least they were not supposed to.
What did banks do if they couldn’t maintain the SLR ratio?
The banks at times may have temporary surges in the Net Demand and Time Liabilities. In such times banks would be required to increase their bond holdings. Instead of going through the whole process of purchasing bonds the banks were allowed to lend and borrow these liquid securities through a system called Ready Forward Deals (RFD). An RFD is a secured short term loan (15 days) from one bank to another. The collateral here is government bonds.
Instead of actually transferring the bonds the banks would transfer something called Bank Receipts (BR). This is because the bond certificates held by the banks would be of bonds worth 100 crores whereas the requirements by the banks to maintain their SLR would be much lower. Hence BR’s were a much more convenient way of short term transfer.
The BR’s were a form of short term IOU’s (I Owe You). However, when an RF deal was exercised they never looked like loan transfer but a buy and sale of securities represented by BR’s. The borrowing banks would sell some securities represented by BR’s to the lending banks in exchange for cash. Then at the end of the period say 15 days the borrowing bank would buy the BR back (securities) at a higher price from the lending bank. The difference in the buy snd sell prices would represent the interest to be paid to the lending banks. Due to the BR’s, the actual transfer of securities doesn’t take place. BR’s could simply be canceled and returned once the deal was completed.
Was the use of Bank Receipts (BR) allowed?
The RBI set up a Public Debt Office (PDO) facility to act as the custodian for such transfer of bonds. As per the RBI BR’s were not permitted to be used for such purposes. However, the PDO facility was plagued with inefficiencies. Hence the majority of the banks resorted to BR. This system existed with the knowledge of the RBI which allowed it to flourish as long as the system worked.
What roles did the brokers play here?
Brokers in the markets played the role of intermediaries between two banks in the RFD system. They were supposed to act as middlemen helping borrowing banks meet lending banks. A brokers’ role should have ended here where it is done in exchange for a commission.
Where the actual exchange of securities and payments should have taken place only between the bank’s brokers soon found a way to play a larger role. Eventually, all transfer of securities and payments were made to the broker. Banks also began welcoming these because of the following reasons
Liquidity: Brokers provided a quick and easier alternative to dealing with in comparison to dealing with another bank. Loans and payments would hence be provided on short notice in a quick manner.
Secrecy: When deals were made through a broker it would not be possible for the lending banks to find out where the loans were being moved to. Similarly, the borrowing banks too would not be concerned where the loans would be coming from. The dealings were both done only with the broker.
Credit Worthiness: When banks would deal with each other, the transaction would be placed depending on the creditworthiness of the borrowing bank. However, once brokers took over the settlement process this benefitted the borrowing banks as they would have loans available regardless of their creditworthiness. The lending banks would lend based on the trust and creditworthiness of the broker.
Brokers entering the settlement process made it possible that the two banks would not even know with whom they have dealt with until they have already entered into the agreement. The loans were viewed as loans to the brokers and loans from the brokers. Brokers were now indispensable.
The Role played by Harshad Mehta.
Harshad Mehta used to broker the RF deals as mentioned above. He managed to convince the banks to have the cheques drawn in his name. He would then manage to transfer the money deposited in his account into the stock markets. Harshad Mehta then took advantage of the broken system and took the scam to new levels.
In a normal RF deal, there would be only 2 banks involved. Securities would be taken from a bank in exchange for cash. What Harshad Mehta did here was that when a bank would request its securities or cash back he would rope in a third bank. And eventually a fourth bank so on and so forth. Instead of having just two banks involved, there were now multiple banks all connected by a web of RF deals.
Harshad Mehta and the Bear Cartels
Harshad Mehta used the money he got out of the banking system to combat the Bear Cartels in the stock market. The Bear Cartels were operated by Hiten Dalal, A. D. Narottam and others. They too operated with money cheated out from the banks. The Bear Cartels would aim at driving the prices low in the market which eventually undervalued various securities. The Bear Cartels would then purchase these securities at a cheap price and make huge profits once the prices normalized.
Harshad Mehta countered this by pumping money from the stock market to keep the demand up. He argued that the market has simply corrected the undervalued stock when it revalued the company at a price equivalent to the cost of building a similar enterprise. He put forward this theory with the name replacement cost theory. This theory was a fallacy on his behalf or an illusion he resented to the public to justify his investments. Such was his influence in the stock market that his words would be blindly followed similar to that of a religious guru.
He would use the money from the banks which was temporarily in his account to hike up the demand of certain shares. He selected well-established companies like ACC, Sterlite Industries, and Videocon. His investments along with the market reaction would result in these shares being exclusively traded. The price of ACC rose from Rs.200 to nearly Rs. 9000 in a span of 2 months.
The banks were aware of Harshad Mehta’s actions but chose to look away as they too would benefit from the profits Harshad would make from the stock market. He would transfer a percentage to the banks. This would also enable banks to maintain profitability.
Video Credits: Set in the 1980’s & 90’s Bombay, “Scam 1992” tv series based on SonyLIV follows the life of Harshad Mehta
The Scam within the Scam
Harshad Mehta noticed early on the dependence of the RF deals on BR’s. In addition to this, the RF deal system also placed a great deal of reliance on prominent brokers like Harshad Mehta. So he along with two other banks namely Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) decided to further exploit the system. With the help of these two banks, he was able to forge BR’s. The BR’s that were forged were not backed by any securities. This meant that they were just pieces of paper with no real value. This is similar to a situation where you can avail loans with no collateral. Harshad Mehta further would pump this money into the stock market increasing his amount of influence.
The RBI is supposed to conduct on-site inspections and audits of the investment accounts of the banks. A thorough audit would reveal that amount represented by BR’s in circulation was significantly higher than the government bonds actually held by the banks. When the RBI did notice irregularities it did not act decisively against Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB).
Another method through which the collateral was eliminated was by forging government bonds themselves. Here the BR’s are skipped and fake government bonds are created. This is because PSU bonds are represented by allotment letters making it easier for them to be forged. However, this forgery amounted for a very small amount of funds misappropriated.
Exposing the Harshad Mehta Scam
Journalist Sucheta Dalal was intrigued by the luxurious lifestyle of Harshad Mehta. She was particularly drawn to the fleet of cars owned by Harshad Mehta. They included Toyota Corolla, Lexus Starlet, and Toyota Sera which were rarities and a dream even for the rich in India during the 1990s. This further interest had her further investigate the sources through which Harshad Mehta amassed such wealth. Sucheta Dalal exposed the scam on 23rd April 1992 in the columns of Times of India.
It has been alleged that the Bear Cartel ganged up on Mehta and blew the whistle on him to get rid of him and the bullish run altogether.
Aftermath of Harshad Mehta Scam Exposure
— Effect on the Stock Market
Less than 2 months after the scam was exposed, the stock market had already lost a trillion rupees. The RBI created a committee to investigate the matter. The Committee was called the Janakiraman Committee. As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a trillion or 1 lakh crores.
This major fall, however, cannot be attributed to the scam alone but also to the governments’ harsh response. In an attempt to ensure that all the parties involved are brought to justice, the government did not permit the sale of any shares that had gone through the brokers in the last one year. This affected not only the brokers but also the innocent shareholders who may have gone through these brokers to purchase securities. The shares came to be known as tainted shares. Their value was reduced to pieces of paper as their holder was not allowed to sell them. This just resulted in a worsened financial environment.
— Effect on the Political environment
The opposition demanded the resignation of the then Finance Minister Manmohan Singh and the RBI Governor S. Venkitaramanan. Singh even offered his resignation but this was rejected by prime minister P. V. Narasimha Rao.
— Effect on the Banking Sector
When the scam was exposed the banks started demanding their money back and recovery efforts made them realize that there were no securities backing the loan either. The Investments in the stock market by Harshad Mehta were tainted and had reduced by a significant value. A number of bankers were convicted. It also led to the suicide of the chairman of Vijaya bank.
— Further Investigation
The investigations revealed many players like Citibank, brokers like Pallav Sheth and Ajay Kayan, industrialists like Aditya Birla, Hemendra Kothari, a number of politicians, and the RBI Governor all had played a role in the rigging of the share market. The then minister P. Chidambaram also had utilized Harshad Mehta’s services and invested in Harshad Mehtas Growmore firm through his shell companies.
— Effect on Harshad Mehta’s Life
Harshad Mehta was charged with 72 criminal offenses and more than 600 criminal action suits. After spending 3 months in custody Mehta was released on a bail. The drama however never subdued but only intensified. In a press conference, Harshad Mehta claimed that he had bribed the then Prime Minister P.V. Narasimha Rao for Rs 1 crore to secure his release.
Harshad Mehta even displayed the suitcase in which he allegedly carried the cash. However he CBI never found any concrete evidence of this. Harshad Mehta was now also barred from participating in the stock market.
Investigators felt that Harshad Mehta was not the original perpetrator who forged the bank receipts. It was clear that Harshad Mehta capitalized and made profits using these methods. They also saw the possibility of the bear cartels ganging up on Harshad Mehta to get rid of the bearish markets by blowing the whistle on him and having the scam exposed through Sucheta Dalal. This, however, drew the investigators’ attention to the bear cartel as well as they too had used the same means as Harshad Mehta. These other brokers were eventually tried too.
In addition to this, the IT department claimed an income tax owed to them Rs.11,174 crores. Harshad Mehta’s firm GrowMore had significant clientele and the IT department had linked all the transactions that may have involved Harshad Mehta or his firm with Harshad Mehta’s income. His lawyer addressed this as bizarre as Harshad Mehtas lifetime assets were worth around Rs.3000 crores. He highlighted the possibility where by making Harshad Mehta the face of the scam allowed other powerful players a chance to have the focus lifted away from them and escape or slowly be exonerated.
Life after Release and Death
Harshad Mehta made a comeback as a market guru sharing advice on his website and newspaper columns. In September 1999 the Bombay Highcourt convicted him and sentenced him to 5 years of imprisonment. Mehta died while in criminal custody after suffering from cardiac arrest in Thane Prison on 31st December at the age of 48.
— Effect on Harshad Mehta’s Family
When Harshad Mehta died he still had 27 cases pending against him. Although all criminal cases have been cleared before his death there were still several civil cases pending in court. His wife still fights cases with recent victories over the IT department and a broker who owed Harshad Mehta 6 crores. The broker was ordered to pay the amount with 18% interest which roughly accumulated to 524 crores. The cases have dragged on for so long that his brother secured the law degree in his 50’s and represents the family in court. Harshad Mehta’s son now makes headlines regarding his investments.
Despite the scam, Harshad Mehta is still looked up to in certain circles, As reported by Economic Times some financial experts believe that Harshad Mehta did not commit any fraud, “he simply exploited loopholes in the system”. When Harshad Mehta was first released out of prison in 1992 he was greeted with cheers and applause as his return would signify the return of his bullish trend. It is doubted that if businessmen who have been embroiled in scandals with the likes of Vijay Mallya, Nirav Modi will receive the same welcome.
The Harshad Mehta scam can be looked at from two sides. The first is a scam where Harshad looted the stock market and the public or the second way where Harshad Mehta was made the scapegoat as someone had to be blamed and at the same time kept other influential people away from the limelight. The Year 1991 is generally referred to as the year of progress due to liberalization but if seen from this perspective discussed here it just makes one exclaim “ What a mess!”.
( Source)
