How can NRI's Invest in Indian Stocks cover

How can NRI’s Invest in Indian Stocks?

Tips for how can NRI’s invest in Indian Stocks: Being Indians NRIs are allowed to invest in the Indian stock markets but with a few added restrictions. Today we take a look at the means through which NRIs can invest in the Indian stock market.

Who is an NRI?

can NRI's invest in Indian Stocks

The Indian Law considers Citizens and persons of Indian origin (PIO) as NRI’s. A person who qualifies for the following conditions is known as NRI’s.

  • you have to be a Person of Indian Origin (PIO), or an Indian citizen living abroad.
  • Your stay in India should be more than 60 days, but less than 182 days in a given financial year. Subject to fulfilling this condition, even if your stay in India is 365 days, or more, in the previous four financial years, you will still be regarded as an NRI.
  • You can also have NRI status if you are deputed to a foreign country for more than six months.

What are the basic requirements for NRI’s to invest in India?

Investments made by an NRI should be in the Indian Rupee. Therefore in order to invest in the Indian markets, the NRI first has to open one of the following 3 types of bank accounts.

  • Non-Resident (External) Rupee Account Scheme (NRE Account);
  • Non-Resident Ordinary Rupee Account (NRO Account); and
  • Foreign Currency (Non-Resident) Account (Banks) Scheme (FCNR Account).

How can NRI's invest in Indian Stocks cover

The documents required in order to open these accounts are similar to those required for KYC by resident individuals. They include the Permanent Account Number. The 3 accounts i.e. NRE, NRO, and FCNR have various differences.

The NRE accounts is an eternal account and therefore is repatriable. This means NRE account holders are allowed to sent back to the country of their residence. The NRO account is a resident account making it non-repatriable beyond the limit of $1 million per year. The NRO account is best suited for NRI’s who have sources of income in India like pension, rental, etc.

Otherwise, it is not necessary for an NRI as investment made through an NRO Account will be regarded as an investment by a resident Indian. An FCNR account is similar to the NRE account, but the funds here are held in a foreign currency.

Once the NRI has opened a bank account the next step would involve opening a Portfolio Investment Scheme (PIS) account. The PIS is a permission letter given by the RBI permitting the NRI to open a trading account and Demat account with a broker to trade in Indian equities. The NRI is allowed to have only one PIS Account for investing in the stock markets. The PINS letter will be managed by the bank.

While opening a PIS account it is necessary to provide the name of your SEBI-registered broker. Only once the necessary documents are submitted and the PIS letter obtained for the account will the NRI be allowed to open a trading cum Demat account with a broker. In addition to the NRI will also be required to sign and execute a FATCA (Foreign Account Tax Compliance Act) declaration before the trading and Demat account can be opened.

Investing in Equities- How can NRI’s invest in Indian Stocks?

There are several restrictions placed on NRI’s over the investments they can make. They include the following

– An NRI can only transact in India through a stockbroker.

– The aggregate investment by NRIs/PIOs cannot exceed 10% of the paid-up capital in an Indian company.

– NRI’s are not allowed to trade shares on a non-delivery basis. This means that NRI’s cannot participate in intraday trading or short selling in India. If an NRI buys shares today he can only sell them after 2 days. NRI’s are barred from trading in securities like derivatives and commodities. 

– NRI’s are also barred from investing in some stocks and sectors as per RBI mandate.

Here the PIS account helps the RBI ensure that the NRI investor adheres to the regulations put in place. Violation of these attracts penalties.

Are NRI’s allowed to invest in mutual funds?

Mutual funds in India are not allowed to accept investments in foreign currency. This makes it necessary for the NRI to open either an NRE, NRO, or FCNR account with an Indian bank. The NRI’s however are allowed to appoint a power of attorney (POA) in India for actually executing and redeeming the investments in India. 

This is because they may not be able to track their investments and react to the market at the right time. In order to appoint a POA an agreement will have to be set up and notarized which then can be submitted as a mandate for investing. Mutual Funds recognize the POA holder and allow him to take decisions on the NRI’s behalf.

Here the NRI is allowed to have a resident Indian as a joint holder or nominee of the scheme in the mutual fund.

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Are NRI’s allowed to participate in an IPO?

As long as the NRI has an NRE/NRO account he is allowed to subscribe to initial public offerings (IPOs). IPO’s are not covered in the PIS account. Here the company is responsible to tell the RBI of the number of shares they allot to NRI’s.

Closing Thoughts

Today, we discussed how can NRI’s Invest in Indian Stocks. From the above steps, it is clear that all an NRI needs are the right bank account and documents inorder to be able to invest in the stock markets. This allows him to invest in the stock markets which he will be forced to miss out on in his country of residence due to local regulations.

Indian stock markets despite the recent dull phase offer the added benefits of high growth of a developing economy at the same time allowing NRI’s to be a part of its success.

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Tata vs Reliance Group – Which one is Bigger?

Tata vs Reliance Group Comparison: Everywhere in our daily lives, from the calls we make, the internet we use, transportation, groceries, to even the seasoning of our foods we see the names of two Indian titan-sized conglomerates i.e. Tata and Reliance. But have you ever wondered which of these two conglomerates is bigger? In this article, we answer this very question in various areas like total Mcap, revenues, etc.

Tata vs Reliance this past year

In the month of November last year, Mukesh Ambani-controlled Reliance Industries (RIL) became the first Indian company to reach the $200 billion Mcap in September. This also saw a significant increase in the wealth of its promoter, Mukesh Ambani. But soon after the shares of the company fell by 17% losing the status. The reduction led to the valuation of the company dropping to $167.45 billion by November 2020. 

But since then the aggregate Mcap of major TATA companies have been icing closer to the $200 billion mark. As of November 27, the total MCap of 18 Tata companies stood at  Rs 14,50,502 crore ($196.11 billion). Tata Trusts control the group companies through the holding company Tata Sons.

The two companies have various differences that affect their style of operations and the way they are run.  The Tata conglomerate is a diverse group of companies running different businesses independent of each other. Reliance on the other hand is run as a single company, controlled by its promoter despise having interests in several businesses. Tata is considered a global brand whereas Reliance is much more concentrated in India despite some of its companies having interests around the world. 

When it comes to revenues the Tata group earns greater as they made $106 billion in comparison to Reliances $92 billion. 

TCS vs Reliance Industries

Mukesh Ambani vs Ratan Tata

Of all the companies that are part of the conglomerates, it is TCS and Reliance Industries which contribute the most to the respective groups. 

TCS alone contributes up to 60% of the Tata group’s value. The company operates globally with a significant market in North America. Reliance on the other hand derives most of its value from being in the tightly regulated domestic petrochemical business. Reliance has come a long way as TCS had been leading in terms of Mcap from 2013 to 2017. It was in April 2017 that Reliance overtook TCS with a Mcap of Rs.4.60 trillion. As of 10 January, 2021 Reliance Industries exceeds TCS Rs.1170875 Crore to Rs.1307141 Crore.

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Total Mcap Tata vs Reliance Group – Jan 2021

TATA Group Market CapRelianceMarket Cap
Tata Steel BSL Ltd.4843.93 CrReliance Industries Ltd.1307141.48 Cr
Titan Company Ltd.137535.83 CrHathway Bhawani Cabletel & Datacom Ltd.18.23 Cr
Trent Ltd.24734.82 CrAlok Industries Ltd.11320.75 Cr
Oriental Hotels Ltd.463.46 CrReliance Industrial Infrastructure Ltd.607.47 Cr
Rallis India Ltd.5894.35 CrNetwork 18 Media & Investment Ltd.3894.65 Cr
Tata Power Company Ltd.26537.29 CrTV18 Broadcast Ltd.5391.66 Cr
Tata Elxsi Ltd.12715.91 CrHathway Cable & Datacom Ltd.5974.1 Cr
Tata Steel Ltd.85853.72 CrDen Networks Ltd.3199.79 Cr
Tata Communications Ltd.30227.1 Cr
Tata Motors Ltd.61192.57 Cr
Voltas Ltd.29895.44 Cr
Tata Chemicals Ltd.12731.44 Cr
Tata Consumer Products Ltd.56466.6 Cr
The Indian Hotels Company Ltd.14675.45 Cr
Tata Investment Corporation Ltd.5184.25 Cr
Nelco Ltd.469.26 Cr
Tayo Rolls Ltd.41.81 Cr
Tinplate Company Of India Ltd.1878.26 Cr
Automobile Corporation of Goa Ltd.250.76 Cr
TRF Ltd.111.09 Cr
Tata Steel Long Products Ltd.2898.35 Cr
Tata Metaliks Ltd.2068.64 Cr
Automotive Stampings & Assemblies Ltd.46.01 Cr
Artson Engineering Ltd.141.03 Cr
Tata Coffee Ltd.1987.24 Cr
Tata Teleservices (Maharashtra) Ltd.1743.8 Cr
Tata Consultancy Services Ltd.1170875.36 Cr
Tata Motors - DVR Ordinary4162.09 Cr
Total16,95,625.86 CrTotal13,37,548.13 Cr

Quick Note: You can find more about the Tata and Reliance Group Business Companies on Buckets section at Trade Brains Portal.

Closing Thoughts

Mukesh Ambani is currently the second richest man in Asia and 14 richest in the world with a net worth of US$74 billion. In comparison, Ratan Tata the patriarch of the Tata family is dwarfed as he barely makes it to the list with a net worth of $1billion.

This, however, is not due to the performance of the two companies. Mukesh Ambani owns a 49.14% stake in Reliance. Ratan Tata on the other hand owns only 0.83% of Tata. This is because 66% of the Tata group is owned by charitable trusts i.e. Sir Dorabji Tata Trust and Sir Ratan Tata Trust and their allied trusts. These trusts are headed by Ratan Tata. If this were not the case Ratan Tata today would have been one of the top three richest in the world.

But these matters are trivial to Ratan Tata as what matters most to him are philanthropic and charity works. Even though Reliance may have exceeded Tata in some other fronts they have miles to go before they catch up with Tata in philanthropy.

List of Top Founder Promoter Family Managed Companies in India

Top Founder’s Family Managed Companies in India!

List of Founder/Promoter Family Managed Companies in India: It comes naturally for a man to wish and attempt to try and get rich quick. Barring means that heavily rely on luck, there are a few that provide returns like that of entrepreneurship for the majority of the population. These businesses last for two to three generations if successful in most cases whereas a few outliers go on to become the Tata’s, Birlas, Ambani’s.

These outliers are immensely successful as promoters and play an active role in their business across generations rather than finding a way out for quick bucks. In this article, we cover the top family managed companies in India i.e. such family owned businesses that still strive along with their businesses in India.

Founder/Promoter Family Managed Companies in India

About the family business in India

Most of the top conglomerates around the world started out as family businesses but transitioned into public held companies with the promoters taking a minority position. In India however, the promoter families still hold a majority in the company. These family business enterprises have played a crucial role in the Indian industry. Even those that are not listed create significant economic value and employment.

As of 2018, India ranked third on the list of countries with the highest number of family-owned businesses with 111 such companies. India only ranked behind China and the US which had 159 and 121 companies respectively. The study only included companies with a minimum cap of  $250 million or more.

How do these companies compare to non-family owned businesses?

The most recent study conducted by Credit Suisse during the pandemic found out that family-owned businesses outperform non-family-owned companies by an annual average of 370 basis points. This was strongest in Europe and Asia where family-owned businesses outperform non-family-owned companies 470 basis points and more than 500 basis points per annum, respectively.

Even during the pandemic, it was noticed that these promoter family-owned businesses tend to have above-average defensive characteristics that allow them to perform well. Following are some more findings from the report

— Higher growth and profits 

The analysis conducted by Credit Suisse shows that since 2006 revenue growth generated by family-owned companies has been more than 200 basis points higher than that of non-family-owned companies. The analysis also shows that family-owned companies tend to be more profitable. These superior returns were observed globally. 

— Higher ESG scores

ESG stands for Environmental, Social, and Governance. This is a modern metric introduced to analyze companies on non-financial factors. According to the Credit Suisse ‘Family, 1000’ report family-owned companies on average tend to have slightly better ESG score results than non-family-owned companies. In addition, older family-owned companies have better ESG scores than younger firms.

Top Founder/Promoter Family Managed Companies in India

Following are some of the top family-owned businesses in India. These families still play an important role in the management of the company and are a driving force in their respective industries. The list is prepared based on the Family 1000 rankings created by Credit Suisse in 2018, 2020, and the Family Capital World’s top 750 family business rankings.

1. Reliance Industries

Reliance Industries family - Mukesh Ambani Family

The Reliance organization was brought into existence by the late Indian business tycoon Dhirubhai Ambani. Hailing from the state of Gujarat Dhirubhai was the son of a teacher. What is surprising is that one of the richest men at the time of his death once worked at a petrol pump in Yemen. He left Yemen in 1958 and returned to India with the aim of entering the textile market. Hence Reliance was born.

Dhirubhai’s first employees included his younger brother and nephew and former schoolmates. In 1973 the company was renamed Reliance Industries. At the time of his death in 2002 Reliance was already a conglomerate having its business in the Oil and Gas, Refining, petrochemical, Electricity, Telecom, and Financial services industry. Due to his untimely death, Dhirubhai had not left a will behind. After a bitter feud, the assets were split between the two brothers Mukesh and Anil Ambani.

Under the leadership of Mukesh Ambani, Reliance Industry slowly but steadily scaled new heights. By 2007, it was the first Indian company to exceed $100 billion in market capitalization. Today Mukesh is the Second richest man in Asia with a net worth of $76.5 billion. It is expected that the company will pass on to the third generation(Isha, Akash, and Anant Ambani) of Ambani’s in the business. All three are appointed as directors in the company.

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2. Wipro

WIPRO Azim Premji family

Wipro Limited was started by the man known as the Czar of the Indian IT industry, Azim Hashim Premji. Azim was born into a family that already had its roots in business. His father Mohamed Hashim Premji was known as the Rice King of Burma and after Independence was even invited by Jinnah to live in Pakistan which he declined. Azin Premji graduated in Electrical Engineering from Stanford University, USA. He returned to India post the death of his father in 1966.

He initially took care of his father’s business but after IBM was forced to leave India in 1980 he saw an opportunity to fill a gaping hole in the IT Industry in the country giving birth to Wipro. Today Wipro has emerged as one of the global leaders in the software Industry. Premji has two sons– Rishad Premji and Tariq Premji. Both the sons serve on the board of the company but Rishad has been named as the successor.

3. Dr. Reddy’s Laboratories

Dr. Reddy’s Laboratories(GV Prasad and Satish Reddy)

Dr. Reddy’s Laboratories is an Indian multinational pharmaceutical company founded by Dr. Kallam Anji Reddy. Dr. Reddy was the son of a turmeric farmer from Andhra Pradesh.  Dr. Reddy founded Dr. Reddy’s laboratories in 1984. The company entered the Indian pharmaceutical sector by reverse-engineering the best-known drugs of western MNCs at a fraction of their prices.

During the 1990s the company began trying to discover its own patentable drugs. Dr. Reddy passed away in 2013 after suffering from cancer. His son Kalan Satish Reddy currently serves as chairman of the company. His brother-in-law G.V. Prasad serves as the co-chairman and managing director of Dr. Reddy’s Laboratories.

4. HCL Technologies

HCL Technologies(Shiv Nadar with daughter Roshni Nadar)

HCL Technologies Limited was founded by Shiv Nadar an Indian industrialist and philanthropist. Shiv Nadar began HCL in 1976 in partnerships with several friends and colleagues from his job at Walchand group’s College of Engineering, Pune (COEP). HCL was founded with an investment of Rs. 187,000.

As of 2020, the company boasted revenues of $10 billion. His only child Roshni Nadar Malhotra serves as the chairperson of HCL Technologies and the first woman to lead a listed IT company in India.

5. CiplaCIPLA

(Cipla founder Khwaja Abdul Hamied with son, Dr. Yusuf Khwaja Hamied)

Cipla has its roots in the pre-independence period. The company was founded in 1935 by Khwaja Abdul Hamied, a disciple of Mahatma Gandhi. His family had sent him to England for his Ph.D. but Hamied changed ships and chose to go to Germany. He completed his Ph.D. at the Humboldt University of Berlin in Germany.

He also met his future wife a Lithuanian Jewish with whom he fled the country after the nazi’s gained power.  CIPLA) was founded in 1935 with an initial capital of Rs. 2 lakhs.  The name stood for ‘The Chemical, Industrial & Pharmaceutical Laboratories’. After his death in 1972, the company was inherited by his son Hamied who led the company for the next 52 years and still serves as its chairman. 

Some of the other top companies run families who are still promoters include Hinduja Group, Aditya Birla Management, Rajesh Exports, Bajaj Finance, TVS Motors, etc. 

6. Tata Group

Tata Group Family

The Tata Empire was begun by Jamsetji Tata in 1868. Jamsetji Tata was born to a family of Parsi Zoroastrian priests. He broke the tradition to become the first member of the family to start a business. Before his death, he went on to scale the company in the Iron, Steel and Cotton, and Hotel Industry. He inaugurated the Taj Mahal Hotel in 1903, priding it as the only hotel in India that had electricity.

Jamsetji Tata is regarded as the legendary “Father of Indian Industry”. His eldest son Dorbji Tata and following successors which included JRD Tata and Ratan Tata played a crucial role in scaling the company to the heights it has reached today. Under Ratan Tata, the group’s revenues grew over 40 times, and profit, over 50 times. As of 2020, the group had revenues of $106 billion.

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Although Tata Group has been a family managed companies in India for decades, however, currently it is professionally managed. As of 2021, Natarajan Chandrasekaran is the Chairman of the Board of Tata Sons, the holding company and promoter of more than 100 Tata operating companies with aggregate annual revenues of more than US $100 billion.

Why do these family owned-companies perform better?

One major factor that differentiates businesses is the long-term perspective. Family-owned businesses often outperform because they often have a longer-term investment focus compared to non-family-owned companies. Due to this, they end up driving significant excess returns for all shareholders.

This has particularly been the case in the Asia Pacific where returns were compounded in excess of close to 5% a year since 2006. This long-term focus could be fuelled with the aim to transfer the business to the next generation.

Why do these family owned-companies perform better

Another report studying family businesses by PwC showed that family businesses have a clear sense of agreed values and purpose as a company and that the family that owns the business has a clear set of family values. These values are often generic revolving around honesty, hard work, integrity, respect, and so on.

In some cases, these values were written down in the company’s mission statement which included additional aspects of family values like – community, customers, people, commitment, ethics, sustainability, quality, innovation, trust, fairness, and openness. Indian businesses are also gradually putting their value statements and purpose down on record.

90% of Family-owned businesses in India also stated that they involve themselves in philanthropic activities. This involves giving money to good causes and local communities. Family-owned businesses also focused more on social policies since the outbreak of the COVID-19 pandemic 

Closing Thoughts 

In this article, we covered the family managed companies in India. Even though family businesses perform better than their counterparts in a number of metrics, they still face their own set of challenges. The study conducted by PwC identifies the need to innovate as the biggest challenge for family businesses.

Another challenge they face is that of attracting professionals to their companies. Businesses face this as professionals often fear a lack of independence in decision making and the absence of a clear path to the top. These however may not include the top-tier businesses like the ones mentioned above.

In India, 92% of family businesses allow family members to work in the business. 73% of the next-gen work in the family business, which is higher than the global figure (65%). Further, 58% of the next-gen in India, compared to 43% globally, are a part of the leadership team. 50% of the next-gen are senior executives and 43% are on company boards. 60% plan to pass on management and/or ownership to the next-gen.

When it comes to diversity family-owned businesses fall behind in comparison. Women average only 15% on the board and 13% on management teams in Indian family businesses. This falls short compared to 21% on the board and 24% in management teams across the globe. In addition, fewer family-owned businesses have support groups for the lesbian, gay, bisexual, and trans (LGBT) communities. 

Do you think this will impact your decisions when comparing family-owned and non-family owned companies? What do you think about promoters remaining in businesses through generations? And How important are promoters and their family’s future prospects to you when it comes to investing? Let us Know!

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

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

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

What is Short Selling?

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

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

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

Short Selling Explained

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

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

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

Share or StockState Bank of India
Type of tradeShorting or Short Selling
DurationIntraday
Shorting priceRs. 300
Quantity of Shares500
Profit Target (4%)Rs. 288
Stop LossRs. 305
Total Risk in the trade (500*5)Rs. 2500
Total Reward in the Trade (500*12)Rs. 6000
Risk – Reward Ratio (2500:6000)5:12

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

Why do Traders Short Sell in the Market?

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

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

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

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

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Rules Regarding Short-Selling in Stocks

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

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

Advantages of Short Selling

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

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

Drawbacks of short selling

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

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

Closing Thoughts

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

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

SEBI vs Mukesh Ambani Case - Reliance Manipulative Trading Penalty cover

SEBI vs Mukesh Ambani Case – Reliance Manipulative Trading Penalty!

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

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

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

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

What is the SEBI vs Mukesh Ambani Case?

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

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

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

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

Fines and Sanctions Imposed by SEBI:

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

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

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

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

Previous Order from SEBI

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

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

ALSO READ

What is SEBI? And What is its role in Financial Market?

Closing Thoughts

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

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

Want to Invest in Digital India Stocks Here are the Big companies

Want to Invest in Digital India Stocks? Here are the Big Players!

Introducing Digital India Stocks: One of the greatest wealth creators in the stock market has been technologically-driven digital stocks. The companies working on Digital India (and digital world) segment have been the darlings of the investors because of their tech advancement and future growth scope. 

Today, we take a look at the Digital India Stocks and the top companies that fall into this theme.

What is Digital India?

Digital India is a campaign launched by the Government of India in order to ensure improved online infrastructure by increasing Internet connectivity. The government has put forward plans to connect rural areas with high-speed internet networks. Empowering citizens with access to digital services and information can emerge as one of the biggest drivers of economic growth.

The government has rightly identified this sector in order to bring greater focus to this sector. The initiatives include enhancing digital infrastructure, increasing digital literacy, and providing a sustainable living environment in urban areas through the use of technology, and building smart cities.

How well was the Digital India Initiative?

When the Digital India Week was launched by Prime Minister Narendra Modi in Delhi on 1 July 2015, top CEOs from India and abroad committed themselves towards investing US$3.1 trillion towards this initiative. These investments would be directed towards making smartphones and internet devices at an affordable price in India.

Such initiatives would lead to greater job generation in India and also reduce the cost of products. The program has been favored by multiple countries including the US, Japan, South Korea, the UK, Canada, Australia, Malaysia, Singapore, Uzbekistan, and Vietnam.

After the launch of the initiative, Indian firms got $7.4 billion in the nine months into 2017 in comparison to $4.5 billion in 2016. India is now adding 10 million daily active internet users monthly. This is is the highest rate of addiction to the internet community anywhere in the world. The Ministry of Communications & IT also revealed that Digital India was now a $1-trillion business opportunity.

Digital India Stocks – Top Companies

Below are some of the companies that fall within the Digital India Stocks Theme. The table includes companies name along with the market cap and respective industry.

#COMPANY NameMARKETCAPINDUSTRY
1Infosys Ltd.550977.69 CrIT - Software
2Reliance Industries Ltd.1329422.49 CrTelecom/Refineries
3Zee Entertainment Enterprises Ltd.21352.01 CrTV Broadcasting & Software Production
4Honeywell Automation India Ltd.33003.06 CrConsumer Durables - Electronics
5Mphasis Ltd.29583.92 CrIT - Software
6HCL Technologies Ltd.268992.05 CrIT - Software
7Bharti Airtel Ltd.280361.09 CrTelecommunication - Service Provider
8Tata Consultancy Services Ltd.1160349.92 CrIT - Software
9Sun TV Network Ltd.19386.99 CrTV Broadcasting & Software Production
10Tech Mahindra Ltd.97138.96 CrIT - Software
11Info Edge (India) Ltd.70731.55 CrBPO/ITeS
12Quess Corp Ltd.7746.56 CrMiscellaneous
13Indiamart Intermesh Ltd.20948.42 Cre-Commerce

Important Note: If you want to look into many such thematic stocks like Housing India, Electric Vehicle India Stocks, Infrastructure India, etc, you can go to Trade Brains Portal – BUCKETS. Here, you can find an organized selection of stocks, categorized especially for you.

Closing Thoughts

Digital India Stocks are technologically driven and hence have been one of the biggest saviors in times of the pandemic. The current situation has also led to an increased usage of products from such companies.

This also means a change in our behaviors post the pandemic with regards to acceptance and dependence on such products. Selecting stocks that have the ability to weather the storm provides investors with the opportunity to take part in the growth of these stocks.

How is Nifty 50 Calculated NSE index

How is Nifty 50 Calculated – NSE Benchmark Index!!

Understanding How is Nifty 50 Calculated: At the start of this new Year 2021, Nifty touched the new height of  14,000 points for the first time ever. A good sign for the Indian markets as they keep soaring higher. But have you ever wondered how the index value was arrived at? 

Today, we discuss the calculation of one prominent index in Indian markets called the Nifty 50. Here, we’ll discuss How is Nifty 50 Calculated and also look into the constituents of Nifty50. Let’s get started. 

What is Nifty 50?

An Index is basically the stock exchange creating a portfolio of the top securities held by it. Indexes have always played an important role for both investors and companies by offering a reliable benchmark. Investors may use it to compare the performance of the index vs. their portfolio and the management of a company may use it to judge the performance of their company’s stock.

Indexes have also been used as an investment strategy where Investment Managers just set up their fund portfolios to simply track the index in an attempt to gain similar market returns. Indexes play an important role as they also stand in the representation of a country’s market and economy.

Nifty is derived from ‘National’ (National Stock Exchange) and Fifty. The Index was founded in the year 1992 and began trading in 1994. It is owned and managed by the India Index Service and Products (IISL). The Nifty 50 is a broad market index that acts as an indicator of market movements.

As the Nifty 50 includes the biggest Indian companies it captures 65% of the float-adjusted market capitalization of the NSE. It is therefore considered a true reflection of the Indian stock markets.

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What is Nifty and Sensex? Stock Market Basics (For Beginners)

How is Nifty 50 calculated?

The Nifty 50 index is calculated using the Float-adjusted and Market Capitalization Method. This method reflects the total market value of all the 50 stocks in the index relative to the base period. The base period for the Nifty 50 is taken as November 3, 1995.

The First step includes the calculation of the Mcap of all the companies. This represents the total value of all the shares of a company held by investors in the market. 

Market capitalization = (Shares Outstanding) x (Current Price)

The Second step includes multiplying the Mcap with the Investable Weight Factor (IWF). The Investible weight is a factor used to determine the shares available for trading. only considers shares that are available for public trading. This excludes shares held by company promoters, government, shares given to employees, etc.

Free-float Market Capitalization = (Market capitalization) x  (Investable Weight Factor(IWF))

Third Step. Here, the Free Float Market Cap is then multiplied by the weight assigned to the individual stock.

 Therefore the calculation for an individual stock would look as follows

Weighted Free Float Market Cap = (Market Cap) x (IWF) x (Weight)

Fourth Step. We now divide the current market value with its base value from 1995 in order to arrive at the value of the Index. The Current Market Value is the sum total of the Weighted Free-float Market Cap of all the stocks. The Base Market Capital is taken from 1995 which stands at Rs. 2.06 trillion.

Index Value = (Current Market Value/Base Market Capital) * 1000

Meet the Nifty 50 Stocks

 NameIndustryWeight
1.Reliance Industries Ltd.Energy - Oil & Gas14.00%
2.HDFC Bank Ltd.Banking9.56%
3.Infosys Ltd.Information Technology7.56%
4.Housing Development Finance Corporation Ltd.Financial Services6.59%
5.Tata Consultancy Services Ltd.Information Technology5.12%
6.ICICI Bank Ltd.Banking4.80%
7.Kotak Mahindra Bank Ltd.Banking4.27%
8.Hindustan Unilever Ltd.Consumer Goods4.22%
9.ITC Ltd.Consumer Goods3.62%
10.Bharti Airtel Ltd.Telecommunication2.85%
11.Larsen & Toubro Ltd.Construction2.38%
12.AXIS Bank Ltd.Banking2.08%
13.Bajaj Finance Ltd.Financial Services1.84%
14.Maruti Suzuki India Ltd.Automobile1.78%
15.Asian Paints Ltd.Consumer Goods1.65%
16.HCL Technologies Ltd.Information Technology1.64%
17.State Bank of India Banking1.57%
18.Nestle India Ltd.Consumer Goods1.26%
19.Mahindra & Mahindra Ltd.Automobile1.24%
20.Sun Pharmaceutical Industries Ltd.Pharmaceuticals1.23%
21.Dr. Reddy’s Laboratories Ltd.Pharmaceuticals1.17%
22.UltraTech Cement Ltd.Cement1.02%
23.Power Grid Corporation of India Ltd.Energy - Power0.98%
24.HDFC LifeInsurance0.97%
25.Britannia Industries Ltd.Consumer Goods0.96%
26.Titan Company Ltd.Consumer Goods0.93%
27.Tech Mahindra Ltd.Information Technology0.90%
28.NTPC Ltd.Energy - Power0.90%
29.Wipro Ltd.Information Technology0.89%
30.Bajaj Auto Ltd.Automobile0.84%
31.Bajaj Finserv Ltd.Financial Services0.80%
32.Cipla Ltd.Pharmaceuticals0.78%
33.Hero MotoCorp Ltd.Automobile0.74%
34.Bharat Petroleum Corp. Ltd.Energy - Oil & Gas0.71%
35.IndusInd Bank Ltd.Banking0.68%
36.Shree Cement Ltd.Cement0.62%
37.Eicher Motors Ltd. Automobile0.61%
38.Oil & Natural Gas Corporation Ltd.Energy - Oil & Gas0.61%
39.Coal India Ltd.Energy & Mining0.58%
40.Tata Steel Ltd.Metals0.58%
41.UPL Ltd. Chemicals0.56%
42.Grasim Industries Ltd.Cement0.53%
43.Hindalco Industries Ltd.Metals0.51%
44.Adani Port and Special Economic ZoneInfrastructure0.51%
45.JSW Steel Ltd.Metals0.48%
46.Indian Oil Corporation Ltd.Energy - Oil & Gas0.48%
47.Tata Motors Ltd.Automobile0.40%
48.GAIL (India) Ltd.Energy - Oil & Gas0.38%
49.Bharti Infratel Ltd. Telecommunication0.35%
50Zee Entertainment Enterprises Ltd.Media & Entertainment0.27%

ALSO READ

Nifty 50 Companies – List of Nifty50 Stocks by Weight [2020]

Closing Thoughts 

The value of the index changes on a real-time basis in relation to changes in the stock price. Over time older companies that fail are replaced by newer companies that satisfy the requirements of the Index. The calculation shown above is restricted to the Nifty. Other Indexes like the Sensex use different base periods, base values, and are computed differently.

top White Good Industry Stocks in India

White Good Industry Stocks – Who are the leading Companies in India?

Top White Good Industry Stocks in India 2021: First of all, let’s understand what do we mean by the White Good Industry? In short, they refer to home appliances. White good industry includes refrigerators, dishwashers, washing machines, air conditioners, and similar other appliances used at home. They were known as the white good industry as they were traditionally available only in white.

Today, we have a wide variety of choices not only when it comes to color but also companies. Let us take a look at the prospects of the industry and its top players. In this article, we’ll discuss the top White Good Industry Stocks in India. Let’s get started. 

Top White Good Industry Stocks in India

— Whirlpool Corporation

Whirlpool Corporation white good industry stocks

Whirlpool Corporation is a multinational manufacturer and marketer of home appliances ad is headquartered in Michigan, United States. The company entered India in the late 1980s as part of its global expansion strategy and is headquartered in Gurugram. The company has entered into a joint venture with the TVS group.

Whirlpool owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry, and Pune.  The company’s product portfolio includes washing machines, refrigerators, microwave ovens, and air conditioners. Whirlpool is also a Fortune 500 company. According to Yale Appliance statistics, Whirlpool is the most reliable brand in its affordable lines with the lowest percentage of service calls.

— Samsung

Samsung white goods

Samsung is a South Korean MNC headquartered in Seoul. The company initially began as a trading company and eventually diversified into other areas. As of 2020, Samsung has the 8th highest global brand value.

It’s home appliance portfolio includes a wide variety of refrigerators, air conditioners, stoves, washing machines, air purifiers, etc. According to yale lists, Samsung is one of the top luxury appliances brands in India. Excellent for people who are willing to spend a bit extra to invest in high-tech features, large appliances, and the latest designs.

— LG Electronics Inc

LG Electronics Top White Good Industry Stocks in India

LG Electronics is a South Korean MNC headquartered in Seoul, South Korea. The company entered the Indian markets in 1997. According to the JD power report, LG ranks highest in appliance ratings for washers, dryers, dishwashers, oven ranges, French door refrigerators, and top-mount freezer-fridge setups. The company is also the world’s second-largest LCD television manufacturer.

ALSO READ

Indian Metal Industry – Best Metal Stocks in India!

— Haier

Haier white industry goods

Haier is one of the world’s top-selling home appliance companies. It is a Chinese MNC. It designs, develops, manufactures, and sells products including refrigerators, air conditioners, washing machines, microwave ovens, etc. According to data released by Euromonitor Haier was the number one brand globally in major appliances for 10 consecutive years from 2009–2018.

— IFB Industries

IFB Industries

IFB Industries Limited originally known as Indian Fine Blanks Limited started their operations in India in 1974 in collaboration with Heinrich Schmid AG of Switzerland. The company currently offers appliances such as washing machines, washer dryer, laundry dryer, dishwasher, microwave oven, Chimneys, Air Conditioners, and other cooking appliances.

IFB also introduced the country’s first smart load washing machine, India’s first Dishwasher, India’s first clothes Dryer, and India’s first front load washing machine.

— Godrej

Godrej white goods

Godrej Group is an Indian conglomerate company headquartered in Mumbai. The company was established in 1897 in the locks business. Its roots can be traced back to India’s Independence and Swadeshi movement. Godrej was also the first company to introduce refrigerators in India 60 years ago. 

— Philips

Philips

Koninklijke Philips N.V. is a Dutch MNC founded in the year 1891. Its first product included the lightbulb. Today Phillips is one of the largest electronics companies in the world. Philips began its operations in India in 1930. They established Philips Electrical Co. (India) Pvt Ltd in Kolkata as a sales outlet for imported lamps.

— Bosch

Bosch white good industry stocks

Robert Bosch GmbH is a German multinational engineering and technology company founded in 1886. Consumer goods form one of its four businesses.

Bosch set-up its manufacturing operation in India in 1951. These have grown over the years to include 18 manufacturing sites, and seven development and application centers. The Bosch brand is famous for cooktops and wall ovens, plus wide range microwaves. Bosch is second only to LG according to J.D. Power Rating.

— Bajaj electricals Ltd

Bajaj electricals Ltd

Bajaj Electricals Limited is a renowned and trusted company Indian company. The company was founded in the year 1938. It has diversified with interests in lighting, luminaries, appliances, fans, cooking appliances, etc. The company is part of the US$5.3 billion Bajaj Group.

— Voltas Ltd

Voltas Ltd

Voltas Limited (a TATA enterprise) is India’s largest air conditioning company. The company was founded in 1954 and specializes in areas such as heating, ventilation and air conditioning, refrigeration.

They are the market leaders in the manufacturing of room/split air conditioners, industrial air conditioning, refrigeration equipment, water coolers, etc.

ALSO READ

10 Indian Companies with Monopoly in Their Industry!

Closing Thoughts

The white good industry in India has been growing rapidly all the while keeping up with the trends and technological advances around the world. According to IBEF, the appliances and consumer electronics industry is expected to double to reach Rs. 1.48 lakh crore (US$ 21.18 billion) by 2025.

There have been many reasons for this growth. One of them being the expansion of retail stores throughout the country. Despite this, the industry still has huge untapped potential. A majority of this comes from the 400 million Indian middle-class households and the disposable income with them.

E-commerce sites have been a boon to the industry as they now allow effortless sale and purchase of white good products. Government initiative also adds to the pace as initiatives on power and electrification open up unexplored markets.

IPO Performance 2020 cover

IPO Performance 2020: IPOs launched in 2020 & Top performing IPOs!

List of IPO Performance 2020: The year 2020 has been a very bizarre year for humanity. Even when we look back at the year being plagued by  COVID-19 it still confuses many even from a financial perspective. The Indian GDP hitting all-time lows, unemployment at an all-time high, companies struggling to function normally, yet despite all this, the stock markets have touched an all-time high. The cherry on top being the successful IPO’s of 2020. Today we look back at the IPO’s of 2020 and their performance in the market.

When the severity of the pandemic was first realized governments all around the world began to go into damage control. The measures started off with flight restrictions being imposed and eventually harsh complete lockdown. This set of panic selling in the market with many investors being caught off guard. Equity markets in the US, Europe, and Asia plunged to their lowest in over a decade. The BSE Sensex Index which tracks the 30 largest and most actively traded stocks listed on its exchange in India plummeted to its lowest in 3.3 years.

The year began with some exiting IPO’s with the likes of SBI Cards in March but the fallout due to the virus made it seem as if the year would be extremely dry for IPO’s. This put companies in a tough situation where they were faced with one of the most challenging years and on top of that the markets seemed unresponsive. This almost cut of raising funds through equities a favorable source of funds in comparison to debt.

Market Reaction

The markets however began to steadily recover in the second half of the year. This was mainly in response to the stimulus and assurance provided by the respective government of various countries. The Nifty 50 Index has gained over 80% from its 52-week low in March. This led to indices surging to new levels as they broke past previous market records. This rebound attracted investors and at the same time encouraged Indian firms to sell shares. All this as the Covid-19 cases kept increasing in the country.

Indian companies have managed to raise $33.3billion since the start of the year, according to Dealogic data. The IPO market saw many major companies launch initial public offerings raising nearly $3.5 billion this year. What was considered to be a dry year for IPO’s gained momentum to produce some of the best IPO’s in the recent past. IPOs like the Mazagon Dock Shipbuilders, Burger King, and Happiest Minds Technologies were subscribed 157 times, 156 times and 151 times respectively.

IPO Performance 2020: IPOs launched in 2020 & Top performing IPOs!

When the compare IPO’s to the last financial year, the IPOs have actually performed better. In the first quarter of 2020 (between April and June) only 19 companies listed on the BSE, as opposed to 39 in 2019. IPOs began returning to the market more companies listed on the stock markets. Between June and October 46 Indian firms listed on the bourse, compared with 27 a year ago.

To make things better all the IPO’s launched were priced at the upper end of the price band and companies managed to raise almost twice that of 2019 by September. The biggest winners however are the financial institutions that have underwritten the IPO’s.

IPO Performance 2020: IPOs launched in 2020 & Performance

Here is the list of IPOs launched this year and IPO Performance 2020.

CompanyListing DateOffer
Price
Price as of 31 Dec 20Overall Subscription% Change Over Issue Price
Route Mobile21-09-202350.001107.4074.3216.4%
Burger King14-12-202060.00175.60156192.67%
Happiest Minds17-09-2020166.00344.6515151.84%
Rossari Biotech23-07-2020425.00949.4079123.39%
Gland Pharma20-11-20201500.002351.002.0656.73%
Likhitha Infra15-10-2020120.00163.009.535.83%
Mazagon Dock12-10-2020145.00221.15157.452.52%
Chemcon01-10-2020340.00435.9014928.21%
CAMS05-10-20201230.001796.354746.04%
Mindspace REIT07-08-2020275.00329.661319.88%
Angel Broking05-10-2020306.00332.3545.67%
Equitas02-11-202033.0037.501.9513.63%
SBI Cards16-03-2020750.00850.0022.413.33%
UTI AMC12-10-2020554.00561.052.31.27%

How was this possible?

We still have to find an explanation as to why markets reacted this way. Coupled horrible economic reaction with some of the best financial results. One reason has been the hype caused due to the quick recovery of the markets where markets gained over 80%. It encouraged many retail investors to move back in and take advantage of the situation. This coupled with easily available cost-effective online trading platforms, increased awareness, with more time on idle cash in investors hands amidst the pandemic.

Burger King IPO

This has been a cause of concern. It raised questions on whether these IPO buys were based on the fundamentals or a reaction to the bullish trends of the market and due to the hype and media coverage. An example of this has been the Burger King IPO which almost doubled in value initially but eventually declined.

It is also important to note that 2019 was one of the worst years for IPO’s. The primary markets saw their worst performance in the four years preceding it. The 16 IPOs raised only 12,600 crores.

ALSO READ

Best Performing Largecap Stocks in 2020 - Holding any of these?

Closing Thoughts

It is always advisable to vary of making investments in times of bullish craze. Especially when it comes to IPO’s where extra caution is a must. It is very important that investments made into IPO’s must be made after careful examination of their fundamentals. The response in 2020 has surprisingly encouraged more companies to go for IPO’s.

According to Geojit Financial Services, 80 firms have approached SEBI for approvals for tapping the primary market. These firms are planning to raise equity capital totaling Rs 51,515 crore from the primary market.

Some of the notable IPO’s coming up in 2021 include; LIC, Kalyan Jewellers, MilkBasket, Grofers, Barbeque Nation, NSE, UTI Asset Management, ESAF Small Finance, CAMS, Studds Accessories, Lodha Developers, Aakash Education, Lite Bite Foods, Indian Railways Finance Corporation. Which IPO are you most excited for, in 2021?

Lastly, Wishing you a Happy New Year 2021!

What is Role of RBI in Financial Market Functions & Responsibilities cover

What is Role of RBI in Financial Market? Functions & Responsibilities!

Understanding the Role of RBI in Financial Market: In the current times while dealing with the economic slowdown news that includes the RBI has been a hot topic. This is because everyone looks up to the RBI and awaits the steps that it can take in order to revive the economy once again. Today we take a look at the responsibilities and role of RBI in financial market. Here, we’ll discuss the functions that the banker to the government plays in our financial system.

Reserve Bank of India (RBI) is the Central Bank of the country and so its roles differ from other retail banks.  The Reserve Bank of India was established in 1935 and was privately owned until 1949 post which it was fully owned by the Government of India. The RBI takes on greater responsibilities like ensuring credit supply, managing payment systems with the aim of promoting economic development.

Role of RBI in Financial Market

The RBI plays the following role when it comes to the financial markets of the country

1. Ensuring stability and Growth of the Infrastructure

The financial markets play a very important role in the financial system and very few entities in the country have the power and resources to ensure their stability, one of them being the RBI. Financial Market Infrastructure (FMI) is a multilateral system that includes participating institutions where the operator looks after the clearing, settling, recording payments, securities, derivatives, or other financial transactions. The FMI includes PAyment Systems, Central Securities Depository, Securities Settlement Systems, Central counterparties, trade repositories(an entity that maintains electronic records of transaction data), etc.

It is very important that these functions work as smoothly as possible and have the right infrastructure as Financial markets are the channels that concentrate risks in the economy which if not managed properly can transmit shocks across the economy. In order to address these problems, the RBI sets up organizations and committees to look after and develop the infrastructure of the financial markets.

Some of these infrastructures include the Securities Settlement Systems (SSS), Real-Time Gross Settlement System (RTGS), and Clearing Corporation of India Ltd (CCIL), Negotiated Dealing System- Order Matching (NDS-OM), etc. The NDS-Om, for example, is owned by the RBI and is an electronic order-driven trading system for govt securities. The NDS-OM accounts for 90% of the trading volume in government securities.

2. Ensuring the growth of Payment systems in India

The RBI oversees these payment infrastructures out in place in order to ensure its efficiency and safety of its participants. This role has been of growing importance especially as the country is encouraged into adopting the electronics payment system and keeping up with international developments.

This is only possible because the RBI ensures that the payment and settlement systems are safe, efficient, and accessible throughout the country.

3. Supervising the Payment and Settlement systems 

The RBI designates specific responsibilities to various other institutions it sets up in order to ensure that the system is regulated and supervised. The RBI also sets up the legal framework that governs these systems. For eg. the RBI has set up the PSS( Payment and Settlement Systems Act, 2007).

This act empowers the RBI to set standards for the format of payment instructions, timings to be maintained, manner of fund transfer, etc. The RBI is also given the power to access any information relating to the operation of any payment system, enter and inspect any premise where the payment system is operated, and carry out audits and inspections.

4. Regulating OTC Derivatives

The trade repository for Over-the-counter(OTC) derivatives are set up as required by the RBI and are regulated by two separate frameworks i.e. the Reserve Bank of India Act, 1934, and  Forward Contracts (Regulation) Act, 1952.

OTC derivatives here include interest rate swaps, forward rate agreements, foreign currency swaps, foreign currency-rupee swaps, foreign currency options, foreign currency-rupee options.

5. Other functions of the RBI

The RBI has the power to influence the supply of money by adjusting the deposits, reserves (SLR and CRR) it expects banks to maintain, and interest rates that it charges commercial banks that wish to borrow money. These rates and requirements are changed according to the requirements of the economy.

The RBI also plays an important role when in stabilizing the value of the Indian currency by maintaining gold bullions and foreign currency reserves. Another important aspect that the RBI looks into is controlling its arch-nemesis i.e inflation. 

Closing Thoughts 

Today, we discussed the role of RBI in financial market. The RBI has evolved into one of the most important and dependable entities in the country over the last 85 years. This can be seen even today where the RBI is looked up to in distressing times when the economy is exposed to global and internal shocks.

Along with the rising scale of growth and scope of the Indian economy, the RBI also ensures that the internal working environment of the Indian financial markets is stable and reliable and at the same time is evolving to match global standards.

list of Indian ADR’s listed in NASDAQ

Indian ADR’s listed on NASDAQ – How Indian Companies Trade in US?

List of Indian ADR’s listed on NASDAQ and Understanding why do Indian companies trade in US: If you had the opportunity to visit the NASDAQ you might be caught off guard when you find quotes of Indian companies being flashed on their screens. But why would an American stock exchange be reflecting the prices of Indian companies? The short answer is because these companies have opted for means where they can be traded in the NASDAQ.

Today we take a look at which Indian companies have listed themselves on the NASDAQ. We also take a look at why and how these companies listed on the NASDAQ.

Why do Indian companies get listed on NASDAQ?

The top two American stock exchanges are- the NYSE (New York Stock exchange) and the NASDAQ ( National Association of Securities Dealers Automated Quotations). They respectively hold the spot for the largest and the second-large stock exchanges in the world. In order to put things into perspective let us compare them with our exchanges.

The Bombay Stock Exchange which is the major trading venue for Indian companies and their stocks had an MCap of 2.056 trillion in 2019. In comparison, the NYSE and the NASDAQ had MCaps of 22.9 and 10.8 trillion respectively in 2019. The Indian companies have realized the capital and growth potential in the American markets and have been tapping its exchanges since 1999. The United States is home to the deepest and most liquid capital markets in the world. In addition, these include well to do companies from various sectors like technology, financial, pharms, and industrial.

In addition to this, the markets offer other advantages like reliability. This is because listing on these markets would require the companies to abide by stringent laws and disclosure requirements. This, in turn, increases the credibility of the company throughout the world. For companies that want to raise huge amounts of capital and be global in every way, it makes sense to list on the US bourses.

How can Indian companies list on the NASDAQ?

Although the regulations are ever-evolving presently Indian companies can access the American equity markets through ADRs (American Depository Receipts). An ADR is created so that American investors can buy foreign securities at ease. Otherwise, the process would generally involve exchanging USD for the required currency like INR. Then opening a brokerage account and purchasing the foreign security. This would most likely be done at midnight due to timezone differences. By then the exchange rate would have probably changed. ADR’s put away all this hassle for the American investor. 

An ADR is a security that trades in the US but is a representation of a specified number of shares from a non-US company. These securities are offered to American investors in US dollars (regardless of the base currency of underlying shares). They also trade and settle like any other security priced in the US market.

These securities are negotiable certificates issued by a U.S. depositary bank representing a specified number of shares—often one share—of a foreign company’s stock. These ADRS’s attract American investors and their capital. These investors would otherwise would have shied away due to the hassle of buying foreign shares.

How are these ADR’s created?

As Indian companies cannot directly list their equity shares in the US markets as of now they adopt the ADR route. The first step involves the Indian company offering its shares to a U.S. bank who will purchase these shares on a foreign exchange. This bank holds these shares as deposits and issues receipts to the Indian company.

The US bank then issues ADR’s that are equal to the value of the shares deposited with the bank. The ADR issued will represent the underlying shares on a one-for-one basis. These may also be a fraction of a share or multiple shares of the underlying company. This is decided by the bank as per the value of the conversion rate. The bank does this to sure the price of the ADR price is not too high or low.

The broker then sells the ADR’s in its place in either the New York Stock Exchange (NYSE) or the Nasdaq. In order for this process to be successful, the Indian company will be required to comply with all the regulations set by the SEC for any company being listed in a US exchange. 

These ADRs are then quoted and trade in US dollars. The ADR’s closely track the price of the company’s stock in its home exchange due to arbitrage. All dividend payments to the holders of ADRs are made in US dollars. The company pays out the dividend to the US bank in its native currency which is then distributed by the brokers to the investors in dollars after accounting for foreign taxes and currency conversion. 

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Indian ADR’s listed on NASDAQ

Despite India’s large size and economy, only the following handful of Indian corporations are trading as ADRs in the US NASDAQ.

Company ADR trading on NASDAQ
ICICI Bank ADR
Infosys ADR
HDFC Bank ADR
Wipro ADR
Tata Motors ADR
Vedanta Ltd
Yatra Online
MakeMyTrip
Dr Reddys Labs
WNS Holdings
Azure Power Global
Sify
Rediff.com India
Mahanagar Telephone Nigam PK

Why do exchanges like the NASDAQ allow foreign companies to list on their exchanges?

Apart from providing an opportunity for US-based investors, the exchanges have other benefits too. Foreign stock exchanges often try to pursue foreign companies. These include not just the US-based exchanges. They include the London Stock Exchange, Tokyo Stock Exchange, Bermuda Stock Exchange, Singapore Exchange, Luxembourg Stock Exchange, and the SIX Swiss Exchange sending delegations to invite Indian companies.

The Luxembourg Stock Exchange has over 100 Indian companies listed. One reason is that the Indian markets although risky are known for their growth prospects. Apart from this, about 10 to 20% of the income of many foreign stock exchanges are from their listing fees apart from the trading revenues they earn.

Closing Thoughts 

Although ADRs have been a popular route of entry into foreign markets the government as of 2020 has looked and announced other possibilities. Although all the framework is still to be set, the government has announced that it is looking into allowing Indian companies to directly list on foreign exchanges without even requiring them to be listed in Indian exchanges first.

It would expand the route through which Indian capitals raise offshore capital. This, however, has raised domestic concerns about the possibility of Indian investors losing out on domestic opportunities. 

What are FII and DII in Share Market?

What are FII and DII in Share Market?

Understanding FII and DII meaning in Indian Share Market: Over the last few months of the COVID19 pandemic and stock market crash crisis, there have been many news sources headlining the FII sellout. Basically, FII stands for Foreign Institutional Investors and DII stands for Domestic Institutional Investors.

But what do terms such as FII and DII exactly mean? And why are they important enough in the share market to make the front page? In this article, we are going to cover that. Here, we will explain what are FII and DII and why they matter. Let’s get started.

Different Types of Investors in the Market

Different Types of Investors

Individual investors like you and me who invest in our personal capacities are known as Retail Investors. But retail investors form a very small portion of the stock market. The major activity is dominated by institutional investors.

Institutional investors include hedge funds, insurance companies, pension funds, investment banks, and mutual funds. They invest in various markets using their pooled funds received from insurances bought, SIP investments, etc. from customers. These institutional investors are also known as elephants of the market because of the money power they hold in order to influence markets. In addition to this, it is also observed that when institutional investors buy the stock markets show a bullish trend and a bearish trend when they start selling.

These institutional investors are further divided into Foreign Institutional Investors [FII] and Domestic Institutional Investors[DII] depending on whether the investments are from domestic or foreign institutions in the Indian financial markets.

Why Institutions invest in Foreign Markets? 

FII generally invests in emerging markets like India because investing in developing countries provides their investment a greater scope for growth which otherwise is limited in developed nations. This is done through a global mutual fund, hedge fund, etc. present in their home country.

But the economic conditions of emerging markets are not the only thing FII’s consider when it comes to making investments. They also consider the legal aspects and political climate of the country too. This is done in order to ensure the safety of the investments as they already face the risks of investing in emerging markets.

But why does the need arise to invest in foreign markets?

Countries with lenient laws when it comes to foreign investments and a stable political environment top the list of attractive investment destinations for the FII’s. On the other hand, protectionist local laws and politically unstable countries are ill-favored by the FII’s. One good example would be the Rs.82,575 crore Foreign Portfolio Investment ( highest in the Modi era) that followed PM Modi’s landslide victory. The opposite was noticed when WHO declared corona a pandemic. 

FII however also helps the domestic economy they invest in. This is because they bring with them huge capital, boosting economic growth in capital deficient countries. FII also helps improve the Current Account Deficit situation of a country. This is why FII interest or net positive inflows are a good sign. FII outflows, on the other hand, depict a country where investments have become too risky or are a sign of an unstable government.

FII interests change immediately in response to the economic and political climate. This is particularly the reason why FII investments are known as ‘hot money’. 

Investment from DII or FII regardless provides fodder. Then, why is this distinction necessary?

We have already established the volatility of FII. This volatility coupled with huge capital backing can have a detrimental impact on the economy in times of crisis. 

FIIs have become one of the major drivers in the Indian Markets. But Investments from FII can be pulled out at any time, and they have been historically blamed for large withdrawals of capital leading to significant negative bearing on the domestic markets. In order to avoid such a scenario where 100% of investments in a company are from FII’s, an FII sellout would lead to a drastic reduction in the price. This has led to laws passed restricting the ownership in order to control the influence of the FII’s.

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What are the regulations that FIIs are subject to?

As per the SEBI (Foreign Institutional Investors) Regulations -1995, FIIs are generally limited to a maximum investment of 24% of the paid-up capital of the Indian company receiving the investment. However, FIIs can invest up to 30% if shareholder approval is received.

DII’s and the importance of a favorable environment

DII’s refer to institutions that invest in countries they are set up in. It is very important to note that a country’s political and legal environment plays a crucial role. A government that offers financial incentives which include corporate tax reduction, tax holidays, subsidies, and other financial incentives. These create a favorable investment environment. In such a scenario not only are FII’s interested but also the DII’s are encouraged to keep investing within India instead of looking for opportunities in other countries.

In 2015 Dividends and Long Term Capital Gains (LTCG) on shares traded in stock exchanges are totally exempted from Income tax even though it is not the poor who earn them. Such moves encourage Institutional investors to add to the capital in India. But the opposite happened when in 2018 when the then Finance Minister Mr.ArunJaitely declared a 10% Long Term Capital Gain in the budget disturbing the sentiments of the market. This move led to relentless selling off of shares held by the FII’s and DII’s in February 2018.

These investments were diverted towards Brasil and Gabon where they get suitable conditions of earning i.e. 100% exemption in Income Tax and Long term capital gain were present. Hence it is also very important for the government to create a favorable investment environment to keep the capital within India

How to find out FII and DII Holdings in Stocks?

To find the FII and DII holdings in any particular stock, you can go to the shareholding pattern segment on Trade Brains Portal. Simply, go the https://portal.tradebrains.in/ and search the Company Name in the search bar. This will take you to the Stock Details page. On this page, navigate to the Shareholding pattern section.

For example, here is the latest shareholding pattern of RELIANCE INDUSTRIES (Quarter-wise). You can find the FII and DII holdings in Reliance Industries for different quarters using this detailed table.

reliance industries shareholding pattern

(Image: Reliance Industries Shareholding – Trade Brains Portal)

Similarly, you can find the FII and DII holdings in any publically listed companies in India by looking into its shareholding pattern available on Trade Brains Portal.

Closing Thoughts

In this article, we discussed what are FII and DII in the share market, the difference between them, and how to find their holding details.

Basically, FII stands for Foreign Institutional Investors and DII stands for Domestic Institutional Investors. By looking into the FII and DII holdings in different stocks, you can find how confident are big investors for investing in particular stocks, industry segment, and the market overall.

Best Performing Largecap Stocks in 2020 - Holding any of these cover

Best Performing Largecap Stocks in 2020 - Holding any of these?

List of Best Performing Largecap Stocks in 2020 in India: The year 2020 been a roller-coaster journey for all the equity investors. At one time during the start of the pandemic, the market saw two lower circuits of 10% within a span of 10 days which even resulted in halting trades for a few minutes on those days.

On 23rd March 2020, the broad market Index Sensex tanked by 10% or nearly 3,000 points to hit 26,924 before trading was stopped. NSE Index Nifty50 similarly fell 842 points, or 9.63%, to 7,903 on that day. However, fast forward almost nine months and today Sensex is hovering at 46,973.54 points while Nifty 50 at 13,749.25.

Moreover, if we look at Sensex, it has given a return of 34.82 percent in the last six months and 13.72% in 2020. These returns are astonishing, seeing the fact that we are still going through the pandemic, vaccines are yet to come in India and the economy has still far to go to recover significantly.

Now, if we look further, many large-cap companies have performed quite well in this period and make wealth for the people struggling in the pandemic. Here is a list of 28 big public companies in India with a market capitalization of over Rs 40,000 Cr, which has given above 30% returns in the last one year.

Best Performing Largecap Stocks in 2020

CompanyIndustryMarket CapPE Ratio TTM1 Yr Returns (%)
Adani Green Energy Ltd.Power Generation/Distribution162000.60 Cr644.4322562.96
Adani Gas Ltd.Trading40511.50 Cr96.7924137.77
Adani Enterprises Ltd.Trading52043.01 Cr206.2743126.68
Divis Laboratories Ltd.Pharmaceuticals & Drugs99532.13 Cr56.6141106.48
Larsen & Toubro Infotech Ltd.IT - Software63292.58 Cr39.3317104.82
Aurobindo Pharma Ltd.Pharmaceuticals & Drugs53261.82 Cr20.020897.69
Tata Consumer Products Ltd.Consumer Food55693.08 Cr98.250192.07
Cadila Healthcare Ltd.Pharmaceuticals & Drugs50127.56 Cr28.492990.36
Info Edge (India) Ltd.BPO/ITeS59410.36 Cr225.003582.82
Dr. Reddys Laboratories Ltd.Pharmaceuticals & Drugs86533.22 Cr35.237781.53
Cipla Ltd.Pharmaceuticals & Drugs67214.01 Cr29.969775.72
Infosys Ltd.IT - Software526634.14 Cr31.629769.57
Biocon Ltd.Pharmaceuticals & Drugs57816.00 Cr146.703966.42
HCL Technologies Ltd.IT - Software249589.35 Cr25.380264.02
Muthoot Finance Ltd.Finance - NBFC47657.26 Cr14.210358.28
Wipro Ltd.IT - Software218440.22 Cr24.665252.7
Torrent Pharmaceuticals Ltd.Pharmaceuticals & Drugs47101.79 Cr48.608750.99
Asian Paints Ltd.Paints254125.07 Cr112.646146.34
Berger Paints India Ltd.Paints70903.90 Cr117.63442.19
Sun Pharmaceutical Industries Ltd.Pharmaceuticals & Drugs141524.77 Cr49.117239.87
Havells India Ltd.Electric Equipment56046.94 Cr73.184639.78
Avenue Supermarts Ltd.Retailing173166.37 Cr183.976839.14
JSW Steel Ltd.Steel & Iron Products88518.61 Cr35.707436.08
Mahindra & Mahindra Ltd.Automobiles - Passenger Cars88428.29 Cr034.55
Tata Steel Ltd.Steel & Iron Products74926.33 Cr15.723833
Reliance Industries Ltd.Refineries1348288.66 Cr47.368232.84
Tata Consultancy Services Ltd.IT - Software1091362.33 Cr37.053132.13
Adani Ports and Special Economic Zone Ltd.Port97178.69 Cr50.052931.6

(Source: Trade Brains Portal)

Disclaimer: The stocks listed above should not be considered as recommendations. Please study the companies carefully or take the help of a financial advisor before investing.

Interestingly, the top three positions are taken by Adani Green Energy(+562.96), Adani Gas (+137.77%), and Adani Enterprises (+126.68%). Pharma stocks like Divi’s Lab, Aurobindo Pharma, Cadila Healthcare, Dr. Reddy’s Lab, and Cipla have also given above 70% returns in this time period. Other blue-chip wealth creator stocks in this list are Infosys, HCL, WIPRO, Asian Paints, TCS, and Reliance.

Anyways, whether these above-mentioned companies will continue their steak in 2021 depends is yet to test. However, time and again, the share market has proved itself to be a place to create wealth, even in the times of global pandemic.

what are Regulations to Invest in USForeign stocks for Indians

What are the Regulations to Invest in US or Foreign stocks for Indians?

Understanding Regulations to Invest in US/Foreign stocks for Indians: Owning foreign shares like Tesla, Apple, Amazon, etc has been made so simple that Indian investors can now do it with the click of a mouse. All one has to do now is find a good international broker to create an account by providing details such as name, email, and mobile number to start.

This is followed by providing documentation like PAN card and address proof. The brokers take care of paper-work, authorizations from banks,  getting the RBI clearances being, and opening an account. Almost seems like investing in Indian markets!

With the process now being seamless, it is easy for investors to get carried away. At times lose track of the guidelines set for investing abroad. So let us find out and understand better the guidelines that govern investing abroad. Here, we’ll look into the Regulations to Invest in the US or foreign stocks for Indians. Let’s get started.

Regulations to Invest in US or Foreign stocks

Regulations to Invest in US

Transferring money abroad used to be complex with a lot of approvals required. The advent of globalization simplified the process with the introduction of the Liberalised Remittance Scheme (“LRS”)  in 2004.

RBI’s Liberalised Remittance Scheme (LRS) allows Resident Individuals in India to acquire foreign securities without prior approval. They can freely remit money out of India, up to the given threshold, with the help of authorized dealers and Indian banks. The threshold is currently set at $250,000 for one financial year (April to March). At the current rate (73.59) this amounts to Rs. 1.83 crore. Individuals here have to watch out for forex changes. 

Current and Capital Account Transaction

It is important to understand all transactions involved in LRS other than stock market investments. This is because they too affect the remittance ability of an individual. This $250,000 is permissible for current or capital account transaction or a combination of both. The current account transaction can include gifts, donations, emigration, medical treatment, business travel, private visits to any country (except Bhutan and Nepal). The Capital account transaction include the following:-

  • Making investments abroad ( Debt instruments, shares, etc.)
  • Purchasing property abroad.
  • Buying objects of art.
  • Extending loans including loans in INR to NRI/PIO close relatives.
  • Setting up of wholly-owned subsidiaries and joint ventures outside India for bonafide business.
  • Repayment of loan acquired when you were a non-resident etc.

The LRS restricts buying and selling of foreign exchange abroad, or purchase of lottery tickets or sweepstakes, proscribed magazines, etc. An individual is also restricted from investing in a country that has been identified by the Financial Action Task Force as “non-co-operative countries and territories”.

laws and Regulations to Invest in US

Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme. This is even if the proceeds have been brought back into the country. The individual however can send money as many occasions as he wants. This is as long as the $250,000 cap is maintained. It is not necessary that the remittances have to be made only in US dollars, they can be made in any freely convertible currency. 

In the case of investment in shares, debt instruments, and mutual funds it is not necessary that the interest or dividend earned have to be remitted back. They can be reinvested or retained or used to meet any expenses abroad. The investment and their profits too can be reinvested without being brought back to India.

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Which individuals are considered as resident individuals?

Any individual that satisfies one of the following 2 conditions would qualify as a resident of India:

  1. Stayed in India 182 days or more in a year or 
  2. Stayed in India for 365 days or more for the immediate 4 preceding years and 60 days or more in the relevant financial year.

How are taxes affected in India for income earned abroad?

According to income tax rules, the income earned anywhere in the world is taxable in India for you. However, if taxes have already been deducted at source abroad. Then the individual can make use of the Double Taxation Avoidance Agreement (DTAA) where the income was earned. According to this if the taxes have already paid in the country abroad, as long as that country has a DTAA with India the individual will not be required to pay tax on the income once again.

What are the exceptions to the LRS cap?

If the $250,000 cap is reached one may still remit more funds if it takes prior approval from the Reserve Bank. The exception also includes medical treatment where one can still remit more than USD 250,000 without approval from RBI.

This is if one can produce certain documents. In the case of education undertaken abroad too may be allowed without prior approval from the Reserve Bank. This is because students are considered NRIs from day one (of moving abroad for studies).

Closing Thoughts

DateFeb 4, 2004 Dec 20, 2006 May 8, 2007 Sep 26, 2007 Aug 14, 2013 Jun 3, 2014 May 26, 2015
LRS limit (USD) 25,00050,000 1,00,0002,00,000 75,0001,25,000 2,50,000

Despite liberalizing the economy it is important for a country like India to practice control on foreign exchange movements in and out of the country. India already spends much more on foreign exchange than we earn. The RBI keeps an eye and adjusts the cap accordingly.

The table above shows the limits adjusted by the RBI throughout the years, A situation where unlimited remittances are allowed would ruin the exchange rates of the country. This makes LRS all the more important to be implemented.

That’s all for today’s article on regulations to Invest in US or abroad. Hope it was useful to you. Please comment below what you think of these regulations to Invest in US and other foreign stocks. Happy Investing!

HARSHAD MEHTA SCAM - complete story

Harshad Mehta Scam- How one man deceived entire Dalal Street?

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.

the big bull harshad mehta scam

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

Harshad Mehta celebrated this victory by feeding peanuts to the bears at the Bombay Zoo as it signified his victory over the bearish trends.

Benefits to Banks

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.

harshad mehta scam

— 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.

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Closing Thoughts

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!”.

TATA Group bidding for Air India cover ratn tata

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

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

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

TATAs Love for Aviation Industry

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

tata airlines jrd tata

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

TATA Group bidding for Air India – The Challenges

— Waving a Non-compete clause with Vistara Airlines

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

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

— Turning the fortunes of National Loss-making Airlines

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

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

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Why is the TATA group interested in Air India?

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

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

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

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

The Government Incentive to Airline Bidders

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

TATA Group bidding for Air India – What to Conclude?

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

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

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

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

Nifty Financial Services Index - NSE to Launch Derivative Contract cover

Nifty Financial Services Index – NSE to Launch Derivative Contract!

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

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

What is Nifty Financial Services Index?

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

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

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

Constituents of Nifty Financial Services Index

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

S. NoStock Name & Weightage (%)
1HDFC Bank Ltd. (27.13%)
2Housing Development Finance Corporation (17.51%)
3ICICI Bank Ltd. (14.14%)
4Kotak Mahindra Bank. (12.10%)
5Axis Bank Ltd. (6.46%)
6Bajaj Finance (5.64%)
7State Bank of India (4.06%)
8Bajaj Finserv Ltd. (2.29%)
9HDFC Life Insurance (2.21%)
10SBI Life Insurance (1.43%)
11Power Finance Corporation
12Shriram Transport Finance Company Ltd.
13REC Ltd.
14ICICI General Insurance Co. Ltd
15Cholamandalam Investment and Finance Company Limited
16Bajaj Holdings and Investment Limited
17Mahindra & Mahindra Financial Services Limited
18Piramal Enterprises Limited
19ICICI Prudential Life Insurance Company Limited
20HDFC AMC

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Criteria to be a part of Nifty Financial Services Index

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

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

Nifty Financial Services F&O Contract Specifications

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

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

Closing Thoughts

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

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

List of Indian Companies with Monopoly in their industry

10 Indian Companies with Monopoly in Their Industry!

List of Indian Companies with Monopoly in their Industry: How many Indian companies can you name that are monopolies? Today we identify one of Warren Buffets’ favorite categories i.e. monopolies, but in the Indian markets. Monopoly refers to the category of companies who due to their major competitive advantage are market leaders in their industry. These companies are very difficult to compete with and maintain the highest market share for their products and services.

In investing however the stocks of these companies are known as MOAT stocks. A Moat is a hole that used to surround Medieval castles. This was done as a defense measure in order to make it harder for invaders to attack the castle. The wider and deeper is the moat, the more protected is the castle is. In the business world, these Moats are either barriers to entry like huge capital, government restrictions, or business advantage that a company has made it hard to compete with them.

moat investingToday, we take a look at the public Indian companies with monopoly in their industry. There are market leaders in their industry with zero or very less competition. Let’s get started.

Top 10 Indian Companies with Monopoly

Following are the list of monopolies in the Indian markets i.e. the companies that enjoy the status of being a monopoly: (Company – Market Share)

1. IRCTC – 100%

IRCTC stock - Indian Companies with Monopoly

IRCTC is a state-owned entity and the only player in the Indian markets that operate in the Industry. This makes it a monopoly as consumers have no other alternative. The company was founded in the year 1845. It is one of the largest railways in the world and is one of the world’s largest employers. Rail networks are generally considered as ‘ Natural Monopolies’. This is because only one train can use the rack at a given time.

However, countries like the UK have bought in private players by allowing them to bid for rail lines. Earlier this year India too announced that it will be opening the sector for players.

2. HAL – 100%

HAL - Indian Companies with Monopoly in their Industry

The Hindustan Aeronautics India Limited represents the Indian aviation industry and plays a very important role in the Indian defense sector. The company a set up in 1940 by Walchand Hirachand and the Government of Mysore, with the aim of manufacturing aircraft in India. Today the company is state-owned and is associated with designing, fabricating, and assembling aircraft, jet engines, helicopters, and their spare parts. 

3. Nestle – Cerelac – 96.5%

Nestle - Cerelac - 96.5% monopolyCerelac is the brand of instant cereal made by Nestle for infants 6 months and older as a supplement for breast milk. Nestle is one of the worlds leading nutrition, health, and wellness company which was set up in 1866 in Switzerland. It has spent more than a century in the Indian markets over the years has become an undisputed market leader in the baby food segment. It has an undisputed market share of 96.5% despite functioning in an open to all industry.

4. Coal India – 82%

coal india monopolyCoal India Limited is a coal mining and refining company. It is also the world’s largest coal-producing company in the world. It is owned by the Union government of India and is managed by the Ministry of Coal. The company contributes up to  82% of the total coal production in India. It was only this year that the government announced that the coal sector would now be opening up for commercial mining possibly ending its monopoly in the future.

5. Hindustan zinc – 78%

Hindustan zinc - 78%Hindustan Zinc Ltd. is the world’s second-largest zinc-lead miner and holds a 78% market share in India’s primary zinc industry. The company was incorporated as Metal Corporation of India in 1966 as a Public sector undertaking. Today the company is a subsidiary of Vedanta Limited which owns a 64.9% stake in the Company while the Government of India holds a 29.5% minority stake.

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6. ITC- 77%

ITC- 77%Although the company has diversified into a conglomerate in the last century. Despite this, its cigarette business still holds 77% a strong position in the Indian markets. This can be attributed to the expertise the company has developed in the field and a willingness to develop products to match the evolving taste of different types of consumers.

ITC’s wide range of brands includes Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal. Apart from a market experience, another advantage that the brand has is its supply chain and distribution network which spans across the country.

7. Marico – Oil Products – 73%

Marico - Oil Products - 73%Marico is one of the well-known FMCG companies in India but the majority of its success lies in its two brands ‘Saffola’ and ‘Parachute’. The company has come a long way in the segment despite being around for only 3 decades. Safola which competes in the premium refined edible oil segment has maintained its market leadership with a share of 73%. ‘Parachute’ on the other hand holds a market share of 59%. These also form up to 90% of their income.

8. Pidilite – 70%

Pidilite - 70%Pidilite’s product range includes adhesives and sealants (Fevicol and M-seal), construction and paint chemicals (Dr. Fixit), automotive chemicals, industrial adhesives, and industrial & textile resins. It is the leader in the adhesive and industrial chemical market with a market share of 70%.

9. CONCOR – 68.52%

CONCOR - 68.52%Container Corporation of India Limited (CONCOR) is a Public Sector Undertaking managed by the Indian Ministry of Railways. The company was set up in 1966 with the aim of containerizing cargo transport in the country. Concor’s core businesses include that of cargo carrier; terminal operator, warehouse operator & MMLP operation. They hold a market share in domestic business of 68.52% in 2019-20.

10. BHEL   

BHEL

BHEL is India’s largest engineering and manufacturing enterprise in the energy and infrastructure sectors and also a leading power equipment manufacturer globally. Its services and products range from power-thermal, hydro, gas. Nuclear and solar PV, transmission, transportation, defense & aerospace, oil & gas, and water. It also holds the single largest market share in the emission control equipment business in India

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Closing Thoughts

In this post, we discussed the list of Indian Companies with Monopoly in their Industry. For a value investor, a monopoly or big Moat stock is similar to a gold mine. This is because if one can find a suitable Moat stock to invest in they provide significant returns in the long turn. But investors must watch out as these stocks just like other Blue Chip companies are generally overvalued and can lead to lower returns or losses. 

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

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

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

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

What are Long-Short Funds?

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

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

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

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

130/30 fund Strategy

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

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

What are AIF category-III funds?

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

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

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

Advantages of Long-Short funds

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

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

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Disadvantages associated with Long Short funds

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

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

Long Short Funds in India

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

Long Short Funds in India

(Image courtesy: www.moneycontrol.com)

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

5G Network in India jio airtel vi race

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

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

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

What is 5G connectivity?

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

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

5G Network in India – The Race

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

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

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

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

Reliance Jio Stake Sales - Quest to become the Global Tech Player cover

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

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

Jio Qualcomm partnered for 5G network in India

(Pic courtesy: www.universalnews.org)

What is O-RAN?

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

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

What do other Telecom companies have to say?

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

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5G Network in India: What can be expected?

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

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