Demystifying Vijay Mallya Scam

Demystifying Vijay Mallya Scam | Vijay Mallya Case Study

A Study on Vijay Mallya Scam Case: Vijay Vittal Mallya, once known to you and me as ‘The King of Good Times’ or also dubbed ‘ The playboy of the East’ was born to the Indian Entrepreneur Vittal Mallya in 1955. Vittal Mallya was largely known for the role played as the director of United Breweries (UB) Group which he achieved at the age of 23. Following his fathers’ sudden demise Vijay Mallya became chairman of the UB Group.

Vijay Mallya was always known for his flamboyant and posh lifestyle. A testament to these were the lavish New Year Parties at his Kingfisher Villa in Goa or the birthday bashes thrown on his luxurious Yacht ‘ The Indian Empress’. These parties were filled with prominent sportspersons, Bollywood stars, and models. Baron to Indias biggest liquor company his riches also included a private jet, a yacht and a fleet of 250 rare cars. Today we take a look at the Vijay Mallya’s rise to the king of good times and his plummet into a debt-ridden slump.

LtoR: Vijay Mallya with his father Vittal Mallya; Vijay Mallya posing in one of his vintage cars; Vijay Mallya in an interview with Simi Garewal(LtoR: Vijay Mallya with his father Vittal Mallya; Vijay Mallya posing in one of his vintage cars; Vijay Mallya in an interview with Simi Garewal)

Let’s Begin With Vijay Mallya’s Achievements

Although his reputation as ‘The playboy of the East’ may create the fallacy that Vijay Mallya was just another spoilt brat squandering the millions he inherited. His achievements tell a completely different story. After becoming the chairman of the UB Group at the age of 28 in 1983, he transformed the beverage company into a multi-national conglomerate of over 60 companies.

One of his first major decisions was to consolidate the various companies under an umbrella group called the “UB Group”. This also involved spinning off the loss-making entities in order to focus on the core business which was alcoholic beverages. By 1998- 1999 the annual turnover had increased by 64% over 15 years to US$11 billion. The UB Group boasted a national market share in excess of 50% and also controlled 60% of the total manufacturing capacity for beer in India.

Vijay Mallya However did not stop with the success of his company in alcoholic beverages alone. He went further to acquire Berger Paints, Best, and Crompton in 1988; Mangalore Chemicals and Fertilizers in 1990, The Asian Age newspaper and the publisher of the film magazine, and Cine Blitz, a Bollywood magazine in 2001. He also went on the serve as the Chairman of Sanofi India and Bayer Crop Science among several other companies. These achievements catapulted him into the status of one of the great Indian business tycoons.

Vijay Mallya at the launch of the limited edition Kingfisher Calender. LtoR: Vijay Mallya with Preity Zinta; Models; and Enrique Iglesias(Vijay Mallya at the launch of the limited edition Kingfisher Calender. LtoR: Vijay Mallya with Preity Zinta; Models; and Enrique Iglesias)

Vijay Mallya’s reach also extended to the sports world. In 1996, he became to fist Indian tycoon to sponsor a cricket team to the world cup when he did so for the West Indies through Kingfisher (Indian beer brewed by UB). This gave birth to the famous jingle ‘Oo la Lala le o’.

His companies also owned the IPL team Royal Challengers Bangalore, I-league teams Mohun Bagan AC, East Bengal FC, and Formula 1 team Force India. Vijay Mallya is also a member of the World Motor Sport Council representing India in the FIA. He also took particular interest in horse racing and also owned stud farms with up to 200 horses.

Vijay Mallya also contributed significantly to protect Indian history by bringing back precious artifacts belonging to Tipu Sultan and Mahatma Gandhi. This included a bid that he won at 1.7 crores for the sword of Tipu Sultan at an auction in London in the year 2004. In addition to this, he also brought back 30 other items belonging to Tipu Sultan from auction houses based in the UK. In 2009 Vijay Mallya once again bid successfully for the belongings of Mahatma Gandhi at US$ 1.8 million at an auction in New York. 

Mallya also served in the Rajya Sabha, the upper house of the Parliament of India, for his home state Karnataka.

Vijay Mallya’s Kingfisher Airlines

Despite Vijay Mallya being successful in running various companies mentioned earlier, he isn’t known for their success, but for the failure of Kingfisher and the show that followed. The Kingfisher Airline was part of Vijay Mallya’s vision of having a world-class airline in India.

He was quoted saying to his core team before the launch that “We are not entering the business of transportation, but we are going to be in the hospitality business”. Mallya was also personally involved with the airlines and also personally interviewed the cabin crew in order to make sure that no mistakes were made.

(The Kingfisher Takeoff Demo which was ahead of its time. Vijay Mallya had roped in Yana Gupta ( featured in the video) for this purpose)

After its launch in 2005, Kingfisher Airlines soon became synonymous with Five Star Air Travel. This was thanks to the newly appointed planes, pretty flight attendants (whom Mallya claimed to personally appoint), good food, and also in-flight entertainment in 2006 which was first of its kind. Most importantly this domestic airline also had a first-class. Although domestic flights were not allowed to serve liquor in India, Kingfisher had free liquor in the lounges for first-class passengers. This made Kingfisher the first choice of business travelers. Executives would even give up flyer miles from competitors just to fly Kingfisher.

Vijay Mallya's Kingfisher Airlines

Vijay Mallya, however, was not content by flying Kingfisher only in Indian skies. He planned on expanding the airline globally. As per Indian rules, airlines that have been in existence for only 5 years are not allowed to fly overseas routes. Mallya decided to bypass this law by acquiring existing airlines. He first bid for Air Sahara in 2006 but lost to Jet. He later was successful in buying Air Deccan. In 2008, Kingfisher finally got permission to operate on international routes with its first flight being from Bangalore to London. By 2008, Kingfisher Airlines was carrying 10.9 Million passengers with a fleet of 77 aircraft operating 412 domestic flights daily. In 2009 Kingfisher airlines became the Indian market leader with a marketshare of 22.9%.

Despite its success, Kingfisher was consistently making losses since its inception. The shareholders kept waiting for their first dividends. Post-2010, the airline failed to capture markets which was a major red flag as its competitors continued to do so. In the year 2011, the airline first declared that it had cash flow issues. In order to keep the loss-making business functioning, Vijay Mallya resorted to continuously borrow money from the banks.

By 2012, Kingfisher Airlines was declared as an NPA by SBI. At this point, it had even failed to pay its employees which led to its pilots leaving it for better opportunities. Finally, the grounding of Kingfisher Airlines in 2012 and the cancellation of its license in December 2012 put an end to the Kingfisher journey.

What went wrong with Kingfisher?

— 2008 Recession

The news of airlines going bankrupt has been particularly dominant in the recent past. The huge capital costs with regards to airplanes, the ever-changing fuel costs, and country-wise regulations have made it one of the toughest industries to survive in. Kingfisher too got entangled with these problems post the 2008 recession. The recession had adverse impacts on all industries. As of March 2008, Kingfishers’ debt amounted to Rs. 934 crores. During the recession, the crude oil prices soared to $140 per barrel.

This was almost a two-fold increase in comparison to the 2005 – 2010 average of $72.68. The International Air Transport Association (IATA) estimated that the global aviation market would suffer losses of $5.2 billion. The airlines in India were hit harder due to the taxes and levies imposed by the government. By the end of 2008, the debt with Kingfisher had increased to Rs.5665 crores.

— Issues with Air Deccan

What went wrong with Kingfisher

When Vijay Mallya first bought Air Deccan he allowed both to function as separate companies. But over time it became clear that Kingfisher was the golden child in between the two. If there were clashes between the schedules of the two, Kingfisher was always favored. The problem arose when passengers not only left Air Deccan due to this but decided to choose competitors other than Kingfisher. 

Post the closure of Kingfisher the Serious Fraud Investigation Office (SFIO) found that serious corporate ethics were violated during the merger. Kingfisher had created three new departments in the airline to avoid paying capital gains tax.

— Business model followed by Kingfisher airlines

If we take a look at the picture offered by Kingfisher to the travelers at inception it would be safe to say that Kingfisher would be luxurious domestic travel. But over time this picture began to change. Kingfisher went ahead and purchased Air Deccan. Air Deccan did not fully suit the image that had been created by Vijay Mallya in consumers’ eyes. Air Deccan was set up as a low-cost airline.  By purchasing it Kingfisher gained a few consumers particularly those looking for cheap fares but in the process lost its distinctive sheen. This is just one of the examples of Kingfisher changing its business models. A regularly changing business model gave travelers the impression that Kingfisher wasn’t consistent and would only keep getting worse. 

Vijay Mallya Scam: Was it just Mallya’s fault?

Loans associated with Kingfisher amounted to Rs. 7000 crores. The table below shows the loans taken by Kingfisher from various banks

Was Vijay Mallya at fault

There has also been controversy when it comes to the means used and collateral placed to acquire these loans. BOI had given a loan of 300 crores to Vijay Mallya on items like office stationery, boarding pass printers, and folding chairs as collateral. The banks’ willingness to provide loans based on Current assets as capital created suspicion on the bank officials.

The loans given by SBI were on the trademarks and Goodwill of Kingfisher airlines kept as collateral. These trademarks which were worth over Rs. 4000 crores in 2009 have now plummeted to not more than Rs. 6 crores. IOB too faces similar issues where the 2 helicopters placed as collateral are not in a flying condition and hence cannot be sold to recover Rs. 100 crores of debt.

— What were the loans used for?

Over the course of time, the loans associated with Kingfisher were monumental. But the question arises if the loans that were taken by UB Group were actually implemented for its actual purpose. There have been allegations that the loans taken by Vijay Mallya were only to further his personal agenda. These allegations claim that the loans taken by Vijay Mallya were laundered overseas to various tax havens. This was done with the help of shell companies. Mallya would have the loan received from banks transferred to these shell companies where dummy directors were placed for this purpose. These companies were not active and did not even have an independent source of income. The directors placed here would act as per the directions received from the UB group at the command of Mallya. These companies were located in seven countries including the United Kingdom, the USA, Ireland, and France.

Furthermore, it is also alleged that Vijay Mallya also diverted these loans in order to fund his IPL cricket team The Royal Challengers Bangalore and his F1 racing team Force India. This was all in the midst of a period when the employees of Kingfisher were not paid their salaries. As of October 2013,  the salaries had not been paid for a period of 15 months. 

Vijay Mallya’s Viewpoint

According to Vijay Mallya, the reason for the failure of Kingfisher Airlines were the macroeconomic factors and then government policies. And as far as his name is being dragged in all NPA cases he claims that he is a victim of a media campaign. Vijay Mallya has also made an offer to banks where he would pay them Rs. 4,000 crores in order to settle all his accounts. But as per the news reports lenders together have decided that they need a minimum of Rs.4900 crores to be paid upfront.

Vijay Mallya Urges Govt To Take His Money & Close His Case

Closing thoughts

Vijay Mallya UKWhen the Vijay Mallya case is first looked at, it seems similar to those of businessmen getting unlucky. But a closer look reveals the possibility of money laundering that can only be proved once he is extradited back to India. The ability to turn UB into a global giant had turned him into a business superstar. Although his fast and flashy life inspired many to strive for such wealth, him placing himself above the greater good of all stakeholders associated with Kingfisher took all of this away.

One only wonders where did these skills evaporate when dealing with Kingfisher in times of crisis when his employees were not paid for 15 months. On being questioned about this he replied that “In a Public Limited Company where is one man, who might be the chairman, responsible for the finances of the entire Company? And what has it got to do with all my other businesses? I have built up and run the largest spirits company in the world in this country.”. Although he had already lost the billionaire status by the year 2013, his wealth still stood at over $700 million. This meant that he had the resources to provide his employees with some relief. But instead, he chose to celebrate his Birthday by spending lavishly where international singer Enrique Iglesias performed.  

His indifferent attitude shown towards the suffering of his employees coupled with the allegations of Rs. 4000 crore laundered made it impossible to sympathize with which is sad as he was looked up to by many. It is safe to compare him to Captain Edward Smith of the Titanic. Captain to the largest ship but when things go awry also the first man to get out.

Why Prices of Petrol and Diesel Increasing in India (2020)

Why Prices of Petrol and Diesel Increasing in India (2020)?

Demystifying increasing prices of Petrol and Diesel in India during Covid19 period: After 67 days of lockdown, the economy finally opened up on June 1st. Since then most of us have been trying to bring our lives together and adapt to the new normal of living with COVID-19. In the midst of threats on our borders and the steady rise of corona cases, petrol and diesel prices have steadily increased in the background for 22 days. These added to the unusual events of 2020, as the diesel prices were higher than petrol.

Today we shed light on the rising petrol and diesel prices. We also try and answer the possible reason for the increase especially when just a few days ago the crude oil prices crashed into the negative territory.

coronavirus petrol diesel price meme

How are petrol and diesel Priced?

Before we look into the causes for the price increase, it is best to figure out the chain that crude oil moves through in order to better understand where the price increase has come from.

How are petrol and diesel Priced?

(Source)

Unlike other oil-rich countries, 80% of the crude oil consumed in India is sourced from other countries. This crude oil faces freight charges until it is transported to Oil Marketing Companies (OMC) which is dominated by public sector enterprises with very few private players. These companies go on to refine the crude oil into finished products.  The public players include IOCL, HPCL, BPCL, MRPL, etc. The ONC companies then charge their cut of profits in addition to the cost incurred by them for refining. The next cut is taken as profits to the dealers in petrol pumps etc. It may be surprising but the portion of the charges mentioned above make up only one-third of the amount paid by the consumers for petrol or diesel. 

The remaining two-thirds portion is made up of the taxes paid to the government. These taxes are levied in the form of excise duty, VAT and Cess charges. The excise duties are charged by the central government whereas VAT and Cess charged on petroleum are charged by the state governments.

Every Rupee that the government increases in taxes on diesel and petrol leads to Rs.14,000 crore of additional revenue to the government per annum. This sheds light as to why the government would target the petrol and diesel prices. In the current scenario, the additional revenues likely to be generated come up to 1.4-1.7 lakh crore rupees.

Reasons for the increase in prices of Petrol and Diesel

— Crude oil price normalizing

One of the major questions we would be having is that since the prices had gone negative, how is it that we are facing an all-time biggest increase in a fortnight. It is important to note that there exist different types of crude oil varying based on the place they are sourced from and the sulfur content present in them. WTI from the US, Brent crude from the UK, and the OPEC basket from the middle east. Of these the most expensive has been the Brent and the OPEC.

Unfortunately for us, these are the ones that India imports. And further depressing news has been that it was WTI crude that went negative and not the Brent and OPEC. At their lowest points in April, the Brent and OPEC were priced at $16 to $20 per barrel.Crude oil price normalizing

(Source: Oilprice.com)

These prices have since then been doubled crossing $40. The Brent and OPEC crossing $40 in recent times have been one of the reasons for the price increase. But this is not a major factor as these prices simply haven’t even touched pre-COVID levels of 2019.

— Setting off losses

As seen above despite Brent and OPEC being comparatively expensive, their global prices had reduced significantly in the months of April-May. This further raises questions as to why the prices of petrol and diesel were not reduced to match the global fall. The answer to these questions lies in the fact that the govt had chosen not to transfer the benefits to the consumers but instead use it to set off other losses.

These losses were primarily because of the COVID-19 environment. It had forced the government to move into a lockdown freezing most of the revenue channels for the govt. Which also included income from petrol and diesel as the consumption was dropped to only 30%. 

Union petroleum minister - Dharmendra Pradhan

Union petroleum minister – Dharmendra Pradhan

In this case, the government decided not to reduce the prices to match the crude oil price. But instead, they chose to maintain price levels to make up for the fall in demand for petrol and diesel and also fall in revenue from other sectors. This carried on till the lockdown was lifted at which point the crude oil prices kept increasing globally. 

The fall in demand to only 30% of consumption also caused the OMCs to sell every liter at a loss as the profit made was not able to cover the cost incurred. The OMCs were forced to further increase their margins in the’ Lockdown-Unlock’ period to cover the losses they operated on during the lockdown which led to a 22-day steady increase till the prices touched levels where they were profitable.

— INR to Dollar exchange rate

The exchange rates also impact the prices of petrol and dollar as the crude oil is traded only in exchange for the dollar. The COVID-19 pandemic hammered the already weakened rupee. The rupee currently hovers at over Rs. 75 for a dollar. The rupee traded at Rs.70 for one dollar in December 2019.

Closing Thoughts

rahul gandhi petrol diesel price

The increase in the prices of petrol and diesel-only would kick off the inflation domino effect on other products as well. The Jet Fuel too has already begun to see its share of the inflation. And we already know that ATF being the major expenses for an airline company will further be transferred to the consumer fares. Other products too face inflation in prices as the cost of freight and transportation would increase too. The already ailing Automobile industry has already started to feel the burn as the Demand for diesel vehicles has already dampened.

Needless to say, the diesel and petrol price increase is not welcome considering the state of the economy where the people are already facing job losses, pay cuts, and fear public transport in COVID-19 times

Bank Nifty and Other Scrips Lot Size Changed (After July 30, 2020 Expiry) cover

Bank Nifty and Other Shares Lot Size Changed (After July 30, 2020 Expiry)!

The lot size of all the Bank Nifty Contracts expiring on or after 30th July 2020 has been changed from 20 contracts to 25 contracts. In other words, this means that the lot of Bank Nifty has increased by 25% after July 2020. (Source: NSE Circular)

Let us understand what it means with an example. Assume, if a particular strike Price of Bank Nifty Option was Price at 50 units of Premium. Here, the margin required under the old format was = 50 * 20 = Rs. 1,000. However, under the new contract size, the margin required will be = 50 * 25 = Rs. 1,250

Along with the change in lot size for Bank Nifty, the lot size for 78 other stock F&O contracts has also been revised. The list is as follows:

SymbolPresent lot sizeRevised lot size
ACC400500
ADANIPOWER1000015000
AMARAJABAT8001000
AMBUJACEM25003000
APOLLOTYRE30005000
ASHOKLEY80009000
AUROPHARMA10001300
BANDHANBNK12001800
BANKBARODA54008200
BEL60007600
BHARATFORG13001500
BHEL1040021000
INFRATEL20002800
BOSCHLTD4050
CANBK26005000
CENTURYTEX6001400
CIPLA11501300
COALINDIA27003700
CUMMINSIND9001200
EICHERMOT3035
EQUITAS49007600
EXIDEIND29003600
GAIL53346100
GLENMARK14002300
GODREJCP8001000
GRASIM750950
HDFCBANK500550
HDFCLIFE9001100
HEROMOTOCO200300
HINDALCO35004300
HINDPETRO21002700
HDFC250300
IDFCFIRSTB1200019000
IBULHSGFIN12003100
IOC40005700
INDUSINDBK400800
NAUKRI200250
INDIGO300500
ITC24003200
JSWSTEEL23002700
L&TFH56006800
LT375550
LICHSGFIN13002000
LUPIN700850
M&MFIN16002100
M&M10001400
MARICO13002000
MOTHERSUMI50007000
NATIONALUM1170017000
NCC900021000
NMDC60006700
NTPC48005700
ONGC41007700
PAGEIND2530
PEL309550
PNB830014000
RBLBANK15002600
SRTRANSFIN600650
SAIL1570019000
SUNPHARMA12501400
SUNTV12001500
TATACHEM9002000
TCS250300
TATAMOTORS43005700
TATAPOWER900013500
TATASTEEL15001700
FEDERALBNK70008500
RAMCOCEM800850
TVSMOTOR13501400
UJJIVAN17002200
UPL9001300
VEDL35006200
IDEA98000140000
ZEEL17003000

Source: NSE Circular dated March 31, 2020 on Revision in Market Lot of Derivative Contracts on Individual Stocks (zip)

Implications of Increased Lot Size:

  1. The trading activity on these scrips might take a little hit as the cost of Trading will increase
  2. The Pricing of these contracts will be fair as the Market manipulation will reduce
  3. The Value of Premiums on Options will also reduce to compensate for increased Lot Size

What do you think about this update in the lot size of Bank Nifty and Other Scrips After July 30, 2020 Expiry?  Share your views in the comment section below.

Why Ruchi Soya Share is Increasing continuously

Why Ruchi Soya Share is Increasing? +8,000% Within Six Months!

Since the start of this year, the Ruchi Soya share is rising continuously. And this resulted in most of the share market investors asking the same question: Is there a Secret Sauce due to which Ruchi’s shares increased +8,000% within 6 months? Before diving deeper into this topic, let’s try to understand the scenario of Ruchi Soya’s current share price with the help of a few examples. 

All the four graphs depicting share price movements shown below are from various leading stocks trading across different industries in the Indian stock markets. Can you find any anomaly in the share price movement of the below-shown shares?

ruchi soya share vs different stock returns

Further, even if we look into the different companies in the FMCF sector, you can find one stock that is performing particularly irregular compared to others.

ruchi soya share vs FMCG stocks performance

It takes only seconds for our eye to catch the outlier in both, the share of Ruchi Soya Industries Ltd. But what is even more surprising is that the smooth and slick 8000% upward price movement of the stock is during the times of corona. Today, we have a closer look at Ruchi Soya Industries Ltd in order to provide an insight into what actually has led to the 8000% price increase.

Ruchi Soya Story till 2019

Ruchi Soya Industries Ltd. has been around for 34 years and is one of the largest manufacturers of edible oil in India. The shares of Ruchi Soya would be a dream stock prior to 2015 for any investor looking for dividends. This is because the company gave out dividends for 15 years consistently from 2001-2015.

Ruchi’s run, however, was cut short post-2015. The company made continuous losses in 2016,2017 and 2018. An extremely unhealthy sign for a company that has accumulated huge debt in its expansion goals. The huge debt of 12,000 crores forced Ruchi to enter the insolvency proceedings in December 2017.

— Post-Insolvency Performance of Ruchi Soya

The insolvency proceedings saw Ruchi being bid for. Here a portion of the amount bid would be used to pay off the debts and the remaining infused into Ruchi. Patanjali eventually won the bidding war against Adani. In December 2019 Patanjali completed the acquisition of Ruchi Soya with an Rs. 4350 crore resolution plan.

ruchi soya's financial performance

You may be wondering why would players take part in an aggressive bid war for a company that now had further deteriorated its sales and market grip by 2019. The answer to this lies in the already set up distribution channels and 3.3. Million tonnes per annum edible oil refining capacity in the 13 refining plants across the country. Five of these plants are port-based. The port-based refining plants are of huge significance as 70% of edible oil consumed in India is imported.

— Ruchi Soya’s Situation Post “Acquisition”

The shares of Ruchi Soya were delisted from November 2019 to 27th January 2020 due to the restructuring process. The restructuring process saw the dilution of the stake held by existing shareholders. Their shares were reduced 100:1. This can be described as a reverse stock split to understand better, where 100 shares held are now reduced to 1, but there was no Corporate Action. This was done in order to make way for Patanjali which now has an ownership of 99%.

Out of Patanjali’s total equity infusion, Rs450 crore was invested in exchange of preferential shares. Interestingly enough shares were also allotted to Ashav Advisory on a preferential basis in April. April was also the month where the shares of Ruchi Soya kept increasing from Rs.180 to Rs.413. The preference shares were allotted to Ashav Advisory at Rs.7 a piece in exchange for an Rs.1.87 crore investment after the company’s board approval.

Current Scenario of Ruchi Soya

Current Scenario of Ruchi Soya share

The shares of Ruchi Ltd. were relisted on January 27th. The shares opened at Rs.17 but since then have been a nightmare for investors trying to get in on the action. Shares of Ruchi saw a continuous 5% increase every day. This has triggered the circuit breakers every day leading to the trading suspension of the shares on a daily basis.

This carried on for over a 100 day period until the shares touched Rs. 706.95. This was followed by a steady fall to Rs 519.80 which seemed like a market correction in order to touch an equilibrium price. But post-May 27th the 5% per day rally began once again. As of 24th June, the shares of Ruchi Ltd. have touched Rs. 1378.40, an 8008% increase in the value since January.

“ RSIL’s liquidity position also remains adequate as on 9MFY20, considering the absence of fixed debt obligations during FY21, a low average collection period, and the availability of unencumbered liquid 1 assets of over Rs. 380 Cr for meeting its required working capital needs.”  Brickworth rating

Brickworth Rating agency assigned a stable outlook to the companies long term and short term borrowings this year.

Although the Preferential Shares allotment to Ashav Advisory is still pending due to Covid-19 they are still one of the biggest winners in the COVID-19 environment. Their 13 crore investment in April is now worth Rs.2577 crores 

Reasons behind the 8,000% increase

The parade of Ruchi Soya has investors wishing they could somehow be a part of. The following reasons give an insight as to what were the reasons for the 8000% price increase. They would also help an observing investor take a better stand when it comes to the shares of Ruchi Soya.

— Baba Ramdev’s Vision in FMCG Industry

Patanjali first disrupted the FMCG segment when they bought their ayurvedic alternatives to the shelf. The Ayurvedic product giant now aims at completely dominating the FMCG segment in India. This would mean that Patanjali would have to take other giants like HUL head-on.

HUL in the year 2018-19 has had sales crossing over 37000 crores. Ruchi would play a crucial role in achieving this. But Patanjali however does not only aim at beating current FMCG market leaders but is aimed at per annum sales of Rs. 100,000 crores in the next two years. Current market leaders like HUL, Nestle, Procter and Gamble, Britannia, and ITC in the 320,000 crore FMCG market get over 75% of their sales from the conventional distribution channels. Whereas Patanjali, on the other hand, receives 70% of its sales from its branded franchise outlets.

Patanjali has set a target of increasing the current 5000 distributors to 25000 distributors in the next 2 years in order to achieve their sales goals. Analysts have predicted that Patanjali can achieve their 1 lakh crore sales targets by expanding their retail reach alone. In addition, Ruchi, which is part of these goals has been debt-free ever since its acquisition by Patanjali. 

— Minuscule Public Shareholding and Lack of Share Supply.Ruchi Soya latest Public Shareholding and Lack of Share Supply

(Source: Latest Shareholding Pattern of Ruchi Soya)

Post the restructuring that took place after Patanjali’s acquisition reduced the shareholding with the public shareholders by 99%. Patanjali currently owns up to 99% of the equity shares with less than 1% remaining with the public shareholders. This means that only 28.59 lakh of the 29.59 crore shares of Patanjali are held by the public. This has created a situation where there is a huge demand for investors but the supply available of shareholders willing to sell is too low.shows the trading volumes of the shares of Ruchi Soya Industries Ltd

(The graph above shows the trading volumes of the shares of Ruchi Soya Industries Ltd. This shows the lack of significant trading volumes post-February 2020: Source

The huge increase in the share price has caused the market cap. of Ruchi to increase from Rs. 4350 crore when Patanjali bought it to 40,447.38 crores as of 24th July. Putting it at par with other giants like PNB, DLF, Cipla, etc.

This, however, raises the question as to how has Patanjali been able to legally hold 99% of the shareholding. This is because as per market regulations any majority stakeholder of a listed company cannot hold more than the permissible limit of 75%. Patanjali, however, is part of an exception as Ruchi Soya has just come out of the bankruptcy courts. Patanjali, however, has announced that they will be selling off 20-25% of their stake within the company over the next two years.

Closing Thoughts

The stocks of Ruchi Soya have been one of the biggest silver linings present in the Indian stock markets in the COVID-19 environment. But the question remains whether Ruchi will continue to be the diamond with demand exceeding the supply in the coming years. Investors after conclusively making a decision to get in will also have to decide the right time to do so.

The periods lie in either the current rally in order to be part of the Ramdev vision of which Ruchi is a part. Or to invest when Patanjali finally lets go of the 20-25% over the next 2 years when the supply will also be increased which in turn will affect the price. At the same time get an insight into role played and performance of Ruchi under Patanjali. Happy Investing!

What is Bharat Bond ETF And is it a good Investment option

What is Bharat Bond ETF? And Is it a Good Investment Option?

Understanding Bharat Bond ETF as an Investment option in India: On Dec 4, 2019, Finance Minister Nirmala Sitharaman announced the formation of India’s first Bond Exchange-Traded Fund (ETF). This first corporate bond ETF of the country was named ‘Bharat Bond ETF’. This news came nearly two years after the then FM Arun Jaitley announced a plan to launch a bond ETF in his 2018 -19 budget speech.

The FM Nirmala Sitharaman announced that this move was in order to deepen Indian bond markets and at the same time provide additional money for Public sector units. Today, we try and decode what these funds newly introduced in the Indian markets really are.

Finance Minister Nirmala Sitharaman announced the formation of India’s first Bond Exchange-Traded Fund (ETF)What are Bond ETFs?

Before we look into what a Bond ETF is it is actually better to look into bonds and ETF’s separately so as to understand them better.

A Bond is a financial instrument used by a company to raise funds from the stock market. Here, the investors are paid interest in exchange for the amount lent to the company. It is safe to say that bonds are a means of raising debt. Here the periodical interest is paid to the investor and the principal amount is repaid on maturity. A bond does not give any ownership right to the investor but there exists a risk of default on the loan. 

An Exchange Traded Fund(ETF) is a fund that is actively traded on the stock market. If you have noticed mutual funds, on the other hand, do not trade in the stock market. An investor who wishes to invest in a mutual fund does so based on a previous day’s calculated Net Asset Value(NAV) price. In the case of these mutual funds the demand and supply forces of the stock market do not influence the fund price directly and neither can they be bought and sold through the stock market.

An ETF removes this inconvenience faced by the fund. This is because ETFs are the answer for funds that hold different types of securities to be traded on the stock exchange.  This is made possible in ETFs through an arbitrage mechanism to keep the prices on the stock exchange close to the funds’ NAV.

In Bond ETFs, a fund is created that invests only in bonds and at the same time, it is made available to investors through the stock market. Bharat Bond ETF does the same while investing only in public sector bonds. 

How does Bharat Bond ETF work?

Bharat Bond ETF offers a portfolio to its investors which only includes public sector bonds that have a ‘AAA’ credit rating. Bharat Bond ETF offers investors two products. A BBETF maturing in 3 years and another maturing in 10 years. The main aims of the ETF are realized due to their ability to be accessed by small retail investors. The Bharat Bond ETF allows a minimum investment amount of Rs.1000.

An investor who would otherwise choose to invest in bonds directly would require investments of significantly higher amounts. The ETFs allow a maximum investment Rs. 200,000. The ETF functions as a growth model. Here the returns that are earned on the investments in the fund are reinvested. This adds to the benefits of compounding.

How does Bharat Bond ETF work

Why are the benefits of BBETF?

Investing in the newly introduced Bharat Bond ETF offers the following benefits:

— Reduced Investment size

Generally, when an investor would want to invest in the bond market he would be required to make a significantly higher investment. A retail investor would find this amount to be too much to be invested in one company alone.

Tuhin Kanta Pandey, the secretary of Dept. of Investment and Public Asset Mgmt.) highlighted that prior to Bharat Bond ETF retail investors would have no means of accessing bond markets as bond issuances would be done through private placements. The amounts required to be raised here was Rs 10 lakhs. 

What BBETF does is it provides investors with the option to invest with a minimum sum of Rs. 1000.

— Benefits of diversification

BBETF offers its investors the benefits of diversification. The investors receive these benefits as the ETF invests in multiple bonds. This protects the investors if a few of the investments fail as the investments that perform well set off the losses.

— Liquidity

As the Bharat Bond ETF trades in the stock market, it offers its investors liquidity as they can be bought and sold accordingly. 

— Taxation Benefits

Investments in Bonds that are held for more than 3 years receive an indexation benefit. The Bharat Bond ETF also offers the benefits of indexation. Through indexation, the tax imposed on the investors will be adjusted to the amount of inflation.

— Portfolio Quality 

BBETF invests only in funds that are graded as ‘AAA’ securities. ‘AAA’ is the highest rating issued to a bond by a credit rating agency. These ratings are issued based on the issuer’s ability to meet its financial requirements and at the same time have a low risk of default. 

— Projected Returns

Following were the projected Yield offered by the two Bharat Bond ETFs

  1. BHARAT Bond ETF April 2023 – 6.7%
  2. BHARAT Bond ETF April 2030 – 7.6%

The post-tax yield after the indexation benefits are considered to stand at 6.3% and 7% for the 3 years and 10-year bonds respectively. These returns are estimates and not guaranteed. They will vary depending on the market conditions and interest rates.

Who manages the BBETF?

Who manages the BBETF(Image: Nitin Jain, CEO- Edelweiss Global Investment Advisors, Radhika Gupta, CEO-Edelweiss Mutual Fund and Hemant Daga, CEO-Global Asset Management at the BHARAT Bond ETF launch)

Edelweiss was selected as the Bharat Bond ETF in its first tranche. Bharat Bond ETF has been dubbed as the world’s cheapest fund. This was because BBETF runs at almost zero cost at a 0.0005% charge per annum on the investments. This means that an investment of Rs 200,000 would have a charge of Rs. 1 per year. 

Where does the BBETF invest in?

Each of the 2 BBETF products follows separate independently created indexes. The index is constructed with the help of the NSE. These indexes involve only ‘AAA’ rated stocks of public companies. The indexes are rebalanced on a quarterly basis. The maximum exposure given to a bond in the index is 15%.

Is the BBETF without any risk?

The Bharat Bond ETF is not free from risks. They include the innate risks that come with bonds.

The interest offered by a bond will remain constant until maturity. The price of a particular bond reacts on the basis of interest offered by other bond securities. 

Say a year after bond ‘A’ is issued the other newly issued bonds in the marked start offering higher interest rates. This will lead to investors selling bonds ‘A’ as they would look for the higher returns from other bonds. This creates a situation where there is reduced demand for bond ‘A’ hence reducing its price.

How can I invest in BBETF?

Bharat Bond ETF is available to investors through two routes

— New Fund Offering (NFO)

An investor has the option of investing in a BBETF at the New Fund Offering. This is made available to investors twice in a year as BBETF is launched every 6 months.

— Fund of Funds (FOF)

Investors are also given the option of investing in the ETF through a FOF. This will be available to the investors throughout its tenure. The FOF also offers the investors to opt for SIP. Investors are not required to have a DEMAT account to invest via the FOF. The investor simply can do so through https://bharatbond.in/.

It should be noted that choosing the FOF route results in the increased cost charged. The added expenses of the FOF bring the cost of investment to 0.0515%.

Is there a lock-in period?

Bharat Bond ETF’s do not have a lock-in period. But they do however have an Exit load in the case of a FOF. An exit load of 0.10% is charged if an investment is withdrawn with 30 days. There is no exit load charged if the investment is withdrawn past the 30-day mark.

Bharat Bond ETF as an investment option?

Bharat Bond ETF was welcomed in the Indian markets with 1.7 times subscription. After raising Rs. 12,400 crore in its initial investment the ETF is now preparing for its second tranche. Edelweiss announced that the second tranche will take place in July for the two series maturing in 2025 and 2031.

The covid19 environment has disrupted the investment behavior of investors. Investors are now more risk-averse and look for the safety of their investments. This environment has made fixed schemes like the Bharat Bond ETF more attractive to investors. This can be owed to the mix of tax benefits, low cost, returns, liquidity, and security offered by the Bharat Bond ETF.

coronil baba ramdeo medicine

CORONIL – 100% Cure for COVID-19 found by Baba Ramdeo’s Patanjali?

Patanjali launches Ayurvedic medicine ‘Coronil’ for COVID-19 treatment: As the whole world still fights the uphill battle against corona, each passing week has bought news that elevates from bad to worse. On June 22nd WHO recorded 150,000 worldwide cases of coronavirus in a single day. This brings the total count to over 9 million. Chief Scientist at WHO, Dr. Soumya Swaminathan, said that 2 million doses of vaccine would be ready by the end of next year whereas other frontrunners expect a cure in the final quarter of 2020. Unfortunately enough the news of extended periods of wait for the virus only adds grief caused by 474,000 deaths, increasing every day.

But July 23rd finally gave way to a ray of hope through the launch of a COVID-19 medicine by the Ayurvedic giant Patanjali.

patanjali's drug coronil

The Launch of Coronil

The launch introduced ‘Coronil’ the ayurvedic drug that not only promises control and cure from the COVID-19 virus but also helps in its primary and secondary prevention. The launch was presided by Acharya Balakrishna (CEO of Patanjali), Baba Ramdev (Founder, Patanjali) along with the scientists and medical professionals who were part of the research and discovery of the cure. Acharya and Baba Ramdev have claimed a 100% success rate through the drug Coronil.

Acharya backed this by claiming that the drug had undergone human trials on 100 patients. The clinical trials found that 69% of the patients tested recovered from COVID-19 within 3 days while the remaining were cured within a week.  Acharya also assured that all scientific rules were followed in the creation of the drug. The drug was made through the joint research by Patanjali Institute and National Institute of medical science in Jaipur. The kit offered by Patanjali currently costs Rs. 545.

baba ramdev on coronavirus drug coronil

The Drug Coronil is made out of important elements like Ashwagandha, Giloy, and Tulsi.  The news that Ayurvedic medicine has beaten all the scientific advances may seem shocking to us but Patanjali has not been alone in the search of an alternative cure. In Maharashtra, the worst affected state, a task force was set up to look into traditional medicines for measures against the virus. China, where the virus initially originated from too had used traditional medicines in search of a cure. The Chinese government has heavily promoted these traditional medicines as treatment for COVID-19. These medicines were even sent to Iran and Italy as foreign aid.

Other Covid-19 Drugs

There are currently over 100 vaccines in progress around the world. Apart from Patanjali 3 other Indian pharma companies too have released drugs to cure the virus. Glenmark released an oral antiviral drug Fanipiranir under the name Fabifluwhich is priced at Rs.103 per pill. The drug is used to treat mild to moderate COVID-19 infections. Hetero has released Remdesivir under the brand name Conifor and Ciple launched Remdesivir under the brand name Cipremi.

In Closing

world health organization on covid drug

The Ministry of AYUSH so far has refused to comment on Coronil. In India, ICMR (Indian Council of Medical Research) is the apex body and nodal agency for COVID-19 treatment. It too has declined to be associated with the new medicine. Top sources in Patanjali claim that Coronil has received a license as a medicine.

But despite this government notifications bar companies from advertising a cure without government approval. Although the state of the pandemic has driven us to a state of desperation, it is also important that the rescue measures we resort to are genuine. This can only be verified after a certified government-backed agency officially backs Coronils usage.

Reliance Jio Stake Sales - Ambani's Quest to become DEBT-FREE cover

Reliance Jio Stake Deals: Mukesh Ambani’s DEBT-FREE Quest Story!

A study on Mukesh Ambani’s Reliance Jio Stake Deals and Right Issue: While everyone was forced to work from home during the recent pandemic, digital ecosystem transformation proves to be the need of the hour! This also caused malls and bigger retailer shops to close their premises. On the contrary, small grocery stores, vegetable and fruit vendors in India started getting more business. Simultaneously, the recent launch of JioMart, an online grocery service platform in India targets to disrupt the markets of its rivals – Amazon’s local unit and Walmart Inc’s Flipkart.

This explains the deluge of money invested into Reliance Jio Platforms in recent times. JioMart has already started delivering grocery across 200 cities all over India including Delhi, Chennai, Mumbai, Ahmedabad, Bengaluru, and Pune. Reliance locked 11 mega deals just in 2 months from Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, Abu Dhabi Investment Authority (ADIA), TPG Capital, L Catterton and Saudi Arabia’s Public Investment Fund (PIF) which comes to 24.70% stake total.

These deals have made Reliance, a net “debt-free” entity as he promised his shareholders last year and now this billionaire is in the top ten list of Forbes Magazine. Moreover, the Reliance Industries stocks is currently trading at its all-time high price and the analysts are expecting even more upsurge in the share price.

reliance industries share price june 2020

Today, in this post, we are going to discuss how these investments were planned smartly by India’s richest man, Mr. Mukesh Ambani, and what does he aim at. We’ll look into the different Reliance Jio stake deals and the ‘right issues’ from different investors all around the world.

Making RIL Net Debt-Free: Reliance Jio Stake Deals

While looking into the Reliance Jio Stake Deals, it may appear that Dollars were heavily flooding into Jio from different investors.  The latest investment in Jio has now made the total fund-raising amount by Reliance to Rs. 1,15,694.33 crore with a total stake of 24.70%. If we add money raised through Rights-Issue, the total comes to Rs. 1,68,818.63 crore which is indeed a lockdown achievement by the richest man of India. 

Name of CompanyAmount invested in Rs.Ê In Crore% of Stake Acquired
Facebook43,574.009.99
Silver Lake10,202.552.08
Vista Equity Partners11,367.002.32
The General Atlantic6,598.381.34
KKR11,367.002.32
Mubadala Investment & Co.9,093.601.85
Abu Dhabi Investment Authority (ADIA)5,683.501.16
TPG Capital4,546.800.93
L Catterrton1,894.500.39
Public Investment Fud (PIF), Saudi Arabia11,367.002.32
Total1,15,694.3324.7

— The Facebook – Jio Deal

Facebook bought a 9.99% stake that values at Rs. 43,574 crores in Jio Platforms – a wholly-owned subsidiary of Reliance Industries Limited. According to Facebook’s CEO Mark Zuckerberg, the deal aims to enable the platform to expand to products and technology in India that he plans to do all over the world. He also added that one of the goals is to provide a better shopping and commerce experience in India through WhatsApp’s communication and payments medium.

Further, his focus is to provide small businesses a lasting presence on Facebook, WhatsApp and Instagram which is also supported by billionaire Mukesh Ambani’s statement that suggests that he targets to use WhatsApp for delivery of the goods from local grocery stores to consumers.  

According to this transaction, Jio Platform’s valuation comes to Rs. 4.62 lakh crore. Although Facebook is going to get its seat on Jio Platform’s board, WhatsApp and Jio are going to continue operating as separate entities.  

— The Silver Lake – Jio Deal

An American Private Equity firm, one of the largest technology investors in the world, Silver Lake invested Rs. 5,655.75 crores which is almost 1.15% stake in Reliance Industries that comprises Jio Infocomm, its music and video streaming apps too. The deal causes Jio’s valuation to stand at Rs. 4.9 lakh crores approximately leading to extirpate Rs. 1.62 lakh crores of its net debt in the coming months. 

Recently, on Friday, 5th June 2020 Reliance announced an additional Rs. 4,546.8 crore investment by Silver Lake for 0.93% additional stake in RIL’s digital unit. This makes the total investment by Silver Lake for the total amount of Rs. 10,202.55 crore.  

The valuation comes to Rs. 4.91 lakh crore of Jio Platform and the enterprise value stands at Rs. 5.16 lakh crore for Silver Lake’s investment that makes it a 2.08% total equity stake in Jio Platforms that is purely on a diluted basis. Mukesh Ambani calls ‘it is a strong endorsement of intrinsic resilience of the Indian economy that will surely grow bigger with comprehensive digital enablement.’  

— The Vista Equity Partners – Jio Deal

One more American Private Equity and Venture Capital firm funded Jio Platforms 2.32% stake (approx. Rs. 11,367 crores) that sights to transform the Indian digital ecosystem and to deliver expanding boom in connectivity, giving the customers and small businesses to lead to the fastest growing digital economy. 

This investment values the Jio Platform at the same amount as Silver Lake’s investment valued. Mukesh Ambani is very hopeful with regards to this deal being the largest investment of all the recent deals after RIL and Facebook, he believes this Private Equity firm will enable them to bring the transformative power of technology to build a digitally sound society in India. 

— The General Atlantic – Jio Deal

One of the most leading global growth equity firm, General Atlantic also invested 1.34% stake which is worth Rs. 6,598.38 crores in Jio Platforms. This deal also aimed to leverage Global Atlantic’s global expertise and strategic insights of technology for the benefit of Jio.

Once again, the Jio Platform’s valuation is the same for this investment as it was for Silver Lake’s investment and the Vista Equity Partner’s investment. Reliance Jio Infocomm operates majorly in telecom business with over 388 million users. It also covers digital properties such as Jio Saavn, Haaptik and Jio Cinema. 

— RIL Rights Issue

The company also proposed to raise additional capital of Rs. 53,125 crore through rights issue in which the existing stakeholders will be given an opportunity to subscribe to these shares in proportion to their existing holdings. Reliance’s rights offering has been counted as the world’s largest being a non-financial company in the past 10 years and raised about $7 billion targeting to reduce the net debt to zero. The partly paid up rights shares are going to be listed on 15th June, 2020 with an estimated premium of 5-7%. 

— The KKR – Jio Deal

An American global investment firm, KKR & Co. Inc., announced recently to buy 2.32% stake in Jio Platforms. This deal once again focuses on digital transformation of ecosystem in India and worldwide. This deal too values Jio Platforms the same as previous investors. The Co-Founder of KKR praises Jio Platform’s ability and potential to transform country’s digital ecosystem.   

— The Mubadala – Jio Deal

Abu Dhabi based sovereign firm, Mubadala Investment Co., announced on 5th June 2020 to invest 1.85% stake in Jio Platforms for Rs. 9,093.60 crore. This deal once again focuses on the digital transformation of ecosystem in India and worldwide. 

The valuation of Jio Platforms for this investment too is the same – equity value of Rs. 4.91 lakh crore and enterprise value of 5.16 lakh crore. First Oil then Telecom and now heading to capture the e-Commerce market, Mr. Mukesh Ambani indeed proves to be a person with great wisdom.

— The ADIA – Jio Deal

Abu Dhabi Investment Authority (ADIA), has given a cheque for Jio Platforms last week on 7th June 2020 to invest 1.16% stake for Rs. 5,683.50 crore. This deal aims to generate growth opportunities in India that will enable India to take digital leadership.

The valuation of Jio Platforms for this investment too is the same – equity value of Rs. 4.91 lakh crore and enterprise value of 5.16 lakh crore. With this investment, Mukesh Ambani had managed to raise Rs. 97,885.65 crore from seven firms with total stake stands at 21.06% that too albeit COVID-19 situations and lockdown phases. This certainly leads Reliance to reach to a zero net debt position. 

— The TPG – Jio Deal

America’s Global Private Equity Firm, TPG Capital has announced to invest in Jio Platforms on Saturday 13th June 2020 0.93% stake for Rs. 4,546.80 crore. The investor aims to become a part of a group that captures one of the largest portions of internet market in the world.

The valuation of Jio Platforms for this investment too is the same. The investments now total Rs. 1,02,432.45 crore that reaches makes it 21.99% stake.   

— The L Catterton – Jio Deal

Another Private Equity firm, L Catterton also announced to acquire in Jio Platforms on Saturday 13th June 2020 0.39% stake for Rs. 1,894.50 crore. L Catterton joins hands with Jio Platforms to support the long term goal of making India a leading digital society.

The valuation of Jio Platforms for this investment too is the same. This latest investment has now made the total fund-raising amount by Reliance to Rs. 1,04,326.65 crore with the total stake of 22.38%.  

— The KSA’s Public Investment Fund – Jio Deal

Another sovereign wealth fund, Public Investment Fund (PIF) of Saudi Arabia, announced to acquire in Jio Platforms on Thursday 18th June 2020, 2.32% stake for Rs. 11,367 crore.

This tenth investor and its deal has made the RIL the net debt-free as Mr. Mukesh Ambani promised his shareholders last year in August. He truly aims to soar into the sky as an energy-led empire has started its move towards making the company a technology-led global player. The valuation of Jio Platforms for this investment too is the same.

In The Pursuit of Building Large Digital Ecosystem 

Reliance Industries, India’s highest valued company, acquired more than nine startups in the past few years. These startups are dealing in different sectors, for example, EasyGov is a citizen service firm while C-square Info Solutions is into pharma software solutions. Similarly, Grab a Grub Services deals with logistics whereas Reverie Language Technologies is an end-to-end voice technology startup.

Clearly, these startups play a crucial role in the company’s quest to become the leading tech player and JioGenNext is the medium that connects startups and Jio Ecosystem. One more step towards the digital transformation that was taken when Reliance Jio Infocomm Limited, a subsidiary of RIL and Microsoft Corporation joined hands in 2019. The purpose of this deal was to increase the adoption of leading technologies such as Artificial Intelligence, Data Analytics, Blockchain, Internet of Things, Cognitive Services and Edge Computing.

Later in 2020, when more than $23 billion was raised by some of those biggest private equity firms the above goals are clearly justified. Mukesh Ambani also suggested in one of his talks that his company’s long-term aim is to make Indian businesses globally competitive and accelerate the digital ecosystem of India by way of adopting new technologies and innovative ideas among small and medium businesses.  

AtmaNirbhar Bharat– A Bonanza for Reliance Industries  

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

In our Prime Minister’s latest speech to the general public, the PM Modi announced the concept of ‘Atma Nirbhar Bharat Abhiyan’ that emphasizes on the development of local businesses in India and globally by creating India more self-dependent post COVID scenario. With this mission, the honorable PM suggested encouraging more and more local businesses and service providers by way of utilizing their services even more.

Also read: AtmaNirbhar Bharat – How can we turn Crisis into An Opportunity?

Mr. Mukesh Ambani too sets his goal to make small Indian businesses more self-reliant and competitive by way of introducing the latest technologies and tying up with startups and attracting more foreign investments. This Abhiyan and his goal are quite similar where the underlying idea is to create a platform to foster the expansion of small and medium local businesses. 

It is gratuitous to mention that despite several uncertainties had been featured throughout COVID situations, the mastermind has taken this opportunity to not solely grow his business but also allow the native suppliers and service providers to perform at the world level to become more competitive. Mark Zuckerberg conjointly mentioned once he proclaimed Facebook-Jio deal that ‘company’s robust financial position proved to be an “important asset” that permits it to aim to a long-term growth priority in India even within the thick of a troubled world economy’.

Mukesh Ambani calls it a vote of confidence not only in his company but also in the intrinsic strength of the Indian economy both by domestic and foreign investors.

what is ponzi scheme meaning concept etc

What is Ponzi Scheme? And How to Protect Yourself from it?

Understanding what is Ponzi Scheme and how to safeguard yourself from this plague: Frauds and scams are part of our lives for a very long time. From corporate frauds, government official frauds to individual scams, our society has witnessed all. Time and again we have heard of big scams like Indian Coal Allocation Scam 2012 – Rs 1,86,000 Crore, 2G Spectrum Scam 2008 – Rs 1,76,000 Crore, Commonwealth Games Scam 2010 – Rs 70,000 Crore, Satyam Scam 2009 – Rs 14,000 Crore, etc.

However, one such scam which is quite common but never came in a lot of notice or fame for the retail people is “Ponzi Schemes”. Although a lot of people have lost lakhs of rupees in these schemes, however, most of our population still do not understand what exactly are these and how they work. In this article, we are going to demystify this fraud and discuss what is Ponzi scheme, it’s history, some infamous Ponzi Schemes and how investors and common people can safeguard themselves from such fraudulent tricks. Let’s get started.

What is Ponzi Scheme?

A Ponzi scheme is an investment scam where returns are paid to existing investors from funds contributed by new investors. In a Ponzi scheme, investors are duped by being promised high returns with little or no risk on their investments. The scammers then rely on cash flow from recent investors to provide returns to older investors. The scam runs along the lines of ‘Robbing Peter to pay Paul’.

Here the investors have no idea from where their returns come from. They are misled to believe that the returns are being generated from the success of a business opportunity or the superior skills of a portfolio manager. At the initial stages, if an investor wishes to withdraw money, the scammers ensure that this is done promptly in order to gain the investors’ trust. The liquidity coupled with the superior returns results in a social feedback loop where current investors amazed by the returns suggests it to their friends and relatives.

A Ponzi scheme, however, can only exist as long as new investors keep entering the scheme as their money is used to provide returns to the older investors. If at any time a huge number of investors demand their money back at once or if new investors stop coming in, the scheme stops functioning and the scam is unraveled. India too has had an ugly history with Ponzi schemes. 978 Ponzi schemes have been identified in India, 326 of them being from Bengal alone.

History of Ponzi Schemes

The scheme is named after a man called Charles Ponzi, an Italian who committed the fraud a century ago. He promised to pay investors a 50% profit within 45 days or 100% profit in 90 days. He claimed that he was able to raise the profits by acquiring Postal Reply Coupons from countries where it was cheaper and sell these coupons in countries where they were being sold at a higher.

However, using arbitrage could never generate such magnitude of profits in order to generate 100% returns in 90 days. The investors, however, did receive their returns initially but what Ponzi did here was just take investments that were coming in from newer investors and pay off the older investors.

As investors kept pouring in, Ponzi opened a new office and hired agents to create an aura of trust and further scale the fraud. Ponzi was soon raking in a million a per day within a year. Ponzi during this period lived a luxurious lifestyle further investing in a macaroni and wine company. The scheme eventually got too big and failed to bring in new investors.

History of Ponzi Schemes

At this point, the scam began unraveling. Investors lost close to $20 million (approx 193 million in 2019). Investors were able to recover only 30 cents to a dollar they had invested. The scam also brought down 6 banks in The United States.

How is the Ponzi Scheme different from a Pyramid scheme?

A Ponzi scheme may at times be confused with a Pyramid. A Ponzi scheme promises a high rate of return and the source of these returns is hidden from the investors (which is actually from the investments of new investors).

In a Pyramid scheme, it is made clear to investors that in order to gain returns they have to recruit new investors. The new investors further have to do the same after the initial investment and so on. In addition to this investors at times are also given a right to sell a product in exchange for a commission which also turns a pyramid scheme into a marketing and sales campaign. 

Some Other Infamous Ponzi Schemes.

— Bernie Madoff

The phrase ‘ Give the devil his due’ suits no one better than Bernie Madoff and his Ponzi Scheme. This is due to the size, period, and the ruse implemented by Bernie Madoff. Bernie Madoff was a pioneer in the investing world as he brought forward the advent of trading using electronic systems, and hence NASDAQ. He was also looked up to as he served as the non- executive chairman of the NASDAQ for 3 terms( 1990-93).

Bernie Madoff ponzi scheme

Bernie Madoff was convicted in 2009 which came as a shock to the investing world. But what is even more shocking is that he was only caught in 2008 for a scam investigators believe he started as early as 1964. Bernie Madoff had been described as a very charismatic individual which definitely helped in attracting naive investors towards his scam. 

We notice his brilliance as unlike other Ponzi schemes, not everyone was even allowed to invest in his scam. Madoff allowed investors to invest only if they were vouched for. This made it seem like an exclusive club and a privilege to have your money handled by Madoffs investment firms. But what enabled Madoff to sustain the scheme for so long was that unlike other Ponzi Schemes Bernie offered his clients returns of only 10%. This made it look like a conservative investment. In addition to this, he also had a backroom team that created fictitious financial statements and periodical reports to further deceive the investors.

Bernie Madoff fraud

The Bernie Madoff scheme unraveled in 2009 thanks to the housing crisis. A total of $36 billion was invested into the scam, of which $18 billion was recovered. 

— Crypto Ponzi

The success of cryptocurrencies took the world by storm due to the success of Bitcoin and Ethereum. But scamsters somehow have always have managed to be a step ahead adapting to cutting edge innovations. Cryptocurrencies too have not been free from scams as con-artists take advantage of investors who evidently have lesser knowledge of the working of cryptocurrencies. 

Plustoken a crypto from China received investments of $2 billion. They did this by marketing themselves as a crypto wallet service. Here the investors were promised higher returns if they exchanged Bitcoin or Ehereum in exchange for Plustoken’s own crypto. This scheme was just another Ponzi were over 3 million investors were cheated.

Plustoken scammers managed to cash out $185 million worth of bitcoin before they were caught. They even tried to cover their tracks by making 24000 transfers using 71000 different bitcoin addresses. 

How do you protect yourself from Ponzi Schemes?

1. High investment returns with little or no risk

25 din mey paisey double

Any investment opportunity that says this is a major flag that actually says you are never getting your money back. It is best to apply one of the basic rules of investing here that only with greater risk comes with greater reward. Low risk is accompanied by lower returns. Investors should also beware of words like ‘ everyone else is doing it and profiting’ as these create a fear of missing out. 

2. Overly consistent returns

Investments react to market trends barring a few outliers from time to time. If you are given proof or notice that the investments are able to generate consistent returns regardless of the market going through extended bearish periods, then it is another red flag. Bernie Madoff’s investment firm delivered consistent returns of 8-10% every year regardless of market trends. This was a major red flag that investors missed.

3. Secretive or complex strategies

When you receive investment opportunities it is best to try and understand how the business or investment opportunity works.

Scammers in the crypto world have made use of this obliviousness that investors had towards the working of a cryptocurrency.

Also read: Pump and Dump- The Infamous and Endless Stock Market Scam!

4. Believe numbers and data over individuals

“Man Lie, Woman Lie, Numbers Don’t Lie!” – Flloyd Mayweather Jr.

Scammers generally have charismatic qualities that attract people towards them. Bernie Madoff was always seen as the most genuine individual until the scam broke out. He was described as a person always reachable by phone. Investors have even claimed that he attended funerals when one of their loved ones passed away as a sign of support. This quality allowed Bernie to gain the trust of potential investors at the synagogues he prayed in and the country clubs he hung out in.

But Accountant Harry M. Markopolos claims that when he was shown Bernie Madoff’s investment firm’s data as an investment opportunity it took him 5 minutes to realize it was a fraud. Accountant Harry M. Markopolos is known as the whistle-blower to the Madoff scam. He claims that when he was shown Bernie Madoff’s investment firm’s data it took him 5 minutes to realize it was a fraud. Unfortunately, no one paid heed to his words due to Bernie Madoff’s influence in the investment world.  

5. Background Checks

ponzi scheme duck

It is always best to perform background checks when we are presented by investment opportunities by individuals. This can be done by verifying the firm’s registration numbers.

 And Finally, a lot of time going with your gut feeling can also help…

aatma nirbhar bharat abhiyan meaning

AtmaNirbhar Bharat – How can we turn Crisis into An Opportunity?

The AtmaNirbhar Bharat & Vocal for Local Concept Explained: The recent pandemic brought many changes in consumer behavior and their pattern. While shopping malls and multiplexes were closed, small grocery shop and vegetable and fruit vendors were delivering essential items at the doorstep of every citizen’s houses. Those who earlier used to buy almost everything from shopping mall and big box retailers have now turned their preference to buying from small grocery stores and vendors selling goods nearby their living area. Due to this, many multi-national retailers had to face huge revenue fall down.

The Atma Nirbhar Bharat Abhiyan (ANBA) announced by India’s honorable Prime Minister Shri Narendra Modi aims to reduce unemployment, insolvency, and poverty and increase India’s per capita GDP. According to our Prime Minister our scriptures ‘Esha Upanishadha’ talks about Self Reliance. The concept of Self-Reliant India is brought up during the times of economic slowdown with the purpose to make Indian Economy stronger and to promote local products in India as well as all over the world. This write up talks about What is Atmanirbhar Bharat Abhiyan, what is it aiming at, what is offered under this package, what will be our duty as citizens and how it will impact overall and economically.

The Mission and Vision of AtmaNirbhar Bharat Abhiyan (ANBA)

Due to the long-lasted lockdown phases, India has come to a very crucial juncture. The Indian culture and tradition have always backed the concept of being Self-Reliant. The mission of this Abhiyan was explained by our Prime Minister as not being self-centric but being self sufficient so that it can bring happiness, co-operation and peace of the world. This Abhiyan aiming to be built on the five pillars namely, economy, infrastructure, system, vibrant demography and demand. It is basically a re-packaged version of ‘Make In India’ concept with more benefits for MSME sector, encouraging private participation in various sectors, escalating FDI in the defense sector and many more. The primary mission is of the economic reform that will definitely get the economic growth back to its desired level.

Talking about the vision for this Abhiyan, The Prime Minister urged in his speech to all Indians to come up with detailed study of every sector and to think big. He added Intent, Inclusion, Investment, Infrastructure and Innovation are very important for India in responding to high growth trajectory. Such reforms according to him are systemic, planned, integrated, inter-connected and futuristic process. In his vision he not only aims to promote local products but also suggests everyone to improve quality, modernization of the supply chain and providing best products. He emphasized on inner strength and self-belief for making this Abhiyan successful.

Let’s Revise The ANBA Package – The Mega Economic Reform Package  

Prime Minister in his appeal for Atma Nirbhar Bharat Abhiyan, announced an economic package of Rs. 20 lakh crore which comes to 10% of the GDP of our country which is one of the largest relief packages in the world. In order to make this plan successful, land, labor, liquidity and laws all have been specifically considered under this package. The package will be used for cottage industry, home industry, small-scale industry, MSME, laborers, farmers, middle-class people and those Indian industries which are working to boost our economy dedicatedly. The Finance Minister of India Nirmala Sitharaman announced in a press conference the package in five tranches. This package is inclusive of Rs. 1.7 Lakh crore of free food grains to the poor and cash to poor women and old people, as well as liquidity measures and interest rate cuts by Reserve Bank of India which entirely amounts to Rs. 8.01 lakh crore.

— The First Tranche

The First Tranche of Rs. 5,94,550 crore package focusing mainly on MSME sector, Provident Fund relief, NBFCs, TDS/TCS rates, DISCOMs, RERA companies and others:

Relief in Provident Fund

  • Statutory Provident Fund Contribution by employers has been reduced to 10% (earlier 12%) for 3 months by way of Rs. 6,750 crore liquidity relief.
  • The Finance Minister also announced Rs. 2,500 liquidity support to businesses and workers for the next 3 months.

Relief in MSME Sectors

  • Rs. 50,000 crore equity infusion for MSMEs through Fund of Funds (FoFs)
  • Rs. 20,000 crore Subordinate Debts
  • Rs. 3 lack crores Collateral free Loans for MSMEs were announced under this package
  • The definition of MSMEs has been revised in order to include more businesses that will be benefitted from this package

Relief in NBFC’s

  • Rs. 30,000 crore liquidity boosts to strengthen the collapsed financials the Finance Minister announced that are collapsed due to the COVID-19 pandemic
  • Rs. 45,000 crore Partial Credit Guarantee Scheme 2.0

Relief in Other Sectors

  • Rs. 90,000 crore liquidity is provided to DISCOM (Power Distribution Companies) to reduce the piled up debts
  • Rs. 50,000 crore relief fund provided to reduce TDS and TCS rates by 25% for the payments other than salaries
  • RERA registered projects registration and completion date extended for a period of 6 months which can be further extended for up to 3 months by the Regulatory Authorities
  • To promote local companies, the government has decided to disapprove global tenders up to Rs. 200 crore
  • Due dates of statutory payments and filing of tax returns for the Financial Year 2019-2020 have also been extended to 30th November 2020 (for income tax returns) and to 31st October 2020 (for tax audit cases)

— The Second Tranche

The Second Tranche of Rs. 3,10,000 crore package aiming to cater farmers and migrant workers:

  • The introduction of ‘one nation one ration card’ under this tranche is going to allow every migrant worker to buy ration from anywhere in the country.
  • Food and Shelter facilities to migrant workers from the disaster response fund worth Rs. 11,000 crore was allowed to the state governments by the central government.
  • To enable institutional credit at a concessional rate for farmers, fishermen and animal husbandry farmers, the Finance Minister allocated Rs. 2 lakh crore through Kisan credit cards.
  • 10,000 working capital will be provided initially to all the street vendors who are around 50 lakh in numbers, making it a special credit of Rs. 5,000 crore.

— The Third Tranche

The Third Tranche of Rs. 1,50,000 crore package focusing on agriculture, dairy and its related sectors:

  • Under Pradhan Mantri Matsya Yojana, Rs. 20,000 will be provided to each fisherman and Rs. 10,000 crore strengthen micro food enterprises.
  • To develop farm-gate infrastructure considering set up for cold chains and post-harvest management infrastructure, Rs. 1,00,000 crore were allocated.
  • 500 crore allocated for bee-keeping infrastructure development.
  • 15,000 crore for Animal Husbandry Infrastructure Development fund was raised.
  • 4,000 crore were allocated for herbal agricultural produce.

— The Forth & Fifth Tranche

The Forth and Fifth Tranches of Rs. 48,100 crore catering reforms for coal, minerals, air space management, defense production, MRO, DISCOMs in UTs, and atomic energy:

  • 40,000 crore was additionally allocated for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to increase job creation. It would be worth to notice that earlier in the budget this year, Rs. 61,000 crore were already allocated to this scheme.
  • Setting up of a new Public Sector Enterprises Policy to enable consolidation of PSU firms in strategic sectors.
  • Once again to cater MSME sector, the Finance Minister said there will be no new Insolvency Proceedings for one year. Suspension of the initiation of fresh insolvency proceedings up to one year to help companies impacted by COVID-19.
  • Simplification of utilization of Indian air space to reduce air travel cost.
  • Commercialization of coal industry and privatization of discoms in metros for smooth-running of their functions.

The above package is also said to be leveraging the financial instruments that will improve India’s fiscal conditions. The mega stimulus package is equal to Pakistan’s GDP, five times of the personal wealth of Mukesh Ambani and 17% of BSE market value. However, there are about 44% respondents in MSME sector who want direct cash benefits and are not satisfied with what has been offered. There may be challenges by way of liquidity issues, non-existence of demand and escalated fiscal deficit. Though there are challenges against it sufficiency and proper utilization, the biggest impetus package is all set to make India a Self-Reliant Nation in the coming years.

Also read: How to Boycott China in India – The Right Way?

The Role of Every Indian Citizen in ANBA

While the stimulus package offers relief to many sectors, every Indian citizen has a crucial role to play. The Prime Minister urged each one of us to promote local products and use Indian products more and more. We use quite a lot of foreign products starting from our daily use to our leisure activities. The Prime Minister also stated in his speech that all famous global products have started from their local business and when local people started using them more, promoting them, proud of them, they became multi-national products.

Similarly, we too can promote our products to not only at the national level but also at the world level. The time has come for us to make our nation and its every citizen independent. When he urged everyone to buy and promote Khadi, he feels very proud to see the revenue growth and its reach to the new levels in a very short span of time. He is hopeful too now that when we will not only buy local products but also advertise them at the global level, it will be truly called a ‘Local for Vocal’. Our responsibility now lies on us to make the 21st century – the century of India.

‘Self-Reliance leads to happiness, satisfaction and empowerment’ so says our Prime Minister.

When the crisis takes its place, it is everyone’s duty to create an opportunity out of it for the betterment of the nation. The short-term impact of this should never be considered as we all know that the crisis has hit every sector to some or the other extent. Hence, its long-term effect should be contemplated and by adopting futuristic approach. It is important to note that the Abhiyan does not suggest to cut off relations from global platform and trade only with local products, the fundamental concept of this Abhiyan is to become not only self-sufficient but also to promote local businesses and to show off and feel proud about what invaluable assets we possess.

Certainly, this is going to be one of the biggest reforms worldwide. By nourishing local manufacturers, supply chain and with diversification in services and products the Abhiyan can be made a successful mission.

10 Biggest AMCs in India - Asset Management Companies List cover

10 Biggest AMCs in India – Asset Management Companies List 2020!

List of the Biggest AMCs in India 2020: An Asset Management Company (AMC) manages a pool of funds collected from investors. Investors prefer to invest their money with AMC due to the level of diversification, the skill of the investment manager offered, along with other professional services. AMC’s attract investors who either do not possess much knowledge of the markets and would benefit from an investment manager or those who would rather allocate their precious time elsewhere.

A small retail investor will be able to invest in a very few stocks with the limited savings he has. By doing so he exposes himself to the additional risk if the shares of the company he invested in make a loss. In products offered by the AMC’s the huge pool of funds collected from investors is invested in a huge number of stocks protecting its investors from the losses of focused investment. AMCs designs various products to suit the needs of different investors. They create portfolios that suit the different risk appetites, tenure, tax benefits, etc. that the investors look for.

In this post, we’re going to look into the biggest AMCs in India for 2020. We’ll also cover the Asset Under Management (AUM) size, the total number of funds, and more important pieces of information related to these AMCs. Let’s get started.

10 Biggest AMCs in India 2020

The following are the top Indian AMCs with the largest Assets Under Management (AUM) as of March 2020.

1. SBI Mutual Fund

SBI mutual fund Biggest AMCs in India

AUM (In crore)Number of Funds
373498.27150

The SBI mutual fund was founded in 1987. At its inception, the MF was fully owned by State Bank of India (SBI) a public sector bank. In 2004 SBI disinvested 37% stake from its mutual funds which was taken up by global leaders Societe Generale Asset Management. In 2011 the stake held by Societe General was taken up by Amundi as part of a global movement to merge its asset management business with Crédit Agricole. SBI Mutual Fund is currently a joint venture between SBI and Amundi of France.

2. HDFC Asset Management Company 

HDFC Asset Management Company 

AUM (In Crores)Number of Funds
369782.8122

The Housing Development Finance Corporation Bank provides mutual fund services through its subsidiary HDFC Asset Management Company Limited. One of the leading AMCs in India, HDFC formed this Mutual fund company with Standard Life Investments and holds approx. 57.4% of its shares.

3. ICICI Prudential Asset Management Company

ICICI Prudential Asset Management Company

AUM (in crores) Number of Funds
350634.37242

ICICI Prudential Mutual Fund was established in 1993 with 2 locations and 6 employees at the inception of the joint venture in 1998, to a current strength of more than 1000 employees with around 120 locations. Due to its substantial growth, it currently boasts more than 4 million investors. The AMC is a joint venture between ICICI Bank in India and Prudential Plc, one of the largest players in the financial services sectors in the UK.

4. Birla Sun Life Mutual Fund (BSLMF)

Birla Sun Life Mutual Fund (BSLMF)

AUM (in crores)Number of Funds
247521.68165

The Birla Sun Life Mutual fund was established in 1994 as a joint venture between Aditya Birla Capital Limited and Sun Life Financial Inc ( Canadian insurance provider founded in 1865)

5. Nippon India Asset Management Company 

Nippon India Asset Management Company 

AUM (in crores)Number of Funds
204857.79211

Nippon India AMC, earlier known as Reliance Asset Management Limited was founded by the late Dhirubhai Ambani and is one of the most popular AMCs in India. It was later run in a joint partnership with Nippon Life Insurance from Japan. In 2019 Nippon Life Insurance went on to own a 75% stake in the mutual fund allowing Anil Ambani owned Reliance to exit the Mutual fund industry.  After this, it came to be known as Nippon India Asset Management Company

6. Kotak Mahindra Asset Management Company 

Kotak Mahindra Asset Management Company 

AUM (in crores)Number of Funds
186081.33100

Kotak Mahindra Asset Management Company (KMAMC) started operation in 1998. The Kotak Mahindra AMC is one of the few wholly-owned subsidiaries among the top AMCs. It is a subsidiary of Kotak Mahindra Bank Limited (KMBL) and boasts an investor base of above 1.7 million investors.

Also read: 7 Best Mutual Fund Apps for Direct Investment

7. UTI Mutual Fund 

UTI Mutual Fund 

AUM (in crores)Number of Funds
151512.5182

UTI Asset Management is India’s oldest and largest mutual fund management company. The mutual fund industry in India originally began in 1963 with the Unit Trust of India (UTI). For a period it was the only source of mutual fund investment for Indian citizens in the 90s. UTI Mutual Fund is a Government of India and the Reserve Bank of India initiative.

8. Axis Asset Management Company

Axis Asset Management Company

AUM (in crores)Number of Funds
138401.6258

Axis Asset Management Company was launched in the year 2009. It is a joint venture between Axis Bank and Schroder Singapore Holdings Private Limited.

9. Franklin Templeton

Franklin Templeton

AUM (in crores)Number of Funds
116222.9582

 The American establishment was set up as Templeton Asset Management India Pvt. Limited in India in the year 1996. Over 2 decades of consistent growth made Franklin Templeton as one of the largest foreign fund houses in India. 2020 however was seen as the worst year for Templeton Asset Management India as they ended up winding six of their debt mutual fund schemes in India. This has led to the company currently facing multiple litigations across the country.

10. IDFC Asset Management Company

IDFC Asset Management Company

AUM (in crores)Number of Funds
103893.1659

 IDFC Asset Management Company is one of the leading AMCs in India since its inception in 2000. It formes a part of Infrastructure Development Finance Company Limited a finance company based in India

Say No to Chinese Products in India - Boycott China

How to Boycott China in India – The Right Way?

Let’s discuss how to Boycott China and Say No to Chinese Products in India the correct way: The recent announcement by The Confederation of All India Traders (CAIT) on boycotting 3,000 Chinese products has taken its toll in the entire country post the border standoffs between India and China. The CAIT believes this campaign is necessary to make China understand that they will have to bear the repercussions of standing by Pakistan. The CAIT also launched a national campaign called ‘Indian Goods- Our Pride’ to promote local goods and ban Chinese goods.

The ongoing pandemic has affected the economy so much that our Prime Minister too in his speech to the public urged everyone to support local businesses and to promote them started a ‘vocal for local’ campaign. While all of these is happening everywhere, the underlying question that remains yet to be answered is how is this campaign of boycotting Chinese products going to be effective, and what are its consequences on our GDP? Is it possible at all? If it is possible then what should be the ideal approach? Let us understand the practical impact and its impact in the future, both long-term and short-term.

Factors Accompanying and Favoring This Campaign

The Economic fall down has made everyone think twice before they buy anything from anywhere. While a lot of people are getting jobless and undergoing salary cut situations, it is also important to have a look at how compatible our infrastructure and resources are to enable those job seekers to get permanent employment that solves our country’s unemployment issue as well. Therefore, campaigns such as ‘Local for Vocal’, ‘Indian Goods – Our Pride’ are being promoted recently. Boycotting Chinese products is the first thing that comes under the Government’s eye as Chinese products share a huge market of Indian customers as they are way too cheaper than our Indian products.

China-boycott- say no to chinese products

The benefits of boycotting Chinese products are going to help our Indian local businesses only in the long run. When the local products and local businesses are uplifted our army will get the necessary equipment to fight for our nation. As Mr. Sonam Wangchuk explains in his video which has gone viral, the Chinese army is well equipped to fight against us as we use their products and pay very well for it. Instead, if we use local products and make our army stronger, it will not only boost our national goods but also help our soldiers to fight for us.

According to him, it is our utmost duty to stand by our country’s army and do whatever possible we can. On the other hand, when Chinese companies will lose the Indian market, there will also be a huge drop in their economy as well. The messages on uninstalling the TikTiok App are also flooding the social media sites these days which is quite encouraging to see how most of the people have accepted this campaign.

Analyzing the Flip Side

The traders’ body CAIT asked to implement 500% duty on imports from China after China supported Pakistan to remove article 370 in J&K. This will make Indian products costly reason being India imports many raw materials from China only. This move is called a politically inspired campaign as it sounds more impractical than realistic.

The primary factor why Chinese products are so popular in India is that they are sold at quite cheap rates as opposed to Indian products. It is also a fact that India imports seven times from China than it exports to them. Not only these, but India also imports smartphones, laptops, electrical devices, and medicinal drugs from them. Boycotting these products will only reduce India’s GDP to a large extent. The supply chains are interlinked geographically so much that banning Chinese products will break the entire production process. The reason being many small and medium businesses use components made in China or use the machineries to produce the goods that are made in China.

Many Chinese firms established their branches in India post-launch of ‘make in India’ campaign. These branches have provided employment to many Indian workers. Chinese products ban will have an adverse impact on these branches and that may result in a rise in the unemployment rates. Surprisingly, we all are so used to Chinese products that boycotting them would have a psychological impact on us. In fact, everything that we use daily has a bit of Chinese involvement in it.

Be it either an app or a smartphone, or a laptop, or any raw material for a product manufactured in India. The talks are also happening around Alibaba’s founder Jack Ma’s statement on India’s manufacturing companies’ work culture.

Name of the MarketMarket Share (Rs. In Crores)
Start-up investments29,000
Smart Phones1,44,000
Other Electronics and Telecom Equipment3,000
Television Market12,500
Other Home Appliances6,000
Auto Components1,120,600
Pharma Sector90,000

As seen from the above table, the market share of Chinese Products is huge in many sectors. Boycotting these products all of a sudden is not going to make India self-reliant. There is a still long way to go. Banning these products will not only force people to buy costlier products but also it will contract the country’s GDP drastically.

Hence, there are few reasons why we should boycott Chinese products but at the same time, strong arguments and challenges are on their ways to explain why this campaign is not going to work if a concrete strategy is not made. The trade war is not only going to decrease the market of the Chinese product in India, but it is also going to hit the Indian economy as well.

The Failure of Past such Campaigns

It is evident from the past history of such campaigns that apparently could not be successful and there were many reasons behind it. China’s campaign of boycotting Japanese goods to object against Japanese colonization, US’s campaign to ban French products to protest against France’s disagreement to send army forces to Iraq after 9/11 attack and Middle East countries’ ban on American & Israeli products to support their campaign on Palestine have witnessed failures only and did end up leaving the idea very soon.

From the above past records, it does not seem a bit pragmatic for India to implement so quickly this campaign. However, we can always look at the reasons that went wrong in the above cases and learn from that so that the implementation can be effective.

How to Boycott China and ensure the Victory on this Campaign?

Although there are some reasons and explanations argue against the idea of boycotting Chinese products, but there must be certain ways through which we all can make it possible. According to Mr. Sonam Wangchuk, in his recent video, he appeals for a ‘systematic and a phased manner’ of boycotting Chinese products.

The ‘Systematic Way’ of his appeal suggests to boycott using software that is made in China in a week’s time, hardware in one year’s time, finished products and non-essential items to be also boycotted in a year’s time and slowly and gradually once we are used to these, we can move to boycott essential products and raw materials in the coming few years. This strategy is for more than a year, and it will give the necessary time and scope for local businesses and manufacturing companies to be well prepared for the substitutes in the near future.

make in india movement

In China, the government provides corporate loans at much cheaper rates. The Indian government too can come up with a plan where local companies and businesses are encouraged to manufacture the products that are being imported from China also by reducing loan interest rates. The infrastructure and other related services should also be made easy and faster to enable our companies’ products to be competitive globally.

Also read: The Telecom War in India – Jio, Airtel, Vodafone?

Closing Thoughts

In the time of the global disease outbreak, when people are either losing their jobs or experiencing reduced income, boycotting cheaper products, and promoting expensive local products may not last long. The existence of a huge market share of Chinese products in the Indian market is definitely going to hit our GDP to a greater extent. However, a systemic approach of gradually stop using Chinese products where we can find its substitutes and there is a scope for our manufacturing industry to reach to high quality and low-cost expectation may lead this campaign to a new successful level.

As citizens, our contribution can be in the form of getting used to other substitutes and slowly stop using Chinese products to promote our local businesses, and it is indeed everyone’s duty. The government’s role in this is to provide necessary support – financial or otherwise, robust infrastructure and constant efforts to make our manufacturing industry compatible to produce cheaper products with no compromise on quality. With the mutual efforts and systematic boycott approach, we will be able to make it reach its expected level.

Boycott China - Is it Actually Possible for India?

Boycott China – Is it Actually Possible for India?

A Study on being real about ‘Boycott China’: Last week, the internet has blown up with #BoycottChina trends. This comes after Sonam Wangchuk released a video calling all Indians to boycott Chinese products. This has been due to the aggression shown by the Chinese Army in the Indian territory. But India has not been alone to call for such boycotts in the recent past against China, other countries like the Philippines, Vietnam, and even separatist movements within China have started too.

My patriotic sentiments (which mean good) inspire me towards this call for a few minutes. But the reality where I type these words on a Chinese branded computer keeps me grounded. It goes without saying that none of us want to fund Chinese bullets that may be fired at Indian soldiers. Hence, today we have a deeper look at facts that may help clear this dilemma and also offer possible solutions.

 

Why boycotting China sounds right?

In the past, boycotting China has not only been called for because of Chinese military aggression towards its neighbors but also because of its human rights violations of its own citizens. Open firing at peaceful protestors in Tiananmen Square, the Chinese government has even been accused of illegally harvesting organs from Falun Gong (religious movement practitioner) and other political prisoners. This led to activists around the world calling for a boycott of Chinese products.

Sonam Wangchuk (whose role was popularly played by Amir Khan in 3 Idiots movie) has claimed that the aggression from China is only a means for the ruling communist party to divert the attention of the people away from its internal problems. 

A Trade where Chinese products and services are bought by Indian consumers to finance aggression by the Chinese troops not only on its own citizens but also towards Indian soldiers is as far as it gets from being fair.

Sonam Wangchuk released a video calling all Indians to boycott Chinese products

Have boycott movements been successful?

There have been various boycott movements throughout history. The US consumer forum tried to boycott French goods in 2003 in protest of France dissuading attacks on Iran. India too has had similar Boycott China movements in the past. #BoycottChina was trending in 2016 too after China supported Pakistan post the URI attacks.

A similar fact in all these boycott movements is that they have achieved nothing. After a few weeks, people lose interest or are caught up with the next most interesting issue. In other words, these movements eventually lose momentum. 

Another important factor why the Indian Boycott China movement does not follow up with greater action is economics. When a consumer goes to buy a product he would find that Chinese products are not only cheaper but also of superior quality in comparison to their Indian counterparts. In such a situation a choice made to purchase a product which is expensive and at the same time of inferior quality in comparison to the Chinese is only self-destructive.

Why an immediate boycott of China doesn’t make sense?

Trade Deficit occurs when the country’s imports are more than its exports. One of the major consequences of a large trade deficit is the weakening of one’s currency. This is precisely the case with India. In the years 2018-2019, the imports from China were at 70,319.64 Million. During the same period, the exports to China stood at 16,752.20 Million leading to a deficit of 53,567.44 Million.

But India is not the only country that has suffered this fate when dealing with China. Numerous countries around the world have faced this resulting in China becoming one of the countries with the largest trade surplus.

Why an immediate boycott of China doesn’t make sense?

(Countries with the highest trade surplus in 2018)

The trade deficit not only shows the dependence of Indian consumers but also of Indian industries on Chinese exports. Indian market leaders like Bajaj, TVS Motors, Mahindra, and Tata get their parts from China. Even pesticide and fertilizer companies based in India are overtly dependant on China. Take the example of United Phosphorous where over 55% of its products are sourced from China. 

China currently has an investment of 8 billion in the Indian markets. The year 2019 alone saw investments of $3.9 billion by Chinese firms in Indian startups. 

china betting on Indian startups

BigBasket, Byju’s, Delhivery, Dream11, Flipkart, Hike, Ola, Oyo, Paytm, Quickr, Snapdeal all these startups have secured funding from China. Even banks like HDFC have received investment from China. Although it may seem as if even though we are naming all renowned Indian companies it is apparent that there is no escaping China. 

Almost every company has links to China, through ownership or have raw material sourced from China to make finished products. From our food that we consume, means to travel, our access to technology all can somehow be webbed back to China.

Let’s talk about “Aathma Nirbhar”

The Prime Minister in his most recent address has pushed for an Aatma Nirbhar Bharat. Say due to this influence Indians strictly buy only Indian products. If we are to look at the 1947 -1991 environment where due to the protectionist views of the government the consumers were forced to buy only Indian. This led to the producers producing low-quality products.

This was because they were certain of receiving a market share irrespective of the quality. The 1947-91 period ended up doing more harm than good. The same period also saw the Chinese producers preparing their markets for global competition. This gave the Chinese a 40-year head start over their Indian competitors.

What would Adam Smith the father of modern economics say?

Adam Smith speaks about competitive advantage in his book the Wealth of Nations published in the year 1776. He takes the example of two countries England and Portugal and also of two products, wine, and cloth. Here, Portuguese are the best in producing wine and England in producing cloth. According to Adam Smith, Portugal should focus on creating wine instead of focussing on both wine and cloth. This would only lead to substandard products. England should focus on cloth and both countries should reduce the scarcity of cloth or wine respectively through trade.

Let us take the example of TVS Motors. They are known for producing good two-wheelers in the mid and low-priced segments. An attempt to produce the two-wheeler 100% in India would only result in more expensive vehicles of poorer quality. Hence TVS Motors taking materials manufactured in China that are of high quality and lower cost has resulted in them suiting the Indian markets today. We may be ready to purchase the more expensive Indian alternative if available in the future.

Our current situation

But if we are still are not convinced and before we decide conclusively let us take a moment and come out of our privileged shells. The recent pandemic has shed light on the poverty plights of our nation. The first relief package of Rs. 1.7 lakh crore aimed at feeding 800 million poor people. The increased price alternatives would only shove two-thirds of a section further down the wealth ladder. 

Also read: The 20 Lakh Crore Relief Package – Overview!

What about “Retaliation”?

So far we have considered retaliation only from our end. Boycott China and dumping Chinese products will definitely have a two-factor effect when done on a large scale. A similar retaliation from China will further the consequences on the Indian producers and companies.

Role of the Indian Government

Why doesn’t the Indian government simply put trade restrictions on Chinese goods? India being a member of WTO is required to abide by its rules. As per the WTO, countries are not allowed to discriminate amongst their trading partners.

When it comes to investments the government of India has allowed investors from neighboring countries to invest only up to 10% in an Indian company. Despite this Chinese companies have found loopholes to invest in the Indian markets. Chinese giant Alibaba gained a stake in Paytm by investing through its non-Chinese subsidiary ‘Alibaba Singapore Holdings Pvt Ltd’.

What’s the Solution?

From all the arguments made above, it becomes clear to us than an outright boycott of China is not possible. Boycotting China would only cause the Indian industries that have received funding or use Chinese materials more harm.

An alternative here is to look for products from other countries as and when the need arises to replace the Chinese products we have in our homes over time. A long term solution would be to steadily keep improving Indian quality. The best solution for the current issue which involves a standoff would be diplomatic talks. A war waged by consumers would only be self-destructive.

The Telecom War in India - Jio, Airtel, Vodafone cover

The Telecom War in India – Jio, Airtel, Vodafone?

Understanding the Telecom war in India and current Scenario: The Telecom industry in India has gone from being one of the most attractive to a cruel environment to all its players. The industry currently consists of three players i.e. Jio, Airtel, and Vodafone Idea. But if we look over the last two decades there have been over 16 players who have tried their hand in the industry.

We already know about the innate challenges the industry poses due to the ever-evolving technological environment. A newly arrived technological advancement may be completely obsolete in the next five years. But these are the challenges that a telco foresees and enters the industry with. Today, we’ll discuss the telecom war in India. Here, we’ll try to find out the key factors that have brought the industry to currently operate with barely three players and also look into the current telecom scenario.

telecom war in India

Telecom Industry – The Story So Far

In the pre-liberalization period, there existed only state-owned companies like BSNL. The operations of these companies can be dated back to the British era. Post the liberalization the government began issuing licenses to private players in exchange for a license fee.

This license fee set, however, was in accordance with The Telegraph Act of 1885 set to govern the state players. The private telcos found it hard to adhere to this and constantly defaulted on the fee payments.

Noticing this the government introduced the National Telecom Policy in 1999 where the telcos were given the option to either pay the existing license fee or share a percentage of their revenue which was called AGR ( Adjusted Gross Revenue)

— The More the Better

During this period the government believed that the greater the number of players the greater the benefits the consumers would receive. This has bought up to 16 players in the telecom industry. This, however, ended up doing much more harm to the industry due to the competitive pricing practices followed by the telcos to emerge as the top players.

Telcos kept entering the industry and vanishing from the industry at the same time. The majority of the players were acquired or forced to merge with the top players. The remaining players went bankrupt or had their licenses revoked.

telecom companies in india that went bankrout

(Source: Wikipedia)

— AGR Dispute

During this period the Department of Telecommunications (DoT) entered into legal disputed with the players. If must be noted that Revenue meant that any income received by the company irrespective of it making profits or losses. The companies agreed to pay AGR assuming that the revenues to be paid would be from the core(telecom related) activities of the industry. The DoT argued that a percentage of the revenue from all sources ( core and non-core) is to be paid.

This involved installation charges, value-added services, interest income, dividend, and even profit on the sale of assets, insurance claims, and forex gains. This meant that the telcos now owed 1.47 Lakh crore in AGR to the DoT. Other government entities like TRAI (Telecom Regulatory Authority of India) and TDSAT (Telecom Disputes Settlement and Appellate Tribunal) also voiced their concern over this claim.

AGR Dispute in India Telecom Industry

Both TRAI and TDSAT supported the telcos in this against the DoT. The TRAI even recommended excluding non-telecom revenues from the AGR but DoT challenged the TRAI recommendations. This led to a 14 year legal battle between the telcos and the DoT. The decision ultimately came in favor of the DoT on 24th October 2019. The courts ordered the telcos to pay  1.47 Lakh crore in AGR to the DoT. 

GAIL and PGCIL telecom Industry

Interestingly government entities like GAIL and PGCIL also had acquired a license from the DoT. The DoT also a government entity now claims that it is owed 1.72 Lakh Crore from GAIL. This is after computing its share from any revenue that GAIL made. The amount sought by the DoT is more than 3 times the net worth of GAIL.

— Enter Jio: A Mukesh Ambani Offering

These troubles in the telecom industry seem monumental and we have not even considered other factors like the 2G scam that took place. The worst, however, was yet to come for the telcos. In 2016, a new player Jio entered the industry. The predatory pricing strategy followed by Jio offered consumers 4G data for free. This further put tremendous stress on the telecom industry.

When Reliance Jio entered the markets in 2016 there were up to 7 telcos who had a substantial footing in the industry. By the end of 2019, there were only 3 other companies competing. Out of the three only Jio was profitable by extremely slim margins and airtel running but on losses. Vodafone and Idea too in losses were barely surviving the pricing onslaught. 

— Spectrum Dues

spectrum dues telecom

Apart from the AGR the telcos also owe the government dues from spectrum allocation auctions. The telecom industry makes the use of electromagnetic waves that are made available through a spectrum. Hence a spectrum is considered a national resource and allocated carefully by the government. The spectrum allocation charges are paid in installments to the government. With the telcos already in debt, they further started defaulting on these too.

Finance Minister Nirmala Sitharaman announced a moratorium on these installments for 2 years. But the moratorium provided by the government does not come interest-free as they will still have to pay additional interest accrued during the 2 year period. Airtel currently owes Rs. 11,476 crores on its installments with Vodafone Idea owing Rs. 23920 crores.

Telecom War in India: Current Scenario

All sympathies do not lie with the telcos. Prior to the Jio’s entrance, the telcos enjoyed a  period where they charged consumers exorbitantly. This was the main reason why Jio already had their stage set in 2016. Their offer of charge-free services to customers enabled them to immediately gobble up a section of the market share.

This was followed by the telecom war in India and competitive pricing which forced existing players like Airtel, Vodafone, and Idea to lower their prices and profit margins. 

How telcos are adapting to increased debt & 5G Preparation?

The telecom industry has forced its payers to adapt to raising funds from foreign investors in exchange for a stake in the company.

— Reliance Jio

After Reliance entered the telecom sector its debt shot up by 438%. Mukesh Ambani has set out to make Reliance a zero net debt company. This would mean wiping out 1.54 lakh crore of its debt. The following table shows the stakes sold and amount raised

Stake sold to% of Stake Sold Amount raised (Rs Cr)
Facebook9.9943,574
Sterling Silverlake1.155,655.75
KKR2.3211,637
General Analytics1.346,598
Vista Equity2.3211,637
Mubadala1.859,094
Total18.9788,195.75

Read More: Facebook- Jio Deal: What $5.7B investment means to Stakeholders?

— Airtel 

Airtel remains the only major player other than Jio which able to survive, compete, and raise capital with ease at this stage. It recently announced a 2.75% stake sale to raise 7500 crores ($1billion). In January, Airtel raised $15000 crores through qualified institutional placement and foreign currency convertible bonds for 7,500 crores ($1billion)

— Vodafone Idea

Vodafone and Idea have merged to form Vodafone Idea. This has enabled VodafoneIdea to become the top company in terms of subscribers. But this has only ensured their survival in the Indian markets. 

Vodafone Group CEO Nick Read has vowed to not invest in the Indian markets. This can be justified due to the court ruling against the telcos with regard to AGR.  This has made investing in India a lost cause for Vodafone as all incomes earned by the companies ill be used to pay back the existing AGR dues apart from the new AGR dues that will keep on accruing.

Also, their survival will require debt to finance 5G costs. This investment which does not generate any income in the foreseeable future will be hard to be explained to Vodafone shareholders in the UK. Vodafone Idea not only faces difficulty in raising investment but also struggles with its low 4G utilization. (Also read: Vodafone Idea has managed to attract attention from Google which eyes a 5% stake in the telco.)

In an advent, if one of the 3 players does not survive it would lead to the Indian markets turning into a duopoly. The two telcos that do survive may form cartels which will eventually result in a pricing agreement. This in addition to the AGR dues to the DoT and 5G spectrum will result in the consumers holding the burden through increased prices.

RankOperatorSubscribers (millions)Market ShareOwnership
1Jio382.8932.99%Jio Platforms
2Airtel329.0228.35%Bharti Airtel Limited
3Vodafone Idea325.5428.05%Vodafone Group (45.1%), Aditya Birla Group (26%), Axiata Group Berhad (8.17%), Private Equity (20.73%)
4BSNL123.1310.61%Government of India

(Table: Mobile Operators in India as of 29 February 2020 according to TRAI)

What the Government can do? 

To reduce the burden on the telecom industry the existing players have requested the Telecom Secretary to provide the 5G spectrum free of cost to existing players in an attempt to rescue the industry. The government can also ensure that cartels are not formed and players survive by benefitting the consumers.

This can be done by providing the 5G spectrums in exchange for the telcos agreeing to adhere to both floor pricing and price ceiling. By doing this the telecom industry will be provided some relief through 5G spectrum allocation as requested by telcos. The floor prices and price ceiling will ensure healthy competition and limit any adverse impacts on consumers.

Closing Thoughts

The story of the Indian Telecom Industry so far shows that the government is just inches away from slaughtering the golden duck in an attempt to increase its revenue. It is high time the Center interferes so that both the industry does not lean towards a duopoly or monopoly and at the same time the consumers do not face the brunt. Any efforts from the government to recover unreasonable amounts from AGR will push the telcos to increase debt borrowing from the banks.

This increased debt in addition to the cost of surviving by further investing in the 5G spectrum will force the burden towards the consumers. In an event of intense telecom war in India where a major player throws in the towel to quit, the already ailing banking sector will be further hit. Other stakeholders like the employees who earlier dependent on the telcos will further be added to the casualty lists.

9 Best Performing Industries During COVID-19 Storm

9 Best Performing Industries During COVID-19 Outbreak

A study of best-performing Industries during COVID-19 / Coronavirus storm: Even after COVID-19 changing soo much in our lives we still are faced with the question, “What is life going to be like from tomorrow?”. Covid-19 has the governments and other influential intellectuals scratching their heads due to the level of uncertainty it poses. Will the virus just disappear in a few months? Or Will a vaccine come in time? Or Will we just have to learn to live with it just like AIDS? This uncertainty has even made it hard to get a peek at what the future will be like let alone predict it.

Despite all this chaos, some businesses have still found a way to make lemonade out of lemons and keep striving. Today, we are going to cover a few of the best performing industries during COVID-19 outbreak. Here, we’ll have a look at which sectors and industries these companies come from and why they were able to do so.

best-performing Industries during COVID-19 / Coronavirus storm

Best Performing Industries During COVID-19

1. Pharma Industry

pharma industry best-performing Industries during Coronavirus times

Although the doctors and nurses battling the virus have had to face the risk of the virus, the pharmaceutical and healthcare industry, however, remains immune. This is because of our dependence on the pharma and healthcare at the frontlines against COVID-19. Due to changes in consumer behavior and hygiene practices any industry remotely connected has also benefitted. Disinfectants and sanitizers have recorded their highest prices and sales.  

2. Information Technology (IT) Industry 

The IT sector is in a relatively good position in the midst of the pandemic in comparison to others. This can be owed to the fact that a stable internet connection and laptop are all that is required in most of the cases, enabling them to work at ease from home. The Work From Home(WFH) approach adopted by most commodities has given rise to apps like Zoom.

most downloaded apps during coranavirus times

Zoom has seen a 187% increase in its share prices since December. Other software companies that provide solutions for WFH have also seen a similar response. The inherent privacy concerns in WFH have also increased the demand for cybersecurity.

The current scenario will also see an increased push for technological acceleration. The Indian IT sector is majorly reliant on the US and European markets. Hence the impact it receives will also be dependent on the impact on the US and European markets.

3. Telecommunication Industry

The telecommunication industry may have been impacted in its day to day functioning but its market demand has increased. This is because of the increasing need to connect during lockdowns has led to an increase in the data used.

4. E-commerce Sector

ecommerce booming during coronavirus times

Many countries have found lockdowns the only option to buy some time as they try to grasp the changes. This has been a silver lining for the E-commerce segment as many consumers have turned to them for their needs. This also involves E-Retail shops that deal in fast foods like BigBasket and Grofers.

Also read: Amazon has the right businesses to weather coronavirus.

5. Fast Moving Consumer Goods (FMCG)

The FMCG sector had seen reduced demand for the initial few weeks during the lockdown but these will return to normal during the easing period. The FMCG sector, however, will benefit from the reduced crude oil prices. This has come in two forms. Firstly the benefit if one of the components is crude oil or if crude oil is part of the manufacturing process. Secondly from the reduced cost of packaging which requires crude oil in its production. Packaging currently makes 15-20% of the cost.

6. Paint Industry

Companies in the painting industry will be benefitted from the reduced crude oil prices. This is because 45% of the raw material of these companies are crude oil derived. A few of the leading companies in the paint industry are Asian paints, Kansai Nerolac, Berger paints, etc.

Also read: How Crude Oil Prices Impact Indian Market & Economy?

7. BFSI Sector

Banking, Financial Services, and Insurance companies also have an opportunity to increase their demand post the lockdown. This is because the reduced rates will result in cheaper loans. In addition to this, the government has encouraged loans to the MSME sector by acting as the guarantor in many cases.

Insurance companies will also see an increase in their product sales. This is if they are tweaked to match the Covid-19 environment once the government stops playing a major role. Companies like Paytm which are an eCommerce payment service and in the fintech business have continued their growth from demonetization into the great lockdown. This is also because of the nature of the virus and people’s increasing aversion towards cash.

8. Online Streaming, Gaming and EduTech

sectors performing well during coronavirus

With all forms of existing entertainment shut down, increased demand has been seen in online streaming websites and gaming companies. Netflix and Youtube have had to reduce the streaming quality in Europe to ease the pressure on the internet.

gaming industry boom post coronavirus lockdown

Gaming companies will have a good run during with issues being faced in its console production which will be fixed once the economy opens up.

The online education market in India was already forecasted to grow to become an $18 billion market by 2022. The great lockdown has only given a boost as numbers will be met much sooner.

9. Home Fitness

home fitness industry rise post coronavirus

The nature of the virus has made accessing Gyms and other public areas to maintain fitness dangerous. Companies like Peleton which offer an interactive experience along with their equipment have seen a rise in their share price this year.

Post Corona Environment

The post-Corona environment will be rigged against industries that have been affected during the lockdown. This is due to the changes in behavioral patterns. A level laying field can only be expected after a year or two after the pandemic. Be it a business or a human, sticking to old behavior patterns and not adapting to suit the environment will get you killed!

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 soo 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.

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.

Also read: 3 Past Biggest Scams That Shook Indian Stock Market

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 on from two sides. The first as 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!”.

The Rs 20 Lakh Crore Relief Package - Overview of First Tranche Aatma Nirbhar Bharat Abhiyan

The 20 Lakh Crore Relief Package – Overview of “First Tranche”

A detailed study on the 20 Lakh Crore Relief Package in India (First Tranche): Prime Minister Narendra Modi’s address to the nation on Tuesday will be remembered by many for a right smart spell due to two reasons. Firstly because the number we couldn’t fathom  – 20 Lac Crore (20000000000000- 10% of our GDP) is now our relief package. Secondly for the word ‘Aatma Nirbhar’ (Self Reliance).

However, if observed the address holds much more gravity, especially in our preparation for the post lockdown economy. The direction chosen to move in is towards an Aatma Nirbhar Bharat.  To achieve this the Abhiyan has focused on the five important pillars- the economy, infrastructure, system, vibrant demography, and demand. It seems like a throwback to the 20th century Swadeshi movement with national leaders calling for local purchases. It is however evident that the economy can be saved from being plundered by COVID-19 by robust demand for Indian products.

narendra modi ‘ Aatma Nirbhar’( Self Reliance) announcement

Finance Minister (FinMin) Nirmala Sitharaman announced on Wednesday the First Tranche of measures that would be taken to attempt at reviving the economy. The focus would be on the factors of production. However, the traditional factors have been recast to suit the purpose of this Abhiyan. They are:

  1. Ease of doing business
  2. Compliance and Regulation
  3. Due Diligence Observed

The FinMin also clarified that becoming ‘Aatma Nirbhar’ would not mean turning into an isolationist state that only looks inward. But instead, it talks about a country that can rest on its strengths and at the same time contribute to the globe. Today we have a closer look at the measures of the first tranche, the reasons for their implementation, and the path intended.

Measures to revive the economy -Tranche1 

Nirmala Sitharaman announced the fifteen measures to revive the economy. They are directed towards the following sectors/measures:

MSME (Micro Small Medium Enterprises)

The FinMin has focussed a considerable portion of the relief towards Micro Small and Medium Enterprises( MSME). Of the 15 key decisions, 6 are directed towards the MSME. MSMEs are our nation’s dominant job creator by employing 11 crore people.

MSMEs contribute to 45% of the country’s manufacturing output, 40% of exports, and to 30% of the GDP. Considering the figures a relief package not directed towards the MSMEs survival would result in their closure and eventually mass unemployment accelerating the GDP decline. From the numbers above it becomes evident that ensuring their survival would mean saving the economy.

MSME (Micro Small Medium Enterprises)

It can be noticed from above that there is a huge gap between credit requirements and credit available to MSMEs. Such a huge lending ability to bridge the gap is only possessed by financial corporations in the country. The government would not be able to fulfill the requirements simply because it does not have that much money to be directed towards MSMEs during an ongoing pandemic.

What are the means adopted to achieve this?

The government has two options here. Either directly give loans to the MSMEs or to take over the credit risk of the loans received by MSMEs from other sources. It becomes evident that the government has chosen the latter as the measures in Tranch 1 focus on this.

If in a normal situation if an MSME would approach banks he would be required to place a collateral of a value higher than the loan in exchange. The property available with MSMEs will be affected too as the outbreak has caused a fall in their prices as well.  The Government of India(GOI) has rolled out measures where instead of collateral it acts as the guarantor for the loan. This means that in a case where the MSMEs fail to repay, the banks would still be able to recover the loan from the government. With the government acting as a guarantor the banks are encouraged to give out more loans to the MSME’s

The reforms that enabled this are:

1. Three Lakh Crore collateral-free automatic loans for MSMEs

Here MSMEs that have no more than 25 crores outstanding in loans and a turnover of at least Rs. 100 crores are eligible. An emergency credit line to businesses and MSMEs has been set up from NBFCs and banks for up to 20% of the outstanding credit as of 29/02/20.

The loans will be provided with a 4-year tenure with no requirement for the principal to be paid for the next 12 months. They will be required to pay interest however but at a capped limit set by the GOI. Here the GOI will act as 100% guarantor for both loans and interest. This scheme can be availed till 31st October 2020. 

The Finance Ministry has estimated that this will help 45 Lakh business units to resume business utility and safeguard jobs.

2. Rs 20,000 crores subordinated debt for stressed MSMEs

Here the GOI will facilitate a provision for Rs. 20,000 crore as subordinate debt. This is aimed at MSMEs that are stressed and would be considered NPA (Non-Performing Assets) but still have managed to keep functioning. These MSMEs classified as NPAs would not be provided credit by NBFCs or banks. Here the promoter of the MSME will be given debt by the banks which will then be infused by promoters as equity in the firm. This will increase his respective ownership but will be liable for the debt received.

3. Rs. 50,000 crore, equity infusion for MSMEs through FOF.

The GOI here will set up a Fund of Fund which in turn will invest in its daughter funds. These daughter funds will provide equity funding to MSMEs that show growth potential. The GOI will invest 10,000 crores into the FOF. The remaining amount will be funded from institutions like LIC and SBI.

Rs. 50,000 crore, equity infusion for MSMEs through FOF

The MSME, however, will be encouraged to get listed on the main board of the stock exchange.

4. New Definition of MSMEs.

The FinMin pointed out before the announcement that this change of definition will be in favor of MSMEs. The new definition will revise investment slabs for those companies to be considered as Micro Small and Medium. In addition to the investment, it will also consider the turnover before classifying an MSME.

The new definition will also have no distinction between the MSME involved in manufacturing and service.

New Definition of MSMEs

  • Micro will be those with investment up to 1 crore whose turnover is LESS than 5 crores.
  • Small will be with investment up to 10 crores whose turnover is LESS than 50 crores.
  • Medium will be those with investment up to 20 crores and a turnover of  LESS than 100 crores

5. For government procurement tenders up to 200 crores will no longer be on the global tender route.

According to this global tenders that are worth up to 200 crores will no longer be available to global players.

This reform would encourage and provide MSMEs with the opportunity to procure these tenders without facing global competition. 

6. Other incentives for MSMEs 

MSMEs in the post lockdown environment will face problems of marketing and liquidity due to social distancing requirements. For these reasons, the GOI will launch an e-market linkage for MSMEs which will be promoted as a replacement for trade fairs and exhibitions. Fintech also will be applied to enhance transaction-based lending using data generated by e-market linkage.

In addition to this, all dues from the GOI and Central Public Sector Enterprises (CPSE) will be released in 45 days. 

This reform focusses on ensuring that the MSMEs are able to restart their business with ease after the lockdown as well. At the same time, their liquidity position would be improved to meet their immediate needs from the dues received.

Provident Fund Contribution

Provident Fund Contribution announcement by sitharaman

7. Reduction in rates for those covered in the first relief package.

Under the Pradhan Mantri Garib Kalyan package of Rs 1.7 lakh crores announced in the first phase of the lockdown, the GOI announced that it would contribute the employer’s portion to the PF. The companies eligible for this relief were those who had 100 employees earning less than 15000 per month. This relief was announced for a period of 3 months.

Moreover, this relief currently helps a total of 6 Lakh establishments during the months of March, April, and May. The FinMin announced that these establishments that are currently eligible would have these benefits extended to both the employees and the employer’s contributions respectively. The GOI will now pay 24% to the PF for a period of 3 months.

8. Reduction in rates for those not covered in the first relief package.

The FinMin also announced that those who were not covered earlier would now only be required to contribute 10% instead of the earlier 12% rate. This 10% contribution will be for both the employers and the employees for the next 3 months.

However, for state PSU and CPSE, the employer’s contribution will remain at 12% but the employees will be required to contribute only 10%.

The main aim of the PF contribution from the govt or rate reduction is to transfer more money into the hands of the employers and employees. The employers would have greater liquidity and hence would be able to use this to better survive. The employees, on the other hand, would have more cash in their hand which would cause a spurt in the demand in the economy. This will create liquidity of 6750 crores available to the employers and employees for the next 3 months.

NBFC( Non- Banking Finance Corporations) / HFC(Housing Finance  Corporation)/ MFI(Micro Finance Institutions

9. 30,000 crore special liquidity scheme for NBFC/ HFC/ MFI

The scheme is available to those NBFC’s that are finding it difficult to raise debt in the COVID-19 environment. The special liquidity scheme of 30,000 crores was launched for this. Under the scheme, investment was made by buying investment-grade debt papers of NBFC HFC and MFIs. It is not necessary for the companies to be graded highly and be of high quality.

Purchasers of these debt papers will receive a guarantee from the GOI.

10. Rs. 45,000 crore Partial-Credit Guarantee Scheme(PCGS) 2.0 for NBFC’s.

With the PCGS already in place, the PCGS scheme is said to supplement it. This scheme will enable finance corporations that have low credit ratings to raise finances. In PCGS 2.0 the existing PCGS scheme will now be extended to cover borrowings such as primary issuance of bonds and commercial papers of these entities. Here ‘AA’ papers and below including unrated papers will also be eligible for investment. This will particularly benefit MFI that do not have ratings high enough to attract investments.

In this scheme, the first 20% of the loss will be borne by the guarantor i.e. GOI.

The main aim of both schemes is to provide liquidity to NBFC’s, MFI, and HFC. If they are provided with the liquidity it will lead to increased lending to MSMEs. So it can be said that even these 2 schemes are aimed at the MSMEs.

Discoms

Discoms

11. 90,000 crore liquidity injections of Discoms.

The working of the electricity sector requires Power Generation Companies(Gencos) to transfer electricity to Distribution Companie(Discoms) in respective states which is then transferred to the consumers and respectively paid for. The payments then trickle down to the Gencos. The Discoms currently owe Rs 94,000 crores to the Gencos. The lockdown unfortunately only alleviated the problems and troubles of the electricity sector as many industries were shut causing a fall in the demand. In the electricity sector, the units produced cannot be stored. Hence a fall in the demand causes a loss.

The FinMin unveiled that both PFC and REC will together infuse a total of 90,000 crores into all the Discoms against all the receivables they have. These 90,000 crores in loans will be extended against the state government guarantees with the exclusive purpose of discharging liabilities of Discoms and Gencos.

The loans, however, will be given to the Discoms for specific activities and reforms which include 

  • Introducing digital payment facility by Discoms where necessary. 
  • Liquidation of outstanding dues to state govt.
  • Plan to reduce financial and operational losses.

The benefits of this have also been aimed at being passed onto the consumers in the form of rebates for the power tariffs paid.

Infrastructure

12. Relief to contractors 

Central Agencies ( like Railways, Ministry of Road Transport and Highway, Central Public Works Department) have been directed to extend all contracts for up to 6 months. This covers both construction works and goods and service contracts. It covers obligations like completion of work, intermediate milestones, and extension of the concession period in PPP(Public-Private Partnerships) contracts. 

To ease cash flows the GOI will partially release bank guarantees, to the extent contracts are partially completed. This move will also improve the cash flows for the contractors as they will be provided with liquidity which will help them meet immediate business needs when the lockdown is lifted. 

TCS Chief Strategist Himanshu Chaturvedi said ‘ The Governments Aatma Nirbhar Bharat Initiative has recognized infrastructure as one of the 5 pillars. This is an acknowledgment of the sector’s role in India’s development and large scale employment generation.

13. Relief to Real Estate 

According to this measure, the real estate is to treat COVID-19 as a ‘force majeure'(unforeseeable circumstances that prevent someone from fulfilling a contract) and extend registration and completion date by 6 months. The regulatory authorities may extend this for another period of 3 months if necessary. This was done so that the home buyers may get new timelines for delivery.

The GOI has also decided to provide projects that have been stalled due to a lack of funds with financial support. Projects that are NPA’s or undergoing NCLT will also be eligible for the proceedings. The maximum finance for a single project has been capped at 400 crores.

This scheme is said to benefit 1509 housing projects comprising of 4.58 Lac housing units.

TDS and TCS

14. Reduction of rates

In order to provide more funds at the disposal of the taxpayer the rates of TDS for non-salaried specified payments made to residents and rates of the tax collected at source for the specified receipts shall be reduced by 25% of the existing rates. 

This will be applicable for the rest of the year starting from 14/05/2020 to 31/03/21. These measures are estimated to release liquidity of Rs. 50,000 crore.

It has to be noted that this doesn’t bring down the tax liability of taxpayers, it leaves more money with them during the course of the FY. Individuals will still have to pay their tax liability every quarter or annually.

15. Other Measures

All pending refunds to charitable trusts, non-corporate business, from the GOI shall be issued immediately.

Income tax returns extended from 31st July 2020 and 31st October to 30th November 2020. The tax audit has been postponed from 30th September 2020 to 31st October 2020. 

Closing Thoughts

The 20 Lakh Crore Relief Package

Ernst and Young Chief policy advisor D.K. Srivastava estimated that the measures announced on Wednesday amounted to Rs 5.94 lac crore, which includes both the liquidity financing measures and credit guarantees, although the direct fiscal cost to the govt. In the current financial year may only be Rs 16500 crore. As mentioned earlier the government has taken over the credit risk that the MSMEs and various financial institutions.

Hence the amount that the government would invest will depend on how much of the loans taken by the MSMEs and various financial institutions will default on. Furthermore, the real trajectory of the relief package can only be understood after it is viewed together with the measures in the Second and Third Tranch. Even more so on how many of these are successfully implemented. It still goes without saying that tranch 1 is nothing short of impressive.

Why Alcohol Prohibition Lifted in India

Alcohol Prohibition Lifted in India – A Dream Too Good?

Understanding Why Alcohol Prohibition Lifted in India: On May 4th the Central Government lifted the prohibition on liquor sales. What followed was a parade through all news outlets exhibiting Indians risking their lives in thousands just to feel half-seas over. Media focus on movie box office records has been replaced by alcohol day to day sales records being reported during the pandemic. Today we try to unravel why the center decided to do so and what possible implication it could lead to.

What does alcohol mean to the government?

— Alcohol and the Soviet Union

Mikhael Gorbachev, although some might know him as the Soviet Union President during its collapse, our generation will famously remember his character played in the TV show Chernobyl ( Another disaster he oversaw as President). In 1985 Gorbachev started an anti-alcohol campaign due to its ill effects on health and crime in society.

In the first half of the 1980s, 13000-14000 deaths were drunk accidents. Over 800,000 people were caught for drunk driving and by 1985 these numbers kept increasing. The soviet union faced multiple problems due to the influence of alcohol. Accidents at work were common and at a period the condition worsened to a point where crops were not even gathered due to intoxicated farmworkers (Socialism, SMH).

Gorbachev’s campaign was a success and the government claimed increased life expectancy in males and even reduced crime rate. But all this was just a silver lining to a darker cloud. The loss of 100 billion rubles of revenue from alcohol sales led to an economic crisis after the alcohol sales moved to the black market. The campaign ended in 1987. The Berlin wall fell in 1989. The Soviet Union collapsed in 1991.

— Alcohol and India

booze money in India finshots

(Image Credits: Finshots)

The data presented above shows the revenue a state earns from the sale of alcohol. Alcohol revenues make up to 20%  of a state’s revenue. In the midst of the pandemic states like Delhi have faced a 90% fall in their revenues. For the state governments to fight the virus without any source of income will only lead to a nationwide economic crisis.

Punjab was the only state to officially request the government to ease restrictions over the sale of alcohol. Several other states like Karnataka, Maharashtra, Haryana, Rajasthan, Kerala, Tamil Nadu, Goa, and those in the Northeast raised the issue informally.

why government lifted restriction on alcohol sale

The states named in no way represent a stereotype of the people’s dependence on alcohol but instead how the state governments depend on alcohol. Investing in alcohol has been the simplest and most profitable source of income for the state governments. In 2017 as per the Kerela State Beverages Corporation (BEVCO) earned around Rs.600 for every Rs. 100 spent on alcohol. This example sums up why a government would actually consider investing in alcohol-based businesses. It incomes earned also explain why the prohibition on alcohol sale had to be lifted.

Problems with alcohol prohibition

Gujarat, Bihar, Nagaland, and Mizoram are the states in India that have prohibited all sale of alcohol to its citizens. It can already be estimated that just like Delhi, these states too will face a huge loss of revenue due to the lockdown. But these are just the beginning of their financial troubles as they would not be able to raise revenue from alcohol sales either.

If we believe that these dry states are successful in the prohibition of liquor it would present us to be too naive. By banning liquor the governments have only succeeded in diverting the funds from their pockets to the black markets. 

Similar bootlegging practices can be expected in a nationwide prohibition. But what is even more troubling features of the prohibition are the thefts and the scams. An alcohol store, for example, was looted for 4.18 lakhs in Bengaluru. Scams promising delivery of alcohol had already begun to see the light of day during the 40 days of prohibition.

Even the manufacturing of illicit liquor saw an increase. The consumption of such illicit liquor is much more dangerous and harmful to health. All these crimes have resulted in wastage of police resources. The energies that could be focussed on controlling the virus were spread to solve these cases which could have been avoided.

Raising the price of Alchohol

After the confusion and the idea of social distancing being flouted on the first day of the alcohol prohibition being lifted, the government resorted to discourage guzzlers by raising the taxes. The Delhi government added a 70% corona tax. The state of West Bengal levied a 30% tax. However, the highest increase in the prices was from the Andhra Pradesh government. The prices were 75% higher after 3 revisions. The Karnataka and Tamil Nadu government also raised the excise on alcohol.

— The relation between prices and Alcohol

The reasons for the increased price lie in obtaining the twin objective of raising revenues and discouraging alcohol purchase. This is so that lesser people venture out of their homes in search of alcohol. A survey conducted in North West England with 22,780 in 2008 speaks differently. It was conducted to explore alcohol consumption changes if the prices were adjusted.

According to the survey, 80.3% considered a lower alcohol price would increase consumption. 22.1% considered that rising prices would reduce consumption. This meant that alcohol consumption was lower price elastic. This meant that you could lower alcohol prices to increase its consumption but an increase in price would still keep consumption at the regular levels. In other words, you can increase the harm by reducing the prices but not reduce the harmful effects of alcohol by increasing prices.

— Alcohol and Growth

Alcohol Prohibition Lifted

( Source: The prices above are from the year 2017. The government would earn over 600% in the case above)

In India, a major portion of alcohol consumption is from the middle and lower-income groups. An increase in the prices of alcohol would not discourage a habitual drinker as discussed earlier. This increase would just decrease the disposable income or savings available for essential goods. Their spending on alcohol would deprive their children of nutrition and families of other essentials.

We just had a look at the impact of increased prices from an individual’s perspective. Let us have a look at what would be the case if due to this the consumption of essential goods is reduced in the economy. At the end of the day, it is essential goods that have the ability to kickstart the economy and not alcohol products. It is the demand for essential products that will enable industries to employ more labor. A study of the US states between 1971 to 2007 found that a 10% increase in per capita beer consumption resulted in a 0.41 percentage point drop in the annual income growth. The government has successfully increased its revenue but unfortunately directed demand away from essential products.

Also read: [COVID19] 10 Most Severely Affected Industries by Coronavirus

Which Direction to head in?

The points raised above have built walls to every decision taken in association with alcohol prohibition being lifted. The only exception being the decision to lift the prohibition itself.

Firstly the economy is too dependant on alcohol. The government cannot harvest any other source of income and liquor stores increase the risk of contraction. Secondly raising taxes does not discourage drinkers. Instead, it slows the opening of the economy. Thirdly a complete alcohol prohibition will only finance the black market and increases other crimes.

The following action taken by some state governments or possible consideration would help the government find a middle ground. Their application through states would result in being beneficial to both the government and the people.

— Open Alcohol outlets only after planning for appropriate social distancing measures.

The Supreme court on May 1st suggested the states to consider home delivery of alcohol. This would not only encourage social distancing the increased demand for home delivery would increase employment in the home delivery service. The food delivery company Zomato has already shown interest. This can be taken up by other delivery apps too. In a worst-case scenario even if any one of the parties comes in contact with someone who has contracted the virus, the linkage would be able to be traced by the app. This, however, should only be applied after ensuring age restriction are in place. West Bengal and Chattisgarh have already adopted the home delivery model.

The Delhi government has started issuing E-Tokens to buy liquor. Allowing only limited people at a set time only at particular stores with the pass. This also could also enforce social distancing but still involves the risk of venturing out.

— Reduce the price to levels the same as before the lockdown

The price increase has to be curbed. It is understood that the government is in dire need of income. This, however, will not even benefit the economy in the long term perspective as all revenue will stop once people run out of their savings. A habitual drinker will continue drinking even at higher prices. Also, the present condition involves people losing jobs and taking salary cuts. The price increase would do greater harm than good.

— Set a limit on Quantity

Settling a limit to the quantity available person is a very important step. We have already seen the survey earlier which concluded that a reduction in the prices would lead to increased demand. Hence applying the previous point without ensuring this will only negate all benefits. When clubbed with the first point, tracking the quantity via App or an online portal makes it easy.

All decisions being taken with the expectation of the worst would help us better prepare and forsee such situations. With no vaccine in sight for a year, all decisions must enable us to live accordingly for at least a year. The pandemic already has and will keep changing the way we live forever. Online Delivery with limits is the new Black!

Facebook Jio Deal 2020 mukesh ambani mark zuckerberg

Facebook- Jio Deal: What $5.7B investment means to Stakeholders?

Facebook- Jio Deal: The fourth of May bought us news different from those caused by the grim pandemic. In one of the first virtual deals, Mukesh Ambani and Mark Zuckerberg took to their Social Media to announce the agreement. According to the deal, Facebook would invest $5.7 billion in exchange for a 9.9% stake of Jio. This deal would be the largest investment for a minority stake by a tech company in India.

Soon after the deal was announced words bordering data privacy concerns and national security were thrown around. Today we go through what the characteristics of the deal are and its impact on the Indian markets.

How big are these numbers?

Facebook- Jio Deal: What $5.7 billion investment means to Stakeholders

Facebook investing 5.7 billion (Rs.43574 crore) for 9.9% would mean that they have valued Jio as a $57 billion company. If we take a look at FDI Equity inflow from 2019, the US totaled at only $2.7 billion. Facebook has been sitting on a huge cash pile of $52 billion and the investment hardly covers 11% of its reserves.

If we change perspective, Reliance Industries has invested 1.8 lakh crore into Jio. This would peg 10% at 18000 crores. Although Jio has been a force to reckon with, remapping the telecom industry. Questions do arise over what the additional amount means? and what Facebook saw in Jio considering it valuable to invest in?

Industries likely to face immediate impact

Facebook has struggled with its plans to turn Whatsapp into a payment app offering similar services like Paytm. Jio, on the other hand, is facing challenges entering the online consumer segment. This deal with the right exchange of data could help each with their respective goals.

Facebook-owned Whatsapp is being planned to be updated as an ordering and payment app. Facebook would also be able to use Jio’s reach to local Kiranas to promote the model. This would enable us to order products from local stores through WhatsApp and also make payments through it.

Although Jio is valued mainly as a telecom service provider, just by going through the immediate plans the effects of this deal will span across 3 Industries. The telecom, online retail, and online payments industry.

— Online Retail Industry

Of the Rs.43574 crores, 15000 crores will remain with Jio. This will be invested in its online grocery store, Jio Mart. Data collected by WhatsApp would enable Jio Mart to understand the demographics better for operations. This, however, would be a cause for concern to existing heavyweights like Amazon and Flipkart.

Online Grocery Shopping has been one of the few sectors in India that have gained demand during the pandemic. Before the outbreak, only 1% of the 80,000 crores grocery market in India was represented online. After the lockdown was imposed the online grocery shopping represents 50% of the grocery demand in the country.

— Online payments industry

Whatsapp entering the online payment service would pose a serious challenge to existing players. The need for additional apps would be challenged when a single app would allow you to text, order, and pay. Whatsapp already running deep through Indian veins, at times even being upgraded as the prime source of news would only be upgraded to the status of a super app if its goals are realized.

Also read: 5 Best UPI Apps in India in 2020 (For Android Users)

— Telecom Industry

With companies struggling with liquidity during the pandemic, a better time would not come for Jio to receive investment. The 5G debate is soon to be settled. The government would waste no time for spectrum sales to raise the revenue it is in desperate need of. The spectrum sale is aimed at 50,000 crores. This would make Jio the front runner. Closely followed by airtel looking for investments and Vodaphone-Idea as the smallest player trying to weather the tough times.

Facebook- Jio Deal: What’s in it for Facebook?

Although there has been no clear indication over the aims of the two companies. Facebook in recent times has faced stiff competition from Apps from China like WeChat and TikTok. Due to China being a market closed to foreign investments, the world views India as the next close contender. The coming together of the two giants will have more than what meets the eye.

1. Data – The New Money

To understand the role data plays we would first have to understand Facebook better. Have you ever searched for fashionable cloth wear that you always wanted? All this only to find yourself followed by advertisements related to the product on social media? Or perhaps an advert caught your eye and you decided to know more by clicking on it.

Did you spend the following week being bombarded by advertisements for similar products? Have these come to be by chance or does the universe really want to see you in a suede jacket to align with its plans for you along with the stars? Unfortunately not!

— The Facebook Business Model

Facebook earned a revenue of $70.7 billion in 2018. This amount seems too huge for a social media platform that offers its services for free. However, social media has been only a front for the data mogul.

The very business model of Facebook lies in gathering information from its users and sharing it with advertising companies or other MNCs. The data-based on user preferences is shared with advertisement companies that are willing to pay for it. The user is then made the recommendation accordingly. Last year alone Facebook made 84$ per user in the North American region.

Unfortunately, it can also be said that the very business model by Facebook hurls away client privacy and data protection. The media giant has already been involved in public spats with the Indian government. This was over the Indian government’s data privacy concerns. It led the government to pressurize Facebook to localize Indian data storage.

facebook jio deal

The deal has already raised these privacy concerns as Jio has over 388 million clients. Jio, however, may view this as an advantage. This is because India has been Whatsapps biggest client. Whatsapp has 400 million users in India alone ( larger than Jio’s customer base). The exchange of data between the two may provide them with the opportunity to understand the preferences and needs better. There still may exist a quid pro quo as Facebook would benefit from Jio’s deep reach in the Indian markets.

— The disruption caused by Jio to Global Data plans

Data is primarily the reason why companies like Google offer free Wifi in railway stations. Facebook too had plans under the name Express Wifi. Here solar-powered drones would provide free internet beamed through the air. These models were quashed after the entry of Jio entered the market in 2016. Jio’s free internet made innovative investments from global giants a waste.

The Indian market is said to double its smartphone users to 859 million by 2022. If Facebook is even to gain 100 million clients, it would result in additional revenue every year. These numbers put Facebook’s data and investment in Jio in the right perspective.

2. Protectionism

digital india modi jio

Most of Facebook’s plans have been always roughed up by the Indian Laws. Even its Free Basics program aimed at providing affordable internet service to less developed countries was banned in India. TRAI rolled out the judgment as it was said to infringe on the principles of net neutrality.

Jio’s lobbying ability would be just as important to Facebook as Jio’s market penetration. Whatsapps online payment service is also still under review from the government. If Whatsapp plans to successfully roll out the payment service app, it’s deal with Jio will play an important role. Reliance Jio has already proved time and again its lobbying prowess in Delhi. Otherwise, how would the PM be used in a private company’s advertisements. And the companies still be get away with a hefty fine of Rs.500?

3. A platform for other products

Investing in Jio could also see an opportunity for similar products existing in both companies. They span from retail and gaming to education.

Facebook also has plans to launch its own digital currency again in 2020. This makes India a market to be explored as the Supreme Court verdict in March legalized Cryptocurrency. This, however, will be under scrutiny from the RBI. This is due to the concerns over the effects it may have on the Rupee.

Facebook- Jio Deal: What’s in it for Jio?

Jio has proven its ability to compete across sectors. A deal of this magnitude will extend Jio’s reach and further enhance its ability to compete. We have already discussed how Facebook will be benefitted from Jio’s market base. Jio in exchange will be provided with the opportunity to further expand. This is because the number of users with WhatsApp still exceeds Jio’s customer base.

Mukesh Ambani in his 2019 Annual General Meeting of Reliance Industries announced that Reliance would be debt-free by 2021. This seemed like a longshot as the outstanding debt as of September 2019 stood at 2.92 lakh crore. Instead of an IPO, Jio has decided to sell off ownership and enter into a strategic partnership with investors.

This would not only reduce debt but also provide invested partners with benefits in exchange. The first attempt at this stood with the $15 billion deal with Saudi Aramco. Unfortunately due to the Crude oil crisis, the deal fell apart. Apart from the 15000 crores aimed at Jio Mart, the remaining amount would be utilized for debt reduction. Reliance has also signed an agreement of 7000 crores with British Petroleum for 49% share in its fuel retail. Forming clever alliances would ensure Jio’s survival in the long term.

Mukesh Ambani has made it clear to not trod the same road his brother did. Too much debt was a major factor that eventually led to RCom filing for bankruptcy in 2019. The Facebook deal would result in Jio having a better Balance Sheet.

Closing Thoughts

— With regards to the Investment deal

According to former Airtel CEO Sanjay Kumar, the deal between Jio and Facebook can only be seen positively as it comes in a time where companies are cash strapped. Any Foreign investment in this period can only be seen in a positive light.

It has to be noted how Facebook has cleverly avoided being prey to oil price impact. They did this by directly investing in Jio instead of Reliance Industries, Jio’s parent company.

The deal, however, leaves a number of players affected in different industries. They will have to draw up new roadmaps. As now they will battle the pandemic and at the same time deal with the added competitive prowess of Jio. It would be unfair for Jio to be criticized on the ground of it being bought by a US MNC. Companies like Flipkart and Paytm are currently just tools for Walmart and Alibaba to be used in the Indian markets. The other companies in the telecom industry too have been financed from foreign investment.

— With regards to Data

When it comes to data privacy Mukesh Ambani’s stand provides some assurance. He has stated that data is a national resource. The value created by data generated should and be deployed by Indians. He also added that data generated in India shall remain localized within India’s geographical boundaries.

— With regards to the Future

India should take note of the Jio deal and encourage other industries to do so too. This is because global industrialists and investors will be looking for new markets to invest in. This can be expected as they would preferably avoid China due to the uncertainty in the future. Attracting investments would create jobs that were lost due to the pandemic. They would also provide the necessary boost required by the economy.

India must ensure that they are ready to contend for investments once the lockdowns are lifted. This would definitely save the plummeting economy.

Right time to invest or is it

The Right time to invest, or is it?

“Imagine, always wanting to own something but not being able to, because that something was too expensive, maybe not worth the price tag or maybe it was the right price but your pockets were not deep enough to buy it”

The above thoughts must be crossing every investor’s or trader’s mind right now. The stocks which were expensive in January 2020 are right now available at a discount rate of 30%-50% in May 2020. So what led to this sudden decline in prices or undervaluation or availability at a sale? Is it just an impact of Global pandemic (COVID-19), or Is it the global uncertainties. Are we heading towards a bigger recession? Or Were these share prices simply too overvalued and had just the right trigger to correct them, which in this case was COVID- 19.

To get a little deeper into the discussion, let’s take an example of a few sectors. The auto sector, the health of which usually defines the ‘luxury health’ of a nation. But over some time we have seen a continuous decline in the Nifty Auto Index, which tells us a lot about the depleting health of the sector.

The Auto index which was trading near all-time highs of 11900 in January 2018 is right now trading near lows of 5000. As we can see that this decline in the sector started long before COVID-19 was born. This also tells us a lot about the consumer’s reluctance to spend less on luxury items and save more for future uncertainties. In the current scenario, most of the Auto sectors company shares are trading at almost half the price compared to early 2019 levels. The image below is the Auto Index for the last three years.

Nifty Auto Bloombergquint (Source: Nifty Auto –BloombergQuint)

So, it is still the right time to buy or are these companies still overvalued, especially knowing that consumer demand for luxury goods will still take quite some time to bounce back. But, seeing the lucrativeness of the prices of various stocks (as they are trading at a discount of 30%-50% from top), one can start investing a portion of his desired investment now. But, it is advised to not to empty the full clip right now, as we could see some more correction in the market. So investing parts of portfolio over time is the best way ahead. And as the saying goes, “it is never a wrong time, to do the right thing”

Similarly, if we were to take the example of the Nifty Pharma index, this index was at peak during March 2015 (13,300 levels) and at its low during March 2020 (6700 levels). The figure below shows the Nifty Pharma Index Now, in this case, one can say that this might be the right time to start investing in this sector as the pharma products will have higher demand during this global pandemic and we can already start seeing pharma companies doing well over last two months.

The index has almost recovered to 9000 levels. So one can start building their portfolio have some portion dedicated to the pharma sector. Again SIP is the best strategy.

nifty pharma bloombergquint

(Source: Nifty Pharma BloombergQuint)

From the above discussion it very difficult to say that the recovery mode for the market has started or we have seen the bottom. One can never be sure. But one thing is for sure, that the market will recover sooner rather than later. One has to be very prudent and use his/her bias-free judgment to pick his or her investment strategy and timing.

One best way to do it by having a systematic Investment plan (SIP) and diversify his/her risk across sectors. It is near impossible for anyone to pick the top or bottom for any indices or sector. So it is advised to invest a portion of total desired investment and keep investing at systematic intervals of time. This way the investor will be able to average his price and a major movement in one sector or indices would not dent his portfolio significantly.

Mukesh Ambani vs Anil Ambani What went Right Wrong cover

Mukesh Ambani vs Anil Ambani: What went Right/Wrong?

A case study on Mukesh Ambani vs Anil Ambani: Ever since the Cain and Abel fallout at the beginning of time, sibling rivalries haven’t been uncommon. Cleopatra securing the throne by killing her siblings, Adolf and Rudolf Dassler’s tussle which led to the formation of Adidas and Puma.

Similarly, the unfortunate split of Liam and Noel Gallagher eventually led to the breaking up of the Oasis band. And also the recently famed but unworthy (probably staged) Rob and Kim Kardashian squabble. Today we take a look at the most famous sibling feud in the Indian Subcontinent. The Mukesh vs Anil Ambani row. Here, we’ll discuss what went right or wrong in the case of the brothers.

Mukesh Ambani vs Anil Ambani: The BAD

Indian business tycoon Dhirubhai Ambani bought into existence the Reliance organization. At the time of his death in 2002, he had founded Reliance Capital, Reliance Infrastructure, Reliance Power, and Reliance Industries. But the lack of a will led to a scrimmage for assets between his two sons, Mukesh and Anil Ambani.

Until 2002, Anil was the face of the company attracting foreign investment. Mukesh after dropping out of Stanford worked behind the scenes. He focussed on running the organization and also building Reliance Communications (RCom).

Mukesh Ambani vs Anil Ambani: The Bad

(Right to Left: Mukesh Ambani with Mother Kokilaben Ambani and Brother Anil Ambani)

Tensions began when Anil demanded RCom to even out the assets. Eventually, their mother had to step in to resolve the feud that had now spilled into the public eye. The assets were finally split, with Mukesh getting Oil and Gas, Refining, and petrochemical companies. Anil got what was called the rising sun companies- Electricity, Telecom, and Financial services segment.

The companies under Mukesh were known as Reliance Industries. The companies under Anil were known as Reliance Anil Dhirubhai Ambani Group or Popularly the Reliance Group. The split of assets also came with a non-competition clause. According to this, the brothers were not allowed to venture into each other’s businesses for a decade.

The Reliance Industries Journey with Mukesh at its Helm

The Reliance Industries Journey with Mukesh at its Helm

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. Although luck also played a role as Mukesh has been handed the petrochemical segment. The segment was based in the Krishna Godavari Basin. The basin has an excess of 1.2 billion barrels of crude oil. As time went by Reliance Industries ventured out into other segments that included the retail business, logistics, solar energy, entertainment (Reliance Eros), cloth, and SEZ development.

The most notable industry entered would be when Mukesh Ambani led Reliance Industries ventured back into the telecom industry. It used its earlier acquisition of a telecom company called Infotel and came out with Jio Infotel popularly known as Jio. His new venture, Jio, caused severe disruption in the Industry. Its entry led existing players in losses, merging with one another to weather the storm. Its entry also meant the end of the road for his brother’s Rcom.

— Where has Mukesh Ambani reached

It can be said that Mukesh Ambani has had a lot of Sunshine. Reliance Industries was ranked 106th on the Fortune Global 500 list of biggest corporations as of 2019. The company has been responsible for almost 5% of the revenue the government of India earns from Customs and Excise duty. Mukesh Ambani is said to have a net worth of $53 billion as of 2020.

According to Bloomberg, his wealth could help the Federal government for 20 days in 2018.  This makes him Asia’s richest, a billion short of getting his entry into the top 10 richest list. He currently resides in Antilla which is claimed to be the world’s most expensive home at $1 billion. So much for a student at Stanford who wanted to work at World Bank or become a professor!

Also read: Top 10 Richest Person in India (As per Forbes Ranking)

The Reliance Groups’ journey with Anil at its Helm

The Reliance Groups’ journey with Anil at its Helm

Anil Ambani also saw immense growth in wealth in the initial stages. Anil Ambani began his solo ride by investing in industries that provided quick returns. It goes without saying that the risk was high too. In 2005, he bought Adlabs which got him into the entertainment business. A few years later in 2008, he signed a deal with Steven Spielberg’s DreamWorks. The Film Lincoln produced by DreamWorks also won an Oscar.

In 2008, Anil was the world’s 6th richest person with $42 billion in wealth. One of the most notable investments was the Mumbai Metro project.

2014, however, started brewing trouble for Anil Ambani as his companies had taken huge debts. This year his media venture with Adlabs also collapsed and he had to resort to selling the screens. He also began selling a stake in the remaining TV businesses to Zee Entertainment. Other bad decisions quickened his wealth loss. This included venturing into the defense segment in 2016 with Reliance Naval and Engineering.

By 2019 the valuation of the defense company fell 90%. 2016 was also the year in which Mukesh Ambani’s Jio entered the Telecomm industry. This catapulted RCom further into losses. By end of 2019, Rcom had lost 98% of its valuation. This hit Anil hard as he held 66% of its stake.

— Where has Anil Ambani Reached

As of March 2018, the Reliance group had a total debt of 1.7 lakh crore. This led to affected his wealth and also his Rs 13,500 crore investment in Nippon the financial segment. By 2019 things got so bad for Anil, that he was threatened with jail if he did not pay dues to Ericson.

Anil Ambani was also summoned by the UK court where he was directed to repay 100 million loans from Chinese banks. He claimed in courts that he would not be able to pay as his net worth was zero.

Mukesh Ambani vs Anil Ambani: The UGLY

— 2008 Anil’s Intelligence Agency

The court approved spit of assets in 2005 did not end the rivalry between the two brothers. In 2008, Anil filed a defamation case against Mukesh suing him Rs 10,000 crores. This was due to an interview given by Mukesh to the NYtimes. Mukesh claimed that the distinguishing factor of Reliance from its competitors was the intelligence agency run by his brother which included a network of lobbyists and spies. They had infiltrated New Delhi to find facts that may seem trivial and other vulnerabilities of the bureaucrats to gain greater control. 

— 2009 Pricing feud

The 2005 split of assets also included an agreement where Mukesh Ambani’s Reliance Industries would supply his brother’s electricity generation segment fuel at $2.34 per million British thermal units. This was agreed for a period of 17 years.

However, Reliance Industries began setting a different price. They sold fuel to the Reliance group at $4.20 in 2009. The disagreement was dragged into the courts until the government intervened. The government allegedly did so as the government also has a share in the profits made by Mukesh. The cost of production to Reliance Industries was only 1$.

Anil took the spat into the front pages of the Times of India. Here Anil Ambani placed an advertisement accusing the Petroleum Ministry of favoring Reliance Industries. The Ad campaign further intensified the feud between the two brothers. In the end, the ruling was in favor of Mukesh.

— Outside Corporate

The competition between the two brothers was not limited to business. When Mukesh had bought a $52 million jet for his wife it was alleged that Anil bought his wife an $80 million yacht. The feud at this scale sounds bizarre as the brothers shared the same house till 2012. When Mukesh moved out to his $ 1 billion Antilla, Anil was building one for himself of the same value.

— Other controversies that involved the brothers 

Infotel broadband

The Comptroller and Audit General of India alleged rigging in the auction mechanism for the 4G license. Infotel had acquired the license by bidding 5000 times its net worth. Infotel was then mysteriously sold to Reliance Industries.

Reliance vs. Kejriwal

Delhi CM Kejriwal in 2014 had filed an FIR alleging irregularities in the pricing of natural gases from Krishna Godavari Basin. He alleged that the gas was priced at 8$ even though it cost Reliance only 1$ in its production.

Proximity to politicians

Both the brothers have been accused of their proximity to politicians to gain an influential role. PM Modi’s close proximity with Anil Ambani also is alleged to have a role in the Rafale controversy which was later quashed by the courts.

Mukesh Ambani vs Anil Ambani: The GOOD

Even though the brothers have torn into each other in the last two decades, it is noteworthy that they also once ran Reliance together. It is also said that during the period they knew each other so well that they would finish each other’s sentences.

The biggest test of brotherhood in the Ambani family came when the younger was threatened to be jailed over non-payment of Rs 550 crore in dues. Mukesh swooped in for the rescue by clearing the dues on Anil’s behalf. Also, considering that Anil has no been convicted by the UK courts over a loan from Chinese banks, it looks like he received a lot more help.