satyam scam story accounting fraud

Satyam Scam – The Story of India’s Biggest Corporate Fraud!

A Case Study on ‘Satyam Scam’ Accounting Scandal: When the 2008 recession hit the world, India was only going through a financial crisis but also an ethical crisis. Imagine a hypothetical scenario in the stock market where the very basic financials provided to you by a company are manipulated. This was what happened with Satyam Computer Services.

The Satyam scam was finally exposed early in 2009. Analysts dubbed the scam as India’s own Enron. Today, we take a look at the scandal that hit the nation in the midst of a recession was carried out, its effects, and how it was dealt with.

satyam computers

The Flawless Public Facade

Satyam Computer Services Ltd was founded in 1987 in Hyderabad by brothers, Rama Raju and Ramalinga Raju (henceforth Raju). The name in the ancient Indian language Sanskrit meant ‘Truth’. The firm began with 20 employees offering IT and BPO services across various sectors.

The initial success of the company soon led to it getting listed and opting for an IPO in the BSE in 1991. Post this the company soon got its first Fortune 500 client- Deere and Co. This further allowed the business to grow rapidly into becoming one of the top players in the market.

Satyam soon became the fourth largest IT software exporter in the industry after TCS, Wipro, and Infosys. 

Ramalinga Raju Satyam Scam

At the peak of its success, Satyam employed more than 50,000 employees and operated in 60+ countries. Satyam was now seen as the prime example of an Indian Success story. Its financials too were perfect. The firm was worth $1billion in 2003. Satyam soon went on to cross the $2billion mark in 2008.

During this period the company had a CAGR of 40%, operating profits averaging 21% with a 300% increase in its stock price. Satyam was now an example to other companies as well. It was showered with accolades from MZ Consult for being a ‘leader in Indian Corporate Governance and Accountability, the ‘Golden Peacock Award’ for Corporate Accountability in 2008. Mr. Raju too was revered in the industry for his business acumen and was awarded the Ernest and Young Entrepreneur of the Year Award in 2008. 

Late in 2008, the board of Satyam decided to takeover Maytas a real estate company owned by Mr. Raju. This did not sit well with the shareholders which led to the decision being reversed in 12 hours, impacting the stock price. On December 23rd the World Bank barred Satyam from doing business with any of the banks’ direct contacts for a period of 8 years.

This was one of the most severe penalties imposed by the World Bank against an Indian outsourcing company. The World Bank had alleged that Satyam had failed to maintain documentation to support fees charged to its subcontractors and the company also provided improper benefits to the banks’ staff.

But were these allegations true? At this point, Satyam was India’s crown jewel! Just 2 days later Satyam replied demanded the World Bank to explain itself and also apologize as its actions had damaged Satyams investor confidence.

Satyam Scam: What was behind the Curtains?

As the investors were still coping up with the failed acquisition of Maytas and the allegations by the World Bank on January 7th, 2009 the markets received the resignation by Mr. Raju and along with it a confession that he had manipulated accounts of Rs. 7000 crores. Investors and clients all around the World were left shocked. This just couldn’t be happening!

In order to understand the scam, we would have to go back to 1999. Mr. Raju had begun inflating the quarterly profits in order to meet the analyst expectations. For eg the results announced on October 17, 2009, overstated quarterly revenues by 75% and profits by 97%. Raju had done this along with the company’s global head for internal audit.

Mr. Raju used his personal computer to create a number of bank statements in order to inflate the balance sheet with cash that simply did not exist. The company’s global head for internal audit created fake customer identities and fake invoices in order to inflate the revenue. This, in turn, would allow the company easy access to loans and the impression of its success led to an increase in the share price.

Also, the cash that the company had raised from the markets in the US never even made to the balance sheets. But this was not sufficient for Raju, he went onto create records for fake employees and would withdraw salaries on their behalf.

The increased share price drove Raju to get rid of as many shares as possible and maintain just enough to be a part of the company. This allowed Raju to make profits from their sales at high prices. He also withdrew $3 million every month as salaries on behalf of employees that did not exist.

Satyam Maytas

But where did all this money go? Although Raju had set up a great IT company, he was also interested in the real estate business. The real estate business in the early 2000s was booming in Hyderabad. It was also rumored that Raju knew the plan(route) for a metro that was to be built in Hyderabad. The foundation of the metro plans was laid in the year 2003. Raju soon diverted all the money into real estate with hopes to make a good profit once the metro was functional. He also set up a real estate company called Maytas.

But unfortunately, just like every other sector the real estate sector too was hit badly during the recession of 2008. By then almost a decade of manipulation of the financial statements had led to the hugely overstated assets and underreported liabilities. Nearly $1.04billion in bank loans and cash that the books showed was nonexistent. The gap was simply too big to fill!

By now whistleblowing attempts were also starting to arise. Company director Krishna Palepu received anonymous mails by the alias Joseph Abraham. The mail exposed the fraud. Palepu forwarded it to another director and to S. Gopalkrishnan a partner at PwC – their auditor. Gopalkrishnan assured Palepu that there were no truths in the mail and a presentation would be held before the audit committee in order to assure him on 29th December. The date was later revised to 10th January 2009. 

Despite this Raju had a last resort. The plan included a takeover of Maytas by Satyam which would bridge the gap that had accumulated over the years. The new financials would justify that the cash had been used to purchase Maytas. But this plan was foiled after shareholder opposition. This forced Raju to put himself at the mercy of the law. Raju later mentioned It was like riding a tiger, not knowing how to get off without being eaten.

Satyam Scam: How Raju was able to get away with the Scandal?

The next big question while studying this big scandal is how was Ramalinga Raju able to get away with Satyam Scam in a company of over 50,000 employees?

The answer to this lies in the miserable failure of PriceWaterhouseCoopers(PwC) their auditor. PwC was the external auditors to the company and it was their duty to examine the financial records and ensure that they are accurate. It is surprising how they did not notice 7561 fake bills after auditing Satyam for almost 9 years.

There were multiple red flags that the auditors could have caught upon. Firstly a simple check with the banks would have revealed that the bills were not valid and the cash balances were overstated. Secondly, any company with that big of cash reserves as Satyam would at least invest them in an interest yielding account.

But that was not the case here. Despite these obvious signs, PwC seemed to be looking the other way. Suspicion towards PwC was later increased when it was found out that they were paid twice the fees for their services. 

PwC was not able to detect the fraud for almost 9 years but Merrill Lynch discovered the fraud as part of their due diligence in merely 10 days.

The Aftermath of Satyam Scam Exposure

Two days after the confession was made Raju was arrested and charged with criminal conspiracy, breach of trust, and forgery. The shares fell to Rs.11.50 on that day compared to heights of Rs.544 in 2008. The CBI raided the house of the youngest Raju sibling where 112 sales deeds to different land purchases were found. The CBI also found 13,000 fake employee records created in Satyam and claimed that the scam amounted to over Rs. 7000 crores.

PwC initially claimed that their failure to catch the fraud was due to the reliance placed by them on information provided by the management. PwC was found guilty and its license was temporarily revoked for 2 years. Investors too became vary of other companies audited by PwC. This resulted in their share prices of these companies falling by 5-15%. The news of the scam led to the Sensex falling by 7.3%

Mahindra Satyam

The Indian stock markets were now in turmoil. The Indian government realizing the impact this could have on the stock markets and future FDIs immediately spurted to action. They began investigating and quickly appointed a new board to Satyam. The board’s goal was to sell the company within the next 100 days.

With this aim, the board appointed Goldman Sachs and Avendus Capital to help fast track the sale. SEBI appointed retired SC justice Barucha to oversee the transaction in order to instill trust. Several companies bid on April 13, 2009. The winning bid was placed by Tech Mahindra who went onto buy Satyam for 1/3rd of its value before the fraud was revealed.

On 4th November 2011, bail was granted to Raju and two others accused. In 2015 Raju, his 2 brothers, and 7 others were sentenced to 7 years in prison.

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

Closing Thoughts

There has been no scam that affected the CA and audit firms like the Satyam Scam. The increasing nature of these scams has made dependence on such professionals much more crucial highlighting the importance of ethics and CG in their roles.

White-collared crimes like these do not only make the company look bad but also the industry and the country. 

top 10 insurance companies in India in 2020

Top 10 Life Insurance Companies in India (2020)

List of Top 10 Life Insurance Companies in India: Our lives are riddled with uncertainty. Despite being on terms with this fact we still do our best to predict the foreseeable future and live with the assumption that we can foresee ourselves growing old with our loved ones. The only things we can focus on is the immediate present where we do our best to create a safety net if not for us then at least for our loved ones which would better enable them to deal with an unpleasant situation.

One such way of trying to manage such an unforeseeable future has been life insurance. The basic premise of a life insurance policy is that in the situation of your demise the insurance company you have a policy with will pay your family a certain sum of money agreed upon in the policy.  Today, we take a look at the Top 10 Life Insurance Companies in India. Here, we rank the top 10 life insurances in India in order to give you a better outlook at the top companies in the industry.

Top 10 Life Insurance Companies in India

The insurance industry of India has 57 insurance companies – 24 of which are life insurance. The following are the top 10 life insurance companies in India.

1. LIC – Life Insurance Corporation of India

life life corporation

LIC is the largest life insurance company in India is the only public company out of the 24 life insurers present in the Indian market. The government entity came into existence in the year 1956 is also one of the oldest insurance companies in India. The company is famous for its slogan “Zindagi Ke Saath Bhi, Zindagi Ke Baad Bhi”.

The company’s main strength lies in the trust it has among Indians due to its well-established presence for over half a century and also because of it being a government entity.  LIC’s total asset under management is Rs. 3,111,847 crores (USD 450 billion). The claim settlement ratio of the life insurance policy of this company is 97.79%. LIC has so far secured over 250 million life insurance solutions.

Also read: LIC IPO 2020 – Are You Ready? | Expected IPO Dates & Details

2. ICICI Prudential Life Insurance

ICICI Prudential Life Insurance Company was founded in the year 2000 and since then has maintained its status as one of the most extensively recognized insurance companies in the country. The insurance company is a joint venture between ICICI bank Prudential Corporation Holdings Limited. ICICI Bank holds a 74% stakeholding and Prudential Plc holds a 26% stake in the venture. Its customer-centric approach and strong bancassurance and distribution channels have made it the second-best insurance company in the country. The Total Assets Under Management of the company are Rs. 1,604.10 billion. The company has a Claim Settlement Ratio of 98.58%.

3. HDFC Standard Life Insurance

HDFC Standard Life Insurance company is a joint venture between HDFC Ltd, India’s biggest financial institution, and Standard Life Aberdeen, a global investment company. The company was founded in the year 2000 and went on to become one of the most reputed life insurance providers in the country. HDFC Life makes its services accessible easily to the customers through its 412 branches along with its strong digital platform. The claim settlement ratio of HDFC Standard Life Insurance is 99.04%.

4. Max Life Insurance

Max Life Insurance Company founded in the year 2000. The insurance company is a joint venture between Indian Max India Ltd, and Mitsui Sumitomo Insurance Company, a Japanese Insurance Company. Max Life Insurance Company is the largest non-bank private sector insurance company in India. One of the major reasons for its success has been the very low premium its offers making it one of the best policies in India. The company has an asset under management crossing Rs. 50,000 crores. With its high-quality customer service through its strong online presence, a wide portfolio of products, multi-distribution channels, and 1090 offices across the country, the company has accumulated a customer base of more than 30 lakhs. The claim settlement ratio of Max Life Insurance Company is 98.74%.

5. SBI Life Insurance

SBI Life Insurance is a joint venture between India’s largest bank – State Bank of India and the leading global insurance company BNP Paribas Cardiff a French multinational bank and financial services company. It was founded in the year 2001 and is well-known insurance in the country. SBI Life Insurance has an authorized capital of USD 290 million. SBI Life Insurance Company has a claim settlement ratio of 95.03%. 

6. Bajaj Allianz Life Insurance

Bajaj Allianz Life Insurance Company founded in the year 2001. The company joint venture between Bajaj Finserv Limited of Bajaj Group and Allianz SE a German company. The company is popular for its innovative products and timely customer survive provided through its 759 branches across the country.  The Claim Settlement Ratio of this life insurance company is 95.01%.

7. Tata AIA Life Insurance

Tata AIA Life Insurance Company is a joint venture between Tata Sons Private Limited and AIA Group Limited- Asia’s largest insurance group. The company’s strengths have been in Tata’s established position as a reliable brand in the Indian market along with AIA being the largest independent insurance group in the world crossing 18 markets in the Asia Pacific. Tata AIA Life Insurance Company’s asset under management in 2019 is Rs.28,430 crores. The Claim Settlement Ratio of this life insurance company is 98%.

8. Reliance Nippon Life Insurance

Reliance Nippon Life Insurance Company is a joint venture between Reliance Capital and Nippon Life the largest Japanese Life insurance company. The company was founded in 2001 as a Reliance Life Insurance Company. In 2006 Nippon Life went on to acquire a 26% share in the company. In 2011 Nippon went ahead to again acquire an additional stake in the company making it the majority shareholder at 75%. The company has a strong distribution network of 727 branches across the country. Reliance Nippon has assets under management is Rs.20,281 Cr and a Claim Settlement Ratio of 99.07%.

9. Bharti AXA Life Insurance

Bharti AXA Life Insurance is a  joint venture between Bharti Enterprises and AXA Group – a French multinational insurance firm. The company was founded in the year 2006 and since then has developed a distribution network across 123 cities and has a customer base of more than 1 million. The company has a claim settlement ratio of 97.28%

10. Aditya Birla Sun Life Insurance

Aditya Birla Sun Life Insurance Company was founded in the year 2000. The company is a joint venture between Aditya Birla Group and Sun Life Financial a Canadian financial services organization. The company has its presence across the country with 425 branches and 9 bancassurance partners. The company has a Claim Settlement Ratio of Birla Sun Life Insurance Company is 97.15%.

Closing Thoughts

Life insurance policies over time have also evolved to plan for unforeseen and upcoming expenses for eg. the Unit Linked Insurance Plans that provide returns through investment in the market. However, insurances although a financial decision cannot be entirely looked at from a financial perspective. This is because they are mainly emotional decisions. But still crores of people opt for insurances for reasons that are difficult to express.

The investment comes with the realization that it is not about an individual’s life but about his family. Life insurances would give the already distraught family the financial assistance when they need it the most which also allows them to buy time rather than look for other financial means right away. 

Top Companies in Indian Airline Industry 2020 list

Top Companies in Indian Airline Industry 2020!

List of Top Companies in Indian Airline Industry: The aviation industry in India is one of the fastest-growing industries and has claimed the third spot among the largest domestic markets in the world. Although the industry is struggling during COVID19, however, no depression lasts forever. 

Today, we take a look at the future prospects of the Indian airline industry and the top companies in Indian Airline Industry in 2020.

Prospects of the Indian Aviation industry

This sector contributed close to $72 billion to Indian GDP and is en-route to also become the 3rd largest air passenger market by 2024. These bright prospects are mainly due to the untapped potential considering that air transport is still considered expensive for the majority of the country’s population which will change with the country’s economic growth. Today we  

The Indian government realizing this potential has allowed 100% FDI in these sectors. Investments over 49% will, however, require government approval. The Indian government has also planned to invest up to $1.82 billion for the development of airport infrastructure and aviation navigation services by 2026.

As of March 2019, India had 103 operational airports, this number is expected to increase to 190-200 by FY40. The rising demand expects the number of airplanes to reach 1,100 by 2027 and by 2038 will require 2,380 new commercial airplanes.

Indian Aviation Industry during COVID-19

Top Companies in Indian Airline Industry

The aviation industry played a very important role in assisting the government in midst of COVID-19. Under the ‘Lifeline Udan’ scheme operators like Air India, Alliance Air, IAF transported essential medical cargo throughout the country in order to combat COVID-19. 588 flights were operated as of June 20, 2020, under the scheme carrying 940 tonnes of cargo.

The civil aviation industry, unfortunately, was one of the worst-hit in the midst of the crisis. According to the Centre for Asia Pacific Aviation(CAPA) the sector is at a breaking point with domestic traffic declining by over 60% international traffic by 70-80% in FY21.

CAPA also states that 30% of the workforce is estimated to be impacted in the sector. Post the complete lockdown that took place earlier this year air travel was initially subject to only 45% capacity utilization and international flights were suspended till August 31st. Travel that does take place is currently only for essential purposes.

Top Companies in Indian Airline Industry — 2020!

1. Interglobe Aviation (Indigo)

Indigo

Indigo is the leader in the Indian aviation industry with the current market cap of Rs 49,923.47 Cr. This company trades on Indian stock exchanges with the latest share price of Rs 1,364.95 per share.

Indigo is India’s largest airline by passengers carried and fleet size and boasts a 60.4% domestic market share as of July 2020. The airline was founded by Rahul Bhatia of Interglobe Enterprises and Rakesh Gangwal in 2006 after it took delivery of its first aircraft in July 2006.

The company operates in Indian domestic markets as a low-cost carrier. The company has grown its fleet to 276 aircrafts today and has been one of the few airlines that have been profitable for 10 years. 

2. SpiceJet

spicejet

Spice Jet is India’s 2nd largest airline in terms of domestic passengers carried and has a market share of 13.6% as of July 2020. It has the current market cap of Rs 3,085.41 Cr.

The airline was established as ModiLuft in 1994 with backing from Lufthansa but ceased operations in 1996. In 2004 Indian entrepreneur Ajay Singh acquired the company and renamed it as SpiceJet. SpiceJet started its operations with 2 aircraft on lease and currently has a fleet of over 90 aircraft.

3. Jet Airways

Jet Airways Ltd is an Indian international airline. In March 2019 it was reported that nearly a fourth of Jet Airways’ aircraft was grounded from operations due to unpaid lease rates.  It is a smallcap company trading in the Indian stock market with a market cap of Rs 311.82 Cr. The stocks of Jet Airways used to trade at a share price above Rs 1,300 per share in 2005. However, as of Oct 2020, this stock is hovering at a share price of Rs 31.

4. Air India

air india

Air India is India’s flag carrier owned by the Indian government. The airline is India’s largest international carrier with a market share of 18.6%. Domestically the airline falls behind market leaders Indigo and SpiceJet with a market share of 9.1% as of July 2020. The airline was founded in 1932 by JRD Tata and made a profit of Rs 60,000 in its first year carrying weekly mail and 155 passengers.

After WW2 Tata airlines became a public ltd company under the name Air India. Unfortunately, years of loss-making operations have turned the airline into a debt-stricken entity. The government has time and again tried to sell the airline but unsuccessfully. The new owner would have to take on a debt of US$4.7 billion.

The airline operates flights domestically and to its Asian destinations through its subsidiaries Alliance Air and Air India Express. The airline currently has a fleet of 173 aircraft. 

5. Air Asia India

Air Asia India was established in 2013 as an Indian airline trough a joint venture between Tata Sons and Air Asia Investment Ltd. ( Malaysia).

The airline also marked the return of the Tata Group into the aviation industry after 60 years. Air Asia holds a 6.2% market share as of July 2020. The airline has a fleet of over 30 aircraft. 

6. Vistara 

Vistara is another airline that includes a Joint Venture between Tata and a global airline. The airline was founded in 2013 as a joint venture with Singapore airlines. Vistara is a name taken from the Sanskrit word meaning “ Limitless expanse”.

Vistara had a market share of 4.2% as of July 2020. The airline has a fleet of 42 aircraft.

7. GoAir

GoAir, part of the Wadia Grp. is a lowcost airline. It launched its operations in 2005 and as of July 2005 holds a market share of 3.8%. The airline has a fleet size of 55 aircraft.

The airline had earlier looked for a merger with Spicejet and later appointed JPMorgan to scout for potential investors. In its attempt to raise capital the airline had planned to go for an IPO this year but these plans been delayed. 

Also read:

Closing Thoughts 

The takeoff of the Indian Airline industry has been delayed unfortunately due to COVID-19. Industry experts CAPA expects the Indian aviation industry to shrink to 2-3 players if they do not receive additional funding. This according to them would result in sustainable damage in connectivity throughout India.

Ajay Awtaney, Founder, LiveFromALounge.com said that he expects only IndiGo, Vistara, and Air India will be able to survive post-COVID-19. “IndiGo is cash-rich. They are doing the right thing by raising liquidity and have also taken cost-cutting measures. Vistara too is in a good position right now. They are bleeding financially but have the support of two strong backers. Air India, on the other hand, has the backing of the government”. This calls for added government focus on the industry in order to ensure that the industry does not suffer irreparable damage.

5 Biggest Merger and Acquisitions in India cover

5 Biggest Mergers and Acquisitions in India!

List of the Biggest Mergers and Acquisitions in India: Mergers and Acquisitions (M&A) have increased in the Indian subcontinent over the years. These deals play a very important role in the growth of any company in the long term and also the economy. Today, we are going to cover the biggest Mergers and Acquisitions in India.

Here, we’ll take a look at the ever-evolving M&A environment and rank the biggest deals that included Indian companies. Let’s get started.

Mergers and Acquisitions in India

A business taking over another business occurs more frequently than you think. These takeovers are known as acquisitions. Situations, where two or more companies come together to form a single company, are known as mergers. The Indian law recognizes these mergers as ‘Amalgamation’.

The purpose of such M&A revolves around a company’s growth strategy. The M&A may take place in the company’s efforts to increase market share, geographical outreach, to reduce competition, profit from patents, or even enter new sectors or product lines. Companies often take advantage of other underperforming companies or governments looking to disinvest.

Mergers and Acquisitions in India handshake 

According to a report from Bain, the 3600 M&A deals that took place between 2015 and 2019 amounted to more than $310 Billion. According to the report over 60% of the deals by volume and trade were attributed to industrial goods, energy, telecom, and the media sector. One of the major reasons for the increasing competition is owed to the changing landscape after the increasing availability and use of the internet. The effects of increased competition are more evident in companies from the eCommerce industry. This industry has paved way for some of the most aggressive M&A in the recent past.

Another aspect that significantly affects the M&A environment is the political scenario of the country. This is because unfortunately for India the capital requirements do not meet the unexploited potential of the Indian markets. Foreign companies bridge this gap. Unfavorable laws present and those created against a foreign country severely impact their investment prospects in India. Initiatives by the government to quicken the M&A are examples of support given by the government. Such initiatives have assisted India to achieve the 63rd rank in Ease of doing business ranking by the World Bank.

5 Biggest Mergers and Acquisitions in India

1. Arcelor Mittal

The biggest merger valued at $38.3 billion was also one that was the most hostile. In 2006, Mittal Steel announced its initial bid of $23 billion for Arcelor which was later increased to $38.3 billion. This deal was frowned upon by the executives because they were influenced by the patriotic economics of several governments. These governments included the French, Spanish, and that of Luxembourg. The very fierce French opposition was criticized by the French, American, and British Media.

Then Indian commerce minister Kamal Nath even warned that any attempt by France to block the deal would lead to a trade war between India and France. The Arcelor board finally gave in to the deal in June for the improved Mittal offer. This resulted in the new company Arcelor-Mittal controlling 10% of global steel production. 

2. Vodafone Idea Merger

vodafone-idea-merger

Reuters reported the Vodafone Idea merger to be valued at $23 billion. Although the deal resulted in a telecom giant it is safe to say that the 2 companies were pushed to do so due to the entry of Reliance Jio and the price war that followed. Both companies struggled amidst the growing competition in the telecom industry. The deal worked both for Idea and Vodafone as Vodaphone went on to hold a 45.1% stake in the combined entity with the Aditya Birla group holding a 26% stake and the remaining by Idea.

On the 7th of September, Vodafone Idea unveiled its brand new identity ‘Vi’ which marked the completion of the integration of the 2 companies. 

3. Walmart Acquisition of Flipkart

walmart-flipkart-acquisition

Walmarts acquisition of Flipkart marked its entry into the Indian Markets. Walmart won the bidding war against Amazon and went onto acquire a 77% stake in Flipkart for $16 billion. Following the deal, eBay and Softbank sold their stake in Flipkart. The deal resulted in the expansion of Flipkart’s logistics and supply chain network.

Flipkart itself had earlier acquired several companies in the eCommerce space like Myntra, Jabong, PhonePe, and eBay.  

4. Tata and Corus Steel

Tata’s takeover of Corus Steel in 2006 was valued at over $10 billion. The initial offers from Tata were at £4.55 per share but following a bidding war with CSN, Tata raised its bid to £6.08 per share. Following the Corus Steel had its name changed to Corus Steel and the combination resulted in the fifth-largest steel making company.

The following years were unfortunately harsh on Tata’s European operations due to the recession in 2008 followed by reduced demand for steel. This eventually resulted in a number of lay-offs and sales of some of its operations. 

5. Vodafone Hutch-Essar

The world’s largest mobile operator by revenue – Vodafone acquired a 67% stake in Hutch Essar for $11.1 billion. Later in 2011 Vodafone paid $5.46 billion to buy out Essar’s remaining stake in the company. Vodafone’s purchase of Essar marked its entry into India and eventually the creation of Vi. Unfortunately, the Vodafone group was soon embroiled in a tax controversy over the purchase with the Indian Income Tax department. 

Closing Thoughts

In this article, we discussed the biggest Mergers and Acquisitions in India. While acquisitions are prevalent in almost every industry only a few of them turn out to be successful. We’ve already seen above that the reasons for M&A may be extremely varied. Most of these M&A are predatory and take place when the acquirer is doing well but unfortunately, there may be multiple reasons that may turn the M&A into a disaster.

That is why companies take extra precautions before entering into M&A and ensuring they are taking on an asset and not just a liability.

FARM BILL 2020 Explanation

Farm Bill 2020 Explained – Are Farmers Winning or Losing?

In the recently launched famous Farm Bill 2020, three bills have been passed by the Indian Parliament aiming at introducing reforms in the agricultural sector. The importance of reforms can only be understood after considering that over 60% of the population works in the agriculture industry. This sector also contributes to about 18% of the country’s GDP. These bills currently face extreme objection by the opposition in both the houses. The bills have also led to intensifying protests by farmers in states like Punjab, Haryana, and Madhya Pradesh despite COVID-19.

A statewide bandh was imposed on Monday due to protests. But arent reforms positive changes or improvements implemented? Then why have these protests erupted? Today we try and understand these Bills, its possible effects on farmers in order to understand why they are opposed throughout the country.

Farm Bill 2020 protest

The 3 Bills that were introduced in Farm Bill 2020

The three bills passed by the Indian Parliament aiming at introducing reforms in the agricultural sector in Farm Bill 2020 are:

  • Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill‘, 2020 
  • Farmers’ (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill‘, 2020
  • Essential Commodities (Amendment) Bill‘, 2020

The laws claim to bring farmers closer to the market by changing where they can sell, the ability to store produce, and whether they can enter into contracts.

It may be surprising that the farmers were restricted to the following terms to date. Let us further explore why these laws were introduced and why these restrictions were present in the first place.

– ‘Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020

This law allows farmers to sell anywhere within the country under the ‘One Nation- One Market’ concept. The ECA initially restricted farmers from selling anywhere other than government-approved mandi’s. These government-approved mandis’ are called ‘Agriculture Product Market committees’ [APMC]. An APMC is a state-operated market where farmers are allowed to sell their produce to traders or middlemen. These middlemen then sell their produce to consumers throughout the country.

Some states had earlier criminalized farmers selling their produce anywhere other than these mandis’. Law had earlier criminalized farmers selling their produce anywhere other than these mandis’. These APMCs were initially set up to protect farmers from big retailers and ensure that prices do not get too high.

APMC’s also provide farmers with information regarding prices. This is done through MSP’s. MSP (Minimum Support Price) is the minimum price that farmers can be sold. The MSP’s are set by the government. Such price flooring ensures that farmers do not receive rates that are too low. But unfortunately for farmers, the prices in APMC’s although above MSP, are controlled by the middlemen cartels. These cartels come into an agreement over the price set beforehand.

The new bill passed also

(i) limiting the operation of APMC laws by states to the market yards;
(ii) Allows private parties to set up online trading platforms for trading in agricultural commodities
(iii) Sets up a dispute-resolution mechanism for buyers and farmers to be operated by a sub-divisional magistrate.

The new bill however does not do away with APMC’s. If the farmers still want to, they can go ahead and sell their produce at APMC’s and avail the MSP support. But they have the freedom to sell elsewhere and receive higher prices but are at the risk of not having MSP’s.

Why have there been protests then?

The downside to this law is that the person in question is a farmer who may not possess the bargaining leverage. This bill will lead to the entry of private corporates that further exploit the farmers

It is also naive to simply assume that farmers in Punjab who are accustomed to mandis will go ahead and sell their produce to buyers in Karnataka. India is still plagued by huge connectivity issues and the cost of transit might far exceed that paid to APMC’s. APMC has this advantage as they are already established they have roads connecting most of the villages making it easier for farmers to get to mandis.

You may have already noticed that although there have been differing views across the country, protests are concentrated to the states of Punjab, Haryana, M.P. This is because it is in these states that farmers rely on MSP and have strong market systems based on APMC’s. In fact, Bihar, Kerala, and Manipur do not follow the APMC system at all. In India, the state governments have the power to regulate agricultural markets and fairs. Hence different states have different approaches towards this. 

 In Haryana more than 75% of the wheat and Paddy is grown is bought by the government at MSP rates whereas this number is higher in Punjab at 85%. The Punjab government charges a 6% mandi tax apart from a 2.5% fee for maintaining APMC’s giving them an annual revenue Rs. 3500 crores. These revenues that are earned from farmers are then given back to them as graceful subsidies in the form of electricity etc. This plays a very important role in the voting dynamics and hence the unrest in these states. 

– ‘Farmers’ (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill‘, 2020

This Bill ensures that farmers are allowed to enter into contracts with buyers. Here farming is carried out on the basis of the agreement between the buyers and the producers. One of the greatest advantages that farmers receive through this bill is the price assurance even before sowing his crops. 

The scope of contract farming is huge as MNC’s regularly get into contracts with farmers in order to ensure they receive specified types of produce. For eg., Mcdonalds uses only a specified kind of potatoes for their Fries and gets them grown accordingly. Similarly, other chains too require specified produce and would prefer to be directly in touch with farmers rather than traders to ensure that they are organic and fresh.

The downside

The downside to this is, however, lies in the fact that over 86% of the country’s farmers are marginal farmers who own very little land. The possibility that huge corporations will go ahead and exploit the farmers through unbalanced contracts is high. These contracts include the dangers of turning farmers into slaves. 

‘Essential Commodities (Amendment) Bill‘, 2020

Of all the 3 bills that have been passed, it is the ECA which was long overdue. The ECA has its roots in WW2 where laws were implemented by the British to exploit the supply within the country. The bill places restrictions on the storage of essential commodities like pulses, oilseeds, onions, etc but has now been amended. The amended ECA reduces the power that states and the center have.

Closing Thoughts

One of the reasons why there has been a lot of uproar throughout the country is due to the unconstitutional way in which the laws were passed as it is the state governments that regulate these aspects. The government should have included the opposition and also taken into account the voice of farmers in order to plug the loopholes in the bills.

This would not only create an assisted approach towards privatizing the sector but also avoid further exploitation. But unfortunately, the bills due to not being communicated appropriately have created an air of mistrust between the ruling, opposition, and the farmers.

Vi - Vodafone-Idea Rebranding reason and future plans

‘Vi’ – Vodafone-Idea Rebranding’s Reasons and Benefits!!

Understanding Vodafone-Idea Rebranding as Vi: Earlier this month ‘Vodafone Idea Ltd’, the resultant of a merger between Vodafone India Ltd and Idea Cellular Ltd. in 2018 rebranded itself as ‘Vi’ (read as ‘we’). With so much competition going on in the Indian telecom market, analysts were expecting Vodafone-Idea’s management to take some drastic steps. Vodafone-Idea needed some steps to fight back Reliance Jio and Bharti Airtel to grow its customers and margin.

Today, we take a look at the reasons behind the Vodafone-Idea rebranding as Vi, and the possible future of Vi.

‘Vi’ – Vodafone-Idea Rebranding: Why it was done? & Reactions?

Rebranding is a market strategy where a new name, symbol, or change in design is done for an already-established brand in order to create a new corporate image for the organization.

In the case of Vi, such reactive rebranding was done to mark the final step towards the integration of the two brands, three years after the news of the merger was first announced. Vodafone India Ltd and Idea Cellular Ltd were two brands that came together to survive the disruptions in the telecom industry post the introduction of Jio.

The rebranding luckily created a lot of social media buzz. But, not all were in favor of Vi with even Jio entering the fun.

reactions of Vodafone-Idea Rebranding

It is clear that Vi now wants to be seen as a competitor and not just a survivor like its parent companies. But rebranding is an expensive affair and comes with added risks. When Snapdeal had created a new identity in 2016, the company spent close to 200 crores. When BP changed its logo to a Helios flower it cost the company $211 million.

In 2010 Zain, a telecom company was acquired by Airtel and renamed to Airtel Kenya. But unfortunately, the brand has undergone multiple rebrandings in the past. Starting from Kencel to Celtel in 2004, then to Zain in 2008 and finally Airtel Kenya. This brand change resulted in confused customers.

Although this cost seems excessive for a simple name change it is necessary as building awareness for a new brand in consumer minds is not easy. This includes multiple costs apart from market research. An actual implementation includes changing the signage on buildings, company letterheads, websites, and name tags. And also putting up advertisements to let the consumers know about the rebranding.

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

Plans post ‘Vi’ Vodafone-Idea Rebranding

Things finally started going their way when the company finally received the much-needed relief where the nation’s apex court granted 10 years to pay the billions it owes to the government. The first step that the company is likely to take will be raising funds in order to meet its immediate operating expenses, government dues, interest payments, etc. The company plans to do this by issuing convertible bonds. The hybrid bonds will have tenures of around 10 years.

Read More: AGR Dues of the Indian Telecom Industry

Once this is done the immediate focus of the company will be on improving its ARPU’s (Average Revenue Per User). Unfortunately for Vi, they currently have one of the lowest ARPU in the industry in comparison to Airtel and Jio. This is important because in order for the firm to achieve a cash flow breakeven it will need to generate double the ARPU’s it currently has.

In addition to this, the company will have to focus on retaining its falling active subscriber base. Vodafone Idea in the last few years has lost close to 100 million subscribers to new entrant Jio. One of the major reasons for this fall is the lack of exposure to the 4G network.

This is bound to affect retention as its competitors are currently preparing themselves for 5G networks. Once its operational efficiencies are improved the next round of financing is expected to come from equities which can be utilized to further strengthen its position in the industry.

Closing Thoughts

After Vodafone-Idea rebranding as Vi, they have also started offering many attractive deals and plans, which are somewhat similar or better than their competitors.

vi new plans example

Although Vodafone Idea has rebranded itself to Vi in search of a fresh start, however, only time will tell about the effectiveness of the new brand. Luckily for Vi, if everything goes in its favor, it will be viewed as the underdog that rose to compete, instead of being viewed as two loss-making entities that came together for survival.

Can Reliance Retail replicate the success of Jio in the retail sector cover Jiomart stores

Can Reliance Retail Replicate the Success of Jio in the Retail Sector?

After severely disrupting the telecom sector, Mukesh Ambani led Reliance has set its eyes on the Indian retail sector. Today, we are going to discuss one of the most popular questions these days i.e. can Reliance Retail replicate the success of Jio in the retail sector similar to what they did in telecom? Here, we assess the acquisition spree undertaken by reliance and the possibility of a disruption in the retail segment. Let’s get started.

Reliance jio mart

Reliance and Future group acquisition

On August 29th, Reliance Retail reached an agreement with Future Group. According to the deal, Reliance would buy Future retail, wholesale, logistics, and warehousing business for $3.4 billion (Rs. 24713 cr.)

The Future Group was founded by Indian businessman Kishore Biyani as a stonewashed fabric seller in the 1980s. Today it is known for its retail segment which includes the BigBazaar hypermarket chain, Pantaloons clothing shop, FBB, Foodhall, Easyday, Nilgiris, Central, and Brand Factory.

But unfortunately for the Future group, its success came with huge amounts of debt and the COVID-19 pandemic finally broke the last straw. The deal gives Reliance access to 1500 stores in more than 400 cities with millions of customers.

future group big bazaar

Why did Reliance Choose Future?

Future despite being a brand that used to be successful is loaded with debt and doesn’t come close to compete with Reliance retail which as of September 2019 had over 10900 stores in 6700+ cities. The answer to this could lie in Futures’ presence on a scale in the brick and mortar retailing established brands, work systems, and human resources built over the years. The sale comes with established label brands that have a vendor ecosystem that has been developed.

The deal also includes Futures supply chain solutions which offer warehousing and logistics services. Its customers include the likes of Tata which uses this company as a service provider for dealers across the country and such a deal would help Mukesh Ambani in expanding his reach.

The deal, however, fell through with restrictions placed on the man who led the organized retail revolution in India. Kishore Biyani and his family members are not allowed to re-enter the retail segment for the coming 15 years. This is part of the non-compete agreements that are valid generally for 3-5 years.

The possible reasons for the long period maybe the financials of Future. Biyani is still allowed to operate in the home retailing sector through hometown stores. He owns Praxis Retail which has around 48 stores and has a generated revenue of Rs.702 crore in the last fiscal year.

Investing and Acquisition Spree of Reliance in Retail

After disrupting the telecom spree, Reliance recognized the potential of the Indian retail sector. This began in 2018 with Reliance announcing its entry into the e-commerce space with an online and offline hybrid system. This was followed by a series of acquisitions and finally the founding of Jiomart late in 2019.

Acquisitions and Investments

One of Reliance retails biggest acquisitions includes that of Hamleys for Rs. 620 crores. The acquisition of the 259-year-old toy store chain will give reliance added foothold in global markets to compete with the likes of Wallmart and Amazon. Reliances other investments include Genesis Luxury Fashion, apparel firm Future 101 Design, GLF Lifestyle brands, GIB body care, etc. and Zivame. Reliance also acquired Rhea Retail. In the pharma, segment Reliance acquired an online pharma company Netmeds for 420 crores.

Reliance has not limited itself to only expanding into the organized retail segment. It has also taken steps to ensure that the retail segment can be easily integrated into the online market place by making some significant acquisitions in the following startups

Other Acquisitions

Company AcquiredFunction
GrabLogistics startup
C-Square software firm
Reverie Language TechnologiesA vernacular language-as-a-service platform that enables real-time delivery of online content in many vernacular languages.
EasyGovIndian government schemes/services aggregator enables people to apply for various government schemes
SankhyaSutra LabsA multi-physics simulation service helps to find solutions to industrial problems.

Strategy for the Retail Sector

Reliance first entered into the retail segment in 2006. At this point, Reliance has not even been partitioned between Mukesh and Anil Ambani. By 2014 Reliance already had surpassed market leaders like Future in terms of revenue. It was in 2018 that Reliance tested the eCommerce space through reliancefreshdirect.com and ajio.com. In November 2018 reliance began testing JioMart “Desh ki Nayi Dukan”. It was tested in Mumbai, Thane, and Kalyan.  Here orders could be placed through the instant messaging app Whatsapp. This gives Reliance access to the massive 400 million user base through Jio and Whatsapp. In the eCommerce, space Reliance is still behind market leaders like Amazon and Walmart.

So what plans does Mukesh Ambani have in store for the retail sector?

After having fair amounts of success in the organized retail sector Reliance has turned its focus towards the unorganized sector which includes local Kiranas. Mukesh Ambani has made it clear that Reliance’s future includes prospects where 50% of the groups’ revenue would be made through consumer-facing business in a decades time. Retail currently accounts for 21% of Reliances revenue. 

So what plans does Mukesh Ambani have in store for the retail sector?

In order to achieve this goal through the unorganized sector Reliance place to get local merchants on its eCommerce platform. Here the digital infrastructure built by Reliance Jio will be combined with its physical retail business. This is also known as O2O (Online to Offline marketplace) a business model used by Chinese eCommerce giant Alibaba. Here the consumer searches and orders the product through an online platform but buys it through offline channels. In the midst of all this will be the Point of Sale (PoS) terminal which is still being tested.

This PoS terminal will not only help merchants carry out common debit and credit card transactions but also enable them to keep a product inventory and also order through the wholesale store network. The apps and systems that will enable this are still being tested. 

After understanding the design set in place the acquisition mentioned earlier(particularly support services) look more like strategic acquisitions. Examples include the purchase of ‘Grab a Grub’ a Mumbai based hyperlocal delivery company, Csquare info solutions – a company that provides software solutions for distributors and retailers, Haptik Infotech will provide conversation AI-enabled devices to users. These strategic acquisitions will not only boost Reliance’s mission but also help the startups extend their reach and funding under Reliance.

Challenges in the Unorganized Sector

One of the challenges that Reliance would face is getting local traders to tag along. Praveen Khandelwal, Secretary-General of the Confederation of All India Traders has lobbied in the past against eCommerce MNC’s players. He also states that the same rules would apply to domestic entrants as well.

This is mainly due to the predatory pricing followed by eCommerce players. This is mainly due to the predatory pricing followed by eCommerce players. If we look at how Reliance had gained significant market share in the telecom sector it becomes clear that there is a good possibility that the same predatory pricing measures may be used in the initial stages of the retail venture.

The Big Question: Can Reliance Retail Disrupt the Retail segment?

The Indian retail market was valued at 700 billion in 2019 and is expected to grow to $1.3trillion by 2025.  Out of this the organized retail sector forms only a 10% share. The online retail segment is much smaller than this and it is worth only 3% of the total retail market in India. This shows why Mukesh Ambani was towards the retail segment.

Infiltrating the unorganized sector through the means of retail offers unlimited scope for growth. This also shows how only a small portion of the market has been tapped offering room for multiple players. Reliance may be able to grow within the sector but a disruption like the one seen in telecom is far fetched. 

Bloomberg reported that a 40% stake has been offered to Amazon in Reliance retail in exchange for a $20 billion investment in the company. What’s interesting is that the near future will bring the possibility that two of the wealthiest men teaming up or otherwise competing to exploit the vast Indian retail opportunity.

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

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

An analysis of Nifty 50 Companies to learn Nifty Constituent Stocks by Weightage: Nifty 50 is the benchmark index of the National stock exchange (NSE) in India. Basically, an index is the stock exchange creating a portfolio of the top securities held by it based on market capitalization in the respective category (entire market or sector-wise).

These indexes are useful because they provide investors and companies with a reliable benchmark. They have also been used as an investment strategy. In these cases, Investment Managers just set up their fund portfolios to simply track the index. They use the same portfolio as the index in an attempt to gain similar market returns.

Indexes play an important role as they also stand in representation of a country’s market and economy. Today, we observe NSE’s benchmark index namely Nifty 50. We take a look at the companies they have included along with the weights assigned to each.

Nifty 50 – NSE Benchmark Index

The Nifty 50 index tracks the behavior of the top 50 blue-chip companies as per market capitalization that are traded on the National Stock Exchange. Although the index includes only 50 of the 1600 companies that trade on the NSE it captures 66% of its float-adjusted market capitalization. Therefore, it is considered a true reflection of the Indian stock market.

Here are a few top features of the Nifty 50 Index:

  1. The base year is taken as 1995 and the base value is set to 1000.
  2. Nifty is calculated using 50 large stocks that are actively traded on the NSE.
  3. The 50 companies are selected on the basis of the free-float market capitalization.
  4. Here, the 50 top stocks are selected from different sectors.
  5. Nifty is owned and managed by India Index Services and Products (IISL)

Nifty 50 Companies – Constituents of Nifty 50 by Weights – 2020

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

Quick Note: If you want to research more about the fundamentals of these companies, you can go our Stock research and analysis PORTAL here.

Bonus: BSE Sensex Constituent Stocks

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

  1. The 30 companies are selected on the basis of the free-float market capitalization.
  2. These are different companies from different sectors representing a sample of large, liquid, and representative companies.
  3. The base year of Sensex is 1978-79 and the base value is 100.
  4. Sensex is an indicator of market movement. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE has gone down. If Sensex goes up, it means that most of the major stocks in BSE went up during the given period.

Sensex 30 Companies- Constituents of Sensex 30 by Weights – 2020

 NameIndustry Weight
1.Reliance Industries Ltd.Integrated Oil & Gas17.20%
2.HDFC Bank Ltd.Banks10.41%
3.Infosys Ltd.IT Consulting & Software8.87%
4.Housing Development Finance Corporation Ltd.Housing Finance7.66%
5.ICICI Bank Ltd.Banks5.57%
6.Tata Consultancy Services Ltd.IT Consulting & Software5.52%
7.Hindustan Unilever Ltd.Personal Products4.89%
8.Kotak Mahindra Bank Ltd.Banks4.69%
9.ITC Ltd.Cigarettes,Tobacco Products4.14%
10.Bharti Airtel Ltd.Telecom Services2.77%
11.Larsen & Toubro Ltd.Construction & Engineering2.76%
12.AXIS Bank Ltd.Banks2.35%
13.Maruti Suzuki India Ltd.Cars & Utility Vehicles2.06%
14.Bajaj Finance Ltd.Finance (including NBFCs)1.99%
15.Asian Paints Ltd.Furniture,Furnishing,Paints1.92%
16.HCL Technologies Ltd.IT Consulting & Software1.90%
17.State Bank of India Banks1.82%
18.Nestle India Ltd.Packaged Foods1.46%
19.Mahindra & Mahindra Ltd.Cars & Utility Vehicles1.46%
20.Sun Pharmaceutical Industries Ltd.Pharmaceuticals1.45%
21.UltraTech Cement Ltd.Cement & Cement Products1.12%
22.Titan Company Ltd.Other Apparels & Accessories1.08%
23.Tech Mahindra Ltd.IT Consulting & Software1.04%
24.Bajaj Auto Ltd.2/3 Wheelers1.01%
25.POWERGRIDElectric Utilities1.00%
26.Hero MotoCorp Ltd.2/3 Wheelers0.86%
27.NTPC Ltd.Electric Utilities0.81%
28.IndusInd Bank Ltd.Banks0.75%
29.Tata Steel Ltd.Iron & Steel/Interm.Products0.72%
30.Oil & Natural Gas Corporation Ltd.Exploration & Production0.71%

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

That’s all for this post. I hope it was useful for you. In case, if you have any queries related to Sense and Nifty 50 Companies or constituent stocks, let me know by commenting below. I’ll be happy to help. Happy Investing.

Indian GDP Shrunk by 23.9% in First Quarter 2020 - But Why cover

Indian GDP Shrunk by 23.9% in First Quarter 2020 – But Why?

A study on why Indian GDP Shrunk by 23.9% in the first quarter of 2020: Hit by the Covid-19 pandemic, India, the world’s fifth-largest economy has been turned into the second-worst performer in the Covid-19 hit the quarter of the financial year 2020-21. India’s Gross Domestic Product (GDP) has shrunk by 23.9% in the first quarter of the financial year 2020-21.

Generally in forecasts, it is of rare occurrence to find the negative performances beating the downward trends. But that is exactly what has happened in the first quarter as although a negative GDP was predicted but nothing close to wiping out 1/4th of the GDP. Today, we take a look at the reasons behind the decline and the possible future.

business today Indian GDP Shrunk by 23.9% in First Quarter 2020(Image Credits: BusinessToday.in)

Why did the Indian GDP Shrunk by 23.9%?

Earlier, when this issue of the state of the economy came up at the 41st GST Council Meeting on Friday, Finance Minister Nirmala Sitharaman looked into the celestial factor and stated:

“This year we are facing an extraordinary situation…we are facing an act of God which might even result in the contraction of the economy.” – Nirmala Sitharaman, Finance Minister

Now, let us look into some of the hard facts. The Indian economy suffered due to the nationwide lockdown imposed. This was during the April- June quarter of which the lockdown covered a major portion. India had one of the longest and strictest Covid-19 lockdowns in the world. And unfortunately enough also suffered is suffering through the worst economic consequences. In comparison to other countries around the globe, India has been one of the worst-hit.

In order to understand how exactly the GDP was affected and how it can recover, we must first take a look at the components that form a part of the growth. These are consumption, government expenditure, investment, and the nation’s current account deficit (imports – exports).

  1. Consumption generally has the greatest impact on GDP. In the last quarter, consumption accounted for 56.4 percent of the country’s GDP. But when compared to figures from 2019 there is a drop of Rs 5,31,803 crore in private consumption or 27 percent. This has been one of the major reasons as to why the GDP has contracted. This is because people simply are not willing to consume more as most expect tougher times ahead.
  2. The Investment portion made up 32 percent of India’s GDP. This portion too fell by Rs 5,33,003 crore in comparison to last year. When coupled consumption these two components made up for 88 percent of the total GDP shrinkage 
  3. The government expenditure share of the GDP stood at 11 percent. This component rose by 16% due to the relief measures provided by the government. This increase in expenditure, unfortunately, could not make up for the total decline from the consumption and investment portion.
  4. The current account deficit which historically has always been in negative recorded positive rates. But this too was not due to exports exceeding regular imports. It was simply due to the lack of imports due to a lack of demand.

P. Chidambaram (Member of Parliament, Rajya Sabha) on Indian economy shrunk by 23.9% in 2020Image: P. Chidambaram (Member of Parliament, Rajya Sabha)

The National Statistical Office (NSO) in an official statement released that “The GDP has shrunk from Rs 35.35 lakh crore in Q1 of 2019-20 to Rs 26.90 lakh crore in the first quarter of Q1 of 2020-21, showing a contraction of 23.9 percent as compared to 5.2 percent growth in Q1 2019-20,”.

What does the future hold for the Indian economy?

The future of the Indian economy depends on how well is the purchasing capacity distributed among the general public. This is generally spread out by the income earned by the citizens.

But the pandemic has rendered millions jobless forcing them to cut back on their spending habits. This reduces the consumption portion. When there is a fall in consumption businesses avoid making investments as they already are aware of the lack of demand. These two portions, unfortunately, depend on individuals as they cannot be forced to spend. One factor that can be controlled is government expenditure in order to boost the GDP.

But unfortunately, enough even prior to the pandemic the government had already exceeded their resources by borrowing. The only option remains is to keep borrow from the RBI which has maintained amounts close to 18% of the GDP as a reserve. An infusion will provide some relief and may get the consumption portion moving as long as inflation is kept on check.

For the remaining quarters to come analysts have predicted that even though the GDP will improve but will still keep performing negatively. This recovery phase is expected to also likely extend into the first half of 2022. But these estimates depend on current figures and will change depending on how deeply COVID-19 outbreaks occur throughout the country

Top 5 Stock Market Investors of All Time cover 2

Top 5 Stock Market Investors of All Time!

A hand-picked list of the top 5 stock market investors in the world: Its been over 4 centuries since the inception of the world’s first stock exchange in Amsterdam. Since then there have been many investors- some known for their success and others for their ability to loose their massive wealth.

The list below includes investors that struggled through poverty, escaped the Nazi’s and even those that worked closely with spy agencies during the Cold War. An extremely interesting list to go through and even better footsteps to follow. Today we bring to you a comprehensive list of the top 5 investors of all time.

Top 5 Stock Market Investors of All-time!

5. Benjamin Graham

There are very few investors who have not only succeeded in their investment pursuits but also have successfully influenced multiple generations of investors at the same time. Any investor on this list cannot deny being influenced by Benjamin Graham.

Benjamin Graham was born to Jewish parents in England in the year 1894. Despite experiencing poverty first hand he graduated from Columbia University on a scholarship and went on to work in Wall Street. By the age of 25, Graham was earning $500,000 annually in the 1920s.

Benjamin Graham

— His transition into an Investment Guru 

But he soon lost almost all of his investments during the stock market crash of 1929. It was after this that Graham took the time to put the observations he made for investing in a book called Security Analysis while working as a lecturer at the Columbia Business School. It was in this book that Graham brought forward the concept of value investing, where investments are made based on the intrinsic value of the stock and not that of the market price. 

But it was Grahams’ next book “The Intelligent Investor’ which is considered mandatory in every investors’ home. It was in this book that he introduced Mr. Market. Mr. Market shows up at every investors’ door giving them an option to buy or sell. But Mr. Market is often irrational and his emotions are run by greed and fear. Graham emphasized that i is necessary for every investor to do their own research and not depend on Mr.Market. According to him, a successful investor makes Mr. Market his servant and not his friend.

— Notable Investments

Grahams’ most notable investments include his 50% purchase of GEICO in 1948 for $712,000. This position grew to $ 400 million by 1972. His teachings and work inspired many notable investors like Warren Buffet, Irving Kahn, Walter Schloss, and Bill Ackman.

His book ‘ The Intelligent Investor’ is considered the bible for investing. Although it has been over 4 decades since Benjamin Graham passed away, his contributions still remain relevant and will continue to do so for the years to come.

4. David Swensen

Yale University, an Ivy League college, the third-oldest institution of higher education in the US was founded in 1701. Its alumni list includes 5 US presidents. Ever considered who is the highest-paid at Yale? Is it the University President Peter Salovey who is paid $1.4 million in 2015. The answer is ‘No’. The highest-paid employee at the school is its Cheif Investment Officer David Swensen who makes over $4 million annually.

David Swensen

— Early Career

Swensen himself is an alumnus of Yale and pursued a Ph.D. in economics. Before joining Yale as a Fund Manager, Swensen spent 6 years working at Wall Street. Advising the Carnegie Corporation, the NYSE, and also worked for the Salomon and Lehman Brothers. It was in 1985 that Swensen received the offer to manage Yale’s Endowment Fund which was worth $1 billion. Swensen was only 31 years old at the time, had no experience in portfolio management, and taking the job would mean taking an 80% pay cut. Suicide if you would ask anyone at the time.

Swensen, however, took the job. It was here that he along with Dean Takahashi invented the Yale theory. Swensen succeeded in implementing the theory and now is commonly known as the Endowment Model.

— The Endowment Fund

One may think that Swensen hit the lottery by managing the Yale fund. But to provide returns of the scale he did is nothing short of herculean. Especially due to the nature of the fund was made up of donations received by the university and hence require secure investments. The fund is also used to provide scholarships. All this on top of student protests over the choice of investments made that do not fall in line with the changing social causes. This forced Swensen to move away from investing in the companies that have a large carbon footprint. 

As of 2019, the endowment fund was worth $29.4 billion. Second to Harward whose endowment fund is worth $39.2billion. According to former Yale President, Richard Lenin Swensens contribution to Yale is greater than the sum of all the donations made in more than two decades.

3. Jim Simons

Jim Harris Simmons was known to be gifted in mathematics from a very early age. He joined MIT at the age of 17 and went on to receive his Ph.D. in mathematics from Berkely at the age of 23. 

— Early Career

Jim Simons

He began working at the Institute of Defence Analysis, which was a branch of the NSA in the US. It was set to break Russian codes during the cold war. Simons states that he loved the job because it paid well and he was allowed to work on his personal math projects for half of the time. The work he did here remain confidential.

He, however, was fired after he expressed his views against the Vietnam War in an interview. He later went on to work at Stony Brooke University. Jim Simmons is famous not only in the world of investing but is also a highly acclaimed mathematician. He is noted for the Chern-Simons form which contributed to the development of string theory. 

— Transition into an Investment Manager

Jim Simons investment advisor

Jim Simons’s first investment was from the amount he received at his wedding in 1959. He invested this in stocks but found it boring and later invested it in Soy-beans. It was only in the 1970s that Simons began taking investing and trading seriously. He took out his investments from his friends firm in Columbia and began trading with foreign currencies. He founded his own hedge fund Rennaissance Technologies and decided to crack the market y applying his mathematical skills here. Due to this reason, both he and his fund are called Quantum Investors. 

His fund did not make good returns which led to him closing it for a year in order to figure out what went wrong and to restrategize. After opening again the Medallion fund went on to become to most successful hedge fund of all time. The fund gave a staggering 66% per annum returns and a net return of 39.1% after the huge investor fees. This made the Simons a billionaire and currently has a net worth of $21.6 billion according to Forbes.

Even though the strategy used has been released in a book all employees are made to sign an NDA agreement. In addition, they are also asked to sign a non compete agreement later on in order to keep the means used to achieve these returns within the company.

2. George Soros

Soros was born in the 1930s to a Hungarian Jew family. A terrible time for the Jews in Europe. His teens were spent escaping persecution by the Nazi’s during WW2. His family did this by changing their names from Shwartz to Soros and by masquerading as Christians. Soros went on to study at the London School of Economics after which he did several odd jobs before entering Wall Street.

— The man who broke the Bank of England

George Soros

In 1970, Soros founded Soros Management where he managed the Soros fund. But it was only on September 16, 1992, that Soros rose to fame. For months leading up to this date, Soros built a huge sort position of 10 billion Pounds. This day was termed as Black Wednesday in the UK. Soros, on the other hand, made a profit of $1 billion on a single day. This came at a cost of 3.4 billion pounds to the Bank of England. Hereafter he was known as the man who broke the bank of England. 

— Is Soros still infamous today?

In recent times too, unfortunately, Soros is known for all the wrong reasons. He is often targeted by the rightwing politicians and has often been the center of many conspiracy theories. This has been particularly because of his economical support to the Left and his charitable organization ‘Open Society’.

The Open Society has been accused multiple times of attempting to topple governments that oppose illegal immigration and the influx of Muslim refugees in Europe. Soros, however, claims that he founded the society to ensure the building of vibrant and tolerant democracies. Soros and his NPO are currently banned in 6 countries.

1. Warren Buffett

The brilliant track record and wealth that Warren Buffet amassed from investing gives him the number one spot undisputably.

Warren Buffet was born in 1930 to a future US Congressman, Howard Buffet. Despite this Buffet spent his childhood in poverty and so the importance of money was instilled in him at a very young age. This drove him to set the aim of becoming a millionaire by the age of 30 or jumping off the tallest building in Omaha. 

— Early Career

young warren buffett

The entrepreneurship spark and his obsession with numbers were visible in him from a very young age. He adopted a paper route when young and learned the benefits of diversification as he realized that he could make more money by selling magazines as well and made $175 a month from this.

Apart from this Buffet sold CocaCola, chewing gum, golf ball, stamps, and also worked at his grandfathers grocery when young. Buffets’ infatuation with numbers got him interested in the stock market and made the first investment at the age of 11. Warren Buffet filed his first tax return at the age of 14. At around the same time he also bought a farm. Buffet went on to buy 3 shares of the Citi Service for himself.

Although Harward would have been his first choice Buffet was rejected. He then went on to study at Columbia Business School because one of the investing greats Benjamin Graham taught there. After graduating he went and achieved one of his most prized possessions a diploma for a course in Public Speaking under the legendary Dale Carnegie. Warren Buffet then went on to work under Benjamin Graham under whom he grew as an investor.

Warren Buffet retired at the age of 26 after buying a house and having $174,000 in savings. But his dream of becoming a millionnaire brought him out of retirement. 

— The Berkshire Hathaway Story

His investment strategy in the initial days included Cigarette Butt Investing. In 1962 this strategy led him to invest in a textile manufacturing firm called Berkshire Hathaway. He held the shares for 3 years but later came to terms that this was the worst investment he ever made. In 1964 the company made him a tender offer at $11.50 per share.

However, when Buffet received the offer in writing 3 weeks later the price was quoted at $11.375 per share. This $0,125 reduction angered him and he bought Berkshire Hathaway and immediately fired its owner Seabury Stanton. But after this, he realized that the business would not improve. He shut down the core business of textiles in 1967 and expanded into the insurance industry and investing. 

Warren Buffett

Some of the other notable investments by Buffet include Washington Post, Exxon, Geico, and CocaCola. In 1979, Warren Buffet had a net worth of $620 million due to Berkshire Hathaway. He then set a new goal of becoming a billionaire. Buffet reached the goal when the shares of Berkshire Hathaway closed at $7175 on May 29th, 1990. As of 2020, has a net worth of $69.6 billion.  In the world of investing Warren Buffet is nothing short of a rock star.

Why are Gold prices skyrocketing? Is it a good time to buy?

Why were Gold Prices Sky-Rocketing? And Is it a Good time to Enter?

After the gold prices crossed Rs. 50,000 for 10g after 9 years period since 2011 in India, there seems to be no stop to how high the prices can go. The gold prices touched Rs.58,100 for 10g in Bangalore as of 7th August. This shouldn’t have come as a surprise because commodities like gold have always had exceeding demand in India. Especially after considering that India is one of the world’s largest consumer second only to China.

However, the increase seems unrealistic in times of pandemic where every investment seems to have suffered, only gold seems to have found its biggest boom. In the three year period from September 2016 to October 2019, gold saw an increase of 25% in its value. But along with the increasing troubles of 2020 in the midst of a pandemic the value of gold has already shot up 37.8% or by Rs. 15,240 with 5 more months to go.

Today, we take a look at the scenario finding possible reasons for the boom and also discuss if investing now is a good idea.

The Indian Gold Market

It would be rare to find a market in India that has consistently been in demand such as that of Indian Gold. There have been many jokes that have passed on claiming that the gold available in households is more than sufficient to cover all the deficits and debt that our country faces. But when we look at the following figures these statements may not be exaggerated. Indian households have piled up as much as 25000 tonnes of gold. To put things in perspective that alone would amount to Rs. 145.25 lakh crores in today’s rates. India’s central bank the RBI, on the other hand, has a total holding of 653.01 tonnes of gold. That too after buying additional 40.45 tonnes of gold in the current year. 

The figures in the households are the ones that have been accounted for. It does not include gold smuggled into the country which stands approximately at around 120-200 tonnes every year. After observing these figures it may not come as a surprise that India accounts for 25% of the world’s total physical gold demand worldwide. 

Why is there an increase in Gold Price?

For many Indians, gold has always been the favorite investment instrument traditionally apart from the land. Despite this, a significant portion is still placed in liquid assets like cash, stocks, etc. In the times of a pandemic, individuals are seeking shelter for their savings in an investment that doesn’t necessarily provide great returns but at least maintains its value and provides liquidity. This has led to the demand for gold skyrocketing to new heights.  

Now we take a look at some other factors that have lead to this increase in demand.

1. Scarcity

As you may already know that gold is scarce because all gold is mined. Over time however mining for more gold has become difficult and due to its characteristics, it is safe to say most of the gold is recycled and put back into circulation. But luckily enough this gold cannot be consumed like other commodities. Enabling it to keep its value since time immemorial keeping up with the rising population. Another factor that adds to its scarcity due to its lack of consumption is what happens after the commodity is bought.

Gold, after it is bought, is taken out of the market for long periods of time only to be kept in a drawer or bank locker taking it out of the market for years. But these factors like scarcity, inability to consume, etc, have always existed. Then why have the prices increased now?

These factors have always existed at lower prices only because the increasing demand has always been checked with adequate supply. In order to limit the spread of the virus most countries had to resort to a lockdown. This has had adverse effects on not only mining but also a lack of shipments. As per some estimates, the global demand for gold is 1000 tonnes more than the supply. This rise in demand as mentioned earlier has been due to people’s search for a secure asset.

2. Culture

gold india

The demand for gold also has its roots in humans’ desire for beauty. Demand for gold in India is interwoven with culture, tradition. This is primarily because of the dependence of marriages and other functions on gold. According to a study by the World Gold Council, Indian consumers view gold as both an investment and an adornment. When asked why they bought gold, almost 77 percent of respondents cited the safety of investment as a factor, while just over half cited adornment as a rationale behind their purchase of gold.

3. Geopolitical Factors.

People search for a safe haven like gold extends to periods of geopolitical tension like war. This is the reason why crisis situations like wars have a negative impact on almost all asset classes. But when it comes to gold it has a positive impact. This increase in the price of gold was earlier also noticed during the Korean nuclear crisis. Similar trends are noticed due to tensions between India-China and US-China.

4. Exchange Rates

It has been observed that a weakened US Dollar also leads to a rise in gold rates. The same is noticed in the current situation.

5. Limited Influence by Big Market Movers.

increasing gold prices Limited Influence by Big Market Movers

In stock markets, it is the FII and DII’s that are termed as market movers. This is because of their ability to influence market trends due to top huge capital in possession. In the Gold market, it is the central banks that have a significant influence. This is because almost every central bank keeps reserves in the form of investment in gold. When an economy is performing well and the RBI has sufficient foreign reserves it will want to get rid of gold.

Because gold does not generate any return and a booming market will provide a better return if the money is invested elsewhere. But in this scenario, the other investors as well will not want to invest in gold as they too would prefer to earn returns. Hence central banks are caught on the wrong side of the trade leading to a fall in the value of gold.

 But however, the influence the central banks like RBI have is limited. This is because of the Washington Agreement. This agreement, however, is not binding and is more like a gentleman’s agreement. According to it, central banks will not sell more than 400 metric tons a year. Limiting the influence of central banks even if they want to benefit from high prices.

In Closing: Should you Invest in Gold now?

Predicting Investments is always tricky due to the uncertainties present. Most of us may have already noted the effects of economic turmoil on gold and decided to invest in the future if we are faced with a similar scenario. But that doesn’t help today, does it? In order to help you take better decisions, let us take a look at previous gold rate highs.

In Closing: Should you Invest in Gold now?

If you notice in the above chart you’ll be able to see that the Gold rates boomed in the 1980s as well. But a person investing in such a high would only reap the benefits almost 3 decades later post 2008. Similarly, a person who invested in 2011 is reaping some minimal positive benefits in 2020. Hence considering this if investments were made in gold say in early 2020 is a completely different story than investing now.

However, it is also best to take a look at the forecasts predicted by analysts. Analysts, however, have been bullish and have predicted that gold prices could go up to Rs. 65,000 for 10g in the next 18-24 months. But it is necessary to note that these estimates depend on a period that COVID-19 will take a while more to be controlled. Also, public vaccine availability is not anticipated for at least months to come. 

From the above arguments, it shows that when the investment is made on a long term perspective there may be other alternatives that provide better results in the same time frame. However, investing for short periods completely depends on one’s estimates for COVID control or vaccine availability oy unavailability.

Also read: [Update] COVID-19 Vaccine: When can we expect it to be ready?

'National Educational Policy' (NEP) 2020 cover

‘National Educational Policy’ (NEP) 2020 – Highlights & Concerns

An overview of the National Educational Policy (NEP) 2020: On July 29th, 2020 the Modi government announced the New Education Policy in a move that left us stunned over the sweeping changes involved. The only dismay that most of us had was that our wish to be able to study once these reforms are imposed is not possible.

In this article, we cover the key points of the NEP and their views from different perspectives with hopes that the policy is better understood and loopholes if any are addressed.

National Educational Policy india

Highlights of the New Education Policy

This is the third education policy bought forward by the Indian government in its efforts to raise Indian education standards. A much-needed decision. 34 years after the last policy was implemented it is also the first Education policy by the BJP. The policy was approved by the union cabinet but is yet to be presented in the parliament.

The new National Educational Policy also requires further regulation between the state and center. However, it is still policy and not the law to be followed. The following are some of the points in the policy.

— NEP for Schools Students

1. New pedagogical and curricular structure of school education (5+3+3+4): 

The education system currently follows the 10+2 structure. This will soon be replaced by the 5+3+3+4 curricular structure. The new structure can be better understood when it corresponds with a child’s age i.e. 3-8, 8-11, 11-14, and 14-18 years respectively. The first stage includes time spent in Anganwadi and preschools.

This new structure divides the existing structure as per the cognitive developmental stages of a child. These are early childhood, school years, and secondary stage. It also should be noted that this change in structure does not change the years that a child spends in formal education. They remain the same as before. 

The new structure brings changes to the examination structure too. As per existing norms, a child gives an exam after every academic year. But once the NEP is implemented children will give examinations only in class 3,5, and 8. This is apart from boards which too will see considerable changes. 

2. Earlier, schooling was mandatory for children aged between six and 14 years. Now education will be compulsory for children aged between the three and 18 years.

This move would allow those aged from 14-18 years to also demand the same Right to Education(RTE) that was earlier present only up till 14years. Now children above the age of 14 too can demand this.  Meaning they can get educated up to 12th grade free of charges at any government educational establishment.

3. Mother tongue as the medium of instruction

National Educational Policy Mother tongue as the medium of instruction

It is obvious that the mother tongue is the first language that a child understands. Hence understanding newer concepts will be much easier when if done in the mother tongue itself. In order to implement this the medium of instruction in schools will change too.

This move is also inspired after observation of the medium of instruction imposed in some European countries. In these places, when a child is introduced into the schooling system he is only taught in his mother tongue be it German, Italian, Spanish, Russian, etc. depending on the country. Due to this, children are able to grasp trivial concepts easily. This will be made compulsory until 5th grade at least or preferably until the 8th. 

The NEP also includes the three-language policy. Here all students will learn three languages in their school. It is mandatory that at least two of the three languages should be native to India. 

The introduction of this policy is also in line with the NEP’s aim of increasing the Gross Enrollment Ratio in higher education. It has been found that the inability to cope with languages like English as the cause for dropping out. 

4. Baglessdays and informal internship

Baglessdays and informal internship

According to this, students will participate in a 10-day bagless period. During this period students from Grades 6-8 will intern with local vocational experts such as carpenters, gardeners, potters, artists, etc.

This was another move, that was hugely appreciated as necessary professionals that are looked down upon by society will finally be viewed with newer outlooks in the coming generations. This move will also enable children to pick up at least one skill during the period. 

5. Coding for Children

Children will now be able to learn to code from class 6 as coding will be included as a part of their curriculum. This move will put students at par with the Chinese where similar policies with regards to coding have already been implemented in their education system.

6. Multi-Stream Flexibility

Once the NEP is imposed, the compartmentalization of students post 10th into Arts, Science and Commerce will be blurred. Now students will be allowed to take up courses from varied streams depending on their interests.

For eg., A student interested in physics will be able to do so by also taking up subjects like economics and politics. This was one of the most lauded moves of the NEP. Furthermore, Bachelor’s programs too will be multidisciplinary in nature with no rigid separation between arts and sciences.

— NEP For College Students

7. Common Entrance Tests for Colleges

Students now will be judged by common SAT (present in the US) like tests that will decide the eligibility of students for different colleges. These tests will be held twice in a year.

8. 4-year bachelor degree  

Funnily enough, just a few years back this move was highly criticized when implemented in Delhi. This move does not simply make bachelor degrees longer but also provides students with the option to change degrees if they feel it does not suit them. A student who realizes this and will be allowed to drop.

He also is allowed to transfer the credits he earned in the previous degree into the degree he chooses. A student who decides to drop out after completing 2 years can do so and will be provided with a diploma certificate associated with that degree. Students who drop out after 3 years will receive a bachelors missing out only on research opportunities present in the final year. 

9. Fee Cap

 The New policy suggests a cap on the fee charged by private institutions in the higher education space. One of the major hindrances a student faces when trying to obtain quality higher education has been affordability. A fee cap imposed would go a long way in making education more equitable.

 10. Opening up higher education to foreign players

Opening up higher education to foreign players

According to this the top 100 education institutions in the world will now be encouraged to come to India and set up campuses. Every year 750,000 Indian students go abroad in pursuit of higher education. This move will not only go a long way in reducing brain drain but also help in making global education more accessible. A similar move was implemented in the UAE successfully. The UAE is now home to universities like Hult International Business School, University of Wollongong, British University, American University of Sharjah and Dubai. Now that UAE can implement such a move it also shows the way to countries like India. Especially because we hold a student population much greater. Increasing the interest from foreign universities. 

Differed Views over the NEP 

Every point mentioned above is an advantage in itself. But post the disclosure of the NEP there have been varied viewpoints, concerns, and criticisms surfacing. We now look at these so-called loopholes in the NEP so that they can be further addressed

1. Language

There are many viewpoints directly addressed at languages i.e. medium through which students will be taught in schools, and the options available to them. First comes the problem of even introducing mother tongues into schools. India already faces a huge shortage of teachers leading to the skyrocketing teacher: student ratio in the country.

On top of this finding, a staff that is Qualified to teach is a challenge in itself. Next comes the challenge of bringing forward material in each of the mother tongues. Say for eg. bringing forward textbooks of maths, social in each of our mother tongues is a herculean task in itself. 

On July 29th, 2020 the Modi government announced the New National Educational Policy

It is completely understandable that the government wants to hold the same status as Germany, China, etc. where foreigners have to learn the language in order to better deal with the country. At the same time when the NEP is marketed in that way, it does not address that there are 22 languages active in India instead of one national language as in other countries.

The other problems that have already been raised with respect to language associates with the three-language policy. States like Tamil Nadu have already begun calling out the center and have associated the NEP as a tactic simply to implement Hindi in the state.

The three-language formula in the new National Education Policy (NEP) 2020 is “painful and saddening”, said Tamil Nadu Chief Minister Edappadi K Palaniswami, as he vowed not to implement the new policy. Unfortunately, the imposition of Hindi has been a major issue in Tamil Nadu often leading to protest and has reduced the NEP to another gimmick by the center by the current CM.

2. The increasing disparity between sections of society

The policy shows how students in government schools will be taught in the regional languages up to 5th standard if not 8th. The private schools, however, will not take a step back in introducing English from the early stages. If a student only begins to learn English 7 years later to that of students in private schools the difference will only add to those of learning a language in an environment that is not conducive to speaking, writing, and reading English.

Even when it comes to providing material to students in regional languages or mother tongues the NEP 2020 mentions that textbooks should be available in regional languages, but also must be downloadable and printable. It fails to address that less than 30% of Indians have smartphones. And if you and the people around you do have one it just shows us the fortunate category we are in and the fortunate category of people we surround ourselves with at all times. Also, there is a need for computers in order to learn to code. 

3. Four-year graduation program

The four-year graduation program, unfortunately, lets go of most of the benefits after approving dropouts in the first year in order to change streams. What is the purpose of allowing dropouts in the later stages? Why should a student even wait to complete 4 years if he receives a diploma in two? If he leaves immediately he may have added 2 years of work experience instead of classwork.

And on top of all, how will a child from a lower-income background answer these questions when he is asked to take his diploma and start contributing to the family income.

Closing Thoughts 

Although there may be a few minor loopholes the new National Educational Policy, nevertheless is revolutionary. Hopefully, these are further addressed in the parliament sessions to come. The next question that pops up is – By when will the policy be implemented? The implementation, however, will start immediately with the first change being the Ministry of Human Resource Development getting renamed as the Ministry of Education.

Other implementations are to be done in phases from next month. Meaning many significant changes of the over 100 action points being noticed. The complete policy, however, is meant to transform the education system by 2040. Final judgment on the extent of its success can only be made on its execution. Hopefully, it doesn’t take till 2040.

Oil and Petroleum Industry in India cover

Oil and Petroleum Industry in India: Where to invest?

Understand the Oil and Petroleum Industry in India and its major players: The Oil and Petroleum Industry in India has been among the eight core industries that contribute largely to the GDP of India. India is the 3rd largest Oil Consumer in the world after USA and China. It already attained 63% of the energy self-sufficiency by 2017 due to its increased attention to the promotion of alternative sources of energy namely, wind, solar and nuclear energy.

The stock market for Oil and Petroleum products also has started showing surge due to the announcement of the Government’s privatization program resulting in more global energy players showing interest in buying a majority stake in the Bharat Petroleum Corporation.

This article aims to provide the latest trends in the Oil and Petroleum Industry in India including its market size. Later, we will talk about the big players in this industry in India. Let’s get started.

India’s Economic Growth via Oil and Petroleum Industry

It is important to note that India’s economic growth is largely related to its demand for energy. The projections reveal that the need for the energy sector in oil and gas is expected to grow and therefore, investors consider investment opportunities in this sector in India.

Additionally, the Government of India has also adopted certain policies to cater to the industry with maximum investments. Hence, it has allowed 100% Foreign Direct Investment (FDI) in this sector including petroleum, natural gas, and refineries. This is evidential from the latest developments in Reliance Industries Limited, Cairn India, and Bharat Petroleum Corporation. As the fastest-growing sector, investors see promising returns in this sector.  

Market Size of Oil and Petroleum Industry in India

Now, let us talk about the numbers to understand the market size of the oil and petroleum industry in India better:

  • India gained the position of the second highest refiner in Asia as its Oil Refining Capacity was calculated to be 249.9 million metric tons (MMT) in May 2020 of which the private companies contribute about 35.36% for the year 2020.
  • India is expected to be one of the major contributors world-wide to non-OECD petroleum consumption.
  • In the year 2020, crude oil production is recorded at 30.5 MMT and natural gas consumption is expected to reach to 143.08 million MMT by 2040. 
  • Similarly, in 2020, the import of crude oil increased to 4.54 million barrels per day (mbpd) as compared to the last year and LNG import is 33.68 billion cubic meters (bcm).
  • The consumption of petroleum products has also seen a spurt of 4.5% at 213.69 MMT.
  • The export of petroleum products from the country also has risen to USD 35.8 billion as compared to USD 34.9 billion in 2019 and the quantity-wise rise is at 65.7 MMT in 2020 as compared to 60.54 MMT in 2019.
  • Currently, India as one the largest emitter of greenhouse gases has the share of natural gas in the energy sector of 6.2% which is expected to rise to 15% by 2030.
  • As the second-largest consumer of Biogas India is planning to open 5000 CBG plants by 2023 under the SATAT scheme.
  • Minister of Petroleum and Natural Gas, Government of India sets the target to reduce oil and gas import dependency by 10% by 2022 thereby giving a wide range of opportunities to foreign investors to invest in projects worth US$ 300 billion. 
  • Gas Authority of India Limited (GAIL) as of March 2020 had the biggest share of 71.61% of the country’s natural gas pipeline network.
  • Indian Oil Corporation Limited in March 2020 was leading the segment of the product pipeline network with 51.25%.
  • The energy trade between India and the USA is going to cross US$ 10 billion by the end of the year 2020.

Investment and Government Initiatives

According to the senior-most market technical expert, CK Narayan, the crude oil prices will continue to grow as he analyzed after the biggest downfall during the recent pandemic, it has risen to $44 and will continue to rally further. Mr. MK Surana, the CMD of Hindustan Petroleum also predicts the surge in the price of crude oil in the last quarter of the year 2020 over $45. He also finds the Indian refinery sector as promising due to their ability to get established at the world-class level.

It is indeed worth to mention here that the petroleum and natural gas sectors were able to grab US$ 7.82 billion during the 10 years April 2000 to March 2020, according to the Department for Promotion of Industry and Internal Trade Policy (DPIIT). The initiative from the Government to set up bio-CNG plants has allowed them to spare US$ 1.1 billion to promote clean fuel. 

Natural Gas production also is going to be increased to 15% by 2030 and the top players of the Liquified Natural Gas producers aim to have 1,000 LNG stations across the country which is something that will attract more investors. According to Rajeev Mathur, an executive director of GAIL (India) Ltd, the natural gas demand will be increased by 3-4% by end of March 2021. ONGC has raised US$ 300 billion through the External Commercial Borrowing.

The government is planning to invest US$ 9.97 billion to expand the gas pipeline network. The Government also approved fiscal incentives to improve recovery from oil fields with an intention to lead the hydrocarbon production to Rs. 50 lakh crores in the next 20 years.

Top Players in Oil and Petroleum Industry in India

— 1) Reliance Industries Limited

As the world’s largest refining hub, RIL’s Jamnagar, Gujarat’s plant has a refining capacity of 1.24 mbpd. Until June 2020, its segment revenue from oil and gas was US$ 455.53 million.

Its Petroleum segment has a vast network of over 1300 fuel retail outlets across the country. It becomes the first company to have the market capitalization of over Rs. 13.75 lakh crores in India.  

— 2) Oil and Natural Gas Corporation (ONGC)

ONGC, as the largest crude oil and natural gas company of the country, signed a Memorandum of Understanding (MoU) with NTPC to set up a Joint Venture for the renewable energy business in India. Its market cap is more than Rs. 1.04 lakh crore.

ONGC Videsh – subsidiary of ONGC, which is India’s biggest International Oil and Gas Company, has made new oil discoveries in Colombia and Brazil as part of its Energy strategy 2040. The company also signed an MoU with ExxonMobil for offshore blocks. 

— 3) Petronet LNG Limited

This company has set up the country’s first LNG receiving and regasification terminals and has a market cap of Rs. 38,227.5 crore. The company is expecting partnerships with fuel and gas retailers on LNG stations for long haul trucks and buses. With the aim to set up 300 LNG stations by 2023, it is planning to set up 1,000 LNG stations over a period of time across the country.

— 4) Indian Oil Corporation Limited (IOCL)

IOCL focuses on the safety of India’s energy sector and self-sufficiency in refining & marketing of petroleum products with over 47,800 customer touchpoints. It has a market capitalization of Rs. 1.71 crore and contributes the highest to the national exchequer by way of duties and taxes.

In March 2020, it started supply of the world’s cleanest petrol and diesel across the country and it is also planning to invest Rs. 500 crores in Karnataka.

— 5) Oil India Limited

A public sector company and the second-largest in hydrocarbon exploration and production, Oil India Limited shares are showing increasing trends. Despite blowouts at one of its sites, there are predictions from the market experts that they will be able to recover and prices will be better gradually. It has a market cap of Rs. 10,291.01 crore.

Also read: Passenger Vehicles Industry in India: How much competitive is it?

Bottom line

Succinctly, the energy sector in an Indian economy is growing faster than any other major economies. The industry experts also predict the energy demand to double by 2035. Moreover, the country’s contribution to the global primary energy consumption is also estimated by the analysts to double by 2035.

The growth in the consumption of crude oil is projected to grow at 3.6% Compound Annual Growth Rate – CAGR and the natural gas to grow at 4.31% CAGR by 2040. The Diesel demand too will be twice by 2029-30.

Therefore, the oil and petroleum sector look promising for the country and the coming years are going to be remarkable in terms of demand, consumption as well as the growth point of view.

Passenger Vehicles Industry in India- How much competitive it is?

Passenger Vehicles Industry in India: How much competitive is it?

An Analysis of Passenger Vehicles Industry in India to understand the latest trends and the key players: Indian economy holds the fifth-largest position in the auto market in 2019 and was expected to cross Germany by 2020 in terms of a number of sales. However, the recent pandemic has flipped the side to a completely opposite direction thereby causing a drop of over 17% in the industry.

Several Government initiatives and promising actions by the major automobile players of India was helping this industry to outperform at the world-class level by making the country a leader in this industry. The domestic Indian market is predominantly ruled by two-wheelers and passenger vehicles. The growing middle-class and young population has made the two-wheelers market the dominant one in terms of volume.

This article aims to study the Passenger Vehicles Industry in India including its current trends, biggest players, recent developments, and Government initiatives.

The Passenger Vehicles Industry in India

Passenger Vehicle (PV) is a motor vehicle which has at least four wheels where no more than eight seats are allowed in addition to the driver’s seat for transporting the passengers. Generally, cars are considered as passenger vehicles.

In India, the small and mid-sized cars selling is holding the highest position in terms of sales of the passenger vehicles (PV) industry. The PV industry recorded a market share of 12.9% in India until June 2020. Out of the total automobile exports of 4.77 million, PV accounted for 677,340 exports until June 2020. In 2019, over 3 million PVs were produced and sold domestically.

Currently, Maruti Suzuki and Hyundai are the top players in this industry. Maruti Suzuki with sales of over 208,000 Alto cars, 200,000 Dzire, and 192,000 swift cars reported in 2019 domestic sales of 1.75 million.

However, domestic sales in the PV industry recorded a decline of 9.1% until March 2020. Maruti Suzuki has already started selling BS-VI compliant vehicles that include Alto, Eeco, S-Presso, Celerio, WagonR, Swift, Baleno, Dzire, Ertiga, and XL6.      

Latest Trends in the PV Industry in India

The entire automobile industry attracted Foreign Direct Investment of US$ 24.21 billion in the 10 years from April 2000 to March 2020. The growing demand has made the way for the industrialists to invest more in India’s ever-growing industry.

The announcement by Jaguar Land Rover in May 2019 of the launch of its locally assembled Range Rover Velar has made JLR cars quite affordable. The deal between the Tata AutoComp Systems (Tata Group’s Auto-component segment) and Prestolite Electric (based in Beijing) happened in January 2020 aims to enter the Electric Vehicles market by starting a joint venture of their own.

Force Motors’ investment of US$ 85.85 million focuses on the development of the two new models in the coming two years. MG Motor India is also planning to launch affordable Electric Vehicles in the next 3-4 years. 

The Indian Government announced in the Budget of 2019-20 to provide tax deduction of Rs. 1.5 lakh for the interest paid on the loan taken to buy Electric Vehicles thereby promoting sales of such EVs. It is also planning to facilitate the start-ups involved in the EV space by setting up the incubation centers. 

passenger car market share

(FIG: PV Market Share Manufacture wise – FY19)

FAME II (Faster Adoption & Manufacturing of Electric Vehicles Phase II)

It is also notable to mention here about the Government’s initiative that approved the FAME II scheme (Faster Adoption and Manufacturing of Electric Vehicles Phase II) w.e.f. April 2019 under which allocation of Rs. 10,000 crores were made to promote electric mobility in the country over the three years 2019-20 to 2021-2022.

The scheme aims to provide incentives on the purchase of such vehicles to promote electric and hybrid vehicles. They primarily aim to electrify the public transportation and shared transportation.

— Bharat Stage VI Norms

Introduced in 2000, these norms are the standards implemented by the Government to control air pollution by vehicles. The norms are based on various stages and as the stage goes up the rules become stricter.

Thus, BS-VI stage compliance would require more robust technologies and investment into such technologies to upgrade the vehicles. Consequently, the buyers will also need to pay more to buy the vehicles as the making cost goes up.   

Market Leaders in the Indian PV Industry

As mentioned earlier, the PV market is predominantly led by Maruti Suzuki with more than 50% market share. The industry analysts believe this is due to their planning to empty the BS-IV inventories and keeping the BS-VI compliant vehicles available ahead of the time.

No matter what there are other players too who are contributing not as much as Maruti Suzuki, but their little contribution makes the Indian Automobile Market the fastest-growing market to be ready to compete at the global level. Let us see who these big players are, how are they contributing and what do they have in their baskets. 

Here are the top seven passenger vehicle Makers in India:

RankOriginal Equipment Manufacturers (OEMs)PV Sales FY20PV Sales FY19
1Maruti Suzuki14,36,12417,29,826
2Hyundai Motor India4,85,3095,45,243
3Mahindra & Mahindra1,86,9782,54,351
4Tata Motors1,31,1972,31,512
5Honda Cars India1,26,8991,83,787
6Toyota1,14,0811,50,525
7Ford India66,41592,937

— 1) Maruti Suzuki India Limited

The largest car maker of India, Maruti Suzuki is a subsidiary of Japan-based Suzuki Motor Corporation. They have already launched BS-VI compliant Tour S CNG & Tour S in this year. It has already crossed the 20 million sale milestone in the year 2019. It is leading the market by reaching the target of cumulative sales of one million utility vehicles. Until June 2020 it has recorded sales of more than 1.5 million units. 

— 2) Hyundai Motor India Limited (HMIL)

The subsidiary of a South Korean parent company Hyundai Motor Corporation, HMIL is the second-largest carmaker in India. Its Santro car had been recorded as a runaway success. It was the first automotive company in India to achieve the export target of 1 million cars in just 10 years. This year, its Hyundai Venue car has been awarded as the Indian car of the year. It sold in 2019 545,243 cars however its market share declined in that year.

— 3) Mahindra & Mahindra Limited

The decades-old Indian multinational vehicle manufacturing company, Mahindra & Mahindra Limited. The largest tractors manufacturer in the world records the highest production in India of cars. With the introduction of SUVs in 2019, they reported a 2.21% growth in PV sales. In a challenging time, XUV300, Alturas G4 and Marazzo have helped M&M to add sales of about 27,000 units additionally. 

— 4) Tata Motors Limited

The world’s leading automobiles manufacturer and an automobile arm of the Tata Group, Tata Motors has extended its presence globally by setting up Joint Ventures with Fiat and Marcopolo. It holds a 45.1% market share in the commercial vehicle segment in the year 2019. To improve electric mobility infrastructure in the country it has created a separate vertical by joining hands with Tata Power. 

— 5) Honda Cars India Limited

As the leading premium car manufacturer of India, Honda Cars was established with the specific purpose to cater PV industry with the latest technology-based vehicles. It is a subsidiary company of Japan-based Honda Motor Co. Limited. It recently launched WR-V compact SUV with robust features in two different trim options and in both petrol and diesel fuel choices. 

— 6) Toyota Kirloskar Motor Private Limited

It is a subsidiary of the Japanese parent company Toyota Motor Corporation. Among the carmakers, it holds the fourth largest position in India. In 2012, it started One Make Racing Series with the Etios car and witnessed an overwhelming response from the youngsters.

— 7) Ford India Private Limited (FIPL)

It is a subsidiary of Ford Motor Company and since 2019 Mahindra and FIPL joined hands to set up a Joint Venture. It is the number 1 Passenger Vehicle Exporter in India competing with Hyundai. It exports in 35 countries almost 40% of its engine production and 25% of its car production. 

Also read:

Impact of COVID-19 on the Indian PV Industry

With the current situation of the global pandemic, the biggest challenge these car makers will face is the changing customer preferences. Due to the Work from Home concept, the demand of the Passenger Vehicles has seen a sharp fall in the six months so far as compared to the last year.

The industry experts estimate that the customers’ preference during this time has gone back to the original small and compact cars for which Maruti Suzuki is leading the market as always. However, for SUVs and MPVs the market may not be as good as for the small and affordable cars.

The luxury cars will too see a downfall. The predictions are also against the promotion of EV sales as they need advanced technology and are quite costly. Many startups are under a red zone meaning they are already falling short of cash and liquidity making it difficult for them to survive. Interestingly, the used car business will gain as the customers may face liquidity crunch to some extent.

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

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

A Brief Study on Public vs Private Banks in India: Regardless of which sector one works in, it relies on the banking sector. This is the very reason why the banking sector is known as the backbone of the economy. A country with a poor banking sector is not only destructive to the banking industry but also to economic growth overall.

Due to its importance today we try and understand the banking sector through its division of public and private banks and analyze their contributions to helping the economy grow or not in the recent past

What do you mean by Public and Private banks?

Banks are classified as Public or Private depending on their ownership. First, let us understand the basic difference between Public vs Private Banks in India:

— Public Sector Banks

A Public sector bank is one where the government owns a majority stake (i.e. more than 50%). In common parlance, they are also known as government banks. Due to its ownership, the aims set for these banks revolve around social welfare and fulfillment of the country’s economic needs. These banks are formed by passing Acts in the parliament. Eg. Bank of India, Canara Bank, Punjab National Bank, Bank Of Baroda, State Bank of India.

Public Sector Banks (Government Shareholding %, as of 1st April, 2020)

(Source: Wikipedia)

— Private Sector Banks

A Private sector bank is one where the majority stake is held by private organizations and individuals. Private banks have profit maximization set as their main goals. These banks are registered under the Companies Act.
Eg. HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, Yes Bank.

Differences in the working of Public vs Private Banks in India

Although the banks being public or private perform the same functions, due to their aims and period of existence customers notice significant differences depending on the banks they choose.

Private banks arrived relatively late in the Indian banking sector thanks to the reforms introduced in 1991. This is one of the reasons why people find public banks secure as they already have been around longer enabling them the gain their trust. Also, the confidence that the government will not let a public bank fail adds to this security. Private banks make up for these security concerns through their technological advancements and superior customer service.

What is it like to work for these two bank types?

What is it like to work for these private vs public sector banks

In the year 2013 80,000 government bank jobs received close to 40 lakh applications making it one of the most sought after careers. The reason for this has been the job security and reduced work pressure present in these banks. This, unfortunately, has reflected on the banking sector as public banks have been known to take too long to perform duties.

This can be attributed mainly to the fact that the employees do not have any incentives to work better. The competitiveness faced here is prior to the job in the examination set during the selection process.

what is like working in private banks in india

Working for private banks, on the other hand, increases the rewards available to an individual but with additional risk. Employees receive higher remunerations but are required to work in highly competitive environments. This too has rubbed off on how the functioning of private banks is viewed i.e. fast-paced, efficient, and easier to deal with.

Which one is performing better?

— Customer Base

( ATM with the highest altitude in India, present in Sikkim)

Longer periods of existence in the Indian markets have allowed public banks to develop a larger customer base in comparison to the private banks. The goals set have also played a major role in achieving this. Public banks function with the aims of ensuring banking accessibility throughout the country.

This has motivated the public banks to penetrate deeper into rural areas gaining a greater customer base. Private banks, on the other hand, enter only areas where they see a potential to earn a profit. This is the reason private banks mainly function in urban areas and not rural.

— Market Share

As of 2018 public sector banks account for 62% of the total banking assets and 58% of the total income, the rest occupied by private banks. Although public banks have a greater market share, their hold has been continuously slipping. As of 2016 public sector banks accounted for 75% of the total banking assets and 71% of the total income.

Public banks are steadily losing out even when it comes to loans. Figures from 2018-19 show that private banks gave a total of ₹7.3 trillion in loans, while public sector banks gave ₹2.3 trillion in loans. In comparison the total amount of loans in 2011 which stood at ₹40.8 trillion, public sector banks had a share of 74.9% and private sector banks around 17.8%.

The one segment that we would expect public sector banks to not loose out one is deposits. Especially after considering the security of deposits it to be one of their USP’s. But unfortunately over the last few years, public sector banks have lost market share here too. As of 2011 the total amount of deposits in the Indian banking system stood at ₹53.9 trillion, public sector banks had a share of 74.6% in it. The share of private sector banks was a little over 18%. By 2019 the total amount of deposits in the Indian banking system stood at ₹125.6 trillion. Of these Public sector banks had 63.1% of these deposits and private sector banks 28.7%.

7 largest banks in india

— Non-Performing Assets (NPA)

One would expect private banks to have a high number of NPA’s considering that in order to gain an edge over public banks the private banks may be more approachable when it comes to loans, leading to higher NPA’s. But this has not been the case as the NPA’s of private sector banks have been lower in comparison to private banks.

In the 5 years leading up to 2018, the NPA’s of private sector banks increased from 0.7% in 2014 to 2.4% in 2018. Figures that seems reasonable in comparison to that of the private sector where the NPA’s rose from 2.6% in 2014 to 8.00% in 2018 and have been increasing since then.

Also read: What are NPA’s? And How do they affect Banks?

Closing Thoughts

It is evident that although the public sector still holds a greater market share they have not been able to compete with the growth rate of private banks. In order to achieve this, Private banks have capitalized on the weaknesses of Public Banks. Coupling superior customer service with the inclusion of technological changes has worked out in favor of the private banks. It is good to see that these measures adopted by private banks are forcing the public banks to implement them too.

But if the public banks keep playing catch up with the private banks they will soon be seen falling behind even in terms of market share. This has called for multiple structural reforms to ensure that does not happen because at the end of the day it is the public banks that look after and perform in the interest of the economy.

answer to When coronavirus vaccine will be available

[Update] COVID-19 Vaccine: When can we expect it to be ready?

A study on When will COVID-19 Vaccine be made available? Enabling us to get on with our lives:

The same question has been lurking in all our minds, “When will the pandemic end?”. The virus has contracted to over 17 million people, leading to the death of 656,000+ people and has affected all of us.

The cry for this ‘Pandemic of Fear’ to end is also mainly due to the mental desperation arrived at after being cooped up in our houses all day. Never has the world had to shut down at such a massive scale. This has baffled not only us but also scientists with every modern development trying to catch up.( Source: Citizen undergoing Swab test in Delhi)

( Source: Citizen undergoing Swab test in Delhi)

Experts have never seen a virus with such varied symptoms where few are ill with minor symptoms. Some with enough to be in bed for a few weeks while others need to get hospitalized with intensive care requiring ventilators to breathe at times even leading to death. After noticing these symptoms Dr. Fauci (Director of the National Institute of Allergy and Infectious Diseases) went ahead and termed the virus as the Perfect Storm.

In a desperate attempt to buy time countries all around the world resorted to closing down the economy. But soon were forced to open up after noticing the social but mainly economic damages. Studies from Oxford University predicted that the virus may just simply disappear by itself. The government soon realized that the only thing much worse off than the lockdown was sitting in hopes that it would simply disappear.

This would raise the problem of the virus spreading wildly and killing many more before a level of immunity is achieved by the population. This has led to the government desperately looking for a way out. Today we take a closer look at the different options that have been considered and how the most viable exit strategy is being played out in India.

Different Routes Out for COVID-19 Pandemic

Experts have identified three ways out of this mess. They are:

1. Developing a vaccine

Where people who are vaccinated are immune and do not get ill even if they are exposed 

2. Herd immunity

Here 60% of the population gets affected by the virus in order to recover and develop immunity so that the virus can no longer cause an outbreak.

3. Permanently change our behavior/society to adapt to functioning in the midst of COVID-19

Every route shown above helps in reducing the transmission of the virus. But when we focus on what can be controlled a behavioral change has already been initiated and vaccines are already in development and are being viewed as the most optimal solution to the pandemic. The question that comes with developing a vaccine is ‘By When?’. 

Lets Talk COVID-19 Vaccines

Vaccines were first discovered in 1796 in order to put a stop to Smallpox. Vaccines use weaker strains of weaker viruses to fight off a virus. In the case of Smallpox, it was observed that those affected by Cowpox would remain immune to Smallpox, and hence safer variants were used as vaccines to prevent Smallpox.

In the case of COVID-19 (Sars-cov-2) too, weaker strains of the virus itself are being tested in order to find out if people vaccinated with a weakened form of the virus can provide enough immunity to protect people from COVID-19. At the moment there are over 150 countries are engaged in COVID-19 vaccine global access facility.

The procedure that goes into testing a vaccine

The testing process is divided into the following phases:

Phase 1: Here normal people of a small sample size receive the vaccine. The aim at this stage is to find out if the vaccine produces any adverse side-effects or reactions. The failure rate for vaccines at this stage is about 37 percent.

Phase 2: In the second stage, hundreds of healthy volunteers get tested for immunogenic and adverse effects. Here, the failure rate is about 69 percent. Phase one and Phase 2 put together are to take a minimum of 5 months.

Phase 3: the scientists continue to monitor toxicity, immunogenicity, and severe adverse events (SAEs) on a much larger scale, and here in all probability, the failure rate is 42 percent and the phase generally takes 6 months.

It is hard to predict the time the current vaccine may take. If we observe vaccines that were created historically, the total time taken varied depending on the virus and technology available at disposal. Chickenpox vaccine took 28 years and the Rotavirus vaccine that led to millions of deaths in Africa and Asia( particularly in India) took over 15 years for development. Hence pinning all our hopes on a vaccine may not be the best idea after all!

Although there have been significant technological advancement and the fact that many countries around the world are in a race to develop a vaccine may just speed up the process. A WHO official stated that after taking into account the speedy development on a global front a vaccine ready for public deployment may take 4-5 years. This puts the estimated date for the vaccine to be rolled out for the public by 2025. 

Where is India with regard to COVID-19 Vaccine?

Even though there are multiple countries around the world developing vaccines India caught everyone’s attention when a letter from Director General of the Indian Council of Medical Research(ICMR) Dr. Balram Bhargava got leaked which suggested that the first vaccines be rolled out by August 15. This received significant flak from around the world for its rushed timeline. The letter saidIt is envisaged to launch the vaccine for public health use latest by 15th August 2020 after completion of all clinical trials. BBIL is working expeditiously to meet the target, the however final outcome will depend on the cooperation of all clinical trial sites involved in this project.”

The vaccine in question is called Covaxin that has been developed by Hyderabad-based, Bharat Biotech India Ltd(BBIL). Covaxin has received approvals from the Drug Controller General of India for Phase 1 and Phase 2 trials.

A scientist familiar with India COVID-19 development strategy said that despite the vaccine having potential it was “overly optimistic” to expect it this soon. This, however, was one of the most subtle comments made against the deadline. Other scientists brought attention to the absurdity of making vaccines available this soon.

Anant Bhan, an independent ethics and policy researcher and past president of the International Association of Bioethics argued that such a rushed timeline carries potential risks and provides inadequate attention to required safety procedures. The only thing worse than dealing with coronavirus would be releasing a rushed vaccine.  T. Sundararaman( Global coordinator of the People’s Health Movement) said that such actions only lower the credibility of Indian Science. After all who would want another episode similar to that of Patanjali releasing a vaccine. 

(Balram Bhargava - Director General of the Indian Council of Medical Research)(Balram Bhargava – Director General of the Indian Council of Medical Research)

In a statement on Saturday, ICMR said Bhargava’s letter was “meant to cut unnecessary red tape, without bypassing any necessary process, and speed up recruitment of participants.”

Unfortunately, communities like Anti Vaxxers already exist where parents refuse to vaccinate children over the fear of side effects. Such rushed trails only push more people towards such causes. Here they would prefer to live with precautions rather due to fear of taking botched up vaccines.

Critics have already linked the political connections even in the manufacture of the vaccine. The date set as the deadline i.e. 15 August also coincides with India’s Independence Day. Although a sense of patriarchal pride would flow through every Indian if such a feat would have been possible to achieve. The criticisms, however, arise as August 15 is also the day PM Narendra Modi traditionally delivers a speech on Red Fort touting his governments’ achievements and major achievements.

“You want to make sure that, in your desire to get back to normal, that we don’t leapfrog over some of the benchmarks we need to reach in order to get to the next stage.” Dr. Anthony Fauci.

How will COVID-19 Vaccine be made available to all?

If and when the vaccine gets delivered it has already been made clear by PM Modi that the first recipients would be those working in Healthcare to protect us.

 It is logical that those next in line would be those most vulnerable. These include the elderly, women dealing with pregnancies, and infants then followed by others. Bharat Biotech, however, has said that if their Covax vaccine is approved it will be made available at Rs. 1000. 

But let us take the case of vaccines developed for other viruses like HIV. This may help us better understand why multiple countries and organizations are racing to create a vaccine apart from the obvious ‘ Save the World’. Along with credits for the creation, the owner of the vaccine receives Global Intellectual Property rights. The patent rights are granted for up to 20 years. During this period the owner has a monopoly over the product and can set the price they feel fit. This, unfortunately, has been used to limit access to such essential goods.

The HIV virus affected over 40 million people around the world with South Africa being one of the worst affected. In order to combat this South Africa started to manufacture low-cost generic antiretroviral medicines to treat HIV. One would expect such a thing to be allowed on Humanitarian grounds but if we have learned anything fro the Martin Shkreli case, such a thing doesn’t happen.  

40 US pharmaceutical firms with the South African government that started in February 1998 to prevent the country from manufacturing low-cost generic antiretroviral medicines used to treat HIV. Such information just makes us hope that the first to manufacture the vaccine is simply a country or organization that believes in making the vaccine affordable if not free and accessible to all.

Bottomline

An ounce of COVID-19 prevention is worth a pound of COVID-19 cure. And with no vaccine available today, prevention is the best way to protect a community from COVID-19.” – Dr. Ali S. Khan (Author of The Next Pandemic and from the team that identified and stopped infectious diseases – monkeypox, Ebola, and, yes, SARS – before they become pandemics.)

Although a lot of companies, non-profit organization and government are working to make COVID-19 Vaccine available as soon as possible, however, there is still a long way to go for all.

What are NPA's And How do they affect Banks cover

What are NPA’s? And How do they affect Banks?

Understanding what are NPA’s or Non-Performing Assets: While evaluating banking sector companies, one of the key aspects that every investor needs to check is its NPA. In this article, we are going to discuss what are NPA’s, How NPA’s are categorized, How do these NPA’s affect the banks, and the reasons for high NPA’s in India. Let’s get started.

What are NPA’s?

Loans and advances that are given by the bank require the borrower to make payments in the form of installments that include the principal and interest amounts. At times the borrowers miss out on these installments, either due to lack of funds or at times willfully. When the principal or interest payments are missed and remain due for over 90 days the loans are classified as NPA’s.

Understanding what are NPA’s or Non-Performing Assets

Categorization of NPA’s

Banks then further classify these loans categorized as NPA’s on the basis of time i.e. on the length of non-payment of the loans. This further classification helps banks judge the possibility of recovering the loans with interest. Further classifications are done as follows 

1. Standard Assets

Standard Assets are loans that have remained as NPA’s for a period of 12 months or less. The risk associated with Standard Assets is low as the possibility of repayment still remains.

2. Sub-standard Assets

Sub Standard Assets are loans that have remained as NPA’s for a period of 12 months or less. Here the risk associated with the nonpayment of the loan is increased in comparison to Standard assets.

3. Doubtful Debts

Loans classified as NPA’s that are classified as NPA’s for a period exceeding 18 months are known as Doubtful Debts. The probability of loan recovery from these NPA’s is extremely low. Banks that have high NPA’s with the majority exceeding 18 months are affected with reduced liquidity.

In addition to this, the banks also suffer a loss to their reputation as the banks are held responsible to verify the creditworthiness of the borrowers before giving away loans. This shows poor management and poor judgment on the part of the banks.

4. Loss Assets

NPA’s that are identified by auditors to be non-collectible or recoverable is classified as NPA. At times banks look at the possibility of salvaging the collaterals placed but if that does not happen the loss assets dent the Balance Sheets. The Banks will have to further create provisions where a portion of the profits are transferred in order to writeoff the assets.

Gross vs. Net NPA’s

NPA’s are also classified as gross or net NPA’s. Gross NPA’s include both the principal and interest aspects of the loan classifies as NPA. Net NPA is arrived at when the principal amount is deducted by any payments received by the bank from the borrower with respect to the loan and also includes the amount the bank receives through its insurance claims or provisions set for the loan.

I.e Net NPA = Loan Amount – [Interest payments received + Insurance (DICGC & DCGC) + provisions made if any]

How do these NPA’s affect the banks?

A balance sheet that has a high percentage of NPA’s immediately impacts the banks’ cash flow and future earnings. Firstly if these NPA’s if paid on time would’ve generated added capital to the banks which, in turn, could be used to by the banks to extend further loans. In addition to the reduced ability to generate profits the bank also has to create provisions in order to set off the loss due to NPA’s. This provision will be sourced from the future profits of the bank which otherwise could have been used to maintain stable growth.

What do high NPA’s mean to other stakeholders?

The best example to assess the effect of NPA’s on stakeholders will be that of ‘Yes Bank’. The high NPA’s will have a significant impact on its customers where all withdrawals available to customers were capped at Rs. 50,000. This impacted many businesses as surviving on a cash flow simply would not even cover employee expenditures of the respective business. 

NPA’s are also an important aspect when it comes to investment decisions. High NPA’s are a red flag that the investments in that particular bank are not viable. The shares of Yes Bank suffered an 85% downfall after the news of their poor financials broke out.

Also read: The Unravelling of Yes Bank – Fiasco Explained

India’s position with regards to NPAIndia’s position with regards to NPA(Source: Moneycontrol)

Indias NPA’s stood at 9.1% as of March 2019. Although there was a decline from 14.7% in the previous years there was little to rejoice about. This is because according to data if a bank provides loans that it can be expected that they may not be repaid as high as 9% of the total loans given.

The NPA situation, however, has rarely improved in India. As of 2017, there were only 4 countries with worse NPA’s than India. These countries were infamously known as PIIGS in Europe due to their NPA’s. They included Portugal, Italy, Ireland, Greece, and Spain. It is noteworthy that Spain’s NPA stood lower than India at 5.28%.

What are the reasons for high NPA’s in India?

What are the reasons for high NPA’s in India?

(Source)

A) Economic: The Indian Economy enjoyed a boom phase from 2000-2008 where banks started lending extensively to companies in the hopes that the boom phase last where everyone benefits. However, the 2008 financial crisis hit the economy hard and gravely affected corporate profits.

This further affected the NPA’s during the recession. It was also around the period when the government banned mining projects affecting the infrastructure sector. Hence it can be observed that the majority of the NPA’s are formed by power, iron, steel, and construction companies.

B) Negligence and Corruption: The negligence of banks in assessing the creditworthiness is a major reason for increasing NPA’s. This is normally seen in cases where big corporates are involved. Then comes the problem of corruption when where loans are made available to corporates even when they have poor financials and credit ratings.

The best case study present here has been the case of Vijay Mallya. Loans were given to Kingfisher by BOI on Current Assets like office stationery, boarding pass printers, and folding chairs placed as collateral. 

Also read: Demystifying Vijay Mallya Scam

Bottomline

Current times also show instances why it is important to have good NPA’s. Banks that do are able to weather a financial crisis better. Indian banks that already suffer from poor NPA’s now face a struggle to survive the COVID-19 environment. Rating agency CARE has estimated that the Gross NPA’s of Indian banks are likely to rise to 9.6-9.9%, compared to the December quarter of last year where it stood at 9.3%. Experts, however, believe that they are to rise significantly more than that.

Due to the economic slowdown, one may expect banks to provide lesser loans at high rates as they may not see viable investments. But this is not what happens. In order to restart the economy, it is very important that the banks provide capital to ailing and new businesses. This has now put the banks in a pickle where they already suffer poor health and now they have had to go ahead and provide a moratorium on existing loan payments and added loans to help businesses survive.

New Margin Trading Rules by SEBI cover

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

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

What is Margin trading?

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

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

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

— How to trade using Margin?

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

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

— Three steps in Margin trading

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

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

New Margin Trading Rule by SEBI

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

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

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

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

Reactions from the Brokerage community

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

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

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

nithin kamath on New Margin Trading Rule by SEBI

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

How Market Turnover is impacted by new SEBI rule?

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

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

Chinese investments in Indian Unicorn Startups cover

[Snapshot] Chinese investments in Indian Unicorn Startups

A Brief Analysis on Chinese investments in Indian Unicorn Startups:  The Galwan clash that arose due to China claiming Indian territory had left 20 Indian army soldiers martyred. The clash triggered public outrage where boycott of all Chinese companies and their products was demanded. In some cases, politicians even spilled their outrage by calling for a boycott of Chinese cuisines.

After increased escalations, 49 Chinese apps were banned by the government. This, however, has left many unclear when it comes to Indian firms that have received funding from Chinese investors. “Should these companies and their products be boycotted as well?”, was the question in the minds of many. Many such companies were left in a critical state hoping that no such backlash is directed towards them.

Today, we have a look at the chinese investments in Indian Unicorn Startups. Here, we are going to analyze the scale of Chinese investments in Indian companies and the added agony they face trying to survive the COVID-19 environment.

How much China holds on the Indian Economy?

Investments from China have totaled up to $8.7 billion ever since 2015. Of these $2 billion were made in 2018 which went on to increase in 2019 to $ 3.9 billion. 18 out of the 30 unicorns i.e. companies that have a valuation of $1 billion and above have received funding from Chinese investors.

However, it is not only the Chinese investments that had significant Indian market reach. Chinese companies too have enjoyed a significant grasp on the Indian Market. Chinese smartphones like Oppo and Xiaomi led the Indian market with an estimated 72% market share in 2019.

Government concerns over Chinese Investments

When it came to investments, Indian relations with China were not any better prior to the clashes either. The only difference is that the restrictions placed on the Chinese investments have gained significant public support post the clashes. As on April 18th, the government issued an update on the FDI policy.

This prevented direct investments into Indian companies from countries that share their borders with India. This was done in order to ensure that any investment directed into Indian firms are done so with a purely financial interest instead of those with strategic economic interests. 

China has been particularly blamed for following this approach as they try to further their domestic economic interest. Unfortunately, for us, they also have played an active role in the Indian startup ecosystem. Under the updated FDI policy billions of dollars from Chinese investments will be subject to government scrutiny. The FDI policy was updated also to address Data security and Chinese propaganda concerns. Any Chinese investor investing in Indian firms will have to get the Indian government’s approval first.

When this rule was first passed it drew considerable criticism from Indian unicorns and startups. This criticism was not in defense of the Chinese but instead simply because the Indian investor simply does not prefer to make risky investments or simply does not have that amount of domestic capital. This would not only hurt the Indian startups severely but the effects would also be seen on the Indian economy. This would be because of the shortage of investments Indian companies would face which would be required to spur their growth. 

Loopholes and Legal Consequences

Legal experts also said that enforcing the notification would be “close to impossible“. It is also unclear how effective the law is going to be. In the case of Paytm, Alibaba simply rerouted its investments from China to its subsidiary present in Japan and then invested in Paytm.

It is also unclear up to what extent of investment by Chinese investors in a foreign firm will make the firm an entity that furthers Chinese interests under Indian laws.

The FDI laws in China, however, have already been geared up to retaliate. These work against companies that operate in China but originate from countries that have discriminated against Chinese investors. 

Chinese investments in Indian Unicorn Startups

The table below shows some of the major Unicorns that have received funding from Chinese investors:

Indian UnicornChinese Investments ReceivedMajor Chinese Investors
Paytm900 millionAnt Financials (AliBaba Group) and SoftBank Vision Fund
Ola1.225 billionSoftbank , Tencent, Sailing Capital, China Eurasian Co-op Fund, Eternal Yield International, Steadview Capital
Udaan585 millionHillhouse Capital, Tencent
Swiggy500 million Meituan-Dianping, Tencent Holdings and Hillhouse Capital Group
Zomato750 million Ant Financial
BigBasket300 millionAlibaba Group
Dream11100 millionSteadview Capital and Tencent
Byju40 millionTencent
Flipkart300 millionTencent Holdings and Steadview Capital
Oyo100 millionDidi Chuxing

Why Indian companies go for Chinese investments?

Over the years India has acquired the third spot in terms of startup ecosystems but unfortunately, more than 80 percent of the money invested in these startups comes from outside of India. One of the major reasons for startups accepting Chinese investment has been due to the lack of capital present in India or lack of capital directed towards innovation-driven startups. Domestic investors have taken very little interest in the startup environment.

We also lack companies like Google and Facebook that take particular interest in such startups that are innovation-driven and with internet dependant products. Unfortunately, the country’s highest-valued firm, Reliance Ltd. in recent times also has to lookup to Facebook for investments. When it takes companies of that scale to grab the attention of global investment giants it is difficult for startups to do the same. Chinese investment firms recognized the gap and have succeeded in replacing American giants in this space. 

Another reason is the patient capital provided by Chinese investors. The companies targeted by Chinese investors are mainly startups in their initial stages. The aim of a startup at this stage is to ensure growth and increase market reach. But these goals demand huge capital expenditure.

At the initial stages, these startups are evidently not profitable for a couple of years. This is where the patient capital provided by the Chinese steps in. Unlike domestic investors looking for profitable companies or secure investment, the Chinese investment firms recognize viable startups and provide them with the capital that helps them grow. 


(India taking on dragon - An Image featured in Taiwan Times)

(India taking on dragon – An Image featured in Taiwan Times)

The Galwan clash post the updated FDI policy has put further restraint towards accepting Chinese investment. Indian startups that were particularly looking to raise funds in order to survive the COVID-19 environment will now have to look elsewhere.

Companies that already have settled agreements with Chinese investors will also be affected. This is because they may already be in the midst of investments that take place over multiple rounds. They will be forced to restrategize in the times of COVID-19 where they are desperate for investments at lower valuations.

Closing Thoughts

In the midst of the deteriorating India-China relations, demands for an alternative to the capital that were earlier provided by Chinese investors. But if we shed some light on PM’s call for an ‘Aatmanirbhar Bharat’ it also provides solutions if Aatmanirbharta in investments is followed.

Startups in 2019 raised Rs.40,000 crore. For Aatmanirbharta to be achieved in investments at least 50% i.e Rs. 20,000 crore will have to be sourced from within India. But in order to spur this growth, the root causes due to which domestic investors steer clear of startups must be addressed. 

One of the reasons is that navigating through thousands of startups before investing. Weeding out those that may lack the commercial potential takes substantial skill and effort that all may not be ready to devote. The answer to this may be provided by Alternate Investment Funds(AIF) or Venture Capital Funds. These specifically focus on investing in startups and at the same time employ necessary skill in order to differentiate between startups. 

But, at the moment only investors with a minimum annual income of Rs. 50 lakh and minimum net worth of Rs. 5 crores are allowed to invest in AIF’s. Government support and new regulations that focus on making the environment more inclusive will go a long way in providing the necessary support to startups in India.

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 a Captain of an abandoned ship. The most important man at the helm, but when things go awry also the first man to get out.