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Scam is a very common thing happens in India. You might be the target of the next scam. Here, we are going to see three scandals in Indian stock markets which are very famous:
1. Harshad Mehta scam:
In 1984, Harshad Mehta started his own firm ‘Grow More Research & Asset Management Company' and started his broking business with BSE. He mainly used ‘Ready Forward Deal’ for the scam. Harshad Mehta became a mediator between two banks while transferring the securities. There were some loopholes in RF deal through which he started generating money. He used to keep a time gap between transferring the securities and making the payment and the money which he used to get from seller party was invested in the stock market. That’s how in 1991 stocks prices started going up. Within some time ACC ltd stock price went up to Rs 9000 from Rs 200. And that’s how he keeps on manipulating the other banks money into stock market. But there was a time when the market took a bear trend and Harshad Mehta could not able to return money to banks. In 23rd April 1992, Reporter Sucheta Dalal exposed this scam. Total scam amount was around 4000 crore. After this scandal market fell drastically.
2. Ketan Parekh Scam:
Ketan Parekh is Chartered Accountant by profession and was running family’s stockbroking business. Ketan Parekh was a trainee in Harshad Mehta’scompany. He started the following pump and dump fraud scheme, where stock operators used to invest money in one stock and then they used to give a false recommendation to his clients. That’s how clients started buying the recommended stocks and due to higher demand, there was an increase in price rate and thus after reaching the peak price he used to sell off the investment from the company. This is how Ketan Parekh used to manipulate the investors’ money to earn the profit. Ketan Parekh used to operate stocks in 10 companies which later started knowing as K-10 stocks. Due higher volume and higher liquidity even institutional started investing in those stocks. For example, stocks like ZEE went up to Rs 11000 from Rs 750 and Global Telesystems went up to Rs 3100 from Rs 85. This is how Ketan Parekh started earning money. In 2001, when he was taking money by keeping collateral from MMC Bank, RBI acted against Ketan Parekh and that’s how this scam got exposed. Total scam amount was around Rs 800.
3. Satyam Scam:
In 1987, B. Ramalinga Raju and his brother B. Rama Raju started the Satyam Computers Company. In 1992 Satyam Computers got listed in BSE and thereafter in NYSE at 2001. Satyam was one of the fastest growing companies. Their line of business shifted to the real estate sector and started investing in it. Later to generate money in order to invest in the real estate sector, they started publishing fake financial statements of Satyam Computer. That’s how demand for Satyam Computers started increasing among retail investors as well institutional investors till 2008. Due to the financial crisis in 2008 they face many problems such as depreciation in land prices and falling demand, the company faced bankruptcy and after that Ramalinga Raju confessed that all these years company were showing fake financial statements and this scam got exposed. Total scam amount was around Rs 14,162 crore.
The banking sector in India is already in trouble and is being affected due to the increase in number of bad loans and the bank frauds which come in light. According to RBI, the total amount of loan fraud equals to Rs.1 Lakh and above have increased 14 times in the past 10 years. The total loans frauds amounted to Rs.22469.6 Cr in the FY2018 as per the latest RBI data published when requested by an economist under the RTI act. The data shook the entire country that there were 11183 recorded cases of loans fraud in the period April 2013-March 2018. The number of loan fraud cases in the Modi government is already close to the number of UPA-2 government of the reign they were in for 4 years but the amount involved has spiralled up to Rs.55000 Cr.
The Public Sector Banks (PSBs) account for almost 88 percent of the total loan amount frauds. Currently there are 19 nationalized banks and therefore most of them are in huge debt due to the Non-Performing Assets (NPAs). The data below shows the exact comparison between the PSBs and Private Banks loans frauds from the period FY2009 to FY2018.
Biggest and most notable loan frauds in the country in the past financial year (FY18):
Kanishk Gold Pvt Ltd for loan fraud amounting Rs.824.15 Cr
In a consortium of 14 public and private sector banks defaulted on a loan of Rs.824.15 Cr which after adding the interest due would amount to Rs.1000 Cr wherein SBI was one of the lead bank in the consortium and declared the account fraudulent in November 2017. The company used to take loans or credit on the basis of the Metal Gold Loans (MGL) from the banks and since the company couldn’t cope up with the losses in the business and therefore shut down their business overnight.
Nirav Modi and Punjab National Bank Scam amounting to Rs.11400 Cr
It was the most famous bank fraud in the history and is also the highest detected loan fraud case. It was a team effort by Nirav Modi and his Uncle Mehul Choksi who allegedly defrauded the India’s second biggest state run bank, Punjab National Bank by taking the Letter of Undertaking (LoU) which is a guarantee that a bank is liable to pay if the borrower defaults on the payments without any collateral. The Duo were unable to pay and therefore PNB employees issued more LoUs asking other banks to give out fresh loans whereas Nirav Modi didn’t have enough value worth of the diamonds which he stated to the PNB bank and thus was exposed when the case was filed with the Central Bureau of Investigation (CBI) wherein the case was registered on January 31 2018.
Vikram Kothari and his family including his son and his wife was accused in the FIR by the Bank of Baroda dated back in February 2018. They were accused of cheating a consortium of 7 nationalised banks since the directors were alleged that they diverged the funds instead of using it for export orders they used it for another company named Bargadia Brothers Private Limited situated in Singapore. The money was later on remitted back to the Rotomac account thus tipping a round off thus indicating a number of violations such as breach of trust, FEMA rules violation etc.
Totem Infrastructure scam amounting to Rs.1394 Cr
The CBI on 23 March 2018 arrested the company’s promoters, Tottempudi Salalith and Tottempud iKavita on the basis of complaint from Union Bank of India in connection with the Rs.1394 Cr scam against a consortium of 8 banks and the loans taken from these banks for various projects for the company were diverged for purposes other than they were meant for and to personal accounts of the promoters and later on the funds turned into NPAs hence the complaint was raised for the same.
Aircel Promoter C Sivasankaran case of fraud amounting to Rs.600 Cr
This is the latest case of fraud which happened in the wherein the Aircel founder C Sivasankaran and the directors of the company were alleged of defrauding along with the IDBI bank 15 former senior employees along with a few others wherein CBI claims that loans worth Rs 322 Cr and 523Cr were given to C Sivakaran’s two offshore companies namelyAxcel Sunshine Limited which is situated in British Virgin Islands and a Finland based company Win Wind Oy respectively which turned non-performing assets out of this the IDBI had sanctioned the loan of Rs.523 Cr out of which the Rs.322 Cr loan was paid and therefore the Rs.523 Cr loan with interest amounts to Rs.600 Cr currently.
“Know what you own, and why you own it”- Peter Lynch
2018 has proven Peter Lynch correct. At the end of the article, you will realise that if your investments had fundamental backing you would have emerged victorious today. The year proved to be a tour de force for some investors while some had disappointed speculations. Sensex and Nifty 50 rallied to their all-time high thrice in Q2 FY18-19. Nifty breached its 11,517 points benchmark and Sensex peaked at 38,210.94 points. With the benchmark indices reaching their respective high’s, the stock’s across the Dalal Street performed exemplary. Mere speculators who mistook this incident for the stocks to be reaching their potential investment in an over-valued market. In the coming months when the dust settled the over-priced stocks took a huge blow and so did the investors. There were some who smartly sold their stocks while they could and there were several others who were overcome with greed. The stocks experienced a robust growth up until September.
The hunky dory quarter came to an end with the IL&FS (Infrastructural Leasing and Financing Services) default. The default focused on the ignored quintessential concept of Asset Liability Mismatch (ALM). The first default by IL&FS was in the month of June of inter-corporate deposits and commercial paper (borrowings) worth Rs. 450 crore. Which was overlooked as all eyes were set on the benchmark indices which were about to break their records. The default which was recorded in the month of September and October was however of substantial figure’s and could not be ignored. IL&FS had a standalone debt worth Rs. 16,468 crore. It had defaulted Rs. 3,761 crore on 29 Sept’18. On aggregate, the NBFC owed debt worth Rs. 91,000 crore. The default was a major blow to the PSU banks since Rs. 57,000 crore was lent to IL&FS by state-owned banks.
The market experienced a 360-degree turn after the news unveiled. Banks took a major hit and the stocks reached their rock bottom.Indiabulls Housing Finance and DHFL (Dewan Housing Finance Corporation Limited) were the two banks which were impacted the most. Indiabulls Housing Finance touched its 52w low of Rs. 640.15 whereas DHFL has recorded a decline since 19 Sept’18 and hasn’t been able to bounce back. Most investors in the market again mistook the decline of the DHFL stock to be a cascading effect of the IL&FS default. However, the decline was recorded when DSP Mutual Fund Merrill Lynch sold the bonds of DHFL at a higher yield of 11%. This triggered speculation that DHFL was facing a liquidity crisis.
The central bank realized that the contagion would spread like a wildfire if proper corrections aren’t implemented. However, liquidity crunch was experienced in the economy and the impact was felt across all sectors. RBI decided to play on the front foot and executed Open Market Operation (OMO). The central bank infused Rs. 36,000 crore in the market via bonds purchases in October. The market corrected itself during the period and the overvalued stocks were dragged to their true figures. On the day OMO was announced Sensex stood at 35,975.63 and Nifty 50 was at 10,858.
The market was yet to overcome this shock when the US President Donald Trump announced the sanctions on Iran and put India in a fix. It was announced by the United States that all nations who engage in crude oil trade with Iran are expected to discontinue it. They threatened that non-compliance with the sanctions will result in discontent for the nations. All currency outflows to Iran were expected to be shut. Any nation who defied these sanctions will face an embargo to the American financial system. The crude oil prices witnessed a rise upto $85 barrel. As a precaution, the Indian Refiners decided to cut their imports by 50% by the month of October. The Current Account Deficit widened. However, India received an exemption from the United States and continued its imports. When the sanctions were announced speculators panicked and started selling their stocks in the loss.
The sector which crashed with the news of sanctions regained its momentum once the exemptions were announced. Majority investors lost their money on the basis of a news headline. They decided to base their assumptions on a 650-word article and turned a blind eye to the details. Another major incident that 2018 witnessed was dollar surpassing its all-time high, reaching Rs 74.33. A rallying dollar is bad news for every sector except IT. with majority clientele base in the US markets the IT stocks recorded rapid increase. Once again investors went haywire on the rallying stocks.
However, the happiness was short-lived and once the dollar declined the stocks corrected themselves. These incidents were the major influencers to the economy for FY18-19. The market works on the simple principle where for someone to earn money, someone has to lose it. A stock market is a place where people can lose money if the bet is placed on sentiments; and where you can turn hundreds into millions when backed by financial expertise. The primary focus of an investor should be in the fundamentals of the company. If the base of the building is solid, then the erected infrastructure can withstand a hurricane.
Stock like Bajaj Finance delivered a CAGR of 53.3% for FY18. Investment in it could have kept you sane through the NBFC contagion. Second in line is HEG which recorded a CAGR of 52.61%. It is a graphite and electrode manufacturer based out of Madhya Pradesh. Of course, we wouldn’t know about it because we were too busy selling short on intra-day. With currency fluctuations in the picture the investors couldn’t have made safe bets. Yet Mphasis was able to deliver a CAGR of 36.73%. Using your advantage to your benefit can do wonders.
Being a retail investor gives you an edge in the FMCG (Fast Moving Consumer Goods) stocks. Being on the consumer end, you can have a personal estimate whether the company’s performance is at par. Jubilant Foodworks and Nestle India recorded a CAGR of 41.1% and 41.01% respectively. Speculation renders mediocrity. Gambling over a stock might provide you with short-term gains but that bubble will soon burst and you’ll be left with nothing. Analyse your company before investing in it. Question its operations from every possible angle. The quest for wealth. Remember – “Risk comes from not knowing what you are doing”- Warren Buffet.
Do you want to invest your money? Do you want to avoid risks in your investment? Do you want good yearly returns? Then why don’t you invest for a long term?
When many of us think about investing, movies like ‘Wolf of the Wall Street’, ‘Boiler Room’ strikes mind with their short-term trading and dramatic gain. The real investing world is completely different from the reel world. The real world of investment looks nothing like what Hollywood movies portray. You need to know various strategies before investing for long term.
We will provide you long-term investment strategies to get more returns and avoid the risk
1. Keep your finances and investments separate:
To maintain a well-organized investment portfolio, it is important to keep your investments and general finances separate. Simply pouring all of your available funds into one account can cause problems. It is advisable to create separate bank accounts to manage your funds correctly. Keep an account to store your salary and maintain a separate saving account that you use to transfer funds into your various investments.
2. Diversify your portfolio:
Diversification is a key to a successful long-term investment. To avoid risk, investors can diversify their portfolio. No single investment can guarantee you to get large profit. Therefore it is always preferable to spread your investments and minimize the risk associated with it.
E.g. if you have 10 investments and 1 of them went into losses, then you still have 90% profitable investments. If you only have 2 investments and 1 of them went into the losses, then only 50% of your investments are in profits.
3. Begin your journey of investment with Mutual Funds:
Investing through a mutual fund is one of the best ways to capture the long-term investment gains. An important aspect of investment through a mutual fund in the selection of right stock. Mutual funds give return according to the growth of the market. Sensex has increased by almost 100% in the last 5 years i.e. 20% yearly.
4. Stay in the race:
When the market is going through a difficult situation, then don’t be in a hurry to sell those investments. Once the market recovers, your portfolio will also recover. Even if your investments are making losses, such are all on paper. Therefore in such a situation, it is advisable to wait for some time and allow the market to grow.
5. Avoid frequent trading:
It is found in the study of Dalbar, Inc., that mutual fund investors are more successful than those investors who try to time the market because mutual fund investors hold their investments for a longer time. Frequent trading results in more brokering charges, which reduces your return.
6. Consider a defensive position:
Long-term investment is considered a defensive investment. It is advisable for you to create a stable portfolio and get benefits for years to come. Therefore long-term investments can be a way to secure your retirement as well as the future of your family.
So, we are talking about Penny Stocks … let’s start with what is Penny stocks?
The term penny stocks is used to describe shares of small companies. They’re also called micro caps if the company has a market capitalization of fewer than 200 crores.
Steps are very easy to invest in penny stocks
1. You need to open trading account:
It will give you ease of transferring funds, fees and customer service. Penny stock investors need to focus on fee structure because some broker charge commissions on per share basis
2. Understanding the risk:
Penny stocks are highly risky investment an investor should learn everything about the company before putting their hard earned money.
3. The Bottom line:
When it comes to investing in penny stocks, trade with cautions. See the financials of the company and company should be in the business for several years and their business have a potential to grow in near future.
Now the question is… should you invest in such stocks? Well probably not, the main problems many penny stocks have been one they’re not very liquid. You can sell shares of companies such as Tata Motors or Reliance instantly since there is a huge market for that, whereas penny stocks are for the most part thinly traded and you might be able to find buyers at all in some situations.
Penny Stocks are usually not listed on major exchanges such NSE or BSE but rather on so-called OTC (over-the-counter) bulletin board, where the requirement such as accounting standards that need to be met are considerably lower as such penny stocks are definitely far less transparent than regular stocks and the information you obtain about them should be considered less trustworthy. They are perhaps the most fraud filled financial sector with a lot of unscrupulous brokers engaging with pump and dump schemes through which they make share prices go up by spreading false rumours then sell their shares and let prices drop.
Invest in penny stocks is kind of like being a fish surrounded by sharks or sheeps surrounded by wolves. It probably won’t end well for you and as such staying away is usually a smart thing to do
We are living in the age of globalization. Globalization has impacted almost every country and so financial markets. Businesses are growing at a rapid pace with the help of globalization. Businesses are becoming global at scale, hence the financial market is getting closer to each other. It also helps to reduce the risk as if one country financial market is not performing it is not necessary that it will have an effect on another country markets. Therefore it’s a good idea to have an international exposure to your portfolio. You can open up excellent opportunities by diversifying your portfolio.
By getting international exposure in your portfolio, one can get following benefits
1. Diversifying helps in optimizing your portfolio
2. Getting exposure to growth opportunities
3. Acting as an alternative
Ways to get International exposure:
1. Investment in overseas property market:
If you are looking for diversification in your portfolio, then you can surely look for investment in the overseas property market. Such investments can help you to get tax benefits on your investments. You can also accumulate greater wealth with the help of such investments
2. Investment in mutual funds:
There are some investors who want to get international exposure, but they don’t want to take more risk. For such investors, a mutual fund is a great option. There are some mutual funds which give access to different regions. Country funds are generally specific to an individual country, whereas global funds invest internationally in one particular sector. An investor can get a diversified basket of foreign investment through mutual funds.
3. Investment in ETFs
If an investor is interested to invest in ETFs, then he/she can choose from global ETFs, regional ETFs, developed markets ETFs, and emerging market ETFs. An investor can also choose investment is ETF in a single country. Such investment can be risky because it is more dependent on the political and economic stability of the country.
4. Investment through various exchanges:
As per Bloomberg during the period of 2012-2017, India was ranked 19th in terms of returns. Whereas returns from Nasdaq, S&P 500, FTSE 100, Hang Seng are quite impressive. Hence there is an opportunity in the global market with seemingly good growth prospects in a couple of market namely S&P 500 and Hang Seng.
India, India, and India… that is the most Indian investors think when they look for investment opportunities. There is no doubt that India is one of the most emerging economies as far as investment is a concern. The Indian market has performed well in the past. But investors can easily diversify their portfolio with lesser risk. Investment in the international market helps you to add one more feather to your crown of investment.
Financial mistakes happen mostly because of ignorance or negligence. Most common financial mistakes are excessive use of credit card and delays in bill payment. Defaulting on a loan or on an EMI is also an example, and has its own repercussions. Another example of a financial mistake is investing money at the cost of your necessities.Before investing, you have to calculate your income and expenses. The amount you decide to invest is deduced after careful consideration of your necessities and your luxuries.
Following are the silly financial mistakes that you should avoid:
Investment without understanding is a risky business and it often turns into a messy business. Build your own portfolio and don’t follow anyone. If you don’t understand take the aide of an expert. But the decisions rest or should rest solely on your shoulders. Understand the terms and conditions related to the investment. And avoid these silly financial mistakes to earn good returnson your investment.
Sometimes a stock which may look like a value stock due to a major drop in price, but which is not actually undervalued. Such stocks attract investors who are looking for a bargain because such stocks are comparatively cheaper than other stocks. The trap springs when investors buy stock of the company at low prices and the stock continues to drop further. This is known as “Value Traps”.
The stock price may have fallen due to its circumstances, and it may actually continue to fall. In order to avoid value traps, investors should study not only the stock price but also financial information about that company.
Signs of value traps:
1. A company is at top of operating cycle and still in problems
2. Management compensation structure is not changing even if the stock is declining
3. Business keeps losing market share, although the industry is doing well
4. The capital allocation process is not changing fast enough.
5. Management’s near-term goals are not achievable, and/or managers have failed at the majority of prior year goals.
6. The company have more financial leverage than it can sustain.
How to avoid value traps:
1. P/E to Growth ratio (PEG ratio):
PEG ratio can be calculated as PE divided by growth rate of the company. PEG ratio helps to find the actual growth of the company.
2. Estimate the future stock price:
Estimation of future stock price should not for neither very short period nor too long period. Estimation of future stock price should be done for 5 years. If the estimated price is lesser than today’s price or has very lesser returns, then there is no point to invest in such stocks.
3. Balance sheet safety:
For very small companies with debt, look at the interest coverage ratio as the representative for business health. The ratio of short-term receivables to payables is also an important factor to consider. Irrespective of the industry, consistency in this ratio indicates good management of working capital.
4. Have a timeframe and stick to it:
Investing in stocks should not be your only source of income, because it is recommended that having less return is always better than having losses. Always think about the opportunity cost of capital. Progress for small companies can take longer time than expected.
5. Too much debt:
When a company becomes overly leveraged, then that situation is unhealthy for a company. If the revenue of company and stock price of the company have declined, the interest on its outstanding debt becomes a higher percentage of revenues and income. When this happens debt becomes difficult to manage.
For evaluating the performance of an investment fund or any strategy we compare it with an appropriate benchmark. For example, if you invest in a mutual fund which is a Large cap fund and the fund was up 7% for the year and you evaluate whether is it a good bet or not? The positive returns are always nice but what if the Indian stock (Nifty 50) was up by 10% for the year, now your investment might not as nice. Benchmarks allow us to evaluate the performance of our investments in a more meaningful way.
Indexes are often used as benchmarks, for example, NIFTY & SENSEX as commonly used as benchmarks for the Indian stock markets. If the index is up by 10% then the performance of your mutual fund or collection of stocks you are holding in a portfolio will be compared with the benchmark 10% number and if your portfolio stocks investments returns are 12% then you beat the benchmark by 2%. Similarly, if your portfolio returns are 7% then you underperform the benchmark in this case.
If the Nifty benchmark index is down by 4% for the year and your portfolio stocks are down by 2% for the year, then it is a loss but then also you outperform the benchmark index.
One of the important aspects of benchmarking is picking the proper benchmarks. For example, you invest in a mutual fund that is HDFC Small Cap Fund which invests in small-cap stocks this means the fund manager is only looking at investing in smaller companies. The appropriate benchmark would not be Nifty 50, but it would be Nifty Small cap 100 index.
How to calculate custom Benchmark?
Now Let’s suppose you are investing in a Balanced Fund which invests 65% of the fund in general equity stocks and remaining 35% in Indian bonds. Here, we can make a custom weighted average benchmark with some simple math. If your balance fund returned 8% in a year, Indian stock market index returned 10% and Indian bond market returned 7%. To create a custom benchmark index, you simply take weighting of the asset classes in the fund. In this case, 65% stock index and 35% bonds index and multiply each by the returns of the individual benchmarks, that is 65%*10 =6.5% and 35%*7%=2.45%, adding together we get 8.95%. Since our balanced fund had a return of 8% that means we overperform our custom benchmark by 0.95% for that year.
It is important to know that if investment outperforms or underperforms benchmark over a one-year time frame that may not be enough information to warrant making changes to your portfolio just yet, but one can consider those strategies under review. Consistent underperformance over a long period of time lowers your long-term wealth potential.
Candlestick pattern is a chart type that make up the price action. Candlestick pattern tell us on a day to day basis the sentiment of the market whether it is more bullish or it is more bearish and it helps to fine-tune our entries more precisely, that means by looking at candlestick pattern we enter, when all the stars ae aligned on the bullish momentum and short on bearish momentum
1. Bearish Pin Bar: Bearish Pin bar are one of the most well-known candlesticks, this is because they are very consistent. In the below mentioned picture if you observe, the pin bar is at least 2/3rd the length of the candle, the body is should greater than 1/3rd. You’ll find the bearish pin bar after a bullish move in the market, the wick shows strong surge of sellers coming into the market, and this suggests the bears, people wants to see in the market go down maybe gaining control of the price momentum.
2. Bullish Pin Bar: Similar to Bearish Pin Bar, but the opposite way around, it will be found after a bearish, it can be a nose on Pin bars but there must be small, even with small nose the tail wick is still 2 times the length of the body at least after a bearish move, the pin bar will appear suggesting the bulls who won’t see the market rise who have taken control of price momentum. These Pin bars are practically the same as other reversal candles such as hammers and hanging men.
3. Marubozu:It is a candle which is often a good indication of momentum and directionality in the market. The closer candle is the key to Marubozu that is because the close is right at the top or at the bottom of the candles range depending if the candle is bullish or bearish. It indicates that either the buyers or sellers are controlling the price action and direction of the market.
4. The Spinning Top: In some respect, spinning top is the opposite of Marubozu, where the Marubozu indicating conviction decision and market direction, spinning top is doing exactly opposite of that. It indicate indecision, the body is small and indicates the little movement between the open and closed and the wicks indicates the buyers and sellers were active during the time period. Longer time spinning tops such as in a daily chart can be an indication that range trading strategies are the appropriate ones to take an engulfing.
5. Engulfing candles: Engulfing candle is one which is bigger than the candle which preceded. It is often used by reversal traders as an indication that a trend will reverse. The engulfing candles which is favour most by traders, is where the body of the engulfing candles at least engulfs. The body of the previous candle it does not have to engulf the whole of the previous candle including the wicks.
India in the last few years have witnessed a major financial turmoil from events relating to elections, financial policy changes or be it any commercial disruptions. A few of the major changes including the US presidential elections, Demonetization in India, GST bill being passed and inculcated throughout the economy, Long term Capital gains (LTCG) implication on the stock market are a few of the notable ones which impacted the Indian stock markets which took the best of its toll. As we are already in th
The real estate is still suffering the impact of the triple tsunami – demonization, GST and new Real Estate Regulation (RERA). The new estate projects launched in Q1FY19 showed a downfall of 29%, lowest science 2005, from 60% in Q1FY18. The value of new projects launched in the financial year 2017-18 was 28% lower than that of 2016-17 and 5% below 2015-16.
Farrukhnagar Industrial Park Project worth Rs 600 crores, launched Q1FY18, is the largest among the new projects.
The decline in demand for real estate started from 2013; by 2016 it had hit all time low. The market at that time was going through a bearish phase when it was affected by RERA.
The major reason for the downfall in the real estate sector in 2017-18 can be due to the new guidelines passed by RERA. The borrowings from banks of the real-estate sector have been slugged since 2014. The property prices in major cities like Mumbai and Delhi have been hit harshly.
The interest rates are likely to increase causing a hike in borrowing cost, resulting in affecting the real-estate investment.
The Construction sector employs many labourers every year; it is the major source of non-farm job. A downfall in the real estate indicates lower business and lesser profits, resulting in unemployment of labours which will later affect the economic growth.
What is RERA?
The Real Estate (Regulation and Development) Act, 2016 (RERA) is passed by the government. The RERA was developed to conserve the interests of property buyers and further boost the real-estate sector investments.
How RERA impacted Real estate developers:
On 2nd August 2018, Apple Inc. created the history in the stock market, which turned out to be the first American company to be valued at $1 trillion. Apple is considered as a financial fruit of stylish technology that reformulated the expectations from gadgets. Apple’s market cap equals 38% of India’s total GDP in 2017 when it became the world’s sixth largest economy.
The company was commenced by three mavericks named Steve Jobs, Ronald Wayne and Steve Wozniak in the Silicon Valley garage 42 years ago. Apple shares closed at $207.11 on 8 August 2018, leaving the company’s market value above $1 trillion which is around $1001,679,220,000. Apple stands at the top of the U.S. bourses and has even dominated the technology-centred business: Amazon, Google’s parent alphabet, Microsoft, Facebook.
Apple was fluttered at the edge of bankruptcy; its stocks were trading at less than $1, on the split-adjusted basis and its market value was less than $2 billion. To survive in the market, Apple called back its co-founder, Steve Jobs, as the CEO, and asked its competitor Microsoft for a cash infusion of $150 million to help him pay the bills. Jobs managed a decade-long succession of its products as I phone, which converted Apple from a technological booth to a money-making machine. Its stock price has been surging up this week as the expectation has increased for the upcoming series of I phone, which is about to release in September.
Even though the sales of iPhone are not boosting up as rapidly as they were in the last few years, the company is trying to add features in the upcoming models which would convince the customers to pay higher prices for its top of the line devices. In the recent quarter, Apple managed to charge an average price of $724 per iPhone, i.e., a 20% increase from the average price of $606 per I phone at the same time last year. The increase in the price extended Apple’s profit margin to give pleasure to its investors, who boosted the company’s Market value by $8.3 billion. Apple’s stock price mounted by 23% so far this year, as compared to a gain of 6%. The recent rally in the Apple’s stock contradicted from a deep decline in the fortunes of two social media companies, Twitter and Facebook that offer some of the most popular apps used on I phones and other devices.
As efficacy Apple seems to be now, cultural and economic factors can quickly shift the corporate order. Exxon Mobil, which is considered as the most valuable U.S. Company last 5 years ago, now ranks at 9th which is outperformed by Apple and the list consisting primarily of companies absorbed in technology. Analysts have forecasted that the e-commerce leader Amazon will overthrow Apple as the world’s most valuable company in the coming one to two years.
This is obvious that Apple wouldn’t have been at the top without Steve Jobs, who died in October 2011. His showmanship, vision and style forced Apple’s comeback in the market. Hiring Tim Cook was one the best thing that Steve Jobs had contributed towards Apple. As Jobs top adherent, Cook supervised the complex supply chain which increased the customers craving for Apple devices and then held the company together in 2004, when Jobs was suffering from cancer which made him stay away from work. Months before his death in August 2011, Jobs handed off his position of CEO to Tim Cook. Cook controlled the legacy that Jobs left behind to striking heights. Since after Tim Cook became the CEO, Apple’s annual revenue doubled to $229 billion while its stocks quadrupled. The market value of more than $600 billion has been created in that time.
In Cook’s leadership, Apple watch has been one of the closest things that the company had to create another mass-market impression, but the device hasn’t come that close to break the cultural awareness like the I phone and I pads. This has created an anxiety that Apple is too much dependent on I phone especially on I pad sales which diminished several years ago. I phone now accounts for two-thirds of Apple’s revenue. It is expected that Apple itself is on a speed to generate about $35 billion of revenue in this financial year.
Apple accumulated more than $250 billion in taxes in overseas accounts and triggering accusations of tax dodging. Cook demanded that what Apple was doing was legal and was profitable for its shareholders, as the money was given offshore which would have subjected to 35% of tax rate, if it was brought back to U.S. Apple took advantage of the break when Donald Trump came into power, and virtually brought all its overseas cash, which generated, which generated $ 38 billion tax bill. The money coming back to the U.S. helped Apple to boost up its dividend by 16% and also committed a buyback of $100 billion.
Apple has continuously highlighted the amount of money which it is gaining from its applications, music, games, subscription and the services it gives to its customers. Tim Cook also mentioned that their consumers are increasing day by day, which encouraged the company to preserve a strong growth seen at its streaming music, App store and digital wallet. He said that they are delighted with current services and are excited to deal with some new services as well.
Life Insurance Corporation (LIC), a state-owned insurance group and investment company, received a clearance from Prime Minister Narendra Modi on 1st August 2018, for the acquisition of 51% stake in debt-ridden IDBI Bank, a government-owned bank. The sanction of the deal means that LIC will boost its stake in the bank from the current 8% to 51%, which will make it the majority stakeholder. According to the deal, IDBI bank will issue preferential shares to LIC for raising the money.
The deal between LIC and IDBI bank will help the bank to acquire the capital support of Rs.10,000 crore–Rs.13,000 crore. This deal will be a win-win situation for all – the government, LIC and IDBI bank.
The government (with 86% stake in IDBI) wanted to privatize IDBI by giving up the control over the bank. But the plan, however, did not succeed, because of the bank’s depreciating financial condition.
Since August 2015, the government has been taking several steps to make Indian banks stronger. Before 2015, the asset quality review showed that the Non – Performing Asset (NPA) figures were high. Due to this, the government infused capital in various banks. One of these NPA - hit bank, was IDBI which had been infused with Rs.16, 000 crores. To make the bank even better, government-connected LIC to IDBI, which could spread its approach in all corners of the country.
On 6th August 2018, IDBI stated that LIC might have to pay a premium for the real estate and non–core assets of the bank. IDBI had started valuing its assets before the issue of preferential shares to LIC, which is set to acquire a majority of the stake in the bank. The valuation of the assets is expected to be completed by 15th August 2018.
IDBI bank Gross NPA increased from Rs.44, 753 crores in Q4FY17 to Rs.55, 588 crores in Q4FY18. The market capitalization of the bank is around Rs.26, 000 crore, based on the closing stock price on 3rd August 2018 of Rs.61.90 per share on the BSE.
The Real estate and non–core Asset of IDBI bank are valued at nearly Rs.14,000 crore till now, which might affect the final price of the preferential shares.
The government has given its “no obligation” to the preferential allotment of shares or open offer that might reduce LIC‘s stake in the bank below 50%.
According to the acquisition authorized by the Insurance Regulatory and Development Authority (IRDA), LIC would not have any authority over the management of IDBI bank. LIC might present a comprehensive plan to reduce its stake to 15% over a period of 7 years.
The IDBI bank has a highest gross NPA of 27.95% in FY18 of total loans among all the public sector banks. It has recognized gross NPAs worth Rs 55,588 crore, it has Rs.26,902 crore provisioned for NPA’s. The government-owned bank had stated a total loss of Rs 8,237.92 crore in FY 18, Rs 5,158.14 crore in FY 17, and Rs 3,664.80 crore FY16.
On 1st August 2018, India’s Monetary Policy Committee (MPC) decided to increase the benchmark interest rate by 25 basis points to 6.5% from 6.25%. The Monetary Policy Committee has increased the policy rates for the first time since 2014 to overcome price pressure and to bring inflation closer to medium-term target of 4 (+/- 2 percent).
In May 2018, the core inflation increased to 6.3% against 6.1% in April 2018. Headline inflation saw an increment up to 5%.
The key reasons provided by MPC for the rate hike :
• Inflation: Retail inflation (Consumer Price Index) increased to a five-month high of 5% in June 2018, moving away from the targeted medium-term inflation of 4% set by the central bank. Headline inflation (Wholesale Price Index) rose to 54-month high of 5.77%.
• Minimum support price (MSP) hike: The government passed Minimum Support Prices for 14 Kharif crops in Q1FY19. This might lead to an increment in food inflation.
• Rupee weakness: The rupee has not shown any signs of strengthening against US dollar. The MPC policy might change the movement of the currency in the next few weeks.
The committee stays buoyant on the growth of its projected 7.4% GDP for FY19.MPC is expecting the GDP growth to range between 7.5-7.6% in H1FY19 and 7.3-7.4% in H2FY19.
The MPC expects its booming corporate earnings to pick up in investment activity. A rising FDI flow and active capital raise indicate a healthy economic activity.
The MPC states that the risk is evenly balanced in its policy rates. The committee noticed the rising global trade and reported that it could pose a threat in short-term and long-term global growth prospects.
The Indian automobile sector is one of the largest in the world after manufacturing and selling about 17.7 million two-wheelers in 2016 hence dominating the market by 80 percent of the total market share. There were 25.3 million automobiles in total produced in the FY17. The automobile sector in India grew astonishingly by 15.81 percent y-o-y during the period April to February 2017-18. The Industry also saw in increase in the two and three wheeler increase in exports by 20.30 percent and 37.02 percent respectively.
The total production volume of the sector grew at a rate of 4.43 percent CAGR
CRISIL report on the automobile industry:
CRISIL reported on May 4, 2018, about the domestic auto component production wherein it grew by 6.9% in FY2017 and the exports grew by a mere 1 percent due to the fall in demand from the USA and the normal demand from Europe. On the other hand, the domestic auto component production saw a growth rate of 11-13 percent in the FY18 due to the realization of the BS-IV components and the increase in raw material prices and the US exports increased due to the revival of Class 8 truck sales along with good revival signs from Europe and South Asia.
CRISIL report on June 18, 2018 stated that the capital expenditure of the automobile Original Equipment Manufacturers (OEMs) which comprises of both Passenger Vehicles (PVs) and Commercial Vehicles (CVs) is likely to increase by 30 percent to Rs 58,000 Cr over FY 2019 and 2020 compared to the preceding two fiscal years.
The reason for the increase in the capex is owing to the increase in the demand which was already started in the earlier report due to the increase in demand from USA, Europe, and South Asia.
According to the study conducted by CRISIL on the 18 OEM automobile manufacturers, out of which 10 are already rated by CRISIL wherein 90 percent of the current industry volume indicate PV makers will account for almost 70 percent of this capital expenditure which will be supplemented by CV manufacturers with 20 percent share and the balance to the two-wheeler manufacturer segment.
The OEM segment is largely duopolistic with the top two players namely Maruti and Hyundai in PV segment enjoy almost 60-70 percent market share and are already operating at their optimum levels and in many cases are also cutting down on the exports so as to complete the demands in the domestic market and also leading manufacturers in other segments are operating around 70-75 percent of their capacity. The top two players of the PV segment are likely to incur half of the total capex in each segment in order to meet the growing demands since it is likely to grow in high single digits till FY 2020.
Due to intense competition, new product launches in the electric vehicles segment will also be necessitated since CRISIL is also expecting 8 major new model releases in the FY19 compared to 6 new major models in FY 18.
Most of the capex will be contributed towards the increase in capacity but there is also growth in the investments of technology so that the products conform with the regulatory norms, including BS-IV emission norms and crash tests.
Despite the major increase in capex of the automobile manufacturing, CRISIL has estimated that the credit quality of these OEMs is likely to remain stable owing to the strong cash the sector is generating and the well maintained balance sheets.
As we are all aware of the brewing war between US and China had been in the talks since the April 2017, On Friday, June 15, 2018, Trump released one of the biggest news that he will be importing duties on the $50 Billion worth of Chinese goods and first wave to collect the tariffs to cover $34 Billion of goods will take effect from July 6. He already stated that if China decides to retaliate then he would increase the total. In amidst, the question arises that where does India stand in this situation since China and India’s ties haven’t been good as well due to the border standoff.
But when it comes to trade, China is India’s largest bilateral trading partner since both the countries have the population problem wherein China imports amounted to $16.4 from India or the 0.8 percent of its overall imports and 4.2 percent of India’s overall exports last year.
India always have had a trade deficit with China and the gap has always increased and Indian have been on the path to reducing the gap. In a recent news, China’s Ambassador Luo Zhaohui said that Beijing will reduce or moreover cancel their import costs on a few goods from the four countries namely India, South Korea, Bangladesh and Sri Lanka.
The list suggested includes goods types of 8,549 but even though the government of India is waiting for an official announcement or a communication to be sure if they have actually reduced regulatory restrictions as well.
The goods on which the tariffs have been reduced include chemicals, agricultural, medical, soybean, clothing, steel and aluminum product
The Chinese Ambassador conveyed that this will help reduce trade imbalance between countries but economists call it a strategic move since earlier China had imposed an increase in tariff duties by 25% which are imports from the US on goods such as soybeans, chemical products and medical equipment’s. They are the same goods wherein China imposed higher tariffs from the US in retaliation for their tariff increase and is thus to balance the act is decreasing tariffs in other Asian countries. Earlier India used to pay 3 percent on the tariff exports to China for soybean and therefore they reduced it now to zero.
From the data above it is evident that India has a huge trade deficit gap due to China since they don’t import a lot from India and therefore the latest move from them which is due to the US-China trade war will be a good opportunity for India to reduce the gap of trade deficit.
Benefits to India:
It is obviously empirical that a trade war between US-China is likely to benefit India since China is the major importer of soybean and US being their second best player of exporter post-Brazil. China hasn’t imported Soybean from India in many quantities from the year 2006 according to the customs data and India is the most significant producer of Soybean in Asia. In the year 2017, China imported only 42,000 tonnes of Indian soymeal which is less than the 1 percent annual needs of the country.
India is the world’s fourth-largest producer of Soybean in the world and produces almost 3 percent of the global crop and third largest producer of rapeseed and produces almost 9 percent of the global output.
Even the pharmaceutical Industry in India is likely to yield good profits from the trade since the approvals and government aid the industry is getting for generic medicines.
Therefore, if the official statement is passed, India can benefit a lot from the newly revised import tariffs of China.
Chanda Kochhar, one of the financial icons who changed the concept of retail banking in India. She is 32nd in the Forbes list of the 100 most powerful women in the world. Her journey from a Management Trainee to the Managing Director (MD) and Chief Executive Officer (CEO) of ICICI Bank makes her a strong role model for women across the world. She is motivating for women in India as well as women in the world.
In 2011, no one would have imagined the downfall of Chanda Kochhar when ICICI chief executive Chanda Kochhar received Padma Bhushan. Seven years later the situation is reversed. After four months of backing her at the bank during the flurry of allegations, the board of directors of ICICI bank decided to send her for a leave of one year. Chanda Kochhar will be on leave till completion of an independent investigation into allegations of impropriety and favoritism against her.
Chanda Kochhar didn’t take a lift to the top. She started her career as a Management Trainee at ICICI in 1984 and climbed up the ladder to become the Chief Executive Officer (CEO) in 2009. Chanda Kochhar’s rise and fall are incredible. From management trainee to MD & CEO to Padma Bhushan to stain of corruption.
Chanda Kochhar is known as an expert in handling the big crisis with ease and softness. But she couldn’t handle this controversy. After facing a lot of allegations and criticism because of her, the board of directors decided to start an investigation against her without harming the reputation of the bank. She has managed well such situations in the past. In 2008, when the world was going through the biggest subprime crisis, she handled the situation successfully. She was CFO in 2008 crisis.
In 2009 she took charge of MD & CEO of the bank at the age of 48. She became the youngest CEO to do so. Chanda Kochhar handled the problems softly and she came out with post-crisis strategy of 4 Cs (Cost, Credit, Current and savings account, and Capital). The strategy became successful and it helped the bank to come back on the tracks of the profits and healthy growth. As a CEO of ICICI bank, Kochhar played a major role in re-building of the retail business of the bank. Recently, she had shown the world how quick decisions can help in the effective resolution of bad loans, even though the ICICI was facing the same problem of NPA like other commercial banks in India.
In the present crisis, many people will question the timing of the inquiry. Chanda Kochhar is gone on leave and the investigation been ordered right when the charges hit the headlines of the newspapers. The company would have faced less criticism if the timing of her leave was well managed. The time will decide whether she can come back from this situation or not.
As we are all aware of the brewing war between US and China had been in the talks since the April 2017, On Friday, June 15, 2018, American President Trump released one of the biggest news that he will be importing duties on the $50 Billion worth of Chinese goods and first wave to collect the tariffs to cover $34 Billion of goods will take effect from July 6. He already stated that if China decides to retaliate then he would increase the total. In amidst, the question arises that where does India stand in this situation since China and India’s ties haven’t been good as well due to the border standoff.
But when it comes to trade, China is India’s largest bilateral trading partner since both the countries have the population problem wherein China imports amounted to $16.4 from India or the 0.8 percent of its overall imports and 4.2 percent of India’s overall exports last year. The major commodity which was exchanged was cotton from India to China.
China has been the biggest importer of cotton and India is the biggest exporter of cotton. The Chinese demand for cotton is very robust and therefore China wanted to be in a deal with India but the Indian exporters were not having a clear idea about the arrival of monsoon in June since the crop is typically ready for harvesting in the month of September.
China probably would import 1.5 million to 2.5 million tonnes of cotton in the year 2018 and therefore New York cotton futures were trading the highest in more than six years since there is dry weather in Texas, a major producing region of cotton in the United States.
Therefore, due to the trade tensions between both the countries, weak rupee in India makes it the most appealing country for the exports along with the freight costs to the neighbouring countries in Asia. Cotton Prices therefore on Tuesday tumbled.
China had already bought about 1.5 million bales of cotton from the U.S. this season and therefore the traders are concerned about the cancellation owing to the trade war and the exchange limit on ICE futures in New York had slumped by 12 percent from a four year high on June 6.
The Cotton Association of India last week estimated a rise of almost 8.3 percent over the previous year thereby boosting exports. In the U.S the cotton futures rose as much as 21 percent this year due to the bad weather conditions in Texas and therefore Indian government is planning to issue additional import quotas because bad weather conditions damaged the domestic crop, and a shortfall of high-quality fiber looms.
All that said, India will be the most benefiting one due to the trade disputes since the country’s cotton production is great and is one of the top exporters of cotton in the world.
The North Korea-United States summit which was confirmed by President Donald Trump and Chairman Kim Jong on March 8, 2018, and Singapore prepared to host the summit which was held on June 12, 2018. The reason for the meeting was on the matter of denuclearization since trump wanted to completely dismantle North Korea’s nuclear weapons program and to which Kim Jong replied by rejecting and instead proposing a step by step denuclearization. There were threats from both parts and this summit has a huge impact on the Asian stocks. It was one of the historic meetings and it had no major breakthrough as per the analysts.
Performance of stocks post the summit:
The global markets were at a cautious stance due to the topic of discussion. The Nasdaq composite closed at a record high closing at 0.6 percent higher and most European indices were struggling to register gains and Stoxx 600 indices slipped around 0.1 percent. In New York, the S&P 500 rose to 0.2 percent and the Dow Jones Industrial average closed a fraction lower.
The only companies which were affected were in the US relating to Defense since these companies used to rise when there was a testing of missiles happening in North Korea and was benefiting. The world’s largest defense company shares, Lockheed Martin Corp fell by 1.3 percent.
Expectations of the performance of stocks before the summit and what changed?
A successful outcome would be a booster to the Asian stocks and the US exchange-traded fund which tracks them and a disappointing outcome to hurt European stocks and also due to the meeting of North Korea and the US the South Korean stocks plummeted as much as a third of a percent and there are tensions arising in North Korea.
One of the interviews stated that there would be little to no effect on the market since the meeting has been anticipated over a decade and therefore what is anticipated is that there will be more talks in future and also on the denuclearization front and also partial withdrawal on the sanctions.
As per the tests it has been seen that whenever there was a missile test the market went down by 0.1% which means there weren’t many reactions but definitely negative but they are not much and a major change or positive outcome can be seen only if there’s a quid pro quo deal about a joint deal of infrastructure or something and therefore which can lead to a huge impact on the market.
Post the summit, since the outcome was positive but with no major breakthroughs but the Asian stocks were trading higher wherein Japan’s Nikkei 225 rose by 0.33 percent and the dollar index also strengthened slightly.
The Indian Sensex was up by almost 200 points and Nifty was up by 55.90 points at the closing bell.
Why were stock market investors relaxed?
Investors were relaxed mostly since the outcome of the meeting would be probably for a short or midterm on the market and therefore there are large concerns for trade since the Trump administration is in talks and negotiations with China and at a really crucial talks with North American Free Trade Agreement (NAFTA) which are more likely to be impactful in the long run. The Trump-Kim summit is unlikely to give out a breakthrough and is nor of a verbal spat like the earlier time between the two leaders which would have still given an impact only in the midterm.