Economy

Energy Crisis has been making the rounds for more than a month now.

It is like the 1970s energy crisis once again, though the reasons are not the same today. But there are a few similarities. Here is what happened.   

The 1970s saw America’s consumption of gasoline and other products rise despite a fall in domestic production. The imports of oil increased, so did their dependence on the OPEC nations. Americans were not worried about the falling supply or the rising prices, since policymakers assumed the oil exporters couldn’t afford to lose revenue from the US market.

The Yom Kippur Arab-Israeli war in 1973 broke the USA policymakers’ assumptions. The OPEC nations imposed sanctions on the United States and the Netherlands for helping Israel, which led to fuel shortages and sky-high crude oil prices throughout the decade. The restriction and low production continued even after the end of the War in late October 1973.  Rising oil prices had a far-reaching impact on markets other than the US. Countries like Great Britain, Germany, Switzerland, Norway, and Denmark placed restrictions on driving, boating, and flying while the UK Prime Minister urged citizens to heat only one room in the winter.

The sanctions was lifted in 1974, but oil prices were still high and the effects lingered. Price controls, gasoline regulation, a national speed limit, and daylight saving were some measures the countries adopted to mitigate the effects of the energy crisis. Moreover, the countries made an effort to increase domestic oil production, reduce dependence on fossil fuels, and find other sources of power including renewable energy resources. But, as soon as the crude oil prices collapsed in the mid-80s, the per liter prices of fuel fell to moderate levels, domestic production declined, efforts for energy efficiency slowed while imports increased once again.

Well, its 2021 today and it feels like we haven’t learned our lesson yet. We are on the brink of another Energy Crisis – as supplies of natural gas, coal, and other energy sources fail to meet the rising demand post-pandemic. Let us be clear and state the energy crisis is not an illusion of our imagination; it is the truth.

With the world reeling under the fall in energy supply to meet demand every day, we thought of taking a deep dive into the reasons for the crisis, the effects, and the actions the world economies take; or should take to overcome this energy crunch.

Stay tuned for our next article in the series where we discuss what’s happening in the world.

In the meanwhile, subscribe to our 5 in 5 Wealth Creation Strategy and begin your journey today.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

India took the longest time to resolve insolvency compared to other countries, where most bankruptcy resolutions happened in 1-1.5 years. Moreover, several non-performing bank loans were pending with delays in debt resolution. Better and faster resolution of cases was the need of the hour. That’s when the Government introduced the bill in the Lok Sabha in 2015. The Lok Sabha cleared the bill, and the President gave his nod to the Insolvency and Bankruptcy Code in May 2016.

IBC code 2016

The IBC Code 2016 is -an act to combine and modify laws that deal with reorganization and insolvency resolution of the corporate, partnership firms, and individuals in a time-bound manner. The code aims to -maximize the value of assets, promote entrepreneurship, credit availability, balance the interests of all the stakeholders and modify the order of priority of payment of Government dues, establish an Insolvency and Bankruptcy Board of India (IBBI), and deal with any other matters related to insolvency.

The bankruptcy code 2016 is a one-stop solution to resolving insolvencies now. The resolutions earlier were time-consuming and not economically viable as the creditors gained control over the debtors’ assets in case of a default in repayment. But, the new law aims to protect the interests of small investors to make the process of doing business simple. Under this code, both the creditor and debtor can start the recovery process against each other. The IBC has 255 sections and 11 Schedules to tackle the bad loans issues affecting the banking system.

Meant for

The IBC code 2016 applies to

(a) Any company incorporated under the Companies Act, 2013 or under any previous company law;

(b) Any other company governed by any special Act for the time being in force, as long as the said provisions are inconsistent with the provisions of such special Act;

(c) Any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008;

(d) A body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf; and

(e) Partnership firms and individuals who are part of the insolvency, liquidation, or bankruptcy, depending on the case.

Time limit for bankruptcy process

As per section 12 of the code, the Companies must complete the resolution process within 180 days of applying for insolvency. The resolution professional can send an application to the Adjudicating Authority to extend the period. This extension is possible only if the creditor’s committee passes a resolution with a 75% majority. The companies can get an extension only once, not exceeding 90 days. Smaller companies and startups with an annual turnover of Rs. 1crore must complete the insolvency process within 90 days. They get a 45-days extension if needed.

Regulators of the code

The Insolvency and Bankruptcy Board of India oversees the bankruptcy cases. The board has its head office in Mumbai. The Board has a Chairperson, three members from Central Government’s Ministry of Finance, Corporate Affairs and Law, one member the RBI nominates, and five members the Central Government nominates.

Facilitator of insolvency

A licensed professional manages the resolution process, the assets of the debtors while sharing information with the creditors to help then decide.

Arbitrators of the process

The National Companies Law Tribunal (NCLT) for companies and Debt Recovery Tribunal (DRT) for individuals are the arbitrators under the IBC 2016 code. The IBBI controls the insolvency professional agencies, the professionals, and the information services under the code.

Changes to the Code

The IBC Code 2016 has undergone several changes and amendments over the year. The most recent amendment was in August 2021. The latest amendment to the code aims to simplify the process, saving time and money for small businesses. The Government introduced an ordinance that offered a pre-packaged or pre-pack resolution scheme. This scheme was an informal way to resolve issues where tribunal approval will be sought later. The August amendment bill aims to replace this ordinance.

Under this amendment

The proprietors or major shareholders of a small business retain operational control of the business instead of creditors once the pre-pack insolvency scheme starts. This feature ensures the business is not disrupted while the insolvency process is on. This amendment aims to provide quick, economic and value-maximizing results for all the stakeholders without disrupting business continuity.

Over 60% of the 13-lakh active companies in India are eligible for the pre-pack bankruptcy resolution scheme. Most functional companies fall under the MSMEs incorporated; however, proprietorship firms are not eligible for this scheme.

The process is simple. An MSME that cannot pay its debt of 10 lakh can initiate the pre-pack bankruptcy resolution scheme with lender approval or lenders with 66% of the debt can start the insolvency process. The promoters can submit their plan for revival, which is exposed to Swiss value maximization challenge. The creditors have the right to ask for another plan from a new investor and promoters till they can’t raise their bid anymore.

Though the demand for the pre-pack insolvency scheme for large companies is increasing, the government may not widen its scope so soon.

While we learnt all about IBC Code let’s look at how the code has fared since it was enacted first in 2016.

• The code has been able to bring down the average days of resolution from 1500 to 380 days.
• The IBBI states, the code has helped financial creditors realize 191% compared to the liquidation value.
• Over 250 companies have been revived till date. Of the 4008 companies that filed for insolvency, 277 have been resolved under CIRPs while 1025 companies were liquidated.
• The total financial realization was Rs. 1.90 lakh-crore till September 2020.  

However, the best benefit of the code has been the revival of businesses, offering thousands of operational creditors a lifeline. The code has prevented job losses, NPAs, and huge monetary losses to the economy. It has even helped India move up the ranks in the global ease of doing business index from 130^th to 63^rd in 2020.

That’s it for IBC today. Do read the next in the series where we take up a popular case study for insolvency.

Meanwhile, subscribe to 5 in 5 Wealth Creation Strategy and start your investing journey today.

Read more:
India’s Freedom To Exit Code – Bankrupt Companies Ki Kahani

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NTPC is an Indian government-owned electric utility company, engaged in the business of generation of electricity and allied activities. The company’s core business is the generation and sale of electricity to state-owned power distribution companies and state electricity boards in India. NTPC also undertakes consultancy and turnkey project contracts that involves engineering, project management, construction management, and operation and management of power plants.

Now let’s look at the journey of NTPC in the last financial year.

FY21 Performance of NTPC Stock

In FY21, NTPC gained 40%, while Nifty gained 71%. Hence, we can imply that despite generating a handsome return in FY21, the stock of NTPC underperformed in comparison with the Nifty.

How NTPC Fared in FY21

2021 was a challenging year for most businesses. However, for NTPC it was an outstanding year where it delivered strong and steady performance. The company’s revenues grew from Rs 1,09,464 crore in FY20 to Rs 1,11,531 crore in FY21. Net profits of NTPC also increased from Rs 11,600 crore in FY20 to Rs 14,635 crore in the last financial year.

Key highlights of NTPC’s performance in FY21

• The company recorded its highest ever group generation of 314 BU in FY 21, a growth of 8.2% compared to previous year.
• For the first time in FY21, NTPC realized 100% of the billed amount from the Discoms with the amount of realization exceeding Rs. 1 Lakh Crore.
• The total installed capacity of NTPC Group increased by 5.96% to 65810 MW with 4160 MW of capacity addition in the last financial year.
• NTPC’s Singrauli Unit-1 in Uttar Pradesh, Korba Unit-2 in Chhattisgarh achieved more than 100% Plant Load Factor in FY21.

The road ahead for NTPC

NTPC has increased its longer-term capacity target in Renewable Energy (RE) to 60 GW by 2032 as compared to earlier target of 32 GW. With this ambitious target, the firm has taken steps to increase its footprint in the RE sector. Currently, 3 GW of renewable capacities are under construction and likely to be commssioned over the next two years.

On one side while NTPC gradually scales up on its renewables journey, on the other side its continued capitalization for its thermal projects is expected to drive substantial growth for the company over the next few years.

To invest in businesses that are likely to outperform over the next few years, click here.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Hope you enjoyed our earlier insights on the performance of top stocks from different sectors FY21. Today let’s look at the stock of a giant in the Cigarette and FMCG sector – ITC.

ITC is a century old company with a diversified presence across industries such as cigarettes, FMCG, hotels, packaging, paperboards and specialty papers and agribusiness. While ITC is an outstanding market leader in many of its traditional business it is rapidly gaining market share even in its emerging businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.

Now let’s take a look at the journey of ITC in the last financial year.

FY21 Performance of ITC Stock

In FY21, ITC gained 30%, while Nifty gained 71%. The above graph indicates how the stock performed against the benchmark index Nifty. During the same period the NIFTY FMCG index gained 28% while ITC stock generated a return of 30%. Despite marginally beating the FMCG index by 2%, ITC underperformed in comparison with NIFTY.

How ITC Fared in FY21

ITC’s net profit for FY21 declined by 13.9 per cent to Rs. 13,032 crores from Rs. 15,136 in the previous financial year due to Covid-19 pandemic related disruptions in the first half.

ITC’s cigarette business remained subdued in the H1FY21 after the imposition of lockdown affecting demand. However, with easing of restrictions and better mobility, ITC’s Cigarette volumes reached nearly pre-Covid levels towards the close of the year.

The company’s gross revenue increased by 3.9 percent to Rs. 48,151 crores from Rs. 46,324 while earnings before interest, tax, depreciation and amortization (EBITDA) declined 13.3 per cent to Rs 15,522 crore.

The company’s FMCG business registered a 15.8% YoY growth riding on the strong demand for staples, packaged and ready to eat foods and health & hygiene products.

ITC’s Hotels segment witnessed a gradual recovery from the 2^nd half of the year on account of higher occupancy and F&B business.

While agri-business grew 78.5% because of higher demand for wheat, rice, oilseeds, exports of value-added foods the company’s paper business grew 13.5% YoY on strong demand from industrial end-users.

Factors that affected ITC’s performance in FY21

• Lockdown and mobility restrictions in H1FY21

Factors that boosted ITC’s performance in FY21

• Removal of lockdowns and easing of restrictions in H2FY21
• Strong demand for staples, convenience foods and health & hygiene products
• Robust recovery in the discretionary/out-of-home portfolio
• Recovery in hotel and F&B business in H2FY21
• Higher operating leverage
• Enhanced operational efficiencies
• Product mix enrichment
• Aggressive new product launches (120+ new launches in FY21)
• Reduced distance to market and other structural interventions.

So, is it worth investing in ITC share for the long term?

The pandemic and related lockdowns in the first half of FY21 adversely affected ITC’s cigarette and hotels business. However, despite the several challenges, ITC managed to bounce back due to vigorous growth in its FMCG business.

The company has been slowly reducing its dependence on the cigarette business due to increasing taxes and regulatory norms and focusing on increasing its FMCG and hospitality businesses.

Higher purchasing power among consumers, rising preference for branded packaged foods and significant growth in the non-cigarette business, are some of the key growth drivers for ITC.

Click here to invest in portfolio of 20-25 multibagger stocks.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Have you heard the popular song “What goes up must come down? Falling feels like flying till you hit the ground” by American rock band Hinder.

As an investor, one can probably relate the same to what\’s happening currently with Adani Group stocks.

After a dream run in Adani Group stocks like Adani Power, Adani Total Gas, Adani Enterprises, Adani Ports, and Adani Transmission over the last 12-month period which catapulted chairman and founder of the Adani Group, Gautam Adani to the position of the 2^nd richest man in Asia, Adani Group stocks have hit a major roadblock.

Before we proceed to take a look at the reason behind the fall in Adani Group stocks let’s take a brief look at the different companies in the group and their past performance.                       

Adani Enterprises Ltd.

Adani Enterprises is a primary holding company that is mainly engaged in the mining and trading of coal and iron ore on a standalone basis. The company has three main subsidiaries such as Adani Wilmar, Adani Airport Holdings, and Adani Road Transport. While  Adani Wilmar is engaged in the business of manufacturing and distribution of edible oil and food processing, Adani Airport Holdings is into operations, management, and development of airports. Business activities of Adani Road Transport include construction, operations, and maintenance of roads, highways, Expressways, and tollways.                                                                  

Adani Green Energy

Adani Green Energy Limited (AGEL) is one of the largest renewable companies in India specializing in building, operating and maintaining utility-scale grid-connected solar and wind farm projects. The company has entered into long-term purchase agreements for power with central and state government entities and has a presence across 11 states in India.

Adani Power

Adani Power Ltd. is the largest private producer of thermal power in India with a capacity of 12,450 MW from plants in Gujarat, Maharashtra, Karnataka, Rajasthan, and Chhattisgarh.

Adani Total Gas

Adani Total Gas Ltd. is a leading provider of Piped Natural Gas (PNG) to the customers in residential, industrial, commercial segments and Compressed Natural Gas (CNG) to the transport industry.

The company has a well established city gas distribution network in some cities in Gujarat, Haryana, and Uttar Pradesh. Additionally, the company has also won bids for the development of gas distribution networks in several other cities in a JV with Indian Oil Corporation Ltd.

Adani Transmission

Adani Transmission Ltd. is the largest private transmission company and operates more than 12,350 ckt kms of transmission lines and around 18,000 MVA of power transformation capacity. The company has further set an ambitious target to setting up 20,000 circuit km of transmission lines by 2022.

Adani Ports and SEZ

Adani Ports & Special Economic Zone Ltd. (APSEZ) is the largest commercial ports operator in India with three verticals, i.e. Ports, Logistics, and SEZ presence spread across 12 domestic ports in seven states in the country.

What Delisting of Adani Power Shares Means for Shareholders?-Research & Ranking

Reasons for the recent fall in Adani Group Stocks

Stocks of Adani Group companies went into a free fall earlier this week after media reports emerged stating that the National Securities Depository Limited (NSDL) had frozen accounts of three foreign portfolio investors (FPIs), who held huge stakes in Adani Group Stocks. The reports also mentioned that FPIs had flouted SEBI’s KYC norms.

According to the media report three foreign funds, Albula Investment Fund, Cresta Fund, and APMS Investment Fund, together owned shares worth Rs. 43,500 crore in some Adani Group Stocks. All 3 entities are registered at the same address in Port Louis, Mauritius, and lack websites. These funds together hold 6.82 percent in Adani Enterprises, 8.03 percent in Adani Transmission, 5.92 percent in Adani Total Gas, and 3.58 percent in Adani Green.

This led to panic among investors leading to a correction in prices of Adani Group Stocks. However, Adani Group was quick to issue a clarification that the accounts had not been frozen.

“We regret to mention that these reports are blatantly erroneous & are done to deliberately mislead the investing community. This is causing irreparable loss of economic value to the investors at large & reputation of the group,” Adani Enterprises said in a statement.

Most Adani Group stocks have risen significantly over the past year. Hoping to cash in on the ride many short-term investors had joined the bandwagon. However, the sudden unexpected news in terms of a freeze on FPI investors holding the group\’s stock affected the prices of Adani Group stocks severely with many hitting lower circuits except Adani Enterprises and Adani Ports. Fearing a further correction in the Adani Group stocks, most investors dumped the stocks leading to a vicious cycle.

Adani’s race to triple Adani green energy capacity within the decade

What should investors do with Adani Group Stocks?

Four of Adani Group stocks have been moved to the T2T (Trade 2 Trade) category where intraday trading is not permitted. As of now, it would be advisable for investors to remain cautious. Experts are suggesting that investors should avoid bottom fishing or averaging their position in Adani Group stocks as despite the recent correction many stocks in the group are appearing overvalued.

There are many better investment opportunities currently available in the market with the potential to multiply your wealth by 4-5 times over the next 5-6 years. Click here to invest.

Read more: How Long term investing helps create life-changing wealth – TOI 

Introduction

What is a Unicorn Startup?

A unicorn startup refers to a privately held company with a valuation exceeding $1 billion. The term was coined by venture capitalist Aileen Lee in 2013 to denote the rarity of such high-valued startups.

Why the Indian Unicorn Ecosystem is Attracting Global Attention

India has emerged as the third-largest hub for unicorn startups, following the US and China. With a thriving digital economy and growing investor confidence, Indian unicorn startups are reshaping industries and attracting global attention.

The Rise of Unicorn Startups in India

How India Became the Third-Largest Unicorn Hub Globally

• Strong support from government initiatives such as Startup India and Digital India.
• Increasing smartphone penetration and internet usage.
• Large consumer market and growing middle-class population.
• Rise in venture capital investments and funding rounds.

Key Milestones in the Growth of Indian Unicorn Startups

• 2011-2015: Initial wave of unicorns, led by Flipkart and Paytm.
• 2016-2019: Rapid increase in unicorn startups due to investor confidence.
• 2020-2023: Surge in unicorns across fintech, e-commerce, and SaaS sectors.

Major Sectors Contributing to the Unicorn Boom in India

• Fintech (Paytm, PhonePe, Razorpay).
• E-commerce (Flipkart, Nykaa, Meesho).
• EdTech (BYJU’S, Unacademy).
• SaaS & IT Solutions (Freshworks, Zoho, Postman).

Top Indian Unicorn Startups: Key Players in the Ecosystem

1. Fintech Giants

• Paytm – Digital payments and financial services.
• PhonePe – UPI-based digital payments.
• Razorpay – Online payment solutions for businesses.

2. E-commerce Leaders

• Flipkart – India’s leading online marketplace.
• Nykaa – Beauty and fashion e-commerce giant.
• Meesho – Social commerce platform empowering small businesses.

3. EdTech Innovators

• BYJU’S – India’s largest online learning platform.
• Unacademy – E-learning startup focusing on test preparation.

4. SaaS and IT Solutions Companies

• Freshworks – Global SaaS provider with CRM and IT solutions.
• Postman – API development and testing platform.

Factors Driving the Growth of Indian Unicorns

1. Rapid Digitalization Across Sectors

• Increased internet penetration and adoption of digital payments.
• Growth of e-commerce and digital entertainment.

2. Availability of Venture Capital and Global Investments

• Investments from Sequoia Capital, SoftBank, Tiger Global.
• Rise in private equity and international investors backing Indian startups.

3. Government Initiatives Like Startup India and Digital India

• Startup India – Tax incentives, funding support, and easier compliance.
• Digital India – Focus on digital payments, connectivity, and infrastructure.

Challenges Faced by Indian Unicorns

1. High Cash Burn Rates and Profitability Concerns

• Many startups struggle to achieve profitability despite high valuations.
• Heavy reliance on venture capital funding.

2. Regulatory Hurdles in Key Sectors

• Fintech startups face stricter compliance rules from RBI.
• E-commerce faces regulatory restrictions on foreign investment.

3. Talent Acquisition and Retention in a Competitive Market

• Increasing demand for skilled tech professionals.
• Challenges in retaining top talent due to competitive offers.

Opportunities in the Indian Unicorn Ecosystem

1. Expanding Into Tier-2 and Tier-3 Cities

• Rising internet penetration in smaller cities.
• Growing disposable income leading to increased consumer spending.

2. Leveraging Emerging Technologies Like AI and Blockchain

• AI-driven personalization in e-commerce and fintech.
• Blockchain technology enhancing security and transparency.

3. Building Sustainable and Scalable Business Models

• Focus on long-term profitability and reducing dependency on external funding.
• Diversification of revenue streams to ensure stability.

The Future of Indian Unicorns

1. Trends That Will Shape the Ecosystem in the Next Decade

• More unicorns emerging in healthtech, agritech, and deep tech.
• Increased collaboration between startups and corporates.

2. Role of IPOs in Unlocking Unicorn Potential

• Successful IPOs of Zomato, Nykaa, and Paytm setting benchmarks.
• More unicorns eyeing public listings to raise capital and ensure liquidity.

3. Collaboration Between Startups, Corporates, and Governments

• Government partnerships for infrastructure and policy support.
• Corporate investments in startups to drive innovation.

Conclusion

The Significance of the Indian Unicorn Ecosystem in the Global Market

The rise of unicorn startups in India showcases the country’s potential as a startup hub. With continued investment, digital transformation, and government support, India’s unicorn ecosystem is poised for sustained growth, contributing significantly to the global economy.

Also Read:

• Current IPOs
• Closed IPOs
• Upcoming IPOs
• Listed IPOs
• IPO Performers

India ranks 4th globally in the automobile industry and is expected to become the 3rd largest automobile manufacturer by the year 2026. Apart from being the largest tractor manufacturer in the world, India also ranks as the second-largest bus manufacturer and third largest heavy commercial vehicle manufacturer globally. A major contribution to this remarkable achievement of the Indian automobile industry can be attributed to the robust support provided by the auto ancillary companies in India.

In this article let’s take a look at: 

What are auto ancillary companies?

What are the future growth prospects for the auto ancillary sector in India?

Which are the top auto ancillary stocks in India?

What are auto ancillary companies?

Auto Ancillary companies are companies that specialize in manufacturing different types of auto parts equipment used in a vehicle such as a chassis, tyres, wiring systems, lights, battery, brakes, suspension, bearings, pistons, wheels, shock absorbers, gears, headlamps, springs, engine parts, axle shafts, and air conditioning parts, etc.

What are the future growth prospects for the auto ancillary sector in India?

According to the Automobile Component Manufacturers Association (ACMA), Indian exports of components used in the automobile industry are estimated to touch US$ 80 billion by the year 2026 and achieve total revenues of US$ 200 billion.

To meet India\’s electric vehicle (EV) ambitions a total investment of US$ 180 billion in the production of vehicles and creation of infrastructure for charging infrastructure would be necessary until the year 2030. This is a huge opportunity for auto ancillary companies in India.

In November 2020, the government approved a PLI scheme for the auto and auto ancillary industry with an approved financial outlay of US$ 8.1 billion spread over five years.

Which are the top auto ancillary stocks in India?

Let’s take a look at the some of the top auto ancillary stocks in India.

MRF Ltd.

Established in the year 1946, as a small manufacturer of toy balloons, Madras Rubber Factory (MRF) ventured into the manufacturing of tyres in the year 1969 after entering into a technical collaboration with Tire & Rubber company USA. Today MRF ranks as the largest tyre manufacturer in the country and features among the Top 20 Global Manufacturers. With product offerings for categories ranging from 2 wheelers to fighter aircraft, MRF is the country\’s largest OEM to the automobile industry in India.

Bosch Ltd.

Headquartered in Bengaluru, Bosch Ltd is a leading player in the auto ancillary industry with a diverse range of products such as fuel injection systems, aftermarket products for automobiles, auto electricals, car multimedia systems, accessories, starters and body systems.

Motherson Sumi Sytems Ltd.

Motherson Sumi Sytems Ltd. is one of the most promising companies in the auto ancillary sector. It is one of the world\’s top specialized auto component manufacturing companies for Original Equipment Manufacturers (OEMs). With a varied global customer base, the company caters to leading automakers in 36 countries across six continents. Motherson Sumi Systems offers a diverse range of auto components such as wiring harnesses, moulded plastic parts including car exterior and interior parts, rearview mirrors, bumpers, dashboards and door trims, rubber components, and HVAC systems.

Globally many countries are making a gradual effort to move over to electric vehicles to curb pollution and cut down on import bills on fossil fuels. As electric vehicles require more wiring components this would increase the content per vehicle provided by Motherson Sumi Systems by anywhere between 20-30 percent. Besides the shift to electric vehicles means, the demand for the company’s other products such as polymer and mirror-based products would continue.

Balakrishna Industries Ltd.

Established in the year 1961, Balkrishna Industries Limited (BKT) specializes in the business of manufacturing and selling of Off-Highway Tyres (OHT) and caters mainly to agricultural, industrial, and construction earthmovers, port mining, and All-Terrain Vehicles (ATV). The company has five state-of-the-art manufacturing units in India and 4 subsidiaries in Europe and North. Through its well-established distribution network, the company sells its products across 130 countries globally.

Amara Raja Batteries Ltd.

Incorporated in the year 1985, Amara Raja Batteries one of the largest manufacturers of lead-acid batteries in the country for both industrial and automotive. The company is the preferred OEM supplier to automobile companies like Ashok Leyland, Honda, Ford India, Mahindra & Mahindra, Hyundai, Tata Motors, and Maruti Suzuki. The company has a pan-India presence through its well-established sales & service network and also exports batteries to countries in the Indian Ocean Rim.

Minda Industries Ltd.

Incorporated in the year 1992, Minda Industries Limited specializes in the manufacturing of auto electrical parts such as switches including rotary switches starter switches plunger switches and rocker switches, lightings, batteries and blow moulded products, and ancillary services. Minda Industries also manufactures batteries for 2/3/4 wheelers and off-road vehicles. With over company 70% market share in the country, Minda Industries operates eight state-of-the-art facilities in India and one in the ASEAN region.

Endurance Technologies Ltd.

Endurance Technologies is a leading automotive component manufacturer catering to the 2 and 3-wheeler OEM segment in India. Through its European operations, the company mainly caters to 4-wheeler OEMs. The company\’s domestic product offerings include aluminum die-castings, suspensions, transmissions, and braking systems. Endurance Technologies operates 25 state-of-the-art manufacturing plants globally with 16 in India and the rest in Italy and Germany.

Disclaimer: Stocks mentioned in the above list are only for your information and should not be considered as a recommendation to invest.

Key factors to keep in mind while investing in the stocks of top auto ancillary companies in India:

Many of the stocks mentioned above are leading players in the auto ancillary sector in India and have created tremendous wealth for investors in the past. There is tremendous potential for growth in the auto ancillary sector.

Even in the future when the automobile industry gradually shifts from internal combustible engines to electric mobility, the demand for auto parts like tyres, switches, wiring, braking systems, shock absorbers, etc will continue to exist. On the other hand, auto ancillary companies specializing in engine parts or fuel injection systems may become obsolete or even cease to exist unless they diversify their product offerings.

Invest wisely after detailed research.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

As we draw closer to the end of this series (which we hope you must have thoroughly enjoyed reading), we want to enlighten you about a very interesting segment of startups. These are called ‘FinTechs’. These companies have generated immense interest among investors. They have begun to disrupt the way the entire financial system in India works. In today’s story, let us take a look at what exactly are FinTechs, the size of the market in India, and which sub-segments they cater to.

What are FinTechs?

The word ‘FinTech’ is a combination of the words ‘finance’ and ‘technology’. FinTech simply means the use of technology to enhance financial services and make them seamless. FinTechs tend to select a particular need or niche within the entire financial system and go deeper to serve that need.

Source: Qoin

A brief history

The FinTech revolution started gradually and subtly, without us noticing it.

• Right from the 1980s, Credit Cards, ATMs, electronic stocks trading, and bank mainframes were the early elements of the FinTech revolution.
• FinTech space received attention and funding in the West, post the Global Financial Crisis of 2008.
• As investors and Venture Capital (VC) firms realized that existing financial systems were fraught with fragility, they started investing in new platforms that served differentiated needs.
• Having a more secured, safe, and fast layer over and above traditional banking became a necessity, giving rise to new Fin-Techs.
• In India, the demonetization drive of 2016 was a watershed moment. With the government clearly moving in the direction of a \”less-cash\” economy, (if not a \”cashless\” economy immediately), the FinTech eco-system received a boost.
• People shifted to online payments and digital transactions in the wake of demonetization and COVID.

The FinTech market in India

According to a joint study by BCG and FICCI, there are over 2,100 FinTechs in India and the total FinTech market in India is worth $50-60bn. These have grown fast and big in a short span of time. 67% of India’s FinTech’s started not more than 5 years ago.

A look at the FinTech eco-system in India

Source: BCG-FICCI Report March, 2021

By definition,

Term	Valuation
Decacorn	>$10bn
Unicorn	>$1bn
Soonicorns	$0.5bn – $1bn
Century Club	$100mn – $500mn
Minicorns	$1mn – $100mn
Early Stage FinTechs	<$1mn

This market is expected to grow to a size of $150-160bn by 2025, 3xs growth in 5 years, implying CAGR of 20-25%. A combination of India’s growing demand from 1bn plus consumers, enabling Government regulations and strong technology adoption is expected to bring about this growth.

A $100bn opportunity over next five years

Source: BCG-FICCI Report March, 2021

The majority of FinTech start-ups are focused on Payments, Lending, and Wealth Tech due to the large opportunities in these segments. Mumbai and Bengaluru are the major incubation and growth centers for most of India’s FinTechs.

FinTech Start-ups by segment

Source: RBSA Advisors. Note: Other segments include Blockchain, Cryptocurrency, AI/Machine Learning, Loyalty/Rewards/Coupons, B2B FinTech, Banking tech, BigData Analytics, Crowdfunding, Digital Cards, Neobanks, Remittances, Capital Market Tech and Trade Finance.

How are we stacked up against the world?

India has one of the largest numbers of FinTechs in the world. While FinTech investments nose-dived in 2020 due to COVID, India still ranks among the top 5 nations globally in terms of investments received. Some sub-segments such as lending may see a slowdown in 2021 due to COVID impact; however, payment-related FinTechs will continue to see investor interest. Earlier demonetization and now COVID have accelerated the pace of digitization in India\’s financial eco-system. Also, India’s FinTech adoption rate is the highest in the world, along with China.

Approximate number of FinTechs by country

Source: RBSA Advisors

Comparison of FinTech investments across geographies

Source: BCG-FICCI Report dated March 2021

India’s FinTech adoption rate is the highest in the world (2019)

Source: RBSA Advisors

What makes FinTech space so successful in India?

Within a short span of less than a decade, FinTechs have come to occupy an important position in India’s financial eco-system. Reasons for the same are as follows:

• India offers a diversified base of consumers across age, income, and demographic profiles, who have specific needs waiting to be fulfilled. Hence, there is scope for several FinTechs to grow and flourish.
• VCs have also shown tremendous confidence in the Indian growth story and provided crucial capital to FinTech start-ups.
• India’s internet penetration has grown at a scorching pace, from 95mn users in 2016 to 694mn users in 2020, CAGR of 64%. Also, smartphone users have grown to 550-600mn users, 60% higher than in 2016.
• Indian HNIs have emerged as a new breed of angel investors who have funded growth for several FinTechs.
• FinTechs have extremely cost-efficient structures right from inception, which reduces cash burn and allows faster turnaround. They source talent locally, often from prestigious B-Schools, which are still cheaper than professionals from developed countries.
• Rather than becoming “everything to everyone”, FinTechs attach a high degree of importance to their “core”, stay committed to their core, and create differentiation around it.
• After mastering their game in India, several Fin-Techs have gone global – Ola, Oyo, Zomato, and InMobi have expanded across many geographies. This requires a deep understanding of those markets and is challenging, but the rewards are also high.
• While being challengers to banks and financial institutions in some aspects, Fin-Techs also collaborate with BFSIs. This combines the scale and customer reach of BFSI and technology and agility of Fin-Techs, resulting in a mutually beneficial partnership.

Issues and Risks

While the future looks bright for FinTechs in India, there nevertheless remain some headwinds and risks to their growth.

• Funding is extremely crucial for FinTechs, given that their business model is characterized by high upfront costs.
• FinTechs have to constantly adapt to and adopt new technologies. In fact, sometimes technology is the biggest differentiator for these companies.
• Given that many FinTechs work a layer above banks, they have to constantly find untapped regions to serve, which can be a challenge if the sector gets crowded.
• To remain relevant to customers, FinTechs have to cater to customer needs such as security of the transaction, speed, compatibility with existing technology, 24×7 availability, paperless transactions, and ease of setting up, configuring, and operations.
• Owing to their cost arbitrage vis-à-vis banks, FinTechs have to steadily strive to keep their cost of operations low, despite offering superior products and experiences.
• Some sub-segments such as Payments, Leading and Wealth Tech, being very lucrative, are very crowded. This could make creating brand recall difficult.
• Data leaks, platform downtime, and information theft have become quite rampant in the FinTech space.

The way ahead

FinTechs are already big business in India, with India featuring among the Top 5 countries globally in terms of the number of FinTech start-ups. Given the huge addressable population and untapped market, India presents exciting opportunities for FinTechs to address the specific needs of consumers.

• The government is doing its part by providing an enabling environment through initiatives such as
  • Jan Dhan
  • Aadhar
  • Demonetization
  • Start-up India
  • License for payments banks
  • Digital India
  • Recognition of P2P lenders as NBFCs
  • Regulatory sandbox by RBI for FinTech
  • India Stack

FinTechs and traditional financial institutions will have to collaborate with each other for mutual growth and benefit of each other. The collaboration could be for developing a new product or distributing it. Given their larger size and deeper pockets, financial institutions could acquire a stake in FinTechs, providing them with funding and management bandwidth. Several financial institutions have started incubation units for this purpose.

FinTechs are set to add another $100bn in market valuation over the next five years. This means several new companies coming into existence, current companies growing much beyond their present size. More importantly, this also means more employment generation and a domino effect on the economy. For the country and economy, it will take India’s journey forward towards financial maturity. For stock market participants, this opens up exciting opportunities for wealth creation.

I hope you enjoyed reading this story. But our story on FinTech does not end here. In the concluding part of this series, we will look at examples of FinTechs in India. Let us look at what unique feature each of these FinTechs has to offer. 

For expert help in creating a multibagger portfolio click here.

Read more: About Research and Ranking.

As an investor in Indian stock markets, you must have come across the term SGX Nifty innumerable times on various platforms like business news channels, social media, and financial websites. Surprisingly many investors including few seasoned ones have no clue about ‘What is SGX Nifty?’ or its impact on Indian markets.

In this article let’s take a detailed look at:

What is SGX Nifty?

Who can trade in SGX Nifty?

What are the trading hours of SGX Nifty?

What are the differences between SGX Nifty and NSE Nifty?

What is the impact of SGX Nifty on Indian stock markets?

What is SGX Nifty?

SGX is an abbreviation for the Singapore Stock Exchange just like NSE is an abbreviation for the National Stock Exchange.

NSE Nifty or the National Stock Exchange Fifty (Nifty) refers to the stock market index of 50 most actively traded stocks on the National Stock Exchange (NSE) computed using the free-float market capitalization-weighted method.

SGX Nifty is a derivative of the Nifty trade index on the Singapore Stock Exchange.

The last trading day of SGX Nifty is the last Thursday of the expiring contract month. In the event when there is an Indian holiday on the last Thursday of the expiring contract month, the preceding business day is considered as the last trading day.

Who can trade in SGX Nifty?

Investors who are unable to access Indian markets can trade in SGX Nifty.

Can Indian investors trade in SGX Nifty?

Indian citizens cannot trade in SGX Nifty as currently there is a restriction in place which does not permit Indian citizens to trade in derivatives on foreign exchanges.

What are the trading hours of SGX Nifty?

SGX Nifty is open for trade from 6.30 AM to 11.30 PM Indian time. The total duration for which trading can be done on SGX Nifty is 16 hours.

What are the differences between SGX Nifty and NSE Nifty?

SGX Nifty is open for trading for a longer duration from 6.30 AM to 11.30 PM Indian time whereas NSE Nifty is open for trading for a shorter duration i.e., from 9.15 AM to 3.30 PM.

The contract size of SGX Nifty is very different in comparison with NSE Nifty. In NSE Nifty there are 75 shares in every lot. On the other hand, the SGX Nifty does not have a contract with shares in it. Instead, it is expressed in terms of USD. For example, if the SGX Nifty is trading at 8000, then its contract size would be 16000 USD (8000 x 2 USD).

In a situation where the NSE Nifty goes up by 50 points, then the investor’s profit for 1 lot of Nifty would be Rs. 3750 (50 x 75). On the other hand, if SGX Nifty goes up by 50 points the investor’s profit would be 100 USD (50 x 2) per contract.

The settlement in SGX Nifty is done on a cash settlement basis, where the final settlement price is the official closing price of the S&P CNX Nifty Index, adjusted to the nearest two decimal places.

The official price is calculated on the weighted average prices of the individual component stocks of the index during the last 30 minutes of trading.

What is the impact of SGX Nifty on Indian stock markets?

Many traders and market experts are of the view that as the SGX Nifty opens well before the NSE Nifty, it gives an idea about the direction of the Indian market or how the Indian markets are going to perform while opening. It also gives a clue whether the NSE Nifty will open up with positive or negative points.

However, this cannot be considered 100% accurate at all times as economic factors vary in both countries.  There are multiple factors affecting the markets and all factors relevant to Singapore may not be relevant to India or vice-versa.

Concluding thoughts

In this article, we took a detailed look at what is SGX Nifty, the difference between SGX Nifty and NSE Nifty, and the impact of SGX Nifty on Indian stock markets. SGX Nifty offers an alternative platform for those investors who are unable to access Indian markets for trades.

To a large extent, the direction of the SGX Nifty offers an insight to the Indian investors about the direction of the Indian market while opening. If the SGX Nifty is positive then the Indian markets may also open on a higher note. On the other hand, if the SGX Nifty is negative, Indian markets may also open in negative. Depending on the direction of the SGX Nifty, traders can decide whether to enter into long or short positions accordingly.

To invest in a multibagger portfolio of stocks with the potential to outpeform over the next 4-5 years.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

Before we proceed with the answer to the question ‘What is Sensex and Nifty?’ it is important to understand two important terms associated with it, BSE and NSE.

What is BSE?

Established in 1875 as the Native Share and Stock Brokers’ Association, the Bombay Stock Exchange (BSE) is India’s oldest stock exchange and ranks among the ten largest stock exchanges in the world with the New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange Group, Japan Exchange Group, and Shanghai Stock Exchange among others in the top 10 list.

Based in India’s financial capital Mumbai, the BSE received its official recognition from the government of India under the Securities Contracts Regulation Act on 31^st August 1957.

There are over 5500 companies listed on BSE and is considered to be one of the fastest stock exchanges in the world with a median response time of 6 microseconds.

What is NSE?

Incorporated in 1992, the National Stock Exchange or NSE received its recognition as a stock exchange from SEBI in April 1993 and commenced operations in 1994. NSE is India’s largest stock exchange in India and has over 1700 companies listed on it. Due to its gigantic trading volumes, greater transparency, and efficient employment of automated systems, NSE is considered a premier marketplace for companies preparing to list.

Now that you have understood the difference between BSE and NSE, let’s take a look at

What is Sensex and Nifty?

The BSE SENSEX or BSE Sensitive Index refers to a free-float market-weighted stock market index of the 30 biggest, well-established, and financially sound companies listed on BSE. These 30 stocks which constitute the Sensex are some of the largest and most actively traded stocks and represent the various industrial sectors of the Indian economy.

Published since 1 January 1986, with its base year as 1978–79, the BSE SENSEX is considered as the barometer of the domestic stock markets in India.

The term Sensex was coined by analyst Deepak Mohoni and is derived from a combination of the words Sensitive and Index. In simple words, the BSE Sensex is a benchmark index that collectively showcases the performance of the biggest and well-established companies listed on the exchange.

Constituents of BSE Sensex

Constituent	Industry
Asian Paints Ltd	Paints
Axis Bank Ltd	Financial services
Bajaj Auto Ltd	Automobile
Bajaj Finance Ltd	Financial services
Bajaj Finserv Ltd	Financial services
Bharti Airtel Ltd	Telecom
Dr. Reddy’s Laboratories Ltd	Pharma
HCL Technologies Ltd	Information technology
HDFC Bank Ltd	Financial services
Hindustan Unilever Ltd	Consumer goods
Housing Development Finance Corp	Financial services
ICICI Bank Ltd	Financial services
IndusInd Bank Ltd	Financial services
Infosys Ltd	Information technology
ITC Ltd	Consumer goods
Kotak Mahindra Bank Ltd	Financial services
Larsen & Toubro Ltd	Construction
Mahindra & Mahindra Ltd	Automobile
Maruti Suzuki India Ltd	Automobile
Nestle India Ltd	Consumer goods
NTPC Ltd	Power
Oil & Natural Gas Corp Ltd	Oil & gas
Power Grid Corp of India Ltd	Power
Reliance Industries Ltd	Oil & gas
State Bank of India	Banking
Sun Pharmaceutical Industries Ltd	Pharma
Tata Consultancy Services Ltd	Information technology
Tech Mahindra Ltd	Information technology
Titan Co Ltd	Consumer goods
UltraTech Cement Ltd	Cement & cement products

NSE Nifty or the National Stock Exchange Fifty (Nifty) refers to the stock market index of 50 most actively traded stocks on the National Stock Exchange (NSE) computed using the free-float market capitalization-weighted method.

Constituents of NSE Nifty

Company Name	Industry
Adani Ports and Special Economic Zone Ltd.	Services
Asian Paints Ltd.	Paints
Axis Bank Ltd.	Financial services
Bajaj Auto Ltd.	Automobile
Bajaj Finance Ltd.	Financial services
Bajaj Finserv Ltd.	Financial services
Bharat Petroleum Corporation Ltd.	Oil & gas
Bharti Airtel Ltd.	Telecom
Britannia Industries Ltd.	Consumer goods
Cipla Ltd.	Pharma
Coal India Ltd.	Metals
Divi’s Laboratories Ltd.	Pharma
Dr. Reddy’s Laboratories Ltd.	Pharma
Eicher Motors Ltd.	Automobile
GAIL (India) Ltd.	Oil & gas
Grasim Industries Ltd.	Cement & cement products
HCL Technologies Ltd.	Information technology
HDFC Bank Ltd.	Financial services
HDFC Life Insurance Company Ltd.	Financial services
Hero MotoCorp Ltd.	Automobile
Hindalco Industries Ltd.	Metals
Hindustan Unilever Ltd.	Consumer goods
Housing Development Finance Corporation Ltd.	Financial services
ICICI Bank Ltd.	Financial services
ITC Ltd.	Consumer goods
Indian Oil Corporation Ltd.	Oil & gas
IndusInd Bank Ltd.	Financial services
Infosys Ltd.	Information technology
JSW Steel Ltd.	Metals
Kotak Mahindra Bank Ltd.	Financial services
Larsen & Toubro Ltd.	Construction
Mahindra & Mahindra Ltd.	Automobile
Maruti Suzuki India Ltd.	Automobile
NTPC Ltd.	Power
Nestle India Ltd.	Consumer goods
Oil & Natural Gas Corporation Ltd.	Oil & gas
Power Grid Corporation of India Ltd.	Power
Reliance Industries Ltd.	Oil & gas
SBI Life Insurance Company Ltd.	Financial services
Shree Cement Ltd.	Cement & cement products
State Bank of India	Financial services
Sun Pharmaceutical Industries Ltd.	Pharma
Tata Consultancy Services Ltd.	Information technology
Tata Motors Ltd.	Automobile
Tata Steel Ltd.	Metals
Tech Mahindra Ltd.	Information technology
Titan Company Ltd.	Consumer goods
UPL Ltd.	Fertilisers & pesticides
UltraTech Cement Ltd.	Cement & cement products
Wipro Ltd.	Information technology

Difference Between Sensex and Nifty

Both BSE Sensex and NSE Nifty are stock market indices, which indicate the strength of the market.

Here are the key differences between Sensex and Nifty:

• While NSE Nifty tracks the 50 most actively traded stocks on the National Stock Exchange (NSE), the BSE Sensex represents 30 of the largest and well-established companies on BSE.
• The base index value of Sensex is 100 whereas the base value index of Nifty is 1000.

Key takeaways

Sensex and Nifty are benchmark indicators that indicate how the stock market is performing. It does not matter whether you invest in the Sensex stocks or Nifty stocks or even other BSE stocks or NSE stocks as long as you invest in fundamentally sound companies.

Click here to invest in a portfolio of 20-25 fundamentally sound companies with the potential to multiply your wealth by 4-5 times in 5-6 years.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

When it comes to investing in stocks, the majority of investors make a grave mistake of investing by looking at the share price than the value associated with it. As a result, they often end up losing their money in the stock market.

We often come across investors who claim that a stock trading at Rs. 50 appears to be a better buy than a stock trading at Rs. 1000. Their argument to support this claim is that they can simply buy more quantity of stock trading at Rs. 50 than the stock trading at Rs. 1000 without looking at the actual Intrinsic value associated with the stock.

There are many banking stocks available in the banking sector for single-digit and double-digit prices such as Dhanlaxmi Bank, South Indian Bank (SIB), and Jammu & Kashmir Bank. On the other hand, the market leader in the segment HDFC Bank is trading at a four-digit price and there is a reason why value investors still consider a good buy.

HDFC Bank\’s consistent growth in market share, pan-India presence, lowest NPA, asset quality control, significant deposit, and market credit share are some of the factors which make it a value buy.  All these fundamental strengths justify the high stock price of HDFC Bank. However despite being a consistent compounder for last few decades it is equally important to look at the stock\’s instrinsic value to avoid overpaying for it.

In this article let\’s take a look at \’What is intrinsic value\’ and how investors can use intrinsic value as a measure to choose the right stocks for wealth creation.

Before we proceed further let\’s take a look at why buying an asset without looking at its intrinsic value may end up creating a bubble, especially when everyone else around is also doing the same.

The best example of this is the \’Tulip Mania\’ during the Dutch Golden Age considered to be one of the most famous market bubbles of all time.

In 1636, speculation raised the value of tulip bulbs to extremes levels in Holland.

As the word about lucrative profits from tulip trading spread quickly, people from different walks of life from cobblers, carpenters, maids, mechanics, farmers, and nobles, started buying and selling tulip bulbs, taking prices sky-high. According to estimates in the year 1633, a single bulb of a rare variety of tulips was worth a whopping 5,500 guilders. By the year 1637, the price doubled, to almost 10,000 guilders, a princely sum that could buy a luxury home in Amsterdam then.

And then one day in February 1637, the market for tulips collapsed as fast as it had risen. The demand for tulips disappeared overnight. With no buyers, sellers who had invested heavily in buying tulip bulbs were left high and dry resulting in a financial disaster for many.

Today the term \”tulip mania\” is often symbolically used to describe a large economic bubble when the price of the asset varies too much from its intrinsic value. The underlying reason for the collapse of the bubble was the fact that there was no real value associated with tulips which warranted its extra-ordinary price. In simple words, there was no intrinsic value associated with tulips and due to high demand and low supply prices of tulips were touching new highs before the bubble burst.

In Berkshire Hathaway\’s annual meeting notes for the year 2007, there is an excellent example by Warren Buffett where he describes in with a simple example the significance of intrinsic value.

In the example, Buffett gives the reference of buying a farm which generates a revenue of $70 per acre for the owner. He asks how much would a person wanting to buy the farm, pay per acre for the farm. He says if the yield will get better, prices will increase and it would generate a 7% return, so a payment of $1,000 per acre would be fine. If the same farm is available for a sale for $800, it is worth buying but if the price is $1,200, it is not worth buying.

Now that you have understood \’What is intrinsic value?\’ let\’s proceed to the next step

How is the intrinsic value of a stock calculated?

Investors and analysts use different valuation models based on both quantitative and qualitative factors to calculate a stock\’s intrinsic value. One of the most popular approaches towards calculating the intrinsic value of a stock is the Discounted Cash Flow analysis model.

There are three key steps involved for calculating a stock\’s intrinsic value such as estimating all of a company\’s future cash flows, calculating the present value of all those future cash flows, and adding up the present values to calculate a stock\’s intrinsic values.

Another popular approach used by experts for calculating the intrinsic value of a stock is the Gordon Growth Model (GGM.

In this model, the intrinsic value of a stock is determined on the basis of a future series of dividends that grow at a constant rate. While using this model for calculating the intrinsic value it is assumed that the dividend grows at a continuous rate in eternity and solves for the current value of the endless series of future dividends. As this model is based on the assumption of a continuous growth rate, it is mostly used only calculating the intrinsic value for companies that have stable growth rates in dividends per share.

Calculating the above values does require a thorough understanding of the financial statements of a company and a decent amount of time. In case you do not have the time for the same or lack the necessary skill to study financial statements, you can always rely on experts like Research & Ranking to make investing a hassle-free experience.

Our team of experts, with several years of research experience, have created a winning portfolio that can help you to multiply your wealth by 4-5x times in 5-6 years. Over 16000 investors have already benefitted from our unique wealth creation strategy. Click here to invest in it.

Key takeaways

Intrinsic value is a key metric that helps an investor to identify the real worth of a stock. Legendary investors like Warren Buffet and Benjamin Graham have created immense fortunes through value investing based on the intrinsic valuation method.

No matter how good a stock is, it makes absolutely no sense to buy it at the wrong price. The basic objective of calculating a stock\’s intrinsic value is to purchase it when it is trading at a lesser price than its real worth.

Read more: About Research and Ranking.

The investing world is constantly disrupted by new trends every few years. From ESG investing to crypto-currencies to “Robinhood investors” to “Reddit-empowered” Gamestop investors, we have seen quite a few trends in the past five years. Another trend that is catching up fast is the emergence of “SPAC” or Special Purpose Acquisition Companies. The trend is emerging fast; from one SPAC-led IPO in 2009, the number shot up to 248 in CY2020. SPACs have been the rage in the USA and Europe mainly. But before we move on, a bit more on what is a SPAC?

What is a SPAC?

• A Special Purpose Acquisition Company (SPAC) is basically a “black-cheque” company that is set up with the sole aim of raising money through an IPO (Initial Public Offering) to acquire another company, going ahead.
• A SPAC, by itself, has no commercial operations, products or services. This company’s only assets are money raised during the IPO.
• A SPAC contains investments from its founders and general public. Once the money is collected, the SPAC gets listed. On listing, the SPAC looks to buy other private companies.
• This way, the investors see a significant rise in the value of their stake in the SPAC.
• The acquired company finds an easier way to get listed rather following the traditional IPO route.

Looks like a win-win for both parties, doesn’t it?

The rise and rise of SPACs

While SPACs have existed for several years, with not necessarily the same name, CY2020 has been the most dramatic year for SPAC IPOs, in terms of number of issues. Also, the average size of a SPAC IPO has been steadily moving up year after year.

SPAC IPOs in the USA by year	Avg. SPAC IPO Size ($mn) by year
Source: Statista	Source: Spacinsider
Note: *Data as on 21st February, 2021
Market share of US-listed SPAC IPOs versus total US IPOs
Source: Nasdaq website

 

Why are companies preferring the SPAC route over routine IPO listing?

A regular IPO involves a list of procedures prior to actual listing – doing roadshows, convincing a wide variety of institutional investors regarding future business prospects, determining optimum valuations, etc.

All these take time and are fraught with uncertainties. With COVID pandemic, the convincing bit became all the more difficult and meeting investors a challenge.

This is where SPAC has an advantage. With SPAC listing already done, half the hassle gets taken care of. Also, the negotiation works faster since only one party has to be convinced.

Retail investors do not know the type of company that will get acquired when they subscribe to the SPAC IPO.

However, these investors can draw comfort from the fact that the SPAC has on board a team of institutional investors, fund managers from PEs and hedge funds and many other high profile entrepreneurs.

The SPAC mechanism chart

Source: Nasdaq

• Once an IPO is done, the proceeds are put in a trust account. The SPAC is given 18 to 24 months to scout for a suitable acquisition / merger.
• If it is not able to find a target within the stipulated time, the SPAC gets liquidated and IPO proceeds are returned to the investing public with pre-decided interest.
• If the merger/acquisition goes through successfully, SPAC promoters (also called sponsors) typically get 20% stake in the final, merged company.

Is there a flip-side to SPAC IPO?

• At the time of its IPO, investors in a SPAC are not aware of which company will get merged / acquired. The target company may or may not match their investing choice or horizon.
• Many sceptics argue that SPAC sponsors do not undertake thorough due diligence as much as an IPO.
• There could be a lag time of as much as 24 months from the time of listing of a SPAC till it acquires a suitable target. During this time, the money could simply be sitting in an escrow account, earning no returns.

So there are no doubt, risks associated with this new form of investing. As with all other financial instruments, only time will tell whether this is a trend which will stay for the long term or fade away eventually. Regulators and lawmakers, will have to tweak laws appropriately from time to time to keep the instrument simple and low-risk.

Are there any SPACs in India?

One word answer to this question is – NO!!

Indian laws currently do not define SPACs clearly in any way.

On the other hand, the current Government has been going after shell companies very aggressively. Between 2017 and 2020, it cancelled registrations of nearly 4L shell companies.

SPACs have no business of their own and they collect public money at the time of IPO. The money is kept with the SPAC (in an escrow account) for about 18-24 months.  Hence, according to current Indian laws, SPAC could qualify as a shell company.

Current Indian laws will have to be modified to bifurcate definition of a shell company from that of a SPAC. However, SPACs are surely getting noticed by Indian investors and will hopefully also get noticed by lawmakers and regulators. It’s not that Indian companies have not had any SPAC connection at all.

E-grocer Grofers is said to be seeking a SPAC deal to list on the US bourses.

In 2015, a SPAC named Silver Eagle Acquisition, acquired 30% stake in Videocon d2h for ~$200mn.

In 2016, Yatra Online Inc, parent company of Yatra India, listed on NASDAQ, by way of a reverse-merger with another US-based SPAC, Terrapin 3 Acquisition.

Final Thoughts

The writing on the wall is clear – SPACs are here to stay alongside traditional IPOs.

The spike seen in 2020 may or may sustain going forward. However, Indian regulators need to sit and take notice of this innovative form of investment that is taking the investing world by storm.

As stated by CNBC website, “Goldman Sachs estimates that 93 SPAC funds are currently sitting on $63 billion in search of takeover targets. As an illustration of their potential, this implies a buying power of some $300 billion since a typical SPAC merges with a company five times its size once institutional investors buy-in”.

Given the enormous size of this capital that is waiting to get deployed, India cannot afford to miss the bus.

Even a small percentage of this money, if diverted to India, could lead to a huge capital inflow into the country and provide avenues for Indian companies to grow, expand and flourish.

Crypto-currencies have for long been the subject of intrigue and adventure for speculators. Presently, there are more than 5,000 crypto-currencies (also sometimes called digital currency) globally with a whopping market cap of $1.52tn. Crypto-currencies so far have had a stormy relationship with Indian regulators.

RBI tried to ban crypto-currencies in 2018 fearing frauds and lack of regulatory framework. However, the Supreme Court revoked this decision in 2020, allowing the market to restart. The RBI then thought of taking a step further by introducing its own digital currency, which is still in the policy framing stage. Let us understand what this means.

What is a crypto-currency?

Investopedia defines Crypto-currency as a “digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend”. Crypto-currencies are generally not issued by any country’s Central Bank, hence they are shielded from government interference or manipulation. Bitcoin is the most popular cryptocurrency. The Top 10 most popular Crypto-currencies are as follows:

Top 10 global Crypto-currencies by Market Cap

Currency	Symbol	CMP ($)	Market Cap ($bn)
Bitcoin	BTC	51,239	946
Ethereum	ETH	1,805	206
Tether	USDT	1.00	32
Polkadot	DOT	31	28
Cardano	ADA	0.85	27
XRP	XRP	0.53	24
Binance Coin	BCH	130	20
Litecoin	LTC	216	14
Bitcoin Cash	BCH	704	13
Chainlink	LINK	31	13

 

The rise and rise of Bitcoin (USD)

Source: Coinmarketcap

Indians join the party, albeit late

Indian investors joined the crypto-currency party a bit late. Bitcoin, the most popular crypto-currency was launched in January, 2009. However, Indian interest in the currency picked up only in 2017, when it saw a huge breakout. It rallied from $964 on 1^st January 2017 to $19,167 on 17^th December 2017, a mind-boggling return of 20xs in less than a year. People started speculating in the currency and looked at it as a way to make a “quick buck”. Back then, no one looked at Bitcoins as a serious investing option, partly because very few people understood the concept fully.

RBI proposes an Indian crypto-currency, Supreme court disposes

The demonetization exercise of 2017 drove a push towards digital transactions, increasing Indians’ appetite for crypto-currencies. After remaining largely silent for few years, RBI finally issued a statement in 2017 highlighting the concerns associated with the sudden rise of crypto-currencies. In 2018, RBI passed a circular preventing all banks from dealing in crypto-currencies. However, in 2020, the Supreme Court of India lifted the ban on crypto-currency trading in India, citing a lack of sufficient proof of damage suffered by RBI due to trading in crypto-currencies. It also said that the RBI had not explored any less intrusive alternatives such as regulating crypto-currency trading or exchanges.

The pros of crypto-currencies………..

Crypto-currency offers several advantages vis-à-vis trading in equities or debt.

• Easy and transparent transactions – Minimum paperwork, complete transparency with audit trails

• Less transaction fee – compared to traditional forms of investing

• More security – A crypto-currency transaction is almost impossible to hack or tamper (till now). Also, the transaction cannot be reversed

• No need for third party – A crypto-currency transaction involves only two parties – sender and receiver. No third party is involved. Also, no monitoring happens.

• Swift international transactions – People across the globe can make one-to-one transactions without complicated formalities or fees.

• Round-the-clock availability — Available for trading all 24 hours a day, 7 days a week

 

The Cons of crypto-currencies………..

• Scalability – There is currently a mismatch between number of digital coins, adoption of the currency, and increasing number of transactions. It is still much lower than the number of transactions processed by VISA compared on a daily basis. The ramping up will take time.

• Lack of inherent value – A crypto-currency is not linked to any tangible or intangible asset, hence there is no basis for the valuation (prices) of a currency, apart from demand. Hence, volatility is high. Legendary investor Warren Buffet has been strongly against any form of crypto-currency, saying “Crypto-currencies basically have no value and they don’t produce anything. I don’t own any crypto-currency and I never will”.

• Lack of regulations – Presently, crypto-currencies are not regulated by any Governments, hence changing of rules or protocols, especially when any new technology gets adopted, can become an issue.

• Potential security threats – While there have not been many hacking incidents till now, one can’t refute it totally going ahead.

• Anonymity could be a threat – Complete anonymity offered by crypto-currencies can be an issue in case of threat or fraud detection.

RBI and Government step in

The Government recently announced that it could ban private crypto-currencies in India. It plans to introduce an Indian cryptocurrency and Regulation of Official Digital Currency Bill to ban private crypto-currencies in India. RBI announced that it would bring in a new official digital currency for India. While RBI will think of a name for the currency when one is introduced, such type of currency is called central bank digital currency (CBDC).

While the nature of such a currency is not yet known, CBDC will be backed by the Government and RBI. Lawmakers could think of bringing a large part of the current Indian Rupee into the digital domain. This will be a push further towards a cash-free economy. Currently, we have moved in this direction somewhat through digital payment systems – UPI, credit and debit cards and QR codes. However, even these transactions finally relate to fiat currency. CBDC will take it a step further whereby even the underlying will not be INR currency.

A technology totally new to India? Not really!

According to RBI’s February, 2020 paper titled “Distributed Ledger Technology, Blockchain and Central Banks”, block-chain, the technology behind most digital currencies is not entirely new to India. The paper gave several examples of block-chain technology usage in India

• State governments like Andhra Pradesh and Telangana have started blockchain-related solutions in the areas of land registry, digital certificates, electronic health records, etc.

• Yes Bank issued commercial papers using blockchain technology in July, 2019

• Axis Bank launched its international payment service using Ripple’s enterprise blockchain technology in November, 2017

• HSBC India and Reliance Industries Ltd. executed blockchain-based trade finance transaction in November, 2018

Is RBI the only central bank looking at CBDC?

RBI is not the only Central Bank looking at introducing a digital currency. China has been working on a CBDC since 2014 and has termed it as DCEP (Digital Currency Electronic Payment). Many such other projects or studies have been going on across the world

 

Some Central Bank Projects to test Distributed Ledger Technology

Country Body Name of Project Platforms Tested Canada Bank of Canada Project Jasper Ethereum, Corda, Quorum Singapore Monetary Authority of Singapore Project Ubin Ethereum, Quorum, Hyperledger Fabric, Corda, Anquan Europe & Japan (Joint) European Central Bank and Bank of Japan Project Stella Hyperledger Fabric, Corda, Elements Thailand Bank of Thailand Project Inthanon Corda Brazil Central Bank of Brazil NA Hyperledger Fabric, Corda, Quorum, Ethereum South Africa South Africa Reserve Bank Project Khokha Quorum England Bank of England NA Ethereum, Interledger Protocol, Corda

Source: RBI paper titled “Distributed Ledger Technology, Blockchain and Central Banks” dated February, 2020

 

Final Thoughts

It is hard to say when RBI will come out with its own digital currency, how the whole system will be implemented and how India, with its huge digital divide, will adopt the technology. However, a Central bank based digital currency does have some advantages such as:

• Being regulated by a Government authority

• Reducing physical contact, critical in a post-COVID world

• Decline in use of cash

• Reduction in fraudulent transactions and fake currency used for “not-so-good” activities

• Increase financial inclusion in a country like India where internet penetration is higher than banking penetration.

RBI has been agile enough to read the writing on the wall – digital is the future. It also paves the way for Modi Government’s favorite tag-line, “Minimum Government, Maximum Governance”. Watch this space for more updates on RBI’s Indian crypto-currency initiative.

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India is standing at the cusp of a new growth cycle. There are many enablers that will set the tone for this growth. The biggest enablers, Government and its reform-oriented approach are the most important. These are very much in place. Let us take a look at what other data points are pointing in the direction.

Pointers which reveal India’s giant leap towards becoming a USD 5 trillion economy

Corporate Profit to GDP (%) is at a multi-year low

 Source: Business Today. Numerator is PAT of BSE 500 companies

Corporate Profit to GDP ratio has been on a continuous slide since FY2008. This fall was mainly led by four sectors – PSU Banks, Oil and Gas, Metals and Telecom. PSU banks suffered due to rising NPAs, higher provisions, higher slippages and lower loan growth. Metals suffered due to wild swings in global commodity cycles. Telecom suffered due to declining profitability as numerous players were engaged in a suicidal cost cutting race which destroyed profitability and resulted in many players exiting the market.

One needs to note that consumption has risen as the new champion of growth in past few years. It has outpaced old-world and commodity-driven sectors such as metals and oil and gas. However, consumption is a scattered activity. A large number of giants that emerged over past few years which contributed to GDP did not contribute to BSE 500, which is the numerator in our metric. Large retail giants (Amazon, Flipkart), fintech companies (PayTM), aggregators (Ola, Uber), food delivery (Zomato, Swiggy) and numerous others are not listed. They generate significant employment, pay taxes and hence contribute handsomely to the GDP.

As more and more of these “new-world” businesses get listed, the Corporate Profit to GDP ratio will move higher.

High growth to offset Government Debt to GDP

Source: Tradingeconomics.com

India’s Debt to GDP is neither too high nor too low. It lies somewhere in the middle. Economists have been divided whether India’s debt level is comfortable or a matter of concern. However, India’s (high) growth is a safe hedge against the debt. India is expected to grow much faster than the rest of the world and hence we can sustain higher debt levels. During the Asian crisis of 1997, India’s debt to GDP ballooned from 67% to 83%, GDP growth was just 3.9%. Post that, we had several years of high growth and the metric came back to 66%.

The interest rate paid by India has been historically lower than India’s growth rate and hence we can rest assured that India will never default on its debt repayment. It has never defaulted in the past as well. Hence, we don’t see India’s debt-to-GDP ratio a being a concern.

Bank Credit to private sector as % of GDP at multi-year low

Source: theglobaleconomy.com

Credit given by banks to private sector has slowed down over past 4-5 years. This is because of two reasons:

• Lower demand for credit amidst an economic slowdown
• Banks have been reluctant to lend to corporates fearing defaults by clients

Owing to these reasons, bank credit as % of GDP has gone lower, despite adequate liquidity maintained by RBI. At the heat of the COVID crisis, banks were unwilling to lend to companies as most businesses were closed and overall demand in the economy was abysmally low. With recovery now in sight and things beginning to move on the ground, credit is expected to pick up.

GST collection (Rs. Bn.) highest ever

Source: Government Data

GST collections hit all-time high levels in December, 2020 and January, 2021 owing to following factors:

• Government has been going after tax evaders for the past few months. The jump in collections could be due to more people falling in line and complying. Nearly 1.6L Company registrations were cancelled in October 2020 and November 2020 which could have prompted many others to make timely GST payments.
• Closer monitoring against fake-billing, deep data analytics using data from multiple sources including GST, Income-tax and Customs IT systems and effective tax administration have also contributed to the steady increase in tax revenue over last few months
• Apart from the above, companies have pushed sales harder in the past few months and consumers have gradually started spending money.

Indian household exposure to equities is among lowest in the world

Source: Motilal Oswal

Despite having a very regulated stock market that has created wealth for decades together for those who have stayed invested long enough, Indians have not yet fully opened up to the concept of equity investing. Only 14% of Indian household savings are invested in equities, which is among the lowest in the world. This is due to perception of equities as instruments of “excitement” and “instant gratification” rather than “long term wealth creation”. The Indian market needs measures such as further deepening of the bond market. An overall development of all facets of markets – equity, derivatives and bonds is necessary to boost participation.

A reform–oriented Government with the guts and intent to take unpopular decisions

Ever since the Modi Government took charge in 2014, it has taken some bold decisions – on the economic and non-economic front. We shall take a look at only the economic decisions. We shall not get into the argument whether a decision was right or wrong; or how right or how wrong. We only wish to take a look at the positives of the decision. The point that we are trying to drive is that the Modi administration does not shy away from taking tough decisions.

Some of Modi administration’s unpopular decisions were:

GST implementation 

The Goods and Services Tax is an indirect tax which replaced many indirect taxes in India such as the excise duty, VAT, services tax, etc. Goods and Service Tax (GST) is levied on the supply of goods and services. Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. GST is a single domestic indirect tax law for the entire country. (Source: Wikipedia)

The Insolvency and Bankruptcy Code

IBC is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome (Source: cleartax.in)

RERA 

Real Estate Regulatory Authority was formed to bring about transparency in the real estate sector. It aims to reduce project delays and mis-selling. At present, it is compulsory for all builders or developers to carry out RERA registration before they start a project. (Source: Economic Times)

Demonetization

The process was implemented in India in November, 2016 to withdraw all Rs. 500 and Rs. 1,000 banknotes. The Government claimed that this was intended to curtail the parallel (shadow) economy in India and reduce use of fake cash used to fund terrorism.

To conclude, India has got all the right ingredients to take off in a big way – market of nearly 1.3 billion consumers, growing income levels, young population, action-oriented Government that has an absolute majority to pass key Bills.

In our opinion, there shouldn’t be anything that to come in the way of India and its ascent towards becoming a USD 5 trillion economy. This will throw enormous opportunities at investors who are willing to be patient, not timid. Take correct calculated risks and wait for the story to mature. Your future generations will certain say, “This guy / girl had the guts to slug it out, which made my life much easier”. Money can’t buy happiness, but it can certainly facilitate it. 

To invest in 20-25 high growth stocks with the potential to generate tremendous wealth as India leapfrogs towards becoming a USD 5 trillion economy.  

Read more:  How Long-term investing helps create life-changing wealth – TOI.