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How Did Bitcoin Get its Value?


When you come across a piece of gold and an empty packet of chips, you know that gold is valuable because we have a certain understanding of “value” in our mind. Anything that serves a purpose and is desirable by people, is valuable. Indian Rupee is valuable because it lets us transact.

The evolution to Bitcoin:

The idea of “value” came into existence with the introduction of barter system. People had to exchange one good for another; and if Good A is more valuable (more in demand) than Good B, more of Good B had to be exchanged for Good A. Due to the complexities of the barter system, the civilisation progressed to the idea of money: Exchange of goods in terms of one common good (i.e. currency).

But with increased and faster movement of money, the world has progressed further to digital transactions. All the currency notes don’t change hands in real, we have mere digital representations of the transactions.

And now comes, cryptocurrency, the most popular one being the Bitcoin. Bitcoin has value because:

  1. no duplication is possible due to blockchain technology behind it,
  2. it eliminates the middle man (i.e. banks) entirely,
  3. it is transnational, can seamlessly transact across nations through it,
  4. it is decentralised, no central bank or government controls it and hence lower fee and
  5. it works like an e-wallet

How did Bitcoin get its numerical value?

In today’s internet savvy gen, Bitcoin brings an entire new concept of money, which is safer, faster and more efficient to keep pace with today’s business and lifestyle. The above points only prove that Bitcoin has intrinsic value. But how did Bitcoin get its numerical value? How is 1 Bitcoin = 10 lakh rupees today?

Let’s understand something called Network Effect. The Bitcoin has an element of social networking attached to it which means that the more number of people use it, the more value it has. Email is one of the most important ways of communication, why? Because everybody has an email id. What fun will one single user have on Facebook, unless there are thousands of people who find it useful and use it.

Of course, when a new thing comes up, people are skeptical about it. But few of us, who have the risk taking ability, go out and try it.

In case of Bitcoin, it led to massive profits for the early investors and hence, more and more number of people got connected to it. Since Bitcoin’s price is controlled by the forces of demand and supply, even one new entrant could create huge price fluctuations in the beginning. When Bitcoin was introduced, it was said by the founders that only 21 million Bitcoins can be mined over a period of 100 years. Hence, since the supply is limited and the demand is growing regularly, there is an upward trend in the Bitcoin price inspite of the drastic fluctuations.


Without the Network Effects, the technology is nothing. If the Network Effect continues, Bitcoin may keep solving the problems. But if it doesn’t, cryptocurrencies will be soon  forgotten.

For any queries on the above topic, feel free to write to us on mailinvestxp@gmail.com.
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You can read about the taxation of profit on Bitcoin here.
Akanksha Goel | LinkedIn

6 Reasons Why Stock Market Might Fall Badly in Near Future

The stock market has been on a bull run for more than a year now. Sensex has now risen to the level of 34000 points after making a bottom near 23000 points in early 2016. Thousands of new investors are entering the market everyday with the hope that market will continue its rally forever. But, many market experts have already warned that a financial crisis might be just around the corner. Lets see what are the reasons that may result in a financial crisis in the near future:
  1. World War III – USA vs North Korea

    North Korea’s efforts to develop a nuclear-armed ballistic missile capable of hitting the US mainland have accelerated during Donald Trump’s presidency. North Korea has blatantly ignored all the warnings from USA as well as United Nations against further development of nuclear arsenal. USA is also for military action against North Korea. In response to which, North Korea has threatened USA and its allies of dire consequences if there is any intrusion in the North Korean mainland.

    Scientists claim that North Korea has actually become a Nuclear super power and it can devastate 3/4th of US mainland with its single nuclear missile. In fact, few experts say that the war has already started and it will only get bloodier from here. If a nuclear war breaks out, there will be a global crisis like we have never seen before.

  2. BitCoin Bubble

    There have been bubbles in the past involving different commodities like the Tulip Mania, DotCom Bubble, Housing Bubble etc. but a common trend has been witnessed that whenever bubbles like these burst, it eventually leads to a financial crisis. Most experts say BitCoin is also a bubble. In fact, it has become the biggest bubble in the history. Whenever, this bubble will burst it will also bring along a global financial crisis. This is because common man will be the biggest loser when BitCoin starts to fall. The confidence of investors will be shaken and stock market will also tumble as a side effect.

  3. Rising Crude Oil Prices

    We all know how essential a commodity is crude oil. Crude oil prices have fallen from the highs of $150/ barrel to as low as $38/ barrel in last 5 years. This has largely benefited the countries like India which import a major portion of their crude oil requirement. Low crude oil price has been one of the reasons why inflation has remained low in India for last few years. But now it seems that crude oil price is all set to rise and enter a bull rally. This is because OPEC nations have started to cut the supply of crude. Crude oil prices have recently touched $65/ barrel and if this rally continues it might not be a good news for India.

  4. Upcoming Lok Sabha Elections and Political Uncertainty

    Prime Minister Modi will complete the tenure of 5 years in 2019. The elections are scheduled for May 2019 however, Government has proposed for early Lok Sabha elections along with that of state assembly elections to be held in December 2018. The rationale behind this proposal is to save the massive cost of promotions by political parties during elections. If this proposal is accepted we might see rising political uncertainty in the second half of 2018. The political uncertainty would definitely bring the stock market down.

  5. Ever Rising NPA in Banking Sector

    Banking sector is the heart of every economy. Two separate financial stability assessments have suggested that the worst may be far from over for the Indian banking sector. While the RBI’s half-yearly Financial Stability Report (FSR) has pegged the non-performing assets (NPAs) spiking to 10.8 per cent by the March quarter, the International Monetary Fund’s (IMF) Financial System Stability Assessment (FSSA) for India claims that a group of public sector banks are highly vulnerable to further declines in asset quality and higher provisioning needs. Worryingly, it is the private sector banks, popularly perceived to be more prudent, that are reporting the most stress. Private banks registered a whopping 40.8 per cent spike in their gross NPAs compared to 17 per cent by the state-run ones.

  6. Imbalance in Fiscal deficit

    The are multiple factors which indicate that a steep hike is going to be there in the governments fiscal deficits. The first major reason being the upcoming elections due to which government will try to make a populist budget for FY 18-19 in order to retain its vote bank. Another major reason is the rising crude oil prices. Since India imports the majority of its crude oil requirement so, steep hike in crude oil price will also cause imbalance in India’s fiscal deficit.

Considering the above economic scenario, every investor shall invest prudently in the stock market from here. The investors may shift to safer investment substitutes like Gold and Debt if the stock markets starts falling.
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Sahil Goel | LinkedIn

Unit Link Insurance Plans vs Mutual Funds


Often Mutual Funds are confused with another investment option Unit Linked Insurance Plan (ULIP). In this article we try to clarify all the questions around Mutual Funds vs ULIP.

What is a Mutual Fund?

To know about mutual funds, you can read here.

What is a ULIP?

ULIP is a wonderful hybrid of insurance and investment. It is essentially a combination of insurance and an investment vehicle. A portion of the premium paid by the policyholder is utilized to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments. The aggregate premiums collected by the insurance company providing such plans are pooled and invested in varying proportions of debt and equity securities in a similar manner to mutual funds.

Each policyholder has the option to select a personalized investment mix based on his/her investment needs and risk appetite. Like mutual funds, each policyholder’s Unit-Linked Insurance Plan holds a certain number of fund units, each of which has a net asset value (NAV) that is declared on a daily basis.

Difference between ULIPs and MF:

ULIP provides an insurance cover along with a return from investment.
Mutual fund is pure investment instrument.
Premium utilization
A portion of the premium paid by the policyholder is utilized to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments.
Example: Suppose, you pay Rs. 1 Lakh towards ULIP Scheme. In this, Rs. 10 thousand may be considered as premium towards insurance and Rs. 90 thousand would be invested in funds similar to mutual funds.
Entire amount put in Mutual Funds is invested either in Debt or in Equity. There is no insurance or risk cover component involved in Mutual Funds.
Example: Suppose, you pay Rs. 1 lakh towards Mutual Fund, whole amount gets invested in debt or equity as per the asset allocation of the Fund.
Lock-in Period
Insurance policies always have a lock-in period. Since ULIP is an insurance scheme, the investor cannot sell before the lock-in period of 3-5 years, it can vary from scheme to scheme.
Mutual funds do not have any lock-in period. Only certain mutual funds schemes, which are closed ended have a lock-in period.
Tax Benefit
ULIPs allow you tax deductions under Section 80C of the Income Tax Act. This means that if you invest upto Rs. 1.5 lakh in ULIP, you can avail tax deduction on the entire amount.
Under mutual funds, tax saving benefit is available only under Equity based schemes or ELSS schemes (You can read about ELSS here).
Further, long term capital gain and dividend income from equity based mutual funds is also exempt.
ULIP charges a premium allocation charge, administration charge and maintenance fee for managing the fund. If you invest in ULIP, you also have to pay the insurance premium along with.  The Fund Management Charges for the ULIPs, however, are lower than Mutual Funds, 1.35% and 2.5% respectively.
The mutual fund charges a maintenance fee for managing your money and an exit fee i.e. a penalty for selling units soon after you invest in the fund.
Risk and Return
Modern ULIP Schemes are offering competitive returns similar to Mutual Funds. However, the fact that certain percentage of amount contributed towards ULIP is charged as insurance premium and returns are earned on remaining amount of investment, average return will be lower than a mutual fund with similar asset allocation.
Mutual funds with same asset allocation to a ULIP will result in better return because of 100% amount being invested and no deduction towards insurance premium.
ULIPs have a lock-in period as stated above. However, modern ULIPs are providing liquidity by giving the option of loan against ULIP investments. This has made the ULIPs more attractive
Mutual funds are listed on stock exchange which makes them highly liquid.

  Conclusion: Who should buy what?

There is no one-fit-for-all answer to this question. An investor shall perform an analysis between the following two options:

  1. Buying a term insurance separately and mutual funds separately
  2. Buying a hybrid ULIP consisting of Insurance as well as investment
Mutual Funds are more beneficial for some. The decision is solely based on the investor’s risk profile and the time period for which he/she wants to invest. If the investor has a low risk profile and wants to invest for a shorter time horizon, say 3 – 5 years, the investor should not go in for a ULIP or equity mutual funds. If the investor has a higher risk appetite and wants to go in for a long term investment, ULIP and equity based mutual funds should be considered. Whether it is for retirement or education, if a ULIP is availed till maturity, it is beneficial.  It gives you the dual benefit of savings and protection, all in a single plan. Finally, there is a difference between the objectives of an insurance scheme and investment scheme. Insurance scheme should be bought to provide a cover to your family whereas investment schemes should be bought to earn high returns. Even if you buy a ULIP, you should go in for a term insurance as the cover amount is very low in a ULIP as compared to a term insurance.
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Akanksha Goel | LinkedIn

Don’t You Give Pocket Money to Your Children? Read Here to Know Why You Should Give


Most people in India do not invest their wealth, rather they keep it in the bank or in cash. This is because investment habits are not inculcated from the childhood. With the help of this article we urge the parents to start giving their teenage kids some pocket money and also teach them how to spend it wisely and invest what they save.

Parents’ concerns about giving pocket money to their teenage kids:

  • Concern: Kids might lose the money.Counter: let them lose it once or twice, when it happens with them they will start handling money more carefully.
  • Concern:  They may develop bad habits out of curiosity like cigarette etc.Counter: With India moving towards a cashless economy almost all payments can be made online. Now days bank accounts can be opened for kids too. Pocket money shall be given through bank and debit card should be with the child to make payments. This way parents can keep a track of  how the money has been spent. Parents can instruct the bank to block ATM cash withdrawal. Any cash expense can be met by parents separately.
  • Concern: What is the need of pocket money if parents pay as and when required?Counter: Making your kids accountable for their money is going to give them great confidence and a lot of learning. This benefit alone will supersede any other concern.

How the child can learn the art of investment?Why you should save pocket money

Nobody thinks of saving or investing when one is too happy to spend.

But Warren Buffet purchased his first stock when he was only 11 years old! Starting early is the key!

Believe me, starting as early as possible to invest with as little an amount, can do wonders for all you students getting pocket money, in the future. With a judicious pocket money of Rs.5000-6000 per month in metros, all you students can at least try to save Rs. 1000 per month. If you mange to do so, you would have saved Rs. 12000 by the end of one year. Over a period of 5 years it would be a fancy Rs. 60,000, enough to buy your dream bike/scooty. There is a difference between saving and investing. Investing will grow your money, so you can start investing with as little as Rs. 500 per month. Some of the ways in which you can invest your money are:

  • Savings Account:  Depositing small chunks of money every month at an interest rate of 3-5% will help your money grow over a period of time. This is the simplest way in which you can grow your money.
  • Fixed Deposits:  The minimum amount that you can invest in an FD varies from Rs.100 to Rs.1000. By investing in a bank FD you can earn an interest of 7%.
  • Mutual Funds:  You can start investing in mutual funds with even Rs. 500. The Equity based MFs can earn you an annual return of as high as 20%.
  • Share Market:  You just need to open a Demat Account with a broker (offline or online) and you can start trading right away. This is the right stage to enter the share market with lower stakes and a higher ability to take risk.
In addition to the monetary benefits, there are other benefits of starting to invest your savings early in life:
  • Financial Management:  If you learn how to manage your money before you actually start earning, you would be equipped much better skills to manage your finances.
  • Financial Discipline:  All of us have the urge to spend our money, but if you start investing early, you will learn the art of saving first and then spending.
  • Financial Independence: At this age, you are better able to save and invest your money as you do not have financial liabilities or responsibilities. You can just focus on learning the art of investing your money smartly.
The crux is that, all the parents should start giving their children some pocket money, so that the children can learn the tricks of the trade of investing at a very early stage and reap the benefits later.
Please share if you liked the article and stay tuned to www.InvestXp.in to stay updated!

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Akanksha Goel | LinkedIn

5 Stock Market Movies to Know its Dirty Secrets


No one knows everything about stock market, not even Warren Buffet or Rakesh Jhunjhunwala. But all you need to know to do well in stock market are its dirty secrets that are rarely known to a common man. These movies will not just intrigue you but also send you in a world of amazement and disbelief, in a world where everything seems fair! Watch these to movies to protect yourself from the traps of stock market that are not so hard to see.

#1 The Big Short (2015)

This is the best movie to understand the Subprime Mortgage Crisis that ultimately led to a global recession in 2007. The film is noted for the unconventional techniques it employs to explain complex financial instruments. Among others, it features cameo appearances by Margot Robbie, Anthony Bourdain, Selena Gomez and Richard Thaler, who break the fourth wall to explain concepts such as subprime mortgages and collateralized debt obligations as a meta-reference.

#2 The Crooked E – The Unshredded Truth About Enron (2003)

The movie discusses the famous accounting fraud involving one of the biggest companies of USA, Enron (ceased operations in 2007) and the one of the best audit firm of USA, Arthur Andersen (ceased operations in 2002). This movie will give you a fair idea about how financial statements are window dressed by companies to defraud investors.

(The complete movie is available on Youtube.)

#3 Insider Job

The global financial meltdown that took place in Fall 2008 caused millions of job and home losses and plunged the United States into a deep economic recession. Matt Damon narrates a documentary that provides a detailed examination of the elements that led to the collapse and identifies keys financial and political players.

(Available on Amazon Prime)

#4 Equity (2016)

This movie talks about the dirty secrets behind every IPO issue. When Senior investment banker Naomi Bishop (Anna Gunn) is passed over for a promotion at her firm, she fights for the opportunity to take a start-up public, hoping this promising IPO will secure her a place at the firm’s highest level. But when an employee at the start-up raises questions about a possible crack in the company’s walls, Naomi must decide whether to investigate rumors that may compromise the deal, or push forward with the confidence her superiors expect.

(Available on Amazon Prime)

#5 Margin Call (2011)

Set at a Wall Street firm on the night in 2008 when the big investment banks realize that changes in the market will wipe them out if they don’t immediately stop selling the products that have been making them all rich, the movie centers on the moral dilemma that they face in unwinding their positions, saving themselves but shifting the pain to common man. The movie finds a way to hold the mirror up to our civilization, showing how we are all complicit in a collective ‘dream’ (one character says at one point, in response to another who says he feels like he is in a ‘dream’, ‘Funny, it seems like I just woke up’).


Sahil Goel | LinkedIn


Market Factors That Drive the Price of Gold


Gold investment is the favorite investment avenue of all Indians, specially for women and business families. However, if you look at the graph below you will notice that the returns on gold too have not been consistent. While investors made above 100% return in every 5 years period between 2002-2007 and 2007-2012 but the next five year period i.e. 2012 -2017 resulted in a loss of around 6%. With the help of this article we will make you understand the factors that drive the price of gold.

Gold investment returns

Factors affecting the price of Gold in India:

Supply of Gold
The world’s gold production affects the price of gold. Gold mine production has been in a decline since the early 2000s. One factor is that all the “easy gold” has already been mined; miners now have to dig deeper to access quality gold reserves. The fact that gold is more challenging to access raises additional problems: the miners are exposed to additional hazards, and the environmental impact is heightened. In short, it costs more to get less gold. These add to the costs of gold mine production, resulting in rising gold prices.
The value of Indian Rupee (INR) vs US Dollar ($)
For example: If in Year 1, we could buy $1 for INR 70 and and in Year 2 we can buy $1 for INR 60 only, this would mean that the value of INR has appreciated. In such case the value of Gold in India will decrease proportionately (if other factors are constant). This is because price of gold is fixed in terms of $ internationally.

Inflation results in reducing the value of currency and any reduction in value of Indian currency will result in increase in price of gold. For example, if in Year 1 the inflation is 3% and it increases to 8% in Year 2, this will result in reduction in purchasing power of money in India so, buying gold will become costlier in India.

War and Political Stability
Gold is considered to be the safest asset when the global economy is facing war threats or if there is domestic political instability. People turn more towards gold than other investment options in such scenarios, this may result in huge increase in gold prices during the times of distress.

Economic Recession/ Crash of Stock Market
Economic recession comes with distress in stock market. So, when stock market starts crashing people exit the volatile positions and start looking for safe heaven. Gold market is the safest option available to such investors. Such trends result in inorganic growth in gold prices. However, if the bulls in the stock market gain momentum large number of investors may switch back from gold to stock market, resulting in fall in gold prices.

Marriage Season / Festive Season
Marriages in India are incomplete without exchange of gold as gifts. A trend has been observed as per which the price of gold appreciates by nearly 10% just before the wedding season. Similar appreciation is seen during festive season like Dhanteras and Diwali in India. However, it is also true that price of gold tend to normalise post wedding season and festive season.

Please keep following us for more updates on finance. More posts in #GoldXP #Investment #Series will be coming soon in which we will tell you about different modes of investment in gold and the most beneficial mode of investment and who should invest in Gold.

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Sahil Goel | LinkedIn

Mutual Funds Sahi Hai! A Beginner’s Guide


Concept of Mutual Funds:MF concept 1.PNG

What is NAV (Net Asset Value)?

NAV is the price of a unit in the fund. Just as a stock has a share price, a fund has an NAV.

There is a misconception among people that NAV should be low, but that is not the case.


As we can see above, the value of both the funds after the change in NAV remains the same. It is the performance of the fund that matters, not the NAV at the time of investing.

Main Types of Mutual Funds:

Types of mutual funds

Once you have selected your fund based on the above criteria, you have to choose whether you want to invest in the Growth option or the Dividend option of that fund. Let’s see the difference:

Growth vs Dividend option

What is an SIP (Systematic Investment Plan)?

It is like an EMI, you’re buying a pre-fixed value (NAV x No. of units) in a mutual fund on a regular basis (monthly/quarterly/weekly). Unlike lump sum investment (investing a bulk amount in one go), through SIP we are able to ride the ups and downs of the market without bias and skip the need to time the market. Since the amount invested is constant, one buys fewer units when the price is more and more units when the price is less, which leads to lower average cost.

What is an STP (Systematic Transfer Plan)?

Suppose you get a bonus or sold off your house, one option is to put the money into SIP, but that will not maximize your returns, as your money will lie idle till the next SIP transaction. To maximize our returns, we can setup an STP. You can initially deposit your money in a debt fund rather than keeping it in a savings account (as the return is higher in debt fund) or an equity fund (as equity fund is risky in the short term) and then gradually withdraw it and move it to an equity fund via STP.


How stp works

What is an SWP (Systematic Withdrawal Plans)?

Systematic Withdrawal Plan allows you to withdraw a fixed amount from the mutual fund scheme whether monthly/ quarterly/ yearly. The amount to be withdrawn can be customized, the investor can either withdraw a particular amount or just the capital gains.

Example: Suppose you have 1000 units of a fund and you want to withdraw Rs.5000 every month.

In the first month the NAV is Rs.100, then to get Rs.5000, No. of units of fund sold= 5000/100= 50 units. Remaining units = 950

Now, suppose in the next month the NAV changes to Rs.50, then to get Rs.5000, No. of units of fund sold= 5000/50 = 100 units.

So, the amount of Rs.5000 will be given to you till you want to continue the withdrawals.

How Are My Mutual Fund Gains Taxed?

Equity vs devt fund taxation

Some Key Points:

  • In case, you need money, try and sell those funds which have no capital gains tax and have been invested for more than a year.
  • If you want to rebalance or shift your funds, keep the tax treatment in mind. Note that even STP and SWP are taxable as they are considered as fresh investments. Maybe wait for a year to pass before you move across funds.

Platforms That You Can Use to Research and Invest:

  • You can create your own portfolio on fundsindia.com, from where you can buy or sell your MFs by linking your bank account.
  • To research which fund to invest in, you can use two websites moneycontrol.com and www.valueresearchonline.com
    • On Value Research Online, you can scroll down and select their Fund Ranking Tool and fill in your required parameters.
    • Under the Basic Details, check the Risk Grad and Return Grade of the fund. The best fund should have a low risk grade and a high return grade. Now validate your findings on Money Control.
    • Check the CRISIL rating of the selected fund on Money Control. Higher the rating, better the fund.

There are many websites out there that help you in the same way, you can do your own research and find the suitable one!

How to Review Your Investments?

  • Make sure that you review your funds at least once a year.
  • MF investment is for a long term, so some losses in the short run should not disturb you.
  • Analyze the fund’s performance over 3 quarters, if it is consistently below the category average, it may be time to switch.

How to Balance Your Portfolio?

There are two thoughts on this:

  1. Invest 80% in debt and 20% in equity for a person with lower risk appetite.
  2. Use your age to determine the proportion of debt, for ex- at age 35, invest 35% in debt and 65% in equity. This is suitable for a person with higher risk appetite.

Hope that you have got some clarity on Mutual Fund investing and are good to start investing! Do share if you like!

We will soon be sharing a post with you on the difference between small cap, mid cap and large cap companies.

For any queries, you can write to us at mail.investxp@gmail.com

We will be happy to help, cheers!

Some Technical Terms in simplest language if you wish to know about them:

  • Fund House: The entity which owns the fund. Ex- for an HDFC mutual fund, HDFC is the Fund House.
  • AUM (Assets Under Management): The total amount of money that investors have put into a fund.
  • Exit Load: Charge for redeeming your fund units. Usually 0.5% if withdrawn before a year.
  • Redemption: Selling your funds back to the fund house and getting money that is equal to NAV-Exit load.
  • Lock-in period: Applicable for tax saving funds where it is 3 years and also for close ended funds.

Akanksha Goel | LinkedIn

Do You Have to Pay Tax on Bitcoin Profit?


Profit earned from sale and purchase of BitCoin is fully taxable in India. However, few doubts exist regarding it’s taxability method. With this article we will try to explain you how you should show income from BitCoin in your tax return this year in the most simplified language.

The main issue in taxability of income from Bitcoin is that under which head of income it shall be classified:

  • Income under head “Capital Gain”
    This head is generally used for taxability of profits on sale of capital assets like Land, Building, Bullion, Jewelry etc.

    Even though Cryptocurrencies like BitCoin are not specifically included in definition of capital assets in Income Tax Act, 1961, Bitcoins are assets which are usually owned so holder can gain from an increase in its value. In that sense, they acquire the definition of capital gains. Which is a wide definition as per the Income Tax Act.Treatment
    Accordingly if, BitCoins are held for more than 3 years, the gain should be classified as long term capital gain, which is taxable at 20% with benefit of indexation  (click on this link to understand what is indexation). However, if the holding period is less than 3 years then the profit will be short term capital gain taxable at applicable slab rate.


  • Income under head “Business/ Profession”
    This head is generally used for taxability of income from business related to sale of goods or services.Rationale
    Where there are too many trades in Bitcoins the owner may be classified as a trader and income will have to be reported as income from a business.

    Business income from trading in BitCoin will be taxable at applicable slab rate for individuals and at applicable rate for others.


  • Income under head “Other Sources” – It is the head where residual income i.e. the income which cannot be reported under salary, house property, capital gains, business and profession, is reported.Rationale
    Since no specific law has been created for taxation of cryptocurrencies so, it may be taxed under this head.

    Income under this head is taxable at slab rate for individuals unless any other rate has been prescribed specifically.

Conclusion :

In case of Short Term Capital Gain:

In case of individuals, the tax rate chargeable under the three heads of income, as explained above would be as per slab rate, so it does not make much monetary difference under which head the income is disclosed as no clarity has been given by the Income Tax Authority on this. What is important is that income from BitCoin must be disclosed in Income Tax Return. However, if the volume of trading is high, an individual should disclose income under the head business.

In case of Long Term Capital Gain:

In absence of any clarification by Tax Authorities, most tax efficient option may be opted. If income other than income from Bitcoin is less than Rs. 5 lakh, then the income from BitCoin may be disclosed under the head Other Sources for claiming benefit of lower slab rate. In other cases, it may be more efficient to disclose it under head Capital Gains on account of benefit of indexation and lower tax rate. An analysis has to be made on case to case basis. However, option taken once shall be followed consistently for avoiding penalties. You may write to us on mailinvestxp@gmail.com to discuss your case and take our opinion.

We will keep you notified whenever there is any update on taxability of BitCoin from the Income Tax Department. To get regular updates, please like our Facebook page.

To understand whether investing in BitCoin is legal or not read this article – Click Here.


Sahil Goel | LinkedIn

We have restricted the scope of above article to only individuals 
for a better understanding. Please read the disclaimer at the bottom 
of the website.

Go for Ethereum and Litecoin, why only Bitcoin?


We know that Bitcoin has taken the financial world by a storm. But, is Bitcoin the only hot-shot cryptocurrency? Let’s find out.

The two most popular cryptocurrencies other than Bitcoin are:

  1. Ethereum
  2. Litecoin

You can read about Bitcoin here.

How is Ethereum similar to Bitcoin?

  1. Both are open source digital currencies (powered by blockchain technology).
  2. Used to make anonymous transactions.
  3. Both have digital coins. (Bitcoin has bitcoin and Ethereum has Ether).

How is Ethereum different from Bitcoin?

Ethereum has the second largest market cap in the cryptocurrency world. Unlike Bitcoin’s blockchain, ether’s blockchain, Ethereum features an additional technology called Smart Contracts. Smart Contracts are computer codes that simplify the contracts by automating the supply chain logistics and eliminating the compliance procedures. It entirely eliminates the middle man in a contract.

Unlike Bitcoin, Ethereum allows to program transactions rather than just tracking them. Smart Contracts let you exchange not only money, but also stocks, properties, or anything without having to go through the middle man.

On one hand, Bitcoin is all about payment technology, on the other hand Ethereum has a whole platter of real world applications ranging from politics, healthcare, gambling to banking. Hence, Ethereum is becoming popular in the circle of big corporates. In Feb 2017, Enterprise Ethereum Alliance was founded with the aim to allow corporate and startups to make use of the Ethereum Blockchain technology.

Moving onto Litecoin, third most popular cryptocurrency:

How is Litecoin similar to Bitcoin?

  1. Both are open source digital currencies (powered by blockchain technology).
  2. Used to make anonymous transactions.
  3. Both have digital coins.

How is Litecoin different from Bitcoin?

Litecoin was born in 2011 and is often referred to as the silver to Bitcoin’s gold. The official Litecoin site says: “Litecoin is a peer-to-peer Internet currency that enables instant, near-zero cost payments to anyone in the world.” Litecoin’s aim is not to compete against Bitcoin, instead to act as a complimentary payment solution platform. Some modifications were done to Bitcoin’s core code to form Litecoin, to enable wide spread adaptability. This led to an increase of 4x in the transaction speed of Litecoin when compared to Bitcoin. Due to the decrease in transaction time, legitimacy of the transaction can be confirmed much quicker and also a much higher number of transactions can be performed in the same time frame.

Should You Invest in Ethereum or Litecoin?

There is no one-fit-for-all answer to this. It is absolutely your choice but for making a smart choice you should evaluate his/her financial position and determine whether he/she can take a huge risk in hope of a huge return. It should be noted that Ethereum and Litecoin are currencies and should be treated as those. When you buy them, you will not get shares or stocks of Ethereum or Litecoin, instead your rupees will be traded for these digital coins.  You will earn only is someone in the future is willing to buy your coins at a higher price than what you bought them at, as there are no dividends. Keep one thing in mind, RBI has already warned twice about putting money in Bitcoins or other cryptocurrencies, it may be possible that these are banned in future. On a positive note, since there are such high fluctuations in these markets, you might end up making a big buck before any restrictive government regulations are implemented.

To check out how to buy Litecoin or Ethereum in India, you can visit, www.koinex.in

Akanksha Goel | LinkedIn


Let go of Angel Investors; Go for Crowdfunding!


2.9 Billion U.S. Dollars have been successfully invested on the most popular crowdfunding platform, Kickstarter as of September 2017. If you don’t know about crowdfunding, you have come to the right place.

What is Crowdfunding?

Crowdfunding is entrepreneurship at its core- a way to get your dream venture started, using a way that is not just accessible to super-humans. It is the practice of funding a business or startup by raising many small amounts of money from a large number of people, typically via the Internet.
Crowdfunding has been used to fund a wide range of for-profit entrepreneurial ventures such as artistic and creative projects, travel, or community-oriented social entrepreneurship projects.

How it works?

For the Entrepreneur: It provides a platform for anyone with a business proposal to pitch that to the right kind of investors on the crowdfunding platform.
For the Investor: It provides a platform to the investor to invest his/her money in what he/she thinks to be the next big thing. In a Rewards Based crowdfunding, the investor receives a gift for the funding or may participate in the launch of the product/service. In Equity Based crowdfunding, the investor gets an equity position in the venture.

Most Popular Crowdfunding Platforms to Get Funding:

· Kickstarter (www.kickstarter.com/)
· Indiegogo (www.indiegogo.com/en)

Why Crowdfunding?

Crowdfunding is the easiest way out there to fund your business or startup. Some of the pros of crowdfunding are:
· Validate and test the market demand of your product before launch and use the feedback.
· Create a buzz around your product by tapping into a huge marketplace.
(Both Kickstarter and Indiegogo receive about 6,00,000 unique visitors per month)
· Convenience
(Applying for a loan or meeting with Venture Capitalists is the most nerve breaking experience for entrepreneurs, but setting up a Kickstarter page is a breeze.)

Why NOT Crowdfunding?

· May prove inadequate for raising millions of dollars.
· Not suitable for raising funds at the speed of light.

Akanksha Goel | LinkedIn

What’s Plaguing the Consolidation Corner of Indian Corporations?


India is a booming economy attracting corporate players and capital funding around the globe. In recent times, dynamic Indian business houses have shown a keen interest in expanding their landscape presence into global markets through acquisitions or joint ventures. The challenge of moving into this phase of growth has magnified with the increasing focus on quality and transparency of financial reporting by various stakeholders and the challenging financial reporting regulations. On the contrary, global leading companies have consolidated with Indian corporates to expand their presence in the domestic landscape.

The precise definition of Consolidation in business means any amalgamation like merger or acquisition of many smaller companies into a few much larger ones. In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group company as a single consolidated financial statement.

Why are corporations keen to consolidate in India?

Let’s assume you own a company which is into the business of plastic bottle manufacturing. After an extensive discussion with your management team, you decide to consolidate with a leading plastic material supplier.

  • The first and foremost reason for consolidation in the back of your mind lies in the fact that it increases the shareholder’s wealth. Mergers or acquisitions improves the strength and profitability of the dominant company by means of growth and diversifying into different sectors of the economy. For instance, the banking sector saw Kotak Mahindra taking ING Vysya Bank in November 2014 in an all-stock deal valued at over 15,000 crore INR which opened the doors of opportunity to build robust banking franchise system in India. Consolidation results in reduced overheads by way of shared marketing budgets increased purchasing power and lower costs.
  • Corporations merging in the same businesses can achieve a higher output through synergy benefits, thereby, economies of scale come into play. India’s e-commerce sector is a hotbed of consolidation activity. Likewise, with large global players like Amazon and Uber taking on a dominant role with their deep pockets, the sector is now in consolidation mode, which has become an imperative need for survival for many.
  • Your company might emerge as a leading company surpassing international competition by reducing competition. By consolidating with rivals, many firms often deal with the threat of multinationals & compete on an international scale.
  • The need to maintain many accounts vanishes. Companies that merge do not need to keep subsidiary accounts open any longer for a variety of reasons. As a result, they can be eliminated from the consolidated financial statements. They record debits for the subsidiary’s account balances of common stock, retained earnings and paid-in capital and credit for subsidiary account investments to close out the accounts. Any inter-company transactions between the companies involved in the merger can also be eliminated. Like, any advances, dividends and bonds on accounts receivable or accounts payable between the companies involved in the merger can be eliminated within the balance sheet.
  • The rationale for presenting consolidating rather than separate financial statements for companies post consolidation is that the commonality of ownership creates a single economic entity, even though there are several legal entities. Issues in the context of purchase method versus the pooling of interest method of accounting for business combinations has received considerable attention over the years. Although the matter of purchase versus pooling is really a question of acquisition accounting, the choice of method impacts subsequent consolidate statements.

The list of advantages for the amalgamation of corporates is not exhaustive and it can be access to foreign capital, access to new markets, be it new geographies, new products or new lines of business and so forth. It is pretty interesting to see that several sectors in India are in consolidation mode. The renewable energy sector witnessed Tata Power acquiring Welspun Energy’s assets in June 2016 in a deal valued at over 9,000 crore INR which emerged out to be a successful merger. It is clearly visible that the importance of the growth of consolidation of corporates cannot be ignored when India is witnessing so many acquisitions and mergers.

There are several issues that have been addressed by the government and regulatory authorities for Mergers & Acquisitions in India.

What problems are plaguing the consolidation of Indian corporations? 

Consolidation of corporates is not easy for professionals and accountants when two entities consolidate within the domestic landscape. Some of the key questions inter-alia include:

  • Identifying entities that will be regarded as subsidiaries, associates or joint ventures. Further, with the application of IND AS, the identification of entities to be consolidated might also change and the procedure for identification as well as the elimination of inter-company transactions.
  • Accounting for historical acquisitions like opening balance sheet, purchase price allocation, computing goodwill and so on and how different ERP/IT systems across geographies and entities will be installed.
  • If Company A is preparing the financials on the erstwhile IGAAP norms and Company B is following the IND AS basis of financial statement preparation then accounting issues relating to the ambiguity of data arises.
  • What will be the treatment of losses of one entity in the books of accounts of the ownership entity post consolidation and how these losses will be set off or carried forwarded?
  • When consolidating entities having complex capital structures. If preference shareholders are not made any offer during the takeover, they might become a minority of the group and are included in the calculation of minority interest of the entity.
  • The appropriateness of consolidated reporting has long been accepted, although there has been a debate on how universal consolidation policy should be and the circumstances under which subsidiaries should or should not be accepted. 

What issues need to be dealt with while consolidating at the international front? 

Consolidation isn’t easy when two entities seek cross-border acquisition or merger. Let’s have a look at the major issues:

  • Defining and aligning Group Chart of Accounts (GcoA) and streamlining multiple accounting practices and standards across various group entities.
  • Developing group reporting packs for collation of information from multiple entities/locations and how to answer different accounting periods for different group entities.
  • What price should the product or service be offered to the public and how it shall be reflected in the books of accounts need to be addressed. Transfer Pricing regulations from section 92 to 92F of Income Tax Act, 1961 must be looked at for fair pricing of any transaction.
  • Consolidation is affected by many legal issues ranging from regulatory issues, environmental matters to intellectual property including trademarks and patents. If one company has government-mandated environmental cleanup issues that are costly, the other company may not want to participate in consolidation.
  • Buyers and sellers during consolidation face many tax considerations that require planning. Sellers will want to minimize and defer tax while buyers will want to accelerate tax benefits. How the advent of General Anti Avoidance Rule (GAAR) and Base Erosion and Profit Shifting (BEPS) will impact the global mergers of the corporation?

Author | Kshitij Chitransh

Havells Stock Analysis


Havells is one of the most trusted brands in India and is the owner of prominent brands like Crabtree, Lloyd, Standard Electric and Promtech. It was founded by Qimat Rai Gupta in 1958 and has grown leaps and bounds. It is one of the largest electrical equipment companies in India having a diverse line of products ranging from home and kitchen appliances, lighting for domestic, commercial and industrial applications, LED lighting, fans, modular switches and wiring accessories, water heaters, industrial and domestic circuit protection switchgear, industrial and domestic cables and wires, induction motors, and capacitors among others.

Ratio Analysis
• Liquidity Ratio fell from 2.04 to 1.47 signifying that there has been a significant cash crunch. The same can be ratified by the quick ratio which fell to 0.81 from 1.44. However, this may be due to the capital Intensive plans the company looks to implement for a sustainable long-term growth
• Havells has a P/E ratio of 51.5. When compared to its peers- Finolex as a P/E ratio of 20.4 whereas Voltas has a P/E ratio of 29.9 which clearly shows that the shareholders expect a higher growth rate than its competitors.
• The P/B ratio of Havells is quite high- 11.2 when compared to its peers Voltas- 4.5 and Finolex -2.9. It raises questions such as the stock might be a bit overvalued
• Net Profit Margin- Havells has a net profit margin of 8.3 whereas Finolex has a net profit margin of 11.7 and Voltas has a net profit margin of 9
• Return on Assets- Havells has an ROA of 10.6 which is similar to its peers. Finolex has an ROA of 11.9 whereas Voltas has ROA of 8.1
• Return on Equity and Return on Asset- Havells has the highest Return on Equity and Return on Capital when compared to its peers- 18.1 & 26.3 respectively. Finolex and Voltas stand nowhere to Havells in this metric as both have an ROE of 13.6 and 14.8 respectively. Finolex has ROC of 22.7 whereas Voltas has ROC of 20.9

Management Views

The Chairman has accepted the future growth and prospects have diminished due to weakness in the economic situations of the European Union and the Indian economy due to which he expects not to maintain the 17-20% year on year growth. He has also taken a contrarian view of placing his bets on the Havells version of the brick and mortars- Havells Galaxy which he believes helps in developing their presence in various markets and also helps them in connecting directly with their end customers. They plan to target the rural area now more than ever with the Reo range of conventional switches and they think that their strong distribution chain would make it seamless.

In manufacturing, Havells will continue with their strategy to invest in capacity, quality and precision systems. In his address to the shareholders, the Chairman said,” We are fast reaching the point where all our products will be manufactured in-house under our close supervision. During the year, we set up our lighting fixtures plant at Neemrana which is the first large-scale lighting fixtures plant of the country. Equipped with most modern technology and infrastructure, the plant boasts of India’s first roll forming and robotised bending machines. Similarly, our Baddi plant is amongst best switches and switchgear plant globally and currently is in the process of doubling its production capacity. We are also in the process of integrating our research and development capabilities globally.”

Lloyd-Havells Deal & Q2 FY19 Results

In 2017, Havells acquired the Consumer Durable Business of Lloyd Electrical and Engineering for a mammoth Enterprise of 1,600 crores. Lloyd is the third largest player in terms of market share in the AC segment after LG and Voltas. The main rationale is given that the deal would give a long-term scalability to Havells’s own consumer durable appliances business. It would also strengthen its distribution network by giving it access to over 10,000 direct and indirect dealer. The acquisition got mixed reactions from the market with some analysts were of the opinion that the price paid was too rich for their taste while others were optimistic because of the synergies the deal created.

The company posted yet another strong topline growth in the Q2. There was a 23% growth in YOY revenue from 1,777 to 2191 crores but EBITDA just increased by 1 crore from 257 crore to 258 crore which was mainly due to a higher marketing expenditure and a higher input costs.
The meteoric rise in the cost of Copper has severely affected the margins in the Cables and wire segment as it has declined to 14 % from 20%. Although there has been an increase in revenue by 35% in the above-mentioned segment it can be accredited more to price hikes than volume.

Lloyd isn’t having the best of its quarters. The Chairman and Managing Director, Anil Rai Gupta feels that It is due to adverse seasons, FOREX headwinds and channel inventory but was quick to mention that they also expect a strong recovery as the new plant would start manufacturing items related to the AC segment. The top line reduced by 4%.
The management wants to stabilise the Lloyd portfolio by reducing its import dependency and a diversified portfolio. Around 60% of the capital expenditure budget would be used to set a 6 lakh unit air conditioning manufacturing facility for Lloyd which is expected to be functional at the end of the year and cost around 300 crores.


Havells has been successfully growing in double digits for the past few years. From the long-term perspective, most analysts believe that it would be a great buy as it has been creating wealth for the shareholders. The management under Anil Rai Gupta is an experienced one and trust can be placed on him on steering Havells towards the right direction. The lucrative AC segment which has been growing exponentially due to rising living standards is expected to be tapped in by Lloyd especially after the start of the functioning of the new plant.

Investment Cycle And Investment Growth In India: An Empirical Analysis


A 1% increase in the real interest rate (interest charged after allowing for inflation) leads to a decline of about 0.5% in the investment rate, a current study by the Reserve Bank of India (RBI) indicated, which recently released its working papers wherein the authors divulged their views and estimates regarding the investment cycle in the emerging Indian economy. It importantly stated that the investment rate is expected to rise to 33% in the coming years. Before further examination of the intriguing facts about India’s investment history, let’s understand the concept of an investment cycle.


Basically, an investment cycle is the holistic process of acquiring (investing in) assets, earning profits (returns) on that investment, and then disposing (selling) it off, after which the money is re-invested. This cycle continues and gets the economy going in a sustainable manner. To understand it in a better way, let’s take an example. Assume Mr. Gupta has a certain amount of savings, say Rs. 50,000, that he wants to invest. Soon enough, he comes across a road project in Bengaluru which he thinks is worth the investment, and invests it. Now the builder spends the money on cement and steel, hires workers, rents machinery, builds the road and starts collecting toll on the road. He returns Gupta the money with a handsome interest rate. Here, we notice that Gupta’s money has gone a full circle in the economy, benefitting cement and steel manufacturers, providing for the salary of some workers (who would spend it further), income for the machinery supplier (who would buy more machinery with it) and finally back to Gupta. This is briefly what an investment cycle signifies.

Now, let’s see how the cycle works in the context of India’s macro scale. The banks and large financial institutions are the ones to take in deposits from the households. They then lend it to industries that in turn expand, employ more people, buy more machinery, etc. They invest it in infrastructure projects such as railways, highways and power plants. The banks earn prodigious returns from such investments, and the households, their share of interest from the banks. Each one gains by this process and the cycle continues. The resultant economy produces and generates more economic output. The money is re-invested, witnessing GDP growth, and hence, the virtuous cycle of investment becomes self-sustained, thereby helping the economy grow.

Yes, that’s how important investing is, irrespective of the fact that all investments may not generate humungous returns, or even positive ones.

Now, an economy may experience expansions, peaks, recessions and troughs, as what is called a business cycle. It may be said that the business cycle compliments the investment cycle, in fact, can be used synonymously with it. An investment cycle covers a period that spans several business cycles. The measurement of an investment cycle is similar to the measurement of a business/economic cycle as investment activity like the business/economic cycle also works in two opposite directions, i.e., a period of relative growth and expansion, followed by a period of decline and contraction and so on.That is to say that the economy moving from one peak to another peak (after going through recessions in between) or from one trough to another trough (after going through expansions in between) over a period of time would form an investment cycle.


Investment activity plays a very important role in shaping the ongoing growth of an economy as well as boosting the country’s medium-term growth prospects. Past factual studies have found that investment activity is influenced by several domestic and global macro developments. In the post-Independence era, the real investment rate in India saw an upward trend to peak at 36.7% in 2007-08, before declining to 30.3 per cent by 2015-16.

This was a result of a combination of factors such as the adverse impact of the global financial crisis (2008), the twin balance sheet problem (high leveraging by the corporate sector and high non-performing assets of the banking sector) and subdued domestic capital market conditions.  A sluggish investment rate was one of the major factors which pulled down India’s GDP growth rate from a high of 9.3 per cent in 2007-08 to a low of 6.7 per cent in 2017-18. Though the investment rate has picked up since 2016-17, there is uncertainty about the sustainability of the recent upturn in investment activity and its role in stepping up India’s growth rate in the current and medium-term.

Real Interest rate (user cost of capital) and investment rate show a negative relationship (post 90s)

Coming to the interest rates issue, they accounted for only one quarter of the investment downturn, but lack of business confidence and economic policy uncertainty prevailing in the economy were the major factors in leading the slowdown in India’s investment activity. Another major factor was the reluctance in credit lending by the banks which decelerated from 21.3 per cent in March 2011 to 4.5 per cent in February 2017, mainly due to the downtrodden state of the economy, high NPAs (leading to risk aversion), capital adequacy requirements (minimum capital required to absorb in case of loss), highly leveraged corporate sector and an uncertain global environment.

The fall in investment activity has also been led by a sharp decline in the growth of capital goods production. Firms that have higher financial leverage and lower earnings relative to their interest expenses, invested less, as the study discovered. The Economic Survey (Government of India, 2018) found that one percentage point fall in investment rate dents economic growth by 0.4-0.7 percentage points.

In the case of capital-deficient developing countries, capital formation is the key driver of economic growth. Gross Fixed Capital Formation (GFCF) measures the value of acquisitions of new or existing fixed assets by the business sector, governments and households minus disposals of fixed assets. In short, it shows how much of the new value added in the economy is invested rather than consumed. Investment rate is also highly correlated with the non-agriculture GDP growth rate, particularly seen in recent years.


Growth rate of GFCF and the investment rate cycle are highly correlated

Now since we know that GFCF and investment rate portray a positive relationship, we must know that the private sector is the biggest contributor to gross capital formation and it has played a crucial role in driving India’s investment activity. However, the fiscal deficit in India appears to have crowded out private investment as is evident from the negative relationship between the GFD and the investment rate in the chart below.


In the post-liberalization period, four major downturns in the investment cycle were witnessed in the Indian economy. The first of those occurred in the early half of 1990s, when the economy was hit hard by the balance of payments (BOP) crisis, that was led by import compression and a deceleration in domestic activity. The next one occurred in the early 2000s due to an adverse impact of the bursting of the information technology (IT) bubble. The average real GDP growth from 2000 to 2003 decelerated to 4.5 per cent from 7.0 per cent in the second half of the 1990s. A sharp decline in the software exports due to the Y2K (Year 2000) problem also dampened the investment cycle during this phase. The third menace to the investment cycle was the 2008 global financial crisis, that knocked down the world economy, and caused a seizure of the international capital market and its aftermath. It led to a severe contraction in credit lending, forcing households and businesses to deleverage by paying down debt or defaulting. Tighter credit also greatly increased the frictions in the financial system, making it harder for companies to do business. The fourth and the last phase of downfall occurred in the period from 2011-12 to 2015-16, reflecting a combination of global and domestic factors. During this phase:

  • world GDP growth fell from 4.3% in 2011 to 3.2% in 2016,
  • average domestic inflation was around 8%,
  • real interest rate was high at around 5%,
  • the combined gross fiscal deficit (GFD) of the Centre and states was on an average of 7.1%,
  • the average current account deficit (CAD) was 2.6%, and
  • banks’ lending growth nosedived as they became risk averse on account of large non-performing assets.

These instances led to a dicey situation in the economy to the disapproval of one and all. It aggravated as the corporates targeted at deleveraging their positions rather than making fresh investments.

Turning points of investment cycle in India

The turnaround was seen from 2016-17 when the investment rate indicated a change in direction. This was also reflected by indicators such as industrial production which had picked up in the second half of 2017-18. Production of capital goods increased sharply, reflecting strengthening of capital formation. Capital raised through IPOs picked up from 2015-16 and rose sharply in 2107-18. Not only this, but the banking sector lending too saw an increase during the period.

Sectoral Credit Growth (yoy) :Credit flows to industry has turned positive since November 2017


  • Real GDP growth rate represents demand conditions, i.e., a higher GDP growth means higher income and employment, which then leads to higher consumption, even higher savings, and thereby increased investments contributing to the further growth of the economy.
  • The real interest rate is a substitute for cost of borrowing which is expected to be inversely related with investment activity. As the interest rate rises (maybe as a control for inflation or other factors), money in the hands of investors is seen to be insufficient for the purpose of carrying out the investment process. Thus at such a time, investment activity is miniscule.
  • Higher non-food credit is expected to have a positive sign, which explains the above point in a reverse way.
  • A higher level of the fiscal deficit crowds out private investment, as higher market borrowing by the government to finance the deficit could impact resource raising by the private sector because of a rise in the real interest rates.
  • The growth rate of world GDP, that has been hovering around the 3.5% mark for quite some time, is taken as a proxy for global demand, which is expected to be positively related to real investment.

While the average duration of expansion (from trough to peak) has been 1.6 years (seven quarters), the average duration of slowdown (from peak to trough) was 1.4 years (five quarters). From 1950-51 to 2017-18, the Indian economy saw broadly nine phases of contraction/expansion of two years and above. The largest decline in investment activity from 2011-12 to 2015-16 was led by a deceleration in both the trend and cyclical factors.


A consolidation in the trend of the investment activity has been seen from 2011-12 onwards. However, the cyclical component has shown upward movement from 2016-17, suggesting that recent improvement in investment activity is due to cyclical factors. The upturn in the current investment cycle, which began in 2016-17, is estimated to last up to 2022-23 when the investment rate is estimated to increase up to 33% from the current level of 31.4%. However, the challenge is to reverse the declining trend component of investment activity. This will require policy efforts on various fronts as:

  • Further improving ease of doing business in the country,
  • Accelerate the resolution of distressed assets,
  • Address the crucial NPAs problem of the banking sector, and
  • Speeding up implementation of the stalled projects, which is a major lacking in the country.

Fulfilling these measures over time will assist in riding the current phase of the investment cycle to its peak and boosting medium term prospects of investment activity. The sharp acceleration in real GDP growth in the first quarter of 2018-19, rise in bank credit growth and an optimistic stock market will augur well for sustaining the investment activity going forward. However, uncertainties on the global front and financial market volatility can be a cause of concern and need to be shielded against. After all this, it can be only be anticipated for that the comforting future estimates of the investment activity in India will live up to the expectations.


Surgical Analysis of Indian Automobile Industry – Part II


If you have not read Part I of this analysis, please read it here.


The Indian automotive industry has emerged strong post the global meltdown and its sales have been growing in numbers since then. There has been growth in both, the domestic market and exports segment. With new concepts like share mobility, eco-friendly vehicles, and electric vehicles, a new tangent has been set for this industry. To capitalize on them, new technologies and business models and required to further the growth momentum.


In the four-wheeler segment, Maruti Suzuki and Hyundai India have together captured more than 50% of the market share. Tata Motors, Honda, Toyota, Renault, and Ford have respectively 6.39, 5.17, 5.27, 3.1 and 2.73% market share respectively.

Others like Nissan, Volkswagen India, Skoda, and GM together acquire a modest 4.41% share.

Sales of premium automakers like BMW India, Audi India, Mercedes-Benz India and Jaguar Land Rover are not even included in this list.

Maruti Suzuki

India’s largest automaker has maintained its strong domination and brought its market share very close to 50%. It has ingeniously captured the middle-income nuclear families and maintained its brand value which has given it the monopolistic edge in the market.

Hyundai India (Indian arm of the Korean automaker)

Hyundai has grown over 5% in India. It has grabbed a healthy 16% market share. The launch of i20, i10 and backed by strong sales of Creta have kept the company’s manufacturing units operating at full-house.

Other major car-makers like Tata Motors and Mahindra follow closely in this cut-throat competition.


Foreign trade in engineering automotive goods has widened India’s base. India exports almost all types of vehicles; among the major categories, two-wheelers accounted for more than two-thirds share in terms of number of units exported in 2015-16. During the last few years, passenger cars have consistently been the largest export item among India’s vehicle exports, in value terms, followed by two wheelers and tractors.

Mexico has been one of the largest markets for passenger cars with a share of 18 percent in total exports from India. A substantial percentage of passenger cars are also being exported to South Africa (10 percent), UK (6 percent), Italy (6 percent), Sri Lanka (5 percent) and Saudi Arabia (4 percent). Egypt, Spain and UAE with shares of 3 percent each in Indian exports of passenger cars are also important destinations.

This indicates the growing capability of the Indian automobile industry to meet the international standards and the increasing acceptance of automobiles manufactured from India in the global market.

A large proportion of auto components currently being exported comprise traditional mechanical parts like brakes, engines, gear boxes etc. Value-added products such as high-end safety and advanced electronic parts form less than 10 percent of auto component exports. There is, therefore, a need to focus on higher value-added products which would not only showcase the capabilities of Indian firms but will also result in greater per unit realization for the enterprises.

The import segment primarily deals with input parts. Currently, government allows imports of cars which are priced over USD 40,000 and bikes which are above 800 cc engine capacity. This helps in lowering the impact on various domestic segments which are already reeling under low off-take.


The automotive industry, on the whole, has led to nation building, generated revenue for the government, promoted economic and people development and fostered R&D and innovation.

It provides significant tax revenues from vehicle sales, usage-related levies, personal income taxes, and business taxes. Production and sale of auto components along with services offer a wide net to generate revenue. In terms of economic development, there is a close correlation between foreign direct investment (FDI) and inflows and automotive output, particularly for developing nations.

Automotive FDI also brings in investment in neighboring industries leading to a wider automotive ecosystem. Every job in the core auto industry leads to more than four additional jobs in the upstream or downstream industries. The $93 billion automotive industry contributes to 7.1% to India’s GDP.

Vehicle manufacturing units – technically known as original equipment manufacturers (OEM) – lead to clusters of manufacturing facilities, steel plants, glass manufacturers, aftermarket shops and transport service providers. This has led to industrial development penetrating different regions of India. Pune, Gurgaon and Chennai are some of these regions.

The industry has fostered increased mobility, with goods and services easier to transport than ever before. This industry’s numerous forward and backward links provide both direct and indirect employment. It has contributed to innovation and skill development.


Manufacturers are already planning for the future. Rising prosperity and increasing car affordability provide a healthy prognosis for the Indian automobile industry. With concepts of shared mobility and greener vehicles coming into place, there is now a greater need for capital, technology and vision. Companies like Mahindra & Mahindra and Maruti are spending heavily on R&D related to electric vehicles. The government is also pushing towards increasing the use of electric vehicles. Although the masses still prefer traditional vehicles over electric ones, it will take time for these ideas to materialize. With social acceptance picking the pace and improving infrastructure it can be said that the future of the automobile industry belongs to the companies which will innovate the best in the electric vehicle segment.

Author | Deepti Kansal

Consolidation of Public Sector Banks in India – Journey Till Date


Last month, the government proposed the merger of the three state-owned banks- Vijaya Bank, Dena Bank and Bank of Baroda to create country’s third-largest lender.

The plan to merge was taken by a panel led by Mr. Arun Jaitley, Finance Minister. The move came as part of efforts by the government to reduce the ballooning NPAs.

For long it has been observed that it is not profitable for the small public sector banks to compete with each other for a very small pie of customers. This has led to lower returns on the capital employed, competing demands for funds, and growing competition.

The new synergy is expected to have a lower NPA ratio compared to the NPA ratios of 11.04 % for Dena Bank, 5.40 % for Bank of Baroda and 4.10% for Vijaya Bank.

Is this something new?

This is not the first time that the government has announced some sort of merger in the banking sector. Very recently, the Cabinet approved LIC’s proposed acquisition of up to 51% stake in IDBI Bank. This will help IDBI meet its capital needs.

Last year State Bank of India (SBI) had merged with itself five of its subsidiary banks and also took over Bharatiya Mahila Bank bringing almost a quarter of the nation’s outstanding loans in the banking sector on to its books.

However a few people argue that this move will in turn adversely affect the profitability of the amalgamated entity since Dena Bank is in a bad shape with higher NPAs, higher cost to income and falling profitability so Dena Bank’s numbers might pull down some of the profitability numbers just as what happened in the case of SBI. After the merger, SBI incurred losses for the first time in 20 years.


Banking sector reforms have been an important focus of the Modi government to revive credit growth and wipe out the mountain of bad loans that currently weighs down the performance of almost all public sector banks. After the merger, the number of PSU banks will come down to 19 from 21.

Sectoral Analysis of Indian Stock Market – Top Sectors for Investment


Which sectors are worth putting your money into!

The recent drop in NIFTY, triggered due to panic in the US stock market lead to erosion of an exorbitant amount of investor wealth. Factors such as global oil prices, foreign forces, India’s macroeconomics, all have a very sharp and deep effect on our volatile stock market. However, this impact is not uniform across all sectors. Some sectors are comparatively more resilient to exogenous shocks as compared to others. It is investment in these stocks that may lead to profits in the long run.


Sectoral analysis in stock market is a technique to assess the economic and financial condition of a share of a company in a particular sector. It is mostly used by investors who use a top-down or sector rotation approach in investing.

In the current scenario where the market is on the cliff’s edge and the crowd is in a panic mode due to the ILFS fiasco, rising oil prices and falling rupee, there is fear. Majority of people would sell everything and stay away from the market.

As a smart investor, you shouldn’t be worried about what the crowd thinks. Some stocks fall just because other stocks are falling too. Researching about various sectors of industry and fundamentals of its companies can help in putting money in the right place. The key is to find those companies with long term durable moats. ‘Moats’ in business means a competitive advantage a firm has got which hinders other firms from entering that particular sector.


Indian energy sector is freshly mushrooming with wide potential to expand. We import over 80% of our oil needs, with plans to cut reliance on foreign oil by 10% by 2022. This will open gates for foreign investing into our energy sector worth $300 billion over the next decade. Wind, hydro and solar energy sector are still at a rudimentary level, thus offering a huge scope for growth in the long term.

Indian government’s vision towards efficient, sustainable and secured energy access along with focus on energy infrastructure, LNG terminals, new pipelines and offshore gas development projects have made it a reliable source for investing.

Some people might question, that rise in crude oil price may put a dent on the performance of Indian oil companies. But this is only in the short term. Once Iran-US sanctions kick-in and India structurally shifts its imports to other countries, things will start to normalize.

Tata Power Co Ltd, Reliance Infrastructure Ltd and Hindustan Petroleum Corp Ltd have been top gainers in the stock market recently. Nifty Energy Sector Index – which includes 10 companies belonging to petroleum, gas and power sector listed on the ‘National Stock Exchange of India’ (NSE) – has provided 20% returns in its one-year performance as compared to other sector indices.


FMCG is the 4th largest sector in the Indian economy. The key drivers for the growth of the sector are changing lifestyles, increasing disposable income levels, low per capita consumption and growth of rural sector. Rising GDP will increase demand for consumer goods with the younger generation being the major consumers.

With the advent of e-commerce sites, accessibility to such goods has increased. Number of online users in India is likely to cross 850 million by 2025.

In terms of market share, Food & Beverages is the leading segment, followed by Household and Personal Care. Retail market in India is estimated to reach $1.1 trillion by 2020, which will boost the revenues of FMCG companies.

With increasing awareness around natural products, people are gracefully embracing Ayurveda products. FMCG giant Patanjali Ayurveda registered a 111% growth with a turnover of Rs 10,561 crore in financial year 2016-17.

Nifty FMCG index – comprises of 15 stocks of FMCG sector listed on the NSE. The top gainers include Hindustan Unilever Ltd, ITC and Dabur.

The FMCG sector holds a promising future ahead with its increasing necessity and inelasticity.


The above sectors with a strong growth path are expected to be the best for investment for the next 10 years.

In a non-trending phase such as the present where you can’t anticipate the next roll-out of the market i.e. whether there will be an uptrend or a downtrend, it is best to sit back and do a little research. Your aim should be to diversify your portfolio to minimize losses. As Warren Buffett has rightly – “Price is what you pay, value is what you get”.

Author | Deepti Kansal

Reading an Annual Report Simplified


What is an Annual Report? What is its significance?

An annual report is a comprehensive report of the preceding year of a company’s financials and its operations. It also states the current financial status of the company and future plans. It is the most important means of communication between the company and its stakeholders.

The significances of an annual report are:

  1. Accountability
    Annual reports are made and published to keep the accountability of the company towards its owners. The main motive of publishing an annual report is to propagate the mechanism of accountability. It states to what extent the company is liable for its operations.
  2. Decision Making
    It is one of the most important mediums on which investors make decisions to invest in a company. It also facilitates the company to decide about their future plans and objectives. The management and administration can make certain decisions which could be beneficial for the company depending on the reports. It gives a summary of the operations and financials of the company which also helps the stakeholders take decisions about their share in the company’s ownership.
  3. Attracting and Retaining employees
    There are employees who seek to have a safe and secure job. This becomes quite essential and the prospective candidates who want to be selected in the company tend to go through the financials of a company to ensure that they are not working in a company who does not provide with the requirements of the employee. The existing employees also check the annual reports to analyse and conclude on remaining in the company or not. The annual report also states the benefits that the employees would be getting from the profits earned by the company.
  4. Building customer relations
    The annual report helps the customers to know about the status of the company. It helps the customers to know the credibility of the company in terms of the quality of services and goods. It acts as a medium of communication between the customers and the company.

How to read an Annual report?

To read an annual report we need to go through all the components of the Annual report and understand what they are indicating.

Components of an Annual report.

  1. Letter from the chairman
    It states that how the company has performed in the preceding year. It also apologizes if the expectations and the targets are not fulfilled as per planned. The goals and objectives of the company are led down in this section of the report.
  2. Ten-year summarized report
    The company generally keeps a report of the last 10 years of their financials so that they can measure the growth trends of the company with the industry they are in. This also helps the company to rectify the areas where it in incurring losses and increase their productivity in order to earn profits.
  3. List of Directors and other officers
    This is the section where the list of the important members of the company are stated including from the president, CEO, CFO, CTO, COO, directors and many more. It helps the readers to know about the people who are on board. This, at times, attracts investments from the investors.
  4. Management Discussion and Analysis
    This is the section of the report where the management states about the financial status of the company. They also state the SWOT analysis for the company which would help the company to increase its efficiency and identify the strengths and weaknesses. This section also compares the industrial growth with the company growth and states how much the company is in conformity with the industry. It states about the finances of the company which helps the management to take future decisions and actions.
  5. Director’s Report
    This section states about the events that has been carried out by the company in the reporting period including its operations and financials at the same time. It also states about the company’s new ventures and partnerships with the other business. Basically, it shows the recap of the reporting period under consideration.
  6. Corporate Information: Brands, Subsidiaries and Addresses
    It states the different product lines, contacts, foreign and domestic company locations. This helps the readers to know where the production house is located and the different product lines.
  7. General Shareholder’s Information and Corporate Governance
    This section states all the relevant information which concerns the shareholders of the company. It also provides data regarding board meetings as to how many directors attended how many meetings. It also provides general shareholder information such as correspondence details, details of annual general meetings, dividend payment details, stock performance (stock history, stock price trends, listing stock exchanges), details of registrar and transfer agents and the shareholding pattern.
  8. Financial Statements
    This provides the financials and the operational information of the company. It is quite important to know the financial position of the company. The footnotes of the Income Statement, Balance Sheet and Cash Flow Statement are equally important as it shows to what extent the company is liable for the losses and profits incurred or earned respectively.
    a) Profit and loss statement
    It summarize the profits and losses earned or incurred respectively during the reporting period. It gives the clear picture of how much profits can be given out as dividend or as ESOP.
    b) Balance Sheet
    It gives the summary of the assets and the liabilities as on last date of the previous fiscal year of the company.
    c) Cash Flow Statement.
    It states the amount of cash earned by the company and used up by the same during the reporting period.

Analysing the Annual Report

After reading the different components of the Annual report, one needs to analyse the report and draw conclusions to it. The most effective ways of analysing the reports are:

  1. Identifying the economic conditions of the industry in which the company is in. It would also help to compare how much the company is deviating from the industrial averages
  2. Identifying the strategy of the company is an important tool of analysis. This tells the investors that what will be there money used for in the company.
  3. Analysing the risk and probability of contingent losses and making provisions for them.
  4. Determining the value of the company.


One needs to go through all the components of the annual report to take better decisions and have the idea about the objectives of the company. It gives an idea to the investors that what would be the returns on investment from the company. Also, the employees know more about their own company. It develops customer and supplier communication and gain their confidence in the long run.

Author | Shohom Pal


MONEY MONSTER: Important Lessons From The Movie


Ever watched a thriller film that has not only kept you at the edge of your seats, but at the same time swooped in your subconscious mind, some of the best lessons one would otherwise learn only through experience? Well, here’s the blockbuster for you. Get a grasp of what the movie is all about through this breathtaking trailer!


MONEY MONSTER is a 2016 American film starring three-time Golden Globe Award and the prestigious Academy Award winners George Clooney and Julia Roberts, and Jack O’Connell, playing major roles, apart from the extensive line of cast and crew. We see Lee Gates (played by George Clooney) as the host of a financial show named Money Monster that advises on stock picks and investments. This man with this dicey job sees himself being taken hostage on his own set that poses a threat to his life and reputation, since the entire incident, wherein the show is accused of being rigged, is telecasted live on air. Not only is the movie awe-inspiring, it has some very crucial points to be put forward for its audience. Let’s get into discussing those vital points.


Stock tips are supposed to be taken as tips or advices only and not a guarantee of anything. The acknowledgement of this simple but utmost important lesson can prevent you from going through the misfortune we see Kyle Budwell (played by Jack O’Connell) going through in the film, who lost all his life money i.e. $60000, in one go, based on a promising investment tip. Implementing on mere hearsay or a convincing stock tip can prove to be catastrophic. This is why due diligence regarding the investment on each investors’ part is essential before he/she seeks to act on such advice. Apart from this, one very important point to be kept in mind is that the stock market is erratic, not definitive.

Ibis’s stock tanked from $75 a share to $8.5 in no time


Growing finances require better management too. As soon as you start earning and saving, you must get down to allocating your surpluses among the best available investment options that are suitable for you and in accordance with your risk profile. In Money Monster, we see Kyle Budwell getting a hefty sum of $60,000 from his deceased mother; hefty because it was too much for him to handle. We may say so because he failed miserably at not only investing this amount to gain more, but could not protect his capital as well. He invested the entire amount in a company named Ibis Clear Capital solely based on a TV show’s recommendation. Well, we should not be glad to acknowledge the ramifications thereafter. What we should be glad to know is that he is not the only one out there to have experienced something like this. Many people even in today’s world fail to diversify their investments, focusing all their accumulated savings only in FDs or their savings account. The basic rule of thumb when it comes to investing is that one should never keep all the eggs in one basket. No investment is perfectly safe and diversification is a requisite for wealth creation, irrespective of how promising it portrays itself to be.


We see Diane Lester (played by Caitriona Balfe), Chief Communications Officer at Ibis Clear Capital, rising to the occasion in the absence of the CEO, when Gates was taken hostage on air and the assailant, Kyle demanded an answer from Ibis on its poignant situation. This was a courageous move on her part, however, her words weren’t convincing or conclusive. A crisis situation cannot be explained by the words “We don’t know” because today’s demanding and savvy investors are not willing to buy that. At such a moment, one should come forward with answers that are actually some real ones or act as a quick fix, otherwise aggravating the prevailing situation.

Diane Lester in reaction to her “We don’t know” statement on air


Walt Camby (played by Dominic West), CEO of Ibis Clear Capital risked a huge chunk of his very own publicly listed company with the objective of wrongful gains. He secretively took away and invested $800 million of Ibis’s money in a listed mining company in South Africa, whose stock price had plummeted from the strikes carried out by the workers there. Camby had the intention of bribing the union leader with the purpose of ending the strike thereby increasing the company’s share price and turning his investment into billions of dollars. Little did he know that not every man is corrupt. Well, he is not to blame for this fault of his because a person who is unethical thinks that everyone is cut from the same cloth. When this backfired, his investment went down the toilet and he was left nowhere to go. Greed had the better of Walt Camby and his company Ibis Clear Capital. He had Ibis going through a Foreign Corrupt Practices Act investigation, violations of which could carry heavy civil and criminal penalties. His company and reputation were stained, so was his money. No matter what a corporate genius you are, one imbecilic move can ruin everything overnight. In this case, it was not only Walt who was suffering but hundreds of Kyle(s) who lost their funds all in one go. Never let materialism ruin what you have, and never let it overpower your principles.


Life is not always about money. We see how Kyle Budwell was pathetically sworn at by his girlfriend on live television. Of course, his ignorance and lack of planning led to the money left with him by his mother go down the drain, but that was not it. He was accused of being useless, taking no responsibilities, and then after all of this, coming up with a good for nothing plan of bombing the show’s set taking Lee hostage. His girlfriend, who was seven months pregnant, never showed any signs of respect or mercy towards him, even on air. In fact, all one could see was animosity and annoyance. We do not witness a detailed portrayal of their relationship, but we can infer from the film that it is not only the materialistic things in life that matter. The reality is actually divulged when there is no money, as is the case here. We see Kyle ends up losing his life, giving up on all hopes, only to leave his girlfriend and child alone. So instead of taking some inane haste decisions that we might regret later, we should figure out solutions to our problems after careful thought and shrewd advice, especially from our close ones, because they will be the ones standing behind us when everyone else is right in front.

Kyle being sworn at by his girlfriend

Intrigued much? What would you have done if you were Diane Lester, or Kyle Budwell, or Walt Camby? Could there be a better way to get through this situation? Get your thinking caps on while you sit back and appreciate the thrill the movie has on offer.

The Stock Market – From Ashes to Dreams


“Stock Market Bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception” 

The Stock Markets represent the foundation of how well an economy is functioning & carrying out its operations in the Financial Sector. They act as a barometer for measuring the performance of a firm, the Industry it operates it & the Economy encompassing it. The better the results of the firm, the better the economics of the Country. The main element that defines the Stock Market is ‘Risk”. Risk can be defined as the ability or willingness of a person to invest his/her money into the Investment Corpus based on the rate of return they expect. There is always a risk-return tradeoff in everything. The higher the risk, the higher the possibility of profits/losses. The Stock Market has three kinds of people – Speculators, Hedgers & Risk Neutral People. 


Just like there are two sides of the same coin, the Stock Market also has both negative & positive perceptions surrounding it. Owing to the huge losses during times of financial emergency, including the 2007-08 credit crisis or the Dot.com bust of 1999-2000, stock markets have caused huge complications for the investors who lost around 50-70% value of their investment corpus. Time & time again the stock markets have crashed proving the vulnerability & quandary they possess. Speaking emphatically, Stock markets are the authors of wealth creation. Speaking of examples like Warren Buffet & Benjamin Graham, the two most successful people in the history of stock market, we can imagine the miracle that it can create for investors. Warren Buffet’s historic investment at Berkshire Hathaway has taken the stock from $19 to $3,00,000. There may be many complications in the process, but ultimately it all depends on the quality of decisions the investor takes. Subtly speaking, different people have different perceptions about the Stock Market. It can be regarded as the most subjective topic to speak on. The history of various index’s, be it the Dow Jones Industrial Average (DJIA), or the S&P500, proves the uncertainty it possesses. However, if proper market research is undertaken & right decisions are made at the right time, it can act in favor of the client.


There a number of factors that affect the stock market, be it economical, psychological or political which incorporate different sectors.

The Economic factors include the stability of interest rates, inflation rates, economic policies & many others. The government plays an integral role in maintaining the integrity & performance of the Stock Markets. The interdependence of the markets & the economy is determined by the performance of various listed, multinational organizations. Various monetary & fiscal policies come into play as the Central Bank tries to regulate the operations of the market. Open market operations, Bank rate etc. are two of the most important tools.

The Psychological factors include the Investor sentiments & emotions. The features of strong investor confidence & optimism during times of economic boom and weak confidence & pessimism during recession explain how quickly they can bring a change in the functioning of the market. The concept of herd mentality also comes into play where information motivated investors are followed by masses of people which ultimately leaves the prices unaffected.

The political factors include the Government intervention in various operations by one means or the other. International Relations with other economies can affect the stock prices as well & can cause complications in the Stock Market. (The Turkish Lira Crisis, 2018) Trade wars, political factors, amendment in policies are some of the elements that need to be regulated to ensure the integrity of the stock markets. 


Fear & Greed 

Fear & Greed are the two most influential factors in the Stock Market. It’s the volatility & vulnerability of the market which adds this feature to it. People are affected by investor sentiments & emotions pertaining to the up & down moves in the market. Moreover, the bandwagon effect has a major bearing on its functioning as people generally believe in what others do. There’s something called the Fear & Greed Index formulated to inspect Investor sentiments in different situations. It’s the common approach of people to start investing more as they get higher returns & totally put a hold on it when they lose something on it. It’s the risk-seeking characteristic of an individual which defines his/her fear & greed index. The quality of decision-making may be dependent on the knowledge possessed by the Investor, but it ultimately lies on the judgment & divergent moves that are difficult to predict & decipher.


As we know that almost everything in this world has two sides, Stock Markets also have their pros & cons. It depends upon the investor whether he adopts the positive side of it or the negative side. Stock Markets should not be looked upon as gambling because that has a totally different inference. A person empowered with knowledge & some fortune can easily make profits from the investment process. It plays an important role in shaping the dynamics of a country & its business operations. The growth of the Stock Market defines the growth of the country & helps serving the desires of people to invest in big multinational companies. It acts like a channel of communication between the management & the publics and explains difference in views people express about it. At the end of the day, swings in the stock market are created by human beings. There are boom periods in improving markets when everyone wants to buy. Alternatively, there are also periods of haste when almost every investor is looking to secure their positions & take a back seat.

Why are banks selling stressed assets to ARCs?


One of the leading problems that the Indian Economy is facing is the alarming volume of stressed assets with the banking system. There are various ways in which these Non-Performing assets are tackled. After the introduction of Insolvency and Bankruptcy Code (IBC), it was believed that the resolution of stressed assets would become an easier and quicker process but it has been observed that in some cases banks are turning to the old route of sale of stressed asset to Asset Reconstruction Companies. But before understanding the reason behind selling such stressed assets, we need to understand few aspects.

What are Non-Performing Assets and Stressed Assets?

A Non-Performing Asset is the loans or advances that are default or are in arrears on scheduled payments of principal or interest. Debt is considered non-performing when no payments are received for 90 days.  At times, nonperforming assets are also classified under such head when the interest is paid but repayment of the principal is not done. The non-payment of such assets reduces the cash flow in the banks which disrupts the budget and creates a reduction of earnings. These appear in balance sheets which causes a reduction of the capital available to giving out loans to the current customers. When nothing can be earned from such assets, they are written off from the earnings of the institution.  

Stressed assets are health indicators of the economy. The deteriorating asset quality is an alarm to the economic risks that can arise in the near future or even the long run.

Stressed Assets = NPA + Restructured loans + Written off Assets.

Restructured loans are those loans which have been given more repayment period and also reduction of interest rates. Also, at times the loans are changed to equity. Under this method, the bad loan is changed to a new loan. A restructured loan tells us the banks are having bad loans in their balance sheet.

Written off assets are those assets whose valuation is done of the amount of loan that is borrowed.

Traditional Way: Resolution of Stressed Assets Through Sale to ARC or Asset Restructuring Companies?

ARC or Asset Restructuring Companies are special financial institutions who buy poor performing assets from the banks at a low price to clean up the balance sheet of such institutions. Banks, without going behind the defaulters, can easily sell these “bad assets” to such institution which makes their work easier at a mutually agreed value.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest or SARFAESI Act, 2002 states that ARCs can help financial institutions with bad assets without the intervention of courts. As per amendment 2016 of SARFAESI Act, the ARCs must have a minimum net owned fund of 2 crores.

In such a scenario, where banks are forced to maintain a healthy asset quality and thus in dire need to clean up their balance sheet, ARC(s) come to the rescue by buying the stressed assets at a haircut which is decided after multiple bargaining from both the lenders and the ARC. It is notable; however, any initial or further resolution plan is required to get a 75% vote from the entire group of both secured and unsecured creditors of that said company.

For Example: If it has been reframed to a 15:85 resolution plan for a stressed loan of Rs. 1000 cr. This primarily means that the ARC needs to pay 15% (Rs. 150 cr) of the Net Asset Value of the asset upfront to the banks. Such Net Asset Value shall be decided as evaluated by a registered valuer u/s 247 of Companies Act, 2013. The rest 85% (Rs. 850 cr) of the value shall be paid to the banks as and when the assets are realized by the ARC in the course of business or by a complete sell-off. ARC also try to refinance and reconstruct the asset such that it becomes a performing asset again. This route is being used from a long time but it has failed in proper resolution in the majority of cases as re-construction of the stressed loan is not the best solution for a business that is not doing well.

Modern Way: Resolution Through Auction of Stressed Assets Through Sale to ARC or Asset Restructuring Companies?

The Insolvency and Bankruptcy Code, 2016 is one of the most important legislative reform that has helped in the growth of the economy as well as emerged as a solution to the problems relating to the NPAs. IBC is a landmark legislative reform which brings most of the bankruptcy laws under one head making it simpler and easier for the companies as well as promotes faster and effective jurisdiction.

One of the fundamental features of the Code is that it allows creditors to assess the viability of a debtor as a business decision, and agree upon a plan for its revival or a speedy liquidation. The Code creates a new institutional framework, consisting of a regulator, insolvency professionals, information utilities and adjudicatory mechanisms, that will facilitate a formal and time-bound insolvency resolution process and liquidation. IBC allows a maximum 270 days for resolution — an initial 180 days and 90 days of extra time on top of that.

The architecture of IBC has been taken from past committees which came together under one head and was adopted as law remarkably quickly on the heels of Bankruptcy Law Reforms in 2015. The judicial adjunct to IBC is the National Company Law Tribunal and the National Company Law Appellate Tribunal.

Landmark judgments have been passed clarifying important questions such as upholding the principles of natural justice by providing an opportunity of being heard, defining the coverage of moratorium and explaining repugnancy between the Code and the state laws, what constitutes a dispute, the applicability of timelines, when a debt would be considered as time-barred etc.

Why banks are turning towards sale of stressed assets to ARCs instead of going through the IBC route

Troubles Created by Competitors

In the race to win the bidding for stressed assets the companies in race for acquisition try to challenge each others bid on legal ground which causes a delay. For example: Patanjali, which has been declared as the second highest bidder with Rs 5,700 crore offer, was asked to submit a revised bid by June 16 to match or better the highest offer of Rs 6,000 crore by Adani Wilmar under the Swiss Challenge system adopted by the RP and banks. However, Patanjali wrote to the RP seeking clarifications instead of submitting fresh and revised bid.

Under the Swiss Challenge method, Adani will get another chance to make an offer if Patanjali were to match or better its offer of about Rs 6,000 crore. Yoga guru Ramdev-led Patanjali group has also questioned the appointment of Cyril Amarchand Mangaldas as the RP’s legal advisor as the law firm was already advising the Adani Group.

The Haridwar-based FMCG firm has raised the issue of conflict of interest over the appointment of the law firm due to its alleged connection with the Adani group. Ruchi Soya, which is facing the insolvency proceedings, has a total debt of about Rs 12,000 crore.

Piling Up Cases –

Initial few resolutions has been fast but as more and more cases are coming up the process is slowing down – the 270 days limit is only for namesake now.

Heavy Hair Cut –

Banks are being made to take a huge haircut in the IBC process for the assets where there are only one or two buyers.

Lenders to Essar Steel Ltd. have decided to assess bids submitted by Numetal Mauritius and ArcelorMittal India on their individual merit. The Luxembourg-based steel giant offered a 35-40 percent haircut to financial creditors in the first bid it had submitted, while Numetal, a VTB Bank-led special purpose vehicle, had offered a 65-70 percent haircut.

Essar steel owed an amount of Rs  49000 crore to its creditors.

In the Bhushan Power and Steel Ltd., the NCLAT allowed resolution applicants to revise their resolution plans, even after one year had passed since the admission of the case to IBC.

In Essar Steel, the NCLAT allowed the resolution applicants time to cure their 29A ineligibility.

Increasing NPA and Fear of Prompt Corrective Action (PCA)

Going through the IBC route always happens to be a long and tedious process. Moreover, pending litigations at the NCLT, if piled up beyond a certain extent, may lead to an overcrowding effect resulting to blockage of Bank’s capital and thereby a significant increase in Non-Profitable Assets (NPA) of the banks, which may further lead to a ripple effect on the banks in form of Prompt Corrective Action (PCA), under the new regulations of the Banking watchdog (RBI).

The Reserve Bank has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) Framework, in terms of three parameters, i.e. capital to risk-weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points. The PCA framework is applicable only to commercial banks and not extended to co-operative banks, non-banking financial companies (NBFCs) and FMIs.

Case Study

Now, taking this theory to a real-life example, recently Union Bank, Indian Overseas Bank and Bank of Baroda sold their part in Bhushan Steel and Essar Steel to Edelweiss ARC, country’s largest ARC managing around Rs.45000 crore of stressed assets out of Rs.75000 crore present in the system. However, SBI opposed the plan stating that, while such resolution plan may be profitable to a bank in short term, it may affect long-term decisions given the difference in opinions among bank and ARC, in a quest to reach the coveted 75% votes for any decision. However, they also accepted the fact that sale to ARC becomes essential to avoid PCA, and thereby, a temporary freeze to further long-term credit offtake, advances and the opening of branches.

As SBI was booking losses in the previous year as well as the current year, it decided to follow the guidelines and wanted the ARC to take over the decisions. It would facilitate the bank not to book losses and eventually can come up to break even point. As the RBI had given out the guidelines that if the “dirty dozen” is not solved within March 2018, then the banks would not be able to open new branches. Thus to make the process faster SBI willingly agreed to the fact that the stressed assets would be sold off to the ARC instead of going through IBC.


Both routes have advantages and disadvantages. IBC route assures better value to banks and proper management of the stressed asset by a financially strong buyer but NCLT resolution takes time and does not help the banks as such to recycle the trash money, while ARC has a solution to that, giving short-term liquidity and long-term regular cash flow after considering for the loss due to the haircut. If the legal hassles are eased out IBC can become a great success.

Author | Shohom Pal

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