Equity Market – Dutch Uncles

Good Money Habits To Start Off With

Vaishali Das — Sun, 10 Oct 2021 03:35:07 +0000

Millennials who have their entire life in front of them, usually have the zeal of being independent, setting on their own financial choices, and so forth. In the fervour, many young investors miss out on managing bad choices. In the present economic situation, inflation erodes the value of your money over a stretch of time if it is not invested wisely. Having said that, it is usually a dilemma for investors to choose the right financial window and get started with their money making process. This is where we need to acquaint ourselves with wise money management and investment practices that will help an individual to set a firm foundation for a smooth financial future.

In the recent episode of MentorED – a LIVE Workshop Series by Dutch Uncles, the esteemed speaker, Ms. Shweta Jain enlightened the audience who joined LIVE from across four platforms – LinkedIn, YouTube, Twitter, and Facebook – about the good money habits to start our investment journey with and shared some money management strategies as well. Ms. Shweta Jain, Author and Founder of Investography Pvt. Ltd. is a Certified Financial Planner who shares a passion for providing financial literacy to new and existing investors. With an experience of more than 16 years in the financial planning, research, and client services arena, Ms. Jain has conducted 1000+ workshops for more than 35,000 individuals and advisors for corporations like Google, HP, Accenture, JP Morgan, JC Penney, HPCL, etc.

In brief the session had the following takeaways:

Saving versus Investing – How inflation impacts portfolios
Insurance – How it is treated as a stepchild
Starting early versus starting late
How compounding works and why don’t we make money on our money

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Do not save what is left after spending, but spend what is left after saving

- Warren Buffett

Good Money Habits

What do you answer when someone asks you about your well-being? We generally say we are fine or we are doing okay or not so good, if we have any problems, right? Similarly, being financially well is equally important and one should not hide or shy away from seeking help. The foundation for being financially well comes with habits. A habit is something that makes or breaks your future. So when it comes to financial matters everything boils down to what you want out of life and what are the milestones you want to achieve.

Elaborating the concept of having good financial habits, Ms. Jain further mentioned in the session about the meaning of being financially independent, how insurance can be a gateway to a safer life, clarity regarding the savings and investments and the basic good habits that one should follow. Talking about financial independence, Ms. Jain gave few examples about what financial freedom meant to different people. It was surprising to know that everybody might have invested in the same stock but what they want out of those investments is different. This is because when we assign meanings to all these investments, the time frame is clear and one can map out their journey correctly. Once you know what financial independence means to you, you will automatically come to know what to do with your money.

Coming to the topic of insurance, it is divided into three categories: Life insurance, Health insurance, and Critical insurance. Ms. Jain claimed that insurance is her top most priority as it protects not only the individual but also their loved ones. The risks here are totally different from the risks in equity. Life insurance gives you the promise of protecting your family when you are not around anymore. Basically, if you have a sum of money today, your life or your family’s future is protected. If you are hospitalised you get health insurance and if you are recovering from a life threatening illness, a critical illness policy will help you sail through that time.

Having said that, what exactly should be the good habits that an investor should follow? Well, for that Ms. Jain mapped out a basic flowchart explaining how evaluating your insurance cover, evaluating loans is important and should be done periodically. One needs to save for their goals first and postpone spending in order to gain wealth and allocate their assets according to their risk taking capacity. She said, “when you look at your investment, do you want to eat better or do you want to sleep better”, if you want to sleep better then you should invest in safer assets and if you want to eat well, you will have to beat inflation and go for growth assets like equity.

Audience Asks

From my understanding, there’s no right time to invest but can you list some reasons as to why one should start investing early and what all financial options will be beneficial for millennials like us?

Ms. Jain answered this question by giving a personal example of how she started spending more, unconsciously, while owning a credit card. Eventually swiping her credit card became a habit, in her words, “a habit that I want to break”. Ms. Jain explained that there is no right time to invest and it is intertwined with your goals and aspirations. Talking about the beneficial aspect of investment, she said, if you have long term, high aspirations, then you should invest in equity. It is based on choices, whether you want to play safe and invest your entire money at once, for a long term goal, or if you want to take that risk and keep investing in small amounts on a monthly basis to reach that goal. Ms. Jain advised not to fall into the trap of FDs, rather start investing in equity, and be consistent.

I wanted to know something about SIP, which is more profitable – short term or long term, because I have seen people withdraw their money when there is a downward trend in the market.

Ms. Jain chuckled while answering this question and talked about the basic human nature of following a herd. She said, “Although it seems much safer, don’t follow the herd and do what is right for you”. Ideally SIPs in the long term are much more profitable but it is something that should be towards a goal. So if you have a short-term goal, there is nothing stopping you from investing in SIP, for that duration of time. Ms. Jain gave an answer related to her life, about how she is doing SIPs for her son’s school fees, which is a short term goal and for the long term, she is saving for her retirement as well. So it does not have to be an either-or decision, rather it has to be both and has to be oriented towards your goals. Long term SIPs are more profitable but a short term SIP is more beneficial.

I guess, price rise of essential commodities is affecting all of us in the country. How can we make a smart investment considering the circumstances?

Price rise of commodities is what inflation is, infact, the reported inflation and the inflation that we see will be different. For example, healthcare and education inflation are all in double digits. So this means that our portfolios should be giving us double digit returns so that we live well, otherwise, we will be spending more and consuming less. And the only investment option for this is equity, whether it’s equity mutual fund, PMS, direct stocks or portfolios, this is the only asset class that will give you good returns in the long term. Investment in equity is like investment in business and not just “stock tickers”. Whether you are running your own business or are an employee, you can invest in the best businesses by investing in their stocks.

Give your money a chance to grow

Everything in financial planning or life is a trade off, so you need to figure out whether you want a vacation, which is a short term goal, or should you put that money aside for your retirement, which is a long term goal. More often we are focused on how much our equity portfolio has given us rather than how much we have spent on our portfolios. So make sure that you are allocating your assets correctly according to your requirements and do not push your equity to over-perform because with higher returns usually comes the need of taking higher risks. Investment is the journey that you need to learn on and nobody else can do it for you.

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Why Is Return On Equity important: All You Need To Know

Aakash Sharma — Mon, 13 Sep 2021 08:35:09 +0000

Stock markets are best analysed by a lot of ratios. A good understanding of ratios, numbers and figures can land you in good positions as far as your stock market investments are concerned.

One such important ratio is the Return On Equity – ROE. ROE is a profitability ratio that tells about the magnitude of a company’s profits on its shareholders’ equity.

ROE formula = Net Profit / Average Shareholder Equity

Net profit, or net income, is found on the income statement of a company. Shareholders equity is located on the balance sheet of a company. Average shareholders equity is calculated from the starting and ending figures of a particular financial year.

Example

A Company ABC has a net profit of Rs. 113 crore. Its average shareholders’ equity will be calculated by the average of the opening shareholders’ equity and closing shareholders equity.

Let’s say the opening shareholders’ equity is Rs. 838 crore, and closing is Rs. 398 crore. The average will be:

(Rs. 838 crore + Rs, 398 crore)/2 = Rs. 618 crore

Now, ROE will be Rs.113 crore / Rs. 618 crore = 0.183 or 18.3%

This means that Company ABC made profits of Rs 113 on average equity of Rs. 618 crore, which is equal to ~18.3% (ROE). Generally, the ROE of a good company is at least 15%.

Why is Return On Equity important?

Before investing in stocks that are on an upward trajectory – bullish stocks – it is crucial to analyse and do fundamental research on that company’s profitability. This is an essential step in investing, and getting a clear idea of the basics makes your investment strategy sound. Return on equity allows investors to understand the performance of the company.

This indicator is even helpful in comparing two stocks in the same sector. For example, when investors compare two real estate stocks, some of their benchmarks may reflect the industry. A thorough study of an indicator like ROE can give investors a clear picture of which stocks are best to invest.

Using the ROE metric

A good or lousy return on equity ratio is not a simple figure to arrive at. But there are some fundamental guidelines to keep in mind to create a generally profitable ROE round figure. An ROE value of less than 10% can be considered a bad result.

While it may pay off first, a high return on equity is not necessarily a good thing. This is because a high return on equity can occur due to several underlying issues, including outstanding debt or profit inconsistencies. Investors should always ensure that return on equity is combined with other metrics, such as debt and return on investment (ROI), to understand the firm’s financial condition.

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It is also essential to identify that the performance of "good" or "bad" stocks may vary by industry.

For example, the share returns in the utility sector are low, opposed to the efficiency of technology stocks which is generally high. Therefore, it may be helpful to compare metrics within an industry, but comparing metrics from different sectors can give a wrong impression of a company’s performance.

Return On Equity can help to identify problems

It makes sense to ask why an above-average or slightly higher ROI is better than a double, triple, or equivalent group average. Isn’t stock with a very high return on equity great for an investor?

In some cases, an extremely high ROE is good if net income is substantial in comparison to equity due to a company’s high-grade performance. However, a remarkably high ROE is often due to a smaller equity account than net earnings, symbolising risk.

Excessive Debt

One problem that can wrongly lead to a high return on equity is over-indebtedness. If a company borrows actively, it can increase its return on equity because its equity is equal to assets minus debt. The more debt a company acquires, the less equity it can have. A typical scenario is when a company borrows a considerable amount to buy back its shares. This may increase earnings per share (EPS) but will not affect accurate growth rates.

Inconsistent profits

The problem with a high return on equity is inconsistent profit returns. Imagine that a company has not made a profit for years. The annual loss on the balance sheet is presented as a “retained loss” in equity. This loss is damaging and reduces shareholders’ equity. Suppose the company made unexpected profits last year and becomes profitable. The denominator in the ROE calculation is now minimal after many years of losses, which makes its ROE misleadingly high.

In such cases, extremely high ROE levels should be considered a warning sign and be scrutinised before investing. In rare cases, a well-managed cash flow plan can lead to a negative return on equity, but this is the least likely outcome. However, you cannot evaluate a company with a negative return on equity compared to another stock with a positive ROE.

The debt parameter is crucial in calculating a company’s return on profits and should be carefully considered before investing. As part of your research, you should view a company’s current performance and gain an in-depth understanding of its ROE history that began at least 5-10 years ago. You can find it in the company’s annual report or a much more accessible format on the investing website Screener.In.

In the end, it is essential to remember that the basics of sound investing reside in intelligent investments into financially strong and profit-making companies – these are the shares that will give you gains in the stock market.

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P/B Ratio: Helping Investors Determine Undervalued and Overvalued Stocks

Shalmoli Sarkar — Mon, 13 Sep 2021 04:35:08 +0000

Investors use various metrics to determine if purchasing stocks of a company will fulfill their investment objectives. One such metric is P/B (Price-to-book) ratio which is largely used by an investor to determine the right stocks.

What is P/B (Price-to-Book) ratio and how is it calculated?

P/B ratio is a widely used parameter by an investor to determine if a company’s stock price is overvalued or undervalued or fairly priced as compared to the company’s book value. The ratio is a relationship between the market capitalisation of an organisation and the value of assets it possesses.

The ratio is calculated by dividing a company’s market price of the share by a company’s book value.

But before calculating the ratio directly, let us understand how we are arriving at the formula. First, the investors need to calculate market capitalisation which is the product of the total number of shares held by shareholders and the current market price of a company’s stocks.

Market capitalisation= Market value of a stock x Number of shares held by shareholders.

Second, investors need to determine the net value of an organisation by adding the book values of the assets present in a company’s balance sheet and deducting liabilities and debts. Book value is the worth of the company left when it closes its operations after paying its debts, creditors and liquidates itself.

Book value = Total assets – total liabilities – debts

After determining the above values, we now calculate the ratio as –

P/B ratio = Market capitalisation / Book value of assets

P/B ratio = Market price per share / Book value of assets per share

So, a P/B ratio of 2 means that we will pay Rs 2 for every Rs. 1 of book value. The higher the ratio, the more expensive the stock and so is its demand.

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P/B ratio is a widely used parameter by an investor to determine if a company’s stock price is overvalued or undervalued or fairly priced as compared to the company’s book value.

What is a good P/B ratio?

A P/B ratio of less than 1 is good, meaning that the stock is undervalued, and stock price is trading at a lower price as compared to the value of the company’s assets that is neglected by the market. This can be a potential buying opportunity, but it must be researched carefully.

A P/B ratio higher than one means it is an expensive stock. This can happen due to two reasons :

First: The investors believe that the market conditions will turn favourable to the business which can give better returns. This anticipation makes investors pay more than the book value and thus drives the market value more than the book value.

Second: The book value of the company might not be updated. For instance, a company’s balance sheet might reflect the amount paid for an asset, but that does not mean the worth of the asset. However, in the case of assets like land whose value increases over time, the true book value becomes higher.

Comparison of P/B ratio with others

Usually, investors while valuing a company consider the P/E ratio, as there is a tendency of investors to gauge the returns while estimating a company’s long-term earning potential. Earnings are what is left for shareholders once all expenses are paid. The P/E ratio compares a company’s share price with its future earnings potential, while the P/B ratio is computed by comparing a company’s stock price with its assets and liabilities. A P/B ratio should be looked at from the context of the return of equity. Return on Equity is the ratio between an organisation’s equity and net income. Therefore, a company with higher RoE (return of equity) will always command a higher P/B ratio and vice versa. However, the stock is overvalued if it gives low RoE and has a high P/B ratio.

Limitations of the ratio

Investors should keep in mind that the P/B ratio differs from industry to industry. Here are some of the limitations to it:

The ratio does not take into account intangible assets such as goodwill, brand name, and intellectual property and considers only appreciating hard assets like cash, land, gold, plant, machinery, etc. Therefore, for service-oriented companies like IT and enterprise tech, their book value of assets will be low as they lack physical capital to generate revenues.
It is not useful in understanding companies that have high debt.

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Family Offices Mushrooms as India Gives Birth to Billionaires Every Year

DU Desk — Fri, 09 Jul 2021 10:35:05 +0000

When the entrepreneurial goals of a mega rich family or a seasoned entrepreneur are done and dusted, they are left with ample time and resources to venture into new businesses. When we say ‘mega rich family’, picture the likes of Ambani, Tata, Birla, and other empires. Also picture well-known uber-rich celebrities, and NRI businessmen wanting to set foot in the Indian start-up and business ecosystem. To realise their vision of being on par with new-age businesses, family offices are set up to fund companies in sectors like technology, neo banking, etc.

What is a family office?

A family office is a personal investment office/vehicle which is operated by billionaires or mega HNIs (High Net-Worth Individuals). These individuals usually pump their personal fortunes into promising new companies that may be start-ups, VCs or PE funds that demonstrate growth capabilities. They in turn give rise to more billionaires through their high valued funding sprees. Family offices thrive in ecosystems with growing investment opportunities. They are traditional business families that play the role of a Venture Capitalist or Private Equity fund. But unlike VCs, family offices attach their portfolios to traditional assets like stocks, real estate, or gold. A family office utilises private wealth of business leaders, celebrities, NRIS, multi-generational entrepreneurs for investing in other businesses. They are wealth management services aimed at preserving and growing the money of the rich.

150+ family offices launched last decade

In just the past decade more than 150 family offices have sprung up. What’s interesting is that the very same start-ups that received family office investments have risen to the unicorn status in the past decade. This is testimony to India’s growing billionaire club.

Prominent family offices in India

A lot of celebrities also own family offices like Yuvraj Singh’s YouWeCan ventures. NRIs have family offices based out of India like Abhinav Jhunjhunwala’s AJ Capital in Singapore, Satveer Singh Thakral’s SGAN, Satpal Khattar’s Khattar Family Holdings, and S Ramakrishnan’s Transworld Group Family Office based in UAE. Among family offices with mature portfolios in India, noteworthy are Mohandas Pai’s Aarin Inspired Capital, Salisbury Investments by Aditya Puri, Former MD and CEO of HDFC Bank, Ratan Tata’s RNT Associates, NR Narayana Murthy’s Catamaran Ventures, Burman Family Holdings, Harsh Mariwala’s Sharrp Ventures, PremjiInvest by Wipro’s Azim Premji, Damani Group’s Artha India Ventures, Rana Kapoor’s The Three Sisters (run by Kapoor’s three daughters – Radha, Raakhe and Roshini), Ronnie Screwvala’s Unilazer Ventures, and Pratithi Family Office by Kris Gopalakrishna, co-founder of Infosys.

Associating with marquee brands

The prominent family offices have been quick to associate themselves with marquee brands the likes of which include Flipkart, Snapdeal, OYO Rooms, Ola, and Udemy. All these brands are technology companies which goes to show that Family Offices are swiftly progressing in the technology direction. The Three Sisters Family Office had associated with the brand ‘Businessworld’ back in 2014 including all its marquee events and conferences.

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A family office is a personal investment office/vehicle which is operated by billionaires or mega HNIs (High Net-Worth Individuals).

What’s in it for me?

For ultra-high net worth individuals (UHNIs), venture capital has emerged as a means of generating superior financial returns. The fact that the returns keep coming even during a pandemic or a similar crisis has been revelatory for family offices in India. Currently, the VC and PE asset makes up for 20% of their portfolio allocation while contributing to 30% of their portfolio returns.

Technology investments have emerged as a profitable investment for wealthy families. However, they find it difficult to gain exposure to these high growth portfolios. As such, family offices rely on professional Venture Capitalists to get the opportunity.

As new billionaires are emerging with each passing year, the number of Family Offices that cater to them is also growing rapidly. The total wealth held by Indian HNIs is growing and is set to touch $700 B in the year 2024.

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PE Funds and Consumer Tech for 2020-2021

Anju Nambiar — Sat, 03 Jul 2021 08:35:05 +0000

What are Private Equity (PE) funds?

Private Equity Funds are investment bodies which put capital into non public traded companies. PE money comes from private sources. PE firms specialise in specific industry sectors and are mostly located at Tier I Indian cities.

Private Equity’s interest in Consumer Technology

Private Equity Funds are interested in funding sprees for technology-based consumer brands with the potential to disrupt the market. Consumer Tech is on the hot list for PE funds this year alongside sectors like healthcare, IT, and ITES. Consumer Tech is showing ample growth opportunities making it a hotbed for investor play. The main reason for this is that PE funds’ strategic exposure to industries like Consumer Tech which have largely been resilient during Covid is working well for them.

The Consumer Technology sector has been seeing investments from PE funds right from 2019. So, this is not a new trend but one that’s been picking up pace. Among consumer tech companies which saw highest PE funding, the name that pops up is Jio Platforms. In fact, Jio Platforms bagged the highest PE funding in India amounting to $8.9 B. The second most well-known name is of course, Byju’s which recently received $500 M from PE fund Silverlake. PayTM is the next start-up from the Fintech world which has partial private equity ownership. Nykaa had in 2019 obtained INR 100 Cr in funding from private equity fund TPG capital. General Atlantic, a Private Equity firm has invested in Unacademy, India’s Unicorn ed-tech start-up.

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Among consumer tech companies which saw highest PE funding, the name that pops up is Jio Platforms

What’s in it for me?

The consumer tech segment, especially its sub segments including ed-tech, food tech, and logistics tech are experiencing strong investment momentum. These sectors will continue to be in focus in terms of the investment momentum. These segments saw a flurry of activity in terms of deals due to Covid-19 induced transformation in consumer behaviour and market landscape. Consumer Tech offers large market opportunities and has a lot of space for growth.

Bain & Co., a Management Consulting company recently released its ‘India Private Equity Report 2021’ according to which consumer tech was seen as the key sector for private equity funding this year. Furthermore, this report also states that the food tech sector has seen significant uptick in terms of PE funding. Also, the sub sectors in fintech which are most eligible for private equity investments are payments and insurance technology.

Private Equity Funds are particularly interested in ‘digitally accelerated opportunities’ in consumer tech this year. In 2020, the number of PE funds in India increased which is great news for existing and upcoming consumer tech start-ups since it increases scope of funding. Gulf Islamic Investments, a PE fund from the United Arab Emirates (UAE) is interested in investing into the Indian start-up ecosystem. The firm has announced that they have a ‘personal interest’ towards Indian start-ups from the consumer tech and healthcare sectors.

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The Initial Public Offering (IPO) from Barbeque Nation: What’s In It for Investors?

Anju Nambiar — Fri, 09 Apr 2021 00:35:04 +0000

News recently broke out that Barbeque Nation, a leading casual dining chain in the country is listing its IPO both on the NSE as well as the BSE on the 7th of April 2021.

Investors already have the declaration that Barbeque Nation’s IPO is a weak listing since the grey market premium of its unlisted shares took a major tumble, down to Rupees 10.

The IPO coming from Barbeque Nation is the first of its kind for the financial year 2021-22 which has baffled investors. Mainly because food services have been most impacted due to low customer spending. Even five-star restaurant chains turned into start-ups and had to start from scratch. Casual dining is equivalent to fine dining among Indian customers and Barbeque Nation’s move is being viewed as bizarre since they are also planning to open 5-6 more outlets soon.

What’s interesting to note is that in the Grey Market, the ‘Grey Market Premium’ (GMP) shares of Barbeque Nation went from Rupees 40 to between 10-12 Rupees in the span of just one week.

The reason for the fall in the GMP shares of Barbeque Nation is obviously the coronavirus wave riding high once again in India which is leading to numerous lockdowns and curfews being imposed. Another reason is the volatility in the equity market.

The last day of the Barbeque Nation IPO, the 26th of March saw a subscription count of 5.98. Investors can now view their allotment status.

The IPO is valued at INR Cr 453 and retail investors are the majority backers. Also, the IPO is fully subscribed as of date.

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There are clear risks for investors purchasing stake in Barbeque Nation’s IPO. The restaurant industry is already burdened with covid restrictions which has given rise to a sense of ruthlessness among competing businesses to survive the disruption.

Share purchase guidelines:

The minimum lot size for purchase of Barbeque Nation’s shares was 30. A typical investor would need to pay a price of INR 15,000 to bid for a single lot in Barbeque Nation’s IPO. If it’s a retail investor, you are allowed to apply for a maximum of 13 share lots for a price of INR 195000.

Barbeque Nation’s debut in shares is much awaited no doubt by the firm itself, but mostly by investors. But investors sure are indecisive regarding the right course of action for the IPO listing.

Covid has ruined a good many things but looks like Barbeque Nation’s grand debut will be rocked by imposed restrictions.

Investors will be up for a dull listing which in a way was already predicted. Barbeque Nation is a restaurant chain in the hospitality sector, one of the most affected industries since the onset of the pandemic.

Is it risky for you as an investor?

There are clear risks for investors purchasing stake in Barbeque Nation’s IPO. The restaurant industry is already burdened with covid restrictions which has given rise to a sense of ruthlessness among competing businesses to survive the disruption. The bottom line is that you can either ‘avoid’ the issue or ‘apply at your own risk’.

What’s in it for me?

The Restaurants and Hospitality sector is currently going through tough times and this listing comes at an ill-advised time. As an investor, it’s advised to not be focused on only listing gains with the Barbeque Nation IPO. This is because investors looking for short-term gains are likely to see their hopes shattered.

If you are an investor who trusts the long-term potential of the Restaurants and Food Services sector, it’s advised to ‘hold’ instead of ‘sell’ your shares.

Barbeque Nation going public is a big story in the food services sector currently because what they are doing is unheard of. It seems like a do or die situation and investors are rightly in a dilemma. A lot of companies who earlier moved to IPO had to suddenly shut down.

It’s great that Barbeque Nation decided to go public, but the timing is certainly off.

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Stock Market 101

Tanisha Achrekar — Sat, 02 Jan 2021 06:59:42 +0000

An entrepreneur grows alongside his business and tackles various obstacles as a part of the grind. One such inevitable obstacle that an upcoming entrepreneur or a small and mid-size enterprise (SME) comes across is funding. One of the best ways to obtain a substantial funding for your company is to get listed on the stock market. It is an excellent exit strategy for your current investors. But before you get listed on the stock market and become a publicly traded company, it is essential to understand how the market works.

Stock Markets and Indices

When your company gets listed on the stock market, its shares can be bought and sold by investors. Stock brokers or brokerage firms are the middlemen between investors and the stock exchange. When an investor buys or sells a share, the broker passes his order to the stock exchange. The price of a share is determined by its current market value. The current market value of a share is simply based on demand and supply. If the demand is more than the supply, the price of a share rises. Whereas, if the demand is lower than the supply of the share, the price of it will fall. When companies are caught in scams or suffer huge losses, their share crashes.

Similarly, every stock market has its own indices which indicate the performance of the market. In India, the two key market indices are Sensex and Nifty of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), respectively. If a major part of the stock market has buyers more than sellers, it is known as a bull market. Whereas, if there are people pulling their money out of the stock market, it is known as a bear market. When there are more people investing in BSE and NSE, the Sensex and Nifty witness a rise and if people are aggressively selling, the Sensex will fall.

On January 17, 2018, the stock was at an all-time high of Rs 586.75. However, as of October 19, 2020, the stock is only valued Rs 13.45. It has lost more than 83 percent of investors wealth due to the scam. A stock market crash is where a significant number of stocks observe a sudden and huge drop in their share prices. It usually occurs when the economy overall is suffering a huge blow. Like the massive stock market crash in 2008 due to the financial crisis in the US. India also like many other countries suffered the ripple effect of it.

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You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.

- Peter Lynch

Types of Stocks

Stocks are categorized broadly based on the size of the company, its industry and location. The two fundamental categories being common stock and preferred stock.

Common stock

When we talk about stocks, we usually are referring to the common stocks. Owning a common stock represents ownership in a company and entitles you to a share of profit (dividend) and also the right to vote. Common stocks usually function in the high returns, high-risk manner.

Preferred stock

These stocks are often compared to bonds as the investors herein are usually paid a fixed amount of dividend. They get preferential treatment over common shareholders in terms of receiving the dividend. However, in most cases, they are not entitled to voting rights. They are also less volatile compared to common stocks.

We often hear statements like, ‘If you want to play safe, invest in large cap stocks.’ This is because large cap stocks are usually those stocks that control a large portion of the market.

Large cap stocks

They are well-established and have the market capitalization of Rs 1,000 Crore or above. HDFC Bank, Tata Consultancy Services, Bharti Airtel and ITC are some of the well-known large cap companies.

Midcap stocks

They fall between the large cap and small cap in terms of market capitalization. They usually have a market capital between Rs 500 Crore to Rs 1,000 Crore. Apollo Hospitals, Blue Dart Express, and Steel Authority of India are some of the popular mid-cap companies.

Small cap stocks

Small cap stocks are usually the companies that have a market capitalization of less than Rs 500 Crore. Some of the familiar small-cap companies are Reliance Infrastructure Ltd., Bajaj Consumer Care Ltd., and Network 18 Media & Investment Ltd.

Stock Market and Capital Market

A capital market is a broad category of market and the stock market is also a part of it. Apart from the stock market, commodity futures and various debt instruments are also a part of the capital market.

Debt instruments

Any instrument that is primarily categorized as ‘debt’ is termed as a debt instrument. Loans, bonds and debentures are all part of the debt instruments. The primary difference between bonds and debentures is that bonds are backed by assets but debentures are not.

Future commodities

Commodities that are traded in the capital market can be usually divided into four vast categories: metal, agriculture, energy and livestock. These commodities are traded through a futures contract. Futures contracts are used for buying or selling financial instruments for delivery on a specified future date at an agreed price. The commodity is bought and sold as per the date agreed upon in the futures contract. In India, commodities are also traded in spot markets, where the buying and selling happen instantly in exchange for cash.

Any marketplace where there are financial instruments being bought and sold can be termed as a capital market. While, the stock markets are a specific type of market where only shares are being listed and traded. Equity is a part of the capital of a company. When shares of a company are purchased so is a part ownership in it. While, the loans and borrowings of a business are known as debt and they are not a part of equity. Your company’s overall capital consists of both equity and debt.

What Happens in the Indian Stock Market

According to the market capitalization the three biggest stock markets in the world include the New York Stock Exchange with a market capitalization of $19.3 trillion followed by Nasdaq with a market capitalization of $13.8 trillion and the Tokyo Stock Exchange with the market capitalization of $5.7 trillion. This data is of the market statistics conducted by the World Federation of Exchanges in March 2020.

When it comes to the Indian stock market, the Securities and Exchange Board of India (SEBI) regulates and supervises the stock market. The two key players of the Indian stock market, where most stocks are listed, are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE is an older stock market, but the NSE has a bigger market in terms of volume. Both the markets are order-driven through an open limit order book. An open limit lets you see all the buying and selling happening in the market and thus advocates transparency. People invest in the stock market either in form of deliveries or intraday. In delivery transactions, an individual can hold-on to his shares as long as he wants. However, in intraday trading, an investor has to buy and sell the stock within the same day. Both delivery and intraday trading can be done by anyone through a broker. A broker facilitates the buying and selling of stocks in the stock market on your behalf.

Why You Should List Your Start-up/SME

Getting your start-up/SME listed opens the door to several opportunities. Being an entrepreneur, listing is a great opportunity for expanding your business.

Generates capital

The biggest advantage of listing your business is exhibiting it to a huge pool of investors. As your business expands, you may need additional capital. Listing your company will help in generating capital without having to borrow money.

Expands your reach

When your company goes public, you will witness an increase in its visibility as well as credibility. Listing ensures shareholders to invest in your company, as well as benefit from the increasing growth of your organization.

Gains stability

When a company goes public, it complies with various norms and maintains transparency by conducting frequent operations. The records being public automatically increases the stability of the firm.

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I don't look to jump over seven-foot bars; I look around for one-foot bars that I can step over.

- Warren Buffett

Ways to get your start-up/SME listed

The two main ways of listing your company on a public exchange are the initial public offering (IPO) and direct public offering (DPO). Both the methods being an interest-free way to raise funding for your venture.

Initial Public Offering (IPO)

New shares are created by your company when you get listed as an IPO. They are then underwritten by an intermediary. It is the perfect exit strategy for the early investors of your company as they receive a full profit from their private investment. The underwriters are financial experts who present you with the proposals and discuss key factors like the best type of security to issue, the offer price, the number of shares that need to be issued, and when to go public. In India, an IPO has to adhere to the strict norms of corporate governance regulated by Securities and Exchange Board of India (SEBI).

Direct Public Offering (DPO)

Hiring underwriters can be expensive. In that case, you can always opt for DPO. By listing your company as a DPO, you can offer your securities directly to the public for raising capital. Issuing a DPO eliminates the role of intermediaries like the underwriters, broker-dealers, and investment bankers. Also, a DPO enables you to raise money independently without any restrictions of bank or venture capital funding. Your company has to present the documents needed for registering in each state.

In 2020, the finance minister of India, Nirmala Sitharaman has allowed the direct listing of Indian firms in the overseas market. This step will enable companies to raise funds from permissible foreign jurisdictions. The companies can register non-convertible debentures (NCDs) on stock exchanges without having to get listed. Debentures are financial instruments that have a debt obligation towards the issuer. NCDs are those debentures that cannot be converted into shares. This fresh guideline will make the pathway easy for companies like Ola, Lenskart, and Paytm as they plan to get listed soon.

Where to List

Many upcoming Indian companies are incorporating their businesses overseas. The most preferred countries being Singapore, US, UAE and Netherlands. This is because these countries provide stable regulations, encouraging public listing norms, increase the interest of the global investors, and subsidise tax rates. Many start-up owners also complain that the regulatory policies of India make it too cumbersome to raise capital. Popular companies like Urban Company, Curefit and Lenskart plan on registering in Singapore or the US to stimulate international funding.

To discourage overseas listing, SEBI is taking measures to encourage companies to get listed in India. They are constantly upgrading their process to attract companies as well as investors.

Innovators Growth Platform (IGP)

SEBI has launched the Innovators Growth Platform (IGP) earlier known as Institutional Trading Platform (ITP). It is a great platform encouraging the listing of start-ups and new-age companies that are operating in e-commerce, nanotechnology, data analytics, and biotechnology. The companies can get funded from institutional investors, non-institutional investors, and retail individual investors. The investors of these start-ups can divest their holding without making a public offer. Also, the disclosure requirements are less stringent compared to the main board of exchanges. After a review in 2018, the IGP is also accepting start-ups that are funded by individuals and other companies by launching a new category named accredited investors. Any individual with a total gross income of Rs 50 lakh annually and who has a minimum liquid net worth of Rs 5 crore or any corporation with a net worth of Rs 25 crore are eligible to become an accredited investor.

BSE SME and Start-ups Platform

As per the rules and regulations of SEBI, BSE has set up the BSE SME and Start-ups Platform. This platform helps you in raising equity capital needed for your expansion and growth. This in turn will help you to blossom into a full-fledged company and eventually migrate into the Main Board of BSE.

On April 21, 2020, Nirmitee Robotics India. was the 5th company to get listed on the BSE Start-ups Platform, and it managed to raise a capital of Rs 3.54 crore. As of April 21, 2020, there are 322 companies that have been listed on the BSE SME and Start-ups Platform. They have managed to raise Rs 3,320.48 crore from the market.

Investing in the stock market gives a perspective of the economy from an investor’s standpoint. When you invest in the stock market, observe which companies you choose to invest in and why do you prefer them over others. The companies that inspire you will help in setting your long-term goals.

Raising capital is always an on-going part of the business whether by listing domestically or reaching out to foreign investors. To know more about how foreign investors indulge in start-ups/SMEs, do check out our article, ‘Foreign Direct Investment‘.

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