Pocketful

Category: Investing

  • Explainer on Cigar Butt Investing: Features, Advantages, Limitations, and Suitability Explained

    Explainer on Cigar Butt Investing: Features, Advantages, Limitations, and Suitability Explained

    If you saw something valuable on sale, how would you respond? You’ll probably buy that item without wasting any more time. But what if we told you that there’s also a chance to find something similar in the stock market?

    You read correctly – today’s blog will introduce a term called “Cigar Butt Investing.”

    Cigar Butt Investing Overview

    The CEO of Berkshire Hathaway and legendary businessman, Warren Buffett, applied the cigar butt investment approach. 

    Cigar Butt Investing, or “Trouble asset investment,” works on the theory that “if someone wants to smoke but doesn’t have any money, they can pick up abandoned cigars on the street and have a few free puffs.” 

    Similarly, when the market drives a stock down to a particular point and it begins selling at a price significantly below book value, investors would invest a portion of their capital in it and wait for it to rise before selling it for a profit.

    This type of investing strategy is extremely risky because the stock price will be under pressure for a long period and may correct to a lower level than anticipated.

    Did you know?

    Warren Buffett is known to have employed this strategy in his early investing days; later, he switched to value-oriented investing. 

    Cigar Butt Investing

    Cigar Butt Investing Features

    1. It is typically compared to the value investing principle, with a primary focus on stressed businesses that are trading at significantly reduced prices. 

    2. It usually targets businesses that the majority of shareholders have neglected.

    3. These investing techniques have no long-term potential; instead, their primary focus is on making short-term profits. 

    4. Investing in cigar butt companies is limited to individuals who actively manage their portfolios.

    5. Those who are willing to assume a high level of risk and receive higher returns might consider investing in this way.

    Cigar Butt Investing Historical Success

    Here are a few examples of successful cigar butt picks made by the most famous investor of all time, Warren Buffet, to demonstrate the long-standing efficiency of this method.

    One of the most well-known investments made by Warren Buffett is “Western Insurance Securities,” a company whose stock traded below its liquidation value and was valued at a discount to book value of about 55%. While the stock was only trading at $3 per share, the company’s earnings were $20 per share. Buffet later added that the company had excellent management. 

    Creighton’s PLC was Warren Buffett’s other popular choice. In 2013, the company was trading at a P/E ratio of 4.5x, one-third below liquidation value. He bought the stock because the CEO controls a sizable chunk of the company’s equity, and the company’s balance sheet is steady. The company reached the market P/E of 22.25x after 4 years of growth, yielding an overall return of 640% and an annualized return of 65% for the investor.

    Read Also: The Art of Value Investing: Meaning and Strategies

    Cigar Butt Investing Advantages

    1. It gives investors a chance to purchase equities for a substantial discount on their real worth. 

    2. The strategy allows a risk-taking investor to book profits in the short run. 

    3. The strategy allows investors to be flexible and opportunistic because they can focus on short-term gains and swiftly spot undervalued opportunities without thinking about long-term positions.

    4. Investors can profit from inefficient companies by adopting an aggressive or contrarian attitude, particularly when those companies are unfavorable to investors or are undergoing issues of some kind.  

    Limitations of Cigar Butt Investing

    Cigar Butt Investing Limitations

    1. Cigar butt stocks are frequently cheap for a variety of reasons, including weak fundamentals, unfavorable market circumstances, etc. As a result, even if the market recognizes their full value, stock prices may not rise. 

    2. In comparison to general equities, stocks that experience significant declines are regarded as volatile and dangerous investment opportunities. 

    3. It is not always possible for an undervalued stock to return to its normal price because some stocks experience ongoing losses that ultimately lead to a permanent loss of capital.

    How to understand if a discarded Stock has a few puffs left?

    Benjamin Graham’s criteria to perform the cigar butt approach is to buy stocks that traded at below 2/3 of the company’s net current asset value per share.

    To calculate the net current asset value per share, use the following formula:

    Net Current Asset Value/Share = (Current Assets – Inventory – Total Liabilities – Preferred Stocks)/Outstanding Shares

    After this calculation, you will know what every shareholder would get if the company were liquidated tomorrow. After making all the calculations, if the number is greater than the stock’s current price, then we can say that the company has some puffs left in the Cigar.

    Is Cigar Butt Investing Suitable for Investors?

    Identifying stocks that are trading below their liquidation value requires a high level of competence, and finding distressed companies requires extensive study on the part of the investor. Additionally, investing in companies that have already demonstrated a correction carries a high risk. It may result in further corrections for a longer period before the stocks return to their initial value. Therefore, it is not advised that a risk-averse individual engages in Cigar Butt investment. 

    Is Cigar Butt Investing Same as Value Investing?

    Cigar Butt investment is often equated with value investing. However, value investing necessitates identifying a company whose financials are sound and has a high growth potential. Finding weaker companies whose business is likely to collapse and are trading at a significant discount is necessary for cigar butt investing.

    Read Also: What is Contrarian Investing?

    Conclusion

    To sum up, we can conclude that although Warren Buffet employed this strategy when he first started investing but he stopped utilizing it later in life and now focuses more on value investing as these kinds of possibilities are hard to come by under the current market conditions. 

    Although there are many ways to invest in the market, it is advised that you speak with a financial advisor and take your risk tolerance into account before making any decisions. 

    Frequently Asked Questions (FAQs)

    1. Who popularized Cigar Butt Investing?

      Cigar Butt investing was made popular by Warren Buffet as he used this strategy in his early days of investing, but later he chose to opt for value investing.

    2. Is Cigar Butt investing suitable for all investors?

      No, Cigar Butt investing is not suitable for investors who have long-term investment horizons and who don’t want to take risks with their capital and prefer less volatile investments.

    3. What is the risk in Cigar Butt Investing?

      The price of an undervalued stock may not return to its normal level because some stocks continue to lose money, which ultimately results in a permanent loss.

    4. What kind of investment style is Cigar Butt investing?

      Investing in a cigar butt requires active management on the part of the investor, who must choose stocks and allocate their portfolio accordingly.

    5. Is there any alternative to Cigar Butt investing strategies?

      Yes, there are various alternative trading strategies available other than Cigar butt investing. You can use strategies like traditional value investing, growth investing, and index investing.

  • Explainer on Imitation Investing: Psychology, Advantages, Limitations, and Strategies

    Explainer on Imitation Investing: Psychology, Advantages, Limitations, and Strategies

    Have you ever tried to imitate a renowned investor’s portfolio or investment approach? Well, there’s a term for it, “Imitation Investing”.

    Today, we’ll describe the idea of imitation investing, its features, benefits, etc.

    Imitation Investing Overview

    Imitation investing, or copycat investing, is the process of mirroring the investment strategies of established market players. This method appeals to individuals seeking to capitalize on renowned investors’ expertise and successful track records, aiming to replicate their financial success.

    Hence, it is important to understand that there’s no guarantee that you’ll make money with this investment.

    Imitation Investing Methodology

    • Platform Selection: Choose a platform that allows tracking and replicating the portfolios of leading investors.
    • Investor Selection: Identify a successful investor whose strategy aligns with your financial goals and risk appetite.
    • Portfolio Allocation: Invest your funds in the same assets as your chosen investor.
    • Monitoring: Keep a close watch on the investor’s portfolio changes to adjust your investments accordingly.
    Benefits of Imitation Investing

    Imitation Investing Psychology

    • Fear of Missing Out – When we witness someone making money, we tend to become anxious about missing out on profitable opportunities, which makes us follow the portfolios of different investors before conducting adequate analysis. 
    • Lack of Information – Most investors think that renowned traders are better because they can access more information. Hence, copying their trades may increase profits in the short run.  
    • Trust –  We tend to trust investors who have earned above-average returns. This trust grows stronger over time, leading to us blindly following such traders. 

    Read Also: Explainer on Cigar Butt Investing: Features, Advantages, Limitations, and Suitability Explained

    Imitation Investing Advantages

    • Saves Time – It helps an investor save time when researching before investing.
    • Expertise – The investor may benefit from the expertise of successful investors due to their meticulous stock selection, complex strategies, and experience in the market.
    • Cost Efficient – Imitation investing is a financially advantageous strategy since it allows the investor to avoid paying for expert advice since certified advisors charge different costs for making financial recommendations. 

    Imitation Investing Limitations

    • Blind Imitation: Copying another investor’s moves without understanding the underlying rationale or market conditions can lead to poor investment outcomes.
    • Time Lag – The delay between an investor’s action and the imitator’s replication can result in missed opportunities or reduced profitability.
    • Investment Horizon – Every investor has unique financial goals and timelines, which may not always align with those of the investor being copied.
    • Risk-taking ability – Individual risk profiles vary, and blindly following another investor’s strategy may lead to too much or too little risk relative to one’s comfort level.
    Limitation of Imitation Investing

    Strategies for Effective Imitation Investing

    • Portfolio Review – Regularly assess your investment portfolio to ensure it remains aligned with the strategic moves of the chosen investor.
    • Stay Updated – Stay updated on all market trends, economic indicators, and financial news to understand the broader context of your investment decisions.
    • Personal Research – Do not blindly copy the trade of any investor; you must first understand the rationale behind their decisions.
    • Diversification – Diversifying the portfolio into different asset classes will help you reduce the overall portfolio risk as it ensures that all eggs are not in the same basket. 
    • Track Record – Before following an investor, thoroughly review their performance history, investment style, and strategy adaptability to changing market conditions. This will give you greater insight into the investor’s ability to generate higher returns. 

    Read Also: What is Contrarian Investing?

    Conclusion

    Imitation investing can be used as a strategic approach to learn from the expertise of successful investors. However, it’s important to apply it with a clear understanding of its benefits and limitations. 

    You can make more informed investment decisions by combining the insights from proven investors with your own research and judgment. This combination of techniques allows investors to improve their investment outcomes in the long run.

    Frequently Asked Questions (FAQs)

    1. How can I pick a profitable trader?

      Selecting a profitable trader is a challenging process that needs extensive study into their track record, level of risk tolerance, investing philosophy, etc. 

    2. Should I develop my investment skills or copy only the investment style? 

      To become a successful investor, you must develop your investment skills.

    3. Is Imitation Investing a suitable strategy?

      Imitation Investing can sometimes be profitable for an investor, but it does not give you a guaranteed profit.

    4. Should I copy every trade of a successful investor?

      No, you should not copy every trade of a successful investor, as their risk-taking capacity could differ from your risk profile.

  • Popular Vehicle and Services IPO: Key Details, Financials, Strengths, and Weaknesses

    Popular Vehicle and Services IPO: Key Details, Financials, Strengths, and Weaknesses

    The IPO market is buzzing again because Popular Vehicle and Services is looking to raise capital and is a market leader in selling and distributing old and new vehicles through its strong dealership network.

    In today’s blog, we will uncover the details of the company’s financial statements, strengths, weaknesses, key performance indicators, and issue details.

    Popular Vehicle and Services Limited was established in 1983, and over time, it established itself as a prominent player in the market. The company sells and distributes new and old vehicles, servicing, and distribution of spare parts. They also provide driving classes for new learners and engage in third-party financing and insurance. The company was established as the first batch of dealers by Maruti Suzuki.

    Network

    The company has a vast network which includes 61 showrooms, 133 sales and booking outlets, 32 pre-owned vehicles showrooms, 139 authorized service centres, and 24 warehouses, which is spread around 14 districts in Kerala, 12 districts in Tamil Nadu, and 9 districts in Maharashtra.

    In FY 2023, the company serviced 7,91,360 vehicles, 5,212 luxury vehicles, 1,63,013 commercial vehicles, 1,918 electric two-wheelers, and 857 three-wheelers through their 139 authorized service centers.

    Promoters

    The company’s promoters are John K. Paul, Francis K. Paul and Naveen Philip; they together own 65.79% shares of the company.R

    Read Also: Pune E-Stock Broking Limited IPO: Key Details, Business Model, Financials, Strengths, and Weaknesses

    Details of the Issue

    To raise the 601.55 crores that Popular Vehicles and Services Ltd. is seeking, a combination of both offers for sale (roughly 351.55 crores) and a new issue (roughly 250 crores) is being implemented. The lot of the issue will be 50 shares, the lower price band is 280 INR and the upper price band is 295 INR per share. 

    Key Details

    Face Value of ShareINR 2 per share
    Price BandINR 280 to INR 295
    Market Lot50 Shares
    Total Fresh Issue Size250 Crores
    Total Offer for Sale351.55 Crores
    Employee DiscountINR 28 per share

    Timeline of IPO

    IPO Open Date12th March 2024
    IPO Close Date14th March 2024
    Finalization of Allotment15th March 2024
    Refund & Credit of shares into Demat account18th March 2024
    Listing Date on NSE & BSE19th March 2024

    Allotment Size

    ApplicantMarket LotShareAmount (INR)
    Retailer (Min)15014750
    Retailer (Max)13650191750
    Small High Net Worth Individual (Min)14700206500
    Small High Net Worth Individual (Max)673350988250
    Big High Net Worth Individual (Min)6834001003000

    Objective of the Issue

    The primary objective of the IPO is to repay a significant portion of the debt.

    Read Also: Mahindra & Mahindra Case Study: Products, Financials, KPIs, and SWOT Analysis

    Balance Sheet

    Particulars31st March 202331st March 202231st March 2021
    Total Non-Current Assets768.159656.185552.397
    Total Current Assets734.079605.561564.997
    Total Assets1503.7801263.2881118.936
    Equity343.044279.886246.002
    Total Non-Current Liabilities497.123461.160381.313
    Total Current Liabilities663.613522.242491.621
    (All the above-mentioned figures in INR Crores)

    Income Statement

    Particulars31st March 202331st March 202231st March 2021
    Revenue from Operations4875.0023465.8792893.525
    Total Income4892.6283484.1992919.252
    Total Expenses4807.7613435.6532872.000
    Profit before tax84.86748.54647.252
    Profit after tax64.07433.66932.455
    (All the above-mentioned figures in INR Crores)

    Cash Flow Statement

    Particulars31st March 202331st March 202231st March 2021
    Cash flow from operating activities108.8969.6995.174
    Cash flow from investing activities(79.620)(41.384)(6.650)
    Cash flow from financing activities(23.844)(65.253)(70.676)
    (All the above-mentioned figures in INR Crores)

    KPIs

    Particulars31st March 202331st March 202231st March 2021
    EBITDA Margin4.80%5.13%5.99%
    Return on Equity (ROE)18.68%12.03%13.19%
    Debt to Equity Ratio1.471.331.44
    Profit after Tax Margin1.31%0.97%1.11%
    Return on Capital Employed (ROCE)18.32%16.79%17.09%
    Net Debt/EBITDA2.031.971.68

    The EPS of the financial year ended 2022-23 comes at 10.22, based on which, the PE on the upper price band will come around 28.86x and on the lower price band will be around 27.39x.

    Strengths

    1.  The company has a very diversified product portfolio, such as the sale of new and old vehicles, driving school, insurance, etc.

    2.  The company has a very vast network in Southern India, and they are expanding it to other parts of the country.

    3.  Though the company’s Debt-to-equity ratio has increased from 1.33 in March 2022 to 1.47 in March 2023, it is still below the industry average.

    Weaknesses 

    1.  The company is majorly dependent on manufacturers such as Maruti Suzuki, Tata Motors, etc. Any policy changes could majorly impact their performance.

    2.  Most of the company’s revenue comes from a specific region. Any policy changes made in the region could adversely impact the business.

    3.  The company has inconsistent cash flow from operating activities. They reported cash flow figures as 95.174 crores for FY 2021 and 69.69 for FY 2022.

    4.  The company operates at 1.31% of profit after tax margin. Any changes in the pricing of raw materials could adversely affect its margins.

    Conclusion

    Popular Vehicles and services have a strong presence across the country, and their dealerships are considered among the most prominent in the industry. However, there are certain risks associated with investing in this company. Hence, it is suggested for an investor to go through all the risk factors before making any investment decision.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
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    Frequently Asked Questions (FAQs)

    1. What does the Popular vehicle and services company do?

      The company is engaged in selling and distribution of old and new vehicles. The company is also involved in spare parts distribution and vehicle repair in their authorized service center.

    2. The company is experiencing turbulent cash flows. Should we be worried about this?

      Whether or not this fact deters you from investing is a decision that should be taken after considering all the factors. 

    3. What is the listing date of the popular vehicle company IPO?

      On NSE and BSE, the company’s listing is on 19th March 2024.

    4. Is the popular vehicle and services company in profit?

      Yes, based on the data provided by the company in their red herring prospectus, the company is posting profit from the last 3 years.

    5. What is the minimum amount a retail investor requires to apply for a popular vehicle company IPO?

      The minimum investment amount required by a retail investor is 14750 INR.

  • RK Swamy IPO: Business Model, Key Details, Financials, KPIs, Strengths, and Weaknesses

    RK Swamy IPO: Business Model, Key Details, Financials, KPIs, Strengths, and Weaknesses

    This blog is for you if you’re someone who never lets an investment opportunity pass by and you’re willing to take a chance. We bring you another firm that plans to raise capital from the public straight from the booming initial public offering (IPO) market.

    Business Model

    R.K. Swamy established R.K. Swamy Advertising Associates, which later became RK Swamy Ltd. in 1973. The company’s initial focus was mostly on offering marketing and advertising services to customers in India. In just five years, it became a major force in the Indian advertising market. The company and BBDO created a collaboration later in 1985, and the two ultimately became RK Swamy BBDO. 

    The company’s clientele is dispersed throughout India. It has provided services to almost 4000 organizations, and in the fiscal year 2023, it served over 475 clients.

    The company employs 2391 people and operates 12 locations nationwide, with its head office in Chennai, Tamil Nadu.

    Major Clients

    The business’s clientele is diverse and dispersed around the country. Public and private sector businesses, NGOs, and international corporations are the organization’s clients. The company’s clientele work in various industries, such as banking and finance, insurance, automotive, fast-moving consumer products, etc.

    Some well-known customers are the State Bank of India, Lloyd, Nabard, Havells, LIC, Cera, Hawkins, Larsen & Turbo, Orient Cement, NTPC, SIDBI, and Shriram Transport Finance Company.

    RK Swamy Marketing company

    Promoter Holding

    Promoters Srinivasan K. Swamy (also known as Sundar Swamy) and Narasimhan Krishnaswamy (also known as Shekar Swamy) own approximately 83.03% of the company.

    Details of the Issue

    With a fresh issuance of 173 crores and an offer for sale of 250.56 crores, the business is seeking to raise 423.56 crores. With a market lot of 50 shares, the IPO’s lower price band is set at 270 INR per share, while the higher price band is set at 288 INR per share.

    The major details of the issue are as follows –

    Face Value of Share5 INR per share
    Price BandINR 270 – 288 per share
    Market Lot50 Shares
    Total Fresh Issue Size423.56 Crores
    Fresh Issue173 Crores
    Offer for sale250.56 Crores
    Employee DiscountINR 27 per share

    Timeline of the IPO

    IPO Open Date4th March 2024
    IPO Close Date6th March 2024
    Finalization of Allotment7th March 2024
    Initiation of Refund & Credit of shares into demat account11th March 2024
    Listing Date on NSE & BSE12th March 2024

    IPO Allotment Size

    ApplicantMarket LotShareAmount (INR)
    Retailer (Min)15014400
    Retailer (Max)13650187200
    Small High Net Worth Individual (Min)14700201600
    Small High Net Worth Individual (Max)693450993600
    Big High Net Worth Individual (Min)7035001008000

    Investor Allocation Quota

    The specifics of the issue’s classification into several categories are shown in the table below.

    Investors CategoryShare Allocation (%)Number of Shares Allocated
    Employees Reservation1.77%260417
    Qualified Institutional Buyers73.67%10834895
    High Net Worth Individual14.73%2166979
    Retail Investor9.82%1444653

    Objective of the Issue

    The money raised from the IPO will be used to open a studio for producing digital video material, as well as new customer service locations and a computer-aided telephone interviewing facility. A portion of the proceeds will go toward the company’s IT infrastructure expansion.

    Read Also: Pune E-Stock Broking Limited IPO: Key Details, Business Model, Financials, Strengths, and Weaknesses

    Financial Highlights

    Balance Sheet

    Particulars31st March 202331st March 202231st March 2021
    Non-Current Asset68.82654.77486.512
    Current Asset244.826351.440303.547
    Total Asset313.652406.441390.059
    Equity45.23116.3493.3
    Non-Current Liability22.44817.838122.830
    Current Liability245.973372.254263.929
    (All the above-mentioned figures in crores) 

    Income Statement

    Particulars31st March 202331st March 202231st March 2021
    Revenue from operations292.613234.413173.546
    Total Income299.913244.971183.220
    Total Expenses237.007200.549154.394
    Profit before tax42.58024.74.676
    Profit after tax31.25819.2553.077
    (All the above-mentioned figures in crores) 

    Cash Flow Statement

    Particulars31st March 202331st March 202231st March 2021
    Net Cash flow from operating activities29.16564.00949.945
    Cash flow from investing activities(13.829)(21.220)(21.571)
    Cash flow from financing activities(44.263)(33.487)(27.607)
    (All the above-mentioned figures in crores) 

    KPIs

    Particulars31st March 202331st March 202231st March 2021
    EBITDA Margin20.97%18.13%15.73%
    Return on Equity (ROE)101.52%159.99%6.25%
    Debt Equity Ratio0.763.0922.63
    Profit after Tax Margin10.42%7.86%1.68%
    Return on Capital Employed (ROCE)28.95%20.08%8.58%

    Strengths

    1.  The business has a solid five-decade track record and has made a name for itself in the industry.

    2.  They enjoy a well-known clientele with enduring relationships that bring them recurring business.

    3.  The business has shown consistent growth as revenue from operations has shown approx. 25% increase on a YoY basis.

    4.   Over time, the company’s debt-to-equity ratio has improved. For the financial year ended 2021, the debt-to-equity ratio was 22.63, while in 2023, it came down to 0.76.

    Strengths of RK Swamy

    Weaknesses

    1.  Over time, the company’s cash flow from operating activities has declined by around 50% on a YoY basis.

    3.  The major portion of this issue is offer for sale(OFS); only 173 crores out of 423.56 crores can be utilized towards expansion.

    4.  The industry is expanding quickly, bringing in new competitors who could pose a threat to the business.

    Read Also: Popular Vehicle and Services IPO: Key Details, Financials, Strengths, and Weaknesses

    Conclusion

    The advertising industry is expanding quickly. To start a business or maintain one that already exists, any organization must properly promote its goods and services. RK Swami is a firm that has been in this profession for the past 50 years and is well known in the marketplace. The organization manages the marketing and promotion for leading businesses in practically every industry.

    Though the company has shown major growth prospects, the business is not without risks. Therefore, consider your risk before making any investment decision.

    Frequently Asked Questions (FAQs)

    1. Are RK Swamy Limited employees eligible for a discount?

      Yes, employees of the company are eligible for an INR 27 per share discount on the IPO issue price.

    2. Has there been an improvement in RK Swamy Limited’s profit after-tax margins?

      Indeed, the company’s PAT margins have increased over the last three years. In 2021, the margin was 1.68%, and by the end of the fiscal year in 2023, the margin was 10.42%.

    3. Is RK Swamy a debt-free company?

      Although RK Swamy is not a debt-free company, the ratio has improved over time. As per the company’s red herring prospectus, as of the financial year that concluded in 2023, the debt-to-equity ratio stands at 0.76.

    4. How much must a retailer invest to participate in this IPO?

      A retailer investor must invest a minimum of 14400 INR.

    5. What is RK Swamy Limited’s primary business?

      RK Swamy Limited’s primary business is marketing, advertising, and promoting different companies’ goods and services.

  • JG Chemicals IPO: Overview, Key Details, Financials, KPIs, Strengths, and Weaknesses

    JG Chemicals IPO: Overview, Key Details, Financials, KPIs, Strengths, and Weaknesses

    In today’s blog, we will uncover the details of JG Chemicals, a specialty chemical company that is coming up with an IPO and is engaged in manufacturing zinc oxide.

    Let’s start with a deep analysis of the company’s finances, details of the issue, strengths, and weaknesses.

    JG Chemicals IPO Overview

    Established in 1975, the enterprise is involved in the production of zinc oxide through the utilization of French technology. The company’s founders have over 50 years of combined expertise. 

    In 1975, the business began operations in Kolkata with a small facility with a capacity of about 600 MTPA.

    The company’s clientele is dispersed across the globe; 200 of them are in India, while the remaining 50 are distributed across 10 nations. As of December 2023, the company’s total installed manufacturing capacity was 77040 MTPA. Its manufacturing facilities are located all throughout the nation, with the largest being at Naidupeta, Andhra Pradesh, and Jangalpur, Kolkata. The company employs 112 full-time employees and 47 contract workers.  

    Zinc Oxide

    Promoters

    Suresh Jhunjhunwala, Anirudh Jhunjhunwala, and Anuj Jhunjhunwala are the company’s promoters and own 100% of the company.  

    Details of the Issue

    To raise INR 251.19 crore, JG Chemical is planning an IPO, which combines an offer for sale and a fresh issue. Of the total, INR 165 crores will be a fresh issue and INR 86.19 crores will be an offer for sale. 67 shares make up the market lot for the IPO, with an upper and lower price range of INR 221 and INR 210, respectively. 

    The major details are as follows:

    Face Value of ShareINR 10 Rs
    Price BandINR 210 to INR 221 per share
    Market Lot67 Shares
    Total Fresh Issue Size165 Crores
    Total Offer for Sale86.19 Crores

    Timeline of IPO

    IPO Open Date5th March 2024
    IPO Close Date7th March 2024
    Finalization of Allotment11th March 2024
    Initiation of Refund & Credit of shares into demat account12th March 2024
    Listing Date on NSE & BSE13th March 2024

    IPO Allotment Size

    ApplicantMarket LotShareAmount (INR)
    Retailer (Min)16714,807
    Retailer (Max)138711,92,491
    Small High Net Worth Individual (Min)149382,07,298
    Small High Net Worth Individual (Max)674,4899,92,069
    Big High Net Worth Individual (Min)684,5561,00,68,876

    Objective of the Issue

    The company plans to use the issue proceeds to establish a research facility in Naidupeta, Andhra Pradesh, prepay a portion of its debt, and invest in its subsidiary companies through BDJ oxides. Additionally, a portion of the earnings will be used to finance their working capital. 

    Read Also: Pune E-Stock Broking Limited IPO: Key Details, Business Model, Financials, Strengths, and Weaknesses

    Financial Highlights

    Balance Sheet

    Particulars31st March 202331st March 202231st March 2021
    Non-Current Assets41.45540.42634.364
    Current Assets256.335223.715175.572
    Total Assets297.790264.141209.937
    Total Equity213.528156.638119.004
    Non-Current Liabilities7.5895.8335.976
    Current Liabilities76.673101.67084.956
    (All the above-mentioned figures are in INR Crores)

    Income Statement

    Particulars31st March 202331st March 202231st March 2021
    Revenue from Operations784.576612.830435.298
    Total Income794.188623.047440.405
    Total Expenses717.495565.601399.206
    Profit before tax76.69457.44641.199
    Profit after tax56.79343.12628.799
    (All the above-mentioned figures are in INR Crores)

    Cash Flow Statement

    Particulars31st March 202331st March 202231st March 2021
    Net Cash flow from operating activities31.1666.752(7.346)
    Cash flow from investing activities(4.897)(5.415)(5.60)
    Cash flow from financing activities(28.574)(0.190)16.955
    (All the above-mentioned figures are in INR Crores)

    KPIs

    Particulars31st March 202331st March 202231st March 2021
    EBITDA Margin10.85%10.83%11.17%
    Return on Equity (ROE)30.50%30.64%24.23%
    Debt Equity Ratio0.340.620.69
    Profit after Tax Margin7.24%7.04%6.62%
    Return on Capital Employed (ROCE)29.38%25.83%25.27%

    Based on the 17.32 EPS for the fiscal year that ended in 2023, the PE on the upper price band comes out to be 12.75x, while the PE on the lower price band comes out to be 12.12x.

    Strengths

    1. The company has a monopoly in this industry because it is the only one in India producing zinc oxide. 

    2. The industry is protected from competition by having an extremely high entry barrier.

    3. The company’s operating cash flow has expanded dramatically over the past year. In FY2022, OCF stood at 6.752 crores; by FY2023, it was 31.166 crores. 

    4. The company’s promoters have over 50 years of experience in this industry, and their expertise helps them achieve new heights.

    JG chemicals monopoly

    Weaknesses

    1. The company’s main product is zinc oxide. Therefore, any decline in demand could harm the company’s bottom line.

    2. Since their profit after-tax margin has been stable over the last three years, any increase in input costs could hurt their profit margins. 

    3. Given that the price of zinc oxide had a global correction in 2021, any additional price correction may affect their performance. 

    4. The company’s business operations depend on the performance of its subsidiary, BDJ Oxides Private Limited; any decrease in the subsidiary company’s performance would have a detrimental impact on its operations.

    Read Also: Gillette India Case Study: Business Model, SWOT Analysis, and Financial Overview

    Conclusion

    JG Chemical has a monopoly in the zinc oxide market, and the company’s main goals in raising money include paying off debt and investing in its subsidiary businesses. Nearly all of the world’s leading tire manufacturers are served by the company. The business’s performance is evident in its financial statements, where sales have grown by over 28% Y-o-Y, and profit has surged by 31% Y-o-Y. 

    However, before making any investment decisions, investors are advised to carefully review all of the risk considerations associated with this initial public offering (IPO) and to keep their risk tolerance in mind. 

    Frequently Asked Questions (FAQs)

    1. When will JG Chemical IPO list?

      The listing date of the JG chemical IPO is 13th March 2024.

    2. What is the cut-off price of the JG Chemical IPO?

      The upper price band of 221 INR will be the cutoff price of the IPO.

    3. What does JG Chemical do?

      JG Chemical manufactures zinc oxide. Their products are used in industrial applications such as rubber tires, ceramics, paints & coatings, etc.

    4. What is the market lot size of JG chemical IPO, and what will be the minimum amount required by an individual?

      The market lot of JG Chemical IPO is 67 shares, and the minimum investment amount required by a retail investor is 14,807 INR.

    5. What is the promoter holding before the issue of the IPO?

      The promoters hold a 100% stake in the company before the issue of the IPO.

  • Gopal Snacks IPO: Segments, Financials, Key Details, Strengths, and Weaknesses

    Gopal Snacks IPO: Segments, Financials, Key Details, Strengths, and Weaknesses

    Craving a crispy treat that speaks to your Indian taste buds? This Gujarat-based company has been a leader in the snacking game for over a decade. From the ever-popular ‘gathiya’, a fried gram flour snack, to a diverse range of delicious offerings, the company caters to every craving.

    So, settle in and grab your favourite snack while we dive deep into the company’s financials, strengths, key risks, and upcoming IPO details.

    Gopal Snacks IPO Overview

    Gopal Snacks is an Indian fast-moving consumer goods (FMCG) company based in Rajkot, Gujarat. The company sells and manufactures a variety of snacks and other products. They are the fourth largest brand in the organised sector of ethnic savouries in India in terms of market share and the largest manufacturer of ‘gathiya’ and snack pellets in terms of volume. They sell their products in 10 states and 2 Union Territories of India.

    The company was established in 1999 by Bipin Hadvani as a partnership firm with Gopal Gruh Udhyog and was converted into a corporate entity in 2009.

    The company’s manufacturing plants are located in Rajkot, Nagpur, and Modasa, Gujarat. The installed manufacturing capacity of the plants cumulatively (as of September 30, 2023) is 4,04,729 tons per annum, whereas the primary facility holds a manufacturing capacity of 3,03,669 tons (for finished products).

    Gopal Snacks IPO Segments

    Gopal Snacks manufactures ‘ready-to-eat’ packaged snacks, which include:

    1. Ethnic snacks – Over 65% of Gopal’s revenue in FY 2023 came from their namkeen segment and ethnic namkeen achieved a sales volume of approximately 27,630 tons.

    2. Western Snacks – wafers, nachos, extruder snacks, and snack pellets constitute the western snacks category. This category offers flexibility to meet a variety of tastes. Since the product is semi-finished and unexpanded, it allows for customisation during the final preparation stage. By adding different spices and ingredients, manufacturers can create products that cater to the specific demand of the end users.

    3. Other products – The category includes gram flour or besan, papad, powdered spices, noodles, washing bars, and packaged sweets such as soan papdi, rusk, and chikki.

    The company has also introduced its product line offering premium wafers under the brand name ‘Cristos Gopal’ and extruder snacks under ‘Cornigo’.

    Additionally, Gopal Snacks holds 276 Stock Holding Units (SKU) in its portfolio and is the first company to launch gram flour in INR 10 SKU.

    The varieties offered in the Gathiya segment by Gopal Snacks create a strong competitive advantage over other established players in the segment. Gopal’s Gathiya offerings include Vanela Gathiya, Fulvadi Gathiya, Tikha Gathiya, Papdi Gathiya, Tikha Papdi Gathiya, Bhavnagari Gathiya, Champakali Gathiya, and Nylon Gathiya.

    Gopal Snacks IPO Presence

    In addition to Gujarat, the company holds a strong presence in the states of Maharashtra, Uttar Pradesh, Madhya Pradesh, and Rajasthan with a distribution network of 617 distributors.

    The company is strategically increasing its pan-India presence, by focusing on states of Northern India like Uttar Pradesh, Rajasthan, Haryana, and Delhi and Southern India states like Karnataka and Telangana. Gopal Snacks Owner also plans on selling their products to countries like Australia, Kuwait, Saudi Arabia, UAE, and the USA through both direct exports and merchant exporters.

    To sum it up, the company’s product portfolio includes 84 products which include 8 types of gathiya, 31 types of namkeen, 12 types of snack pellets, 8 flavours of Wafers, 4 types of Papad, 6 types of spices, 5 types of extruded snacks, and 9 other products.

    Presence in India

    Did You Know?

    Gopal Snacks reigns supreme as India’s Gathiya king, holding a whopping 31% market share in FY 2023.

    Read Also: Pune E-Stock Broking Limited IPO: Key Details, Business Model, Financials, Strengths, and Weaknesses

    Key IPO Details

    IPO DateMarch 6, 2024 to March 11, 2024
    Price BandINR 381 to INR 401 per share
    Lot size37 Shares
    Total Issue Size16,209,476 shares
    IPO TypeMain-board IPO 
    Issue TypeBook Built Issue IPO
    Listing DateThursday, March 14, 2024
    Initiation of RefundsWednesday, March 13, 2024
    Employee DiscountRs 38 per share

    Objectives of the Issue

    The company will not receive any proceeds from the Offer (the “Offer Proceeds”), and the Selling Shareholders will receive all the Offer Proceeds in proportion to the Offered Shares sold by the respective Selling Shareholders.

    The company’s promoters are Bipinbhai Vithalbhai Hadvani, Dakshaben Bipinbhai Hadvani and Gopal Agriproducts, and the pre-issue promoter shareholding stands at 93.50%.

    Financial Statements Analysis

    Key Metrics

    Key MetricsFY 2023FY 2022FY 2021
    Total Assets461.28399.72341.89
    Total Liabilities170.40222.06206.15
    Total Income1,398.531,356.471,129.84
    Total Expenses1,246.691,302.411,103.34
    Profit After Tax112.3641.5321.12
    EBITDA196.2294.7960.35
    *(the figures mentioned above are in INR Crore)
    Key metrics of Gopal Snacks

    Key Margins and Ratios Analysis

    Key RatiosFY 2023FY 2022FY 2021
    Gross Margin28.38%20.61%18.13%
    EBITDA Margin14.07%7.01%5.35%
    PAT Margin8.06%3.07%1.87%
    ROE38.63%23.38%15.56%
    ROCE43.08%18.69%13.48%
    Debt-to-Equity ratio0.370.921.02
    Net Fixed Asset Turnover Ratio6.276.867.14

    Cash Flow Statements

    Cash FlowsFY 2023FY 2022FY 2023
    Cash flow from/ (used in) operating activities121.5258.5922.43
    Cash flow from/(used) investing activities(25.12)(74.03)(75.67)
    Cash flow from/(used in) financing activities(68.83)11.7557.50
    *(the figures mentioned above are in INR Crore)
    CFS Of Gopal Snacks

    Gopal Snacks IPO Strengths

    1. Gopal Snacks is a national leader in ethnic savouries, ranking India’s fourth-largest brand and offering quality and affordable products. Also, the company has a strong brand image, which allows it to stand out in a competitive market.
    2. The company boasts a diverse product portfolio, perfectly positioned to capitalize on the booming Indian snack market.
    3. The company owns six manufacturing facilities, comprising three primary and three ancillary manufacturing facilities. These manufacturing facilities are focused on processing, manufacturing, and packaging the products.
    4. Gopal Snacks’ comprehensive distribution network ensures their products are conveniently located near you, making it easy for customers to satisfy their snack cravings.
    5. The company is guided by a team of experienced promoters and managers bringing knowledge and expertise.

    Gopal Snacks IPO Weaknesses

    1. The Indian FMCG market, especially the snack segment, is highly competitive. Gopal Snacks faces tough competition from established players and new entrants, both domestic and international.
    2. The company’s dependence on raw materials and packaging can be risky. Any shortages, disruptions, or price swings could affect the profits and cash flows.
    3. An inefficient management of the distribution network could severely impact the business.
    4. Food safety is paramount. Any contamination issues or product recalls could damage the brand image and lead to a decline in sales.
    5. The food industry is subject to several regulations. Changes in regulations or difficulty complying with existing regulations could pose challenges for Gopal Snacks.

    Read Also: Bikaji Foods Case Study – Product Portfolio, Financial Statements, & Swot Analysis

    Conclusion

    On a parting note, Gopal Snacks Limited is a rising company. With solid market positioning, experienced leadership and a diversified product portfolio, the company holds a strong foundation for future growth. The IPO could be a springboard for further expansion and innovation. However, it is crucial to know the risks involved before making any investment decisions.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
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    3Nestle India Case Study: Business Model, Financial Statement, SWOT Analysis
    4BPCL Case Study: Business Model, Product Portfolio and SWOT Analysis
    5Apollo Hospitals Case Study : Business Model, Financial Statements, And SWOT Analysis

    Frequently Asked Questions (FAQs)

    1. What are Gopal Snacks famous for?

      The company is known for their wide range of delicious snacks, specifically gathiya and ethnic namkeens.

    2. How has Gopal Snacks adapted to changing consumer trends?

      The company has consistently evolved its offerings, incorporated healthier ingredients, and stayed updated on changing consumer needs for a wholesome snacking experience.

    3. Who are Gopal Snacks’ competitors?

      The company faces tough competition from Bikaji, Haldiram’s, Britannia, etc.

    4. How can I benefit from Gopal Snacks IPO?

      Investors can join the growing snack industry and reap the rewards as Gopal Snacks expands its market presence.

    5. Beyond ‘gathiya’, what else does the company offer?

      Gopal Snacks offers a diverse range of ethnic namkeens, from spicy to mild.

  • Pune E-Stock Broking Limited IPO: Key Details, Business Model, Financials, Strengths, and Weaknesses

    Pune E-Stock Broking Limited IPO: Key Details, Business Model, Financials, Strengths, and Weaknesses

    Are you considering venturing into the world of a stock that manages your portfolio but unsure where to begin? Look no further than PESB.

    Today’s blog will uncover the critical IPO details, strengths and risks, and PESB’s financial statements.

    Overview of Pune E-Stock Broking Limited IPO

    Pune E-Stock Broking Limited (PESB) is a corporate broking house founded in 2007 and is headquartered in Pune, Maharashtra. The company offers several investment services, like broking, mutual funds, currency trading, depository services, and IPOs. The company was registered with SEBI as a stock broker in 2008 and expanded its business into the commodity segment by becoming a member of MCX in 2019.

    With a network of over 150 authorised persons and a trading client base exceeding 50,000, PESB’s influence expanded in the post-Covid era.

    PESB’s success is attributed to the leadership of its founding team, which includes Mr Vrajesh Krishnakumar Shah, Mr Devendra Ramchandra Ghodnadikar, Mr Sandip Sunderlal Shah, and Mr Paresh Sunderlal Shah.

    Business Model of Pune E-Stock Broking Limited IPO

    PESB offers the following services to its clients:

    1. Client Broking

    Clients can access real-time quotes, execute trades through the mobile app and website and stay informed with the latest market news and updates while enjoying customer service.

    1. Depository Participant

    PESB offers a seamless trading experience by integrating demat services through CDSL, where they are a registered depository participant. This allows clients to hold and manage their investments conveniently in one place. The company has over 23,155 active clients with depository services.

    1. Mutual Funds

    The company makes mutual fund investing convenient and comprehensive by offering a wide range of equity, debt, and hybrid funds from multiple AMCs. This variety helps investors create a diversified portfolio that aligns with their financial goals. Customers also receive regular portfolio updates and follow-ups.

    1. Corporate Deposits

    PESB offers corporate deposits as an alternative investment option to traditional bank fixed deposits. With fixed interest rates often exceeding those of traditional options, these deposits cater to individuals of diverse risk appetites while aligning with the practice of secure fixed-income investing.

    1. Currency Trading

    Customers can trade currency flexibly through multiple channels, and forex derivatives services offered by the company fulfil the various investment goals through hedging, speculation, and portfolio diversification.

    PESB’s user-friendly Trading App further showcases its dedication to technological innovation. With the app’s help, clients can manage their investments, stay updated on market trends, and execute trades on the go.

    PESB Business Model

    Key IPO Details

    IPO DateMarch 7, 2024 to March 12, 2024
    Price BandINR 78 to INR 83 per share
    Lot Size (Retail/HNI)1600 Shares/3200 Shares
    Total Issue Size4,606,400 shares
    IPO TypeBSE SME IPO
    Basis of AllotmentMarch 13, 2024
    Initiation of RefundsMarch 14, 2024
    Listing DateMarch 15, 2024
    Issue TypeBook-Built Issue
    Issue Size38 Crores
    • Objectives of the issue are to meet the working capital requirements for general corporate expenses and public issue expenses.
    • Pre-Issue Shareholding of Promoters is 72.75%, and promoters collectively hold 80,34,858 equity shares of the company.

    Read Also: Rashi Peripherals Limited: IPO Analysis

    Financial Statements Analysis

    Key Metrics 

    Key MetricsFY 2023FY 2022FY 2021
    Total Income4103.104665.703474.64
    Total Expenses2884.373404.642603.12
    Profit After Tax964.521012.03650.48
    Long-term Borrowings77616401015
    Net Worth7654.666754.555806.65
    (Figures mentioned in the table are in Lakhs)
    Key metrics of PESB

    Cash Flow Statement

    Cash FlowFY 2023FY 2022FY 2021
    Net cash flow from operations-358.672168.62-594.74
    Net cash flow from investing activities-1163.603631.28-2921.99
    Net cash flow from financing activities-690.091035.23408.01
    (Figures mentioned in the table are in Lakhs)
    CFS of PESB

    Strengths

    1. The company is led by a team of experienced professionals with deep knowledge of the core aspects of the business and holds long-term relations with customers.
    2. PESB simplifies investing by offering a wide range of brokerage services under one roof and caters to diverse investor needs with equity and currency derivatives trading. The recent addition of Mutual Fund and Margin Trading Facility (MTF) in business operations is an icing on the cake.
    3. The electronic brokerage platform enables the company to prioritize real-time risk management through its system that closely monitors the exposure by taking into consideration factors like client margins, exchange margins, and credit lines.

    Read Also: KP Green Engineering: IPO, Business Model, And SWOT Analysis

    Weaknesses

    1. The company’s restated summary information for FY 2023 shows negative cash and cash equivalents, and the company may likely experience similar negative cash flows in the future.
    2. The company has previously faced regulatory actions from stock exchanges and SEBI. The possibility of similar future actions cannot be entirely ruled out, which could impact the company’s financial health, operations, and profitability.
    3. The company’s directors, promoters, subsidiaries and group companies are involved in several legal proceedings at different stages. While the outcome of these proceedings is uncertain, any adverse judgements could affect the business operations.
    4. PESB operations rely heavily on IT and are exposed to cyber security risks and any kind of failure or security breach could adversely affect the business.

    Conclusion

    PESB empowers you to navigate the financial landscape with confidence and offers a comprehensive suite of investment products and services, all designed to fulfil the unique financial goals and risk tolerance of the customers. However, it is necessary to conduct your research before making any investment decisions.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
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    2JG Chemicals IPO: Overview, Key Details, Financials, KPIs, Strengths, and Weaknesses
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    4Krystal Integrated Services: IPO, Business Model and SWOT Analysis
    5Popular Vehicle and Services IPO: Key Details, Financials, Strengths, and Weaknesses

    Frequently Asked Questions (FAQs)

    1. When was the company founded?

      PESB was founded in 2007.

    2. What is the price band of the PESB IPO?

      The price band of the IPO is INR 78 to INR 83 per share.

    3. When will the PESB IPO open?

      The PESB IPO will open on March 7, 2024.

    4. What does the company do?

      PESB is a stockbroking firm that offers equity, mutual fund, currency, commodities, and depository services.

    5. Where can I find more information about the PESB IPO?

      You can read the IPO prospectus on the website of BSE SME and other IPO managing brokerage firms.

  • Introduction to Gift Nifty: A Cross-border Initiative

    Introduction to Gift Nifty: A Cross-border Initiative

    If you’re a trader who follows news about stocks, economic developments, and other factors that could affect the volatility of the Indian stock market. In that case, you’ve probably heard of the Gift Nifty, formerly known as the SGX Nifty, and you probably check it before Indian markets open. But you may be wondering why Gift Nifty is called that.
    Therefore, we will explain in today’s blog why the SGX Nifty was renamed Gift Nifty.

    Capital Market

    The capital market is a place where financial instruments with long-term maturity are bought and sold. It provides a place where business houses and the government raise funds for different purposes.
    The capital market is divided into 2 parts

    1.  Primary Market – The place where securities are issued for the first time to the investors.

    2.  Secondary Market – The place where the investors buy and sell issued securities.

    Types of Secondary Market

    1.  Cash Market – It is a place where investors get the delivery of shares after purchasing them.

    2.  Derivative Market – The contract is traded in this market, and its value is derived from an underlying asset. A fixed and predetermined date is set for a derivative contract.

    Gift Nifty

    Stock Market Index

    A stock market index shows how a certain set of stocks has performed. An index is made up of stocks that represent a specific industry or pool of securities. Utilizing the free float market capitalization weighting approach, the index is calculated. 

    A few examples of indices are the Bank Nifty, which consists of stocks from the banking industry, and the Nifty IT, which consists of stocks from the technology sector. 

    Did You Know?

    Free float shares refer to publicly traded shares and are less than the total number of shares issued.

    Nifty

    The National Stock Exchange (NSE) launched the Indian market index, known as Nifty50, in 1996. Based on market capitalization, it shows the performance of the top 50 listed Indian firms. An investor can use this index to comprehend the overall market trend, which aids in the development of their trading strategy. 

    SGX Nifty

    Singapore Nifty is another name for SGX Nifty. It was formerly traded in Singapore dollars. Based on SGX Nifty patterns, it helps Indian traders forecast market direction. Foreign investors trade in the derivative contract, giving them access to Indian markets and enabling them to trade the Indian stock market at their local time. Trading in the SGX Nifty usually takes place ahead of Indian market hours, allowing investors to respond to worldwide sentiments that may impact Indian markets. 

    Did you know? 

    Gift Nifty has been traded on the Gift City, Gujarat, India-based NSE International Exchange since July 2023. It was traded on the Singapore Stock Exchange before this.

    Gift Nifty

    Effective July 3, 2023, the SGX Nifty contract has been rebranded as Gift Nifty. About 7.5 billion dollars worth of derivative contracts were transferred from the Singapore Exchange to the NSE International Exchange, which is based in Gandhinagar, Gujarat’s Gift City.

    Gift Nifty 50, Gift Nifty Bank, Gift Nifty Financial Services, and Gift Nifty IT derivative contracts are the four products that fall under the umbrella of the Gift Nifty.

    Timing of Gift Nifty

    Nearly 21 hours a day are spent trading on the Gift Nifty. It has two sessions for trading timing. The hours of the first session are 6:30 a.m. to 3:40 p.m. and the second session is 4:35 p.m. to 2:45 a.m. Trade sessions for Asia, Europe, and the United States occur simultaneously with Gift Nifty trading. 

    Gift City

    Gujarat International Finance Tec-city, sometimes called Gift City, is an International Financial Service Center (IFSC) that was founded to establish a financial hub by providing top-notch infrastructure. It was founded by the Gujarat government, with backing from the Indian government, and it started operations in April 2015 after being granted permission by the Reserve Bank of India to function as an IFSC.

    IFSCs operate in London, Singapore, Hong Kong, Dubai, and Frankfurt.

    Read Also: NIFTY Next 50 – Meaning, Types & Features

    Significance of Shifting of SGX Nifty to Gift Nifty

    According to the CEO of NSE, India is seeing a “watershed moment” with this trend. According to him, the rebranding will enhance India’s reputation abroad, leading to the purchase of foreign contracts that were previously transacted outside the nation. The financial sector in India has achieved a significant milestone as a result of SGX Nifty’s activity since traders now have wider access to the market and more liquidity. Other foreign organizations will be able to establish themselves in the city as a result of this change.

    SGX Nifty

    How does Gift Nifty impact the Indian Market?

    The Gift Nifty is a leading indicator of how the Indian stock market will open because the Gift Nifty opens 2.5 hours ahead of the Indian market. The movement of the Gift Nifty helps traders decide whether to enter the market with a long position or short position. When comparing Gift Nifty to Nifty 50, it is more volatile.  

    If investors are uncertain about the direction of the market, they may employ Gift Nifty as a tactic to hedge their position and lower potential risk in the Indian market. Any developments in the world economy that take place after the Indian market closes and before it reopens the next day would affect the price of Gift Nifty.  

    Difference between Gift Nifty and Nifty

    1.  While the Gift Nifty is a futures contract based on Nifty, the Indian Nifty is made up of 50 shares. 

    2.  While Indian retail investors are not allowed to trade in Gift Nifty, they can easily trade in Nifty.

    3.  Global market sentiments have a significant impact on Gift Nifty, but Indian economic conditions, policies, and corporate profits have a greater impact on Nifty’s movement. 

    4.  Nifty trades in real-time, while Gift Nifty only gives the Indian market’s direction.

    5.  While Gift Nifty investments are made in dollars through NSE IX, investments on Indian markets can be made in Indian rupees.

    6.  The Indian market is open for trading from 9:15 to 3:30, but Gift Nifty is open for trading from 6:30 a.m. to 3:40 p.m. and from 4:35 p.m. to 2:45 a.m.

    Read Also: Gift City Case Study: Timeline, Management, and Development

    Conclusion

    The move of the SGX Nifty from Singapore to Gift City, India, is a significant milestone. It gives any outside investor a chance to enter the Indian market. Since only foreign investors or non-resident Indians can invest in Gift Nifty, Indian investors are limited in learning how the market will go.

    You must also consider your risk tolerance if you are investing in the Indian market and witnessing directional momentum from Gift Nifty.

    Frequently Asked Questions (FAQs)

    1. Can I trade in Gift Nifty in India?

      Indian retail investors are not allowed to trade in Gift Nifty as only foreign portfolio investors and non-resident individuals are allowed to trade in it.

    2. What is the new name of SGX Nifty?

      The name of SGX Nifty changed to Gift Nifty on 3rd July 2023.0

    3. What is the time of Gift Nifty opening?

      The Gift Nifty will open around 6:30 a.m. to 3:40 p.m. and reopen from 4:35 p.m. to 2:45 a.m.

    4. How can I track the price of Gift Nifty?

      You can search Gift Nifty in your trading platform’s search section and track the price there.

    5. Can I purchase Gift Nifty in the cash segment?

      No, only future derivative contracts are traded in Gift Nifty.

  • Explainer on Liquidity Ratios: Types, Importance, and Formulas

    Explainer on Liquidity Ratios: Types, Importance, and Formulas

    Before investing, a long-term investor considers a company based on several factors, including its business model and plans for future growth. One of the most significant parameters is a company’s financial situation. 

    Various types of ratios contribute to assessing a company’s financial health, with the liquidity ratio being one of them.

    Ratio Analysis

    This technique evaluates a company’s financial situation by extracting information from multiple financial statements and comparing it over time. It aids in identifying growth opportunities and detecting potential issues.

    Importance of Ratio Analysis

    1. Ratios provide insights into the company’s historical performance, enabling predictions about its future performance.

    2.  It serves as a language for informing stakeholders, including creditors, stakeholders, financial analysts, and management, about financial situations.

    3.  Ratios play a crucial role in identifying weaknesses within the organization and areas requiring additional attention.

    4.  The management can formulate policies by analyzing the ratios.

    Types of Ratios

    1. Liquidity Ratio – This assesses the company’s capacity to settle its short-term obligations.

    2. Solvency Ratio – Also referred to as leverage ratio, these evaluate the company’s capability to repay its long-term debts.

    3. Profitability Ratio – Used to gauge the company’s profit generation from its operational activities.

    4. Activity Ratio – It measures how efficiently a company utilizes its assets to generate revenue, also known as efficiency or turnover ratio.

    5. Earning Ratios – Investors typically utilize these ratios to get a wide definition of the company’s earnings based on many financial parameters and gain insight into the returns on their investments. 

    Ratios

    Read Also: Explainer on Imitation Investing: Psychology, Advantages, Limitations, and Strategies

    Liquidity Ratios – Overview

    The liquidity ratios aid in assessing the company’s capacity to fulfill short-term obligations. It gives us a better picture of how well the corporation can turn its assets into cash. 

    Before granting a loan, creditors of the company typically analyze this ratio to ensure that the recipient company has the financial capacity to repay the loan. An company’s creditworthiness in the market suffers if it is unable to make its financial obligations on schedule. 

    Types of Liquidity Ratios

    There are four types of liquidity ratios.

    Current Ratio

    This ratio is computed to assess the company’s capacity to sell its short-term assets to pay off its short-term liabilities. 

    Formula – Current Ratio = Current Asset/Current Liability

    A company’s current assets are all it owns and can turn into cash in less than a year. Conversely, the current liability category includes all short-term debt that must be paid back within a year.

    Inference – A ratio of more than 1 indicates that the company has more current assets than its current liability, thus making it easier to pay off the current liabilities.

    Quick Ratio 

    Since inventory cannot be quickly converted into cash, it is not included in the calculation of the company’s ability to satisfy its short-term liquidity needs under this ratio. Another name for it is the Acid Test Ratio. 

    Formula – Quick Ratio = (Current Asset – Inventory)/Current Liabilities

    Inference – When the quick ratio is larger than 1, it means that the company does not need to consider inventory to pay its short-term liabilities. 

    Cash Ratio

    Although it evaluates a company’s capacity to pay down short-term debt with just liquid assets, this ratio is also used to gauge a company’s liquidity. Only cash and cash equivalents are considered liquid assets in this context. This percentage is typically employed by the people or entity providing the loan. 

    Formula – Cash Ratio = Cash and cash equivalent/current liabilities.

    Inference – The ideal cash ratio is considered to be 1.

    Net Working Capital Ratio

    This ratio is used to assess if a business has enough cash on hand to fund its working capital activities. The difference between current assets and current liabilities is defined as working capital. 

    Formula – Net Working Capital Ratio = Net Working Capital/Total Assets

    Inference – A higher ratio suggests that the major portion of the company’s assets are acquired by short-term resources which suggests a better liquidity position in the short-term.

    Liquidity ratios

    Importance of Liquidity Ratios

    1.  The company’s creditors verify the company’s liquidity to determine whether or not the borrower will be able to repay the loan on schedule before extending credit to the firm. 

    2.  It is important for the management to monitor the company’s cash flow and make arrangements for more funds if necessary. 

    3.  An informed financial decision can be taken after performing a proper analysis of the company’s liquidity ratio.

    4.  Different liquidity ratios assist the company’s management in creating fresh plans for the business, which ultimately aids in its growth.

    Read Also: Explainer on Cigar Butt Investing: Features, Advantages, Limitations, and Suitability Explained

    Conclusion

    One crucial metric for assessing a company’s liquidity is its liquidity ratio. It illustrates a company’s ability to handle debt payments. Moreover, creditors utilize these ratios to determine a company’s creditworthiness. Consequently, long-term investors should analyze the business’s liquidity ratios before making investment decisions. Additionally, it’s essential to consider risk factors.

    Frequently Asked Questions (FAQs)

    1. Which of the liquidity ratios are most commonly used?

      The quick and current ratios stand out as the most frequently used liquidity ratios.

    2. What is the ideal current ratio?

      The quick and current ratios stand out as the most frequently used liquidity ratios.

    3. Among quick ratio and current ratio, which one is better?

      While both ratios serve their purposes, the quick ratio outshines the current ratio due to its exclusion of inventory, which can be challenging to convert into cash.

    4. What is the other name of quick ratio?

      The quick ratio, alternatively referred to as the acid test ratio, offers insight into liquidity.

    5. How can we calculate the current ratio?

      The formula to compute the current ratio is current asset/current liability.

  • Mutual Funds vs Direct Investing: Differences, Pros, Cons, and Suitability

    Mutual Funds vs Direct Investing: Differences, Pros, Cons, and Suitability

    Investing in stocks is gaining more and more popularity as people wish to take advantage of the rising indices. There are two stock investing methods: investing directly in equities and investing through an asset management business.

    We will now explain the differences between the two methods and help you make an informed choice.

    Mutual Funds – Overview

    Mutual funds are a type of investment product that pools the capital of several investors who share a common investment objective or goal. The fund managers, who are experts in this area, use the pooled capital to invest it in various asset classes, such as stocks, bonds, and commodities. The investor receives the return on their investment after their costs and fees are subtracted; the company responsible for this process is called an asset management company, or AMC.

    Did you know?

    As of January 2024, the mutual fund sector in India managed 52.74 lakh crores worth of assets. 

    Types of Mutual Funds Based on Asset Class

    There are different types of Mutual Funds based on the asset class.

    1. Equity Mutual Fund – This mutual fund category invests predominantly in equity or shares; this category has more risk than other categories as they are sensitive to market fluctuations.

    2. Debt Mutual Fund – The investors who invest in this category of mutual funds are relatively risk averse. Thus, their money is invested in fixed-income securities such as treasury bills, bonds, commercial papers, etc.

    3. Hybrid Fund – This fund category is the combination of both equity and debt mutual funds. The portfolio of hybrid funds will have a specific allocation of equity to provide growth in your portfolio return and debt to provide stability and consistency.

    Note – Mutual funds can be segregated into regular and direct funds, click here to check out our blog.

    Pros of Investing in Mutual Funds

    Diversification – The principal advantage of investing in mutual funds is their ability to diversify your investment portfolio, thus lowering the chance of loss over time. 

    Liquidity – Because you can take your money out at any time, investing in mutual funds gives you the benefit of liquidity

    Affordability – With just INR 100 at minimum, you can begin investing in mutual funds. Any investor can afford it. 

    Professional Management – Your investment amount will be managed by professional fund managers who have a team of research analysts to identify investment opportunities.

    Transparency – You can easily track your investment where your money will be invested and monitor the performance of it.

    Fund manager in Mutual funds

    Cons of Investing in Mutual Funds

    Expense Ratio – Mutual funds charge various costs for managing your investments, including administration and management fees, which will lower your return over time. 

    Selection of funds – Numerous funds are available for market investment. Selecting the right fund is a task for the investor; sometimes, an investor gets confused among the funds and chooses the wrong fund.

    Note – If you wish to know more about analysing mutual funds, check out our blog by clicking here.

    Exit Load – This fee is charged by asset management companies from an investor when they redeem their fund before a stipulated period. If an investor wants to redeem their fund before the stated time, they will have to pay this fee to the fund management company.

    Fund Manager – Performance may be impacted if investors place their savings in a mutual fund based on the fund management’s performance reports. Still, the fund manager is not skilled in picking stocks, which leads to reduced returns.

    Read Also: Mutual Fund vs PMS: Which is Better?

    Direct Investing – Overview

    When you invest directly into stocks through your demat account, it is known as direct investing. In this, you don’t have to go through any intermediary, such as an asset management company, and investors buy the company’s stocks independently after performing their due diligence.

    A share or equity represents the ownership in a company, and by investing in this, the investor can participate in the company’s growth.

    Did you know?

    As per the data released from Central Depository Services and National Security Depository, the total demat accounts in India stands at 14.39 crore as of Jan 2024.

    Pros of Direct Investing

    Decision making – The investor has the full authority to decide in which stock they want to invest their money, and they can buy or sell the securities any time they want.

    Cost-effective – Direct investment into stocks can save various costs that an investor will have to pay while investing through different intermediaries.

    Higher returns – Investing directly in equities might yield a potentially large return for an investor in exchange for increased risk. 

    Liquidity – A direct stock investment gives investors complete control over when and how much they can take from their investment without worrying about exit costs. 

    Diversification – When making direct investments, an investor can effortlessly diversify their portfolio across several asset classes or sectors based on their requirements and risk tolerance. 

    Cons of Direct Investing

    Market Risk – Your portfolio valuations will suffer greatly from any market decline. Several factors, including adjustments to interest rates or corrections in the global market, can bring this about.

    Concentrated Risk – Your risk will rise if you directly invest in individual securities because your portfolio will be concentrated into a limited number of stocks. 

    Investor Bias – Multiple biases could cloud your thinking since you pick stocks independently. Multiple irrational biases come into play when we select stocks; all of them can dramatically affect your portfolio.  

    Risks of direct investing

    Difference between Direct and Mutual Fund Investing

    Risk – Since equities is among the riskiest asset classes, direct investing carries a higher risk than investing in mutual funds. 

    Volatility – Compared to mutual funds, which include a diverse portfolio of equities to offset market volatility, investments in individual stocks possess more volatility.

    Minimum Investment – Any group of investors can afford to invest in mutual funds, with a minimum amount of 100 INR. Conversely, investing directly in stocks requires a larger capital contribution because many stocks have higher pricing, making them unaffordable for most investors. 

    Cost of investment – Investing in stocks directly incurs several fees, including brokerage from the broking company and various taxes (such as GST and security transaction taxes). Mutual funds also charge fees for services rendered, but are more than the fees charged while investing in stocks. 

    Convenience – Mutual funds offer hassle-free investment. Once you are done with your investment, an asset management company will do the rest of the work, such as identifying the asset class, investing in securities, and monitoring the same. On the other hand, direct investment requires continuous monitoring by the investor.

    Professional Management – To invest directly, one needs to have a strong skill set to identify the correct stock. However, while investing in a mutual fund, there is no such need to do it as these all will be done by the asset management company’s fund managers.

    Suitability

    The investor’s risk tolerance and desire will choose whether to choose mutual funds or make one of the direct investments. Mutual funds are the ideal investment product if you are just starting in the world of finance. However, if you are comfortable taking risks and are knowledgeable about financial concepts, direct investing is the better choice. 

    Read Also: Active or Passive Mutual Funds: Which Is Better?

    Conclusion

    In a nutshell, direct investments are best suited for individuals who possess knowledge about stock investing and want complete control over their investments, while mutual funds are best suited for those who lack the time to regularly monitor their portfolios. In conclusion, there is no right or wrong way to invest; the ultimate goal is to generate wealth and earn returns.

    Choosing the best alternative among them is entirely dependent on your risk tolerance and investment objectives.

    Frequently Asked Questions (FAQs)

    1. How can I invest in stocks directly?

      To invest in stocks directly you are required to open a demat account with a stockbroker who will facilitate you to transact on the National Stock Exchange and Bombay Stock Exchange.

    2. How to analyze mutual funds?

      Mutual funds can be analyzed through both qualitative and quantitative factors. To learn about mutual fund analysis, check out our blog.

    3. Which provides better return direct investment into stocks or mutual funds?

      While investing in stocks directly yields better returns but carries a larger risk. In contrast, mutual funds diversify your portfolio to lower risk.

    4. Why should I periodically check my stock portfolio?

      The stock market is very volatile since a number of factors affect its daily movement. If you miss out on these fluctuations, your portfolio’s return will be impacted thus you must regularly monitor your stock portfolio. 

    5. What is the minimum amount required to invest in the stock market?

      Direct stock investments have no minimum amount requirement; you may begin with any amount you feel comfortable with and buy as little as one share of a firm. However, several stocks are trading at extremely high prices, making them unaffordable for investors with less capital.

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