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What Is Head And Shoulders Pattern In Stock Trading?
The Head & Shoulders pattern is one of the best patterns in technical analysis, which gives higher statistical accuracy. A higher accuracy results in consistent profitability. Want to master the Head & Shoulders Pattern? Let’s dig deeper.

The Head & Shoulders pattern appears on a chart as three peaks. One peak in the middle is slightly higher than the two peaks on either side. These three peaks form a “Head” and two “Shoulders”, one on the left and one on the right. The Inverse Head & Shoulders pattern features one big trough in the middle, slightly lower than the two troughs on either side. These chart patterns can be useful indicators of a major trend reversal but are among the easiest to misread.

The pattern can also have more than one left or right shoulder or head, known as a Multiple Head and Shoulders pattern. One type of complex pattern is called a Wyckoff distribution, which usually has a head with two left shoulders and a weaker right shoulder.

How to Identify Head and Shoulder Pattern?

To detect a head and shoulders pattern, first understand how they’re created:
- The left shoulder forms when there is temporary buying momentum.
- The head forms when enthusiasm peaks and then declines to a point near the stock’s previous low.
- The right shoulder forms as the stock price rallies again but fails to reach its previous high before falling again.
- The neckline is formed by drawing a line underneath the points established before and after the head. When the stock’s price dips below the neckline, it’s usually a strong indication that the pattern has been broken, and it may be time to sell a position or create a short position.
Read Also: Falling Wedge Pattern: Meaning & Trading Features

Types of Head & Shoulders Pattern

There are two types of Head & Shoulders patterns. The first one is classic, where if the neckline is broken, we can get a sell target, and the second one is Inverse Head & Shoulders, which confirms the downtrend is over and the starting of an uptrend when a breakout above the neckline occurs.
1. Head & Shoulders Pattern: This happens when prices cannot surpass the previous swing high (the head) and form a lower high (the right shoulder). Once the neckline is broken, a sell signal is triggered with a target similar to the height of the head.
1. Inverse Head & Shoulders Pattern: This happens when prices cannot surpass the previous swing low (the head) and form the higher low (the right shoulder) instead. Once the neckline is broken, a buy signal is triggered with a target similar to the height of the head.
Confirmation Metric for Head & Shoulders Pattern

Even when the stock price breaches the neckline, the trader needs confirmation of the trend. Two factors must be considered to confirm the trend:
1. Volume: With a Head & Shoulders pattern, you’ll typically see trading volume drop as the price moves toward the head and then again when it rebounds to form the right shoulder, indicating declining investor enthusiasm. A spike in volume when the price moves below the neckline suggests selling pressure will continue to build. If neither of these volume signals is in play, the decline may be short-lived, though there are no guarantees.
2. Time frame: The uptrend heading into the pattern should be at least twice as long as the distance between the shoulders. This confirms that any trend reversal will be significant enough to trade.
Stop Loss & Target

Stop Loss: Stop loss should be just above the right shoulder.

Target: The target should be calculated following the below steps:
1. Measure the vertical between the head and the neckline.
2. Identify the breakout point where the price first breaks the neckline after the right shoulder formation and add that distance to the breakout price.
Advantages of Head and Shoulders Pattern
- Easy to understand.
- It works in any market, e.g., equity, currency, or commodity markets.
- It works in any time frame; a bigger time frame means a strong trend reversal is expected.
- This pattern provides a complete setup for stop loss and target.
- Various studies show this pattern gives an 80-85% accuracy.
Disadvantages of Head and Shoulders Pattern
- Identification of patterns can be subjective, and sometimes complex patterns with multiple tops or bottoms appear, which are far from the ideal pattern.
- The shape of the pattern could be different from the bookish ideal pattern.
Example: 1

Head & Shoulders example of Bajaj Finance Ltd.

The above image features a daily chart of Bajaj Finance Ltd. It made a peak of the left shoulder on the daily chart on 23 September 2021 and completed the Head & Shoulders pattern on 18 November 2021. It fell below the neckline on 22 November 2021 and started trending downwards.

Example: 2

Inverse Head & Shoulders example of Antony Waste HDG Cell Ltd :

The above image features a daily chart of Antony Waste; the stock was in a downturn for some time, and then an Inverse Head & Shoulders pattern was made. The stock bounced back and broke the neckline. In this pattern, the target zone is marked as the length of the head. Stop loss should be just below the right shoulder bottom.

Read Also: Measured Move – Bullish Chart Pattern

Conclusion

Technical analysts use the Head and Shoulders pattern due to their reliability. The Head & Shoulders pattern appears with three peaks; the outside two are similar in height, and the middle is the highest peak. The Inverse Head & Shoulders pattern appears with three troughs; the outside two are similar in height, and the middle is the lowest through. The peaks or troughs on each end are called the left and right shoulders and the one in the middle is called the head. It is a trend reversal pattern, and if identified on time, it can give a great success rate.

Frequently Asked Questions (FAQs)
1. In which market does this pattern work?
  It works in any market on any timeframe.
2. What is the success rate of a Head and Shoulders pattern?
  The Head and Shoulders pattern is quite accurate, with a success rate of 80-85%.
3. Is the Inverse Head and Shoulders bullish signal?
  It appears in the downturn and generates a bullish signal once the price goes above the neckline.
4. Is it easy to identify the Head and Shoulders pattern?
  Yes, it is easy to identify as there are three peaks, and a line connecting them is called a neckline; once the neckline is broken, it is a sign to initiate a short position.

July 1, 2024

National Pension System (NPS): Should You Invest?

The National Pension System, or NPS, is an effort of the Indian government that aims to give Indian citizens retirement benefits. It encourages people to invest regularly during their working term for retirement.

Earlier, it was called the National Pension Scheme. In this scheme, you invest a lumpsum or fixed amount of money every month. Then, at your retirement, you can withdraw up to 60% of the accumulated amount, and the rest 40% you will receive in monthly payments. However, if the accumulated amount is equal to or less than INR 5 lakh, then the depositor can withdraw the entire amount at the time of retirement.

What is National Pension Scheme

NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which comes under the jurisdiction of the Ministry of Finance, Government of India.

Under NPS, individual savings are pooled into a pension fund and invested by professional fund managers according to the approved investment guidelines. On behalf of investors, the PFRDA-regulated pension fund managers invest the fund across diversified portfolios, including equity, corporate debt, government bonds, and alternative investments. When subscribers open an NPS, they are issued a unique Permanent Retirement Account Number (PRAN) by a Central Record Keeping Agencies(CRA). The PRAN is mandatory to make contributions to Tier I and Tier II NPS accounts. These are long-term saving options, backed by the Government of India. Though it is a market-based plan, it is safe as it is regulated and cost-effective.

Features of NPS

The main objective of the NPS is to provide old-age pensions to the citizens of India. Initially, the NPS was solely available to employees of the central government; however, PFRDA opened it up to all Indian citizens.
It is regulated by PFRDA, which the government of India established.
The contribution made by the investor during their work life is invested under different asset classes.
Investment in NPS provides various tax benefits under the Income Tax Act.
Contribution to NPS provides flexibility as an investment can be made every month.

Types of NPS Accounts

Under the National Pension Scheme, there are two types of accounts:

Tier 1
Tier 2

Let’s analyze both of the NPS accounts.

Tier 1 Account

A Tier 1 account serves as a primary account with tax advantages. To keep this account operational, an investor must contribute at least INR 1,000 a year.

Furter, the investments in a tier 1 account are locked until you turn sixty. Partial withdrawals, however, are permissible in certain circumstances, such as life-threatening diseases, etc.

Tier 2 Account

It is not mandatory for an individual to register for a Tier 2 account; withdrawals from tier 2 accounts are flexible. However, to open a Tier 2 account, you must first have a Tier 1 account. Although this account offers cheaper account maintenance fees, it does not provide the same tax benefits as a tier 1 account. We will discuss the tax benefits of NPS later in this blog.

Particulars	Tier – 1	Tier – 2
Tax Benefits	Available	Not available
Premature Withdrawal	Not available	Available
At Maturity	Investors can withdraw up to 60% of the accumulated amount, and the remaining 40% will be received in an annuity plan.	Annuity plan is not available in this. Investors can withdraw the entire amount.

The Asset class of NPS

The amount pooled from the investors under NPS is invested among 4 different asset classes.

Equity – In this, your money is invested in market-linked securities. They are volatile in the short run but generally give higher returns as compared to other asset classes.
Government Securities – Under this, the amount is invested into fixed-income securities issued by the government of India which carry the lowest risk.
Corporate Debt – This asset class carries a moderate amount of risk and invests in securities issued by corporate houses such as bonds, certificate of deposits, etc.
Alternative Investment Fund – Under an AIF, the pooled amount is invested into REITs (Real estate investment trusts, InvITs (Infrastructure investment trusts), and MBS (mortgage-backed securities), etc.

Choice of Asset class in NPS.

Investors have two options available to choose between asset classes in NPS

Active Choice – You can create your portfolio through active asset class selection, so if you’re ready to take on more risk and are seeking greater returns, you can choose equity as a major asset class, up to a maximum of 75% until you’re 50 years old.
Auto Choice – It provides you with the ability to automatically allocate your portfolio if you are unfamiliar with the idea of asset classes. Whereby your investment will expand in a less risky asset class as you age.

Tax Benefits of NPS

Investors contributing to the NPS are entitled to receive certain tax deductions. Let’s have a look at it:

Under Section 80CCD(1), subject to a maximum of INR 1.5 lakhs, the employee can avail of a Tax deduction of up to 10% of their pay (Basic + DA).
Tax deduction of up to INR 50,000 under Section 80CCD(1B) for employees; this deduction is over and above the INR 1.5 lakhs deduction under Section 80CCD(1).
Under Section 80CCD(2), the Employer’s contribution towards the Tier -1 NPS account of an employee is eligible for a tax deduction of up to 10% of pay (Basic + DA) or 14% of salary if such a contribution is made by the Central Government.
Self-employed people can claim a tax deduction of up to 20% of gross income under Section 80CCD(1), subject to a total limit of INR 1.5 lakhs under Section 80CCE.

Pension Funds under NPS

As of May 2024, there are 11 pension fund managers registered under PFRDA under the Equity Tier 1 category, the names and performance of which are mentioned below:

Pension Fund	CAGR (3Years)	CAGR (5 Years)	CAGR (Since Inception)
Aditya Birla Sun Life Pension Management Ltd.	17.82%	15.96%	14.51%
Axis Pension Fund Management Limited	NA	NA	20.21%
HDFC Pension Management Co. Ltd.	18.14%	16.37%	15.68%
ICICI Pru. Pension Fund Mgmt Co. Ltd.	19.63%	16.70%	13.37%
Kotak Mahindra Pension Fund Ltd.	19.08%	16.63%	12.65%
LIC Pension Fund Ltd.	18.83%	15.79%	13.89%
Max Life Pension Fund Management Limited	NA	NA	17.77%
SBI Pension Funds Pvt. Ltd	17.78%	15.17%	11.70%
Tata Pension Management Pvt. Ltd.	NA	NA	23.19%
UTI Retirement Solutions Ltd.	19.18%	15.94%	13.18%
DSP Pension Fund Managers Private Limited	NA	NA	5.55%

Eligibility for NPS

There are 4 kinds of eligibility criteria under the NPS model.

All Citizen Model – All Indian citizens, whether they are residents or not, as well as foreign nationals between the ages of 18 and 70, are eligible to subscribe to the NPS under this model. However, individuals of Indian descent and Hindu Undivided Families are not eligible.
Central Government – The central government employees who have joined their services after 1 Jan 2004 except for the armed forces need to mandatorily join NPS.
State Government – Employees of state government and union territories are covered under NPS.
Corporate Model – The corporates established under the Companies Act 2013, cooperative societies, partnership firms, trusts, etc. if registered with PFRDA, then they are eligible to open your NPS account.

Why is NPS a good retirement choice?

Backed by the Government of India: The NPS is a government savings scheme. NPS is a market-linked investment product specifically focused on retirement solutions and comes with a lock-in of 60 years of an individual’s age.
Cost Effective: It is one of the lowest-cost retirement products.
Well-regulated and Transparent: NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which protects investors.
Risk & Safety: NPS is market-linked and a bit risky, but PFRDA strictly regulates it, so there is almost no chance of malpractice.
Returns: NPS can give up to 9% -12%.
Tax Benefits: NPS provides a total tax benefit of up to Rs. 2 lakhs under Section 80C and Section 80CCD.
Flexible Investment alternatives: A saving option where individuals can decide the contribution amount and when to contribute.
Disciplined Saving Approach: It’s a systematic saving plan to fund retirement expenses, promote financial discipline, and prepare people for retirement.
Professional Fund Management: Professional fund managers with sound investing knowledge handle the pooled investments.

How to Check the Balance in an NPS Account?

First, a subscriber must go to the CRA website and enter their login information, such as their assigned ID and PRAN number, to access their NPS account. After logging in, go to the holding option under the transact section.

In addition, the government-launched UMANG (Unified Mobile Application for New-age Governance) platform, which makes it easier for you to monitor your NPS contribution.

Conclusion

National Pension System or NPS is an option for people who want to plan their retirement and are searching for peace of mind throughout their retirement years by having the security of a regular income governed by government agencies. The ability to invest in NPS every month gives you the freedom to build up a sizeable sum by the time you retire.

However, as we always advise, before making any investing decisions, research thoroughly and consult with your financial advisor.

Frequently Asked Questions (FAQs)

Do I earn fixed returns on NPS?
No, returns under NPS are based on market links.
Who Is Not Eligible For NPS?
Hindu undivided families and persons of Indian origin are not eligible to subscribe to NPS. NPS is an individual pension account and cannot be opened on behalf of a third person.
What is the rate of return of NPS?
The rate of return in NPS is market-linked. The past trends have been in the range of 9% to 12% per annum.
What is the NPS lock-in period for the Tier I Account?
The lock-in period is three years for National Pension System (NPS) Tier I Account.
Can I invest in NPS without a job?
Yes. Individuals who are self-employed or unemployed can invest in NPS. The National Pension System is open for all Indian Citizens who fall between the age bracket of 18 and 70 years of age.
What are the disadvantages of NPS?
One of the principal negative aspects of the National Pension Scheme (NPS) is the compulsory necessity to use a portion of the corpus to buy an annuity when one retires. It restricts subscriber’s freedom to manage their retirement assets.
Can I change my pension fund manager in NPS?
Yes, you can change your pension fund manager once in a financial year.
What is a PRAN in NPS?
PRAN or Permanent Retirement Account Number is a 12-digit number that is allocated to every person enrolled in the NPS.

July 1, 2024

Backtesting Meaning, Types, Working, Advantages and Disadvantages

Imagine a time machine for your trading strategies, allowing you to see how they might have performed in the real market based on historical data. Sounds intriguing? Let’s jump in.

In today’s blog, we will discuss the basics of backtesting and explore its advantages and limitations.

What is Backtesting?

Backtesting is a method that helps investors and analysts to use past data to make better decisions. It is a way to analyze how a trading strategy or model would have performed in the past using historical data. This process helps traders recognize an approach’s strengths, weaknesses, and risks before implementing it.

Backtesting allows you to assess how a strategy would have performed using historical data without risking real money. Enter your strategy parameters and historical data, like prices and volumes, into a reliable backtesting tool, and the tool simulates the buy and sell decisions of your trading strategy based on the data.

The results will showcase your strategy’s performance by giving a detailed overview of your profits, losses, and other key metrics. Backtesting results help you gauge the strategy’s usefulness and identify the areas of improvement.

How Backtesting Works?

Firstly, you should define your strategy. A clearly defined strategy is the blueprint for your trades and can involve fundamental analysis, technical indicators, or a combination of both. Decide the entry and exit points for the trades based on your selected strategy.

Secondly, collect the historical data. You will likely need the opening & closing price, highs & lows, and volume data of the asset you are interested in.

It is necessary to ensure that the data collected is correct, up-to-date, and covers various market variables. Reliable data can be sourced from online brokers and financial websites.

Many backtesting tools are available, from spreadsheets with code to advanced software platforms. Input the data into a backtesting tool, and it then simulates how your strategy would have made buy and sell decisions depending on the data point.

The backtesting tool will create performance reports for your trading strategy, including metrics like total profit & loss, risk-adjusted returns, win rate, drawdown, etc.

Need of Backtesting a Strategy

There are numerous compelling reasons to backtest a trading strategy before using real money, such as:

Risk Reduction: The financial markets can be unforgiving. Backtesting offers a secure opportunity for practice and improvement, giving the trader an idea of its potential risks and rewards before putting hard-earned money on the line.

Increased Confidence: Positive results can boost your confidence in your strategy. It gives you a sense of validation and helps you trade with a clearer mind and a more focused approach.

Performance Optimization: Backtesting lets you try out different parameters in your strategy. You can test multiple entry and exit points, explore different timeframes, and adjust indicators. Analyzing the results allows you to optimize your trading strategy for better performance.

Types of Backtesting

Historical Backtesting: It is the most common type of backtesting where a trading strategy is tested using historical market data to observe how it would have performed in the past.
Out-of-Sample Backtesting: In out-of-sample backtesting, you split the data into two parts: training and testing data. The strategy is first tested on the training data, and then its performance is evaluated on the testing data. This form of backtesting provides a more accurate picture of how the strategy might perform in different market scenarios.
Walk Forward Analysis: Walk Forward Analysis is the more advanced form of backtesting, where the historical data is divided into multiple segments. Strategy parameters are optimized for every segment, and strategy is then evaluated for the next segment. This process is repeated in a rolling manner. This process helps reduce the overfitting issue and gives you an insight into how the strategy will adapt to changing market dynamics.
Monte Carlo Simulation: This technique needs testing the strategy with several random market setups. It helps to evaluate how the strategy might function in different market conditions and unexpected events.

Advantages

Backtesting uses real data to prove if the strategy works. It helps the traders recognize strategies that do not perform well. Backtesting saves time that otherwise would have been wasted on unprofitable approaches.
It shows how a strategy performs in market conditions like bull, bear, and sideways markets.
The technique allows you to experiment with several settings in your strategy. You can tweak parameters and test various timeframes to find the best fit for your strategy.

Disadvantages

Just because a strategy worked well in the past does not mean it will continue to do so. Markets are dynamic; what worked yesterday might not work in the coming days.
The accuracy of data depends heavily on the quality of your historical data. Ensure that the data is reliable and covers relevant timeframes. Any errors or gaps in data can twist the results and cause misleading conclusions.
Backtesting does not consider transaction costs such as commissions, spreads, and slippage. These costs can affect the trader’s profit when trading in real life.

Read Also: What is Quantitative Trading?

Conclusion

Backtesting can be a fruitful method for any investor or trader since it helps them to test the waters of a strategy before putting in the real capital, identify its strengths and weaknesses, and refine their approach for better performance. However, remember that backtesting provides a glimpse into the past and does not guarantee the future.

Frequently Asked Questions (FAQs)

Why do we need to backtest our strategies?
Backtesting helps reduce risk by testing strategy using historical data and judging its profitability before risking real capital.
How can I avoid backtesting pitfalls?
Use high-quality data, consider transaction costs, and remember that it does not account for emotions.
Which tools can be used for backtesting?
Beginners can use spreadsheets (using formulas and historical data). Online brokers also offer basic backtesting features within their platforms. Intermediate and advanced traders can use platforms like TradingView, Algo Test, Trading Blox, etc.
Is backtesting a guarantee for success?
No, but it can help you refine your trading strategies.
What are the key metrics to consider in a backtest report?
A good backtest report provides total net profit, average win/loss, maximum drawdown, Sharpe ratio, win rate, etc.

June 29, 2024

Dabur Case Study: Business Model and Swot Analysis

Dabur needs no introduction; it is one of India’s most trusted and famous household brands. Dabur is a 140-year-old Ayurvedic company that started operations in 1884 as an Ayurvedic medicines company. From its humble beginnings in the bylanes of Kolkata, Dabur India Ltd. has come a long way to become a consumer goods company with the world’s largest herbal and natural product portfolio.

In this Dabur case study and swot analysis blog, we will discover the fascinating story of Dabur India, its rich history, key strengths, business models, etc.

About Dabur India

Dabur has successfully transformed itself from being a family-run business into a professionally managed enterprise. Dabur India Ltd. is one of India’s leading FMCG companies, with revenues of over Rs. 12,886 crores & market capitalization of over Rs. 106,569 crores. Building on a legacy of quality and experience of over 140 years, Dabur is today India’s most trusted name and the world’s largest Ayurvedic and natural healthcare company.

Dabur India is also a world leader in Ayurveda, with a portfolio of over 250 Ayurvedic products. Dabur’s FMCG portfolio today includes nine distinct power brands in India.

Product Portfolio of Dabur India

Health Supplements: Dabur Chyawanprash, Dabur Honey, Dabur Glucose
Hair Care: Dabur Amla Hair Oil, Vatika Hair Oil, Almond Hair Oil
Oral Care: Dabur Red Toothpaste, Meswak Toothpaste
Skin & Personal Care: Gulabari Rose Water, Dabur Uveda Skincare
Home Care: Odonil, Odomos, Sanifresh
Food & Beverages: Real Fruit Juices, Hajmola, Lemoneez
Digestives: Hajmola, Pudin Hara, Nature Care Isabgol
Ethical & Ayurvedic Medicines: Various Ayurveda-based formulations

Dabur Business Model

Business strategy helps a company focus on immediate challenges and is aligned with its long-term vision. Dabur’s growth strategy is built on a foundation resting on four key pillars.

1. Modernising Ayurveda

By being known as the custodian of Ayurveda, Dabur has stayed true to its rich heritage and 140 years of quality and experience. Today, Dabur is the largest ‘science-based’ Ayurveda company globally. With the core belief in Ayurveda, Dabur has always invested in substantiating the usefulness of Ayurveda and Ayurvedic ingredients by making products through a series of scientific interventions for over a century. Dabur provides a unique platform by offering products that encapsulate the goodness of Ayurveda and are in sync with consumer preferences.

Dabur will continue focusing on the ‘herbal and natural’ proposition as the core philosophy in India and abroad. In addition, the emphasis on health and wellness is their USP, which makes Dabur a differentiated player in the consumer products market. Hence, they will continue to leverage this as a competitive advantage to increase their market share.

2. Power Brands

Brands are strategic assets, as these brands connect with consumers rationally and emotionally and deliver exceptional experiences.

Nine power brands together account for 70% of their total sales. These include eight brands in India and one in the overseas markets. Most power brands operate in the healthcare space, a category where Dabur has the natural right to win, given its 140-year heritage. The products offered align with the company’s vision of being dedicated to every household’s health and well-being.

3. Digital Transformation

Leveraging digital transformation to flare growth and innovation is not a new imperative for Dabur. Dabur is riding high on the digital revolution by pursuing an aggressive e-commerce and digital marketing strategy to tap the growing segment market size of millennials and Gen Z. To target the youth, they run specialized campaigns on various digital platforms and complement these with enhanced and easy availability of products on e-commerce and online marketplaces.

4. Rural Expansion

Rural markets in India have grown significantly, and these consumers are now more aware and conscious of their buying decisions and habits. The growing affluence in the hinterland and the deeper penetration of media and smartphones have led to a sizable jump in consumerism for branded consumer goods.

This market is one of Dabur’s key strategic focus areas. Rural India accounts for nearly 47% of Dabur’s domestic market sales, amongst the highest in the FMCG industry in India. At Dabur, they have been concentrating on increasing their direct reach to villages nationwide to tap into this growing consumer base. They have increased their distribution infrastructure, reaching around 1.3 million outlets and approximately 90,000 villages.

5. International Expansion

Dabur India Ltd. has strategically pursued international expansion to diversify revenue streams and strengthen its position in global FMCG markets. Initially serving the Indian diaspora in the Middle East, Dabur formalized its globalization drive in 2003 by establishing Dabur International Limited (DIL) in Dubai. As of 2024, the company has a global footprint in over 120 countries with 8 overseas manufacturing units, contributing 25% to total revenues. Region-wise split is mentioned in the table below:

Region	Contribution to International Revenues
Middle East	24%
Africa	24%
Asia	22%
Europe	15%
Americas	15%

Recent performance indicates strong momentum: Dabur’s international business grew by 23.6% in Q2 FY24. Its business in Egypt and Turkey grew by 35% and 78% respectively. The overall business in the MENA region grew by 18.4%. Dabur is now investing in expanding manufacturing capabilities in the Middle East and Europe. This global expansion is driven by a threefold strategy: geographic growth, leveraging its herbal product portfolio, and scaling through both organic means and acquisitions.

Case Study: Successful Marketing Campaigns

1. #BraveAndBeautiful

A social initiative celebrating cancer survivors, which deeply resonated with audiences and boosted Dabur’s brand reputation.

2. #VocalForLocal

A campaign promoting Indian-made products in response to the ‘Atmanirbhar Bharat’ movement, reinforcing Dabur’s homegrown identity.

3. Dabur Red Paste Challenge

A digital campaign leveraging social media influencers to highlight the effectiveness of Dabur’s oral care range.

Market Information of Dabur

Current Market Price	₹ 511
Market Capitalization (in ₹ crores)	90,521
52 Week High	₹ 672
52 Week Low	₹ 480
Book Value	₹ 58.5
P/E Ratio	51.2
ROCE	22.3%
Dividend Yield	1.08%

(Data as of 25 March 2025)

Dabur India Key Financial Statements

Dabur Income Statement

Particulars	March 31, 2024	March 31, 2023	March 31, 2022
Total Income	12,886.4	11,975.3	11,281.9
Total Expenses	10,527.2	9,755	8,926.4
Net Profit	1,811.3	1,701.3	1,742.3

(All values are in INR Crore unless stated otherwise)

Dabur Balance Sheet

Particulars	March 31, 2024	March 31, 2023	March 31, 2022
Total Assets	15,122.9	13,654.4	12,284.5
Total Liabilities	4,830	4,212.9	3,862.7
Total Equity	10,303.1	9,441.4	8,421.9

(All values are in INR Crore unless stated otherwise)

Dabur Cash Flow Statement

Particulars	March 31, 2024	March 31, 2023	March 31, 2022
Cash Flow from Operating Activities	2,013.5	1,488.4	1,802.3
Cash Flow from Investing Activities	-971.7	-586.5	-1,275.5
Cash Flow from Financing Activities	-1,161.9	-1,035.2	-491

(All values are in INR Crore unless stated otherwise)

SWOT Analysis of Dabur

Dabur SWOT Analysis highlights its strengths in herbal products, opportunities in global expansion, weaknesses in dependency on rural markets, and threats from competition.

Strengths

Market Share: Dabur India has an impressive market share within different segments like oral care (15.8%), beverages (19.8%) and hair care (18.9%).
Economies of Scale: As it’s a big brand with economies of scale, it can compete at lower prices, and it would be difficult for its competitors to compete or fabricate its product at lower prices.
Digital Marketing & E-Commerce presence: Dabur has an impressive e-commerce presence, helping it reach a wider consumer base.
National Presence: Dabur is an Indian FMCG company that sells products based on Ayurveda. It has nearly 6.7 million retail outlets across India, and its portfolio includes eight brands in different sectors.
Health Brand: Dabur successfully established itself as a healthcare brand. Its Ayurvedic preparations include health supplements, digestives and other OTC products.

Weaknesses

Highly Competitive Industry: The FMCG industry is dynamic and highly competitive, with diverse consumer preferences and pricing strategies.
Competition in International Markets: Dabur faced tough competition in international markets, especially in the toothpaste segment.
Highly Regulated Market: Regulatory compliance is higher in Indian markets for FMCG companies.
High Turnover Rate: Due to the frequent use and short shelf life of FMCG, the industry turnover rate is high. These goods are produced and manufactured in large quantities and sold in high volumes.

Opportunities

Inelastic Demand: Usually, the demand for any product or industry is affected by various factors. However, the demand for FMCG is inelastic, i.e., changes in market conditions will have a minimal impact on demand.
Strong Brand: Dabur has established itself as a strong brand, and people, even in rural areas, know it, making it a household name.
Price Setters: Customers prefer choosing one product over another if they have brand loyalty. The sellers can also charge a marginally higher price and may become price setters to a certain extent.
Ayurvedic Product Portfolio: Ayurvedic product demand is increasing in India & abroad.
Focus on Health: Now, people focus more on healthcare products and brands, so Dabur is well placed in this segment.

Threats

Monopolistic Competition: In monopolistic competition, there are many buyers and sellers. But they all do not sell homogeneous products. The products are similar, but all sellers sell slightly differentiated products. Hence, this sector is highly competitive.
Big Portfolio: Dabur has a big portfolio and a wide product range. There is a threat of duplication from local brands that can make duplicate products and sell them under Dabur’s brand name.

Competitors of Dabur India

ITC
Marico
Patanjali
Colgate-Palmolive
Emami

Conclusion

The company has a robust track record, making it a leading FMCG Company in India and the world’s largest Ayurvedic and natural healthcare company, with a portfolio of over 250 Herbal / Ayurvedic products. It maintains a clear vision for the future. However, competitors and regulations governing the FMCG industry present some challenges. As India grows and natural healthcare demand increases, Dabur is poised to play a significant role.

The company becomes a true winner against its competitors if it handles its challenges efficiently and takes advantage of future opportunities in a timely manner. Further, we recommend consulting with your financial advisor before making any investment decision.

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Frequently Asked Questions (FAQs)

When did Dabur India start trading at NSE?
It started trading on November 3, 1994.
What type of market does Dabur India compete in?
It operates in a monopolistic market where many buyers and sellers compete with slightly differentiated products.
How many business segments does Dabur have?
It operates in three segments, namely 1) Home & Personal Care, 2) Health Care, and 3) Food & Beverages.
Who is the CEO of Dabur?
Mohit Malhotra is Dabur’s chief executive officer.
What makes Dabur Unique?
It blends traditional knowledge of Ayurveda with modern-day science and is famous for its natural ingredients.

June 29, 2024

What is Dow Theory? Meaning, Principles, and Examples

Dow Theory, a 100-year-old theory, is still valid in today’s volatile and technology-driven markets. Sounds interesting? Let’s find out.

Charles H. Dow is one of the pioneers in technical analysis and finance. Dow was the founder and first editor of The Wall Street Journal, co-founder of Dow Jones & Company, and a journalist. He used to record the highs and lows of the Dow Jones Industrial Average for daily, weekly, and monthly time frames to correlate the patterns. He tried to explain the historical events based on those patterns. He never published the complete theory before he died in 1902, but several followers and associates refined his work, including:

William P. Hamilton published “The Stock Market Barometer” in 1922.
Robert Rhea published “The Dow Theory” in 1932.
E. George Schaefer published “How I Helped More Than 10,000 Investors to Profit in Stocks” in 1960.
Richard Russell published “The Dow Theory Today” in 1961.

Even though Charles Dow is credited with developing the Dow Theory, S.A. Nelson and William Hamilton refined it into what it is today.

Dow Theory Explained

Dow theory supported the common belief that an asset price and its resulting movements already have all the necessary information reflected in it to make accurate predictions.

Based on his theory, Charles Dow created the Dow Jones Industrial Index and the Dow Jones Rail Index (now known as the Transportation Index), originally developed for the Wall Street Journal. Charles Dow created these stock indices as he believed they would accurately reflect the economic and financial conditions of companies in two major economic sectors: the industrial and the railway (transportation) sectors.

Principles of Dow Theory

Dow Theory is based on six principles, which are as follows:

Market discounts everything: Dow believed that the prices of all the stocks and indices reflected all available information.
Three-trend market: Three market trends are active at any given time that may be in opposite directions. Three trends are Primary, Secondary, and Minor. The primary trend is the largest trend that lasts for one year or more; it tells whether the market is bullish (going up) or bearish (going down). The secondary trend is often in the opposite direction of the primary trend; e.g., in a bull market, the secondary trend will give correction, and in a bear market, it will give a rally. The secondary trend lasts for a few weeks to a few months. Finally, there is a minor trend, which features short-term fluctuations and is unpredictable.
Phases in Primary trend: There are three phases in the primary trend-
- Accumulation/Distribution phase: In the bull market, the accumulation phase witnesses an increase in price with an increase in volume. In bear markets, news of decline flows through the investors.
- Public participation phase: It witnesses the largest price movement because average and retail investors participate.
- Excess/Panic phase: In a bull market, it is called the excess phase (euphoria period) towards the end of the bull market, and experienced investors exit while the majority are buying. Similarly, investors continue selling aggressively in the panic phase at the end of the bear market.
Volume must confirm the Primary trend: Volume should increase in the direction of the trend to confirm the primary trend. If the volume doesn’t increase in the direction of the trend, then it may signal weakness in the trend.
Primary trends must confirm each other across other market indices: A trend in one index must be confirmed by a similar trend in other market indices. For example, Nifty and Banknifty cannot go in different directions for a longer timeframe or their primary trend.
Primary trend remains in place until a clear reversal happens: This theory gives importance to a clear reversal of the primary trend, which may take several months. Hence, this theory may miss the early signs of reversals.

Example

Dow’s theory trading strategy is based on a trend-following strategy and can be either bullish or bearish. Remember, the trend is your friend, as per this theory.

Dow theory buy signal

This sequence should be followed for the buy signal :

Once the low point of a downtrend is established, a secondary uptrend bounce will occur.
A pullback in index or stock must exceed 3%, and it should not break prior lows; ideally, it should hold above the prior lows.
A breakout above the previous rally high would generate a buy signal for the bull market.

From the above chart of Tata Motors, we see it bottomed out with huge volumes on the monthly chart in May 2020, and then it started moving up in a primary trend. It gave a breakout in June 2023, broke a 2015 high of Rs.600, and went up to Rs.1050.

Dow Theory Sell Signal

This sequence should be followed for the sell signal :

Index or stock tries to make tops and give pullbacks.
Index or stock falls around 3% and doesn’t reach previous highs.
A sell signal is triggered once it breaks the recent lows.

From the above chart of Yes Bank, we see monthly highs were around Rs. 400, and there were pullbacks. A sharp decline was seen, and the stock failed to reach previous highs. The stock broke the previous low alongside a volume rise, generating a sell signal. The stock currently trades around Rs. 24.

Conclusion

Dow Theory is a 100-year-old theory, but its basic elements are still valid today. Charles Dow developed it, but William Hamilton and Robert Rhea further refined it. Dow Theory is a Bible for technical analysis and price action and explains the market philosophy. Many people think the market is different from when it started, but Robert Rhea’s book attests that the stock market behaves the same as it did 100 years ago. So, the basic philosophy covered in Dow Theory is still relevant.

Frequently Asked Questions (FAQs)

What is Dow Theory?
Dow Theory is about identifying trends and using certain parameters to confirm them.
Is it a theory?
Though it is popular, there were no academic papers related to it.
What is the goal of Dow Theory?
The goal is to identify the primary trend and then follow the trend to catch big moves.
What is one of the assumptions of Dow Theory?
The assumption is that the market discounts everything, which means the market reflects all available information.
Can it be used in Algorithmic Trading?
Yes, traders can program Dow’s Principles into algorithms; these algorithms can scan the market and look for patterns.

June 29, 2024

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

Have you ever had that insane flavour explosion when eating a perfectly spiced Bhujia or that amazing crunch of a savoury namkeen? You have probably heard of the famous Bikaji brand if you enjoy Indian snacks. The story is more than just tasty treats. It is about innovation, tradition, and a great understanding of what delights Indian taste buds.

In today’s blog, we will explore the world of Bikaji Foods International, a leading Indian snack company and learn about its history, product range, and what makes it a dominant player in the Indian FMCG market.

About Bikaji Foods

Bikaji Foods International Limited is a major Indian snack food company and one of India’s largest fast-moving consumer goods (FMCG) brands. The company manufactures a wide variety of snacks across various categories. Bikaji is the largest manufacturer of Bikaneri Bhujia. Their products are popular in India and exported to over 22 countries, including North America, Asia Pacific, the Middle East, the European Union, Africa, and the United Kingdom.

The history of Bikaji Foods International can be traced back to the late 1980s. Shivratan Agarwal founded it. The company was originally named Shivdeep Food Products, which was incorporated in 1986. It subsequently came up with the “Bikaji” brand in 1993. The brand name was inspired by Bika Rao, the founder of Bikaner, and the suffix “ji” was added as a sign of respect. In 2006, the company underwent a major consolidation of its four group companies.

Bikaji Foods Product Portfolio

Bikaji offers various products, mainly categorized as,

Namkeen (Savory snacks) include Bhujia, Aloo Bhujia, Sev mixtures, and other traditional Indian snacks.
Indian sweets include Rasgulla, Gulab Jamun, Soan Papdi, and Bikaneri Papad, among other types of papad.
Ready-to-eat snacks and meals.
Western snacks include chips, cookies, and other contemporary snacks, which include gift packs, frozen food, etc.

The products are available in varied sizes, letting the customers pick from various options based on their needs and budget.

The company uses a strong distribution network to deliver its products to a wide customer base in India and overseas, including retail outlets, supermarkets, hypermarkets, and convenience stores.

It also focuses on efficient production and economies of scale to control costs and stay competitive.

Key Highlights of Bikaji Foods

Pan-India Distribution Network: 25 states & 4 Union Territories.
250+ snacking choices spanning six key categories.
550 distributors.
Leading manufacturer of packaged sweets (especially Rasgulla and Soan Papdi)
Largest manufacturer of bikaneri bhujia.

Bikaji Foods Consolidated Financial Statements

Bikaji Foods Income Statements

Key Metrics	FY 2024	FY 2023	FY 2022
Total income	2,356	1,980	1,621
Total expenses	1,998	1,799	1,509
Profit after tax	263	126	76

(All values are in INR Crore unless stated otherwise)

Bikaji Foods Balance Sheet

Key Metrics	FY 2024	FY 2023	FY 2022
Total Assets	1,533	1,271	1,102
Total Liabilities	314	319	281
Total Equity	1,218	952	820

(All values are in INR Crore unless stated otherwise)

Bikaji Foods Cash Flow Statements

Key Metrics	FY 2024	FY 2023	FY 2022
Cash Flow from Operating Activities	244	176	57
Cash Flow from Investing Activities	-198	-128	-231
Cash Flow from Financing Activities	-53	-4	168
Net increase/(decrease) in cash and cash equivalents	-8	43	-5

(All values are in INR Crore unless stated otherwise)

Bikaji Foods Ratio Analysis

Key Metrics	FY 2024	FY 2023	FY 2022
Debt Equity Ratio	0.1	0.15	0.17
Return on Equity (%)	21.8%	13.47%	9.49%
ROCE (%)	27.24%	17.27%	12.24%
Net Profit Margin (%)	11.31%	6.43%	4.71%

Inferences that can be drawn from the above financial statements are as follows,

Bikaji has shown consistent revenue growth over the past few years, indicating a strong demand for its products.
Profits have also increased over the past three years, which shows efficient operations and a healthy profit margin.
Looking at ratios like ROCE, the company is healthy and indicates good returns for shareholders and efficient use of invested capital.
Overall, Bikaji’s financial statements show that the company is growing and making profits. However, staying informed about the upcoming trends and possible challenges is important, such as increasing input costs and changing consumer preferences.