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  • Ratio Analysis: List Of All Types Of Ratio Analysis

    Ratio Analysis: List Of All Types Of Ratio Analysis

    Have you ever had trouble making sense of the enormous numbers and information provided in a company’s financial reports? Before making any investment decisions, though, it is important to take financials into account because they reflect the company’s overall picture and can be used to analyse the future growth.

    In this blog, we will deep dive into the ratio analysis and how it can help you grasp a company’s overall fundamental image.

    Overview

    Ratio Analysis Guide

    Ratio analysis is a method of analysis that compares the financial data of a company. Financial statements, including the income statement and balance sheet, are used to extract the data, which are then compared to each other and help us identify investment opportunities.

    Through ratios, we can understand the raw & bland data of the balance sheet and income statement into actionable ideas.

    Importance of Ratio Analysis

    1. The ratio analysis gives us insight into the company’s historical performance, which we can use to forecast its performance in the future.
    2. Ratios can help you identify areas of weakness in the organization where more effort needs to be made.
    3. By examining the ratios, investors can decide whether to invest or not and create strategies accordingly.
    4. Ratio analysis can help investors in comparing a company’s performance with its peers and against the industry.

    Types of Ratios

    Type of Ratios

    There are four broad categories of ratios:

    1. Liquidity Ratio – These ratios reflect the company’s ability to pay off its short-term liability / obligations.
    2. Solvency Ratio – This is also known as the leverage ratio, which reflects the company’s ability to repay its long-term debt & obligations.
    3. Profitability Ratio – This ratio shows the company’s ability to generate profit from its operating activities.
    4. Valuation Ratio – This ratio reflects the intrinsic value of a company’s stock as compared to its current market price. It helps in identifying whether a company’s stock price is fairly valued, undervalued, or overvalued.

    Let’s have a deeper analysis of each type of ratio.

    Read Also: Explainer on Liquidity Ratios: Types, Importance, and Formulas

    Liquidity Ratios

    Liquidity ratios can be used to assess a company’s capacity to satisfy short-term obligations (debt that must be repaid within a year).

    Before granting a loan such as a working capital loan, the company’s creditors typically check this ratio to ensure the company can afford to repay it. An organization’s creditworthiness is harmed if it cannot pay its short-term debts on schedule.

    Types of Liquidity Ratios

    Generally, there are 3 types of liquidity ratios:

    1. Current Ratio :

      This ratio is calculated to evaluate the company’s ability to sell its short-term assets, such as inventory, and settle its short-term liabilities. It is also known as the working capital ratio.

      Current Ratio = Current Asset / Current Liability

      A greater than 1 current ratio indicates that the company has more current assets than its current liability.
    2. Quick Ratio :

      It is similar to the Current ratio, however, inventory is not taken into account for determining the company’s capacity to meet its short-term obligation. The Acid Test Ratio is another term for it.

      Quick Ratio = Current Asset – Inventory / Current Liabilities

      Generally, the quick ratio greater than 1 is considered a good number.
    3. Cash Ratio :

      Here, Current assets are limited to cash and cash equivalents.

      Cash Ratio = Cash and cash equivalent / Current Liabilities.

      The ideal cash ratio will be 1 or greater than 1.

    Solvency Ratios

    To assess a company’s capacity to settle its long-term debts, solvency ratios are computed. Creditors and investors use this ratio to assess the company’s ability to settle long-term obligations.

    Types of Solvency Ratios

    1. Debt to Equity Ratio – This ratio helps in assessing the company’s financial stability.

      Debt to Equity Ratio = Total Debt / Total Equity (Lower is better).
    2. Debt Ratio – This ratio evaluates the company’s debt-financed assets. A lower debt ratio indicates greater financial stability and less reliance on debt funding.

      Debt Ratio = Total Debt / Total Asset
    3. Interest Coverage Ratio – It measures the company’s ability to cover its interest expense by its earnings before interest and taxes, which is generally known as EBIT. A higher ratio signifies a strong ability to meet the company’s interest obligations.

      Interest Coverage Ratio – EBIT / Interest Expense
    4. Debt Service Coverage Ratio – This ratio assesses how well the business can use operational profits to pay its debt. It is measured by the amount of cash flow that can be used to pay down debt principal and interest.

      Debt Service Coverage Ratio = Net Operating Income / Total Debt Service.

    Profitability Ratios

    The profitability ratios are helpful in assessing a company’s profitability on several metrics, such as equity, sales, and assets. It allows us to assess how well a business uses its resources to generate profits. The higher the profitability ratios, the better it is for the company.

    Some commonly used profitability ratios are:

    1. Gross Profit Margin – It paints a picture of how a business effectively runs its manufacturing process.

      Gross Profit Margin = (Revenue – COGS) / Revenue * 100
    2. Net Profit Margin – It is computed as a percentage of revenue, which is what’s left over after all costs, including taxes, interest, operating expenses, and cost of products sold, are subtracted.

      Net Profit Margin = Net Income / Revenue * 100
    3. Return on Equity (ROE) – The ROE measures the company’s ability to generate profit from shareholder’s equity. Through ROE, one can estimate the return earned by the company on shareholder’s fund.

      Return on Equity = (Net Income / Average Shareholder’s Equity) *100
    4. Earnings Per Share – It is used to evaluate a company’s profitability on a per-share basis, or in other words, the amount of net income attributable to each outstanding share of common stock.

      Earnings Per Share = (Net Income – Preferred Dividends) / Average no. of outstanding shares

    Valuation Ratios

    These are used to calculate the intrinsic value of a company’s stock as compared to its current market price. This can evaluate whether a company’s stock price is fairly valued, undervalued, or overvalued.

    A few valuation ratios used by investors for evaluating a company’s stock price are:

    1. Price to Earnings Ratios – The P/E ratio means how much an investor is willing to pay for each rupee earned by the company. A higher ratio reflects that investors are expecting higher growth, but a higher PE ratio sometimes also suggests that a stock might be overvalued.

      Price to Earnings Ratio = Market price per share / Earnings per share (EPS).
    2. Price to Book Value – In this, the stock price of a company is compared to its book value per share. It indicates whether a company’s stock is selling above or below its book value.

      Price to Book Value = Market price per share / Book value per share.
    3. Price to Sales Ratio – This ratio helps us in comparing a company’s stock price to its sales or revenue per share. It reflects how much an investor is willing to pay for every INR of a company’s sales. The higher ratio suggests that the company is growing rapidly, although it also suggests that the stock is overvalued.

      Price to Sales Ratio = Market Price per share / Sales per share.

    Read Also: Ratio Analysis: List Of All Types Of Ratio Analysis

    Conclusion

    In summation, financial ratios are a valuable tool for assessing a company’s performance. A company’s capacity to pay off debt, make a profit, allocate resources effectively, etc. can be better understood by examining several ratios discussed above, including those related to profitability, liquidity, solvency, and valuations.

    Nevertheless, they have limitations and do not provide any valuable insights if used in isolation. Therefore, the best method to analyze a ratio is to compare it to the company’s peers to gain a better knowledge of it.

    However, before making any investments, do a thorough research after considering your risk profile. The ratios alone are not sufficient criteria for investing in any company.

    Also give this a read to boost your investing strategy – 5 points to considered before buying and selling any stocks.

    Frequently Asked Questions (FAQs)

    1. Are there any limitations of the ratio analysis?

      Yes, although ratios have their own merits, they also have a few limitations, such as ignoring inflation, qualitative aspects such as goodwill, etc.

    2. How frequently should one carry out ratio analysis?

      Ratio analysis should be performed on a regular basis, ideally, quarterly or annually.

    3. How do we analyze the ratios?

      One must compare the ratios with the industry average or other peer companies.

    4. What are liquidity ratios?

      Liquidity ratios assess a company’s capacity to satisfy its short-term debt & obligations (debt that must be repaid within a year).

    5. Is Return on Equity (ROE) a profitability or valuation ratio?

      The Return on Equity (ROE) is a profitability ratio that measures the company’s ability to generate profit from shareholder funds.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

  • Equity Mutual Funds: Meaning, Types & Features

    Equity Mutual Funds: Meaning, Types & Features

    Have you ever been concerned about how to prepare for your long-term financial goals, such as purchasing a home, planning a child’s marriage, schooling, and so on, but yet to discover the appropriate investment product that will provide inflation-beating returns?

    Then someone told you to invest in an equity mutual fund, but you don’t understand what exactly an equity mutual fund is.

    In this blog, we’ll discuss the equity categories of mutual funds in detail.

    Equity Mutual Fund

    Firstly, if you’re new to the mutual fund’s world, then check out our blog on the same: What are Mutual Funds?

    Coming to the equity category of mutual funds, the fund manager primarily invests in the equity market. Equity mutual funds generally offer better long-term returns than other categories of mutual funds, but they can be volatile in the short run and carry higher risk.

    The fund management and their research team invest the funds in a variety of companies from different sectors or market capitalizations depending on the type of equity mutual fund.

    Features of Equity Mutual Funds

    Features of Equity Mutual Funds
    1. Equity mutual funds generally offer higher returns than other types of mutual funds, such as hybrid and debt funds.
    2. Investors can enjoy tax benefits while investing in ELSS funds, which are a part of equity mutual funds.
    3. Equity funds carry higher risk as their portfolios majorly consist of stocks.
    4. Investment in equity mutual funds is suggested for the investors with a longer horizon, preferably >5 years.
    5. Equity funds tend to have higher expense ratios than other categories of mutual funds.

    Types of Equity Mutual Funds

    Before jumping into the types of equity funds, let’s first understand the Large, Mid and Small Cap Companies.

    There is a concept called Market capitalization, which refers to the total valuation of a company’s outstanding shares. It is calculated by multiplying the total number of outstanding shares by the current share price.

    As per our market regulator, i.e., the SEBI, based on the market capitalization, stocks are classified into Large, Mid and Small-Cap:

    1. Large-Cap – It refers to the top 100 listed companies on the basis of market capitalization. They are also known as Blue Chip companies and considered less riskier than Mid and Small-Cap companies.
    2. Mid-Cap—Companies ranked between 101st and 250th are considered Mid-Cap Companies. They are considered riskier than Large-Cap Stocks.
    3. Small-Cap—It refers to the 251st company onwards in terms of market cap. They carry the highest risk.

    Read Also: What is Solution Oriented Mutual Funds?

    Categories of Equity Mutual Funds

    There are various types of mutual equity funds, and investors can choose among them based on their investment objectives and risk profile.

    1. Large-Cap Funds— A large cap mutual fund manager invests a minimum of 80% of their total assets into large-cap stocks (the top 100 stocks based on market capitalization). These funds are less volatile because large-cap companies are considered more stable than large and small-cap.
    2. Mid-Cap Funds—A minimum of 65% of total assets are invested in Mid-cap stocks. These stocks have the potential to grow at a higher rate than large-cap stocks, but are also more volatile. Hence, they are suitable for investors who can take a moderate amount of risk on their capital.
    3. Small-Cap Funds—These funds invest a minimum of 65% of their total assets in the stocks of small-cap companies. They have the potential to generate higher returns, but they also carry the highest amount of risk. This fund is suitable for risk-taking investors with a longer investment horizon.
    4. Large & Mid Cap Funds—The fund invests a minimum of 35% of its total assets in large-cap and 35% in mid-cap stocks.
    5. Flexi-Cap Funds—Flexi-cap funds can invest a minimum of 65% of their total assets into equity and equity-related instruments across market capitalization. It gives more flexibility to the fund managers as there are no restrictions regarding the investment based on market capitalization.
    6. Multi–Cap Funds—The Multi-cap funds invest at least 75% of their portfolio in equity and related instruments and a minimum of 25% of their total assets in large, mid, and small-cap stocks. It offers less flexibility to the fund manager as compared to the Flexi-cap funds.
    7. Focused Funds—This category of equity mutual fund invests a minimum of 65% of its total assets in equity-related instruments. Further, investing in more than 30 stocks at a particular time is not allowed.
    8. Sectoral/Thematic Funds—These funds are required to invest a minimum of 80% of their total assets in a particular theme or sector, such as Banking, FMCG, Infra, Healthcare, etc.
    9. Dividend Yield Funds—A minimum of 65% of this fund’s assets are invested in dividend-yield stocks.
    10. ELSS Funds—In an ELSS fund, the fund manager invests 80% of the total funds into equity and equity-related instruments without any restriction of market capitalization. This is the only equity mutual fund category that comes with a lock-in period of three years, as it offers a deduction of up to INR 1,50,000 under section 80C of the Income Tax Act.

    Taxes on Equity Mutual Funds

    Taxes on Equity Mutual Funds

    We have discussed multiple categories of Equity Mutual funds above. However, taxation on almost all equity mutual funds remains the same, whether it is large, flexi, small cap, etc. Ignoring taxation can significantly impact your net returns post taxation.

    The capital gains tax on the profit earned by investing in equity mutual funds is divided into two different categories:

    1. Short Term Capital Gains Tax (STCG)— If the investment is held for less than 12 months or 365 days, the capital gain generated will be taxed at a rate of 15% without any indexation benefit.
    2. Long Term Capital Gains Tax (LTCG) — If the investment is sold after 12 months or 365 days, the capital gain generated will be taxed at a rate of 10% over and above INR 1 lakh.

    If you are curious to learn more about the taxation of Mutual Funds in India, check out our blog: Decoding Mutual Funds Taxation in India.

    Read Also: Mutual Fund Factsheet: Definition And Importance

    Conclusion

    Investment in equity mutual funds can be a good option for long-term wealth creation. It can help you achieve your long-term financial goals and beat fixed-return investment plans.

    Further, one can start investing in equity mutual funds with as little as INR 100, and ELSS funds provides a tax benefit of INR 1,50,000 under Section 80C while providing equity returns.

    Still, the investor must be well-versed in the various categories of equity mutual funds, as each fund has unique characteristics, risks, and rewards.

    It is advisable to consult with your investment advisor, who can help you choose an equity mutual fund that aligns with your investment horizon and financial goals.

    Frequently Asked Questions (FAQs)

    1. I have a low-risk appetite and a short-term horizon. Can I invest in an equity mutual fund?

      It is suggested not to invest in equity mutual funds as these funds carry higher risk and are more volatile in the short run. Further, consulting with your financial advisor before investing in any fund is advisable.

    2. Is there any mutual fund which provides tax benefits?

      Yes, the ELSS (Equity Linked Savings Scheme) is a category of equity mutual fund that provides tax benefits of up to INR 1,50,000 under section 80C, but it comes with a three-year lock-in period.

    3. What is the meaning of direct investing in stocks?

      When an investor directly purchases the stocks of any company, it is known as direct investing in stocks.

    4. What are sectoral mutual funds?

      Sectoral funds invest 80% of their total assets into the stocks of a particular sector, such as IT, FMCG, or Pharma. These funds carry higher risk because their portfolios are exposed to a specific sector; hence, if any downfall in the sector occurs, the portfolio can show a negative return.

    5. What are Contra Mutual Funds?

      Contra mutual funds follow a contrarian investment approach and invest at least 65% in equity & equity-related instruments.

  • Top Economic Indicators: Overview & Importance

    Top Economic Indicators: Overview & Importance

    Top Economic Indicators

    Have you ever imagined what makes the economy tick? Economists use a toolbox full of indicators to gauge the health of the economy. Learning about these indicators can help you understand the broader picture of the economy and make informed decisions about your finances.

    Here is an analogy – your body has vital signs like temperature or heart rate. Economic indicators function similarly, providing important data points that signal the overall health of the economy.

    In this blog, we will crack open the code on some of the most widely used economic indicators, explaining what they are and how they can help you see what is coming down the economic road.

    Economic Indicators – An Overview

    Economic indicators are statistical tools that provide information about an economy’s health. They are used by economists, businesses, investors, etc., to assess the current state of the economy and to make predictions of economic performance. There are many different economic indicators, but some of the most commonly followed include GDP, Unemployment Rate, Consumer Price Index, Interest rates, etc.

    Generally, the Economic Indicators can be broadly classified into three categories:

    • Leading Indicators
      These indicators tend to change before the overall economy does. They can provide advanced warning of future economic trends. For example, the number of building permits issued can be a leading indicator of future economic activity in the construction industry.
    • Coincident Indicators
      These indicators change along with the overall economy and give a snapshot of the current state of the economy. For example, the unemployment rate is a coincident indicator of economic activity.
    • Lagging Indicators
      These indicators change after the overall economy does. They can confirm trends that have already been identified by leading indicators. For example, the inflation rate is a lagging indicator of economic activity.

    Top Economic Indicators

    Top Economic Indicators

    Let’s discuss some of the top economic indicators that economists and businesses track to gauge the health of the economy.

    Gross Domestic Product

    This is the total market value of all the final goods and services produced in a country in a given year. It is considered the broadest measure of an economy’s health. A rising GDP indicates economic growth, while a falling GDP indicates a recession. Generally, emerging economies such as India, Bangladesh, Indonesia, etc. have a higher GDP growth percentage as compared to developed nations such as the USA, England, etc.

    Unemployment Rate

    This is the percentage of the labour force that is unemployed and is actively seeking work. Low unemployment is generally considered to be a sign of a strong economy, as it indicates that economy is booming, businesses are hiring, and there are plenty of jobs available.

    Consumer Price Index (CPI)

    This is a measure of inflation. It tracks the average price of a basket of goods and services that are commonly purchased by consumers. A rising CPI indicates inflation, which can erode purchasing power and consumer confidence. A falling CPI indicates deflation, which can discourage spending and investment. A similar indicator used to measure inflation is the Wholesale Price Index (WPI), which tracks inflation at the producer level. Remember that CPI and WPI both are lagging indicators.

    Interest Rates

    These are the rates that banks charge from borrowers and pay to lenders. The central bank of every economy (RBI in India) uses interest rates such as Repo Rate, Reverse Repo Rate, etc. to influence the economic activity. Lower interest rates tend to stimulate the economy by making it cheaper for businesses and consumers to borrow money. Higher interest rates tend to slow down the economy by making it more expensive to borrow money.

    Trade Balance

    The trade balance measures the difference between a country’s exports and imports of goods and services. A positive balance (surplus) depicts that a country is exporting more and importing less, while a negative balance (deficit) indicates the opposite.

    Performance of the Stock Market

    The stock market performance can be an indicator of investor confidence in the economy. A rising stock market can indicate that investors are optimistic about the future of the economy, while a falling stock market can indicate that investors are pessimistic.

    Importance of Economic Indicators

    • Big Picture View
      Economic Indicators are like headlights, illuminating the road ahead. They provide insights into the current state of the economy and potential future trends, which is why they are widely used by Economists, Businesses, Governments, etc.
    • Informed Choices
      Businesses use economic indicators to make strategic decisions. For example, a rising GDP might signal a good time for expansion, while high inflation might suggest rising prices. Further, Investors use them to analyse the investment risk.
    • Policy Decisions
      Economic Indicators guide policymakers and central banks like the RBI. By analysing factors like unemployment or inflation. They can adjust interest rates or implement stimulus programs to promote economic stability.
    • Individual Impact
      Even individuals benefit from understanding economic indicators. They can help you make personal financial decisions, like planning for retirement or navigating a recession. For example, a rising unemployment rate might encourage an individual to create an emergency fund.
    • Transparency and Accountability
      Economic Indicators provide transparency into an economy’s health. This allows people to hold governments accountable for their economic policies.

    Read Also: What is the Lipstick Effect? Economic Indicator, Application, Advantages, Limitations, and Criticisms

    Conclusion

    By keeping an eye on these indicators, you will be better equipped to understand the economic climate and make informed decisions.

    Remember, the economy is a complex system, so no single indicator tells the whole story. Looking at the combination of leading, coincident, and lagging indicators can give you a more well-rounded view of what is going on and an overall picture of the economy.

    Frequently Asked Questions (FAQs)

    1. What are Economic Indicators?

      Economic indicators help in analysing the health of an economy.

    2. How do interest rates affect the economy?

      Interest rates affect the borrowing cost. Lower rates stimulate the economy by making borrowing cheaper, while higher rates slow it down by making borrowing expensive.

    3. Do lagging indicators tell us what has already happened?

      Exactly. The inflation rate, for instance, confirms a trend that leading indicators might have hinted.

    4. Why are Economic Indicators important?

      The Economic Indicators are important because they guide businesses, investors, and policymakers in making informed decisions about investments, spending, and economic policies.

    5. Can Economic Indicators be misleading?

      Yes, Economic Indicators can be misleading. Unexpected events or changes in how data is collected can impact interpretation.

  • Top Real Estate Stocks In India

    Top Real Estate Stocks In India

    Top real Estate Stocks in India

    The Indian real estate market is a booming industry, and with that comes a fortune of investment opportunities. Are you looking to diversify your investments and capitalize on India’s growing real estate sector?

    In this blog, we will explore the top real estate stocks of India and provide valuable insights.

    Industry Overview

    India’s real estate industry contributes immensely to the country. The industry is expected to grow at a CAGR of 25.60% in the coming years, showing a positive trajectory.

    The market is fragmented, with multiple players ranging from large, pan-India developers like DLF and Prestige Group to local developers catering to different regions of the country. Residential real estate forms the larger segment, accounting for roughly 80% of the market share. This is driven by factors like rising disposable income, population growth, urbanisation etc. On the other hand, commercial real estate holds the remaining 20%, catering to office and retail spaces.

    The COVID-19 pandemic affected the real estate industry, with the residential sector being the worst hit due to lockdowns. However, the government is carrying out several reforms to improve transparency and attract investments, such as initiatives like REITs.

    Overall, the real estate industry in India is dynamic and evolving, and it plays a vital role in the country’s economic development.

    Top Real Estate Stocks

    Top Real Estate Stocks

    DLF Limited

    DLF stands for Delhi Land & Finance. The company was founded in the year 1946 by Chaudhry Raghvendra Singh. It started with the creation of 22 urban colonies in Delhi and currently is one of the largest real estate companies in India.

    Business Model

    DLF’s business model has two main components:

    1. Development Business – This involves the entire lifecycle of real estate projects. The company identifies and acquires land, plans, and executes the construction. It then sells the completed properties to various clients. This could be anything from luxury apartments to commercial office spaces.
    2. Annuity Business – DLF also focuses on generating recurring income streams from its existing assets. This involves leasing out commercial properties like office buildings or retail spaces to businesses for a fixed rental income over a period.

    The company also offers IT Parks, shopping & entertainment spaces, and leases developed offices. It also manages two hotels, the Lodhi and Hilton Garden Inn and holds properties in several states.

    Read Also: List Of Best Paper Stocks in India

    Balance Sheet (In INR crore)

    Key MetricsFY 2023FY 2022
    Non-current Assets28,157.2928,412.51
    Current Assets25,242.5023,818.36
    Non-current Liabilities5,051.335,717.79
    Current Liabilities10,927.0710,382.29

    Income Statement (In INR crore)

    Key MetricsFY 2023FY 2022
    Total Revenue6,012.146,137.84
    Total Expenses4,509.724,748.81
    Profit for the year2,033.941,500.31

    Godrej Properties

    Established in the year 1990, the Godrej Properties is one of the first real estate companies in India to achieve the ISO certification. It is known for innovation, excellence, and sustainability in the real estate industry.

    It is headquartered in Mumbai, and is present in 10 cities including Delhi, Bengaluru, Pune, Kolkata, Ahmedabad, etc. The company has a workforce of 2,391 employees as of March 2023. In recent years, Godrej Properties has received over 400 awards.

    Business Model

    Here is an overview of Godrej Properties business model:

    1. Development of Residential Projects – The company specialises in developing residential properties including apartments, villas, and townships. The projects cater to different income groups ranging from affordable housing to luxury residences.
    2. Land Acquisition – It acquires land in prime locations across India, focusing on areas with high growth potential and favourable market dynamics.
    3. Joint Ventures and Collaborations – The company often enters into joint ventures and collaborations with landowners, other developers and investors to develop projects. These partnerships enable the company to access additional resources and expertise for the development of various projects. 

    The company prioritizes client engagement and satisfaction by using a customer-centric strategy. To guarantee that homebuyers have a great experience, it offers individualized services, open communication, and after-sales assistance.

    Balance Sheet (In INR crore)

    Key MetricsFY 2023FY 2022
    Non-Current Assets3,827.373,207.36
    Current Assets16,112.7412,894.51
    Current Liabilities9,969.035,711.83
    Non-Current Liabilities25.951,105.68

    Income Statement (In INR crore)

    Key MetricsFY 2023FY 2022
    Total Revenue2,100.052,331.93
    Total Expenses1,269.511,618.38         
    Profit for the Year655.67525.98

    Oberoi Realty

    Established in the year 1998, the company is a prominent real estate development company headquartered in Mumbai, India. They focus on creating premium living, office, retail, hospitality, and social infrastructure projects.

    Oberoi Realty is known for its exceptional design aesthetics, top-notch construction quality, and adherence to international standards. They target the luxury segment, crafting aspirational developments that cater to discerning clients.

    Oberoi Realty’s revenue likely stems from selling luxury apartments, villas, and commercial spaces to individual buyers or companies. The company also offers leasing options for businesses seeking premium office space.

    The company partners with specialised brokers who cater to luxury property sales and rentals and utilise exclusive events, high-end publications, or digital marketing strategies focused on showcasing the luxurious lifestyle linked to their properties.

    Balance Sheet (In INR crore)

    Key MetricsFY 2023FY 2022
    Non-current Assets6,184.616,781.50
    Current Assets12,456.398,909.07
    Current Liabilities3,287.842,844
    Non-Current Liabilities3,143.042,430.43

    Income Statement (In INR crore)

    Key MetricsFY 2023FY 2022
    Total Revenue4,293.202,752.42
    Total Expenses2,289.731,638.44
    Profit for the Year1,904.541,047.10

    Prestige Estate Projects

    Prestige Estate is a leading real estate developer in India. It was founded in 1986 as a partnership firm and has presence in over 12 cities across India. The company has completed more than 281 projects as of April 2024.

    The company witnessed a transformation in the 1990s. They restructured the partnership in 1997 and adopted the name Prestige Estates Projects (PEP).

    Throughout the 2000s, PEP diversified its holdings. With the opening of Forum Mall in 2004 and Cessna Business Park, a Special Economic Zone (SEZ), in 2006, they made their foray into the retail sector. The decade also witnessed the completion of Prestige Shantiniketan, a prominent integrated township, in 2010.

    Business Model

    The business model for the company is more or less similar to many real estate developers, with a twist considering their inclusion of property management and hospitality ventures.

    The company identifies and acquires land for residential, commercial, and hospitality projects. Additionally, it manages, plans, and executes construction. The company generates revenue by selling the completed residential units and commercial spaces.

    Prestige also earns rental income by leasing commercial properties to businesses for long-term periods. This could be office spaces, retail stores, or within their shopping mall.

    The company likely caters to various segments, offering luxury, mid-range, or affordable housing options. Their office spaces and retail areas target businesses looking for professional workspace or storefront locations.

    Balance Sheet (In INR crore)

    Key MetricsFY 2023FY 2022
    Non-current Assets12,624.710,872.8
    Current Assets36,582.930,444.1
    Non-current Liabilities4,857.15,018.9
    Current Liabilities21,467.315,878.3

    Income Statement (In INR crore)

    Key MetricsFY 2023FY 2022
    Total Revenue8,7726,600
    Total Expenses7,682.45,882.3
    Profit for the year1,066.81,214.8

    Read Also: Top Alcohol Stocks In India

    Macrotech Developers

    Macrotech Developers, formerly known as Lodha Developers, is a major player in the Indian real estate market. The company was founded in the year 1980 by Mangal Prabhat Lodha. Initially, the company focused primarily on residential real estate development, with an emphasis on affordable and mid-income housing.

    Business Model

    The company functions primarily as a developer, acquiring land, and planning and executing the construction of residential & commercial places. It strategically targets different buyer groups through a variety of brands.

    The company also forayed into the development of digital infrastructure parks in 2019, and has also entered into a joint venture with funds managed by Bain Capital, Ivanhoe Cambridge, and global investment firms to develop a pan-India green digital infrastructure platform.

    Balance Sheet (In INR crore)

    Key MetricsFY 2023FY 2022
    Non-current Assets3,405.24,716
    Current Assets35,749.733,762.8
    Non-current Liabilities2,573.93,292
    Current Liabilities23,858.823,024.9

    Income Statement (In INR crore)

    Key MetricsFY 2023FY 2022
    Total Revenue9,611.29,525.3
    Total Expenses7,976.17,809.7
    Profit for the year489.51,208.5

    Comparative Analysis of Top 5 Real Estate Companies

    CompanyPE RatioReturn on Equity (5 years, in %)Current Market Price (INR)Market Cap (INR Cr.)
    Godrej Properties101.4232,54270,678
    Oberoi Realty34.63111,44452,504
    DLF93.3048862,19,387
    Prestige Estate31.0671,29451,869
    Macrotech Developers66.89151,2021,19,534
    (Data as of 25 April 2024)

    Read Also: List Of Best Battery Stocks in India

    Conclusion

    The Indian realty sector is on a promising trajectory, driven by rising demand for housing, growing commercial activity, and government initiatives. This Indian sector caters to various segments including commercial, residential, retail, and hospitality. However, remember, conducting thorough research is important before investing in any theme.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
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    2List Of Best Ethanol Stocks in India
    3List of Best Chemical Stocks in India
    4List Of Best PSU Stocks in India
    5List Of Best Pharma Stocks in India

    Frequently Asked Questions (FAQs)

    1. What factors should I consider before investing in real-estate stocks?

      The company’s financial performance, the pipeline of projects, the calibre of management, market dynamics, the regulatory environment, and macroeconomic developments are all factors to take into account.

    2. Are real estate stocks affected by interest rates?

      As interest rates impact buyer affordability and developer financing costs, it can have an impact on real estate stocks.

    3. What segments of real estate do above mentioned companies operate in?

      They work in several market sectors, such as integrated townships, retail, commercial, residential, and hotel.

    4. Which is the largest infrastructure company in India based on market capitalisation?

      As of April 2024, DLF is the largest Infra company in India with a market cap of INR 219,387 crore.

    5. What are the growth prospects of Infra companies in India?

      The growth prospects of Infra companies depend on multiple factors, such as urbanization, infrastructural development, demand for real estate, etc.

  • Price Action Analysis: An Easy Explainer

    Price Action Analysis: An Easy Explainer

    Price Action Analysis

    Have you ever felt the stock market is a complex puzzle with cryptic messages hidden within its charts? Price action analysis can be your decoder ring. This trading technique sheds light on the market psychology by focusing on the price movements.

    In this blog, we will delve deeper into the world of price action analysis, exploring its core principles and how you can use them to make informed trading decisions.

    Price Action Overview

    Price Action Analysis is a method for traders to understand the market by examining the movement of a security’s price over time. It is a core concept in technical analysis, though some consider it distinct because it completely focuses on price movements without relying on additional indicators.

    Price action traders concentrate on the highs, lows, openings and closings of a security’s price to identify trends, buying and selling pressures and trading opportunities.

    By analysing price movements, traders can determine whether the price is in an uptrend, downtrend, or consolidation phase.

    Traders use price action analysis to make informed decisions about entering or exiting trades.

    Evolution of Price Action Analysis

    Evolution of Price Action Analysis

    Although the exact origin of price action analysis is unclear, but we can trace its roots back to the beginning of the market analysis.

    In the early 20th century, before formal technical analysis existed, traders tracked prices on charts. This focus on price movements itself is the foundation of price action analysis.

    In the 1880s, Charles Dow, a journalist and financial analyst, laid the groundwork for technical analysis with his Dow Theory. While not purely price-action-focused, it emphasized the importance of trends and price movements.

    In the 1900s, technical indicators like moving averages and RSI started gaining prominence. While these provided additional data points, price remained a key input.

    The late 20th century made traders feel that the dependence on complex indicators was detracted from understanding the price. This led to a renewed focus on price action analysis as a distinct approach.

    Since then, the rise of online trading platforms and advanced charting software has made price action analysis more accessible to individual traders.

    How to use Price Action Analysis

    • Remove clutter from your charts. Get rid of technical indicators such as RSI, MACD, Bollinger Bands, etc. leaving just candlesticks to focus purely on price movements.
    • Understand the concept of uptrends and downtrends to understand the overall direction.
    • Numerous price patterns emerge from the price action and can signal future movements. Some of the common examples are,
      • Reversal Patterns – Head & Shoulders, Double top/bottom, Triple top/bottom, etc.
      • Continuation Patterns – Pennants, Flags, Triangles, etc.
      • Breakout Patterns – Breakouts above resistance or below support can signal trend continuation.

    While price action is valuable, it should not be used in isolation. Consider using it alongside other confirmation methods such as volume, corporate events, news & events, etc.

    Once you have grasped these concepts, you can use price action analysis to develop a trading strategy. This entails determining entry and exit points for your trades based on identified patterns and confirmations. Remember that every trader has their own judgement and analysis.

    Advantages of Price Action Analysis

    There are several advantages of using price action in your trading strategy. A few of them are:

    • Price action focuses on the core element of the market, i.e., price itself. This can be easier to learn and understand.
    • It can be applied to almost all the markets and asset classes, regardless of the underlying security or economic factors. In forex trading, most of the traders use Price Action analysis as there are no fundamentals in the forex market.
    • Price Action highlights trends which allow traders to position themselves according to the prevailing trend.
    • Understanding support, resistance levels, and critical concepts in price action analysis can help traders set stop-loss orders to manage risk.
    • Unlike some technical indicators that may become outdated as markets evolve, price action analysis focuses on the fundamental concept of price movements, making it a timeless approach.

    Disadvantages of Price Action Analysis

    • Interpreting pricing trends is subjective, which is a disadvantage. It is highly likely that traders can evaluate the same price activity and come to different conclusions, which can lead to missed opportunities or even bad trades if misinterpretations occur.
    • Price patterns are not perfect predictors; they may generate false signals, which can lead to wrong trades. This can be frustrating and result in losses.
    • Price movements can be influenced by short-term factors and random noise, making it challenging to distinguish between genuine signals and fleeting fluctuations. This can lead to confusion and difficulty in making clear trading decisions, particularly in short time frames.
    • Price action analysis focuses solely on price movements and ignores other important factors that can affect markets, such as fundamental company analysis, economic data and news events. These factors can also affect prices and should be considered for a well-rounded analysis.
    • Past price movements do not necessarily dictate future outcomes. Markets can be unpredictable, and unexpected events can cause price movements to deviate from expected patterns.

    Read Also: What is Price Action Trading & Price Action Strategy?

    Conclusion

    Price action analysis offers a valuable lens for understanding the market. However, it is just one piece of the trading puzzle. You can strengthen your trading decisions by combining it with other technical analysis methods, such as RSI, MACD, Moving Averages, etc., and sound risk management strategies.

    Moreover, to accurately spot patterns using price action analysis, it needs time and effort. New traders may require assistance interpreting the charts correctly.

    As you gain experience, you will develop your own analytical edge and become more confident in navigating the ever-changing market landscape.

    If you’re facing difficulty in Risk Management, check out our blog – Risk Management in Trading

    Frequently Asked Questions (FAQs)

    1. What is a Price Action analysis?

      In Price Action analysis, you look at price movements on charts to identify trends, support/resistance levels, and trading opportunities.

    2. What do price action traders focus on?

      The price action traders focus on Candlestick patterns and analyse how price interacts with past highs and lows.

    3. Is price action challenging to learn?

      The core concepts are relatively simple, but mastering it takes time and practice.

    4. Do I need special software for price action analysis?

      There is no requirement of a special charting software. Any charting platform that shows historical price data will work for Price Action analysis.

    5. Is price action analysis good for day trading or long-term investing?

      It can be applied to both, depending on the specific patterns and timeframes used. However, the shorter the time frame, the higher the chances of generating noise, which may create issues in identifying trends.

  • LTIMindtree Case Study: Products, Services, Financials, KPIs, and SWOT Analysis

    LTIMindtree Case Study: Products, Services, Financials, KPIs, and SWOT Analysis

    LTIMindtree stands out as a major player in the Indian landscape. It provides exceptional services and is known for its critical contributions to India’s people and economy. Today’s blog will provide the company overview, business segment, financials, KPIs, and SWOT Analysis.

    LTIMindtree Case Study Overview

    In the fast-evolving world of technology, LTIMindtree Ltd. has made its name in the game. But that’s not how the company began its operations. LTIMindtree is a merged entity of LTI and Mindtree. The merger happened in 2022 and had its record date as 24th November 2022. As part of the merger, all shareholders of Mindtree were issued shares of LTI in the ratio of 73 shares of LTI for every 100 shares of Mindtree.

    Currently, the company holds an important position in the competitive IT services industry. This company specializes in data analytics, cloud computing, and Artificial Intelligence, and also helps its clients overcome complex business challenges and achieve faster growth. The company assists its clients with customized end-to-end solutions tailored to meet specific requirements.  

    Company TypePublic
    IndustryInformation technology
    Founded1997 
    HeadquartersMumbai, Maharashtra, India
    Area servedWorldwide

    LTIMindtree Case Study Products and Services

    LTIMindtree has a diverse portfolio of products and services. Let’s have a look at some of them:

    LTIMindtree

    Data Analytics

    The company emphasizes innovation and contemporary technology stacks. It helps accelerate growth and achieve remarkable business results on a large scale. LTIMindtree Products enhances the client’s capabilities and delivers cutting-edge data and analytics services to its clients by utilizing accelerators and platforms to navigate their digital transformation journeys.  

    Cybersecurity

    Cybersecurity helps clients protect their computer servers, networks, and data from malicious attacks. LTIMindtree cybersecurity service is a well-defined cybersecurity model powered by technology-enabled progression towards intelligent and autonomous cyber defense.

    Digital Engineering

    This service helps customers design and conceive cutting-edge digital

    products that offer a seamless customer experience. It helps to gain insights and stores customer data. 

    Quality Engineering Testing

    It helps to improve the client’s software by implementing manual and automated testing processes throughout the entire SDLC (Software Development Lifecycle). The company uses DevOps, Performance, Cloud, and Automation enabling firms in their digital transformation journey.

    Canvas

    It helps to provide a hassle-free and modern interface platform designed to meet the needs of the remote and hybrid workforce. 

    Market Data

    Market Cap ₹ 139,829 Cr. 
    TTM P/E 30.42
    ROCE 37.7 % 
    ROE 29.2 % 
    (As on 24th April)

    Read Also: Larsen & Toubro Ltd Case Study: Business Model, Financials, KPIs, and SWOT Analysis

    LTIMindtree Case Study Financial Highlights

    Income Statement

    ParticularsMar-23Mar-22Mar-21Mar-20
    Operating Revenue 33,183.0026,108.7012,369.8010,878.60
    Total Income 33,752.9026,894.6012,657.3011,216.70
    Total Expenditure 27,088.3020,880.209,657.808,858.30
    Profit before Tax 5,791.505,293.902,588.202,002.90
    Consolidated Profit 4,408.303,948.301,936.101,520.10
    (All Values are in Crores)
    Income Statement of LTIMindtree

    The income statement shows trending levels of growth at all major lines. Though expenditure increased substantially in the past 3 years, the revenue surge helped continue profit growth. 

    Balance Sheet

    ParticularsMar-23Mar-22Mar-21Mar-20
    Non-Current Liabilities 1,033.401,158.50715.10866.40
    Current Liabilities 5,482.605,092.302,632.302,331.20
    Non-Current Assets 5,929.405,605.102,523.202,273.70
    Current Assets 17,185.8014,938.608,131.306,329.00
    (All Values are in Crores)
    Balance sheet of LTIMindtree

    The company showcases a healthy state of balance sheet as non-current liabilities have been kept at a minimum in the past 4 years while showing a consistent trend in increasing assets. 

    Cash Flow Statement

    ParticularsMar-23Mar-22Mar-21Mar-20
    Cash From Operating Activities 3,094.603,250.702,399.601,643.50
    Cash Flow from Investing Activities -330.90-1,645.30-1,656.00-652.00
    Cash from Financing Activities -1,931.70-1,680.40-508.80-890.00
    (All Values are in Crores)
    Cash flow statement of LTIMindtree

    The cash flow statement indicates a healthy state due to a consistent level of cash from operations. The financing and investing activities show potential as continuous outflow in these fields will yield returns in the long term.  

    Profitability Ratios

    ParticularsMar-23Mar-22Mar-21Mar-20
    ROCE (%) 38.2749.9741.7340.38
    ROE (%) 29.2037.0530.8629.92
    ROA (%) 20.2025.3220.1320.12
    EBIT Margin (%)16.1917.7419.2416.06
    Net Margin (%) 13.0714.6915.3113.56

    The business enjoys a consistent margin of profits at both net income level and operating income level.

    LTIMindtree Case Study SWOT Analysis

    This case study analysis highlights LTIMindtree Ltd’s strengths in brand recall and market diversification, weaknesses like FX risk, opportunities in untapped markets and Generative AI, and threats such as high attrition rates:

    SWOT Analysis of LTIMindtree

    Strengths

    • LTIMindtree Ltd enjoys the position of 5th largest IT service provider in the country. 
    • LTI has a strong brand recall because of its affiliation with the L&T group. 
    • Due to the company’s broad network, it is not heavily dependent on just 1 geography.
    • The company has a history of providing client satisfaction and creating a culture shift that is guided by the management.

    Weaknesses

    • The company majorly operates in foreign markets. This opens the company to FX risk. 
    • The client base of the company is concentrated in the BFSI market. 
    • The company faces tough competition from larger established companies. 

    Opportunities

    • Due to globalization, newer markets are emerging, which opens the possibility of operating in untapped European markets. 
    • The company enjoys a competitive advantage while participating in large deals because it is scaling up cross-sell and up-sell opportunities in the market.   
    • The company made significant investments in R&D and has made significant progress in the segment of Generative AI. This could open up new doors for the company.

    Threats

    • The company currently faces high attrition rates. This can cause long term issues in the company. 
    • Further increase in interest rates can put additional pressure on the clients, thus leading to reduced revenues. 

    Read Also: Varun Beverages Case Study: Business Model, Financials, and SWOT Analysis

    Conclusion

    LTIMindtree Ltd., a technology consulting and digital solutions company, has shown steady growth and profitability over the years. With a diverse range of services and a strong client base, the company focuses on innovation and client satisfaction while positioning itself well in the competitive landscape. 

    However, it is important to perform extensive analysis before investing your hard-earned money. 

    Also, give this a read – HCL Technologies Case Study

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Sun Pharma Case Study: Business Model And SWOT Analysis
    2Asian Paints Case Study: Business Segments, KPIs, Financials, and SWOT Analysis
    3Grasim Industries Case Study: Subsidiaries, Products, Financials, and SWOT Analysis
    4Ola Electric Case Study: Business Model, Financials, and SWOT Analysis
    5Hero MotoCorp Case Study: Business Model and SWOT Analysis
    6Kalyan Jewellers Case Study: Business Model, Marketing Strategy & SWOT

    Frequently Asked Questions (FAQs)

    1. What type of company is LTIMindtree?

      LTIMindtree is a global company that has expertise in information technology services and consulting.

    2. Where is the headquarters of LTIMindtree?

      The headquarters of LTIMindtree is based in Mumbai, Maharashtra, India.

    3. Who is the CEO of LTI Mindtree?

      Mr. Deabshis Chatterjee is the CEO of LTIMindtree.

    4. What are the types of products and services LTIMindtree offers?

      The products and services offered are: consulting, cybersecurity, data analytics, cloud computing, iNXT, canvas, and many more.

    5. What is the biggest weakness of LTIMindtree?

      The company receives a significant portion of its revenue from global companies. This opens the company to FX risks. 

  • Simple Interest vs Compound Interest? Definition, Formula, Pros, and Cons Explained

    Simple Interest vs Compound Interest? Definition, Formula, Pros, and Cons Explained

    Understanding the difference between Simple and Compound interest is essential when making a financial decision. There are two ways to calculate interest when taking a loan or investing. Simple interest accumulates on the principal balance, whereas compound interest accumulates on the principal balance and the accumulated interest. Today’s blog will explain simple and compound interest definitions, formulas, pros, and cons.

    Simple interest

    Simple interest (SI) is a fundamental concept in the finance world. It is calculated on the principal amount and does not consider the interest previously accumulated. 

    It is an easy and direct method of calculating interest and is generally used for short-term loans or investments.  

    Formula

    Simple interest calculates the amount that includes only the principal. The calculation involves the principal amount, interest rate, and duration of the loan or investment. The formula is:

    Simple interest (SI) = (P x R x T) / 100,

    Where, 

    P= Principal amount

    R= Rate of interest

    T= Time

    Example

    example of simple interest

    Assume that Mr. Khurana invested INR 2,00,000 in a fixed deposit for four years at a 7% simple interest rate p.a. Using the same formula, we can calculate the interest Mr. Khurana will earn from the investment. 

    By using the formula of Simple interest, 

    Simple interest= (2,00,000*0.07*4)/100

    Then, SI = Rs 56,000.

    At the end of 4 years, Mr Khurana will earn a total of Rs. 56,000 in simple interest. 

    Pros

    • Simple interest is easy to understand and implement since it does not provide interest on accumulated interest. Thus keeping the periodical interest constant. 
    • SI allows for transparency to the borrower as the interest payments are easy to calculate and can be understood by all.
    • SI is very useful in short term investments as compound interest would anyway not be material on short term investments. 

    Cons

    • Simple interest leads to slower wealth accumulation, especially for long-term investments.
    • Simple interest may not be the most efficient option for people seeking high-return investments in the long term.
    • Simple interest doesn’t allow for the reinvestment of earned interest.

    Compound interest

    Compound interest involves calculating interests on both the principal amount and accumulated interest. It works on a snowball effect, causing your money to grow faster over time than Simple interest.

    The bank or any financial institution allows for compounding daily, monthly, quarterly, half-yearly, or yearly. 

    Formula

    A=P(1+r/n)^(n*t)

    CI = A – P

    Where,

    “A” stands for Total Amount,

    “P” stands for Principal Amount,

    “r” stands for rate of interest,

    “n” stands for the times of compounding in 1 period,

    “T” stands for the number of periods 

    Example 

    Example of Compound Interest

    Mrs. Chavi invested Rs 10,000 at the rate of 10% p.a. for five years.

    Therefore, A = 10,000*(1+(.1/1))^(1*5)) =  16,105.1 

    & CI = A – P = 16,105.1 – 10,000 = Rs 6,105

    Pros

    • It allows money to grow exponentially over time, as interest is earned on both the initial principal and the accumulated interest.
    • Compound interest can maximize your returns by allowing your money to grow multifold over time.
    • It can lead to substantial wealth accumulation, making it an ideal long-term investment strategy.

    Cons

    • If borrowers are unable to make timely payments or only pay the minimum amount due, compound interest can lead to a debt spiral where the debt grows rapidly, making it increasingly challenging to repay.
    • Over time, compound interest can increase the total interest paid on a loan. As interest accumulates on both the principal amount and previously accrued interest, borrowers pay more in compound interest than simple interest.
    • Compound interest calculations can be complex and hard to understand compared to simple interest. 

    Read Also: XIRR Vs CAGR: Investment Return Metrics

    Conclusion

    The concepts of simple and compound interest are essential for anyone dealing with investments, loans, and savings. Simple interest provides predictable interest amounts, making it suitable for those who prefer an easy technique, whereas compound interest comes with complexity but can multiply your money quickly. CI is best for long-term investors and has the potential for exponential growth over time. Simple interest is calculated only on the principal amount and does not include interest on interest. In contrast, compound interest includes interest on the total interest as well as on the principal amount. 

    Frequently Asked Questions (FAQs)

    1. What is Simple interest?

      Simple interest is calculated on the principal amount and does not consider the interest previously accumulated. 

    2. Which offers a higher return, Simple or Compound interest?

      Compound interest provides higher returns than Simple interest in the long term due to its ability to provide interest on interest.

    3. What are Compounding periods in Compounding interest?

      Compounding periods in compound interest refer to the frequency at which interest is added to the principal amount, such as annually, semi-annually, quarterly, monthly, or daily.

  • What are Small Cap Mutual Funds? Definition, Advantages, and Risks Explained

    What are Small Cap Mutual Funds? Definition, Advantages, and Risks Explained

    Small Cap Funds

    Small-cap companies are on a bull run, and so are small cap mutual funds. Recently, they have been in the limelight just because of their higher returns. The Nifty Small Cap 250 index, which measures the performance of small market-cap companies, gave investors a 64% return last year.

    But what about the risks involved in small-cap funds & will they offer similar returns in the coming future?

    In this blog, we will give you an overview of small-cap mutual funds, the advantages, the risks involved, and answers to the above-mentioned questions.

    Overview of Small Cap Mutual Funds

    Before jumping into the explanation of small-cap funds, check out our blog on mutual funds, where we have simplified the topic: Mutual Funds: Meaning, Types, Features, Benefits and How They Work.

    Based on their market capitalization, companies in India are categorized as Large, Mid and Small-Cap companies. As per SEBI, the definition of Large, Mid and Small-Cap is as follows:

    1. Large Cap: 1st -100th companies in terms of Market Cap.
    2. Mid Cap: 101st – 250th companies in terms of Market Cap.
    3. Small Cap: 251st company onwards in terms of Market Cap.

    So, small-cap mutual funds invest in small companies. As per rules prescribed by SEBI, at least 65% of their investments are in small cap companies. Most of the small cap companies are generally new and expanding aggressively, but they are technically fragile and might lose money in a volatile market.

    Small-cap mutual funds carry high-risk and are volatile in nature. The small-cap companies generally have low market float and have less trading volumes; this makes them vulnerable to adverse events and susceptible to bearish market movements. They have the potential to give higher returns in a bull market. However, they fall at a rapid pace in bearish markets.

    Read Also: Equity Mutual Funds: Meaning, Types & Features

    Pros of Investing in Small-Cap Mutual Funds

    Pros of Small Cap Funds
    • Small-cap companies have the potential to grow rapidly because of their relatively small operating scale. There’s a great saying, “Almost all multi-baggers are small cap companies once.” It allows fund managers of small cap mutual funds to reap the benefit of investing in hidden gems.
    • Small-cap companies have the potential to capitalize on emerging trends, fostering a sense of agility and innovation and helping to enhance the business.
    • Small-cap companies are open to pivoting their strategy and business model. It is advantageous when changing economic and technological scenarios compared to large-cap companies.

    Points to Consider

    So far, we have understood that small-cap mutual funds are considered high-risk in the world of mutual funds. There are a few points that you should consider before investing in small-cap mutual funds:

    • Small-cap mutual funds indeed have a potential to give higher returns, but you should also consider the expense ratio of the fund before investing. As small-cap funds are actively managed, their TER, i.e., Total Expense Ratio, is generally higher than that of other mutual fund categories. Further, choose a direct route rather than regular small-cap funds.
    • When the market starts falling, even the top small-cap mutual funds can see erosion in their returns. Therefore, if you are considering investing in small cap funds, invest for the long-term, preferably >5 years.
    • Investors who are heavily invested in large cap companies and want to diversify their investments can look for small-cap mutual funds.
    • Investment in small-Cap mutual funds is much riskier and more volatile than large-cap funds. Therefore, it is suggested for investors with a high risk appetite.

    Taxation Rules

    As mutual funds can be of different types, so is their taxation. However, taxation on all equity mutual funds remains the same, whether it is large, flexi, or small cap. Ignoring taxation can significantly impact your net returns post taxation.

    Capital Gain Tax

    For small cap funds, STCG (short term capital gain) will apply if the holding period is less than one year and LTCG (long term capital gain) if the holding period exceeds one year.

    In the case of LTCG, there is no tax till the income of one lakh; post this limit, a 10% tax is applicable without indexation benefit. In case of STCG in small-cap funds, there is a flat 15% tax on gains without indexation benefit.

    If you are curious to learn more about the taxation of Mutual Funds in India, check out our blog: Decoding Mutual Funds Taxation In India

    Top Performing Small Cap Funds

    Top Small Cap Funds

    Here are some top-performing small-cap funds based on the performance:

    Fund Name (Direct Plan)3-Year Return (%)5-Year Return (%)Fund Size (INR Cr.)
    Quant Small Cap Fund41.31%  39.28%17,348
    Tata Small Cap Fund34.03%29.02%6,236
    Canara Robecco Small Cap Fund32.11%29.1%9,402
    Edelweiss Small Cap Fund31.63%29.94%  3,134
    Bank of India Small Cap Fund30.95%  32.97%939

    Key Highlights of AMFI Notice

    On 27 February 2023, the Association of Mutual Funds in India (AMFI) sent a notice to All Asset Management Companies (AMCs) in India when the regulator, i.e., SEBI has raised concerns regarding the continuous flow of funds in Mid and small-cap mutual funds. The AMFI has asked fund houses to develop a policy and take appropriate measures to protect investors.

    • AMFI focuses on the ability of the fund house to face redemption pressure and detect whether any funds has liquidity issue or not.
    • All AMCs must disclose the outcomes of the Stress test, volatility, liquidity analysis, valuation, and portfolio turnover concerning mid-cap and small-cap equity schemes.
    • Asset Management Companies will display the stress result within 15 days after the end of each month.
    • AMFI emphasizes investor protection and enhanced transparency within the mutual fund industry.

    Read Also: 10 Best Small Cap Electric Vehicle Stocks

    Conclusion

    In summation, small-cap mutual funds offer the potential for high returns and a great diversification opportunity. However, these funds come with significant risks due to the volatile nature of small-cap companies.

    Investors should carefully consider the risks and other relevant factors such as expense ratio, historical returns, fund manager, etc. before investing in small-cap mutual funds. It is suggested to consult with a financial advisor before investing.

    Frequently Asked Questions

    1. Are small-cap funds risk-free?

      No, small caps are not risk-free, in fact small cap mutual funds carry a higher risk than other category of mutual funds. It is advisable to research before investing in small-cap funds and seek help from your financial advisor.

    2. What is the suitability of small-cap mutual funds?

      Small-cap mutual funds are generally suitable for Investors having a high-risk appetite with a time horizon of at least 5 years.

    3. What is the difference between Small-Cap and Flexi-Cap Mutual funds?

      A small-cap mutual fund invest at least 65% in small cap companies. In contrast, a flexi-cap mutual fund invest at least 65% in equity & equity related instruments, which means flexi cap funds are more flexible as they can invest in large, mid or small cap companies.

    4. What is a Small Cap mutual fund?

      A small-cap mutual fund invest at least 65% in small-cap companies.

    5. Do small-cap funds carry higher taxation?

      No, small-cap funds are taxed in a similar manner to any other equity mutual funds.

  • Types of ITR: Which One Should You Choose?

    Types of ITR: Which One Should You Choose?

    ITR FORM

    Filing your taxes, a.k.a. Income Tax Return (ITR) in India, can be a tough task, especially with multiple forms to choose from. There are seven different types ITR forms available and each ITR form caters to a specific taxpayer category and income situation. Picking the wrong one can lead to delays, errors, and even penalties.

    This blog is your one-stop guide to navigating the world of ITR forms as it breaks down the key features of each form and who should use them. By the end of this blog, you can confidently choose the correct ITR form and file your taxes smoothly.

    Overview

    ITR stands for Income Tax Return. It is a form you file with the Indian Income Tax Department to report your income earned during a financial year, i.e., April 1st to March 31st. There are two things: one is Financial Year (FY), and another is the Assessment Year (AY). The FY is the one in which you earn the income, and the AY is the one in which you have to pay taxes on the income earned in the FY. Confused? Let’s understand through an example:

    Suppose, you are a salaried person and earned INR 10 lakhs in the Financial year 2023-24 (1 April 2023 – 31 March 2024). Now, you have to calculate your taxable income and pay taxes for FY 23-24 in the next year, i.e., FY 24-25. This next year is your Assessment Year (AY).

    Coming back to the ITR form, it asks about your income sources, any deductions you claim, and the taxes you owe. The ITR lets the government know about your income from various sources like salary, businesses, property, investments, etc.

    If you have paid excess tax during the year, you can claim a refund through the ITR.

    Read Also: Types of Mutual Funds in India

    Types of ITR

    Types of ITR

    There are different ITR forms depending on your income sources and filing category.

    Individual ITR (ITR 1)

    ITR 1, also known as Sahaj, is the simplest income tax return form in India. It is designed for resident individuals with a specific income profile.

    Eligibility

    ITR 1 can be filed by a resident individual with income from salary or pension, one house property (excluding cases where loss is brought forward from previous years), other sources excluding lottery winnings and agricultural income up to INR 5,000. Your total income for the financial year must not exceed INR 50 lakhs.

    Additionally, ITR 1 cannot be filed by an individual who is:

    • A Resident Not Ordinarily Resident (RNOR)
    • Non-Resident India (NRI)
    • Has a total income that exceeds INR 50 lakhs, along with the taxable capital gains
    • A director of the company
    • Owns and has income from more than one house property,

    Also, it is mandatory to define the nature of employment while filing of return.

    Individual ITR (ITR 2)

    ITR 2 is another income tax return form used in India. Unlike ITR 1, it caters to a wider range of income sources.

    Eligibility

    ITR 2 can be filed by an individual or HUF who is not eligible to file ITR 1 and who:

    1. Does not have income from profit and gains or profession and also does not have income from profits and gains of business or profession like interest, salary, bonus, commission by whatever name called, due to, or received by him from a partnership firm.
    2. Have the income of another person like a spouse, minor child, etc., be clubbed with their income.

    Additionally, any individual or HUF who receives income in the such as interest, salary, bonus, commission or remuneration from a partnership firm and whose total income for the year includes profit and earnings from a business or profession is not eligible to file an ITR-2.

    From AY 2021-22, you can choose to opt for the new tax regime under section 115BAC in ITR-2.

    Individual ITR (ITR 3)

    ITR 3 Form relates to income earned via business or profession. It is used by an individual or a Hindu Undivided Family who has income under the head “profits or gains of business or profession” and who is not eligible to file Form ITR‐1 (Sahaj), ITR‐2 or ITR‐4 (Sugam). 

    Eligibility

    Individuals and HUFs who have income from profits and gains of business or profession can file ITR 3.

    This includes income from:

    1. Sole proprietorship businesses like shops, consultancy firms, etc.
    2. Professionals like doctors, lawyers, architects, etc.
    3. Partnership firms.
    4. Investments in unlisted shares.
    5. Others such as Fees earned as a director in a company, House Property, Salary, etc.

    ITR 3 is often called a master form because it allows reporting income from almost all sources, including business or profession, salary, capital gains, house property, etc.

    Furthermore, if your turnover exceeds INR 2 crore or you claim certain deductions or exemptions, you are also required to maintain books of accounts and get them audited.

    ITR 4

    ITR 4, also known as Sugam, is an income tax return form designed for a specific category of taxpayers in India.

    Eligibility

    ITR-4 can be filed by a Resident Individual / HUF / Firm (other than LLP) who has:

    – Income not exceeding INR 50 lakhs during the FY.
    – Income from Business and Profession, which is computed on a presumptive basis u/s 44AD, 44ADA, or 44AE.
    – Income from Salary/Pension, one House Property, Agricultural Income (up to INR 5,000)
    – Other sources excluding winning from the Lottery and Income from racehorses.

    What is the Presumptive Taxation scheme for filing ITR 4?

    Section 44AA of the Income Tax Act (1961) mandates that, in certain situations and under certain conditions, an individual involved in business or the profession maintain proper books of accounts. To alleviate the difficulty of compliance for small taxpayers, the Income Tax Act has established a presumptive taxation structure under sections 44AD, 44ADA, and 44AE. A person using the presumptive taxation scheme may report their income at a set rate.

    Additionally, a presumptive taxation scheme can be adopted by a resident in India carrying on a specified profession whose gross receipts do not exceed INR 50 akhs in a FY.

    ITR 5

    ITR 5 is designed for a specific set of entities distinct from individuals and HUFs.

    Eligibility

    This form is mandated for entities like firms, limited liability partnerships, associations of persons, bodies of individuals, artificial juridical persons, business trusts, corporate societies, etc.

    ITR 5 requires detailed disclosure of financial information including income statement, balance sheet and other particulars related to the entity’s income and expenses, and consists of several schedules.

    ITR 6

    This form used in India by companies for filing their income tax returns.

    Eligibility

    Companies registered under the Companies Act, 2013 or 1956, are required to file ITR 6 if they do not claim an exemption under section 11 of the Income Tax Act, 1961.

    Exemption under section 11 offers a tax exemption for income derived from property held for religious or charitable purposes. Companies claiming exemption would not use ITR 6.

    ITR 6 caters specifically to the income reporting needs of companies, with relevant schedules to capture details like business income, expenses, and TDS.

    The form consists of various schedules for different aspects of the company’s income. 

    ITR 7

    ITR 7 is the form used for a specific set of entities different from individuals and regular businesses.

    The form has been divided into Part A, Part B, and Schedules where Part A includes general information, and Part B includes a statement of the total income and tax computation for income chargeable to tax.

    Eligibility

    ITR 7 is used by entities that fall under specific sections of the Income Tax Act. These entities include:

    1. Charitable and religious trusts created for charitable or religious purposes under Section 139(4A) of the Income Tax Act.
    2. Political Parties with income exceeding the non-taxable limit come under Section 139(4B).
    3. Research institutions claiming tax exemptions under section 139(4D) can use ITR 7.
    4. Educational Institutions such as universities and colleges can file ITR 7 under section 139 (4D).

    The entities mentioned above claim exemptions under several clauses and might not be subject to regular corporate tax filing.

    Read Also: Different Types of Companies in India

    Conclusion

    The ITR forms in India report your income earned during a financial year to the Income tax department. There are seven different types ITR forms, each catering to a specific taxpayer category and income situation. Choosing the right ITR form depends on your income profile and the nature of your income sources.

    It is suggested to consult with a tax advisor, especially in case of complex situations. Keep in mind that timely filing of ITRs is important to avoid penalties and avail benefits like claiming deductions. For most forms, you can easily file your ITR electronically through the Income Tax Department’s e-filing portal.

    Further, if you’re having difficulty in calculating your taxable income, check our free to use Income Tax Calculator: https://www.pocketful.in/calculators/income-tax-calculator

    Frequently Asked Questions (FAQs)

    1. What are ITR forms?

      ITR forms are used in India to report your income earned during a financial year to the Income Tax Department.

    2. Which ITR form should I use?

      The appropriate ITR form depends on your income profile. This includes sources of income and your total income amount.

    3. What if I have income from capital gains or multiple house properties?

      You will likely need to file ITR-2 or ITR-3 which caters to individuals and HUFs with these income sources. Further, it is advisable to consult your tax advisor to get a clear picture.

    4. Can I file ITR forms online?

      Yes, you can file most ITR forms electronically through the Income Tax Department e-filing portal.

    5. How to calculate the taxable income?

      One can use our free-to-use Income Tax Calculator

  • Chart Patterns All Traders Should Know

    Chart Patterns All Traders Should Know

    When analyzing trading charts, certain formations appear repeatedly. Traders use these to identify potential trading opportunities. In this article, we’ll explore various chart patterns crucial for understanding the Indian stock market.

    What is a Chart Pattern?

    A chart pattern is a specific formation on a price chart that is repeated over time. By studying these patterns, traders attempt to predict future price movements based on historical outcomes. However, it’s important to note that past performance does not guarantee future results.

    Types of Chart Patterns

    Chart patterns can be broadly categorized into three types:

    Continuation Patterns
    These patterns indicate that the current trend will continue. Examples include flags, pennants, and triangles.

    Reversal Patterns
    These suggest that the current trend is likely to change direction. Examples include double tops, double bottoms, and head and shoulders.

    Bilateral Patterns
    These patterns indicate that the market could move in either direction, often due to increased volatility. Examples include symmetrical triangles.

    Read Also: What are Candlestick Patterns? Overview and Components

    Common Chart Patterns in Technical Analysis

    1. Ascending and Descending Staircases
      These are basic chart patterns that indicate a clear trend. An ascending staircase shows a market moving upward with higher highs and higher lows. Conversely, a descending staircase indicates a downward trend with lower lows and lower highs.
    2. Ascending Triangle
      An ascending triangle is formed when a horizontal resistance line meets an ascending support line. It usually signals a continuation of an uptrend.
    3. Descending Triangle
      A descending triangle occurs when a horizontal support line meets a descending resistance line. It typically indicates a continuation of a downtrend.
    4. Symmetrical Triangle
      This pattern forms when two trend lines converge symmetrically. It can signal a continuation of the current trend or indicate potential volatility leading to a breakout in either direction.
    5. Flag
      Flag patterns are short-term continuation patterns that resemble a small rectangle sloping against the prevailing trend. Bullish flags slope downwards, while bearish flags slope upwards.
    6. Wedge
      Wedge patterns are similar to flags but have converging trend lines. A rising wedge is a bearish signal, while a falling wedge is bullish.
    7. Double Top
      A double top is a bearish reversal pattern that appears after a significant uptrend. It consists of two peaks at roughly the same level, signaling a potential downtrend.
    8. Double Bottom
      A double bottom is a bullish reversal pattern seen after a significant downtrend. It features two troughs at similar levels, indicating a possible upward trend.
    9. Head and Shoulders
      This is a bearish reversal pattern with three peaks: a higher central peak (the head) flanked by two lower peaks (the shoulders). It signals a trend reversal from bullish to bearish.
    10. Rounded Top and Bottom
      These patterns are reversal signals. A rounded top suggests a shift from an uptrend to a downtrend, while a rounded bottom indicates a transition from a downtrend to an uptrend.
    11. Cup and Handle
      This bullish continuation pattern resembles a cup with a handle. The cup forms a rounded bottom, followed by a smaller consolidation (handle) before a breakout.

    How to Trade Using Chart Patterns

    Confirm the Pattern
    Wait for a pattern to confirm itself by watching for a breakout in the expected direction. Volume indicators can help confirm the validity of a pattern.

    Set Stop Loss
    Always set a stop loss to manage risk. Place it at a level where the pattern is deemed to have failed.

    Choose a Profit Target
    Determine a profit target based on the height of the pattern. For instance, if a flag pattern has a height of 50 points, set a profit target 50 points beyond the breakout level.

    Read Also: Best Options Trading Chart Patterns

    Conclusion

    Understanding and recognizing chart patterns can significantly enhance your trading strategy in the Indian stock market. By identifying these patterns, you can make informed trading decisions and better manage risks. Remember, while chart patterns provide valuable insights, no pattern is infallible, so always use risk management strategies.

    FAQs

    1. What is the most successful chart pattern?

      The most successful chart pattern can vary, but many traders consider the head and shoulders pattern to be one of the most reliable.

    2. Which chart pattern is most powerful?

      The head and shoulders pattern is often considered the most powerful due to its strong predictive nature for trend reversals.

    3. What is the most accurate trading pattern?

      The double bottom pattern is often seen as highly accurate, especially for identifying bullish reversals.

    4. Which chart style is best for trading?

      Candlestick charts are generally considered the best for trading due to their detailed representation of price action.

    5. Which is the most accurate chart?

      Candlestick charts are regarded as the most accurate for technical analysis and trading decisions.

    6. How many types of chart patterns are there?

      There are three main types of chart patterns: continuation, reversal, and bilateral patterns.

    7. How many types are chart patterns?

      There are three types of chart patterns: continuation, reversal, and bilateral.

    8. What is the most successful chart pattern?

      The head and shoulders pattern is often cited as the most successful chart pattern.

    9. Which chart is best for trading?

      Candlestick charts are widely considered the best for trading.

    10. How many types of charts are there in the stock market?

      There are four main types of charts used in the stock market: line charts, bar charts, candlestick charts, and point-and-figure charts.

    11. How to use a chart pattern?

      To use a chart pattern, identify the pattern on the chart, confirm it with volume and other indicators, set a stop loss, and determine a profit target based on the pattern’s size.

    12. Which chart pattern is best for trading?

      The head and shoulders pattern is often considered the best for trading due to its reliability.

    13. What is the chart pattern strategy?

      The chart pattern strategy involves identifying specific patterns on price charts, confirming them, and making trades based on the predicted price movement.

    14. Are chart patterns enough for trading?

      While chart patterns are valuable, they should be used in conjunction with other technical indicators and risk management strategies for effective trading.

    15. How to read a chart in trading?

      To read a chart in trading, understand the basic components such as price action, timeframes, and volume, and identify patterns and trends.

    16. What is a chart pattern analysis?

      Chart pattern analysis involves studying historical price movements to identify patterns that predict future price movements.

    17. What is charts analysis?

      Chart analysis, or technical analysis, is the study of price charts to forecast future price movements based on historical data.

    18. How do you make a chart analysis?

      To make a chart analysis, select a chart type, identify trends and patterns, use technical indicators for confirmation, and interpret the data to make trading decisions.

    19. What are the three types of chart patterns?

      The three types of chart patterns are continuation patterns, reversal patterns, and bilateral patterns.

    20. Why are chart patterns important?

      Chart patterns are important because they help traders predict future price movements and make informed trading decisions based on historical price behavior.

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