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

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

Ratio Analysis

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

Importance of Ratio Analysis

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

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

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

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

Types of Ratios

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

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

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

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

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

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

Liquidity Ratios – Overview

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

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

Types of Liquidity Ratios

There are four types of liquidity ratios.

Current Ratio

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

Formula – Current Ratio = Current Asset/Current Liability

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

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

Quick Ratio

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

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

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

Cash Ratio

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

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

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

Net Working Capital Ratio

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

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

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

Importance of Liquidity Ratios

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

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

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

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

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

Conclusion

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

Frequently Asked Questions (FAQs)
1. Which of the liquidity ratios are most commonly used?
  The quick and current ratios stand out as the most frequently used liquidity ratios.
2. What is the ideal current ratio?
  The quick and current ratios stand out as the most frequently used liquidity ratios.
3. Among quick ratio and current ratio, which one is better?
  While both ratios serve their purposes, the quick ratio outshines the current ratio due to its exclusion of inventory, which can be challenging to convert into cash.
4. What is the other name of quick ratio?
  The quick ratio, alternatively referred to as the acid test ratio, offers insight into liquidity.
5. How can we calculate the current ratio?
  The formula to compute the current ratio is current asset/current liability.

March 15, 2024

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

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

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

Mutual Funds – Overview

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

Did you know?

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

Types of Mutual Funds Based on Asset Class

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

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

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

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

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

Pros of Investing in Mutual Funds

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

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

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

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

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

Cons of Investing in Mutual Funds

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

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

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

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

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

Direct Investing – Overview

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

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

Did you know?

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

Pros of Direct Investing

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

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

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

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

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

Cons of Direct Investing

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

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

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

Difference between Direct and Mutual Fund Investing

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

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

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

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

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

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

Suitability

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

Conclusion

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

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

Frequently Asked Questions (FAQs)

How can I invest in stocks directly?
To invest in stocks directly you are required to open a demat account with a stockbroker who will facilitate you to transact on the National Stock Exchange and Bombay Stock Exchange.
How to analyze mutual funds?
Mutual funds can be analyzed through both qualitative and quantitative factors. To learn about mutual fund analysis, check out our blog.
Which provides better return direct investment into stocks or mutual funds?
While investing in stocks directly yields better returns but carries a larger risk. In contrast, mutual funds diversify your portfolio to lower risk.
Why should I periodically check my stock portfolio?
The stock market is very volatile since a number of factors affect its daily movement. If you miss out on these fluctuations, your portfolio’s return will be impacted thus you must regularly monitor your stock portfolio.
What is the minimum amount required to invest in the stock market?
Direct stock investments have no minimum amount requirement; you may begin with any amount you feel comfortable with and buy as little as one share of a firm. However, several stocks are trading at extremely high prices, making them unaffordable for investors with less capital.

March 14, 2024

NEFT vs RTGS vs UPI vs IMPS: A Comparative Study

In today’s digital era, electronic fund transfers have become the norm, revolutionizing how we transact money. Multiple options, such as RTGS, NEFT, UPI, and IMPS, are available. Let us delve into the blog better to understand these options.

NEFT: An Overview

It stands for National Electronic Funds Transfers and is a RBI-governed funds transfer method. NEFT started in November 2005 and is a safe and secure method of transferring small amounts of money.

Features

Fees and Charges: Online NEFT transactions are free of charge and offline transfers cost up to ₹50 in charges.
Processing Time: Processing time is in under 2 hours. In some cases, it may also take up to 12 hours.
Maximum Limit: There is no maximum limit per day for NEFT transactions.

RTGS: An Overview

It stands for Real-time Gross Settlement and is used to transfer higher amounts. RTGS ensures that the funds are transferred securely and without dependence on other transactions, thus minimizing risk.

Features

Fees and Charges: RTGS online transfers do not have any levied charges.
Processing Time: RTGS is the fastest method to transfer higher-value amounts, and the transaction is settled in real-time, under 30 minutes.
Maximum Limit: The Reserve Bank of India (RBI) has not set any maximum transaction limit.

UPI: An Overview

It was launched in 2016 by the National Payments Corporation of India (NPCI) and stands for Unified Payments Interface. The unique feature of UPI is the ease of transferring money, this lets you send money from your bank account to another by simply entering someone’s phone number, UPI ID, or scanning a QR code. This fund transfer facility is available through your mobile 24*7.

Features

Fees & Charges: UPI payments service is free and does not charge any transaction fees.
Processing time: UPI is an instant payment and transfer method.
Maximum Limit: UPI’s maximum transaction limit per day is 1 Lakh.

IMPS: An Overview

It stands for Immediate Payments Service and was first established by NPCI in 2010. An IMPS funds transfer is a better fit for you than UPI as it allows immediate transfer of amounts up to 5 Lakhs.

Features

Fees & Charges: IMPS transfer fees can range from ₹2.5 to ₹25 + GST depending on the amount value and choice of bank.
Processing time: IMPS transfers amount usually within 30 minutes.
Maximum Limit per day: The transaction limit of IMPS is 5 Lakhs.

Comparison Chart

Basis	NEFT	RTGS	UPI	IMPS
Minimum Transfer Limit	No minimum limit	₹2 Lakh	No minimum limit	No minimum limit
Maximum Transfer Limit	No upper limits (max. ₹50,000 per transaction)	No limit	₹1 Lakh	₹5 Lakhs
Time Taken	Up to 12 hours (usually within 2 hours)	Real-time (within 30 Minutes)	Instant	Real-time (within 30 Minutes)
Service Availability	Online + Offline	Online + Offline	Online + Offline	Online + Offline (chargeable)
Security	Safe, backed by RBI	Safe, backed by RBI	Safe, backed by NPCI	Safe, backed by NPCI
Service Fees	No charges on online NEFT transactionsOffline NEFT transactions are charging between ₹2.5 to ₹50	No charges for online transactionsFor offline: ₹2L to 5L transaction: up to ₹25 applicable₹5L & above transaction: ₹25 to ₹50 applicable	Free of cost	₹2.5 to ₹25 (varies from bank to bank)
GST charges	GST charges are applicable	No GST charges for online RTGS transaction₹15 + GST is charged for offline RTGS transaction	No charges	GST charges are levied
Service Availability during Bank Holidays	Available	Available	Available	Available
Suitability	Suitable for loan repayment and credit card payments	Suitable for transactions exceeding ₹2 lakhs.	Suitable for instant transfers upto ₹1 lakh	Suitable for transactions ranging between ₹1 lakhs to ₹2 lakhs
Operated by	RBI	RBI	NPCI	NPCI

Charges

Let’s have a look at which one is cheaper NEFT vs RTGS vs UPI vs IMPS:

Amount	NEFT	RTGS	UPI	IMPS
Below 2 Lakhs	Free	Not Applicable	Free	₹2.5 to ₹15 + GST charges
2 Lakhs to 5 Lakhs	₹25 to ₹30 + GST charges if applicable	Free of cost	Not Applicable	₹2.5 to ₹15 + GST charges
5 Lakhs & above	₹25 to ₹50 + GST charges if applicable	maximum ₹50 + GST charges	Not Applicable	Not applicable

Conclusion

In conclusion, NEFT, RTGS, UPI, and IMPS are distinct electronic fund transfer systems with varying features and benefits. NEFT is suitable for small transactions, RTGS for higher amounts, IMPS for instant transfers up to 5 Lakhs, and UPI for quick transfers up to 1 Lakh without charges. Each method caters to different needs and preferences in online transactions.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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2	Active or Passive Mutual Funds: Which Is Better?
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4	Mutual Fund vs PMS: Which is Better?
5	Multi-Cap Vs Flexi-Cap Mutual Funds? Which Is Better

Frequently Asked Questions (FAQs)

What is the minimum amount for an IMPS transfer?
The amount transferable through an IMPS can be as low as Re.1.
What is the limit of IMPS in Indian bank?
Account holders can transfer up to Rs. 2 lakh through IMPS in a day.
Is RTGS mode of payment safe?
RTGS is a highly safe and secure mode of payment which is monitored by the RBI. It is even more secure as it is used majorly for money transfers of higher amounts.
Which is better, NEFT or UPI?
It depends on the user’s preferences and amount of transfer. While UPI transactions are processed instantly, NEFT transactions may take upto 2 hours to process.
Is IMPS a better mode of transfer than NEFT and RTGS?
IMPS allows immediate transfer of funds and this service can be accessed even on bank/public holidays. That is why this service is often considered better than NEFT and RTGS.

March 13, 2024

Explainer on ESG Investing: Overview, Pros, Cons, Background, and Mutual Funds

Imagine investing in companies that prioritize not just profit, but also the planet and its people. That is the core motive of ESG investing, a concept gaining traction as investors seek to make a positive impact alongside financial returns.

Captivated, right? Let us delve deeper into the blog to discover more about ESG investing and how it can shape your investment journey.

What is ESG Investing?

ESG investing, also known as sustainable investing, is an approach that considers environmental, social, and governance factors alongside traditional financial metrics when making investment decisions.

Here is a breakdown of the three areas,

Environmental

This aspect focuses on the company’s environmental impact, including its climate change policies, carbon emission, pollution, resource usage and waste management. Investors might evaluate a company’s commitment to renewable energy, sustainable practices and environmental responsibility.

This aspect examines how a company interacts with its stakeholders, including its employees, customers and communities. Investors may consider several factors, such as diversity and inclusion, level of community engagement, gender equality, and supply chain ethics, before investing in a company.

Governance

This aspect analyses a company’s internal structure and leadership practices, including board composition, executive compensation, transparency in decision-making, risk management and rights of the shareholders. Investors are generally interested in how well a company is governed and its commitment to ethical and responsible business practices.

By incorporating ESG factors, investors aim to align their values with their investments, identify long-term opportunities and mitigate risks. However, you must remember that ESG investing is a complex and evolving field with varying methodologies and ongoing debate about its effectiveness in predicting financial performance.

Is ESG Investing worth the effort?

Whether ESG investing is “worth the effort” depends on your individual investment preferences and goals as an investor.

Let us have an overview of the pros and cons of ESG investing.

Pros of ESG Investing

Invest in companies that share your environmental and social concerns, fostering a sense of purpose and positive impact.
ESG investing might help you avoid companies with environmental or social controversies or negative publicity that could impact their financial performance.

Cons of ESG Investing

Evaluating ESG factors can be complex and requires thorough research and analysis. Be wary of ‘greenwashing’ where companies may overstate their ESG commitment to attract investors.
Depending on your goal, finding suitable ESG investment options might be more limited than traditional investments. Additionally, some ESG-focused funds might have slightly higher fees.
Studies on the relationship between ESG and financial returns are inconclusive. While some research shows equal or even better returns with ESG integration, others show no significant difference or underperformance.

Background of ESG Investing in India

Investors are focusing on ESG considerations, and driving the growth of ESG funds in India over the past three years. This trend has led to regulatory pressure on companies to increase transparency with ESG disclosures, which leads to greater utilisation of ESG ratings for decision-making.

In this regard, the Securities and Exchange Board of India (SEBI) has introduced a regulatory framework for ESG disclosures by top-listed companies. The framework also includes ESG ratings in the securities market and ESG investing by mutual funds. SEBI has also made ESG disclosures mandatory for the top 1000 listed companies by market capitalisation.

Additionally, recognising the growing importance of ESG factors in the financial landscape of India, SEBI established the ESG Advisory Committee in May 2022 to review and recommend improvements to the regulations for ESG disclosures, ratings and investing. The committee had representatives from corporations, investors, rating providers, mutual funds, technical experts and other stakeholders.

To ensure a reliable assessment of key ESG factors, the BRSR (Business Responsibility and Sustainability Reporting) core framework was proposed. As per the regulations, an ESG scheme should invest at least 65% of its assets under management (AUM) in companies reporting on BRSR.

This framework focuses on 9 important ESG attributes and their linked Key Performance Indicators (KPIs) for ESG-labelled mutual funds.

Attributes and KPIs within the BRSR Core framework

Greenhouse Gas emission.
R&D and capex investment in specific technologies to improve the environmental and social impact of products
Total waste generated, waste recycled and waste disposed.
The cost incurred on measures towards the well-being of employees and workers, as a percentage of total revenue.
Gross wages paid to females as a percentage of total wages paid.
Input material taken from MSMEs as a percentage of total purchases and wages paid to people employed in smaller areas.
Open-ness of business i.e., level of buying and selling with trading houses, dealers and related parties.

ESG Ratings

ESG ratings assess a company’s environmental, social and governance performance. These ratings measure a company’s exposure to ESG risks and opportunities and how they manage them. Investors use ESG ratings to analyse the company’s long-term sustainability based on its ESG practices. ESG Ratings will be provided based on the compliance with the following criteria

Environmental parameters such as energy, water, waste management and company operations in or around environmentally sensitive areas.
Socio-environmental parameters such as the amount spent on Corporate Social Responsibility.
Social parameters such as job creation in small towns or job creation for differently abled people.
Governance parameters such as compliance, royalty payments, and related party transactions

MSCI and S&P Global CRISIL offer ESG ratings based on their methodology and criteria.

ESG Funds – An Overview

ESG funds have shown that they can perform just as well, if not better, than traditional funds. Studies have found that companies with strong ESG practices can be more resilient and tend to give better long-term performance. So, you can invest in a way that aligns with your values without sacrificing the returns. It is a win-win.

Additionally, below are some top-performing funds and their returns over the past three years relative to their benchmark.

Fund name	1M	3M	6M	1Y	3Y
Invesco India ESG Equity Reg	3.62	10.5	15.2	29.7	—
SBI Magnum Equity ESG Reg	3.48	10.2	14.1	28	14.8
Quant ESG Equity Reg	13.8	25.3	30.6	54	36
S&P BSE 100 TRI*	5.53	13.9	16.8	32.3	17.4
Equity: Thematic-ESG	5.4	13.5	17.9	32.8	16.4

*(S&P BSE 100 is a benchmark index for the above-mentioned funds and EQUITY THEMATIC is the category).

Conclusion

Deciding whether ESG investing is right for you requires careful consideration of your financial goals, risk tolerance and depth of research you are willing to undertake. Try to understand the specific ESG criteria used by different investment products and their alignment with your values. Discuss your investment goals with a qualified professional who can advise you on incorporating ESG considerations into your portfolio.

Frequently Asked Questions (FAQs)

Why is ESG investing gaining so much traction?
People are increasingly concerned about the planet, social issues and responsible business practices and ESG investing offers a way to address these concerns.
Does ESG investing mean sacrificing returns?
Some studies show that ESG funds offer better returns while others show no significant difference or underperformance. So, it is tough to say if returns must be sacrificed in ESG investing, but the risk of lower returns looms large.
Is ESG investing complicated?
It can be complex since evaluating ESG factors requires research and greenwashing companies can mislead you.
Should I choose ESG investing?
It completely depends on your goals and willingness to research schemes that best align with your ethical values.
What are the challenges of ESG investing?
The link between ESG and financial returns is still debated and evaluating ESG factors can be tedious.

March 13, 2024

Tata Motors Case Study: Business Model, Financials, and SWOT Analysis

From the streets of Mumbai to the prestigious avenues of London, the growls of Tata Motors engines echo across the globe. This Indian automotive giant has come a long way, evolving from a locomotive manufacturer to a diverse automobile powerhouse.

In today’s blog, we will delve into the world of this fascinating company from exploring its rich history to ambitious plans.

All About Tata Motors

Tata Motors is India’s 3rd largest automobile company and is a leading global manufacturer of cars, utility vehicles, buses, trucks, and defence vehicles. Tata Motors was incorporated in the year 1945 and was a part of the Tata Group which was founded by Jamshedji Tata in the year 1868.

Some of the world’s most iconic brands, including Jaguar Land Rover in the UK and Tata Daewoo in South Korea are a part of the automotive operations of the group.

Tata Motors is committed to developing innovative and sustainable vehicles for the future of mobility. The company operates on a philosophy of ‘giving back to society’.

Additionally, in a major push for clean transportation, Tata Motors signed a deal to supply 3,500 EVs to BluSmart Mobility, India’s first electric and shared smart mobility company, expanding Delhi NCR electric fleet and offering customers more environment-friendly travel options.

History of Tata Motors

The Tata Motors history dates back to 1945. Tata Motors was founded as Tata Engineering and Locomotive Company (TELCO), which initially focused on locomotives.

The company entered the commercial world market in the year 1954 through a joint venture with Daimler-Benz, establishing India’s first heavy vehicle manufacturing facility. Gradually it expanded the commercial vehicle portfolio with trucks and buses, becoming a dominant player in the market.

2008 marked a turning point with the acquisition of Jaguar and Land Rover from Ford, propelling Tata Motors onto a global stage.

Did You Know?

In the year 1991, India’s first sports utility vehicle (SUV), Tata Sierra, was designed and manufactured by Tata Motors.

Highlights (FY 2022-23)

Presence in more than 150 countries.
₹ 29,398 crores was spent on research and development.
25 manufacturing facilities, 9 R&D centres and 3 Design labs.
91,811 collective workforces.

Subsidiaries of Tata Motors

Some of the subsidiaries of Tata Motors is mentioned below:

Tata Motors Passenger Vehicles Limited: TMPV is a wholly-owned subsidiary of Tata Motors and leads the passenger vehicle business in India. The company offers a diverse range of sedans, SUVs, and electric vehicles.
Tata Passenger Electric Mobility Limited (TPEM): TPEM was established in FY 2021-22 to carry out the Passenger Electric Mobility Business with a funding of INR 7500 crore from TPG Rise. The company aims to channel future investments into electric vehicles.
Jaguar Land Rover (JLR): JLR, a well-known British manufacturer of luxury cars, was acquired by Tata Motors in 2008. The company exemplifies quality and sustainability.
Tata Motors Finance Limited (TMFL): TMFL and Tata Motors Finance Solutions Limited (TMFSL) are TMF Holdings Limited (TMFHL)’s Non-Banking Financial Companies (NBFCs) subsidiaries. TMFHL is a Core Investment Company (CIC) and Tata Motors’ completely owned subsidiary. TMFL provides vehicle financing solutions to Tata Motors customers in India.

Business Model of Tata Motors

he Tata Motors business model integrates manufacturing, R&D, global sales, financial services, and innovation to position itself as the most aspirational brand in India’s automotive industry.

Tata Motors holds 10 manufacturing facilities, and 3 R&D/engineering and design centres. Furthermore, there are 12 worldwide manufacturing and engineering facilities for JLR.

The company aims to become the most aspirational brand in the Indian Automotive Industry.

Full range of activities that TML provides includes manufacturing operations, logistics, financial services, global sales network, customer service network, mobility service, innovation and technology, design and engineering, and strategic sourcing.

Product Portfolio of Tata Motors

The existing Commercial Vehicle Range of the company is as follows

MHCV, Buses and Vans, ILCV, SCV and PICKUP.

Last but not least the showstopper in the CV range is the ACE EV which features TML’s EVOGEN powertrain.

The existing Passenger Vehicle Range includes products like Tiago, Tigor, Altroz, Punch, Nexon, Harrier, and Safari.

Existing Electric Vehicle Range includes Tiago EV, Tigor EV, XPRES-T EV, Nexon EV, and NEXON EV MAX.

Also, the company boasts that the EV contribution is likely to increase to 25% in 5 years and reach 50% by 2030.

Apart from the portfolio mentioned above, TML offers a luxury range as well which includes Jaguar and Land Rover, the two distinct British brands with a rich heritage design.

Did you Know?

Tata Motors’ first indigenously developed passenger car, Tata Indica was presented in 1998 at the Geneva Motor Show.

Market details of Tata Motors

Current Market Price	₹ 716
Market Capitalization (in ₹ crores)	2,63,536
Book Value	₹ 275
52-Week High/Low	₹ 1,179 / 606
Face Value	₹ 2
Return on Equity	49.4 %
Stock P/E	8.33

(As of 24 March 2025)

Financial Statement Analysis

Income Statement

Key Metrics	FY 2024	FY 2023	FY 2022
Total Income	4,43,877	3,50,600	2,81,507
Total expenses	4,06,636	3,37,717	2,79,198
EBIT	37,241	13,283	2,308
Net Profit	31,106	2,353	-11,234

(As of 24 March 2025)

(Above mentioned figures are in ₹ crores unless stated otherwise)

Balance Sheet

Key Metrics	FY 2024	FY 2023	FY 2022
Current Assets	1,68,392	1,51,528	1,46,978
Non-Current Assets	2,02,272	1,84,553	1,83,642
Current Liabilities	1,73,617	1,55,027	1,50,683
Non-Current Liabilities	1,01,405	1,25,955	1,31,105
Total Shareholder Funds	87,464	47,819	44,555

(As of 24 March 2025)

(Above mentioned figures are in ₹ crores unless stated otherwise)

Cash Flow Statement

Key Metrics	FY 2024	FY 2023	FY 2022
Cash Flow from Operating Activities	67,915	35,388	14,282
Cash Flow from Investing Activities	-22,828	-16,804	-4,775
Cash Flow from Financing Activities	-37,005	-26,242	-3,380

(As of 24 March 2025)

(Above mentioned figures are in ₹ crores unless stated otherwise)

Peer Comparison

Company	Current Market Price (in ₹)	Market Capitalization (in ₹ crores)	P/E	ROCE (%)
Tata Motors	716	2,63,536	8.33	20.1
Ashok Leyland	212	62,210	22.3	15
Olectra Greentec	1,264	10,374	78.8	14.8
Force Motors	8,845	11,655	23	23.8
SML ISUZU	1,750	2,532	20.9	23.6

(As of 24 March 2025)

SWOT Analysis of Tata Motors

Strengths

The company offers a diverse range of product portfolios including iconic brands like JLR which cater to the needs of a wide range of customers.
Consistent investments in strategic partnerships and collaborations to infuse new technologies help the company expand its business operations.
The company considers the quality and safety of the customers as key parameters while manufacturing products.
Tata Motors invests heavily in research and development and tries to curate future-ready vehicles with features like electric mobility and connectivity.
They actively promote sustainable practices through electric vehicles and emission reduction initiatives aligning with environmental concerns.

Weaknesses

A significant portion of its revenue comes from India, which exposes the company to economic fluctuations and regulatory changes in the country.
Despite the pervasiveness of JLR, their presence in major global markets like China and North America remains limited.
Dependence on imported materials exposes the company to price fluctuations, impacting the profit margins.
The EV industry is dynamic as it changes quickly, failure to keep up with market trends may affect margins.

Opportunities

Tata Motors is well-positioned to capitalise on the rising demand for electric vehicles with their existing offerings and future developments.
Consistent investments in research and development can lead to breakthroughs in areas like autonomous driving and connected cars, offering a competitive advantage.
Government initiatives promoting EVs can create favourable market conditions for Tata Motors.
They can leverage JLR to further expand their reach in international markets.

Threats

Any kind of disruption in the supply chain can affect business operations.
The company is exposed to several global economic and geopolitical situations such as wars, natural disasters, and pandemics.
Sudden shifts in policy and environmental regulations can disrupt operations.
Rapid advancements in technology can make existing products obsolete if they are not constantly updated.
Brand positioning is a challenge in a dynamic automotive market with more intense competition from existing OEMs and new entrants in the market.

Growth of Tata Motors

Tata Motors has indeed seen incredible growth in the Indian domestic market, especially in the commercial vehicle segment. Rising GDP and infrastructure spending can further boost the demand for commercial vehicles. New models such as Tiago, Nexon, and Harrier have been well-received by customers. Additionally, the company has captured the growing market segments with the latest designed EVs.

Conclusion

Tata Motors stands as a prominent player in the Indian automotive landscape, with a diversified product portfolio, strong brand recognition and a commitment to innovation and sustainability. Their business model positions them well for future growth. However, navigating and addressing key challenges will be critical for the company.

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Frequently Asked Questions (FAQs)

Why is electric mobility a big focus for TML?
With India’s growing environmental concerns and rising fuel costs, electric vehicles represent a good solution.
Can Tata Motors become a global leader in the automotive industry?
The question cannot be answered yet but capitalising on opportunities will be important for them to compete on a global scale.
What are the latest innovations of the company?
TML is investing in connected car technology, autonomous driving, and many other revolutionary innovations.
Which company made the world’s cheapest car?
The iconic Tata Nano was the cheapest car ever sold and was produced with the objective of providing affordable mobility to people.
Does the company focus majorly on budget cars?
Tata Motors fulfil the diverse needs of customers by offering premium vehicles like Land Rover Discovery and budget friendly cars like Tata Punch.

March 13, 2024

A Comprehensive Guide on Mutual Fund Analysis: Quantitative and Qualitative Factors Explained

Feeling lost in the maze of mutual funds, unsure how to choose the right fund for your financial goals, and worried about making the wrong investment decision.

We understand that selecting the right fund can feel daunting, but not anymore!

Today’s blog will equip you with the knowledge to analyse mutual funds confidently. Let us delve into the quantitative and qualitative factors to explore mutual funds.

Mutual Funds Overview

Mutual funds collect money from numerous investors to invest in a diversified portfolio of stocks, bonds, or other assets. These funds are managed and curated by professional fund managers and hence become suitable for investors with less time and expertise to manage their portfolios. When you invest in mutual funds, units of the mutual fund are allocated to you based on NAV (Net Asset Value), which reflects the net value of the securities the fund manager chooses.

Mutual funds in India are established as a Trust under the Indian Trust Act, 1882, under SEBI (Mutual Funds) Regulations, 1996.

Mutual funds are considered ideal for investors who do not have sufficient knowledge of investing in stock markets and wish to start their financial journey with a small amount. These funds offer investors various investment options like shares, bonds, debentures, real estate and money market instruments.

Now that we know the impact of mutual funds on your portfolio, we will dive deeper into analysing a mutual fund. The analysis involves looking beyond its current price and a multi-faceted approach, combining quantitative and qualitative factors.

Let us analyse both of these factors in detail.

Mutual Funds Quantitative Factors

Standard Deviation

This measures the volatility of the fund’s returns. It shows how much the fund’s return deviates from its average return over a specific period. A higher standard deviation indicates a more volatile fund, indicating that the returns fluctuate more widely.

Sharpe Ratio

It is a statistical measure that quantifies the volatility of a fund’s returns. It depicts how much extra return you are getting for the additional risk you are taking compared to risk-free investment security like government bonds.

A higher Sharpe ratio is considered better and indicates that the investment is generating more robust returns relative to its level of risk.

Formula

SR = (Average Return of Investment – Risk-free Rate of Return)/Standard Deviation of Returns.

Sortino Ratio

This is similar to the Sharpe Ratio. However, the Sortino ratio only considers downside risk in the volatility calculation. This can be a more relevant measure for investors more concerned about losing money than missing out on gains.

Formula

Sortino Ratio = (Average realised return – Risk-free Rate of Return)/Target downside deviation.

A higher Sortino ratio indicates a better risk-adjusted return. This means that the investment is generating more return per unit of downside risk.

Beta

This measures the volatility of the fund relative to its benchmark. A beta of 1 indicates that the fund’s returns are expected to align with the benchmark.

To calculate beta, you need the historical returns of the mutual fund and its corresponding benchmark index over the same period. For the mutual funds and benchmark index, subtract the risk-free rate from each return to get the excess return. The risk-free rate represents the return you expect from an investment with no risk. Now, calculate the covariance between the mutual fund’s excess returns and the benchmark index’s excess returns and the standard deviation.

Note that, covariance measures the tendency of two variables to move together.

Formula

Beta = Covariance/Standard Deviation

Internal Rate of Return (IRR)

IRR is a discount rate that makes the net present value (NPV) of the fund’s cash flows equal to zero. To simplify, IRR shows the expected annualized growth rate of an investment.

A higher IRR indicates a more profitable investment.

Jensen’s Alpha

Jensen’s Alpha is used to assess the abnormal return of an investment or portfolio compared to its expected return based on the Capital Asset Pricing Model (CAPM). In simpler terms, it is a score that tells you how well an investment did compared to what was expected based on its risk level.

Formula

Jensen’s Alpha = Portfolio Return – [Risk-free Rate + Portfolio Beta*(Market Return – Risk-Free Rate)].

A positive alpha indicates outperformance, while a negative alpha suggests underperformance.

Portfolio Turnover Ratio

This measures how often the respective fund manager buys and sells securities. A higher turnover ratio depicts higher transaction costs and lower net returns.

Portfolio turnover can be calculated by dividing the total sales proceeds from securities sold with the average monthly assets of the fund.

A high portfolio turnover indicates that the fund manager is frequently buying and selling securities.

Treynor Ratio

Treynor’s ratio is a performance metric used to assess the risk-adjusted return of a portfolio. It measures the excess return generated per unit of systematic risk providing insights into how efficiently a portfolio compensates investors for assuming market-related risks.

A higher Treynor Ratio signifies a portfolio’s ability to generate superior returns relative to its inherent market risk.

Formula

Treynor Ratio = (Portfolio Return – Risk-free Rate)/Portfolio Beta

A higher Treynor ratio indicates better performance of the fund.

Downside Coverage Ratio

The downside coverage ratio is used to measure an investment’s potential to protect against losses during market downturns. It is a trade-off between downside protection and upside participation.

The two components of Downside Coverage Ratio are,

Downside Capture Ratio – measures how much an investment falls relative to the market during downturns.
Upside Capture Ratio – measures how much an investment gains relative to the market during uptrends.

Mutual Funds Qualitative Factors

Qualitative factors are subjective aspects that can impact the future performance and overall stability of the mutual fund.

Below mentioned are some of the key qualitative factors that you can consider when analysing mutual funds.

Experience of the Fund Manager

A fund manager’s experience and past performance can offer insights into their investment philosophy, risk management skills, and the ability to generate consistent returns. Looking for fund managers with a long and successful track record is suggested, especially during volatile market conditions.

Reputation of Asset Management Company

The AMC’s reputation, financial stability, and track record in maintaining different types of mutual funds can be indicative of its commitment to investor interests and its ability to provide quality investment products.

Portfolio Composition and Diversification

Analyse the holdings of the fund’s portfolio to understand the asset allocation, sector weightage, and diversification across different asset classes. This will help you assess the level of risk linked with the fund. Additionally, evaluate the risk management practices of the AMC to understand how they mitigate risks and protect investor’s capital.

Peer Comparison

Peer comparison is an important step in analysing mutual funds and identifying suitable investment options. Once you have identified the peer group, compare the funds using appropriate metrics like historical returns of the funds, management fees, and expense ratio. Also evaluate the risk alongside returns.

Exit Load

An exit load is a charge mutual fund companies impose when investors redeem or sell their units within a specific period after buying them. It encourages investors to adopt a long-term investment horizon.

Exit load is a percentage of the redemption amount calculated on the NAV of the units being redeemed. Also, different funds may have other exit load structures and some funds may not charge any exit load.

Read Also: Types of Mutual Funds in India

Conclusion

A comprehensive mutual fund analysis involves evaluating various key factors to determine if the fund aligns with your investment goals and risk tolerance. Remember to not solely rely on past performance.

Market conditions can change and past returns do not guarantee future success. Also, avoid investing in funds that exceed your level of risk and in case of any concerns or uncertainties, consult a financial advisor for personalised guidance.

Frequently Asked Questions (FAQs)

Why should I consider investing in mutual funds?
Mutual funds offer diversification, professional management and access to several asset classes with less initial investment amount.
How do I choose the right mutual fund?
Analyse your investment goals, risk tolerance, and time horizon. Deep research and analysis is needed to understand the fund’s performance.
What are expense ratios?
The expense ratio is the annual fee expressed as a percentage of a fund’s average net assets.
Can I lose money in Mutual Funds?
Yes, mutual funds are subject to market risk and fluctuations and investors may experience losses.
How often should I review my mutual fund investments?
Regularly review your portfolio and ensure that it aligns with your goals. However, avoid making impulsive decisions depending on short-term market movements.

March 13, 2024

Scope of AI in Investing: Usage, Benefits, and Challenges

Artificial intelligence (AI) scope has emerged as a game-changer in the ever-evolving land of finance, revolutionizing how investments are approached and managed. With its ability to quickly analyze vast datasets, detect patterns, and forecast market trends, AI has the potential to reshape the world of investment management.

In this blog, we will evaluate the AI scope in finance, exploring its benefits, challenges, and much more

Usage of AI

AI can be used in finance to help with data analytics, performance measurement, predictions, forecasting, real-time calculations, customer servicing, intelligent data retrieval, and much more. AI enables the organization to set the working environment and better understand the market and customers. It can also analyze and learn the digital journeys in a way that mimics human intelligence and interactions at scale.

The entire Artificial Intelligence industry is modernizing. Technology is becoming a new face in this era. As an outcome, finance and investing have made ground-breaking advances in cutting-edge technologies. There are several areas where Artificial intelligence is used in investing. Some of these cases are:

Algorithmic Trading

Traders use algorithmic trading to analyze large datasets and trade at high speeds, making trades based on market trends and patterns. It often focuses on taking advantage of minor price discrepancies but in huge volumes.

Portfolio Optimization

With the help of AI, you can succeed in profile optimization. Computer algorithms work to determine the market data, determine risks, and find asset classes that potentially give the highest returns. It also helps in forecasting the future price of the holdings of the individual.

Improving Security

Businesses can improve the security and trustworthiness of their payment transactions by deploying AI-powered tools to protect their financial transactions. Financial institutions like infrastructure, banks, investment firms, and insurance companies use AI to detect anomalous spending behaviour and prevent fraud.

Increasing Speed

The consumer experience is being transformed by AI, with quicker, contract-free interactions that include real-time credit approvals and improved fraud protection and cybersecurity. These automations help dramatically increase the speed of fulfilling transactions, creating new accounts, etc.

Streamlining Back-office Operations

AI is revolutionizing back-office operations by automating many repetitive tasks that became a hurdle for traders. Some of these tasks are regulatory compliance and know-your-customer (KYC) guidelines.

Benefits of AI

Artificial Intelligence (AI) integration has emerged as a game-changer, offering many benefits while posing specific challenges. Here are some of the benefits of using AI in finance:

Enhanced Decision Making

AI algorithms possess the prowess to analyze vast datasets at lightning speed, enabling financial institutions to make informed decisions promptly. These systems can detect patterns, trends, and anomalies that might elude human analysts, leading to more accurate predictions and risk assessments.

Cost Reduction

Automation of routine tasks through AI streamlines operations, significantly reducing overhead costs for financial organizations. AI-driven systems can efficiently handle data entry, fraud detection, and customer service, allowing human resources to focus on more complex and strategic endeavours.

Improved Customer Experience

AI-powered chatbots and virtual assistants provide round-the-clock customer support, catering to queries and resolving issues promptly.

Risk Management

AI algorithms excel in identifying potential risks and mitigating them proactively. By continuously monitoring market trends, credit risks, and compliance regulations, AI-driven systems help prevent fraudulent activities and ensure regulatory compliance, safeguarding the interests of both financial institutions and investors.

Market Analysis and Prediction

AI algorithms analyze market sentiments, economic indicators, and historical data to generate accurate forecasts and insights. This empowers investors and traders with valuable information for making informed investment decisions, optimizing portfolio performance, and maximizing returns.

Challenges of AI

AI helps the industry flourish, but it does not come without flaws. Some of the challenges of using AI in finance are:

Data Privacy

The extensive use of AI in finance involves handling sensitive financial data, raising concerns regarding privacy and security. Ensuring robust cybersecurity measures and regulatory compliance is paramount to safeguarding customer information and preventing data breaches.

Algorithm Bias

AI algorithms are susceptible to biases inherent in the data they are trained on, potentially leading to discriminatory outcomes. Additionally, the complexity of AI models often makes it challenging to interpret their decisions, raising questions about transparency and accountability in financial decision-making processes.

Regulatory Compliance

The rapid advancement of AI technology outpaces regulatory frameworks, posing challenges in ensuring compliance with evolving regulations. Moreover, ethical considerations surrounding AI usage, such as algorithmic fairness and accountability necessitate careful scrutiny and regulatory oversight to mitigate risks.

Dependency on Technology

Over reliance on AI-driven systems without human oversight can pose risks in volatile market conditions or unforeseen scenarios. Human judgment and intervention remain crucial for validating AI-generated insights and decisions, mitigating the potential impact of technological failures or algorithmic errors.

Skills Gap

The integration of AI in finance necessitates a workforce equipped with advanced technological skills to harness its full potential. However, this transformation may lead to job displacement for individuals whose roles become redundant due to automation, highlighting the importance of reskilling and upskilling initiatives to adapt to the evolving demands of the industry.

Conclusion

The scope of AI in investing is vast, with applications such as algorithm trading, portfolio optimization, and cybersecurity. AI is revolutionizing the finance industry by providing deeper insights, improving customer experiences, and aiding in risk management.

However, challenges such as regulatory compliance, algorithm bias, limited knowledge, and data scarcity need to be addressed for the full potential of AI to be realized.

Frequently Asked Questions (FAQs)

What are the benefits of AI in investment?
AI helps investors analyze data faster, find patterns, and make better decisions. It reduces human error, lowers costs, and improves results by predicting market trends and managing risks.
What is the scope of AI in finance?
AI is widely used in finance, including trading, risk management, fraud detection, and customer support. It helps financial services become more efficient, accessible, and secure.
How can AI be used in investing?
AI can provide personalized investment advice through robo-advisors, analyze public sentiment, and predict stock prices to help investors make profitable trades.
What is the scope of artificial intelligence?
The scope of AI spans industries like healthcare, finance, and transportation, automating tasks and improving decision-making. It powers applications such as diagnostics, fraud detection, and autonomous vehicles. Emerging fields like generative AI and cybersecurity further expand its potential.
What is the role of AI in the investment sector?
AI enhances trading strategies, analyzes market trends, and manages risks, allowing financial professionals to focus on important decisions while AI handles repetitive tasks.

March 13, 2024

Explainer on Green Bonds: History, Process, Pros, Cons, and Future Outlook

Ever wondered how your investments can benefit both your wallet and the environment? That is the power of Green Bonds! These innovative financial instruments are shaking up the investing world, offering investors a chance to earn great returns while supporting sustainable projects that promote environmental well-being.

In our today’s blog, we will discuss green bonds – regular bonds with an eco-friendly twist.

Green Bonds Overview

Green bonds are a type of debt security used to finance projects with environmental benefits. These projects can include renewable energy, energy efficiency, clean water, sustainable agriculture and conservation. The government, corporations, and non-profit organisations issue these bonds. The average maturity is comparatively longer for green bonds, i.e., 17 years.

Did you Know?

The Swedish Environment Protection Agency issued the first-ever environmental bond in 1993.

Green Bonds History

It took decades for green bonds to evolve from a niche concept to a major sustainable finance topic.

The Story

In 2007, the Intergovernmental Panel for Climate Change, a UN agency, focused on providing scientific data about climate change and its economic implications.

A report was released that established the connection between human activities and global warming. This revelation, coupled with the rising frequency of natural disasters, provoked Swedish pension funds to ponder how they could leverage the funds that they managed to resolve the aforementioned problem.

Seeking guidance, they approached their bank, SEB (Skandinaviska Enskilda Banken AB). The bank then recognised the synergy and fostered a unique solution bridging the financial needs with environmental expertise. SEB then facilitated the connection between these financial endeavours and the World Bank and provided its extensive expertise in investing in environmental projects globally.

The solution was obvious in observation. But despite the World Bank’s promising environmental projects and proven issuance record of bonds, a critical question remained: how could investors gain absolute confidence that their contributions directly managed climate issues?

This sparked another collaboration with CICERO, the Centre for International Climate and Environmental Research – an interdisciplinary research centre for climate research in Oslo. CICERO scientists were leading experts on climate issues who could provide a sound and reliable view of whether a project would positively impact the environment.

In 2008, this initiative led to the discovery of the first ‘labelled green bond’ by the World Bank and catalyzed the entire green bond market.

Did you Know?

The global green bond market has surpassed the threshold of INR 134 trillion in cumulative issuance.

Green Bonds in India

To reduce the carbon intensity of the economy, the Union Budget 2022-23 announced the issue of green bonds.

The categories of green bonds include renewable energy, energy efficiency, sustainable management of natural resources, clean transportation, sustainable water, green building etc.

For the same, a framework known as Green Bond Principles was designed by the International Capital Market Association (ICMA).

The four core components as outlined by ICMA green bond principles are as follows

1. Use of Proceeds

The government of India will use the proceeds raised from Sovereign Green Bonds (SGrB) to finance and refinance expenditure either partially or wholly for eligible green projects and it will be made sure that proceeds get allocated to projects within 24 months after the issuance.

2. Project Evaluation and Selection

The Ministry of Finance has constituted a “Green Finance Working Committee” (GFWC) headed by the Chief Economic Advisor and GFWC. They will meet twice a year to support the Ministry of Finance with the selection and evaluation of projects. However, the initial evaluation of the project will be done by the concerned Ministry with the help of experts.

3. Management of Proceeds

The proceeds will be deposited to the Consolidated Fund of India (CFI) and then the funds from CFI will be withdrawn as and when needed for eligible green projects.

A separate account will also be created by the Ministry of Finance (GOI) to monitor the proceeds allocation and avoid any malpractice. Additionally, the Public Debt Management Cell (PDMC) will keep track of proceeds within the existing guidelines

4. Reporting

The Indian Government has pledged to offer investors transparent reporting about the allocation of the proceeds from green bonds and the environmental impact of projects funded.

Read Also: What are Bond Yields?

The Process of Issuance of Green Bonds

The concerned Ministry will conduct an initial evaluation to identify the list of eligible green projects depending on the framework and submit it to GFWC.
Members of the GFWC under the guidance of a climate specialist from Niti Aayog as well as the Representative from the Ministry of Environment, Forest and Climate Change, will evaluate and analyse the complete list of the submitted projects.
Once the Finance Bill is passed, the Ministry of Finance will notify the Reserve Bank of India (RBI) about the amount of eligible green expenditures for which proceeds from green bonds can be used.

India’s First Green Bond

India issued the first tranche of its Sovereign Green Bonds worth INR 8000 crore on January 25, 2023, and the proceeds were used for green projects such as solar power, wind and small hydro projects and other public sector projects that help reduce the economy’s carbon footprint.

This offering was sold in 5-year and 10-year tenors through a uniform price auction on January 25, 2023. A similar offering was scheduled for February 9, 2023.

Also, driven by the shared goal of sustainable development, the World Bank Group and the Indian Government joined forces. The World Bank Sustainable Finance and ESG Advisory Services provided technical assistance and expertise to launch the sovereign green bond program, a key initiative to maximise finance for India’s climate transition and green growth.

Did You Know?

In 2015, Yes Bank, a private sector bank in India, successfully issued India’s first-ever green infrastructure bond, raising INR 1,000 crores.

Green Bonds Future Outlook

India has set an ambitious target of achieving net zero carbon emissions by 2070. Green Bonds are expected to play an essential role in mobilising the massive investments needed for this transition.

The Indian Government plans to issue more sovereign green bonds and encourage more involvement from private companies and municipalities.

Are green bonds good for long-term investing?

Green Bonds can be a good option for both long-term investing and ethical investing, but it depends on your individual goals and preferences.

Pros

Green bonds can offer similar returns as traditional bonds, depending on the creditworthiness of the issuer and the conditions prevailing in the market. These bonds may even outperform conventional bonds in some situations.
These bonds can diversify your portfolio, potentially spreading the risk and enhancing its resilience.
By choosing green bonds, you can contribute to financing environment-friendly projects that best align with your values.

Cons

The green bond market is relatively young in India, so long-term history data might be scarce.
The bonds may have lower trading volumes compared to traditional bonds, which will impact the bond’s liquidity.
The extremely long tenure of these bonds may make them undesirable.

Remember – Prioritizing ethical choices may affect your returns as compared to a purely profit-driven investment strategy.

Read Also: CAT Bonds: An Easy Explainer

Conclusion

To sum it up, whether green bonds are a good choice depends entirely on your financial goals, risk tolerance and ethical values. Analyse carefully what matters most and do proper research before investing because not all green bonds are perfect.

Frequently Asked Questions (FAQs)

What are green bonds?
Green bonds are a type of fixed-income security issued by the Government, municipalities, and corporations.
Why should I invest in green bonds?
You should invest in green bonds to make a positive impact, diversify your portfolio, and align your values with your investments.
Are green bonds risky?
Green bonds are riskier than traditional ones because of the limited availability of past data and lack of liquidity.
Are green bonds only for ethical investors?
No, anyone can invest in green bonds. But research well to ensure they meet your specific goals.
When was the first tranche of sovereign green bonds launched in India?
The first green bond in India was launched on January 25, 2023

March 13, 2024

Electoral Bonds Explained: What Are They and Why Did Supreme Court Ban It?

Can anonymity buy democracy? Let us unpack the complexities of Electoral bonds, a financial instrument masked in secrecy that raises questions about transparency, accountability and the foundation of democratic trust.

Let us explore the heated debate through today’s blog.

Electoral Bonds Overview

Electoral Bonds were a mode of funding for political parties in India. Introduced in the Union Budget of the year 2017-18, these bonds functioned like promissory notes. They were purchased by Indian citizens or entities registered in India from designated branches of the State Bank of India. These bonds could then be donated to any registered political party, encashing them through their electoral accounts.

The Electoral Bond Scheme was introduced to bring transparency and anonymity to political funding. However, it faced lashes from various quarters stating that the electoral bonds question the integrity of the electoral process.

Before we dive deeper into the story, let us have a quick read on the features of the bond.

Electoral Bonds Features

These bonds are bearer instruments like promissory notes, meaning whoever possessed the bond could redeem it, making it difficult to track the donor.
The bonds were available in denominations of INR 1000, INR 10,000, INR 1,00,000, INR 10,00,000 and INR 1,00,00,000 and can be purchased by a person who is a citizen of India. The buyer does not receive any interest on these bonds.
Individuals or companies could buy them from specified branches of the State Bank of India.
To purchase these bonds, a buyer was required to apply to the authorised bank, and the authorised bank could ask for additional KYC documents.
The payments for the issuance of Bonds were made in Indian rupees through demand draft, cheque, ECS or direct debit to the account of the buyer.
Political parties (parties that were registered under Section 29A of the Representation of the People Act, 1951) and received at least 1% of the votes polled in the last general election were eligible to receive the bond.
Electoral bonds were valid for 15 days from the date of issue and are not tradeable on the stock exchange.
The bonds were issued to the buyer on a non-refundable basis
One of the most controversial features of the bond was that the donors were not required to disclose their identity to the political party or the public.

Did you Know?

To pave the way for the Electoral Bonds Scheme, the government introduced amendments to four acts, namely the Representation of the People Act, 1951; the Companies Act, 2013; the Income Tax Act, 1961; and the Foreign Contributions Regulation Act, 2010 (FCRA), through the Finance Acts of 2016 and 2017.

Why were Electoral bonds banned?

On February 15, 2024, the Supreme Court banned the Electoral Bond.

Here are the major reasons behind the ban

The court ruled that the anonymity provided by these bonds violated the Right to Information Act, highlighted in the Indian Constitution. Voters have a right to know the source of the funds political parties receive to make informed voting decisions. This feature hindered transparency and scrutiny.
Allowing multiple entities to issue bearer instruments, like electoral bonds will challenge the RBI’s authority and risks undermining the public confidence in the official currency. The misuse of the bonds in large quantities could further harm trust in the Indian financial system.
Existing payment methods like cheques, drafts and digital transfers already facilitate transparent contributions to political parties. Offering electoral bonds, which may raise opacity concerns is unnecessary.

Data Analysis

Before the issuance of the electoral bonds scheme in FY 2016-17, political parties received 81% of the contributions through voluntary contributions. However, after the introduction of the EBS, 47% of the contributions were received through electoral bonds.

According to the annual report submitted by the Electoral Trust, for the financial year 2021-22, the Trust received contributions of a total of Rupees 4,64,83,00,116 from seventy contributors including individuals and companies. The contributions were unequally distributed to the Aam Aadmi Party, All India Congress Committee, Bhartiya Janata Party, Goa Congress Committee, Goa Forward Party, Indian National Congress, Punjab Lok Congress, Samajwadi Party, Shiromani Akali Dal, Telangana Rashtra Samiti.

Party-wise donations received through the Bonds from 2017- 18 to 2022-23

Party	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
BJP	210	1,450.89	2,555.00	22.385	1,033.70	1294.1499
INC	5	383.26	317.861	10.075	236.0995	171.02
AITC	0	97.28	100.4646	42	528.143	325.1
NCP	0	29.25	20.5	0	14	—
TRS	0	141.5	89.153	0	153	—
TDP	0	27.5	81.6	0	3.5	34
YSR-C	0	99.84	74.35	96.25	60	52
BJD	0	213.5	50.5	67	291	152
DMK	0	0	45.5	80	306	185
SHS	0	60.4	40.98	0	—	—
AAP*	0	—	17.765	5.95	25.12	45.45
JDU	0	0	13	1.4	10	—
SP	0	0	10.84	0	3.21	0
JDS	6.03	35.25	7.5	0	0	—
SAD	0	0	6.76	0	0.5	0
AIADMK	0	0	6.05	0	0	0
RJD	0	0	2.5	0	0	—
JMM	0	0	1	0	0	—
SDF	0	0.5	0	0	0	0
MGP	0	0	0	0	0.55	—

We can say that the majority of contributions through Bonds have gone to political parties which are ruling parties in the Centre and the States.

Graphical Representation of the above table is as follows.

Party-wise donation by corporate houses to national parties

Party	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
BJP	515.5	400.2	698.14	720.407	416.794	548.808
INC	36.06	19.298	127.602	133.04	35.89	54.567
NCP	6.1	1.637	11.345	57.086	18.15	15.28
CPI(M)	3.56	0.872	1.187	6.917	9.815	6.811
AITC	2.03	0	42.986	4.5	0	0.25
CPI	0.003	0.003	0	0	0	0
BSP	0	0	0	0	0	0

The data shows that the party-wise donation by the corporate houses has been more or less stagnant from the years 2016-17 to 2021-22

Graphical Representation of the above table is as follows.

Data of denomination/sale of Bonds during the 27 phases from March 2018 to July 2023

Denomination	No. of Electoral Bonds Sold	Amount(In Rupees)
1 Crore	12,999(54.13%)	12,999 Crore(94.25%)
10 Lakhs	7,618(31.72%)	761.80 Crore(5.52%)
1 Lakh	3,088(12.86%)	30.88 Crore(0.22%)
10 Thousand	208(0.86%)	20.80 Lakh(0.001%)
1 Thousand	99(0.41%)	99,000
Total	24,012	13791.8979 Cr.

Interesting inferences that can be drawn from the table above are

Anonymous donations to political parties skyrocketed, reaching 72% during the years 2018-19 to 2021-22 as compared to 66% during the years 2014-15 to 2016-17.
National parties saw a massive increase in unknown income, from INR 2550 crore in 2014-15 to a whopping INR 8489 crore in 2021-22.
Between the years 2019-20 to 2021- 22, the Bond income has been 81% of the total unknown income of national parties.

Conclusion

The ban on electoral bonds has left several key effects. The government has yet to propose an alternative scheme. The ban reignited the debates about transparency in political funding with limitations on donor privacy. How the ban will affect funding patterns across different political parties is quite uncertain. The consequences of electoral bonds and their ban will likely continue to unfold in the months and years to come.

Frequently Asked Questions (FAQs)

What are electoral bonds?
These bonds are bearer instruments used to donate to the registered political parties in India.
How do Electoral Bonds work?
Individuals or companies bought bonds from the specified branches of SBI. Donors remained anonymous to parties. However, KYC norms applied. Parties could redeem bonds in their bank accounts.
Why were these bonds controversial?
The anonymity sparked concerns about hidden influences and misuse. It was argued that the bond violated transparency.
What is the impact of the ban?
The future of political funding in India is uncertain after the ban on electoral bonds.
Will electoral bonds ever come back?
It is difficult to say if the bonds will return in the future. The government may propose alternatives.

March 12, 2024

Case Study on Westlife: The Rise of McDonalds in India

Do you know about Westlife Foodworld Limited? This company set foot in the Quick Service Restaurant industry in 1996 when it acquired the master franchise rights for McDonald’s in India. In this blog, we will explore the success story of Westlife in the Indian market.

About Westlife

The QSR (Quick Service Restaurants) industry has been experiencing unprecedented growth fueled by consumer demand. This massive growth happened recently and is expected to continue because of changing consumer preferences.

Westlife Foodworld Limited is responsible for establishing and operating the McDonald’s franchise in parts of West and South India. After remarkable success, the company became a beacon of inspiration and interest for investors and entrepreneurs.

The company established a strong presence in the nation’s West and South regions and saw a surge in revenue by 45% y-o-y to reach Rs 2,260 crore in FY23. The company provides excellent experiences to their customers, such as high-quality food, comfortable seating arrangements, consistent taste, etc. This is possible due to their robust supply chain and customer-centric policies.

The company has reported an EBITDA margin of 17.3 per cent – up 300 basis points bps y-o-y), PAT (profit after tax) increased to Rs 112 crore, and the Cash PAT margin improved by 11.2 per cent.

Let’s have a look at the key metrics of the company:

Market Cap	₹ 12,756 Cr.
Stock P/E	144
Current Price	₹ 818
High / Low	₹ 1,025 / 639
Book Value	₹ 36.1
Dividend Yield	0.42 %
ROCE	14.8 %
ROE	21.7 %
Face Value	₹ 2.00

(As on 17 February 2024)

Overview of McDonald’s

It was established in 1940 in California by Richard and Maurice McDonald as a restaurant. This company serves delicious snacks like burgers and french fries, including chicken, fish, salads, and many more. The journey of “I’M Lovin’ it!” started around 25 years ago and later acquired the palette of the Indian market and enjoyed massive growth. Let’s dive into the company profile:

Company type	Public
Industry	Fast food restaurants
Founded at	May 15, 1940
Founded by	Richard McDonald, Maurice McDonald, Ray Kroc
Area served	Worldwide
Products	Burgers, chicken, french fries, soft drinks, soft serves, shakes, salads, desserts, hotcakes, coffee, breakfast, wraps

Q3 impacted by the subdued business environment

The SSSG (Same Store Sales Growth) in Q3FY24 stood at -9% Y-o-Y due to eating-out trends and other external challenges.
Off-premises business boosted 3% Y-o-Y, majorly led by delivery & Drive-throughs as they contributed 42% of the total sales.
Digital sales rose by 15%, contributing to 67% of the business.

How did McDonald’s conquer India?

As we know, McDonald’s has different types of customers nationwide. Indian families always prefer to go out with family members on the weekdays and weekends. Countries like India give McDonalds more exposure to spread the market. McDonald’s has a unique eating menu in India because of cultural diversification. Here we get a different menu including aloo tikki and french fries, not just traditional coke and burger.

Other than that, McDonald’s also focuses on college students and working professionals. But the question “How did McDonald’s grow rapidly in India?” remains unanswered. So, here are a few reasons why it happened.

A Happy Meal includes different age groups, from children to adults, which means each age group will be happy with the order while being budget-friendly. By doing this, McDonald’s could retain all age groups as repeat customers. This feature gained immense popularity.
McDonald’s is renowned for being consistent with their services to their customers.
The company modified its menu regularly to cater to the market’s needs, such as incorporating burgers without onion and garlic during Navratri and creating makhani burgers to cater to people who like spicy food.
McDonald’s rapidly expanded throughout the country, thus making it the go-to destination for families.

Business Model and Growth Strategy

This industry is projected to grow remarkably in the upcoming years. The changing lifestyle, urban population, quick and convenient food options, and increasing income standards are the main reasons for the QSR industry’s massive growth potential. McDonald’s cracked the functionality framework and the customer acquisition. They carefully customized their menus per the state’s food preference, and they adapted to cultural norms by including vegetarian options in their food menus.

Business Model

McDonald’s mainly focuses on the franchise business model to generate a significant income, which is far more stable and predictable. They can leverage its market position to negotiate deals because it has control over the land and long-term leases. This is akin to a subscription, where the subscriber (the franchisee) pays a fixed monthly amount. The Franchise business gives a lot of revenue to the company and has a positive impact.

Growth Strategy

In 2017, the company introduced the Velocity Growth Plan, citing the center of the plan as a customer centric strategy, primarily focusing on the business, food, value, and customer experience. Here are the main factors considered in the plan:

Retaining: The plan mainly focuses on the areas where customers have a strong foothold.
Regain: It mainly focuses on the areas of the customer where the company lost a significant share of customers because of factors like food taste, competition, pricing, etc.
Convert: It also focuses on gaining new customers by offering additional items on the menu, like coffee and snacks.

Conclusion

In this blog, we concluded how McDonald’s conquered the Indian market, growth strategies, marketing strategies, reports related to FY23, and many more. In conclusion, the rise of McDonald’s in India through Westlife Foodworld Limited showcases a successful business model focusing on customer needs, quality food, and strategic growth strategies. McDonald’s ability to adapt to local preferences and offer a diverse menu has immensely contributed to its rapid expansion and sustained success in the Indian market.

Frequently Asked Questions (FAQs)

Why did McDonald’s succeed in India?
The success mantra implemented was adapting Indian Food tastes and preferences in their food menus.
Who was McDonald’s target customer in India?
Children, families, working employees, and adults were all the targeted customers of McDonald’s.
Who is McDonald’s main competitor?
Burger King, KFC, Burger Singh, etc. are the main competitors of McDonalds.
When did McDonald’s come to India?
Westlife started operations for McDonald’s in the year of 1996 in India.
Who heads Westlife Foodworld?
Amit Jatia heads Westlife as the Chief Executive Officer (CEO).

March 12, 2024

Blog

Explainer on Liquidity Ratios: Types, Importance, and Formulas

Ratio Analysis

Importance of Ratio Analysis

Types of Ratios

Liquidity Ratios – Overview

Types of Liquidity Ratios

Current Ratio

Quick Ratio

Cash Ratio

Net Working Capital Ratio

Importance of Liquidity Ratios

Conclusion

Frequently Asked Questions (FAQs)

Which of the liquidity ratios are most commonly used?

What is the ideal current ratio?

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

What is the other name of quick ratio?

How can we calculate the current ratio?

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

Mutual Funds – Overview

Did you know?

Types of Mutual Funds Based on Asset Class

Pros of Investing in Mutual Funds

Cons of Investing in Mutual Funds

Direct Investing – Overview

Did you know?

Pros of Direct Investing

Cons of Direct Investing

Difference between Direct and Mutual Fund Investing

Suitability

Conclusion

Frequently Asked Questions (FAQs)

How can I invest in stocks directly?

How to analyze mutual funds?

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

Why should I periodically check my stock portfolio?

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

NEFT vs RTGS vs UPI vs IMPS: A Comparative Study

NEFT: An Overview

Features

RTGS: An Overview

Features

UPI: An Overview

Features

IMPS: An Overview

Features

Comparison Chart

Charges

Conclusion

Frequently Asked Questions (FAQs)

What is the minimum amount for an IMPS transfer?

What is the limit of IMPS in Indian bank?

Is RTGS mode of payment safe?

Which is better, NEFT or UPI?

Is IMPS a better mode of transfer than NEFT and RTGS?

Explainer on ESG Investing: Overview, Pros, Cons, Background, and Mutual Funds

What is ESG Investing?

Environmental

Social

Governance

Is ESG Investing worth the effort?

Pros of ESG Investing

Cons of ESG Investing

Background of ESG Investing in India

Attributes and KPIs within the BRSR Core framework

ESG Ratings

ESG Funds – An Overview

Conclusion

Frequently Asked Questions (FAQs)

Why is ESG investing gaining so much traction?

Does ESG investing mean sacrificing returns?

Is ESG investing complicated?

Should I choose ESG investing?

What are the challenges of ESG investing?

Tata Motors Case Study: Business Model, Financials, and SWOT Analysis

All About Tata Motors

History of Tata Motors

Highlights (FY 2022-23)

Subsidiaries of Tata Motors