The Financial Book

Xiaomi: India’s No 1 selling smartphone fail to get investor confidence. Why So?

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On May 3^rd 2018: Xiaomi, the Chinese smartphone giant filed an IPO at Hong kong Stock Exchange. It was expected to be the largest listing by a Chinese tech company in almost 4 years. The listing value of the company was $100 billion. But in the initial bidding Xiaomi was getting muted response for retail investors. The grey market price was at 11% discount before the listing. On July 9^th 2018 Xiaomi shares open 2.9% down in Hong Kong.

Xiaomi has become the world’s third largest smartphone maker. Xiaomi’s goal 100$ billion valuations cut down to size of 50$ billion valuations on listing. There was regulatory concern as well which led down to this valuation. Xiaomi, the maker of phones to “Qicycles” has been growing rapidly outside China as well. India is one of the fastest growing markets. It has open 6 factories in the country as well for “Make in India” project which gave them the opportunity to get tax benefits which lead to cheaper prices for smartphone. Xiaomi has taken on competition with Samsung, Apple, Huawei by offering additional features at relatively low prices. Earlier they were selling online to cut down the cost of distribution & dealers commission etc, but now they are penetrating the offline market by opening official store & exclusive partner store to counter the strong presence of Oppo & Vivo in this sector. Sources claimed that Ratan Tata was the biggest investor in the Indian arm business which Xiaomi has tripled his investment in few years.

Despite the strong business model & its presence Xiaomi has been facing issues to penetrate the global market in US & Europe. Recent tussle between U.S- China making it more difficult to capture the global markets. What will be the next move of Xiaomi…?

Income Inequality ? A Rising rage in India

Income inequality in India: Highest in 100 years.

The famous French Economist Thomas Piketty shown in his recent research that Income inequality is at it’s highest in India. The top 1% of total Indian earn 22% of all income. Out of which top 0.01 % earn 4% of all income.
Let us understand this in context of corporate world in India. For an example, let us assume there is large company have 10,000 employees. Say this company pays 1000Cr as salary to it’s employees in total.According to Thomas Piketty the top 0.01% of the employees such MD/CEO/CFO in this company earn 4% of 1000Cr i.e 40Cr. & rest 960 Cr is divided among 9999 employees which average comes around 10 Lacs. Hence the MD earns 40Cr & an average employee earns 10 Lac. The MD earn 400 times than its average employee. (400:1). This is what Thomas Piketty is saying in context of corporate India.

Is this true? As per Bloomberg report, they have selected 20 different companies both from public & private sector which has 1.68 billion people in total. They find out that MD’s of private sector companies such as JSW Steel, Bajaj Auto, Hero motor corp, ITC & ICICI Bank MD’s earn 200-500 times more than their average employees, whereas the companies like TCS & Maruti suzuki MD’s earn only 25 times than their average employees. The MD’s of public sector companies earn just 3 times more than their average employees.

Hence we may think that more the profit of the companies the more salary is paid to their MDs, but that’s not true, companies profits are not directly related to MDs pay. In the example Maruti Suzuki is more profitable than Bajaj Auto & Hero Motor Corp, but Maruti Suzukis MD earns the least among the three.

So if it it’s not the profits then it might be the stock prices of the company? In the example the TCS stock perform well than Infosys in FY 16-17 but the MD of Infosys earn 3 times more than TCS MD.

Hence it is clear the MDs of large private sector companies earn on an average 300 times more than its average employees, regardless of company profits or stock performance.

We should really worried about this issue. This income inequality is raging issue all over the world which leads to various protest in the US as well as in Europe.

In a country like India where there is lack of jobs & fear of loosing jobs among the young Indians, their MD are getting extremely high salaries. This is a major concern for our society.

Don’t be blind folded over the rising income inequality issue in India. The government needs to delicately handle this issue over income inequality.

Data Source: Bloomberg
Disclaimer: The article is for educational purpose & study for this research is done by Bloomberg. The data in this article is taken from Bloomberg,henceforth the data source is mentioned above.

TATA STEEL- A Good Bet!

TATA STEEL, a well know steel maker in India. Looks like the business made a turnaround in recent times. Tata Steel Ltd.’s efforts to turn around its U.K. operations and a recovery back home are beginning to pay off.

Fundamentals:

Tata Steel is currently has the cheapest valuation among other steel makers like JSW Steel, Jindal Steel, SAIL etc. It’s currently trading 1.75 times to its book value. Compare to JSW steel of 2.60 times to its book value. The company OPM has nearly doubled over the previous quarter from March 7.7% to June 14.7%. The company also made a turnaround in its PAT which is 921.09 Cr for June Quarter compare to its previous quarter in March which was negative around (1168.02 Cr). The other income part nearly half from 261 Cr to 161 Cr from March Quarter to June Quarter. Well it’s a good thing from a business that it’s now earning from its main operations.

Technical:
TATA STEEL has given a rounding-bottom breakout from the levels of 600 recently. In AUG-SEP 2104 it had made a high of 573 & after 3 years it has given a break out from that levels on AUG-SEP 2017. In Quarterly charts volume covered nearly 50% from the previous Quarter with increase in price & given breakout from the levels of 600. Current it’s trading around 655, the near term target of the stock is 770 levels & then 930 levels in coming months. One should maintain a strict Stop Loss of 560. In Quarterly charts RSI is around >50 & <70 at 62.9. The stock will be in growing momentum.
Hence we can see the stock has a potential upside in coming days.

Disclaimer: The purpose of this company analysis is related study & understanding the company & it’s financials. No profit or losses are guaranteed. Do make your investments on your choice. Trade at your own risk.

Investing in Gold. Should you?

You probably heard of this at some point of your life, that is “Old is Gold”. It’s true. But I would like to rephrase it in a different manner in context of investment that “Gold is old”. Yes it is! Gold as a investment has become very old these days. As an Indian we have to admit that we love Gold. In fact India is the one of the largest consumer of Gold. Earlier whenever we think of investment we buy gold. But things are changing now a days.

We have got access to various investment instrument like shares, bonds or deposits. Gold is a asset class which are not productive in nature like other assets like shares.

“A pile of gold will stay the same pile of gold as time passes”.

Yes! Buying gold is an excellent passive investment & every household should invest to protect themselves in bad times.

Investing in gold makes sense only for those who don’t have access or trust in the financial system or financial market. It is good for them.

But those who are financially sound person and have some bit of a knowledge about the financial market should always go for asset class which are productive in nature or investment. Buying gold for them should only remain as an asset which will protect their financial position in the market in bad times.

Lastly I would like to say, that if whatsoever you are buying gold,”Don’t go for physical gold”-Because there are drawbacks such as, storing cost in bank lockers, fear of being stolen and some part of depreciation at the time liquidating. There are various modern forms of gold which overcome the drawbacks of physical gold like “paper gold”.There are gold backed mutual funds, Gold ETF’s. However if you don’t mind locking money for 8 years, then Government of India issue gold bonds from time to time. These are tax free as well and you get an extra 2.5% interest p.a every year as a bonus.

Therefore I would like to conclude by saying, Invest in gold in a modern way through Gold bonds, Gold ETF’ or Gold mutual fund & try not to buy physical gold for investment purpose.

A new competitor of Bitcoin: “ETHER”

Bitcoin! You probably heard of it. It’s a cryptocurrency (a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.) Investors have been super bullish on Bitcoin, because it’s nearly tripled in value so far this year.

But there is a new player in this crytocurrencies game. The name is “ETHER”. There’s an arms race going on in this world of cryptocurrencies. Bitcoin & Ether are leading the pack. “ETHER” is a 3 year old digital currency (Bitcoin closest competitor) But Ether is 4000% up YTD.

They have a lot common in between them. These are both open-source digital currency. It is used to make somewhat anonymous transactions. While they are both powered by a technology called “BLOCKCHAIN” (a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.) Blockchain is like the DNA of a digital currency.

Since digital currency has no imprint. Blockchain allows money to be tracked all over the web. So it can’t be copied. Ether’s blockchain is called “ETHEREUM”. But unlike bitcoin’s blockchain it features a key technology called the “Smart Contract”. It doesn’t just track transactions, It Programs them.

We a have touch of this now with automated payments and deposits. But imagine being able to have your money Invest, Spend & Save all of its own. You would literally be putting your money to work for you. “Smart contracts” lets you exchange not just money… but property, stocks or anything without having to go through a lawyer, notary or some other service provider. It’s cut out the middle man entirely. That’s why investors have taken a notice & may think Ethereum is stronger and potentially more lucrative technology. Hence where bitcoin is more of a payment technology, ethereum’s blockchain technology has real world applications, ranging from gambling to banking. That’s why a big drive of Ether rally because of its popularity among big corporates.

For example: Just take a look at Barclays. It’s using Ethereum’s Smart Contracts to trade derivatives.

Therefore for all the transaction bitcoin has been getting, it’s no longer alone in the cryptocurrency game.

-By Soham Dhara Sharma

Data Source: CNBC Network

Bonds Vs Debentures: What’s the difference?

Very often in this financial market, people used the word bonds and debentures as the same, but they are both distinctive. Yes! They are both debt capital but there are differences between them.

What is a Bond? : A Bond is debt instrument in which an investor provide loans to an entity (a corporate or government) which they borrow the fund for their need and pays the lender a fixed or variable interest for definite period of time. Owners of the bond are debt holder or creditor of the borrower.

It is typically a loan that is secured by a specific physical asset.

What is a debenture?: A debenture is also a type of debt instrument that is only backed up by creditworthiness & reputation of the issuer.

It is not secured by physical assets or collateral. It is secured only by the issuer’s promise to pay the interest and loan principal.

Hence this is the main difference between them, otherwise both are debt instrument.

Want to be Wealthy?: Start investing early!

Hello, everyone today I am going teach you how to become rich as early as possible in your life. There is no magic formula. Everybody wants to be filthy rich in their life, but nobody seems to know how? What is the way? Some would say work hard, other would say work smart! But what exactly should be done! So before moving forward I would like to give you a brief introduction about “Investment”.

A common person does his/her savings from the monthly income but never invest and sometimes they would end up with an excuse that they are unable to save as their expenses increased. The common formula of savings, we all know:

(Income- Expenses)= Savings/Investment

But after reading this articles one should try to apply this in a different way:

(Income- Savings/Investment) = Expenses

So, I would suggest try this from now. A common man could see the difference instantaneously in their life & are able to save more than previous and can see how they have also cut down their expenses. So how is saving money is different from investing money, and how it is important in our life. “One of the main reasons investing money is important is that it helps to create more money, as opposed to just saving money in a bank account”.

Now that everyone have understood what is investment, let me speak about how investing from an early stage will help to create wealth more and more than ever before. Hence I would give some reason how early investment can help:

Time allows you to take risk: Typically, when it comes to investing, ventures that are more volatile yield the highest return on investment. Investors, who have the time to recover if something were to go wrong, have the opportunity to make riskier moves. Those who begin to invest late in life are often inherently more cautious with how they invest their money.

Compound interest will make the difference: Essentially, compound interest is the interest earned on interest. By continuously reinvesting your earnings, you are exponentially increasing your return on investment, continuously reinvesting your earnings, you are exponentially increasing your return on investment. Let us understand the power of compounding with a simple example:

See the difference both are of same age, one started early and the other delayed. Ram who started investing early has a retirement value of 9cr and Sham who started investing at his later stage has a retirement value of 2.5cr. This the power of compounding.

Your spending habits will improve: Investing early allows you to develop disciplined spending habits by focusing on your budget and cutting expenses when needed. The goal here is to earn money by saving money.

Be a step ahead: Compared to your counterparts, who may have chosen to invest later in life, over time you will be able to afford things that others can’t.

Your quality of life will improve: Early investment will reduce the risk that you’ll be forced to make reckless choices to secure a stable retirement.

Hence start investing early to get retirement benefits early.