Rs. 1 Million (10 Lakhs)

During covid pandemic, many youngster's and home makers are very keen in investing and trading in stock markets. Few are interested in crypto currencies investment but I'm not a big fan of crypto's. Let's say if i had 1 million rupees (Rs.10 lakhs) in my trading account and what will i do ?

There are 3 options in front of me

• I can invest equally in 10 different companies in stocks of multiple sectors following SIP process ( I never invest in 1 shot ). This is also referred as having diversified portfolio

• I can use this entire money in trading equities or derivatives (Futures and Options)

• I can spread this money into 2 half. One part can be used for Investing consistently in different companies and other part can be used for trading and earn monthly income

People who invest should have great amount of patience and have a long term view to achieve abundance wealth. People who fall under 3rd category will have a mixed approach. They will look for long term in part of their investment and look short term on their trading. People with 2nd category is the one who are tend to lose their entire savings easily and there are people who make money out of FNO trading regularly. Let's see how this can be achieved

In order to make money in Derivative trading, below are important before starting

• Knowing how Premium & Margin works 
• Diversification on companies and strikes
• Adjustments on positions
• Risk Management
• Know when to EXIT

In India, Index (Nifty and Bank Nifty) have weekly expiries and stocks have only monthly expiries. Let's say i trade on stocks and what are the stocks will i consider to trade for the month of October 2021 if i had 1 Million (10 Lakhs)

Aarti Industries

Current Market Price of Aarti Industries is 934.15 and for October 2021 expiry the 900 PUT can be sold at Rs.26.62 and 860 PUT can be hedged at Rs.16.00. Lot size of Aarti Industries is 850 and the Margin required for the above one lot is Rs.60,600 (approximately)

COLPAL

Colpal was trading at the price of 1672.65 and for October 2021 expiry the 1660 PUT can be sold at Rs.50.00 and 1620 PUT can be hedged at Rs.34.95. Lot size of Colpal is 350 and the Margin required for the above one lot is Rs.34,900 (approximately)

INFOSYS

Infosys was trading at the price of 1688.95 and for October 2021 expiry the 1600 PUT can be sold at Rs.29.55 and 1560 PUT can be hedged at Rs.18.65. Lot size of Infosys is 600 and the Margin required for the above one lot is Rs.58,500 (approximately)

TATA STEEL

Tata Steel was trading at the price of 1302.95 and for October 2021 expiry the 1280 PUT can be sold at Rs.62.65 and 1240 PUT can be hedged at Rs.46.25. Lot size of Tata Steel is 850 and the Margin required for the above one lot is Rs.72,600 (approximately)

Above companies are just an example of how we can diversify our trading amount in different companies in different sectors and trade on these companies understanding the price movement of these stocks in past weeks and months

If i had a Million rupees, i would consider diversifying my portfolio and have taken positions in different strikes of a company to make money by end of the month. I would never consider or take position by thinking of making money this evening or tomorrow morning or earlier next week. I would also have buffer money for making any adjustments, which i might require to take if any of my positions go terrible wrong. Being an Option Seller, i would never consider to buy any naked position until my adjustments are required to do so. 

Disclaimer: Stock Market Investing and Trading are subjected to high risks. This blog is only for educational and informational purpose. This is not an Trading / Investing advice. Consult your financial advisor before trading.

Have a Great Day

B G Nareshkumar

The Journey

Our Journey in financial world should have the following 3 steps

• Ready
• Fire 
• Aim

People should be thinking how come aiming comes at last. Let's discuss about how this would work in the financial markets. Before that, Ready here refers to gaining adequate knowledge and gathering more information about the goal which we are committed. Fire refers to go and work towards the goal, which means take action after gathering required knowledge and planning

Lastly Aiming. In financial markets, no one can predict what will happen tomorrow or day-after but in investing few experienced people can predict what will happen in next 5 years or 10 years down the line. So, one should not keep waiting to start working towards the goal. It is always advisable to gain adequate knowledge and with proper plan one should start doing the hard & smart work in achieving the goal. During the course of action, we can make as many as adjustments to our investments to make it work better

Let's take an example of Nifty. During the start of this year (2021), Nifty was trading around 14,000. In the month of February 2021, it gained around 1300 points and crossed 15,000 and it was consistent enough and currently trading around the range of 17,700. If one was scared and did not take any position would have missed this great rally. One should take the position having the confidence on the market and should be available to make any adjustments in Options if it goes against the position taken. So, the important knowledge required here is about "what to be done if the market moves against me?". It should never be like "What will i do if the market moves against me, better will wait for 5% correction"

The trader / investor who is capable of making the adjustments on the journey itself can succeed. Not the one who is waiting for the smooth journey and will think of taking a decision. Actually, the second kind of person is the one who is more scared of the markets and will have no patience. A small move in markets against their position, they will book loss. They will compound losses instead of profits

Aiming should be part of the entire journey consistently.

Have a Great Day
B G Nareshkumar

Playing Offensive (Vs) Defensive

If you ask most people in the financial world, what would they like, playing offensive or playing Defensive ?. You will hear the majority of people say playing defensive. One of the other reason we would hear is everyone need to protect their capital (That's true and I completely agree) but keep waiting for an opportunity and not ready to go and take the opportunity is not a wise option

Even in any sports, the offensive players who go and get the job done get notified / rewarded more than the one standing behind and waiting to defend themselves. The rich people always wanted to play the offensive game. They don't care what it would cost them. They will make their own opportunities

In Stock Market many people, most of the time feel greedy and take poor decisions and fail. This is not playing offensive. Playing offensive is planning properly, reading and gaining knowledge consistently, taking calculated risks, going forward to take the positions and have the patience to win. I have seen many people in Stock Market would take positions by having a bigger target but they will close that position much earlier limiting them for a small profit but they will wait if their positions goes in negative till they atleast get the breakeven (this is being offensive and losing)

If you really want to be rich in Stock Market, you have to predict and visualize the future price (value) of the stock / index and take the position accordingly. This is playing offensive in Stock Market. If you think you don't want to take any risk and you keep waiting for the market price to come down, you will keep waiting for ever and eventually make no money in financial world. When talking about risk, even the offensive players will take a calculated risk not just as what ever comes on the way

If your goal is to be comfortable, chances are you'll never get rich 

But if your goal is to be rich, chances are you'll end up mighty comfortable

Let's take an example of a stock which you are monitoring continuously and gained more knowledge about the company over the period of time. For this, let's take the example of Tata Steel (taking this stock for discussion is my personal opinion and not a trading / investing suggestion)

Tata Steel has a great value and it has given the return of around 250% in 1 year and it has a great prospects for fore coming years. However, in recent times, this stock has declined. The reason can be many like it has reached the new all-time high and can have a correction. The correction cannot be considered as decline in company's performance

If a trader / investor has the capacity to understand this and invest considering the options of making great wealth will enjoy the benefits. The important part is having consistency and patience. The investor who picks up these kind of companies are offensive players, they know how to time the market and how to invest in the market. Whereas the defensive player consider this stock as a declining stock and wait for the bottom out and don't use the process of SIP to gain the benefit of this great valued stock

The number one reason most people don't get what they want is that they don't know what they want

Have a Great Day

B G Nareshkumar

Time - The Actual Wealth

Everyone has equal amount of wealth per day till they exist in this universe 

Do you agree ?

Yes, most people think the wealthiest person on this planet is the one who has more currency, the expensive car, the beautiful bungalow and so on. Let's think this way, if a person has 100 Billion dollars in his bank account and he does not have time to spend with his family or friends and that money remains still for years. what's the point in having that $100 Billion

Yes, Time is wealth. Everyone has the same amount of wealth per day till they exist in this universe. The other materialistic options are available in this world and those can be used or gained by people who manage time effectively and positively

Let's consider this in Stock Market, the Indian Stock market (Equities and Derivative) working hours is between 9.15 am till 3.30 pm from Monday till Friday (except holidays) for everyone. Does everyone make use of this time the same way. Some make profits and some lose. This is about how we make use of our time to gain materialistic wealth. So planning how to make use of our time (the actual wealth) is most important in financial world

Let's take an example of a Bank Account

• It deposits Rs.86,400 everyday in the morning
• This account will carry no accounts from day to day 
• This account will not allow you to keep any cash balance 
• Every evening, it cancels every amount whatever you have failed to use during the part of your day
• You can't take any loan using this Bank Account 

What will you do ?

Infact, everyone has this Bank Account in this universe. Its Time. Everyone is given with 86,400 seconds everyday and its up to you how to use it. If it is not used properly, its a loss for you and not for anyone. You can't blame anyone either. In this materialistic wealth generation process, the natural wealth given by this universe is the key. The one who use his Time effectively and efficiently gets the materialistic wealth

In Financial world even in Stock Market, one should never run against time. The most failures in financial world is seen by a person who does not give any time / who gives less time

In Equities (Investment), its about giving the maximum time on the quality stock / business to get the maximum return. Time is your friend here

In Options (Derivatives Trading), its about giving the time to decay itself to get the decent premium. Most people fail here by having the greed of getting more premium on less time. For a stipulated expiry time, one should understand the decent premium he could gain and work towards it

Let's complete this blog with a small story. There lived a king and a lazy man. They were close friends. No one gave this lazy man a job since he was lazy. The king likes this man very much and he wants to give him an opportunity to come up in life. The king told the lazy man, he can grab whatever he wants from his palace till the sunset and make use of it to come up in life

The lazy man was at the height of happiness and went to his home and told his wife. His wife asked him to go and grab all the gold the king has. The lazy man said, he wants lunch first. His wife made him great lunch, he had it and slept for a while. Later, he woke up and started walking towards the palace carrying 2 big bags to bring the gold

He felt very tired in walking and sat for a while under the tree and took rest. Then he started walking again and when he reached the palace, it was sunset and the doors were closed. He could not get anything. This lazy man did not manage his time properly. If he would have done this, he could have got everything what he wanted for his entire life time. He would have got the materialistic wealth using the natural wealth properly

Have a Great Day

B G Nareshkumar

Wealth

When we are thinking of attracting money, what happens most of the time is what we intake about money in our subconscious mind in the past. Let's assume, in our early ages, if we heard sentences like "Money is root of all evil, Save your money for the rainy day, Rich people are greedy, Rich people are criminals, You have to work hard to make money, Banks are frauds, Money doesn't grow on trees, You can't be rich and spiritual, Money does not buy happiness, The rich get richer and poor get poorer, This is not for people like us and We can't afford" 

Do you think money will attract us by having all these negative thoughts in our mind. No, definitely not. We always get attracted to our friends, so think that money and finance related instruments and companies as your friend, then definitely they will attract you

If you saw and observed some negative things happened due to money in your early age. If that story gets accumulated in your subconscious mind and that will keep you away from money all your lifetime. How to erase this negative film and change our subconscious mind ? Simple, just tell yourself this everyday 2 times keeping your hands on your heart, soon as you wake up and before you sleep. "I'm a money attracting machine". You will see things changing in life

In your daily life, if you hear someone talking wrong about money and rich, just observe their financial status deeply, you will find out that they are far away from money and economical stability in life. Do you wish to be one like them?. Just think and feel, your boss is great and rich, he will give you all you needed in abundance. Soon or later, you will be one of the dear and near to your boss and make abundance in life through him

The simplest way to attain abundance wealth in life is to have an Affirmation on money. Have your intension in a way that it follow a simple step in achieving wealth but that simple step should be done consistently with high amount of patience. We should always noted that failure is part of any business and it can also be part of any wealth accumulation process. We should overcome this with strong desire to achieve success

Let's understand the concept of this universe with real things happening in this world. Consider a Tree, it gives fruit when it is big. The taste of the fruit depends on how its roots are. If the roots of that tree is healthy, we get good and tasty fruit else we get diseased fruit. When the fruit is not good, there is no point in providing attention to branches or leaves. More attention is needed on the roots. Water the roots properly and take care of the roots to get sweet fruits. Also note everything takes its own time

Same thing is applicable in money management and wealth accumulation. When you are not getting enough money as desired, there is no point in paying attention to the external factors. Your thoughts should be taken care. Your good thoughts will make you feel and believe that you have accumulated good wealth and that will force you to take actions towards wealth generation. Those simple actions taken consistently over time will bring abundance. Why not try this ? What's wrong in thinking you have abundance money ? Try once

Let me ask you a simple question

Do you agree that all rich people in this world have the like thinking and mindset ? and all poor and economically unstable people have like mindset ?. As per my observation, i agree to this point. When every successful and rich people have the like mindset, why not we also have the same mindset to be one among them ?.

Have a Great Day

B G Nareshkumar

The SBF - Let's Grow

We are very delighted to announce the start of our new initiative, The SBF. We are here to discuss the Finance, Business and StockMarket information's on weekly basis. This is basically for young people who are much interested in Finance and Stock Markets

We don't charge anything for this program and we will not encourage more than 10 people for this forum. We understand young people of our society needs to know and understand certain economic things beyond what they learn in schools

We are here to discuss with them free of cost on weekly basis. We also set out goal to make atleast 1 Billionaire in next 20 years working on Finance and Stock Market. Finance is a serious business, we do not entertain any time passers

Investing and Trading is not started now, it was started well before and we need to understand the effective and efficient way of generating wealth. We also should understand that simple things are not easy. We need to train ourself in young age to do consistent things in a simpler way

Refer and contact below for more information

Have a Great Day

B G Nareshkumar

Futures Vs Options (Derivative Trading)

Derivative Trading is meant for Hedging. Initially, traders and investors used to buy / sell options and futures as an Hedging instrument for positions taken in Equity. In other words, Options and Futures are used as an insurance for the equity purchase and few used this as an monthly rental income by selling OTM options 

Now-a-days traders don't use derivatives as an hedging instrument, instead they trade daily, weekly and monthly for instant gratification. Let's see which mode of derivative holds best for trading. As an investor, this should only be considered for hedging purpose. For analysis, let us take the example of Aarti Industries. The current market price of the stock is around 911.50. This stock was trading around this average price for around 6 months

Let's take this calculation for the next expiry on 28th October 2021:

Options Trading

For October 2021 expiry, Option selling on OTM strike 900 PE was trading at a premium of Rs.35.50

Hedging on OTM strike 860 PE was trading at Rs.20.00 

The difference in Premium is Rs.15.50

Margin required per lot is Rs.59,000.00

For 6 sets, the premium collected is Rs.15.50 * 6 = Rs.93.00

Option premium collected is Rs.15.50*5100 = Rs.79,050.00

The Margin amount / investment for this trade = Rs.3,50,000 (Approximately), on which we would have collected the premium and the exact net amount invested would be Rs.2,70,950.00

Above position means, even if the stock fell by 1.25% to 900 by October 2021 expiry, the collected entire premium is ours. The winning chance of this is much higher provided the stock does not fall very badly beyond 890.00

Futures Trading

Current Market price (CMP) of Aarti Industries is 911.50

Future price for October 2021 expiry is trading at 912.80

Buying 2 lots (1700 shares) in future for October 2021 expiry would cost Rs.3,50,000 as margin amount. Let's say if we need to collect the profit of Rs.80,000 as we did in Option selling, the stock should rise by 47.00 points (5.00%). Which means the stock should go to 960.00 to get that profit

If the stock decline by 1.25% and went to 900 during the close, then it would be a loss of Rs.21,760.00

So, it is always better to be on the Option selling with hedge compared to futures buying. In Options we are backed by a hedge but in futures we are doing a naked buying

Hope you got some additional information on comparing Options and Futures trading for a capital of Rs.3,50,000 on the stock Aarti Industries. You can compare this for all the stocks which are traded on derivative and come to a conclusion on taking a position

As an investor, derivative trading should be considered as an hedge for positions bought in Equities.

Disclaimer: The above blog is for an Educational / Informational purpose not a trading advice. Consult your financial advisor before investing.

Have a Great Day

B G Nareshkumar

Fed Tapering on Bonds

Before coming to Fed Tapering, let us have a clear insight on bonds. In simple terms, bond is a debt security. A company issues its bonds to government, municipality or corporations inorder to raise funds. In return, the company pays interest to its investors for a specified time period

In times of crisis, almost every company and private investors will be in short of cash and cannot be an investor in huge extend to save the economy. So the government will buy the bonds of companies to give enough liquidity to the companies to certain amount of time. In other words, government put money in pockets of businesses to run smoothly and get a decent minimal return for that investment

• Bonds provide predictable income. Typically bond pays interest twice a year

• When bonds are held to maturity, bondholders will get the entire principle amount. This is also the best way to preserve capital while investing

• Compared to more volatile stock holdings, bonds are very simple and fixed return giving instrument

During the crisis period (Covid times), many companies went out of cash. Lockdowns are one of the reasons for the companies to shut down their doors. It is government responsibility to keep the business going to save the economy. Hence Fed started to buying bonds of companies, so companies can get enough cash to keep the business running

On 15th March 2020, Fed said it would buy at least $500 Billion (Rs.37,50,000 Crores) in Treasury securities and $200 Billion (Rs.15,00,000 Crores) in government guaranteed mortgage backed securities over the coming months

On 10th June 2020, Fed said it would buy atleast $80 Billion (Rs.6,00,000 Crores) a month in Treasuries and $40 Billion (Rs.3,00,000 Crores) in residential and commercial mortgage backed securities until further notice. Between mid March and early December 2020, the Fed's portfolio of securities held grew from $3.9 Trillion to $6.6 Trillion

Now it is unwinding of the covid times and business are coming to its normal situations. So Fed is in a discussion to Taper the bonds, which means it would stop buying bonds or will reduce its investments in bonds. So, the investment in companies by the government will reduce. When the investment flowing into the companies are reducing, then the stock price of the company will reduce. This will impact the stock market across the countries

On Wednesday (22.09.2021), Fed announced it will reducing the purchase of bonds / Taper the bonds purchase soon and end by the mid of 2022. During the press release, it was noted that the Fed would start its bond purchase tapering by November 2021 and end by 2022. So November 2021 would be a crucial month for stock markets

On the other hand, the Fed had reduced the interest rates very heavily during the covid time and it is expected to rise its interest rates by next year (2022). So, the Traders and Investors should consider this very seriously before investing. Now, the market would look very green everywhere as the Fed announcement has postponed certain things but Tapering and Increasing the interest rates will happen definitely.

Disclaimer: Consult your financial advisor before investing / trading in stock market. Above blog is only for the information purpose. Stock market has the highest risk if not dealt with adequate knowledge.

Have a Great Day

B G Nareshkumar

Tata Steel

Everyone in stock market speak about buy at low and sell at high. Very very few traders / investors does this. When the quality stock is low, investors wanted it to go further low to accumulate. Quality stock with consistent growing power like Tata Steel fell more than 10% in 4 trading days and how many would have followed the consistent accumulation of this stock ? I believe, it would be very less

Today (22.09.2021), Tata Steel touched the low of 1283.10 and its all time high was 1534.50, which was somewhere in middle of August 2021. When a stock like Tata Steel corrects 16%, this should be a clear buy following the SIP process

Tata Steel has the market capitalization of Rs. 1,48,386 Crores with the Face value of 10. 1 Year low of this stock was 342.75. Tata steel has the great record of giving dividend every year. This year on 17th June 2021, the dividend of Rs.25 per share was issued. The last bonus was given in the year 2004 in the ratio 1:2. 

Total Revenue of Tata Steel in 2021 is Rs. 1,56,294 Crores. Net Profit is Rs. 7,862 Crores. Earnings Per share (EPS) is Rs.63.78. The promotor holding percentage of the share remains unchanged at 34.41%. The pledge of the promotor stock percentage came down to 1.55%, which was 3.37% in June 2020. Foreign Institutional Investors (FII) holding percentage increased to 21.94%. 

Tata Steel has given a return of 270% in 5 years, which means if i have invested Rs. 1,00,000 in September 2016, its value is Rs.2,70,000 now. This is more than double of our money in 5 years. The above calculation is without the Dividend issued

News about Tata Steel:

• The Tinplate company of India, a subsidiary of Tata Steel will put up an additional capacity of 3,00,000 tonnes at an estimated capital expenditure of Rs.1,800 Crores

• In its investors presentation on 06th September 2021, the company said it intends to reduce its gross debt by more than $2 Billion, while prioritizing off-shore debt pre-payment in FY22. It is also planning a capital expenditure of Rs.10,000 - 12,000 Crores in the current financial year 

• The company reported its highest ever quarterly EBITDA and PAT despite volume being hit by the second wave of the pandemic. Tata Steel's debt declined further on QoQ basis even after a substantial working capital build

• Tata Steel plans to invest Rs.3,000 Crores in the next 3 years in Jharkhand with expansion of capacities of coal and iron ore mines and downstream value added steel portfolio - Chanakya Choudhary, Vice President - Corporate Services

The Peer comparison of Tata steel is as below

Disclaimer: This blog is for educational / informational purpose. This is not a buy / sell recommendation. For Investment and Trading contact your financial advisor.

Have a Great Day

B G Nareshkumar

Consistency

Most people fail in their goal inspite of their hard work and dedication is due to lack of consistency. Consistency creates trust. Consistency not only creates trust among others, it creates trust within ourself. A small action with a great amount of consistency over a period of time gives success

There are certain ways to achieve this consistency. By following the below process, one can achieve consistency in their work and attain success

• Specific / Realistic goal: Let's say if we need to reduce our weight. We should define that with a specific and realistic goal. For example, it should be as, I need to reduce 2 kgs in a month. Having a goal will be the first step in achieving consistency and success

• Plan the Goal: To achieve the above goal, we need to define a plan. We need to plan as running for 30 minutes and other exercises for 20 minutes and so on. Without a proper plan, nothing will work. Our plan should be in achievable manner everyday, it should not eat all our energy. By having a proper plan, we can achieve consistency

• Reminder: Set a reminder to ourself to do the planned activity, we can set alarm in our mobile to have this reminded everyday

• Reward Yourself: Once the first month is completed and say if you have achieved your goal of reducing 2 kgs in a month. Tell this to some one and get appreciated yourself. By telling this to your close friend, spouse or someone in office, you might feel better and will tend to do much better in future. This will increase your consistency

• Monitoring by another person: It is always better to have someone to monitor our goal. Sometime we might cheat ourself due to our laziness. If we appoint someone to monitor us, we will do the work on time to make sure we are perfect

By follow the above ways, consistency can be achieved in all things which we do. By doing things consistently, our attitude changes and the approach to anything will change over time and the success will be very near.

Have a Great Day

B G Nareshkumar

How much is this ?

There was a young boy who was thinking about life and wanted to know what is the value of this life. So he decided to ask his father. He approached his father and asked for the value of life. His father wanted to teach him a practical lesson, so the boy could understand this much better

He took up a stone from the banks of a river and gave that to his son. He asked him to take this stone to the local market and if anyone asks "how much is this", don't speak a single word instead rise 2 fingers. Boy took the stone with him to the market. A old lady approached him and asked "how much is this". The boy raised 2 fingers. The lady asked, 2 dollars. ok i will take it. The boy ran to his father and said, father, there was a lady who is willing to pay $2 for this stone

The boy's father told, now take this stone to a museum and if someone ask the price for this stone, just raise 2 fingers and don't speak anything. The boy took this to the local museum and a old man approached him and asked "how much is this". The boy just raised 2 fingers and the old man asked 200 dollars. Ok, i will take it. The boy was surprised, ran to his father and told what happened

Now, the boy's father asked him to take this stone to the Precious Stone Store. If anyone approached him and asked for the price, do the same thing. The boy took the stone to the Precious Stone Store in the town. At the entrance, there was an old man came approached him with full of joy and told, this was the stone which he was looking for his whole life. He asked "how much is this". The boy raised 2 fingers. The old man replied, Oh $200,000. Ok, i will take it

The boy was totally surprised and ran to his father and told there was a old man ready to pay him 200,000 dollars for this stone. Now, the father told the boy, Value of life is all about where you place and what you believe yourself. If you place yourself in a local market, you are worth $2. If you place yourself in a Precious place, then you are worth $200,000 or even more. If you believe that this stone is worth more than $200,000, then you will find a way and place to sell this at much higher price.

Have a Great Day

B G Nareshkumar

Bad Bank & NPAs

Banks make money by lending to its borrowers interms of Loans. Banks take money from its depositors in terms of FD, RD and other saving deposits. For these deposits, banks pay them a nominal interest rate. On the other hand, banks take interest from the borrowers. The interest rate which they collect will be higher than the interest rate which they give to the depositors. This is how banks make money

There will be defaulters, who do not pay the interest nor the principle amount to the bank. These amount which are not collected will be considered as NPA (Non Performing Assets). Due to this NPAs, Banks profit percentage and investors will be reduced. Hence the banks will try to keep these NPAs as low as possible. It was noticed that, before covid situation, the combined average NPA of all banks in India was around 11%. It was also predicted that this might increase to around 18% to 20% post covid

Bad Bank now will collect all these NPAs in the Banks across India for a discounted price. Due to this, stress on Banks will get reduced as the NPA loss percentage will be reduced. After collecting all the NPAs, Bad bank will take control over the defaulters assets and will make money by converting them to cash. By this way, Bad bank will also make money little more than the amount they purchased the NPAs

Let's take for an example: 

"XXX" bank have NPA for Rs.200 Crores. This was given to Bad Bank for Rs.100 Crores. Now, the stress on the Bank "XXX" is reduced to half. Bad bank will recover the asset of the defaulters for say around Rs. 110 Crores. By this way Bad bank make money of 10% (this figure is for an example)

This might be a welcome move by most of the Banks and its investors. But the worry on this situation is, managers of the Bank now will give more loans as they have the Bad Bank backing up their losses to half (a rough figure)

Announcement from the Government:

• The Cabinet on Wednesday (15.09.2021) cleared Rs.30,600 Crores guarantee programme for securities to be issued by the newly incorporated "Bad Bank" for taking over and resolving NPAs amount to Rs. 2 Lakh Crores

• The Reserve Bank of India is in the process of granting a license for the National Asset Reconstruction Company Limited (NARCL)

• The toxic assets worth Rs. 90,000 Crores that banks have already fully provided for will move to the NARCL

• 15% cash payment would be made to the banks based on some valuations and the rest 85% will be given as security receipts

• Public sector banks will have a 51% ownership in the NARCL, while their shareholding along with that of public sector financial institutions will be capped at 49% for the IDRC (India Debt Resolution Company)

• 16 Banks including private players, would put up about Rs.6,000 Crores as equity for the NARCL

Bad Bank has impacted the Indian stock market yesterday (16.09.2021). Due to this news announcement about the Bank Bank in India, the banking stocks particularly PSU banks gained very drastically. Few stocks are 

• Canara Bank up by 3.19%
• Bank of Baroda up by 5.66%
• Punjab National Bank up by 7.87%
• Karur Vysya Bank up by 3.16%
• IndusInd Bank up by 7.31%

Have a Great Day

B G Nareshkumar

Employee Stock Options (ESOs)

Employee stock options (ESOs) are basically a equity compensation granted by companies to their employees and executives. Rather than granting shares of stock directly, the company gives derivative options on the stock instead. These options come in the form of regular call options and give the employee the right to buy the company's stock at a specified price for a finite period of time

There are vesting period linked to all ESOs. For example, you would get ESOs amounting to 0.1 percent of company's share after you complete 5 years. After the ESOs got vested, the ESOs can be converted to normal equity shares and those can be sold into the open market. The idea behind the ESOs is to make sure that important employees stay on and not leave the organization 

There are also other 2 types of Stock Options:

• Incentive Stock Options (ISOs): ISOs are also known as statutory or qualified options. This is generally offered only to the key employees and top management

• Non-Qualified Stock Options (NSOs): NSOs are granted to employees at all levels in a company including board members. This is also known as Non-statutory Stock Options

Few of the recent ESO announcements are:

• ICICI Bank allocates 9,53,570 equity shares of face value Rs.2 each on 13th September 2021 under the Employee Stock Option Scheme

• Paytm staff, ex-employees convert ESOs to shares worth Rs.182 Crores. Based on Paytm's last valuation of $16 billion (about Rs.1.2 Lakh Crore), these converted ESOs worth Rs.182 Crores

• Hospitality major OYO increases its ESOs pool by 41% with the addition of another 20 Crore shares. This is taking total of 63 Crore Shares as of 15th September 2021

• Axis bank has allotted 1,08,519 equity shares with a face value of Rs. 2 each on 13th September 2021 under its ESOP scheme

Have a Great Day

B G Nareshkumar

Education or Knowledge, which is required ?

Any man is Educated who knows where to get knowledge when he needs it, and how to organize that knowledge into definite plans of action

Let us try to understand this with a short story of Henry Ford. Henry Ford had little schooling and people mistaken that he is not a man of Education or those people did not understand the actual meaning of education

An educated man is not necessarily, one who has abundance of General or Specialized knowledge. During the world war, Chicago newspaper published certain editorials. That includes a statement, which called Henry Ford as "an ignorant pacifist"

Ford strongly objected the statement and filed a case against the newspaper company. For the purpose of proving himself ignorant, Ford stood infront of the jury to answer any questions. The attorney asked him great variety of questions

Henry Ford was asked questions like: "Who was Benedict Arnold ?" and "How many soldiers did British send over to America to put down the rebellion of 1776 ?". Ford replied, "I do not know the exact number of soldiers the British sent over, but i have heard that it was a considerably large number than ever went back"

So, the questions went on like this and Henry Ford got annoyed and he leaned over, pointed his fingers at the lawyer who asked the questions and said, "If i should really want to answer the foolish question you have just asked, let me remind you that I have a row of electric push-buttons on my desk, and by pushing them right, I can summon to my aid men who can answer any question I desire to ask concerning the business to which I am devoting most of my efforts. Now, can you kindly tell me, why should i clutter up my mind with General Knowledge ?"

Every person in the court room realized that it was not an answer of an ignorant man, but of a man of Education. Any man is educated who knows where to get knowledge when he needs it, and how to organize that knowledge into definite plans of action.

We should be Educated on how to get Knowledge

Have a Great Day

B G Nareshkumar

Red Flag List in Banking & FPIs

Red Flag list in banking is a system used to monitor Foreign Portfolio Investor (FPI) limits. A listed company enters this red flag list when the available limit for the overseas investment is less than 3 percent of the permissible limit

Foreign Portfolio Investors (FPI) can invest up to 74% in any financial listed stock in India, when the investment percentage of FPI in any financial listed company is more than 71%, the company enters into the red flag list. Any FPIs cannot purchase more than 74% and this can act as less attractive to foreign investors

This kind of stock entering into Red Flag zone can be taken in 2 ways

• The stock was most attracted by Foreign Portfolio Investors (FPI) and they felt the stock price will increase in near future. Hence that was over bought and so it entered into red flag zone. This has the chance of growing even further

• The stock doesn't have any room for new FPIs to invest and the stock may trade very stable or reduce in price sooner

Once the stock reach this list, incremental FPI buying is permitted on condition that overseas investors will divest their excess holdings within five trading days from the day of breach of this sectoral cap of 74%

Ok now, let's come to a conclusion. Should we buy this stock which entered into the Red Flag list ?

Let us be optimistic, this stock is overbought by foreign investors and that's the reason it was in red flag list. If this stock continuous to stay in this red flag list, this means Foreign Portfolio Investors (FPIs) are holding this stock and this has the feel that it will grow high. Should we buy this now ? you decide

Any investment linked with SIP will generate abundance over time. No stock is over expensive until the demand prevails.

Have a Great Day

B G Nareshkumar

SEBI - Peak Margin

SEBI (Securities and Exchange Board of India) imposed Peak Margin concept in to picture from July 20th, 2020. Peak Margin concept has been introduced in Equity, Commodity and Currency segments from December 1st, 2020

Let us see what is Margin system in F&O :

Whenever a trader takes a position in Futures and Options for a designated period of time, a trader should deposit certain amount of money to the exchange as a margin. The trading is done in Lots in F&O. This means a trader cannot buy shares as they buy in equity. For example HDFC Bank can be traded in a lot containing 550 shares. Similarly, the lot size change from stock to stock

This Margin system consists of SPAN and EXPOSURE margin. If the required margin is not collected from the client as per the regulation by the exchange, penalty is levied to the client. This penalty varies from 0.5% to 5%. This is huge

Before December 2020, margin reporting was done only by end of the day on the position taken by the client. But after December 2020, the exchange asked the broker to collect the peak margin. Which is in a day, if the margin reached above the capital, penalty will be levied. For this, exchange will take 4 snapshots in a day and compares the margin utilization. This will avoid certain client and brokers by over utilization of the capital and stop manipulating the system

SEBI (Securities and Exchange Board of India) also informed the leverages which was given will be reduced in a phased manner. Exchange has given this to be reduced in 4 phases

• December 2020 to February 2021 - 25% of the leverages given so far will be cut

• March 2021 to May 2021 - the leverage cut will increase to 50% from 25%

• June 2021 to August 2021 - the leverage cut will increase to 75% from 20%

• Starting from 01st September 2021 - No leverage will be given and the full SPAN + EXPOSURE margin should be provided by client in their trading account

From 01st September 2021, there will be no additional leverage for intraday position. The same margin which is applicable for overnight positions should be available for the intraday positions. By this way, there will be a reduction in intraday short sellers and manipulators. However people with huge capital can still do intraday selling

This is an welcome move by SEBI, as to some extend the manipulation will be removed. This might be one of the reason most of the stocks reaching its all time high from September 01st, 2021. The sellers are reduced

"If you're smart you don't need leverage; if you're dumb, it will ruin you" - Warren Buffet

"There is only 3 ways a smart person can go broke: Liquor, Ladies & Leverage" - Charlie Munger

Have a Great Day

B G Nareshkumar

Fat & Thin Frog

Somewhere in the Jungle, there lived 2 frogs. One was thin and the other was fat. Both the frogs were very close friends and considered each other as their brothers and lived very happily. They played hopping around the forest and helped each other in every danger they encountered

One day they were playing and reached a farm. The farmer placed a big bucket and left the place to do his daily activity. These 2 frogs have never seen such a big bucket in their lifetime. They decided to see what's inside the bucket

They approached the bucket. As the bucket was so big, they cannot see what's inside it. They both hopped very powerfully and jumped inside the bucket. For their surprise, the bucket was filled with Milk. They cannot get out of the bucket as the sides of the bucket was slippery. They both kept swimming for long time else they would drown in the milk and die

Hours passed and there were no one to help them. They kept on swimming and peddling. The fat frog told the thin frog, it is of no use to keep on swimming. Anyway we are going to die. The thin frog told the fat frog not to lose hope and keep on peddling. As the sunset, the fat frog told, he lost hope and no use in peddling. The fat frog stopped peddling and drowned in milk and dead

The thin frog was so upset. He lost his best friend but he was so determined that he will get some help. His hope became so powerful. He did not stop peddling. He started to peddle even faster as he converted his sorrow to strong determination. As the midnight approached, thin frog noticed that the milk became butter as he was peddling for such a long time

Then he jumped out of the bucket and ran into the jungle again. With his strong determination and belief, the thin frog escaped from danger of death. Then the thin frog got married to a lady frog and had many kids. He keep telling the story of this fat frog to all his kids. He also tell the power of determination and believing in something very strongly

Losing hope in financial markets is very easy but only with the strong determination, believing in the markets and continuous learning with high level of persistence & consistency one can achieve abundance

The financial market has the capacity to flood people with wealth who has strong determination, consistent, patience and persistence.

Have a Great Day

B G Nareshkumar

The Race

There lived a young boy in a village who was an athlete. For him success is all about winning the race and coming first. He feel very happy whenever he see the crowd cheering at him when he win the race. An athletic event was organized in the village and the boy was very eager in participating and winning the race. He trained himself well and got ready for the race

There also lived a old wise man, who heard about this boy and came to the event to see the race. The event got started. The little boy raced with 2 other boys and he won the race. The crowd cheered him and he felt very happy and delighted. he felt the success. The old wise man stood still and gave no sign of cheer

The little boy had an another race with other 2 young fit and trained boys. He again won the race and the crowd cheered at him. He felt very happy and he felt as if he got all success in life. The old man stood still with no sign of cheering. The boy was so surprised this time. The old wise man approached him and asked him to race again. This time the competitors were a old lady and a blind man

The boy was surprised and asked the old man, why should he race the old lady and the blind man, it is sure that he will win the race. The old man told the boy to race. The race started and it is obvious the young boy won the race and when he looked back, the old lady and blind man was still standing in the same place where the race started

Now, the crowd did not cheer. They all stood still and the boy was very embarrassed and he understood he did something wrong. The boy asked the old man, why the crowd did not cheer. The old man asked the young boy to take the race now, but this time make sure you all three reach the winning line together

This time, the boy holded the hands of the old lady and the blind man and walked towards the winning line. The crowd cheered much more than before and he felt very happy and asked the old man, why the crowd cheer now and who is the winner. The wise man told, the crowd is not cheering for the winner and the crowd is cheering for the success of all three together

The wise man told, today you are young tomorrow you might be old. The true winning and true success always defined by carrying everyone around you with you to the winning line. 

Have a Great Day

B G Nareshkumar

The Mentor & The Lesson

David was working in a factory, his mentor was an old technician, who taught him how to handle things productively and made him know all the fundamentals in his work. One of his best lessons to David by his mentor was to talk less and do more

One day the old man (Mentor) retired. David had huge respect to his mentor who taught him the job. David continued his work and he did his job very effectively. Yet, he was less paid compared to his peers. He was bit worried and he decided to approach this old man (mentor) and take his suggestion

David approached the old mentor and told that his co-workers who are less skilled are paid more compared to him. Inspite of being so dedicated in his work, he was less paid. The mentor was thinking for a while and told David to take a Day off by telling some reason

Immediately after hearing his mentors suggestion, David told he understood and left the place. He planned for a reason and took a day off from his work. The next day when he returned to work, he found most of the job were unfinished. People are not able to complete the job in his absence. David's manager called him and told that the company understood his work and they promoted him as Senior Technician with a pay rise

David was happy. Whenever he felt he wanted to increase his pay, he took a day off and he continued the same. One day, when he was entering the factory in the morning after his day off, he was issued his termination letter and he is totally surprised and could not understand what was happening

He approached the old mentor again. The mentor told him that he did not listen to the second half when he was suggesting him earlier. He told the scenario with an example: 

When a light bulb goes off frequently it will be replaced 

Now David understood what went wrong. He can't go off when ever he needed for a pay rise. Management is not that stupid to keep on rising his pay frequently. They will always have an alternative way to approach certain things

Likewise in stock market, if a strategy worked for the first time, it doesn't mean it will work every time and in all situations. If a strategy fails continuously or if the winning percentage is less, then it is time to change the strategy. The stock market has the capacity to teach every day as long as we are investing and trading

It is always wise to build certain strategies and we should be open to change our strategies or alter the strategy when things go wrong. We also should remember everyday is not Sunday.

Have a Great Day

B G Nareshkumar

The Impatient King

There lived a king who has a very strong army and very much interested in capturing the big forts of his enemies. As he wished he also captured many of his enemies big forts but he had one big problem and worries that he lost few of his best men's in the fight

One day he was thinking about the great loss of his best men's and walking in the forest and after some time he realized that he was lost in the forest. He went to the top of the hill and trying to identified where he was. It became dark and in the long distance he found a light. He started to walk towards it and found a small hut

When he approached the hut, he saw a lady cleaning the area around the hut. As soon as she saw the king, she thought he was one of the men from King's army. She invited him and gave some water to clean himself and to drink. Later she offered him a blanket and made him comfortable

She brought some hot rice in a bowl for him to eat. The king grabbed the bowl and started eating fast, he spilled few rice and hurt his fingers. The women after seeing him spilling rice & hurting himself, told "You are too impatient like our king"

The king got too furious and asked the lady, why did she told that way. The lady replied, king was very furious only in capturing the big forts and lost many men's instead he would have captured the small forts first and gain control over the outer area of the bigger fort, strengthen the army and then move to the bigger forts. Since he was impatient he concentrated only on the center (bigger forts) and he lost many of his best men's. This was a story of a king, who lost best things in life because of his impatience

This normally happens in stock market. Most traders think only of the bigger picture and lose many of the small confirmed winning opportunities. One should always concentrate on the decent returns and not be greedy of the higher returns in a short time. Being too greedy will hurt traders

Initially, It is always a wise thing to take position over small confirmed profits. After gaining more capital and experience, one can concentrate on the bigger picture.

"Life's battles don't always go

To the stronger or faster man,

But soon or late the man who wins

Is the man WHO THINKS HE CAN!"

Have a Great Day

B G Nareshkumar

Portfolio Management

When we buy a stock and consistently buying it and managing it is generally called as stock management. Similarly when we buy multiple stocks and managing it is generally termed as Portfolio Management. As warren buffet said "Never keep all your eggs in single basket", it is better to have a portfolio of 8 to 10 stocks in different sector and manage it to have greater returns. This will also avoid burning our fingers in time of disaster in any sector

Portfolio Management

Portfolio Management should be in a way to reduce / balance the Risk. Portfolio management can be done following the below 5 steps

• Generate Ideas
• Employ Multiple sources of Return
• Simulate Outcomes
• Size Exposures
• Monitor Opportunities

Having a clear idea on what stocks to be chosen in our portfolio will bring good returns. The stocks picking depends on individuals comfort zone. Never chose a stock whose business is not familiar

It is also very important to chose stocks from multiple sectors to build a portfolio. This will balance our risks and returns. This will also help in beating the inflation

The size of stock in the portfolio is very important. It is definitely not a wise idea to have 60% of the money invested in 1 stock and remaining 40% invested in 5 stocks. This will definitely not bring a quality portfolio management process

Portfolio management in taking a stock from below different sectors can diversify your investment strategy and help in gaining great returns and beat inflation

• 
  Banking
• Information Technology
• Pharma
• Auto
• Electrical
• Chemical Industries
• Oil
• Insurance
• NBFC

Above are few of the sector classification. One can consider picking a stock from each of the above sector and segregate their capital by investing 10% in every stock and have 10% cash as buffer to use it when identified a great opportunity during the course of portfolio management or use it during the crisis.

Strong Disclaimer: This blog is not an investing recommendation. This blog is for an educational purpose. Consult your financial advisor before investing / trading.

Have a Great Day
B G Nareshkumar

Henry Ford & The 8 Cylinder Gas Engine

Millions of people envy Henry Ford for his good fortune, luck, smartness or whatever we call so. The secret behind his smartness or achievements are very simple and it is called Simplicity & Determination

Few decades ago, Ford decided to produced its famous V-8 motor. Henry ford decided to build its entire eight cylinder cast in 1 block. This design was placed on paper and the engineers and the best of best engineers told this is simply IMPOSSIBLE to cast an 8 cylinder gas engine block in one piece

Ford just told his engineers "Produce it Anyway" but still they replied it is Impossible. Henry Ford commanded his engineers to go ahead. He also insisted his engineers to stay on the job until you succeed and no matter how much time it is going to take

HENRY FORD

The Engineers now had no choice, they went ahead. Six months passed by, they had no improvement. They stood at the same place in the development when it was started. Another six months passed by, still nothing worked out. Engineers tried all possible way but still nothing worked out

At the end of the year, Ford checked with engineers, and again they informed him it is impossible. Ford told them "GO RIGHT AHEAD". "I want it and i will have it", this was the line told by Henry Ford. The engineers were very desperate this time and put all their efforts and the magic worked out. The Ford Determination had won once more

No matter how much time it takes, if you have the determination and if you have the thought very strong in your mind, that will take you to the success

No matter how many experts tell you it is not possible. Just have your vision clear and take a small step ahead everyday, that will fulfill your will. Make sure we have a clear plan along with Patience and Consistency will always win.

Have a Great Day

B G Nareshkumar