Page 7 – National Institute of Securities Markets (NISM)

Comparative Analysis

Posted on December 5, 2023December 5, 2023 by nism_admin

Comparative analysis involves comparing a company’s financial performance and key metrics with its industry peers. This allows investors to identify companies that exhibit superior financial strength, efficient operations, and good growth compared to their competitors. Such comparative insights help in selecting companies with relative competitive advantages. Comparing the balance sheets and cash flow statements of various companies within the same industry aids investors in selecting the most financially robust and operationally efficient companies. Companies exhibiting stronger financial health and better cash flow management are often preferred in investment decisions. Comparative analysis assists in risk assessment by highlighting companies with higher financial stability, lower debt, or superior cash flow management. This information aids in diversifying the investment portfolio, allowing investors to spread their investments across industries having positions in financially healthy companies.

Studying an industry to identify the best investment opportunities involves thoroughly analyzing various companies within the sector using comparative analysis. Industry knowledge helps assess risks associated with market fluctuations, regulatory changes, and technological advancements. Understanding industry trends allows investors to anticipate shifts in consumer preferences, technological advancements, and market demands. It helps in evaluating a company’s competitive positioning within the industry, identifying strengths, weaknesses, opportunities, and threats (SWOT analysis). Industry insights aid in identifying high-growth sectors, potentially lucrative niches, and undervalued markets. assists in making strategic decisions such as market entry, product development, and diversification. Investors look for sectors with consistent growth prospects and the market share and positioning of companies within the industry. Industries leveraging innovative technologies often present attractive investment opportunities.

Tools used in Comparative Analysis

Financial Ratios
Financial ratio analysis involves examining various ratios like liquidity, profitability, efficiency, debt, and market ratios. Comparative analysis using financial ratios involves comparing a company’s ratios against industry averages, sector-specific benchmarks, or direct competitors’ ratios.

For More details on Financial Ratios, Click Here.

Common Size Analysis
Common size analysis converts financial statements such as balance sheets, income statements, or cash flow statements into percentages. This makes it easier to compare the financial structures and performance of different companies. Analyzing common size statements over time reveals trends and patterns within a company or industry. It assists in understanding changes in financial structures, such as shifts in asset allocation or revenue streams. Common size analysis in understanding a sudden increase in a specific expense item as a percentage of revenue could signal operational inefficiencies or rising costs. Comparing common size statements against industry averages or competitors helps in benchmarking a company’s performance. It allows for identifying areas where a company might be over- or underperforming compared to its peers. Common size analysis is a valuable tool in comparative analysis, providing a clear and standardized view of financial statements.

Trend Analysis
Trend analysis is a statistical technique used to examine and identify patterns or tendencies in data over a period of time. It involves analyzing historical data to detect any consistent upward, downward, or stable movements, also known as trends, within the dataset. This method is commonly applied in various fields, including finance, economics, marketing, and science, to understand how variables change over time. Visual representation of data through charts and graphs helps in identifying trends more easily. Line charts, bar charts, and candlestick charts are commonly used to display trends in financial markets. Trend analysis helps in identifying patterns, whether upward, downward, or stable trends in the performance of assets or markets. These patterns can reveal valuable insights into the potential future trajectory of an investment. Trends can influence investment decisions by providing context and perspective. If an asset has consistently shown an upward trend, it might signal a potential opportunity. Conversely, a declining trend might raise concerns or prompt investors to reconsider their positions. When comparing multiple investment options, trend analysis allows investors to weigh the historical performance of each option against the others. It aids in selecting investments that align with specific risk tolerances and return objectives. Integrating trend analysis with fundamental and technical analysis helps create a more expanded view, enabling more informed investment decisions.

Comparative Company Analysis Models
Comparative company analysis involves evaluating and comparing different companies within the same industry to make informed investment or business decisions. Several models and methodologies are used in comparative company analysis to assess various aspects of companies.

Discounted Cash Flow
Discounted Cash Flow (DCF) analysis is a method used to evaluate the attractiveness of an investment opportunity by estimating its future cash flows and discounting them back to their present value. In comparative analysis, DCF helps compare different investment options by standardizing their values to a common point in time, enabling a more straightforward comparison. DCF allows for the valuation of different investments by bringing their future cash flows to their present value. This standardization enables investors to compare investments regardless of their size, industry, or other variables. DCF considers the entire projected cash flow stream of an investment, providing a long-term perspective. Comparative analysis using DCF helps in assessing how different investment options might perform over the long term, accounting for potential changes in market conditions, growth prospects, and cash flow variations.

Dividend Discount Model (DDM) and Free Cash Flow (FCF) Model
Dividend Discount Model values a company based on the present value of its expected future dividends. It assumes that the intrinsic value of a stock is the sum of all its future dividend payments, discounted back to the present value. DDM focuses solely on dividends paid to shareholders and works better for companies with stable dividend histories.

Free Cash Flow Model represents the cash generated by a company after accounting for capital expenditures to maintain or expand its asset base. It is essentially the cash available for distribution to all providers of capital (both equity and debt holders). FCF Model values a company by discounting its future free cash flows back to their present value. It involves projecting a company’s future FCF and discounting those cash flows using a discount rate to determine the company’s current value. FCF focuses on the cash available for distribution to investors, creditors, and for reinvestment in the business. FCF considers the flexibility of a company to invest in growth opportunities, repay debts, pay dividends, or perform share buybacks. FCF model is more flexible and suitable for companies with varying dividend policies or those reinvesting heavily in growth. FCF model focuses on the cash available to all capital providers and includes reinvestment needs.

In conclusion, comparative analysis suggests companies with similar fundamentals but varying market valuations. Finding a company with strong financials that is undervalued compared to its peers may present an opportunity for investment as its stock price could potentially rise to reflect its true value. Quantitative analysis often utilizes various valuation models to estimate a company’s intrinsic value. Comparative analysis is essential in selecting the best investment opportunities based on stronger performance, growth potential, and market positioning within the industry.

For More details on SWOT analysis and Porter’s Five Forces Analysis, Click Here.

Fundamental Analysis

Posted on December 5, 2023December 5, 2023 by nism_admin

Fundamental Analysis

Understanding the financial performance of a company is essential in equity screening for investing. The right selection of equity generates high returns. There are typically two primary types of equity analysis to help in equity screening – Fundamental and Technical analysis. Fundamental analysis is a method used to evaluate the intrinsic value of an asset, typically a stock or a company, by examining various qualitative and quantitative factors. It involves analyzing financial statements, economic indicators, industry trends, management quality, and other essential aspects to determine the true worth of an investment. Technical analysis is a method used in finance and investment that involves evaluating securities, such as stocks, currencies, or commodities, by analyzing statistical trends and patterns in historical market data. Unlike fundamental analysis, which focuses on a company’s financial health and intrinsic value, technical analysis concentrates primarily on past price movements, trading volumes, and market behavior to forecast future price movements.

Fundamental analysts mainly constitute of examine financial statements, financial ratio analysis, profit margin analysis, growth analysis, and comparative analysis.Financial statement analysis is conducted by analyzing financial statements such as the income statement, balance sheet, and cash flow statement. These documents provide crucial information about a company’s financial health, performance, and operational efficiency. Financial ratio analysis involves understanding a company’s financial health as it provides insights into its profitability, liquidity, solvency, and overall stability. It helps assess the company’s ability to generate profits, manage debt, and sustain its operations over the long term. Economic indicators, such as GDP growth, inflation rates, interest rates, and unemployment figures, play a significant role in fundamental analysis. They provide insights into the broader economic environment, influencing consumer behavior, business operations, and market conditions, and impact a company’s performance and prospects. The management team’s competence, strategic vision, corporate governance practices, and execution capabilities are crucial in fundamental analysis. A skilled and effective management team can drive company growth, manage risks, and make sound strategic decisions that positively impact the company’s long-term performance and value.

In emerging industries or companies with limited historical data, fundamental analysis relies on assessing management quality, the uniqueness of the business model, market potential, innovation, and future growth prospects. It might also involve benchmarking against established companies in similar industries. Fundamental analysts forecast future performance by analyzing historical trends, growth rates, industry dynamics, management strategies, and market conditions. They project future earnings, cash flows, and revenue on the basis of past performance and expected changes in the business environment. By examining a company’s financial health, debt levels, and management strength, fundamental analysis helps assess the risks associated with an investment. Understanding these risks is essential in managing a portfolio effectively. Software tools such as Bloomberg, Reuters Eikon, and Morningstar help in providing financial data of various companies to support decision-making in trading and investment. These softwares are comprehensive tools that provide real-time financial data, news, and analytics, allowing users to analyze stocks, bonds, and other financial instruments.

In conclusion, the fundamental analysis incorporates qualitative factors by assessing a company’s brand value, market perception, customer loyalty, competitive positioning, and innovation. These factors contribute to the company’s competitive edge and long-term sustainability, influencing its intrinsic value. Evaluating these fundamental aspects assists in identifying undervalued stocks, selecting robust performers, managing risks, and diversifying portfolios. Even for a short-term gain or aiming for long-term wealth accumulation, a comprehensive understanding of a company’s fundamentals is the basis for building successful investment strategies.

Financial Ratios

Financial ratios play a crucial role in quantitative analysis. Common ratios include the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, debt-to-equity ratio, and various profitability ratios. These ratios offer insights into valuation, profitability, liquidity, and solvency. Financial ratio analysis allows investors, analysts, and stakeholders to compare a company’s performance over time against its peers or within its industry. It involves using various ratios to assess different aspects of a company’s financial statements. The financial ratio helps to narrow down the scales and help in comparison with other companies. Financial ratio analysis helps identify potential investment opportunities by evaluating companies with strong financial indicators. A company demonstrating consistent revenue growth, healthy profit margins, and efficient debt management is an attractive investment opportunity. Ratios help in assessing the risk associated with an investment using different financial ratios that deal with the worthiness of the firm. A low debt-to-equity ratio or a high-interest coverage ratio might suggest a lower risk in terms of debt obligations, signaling a company’s financial stability. Investors can identify which companies are more efficient, profitable, or financially stable compared to their peers. This comparison guides you in choosing the best investment options. Ratios such as return on assets (ROA) or return on equity (ROE) provide insights into a company’s ability to generate profits and use assets efficiently. Companies with strong ratios in these areas might be considered better investment options due to their potential for sustained growth. By analyzing ratios specific to each sector, they can spread their investments to mitigate the risks associated with economic fluctuations.

Financial ratio analysis guides investment strategies by providing a deeper understanding of a company’s financial performance and position. Investors use these ratios to make informed decisions, identify opportunities, assess risks, and build a diversified portfolio tailored to their investment objectives and risk tolerance.

For More details about Financial Ratios, Click Here.

Evaluating the Balance Sheet and Cash Flow

Financial statement analysis involves a comprehensive examination of a company’s financial statements- income statement, balance sheet, and cash flow statements. Analysts assess metrics such as revenue, earnings, assets, liabilities, and cash flow to gage financial health and performance. The balance sheet assessment reveals a company’s liquidity through ratios like the current and quick ratios. A strong liquidity position, reflecting ample current assets to cover short-term liabilities, may indicate a company’s ability to meet its financial obligations. Companies with healthy liquidity positions might be considered more favorable for investment because of their ability to navigate short-term challenges.

Cash flow analysis is crucial in fundamental analysis because it reflects a company’s ability to generate cash from its operating activities, manage debts, invest in growth, and provide returns to shareholders. It offers insights into the company’s actual cash position, which is vital for its sustainability. Companies exhibiting stronger financial health and better cash flow management are often preferred in investment decisions. Both the balance sheet and cash flow analysis aid in risk assessment. Equity research reports are made by deriving financial content from financial statements and graphically representing them to analyze the financial performance of the firm. These reports help investors make investment decisions and understand the extent of risk associated with investments. A company with significant debt or inconsistent cash flows might pose higher financial risks. Understanding these risks allows investors to make more informed decisions and adjust their investment strategies accordingly.

Profit Margins and Growth Prospects

Profit margins are essential indicators of a company’s efficiency and profitability. They illustrate how well a company manages costs and generates profits from its operations. Evaluating both profit margins and growth prospects is essential for investors to gage a company’s profitability and potential for future expansion. A company with healthy profit margins and promising growth prospects may be seen as an attractive investment opportunity. Profit margins and growth prospects heavily influence investment decisions. Companies with strong and expanding profit margins and solid growth prospects are often favored by investors seeking companies with efficient operations, higher profitability, and the potential for sustained growth.

Profit margins reveal a company’s ability to manage costs and generate profits. Higher profit margins than industry peers might indicate that a company is undervalued, potentially leading to better investment decisions and higher returns. Growth prospects, such as revenue growth, earnings growth, and market expansion plans, are crucial for investment decisions. Companies with promising growth prospects are often preferred by investors seeking long-term investment opportunities. Companies with healthy growth prospects might be less susceptible to economic downturns, as growth can often cushion the effects of market fluctuations. Investing in companies with promising growth trajectories might offer more stability during turbulent times.

For More details about Profit Margins and Growth Prospects, Click Here.

Understanding Primary Markets

Posted on November 21, 2023April 10, 2025 by nism_admin

Author: Denny B Justin

There are various types of markets, each catering to different products, participants, and purposes. The primary market represents the initial platform where securities, such as stocks and bonds, are issued and offered to investors directly by the issuing company or entity. It serves as the foundation for the financial market, facilitating the creation of capital for businesses and governments. This market plays a pivotal role in shaping the economy, enabling companies to raise funds for expansion, research, and development while offering investors the opportunity to acquire ownership of these enterprises.

Primary markets allow companies and governments to raise funds by issuing stocks or bonds directly to investors. This direct issuance enables them to secure capital for business expansion, infrastructure development, or other financial needs. The primary market is where securities are initially issued and offered to investors directly by the issuing company. Secondary markets involve the trading of already issued securities among investors without the involvement of the issuing company. Investors, varying from individual investors to institutional bodies such as pension funds and mutual funds, constitute the other part of the primary market. Their involvement in the primary market provides the necessary capital for new ventures to grow and expand.

Companies looking to raise capital work with investment banks, underwriters, and other financial institutions to manage the issuance of securities. Investment banks play a crucial role in guiding companies through the process of offering securities to the public. They assist in determining the offering price, drafting the prospectus, and managing regulatory requirements. The pricing of these securities is determined by various factors, including the company’s valuation, demand-supply dynamics, and prevailing market conditions. They must go through steps including due diligence, preparing a prospectus, determining the offering price, compliance with regulatory requirements, and marketing the offering to potential investors.

The key functions in the primary market are- Initial Public Offerings (IPOs), Corporate Bonds, Government Bonds, Preferred Stock, Rights Issues, Debentures, Commercial Paper, Venture Capital and Private Equity, Derivatives, Mortgage-Backed Securities (MBS). Secondary Offerings are posting the IPO, where companies might opt for additional equity offerings or bond issuances to raise further capital. These subsequent offerings serve the company’s financial base, enabling further investment in projects or debt repayment.

• Initial Public Offerings (IPOs): When a company issues its shares to the public for the first time, allowing investors to buy ownership stakes in the company. The commencement of an IPO signifies a company offering its shares to the public for the first time. This process involves meticulous groundwork, including due diligence, compliance with regulations, and pricing determination. IPOs attracts significant attention and can impact market sentiments. Investing in IPOs can offer potential for high returns if the company performs well after listing. They can also be risky as new companies might lack a proven track record, making it harder to evaluate their potential.

• Corporate and Government Bonds: Companies issue corporate bonds to raise capital. These bonds are debt securities where the issuer promises to pay back the principal amount along with interest to the bondholders. Investors who buy corporate bonds are essentially lending money to the issuing company in exchange for periodic interest payments and repayment of the bond’s face value at maturity. Bonds issued by governments to fund various projects and cover expenses are collectively known as Government Bonds. These bonds are considered low-risk investments as they are backed by the government’s ability to tax or print money. Examples include treasury bills, notes, and bonds. These are generally considered safer investments compared to stocks as they offer regular interest payments and the return of principal at maturity.

• Rights Issue and Preferred Stock: Companies offer existing shareholders the right to buy additional shares at a discounted price. This allows current shareholders to maintain their ownership percentage in the company and can raise additional capital for the company. Investing in rights issues can be a way to increase your stake in a company at a discounted price. Preferred stock pays a fixed dividend and gives holders higher priority over common stockholders in terms of dividends and asset distribution if the company goes bankrupt. It has characteristics of both equity and debt, and less volatile than common stocks.

• Debentures: They are unsecured debt instruments issued by companies or governments, with a fixed interest rate and a specific maturity date, offering fixed income but carry varying levels of risk. Unlike secured bonds, debentures are not backed by specific assets. Investing in debentures need careful risk analysis and comprehensive understanding of the creditworthiness of the issuer and prevailing interest rates.

• Commercial Paper: Commercial Papers are short-term debt instruments issued by corporations or financial institutions to raise short-term funds. They are unsecured and have maturities ranging from a few days to a year. Proper credit risk analysis shall be done for investing.

• Venture Capital and Private Equity: Venture capital are funds startups or early-stage companies in exchange for equity ownership, while private equity firms invest in more established companies with the aim of restructuring or growing them. The returns from VC and PE are higher if the company succeeds, but a higher risk of failure. Detailed market and industry analysis have to be done before investing.

• Derivatives: Derivatives are financial instruments whose value is derived from the performance of an underlying asset, index, or entity. They can be used for various purposes, including hedging against risks, speculating on price movements, or gaining exposure to assets without owning them directly. These are complex financial instruments and can be highly risky if not understood properly. They can be used for hedging or speculation but require a deep understanding of the underlying assets and market dynamics. Certain derivatives like futures and options can also be issued in primary markets.

• Mortgage-Backed Securities (MBS): When financial institutions bundle together a group of mortgages and sell them as a single security, an Mortgage-Backed Securities (MBS) is created. Investors receive payments based on the interest and principal payments from the underlying mortgages.

Investing in the primary market involves certain risks. There is a higher degree of uncertainty due to the lack of historical data and market performance. Companies also face risks associated with market reception and pricing. Factors such as economic conditions, industry trends, and market sentiment can significantly impact the success of a primary market offering. Favorable market conditions, positive economic trends, and strong investor sentiment often contribute to the success of primary market offerings, while unfavorable conditions can lead to challenges in the successful issuance of securities.

In conclusion, the primary market embodies the essence of economic growth and expansion. A country’s economic backbone is emerging companies, and understanding its mechanisms is crucial for investors looking to diversify their portfolios and for businesses aiming to fund their growth and development. Effective risk management and consultation from investment banks are essential before investing in the primary market to avoid huge losses.

Understanding Bonds and Bond Market

Posted on November 21, 2023April 3, 2025 by nism_admin

Author: Denny B Justin

Before looking into bonds, it is essential to know what Fixed income is. It is an investment that generates a predictable and fixed return in the form of interest or dividend payments at regular intervals. Bonds are considered fixed-income securities due to the predetermined and fixed payment structure they offer to investors. They provide a steady and regular income stream through interest payments. Bonds represent a fundamental component of the global financial market, serving as an essential tool for governments, corporations, and investors. A bond is a debt instrument where the issuer borrows funds from investors and promises to repay the borrowed amount, along with periodic interest payments, over a specified period.

Bond markets offer a wide array of bonds with varying risk levels, maturities, and yields. This diversity allows investors to construct a balanced and diversified portfolio. Government bonds issued by national governments are often considered the safest as they are backed by the government’s ability to levy taxes. Municipal bonds are issued by local governments, typically to fund public projects, and may offer tax advantages. Corporate bonds are issued by companies to raise capital, providing higher yields but with varying levels of risk. Moreover, there are also asset-backed securities (ABS) and mortgage-backed securities (MBS) that represent pools of underlying assets, such as mortgages, packaged as tradable securities. Stocks have perpetual existence until sold, while bonds have a fixed maturity date when the principal is repaid, delineating a clear difference in their durations and obligations.

Bond markets operate by primary and secondary markets. The newly issued bonds are traded in the primary market and provide entities with the means to raise capital. The secondary market enables the trade of pre-existing bonds among investors, where prices fluctuate based on market conditions, prevailing interest rates, and perceived risk associated with the bond issuer. Based on maturity period, there are three types of bonds: Short-Term Bonds, Intermediate-Term Bonds, and Long-Term Bonds. Short-term bonds have a maturity period typically ranging from less than a year up to three years. They are commonly known as short-term or money market bonds and are often issued by government entities or corporations seeking short-term funding. Examples include Treasury Bills (T-Bills) and Commercial Papers. Intermediate-Term Bonds’ maturity periods range from four to ten years. Intermediate-term bonds offer a mid-range duration. They balance short-term and long-term investments, offering a moderate level of risk and potential returns. Some Indian examples include Medium-Term Notes (MTNs) and Corporate Bonds with intermediate maturities. Long-Term Bonds: These bonds have maturity periods beyond ten years, offering a more extended duration for investment. Long-term bonds are suitable for investors with longer investment plans. In India, examples of long-term bonds include Government Securities (G-Secs) with longer maturity periods and Infrastructure Bonds.

The yield represents the return on investment for a bond and is influenced by its price, coupon rate, and maturity. To calculate yield, we must look from a different perspective. There is a reward for a fixed deposit called the interest rate of deposit. Yield can be said to be the interest rate of a hypothetical bank having the same net outcome of the bond after maturity. The yield curve is a graphical representation of yields for different maturities that helps investors gauge the state of the economy. The yield curve has a positive slope at the beginning and subsequently decreases over time due to the time value of money. When interest rates rise, the value of existing bonds decreases as newer bonds offer higher yields. Conversely, falling interest rates increase the value of existing bonds.

Stock vs Bond vs Deposit

The market dynamics for stocks are driven by economic and company-specific factors, while interest rates, issuer credit quality, and market demand influence bond values. Bond markets are the only market which could withstand the 2008 financial crisis. Many companies and banks were shut down during the era. The bond market had the least effect by the 2008 financial crisis, the yield had increased dramatically by 20% even after low rated bonds were called off. During this time with the results being the all-time high for junk bond defaults. High-rated bonds can generate income even in huge financial crisis. Bond market earnings graphs are straight with less slope than the stock market, which is highly volatile and unpredictable. Looking back on the last 30 years of S&P 500 and US Treasury Bonds, the earnings of the bond and equity markets are the same. The start points and endpoints are approximately the same, even after the violent ups and downs of S&P. But when the equity dividends were re-invested, the stock earnings tripled. This shows that in the long term, investing in bonds will generate a small impact despite being the least risky.

Bonds are preferred over depositing when the yield rate exceeds the interest rate. The time value of money is the other component that hunts bonds. Investing in a bond for five years is not the same as investing in the same bond for a 30-year maturity. There are three significant reasons: the yield rate cannot be changed, inflation, and the net present value decreases. The interest rate changes from time to time, increasing and decreasing. During 30 years, the interest rate will increase due to monetary policies and subsequently, it can exceed the interest rate. This will create losses for bond investors, making the bond market a risky place to invest. Yield rates are independent of inflation rates. This gives a high possibility of the inflation rate crossing the yield rate. Net present value modelling of the returns shows the risk factor associated in investing in long-term bonds.

Overall, the bond market plays a significant role in diversifying investment portfolios, offering a range of options to suit various risk appetites and investment strategies. It provides an avenue for investors seeking stability and predictable returns, making it an essential component for a balanced and diversified portfolio. Short-term bonds offer lower risk and are well-suited for investors seeking stability and liquidity, while long-term bonds, though offering higher potential returns, come with increased risk, making them a more challenging investment option. Understanding the differences between short and long-term bonds is crucial for investors looking to optimize their portfolio’s risk-return balance.

Mahila Samman Saving Certificate Scheme

Posted on November 17, 2023December 5, 2023 by nism_admin

Author: Kiranjit Kaur Kalsi

Under the Government Savings Promotion Act, 1873, the Government of India (GOI) has introduced the Mahila Samman Savings Certificate (MSSC), 2023 in Union Budget 2023-24. The MSSC scheme is in force since April 01, 2023 through the Department of Post. However, the Department of Economic Affairs, Ministry of Finance, GOI, through an e-gazette notification issued on June 27, 2023, permitted all Public Sector Banks and eligible Private Sector Banks to implement and operationalise the MSSC, 2023. These banks are known as Authorised Banks.

The principal aim of this scheme is to increase the participation of women in investments and provide them with financial security.

1. Deposit amount under this scheme is limited. The minimum limit of Rs. 1000 in multiples of rupees one hundred and Maximum of Rs. 2 Lakhs is permitted for investment in the scheme.
2. The Maturity period/Lock-in period of the scheme is 2 years from the date of opening of the account. However, the account holder can withdraw up to 40% of the account balance after one year from the account opening date as partial withdrawal.
3. MSSC is a government-supported scheme which offers a guaranteed rate of return i.e. 7.5% p.a. compounded on quarterly basis and credited to the account, hence it is safe from the market risk/credit risk.
4. There is a provision of multiple account opening under this scheme with a condition that a woman can open a second MSSC account after a minimum gap of three months from the opening of the existing account.
5. Premature closure of an account may be permitted, any time after the completion of 6 months from the date of opening of an Account on an application in Form-4 for any reason other than the following:
• on the death of the account holder
• in cases of extreme compassionate grounds such as:
i) medical support in life-threatening diseases of the account holder or;
ii) death of the guardian, that the operation or continuation of the account is causing undue hardship to the account holder

In such circumstances, the interest on principal amount will be payable at the rate applicable to the Scheme. On the other side, in the former case i.e. on premature closure after completion of 6 month, the interest rate will be reduced by 2% and payable will be 5.5%.

6. How to avail this scheme: The account opening application shall be made by a woman for herself, or by the guardian on behalf of a minor girl through any of the following entities:
i) India Post: Apply by filing the Form-I at any Post office.
ii) Authorized Banks: Currently following banks are offering the MSSC Scheme:
• Bank of Baroda
• Canara Bank
• Bank of India
• Punjab National Bank
• Union Bank of India
• Central Bank of India

7. List of documents required for opening MSSC account:
• Mahila Samman Savings Certificate Account Opening Form
• KYC documents (Aadhaar and PAN card)
• KYC form for the new account holder
• Following are valid documents for the purpose of identification and address proof
i) Passport
ii) Driving License
iii) Voter’s ID Card
iv) Job card issued by NREGA signed by the State Government officer
v) Letter issued by the National Population Register containing details of name and address

8. Agency Charges: The following agency charges will be payable to Department of Posts and Authorized Banks for operation of this scheme:

Sl. No.	Type of transaction	Charges payable (in rupees)
1	Receipt Physical Mode	40
2	Receipt e-mode	9
3	Payments	6.5 paise per Rs. 100 turnover

As on October 2023, 18,08,710 accounts amounting to Rs. 11546 Crores have been opened across the country (PIB). For more details of the MSSC scheme, click here.

Understanding Stock Splits and Valuation

Posted on October 27, 2023 by nism_admin

Author: Denny B Justin

Stock splits are a corporate action that increases the number of a company’s outstanding shares while reducing the price per share proportionally. Essentially, a stock split involves breaking down existing shares into smaller denominations. Stock splits often create a perception of affordability and stability, which can attract retail investors. Lower share prices can make stocks seem more accessible and less risky, increasing interest and potentially more buying activity. The reduced share price often conveys a sense of affordability and stability, attracting retail investors.

Stock splits are a common corporate instrument that can significantly impact investors’ perceptions and market dynamics. Common stock splits are typically expressed as a ratio, such as 2:1, 3:1, or 5:1. For example, in a 2:1 stock split, if you initially held 100 shares of a company’s stock priced at ₹1000 per share, after the split, you would own 200 shares priced at ₹500 per share. The total market capitalization remains unchanged. Dividend payments or EPS are not affected by the stock split. If a company paid a particular dividend per share before the split, it continues to pay the same amount after the split. Similarly, EPS remains unaffected because earnings and the number of shares increase proportionally.

One of the primary reasons companies opt for stock splits is to make their shares more accessible to a broader range of investors. By reducing the share price, they aim to attract retail investors who may find the stock more affordable and it will boost demand. Moreover, the increased number of shares often enhances liquidity in the stock, resulting in narrower bid-ask spreads and smoother trading.

They also have drawbacks. Stock splits can inadvertently lead to misinterpretation and overvaluation. Some investors perceive lower-priced shares as inherently cheaper, overlooking that the company’s fundamental value remains unchanged. This misperception can cause stocks to become overvalued, potentially leading to speculative bubbles that may burst, causing significant market corrections. Eastman Kodak and Polaroid, iconic names in the photography industry, succumbed to their inability to adapt to the digital age despite engaging in multiple stock splits to boost investor interest. Polaroid filed for bankruptcy in 2001, and Kodak followed the suit in 2012. In both cases, stock splits were not the primary cause of these companies’ decline. Instead, their inability to pivot and innovate in rapidly evolving industries played a more significant role. However, the repeated use of stock splits to boost stock prices artificially may have contributed to investors’ misperceptions about the companies’ true worth.

In conclusion, stock splits are tactical moves to enhance accessibility and market perception, without bearing on a company’s intrinsic value. Investors must grasp that stock splits are essentially cosmetic adjustments to share quantities and prices. Sound investment decisions should be grounded in comprehensive research of a company’s fundamentals and financial health. The cases of Eastman Kodak and Polaroid serve as cautionary tales, reminding us that stock splits. At the same time, a tactical tool, cannot substitute for a company’s ability to adapt, innovate, and thrive in dynamic markets. While stock splits may influence investor sentiment, understanding their essence empowers investors to navigate the financial landscape with clarity and confidence.

How Companies Share Profits with Shareholders

Posted on October 25, 2023 by nism_admin

Author: Denny B Justin

Shareholders are more than mere investors; they are the lifeblood of a company, providing the capital that fuels its ambitions and innovations. They invest their money and trust the company’s vision. In return for this trust, companies bear a profound qualitative debt to their shareholders— they distribute a portion of their profits to shareholders with a direct return on their investment.

Companies generate profits from shareholders’ investments primarily through two fundamental mechanisms: capital appreciation and dividends. When investors purchase company shares, they contribute capital to the business. As the company grows, increases its revenue and profitability, or experiences positive market sentiment, the value of these shares can be appreciated over time. This capital appreciation results in gains for shareholders when they sell their shares at a higher price than initially paid.

Companies share profits with their shareholders through various financial instruments:

Dividends: Provide a direct share of the company’s profits by periodic cash payments as regular income.
Stock Buybacks: Companies repurchase their own shares from the market, thus reducing the number of outstanding shares.
Capital Appreciation: When the market price of the company’s shares increases because of strong financial performance.
Special Dividends and One-Time Payments:Issue extra dividends or make one-time payments to shareholders.
Preferred Stock Dividends: Receive fixed dividend payments from equity shareholders
Employee Stock Ownership Plans (ESOPs): Companies offer employees shares as part of their salary, allowing them to benefit from the company’s success.
Convertible Securities: Convertible bonds or preferred stock can be exchanged for common shares.
Rights Issues: Existing shareholders are granted the option to purchase additional shares at a discounted price.
Stock Splits: The company issues shares while decreasing the share price proportionally.
Liquidity Events: Shareholders receive cash or stock from another company during mergers and acquisitions. Preferred shareholders are granted privileges during liquidation.

By sharing profits with shareholders, the company attracts and retains investors, serving as a potent tool for raising capital, which is essential for business growth and expansion. Profit-sharing aligns the interests of shareholders with those of the company’s management, fostering a sense of ownership and encouraging long-term commitment. Additionally, it enhances a company’s reputation in the financial markets, increasing its ability to attract investment and lowering its cost of capital. Furthermore, sharing profits, whether through dividends or capital appreciation, ultimately contributes to increasing shareholder value, benefiting both existing and potential investors. It helps mitigate agency problems, where management may prioritize their own interests over those of shareholders, by providing a direct return on investment that holds management accountable for delivering shareholder value.

In summary, profit-sharing is not merely a financial transaction but also a connection that binds investors and companies It is the promise of opportunity. Shareholders should consider factors such as the company’s financial health, dividend history, growth prospects, and alignment with their own investment goals when evaluating profit-sharing practices. Consistent profit-sharing can enhance a company’s reputation, potentially leading to a higher stock price as more investors are attracted. However, poorly managed profit-sharing strategies can have negative consequences.

Understanding Stock Market Indices

Posted on October 25, 2023October 25, 2023 by nism_admin

Author: Denny B Justin

Stock market indices are numerical indicators that represent the performance of a specific group of stocks within a financial market. These indices are designed to provide a benchmark idea of how a particular market segment is performing. Stock market indices reflect market sentiment by showing whether the market is bullish or bearish. They are typically calculated on the basis of the weighted average of the prices or market capitalizations of the constituent stocks. Stock market indices are essential instruments in the world of finance, offering insights into the collective performance of select groups of stocks.

The most well-known stock indices include the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite in the United States and global indices such as the MSCI World Index. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are India’s two major stock exchanges, and each maintains its own set of indices. Some notable examples of Indian stock market indices include the Nifty 50 (NSE), which comprises the 50 largest and most liquid stocks on the NSE, and the BSE Sensex (BSE), which represents the 30 largest and most actively traded stocks on the BSE. India also has sector-specific indices such as the Nifty Bank, Nifty IT, and Nifty Pharma, which track the performance of specific industry segments within the Indian stock market. These indices serve as vital tools for investors and analysts to gauge the performance of various sectors and the overall Indian equity market.

Why Stock Market Indices?

The primary purpose of stock market indices in the world of finance is to provide a numerical representation of the performance of a specific group of stocks, offering a snapshot of the overall health and direction of a financial market. A price-weighted index calculates its value on the basis of the prices of the constituent stocks, with each stock’s price having an equal impact on the index’s value. In contrast, a market-capitalization-weighted index calculates its value based on the constituent stocks’ total market capitalization (market value), giving larger companies a more significant influence on the index.

Stock market indices help investors assess the performance of their portfolios by providing a benchmark against which they can compare their investment returns. A rising index typically indicates optimism and bullish sentiment, whereas a declining index may suggest pessimism and bearish sentiment among investors. If an investor’s portfolio outperforms the index, it suggests successful investing; if it underperforms, it may indicate underperformance or the need for a portfolio adjustment. Stock market indices are the foundation for various investment products such as index funds and exchange-traded funds (ETFs). These products replicate the performance of a specific index, allowing investors to gain exposure to a diversified portfolio of stocks without purchasing individual securities. Traders and algorithmic trading systems often use index levels and trends to make short-term trading decisions. Technical analysis and trading signals are frequently based on index movements, which contribute to trading volumes and price volatility.

Overall, stock market indices are the guiding stars that illuminate the path toward informed investment decisions and financial success. Stock market indices are indispensable tools for investors, analysts, and financial professionals. Their influence extends beyond the financial sector, affecting the broader economy and public sentiment. Understanding and monitoring these indices is crucial for anyone involved in finance.

Valuing a Company

Posted on October 25, 2023April 28, 2025 by nism_admin

Author: Denny B Justin

Valuing a company is a fundamental aspect of the financial landscape that underpins crucial investment decisions and strategic moves in the corporate world. In the world of finance and business, valuing a company is an essential skill that forms the bedrock of decision-making processes such as mergers and acquisitions, investment analysis, and even daily stock trading. Valuing a company involves assessing its worth, typically in monetary terms, based on a combination of quantitative and qualitative factors. This process is essential because it helps stakeholders, including investors, management, and potential acquirers, understand the company’s actual financial position, growth potential, and overall health.

The valuation of a company plays a pivotal role in a significant business decision or transaction. An example is the acquisition of WhatsApp by Facebook in 2014 for $19 billion. WhatsApp’s user base and growth potential were essential to the valuation, demonstrating how company valuation informs high-stakes M&A decisions.

How to value a company?

Methods for valuing a company include discounted cash flow (DCF) analysis, comparative analysis (relative valuation), precedent transaction analysis, and the asset-based approach.

The discounted cash flow (DCF) method is widely used in company valuation. This approach involves estimating a companys anticipated future cash flows and subsequently reducing them to their present value by applying a suitable discount rate.

A comparative analysis compares the target company with similar publicly traded companies or recent transactions in the same industry using metrics such as price-to-earnings or price-to-sales ratios. It helps assess a company’s relative valuation compared to its peers, providing insights into whether it is undervalued or overvalued in the market.

Precedent Transaction analysis examines past transactions involving similar companies to determine the appropriate valuation for the target company. It provides a real-world benchmark for valuation and is crucial in M&A to assess whether a proposed deal agrees with historical transaction multiples.

The asset-based approach values a company on the basis of the fair market value of its assets, net of liabilities. It is most relevant for companies with significant tangible assets, such as real estate or manufacturing equipment, where the asset value is critical to its worth.

Qualitative factors provide context and depth to quantitative valuation. Management quality, brand reputation, competitive advantages, and market dynamics can significantly impact a company’s future cash flows and overall value.

Ethical considerations include maintaining transparency, avoiding conflicts of interest, and ensuring the accuracy of information. Pitfalls include overreliance on assumptions, ignoring qualitative factors, and using biased data sources. Professionals must uphold ethical standards and exercise diligence throughout the valuation process. Technology has facilitated data analysis, improved modeling tools, and enhanced access to real-time financial information, making valuations more precise and efficient. Additionally, technology has enabled the valuation of tech-based companies with unique business models. Challenges include uncertainty in cash flow projections, subjective qualitative factors, and the impact of unforeseen events. Analysts can address these limitations using sensitivity analysis, considering multiple scenarios, and regularly updating valuations.

In conclusion, valuing a company is a multifaceted task that requires a deep understanding of various valuation methods and the ability to interpret the results in the context of the company’s unique circumstances. Market dynamics and economic conditions influence factors such as discount rates and growth projections, making valuation sensitive to these variables. Analysts must stay updated on market trends and economic indicators and incorporate them into their valuation models. A strong understanding of valuation methods and the broader business environment is crucial for making sound investment choices.

Alternative Investment Funds

Posted on October 11, 2023October 13, 2023 by nism_admin

Author: Denny B Justin

Alternative Investment Funds are a category of investment vehicles that differ from traditional mutual funds and stocks. AIFs provide investors with opportunities for diversification, potentially higher returns, and access to asset classes that may not be readily available through traditional investments. They encompass various assets and strategies, including private equity, hedge funds, real estate, venture capital, and more. AIFs expose investors to assets that are not readily available in conventional investment options.

AIFs often have the potential to deliver higher returns than traditional investments due to their exposure to alternative assets with unique growth opportunities. AIFs expand investors’ diversification beyond conventional stocks and bonds, lowering overall portfolio risk. This diversification spreads risk across different asset classes, reducing the impact of underperformance in a single investment on the overall portfolio. It allows investors to tap into growth opportunities in sectors that may not be readily accessible through traditional investments. Investors gain access to professional fund managers who specialize in alternative asset classes. AIFs also come with strategies to minimize risks and complexities, including less liquidity, higher fees, and often greater market volatility. AIFs should align with an investor’s overall financial strategy and complement their existing portfolio. AIFs often come with lock-in periods, limiting investors’ access to their funds when needed, and they may involve higher fees and intricate investment strategies that may not be suitable for everyone. Therefore, for small investors, a prudent approach is advisable.

AIFs can be categorized into three broad types based on their investment strategies. First-category AIFs invest in startups, small and medium-sized enterprises (SMEs), infrastructure, and other sectors with the potential for economic growth. The second category AIFs, includes hedge, private equity, and debt funds. They typically invest in listed or unlisted equity securities, debt, or other marketable securities. Finally, the third category, AIFs, involves high-risk, high-return strategies, including trading in derivatives, commodities, and other complex instruments.

AIFs and India

Alternative Investment Funds (AIFs) have become a popular way to invest money in India. These funds have increased investment opportunities in India by offering instruments like real estate, private companies, and more. They allow investors to spread their risk and earn more money compared to regular investments like stocks or bonds. AIFs are subject to regulations and reporting requirements. The securities and Exchange Board of India (SEBI) introduced regulatory changes aimed at simplifying and streamlining the AIF regime in the country. These changes include the introduction of a ‘sunset clause,’ which limits the tenure of AIFs to a maximum of 10 years, aligning with global best practices and providing investors with greater clarity on exit timelines. Compliance typically includes periodic reporting, disclosure of investment strategies and risks, and adherence to investor protection standards. In USA, the Securities and Exchange Commission (SEC) oversees AIFs.

In summary, ATFs stand as a captivating testament to the dynamism and innovation within the investment realm. Like a canvas painted with a diverse palette of assets and strategies, AIFs offer investors a remarkable journey beyond the traditional, promising diversification, the potential for higher returns, and access to the extraordinary. Yet, they still need their intricacies and risks, which demand careful consideration and diligent research. It is crucial to thoroughly comprehend the associated risks and consider seeking guidance from a financial advisor before venturing into AIFs. Prioritizing one’s financial security should always be the primary concern. As the global investment landscape continues to evolve, AIFs handle complexities in the ever-changing finance world, presenting challenges and opportunities on a stage that constantly shifts and surprises. In the end, the significant highlight of AIFs lies in their ability to add depth and dimension to investment portfolios, offering a risk reduction and maximize rewards for investors.