Zebu blog

Category: Stocks

  • Types Of Fear In The Stock Market – Part 1

    Large Cap vs Mid Cap vs Small Cap: Key Differences That Actually Matter

    The fear of the stock market is real, and why wouldn’t it be? How can someone trust the market cycle and go with it when there are so many unknowns and the market will always be volatile? Especially when our hard-earned money is at stake! Before we get into understanding the various types of fears in the stock market, it is important to understand that the technology you use is as important as the strategy. And as a share broking company, we offer the best trading accounts with the lowest brokerage for intraday trading.

    At the end, who wants to lose?

    People have lost tens of thousands of rupees in the past when the stock market went down. Because of this, when the stock market crashes, people tend to pull their money out of fear, which leads to even more losses. It’s a never-ending loop. So, what should we do? To stop further capital loss and deal with stock market fear, you need patience and tried-and-true strategies.

    How to Deal with Stock Market Anxiety Let’s look at some of the best and easiest ways to deal with this fear of the stock market:

    1. Don’t try to catch the bottom of the market Value investing is the most basic way to put money into the stock market. The one backed by Warren Buffet is a strategy in which you just buy stocks when their value goes down and sell them when it goes up. This sounds like a good way to deal with fear about the stock market. But when they do this, some people invest a large amount of money all at once. This should be avoided at all costs. There are many different ways to trade and invest in stocks, so you must be very careful. You need to put some money at one low and some at the other until you reach the lowest point and the recovery begins.

     2. Have patience. When markets start to go down, people tend to panic and get rid of their stock market investments out of fear. When you invest in stocks for the long term, you do so with a specific time frame and goal in mind. If you take these away when things are bad, you lose in both ways. First, the capital value goes down, and second, the goal of the investment is no longer met. For example, you could buy a house in 5 years if you saved Rs. 5,000 per month in a SIP. Some of the money in your portfolio lost value, so you took it all out of fear. Where does it leave you? With a loss of capital and unfinished goals, and if the fund starts going up again (which it usually does in the first year after a drop), you would feel like you missed the bus. So, unless it’s an emergency, you can try not to sell your equity investments unless you have to. Giving your investments time to grow is a hard thing to do. The stock market is NOT a quick way to make money. For wealth to start and grow, you have to keep at it.

    As we mentioned, it is important to understand that the technology you use is as important as the strategy. And as a share broking company, we offer the best trading accounts with the lowest brokerage for intraday trading.

  • All The Sectors Of The Indian Stock Market

    In a stock market, what are “sectors”?
    The Indian share market is extremely vast with several thousand companies listen on the exchanges. India’s National Stock Exchange, for example, has more than 1900 companies on its list (NSE). And they are divided into 11 sectors.

    The firms work in many different fields. Sectors are a way to group companies on the stock market by the type of business they are in.

    Read on to find out more about the different stock market sectors, with a focus on the Indian equity space.

    Sector-wise separation

    Before putting money into a stock, investors have to do a hard job. It is to carefully analyse the stocks and understand how the stock as well as its sector is performing.

    When you know which books are on which shelves in a library, it’s easier to walk over and pick the book that fits your interests the best. In the same way, when stocks are put into groups called “sectors,” they are easier for investors to find.

    In the same way, sectors help investors figure out where they don’t want to put their money. For example, when there is a pandemic and air travel is limited, investors might not want to put their money in the tourism or aviation industries.

    What are the stock market’s different sectors?

    Some of the most important parts of the Indian stock market are:

    Agriculture & Commodities
    Aviation
    Automobiles
    Financial services and banks
    Electricals & Electronics
    FMCG
    Gas & Petroleum
    Infrastructure for Information Technology
    Pharmaceuticals
    Real Estate
    Telecommunications
    Textiles
    Tourism

    What are some of the most important sectors of the Indian stock market?

    Some companies are very well-known, while others are not. The good thing about sectors is that they help investors find hidden gems. Here are four of the most important stock market sectors that you need to know about:

    Automobile Sector

    There are more than just carmakers in this sector. It is also where commercial vehicles, two-wheelers, three-wheelers, and tractors are made. Since India is an agricultural country, people who invest in tractors and other commercial vehicles tend to be serious about them.

    Examples of leading automobile companies are Maruti Suzuki, Ashok Leyland, Bajaj Auto and Escorts.

    Banks and Financial Services

    The Banking sector is well known because it makes money from money. The banks’ top line is made up of the cash flows of every other company on the market as a whole.

    This is because almost every other business borrows money from a bank to manage its capital structure. This is why profits from financial companies are different from profits from other types of companies. So, if you take a sectoral approach to investing, you can take this difference into account.

    Non-Banking Financial Companies (NBFCs), Asset Management Companies (AMCs), Ratings and Research Institutions and Insurance Players, as well as public and private banks, are all part of this huge sector.

    NBFCs work with people who don’t have bank accounts. Mutual Funds are taken care of by AMCs. Rating agencies work on credit ratings and make money in other ways, like by selling research. Insurance companies pool small amounts of money from many people to cover the losses of a few.

    Examples: ICICI Bank, Bajaj Finserv, Nippon Life, AMC CRISIL

    This sector is worth keeping an eye on because it is about to get one of the biggest players in the insurance and fintech industries.

    Fast moving consumer goods

    In the FMCG sector, companies make things that we buy and use every day. These things are used up quickly. FMCG products guarantee a steady stream of income, which leads to steady profits and a strong return on investment.

    Examples: Hindustan Unilever, Britannia Manufacturing, Colgate Palmolive, Procter & Gamble

    The FMCG industry can handle a recession. So even when the economy as a whole was bad, the grocery stores near you would still be busy selling FMCG products.

    Pharmaceuticals Sector

    Some of the products that come from the pharma industry are biologicals, active pharmaceutical ingredients, excipients, vaccines, and cures for both common and rare diseases. Investors are learning more about the business because of the COVID-19 pandemic. The industry is heavily regulated because the products affect the health and safety of people all over the world.

    Examples: Biocon, Sun Pharmaceuticals.

    Pharmaceutical companies like Pfizer and AstraZeneca have a special advantage: they have unmatched pricing power. It goes without saying that there are rules in place to stop irresponsible behaviour.

    In short, sectors are groups of stocks that have similar business models. This lets investors focus on a certain industry and find a certain stock. The amount of information that investors have to deal with takes up a lot of their time. When investors use a sectoral approach to investing, they make sure to spend their time on the right group before focusing on the right stock.

    In addition to helping people learn more, sectors help find hidden gems in the field that might not have been known before.

  • Here are some reasons why you should buy dividend growth stocks

    Some stocks pay you just to hold them. Stocks that pay dividends can be a good way to make money without doing anything. They can also protect you from inflation.

    “Buy low, sell high” is a phrase that is often used to describe a good way to trade stocks. But investors can also make money on the market by getting dividends.

    Dividends, in short, are a way for companies to share some of their profits with their investors. Shareholders benefit because each share of stock they own gives them the right to a set dividend payment. Companies give out dividends on a regular basis, usually monthly, quarterly, or annually. Dividends can be paid out in cash or in the form of more company stock. Because of this, you can almost think of stocks that pay dividends as a way to make money while you sleep.

    Growing dividends from good companies can make a big difference in a portfolio and reinvested dividends are a much bigger source of growth than market returns alone.

    Dividend-paying stocks have been getting a lot of attention lately because they do more than just give you a steady stream of income. They also protect your money from inflation, which makes them perfect for the current market.

    How stocks that pay dividends protect against inflation

    In an inflationary environment, it’s good for big companies that have a long history of paying consistent dividends every year because they can handle higher prices and even benefit from them. As inflation causes prices of goods and services to rise, a company’s revenue, earnings, and dividends will also rise.

    Looking for a portfolio of stocks with strong cash flows that yield an average of 3% to 4% or more and consistently grow dividends by 5% to 10% each year. These are the kinds of businesses that investors should go after. Many companies with high-dividend stocks have used business models for a long time that work well when prices go up, which helps them make money in the long run.

    People still have to heat (or cool) their homes, drive to work, and eat, even when prices are going up quickly. Generally, companies in the energy, natural resources, and food and consumer staples sectors have strong pricing power and cost management, which lets them raise prices, keep demand up, and make more money.

    What investors need to remember

    Beginner investors should definitely buy stocks with dividend growth, but they should be careful when making investment decisions.

    Portfolio rebalancing, which is reacting to events as they happen in real-time, can be pricey when inflation is going up. Inflation pressures have been growing for a while, and the prices of many high-dividend stocks already reflect this.

    In general, the best idea is to think long-term, try to build a diversified portfolio of holdings, and resist the urge to try to time the market and shop around.

  • What exactly is the intrinsic value of a stock?

    Have you ever thought about why one stock might sell for Rs 200 and another for Rs 20? How do these prices get set? In this article, we’ll talk about what intrinsic value is.

    What Does Internal Value Mean?

    The true value of a stock is called its “intrinsic value.” This is calculated based on anticipated monetary benefits. Let’s put it this way: it is the most you can pay for the asset without losing money when you sell it later.

    Technical analysis helps you figure out how the price of a stock will move and what price levels it may reach. But the price is still very closely tied to what the stock is really worth. So, technical analysis only helps figure out where and how much a stock’s price will move.

    Prices have to start from somewhere before they can move in a certain direction. Say that the price of stock right now is Rs 300. Based on your technical analysis, it looks like it might go up to Rs 330. But how did the price of Rs 300 get there? There is a way to figure it out.

    Let’s use the example of buying a house. The main reason for building this apartment is to rent it out.

    Let’s say you want to keep it for 10 years. You shouldn’t pay more than you can make from it. In other words, the total amount of rent you could get in 10 years plus the price you could get if you sold it after 10 years. The value found in this way would be the flat’s true value.

    This value is adjusted for things like inflation and different kinds of risks to make sure it is correct. This will come up again in the section. The discounted cash flow model or the present value model is a way to figure out the true value of something. It can also be used to figure out what a stock is really worth.

    So, the bottom line is that a stock’s “intrinsic value” is the total amount you could make from it in the future.

    The question then is: How much money can you expect to make in the future from shares? When you buy stocks, the company gives you a piece of its annual profit. We call this a dividend. If you add up the value of the dividends and the price at which the share will be sold in the future (called the “terminal value”), you can figure out what the share is really worth.

    However, does Rs 200 in dividends today have the same value as Rs 200 in dividends 10 years from now? The value of Rs 100 in ten years is less than the value of Rs 100 today. In other words, inflation makes money worth less over time.

    To account for this change in value, you will have to use a method called “discounting” on each future dividend. In this step, you will divide each of the future dividends by a certain rate and then add them all up. Add the values to get the intrinsic value.

    RELATIVE VALUE METHOD: Now, let’s talk about the second way to figure out what a stock is really worth. This is done by comparing the price of the stock with one of the most important things about the company.

    Some key fundamentals include sales revenue, net income or profit (also called earnings), book value of equity shares, etc. When you buy shares of a company, you own a piece of the company’s core assets. For instance, you might get a share of the company’s sales or profits. This is because when you buy shares, you become a part-owner of the business.

    Now, it makes sense that you should always try to buy something at a good price and pay as little as possible. The less these shares cost on the market, the less you have to pay per unit to buy these fundamentals.

    Let’s look at a specific case. The price to earnings (PE) ratio is one of the ratios you can use to compare prices. In this ratio, you compare the price of a company’s share to how much it earns per share. If the price per share is Rs 300 and the earnings per share (EPS) is Rs 30, the PE will be Rs 10. This means that you pay Rs 10 for each rupee that the company makes.

    How do you know whether or not this price is fair? To find this, you must compare it to the PEs of the company’s competitors. If, for example, the average PE of your competitors is 15, you are paying less for your shares. This is because you have to pay an average of Rs 15 per unit of earnings for a share of one of the competitors. But you only pay Rs 10 for your company. Because of this, this method is called the relative value method.

    You can also use this method to figure out how much a company’s stock is really worth. By rearranging the formula for PE, you can see that the stock’s real value is the sum of PE and EPS. Now, take the average PE of your competitors, which is 15, and multiply it by the EPS of your company, which is 10. This will give you the intrinsic value of your stock. It adds up to Rs. 150. This means that Rs 150 is a fair price for your stock. Since you can buy it in the market for only Rs 120, it is a great deal. You can buy it with the expectation that it will go up to this fair value.

    The relative value method is important because it uses both the fundamentals of the company and market trends to figure out how much a stock is really worth. This makes it more real, but also more likely to be wrong. If fundamentals change a lot in the future, your estimate of the stock’s true value could be wrong.

  • How much time should you spend researching stocks?

    Researching stocks is not a long process, but it can take a beginner anywhere from 2 to 4 hours to finish the whole thing. A platform like Zebull Smart Trader for stock screening and fundamental analysis can help get the job done faster.

    Why should you look into stocks?

    Researching doesn’t just mean reading about a company’s founders and how it makes money. It takes into account all internal and external factors, such as the company’s financial statements and how well it does in its industry and compared to its peers, among other things. I’m sure you spend a lot of time researching new gadgets (like a cell phone) before you buy them, so why not do some research before you buy a share in a company?

    How long should you spend researching?

    People have different ideas about how much time they need to spend researching stocks. Even so, the job is a lot easier now that there are platforms and tools for advanced screening and fundamental analysis. With just a few clicks and taps on your computer, you can get all the information you need about a company. But this isn’t where the main part starts.

    Before you can start, you have to figure out which sector and industry you want to invest in. Once you know, the next steps will be a lot easier. You can use the “Top-down Method” to find a potential industry. With this method, you start with the economy and narrow your list down to one or two stocks of a potential industry.

    Let’s follow an example. Assume you have a good opinion of the IT Industry. There are a few things you can do to find the best stock in the industry. First, you need to look at the economy as a whole to see if the IT space is in a growth phase or not. Next, you can go straight to the specific sector (in this case, the IT sector) and try to narrow your search to an even smaller niche. To find these pieces of information, you might have to read business articles and analysts’ predictions. If you have done this before, it shouldn’t take more than a couple of hours. For a beginner, the same process could take an extra hour or more.

    In the same way, picking stocks isn’t too hard because you can get all the financial information you need from fundamental analysis platforms like Zebull Smart Trader. The whole process could take anywhere from two to four hours, depending on how good you are at research and how far you want to go. After you’ve done a lot of research, you’ll be left with a few high-quality stocks in your favourite industry that you can safely put your money into.

    What are your other choices?

    Now that you know how the task is done and how long it will take, you can save time if you still want to. Mutual funds are an easy way to invest because you don’t have to do all the research and stock picking. Your job will be done by a person who is in charge of the fund. In the same way, you can invest in index funds or exchange-traded funds (ETFs) that track the whole Nifty50 or Sensex and give returns based on that. You can save the time you would have spent analysing stocks by using these.

  • What Should You Look For In A Company’s Quarterly Reports?

    Experts say that reading a company’s quarterly earnings is an art that must be honed over time with careful and deliberate work. A company’s quarterly earnings report is like an internal compass that shows how it is doing now and how it will do in the future. It also helps figure out how much the company is worth. Still, many regular investors still don’t understand how a company’s quarterly earnings work. How to read a company’s quarterly results? What can you tell about the company from these results? Why do companies even bother to report their quarterly results?

    Security and Exchange Board of India (SEBI) rules say that every listed company must make its quarterly reports public. This is to protect the interests of investors.

    As an investor in a company, the quarterly results will help you figure out how the company is doing now and how it will do in the future. You can also tell from the quarterly result if you should invest in the company for the long term. The quarterly results of a big company could have a direct effect on the market for short-term investors or intraday traders. When a big company announces its quarterly results, the markets go up or down depending on the effect.

    How can you read results for a quarter?

    If you are a beginner you can focus on three main parameters of the report. These are the sales growth, debt to equity ratio and promoter holding. WIth an increasing sales growth and a high promoter holding, you can know that the company is doing well. Debt to equity ratio tells you whether the company has incurred more debt compared to the previous quarter.

    Gross sales

    Gross sales is the total amount of money a business makes in a certain amount of time. Gross sales that keep going up over time are a sign of growing demand and a healthy business.

    Net sales

    Gross sales minus discounts, returns, and allowances equal a company’s net sales. When putting together the top-line revenues and the statement of income, net sales are often taken into account. This is a better measure of the health of a business than gross sales.

    Expenses and income

    Operating income is the amount of profit made by a business after operating costs like wages, depreciation, and the cost of goods sold are taken out. It shows how much money the company is making.

    On the other hand, other-than-business income is income from sources other than the business. It includes, among other things, dividends and rental income.

    A steady drop in operating income could mean that the company is losing market share or that fewer people want to buy its goods or services.

    Things to think about when writing quarterly reports
    Interest cost
    To run a business, the interest cost is the money paid for a loan amount. So, if the cost of interest goes up, it means that the company has more debt.

    What else should you look for in a quarterly earnings report?
    Investors should also look at things like net interest margins and non-performing assets when it comes to banks. Experts say that investors should also look at how much cash the company has on hand and how many shares have been pledged. Not every company may be declaring their pledged shares every three months. Investors should also look at the asset-liability statement, which shows half of the financial year when they look at the results for the next quarter.

    Why should investors pay attention to news about earnings?
    Earnings reports are often one of the most important things that move stocks. When big stocks report earnings, they can shake the market. When the earnings reports come out, the stock market could be at a record high or a record low.

    When a company’s sales go up but it doesn’t meet the analysts’ expectations, people will sell their shares quickly. So, the report’s estimates are also just as important as the report itself.

    Before analysing the quarterly reports, make sure to compare them with the previous year’s audited report as well. This will help you with understanding the projections for the upcoming quarter as well.

  • What Are Unlisted Stocks And Should You Invest In Them?

    We all know that investing in stocks can be good because, if done right, it can give you a huge return. We buy our stocks from the companies listed only on the stock market. However, there are companies that are not listed on the market whose shares you can buy. These are called unlisted stocks. Many of us don’t know that there are many benefits to investing in shares that aren’t on the stock market.

    1. Diversification of risk

    Unlisted shares have different risks than listed shares and can be a good addition to a portfolio of listed shares. They can be a good way to spread out your investments. Unlisted shares have the same or a better chance of making money than listed ones. There’s a chance that these stocks will go public at some point in the future. When they do, there’s a good chance that they’ll go up a lot. But whether you buy listed or unlisted shares, it’s important to look at the valuation metrics along with the price and buy stocks that are undervalued but have a good chance of growing earnings.

    2. Undervaluation:

    Since most unlisted shares can’t be sold quickly, they can only be bought by people who are willing to keep their money invested for a long time. Since there is less interest in these investments and fewer people want to join this community, the valuations are usually lower. There are many chances to invest in a stock that is undervalued. To find these opportunities, you need to be smart and know what to look for. For a beginner, it may be best to hire a professional who can give them the help they need.

    3. Lower volatility

    Because the shares aren’t easily sold, there are a lot fewer worries about their volatility. The standard deviation, which is a technical way of talking about how volatile something is, is much lower than listed shares. But if the wrong investment is made, the amount of money lost can be very high. Demand and supply for these stocks are not tracked every day, so the price would not change every day. When compared to listed shares, this investment will be less stressful in terms of money because the prices are fairly stable.

    How much should you spend on unlisted stocks?
    One should only buy unlisted shares if they are a good fit with the rest of their portfolio. Going overboard can make things a lot more dangerous. It is important to figure out your risk-appetite and how risky the investment is. Then, you can choose an investment that fits your risk profile. The risk of losing a lot of money in unlisted stocks is very high, so it’s important to only buy as much as fits your risk tolerance.

    We suggest that if you are a beginner investor you should keep away from unlisted stocks but if you are an experienced investor, that you still take the help of a financial advisor before investing in unlisted stocks.

  • How To Make Sense Of A Company’s Earnings Report

    When you look at a company’s financial report, the words “earnings” and “profit” jump out at you. Which profit should you look at when judging a business? Why do we need so many ways to measure profit? How do analysts figure out the ratios they keep talking about?

    Here is a quick breakdown of the important terms of an earnings report.

    Before getting to understand a company’s earnings report, we would like to inform you that at Zebu, an online stock broker company we offer lowest brokerage for intraday trading and the best online trading platforms.

    1. Gross profit

    What it is: Sales minus the cost of making those sales. To figure out the cost of goods sold, you add the purchases made during the period to the net stock.
    The meaning: Not the company’s total income because it doesn’t count “other income” like rent.

    2. EBITDA

    What it is: Earnings before interest, taxes, depreciation, and amortisation. To figure out net profit, take gross profit and subtract operating, general, administrative, and selling costs.
    The meaning: Not a true picture of how profitable a company is because it includes taxes and interest payments, which can be very high for some companies.

    3. EBIT

    What it is: Income before interest and taxes are taken out. Operating profit is another name for it. Depreciation and amortisation costs are subtracted from EBITDA to get this number.
    The meaning: This shows how much money the company makes from its main business.

    4. EBT

    What it means: Income before taxes. Interest costs are subtracted from EBIT to get this number.
    What it means is that tax deductions are different for each company. EBT makes it easy to compare how companies use loans to increase their return per share because it includes taxes but not interest.

    5. NET PROFIT

    How it works: Calculated by taking the tax out of the EBT. Also called net profit (PAT).
    The meaning: Since all payments have been made, it shows how much the company made in the end. PAT is used to figure out the dividends.

    6. EPS

    This is the earnings per share. This number is found by dividing PAT by the number of shares in circulation.
    The meaning: It shows how much each share of a company is making. When calculating EPS, dividends on preference shares are not taken into account.

    7. P/E

    How it works: Divide the current share price on the market by the earnings per share to get this number.
    The meaning: This shows how much an investor is willing to pay for one rupee of a company’s earnings. Analysts use it to figure out if a company is undervalued or overvalued.

    8. Operating ratio

    It is figured out by dividing operating costs by net sales (revenue). It shows how much of the income goes toward operating costs. The lower the ratio is, the better the company is. This shows that the company has enough cash on hand to grow and pay interest.

    9. Net profit ratio

    It’s PAT divided by net sales. This shows how much money a company makes on every Rs 100 sale. If the ratio is high, it means that the company is making a lot of money.

    10. Debt-equity ratio

    It shows how financially stable a company is and is found by dividing debt by equity. If the ratio is less than one, the company is using more of its own money and less debt. If the ratio is more than one, the company is using more debt than its own money. Since interest costs are fixed, a company with earnings that change a lot can take a risk by having a lot of debt. Companies that make a lot of money can increase the returns for equity shareholders by taking on a lot of debt.

    These are the key terms that you should keep in mind while analysing a company’s performance.

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  • What Is A Stock Buyback And How Does It Affect A Stock’s Price

    Over the last few years, a number of companies have said they will buy back their own shares. Before we get into the details of buybacks in India, let’s look at how they work around the world. There are two ways for a company to buy back its own shares around the world. First, you can buy back the shares and keep them as “treasury stock” on the company’s balance sheet. The company uses this for treasury operations. Second, you can buy back the shares and get rid of them, which will reduce the number of shares that are still outstanding by that amount. In India, the first way isn’t allowed. Instead, shares can only be brought back to get rid of them.

    So, why do companies buy back their own shares? Why does a company buy back its own shares? One needs to know what the benefits are for the company and the shareholders. The most important question is what shareholders can get out of buying back their own shares.

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    1. Have a lot of money but not many projects to invest in

    This is one of the main reasons why companies want to buy back their own shares. Indian IT companies like Infosys, TCS, Wipro, and HCL Tech had billions of dollars in cash on hand most of the time. Now, keeping money in the bank costs money, so it’s better to give it back to shareholders. A company like Reliance Industries may have billions of dollars in cash, but it also has huge investments in the telecom industry. Most IT companies use business models that have been around for a while, and there aren’t a lot of new projects to work on. One of the main reasons for buying back shares is that there is too much cash on the books and not enough investment opportunities.

    2. Buybacks are a better way to reward shareholders because they save on taxes

    This advantage became clearer in India after the 2016 Union Budget, when the government said that shareholders would have to pay a 10% tax if their annual dividends were more than Rs. 10 lakhs. Now, companies are taxed almost three times on the dividends they pay out. First, dividends are paid out after taxes have been taken out. Second, there is a dividend distribution tax (DDT) of 15% when the company pays out the dividend. Third, shareholders pay a 10% tax. Most of the 10 percent tax went to promoters and big shareholders. Even with the 10% tax on long-term capital gains that was added in the 2018 budget, buybacks are still a good tax deal.

    3. In theory, buybacks tend to raise the value of a company

    When a company buys back its own shares, the number of shares out in the market and the capital base go down. In this way, it makes the company’s EPS and ROE better. If the P/E stays the same, when the EPS goes up, the stock price should also go up. But in real life, it doesn’t happen very often. When a company buys back its own shares, it is seen as a business with few chances to grow and invest in the future. Since P/E ratios are usually based on growth, these companies tend to have lower P/E ratios. So, even though EPS goes up, the effect on valuation is usually about the same because P/E goes down.

    4. The company can send a message that the stock price is too low

    This may be the most important message that companies want to send when they buy back their own shares. The fact that the company is sure enough of itself to use its reserves to buy back its own shares suggests that the company’s leaders think it is undervalued. This is more important for stocks that have dropped sharply but don’t seem to have any major problems. In this situation, it might be a good idea for the company to buy back the shares to show that prices have hit rock bottom. Even though the stock may not rise sharply, it usually helps the stock find a bottom.

    6. It can help the company’s founders get a bigger share of the business

    There are times when the people who started a business may worry that their stake in it will fall below a certain level. A buyback is an offer, and it’s up to the shareholders to decide if they want to take it. If the promoters agree to the buyback, it keeps their stake in the business and gives them cash. On the other hand, if they don’t take the buyback, they can increase their stake in the company. This is very important if the company is afraid that another company will try to take it over.

    In India, the only way to buy back shares is to get rid of them. Even though the effect on stock prices is still up for debate, there is no doubt that buybacks are a tax-efficient way to give cash back to shareholders.

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  • What Is A Rights Issue? Everything You Need To Know

    In a rights issue, a company gets more money by giving more shares to people who already own shares.

    That is, if you own a share, you have the “right” to buy more shares at a certain ratio and price. For example, a 10:1 issue means that for every TEN shares you own, you can buy ONE more. Rights are only given to shareholders whose names are on the company’s register of shareholders on a “record date.” This date is usually a few days after shareholders approve the plan to sell rights to raise money.

    Why Does It Matter?

    If a company wants to raise money through a Follow-on public offer, it has to go through a long process that includes getting merchant bankers to price the issue, SEBI approving the offer document, etc. There are also a lot of fees that have to be paid.

    The rights issue is the fastest and least expensive way for the company to get money. The company saves a lot of money on costs like underwriting fees, advertising costs, and so on that it would have had to pay for if it had used another way to raise money.

    Why is the rights regulator not as strict? The reason for this is that an existing shareholder already knows a fair amount about the company, so she doesn’t need as much scrutiny and information as when selling shares to new shareholders.

    Also, in a rights issue, the promoter’s share of the company doesn’t go down, which doesn’t happen in any other way of raising money through equity. Most of the time, promoters agree to buy all of their rights and the rights that were not bought.

    Pricing and ratio of rights

    Most of the time, the price of a rights offer is lower than the market price, and allotment is guaranteed. If the rights are sold for about what they are worth on the market, existing shareholders may not be too interested.

    A company decides how many rights shares to offer based on how much money it wants to raise and at what price. For example, Bharti Airtel decided to raise 21,000 crore at 535 by giving its current shareholders one more share for every 14 they already owned on the record date. This means that a shareholder with 14 shares will be able to buy another 1 share for Rs. 535. At the time, the market price was much higher, around 680 per share.

    The ratio says for sure how many shares each person will get. But one can also try to get more shares.

    Also, these Rights can be traded on their own for a limited time, so shareholders can sell them to other investors on the stock exchange. For example, the recent Bharti Airtel Rights were traded on the exchanges under the name “AIRTEL-RE-BE” for a short time. The price of this script was 203. This means that a person with Airtel Rights could buy an Airtel share for 203 + 535, which is 738. At that time, one share of Airtel costed 687.

    Factor of Shareholding

    When a company issues more shares, its Return on Equity and EPS (Earnings per Share) will go down. But if the rights offer is fully taken advantage of, an investor’s share of the company doesn’t change. For example, if a shareholder-owned 5% of a company before rights, he would still own 5% of the company after rights if he bought his rights shares. If the shareholder doesn’t take advantage of the rights offer, his share of the company would go down (since others will buy and their shareholding goes up).

    If you apply for more shares than your rights allow, you can buy more if a few investors don’t subscribe.