Welcome to Sana Securities! Login | Subscribe Now.

Emerging Trends in Financial Services Sector

HomeArticles Posted by Rajat Sharma

Emerging Trends in Financial Services Sector

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. Many emerging trends in financial services sector like digital payment, security, robo-trading, artificial intelligence, is helping financial institutions in providing innovating solutions. 

There are 6 core functions which are witnessing emerging trends in financial services sector are:

  • Payments
  • Market Provisioning
  • Investment Management
  • Insurance
  • Deposits and lending
  • Capital Raising

Emerging trends in financial services sector and its implication:


Within payment there are two cluster of innovation that is Cashless world and New Emerging payment rails. Key emerging trends include mobile payments, streamlined payments, integrated billing, next generation security, mobile money, cryptographic protocols and p2p transfers. New consumer functionalities are being built on existing payment systems and will result in meaningful changes in customer behavior. Also the greatest potential for crypto currencies may be to radically streamline the transfer of value, rather than as store of value.

Implications for Financial Institutions

  • Financial institutions may lose control over their customers’ transaction experience as payments become more integrated
  • With reduced visibility, becoming the default card among specific customer segments will become critical
  • Winning issuers will be able to gain visibility into more of customers’ spending patterns, build more holistic understanding of customers, and create more competitive offerings
  • As more efficient alternative rails are adopted, the role of traditional intermediaries as a trusted party may diminish
  • Financial institutions may face a new set of risks (e.g., reputation, security) and regulatory issues as they participate in new rails
  • Applications of these technologies can expand beyond money transfer to modernize other financial infrastructures


Within market provisioning, the two cluster of innovation are Smarter, Faster Machines and New market platforms. The major emerging trends include machine accessible data, artificial intelligence / machine learning, big data, fixed income platform, funds / fund of funds, private equity / venture capital shares, private company shares and commodities & derivative contracts. As the popularity of high frequency trading declines, the focus of algorithmic trading may shift to smarter, faster response to real-life events. And new information platforms are improving connectivity among market constituents, making the markets more liquid, accessible, and efficient.

Implications for Financial Institutions

  • The impacts of event-driven algorithmic trading on liquidity, spread and systemic stability are unclear
  • With end-to-end trading activities automated, even small errors in data integrity, trade strategy, and execution will lead to large impacts
  • Regulators have the potential to significantly alter the course of developments in this area
  • As traditional differentiators among intermediaries (e.g., ability to discover counterparty) become commoditized, the importance of advisory services will increase
  • Information platforms will evolve the standards for best-execution from a best-efforts basis to more quantifiable and comparable metrics

Interesting Infographics on Emerging Trends in Financial Services Sector

Emerging Trends in Financial Services


The cluster of innovation among capital raising is Crowd Funding. The major trends among crowd funding includes empowered angel investors and alternative adjudication. Crowd funding platforms are widening access to capital raising activities, making the overall ecosystem richer.

Implications for Financial Institutions

  • Access to more diverse funding options allow new companies to grow at a quicker pace and shorten the average time between early funding stages
  • Distribution platforms create a venue for investors to tailor their investment portfolio across dimensions beyond financial return
  • As the barriers to enter the asset class fall, it becomes ever more important for traditional intermediaries’ profitability to find undiscovered “start” investments


Within investment management, the two major cluster of innovation are Empowered Investors and Process Externalization. The major trends include social trading, automated advice & wealth management, retail algorithmic trading, process-as-a service, advanced analytics, natural language and capability sharing. Robo-advisors are improving accessibility to sophisticated financial management and creating margin pressure, forcing traditional advisors to evolve. Also, the scope of externalizable processes is expanding, giving financial institutions access to the new levels of efficiency and sophistication.

Trends in Financial Services Sector

Implications for Financial Institutions

  • New entrants will place pressure on margins and intensify competition among traditional players in more specialized segments
  • As more advisory functions become automated, distributing wealth products via proprietary advisory channels will become less effective
  • As new entrants widen the access for mass customers, they will compete for customers’ traditional savings deposits
  • The ability to access sophisticated capabilities without large infrastructure investments flattens the playing field for mid-sized institutions
  • Organizational agility will become critical to sustain competitiveness as high-value capabilities are continued to be commoditized
  • Externalization of capabilities may result in workforce skill loss by preventing the development of a holistic view of operations


Within insurance, there are two clusters of innovation which are Insurance Disaggregation and Connected Insurance. The major trends in industry includes disaggregated distribution, sharing economy, 3rd party capital, smarter & cheaper sensors, internet-of-things, wearables, standardized platforms and self-driving cars. Emergence of online insurance marketplaces and homogenisation of risks will force big changes in insurers’ strategies. And, Ubiquity of connected devices will enable insurers to highly personalise insurance and proactively manage clients’ risks.

Implications for Financial Institutions

  • In an increasingly commoditised environment, the risks of customers being more fickle will increase and creating loyalty through innovation will become more important
  • Insurers’ ability to benchmark against competitors will become more important as customers gain ability to comparison-shop
  • With increased margin pressure, insurers will need to increase their size by expanding either scope or scale
  • As customer relationships evolve from short-term product-based to long-term advisory, capturing customers early on becomes critical
  • As insurers become a hub for customer data, their strategic value within full-service financial institutions will grow
  • Forming partnerships with data providers, device manufacturers and other ecosystem participants will be critical to enable connected insurance


The clusters of innovation in this sector are Alternate lending and Shifting Customer Preferences. The key market trends include P2P lending, lean & automated processes, alternative adjudication, virtual banking 2.0, banking as platform (API) and evolution of mobile banking. New entrants will make meeting customer demands more important, creating an imperative for banks to reconsider their roles. Also, new lending platforms are transforming credit evaluation and loan origination as well as opening up consumer lending to nontraditional sources of capital.

Implications for Financial Institutions

  • Intensified competition will narrow spread between deposits and loans, decreasing financial institutions’ profitability
  • As savers turn to alternative platforms, traditional deposits and investment products will be eroded
  • Distribution of customers’ credit portfolio over a large number of alternative platforms may make it difficult to measure customer’s creditworthiness
  • Financial products will increasingly be offered on a stand-alone basis limiting incumbents’ ability to competitively cross-subsidize
  • Financial institutions’ ability to collaborate with non-traditional players and other institutions will become essential
  • Financial institutions will need to choose where they will specialize and where they will leverage external partners (e.g., product manufacturing vs. creation of customer experience

Innovation in financial services is deliberate and predictable; incumbent players are most likely to be attacked where the greatest sources of customer friction meet the largest profit pools.  Innovations are having the greatest impact where they employ business models that are platform based, data intensive, and capital light. The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector. Incumbent institutions will employ parallel strategies; aggressively competing with new entrants while also leveraging legacy assets to provide those same new entrants with infrastructure and access to services. Collaboration between regulators, incumbents and new entrants will be required to understand how new innovations alter the risk profile of the industry – positively and negatively. Disruption will not be a one-time event, rather a continuous pressure to innovate that will shape customer behaviours, business models, and the long-term structure of the financial services industry.

Continue Reading

Portfolio Advisory Plans (minimum portfolio size Rs. 50 Lacs):

Plan A*

Plan B*

Plan C*

2% Management Fee p.a. Charged at 0.50% on NAV per quarter.

(charged at the end of every quarter).


1% Management Fee p.a. Charged at 0.25% on NAV per quarter.

(charged at the end of every quarter).


Performance Fee

10% share of Profit on returns over 10%

(charged at the end of each financial year. i.e. first on On 26th March 2019).

Zero Management Fee


Performance Fee

20% share of Profit.

(charged at the end of every quarter).


* A Set-Up Fee of Rs. 1,00,000 will be charged upfront in Year 1.

Set-Up Fee will be adjusted fully against future charges of Management / Performance Fee.

Continue Reading

Tinplate Company of India Stock Analysis

Date: 24th May 2017

CMP: 89.25

View: Buy


Tinplate Company of India (“Tinplate Company” or the “Company”) is one of the largest producers of tin coated and tin free steel sheets in India having more than 45% market share. The Company exports about 20-25% of its production directly to end-users (can-makers) and its products are well accepted in the markets of SE Asia, Middle East and some developed countries in Europe.

Tata Steel Holds 74.96 % in Tinplate Company.

End User: the Company’s product mix has continued to serve end users like edible oils, paints, pesticides, battery jackets, aerosol cans, processed foods and crown corks.

What is Tinplate?

Tinplate, a downstream flat steel product, is a packaging material which is used across a wide array of applications – food (edible oil, processed fruits & vegetables), non-food (paints & chemicals, aerosol sprays, battery) and beverages. Think of cans of aerated drinks.

Growth Prospects of Indian Tinplate Industry

The total domestic consumption of tinplate in India is approx 3.5-4 lakh tons per annum of which around 40 % is met through imports and the rest through domestic supplies. The per capita consumption of tinplate in India is relatively very low at 0.3-0.4 kg vis-à-vis the developed economies average of 8-12 kg.

Approx 60-70% of tinplate consumption is for Edible Oil, processed foods and beverages.

Tinplate Company of India sectors

The Indian tinplate industry is expected to grow at 10% p.a. over next 5 years period. Changing consumption habits/preferences and increasing consumer preferences for eco-friendly materials are expected to drive the demand for tinplate-based packaging segment. Tinplate Company being market leader in India is expected to gain from this growth in the coming years.

Strong Financial Position

Tinplate Company has shown consistent growth over the last 5 years (i.e. 2012-13 to 2016-17). The Company has reserves in excess of Rs. 622.29 Cr and operates with ZERO debt on its books. The Company’s zero debt position augers well for the company as the Company is in the expansion phase and can leverage its balance sheet if needed.

Tinplate’s current dividend yield is around 2.26% (CMP = Rs. 89.95 as on May 24, 2017).

At CMP of Rs. 89.95 (24th May, 2017), Tinplate is trading at a P/E of 33.61x. 

Particulars (in Rs. Cr.)





Income from operations




















Equity Share Capital





Reserves and Surplus





Total Shareholders’ funds





Total Debt



EBITDA Margin (In %)





Net Profit Margin (In %)





Return on capital employed (In %)





Return on Shareholders’ funds (In %)





Current Ratio





Capacity Utilization

Tinplate Company has installed capacity of 379,000 tones/year at its manufacturing facility located at Jamshedpur, Jharkhand. The Company is currently running at 83% of installed capacity. For 2016, company produced 3, 13,552 tons in terms of volumes.

Packaging Industry – Main Growth Driver & Huge Future Potential

A boom in the retail sector and consumer awareness on recycling and environmental benefits of tinplate packaging will be growth driver for the tinplate industry in the coming years. The tinplate packaging industry sales volume is expected to go up to 7.81 lakh tonnes in 2019 from 6.11 lakh tonnes in 2014.

Increasing consumer consciousness on health and safety-related issues has necessitated use of high-technology packaging material such as tinplate. Evolving consumer preferences and government initiatives such as enforcement of hygiene norms in the food industry, tinplate packaging market will make further headway in the coming years.

The Company is continuously launching new products/variants to sustain its leadership position. In FY 2016, Tinplate Company launched “TATA PAXEL”, a branding initiative for edible oil.

Major Concern – Import of Low-Priced Tinplate

Substantial imports of low-priced tinplate – namely secondary grade and defective products – especially from Japan, South Korea and China is dampening the prospects of Indian manufacturers like Tinplate Company as end users prefer cheap procurement to reduce raw material cost.

Currently there is no duty differential between prime and non-prime tinplate. The customs duty for tinplate continues to be relatively low and is not a significant barrier to the dumping of non-prime tin products into India mainly from USA, Europe and South America. Further the free trade agreement with Japan & Korea has led to considerable increase in import of good quality prime tinplate from these countries.

Threat from Substitutes

The Company faces challenge from the use of plastic and tetra packages in food and non-food packaging applications. Although to overcome this situation, the Company has started developing light-weight products. Nevertheless, unorganised market for similar and replaceable packaging material in India remains a big threat for the potential expansionary growth of the Company.


Continue Reading

Kansai Nerolac Stock Analysis

Date: 25 January, 2017

Price: Rs. 343.00

View: Buy

Kansai Nerolac (“Kansai Nerolac” or the “Company”) services customers in both decorative as well as industrial segments. The Company has coating solutions across the decorative, wood coatings, general industrial, high performance coatings, powder coatings, automotive, and auto refinish market segments.


Leadership Position in Industrial Segment

Kansai Nerolac is the market leader in industrial coating segment, and has managed to retain its leadership position over the years owing to innovative product and service offerings to industrial customers. The Company has 60% market share in the automotive paints segment and 40% in industrials, which mainly includes white goods such as washing machines, refrigerators and air conditions, and other industries such as infrastructure and power.

Major Clients in Auto Paints – Maruti, Bajaj Auto, Tata Motors, Honda Cars, Mahindra & Mahindra etc.

Major Clients in White Goods Industry – Godrej, Whirlpool, Samsung, Blue Star, Daikin, Voltas, Haier, Videocon, Siemens, Havells and Hitachi

Kansai Nerolac’s revenue from automotive segment has grown at a CAGR of 11.6% in the last five years as against 7% growth in automobile industry volumes during the same period. The Company has increased market share from 55% to 60% in FY 2016. The Company is likely to be a big beneficiary of any revival in the growth rates of the automobile industry and will grow at a rate higher than Industry average led by 1) technological advantage 2) new client additions & strong relationships and (4) timely capacity additions.

Increasing Focus on Decorative Paints

Demand from decorative segment form ~70% of the overall paint industry. Kansai Nerolac is the largest industrial paint company in India with more than 35% market share in industrial paints and third largest player with an overall market share of 14%. With sustainable growth in decorative paint, the Company has increased its revenue contribution from decorative paints from 50% in FY 2009 to 55% in FY 2016. The Company has strong brands in interior, exterior and metal paints like Impressions, Excel, Surkasha, Satin Enamel, Lotus Touch, Beauty, Pearl and Little Master. Kansai Nerolac continues to invest in brands with 4-5% of revenue going towards advertisement and promotion. We believe decorative paints would continue to grow at a more rapid pace with the presence of limited players and strong repainting demand.

Retail Network & Distribution

Kansai Nerolac has been increasing its distribution reach and adding depots and dealers steadily. The Company’s distribution network has increased from ~11000 dealers in FY 2011 to 16000 dealers in FY 2016 and has installed 11000 tinting machines, which are owned by Kansai Nerolac. The Company is planning to increase the number of dealers to ~20000 with 80% having a Tinting machine by FY 2018.

Manufacturing Facilities – The Company serves its customers through a network of 4 manufacturing facilities strategically located at Lote in Maharashtra, Bawal in Haryana, Jainpur in U.P. and Hosur in Tamil Nadu. The Company is planning to set up two new state-of-the-art facilities in Gujarat and Punjab.

Apart from the Indian business, Kansai Nerolac also conducts business outside India through successful joint ventures. The Company has JV in Nepal with Kansai Nepal and also has a JV in Sri Lanka with Capital Holdings Maharaja Group to set up the paint business in Sri Lanka.

Wide Product Portfolio

Kansai Nerolac has differentiated its product portfolio by offering eco-friendly, lead free, low VOC & economical series of affordable emulsion paints with High Definition Colour Technology (HD). The Company is using technological expertise of its parent Kansai in launching new products like Nerolac Impressions HD Colour, Excel Rain guard (waterproofing to protect against rainfall) and statue paint for coating statues.

Kansai Nerolac’s products are comparable with its peers across categories and price.

  • Impressions and Pearl compete with Asian Paints ‘Royale’ and ‘Apcolite’ in the interior paints.
  • Excel exterior paints which compete with Apex from Asian Paints and Weather Coat from Berger.

In order to increase its presence in the economy segment of paints, the Company has launched “Little Master” to compete with Asian Paint’s “Tractor Emulsion” which aims at upgrading the customer who is using Distemper to an Emulsion-based paint. Little Master has been priced at 10-20% discount to its peers.

Kansai Nerolac Product Portfolio

[1] Decorative Paint Products

Interior Paint Range

  • Economy
    • Nerolac Little Master
    • Nerolac Beauty Smooth
  • Popular
    • Nerolac Beauty Silver
    • Nerolac Beauty Gold
  • Premium
    • Nerolac Lotus Touch
    • Nerolac Pearl
  • Super Premium
    • Nerolac Impressions 24 Carat
    • Nerolac Impressions Eco Clean

Exterior Paint Range

  • Economy
    • Nerolac Suraksha Superior
  • Popular
    • Nerolac Suraksha Plus
    • Nerolac Suraksha Advanced
  • Premium
    • Nerolac Excel Anti Peel
    • Nerolac Excel Total
  • Super Premium
    • Nerolac Rainguard Vertical
    • Nerolac Rainguard Horizontal

Wood Coating Paint Range

  • Economy
    • Wonderwood 1K PU
  • Popular
    • Wonderwood 2K PU
    • Wonderwood NC Sanding Sealer
  • Premium
    • Wonderwood Melamine

[2] Industrial Paint Products

  • Automotive Coatings
  • High Performance Coating
  • General Industrial
  • Powder Coatings


Increasing competition

Entry of new foreign players like Nippon, Sherwin Williams and National Paints; and aggressive capacity addition by existing players indicates increasing competitive intensity. However, Kansai Nerolac has been able to not only protect its market share but continuously increasing it with aggressive market strategies and by anticipating early the next growing trend in the industry.

kansai nerolac

Demand Slowdown in Various Sectors

A slowdown in discretionary consumption affects Kansai Nerolac decorative paints business, while a weaker growth in industries like automobile, manufacturing, infrastructure directly impacts the demand for industrial paint.

Written by Priyanka Laroiya

Continue Reading

GE T&D India Stock Analysis

GE T&D India Limited (“GE T&D” or the “Company”), formerly known as Alstom T&D, is one of leading player in the power transmission business with a product portfolio ranging from medium to extra high voltage (765 kV) for the utility, and infrastructure markets.

GE T&D India has a predominant presence in all stages of the power supply chain, with a wide range of products that include power transformers, circuit breakers, gas insulated switchgears, protection relays and power system automation equipments.

The Company has executed and commissioned large number of turnkey projects for its major customers including Power Grid, Maharashtra State Electricity Transmission Company Limited (MSETCL), West Bengal State Electricity Transmission Company Limited (WBSETCL), Gujarat Energy Transmission Corporation (GETCO), Transmission Corporation of Andhra Pradesh (APTRANSCO) and Megha Infrastructure

Product Portfolio

[1] High Voltage Products and Substations

  • Includes turnkey projects and full range of equipments for long distance transmission at voltage up to 1200 kV.
  • Switchgears for Air Insulated Substations (AIS) or Gas Insulated Substations (GIS),
  • Circuit Breakers,
  • Power Transformers.

[2] Power Electronics

  • Includes high performance applications for Alternate Current (AC)/ Direct Current (DC) conversion and interconnection of DC and AC power in high voltage or medium voltage grids,
  • Power quality stabilization (FACTS) and DC converters for connection of specific energy resources (offshore wind farms, renewable energy sources, battery storage etc.).

[3] Grid Automation and Smart Software Solutions

  • Grid Automation solutions that protect, control and monitor electrical grid. Solutions include agile protection relays, substation digital control systems, and customer support services.
  • Software solutions and platforms for grid control rooms for controlling the power grid including energy management systems, distribution management systems, demand response, load forecasting and analytics solutions.

 Segment-wise Revenue

GE T&D India

Operational Highlights

During FY 2016, GE T&D India has commissioned 40 AIS and GIS substations across 66kV / 132kV / 220kV / 440kV / 765kV. As of June 30, 2016, the Company’s order book stood at Rs. 796 Cr. as compared to Rs. 708 Cr. in June 30, 2015, registering a growth of 12.3 %.

Some of the Main Orders Include –



(Rs. Cr.)

Power Grid Corporation

400 kV AIS Extension Substation with Reactors



400 kV Switchyard Extension Kahalgaon


L & T Power

Generator Transformer package for Khargone


Bihar State Power Transmission Company

Renovation Modernization Extn. Package 61


Bihar State Power Transmission Company

Renovation Modernization Extn. Package 79


Power Grid Corporation

400 kV Daltonganj Substation package


Odisha Power Transmission Corporation

132 kV GIS Substation at Chandbali



Strong Power Generation Growth – “24×7 Power for All”

The Government of India has notified the objective of “24×7 Power for All” to be achieved by 2019 to all states which are required to work in time bound manner to achieve this goal. State Electricity Boards (SEBs) are being encouraged to upgrade their transmission, sub-transmission grids to cope with the additional power generation capacity. This strengthening of Inter and intra state network (66kV – 765kV) is expected to increase business opportunities for your Company.

Government Reforms

The Central Government of India has initiated several reforms to unclog the power sector bottlenecks and facilitate investments in the power and T&D sectors.

New initiatives like Smart Cities, Ujwal Discom Assurance Yojana (UDAY) scheme for Discoms, ramp up in Solar power generation, Integrated Power Distribution Scheme , Power System Development Fund for strengthening of transmission and sub-transmission network are expected to deliver opportunities for transmission & distribution companies.

Highest localization amongst MNC T&D players

GE T&D India was amongst the first MNC T&D companies to identify India as a key market for growth. Even before Power Grid mandated a domestic manufacturing clause for 765kv transformers, the Company had set up a plant in Baroda to address the Indian 765kv transformer demand. The Company was also the first to introduce 400/765kv GIS in India from its Tamil Nadu plant. The government’s recent initiatives to promote “Make in India” would benefit GE T&D the most as its products are amongst the most localized in the country.

Well Positioned To Benefit from Upcoming Opportunities In High-Tech Products

The Indian transmission network has been moving toward higher voltage levels and newer technologies. The shift is beneficial for MNC T&D players like GE T&D who have access to the parent’s product.

The Indian grid has already moved to 765kv voltage and High Voltage Direct Current (HVDC) links are increasingly being deployed to transmit large amounts of power across the country. Post the northern grid blackout, high-technology products such as static variable compensators and Phase Measuring Units (PMUs) etc. are also being deployed to improve grid stability where GE T&D is well placed to bag orders

Capabilities across high-voltage equipment

ge td india


Excess Capacity and Poor State of SEBs

While GE T&D India has been judicious in bidding for viable projects, SEB’s who comprise the largest pool of potential clients for the Company are ‘largely bankrupt‘, a problem highlighted in this post here

The State Electricity Boards are struggling with huge financial losses aggregating to over Rs. 4 trillion (US$ 60 billion), as on 31 March 2016 and are neither able to purchase power nor able to pay generation companies and equipment suppliers. This is impacting new investments in the T&D sector and thereby creating T&D grid network congestion at the State level.


6 Stocks Which Every Investor Should Add In Their Portfolio

Over the past 15 days or so, we have received an overwhelming number of portfolios with list of stocks for re-balancing. Certainly this is an encouraging thing.

Naturally, it has been difficult to reply individually to all requests. I have tried to and will continue to answer clients over the course of this week. Ideally, instead of looking at markets for a 5% up or down over the next few days, in light of all that is going on, rebalance your portfolio with the next 12 – 18 months in mind.

While I am not negative on financial services, I do believe this is a sector where a lot of money has flown in after Demonetization. While the sector will fundamentally benefit from this news, I would like to reduce allocations here, in favour of stocks from the infrastructure space particularly in power and construction.

Further, while this may be a contra-call, I do believe a couple of midcap stocks in the consumer discretionary space have fallen to unreasonably low levels. While I do agree that spending on consumer stocks will reduce for this and probably for the next quarter. This is an excellent time to buy stocks in this space. I continue to be positive on Oil & Gas and Housing finance.

Based on the above here is a list of 6 stocks which every investor should add in their portfolio at current prices with the next 18 months in mind.

Potential return: To my mind, most of these stocks could give you handsome returns but instead of choosing 1-2, allocate money as suggested. Upside 30-60%.

Happy Investing!

Continue Reading

Fixed Deposits (FDs) vs. Debt Funds vs. Equity Fund – What Should You Choose?

Over the last few years, RBI has consistently reduced the repo rate bringing interest rates on bonds and fixed deposits significantly lower. The trend will continue until inflation remains below 6% and the economy remains upbeat.

Given this scenario, it is no surprise that people are moving away from investing in fixed deposits towards high yielding debt funds. In this post, I will try to simplify basic differences in some of the most popular investment products.

I am taking an Investment time horizon of 3 years after which you get the benefit of indexation for debt mutual funds. Not only do Debt Mutual Funds deliver a higher % rate of return, but the return is (almost) tax free if the fund is held for 3 years or more.


In (Rs.)






~ 8.5% – 10.0%


Personal Tax Rate




Investment Amount




Absolute Return generated

(in 3 years)


(@7.5% compounded annually)


(@10.4% – actual growth*** over the past 3 years)


Indexed Value of Investment




Taxable Return Generated – (post indexation)




Tax Paid




Total Returns




Safety Of Investment

AAA Rated – One level below sovereign guarantee

A mix of credit ratings. Investments range from sovereign to AAA, AA, BBB.

Simply put – Principal amount is safe while your returns could vary.

Depends on the issue but corporate/ govt. Bonds are typically – AA+ rated or higher indicating high degree of safety


Premature withdrawal attracts penalty or reduces returns

Can be sold anytime

Not very liquid- premature sale may be at a lower price.

* HDFC Fixed Deposit rates for 1 – 5 year tenure.

** Corporate/ Govt. Bonds come with different rates of interest and risk profile. For the purpose of this article, I have taken the most recent Bond Issuance (i.e. SREI Infrastructure which pays [*]

*** Actual growth of a debt fund – ICICI Prudential Income Opportunities Fund (Direct Plan).

^* The rate of tax on debt mutual funds, post indexation is at 20%.


I have covered equity mutual funds in other posts. Read here: Mutual Funds Investing Articles.  One interesting fund that is gaining popularity which generates fixed income type returns (albeit with a higher degree of risk profile) is the Balanced Fund.

Product note on ICICI Prudential Balanced Advantage Fund

Balanced Advantage Fund – Combines stocks, debt and arbitrage into one portfolio. Balanced Advantage Funds are considered to be less risky as compared to plain vanilla balanced fund and other equity funds.

Asset Allocation

Types of Instrument

Normal Allocation

Equity & Equity Derivatives (Equity unhedged exposure limited to 80%)

65% to 100%

Debt instruments

0% to 35%

How Balanced Advantage Fund Decides Equity Exposure?

The fund adjusts its direct equity exposure based on whether overall market valuations are expensive or cheap (on the basis of price-to-book value). Thus, if the market’s price-to-book value ratio is low (based on historical values), the fund raises its direct stock exposure and relies less on arbitrage and vice versa.

Market Outperformance – Balanced Advantage Fund has generated returns in every market scenario – Rising, Falling and Flat.

 debt funds

At a given point of time, the Balanced Advantage Fund could have up to 65% allocation to debt and risk free arbitrage investments. At the same time, the equity portion can go up to 65% based on market circumstances. While this caps the upside potential of the fund, it also protects downside risk in equity markets.


The reason why balanced advantage fund is gaining so much popularity is that it gives fairly steady return with moderate level of risk. If you see the performance of this fund over the past 5 years, the fund has generated an average of 15.8% return (annual).

Return in (%)





Fixed Deposits




ICICI Pru Balanced Advantage (G) 





ICICI Pru Income Opportunities (G) 










*Returns over 1 year are annualised

Dividend vs Growth Option

The investor can choose dividend payout option or growth option. The fund on average pays ~ 7.5% annualised dividend (tax free) – payable monthly or yearly at the option of the investor. This is higher than the post tax interest on Fixed Deposits. Returns generated over and above this rate are added back to the corpus to buy more funds for the investor.

Continue Reading

DP Charges of Stock Brokers

In addition to brokerage, STT and service tax, trading/ investing in stocks also attracts Depository Participant (DP charges).

In fact, the truth is that instead of focusing on brokerage investors should focus on all these other charges which are far more substantial and larger than brokerage. Further, the DP charges will never appear in the contract note that you will receive from your stock broker. They will only appear in your ledger statement with the stock broker which most investors hardly ever check.

This should also explain how some brokers charge Zero Brokerage and yet remain in business.

calculation of brokerage charges

If you include the DP charges and taxes on the transaction, it is actually more than the brokerage you paid on this trade (i.e. Rs. 69.68 + Rs. 34.50 > Rs 94.9). 

Of course taxes are not negotiable but just like brokerage, DP charges can be reduced significantly and the trick here is to know your amount and number of trades in a year. The Image below shows the various DP Plans offered by stocks brokers (we took this image from the Motilal Oswal – since most of our clients use their service):

DP Charges

In the scheme options above, most people choose scheme A because it is cheap (only Rs. 100 p.a.). But you will be paying a minimum of Rs. 34.50 (i.e. Rs. 30 + taxes) or 0.025% of transaction value if such amount is higher / on every single trade as DP Charges. 

If you choose Scheme B**, your DP Charges will be zero irrespective of the number of trades you execute each year. Of course the AMC for scheme B is effectively Rs. 800 (upfront). So here is the math:

If you execute more than 24 trades in a year (i.e. Rs. 34.50 * 24 = 828), you should actually be opting for unlimited trades with zero DP Charges (in Scheme B) and pay Rs. 800 upfront.

The above applies and is true for all major stock brokers with minor adjustment in values. So the difference really is for frequent and infrequent traders. If you execute more than 24 trades in a year, you should consider Scheme B.


**(or any other AMC Scheme – Read point 1 in the image),


Continue Reading

HCL Technologies Stock Analysis

HCL TECHHCL Technologies (“HCL” or the “Company”) is the fourth largest Indian IT sector multinational company headquartered in Noida, Uttar Pradesh, India.  The Company offers wide range of services including IT consulting, enterprise transformation, remote infrastructure management, engineering and R&D services (ERS) and business process outsourcing (BPO), among others.

The Company has operational presence in 31 countries across North America, South America, Europe, Asia Pacific, Middle East and Africa with its largest market being the United States of America, from where HCL generates 55% of total revenue (FY 2016).

For financial report of HCL Technologies – Click here

Industry Outlook

The Indian IT sector can be broken up into two components: IT Services and BPO; both included make up a U.S. $ 148 billion industry. NASSCOM projects a  continuous growth of 13% in the sector driven by key technologies like digitalization, internet-of-things, smart grids, cloud computing, etc, enforced by PMO’s ‘Digital India’ project to give government support and assurances to the sector as a whole and its professionals. The sector’s largest share of business comes from financial services (~41%). The Indian IT Sector comprises more than half of Indian GDP, which is fastest growing in the world (FY16) and thus plays a most vital role in country’s economy.

it sector

Business Verticals

HCL Tech broadly functions under three business verticals:

hcl technologies segment revenueSoftware Services

The Company offers various application services such as business analytics, business assurance and testing, CRM, e-commerce, omni-channel, HCM, integration and middleware, enterprise content management etc. HCL has collaborative partnerships with SAP, Microsoft, Oracle, IBM, HP, TIBCO, etc to serve a variety of needs from financial services, consumer services, life sciences and healthcare, and manufacturing industries.

IT Infrastructure Services

This business vertical offers solutions such as data-center management services, end-user computing services, managed security services, application management, embedded and mechanical product engineering etc. HCL serves aerospace and defense, automotive, consumer electronics, industrial manufacturing, medical devices, networking and telecom, office automation, semi-conductor, server and storage, etc clients through this vertical.

Business Process Outsourcing (BPO) Services

HCL provides next-gen BPO services to more than 100 clients across industries. In this segment, HCL employs over 14,000 professionals working through 34 state-of-the-art delivery centers across India, the USA, Europe, Ireland, UK, Latin America, and the Philippines, HCL leverages its IGDM (Integrated Global Delivery Model) to provide customers with best-in-class services.

What’s Driving the Stock?

Consistent Growth

The Company has shown immense growth in recent years. HCL’s net worth has quadrupled from Rs. 6,288.83 Cr in June 2010 to Rs. 24,224.41 Cr in June 2016. The Company delivered superior return on equity (ROE) 38% in 2016. HCL further authenticated its business by boosting Net Profit Margin to 36.99% in June 2016.

Distinguished Dividend Payer

The Company’s management is known to award the shareholders with dividends throughout the year. This practice of enticing shareholders has created a brand name of HCL among peers as the most distinguished dividend payer.

hcl technologies dividend

Expansion Prospect: HCL’s acquisitions

In striving to establish HCL in more mature businesses, the Company, unlike its Indian peers, hasn’t shied away from making large acquisitions in the past. HCL Technologies in Feb, 2016 closed $133 million deal to buy the external IT services business and end end-to-end internal outsourcing of the Sweden based Volvo Group. The Company gained appreciation from market critics and commentators through this megadeal. Prior to this, the Company also acquired Mumbai-headquartered firm Geometric for $190 million to reinforce HCL’s already well-institutionalized Engineering and R&D service (ERS).

Strong Indian GDP and Service Sector

Indian is the fastest growing large-economy in the world increasing at the rate of 7.3% for 2015. Indian Service sector is a major contributor to the economy, as mentioned above, at about 64% of India’s GDP (According to Central Statistical Organization). By 2020, India will have the largest population belonging to working age group and will achieve the feat of youngest country of the world.

Market Positioning

The Company, despite facing cut-throat competition, has managed to position HCL’s brand as leader in various fronts. These include endorsement from foreign research companies like Forrester Wave and Gartner, which act as critics of Indian IT sector to differentiate companies for their clientele; positioning HCL as market leader for global infrastructure outsourcing, data center outsourcing, infrastructure utility services, worldwide cloud professional outsourcing, communication outsourcing, among other several IT amenities.  

What’s Dragging the Stock?

Relentless Competition

HCL Technologies, being one of the biggest IT multinational, faces extreme competition of IT behemoths like Tata Consultancy Services (TCS) and Infosys. TCS leads the group with an enormous market cap of Rs. 521,986.07 Cr, making TCS the largest company of India across all sectors. Future competitive advantages and disadvantages largely depend on the working and efficiency of management.

Company Name

Market Price


Market Cap

(Rs. Cr)

Net Profit

(Rs. Cr)

















*As on 6 Aug 2016

Exposure to Currency Risks

The Company gains almost entire revenue in foreign currency while most of the costs are incurred in INR. This largely exposes the Company to exchange differences risk. HCL Tech could faces adverse losses as the INR strengthens against foreign currencies like USD, Euro, and GBP. The Company, however, has deployed hedges to mitigate this risk in the form of forward contracts and options.

Missed Deal Renewals

In the pursuit to encompass growth in emerging business verticals, HCL Tech has failed to renew various deals of some top clients. This highlights low retention level for HCL as compared to rivals with high retention rate. HCL technologies has missed deal renewals with companies such as Xerox, UBS Group, Microsoft, Reader’s Digest, GlaxoSmithKline, UTi Worldwide, Singapore Stock Exchange, etc in fiscal year 2015 and 2016. This business erosion typically costs HCL 3-5% of total revenue annually.

Continue Reading

Mahindra & Mahindra Financial Services Stock Analysis

Mahindra & Mahindra Financial Services (“M&M Financial” or the “Company”) is one of the leading Non-Banking Financial Company (NBFC) focused in the rural and semi-urban sector. The Company is one of the largest Indian tractor financier. The Company provides a wide range of retail products and services, such as financing vehicles for commercial and personal use, tractors, SME loans, and many other financial products.

Company’s Financials  M&M Financial has shown consistent growth over the last five years (i.e. 2012-13 to 2015-16). Its net revenue from operations over this period grew at an impressive CAGR of 17.83 %. For FY 2016, income from operations increased by 8.85 % to Rs. 6,553.87 Cr. from Rs. 6,021.14 Cr. The Company has reserves in excess of Rs. 5,975.19 Cr.

Company’s Operations – M&M Financials total Asset Under Management (AUM) have grown at a CAGR of 25 % FY 2012-16 and stands at Rs. 41,662 Cr. as on June 30, 2016 as against Rs.37,554 Cr. as on June 30, 2015, a growth of 11%. For Q1 of FY 2017, the overall loan disbursement registered growth of 8 % at Rs. 6,564 Cr. as compared to Rs. 6,057 Cr. in Q1 of FY 2016.

For Financial Report – Click Here

Mahindra & Mahindra Financial


Diversified Product Portfolio

The Company operates with a diverse product portfolio, which reduces the risk of overexposure to any particular market segment.

Vehicle Financing

Loans for auto and utility vehicles, tractors, cars, commercial vehicles and construction equipments

Pre-Owned Vehicles

Loans for pre-owned cars, multi-utility vehicles, tractors and commercial vehicles

SME Financing

Loans for varied purposes like project finance, equipment finance and working capital finance

Personal Loans

Offers personal loans for weddings, children’s education, medical treatment and working capital

Mutual Fund Distribution


Insurance Broking

Insurance solutions to retail customers as well as corporations through subsidiary Mahindra Insurance Brokers Limited

Housing Finance

Loans for buying, renovating, extending and improving homes in rural and semi-urban India through its subsidiary Mahindra Rural Housing Finance Limited

Mutual Fund & AMC

Asset Management Company/ Investment Manager to Mahindra Mutual Fund

Enormous potential in new growth avenues  

Mahindra & Mahindra Financial has diversified its product portfolio by leveraging its expertise in the existing business and solid rural market understanding.

Mahindra Rural Housing Finance – Provide loans for home construction, extension, purchase and improvement to a wide base of customers in rural and semi-urban India. Mahindra & Mahindra Financial owns 87.5% in the company and 12.5% is owned by the National Housing Bank. Currently it has presence in 11 states.


(In Cr.)

Q1 FY 2017

Q1 FY 2016

FY 2016

Loans Disbursed




Outstanding Loan Book




Mahindra Insurance Brokers Limited – Distribute life and non-life insurance products in the rural areas. Mahindra & Mahindra Financial owns 85% in the company.


(In Cr.)

Q1 FY 2017

Q1 FY 2016

FY 2016

Total Income




Net Premium




Extensive Branch Network

Mahindra & Mahindra Financial operates with an extensive network of 1,172 offices (as of 30 June, 2016) spanning across 26 states and 5 union territories, which is one of the largest amongst Non-Banking Financial Companies. The widespread network allows the Company to service its existing customers and attract new customers. The Company’s pan India presence also mitigates some of the regional, climatic and cyclical risks, such as heavy monsoons or droughts.

M&M Financials Branch Network

Competitive Advantage in the Rural and Semi-Urban Markets

Currently when many players in the financial services sector are trying to enter into the rural markets, M&M Financial already has over 20 years of operating experience in rural and semi-urban markets, which has led to a significant competitive edge. The Company continues to expand its network and increase its market share in the rural and semi-urban markets of India.

Strong Parentage and Brand Equity of Mahindra & Mahindra

Mahindra & Mahindra holds 51.2% stake in Mahindra & Mahindra Financial. Mahindra & Mahindra brand is one of the most well respected and trustworthy brand in India which has helped the Company in attracting new customers and talent and in accessing capital.


Expensive Valuation – At the current price of Rs 335.55 (as on 11 August 2016), Mahindra & Mahindra Financial’s trailing 12 month PE comes to ~ 24.06 which is at a ~50% premium to its 10 year average PE Multiple. 

Current P/E





Current P/E


























10 Year Average P/E = 13.62



















Weakening Asset Quality

Mahindra & Mahindra Financial has underperformed peers by a wide margin over the last 2-3 years due to asset quality pressures. Gross Non-Performing Assets (“GNPAs”) for FY 2016 stood at 8% of gross advances, and Net Non-Performing Assets (“NNPAs”) came at 3.20% of customer assets.

M&M Financials asset quality

Intense Competition

M&M Financial provide loans primarily to customers residing in rural and semi-urban markets. The Company faces huge competition from private unorganized lenders who typically operate in rural and semi-urban markets. In addition, the Company faces competition from banks, NBFCs and housing finance companies.


Also See: L&T Finance Holding Stock Analysis


Continue Reading