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    The Baseline

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    The Baseline
    04 Oct 2016
    Spectrum auction lower than expected, offline retailers angered by online festival discounts

    Spectrum auction lower than expected, offline retailers angered by online festival discounts

    • The bidding war for spectrum may turn into a damp squib: Yesterday saw six rounds of bidding from telcos including Bharti Airtel, Vodafone, Idea Cellular and Reliance Jio bidding for Rs. 3,261 crore worth of spectrum, a steep fall from Saturday's bds worth over Rs. 53,000 crore. The high reserve price for the airwaves, especially in 700MHz has resulted in telcos not bidding for that particular band, despite it being rated as the most efficient. 

    • The sales and price discounts available on Amazon, Flipkart and Snapdeal have again drawn the ire of offline retailers, who see the steep price cuts as hurting their own sales. They allege that the marketplaces are still violating new rules by requesting vendors to provide discounts; offline retailers are also miffed by the price structure and inventory advantages online retailers evidently have, enabling them to offer goods at lower margins. 

    • The Supreme Court has put Karnataka in the dock over the Cauvery issue, with the SC saying it will only hear its review plea once Karnataka complies with the Court's earlier order to release water to TN. Karnataka says its down to just drinking water supply, and the state legislature passed a resolution against further release of water, defying the orders of the Court. 

    • Analytics and data mining is what helped the Government identify black money holders, with just 15% coming forward voluntarily to disclose their wealth. Most of the rest came after the Income Tax department used data surveys and analytics to identify likely black money holders and approach them with the threat of prosecution. This suggests that attitudes towards tax compliance have not significantly changed, with people still attempting to evade the taxman as much as possible. 

    • Photo of the day: India clinch the series against NZ with win, and reclaim the Number 1 Test ranking. Firstpost

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    The Baseline
    03 Oct 2016

    Lose the FD and get the debt mutual funds: it’s time for investors to change mindsets (Part 2)

    One of the greatest influencers on how you spend and save, is what your parents did. Mothers who worried about the monthly budget and made you wear hand-me-downs, fathers who wanted to buy the small car because that’s what everyone was doing, a family whose savings consisted of gold in the Godrej almirah: all these still influence our decisions today in how we save, even though the economics have changed.

    Take the Fixed Deposit instrument for instance. It’s an old-school instrument that’s been around for a long time, and that all the older generation in our families put money in. FDs however, became a favorite at the time because really, there was no other good option. Stock market reforms in India began in the late 1990s, and before that FDs were the only reliable financial instruments.

    But Fixed Deposit accounts today have one of the worst taxation rates, with returns taxed at the normal tax rate. It’s true that the longer the FD time period, the better the rate - but the premature withdrawal fee involved for most Bank Account FDs limits the gains you can make.

    Compared to FDs, Debt Mutual Funds hold the key to better returns, are there are broadly 3 kinds of Debt mutual funds which can replace FDs easily at low risk to the investor:

    1- Ultra Short Term Debt Funds : These invest in debt paper with maturity of less than a year. These have the lowest volatility and are useful for when you want to park your money for a year or less.

    2- Short Term Debt Funds: These invest in papers with average maturity which is typically less that 2-3 years.

    3- Long Term Debt Funds or Income Funds: Ideal for investments for over 3 years.

    4- Other debt options like Liquid Funds ( lowest risk, lowest returns) , Credit Opportunities (highest risk, highest returns - invest in Corporate bonds) and Gilt funds ( government securities but highest volatility) exist but they are not an exact replacement for FDs so we won't discuss them.

    Pro tip: Debt funds also pay trail commission to your broker - so invest directly via the AMC's website and get that extra .5% per year in your account, rather than paying it to your broker.

    Fixed Deposit rates have yielded anywhere from 7-9% in the past 5 years. We have chosen to take the average of 8% for the purpose of our annualized yield calculations.

    The charts with the calculations are below. Even before taxes, debt instruments give out higher returns than FDs over both the 3 year and 5 year period. The long-term debt mutual funds hit double digits for average and weighted average returns*.

    *Weighted average - where the returns are weighted based on the size of money managed by the MF(AUM). This is a better yardstick than ‘average’, since it gives the actual profit made.

    What do you get if you put in Rs. 100?

    Let’s say you invest Rs. 100 in each of these instruments.The inflation-adjusted value of that Rs 100 after 3 years is Rs 120, and after 5 years is Rs 143. With FDs you barely make any additional gain over inflation - you get Rs. 126 and Rs. 147 after three years and five years from an FD.

    After taxes, the amount in FD does not even keep up with inflation, giving you Rs. 118 after three years, and Rs 133 after five years if you are in the top tax bracket.  Since Debt Mutual funds are taxed less heavily than Fixed Deposit and also have indexation benefits attached to them, the difference in returns becomes significant.

    Over a 5 year term, Short term Debt Mutual funds on average have given nearly 20% more post-tax returns compared to a 8% FD. So while you end up with Rs 133 post tax in case of FD, you would end up with Rs 160 in case of Short Term Debt Mutual funds.

    The takeaway from Part 2 is this: as investors, we need to break away from old habits that don’t fit our present investment environment.

    In Part 3, I will talk about using PE effectively to measure and reduce the risk you face during equity investing. Read Part 1 of the series here. 

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    The Baseline
    03 Oct 2016
    Upcoming RBI rate cut rumored, Bajaj Auto takes a sales hit

    Upcoming RBI rate cut rumored, Bajaj Auto takes a sales hit

    • Word on the street is that the RBI is set to cut interest rates tomorrow, with the call being taken, for the first time in Indian history, by a Monetary Policy Committee. While there remain risks to inflation, bankers believe that the hike in government salaries and a better monsoon will boost spending. Urjit Patel has so far declined to make his position on inflation clear, saying at one point that he is 'neither a hawk nor a dove'. He went instead for a different bird, claiming to be an owl, 'vigilant while others are resting'. 

    • India is planning stake sales in at least 22 listed and unlisted PSUs to reach its disinvestment target of Rs 56,500 crore. So far disinvestment sales have added up to around Rs 22,000 crore. Companies likely to be on the block include Container Corporation of India and assets of SAIL. Air India may also be on the list depending on its recent performance.

    • The penalty imposed on Reliance Industries for the natural gas it used from the ONGC fields will be determined based on the natural gas price at the time. The penalty will be paid to the government, and not ONGC. The amount will be decided in a month, according to Oil Minister Dharmendra Pradhan.

    • Bajaj Auto has taken a hit on sales as international exports continue to decline, and its sales dropped for the fourth straight month in September. Strong growth in domestic sales has not been enough to offset the international drop, and exports for the company fell 30% YoY. This comes at a time that the company is struggling with worker unrest in two of its three plants - workers in Pune have gone on strike demanding wage review and the rehire of eight dismissed workers. The workers union has been demanding a 40% hike in wages. 

    • Photo of the day: Residents of 1,000 villages evacuated near the Punjab border, displacing close to 15 lakh people, following the surgical strike against Pakistan. Firstpost/Parabjot

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    The Baseline
    30 Sep 2016

    Stock Market Research Reports: Sep 23 - 30

    Research reports for the week! 11 BUY reports, 1 ACCUMULATE, and 6 HOLD reports..

    Stock pick of the week among broker reports is Jamna Auto Industries Limited, which has a 26.3% upside estimated and a recommendation upgrade. Rise in truck demand and lower fuel and power costs have improved the company's bottomline and turned brokers bullish on the company. 

    Key: Green Reco tag: recommendation upgrade for the stock

    Red Reco tag: recommendation upgrade for the stock

    DateStockTargetUpside
    (%)
    TypeCMPBrokerChange in
    past 6M
    2016-09-29Bharat Petroleum Corporation.. 616.000.73%Hold611.55Emkay 1x
    2016-09-29WIM PLAST LTD. 1420.003.27%Hold1375.00ICICI Securities Limited
    2016-09-28Pennar Engineered Building S.. 225.0033.81%Buy168.15Phillip Capital
    2016-09-28Shriram City Union Finance L.. 2445.0016.15%Hold2105.00Emkay and 1 other
    2016-09-28Piramal Enterprises Limited 2400.0030.87%Buy1833.95Dynamic Levels
    2016-09-27NMDC Limited 136.0028.91%Buy105.50Motilal Oswal
    2016-09-27Menon Bearings Limited --%-74.40Emkay
    2016-09-27Jamna Auto Industries Limited 265.0027.13%Buy208.45CD Equisearch 1x
    2016-09-27Aarti Industries Limited 740.0019.39%Buy619.80Phillip Capital
    2016-09-27Parag Milk Foods Limited 350.0018.83%Buy294.55Phillip Capital
    2016-09-26Kolte - Patil Developers Lim.. 171.0036.64%Buy125.15HDFC Securities
    2016-09-26Inox Wind 475.00137.32%Buy200.15HDFC Securities 1x
    2016-09-26ABB India Limited --%-1133.00Motilal Oswal
    2016-09-26Bharat Electronics Limited 1394.0011.76%Buy1247.30Emkay and 1 other
    2016-09-26Container Corporation of Ind.. 1600.0016.25%Buy1376.35ICICI Securities Limited
    2016-09-23Jubilant Foodworks Limited 1100.0014.52%Neutral960.50HDFC Securities and 1 other3x
    2016-09-23Zee Entertainment Enterprise.. 610.0011.41%Buy547.55Motilal Oswal 1x
    1x
    2016-09-23Hindustan Petroleum Corporat.. 395.00-6.49%Hold422.40Emkay 1x
    2016-09-23Tata Chemicals Limited 590.0012.37%Accumulate525.05Emkay
    2016-09-23NHPC Limited 25.00-0.40%Hold25.10Emkay 1x
    2016-09-23Maruti Suzuki India Limited 5975.009.03%Hold5480.00Karvy 1x
    3x

    View all research reports

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    The Baseline
    30 Sep 2016
    BSE fall triggers stock buying spree, Varun Beverages plans October IPO

    BSE fall triggers stock buying spree, Varun Beverages plans October IPO

    • Varun Beverages Ltd, the world’s second largest PepsiCo bottler, is planningan October IPO to raise as much as Rs1,400 crore. Once the initial public offering (IPO) is completed, the non-promoter holding, including private equity investors and the public, will be 25-26%. Varun Beverages is raising money to reduce its debt  of Rs.1450 crore  - at present its debt/equity ratio is 2, and will come down to 1 after the IPO.  

    • The strikes across the LOC also triggered a stock buying spree from foreign investors and domestic institutional investors, as the panic created a selloff in the markets. BSE listed companies lost 2.45 lakh crore in market capitalization on the news of the attacks, and Institutional investors swooped in and bought equities worth over Rs 5,000 crore yesterday,Mutual funds were also net buyers, and foreign portfolio investors bought in excess of Rs 3,413 crore of equities. ET

    • The Income Declaration Scheme (IDS) of the NDA government for black money holders to declare assets, closes today. The NDA government pushed the scheme in the media as the last chance for black money holders to safely declare these assets, after which penalties would be anywhere from 100% to 300%, and would include jail terms of upto seven years. The government has hoped to raise at least Rs. 35,000 crore from the scheme. Early reports estimate that the government will meet this target, and Mumbai tops the list with over Rs. 5000 crore declared at last count.

    • With hawks and doves both taking to the media to push their points of view either in favor or against war with Pakistan, estimates are emerging of the cost of an aggressive war with nuclear options deployed - besides a high death toll, two billion people in India and worldwide would face risks of severe starvation due to the climatic effects and damage to agriculture from nuclear-weapon use.

    • Photo of the day:A moment of calm among the mangroves, inside the Ecological Reserve in Ecuador. Reuters

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    The Baseline
    29 Sep 2016

    Map: how much money do Indians spend on medical care, out of pocket?

    #dataview Health insurers like ICICI Prudential point out that insurance coverage in India remains extremely low, and there is significant potential for growth in this sector as Indians increase their spending on medical care. So how much money do Indians spend out of pocket on their health today?

    The interactive map shows that the largest out of pocket medical expenses are in Kerala, West Bengal, Delhi and Punjab. The lowest spends are in the North East (with Nagaland at the lowest at less than Rs. 100 per person per year) and Bihar, Rajasthan.  

    Research has shown a correlation between your level of education and the amount you spend on healthcare, especially preventive. The existing tendency to visit the doctor only when you have no choice - when there is pain or advanced stage of disease - is slowly moving towards the mindset of regular checkups, but as can be seen from spending variations on the map, this shift will take time. A 'prevention of disease' attitude is linked to increased insurance rates, so the growth that private insurers like ICICI Prudential and HDFC MaxLife are seeking will take years to build up. and a lot hinges on insurer ability to provide coverage on an affordable basis.

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    The Baseline
    29 Sep 2016
    ICICI Prudential has an underwhelming debut, pressure builds on RBI to cut rates

    ICICI Prudential has an underwhelming debut, pressure builds on RBI to cut rates

    • ICICI Prudential made it debut on the stock markets today with a rather underwhelming listing, now below 6% of its issue price. However analysts had pointed out that the IPO is a longer-term hold, as the insurance market matures in the country and the major players - ICICI Pru and HDFC Max Life - deepen their markets.

    • Pressure is building on the RBI for a interest rate cut, with the government giving non-too-subtle hints that the RBI is being too conservative in cutting the interest rate. In a swipe against the institution, the Chief Economic Advisor Arvind Subramanian called RBI "a little backward" on inflation concerns. Senior finance ministry officials have called a rate cut during the October 4 review "a given," adding to a chorus clearly meant for the ears of Urjit Patel.  

    • Global oil prices jumped 5% on the news that the OPEC has agreed to a deal for the first time in eight years to cut its oil production. Saudi oilrevenue has halved over the past two years, forcing the country to liquidate billions of dollars of their overseas assets every month to paytheir bills and cut the generous subsidies Saudi citizens received. These subsidies have been a way for the kingdom to maintain its hold in a highly undemocratic setup. 

    • Bharat Pumps is the first PSU up for sale from the Modi government, The company is deep in the red, and had posted a net loss of Rs 4,777 crore in 2014-15. It as recommended for revival and disinvestment by the NITI Aayog.

    • Photo of the day: Part of the MH17 Malaysian Airlines plane in Donetsk, Ukraine. Prosecuters said yesterday that the missile that shot the plane down came from Russia. Reuters/Maxim Zmeyev

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    The Baseline
    28 Sep 2016
    India in the top ten in venture capital, sees decline in corruption

    India in the top ten in venture capital, sees decline in corruption

    India scored high in this year's Global Competitiveness Index, jumping 16 ranks to come 55th in the world, ending five straight years of declines. A closer look tells us that the big themes of the government have paid off in improvements in key rankings.

    The biggest improvements (see above) have been in the campaign themes of 2014 - a decline in corruption and favoritism by public officials in business decisions, and fewer regulations. India has improved its ranking in corruption indicators and now ranks between 30-40 in favortism by public officials, and overall ethics and corruption. Corporate accountability and disclosures have also seen big jumps. The country also logged improvements in road infrastructure and electricity availability. 

    Top ten in venture capital availability

    In a time when China is slowing, India is seen as the next big source of growth, and this is reflected in the fact that the country has hit the top ten in venture capital availability. ?This is the metric where India scores the highest. India has also seen big jumps in reforming hiring and firing practices, and protection of intellectual property.

    Worst declines

    Anyone who has followed the news headlines know this already: inflation remains a hard to tackle problem, and we rank 101 out of 138 countries due to our inflation rate. We have failed to rein it in to the target 5%, which the RBI has repeatedly said is required for the interest rate cuts the FM so badly wants. Growth and high inflation are a wobbly balance, and this may continue to be a speedbreaker for growth and increasing customer spending.

    With IT services on the downswing, exports have also taken a hit. We are not doing too well either in primary and higher education rankings. Fewer children are enrolling in schools now compared to the UPA years, and this backsliding doesn't bode well for longer-term growth.

    Biggest challenge

    India still has one of the highest budget deficits in the world - we rank 119. The last couple of years has seen the country move in the right direction - the government's push for the use of Aadhaar in providing benefits and public services will be key to further reducing leakages and spends. Agricultural reform remains the one big bear that no Central government wants to poke, and unless there is reform and better policy in this sector, deficits will remain high. 

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    The Baseline
    28 Sep 2016
    TRAI turns class monitor on telcos, Dilip Buildcon bags large highway project

    TRAI turns class monitor on telcos, Dilip Buildcon bags large highway project

    • TRAI is now intervening more aggressively in the war between telcos, and has called for a meeting on September 30 - just one day before the spectrum auctions - to discuss accusations by operators that Reliance Jio is violating TRAI tariff orders, which states that pricing should be non-predatory. The telcos say that Jio's free pricing on voice calls violates this, since it offers free voice calls beyond 90 days. TRAI has already issued showcause notices to telcos on high call drop rates between Jio and other networks, an issue for which Jio and incumbents are blaming each other. 

    • Upping the pressure on Pak PM Nawaz Sharif, India has declined to attend the SAARC Summit in Islamabad, automatically cancelling the summit and isolating Pakistan further in South Asia, where other countries have allied with India on the terrorism and militancy issue. ET

    • The NHAI has awarded a large Rs. 2,845 crore highway project to Dilip Buildcon, for the four-laning of the Lucknow-Sultanpur highway in UP. There is likely going to be a significant uptick in road projects awarded to infra firms, following government announcements of projects for 10,000 km of roads in just this financial year.

    • The Netherlands is ranked in the top five for highest minimum wages in the world, at approximately $1,680 per month. But Dutch companies are exporting their exploitation to India, and a recent report has highlighted that Dutch firms are paying Indian textile workers "starvation wages" of less than $100 a month, driving many of these workers into debt. A living wage in India is estimated at around $282 a month.  

    • Photo of the day: Preparations for Durga Puja and Navratri are heating up - dancers rehearse for the Garba. Reuters/Amit Dave

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    The Baseline
    27 Sep 2016
    Walmart may join Flipkart against Amazon, RIL and ONGC to be hit with gas price fall

    Walmart may join Flipkart against Amazon, RIL and ONGC to be hit with gas price fall

    • Giant versus Giant: Is Walmart joining Flipkart to take on Amazon together? In a twist, the world's biggest retailer Walmart may be joining the flailing Flipkart in an equity partnership to take on Amazon. This would mean Walmart acquiring a minority stake in Flipkart, one which would give it access to the Indian e-commerce market, and Flipkart could potentially use the wholesale points Walmart has set up in India. Walmart lags substantially behind Amazon in e-commerce, with $14 billion of online sales compared to Amazon's $99 billion. ET

    • In a setback for firms like ONGC and RIL, India is likely to cut the price of natural gas by 18% according to Bloomberg. The government-set price formula will track the global decline in prices and fall to less than $2.5 per million British thermal units for the coming October-March time period from $3.06 today. The announcement is due this week. India, as a signatory to the Paris Climate agreement, has been trying to follow in the footsteps of US and Europe in replacing coal in power production with natural gas. However falling prices will limit investments companies can make that are needed to increase gas production. 

    • Telcos are about to get into a whole lot of trouble with TRAI, with the regulator planning to issue showcause notices to telcos for high call drop rates and a decline in call quality for consumers. In light of Jio complaints about high call drop rates and the absence of interconnect points, TRAI had asked all telecom operators to submit network congestion details from September 15-19. After reviewing the data, it found that call failures are far in excess of norms and has decided to issue notices seeking explanations.

    • While the Foreign Investment Board of the government approved 11 of 18 FDI proposals on its table - including those of IBM and Sharekhan - it deferred approval for foreign investment proposals submitted by Idea Cellular and Flag Telecom, stating it needed more information to approve. Idea has lost 15% of its value over the last month.

    • Photo of the Day: Indian and US troops conduct a joint training exercise in Uttarakhand, which included counter-terrorism tactics. Firstpost/PTI

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