Week- 10-11

Date- 03/03 – 17/03/2024

THE WEEKLY
In my view, the greatest way to
optimize the positioning of a portfolio
at a given point in time is through
deciding what balance it should strike
between aggressiveness and
defensiveness.

And I believe the

aggressiveness/defensiveness balance
should be adjusted over time in
response to changes in the state of the
investment environment and where a
number of elements stand in their
cycles.

~ Mastering the Market cycle

Howard Marks

RBI’s PUSH FOR THE BIGGEST IPO

SEBI: REGULATOR CUM OPERATOR? AIM OF D ISRUPTION

THE NEXT EDITION WILL BE BETTER

Anirudh kalra
Jatin Saini
THE BLACKROCK EFFECT
 New this week
PVT. OR PUBLIC
The long drawn fight between the shapoorji group and tata sons has another charater added into the dynamics,
when RBI declared tata sons to be a NBFC UL, and made it mandatory to list Tata sons on exchanges, by
Story One September 2025. This information is known since 2021-22, but the recent speculation about its listing, triggered
Saga of TATA SONS euphoria in select Tata group stocks such as Tata Chemicals Ltd and Tata Motors Ltd, which were seen as
likely beneficiaries.

Story two
Paint bleeds Red: The entry of a mammoth THE ROOT CAUSE OF KALESH
So let me make it clear before going any further- TATA does not want listing of TATA SONS at all, they
fought a long drawn legal battle to prevent that, and the basic reason for that are the ‘shareholding pattern’
Story three and ‘valuation offered’. The shapoorji group hold a mighty 18.37 percent in Tata sons and due to whole
The scandinavian affair kalesh of Misty Vs Tata [Next page for details], they want to liquidate their positions.

Conclusion 1- TATA doesn’t want TS to be listed

Story four Conclusion 2- SP group wants it to be listed.
The institutional bet on ‘Bit’
The reasoning is clear for conc. 2 is that SP group no longer wants to conduct business with TS, so they
Story five want to sell their stake, so why listing? Why not sell it to third party, surely there would be someone who
wants to own the mighty tata. But here is the catch, before they can offer it to some other party they have
The old and wise the obligation of offereing it to TS to buyback the whole stake.

Story six So here comes the second aspect of valuation: Tata wants to buy their 18 so percent at PEAK COVID
valuation and SP group wants liquidation at current price.
SEBI the froth detector
So if TS goes public and gets listed, they can just sell their stake at Open market at current price. So to
Story seven prevent this TATA sons are trying so hard. But by the time this is getting published two things have
Mutual fund stress test happened.

Event 1: SPECULATION that TS is going to be listed. Management provided no comments.

Event 2: SPECULATION that TS is not going to be listed. Management provided no comments.

RIPPLE EFFECT
Shares of Tata Chemicals, which holds about
3% stake in Tata Sons, have been more
sensitive to the news of listing, considering
its relatively small market capitalization of
less than ₹30,000 crore.
The stock following media reports about the
listing and that it could be the biggest
beneficiary.

On the other hand, shares of Tata Motors,

with a market capitalization of about ₹3.79
trillion, were up over 5% last week. The
shares have dropped more than 6% so far
this week. Tata Motors holds about 3% stake
in Tata Sons. Other major listed shareholders
in Tata Sons include Tata Steel Ltd (3%),
Tata Power Co. Ltd (1.7%) and The Indian Hotels Co. Ltd (1.1%).
Till further clarity emerges on this matter, uncertainty is likely to linger for Tata group stocks.

ALTERNATIVES
The Street seems to be ignoring the company’s preference to stay as a private company as it had
voluntarily converted from a public to a private entity in 2017.
There should be a minimum non-promoter shareholding of 25% in a listed company, as per the norms.
If promoters don't sell their stake through an offer for sale, there has to be a fresh equity issue.
This would bring down the Tata group's stake to less than 75%. This means that the Tata group would
not be able to pass special resolutions that require a 75% majority.

Moreover, Tata Sons may not like to give up the privileges of being a private limited company as it
helps in avoiding a lot of disclosures.
For example, it has unlisted investments in loss-making Air India, the newly set up digital entity Tata
Neu, and proposed semiconductor ventures. Currently, the financial performance of these loss-making
companies and new ventures are not required to be disclosed to the stock exchanges and financial
institutions at large.

Further, if the company chooses not to get listed, there are many options to circumvent the Reserve
Bank of India’s (RBI) guidelines for mandatory listing. Recall that Tata Sons has been classified as a
core investment company in the upper layer of the RBI’s list of non-banking financial companies
(NBFC-UL). Such companies must list within three years of being identified as NBFC-UL.
For Tata Sons, the deadline is September 2025.

The listing is mandatory only if the company has more than ₹100 crore in assets and also has public
funds. Public funds refer to non-promoter funds in the form of debt or equity. Tata Sons’ annual report
for FY23 shows that the company holds debt of about ₹20,000 crore.
This debt can be paid off easily by selling less than 2% of its 72.4% stake in Tata Consultancy Services
Ltd, which has a market capitalization of about ₹15 trillion.

The other alternative is to transfer the debt and holding in Tata Capital, which is the group’s other
NBFC, to a separate entity.

With no public funds in the balance sheet, the mandatory listing can be bypassed.
 BUY AND HOLD
On 08.11.1917, Tata Sons was incorporated as a Private Limited Company
under the Companies Act, 1913. Two companies by name Cyrus
Investments Private Limited and Sterling Investment Corporation Private
Limited, forming part of the SP Group respectively acquired 48 preference
shares and 40 equity shares of the paidup share capital of Tata Sons, from
an existing member by name Mrs. Rodabeh Sawhney.
Over the years, they just bought and held closely their shares and now the
shareholding of SP Group in Tata Sons has grown to 18.37% of the total
paidup share capital.
The shareholding pattern of Tata Sons Limited is as follows:
(i) Shares held by two Tata Trusts
(ii) Shares held by SP Group
(iii) Shares held by operating Companies
Total 97.13%
THE IRON THRONE
"I am confident that Mr. Mistry will prove to be a worthy successor to J.R.D. Tata and to me. Cyrus has
been on the Board of Tata Sons for some time and has been understanding the ethos and values of the
Tata Group.”
~Ratan Tata
The coronation of Cyrus mistry was a pivotal movement for this historical group. This
was the first time, when an outsider was the successor of the throne made of ‘Iron and
steel’. CPM was appointed as Executive Deputy Chairman for a period of five years from
01.04.2012 to 31.03.2017, subject however to the approval of the shareholders at a
General Meeting. The General Meeting gave its approval on 01.08.2012.
But how could they know at that time, that this worthy successor will be the one accusing
his own mentor a tyrant and the company as the financer of terrorism.
There is nothing on the record to suggest that the Board of Directors or any of the trusts,
65.89% namely— Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time expressed
displeasure about the performance of CPM.
18.37% ~NCLAT ORDER
12.87% But we all know, By a Resolution passed on 24.10.2016, the Board of Directors of Tata Sons
replaced CPM with RNT as the interim Non-Executive Chairman.

RIFT WIDENS
Thereafter, 2 companies by name, Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, belonging to the SP Group, in which CPM holds a controlling
interest, filed a company petition in 2016 before the National Company Law Tribunal, on the grounds of unfair prejudice, oppression and mismanagement.
The acts of oppression and mismanagement complained against Tata Sons revolved around
(i) alleged abuse of the Articles of Association, to enable the trusts and its nominee Directors to exercise control over the Board of Directors;
(ii) alleged illegal removal of CPM as Executive Chairman
(iii) RNT allegedly treating Tata Sons as a proprietorship concern with all others acting as puppets, resulting in the Board of Directors failing 15 the test of fairness and probity
(iv) and against some corporate decisions such asacquisition of Corus Group PLC, Nano car project becoming a disaster with losses, the dealings with NTT DoCoMo and Sterling, Leaking information to
Siva of Sterling that resulted in Siva issuing legal notices to Tata Teleservices and Tata Sons
(v) fraudulent transactions in the deal with Air Asia which led to financing of terrorism.

BREACH OF TRUST PART OF THE PROBLEM

18.37
The reasoning provided by the Tata sons for removal of CPM TS responded by calling accusations cherry picked and CPM has
were as follows been the Director of Tata Sons since the year 2006 and was also
 That there was a growing trust deficit between the Board of Directors of the Executive Chairman from December, 2012 to October, 2016
Tata Sons and CPM due to several reasons. and was fully aware of how the decisions relating to these projects
 That CPM also breached his fiduciary and contractual duties by disclosing were taken when they were taken.
confidential information and documents pertaining to Tata Sons to third
parties; And that courts cannot be called upon to sit in judgment
 CPM made representations to the shareholders of all operating companies, over the commercial decisions of the Board of Directors of
with unsubstantiated and false allegations, thereby attempting to make the companies
operating companies vulnerable to make confidential data available for
public inspection.
The decision of NCLT was in favour of TS.

TWIST AND TURN DECISION OF APEX

The decision of NCLT was challenged again in NCLAT, which focused on the single point of
removal of CPM. The apex court recognized the narrow scope opted by the NCLAT and reversed it and put the end
to the matter and declared the decision in favour of Tata sons, and the aspirations of SP group to
The communications between the Respondents from 2013 to 2016 show that there was regain control came to an end .
complete confusion in the Board about the governance framework of the Company
(‘Tata Sons Ltd.’) as before deciding any matter or for taking any resolution by the But then we reach to the present when there is deadline going on the head of Tata sons to list in on
Board, decision used to be taken by RNT for ‘Tata Trusts’, in which Mr. Nitin Nohria the exchange for more transparency and regulatory control over the NBFC UL.
and Mr. N.A. Soonawala, were taking active part.
NCLAT ORDER

NCLAT declared in favor of CPM and reinstated him in TS.

HOW TATA SONS CAN AVOID IPO

Tata Sons, the holding company of the Tata Group, is reportedly working on a restructuring exercise to comply with the regulations laid out by the Reserve Bank of India (RBI).

The RBI has declined to grant any concessions after an informal request to exempt the mandated listing of non-banking finance companies (NBFCs) in the 'upper layer', The Economic Times
reported on February 8. The 'upper layer' refers to NBFCs that are considered systemically important and have significant interconnectedness with the financial system.

Multiple options are being evaluated by Tata Sons to comply with the regulations.

One option being considered by Tata Sons to comply with the regulations is transferring its stake in financial services venture Tata Capital to another entity, the report added. This is believed
to be a significant reason for Tata Sons being in the 'upper layer'. The 'upper layer' status can have implications for the company's borrowing costs, among other things.
The company's restructuring plan is aimed at becoming compliant with the RBI regulations while minimising any negative impact on its operations.
According to the RBI rules, if a 'core investment company' has assets worth less than Rs 100 crore and does not raise public funds, it can avoid being classified as a CIC or an 'upper layer'
NBFC and is not required to go for a public listing. This exemption allows such companies to neatly sidestep the regulations.

Tata Sons, on the other hand, is registered as a CIC with the RBI and has been classified as an 'upper layer' NBFC, which mandates the company to follow a strict regulatory structure and
requires it to list on the public market within three years of being notified. The RBI issued a notification to this effect for Tata Sons in September 2020.
 COMPETITION IS ALWAYS GOOD
If you are not participating in it.

On the heels of the JSW Group in 2019 and Pidilite in 2023, the Aditya Birla Group has entered the paints business through
group flagship Grasim and brand Birla Opus. Tellingly, this is the group’s first major diversification foray in about 15 years.
It plans to invest ₹10,000 crore and, by its estimates, add about 40% to industry capacity. Even as stocks of major paint
companies took a hit in recent days, their long-term trajectory explains this beeline to get into the business. Since March 2015,
an index of paint stocks has delivered a compounded annual return of 16%, against 11% delivered by the Sensex. This is
despite the price-earnings ratio of paint stocks being well ahead of the Sensex, thus being more expensive.

The new players say this is an expanding industry. Announcing its foray late last year, the Aditya Birla Group said: “The paints
industry is witnessing double-digit growth year-on-year driven by rising consumer aspirations and the government’s push
towards ‘housing for all’.” JSW Paints has a revenue target of ₹2,000 crore for 2023-24. Like most other industries, the paints
sector saw a major bump after the pandemic, with net sales growing 63% between 2019-20 and 2022-23. However, higher raw
material costs for much of 2021 and 2022 pulled down net profit margin, which ranged between 8.9% and 11.9% in these two
years for the set of listed paints companies. This forced market leaders such as Asian Paints to raise prices. In the December
2023 quarter, net margin rebounded to 14.3%, against 11.5% a year ago.

THE INCUMBENTS
IN 2022-23, the paints industry in India recorded revenues of about ₹70,000 crore. The dominant player was Asian Paints, with a
revenue share of about 51%.
One of the 30 stocks in the Sensex, Asian Paints’ revenue share has grown by about seven percentage points in the past 10 years. Its
net profit margin in 2022-23 was ahead of the industry average by about three percentage points, and it is valued at about ₹2.73 trillion.

Then, there are Berger Paints and Kansai Nerolac, which together account for another 27% of market share by revenues. New entrant
JSW Paints accounted for 2% of net sales in 2022-23. Grasim wants to be the second-largest player in the paints sector in the next few
years. Even as it pumps in capital into the business, new entrants have their work cut out in terms of extracting market share from the
industry leaders, especially from Asian Paints.

VOLUME GROWTH
MARKET LEADER Asian Paints saw a major bump in both value and volume growth in the post-covid
period as lockdowns eased, though the pace of growth has softened. The company’s domestic decorative
paints vertical, which accounts for a bulk of its overall sales, saw year-on-year volume growth exceed 10%
in 10 of the last 13 quarters. In 2023-24, its volume growth is in the 6-12% band, despite major price hikes.
Growth in the third quarter was driven by a strong Diwali festive season.

In a presentation to investors for the December quarter, Asian Paints highlighted recovery in rural markets.
It also said that both rural and urban centres had posted double-digit growth over the last four years. The
company sees new real estate construction and the 49% increase in government allocation for the flagship
housing scheme in 2024-25 as growth drivers, which will expand the overall industry. That’s what the new
players are also looking to tap into

HIGHEST EVER SALES

WHILE THE government flagship scheme operates at the lower end of the residential housing market, much is taking place in the middle and top end also.
According to real estate consultancy Jones Lang LaSalle (JLL), 2023 saw “record-breaking sales”, with about 271,900 units sold in seven metros, and
residential launches were the highest ever, crossing 2010.
In 2024, sales are seen at 300,000-315,000 units if interest rates decline, inflation stays moderate and GDP growth remains strong. Further, residential
launches—a direct growth driver for the paints industry—are seen rising 9-10% to 315,000-320,000 units. “Strategic land acquisition at prime locations as
well as along growth corridors in cities is expected to strengthen the supply inflow across cities,” JLL said. While this augurs well for new players like Birla,
the competition will be interesting to see.

FPI’s EQUITY INFUSION ₹1,500 CR THIS FEBRUARY

Foreign investors made a significant turnaround and injected over ₹1,500 crore into Indian equities in February, reversing the massive outflows of ₹25,743 crore
seen in the preceding month, primarily due to robust corporate earnings and positive economic growth.
Additionally, Foreign Portfolio Investors (FPIs) continued to be bullish on the debt markets as they put in over ₹22,419 crore during the month under review,
data with the depositories showed.
Looking ahead to March, the outlook for FPI flow appears promising, provided the current economic trajectory and corporate performance sustain their positive
momentum, potentially continuing to attract foreign investment into Indian equities, Mayank Mehraa, smallcase manager and principal partner at Craving Alpha,
said.
The latest influx can be attributed to robust corporate earnings and positive economic growth trends observed during the December quarter.
Despite perceived stretched valuations in the previous month, the compelling performance of companies justified their value, enticing FPIs to re-enter the market,
Mehraa said.
Himanshu Srivastava, associate director-manager, research, Morningstar Investment Research India, said that improvement in the global economic environment
would have prompted FPIs to invest in high growth-oriented markets like India.
 WHY IS THE TIMING OF THE SIGNING CRUCIAL FOR INDIA?
Over 64 countries, including India, are headed into elections this year, which could mean a long pause in free trade
agreements (FTAs) for India and its trade partners. However, time is running out as the global supply chain is fast
undergoing a reset with investment, for the first time in the recent past, moving away from China.

While India is seen as a top contender by global inventors, the Vietnam-led Association of Southeast Asian Nations
(ASEAN nations) and North American nations like Mexico are also emerging as favourable investment destinations.
A delay in streamlining investment flows and renewed attempts at global integration may turn out to be a missed
geo-political opportunity.
While the India-EFTA trade deal has been inked, major deals such as India’s FTA with the UK and EU still run the
risk of political uncertainty.

INDIA’s PUSH FOR INVESTMENT COMMITMENT IN THE EFTA DEAL?

India runs a trade deficit with most of its top trade partners, except for the US. This is also true in the case of FTAs
that India has signed in the past, especially with ASEAN nations. While the ASEAN FTA did help India secure
intermediate products, India’s increasing average tariffs (18 per cent) have meant that India’s FTA partners have
better access to the Indian market after tariff elimination. Average tariffs in developed nations hover around 5 per
cent.

The India-EFTA deal is also expected to widen the trade gap. Even as the legality of the $100 billion investment
commitment by EFTA remains unclear, such investment could help India generate economic activity and jobs in
exchange for giving market access to EFTA.

Moreover, India could see gains in the services sector and the deal could help India power its services sector further.

INDIA SIGNS TRADE AGREEMENT WITH EFTA

WHAT IS THE SIGNIFICANCE OF THE DEAL?

India on Sunday (March 10) signed a trade agreement with the four-nation European Free Trade Association (EFTA), an intergovernmental grouping of Iceland,
Liechtenstein, Norway and Switzerland. The deal likely builds in a plan to attract $100 billion in investment over 15 years and diversify imports away from
China. Here, we explain its significance for India.

WHICH INDIAN SECTORS COULD EFTA INVESTMENT BENEFIT? IT’s STILL GOING
TO BE DIFFICULT…
The funds from the EFTA region include Norway’s $1.6 trillion sovereign wealth fund, the world’s
largest such ‘pension’ fund, which posted a record profit of $213 billion in 2023 on the back of strong Switzerland, which is India’s biggest trade
returns on its investments in technology stocks. partner among EFTA countries, decided to
The Indian Express earlier reported that India could see investment flow into the pharma, chemical eliminate import duties on all industrial goods
sectors, food processing and engineering sectors. Government officials said that EFTA is also looking for all countries starting from January 1, 2024.
at joint ventures (JVs) in the above-mentioned sectors that will help India diversify imports away The abolition of tariffs on all industrial products,
from China. including chemicals, consumer goods, vehicles
and clothing is a concern for India as industrial
Currently, India’s imports of chemical products from China in FY23 alone stood at a massive $20.08 goods accounts for 98 per cent of India’s $1.3
billion. It imported $3.4 billion worth of medical and bulk drugs worth nearly $7 billion from China, billion merchandise exports to Switzerland in
as per commerce and industry ministry data. FY2023. India’s goods will face stiffer
competition despite any tariff elimination that
would be part of the deal.

Think tank Global Trade Research Initiative

(GTRI) said that exporting agricultural produce to
Switzerland remains challenging due to the
complex web of tariffs, quality standards, and
approval requirements. EFTA has not shown any
inclination to make agriculture tariffs zero on most
basic agricultural produce.
 PONZI DIY!!
4000 years of prison, a cryptocurrency without blockchain, money-laundering CEO’s, fake trades, get rich quick, incomplete projects,
Ponzi exchanges, meme coins, pump and dump, rug-pulls, pump and
dump and many more adventures that happened after the enoromous
rise of bitcoin gave hope to every person with some or little influence
to create his/her own Ponzi scheme.

They made a lot of money, so someone who have read little bit of
economics knows that for someone to make money someone has to lose
it (Pareto’s law). Who lost it? The retail. The retails lost billions of dollars following there beloved so called ‘content creator’.

The astronomical pumping of alternative coin and bitcoin during covid rallied bitcoin
to its then all time high and then these so called juicy money creator packed their bag
and pulled the plug on their dream projects and in hopes of the return of their
influencer.. people stayed… and stayed and then booked the losses, the asset of crypto
of being a deregulated currency was now its biggest flaw- There was no institutional
remedies available. Country like ours straight away banned then unbanned these crypto
assets, its stil debatable the state of crypto in India but this lost of trust pushed the
crypto values over the cliff and they reached the bottom, marking and end for these
crypto currencies or not?
Something changed on 16 June 2023. When retail became tired of crypto someone found an opportunity. This someone is the biggest
asset management company of the world, THE BLACKROCK.

RESURGENCE OF ₿
The catalyst behind this surge is the U.S. Securities and Exchange Commission’s (SEC) approval of spot Bitcoin ETFs. These
instruments allow investors to buy into Bitcoin without the complexities of direct crypto ownership, with each ETF share backed
by real Bitcoin. This mechanism directly impacts Bitcoin's supply and demand, pushing prices upwards as each share
purchase translates to actual Bitcoin being bought in the market.

10,000 > 900 ALTCOIN CONUNDRUM

The slow but steady adoption of spot Bitcoin ETFs by
traditional financial institutions suggests a burgeoning stream of
capital flowing into Bitcoin. This process, albeit gradual, is
expected to maintain a steady demand for Bitcoin. Moreover,
the passive investment strategies employed by these institutions,
which automatically allocate funds to certain assets, are likely
to include Bitcoin ETFs, further amplifying the demand.
Analysts expect pension fund managers would inevitably
succumb to lure of the ETFs.
The total assets under management for the top ten Bitcoin ETFs
have skyrocketed to around $50 billion, with BlackRock's
Bitcoin ETF at the forefront, accumulating $10 billion in assets,
followed by Fidelity's ETF, which holds $6 billion in assets.
The Investor Types
Bitcoin ETFs have been purchasing an average of 10,000
Bitcoin daily, vastly exceeding the daily mining output of just
900 Bitcoin. This results in a demand that exceeds supply by
over ten times..
While Bitcoin has been the focal point of recent market enthusiasm,
the impact on altcoins remains uncertain. The influx of institutional
money into Bitcoin via spot ETFs may not necessarily translate into
similar gains for altcoins. However, the actions of crypto whales,
who may diversify their investments into altcoins, could dictate the
market's direction for these other cryptocurrencies.
A UNIQUE MARKET CYCLE
The current crypto market cycle is characterised by unique features,
including unprecedented institutional involvement and evolving
regulatory landscapes. This has resulted in Bitcoin hitting all time
highs before halving. In all previous market cycles, the all time
highs happened after the halving. These elements differentiate it
from previous cycles and are crucial in understanding Bitcoin's
price dynamics and the potential pathways the market could take
with Jerome Powell signalling reduced rates later in the year
leading to a rally in the markets.

HALVING
Bitcoin market is on the verge of a halving event, a pre-
programmed reduction in the rate at which new Bitcoins are
created. Scheduled to occur in April, this halving will decrease
the daily production of Bitcoin from 900 to just 450 coins. The
anticipation of this supply shock, where the rate of new supply
entering the market halves, is further fueling the rally. A crucial
element driving Bitcoin's price surge is its finite supply. With
merely a fraction of Bitcoin's total supply available for trading
on exchanges, the market is experiencing a pronounced supply
shortage. This limited availability, combined with the rapid
acquisition of Bitcoin by spot ETFs, creates a foundation for
potential price increases, rooted in fundamental supply and
demand principles.
WHAT LIES AHEAD ?
The market is navigating through uncharted territory, with Bitcoin's
price rally being driven by a combination of institutional interest,
regulatory developments, global liquidity and the actions of market
whales. The continued influx of institutional capital, the
constrained supply of Bitcoin, and the evolving interest from retail
and crypto whales paint a complex picture of the market's future
trajectory.
As we look to the future, it's clear that the crypto market is in a state
of flux, with various forces at play that could influence the direction
of Bitcoin and altcoins. Staying informed and adaptable will be
crucial for those looking to navigate this volatile yet potentially
rewarding landscape.

RETAILLESS RALLY
Retail interest in crypto tends to spike with market rallies.
However, a significant portion of retail investors has yet to
engage in the current cycle, potentially leaving room for further
growth as they enter the market.

Metrics employed to measure retail enthusiasm for

cryptocurrencies, such as Google search volumes, have shown
subdued activity compared to the levels observed in 2021 and
2022, based on data from Google Trends.
154 PERCENT RETURN IN 6 MONTHS
WISE AND OLD

THE INNER SCORECARD

This is a excerpt from The Snowball:Warren Buffett and the Business of Life.

-
Part II
-

The 1990s put the concepts of
buffetology or value investing to
the very extreme test. The new age
IT companies with negative or
negligible earnings were enjoying
astronomical valuation.
The situation was not new, in the
words of the wise and old WB,
“The big question about how people behave is whether they’ve got an Inner Scorecard or
an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard. I always pose it
this way. I say: ‘Lookit. Would you rather be the world’s greatest lover, but have everyone
think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have
everyone think you’re the world’s greatest lover?’ Now, that’s an interesting question.
“Here’s another one. If the world couldn’t see your results, would you rather be thought of as
the world’s greatest investor but in reality have the world’s worst record? Or be thought of
as the world’s worst investor when you were actually the best?

“It’s wonderful to promote new

“In teaching your kids, I think the lesson they’re learning at a very, very early age is what their
industries, because they are very parents put the emphasis on. If all the emphasis is on what the world’s going to think about
promotable. It’s very hard to promote you, forgetting about how you really behave, you’ll wind up with an Outer Scorecard. Now
investment in a mundane product. It’s
much easier to promote an my dad: He was a hundred percent Inner Scorecard guy.
esoteric product, even particularly one
with losses, because there’s no
quantitative guideline. But people will “He was really a maverick. But he wasn’t a maverick for the sake of being a maverick. He
keep coming back to invest. It just didn’t care what other people thought. My dad taught me how life should be lived. I’ve
reminds me a little of that story of the
oil prospector who died and went to
never seen anybody quite like him.”
heaven.”
~

OIL IN HELL In the 1920s, the champagne bubbles of a frothy stock market led ordinary people to invest
St. Peter said, for the first time.1
‘Well, I checked you out, and you
meet all of the qualifications. But
there’s one problem.’ He said, ‘We By 1927, Howard Buffett [F. of Warren buffet] decided to join them and got a job as a
have some tough zoning laws up here,
and we keep all of the oil prospectors stockbroker with the Union State Bank. The celebration ended two years later.
over in that pen. And as you
can see, it is absolutely chock-full.
There is no room for you.’
On “Black Tuesday,” October 29, 1929, the market dropped $14 billion in a single day. Wealth
worth four times the budget of the United States government evaporated in a few hours. The
“And the prospector said, ‘Do you market’s losses in 1929 cost $30 billion, close to what the country had spent fighting World
mind if I just say four words?’
“St. Peter said, ‘No harm in that.’ War I. Amid the bankruptcies and suicides that followed, people began to hoard money,
“So the prospector cupped his hands and nobody wanted stocks.
and yells out, ‘Oil discovered in hell!’

“And of course, the lock comes off the “It was four months before my dad made his next sale. His first commission was five bucks.
cage and all of the oil prospectors start My mother used to go out with him at night on the streetcar, waiting outside when he would
heading right straight down.
call on somebody, just so he wouldn’t feel so depressed when he came home.”
“St. Peter said, ‘That’s a pretty slick
trick. So,’ he says, ‘go on in, make ~
yourself at home. All the room in
the world.’
The first few cents Warren Buffett ever earned came from selling packs of chewing gum. And from the day
“The prospector paused for a minute, he started selling—at six years of age—he showed an unyielding attitude toward his customers that revealed
then said, ‘No, I think I’ll go along much about his later style.
with the rest of the boys. There
might be some truth to that rumor after This concept—compounding—struck him as critically important. The book [How to make $ 000 ] said he could
all.’
.~.
make a thousand dollars. If he started with a thousand dollars and grew it ten percent a year:

In five years, $1,000 became more than $1,600.

“Well, that’s the way people feel with
stocks. It’s very easy to believe that
there’s some truth to that rumor
after all.”
Near the end of 1999, even many
longtime “value investors” who
followed Buffett’s style had either
shuttered their businesses or given
in and bought technology stocks.
BUFFETT DID NOT.
What he called his Inner
Scorecard—a toughness about
financial decisions that had
infused him for as long as anyone
could remember—kept him from
wavering
In ten years, it became almost $2,600.
In twenty-five years, it became more than $10,800.
The way that numbers exploded as they grew at a constant rate over time was how a small sum could turn
into a fortune. He could picture the numbers compounding as vividly as the way a snowball grew when he
rolled it across the lawn. Warren began to think about time in a different way.
Compounding married the present to the future.
If a dollar today was going to be worth ten some years from now, then in his mind the two were the same.
~
At age fourteen, he had fulfilled the promise laid out in his favorite book, One Thousand Ways to Make $1,000.
His savings now totaled around a thousand dollars. He took great pride in that accomplishment. So far, he was
ahead of the game, way ahead of the game, and getting ahead of the game, he knew, was the way to his
goal.
 SEBI WANTS TO TIGHTEN ALGO
TRADING NORMS
Currently, algo trading accounts for 50% of the volumes in equity derivatives and over 65% of
cash market trading.
What does this trading chain look like?
There are three main players—the stockbroker, the client (proprietary or retail traders), and
third-party algo service providers. Some traders know how to write their own algos but most
investors use third-party algorithms. Clients subscribe to various plans offered by these service
providers and can run their algos on the broker’s server through an application programming
interface (API). The use of APIs allows clients to access brokers’ trading platforms without
manually logging in. However, when clients execute orders through the API, neither exchanges
nor brokers can identify if they are algo or non-algo trades.
What are the market regulator’s concerns?
Many algo trading service providers flout Sebi rules by promising ‘guaranteed’ returns to
gullible retail investors. Some also missell basic algos as complex trading strategies or inflate
their record. These developers are outside Sebi’s regulatory ambit, even though they give
investment advice. Algorithmic trading strategies are offered on various unregulated platforms.
What are the latest proposals from SEBI?
Sebi reportedly held a meeting last month with market infrastructure institutions, stockbrokers
and algo providers. The regulator proposed stopping all open APIs where the broker is unaware
of how it is being used by the client. It also suggested two models. Under the first, stockbrokers
will have to get approval for their algo platforms and take the responsibility for data security.
As per the second, algo platforms would be regulated and can share their past performance only
after it is verified by a performance validation agency.
Are there any systemic risks from algo trades?
Since algorithms are based on specific market conditions, any unexpectedly volatile or ‘Black
Swan’ event can cause algos to misfire in unison, triggering a market meltdown. Two freak
trades in domestic derivatives last year were blamed on algos. Even institutional investors’
algos can go haywire, but these are vetted by the exchanges, so there’s a layer of supervision.
That’s not the case with algos used by retail clients, who mostly use APIs, preventing exchanges
from knowing if the trades are algorithmic or manual.
Stock operators are traders, investors, or participants in the stock market who trade intending to manipulate the stock price.
SEBI
THE CONSEQUENTIAL OPERATOR?
EXCHANGES TO SUPERVISE RESEARCH ANALYSTS
AND INVESTMENT ADVISORS: SEBI
Stock exchanges will now be recognised as a body for administration and
supervision of research analysts and investment advisers, said the Securities
and Exchange Board of India (SEBI) on March 15.
"The Board approved the proposal to recognise a stock exchange as a 'Research Analyst
Administration and Supervisory Body' (RAASB) and 'Investment Advisers Administration and
Supervisory Body' (IAASB)".
Further, in order to provide ease of doing business and to ensure smooth operationalisation of
the RAASB/IAASB framework and prevent disruption, the Board approved deemed enlistment
of existing registered RAs/IAs.
SME
[SUBSCRIBE; MEGA-LISTING; EXIT]
SEBI chair said that the regulatory body intends to impose more disclosures as a
first step with regard to SME IPOs. Buch said that SEBI keeps a close eye out
for instances of price manipulation during trading operations as well as during IPOs, particularly
with regard to SME IPOs. She also emphasised the need for more market openness and
monitoring amid doubtful trdaing operations.
The SEBI chairman claimed that there was no indication of coordinated attempts in any recent
instance. She assured that authorities are consistently exchanging information, enabling
independent measures to be implemented in order to preserve market integrity.
’There is something unusual about the way small and medium-sized companies list, perform, and
receive subscriptions for their IPOs. It is easier to manipulate a SME than a mainboard simply
because the number of shareholder in the SME is so limited. That is a focal point of the whole
matter
Market analysts also say that recognizing the importance of transparency and investor protection,
the SME exchanges have proactively enhanced disclosure norms in the offer documents.
‘’Investors, therefore, should maintain confidence in the potential of high-quality SMEs, viewing
them as valuable components of a diversified investment portfolio, despite the inherent risks
associated with their smaller scale'',
FROTH IN THE MID AND SMALL CAP
Most people don’t mind sitting on unrealized losses in bear market, justifying the buy and hold
ideology but the thing even they don’t like is losing their unrealized gains. And under the rapid
avalange of bull corrections many people trigger their sell order losing there so called
‘generational investment’.
So these bull market corrections are generally normal, but after a year of one way rise, it is the
most common question, that for how long? Can this be sustained. So at 20,000 people were
saying ahh the market are overpriced, different people same view at 21,000 and so on. I can tell
you that sell your portfolio and you will get a better price in coming days, I can be wrong or right
but this is my opinion but what if!!! The people who are responisible for the regulation of the
market come forward and says that, Yehh we are seeing froth building in mid and small cap. It
is good to have a vigilant regulator to prevent financial crisis like of past, I might be wrong but
in my opinion these statements do more bad than good, in short term.
But at the same time such cautions are necessary as historically, redemptions from small-cap
funds have led to selling spirals and could even spread contagion to other asset classes. Say, fund
managers begin to sell small-cap stocks to meet redemption demands from unit holders. The
correction in the prices of small-cap stocks that will lead to could trigger more redemption calls,
necessitating fresh sales by fund managers, thus creating a repetitive loop. The risk gets
exacerbated especially in the case of stocks with low free float, such as small-cap stocks, as they
tend to be relatively illiquid.
In times of corrections, there tends to be no buying side at all in this class. There are bound to be
distress sales and extreme price movements then. When the redemption pressures come, fund
managers have no option but to first sell whatever they can, which means the illiquid stocks
could see a free fall in the absence of a buying side. There were worries that borrowings by
speculators and retail investors were finding their way into small-cap stocks. Inflows into small-
cap and mid-cap funds continue even after the lending norms were tightened.
The regulator, therefore, wants mutual funds prepared for that situation, whenever it may come.
It wants funds to institute the steps they plan to take with the aim of protecting retail investors
with exposure to small caps through their funds. It has asked funds to formulate and publish this
policies on their websites within 21 days.
T+0
SETTLEMENT FROM MARCH 28
On March 15, after a meeting with its Board, the Securities and Exchange Board of India (Sebi)
announced the new, optional settlement cycle.
The press release said, "The Board approved the launch of a Beta version of optional T+0
settlement, for a limited set of 25 scrips, and with a limited set of brokers. In parallel, SEBI shall
continue to do further stakeholder consultation, including with the users of the Beta version. The
Board shall review the progress at the end of three months and six months from the date of this
implementation, and decide on further course of action."
T+0 settlement means that the funds and securities for a transaction will be settled on the
day the trade was entered into.
Until now the Indian securities markets have been operating at a T+1 settlement cycle. The
regulator had shortened the settlement cycle to T+3 from T+5 in 2002 and subsequently to T+2
in 2003. It introduced T+1 in 2021 and implemented in phases, with the final phase completed
in January 2023.
The T+0 settlement cycle will now be made available as an option alongside T+1.
With the shorter settlement cycles, there is expected to be lower counterparty risk and increased
liquidity in the market.
As the consultation paper released on December 22, 2023, said, the shorter settlement cycle is
expected to provide more flexibility to clients in terms of faster pay-out and give them more
control over their funds. It added that it will free up capital and thereby enhance market
efficiency, and enhance overall risk management for clearing corporations (CCs).
Although the T+0 settlement system is not as common as T+1 or T+2 settlement cycles, there
are a few countries and markets that have adopted T+0 settlement. The Moscow Exchange
(MOEX) and Korea Exchange (KRX) offer T+0 settlements for certain securities in Russia and
South Korea.
Taiwan's Taiwan Stock Exchange (TWSE) offers T+0 settlement for certain types of trades,
particularly for government bonds and certain Exchange-Traded Funds (ETFs).
In Hong Kong, while the standard settlement cycle for most securities is T+2, the Hong Kong
Stock Exchange (HKEX) offers T+0 settlement for certain transactions, particularly for bonds
and other fixed-income securities. In the US certain types of transactions, particularly those
involving government securities and certain money market instruments, may be settled on a
same-day basis. However, this is not the standard practice for most equity transactions, which
typically follow a T+2 settlement cycle.

STRESS TEST OF MUTUAL FUNDS: WINNERS AND LOSERS IN ROUND 1
LOGIC
BEHIND IT
The Association of Mutual Funds in
India (AMFI) has asked its members
to disclose stress test results every 15
days to comply with a recent mandate
from capital markets regulator SEBI.
The purpose of the stress test is to
ascertain how soon fund managers
can liquidate their portfolios, if
investors were to rush for redemptions
under adverse market conditions.
Here's how the stress test is
designed:
Pro-rata liquidation of 25 percent/50
percent of portfolio, after removing
the bottom 20 percent of portfolio
based on scrip liquidity, considering
10 percent participation volume of
three-month daily average traded
volumes on both NSE and BSE with
three-fold volumes.
What’s the logic for these
thresholds?
1. Liquidation of 25 percent/50
percent of portfolio: These are
scenarios for which mutual funds’
liquidity is being tested. Meaning,
under scenarios where 25 percent
or 50 percent of investors came in
for redemptions, how long will it
take for a fund manager to
liquidate his holdings and
therefore number of days to
honour those redemptions.
2. Removing bottom 20 percent
of portfolio based on illiquidity:
This is to allow room for a fund
manager to hold on to illiquid
stocks that he/she may think is
high quality or would want to hold
on to for a longer period for better
returns. Normally, when
redemption requests are placed, a
fund manager won’t be cutting his
most illiquid stocks first; those will
be wound up last. Since the stress
test is for scenarios of 25 percent
or 50 percent redemptions, the
most illiquid part of the portfolio
need not be touched.
3. Three-month average trade
volume: This is just a reasonable
time period that reflects the
prevailing market conditions and
investor interest in individual
stocks.
4. Three-fold volumes: Typically,
when markets turn volatile, trading
volumes spike. So, when markets
go down, even if the stock price
goes down, more shares get traded
as people scramble to buy and sell.
Past data bears out that under
stress trading volumes are around
three times the average prevailing
volumes.
5. A 10 percent participation :
This is under the assumption that a
fund will only be able to sell down
10 percent of the traded volume
through market sales in a day
because everyone is scrambling to
sell. This is just an assumption.
MF STRESS TEST
SMALL-CAP DEEPER IN WATER THAN MID-CAP
Small-cap funds have a tighter liquidity situation than mid-cap funds. Simply put, it would take longer for small-cap funds to liquidate their
portfolios than mid-cap funds. A scheme’s liquidity is important because it shows how quickly it can sell its stocks in the markets to generate
cash to meet sudden redemptions if many investors end up at their doorstep to take back their money.
Number Of Days (Average) Taken To Liquidate 50% Of Small-Cap Fund Portfolio 14
Number Of Days (Average) Taken To Liquidate 50% Of Mid-Cap Fund Portfolio 6
When markets fall badly, typically more investors withdraw their money. An illiquid MF scheme can stop redemptions, which can spread panic
in the market, like Franklin Templeton’s six debt funds did in April 2021 when they shut down due to COVID-induced illiquidity.
The average number of days to liquidate 50 percent of small-cap funds’ portfolios is 14, as opposed to six days for as much of mid-cap funds’
portfolios. Some fund houses have shown a vast difference between their small-cap and mid-cap funds. For instance, Axis Midcap Fund would
take 12 days to liquidate 50 percent of its portfolio, Axis Small Cap Fund would take 28 days. Few other fund houses have more harmonious
numbers between their schemes. Sundaram Midcap Fund would take 4 days to liquidate 50 percent of its portfolio, Sundaram Small Cap Fund
would take 5 days.
LARGER CORPUS, LOWER LIQUIDITY
Schemes with larger corpus will have a higher proportion of their portfolios in illiquid or low-liquidity stocks. Small-cap schemes with corpus
of less than Rs 10,000 crore would take about 6 days on average to liquidate 50 percent of their portfolios. Schemes with corpus sizes between
Rs 10,000-20,000 crore about 24 days on average. Schemes larger than Rs 20,000 crore would take about 43 days on average.
ASSET SIZE (RS NUMBER OF DAYS REQUIRED TO NUMBER OF DAYS REQUIRED TO
SCHEME NAME SELL 50% OF THE PORTFOLIO SELL 25% OF THE PORTFOLIO
CRORE)
Nippon India Small Cap Fund 46,044 27 13
HDFC Small Cap Fund 28,599 42 21
SBI Small Cap Fund 25,534 60 30
Axis Small Cap Fund 19,604 28 14
Quant Small Cap Fund 17,233 22 11
Kotak Small Cap Fund 14,196 33 17
It’s the same with mid-cap funds. For schemes up to Rs 15,000 crore, it would take 3 days on average to sell 50 percent of their portfolios. For
schemes above Rs 15,000 crore, it would take about 20 days.
ASSET SIZE (RS NUMBER OF DAYS REQUIRED TO SELL NUMBER OF DAYS REQUIRED TO
SCHEME NAME 50% OF THE PORTFOLIO SELL 25% OF THE PORTFOLIO
CRORE)
HDFC Mid-Cap Opportunities Fund 60,187 23 12
SBI Mid Cap Fund 16,467 24 12
DSP Mid Cap Fund 16,302 17 9
Mirae Asset Midcap Fund 14,543 8 4
Sundaram Mid Cap Fund 10,262 4 2
Franklin India Prima Fund 10,179 4 2
UTI Mid Cap Fund 10,046 4 2
UNPLEASANT SURPRISES
Tata Small Cap Fund said it would take 35 days to liquidate 50 percent of its portfolio and 18 days to liquidate 25 percent of its portfolio. For a scheme with a corpus size of just Rs
6,289 crore, this number appears to be significantly high compared to some of its similar-sized peers.
DSP Small Cap Fund said it would take 32 days to liquidate 50 percent of its portfolio and 16 days to liquidate 25 percent of its portfolio .
What’s common between the two is that neither has any investments in large-cap stocks for schemes of their size. “DSP Mutual Fund believes
in offering the products ‘true to the label.’ DSP Small cap scheme has zero exposure to the large caps as we want to offer pure small-cap exposure”.
The fund house says it takes comfort from the fact that its investor base is diversified. Kotak Emerging Equity (KEE) reported the worst liquidity
ratio, among all mid-cap fund results. It was that it would take 34 days to liquidate 50 percent of its portfolio. To be sure, KEE is the second largest
mid-cap fund with assets worth Rs 39,738 crore.
PLEASANT SURPRISES
Quant Small Cap- one of the 10 largest small-cap funds in the Indian MF industry with a size of Rs 17,233 crore, said that it would take 22 days
to liquidate 50 percent of its portfolio. Among seven small-cap schemes that are there, over Rs 12,000 crore in the small-cap funds’ space, Quant
Small Cap has reported the best liquidity. What's its secret?
Among other things, it has invested 28 percent in large-cap stocks; the highest allocation among most small-cap funds. “Our Predictive Analytics
tools endorse that there are no classic signs of euphoria in Indian equities at this point in time. However, hype does get built in certain sectors or
pockets and we mitigate these perceived risks by stock and sector rotation through our tools,” the fund house said in a statement after it made its
stress test results public.
The other interesting statistic that the stress test has revealed is how overvalued or undervalued your portfolio is. The stress test seeks to compare
your portfolio’s Price-Earnings (PE) ratio against its benchmark index.
Although Nippon India Small Cap reported good liquidity numbers, given its size and similar-sized peers, its PE ratio is 41.91 times, as opposed to
28.85 times its benchmark index. This is, by far, the most overvalued portfolio when compared to its benchmark index, among large-sized schemes.
In chasing the more liquid stocks, Nippon India Small Cap Fund seems to be paying a higher price in terms of expensive stocks. Canara Robeco
Small Cap Fund’s PE ratio is 47.9 times, as against its benchmark index’s PE of 28.9 times.
SEBI has asked fund houses to publish their stress test numbers every 15 days. Investors should not panic. The regulator merely wants to throw
light on small-cap and mid-cap funds to bring granular stats into the public domain so that investors understand what they’re getting into.
Moreover, the stress test imagines the worst-case scenario; where daily volumes are three times (to show more investors rushing to the markets to
sell shares) and just 10 percent of that liquidity is available to mutual funds (to demonstrate illiquidity). The stress test results (number of days
required to liquidate its portfolio) reflect that situation, not today’s.
Besides, the quality of the companies also matters; the stress test is just one way of looking at a portfolio’s worth.
The stress test number, if looked at in isolation, is therefore misleading. Do not redeem from any of these schemes just based on their stress these
numbers.
But it’s a good exercise to do when markets have gone up significantly because calamities don’t come knocking.