Stock Shastra

The Banking sector in India remains an investment favourite for most of us. This is but natural, given its excellent performance in the past decade. But, when it comes to understanding the structure, we find it too complicated! Most of us even shy away from it.

MoneyWorks4me thus brings to you a simple analysis of the Indian Banking Industry in two parts.

This first article will help you learn the structure of the Banking Industry and what is its business model?

Image via Wikipedia

Affair between the Stock Market & RBI Monetary Policies
Is it so? So, what do you think, is there actually an affair between the two? Who is the more dominating one? Does a change in one’s mood immediately affect the other? Or are they like the timepass couple, quite indifferent to each other.
Before you think this is like some relationship consulting blog, let me confirm it is purely a financial one. So, let’s get back to our couple- monetary policies & stock market.
Does a slight twist in the monetary policies affects the stocks or is it the other way?
We all probably read in today’s paper that our Finance Minister Mr. Pranab Mukherjee has asked banks to cut interest rates and provide cheap credit so as to boost the economy. This is a way in which cheap credit is made available to the public in hand.
But how does a bank [...]

Retained Earnings V/S Dividends????
Which one do you choose? A company that declares dividend or a company that retains the profit???
This is always a tricky question & there are always different views on this topic.
Let’s see what they are:
The general perception people have is that by not paying dividends or not increasing the dividend policy the company is doing no good for the investors. This may or may not be true.
The good side about retaining the money is that the company may be investing the money in a fruitful project which may give you better returns a little later. The company may have intentions of launching a new product/service or building a new plant or probably is going in for expansion.
And the bad side??
There a few cases when a company does not benefit from the retained earnings. When does that happen?

When the management piles up cash far beyond its present or [...]

The Debt Factor – ROIC
Why should you look at a company’s ROIC?
Let s start with first answering what is ROIC?
ROIC is a financial measure that quantifies how well a company generates cash flows relative to the capital it has invested in the business. Here, the investment represents pool of funds supplied by its shareholders & the lenders.
ROIC – Earnings before Interest & Depreciation/ Total Capital
Let’s see what does Total Capital mean??
Total Capital = Equity Capital + Debt Capital
Equity Capital:
Equity Capital is the money contributed by the promoters and the other shareholders. Equity holders are basically the owners of the company.
Debt Capital:
Debt Capital is the money borrowed from banks/ other lenders carrying an interest charge on it.
Hence, the total capital of the firm is the sum of this equity capital + debt capital.
Now, why are we stressing on ROIC here??
ROIC is a true measure of the company’s returns and gives [...]

Imagine: You are on a Safari trip to Jim Corbett, high on spirits you get down to cherish the serene environment and you see a bear approaching what do you do? Tuck in your arms and play dead. Fighting back can be extremely dangerous. Similarly in a bear market it can be awfully risky because it is quite difficult for an investor to make stellar gains, Right isn’t it? Wait for a moment, this is not really the truth! This is the most common myth you’ll find all around you! Sounds strange and contrary to the common belief? Yes it does because this is how most of us feel during bearish times.
But what is a bear phase? Isn’t it just a downturn in the market or is it something else? Let me help you know it better. Think about this: you have been dreaming about that designer pair of jeans [...]