What is Front Running in Stock Market

Front Running:

Front running is a term referred in Stock Market ecosystem. It refers to the practice where a broker or a trader tries to benefit personally from an advance or non-public knowledge of a large pending transaction which is expected to significantly influence the price of a stock.

Here’s is an example of this practice:

For. e.g. A Mutual Fund house is about to place a large order for buying a security. An internal analyst or a trader who is having an advance knowledge of this transaction tries to benefit from this transaction.

He purchases some stocks of that script on his personal Demat account and then the mutual fund house places the order. The large purchase order from the Mutual fund is likely to drive the stock price upward, thus helping the analyst or trader gain personal profit.

Another example of this can be a scenario where a broker is sent an order to place a large order to buy a stock say ABC company, especially by an HNI or large institutions. The Broker may try to make use of this information by first purchasing some stocks of ABC Company on personal account and then will subsequently execute the large order thus pocketing some profit out of this advance and non-public knowledge of the transaction.

This is an illegal and unethical practice as the broker or trader acted on an information which was not in public domain yet.

Auto Sector to back on growth path in 3-5 years frame.

Year 2019 was the worst performing year for the Auto Sector in India. With such a slowdown, almost every automobile company either in 2-wheeler segment or 4-wheeler segment, everyone reported a decline in the volume of vehicles sold compared to the corresponding season in the previous year.

But starting 2020, things are expected to change. In 2019, Indian Government had started pushing for Electric Vehicles and was aiming to move out of any non-renewable energy based vehicles 2-wheeler or 3-wheelers by 2025.

Electric Vehicle. Image Credits

Due to this push, many companies had started their activities towards the development of Electric Vehicles in their Research and Development centers. Though nothing had materialized in 2019 since it was just a beginning, but things are soon expected to pickup in upcoming 3-5 years timeline.

Automotive maker Mahindra and Mahindra had been early starter and has been actively investing towards Electric Vehicles via Mahindra Electric Mobility Ltd, which was formerly known as Reva. In 2020, many news have started pouring in where in auto makers like Tata Motors, Maruti Suzuki, Hyundai have declared their launch of upcoming models in EV category.

This push is expected to be a game changer for the revival of Automotive Industry in India which shall rise back and the benefits shall pour in, in the upcoming 3-5 years investment time-frame.

Not only car makers would benefit from this development, Automotive parts manufacturers who are suppliers to Electric Vehicle manufacturers are also going to benefit from this revolution.

Thus keep an eye of such EV related business activities and analyse the best companies with their fundamentals and growth potentials and take a judgement for investment to reap good benefits.

Greaves Cotton diversifying business to beat Auto Sector slowdown

Amidst slowdown in Indian auto sector, many auto makers have announced their plans to shutdown factory for few days to cut the existing inventory levels. But there seem to a player catering to Auto sector which is already executing its plan to steer out its business from the slowdown.

Recent slowdown in the auto sector and the expected disruption due to introduction of BS-VI emission norms has not deterred Greaves Cotton which continues to diversify its business to allied areas to remain less affected.

Greaves Cotton has entered into business areas like Manufacturing of Engines for Marine vehicles, Defence and Construction equipment. It has also forayed into sales of vehicle spares and parts. It has also started providing third party after-sales servicing of 3 wheeler vehicles.

Not only the above, it is also betting on the disruptive areas of auto sector like Electric Vehicles. It had acquired over 81% stake in an Electric two wheeler maker Ampere Vehicles for Rs. 120 crore. With this agreement, both the firms plan to leverage each other's synergies. Ampere Vehicles has the technology and platform, while Greaves Cotton has access to Market and large distribution network which can help them grow.

This diversification doesn't appear to be any sudden decision due to recent slowdown. The company has reduced its automotive engine contribution from 60% to 40% over the last 3 years. This transformation has not impacted the company since revenue has grown at an annual rate of over 10% each year and the board is confident on the growth prospects of the organization.

Mutual Fund Pick - Reliance Large Cap Fund - Analysis

Hey friends,

With the beginning of new financial year 2019-20 from April 1st, 2019, I started my search for some good mutual funds to invest in during the coming financial year.

This time I was searching specifically for large cap fund because of 2 reasons:

1. As per Livemint analysis, Nifty 50 grew 14.93% in FY19.
2. While at the same time, BSE Small Cap and Mid Cap Indices saw a fall in 11.57% and 3.03% respectively.

Hence at this point in time, my safest bet would be on Large Cap Funds.

I studied couple of Large Cap funds and found Reliance Large Cap Fund to be decent and good.

Let me tell my analysis on this fund:

1. It's Crisil rank was found to be 5 Stars. This means, this fund has historically performed well hence can be relied upon.

2. If we see the percentage returns compared to Nifty 50 over last 5 years, we find that it had always outperformed the growth percentage compared to Nifty 50. Additionally, the pattern is almost in sync without much deviation. Since Nifty 50 Index is assumed that it will grow well in future, we can also predict that the fund whose pattern is in sync with Nifty 50 would continue to grow in same pattern.

3. If we check the Year on Year returns percentage, it shows that it had consistently given returns close to around 15% and more which is very rare to find.

 

4. On the same above image, you can also find that Annualized Returns of this fund were always higher year on year compared to its category average return percentage. This means fund managers of this fund are doing good job compared to funds in similar category.

Hence overall this fund turns out to be a reliable fund to invest on if you are looking for Equity funds Investment for a longer period of investment time frame of probably 3-5 years. 

This was my quick analysis over this fund. Do you let me know your thoughts on this.

Stock Market Abbreviations - Full forms of key terms

1. NSDL - National Security Depository Limited

2. CSDL - Central Depository Services (India) Limited

3. BSE - Bombay Stock Exchange

4. NSE - National Stock Exchange

5. CNC - Cash N Carry

6. BTST - Buy Today Sell Tomorrow

7. MIS - Margin Intraday Squareup

8. IPO - Initial Public Offering

9. CO - Cover Order

10. BO -  Bracket Order


Some Other Related Abbreviations:

1. ETF - Exchange Traded fund

2. ELSS - Equity Linked Saving Scheme

What is a Mutual Fund

Mutual funds are investment strategies that allow you to put your money together with other investors to buy a collection of shares, bonds or other securities that can be difficult to recreate on your own.

Mutual funds are investment vehicles that pool money from multiple investors to purchase a collection of securities managed by a portfolio manager. Portfolio Manager creates portfolios for investment with a pool of money and often have different types of investment goals.

Shares in a mutual fund are usually purchased at the current Net Asset Value (NAV) of the fund per share. Investors buy shares in the mutual fund, which in turn gives them a claim to the fund's assets (the mutual fund profits). As soon as investors buy in a mutual fund, their money is used by the fund manager to invest in different securities with certain risk and return goals - such as long-term growth or fixed income.

Investors buy shares in the fund and the mutual fund companies get that money to invest on their behalf. One mutual fund may contain hundreds of shares - reducing the risk of loss for investors, if any of the individual funds are poorly managed.
 

Most mutual funds are divided into one of the 6 main categories -

1. Equity Funds
2. Debt Funds
3. Hybrid Funds
4. ELSS Funds
5. Money Market Fund
6. Index Fund

Mutual funds provide investors with the opportunity to purchase professionally managed and diversified securities that can be industry-specific. Mutual funds may charge a fee if investors transfer their shares to another fund within the same fund group. In addition, since you own a portion of the mutual fund, you also pay ongoing expenses to cover the cost of operating the fund, which includes investment advisory fees (payment of the fund manager and research staff), as well as transaction costs associated with the purchase and sale of securities in the fund.

10 Stocks which tanked the most in September

This September turned out to be the most tough time of this year for the stock market investors with multiple stocks experiencing price correction along with many stocks plummeting over news surfacing the media creating a negative speculation and sentiments among the investors.

I have compiled a list of 10 Stocks which lost most of its market value in September in terms of Percentage. Below is the list:

Price as on Today (29-Sep-2018)

Among these list of companies, 2 companies tanked the most with Infibeam losing market value by 75% and Dewan Housing Finance Corporation losing 59% of its market value.

Apart from these two, many Banking & Financial Sector firms were also affected including Yes Bank, Reliance Capital, Central Bank of India, SREI Infrastructure Finance.

If you are planning to buy those stocks thinking that it is now undervalued, Do make sure to do full risk analysis. It is not sure as to how much more the stocks might fall further. 

Buying a falling stock is like catching a falling knife. 

You will get hurt!

Before buying any of the stocks which have fallen a lot, do make sure to perform all kind of fundamental analysis on the stock and assess its current valuation with short and long term projections.