Optimism Bias : Stock Traders too Suffer from it

A word of caution for all of us.... as situation everywhere is worsening still in the Corona scenario and the vaccine is nowhere in the sight. Many are venturing to go out as many of us suffer from Optimism Bias. 

We see people who are fed up of the lockdown and telling themselves that nothing will happen to them. That's mainly because they haven't experienced any tragedy in their own family or circle. This is Optimism Bias at play. 

It is the belief that each of us is more likely to experience good outcomes and less likely to experience bad outcomes. The key to optimism bias is that we disregard the reality of an overall situation because we think we are excluded from the potential negative effects. So, it's just a psychological trap, nothing else.

Remember a quote from Joseph Stalin, A million deaths is a statistic. But one death is a tragedy. It's like if we read the news that 10,000 people died, it doesn't affect us that way, as a single death of someone we know, does. Because when it's a single death, we get to attach the name, story, and narrative of that person and feel emotional about it, but a million deaths is indifferent to our psyche. This is another psychological trap. 

So, the bottom line is, that no matter how social norms are being relaxed, stay alert, cautious, and extra vigilant, as if it's still an EMERGENCY, because it still is! Stay safe and go outside only if it is a must. And follow all the precautions without fail. Take extreme care.

Well, stock market traders also suffer this bias in their day to day trading. This happens when one gets consecutive profitable calls and one starts feeling that he is the best and that is the time when the market strikes it in a big way to teach the trader a good lesson for the mistake which it omitted. So, as a trader guard against the optimism bias.

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DHFL : Will Creditors get their Dues Back?

DHFL : What Went Wrong?

Dewan Housing Finance Corporation Ltd. was one of the top housing finance companies in India. It is a non-banking finance company, sometimes also known as a shadow bank. The company has an outsized network across the country that caters to many customers within the low-to-moderate income category. DHFL provides its client base with a variety of home equity credit products including loans on homes residential plots construction LAP or loan against property as also mortgage non-residential and project loans. The company has a big presence in 2 tier and 3 tier cities with almost 330 locations and it also has two international representative offices in London and Dubai.

When it was incorporated in 1984, it was originally called Dewan Housing Finance & Leasing and then it was later renamed as Dewan Housing Development Finance, then after to Dewan Housing Finance Corporation. As of March of last year, the Company has 4 wholly-owned subsidiaries 3 joint ventures and 3 associate companies.

What happened at DHFL?

In 2018, when another NBFC, IL&FS, went bust, it alarmed the entire industry. Banks became much more careful about lending their money to NBFCs. But this led to a liquidity crunch since there was limited access to credit. Many NBFCs rely on short-term borrowing to finance long-term lending, which puts them in a difficult spot when there is a liquidity crunch.

In September 2018, after the emergence of the IL&FS crisis, DHFL’s stock also took a beating, by as much as 60%. Then, in January, Cobrapost claimed that the company’s promoters were involved in a Rs 31,000 crore scam to siphon off money. The blog claimed that their primary stakeholders Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan, sanctioned and disbursed astronomical amounts in secured and unsecured loans to dubious shell companies related to them through their proxies and associates, which have in turn passed the money on to companies controlled by the Wadhawans. The blog also mentioned how the money has been used to buy shares/equity and other private assets in India and abroad, including in countries like the UK, Dubai, Sri Lanka and Mauritius. The company denied these claims and later said that an independent chartered accountant’s inquiry found them to be untrue.

The scam has consequences for the larger financial system in India. What generally happens in the industry is that loans are advanced to companies and are secured by not only mortgaging the properties of the borrower company but also by personal guarantees of promoters of companies. By lending to shell companies without due diligence, DHFL has ensured that the recovery of such dubious loans is impossible since the companies or their directors themselves don’t own any assets. This way the private assets acquired by the Wadhawans and their associates by using the funds from these dubious loans are completely protected from any recovery process that may be initiated by authorities under the SARFAESI Act or Insolvency and Bankruptcy Code of India. Thus, the people losing in the process would be the public sector banks, such as State Bank of India and Bank of Baroda, with an exposure of over Rs. 11,000 crore and Rs. 4,000 crores, respectively, foreign banks and shareholders from among the public or investors of DHFL.

Debt recovery is an important system of measurement on which ease of doing business is judged. Such scams, if not identified, resolved and persons responsible punished will only damage India’s standing on the world stage.

DHFL termed the entire incident as a mischievous misadventure by CobraPost.

In the forensic investigation done by Grant Thornton, it found out that the company was siphoning off funds since 2006-07 through 91 fictitious entities operating from a Mumbai branch. In their report, they uncovered frauds of ₹14,000 crores in DHFL’s books, including ₹9,320 crores in the wholesale book, ₹1,707 crore loss in the SRA (Slum Redevelopment Authority) book and ₹3,000 crores of fund diversion in retail loans and according to the report, the recovery of these loans is doubtful.

After CobraPost’s allegations, the government announced that the Ministry of Corporate Affairs will look into these allegations.

The company then announced that they would sell assets and some of its businesses to improve its liquidity. The company also stopped fresh deposits and premature withdrawals of its deposits, with immediate effect, to reorganise its liability management. They also stopped with the renewals of their existing deposits.

The credit rating agencies then downgraded their ratings putting them on credit watch with developing implications. ICRA cut its rating on DHFL’s commercial papers and CRISIL later followed suit by downgrading DHFL’s commercial paper program and short-term deposits.

The mutual fund industry was the largest investor in corporate debt instruments and bonds of the stressed NBFC. Data suggests that around 265 schemes were exposed to DHFL's shares and debt instruments with a total investment of Rs 6,161 crore across 26 mutual fund houses, as on June 06 last year.

The company owed Rs 960 crore to mutual funds as interest payment towards its bonds. However, on 4^th of June last year, the company missed its deadline to make Rs 1,150 crore payment to all bondholders and informed investors, that the payment would be done within seven days. This delay of seven days caused the mutual funds to mark down the net asset values of DHFL bonds by 75 per cent, that means that, if a mutual fund owns DHFL debt – even if it is not the bonds that the company was unable to pay in time – it has to be marked down 75%. UTI Mutual Fund, for example, which owns a large amount of DHFL paper has written down all of that debt completely, meaning it doesn’t expect to get anything back. It led to a 30-40 per cent single-day fall in NAV of schemes that invested in DHFL debt papers.

CRISIL then proceeded to downgrade commercial papers issued by the debt-ridden company to ‘default’ or ‘D’ category from A4+. The rating agency cited the mortgage lender's deteriorating liquidity condition as the main reason for downgrading its rating. It was a little too late as the company had already missed a payment and asked for a grace period of seven days. Meanwhile, the company was scrambling to help meet its Rs 1,000crore plus obligation.

As a result, their stocks fell to double digits, hitting a low of 94.90, which was its lowest since 2013.

The failing of the company will affect all of those that have extended credit to the company. That includes about Rs 50,000 crore from banks, another Rs 30,000 crore from the Life Insurance Corporation, pension funds and more. In other words, this isn’t about just one company failing: it is a danger to the already- troubled banking system.

Rating Agencies: what was wrong?

Credit rating agencies are vital in the financial world in the value chain of credit risk assessment. They rate the creditworthiness of the borrowers and act as intermediaries between borrower and investor to minimise information irregularities about the risks associated with the investment products on offer. Out of our seven rating agencies, two have financial and technology tie-ups with global leaders, while one is subsidiary to a global leader. So, three out of seven companies have access to global best practice.

The global trust in the credit rating agencies had already been declining post the 2008 housing crisis. The rating agencies once again failed numerous investors by giving A+++ rating to IL&FS which triggered an NBFC crisis and therefore a liquidly crunch. The sharp downgrade of DHFL debt put the spotlight on credit rating agencies. The rating agencies are supposed to alert the investors if they see a default coming for the issuers they rate. Defaults have occurred in companies such as IL&FS and DHFL even as their long-term ratings indicated very low to moderate risk of non-payment. CRISIL downgraded DHFLs corporate bonds after they actually missed their interest payments.

One major reason for this crisis can be – ‘rating shopping’. The agencies’ main clientele are the issuers. They work to maximise their customer base by increasing their income from the said issuers. All the agencies have the same clients and hence they have little bargaining power. Most of the times they quote lower prices for their ratings or they might even promise better rating beforehand. They also face the problem of issuers not disclosing critical details. While giving out final rating on an instrument, they also have to be mindful of their clients’ future business opportunities. And on top of that, the system does not permit the agencies to publish the ratings without the issuers' consent. So, if the rating is not as high as the issuer would like it to be, he can essentially go to another rating agency to look for a better rating. This whole system is flawed as it is not fair for the investors who park their life savings in these instruments and then lose it all. This competition has resulted in malpractices and a decrease in the quality of ratings.

Aftermath

The Corporate Insolvency Resolution Process was initiated against the company as per the provisions of the Insolvency and Bankruptcy Code, 2016 with effect from December 3, 2019, by the RBI. RBI asked all its fixed deposit and non-convertible debenture holders to file their claims before December 17 of the previous year.

The company said it won’t make any interest or principal payment to lenders as well as bondholders due to the company being under the resolution process. DHFL said all the rated debt papers of the company were carrying default grade ratings and disclosures on the same had been made to the exchanges.

The creditors of the company were accordingly informed about the commencement of the insolvency process and were requested to submit their claims to the company in the prescribed manner as per the provisions of the Code. The amounts to be received towards the dues by the creditors were supposed to be based on a resolution plan to be approved in due course by the NCLT, Mumbai. The non-banking finance company (NBFC) further said that it is under moratorium and dues to lenders and bondholders will remain in suspension until the insolvency process is completed. Public deposits contribute 7% of the overall borrowing mix of Rs 83,900 crore. Debenture holders have 37% exposure followed by 31% bank term.

RBI had superseded the board on and they referred DHFL to National Company Law Tribunal under the Insolvency and Bankruptcy Code. An administrator was appointed and he was supposed to take stock of assets and liabilities.

DHFL fixed deposit holders do not have the recourse to the debt resolution tribunal was free to apply to the Supreme Court to be part of the committee of creditors.

Under the IBC’s waterfall mechanism, during liquidation debts to secured financial creditors and workmen are to be paid fully before payments to unsecured financial creditors and operational creditors. Fixed deposit holders are unsecured creditors under the priority of claims. The first charge on claims is with secured creditors both lenders and debenture holders and second charge holders will be unsecured.

The promoters of Dewan Housing Finance have given personal guarantees to more than Rs 80,000 crore of loans on the firm’s books The personal guarantees cover various borrowings and include a guarantee on secured non-convertible debenture of Rs 42,344 crore, Rs 31,975 crore worth term loans from banks, Rs 2,435 crore of term loans from NHB and foreign debt worth Rs 2,807 crore. The total debt covered by personal guarantees of the Wadhawan family is Rs 82,949 crore.

If the company fails to get any viable resolution plan and goes for the liquidation or there are dues left after the resolution of the company, the lenders can seek recovery from the individuals who have extended personal guarantee

A successful resolution will help banks and other lenders recover a part of their money and they can then decide whether to also invoke the personal guarantees to recover the full amount. Failure of resolution or liquidation will put more pressure on the promoters and the changes in the Insolvency code will help them get relief from the courts.

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A case of Inspiration : Blindman Behind 500 Crore Company

This narrative of this blind man from birth is worth reading as we can learn a lot from him as being blind has not deterred him from achieving success. We salute the man for showing a path to so many abled and disabled people in India and the world.

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Is Education Abroad is Better than India?

Foreign Education: Pluses & Minuses

In today’s day and age of the internet, in some way or the other, we all have seen snippets of the various education systems around the globe, be it through mass media like our favourite tv series or through the social media like on Instagram or Tiktok. We can find countless vlogs of people showing a day in their lives at their school or even work. So, it is safe to say that we are the most woke and aware we have ever been in history thanks to globalisation.

But how exactly do foreign education systems pan out as against our Indian ways of educating and learning? In this article, I’m doing just that and exploring all the pros and cons that other education systems have over our desi education system. It is important to know the pros and cons and all the differences in the various education systems before making a big financial decision about moving abroad. I will be doing in-depth research and finding out that are the other education systems even better than ours.

In terms of curriculum, Indian schools and universities lag behind a lot. They are always late to incorporate new curriculums. Whereas if we look at foreign universities and schools, they update their curriculums every few years, incorporating new research and therefore offering better and more advanced education better suited for today’s students’ needs. Determining the needs of the future workforce is not an easy task and requires a lot of research and is often done by old administrators. New research keeps coming about better techniques of teaching and learning and the Indian educational organisations fail to implement them and rather stick with their age-old techniques.   

In their approach towards education, most Indian schools and colleges focus more on pushing theoretical knowledge down the Indian students’ throats. Often times the Indian students graduate without any practical experience. If we look at education abroad, they follow a more practical approach and always encourage fresh research other than what has already been done. In India, there is no scope for creativity and personal expression, whereas abroad, creativity and innovation and students’ opinions are valued far more just feeding them pre-processed information. Students are required to memorize everything whereas education abroad happens through practical learning. Students are often told to pre-read and research on a topic before starting it in the classroom which helps them form their opinions before the teacher can influence their thinking abroad. Even though the standard of courses available across colleges in India is getting better, there still seems to be a lack of opportunities for application of skills learned through conceptual understanding and due to this, many students in India struggle to get job placements after graduation. The basic explanation for this problem circles back to the Indian education system emphasis on rote to recollect concepts instead of understanding them. In comparison, schools abroad engage students in active learning through class participation, dialogue exchange, case studies, and practical off- and on-campus experiences that make learning fun and meaningful. Additionally, flexibility to tailor courses to a student’s interest and therefore the freedom to figure on a part-time basis while studying adds to the general appeal of earning a degree abroad. 

Many schools within the US hold tons of weight when it involves universal recognition. The Ivy League may be a great example of this. Attending a school like Harvard, Yale or Stanford offers global name recognition, alongside strong alumni networks that span the world. These networks can help significantly with job offers after graduation or gaining admission to high-quality graduate programs. Even outside of the Ivy League, though, American schools are generally viewed as offering a top-quality education and knowledge to international students.

Students are free to pick up subjects that interest them overseas, and in India, students are often given little to no freedom at all in picking their subjects. Here students cannot change their subjects in the middle of their courses, they have to start over from the next session if they don’t feel comfortable in their chosen field of study. However, students abroad can switch over their majors as and when they feel. They are not conformed in a given subject bundle and study different subjects for example a student doing engineering can also study liberal arts if it interests them. There are limited courses to choose from in the Indian colleges however if we look at foreign universities, they have multiple courses and specialisations to choose from. The options of an Indian student are limited when it comes to picking a course, however, of late new courses are being introduced to get the Indian universities up to speed with their international counterparts.

A section of Indian students who wish to walk the road less travelled is constantly looking to advance their higher studies abroad simply because their desired program isn't widely available within the country. And even if the course is out there, the schools in India lack expertise and accreditation to shape talented students for a far better career path.

Meanwhile, there are a plethora of courses available to international students in countries such as the United States, UK, and Canada. Universities in these countries offer courses in a lot of contemporary and unconventional fields like entertainment, sports and psychology. For instance, a student who wants to learn filmmaking in India has fewer film academies or schools to pick from and they would just be left with a diploma. Whereas the exact same student can pursue an accredited Bachelor’s Degree and study filmmaking in greater depth if the course is pursued abroad.

However, even if a student is interested in pursuing a STEM (science, technology, engineering, and mathematics) field at a university abroad, his options aren’t limited. STEM fields are growing in popularity around the world, and students are more likely to find programs that explore these areas (and even more specific sub-areas) everywhere they look. The UK, in particular, is home to several reasonably priced universities that offer great engineering programs that cover everything from mechanical, telecom and electrical engineering to motorsports, textile and aeronautical engineering.

Coming to research initiatives, research in foreign universities are funded by some of the biggest organizations of the world, such as Google, Microsoft. Meanwhile, in India, research is not given much importance. Students studying subjects particularly in research-centric areas like biology or pharmacy don't receive enough support from Indian colleges in terms of infrastructure and resources. Colleges in America, Canada and Britain offer abundant resources to supply students with sophisticated technologies, equipment and infrastructure to conduct in-depth research. Indian students also mostly choose research courses abroad due to favourable climate, habitat, and in some cases, flora and fauna exclusively found in those specific locations. Hence research initiatives offered abroad are better.

A student studying abroad gets far more exposure due to students of various cultures and backgrounds coming together and thereby creating a diverse environment. However, the education in India hasn’t been internationalized a lot and only a small number of students from the neighbouring countries come and study here thereby not giving much exposure to an average Indian student.

Another important factor to consider here is the ease of admission. Admission to India’s top-ranked institutes is very competitive as lakhs of scholars pass out of school per annum and seats available for admission are quite limited. IIMs, IITs and AIIMS are amongst India’s dream schools for most Indians. The race to secure admission gets far more intense counting on the extent of study and discipline. On top of that, students have to bear the strain of acing entrance exams for certain fields, for instance, the Joint Entrance Exams (JEE mains) for engineering colleges and therefore the National Eligibility and Entrance Test (NEET) for medical colleges. A study revealed that on average, a student has lesser than a 50% chance of securing admission to a highly reputed IIT.

High cut-offs cause even the brightest students to lose their hope of securing admission to a course and college of their choice. And as a result, students with no guaranteed admission need to think through the ultimate option of studying abroad or else they’ll study from a mediocre private college. Eventually, students with great academic standing and enough budget prefer to further their education abroad. Since undergraduate admission at a highly ranked foreign school it seemed to be comparatively easier, an increasing number of scholars from India are choosing to take this big step of leaving their country to study abroad.

This is no surprise that studying abroad is expensive. Not only is the cost of tuition expensive but the living expenses and travel expenses also rake up a hefty amount. While the costs involved should be a factor in a student’s decision-making process of whether to study abroad or in India, it should not be the only factor. The initial costs of a graduate or post-graduate degree can seem expensive and daunting, but students should also consider the return on investment they will receive by means of career opportunities with their degree. If a student chooses a more cost-effective degree of lesser renown, they may save up initially some costs, but in the long run, they might not receive the career boost that the other known colleges might have. Among the most popular studying abroad destinations, in the US the approximate annual expenditure for tuition fees and cost of living is Rs 34 lakh, in Australia, the annual total expenditure is approximately Rs 25 lakh, in the UK it is around Rs 25 lakh and in Canada, the cost is almost Rs 19.8 lakh.

Another important aspect we can consider here is the emigration pathway.  It is one of the top reasons why Indian students, especially at the graduate level, look to pursue a degree abroad. Countries such as the US and Canada offer attractive job prospects post-graduation and their flexible immigration policies allow students to find employment on completion of studies. US National Science Foundation’s Survey reveals that about 80% of students from India and other Asian countries prefer to remain in America after completing their graduate and doctoral studies.

The Indian universities seldom offer scholarships or if they do, they might be limited. Meanwhile, a lot of foreign universities provide numerous scholarships to international students. There are numerous scholarships available, based on merit, subjects taken, course opted for, and on the economic background of the applicant. The scholarships are offered by organizations, the government, universities, and colleges. Even though there is hefty competition for full scholarships that cover the entire tuition fees, partial scholarships are also available. Apart from that, students can also take part in a work-study programmes which makes education more affordable for middle-class students and more accessible.

Universities abroad also pay equal attention to sports and other extracurricular activities which indeed help in the overall growth of a student. Colleges often have sports clubs for amateurs to take part in like flag football, ultimate frisbee, or even modified games of Quidditch. There are theatre clubs also for students to take part in and meet new people and make friends. University life is filled with activities and anyone can find an activity that interests them to take some steam off. Students can also take part in mock UNs and volunteer for various organizations directly. However, if we look at the Indian colleges and universities, they focus little to no attention to extracurriculars. Students have to fund and organise their own events without any assistance from the administration.

Overall, India still has a long way to go when it comes to its education system. There is a lack of premier schools and colleges which makes it difficult for an average Indian student to get into. The syllabus and the curriculum are old and need to be updated. The government has recently come out with the new education policy but the effectiveness of the policy can only be determined after a few years. In conclusion, studying abroad is better in all aspects.

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Stocks included in Banking Index

You must know which banking stocks contributes how much percentage towards the banking index. This is the latest screenshot as of Sep 2020.

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Correct depiction of Life in 2022 by a Painter

The people with super talents are blessed and they can see what a normal person cannot see. Probably, this is what is referred as Trinetra. Hats off to the painter for his vision and anticipating COVID 19 type situation way back in the 60's decade.

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How to Protect your Child Eyes during E-classes?

E classes can have a toll on children eyes and thus you need to be careful with what is happening to their eyes during the online classes.

This post is equally valid for stock traders as staring on a mobile app or screen is equally taxing for the stock traders and they should take adequate protection for their eyes or best use the intraday call today and avoid that constant tension and stare on-screen as targets are hit without any hassle.

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High Security Registration Plate (HSRP) on Vehicles

You must read this to know about the requirement of High Security Registration Plate on Vehicles in India and one will require to take action now to get compliant with the regulatory requirements.

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