Baap of Chart, PSUs, Subscriptions & more

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Baap of Chart gets a call from SEBI

Flashing lights. Pulsating music. An announcer urging the crowd to applaud loudly. And then, the grand entrance — a man in a suit, surrounded by bodyguards, walks down the hall towards the grand stage. His arms are outstretched to ‘knock palms’ with the people in the audience.

Mohammad Nasiruddin Ansari aka Baap of Chart (BOC), a YouTube Finfluencer, had arrived. And he was going to ‘educate’ people on how to trade stocks and become rich!

We’re not making this up. There’s an actual video of this event.

Now the problem with this kind of flashy stuff is that it puts you in the spotlight. People notice. People talk. And since you’re out there claiming ‘trading and investing expertise’, the videos land up on the regulator’s desk too. In this case, SEBI’s radar. And then, the house of cards might just begin to fall.

See, SEBI has one big rule for folks in the investment world — don’t tell others what stocks they should buy or sell if you don’t have a licence. It’s as simple as that. If you flout this, you’re a goner. Now they do make some exceptions. For instance, if you decide to talk about stocks, trading, and mutual funds, in newspapers or on a media platform such as YouTube “which is widely available to the public”, that’s fine. SEBI might give it a pass. You simply can’t give advice one-on-one.

Naturally, when SEBI got wind of BOC’s antics, they had to check — Is Nasir doling out investment advice in the garb of education? Is he flouting the investment advisor rules?

So they asked Nasir, “What’s this business you do exactly?”

And he replied, “Well, I simply coach people. I don’t tell them what to buy or sell. I don’t tell them when to buy or sell”

Okay. That’s fine. But was it true?

SEBI says no.

According to them the modus operandi was straightforward. First, Nasir and his team created an aura that the Baap of Chart was a Futures & Options (F&O) trading wizard. Then they could sell people his courses with the claim that they’d be able to replicate his success and pocket a hefty fee for that. But then, they’d create a private group for those who signed up. This is where the buy and sell recommendations would happen. They’d charge a fee for that too. Some of the fee was charged upfront. Some of it as a profit-share. And SEBI got WhatsApp screenshots to prove it.

The bottom line was that SEBI found BOC and a related firm called Golden Syndicate made a cool ₹17 crores by essentially posing as an investment advisor.

That was enough. BOC was going down.

But wait…there’s more. Because when we told you there’s one big rule, we forgot to mention there’s one big sub-rule too — Don’t promise guaranteed returns. Stock markets are random and if you think you can promise a certain return, you’re lying.

And what did Nasir and BOC do?

They promised returns, of course! Here’s something from a WhatsApp chat (edited for clarity) —

“Loss Recovery Strategy. Minimum capital should be ₹3 lakhs to ₹10 lakhs. Every month, profit is possible: minimum ₹3 lakhs to ₹6 lakhs and on expiry day minimum ₹5 lakhs. Maximum risk ₹30,000 to ₹40,000.”

Yeah, you just can’t say things like that. Even if you have an “Investment Advisor” licence!

But that’s not even the worst part. And I promise this will blow your mind.

Now SEBI wanted to see for itself how great Nasir’s strategy was. I mean, if he was claiming sure-shot returns of 20–30% every month, he must’ve been swimming in cash himself, right? He would be beating the market hands down and might be the greatest trader to have ever lived in India!

But, the reality was starkly different. He’d actually lost a staggering ₹3 crores in his personal accounts. Yup, SEBI pulled out the full ledger of his trades between January 2021 and July 2023 and that’s the number they got. Nasir’s strategies were all a scam. His ‘sureshot’ strategies seemed to be a sure way to actually lose money. And in reality, he was pulling the wool over people’s eyes and using their money to fund his own losses.

And that folks is why SEBI, in an interim order, has asked BOC to pay back the ₹17 crores and suspended them from trading activity till further notice.

But hey, this isn’t the first time a “finfluencer” has been found guilty of offering fee-based advice without a licence. A few months ago, SEBI asked another popular trader PR Sundar to return the ₹6 crores he charged his clients.

So why do people keep falling for this? Even after SEBI’s research proves that 9 out of 10 traders who dabble in the F&O market lose money. Why do it?

Well, one reason could be the glitter of quick money.

For instance, let’s assume that the Nifty 50 index is trading at 19,000. The market has been on a tear and you read everywhere that experts believe that it will head higher. So you buy something called a ‘Call Option’. Without getting into the technicalities, how this works is that you first pay a premium. If the market heads north, you can cash out and pocket the gain. If the market falls, you’ll only lose the premium. So you buy 1 lot of Nifty shares. The options market works in lots and each Nifty lot has 50 shares. Anyway, you check the premium and it shows ₹200. Now the total premium you shell out will be just ₹10,000 (200*50). But, you get leverage. The overall value of this contract you’ve bought is actually ₹9,50,000 (19,000*50).

Now imagine the Nifty shoots up to 19,500 within a week. The actually value of the contract is suddenly ₹9,75,000. Sell the option and you could pocket a sweet ₹25,000 in just a week. And you only paid a premium of ₹10,000 in the first place.

That sure seems quite lucrative, doesn’t it?

So yeah, you might see that SEBI stat saying 9 out of 10 people lose money doing this. People might keep losing their ₹10,000 premiums over and over again. But you think, “Why can’t I be the 1 person who makes money?” And then you come across videos where a trading ‘expert’ claims sure shot profits and you get sucked right in. Especially when the so-called expert says that he guarantees you can earn more profit than your salary with his strategies. And that if you lose money, you can “slap him during the [trading] workshop.”

Yup, slap him. That’s what Nasir said.

So can you blame the folks who believed him?

Now, some brokerages like Zerodha* have tried to fix the problem to some degree. They realized that these finfluencers often posted fake screenshots of their trading accounts to bait victims. So they introduced “Verified P&L [Profit and Loss].”

Granted just having a ‘verified’ badge won’t always cut it. People could still doctor videos and screenshots and include the badge. So, to circumvent this issue, Zerodha created a link to the P&L instead. And generating the P&L would be in Zerodha’s hands. That means, instead of screenshots that can be doctored, genuine traders could share a ‘link’ to their P&L. People could trust this more readily.

So this way, if people had decided to ask Nasir to share his “Verified P&L” (from Jan ’21 to July ‘23), they mightThe government wants money from PSUs?

The government wants money from PSUs?

The Indian government makes money in different ways. Its coffers clink when you pay your income tax or indirect taxes like GST (Goods and Services Tax), customs or excise duties. These taxes are the primary source of revenue. And then there’s also the money it gets from divestments. Simply put, the government owns a stake in many companies such as the State Bank of India — and they might choose to sell a part of their stake in these public sector undertakings (PSUs).

And every February, the government makes an estimate of how much revenue it’ll make in the upcoming financial year and then outlines its expenses accordingly. For instance, for FY24 the government hopes to rake in ₹33.61 lakh crores in tax revenue and get around ₹51,000 crores from disinvestments.

Now remember, these are just estimates. A lot of things can go wrong during the year. The economy can get worse and people and businesses might make less money. So the tax revenues could take a hit. Meanwhile, the stock market could go through some pain and the government may not find takers for PSU shares it is trying to sell.

But, the expenses have to be met as promised. If they don’t, they could face some backlash from the public. And this means the fiscal deficit starts to widen. Simply put, it’s a situation when the government spending is more than its earnings. And to bridge this gap, they might have to resort to borrowing more money. That’s not a good thing because it shows that the government isn’t smart enough about its estimates. But also, if the government borrowings keep rising, lenders will start demanding a higher interest rate. They might deem the whole business risky.

So yeah, it becomes quite a tricky situation.

And it seems like that’s where the Indian government finds itself today. See, the tax collections are good so far. Everything seems to be on track as the economy chugs along. But the problem is in the divestment department. As of now, only 16% of the target has been met. Blame it on the speed bump in unloading its stake in IDBI Bank or whatever, but, the government is falling behind.

But they still have to stick to their spending promise without resorting to borrowing money, right? So what can they do?

Well, there’s a secret weapon — dividends!

You see, there’s one advantage of the government owning shares in companies. When the companies make profits, they might choose to share it with shareholders. That distribution is called dividend. And since the government owns a hefty stake and basically controls 70 PSUs listed on the stock exchange, it might simply tell them, “Hey, we’re in need of some cash. You’re making profits. So why don’t you send some money our way? Pay us dividends.”

And media reports indicate that the government is doing just that right now. It’s urging PSUs to cough up dividends.

Now here’s the thing, there are already rules in place that tell PSUs to pay a 30% dividend on profits after tax. Or 5% of their net worth. Whichever is higher. But that’s just the bare minimum. If a company makes quite a bit of profit but doesn’t have too many opportunities to invest it for growth, they might simply add it to the cash pile. They may not share. For instance. these PSUs had built cash reserves of a whopping ₹2 lakh crore in FY13. They weren’t investing it into big growth opportunities either and it forced the government to ‘demand’ dividends.

Also, if you think about it, if PSUs start paying higher dividends, it might attract investors who like these payouts. Brokerages are already gung-ho about Coal India’s profits and cash reserves this financial year (FY24). They think the company could end up paying its highest-ever dividend. And they have a ‘buy’ rating on the stock. That might nudge investors into buying the stock. The value of the company could zoom. And eventually, the government could use that opportunity to even pare its stake. Everyone wins.

But there’s a flip side to this practice too.

Remember the furore over Hindustan Aeronautics Ltd (HAL) in 2019? This PSU was forced to borrow ₹1,000 crores just to pay staff salaries. It was the first time in its history that it had to resort to something like this. And HAL executives blamed the government. They pointed out that while HAL’s revenue grew by around 18% in four years, the quantum of dividends had increased by nearly 125%. They had to dig into their reserves for this and it depleted everything. The company was on the brink of collapse. Now remember, this is a company that’s quite crucial to India’s defence plans and it still suffered such a fate. And it’s not just HAL but many other struggling PSUs that might encounter this problem too.

So yeah, it’s a fine line between using the idle cash wisely or squeezing out dividends when the PSU can barely afford to make ends meet. It’s something the government will have to keep in mind.

Money Tips: Switchboards and subscriptions

Our life now revolves around subscriptions. You have one for the gym, another for meal plans. Even for regularly stocked up grocery items. And we needn’t talk about our subscriptions to streaming platforms simply because our entertainment revolves around these apps now.

Oftentimes, when you have multiple subscriptions, there’s a chance that you aren’t using all of them. And if it’s an annual plan then you could just buy and forget.

Let’s imagine that you prefer watching shows on Netflix to those on Amazon Prime. And you might watch shows on the latter only for about a quarter of the year. Won’t it be wise to subscribe to the streaming service only during those months during which you use it?

Now, although an annual subscription may seem cheap, it may not actually be so if you don’t make full use of it. It’s like turning on all the switches on the switchboard and not running any of the devices plugged into it. You still have to pay the cost of standby power no? It’s an unnecessary expense really.

So, switching to monthly subscriptions and reviewing them regularly can be a great way to manage your expenses as you can simply pull the plug off your subscriptions during those months in which you feel you won’t be needing them.

Make sure to turn off the auto-renew facility though. Else, this advice may not be of any noble use.