AI in Online Trading – How Artificial Intelligence is Changing Stock Markets

Earnings per share is an important metric which is used to identify a company's earnings. It is calculated by dividing a company's profit by its common stock’s outstanding shares. This is considered to be a significant factor as it provides a brief insight into the company’s profitability.

In simple terms, EPS tells how much money a company makes for each share and is primarily used to measure the company's financial health. Increasing EPS reflects higher profitability and vice versa.

How is EPS Calculated?

Here is how EPS is calculated:

EPS = Net Income - Preferred Dividends / End-of-period common shares outstanding

For instance, a company ABC Ltd has a net income of Rs 12 lakh and announces 2 lakh as preferred dividends and has 5 lakh common shares outstanding (weighted average).

Hence the EPS of the company ABC ltd as per earnings per share formula would be:

EPS = Rs (1000000 - 200000)/ 500000

= Rs 2 per share.

You may not know but the company’s balance sheet and income statement are based on EPS calculations. It is recommended to use a weighted average number of outstanding shares as the actual number of shares may vary over a period of time.

It should be noted that the dividends earned on cumulative preferred stocks and non-cumulative preferred stocks affect the EPS results differently. For example, the dividend on cumulative preferred stock for the current period is subtracted from the net income.

Understanding EPS

The EPS is considered as one of the important factors to identify a stock’s price. It is also an essential component used for calculating price to earnings P/E ratio, which measures a company’s value as a factor of its current share price relative to its EPS.

In P/E ratio, the E stands for EPS. If you divide a company’s stock price by its EPS, investors can calculate the share value in terms of how much the stock market can afford to pay for each earned Rupee.

Types of Earnings Per Share (EPS)

Earnings Per Share (EPS) is a key financial metric that indicates a company's profitability on a per-share basis. It is calculated by dividing the net income of the company by the number of outstanding shares. EPS can provide valuable insights for investors and analysts regarding a company’s financial health. Here are the main types of EPS:

1. Basic Earnings Per Share

Basic EPS is the simplest form of EPS calculation. It is determined by dividing the net income available to common shareholders by the weighted average number of outstanding shares during a specific period.

Key Points:

• Basic EPS does not account for convertible securities, options, or other dilutive instruments.
• It is a straightforward measure of profitability per share and is widely used in financial reporting.

2. Diluted Earnings Per Share

Diluted EPS provides a more conservative view of a company’s earnings per share by accounting for the potential dilution that could occur if all convertible securities were exercised. This includes stock options, convertible bonds, and preferred shares.

Key Points:

• Diluted EPS gives investors a better understanding of the earnings potential of a company if all convertible instruments are exercised.
• It’s particularly important for growth companies that might issue stock options to employees or have convertible debt.

3. Adjusted Earnings Per Share

Adjusted EPS is calculated by taking the basic or diluted EPS and adjusting it for one-time items, non-recurring expenses, or extraordinary gains/losses. This provides a clearer picture of ongoing profitability by eliminating noise from irregular items.

Key Points:

• This type of EPS helps investors focus on the core profitability of the company without the effects of unusual items.
• It can be particularly useful for companies undergoing significant changes or restructuring.

Importance of Earnings Per Share

Earnings Per Share is an important indicator for investors and analysts, providing insights into a company's profitability and financial performance. Here are some key reasons why EPS is significant:

1. Measure of Profitability

EPS serves as a direct measure of a company's profitability on a per-share basis. It allows investors to assess how effectively a company is generating profit relative to its outstanding shares. A higher EPS indicates a more profitable company, which can be attractive to investors.

2. Comparative Analysis

EPS is commonly used to compare the profitability of companies within the same industry. Investors often look at the EPS of competing firms to determine which company is more financially robust. This comparison can help in making investment decisions and identifying potential investment opportunities.

3. Investment Valuation

EPS plays a crucial role in calculating other important financial ratios, such as the Price-to-Earnings (P/E) ratio. The P/E ratio is calculated by dividing the market price per share by the EPS. This ratio helps investors determine whether a stock is overvalued or undervalued compared to its earnings potential, assisting in making smart investment choices.

4. Dividends and Shareholder Returns

Many companies use EPS as a basis for determining dividend payouts. A company with a stable or growing EPS is often more likely to pay dividends, making it attractive for income-focused investors. EPS growth can indicate a company’s ability to return value to its shareholders through dividends and share buybacks.

5. Impact on Stock Price

Investors and analysts closely monitor EPS as it can significantly influence a company's stock price. Positive earnings reports that show an increase in EPS can lead to a rise in stock price, as they may indicate strong financial health and future growth potential. Conversely, a decline in EPS can lead to negative sentiment and a drop in stock prices.

6. Indicator of Future Performance

Trends in EPS over time can provide insights into a company's growth trajectory. Consistent growth in EPS is often viewed as a sign of a company’s ability to generate profits and sustain its business model, making it a key indicator for long-term investors.

Limitations of Earnings Per Share

Although earnings per share are known to be a potential financial tool, investors need to understand that EPS has its share of drawbacks.

Here are the limitations of earnings per share:

• Most business owners can manipulate EPS by minimizing the number of outstanding shares by buying back their shares.
• EPS per share does not capture the performance of a company. However, many such attempts are completely apt for short term which hampers the venture of the business.
• Since EPS does not consider inflation, the growth indicated by it may not be accurate in the first place. For example, the overall price of goods and services also increases.
• Cash flow is an important term when it comes to measuring a company’s ability to repay its debt. However, cash flow is not factored in EPS calculation which means a high EPS may still prove ineffective for gauging a company’s solvency.

Conclusion

Earnings Per Share is a vital financial metric that provides valuable insights into a company’s profitability and financial performance. Understanding the different types of EPS, such as basic, diluted, and adjusted EPS, is crucial for investors when evaluating a company's financial health. Additionally, EPS serves as an essential tool for comparative analysis, investment valuation, and forecasting future performance, making it a key component in the decision-making process for investors.

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Development banks are specialized financial institutions. They provide medium and long-term finance to the industrial and agricultural sector. They do term lending, investment in securities and other activities. They even promote saving and investment habit in the public.

The Narasingham committees aid to perform only the promotional and refinancing role. Specialized development financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the Reserve Bank, were set up to meet the long-term financing requirements of industry and agriculture.

OBJECTIVES

The objective of development banks in the growth of the economy are:

• Increasing capital formation that can contribute towards the growth of economic development.
• Ensure that the investors and entrepreneurs are induced by careful allocation of material and human resources.
• Development activities are undertaken.
• Ensuring that industrial units are promoted in order to fill the gaps in the industry structure. Healthy projects should have enough financial and technical services in order to make the projects work.

FUNCTIONS

• For their financial and social development, the increment advances and investments to its creating partner nations.
• They provide specialized assistance for the arranging and the usage of improvement tasks and programs and for financial advisory services.
• For development, they promote and encourage public and private capital.
• They respond to demands for help with planning development approaches and plans of its expanding nations.

ROLE OF DEVELOPMENT BANKS

1. Providing Funds

The persons who have the capability of starting a business but does not have requisite help approach to financial institutions for help. These institutions help a large number of persons for taking up some industrial activity.

2. Promotional activities

The promotional role of development banks is helpful in increasing the development of a country. They create a new class of entrepreneurs and help the weaker sections of society to be a part of industrial culture. With a view for a long term benefit to social development, banks have new capital schemes which provide financial assistance to the novice entrepreneurs. They help in covering the expense and manpower resources for undertaking the exercise of starting a new unit.

3. Assistance of Backward Units

The development bank encourages rustic and provincial development. They give money to beginning organizations in reverse zones. Likewise, they help organizations which are in the venture in less-developed regions.

4. Employment Generation

Financial institutions have helped both direct and indirect employment generation. They have employed many people in their offices. These institutions help in creating employment by financing new and existing industrial units.

5. Accelerating Industrialization

The setting up of more industrial units will generate direct and indirect employment, make available goods and services in the country and help in increasing the standard of living. Financial institutions provide requisite financial, managerial, technical help for setting up new units.

6. Development of Housing Sector

Development banks provide funding for the development of the housing sector. It refinances banks and financial institutions which provide credit to the housing sector. It promotes and develops housing and financial institutions.

7. Agriculture and Rural Development

It organizes the working of all monetary establishments that give credit to farming and rural development. Development banks like the National Bank for Agriculture and Rural Development (NABARD) which give credit to the agriculture and furthermore for country advancement exercises.

8. Improve Foreign Trade

It gives Overseas Buyers Credit to purchase Indian capital merchandise. Likewise, urges abroad banks to give account to the purchasers in their nation to purchase capital products from India.

9. Revival of Sick Units

Development banks help to resuscitate (fix) wiped out units. It encourages modernization, rebuilding, and broadening of wiped out units by giving credit and different administrations. The public authority of India (GOI) began the Industrial Investment Bank of India (IIBI) to help wipe out units. IIBI is the principal credit and recreation foundation for a restoration of wiped out units.

10. Contribution to Capital Markets

The development bank helps in the growth of capital markets. They invest in equity shares and debentures and mutual funds of several companies listed in India.

Some of the Development Banks in India

Industrial Finance Corporation of India (IFCI): this is for providing medium and long-term credit for the needs of industrial units.

Industrial Credit and Investment Corporation of India (ICICI): it promotes private industry concerns in the country and was set up as a private sector development bank.

Industrial Development Bank of India (IDBI): the IDBI’s it organizes the activities of other development banks and term-financing institutions

Industrial Reconstruction Bank of India (IRBI)’: it provides financial assistance as well as to revive and revitalize sick industrial units in both of the sectors.

Small Industries Development Bank of India (SIDBI): With a view to ensuring a larger flow of financial and non-financial assistance to the small-scale sector.

State-Level Industrial Development Banks:(SFCs and SIDCs): there is a combination of financing agencies and industrial development banks, focusing on backward regions for the development of medium and small-scale industries in respective states.

कीमती धातुओं के भाव मे निचले स्तरों से आया सुधार, सप्ताह के अंत तक नहीं टिक पाया और भाव मे बिकवाली का दबाव देखा गया। घरेलु वायदा सोना 48374 रुपय प्रति दस ग्राम के ऊपरी स्तरों को छूने के बाद 1000 रुपय टूट कर 47300 के स्तरों पर कारोबार किया। घरेलु वायदा चाँदी भी 70700 प्रति किलो के ऊपरी स्तरों को छूने के बाद, 2200 रुपय टूट कर 68500 रुपय पर पहुंच गई। हालांकि पिछले सप्ताह कीमतें सपाट रही है। डॉलर इंडेक्स में चार दिन की गिरावट के बाद गुरुवार को तेज़ी आई जिससे सोने में गिरावट रही।

सिल्वर इंस्टीट्यूट ने बुधवार को कहा कि चाँदी की वैश्विक मांग 2021 में बढ़कर 1.025 बिलियन औंस हो जाएगी, जो कि आठ साल में सबसे अधिक है, क्योंकि निवेशकों और उद्योग ने चाँदी की खरीद को बढ़ाया है। कोरोनोवायरस प्रकोप ने निवेशकों के बीच चाँदी के भंडार में तेजी ला दी है, जिसे सोने की तरह पारंपरिक रूप से धन संचय करने के लिए एक सुरक्षित निवेश के रूप में देखा जाता है।

सिल्वर इंस्टिट्यूट के मुताबिक बार और कॉइन की मांग 257 मिलियन औंस तक बढ़ने का अनुमान है। इंस्टिट्यूट ने औद्योगिक मांग मे पिछले साल की अपेक्षा 9 प्रतिशत वृद्धि का अनुमान लगाया है। लेकिन माइन से चाँदी की मांग की अपेक्षा आपूर्ति अधिक रहने का अनुमान भी है जिसमे सिल्वर ईटीएफ की मांग को शामिल नहीं किया है।

महत्वपूर्ण तकनीकी स्तर:

इस सप्ताह अप्रैल वायदा सोने के भाव सीमित दायरे मे रहने की संभावना है और इसमे 46700 रुपय के निचले स्तरों पर समर्थन तथा 47700 रुपय के ऊपरी स्तरों पर प्रतिरोध है। मार्च वायदा चाँदी के भाव मे हल्की तेज़ी रहने की सम्भावना है और इसमें 67000 रुपय पर समर्थन और 71000 रुपय पर प्रतिरोध है।

प्रमुख आंकड़े:

बुधवार को अमेरिका से जारी होने वाले रीटेल सेल्स और फ़ेडरल रिज़र्व की बैठक प्रमुख है।

BSE - BSE Exchange (Bombay Stock Exchange), India’s largest stock exchange by a number of companies listed. The Bombay Stock Exchange was established in the year 1875 as the first stock exchange in Asia. Today BSE has over 5000 companies listed on it, the highest in any exchange around the world.

Worlds two leading global exchanges, Deutsche Bourse and Singapore Exchange are strategic partners of BSE. BSE offers to trade in Equity, Debt Instruments, Derivatives, Mutual Funds, SME Equity, SME IPO. The S&P BSE SENSEX is India’s most widely tracked stock market benchmark index.

BSE also offer services including risk management, clearing, settlement, stock trading data services, IT services and solutions, licensing index products such as the S&P, BSE SENSEX and financial & capital markets training.

BSE Limited has the following strengths 1. Strong brand recognition with a track record of innovation 2. Diversified and integrated business model and active relationship with market participants 3. State-of-the-art infrastructure and technology.

CAMS - Computer Age Management Services Ltd (CAMS) is a mutual fund (MFs) transfer agency with a focus on technology-based solutions. It offers services to alternative investment funds (AIFs) and insurance companies, through service centres, white label call centres, online mobile applications and chatbot services.

Mutual Fund distribution is big business in India and the transaction processing environment is complex. There are many sub-agents of distributors in the country leading with a retail investor base and they will need information regarding Mutual Fund transactions. So, CAMS offer Distributor Services packages to all distributors who operate using retail sub-agents.

CDSL - CDSL is the leading securities depository in India in terms of incremental beneficial owner (BO) accounts. CDSL earns revenue by charging annual issuer fee to corporates and account maintenance charges, user facility charges and transaction fees to depository participants (DPs). The asset-light model, duopoly play on the secular increase in stockholder accounts coupled with potential market share gains is an added positive.

While this itself is a successful recipe for growth, the icing on the cake could be the massive unexploited revenue opportunities in CDSL’s core activities, and leveraging its customer base and data for new businesses, a feat adroitly accomplished by similar sectors such as credit rating agencies (not to mention internet companies).

IEX – INDIAN ENERGY EXCHANGE LIMITED (IEX) is the first and largest energy exchange in India providing a nationwide, automated stock market trading platform for physical delivery of electricity, Renewable Energy Certificates and Energy Saving Certificates. The exchange platform enables efficient price discovery and increases the accessibility and transparency of the power market in India while also enhancing the speed and efficiency of trade execution.

IEX’s subsidiary Indian Gas Exchange Ltd. (IGX) is India’s first automated national level Gas Exchange to promote and sustain an efficient and robust Gas market and to foster gas trading in the country. The exchange features multiple buyers and sellers to trade in spot and forward contracts at designated physical hubs.

INDIAMART– Indiamart Intermesh Limited is an online trading platform (www.indiamart.com.) for business buyers to connect with suppliers of products and services. Buyers can place a business enquiry by visiting suppliers (small and medium) online and explore their products and services.

It has organized its listings across 54 industries. It provides a platform for SMEs, large enterprises, and even individual buyers. Nearly 2.6 crore buyers can reach out to over 22 lakh suppliers coming from 52 different categories of industries and choose from the list of 3.3 crore products.

It is now rated as one of the largest e-commerce platforms for businesses of different kinds with a market share of more than 60%. It deals with 97000 product categories that cover a wide range of industries. IndiaMART is also one of the very few companies with zero debt and a sizeable cash balance.

IRCTC - IRCTC is a ‘mini-Ratna’ company that derives revenues from four broad business segments — catering (selling food on rail journeys), travel & tourism (tour and destination-specific packages), e-ticketing and packaged drinking water (known for its brand Rail Neer).

Catering contributes 55 per cent to the company’s total revenues, followed by travel & tourism that provides 23.3 per cent, e-ticketing that contributes 12.3 per cent and packaged drinking water, which contributes 9.2 per cent.

INFO EDGE(NAUKRI) - Info Edge generates revenue through the provision of various services through its online recruitment, property, matrimonial, and education classifieds portals. The company derives its revenue in the form of fees associated with its various services and advertising solutions.

It also derives revenue through commission income on property bookings placed with builders and developers. Today InfoEdge group directly operates 8 ventures and controls other 6 through investments Jeevansaathi.com, the famous matrimonial site, was launched in 1998. In later years they came up with Shiksha.com, NaukriGulf, and Quadrangle.

In 2012, they also launched their mobile app for Naukri.com In 2010, InfoEdge made an investment that realized much late but shows the vision of this investment was now food delivery and restaurant catalogue giant, Zomato. This is what lies in the InfoEdge group. Zomato was not their only key investment. They also own now much known ‘Policybazaar’. Other ownerships are ‘Meritnation’ and ‘MyDala’. However, the one doing buzz lately is ‘99Acres’.

Zomato is one of the most awaited IPO of 2021.

Info Edge’s Startup Investment

Zomato, policy bazaar, happily unmarried, Unnati PVT ltd, Zippserv, Wishbook, Nopaperforms, Univariety, gramophone, Bijnis, Medcords, printo, Shopkirana, GreytHR , adda247, terra economics & analytics lab , legitquest, Shipsy, Coding ninjas, Ayuki

MATRIMONY- Matrimony.com (till recently known as Consim Info Pvt Ltd) claims it has 60 per cent of the estimated Rs 300-crore online matchmaking market. The company runs 15 matrimonial websites under Bharat Matrimony and around 300 websites under Community Matrimony. From a one-man venture almost 15 years ago, the company now has 4,000 employees. Matchmaking is only a small pie of the huge business opportunity in a conventional Indian marriage.

"Around Rs, 8 lakh is spent on an average for a marriage and we were getting only one per cent of it as our revenue. We can get more and there is a huge opportunity lying there," says Janakiraman. Almost 90 per cent of its revenue comes from user subscription fee, which ranges from Rs 3,290 to Rs 50,000 (elite) for three months. It has 2.5 million active members.

MCX- The Multi Commodity Exchange of India Limited (MCX), India's first listed exchange, is a state-of-the-art, commodity derivatives exchange that facilitates commodity trading online of commodity derivatives transactions, thereby providing a platform for price discovery and risk management.

A Mini Ratna (Category-I) Public Sector Enterprise – RailTel is an information and communications technology (ICT) infrastructure provider and is one of the largest neutral telecom infrastructure providers in India. The company was incorporated on 26 September 2000 with the aim of modernizing the existing telecom system for train control, operation, and safety and to generate additional revenues by creating nationwide broadband and multimedia network by laying optical fibre cable by using the right of way along railway tracks. As of 30 June 2020, its optic fibre network covering over 55,000 route kilometres and 5,677 railway stations across towns and cities in India.

Railtel provides telecom solutions and has an exclusive right to install optical fibre cables along the railway tracks. Currently, the optic fibre network set up by the company covers as many as 5848 railway stations in India. RailTel is one of the largest neutral telecom infrastructure providers in India. As of June 30, 2020, the company had the exclusive right of way along 67,415 route kilometres connecting 7,321 railway stations for laying optical fibre cable.

The company has over 55,000 route kilometres of optical fibre cable network and have connected 5,677 railway stations across towns and cities in India as of June 30, 2020. RailTel is also an implementing partner for the Bharat Net project to create optical fibre cable-based broadband infrastructure in laying optical fibre cable across 36,000-gram panchayats in India.

RailTel serves as a key network for the Indian Railways and provides a variety of services to the Indian Railways. The company is also working with the Indian Railways to transform railway stations into digital hubs by providing public Wi-Fi at railway stations across India. Company is currently in the process of bidding for the project in Africa that include supply, delivery, installation, testing and commissioning of goods and service for digital literacy in public primary schools in Kenya.

The company operates data centres in Gurugram, Haryana and Secunderabad, Telangana to host and collocate critical applications for customers including the Indian Railways. In addition, it undertakes various ICT projects for the Indian Railways, central government, and state governments, including various train control system projects for Indian Railways.

Competitive Strengths

• Among the largest neutral telecom infrastructure providers in India with a pan-India optic fibre network.
• Implementing partner for the Bharat Net project.
• A key partner to the Indian Railways in digital transformation.
• Plans to Expand services outside India.

Risk and Concerns

• There is almost no growth in the company's bottom line.
• Pure OFS wherein the company will not be getting anything.
• Timely payments from the PSUs are also difficult
• Very high receivables, almost 50% of revenue.
• RailTel is totally dependent on PSUs and Railways wherein getting timely projects is a cumbersome task.

Objects of the Issue:

The IPO proceed will be utilized towards the following purposes:

• To carry out the disinvestment plan.
• To achieve the benefits of equity share listing on the stock exchanges.

IPO Details:

Basic IPO details

Subscription Dates16 – 18 February 2021Price Band₹93 to ₹94 Per ShareFresh issueNilOffer For Sale87,153,369 sharesTotal IPO size₹810-₹819 CroresMinimum bid (lot size)155 Shares and in multiples thereofFace Value INR10 per shareRetail Allocation35%Listing OnNSE, BSE

Tentative Timetable

• Railtel IPO Price Band announced on 11 Feb 2021
• Railtel IPO Anchor List
• Railtel IPO Opens on 16 Feb 2021
• Railtel IPO Closes on 18 Feb 2021
• Railtel IPO Allotment Date: 24 Feb 2021
• Unblocking of ASBA 24 Feb 2021
• Credit to Demat Accounts 25 Feb 2021
• Railtel IPO Listing date: 26 Feb 2021

Financial Performance:

RailTel’s financial performance (in INR crore)FY2018 FY2019 FY2020 Revenue1,021.21, 038.31, 166.0 Expenses 835.18 20.69 31.9 Net income 134.01 35.4141.1 Net margin (%)13.113.012.1

Outlook:

Eyeing the growth in railway tracks and their monopoly in the market it is expected that Railtel is expected to do much better in the near future. The company is debt-free and has a CAGR growth of 7.47 from FY18 to FY20 revenue. However, the margins of the company are decreasing YoY. If the company can manage the margin then we may expect the company to perform much better in the near future.

In FY18 the net income was INR 134 cr while in FY20 the net income was INR 141.1 cr which grew marginally at a CAGR of 1.74%. The company has high cash and bank balance of around 368 cr. The company has a consistent track record of paying dividends. At an upper price band of INR 94 with an EPS of INR 4.40, the PE ratio stands at 21 and PB stands at 2.2. The valuation of the company looks very attractive at the current levels. Thus, We assign a “Subscribe” rating for the Railtel IPO.

It refers to a means of transfer of ownership or management, and control of public sector enterprises to the private sector. Privatization creates jobs and builds healthy competition in the market for the economy.it works for profit enhancement by improving customer services, and goods standards. India adopted Privatization as it was a part of the New Economic Policy or the LPG reforms.

Privatizations are instigated through various levels and phases and is considered profitable for the growth & development of a country, as it brings more efficiency and objectivity to business.

The stock of the previously publicly-owned company can no longer be traded in the stock market, and the general public is also banned from even holding a stake in such a company. Once privatization is completed, the company gives up the name 'limited' and starts using 'private limited' in its name. The main aim of Privatization is:

1. It provides a strong drive to the inflow of FDI
2. It improves the efficiency of public sector undertaking (PSU)

In the view for privatization, it is believed that the private sector and the regulation of free-market forces are a better incentive for businesses as they can be run efficiently and also achieve advancements in the field of economic welfare.

In the view against Privatization, it is considered to be an important supply-side policy that is designed in order to drive competition and improve productive and dynamic efficiency.it is also seen as a way of reducing the, share ownership and increase in investment, as privatized businesses were now free to raise finance through the stock market.

Concepts of Privatization in India

Some of the important concepts pertaining to privatization in India are discussed below:

Delegation

Delegation is the process by which the government delegates responsibilities to a private sector company via lease, franchise, contract, or grant. During this process, the government retains ownership and responsibility, but the private company handles all the daily activities; hence plays an instrumental role in delivering the end product or service. The state, however, remains an active participant in the entire process.

Divestment

Divestment is defined as the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company. Companies can look for a divestment strategy in order to satisfy other strategic business, financial, social, or political goals. However, it still retains some ownership and remains a minority stakeholder in the company in order to remain a participant in the decision-making process.

Displacement

The process of displacement begins with certain deregulations. These deregulations will allow private companies to enter into a sector that was controlled and regulated only by the government. Once the private companies compete with the public-owned enterprises, then slowly and gradually, the public enterprises get displaced from that sector.

Disinvestment

Disinvestment refers to selling off certain as mostly a manufacturing plant, or product line. It Refers to the liquidation of a state-owned asset or a company and the process by which the Union government sells its stakes in a Public Sector Undertaking either fully or partially and the other way is they list it on the stock market.

Advantages

Now, let us take a look at some of the advantages and benefits of undertaking privatization:

• The private sector remains performance-oriented. Hence, it leads to higher efficiency of professionals and leads to better customer experience.
• A private limited company does not let any political factors affect its performance.
• A consistent managerial team allows the enterprise to make decisions in order to attain long-term goals.
• Privatization will increase competitiveness in the market that will allow the companies to boost their efficiency.
• It is beneficial for both the consumers and the economy.
• The government by implementing it, then ceases to be the sole owner of the entity or business and also increases revenue from the sale.
• It encourages shareholders to invest because of a good return.

Disadvantages

• It is bribery and corruption that hinders privatization. They are less transparent than government offices, which further results in a breeding ground for corruption.
• Inflexibility is one that can come with privatization. Governments sign lengthy contracts with private service providers, locking residents into one service provider as they take a large amount of time.
• Although privatization is usually on the basis it will reduce the consumers' costs, it can also drive the costs up.

Conclusion

Privatization is the process by which a piece of property or business from being owned by the government goes to being privately owned. Basic services, such as education, shouldn’t be subject to market forces. It will also help governments to save money and hence increases efficiency, whereas private companies can move goods in a much quicker way and more efficiently.