Chapter 05 - Money Market / Capital Market

Prelims Syllabus

Introduction
Money Market Questions
Capital Market Questions
Current Affairs of that Day
- Public Debt & Fiscal Deficit
  
  Public Debt - Stock
  
  Fiscal Deficit - Flow
- GSP - Generalised System of Preferences
  
  US Imports at Zero Percent Custom Duties on Few Goods
- MFN - Most Favoured Nation
- National Treatment Clause

What is a Financial Market in a Country

There are only two types of entities in a Country
1. Entity which has surplus money
  1. Banks
  2. NBFC
  3. Pension Fund
  4. Mutual Fund Companies
  5. Foreign Investor
  6. Retail Investor
2. Entity which needs money
  1. Govt
  2. Companies
  3. Start Ups
  4. Banks
  5. NBFC
There are Two Types of Financial Market
- Money Market - Capital Raised for a time < 1 Year → Retail Investors Less
  1. Commercial Paper < 1 Year MP
  2. Bills of Exchange
  3. Bank Rate
  4. Certificate of Deposits
  5. Call Notice or Term Money
  6. Tri Party Repos or Market Repos
  7. Money Market Mutual Funds
  8. T Bills
  9. CMB
- Capital Market - Capital Raised for a time > 1 Year → Retail Inv High
  1. Share
  2. Corporate Bond
  3. Debenture
  4. ETF - Exchange Traded Funds
  5. REIT - Real Estate Investment Trust
  6. Futures and Options
  7. SDL
  8. Dated Security of Central Gov
There are different Instrument which give money, which can be either short term or long term based on which it can be money or capital market
Difference Between Capital and Money Market

DFHI - Discount and Finance House of India

99.99% of Money Market is Regulated by RBI

RBI has Laid Down Guidelines for all the Instruments

SEBI has laid down Guidelines for only one Instrument i.e Money Market Mutual Funds

Types of Money Markets in India
- Introduction
- Organised Money Market
  
  NDS OM - Negotiated Dealing System Ordered Matching
  
  NDS - CALL - Negotiated Dealing System Call
  
  TREPS - Tri Party Repo System
- Unorganised Money Market
  
  Not to be Studied
Types of Instruments in Organised Money Market
- Summary
- Commercial Paper
  1. Similar to Bond
  2. MP < 1 Year
  3. Issued at Discount and Redeemed by Face Value
  4. Issued by Banks, NBFC and Companies
  5. Always Unsecured
- Certificate of Deposit
  
  | FD Fixed Deposit | CF Certificate of Deposit | | --- | --- | | Value Lower or Higher | Min Value is Rs 5 Lac | | MP Vary from time to time | Min Time is 1 Year | | Can be used as a Collateral | Cannot be used as a Collateral | | Non Tradeable | Tradable |
- Call Notice & Notice Money & Term Money
  
  Doubt in Collateralised Borrowing
  1. 1 Day Lending - Call Money
  2. 1 to 14 Days - Notice Money
  3. 14 < 1 Year - Term Money
- CBLO
  1. Collateralised Borrowing and Lending Obligation
  2. Bank to Bank by Means of Collateral
  3. CBLO has been replaced by another tool called Tri Party Repos
- Tri Party Repos / Also Called Market Repos
  - Tri Party Repos
    1. RBI is Never a Intermediary No Matter What
    2. CCI and TREX are Examples of Intermediary
    3. It is like P2P just that G Secs are Sold and Bought Here
    4. It is always for a period less than 1 Year
    5. Eligible Participants here can be Borrowers or Lenders
  - Difference Between Tri Party Repo and RBI Repo
    
    | Tri Party Repo | RBI Repo | | --- | --- | | Three Parties | Two Parties | | RBI Not Involved | RBI Involved | | G Sec, Bond & Commercial Paper can be used as Collateral | Here only G Sec can be involved as a Collateral |
- Money Market Mutual Funds
  1. Mutual Funds Companies Mobilise Money from Various INvestors and Invest them in
    1. Shares - Equity Mutual Fund - Can be Long or Short Term
    2. Bond - Debt Mutual Funds - Can be Long or Short Term
    3. Money Market - Money Market Mutual Fund - Always Short Term
      
      They In Turn Invest in Money Market Instruments like the ones discussed above

Types of Capital Markets in India
- India's Ranking
  1. In Terms of Market Capitalisation - 5th Largest
  2. In Terms of PPP - 3rd Position
  3. In Terms of Nominal GDP - 5th Position
- Introduction
- Primary Market - Issue of New Financial Instrument
  
  Process of Issue of Shares by a Particular Company
  1. When a Company Issues Share. It can be
    1. Initial Public Offering → first time in the Market is called IPO → Can Never be Rights Issue
    2. Follow on Public Offer → for the subsequent times, issuances of shares
    3. Offer for Sale → Another way of Selling Shares
      
      Here Owners of Company are offering to Sell their Shares → Always in Primary Market
      
      Unlike IPO or Follow on Public Offer, Here New Shares are NOT Created and Only the Transfer of Ownership from Owner to Other Share Buyers
  2. Ways in Which Shares can be Issued
  3. Rights Issue → When Only the Existing Shareholders can buy Shares
  4. Private Placement → Company Decides for itself that who can buy the share
- Secondary Market - Trading of Already Issued Financial Instrument
  - How Many Stock Exchanges do we have in India
    1. We have 5 to 6 Stock Exchanges
  - Does the Price of a Share differ from One Stock Exchange to Another
    
    Yes They Do. But they Dont Vary with Large Gaps
- According to SEBI - List of All India Stock Exchanges Are :
  - BSE - Bombay Stock Exchange
    - Intro to BSE
      1. It is located in the Dalal Street
      2. NY Stock Exchange is located in Wolf Street
      3. There are Two Types of Companies in BSE
        
        Listed Companies
        
        They Have Issued Shares
        
        Their Shares are Traded
        
        Examples - LIC, Nykaa, PayTM, Zomato
        
        Unlisted Companies
        
        Not Yet Issued Shares
      4. BSE is India's First Listed Stock Exchange - It has its shares Listed in BSE and NSE
      5. Who Owns BSE → It is similar to a company. Hence different people have come together and set up BSE
        
        There is No Single Institution who owns BSE, There are Banks, FI’s and Retail Investors
        
        There is no one entity which has > 50% Ownership
        
        But amongst all the owners → LIC has the Highest Ownership of BSE i.e 9 to 10
    - BSE Sensex
      1. It Deals with the Share Price of Top 30 Companies
      2. Top 30 is decided by Market Cap by BOD
      3. Sensex is a Kind of Barometer
  - NSE
    - Intro to NSE
    - NSE Nifty
      1. It Deals with the Share Price of Top 50 Companies
      2. Some Companies of Sensex, would be a part of NIFTY. Hence Changes in Sensex or NIFTY will show effects on
  - Indian INX
  - NSE IFSC Ltd
  - Metropolitan Stock Exchange
    1. Only Govt Owned Stock Exchange
  - Calcutta Stock Exchange
Terms Related to Capital Market in India
- Market Capitalisation
  
  Listed Company has issued share
  
  Market Capitalisation of = No of Shares * Price of Share
  
  Market Cap of Indian Economy = Sum Total of all the Companies
  
  Reason
  1. More no of shares have been issued as large number of companies were listed on stock exchange
  2. there was overall increase in the share prices of the companies as a whole
    
    It was a special case that at one side was going down (-7.2%) but at the same time Sensex and Nifty were Increasing
    
    Why this Anomaly took place ? → Demand Increased !! But why demand Increased → During Covid time, Middle Class People got money but at the same time they couldn't spend or invest → Hence they Invested
- Carry Trade
  1. When Interest Rate in their country decreases they invest in other countries and when the Interest Increase in their company they invest in their country
  2. This Strategy is called Carry Trade
  3. Sometime the Carry Trade is not good for India → when Investors will borrow from India and Invest in USA
  4. Basically investors take advantage of difference of rate of interest between two countries
- T + 1 Settlement
  1. Settlement of Transaction Means →
  2. T Means Trade → T+2 → Within 48 Hours
  3. T+1 Means → Within 24 Hours of Transaction Maximum → SEBI has made it voluntary
    
    BSE & NSE Have Started Implementing it
- Market Infra Institutions
  1. Like NBFI → In Capital Market. We have MII has
  2. Demat Account is where you can store your financial instruments
  3. It is stored in depositories
  4. There are Two Depositories in India
    1. NSDL - National Securities Depository Limited
    2. CSDL - Central Securities Depository Limited
  5. They are Regulated by SEBI
  6. But the Demat Account is opened with Depositories by means of Intermediaries like
    1. Bank → ICICI, SBI
    2. Fin Tech → Groww & Zerodha
- Clearing Corporation
  1. It is used for Settlement of Transactions
  2. Example Are :
    1. India Clearing Corporation Ltd (BSE)
    2. NSE Clearing Ltd (NSE)
- Retail Investor
  1. In General Someone who invests money in small amounts
  2. According to SEBI, A Retail Investor is someone who makes a transaction of less than Rs 2 Lac in one Single Transaction
  3. Not on the Basis of Total Transaction
  4. Importance ? → When a Company Issues Shares, it ca reserve certain percentage of shares for retail investors
  5. Opposite of Retail Investor is Institutional Investor
- Bullish and Bearish Market
  1. Bull Market → Capital Market is Doing Good → Market is Going Up
  2. Bearish Market → Capital Market is Not Doing Good → Market is Going Down
- Blue Chip Companies
  1. Any Companies whose shares are in Great Demand are called Blue Cheap Companies
- ESOP & Sweat/Sweet Equity
  1. ESOP - Employee Stock Option Plan
    1. If cost of each share is equal to Rs 12
      1. Given at Discount to Rs 10
      2. Number of Shares Rs 10
      3. Total 100
    2. Companie will say that once you get the ESOP you can't sell the share for next 2 to 3 years
    3. Risk Sharing
  2. Sweat/Sweet - is Share without Employees Paying Money for exceptional hard work or to reward hard work. It brings loyalty and hard work of employees
  3. In Case of Sweat Equity Share is free of cost, Whereas ESOP is a Part of their Package
- Private Equity
  1. It is always in a Unlisted Indian Company
  2. Venture Capital is a Part of Private Equity
- Golden Share
  1. A Person who has this share, can veto (reject) the decisions of a company
  2. There are Two Ways to See it
    1. When the Shareholder is having > 51% Ownership
    2. As a Shareholder, I may have < 51%, but can still veto
  3. It is not a prominent thing in India
  4. Brazilian Govt has a Golden Share in a Pvt Company which is Strategic called Manyata Aircraft
  5. In India Privatisation of PSU is ok, but in Indian Strategic Companies. Indian Govt should have a Golden Share in the Company
- Preferential Share
  
  from the Image
- Share Warrant
  1. It is an agreement between an investor at a future rate at a predetermined price
  2. For this Agreement, I have to pay some amount
  3. Generally Its more used by FDI by Institutional Buyers
- De Mutualisation
  1. Ownership & Management of Stock Exchanges should be completely separated
  2. To Avoid Conflict of Interest
  3. Management of Stock Exchange - by BOD
- Circuit Breaker
  
  from the Image
- VIX Index
  
  Measures the Extent of Volatility in NIFTY
  
  VIX is Inversely Proportional to NIFTY Index
- ESG Investment
  
  from Image
- SPAC - Special Purpose Acquisition Company
  1. In Domestic Market SPAC can also be used for diversion of Black Money
  2. International Financial Service Authority has enabled SPAC in GIFT City of Gujarat
- Accredited Investors
  1. Certain Category of Investors are Prohibited from INvesting in certain Riskier Instruments like Currency Derivatives and Hedge Funds
  2. Normal Investors are not allowed investing in Accredited Investors
  3. But Accredited Investors are Allowed - Rest from Image
- IC15
  1. India's First Index of Crypto Assets
- Mezzanine Financing or Subordinated Debt
  
  Mezzanine is a Intermediate Floor
- Profit Booking
  
  If All the People sell their shares then the Supply in the Market Will Increase and Its Value Will Decrease. Hence Share Prices will decrease
- P/E Ratio
  1. P - Current Market Price of Share && E - Earning Per Share
  2. P/E Higher When - Price is higher and Earning is Less
  3. P/E is 1 - Price and Earning is Same
  4. Price Increases Because
    1. High Demand - Due to High Profit Expectation
    2. Money Supply in Economy is Higher - High Liquidity
    3. Asset Bubble - Sudden Crash of Share Price after Increase in Share Price - Share when thought to be overpriced
Types of Bonds
- How Indian Companies Borrow from India & Beyond
  - Option for a Indian Company to Raise Money Within India
    1. Loans
    2. Shares
    3. Bonds
    4. Debentures
    5. Commercial Papers
  - Capital Raised by Indian Company from Outside India Overseas
    - Indian Company Issuing Shares in Other Countries
      1. Prior to 2022 Indian Companies were not Allowed to Issue Shares in Foreign Market Before 2022
      2. FPI - Investor Based in USA, Comes to Domestic Market, Invests in Infosys Shares
      3. ADR - Investor Based in USA, Buys within USA, the Shares of Infosys
        
        ADR - American Depository Receipt - For America - Denominated in USD
      4. GDR - Shares Issued by Indian Company Anywhere Across the Globe - Denominated in Respective Countries Receipt
        
        GDR - Global Depository Receipt - For Other Companies
      5. IDR - Foreign Companies Issuing Shares in India and Indians are Buying it
        
        No of IDR’s in India are - Sole IDR will cease to Exist
    - By Means of Bonds
      - Not in FDI → Only Bond
        
        Masala Bond - ( A Type of Plain Vanilla Bond) Borrow & Repay in Rupees Look from Perspective of Foreign Investor NOT FDI
        
        Borrowing and Repayment will be in Rupees
        
        It is NOT Included in FDI
        
        Remember Indian Company Always Pays in Terms of Rupees
        
        First Issued by International Financial Corporation which is a Part of World Bank
        
        Subsequent to IFC, Masala Bonds have been issued by a large number of Financial Companies
        
        Benefits
        
        Lower Risk - Borrow and Pay in Rupee
        
        Conversion Cost Saved
        
        Internationalisation of Rupee - It Increases Demand for Rupee - Helps in Reducing Monopoly of Dollar
        
        Helps in Checking Rupee Depreciation - as it increases more demand for Rupee
        
        Class Table
        
        Revision Table Check
        
        RBI Guidelines on Masala Bonds
        
        FATF - Financial Action Task Force
        
        They are not part of FDI as Bond is NOT Converted into Share
        
        Note : Debt Investment is NOT a Part of FDI
        
        Foreign Currency Denominated Bond Borrow & Repay in Dollar Look from Perspective of Indian Company NOT FDI
        
        Borrowing and Repayment will be in Dollar Only
      - in FDI → Bond & Share → Hybrid Instruments
        
        Difference Between FCCB & FCEB
        
        Foreign Currency Convertible Bonds
        
        Face Value is in Dollar
        
        Here Convertible Means Bonds to Share → when the bond matures.
        
        At the end of maturity period, the bond is converted into shares by amount of Face Value
        
        Here you don't get the principal amount back
        
        Foreign Currency Exchangeable Bonds
        
        Upon Maturity the Principle Amount Gets Converted into shares of associated company
        
        Associated Company - Tata Son being a parent company, its associated company will be TCS and Tata Motors etc
        
        Associated Company - means Subsidiary Company
        
        The Issuer Company Decides in which associate company it will convert
      - Summary of Different Types of Bonds
        
        Foreign Company or Investor Means Foreign for that country !
    - By Means of Trade Credit
      1. Buyers Credit → Company Arranges Loan and Gives Money to Seller
      2. Seller's Credit → Seller Says Baad Main Paisa De Dena
  - FDI Into India are
    1. FCCB
    2. FCEB
    3. ADR/GDR
- Other Types of Bonds
  - Plain Vanilla Bond
    1. Any Bond which is issued by Indian Company in Overseas Market, denominated in Rupees is called Plain Vanilla Bond
  - Social Impact Bond
    1. Money Spent by Government is not Creating Impact. Hence Social Impact Bond is Created
    2. Here Bond is an Agreement between Govt and Private Sector and this Sector enters into agreement with NGO to meet Specific Targets and Requirements
    3. Examples
      
      Utkrisht Bond launched by USAID being the Donor Agency to Reduce IMR and MMR
    4. Benefits
      1. Faster Implementation of Scheme
      2. Reduced Burden of Government
      3. a Bottom Up Approach
      4. Encourages Role of Cooperation between Private Sector and Social Infra
      5. Help of Specialised Assistance from Pvt
      6. NGO’s doing good work will be rewarded
      7. More Accountability and More Specialization
    5. Summary
  - Sovereign Green Bond
  - Elephant Bond
  - Sovereign Gold Bond
    1. Summary
    2. Present State
      1. Domestic Production : 1 Tonne
      2. Annual Import : 980 Tonnes $40 Billion
    3. Reasons for Higher Import
      1. Cultural Reasons
      2. an investment bet - indians consider it as secure investment option
      3. can be used in emergency purpose - can be liquidated easily
    4. Implications of this Import
      1. Higher Dollar Outflow
      2. Affects Overall Investment in Economy
    5. Solution
      1. Sovereign Gold Bond is a Special G Sec issued by Govt
      2. It is always denominated in Gold meaning
        
        Face Value is 1 gm
        
        ROI 2.5%
        
        MP 8 Years
        
        Upon Maturity you will get money based on the present rate of gold
      3. Here there is NO gold secured at side for this bond
      4. Its based on common acceptance
      5. Benefits
        
        No Security Risk
        
        No Storage Risk
        
        RoI
        
        can use it as collateral to take loans from Bank
        
        can be traded on stock exchanges
      6. Issues with Sovereign Gold Bonds
        
        It is still not physical gold
        
        cultural sentiments
        
        Needing of demat account
        
        Lack of Awareness
        
        Sell Bonds in Gold Stores
        
        They are available by notifications from RBI by means of Retail Direct Scheme
        
        Other than that if u need to buy this it can be bought from Stock Market
    6. Problems with Physical Gold
      1. Stealing, Degradation
      2. Making Charges
  - Oil Bond
    - Prior 2010
      1. Prior 2010 - Administered Pricing Mechanism - It used to give subsidies under Petrol and Diesel
      2. Subsidy to Oil Market - Load on Fiscal Deficit
      3. Fiscal Deficit Limit under FRBM Act - 3% of GDP
      4. UPA Govt Issued Oil Bond to Oil Market Companies
        
        Face Value - Under Recovery Amount = Subsidy
        
        ROI - Some Int
        
        MP - 15/20 Years
      5. Govt Said that Oil Bonds will not be included in fiscal deficit of government
      6. But it will be included in Public Debt
      7. Difference Between Fiscal Deficit and Public Debt
        
        Fiscal Deficit - Flow → for a Year
        
        Public Debt - Total Outstanding Loans - Stock → Total Cumulative
      8. These Oil Bonds can be Sold to Banks and they pay face value amount to oil company → this is done for immediate money
      9. Oil Bonds are NON SLR Securities
    - Post 2010
      1. Administered Price Mechanism Stopped
      2. No Oil Bond Issued by Govt Since then
      3. At about Rs 1.2 Lac Crore has to be given
    - Features
      1. Not Included in Govt Fiscal Deficit but it is counted in Public Debt
      2. It is Non SLR Security
  - Inflation Index Bond
    
    Not in News Since 2013 - but asked in 2022
  - Surety Bond
    - Prior to Surety Bond
      1. Govt Awards Project
      2. Govt Gives Timeline & Specification
      3. Earlier Pvt Sector had to give Guarantee of Completion
      4. Pvt Sector would take Bank Guarantee of 100 crore by paying a premium of 1 crore ; just like a insurance
      5. If Pvt Sector is not able to complete the project, the bank would have to pay the govt Rs 100 Crore
      6. Bank Factor
        
        Problem - Rs 100 Crore by Banks to be Paid ka Issue
        
        Benefit - Rs 1 Crore Benefit Anyways
    - With Surety Bonds
      1. Here Pvt Sector Companies Buys Surety Bond from a Insurance Company at a Premium of 1 Crore for a Face Value of Rs 100 Crore
      2. If pvt sector does not complete project, risk falls on Insurance Company
      3. if pvt sector completes the project, insurance companies earns a profit of Rs 1 crore
    - Usage
      1. Can be used in Road, Railway, Airport Creation
      2. To Reduce Pressure on Bonds
    - Mind Map

Credit Default Swap
1. Investors Take Insurance from a Company, like anyone else does
2. Benefits
  1. Guarantee of Principal Amount
  2. Risk of Investing in Financial Instrument Reduces
3. Why is it called Credit Default Swap
  
  Because Credit Default Risk is Swapped Between Investors Institution is swapped with the Insurance Company
Direct Listing of Indian Companies in Foreign Stock Exchange

SEBI’s Framework on Social Stock Exchange
- Mind Map
- Details
  1. NGO’s can be registered as
    1. Trust
    2. Societies
    3. Companies - Section 8 Companies → Not for Profit Companies - Set Up for a Social Cause
  2. Presently, How do they Get money
    1. Donation
    2. CSR
    3. From International Donor Agencies
    4. Grants by Govt
    5. Foreign Contribution - FCRA Act - Foreign Contribution Regulation Act
  3. Social Stock Exchange Created by Recommendations of Ishaat Hussain Committee
  4. Current Situation
    1. Not Standalone Stock Exchange
    2. But as a part of already existing exchanges like NSE & BSE
  5. What Financial Instrument can be Extended by NGO’s
    1. Zero Coupon Zero Principal - Just Like a Donation
      
      Zero Coupon - No Return
      
      Zero Principal - No Money Return
    2. Mutual Fund - ROI can be kept with NGO & Principal can be given back to the Investor
    3. Social Venture Fund has been renamed as Social Impact Fund which is a type of AIF
      
      Social Impact Fund is NOT Social Impact Bond
- Problems with it
  1. Donation can be claimed as Tax Exemption for Tax Benefit
    
    Zero Coupon Zero Principle Bond - No Tax Exemption or Benefit
  2. At Corporate Level, CSR obligation NOT counted in Zero Coupon Zero Principle Bond / Mutual Fund / Social Impact Bond
India International Bullion Exchange (IIBX)
1. Meaning of Bullion : Gold or Silver in Coin or Bar
2. Need : India is one the Largest Importer of Gold, we import 980 Tons of Gold on Annual Basis costing us 40 Billion Dollars
  
  Bulk Buyer has higher Negotiating Power, He can act as a Price Setter
  
  In Spite we import huge amount of gold outside India, we aren't able to be Price Setter, rather we are Price Keeper
  
  This Problem Occurs because we import in Bricks and not in a Particular Market
  
  List of Gold Companies : Kalyan, Tanishq, Malabar
  
  Issues Are
  1. No Aggregation of Demand
  2. Lack of Organised Market for Gold Trading for Flow of Information
    
    Inter Company Communication between Two Parties of Gold Company is NOT Present
3. Participants :
  1. Bullion Buyers - Jewellers, Individual
  2. Bullion Sellers - Gold Mining Companies, Global Banks
  3. Bullion Exchange
  4. Bullion Repository
  5. Bullion Clearing Exchange
4. Process :
  1. Bullion Buyers come together and Aggregate the Demand and they go to bank
  2. Bank buys from Dollar, the Gold
  3. Bank Stores it in Bullion Depository
  4. Bullion Depository issues Bullion Depository Receipt
    1. Benefit - Safe & Secure
    2. Benefit - Easy Liquidation
    3. Benefit - Selling & Buying of Bullion Depository Receipt
  5. Selling and Buying of these Bullion Depository Receipt is done on Bullion Stock Exchange
  6. Bullion Stock Exchange is Located in IFSC in GIFT
    
    All Entities in IFSC is Regulated by IFSCA (Independent Authority)
    
    IFSCA - International Financial Service Authority
    
    All Transaction in Terms of Dollars
Offshore Derivative Instruments or P Notes
- Arvind Mayaram Committee recommended that Foreign Investment (FI) should be categorised as
  1. FDI
    1. Unlisted Company → Under Unlisted Companies
    2. Listed Company → FI Buys 10% or More Shares, It is treated as FDI
  2. FPI
    1. Listed Company → Foreign Investor buys Less than 10% of Shares of Indian Company
    2. Foreign INvestment in Bonds, Debentures or REIT’s, InVITS, G Secs
- What are Offshore Derivative Instruments
  1. in FPI - a Foreign Investor buys various Instruments from Foreign Market
  2. For this it has to register to SEBI
  3. for the USA Retail Foreign Investor - he has to face a lot of Red Tapism for getting registered with SEBI to be registered as FPI
  4. Or he goes to a FPI (For Ex Mutual Fund Company), on behalf this Individual this MF company of US which is registered in US as FPI will Invest in India
  5. This MF Company will issue P Note (Participatory Notes) as a Receipt
  6. P Note is a Acknowledgement given by a FPI to a Retail Foreign INvestor in Foreign, that his money has been invested in India
- Why is It called Offshore Derivative
  
  Off Shore :
  1. as it is based in Other Country
  Derivative :
  1. Because Investor is not directly investing
  2. the P Note Derives its values from the value of share of Indian Company
- Concerns with FPI
  1. Investment of Black Money by Means of P Note Investment through a FPI
  2. No Transparency so as to from where this FPI has gotten money from
  3. It can act as a Source for Money Laundering
- Hence, SEBI has come up with Guidelines to disclose the Identity of the Retail Foreign Investors
  
  At the same time, it has not taken strict action like stopping it completely as Jo Paisa Bahar Jaa Raha Wapas Aa raha hai
  
  Cant Stop Par Regulate Strong
  
  Also Hamesha Nahin Lieninet Reh Sakte Nahin toh paisa bahar jaata hi rahega
- Difference Between Promissory Notes and Participatory Notes
  
  Promissory Note is a Currency Note
National Monetization Pipeline
- Introduction
  1. Example of Haveli and Heritage Hotel
  2. Govt Brownfield Assets - They are Inefficiently Utilised
  3. Example of Brownfield Assets
    
    Road, Railways, Port, Airport, Stadium, Telecom Towers
  4. LANDS & BUILDINGS ARE NOT Part of National Monetisation Pipeline
  5. Railway Infra - Tracks are Under Utilised
- National Infra Pipeline
  
  To Create World Class Infrastructure. For this we need Rs 111 Lac Crore to Build this Infra
  
  For this 111 Lakh Crore, a Good Source is NMP which is around Rs 5 Lac Crore
- NMP
  1. Aims at Leasing NOT Selling
  2. Govt Gets Upfront Money by Leasing
  3. using this Money Govt can create New Infra
  4. Focuses only on Monetisation of Core Assets only
    1. Core - Railway Rail Road etc
    2. Non Core - NOT Include LAND & BUILDING
    (Monetisation of Land will be done by National Land Monetisation)
  5. NMP is nothing but a Fancy Name of PPP ( Public Private Partnership )
  6. It is NOT Privatisation as nothing is Sold but is Leased
  7. India is not the First Country to Come up with NMP. For Ex
    1. Australia - Asset Recycling Initiative
    2. Indonesia - Limited Concession Scheme
- Benefits of NMP are
  1. Increase Economic Efficiency Usage of Assets
  2. Govt can create new Infra w/o borrowing
- Assets Recognised in NMP
  - List of Companies
  - Most Contribution by Means of Road - By Means of Toll by Pvt Sector Company
  - Concession and Contract is Same
- Methods of Monetisation
  - OMT Model - Toll Operate Transfer
    
    Pvt Sector Company will collect money from toll, in the start of Lease, Pvt Company will give money to Govt and will maintain the Road as well
    
    Hence, It is a win win for both Pvt & Pub. But it is a Dual Burden on People
  - OMD Model - Operation Maintain Develop Model
    
    Used for Modernisation of Airports in India
    
    Pvt Sector will Maintain and Lease the Airport - Pvt Sector earns money by User Development Fee
    
    Example : T3 Terminal has been developed by GMR Company
Asset Monetization REITs & InVITs
- Process of InVIT
  1. InVIT - Infrastructure Investment Trust (InvITs)
  2. NHAI will transfer this National Highway to a trust
  3. NHAI has built a National highway - This Highway can collect Toll
  4. NHAI owns this Trust
  5. In Return NHAI Trust will give money to NHAI
  6. NHAI Trust kahan se paisa laaega
  7. NHAI Trust will issue INVIT, like a Share, People will but it like
    1. Retail
    2. Foreign
    3. Institution
    4. Bank
  8. If total invit is 100 Crore
  9. If I Buy 1 Part of Invit - I own 1 Percent of Highway
  10. NHAI Trust can do 4 things with the money
- REIT’s
  1. Everything is same like InVIT
  2. in InVIT - I am talking about Infrastructure
  3. In REIT - Real Estate
    
    EGL in BLR is the First Company to Come up with REIT
- Prelims Pointer & Guidelines on REIT & InVIT

Disinvestment - Related to PSU
- Introduction
  1. If in any company which has more than 51% of ownership by Govt. It is called PSU
  2. Examples of PSU are: SAIL, BHEL, NTPC, ONGC, CIL, IOC, GAIL, SBI, PSB, LIC, BSNL, MTNL
  3. Buy 5 Shops - Investment
  4. Sell 2 Shops - Disinvestment
  5. from 1947 (Independence) - 1991 (LPG)
    1. Here we were a Mixed Economy - Public & Pvt
    2. But More Importance was given to Public Sector due to Socialist Nature of Constitution
    3. Not Enough Role or Importance was Given to Pvt Sector because
      1. Most Sectors were close to Pvt Sector
      2. If some sectors are allowed, license was needed for everything
    4. We went for Public Sector, due to poor & literacy rate of India at that time
  6. in 1991 - LPG Reforms were Introduced
    
    in 1991 - we didn't had forex for our imports, we needed loan
    
    IMF said, loan only if there's LPG
  7. LPG - Full Form
    
    Liberalisation - Many Sectors were Opened to Pvt, Other than 5 to 6 sectors all were done away with the requirement of Licensing
    
    Privatisation - Sell Loss Making PSU to Pvt
    
    Globalisation - Attracting FDI & Focus on Export
- Evolution of Disinvestment in India
  1. 1 CAA, 1951 : Amended Act 19(g) → To Practise, Profession, Trade, or Business
  2. Air India Act, 1953 : Nationalisation of 9 Airlines
  3. LIC Act, 1956 : Nationalisation of Insurance Companies
  4. Nationalisation of Banks, 1969 - 14 Banks Nationalised
  5. Nationalisation of Banks, 1980 - 6 Banks Nationalised
  6. LPG Reforms, 1991
  7. Govt Policy of Disinvestment Started
- Govt Policy of Disinvestment Evolved (No Fixed Timeline)
  1. Phase 1 - Minority Sale of PSU
  2. Phase 2 - Entire Sale of PSU
  3. Phase 3 - Current Phase
    1. Strategic Disinvestment
    2. Exchange Traded Fund
    3. Buy Back of Shares
- Nodal Agency for Disinvestment is:
  1. Nodal Agency : DIPAM
  2. Final Call: Cabinet Committee on Economic Affairs
  3. Moralities of Disinvestment: Alternative Mechanism Headed by Finance Ministers
- Identification of Strategic or Public Sector Enterprise
  1. Strategic Sectors -
    1. Some Merged
    2. Some Partially Disinvestment
  2. Unstrategic Sectors - All will be Disinvested
- What to Study
- Reason for Disinvestment
  - Mind Map
  - Reasons for Disinvestment
    1. Good Source of Money
    2. Better Horizons for Soft & Hard Infrastructural Development
    3. Reduced Burden of Govt
    4. Strategic & Skilled Hiring
    5. Efficiency of Working Mechanism
    6. Pension Load on Govt Reduces
    7. Fiscal Deficit would reduce
    8. To Promote Wider Ownership of PSU’s
    1. Govt has no Business, Doing Business
    2. Example of Air India is a classical example of Disinvestment
      
      It owed around 66,000 Crores to Banks & FInancial Institutions
      
      Everyday Govt had to spend Rs 20 Crore Per Day to keep it running
      
      Air India was sold to Tata Sons at 18,000 Crore, Govt is still left with 40,000 Crores
      
      But, Govt Saves 20 Crore Per Day on a Loss Making Asset
- Disinvestment Policy
Strategic Disinvestment v/s Privatization
1. Disinvestment: Govt is Selling its Share && Govt Gets Back its Money
2. Privatisation: Means Govt has Ownership below 51%
  
  (Think from Perspective of Govt)
3. Strategic Disinvestment:
  1. Govt Share less than 51% &&
  2. Govt Shares its Block of Shares to the Strategic Partner &&
  3. Transfer of Management Control
  1. NOTE 1
    
    A Strategic Partner can have less than 51% ownership but at the same time can have explicit management control
  2. NOTE 2
    
    According to Earlier Definition : This Strategic Partner can can be a PSU or Pvt Sector
    
    But According to Notification of 19 April 2022 ; PSU will NOT be permitted to participate in Strategic Disinvestment or Privatisation
4. Note
  1. All Strategic Disinvestment is Privatisation
  2. All Privatisation is Disinvestment
5. Mind Map

NIF - National Investment Fund
- Art 226 - Provides for Public Account of India. It has Two Types of Money
  1. People Put Money by Means of Trust - No Parliamentary Approval Needed
    1. Post Office Deposit
    2. PPF - Public Provident Fund
    3. NSSF - National Small Saving Fund
  2. Cess Collected by Govt → Stored in CFI ( Consolidated Fund of India) → Separate Fund Under Public Accounts of India → Parliamentary Approval is Needed
- NIF - National Investment Fund → Parliamentary Approval is Needed
ETF - Exchange Traded Fund
- Detail and Mind Map
  1. Example of Fund Manager - Nippon India, ICICI Prudential
  2. Air India Disinvestment was decided in 2001 and happened in 2021
  3. Benefits
    1. Lower Risk due to a Bigger Basket of Diversified Investment
    2. Risk is scattered across Multiple PSU
- There are Two Types of ETF
Buy Back of Shares by PSU from Govt
SWF - Sovereign Wealth Fund
- SWF In General
- Intro to Indian SWF - NIIF
  1. Official Foreign Currency Operation → Sucking out of Dollars from Economy to Check Local Currency Fluctuation
  2. Indian SWF - NIIF → National Investment and Infrastructure Fund & Its Functioning
    1. Here Govt 49%
    2. Here Pvt Sector 51%
      1. Domestic : ICICI HDFC SBI
      2. Foreign : Banks, SWF of Other Countries, Singapore SWF
      3. Multilateral Agencies : WB, ADB, AIIB, NDB
    3. Initial Corpus was Rs 20,000 Crore
    4. It focuses more on Domestic Market
    5. It Established 3 Alternate Investment Funds
- NIIF Mind Map & Details