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
Entity which has surplus money
Banks
NBFC
Pension Fund
Mutual Fund Companies
Foreign Investor
Retail Investor
Entity which needs money
Govt
Companies
Start Ups
Banks
NBFC
There are Two Types of Financial Market
Money Market - Capital Raised for a time < 1 Year → Retail Investors Less
Commercial Paper < 1 Year MP
Bills of Exchange
Bank Rate
Certificate of Deposits
Call Notice or Term Money
Tri Party Repos or Market Repos
Money Market Mutual Funds
T Bills
CMB
Capital Market - Capital Raised for a time > 1 Year → Retail Inv High
Share
Corporate Bond
Debenture
ETF - Exchange Traded Funds
REIT - Real Estate Investment Trust
Futures and Options
SDL
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
Similar to Bond
MP < 1 Year
Issued at Discount and Redeemed by Face Value
Issued by Banks, NBFC and Companies
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 Day Lending - Call Money
1 to 14 Days - Notice Money
> 14 < 1 Year - Term Money
CBLO
Collateralised Borrowing and Lending Obligation
Bank to Bank by Means of Collateral
CBLO has been replaced by another tool called Tri Party Repos
Tri Party Repos / Also Called Market Repos
Tri Party Repos
RBI is Never a Intermediary No Matter What
CCI and TREX are Examples of Intermediary
It is like P2P just that G Secs are Sold and Bought Here
It is always for a period less than 1 Year
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
Mutual Funds Companies Mobilise Money from Various INvestors and Invest them in
Shares - Equity Mutual Fund - Can be Long or Short Term
Bond - Debt Mutual Funds - Can be Long or Short Term
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
In Terms of Market Capitalisation - 5th Largest
In Terms of PPP - 3rd Position
In Terms of Nominal GDP - 5th Position
Introduction
Primary Market - Issue of New Financial Instrument
Process of Issue of Shares by a Particular Company
When a Company Issues Share. It can be
Initial Public Offering → first time in the Market is called IPO → Can Never be Rights Issue
Follow on Public Offer → for the subsequent times, issuances of shares
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
Rights Issue → When Only the Existing Shareholders can buy Shares
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
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
It is located in the Dalal Street
NY Stock Exchange is located in Wolf Street
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
BSE is India's First Listed Stock Exchange - It has its shares Listed in BSE and NSE
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
It Deals with the Share Price of Top 30 Companies
Top 30 is decided by Market Cap by BOD
Sensex is a Kind of Barometer
NSE
Intro to NSE NSE Nifty
It Deals with the Share Price of Top 50 Companies
Some Companies of Sensex, would be a part of NIFTY. Hence Changes in Sensex or NIFTY will show effects on
Indian INXNSE IFSC Ltd Metropolitan Stock Exchange
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
More no of shares have been issued as large number of companies were listed on stock exchange
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
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
This Strategy is called Carry Trade
Sometime the Carry Trade is not good for India → when Investors will borrow from India and Invest in USA
Basically investors take advantage of difference of rate of interest between two countries
T + 1 Settlement
Settlement of Transaction Means →
T Means Trade → T+2 → Within 48 Hours
T+1 Means → Within 24 Hours of Transaction Maximum → SEBI has made it voluntary
BSE & NSE Have Started Implementing it
Market Infra Institutions
Like NBFI → In Capital Market. We have MII has
Demat Account is where you can store your financial instruments
It is stored in depositories
There are Two Depositories in India
NSDL - National Securities Depository Limited
CSDL - Central Securities Depository Limited
They are Regulated by SEBI
But the Demat Account is opened with Depositories by means of Intermediaries like
Bank → ICICI, SBI
Fin Tech → Groww & Zerodha
Clearing Corporation
It is used for Settlement of Transactions
Example Are :
India Clearing Corporation Ltd (BSE)
NSE Clearing Ltd (NSE)
Retail Investor
In General Someone who invests money in small amounts
According to SEBI, A Retail Investor is someone who makes a transaction of less than Rs 2 Lac in one Single Transaction
Not on the Basis of Total Transaction
Importance ? → When a Company Issues Shares, it ca reserve certain percentage of shares for retail investors
Opposite of Retail Investor is Institutional Investor
Bullish and Bearish Market
Bull Market → Capital Market is Doing Good → Market is Going Up
Bearish Market → Capital Market is Not Doing Good → Market is Going Down
Blue Chip Companies
Any Companies whose shares are in Great Demand are called Blue Cheap Companies
ESOP & Sweat/Sweet Equity
ESOP - Employee Stock Option Plan
If cost of each share is equal to Rs 12
Given at Discount to Rs 10
Number of Shares Rs 10
Total 100
Companie will say that once you get the ESOP you can't sell the share for next 2 to 3 years
Risk Sharing
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
In Case of Sweat Equity Share is free of cost, Whereas ESOP is a Part of their Package
Private Equity
It is always in a Unlisted Indian Company
Venture Capital is a Part of Private Equity
Golden Share
A Person who has this share, can veto (reject) the decisions of a company
There are Two Ways to See it
When the Shareholder is having > 51% Ownership
As a Shareholder, I may have < 51%, but can still veto
It is not a prominent thing in India
Brazilian Govt has a Golden Share in a Pvt Company which is Strategic called Manyata Aircraft
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
It is an agreement between an investor at a future rate at a predetermined price
For this Agreement, I have to pay some amount
Generally Its more used by FDI by Institutional Buyers
De Mutualisation
Ownership & Management of Stock Exchanges should be completely separated
To Avoid Conflict of Interest
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
In Domestic Market SPAC can also be used for diversion of Black Money
International Financial Service Authority has enabled SPAC in GIFT City of Gujarat
Accredited Investors
Certain Category of Investors are Prohibited from INvesting in certain Riskier Instruments like Currency Derivatives and Hedge Funds
Normal Investors are not allowed investing in Accredited Investors
But Accredited Investors are Allowed - Rest from Image
IC15
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
P - Current Market Price of Share && E - Earning Per Share
P/E Higher When - Price is higher and Earning is Less
P/E is 1 - Price and Earning is Same
Price Increases Because
High Demand - Due to High Profit Expectation
Money Supply in Economy is Higher - High Liquidity
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
Loans
Shares
Bonds
Debentures
Commercial Papers
Capital Raised by Indian Company from Outside India Overseas
Indian Company Issuing Shares in Other Countries
Prior to 2022 Indian Companies were not Allowed to Issue Shares in Foreign Market Before 2022
FPI - Investor Based in USA, Comes to Domestic Market, Invests in Infosys Shares
ADR - Investor Based in USA, Buys within USA, the Shares of Infosys
ADR - American Depository Receipt - For America - Denominated in USD
GDR - Shares Issued by Indian Company Anywhere Across the Globe - Denominated in Respective Countries Receipt
GDR - Global Depository Receipt - For Other Companies
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
Buyers Credit → Company Arranges Loan and Gives Money to Seller
Seller's Credit → Seller Says Baad Main Paisa De Dena
FDI Into India are
FCCB
FCEB
ADR/GDR
Other Types of Bonds
Plain Vanilla Bond
Any Bond which is issued by Indian Company in Overseas Market, denominated in Rupees is called Plain Vanilla Bond
Social Impact Bond
Money Spent by Government is not Creating Impact. Hence Social Impact Bond is Created
Here Bond is an Agreement between Govt and Private Sector and this Sector enters into agreement with NGO to meet Specific Targets and Requirements
Examples
Utkrisht Bond launched by USAID being the Donor Agency to Reduce IMR and MMR
Benefits
Faster Implementation of Scheme
Reduced Burden of Government
a Bottom Up Approach
Encourages Role of Cooperation between Private Sector and Social Infra
Help of Specialised Assistance from Pvt
NGO’s doing good work will be rewarded
More Accountability and More Specialization
Summary
Sovereign Green Bond
Elephant Bond
Sovereign Gold Bond
Summary
Present State
Domestic Production : 1 Tonne
Annual Import : 980 Tonnes $40 Billion
Reasons for Higher Import
Cultural Reasons
an investment bet - indians consider it as secure investment option
can be used in emergency purpose - can be liquidated easily
Implications of this Import
Higher Dollar Outflow
Affects Overall Investment in Economy
Solution
Sovereign Gold Bond is a Special G Sec issued by Govt
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
Here there is NO gold secured at side for this bond
Its based on common acceptance
Benefits
No Security Risk
No Storage Risk
RoI
can use it as collateral to take loans from Bank
can be traded on stock exchanges
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
Problems with Physical Gold
Stealing, Degradation
Making Charges
Oil Bond
Prior 2010
Prior 2010 - Administered Pricing Mechanism - It used to give subsidies under Petrol and Diesel
Subsidy to Oil Market - Load on Fiscal Deficit
Fiscal Deficit Limit under FRBM Act - 3% of GDP
UPA Govt Issued Oil Bond to Oil Market Companies
Face Value - Under Recovery Amount = Subsidy
ROI - Some Int
MP - 15/20 Years
Govt Said that Oil Bonds will not be included in fiscal deficit of government
But it will be included in Public Debt
Difference Between Fiscal Deficit and Public Debt
Fiscal Deficit - Flow → for a Year
Public Debt - Total Outstanding Loans - Stock → Total Cumulative
These Oil Bonds can be Sold to Banks and they pay face value amount to oil company → this is done for immediate money
Oil Bonds are NON SLR Securities
Post 2010
Administered Price Mechanism Stopped
No Oil Bond Issued by Govt Since then
At about Rs 1.2 Lac Crore has to be given
Features
Not Included in Govt Fiscal Deficit but it is counted in Public Debt
It is Non SLR Security
Inflation Index Bond
Not in News Since 2013 - but asked in 2022
Surety Bond
Prior to Surety Bond
Govt Awards Project
Govt Gives Timeline & Specification
Earlier Pvt Sector had to give Guarantee of Completion
Pvt Sector would take Bank Guarantee of 100 crore by paying a premium of 1 crore ; just like a insurance
If Pvt Sector is not able to complete the project, the bank would have to pay the govt Rs 100 Crore
Bank Factor
Problem - Rs 100 Crore by Banks to be Paid ka Issue
Benefit - Rs 1 Crore Benefit Anyways
With Surety Bonds
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
If pvt sector does not complete project, risk falls on Insurance Company
if pvt sector completes the project, insurance companies earns a profit of Rs 1 crore
Usage
Can be used in Road, Railway, Airport Creation
To Reduce Pressure on Bonds
Mind Map
Credit Default Swap
Investors Take Insurance from a Company, like anyone else does
Benefits
Guarantee of Principal Amount
Risk of Investing in Financial Instrument Reduces
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
NGO’s can be registered as
Trust
Societies
Companies - Section 8 Companies → Not for Profit Companies - Set Up for a Social Cause
Benefit - Selling & Buying of Bullion Depository Receipt
Selling and Buying of these Bullion Depository Receipt is done on Bullion Stock Exchange
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
FDI
Unlisted Company → Under Unlisted Companies
Listed Company → FI Buys 10% or More Shares, It is treated as FDI
FPI
Listed Company → Foreign Investor buys Less than 10% of Shares of Indian Company
Foreign INvestment in Bonds, Debentures or REIT’s, InVITS, G Secs
What are Offshore Derivative Instruments
in FPI - a Foreign Investor buys various Instruments from Foreign Market
For this it has to register to SEBI
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
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
This MF Company will issue P Note (Participatory Notes) as a Receipt
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 :
as it is based in Other Country
Derivative :
Because Investor is not directly investing
the P Note Derives its values from the value of share of Indian Company
Concerns with FPI
Investment of Black Money by Means of P Note Investment through a FPI
No Transparency so as to from where this FPI has gotten money from
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
Example of Haveli and Heritage Hotel
Govt Brownfield Assets - They are Inefficiently Utilised
