Friday, 6 August 2021

Foreign Direct Investment (FDI)

Market size


According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 521.47 billion between April 2000 and December 2020, indicating that the government's efforts to improve ease of doing business and relaxing FDI norms have yielded results.

FDI equity inflows in India stood at US$ 51.47 billion in 2020-21 (between April 2020 and December 2020). Data for 2020-21 indicates that the computer software and hardware sector attracted the highest FDI equity inflows of US$ 24.39 billion, followed by the construction (infrastructure) activities (US$ 7.15 billion), service sector (US$ 3.86 billion) and trading (US$ 2.14 billion).

In 2020-21 (between April 2020 and December 2020), India received the highest FDI equity inflows from Singapore (US$ 15.72 billion), followed by the US (US$ 12.83 billion), the UAE (US$ 3.92 billion), Mauritius (US$ 3.48 billion), Cayman Islands (US$ 2.53 billion), the Netherlands (US$ 2.44 billion) and the UK (US$ 1.83 billion).

In 2020-21 (between April 2020 and December 2020), Gujarat received the highest FDI equity inflows of US$ 21.24 billion, followed by Maharashtra (US$ 13.64 billion), Karnataka (US$ 6.37 billion) and Delhi (US$ 4.22 billion).

Investments / Developments

Some of the significant FDI announcements made recently are as follows:
  • In the first nine months of FY21: Total FDI inflows amounted to US$ 67.54 billion, a 22% YoY increase.
  • February 2021: Amazon announced to start manufacturing electronic devices in India from 2021
  • January 2021: Amazon partnered with Startup India, Sequoia Capital India and Fireside Ventures to launch an accelerator programme to support early-stage start-ups take their brands to international markets and boost domestic exports.
  • November 2020: Rs. 2,480 crore (US$ 337.53 million) foreign direct investment (FDI) in ATC Telecom Infra Pvt. Ltd. was approved by the Union Cabinet.
  • In November 2020: Amazon Web Services (AWS) announced to invest US$ 2.77 billion (Rs. 20,761 crore) in Telangana to set up multiple data centres; this is the largest FDI in the history of the state.
  • Since April 2020, the government has received over 120 foreign direct investment (FDI) proposals worth Rs. 12,000 crore (US$ 1.63 billion) from China. Between April 2000 and September 2020, India received US$ 2.43 billion FDI from China.
  • According to the Reserve Bank of India (RBI), India’s Outward Foreign Direct Investments (OFDIs) in equity, loan and guaranteed issue stood at US$ 1.85 billion in February 2021 vs. US$ 1.19 billion in January 2021.
Government Initiatives
  • March 2021: The parliament approved a bill to increase foreign direct investment (FDI) in the insurance sector from 49% to 74%.

  • March 2021: Mr. Shripad Naik, the Minister of State for Defence, stated that a total of 44 Indian companies, including public sector units, have received approvals related to FDI for joint production of defence items with foreign organisations.

  • December 2020: The Government of Uttar Pradesh agreed to provide Samsung Display Noida Private Limited with special incentives to set up a mobile and IT display product manufacturing unit. Under the Central Government's scheme for promotion of manufacturing electronic components and semiconductors (SPECS), Samsung will also receive a financial incentive of Rs. 460 crores (US$ 62.61 million). This project will develop a global export hub in Uttar Pradesh and will help the state attract more foreign direct investments (FDI).

  • December 2020: Changes in the guidelines for the provision of Direct-to-Home (DTH) services have been approved by the Union Cabinet, enabling 100% FDI in the DTH broadcasting services market.

Tuesday, 3 August 2021

Stock Market Basics

 Who is a broker?

 

A broker is a member of a stock exchange, who is permitted to do equity trades there.  Broker is an enrolled member of the exchange and is registered with SEBI. A broker is an intermediate person (or a company) between an investor and a stock exchange. They buy & sell shares and other securities for investors in the stock market. Please note that an investor cannot directly deal with the stock exchange.

 

What is an ISIN Number?

 

ISIN (International Securities Identification Number) is a unique identification number for a security across the universe.

 

How is SENSEX decided?

 

Sensex, generally a stock market index, was launched in 1986 by BSE (Bombay Stock Exchange). It evaluates the fluctuations in stock prices of 30 big companies in terms of market value, turnover, profit etc. The value of the Sensex is calculated on every minute basis. If the Sensex is going up that means the stock price of most companies of BSE is increasing and if the Sensex is going down that means the share price of most BSE companies is decreasing. The base year of the Sensex is 1978-79 and the base index value was set at 100.

 

What is MID CAP?

 

According to the current market, companies are categories in large-cap, mid-cap and small-cap companies. Company's capitalization is calculated on the basis of the total number of its outstanding shares in the market multiplied by the current price per share. The mid-cap companies’ market capitalization lies between Rs 5,000 - 20,000cr. Mid-cap companies are considerably smaller than large-cap companies in comparison to revenue, profitability, employees, client base, etc.

 

What is Future and Option?

 

Future Contracts

Options

Future Contracts are a type of derivatives deriving value from an underlying instrument.

Options are a type of derivatives deriving value from an underlying instrument.

In future contracts, the buyers and sellers must be agreeable on a specific future date for trading before the expiration date.

Gives rights, not the obligation to the investor to buy or sell before the contract expires. Only buyer or seller has an obligation to buy or sell.

Buy and sell at an acceptable future price.

Buy and sell at the strike price.

Helpful for institutional investors to trade in big quantities.

Helpful for retail investors to trade in a certain quantity.

Futures are comparatively riskier than Options

Options are less Risky than Futures.

Can provide unlimited loss and profit to the buyers.

Can provide unlimited profit but limited loss contract to buyers.

 

 

Why do share prices move up and down?

 

The answer in two words is "Demand & Supply". For example, if there is more demand for shares of a company and less people are willing to sell them, the share will move upwards and if there is a huge supply but no one is interested in buying shares at the current price, the share will move downwards.

 

Also there are many factors involved in this including the company's financial result, overall economy situations, sector performance, government rules & regulations, major political & natural events, future of the company, upcoming products & services, company management changes, stock market frauds  etc. Any one of them and many more factors affect demand & supply of a company stock and ultimately move its prices to go up & down. Thus, it is very hard to predict stock movement and require lots of research and expertise.

 

The difference between stockholder and stakeholder?

  • A stakeholder can or cannot be the shareholder in a company but a shareholder is always a stakeholder.
  • A shareholder has at least one stock in the public company and interest in stock performance, whereas a stakeholder has an interest in the company's performance.
  • A shareholder can be an institution, company and individual holding thestocks and a stakeholder can be employees, supplier, owner, vendors, customers,and bondholders.
  • A shareholder can buy or sell the stocks frequently based on their needs,but stakeholders are concerned with the long term need and performance of the company
  • A shareholder is the owner of the company whereas a stakeholder can or can or cannot be the owner of the company. 

What is Thematic Investing?

 

Thematic Investing is  a way to make investment decisions based upon emerging themes — themes that are identified by looking at the intersection of shifting economics, demographics, psychographics, technologies, mixed with regulatory mandates and other forces. It is based on predictions about trends rather than on past performance of the market or the fundamentals of a specific company.

 

The closest comparison of thematic investment is Exchange Traded Funds (ETF's). Thematic investment offers a lot more flexibility over ETFs as the companies to invest in a theme are identified by the broker, fund-manager or even a group of people in a community.


How different is Thematic Investing from Mutual Funds?

 

In Thematic Investing, an investor investing in a portfolio of company shares instead of individual stocks. Thematic Investing is a recent concept and not very popular yet but if anyone compare between Thematic Investing and Mutual fund, there are some differences which makes thematic investing better than mutual fund investing in many ways:

  1. Investor can customize Thematic Investing but mutual funds can't be customized.
  2. Mutual funds comes with many other charges and expense which is usually around 2% - 2.5% of the investment. But in case with Thematic Investing it's very low compare to mutual fund.
  3. In thematic investing, investor can rebalance/redeem/ invest at any point of time. But in mutual fund, it is the Fund manager who decides the fate of investors
  4. Mutual funds have too many stocks in their portfolios, thematic has few.

 

What are the different types of derivatives?

 

There are four different types of derivative contracts-

  • Futures contracts: Futures are traded on BSE or NSE exchange and is a standardized contract to buy or sell the underlying at a specified price, at a certain date.
  • Forward contracts: Forwards are traded in OTC markets and is a customized agreement between two individuals to buy or sell underlying assets at a specified date, at a certain date in future.
  • Options contracts: Options gives the right, but not an obligation, to buy or sell the underlying asset at a certain date and at a specified price. Options are traded in both OTC markets and BSE, NSE exchanges.
  • Swaps: It is a contract made between two financial institutions to exchange cash flows in the future. Swaps do not derive their value from any underlying instrument. These contracts are traded in OTC markets only.

Is Demat account required for Options Trading?

 

Options contracts in India are settled in cash and there are no deliveries involved. The profit/loss arising from the transaction is settled in cash. The profit will be credited to investor account and loss would be deducted from the trade value. So, a trader doesn't need a demat account for Options trading. However, investor would need a trading account and a linked savings bank account to buy/sell Call and Put options from the exchanges.

Friday, 30 July 2021

Difference between Direct Investment in Shares and Investment in Mutual Funds

Shares are the physical representation of a small portion of a company’s value that is traded in the stock market. When a company goes public and issues shares, the combined value of the shares of the company in the stock market and/or owned by persons, constitutes the total value of the company. As a shareholder, owning a small part of the company means that they can take part in the annual shareholder meets.

 

Mutual funds are a collection of stocks and bonds that are managed by fund managers in an Asset Management Company (AMC). If it is an equity mutual fund, it will contain stocks, while debt mutual funds will contain government bonds and securities. A mutual fund is like a huge basket with shares from several companies.

 

Investment in mutual funds is a form of investment in stocks and bonds that is managed by an AMC or investment house, while direct investment in stocks and shares is an active form of investment, where one can handle the purchase and sale of the same himself. 

 

The following are the key differences between investment in shares and mutual funds:

 

Direct Investment in Shares

Investment in Mutual Funds

Shares are a part of a business’s growth strategy.

Mutual funds are investment options for investors.

Trading in shares requires the shareholder to have a demat account.

Mutual funds do not need a demat account.

An investor has no control over the actual choice or trade of stocks.

Mutual funds are a portfolio of stocks of companies pre-determined and altered by a fund manager.

Direct investment in shares requires strong knowledge of the stock market and company performances. It is a hands-on activity involving quick market decisions and is better for experienced stock traders.

Mutual funds are managed by a fund manager in an AMC. This external management of the portfolio ensures that there is direct involvement on the part of the investor except at the time of choosing the fund. For this reason, mutual funds are ideal for a new investor who does not know much about the stock market.

Direct investment in shares requires more time and dedication.

The passive nature of mutual funds makes it easier for anyone and everyone with money to take part in it.

A shareholder cannot make a fixed investment in shares directly as the prices fluctuate constantly and need personal attention and prompt trade decision.

Anyone can invest in mutual funds through a fixed monthly Systematic Investment Plan (SIP), as it is managed by a professional.

 

Direct investment in stocks does not offer the protection from negative returns and makes the stocks volatile. Unless anyone is dealing in a significant number of stocks at the same time, their money will be at high risk.

 

As mutual funds hold a diversified portfolio, negative returns are cushioned by the other stocks that do well.

Investment in shares could give quick returns if anyone buys and sells at the right time and chooses high-growth stocks.

Mutual funds have a longer-term growth trajectory and will give good returns only after 5-7 years.

In case of direct investment in shares, shareholders need to pay brokerage to the stock broker.

In case of mutual funds, a mutual fund holder needs to pay fund management charges, a front-end load upon initial purchase, back-end load upon sale, early redemption charges, etc.

While dealing with shares, shareholders may not be able to juggle with a large portfolio.

It is easier for mutual fund holders to diversify the portfolio using mutual funds as there are options such as hybrid funds.

Direct investment in shares can give tax benefits only under Section 80CCG of the Income Tax Act.

Tax benefits on mutual funds can be claimed under Section 80CCG as well as 80C of the Income Tax Act if it is an Equity-Linked Savings Scheme (ELSS).

 

Whether a person invests in shares or mutual funds depends on their knowledge and experience of the market and the amount of time they have. Mutual funds are a great investing instrument if such people are a dilettante and aim for a steady growth of wealth. But if a person is a stock market virtuoso and has enough time in hand, direct investment in shares is a better choice.

Tuesday, 27 July 2021

Rights Issue

A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights. With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.


Until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares. The rights issued to a shareholder have value, thus compensating current shareholders for the future dilution of their existing shares' value. Dilution occurs because a rights offering spreads a company’s net profit over a larger number of shares. Thus, the company’s earnings per share decreases as the allocated earnings result in share dilution.

Companies most commonly issue a rights offering to raise additional capital. A company may need extra capital to meet its current financial obligations. Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money.

As a shareholder, there are three options with a rights issue.
  1. Subscribe to the rights issue in full or
  2. Ignore your rights or
  3. Sell the rights to someone else.
Investors may be tempted by the prospect of buying discounted shares with a rights issue. But it is not always a certainty that you are getting a bargain. In addition to knowing the ex-rights share price, you need to know the purpose of the additional funding before accepting or rejecting a rights issue. Be sure to look for a compelling explanation of why the rights issue and share dilution are necessary as part of a company's strategic plan. A rights issue can offer a quick fix for a troubled balance sheet, but that does not mean that management will address the underlying problems that weakened the balance sheet in the first place.

Friday, 23 July 2021

 Investments / Developments

  • February 2021: The Reserve Bank of India (RBI) cleared the Rs. 34,250 crore (US$ 4.7 billion) acquisition of Dewan Housing Finance Corporation (DHFL) by the Piramal Group.
  • January 2021: Sundaram Asset Management Company announced the acquisition of Principal Asset Management for Rs.  338.53 crore (US$ 46.78 million).
  • January 2021: the National Stock Exchange (NSE) launched derivates on the Nifty Financial Service Index. This service index is likely to provide institutions and retail investors more flexibility to manage their finances.
  • November 2020: LIC took initiatives to facilitate quicker proposal completion by launching a digital application – ANANDA.
  • November 2020: Paytm reported 2x growth in digital gold transactions in the last six months. New customers have increased 50% since the beginning of this financial year and the average order value has increased by 60%.
  • November 2020: The Reserve Bank of India (RBI) announced establishment of its Innovation Hub. In order to encourage access to financial services and goods and foster financial inclusion, this initiative would create an ecosystem. The Innovation Hub of the Reserve Bank (RBIH) is intended to promote innovation across the financial sector by leveraging technology and creating a conducive environment for innovation.
  • VC investments grew to US$ 3.6 billion in July-September 2020 from US$ 1.5 billion in the previous quarter, powered by the mega deals, which included the US$ 1.3 billion raised by the online retailer—Flipkart.
  • On November 6, 2020: WhatsApp started its UPI payment services in India on receiving the National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a graded manner.
  • February 2021: Unified Payments Interface (UPI) recorded 2.29 billion transactions worth Rs. 4.25 lakh crore (US$ 57.67 billion).
  • February 2021: The number of transactions through Immediate Payment Service (IMPS) increased to 318.79 million and was worth Rs. 2.75 lakh crore (US$ 37.31 billion).
Government Initiatives
  • The government has approved 100% FDI for insurance intermediaries and increased FDI limit in the insurance sector to 74% from 49% under the Union Budget 2021-22.

  • In January 2021, the Central Board of Direct Taxes launched an automated e-portal on the e-filing website of the department to process and receive complaints of tax evasion, foreign undisclosed assests and register complaints against ‘Benami’ properties.

  • In December 2020, the Reserve Bank of India issued a draft circular on declaration of dividends by NBFCs, wherein it proposed that NBFCs should have at least 15% Capital to Risk Weighted Assets Ratio (CRAR) for the last 3 years, including the accounting year for which it proposes to declare a dividend.

  • In November 2020, the Union Cabinet approved the government's equity infusion plan for Rs. 6,000 crores (US$ 814.54 million) in the NIIF Debt Platform funded by the National Investment and Infrastructure Fund (NIIF) consisting of Aseem Infrastructure Finance Limited (AIFL) and NIIF Infrastructure Finance Limited (NIIF) (NIIF-IFL).

  • In November 2020, two MoUs were signed—one between India International Exchange (India INX) and Luxembourg Stock Exchange and another between State Bank of India and Luxembourg Stock Exchange for cooperation in financial services, ESG (environmental, social and governance) and green finance in the local market.

  • On November 11, 2020, The Cabinet Committee on Economic Affairs approved continuation and revamping of the scheme for financial support to public-private partnerships (PPPs) in ‘Infrastructure Viability Gap Funding (VGF) Scheme’ until 2024-25 with a total outlay of Rs. 8,100 crore (US$ 1.08 billion).
Road Ahead
  • India is expected to be the fourth largest private wealth market globally by 2028.

  • India is today one of the most vibrant global economies on the back of robust banking and insurance sectors. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players.

  • The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in AUM to Rs. 95 lakh crore (US$ 1.47 trillion) and more than three times growth in investor accounts to 130 million by 2025.

  • India's mobile wallet industry is estimated to grow at a Compound Annual Growth Rate (CAGR) of 150% to reach US$ 4.4 billion by 2022, while mobile wallet transactions will touch Rs. 32 trillion (USD$ 492.6 billion) during the same period.

Tuesday, 20 July 2021

E-Commerce Role in MSME Growth


Introduction

The Micro Small and Medium Enterprises (MSMEs) sector is a key contributor to the socio economic development of the country. India comprises 6.3 crore MSMEs and the number of registered MSMEs increased 18.5% Y-o-Y to reach 25.13 lakh (2.5 million) units in 2020 from 21.21 lakh (2.1 million) units in 2019. The MSMEs sector contributes 29% towards the Indian GDP through its domestic and international trade. The Indian government envisions to double the country’s economy to US$ 5 trillion in five years and to achieve this goal, it aims to enhance MSME’s share in exports and its contribution to the GDP. In addition, in FY22, the government increased (by 2x) MSMEs budget to Rs. 15,700 crore (US$ 2.14 billion) vis-à-vis Rs. 7,572 crore (US$ 1.03 billion) in FY21.

Key initiatives by e-commerce companies to boost MSMEs sales

  • 'SAMARTH’ by Flipkart: - Flipkart, a local platform, developed/introduced Samarth programme to promote Indian artisans, weavers and state handloom industries in July 2019. Through this initiative, the company aims to provide MSMEs an easy access to the online business marketplace and support in terms of business management, storage and account management. Flipkart intends to empower millions of small businessmen, leading to rural India's development with Samarth.

  • ‘MSME Accelerate’ by Amazon: The Company launched this initiative to help MSMEs recover from the aftermath of the pandemic in June 2020. Through this programme, businesses can avail offers and bulk discounts to continue/run their businesses smoothly.

  • Collateral-free loans by Paytm: Paytm launched an initiative to offer unsecured loans of up to Rs.5 lakh (US$ 6,729), at low interest rates, to MSMEs. Under this initiative, Paytm, in partnership with banks and NBFCs, digitised the entire loan process, from application to disbursement, without additional document requirements.

  • ‘Atmanirbhar Section’ by Shopclues:  Shopclues launched an online ‘Vocal for Local’ market platform, which includes locally produced products in various categories such as fashion, footwear, jewellery, groceries and others as part of this initiative,. The company works with thousands of local merchants and promotes local products on the marketplace.

Key Recent Developments Supporting MSMEs

  • April 2021: Amazon announced the 'Spotlight North East’ programme (US$ 25 million) to bring together and provide online support to 50,000 artisans, weavers and small businesses from all eight states in the Northeast by 2025; and boost exports of key commodities such as tea, spices and honey.

  • April 2021: ICICI Bank launched ‘Merchant Stack’, a comprehensive digital banking services that is specially curated for retail merchants. These value-added services enable users—such as merchants, grocers, supermarkets, large retail store chains, online businesses and large e-commerce firms—to meet their banking requirements and further serve their customers amid the pandemic. In addition, users can avail these contactless services on InstaBIZ, the bank’s mobile banking application.

  • April 2021: Vedanta Limited, a leading producer of metals and oil & gas, launched the ‘Vedanta Saathi’ programme, which offers services including channel financing in partnership with a host of banks, NBFCs and fintech firms; soon to be launched e-commerce solutions (such as transparent pricing and live pricing options, direct buy access to a diverse product portfolio with no bar on quantity and easy delivery tracking & micro-logistics); avenues for technical upskilling; opportunities for MSMEs to set up downstream/ancillary manufacturing units near Vedanta’s plants; and a dedicated web portal for MSMEs to interact with Vedanta’s quality, product application, engineering and innovation teams.

  • February 2021: Walmart's Vriddhi programme was extended to Uttar Pradesh, with launch of an e-institute to facilitate small businesses in granting access to skills and competencies across online and offline platforms such as Flipkart's marketplace and Walmart's global supply chain, resp. This new e-institute will benefit 50,000 MSMEs across the country to expand domestically and globally.

  • February 2021: Mastercard and Razorpay joined forces to help small Indian businesses and entrepreneurs embrace digital payments. This partnership will integrate Razorpay's payment processing capabilities with Mastercard's digital banking platforms and card services.

  • February 2021: Bank of Maharashtra collaborated with Vayana Network, a supply chain financing (SCF) platform, to provide financial assistance to MSMEs. Through this partnership, the bank will provide short-term credit to address the budget needs of legitimate corporate dealers/vendors through its Mahabank Channel Financing and Vayana Network scheme.

Friday, 16 July 2021

Private Equity vs. Venture Capital

 Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Private equity investors raise pools of capital from limited partners to form a fund which is known as a private equity fund for the purpose of investment in a company.


The private equity industry is composed of institutional investors such as pension funds and large private-equity (PE) firms funded by accredited investors. As private equity entails direct investment, it often to gain influence or control over a company's operations i.e. a significant capital outlay is required, which is why funds with deep pockets dominate the industry.

The underlying motivation for such commitments is the pursuit of achieving a positive return on investment (ROI). Partners at private-equity (PE) firms raise funds and manage these monies to yield favorable returns for shareholders, typically with an investment horizon of between four and seven years.

Venture Capital is such financing given to startup companies and small businesses that are seen as having potential to breakout i.e. when the price of the asset moves above a resistance area or below a support area. The funding for this financing usually comes from wealthy investors, investment banks, and any other financial institutions. The investment does not have to be financial, but can also be offered via technical or managerial expertise.

Investors providing funds are gambling that the newer company will deliver and will not deteriorate. However, the tradeoff is potentially above-average returns if the company delivers on its potential. For newer companies or those with a short operating history—two years or less—venture capital funding is both popular and sometimes necessary for raising capital. This is particularly the case if the company does not have access to capital markets, bank loans, or other debt instruments. A downside for the fledgling company is that the investors often obtain equity in the company and, therefore, a voice in company decisions.

Key Differences between Equity Capital and Venture Capital

  • Private equity firms mostly buy mature and established companies. The companies may be deteriorating or failing to make the profits which are due to inefficiency. Private equity firms buy these companies and streamline operations to increase revenues. Venture capital firms, on the other hand, mostly invest in startups with high growth potential.

  • Private equity firms mostly buy 100% ownership of the companies in which they invest. As a result, the companies are in total control of the firm after the buyout. Venture capital firms invest in 50% or less of the equity of the companies. Most venture capital firms prefer to spread out their risk and invest in many different companies. As a result, if one startup fails, the entire fund in the venture capital firm is not affected substantially.

  • Private equity firms usually invest $100 million and up in a single company. These firms prefer concentrating all their efforts on a single company as they invest in already established and mature companies. The chances of absolute losses from such an investment are minimal. Venture capitalists typically spend $10 million or less on each company since they mostly deal with startups with unpredictable chances of failure or success.