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.

(Source: https://www.ibef.org/economy/foreign-direct-investment.aspx)

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.

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.

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.

 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.

(Source: https://www.ibef.org/industry/financial-services-india.aspx)

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.

(Source: https://www.ibef.org/blogs/role-of-e-commerce-in-msme-growth)

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.

Securities Transaction Tax (STT)

STT is a direct tax levied on every purchase and sale of securities that are listed on the recognized stock exchanges in India. STT is governed by Securities Transaction Tax Act (STT Act) and STT Act has specifically listed down various taxable securities transactions i.e., transactions on which STT is leviable. STT is charged in respect of the taxable securities transaction as mentioned in Section 98 of Securities Transaction Tax Act.

As per Section 100 of Securities Transaction Tax Act,

• Every recognised stock exchange shall collect the securities transaction tax from every person, being a purchaser or a seller, as the case may be, who enters into a taxable securities transaction in that stock exchange, at the rates specified in section 98.
• The prescribed person in the case of every Mutual Fund shall collect the securities transaction tax from every person who sells a unit to that Mutual Fund, at the rate specified in section 98.
• The lead merchant banker appointed by the company in respect of an IPO shall collect the securities transaction tax from every person who enters into taxable securities transaction referred to in sub-clause (aa) of clause (13) of section 97 at the rate specified in section 98.

Every recognised stock exchange or by the prescribed person in the case of every Mutual Fund [or the lead merchant banker in the case of an initial public offer shall deposit the STT by the 7th day of the month immediately following the calendar month in which it is collected. An interest @1% p.m. will be levied on delayed payment of STT.

Rule 7 of Securities Transaction Tax Rules prescribes that The return of taxable securities transactions required to be furnished under sub-section (1) of section 101 of the Act shall,—

1. in the case of a recognised stock exchange, be in Form No. 1 and be verified in the manner indicated therein;
2. in the case of a Mutual Fund, be in Form No. 2 and be verified in the manner indicated therein.

The return of taxable securities transaction entered into during a financial year shall be furnished on or before the 30th June immediately following that financial year.

Steps for payment of Securities Transaction Tax:

1. Click on link https://www.tin-nsdl.com/services/oltas/e-pay.html
2. Click on Click to pay tax online on the right side of the webpage
3. Click on Proceed button under tab CHALLAN NO./ITNS 282
4. Select Tax Applicable o (0034) Securities Transaction Tax& scroll down Financial Year as applicable
5. Under type of payment select o (300) Self-Assessment tax
6. Under mode of payment o Net Banking & scroll down Bank Name
7. Mention Permanent Account No(PAN) of selling shareholder
8. Select Assessment year as applicable
9. Mention full address with city, state, pin code
10. Enter Captcha Code
11. Click on proceed to pay the tax

Issue of Bonus Shares

 A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout. For example, a company may give one bonus share for every five shares held.

Bonus issue means offer of free additional shares to the existing shareholders. A company may decide to distribute further shares as an alternative to increase dividend payout. Bonus shares may be issued by company to restructure the company’s reserves. Issue of bonus shares will increase the company’s cash flow but the net asset of the company will remain same.

Major Points for issuing Bonus Shares:

1. Issue of Bonus shares article should be existed in Articles of Association of the company;
   
   
2. Sufficient authorised capital to issue bonus shares;
   
   
3. There is no default of the company regarding
• Payment of interest of principal of fixed deposit or debt securities
• Payment of statutory dues of the employees such as, contribution to PF, gratuity and bonus. [Section 63(2)(c)(d) of the Companies Act, 2013]
  
  
4. There should not be partly paid-up shares outstanding on the date of allotment;
   
   
5. Bonus shares must have to be fully paid up It can be issued out of Free Reserves, the Securities Premium Account or the Capital Redemption Reserve Account
   
   
6. Issue of Bonus shares will increase in number of shares of the Company but it can reduce the share price.
   
   
7. The board, recommending a bonus issue, shall not subsequently withdraw the same.

Bonus Issue Process:

1. Notice and agenda for conducting the Board meeting should be circulated at least 7 days prior to the Meeting.
   
   
2. The Board Meeting should be recommended for
   
• Considering and recommendation of issue of Bonus Shares to the existing shareholders.
• Deciding the ratio and quantum of issuing bonus shares.
• Fixing up the day, date, time and venue for Extraordinary General Meeting of the shareholders of the company and approving the notice convening said meeting.
  
  
3. Form MGT-14 should be within 30 days of passing of Board Resolution.
   
   
4. Sending of the notice of General Meeting to the Members of the company more than clear 21 days notice either in writing or through electronic mode in such manner prescribed under the act.
   
   
5. Convening the General Meeting of the company for taking approval for bonus issue.
   
   
6. Conducting Board Meeting for passing of resolution for allotment of shares and issuing share certificates.
   
   
7. Filing of return of allotment in Form PAS-3 within 15 days from the date of passing Board Resolution for Allotment.
   
   
8. Updation of Members Register.

Open Offer

An open offer takes place when the company wishes to raise capital efficiently. As a secondary market offering, the open offer allows stakeholders of a company to buy shares/stocks at a lower price when compared to the stock's prevailing market price.

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 deals with open offer procedure. The term ‘Takeover’ has not been defined under the said Regulations, the term basically envisages the concept of an acquirer taking over the control or management of the target company. When an acquirer acquires substantial quantity of shares or voting rights of the target company, it results in the Substantial acquisition of Shares.

The events which triggers for making an open offer are:

1. Any acquisition of shares or voting rights in the target company by the acquirer and PAC which entitle them to exercise in aggregate 25% or more voting rights.
   
   
2. Any acquisition of shares or voting rights exceeding permissible creeping limit (5%) in a financial year. This situation arises in cases where the acquirer and PAC have acquired and holds shares or voting rights in the target company which entitles them to exercise 25% or more but less than maximum permissible non-public shareholding and further acquires more than 5% shares or voting rights in a financial year.
   
   
3. Acquisition of shares by any person such that the individual shareholding of such person acquiring shares exceeds stipulated thresholds irrespective of whether there is a change in the aggregate shareholding with the PAC.
   
   
4. An indirect acquisition of shares or voting rights requiring an open offer would be considered as direct acquisition, for pricing, timing of open offer and other compliances/requirements of open offer, where the proportionate net assets or sales turnover or market capitalization of the target company as a percentage of the consolidated net asset or sales turnover or the enterprise value for the entity or business being acquired is in excess of 80% on the basis of the most recent audited annual financial statements (Deemed Direct Acquisition).
   
   
5. Any revision in voluntary offer size made by the acquirer within 15 working days from the PA of the competing offer.

Minimum open offer size in case of direct and indirect acquisition of shares or voting rights or control over the target company is 26% of the total shares of the target company.

1. The open offer process includes:
2. Filing of Public Announcement,
3. Filing and Publication of Detailed Public Statement
4. Opening and deposit in Escrow account
5. Filing and submission of Draft Letter of Offer with SEBI for issuing observation
6. Sending of Letter of Offer to Shareholders
7. Filing and Publication of Offer Opening Public Statement
8. Filing and Publication of Recommendation of Independent Directors of Target Company
9. Tendering of Shares through Stock exchange mechanism
10. Payment to tendering public shareholders from Escrow Account
11. Filing and Publication of Offer Closing Public Statement
12. Filing of Post Offer Open Report with SEBI

Financial Tips for a Start-up Business

It is well known that it is quite tough to do a start-up business and lots of businesses face difficulty due to cash-constraint. Thus, the following financial tips will be beneficial for a start-up business.

1. Keep a focus on customer acquisition- In the beginning, a start-up business will not have customers and it becomes important to invest a significant amount towards customer acquisition. For earning an income, your business will need customers. Some tactics which can help in earning customers are- ensuring that the product or service sold is up to the mark, attracting the local customer which will do the effective word-of-mouth marketing, and focusing on online marketing which will provide a wide reach at an affordable price.
   
   
2. Do outsourcing wherever possible- Practically, it is not always possible to accomplish every work with the help of in-house departments. Outsourcing a job from a specialized outside agency can lead to high-quality results and will also save your money because paying salaries and hourly wages to in-house staff are much expensive than paying an outside agency. Some of the probable jobs for outsourcing are Public Relations (PR), Human Resources (HR), and Marketing.
   
   
3. Possess a positive attitude- Attitude is a very important feature which can help you to achieve success. A start-up business is not a smooth journey and you can experience downfall before achieving success. You should always be prepared to experience a bad situation and should not give up easily. One important thing that should be done is taking care of personal finances so that you can avoid the financial crisis.
   
   
4. Proper Measurement and monitoring of performance- Being a start-up, it is very crucial to keep a track of business’ expenses. The accounts department should update with the financial transactions including both past and present financial statements. This will give you a clear picture of whether your business is under performing or over performing and will help you to amplify efficiency.
   
   
5. Value your time- Time can be your best friend which will help you to earn money if it is used effectively. Your start-up needs to grow in a short span of time and should start earnings before your money runs out. Every minute is important and time should be utilized productively in completing a task, making a deal, generating revenue, or strategizing for the future.

If anyone keeps all these things in his/ her mind, then there is a great possibility that his start-up business will flourish and reach new heights.

Impact of Shares Buyback

 A share buyback has various impacts on a company's financial and other aspects.

• Boost in Share Price
  The buyback generally has a positive impact on share prices. The buyback of shares will increase stock price. The buyback would shrink the supply of shares in the market on one side. On the other hand, with an increase in the EPS, people would prefer to buy the stock leading to a sudden demand for such securities. With higher demand and lesser supply, the prices of the shares get boosted.
  
  
• Increase in Earnings Per Share
  With the buyback of shares, the total number of outstanding shares in the market reduces. With earnings remaining the same and the number of Equity Shares reducing, the Earning Per Share ratio shows a significant improvement.
  
  
• Improvement of Financial Statements
  The buyback of stock will also have a positive impact on the financial statements reflecting an improved return on asset and return on Equity with a reduction in assets by way of reduced cash holding used to buy back the stock and a reduction in the number of Equity shares with the repurchase of shares.
  
  
• Increase in Shareholder Value
  With the reduction in the number of equity shares in the market, the percentage of ownership held by each shareholder increases leading to an increase in the shareholder value.

Buy-back is a corporate action in which a company buys back its shares from the existing shareholders usually at a price higher than market price. When it buys back, the number of shares outstanding in the market reduces. A buy-back allows companies to invest in their own shares. Buy-back increases the proportion of shares a company owns by reducing the number of shares outstanding on the market.

Buybacks can be carried out in two ways:

• Companies buy back shares on the open market over an extended period of time.
  
• Shareholders may be presented with a tender offer whereby they have the option to submit (or tender) a portion or all of their shares within a certain time frame and at a premium to the current market price. This premium compensates investors for tendering their shares rather than holding on to them.

Most important reasons of Buyback of shares are –

1. Undervalued stock
   This is one of the main reasons why companies opt to buy back their shares. When the management feels that their stock is undervalued, they adopt the buyback route to rectify the stock price. The stock buyback reduces the number of shares in the market and thus gives a price boost to the remaining shares in the market.
   
   
2. Excess Cash with not many project opportunities
   A company with free reserves in hand but not many project opportunities would prefer to go for a buyback. The company would use the cash to reward the shareholders rather than keeping it idle in the bank account over the required amount.
   
   
3. Strengthen promoter holding in the company
   The company promoters can increase its stake in the company by forfeiting the buyback offer. This strengthens their hold over the company and acts as a defense strategy in the case of hostile takeovers.
   
   
4. To achieve optimum capital structure
   The capital structure of a company gets represented by its debt-equity ratio. Each industry has a different capital structure requirement. Some industries may not be suitable to rely on more debts, whereas some other business models may require large debts to run their business. Thus, as per the company requirement, a company may opt for buyback as a tool and repurchase its equity from the market to achieve an optimum capital structure.

Benefits of Listing on Stock Exchange

Listing is the formal admission of securities/shares of a company to the trading platform of the Stock Exchange. In Layman terms the company’s shares, debentures etc get listed on a particular Stock Exchange and investors can buy in a share also called Equity. So now that we have understanding of the term Listing, let’s get straight to the benefits.

There are several benefits of listing, out of which mostly are as follows –

1. Access to Capital for Growth – As shares in the Stock Exchange, it allows Management to raise larger sum of money. Most companies reach a level wherein additional capital is required to be infused to fund the company’s growth/expansion plans. Therefore, going public helps to overcome these constraints thereby enabling the company to increase its shareholder base which enhances the credibility.
   
   
2. Enhanced Visibility – Going public improves company’s Visibility, Trustworthiness and Reputation among institutions and the investors due to complying with various regulatory norms and ensuring transparency while conducting operations. A listed company attracts the attention of Hedge Funds, Mutual Funds and Institutional Investors.
   
   
3. Increase in Employee Morale – Increased Visibility and Tangibility at the same time improved Public Perception of the Organisation, thereby leads to reinforcement of employee’s value and morale.
   
   
4. Transparency and efficiency - Listing brings transparency and efficiency in the overall operations of the company. The board and management team of a listed company has accountability towards it shareholders. Further, listed companies also need to ensure timely compliance by providing information / disclosure to the Exchange / shareholders as laid down in the Listing Agreement or applicable guidelines.
   
   
5. Liquidity - Listing stimulates liquidity, giving shareholders the opportunity to realize the value of their investments. It allows shareholders to transact in the shares of the company, sharing risks as well as benefitting from any increase in the organizational value.

By complying with the Listing requirements, the operations of the Company becomes more Transparent and Investor Friendly, It further boosts up the Reputation and Prominence of the Company.

Private Equity

Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity typically refers to investment funds, generally organized as limited partnerships, which buy and restructure private companies.

In other words, private equity is a kind of investment fund which is not quoted on a public exchange and is funded by independent or institutional investors who are capable of investing large sums of money for long period of time.

So now when we know that what the private equity is, let’s talk about few of its advantages:

1. Composed Investors: Private equity investors invest to make bigger profit in long run, they don’t look for short term a profit which acts as an added benefit for the company.
   
   
2. Huge funding amount: If the company is growing rapidly and all it needs to become the next big thing is a huge fund then private equity is the best option. It is the best of all the available options if you’re looking for a major investment before you make your next big step.
   
   
3. Selective & significant spend: Private equity firms are extremely selective and spend significant resource assessing the potential of companies, to understand the risks and how to mitigate them. This helps the company to re-evaluate every aspect of company which further helps in controlled growth of the organization.

Now since we already have a decent insight of private equity, why don’t we start talking about the types of equity funds already. Basically, private equity can be broadly classified into the following categories:

1. Venture Capital: Venture capital is a type of private equity fund which is provided by venture capital firms to the startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth. Venture capital generally comes from well-off investors, investment banks and any other financial institutions.
   
   
2. Leveraged Buyout (LBO): A leveraged buyout (LBO) is one company’s acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company.
   
   
3. Distressed Private Equity: In distressed private equity, firms invest in troubled companies’ Debt or Equity to take control of the companies during bankruptcy or restructuring processes, turn the companies around, and eventually sell them or take them public.