Participatory notes are issued to the foreign investors by the brokerages, fund houses, hedge funds that are not registered with SEBI.
These brokerages buy listed Indian securities and then issue Participatory Notes to foreign investors. This is almost like informal ADRs. Any dividend, capital gains generated on the underlying securities is given to the investors.
Since investing in Indian markets is limited to the registered FIIs, PNs provide the alternative though ineligible route for foreign investors to enter Indian markets.
The hedge funds are not registered directly with the SEBI but can operate through sub-accounts in FIIs. These funds are said to operate through issuance of PNs. SEBI is not happy because it does not know who is the underlying owner of the security.
Thursday, July 10, 2008
Wednesday, July 9, 2008
How the Government bowled SLR to stump SBI
I feel it would be best to explain this story in points.
1. SBI releases a rights issue.
2. Government is interested in buying the issue and makes payment in the form of government bonds (G-Secs)
3. The value of the bonds is 9996 crores.
4. Now these bonds do not enjoy the SLR status, which means as per the Indian banking regulations these cannot be held till maturity.
5. Only the G-Secs that have SLR status can be held till maturity and all the other bonds are callable before their term expires.
6. Since these bonds do not have SLR status, they cannot be held till maturity and there value is assessed using mark-to-market method.
7. For for bonds, the yield and price are inversely related. Due to the tough economic conditions the interest rates of the G-Secs have risen and the price has fallen.
8. So, the bonds that are held by the SBI, according to M-to-M method, have fallen in value.
9. This fall in value is around 700 crore.
10. SBI is now reuqesting government to give these bonds the SLR status so that they are held till maturity and theire value does not fall.
1. SBI releases a rights issue.
2. Government is interested in buying the issue and makes payment in the form of government bonds (G-Secs)
3. The value of the bonds is 9996 crores.
4. Now these bonds do not enjoy the SLR status, which means as per the Indian banking regulations these cannot be held till maturity.
5. Only the G-Secs that have SLR status can be held till maturity and all the other bonds are callable before their term expires.
6. Since these bonds do not have SLR status, they cannot be held till maturity and there value is assessed using mark-to-market method.
7. For for bonds, the yield and price are inversely related. Due to the tough economic conditions the interest rates of the G-Secs have risen and the price has fallen.
8. So, the bonds that are held by the SBI, according to M-to-M method, have fallen in value.
9. This fall in value is around 700 crore.
10. SBI is now reuqesting government to give these bonds the SLR status so that they are held till maturity and theire value does not fall.
Statutory Liquidity Ratio (SLR)
SLR is the amount of money that the banks need to maintain in the form of cash , gold or other securities. This amount is expresses in the form of percentage and generally depends on the demand and banks liabilities.
SLR is used to help
1) in containing inflation
2) to secure the solvency of banks
3) augment more bank investment in G-Secs' ( by not keeping enough cash at hand)
SLR is used to help
1) in containing inflation
2) to secure the solvency of banks
3) augment more bank investment in G-Secs' ( by not keeping enough cash at hand)
Sunday, July 6, 2008
Fiscal Deficit
Fiscal deficit simply means that government expenditure is more than the earning. Expenditures include the plan expenditures and non-plan expenditures. Plan expenditures can also be said as the capital expenditures and non plan expenditures can be said as the revenue expenditures.
Fiscal expenditure is taken care by either by borrowing or printing money.
When the government borrows money by issuing bonds, in long term, as per the macroeconomic policy, the bond prices fall and interest rates rise. This affects growth.
When the government chooses to print money, it causes inflation.
Fiscal expenditure is taken care by either by borrowing or printing money.
When the government borrows money by issuing bonds, in long term, as per the macroeconomic policy, the bond prices fall and interest rates rise. This affects growth.
When the government chooses to print money, it causes inflation.
Current Account - Surplus/Deficit
Current Account is composed of three entities
Current Account = Balance of Trade + Net Payments + Net Transfers
Balance of Trade = Exports - Imports
Net Payments = Money received from investments abroad - remittances
Net Transfers = International Aid (ignore)
Current Account deficit(X) can be said as the function of exchange rate(p), domestin GDP (d), foreign GDP (f). Thus X=f(p,d,f)
P (exchange rate) = current account improves (goes in surplus) if the currency depreciates. This helps in boosting exports.
Domestic GDP = CA improves if the domestic GDP falls. This reduces demand for foreign goods. So less imports.
Foreign GDP = An increase in foreign GDP helps boost domestic exports and improves current account
Current Account = Balance of Trade + Net Payments + Net Transfers
Balance of Trade = Exports - Imports
Net Payments = Money received from investments abroad - remittances
Net Transfers = International Aid (ignore)
Current Account deficit(X) can be said as the function of exchange rate(p), domestin GDP (d), foreign GDP (f). Thus X=f(p,d,f)
P (exchange rate) = current account improves (goes in surplus) if the currency depreciates. This helps in boosting exports.
Domestic GDP = CA improves if the domestic GDP falls. This reduces demand for foreign goods. So less imports.
Foreign GDP = An increase in foreign GDP helps boost domestic exports and improves current account
petro dollars
Petro Dollars refer to the money (dollars) earned by the OPEC countries and then putting this money back in the US banks.
The money that oil exporters receive from selling oil and then deposit into Western banks. Petrodollars are also known as petrocurrency. - investopedia
The money that oil exporters receive from selling oil and then deposit into Western banks. Petrodollars are also known as petrocurrency. - investopedia
Thursday, July 3, 2008
Right Issue, Open offer, Tender Offer
Right Issue: Here a company would like to raise by issuing more shares in the secondary market. In right issue the company offers additional share to its already existing share holders. The subscription price is usually lower than the market price
http://www.stock-investment-made-easy.com/rights-issue.html
Open Offer: An open offer is similar to the rights issue. What happens in this case is that here a company offers it shares to the existing share holders at a discount. But these share holders cannot sell these shares in the secondary market. This is also known as the entitlement issue.
http://moneyterms.co.uk/open-offer/
Tender Offer: In tender offer, the company (say A) which wants to acquire another company (say B) offers the shareholders of B to buy their shares at a premium. This is done to increase the stake of B in A.
http://www.stock-investment-made-easy.com/rights-issue.html
Open Offer: An open offer is similar to the rights issue. What happens in this case is that here a company offers it shares to the existing share holders at a discount. But these share holders cannot sell these shares in the secondary market. This is also known as the entitlement issue.
http://moneyterms.co.uk/open-offer/
Tender Offer: In tender offer, the company (say A) which wants to acquire another company (say B) offers the shareholders of B to buy their shares at a premium. This is done to increase the stake of B in A.
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