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MARKET (GSM)
Prakyath
IInd M.Com
Poornaprajna Evening College
Poornaprajna Post –graduation Centre
Udupi
INTRODUCTION :
4%
1. Commercial Banks
12% 2. Bank- Primary Dealers
3. Non-Bank PDs
4. Insurance Companies
38%
7%
5. Mutual Funds
1%
6. Co-operative Banks
3%
0%
7. Financial Institutions
3%
8. Corporates
1% 9. FIIs
10. Provident Funds
11. RBI
22%
9% 12. Others
0%
TYPES OF GOVERNMENT SECURITIES :
Treasury Notes :
longer term than T-bills.
from one to ten years.
semiannual coupon payments.
current owners are registered.
issued in denominations of ₹.1000 or more.
active secondary market.
TYPES OF GOVERNMENT SECURITIES :
Treasury Bonds :
maturities greater than ten years.
denominations in ₹.1,000 or more .
some have call provisions.
Savings Bonds :
nonmarketable and offered only to individuals.
pure discount bonds.
mature in 20 years with semiannual coupon payments.
TYPES OF GOVERNMENT SECURITIES :
• Sophisticated participants
– Enabling adoption of advanced techniques and
processes
• Non participation of RBI in primary market
– Facilitating market based price discovery
• Close coordination between
– debt and monetary managements
– monetary and fiscal policies
Growth in Outright and repo settlement volumes (in Rs. Crore)
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
G-sec Repo
GSM-WEAKNESSES (1)
• Fiscal dominance
– Supply outstripping demand
• Illiquidity
– HTM regime for SLR securities. Any alternative?
• Skewed investor base
– banks, Insurance Companies and RBI account for
sizeable portion of outstanding stock
• Active participants with similar IR exposures
– Herding.
GSM-WEAKNESSES (2)
• Absence of Term Money market
• Lack of retail interest
• Absence of market making
• Not much activity in
– Short selling
• Participants’ inertia – Lazy treasuries?
– Participants do not come in till liquidity improves
– Liquidity will not improve till participants come
– Chicken and Egg problem
GSM OPPORTUNITIES (1)
Latecomer’s advantage - development can be
based on wider experience
Tap latent investor base
Nascent pension sector- a potential large investor
Market G-secs as another investment product,
not as a mandated product
Enhance liquidity
Increase policy Scope.
GSM OPPORTUNITIES (2)
Innovate and introduce new products
To suit diverse investor interests
• Inflation Indexed Bonds
• Interest Rate Options
Scope for calibrated increase in FII
participation
Reduce the load on domestic investors and free
domestic resources
To be considered in light of other implications-
interest rate and exchange rate volatility.
GSM THREATS (1)
Low volume markets vulnerable to
manipulation
Underdeveloped domestic markets for hedging
products may encourage migration off-shore
Opacity of off-shore markets and difficulty of
monitoring and regulation
Lack of sophistication by certain participants
Shallowness of the market
Rapid opening may cause excessive volatility
Slower opening results in losses due to missed
opportunities.
GSM THREATS (2)
Pressure for rapid opening of rupee debt
market to foreign participation
Sovereign insulated from exchange risk
But the market exposed to Interest Rate and
Exchange Rate volatility
Migration to IFRS – implications for valuation
and recognition of P & L.
INVEST
MONEY OUT
OF SAVINGS
& GET
GAINED
MONEY
BACK.
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