FINANCE

COMPENDIUM
INDIAN INSTITUTE OF FOREIGN TRADE, NEW DELHI
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Index

Particulars Page No.

Accounting, Corporate Finance and Valuations Primer 3
Recent M/A Deals 14
Recent IPOs 16
Securities Market 22
Commodities Market 27
Sectoral Outlook 28
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Accounting Formats:

Income Statement: Balance Sheet:

Revenue from operations (Sales)

Other income
Total income
Less: COGS
Gross Profit
(-) Selling, General and Administrative
Expenses
EBITDA
(-) Depreciation
EBIT
(-) Interest
PBT (Profit before Tax)
(-) Tax
PAT
EPS (PAT/No. of Shares Outstanding)
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Cash Flow Statement:

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Corporate Finance
Corporate finance is the division of finance that deals with how corporations deal with funding
sources, capital structuring, and investment decisions

Common decision-making techniques:

 NPV: Net present value is the difference between the present

value of cash inflows and the present value of cash outflows.
NPV compares the value of a dollar today to the value of that
same dollar in the future, taking inflation and returns into
account
Pros: Provides absolute increment in shareholder’s wealth, incorporates time value of
money
Cons: Selection of Discount rate, does not take into consideration the investment size

 IRR: Internal rate of return is the discount rate often used in capital budgeting that makes
the NPV of all cash flows from a particular project equal to zero. Generally speaking, the
higher a project's internal rate of return, the more desirable it is to undertake the project. As
such, IRR can be used to rank several prospective projects a firm is considering
Pros: Simplicity, percentage return easy to compare with discount rate
Cons: No/multiple IRR problem, Reinvestment rate is inherently assumed to be IRR

 Comparison between NPV and IRR:

1. In the case of mutually exclusive projects that are competing such that acceptance of
either blocks acceptance of the remaining one, NPV and IRR often give contradicting
results
2. The conflict arises due to issues of differences in cash flow timing and patterns of the
project proposals or differences in the expected service period of the proposed projects
3. When faced by difficult situations and a choice must be made between two competing
projects, it is best to choose a project with a larger positive net value by using cutoff rate
or a fitting cost of capital

 Profitability Index: Attempts to identify the relationship between the costs and benefits of a
proposed project. It also solves the issue of absolute returns in NPV
Formula: (PV of Future Cash Flows)/ (Initial Investment)
A PI greater than 1.0 indicates that profitability is positive, while a PI of less than 1.0
indicates that the project will lose money. As values on the profitability index increase, so
does the financial attractiveness of the proposed project.

 Payback Period and Discounted Payback Period: The amount of time required for a firm to
recover its initial investment in a project, as calculated from its cash flows.
If PBP < Minimum Acceptable PBP, then accept the project
If PBP > Minimum Acceptable PBP, then reject the project
The only difference between PBP and DPBP is that DPBP takes into consideration the
discounted cash flows.
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M/A and Valuation

Why Valuation?
 Analyzing and selecting investment opportunities
 Evaluating corporate events like M/As, IPOs, spin offs, etc.
 Evaluating business strategies

Merger: Two existing companies into one new Acquisition: A company buys most, if not

company all, of the target company to assume

control

Reasons for M/A:

 Greater market share & access
 Diversification
 Elimination of competition
 Financial interest
 Increase bargaining power with buyers and suppliers

Transaction Characteristics:
Form of Transaction
Method of Payment
Management Attitude
Outcome
 Stock Purchase (Buys Ownership from target)
 Asset Purchase (Buys assets from target)
 Cash/Securities/Combination (Cash+ Securities)
Considerations: Risk sharing between parties, capital structure of acquirer
 Hostile (Against the wish or approval of existing management)
 Friendly (Approach, discuss and enter into an agreement)
 Accretive (Increases acquirer’s EPS)
 Dilutive (Decreases acquirer’s EPS)
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Some Anti-Takeover Measures to prevent Hostile Takeovers:

Pre-offer:

 Poison pills:
Poison pills allow existing shareholders the right to purchase additional shares at a discount,
effectively diluting the ownership interest of a new, hostile party. A flip-in poison pill
strategy involves allowing the shareholders, except for the acquirer, to purchase additional
shares at a discount in the target. On the other hand, a flip-over poison pill is a tactic that
gives existing shareholders of the targeted firm the rights to purchase shares of the
acquiring company at a discounted price.
 Poison puts:
Target company issues a bond that investors can redeem before its maturity date
Designed to increase the cost a company will incur in order to acquire a target company
 Staggered board of directors:
Staggered board is a board that consists of directors grouped into classes who serve terms of
different lengths. Because of this arrangement, it would take much more time for an
unwelcome party to achieve its goal in taking control of the board
 Restricted voting rights:
Shareholders may be restricted from voting on certain issues once their ownership exceeds a
certain percentage. Management might use voting rights plans as a preemptive tactic to
prevent potential acquirers from voting on the acceptance or rejection of a takeover bid
 Supermajority voting provisions:
A provision that states that certain corporate actions require much more than a mere
majority – typically 67%-90% – approval from its shareholders to pass
 Fair price amendments:
Requires potential acquirers of the company to pay “a fair price” (based on historical share
prices) in order to acquire shares. Intended to make the acquisition more expensive and
discourage the acquirer
 Golden parachutes:
Consists of substantial benefits given to top executives if the company is taken over by
another firm, and the executives are terminated as a result of the merger or takeover.
Benefits may include stock options, cash bonuses, and generous severance pay

Post-Offer:

 “Just say no” defense:

Here, the board members reject a takeover bid outright. The legality of this may depend on
whether the target has a long-term strategy that it is pursuing, which can include a merger
with a firm other than the one making the takeover bid, or if the takeover bid undervalues
the company
 Greenmail:
Greenmail is a practice whereby a greenmailer buys up a substantial block of a company's
shares and threatens a hostile takeover. The target then has to repurchase the stake at a
premium
 Leveraged recapitalization:
Corporate Finance transaction in which a company changes its capitalization structure by
replacing the majority of its equity with a package of debt securities consisting of both senior
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bank debt and subordinated debt. Increasing the debt, and thus a company’s leverage acts
as a shark repellent protection from hostile takeovers by corporate raiders
 “Crown jewels” defense:
Last resort defense strategy where target sells its most valuable assets and intentionally
destroy part of its value to reduce its attractiveness to the hostile bidder. These assets might
be sold to a white knight and bought back at a later stage.
 “Pac-Man” defense:
The target company tries to take over the hostile acquirer. Very expensive strategy and may
require selling target’s own assets or borrowing substantial funds

 White knight defense: (Majority Interest)

A 'friendly' individual/company that acquires a corporation at fair consideration that is on
the verge of being taken over by an 'unfriendly' bidder (Black Knight). Current management
typically remains in place
 White squire defense: (Partial Interest)
Similar to white knight, except it buys a large enough stake to just prevent the hostile
takeover. May also sell the stake back to the target after the takeover attempt fails

Valuation:
Discounted Cash Flow:
DCF tries to work out the intrinsic value of a company today, based on projections of all of the cash
that it could make available to investors in the future
Described as "discounted" because of the principle of "time value of money"

Enterprise Value= Equity Value + Debt + Minority Interest – Cash

Steps in DCF Calculation:

1. Estimate the Discount Rate (Weighted Average Cost of Capital/WACC for Enterprise Value or
Cost of Equity/KE for Equity Value)
2. Estimate future earnings and cash flows (FCFF/FCFE) and growth rate of earnings
3. Estimate terminal growth rate and terminal value (This can be done either through DCF or
using multiples)
4. Discount back the cash flows and add them
5. Discount Rate: WACC = E/(D+E) * KE + D/(D+E) * KD * (1-t)
 KE = Cost of Equity
 KD = Cost of Debt
 E = Market value of the firm's equity
 D = Market value of the firm's debt
 E/(D+E) = Proportion of equity in capital structure
 D/(D+E) = Proportion of debt in capital
 t= Corporate tax rate
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Cost of Equity (KE):

The cost of equity is the return a company requires to decide if an investment meets capital return
requirements. There are various ways to calculate KE like:

1. Capital Asset Pricing Model:

 KE = Rf + β * [E(Rm) – Rf], where Rf= Risk-free rate, Rm= Market Return, β= Beta
 Risk-free rate is usually the 10-year government bond rate, since it is usually the
most liquid bond and the DCF projections usually can be for 5/10 years
 Beta is nothing but a measure of volatility of the company’s stock in comparison
with the market. Beta can range from -∞ to +∞. Negative Beta: Negative correlation
with the market and vice versa. Beta of 1 implies movement in line with the market.
 How to calculate Beta?
 Look up the Beta for each Comparable Company, un-lever each one, take the
median of the set and then lever it based on your company’s capital structure
 Un-Levered Beta = Levered Beta / (1 + ((1 - Tax Rate) x (Total Debt/Equity))) Levered
Beta = Un-Levered Beta x (1 + ((1 - Tax Rate) x (Total Debt/Equity)))
 The unlevering-relevering is required to make an apples-to-apples comparison, since
comparable betas reflect the comparable’s capital structure and risks associated
with it
 Cost of Debt: Treasury Bond Rate + Default Risk Premium of the company
 Relationship between KD and KE: If KD increases, KE increases since the investment
and returns of future shareholders became more uncertain because of fixed debt
obligations.

2. Dividend Discount Model/Gordon Growth Model

 KE= (D1/P0) + g, where D1=Dividend for next year, P0= Current share price, g=Dividend
growth rate

 Cash Flows:
We use Unlevered FCF/FCFF to get to the Enterprise Value using DCF.

FCFF= NOPAT (EBIT-Taxes) + non-cash expenses – Increase in Net WC - Capex

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 Terminal Value

Method 1:
Terminal Value = Last year’s Free Cash Flow * (1 + Growth Rate) / (Discount Rate – Growth
Rate)
Here, Growth rate= Perpetual growth rate (Proxy could be long-term GDP growth rate, the
rate of inflation, or something similarly conservative)

Method 2:
We can apply an exit multiple (Using comparables) to the company’s Year 5 EBITDA, EBIT or
Free Cash Flow (Multiples Method)
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Relative Valuation:

Comparable Companies Method:

 Provides a market benchmark and a relevant reference point for valuing a target company
 Share key business and financial characteristics, performance drivers, and risks
 Valuation parameters can be established for the target by determining relative positioning
among peers
 Broad range of applications, most notably for various M&A situations, IPOs, restructurings,
and investment decisions

Precedent Transaction Method:

 Premised on multiples paid for comparable companies in prior transactions
 Broad range of applications, most notably to help determine potential sale price range for
company in M&A or restructuring transaction
 Transaction comps tend to provide a higher multiple range than trading comps for two
principal reasons: Buyers pay “control premium” and often have opportunity to realize
synergies

Steps:

o Select the Universe of Comparable Companies

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Special consideration for Transaction Comps:

Market Conditions (E.g.: Deals during Tech bubble of early 2000s)
Deal Dynamics: Strategic/Financial Buyer, Friendly/Hostile Takeover, Type of Purchase
Consideration (Cash/Stock)

o Locate the Necessary Financial Information (Deal Information for Transaction Comps):
SEC/MCA Filings, Company’s Annual Reports, Sources available at public domain, internal
information from the company, M/A databases, etc.

o Spread Key Statistics, Ratios, and Trading Multiples

Some of the most common multiples: EV/Revenue, EV/EBITDA, EV/EBIT, P/E (Share Price /
Earnings per Share), and P/BV (Share Price / Book Value).
Common Transaction Comps: Offer Price per Share-to-LTM EPS / Equity Value-to-LTM Net
Income, Enterprise Value-to-LTM EBITDA, EBIT, and Sales

o Benchmark the Comparable Companies

1. Benchmark key financial statistics and ratios for target and comparables in order to
establish relative positioning
2. Certain outliers may need to be excluded or comparables may be further tiered (e.g., on
the basis of size, sub-sector, or ranging from closest to peripheral)
3. Analyse and compare trading multiples for peer group
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4. For transaction comps, each deal should be carefully scrutinized. A direct competitor
with a similar financial profile is typically more relevant than an older transaction from a
different point in the business or credit cycle, or for a marginal player in the sector

o Determine Valuation
1. Use means and medians of most relevant multiple for sector (e.g., EV/EBITDA or P/E) to
extrapolate range of multiples
2. Focus on two-to-three closest comparables to frame ultimate valuation
3. Period (LTM, 1-year forward. 2-year forward) depends on sector, point in business cycle,
and comfort with estimates

Common Industry-specific metrics/multiples:

o Technology (Internet): EV / Unique Visitors, EV / Pageviews

o Retail / Airlines: EV / EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization &
Rent)
o Energy: P / MCFE, P / MCFE / D (MCFE = 1 Million Cubic Foot Equivalent, MCFE/D = MCFE per
Day), P / NAV (Share Price / Net Asset Value)
o Real Estate Investment Trusts (REITs): Price / FFO, Price / AFFO (Funds From Operations,
Adjusted Funds From Operations)
o Technology and Energy– you’re looking at traffic and energy reserves as value drivers rather
than revenue or profit

Pros and Cons of Relative Valuation

Pros: Market-based, Simplicity, relative and reflects current conditions

Cons: Potential lack of information, lack of existence of proper comparables, motive of previous
transactions

Other methods of valuation:

 Option-based valuation
 Asset-based valuation
 Liquidation Approach

Valuation Summary:
Football Field Analysis:
It is a graph showing the summary of valuation of a company according to different methodologies.
Companies are valued using a combination of multiples and future cash flows, and each of these can
be taken in a best, worst and median case. For example, with a discounted cash flow, you could
assume that the company will have a terminal growth rate of x%, x+1% or x-1% and this would give 3
different final values. Therefore, the discounted cash flow method will give a range of values for the
company. This applies to all valuation methods (you can trade at a high, low or average multiple of
earnings etc.). The best way to show this visually is using a graph, like the one shown below:
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Latest M&A Deals

Piramal Group completes acquisition of DHFL by paying Rs 34,250 crore

Piramal Enterprises Limited on Wednesday, September 30 announced that it has completed
payment for the acquisition of Dewan Housing Finance Corporation Ltd (DHFL), marking the first
successful resolution under the IBC route in the financial services sector. The total consideration paid
by the Piramal Group of Rs 34,250 crore at the completion of the acquisition, includes an upfront
cash component of Rs 14,700 crore and issuance of debt instruments of Rs 19,550 crore (10-year
NCDs at 6.75 per cent per annum on a half-yearly basis).
The National Company Law Tribunal, Mumbai Bench (NCLT), had earlier accorded its approval to the
resolution plan of Piramal Group in relation to the CIRP (Corporate Insolvency Resolution Process) of
DHFL. In value terms, the transaction is among the largest resolutions till date, setting the precedent
for future resolutions in the sector.
The merged entity combines Piramal's financial strength with DHFL's geographic footprint and
distribution network of 301 branches and 2,338 employees catering to 1 million lifetime customers
across 24 states - making it one of the leading housing finance companies in the country.

Zee to merge with Sony; Punit Goenka will be CEO & MD of combined entity
Zee Entertainment Enterprises (ZEEL) has found a white knight in rival Sony with the latter agreeing
to merge its India entertainment business with the beleaguered firm, thus creating India’s largest
entertainment network with about $2 billion in revenues and 26 per cent viewership share.
The ZEEL board announced on Wednesday that it had approved a non-binding term sheet with Sony
Pictures Networks India to merge their operations, and that the promoters of Sony would invest
$1.57 billion in the merged entity as growth capital.
According to the indicative initial merger ratio, ZEEL shareholders will own approximately 47 per
cent in the merged entity, while the promoters of Sony India will hold 53 per cent after the infusion
of growth capital, it said in a statement. On the basis of the existing estimated equity values of ZEEL
and Sony India, the indicative merger ratio would have been 61.25 per cent in favour of ZEEL.
However, with the proposed infusion of growth capital, Zee’s stake is pegged at 47 per cent, it
added.
While the promoters of Sony will have the right to appoint the majority of directors to the board,
Punit Goenka, chief executive officer and managing director of ZEEL, will become the CEO and MD of
the combined entity. Goenka’s appointment, however, will be subject to the necessary approvals
from the nomination remuneration committee, the board, and shareholders of the merged
company, the firm said.

Centre signs share purchase agreement with Tata Sons for ₹18,000-cr Air India deal
The Central Government had accepted an offer by Talace Pvt Ltd, a unit of the holding company of
the salt-to-software conglomerate, to pay ₹2,700 crore cash and take over  ₹15,300 crore of the
airline's debt.
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Following that, on October 11 a Letter of Intent (LoI) was issued to the Tata Group confirming the
government's willingness to sell its 100 per cent stake in the airline.
Tatas beat the ₹15,100-crore offer by a consortium led by SpiceJet promoter Ajay Singh and the
reserve price of ₹12,906 crore set by the government for the sale of its 100 per cent stake in the
loss-making carrier.
While this will be the first privatisation since 2003-04, Air India will be the third airline brand in the
Tatas' stable -- it holds a majority interest in AirAsia India and Vistara, a joint venture with Singapore
Airlines Ltd.
The loss-making Air India has 43 wide-body planes, including 27 Boeing 787s.

Carlyle to acquire 95.4% stake in Hexaware Tech

Will raise $1 billion for the acquisition through senior secured notes due 2026
The Carlyle Group is all set to acquire a stake in IT solutions provider Hexaware Technologies Limited
for which the private equity firm has proposed to raise $1 billion through senior secured notes due
2026. Carlyle has set up a special purpose investment holding company CA Magnum Holdings
(CAMH) to invest in the Mumbai-based IT solutions provider.
Moody’s analysis
Moody’s has analysed CAMH’s credit metrics by adding Hexaware’s debt and EBITDA into the holding
company’s proposed debt.
“CAMH’s B1 CFR is predicated on its proposed acquisition of a 95.42 per cent stake in Hexaware.
Hexaware’s resilient business profile, supported by tailwinds from the pandemic resulting in
accelerated digitisation of business processes along with its high EBITDA-to-cash-flow conversion and
strong liquidity also support CAMH’s rating,” said Sweta Patodia, a Moody’s Analyst.
Digital solutions
Hexaware serves customers in the growing digital solutions segment within the IT services industry,
including digital product engineering, digital core transformation, enterprise and next-generation
services, cloud transformation and data analytics.
In recent years, IT spending by global enterprises on these digital technology solutions has been
growing at a much faster pace than traditional business process outsourcing work carried out by IT
service providers. The coronavirus pandemic has accelerated these trends, which has increased the
demand for IT services.
“This favourable industry environment supports Moody’s expectation that Hexaware’s operating
performance will remain strong and that the company’s revenues will grow 14–15 per cent annually
over the next 2–3 years,” the rating agency said.
“However, CAMH’s CFR also factors in the company’s high starting leverage and dependence on
dividends from Hexaware for its debt service requirements,” added Patodia.
CAMH’s consolidated leverage, as measured by gross debt/EBITDA, will be around 6.0x immediately
following the transaction (December 2021). This is high for CAMH’s current ratings, but Moody’s
expects its leverage to decline to around 4.7x by December 2023 and around 4.0x by 2024, such that
it will be more appropriately positioned for the assigned ratings.
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IPO process

An Initial Public Offering (IPO) is the first time that the shares of a private company are offered to the
public. It is a significant stage in the growth of a business. In an IPO, the Issuer obtains the assistance
of an underwriting firm to determine the type of security to be issued, the best offering price, the
number of shares to be issued and the time to bring it to market.

Selection of Investment Bank

The Company management needs to take the decision whether to find an investment bank or a
conglomerate of investment banks that will act as underwriters on behalf of the company. It must be
ready with a detailed financial record for intensive fiscal health scrutiny that SEBI would perform.
Some companies may also opt to directly sell their shares through the stock market, though most
prefer going through the underwriters

Detailed steps-
Step 1: Preparation of Registration Statement
To begin an IPO process, the company involved needs to submit a registration statement to the SEBI,
which includes a detailed report of its fiscal health and business plans. SEBI scrutinizes the report
and background check of the company. It must also ensure that registration statement fulfils all the
mandatory requirements and satisfies all rules and regulations.

Step 2: Preparation of the Prospectus

While awaiting the approval, the company, with assistance from the underwriters, must create a
preliminary 'Red Herring' prospectus. It includes detailed financial records, future plans and the
expected share price range. This prospectus is meant for prospective investors who would be
interested in buying the stock. It is important to also have a legal warning about the IPO pending
SEBI approval.

Step 3: SEBI Approval & Way ahead

Once SEBI is satisfied with the registration statement, it declares the statement to be effective,
approves for the IPO and a date to be fixed for the same. Sometimes it asks for amendments to be
made before giving its approval. The company needs to select a stock exchange where it intends to
sell its shares and get listed.

Step 4: Deciding On Price Band & Share Number

After the SEBI approval, the company, with assistance from the underwriters decides on the price
band of the shares and also the number of shares which are to be sold

There are two types of issues: Fixed Price IPO and Book Building IPO:
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 Fixed Price IPO – Here the company decides the price of the share issue and the number of
shares being sold. For eg: KS Ltd issues 10 lakh shares of face value ₹10/- each at a premium
of ₹55/- which are available to the public

 Book Building IPO – A Book building issue helps the company discover the price of the issue.
The company decides a price band and it gives the investor an option to choose the price at
which they wish to bid for the company shares. For eg: KS Ltd issues 10 lakh shares of face
value ₹10/- each at a price band of ₹60 to ₹70 is available to the public. Here the amount
generated through the issue would depend on the highest amount bid by most investors.

Step 5: Available to Public for Purchase

On the dates mentioned in the prospectus, the shares are available to public. Investors can fill out
the IPO form and specify the price at which they wish to make the purchase and submit the
application.

Step 6: Price Determination & Share Allotment

Once the subscription period is over, members of the underwriting banks, share issuing company
etc. will determine the price at which shares are to be allotted to the prospective investors. The
price would be directly determined by the demand and the bid price quoted by investors. Once the
price is finalized, shares are allotted to investors based on the bid amounts and shares available.

Step 7: Listing & Unblocking of funds

The last step is the listing in the Stock Exchanges. Investors will be allotted the shares credited to
their DEMAT accounts & their funds getting debited from their bank account or else for those
investors to whom the shares were not allotted, funds would get unblocked in their bank account.

RECENT IPOs
1) One 97 Communications Ltd (PayTm) - IPO - Trade, Thursday, 18 Nov 2021 @ INR
2,150.00 for 183,000.045 Mn INR

About the Company:

One 97 Communications Limited provides payment solutions. The Company provides online
services such as hotel booking, top-ups, data processing, games, mobile content, and bill
payments. One 97 Communications serves customers worldwide.

Company Financials:

Sales Revenue INR 28,024.00 Mln

Operating Income INR -19,458.00 Mln
Net Income INR -16,961.00 Mln
Total Assets INR 91,513.00 Mln
Total Liability INR 26,351.00 Mln
Total Shareholder INR 65,162.00 Mln
Equity
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Total Debt/Total -- 6.6876 --

Asset
Total Debt/Total -- 9.392 --

Equity

Objectives of the issue:

The net proceeds from the IPO will be used for the following purposes:

1. To finance the general corporate purposes of the company

2. To finance MnA activities of the company
3. To repay selling shareholders

IPO Details:

IPO Open 08/11/2021

Listing Date 18/11/2021
Offer Price INR 2080- INR 2115
Opening price INR 1955 (-9.07%)
Total Offering INR 183000Mn
Primary offering - INR 83000 Mn
Secondary offering – INR 100000 Mn
Shares 85.12 Mn

Rationale:
 One of the possible reasons behind the weak response from big investors could be
the IPO’s valuation, which despite being lower than what was expected earlier, has
not gone down well with many analysts.
 Many analysts feel the IPO is overvalued, given the company’s inability to deliver
profit after so many years of staying in business. Though the company has managed
to bring down its losses and diversify its business over the years, it has not yet
delivered a profit. This is something that many analysts have pointed out while
speaking about the valuation.

2) Zomato Limited - IPO - Trade,Friday, 23 Jul 2021 @ INR 76.00 for 93,255.80 Mn INR

About the Company:

Zomato Limited is an online restaurant guide and food ordering platform. The Company
offers platform connects customers, restaurant partners and delivery partners to search and
discover restaurants, read and write customer generated reviews, order food delivery, book a
table, and make payments while dining-out at restaurants. Zomato serves customers
worldwide.

Company Financials: FY21

Sales Revenue INR 19,937.89 Mln

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Operating Income INR -6,049.11 Mln

Net Income INR -8,128.16 Mln
Total Assets INR 87,035.43 Mln
Total Liability INR 6,105.35 Mln
Total Shareholder INR 80,930.08 Mln
Equity
Total Debt/Total -- 0.834 --
Asset
Total Debt/Total -- 0.8969 --
Equity

Objectives of the issue:

The net proceeds from the IPO will be used for the following purposes:

1. To finance the general corporate purposes of the company

2. To repay debt, repay loans
3. To repay selling shareholders

IPO Details:

IPO Open 14/07/2021

Listing Date 23/07/2021
Offer Price INR 72 - INR 76
Opening price (Listing gain) INR 115 (+51.32%)
Total Offering INR 93.255 Bn
Shares 1.23 Bn

Rationale:
 Zomato’s initial share sale is undoubtedly a big moment for the Gurugram-based
company and the overall Indian tech and startup universe but also a playbook on
how to execute an IPO, despite several roadblocks.

Since the beginning of the year, Zomato shuffled its cap table with multiple funding
rounds to make itself IPO-ready, but perhaps the most significant step in that
direction was when the company managed to execute secondary transactions to
help China’s Ant Group partially dilute

https://economictimes.indiatimes.com/tech/startups/how-zomato-executed-its-ipo-
plan/articleshow/84732982.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

3) PowerGrid Infrastructure Trust - IPO - Trade, Friday, 14 May 2021 @ INR 100.00 for
77,349.90 Mn INR

About the Company:

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POWERGRID Infrastructure Investment Trust operates as an infrastructure investment trust.

The Company owns, constructs, operates, maintains, and invests in power transmission.
POWERGRID Infrastructure Investment Trust serves customers in India.
Company Financials: FY21

IPO Details:

IPO Open 29/04/2021

Listing Date 14/05/2021
Offer Price INR 99 - INR 100
Opening price (Listing gain) INR 104 (+4.00%)
Total Offering INR 77.35 Bn
Shares 773.5 Mn

Rationale:
 At the higher end of the price band, PowerGrid InvIT is available at a cash flow yield
of 11%  and a 1% premium to its NAV value. Closest peer Sterlite Power-sponsored
IndiGrid is trading at a 9% yield with a 9% premium to its NAV value. Hence, the
issue seems to be reasonably valued.
 Given the competitive advantage of Powergrid (sponsor), consistent and stable cash
flows over the last three years, strategic business (power transmission), healthy debt
ratios, stable margins and return ratios, we remain positive on the prospects of the
issue.

4) Nuvoco Vistas Corporation Ltd. - On 05/06/2021 Nuvoco Vistas Corp Ltd, which operates
in the Quarrying industry, announced an Initial Public Offering. The offering priced on
08/17/2021 at INR 570 and raised INR 50.00B. The managers of the offering were Axis
Capital Ltd, HSBC Securities & Capital Markets India Priv, ICICI Securities Ltd, JP Morgan
Securities India Pvt Ltd and SBI Capital Markets.

About the Company:

Nuvoco Vistas Corporation Limited provides construction materials. The Company offers
cement, ready mix concrete, and aggregates. Nuvoco Vistas serves customers in India.
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Company Financials: FY21

 Nuvoco Vistas has reported a tepid rise in topline over the last three years, and negative
bottomline for FY19 and FY21. The company has seen a healthy 25% rise in its EBITDA
over this period, on the back of improvement in cost efficiency. 
 Nuvoco Vistas Corporation Ltd., a part of Nirma Group Company, is the fifth largest cement
company in India and the largest cement company in East India in terms of capacity. Hence, it
enjoys a strong brand value. Nuvoco is currently focussing on increasing its production
capacity. It is the fastest-growing cement company in terms of capacity addition on
percentage terms with installed capacity doubling over the last 5 years.
 Nuvoco has lower EBITDA margin and return ratios as compared to its larger listed peers
(20% for Nuvoco in FY21). The peer average is between 24-25%. Further, these larger
powers such as Ultratech Cement, Shree Cement, Ambuja Cement and ACC are also
profitable at the net level. 
 As the earnings are negative, comparison on the basis of P/E ratio is not possible. At the
higher price band of Rs 570, Nuvoco Vistas Corp reported 18.54 times EV/EBITDA in FY21
on a post-issue basis. This is lower as compared to Shree Cement (25 times) and Ultratech
Cement (19.64 times). Given their better financial profiles, the peers are expected to trade at
higher valuations.  
 Given the company’s strong brand value, robust growth in capacity addition, good visibility
for cement companies due to focus on infra, reduction in debt, and improvement in margins
and profitability going forward, we remain positive on the prospects of this issue on a long-
term basis.

5) Gland Pharma-

About the Company:

Company was incorporated as ‘Gland Pharma Private Limited’, a private limited company on
March 20, 1978 at Hyderabad. Subsequently, the name was changed to ‘Gland Pharma
Limited’. Gland Pharma Limited (GPL) is one of the fastest growing injectables-focused
companies selling products primarily under a business to business (“B2B”) model in over 60
countries as of March 31, 2020, including the United States, Europe, Canada, Australia, India
and the Rest of the world.
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Company Financials:

Objects of the Issue:

The net proceeds from the IPO will be used for the following purposes:

4. To finance the incremental working capital requirements of our Company

5. To meet funding requirements for capital expenditure requirements
6. To meet the general corporate purposes

IPO Details:

Shares Offered:

Gland Pharma IPO is a public issue of 30237879 equity shares. The issue offers 15118939
shares to retail individual investors, 8639394 shares to qualified institutional buyers and
6479546 shares to non-institutional investors.

Rationale:

 No doubt, that currently the pharma sector is attracting investors following COVID-19
pandemic and the search of remedies for it globally. This company has posted good
performance for the last three fiscals and spectacular numbers for Q1 of FY

 Based on P/BV and P/E parameters, the issue appears fully priced. Considering all
these, though it sounds lucrative to invest for the long term and risk savvy, cash
surplus investors may consider investment at their own risk.

6) Mindspace Business Parks REIT

About the Company:

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Mindspace Business Parks REIT has a quality office portfolio in Mumbai, Hyderabad, Pune
and Chennai. The business parks in Mumbai are Mindspace Airoli East Business Park,
Mindspace Airoli West Business Park, Paradigm Mindspace Malad and The Square, BKC.

Company Financials:

Objects of the Issue:

The proceeds will be utilised towards the following objects:

1. Partial or full pre-payment or scheduled repayment of certain debt facilities of the

Asset SPVs availed from banks/financial institutions (including any accrued interest and
any applicable penalties/ premium)
2. Purchase of NCRPS of MBPPL; and
3. General purposes

Under the REIT Regulations, Mindspace REIT has to invest a minimum of 80% of the
value of its assets in completed and rent and/ or income-generating properties. REIT
Regulations also imposes restrictions on certain investments including investments in
vacant land, agricultural land, or mortgages other than mortgage-backed securities and
assets located outside India. As per the REIT Regulations, the portfolio of the
Mindspace REIT is required to be maintained for a period of minimum 3-years from the
date of purchase or completion.

IPO Details:

Rationale:

 According to risk factors elaborated by Mindspace REIT in the offer

documents, it may not be able to make distribution to the Unitholders in the
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manner described in the offer documents or at all, and the quantum of

distribution may also decrease.

 The COVID-19 pandemic adversely affects Mindspace REIT's business,

financial condition, results of operations, cash flows, liquidity and
performance, and it may reduce the demand for commercial real estate in
future.

 The first REITs of Embassy Parks have managed to give around 8% distribution
rewards so far. But now this sector is set for a litmus taste as amidst COVID-19
pandemic many companies in the IT and service industry have opted for Work
from Home (WFH) model.

 Thus, views on future prospects are divided among masses. Considering Risk
Factors indicated by the company and prevalent uncertainties, cash surplus -
risk savvy investors may consider investment at their own risk.

7) Mindspace Business Parks REIT

About the Company:

Computer Age Management Services (CAMS) Ltd is a technology-driven financial

infrastructure and service provider. It is India's largest registrar and transfer agent of
mutual funds. As per the Crisil Nov 2019 report, it has 69.4% mutual fund aggregate
market share.

Company Financials:

Objects of the Issue:

The objects of the Offer are:
1. To carry out the Offer for Sale of up to 18,246,600 Equity Shares by the Selling
Shareholders; and
2. Achieve the benefits of listing the Equity Shares on the BSE.

IPO Details:
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Rationale:

 Account aggregation business of one its subsidiaries, CFISPL may not be viable
as there is currently no certainty of revenue from account aggregation
operations.
 Future revenue and profit are largely dependent on the growth, value and
composition of AAUM of the mutual funds, funds managed by the clients,
which may decline is another risk factor.
 The issue appears fully priced on the basis of its financial data and P/E, P/BV
parameters. However, with consistent growth in revenue and profit with
attractive return ratios (ROE of 34%), strong cash flow, entry barrier coupled
with dominant market share in industry; all these shall command premium
valuations. 
 Since, company has no direct listed peers (except CDSL who performs one of
the function similar to CAMS), hence company will get first mover advantage.
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Securities Market: An Introduction

Securities are financial instruments issued to raise funds. The primary function of the securities
market is to enable the flow of capital from those that have it to those that need it. Securities
market helps in transfer of resources from those with idle or surplus resources to others who have a
productive need for them. To state formally, securities market provides channels for conversion of
savings into investments.

But what’s the need?

The securities markets provide a regulated framework for efficient flow of capital (equity and debt)
from investors to business in the financial market system. Securities markets are basically a platform
for allocation of savings to investments. Like any market, the securities market is also a place where
buyers and sellers get together; the only difference being that the securities market also contributes
to capital formation, apart from providing liquidity and price discovery. Due to the power of
securities markets, the savings of households, business firms and government can be channelized to
fund the capital requirements of a business enterprise.

 Securities represent the terms of exchange of money between two parties; the buyer and
the seller in this case.
 Securities can be issued by borrowers / equity funders to raise money at a reasonable cost
and gives security ownership to investors.
 Businesses issue securities to raise money from investor with surplus funds through a
regulated contract and a regulated and monitored mechanism.
 While the issuer of the security provides the terms for raising capital, investors have a claim
to the rights represented by the securities.
 Securities can be broadly classified into equity (risk participation) or debt (claim on cash
flows).
 While debt securities are issued for a specific period, equity securities are perpetual. Debt
securities pay interest while equity pays out dividends, but it is not assured.

Key Intermediaries in the Securities Market:

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 AMCs / Portfolio Managers manage a portfolio of securities and offer units that represent
participation in a pool of money. They help investors diversify risk and build wealth.
 Investment bankers or lead managers manage IPOs, rights issues, debt raising, raising of
FDs, and placement with institutions, syndication and give corporate advisory services too.
 Underwriters guarantee the sale of an IPO and give comfort to issuers by undertaking to
take up shares that don’t get sold. They are paid an underwriting fee for this service.
 Brokers are registered trading members of stock exchanges and they execute transactions in
the secondary market. They also market IPOs and also give appropriate advice to clients.
 Sub-brokers / Franchisees are affiliated to brokers and help the brokers to reach out to a
larger network of investors in specific geographies.
 Clearing members are members of the stock exchange who are responsible for the clearing
and settlement of trades on a daily basis on the stock exchange.
 Bankers to an issue are appointed during IPOs, to collect application forms and monies from
investors and coordinate with lead managers and facilitate transfer of funds.
 Registrars & Transfer Agents (RTAs) maintain the record of investors on behalf of the issuer.
They manage allotment of IPOs, effect transfer of ownership and execute corporate actions.
 Depository Participants (DPs) are the link between the depository (NSDL/CDSL) and the
investors. They hold the shares of investors in custody in electronic form.
 Custodians are to institutional investors what the DP is to retail investors. Custodians
manage transactions pertaining to delivery of securities and money after a trade is made
through the broker, and also provides accounting for securities and money.
 Trustees are appointed when beneficiaries may not be able to directly supervise if money
invested is being managed properly. Mutual funds and debentures have trustees.
 Credit rating agencies rate a debt security based on the ability of the company to service its
interest and principal obligations on time. Ratings are periodically reviewed.
 Investment advisers help investors to make an informed choice of securities in a manner
that is in sync with their long term goals.

Securities Include:
The investors in the Indian securities market have a wide choice of financial products to choose from
depending upon their risk appetite and return expectations. Broadly, the financial products can be
categorized as equity, debt and derivative products.

Equity Shares:
Equity shares represent the form of fractional ownership in a business venture. Equity shareholders
collectively own the company. They bear the risk and enjoy the rewards of ownership.
o Issued by: Companies
o Investors: Institutional and Individual (Retail and HNI)
o Medium: Direct issuance by companies and Stock Exchange
o Regulator: SEBI, Regulators under the Companies Act

Debentures/Bonds/Notes:
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Debentures/Bonds/Notes are instruments for raising long term debt. Debentures are either
unsecured or secured (backed by collateral support) in nature. There are variety of debentures
/bonds such as fully convertible, non-convertible and partly convertible debentures.
o Issued by: Companies, Government, Special Purpose Vehicles (SPVs)
o Investors: Institutional and Individual
o Medium: Direct issuance by issuers and Stock Exchange
o Regulator: RBI, SEBI, Regulators under the Companies Act

Warrants and Convertible Warrants:

Warrants are options that entitle an investor to buy equity shares of the issuer company after a
specified time period at a given price. Only a few companies in Indian Securities Market have issued
warrants till now.
o Issued by: Companies
o Investors: Institutional and Individual
o Medium: Direct issuance by companies and Stock Exchange
o Regulator: SEBI

Security Term Definition

P/E ratio It is the ratio of the stock price to EPS. The P/E is assigned to a stock
by the market based on factors like growth, ROE, brand value etc. It
is the value that market assigns for every rupee earned.
P/BV ratio It is the ratio of the stock price to the book value per share. This is
more useful as a ratio in case of loss making companies (where P/E is
not applicable) and in case of the banking sector
Dividend Yield It is the dividend paid per share divided by the stock price. Dividend
yield above 5% is attractive and normally acts as a support for the
stock price
Face Value It is value on the face of the debt security and is normally Rs.100 or
Rrs.1000. Interest is paid on face value
Coupon Interest It is the fixed rate of interest payable on the bond. 9% bond of face
value Rs.1000 will pay Rs.90 interest per year
Maturity The time period to redemption. A 5 year bond will be repayable at
the end of 5 years
Coupon Yield It is the interest on the bond divided by the price of the bond. If a
Rs.1000 bond of 9% is trading in the market at Rs.960, then the
coupon yield is Rs.90/960 = 9.375%
Yield to maturity Yield to maturity or YTM is the most important concept in debt
instruments. It is the IRR of the bond after considering time value.
Future cash flows are discounted to the present at the current
market yield
Zero Coupon These bonds don’t pay intermediate interest but issue at a discount
Bonds and redeem at par value. Interest accrues in this case
Callable Bonds In these bonds, the issuer has the option to call back the bonds if the
interest rates come down
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Call markets The short term money markets where institutions can lend and
borrow short term money
Gilts They are short for government securities. They are considered to be
high on safety as it is issued by the government
Yield Curve It is the relationship between term-to-maturity and yields. The yield
curve is normally upward sloping

Introduction to Derivatives Markets:

Derivatives derive value from an underlying asset, which can be a stock, bond, index,
commodity, exchange rates etc. As the name suggests its value is derived from and hence
dependent on the underlying. Derivatives are risk management tools used to manage price
risk. Consider this illustration.

Forward Commitments
Forward contracts, futures contracts, and swaps are forward commitment derivatives that
create the obligation to transact in the future.
Forward Contracts
A forward contract is a commitment in the form of an OTC derivative contract in which the
buyer agrees to purchase an underlying asset from the seller at a later date at a fixed price
agreed at the time of the contract inception. If one party reneges on their commitment, it is
considered a default, and legal proceedings can be instituted to force performance. The
amount owed is always the net value between the two parties.
When we consider the payoff profile of a forward contract, we denote the payoff profiles as
follows:
Payoff for the buyer=ST–F0(T)
Payoff for the seller=−[ST–F0(T)]
Where:
ST  = the price of the underlying asset at the contract expiration (time T)
F0(T) = the price that the buyer agrees to buy the asset for (or the seller agrees to sell the
asset for) at the inception of the contract (at time T=0)
For the buyer of the contract, if the price of the underlying asset at contract expiry (S T) is
greater than the price that they agreed to pay at contract inception F0(T), then clearly they
can purchase the asset for less than the prevailing price and thus they have profited. The
mirror image is true for the seller. If ST is greater than F0(T), then the seller has an equal but
opposite loss on the transaction. The buyer and seller are the counterparties in a zero-sum
game outside of the transaction costs incurred. If one party loses USD 100,000 on a forward
contract, the counterparty gains USD 100,000.
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However, an important element of a forward contract is that no money is exchanged when

the contract is initiated. Thus, forward contracts can be thought of as having zero value at
the start, and they are neither assets nor liabilities. The value deviates from zero as the price
of the underlying moves. The ability to “lock-in” a future price for an asset has important
practical benefits and is used as an instrument for financial speculation.
Forward contracts do not need to be settled by delivering the physical underlying asset; they
may be cash-settled, referred to as non-deliverable forwards (NDFs), or contracts for
differences (CFDs).
Futures Contracts
Futures contracts are specialized versions of forward contracts that are standardized and
traded on a futures exchange. Futures exchanges are highly regulated, and the contracts
have specific underlying assets, times to expiration, delivery, and settlement conditions and
quantities.
An important distinction is the daily settlement of gains and losses and the credit guarantee
provided by the exchange through its clearinghouse. This daily settlement process is known
as mark-to-market, where the clearinghouse determines an average of the final futures
trades of the day and designates that price the settlement price. Each party’s account in the
transaction will be debited or credited with the losses or gains for the day. The account is
referred to as a margin account and is different from an equity margin account.
In a futures margin account, both parties to the transaction deposit an initial amount of
money, typically less than 10% of the futures price, and this is the initial margin. There is no
formal loan created for the balance, as is the case with equity markets; the futures margin is
more of a “good faith” amount to cover possible future losses. The initial margin is the
maintenance margin, the amount of money each party must deposit after the trade is
initiated. The maintenance margin is assessed daily by the clearinghouse. After the mark-to-
market process, the balance in the account is below the maintenance margin amount. The
participant will receive a margin call requiring them to deposit additional funds. In fast-
moving markets, the clearinghouse can make margin calls intra-day.
Some futures contracts contain a price limit which is essentially a price range or band
relative to the previous day’s price. If a party wants to transact above this band (limit up),
the trading is halted until the parties agree on a price below the upper band. Likewise, if a
party wants to transact below the band (limit down), then trading also stops until a price
above the lower band can be agreed on. When the market hits these bands and trading
stops, it is known as a locked limit. The limits are important in helping the clearinghouse
manage credit exposure.
At any given time, the number of outstanding contracts is known as the open interest.
Futures contracts can be settled by physical delivery of the underlying or cash on the
expiration day. The futures price converges towards the spot price at expiration. In cash-
settled transactions, there is a final mark-to-market at expiration with the futures price set
to the spot price to ensure convergence:
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Forward vs. Futures Contracts

Besides the obvious difference in standardization, forward contracts realize the full amount
of ST – F0(T) at expiration, but futures contracts realize this amount in parts on a day-to-day
basis. Due to the time value of money, these are not equivalent amounts. However, the
difference tends to be small for shorter duration contracts in low-interest-rate
environments. Nevertheless, waiting until expiration to settle, as is the case with forward
contracts, does introduce more credit risk than with a daily settled and high regulated
futures contract.
Swaps
The concept of a swap is that two parties exchange a series of cash flows. One set of cash
flows is variable or floating, and the other can be variable or fixed. A swap is an OTC
contract that is privately negotiated and is subject to default.
The most commonly used swap is a fixed-for-floating interest rate swap, also referred to as
a “plain vanilla swap.” The notional principal is the loan balance on which the interest rate
payments are determined.  As with futures and forwards, no money changes hands at the
start of the contract, and the swap value is zero. However, as market conditions change, the
value of the swap will change, being positive for one party and negative for the other.
Swaps are subject to default, but as the notional principal is not exchanged, the credit risk of
a swap is much lower than that of a loan. The only money that passes from one party to
another is the net difference between the fixed and floating rate of interest.
Contingent Claims
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Options, credit derivatives, and asset-backed securities are all types of contingent claims,
meaning one of the parties has the right, but not the obligation, to transact at a
predetermined price at expiration.
Options
The right to buy is referred to as a call option, while the right to sell is a put option. An
option contract may also be exercised before the contract expiry date. Early exercise
options are American-style, while European-style options can only be exercised at expiry.
However, it is important to note that both types of options trade in all geographies. The
fixed price at which the underlying asset can be bought or sold at expiry is the exercise price
or strike price.
The purchaser of an option contract pays the writer of the option contract an option
premium. The premium represents the value of the option in a well-functioning market. As
the buyer has no obligation beyond the premium, only the seller of the option can trigger a
default if the buyer exercises the option and the seller does not deliver the underlying.
We will learn more about the value at expiration and profit for call and put options in the
next learning objective.
Credit Derivatives
A credit derivative provides credit protection for the buyer in the event of loss from a credit
event. There are several types of credit derivatives.
Total return swap
In a total return swap, the underlying is typically a loan or a bond. The credit protection
buyer pays the credit protection seller the total return on the bond (interest plus capital) in
return for a fixed or floating rate of interest. If the bond defaults, the credit protection seller
must continue to pay the interest while receiving no (or very little) return from the buyer.
Credit spread option
In a credit spread option, the underlying is the yield spread between the yield on a bond and
the yield of a benchmark default-free bond. This yield spread, or credit spread, is a
reflection of investors’ perception of credit risk. The credit protection buyer selects the
strike spread and pays an option premium to the seller. At expiration, the spread is
compared with the strike spread, and if the option is in-the-money, the seller pays the buyer
the determined payoff.
Credit-linked note
In a credit-linked note, the credit protection buyer usually holds a bond that may be subject
to default and, to offset that risk, issues a credit-linked note with the condition that if the
bond defaults, the principal payoff is reduced accordingly. Thus, the buyer of the credit-
linked note takes on the credit risk of the underlying bond.
Credit default swap (CDS)
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In a CDS, the credit protection buyer makes a series of regularly scheduled payments to the
credit protection seller. The seller makes no payments until a credit event occurs. A credit
event could be a declaration of bankruptcy, a failure to make a scheduled payment, or a
restructuring. The CDS contract will explicitly define what constitutes a credit event. A CDS is
essentially a form of insurance and provides loss coverage in return for the premium paid by
the buyer to the seller.
Asset-backed Securities
Asset-backed securities (ABS) alter the payment stream of the underlying asset. They
typically divide payments into tranches (slices) in which the priority of the claims changes
from all being equivalent to some tranches taking preference on the payments. The
differential nature of these claims becomes relevant when prepayments or defaults occur.
When a mortgage asset portfolio is assembled into an ABS, the resulting instrument is called
a collateralized mortgage obligation (CMO). When homeowners pay off their mortgages
early (prepayment), the mortgage holders suffer, and an expected stream of returns has
been terminated early. The funds now have to be reinvested at a typically lower rate. CMOs
typically partition the mortgages into A, B, and C classes, and class C will bear the first wave
of prepayment risk, followed by class B and class A. As the risk on the tranches is not equal
(class C bears the most prepayment risk), the expected returns on the classes vary to
compensate investors for the varying risk.
When bonds or loans are assembled into an ABS, they are referred to as collateralized bond
obligations (CBO) or collateralized loan obligations (CLO) which collectively are collateralized
debt obligations (CDO). A CDO does not have much prepayment risk but does have credit
risk. A CDO allocates this risk to different tranches, senior, mezzanine, or junior tranches.
When a default occurs, the junior tranche bears the risk first, followed by the mezzanine
and then the senior tranche. Therefore, senior tranches have the lowest risk but also the
lowest expected return.

Things to Know About Indian Derivative Markets:

 Indian derivative markets are a mix of cash settled and delivery settled. Exchange
traded currency futures are by default cash settled. Commodity futures are settled
either in cash or by actual delivery. Most equity derivatives are cash settled.

 Equity derivatives are available in 3 monthly contracts expiring on last Thursday of

each month. These are the near-month, mid-month and far-month contracts.

 Buying and selling futures entails payment of initial margins and MTM margins if
price movement is unfavourable. Option sellers are margined just like futures.

 Options are contracts on specific strike prices fixed at regular intervals. Contracts are
standardized and options can only be bought or sold at specified strike prices.
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 Futures and options lot sizes are defined in number of shares of a stock or index. The
lot value is kept at Rs.7.50 lakhs to Rs.10 lakhs and trades can only be multiples of lot
size.

 Apart from monthly options, the Indian exchanges also offer weekly options on the
Nifty and the Bank Nifty. These weekly options are settled on every Thursday.

 NSE has one of the highest volumes of stock futures in the world. Futures are similar
to the erstwhile Badla (carry forward) on the BSE which makes traders comfortable.

 There is a wide range of derivatives options in India. Equity derivatives offer index
futures, index options, stock futures and stock options. In addition, one can also
trade VIX futures. Commodity derivatives offer futures on precious metals, industrial
metals, hydrocarbons and agricultural products.

Trend Overview:
A host of regulatory changes are now being introduced globally to bring about greater
transparency in the capital & the security markets industry. These changes are forcing
financial markets to innovate and undertake initiatives to ensure cost-effective and efficient
compliance. Whether it be derivatives market consistency or transitioning from LIBOR, the
firms are moving to data-driven compliance to ensure standards in the use, distribution and
protection of valuable customer data. Quantamental investing approaches and digital
security tokens are going to have an impact on the broader audience.

Customer engagement and satisfaction have been a burning issue for the industry for quite
some time. Firms are under pressure to improve customer service, especially within today’s
competitive landscape. Therefore, capital market participants are adopting Artificial
Intelligence to drive intelligent solutions to streamline and optimize current operational
processes. RPA solutions are being leveraged for simplifying client on boarding, while Block
chain technology is helping firms to improve transparency, manage risks, and enable greater
operational efficiency.

Further References:

1. https://www.capgemini.com/wp-content/uploads/2019/11/Capital_Market_Trends_2020.pdf

2. https://www.pwc.com/gx/en/banking-capital-markets/capital-markets-2020/assets/capital-
markets-2020.pdf

3. https://www.exchangeconnect.in/blog/emerging-trends-in-capital-markets/
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Commodity Market:
Commodity market facilitates an exchange of physical goods among residents in a country.
Individuals aiming to diversify their portfolio can undertake investments in both perishable and non-
perishable products, thereby not only mitigating the risk factor, but also providing a hedge against
inflation rates in an economy.

Commodities are split into two types: hard and soft commodities. Hard commodities are typically
natural resources that must be mined or extracted—such as gold, rubber, and oil, whereas soft
commodities are agricultural products or livestock—such as corn, wheat, coffee, sugar, soybeans,
and pork.

Commodity trading is managed by four major commodity exchanges in India –

 Multi Commodity Exchange (MCX)

 Indian Commodity Exchange (ICEX)
 National Commodity and Derivatives Exchange (NCDEX)
 National Multi Commodity Exchange (NMCE)

All activities of such nationwide exchanges come under the regulation of Commodity Derivatives
Market Regulation (CDMRD) of Securities and Exchange Board of India, which merged with Forward
Market Commission in 2015.

Commodity Trading:
Investors can practice investing in commodity markets through a Futures or Options contract. While
a futures contract dictates individuals to sign a deed stipulating delivery of a product at a later date
with respect to a fixed price, an options contract acts as an agreement but not a liability of the same.

1. Choose your market – Choose the commodity, such as Crude Oil Brent, Gold or Natural Gas,
that you want to spread bet or trade CFDs on.
2. Decide to buy or sell – Buy (go long) if you think prices will rise, or sell (go short) if you think
prices will go down.
3. Enter a trade size – Decide on the amount per point movement (spread betting) or how
many units (CFDs) you want to trade. When trading CFDs the value of one unit can vary
depending on the instrument you’ve chosen to trade.
4. Manage your risk – Select from a range of stop-loss orders including guaranteed stop-loss
orders (GSLOs). GSLOs work exactly the same as regular stop-loss orders, except that for a
premium, they guarantee to close you out of a trade at the price you specify regardless of
market volatility or gapping. The premium is refunded in full if the GSLO is not triggered.
5. Monitor your position – After placing your trade, monitor your open positions (including any
stop orders or take profit orders) to follow your real-time profit or loss. Please remember
that losses can exceed your deposits.
6. Close your position – If your trade is not automatically closed out as a result of a stop or
take profit order being triggered, close your trade when you are ready.
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India Outlook:
 The COVID-19 pandemic has affected all sectors and
economies, with the most severe impact felt in sectors, such as
travel, tourism and hospitality because they have been hard hit
by travel restrictions imposed by countries as well as a fall in
discretionary spending
 Businesses are facing workforce issues, disrupted supply
chains, concerns with weak demand levels and liquidity
challenges India Q1 21 Sector GDP Growth
 Least hit sectors: Pharma, IT, financial services, and
consumer
 The RBI launched several focused initiatives as part of the
Atmanirbhar Bharat Abhiyan, which included an overall package
of INR 20 lakh crore (about 10% of the GDP), with a focus on land,
labour, liquidity, and laws

Sectoral Outlook:
o Agriculture Sector:
o The horticulture production during 2020-21 was 331.05 MMT, the highest ever and food
grains production during 2019-20 was 296.65 MMT.
o The agriculture sector in India is the primary source of livelihood for about 58% of India’s
population.
o The Indian Agriculture Export Policy, 2018 was approved by the Government of India in
December 2018. The new policy aimed to increase India’s agricultural export to $60 bn by
2022 and $100 bn in the next few years with a stable trade policy regime.
o In 2019, India was the 9th largest exporter of agricultural products and the total value of
exported agricultural products stood at $37.4 bn. India exported agri-machinery worth
$1,024 mn during 2019-20. Of this, 76.4% was exported to the UK, North America, Eastern
Europe, EU, Africa, ASEAN, and SAARC.
o The export of rice increased from $1.9 bn in April-June 2020 to $2.3 bn in April-June 2021.
o The export of Agri and allied commodities during April 2020 - February 2021 were INR 2.74
lakh crore as compared to INR 2.31 crore in the same period last year indicating an increase
of 18.49%. During April-December 2020, the export of Basmati Rice was $2,947 mn against
$2,936 mn reported during same period in the previous year. Major destination for the
Basmati rice exports from India is to the countries including Iran, Saudi Arabia, Iraq, United
Arab Emirates, Kuwait, European Countries etc.
o The volume of tea exported during April - January 2021 amounted to 172.46 million kg, with
CIS being the top exported Indian tea at 42.64 mkg. UAE was the top importer of India tea
during the same period at 10.92 mkg of imports.
o Large population and rising urban and rural income have added to growth in demand for
agriculture products. As per the Union Budget of India 2020-21, allocation of $40.06 bn was
made to the Ministry of Agriculture.
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o India ranks first in the number of organic farmers and ninth in terms of area under organic
farming.

o India’s agriculture technology can grow to $24.1 bn in 5 years. The current market size of
agri tech, including AI-based agri innovation start-ups in India, is nearly worth $204 mn.
o The Bamboo Industry has the potential to be worth $4.29bn.
o Export of Rice was valued at $715.24 bn in August 2021 with a positive growth of 6.58% over
exports of $671.08 bn in August 2020.
o IT Sector:
o The Indian IT industry, which accounts for 8% of India’s GDP, has been acutely impacted by
the lockdowns in key global as well as domestic markets
o They are expected to cut discretionary IT and ITeS spend, renegotiate pricing of services and
in some cases, resort to deferring or cancelling contract commitments
o Transactions and deal activity is expected to increase in the areas of digital captives, data
analytics and cloud services
o In Union Budget 2021, the allocation for IT and telecom sector stood at Rs. 53,108 crore
(US$ 7.31 billion).
o In FY22, the top three Indian IT companies, TCS, Wipro and Infosys, are expected to offer ~
1.05 lakh opportunities, due to the increasing skill demand for talent and skill.

o Healthcare / Pharma Sector:

India is a prominent and rapidly growing presence in the global pharmaceuticals industry. It is the
largest provider of generic medicines globally, occupying a 20% share in global supply by volume, and
also supplies 62% of global demand for vaccines. India ranks 3rd worldwide for production by volume
and 14th by value. India has the highest number of US-FDA compliant Pharma plants outside of USA and
is home to more than 3,000 pharma companies with a strong network of over 10,500 manufacturing
facilities

The pharmaceutical industry in India offers 60,000 generic brands across 60 therapeutic categories. The
API industry is the third world's largest, and it has 57% of APIs on the WHO.
o Incentives worth INR 21,940 Crore ($3 Mn) are approved for the Indian pharmaceuticals
market.
o Expected to reach $65 bn by 2024, and ~$120-130 bn by 2030
o Pharmaceutical industry growth rate 10-12%
o Cost of manufacturing ~ 33% lower than western markets
o 18.7% year on year export growth
o India exports $ 40 K worth of pharmaceuticals every minute
o 100% Foreign Direct Investment (FDI) in the pharmaceutical sector is allowed under the
automatic route for greenfield pharmaceuticals.
o 100% FDI in the pharmaceutical sector is allowed in brownfield pharmaceuticals; wherein
74% is allowed under the automatic route and thereafter through the government approval
route.
o Banking Sector:
o Respective breakdowns for PSUs ($1.53 Tn), Private Sector ($0.81 Tn) and Foreign Banks
($0.18 Tn) Assets of PSUs were nearly 60% of total banking assets.
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o Historically Indian banking has benefited from high savings rates and growth in savings as
well as disposable income growth
o The Banking industry in India has historically been one of the most stable systems globally,
despite global upheavals. The government has consistently strived to promote financial
inclusion through various initiatives targeted to bring the country’s underbanked population
under the banking gamut.
o As a part of the Digital India initiative, the Govt. mandated an open API policy, known as
India Stack, giving third-party providers access to the proprietary software for five key
programs: Aadhaar (the Government’s biometric identity database), e–KYC, e–signing,
privacy-protected data sharing and the UPI.
o While Payments and Alternative Finance segments constituted more than 90 percent of the
sector’s investment flows in 2015, there has been a major shift towards a more equitable
distribution of investment across sectors since. In 2020, Financial technologies in India such
as FinTech SaaS and InsurTechs saw total investments of $145 Mn and $215 Mn respectively,
representing a 4-5X growth over their 2015 funding flow.
o Amongst India’s 50+ FinTechs with more than $100 Mn valuation, there are 4 Wealth and
Broking FinTechs, 5 InsurTechs and 8 SaaS FinTechs.
o UPI is expected to grow significantly with the participation of domestic and international
players (Paytm, Walmart and Google) continuing to dominate the Indian financial industry,
with a heavy focus on the development of the payments infrastructure through investments.
o Neo-banks in India are emerging as a key segment for growth in the space – with over 15
Neo-banks currently in India, several of them under development or in beta stages. The
Financial sector in India has been growing steadily, with several private banks partnering
with these Fintechs to explore synergies and better means of service delivery.

o Insurance Sector:
o The total insurance penetration in India was at 3.76% in 2019 (life insurance 2.82% and non-
life 0.94%) and the total insurance density in India was at $78 in 2019-20 (life insurance
density: $58, non-life insurance: $19).
o In terms of the size of insurance industry in India, the share of life insurance in total
premium in India is 74.94% and the share of non-life premium is 25.06% (2019-20)
o Life insurers recorded new business premium of INR 2.78 tn ($38 bn) in FY21 growing at
7.49% over the last year with private life insurers growing at 16.29%. Private Life Insurers
account for 33.8% of the industry’s new business premium (FY21) with the rest being
accounted for by the Life Insurance Corporation of India (LIC).
o The Life Insurance Industry in India recorded a total premium of INR 5.73 tn ($81.3 bn) in
FY20 witnessing a growth of 12.75% over the previous year and the private insurers
accounted for 33.7% of total premium underwritten by the industry. New business premium
contributed 45.25% of the total premium and witnessed a strong growth of 20.59% over
FY19. 60% of the new business premium was derived from single premium with remaining
40% accounted for by first year premiums

o Real Estate Sector:

o The market size of real estate sector is expected to reach USD 650 billion and USD 1000
billion by 2025 and 2030 respectively.
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o During the period 2016 – 2020 in top 8 cities, there has been an excess demand for the
Housing across all the income groups. The demand supply gap is substantial in the Lower
Income Group (LIG).

Income Group Supply (‘000 units) Demand (‘000 units) Excess Demand
(‘000 units)
Lower Income Group 25 1982 1957
Middle Income Group 647 1457 810
High Income Group 351 717 366

o In July 2021, the Securities and Exchange Board of India lowered the minimum application
value for Real Estate Investment Trusts from Rs. 50,000 to Rs. 10,000 – 15,000 to make the
market more accessible to small and retail investors.
o -The real estate segment attracted private equity investments worth Rs. 23,946 crore (USD
3241 million) across 19 deals in Q4 FY21.
o In the first-half of 2021, India registered investments worth US$ 2.4 billion into real estate
assets, a growth of 52% YoY.
o FDI in the sector (including construction development & activities) stood at US$ 51.5 billion
between April 2000 and June 2021.

o Auto Sector:
o The focus in auto sector is shifting to electric vehicles to reduce emissions. The electric
vehicles industry is likely to create five crore jobs by 2030.
o The automobile sector received cumulative FDI inflow of about US $ 25.85 billion between
April 2000 and March 2021.
o The Government of India expects automobile sector to attract US$ 8-10 billion in local and
foreign investments by 2023.
o The Government of India also announced the vehicle scrappage policy to phase out old and
unfit vehicles.
o Automotive Mission Plan 2021-26 is a mutual initiative by the Government of India and
Indian Automotive Industry to lay down the roadmap for development of the industry.