Fin-nomics

  Switching Operations   Recently the GOI bought back 6.18% bonds maturing in 2024 worth 226.10 billion rupees ($2.78 billion) at a price of 98.62 rupees while it issued 8.28% 2032 bonds worth 210.26 billion rupees to the RBI at 106.05 rupees, as per the RBI. Such operations are called switch operations which are undertaken with the sole purpose of smoothening the liability profile of the issuer. The 10-year government security’s yield fell by 7 basis points after government switched bonds and securities worth rupees 1.19 trillion with the RBI which brings down the redemption pressure on Indian government by around rupees 62,000 crore.    What are bond switch operations? Bond switching operations allow governments to repurchase the older sovereign bonds (basically short-term) and in their place issue newer bonds (long-term) to the participants. Since such operations are cash neutral as fresh securities are issued which replace the old existing securities. ...

  Introduction   A PPA is a legal long-term contract between a buyer and a seller of electricity where the buyer is mainly a state-owned distribution company and the seller is a privately owned electricity-producing plant. The producer is the one who pays for the sizing, design, installation, and infrastructure facilities and gets the cash from selling the produced electricity to the electricity distribution companies.   Benefits Ø   Reduces the electricity price risk for the operators and financiers of the power plant as the agreement provides for the mandatory fee payment by the off-takers. Ø   The agreement protects from competition from the producer of electricity who may be challenged by another local producer who can offer electricity at much cheaper rates. Ø   It envisages a projected revenue from the PPA project by determining the quantity of electricity to be bought and the price to be paid in advance at the time of entering the contract. Ø ...

Inflation is like fire as it can be beneficial for promoting growth of an economy but when it increases without bound, it takes the form of raging fire engulfing everything in its way and making livelihoods difficult. India at present is facing both an increasing inflation and a precarious need to maintain the growth after the impact of the pandemic. The probable reasons for high inflation in the domestic market are listed as follows Ø The supply disruptions caused by the Covid-19 imposed restrictions across the trading channels which bid up the costs of inputs further fuming prices to exorbitant levels. Purchasing Manufacturers Index (PMI) for the quarter three of 2020-21 represents that around 57.8% of manufacturing firms and 52.2% of services firms faced increase cost pressures and raised the selling prices to around 37.33%. Ø The recent pent-up demand after the successful containing of recent 3 rd wave and various liquidity measures undertaken by the governments all over the wor...

  How real is the real estate industry in India?                                                           -by Abhishek Maity Real Estate sector has seen immense challenges in the past 5-6 years, currently valued at Rs 65,000 crore being the second largest employer generating strong multiplier effects, this sector is expected to reach US $ 1 trillion in market size by 2030, at present the sector contributes 6-7% to the Indian GDP and this is expected to increase up to 13% of GDP in 2025 as per Indian Brand Equity Foundation recent report. Firstly, the sector is infested with speculators or informal agents locally called the Hundis who buy in bulk the housing inventory from the developer firms in ...

  Securitization an Art or a curse?              -by Abhishek Maity   Securitization is a procedure where an issuer creates a financial instrument by pooling together various financial assets into one group. An advanced form of the above process is a mortgage-backed security which is a pool of only mortgages exclusively. Assume that a bank has a lot of housing loans on the book which provide returns in terms of interests and principal payments to the bank plus these loans are also guaranteed by the underlying housing properties known as mortgages. But then an investment bank approaches the older bank to create a new financial instrument by pooling all the housing loans into different tranches according to their credit-worthiness, known as collateralized debit obligations (CDOs) and then selling units of these CDOs to a different class of investors. So, our traditional bank get returns from the usual intere...

  Which Apple will we prefer, the man made one or the natural one -          By Abhishek Maity   Physiocrats were an 18 th century group of French economists who believed that agriculture was the source of all wealth whereas the manufacturing and service industries did not produce any surplus. Physiocracy was a theory of wealth which was the first to grasp the general principles behind the workings of economic phenomenon, the founder of this group Francois Quesnay believed in free trade and minimal intervention of the government in the markets to ensure that entrepreneurial spirits of the farmers or agricultural workers are not taxed away which in turn could stymie the growth of the economy. But come the 21 st century the theory of physiocracy seems redundant as clearly the companies like Google, Microsoft, Apple and many other firms whose valuation runs into billions are not producing agriculture related products such firms ...

Darwinism of Financial Sector in India                                       -by Abhishek Maity   In India a lot development is underway in varied fields to achieve the goal of a self-reliant India and reaching the target of a 5 trillion U.S. dollar economy by 2024-25, currently the value of the Indian economy is around $3.1 trillion which implies that accomplishing the desired objectives will not be a challenging task though a few structural impediments still exist which need to be figure out. The most important is the finance sector as we know it performs the activity of allocating scare resources to the best possible usage in the economy. Though the Indian finance sector has grown at 15% in the past few years exhibiting stability as compared to the other Asian markets with a market capital...