Group 1

What is infrastructure?
Infrastructure offers investors the opportunity
to own the utilities and facilities that provide
essential services and help drive economic
growth and productivity.
Infrastructure can be divided into three
major sectors:
1. Utilities: electricity, gas, communications and
water
2. Transport: airports, roads, seaports and rail
3. Social: education facilities, hospitals and
other community facilities
Infrastructure assets can offer investors a strongly differentiated
set of characteristics compared to other asset classes.These
characteristics may include:
 the provision of essential services;
 significant barriers to entry and a generally dominant market
position;
 long duration assets, often with a life of 30+ years;
 have high upfront costs, but low ongoing operational costs;
 long-term, stable cash flows, generally with low volatility
compared to other asset classes;
 inflation-linked contracts and pricing that protects investors
from the effects of inflation on long-term cash flows
 Volatile and uncertain markets are highlighting the benefits
infrastructure investment can bring to an investor’s portfolio. In addition
to the potential for smoother and more predictable performance, by
including infrastructure in a portfolio, investors can benefit from:
 attractive risk-adjusted returns, complementing a diversified portfolio;
 reliable inflation-linked returns;
 low correlation and volatility compared with traditional asset classes;
 stable long-term yields, with the potential for capital growth;
 defensive characteristics emanating from the provision of essential
services;
 potential for value enhancement through active management of the
assets.
• Portfolio
– A portfolio is a grouping of financial assets such as stocks,
bonds, commodities, currencies and cash equivalents, as well as
their fund counterparts, including mutual, exchange-traded and
closed funds.
• Asset allocation
– Choice among broad asset classes
• Security selection
– Choice of securities within each asset class
– Security analysis to value securities and
determine investment attractiveness
 “Top-down” approach
• First, asset allocation
• Then, security analysis to evaluate which
particular securities to be included in the portfolio
“Bottom-up” approach
• Investment based solely on the price attractiveness,
which may result in unintended
heavy weight of a portfolio in only one or another
sector of the economy
 Investment management process can be disclosed by five-
step procedure, which includes following stages:
 1. Setting of investment policy.
 2. Analysis and evaluation of investment vehicles.
 3. Formation of diversified investment portfolio.
 4. Portfolio revision
 5. Measurement and evaluation of portfolio performance.
 1. Setting of investment policy is the first and very
important step in investment management process.
Investment policy includes setting of investment objectives.
The investment policy should have the specific objectives
regarding the investment return requirement and risk
tolerance of the investor.
 2. Analysis and evaluation of investment vehicles. When
the investment policy is set up, investor’s objectives
defined and the potential categories of financial assets for
inclusion in the investment portfolio identified, the
available investment types can be analyzed. This step
involves examining several relevant types of investment
vehicles and the individual vehicles inside these groups.
 3. Formation of diversified investment portfolio is the
next step in investment management process. Investment
portfolio is the set of investment vehicles, formed by the
investor seeking to realize its’ defined investment objectives.
In the stage of portfolio formation the issues of selectivity,
timing and diversification need to be addressed by the
investor. Selectivity refers to micro forecasting and focuses
on forecasting price movements of individual assets. Timing
involves macro forecasting of price movements of particular
type of financial asset relative to fixed-income securities in
general. Diversification involves forming the investor’s
portfolio for decreasing or limiting risk of investment.
 4. Portfolio revision. This step of the investment
management process concerns the periodic revision of the
three previous stages. This is necessary, because over time
investor with long-term investment horizon may change his
/ her investment objectives and this, in turn means that
currently held investor’s portfolio may no longer be
optimal and even contradict with the new settled
investment objectives. Investor should form the new
portfolio by selling some assets in his portfolio and buying
the others that are not currently held.
 5. Measurement and evaluation of portfolio
performance. This the last step in investment management
process involves determining periodically how the
portfolio performed, in terms of not only the return earned,
but also the risk of the portfolio. For evaluation of portfolio
performance appropriate measures of return and risk and
benchmarks are needed. A benchmark is the performance
of predetermined set of assets, obtained for comparison
purposes. The benchmark may be a popular index of
appropriate assets – stock index, bond index.
1. Banks:
Banks participate in the capital market and money market. Within the
capital market, banks take active part in bond markets. Banks may
invest in equity and mutual funds as a part of their fund management.
Banks take active trading interest in the bond market and have certain
exposures to the equity market also. Banks also participate in the
market as clearing houses.
2. Primary Dealers (PDs):
PDs deal in government securities both in primary and secondary
markets. Their basic responsibility is to provide two-way quotes and
act as market makers for government securities and strengthen the
government securities market.
3. Financial Institutions (FIs):
FIs provide/lend long term funds for industry and agriculture. FIs raise their
resources through long-term bonds from financial system and borrowings from
international financial institutions like International Finance Corporation (IFC),
Asian Development Bank (ADB) International Development Association (IDA),
International Bank for Reconstruction and Development (IBRD), etc.
4. Stock Exchanges:
A Stock exchange is duly approved by the Regulators to provide sale and
purchase of securities by “open cry” or “on-line” on behalf of investors through
brokers. The stock exchanges provide clearing house facilities for netting of pay-
ments and securities delivery. Such clearing houses guarantee all payments and
deliveries. Securities traded in stock exchanges include equities, debt, and
derivatives.
5. Brokers:
Only brokers approved by Capital Market Regulator can operate on stock exchange.
Brokers perform the job of intermediating between buyers and seller of securities.
They help build up order book, price discovery, and are responsible for a contract
being honored. For their services brokers earn a fee known as brokerage.
6. Investment Bankers (Merchant Bankers):
These are agencies/organizations regulated and licensed by SEBI, the Capital Markets
Regulator. They arrange raising of funds through equity and debt route and assist
companies in completing various formalities like filing of the prescribed document
and other compliances with the Regulator and Regulators.
They advise the issuing company on book building, pricing of issue, arranging
registrars, bankers to the issue and other support services. They can underwrite the
issue and also function as issue managers. They may also buy and sell on their
account.
7. Foreign Institutional Investors (FIIs):
FIIs are foreign based funds authorized by Capital Market Regulator to invest in coun-
tries’ equity and debt market through stock exchanges. They are allowed to repatriate
sale proceeds of their holdings, provided sales have been made through an
authorized stock exchange and taxes have been paid. FIIs enjoy de-facto capital
account convertibility.
8. Custodians:
Custodians are organizations which are allowed to hold securities on behalf of
customers and carry out operations on their behalf. They handle both funds and
securities of Qualified Institutional Borrowers (QIBs) including FIIs.
Custodians are supervised by the Capital Market Regulator. In view of their position
and as they handle the payment and settlements, banks are able to play the role of
custodians effectively. Thus most banks perform the role of custodians.
9. Depositories:
Depositories hold securities in demat (electronic) form, maintain accounts of
depository participants who, in turn, maintain accounts of their customers. On
instructions of stock exchange clearing house, supported by documentation, a
depository transfers securities from buyers to sellers’ accounts in electronic form.
Depositories are important for ensuring efficiency in the market. They facilitate
lending against securities and ensure avoidance of settlement risk or bad delivery.
 http://www.ampcapital.com.au/resources/investment-basics/what-is-
infrastructure-and-why-invest
 http://leeds-courses.colorado.edu/fnce4030/misc/slides/FNCE4030-Fall-2014-
ch01-02-handout.pdf
 https://slideplayer.com/slide/10732205/
 http://www.yourarticlelibrary.com/investment-management/functions-of-
participants-in-the-financial-market/89415
 https://www.bcci.bg/projects/latvia/pdf/8_IAPM_final.pdf