onomi     on epts and erminolo ies         22.41
     But that might not happen due to many factors
                                                               q theory
     like the fluctuations in inflation; level of money
     supply; follow-up to the exchange rate regimes         As investment theory for firms proposed by the
     (fixed, floating, etc.), and other.                    Nobel prize winning (1981) economist James
          For the calculation of the PPP, a comparable      Tobin (1918–2002). He theorised that firms
     basket of goods and services is selected (a very       would continue to invest as long as the value of
     difficult task) of the identical qualities and         their shares exceeded the replacement cost of their
     quantities. The other difficulty in computing PPP      assets–the ratio of the market value of a firm to the
     arises out of the flaw in the ‘one price theory’ i.e., net replacement cost of the firm’s assets is known
     due to transportation cost, local taxes, level of      as ‘Tobin Q’. If Q is greater than 1, then it should
     production, etc. The prices of goods and services      expand the firm by investment as the profit it
     cannot be the same in different markets (This is       should expect to make from its assets (reflected by
     correct in theory only, not possible in practice.)     share price) exceeds the cost of the assets.
                                                                 If Q is less than 1, the firm would be better
        purchAse tAx                                        off by selling its assets which are worth more than
                                                            shareholders currently expect the firm to earn in
     A tax collected by states in India on goods. This      profit by retaining them.
     is imposed on the purchases done by traders/
     manufacturers—basically collected by the seller
                                                               rAnDom wAlk
     and given to the concerned states). This is deducted
     once the traders/manufacturers pay value added         When it is impossible to predict the next step.
     tax (VAT) to the states—as VAT is paid on the          As per the Efficient Market Theory the prices of
     differential value of the traded/manufactured          financial assets (such as shares) follow a random
     goods. This tax is among the 8 taxes to be merged      walk–there is no way of knowing the next change
     into the upcoming indirect tax, the GST.               in the price. The reason this theory provides is
                                                            that in an efficient market, all the information
        qip                                                 that would allow an investor to predict the next
                                                            price move is already reflected in the current price.
     Qualified Institutional Placement (QIP) is a           Such belief has led some economists to conclude
     policy associated with the Indian stock market         that investors cannot outperform the market
     for raising capital by issuing equity shares. The      consistently.
     companies listed on the BSE and the NSE are
                                                                 As opposed to this, some economists argue
     allowed (since May 2006) to raise capital by
                                                            that asset prices are predictable and that markets
     issuing equity shares, or any securities other
                                                            are not efficient–they follow a non-random walk
     than warrants, which are convertible into or
     exchangeable with equity shares. The attractive
     part of the new QIP is that the issuing company
     does not have to undergo elaborate procedural
     requirements to raise this capital. These securities   The act of not lending to people in certain poor or
     have to be issued to Qualified Institutional Buyers    troubled neighbourhoods shown on the map with
     on a discretionary basis, with just a 10 per cent      a ‘red line’. Even if their credit-worthiness has
     reservation for mutual funds.                          been judged on the basis of other criteria, they are