Capital Markets and Portfolio Analysis

Role of CapitalMarket

• It facilitates capital formation

in the economy.

• It establish direct link between FDEs (Fund deficit entities)and FSEs(Fund surplus entities).

• It basically supply funds to business houses.

Portfolio It is a Combination of different investment assets mixed and matched for the purpose of achieving investors goal .

PORTFOLIO MANAGEMENT STEPS ARE- • Learn the basic principle of finance. P/E ratio analysis EIC Analysis• Set portfolio objective.• Formulate investment Strategy.• Have a game plan for Portfolio revision.• Evaluate Performance.• Protect the portfolio when appropriate

Constituents of Capital Market- • Primary Market• Secondary Market

on investment are in form of-• Capital yield• Dividend Yield

Secondary Market Products-SharesBond

Equity investment

Equity investment Styles are-

1) Value investment style• Turnaround story• Merger & Takeovers• Demerger• Reconstruction• Buyback/Open offer

Cont….

2) Growth Stock

3) Momentum/Sector Rotation

Risk Estimated Expected Returns

Issues In Capital Market

Book Building

Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company.

Process

• The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.

• specifies the number of securities to be issued and the price band for orders.

• appoints syndicate members • Investors place their order with a syndicate member through the

process of biding• A Book should remain open for a minimum of 5 days• Bids cannot be entered less than the floor price. • Bids can be revised by the bidder before the issue closes. • On the close of the book building period the 'book runner evaluates

the bids• The book runner and the company conclude the final price• Allocation of securities is made to the successful bidders. • Book Building is a good concept and represents a capital market

which is in the process of maturing.

Bid and Ask Price

Price Mechanism or Market-Based Mechanism refers to a wide

variety of ways to match up buyers and sellers. An example of a price

mechanism uses announced bid and ask prices. Generally speaking,

when two parties wish to engage in a trade, the purchaser will

announce a price he is willing to pay (the bid price) and seller will

announce a price he is willing to accept (the ask price). The main

advantage of such a method is that conditions are laid out in advance

and transactions can proceed with no further permission or

authorization from any participant. When any bid and ask price are

compatible, a transaction occurs, in most cases automatically.

Products in the Secondary Markets

Shares: Bond:

• Equity Share Zero Coupon Bond• Rights Issue/ Rights Shares Convertible Bond• Bonus Share Treasury Bills

• Preference shares• Cumulative Preference Shares:• Cumulative Convertible Preference Shares:

• Sweat Equity

1) Growth Stocks

2) Value Stocks

Short selling.• The selling of a security that the seller does not own, or

any sale that is completed by the delivery of a security borrowed by the seller

• The buyer (Speculator) of a security such as a stock, commodity or currency, buy with the expectation that the asset will rise in value

Rolling settlement

• India has T+2 rolling settlement as opposed to T+3 in NYSE.

• Clearing Settlement

• Mark to Margin

Market Phase

• Bull Phase• Bear Phase• Open• Close

Trading• Basket Trading• Index Trading• Buyback Trading

Portfolio Analysis

PORTFOLIO

• In finance, a portfolio is an appropriate mix or collection of investments held by institutions or a private individual.

• Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced.

Portfolio

Portfolio Formation

Many strategies have been developed to form a portfolio.

• equally-weighted portfolio

• capitalization-weighted portfolio

• price-weighted portfolio

• optimal portfolio (for which the Sharpe ratio is highest)

PORTFOLIO MANAGEMENT

PORTFOLIO MANAGEMENT

• Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions.

• Selection involves deciding

- what assets to purchase,

- how many to purchase,

- when to purchase them,

- and what assets to divest.

Types of portfolio management

ACTIVE PORTFOLIO MANAGEME

NT

PASSIVEPORTFOLIO MANAGEME

NT

Risk Profile and Objectives AnalysisRisk Profile and Objectives Analysis

Investment Policy Statement Investment Policy Statement

DiversificationDiversification

Portfolio RebalancingPortfolio Rebalancing

Results ReportResults Report

Results ReportResults Report

Process of Portfolio Management

Portfolio Analysis

• Analyzing elements of a firm's product mix to determine the optimum allocation of its resources. Two most common measures used in a portfolio analysis are market growth rate and relative market share.

MODELS

The Jensen Index.

The Treynor Index.

The Sharpe Diagonal (or Index) model.

Capital Asset Pricing Model (CAPM)

Value at risk model.

Strategy - portfolio analysis - ge matrix

• The business portfolio is the collection of businesses and products that make up the company.

• The company must: (1) Analyse its current business portfolio and decide which

businesses should receive more or less investment, and

(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.

• The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix ..

The diagram illustrates some of the possible elements that determine market attractiveness and competitive strength by applying the McKinsey/GE Matrix to the UK retailing market:

Better Stock Picking

GET INFORMEDGET INFORMED

GET EDUCATEDGET EDUCATED

DEFINE OBJECTIVESDEFINE OBJECTIVES

UNDERSTAND RISK TOLERANCEUNDERSTAND RISK TOLERANCE

TRACK SUCCESSTRACK SUCCESS

FIND A FITFIND A FIT

WHAT INVESTORS DOWHAT INVESTORS DO

MANAGEMENTMANAGEMENT

DO RESEARCH WORKDO RESEARCH WORK

DISCIPLINEDISCIPLINE

CONFUSED?CONFUSED?

NEVER END PROCESS NEVER END PROCESS

12 steps to

better sto

ck p

icking

Review of PortfolioReview of Portfolio

Review of Portfolio

• When something goes wrong that you realise it hadn't been running as smoothly as you thought it was. This gives Review to Portfolio

• Investors subject their investment portfolio to a regular MOT.

• It includes:- – Goals– Asset Allocation– Performance Check– Shopping for funds

Rebalance of Portfolio

Rebalance of Portfolio

• If our money is in several different kinds of investment, the first thing we need to do is check the balance is right.

• There are, very roughly, three types of investor – – risk-averse, – medium-risk and – adventurous.

Steps to Review and Rebalance Our Portfolio

Reinvest DividendsReinvest Dividends

Review each Investment Review each Investment

Review Portfolio for Deviations from Target Allocation

Review Portfolio for Deviations from Target Allocation

Buy and Sell Shares to Regain Target AllocationBuy and Sell Shares to Regain Target Allocation

Sit Back and Watch Until it is Time to Rebalance Again

Sit Back and Watch Until it is Time to Rebalance Again

5 Steps to Reviewing and Rebalancing Your Portfolio

References

Refrences• Financial post.com• Investopedia.com• Equitymaster.com• Icicidirect.com• wsj.com(wallstreetjournal.com)• Personalfn.com• Security analysis and portfolio management by Dr. RP Rustagi• Journal on financial analyst,• Economictimes.indiatimes.com• Capitalmarket.com• Capitaline.com

Presented By:-

Neeraj MahendruIti DubeyVinay kapoorKrishna pati TripathiNeelam BhardwajSwati Sharma