capital markets and portfolio analysis
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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