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MBA DEPARTMENT 2
OBJECTIVES:
To study the investment decision process.
METHODOLOGY
Visiting Kotak securities at Banjara hills, Secunderabad and collecting information
SOURCES OF INFORMATION
The study uses extensively both primary and secondary data
PRIMARY DATA:
Information was collected through this source comprises of discussions with the personnel
of Fortis securities
SECONDARY DATA:
The secondary data includes information obtained from various sources that includes
newspaper articles, business magazines and web
LIMITATIONS
MBA DEPARTMENT 4
1. The project work is mainly based on the above mentioned sources of information
2. The study was made in purview of the guidelines of SEBI, NATIONAL STOCK
EXCHANGE OF INDIA and KOTAK SECURITIES as applicable to that period only.
MBA DEPARTMENT 5
MBA DEPARTMENT 6
INTRODUCTION
.
The rapid growth of capital markets in India has opened up new
investment avenues for investors.
PORTFOLIO MANAGEMENT
PORTFOLIO:
Since portfolios expected return is a weighted average of the expected return of its
securities, the contribution of each security the portfolio’s expected returns depends on its
expected returns and its proportionate share of the initial portfolio’s market value. It
follows that an investor who simply wants the greatest possible expected return should
hold one security; the one which is considered to have a greatest expected return. Very
few investors do this, and very few investment advisors would counsel such and extreme
policy instead, investors should diversify, meaning that their portfolio should include more
than one security.
MBA DEPARTMENT 7
OBJECTIVES OF PORTFOLIOMANAGEMENT:
Secondary objectives:
• Regular return.
• Stable income.
• Appreciation of capital.
• More liquidity.
• Safety of investment.
• Tax benefits.
Return From the angle of securities can be fixed income securities such as:
(a) Debentures –partly convertibles and non-convertibles debentures debt with tradable
Warrants.
(b) Preference shares
(c) Government securities and bonds
(d) Other debt instruments
The modern theory is the view that by diversification risk can be reduced.
Diversification can be made by the investor either by having a large number of shares of
companies in different regions, in different industries or those producing different types of
product lines. Modern theory believes in the perspective of combination of securities under
constraints of risk and returns
Investment management is a complex activity which may be broken down into the
following steps:
The most important decision in portfolio management is the asset mix decision very
broadly; this is concerned with the proportions of ‘stocks’ (equity shares and units/shares
of equity-oriented mutual funds) and ‘bonds’ in the portfolio.
The appropriate ‘stock-bond’ mix depends mainly on the risk tolerance and
investment horizon of the investor.
Systematic risks affected from the entire market are (the problems, raw material
availability, tax policy or government policy, inflation risk, interest risk and financial risk). It
is managed by the use of Beta of different company shares.
RETURNS ON PORTFOLIO:
RISK ON PORTFOLIO :
The expected returns from individual securities carry some degree of risk. Risk on
the portfolio is different from the risk on individual securities. The risk is reflected in the
variability of the returns from zero to infinity. Risk of the individual assets or a portfolio is
measured by the variance of its return. The expected return depends on the probability of
the returns and their weighted contribution to the risk of the portfolio. These are two
measures of risk in this context one is the absolute deviation and other standard deviation.
All investment has some risk. Investment in shares of companies has its own risk or
uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or
depreciation of share prices, losses of liquidity etc
The risk over time can be represented by the variance of the returns. While the return over
time is capital appreciation plus payout, divided by the purchase price of the share.
Normally, the higher the risk that the investor takes, the higher is the
return. There is, how ever, a risk less return on capital of about 12% which is the bank,
rate charged by the R.B.I or long term, yielded on government securities at around 13% to
14%. This risk less return refers to lack of variability of return and no uncertainty in the
repayment or capital. But other risks such as loss of liquidity due to parting with money
etc., may however remain, but are rewarded by the total return on the capital. Risk-return
is subject to variation and the objectives of the portfolio manager are to reduce that
variability and thus reduce the risky by choosing an appropriate portfolio.
Traditional approach advocates that one security holds the better, it is according
to the modern approach diversification should not be quantity that should be related to the
quality of scripts which leads to quality of portfolio.
Experience has shown that beyond the certain securities by adding more securities
expensive.
An asset’s total risk can be divided into systematic plus unsystematic risk, as shown below:
Unsystematic risk is that portion of the risk that is unique to the firm (for example, risk due
to strikes and management errors.) Unsystematic risk can be reduced to zero by simple
diversification.
Portfolio managers:
The portfolio manager carries out all the transactions pertaining to the investor
under the power of attorney during the last two decades, and increasing complexity was
witnessed in the capital market and its trading procedures in this context a key
(uninformed) investor formed ) investor found him self in a tricky situation , to keep track
of market movement ,update his knowledge, yet stay in the capital market and make
money , there fore in looked forward to resuming help from portfolio manager to do the job
for him .
The portfolio management seeks to strike a balance between risk’s and return.
The generally rule in that greater risk more of the profits but S.E.B.I. in its
guidelines prohibits portfolio managers to promise any return to investor.
Portfolio management is not a substitute to the inherent risk’s associated with equity
investment
Only those who are registered and pay the required license fee are eligible to
operate as portfolio managers. An applicant for this purpose should have necessary
infrastructure with professionally qualified persons and with a minimum of two persons
with experience in this business and a minimum net worth of Rs. 50lakh’s. The certificate
once granted is valid for three years. Fees payable for registration are Rs 2.5lakh’s every
for two years and Rs.1lakh’s for the third year. From the fourth year onwards, renewal fees
per annum are Rs 75000. These are subjected to change by the S.E.B.I.
The S.E.B.I. has imposed a number of obligations and a code of conduct on them.
The portfolio manager should have a high standard of integrity, honesty and should not
have been convicted of any economic offence or moral turpitude. He should not resort to
MBA DEPARTMENT 12
rigging up of prices, insider trading or creating false markets, etc. their books of
accounts are subject to inspection to inspection and audit by S.E.B.I... The observance of
the code of conduct and guidelines given by the S.E.B.I. are subject to inspection and
penalties for violation are imposed. The manager has to submit periodical returns and
documents as may be required by the SEBI from time-to- time.
• Advisory role: advice new investments, review the existing ones, identification
of objectives, recommending high yield securities etc.
• Study of industry: he should study the industry to know its future prospects,
technical changes etc, required for investment proposal he should also see the
problem’s of the industry.
• Decide the type of port folio: keeping in mind the objectives of portfolio a
portfolio manager has to decide weather the portfolio should comprise equity
preference shares, debentures, convertibles, non-convertibles or partly
convertibles, money market, securities etc or a mix of more than one type of
proper mix ensures higher safety, yield and liquidity coupled with balanced risk
techniques of portfolio management.
The one’s who use to manage the funds of portfolio, now being managed
by the portfolio of Merchant Bank’s, professional’s like MBA’s CA’s And many financial
institution’s have entered the market in a big way to manage portfolio for their clients.
One can estimate trend of earning by EPS, which reflects trends of earning quality of
company, dividend policy, and quality of management.
Price earning ratio indicate a confidence of market about the company future, a high rating
is preferable.
.
The following points must be considered by portfolio managers while analyzing
the securities.
1. Nature of the industry and its product: long term trends of industries,
competition with in, and out side the industry, Technical changes, labour relations,
sensitivity, to Trade cycle.
2. Industrial analysis of prospective earnings, cash flows, working capital,
dividends, etc.
3. Ratio analysis: Ratio such as debt equity ratio’s current ratio’s net worth,
profit earning ratio, return on investment, are worked out to decide the portfolio.
The wise principle of portfolio management suggests that “Buy when the market is
low or BEARISH, and sell when the market is rising or BULLISH”.
Capital Assets pricing approach (CAPM) it pay’s more weight age, to risk or portfolio
diversification of portfolio.
Valuation of intrinsic value of company (trend-marker moves are known for their
Uncertainties they are compared to be high, and low prompts of wave market trends
are constituted by these waves it is a pattern of movement based on past).
The following rules must be studied while cautious portfolio manager before decide to
invest their funds in portfolio’s.
1. Compile the financials of the companies in the immediate past 3 years such as turn
over, gross profit, net profit before tax, compare the profit earning of company with
that of the industry average nature of product manufacture service render and it
future demand ,know about the promoters and their back ground, dividend track
record, bonus shares in the past 3 to 5 years ,reflects company’s commitment to share
holders the relevant information can be accessed from the RDC(registrant of
companies)published financial results financed quarters, journals and ledgers.
2. Watch out the high’s and lows of the scripts for the past 2 to 3 years and their
timing cyclical scripts have a tendency to repeat their performance ,this hypothesis
can be true of all other financial ,
3. The higher the trading volume higher is liquidity and still higher the chance of
speculation, it is futile to invest in such shares who’s daily movements cannot be kept
track, if you want to reap rich returns keep investment over along horizon and it will
offset the wild intra day trading fluctuation’s, the minor movement of scripts may be
ignored, we must remember that share market moves in phases and the span of each
phase is 6 months to 5 years.
a. Long term of the market should be the guiding factor to enable you to invest
and quit. The market is now bullish and the trend is likely to continue for some
more time.
b. UN tradable shares must find a last place in portfolio apart from return; even
capital invested is eroded with no way of exit with no way of exit with inside.
(1) Never invest on the basis of an insider trader tip in a company which is not sound
(insider trader is person who gives tip for trading in securities based on prices sensitive up
price sensitive un published information relating to such security).
(2) Never invest in the so called promoter quota of lesser known company
(3) Never invest in a company about which you do not have appropriate knowledge.
(4) Never at all invest in a company which doesn’t have a stringent financial record your
portfolio should not a stagnate
(4) Shuffle the portfolio and replace the slow moving sector with active ones , investors
were shatter when the technology , media, software , stops have taken a down slight.
(5) Never fall to the magic of the scripts don’t confine to the blue chip company‘s, look out
for other portfolio that ensure regular dividends.
(6) In the same way never react to sudden raise or fall in stock market index such
fluctuation is movementary minor correction’s in stock market held in consolidation of
market their by reading out a weak player often taste on wait for the dust and dim to settle
to make your move” .
MBA DEPARTMENT 15
Combinations of securities that have high risk and return features make up a
portfolio.
Portfolio selection involves choosing the best portfolio to suit the risk return
preferences of portfolio investor management of portfolio is a dynamic activity of
evaluating and revising the portfolio in terms of portfolios objectives
It is widely accepted that returns from individual scripts carry certain rate of risk
.portfolio held in spreading the risk in many security then the risk is reduced. The basic
principle is that of a port folio holds several assets or securities
It may include in cash also, even if one goes bad the other will provide protection from the
loss even cash is subject to inflation the diversification can be either vertical or horizontal
the vertical diversification portfolio can have script of different company’s with in the same
industry.
In horizontal diversification one can have different scripts chosen from different industries.
Horizontal Diversification
TISCO MANUFACTURING
ACC
GARDEN TEXTILE
INFOSYS (SOFTWARE)
BSES LTD (POWER)
ULTRA TECH (CONSTRUCTION)
Investment in a fixed return securities in the current market scenario which is passing
through a an uncertain phase investors are facing the problem of lack of liquidity combined with
minimum returns the important point to both is that the equity market and debt market moves
in opposite direction .where the stock market is booming, equities perform better where as in
depressed market the assured returns related securities market out perform equities.
It is cyclic and is evident in more global market keeping this in mind an investor can shift
from fixed income securities to equities and vise versa along with the changing market
scenario , if the investment are wisely planned they , fetch good returns even when the market
MBA DEPARTMENT 16
is depressed most , important the investor must adopt the time bound strategy in
differing state of market to achieve the optimum result when the aim is short term returns it
would be wise for the investor to invest in equities when the market is in boom & it could be
reviewed if the same is done.
with an investment strategy to invest in debt investment in fixed deposit can be made for the
simple reason that assured fixed income of a high of 14-17% per annum can be expected
which is much safer then investing a highly volatile stock market, even in comparison to banks
deposit which gives a maximum return of 12% per annum, fixed deposit s in high profile
esteemed will performing companies definitely gives a higher returns.
Fixed deposit does provide a Varity of schemes to suit the financial links of investor
a few of the schemes are:
An investor can look for the CRISIL, CARE, ICRA, ratings for fixed deposits.
BETA:
It is therefore it is necessary, to calculate Betas for all scrip’s and choose those with
high Beta for a portfolio of high returns.
EFFICIENT FRONTIER
If there are “n” assets available in the capital market, we can constitute two assets
portfolio, three asset portfolio, four asset portfolio, and ….”n” asset portfolio. For each
portfolio there are “n” possible proportions of investments. Together they result in an almost
infinite number of portfolios. The risk and return and be seen in graph below:
Findings : The markowirtz graphic selection of portfolio is set to be not an efficient one
because if an investor is ready to take risk at std deviation X. he can vote the last portfolio Y
.from the risk std deviation Z and Rx point of view it is not an efficient portfolio.
“X is a denominated portfolio.
“Y” and “Z” is a dominant portfolio.
When the outer points of an efficient portfolio are jointed a shell is formed or
a broken egg is formed. the shape depends upon degree of correlation among securities,
therefore the shell is called attainable set, feasible set, it is so called because all the
available investment opportunities in the market like either on the border or with in the
border.
2.if a investor is satisfied with the return of Rx , the same return can be earn by choosing
portfolio “Z” which has a similar risk of std deviation x (As against larger risk std
deviation x)
The dominants principle states that among all the investment opportunities
available with a given return, the investment with the least risk is the most desirable one or
among the investment in a given risk class, the one with the highest return with the most
desirable one. Risk principle is also called Efficient set theorem.
In the light of this segment A, B is the relevant portion of the feasible set it is called the
Markowitz efficient frontier. It is so called because all efficient portfolios lie on this frontier.
MBA DEPARTMENT 18
An efficient portfolio is one, that gives the highest return for given
return or a minimum risk for a given return, these efficient portfolios are also refer as means
variance efficient portfolios. The shape of the efficient frontier is given by Delta RP /Delta
STD deviation p.
Two modifications to the efficient frontier must be discussed: what happens when short
selling is added, and what happens when leveraged portfolios are added?
A. Short selling: the ability to short sell has two effects on the efficient frontier. The
frontier probably shifts up and to the left and it continuous to the right. The ability to short sell
securities created a new set of possible investments. A security sold short produces a positive
return when a security has a large decrease in price and a negative return when its price
increases. Its potential improves the efficient frontier.
Because the ability to short sell doubles the number of possible investments. Since investors
are free not short sell, the introduction of the ability to short sell cannot make investors
worse off. If it never pays to short sell, the worst that can happen is that the efficient frontier
is unchanged. With out short sales, all investors can do is not to hold securities that they
believe do poorly.
With short sales, an opportunity is created that is expected to have almost the
opposite characteristics of the investment when purchased. With short sales it is possible, in
a sense to disinvest in poor investments and hence gain poorly. If it ever pays to short sell
any security, the efficient frontier is shifted up and to the left. This is an example of the old
economic adage that a decision maker can not be worse o by being given additional choices
and the decision maker may well be better off. In addition short sales allow the investor to
decrease or eliminate market risk in a large well diversified portfolio, unique risk is
eliminated and only market risk remains. Short sales allow the reduction of market risk to
very low levels. Thus the additional of short positions operates as a hedging mechanism,
reducing the market exposure of a portfolio.
The extension of the efficient frontier to the right arises from the tendency of a very
large amount of short selling to increase the risk and return on the portfolio. This increase in
risk is easy to understand. Short sales can involve unlimited loss. The lesson to be learned
from this is that short sales can increase the possible level of return for any level of risk.
Short sales can be abused and positions taken that are too extreme. However short selling
per sec is not bad. Like any other investment strategy, it can be used prudently or
imprudently.
B.LEVERAGED PORTFOLIO:
Investment in risk free asset is often referred to as risk free lending. Since this approach
involves investing for a single holding period, it means that the return of the risk free asset is
certain. That is, if the investor purchases this asset at the beginning of the holding period,
then the investor knows exactly what the value of the asset will be at the end of the holding
project. Since there is no uncertainty about the terminal value of the risk free asset, the
standard deviation of the risk free assets, by definition, zero. In turn, this means that the
covariance between the rate of return on the risk free asset and the rate of return on any
risky asset is zero.
The efficient frontier would be altered substantially if a risk frees securities is included
among available investment opportunities. While a risk free security does not exist in the strict
sense of the word, there are securities, which promise return with relative certainty. They are
characterized by an absence of default risk and return rate; full payment of principle is assured
with out serious prospect of capital loss arising from changes in the level of interest rates. A
risk free security of this type includes cash, short-term treasury bills, and time deposits in
banks or savings and loan association; cash would be dominated by the other positive return
investments.
Given the opportunity to either borrow or lend at the risk free rate, an investor proceed
to identify the optimal portfolio by plotting his or her indifference curves on graph and nothing
where once of them is tangent to the indifference efficient set.
For example portfolio, has an expected return of 11% and a standard deviation of 12.5%.
However, portfolio is not efficient, since portfolio B has the same expected return but a
standard deviation of only 8%. Portfolio but not efficient, l since portfolio f has a still higher
return with the same degree of risk as e and h. Portfolio A is a single equity portfolio that has
the highest return and risk; in no way can investor improve on its return-to-risk ratio. If
investor moves to the right on the curve, return decreases and risk decreased. Hence investor
moves to the left and down. The only way the investor can obtain a higher return on the
efficient frontier is to accept a higher return on the efficient frontier is to accept a higher
amount of risk.
Where investors operate on the capital market line depends on their attitudes towards
risk and return. Investors must determine their own preference for risk and return by way of a
difference cure. In theory, the investor will invest the combination of securities found at the
point where the highest indifference curve just touches the capital market line. Investors might
have higher return and lower risk goals, but they can obtain those combinations only on the
capital market line, and will invest at some point that gives the combination of returns and risk
that allows them to maximize net worth and make a satisfactory investment
. To be realistic, assume that the investor’s borrowing rate is above the lending
rate. Combination of lending or borrowing with a portfolio of risky assets lies along a straight
lines, with lending and borrowing the efficient frontier. Noticed that for all investors, expect for
those whose risk-return trade-offs causes they to hold portfolios, the ability to lend and borrow
improve their opportunities. The ability to lend is hardly controversial. The borrowing part may
be more controversial. Borrowing and buying a less risky portfolio can give higher returns and
less risk and buying a more risky portfolio.
MBA DEPARTMENT 20
Higher expected return at the same risk level by borrowing. Of
course, borrowing like short sales, almost any financial mechanism can be abused. It can be
used to take extreme and imprudent risk position. On the other hand, it can be used to
enhance performance. Rejecting borrowing entirely would throw out positive opportunities. For
example, consider an investor wishing to have a high portfolio with greater expected returns
than offered by portfolio B. this investor would have the same expected return and less risk by
buying port folio B and borrowing than by buying portfolio, which does not involve borrowing.
The relevant risk for an individual asset is a systematic risk (or market –market risk) because
non market risk can be eliminated by diversification, the relationship between an asset’s
return and its systematic risk can be expressed by the CAPM, which is also called the security
market (SML). The equation for the CAPM is as follows:
E(ri)=R+[E(rm)-R]bi
The CAPM is an equilibrium model for measuring the risk-return tradeoff for all asset s
including both inefficient and efficient portfolios. A graph of the CAPM is given below:
FINDINGS:
Depicts two assets, U and O that are not in equilibrium on the CAPM. Asset U is undervalued
and therefore , avary desirable asset to own. U”s price will rise in the market as more investors
purchase it. However as U’s price goes up,its return falls. When U’s return falls to the return
consistent with the beta on the SML, equilibrium is attained. With O,just the opposite takes
place.investor will attempt to sell O,since it is overvalued and therefore, put down pressure on
O’s price. When the return on asset O increases to the rate that is coinsistent with the beta risk
level given by the SML, equilibrium will be achieved and down ward price pressure will cease.
Assumptions underlying CAPM
MBA DEPARTMENT 21
The Capital Asset Pricing Model {CAPM} is an equilibrium model. The derivation
of the model is based on several assumptions about investors and the market, whichwe
present below for completeness. Investors are assumed to take in to account only two
parameters of return distribution, namely the mean and the varience , in making a choice of
portfolio . in other words, it is assumed that a secutity can be completely represented in terms
of its expected return and varience and those investors behave as if a security were a
commodity with two attributes,namely , expected return which is a desirable attribute and
varience, which is an undesirable attribute. Investors are supposed to be risk averse and for
every additional unit of risk they take, they demand compensation in terms of expected
returns.
The Capital Asset Pricing Model also assumes that the difference between lending
and borrowing rates are negligibly small for investors. Also, the investors are assumed to make
a single period investment decisions. The cost of transactions and information are assumed to
be negligibly small. The model also ignores the existence of taxes, which may influence the
investor’s behavior.
The fact that some of the above assumptions are some what restrictive has
attracted considerable criticism of the model. This however need not distract us from main
thrust of the model. The Capital Asset Pricing Model merely implies that in a reasonably well-
functioning market where a large number of knowledgeable financial analysts operate, all
securities will yield returns consistence with their risk, since if this were not is, the
knowledgeable analysts will be able to take advantage of the opportunities for
disproportionate returns and there by reduce such opportunities.
The security market line (SML) express the basic theme of the CAPM i.e.., expected
return of a security increases linearly with risk, as measured by Beta. It can be drawn as
follows.
MBA DEPARTMENT 22
The SML is upward sloping straight line with an intercept at the risk free return securities
and passes through the market portfolio. The upward slope of the line indicates that greater
expected return accompany higher level of Beta. In equilibrium, each security or portfolio lies
on the SML.
In the above figure that the return expected from portfolio or investment is a
Combination of risk free return plus risk premium. An investor will come forward to take risk
only if the return on investment also includes risk premium.
The CAPM has shown the risk and return relationship of a portfolio in the following formula.
Where
E (Ri) = expected rate of return on any individual security (or portfolio of security)
STOCK EXCHANGES
Capital markets in India have considerable depth. There are 22 stock exchanges in India.
Ahmedabad, Delhi, Calcutta, Madras and Bangalore are major ones amongst the other
stock exchanges. These stock exchanges are served by 3,000 brokers and 20,000 sub-
brokers. A number of providers for merchant banking services exist.
The market capitalization of the Bombay Stock Exchange (BSE) alone was around Rs.5
trillion in December 1994.This makes it one of the largest emerging stock markets in the
world. A number of other cities also have stock markets.
The regulatory agency which oversees the functioning of stock markets is the Securities
and Exchange Board of India (SEBI), which is also located in Bombay.
India has one of the most active primary markets in the world, with roughly 130 public
issues taking place each month.
The National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and OTCEI have
already introduced screen-based trading. All other exchanges (except Guwahati, Magadh
and Bhubaneshwar) are to introduce full computerisation and screen-based trading by 30
June 1996. This will bring about greater transparency for investors, reduce spreads, allow
for more effective monitoring of prices and volumes and speed up settlement.
MBA DEPARTMENT 23
The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access to
investors from all across the country on an equal footing. Based on the recommendations,
NSE was promoted by leading Financial Institutions at the behest of the Government of
India and was incorporated in November 1992 as a tax-paying company unlike other stock
exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)
segment in June 1994. The Capital Market (Equities) segment commenced operations in
November 1994 and operations in Derivatives segment commenced in June 2000
Currently, 200 large companies are traded on the NSE; that list is expected to gradually
expand as the exchange stabilizes. The NSE is a computerized market for debt and equity
instruments.
The NSE, located in Bombay, was set up in 1993 to encourage stock exchange reform
through system modernization and competition. NSE's reach has been extended to 21
cities, of which 6 cities do not have their own stock exchanges. NSE plans to cover 40 cities
by end-1996. The NSE has a very modern implementation of trading using contemporary
technology in computers and communication. It is an electronic screen based system
where members have equal opportunity and access for trading irrespective of their
location, since they are connected by a satellite network.
The number of members trading on the exchange has increased from the 227 at
commencement to 600 members as of November 1995. NSE, thus, helps to integrate the
national market and provides a modern system with a complete audit trail of all
transactions. In a further effort to improve the settlement system and minimize the risks
associated therein, NSE has set up a subsidiary - National Securities Clearing Corporation
(NSCC). On par with clearing corporations the world over, NSCC will shortly guarantee
settlement of trades executed and settled through it. The instruments traded are treasury
bills, government security, and bonds issued by public sector companies.
The government of India issues around Rs.70 billion of debt instruments per year. The
market is still nascent; but, trading volumes are steadily rising. Average daily turnover in
stocks have increased from Rs.70 million in November 1994 to Rs.990 million during July
1995.
MBA DEPARTMENT 24
OBJECTIVES:
PROMOTERS:
Industrial Development Bank of India (IDBI)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Financing Corporation of India (IFCI)
Life Insurance Corporation of India (LIC)
State Bank of India (SBI)
General Insurance Corporation (GIC)
Bank of Baroda
Canara Bank
Corporation Bank
Indian Bank
Oriental Bank of Commerce
Union Bank of India
Punjab National Bank
MBA DEPARTMENT 25
Infrastructure Leasing and Financial Services
Stock Holding Corporation of India
SBI capital market
MBA DEPARTMENT 26
NSE-NIFTY
The national Stock Exchange on April 22, 1996 launched a new Equity Index. The NSE-50.
The new Index which replaces the existing NSE-100 Index is expected to serve as an
appropriate Index for the new segment of futures and options.
“Nifty” means National Index for Fifty Stock.
The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an
aggregate market capitalization of around Rs.170000crores. All companies included in the
index have a market capitalization in excess of Rs.500crores each and should have traded
for 85% of trading days at an impact cost of less than 1.5%.
The base period for the index is the close of prices on Nov 3,1995 which makes one year of
completion of operation of NSE’s capital market segment. The base value of the Index has
been set at 1000.
MBA DEPARTMENT 27
SECURITIES TRADED:
The securities traded in the BSE are classified in to three groups namely
specified shares of ‘A’ group and non-specified securities. The latter is sub-divided into ‘B1’
and ‘B’ groups. ‘A’ group contains the companies with large outstanding shares, good track
record and large volumes of business in the secondary market. Settlements of all the
shares are carried out through the Clearing House.
In order to enable the market participants, analysts etc., to track the various ups and
downs in the Indian Stock Market, the Exchange has introduced in 1986 an equity stock
index called BSE-SENSEX that subsequently became the barometer of the moments of the
share prices in the Indian Stock Market. It is a “Market Capitalization-Weighted” index of
30 components. The base year of SENSEX is 1978-79. The SENSEX is widely reported in
both domestic and international markets through print as well as electronic media.
In practice, the daily calculation of SENSEX is done by dividing the aggregate market of the
30 Companies in the Index by a number called the Index Divisor. The Divisor is the only
link to the original based period value of the SENSEX. The divisor keeps the index
comparable over a period of time and if the reference point for the entire Index
maintenance adjustments. SENSEX is widely used to describe the mood in the Indian Stock
Markets.
Many steps have been taken in recent years to reform the Stock Market such as:
Regulation of Intermediaries.
Changes in the Management Structure.
Insistence on Quality Securities.
Prohibition of Insider Trading.
Transparency of Accounting Processes.
MBA DEPARTMENT 29
Fortis securities
Fortis was founded in 1996 by late
Dr. Parvinder Singh (CMD – Ranbaxy Laboratories Limited) with the vision to
provide integrated financial care driven by the relationship of trust and confidence.
Fortis aims to be India’s first truly multinational company to provide financial services
across the globe.
Fortis has an extensive network of over 110 branches and 275 business associates
through its regional, zonal and branch offices served by 1200 employees.
About company
Fortis is promoted, controlled and managed by the promoters of Ranbaxy. It was founded
with the vision of providing integrated financial driven by relationship of trust. To realize its
vision, both, fund –based and non-fund based financial services are provided to its clients.
The growing staff financial institutions with whom Fortis is empanelled, as approved
broker, is a reflection of the high levels of services maintained .Besides servicing
institutional clients, Fortis also pioneered the concept of partnership to reach multiple
locations in order to effectively service its large base of individual clients . They greatly
benefit by its strong research capability , which encompasses fundamentals as wells
technicals.
MBA DEPARTMENT 33
SERVICES
Core
Commodity Trading
Depository services
Facilitation
Margin financing.
Advisory
Though, equity carries a risk and howsoever much one may desire, the risk can’t be
eliminated. However the risk can certainly be managed (or controlled) with professional
expertise. This professional expertise developed over the long years of operations in
financial markets is being offered by Fortis. Fortis PMS is a dedicated service aimed at
managing the portfolios of the investors who feel the need of professional approach to
optimize the returns from their investments.
Besides its long experience of operating in financial markets. Fortis offers many other
advantages to its investors. Continuing with its tradition of innovations. Fortis has
introduced some new features in its PMS as well. These include giving the advantage of its
being a Depository participant to the investor by not charging him for any custodial
charges. Additionally, Fortis would be using other brokers to buy and sell stocks in its PMS
despite having its own broking service so as to avoid conflict of interest, not to mention the
fact that it has set itself stuff return targets before charging fee to investors.
Optimal returns
Focus on risk control
Effort towards absolute returns
Stock specific research based approach
Willing to under perform in Rising market,But aiming to outperform in falling
market.
MBA DEPARTMENT 35
Advantage PMS
Customised Portfolio
Transparency
Cost efficient
SEBI regulated
MBA DEPARTMENT 36
Mutual Fund
PMS
Mass Customized
Personalized
Product
product product
services in the
No personalized form of access to
Services fund manager and
service available
dedicated
Entry/Exit Norelationship
entry / Exit
Costs
loads Option manger
loads
of fixed /
Fee structure Fixed performance based fees
Investment Philosophy
Investment Process
Identificati
on
Exit Valuation
Revision Validation
Acquisitio
n
MBA DEPARTMENT 38
Investment Process
Product Offerings
Panther
Tortise
Elephant
MBA DEPARTMENT 41
PANTHER
Objective
Aims to achieve higher returns by taking aggressive positions
across sectors and market capitalization
Strategy
Investment strategy would be to invest across the sectors with a
view to take advantage of various market conditions. Efforts
would be made to find out stocks which have triggers to
become multi-baggers in the market backed by a turn-around,
or new product introduction, idea marketing, unveiling of
valuation and recognition of stock in the market.
Suitability
High risk high return
Investment Horizon
1-2 years
Portfolio Turnover
High
MBA DEPARTMENT 42
TORTISE
Objective
Aims to achieve gradual growth in the portfolio value
over a period of time by way of careful and judicious
investment in fundamentally strong and attractive valued
shares.
Strategy
Investment strategy would be to invest across the
sectors with a view to take advantage of lower valuation of
the companies with high growth potential and consistent
track record over a longer period of time.
Suitability
Medium Risk Medium Return
Investment Horizon
2 to 3 years
MBA DEPARTMENT 43
ELEPHANT
Objective
Aims to generate steady return over a longer period by investing in
securities selected only from BSE 100 index.
Strategy
Investment strategy would be to invest in the companies which form part of
BSE 100 Index as these companies have steady performance and reduces
the liquidity risk in the market.
Suitability
Low Risk Low Return
Investment Horizon
3 to 4 years
Portfolio Turnover
Low
Performance – Tortoise
22
NAV
20
18
16
14 BSE
12
10
Oct-04
Jun-05
Jul-05
Aug-05
Oct-05
Nov-04
Nov-04
Apr-05
Jul-05
Nov-05
Nov-05
Sep-04
Sep-04
Jan-05
Jan-05
Sep-05
Sep-05
Dec-04
Feb-05
Mar-05
Mar-05
May-05
May-05
Performance - Panther
24
22 NAV
20
18
16
14 BS E 500
12
10
Nov-04
Oct-04
Oct-05
Oct-05
Nov-05
Dec-04
Dec-04
Jan-05
Feb-05
Jun-05
Jul-05
Jul-05
Aug-05
Sep-04
Sep-04
May-05
Sep-05
Apr-05
May-05
Mar-05
Mar-05
Since
6 Months 1 Year
Inception
30.4 71.0 129.6
Investment Details
Mode of Inflow:
Inflow can be in the form of cash and/or securities
Portfolio Disclosure
Monthly Report:
Containing all the details about the portfolio and a monthly news letter on
Markets.
Valuation Report
MBA DEPARTMENT 47
\
Holding Statement
MBA DEPARTMENT 48
Transaction Report
MBA DEPARTMENT 49
Gain/loss Report
Corporate Action