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INDEX
TABLE OF CONTENT
CHAPTER 1: Introduction PAGE NO 5
Objective of the study Need of the Study Scope of the study Research methodology of study Limitation of the study
11 32 35 36 37
CHAPTER 2: INDUSTRY PROFILE CHAPTER 3: REVIEW LITERATURE CHAPTER 4: COMPANY PROFILE CHAPTER 5: TECHINICAL ANALYSIS AND INTERPRETATION CHAPTER 6: SUGGESTIONS & CONCLUSION BIBILIOGRAPHY
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45 51
60 97 101
CHAPTER-1 INTRODUCTION
PORTFOLIO MANAGEMENT
MEANING:
A portfolio is a collection of assets. The assets may be physical or financial like Shares, Bonds, Debentures, Preference Shares, etc. The individual investor or a fund manager would not like to put all his money in the shares of one company that would amount to great risk. He would therefore, follow the age old maxim that one should not put all the eggs into one basket. By doing so, he can achieve objective to maximize portfolio return and at the same time minimizing the portfolio risk by diversification. Portfolio management is the management of various financial assets which comprise the portfolio.
Portfolio management is a decision support system that is designed with a view to meet the multi-faced needs of investors.
According to Securities and Exchange Board of India Portfolio Manager is defined as: Portfolio means the total holdings of securities belonging to any person. PORTFOLIO MANAGER means any person who pursuant to
a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client. DISCRETIONARY
PORTFOLIO
MANAGER
means
portfolio manager who exercises or may, under a contract relating to portfolio management exercises any degree of discretion as to the investments or management of the portfolio of securities or the funds of the client. 4
2.
NON-DISCRETIONARY
FUNCTIONS
OF
PORTFOLIO
MANAGEMENT:
To frame the investment strategy and select an investment mix to achieve the desired investment objectives
To provide a balanced portfolio which not only can hedge against the inflation but can also optimize returns with the associated degree of risk
To maximize the after-tax return by investing in various tax saving investment instruments.
STRUCTURE / PROCESS OF TYPICAL PORTFOLIO MANAGEMENT In the small firm, the portfolio manager performs the job of security analyst. In the case of medium and large sized organizations, job function of portfolio manager and security analyst are separate .
PORTFOLIO MANAGERS
CLIENTS
In this type of service, the client parts with his money in favor of the manager, who in return, handles all the paper work, makes all the decisions and gives a good return on the investment and charges fees. In the Discretionary Portfolio Management Service, to maximize the yield, almost all portfolio managers park the funds in the money market securities such as overnight market, 18 days treasury bills and 90 days commercial bills. Normally, the return of such investment varies from 14 to 18 percent, depending on the call money rates prevailing at the time of investment.
Emergence of institutional investing on behalf of individuals. A number of financial institutions, mutual funds and other agencies are undertaking the task of investing money of small investors, on their behalf. Growth in the number and size of ingestible funds a large part of household savings is being directed towards financial assets. Increased market volatility risk and return parameters of financial assets are continuously changing because of frequent changes in governments industrial and fiscal policies, economic uncertainty and instability. Greater use of computers for processing mass of data. Professionalization of the field and increasing use of analytical methods (e.g. quantitative techniques) in the investment decision making Larger direct and indirect costs of errors or shortfalls in meeting portfolio objectives increased competition and greater scrutiny by investors.
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1.
2.
3.
4.
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PORTFOLIO BUILDING:
Portfolio decisions for an individual investor are influenced by a wide variety of factors. Individuals differ greatly in their circumstances and therefore, a financial programme well suited to one individual may be inappropriate for another. Ideally, an individuals portfolio should be tailor-made to fit ones individual needs.
Investors Characteristics:
An analysis of an individuals investment situation requires a study of personal characteristics such as age, health conditions, personal habits, family responsibilities, business or professional situation, and tax status, all of which affect the investors willingness to assume risk.
Family responsibilities:
The investors marital status and his responsibilities towards other members of the family can have a large impact on his investment needs and goals.
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Investors experience:
The success of portfolio depends upon the investors knowledge and experience in financial matters. If an investor has an aptitude for financial affairs, he may wish to be more aggressive in his investments .
Liquidity Needs:
Liquidity needs vary considerably among individual investors. Investors with regular income from other sources may not worry much about instantaneous liquidity, but individuals who depend heavily upon investment for meeting their general or specific needs, must plan portfolio to match their liquidity needs. Liquidity can be obtained in two ways: 1. By allocating an appropriate percentage of the portfolio to bank deposits, and 2. By requiring that bonds and equities purchased be highly marketable.
Tax considerations: .
Since different individuals, depending upon their incomes, are subjected to different marginal rates of taxes, tax considerations become most important factor in individuals portfolio strategy. There are
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Time Horizon:
In investment planning, time horizon becomes an important consideration. It is highly variable from individual to individual.
Individuals in their young age have long time horizon for planning, they can smooth out and absorb the ups and downs of risky combination. Individuals who are old have smaller time horizon, they generally tend to avoid volatile portfolios.
Safety of Principal:
The protection of the rupee value of the investment is of prime importance to most investors. The original investment can be recovered only if the security can be readily sold in the market without much loss of value.
Investment Risk:
All investment decisions revolve around the trade-off between risk and return. All rational investors want a substantial return from their investment. An ability to understand, measure and properly manage investment risk is fundamental to any intelligent investor or a speculator. Frequently, the risk associated with security investment is ignored and only the rewards are emphasized. An investor who does not fully appreciate the risks in security investments will find it difficult to obtain continuing positive results.
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There is a positive relationship between the amount of risk and the amount of expected return i.e., the greater the risk, the larger the expected return and larger the chances of substantial loss. One of the most difficult problems for an investor is to estimate the highest level of risk he is able to assume.
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Risk is measured along the horizontal axis and increases from the left to right. Expected rate of return is measured on the vertical axis and rises from bottom to top. The line from 0 to R (f) is called the rate of return or risk less investments commonly associated with the yield on government securities. The diagonal line form R (f) to E(r) illustrates the concept of expected rate of return increasing as level of risk increases .
TYPES OF RISKS:
Risk consists of two components. They are 1. Systematic Risk 2. Un-systematic Risk
1. Systematic Risk:
Systematic risk is caused by factors external to the particular company and uncontrollable by the company. The systematic risk affects the market as a whole. Factors affect the systematic risk are economic conditions political conditions sociological changes
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The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They are a) Market Risk b) Interest Rate Risk
2. Un-systematic Risk:
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Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of raising finance and paying back the loans, involve the risk element. Financial leverage of the companies that is debt-equity portion of the companies differs from each other. All these factors affect the un-systematic risk and contribute a portion in the total variability of the return.
Managerial inefficiently Technological change in the production process Availability of raw materials Changes in the consumer preference Labour problems The nature and magnitude of the above mentioned factors differ from industry to industry and company to company. They have to be analyzed separately for each industry and firm. Un-systematic risk can be broadly classified into: a) Business Risk b) Financial Risk
a.
Business Risk:
Business risk is that portion of the unsystematic risk caused by the operating environment of the business. Business risk arises from the inability of a firm to maintain its competitive edge and growth or stability of the earnings. The volatility in stock prices due to factors intrinsic to the company itself is known as Business risk. Business risk is concerned with the difference between revenue and earnings before interest and tax. Business risk can be divided into.
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b.
Financial Risk:
It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of the company consists of equity funds and borrowed funds.
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PORTFOLIO ANALYSIS
Various groups of securities when held together behave in a different manner and give interest payments and dividends also, which are different to the analysis of individual securities. A combination of securities held together will give a beneficial result if they are grouped in a manner to secure higher return after taking into consideration the risk element. There are two approaches in construction of the portfolio of securities. They are Traditional approach Modern approach
TRADITIONAL APPROACH:
Traditional approach was based on the fact that risk could be measured on each individual security through the process of finding out the standard deviation and that security should be chosen where the deviation was the lowest. Traditional approach believes that the market is inefficient and the fundamental analyst can take advantage of the situation. Traditional approach is a comprehensive financial plan for the individual. It takes into account the individual need such as housing, life insurance and pension plans. Traditional approach basically deals with two major decisions. They are
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a) b)
Determining the objectives of the portfolio Selection of securities to be included in the portfolio
MODERN APPROACH:
Modern approach theory was brought out by Markowitz and Sharpe. It is the combination of securities to get the most efficient portfolio. Combination of securities can be made in many ways. Markowitz developed the theory of diversification through scientific reasoning and method. Modern portfolio theory believes in the maximization of return through a combination of securities. The modern approach discusses the relationship between different securities and then draws interrelationships of risks between them. Markowitz gives more attention to the process of selecting the portfolio. It does not deal with the individual needs.
MARKOWITZ MODEL:
Markowitz model is a theoretical framework for analysis of risk and return and their relationships. He used statistical analysis for the measurement of risk and mathematical programming for selection of assets in a portfolio in an efficient manner. Markowitz apporach determines for the investor the efficient set of portfolio through three important variables i.e. Return Standard deviation Co-efficient of correlation Markowitz model is also called as an Full Covariance Model. Through this model the investor can find out the efficient set of portfolio by finding out the trade off between risk and return, between the limits of zero and infinity. According to this theory, the effects of one security
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purchase over the effects of the other security purchase are taken into consideration and then the results are evaluated. Most people agree that holding two stocks is less risky than holding one stock. For example, holding stocks from textile, banking and electronic companies is better than investing all the money on the textile companys stock. Markowitz had given up the single stock portfolio and introduced diversification. The single stock portfolio would be preferable if the investor is perfectly certain that his expectation of highest return would turn out to be real. In the world of uncertainty, most of the risk adverse investors would like to join Markowitz rather than keeping a single stock, because diversification reduces the risk.
ASSUMPTIONS:
All investors would like to earn the maximum rate of return that they can achieve from their investments. All investors have the same expected single period investment horizon. All investors before making any investments have a common goal. This is the avoidance of risk because Investors are risk-averse. Investors base their investment decisions on the expected return and standard deviation of returns from a possible investment.
Perfect markets are assumed (e.g. no taxes and no transition costs) The investor assumes that greater or larger the return that he achieves on his investments, the higher the risk factor surrounds
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him.
On the contrary when risks are low the return can also be
expected to be low. The investor can reduce his risk if he adds investments to his portfolio. An investor should be able to get higher return for each level of risk by determining the efficient set of securities. An individual seller or buyer cannot affect the price of a stock. This assumption is the basic assumption of the perfectly competitive market. Investors make their decisions only on the basis of the expected returns, standard deviation and covariances of all pairs of securities. Investors are assumed to have homogenous expectations during the decision-making period The investor can lend or borrow any amount of funds at the risk less rate of interest. The risk less rate of interest is the rate of interest offered for the treasury bills or Government securities. Investors are risk-averse, so when given a choice between two otherwise identical portfolios, they will choose the one with the lower standard deviation. Individual assets are infinitely divisible, meaning that an investor can buy a fraction of a share if he or she so desires.
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There is a risk free rate at which an investor may either lend (i.e. invest) money or borrow money. There is no transaction cost i.e. no cost involved in buying and selling of stocks. There is no personal income tax. Hence, the investor is indifferent to the form of return either capital gain or dividend.
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of an asset is having a linear relationship with assets beta value i.e. undiversifiable or systematic risk (i.e. market related risk) because non market risk can be eliminated by diversification and systematic risk measured by beta. Therefore, the relationship between an assets return and its systematic risk can be expressed by the CAPM, which is also called the Security Market Line. R = Rp Xf 1- Xf Rf Rm = Rf Xf+ Rm(1- Xf) Portfolio return =The proportion of funds invested in risk free assets = The proportion of funds invested in risky assets = Risk free rate of return = Return on risky assets
Formula can be used to calculate the expected returns for different situations, like mixing risk less assets with risky assets, investing only in the risky asset and mixing the borrowing with risky assets.
THE CONCEPT:
According to CAPM, all investors hold only the market portfolio and risk less securities. The market portfolio is a portfolio comprised of all stocks in the market. Each asset is held in proportion to its market value to the total value of all risky assets. For example, if Satyam Industry share represents 15% of all risky assets, then the market portfolio of the individual investor contains 15% of Satyam Industry shares. At this stage, the investor has the ability to borrow or lend any amount of money at the risk less rate of interest. E.g.: assume that borrowing and lending rate to be 12.5% and the return from the risky assets to be 20%. There is a trade off between the expected return and risk. If an investor invests in risk free assets and risky assets, his risk may be less than what he invests in the risky asset alone. But if he borrows to invest in risky assets, his risk would increase more than he invests his own money in the risky assets. When he borrows to invest, we call it financial leverage. If he invests 50% in risk 26
free assets and 50% in risky assets, his expected return of the portfolio would be
if there is a zero investment in risk free asset and 100% in risky asset, the return is Rp= Rf Xf+ Rm(1- Xf) = 0 + 20% = 20%
if -0.5 in risk free asset and 1.5 in risky asset, the return is Rp= Rf Xf+ Rm(1- Xf) = (12.5 x -0.5) + 20 (1.5) = -6.25+ 30 = 23.75%
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EVALUATION OF PORTFOLIO
Portfolio manager evaluates his portfolio performance and identifies the sources of strengths and weakness. The evaluation of the portfolio provides a feed back about the performance to evolve better management strategy. Even though evaluation of portfolio performance is considered to be the last stage of investment process, it is a continuous process. There are number of situations in which an evaluation becomes necessary and important.
i.
ii.
Evaluation
of
Managers:
mutual
fund
or
similar
organization might want to evaluate its managers. A mutual fund may have several managers each running a separate fund or subfund. It is often necessary to compare the performance of these managers.
iii.
iv.
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evaluate the performance of a whole group of investors and compare it with another group of investors who use different techniques or who
We can try to evaluate the performance of portfolio as a whole during the period without examining the performance of individual securities within the portfolio.
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PORTFOLIO REVISION:
The portfolio which is once selected has to be continuously reviewed over a period of time and then revised depending on the objectives of the investor. The care taken in construction of portfolio should be extended to the review and revision of the portfolio. Fluctuations that occur in the equity prices cause substantial gain or loss to the investors. The investor should have competence and skill in the revision of the portfolio. The portfolio management process needs frequent changes in the composition of stocks and bonds. In securities, the type of securities to be held should be revised according to the portfolio policy. An investor purchases stock according to his objectives and return risk framework. The prices of stock that he purchases fluctuate, each stock having its own cycle of fluctuations. These price fluctuations may be related to economic activity in a country or due to other changed circumstances in the market. If an investor is able to forecast these changes by developing a framework for the future through careful analysis of the behavior and movement of stock prices is in a position to make higher profit than if he was to simply buy securities and hold them through the process of diversification. Mechanical methods are adopted to earn better profit through proper timing. The investor uses formula plans to help him in making decisions for the future by exploiting the fluctuations in prices.
FORMULA PLANS:
The formula plans provide the basic rules and regulations for the purchase and sale of securities. The amount to be spent on the different types of securities is fixed. The amount may be fixed either in constant 31
or variable ratio. This depends on the investors attitude towards risk and return. The commonly used formula plans are i. ii. iii. iv. Average Rupee Plan Constant Rupee Plan Constant Ratio Plan Variable Ratio Plan
ADVANTAGES:
Basic rules and regulations for the purchase and sale of securities are provided. The rules and regulations are rigid and help to overcome human emotion. The investor can earn higher profits by adopting the plans. A course of action is formulated according to the investors objectives It controls the buying and selling of securities by the investor.
DISADVANTAGES:
The formula plan does not help the selection of the security. The selection of the security has to be done either on the basis of the fundamental or technical analysis. It is strict and not flexible with the inherent problem of adjustment. The formula plans should be applied for long periods, otherwise the transaction cost may be high. Even if the investor adopts the formula plan, he needs forecasting. Market forecasting helps him to identify the best stocks.
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CHAPTER-2
INDUSTRY PROFILE
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INDUSTRY PROFILE :
STOCK MARKET : Indian stock market has shown dramatic changes last 4 to 5 years. As of 2004 march-end, Indian stock exchanges had over 9400 companies listed. Of course, the number of companies whose shares are actively traded is smaller, around 800 at the NSE and 2600 at the BSE. Each company may have multiple securities listed on an exchange. Thus, BSE has over 7200 listed securities, of which over 2600 are traded. The market capitalization of all listed stocks now exceeds Rs. 13 Lakh crore. Total turnover-or the value of all sales and purchases on the BSE and the NSE now exceeds Rs. 50 lakh crore. As large number of indices are also available to fund managers. The two leading market indices are NSE 50-shares (S&P CNX Nifty) index and BSE 30-share (SENSEX) index. There are index funds that invest in the securities that form part of one or the other index. Besides, in the derivatives market, the fund managers can buy or sell futures contracts or options contracts on these indices. Both BSE and NSE also have other sect oral indices that track the stocks of companies in specific industry groups-FMCG, IT, Finance, Petrochemical and Pharmaceutical while the SENSEX and Nifty indices track large capitalization stocks, BSE and NSE also have Mid cap indices tracking mid-size company shares. The number of industries or sectors represented in various indices or in the listed category exceeds50. BSE has 140 scrips in its specified group A list, which are basically large-capitalization stocks. B 1 Group includes over 1100 stocks, many of which are mid-cap companies. The rest of the B2 Group includes over 4500 shares, largely low-capitalization.
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National Stock Exchange (NSE): The NSE was incorporated in NOVEMBER 1994 with an equity capital of Rs.25 Crores. The International Securities Consultancy (ISC) of Hong Kong has helped in setting up NSE. The promotions for NSE were financial institutions, insurance companies, banks and SEBI capital market ltd,Infrastructure leasing and financial services ltd.,stock holding corporation ltd. NSE is a national market for shares, PSU bonds, debentures and government securities since infrastructure and trading facilities are provided. The genesis of the NSE lies in the recommendations of the Pherwani Committee (1991). NSE-Nifty: The NSE on April22, 1996 launched a new equity index. The NSE-50 the new index which replaces the existing NSE-100, is expected to serve as an appropriate index for the new segment of futures and options. Nifty means National Index for Fifty Stocks. The NSE-50 comprises 50 companies that represent 20 broad industry groups with an aggregate market capitalization of around Rs. 1,70,000 crores. All the companies included in the Index have a market capitalization in excess of Rs. 500 crores. Each and should have traded for 85% of trading days at an impact cost of less than 1.5%. NSE-Midcap Index: The NSE midcap index or the Junior Nifty comprises 50 stocks that represents 21 board Industry groups and will provide proper representation of the midcap. All stocks in the index should have market capitalization of greater than Rs.200 crores and should have traded 85% of the trading days an impact cost of less 2.5%. The base period for the index is Nov 4, 1996 which signifies 2 years for completion of operations of the capital market segment of the operations. The base value of the index has been set at 1000. Average daily turnover of the present scenario 258212(laces) and number of average daily trades 2160(laces). 38
Bombay Stock Exchange (BSE): This stock exchange, Mumbai, popularly known as BSE was established In 1875 as The native share and stock brokers association, as a voluntary non-profit making association .It has evolved over the years into its present status as the premier stock exchange in the country. It may be noted that the stock exchange is the oldest one in Asia, even older than the Tokyo Stock Exchange, this was founded in 1878. The Bombay Stock Exchange Limited is the oldest stock exchange in Asia and has the greatest number of listed companies in the world, with 4700 listed as of August 2007.It is located at Dalal Street, Mumbai, India. On 31 December 2007, the equity market capitalization of the companies listed on the BSE was US$ 1.79 trillion, making it the largest stock exchange in South Asia and the 12th largest in the world. A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public representatives and an executive director is the apex body, which decides the policies and regulates the affairs of the exchange.
BSE Indices: In order to enable the market participants, analysts etc., to track the various ups and downs in Indian stock market, the exchange had 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 component stocks representing a sample of large, well established and leading companies. 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. Sensex is calculated using a market capitalization weighted method. As per this methodology, the level of index reflects the total market value of all 30-component stocks from different industries related to particular base period. The total value of a company is determined by multiplying the price of its stock by the number of shares outstanding.
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Statisticians call an index of a set of combined variables (such as price number of shares) Composite index. An Indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over a time. IT is much easier to graph a chart base on indexed values then one based on actual values world over majority of the well known indices are constructed using Market capitalization weighted method. The divisor is only link to original base period value of the sensex. New base year average = old base year average*(new market value/old market value) OTC Equity Derivatives
Traditionally equity derivatives have a long history in India in the OTC market. Options of various kinds (called Teji and Mandi and Fatak) in un-organized markets were traded as early as 1900 in Mumbai The SCRA however banned all kind of options in 1956.
Both the exchanges have set-up an in-house segment instead of setting up a separate exchange for derivatives. BSEs Derivatives Segment, will start with Sensex futures as its first product. NSEs Futures & Options Segment will be launched with Nifty futures as the first product.
Contract Size - Rs.50 times the Index Tick Size - 0.1 points or Rs.5 Expiry day - last Thursday of the month Settlement basis - cash settled Contract cycle - 3 months Active contracts - 3 nearest months
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Contract Size - Rs.200 times the Index Tick Size - 0.05 points or Rs.10 Expiry day - last Thursday of the month Settlement basis - cash settled Contract cycle - 3 months Active contracts - 3 nearest months Membership for the new segment in both the exchanges is not automatic and has to be separately applied for. Membership is currently open on both the exchanges. All members will also have to be separately registered with SEBI before they can be accepted.
Membership
Networth - 300 lakh Interest-Free Security Deposits - Rs. 25 lakh Collateral Security Deposit - Rs. 25 lakh
In addition for every TM he wishes to clear for the CM has to deposit Rs. 10 lakh. Trading Member (TM)
Networth - Rs. 100 lakh Interest-Free Security Deposit - Rs. 8 lakh Annual Subscription Fees - Rs. 1 lakh
Networth - 300 lacs Interest-Free Security Deposits - Rs. 25 lakh Collateral Security Deposit - Rs. 25 lakh Non-refundable Deposit - Rs. 5 lakh Annual Subscription Fees - Rs. 50 thousand
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In addition for every TM he wishes to clear for the CM has to deposit Rs. 10 lakh with the following break-up.
Cash - Rs. 2.5 lakh Cash Equivalents - Rs. 25 lakh Collateral Security Deposit - Rs. 5 lakh Networth - Rs. 50 lakh Non-refundable Deposit - Rs. 3 lakh Annual Subscription Fees - Rs. 25 thousand
The Non-refundable fees paid by the members is exclusive and will be a total of Rs.8 lakhs if the member has both Clearing and Trading rights. Trading Systems
NSEs Trading system for its futures and options segment is called NEAT F&O. It is based on the NEAT system for the cash segment. BSEs trading system for its derivatives segment is called DTSS. It is built on a platform different from the BOLT system though most of the features are common.
Certification Programmes
The NSE certification programme is called NCFM (NSEs Certification in Financial Markets). NSE has outsourced training for this to various institutes around the country.
The BSE certification programme is called BCDE (BSEs Certification for the Derivatives Exchnage). BSE conducts its own training run by its training institute.
Both these programmes are approved by SEBI. Both the BSE and the NSE have been give in-principle approval on their rule and laws by SEBI. According to the SEBI chairman, the Gazette notification of the Bye-Laws after the final approval is expected to be completed by May 2000. Trading is expected to start by mid-June 2000.
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REVIEW OF LITERATURE
1. OVERVIEW
studying is to examine
making in the area of Portfolio management in General Insurance Company with a special focus on Portfolio of NIACL. 2. SCOPE through Examination of procedures of decision making portfolio management Environment, selection of securities Weights of different securities and Earning of Portfolio NIACL. : In the presence study cover
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3. FINDINGS securities in
trend on an Average the investments in such securities increased by 183.47% yearly over the study period. How ever the trend of investment in stock exchange, securities both in India and Outside India has shown investment incase Is 184.77% per year over the study period.
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Making rational investment decision to which Security to buy or sell using security market Line which is to suggested the best portfolio Mix . 2. SCOPE to this use of Security market line as a tool of selecting Security and advising the investors about the Best portfolio mix. 3. FINDINGS between the Expected returns and actual returns. The next Step is to identify the securities which are under Value when their expected returns is more than Actual returns, it can be observed undervalued Securities like Cipla, Dr. Reddy Labs, HDFC Bank, Satyam etc., Satyam is linear since the Weights (X) are the variables : There is a significant different : The scope of the study is limited
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INVESTMENT Investment may be defined as an activity that commits funds in any financial form in the present with an expectation of receiving additional return in the future. The expectations bring with it a probability that the quantum of return may vary from a minimum to a maximum. This possibility of variation in the actual return is known as investment risk. Thus every investment involves a return and risk. Investment is an activity that is undertaken by those who have savings. Savings can be defined as the excess of income over expenditure. An investor earns/expects to earn additional monetary value from the mode of investment that could be in the form of financial assets. The three important characteristics of any financial asset are:
Return-the potential return possible from an asset. Risk-the variability in returns of the asset form the chances of its value going down/up. Liquidity-the ease with which an asset can be converted into cash.
Investors tend to look at these three characteristics while deciding on their individual preference pattern of investments. Each financial asset will have a certain level of each of these characteristics
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Investment avenues
There are a large number of investment avenues for savers in India. Some of them are marketable and liquid, while others are nonmarketable. Some of them are highly risky while some others are almost risk less. Investment avenues can be broadly categorized under the following head. 1. Corporate securities 2. Equity shares. 3. Preference shares. 4. Debentures/Bonds. 5. Derivatives. 6. Others.
Corporate Securities Joint stock companies in the private sector issue corporate securities. These include equity shares, preference shares, and debentures. Equity shares have variable dividend and hence belong to the high risk-high return category; preference shares and debentures have fixed returns with lower risk.The classification of corporate securities that can be chosen as investment avenues can be depicted as shown below:
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Equity Shares
Preferene shares
Bonds
Warrant s
Derivates
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COMPANY PROFILE
Circa 1995 A group of professional formed a company called Probity Research & Services Pvt Ltd. The name was later changed to India Infoline Ltd. The Objective was to provide unbiased and independent information to market intermediaries and investors. The quality of research soon caught the imagination of all major participants in the financial market. In a span of 2 to 3 years the client list read like the whos who of Indian Financial market. The list included consulting firms like Mckinsey, companies like
Hindustan Lever, Banks like Citibank, Rating agencies like CRISIL, D&B, FIs, foreign brokers as well as leading Indian brokers.One fine morning in early 1999, a colleague had a crazy idea that if the company made all the research available free on the web, the number of users may well jump from 250 to 2, 5 million. To make it true, the business required a reincarnation. And the pre-requisite was a death. It meant that the company put up all the information free on the website and let go of all the revenues and profits. Worse, if the new avatar failed, there would be no comebacks. The company became heavily dependent on its e-broking business for survival. The odds were against them. There was no money 50
available from the private equity investors at any valuation. The core promoters of the company had little experience of broking. To add to it, the market was hit by a scam. They also had their share of price to pay and lessons to learn. It was difficult to retain people. Although devastating for morale, but not surprising, most market observers had written them off There was a core group who never lost hope. They cut all possible costs and worked on a bare bones structure. They survived against all odds and started capturing market share. The company rose from strength to strength to become the leading corporate agent in life insurance and among the top retail players in mutual fund and broking space.
India Info line Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for
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clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.
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Started life insurance agency business in December 2000 as a Corporate Agent of ICICI Prudential Life Insurance. Became a depository participant of NSDL in September 2001. Launched stock messaging service in May 2003. Acquired commodities broking license in March 2004. Launched portfolio management services in August 2004. Listed on NSE and BSE on May 17, 2005. Acquired 75% stake holding in Money tree Consultancy services, which is a distributor of Mortgages and other Loan products, in October 2005. Acquired 100% equity of Marchmont Capital Advisors Pvt Ltd in December 2005 through which we have ventured into Merchant Banking. DSP Merrill Lynch Capital subscribed to convertible bonds aggregating Rs.80 crores in December 2005. Their current stake in India Infoline is a little over 14 % as on 31st March 2007. Bennett Coleman & Co Ltd (BCCL) invested Rs.20 crores in India Infoline by way of preferential allotment in December 2005. Became a depository participant of CDSL in June 2006. Merger of India Infoline Securities Private Limited with India Infoline Limited in January 2007. Entered into an alliance with Bank of Baroda for Baroda etrading in February 2007. IRDA license for Insurance Broking April 2007. 53
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Mr. Sanjiv Ahuja (Independent Director) Mr. Sanjiv Ahuja joined the Board with effect from August 28, 2002. Mr. Ahuja graduated from National University of Singapore with a degree in Computer Science and is also a Certified Public Accountant. He started his own investment advisory and consulting company in 2001, named Centennial Management Consultants Private Limited. Mr. Nilesh Vikamsey (Independent Director) Mr. Nilesh Shivji Vikamsey joined the Board with effect from February 11, 2005. Mr. Vikamsey qualified as a Chartered Accountant in 1985 and has been a member of the Institute of Chartered Accountants of India since 1985. Mr. Kranti Sinha (Independent Director) Mr. Kranti Sinha joined the Board with effect from January 27, 2005. Mr. Sinha graduated from the Agra University with a Masters degree. Mr. Sinha is also on the Board of Directors of Hindustan Motors
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Limited, Larsen & Turbo Limited & LICHFL Care Homes Limited.
Knowledge:
Always keep yourself up-to-date by reading newspapers like Economics Times, Business standard and Business Line daily. Passing NCFM, AMFI, IRDA exams also help you to get basic domain understanding. We are in a knowledge industry and hence we cannot afford to go to a client and appear ignorant and foolish by not even knowing basic things.
Technology:
By technology, we mean that as an organization, we leverage technology to deliver best service to our clients at the least cost. Our trading interface for broking is absolutely world class. We expect our employees to be comfortable with and confident of using technology.
Service:
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Our customer service is warm, friendly and responsive that media cannot help but rave about. Today, service is the key driver for growth in financial services. We take pride in our ability to add value that our customers can feel and appreciate.
Remember we have to always ensure that simple things like ensuring customer problems are solved, requests are catered to, giving him investment ideas etc. Basically, whatever it takes to keep him served.
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