Course Manual (Investment & Equity Research)

PGDM/PDDM-FS (2009-11)

PGDM/PGDM-FS (2009-11)
I. II. COURSE FACILITATOR: COURSE OVERVIEW: This course aims at providing a clear understanding of the changing domestic and global investment scenario in general and Indian capital market in particular. Important theories, techniques, regulations and certain advancements in theory of investment will be covered with an aim of helping the participants make sound investment decisions both in the context of individual security and portfolio investment. It is meant to provide an unbiased forum for the presentation of critical thinking on advanced financial topics while supplying the tools and empirical evidence to participants to make their own judgments independently. III. COURSE TOPICS: 1. Overview of investments and investment alternatives Risk and Return in the Context of Portfolio Valuation of common stock and Fixed Income Securities Duration and Immunisation Portfolio selection problems Arbitrage Pricing Theory Efficient Market Hypothesis Equity Analysis: Fundamental & Technical Portfolios Performance Evaluation Portfolio Revision

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6. 7. 8. 9. 10. IV.
LEARNING OUTCOMES:

Participants who master the course material will acquire the analytical tools and financial theory for making good investment decisions and understand the paradigms by which portfolio being managed.

V.

PRE- REQUISITES:

It is required for the students to have a reasonable understanding of corporate finance and fundamentals of quantitative techniques. VI. BOOKS AND REFERENCES: There are many good books in Investment Analysis & Portfolio Management. The recommended textbooks are as follows: 1. Investment Analysis & Portfolio Management, 3e --- by Prasanna Chandra (Tata McGraw-Hill Publishing Company Limited) 2. Security Analysis and Portfolio Management, 6e --- Fischer D E & Jordan R J (Prentice Hall)

ADDITIONAL READINGS: There are plenty of good literatures which are quite helpful in having a thorough insight of the same. A comprehensive list (although not complete in true sense) is as follows: 1. Graham & Dodds Security Analysis, 5e --- Cottle, Sidney; Murray, Roger F; Block, Frank E. (McGraw Hill) 2. Foundation of Security Analysis & Design --- Focardi, Riccardo (Springer) 3. Portfolio Construction, Management & Protection, 4e --- Strong, R A (Cengage Learning Private Limited) 4. Modern Investments and Security Analysis --- Fuller R J & Farrel J (McGraw Hill) 5. Foundation of Security Analysis & Design --- Focardi, Riccardo (Springer) 6. Investment Analysis and Portfolio Management, 8e --- Frank K. Reilly and Keith C. Brown (Cengage Learning Private Limited) 7. Investments, 6e -- Bodie, Zvi, Kane, Alex, Marcus, Alan J, Mohanty, Pitabas (Tata McGraw Hill Publishing Co. Ltd.) 8. Modern Investment Theory, 5e --- Haugen, Robert A (Pearson Education) 9. Investments: Analysis and Management, 8e --- Jones, Charles P (John Wiley & Sons) 10. Investment Valuation --- Damodaran, Aswath (John Wiley & Sons) 12. Technical Analysis of Stock Trends --- Edwards, R P (John Magic Inc.) 13. Security Analysis & Portfolio Management --- Pandian, P (Vikas Publishing House Pvt. Limited) 14. Portfolio Management --- Barua, S K; Raghunathan, V; Verma, J.R. (Tata McGraw Hill) 15. Security Analysis & Portfolio Management --- Avdhani V.A. (Himalaya Publishing House) 16. Modern Portfolio Theory and Investment Analysis --- Elton, E J; Gruber, M J (John Wiley & Sons) 17. Introduction to Futures & Options Markets --- Hull, J C (Prentice Hall, Eaglewood Cliffs, New Jersey) 18. Stock Markets: Theories & Evidence --- Obaidullah, M (ICFAI) 19. Value Investing: From Graham to Buffet and Beyond --- Greenwald, Bruce C N; Kahn, Judd; Sonkin, Paul D; Biema, Michael Van (John Wiley & Sons) 20. Equity Portfolio Management --- Fabozzi, Frank J; Mann, Steven V (Tata McGraw Hill) 21. The Handbook of Fixed Income Securities, 7e --- Fabozzi, Frank J; Mann, Steven V (Tata McGraw Hill) 22. Fixed Income Securities: Dynamic Methods for Interest Rate Risk Pricing and Hedging --- Martellini, Lionel; Priaulet, Phillippe (John Wiley & Sons) 23. Advanced Bond Portfolio Management --- Fabozzi, Frank J (John Wiley & Sons) 24. Bond Markets --- Fabozzi, Frank J (Pearson Education) 25. The Intelligent Investor, 4e --- Graham, Benjamin (Harper & Row Publishers, 1973) 26. The Oxford Guide to Financial Modeling: Application for Capital Markets, Corporate Finance, Risk Management & Financial Institutions) --- Ho, Thomas S Y; Lee, Sang Bin (Oxford University Press)

Journals/Magazines: 1. 2. 3. 4. 5. Chartered Finance Analyst Journal of Applied Finance Forbes Journal of Financial Risk Management Economist

Online Resources:

www.sebi.gov.in www.sharekhan.com www.capitalmarket.com www.icicidirect.com

www.bseindia..com VII.
ASSESSMENT CRITERIA:

www.amfiindia.com www.nsdl.co.in www.bondmarkets.com www.nse-india.com

S.No 1 2 3

Parameter Class Test etc Group Assignments / Case submissions End Term

Weightage 20% 20% 60%

VIII: SESSION PLAN: Session 1 Topic A quick review of basic concepts Overview of Investments: Investment objectives; Investment Environment; Investment Process; Common Errors in Investment Management Investment Alternatives Risk and Return in the Context of Portfolio Capital Asset Pricing Model Common Stock Valuation Models, Term Structure of Interest Rates Risks in Fixed Income Securities, Macaulays Duration Case: Capmart Limited Chapter 1, IA&PM-PC Discussion Pre-Readings Activity

3 4-6 7 8-9 10-11 12

Chapter 2, IA&PM-PC Chapter 4, IA&PM-PC. Chapter 8, IA&PM-PC Chapter 13, IA&PM-PC Chapter 11, IA&PM-PC Page 347, IA&PM-PC

Discussion Discussion & Numerical exercises Discussion Discussion & Numerical exercises Discussion & Numerical exercises Presentation and case discussion

13 14 15-16 17 18

Markowitzs Risk-Return Optimization ; Generating the Efficient Frontier, Optimal Portfolio Valuation Techniques in Practice Arbitrage Pricing Theory Case: Radiant Securities Efficient Market Hypothesis: Various forms of market efficiency; Random walk theory; Testing market efficiency; Implications for investment analysis Fundamental Analysis Economic & Industry Analysis Company Analysis , Company Valuation Technical Analysis Managed Portfolios and Performance Evaluation: Sharpes , Treynors, Jensens and Famas Performance Measures, Portfolio Revision: Portfolio Re-balancing and Upgrading, Immunization Current Practices in Portfolio Performance Evaluation Case: Acme Investments

Chapter 7, Fundamentals of Investment-Alexander, Sharpe; Chapter 7, IA&PM-PC

Discussion & Numerical exercises

Guest Lecture Discussion & Numerical Chapter 8, IA&PM-PC exercises Page 273-74, IA&PM-PC Chapter 9, IA&PM-PC Presentation and case discussion Discussion

19-21 22

Chapter 14, IA&PM-PC Chapter 15, IA&PM-PC

Discussion, Numerical exercises & Assignments

23-25

Guest Lecture Discussion & Numerical exercises Chapter 21, IA&PM-PC Chapter 12, IA&PM-PC Guest Lecture Page 626, IA&PM-PC Presentation and case discussion

26 27

IX.

SESSION DETAILS Session 1: In this session, students will be given a quick review of the basic concepts so as to give them an orientation and to make them comfortable with the course. As an introductory session, the objective is to help them to have recap of the basic concepts so as to proceed with the course in a comfortable manner. Session 2: In this session, students would learn about the investment, its environment and process so as to identify and remove/reduce common errors in investments. 1. Pre-reading: Chapter 1, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * How to formulate investment objectives * Impact of environment in investment decisions * Common errors in investments 3. Learning Outcomes: Students would be exposed to the develop the ways to formulate investment policy. 4. Chapter: Chapter 1, IA&PM, Chandra, Prasanna, TMH Session 3: In this session, students would be exposed to various investment alternatives and problems associated with the same. 1. Pre-reading: Chapter 2, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Various avenues of investments 3. Learning Outcomes: Students would learn about various investment alternatives and its Suitability to investors. 4. Chapter: Chapter 2, IA&PM, Chandra, Prasanna, TMH

Session 4-6: In these sessions, students would be exposed to various facets of risk and return with a specific focus to portfolio. 1. Pre-reading: Chapter 4, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Types of risks, Systematic vs. Unsystematic risks, * Security Market Line, Capital Market Line * Measurement of risk and return in the context of portfolio * Problems associated with the portfolio 3. Activity: Numerical exercises 4. Learning Outcomes: Students would understand about various factors associated with risk and how to measure it. In addition, they would learn how to apply the tools to measure the same. 5. Chapter: Chapter 4, IA&PM, Chandra, Prasanna, TMH Session 7: In this session, students would be exposed to conceptual framework of CAPM and its applications. 1. Pre-reading: Chapter 8, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Overview, assumptions and applicability of CAPM 3. Learning Outcomes: Students would be able to apply CAPM and understand the nuances involved with the same. 4. Chapter: Chapter 8, IA&PM, Chandra, Prasanna, TMH Session 8-9: In these sessions, students would learn about the various models to be utilized for the valuation of common stock. . 1. Pre-reading: Chapter 13, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Suitability of the model for a specific situation * Applicability of the model for valuation 3. Activity: Numerical exercises 4. Learning Outcomes: Students would be exposed to various models and its applicability for the valuation of a common stock. 5. Chapter: Chapter 13, IA&PM, Chandra, Prasanna, TMH Session 10-11: In these sessions, students would learn about the valuation techniques of fixed income securities and measurement of risks associated with the same. 1. Pre-reading: Chapter 11, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Applicability of valuation model * Linkage of Macaulays duration with valuation of bonds and implications of its sensitivity 3. Activity: Numerical exercises 4. Learning Outcomes: Students would be exposed to valuation models for the fixed income securities and understanding the sensitivity of price change vis--vis duration. the valuation of a common stock. 5. Chapter: Chapter 11, IA&PM, Chandra, Prasanna, TMH Session 12: In this session, a case would be discussed so as to understand the applicability of valuation model of fixed income securities so as to compute bond prices and yields. 1. Pre-reading: Chapter 11, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Applicability of valuation model 3. Activity: Presentation by the students 4. Case discussion: Capmart Limited, Ch. 11, Page 347, IA&PM, Chandra, Prasanna, TMH 5. Learning Outcomes: Students would be exposed to application of valuation model and understand its nuances. 6. Chapter: Chapter 11, IA&PM, Chandra, Prasanna, TMH

Session 13: In this session, students would learn about the optimal portfolio and issues involved with the same. 1. Pre-reading: Chapter 7, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Optimal portfolio * Minimum variance portfolio 3. Activity: Numerical exercises 4. Learning Outcomes: Students would be able to construct optimal portfolio and minimum variance portfolio. 5. Chapter: Chapter 7, IA&PM, Chandra, Prasanna, TMH Session 14: In this session, students would learn about the valuation techniques in practice. 1. Pre-reading: Chapter 7, 11 & 13, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Valuation Techniques in Practice 3. Activity: Guest Lecture 4. Learning Outcomes: Students would learn about the current practices in industry regarding valuation. 5. Chapter: Chapter 7, 11 & 13, IA&PM, Chandra, Prasanna, TMH Session 15-16: In these sessions, students would learn about the arbitrage portfolio and intricacies involved with the same. 1. Pre-reading: Chapter 8, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Arbitrage portfolio * Factor Models * Pricing effects, APT Pricing equation * Issues involved with APT 3. Activity: Numerical exercises 4. Learning Outcomes: Students would learn how to construct an arbitrage portfolio and its implications. 5. Chapter: Chapter 8, IA&PM, Chandra, Prasanna, TMH Session 17: In this session, a case would be discussed so as to understand how to measure risk and return. Also, they would be exposed to CML and SML. 1. Pre-reading: Chapter 8, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Issues involved while measuring risk and return 3. Activity: Presentation by the students 4. Case discussion: Radiant Securities, Ch. 8, Page 273-74, IA&PM, Chandra, Prasanna, TMH 5. Learning Outcomes: Students would understand the intricacies involved with measurement of risk and return. 6. Chapter: Chapter 8, IA&PM, Chandra, Prasanna, TMH Session 18: In this session, students would learn about the various forms of market efficiency. 1. Pre-reading: Chapter 9, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Various forms of market efficiency * Testing market efficiency and its implications for investment analysis 3. Learning Outcomes: Students would be able to understand stock behavior and its implications. 4. Chapter: Chapter 9, IA&PM, Chandra, Prasanna, TMH Session 19-21: In these sessions, students would learn about the computational aspects of intrinsic value and issues involved with the same. 1. Pre-reading: Chapter 14-15, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Economic Analysis

* Industry Analysis * Company Analysis * Conceptual framework for Intrinsic Value 3. Activity: Assignment 4. Learning Outcomes: Students would learn how to arrive at intrinsic value using fundamental analysis. . 5. Chapter: Chapter 14-15, IA&PM, Chandra, Prasanna, TMH Session 22: In this session, students would be exposed to technical analysis and its implications in stock investment decisions. 1. Pre-reading: Chapter 16, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Tools of technical analysis * Using technical analysis for investment decisions 3. Activity: Guest Lecture 4. Learning Outcomes: Students would be able to use technical tools for their investment decisions. 5. Chapter: Chapter 16, IA&PM, Chandra, Prasanna, TMH Session 23-25: In these sessions, students would learn how to measure the performance of a portfolio and revising the portfolio thereafter. 1. Pre-reading: Chapter 21, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Tools to evaluate performance * Asset mix and strategies, Portfolio revision * Problems associated with performance evaluation 3. Activity: Numerical exercises 4. Learning Outcomes: Students would learn how to evaluate the performance of a portfolio. 5. Chapter: Chapter 21, IA&PM, Chandra, Prasanna, TMH Session 26: In these sessions, students would learn about the industry norms and practices regarding performance of a portfolio. 1. Pre-reading: Chapter 21, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Industry practice for portfolio performance evaluation 3. Activity: Guest Lecture 4. Learning Outcomes: Students would learn regarding current practices in industry for performance evaluation of a portfolio. 5. Chapter: Chapter 21, IA&PM, Chandra, Prasanna, TMH Session 27: In this session, a case would be discussed so as to understand the applicability of asset mix and allocation of the same. 1. Pre-reading: Chapter 21, IA&PM, Chandra, Prasanna, TMH 2. Issues for discussion in class * Development of asset mix and problems associated with the same. 3. Activity: Presentation by the students 4. Case discussion: Acme Investments, Ch. 21, Page 626, IA&PM, Chandra, Prasanna, TMH 5. Learning Outcomes: Students would be able to understand how to develop an appropriate asset mix. 6. Chapter: Chapter 11, IA&PM, Chandra, Prasanna, TMH

ANNEXURES: [in case of cases, caselets, articles etc. should be attached here along with references to the sources]