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Security Analysis and Portfolio Management
Lecture 1
July 2009

Published in: Business, Technology
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  • Well written summary of all one student should learn about SAPM.I would be grateful if you send me a copy of this note for personal use only.
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    Thank you in advance
    P J Krishnan
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  1. 1. Security Analysis and Portfolio Management Prersented by Kaushal Mandalia [email_address]
  2. 2. Few Parameters <ul><li>Growth Parameters </li></ul><ul><ul><li>GDP (C+I+G+X-M) </li></ul></ul><ul><ul><li>Fiscal Deficit / Surplus </li></ul></ul><ul><ul><li>Inflation </li></ul></ul><ul><li>Banking Parameters </li></ul><ul><ul><li>BR, CRR, SLR </li></ul></ul><ul><ul><li>Repo Rate </li></ul></ul>
  3. 3. Content.. Explanation… <ul><li>Investment </li></ul><ul><li>Financial Assets </li></ul><ul><li>Security Market </li></ul><ul><li>Public Issue </li></ul><ul><li>Secondary Market </li></ul><ul><li>Valuation of Securities </li></ul><ul><li>Fundamental Analysis </li></ul><ul><li>Technical Analysis </li></ul><ul><li>Efficient Market Hypothesis </li></ul><ul><li>Portfolio Analysis </li></ul><ul><li>Capital Market Theory </li></ul><ul><li>Portfolio Performance and Evaluation </li></ul>
  4. 4. Why Investment? Hence…. Why SAPM?
  5. 5. Financial Failure <ul><li>Earn – Spend – Save Philosophy </li></ul><ul><li>American Way of Life.. </li></ul>
  6. 6. Example <ul><li>Michel Gerard Tyson </li></ul><ul><ul><li>Former American World Heavy Weight Boxing Champion </li></ul></ul><ul><ul><li>Youngest man to have won boxing world heavyweight title belt. </li></ul></ul><ul><ul><li>Made US $ 30 million during his career. </li></ul></ul><ul><ul><li>Declared Bankrupt in 2003 </li></ul></ul><ul><li>Reason </li></ul><ul><ul><li>Indiscriminate Spending </li></ul></ul><ul><ul><li>No Financial Planning at all. </li></ul></ul>Recent Example Michel Jackson
  7. 7. Financial Independence <ul><li>Earn – Save – Invest – Spend Philosophy </li></ul>Reason for us to study Security Analysis & Portfolio Management
  8. 8. <ul><li>Kapil Dev </li></ul><ul><ul><li>Captained India to their maiden and only Cricket World Cup in 1983 (50 Overs) </li></ul></ul><ul><ul><li>His Businesses </li></ul></ul><ul><ul><ul><li>5% Stake in Zicom Electronics </li></ul></ul></ul><ul><ul><ul><li>Invested money in his own Kapil’s Eleven Restaurant and Kaptain’s Retret Hotel </li></ul></ul></ul><ul><ul><ul><li>Established a Company DEV Musco Lighting Pvt Ltd </li></ul></ul></ul><ul><li>Result </li></ul><ul><ul><li>Comfortable Life </li></ul></ul>Example
  9. 9. Investment Objectives.. Why? For Whom? What is in it for me?
  10. 10. Creation of wealth, so the best can be provided to the family Child’s education and marriage Money for emergencies An independent retired life Legacy for future generations <ul><li>Imp Factors…. </li></ul><ul><li>No Social Security System </li></ul><ul><li>Child : having the longest dependency </li></ul><ul><li>Only 11% of Workforce has access to Org d Retirement Plg </li></ul><ul><li>Further cut on Interest Rate (To align with world) </li></ul>
  11. 11. A Range of Financial Products to choose from … Fixed Deposits Insurance Mutual Funds RBI Bonds Forex Real Estate / Gold etc Equities Post Office Schemes
  12. 12. What Investors Wants? <ul><li>Safety </li></ul><ul><li>Liquidity </li></ul><ul><li>Returns </li></ul>
  13. 13. Investment Alternatives Investment Alternative Risk Return Liquidity Post Office Schemes Low Low Limited Bank FD Low Low Limited Company FD Medium Medium Limited Gold Low Medium High Real Estate High High Low Direct Equity / PMS High High High Mutual Fund (SIP) Medium Medium High
  14. 14. Investment Choices – Nominal V/s Real Returns Investment Type Nominal Returns Inflation Real Returns Post Office Sch 8% 7.5% 0.5% Gold 10% 7.5% 2.5% Bank FD 10% 7.5% 2.5% Company FD 14% 7.5% 6.5% Real Estate 18% 7.5% 10.5% Equity 20% 7.5% 12.5%
  15. 15. Equity Market Only Asset Class with High Return, High Liquidity <ul><li>We must ensure that it has lesser Risk… </li></ul><ul><li>Hence…. </li></ul><ul><li>We must understand Equity Market </li></ul><ul><li>We must understand SAPM </li></ul>
  16. 16. Equity Market <ul><li>Primary Market </li></ul><ul><ul><li>IPO </li></ul></ul><ul><ul><li>Medium to Raise Fund from Public </li></ul></ul><ul><li>Secondary Market </li></ul><ul><ul><li>Exit Route for Investor </li></ul></ul><ul><ul><li>Game for Speculators </li></ul></ul>
  17. 17. Secondary Market <ul><li>SENSEX : Bombay Stock Exchange </li></ul><ul><li>NIFTY : National Stock Exchange </li></ul><ul><li>Share Trading…. Buying / Selling </li></ul><ul><li>Buy at Low Price, Sale at Higher Price and Earn Money </li></ul>
  18. 19. In Last 30 Yrs… We have seen <ul><li>Three Wars </li></ul><ul><li>Three Major Financial Scandals </li></ul><ul><li>Assassination of 2 Prime Minister </li></ul><ul><li>The Best Bull Phase and the Worst Bear Phase </li></ul><ul><li>The Worst Global Slowdown after great depression </li></ul><ul><li>11 Different Government </li></ul><ul><li>Unfair Share of Natural Disaster </li></ul>
  19. 20. Why do Equity Gives Higher Returns? Because it represents portion of the business (Profit) which is growing.
  20. 21. What Returns to Expect from Equity Market? Returns = Earning Growth + Dividend
  21. 22. Power of Equity Lets look at the power of Profit (Dividend)
  22. 23. Just imagine… <ul><li>How much can you make in 26 years by just investing Rs.10,000 initially in any of financial instruments ? </li></ul><ul><li>Let us look at the real example… </li></ul>
  23. 24. If you have subscribed in 100 shares of ________ company with a face value of Rs. 100 in 1980… <ul><li>In 1981 company declared 1:1 bonus = you have 200 shares </li></ul><ul><li>In 1985 company declared 1:1 bonus = you have 400 shares </li></ul><ul><li>In 1986 company split the share to Rs. 10 = you have 4,000 shares </li></ul><ul><li>In 1987 company declared 1:1 bonus = you have 8,000 shares </li></ul><ul><li>In 1989 company declared 1:1 bonus = you have 16,000 shares </li></ul><ul><li>In 1992 company declared 1:1 bonus = you have 32,000 shares </li></ul><ul><li>In 1995 company declared 1:1 bonus = you have 64,000 shares </li></ul><ul><li>In 1997 company declared 1:2 bonus = you have 1,92,000 shares </li></ul><ul><li>In 1999 company split the share to Rs. 2 = you have 9,60,000 shares </li></ul><ul><li>In 2004 company declared 1:2 bonus = you have 28,80,000 shares </li></ul><ul><li>In 2005 company declared 1:1 bonus = you have 57,60,000 shares </li></ul>
  24. 25. <ul><li>Your present valuation is about </li></ul><ul><li>Rs. 250 Cr.+ (CAGR 60%) </li></ul><ul><li>& </li></ul><ul><li>The company is ‘ WIPRO ’ </li></ul>
  25. 26. Other such examples… <ul><li>CIPLA </li></ul><ul><li>Investment of Rs. 10,000 in 1979 will fetch Rs. 95 cr.+ </li></ul><ul><li>INFOSYS </li></ul><ul><li>Investment of Rs. 10,000 in 1992 will fetch Rs. 1.5 cr.+ </li></ul><ul><li>RANBAXY </li></ul><ul><li>Investment of Rs. 1000 in 1980 will fetch Rs. 1.9 cr.+ </li></ul>
  26. 27. Returns - Power of Time Horizon
  27. 28. Market Size.. Is it self sufficient? Is there a chance of GROWTH? Can we make money out of it?
  28. 29. Retail Financial Service Industry <ul><li>Over 100 million retail investors </li></ul><ul><li>24000 + Bank Branches </li></ul><ul><li>5000 + Insurance Service Branches </li></ul><ul><li>10000 + Brokerage Service Branches </li></ul><ul><li>100000 + CA </li></ul><ul><li>Growing Number of Financial Products </li></ul>One Million = 10 Lacs
  29. 30. <ul><li>Total Household Savings in next 5 years estimated at Rs. 60,82,000 Crs.. </li></ul>Projections.. Need to be INVESTED If Equity Market Represents 5% Stake, The Total Market Size Is equal to Rs 3,04,100 Cr (US $6 Trillion) Estimated* Year 2008 2009 2010 2011 2012 GDP (Rs Cr) 44,80,000 50,18,000 56,20,000 62,94,000 75,52,800 Savings @ 21% (Rs Cr) 9,41,000 10,53,000 11,80,000 13,22,000 15,86,000
  30. 31. Favorable Socio – Economic Factors 1. More than 50% of Population under 25 Yrs of Age. 2. More than 80% of Population under 45 Yrs of Age. 3. Growing Urbanization and Disposable Income 4. Middle Class more than 23% of Population 5. 66 Millions to be added to working population in 20-34 age group in next 5 Yrs.
  31. 32. India’s Wealth CARD… <ul><li>Annual income of over Rs. 1 Crore </li></ul><ul><ul><li>1 in 800 in Mumbai households </li></ul></ul><ul><ul><li>1 in 500 Delhi households </li></ul></ul><ul><li>Nationally this segment has grown 26% </li></ul><ul><li>Expected to touch 1,40,000 households by 2010 from around 75,000 currently </li></ul><ul><li>Nagpur has 425 and Surat has 146 such households showing the highest growth rate in the country. </li></ul>
  32. 33. Facts <ul><li>India’s Market Capitalization has touched US$ 1.04 trillion making the ninth largest in the world. </li></ul><ul><li>According to Goldman Sachs, Indian Companies may raise US$ 6 billion from IPO till 2010 </li></ul><ul><li>India is 5 th Largest Life Insurance Market and this segment is growing @ 34% pa. </li></ul><ul><li>According to global consultancy firm, Deloitte Haskins & Sells, the Indian economy and capital markets are expected to witness a turnaround within six to nine months. </li></ul><ul><li>India’s GDP growth of 7.1 per cent for the current year would make the country the second-fastest growing economy of the world. </li></ul>
  33. 34. Thank You!