Introduction to Investment analysis

1. UNIT 1
Introduction to
Investment Analysis and Portfolio
Management

2. Investment
• An investment is an asset or item acquired with the goal
of generating income or appreciation. Appreciation refers
to an increase in the value of an asset over time. When
an individual purchases a good as an investment, the
intent is not to consume the good but rather to use it in the
future to create wealth.

3. Need of Investment

4. Short- and Long-Term investment

5. TYPES OF INVESTORS
1. Speculator
2. Hedger
3. Arbitragers

6. Speculator
• An investor who purchases a speculative investment
is likely focused on price fluctuations. While the risk
associated with the investment is high, the investor is
typically more concerned about generating a profit based
on market value changes for that investment than on
long-term investing.

7. Hedger
• A hedger is any individual or firm that buys or sells the
actual physical commodity. Many hedgers are
producers, wholesalers, retailers or manufacturers and
they are affected by changes in commodity prices,
exchange rates, and interest rates.

8. Arbitragers
• An arbitrageur is a type of investor who attempts to
profit from market inefficiencies. These inefficiencies
can relate to any aspect of the markets, whether it is
price, dividends, or regulation. The most common form of
arbitrage is price.

11. TYPES OF INVESTMENTS
• Security investment
• Non- Security investment

20. Primary Market
• The market where a company raises capital for the first time is known
as the primary market. Companies issue IPO (initial public offering) in
the primary market only. The market offers an opportunity for
investors to buy securities directly from the issuing company. By
buying securities or stock from the primary market, investors help
companies to raise capital. So, the overall capital that the company
has on the balance sheet includes the contribution from the investors
in the primary market.
• Before the IPO, the issuer and the investment bankers carry out a
marketing campaign, where they convince investors about the worth
and potential of the investment. Generally, the prices are very volatile
in the primary market because of abrupt demands. This is one reason
why companies prefer to keep the price of the initial issue low.
• A company can raise money from the primary market even after the
securities list on the secondary market. A company can do so by
issuing the right shares to the investors at a price lower than the
prevailing secondary market price. This way, the company also
rewards the investor for contributing to the company at an early stage.

22. Secondary Market
• Shares that the company issued in the primary market get listed
on the secondary market. All the exchanges such as NYSE,
NASDAQ, German DAX, Australian Stock exchange, and more
come under the secondary market. Secondary markets allow retail
investors to invest in the securities and earn a profit. Investors in
the secondary market trade between themselves, and there is
minimum or no interference from the issuing company.
Further divide the secondary market into:
• Auction Market – as the name suggests, it is the place where
individuals and institutions come together and announce the buy and
sell prices. The underlying idea is that there should be an efficient
market that offers the opportunity to all the parties. Therefore, the
mutually agreeable price between the buyer and the seller would be
the best price to execute the trade.
Dealer Market –unlike the auction market, the dealer market does not
require the parties to gather in a central location. Instead, all market
participants participate through electronic networks. Dealers are in
possession of the inventory of security and carry trade with the buyers
or sellers. Dealers are known as the market makers as they compete

24. Key Differences Between Money Market and
Capital Market
• The place where short-term marketable securities are traded is known as Money Market. Unlike
Capital Market, where long-term securities are created and traded is known as Capital Market.
• Capital Market is well organized which Money Market lacks.
• The instruments traded in money market carry low risk, hence, they are safer investments, but
capital market instruments carry high risk.
• The liquidity is high in the money market, but in the case of the capital market, liquidity is
comparatively less.
• The major institutions that work in money market are the central bank, commercial bank, non-
financial institutions and acceptance houses. On the contrary, the major institutions which operate in
the capital market are a stock exchange, commercial bank, non-banking institutions etc.
• Money market fulfils short-term credit requirements of the companies such as providing working
capital to them. As against this, the capital market tends to fulfil long-term credit requirements of the
companies, like providing fixed capital to purchase land, building or machinery.
• Capital Market Instruments give higher returns as compared to money market instruments.
• Redemption of Money Market instruments is done within a year, but Capital Market instruments
have a life of more than a year as well as some of them are perpetual in nature.

25. BASIS FOR COMPARISON MONEY MARKET CAPITAL MARKET
Meaning A segment of the financial
market where lending and
borrowing of short term
securities are done.
A section of financial market
where long term securities are
issued and traded.
Nature of Market Informal Formal
Financial instruments Treasury Bills, Commercial
Papers, Certificate of Deposit,
Trade Credit etc.
Shares, Debentures, Bonds,
Retained Earnings, Asset
Securitization, Euro Issues etc.
Institutions Central bank, Commercial
bank, non-financial institutions,
bill brokers, acceptance
houses, and so on.
Commercial banks, Stock
exchange, non-banking
institutions like insurance
companies etc.
Risk Factor Low Comparatively High
Liquidity High Low
Purpose To fulfill short term credit needs
of the business.
To fulfill long term credit needs
of the business.
Time Horizon Within a year More than a year
Merit Increases liquidity of funds in
the economy.
Mobilization of Savings in the
economy.
Return on Investment Less Comparatively High