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Capital markets and portfolio analysis

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Capital markets and portfolio analysis

  1. 1. Capital Markets and Portfolio Analysis
  2. 2. Role of CapitalMarket• It facilitates capital formation in the economy.• It establish direct link between FDEs (Fund deficit entities)and FSEs(Fund surplus entities).• It basically supply funds to business houses.
  3. 3. Portfolio It is a Combination of different investment assets mixed and matched for the purpose of achieving investors goal . PORTFOLIO MANAGEMENT STEPS ARE-• Learn the basic principle of finance. P/E ratio analysis EIC Analysis• Set portfolio objective.• Formulate investment Strategy.• Have a game plan for Portfolio revision.• Evaluate Performance.
  4. 4. Constituents of Capital Market-• Primary Market• Secondary Marketon investment are in form of-• Capital yield• Dividend YieldSecondary Market Products-SharesBond
  5. 5. Equity investmentEquity investment Styles are-1) Value investment style• Turnaround story• Merger & Takeovers• Demerger• Reconstruction• Buyback/Open offer
  6. 6. Cont….2) Growth Stock3) Momentum/Sector Rotation Risk Estimated Expected Returns
  7. 7. Issues In Capital Market
  8. 8. Book BuildingBook Building is basically a capital issuanceprocess used in Initial Public Offer (IPO) whichaids price and demand discovery. It is a processused for marketing a public offer of equity sharesof a company.
  9. 9. Process• The Issuer who is planning an IPO nominates a lead merchant banker as a book runner.• specifies the number of securities to be issued and the price band for orders.• appoints syndicate members• Investors place their order with a syndicate member through the process of biding• A Book should remain open for a minimum of 5 days• Bids cannot be entered less than the floor price.• Bids can be revised by the bidder before the issue closes.• On the close of the book building period the book runner evaluates the bids• The book runner and the company conclude the final price• Allocation of securities is made to the successful bidders.• Book Building is a good concept and represents a capital market which is in the process of maturing.
  10. 10. Bid and Ask PricePrice Mechanism or Market-Based Mechanism refers to a widevariety of ways to match up buyers and sellers. An example of a pricemechanism uses announced bid and ask prices. Generally speaking,when two parties wish to engage in a trade, the purchaser willannounce a price he is willing to pay (the bid price) and seller willannounce a price he is willing to accept (the ask price). The mainadvantage of such a method is that conditions are laid out in advanceand transactions can proceed with no further permission orauthorization from any participant. When any bid and ask price arecompatible, a transaction occurs, in most cases automatically.
  11. 11. Products in the Secondary MarketsShares: Bond:• Equity Share Zero Coupon Bond• Rights Issue/ Rights Shares Convertible Bond• Bonus Share Treasury Bills• Preference shares• Cumulative Preference Shares:• Cumulative Convertible Preference Shares:• Sweat Equity
  12. 12. 1) Growth Stocks2) Value Stocks Short selling.• The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller• The buyer (Speculator) of a security such as a stock, commodity or currency, buy with the expectation that the asset will rise in value
  13. 13. Rolling settlement• India has T+2 rolling settlement as opposed to T+3 in NYSE.• Clearing Settlement• Mark to Margin
  14. 14. Market Phase• Bull Phase• Bear Phase• Open• Close Trading• Basket Trading• Index Trading• Buyback Trading
  15. 15. Portfolio Analysis
  16. 16. PORTFOLIO• In finance, a portfolio is an appropriate mix or collection of investments held by institutions or a private individual.• Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced.
  17. 17. Portfolio
  18. 18. Portfolio FormationMany strategies have been developed to form a portfolio.• equally-weighted portfolio• capitalization-weighted portfolio• price-weighted portfolio• optimal portfolio (for which the Sharpe ratio is highest)
  19. 19. PORTFOLIO MANAGEMENT
  20. 20. PORTFOLIO MANAGEMENT• Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions.• Selection involves deciding - what assets to purchase, - how many to purchase, - when to purchase them, - and what assets to divest.
  21. 21. Types of portfolio management ACTIVE PASSIVE PORTFOLIO PORTFOLIOMANAGEMENT MANAGEMENT
  22. 22. Process of Portfolio Management Risk Profile and Objectives Analysis Risk Profile and Objectives Analysis Investment Policy Statement Investment Policy Statement Diversification Diversification Portfolio Rebalancing Portfolio Rebalancing Results Report Results Report Results Report Results Report
  23. 23. Portfolio Analysis• Analyzing elements of a firms product mix to determine the optimum allocation of its resources. Two most common measures used in a portfolio analysis are market growth rate and relative market share.
  24. 24. MODELS• The Jensen Index.• The Treynor Index.• The Sharpe Diagonal (or Index) model.• Capital Asset Pricing Model (CAPM)• Value at risk model.
  25. 25. Strategy - portfolio analysis - ge matrix• The business portfolio is the collection of businesses and products that make up the company.• The company must: (1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and (2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.• The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix ..
  26. 26. The diagram illustrates some of the possible elements that determine marketattractiveness and competitive strength by applying the McKinsey/GE Matrix to the UKretailing market:
  27. 27. Better Stock Picking
  28. 28. GET INFORMED GET INFORMEDpicking12 steps to better stock GET EDUCATED GET EDUCATED DEFINE OBJECTIVES DEFINE OBJECTIVES UNDERSTAND RISK TOLERANCE UNDERSTAND RISK TOLERANCE TRACK SUCCESS TRACK SUCCESS FIND A FIT FIND A FIT WHAT INVESTORS DO WHAT INVESTORS DO DO RESEARCH WORK DO RESEARCH WORK DISCIPLINE DISCIPLINE CONFUSED? CONFUSED? MANAGEMENT MANAGEMENT NEVER END PROCESS NEVER END PROCESS
  29. 29. Review of Portfolio
  30. 30. Review of Portfolio• When something goes wrong that you realise it hadnt been running as smoothly as you thought it was. This gives Review to Portfolio• Investors subject their investment portfolio to a regular MOT.• It includes:- – Goals – Asset Allocation – Performance Check – Shopping for funds
  31. 31. Rebalance of Portfolio
  32. 32. Rebalance of Portfolio• If our money is in several different kinds of investment, the first thing we need to do is check the balance is right.• There are, very roughly, three types of investor – – risk-averse, – medium-risk and – adventurous.
  33. 33. Steps to Review andRebalance Our Portfolio
  34. 34. 5 Steps to Reviewing and Rebalancing Your Portfolio Reinvest Dividends Reinvest Dividends Review each Investment Review each Investment Review Portfolio for Deviations from Target Review Portfolio for Deviations from Target Allocation Allocation Buy and Sell Shares to Regain Target Allocation Buy and Sell Shares to Regain Target Allocation Sit Back and Watch Until it is Time to Rebalance Sit Back and Watch Until it is Time to Rebalance Again Again
  35. 35. References
  36. 36. Refrences• Financial post.com• Investopedia.com• Equitymaster.com• Icicidirect.com• wsj.com(wallstreetjournal.com)• Personalfn.com• Security analysis and portfolio management by Dr. RP Rustagi• Journal on financial analyst,• Economictimes.indiatimes.com• Capitalmarket.com• Capitaline.com
  37. 37. Presented By:- Neeraj Mahendru Iti Dubey Vinay kapoor Krishna pati Tripathi Neelam Bhardwaj Swati Sharma

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