This document discusses various concepts related to equity analysis and investment styles. It covers two approaches to equity analysis: fundamental analysis and technical analysis. It also discusses different investment styles like growth, value, passive and active management. It defines various risk metrics used to evaluate mutual funds like beta, standard deviation, Sharpe ratio and Treynor ratio. It also provides examples of calculations for various returns like absolute return, annualized return and CAGR.

1. Dr. Ankit Jain 1

2.  The returns from equity are linked to the earnings of
the business.
 Not all business are successful and manage to earn
return for its equity investors.
 It is therefore important to analyse the business and its
prospects before investing in its equity.
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3. There are two broad approaches for equity analysis :
 Fundamental Analysis
 Security Analysis
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4.  It is a review of Company’s Fundamental.
 Evaluation of earning capability of a stock on the basis
of Balance sheet and various ratio analysis.
 Judge whether the stock is undervalued or overvalued.
 It is also Known as EIC analysis.
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5.  Earning Per share
 Price Earning Ratio
 Dividend Yield Ratio
 Book value per share
 Market Price to Book value per share
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6.  It is the study and use of price and volume charts and
other technical indicators to make trading decisions.
 Technical analysis attempts to use past stock price and
volume information to predict future price movements.
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7.  Growth Investment Style
 Value Investment Style
 Passive Management Style
 Active Management Style
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8.  Growth investment style entails investing in high
growth stocks i.e. stocks of companies that are likely to
grow much faster than the economy.
 Many market players are interested in accumulating
such growth stocks. Therefore, valuation of these
stocks tends to be on the higher side.
 Further, in the event of a market correction, these
stocks tend to decline more.
 Growth Shares: Earnings are expected to grow at a rate
higher than the average growth rates in the economy.
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9.  It is an approach of picking up stocks, which are priced
lower than their intrinsic value, based on fundamental
style.
 The shares having certain value which has not been
recognized by most investors and therefore
undervalued.
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10.  Passive Management Style: It aims at tracking the
performance of a specified index by investing in shares
that are included in the index in the same proportion.
 Active Management Style: Stocks are selected on the
basis of research and analysis.
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11.  Top Down Approach: Start with global economy, local
economy, then industry and then company.
 For choosing sectors.
 Bottom up Approach: Starts with company, then
industry, local economy and then global economy.
 For choosing stock.
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13. The returns from an investment is calculated by
comparing the cost paid to acquire the asset to what is
earned from it.
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14.  SEBI mandatory for non Liquid fund return is shown as
absolute return for less than 1 year.
 Simple return is simply the change in the value of an
investment over a period of time.
 Absolute Return = NAV at the end – NAV at the
beginning/ NAV at the begin. * 100.
 The NAV of a fund was Rs 23.45 on 31 Jan 2009 and
27.65 on March 31 2010. Calculate absolute return ?
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15.  Absolute Return / Time Period(in months) * 12
 Absolute Return / Time Period (in years)
 Initial Investment 12,000
 Holding Period 7 years
 Worth of investment 32000
 Calculate Absolute and Annualized return.
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16.  CAGR is the year over year growth rate of an
investment over a specified period of time.
 CAGR = Ending Value/Beginning Value ^ 1/number of
year -1
 The NAV of a fund was Rs 23.45 on 1st April 2009 and
27.65 on 31 March 2012. Calculate CAGR
 Use Rate function of Excel
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17.  Risk is deviation from expected return.
 Standard deviation is a measure of total risk.
 A higher standard deviation means greater volatility in
return and greater risk.
 Standard deviation is the square root of variance.
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18.  More the S.D higher the risk.
 Lower the S.D less risk.
 Formula for calculating S.D in M.s excel.
 =stdev(range contain the return time series)
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19.  Market risk is a standard risk in Mutual Fund Product.
 Market risk in equity arises from changes in prices due
to change in underlying fundamental and technical
factors.
 In debt instruments, changes in macro economic factor,
that changes the market expectation for interest rates.
(Interest rate risk)
 Mutual Fund manages risk through Diversification.
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20.  Risk are of two types:
 Systematic and Unsystematic risk
 Systematic risk is not diversifiable, as it is caused by
market wide factors that may impact the performance
of a range of stocks.
 Unsystematic risk is a company specific and can be
reduce by diversification.
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21.  Beta is a measure of the systematic risk in an equity
portfolio.
 It measures the sensetivity of the funds return to
changes in the market Index.
 A beta of 1 means the fund is likely to move along with
the market.
 Funds with Beta less than 1 tend to less risky compare
to the market and are defensive funds.
 Funds with Beta greater than 1 are likely to be more
risky than the market and are aggressive funds.
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22.  The non-systematic risk in an equity portfolio can be
minimized by diversification across companies. For
example, risk arising out of change in management,
product obsolescence etc.
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23.  Liquidity risk may not enable to buying or selling as
may be required.
 Small and mid caps find it difficult to exit such stock
without impacting the price.
 Corporate Bonds of lower credit Quality are not very
liquid.
 Money market securities helps in ensuring sufficient
Liquidity.
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24.  Default in payment of Interest or principal by an issuer
of debt securities.
 Credit risk is assessed from the credit rating.
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25.  The investors investment may not have been made on
the dates used to calculate represented return.
 Fund represent pre-tax return.
 The published return is for the growth option. For
Dividend yield may have different return.
 Mutual Fund cannot promise or assure return to
investors.
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26.  Performance of mutual funds is measured on a relative
basis (Comparative basis)
 Absolute Return are meaningless.
 Every mutual fund product is mandatorily required to
specify the bench mark to which its performance could
be compared.
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27.  In 2012 SEBI mandatory to all AMC that they should
disclose the bench mark particular scheme.
 Benchmark is a standard rate of return on mutual fund.
 Portfolio that generates an independent level of return
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28.  Beta : Beta measure the sensitivity of mutual fund
scheme towards the market movement.
 Beta is always benchmarked to 1.It means market Beta
is 1.
 If the beta is 0.70 the fund is less volatile and
movement is less.
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29.  Beta of Mutual fund 1.2
 Beta is always benchmarked to 1
 It means fund is 20% more volatile to market.
 If 10 % market grows then fund grow by 12% and vice
versa.
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30.  Funds having Beta of less than 1 are considered to be
conservative than the benchmark or market.
 Funds having Beta is 1 than it is considered to equal to
the benchmark or market.
 Funds having Beta of more than 1 are considered to be
aggressive or risky than the benchmark or market.
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31.  In mutual fund the measure of alpha denotes the
performance of the fund manager.
 Positive alpha means fund perform better than
benchmark or market.
 Negative alpha means fund perform worse than the
benchmark or market.
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32.  The difference between a scheme’s actual return and its
optimal return is its Alpha.
Alpha = RP- (RF+(RM-RF) B)
RP= Actual Return or Return on Portfolio
RF= Risk Free return
RM= Benchmark return
B= Beta
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33. For e.g.
 Fund XYZ has given 25% return in last year having a
beta of 0.69. The market return remained at 18% and
risk free rate is 8%.
 Calculate Alpha .
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34.  Sharpe ratio is a ratio of return versus risk.
 Sharpe ratio is a measure of risk.
 It developed by Williams F. Sharpe
 Sharp ratio = Rp- Rf/ Standard deviation.
 Rp= Expected return
 Rf= Risk free return
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35.  Actual return 12%
 Risk Free return 5%
 Standard deviation 0.6
 Calculate Sharp ratio ?
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36.  Sharp ratio is use to compare mutual fund.
 Sharp ratio is also show the performance portfolio.
 High sharp ratio suggest that high performance of
mutual fund and vice versa.
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37.  Treynor ratio is a measure of risk.
 Treynor ratio = Rp- Rf/ Beta.
 Rp= Expected return
 Rf= Risk free return
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38.  Risk free return 5% and a scheme with beta of 1.2
earned a returned of 8%
Calculate Treynor ratio.
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39.  Standard deviation is a statistical measure of the range
of a funds performance.
 XYZ fund has a 12% Average rate of return and
standard deviation is 4%.
 Greater the standard deviation greater the volatility.
 It shows that consistency of return of particular fund.
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40. An investor is choosing between two investment
prepositions A & B. The return from both over the last
year is same 12%. But A has a standard deviation of 7%
and B has 4%. Calculate range of return and which mutual
fund is safe to invest.
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41. Q.1 Performance of Fund must always be measured
relative to the……..
A. Investment Objective
B. Index
C. Benchmark
D. Asset Class
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42. Q.2 Risk Adjusted return is measured by:
A. Standard Deviation
B. Sharpe Ratio
C. Treynor Ratio
D. Both 2 & 3
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43. Q.3 Risk can be measured by:
A. Standard Deviation
B. Variance
C. Beta
D. Any of the above
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44. Q.4 Which Fund has the highest risk?
A. Liquid
B. Fixed Maturity Plan
C. Dynamic Bond Fund
D. Monthly Income Plan
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45. Q.4 Which Fund has the highest risk?
A. Index Fund
B. Balanced Fund
C. Arbitrage Fund
D. Sector Fund
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46. Q.5 Benchmark of sectoral fund investing in banking
sector would be:
A. BSE Bankex
B. Nifty Junior
C. S&P 500
D. Nifty 50
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