Security analysis and portfolio management

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
“NATIONAL INSTITUTE OF TECHNOLOGY”
“In partial fulfilment of the requirements for the award of the degree of
Master of Business Administration (MBA)”
Department of Management Studies
National Institute of Technology, Durgapur
Mahatma Gandhi Avenue, Durgapur
A Project Report
On
For
By
Rajesh Kumar
Under the guidance of:
“Ms. Payel Dey”
Submitted to:
partial fulfilment of the requirements for the award of the degree of
Through
Department of Management Studies
National Institute of Technology, Durgapur
Mahatma Gandhi Avenue, Durgapur – 713209
West Bengal, India
1
On
partial fulfilment of the requirements for the award of the degree of

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DECLARATION
I hereby declare that the project report titled “Security Analysis and Portfolio
Management with reference to IIFL” is my original work and has not been
published or submitted for any degree, diploma or other similar titles elsewhere. This
has been undertaken for the purpose of partial fulfilment of Master of Business
Administration (MBA) at National Institute of Technology, Durgapur (West Bengal).
Date: 01/ 08/2013 Rajesh Kumar
Place: Kolkata, West Bengal Roll No.: 12/MBA/23

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PREFACE
This project report attempts to bring under one cover the entire hard work
and dedication put in by me in the completion of the project work on
Security Analysis and Portfolio Management with reference to IIFL
I have expressed my experiences in my own simple way. I hope who goes
through it will find it interesting and worth reading. All constructive feedback
is cordially invited.

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ACKNOWLEDGEMENT
It gives me great pleasure in presenting the project report that gives the details
of my project on Security Analysis and Portfolio Management carried out at
IIFL, Kolkata (West Bengal), dated from 1st
June ’13 – 1st
August ’13
(2months).
It is impossible to list all the people who have helped me during my project. I
take this opportunity to express my whole hearted thanks to Ms. Payel Dey
(Branch Manager) at IIFL who has treated me as an employee & helped me in
all my queries personally.
I would also like to express my deep sense of gratitude towards all managers,
staff, & to all those who directly or indirectly helped me in successfully
execution of my work.
Lastly but most essentially I would like to thank Ms. Saroj Sharma (Trainer)
without his help it wouldn’t be possible for me to complete the project at the
stipulated period of time.
Rajesh Kumar
Roll no.: 12/MBA/23
Session: 2012-14

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CONTENTS
Page No.
1. Executive Summary 7-9
2. Stock Exchange 10-17
- Introduction
- Regulation
- National Stock Exchange(NSE)
- Bombay Stock Exchange(BSE)
3. SEBI 18-20
- Objectives
- Features
- Functions
4. Company Profile 21-51
- Overview
- Bird’s Eye View
- Vision, Values and Strategy
- Brand IIFL
- Corporate Structure
- Credit and Finance
- Wealth Management
- Financial Products and Distribution
- Capital Market Advisory
- Asset Management
- Investment Banking
- Real Estate Advisory
- Media(Awards)
- Investor Relations
- Corporate Governance
- Board of Directors
- Corporate Social Responsibility
- Scholarships
5. SWOT Analysis 52-53
6. Security Analysis 54-55
- Analysis of Securities
- Approaches
7. Fundamental Analysis 56-59
- GDP
- Industrial Growth Rate
- Agriculture
- Saving and Investment

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- Government Budget and Deficit
- Price Level and Inflation
- Balance of Payment
- Sentiments
8. Industrial Analysis 60-62
- Industrial Life Cycle Analysis
- Structure of an Industry
- Porter Model
9. Company Analysis 62-66
- Financial Analysis
- Comparative Statement
- Trend Analysis
- Common Size Statement
- Fund Flow Analysis
- Cash Flow Analysis
- Ratio Analysis
10. Technical Analysis 67-71
- Technical Indicators
- Breadth Indicators
- Market Sentiment Indicators
- Random Walk Theory
11. Portfolio Management 71-79
- Characteristics of Investment
- Investment Categories
- Features
- Functions
- Process
- Portfolio Selection
12. Portfolio Analysis 80-90
- Risk Management
- Practical Study
13. Conclusion 91
14. Bibliography 92

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Executive Summary
The activities of large, internationally active financial institutions have grown increasingly
complex and diverse in recent years. This increasing complexity has necessarily been
accompanied by a process of innovation in how these institutions measure and monitor their
exposure to different kinds of risk. One set of risk management techniques that has attracted a
great deal of attention over the past several years, both among practitioners and regulators, is
"stress testing", which can be loosely defined as the examination of the potential effects on a
firm’s financial condition of a set of specified changes in risk factors, corresponding to
exceptional but plausible events.
A concept of security analysis and portfolio management services has been very famous and
old among various institutions.
This report represents practices application of portfolio management techniques in the
portfolio section. Portfolio management is an integrated and exhaustive of fundamental and
technical methods which are used for calculation of annul return and earnings per share for
the portfolio.
Modern portfolio theory suggests that the traditional approach to portfolio analysis, selection
and management may yield less than optimum results. Hence a more scientific approach is
required, based on estimates of risk and return of the portfolio and the attitudes of the
investor toward a risk-return trade-off stemming from the analysis of the individual
securities.

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OBJECTIVES:
To study and understand the portfolio management concepts.
To study and understand the security analysis concepts.
To measure the risk and return of portfolio of companies.
To select an optimum portfolio.
RESEARCH METHODOLOGY
SECONDARY DATA:-
Data collected from various Books, Newspapers and Internet.
LIMITATIONS:
The major limitations of the project are:-
Detailed study of the topic was not possible due to the limited size of the project.
There was a constraint with regard to time allocated for the research study.
The availability of information in the form of annual reports and price fluctuations of
the companies was a big constraint of the study.

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HISTORY OF STOCK EXCHANGE:
The only stock exchanges operating in the 19th century were those of Bombay set up in 1875
and Ahmedabad set up in 1894. These were ‘Efficient Market Hypothesis’ organized as
voluntary non-profit-making association of brokers to regulate and protect their interests.
Before the control on securities trading became a central subject under the constitution in
1950, it was a state subject and the Bombay Securities Contracts (control) Act of 1925 used
to regulate trading in securities. Under this Act, the Bombay Stock Exchange was recognized
in 1927 and Ahmedabad in 1937.
During the war boom, a number of stock exchanges were organized even in Bombay,
Ahmedabad and other centers, but they were not recognized. Soon after it became a central
subject, central legislation was proposed and a committee headed by A.D.Gorwala went into
the bill for securities regulation. On the basis of the committee's recommendations and public
discussion, the securities contracts (regulation) Act became law in 1956.
DEFINITION OF STOCK EXCHANGE:
"Stock exchange means anybody or individuals whether incorporated or not, constituted for
the purpose of assisting, regulating or controlling the business of buying, selling or dealing in
securities."
It is an association of member brokers for the purpose of self-regulation and protecting the
interests of its members.
It can operate only, if it is recognized by the Government under the Securities Contracts
(regulation) Act, 1956. The recognition is granted under section 3 of the Act by the central
government, Ministry of Finance.
NATURE AND FUNCTIONS OF STOCK EXCHANGE
There is an extraordinary amount of ignorance and of prejudice born out of ignorance with
regard to nature and functions of Stock Exchange. As economic development proceeds, the
scope for acquisition and ownership of capital by private individuals also grow. Along with
it, the opportunity for Stock Exchange to render the service of stimulating private savings and
challenging such savings into productive investment exists on a vastly great scale. These are
services, which the Stock Exchange alone can render efficiently.
The Stock Exchanges in India have an important role to play in the building of a real
shareholders democracy. To protect the interest of the investing public, the authorities of the
Stock Exchanges have been increasingly subjecting not only its members to a high degree of
discipline, but also those who use its facilities-Joint Stock Companies and other bodies in
whose stocks and shares it deals.

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The activities of the Stock Exchange are governed by a recognized code of conduct apart
from statutory regulations. Investors both actual and potential are provided, through the daily
Stock Exchange quotations. The job of the Stock Exchange and its members is to satisfy the
need of market for investments to bring the buyers and sellers of investments together, and to
make the 'Exchange' of Stock between them as simple and fair as possible.
NEED FOR A STOCK EXCHANGE
As the business and industry expanded and economy became more complex in nature, a need
for permanent finance arose. Entrepreneurs require money for long term needs, whereas
investors demand liquidity. The solution to this problem gave way for the origin of 'stock
exchange', which is a ready market for investment and liquidity.
As per the Securities Contract Act, 1956, "STOCK EXCHANGE" means anybody of
individuals whether incorporated or not constituted for the purpose of regulating or
controlling the business of buying, selling or dealing in securities".
BY-LAWS
Besides the above act, the securities contracts (regulation) rules were also made in 1957 to
regulate certain matters of trading on the stock exchanges. There are also by-laws of
exchanges, which are concerned with the following subjects.
Opening / closing of the stock exchanges, timing of trading, regulation of blank transfers,
carryover business, control of the settlement and other activities of the stock exchange,
fixation of margins, fixation of market prices or making up prices, regulation of taravani
business (jobbing), etc., regulation of brokers trading, Brokerage charges, trading rules on the
exchange, arbitration and settlement of disputes, Settlement and clearing of the trading etc.

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REGULATION OF STOCK EXCHANGE:
The Securities Contracts (regulation) Act, 1956 is the basis for operations of the stock
exchanges in India. No exchange can operate legally without the government permission or
recognition. Stock exchanges are given monopoly in certain areas under section 19 of the
above Act to ensure that the control and regulation are facilitated. Recognition can be granted
to a stock exchange provided certain conditions are satisfied and the necessary information is
supplied to the government. Recognitions can also be withdrawn, if necessary. Where there
are no stock exchanges, the government can license some of the brokers to perform the
functions of a stock exchange in its absence.
Securities Contracts (Regulation) Act, 1956:
SC(R) A aims at preventing undesirable transactions in securities by regulating the business
of dealing therein by providing for certain other matters connected therewith. This is the
principal Act, which governs the trading of securities in India.
The term "securities" has been defined In the SC(R) A. As per Section 2(h), the 'Securities'
include:
1. Shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities
of a like nature in or of any incorporated company or other body corporate.
2. Derivative.
3. Units or any other instrument issued by any collective investment scheme to the
investors in such schemes.
4. Government securities.
5. Such other instruments as may be declared by the Central Government to be securities.
6. Rights or interests in securities.

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NATIONAL STOCK EXCHANGE
The NSE was incorporated in November 1992 with an equity capital of Rs.25crs. The
International Securities Consultancy (ISC) of Hong Kong helped in setting up NSE. ISC
prepared the detailed business plans and installation of hardware and software systems. The
promotions for NSE were Financial Institutions, Insurances Companies, Banks and SEBI
Capital Market Ltd., Infrastructure Leasing and Financial Services Ltd. and Stock Holding
Corporation Ltd.
It has been set up to strengthen the move towards professionalization of the capital market as
well as provide nationwide securities trading facilities to investors.
NSE is not an exchange in the traditional sense where brokers own and manage the exchange.
A two tier administrative setup involving a company board and a governing board of the
exchange is envisaged.
NSE is a national market for shares of Public Sector Units, Bonds, Debentures and
Government securities, since infrastructure and trading facilities are provided.
NSE-NIFTY:
The NSE on April 22, 1996 launched a new equity Index. The NSE-50. The new Index which
replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the new
segment of futures and options.
"Nifty" means National Index for Fifty Stocks.
The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an
aggregate market capitalization of around Rs.1,70,000 crs. All companies included in the
Index have a market capitalization in excess of Rs.500 crs each and should have traded for
85% of trading days at an impact cost of less than 1.5%.
The base period for the index is the close of prices on Nov3, 1995 which makes one year of
completion of operation of NSE's capital market segment. The base value of the Index has
been set at 1000.

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NSE-MIDCAP INDEX:
The NSE midcap Index or the Junior Nifty comprises 50 stocks that represents 21 board
Industry groups and will provide proper representation of the midcap segment of the Indian
capital Market. All stocks in the Index should have market capitalization of greater than
Rs.200 crs and should have traded 85% of the trading days at an impact cost of less 2.5%.
The base period for the index is Nov 4, 1996 which signifies two years for completion of
operations of the capital market segment of the operation. The base value of the Index has
been set at 1000.
Average daily turnover of the present scenario 2,58,212 (Lacs) and number of average daily
trades 2,160 (Lacs).
At present, there are 24 stock exchanges recognized under the Securities Contract
(Regulation) Act, 1956. They are:
BOMBAY STOCK EXCHANGE
This Stock Exchange, Mumbai, popularly known as "BOMBAY STOCK EXCHANGE
(BSE)" was established in 1875 as ''The Native Share and Stock Brokers Association", as a
voluntary non-profit making association. It has evolved over the years into its present status
as the premiere Stock Exchange in the country. It may be noted that the Stock Exchange is
the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in
1878.
The exchange, while providing an efficient and transparent market for trading in securities,
upholds the interests of the investors and ensures redressed of their grievances, whether
against the companies or its own member brokers. It also strives to educate and enlighten the
investors by making available necessary informative inputs and conducting investor
education programmes.
A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public
representatives and an executive director is the apex body, which decides the policies and
regulates the affairs of the exchange.
The Executive director as the chief executive officer is responsible for the day to day
administration of the exchange.

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BSE INDICES:
In order to enable the market participants, analysts etc., to track the various ups and downs in
the Indian stock market, the Exchange introduced in 1986 an equity stock index called BSE-
SENSEX that subsequently became the barometer of the moments of the share prices in the
Indian stock market. It is a "Market capitalization-weighted" index of 30 component stocks
representing a sample of large, well established and leading companies. The base year of
SENSEX is 1978-79. The SENSEX is widely reported in both domestic and international
markets through print as well as electronic media.
SENSEX is calculated using a market capitalization weighted method. As per this
methodology, the level of the index reflects the total market value of all 30 component stocks
from different industries related to particular base period. The total market value of a
company is determined by multiplying the price of its stock by the number of shares
outstanding. Statisticians call an index of a set of combined variables (such as price and
number of shares) a composite Index. An Indexed number is used to represent the results of
this calculation in order to make the value easier to work with and track over a time. It is
much easier to graph a chart based on Indexed values than one based on actual values world
over majority of the well known Indices are constructed using "Market capitalization
weighted method".
In practice, the daily calculation of SENSEX is done by dividing the aggregate market value
of the 30 companies in the Index by a number called the Index Divisor. The Divisor is the
only link to the original base period value of the SENSEX. The Divisor keeps the Index
comparable over a period of time and it is the reference point for the entire Index
maintenance adjustments. SENSEX is widely used to describe the mood in the Indian Stock
markets. Base year average is changed as per the formula:
New base year average = old base year average *(new market value/old market value)

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STOCK EXCHANGES IN INDIA
S.No NAME OF THE STOCK EXCHANGE YEAR
1 Bombay Stock Exchange 1875
2 Hyderabad Stock Exchange 1943
3 Ahmedabad Share and Stock Brokers Association 1957
4 Calcutta Stock Exchange Association Limited 1957
5 Delhi Stock Exchange Association Limited. 1957
6 Madras Stock Exchange Association Limited. 1957
7 Indoor Stock Brokers Association. 1958
8 Bangalore Stock Exchange. 1963
9 Cochin Stock Exchange. 1978
10 Pune Stock Exchange Limited. 1982
11 U.P Stock Exchange Association Limited. 1982
12 Ludhiana Stock Exchange Association Limited. 1983
13 Jaipur Stock Exchange Limited. 1984
14 Guwahati Stock Exchange Limited. 1984
15 Mangalore Stock Exchange Limited 1985
16 Maghad Stock Exchange Limited, Patna 1986
17 Bhuvaneshwar Stock Exchange Association Limited 1989
18 Over the Stock Exchange Limited. 1989
19 Saurasthra Kutch Stock Exchange Limited. 1990
20 Vadodara Stock Exchange Limited. 1991
21 Coimbatore Stock Exchange Limited. 1991
22 Meerut Stock Exchange Limited. 1991
23 National Stock Exchange Limited 1992
24 Integrated Stock Exchange. 1999

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SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
Securities and Exchange Board of India (SEBI) setup as an autonomous regulatory authority
by the Government of India in 1988 "to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market and for matters connected
therewith or incidental thereto". It is empowered by two acts namely the SEBI Act, 1992 and
the Securities Contract (regulation) Act, 1956 to perform the function of protecting investor's
rights and regulating the capital markets.
Securities and Exchange Board of India (SEBI) regulatory reach has been extended to more
areas and there is a considerable change in the capital market. SEBI's annual report for 1997-
98 has stated that throughout its six-year existence as a statutory body, it has sought to
balance the twin objectives of investor protection and market development. It has formulated
new rules and crafted regulations to foster development. Monitoring and surveillance was put
in place in the Stock Exchanges in 1996-97 and strengthened in 1997-98.
OBJECTIVES OF SEBI:
The promulgation of the SEBI ordinance in the parliament gave statutory status to, SEBI in
1992. According to the preamble of the SEBI, the three main objectives are:-
• To protect the interests of the investors in securities.
• To promote the development of securities market.
• To regulate the securities market.
SALIENT FEATURES OF SEBI:
• The SEBI shall be a body corporate by the name having perpetual succession and a
common seal with power to acquire, hold and dispose of property, both movable and
immovable, and to contract, and shall, by the said name, sue or by sued.
• The Head Office of the Board shall be at Bombay, now Mumbai. The Board may
establish offices at other places in India. In Mumbai, the Board is situated at Mittal
Court, B- Wing, 224, Nariman Point, Mumbai-400 021.
• The chairman and the Members of the Board are appointed by the Central
Government.
• The general superintendence, direction and management of the affairs of the Board
are in a Board of Members, which may exercise all powers and do all acts and things
which may be exercised or done by that Board.

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• The Government can prescribe terms of office and other conditions of service of the
Chairman and Members of the Board. The members can be removed under section 6
of the SEBI Act under specified circumstances.
• It is primary duty of the Board to protect the interest of the investor in securities and
to promote the development of and to regulate the securities market by such measures,
as it thinks fit.
FUNCTIONS OF SEBI
• Regulating the business in Stock Exchange and any other securities market.
Registering and regulating the working of Stock Brokers, Sub-Brokers, Share
Transfer Agents, Bankers to the issue, Trustees to trust deeds, Registrars to an issue,
Merchant Bankers, Underwriters.
• Portfolio Managers, Investment Advisers and such other Intermediaries who may be
associated with securities market in any manner.
• Registering and regulating the working of collective investment schemes including
Mutual Funds.
• Promoting and regulating self-regulatory organizations.
• Prohibiting fraudulent and unfair trade practices in the securities market. Promoting
investor's education and training of intermediaries in securities market. Prohibiting
Insiders Trading in securities.
• Regulating substantial acquisition of shares and take-over of companies.
• Calling for information, understanding inspection, conducting enquiries and audits of
the Stock Exchanges, Intermediaries and Self-Regulatory organizations in the
securities market.

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Overview
The IIFL Group is a leading financial services company in India, promoted by first
generation entrepreneurs. We have a diversified business model that includes credit and
finance, wealth management, financial product distribution, asset management, capital
market advisory and investment banking.
We have a largely retail focussed model, servicing over 2 million customers, including
several lakh first-time customers for mutual funds, insurance and consumer credit. This has
been achieved due to our extensive distribution reach of close to 4,000 business locations and
also innovative methods like seminar sales and use of mobile vans for marketing in smaller
areas.
Our evolution from an entrepreneurial start-up to a market leadership position is a story of
steady growth by adapting to the changing environment, without losing the focus on our core
domain of financial services. Our NBFC and lending business accounts for 68% of our
consolidated income in FY13 and has a diversified product portfolio rather than remaining a
mono-line NBFC. We are a leader in distribution of life insurance and mutual funds among
non-bank entities. Although the share of equity broking in total income was only 13% in
FY13, IIFL continues to remain a leading player in both, retail and institutional space.

Location Mumbai
Corporate office IIFL Centre, Lower Parel
Registered office
IIFL House, Sun Infotech Park, Road
Industrial Area, Wagle Estate,Thane,Maharashtra 400604
Year of
incorporation
1995
Industry Financial Services
Key businesses
Credit & Finance, Wealth Management, Financial Product
Distribution, Capital Market Related
Employees 14,000+
Business locations Around 4,000 locations in 900 cities and towns
Global reach
Sri Lanka, Singapore, Dubai, New York, Mauritius, UK, Hong Kong,
Switzerland
Listings NSE, BSE
Listing date 17 May, 2005
Registrars Link Intime India Pvt.
Short term debt
rating
CRISIL A1+ & ICRA (A1+)
Long term debt
rating
ICRA(AA
Domains
www.indiainfoline.com, www.iiflfinance.com,
www.ttweb.indiainfoline.com, www.flame.org.in
ISIN code INE530B01024
Bloomberg code IIFL IN
Reuters code IIFL.BO
Mumbai
IIFL Centre, Lower Parel
IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B
Financial Services
Distribution, Capital Market Related
14,000+
Around 4,000 locations in 900 cities and towns
Switzerland
NSE, BSE
17 May, 2005
Link Intime India Pvt. Ltd.
CRISIL A1+ & ICRA (A1+)
ICRA(AA-) & CRISIL AA-/Stable
www.indiainfoline.com, www.iiflfinance.com,
www.ttweb.indiainfoline.com, www.flame.org.in
INE530B01024
IIFL IN EQUITY
IIFL.BO
23
No. 16V, Plot No. B-23, Thane

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We have a track record of uninterrupted profits and dividends since listing.
Revenues
EBIDTA
PAT

Vision
• To become the most respected company in the
Values
• Values are IIFL are summarised in one acronym: GIFTS
• Growth with focused team of dynamic professionals
• Integrity in all aspects of business
• Fairness in all our dealings – employ
• Transparency in what we do –
• Service orientation is our core value, imbibed by all sales as well as support teams
Business strategy
• Steady growth by adapting to the changi
domain of financial services.
• De-risked business through multiple products and diversified revenue stream
• Knowledge is the key to power superior financial decisions
• Keep costs low and continuously stri
Customer strategy
• Remain largely a retail focused organisation, driving stickiness through knowledge and
quality service.
• Cater to untapped areas in semi
competition.
• Target the micro, small and medium enterprises mushrooming across the country through a
cluster approach for lending business
• Use wide multi-modal network serving as one
People strategy
• Attract the best talent and driven people
• Ensure conducive merit environment
• Liberal ownership-sharing.
To become the most respected company in the financial services space in India
Values are IIFL are summarised in one acronym: GIFTS.
rowth with focused team of dynamic professionals.
ntegrity in all aspects of business – no compromise in any situation.
employees, customers, vendors and shareholders all included
– and in how and why we do it.
ervice orientation is our core value, imbibed by all sales as well as support teams
Steady growth by adapting to the changing environment, without losing the focus on our core
risked business through multiple products and diversified revenue stream
Knowledge is the key to power superior financial decisions.
Keep costs low and continuously strive for innovation.
Remain largely a retail focused organisation, driving stickiness through knowledge and
Cater to untapped areas in semi-urban and rural areas, which is relatively safe from cut
Target the micro, small and medium enterprises mushrooming across the country through a
cluster approach for lending business.
modal network serving as one-stop shop to customers.
Attract the best talent and driven people.
sure conducive merit environment.
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financial services space in India.
ees, customers, vendors and shareholders all included.
ervice orientation is our core value, imbibed by all sales as well as support teams.
ng environment, without losing the focus on our core
risked business through multiple products and diversified revenue stream.
Remain largely a retail focused organisation, driving stickiness through knowledge and
urban and rural areas, which is relatively safe from cut-throat
Target the micro, small and medium enterprises mushrooming across the country through a

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Our logo
The Shree Yantra is regarded in India as the most powerful and
mystically beautiful of all yantras (Sanskrit word for a symbol used to
focus the mind). It predates the Vedas and is supposed to be the
favourite Yantra of Lakshmi, the Goddess of Wealth and Prosperity.
This powerful symbol, said to promote harmony and tranquillity as
well, has endured for many centuries. IIFL is engaged in the business
of creating wealth and the adoption of the Shree Yantra as its logo
was but natural.
Positioning
When we pioneered online trading in India with the launch of our brand 5 paisa, the tag line
was “It’s all about money, honey”.
We recently realigned our positioning from “Knowledge is the Edge” to “When it’s about
Money”.
The IIFL brand is associated with trust, knowledge and quality service. But more importantly,
the brand stands for timely assistance provided to the country’s under-banked customers.

Our Journey
• 1996
A small group of professionals formed an Information Services Company
The company was formed in October 1995 with a vision to produce
high quality, unbiased, independent research on the Indian economy,
business, industries and
The company was originally
Services Pvt.Ltd. The name of the company was later changed to India
Infoline Ltd.
• 1996
• 1997
• 1998
• 1999
• 2000
• 2001
• 2002
• 2003
• 2004
• 2005
• 2006
• 2007
• 2008
• 2009
• 2010
• 2011
• 2012
• 2013
ofessionals formed an Information Services Company
business, industries and corporates.
The company was originally incorporated as Probity Research and
30
ofessionals formed an Information Services Company
incorporated as Probity Research and

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Our Strengths:
Managerial depth
Our promoters individually are first-generation Indian entrepreneurs with meritorious
academic backgrounds and impeccable professional careers.
Nirmal Jain, Chairman, is a rank holder Chartered Accountant, Cost Accountant and an MBA
from IIM Ahmedabad and Mr. R. Venkataraman, Managing Director, is an Electronics
Engineer from IIT Kharagpur and an MBA from IIM Bangalore.
The Promoters have built the business from scratch, without pedigree of a large family
business or inherited wealth and steered it towards a market leading position by dint of hard
work and enterprise.
We have consistently attracted the best of the talent from across the financial sector – private
sector banks, foreign banks, public sector banks and established NBFCs. The senior
management team have years of experience and backgrounds similar to promoters and leads
competent teams. IIFL has uninterrupted history of profits and dividends since listing. We
have delivered total shareholder returns of 34.3% CAGR from listing till March 31, 2013.
Governance
The Promoters have demonstrated an exemplary track record of governance and utmost
integrity. There have been no notable regulatory strictures or oversight ever in the group’s
history. This is despite a widespread and broad range of operations governed by multiple
regulators including RBI, SEBI, IRDA, FMC and NHB. In addition, we have eight licensed
subsidiaries in major global financial centres.
Our Board has independent directors, highly respected for their professional integrity as well
as rich financial and banking experience and expertise. We have an advisory board
comprising stalwarts with long and immaculate careers in banks, public service and legal
profession.
None of the promoters’ family members has held managerial or board position or have
related-party or financial transaction of any significance, since listing. Further, we have not
lent to any related party or associated concerns. The promoters do not have any other
business interests and are committed to the core business of financial services under the IIFL
umbrella.
People
Our people form the backbone of our organization and are the foundation of our success. We
have significant ownership by employees with a credo of ‘owners work, workers own’, which
has enabled us to maintain a highly motivated staff driven by ‘owner mindset’. We create
owners out of our employees not just by offering a financial stake but also through autonomy
to take decisions, make mistakes and grow confidence, competence and career.

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Knowledge
IIFL is a knowledge driven organization and has over the years developed and
institutionalized knowledge about its businesses at all the levels.
Our roots are in original research on economy, sectors, companies, capital markets and global
financial trends. Our in-house research capabilities gives us an edge in understanding
industry trends, macro-economic situations, business cycles, inflation and interest rate trends,
technological changes, regulatory and legal updates, environmental factors impacting labour,
raw material supply, pollution norms and for intermediate products- trends in end user sectors
and for consumption products- trends in customers habits.
We have strong origination and KYC processes across our businesses to get deep
understanding of customer’s needs and profile.
Innovation
We have successfully executed a number of innovative and disruptive ideas in the financial
services industry to rise from a start-up to leadership position in less than two decades. For
instance:
• We gave away all our research free on indiainfoline.com and acquired millions of readers.
• We pioneered online trading and revolutionized broking at lowest rate of 5 basis points.
• We inducted a high profile institutional team from a foreign brokerage house in a first of its
kind deal in India broking industry.
Distribution reach
We are present in around 4,000 business locations across more than 900 cities in India.
Our global footprint covers Colombo, Dubai, New York, Mauritius, London, Geneva and
Singapore.
De-risked business
IIFL has a de-risked and diversified business model across multiple revenue streams.
We offer multiple products across all segments of financial services.

33
Risk management
The basis of our risk management and hence our sustainability is our underlying
conservatism. The objective of our risk management process is to insulate the company from
risks associated with the business while simultaneously creating an environment conducive
for growth.
The effectiveness of our risk management practice emanates from our rich experience. It is
derived from a deep understanding of the Indian economy, sectorial trends and corporate
fundamentals.
Our ability to manage organizational risk cascades from our board of directors, comprising
professionals with rich and varied experience. The risk appetite defined by our board is
reflected in our business plans and integrated into our operations.
We identify risks through appropriate systems, indicators and risk surveys reinforced by our
mangers. The company’s well-defined organizational structure, documented policies and
standard operating procedures, authority matrix and internal controls ensure efficiency of
operations, compliance with internal and regulatory requirements.
We continuously strengthen our risk measurement tools customized to the nature of each
business segment. Many critical decision levels for investments, major lending and policy
initiatives are institutionalized trough appropriate committees’.
Well capitalized
The Group has net worth of around Rs20 billion. The company has a significantly unutilized
capacity to leverage.
Technology
Right from inception, IIFL has incubated and developed next generation technology for its
core businesses.
IIFL’s front office software is seamlessly integrated to a highly automated proprietary back
office, risk management and MIS software.
IIFL Trader Terminal is an entirely home grown proprietary technology, which allows
trading in Equities Cash & Derivatives, Commodities, Forex, Mutual Funds, NFOs and IPOs
on a single screen.
Customer service
Our existing customer service organization has evolved with the singular goal since inception
that our customer experience should be the best. We offer services through multiple customer
touch-points such as personal interaction at our offices, call centre, email, and online web-
based interface. We have made significant investment in systems, technology, people and
their training, to ensure high service standards. We have also won an award for Best
Customer Service in Financial Services 2013.

What we do (Product and Services)?
IIFL Group offers credit & finance facilities through its subsidiaries:
• India Infoline Finance Ltd (98.87% subsidiary);
• India Infoline Housing Finance Ltd (Wholly owned subsidiary).
The NBFC has a high quality loan book of close to Rs10,000 crores,
portfolio including:
• Home loans
• SME & Trader loans
• Healthcare & Equipment financing
• Loans secured against Gold
• Commercial Vehicle financing
• Loans secured against Property
• Loans secured against Shares
We have chosen to be a divers
exercise utmost prudence in credit selection, monitoring and avoid concentration. Our credit
evaluation process not only takes into account the value and quality of the collateral, but also
the cash-flows of the potential borrower.
assessment, effective risk management techniques and an efficient collection mechanism, the
net NPAs are kept well under control at less than 0.2%.
accounted for 68% of our consolidated income in FY13.
What we do (Product and Services)?
IIFL Group offers credit & finance facilities through its subsidiaries:
Finance Ltd (98.87% subsidiary); and
India Infoline Housing Finance Ltd (Wholly owned subsidiary).
The NBFC has a high quality loan book of close to Rs10,000 crores,
SME & Trader loans
Healthcare & Equipment financing
Loans secured against Gold
Commercial Vehicle financing
Loans secured against Property
Loans secured against Shares
We have chosen to be a diversified portfolio company rather than a mono
flows of the potential borrower. Backed by a diversified portfolio, robust credit
net NPAs are kept well under control at less than 0.2%. The NBFC and lending busin
accounted for 68% of our consolidated income in FY13.
35
The NBFC has a high quality loan book of close to Rs10,000 crores, with a diversified
ified portfolio company rather than a mono-line NBFC. We
ked by a diversified portfolio, robust credit
The NBFC and lending business

IIFL Group offers wealth advisory services through its subsidiary IIFL Wealth Management
Ltd (82.44% subsidiary).
There is an increasing need for a comprehensive wealth management solution as opposed to
disparate services to address complexity related to treasury, personal portfolio, cashflows and
long-term investments. We are amongst the lead
Assets under Advice (AuA) of more than Rs40,000 crores with a HNI client base of over
4,000 families.
Our fixed income practice coupled with a large bond desk facilitates direct access to
sovereign, corporate and collat
The business grew revenues from Rs180 million in 2008
We have managed the five significant constituents that go into successful wealth management
and advisory services:
term investments. We are amongst the leading wealth management companies with
sovereign, corporate and collateralised debt.
The business grew revenues from Rs180 million in 2008-09 to Rs2 billion in 2012
39
ing wealth management companies with
09 to Rs2 billion in 2012-13.

We distribute a range of financial products like life insurance, mutual funds, National
Pension Scheme (NPS), government and corporate bonds. In fact, we are a market leader
among non-bank promoted entities in distribution of life insurance and mutual funds.
We follow an ‘open architecture’ approach and constantly try to innovate channels that reach
out to customers in the most cost effective way possible
Our strength in semi-urban and rural areas has helped us reach several lakh first time
customers. We conducted a survey of ou
www.indiainfoline.com/inclusion
IIFL’s annual premium mobilisation (APE) stood at over Rs320 crores during FY13.
financial products like life insurance, mutual funds, National
bank promoted entities in distribution of life insurance and mutual funds.
rchitecture’ approach and constantly try to innovate channels that reach
out to customers in the most cost effective way possible
urban and rural areas has helped us reach several lakh first time
customers. We conducted a survey of our 100 small customers. Watch them on
www.indiainfoline.com/inclusion
40
financial products like life insurance, mutual funds, National
bank promoted entities in distribution of life insurance and mutual funds.
rchitecture’ approach and constantly try to innovate channels that reach
out to customers in the most cost effective way possible.
urban and rural areas has helped us reach several lakh first time
r 100 small customers. Watch them on

We pioneered internet broking in India and rationalised brokerage rates from 150 basis points
in the late nineties to 5 basis points. Although the share of equity broking in total income was
only 13% in FY13, we continue to remain a leading player in both, retail and institutional
space.
Our extension into commodities and currency advisory reconcile
a one-stop-shop financial intermediary. We are in the process of building a culture of
advisory and financial planning to move away from pure execution and de
further.
IIFL Capital, the institutional equit
most leading foreign institutional investors and mutual funds that invest in India. Our
unmatched block placement capability is renowned and is underpinned by our reputation for
integrity and client confidentiality.
Revenues increased 2.3% to Rs552.53 cr in 2012
Market share in equity
the late nineties to 5 basis points. Although the share of equity broking in total income was
Our extension into commodities and currency advisory reconciles with its vision to emerge as
shop financial intermediary. We are in the process of building a culture of
advisory and financial planning to move away from pure execution and de
IIFL Capital, the institutional equities division of the IIFL Group, is the first port of call for
ient confidentiality.
Revenues increased 2.3% to Rs552.53 cr in 2012-13.
Market share in commodity
41
the late nineties to 5 basis points. Although the share of equity broking in total income was
s with its vision to emerge as
shop financial intermediary. We are in the process of building a culture of
advisory and financial planning to move away from pure execution and de-risk our business
ies division of the IIFL Group, is the first port of call for
Market share in commodity

We launched our Mutual Fund business to offer niche
maiden scheme, carries the lowest expenses of any equity ETF in India.
Our passively managed Dividend Opportunities ETF has been ranked the second best
performer by Value Research.
close-ended debt schemes and two open
management (AUM) stood at Rs3,271 million as on March 31, 2013.
Our strength lies in gauging the market pulse and launching niche products with low churn
and operational efficiency, thereby keeping costs low.
The business leverages upon the strength of our research and placement capabilities of the
institutional and retail sales teams. Our experienced investment banking team possesses the
skill-set to manage all kinds of investment banking transactions. Our close
investors as well as corporate helps us understand
requirements.
We possess strong placement capabilities across institutional, HNI and
Some of our marquee transactions:
We launched our Mutual Fund business to offer niche products. The IIFL Nifty ETF, our
maiden scheme, carries the lowest expenses of any equity ETF in India.
performer by Value Research. A total of six schemes have been launched
ended debt schemes and two open-ended equity schemes. Total assets under
operational efficiency, thereby keeping costs low.
ge all kinds of investment banking transactions. Our close
investors as well as corporate helps us understand and offer tailor-made solutions to
We possess strong placement capabilities across institutional, HNI and
Some of our marquee transactions:
42
products. The IIFL Nifty ETF, our
A total of six schemes have been launched, including four
ended equity schemes. Total assets under
ge all kinds of investment banking transactions. Our close interactions with
made solutions to fulfil
We possess strong placement capabilities across institutional, HNI and retail investors.

We provide end-to-end advisory services, whether buy, sell, lease or rent to assist customers
in decision-making, transaction, documentation and facilitate post deal activity. Our mission
is to help clients create and preserve wealth by providing the best
Awards:
Best Wealth Management House (India), 2011 & 2012, Triple A
No. 1 in Fixed Income Portfolio Management in India, 2012
Best Broking House with Global Presence, 2011 & 2012
Top Performer, Equity (FI Category), 2012
Best Commodities Investment, 2012
Best Customer Service in Financial Services, 2013
end advisory services, whether buy, sell, lease or rent to assist customers
making, transaction, documentation and facilitate post deal activity. Our mission
is to help clients create and preserve wealth by providing the best real estate investment.
Best Wealth Management House (India), 2011 & 2012, Triple A
No. 1 in Fixed Income Portfolio Management in India, 2012 – Euro Money
Best Broking House with Global Presence, 2011 & 2012 – D&B
Equity (FI Category), 2012 – BSE
Best Commodities Investment, 2012 – Euro Money
Best Customer Service in Financial Services, 2013 - Retailer Customer Service Awards
43
end advisory services, whether buy, sell, lease or rent to assist customers
making, transaction, documentation and facilitate post deal activity. Our mission
real estate investment.
Euro Money
Retailer Customer Service Awards

India Infoline Ltd
BSE: 532636 | NSE: INDIAINFO
Market
Industry: Finance & Investments
49.651.40 (2.9%)
BSE
Day's High | Low
Day's Volumes
52Wk High | Low
Open Price
Turnover
Deliverable Vol.
6 Mth. Avg. Vol.
49.901.35 (2.8%)
NSE
Day's High | Low
Day's Volumes
52Wk High | Low
Open Price
Turnover
Deliverable Vol.
6 Mth. Avg. Vol.
INDIAINFO | ISIN: INE530B01024
Cap: [Rs.Cr.] 1,426 | Face
Finance & Investments
Jul 31,00:00
50.25 | 47.05
64,802
93.35 | 47.05
48.50
3,136,730.00
15,345
280,636.89
Jul 31,00:00
50.45 | 47.40
384,610
93.30 | 47.40
48.85
18,527,443.10
148,065
662,095.40
44
Face Value: [Rs.] 2

45
Dividend History
Date
Dividend
(Rs)
Face value Rs)
25-Jan-06 2 10
21-Jul-06 1 10
24-Mar-
07
3 10
30-Jun-08 6 10
30-Jan-09 2.8 2
18-Aug-
09
1.2 2
27-Jan-10 1.8 2
8-Mar-11 3 2
21-May-
12
1.5 2
5-Feb-13
3
2
Annual dividend (Rs) Dividend % of FV
FY06 3 30
FY07 3 30
FY08 6 60
FY09 2.8 140
FY010 3 150
FY011 3 150
FY012 1.5 75
FY013 3 150

46
Shareholding Pattern
Mar-2013 Dec-2012 Sep-2012 Jun-2012 Mar-2012
Promoter and
Promoter Group
31.10 % 31.61 % 31.68 % 31.60 % 31.61 %
Indian 31.10 % 31.61 % 31.68 % 31.60 % 31.61 %
Foreign -- -- -- -- --
Public 68.90 % 68.39 % 68.32 % 68.40 % 68.39 %
Institutions 43.68 % 44.19 % 44.70 % 44.86 % 44.16 %
FII 39.34 % 39.92 % 40.08 % 39.63 % 39.84 %
DII 4.34 % 4.27 % 4.62 % 5.23 % 4.32 %
Non Institutions 25.22 % 24.20 % 23.62 % 23.54 % 24.23 %
Bodies Corporate 2.78 % 2.99 % 2.29 % 2.39 % 2.05 %
Custodians -- -- -- -- --
Total 29,52,29,883 28,99,57,953 28,91,16,953 28,90,81,953 28,90,24,203

Philosophy:
IIFL (India Infoline) is committed to placing the Investor First, by continuously striving to
increase the efficiency of the operations as well as the systems and processes for use of
corporate resources in such a way so as to maximize the value to the stakeholders. The Group
aims at achieving not only the highest possible standards of legal and regulatory compliances,
but also of effective management.
Committees:
Audit Committee
Terms of reference & Composition, Name of members and Chairman: The Audit committee
comprises Mr Nilesh Vikamsey (Chairman), Mr R Venkataraman, Mr Kranti Sinha, two of
whom are independent Directors. The Chairman along with the Statutory and Internal
Auditors are invitees to the Meeting. The Terms of reference of this committee are as under:
To investigate into any matter that may be prescribed under the provisions of Section 292A
of The Companies Act, 1956
fixation of the Audit Fees. - Reviewing with the management the financial statements before
submission of the same to the Board.
and disclosure of its financial information.
Function.
Compensation/ Remuneration Committee
Terms of reference & Composition, Name of members and Chairman: The Compensation /
Remuneration Committee comprises Mr Kranti Sinha (Chairman) & Mr Nilesh Vikamsey,
both of whom are independent Directors. The Terms of reference of this committee are as
under: - To fix suitable remuneration package of all the Executive Directors and Non
Executive Directors, Senior Employees and officers i.e. Salary, perquisites, bonuses, stock
options, pensions etc. - Determination of the fixed component and performance linked
incentives along with the performance criteria to all employees of the company
Contracts, Notice Period, Severance Fees of Directors and employees.
whether to be issued at discount as well as the period over which to be accrued and over
which exercisable. - To conduct discussions with the HR department and form suitable
remuneration policies.
but also of effective management.
ors are invitees to the Meeting. The Terms of reference of this committee are as under:
of The Companies Act, 1956 - Recommendation and removal of External Auditor
Reviewing with the management the financial statements before
submission of the same to the Board. - Overseeing of Company's financial reporting process
and disclosure of its financial information. - Reviewing the Adequacy of the Internal Audit
Compensation/ Remuneration Committee
independent Directors. The Terms of reference of this committee are as
To fix suitable remuneration package of all the Executive Directors and Non
Determination of the fixed component and performance linked
with the performance criteria to all employees of the company
Contracts, Notice Period, Severance Fees of Directors and employees. - Stock Option detail
To conduct discussions with the HR department and form suitable
47
ors are invitees to the Meeting. The Terms of reference of this committee are as under: -
Recommendation and removal of External Auditor and
Reviewing with the management the financial statements before
Overseeing of Company's financial reporting process
y of the Internal Audit
independent Directors. The Terms of reference of this committee are as
To fix suitable remuneration package of all the Executive Directors and Non
Determination of the fixed component and performance linked
with the performance criteria to all employees of the company - Service
Stock Option details:
To conduct discussions with the HR department and form suitable

48
Share Transfer and Investor Grievance Committee
Details of the Members, Compliance Officer, No of Complaints received and pending and
pending transfers as on close of the financial year. The committee functions under the
Chairmanship of Mr Kranti Sinha, a Non-executive independent Director. The other
Members of the committee are Mr. Nirmal Jain and Mr. R Venkataraman. Ms Sunil Lotke,
Company Secretary is the Compliance Officer of the Company.
Board of Directors
Mr. Nirmal Jain (Chairman, India Infoline Ltd).
Mr. R. Venkataraman (Managing Director , India Infoline Ltd).
Mr. Arun Kumar Purwar
(Independent Director of India Infoline Limited since March 2008).
Mr. Chandran Ratnaswami
(Non Executive Director of India Infoline Limited since May 2012).
Mr. Kranti Sinha (Independent Director of India Infoline Limited since January 2005).
Mr. Mahesh Narayan Singh
(Independent Director of India Infoline Finance Limited since September 2009).
Mr. Nilesh Vikamsey
(Independent Director of India Infoline Limited & India Infoline Finance Limited since
February 2005).
Dr. Subbaraman Narayan
(Independent Director of India Infoline Limited since July 2012).
Mr. Vijay Kumar Chopra
(Independent Director of India Infoline Finance Limited since June 2012).

IIFL Foundation
In line with IIFL’s vision to be the ‘most respected company in the financial services space’,
the company recognises the importance of contributing to and sustaining social
transformation. The IIFL Foundation has been set up to work in areas of skill development
for various industries and to ensure financial inclusion through the support and up
the underprivileged sections of society.
The IIFL Foundation focuses on specific areas of need, including healthcare and education.
The foundation will screen and select institutions
working in these domains and will provide necessary aid to improve the lives of the
underprivileged and help them in achieving their potential.
The IIFL Foundation has initiated career guidance to the students of High
colleges in remote areas of Maharashtra to enable them to pursue the career which provides
right employment opportunities.
FLAME
FLAME (Financial Literacy Agenda for Mass Empowerment)
initiative to promote financial literacy amongst the masses in order to make them an integral
part of India's spectacular growth story. In an era of accelerating GDP and rising per capita
growth, financial literacy has become more critical than ever before such that we all reap
tangible benefits of the nation's economic prosperity. Financial inclusion has been quite high
on the governmental agenda, given its emphasis on widening the Banking & Financial
services network across the country. The FLAME initiative stands committe
this effort by helping common people gain financial growth and security though better
awareness and education on the variety of financial products while avoiding the lure of and
loss from unrealistic claims made by unscrupulous agents and p
dedicated site for financial literacy:
be the ‘most respected company in the financial services space’,
and to ensure financial inclusion through the support and up
the underprivileged sections of society.
The foundation will screen and select institutions and developmental agencies which are
underprivileged and help them in achieving their potential.
The IIFL Foundation has initiated career guidance to the students of High
right employment opportunities.
FLAME (Financial Literacy Agenda for Mass Empowerment) is an IIFL Foundation
financial literacy amongst the masses in order to make them an integral
growth, financial literacy has become more critical than ever before such that we all reap
services network across the country. The FLAME initiative stands committe
loss from unrealistic claims made by unscrupulous agents and ponzi schemes.
dedicated site for financial literacy: www.flame.org.in
49
be the ‘most respected company in the financial services space’,
and to ensure financial inclusion through the support and upliftment of
and developmental agencies which are
The IIFL Foundation has initiated career guidance to the students of High School and Junior
is an IIFL Foundation
financial literacy amongst the masses in order to make them an integral
growth, financial literacy has become more critical than ever before such that we all reap the
services network across the country. The FLAME initiative stands committed to complement
onzi schemes. Visit our

50
Camps
Mobile van and seminar sales photos

51
Scholarships
H Nemkumar and Nirmal Jain Scholarship (May 2012) India has a large number of gifted
and deserving students who are unable to avail of a high-quality learning experience from
reputed institutions in India or abroad due to financial or other constraints. Young India
Fellows reaches out to such students. The YIF scholarships have been made possible by
generous donations by a stellar set of individuals including Mr. Nirmal Jain and Mr. H
Nemkumar on behalf of IIFL Foundation.
This year, 57 Young India Fellows of the Founding Class graduated and embarked upon
careers ranging from design technology to rural development, from venture philanthropy to
corporate strategy, and from ethnographic research to institution building. The Founding
Fellows are Fulbright Scholars, INSEAD-Wharton MBA candidates, Prime Ministers, Rural
Development Fellows, legal entrepreneurs, McKinsey and BCG consultants, budding
psychologists, artists, writers and film makers, research scholars at leading think tanks and
inspired entrepreneurs trying and testing new ideas for technology-driven social change.
Expressing gratitude for the support offered by Mr. Nirmal Jain & Mr. Nemkumar, in
launching this program in its founding year, the Young India Fellows awarded a personalized
Valedictory Scroll to graduating Fellows.
Financial literacy for Supporting the Under-privileged
IIFL has also tied up with KJ Somaiya Institute of Management Studies & Research (SIMSR)
to impart basic financial knowledge to underprivileged sections and physically handicapped
sections of the society. The programmes covers lessons on savings, budgeting, banking,
credit management, microfinance and self-help groups (SHGs). The IIFL Foundation under
the FLAME initiative has tied up with Somaiya Institute to impart financial literacy to
National Society for Equal Opportunities for the Handicapped India (NASEOH ) since the
last two years.

52
SWOT ANALYSIS OF IIFL
STRENGHTS:
Low brokerage system
Effective after sales services system
Advisory desk operations provided by fuller ton
Well established brand equity
Tele trade also possible
Freedom account with different facilities
Personalize alerts
Consolidated statements-a unique service offering
WEAKNESSES:
Lack of Aggressive advertisements and sales promotion programmed.
The working of the sales force is traditional.
Inventory investments should be more.
Miscommunication and ineffective co-ordination at various level of hierarchy.
OPPORTUNITIES:
Growing capital market in India & other country
Political stability in India & other country
Better governance by SEBI
Decreasing interest rates in India, so people are motivated to earn more returns
through capital market.
THREATS:
• Demand & supply
• Increasing competition in security market
• Lost in faith in share market after big scams in the stock market
• Natural calamities
• Inability of customers to pay brokerage at the right time
• High risk involved in the stock market.

53
COMPETITORS OF IIFL:
SHAREKHAN
RELIANCE MONEY
UNICON
KARVY
INDIABULLS
RK GLOBAL SECURITIES
RELIGARE

54
SECURITY ANALYSIS
Definition:
For making proper investment involving both risk and return, the investor has to make study
of the alternative avenues of the investment-their risk and return characteristics, and make a
proper projection or expectation of the risk and return of the alternative investments under
consideration. He has to tune the expectations to this preference of the risk and return for
making a proper investment choice. The process of analyzing the individual securities and the
market as a whole and estimating the risk and return expected from each of the investments
with a view to identify undervalues securities for buying and overvalues securities for selling
is both an art and a science that is what called security analysis.
Security:
The security has inclusive of shares, scripts, bonds, debenture stock or any other marketable
securities of like nature in or of any debentures of a company or body corporate, the
government and semi government body etc. In the strict sense of the word, a security is an
instrument of promissory note or a method of borrowing or lending or a source of
contributing to the funds need by a corporate body or non-corporate body, private security for
example is also a security as it is a promissory note of an individual or firm and gives rise to
claim on money. But such private securities of private companies or promissory notes of
individuals, partnership or firm to the intent that their marketability is poor or nil, are not part
of the capital market and do not constitute part of the security analysis.

55
Analysis of Securities:
Security analysis in both traditional sense and modern sense involves the projection of future
dividend or ensuring flows, forecast of the share price in the future and estimating the
intrinsic value of a security based on the forecast of earnings or dividend. Security analysis in
traditional sense is essentially on analysis of the fundamental value of shares and its forecast
for the future through the calculation of its intrinsic worth of share. Modern security analysis
relies on the fundamental analysis of the security, leading to its intrinsic worth and also rise-
return analysis depending on the variability of the returns, covariance, safety of funds and the
projection of the future returns.
If the security analysis based on fundamental factors of the company, then the forecast of the
share price has to take into account inevitably the trends and the scenario in the economy, in
the industry to which the company belongs and finally the strengths and weaknesses of the
company itself. Its management, promoters backward, financial results, projection of
expansion, term planning etc.
Approaches to Security Analysis:
• Fundamental Analysis
• Technical Analysis
• Efficient Market Hypothesis

56
FUNDAMENTAL ANALYSIS
It's a logical and systematic approach to estimating the future dividends & share price as
these two constitutes the return from investing in shares. According to this approach, the
share price of a company is determined by the fundamental factors affecting the Economy/
Industry/ Company such as Earnings Per Share, DIP ratio, Competition, Market Share,
Quality of Management etc. it calculates the true worth of the share based on its present and
future earning capacity and compares it with the current market price to identify the
mispriced securities.
Fundamental analysis involves a three-step examination, which calls for:
1. Understanding of the macro-economic environment and developments.
2. Analyzing the prospects of the industry to which the firm belongs.
3. Assessing the projected performance of the company.
MACRO ECONOMIC ANALYSIS:
The macro-economy is the overall economic environment in which all firms operate. The key
variables commonly used to describe the state of the macro-economy are:
Growth Rate of Gross Domestic Product (GDP):
The Gross Domestic Product is measure of the total production of final goods and services in
the economy during a specified period usually a year. The growth rate of GDP is the most
important indicator of the performance of the economy. The higher the growth rate of GDP,
other things being equal, the more favourable it is for the stock market.

57
Industrial Growth Rate:
The stock market analysts focus more on the industrial sector. They look at the overall
industrial growth rate as well as the growth rates of different industries. The higher the
growth rate of the industrial sector, other things being equal, the more favorable it is for the
stock market.
Agriculture and Monsoons:
Agriculture accounts for about a quarter of the Indian economy and has important linkages,
direct and indirect, with industry. Hence, the increase or decrease of agricultural production
has a significant bearing on industrial production and corporate performance. A spell of good
monsoons imparts dynamism to the industrial sector and buoyancy to the stock market.
Likewise, a streak of bad monsoons casts its shadow over the industrial sector and the stock
market.
Savings and Investments:
The demand for corporate securities has an important bearing on stock price movements. So
investment analysts should know what the level of investment in the economy is and what
proportion of that investment is directed toward the capital market. The analysts should also
know what the savings are and how the same are allocated over various instruments like
equities, bonds, bank deposits, small savings schemes, and bullion. Other things being equal,
the higher the level of savings and investments and the greater the allocation of the same over
equities, the more favourable it is for the stock market.
Government Budget and Deficit:
Government plays an important role in most economies. The excess of government
expenditures over governmental revenues represents the deficit. While there are several
measures for deficit, the most popular measure is the fiscal deficit. The fiscal deficit has to be
financed with government borrowings, which is done in three ways:
1. The government can borrow from the reserve bank of India.
2. The government can resort to borrowing in domestic capital market.
3. The government may borrow from abroad.
Investment analysts examine the government budget to assess how it is likely to impact on
the stock market.

58
Price Level and Inflation:
The price level measures the degree to which the nominal rate of growth in GDP is
attributable to the factor of inflation. The effect of inflation on the corporate sector tends to
be uneven. While certain industries may benefit, others tend to suffer. Industries that enjoy a
strong market for these products and which do not come under the purview of price control
may benefit. On the other hand, industries that have a weak market and which come under the
purview of price control tend to lose. On the whole, it appears that a mild level of inflation is
good for the stock market.
Interest Rate:
Interest rates vary with maturity, default risk, inflation rate, productivity of capital, special
features, and so on. A rise in interest rates depresses corporate profitability and also leads to
an increase in the discount rate applied by equity investors, both of which have an adverse
impact on stock prices. On the other hand, a fall in interest rates improves corporate
profitability and also leads to a decline in the discount rate applied by equity investors, both
of which have a favourable impact on stock prices.
Balance of Payments, Forex Reserves, and Exchange Rates:
The balance of payments deficit depletes the forex reserves of the country and has an adverse
impact on the exchange rate; on the other hand a balance of payments surplus augments the
forex reserves of the country and has a favorable impact on the exchange rate.
Infrastructural Facilities and Arrangements:
Infrastructural facilities and arrangements significantly influence industrial performance.
More specifically, the following are important:
• Adequate and regular supply of electric power at a reasonable tariff.
• A well developed transportation and communication system (railway transportation,
road network, inland waterways, port facilities, air links, and telecommunications
system).
• An assured supply of basic industrial raw materials like steel, coal, petroleum
products, and cement.
• Responsive financial support for fixed assets and working capital.

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Sentiments:
The sentiments of consumers and businessmen can have an important bearing on economic
performance. Higher consumer confidence leads to higher expenditure on big ticket items.
Higher business confidence gets translated into greater business investment that has a
stimulating effect on the economy. Thus, sentiments influence consumption and investment
decisions and have a bearing on the aggregate demand for goods and services.

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INDUSTRY ANALYSIS:
The objective of this analysis is to assess the prospects of various industrial groupings.
Admittedly, it is almost impossible to forecast exactly which industrial groupings will
appreciate the most. Yet careful analysis can suggest which industries have a brighter future
than others and which industries are plagued with problems that are likely to persist for while.
Concerned with the basics of industry analysis, this section is divided into three parts:
• Industry life cycle analysis
• Study of the structure and characteristics of an industry
• Profit potential of industries: Porter model.
INDUSTRY LIFE CYCLE ANALYSIS:
Many industries economists believe that the development of almost every industry may be
analyzed in terms of a life cycle with four well-defined stages:
Pioneering stage:
During this stage, the technology and or the product are relatively new. Lured by promising
prospects, many entrepreneurs enter the field. As a result, there is keen, and often chaotic,
competition. Only a few entrants may survive this stage.
Rapid Growth Stage:
In this stage firms, which survive the intense competition of the pioneering stage, witness
significant expansion in their sales and profits?
Maturity and Stabilization Stage:
During the stage, when the industry is more or less fully developed, its growth rate is
comparable to that of the economy as a whole. With the satiation of demand, encroachment
of new products, and changes in consumer preferences, the industry eventually enters the
decline stage, relative to the economy as a whole. In this stage, which may continue
indefinitely, the industry may grow slightly during prosperous periods, stagnate during
normal periods, and decline during recessionary periods.

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STUDY THE STRUCTURE & CHARACTERISTICS OF AN INDUSTRY:
Since each industry is unique, a systematic study of its specific features and characteristics
must be an integral part of the investment decision process. Industry analysis should focus on
the following:
I. Structure of the Industry and nature of Competition:
• The number of firms in the industry and the market share of the top few (four to five)
firms in the industry
• Licensing policy of the government
• Entry barriers, if any
• Pricing policies of the firm
• Degree of homogeneity or differentiation among products
• Competition from foreign firms
• Comparison of the products of the industry with substitutes in terms of quality, price,
appeal, and functional performance
II. Nature and Prospect of Demand:
• Major customer and their requirements
• Key determinants of demand
• Degree of cyclicality in demand
• Expected rate of growth in the foreseeable future
III. Cost, Efficiency, and Profitability:
• Proportions of the key cost elements, viz. raw materials, labour, utilities, & fuel
• Productivity of labour
• Turnover of inventory, receivables, and fixed assets
• Control over prices of outputs and inputs
• Behaviour of prices of inputs and outputs in response to inflationary pressures
• Gross profit, operating profit, and net profit margins
• Return on assets, earning power, and return on equity
IV. Technology and Research:
• Degree of technological stability
• Important technological changes on the horizon and their implications
• Research and development outlays as a percentage of industry sales
• Proportion of sales growth attributable to new products

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PROFIT POTENTIAL AND INDUSTRIES: PORTER MODEL
Michael Porter has argued that the profit potential of an industry depends on the combined
strength of the following five basic competitive forces:
• Threat of new entrants
• Rivalry among the existing firms
• Pressure from substitute products
• Bargaining power of buyers
• Bargaining power of sellers
COMPANY ANALYSIS
Company analysis is the final stage of the fundamental analysis, which is to be done to decide
the company in which the investor should invest. The Economy Analysis provides the
investor a broad outline of the prospects of growth in the economy. The Industry Analysis
helps the investor to select the industry in which the investment would be rewarding.
Company Analysis deals with estimation of the Risks and Returns associated with individual
shares.
The stock price has been found on depend on the intrinsic value of the company's share to the
extent of about 50% as per many research studies. Graharm and Dodd in their book on '
security analysis' have defined the intrinsic value as "that value which is justified by the fact
of assets, earning and dividends". These facts are reflected in the earning potential if the
company. The analyst has to project the expected future earnings per share and discount them
to the present time, which gives the intrinsic value of share. Another method to use is taking
the expected earnings per share and multiplying it by the industry average price earning
multiple.
By this method, the analyst estimates the intrinsic value or fair value of share and compares it
with the market price to know whether the stock is overvalued or undervalued. The
investment decision is to buy undervalued stock and sell overvalued stock.
A. Financial analysis:
Share price depends partly on its intrinsic worth for which financial analysis for a company is
necessary to help the investor to decide whether to buy or not the shares of the company. The
soundness and intrinsic worth of a company is known only such analysis. An investor needs
to know the performance of the company, its intrinsic worth as indicated by some parameters
like book value, EPS, PIE multiple etc. and come to a conclusion whether the share is rightly
priced for purchase or not. This, in short is short importance of financial analysis of a
company to the investor.

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Financial analysis is analysis of financial statement of a company to assess its financial health
and soundness of its management. "Financial statement analysis" involves a study of the
financial statement of the company to ascertain its prevailing state of affairs and the reasons
thereof. Such a study would enable the public and investors to ascertain whether one
company is more profitable than the other and also to state the cause and factors that are
probably responsible for this.
Method or Devices of Financial analysis
The term 'financial statement' as used in modern business refers to the balance sheet, or the
statement of financial position of the company at a point of time and income and expenditure
statement; or the profit and loss statement over a period.
Interpret the financial statement; it is necessary to analyze them with the object of formation
of opinion with respect to the financial condition of the company. The following methods of
analysis are generally used.
1. Comparative statement.
2. Trend analysis
3. Common-size statement
4. Found flow analysis
5. Cash flow analysis
6. Ratio analysis
The salient features of each of the above steps are discussed below:
1. Comparative statement:
The comparative financial statements are statements of the financial position at different
periods of time. Any statements prepared in a comparative from will be covered in
comparative statements. From practical point of view, generally, two financial statements
(balance sheet and income statement) are prepared in comparative from for financial analysis
purpose. Not only the comparison of the figures of two periods but also be relationship
between balance sheet and income statement enables on depth study of financial position and
operative results.
The comparative statement may show:
(1) Absolute figures (Rupee amounts).
(2) Changes in absolute figures i.e., increase or decrease in absolute figures.
(3) Absolute data in terms of percentage.
(4) Increase or decrease in terms of percentages.

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2. Trend Analysis:
The financial statement may be analyzed by computing trends of series of information. This
method determines the direction upward or downwards and involves the computation of the
percentage relationship that each statement item bears to the same item in base year. The
information for a number of years is taken up and one year, generally the first year, is taken
as a base year. The figures of the base year are taken as 100 and trend ratios for other years
are calculated on the basis of base year.
These tend in the case of GPM or sales turnover are useful to indicate the extent of
improvement or deterioration over a period of time in the aspects considered. The trends in
dividends, EPS, asset growth, or sales growth are some examples of the trends used to study
the operational performance of the companies.
Procedure for calculating trends:
(I) One year is taken as a base year generally; the first or the last is taken as base
year.
(II) The figures of base year are taken as 100.
(III)Trend percentages are calculated in relation to base year. If a figure in other
year is less than the figure in base year the trend percentage will be less than 100 and it
will be more than the 100 it figure is more than the base year figures. Each year's figure is
divided by the base years figure.
3. Common-size statement:
The common-size statements, balance sheet and income statement are shown in analytical
percentage. The figures are shown as percentages of total assets, total liabilities and total
sales. The total assets are taken as 100 and different assets are expressed as a percentage of
the total. Similarly, various liabilities are taken as a part of total liabilities. These statements
are also known as component percentage or 100 percent statements because every individual
item is stated as a percentage of the total 100. The shortcomings in comparative statements
and trend percentages where changes in terms could not be compared with the totals have
been covered up. The analysis is able to assess the figures in relation to total values. The
common size statement may be prepared in the following way.
(i) The total of assets or liabilities are taken as 100
(ii) The individual assets are expressed as a percentage of total assets, i.e., 100 and
different liabilities are calculated in relation to total liabilities. For example, if total
assets are Rs.5 lakhs and inventory value is Rs.50, 000, then it will be 10% of total
assets. (50,000 x 100) / (5,00,000)

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4. Fund flow analysis:
The operation of business involves the conversion of cash in to non-cash assets, which are
recovered in to cash form. The statement showing sources and uses of funds of funds is
properly known as 'Funds Flow Statement'. The changes representing the 'sources of funds' in
the business may be issue of debentures, increase in net worth; addition to funds, reserves and
surplus, relation of earnings.
Changes showing the 'uses of funds' include:
a) Addition to assets - Fixed and Current.
b) Addition to investments.
c) Decreasing in liabilities by paying off loans and creditors.
d) Decrease in net worth by incurring of loans, withdrawal of funds from business
and payment of dividends.
5. Cash Flow analysis:
Cash flow is used for only cash inflow and outflow. The cash flows are prepared from cash
budgets and operation of the company. In cash flows only cash and bank balance are involved
and hence it is a narrower term than the concept of funds flows. The cash flow statement
explains how the dividends are paid, how fixed assets are financed. The analysis had to know
the real cash flow position of company, its liquidity and solvency, which are reflected in the
cash flow position and the statements thereof.
6. Ratio analysis:
The ratio is one of the most powerful tools of financial analysis. It is the process of
establishing and interpreting various ratios (quantitative relationship between figures and
groups of figures). It is with the help of ratios that the financial statements can be analyzed
more clearly and decisions made from such analysis.
Ratio analysis will be meaningful to establish relationship regarding financial performance,
operational efficiency and profit margins with respect to companies over a period of time and
as between companies with in the same industry group.

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The ratios are conveniently classified as follows:
a) Balance sheet ratios or position statement ratios:
(I) Current ratio
(II) Liquid ratio (Acid test ratio)
(III) Debt to equity ratio
(IV) Asset to equity ratio
(V) Capital gearing ratio
(VI) Ratio of current asses to fixed assets etc.
b) Profit & loss Ale ratios or revenue/income statement ratios:
(I) Gross profit ratio
(II) Operating ratio
(III) Net profit ratio
(IV) Expense ratio
(V) Operating profit ratio
(VI) Interest coverage
c) Composite ratios/ mixed or inter statement ratios:
(I) Return on total resources
(II) Return on equity
(III) Turnover of fixed assets
(IV) Turnover of debtors
(V) Return on shareholders’ funds
(VI) Return on total resources

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TECHNICAL ANALYSIS
Technical analysis involves a study of market-generated data like prices and volumes to
determine the future direction of price movement. Technical analysis analyses internal market
data with the help of charts and graphs. Subscribing to the 'castles in the air' approach, they
view the investment game as an exercise in anticipating the behaviour of market participants.
They look at charts to understand what the market participants have been doing and believe
that this provides a basis for predicting future behaviour.
Definition:
"The technical approach to investing is essentially a reflection of the idea that prices move in
trends which are determined by the changing attitudes of investors toward a variety of
economic, monetary, political and psychological forces. The art of technical analysis- for it is
an art - is to identify trend changes at an early stage and to maintain an investment posture
until the weight of the evidence indicates that the trend has been reversed."
-Martin J. Pring.
Charting techniques in technical analysis:
Technical analysis uses a variety of charting techniques. The most popular ones are:
• The Dow theory;
• Bar and line charts;
• The point and figure chart;
• The moving averages line; and
• The relative strength line.
The Dow Theory:
"The market is always considered as having three movements, all going at the same time. The
first is the narrow movement from day to day. The second is the short swing, running from
two weeks to a month or more; the third is the main movement, covering at least four years in
its duration."
- Charles H.DOW
The Dow Theory refers to three movements as:
(a) Daily fluctuations that are random day-to-day wiggles;
(b) Secondary movements or corrections that may last for a few weeks to some months;
(c) Primary trends representing bull and bear phases of the market.

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Bar and line charts
The bar chart is one of the simplest and commonly used tools of technical analysis, depicts
the daily price range along with the closing price. It also shows the daily volume of
transactions. A line chart shows the line connecting successive closing prices.
Point and figure chart:
On a point and figure chart only significant price changes are recorded. It eliminates the time
scale and small changes and condenses the recording of price changes.
Moving average analysis:
A moving average is calculated by taking into account the most recent 'n' observations. To
identify trends technical analysis use moving averages analysis.
Relative strength analysis:
The relative strength analysis is based on the assumption that the prices of some securities
rise rapidly during the bull phase but fall slowly during the bear phase in relation to the
market as a whole. Technical analysts measure relative strength in different ways; a simple
approach calculates rates of return and classifies securities that have superior historical
returns as having relative strength. More commonly, technical analysts look at certain ratios
to judge whether a security or, for that matter, an industry has relative strength.
TECHNICAL INDICATORS:
In addition to charts, which form the mainstay of technical analysis, technicians also use
certain indicators to gauge the overall market situation. They are:
• Breadth indicators
• Market sentiment indicators
BREADTH INDICATORS:
1. The Advance-Decline line:
The advance decline line is also referred as the breadth of the market. Its measurement
involves two steps:
a. Calculate the number of net advances/ declines on a daily basis.
b. Obtain the breadth of the market by cumulating daily net advances/ declines.

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2. New Highs and Lows:
A supplementary measure to accompany breadth of the market is the high-low differential or
index. The theory is that an expanding number of stocks attaining new highs and a dwindling
number of new lows will generally accompany a raising market. The reverse holds true for a
declining market.
MARKET SENTIMENT INDICATORS:
1. Short-Interest Ratio:
The short interest in a security is simply the number of shares that have been sold short but
yet bought back.
The short interest ratio is defined as follows:
volumetradingdailyAveragge
shortsoldsharesofnumberTotal
ratiointerestShort =
2. PUT/CALL RATIO:
Another indicator monitored by contrary technical analysis is the put / call ratio. Speculators
buy calls when they are bullish and buy puts when they are bearish. Since speculators are
often wrong, some technical analysts consider the put / call ratio as a useful indicator. The put
/ call ratio is defined as:
purchasedcallsofNumber
purchasedputsofNumbers
ratioCallPut / =
3. Mutual-Fund Liquidity:
If mutual fund liquidity is low, it means that mutual funds are bullish. So constrains argue
that the market is at, or near, a peak and hence is likely to decline. Thus, low mutual fund
liquidity is considered as a bearish indicator.
Conversely when the mutual fund liquidity is high, it means that mutual funds are bearish. So
constrains believe that the market is at, or near, a bottom and hence is poised to rise. Thus,
high mutual fund liquidity is considered as a bullish indication.

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RANDOM WALK THEORY:
Fundamental analysis tries to evaluate the intrinsic value of the securities by studying the
various fundamental factors about Economy, Industry and company and based on this
information, it categories the securities as wither undervalued or overhauled. Technical
analysis believes that the past behaviour of stock prices gives an indication of the future
behaviour and that the stock price movement is quite orderly and random. But, a new theory
known as Random Walk Theory, asserts that share price movements represent random walk
rather than an orderly movement.
According to this theory, any change in the stock prices IS the result of information about
certain changes in the economy, industry and company. Each price change is independent of
other price changes as each change is caused by a new piece of information. These changes in
stock's prices reveals the fact that all the information on changes in the economy, industry
and company performance is fully reflected in the stock prices i.e., the investors will have full
knowledge about the securities. Thus, the Random Walk Theory is based on the hypothesis
that the Stock Markets are efficient. Hence, later it is known as Efficient Market Hypothesis.
EFFICIENT MARKET HYPOTHESIS:
This theory presupposes that the stock Markets are so competitive and efficient in processing
all the available information about the securities that there is "immediate price adjustment" to
the changes in the economy, industry and company. The Efficient Market Hypothesis model
is actually concerned with the speed with which information is incorporated into the security
prices.
The Efficient Market Hypothesis has three Sub-hypothesis:
Weakly Efficient:
This form of Efficient Market Hypothesis states that the current prices already fully reflect all
the information contained in the past price movements and any new price change is the result
of a new piece of information and is not related. This form is a direct repudiation of technical
analysis.
Semi-Strongly Efficient:
This form of Efficient Market Hypothesis states that the stock prices not only reflect all
historical information but also reflect all publicly available information about the company as
soon as it is received. So, it repudiates the fundamental analysis by implying that there is no
time gap for the fundamental analyst in which he can trade for superior gains, as there is an
immediate price adjustment.

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Strongly Efficient:
This form of Efficient Market Hypothesis states that the market cannot be beaten by using
both publicly available information as well as private or insider information. But, even
though the Efficient Market Hypothesis repudiates both Fundamental and Technical analysis,
the market is efficient precisely because of the organized and systematic efforts of thousands
of analysts undertaking Fundamental and Technical analysis. Thus, the paradox of Efficient
Market Hypothesis is that both the analysis is required to make the market efficient and
thereby validate the hypothesis.
PORTFOLIO MANAGEMENT
Concept of Portfolio:
Portfolio is the collection of securities may be financial or real assets such as equity shares,
debentures, bonds, treasury bills and property etc. portfolio is a combination of assets or it
consists of collection of securities. These holdings are the result of individual preferences,
decisions of the holders regarding risk, return and a host of other considerations.
Portfolio management:
An investor considering investment in securities is faced with the problem of choosing from
among a large number of securities. His choice depends upon the risk return characteristics of
individual securities. He would attempt to choose the most desirable securities and like to
allocate his funds over his group of securities. Again he is faced with the problem of deciding
which securities to hold and how much to invest in each.
The investor faces an infinite number of possible portfolio or group of securities. The risk and
return characteristics of portfolios differ from those of individual securities combining to
form a portfolio. The investor tries to choose the optimal portfolio taking into consideration
the risk-return characteristics of all possible portfolios.
As the economic and financial environment keeps the changing the risk return characteristics
of individual securities as well as portfolio also change. An investor invests his funds in a
portfolio expecting to get a good return with less risk to bear. Portfolio management concerns
the construction and maintenance of a collection of investment. It is investment of funds in
different securities in which the total risk of the Portfolio is minimized while expecting
maximum return from it. It primarily involves reducing risk rather that increasing return.
Return is obviously important though, and the ultimate objective of portfolio manager is to
achieve a chosen level of return by incurring the least possible risk.

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Characteristics of Investment:
The characteristics of investment can be understood in terms of as:
- Return,
- Risk,
- Safety,
- Liquidity etc.
Return: All investments are characterized by the expectation of a return. In fact,
investments are made with the primary objective of deriving return. The expectation
of a return may be from income (yield) as well as through capital appreciation.
Capital appreciation is the difference between the sale price and the purchase price.
The expectation of return from an investment depends upon the nature of investment,
maturity period, and market demand and so on.
Risk: Risk is inherent in any investment. Risk may relate to loss of capital, delay in
repayment of capital, non-payment of return or variability of returns. The risk of an
investment is determined by the investments, maturity period, repayment capacity,
nature of return commitment and so on. Risk and expected return of an investment are
related. Theoretically, the higher the risk, higher is the expected returned. The higher
return is a compensation expected by investors for their willingness to bear the higher
risk.
Safety: The safety of investment is identified with the certainty of return of capital
without loss of time or money. Safety is another feature that an investor desires from
investments. Every investor expects to get back the initial capital on maturity without
loss and without delay.
Liquidity: An investment that is easily saleable without loss of money or time is said
to be liquid. A well developed secondary market for security increases the liquidity of
the investment. An investor tends to prefer maximization of expected return,
minimization of risk, safety of funds and liquidity of investment.

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Investment categories:
Investment generally involves commitment of funds in two types of assets:
- Real assets
- Financial assets
Real assets: Real assets are tangible material things like building, automobiles, land, gold
etc.
Financial assets: Financial assets are piece of paper representing an indirect claim to real
assets held by someone else. These pieces of paper represent debt or equity commitment in
the form of IOUs or stock certificates. Investments in financial assets consist of –
- Securitised (i.e. security forms of) investment
- Non-securities investment
The term ‘securities’ used in the broadest sense, consists of those papers which are
quoted and are transferable. Under section 2 (h) of the Securities Contract
(Regulation) Act, 1956 (SCRA) ‘securities’ include: -
i) Shares, stocks, bonds, debentures, debenture stock or other marketable securities of a like
nature in or of any incorporated company or other body corporate.
ii) Government securities.
iii) Such other instruments as may be declared by the central Government as securities, and;
iv) Rights of interests in securities.

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Investment avenues can be broadly categorized under the following heads:
1. Corporate securities:
. Equity shares, Preference shares
. Debentures/Bonds, GDRs /ADRs
. Warrants, Derivatives
2. Deposits in banks and non banking companies
3. Post office deposits and certificates
4. Life insurance policies
5. Provident fund schemes
6. Government and semi government securities
7. Mutual fund schemes
8. Real assets.
FEATURES OF PORTFOLIO MANAGEMENT:
The objective of portfolio management is to invest in securities in such a way that one
maximizes one's return and minimizes risks in order to achieve one's investment objective.
1) SAFETY OF THE INVESTMENT: The first important objective investment safety or
minimization of risks is of the important objective of portfolio management. There are many
types of risks. Which are associated with investment in equity socks, including super stock.
There is no such thing called Zero-risk investment. Moreover relatively low - risk
investment gives corresponding lower returns.
2) STABLE CURRENT RETURNS: Once investment safety is guaranteed, the portfolio should
yield a steady current income. The current returns should at least match the opportunity cost
of the funds of the investor. What we are referring to here is current income by of interest or
dividends, not capital gains.

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3) APPRECIATION IN THE VALUE OF CAPITAL: A good portfolio should appreciate
in value in order to protect the investor from erosion in purchasing power due to inflation. In
other words, a balance portfolio must consist if certain investment, which tends to appreciate
in real value after adjusting for inflation.
4) MARKETABILITY: A good portfolio consists of investment, which can be marketed
without difficulty. If there are too many unlisted or inactive share in your portfolio, you will
face problems in enchasing them, and switching from one investment to another. It is
desirable to invest in companies listed on major stock exchanges, which are actively traded.
5) LIQUIDITY: The portfolio should ensure that there are enough funds available at the short
notice to take of the investor's liquidity requirements.
6) TAX PLANNING: Since taxation is an important variable in total planning, a good portfolio
should let its owner enjoy favourable tax shelter. The portfolio should be developed
considering income tax, but capital gains, gift tax too. What a good portfolio aims at is tax
planning, not tax evasion or tax avoidance.
Functions of Portfolio Manager
The main functions of portfolio manager are:
Advisory role:
He advises new investments, review of existing ones, identification of objectives,
recommending high yield securities etc.
Conducting Market and Economic Surveys:
There is essential for recommending high yielding securities, they have to study the current
physical properties, budget proposals, industrial policies etc. Further portfolio manager
should take into account the credit policy, industrial growth, foreign exchange position,
changes in corporate laws etc.
FINANCIAL ANALYSIS
He should evaluate the financial statements of a company in order to understand their net
worth, future earnings, prospects and strengths.
STUDY OF STOCK MARKET
He should see the trends of at various stock exchanges and analyze scripts, so that he is able
to identify the right securities for investments.
STUDY OF INDUSTRY
To know its future prospects, technological changes etc. required for investment proposals he
should also foresee the problems of the industry.

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DECIDE THE TYPE OF PORTFOLIO
Keeping in the mind the objectives of a portfolio, the portfolio manager have to decide
whether the portfolio should comprise equity, preference shares, debentures convertible, non-
convertible or partly convertible, money market securities etc. or a mix of more than one
type.
A good portfolio manager should ensure that:
• There is optimum mix of portfolios i.e. securities.
• To strike a balance between the cost of funds and the average return on investments.
• Balance is struck as between the fixed income portfolios and dividend bearing
securities.
• Portfolios of various industries are diversified / To decide the type of investment.
• Portfolios are reviewed periodically for better management and returns./ Any right or
bonus prospects in a company are taken into account.
• Better tax planning is there.
• Liquidity assets are maintained/ Transaction costs are minimized.
PORTFOLIO MANAGEMENT PROCESS:
Portfolio management IS a complex activity, which may be broken down into the following
steps:
1. SPECIFICATION OF INVESTMENT OBJECTIVES AND CONSTRAINTS:
The first step in the portfolio management process is to specify one's investment objectives
and constraints. The commonly stated investment goals are:
a) Income
b) Growth
c) Stability
The constraints arising from liquidity, time horizon, tax and special circumstances must be
identified.
2. CHOICE OF ASSET MIXES:
The most important decision in portfolio management is the asset mix decision. Very
broadly, this is concerned with the proportions of 'stocks' and 'bonds' in the portfolio.
3. FORMULATION OF PORTFOLIO STRATEGY:
Once a certain asset mix is chosen, an appropriate portfolio strategy has to be hammered out.
Two broad choices are available an active portfolio strategy or a passive portfolio strategy.
An active portfolio strategy strives to earn superior risk adjusted returns by resorting to
market timing, or sector rotation, or security selection, or some combination of these. A
passive portfolio strategy, on the other hand, involves holding a broadly diversified portfolio
and maintaining a pre-determined level of risk exposure.

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4. SELECTION OF SECURITIES:
Generally, investors pursue an active stance with respect to security selection. For stock
selection, investors commonly go by fundamental analysis and or technical analysis. The
factors that are considered in selecting bonds are yield to maturity, credit rating, term to
maturity, tax shelter and liquidity.
5. PORTFOLIO EXECUTION:
This is the phase of portfolio management which is concerned with implementing the
portfolio plan by buying and or selling specified securities in given amounts.
6. PORTFOLIO REVISION:
The value of a portfolio as well as its composition - the relative proportions of stock and bond
components - may change as stocks and bonds fluctuate. In response to such changes,
periodic rebalancing of the portfolio is required. This primarily involves a shift from stocks to
bonds or vice-versa. In addition, it may call for sector rotation as well as security switches.
7. PERFORMANCE EVALUATION:
The performance of a portfolio should be evaluated periodically. The key dimensions of
portfolio performance evaluation are risk and return and the key issue is whether the portfolio
return is commensurate with its risk exposure.
A PORTFOLIO MANAGEMENT HAS BEEN CHARACTERIZED
Tradition portfolio theory
Modern portfolio theory
Tradition portfolio theory:
This theory aims at the selection of such securities that would fit in well with the asset
preferences, needs and choices of investor. Thus, a retired executive invest in fixed income
securities for a regular and fixed return. A business executive or a young aggressive investor
on the other hand invests in new and growing companies and in risky ventures.
Modern portfolio theory:
This theory suggests that the traditional approach to portfolio analysis, selection and
management may yield less than optimal result that a more scientific approach is needed
based on estimates of risk and return of the portfolio and attitudes of the investor towards a
risk return trade off steaming from the analysis of the individual securities.

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In this regard India after government policy of liberalization has unleashed foreign market
forces. Forces that have a direct impact on the capital markets. An individual investor can't
easily monitor these complex variables in the securities market because of lack of time,
information and know-how. That is when investors look in to alternative investment options;
once such option is mutual funds. But in the recent times investor has lost faith in this type
investment and has turned towards portfolio investment.
With portfolio investment gaining popularity it has emphasized on having a proper portfolio
theory to meet the needs of the investor and operate in the capital market using through
scientific analysis and backed by dependable market investigations to minimize risk and
maximize returns.
The scientific analysis of risk and return is modern portfolio theory and Markowitz laid the
foundation of this theory in 1951. He began with the simple observation that since almost all
investors invests in several securities rather that in just one, there must be some benefit from
investing in a portfolio of several securities.

79
SEBI GUIDELINES TO THE PORTFOLIO MANAGERS:
On 7th January 1993 securities exchange board of India issued regulations to the portfolio
managers for the regulation of portfolio management services by merchant bankers. They are
as follows:
• Portfolio management services shall be in the nature of investment or consultancy
management for an agreed fee at client's risk.
• The portfolio manager shall not guarantee return directly or indirectly the fee should not
be depended upon or it should not be return sharing basis.
• Various terms of agreements, fees, disclosures of risk and repayment should be
mentioned.
• Client's funds should be kept separately in client wise account, which should be subject to
audit.
• Manager should report clients at intervals not exceeding 6 months.
• Portfolio manager should maintain high standard of integrity and not desire any benefit
directly or indirectly form client's funds.
• The client shall be entitled to inspect the documents.
• Portfolio manager should maintain high standard of integrity and not desire any benefit
directly or indirectly form client's funds.
• The client shall be entitled to inspect the documents.
• Portfolio manager shall not invest funds belonging to clients in badla financing, bills
discounting and lending operations.
• Client money can be invested in money and capital market instruments.
• Settlement on termination of contract as agreed in the contract.
• Client's funds should be kept in a separate bank account opened in scheduled commercial
bank.
• Purchase or Sale of securities shall be made at prevailing market price.
• Portfolio managers with his client are fiduciary in nature. He shall act both as an agent
and trustee for the funds received.

80
PORTFOLIO SELECTION
Portfolio analysis provides the input for the next phase in portfolio management, which is
portfolio selection. The proper goal of portfolio construction is to get high returns at a given
level of risk. The inputs from portfolio analysis can be used to identify the set of efficient
portfolios. From this set of portfolios, the optimal portfolio has to be selected for investment.
MARKOWITZ MODEL
Harry M. Markowitz is credited with introducing new concept of risk measurement and their
application to the selection of portfolios. He started with the idea of risk aversion of investors
and their desire to maximize expected return with the least risk. Markowitz used
mathematical programming and statistical analysis in order to arrange for .the optimum
allocation of assets within portfolio. To reach this objective, Markowitz generated portfolios
within a reward-risk context. In other words, he considered the variance in the expected
returns from investments and their relationship to each other in constructing portfolios. In
essence, Markowitz's model is a theoretical framework for the analysis of risk return choices.
Decisions are based on the concept of efficient portfolios.
A portfolio is efficient when it is expected to yield the highest return for the level of risk
accepted or, alternatively, the smallest portfolio risk or a specified level of expected return.
To build an efficient portfolio an expected return level is chosen, and assets are substituted
until the portfolio combination with the smallest variance at the return level is found. As this
process is repeated for other expected returns, set of efficient portfolios is generated.
Assumptions:
The Markowitz model is based on several assumptions regarding investor behaviour:
i) Investors consider each investment alternative as being represented by a
probability distribution of expected returns over some holding period.
ii) Investors maximize one period-expected utility and possess utility curve,
which demonstrates diminishing marginal utility of wealth.
iii) Individuals estimate risk on the basis of the variability of expected returns.
iv) Investors base decisions solely on expected return and variance (or standard
deviation) of returns only.
v) For a given risk level, investors prefer high returns to lower returns. Similarly,
for a given level of expected return, investor prefer less risk to more risk.
Under these assumptions, a single asset or portfolio of assets is considered to be "efficient" if
no other asset or portfolio of assets offers higher expected return with the same (or lower)
risk or lower risk with the same (or higher) expected return.

81
MARKOWITZ DIVERSIFICATION
Markowitz postulated that diversification should not only aim at reducing the risk of a
security by reducing its variability or standard deviation but by reducing the covariance or
interactive risk of two or more securities in a portfolio. As by combination of different
securities, it is theoretically possible to have a range of risk varying from zero to infinity.
Markowitz theory of portfolio diversification attached importance to standard deviation to
reduce it to zero, if possible.
CAPITAL MARKET THEORY
The CAPM was developed in mid-1960, the model has generally been attributed to William
Sharpe, but John Linter and Jan Mossin made similar independent derivations. Consequently,
the model is often referred to as Sharpe-Linter-Mossin (SLM) Capital Asset Pricing Model.
The CAPM explains the relationship that should exist between securities expected returns and
their risks in terms of the means and standard deviations about security returns. Because of
this focus on the mean and standard deviation the CAPM is a direct extension of the portfolio
models developed by Markowitz and Sharpe.
Capital Market Theory is an extension of the portfolio theory of Markowitz. This is an
economic model describes how securities are priced in the market place. The portfolio theory
explains how rational investors should build efficient portfolio based on their risk return
preferences. Capital Asset Pricing Model (CAPM) incorporates a relationship, explaining
how assets should be priced in the capital market.
ASSUMPTIONS OF CAPITAL MARKET THEORY:
The CAPM rests on eight assumptions. The first 5 assumptions are those that underlie the
efficient market hypothesis and thus underlie both modern portfolio theory (MPT) and the
CAPM. The last 3 assumptions are necessary to create the CAPM from MPT. The eight
assumptions are the following:
1) The Investor's objective is to maximize the utility of terminal wealth.
2) Investors make choices on the basis of risk and return.
3) Investors have homogeneous expectations of risk and return.
4) Investors have identical time horizon.
5) Information is freely and simultaneously available to investors.
6) There is a risk-free asset, and investors can borrow and lend unlimited amounts at the
risk-free rate.
7) There are no taxes, transaction costs, restrictions on short rates or other market
imperfections.
8) Total asset quantity is fixed, and all assets are marketable and divisible.

82
PORTFOLIO ANALYSIS
A Portfolio is a group of securities held together as investment. Investors invest their funds in
a portfolio of securities rather than in a single security because they are risk averse. By
constructing a portfolio, investors attempts to spread risk by not putting all their eggs into one
basket. Portfolio phase of portfolio management consists of identifying the range of possible
portfolios that can be constituted from a given set of securities and calculating their return
and risk for further analysis.
Individual securities in a portfolio are associated with certain amount of Risk & Returns.
Once a set of securities, that are to be invested in, are identified based on Risk-Return
characteristics, portfolio analysis is to be done as next step as the Risk & Return of the
portfolio is not a simple aggregation of Risk & Returns of individual securities but, somewhat
less or more than that. Portfolio analysis considers the determination of future Risk & Return
in holding various blends of individual securities so that right combinations giving higher
returns at lower risk, called Efficient Portfolios, can be identified so as to select an optimum
one out of these efficient portfolios can be selected in the next step.

83
Expected Return of a Portfolio:
It is the weighted average of the expected returns of the individual securities held in the
portfolio. These weights are the proportions of total investable funds in each security.
ii
n
1I
RxRp ∑=
=
RP = Expected return of portfolio
N = No. of Securities in Portfolio
X I = Proportion of Investment in Security i
Ri = Expected Return on security i
Risk Measurement
Risk: Risk is inherent in any investment. Risk may relate to loss of capital, delay in
repayment of capital, non-payment of return or variability of returns. The risk of an
investment is determined by the investments, maturity period, repayment capacity, nature of
return commitment and so on. Risk and expected return of an investment are related.
Theoretically, the higher the risk, higher is the expected returned. The higher return is a
compensation expected by investors for their willingness to bear the higher risk.
The statistical tool often used to measure and used as a proxy for risk is the standard
deviation.
N
1i
2
E(r))-(rip
=
Σ=σ
2
N
2
E(r))-ri(p)(ceVarian Σ=σ
)(VarianceHere 2
σ=σ
P = is the probability of security
N = Number of securities in portfolio
ri = Expected return on security i

84
PRACTICAL STUDY OF SOME SELECTED SCRIPS
PORTFOLIO - A PORTFOLIO – B
BHEL WIPRO
RELIANCE INDUSTRY JINDAL STEEL

85
CALCULATION OF RETUN AND RISK:
N
R
(Ri)ERETURNEXPECTED iΣ
=
PORTFOLIO-A
BHARAT HEAVY ELECTRICALS LIMITED (BHEL):
DATE SHARE PRICE (X) (X-X') (X-X')2
31/07/2013 871.60 -24.72 611.0784
30/07/2013 858.85 -37.47 1404.001
29/07/2013 885.60 -10.72 114.9184
26/07/2013 889.90 -6.42 41.2164
25/07/2013 890.85 -5.47 29.9209
24/07/2013 908.60 12.28 150.7984
23/07/2013 909.10 12.78 163.3284
22/07/2013 908.50 12.18 148.3524
19/07/2013 923.15 26.83 719.8489
18/07/2013 917.05 20.73 429.7329
EXPECTED RETURN = 8963.20/10 = 896.32 =X’
(X-X') 2
= 3813.196
RISK = 3813.196 = 61.751

86
RELIANCE INDUSTRY LTD.
31/07/2013 437.30 40.355 1628.526
30/07/2013 419.75 22.805 520.068
29/07/2013 408.50 11.555 133.518
26/07/2013 382.80 -14.145 200.081
25/07/2013 376.25 -20.695 428.283
24/07/2013 391.95 -4.995 24.950
23/07/2013 384.20 -12.745 162.435
22/07/2013 392.95 -3.995 15.960
19/07/2013 390.75 -6.195 38.378
18/07/2013 385.00 -11.945 142.683
EXPECTED RETURN = 3969.45/10 = 396.945 =X’
(X-X') 2
= 3294.882
RISK = 3294.882 = 57.401

87
PORTFOLIO – B
WIPRO
31/07/2013 199.60 -4.285 18.361
30/07/2013 202.25 -1.635 2.673
29/07/2013 199.35 -4.535 20.556
26/07/2013 190.05 -13.835 191.407
25/07/2013 196.75 -7.135 50.908
24/07/2013 201.95 -1.935 3.744
23/07/2013 210.35 6.465 41.796
22/07/2013 211.35 7.465 55.726
19/07/2013 210.60 6.715 45.091
18/07/2013 216.60 12.715 161.671
EXPECTED RETURN = 2038.85/10 = 203.885 = X’
(X-X') 2
= 591.945
RISK = 591.945 = 24

88
JINDAL STEEL Ltd.
31/07/2013 158.25 -5.50 30.25
30/07/2013 152.65 -11.10 123.21
29/07/2013 156.95 -6.80 46.24
26/07/2013 158.80 -4.95 24.50
25/07/2013 158.60 -5.15 26.52
24/07/2013 163.00 -0.75 0.56
23/07/2013 165.10 1.35 1.82
22/07/2013 161.50 -2.25 5.06
19/07/2013 173.75 10 100.00
18/07/2013 188.90 25.15 632.52
EXPECTED RETURN = 1637.5/10 = 163.75 = X’
(X-X') 2
= 990.695
RISK = 990.695 = 31.47

89
PORTFOLIO-A
THE RISK AND RETURN OF EACH COMPANY
IN PORTFOLIO A IS:
SL .No COMPANY RETURN RISK
1 BHEL 896.32 61.751
2 RELIANCE ENERGY 396.94 57.401
PORTFOLIO-B
THE RISK AND RETURN OF EACH COMPANY
IN PORTFOLIO ‘B’ IS:
SI. No COMPANY RETURN RISK
1 WIPRO 203.88 24.000
2 JINDAL STEEL 163.75 31.470

90
INTERPERATION
From the above figures, it is clear that in total there is a high return on portfolio ‘A’
companies when compared with portfolio B companies. But at the same time if we compare
the risk it is clear that risk is less for companies in portfolio B when compared with portfolio
‘A’ companies. As per the Markowitz an efficient portfolio is one with “Minimum risk,
maximum profit” therefore, it is advisable for an investor to work out his portfolio in such a
way where he can optimize his returns by evaluating and revising his portfolio on a
continuous basis.

91
CONCLUSIONS
Portfolio is collection of different securities and assets by which we can satisfy the basic
objective "Maximize yield minimize risk. Further we have to remember some important
investing rules which are:
• Investing rules to be remembered.
• Don't speculate unless it's full-time job.
• Beware of barbers, beauticians, waiters-of anyone -bringing gifts of inside
information or tips.
• Before buying a security, it’s better to find out everything one can about the company,
its management and competitors, its earnings and possibilities for growth.
• Don't try to buy at the bottom and sell at the top. This can't be done-except by liars.
• Learn how to take your losses and cleanly. Don't expect to be right all the time. If you
have made a mistake, cut your losses as quickly as possible
• Don't buy too many different securities. Better have only a few investments that can
be watched.
• Make a periodic reappraisal of all your investments to see whether changing
developments have altered prospects.
• Study your tax position to known when you sell to greatest advantages.
• Always keep a good part of your capital in a cash reserve. Never invest all your funds.
• Don't try to be jack-off-all-investments. Stick to field you known best.
• Purchasing stocks you do not understand if you can't explain it to a ten year old, just
don't invest in it.
• Over diversifying: This is the most oversold, overused, logic-defying concept among
stockbrokers and registered investment advisors.
• Not recognizing difference between value and price: This goes along with the failure
to compute the intrinsic value of a stock, which are simply the discounted future
earnings of the business enterprise.
• Failure to understand Mr. Market: Just because the market has put a price on a
business does not mean it is worth it. Only an individual can determine the value of an
investment and then determine if the market price is rational.
• Failure to understand the impact of taxes: Also known as the sorrows of
compounding, just as compounding works to the investor's long-term advantage, the
burden of taxes because of excessive trading works against building wealth.
• Too much focus on the market whether or not an individual investment has merit and
value has nothing to do with that the overall market is doing.

92
BIBLIOGRAPHY
BOOKS:
1. Investment and Portfolio Management (By Prasanna Chandra)
2. Investment Management (By V.K. Bhalla)
INTERNET:
1. www.indiainfoline.com
2. www.iiflfinance.com
3. www.ftweb.indiainfoline.com
4. www.flame.com
5. www.moneycontrol.com
6. www.wikipedia.com

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