SAPM - M1

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Module 1

Presented by : Omkar

Security Analysis and Portfolio

Management

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Concept of Investment

What is Investment..?

The money you earn is partly spent and partly saved for meeting

future expenses. Instead of keeping the savings idle you may to get

return on it in the future.

Saving your money (i.e. differ your consumption) into some

opportunity with an expectation of earning some returns within

stipulated amount of time is called investment.

One needs to invest in order to:

Earn return on your idle resources

Generate a specified sum of money for a specific goal in life

Make a provision for an uncertain future

Types of Investors

Individuals

Institutions

Government

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nves men ec vesCharacteristic Principle objective of investment are

1. Safety

2. Growth (Capital AppreciationROI)

3. Steady income

4. Tax shelter

5. Inflation

6. Liquidity

Attribute of investment

Rate of return Risk

Marketability

Tax shelter

Convenience/ Liquidity

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Investment Alternatives

(Types of Investment)

Financial forms Non Financial

Equities (Shares) Real estate

Mutual funds Precious metals

Bonds Antiques, Fine arts and Coins

Deposits, KVP, NSC

Insurance

Liquid Fund/Money Market

Instruments

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Equities Blue chip

Growth Shares

Defensive Shares

Income Shares Cyclical Shares

Bonds G-Sec (Gilt Securities)

Bonds & Debentures Money Market Instruments

Treasury Bills

CP/CD

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Fixed Income Securities Fixed Deposit KVP/NSC

Real Estate (Realty) Commercial Properties

Resort/Home Life Insurance Policies

Money Back

ULIP

Childrens Education Plan

Precious Metals Gold/Silver Copper

Arts and Antiques Precious Stones

Art

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Classification of Financial Market

Nature of

Claims

Debt

(Creditors)

Equity(Owners)

Maturity of

Claims

Money Market(Short Term)

Capital Market(Long Term)

Seasoning

of Claims

PrimaryMarkets

(New Issues)

Secondary

Markets(Trading)

Timing of

Delivery

Spot/ Cash(Immd.Delivery)

Future/Forward(Fut. Delivery)

Structure

ETM

OTC

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Investment means to place a portion of your

money in investment alternatives in order toobtain a return.

Speculation: Speculation is a financial action that

does not promise safety of the initial investment

along with the return on the principal sum and ismostly done on the basis of borrowed fund.Investment (Investor) Speculation (Speculator)

Long term horizon Short term horizon

Moderate risk High risk

Moderate returns High returns

Fundamental and technical analysis Market condition

Own funds Borrowed funds

Investment Vs Speculation

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BSE Sensitive & NSE Indices

What is an IndexAn Index is a statistical measure of change in an

economy or a securities market.

In the case of financial markets, an index is an

imaginary portfolio (combination ) of securitiesrepresenting a particular market or a portion of it.

Each index has its own calculation methodology

and is usually expressed in terms of a change from

a base value.Example: BSE Sensex; NSE Nifty; S&P; Dow Jones;

Nikke

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The Barometer of Indian Capital

Markets

The S&P BSE SENSEX (S&P Bombay Stock

Exchange Sensitive Index), also-called the BSE

30 or simply the SENSEX, is an index computed

using 30 well-established and financially soundcompanies listed on BSE Ltd.

The 30 component companies which are some of

the largest and most actively traded stocks, are

representative of various industrial sectors of theIndian economyParticulars Details

Base Year 1978-79

Base Index Value 100

Date of Launch 1stJanuary 1986

Number of Scrips 30

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HDFC Finance & Banking

CIPLA LTD. Healthcare

BHEL Capital Goods

STATE BANK Finance & Banking

DR.REDDY'S Healthcare

HDFC BANK Finance & Banking

HEROMOTOCO Transport Equipments

INFOSYS LTD Information Technology

SESA GOA Metal Products & Mining

ONGC CORPN Oil & Gas

RELIANCE Oil & Gas

TATA POWER Power

HINDALCO Metal Products & Mining

TATA STEEL Metal Products & Mining

LARSEN & TOUBRO Capital Goods

MAH & MAH Transport Equipments

TATA MOTORS Transport Equipments

HIND UNI LT FMCG

ITC LTD. FMCG

WIPRO LTD. Information Technology

SUN PHARMA. Healthcare

GAIL (I) LTD Oil & Gas

ICICI BANK Finance & Banking

JINDAL STE Metal Products & Mining

BHARTI ARTL Telecom

MARUTISUZUK Transport Equipments

TCS LTD. Information Technology

NTPC LTD Power

BAJAJ AUTO Transport Equipments

COAL INDIA Metal Products & Mining

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S&P BSE SENSEX - Calculation

S&P BSE SENSEX is calculated using the "Free-floatMarket Capitalization" methodology, wherein, the

level of index at any point of time reflects the free-

float market value of 30 component stocks relative to

a base period.

The market capitalization of a company is determined

by multiplying the price of its stock by the number of

shares issued by the company.

Due to its wide acceptance amongst the investors;

S&P BSE SENSEX is regarded to be the pulse of the

Indian stock market.

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-Calculation

Free-float methodology refers to an indexconstruction methodology that takes into

consideration only the free-float market

capitalization of a company for the purpose of

index calculation and assigning weight to stocksin the index.

Free-float market capitalization takes into

consideration only those shares issued by the

company that are readily available for trading inthe market.

It generally excludes promoters' holding,

government holding, strategic holding and other

locked-in shares that will not come to the market

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S&P BSE SENSEX -

Calculation

BSE has designed a Free-float format, which isfilled and submitted by all index companies on a

quarterly basis.

BSE determines the Free-float factor for each

company based on the detailed information

submitted by the companies in the prescribed

format. Free-float factor is a multiple with which the

total market capitalization of a company is adjusted

to arrive at the Free-float market capitalization.

Once the Free-float of a company is determined,

each company is categorized into one of the 20

bands.

A Free-float factor of sa 0.55 means that onl 55%

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Free Float Bands% Free-Float Free-Float Factor % Free-Float Free-Float Factor

>0 - 5% 0.05 >50 - 55% 0.55

>5 - 10% 0.10 >55 - 60% 0.60

>10 - 15% 0.15 >60 - 65% 0.65

>15 - 20% 0.20 >65 - 70% 0.70

>20 - 25% 0.25 >70 - 75% 0.75

>25 - 30% 0.30 >75 - 80% 0.80

>30 - 35% 0.35 >80 - 85% 0.85

>35 - 40% 0.40 >85 - 90% 0.90

>40 - 45% 0.45 >90 - 95% 0.95

>45 - 50% 0.50 >95 - 100% 1.00

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S&P BSE SENSEX - Scrip

Selection Criteria

1. Equities of companies listed on BSE Ltd & NSELtd

2. Listing History: The scrip should have a listing

history of at least three months at BSE & NSE

3. The stock should have been traded on each

and every trading day in the last three months

at BSE

4. Companies that have reported revenue in thelatest four quarters from its core activity are

considered eligible.

5. Top 75 companies based on free-float market

capitalization are selected

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S&P BSE SENSEX - Scrip

Selection Criteria

The Index Committee meets every quarter toreview all the BSE & NSE indices including S&P

BSE SENSEX & Nifty50

In case of a revision in the Index constituents,

the announcement of the incoming and outgoing

scrip's is made six weeks in advance of the actual

implementation of the replacements in the Index.

Frequency of BSE SENSEX calculation done

?

During market hours, prices of the index scrip's, at

which trades are executed, are automatically used

for calculation of SENSEX and disseminated every

2 seconds and continuously updated on all trading

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S&P BSE 100

S&P BSE 200

S&P BSE 500

S&P BSE AUTO

S&P BSE BANKEX

S&P BSE CAPITAL GOODS

S&P BSE CARBONEX

S&P BSE CONSUMER DURABLES

S&P BSE FMCG

S&P BSE GREENEX

S&P BSE HEALTHCARE

S&P BSE IPO

S&P BSE IT

S&P BSE METAL

S&P BSE MID CAP

S&P BSE OIL & GAS

S&P BSE POWER

S&P BSE PSU

S&P BSE REALTY

S&P BSE SENSEX

S&P BSE SMALL CAP

S&P BSE SME IPO

S&P BSE TECK

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Dollex 30 & CNX Difty 50

The S&P BSE Sensex and the CNX Nifty are the barometers

of the Indian equity markets.

The top 30 companies in terms of market capitalization

constitute the Sensex and in the Nifty, it is the top 50

companies.

The indices Sensex and the Nifty have dollar-term versions ofthemselves

BSE Ltds Dollex-30 and National Stock Exchanges Defty

are indices that are adjusted for exchange rate movements

between the dollar and rupee.

The constituents remain the same and so do the weightage

of the stocks in the indices.

These indices were developed by the exchanges to provide

a benchmark to foreign institutional investors (FIIs) and off-

shore funds, to provide them with an instrument for

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Construction of Stock Market

Index

Importance of an Index

Comparison to judge performance

Evaluate alternative investments

Measure market Rate of Return

Predict Market movements

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Construction of Stock Market Index

Factors Affecting the Index Construction Sample Size

Representative

Base Year

Weight Criterias

Convenient Units

Uniform Definition

Economical

Timeliness

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RBI Index of Security Prices

The Reserve Bank of India started compilingindices of security prices in 1949. These were

classified under the following heads:

Government and Semi-government securities;

Debentures of companies; and

Equity shares of companies

Presently, the RBI compiles the indices of prices

of equity shares of companies only and has

discontinued such compilation in respect of

debentures and government securities

RBI series covers 338 equity shares (base 1980-

81 = 100)

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Bond Indices or Bond Index

What is a bond index?It is an index used to measure the performance of

bonds based on the market value that form a part of

the index.

What are the various types of bond indices?Such an index may comprise government securities,

corporate bonds, high-yield bonds, etc.

Which are some of the well- known bond market

indices?

Popular ones include the

Barclays Capital Aggregate bond Index,

JP Morgan government bond index,

Merrill Lynch domestic master

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Bond Indices or Bond Index

1. CRISIL - AMFI Gilt Fund Performance IndexCRISIL - AMFI Income Fund Performance Index

seeks to track the performance of the gilt funds.

2. CRISIL - AMFI Short Term Debt Fund Performance

Index seeks to track the performance of the shortterm debt funds.

3. CRISIL - AMFI Liquid Fund Performance Index

seeks to track the performance of the liquid funds

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Thank you(Questions..??)

Documents

SAPM - M1