UNIT - I

INTRODUCTION
Brief Description about the project:
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The
earliest records of security dealings in India are meager and obscure. The East India Company was the
dominant institution in those days and business in its loan securities used to be transacted towards the
close of the eighteenth century. By 1830's business on corporate stocks and shares in Bank and Cotton
presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers recognized by banks and merchants during 1840 and 1850.The 1850's witnessed a rapid
development of commercial enterprise and brokerage business attracted many men into the field and
by 1860 the number of brokers increased into 60.In 1860-61 the American Civil War broke out and
cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The
number of brokers increased to about 200 to 250.However, at the end of the American Civil War, in
1865, adisastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could
only be sold at Rs. 87).At the end of the American Civil War, the brokers who thrived out of Civil War in
1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently
assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and
Stock Brokers' Association" (which is alternatively known as "The Stock Exchange "). In 1895, the Stock
Exchange acquired a premise in the same street and it was

We all dream of beating the market and being super investors and spend an inordinate amount of time
and resources in this endeavor. Consequently, we are easy prey for the magic bullets and the secret
formulae offered by eager salespeople pushing their wares. In spite of our best efforts, most of us fail in
our attempts to be more than average investors. Nonetheless, we keep trying, hoping that we can be
more like the investing legends – another Warren Buffett or Peter Lynch. We read the words written by
and about successful investors, hoping to find in them the key to their stock-picking abilities, so that we
can replicate them and become wealthy quickly.

In our search, though, we are whipsawed by contradictions and anomalies. In one corner of the
investment townsquare, stands one advisor, yelling to us to buy businesses with solid cash flows and
liquid assets because thats what worked for Buffett. In another corner, another investment expert
cautions us that this approach worked only in the old world, and that in the new world of technology,
we have to bet on companies with solid growth prospects. In yet another corner, stands a silver tongued
salesperson with vivid charts and presents you with evidence of his capacity to get you in and out of
markets at exactly the right times. It is not surprising that facing this cacophony of claims and
counterclaims that we end up more confused than ever.

In this introduction, we present the argument that to be successful with any investment strategy, you
have to begin with an investment philosophy that is consistent at its core and which matches not only
the markets you choose to invest in but your individual characteristics. In other words, the key to
success in investing may lie not in knowing what makes Peter Lynch successful but in finding out more
about yourself.

What is an investment philosophy?

 An investment philosophy is a coherent way of thinking about markets, how they work (and
sometimes do not) and the types of mistakes that you believe consistently underlie investor behavior.
Why do we need to make assumptions about investor mistakes? As we will argue, most investment
strategies are designed to take advantage of errors made by some or all investors in pricing stocks.
Those mistakes themselves are driven by far more basic assumptions about human behavior. To provide
an illustration, the rational or irrational tendency of human beings to join crowds can result in price
momentum – stocks that have gone up the most in the recent past are more likely to go up in the near
future. Let us consider, therefore, the ingredients of an investment philosophy.

Human Frailty

Underlying all investment philosophies is a view about human behavior. In fact, one weakness of
conventional finance and valuation has been the short shrift given to human behavior. It is not that we
(in conventional finance) assume that all investors are rational, but that we assume that irrationalities
are random and cancel out. Thus, for every investor who tends to follow the crowd too much (a
momentum investor), we assume an investor who goes in the opposite direction (a contrarian), and that
their push and pull in prices will ultimately result in a rational price. While this may, in fact, be a
reasonable assumption for the very long term, it may not be a realistic one for the short term.

Academics and practitioners in finance who have long viewed the rational investor assumption with
skepticism have developed a new branch of finance called behavioral finance which draws on
psychology, sociology and finance to try to explain both why investors behave the way they do and the
consequences for investment strategies. As we go through this section, examining different investment
philosophies, we will try at the outset of each philosophy to explore the assumptions about human
behavior that represent its base.

Market Efficiency

A closely related second ingredient of an investment philosophy is the view of market efficiency
or its absence that you need for the philosophy to be a successful one. While all active investment
philosophies make the assumption that markets are inefficient, they differ in their views on what parts
of the market the inefficiencies are most likely to show up and how long they will last. Some investment
philosophies assume that markets are correct most of the time but that they overreact when new and
large pieces of information are released about individual firms – they go up too much on good news and
down too much on bad news. Other investment strategies are founded on the belief that markets can
make mistakes in the aggregate – the entire market can be under or overvalued – and that some
investors (mutual fund managers, for example) are more likely to make these mistakes than others. Still
other investment strategies may be based on the assumption that while markets do a good job of
pricing stocks where there is a substantial amount of information – financial statements, analyst reports
and financial press coverage –they systematically misprice stocks on which such information is not
available.

Tactics and Strategies

 Once you have an investment philosophy in place, you develop investment strategies that build
on the core philosophy. Consider, for instance, the views on market efficiency expounded in the last
section. The first investor, who believes that markets over react to news, may develop a strategy of
buying stocks after large negative earnings surprises (where the announced earnings come in well below
expectations) and selling stocks after positive earnings surprises. The second investor who believes that
markets make mistakes in the aggregate may look at technical indicators (such as mutual fund cash
positions and short sales ratios) to find out whether the market is over bought or over sold and take a
contrary position. The third investor who believes that market mistakes are more likely when
information is absent may look for stocks that are not followed by analysts or owned by institutional
investors.

It is worth noting that the same investment philosophy can spawn multiple investment
strategies. Thus, a belief that investors consistently overestimate the value of growth and under
estimate the value of existing assets can manifest itself in a number of different strategies ranging from
a passive one of buying low PE ratio stocks to a more active one of buying such companies and
attempting to liquidate them for their assets. In other words, the number of investment strategies will
vastly outnumber the number of investment philosophies.

Why do you need an investment philosophy?

Most investors have no investment philosophy, and the same can be said about many money
managers and professional investment advisors. They adopt investment strategies that seem to work
(for other investors) and abandon them when they do not. Why, if this is possible, you might ask, do you
need an investment philosophy? The answer is simple. In the absence of an investment philosophy, you
will tend to shift from strategy to strategy simply based upon a strong sales pitch from a proponent or
perceived recent success. There are three negative consequences for your portfolio:

a. Lacking a rudder or a core set of beliefs, you will be easy prey for charlatans and pretenders,
with each one claiming to have found the magic strategy that beats the market.

b. As you switch from strategy to strategy, you will have to change your portfolio, resulting in high
transactions costs and you will pay more in taxes.

c. While there may be strategies that do work for some investors, they may not be appropriate for
you, given your objectives, risk aversion and personal characteristics. In addition to having a
portfolio that under performs the market, you are likely to find yourself with an ulcer or worse.

With a strong sense of core beliefs, you will have far more control over your destiny. Not only will you
be able to reject strategies that do not fit your core beliefs about markets but also to tailor investment
strategies to your needs. In addition, you will be able to get much more of a big picture view of what it
is that is truly different across strategies and what they have in common.

The Big Picture of Investing

To see where the different investment philosophies fit into investing, let us begin by looking at the
process of creating an investment portfolio. Note that this is a process that we all follow – amateur as
well as professional investors - though it may be simpler for an individual constructing his or her own
portfolio than it is for a pension fund manager with a varied and demanding clientele.

Step 1: Understanding the Client

The process always starts with the investor and understanding his or her needs and preferences. For a
portfolio manager, the investor is a client, and the first and often most significant part of the investment
process is understanding the client�s needs, the client�s tax status and most importantly, his or her
risk preferences. For an individual investor constructing his or her own portfolio, this may seem simpler,
but understanding one�s own needs and preferences is just as important a first step as it is for the
portfolio manager.

Step 2: Portfolio Construction

The next part of the process is the actual construction of the portfolio, which we divide into
three sub-parts.

1. The first of these is the decision on how to allocate the portfolio across different asset classes
defined broadly as equities, fixed income securities and real assets (such as real estate, commodities and
other assets). This asset allocation decision can also be framed in terms of investments in domestic
assets versus foreign assets, and the factors driving this decision.

2. The second component is the asset selection decision, where individual assets are picked within
each asset class to make up the portfolio. In practical terms, this is the step where the stocks that make
up the equity component, the bonds that make up the fixed income component and the real assets that
make up the real asset component are selected.

3. The final component is execution, where the portfolio is actually put together. Here investors must
weigh the costs of trading against their perceived needs to trade quickly. While the importance of
execution will vary across investment strategies, there are many investors who fail at this stage in the
process.

Step 3: Evaluate portfolio performance

The final part of the process, and often the most painful one for professional money managers, is
performance evaluation. Investing is after all focused on one objective and one objective alone, which is
to make the most money you can, given your particular risk preferences. Investors are not forgiving of
failure and unwilling to accept even the best of excuses, and loyalty to money managers is not a
commonly found trait. By the same token, performance evaluation is just as important to the individual
investor who constructs his or her own portfolio, since the feedback from it should largely determine
how that investor approaches investing in the future.
These parts of the process are summarized in Figure 1.1, and we will return to this figure to emphasize
the steps in the process as we consider different investment philosophies. As you will see, while all
investment philosophies may have the same end objective of beating the market, each philosophy will
emphasize a different component of the overall process and require different skills for success.
Categorizing Investment Philosophies

We will present the range of investment philosophies in this section, using the investment
process to illustrate each philosophy. While we will leave much of the detail for later, we will attempt to
present at least the core of each philosophy here.

Market Timing versus Asset Selection

The broadest categorization of investment philosophies is on whether they are based upon
timing overall markets or finding individual assets that are mispriced. The first set of philosophies can be
categorized as market timing philosophies, while the second can be viewed as security selection
philosophies.

Within each, though, are numerous strands that take very different views about markets. Consider
market timing first. While most of us consider market timing only in the context of the stock market,
there are investors who consider market timing to include a much broader range of markets – currency
markets, bond markets and real estate come to mind. The range of choices among security selection
philosophies is even wider and can span charting and technical indicators, fundamentals (earnings,
cashflows or growth) and information (earnings reports, acquisition announcements).

While market timing has allure to all of us (because it pays off so well when you are right), it is
difficult to succeed at for exactly that reason. There are all too often too many investors attempting to
time markets, and succeeding consistently is very difficult to do. If you decide to pick stocks, how do you
choose whether you pick them based upon charts, fundamentals or growth potential? The answer, as
we will see, in the next section will depend not only on your views of the market and empirical evidence
but also on your personal characteristics.

Activist versus Passive Investing

At the broadest level, investment philosophies can also be categorized as active or passive
strategies. In a passive strategy, you invest in a stock or company and wait for your investment to pay
off. Assuming that your strategy is successful, this will come from the market recognizing and correcting
a misvaluation. Thus, a portfolio manager who buys stocks with low price earnings ratios and stable
earnings is following a passive strategy. So is an index fund manager, who essentially buys all stocks in
the index. In an activist strategy, you invest in a company and then try to change the way the company
is run to make it more valuable. Venture capitalists can be categorized as activist investors since they
not only take positions in promising companies but they also provide significant inputs into how these
firms are run. In recent years, we have seen investors like Michael Price and the California State pension
fund (Calpers) bring this activist philosophy to publicly traded companies, using the clout of large
positions to change the way companies are run. We should hasten to draw a contrast between activist
investing and active investing. Any investor who tries to beat the market by picking stocks is viewed as
an active investor. Thus, active investors can adopt passive strategies or activist strategies.
Time Horizon

Different investment philosophies require different time horizons. A philosophy based upon the
assumption that markets overreact to new information may generate short term strategies. For
instance, you may buy stocks right after a bad earnings announcement, hold a few weeks and sell
(hopefully at a higher price, as the market corrects its over reaction). In contrast, a philosophy of buying
neglected companies (stocks that are not followed by analysts or held by institutional investors) may
require much longer time horizons.

One factor that will determine the time horizon of an investment philosophy is the nature of the
adjustment that has to occur for you to reap the rewards of a successful strategy. Passive value investors
who buy stocks in companies that they believe are under valued may have to wait years for the market
correction to occur, even if they are right. Investors who trade ahead or after earnings reports, because
they believe that markets do not respond correctly to such reports, may hold the stock for only a few
days. At the extreme, investors who see the same (or very similar) assets being priced differently in two
markets may buy the cheaper one and sell the more expensive one, locking in arbitrage profits in a few
minutes.

Coexistence of Contradictory Strategies

One of the most fascinating aspects of investment philosophy is the coexistence of investment
philosophies based upon contradictory views of the markets. Thus, you can have market timers who
trade on price momentum (suggesting that investors are slow to learn from information) and market
timers who are contrarians (which is based on the belief that markets over react). Among security
selectors who use fundamentals, you can have value investors who buy value stocks, because they
believe markets overprice growth, and growth investors who buy growth stocks using exactly the
opposite justification. The coexistence of these contradictory impulses for investing may strike some as
irrational, but it is healthy and may actually be responsible for keeping the market in balance. In
addition, you can have investors with contradictory philosophies co-existing in the market because of
their different time horizons, views on risk and tax status. For instance, tax exempt investors may find
stocks that pay large dividends a bargain, while taxable investors may reject these same stocks because
dividends are taxed at the ordinary tax rate.

Investment Philosophies in Context

We can consider the differences between investment philosophies in the context of the
investment process, described in figure 1.1. Market timing strategies primarily affect the asset allocation
decision. Thus, investors who believe that stocks are under valued will invest more of their portfolios in
stocks than would be justified given their risk preferences. Security selection strategies in all their forms
– technical analysis, fundamentals or private information – all center on the security selection
component of the portfolio management process. You could argue that strategies that are not based
upon grand visions of market efficiency but are designed to take advantage of momentary mispricing of
assets in markets (such as arbitrage) revolve around the execution segment of portfolio management. It
is not surprising that the success of such opportunistic strategies depend upon trading quickly to take
advantage of pricing errors, and keeping transactions costs low. Figure 1.2 presents the different
investment philosophies.
Developing an Investment Philosophy: The Step

If every investor needs an investment philosophy, what is the process that you go through to
come up with such a philosophy? While portfolio management is about the process, we can lay out the
three steps involved in this section.

Step 1: Understand the fundamentals of risk and valuation

Before you embark on the journey of finding an investment philosophy, you need to get your
financial toolkit ready. At the minimum, you should understand

- how to measure the risk in an investment and relate it to expected returns.

- how to value an asset, whether it be a bond, stock or a business

- the ingredients of trading costs, and the trade off between the speed of trading and the cost of
trading

We would hasten to add that you do not need to be a mathematical wizard to do any of these and it is
easy to acquire these basic tools.

Step 2: Develop a point of view about how markets work and where they might break down

Every investment philosophy is grounded in a point of view about human behavior (and
irrationality). While personal experience often determines how we view our fellow human beings, we
should expand this to consider broader evidence from markets on how investors act before we make
our final judgments.

Over the last few decades, it has become easy to test different investment strategies as data
becomes more accessible. There now exists a substantial body of research on the investment strategies
that have beaten the market over time. For instance, researchers have found convincing evidence that
stocks with low price to book value ratios have earned significantly higher returns than stocks of
equivalent risk but higher price to book value ratios. It would be foolhardy not to review this evidence in
the process of developing your investment philosophy. At the same time, though, you should keep in
mind three caveats about this research:

a. Since they are based upon the past, they represent a look in the rearview mirror. Strategies that
earned substantial returns in the 1990s may no longer be viable strategies now. In fact, as
successful strategies get publicized either directly (in books and articles) or indirectly (by
portfolio managers trading on them), you should expect to see them become less effective.

b. Much of the research is based upon constructing hypothetical portfolios, where you buy and sell
stocks at historical prices and little or no attention is paid to transactions costs. To the extent
that trading can cause prices to move, the actual returns on strategies can be very different
from the returns on the hypothetical portfolio.
 c. A test of an investment strategy is almost always a joint test of both the strategy and a model
for risk. To see why, consider the evidence that stocks with low price to book value ratios earn
higher returns than stocks with high price to book value ratios, with similar risk (at least as
measured by the models we use). To the extent that we mismeasure risk or ignore a key
component of risk, it is entirely possible that the higher returns are just a reward for the greater
risk associated with low price to book value stocks.

Since understanding whether a strategy beats the market is such a critical component of investing, we
will consider the approaches that are used to test a strategy, some basic rules that need to be followed
in doing these tests and common errors that are made (unintentionally or intentionally) when running
such tests. As we look at each investment philosophy, we will review the evidence that is available on
strategies that emerge from that philosophy.

Step 3: Find the philosophy that provides the best fit for you

Once you understand the basics of investing, form your views on human foibles and behavior
and review the evidence accumulated on each of the different investment philosophies, you are ready
to make your choice. In our view, there is potential for success with almost every investment philosophy
(yes, even charting) but the prerequisites for success can vary. In particular, success may rest on:

a. Your risk aversion: Some strategies are inherently riskier than others. For instance, venture
capital or private equity investing, where you invest your funds in small, private businesses that
show promise is inherently more risky than buying value stocks – equity in large, stable, publicly
traded companies. The returns are also likely to be higher. However, more risk averse investors
should avoid the first strategy and focus on the second. Picking an investment philosophy (and
strategy) that requires you to take on more risk than you feel comfortable taking can be
hazardous to your health and your portfolio.

b. The size of your portfolio: Some strategies require larger portfolios for success whereas others
work only on a smaller scale. For instance, it is very difficult to be an activist value investor if you
have only $ 100,000 in your portfolio, since firms are unlikely to listen to your complaints. On
the other hand, a portfolio manager with $ 100 billion to invest may not be able to adopt a
strategy that requires buying small, neglected companies. With such a large portfolio, she would
very quickly end up becoming the dominant stockholder in each of the companies and affecting
the price every time she trade.

c. Your time horizon: Some investment philosophies are predicated on a long time horizon,
whereas others require much shorter time horizons. If you are investing your own funds, your
time horizon is determined by your personal characteristics – some of us are more patient than
others – and your needs for cash – the greater the need for liquidity, the shorter your time
horizon has to be. If you are a professional (an investment adviser or portfolio manager),
managing the funds of others, it is your clients time horizon and cash needs that will drive your
choice of investment philosophies and strategies.
 d. Your tax status: Since such a significant portion of your money ends up going to the tax
collectors, they have a strong influence on your investment strategies and perhaps even the
investment philosophy you adopt. In some cases, you may have to abandon strategies that you
find attractive on a pre-tax basis because of the tax bite that they expose you to.

Thus, the right investment philosophy for you will reflect your particular strengths and weaknesses. It
should come as no surprise, then, that investment philosophies that work for some investors do not
work for others. Consequently, there can be no one investment philosophy that can be labeled best for
all investors.

OBJECTIVE OF THE STUDY

 To provide basic idea of different stock market investment instruments to investor

 To provide knowledge to investor about various type of risk associated with various investment
instruments.

 TO MEASURE THE RISK AND RETURN OF PORTFOIO OF COMPANIES.

 TO SELECT AN OPTIMUM PORTFOLIO

LIMITATIONS OF THE PROJECT

 The time duration given to complete the report was not sufficient

 There was a constraint with regard to time allocated for the research study.

 The availability of information in the form of annual reports & price fluctuations of the
companies was a big constraint to the study
UNIT-II
RESEARCH METHODOLOGY
Research methodology

Research methodology:

The system of collecting data for research projects is known as research methodology.
The data may be collected for either theoretical or practical research for example management
research may be strategically conceptualized along with operational planning methods and
change management.

Data collection methods:

In data collation methods we have two types. These are

 Primary data

 Secondary data

Primary data:
In primary data collection, you collect the data yourself using methods such as interviews
and questionnaires.

Secondary data:
Secondary data is the data that have been already collected by and readily available from
other sources. My project sources are

 Journals

 Internet

 Text books

 Screen trading values

UNIT III
INDUSTRY PROFILE
INDUSTRY PROFILE

Origin and Evolution:

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers'
Association" (which is alternatively known as "The Stock Exchange").

In1895, the Stock Exchange acquired a premise in the same street and it was inaugurated
in 1899. Thus, the Stock Exchange at Bombay was consolidated. Thus in the same way,
gradually with the passage of time number of exchanges were increased and at currently it
reached to the figure of 24 stock exchanges. This was followed by the formation of
associations /exchanges in Ahmadabad (1894), Calcutta (1908), and Madras (1937).In order to
check such aberrations and promote a more orderly development of the stock market, the central
government introduced a legislation called the Securities Contracts (Regulation) Act, 1956.
Under this legislation, it is mandatory on the part of stock exchanges to seek government
recognition.

As of January 2002 there were 23 stock exchanges recognized by the central

Government. They are located at Ahmadabad, Bangalore, Baroda, Bhubaneswar, Calcutta,
Chennai,(the Madras stock Exchanges ), Cochin, Coimbatore, Delhi, Guwahati, Hyderabad,
Indore, Jaipur, Kanpur, Ludhiana, Mangalore, Mumbai(the National Stock Exchange or NSE),
Mumbai (The Stock Exchange), popularly called the Bombay Stock Exchange, Mumbai(OTC
Exchange of India), Mumbai (The Inter-connected Stock Exchange of India), Patna, Pune, and
Rajkot. Of course, the principle bourses are the National Stock Exchange and The Bombay Stock
Exchange, accounting for the bulk of the business done on the Indian stoc k market.
BSE (BOMBAY STOCK EXCHANGE):

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as
"The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than
the Tokyo Stock Exchange, which was established in 1878.

It is the first Stock Exchange in the Country to have obtained permanent recognition in
1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956.A Governing
Board having 20 directors is the apex body, which decides the policies and regulates the affairs
of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking
comm. Unity (one third of them retire ever year by rotation), three SEBI nominees, six public
representatives and an Executive Director & Chief Executive Officer and a Chief Operating
Officer.

NSE (NATIONAL STOCK EXCHANGE):

NSE was incorporated in 1992 and was given recognition as a stock exchange in April
1993. It started operations in June 1994, with trading on the Wholesale Debt Market Segment.
Subsequently it launched the Capital Market Segment in November 1994 as a trading platform
for equities and the Futures and Options Segment in June 2000 for various derivative
instruments.

MCX (MULTI COMMODITY EXCHANGE):

‘MULTI COMMODITY EXCHANGE’ of India limited is a new order exchange with a

mandate for setting up a nationwide, online multi-commodity market place, offering unlimited
growth opportunities to commodities market participants. As a true neutral market, MCX has
taken several initiatives for users in a new generation commodities futures market in the process,
become the country’s premier exchange.MCX, an independent and a de-mutualized exchange
since inception, is all set up to introduce a state of the art, online digital exchange for
commodities futures.
NCDEX (NATIONAL COMMODITIES AND DERIVATIVESEXCHANGE):

NCDEX started working on 15th December, 2003. This exchange provides facilities to
their trading and clearing member at different 130 centers for contract. In commodity market the
main participants are speculators, hedgers and arbitrageurs.

Facilities Provided By NCDEX:

 NCDEX has developed facility for checking of commodity and also provides a wear
house facility
 By collaborating with industrial partners, industrial companies, news agencies, banks and
developers of kiosk network NCDEX is able to provide current rates and contracts rate.
 To prepare guidelines related to special products of securitization NCDEX works with
bank.
 To avail farmers from risk of fluctuation in prices NCDEX provides special services for
agricultural.
 NCDEX is working with tax officer to make clear different types of sale sand service
taxes.
 NCDEX is providing attractive products like “weather derivatives”
History Of The Indian Stock Market:-

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.

18th Century East India Company was the dominant institution and by end of the century,
business in its loan securities gained full momentum
1830's Business on corporate stocks and shares in Bank and Cotton presses started in
Bombay. Trading list by the end of 1839 got broader
1840's Recognition from banks and merchants to about half a dozen brokers
1850's Rapid development of commercial enterprise saw brokerage business attracting
more people into the business
1860's The number of brokers increased to 60
1860-61 The American Civil War broke out which caused a stoppage of cotton supply
from United States of America; marking the beginning of the "Share Mania" in
India
1862-63 The number of brokers increased to about 200 to 250
1865 A disastrous slump began at the end of the American Civil War (as an example,
Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87)

Pre-Independance Scenario - Establishment of Different Stock Exchanges

1874 With the rapidly developing share trading business, brokers used to gather at a
street (now well known as "Dalal Street") for the purpose of transacting business.
1875 "The Native Share and Stock Brokers' Association" (also known as "The Bombay
 Stock Exchange") was established in Bombay
1880's Development of cotton mills industry and set up of many others
1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"
1880 - 90's Sharp increase in share prices of jute industries in 1870's was followed by a boom
in tea stocks and coal
1908 "The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock Exchange" was
transacted with 100 brokers.
1923 When recession followed, number of brokers came down to 3 and the Exchange
was closed down
1934 Establishment of the Lahore Stock Exchange
1936 Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange
1937 Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.) Limited
led by improvement in stock market activities in South India with establishment
of new textile mills and plantation companies
1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited was
established
1944 Establishment of "The Hyderabad Stock Exchange Limited"
1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and
Shares Exchange Limited" were established and later on merged into "The Delhi
Stock Exchange Association Limited"

Post Independence Scenario:

The depression witnessed after the Independence led to closure of a lot of exchanges in
the country. Lahore E stock Exchange was closed down after the partition of India, and later on
merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in
1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state
till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956.
The Exchanges that were recognized under the Act were: Bombay, Calcutta, Madras,
Ahmadabad, Delhi, Hyderabad, Bangalore, Indore .

Major Stock Exchanges :

Rank Economy Stock Exchange Location

1 United States NYSE Euro next (US & Europe) NewYorkCity

Europe

2 United States NASDAQ OMX (US & North NewYork City

Europe Europe)

3 Japan Tokyo Stock Exchange Tokyo

4 United London Stock Exchange London

Kingdom

5 China Shanghai Stock Exchange Shanghai

6 Hong Kong Hong Kong Stock Exchange Hong Kong

7 Canada Toronto Stock Exchange Toronto

8 Brazil BM&F Bovespa São Paulo

9 Australia Australian Securities Exchange Sydney

10 Germany Deutsche Börse Frankfurt

11 Switzerland SIX Swiss Exchange Zurich

12 China Shenzhen Stock Exchange Shenzen

13 Spain BME Spanish Exchanges Madrid

 14 India Bombay Stock Exchange Mumbai

15 South Korea Korea Exchange Seoul

16 India National Stock Exchange of Mumbai

India

17 South Africa JSE Limited Johannesburg

18 Russia MICEX Moscow

Stock Exchanges of India:

There are 24 stock exchanges in the country, 20 of them being regional ones with
allocated areas. Three others set up in the reforms era, viz., National Stock Exchange (NSE) the
Over the Counter Exchange of India Limited (OTCEI) and Inter-connected Stock Exchange of
India Limited (ISE) have mandate to nationwide trading network. The ISE is promoted by 15
regional stock exchanges in the country and has been set up at Mumbai. The NSE and OCTEI,
ISE and majority of the regional stock exchanges have adopted the screen based trading system
(SBTS) to provide automated and modern facilities for trading in a transparent, fair and open
manner with access to investors across the country.

As on 31 March 1999, 9,877 companies were listed on the stock exchanges and the
market capitalization was 5, 30,772 crore. The total single sided turnover on all stock exchanges
during 2998-99 was Rs 10, 23,381.

The following are the names of the various stock exchanges in India :

1. The Mumbai Stock Exchange

2. The Ahmadabad Stock exchange Association Ltd.

3. Bangalore Stock Exchange Ltd.

4. C Stock Exchange Association Ltd.

5. The Calcutta Stock Exchange Association Ltd.

6. Cochin Stock Exchange Ltd.

7. The Delhi Stock Exchange Association Ltd.

8. The Guwahati Stock Exchange Ltd.

9. The Hyderabad Stock Exchange Ltd.

10. Jaipur Stock Exchange Ltd.

11. Kanara Stock Exchange Ltd.

12. The Ludhiana Stock Exchange Association Ltd.

13. Madras stock Exchange Ltd.

14. Madhya Pradesh Stock Exchange Ltd.

15. The Magadh Stock Exchange Ltd.

16. Mangalore Stock Exchange Ltd.

17. Pune Stock Exchange Ltd.

18. Saurashtra Kutch Stock Exchange Ltd.

19. The Uttar Pradesh Stock Exchange Association Ltd.

20. Vadodara Stock Exchange Ltd.

21. Coimbatore Stock Exchange

22. Meerut Stock Exchange Ltd.

23. Over The Counter (OTC) Exchange of India

24. The National Stock Exchange of India

Bombay Stock Exchange:

This stock exchange, Mumbai, popularly known as "BSE" was established in 1875 as
“The Native share and stock brokers association", as a voluntary nonprofit making association.
It has an evolved over the years into its present status as the premiere stock exchange in the
country. It may be noted that the stock exchanges 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 today
administration of the exchange. The average daily turnover of the exchange during the year
2000-01(April-March) was Rs 3984.19 crs and average number of daily trades 5.69 lacks.

However the average daily turnover of the exchange during the year 2001-02 has
declined to Rs. 1244.10 crs and number of average daily trades during the period to 5.17 lacks.
The average daily turnover of the exchange during the year 2002-03 has declined and number of
average daily trades during the period is also decreased.

The Ban on all deferral products like BLESS AND ALBM in the Indian capital markets
by SEBI i.e. July 2, 2001, abolition of account period settlements, introduction of compulsory
rolling settlements in all scrips traded on the exchanges w.e.f Dec 31,2001, etc., have adversely
impacted the liquidity and consequently there is a considerable decline in the daily turnover at
the exchange. The average daily turnover of the exchange present scenario is 110363 (Laces) and
number of average daily trades 1067(Laces).

BSC Indices:
In order to enable the market participants, analysts etc., to track the various ups and
downs in the Indian stock market, the Exchange has 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 if 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).

National Stock Exchange:

The NSE was incorporated in Nov 1992 with an equity capital of Rs. 25 crs. The
International securities consultancy (ISC) of Hong kong has helped in setting up NSE. ISC has
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 nation wide 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 set up involving a company board and a governing aboard
of the exchange is envisaged.

NSE is a national market for shares PSU 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 Nov 3, 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.

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 operations. The base value of the Index has
been set at 1000.
Average daily turn over of the present scenario 258212 (Laces) and number of average
daily trades 2160 (Laces). At present, there are 24 stock exchanges recognized under the
securities contract (regulation) Act, 1956. They are List of Stock Exchanges recognized under
the securities contract (regulation) Act, 1956.

NAME OF THE STOCK EXCHANGE YEAR

Bombay stock exchange, 1875

Ahmadabad share and stock brokers association 1957

Calcutta stock exchange association Ltd, 1957

Delhi stock exchange association Ltd, 1957

Madras stock exchange association Ltd, 1957

Indore stock brokers association, 1958

Bangalore stock exchange, 1963

Hyderabad stock exchange, 1943

Cochin stock exchange, 1978

Pune stock exchange Ltd, 1982

U.P stock exchange association Ltd, 1982

Ludhiana stock exchange association Ltd, 1983

Jaipur stock exchange Ltd, 1983-84

Gauhathi stock exchange Ltd, 1984

Mangalore stock exchange Ltd, 1985

Maghad stock exchange Ltd, Patna, 1986

Bhubaneswar stock exchange association Ltd, 1989

Over the counter exchange of India, Bombay, 1989

saurasthra Kutch stock exchange Ltd, 1990

Vsdodara stock exchange Ltd, 1991

Coimbatore stock exchange Ltd, 1991

The Meerut stock exchange Ltd, 1991

1National stock exchange Ltd, 1991

Integrated stock exchange, 1999

SEBI Guidelines:
 In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded as a fully
autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and
Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control,
a statutory and autonomous regulatory board with defined responsibilities, to cover both
development & regulation of the market, and independent powers have been set up.
Paradoxically this is a positive outcome of the Securities Scam of 1990-91.

The basic objectives of the Board were identified as:

 to protect the interests of investors in securities;
 to promote the development of Securities Market;
 to regulate the securities market and
 for matters connected therewith or incidental thereto.

SEBI has introduced the comprehensive regulatory measures, prescribed registration

norms, the eligibility criteria, the code of obligations and the code of conduct for different
intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars,
portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk
identification and risk management systems for Clearing houses of stock exchanges, surveillance
system etc. which has made dealing in securities both safe and transparent to the end investor.
Another significant event is the approval of trading in stock indices (like S&P CNX Nifty &
Sensex) in 2000. A market Index is a convenient and effective product because of the following
reasons:
 It acts as a barometer for market behavior;
 It is used to benchmark portfolio performance;
 It is used in derivative instruments like index futures and index options;
 It can be used for passive fund management as in case of Index Funds.
 Two broad approaches of SEBI is to integrate the securities market at the national level,
and also to diversify the trading products, so that there is an increase in number of traders
including banks, financial institutions, insurance companies, mutual funds, primary dealers etc.
to transact through the Exchanges. In this context the introduction of derivatives trading through
Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.

SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory

framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading
and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998
accepted the recommendations of the committee and approved the phased introduction of
derivatives trading in India beginning with Stock Index Futures. The Board also approved the
"Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and
Control of Trading and Settlement of Derivatives Contracts.

SEBI then appointed the J. R. Verma Committee to recommend Risk Containment

Measures (RCM) in the Indian Stock Index Futures Market. The report was submitted in
november 1998. However the Securities Contracts (Regulation) Act, 1956 (SCRA) required
amendment to include "derivatives" in the definition of securities to enable SEBI to introduce
trading in derivatives. The necessary amendment was then carried out by the Government in
1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new
framework was approved.

Derivatives have been accorded the status of `Securities'. The ban imposed on trading in
derivatives in 1969 under a notification issued by the Central Government was revoked.
Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock
Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE
started trading in the year 2001.
SWOT Analysis:
A tool that identifies the strengths, weaknesses, opportunities and threats of an
organization. Specifically, SWOT is a basic, straightforward model that assesses what an
organization can and cannot do as well as its potential opportunities and threats. The method of
SWOT analysis is to take the information from an environmental analysis and separate it into
internal (strengths and weaknesses) and external issues (opportunities and threats).

Strengths:
Sensex and Nifty scrips are top made up of top performing scrips that should capture
much of India's growth over the next 10 years. Companies that stand to gain the most as Indian
economy gallops at 8-9% pa.

Weakness:
Illiquidity outside the scrips in futures and options may lead to large scale price
manipulation in illiquid scrips and lower price realizations in such counters.
Poor Indian Accounting disclosures may lead to large scale manipulation of figures by publicly
traded companies.

Opportunities:
A large domestic market that is still into traditional fixed income and other government
savings is all buy bound to enter the market sooner if not later.

Threats:

Global Economic slowdown, Currency mismangement, High global commoditiy prices,

Over valuation in Index scrips, Non liquidity in non derivatives related scrips, Change in
government focus on controlling inflation, the attitude of government relating to FII's taxation
etc
Recent trends in Indian stock exchange:

Stock Market is synonymous with the word gambling for both the experts as well as
beginners. It is highly advisable to understand the functioning of the stock market before making
any transaction or investment. And this can be easily accomplished by performing quality
research, paying heed to expert’s opinion and proper consideration to the trends and tactics of the
market.
It is very important to learn the technique of buying and selling the shares with the
perfect sense of timing in order to earn huge profits. The companies offer their shares to the
public, so that the interested investors can participate and buy their shares.
The process of buying and selling of stock is executed in Stock Exchange. However this
is just an outlay or a framework of the stock market. The real game starts with the tactics and
strategies that are used by the investors. And for this, you may have to learn many new economic
terms used to explain the moods of the stock market.
First and foremost vital step is to understand the trends of the market, often termed as
market movements. There are adequate patterns, following which the stocks and supplies rise
and fall. The reason could be anything from spoilt reputation of a firm to the infamy name of the
company, which is not necessary to be noted. What’s important here is to concentrate on the time
as in when the value of a share is rising and when it is going down.
When the value is touching sky, it is best to sell the shares so that you can make big
gains. Timing rules the stocks merchandising. Proper understanding of the trends can only be
earned by experience and focus. And once you are clear with market trends you can easily
manage your investments with right timing.
Another is the stock trading systems. Nowadays many software companies provide
valuable information on stock trading systems. Through this the investors can understand and
manage the trends of many stocks. They can even seek assistance to know how profitable it will
be to invest in a particular company. These trading systems are available with many shares that
are cost-effective if invested in, letting you free from the extra burden of work. But don’t forget
before starting trading or investing in Indian stock market you need to do your homework as in
proper research is required.

UNIT -IV
COMPANY PROFILE
Company profile

The Kotak Mahindra Group

Kotak Mahindra is one of India's leading banking and financial services organizations, offering
a wide range of financial services that encompass every sphere of life. From commercial
banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group
caters to the diverse financial needs of individuals and corporate sector.

The Group has a net worth of over Rs. 12,900 crores and has a distribution network of branches,
franchisees, representative offices and satellite offices across cities and towns in India. It has
offices in London, New York, California, Dubai, Abu Dhabi, Bahrain, Mauritius, & Singapore
and is servicing around 10 million customer accounts.

Kotak Group Products & Services:

Bank
Life Insurance
Mutual Fund
Car Finance
Securities
Institutional Equities
Investment Banking
Kotak Mahindra International
Kotak Private Equity
Kotak Realty Fund
riginally established in 1994, Kotak Securities is a subsidiary of Kotak Mahindra Bank, which
services more than 14 lakh customer accounts. The firm has a wide network of more than 1,255
branches, franchisees representative offices, and satellite offices across 386 cities in India and
offices in New York, London, Dubai, Mauritius and Singapore.

We process more than 400000 trades a day which is much higher than some of the renowned
international brokers.

The company is a corporate member of both The Bombay Stock Exchange (BSE) and The
National Stock Exchange of India (NSE). Our operations include stock broking services for
trading in stock markets through branches & internet and distribution of various financial
products including investments in IPOs, Mutual Funds and Currency Derivatives. Currently,
Kotak Securities is one of the largest broking houses in India with substantial geographical
reach to Asia Pacific, Europe, Middle East and America.

Kotak Securities Limited has Rs 463 crores of Assets Under Management (AUM) as of 31st Dec,
2013.

Innovators:
We have been the pioneers in providing many products and services which have now become
industry standards for stock broking in India. Some of them include:
Mobile stock trading application to keep track of your investments even on the go

Facility of Margin Finance to the customers for online stock trading

Investing in IPOs and Mutual Funds on the phone

SMS alerts before execution of depository transactions

AutoInvest - A systematic investing plan in Equities and Mutual funds

Provision of margin against securities automatically against shares in your Demat account

Research Expertise:

We specialize in Fundamental and Technical analysis backed by a team of highly trained and
qualified individuals.

Our full-fledged research division is involved in Macro Economic studies, Sectorial research
and Company Specific Equity Research which publishes in-depth stock market analysis. This is
combined with a strong and well networked sales force which helps deliver current and up to
date market information and news.

We are also a depository participant with National Securities Depository Limited (NSDL) and
Central Depository Services Limited (CDSL). By being a stock broker and depositary
participant, we provide dual benefit in our services wherein the investors can avail our stock
broking services for executing the transactions and the depository services for settling them.

Our Portfolio Management Service comes as an answer to those who would like to grow
exponentially on the crest of the stock market, with the backing of an expert.

Awards

Overall best Equity Broking House by BSE IPF - D&B Equity Broking Awards for the year
2013
Depository Participant of the year by BSE IPF - D&B Equity Broking Awards for the year
2013
Top Performer in New Accounts Opened (Non-Bank Category) - NSDL Star Performers
Award 2013
Fastest growing Equity Broking House by BSE IPF - D&B Equity Broking Awards for the
year 2012
 The Best Equity House in India by FinanceAsia for the year 2012

Best Broker in India by FinanceAsia for 2012, 2010 & 2009

UTI MF - CNBC TV18 Financial Advisor Awards - Best Performing Equity Broker
(National) for the year 2009
Best Brokerage Firm in India by Asiamoney in 2009, 2008, 2007 & 2006

Best Performing Equity Broker in India by CNBC Financial Advisor Awards for 2008

Avaya Customer Responsiveness Awards for 2007 & 2006 in the Financial Services Sector

The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007

Best Provider of Portfolio Management: Equities by Euromoney for 2007 & 2006

Best Equities House In India by Euromoney Award for the year 2005

Best Broker in India by FinanceAsia for the year 2005

Best Equity House in India by Finance Asia for the year 2004

Kotak Securities Limited

riginally established in 1994, Kotak Securities is a subsidiary of Kotak Mahindra Bank, which
services more than 14 lakh customer accounts. The firm has a wide network of more than 1,255
branches, franchisees representative offices, and satellite offices across 386 cities in India and
offices in New York, London, Dubai, Mauritius and Singapore.

We process more than 400000 trades a day which is much higher than some of the renowned
international brokers.

The company is a corporate member of both The Bombay Stock Exchange (BSE) and The
National Stock Exchange of India (NSE). Our operations include stock broking services for
trading in stock markets through branches & internet and distribution of various financial
products including investments in IPOs, Mutual Funds and Currency Derivatives. Currently,
Kotak Securities is one of the largest broking houses in India with substantial geographical reach
to Asia Pacific, Europe, Middle East and America.

Kotak Securities Limited has Rs 463 crores of Assets Under Management (AUM) as of 31st Dec,
2013.

Innovators:
We have been the pioneers in providing many products and services which have now become
industry standards for stock broking in India. Some of them include:
Mobile stock trading application to keep track of your investments even on the go

Facility of Margin Finance to the customers for online stock trading

Investing in IPOs and Mutual Funds on the phone

SMS alerts before execution of depository transactions

AutoInvest - A systematic investing plan in Equities and Mutual funds

Provision of margin against securities automatically against shares in your Demat account

Research Expertise:

We specialize in Fundamental and Technical analysis backed by a team of highly trained and
qualified individuals.

Our full-fledged research division is involved in Macro Economic studies, Sectorial research and
Company Specific Equity Research which publishes in-depth stock market analysis. This is
combined with a strong and well networked sales force which helps deliver current and up to
date market information and news.

We are also a depository participant with National Securities Depository Limited (NSDL) and
Central Depository Services Limited (CDSL). By being a stock broker and depositary
participant, we provide dual benefit in our services wherein the investors can avail our stock
broking services for executing the transactions and the depository services for settling them.

Our Portfolio Management Service comes as an answer to those who would like to grow
exponentially on the crest of the stock market, with the backing of an expert.

Awards

Overall best Equity Broking House by BSE IPF - D&B Equity Broking Awards for the year
2013
Depository Participant of the year by BSE IPF - D&B Equity Broking Awards for the year
2013
Top Performer in New Accounts Opened (Non-Bank Category) - NSDL Star Performers
Award 2013
Fastest growing Equity Broking House by BSE IPF - D&B Equity Broking Awards for the
year 2012
 The Best Equity House in India by FinanceAsia for the year 2012

Best Broker in India by FinanceAsia for 2012, 2010 & 2009

UTI MF - CNBC TV18 Financial Advisor Awards - Best Performing Equity Broker
(National) for the year 2009
Best Brokerage Firm in India by Asiamoney in 2009, 2008, 2007 & 2006

Best Performing Equity Broker in India by CNBC Financial Advisor Awards for 2008

Avaya Customer Responsiveness Awards for 2007 & 2006 in the Financial Services Sector

The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007

Best Provider of Portfolio Management: Equities by Euromoney for 2007 & 2006

Best Equities House In India by Euromoney Award for the year 2005

Best Broker in India by FinanceAsia for the year 2005

Best Equity House in India by Finance Asia for the year 2004

Multiple Share Trading Platforms

We understand your trading needs. If you're an Online Customer, Kotak Securities offers
multiple mechanisms to place your trade. Be it a wi fi-zone or a cybercafé or a 3G connection or
GPRS handset or a completely aloof from internet zone, you'll always have access to trade
through Kotak Securities. We are one of the brokers to have the highest number of trading
platforms to serve your trading needs.

Type of
Mode Application Satisfying Need
Application

Internet Website Web Access all the features on the web

.EXE based Ultra high speed experience with advanced features.

Desktop KEATProX
application Exe based application.

KEATProX like experience when your office premises

Desktop FASTLANE Java applet
do not allow application installations

Mobile Stock Trader Mobile High speed trading experience on a Mobile

 Application

Mobile /
Xtralite Web When you have a weak internet connectivity
Computer

Phone Call and Trade - When you're not in an Internet zone

Branch
Phone - When you're not in an Internet zone
Advisory

Right Investment Partner

We see investing from your perspective, and make recommendations based on your needs.
One of our important goals is to simplify investing for you; along with this we also provide
long term values to our customers.

We have a million reasons for you to choose us. Listed below are a few:

Stability: We are a subsidiary of Kotak Mahindra Bank and one of the oldest and largest
stock broking firms in the Industry. We have been the first and only NBFC to receive the
license to be converted into a bank.

Innovators in the Industry: We have been the first in providing many products and services
which have now become industry standards.

 First to provide Margin Financing to the customers

 First to enable investing in IPOs and Mutual Funds on the phone
 Providing SMS alerts before execution of depository transactions
 Launching of Mobile application to track portfolio
 AutoInvest - A systematic investing plan in Equities and Mutual fund
 Provision of margin against securities automatically against shares in your Demat account

Value: Whether you are a customer with a small or large wallet size, you can expect us to bring value
to you in every form.

 Quality Research
 Quick trade execution
 Low brokerages
 Accounts that suit your investment profile
 Risk Profiler
  Superior Customer Service

Service: We believe in high standards of service and that's precisely what we offer. It's an
honour to be awarded the most customer responsive company award in the Financial
Institution sector by AVAYA GlobalConnect Award both in 2006 and 2007

Robust Technology: We have developed our own proprietary trading platform which is
robust and among the best in the industry. We have more than 150 technology professionals
constantly working on upgrading and speeding up all our systems.

Centralized Risk Management System: Unlike many other players we have a centralised
risk management system. This allows us to offer the same levels of service to customers
across all locations.

Exceptional Research: Unlike most other competitors we have our own in house research
team. Our in house research team is among the best in the industry and they have years of
experience in the financial markets. They scan through the plethora of stocks and find the
scrips that have a high potential of providing you good returns.

Our investors get research Technical, Fundamental, Derivatives, Macro-economic and mutual
fund research.

Large Presence: We are present in 386 cities with 1,255 outlets all over the country. Our
employee strength extends beyond 3,684.

Share Trading Platforms

Every investor has own style of investing is comfortable with different type of trading tools.
Understanding the investor need and available technologies Kotak Securities creates and
provides multiple platforms that would enhance trading experience of every investor. Below are
the various platforms that our customers can use as per their convenience:

Type of
Mode Application Satisfying Need
Application

Internet Website Web Access all the features on the web

.exe based
Desktop KEAT Pro X High speed experience with advanced features
application
 KEAT Pro X like experience when your office premises
Desktop FASTLANE Java applet
do not allow application installations

Mobile
Mobile Stock Trader High speed trading experience on a mobile phone
Application

Mobile /
Xtralite Web When you have a slow internet connectivity
Computer

Phone Call & Trade - When you are not connected to internet

Branch
Phone - When you are not connected to internet
Advisory

Our Application Development Process:

We at Kotak Securities follow a stringent platform development process to allow you to have a
seamless trading experience. Our technology experts always keep themselves up-to-date on the
latest developments in the market. Be it a new mobile technology or a new desktop operating
system, we are ready to make our applications available for you.

Our mobile based tradind application, Stock Trader currently supports 7 different operating
systems and over 1000 handsets. Our signature product, the KEAT Pro X works on Windows as
well as Macintosh. Our application developers are constantly upgrading our website and
applications to the new technology to give you an edge over other traders. Simultaneously, our
stock market experts and product managers make all new products and trading instruments live
on our trading platforms, so that you have more opportunities to make profits.

Below is a snapshot of a broad picture of our development process:

 Integrated:

All our platforms are integrated with our trading engine. This integration enables you to place an
order through any of our platforms and modify / cancel on any other. This gives our customers a
unique seamless trading experience.

Universal :

Our technology experts ensure that our platforms run on all the operating systems, browsers,
devices and geographies.

Extremely Light :

No heavy weight codes - you can clearly differentiate our website and platforms with any other
in terms of simplicity and light weight. This is a very well appreciated feature by our customers,
especially when the markets are in a rally. With Kotak Securities, you would have a seamless
experience even during such extreme instances because of our 'keep it simple' philosophy.

Trading Instruments :

All our platforms provide opportunity to trade in the available instruments on exchanges.

User Experience :

Our extremely user friendly interface aids both new and experienced traders to trade in complex
and volatile market with ease and comfort.

Simple :

We ensure that trading through our trading platforms is made extremely easy for you. Be it
navigation, reports or the language used, our 'keep it simple' philosophy ensures you to learn and
trade through our trading platforms.

Lightning speed :

We process over four lakh trades a day. Yet our customers experience a lightning speed trade
execution while trading.

Low Resources :

Our platform is relatively low on resources, meaning it keeps its disruption of your PC to a
minimum. This also enables the platform to react faster, making it possible to implement the
trades and traders' requests immediately.

Security :

When you are dealing with a sensitive and private issue like trading in stock markets, you would
be willing to know that you are not in danger of attacks and hacks on your account. Our
platforms are highly secure that encrypts the data between trader and server with a 128-bit key.
Our Security Key feature ensures a dual authentication while logging into your account, which
makes it completely safe.

Value Added Trading Services

Going above and beyond your basic need of of transactions in equities, we offer you a plethora of Value
Added Services. When you choose any of Kotak Securities Trading accounts, the combination of our
research, trading platforms and communication channels enable us to deliver a higher value to you.

Our specialised services like TradeSmart,Research on SMS and E-mail subscription constantly gives you
stock ideas that you can benefit from. Our services ensure that your end-to-end trading needs are
satisfied.

Below are the various Value Added Services we have for you:

 AutoInvest
 Super Multiple
 Twin Advantage
 BNST
 Portfolio Tracker
 SMS Alert Subscription
 TradeSmart
 Security Key
Stock Market Instrument Types

A capital market is a market for securities (debt or equity), where business enterprises and government
can raise long-term funds. And capital market instruments, also known as financial instruments, are
responsible for generating these funds, which can be used by investors to make a profit.

Kotak Securities provides a one stop platform where you can trade in different types of instruments in
cash as well as derivative segment. These instruments are available for trading on NSE and BSE and can
be classified as:

Equity

Derivatives: Futures & Options, Foreign Indices

Mutual Funds

Currency Derivatives

Fixed Deposits and Bonds

Initial Public Offering (IPO)

Gold Exchange Traded Fund (ETF)

 UNIT – IV
THEORETICAL FRAME WORK
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.
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

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 it's present and future earning capacity and compares it with the
current market price to identify the mis-priced securities.

Fundamental analysis involves a three-step examination, which calls for:

1. Understanding of the macro-economic environment and developments.

2. Analysing the prospects of the 9ndustry 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 0 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.
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
favourable 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 is the level of investment in the economy and what proportion
of that investment is directed toward the capital market. The analysts should also know what are the
savings 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.

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 there 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, produc6ivity 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 favourable 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.

Sentiments:

The sentiments of consumers and businessmen can have an important bearing on economic
performance. Higher consumer confidence leads to higher expenditure on biggticket 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.
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
analysed in terms of a life cycle with four well-defined stages:

Pioneering stage:

During this stage, the technology and or the product is 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 Stabilisation 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 .

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 .

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 estimate the intrinsic value or fair value of share and compare it
with the market price to know whether the stock is overvalued or undervalued. The investment
decision is to buy under valued 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.

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 in come
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.

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 ratio 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 then the figure in base year the trend percentage will be less then 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. There 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)

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.

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

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 excercise 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.

Bar and line charts

The bar chart is one of the most 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.

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:

Total number of shares sold short

Short interest ratio =
Averaggedaily trading volume
 PORTFOLIO MANAGEMENT

Concept of Portfolio:

Portfolio is the collection of 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 & 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.

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.

I) 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 s~ocks, 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.

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 favorable 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 analyse 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.

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 that. 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 cost 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 mix:

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 riskkadjusted 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.

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.

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 lot 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.

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.
 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 maximise 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.

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 maximise 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.
2. PUT I 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:

Numbers of puts purchased

Put / Call ratio =
Number of calls purchased
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.
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 pnces 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! Independent of historical data. 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.

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.
 UNIT VI
ANALYSIS & INTERPRETATION
 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.
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.

n
Rp= ∑ x i Ri
I =1

RP = Expected return of portfolio

N = No. of Securities in Portfolio

XI = Proportion of Investment in Security i.

Ri = Expected Return on security i

 Risk Measurement

The statistical tool often used to measure and used as a proxy for risk is the standard

deviation.

N
σ = √ Σ p ( ri - E(r))2
i=1

N
Varian ce (σ 2 ) =Σ p(ri - E(r ))2

Here σ =√ Variance (σ 2 )

P = is the probability of security

N = Number of securities in portfolio

ri = Expected return on security i

PORTFOLIO - A PORTFOLIO – B

BHEL SATYAM COMPUTERS

RELIANCE ENERGY WIPRO

CROMPTION GREAVES JINDAL STEEL

CALCULATION OF RETUN AND RISK:

 Σ Ri
EXPECTED RETURN E (Ri )=
N
 PORTFOLIO-A

BHARA T HEAVY ELECTRONICS LIMITED (BHEL):

DATE SHARE PRICE (X) (X-X') (X-X')2

4/3/2008 2,098 -62.00 3844.00

3/3/2008 2,099.45 -60.55 3666.30

29/2/200
2,282 122.00 14884.00
8

28/2/200
2,323.60 163.60 26764.96
8

27/2/200
2,262.90 102.90 10588.41
8

26/2/200
2,180.55 20.55 422.30
8

25/2/200
2,085.10 -74.90 5610.01
8

22/2/200
2,058.85 -101.15 10231.32
8

21/2/200
2,092.05 -67.95 4617.20
8

20/2/200
2,124.20 -35.80 1281.64
8

EXPECTED RETURN = 21,607/10 = 2,160 =X’

(X-X') 2 = 81,910.15

RISK = 81,910.15 = 286.20

 RELIANCE ENERGY

DATE SHARE PRICE (X) (X-X') (X-X')2

4/3/2008 1,510 -74.37 5530.90

3/3/2008 1,485.55 -98.62 9725.90

29/2/200
1,568 -16.42 269.62
8

28/2/200
1,600.70 16.53 273.24
8

27/2/200
1,631.35 47.18 2225.95
8

26/2/200
1,697.25 113.08 12787.09
8

25/2/200
1,622.70 38.53 1484.56
8

22/2/200
1,555.90 -28.27 799.19
8

21/2/200
1,595.05 10.88 118.37
8

20/2/200
1,575.65 -8.52 72.59
8

EXPECTED RETURN = 15,842/10 = 1,584 =X’

(X-X') 2 = 33,287.42

RISK = 33,287.42 = 286.20

 CROMPTON GREAVES

DATE SHARE PRICE (X) (X-X') (X-X')2

 4/3/2008 302 -8.92 79.66

3/3/2008 309.95 -0.97 0.95

29/2/200
314 3.48 12.08
8

28/2/200
326.10 15.18 230.28
8

27/2/200
326.55 15.63 244.14
8

26/2/200
311.80 0.88 0.77
8

25/2/200
299.30 -11.62 135.14
8

22/2/200
297.85 -13.07 170.96
8

21/2/200
308.70 -2.22 4.95
8

20/2/200
312.60 1.68 2.81
8

EXPECTED RETURN = 3,109/10 = 310.9 =X’

(X-X') 2 = 881.72

RISK = 881.72 = 29.69

 PORTFOLIO - B

SATYAM COMPUTERS

DATE SHARE PRICE (X) (X-X') (X-X')2

4/3/2008 406 -29.56 873.50

3/3/2008 411.95 -23.61 557.20

29/2/2008 434 -1.41 1.97

28/2/2008 446.80 11.25 126.45

27/2/2008 437.10 1.55 2.39

26/2/2008 449.75 14.20 201.50

25/2/2008 450.30 14.75 217.42

22/2/2008 438.80 3.25 10.53

21/2/2008 458.20 22.65 512.80

20/2/2008 422.50 -13.06 170.43

EXPECTED RETURN = 4,356/10 = 435.6 = X’

(X-X') 2 = 2,674.18

RISK = 2674.18 = 51.71

 WIPRO

DATE SHARE PRICE (X) (X-X') (X-X')2

4/3/2008 417 -14.13 199.52

3/3/2008 419.70 -10.93 119.36

29/2/200
435 4.02 16.20
8

28/2/200
446.45 15.83 250.43
8

27/2/200
439.90 9.27 86.03
8

26/2/200
444.15 13.53 182.93
8

25/2/200
439.55 8.93 79.66
8

22/2/200
422.40 -8.23 67.65
8

21/2/200
431.65 1.02 1.05
8

20/2/200
411.30 -19.33 373.46
8

EXPECTED RETURN = 4,306/10 = 430.6 = X’

(X-X') 2 = 13, 76.27

RISK = 1376.27 = 37.09

 JINDAL STEEL

DATE SHARE PRICE (X) (X-X') (X-X')2

4/3/2008 1,007 -73.86 5454.56

3/3/2008 1,014.40 -66.36 4402.99

29/2/200
1,062 -19.21 368.83
8

28/2/200
1,079.80 -0.96 0.91
8

27/2/200
1,063.55 -17.21 296.01
8

26/2/200
1,093.55 12.79 163.71
8

25/2/200
1,117.00 36.24 1313.70
8

22/2/200
1,115.45 34.69 1203.74
8

21/2/200
1,142.60 61.84 3824.80
8

20/2/200
1,112.75 31.99 1023.68
8

EXPECTED RETURN = 10,808/10 = 1080.8 = X’

(X-X') 2 = 18,052.94

RISK = 18052.94 = 134.36

 PORTFOLIO-A

THE RISK AND RETURN OF EACH COMPANY

IN PORTFOLIO A IS :

SL .N COMPANY RETURN RISK

o

1 BHEL 2160 286.20

2 RELIANCE ENERGY 1584 286.20

3 CROMPTON GREAVES 310.9 29.69

PORTFOLIO-B

THE RISK AND RETURN OF EACH COMPANY

IN PORTFOLIO B IS :

SI. COMPANY RETURN RISK

No

1 SATYAM COMPUTERS 435.6 51.71

2 WIPRO 430.6 37.09

3 JINDAL STEEL 1080.8 134.36

 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.

 UNIT – VII
FINDINGS & SUGGESTIONS
 Findings
 Investing rules to be remembered.
 Don't speculate unless it's full-time job
 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 pf
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

Suggestions

 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.
 Study tax position to known when sell to greatest advantages
 Always keep a good part of capital in a cash reserve. Never invest all funds.
 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.
 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

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.

BIBILOGRAPHY

INVESTMENT MANAGEMENT → BY V.K. BHALLA.

SECURITY ANALYSIS & PORTFOLIO MANAGEMENT → BY E. FISCHER & J. JORDAN.

WWW.BSEINDIA.COM.

WWW.NSEINDIA.COM.

WWW.MONEYCONTROL.COM.

DALAL STREET MAGNAZINE.

BUSINESS TODAY MAGAZINE.

FINANCIAL EXPRESS.

BUSINESS LINE .