A PROJECT REPORT

ON
SECURITY ANALYSIS AND PORTFOLIO
MANAGEMENT
UNDER TAKEN AT
HYDERABAD.
Project Report Submitted In Partial Fulillment O T!e
Re"uirement# For T!e A$ard O T!e De%ree O
&ASTER OF CO&&ARCE
'(
KONDA RAJAS)EKAR
*Re%+No+,-,.,/.010023
Under t!e %uidance
&r+ N+ SRINI4AS SIR5
OS&ANIA UNI4ERSIT6
ST JOSEP) P7 CO88E7E5
KIN7KOTI5
)6DERA'AD+
,
Academic Year 2013-15
DEC8ARATION
I !ereb( declare t!at t!i# Project Report titled 9SECURIT6 ANA86SIS
AND PORTFO8IO &ANA7E&ENT: #ubmitted b( me to t!e Department o
'u#ine## &ana%ement5 O+U+5 )(derabad5 i# a bonaide $or; underta;en b( me
and it i# not #ubmitted to an( ot!er Uni<er#it( or In#titution or t!e a$ard o an(
de%ree diploma = certiicate or publi#!ed an( time beore+
Name and Addre## o t!e Student Si%nature o t!e Student
-
OS&ANIA UNI4ERSIT6
ST JOSEP) P7 CO88E7E
KIN7KOTI5 )6DERA'AD+
CERTIFICATE
T!i# i# to certi( t!at K+RAJA S)EKAR i# a #tudent o ST JOSEP) P7
CO88E7E bearin% Roll No+ ,-,.,/.01002 !a# underta;en a project titled SECURIT6
ANA86SIS AND PORTFO8O &ANA7E&ENT at INDIA INFO8INE )6DERA'AD in
partial ulillment o !i# ma#ter in bu#ine## admini#tration cour#e+ )e !a# #ucce##ull(
completed t!e project $or; under t!e %uidance o &r+N+SRINI4AS SIR5 Principal and
acult( o Finance+
)ead o t!e Department Facult(
/
ACKNO>8ED7E&ENT
I $ould li;e to %i<e #pecial ac;no$led%ement to FAT)ER 4INCENT
ARIC)ODAS Principal O U P7 Colle%e or !i# con#i#tent #upport and
moti<ation+
I am %rateul to !i# tec!nical e?perti#e5 ad<ice and e?cellent %uidance+ )e
not onl( %a<e m( project a #crupulou# critical readin%5 but added man(
e?ample# and idea# to impro<e it+
I am indebted to m( ot!er acult( member# $!o %a<e time and a%ain
re<ie$ed portion# o t!i# project and pro<ide man( <aluable comment#+
I $ould li;e to e?pre## m( appreciation to$ard# m( riend# or t!eir
encoura%ement and #upport t!rou%!out t!i# project+
.
CONTENTS
C)APTER@l INTRODUCTION
C)APTER@- CO&PAN6 PROFI8E
C)APTER@/ SECURIT6 ANA86SIS
C)APTER@. PORTFO8IO &ANA7E&ENT
C)APTER@A PORTFO8IO ANA86SIS
C)APTER@2 PRACTICA8 STUD6 OF SO&E SE8ECTED SCRIPS
C)APTER@B CONC8USION AND SU77ESTIONS
'I'I8IO7RAP)6
A
O'JECTI4ES
TO STUD6 AND UNDERSTAND T)E PORTFO8IO &ANA7E&ENT
CONCEPTS+
TO STUD6 AND UNDERSTAND T)E SECURIT6 ANA86SIS CONCEPTS+
TO &EASURE T)E RISK AND RETURN OF PORTFOIO OF CO&PANIES+
TO SE8ECT AN OPTI&U& PORTFO8IO+
2
RESEARC) &ET)ODO8O76
SECONDAR6 DATAC@
Data collected rom <ariou# 'oo;#5 Ne$#paper# and Internet+
8I&ITATIONS
T)E &AJOR 8I&ITATIONS OF T)E PROJECT ARE C@
DETAI8ED STUD6 OF T)E TOPIC >AS NOT POSSI'8E DUE TO T)E
8I&ITED SIDE OF T)E PROJECT+
T)ERE >AS A CONSTRAINT >IT) RE7ARD TO TI&E A88OCATED FOR
T)E RESEARC) STUD6+
T)E A4AI8A'I8IT6 OF INFOR&ATION IN T)E FOR& OF ANNUA8
REPORTS E PRICE F8UCTUATIONS OF T)E CO&PANIES >AS A 'I7
CONSTRAINT TO T)E STUD6+
B
C)APTER ,
INTRODUCTION
1
)ISTOR6 OF STOCK EFC)AN7E
T!e onl( #toc; e?c!an%e# operatin% in t!e ,Gt! centur( $ere t!o#e o 'omba( #et up
in ,1BA and A!medabad #et up in ,1G.+ T!e#e $ere Eicient &ar;et )(pot!e#i# or%aniHed a#
<oluntar( non@proit@ma;in% a##ociation o bro;er# to re%ulate and protect t!eir intere#t#+
'eore t!e control on #ecuritie# tradin% became a central #ubject under t!e con#titution in
,GA05 it $a# a #tate #ubject and t!e 'omba( #ecuritie# contract# *control3 Act o ,G-A u#ed to
re%ulate tradin% in #ecuritie#+ Under t!i# Act5 T!e 'omba( Stoc; E?c!an%e $a# reco%niHed in
,G-B and A!medabad in ,G/B+
Durin% t!e $ar boom5 a number o #toc; e?c!an%e# $ere or%aniHed e<en in 'omba(5
A!medabad and ot!er center#5 but t!e( $ere not reco%niHed+ Soon ater it became a central
#ubject5 central le%i#lation $a# propo#ed and a committee !eaded b( A+D+7or$ala $ent into
t!e bill or #ecuritie# re%ulation+ On t!e ba#i# o t!e committeeI# recommendation# and public
di#cu##ion5 t!e #ecuritie# contract# *re%ulation3 Act became la$ in ,GA2+
DEFINITION OF STOCK EFC)AN7EC
JStoc; e?c!an%e mean# an( bod( or indi<idual# $!et!er incorporated or not5
con#tituted or t!e purpo#e o a##i#tin%5 re%ulatin% or controllin% t!e bu#ine## o bu(in%5
#ellin% or dealin% in #ecuritie#+J
It i# an a##ociation o member bro;er# or t!e purpo#e o #el@re%ulation and
protectin% t!e intere#t# o it# member#+
G
It can operate onl(5 i it i# reco%niHed b( t!e 7o<ernment under t!e #ecuritie#
contract# *re%ulation3 Act5 ,GA2+ T!e reco%nition i# %ranted under #ection / o t!e Act b( t!e
central %o<ernment5 &ini#tr( o Finance+
NATURE E FUNCTIONS OF STOCK EFC)AN7E
T!ere i# an e?traordinar( amount o i%norance and o prejudice born out o i%norance
$it! re%ard to nature and unction# o Stoc; E?c!an%e+ A# economic de<elopment proceed#5
t!e #cope or ac"ui#ition and o$ner#!ip o capital b( pri<ate indi<idual# al#o %ro$+ Alon%
$it! it5 t!e opportunit( or Stoc; E?c!an%e to render t!e #er<ice o #timulatin% pri<ate
#a<in%# and c!allen%in% #uc! #a<in%# into producti<e in<e#tment e?i#t# on a <a#tl( %reat
#cale+ T!e#e are #er<ice#5 $!ic! t!e Stoc; E?c!an%e alone can render eicientl(+
T!e Stoc; E?c!an%e# in India !a<e an important role to pla( in t!e buildin% o a real
#!are!older# democrac(+ To protect t!e intere#t o t!e in<e#tin% public5 t!e aut!oritie# o t!e
Stoc; E?c!an%e# !a<e been increa#in%l( #ubjectin% not onl( it# member# to a !i%! de%ree o
di#cipline5 but al#o t!o#e $!o u#e it# acilitie#@Joint Stoc; Companie# and ot!er bodie# in
$!o#e #toc;# and #!are# it deal#+
T!e acti<itie# o t!e Stoc; E?c!an%e are %o<erned b( a reco%niHed code o conduct
apart rom #tatutor( re%ulation#+ In<e#tor# bot! actual and potential are pro<ided5 t!rou%! t!e
dail( Stoc; E?c!an%e "uotation#+ T!e job o t!e Stoc; E?c!an%e and it# member# i# to #ati#(
t!e need o mar;et or in<e#tment# to brin% t!e bu(er# and #eller# o in<e#tment# to%et!er5
and to ma;e t!e IE?c!an%eI o Stoc; bet$een t!em a# #imple and air a# po##ible+
NEED FOR A STOCK EFC)AN7E
A# t!e bu#ine## and indu#tr( e?panded and econom( became more comple? in nature5
a need or permanent inance aro#e+ Entrepreneur# re"uire mone( or lon% term need#5
,0
$!erea# in<e#tor# demand li"uidit(+ T!e #olution to t!i# problem %a<e $a( or t!e ori%in o
I#toc; e?c!an%eI5 $!ic! i# a read( mar;et or in<e#tment and li"uidit(+
A# per t!e Securitie# Contract Act5 ,GA25 JSTOCK EFC)AN7EJ mean# an( bod( o
indi<idual# $!et!er incorporated or not con#tituted or t!e purpo#e o re%ulatin% or
controllin% t!e bu#ine## o bu(in%5 #ellin% or dealin% in #ecuritie#J+
'6@8A>S
'e#ide# t!e abo<e act5 t!e #ecuritie# contract# *re%ulation3 rule# $ere al#o made in
,GAB to re%ulate certain matter# o tradin% on t!e #toc; e?c!an%e#+ T!ere are al#o b(@la$# o
e?c!an%e#5 $!ic! are concerned $it! t!e ollo$in% #ubject#+
Openin% = clo#in% o t!e #toc; e?c!an%e#5 timin% o tradin%5 re%ulation o blan;
tran#er#5 re%ulation o badla or carr(o<er bu#ine##5 control o t!e #ettlement and ot!er
acti<itie# o t!e #toc; e?c!an%e5 i?ation o mar%in#5 i?ation o mar;et price# or ma;in% up
price#5 re%ulation o tara<ani bu#ine## *jobbin%35 etc+5 re%ulation o bro;er# tradin%5
'ro;era%e c!ar%e#5 tradin% rule# on t!e e?c!an%e5 arbitration and #ettlement o di#pute#5
Settlement and clearin% o t!e tradin% etc+
RE7U8ATION OF STOCK EFC)AN7EC
T!e #ecuritie# contract# *re%ulation3 act i# t!e ba#i# or operation# o t!e #toc;
e?c!an%e# in India+ No e?c!an%e can operate le%all( $it!out t!e %o<ernment permi##ion or
reco%nition+ Stoc; e?c!an%e# are %i<en monopol( in certain area# under #ection ,G o t!e
abo<e Act to en#ure t!at t!e control and re%ulation are acilitated+ Reco%nition can be %ranted
to a #toc; e?c!an%e pro<ided certain condition# are #ati#ied and t!e nece##ar( inormation i#
#upplied to t!e %o<ernment+ Reco%nition# can al#o be $it!dra$n5 i nece##ar(+ >!ere t!ere
,,
are no #toc; e?c!an%e#5 t!e %o<ernment can licen#e #ome o t!e bro;er# to perorm t!e
unction# o a #toc; e?c!an%e in it# ab#ence+
Securitie# Contract# *Re%ulation3 Act5 ,GA2C
SC*R3A aim# at pre<entin% unde#irable tran#action# in #ecuritie# b( re%ulatin% t!e
bu#ine## o dealin% t!erein b( pro<idin% or certain ot!er matter# connected t!ere$it!+ T!i# i#
t!e principal Act5 $!ic! %o<ern# t!e tradin% o #ecuritie# in India+
T!e term J#ecuritie#J !a# been deined In t!e SC*R3A+ A# per Section -*!35 t!e
ISecuritie#I includeC
,+ S!are#5 #cript#5 #toc;#5 bond#5 debenture#5 debenture #toc; or ot!er mar;etable #ecuritie#
o a li;e nature in or o an( incorporated compan( or ot!er bod( corporate
-+ Deri<ati<e
/+ Unit# or an( ot!er in#trument i##ued b( an( collecti<e in<e#tment #c!eme to t!e
in<e#tor# in #uc! #c!eme#+
.+ 7o<ernment #ecuritie#
A+ Suc! ot!er in#trument# a# ma( be declared b( t!e Central 7o<ernment to be #ecuritie#+
2+ Ri%!t# or intere#t# in #ecuritie#+
,-
SECURITIES AND EFC)AN7E 'OARD OF INDIA *SE'I3
Securitie# and E?c!an%e 'oard o India *SE'I3 #etup a# an autonomou# re%ulator(
aut!orit( b( t!e 7o<ernment o India in ,G11 Jto protect t!e intere#t# o in<e#tor# in
#ecuritie# and to promote t!e de<elopment o5 and to re%ulate t!e #ecuritie# mar;et and or
matter# connected t!ere$it! or incidental t!eretoJ+ It i# empo$ered b( t$o act# namel( t!e
SE'I Act5 ,GG- and t!e #ecuritie# contract *re%ulation3 Act5 ,GA2 to perorm t!e unction o
protectin% in<e#torI# ri%!t# and re%ulatin% t!e capital mar;er#+
Securitie# and E?c!an%e 'oard o India *SE'I3 re%ulator( reac! !a# been e?tended to
more area# and t!ere i# a con#iderable c!an%e in t!e capital mar;et+ SE'II# annual report or
,GGB@G1 !a# #tated t!at t!rou%! out it# #i?@(ear e?i#tence a# a #tatutor( bod(5 it !a# #ou%!t to
balance t!e t$in objecti<e# o in<e#tor protection and mar;et de<elopment+ It !a# ormulated
ne$ rule# and crated re%ulation# to o#ter de<elopment+ &onitorin%+ and #ur<eillance $a#
put in place in t!e Stoc; E?c!an%e# in ,GG2@GB and #tren%t!ened in ,GGB@G1+
SE'I $a# #et up a# an autonomou# re%ulator( aut!orit( b( t!e %o<ernment o India in
,G11 Jto protect t!e intere#t# o in<e#tor# in #ecuritie# and to promote t!e de<elopment o5
and to re%ulate t!e #ecuritie# mar;et and or matter# connected t!ere$it! or incidental
t!eretoJ+ It i# empo$ered b( t$o act# namel( t!e SE'I Act5 ,GG- and t!e #ecuritie# contract
*re%ulation3 Act5 ,GA2 to perorm t!e unction o protectin% in<e#torI# ri%!t# and re%ulatin%
t!e capital mar;et#+
,/
O'JECTI4ES OF SE'I
T!e promul%ation o t!e SE'I ordinance in t!e parliament %a<e #tatutor( #tatu# to5
SE'I in ,GG-+ Accordin% to t!e preamble o t!e SE'I5 t!e t!ree main objecti<e# areC@
To protect t!e intere#t# o t!e in<e#tor# in #ecuritie#
To promote t!e de<elopment o #ecuritie# mar;et+
To re%ulate t!e #ecuritie# mar;et+
SA8IENT FEATURES OF SE'I
T!e SE'I #!all be a bod( corporate b( t!e name !a<in% perpetual #ucce##ion and a
common #eal $it! po$er to ac"uire5 !old and di#po#e o propert(5 bot! mo<able and
immo<able5 and to contract5 and #!all5 b( t!e #aid name5 #ue or b( #ued+
T!e )ead Oice o t!e 'oard #!all be at 'omba(+ T!e 'oard ma( e#tabli#! oice# at
ot!er place# in India+ In 'omba(5 t!e 'oard i# #ituated at &ittal Court5 '@ >in%5 --.5
Nariman Point5 'omba(@.00 0-,+
T!e c!airman and t!e &ember# o t!e 'oard are appointed b( t!e Central
7o<ernment+
T!e %eneral #uperintendence5 direction and mana%ement o t!e aair# o t!e 'oard
are in a 'oard o &ember#5 $!ic! ma( e?erci#e all po$er# and do all act# and t!in%#
$!ic! ma( be e?erci#ed or done b( t!at 'oard+
T!e 7o<ernment can pre#cribe term# o oice and ot!er condition# o #er<ice o t!e
C!airman and &ember# o t!e 'oard+ T!e member# can be remo<ed under #ection 2
o t!e SE'I Act under #peciied circum#tance#+
It i# primar( dut( o t!e 'oard to protect t!e intere#t o t!e in<e#tor in #ecuritie# and
to promote t!e de<elopment o and to re%ulate t!e #ecuritie# mar;et b( #uc! mea#ure#5
a# it t!in;# it+
,.
FUNCTIONS OF SE'I
Re%ulatin% t!e bu#ine## in Stoc; E?c!an%e and an( ot!er #ecuritie# mar;et+
Re%i#terin% and re%ulatin% t!e $or;in% o Stoc; 'ro;er#5 Sub@'ro;er#5 S!are Tran#er
A%ent#5 'an;er# to t!e i##ue5 Tru#tee# to tru#t deed#5 Re%i#trar# to an i##ue5 &erc!ant
'an;er#5 Under$riter#5
Portolio &ana%er#5 In<e#tment Ad<i#er# and #uc! ot!er Intermediarie# $!o ma( be
a##ociated $it! #ecuritie# mar;et in an( manner+
Re%i#terin% and re%ulatin% t!e $or;in% o collecti<e in<e#tment #c!eme# includin%
&utual Fund#+
Promotin% and re%ulatin% #el@re%ulator( or%aniHation#+
Pro!ibitin% raudulent and unair trade practice# in t!e #ecuritie# mar;et+ Promotin%
in<e#torI# education and trainin% o intermediarie# in #ecuritie# mar;et+ Pro!ibitin%
In#ider# Tradin% in #ecuritie#+
Re%ulatin% #ub#tantial ac"ui#ition o #!are# and ta;e@o<er o companie#
Callin% or inormation5 under#tandin% in#pection5 conductin% en"uirie# and audit# o
t!e Stoc; E?c!an%e#5 Intermediarie# and Sel@Re%ulator( or%aniHation# in t!e
#ecuritie# mar;et+
,A
PROFI8E OF
NATIONA8 STOCK EFC)AN7E
,2
NATIONA8 STOCK EFC)AN7E
T!e NSE $a# incorporated in No<ember ,GG- $it! an e"uit( capital o R#+-Acr#+ T!e
International Securitie# Con#ultanc( *IS C3 o )on% Kon% !elped in #ettin% up NSE+ ISC
prepared t!e detailed bu#ine## plan# and in#tallation o !ard$are and #ot$are #(#tem#+ T!e
promotion# or NSE $ere Financial In#titution#5 In#urance# Companie#5 'an;# and SE'I
Capital &ar;et 8td+5 Inra#tructure 8ea#in% and Financial Ser<ice# 8td+ and Stoc; )oldin%
Corporation 8td+
It !a# been #et up to #tren%t!en t!e mo<e to$ard# proe##ionali#ation o t!e capital
mar;et a# $ell a# pro<ide nation $ide #ecuritie# tradin% acilitie# to in<e#tor#+
NSE i# not an e?c!an%e in t!e traditional #en#e $!ere bro;er# o$n and mana%e t!e
e?c!an%e+ A t$o tier admini#trati<e #etup in<ol<in% a compan( board and a %o<ernin% board
o t!e e?c!an%e i# en<i#a%ed+
NSE i# a national mar;et or #!are# o Public Sector Unit# 'ond#5 Debenture# and
7o<ernment #ecuritie#5 #ince inra#tructure and tradin% acilitie# are pro<ided+
NSE@NIFT6C
T!e NSE on April --5 ,GG2 launc!ed a ne$ e"uit( Inde?+ T!e NSE@A0+ T!e ne$
Inde? $!ic! replace# t!e e?i#tin% NSE@,00 Inde? i# e?pected to #er<e a# an appropriate Inde?
or t!e ne$ #e%ment o uture# and option#+
JNiftyJ mean# National Inde? or Fit( Stoc;#+
,B
T!e NSE@A0 compri#e# A0 companie# t!at repre#ent -0 broad Indu#tr( %roup# $it! an
a%%re%ate mar;et capitaliHation o around R#+,5B05000 cr#+ All companie# included in t!e
Inde? !a<e a mar;et capitaliHation in e?ce## o R#+A00 cr# eac! and #!ould !a<e traded or
1AK o tradin% da(# at an impact co#t o le## t!an ,+AK+
T!e ba#e period or t!e inde? i# t!e clo#e o price# on No</5 ,GGA $!ic! ma;e# one
(ear o completion o operation o NSEI# capital mar;et #e%ment+ T!e ba#e <alue o t!e Inde?
!a# been #et at ,000+
NSE@&IDCAP INDEFC
T!e NSE midcap Inde? or t!e Junior Nit( compri#e# A0 #toc;# t!at repre#ent# -,
board Indu#tr( %roup# and $ill pro<ide proper repre#entation o t!e midcap #e%ment o t!e
Indian capital &ar;et+ All #toc;# in t!e Inde? #!ould !a<e mar;et capitaliHation o %reater
t!an R#+-00 cr# and #!ould !a<e traded 1AK o t!e tradin% da(# at an impact co#t o le##
-+AK+
T!e ba#e period or t!e inde? i# No< .5 ,GG2 $!ic! #i%niie# t$o (ear# or completion
o operation# o t!e capital mar;et #e%ment o t!e operation+ T!e ba#e <alue o t!e Inde? !a#
been #et at ,000+
A<era%e dail( turn o<er o t!e pre#ent #cenario -5A15-,- *8ac#3 and number o
a<era%e dail( trade# -5,20 *8ac#3+
At pre#ent5 t!ere are -. #toc; e?c!an%e# reco%niHed under t!e Securitie# Contract
*Re%ulation3 Act5 ,GA2+ T!e( areC
,1
STOCK EFC)AN7ES IN INDIA
S+No NA&E OF T)E STOCK EFC)AN7E 6EAR
, 'omba( Stoc; E?c!an%e ,1BA
- )(derabad Stoc; E?c!an%e ,G./
/ A!medabad S!are and Stoc; 'ro;er# A##ociation ,GAB
. Calcutta Stoc; E?c!an%e A##ociation 8imited ,GAB
A Del!i Stoc; E?c!an%e A##ociation 8imited+ ,GAB
2 &adra# Stoc; E?c!an%e A##ociation 8imited+ ,GAB
B Indoor Stoc; 'ro;er# A##ociation+ ,GA1
1 'an%alore Stoc; E?c!an%e+ ,G2/
G Coc!in Stoc; E?c!an%e+ ,GB1
,0 Pune Stoc; E?c!an%e 8imited+ ,G1-
,, U+P Stoc; E?c!an%e A##ociation 8imited+ ,G1-
,- 8ud!iana Stoc; E?c!an%e A##ociation 8imited+ ,G1/
,/ Jaipur Stoc; E?c!an%e 8imited+ ,G1.
,. 7au!at!i Stoc; E?c!an%e 8imited+ ,G1.
,A &an%alore Stoc; E?c!an%e 8imited ,G1A
,2 &a%!ad Stoc; E?c!an%e 8imited5 Patna ,G12
,B '!u<ane#!$ar Stoc; E?c!an%e A##ociation 8imited ,G1G
,1 O<er t!e Stoc; E?c!an%e 8imited+ ,G1G
,G Saura#t!ra Kutc! Stoc; E?c!an%e 8imited+ ,GG0
-0 4adodara Stoc; E?c!an%e 8imited+ ,GG,
-, Coimbatore Stoc; E?c!an%e 8imited+ ,GG,
-- &eerut Stoc; E?c!an%e 8imited+ ,GG,
-/ National Stoc; E?c!an%e 8imited ,GG-
-. Inte%rated Stoc; E?c!an%e+ ,GGG
,G
PROFI8E OF 'O&'A6 STOCK
EFC)AN7E
-0
'O&'A6 STOCK EFC)AN7E
T!i# Stoc; E?c!an%e5 &umbai5 popularl( ;no$n a# J'O&'A6 STOCK
EFC)AN7E *'SE3J $a# e#tabli#!ed in ,1BA a# IIT!e Nati<e S!are and Stoc; 'ro;er#
A##ociationJ5 a# a <oluntar( non@proit ma;in% a##ociation+ It !a# e<ol<ed o<er t!e (ear# into
it# pre#ent #tatu# a# t!e premiere Stoc; E?c!an%e in t!e countr(+ It ma( be noted t!at t!e
Stoc; E?c!an%e i# t!e olde#t one in A#ia5 e<en older t!an t!e To;(o Stoc; E?c!an%e5 $!ic!
$a# ounded in ,1B1+
T!e e?c!an%e5 $!ile pro<idin% an eicient and tran#parent mar;et or tradin% in
#ecuritie#5 up!old# t!e intere#t# o t!e in<e#tor# and en#ure# redre##al o t!eir %rie<ance#5
$!et!er a%ain#t t!e companie# or it# o$n member bro;er#+ It al#o #tri<e# to educate and
enli%!ten t!e in<e#tor# b( ma;in% a<ailable nece##ar( inormati<e input# and conductin%
in<e#tor education pro%ramme#+
A %o<ernin% board compri#in% o G elected director#5 - SE'I nominee#5 B public
repre#entati<e# and an e?ecuti<e director i# t!e ape? bod(5 $!ic! decide# t!e policie# and
re%ulate# t!e aair# o t!e e?c!an%e+
T!e E?ecuti<e director a# t!e c!ie e?ecuti<e oicer i# re#pon#ible or t!e da( to da(
admini#tration o t!e e?c!an%e+
'SE INDICESC
In order to enable t!e mar;et participant#5 anal(#t# etc+5 to trac; t!e <ariou# up# and
do$n# in t!e Indian #toc; mar;et5 t!e E?c!an%e introduced in ,G12 an e"uit( #toc; inde?
called 'SE@SENSEF t!at #ub#e"uentl( became t!e barometer o t!e moment# o t!e #!are
price# in t!e Indian #toc; mar;et+ It i# a J&ar;et capitaliHation@$ei%!tedJ inde? o /0
component #toc;# repre#entin% a #ample o lar%e5 $ell e#tabli#!ed and leadin% companie#+
-,
T!e ba#e (ear o SENSEF i# ,GB1@BG+ T!e SENSEF i# $idel( reported in bot! dome#tic and
international mar;et# t!rou%! print a# $ell a# electronic media+
SENSEF i# calculated u#in% a mar;et capitaliHation $ei%!ted met!od+ A# per t!i#
met!odolo%(5 t!e le<el o t!e inde? relect# t!e total mar;et <alue o all /0 component #toc;#
rom dierent indu#trie# related to particular ba#e period+ T!e total mar;et <alue o a
compan( i# determined b( multipl(in% t!e price o it# #toc; b( t!e number o #!are#
out#tandin%+ Stati#tician# call an inde? o a #et o combined <ariable# *#uc! a# price and
number o #!are#3 a compo#ite Inde?+ An Inde?ed number i# u#ed to repre#ent t!e re#ult# o
t!i# calculation in order to ma;e t!e <alue ea#ier to $or; $it! and trac; o<er a time+ It i#
muc! ea#ier to %rap! a c!art ba#ed on Inde?ed <alue# t!an one ba#ed on actual <alue# $orld
o<er majorit( o t!e $ell ;no$n Indice# are con#tructed u#in% J&ar;et capitaliHation
$ei%!ted met!odJ+
In practice5 t!e dail( calculation o SENSEF i# done b( di<idin% t!e a%%re%ate mar;et
<alue o t!e /0 companie# in t!e Inde? b( a number called t!e Inde? Di<i#or+ T!e Di<i#or i#
t!e onl( lin; to t!e ori%inal ba#e period <alue o t!e SENSEF+
T!e Di<i#or ;eep# t!e Inde? comparable o<er a period o time and it i# t!e reerence
point or t!e entire Inde? maintenance adju#tment#+ SENSEF i# $idel( u#ed to de#cribe t!e
mood in t!e Indian Stoc; mar;et#+ 'a#e (ear a<era%e i# c!an%ed a# per t!e ormulaC
'a#e (ear a<era%e i# c!an%ed a# per t!e ormula
Ne$ ba#e (ear a<era%e L old ba#e (ear a<era%e M*ne$ mar;et <alue=old mar;et <alue3
--
C)APTER N -
CO&PAN6 PROFI8E
-/
CO&PAN6 PROFI8E
About India Inoline
Started in ,GGA a# an independent bu#ine## re#earc! and inormation #er<ice# pro<ider
no$ e<ol<ed into a one@#top inancial #er<ice# pro<ider+ &ana%ed b( competent
proe##ional# $it! impeccable trac; record and $it! a deep under#tandin% o t!e

Indian inancial #er<ice# #pace pro<idin% t!em $it! t!e le?ibilit( to eit!er top in to
our e?ten#i<e ;no$led%e and e?perti#e or ma;e t!eir o$n deci#ion+
8ocation
)ead"uartered in &umbai5 India+ Pan@India di#tribution net$or;5 compri#in% BA1
bu#ine## location# *20B branc!e#5 ,A, ranc!i#ee#3 in /.2 citie#O international pre#ence
in Dubai5 Ne$ 6or; and Sin%apore+ 8i#ted on t!e 'SE and NSE+
Our &ember#!ip#
NSE5 'SE *#ecuritie# tradin%3+ &CF5 NCDEF and D7CF *commoditie# tradin%3+
NSD8 and CDS8 *depo#itor( participant3 Re%i#tered a# a Cate%or(@I &erc!ant
'an;er+ SE'I@re%i#tered Portolio &ana%er+ India Inoline In<e#tment Ser<ice# 8td+
and &one( line Credit 8td+ Are re%i#tered $it! R'I a# non@depo#it acceptin% non@
ban;in% inancial companie#+
-.
Oerin% Product# and Ser<ice#
>e are a one@#top inancial #er<ice# #!op5 mo#t re#pected or "ualit( o it# ad<ice5
per#onali#ed #er<ice and cuttin%@ed%e tec!nolo%(+
E"uitie#
India inoline pro<ided t!e pro#pect o re#earc!ed in<e#tin% to it# client#5 $!ic! $a#
!it!erto re#tricted onl( to t!e in#titution#+ Re#earc! or t!e retail in<e#tor did not e?i#t prior
to India inoline+ India inoline le<era%ed tec!nolo%( to brin% t!e con<enience o tradin% to
t!e in<e#torP# location o preerence *re#idence or oice3 t!rou%! computeri#ed acce##+
India inoline made it po##ible or client# to <ie$ tran#action co#t# and led%er update# in real
time+
Portolio &ana%ement Ser<ice
Our Portolio &ana%ement Ser<ice i# a product $!erein an e"uit( in<e#tment
portolio i# created to #uit t!e in<e#tment objecti<e# o a client+ >e at India inoline
in<e#t (our re#ource# into #toc;# rom dierent #ector#5 dependin% on (our ri#;@
return proile+ T!i# #er<ice i# particularl( ad<i#able or in<e#tor# $!o cannot aord
to %i<e time or donIt !a<e t!at e?perti#e or da(@to@da( mana%ement o t!eir e"uit(
portolio+
Re#earc!
Sound in<e#tment deci#ion# depend upon reliable undamental data and #toc;
#election tec!ni"ue#+ India inoline E"uit( Re#earc! i# proud o it# reputation or5
and $e $ant (ou to ind t!e act# t!at (ou need+ E"uit( in<e#tment proe##ional#
routinel( u#e our re#earc! and model# a# inte%ral tool# in t!eir $or;+
T!e( c!oo#e Ford E"uit( Re#earc! $!en t!e( can clear (our doubt#+
-A
Commoditie#
India inolineP# e?ten#ion into commoditie# tradin% reconcile# it# #trate%ic intent to
emer%e a# a one@#top #olution# inancial intermediar(+ It# e?perience in #ecuritie#
bro;in% !a# empo$ered it $it! re"ui#ite #;ill# and tec!nolo%ie#+ T!e Compan(P#
commoditie# bu#ine## pro<ide# a contra@c(clical alternati<e to e"uitie# bro;in%+ T!e
Compan( $a# amon% t!e ir#t to oer t!e acilit( o commoditie# tradin% in IndiaP#
(oun% commoditie# mar;et *t!e &CF commenced operation# onl( in -00/3+
A<era%e mont!l( turno<er on t!e commodit( e?c!an%e# increa#ed rom R# 0+/. bn
to R# -0+0- bn+ T!e commoditie# mar;et !a# #e<eral product# $it! dierent and
non@correlated c(cle#+ On t!e $!ole5 t!e bu#ine## i# airl( in#ulated a%ain#t c(clical
%(ration# in t!e bu#ine##+
&ort%a%e#
Durin% t!e (ear under re<ie$5 India inoline ac"uired a BAK #ta;e in &one(tree
Con#ultanc( Ser<ice# to mar; it# ora( into t!e bu#ine## o mort%a%e# and ot!er
loan product# di#tribution+ T!e bu#ine## i# #till in t!e in<e#tin% p!a#e and at t!e time
o t!e ac"ui#ition $a# pre#ent onl( in t!e citie# o &umbai and Pune+ T!e Compan(
brin%# on board e?perti#e in t!e loan# bu#ine## coupled $it! e?i#tin% relation#!ip#
acro## a number o principal# in t!e mort%a%e and per#onal loan# bu#ine##e#+
India inoline no$ !a# plan# to roll t!e bu#ine## out acro## it# pan@Indian net$or; to
pro<ide it $it! a trul( national #cale in operation#+
)ome 8oan#
7et e?pert ad<ice t!at #uit# (our
need#
8oan a%ain#t re#idential and
commercial propert(
Per#onal 8oan#
Freedom to c!oo#e rom . le?ible
option# to repa(
E?pert recommendation#
Ea#( documentation
-2
E?pert recommendation#
Ea#( documentation
Quic; proce##in% and di#bur#al
No %uarantor re"uirement
Quic; proce##in% and di#bur#al
No %uarantor re"uirement
In<e#t Online
India inoline !a# made in<e#tin% in &utual und# and primar( mar;et #o eortle##+
All (ou !a<e to do i# re%i#ter $it! u# and t!atP# all+ No paper$or; no "ueue# and No
re%i#tration c!ar%e#+
IN4EST IN &F
India inoline oer# (ou a !o#t o mutual und c!oice# under one roo5 bac;ed b( in@
dept! re#earc! and ad<ice rom re#earc! !ou#e and tool# coni%ured a# in<e#tor
riendl(+
APP86 IN IPO#
6ou could al#o in<e#t in Initial Public Oer# *IPOP#3 online $it!out %oin% t!rou%!
t!e !a##le# o illin% AN6 application orm= paper$or;+
S&S
Sta( connected to t!e mar;et
T!e trader o toda(5 (ou are con#tantl( on t!e mo<e+ 'ut !o$ do (ou #ta( connected
to t!e mar;et $!ile on t!e mo<eR Simple5 #ub#cribe to India InolineI# Stoc;
&e##a%in% Ser<ice and %et &ar;et on (our &obileS
T!ere are t!ree product# under S&S Ser<iceC
-B
&ar;et on t!e mo<e+
'e#t o t!e lot+
4AS *4alue Added Ser<ice 3
In#urance
An entr( into t!i# #e%ment !elped complete t!e clientP# product ba#;etO
concurrentl(5 it %raduated t!e Compan( into a one@#top retail inancial #olution#
pro<ider+ To en#ure ma?imum reac! to cu#tomer# acro## India5 $e !a<e emplo(ed a
multi pron%ed approac! and reac! out to cu#tomer# <ia our Net$or;5 Direct and
Ailiate c!annel#+ Follo$in% t!e openin% o t!e #ector in ,GGG@-0005 a number o
pri<ate #ector in#urance #er<ice pro<ider# commenced operation# a%%re##i<el( and
!elped %ro$ t!e mar;et+
T!e Compan(P# entr( into t!e in#urance #ector deri#;ed t!e Compan( rom a
predominant dependence on bro;in% and e"uit(@lin;ed re<enue#+ T!e annuit( ba#ed
income %enerated rom in#urance intermediation re#ult in #olid core re<enue# acro##
t!e tenure o t!e polic(+
>ealt! &an%ement Ser<ice
Ima%ine a inancial irm $it! t!e !eart and #oul o a t$o@per#on or%aniHation+ A
$orld@leadin% $ealt! mana%ement compan( t!at #it# do$n $it! (ou to under#tand
(our need# and %oal#+ >e oer (ou a dedicated %roup or %i<in% (ou t!e mo#t
per#onal attention at e<er( le<el+
Ne$#letter#
T!e Dail( &ar;et Strate%( i# (our mornin% do#e on t!e !ealt! o t!e mar;et#+ Fi<e
intra@da( idea#5 unle## t!e mar;et# are reall( c!opp( coupled $it! a brie on t!e
-1
%lobal mar;et# and an( ot!er cue#5 $!ic! could impact t!e mar;et+
C)APTER N /
SECURIT6 ANA86SIS
-G
SECURIT6 ANA86SIS
DeinitionC
For ma;in% proper in<e#tment in<ol<in% bot! ri#; and return5 t!e in<e#tor !a# to ma;e
#tud( o t!e alternati<e a<enue# o t!e in<e#tment@t!eir ri#; and return c!aracteri#tic#5 and
ma;e a proper projection or e?pectation o t!e ri#; and return o t!e alternati<e in<e#tment#
under con#ideration+ )e !a# to tune t!e e?pectation# to t!i# preerence o t!e ri#; and return
or ma;in% a proper in<e#tment c!oice+ T!e proce## o anal(Hin% t!e indi<idual #ecuritie# and
t!e mar;et a# a $!ole and e#timatin% t!e ri#; and return e?pected rom eac! o t!e
in<e#tment# $it! a <ie$ to identi( under<alue# #ecuritie# or bu(in% and o<er<alue#
#ecuritie# or #ellin% i# bot! an art and a #cience t!at i# $!at called #ecurit( anal(#i#+
Securit(C
T!e #ecurit( !a# inclu#i<e o #!are#5 #cript#5 bond#5 debenture #toc; or an( ot!er
mar;etable #ecuritie# o li;e nature in or o an( debenture# o a compan( or bod( corporate5
t!e %o<ernment and #emi %o<ernment bod( etc+
In t!e #trict #en#e o t!e $ord5 a #ecurit( i# an in#trument o promi##or( note or a
met!od o borro$in% or lendin% or a #ource o contributin% to t!e und# need b( a corporate
bod( or non@corporate bod(5 pri<ate #ecurit( or e?ample i# al#o a #ecurit( a# it i# a
promi##or( note o an indi<idual or irm and %i<e# ri#e to claim on mone(+ 'ut #uc! pri<ate
#ecuritie# o pri<ate companie# or promi##or( note# o indi<idual#5 partner#!ip or irm to t!e
intent t!at t!eir mar;etabilit( i# poor or nil5 are not part o t!e capital mar;et and do not
con#titute part o t!e #ecurit( anal(#i#+
/0
Anal(#i# o #ecuritie#C
Securit( anal(#i# in bot! traditional #en#e and modern #en#e in<ol<e# t!e projection o
uture di<idend or en#urin% lo$#5 oreca#t o t!e #!are price in t!e uture and e#timatin% t!e
intrin#ic <alue o a #ecurit( ba#ed on t!e oreca#t o earnin%# or di<idend+
Securit( anal(#i# in traditional #en#e i# e##entiall( on anal(#i# o t!e undamental
<alue o #!are# and it# oreca#t or t!e uture t!rou%! t!e calculation o it# intrin#ic $ort! o
#!are+
&odern #ecurit( anal(#i# relie# on t!e undamental anal(#i# o t!e #ecurit(5 leadin% to
it# intrin#ic $ort! and al#o ri#e@return anal(#i# dependin% on t!e <ariabilit( o t!e return#5
co<ariance5 #aet( o und# and t!e projection o t!e uture return#+
I t!e #ecurit( anal(#i# ba#ed on undamental actor# o t!e compan(5 t!en t!e oreca#t
o t!e #!are price !a# to ta;e into account ine<itabl( t!e trend# and t!e #cenario in t!e
econom(5 in t!e indu#tr( to $!ic! t!e compan( belon%# and inall( t!e #tren%t!# and
$ea;ne##e# o t!e compan( it#el+ It# mana%ement5 promoter# bac;$ard5 inancial re#ult#5
projection o e?pan#ion5 term plannin% etc+
Approac!e# to Securit( Anal(#i#C
Fundamental Anal(#i#
Tec!nical Anal(#i#
Eicient &ar;et )(pot!e#i#
/,
FUNDA&ENTA8 ANA86SIS
ItI# a lo%ical and #(#tematic approac! to e#timatin% t!e uture di<idend# E #!are price
a# t!e#e t$o con#titute# t!e return rom in<e#tin% in #!are#+ Accordin% to t!i# approac!5 t!e
#!are price o a compan( i# determined b( t!e undamental actor# aectin% t!e Econom(=
Indu#tr(= Compan( #uc! a# Earnin%# Per S!are5 DIP ratio5 Competition5 &ar;et S!are5
Qualit( o &ana%ement etc+ it calculate# t!e true $ort! o t!e #!are ba#ed on itI# pre#ent and
uture earnin% capacit( and compare# it $it! t!e current mar;et price to identi( t!e mi#@
priced #ecuritie#+
Fundamental anal(#i# in<ol<e# a t!ree@#tep e?amination5 $!ic! call# orC
,+ Under#tandin% o t!e macro@economic en<ironment and de<elopment#+
-+ Anal(#in% t!e pro#pect# o t!e Gndu#tr( to $!ic! t!e irm belon%#
/+ A##e##in% t!e projected perormance o t!e compan(+
&ACRO ECONO&IC ANA86SISC
T!e macro@econom( i# t!e o<erall economic en<ironment in $!ic! all irm# operate+
T!e ;e( <ariable# commonl( u#ed to de#cribe t!e #tate o t!e macro@econom( areC
7ro$t! Rate o 7ro## Dome#tic Product *7DP3
T!e 7ro## Dome#tic Product i# mea#ure o t!e total production o inal %ood# and
#er<ice# in t!e econom( durin% a #peciied period u#uall( a (ear+ T!e %ro$t! rate 0 7DP i#
t!e mo#t important indicator o t!e perormance o t!e econom(+ T!e !i%!er t!e %ro$t! rate
o 7DP5 ot!er t!in%# bein% e"ual5 t!e more a<ourable it i# or t!e #toc; mar;et+
/-
Indu#trial 7ro$t! RateC
T!e #toc; mar;et anal(#t# ocu# more on t!e indu#trial #ector+ T!e( loo; at t!e o<erall
indu#trial %ro$t! rate a# $ell a# t!e %ro$t! rate# o dierent indu#trie#+
T!e !i%!er t!e %ro$t! rate o t!e indu#trial #ector5 ot!er t!in%# bein% e"ual5 t!e more
a<ourable it i# or t!e #toc; mar;et+
A%riculture and &on#oon#C
A%riculture account# or about a "uarter o t!e Indian econom( and !a# important
lin;a%e#5 direct and indirect5 $it! indu#tr(+ )ence5 t!e increa#e or decrea#e o a%ricultural
production !a# a #i%niicant bearin% on indu#trial production and corporate perormance+
A #pell o %ood mon#oon# impart# d(nami#m to t!e indu#trial #ector and buo(anc( to
t!e #toc; mar;et+ 8i;e$i#e5 a #trea; o bad mon#oon# ca#t# it# #!ado$ o<er t!e indu#trial
#ector and t!e #toc; mar;et+
Sa<in%# and In<e#tment#C
T!e demand or corporate #ecuritie# !a# an important bearin% on #toc; price
mo<ement#+ So in<e#tment anal(#t# #!ould ;no$ $!at i# t!e le<el o in<e#tment in t!e
econom( and $!at proportion o t!at in<e#tment i# directed to$ard t!e capital mar;et+ T!e
anal(#t# #!ould al#o ;no$ $!at are t!e #a<in%# and !o$ t!e #ame are allocated o<er <ariou#
in#trument# li;e e"uitie#5 bond#5 ban; depo#it#5 #mall #a<in%# #c!eme#5 and bullion+ Ot!er
t!in%# bein% e"ual5 t!e !i%!er t!e le<el o #a<in%# and in<e#tment# and t!e %reater t!e
allocation o t!e #ame o<er e"uitie#5 t!e more a<ourable it i# or t!e #toc; mar;et+
7o<ernment 'ud%et and Deicit
7o<ernment pla(# an important role in mo#t economIe#+ T!e e?ce## o %o<ernment
e?penditure# o<er %o<ernmental re<enue# repre#ent# t!e deicit+ >!ile t!ere are #e<eral
mea#ure# or deicit5 t!e mo#t popular mea#ure i# t!e i#cal deicit+
//
T!e i#cal deicit !a# to be inanced $it! %o<ernment borro$in%#5 $!ic! i# done in
t!ree $a(#+
,+ T!e %o<ernment can borro$ rom t!e re#er<e ban; o India+
-+ T!e %o<ernment can re#ort to borro$in% in dome#tic capital mar;et+
/+ T!e %o<ernment ma( borro$ rom abroad+
In<e#tment anal(#t# e?amine t!e %o<ernment bud%et to a##e## !o$ it i# li;el( to impact on
t!e #toc; mar;et+
Price 8e<el and Inlation
T!e price le<el mea#ure# t!e de%ree to $!ic! t!e nominal rate o %ro$t! in 7DP i#
attributable to t!e actor o inlation+ T!e eect o inlation on t!e corporate #ector tend# to be
une<en+ >!ile certain indu#trie# ma( beneit5 ot!er# tend to #uer+ Indu#trie# t!at enjo( a
#tron% mar;et or t!ere product# and $!ic! do not come under t!e pur<ie$ o price control
ma( beneit+ On t!e ot!er !and5 indu#trie# t!at !a<e a $ea; mar;et and $!ic! come under t!e
pur<ie$ o price control tend to lo#e+ On t!e $!ole5 it appear# t!at a mild le<el o inlation i#
%ood or t!e #toc; mar;et+
Intere#t Rate
Intere#t rate# <ar( $it! maturit(5 deault ri#;5 inlation rate5 produc2i<it( o capital5
#pecial eature#5 and #o on+ A ri#e in intere#t rate# depre##e# corporate proitabilit( and al#o
lead# to an increa#e in t!e di#count rate applied b( e"uit( in<e#tor#5 bot! o $!ic! !a<e an
ad<er#e impact on #toc; price#+ On t!e ot!er !and5 a all in intere#t rate# impro<e# corporate
proitabilit( and al#o lead# to a decline in t!e di#count rate applied b( e"uit( in<e#tor#5 bot!
o $!ic! !a<e a a<ourable impact on #toc; price#+
/.
'alance o Pa(ment#5 Fore? Re#er<e#5 and E?c!an%e Rate#C
T!e balance o pa(ment# deicit deplete# t!e ore? re#er<e# o t!e countr( and !a# an
ad<er#e impact on t!e e?c!an%e rateO on t!e ot!er !and a balance o pa(ment# #urplu#
au%ment# t!e ore? re#er<e# o t!e countr( and !a# a a<ourable impact on t!e e?c!an%e rate+
Inra#tructural Facilitie# and Arran%ement#C
Inra#tructural acilitie# and arran%ement# #i%niicantl( inluence indu#trial
perormance+ &ore #peciicall(5 t!e ollo$in% are importantC
Ade"uate and re%ular #uppl( o electric po$er at a rea#onable tari+
A $ell de<eloped tran#portation and communication #(#tem *rail$a( tran#portation5
road net$or;5 inland $ater$a(#5 port acilitie#5 air lin;#5 and telecommunication#
#(#tem3+
An a##ured #uppl( o ba#ic indu#trial ra$ material# li;e #teel5 coal5 petroleum
product#5 and cement+
Re#pon#i<e inancial #upport or i?ed a##et# and $or;in% capital+
Sentiment#C
T!e #entiment# o con#umer# and bu#ine##men can !a<e an important bearin% on
economic perormance+ )i%!er con#umer conidence lead# to !i%!er e?penditure on
bi%%tic;et item#+ )i%!er bu#ine## conidence %et# tran#lated into %reater bu#ine## in<e#tment
t!at !a# a #timulatin% eect on t!e econom(+ T!u#5 #entiment# inluence con#umption and
in<e#tment deci#ion# and !a<e a bearin% on t!e a%%re%ate demand or %ood# and #er<ice#+
/A
INDUSTR6 ANA86SIS
T!e objecti<e o t!i# anal(#i# i# to a##e## t!e pro#pect# o <ariou# indu#trial
%roupin%#+ Admittedl(5 it i# almo#t impo##ible to oreca#t e?actl( $!ic! indu#trial %roupin%#
$ill appreciate t!e mo#t+ 6et careul anal(#i# can #u%%e#t $!ic! indu#trie# !a<e a bri%!ter
uture t!an ot!er# and $!ic! indu#trie# are pla%ued $it! problem# t!at are li;el( to per#i#t or
$!ile+
Concerned $it! t!e ba#ic# o indu#tr( anal(#i#5 t!i# #ection i# di<ided into t!ree part#C
Indu#tr( lie c(cle anal(#i#
Stud( o t!e #tructure and c!aracteri#tic# o an indu#tr(
Proit potential o indu#trie#C Porter model+

INDUSTR6 8IFE C6C8E ANA86SISC
&an( indu#trie# economi#t# belie<e t!at t!e de<elopment o almo#t e<er( indu#tr(
ma( be anal(#ed in term# o a lie c(cle $it! our $ell@deined #ta%e#C
Pioneerin% #ta%eC
Durin% t!i# #ta%e5 t!e tec!nolo%( and or t!e product i# relati<el( ne$+ 8ured b(
promi#in% pro#pect#5 man( entrepreneur# enter t!e ield+ A# a re#ult5 t!ere i# ;een5 and oten
c!aotic5 competition+ Onl( a e$ entrant# ma( #ur<i<e t!i# #ta%e+
Rapid 7ro$t! Sta%e C
In t!i# #ta%e irm#5 $!ic! #ur<i<e t!e inten#e competition o t!e pioneerin% #ta%e5
$itne## #i%niicant e?pan#ion in t!eir #ale# and proit#+
/2
&aturit( and Stabili#ation Sta%e C
Durin% t!e #ta%e5 $!en t!e indu#tr( i# more or le## ull( de<eloped5 it# %ro$t! rate i#
comparable to t!at o t!e econom( a# a $!ole+
>it! t!e #atiation o demand5 encroac!ment o ne$ product#5 and c!an%e# in
con#umer preerence#5 t!e indu#tr( e<entuall( enter# t!e decline #ta%e5 relati<e to t!e
econom( a# a $!ole+ In t!i# #ta%e5 $!ic! ma( continue indeinitel(5 t!e indu#tr( ma( %ro$
#li%!tl( durin% pro#perou# period#5 #ta%nate durin% normal period#5 and decline durin%
rece##ionar( period# +
STUD6 T)E STRUCTURE E C)ARACTERISTICS OF AN INDUSTR6C
Since eac! indu#tr( i# uni"ue5 a #(#tematic #tud( o it# #peciic eature# and
c!aracteri#tic# mu#t be an inte%ral part o t!e in<e#tment deci#ion proce##+ Indu#tr( anal(#i#
#!ould ocu# on t!e ollo$in%C
I. Structure of the Industry and nature of Competition
T!e number o irm# in t!e indu#tr( and t!e mar;et #!are o t!e top e$ *our to i<e3
irm# in t!e indu#tr(+
8icen#in% polic( o t!e %o<ernment
Entr( barrier#5 i an(
Pricin% policie# o t!e irm
De%ree o !omo%eneit( or dierentiation amon% product#
Competition rom orei%n irm#
Compari#on o t!e product# o t!e indu#tr( $it! #ub#titute# in term# o "ualit(5 price5
appeal5 and unctional perormance+
/B
II. Nature and Prospect of Demand
&ajor cu#tomer and t!eir re"uirement#
Ke( determinant# o demand
De%ree o c(clicalit( in demand
E?pected rate o %ro$t! in t!e ore#eeable uture+
III. Cost, Efficiency, and Profitability

Proportion# o t!e ;e( co#t element#5 <iH+ ra$ material#5 labour5 utilitie#5 E uel
Producti<it( o labour
Turno<er o in<entor(5 recei<able#5 and i?ed a##et#
Control o<er price# o output# and input#
'e!a<iour o price# o input# and output# in re#pon#e to inlationar( pre##ure#
7ro## proit5 operatin% proit5 and net proit mar%in#+
Return on a##et#5 earnin% po$er5 and return on e"uit(+
IV. Technology and esearch
De%ree o tec!nolo%ical #tabilit(
Important tec!nolo%ical c!an%e# on t!e !oriHon and t!eir implication#
Re#earc! and de<elopment outla(# a# a percenta%e o indu#tr( #ale#
Proportion o #ale# %ro$t! attributable to ne$ product# +
P!"IT P!TENTI#$ #ND IND%STIES& P!TE '!DE$
&ic!ael Porter !a# ar%ued t!at t!e proit potential o an indu#tr( depend# on t!e
combined #tren%t! o t!e ollo$in% i<e ba#ic competiti<e orce#C
T!reat o ne$ entrant#
Ri<alr( amon% t!e e?i#tin% irm#
Pre##ure rom #ub#titute product#
/1
'ar%ainin% po$er o bu(er#
'ar%ainin% po$er o #eller#
CO&PAN6 ANA86SIS
Compan( anal(#i# i# t!e inal #ta%e o t!e undamental anal(#i#5 $!ic! i# to be done
to decide t!e compan( in $!ic! t!e in<e#tor #!ould in<e#t+ T!e Econom( Anal(#i# pro<ide#
t!e in<e#tor a broad outline o t!e pro#pect# o %ro$t! in t!e econom(+ T!e Indu#tr( Anal(#i#
!elp# t!e in<e#tor to #elect t!e indu#tr( in $!ic! t!e in<e#tment $ould be re$ardin%+
Compan( Anal(#i# deal# $it! e#timation o t!e Ri#;# and Return# a##ociated $it! indi<idual
#!are#+
T!e #toc; price !a# been ound on depend on t!e intrin#ic <alue o t!e compan(I#
#!are to t!e e?tent o about A0K a# per man( re#earc! #tudie#+ 7ra!arm and Dodd in t!eir
boo; on I #ecurit( anal(#i#I !a<e deined t!e intrin#ic <alue a# Jt!at <alue $!ic! i# ju#tiied b(
t!e act o a##et#5 earnin% and di<idend#J+ T!e#e act# are relected in t!e earnin% potential i
t!e compan(+ T!e anal(#t !a# to project t!e e?pected uture earnin%# per #!are and di#count
t!em to t!e pre#ent time5 $!ic! %i<e# t!e intrin#ic <alue o #!are+ Anot!er met!od to u#e i#
ta;in% t!e e?pected earnin%# per #!are and multipl(in% it b( t!e indu#tr( a<era%e price
earnin% multiple+
'( t!i# met!od5 t!e anal(#t e#timate t!e intrin#ic <alue or air <alue o #!are and
compare it $it! t!e mar;et price to ;no$ $!et!er t!e #toc; i# o<er<alued or under<alued+
T!e in<e#tment deci#ion i# to bu( under <alued #toc; and #ell o<er<alued #toc;+
A+ Financial anal(#i#C
S!are price depend# partl( on it# intrin#ic $ort! or $!ic! inancial anal(#i# or a
compan( i# nece##ar( to !elp t!e in<e#tor to decide $!et!er to bu( or not t!e #!are# o t!e
compan(+ T!e #oundne## and intrin#ic $ort! o a compan( i# ;no$n onl( #uc! anal(#i#+ An
in<e#tor need# to ;no$ t!e perormance o t!e compan(5 it# intrin#ic $ort! a# indicated b(
/G
#ome parameter# li;e boo; <alue5 EPS5 PIE multiple etc+ and come to a conclu#ion $!et!er
t!e #!are i# ri%!tl( priced or purc!a#e or not+ T!i#5 in #!ort i# #!ort importance o inancial
anal(#i# o a compan( to t!e in<e#tor+
Financial anal(#i# i# anal(#i# o inancial #tatement o a compan( to a##e## it#
inancial !ealt! and #oundne## o it# mana%ement+ JFinancial #tatement anal(#i#J in<ol<e# a
#tud( o t!e inancial #tatement o t!e compan( to a#certain it# pre<ailin% #tate o aair# and
t!e rea#on# t!ereo+ Suc! a #tud( $ould enable t!e public and in<e#tor# to a#certain $!et!er
one compan( i# more proitable t!an t!e ot!er and al#o to #tate t!e cau#e and actor# t!at are
probabl( re#pon#ible or t!i#+
&et!od or De<ice# o Financial anal(#i#
T!e term Iinancial #tatementI a# u#ed in modern bu#ine## reer# to t!e balance #!eet5
or t!e #tatement o inancial po#ition o t!e compan( at a point o time and income and
e?penditure #tatementO or t!e proit and lo## #tatement o<er a period+
Interpret t!e inancial #tatementO it i# nece##ar( to anal(He t!em $it! t!e object o
ormation o opinion $it! re#pect to t!e inancial condition o t!e compan(+ T!e ollo$in%
met!od# o anal(#i# are %enerall( u#ed+
,+ Comparati<e #tatement+
-+ Trend anal(#i#
/+ Common@#iHe #tatement
.+ Found lo$ anal(#i#
A+ Ca#! lo$ anal(#i#
2+ Ratio anal(#i#
T!e #alient eature# o eac! o t!e abo<e #tep# are di#cu##ed belo$+
.0
,+ Comparati<e #tatement C
T!e comparati<e inancial #tatement# are #tatement# o t!e inancial po#ition at
dierent period# o time+ An( #tatement# prepared in a comparati<e rom $ill be co<ered in
comparati<e #tatement#+ From practical point o <ie$5 %enerall(5 t$o inancial #tatement#
*balance #!eet and income #tatement3 are prepared in comparati<e rom or inancial anal(#i#
purpo#e+ Not onl( t!e compari#on o t!e i%ure# o t$o period# but al#o be relation#!ip
bet$een balance #!eet and in come #tatement enable# on dept! #tud( o inancial po#ition and
operati<e re#ult#+
T!e comparati<e #tatement ma( #!o$C
*,3 Ab#olute i%ure# *Rupee amount#3
*-3 C!an%e# in ab#olute i%ure# i+e+5 increa#e or decrea#e in ab#olute i%ure#+
*/3 Ab#olute data in term# o percenta%e+
*.3 Increa#e or decrea#e in term# o percenta%e#+
-+ Trend Anal(#i#C
T!e inancial #tatement ma( be anal(Hed b( computin% trend# o #erie# o
inormation+ T!i# met!od determine# t!e direction up$ard or do$n$ard# and in<ol<e# t!e
computation o t!e percenta%e relation#!ip t!at eac! #tatement item bear# to t!e #ame item in
ba#e (ear+ T!e inormation or a number o (ear# i# ta;en up and one (ear5 %enerall( t!e ir#t
(ear5 i# ta;en a# a ba#e (ear+ T!e i%ure# o t!e ba#e (ear are ta;en a# ,00 and trend ratio or
ot!er (ear# are calculated on t!e ba#i# o ba#e (ear+
T!e#e tend in t!e ca#e o 7P& or #ale# turno<er are u#eul to indicate t!e e?tent o
impro<ement or deterioration o<er a period o time in t!e a#pect# con#idered+ T!e trend# in
.,
di<idend#5 EPS5 a##et %ro$t!5 or #ale# %ro$t! are #ome e?ample# o t!e trend# u#ed to #tud(
t!e operational perormance o t!e companie#+
Procedure for calculating trends&
*I3 One (ear i# ta;en a# a ba#e (ear %enerall(5 t!e ir#t or t!e la#t i# ta;en a# ba#e
(ear+
*II3 T!e i%ure# o ba#e (ear are ta;en a# ,00+
*III3 Trend percenta%e# are calculated in relation to ba#e (ear+ I a i%ure in ot!er
(ear i# le## t!en t!e i%ure in ba#e (ear t!e trend percenta%e $ill be le## t!en
,00 and it $ill be more t!an t!e ,00 it i%ure i# more t!an t!e ba#e (ear
i%ure#+ Eac! (earI# i%ure i# di<ided b( t!e ba#e (ear# i%ure+
/+ Common@#iHe #tatementC
T!e common@#iHe #tatement#5 balance #!eet and income #tatement are #!o$n in
anal(tical percenta%e+ T!e i%ure# are #!o$n a# percenta%e# o total a##et#5T total liabilitie#
and total #ale#+ T!e total a##et# are ta;en a# ,00 and dierent a##et# are e?pre##ed a# a
percenta%e o t!e total+ Similarl(5 <ariou# liabilitie# are ta;en a# a part o total liabilitie#+
T!ere #tatement# are al#o ;no$n a# component percenta%e or ,00 percent #tatement# becau#e
e<er( indi<idual item i# #tated a# a percenta%e o t!e total ,00+ T!e #!ortcomin%# in
comparati<e #tatement# and trend percenta%e# $!ere c!an%e# in term# could not be compared
$it! t!e total# !a<e been co<ered up+ T!e anal(#i# i# able to a##e## t!e i%ure# in relation to
total <alue#+
T!e common #iHe #tatement ma( be prepared in t!e ollo$in% $a(+
*i3 T!e total o a##et# or liabilitie# are ta;en a# ,00
*ii3 T!e indi<idual a##et# are e?pre##ed a# a percenta%e o total a##et#5 i+e+5 ,00 and
dierent liabilitie# are calculated in relation to total liabilitie#+ For e?ample5 i total
.-
a##et# are RS+A la;!# and in<entor( <alue i# R#+A050005 t!en it $ill be ,0K o total
a##et#+
*A05000 ? ,003 = *A50050003
.+ Fund lo$ anal(#i#C
T!e operation o bu#ine## in<ol<e# t!e con<er#ion o ca#! in to non@ca#! a##et#5 $!ic!
are reco<ered in to ca#! orm+ T!e #tatement #!o$in% #ource# and u#e# o und# o und# i#
properl( ;no$n a# IFund# Flo$ StatementI+
T!e c!an%e# repre#entin% t!e I#ource# o und#I in t!e bu#ine## ma( be i##ue o
debenture#5 increa#e in net $ort!O addition to und#5 re#er<e# and #urplu#5 relation o
earnin%#+
C!an%e# #!o$in% t!e Iu#e# o und#I includeC
a3 Addition to a##et# @ Fi?ed and Current
b3 Addition to in<e#tment#+
c3 Decrea#in% in liabilitie# b( pa(in% o loan# and creditor#+
d3 Decrea#e in net $ort! b( incurrin% o loan#5 $it!dra$al o und# rom bu#ine##
and pa(ment o di<idend#+
A+ Ca#! Flo$ anal(#i#C
Ca#! lo$ i# u#ed or onl( ca#! inlo$ and outlo$+ T!e ca#! lo$# are prepared rom
ca#! bud%et# and operation o t!e compan(+ In ca#! lo$# onl( ca#! and ban; balance are
in<ol<ed and !ence it i# a narro$er term t!an t!e concept o und# lo$#+ T!e ca#! lo$
#tatement e?plain# !o$ t!e di<idend# are paid5 !o$ i?ed a##et# are inanced+ T!e anal(#i#
!ad to ;no$ t!e real ca#! lo$ po#ition o compan(5 it# li"uidit( and #ol<enc(5 $!ic! are
relected in t!e ca#! lo$ po#ition and t!e #tatement# t!ereo+
2+ Ratio anal(#i#C
./
T!e ratio i# one o t!e mo#t po$erul tool# o inancial anal(#i#+ It i# t!e proce## o
e#tabli#!in% andU interpretin% <ariou# ratio# *"uantitati<e relation#!ip bet$een i%ure# and
%roup# o i%ure#3+ It i# $it! t!e !elp o ratio# t!at t!e inancial #tatement# can be anal(Hed
more clearl( and deci#ion# made rom #uc! anal(#i#+
Ratio anal(#i# $ill be meanin%ul to e#tabli#! relation#!ip re%ardin% inancial
perormance5 operational eicienc( and proit mar%in# $it! re#pect to companie# o<er a
period o time and a# bet$een companie# $it! in t!e #ame indu#tr( %roup+
T!e ratio# are con<enientl( cla##iied a# ollo$#C
a3 'alance #!eet ratio# or po#ition #tatement ratio#+
*I3 Current ratio
*II3 8i"uid ratio *Acid te#t ratio3
III3 Debt to e"uit( ratio
*I43 A##et to e"uit( ratio
*43 Capital %earin% ratio
*4I3 Ratio o current a##e# to i?ed a##et# etc+5
b3 Proit E lo## Ale ratio# or re<enue=income #tatement ratio#C
*I3 7ro## proit ratio
*II3 Operatin% ratio
*III3 Net proit ratio
*I43 E?pen#e ratio
*43 Operatin% proit ratio
*4I3 Intere#t co<era%e
c3 Compo#ite ratio#= mi?ed or inter #tatement ratio#C
..
*I3 Return on total re#ource#
*II3 Return on e"uit(
*III3 Turno<er o i?ed a##et#
*I43 Turno<er o debtor#
*43 Return on #!are!older# und#
*4I3 Return on total re#ource#
TEC)NICA8 ANA86SIS
Tec!nical anal(#i# in<ol<e# a #tud( o mar;et@%enerated data li;e price# and <olume#
to determine t!e uture direction o price mo<ement+ Tec!nical anal(#i# anal(#e# internal
mar;et data $it! t!e !elp o c!art# and %rap!#+ Sub#cribin% to t!e Ica#tle# in t!e airI approac!5
t!e( <ie$ t!e in<e#tment %ame a# an e?cerci#e in anticipatin% t!e be!a<iour o mar;et
participant#+ T!e( loo; at c!art# to under#tand $!at t!e mar;et participant# !a<e been doin%
and belie<e t!at t!i# pro<ide# a ba#i# or predictin% uture be!a<iour+
DeinitionC
J T!e tec!nical approac! to in<e#tin% i# e##entiall( a relection o t!e idea t!at price#
mo<e in trend# $!ic! are determined b( t!e c!an%in% attitude# o in<e#tor# to$ard a <ariet(
o economic5 monetar(5 political and p#(c!olo%ical orce#+ T!e art o tec!nical anal(#i#@ or it
i# an art @ i# to identi( trend c!an%e# at an earl( #ta%e and to maintain an in<e#tment po#ture
until t!e $ei%!t o t!e e<idence indicate# t!at t!e trend !a# been re<er#ed+J
@&artin J+ Prin%
C!artin% tec!ni"ue# in tec!nical anal(#i#C
Tec!nical anal(#i# u#e# a <ariet( o c!artin% tec!ni"ue#+ T!e mo#t popular one# areC
T!e Do$ t!eor(5
.A
'ar and line c!art#5
T!e point and i%ure c!art5
T!e mo<in% a<era%e# line and
T!e relati<e #tren%t! line+
T!e Do$ t!eor(
J T!e mar;et i# al$a(# con#idered a# !a<in% t!ree mo<ement#5 all %oin% at t!e #ame
time+ T!e ir#t i# t!e narro$ mo<ement rom da( to da(+ T!e #econd i# t!e #!ort #$in%5
runnin% rom t$o $ee;# to a mont! or moreO t!e t!ird i# t!e main mo<ement5 co<erin% at
lea#t our (ear# in it# duration+J
@C!arle# )+DO>
T!e Do$ t!eor( reer to t!ree mo<ement# a#C
*a3 Dail( luctuation# t!at are random da(@to@da( $i%%le#O
*b3 Secondar( mo<ement# or correction# t!at ma( la#t or a e$ $ee;# to #ome
mont!#O
*c3 Primar( trend# repre#entin% bull and bear p!a#e# o t!e mar;et+
'ar and line c!art#
T!e bar c!art i# one o t!e mo#t #imple#t and commonl( u#ed tool# o tec!nical anal(#i#5
depict# t!e dail( price ran%e alon% $it! t!e clo#in% price+ It al#o #!o$# t!e dail( <olume o
tran#action#+ A line c!art #!o$# t!e line connectin% #ucce##i<e clo#in% price#+
Point and i%ure c!art C
.2
On a point and i%ure c!art onl( #i%niicant price c!an%e# are recorded+ It eliminate#
t!e time #cale and #mall c!an%e# and conden#e# t!e recordin% o price c!an%e#+
&o<in% a<era%e anal(#i#C
A mo<in% a<era%e i# calculated b( ta;in% into account t!e mo#t recent InI
ob#er<ation#+ To identi( trend# tec!nical anal(#i# u#e mo<in% a<era%e# anal(#i#+
Relati<e #tren%t! anal(#i#C
T!e relati<e #tren%t! anal(#i# i# ba#ed on t!e a##umption t!at t!e price# o #ome
#ecuritie# ri#e rapidl( durin% t!e bull p!a#e but all #lo$l( durin% t!e bear p!a#e in relation to
t!e mar;et a# a $!ole+ Tec!nical anal(#t# mea#ure relati<e #tren%t! in dierent $a(#+ a
#imple approac! calculate# rate# o return and cla##iie# #ecuritie# t!at !a<e #uperior
!i#torical return# a# !a<in% relati<e #tren%t!+ &ore commonl(5 tec!nical anal(#t# loo; at
certain ratio# to jud%e $!et!er a #ecurit( or5 or t!at matter5 an indu#tr( !a# relati<e #tren%t!+
.B
TEC)NICA8 INDICATORSC
In addition to c!art#5 $!ic! orm t!e main#ta( o tec!nical anal(#i#5 tec!nician# al#o
u#e certain indicator# to %au%e t!e o<erall mar;et #ituation+ T!e( areC
'readt! indicator#
&ar;et #entiment indicator#
'READT) INDICATORSC
,+ T!e Ad<ance@Decline lineC
T!e ad<ance decline line i# al#o reerred a# t!e breadt! o t!e mar;et+ It#
mea#urement in<ol<e# t$o #tep#C
a+ Calculate t!e number o net ad<ance#= decline# on a dail( ba#i#+
b+ Obtain t!e breadt! o t!e mar;et b( cumulatin% dail( net ad<ance#= decline#+
-+ Ne$ )i%!# and 8o$#C
A #upplementar( mea#ure to accompan( breadt! o t!e mar;et i# t!e !i%!@lo$
dierential or inde?+ T!e t!eor( i# t!at an e?pandin% number o #toc;# attainin% ne$ !i%!#
and a d$indlin% number o ne$ lo$# $ill %enerall( accompan( a rai#in% mar;et+ T!e re<er#e
!old# true or a declinin% mar;et+
&ARKET SENTI&ENT INDICATORSC
,+ S!ort@Intere#t RatioC
T!e #!ort intere#t in a #ecurit( i# #impl( t!e number o #!are# t!at !a<e been #old
#!ort but (et bou%!t bac;+
T!e #!ort intere#t ratio i# deined a# ollo$#C
<olume tradin% dail( A<era%%e
#!ort #old #!are# o number Total
ratio intere#t S!ort =
.1
-+ PUT I CA88 RATIOC
Anot!er indicator monitored b( contrar( tec!nical anal(#i# i# t!e put = call ratio+
Speculator# bu( call# $!en t!e( are bulli#! and bu( put# $!en t!e( are beari#!+ Since
#peculator# are oten $ron%5 #ome tec!nical anal(#t# con#ider t!e put = call ratio a# a u#eul
indicator+ T!e put = call ratio i# deined a#C
purc!a#ed call# o Number
purc!a#ed put# o Number#
ratio Call Put = =
/+ &utual@Fund 8i"uidit(C
I mutual und li"uidit( i# lo$5 it mean# t!at mutual und# are bulli#!+ So con#train#
ar%ue t!at t!e mar;et i# at5 or near5 a pea; and !ence i# li;el( to decline+ T!u#5 lo$ mutual
und li"uidit( i# con#idered a# a beari#! indicator+
Con<er#el( $!en t!e mutual und li"uidit( i# !i%!5 it mean# t!at mutual und# are
beari#!+ So con#train# belie<e t!at t!e mar;et i# at5 or near5 a bottom and !ence i# poi#ed to
ri#e+ T!u#5 !i%! mutual und li"uidit( i# con#idered a# a bulli#! indication+
.G
RANDO& >A8K T)EOR6C
Fundamental anal(#i# trie# to e<aluate t!e intrin#ic <alue o t!e #ecuritie# b( #tud(in%
t!e <ariou# undamental actor# about Econom(5 Indu#tr( and compan( and ba#ed on t!i#
inormation5 it cate%orie# t!e #ecuritie# a# $it!er under<alued or o<er!auled+ Tec!nical
anal(#i# belie<e# t!at t!e pa#t be!a<iour o #toc; price# %i<e# an indication o t!e uture
be!a<iour and t!at t!e #toc; price mo<ement i# "uite orderl( and random+ 'ut5 a ne$ t!eor(
;no$n a# Random >al; T!eor(5 a##ert# t!at #!are price mo<ement# repre#ent random $al;
rat!er t!an an orderl( mo<ement+
Accordin% to t!i# t!eor(5 an( c!an%e in t!e #toc; pnce# IS t!e re#ult o inormation
about certain c!an%e# in t!e econom(5 indu#tr( and compan(+ Eac! price c!an%e i#
independent o ot!er price c!an%e# a# eac! c!an%e i# cau#ed b( a ne$ piece o inormation+
T!e#e c!an%e# in #toc;I# price# re<eal# t!e act t!at all t!e inormation on c!an%e# in t!e
econom(5 indu#tr( and compan( perormance i# ull( relected in t!e #toc; price# i+e+5 t!e
in<e#tor# $ill !a<e ull ;no$led%e about t!e #ecuritie#+ T!u#5 t!e Random >al; T!eor( i#
ba#ed on t!e !(pot!e#i# t!at t!e Stoc; &ar;et# are eicient+ )ence5 later it i# ;no$n a#
Eicient &ar;et )(pot!e#i#+
EFFICIENT &ARKET )6POT)ESIS
T!i# t!eor( pre#uppo#e# t!at t!e #toc; &ar;et# are #o competiti<e and eicient in
proce##in% all t!e a<ailable inormation about t!e #ecuritie# t!at t!ere i# Jimmediate price
adju#tmentJ to t!e c!an%e# in t!e econom(5 indu#tr( and compan(+ T!e Eicient &ar;et
)(pot!e#i# model i# actuall( concerned $it! t!e #peed $it! $!ic! inormation i#
incorporated into t!e #ecurit( price#+
T!e Eicient &ar;et )(pot!e#i# !a# t!ree Sub@!(pot!e#i#C@
A0
>ea;l( EicientC @
T!i# orm o Eicient &ar;et )(pot!e#i# #tate# t!at t!e current price# alread( ull(
relect all t!e inormation contained in t!e pa#t price mo<ement# and an( ne$ price c!an%e i#
t!e re#ult o a ne$ piece o inormation and i# not relatedS independent o !i#torical data+ T!i#
orm i# a direct repudiation o tec!nical anal(#i#+
Semi@Stron%l( EicientC@
T!i# orm o Eicient &ar;et )(pot!e#i# #tate# t!at t!e #toc; price# not onl( relect
all !i#torical inormation but al#o relect all publicl( a<ailable inormation about t!e compan(
a# #oon a# it i# recei<ed+ So5 it repudiate# t!e undamental anal(#i# b( impl(in% t!at t!ere i#
no time %ap or t!e undamental anal(#t in $!ic! !e can trade or #uperior %ain#5 a# t!ere i#
an immediate price adju#tment+
Stron%l( EicientC@
T!i# orm o Eicient &ar;et )(pot!e#i# #tate# t!at t!e mar;et @cannot be beaten b(
u#in% bot! publicl( a<ailable inormation a# $ell a# pri<ate or in#ider inormation+
'ut5 e<en t!ou%! t!e Eicient &ar;et )(pot!e#i# repudiate# bot! Fundamental and
Tec!nical anal(#i#5 t!e mar;et i# eicient preci#el( becau#e o t!e or%aniHed and #(#tematic
eort# o t!ou#and# o anal(#t# underta;in% Fundamental and Tec!nical anal(#i#+ T!u#5 t!e
parado? o Eicient &ar;et )(pot!e#i# i# t!at bot! t!e anal(#i# i# re"uired to ma;e t!e
mar;et eicient and t!ereb( <alidate t!e !(pot!e#i#+

A,
C)APTER N /
PORTOFO8IO &ANA7E&ENT
A-
PORTFO8IO &ANA7E&ENT
Concept o PortolioC
Portolio i# t!e collection o inancial or real a##et# #uc! a# e"uit( #!are#5 debenture#5
bond#5 trea#ur( bill# and propert( etc+ portolio i# a combination o a##et# or it con#i#t# o
collection o #ecuritie#+ T!e#e !oldin%# are t!e re#ult o indi<idual preerence#5 deci#ion# o
t!e !older# re%ardin% ri#;5 return and a !o#t o ot!er con#ideration#+
Portolio mana%ement
An in<e#tor con#iderin% in<e#tment in #ecuritie# i# aced $it! t!e problem o
c!oo#in%+ rom amon% a lar%e number o #ecuritie#+ )i# c!oice depend# upon t!e ri#; return
c!aracteri#tic# o indi<idual #ecuritie#+ )e $ould attempt to c!oo#e t!e mo#t de#irable
#ecuritie# and li;e to allocate !i# und# o<er !i# %roup o #ecuritie#+ A%ain !e i# aced $it! t!e
problem o decidin% $!ic! #ecuritie# to !old and !o$ muc! to in<e#t in eac!+
T!e in<e#tor ace# an ininite number o po##ible portolio or %roup o #ecuritie#+ T!e
ri#; and return c!aracteri#tic# o portolio# dier rom t!o#e o indi<idual #ecuritie#
combinin% to orm a portolio+ T!e in<e#tor trie# to c!oo#e t!e optimal portolio ta;in% into
con#ideration t!e ri#;@return c!aracteri#tic# o all po##ible portolio#+
A# t!e economic and inancial en<ironment ;eep# t!e c!an%in% t!e ri#; return
c!aracteri#tic# o indi<idual #ecuritie# a# $ell a# portolio al#o c!an%e+ An in<e#tor in<e#t# !i#
und# in a portolio e?pectin% to %et a %ood return $it! le## ri#; to bear+
A/
Portolio mana%ement concern# t!e con#truction E maintenance o a collection o
in<e#tment+ It i# in<e#tment o und# in dierent #ecuritie# in $!ic! t!e total ri#; o t!e
Portolio i# minimiHed $!ile e?pectin% ma?imum return rom it+ It primaril( in<ol<e#
reducin% ri#; rat!er t!at increa#in% return+ Return i# ob<iou#l( important t!ou%!5 and t!e
ultimate objecti<e o portolio mana%er i# to ac!ie<e a c!o#en le<el o return b( incurrin% t!e
lea#t po##ible ri#;+
FEATURES OF PORTFO8IO &ANA7E&ENT
T!e objecti<e o portolio mana%ement i# to in<e#t in #ecuritie# in #uc! a $a( t!at one
ma?imiHe# oneI# return and minimiHe# ri#;# in order to ac!ie<e oneI# in<e#tment objecti<e+
I3 Saet( o t!e in<e#tmentC t!e ir#t important objecti<e in<e#tment #aet( or minimiHation o
ri#;# i# o t!e important objecti<e o portolio mana%ement+ T!ere are man( t(pe# o ri#;#+
>!ic! are a##ociated $it! in<e#tment in e"uit( #Toc;#5 includin% #uper #toc;+ T!ere i# no
#uc! t!in% called Dero@ri#; in<e#tment+ &oreo<er relati<el( lo$ @ ri#; in<e#tment %i<e#
corre#pondin% lo$er return#+
-3 Stable current return#C Once in<e#tment #aet( i# %uaranteed5 t!e portolio #!ould (ield a
#tead( current income+ T!e current return# #!ould at lea#t matc! t!e opportunit( co#t o t!e
und# o t!e in<e#tor+ >!at $e are reerrin% to !ere i# current income b( o intere#t or
di<idend#5 not capital %ain#+
/3 Appreciation in t!e <alue o capitalC A %ood portolio #!ould appreciate in <alue in order to
protect t!e in<e#tor rom ero#ion in purc!a#in% po$er due to inlation+ In ot!er $ord#5 a
balance portolio mu#t con#i#t i certain in<e#tment5 $!ic! tend# to appreciate in real <alue
ater adju#tin% or inlation+
.3 &ar;etabilit(C A %ood portolio con#i#t# o in<e#tment5 $!ic! can be mar;eted $it!out
diicult(+ I t!ere are too man( unli#ted or inacti<e #!are in (our portolio5 (ou $ill ace
A.
problem# in enc!a#in% t!em5 and #$itc!in% rom one in<e#tment to anot!er+ It i# de#irable to
in<e#t in companie# li#ted on major #toc; e?c!an%e#5 $!ic! are acti<el( traded+
A3 8i"uidit(C T!e portolio #!ould en#ure t!at t!ere are enou%! und# a<ailable at t!e #!ort
notice to ta;e o t!e in<e#torI# li"uidit( re"uirement#+
23 Ta? Plannin%C Since ta?ation i# an important <ariable in total plannin%5 a %ood portolio
#!ould let it# o$ner enjo( a<orable ta? #!elter+ T!e portolio #!ould be de<eloped
con#iderin% income ta?5 but capital %ain#5 %it ta? too+ >!at a %ood portolio aim# at i# ta?
plannin%5 not ta? e<a#ion or ta? a<oidance+
Function# o Portolio &ana%er
T!e main unction# o portolio mana%er are
Ad<i#or( roleC
)e ad<i#e# ne$ in<e#tment#5 re<ie$ o e?i#tin% one#5 identiication o objecti<e#5
recommendin% !i%! (ield #ecuritie# etc5+
Conductin% &ar;et and Economic Sur<e(#C
T!ere i# e##ential or recommendin% !i%! (ieldin% #ecuritie#5 t!e( !a<e to #tud( t!e
current p!(#ical propertie#5 bud%et propo#al#5 indu#trial policie# etc5+ Furt!er portolio
mana%er #!ould ta;e into account t!e credit polic(5 indu#trial %ro$t!5 orei%n e?c!an%e
po#ition5 c!an%e# in corporate la$# etc5+
Financial Anal(#i#
)e #!ould e<aluate t!e inancial #tatement# o a compan( in order to under#tand t!eir
net $ort!5 uture earnin%#5 pro#pect# and #tren%t!#+
Stud( o Stoc; &ar;et
AA
)e #!ould #ee t!e trend# o at <ariou# #toc; e?c!an%e# and anal(#e #cript#5 #o t!at !e
i# able to identi( t!e ri%!t #ecuritie# or in<e#tment#+
Stud( o Indu#tr(
To ;no$ it# uture pro#pect#5 tec!nolo%ical c!an%e# etc5+ re"uired or in<e#tment
propo#al# !e #!ould al#o ore#ee t!e problem# o t!e indu#tr(+
Decide t!e t(pe o Portolio
Keepin% in t!e mind t!e objecti<e# o a portolio5 t!e portolio mana%er !a<e to
decide $!et!er t!e portolio #!ould compri#e e"uit(5 preerence #!are#5 debenture#
con<ertible5 non@con<ertible or partl( con<ertible5 mone( mar;et #ecuritie# etc5+ or a mi? o
more t!at+ one t(pe+
A %ood portolio mana%er #!ould en#ure t!at
T!ere i# optimum mi? o portolio# i+e+ #ecuritie# +
To #tri;e a balance bet$een t!e co#t o und# and t!e a<era%e return on in<e#tment#
'alance i# #truc; a# bet$een t!e i?ed income portolio# and di<idend bearin%
#ecuritie#
Portolio# o <ariou# indu#trie# are di<er#iied += To decide t!e t(pe o in<e#tment
Portolio# are re<ie$ed periodicall( or better mana%ement and return# += An( ri%!t or
bonu# pro#pect# in a compan( are ta;en into account
'etter ta? plannin% i# t!ere
8i"uidit( a##et# are maintained += Tran#action co#t are minimiHed
PORTFO8IO &ANA7E&ENT PROCESSC
Portolio mana%ement IS a comple? acti<it(5 $!ic! ma( be bro;en do$n into t!e
ollo$in% #tep#C
,+ Speciication o in<e#tment Objecti<e# and Con#traint#C@
A2
T!e ir#t #tep in t!e portolio mana%ement proce## i# to #peci( oneI# in<e#tment
objecti<e# and con#traint#+ T!e commonl( #tated in<e#tment %oal# areC
a3 Income
b3 7ro$t!
c3 Stabilit(
T!e con#traint# ari#in% rom li"uidit(5 time !oriHon5 ta? and #pecial circum#tance#
mu#t be identiied+
-+ C!oice o A##et mi?C
T!e mo#t important deci#ion in portolio mana%ement i# t!e a##et mi? deci#ion+ 4er(
broadl(5 t!i# i# concerned $it! t!e proportion# o I#toc;#I and Ibond#I in t!e portolio+
/+ Formulation O Portolio Strate%(C
Once a certain a##et mi? i# c!o#en5 an appropriate portolio #trate%( !a# to be
!ammered out+ T$o broad c!oice# are a<ailable an acti<e portolio #trate%( or a pa##i<e
portolio #trate%(+ An acti<e portolio #trate%( #tri<e# to earn #uperior ri#;;adju#ted return# b(
re#ortin% to mar;et timin%5 or #ector rotation5 or #ecurit( #election5 or #ome combination o
t!e#e+ A pa##i<e portolio #trate%(5 on t!e ot!er !and5 in<ol<e# !oldin% a broadl( di<er#iied
portolio and maintainin% a pre@determined le<el o ri#; e?po#ure+
.+ Selection o Securitie#C
7enerall(5 in<e#tor# pur#ue an acti<e #tance $it! re#pect to #ecurit( #election+ For
#toc; #election5 in<e#tor# commonl( %o b( undamental anal(#i# and = or tec!nical anal(#i#+
T!e actor# t!at are con#idered in #electin% bond# are (ield to maturit(5 credit ratin%5 term to
maturit(5 ta? #!elter and li"uidit(+
AB
A+ Portolio E?ecutionC
T!i# i# t!e p!a#e o portolio mana%ement $!ic! i# concerned $it! implementin% t!e
portolio plan b( bu(in% and = or #ellin% #peciied #ecuritie# in %i<en amount#+
2+ Portolio Re<i#ion+
T!e <alue o a portolio a# $ell a# it# compo#ition @ t!e relati<e proportion# o #toc;
and bond component# @ ma( c!an%e a# #toc;# and bond# luctuate+ In re#pon#e to #uc!
c!an%e#5 periodic rebalancin% o t!e portolio i# re"uired+ T!i# primaril( in<ol<e# a #!it rom
#toc;# to bond# or <ice <er#a+ In addition5 it ma( call or #ector rotation a# $ell a# #ecurit(
#$itc!e#+
B+ Perormance E<aluationC
T!e perormance o a portolio #!ould be e<aluated periodicall(+ T!e ;e( dimen#ion#
o portolio perormance e<aluation are ri#; and return and t!e ;e( i##ue i# $!et!er t!e
portolio return i# commen#urate $it! it# ri#; e?po#ure+
A1
A PORTFO8IO &ANA7E&ENT )AS 'EEN C)ARACTERIDED
Tradition portolio t!eor(
&odern portolio t!eor(
Tradition portolio t!eor(
T!i# t!eor( aim# at t!e #election o #uc! #ecuritie# t!at $ould it in $ell $it! t!e a##et
preerence#5 need# and c!oice# o in<e#tor+ T!u#5 a retired e?ecuti<e in<e#t in i?ed income
#ecuritie# or a re%ular and i?ed return+ A bu#ine## e?ecuti<e or a (oun% a%%re##i<e in<e#tor
on t!e ot!er !and in<e#t# in ne$ and %ro$in% companie# and in ri#;( <enture# +
&odern portolio t!eor(
T!i# t!eor( #u%%e#t# t!at t!e traditional approac! to portolio anal(#i#5 #election and
mana%ement ma( (ield le## t!an optimal re#ult t!at a more #cientiic approac! i# needed
ba#ed on e#timate# o ri#; and return o t!e portolio and attitude# o t!e in<e#tor to$ard# a
ri#; return trade o #teamin% rom t!e anal(#i# o t!e indi<idual #ecuritie#+
In t!i# re%ard India ater %o<ernment polic( o liberaliHation !a# unlea#!ed orei%n
mar;et orce#+ Force# t!at !a<e a direct impact on t!e capital mar;et#+ An indi<idual in<e#tor
canIt ea#il( monitor t!e#e comple? <ariable# in t!e #ecuritie# mar;et becau#e o lac; o time5
inormation and ;no$@!o$+ T!at i# $!en in<e#tor# loo; in to alternati<e in<e#tment option#+
Once #uc! option i# mutual und#+ 'ut in t!e recent time# in<e#tor !a# lot ait! in t!i# t(pe
in<e#tment and !a# turned to$ard# portolio in<e#tment+
AG
>it! portolio in<e#tment %ainin% popularit( it !a# emp!a#iHed on !a<in% a proper
portolio t!eor( to meet t!e need# o t!e in<e#tor and operate in t!e capital mar;et u#in%
t!rou%! #cientiic anal(#i# and bac;ed b( dependable mar;et in<e#ti%ation# to minimiHe ri#;
and ma?imiHe return#+
T!e #cientiic anal(#i# o ri#; and return i# modern portolio t!eor( and &ar;o$itH
laid t!e oundation o t!i# t!eor( in ,GA,+ )e be%an $it! t!e #imple ob#er<ation t!at #ince
almo#t all in<e#tor# in<e#t# in #e<eral #ecuritie# rat!er t!at in ju#t one5 t!ere mu#t be #ome
beneit rom in<e#tin% in a portolio o #e<eral #ecuritie#+
20
SE'I 7UIDE8INES TO T)E PORTFO8IO &ANA7ERSC
On Bt! Januar( ,GG/ #ecuritie# e?c!an%e board o India i##ued re%ulation# to t!e
portolio mana%er# or t!e re%ulation o portolio mana%ement #er<ice# b( merc!ant ban;er#+
T!e( are a# ollo$#C
Portolio mana%ement #er<ice# #!all be in t!e nature o in<e#tment or con#ultanc(
mana%ement or an a%reed ee at clientI# ri#;
T!e portolio mana%er #!all not %uarantee return directl( or indirectl( t!e ee #!ould not
be depended upon or it #!ould not be return #!arin% ba#i# +
4ariou# term# o a%reement#5 ee#5 di#clo#ure# o ri#; and repa(ment #!ould be mentioned
+
ClientI# und# #!ould be ;ept #eparatel( in client $i#e account5 $!ic! #!ould be #ubject to
audit+
&ana%er #!ould report client# at inter<al# not e?ceedin% 2 mont!# +
Portolio mana%er #!ould maintain !i%! #tandard o inte%rit( and not de#ire an( beneit
directl( or indirectl( orm clientI# und# +
T!e client #!all be entitled to in#pect t!e document# +
Portolio mana%er #!ould maintain !i%! #tandard o inte%rit( and not de#ire an( beneit
directl( or indirectl( orm clientI# und# +
T!e client #!all be entitled to in#pect t!e document# +
Portolio mana%er #!all not in<e#t und# belon%in% to client# in badla inancin%5 bill#
di#countin% and lendin% operation# +
Client mone( can be in<e#ted in mone( and capital mar;et in#trument# +
Settlement on termination o contract a# a%reed in t!e contract+
ClientI# und# #!ould be ;ept in a #eparate ban; account opened in #c!eduled commercial
ban; +
Purc!a#e or Sale o #ecuritie# #!all be made at pre<ailin% mar;et price +
Portolio mana%er# $it! !i# client are iduciar( in nature+ )e #!all act bot! a# an a%ent
and tru#tee or t!e und# recei<ed+
2,
PORTFO8IO SE8ECTION
Portolio anal(#i# pro<ide# t!e input or t!e ne?t p!a#e in portolio mana%ement5
$!ic! i# portolio #election+ T!e proper %oal o portolio con#truction i# to %et !i%! return# at
a %i<en le<el o ri#;+ T!e input# rom portolio anal(#i# can be u#ed to identi( t!e #et o
eicient portolio#+ From t!i# #et o portolio#5 t!e optimal portolio !a# to be #elected or
in<e#tment+
&ARKO>ITD &ODE8
)arr( &+ &ar;o$itH i# credited $it! introducin% ne$ concept o ri#; mea#urement
and t!eir application to t!e #election o portolio#+ )e #tarted $it! t!e idea o ri#; a<er#ion o
in<e#tor# and t!eir de#ire to ma?imiHe e?pected return $it! t!e lea#t ri#;+
&ar;o$itH u#ed mat!ematical pro%rammin% and #tati#tical anal(#i# in order to
arran%e or +t!e optimum allocation o a##et# $it!in portolio+ To reac! t!i# objecti<e5
&ar;o$itH %enerated portolio# $it!in a re$ard@ri#; conte?t+ In ot!er $ord#5 !e con#idered
t!e <ariance in t!e e?pected return# rom in<e#tment# and t!eir relation#!ip to eac! ot!er in
con#tructin% portolio#+ In e##ence5 &ar;o$itHI# model i# a t!eoretical rame$or; or t!e
anal(#i# o ri#; return c!oice#+ Deci#ion# are ba#ed on t!e concept o eicient portolio#+
A portolio i# eicient $!en it i# e?pected to (ield t!e !i%!e#t return or t!e le<el o
ri#; accepted or5 alternati<el(5 t!e #malle#t portolio ri#; or a #peciied le<el o e?pected
return+ To build an eicient portolio an e?pected return le<el i# c!o#en5 and a##et# are
#ub#tituted until t!e portolio combination $it! t!e #malle#t <ariance at t!e return le<el i#
ound+ A# t!i# proce## i# repeated or ot!er e?pected return#5 #et o eicient portolio# i#
%enerated+
2-
A##umption#
T!e &ar;o$itH model i# ba#ed on #e<eral a##umption# re%ardin% in<e#tor be!a<iourC
i3 In<e#tor# con#ider eac! in<e#tment alternati<e a# bein% repre#ented b( a
probabilit( di#tribution o e?pected return# o<er #ome !oldin% period+
ii3 In<e#tor# ma?imi#e one period@e?pected utilit( and po##e## utilit( cur<e5
$!ic! demon#trate# dimini#!in% mar%inal utilit( o $ealt!+
iii3 Indi<idual# e#timate ri#; on t!e ba#i# o t!e <ariabilit( o e?pected return#+
i<3 In<e#tor# ba#e deci#ion# #olel( on e?pected return and <ariance *or #tandard
de<iation3 o return# onl(+
<3 For a %i<en ri#; le<el5 in<e#tor# preer !i%! return# to lo$er return#+ Similarl(5
or a %i<en le<el o e?pected return5 in<e#tor preer le## ri#; to more ri#;+
Under t!e#e a##umption#5 a #in%le a##et or portolio o a##et# i# con#idered to be
JeicientJ i no ot!er a##et or portolio o a##et# oer# !i%!er e?pected return $it! t!e #ame
*or lo$er3 ri#; or lo$er ri#; $it! t!e #ame *or !i%!er3 e?pected return+
&ARKO>ITD DI4ERSIFICATION
&ar;o$itH po#tulated t!at di<er#iication #!ould not onl( aim at reducin% t!e ri#; o a
#ecurit( b( reducin% it# <ariabilit( or #tandard de<iation but b( reducin% t!e co<ariance or
interacti<e ri#; o t$o or more #ecuritie# in a portolio+
A# b( combination o dierent #ecuritie#5 it i# t!eoreticall( po##ible to !a<e a ran%e o
ri#; <ar(in% rom Hero to ininit(+ &ar;o$itH t!eor( o portolio di<er#iication attac!ed
importance to #tandard de<iation to reduce it to Hero5 i po##ible+
2/
CAPITA8 &ARKET T)EOR6
T!e CAP& $a# de<eloped in mid@,G205 t!e model !a# %enerall( been attributed to
>illiam S!arpe5 but Jo!n 8inter and Jan &o##in made #imilar independent deri<ation#+
Con#e"uentl(5 t!e model i# oten reerred to a# S!arpe@8inter@&o##in *S8&3 Capital A##et
Pricin% &odel+ T!e CAP& e?plain# t!e relation#!ip t!at #!ould e?i#t bet$een #ecuritie#
e?pected return# and t!eir ri#;# in term# o t!e mean# and #tandard de<iation# about #ecurit(
return#+ 'ecau#e o t!i# ocu# on t!e mean and #tandard de<iation t!e CAP& i# a direct
e?ten#ion o t!e portolio model# de<eloped b( &ar;o$itH and S!arpe+
Capital &ar;et T!eor( i# an e?ten#ion o t!e portolio t!eor( o &ar;o$itH+ T!i# i# an
economic model de#cribe# !o$ #ecuritie# are priced in t!e mar;et place+ T!e portolio t!eor(
e?plain# !o$ rational in<e#tor# #!ould build eicient portolio ba#ed on t!eir ri#; return
preerence#+ Capital A##et Pricin% &odel *CAP&3 incorporate# a relation#!ip5 e?plainin%
!o$ a##et# #!ould be priced in t!e capital mar;et+
ASSU&PTIONS OF CAPITA8 &ARKET T)EOR6
T!e CAP& re#t# on ei%!t a##umption#+ T!e ir#t A a##umption# are t!o#e t!at underlie
t!e eicient mar;et !(pot!e#i# and t!u# underlie bot! modern portolio t!eor( *&PT3 and t!e
CAP&+ T!e la#t / a##umption# are nece##ar( to create t!e CAP& rom &PT+ T!e ei%!t
a##umption# are t!e ollo$in%C
,3 T!e In<e#torI# objecti<e i# to ma?imi#e t!e utilit( o terminal $ealt!+
-3 In<e#tor# ma;e c!oice# on t!e ba#i# o ri#; and return+
/3 In<e#tor# !a<e !omo%eneou# e?pectation# o ri#; and return+
.3 In<e#tor# !a<e identical time !oriHon+
A3 Inormation i# reel( and #imultaneou#l( a<ailable to in<e#tor#+
23 T!ere i# a ri#;@ree a##et5 and in<e#tor# can borro$ and lend unlimited amount# at t!e
ri#;@ree rate+
B3 T!ere are no ta?e#5 tran#action co#t#5 re#triction# on #!ort rate# or ot!er mar;et
imperection#+
13 Total a##et "uantit( i# i?ed5 and all a##et# are mar;etable and di<i#ible+
2.
2A
C)APTER N .
PORTFO8IO ANA86SIS
22
PORTFO8IO ANA86SIS
A Portolio i# a %roup o #ecuritie# !eld to%et!er a# in<e#tment+ In<e#tor# in<e#t t!eir
und# in a portolio o #ecuritie# rat!er t!an in a #in%le #ecurit( becau#e t!e( are ri#; a<er#e+
'( con#tructin% a portolio5 in<e#tor# attempt# to #pread ri#; b( not puttin% all t!eir e%%# into
one ba#;et+ Portolio p!a#e o portolio mana%ement con#i#t# o identi(in% t!e ran%e o
po##ible portolio# t!at can be con#tituted rom a %i<en #et o #ecuritie# and calculatin% t!eir
return and ri#; or urt!er anal(#i#+
Indi<idual #ecuritie# in a portolio are a##ociated $it! certain amount o Ri#; E
Return#+ Once a #et o #ecuritie#5 t!at are to be in<e#ted in5 are identiied ba#ed on Ri#;@
Return c!aracteri#tic#5 portolio anal(#i# i# to be done a# ne?t #tep a# t!e Ri#; E Return o t!e
portolio i# not a #imple a%%re%ation o Ri#; E Return# o indi<idual #ecuritie# but5 #ome$!at
le## or more t!an t!at+ Portolio anal(#i# con#ider# t!e determination o uture Ri#; E Return
in !oldin% <ariou# blend# o indi<idual #ecuritie# #o t!at ri%!t combination# %i<in% !i%!er
return# at lo$er ri#;5 called Eicient Portolio#5 can be identiied #o a# to #elect an optimum
one out o t!e#e eicient portolio# can be #elected in t!e ne?t #tep+
2B
E?pected Return o a Portolio C
It i# t!e $ei%!ted a<era%e o t!e e?pected return# o t!e indi<idual #ecuritie# !eld in
t!e portolio+ T!e#e $ei%!t# are t!e proportion# o total in<e#table und# in eac! #ecurit(+
i i
n
, I
R ? Rp

=
=
R
P
L E?pected return o portolio
N

L No+ o Securitie# in Portolio
F
I
L Proportion o In<e#tment in Securit( i+
R
i
L E?pected Return on #ecurit( i
Ri#; &ea#urement
T!e #tati#tical tool oten u#ed to mea#ure and u#ed a# a pro?( or ri#; i# t!e #tandard
de<iation+
N
, i
-
E*r33 @ *ri p
=
=
-
N
-
E*r33 @ ri * p 3 * ce 4arian =
3 * 4ariance )ere
-
=
P L i# t!e probabilit( o #ecurit(
N L Number o #ecuritie# in portolio
ri L E?pected return on #ecurit( i
21
C)APTER A
PRACTICA8 STUD6 OF SO&E SE8ECTED SCRIPS
2G
PORTFO8IO @ A PORTFO8IO N '
')E8 SAT6A& CO&PUTERS
RE8IANCE ENER76 >IPRO
CRO&PTION 7REA4ES JINDA8 STEE8
CA8CU8ATION OF RETUN AND RISKC
N
R
*Ri3 E RETURN EFPECTED
i

=
PORTFO8IO@A
')ARAT )EA46 E8ECTRONICS 8I&ITED *')E83C
DATE SHARE PRICE (X) (X-X') (X-X')
2
4/3/2014 2,098 -62.00 3844.00
3/3/2014 2,099.45 -60.55 3666.30
29/2/2014 2,282 122.00 14884.00
28/2/2014 2,323.60 163.60 26764.96
27/2/2014 2,262.90 102.90 10588.41
26/2/2014 2,180.55 20.55 422.30
25/2/2014 2,085.10 -74.90 5610.01
22/2/2014 2,058.85 -101.15 10231.32
21/2/2014 2,092.05 -67.95 4617.20
20/2/2014 2,124.20 -35.80 1281.64
EFPECTED RETURN L -,520B=,0 L -5,20 LFP
(X-X')
2
L 1,5G,0+,A
RISK L 1,5G,0+,A L -12+-0
B0


RE8IANCE ENER76
DATE SHARE PRICE (X) (X-X') (X-X')
2
4/3/2014 1,510 -74.37 5530.90
3/3/2014 1,485.55 -98.62 9725.90
29/2/2014 1,568 -16.42 269.62
28/2/2014 1,600.70 16.53 273.24
27/2/2014 1,631.35 47.18 2225.95
26/2/2014 1,697.25 113.08 12787.09
25/2/2014 1,622.70 38.53 1484.56
22/2/2014 1,555.90 -28.27 799.19
21/2/2014 1,595.05 10.88 118.37
20/2/2014 1,575.65 -8.52 72.59
EFPECTED RETURN L ,A51.-=,0 L ,5A1. LFP
(X-X')
2
L //5-1B+.-
RISK L //5-1B+.- L -12+-0
B,
CRO&PTON 7REA4ES
DATE SHARE PRICE (X) (X-X') (X-X')
2
4/3/2014 302 -8.92 79.66
3/3/2014 309.95 -0.97 0.95
29/2/2014 314 3.48 12.08
28/2/2014 326.10 15.18 230.28
27/2/2014 326.55 15.63 244.14
26/2/2014 311.80 0.88 0.77
25/2/2014 299.30 -11.62 135.14
22/2/2014 297.85 -13.07 170.96
21/2/2014 308.70 -2.22 4.95
20/2/2014 312.60 1.68 2.81
EFPECTED RETURN L /5,0G=,0 L /,0+G LFP
(X-X')
2
L 11,+B-
RISK L 11,+B- L -G+2G
B-
PORTFO8IO @ '
SAT6A& CO&PUTERS
DATE SHARE PRICE (X) (X-X') (X-X')
2
4/3/2014 406 -29.56 873.50
3/3/2014 411.95 -23.61 557.20
29/2/2014 434 -1.41 1.97
28/2/2014 446.80 11.25 126.45
27/2/2014 437.10 1.55 2.39
26/2/2014 449.75 14.20 201.50
25/2/2014 450.30 14.75 217.42
22/2/2014 438.80 3.25 10.53
21/2/2014 458.20 22.65 512.80
20/2/2014 422.50 -13.06 170.43
EFPECTED RETURN L .5/A2=,0 L ./A+2 L FP
(X-X')
2
L -52B.+,1
RISK L -2B.+,1 L A,+B,
B/
>IPRO
DATE SHARE PRICE (X) (X-X') (X-X')
2
4/3/2014 417 -14.13 199.52
3/3/2014 419.70 -10.93 119.36
29/2/2014 435 4.02 16.20
28/2/2014 446.45 15.83 250.43
27/2/2014 439.90 9.27 86.03
26/2/2014 444.15 13.53 182.93
25/2/2014 439.55 8.93 79.66
22/2/2014 422.40 -8.23 67.65
21/2/2014 431.65 1.02 1.05
20/2/2014 411.30 -19.33 373.46
EFPECTED RETURN L .5/02=,0 L ./0+2 L FP
(X-X')
2
L ,/5 B2+-B
RISK L ,/B2+-B L /B+0G
B.
JINDA8 STEE8
DATE SHARE PRICE (X) (X-X') (X-X')
2
4/3/2014 1,007 -73.86 5454.56
3/3/2014 1,014.40 -66.36 4402.99
29/2/2014 1,062 -19.21 368.83
28/2/2014 1,079.80 -0.96 0.91
27/2/2014 1,063.55 -17.21 296.01
26/2/2014 1,093.55 12.79 163.71
25/2/2014 1,117.00 36.24 1313.70
22/2/2014 1,115.45 34.69 1203.74
21/2/2014 1,142.60 61.84 3824.80
20/2/2014 1,112.75 31.99 1023.68
EFPECTED RETURN L ,05101=,0 L ,010+1 L FP
(X-X')
2
L ,150A-+G.
RISK L ,10A-+G. L ,/.+/2
BA
PORTFO8IO@A
T)E RISK AND RETURN OF EAC) CO&PAN6
IN PORTFO8IO A IS C
S8 +No CO&PAN6 RETURN RISK
, ')E8 -,20 -12+-0
- RE8IANCE ENER76 ,A1. -12+-0
/ CRO&PTON 7REA4ES /,0+G -G+2G
PORTFO8IO@'
T)E RISK AND RETURN OF EAC) CO&PAN6
IN PORTFO8IO ' IS C
SI+ No CO&PAN6 RETURN RISK
, SAT6A& CO&PUTERS ./A+2 A,+B,
- >IPRO ./0+2 /B+0G
/ JINDA8 STEE8 ,010+1 ,/.+/2
B2
INTERPERATION
From t!e abo<e i%ure#5 it i# clear t!at in total t!ere i# a !i%! return on portolio A companie#
$!en compared $it! portolio ' companie#+ 'ut at t!e #ame time i $e compare t!e ri#; it i#
clear t!at ri#; i# le## or companie# in portolio ' $!en compared $it! portolio A
companie#+ A# per t!e &ar;o$itH an eicient portolio i# one $it! 9&inimum ri#;5
ma?imum proit: t!ereore5 it i# ad<i#able or an in<e#tor to $or; out !i# portolio in #uc! a
$a( $!ere !e can optimiHe !i# return# b( e<aluatin% and re<i#in% !i# portolio on a
continuou# ba#i#+
BB
C)APTER N 2
CONC8USIONS
B1
CONC8USIONS
Portolio i# collection o dierent #ecuritie# and a##et# b( $!ic! $e can #ati#( t!e ba#ic
objecti<e J&a?imiHe (ield minimiHe ri#;+ Furt!erI $e !a<e to remember #ome important
in<e#tin% rule#+
In<e#tin% rule# to be remembered+
DonIt #peculate unle## itI# ull@time job
'e$are o barber#5 beautician#5 $aiter#@o an(one @brin%in% %it# o in#ide
inormation or tip#+
'eore bu(in% a #ecurit(5 it# better to ind out e<er(t!in% one can about t!e compan(5
it# mana%ement and competitor#5 it# earnin% #and po##ibilitie# or %ro$t!+
DonIt tr( to bu( at t!e bottom and #ell at t!e top+ T!i# canIt be done@e?cept b( liar#+
8earn !o$ to ta;e (our lo##e# and cleanl(+ DonIt e?pect to be ri%!t all t!e time+ I (ou
!a<e made a mi#ta;e5 cut (our lo##e# a# "uic;l( a# po##ible
DonIt bu( too man( dierent #ecuritie#+ 'etter !a<e onl( a e$ in<e#tment# t!at can
be $atc!ed+
&a;e a periodic reapprai#al o all (our in<e#tment# to #ee $!et!er c!an%in%
de<elopment# !a<e altered pro#pect#+
Stud( (our ta? po#ition to ;no$n $!en (ou #ell to %reate#t ad<anta%e#+
Al$a(# ;eep a %ood part o (our capital in a ca#! re#er<e+ Ne<er in<e#t all (our und#+
DonIt tr( to be jac;@o@all@in<e#tment#+ Stic; to ield (ou ;no$n be#t+
Purc!a#in% #toc;# (ou do not under#tand i (ou canIt e?plain it to a ten (ear old5 ju#t
donIt in<e#t in it+
O<er di<er#i(in%C T!i# i# t!e mo#t o<er#old5 o<eru#ed5 lo%ic@de(in% concept amon%
#toc;bro;er# and re%i#tered in<e#tment ad<i#or#+
Not reco%niHin% dierence bet$een <alue and priceC T!i# %oe# alon% $it! t!e ailure
to compute t!e intrin#ic <alue o a #toc;5 $!ic! are #impl( t!e di#counted uture
earnin%# o t!e bu#ine## enterpri#e+
Failure to under#tand &r+ &ar;etC Ju#t becau#e t!e mar;et !a# put a price on a
bu#ine## doe# not mean it i# $ort! it+ Onl( an indi<idual can determine t!e <alue o an
in<e#tment and t!en determine i t!e mar;et price i# rational+
Failure to under#tand t!e impact o ta?e#C Al#o ;no$n a# t!e #orro$# o
compoundin%5 ju#t a# compoundin% $or;# to t!e in<e#torI# lon%@term ad<anta%e5 t!e
burden o ta?e# becau#e p e?ce##i<e tradin% $or;# a%ain#t buildin% $ealt!
Too muc! ocu# on t!e mar;et $!et!er or not an indi<idual in<e#tment !a# merit and
<alue !a# not!in% to do $it! t!at t!e o<erall mar;et i# doin% +++
BG
'I'I8O7RAP)6
IN4EST&ENT &ANA7E&ENT

'6 4+K+ ')A88A+

SECURIT6 ANA86SIS E PORTFO8IO &ANA7E&ENT

'6 E+ FISC)ER E J+
JORDAN+
>>>+INDIAIFO8INE+CO&
>>>+'SEINDIA+CO&+
>>>+NSEINDIA+CO&+
>>>+&ONE6CONTRO8+CO&+
DA8A8 STREET &A7NADINE+
'USINESS TODA6 &A7ADINE+
FINANCIA8 EFPRESS+
'USINESS 8INE+

10