Professional Documents
Culture Documents
Unit-1
Meaning:
Investment is the employment of funds with the aim of achieving additional income or growth
in value. The essential quality of an investment is that it involves waiting for reward.
Investment is the allocation of monetary resources to assets that are expected to yield some gain
or positive return over a given period of time. These assets range from safe investment to risky
investments. Investments in this form are also called financial investment.
Definitions:
An investment is a commitment of funds made in the expectation of some positive rate of
returns. If the investment is properly undertaken, the return will commensurate with the risk the
investor assumes” Donald E.Fisher and Ronald J.Jordan.
Allocation of monetary resources to assets that are expected to yield some gain or positive
return over a given period of time is known as financial investment. Purchasing of shares,
debenture, post office savings certificates and insurance policies all are investment in the
financial assets
2. Economic investment:
According to economic investment means the net additions to the economy capital stock, which
consists of goods, and services that are used in the production of other goods and services.
Hence it includes all type of plant, machinery, equipment, inventory and construction materials
as well as types of services.
3. Business investment:
Putting money in a private business is known as business investment. For instance, a man is
investing Rs.2,00,000 in his newly started provisional store. Such an investment is called
business investment.
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4. General investment:
Sometimes, some persons invest in the avenues, which do not give any additional income such
as dividend, rent, or capital growth. For example if a person buys a car or bike for his personal
use such investment is called general investment.
Types of investment:
Investment may be classified two types are below:
Direct investment
Indirect investment
1. Direct investment:
Direct investment means the individual makes his own choice and investment decision. These
include the following
Fixed principal investments are those who are principal amount and the terminal value are
known with certainty. There will not be any change in the terminal value. These investment
include the following:
cash
savings accounts
savings certificates
government bonds
i) cash:
cash has a definite and constant value. It does not earn any return, while in hand. It is the safest
investment. However only a small portion is to kept as cash because it does not carry any
interest or earn any return
savings accounts have a fixed return. They differ only in terms of time period. However, only a
very low return can be received from this type of investment. Here the principal amount is fixed
plus interest earned
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iii) Savings certificates:
Savings certificates are quite recent. Some of the examples of savings certificates are national
certificates, bank certificate, postal savings certificate etc.. here also the principal amount is
fixed plus interest earned
state government bonds and central governments issued government bonds. These bonds are
having fixed maturity value. They bear a fixed rate of return over time.
Variable principal securities are those whose terminal values are not known with certainty. They
include following type
Preferences share
Equity shares
Convertible securities
i) Preferences share:
Preferences share is a share that bears a stated dividend and has priority of claim over equity
shares in the matter of dividend and assets in the event liquidation of the company
Equity share is a security that represents ownership interest in a company. It is issued to those
who have contributed capital in setting up an enterprise.
Non-security investments are those, which are other than corporate securities. These include the
following:
Real estate
Mortgages
Commodities
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Business ventures
Are, antiques and other valuables
i) Real estate:
it denotes the ownership of residential as well as commercial properties. It is less liquid than
corporate securities. The terminal value of real estate in uncertain. But generally there is price
appreciation.
ii) Mortgages:
Mortgages denote the financing of real estate. It has a periodic fixed income and the principal is
recovered at a stated maturity date.
iii) Commodities:
in the process of buying and selling commodities, while purchasing the goods we pay the price
for them. That is way this transaction is also brought under investment.
Business ventures denote direct ownership investment in new or growing business before firms
sell securities on public basis
Art, antiques and other valuables include silver, gold, and jewelers. They are another type of
specialized investments, which offer aesthetic qualities also.
Indirect investments are those in which the individual has no direct hold on a amount he invests.
He contributes his savings to certain organization such LIC, UTI etc. and depends upon them
make investment on his behalf. So he has no direct responsibility hold on securities.
An individual also makes indirect investment for retirement benefits in the form of provident
fund, pension, life insurance policy and investment company securities and units of UTI.
Objectives of investment:
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Risk
Credit worthiness of the borrower
Return
Safety
1. Risk:
Risk is inherent in any investment. It may relate to loss of capital, delay in repayment of capital,
non-payment of interest. The risk of an investment depends upon certain factors such as
maturity period is longer the maturity period the greater risk.
3. Nature of investment:
The risk varies with the nature of investment. Investment in ownership securities like equity
share carry higher risk compared to investment in debt securities such as debentures and bonds
4. Return:
Return is important factor, which determines investment decision. In fact, investment are made
with the main objective of deriving a return. The return is two types namely yield, and capital
appreciation.
5. Safety:
It refers to the certainty of return of capital without loss of money or time. Every investor
expects to get back his capital of return of capital without loss and delay. Therefore an investor
who is very much particular about the safety of capital should be carefully review the economic
and industry trends before selecting avenues.
Speculation:
Both investment and speculation are some what interrelated. It is said that speculation requires
investment and investment are to extent speculative. Speculative is the purchase or sale of
anything in the hope of profit from anticipated change in price. According to Emery
“speculation consists in buying and selling commodities or securities or other property in the
hope of a profit form anticipated changes of values”.
Speculation involves a higher level of risk and more uncertain expectation of returns but in
many cases the investors are also in the same boat. The investors who thinks that the market
fluctuations of his investment are not of interest to him because he is buying solely for income
can very well be compared with the buying its head in the ground during danger and feeling
himself secure. For the speculator, pride of opinion is the costliest luxury. In fact the speculator
must have the courage to make decisions when the current. The crowd is wildly bullish at tops
and in a panic at bottom, and these emotions is highly contagious.
Type of speculations:
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The speculators of a stock exchange are given different names depending upon the nature of
their speculative activity. The terms used to denote them were drawn from the animal world to
clearly bring out the nature and working of various speculators.
Bull
Bear
Stag
Lame duck
i)bull:
A bull is an optimistic speculator. He expects a rise in the price of securities in which he deals.
Therefore, he enters into purchase transactions with view to sell them at profit in the future. He
is called as bull because just like a bull tends to throw his victim up in the air, the bull
speculator stimulates the price to rise by placing his purchase orders.
ii) Bear:
A bear is a pessimistic speculator who expects a sharp fall in the price of certain securities. He
enters into selling contracts in certain securities on a future date. If the price of security falls as
he expects, he shall get the price difference. A bear usually presses its victims down the ground.
iii) Stag:
a stag is considered as a caution investor when compared to the bull or bear. He is a speculator
who simply applies for fresh shares in a new companies with the sole object of selling them at a
premium or profit as soon as he gets the shares allotted. So he is also called as premium hunter.
The stag, in fact is a bull because he is optimistic and expects rise in the price of securities.
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Investment Speculation
1.return expected:
Investment involves purchase of an Speculation also involves purchase of an
asset to enjoy the return on it asset but with the expectation profit on
sale on account of its price change
2. marketability of the assets:
The assets need not necessarily be But speculators buy only marketable
marketable for investor assets.
3. span of commitment:
In investment the length of In speculation investment is always held
commitment is comparatively long term for short term
4. amount of risk:
Investment is considered to involve Speculation is considered to involve high
minimum risk risk
5. purpose of investment:
The purpose of investment is to receive The purpose of speculation is to enjoy
a stable as well as regular return capital gain
6. type of contract:
In case of investment the type of It is ownership nature in speculation
contract is that of creditor nature.
7. types of purchase:
In investments securities are purchased In speculation, it is often on margin
out rightly
8. sources of income:
The sources of income are the earnings In speculation it is often on margin
of enterprise for an investor.
9. nature of investment media:
Investment is confined to those media But here such stability of income is not
where the principal is safe besides return certain and erratic
10. attitude of the investor:
An investor is cautious and A speculator is daring and careless
conservative
11. types of analysis:
The investor constantly evaluates the Speculator is interested in market action
securities through a scientific analysis and price movements.
Gambling:
Gambling involves taking high risks not only for high risk returns but also thrill
and excitement. People who interested in gambling involve in the same without
knowledge of the nature of the risk involved. Examples of gambling are horse races,
card games, lotteries etc..
Feature of gambling:
Gambling has the following features:
Gambling is a highly risky activity
Gambling seeks and enjoys a strange thrill and excitement from gambling
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Gambler never stops gambling while winning
Gambler displays persistent optimism without winning
Gambling absorbs all other interest
Gambling is a typical, chronic and repetitive experience.
Investment Gambling
1. basis:
Investment is based on proper analysis Gambling is based on unreliable
and review of securities institution such as tips, rumors and
hunches
2. existence risk:
Investment involves planning of risk But in gambling artificial and
already existed. unnecessary risks are created
3. degree of risk:
Investment involves limited risk Gambling involves high risk
4. amount of return:
Investment is confined to those media Gambling involves the expectation of
where the principle is safe high returns
5. nature of media:
The purpose of investment is to be Gambling consists of uncertainty in the
receive a stable as well as regular return respect
6. nature of activity:
Investment is a planned activity Gambling is an unplanned one
7. attitude:
In case of investment the type of Gambling involves high stakes for thrill
contract is that of creditor nature and excitement
8. type of analysis:
Investment attitudes makes a scientific Gambling is a non-scientific one
analysis of intrinsic value of securities
9. risk level:
Investment may range from safe to Gambler has no knowledge of the exact
risky levels nature or risk.
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Favorable activities relating to investment consist of acquisition of assets, their maintenance and
the liquidation of assets. A good investment market should facilitate these investment activities
and foster their growth.
1. Legal protection:
As investment is the result, of savings, the government should introduce adequate measures to
encourage savings accumulation. The rights of the investors who have invested their surplus in
assets should be protected against possible infringement. Indian economy is mixed economy
aimed at achieving advantages of both socialistic and capitalist forms of government. Though
private participation is allowed, the government exerts control over them to certain extent.
Adequate government control results in a stale capital market.
Importance of investment:
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1. Longer life expectancy:
Investment decision has become significant as most people in India retire between the ages of
55 and 60. Also the trend shows longer life expectancy. The earnings from employment should
therefore be calculated in such a manner that a portion should be put away as savings. Savings
by themselves do not increase wealth these must be invested in such a way that the principal and
income will be adequate for a greater number of retirement years.
3. Interest rate:
It very between one investment and another. These ways very between risky and safe
investments. They may also differ due to different benefit schemes offered by the investments.
Those aspects must be considered before actually allocation any amount. A high rate of interest
may not be the only factor favoring the outlet at investment
4. Inflation:
Inflation has become a continuous problem since the last decade. In these years of rising prices,
several problems are associated coupled with a falling standard of living. Before funds are
invested, erosion of the resources will have to be carefully considered in order to make the right
choice of investment the investor will try and search an outlet which will give him high rate of
return in the form of interest to cover any decrease due to inflation
5. Income:
another reason why investment decisions have assumed importance is the general increase in
employment opportunities in India. After independence there was an development in all sector
of our country and more employment opportunities were increased, more income are more
avenues of investment have lead to the ability and willingness of working people to save and
invest their funds.
6. Investment channels:
instruments the growth and development of the country loading to greater economic activity ahs
lead to the introduction of a vast array of investment outlets. Apart from putting aside savings in
banks where interest is low investors have the choice of a variety.
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Safety principal
Liquidity and collateral value
Stable income
Capital growth
Tax implications
Investment process
Stability of purchasing power
legality
1. Safety principal:
Safety of funds invested is one of the essential ingredients of a good investment progamme.
Safety of principal signifies protection against any possible loss under the changing conditions.
Safety of principal can be achieved through a careful review of economic and industrial trends
before choosing the types of investment. It is clear that no one can make a forecast of future
economic conditions with utmost precision. To safeguard against certain errors that may creep
in while making an investment decision, extensive diversification is suggested. The main
objectives of diversification is the reduction of risk in the loss of capital and income.
3. Stable income:
Investors invest their funds in such assets that provide stable income. Regularity of income in
consistent with a good investment programme. The income should not only be stable but also
adequate as well
4. Capital growth:
One of the important principles of investment is capital appreciation. A company
flourishes when the industry to which it belongs is sound. So, the investors, by recognizing the
connection between industry growth and capital appreciation should invest in growth stocks. In
short, right issue in the right industry should be bought at the right time
5. Tax implication:
While planning an investment programme, the tax implications related to it must be seriously
considered. In particular, the amount of income an investment provides and the burden of
income tax on that income should be given a serious thought. Investors is small income brackets
intend to maximize the cash returns on their investment and hence they hesitant to take
excessive risks. On the contrary, investors who are not particular about cash income do not
consider tax implications
6. Investment process
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Having understood the essential features of an investment programme, it becomes necessary to
know how one enters the investment area. Generally, the investment process can be analyzed in
four stages investment policy, investment analysis, valuation of securities, and portfolio
construction
8. Legality:
The investors should invest only in such assets which are approved by law. Illegal securities will
land the investor in trouble. Apart from being satisfied with the legality of investment, the
investors should be free from management of securities. In case of investment in Unit Trust of
India and mutual funds. It will diversify the pooled funds according to the principles of safety,
liquidity and stability.
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Unit-2
Financial system
Introduction
The financial system of India refers to the demand for the supply of funds of all
individual, institutions. Companies and of the govt and to the system of borrowing and
lending of funds. Commonly the financial system is classified into industrial agricultural
development and govt finances.
Indian financial system includes many institutions and the mechanism which
affects the generation of savings by the community the mobilization of savings and the
effective distribution of the savings among all those who demand the funds for
investment purpose. Broadly therefore the Indian financial system is composed of :
The booking system the insurance companies mutual funds, investment and other
institutions which promotes saving amo0ng the public, collect their savings and transfer
them the actual investors.
Process of investment:
Investment policy
Security analysis
Valuation
Diversification
Evaluation
Investment policy:
The government or the investors before proceding into investment formulates the
policy for the systematic functioning. The essential ingredients of the policy are
investible funds, objectives, and knowledge about investment alternatives market.
a. Investment policy:
The entire investment procedure revolves around the availability of investible
funds. The fund may be generated through savings from borrowings. If the funds are
borrowed the investors has to be extra careful in the selection of investment.
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b. objectives:
The objectives are framed on the premises of the required rate of return, need for
regularity of income, risk perception and the need for liquidity.
c. knowledge:
The knowledge about the investment alternatives and markets plays a key role in
the policy formulation. The investment alternatives range from security to real estate.
The risk and return associated with investment alternatives differ from each other.
Investment in equity high yielding but has more risk than the fixed income securities.
2. Security analysis:
After formulating the investment policy the securities to be bought have to be
scrutinized through the market, industry, and company analysis
a. Market analysis:
The stock market mirrors the general economic scenario. The growth in gross
domestic product and inflation are reflected in the stock prices. The recession in the
economy results in the bear market. The stock prices may be fluctuating in the short run
but long run they move in trends.
b. industry analysis:
The industries that contribute to the output of the major segments of the
economy vary in their growth rates and their overall contribution to economic activity.
Some industries grow faster than the GDP and expected to continue in their growth. For
example information technology has experienced higher growth rate in GDP in 1998.
c. company analysis:
the purpose of company analysis is to help the investors to make better decision.
The company earnings, profitability, operating efficiency, capital structure and
management have to be screened. These factors have direct bearing on the stock prices
and the return of the investors. Company with high product market share is able to create
wealth to the investors in the form of capital appreciation
3. Valuation:
The valuation helps the investors to determine the return and risk expected from
an investment in the common stock. The intrinsic value of the share is measured through
the book value of the share and price earning ratio. Simple discounting models also can
be adopted to value the share. The stock market analysis has developed many advanced
models to value the shares.
a. future value:
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future value of the securities could be estimated by using a simple statistical
technique like trend analysis. The analysis of the historical behavior of the price enables
the investors to predict the future value.
b. construction of portfolio:
a portfolio is a combination of securities. The portfolio is constructed in such a
manner to meet the investors a goals and objectives. The investors should decide how
best to reach the goals with the securities available. The investors tries to attain
maximum return with minimum risk.
4. Diversification:
The main objective of diversification is the reduction of risk in the loss of capital
and income. A diversified portfolio is comparatively less risky than holding a single
portfolio. There are several ways to diversify the portfolio.
B.industry diversification:
Industries growth and their reaction to government policies differ from each
other. Banking Industry shares may provide regular returns but with limited capital
appreciation. The information technology stock yields high return and capital
appreciation but their growth potential after the year 2002 is not predictable.
c. company diversification:
Securities from different companies are purchased to reduce risk. Technical
analysts suggest the investors to buy securities based on based price movement.
Fundamental analysts suggest the selection of financially sound and investor friendly
companies.
5. Evaluation:
The portfolio has to be managed efficiently. The efficient management for
evaluation of portfolio. This process consists of portfolio appraisal and revision.
a. Appraisal:
The return and risk performance of the security vary from time to time. They
variability in returns of securities is measured and compared. The development of
economy, industries and relevant companies from which they stock are bought have to
be appraised. The appraisal warns they loss and steps can be taken to avoid such losses.
b. revision:
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Revision depends on the results of the appraisal. The low yielding securities with
high risk are replaced with high yielding securities with low risk factor. To keep the
return at the particular level necessitates them investors to revise components of the
portfolio periodically.
Financial system:
Financial system deals about various financial institutions, with their financial
services, financial markets which enable individual, business and government concerns
to raise finance and various instruments issued in the financial markets for the purpose
of razing financial resources.
Financial institutions
Financial markets
Financial instruments
Financial services
1. Financial institutions:
1. Central banks 7. Commercial banks
2. Co-operative banks 8. Developments banks
3. Merchant banks 9. Hire purchases finance companies
4. Finance companies 10. Leasing companies
5. Factoring companies 11.assets liability management companies
6. Underwriters 12. Mutual funds
2. Financial markets:
Financial markets consists of capital market(both primary and secondary)
money market, foreign exchange market, and government securities market
Financial market
___________________________________________________________
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A. capital market:
This deals in shares and debentures. Companies raise their capital through the
issue of share and debentures. The capital market can be further divided as
Capital market
______________________________________________________
i. primary market:
primary market refers to the sale of shares, directly by the company at the time of
promotion and the investors directly buy the shares from other company through
application. Hence the share price will be mostly at par
b. money market:
As the capital market deals in long-term funds, money market deals in short-term
funds. In fact, there is no fixed place as money market. The term money market refers to
a collective name given to all the institutions which are dealing in short-term funds.
They are spread throughout the country. It is the presence of money market that
promotes more trading and production in the country. Money market provides working
capital
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as foreign exchange and exchange rate for each form of foreign currency varies. It
depends on the time taken for converting foreign exchange into foreign currency.
3. financial instruments:
Financial instruments include both products and instruments. In products, the
various methods adopted for raising funds will be dealt. In instruments we have bills
consisting of commercial, foreign, government and accommodation. Also cheques,
drafts, letter of credit, traveler’s cheque, commercial paper, global deposit receipts, bond
etc,.
Negotiable instruments:
A negotiable instrument is used in all business transactions as a medium of
payment. It is a transferable instrument from one person to another. A negotiable
instrument may be bearer instrument or an order instrument. A bearer instrument is one
which can be transferred by mere delivery, while an order instrument can be transferred
by endorsement and delivery. According to section 13 of the negotiable instruments act
1881, “negotiable instruments means promissory notes, bills of exchange or cheque,
payable either to order or to bearer”. It may be classified three types cheques, bill of
exchange and promissory note.
Cheque:
According to section 6 of the negotiable instruments act, a cheque is “a bill of
exchange drawn on a specified banker and not expressed to be payable. Otherwise than
on demand”
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The customer who draws the cheque on the banks is called capital drawer
The bank on whom the cheque is drawn is called drawee
The person who receives payment on the cheque is called the payee.
Bills of exchange:
Section 5 of the negotiable instruments act defines a bill as “ an instrument in
writing containing an unconditional order, singed by the maker, directing the certain
person to pay certain some of money only to or to order of a certain person or the bearer
of the instrument”.
Promissory note:
Section 4 of the negotiable instruments act defines a promissory note as “ an
instrument in writing containing an unconditional promise or undertaking, signed by the
maker to pay a certain sum of money only to or to the order of a certain person, the
bearer of the instrument.
Commercial paper:
Commercial paper is called in short c.p. a leading financial institution can issue a
commercial paper which can be taken by any borrower and discounted with commercial
banks. On the due date, the paper will be presented to the financial institution which
will make payment along with interest. Subsequently, the financial institution will
collect the money from the borrower who has used the commercial paper for raising
money.
Bill of lading:
A document of title of goods, signed by the carrier, acknowledging shipment of
the goods and containing the terms and conditions of carriage.
Letters of credit:
It is a letter by the importer bank guaranteeing the credit worthiness of the
importer.
Traveler’s cheque:
Cheques issued to the traveling public by the banks for fixed amounts without
requiring any letter of identification, which can be cashed at the current rate of
exchange.
4. financial services:
Financial services as a part of financial system provides different types of
finance through various credit instrument, financial products and servies.
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Components of financial services:
Factoring:
Factoring may be defined as an arrangement between the financial institution and
the business concern which is selling goods of credit. The factor undertakes the task or
recording, collecting, controlling and protecting the book debts and also purchasing the
bills receivables of the seller. Thus, there are three parties in a factor agreement. The
supplier or the seller, the buyer and the factor
After selling the goods to the buyer, the seller prepares a bill either for a period
of 3 or 6 months, as per the agreement. This bill is given to the factor who will provide
up to 80% of the bill value to the seller. The factor undertakes to collect the money from
the buyer on the due date, there upon the balance amount is handed over to the seller.
For this function, the factor is provided a commission by the seller. This enables the
seller to concentrate on his sales and he gets the finance periodically from the factor.
Leasing:
To enable companies or small firms to acquire assets of a higher value, leasing
companies were set up. In India, companies in business or manufacturing field came into
existence only in 1970. it was mainly to evade the MRTP act, leasing companies were
set up. The MRTP act was restricting the expansion of companies with assets of more
than Rs20 cores. In case of expansion these companies have to obtain clearance from the
monopolies headed by a supreme court judge. In case such situation a company with
asset of Rs.17 or 18 cores would approach a leasing company will purchases the asset
and give it to manufacturer on a lease for a period of 10 or 12 years. Basically there are
two types of lease agreement. That is financial lease and operating lease.
Financial lease:
A financial lease is a contract involving payment over a fixed period of a specific
amount for the capital outlay of a specific project. In other words, in a financial lease, an
equipment is provided by financing the purchase of that equipment and allowing it to be
used by the lease for fixed period. For this purpose, the lessee will be paying rent. The
lease amount paid (including profit) for the lessor becomes equivalent to the value of the
equipment where by at the end of the lease period. The ownership gets transferred to
lessee.
Operating lease:
An equipment is purchased and provided on lease to the lessee for use. The
lessee has the option to cancel the contract and at the same time, the less or has the
option to sell the asset to any other person. The cost of the equipment is not fully
recovered by the lease amount and the lease period is normally shorter than the
economic life of the asset. The less or can lease the equipment to any number of lessees.
The ownership of the equipment is not transferred unlike financial lease.
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Hire purchase finance:
The hire purchase finance companies provide finance to the buyers of assets for a
period of 2 to 5 years. When a buyer is unable to purchase an assets, for example a car,
purchase finance company provides finance to the buyers which is repayable on a
monthly installment over a period 24 or 60 months. The amount of repayment will be an
equal amount from which a part of it will be taken towards the principal and the
remaining towards interest. The hire purchase finance companies will be charging
interest at the flat rate of 10 or 15% interest for the period of loan. At the same time the
hire purchase companies will be getting finance from the banks which will be on a
declining interest rate. The profit for the hire purchase fiancé companies will be the
difference rate in the interest rate.
Credit card:
A credit card is a plastic card given by the banker to the customer in which the
name of the customer is embossed in block letters. The name of bank and the date of
issue and expiry are also mentioned on the face of the card. The reserve side of the card
will bear the specimen signature of the customer. A list of vendors or sellers will be
given by the banker to the customers.
Merchant banking:
A merchant banking is one who underwrites corporate securities and advises
clients on issue like corporate mergers. The merchant banker may be in the form of
bank, a company, firm or even a proprietary concern. It is basically service banking
which provides non financial services such as arranging for funds rather than providing
them. The merchant banker understands the requirements of the business concern and
arranges finance with the help of financial institutions, banks, stock exchange and
money market.
Housing fiancé:
Housing finance has not only become popular but the procedure for obtaining
loan has been simplified and housing loan for dwelling houses are made easily available.
This is due to the change in the housing policy of both the central and state
governments. Commercial banks have also entered housing finance. In fact state bank of
India has set up a separate subsidiary for housing finance (SBI home finance) housing
and urban development corporation is providing refinancing facility to state government
and also to financial institutions involved in housing finance.
Underwriting:
Underwriting is an act of guarantee by an organization for the sale of certain
minimum amount of shares and debenture issued by a public limited company.
According to the companies act, when a person agrees to take up shares specified in the
underwriting agreement, when the public or others failed to subscribe for them it is
called underwriting agreement.
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1. Development of financial institutions:
The RBI was nationalized in 1948 and bringing it under govt.
control
The imperial bank was the next to be transferred. The name was
renamed as state bank of India in 1956 and same year 245 life insurance companies were
consolidated and merged. Further development look place in 1969. 14 commercial bank
were nationalized and another ten banks were nationalized in 1980. general insurance
company were also nationalized.
Finally the govt also started financial institution under its own
control. The unit trust of India was started in 1964. to encourage saving and investment
of the public and it links between sources and uses of funds
2. Development of banks:
IFCI(Industrial Finance Corporation of India)
SFC-1951 (State Finance Corporation)
ICICI-1955 (Industrial credit investment corporation of india)
RCI-1958 ( Refinance Corporation of india)
IDBI-1964 (Industrial Development bank of india)
SIDC-(State Industrial corporation)
The above mentioned development banks are inception for the growth of Indian
financial system, and they play an important role in developing the industries and to
assist the small and medium scale enterprise. The development banks were considered to
be the back bone of the financial institutions and system, lending support to the financial
institutions with facilities of credit as well as advisory functions.
I. money market:
Money market is a market for purely short-term funds. It deals with the financial
assets and securities whose maturity period does not exceed one year. Generally money
market can be divided into four types are as follows
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II. Capital market:
Government securities market
Industrial securities market
Term-loan market
Mortgages market
Market for financial guarantees.
Initially, call money market was operated through brokers. However, since 1970
RBI has prohibited brokerage in the call market and the role of brokers has been
dispensed with call money market become active whenever the RBI follows a restrictive
monetary policy. On the other hand, the banks do not borrow form the call market, when
RBI follows a liberal monetary policy.
There are two types of treasury bills, namely ordinary treasury bills and
adhoc treasury bills. Generally, ordinary treasury bills are issued to meet the short-term
financial requirement of the central government.
23
A demand bills is one in which no time of payment is specified. So demand bills
are payable immediately when they are presented to the drawee. Usance bill is otherwise
known as time bill. It is payable after the expiry of time. The time for payment is
determined according to the trade custom or usage of practice.
24
II. Capital market:
3. mortgages market:
It is the market where mortgage loans are extended to individual
customers. A mortgage loan is given against the security of immovable property like
land and building. It is fully secured and involves less credit risk. Generally the maturity
period of mortgage loan varies between 15 and 25 years. So a mortgage is a transfer of
interest in specific immovable property in order to secure a loan
The mortgages market can be divided into primary and secondary market.
In primary market, credit is originally extended and secondary market consists of sale
and resale of existing mortgages at ruling rates
25
Industrial security market divided into two categories
Primary market
Secondary market
Primary market:
A primary market is one is which new securities are offered to the investing
public for the first time. Hence it is also called new issue market.
Primary market
______________________________________________________
Equity shares:
These are shares issued by companies for raising capital. The owners of thses
share are shareholders. Normally, the face value of the shares may be Rs.10 or Rs.100
group of fully paid shares are called stock and these can be transferred. The shareholders
are entitled for profit which are distributed to them in the form of dividend. The share
will be refunded to them only during the winding up of the company, provided the
company has sufficient assets.
Preference share:
Preference share are similar to equity shares but are given on a preference basis
to certain share holders, like promoters, auditors etc,. there are cumulative, non-
cumulative, participating, redeemable, irredeemable, convertible and non-convertible,
preference shares. The preference share holders will get the first preference in the
distribution of divided over equity shareholders. The same condition applies in the
repayment of capital at the time of winding up.
Debentures:
26
It is a loan obtained by the company from the public for a fixed interest rate for a
fixed period. Those investors who do not want to take any risks will prefer debenture as
they have less risk on the repayment compared to shares. There are debentures which
have mortgage charge on the assets of the company and these debenture holders are
assured of the repayment.
Secondary market:
A secondary market refers to the availability of shares from the stock marker
through the brokers. Share are purchased or sold according to the returns or expectations
in the future market.
27
of listed companies. There were more institutions promoted by the government such as
mutual funds, merchant banks, investment trust, etc for speeding up activities. The
government has also set up national stock exchange and OTCEI (over the counter
exchange of India). These two stock exchange are promoting more medium and large
companies. In fact the national stock exchange has even overtaken in volume and value
of transactions compared to Bombay stock exchange. But with all these measures, we
still find some defects existing in the stock market. The stock scan of 1990 was big eye
opener to the government the five major stock exchange namely, Bombay, Calcutta,
madras, Delhi, ahmadabad are responsible for 90% of the transaction from the stock
market.
UNIT-III
Meaning of risk:
28
The meaning or risk is the possibility of loss or injury, the degree or probability
of such loss. The concept of risk may be defined as the possibility that the actual return
may not be same as expected. Risk is also defined as a situation where the possibility of
happening or non-happening of an event be quantified and measured.
5. Maturity period:
In investment have a longer maturity period, then they will invite more risks
because of the duration of the investment
6. Amount of investment:
Investing a huge amount in a particular security is quite risky. The higher the
amount invested in any security, more will be the risk. On the other hand judicious mix
of investment in small quantities may be ideal.
7. Security:
Investment may be secured or unsecured. If the investment is secured by
collateral securities, then the risk will be less.
8. Nature of business:
29
Selection of a risky industry for investment is only inviting the trouble. As any
business is prone to up and down its prosperity should not be taken for granted. Any
unfavorable trend in the industry will affect the company also
9. Terms of lending:
Terms of lending such as periodicity of servicing, redemption periods etc,. are
the factors which cause risk in the investment concerned
Classification of risk:
Risk will be two categories
Systematic risk
Unsystematic risk
Other risk
1. Systematic risk:
External factors that cannot be controlled cause risk which are known as
systematic risk. Systematic risks are non-diversifiable and they arise out of the factors
such as market, nature of the industry, state of the economy etc., systematic risks can be
further classified into market risk, interest rate risk, purchasing power risk
A. market risk:
Market risk arises out of changes in the pattern of demand and supply in the
market which is based on the changing flow of information or expectations. Investors
perception and preferences change frequently depending upon the market conditions.
Investor’s reaction towards tangible and intangible events is real, but the intangible
events are based on psychological factors.
An increase in interest rates will result in decreasing the demand for securities by
the speculators who buy with borrowed funds.
30
The movement of prices in the stock market is of four types namely long term,
bull and bear markets, intermediate or within the cycle and short-term.
2. Unsystematic risk:
Unsystematic risk arises out of the uncertainty surrounding a particular firm or
industry due to factors such as strikes, lock out , consumer preferences and management
policies. These factors cause unsystematic variability of returns for a company stock. As
these factors are unique to each company, their impact should be studied separately for
each company. Unsystematic risks emanates from three sources. They are
Business risk
Financial risk
Default of insolvency
A. business risk:
Business risk is that portion of the unsystematic risk caused by the prevailing
environment of the business. In other words business risk is a function of operating
conditions being faced by firm. These risks influence the operating income of a firm and
consequently the dividends.
Business risk can be divided into two categories
Internal business risk
External business risk
i. internal business risk:
Internal business risk is associated with the internal environment of the firm. The
internal business risk is such that are firm has to conduct its business within its limiting
environment. The internal business risks will vary from firm to firm depending upon the
constraints in the internal environment. The important internal risks include
31
customer-base by employing appropriate channels of distribution and dedicated sales
force to help build a strong customer base
c. personnel management:
The operational efficiency of the firm ultimately depends upon the management
of personnel of the company. Frequent strikes and lock-outs would affect the rate of
production. Consequently, the labour productivity which is key to the operational
efficiency, would suffer, by offering attractive compensations plans, a highly motivated
labour force be formed. This would boost the employee morale, higher productivity and
less wastage in the production process,
d. fixed costs:
Proper control over costs can minimize the risks that arise out of the cost
behavior of the factors of production. A high fixed cost during recession or low demand
for products is disadvantages to the firm. The firm cannot aim at reducing the fixed cost
at the stage
Business cycle
Demographic factors
Government policies
Social and regulatory factors
a. business cycle:
32
The most important external factors is probably the business cycle. The
fluctuations of the business cycle would lead to fluctuations in the earnings of the firm.
During recession, the demand for products falls greatly. So, most of the firms may even
be forced to close their business. On the other hand during the boom period, there would
be a great demand for the product
The effects of the business cycle vary from one company to another. In some
cases, the recession may lead to fall. In the profit and growth rate of the firm, whereas in
other cases the firms with in adequate customer base are forced to close down their
business
b. demographic factor:
External business risks arise out of demographic factor such as geographical
distribution of population by age group and race. Demographic factor influence to a
great degree the working of business unit. The success of business operation depends on
the health, education and sills of the employees besides their attitude towards work. Poor
productivity in business units is due to poor health, education and lack of skills of their
employees.
c. government policies:
Risks also arise due to changes in the government policies. Every government
pursues its own policy in India whenever there has been change of government we
liberalization policy was introduced when mammohan singh was the finance minister in
early 1990 subsequently, during the rule of bharathiya janatha party , there was pressure
on the government to give important to swadeshi industries.
B. financial risk:
Financial risk is related to the way a company handles its financial activities.
Financial risk can be ascertained by carefully studying the capital structure of the firm.
The capital structure of the firm comprises of loaned capital and owned capital
C. insolvency risk:
Default or insolvency risks arise out of the inability of the borrower in satisfying
needs of the investor. That is borrower or issuer may become insolvent or defer his
commitment over the payment of interest /principal
3. Other risk:
In addition to the major risks seen above there are other risk such as
Political risk
Management risk
33
Marketability risk
a. political risk:
Political risk is mainly associated with the investment in foreign securities.
Political risk arises out of the following
b. management risk:
Management risk arises out of errors or due to the inefficiency of the
management causing financial loss to the company.
c. marketability risk:
Marketability risk arises out of loss liquidity and monetary loss on conversion
from one asset to another say from stock to bond. More over some features of security
such as callability, lack of sinking fund or debenture redemption reserve fund, reserve
for repayment of principal, adverse converse terms attached to the security may also
cause some setbacks to the investors while marketing his securities.
The investor should also carefully decide the timing of purchase and sale and
securities. He should purchase the securities at a lower price and sell them at higher
price, generally the investors should plan to hold the stock for a considerably long time
in order to take advantage of the rising trend in the market.
If the investors want to hold the investment for a short period he may buy
treasury bills and bonds of short maturity. The money invested in treasury bills can be
reinvested in the market depending upon the prevailing rate of interest.
34
There is another way for the investor to guard himself interest rate risk. He she
may invest his/ her funds in bonds with different maturity dates. The amount realized on
different dates of maturity can be reinvested according to the changes in the investment
climate.
The investor may choose various avenues of investment such as real estate,
precious metals, bank deposits, insurance schemes along with the investment in
securities. Though different forms of investment could not guarantee total elimination of
risks. They can at least minimize the loss due to declining purchasing power.
Measures of return:
The object of any investment is to earn a return on the funds invested in the
financial assets. But financial assets vary in terms of their size and return. As return on
the investment varies considerably, various tools are employed to measure it. These
measures are useful in quantifying the income receivable on investment. The techniques
of measurement are broadly divided into traditional techniques and modern techniques
of measurement.
Traditional methods:
The return on financial assets is measured by calculating the yield. Yield may be
three types namely
35
Estimated yield
Actual yield
Earning yield
An investment carried yield as a compensation for the loss of liquidity which the ready
money provides. Therefore the yield on an investment is a direct function of its liquidity.
The yield includes both the return on the investment and any capital gains on the
disposal of the assets.
Yield = return on investment + capital gain
_______________________________________________________
___________________________
_____________________
36
1. estimated yield:
The estimated yield can be calculated with the following formula
2. Actual yield:
Actual yield is calculated with the help of the following formula
Cash income
Actual yield = ________________
Amount invested
In the above two types, yield is calculated for a particular period to find out the return on
the amount invested. For instance the annual yield on the unit trust certificate is
computed as follows
Dividend income
Actual yield = ________________________________
3. Earnings yield:
By finding out the earnings yield, return on stock can be measured. Dividend
yield does not take into account the fact earnings are retained in business for
reinvestment
But earning yield considers company growth, stock price appreciation and retained
earnings. So, earning yield is considered to be a more accurate measurement as it
reflects both dividends and retained earnings. Price earning rations are calculated in
order to find out the market attitude towards company growth prospects. The price
earnings(P/E) ratio and earning price show the amount to be paid as investment in order
to earn one rupee. The formulate for calculation P/E and E/P are given below
37
Earnings
E/P = __________
Price of share
o They do not maintain the difference between dividends and earnings portion that
the company retains
o A dividend yield method does not consider the possibility of price appreciations
on retained earnings. So it is useful to those shareholders who intend to retain
their shares.
o The yield to maturity is useful to those bondholders who will hold the bonds to
maturity. But in practice all investors do not hold bonds till maturity.
In view of the above limitations, one may conclude that the traditional methods
are not comprehensive and they serve only limited purpose. Holding period yield
methods are considered useful to the investors. There are two important purpose for
employing holding period yield.
o This method measures the total return per rupee of the original investment
o It helps to compare one financial asset with another in respect of past as well as
future period. The holding period yield can be employed in relation to any asset.
The formula for holding period yield is follows
Income payments received during + capital changes for the
The year in rupees period in rupees
_______________________________________________________
Price in rupees of original investment the beginning of the period
38
2. Statistical methods:
Holding period yield is regarded as an important measure to find out returns.
HPY is calculated from probability distribution by using measures of central tendency or
dispersion.
A. central tendency:
Mean, mode and median are some important methods of central tendency. These
methods show the average value of a distribution. The mean which is also known as
arithmetic mean measures average returns. Similarly, median is used to find out the
middle value. For example in a distribution of 9 numbers the value of fifth or middle
number is called the median. Mode represents the numbers which occurs the maximum
numbers of times. For example, if in a distribution 4 occurs twice and the other numbers
occurs once, the 3 in mode. These methods as described above are used to calculate
average values. Experts say that arithmetic mean is best suited to HPY distribution.
B. measure dispersion:
Dispersion methods are used to assess risk in receiving a return on investment.
When the potential dispersion is greater, risk will also be greater. Range is an important
methods of dispersion which is effective when there are small samples. Standard
deviation is used to find out how data are scattered around a frequency distributions.
First mean is ascertained and then deviations from mean are found out. Based on mean,
standard deviation shows useful results. Standard deviation is the square root of the
variance.
Causes of risk:
Risk consists of the elements that cause variations in the return of income. The
factors causing risks in investment are price and interest. Moreover, risk is also
influenced by internal and external forces. External risk are beyond the control of an
organization and they broadly affects in investment. These external risks also known as
systematic risks. The forces internal risks are within the industry and they are called
unsystematic risks.
39
Incorrect decision taken with regard to investment
Failure to judge the correct timing of investment
Selection of the highly risky investment instruments
Unsatisfactory credit worthiness of the issuer
Maturity period
Amount of investment
Security
Nature of business
Terms of lending
Demand and supply forces
5. Maturity period:
If investments have a longer maturity period, then they will invite more risks
because of the duration of the investment.
6. Amount of investment:
Investing a huge amount in the particular security it quite risk. The higher the
amount invested in any security more will be the risk.
40
7. Security:
Investment may be secured or unsecured. If the investment is secured b collateral
securities then risk will be less
8. Nature of business:
Selection of a risky industry for investment is only inviting the trouble. As any
business ups and down it should not be taken for granted. Any unfavourable trend in the
industry will affect the company also.
9. Terms of lending:
Terms of lending such as periodicity of servicing, redemption periods are the
factors which cause risk in the investment concerned
UNIT-IV
41
The investment alternatives:
Introduction:
Focus on array of investment out lets for the individual are being dealt with in
substantial details here and in the subsequent chapter. These include common stock,
preferences share, bonds and debenture. Government securities, convertible stock,
commercial bank share schemes, life insurance policies, unit trust certificate, national
saving schemes, profit office deposit, real estate, precious market and objects.
Risk group:
Investors can be classified in to different groups depending on their attitude
towards risk. Each investors also has an in difference point at which his own
expectations of return match with the risk that he can take. A well diversified portfolio
carefully chosen from the numerous securities available in the market will help the
investors in achieving his objectives. The investors should also be able to assets his own
behaviour pattern before he aims at particular goal which he wishes to attain.
Classification of investors:
While investors can be classified in categories of high risk, no risk and medium
risk takers. It can be said that the major group of investors are those who can absorb
medium risk. Must investors are willing to satisfy some expected income or return it the
income is certain
Income group:
The income group of an investor evokes responses to the available investment
outlets. The higher the income group of an investor. The greater will be his desire for
42
purchasing assets which will give him a favorable tax treatment. The source of income
usually has a bearding can deducted of tax.
Investment alternatives:
Investment avenues can be broadly classified into three categories namely
Real investments
Contingent investments
Titular investment
1. real investment:
Real investment otherwise known as tangible investment have physical or
tangible existence. These are non-financial investment in nature gold and silver. In india
real assets are extremely popular. In fact they were almost the only choice in rural and
semi- urban areas for a longer period.
Real estate:
Real estate includes land and house property. Now a day’s more and more
investment are made in the form of real estate’s for the following reasons:
2.contingent investments:
Contingent investment are the second form of investment avenue available to
investors. The important features of contingent investment are that their value is the
insurance policies. The important features of contingent investment are that their value is
related to a contingency in the form of death, accident, injury etc
Life insurance:
Life insurance is a contract for payment of a sum of money to the person who is
insured with the insurance company on the happening of event insured against.
43
Generally, it is a contract between the insurance company and the insured for a number
of years covering either the life time period or fixed number of years.
2. Schme of LIC:
B. Endowment policies:
Endowment policies are taken for a specified period where under sum assured is
payable on expiry of the specified period or earlier death. Premiums are normally
payable throughout the term of the policy or till the prior death of the life assured. These
policies provide security to family in case of death and accumulated savings as succors
for old age.
c. Jeevan mitra plan:
This policy secures double the sum assured plus the accrued bonus if an insured
dies before maturity, basic sum assured plus the accrued bonus if an insured survives the
full term of the policy.
This policy provides thrice of the basic sum assured in the event of death before
maturity. Sum assured plus the accumulated bonus on maturity. This policy is generally
without profit plan and is ideal for collateral security for housing loans.
3. Titular investments:
Titular investments can be classified following types.
Bank deposits
Post office schemes
Fixed deposit schemes in companies
Provident fund schemes
a. Bank deposits:
Among investment, deposits with banks are more popular. Banks have
introduced different types of deposits accounts with various facilities and privileges.
44
Traditionally, deposits with banks are classified into three categories, namely saving
deposit account, fixed deposit account and current accounts.
Bonds are of many kinds the difference in bonds is due to the terms and
condition and feature each bond bears. Bonds may be distinguished according to their
repayment provisions types of security pledged, time of maturity and technical factors.
Bonds are important sources of funds to the corporate sector. They are usually an
issue of long term debt of a corporate organization. Since no one individual can fulfill
the requirement of the firm the loan is issued in parts of small denominations and sold to
investor in the form bonds.
Features of bonds:
45
Repayment of principal
Specified time period
Call
Pledge of security
Interest
Repayment of principal:
Bonds are issued in denominations of Rs1000 but there are also bonds of values
of Rs500 and Rs100 and values as high in Rs 5000 and Rs 10000. financial institutions
are know to buy corporate bonds bearing higher values. The value of the bond is called
the face value per value, maturity value. The face value of the bonds represent the
promise to repay the amount to the bond holder at thae end of the specified period. This
in other words may be called the most important feature of bond, return of the principal
to the lender on a fixed date specified earlier.
Specified time period:
The second feature is the maturity date of the bond. The time specified the bonds
is called the maturity date or date of repayment of principal amount. The maturity date
of bonds vary according to the requirement of each organization. Some organizations
issue bonds of a long-term nature.
Call:
Bond have an additional feature of call. This is a privilege to the issuing
company of re-purchase bonds at a slightly higher price above the par value.
Pledge of security:
The issuing company some times promises to the bond holder by offering some
security like properly. The pledge of security is a promise to the bond holders in writing
and signed under seal and presented to the trustee by the company.
Interest:
The rate of interest to he paid to the bond holder and the time of payment is
recorded in the bonds as in the indenture. Interest rate is also called the coupon rate.
Interest on bond may be made by cheque or coupon. When interest is paid to the bond
holder by cheque the principal amount on the bond is usually registered to interest
value..
Type of bonds:
Serial bond
Sinking fund bonds
Registered bonds
Debenture bonds
Mortgage bonds
Collateral trust bonds
Equipment trust bonds
Supplemental credit bonds
46
Serial bond:
Serial bond are issued by an organization with different maturity dates. This is
done to enable the company to retire the bonds in installment rather than all together. It
is less likely to disturb the cash position of the firm than if a all the bonds were retired
together from the point of view of the bond holder. This gives him a change to select
bonds of the maturity date which would suit his portfolio.
Registered bonds:
Registered bonds offer additional security by a safety value at reached to them. A
registered bonds protects the owner from loss of principal. The bond holders bonds
numbers, name, address, and type of bond are entered in the register of the using
company. The bonds holder has to comply with the firm is formalities at the time of
transfer of bonds while receiving interest, registered bond holders usually get their
payment by cheque.
Debenture bonds:
Debenture in the USA are considered to be slightly different form bonds.
Debenture bonds are issued by those companies who have an excellent credit rating but
do not have security in form of assets to pledge to the bond holders. The debenture
holders are creditors of the firm and receive the full of interest whether the company
makes a profit or not.
47
Supplemental credit bonds:
When additional pledge is guaranteed to the bondholders their bonds are
categories as supplemental by an additional non specific guarantee such bonds are
classified
Classification bonds:
Guaranteed bonds
Joint bonds
Assumed bonds
Guaranteed bonds:
Guaranteed bonds are issued secured by the issuing company and they are
guaranteed by another company sometimes a company takes assets through a lease the
leasing company guarantee the bonds of the bond issuing company regarding interest
and principal amount due an bonds
Joint bonds:
Joint bonds are guarantee bonds secured jointly by two or more companies.
These bonds are issued when two or more companies are in need of finance and decide
to raise funds together through bonds. It servers the purpose of the company as well as
the investor. The company raises funds at reduced cost since funds are raised jointly,
dual operations of advertising and the formalities of capital issue control are avoided.
Assumed bonds:
Assumed bonds are classified in to following ways
Income bonds:
Such bonds offer interest to the bond holder only when the firm earns a profit. If
profit is not declared in a particular year. Interest on bonds is cumulated for a future
period when the company can sufficiently earn and make a profit. Income bonds are
frequently issued in case of reorganization of companies.
Convertible bonds:
Convertible bonds is the right given to bondholder to buy a bond at the time of
issue and looter exchange it for equity shares of the same company. This gives the bond
holder a future promise by the issuing company to share growth the price of equity issue
of that company.
1.Quality price:
the quality of issue important from the point of view that it is a fixed income
security first and the issue must be such that the interest will be continuously received
48
by the bondholder without default. The quality of the issue is also important because
ultimate the bond holder will own the equity issue of that company
1. Fixed income:
Convertible bonds offer the investor a fixed rate of interest in the beginning years
of investment. Most small investors are interested in a fixed income and would not
worry about the corporate image or growth in which they make an in investment.
2. Expansion:
A convertible bonds is often issued by a firm when it is capital structure does not
permit extensive expansion through further issue of equities or taking loans from the
market at a higher rate of interest.
49
Unit-V
Sources of investment information
Introduction:
Security analysis requires as a first step the sources of information, on the basis
of which analysis is made, the securities market is a perfect auction market were demand
supply pressures determine the price and it is depend upon the available money and the
flow of information. It is in this context that sources of information become relevant.
Besides the market analysis and estimate of the instructed value around which the
market prices revolves would also need an analysis of the flow of information
Types of information:
The following are the types of information
World affairs
Domestic economic and political factors
Industry information
Company information
Security market information
Security price quotation
Data on related markets
Data on mutual fund
Data on new issue market
Financial information
1. World affairs:
International factors such as international political developments, wars, foreign
markets etc,. Influence domestic income, output, employment and investment for
domestic market. Besides, financial journals like economic times, financial express and
business line etc reports on world economic affairs. Apart from this, foreign journals like
London economist give day today developments that took place abroad, relating to trade
and commerce.
3. Industry information:
50
Industry information is quite essential for investment decision making. It incules
market demand, installed capacity, capacity utilization competitors activities and their
share in the market, market leaders, prospects of the industry, requirements of foreign
buyers, inputs and capital goods in foreign countries import substitutes, industrial policy
and labour policy of the government
4. Company information:
Company information relates to the corporate data, annual reports, stocks
exchange publication, department of company affairs circulars, press releases on
corporate affairs by government, industry, chamber etc., financial papers, business india
furnish information about the companies listed on recognized stock exchange. They also
publish the results of equity and market research
51
New issue market is the primary market for securities. In this market, companies
issue securities to the investors directly for raising long term capital. Reports of the
merchant bankers and SEBI have first and hand information on the various new issue
floated in the market. Reserve bank of India and department of company affairs publish
periodically data on new issues in the primary market.
Company information:
The information on various companies listed on stock exchange is readily
available in daily financial papers. Besides the journals of capital market, dalai street
business India contain a lot of information on the industries and companies, listed on
stock exchange. Results of equity and market research are also published in these
journals.
The annual report of companies and their half yearly unaudited results are
another source of information on the companies. The financial journalist give write on
various companies information after interviewing their published data on economic
times and other journals.
52
The capital market
Business India
Above the journals contain the information on security markets. The IFCAI also
publishers a monthly called chartered financial analyst. This contains economic date
company information and market information.
After they are released by stock exchange and companies. Which the news letters
of merchant banker’s brokers in firms’ investment analysis are available to subscribers
or their own elements other are available for all at stipulated prices.
2. Directors report:
Directors report deals with the operation of the company during the past year. Ti
also gives the financial results of these operations, the allocation of profits for
depreciation, interest, taxes, dividends. After meeting all these requirements, the residual
sums are used for plugging back or for writing off of losses. The directors report also
contains information on input availability, market trend, market share, labour problems,
government policy affecting the company, foreign market opportunities etc. thus the
directors report provides valuable information needed for investment analysis.
53
4. Auditors report:
The report submitted by the auditor of the company show the correctness of the
accounts. It also deals with the accounting practices and procedures followed by the
company during the accounting year. The comments of the auditor and the footnotes
may related to contingent liabilities, bad debts, charges in accounting practices, method
of providing for depreciation, debenture redemption reserve fund, statutory obligations
and revaluation of assets and liabilities. A careful examination of the information
contained in the footnotes reveals a precise assessment of a company financial
performance that will help while valuing its securities.
54