Subject: SECURITY ANALYSIS Credits: 4

SYLLABUS
Overview of Investment
Concept of Investment; Various Investment Alternatives; Application of Investment Alternatives; a Case Study
on Investment Alternatives
Overview of Risk Management
Concept of Risk Management; Analysis of Risk Management; a Case Study on Risk Management
Equities in India
Basic of Stocks; Different Types of Stocks; National Stock Exchange; Trading of Equities
Trading of Securities
Introduction to Markets and their Functions; Development of Securities Market in India; SEBI and its Role in
Primary and Secondary Market; SEBI and its Functions; a Case Study on OTCBB
Analysis and Valuation of Debt and Equity
Introduction to Bonds; Embedded Options; Analysis of Bond, Relationship between Price and Yield; a Case
Study on Mirage Resorts: Refunding a Bond Issue, Various Models of Stock Valuation, Concept of Credit
Rating, Analysis of Credit Rating Framework, Rationales of Rating; Case Study: Aether Systems - Common
Stock Valuation; the Variable Growth Model
Security Analysis and Valuation: Fundamental and Technical Analysis
Stock Prices Change; its Causes; Effect of Macroeconomics Variable on Stock Market; Difference between
Technical and Fundamental Analysis; Company Analysis; Basics and usefulness of Technical Analysis; Case
Study: Coca Cola.
Efficient Market Hypothesis
Introduction; Concept of Market Efficiency; Tests of Efficient Market Hypothesis; Case Study: EBay- Stock
Market Efficiency.
Portfolio Management
Introduction to Portfolio Management; Relation between Risk and Return; Optimal Portfolio; Capital Asset
Pricing Model; its Valuation and Validity; Case Study: Nations Bank - Valuation: Stock Valuation: the Gordon
Growth Model; Portfolio Evaluation; Case Study: Vanguard - Mutual Funds and Taxes.
Articles
Bonds and Bond Funds; Nate Pile’s Small Cap Classroom; Dangers of Inaction; Bond with the Best; Take your
Time to Plan Investment.

Suggested Readings:
1. Security Analysis and Portfolio Management by Donald E. Fischer Ronald J. Jordan, Publisher:
Prentice-Hall of India
2. Security Analysis And Portfolio Management by V. Gangadhar, Publisher: Anmol Publications
3. Security Analysis And Portfolio Management 6th Edition, by Fischer Donald E and Jordan Ronald J,
Publisher: Prentice hall of India
4. Security Analysis And Portfolio Management by S Kevin Publisher: Prentice hall of India
COURSE OVERVIEW

This course involves the functioning of Indian

securities
market, study of two decisions: setting the optimal
assetallocation mix (using modern portfolio theory)
and analyzing
and selecting securities within the asset class and
analysis of
various investing options available to the Indian
investors.
Although it focuses primarily on the first of these
decision
processes, there is also a brief review of security
analysis
models, the capital markets, and their historic
risk/return
aspects. The theory and practice of identifying the
optimal
allocation of wealth among the various asset classes
is presented. The mathematics underlying the
portfolio decision is
reviewed to give the student a foundation for
understanding
the elements that influence asset-allocation models.
The course also presents techniques for quantifying
expected
risk and expected return for individual asset classes
and
portfolios; for evaluating portfolio performance; for
portfolio
distribution; for applying the dividend discount
model to
security analysis; and for the use of options, futures,
and other
investments.
The objective of this course is to provide the study of
end-toend investment decision process. That’s why
the course firstly
deal with the functioning of stock market plus the
options
strategies; secondly it deals with answer the
questions like:
When to invest, Where to invest and How much to
invest and
lastly it gives the overview of the various investing
options
available to the investor and how they are best
suited to them.
Course Highlights
• Overview and Functioning of Stock Market
• Overview of Primary and Secondary Market
• Corporate Debt Market
• Derivatives Trading and Strategies
• Determination of security prices
• Portfolio selection and efficient sets
• The Capital Asset Pricing Model
• Factor models of security returns
• Common stocks and their characteristics
• Financial analysis of common stocks
• Common stock valuation
• Investment management and performance
valuation
• Characteristics of fixed-income securities
• Bond valuation and analysis
• Portfolio management and Performance
evaluation
• Investing in Mutual Funds, Equities, Real Estate,
Small
Savings, Fixed Deposits, Insurance, Bonds and Credit
Cards.
 Lesson 23 Valuation of Options 91
SECURITY ANALYSIS 11.319 Chapter 12 : Debt Market
CONTENT Lesson 24 Types & Features of Debt Market 97
Lesson No. Topic Page No. Lesson 25 Calculation of Bond Yields 106
Lesson Plan v Lesson 26 Risk in Investing in Bonds 108
Indian Securities Market Chapter 13 : Portfolio Theory
Chapter 1 : Indian Financial System & Stock Market Lesson 27 Harry Markowitz Theory & Capital Market
Lesson 1 Investment Planning 1 Line 113
Lesson 2 Introduction to Stock Market 2 Lesson 28 Capital Asset Pricing Model 120
Lesson 3 Overview of Indian Financial System 4 Chapter 14 : Portfolio Selection & Evaluation
Chapter 2: Mechanics of Stock Market Lesson 29 Selecting The Best Portfolio 124
Lesson 4 Market Indices 7 Lesson 30 Tutorial 128
Chapter 3 : Clearing & Settlement Case Study : Pied Piper Advisors 130
Lesson 5 13 Applied Finance
Chapter 4 : Primary & Secondary Market Chapter 15 : Investing Options in Indian Market
Lesson 6 Overview of the Primary Market 18 Lesson 31 Concepts of Investing & Investment in
Lesson 7 Functioning of Secondary Market 21 Mutual
Chapter 5 : Intermediation & Depository Funds
Lesson 8 Intermediation - Brokerage Firm 27 131
Lesson 9 Depository – The Technology Advantage 29 Lesson 32 Investment in Small Saving Schemes 138
Chapter 6 : Derivatives Lesson 33 Investment in Equities 143
Lesson 10 Derivatives: Trading, Clearing and Lesson 34 Investing in Fixed Deposits 157
Settlement 34 Lesson 35 Investment in Insurance 161
Lesson 11 & Lesson 36 Investment in Bonds 166
12 Lesson 37 Investment in Real Estate / Housing 170
Derivatives – Trading Strategies 37 Lesson 38 Investment in Cash Equivalents 176
Chapter 7 : Corporate Debt Market Lesson 39 Investment in Credit Cards 179
Lesson 13 42 Lesson 40 Guidelines for Investment Decisions 185
Lesson 14 A Multi-factor risk model for the Indian
Stock
Market
47
Portfolio Management
Chapter 8 : Introduction to Portfolio Management
Lesson 15 51
Chapter 9 : Risk and Return
Lesson 16 55
Chapter 10 : Efficient Market Theory
Lesson 17 62
v
SAMS SECURITY ANALYSIS 11.319
CONTENT
Lesson No. Topic Page No.
Lesson 18 Fundamental Analysis 68
Lesson 19 Technical Analysis 72
Chapter 11 : Valuation of Securities
Lesson 20 An Introduction to Equity Valuation 80
Lesson 21 DDMs for Valuation of Equities 82
Lesson 22 P/E Approach to Valuation of Equities 87
LESSON 1
INVESTMENT PLANNING
Introduction to Investment Planning
Investment planning is an alien concept for the
Indian populace. For a country, which till now was
worried about making ends, meet this emerging
trend is definitely a new experience.
But, the truth is that if only they would have been
introduced to the Art of Managing Money, life could
have been so much easier. Most of us spend more
than half of our lives working and saving because
money is important, in fact crucial. However, most of
us spend almost no time planning to make that hard
earned money work more effectively for us. So, how
do you plan your financial life?
What is investment planning?
Financial planning is nothing but an assessment of
your goals and the steps you must take to help make
them a reality.
What you first need to figure out..........
What is it that you want?
Is your wish to retire with a sound lump sum amount
or do you want a steady monthly income. Is your
son’s education or daughters’ marriage worrying
you? The key is to figure out your goals.
Where is your money going?
The most important thing is that you should where
your money is going. Zero on your monthly and
annual expenses.
Why should you invest?
You should invest so that your money grows and
shields you against rising inflation. If prices rise by
four per cent annually it would not be sufficient if
your savings only give you a return of three per cent.
It leaves you with a deficit of one per cent.
The idea is that your rate of return on investments
should be greater than the rate of inflation, leaving
out with a nice surplus over a period of time.
Whether your money is invested in stocks, bonds,
mutual funds or certificates of deposit (CD), the end
result is to create wealth for retirement, marriage,
college fees, vacations, better standard of living or to
just pass on the money to the next generation. Also,
it’s exciting to review your investment returns and to
see how they are accumulating at a faster rate than
your salary.
When to Invest?
The sooner you invest the better it is. By investing
into the market right away you allow your
investments more time to grow, whereby the
concept of compounding interest swells your income
by accumulating your earnings and dividends.
Considering the unpredictability of the markets,
research and history indicates these three golden
rules for all investors:
1. Invest early
2. Invest regularly
3. Invest for long term and not for short term
There is always a first time for everything so also for
investing.
To invest you need capital free of any obligation. If
you are not in the habit of saving sufficient amount
every month, then you are not ready for investing.
The advice is:
Avoid unnecessary or lavish expenses as they add up
to your savings. A dinner at Copper Chimney or
Grand Hyatt can always be avoided, the pleasures of
avoiding it will be far greater if the amount is saved
and invested.
Clear all your high interest debts first out of the
savings that you make. Credit card debts (revolving
credits) and loans from pawnbrokers typically carry
interest rates of between 24-36% annually. It is
foolish to pay off debt by trying to first make money
for that cause out of gambling or investing in stocks
with whatever little money you hold. In fact its
prudent to clear a portion of the debt with whatever
amounts you have.
Notes:
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