Term Paper

Securities Analysis and Portfolio Management

Fin 423

Sec: 01

Brac University

Submitted to:

Jubairul Islam Shaown

Submitted By:

Saleh Md. Abu Sinan 14104108

Maliha Mahjabin 1320410

Israna Farooque- 14204076

Mahmud Ullah Khan 14304065

December 2, 2017
 1. Investment Policy Statement

Investor’s Profile:

Mr. Riyashad Ahmed, Individual Investor

Portfolio: Two Stock, Taxable

Income Tax: 15%

Return Goal: 20%

Modest and Occasional Loss Limit

Objectives:

Stable and Moderate Long Term Return

Risk Profile: Aggressive (Risk-Taking)

Time Horizon: Greater than 5 years

Short Term Liquidity Needs: Moderate

Financial Advisor Duties and Responsibilities:

Fiduciary, third party responsible for helping client meet financial goals.

Consulting with client to create asset allocation.

Create asset allocation to provide sufficient diversification of risk and returns.

Control and report all investment costs.

Monitor all investment options.

Responsible for safe keeping of client’s assets

Provide monthly reports that include securities, cash flow, income, and monthly change in value.
Portfolio Selection Guidelines:

Based upon the client’s aggressive risk profile, the asset allocation will be constructed to satisfy
investor’s 20% return goal.

Performance Monitoring:

The parameter for selling a stock due to poor performance includes losing 25% of its purchase
value.

Annually, overall portfolio will be monitored to see whether initial goals are in place or have
changed. Mr. Riyashad Ahmed and the advisor will determine the future portfolio direction.
 2. Economy Analysis

i) GDP Growth

Year GDP Growth Rate

2015 6.55%

2016 7.11%

2017 7.24%

High GDP indicates the economy is in good shape. People are buying more assets and
influencing bank credit growth.

ii) Bank Credit

Year Total Bank Credit on an Average (Taka in

millions)

2015 7497281

2016 8346612

2017 9225211

Bank Credit growth increases for various reasons, due to the decreasing cash reserve ratio etc
and approves for low debt to equity ratio. That means people are buying more assets.

iii) Foreign Exchange Reserve

 Year Million $

2016-2017 33452.3

2015-2016 33493

Foreign exchange reserve increased slightly over two years which is not that satisfactory as it can
be seen it may fail to pay off their liabilities, such as currency issued by the central bank and
leads to more debt.
iv) Inflation

Period Inflation (Twelve Month Average Basis)

2014-15 6.41%

2015-16 5.92%

2016-17 5.55%

A falling rate of inflation means that prices will be rising at a slower rate. However, if a fall in
the inflation rate is due to depressed demand, it could create deflationary pressures which make it
hard to boost economic growth.

v) Remittance

Period Wage Earner’s Remittance (Million US$)

2014-15 15316.91

2015-16 14931.18

2016-17 12769.45

Decline in remittance hits the economy badly, are responsible for two-thirds of the country’s
growing foreign exchange reserves.

vi) Foreign Direct Investment

 year US $ Million

2016 2003.53

2015 1834

Increase in FDI significantly means companies are much into investing into foreign business.
The main factors that affect foreign direct investment are:

• Infrastructure and access to raw materials

• Communication and transport links

• Skills and wage costs of labor

vii) Export Growth

Year Billion taka

2017 240.2

2016 186.8

Growth in economy leads to rising export growth in a company.

Overall Status of the Economy

Indeed GDP and bank credit growth increasing over years but from the perspective of a citizen
living with the day-to-day realities of life, GDP can be misleading because it fails to measure a
country’s prosperity, which is affecting bank credit growth which has increased over years. For
example, foreign exchange reserve is pretty much not satisfactory that means the ability to pay
off loans has gone down. A fall in the inflation rate could cause various benefits for the
economy:

1) Goods of that country becoming more internationally competitive increasing exports and
growth, increasing rates of return for savers.

2) Increased disposable incomes (if nominal wage growth is constant).

In Bangladesh, the fall in remittances stems from a combination of factors, including fewer
migrants finding jobs in the Gulf countries, more migrants returning home due to unemployment
and deportations; besides appreciation of the Taka against the dollar.

Apart from all, there’s huge export growth and FDI growth meaning that the economy is in a
good shape. That means there’s a chance the economy might boom any time in recent years.
 3. Industry Analysis: Food & Allied
i) Newspaper

• Deficit in the sugar reserves (8 November,2017,Dhaka Tribune)

• Frozen foods sector demands tax cut (20 March, 2017, Dhaka Tribune)

• Processed Food: Govt. to ensure safety by 2021 (24 August, 2017, The Daily Star)

• In threat to food security, Bangladesh moves to burn grain for fuel (30 April,2017,
Dhaka Tribune)

• Bangladesh exports processed food and beverage worth over $900 million a year (8
July,2017, The Daily Star)

• Climate change affects the food security (26 February,2017, The Daily Star)

ii) Market Size

a) Currently 18 companies under Food & Allied sector are listed in Dhaka Stock Exchange
which is 3% of the market. Few of them are:

 British American Tobacco Bangladesh Company Limited

 Apex Foods Limited

 Fu Wang Food Ltd.

 Golden Harvest Agro Industries Ltd.

 National Tea Company Ltd.

 Shyampur Sugar Mills Ltd.

 Rangpur Dairy & Food Products Ltd.

 Meghna Condensed Milk Industries Ltd. Etc.

b) Potential Market Size

Parameters:

 Young people are more attracted to fast foods: Currently young generation (15-28 years)
consists around 25% of the total population and below that age range accounts for around
29% of the total population who are considered to be the next young generation. With the
increasing percentage of youth, demand in the food industry is considered to increase as
well.
 Increased number of working women increases the demand for frozen and processed
foods: “Bangladesh’s female workforce will grow from 34 to 82 percent over the next
decade if they stay on track”- Jim Yong Kim, President, World Bank

Currently, female labor force of our country is 1.72 core which is 30% of the total
economically active population and it is expected to rise drastically over time. Increase in
women employment decreases their scope of cooking at home and increases their demand for
frozen and processed food. This will affect the food market drastically in near future.
In reality, the food industry is a lot larger than it is shown due to non-listed food enterprises.
The increased demand will help those enterprises to get larger and get listed which will
eventually upturn the market size

iii) Drivers of Food Industry Growth in Bangladesh

 Increasing Urbanization, Lifestyle and Aspirations

 Increasing Spending on Food Products
 Changing Demographics - Rise in Disposable Income
 Growing Nuclear Families and Working Women
 Policy Reforms and Investment in Infrastructure
 Agricultural Research and Human Capital
 Rising Demand for Fast Foods
iv) Revenue and Cost Drivers

Cost Drivers of Food Industry in Bangladesh:

• Widespread Mechanization

• Marketing Expansion

• Rising Commodity Cost

• Rising Energy Cost

• Increasing Rental Cost

• Procurement Cost

Revenue Drivers of Food Industry in Bangladesh:

• Improved Productivity Due to Higher Mechanization

• Increasing Demand

• Increasing Per Capita Income Makes Consumer Less Price Sensitive

v) Opportunities and Challenges

Opportunities:

• Rapidly growing consumer market due to a large population base

• Ensuring food safety will attract more consumers to processed food

• Increased demand of frozen food

• Young generation consisting almost 25% of the total population

• Increased number of working women

• Demand of varieties of food such as Japanese, Mexican, sea food etc. among the young
people.
Challenges:

• Removing food safety threats such as arsenic in food, adulterated food, genetically
modified food, environment pollutants in food

• Sustaining food self sufficiency

• Proper hygiene and sanitary practices and safe water for utilization of food

• The shrinking availability of land for crop production

• Meeting the crisis during frequent natural disasters

vi) Tax policy

Proposed additional taxes on fast

food in Budget 2017-18,
considering the health risks of
future generations
Overall Status of the Food Industry in Bangladesh

The food industry is currently one the most rapidly growing industry in Bangladesh. This sector
accounts for approximately 22% of manufacturing production. This sector also gives
employment to 20% of labor forces. Moreover, all food processing enterprises account for 2% of
national GDP. About 90 items of agro processed products such as rice, tea, juice, chips, biscuits,
potato etc. are being exported to 70 countries throughout the world. All in all, when you take all
this positives into account, it looks like the food industry in Bangladesh is going to flourish even
more in the near future.
 Company Variance St.Dev Mean Excess covariance covariance Optimal
Return Retur Weight
n
BATBC 0.006 0.0783 0.0273 0.0216 0.0060 0.0017 0.91
ACI Ltd. 0.0186 0.1251 0.0177 0.0120 0.0017 0.0183 0.09

Portfolio:

Portfolio Return 0.02646646

Portfolio Excess Return 0.02077163
Portfolio Variance 0.00543625
Portfolio Standard Deviation 0.07373092
Theta 0.28172215

Weight of BATBC Weight of ACI Ltd. Portfolio SD Portfolio Return

1.00 0.00 0.0783 0.0273
0.90 0.10 0.0917 0.0263
0.80 0.20 0.0675 0.0254
0.70 0.30 0.0664 0.0244
0.60 0.40 0.0686 0.0235
0.50 0.50 0.0738 0.0225
0.40 0.60 0.0813 0.0215
0.30 0.70 0.0906 0.0206
0.20 0.80 0.1013 0.0196
0.10 0.90 0.1128 0.0186
0.00 1.00 0.1251 0.0177

0.0300

0.0250

0.0200

0.0150
Series2

0.0100

0.0050

0.0000
0.0600 0.0700 0.0800 0.0900 0.1000 0.1100 0.1200 0.1300
References

https://www.bb.org.bd/

http://www.hortex.org/Employment%20and%20GDP_Agro-processed_171113.pdf