Introduction to

Portfolio Management
Session Objectives

Meaning of Portfolio Management

Types of Portfolio Management

Securities Markets and Price Behaviour

Economic and Industry Analysis

2
Time in the market is more important
than timing the market. -Unknown

3
What is Portfolio Management?

Portfolio management is the art and science of making decisions about:

●
Investment mix and policy
●
Matching investments to objectives
●
Asset allocation for individuals and institutions
●
Balancing risk against performance

Portfolio Management refers to the science of analysing the strengths, weaknesses,

opportunities and threats for performing a wide range of activities related to one’s
portfolio for maximising the return at a given risk.
4
What is portfolio Management? Contd.
￮ Refers to the management of the portfolio of investments of a particular person.
￮ Decision of how much to invest, where to invest and how much to invest in each
asset selected.

5
What is a portfolio?

●
shares,
●
stocks,
A portfolio consists ●
bonds,
of a group of
financial assets like:
●
debt instruments,
●
mutual funds
●
cash equivalents.

6
Steps in Portfolio Management
Decisions on investment ●
Long term vs short term, capital appreciation, regular
policy income, specific purpose like house, holiday, education.

Decisions on mix of ●
Asset classes like debt or equity, other assets.
investments

●
Allocating investments in asset class and within
Asset Allocation
assets in the class

●
Conservative or risky investment policy – debt
Balancing Risk and Return
or equity
7
Objectives of Portfolio Management

Safety of principal

Consistent and stable returns

Growth of capital

Flexibility and Liquidity

Minimal Risk

8
Types of Portfolio Management

Active Portfolio Management Passive Portfolio Management

●
Actively track investments ●
Follow market index
●
Market research ●
Invest as per market index
●
Thorough analysis ●
Not too much research

9
Securities Markets and Price Behaviour

Stock price is the price at which a stock is traded on the exchange.

The market price shows what the investors feel the company is
worth.

Actual value of company may differ.

Only thing constant about stock price is its change!

10
Factors that influence price of
stocks
Demand and supply

New information about the company like declaration of dividend, issue of bonus shares

Rumours of such news

Whether company shows steady returns or not

Investor sentiment

Industry wide factors

Economic movement of country or market

Changes in exchange rate

11
Stock Index
Measures the movement of a market

Created by selecting a group of stocks that are representative of the whole market

Calculated with reference to base value and base period

Provide historical comparison of returns

Used as a standard for evaluating performance

Lead indicator of performance of economy

Up to date information

12
Economic Analysis

￮ Factors to be taken into consideration:

• Interest Rates – changes made by the central bank of the country

• Production – increase or decrease in production

• Earnings – increase or decrease in earnings of the nation

• Employment – fully/partly/unemployed work force details

• GDP – increase or decrease in GDP

• Government Policies are influenced by these factors.

13
Economic Analysis

o Involves assessment of short to medium term determination of price

developments

o Following factors are taken into account:

• Economic conditions (upturn or downturn)
• Demand and supply and any anticipated change in these
• Effect on stocks and their prices and medium term prospects

14
Economic analysis

●
Business cycles, i.e. whether the economy is
in upturn or downturn
●
Monetary and fiscal policy of the country
whether conducive to growth or not
This involves ●
Economic indicators like GDP, per capita
analysis of: income, employment statistics
●
Foreign trade whether deficit or surplus or is
deficit lowering
●
Inflation rates influencing decision of buyers

15
Economic Indicators to be studied
Stock prices and index movements

Money supply

Interest rate spread

Consumer expectations

Industrial production

Manufacturing and trade sales

Inflation

Unemployment

Productivity 16
Activity Time!
Portfolio Management activity 1

17
Industry Analysis

●
Industry structure
●
Competition
This ●
Supply-Demand relationships
involves ●

●
Product Quality
Cost elements
the study ●
Government Regulation
●
Business cycle exposure
of: ●
Each industry to be evaluated on its
separate parameters

18
Industry

Collection of firms that sell a like product or engage in a like activity

Examples like steel industry, tech industry, telecom industry, auto industry

Each industry goes through cyclical phases

Distinguished as young and mature industry

19
Factors that influence industries
Competition – number of competitors, class and price of products or services

Supply/Demand relationships – how well they are correlated

Product quality – whether quality is a consideration and how it affects demand

Cost elements – is the product or service pricing indifferent to demand

Govt. Regulation in particular industries whether conducive to business or not

Business cycle exposure in the up and down movement

Financial norms and standards of the particular industry

20
Five competitive model

Threat of new entrants

Power of suppliers

Power of buyers

Availability of substitutes

Competitive rivalry

21
The 6 Elements of Portfolio
Construction
1. Investing Strategies
2. Investing principles
3. Investing strategies
4. Risk tolerance
5. Diversification
6. Returns

22
Class Activity

o Class to be divided into 5 groups.

o Each group to study one part each of the five competitive model

o Each group to present their part to the class.

23
THANK YOU

24