Brainstorm

 Why Closing Price for stocks and indices is

different from LTP (Last Traded Price)?
SECURITIES MARKET
Unit I (SAPM)
Learning objectives

 Outline the different

approaches to investment in
the Capital markets

 Evaluate the various

investment alternatives in
financial markets in
comparison to risk and return.

 List the common errors in

investment process
Structure of the Securities Market

Securities
Market

Equity Debt Derivatives

Market Market Market

Government Corporate
Securities Debt Money Options Futures
Market Market Market Market Market
What is a Stock Exchange?

Stock exchange is that place where

trading of shares is done in terms of
sale and purchase.
Know your Stock Markets
 Major Stock Exchanges in India:

 National Stock Exchange (NSE)

 Bombay Stock Exchange (BSE)

 MCX’SX Stock Exchange (MCX’sx)

 NCDEX Stock Exchange (NCDEX)

Indices: SENSEX & NIFTY

Stock Market performance is quantified by

calculating an index using the benchmark scrip’s
and as known to all SENSEX (Sensitive Index) is
associated with Bombay Stock Exchange and S&P
CNX NIFTY is associated with National Stock
Exchange
 Stock Exchange Of India
Limited - NSE
Definition of 'National Stock Exchange Of
India Limited - NSE‘

 The National Stock Exchange is India's

largest financial market. Established in
1992, the NSE has developed into a
sophisticated, electronic market, which
ranks third in the world for transacted
volume. The NSE conducts transactions
in the wholesale debt, equity and
derivative markets.
 
NSE: National Stock Exchange
Type Stock Exchange

Location Mumbai, India

Index NIFTY
Founded 1992
Owner National Stock Exchange of India Limited
Key people Vikram Limaye (MD&CEO)
Currency Indian rupee ( )
No. of listings > 1,950
MarketCap US$3.1 trillion (May 2021)
Indexes S&P CNX Nifty
Website www.nseindia.com
BSE: Bombay Stock Exchange
Type Stock Exchange

Location Mumbai, India

SENSEX
Index
Founded 1978-79
Owner Bombay Stock Exchange of India Limited
Key people Ashish Kumar Chauhan (MD)
Currency Indian rupee 
No. of listings >7400
MarketCap US$3.2 trillion (May 2021)
Indexes Sensex
Website www.bseindia.com
Types of Financial Markets
Types of Financial Markets
Types
Types
Types of
of Financial
of Markets
Financial
Financial Markets Markets
Types of Financial Markets

Capital Money Forex Derivatives

Market Market Market Market
Agriculture
Equity T-Bills
Spots Produces,
Debt Call Money
Forwards Metals,
ICD, CP,
Financial
CD
futures like
Interest rate,
currency,
Retail
indices etc
Corporate
Banks Banks
Banks
FI Corporate
Corporate Banks, FIs
FIIs FI, FIIs
FI, FIIs Corporate
 primary market
 In primary markets, securities are
bought by way of public issue
directly from the company.
 New issue are available in
primary market.
 The primary is a middlemen.
 New issue of common
stock;bonds and preferred stock
are sold by companies.
secondary market
 In Secondary market share are
traded between two investors.
 Securities usually bought and sold
through the secondary market.
 The secondary market are broker
and dealer.
 The secondary market stock and
bonds issues are sold to the
public.
Players in Stock Exchange
 Corporations

 Institutions (“Buy Side” Fund Managers)

 Investment Banks (“Sell Side”)

 Public Accounting Firms

Corporations
 Corporations behave as operating businesses that require capital to grow and run their
operations.

 Can vary in industry, size, and geographical location. 

 Examples of publicly traded corporations:

 Alphabet
 Amazon
 Apple
 Exxon
 Toyota
Institutions (“Buy Side” Fund
Managers)
 Institutions consist of fund managers, institutional investors, and retail investors.

 Provide capital to corporations that need the money to grow and operate their
businesses.

 In return for their capital, corporations issue debt or equity to the institutions in
the forms of bond and shares, respectively.

 Examples of top “Buy Side” Firms:

 Bridgewater Associates
 Blackstone

KKR
The Carlyle Group
Apollo Global Management
Investment Banks (“Sell Side”)

 Hired to facilitate deals between corporations and institutions.

 To connect institutional investors with corporations, based on
risk and return expectations, and investment styles. 
 Examples of top investment banks:
 Goldman Sachs, JP Morgan, Credit Suisse, HSBC and
Morgan Stanley
Public Accounting Firms

 Can engage in multiple roles in the primary market.

 These roles include financial reporting, auditing

financial statements, taxes, consulting on accounting
systems, M&A advisory, and capital raising. 

 Examples of top public accounting firms:

 Deloitte, PwC, Ernst & Young, KPMG and Grant

Thornton
Introduction to Investment (Flow of
Savings)
Investment

An Investment is the COMMITMENT

of MONEY or other RESOURCES in
the expectation of obtaining FUTURE
BENEFITS.
Investment

 A current commitment of Rupees for a period of time in

order to derive future payments that will compensate for:
 the time the funds are committed
 the expected rate of inflation
 uncertainty of future flow of funds.
Investment Vs. Speculation

Basis Investment Speculation

Planning Horizon Long Short

Risk Moderate High

Return Modest High

decision Fundamental Technical

Leverage No High

Psychological attitude of Cautious and conservative Daring and careless

participants
BOND VALUATION
AND EQUITIES
Investment Alternative Analysis

https://www.motilaloswal.com/blog-details/How-bond-yields-
eventually-impact-equity-returns../1432
How bond yields eventually impact equity returns

 bond yields are an important determinant of equity valuations. 

 the equity markets have normally moved negatively with bond yields

 bond yields go down, the equity markets tend to outperform by a bigger margin
and as bond yields go up equity markets tend to falter.

  consider it over a period of 5-10 years, this relationship will be clearly visible
as charted below
Factors that explains the relationship between bond
yields and equity valuations

Bond yields are the key to calculating opportunity cost of equities

Bond yields are normally compared with earnings yield

Bond yields impact financial costs

Bond yields impact the cost of capital in valuing equities

Bond yields impact color of Foreign Institutional flows

Investment Objectives

 RETURN

 RISK

 LIQUIDITY

 TAX SHELTER

 CONVENIENCE
Quiz/Poll
 Investment is the

 A. Net addition made to the nations capital stocks

 B. persons commitment to buy a flat or a house
 C. employment of funds on assets to earn returns
 D. employment of funds on good and services that
are used for production purpose
Quiz/Poll
 Technically, investments include

 A. only financial assets

 B. only marketable assets
 C. financial and real assets that is marketable or
non- marketable
 D. only financial and real assets that is marketable
Quiz/Poll
 Speculator is a person

 A. Who evaluates the performance of the company

 B. who uses his own funds only
 C. who is willing to take risk for high return
 D. who considers heresays and market behaviours
Quiz/Poll
 Bombay Stock Exchange was established in the
year

 A. 1956
 B. 1875
 C. 1903
 D. 1949
Quiz/Poll
 Clearing and Settlement operations of the NSE is
carried out by

 A. NSDL
 B. Clearing Cooperation
 C. SBI
 D. By the exchange itself
Quiz/Poll
 Primary and Secondary Market

 A. Compete with each other

 B. Complement each other
 C. function independently
 D. control each other
Quiz/Poll
 The underwriter has to take up

 A. the fixed portion of the issued capital

 B. the agreed portion of the unsubscribed part
 C. the agreed portion or can refuse it
 D. none of the above
Quiz/Poll
 Speculation can be distinguished from investment
based on

 A. financing meaning
 B. economic meaning
 C. risk
 D. tax
Investment Alternatives

 Financial Assets
Investment
 Equity Shares
Avenues
 Preference Shares
Non-
 Bonds marketable Equity
Financial Shares
 Money Market Instruments Assets
Money Market
 Mutual Funds Bonds Instruments
 Life Insurance
Mutual Fund
 Financial Derivatives Life Insurance
Schemes
Policies
 Real Assets
Real Estate
Precious
 Real Estate Objects
 Precious Objects Financial
Derivatives
 Evaluation Of Various Investment Avenues

Return Marketability/
Current yield Capital Risk Liquidity Tax Shelter Convenience
appreciation
Equity
Low High High Fairly high High High
Shares
Non-
convertible High Negligible Low Average Nil High
Debentures
Equity
Low High High High High Very high
Schemes
Debt No tax on
Moderate Low Low High Very high
Schemes dividends
Bank
Moderate Nil Negligible High Nil Very high
Deposits
Public
Moderate Nil Section 80 C
Provident Nil Average Very high
benefit
Fund
Life
Nil Section 80 C
Insurance Nil Moderate Average Very High
benefit
Policies
Residential
Moderate Moderate Negligible Low High Fair
House
Gold and
Nil Moderate Average Average Nil Average
Silver
Portfolio Construction

Portfolio construction is a process of selecting securities optimally by taking minimum risk to achieve

maximum returns.
The portfolio consists of various securities such as bonds, stocks, and money market instruments.

The Portfolio is :

 The process of blending together the broad classes

 To obtain return with minimum risk

 Diversification is done to spread

 Reduces unsystematic risk

Portfolio Management Process

 Investment Objective
 Choice of asset Mix
 Portfolio strategy
 Selection of securities
 Portfolio Execution
 Portfolio Revision
 Portfolio Evaluation
 Errors
 INADEQUATE COMPREHENSION OF RETURN AND RISK
 VAGUELY FORMULATED INVESTMENT POLICY
 NAÏVE EXTRAPOLATION OF THE PAST
 CURSORY DECISION MAKING
 SIMULTANEOUS SWITCHING
 MISPLACED LOVE FOR CHEAP STOCKS
 OVER-DIVERSIFICATION AND UNDER-DIVERSIFICATION
 BUYING SHARES OF FAMILIAR COMPANIES
 WRONG ATTITUDE TOWARD LOSSES AND PROFITS
 TENDENCY TO SPECULATE
The 6 Biggest Mistakes Ordinary
Investors Make
 https://www.visualcapitalist.com/6-biggest-
mistakes-ordinary-investors-make/

 Info graphics through Website

Brainstorm NIFTY 50 or 51???

 NSE Makes another addition to 50 constituents of NIFTY in

2016… WHY?????
Security Analysis
(Live)
Security Analysis
(Live)