a study on portfolio mgt
TRANSCRIPT
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SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
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A STUDY ON
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
WITH REFERENCE TO DOHA BROKERAGE
AND FINANCIAL SERVICES
PROJECT REPORT
SubmittedtoJAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY
Ananthapurm
in partial fulfillment of the requirements For the award of the degree of
MASTER OF BUSINESS ADMINISTRATIONBy
MISS. P.DIVYA
Roll No: 104C1E0048
Under the guidance of
Mr. K. ASHOK KUMAR MBA
Assistant professor
DEPARTMENT OF MANAGEMENT STUDIES
SREE RAMA ENGINEERING COLLEGE(Affiliated to JNTU Ananthapur and recognized by AICTE, New Delhi)
RAMI REDDY NAGAR, KARAKAMBADI ROAD
TIRUPATHI
Ph: 0877 2285539, FAX: 0877 2285536.
(2010-2012)
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DEPARTMENT OF MANAGEMENT STUDIES
SREE RAMA ENGINEERINGCOLLEGE(Affiliated to JNTU Ananthapur and recognized by AICTE, New Delhi)
RAMI REDDY NAGAR, KARAKAMBADI ROAD, TIRUPATHI.
CERTIFICATE
This is to certify that the project work entitled, A Study on SECURITY
ANALYSIS ANDPORTFOLIO MANAGEMENT WITH REFERENCE TO
DOHA BROKERAGE AND FINANCIAL SERVICES, submitted by
MISS.P.DIVYA (Roll no: 104C1E0048) to Jawaharlal Nehru Technological
University, Ananthapur, for the award of the degree of Master of Business
Administration
Is a record of bonafide research work carried out under my guidance.
The study is his Original work and it has not previously formed the basisfor the award of any Degree, Diploma, or other similar titles. The project report
represents an independent work on the part of candidate.
Faculty Guide Head of the department
MR. K.ASHOK KUMAR MR. K.S.SIVAREDDYMBA MBA, M.PHILL (Ph.d)
Assistant professor, Department of Management Studies
Department of Management Studies Sree Rama Engineering college,
Sree Rama Engineering college,
Tirupati
EXTERNAL EXAMINER
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PLACE:
DATE:
DECLARATION
I heard by declared that the project report entitled A study on SECURITY
ANALYSIS ANDPORTFOLIO MANAGEMENT WITH REFERENCE TODOHA BROKERAGE AND FINANCIAL SERVICES submitted byP.DIVYA 104C1E0048 is a project work done under the guidance of K.Ashok
Kumar, Asst professor Deportment of managent studies, Sree rama engineeringcollege, Tirupati. As a part of the JNTU Ananthapurm Curriculum for MBA IV
sem is my Original work and the data has been collected from the Authentic
sources. Further I declared the has been prepared and submitted for academic
purpose.
Place:Date :
(P.DIVYA)
(Regd no: 104C1E0048)
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ACKNOWLEDGEMENT
Preparing a report is never the work of single person and when attempting to
acknowledge the contributions of other, one always runs risk of omitting some
important contribution. None the less, the attempt must be made because this
report has been helpful comments I have received along the way from my project
guide and other faculty members.
Encouraging advice and words of wisdom when things seemed to do away
Mrs. N.Roopalatha reddy Garu Head of the Department, Dean of Sree Rama
Engineering College, Tirupati helped meet my project objective and match the
time and resource framework and giving his valuable suggestions for making an
project successful completion.
My heartfelt thanks to MR. RAMU., Sr officer-S&D., of DOHA
BROKERAGE AND FINANCIAL SERVICES For his valuable
suggestions.
I am thankful to Mr.PRATHAP Assistant Professor, Sree Rama
Engineering College, and Tirupathi for his valuable suggestion and guidance in
every moment of my project.
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I express my sincere gratitude to MR. K.ASHOK KUMAR, Assistant
professor, Sree Rama Engineering College, Tirupati, for being my project guide
and giving me timely guidance throughout the project report.
I would like to acknowledge my sincere thanks to college management for
giving me this opportunity.
I would like to thankDoha people for giving me an opportunity to work on
this project.
I am thankful to all my classmates & friends who helped directly or indirectly
in completion of my project work.
Last but not the least, I am extremely thankful to my parents and family
members, for giving moral support and encouragement to complete the project..
(P.DIVYA)
(Rollno: 104C1E0048)
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CONTENTS
Chapter name Chapter name Page no
I Introduction
1.1 Industry profile
1.2 company profile
II Review of literate
2.1 Meaning
2.2 Need &Importance
2.3 Methods of the study
2.4 Other
III Research methodology & objectives
3.1 Need for the study
3.2 Objectives of the study
3.3 Scope of the study
3.4 Limitations of the study
3.5 Methodology of the study
IV Data analysis & Interpretation
V Findings recommendations & conclusion5.1 Findings
5.2 Recommendations
5.3 Conclusion
VI Annexure & bibliography
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LIST OF TABLES
S.NO TOPIC PAGE NO
1 Calculation of return of ICICI 69
2 CALCULATION OF RETURN OF HDFC 71
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LIST OF CHARTSS.NO TOPIC PAGE NO
1 Correlation between CIPLA&BAJAJ 99
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CHAPTER-I
INTRODUCTION
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INTRODUCTION
Portfolio management is a process encompassing many activities of investment is assets
and securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgment, and action. A combination of securities held together will give a beneficial result if
they grouped in a manner to secure higher returns after taking into consideration the risk
elements
The main objective of the Portfolio management is to help the investors to make wise
choice between alternate investments without a post trading shares. Any portfolio management
must specify the objectives like Maximum returns, Optimum Returns, Capital appreciation,
Safety etc., in the same prospectus.
This service renders optimum returns to the investors by proper selection and continuous
shifting of portfolio from one scheme to another scheme of from one plan to another plan within
the same scheme.
Four different companies are chosen for the study- WIPRO, DR.REDDY
LABORATIVES LTD, ACC, and HERO HONDA AUTOMOBILES. The companies chosen for
the study are some of the top performers in the securities market.
The study gives the returns offered by the companies of various securities are compared
and conclusions are brought out which produces large and better portfolio combinations for the
investors.
Portfolio management and investment decision as a concept came to be familiar with the
conclusion of second world war when thing can be in the stock market can be liberally ruined the
fortune of individual, companies ,even government s it was then discovered that the investing in
various scripts instead of putting all the money in a single securities yielded weather return with
low risk percentage, it goes to the credit of HARYMERKOWITZ, 1991 noble laurelled to have
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pioneered the concept of combining high yielded securities with these low but steady yielding
securities to achieve optimum correlation coefficient of shares.
Portfolio management refers to the management of portfolios for others by professional
investment managers it refers to the management of an individual investors portfolio by
professionally qualified person ranging from merchant banker to specified portfolio company.
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CHAPTER-IINDUSTRY& COMPANY PROFILE
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Introduction
A bank is a financial institution that accepts deposits and channels those deposits into lending
activities. Banks primarily provide financial services to customers while enriching investors.
Government restrictions on financial activities by banks vary over time and location. Banks are
important players in financial markets and offer services such as investment funds and loans. In
some countries such as Germany, banks have historically owned major stakes in industrial
corporations while in other countries such as the United States banks are prohibited from owning
non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity
known as the keiretsu. In France, banc assurance is prevalent, as most banks offer insurance
services (and now real estate services) to their clients.
The level ofgovernment regulation of the banking industry varies widely, with countries such as
Iceland, having relatively light regulation of the banking sector, and countries such as China
having a wide variety of regulations but no systematic process that can be followed typical of a
communist system.
The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy,
which has been operating continuously since 1472.
History
Origin of the word
The name bank derives from the Italian word banco "desk/bench", used during the Renaissance
by Jewish Florentine bankers, who used to make their transactions above a desk covered by a
http://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Keiretsuhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Bancassurancehttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Regulationhttp://en.wikipedia.org/wiki/Icelandhttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/Sienahttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Italian_languagehttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Italian_languagehttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Sienahttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Icelandhttp://en.wikipedia.org/wiki/Regulationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Bancassurancehttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Keiretsuhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Germany -
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green tablecloth. However, there are traces of banking activity even in ancient times, which
indicates that the word 'bank' might not necessarily come from the word 'banco'.
In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenderswould set up their stalls in the middle of enclosed courtyards called macella on a long bench
called a bancu, from which the words banco and bank are derived. As a moneychanger, the
merchant at the bancu did not so much invest money as merely convert the foreign currency into
the only legal tender in Romethat of the Imperial Mint.
The earliest evidence of money-changing activity is depicted on a silver drachm coin from
ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350325 BC, presented
in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a
pun on the name of the city.
In fact, even today in Modern Greekthe word Trapeza () means both a table and a bank.
Traditional banking activities
Banks act as payment agents by conducting checking or current accounts for customers, paying
cheques drawn by customers on the bank, and collecting cheques deposited to customers' current
accounts. Banks also enable customer payments via other payment methods such as telegraphic
transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting term
deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by
making advances to customers on current accounts, by making installment loans, and by
investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered indispensable by
most businesses, individuals and governments. Non-banks that provide payment services such as
remittance companies are not normally considered an adequate substitute for having a bank
account.
http://en.wikipedia.org/wiki/Macellumhttp://en.wikipedia.org/wiki/Trabzonhttp://en.wikipedia.org/wiki/British_Museumhttp://en.wikipedia.org/wiki/Modern_Greekhttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Bond_%28finance%29http://en.wikipedia.org/wiki/Bond_%28finance%29http://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Modern_Greekhttp://en.wikipedia.org/wiki/British_Museumhttp://en.wikipedia.org/wiki/Trabzonhttp://en.wikipedia.org/wiki/Macellum -
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Banks borrow most funds from households and non-financial businesses, and lend most funds to
households and non-financial businesses, but non-bank lenders provide a significant and in many
cases adequate substitute for bank loans, and money market funds, cash management trusts and
other non-bank financial institutions in many cases provide an adequate substitute to banks for
lending savings to.
Entry regulation
Currently in most jurisdictions commercial banks are regulated by government entities and
require a special bank license to operate.
Usually the definition of the business of banking for the purposes of regulation is extended toinclude acceptance of deposits, even if they are not repayable to the customer's orderalthough
money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market,
i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the
business of issuing banknotes. However, in some countries this is not the case. In the UK, for
example, the Financial Services Authority licenses banks, and some commercial banks (such as
the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of
England, the UK government's central bank.
Definition
The definition of a bank varies from country to country.
Under English common law, a banker is defined as a person who carries on the business of
banking, which is specified as:
conducting current accounts for his customers
paying cheques drawn on him, and
Collecting cheques for his customers.
http://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Financial_Services_Authorityhttp://en.wikipedia.org/wiki/Bank_of_Scotlandhttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/English_common_lawhttp://en.wikipedia.org/wiki/English_common_lawhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Bank_of_Scotlandhttp://en.wikipedia.org/wiki/Financial_Services_Authorityhttp://en.wikipedia.org/wiki/Banknotes -
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In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law
in relation to negotiable instruments, including cheques, and this Act contains a statutory
definition of the term banker: banker includes a body of persons, whether incorporated or not,
who carry on the business of banking' (Section 2, Interpretation). Although this definition seems
circular, it is actually functional, because it ensures that the legal basis for bank transactions such
as cheques do not depend on how the bank is organized or regulated.
The business of banking is in many English common law countries not defined by statute but by
common law, the definition above. In other English common law jurisdictions there are statutory
definitions of the business of banking or banking business. When looking at these definitions it is
important to keep in mind that they are defining the business of banking for the purposes of the
legislation, and not necessarily in general. In particular, most of the definitions are from
legislation that has the purposes of entry regulating and supervising banks rather than regulating
the actual business of banking. However, in many cases the statutory definition closely mirrors
the common law one. Examples of statutory definitions:
"banking business" means the business of receiving money on current or deposit account,
paying and collecting cheques drawn by or paid in by customers, the making of advances
to customers, and includes such other business as the Authority may prescribe for the
purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).
"banking business" means the business of either or both of the following:
1. receiving from the general public money on current, deposit, savings or other similar
account repayable on demand or within less than [3 months] ... or with a period of call or
notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers.
Since the advent ofEFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct
debit and internet banking, the cheque has lost its primacy in most banking systems as a payment
instrument. This has led legal theorists to suggest that the cheque based definition should be
broadened to include financial institutions that conduct current accounts for customers and
enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.
http://en.wikipedia.org/wiki/Negotiable_instrumentshttp://en.wikipedia.org/wiki/Chequeshttp://en.wikipedia.org/wiki/Chequeshttp://en.wikipedia.org/wiki/English_common_lawhttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/English_common_lawhttp://en.wikipedia.org/wiki/Chequeshttp://en.wikipedia.org/wiki/Chequeshttp://en.wikipedia.org/wiki/Negotiable_instruments -
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Accounting for bank accounts
Bank statements are accounting records produced by banks under the various accounting
standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit.Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses.
This means you credit a credit account to increase its balance, and you debit a debit account to
decrease its balance.
This also means you debit your savings account every time you deposit money into it (and the
account is normally in deficit), while you credit your credit card account every time you spend
money from it (and the account is normally in credit).
However, if you read your bank statement, it will say the oppositethat you credit your account
when you deposit money and you debit it when you withdraw funds. If you have cash in your
account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or
deficit) balance.
The reason for this is that the bank, and not you, has produced the bank statement. Your savings
might be your assets, but the bank's liability, so they are credit accounts (which should have a
positive balance). Conversely, your loans are your liabilities but the bank's assets, so they are
debit accounts (which should also have a positive balance).
Where bank transactions, balances, credits and debits are discussed below, they are done so from
the viewpoint of the account holderwhich is traditionally what most people are used to seeing.
Economic functions
1. Issue of money, in the form ofbanknotes and current accounts subject to cheque or
payment at the customer's order. These claims on banks can act as money because they
are negotiable and/or repayable on demand, and hence valued at par. They are effectively
transferable by mere delivery, in the case ofbanknotes, or by drawing a cheque that the
payee may bank or cash.
2. Netting and settlement of paymentsbanks act as both collection and paying agents for
customers, participating in interbank clearing and settlement systems to collect, present,
http://en.wikipedia.org/wiki/GAAPhttp://en.wikipedia.org/wiki/IFRShttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/IFRShttp://en.wikipedia.org/wiki/GAAP -
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be presented with, and pay payment instruments. This enables banks to economize on
reserves held for settlement of payments, since inward and outward payments offset each
other. It also enables the offsetting of payment flows between geographical areas,
reducing the cost of settlement between them.
3. Credit intermediationbanks borrow and lend back-to-back on their own account as
middle men.
4. Credit quality improvementbanks lend money to ordinary commercial and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement
comes from diversification of the bank's assets and capital which provides a buffer to
absorb losses without defaulting on its obligations. However, banknotes and deposits are
generally unsecured; if the bank gets into difficulty and pledges assets as security, to rise
the funding it needs to continue to operate, this puts the note holders and depositors in an
economically subordinated position.
5. Maturity transformationbanks borrow more on demand debt and short term debt, but
provide more long term loans. In other words, they borrow short and lend long. With a
stronger credit quality than most other borrowers, banks can do this by aggregating issues
(e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and
redemptions of banknotes), maintaining reserves of cash, investing in marketable
securities that can be readily converted to cash if needed, and raising replacement funding
as needed from various sources (e.g. wholesale cash markets and securities markets)
Law of banking
Banking law is based on a contractual analysis of the relationship between the bank (defined
above) and the customerdefined as any entity for which the bank agrees to conduct an account.
The law implies rights and obligations into this relationship as follows:
1. The bank account balance is the financial position between the bank and the customer:
when the account is in credit, the bank owes the balance to the customer; when the
account is overdrawn, the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of
the customer's account, plus any agreed overdraft limit.
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3. The bank may not pay from the customer's account without a mandate from the customer,
e.g. a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account as
the customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an
aspect of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that the
customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account
unless the customer consents, there is a public duty to disclose, the bank's interests
require it, or the law demands it.
8. The bank must not close a customer's account without reasonable notice, since cheques
are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer
and the bank. The statutes and regulations in force within a particular jurisdiction may also
modify the above terms and/or create new rights, obligations or limitations relevant to the bank-
customer relationship.
Some types of financial institution, such as building societies and credit unions, may be partly or
wholly exempt from bank license requirements, and therefore regulated under separate rules.
The requirements for the issue of a bank license vary between jurisdictions but typically include:
1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior
officers
4. Approval of the bank's business plan as being sufficiently prudent and plausible.
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Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals and small
businesses; business banking, providing services to mid-market business; corporate banking,directed at large business entities; private banking, providing wealth management services to
high net worth individuals and families; and investment banking, relating to activities on the
financial markets. Most banks are profit-making, private enterprises. However, some are owned
by government, or are non-profit organizations.
Central banks are normally government-owned and charged with quasi-regulatory
responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They
generally provide liquidity to the banking system and act as the lender of last resort in event of a
crisis.
Types of retail banks
Commercial bank: the term used for a normal bank to distinguish it from an investment
bank. After the Great Depression, the U.S. Congress required that banks only engage in
banking activities, whereas investment banks were limited to capital market activities.
Since the two no longer have to be under separate ownership, some use the term
"commercial bank" to refer to a bank or a division of a bank that mostly deals with
deposits and loans from corporations or large businesses.
Community Banks: locally operated financial institutions that empower employees to
make local decisions to serve their customers and the partners.
Community development banks: regulated banks that provide financial services and
credit to under-served markets or populations.
Postal savings banks: savings banks associated with national postal systems.
Private Banks: banks that manage the assets of high net worth individuals.
Offshore banks: banks located in jurisdictions with low taxation and regulation. Many
offshore banks are essentially private banks.
Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even
18th century. Their original objective was to provide easily accessible savings products to
all strata of the population. In some countries, savings banks were created on public
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initiative; in others, socially committed individuals created foundations to put in place the
necessary infrastructure. Nowadays, European savings banks have kept their focus on
retail banking: payments, savings products, credits and insurances for individuals or
small and medium-sized enterprises. Apart from this retail focus, they also differ from
commercial banks by their broadly decentralized distribution network, providing local
and regional outreachand by their socially responsible approach to business and
society.
Building societies and Landesbanks: institutions that conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only what
they consider to be socially-responsible investments.
Islamic banks: Banks that transact according to Islamic principles.
Types of investment banks
Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for
their own accounts, make markets, and advise corporations on capital market activities
such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade finance. The modern
definition, however, refers to banks which provide capital to firms in the form of shares
rather than loans. Unlike venture capital firms, they tend not to invest in new companies.
Both combined
Universal banks, more commonly known as financial services companies, engage in
several of these activities. These big banks are much diversified groups that, among other
services, also distribute insurancehence the term banc assurance, a portmanteau word
combining "banque or bank" and "assurance", signifying that both banking and insurance
are provided by the same corporate entity.
Other types of banks
Islamic banks adhere to the concepts ofIslamic law. This form of banking revolves
around several well-established principles based on Islamic canons. All banking activities
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must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit
(markup) and fees on the financing facilities that it extends to customers.
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COMPANY PROFILE
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Introduction
Established in 1992, as one of the first corporate brokerages in India, The Doha Brokerage &
Financial Services Ltd (formerly Select Securities Ltd), is the flagship company of the DBFSgroup.
Doha Brokerage & Financial Services Ltd is focused on creating utmost value for its customers,
consistently by drawing on our collective expertise, resources and global exposure.
To serve our customers better, the company has gone beyond the traditional brokerage business,
and offers a wide range of services, which include total wealth management and investment
solutions.
With a pan Indian presence, which comprises over 180 branches across major cities, as well as in
Dubai and Doha in the Middle East, DBFS is always closer to its customers.
The Team
Mr. R Seetharaman, Chairman (Nominee- Doha Bank)
Mr. K V Samuel, Vice Chairman (Nominee- Doha Bank)
Mr. Prince George, Managing Director & CEO
Mr. Binny C. Thomas, Whole-time Director (Dubai)
Mr. Sekhar M, Whole-time Director
Mr. Suresh Yezhuvath, Whole-time Director
Core Strengths
Research and Advisory Capabilities
The competent, professional research team of DBFS is always committed to building and
managing the financial assets of its customers. By providing security information and trading
calls on a real time basis through trading terminals, DBFS is always committed to remain a step
ahead of other brokerage firms.
Technology innovations
The brokerage industry, today, is driven by sophisticated technology. The IT and telecom
revolution has brought in a brave new world in knowledge sharing and customer service. DBFS
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is always committed to bring the best of these conveniences to its customers. The group has
acquired the latest cutting-edge technology for front end trading and back office processing. This
enhances quality and speed of services. This also enables centralized monitoring and risk
management up to client level, online back office support at the branch level and real time
customer support through internet.
Qualified, trained and motivated manpower
DBFS employs a large number of qualified professionals who are motivated and adequately
trained to service the customers efficiently and competently.
Distribution network
DBFS has a network of over 180 branches. Thus, the company is poised to reach out to more
customers, offer the most competitive brokerage and terms to its customers. As the company has
already invested in a technology platform which is scalable to any new location without
additional investment, the group is gearing up to increase the branch network exponentially.
Corporate Vision
Vision
We want to remain as the leading, trusted total financial services provider, wherever we operate,
by maintaining superior technological and service standards, and by keeping trust and
transparency as our core values.
Mission
We are committed to create and enhance wealth for corporate and retail customers, by delivering
cutting-edge financial solutions which suit their specific need Future Plans
The promise of a better future
DBFS is always keen in stretching its horizons to explore into newer areas of services and
solutions. Because, in a fast paced world, customer expectations and requirements are growing,
at an equal pace. To take on the challenging needs, DBFS is rolling out a host of new products
and services. The company is gearing up to widen its presence, both in India and overseas, with
the support of its strategic partner.
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Services
Internet Trading
DBFS has a state-or-the-art internet trading platform with cutting-edge technological excellence.
TRADE easy, the internet trading platform of the group has almost all the features of a Brokers
terminal.
Commodities & Forex Trading
As a trading member of DGCX, Dubai, Select Commodities DMCC offers trading in
commodities and forex for its customers.
The group has membership in all premier commodity exchanges in India, namely NCDEX,
NMCE and MCX. The company facilitates futures trading for various agricultural commodities
and other commodities including gold, silver, rubber, cardamom, pepper etc. which are actively
traded.
Custodial - Depository Services
Select Stock Brokers Ltd. is a Depository Participant with Central Depository Services Ltd.
(CDSL). CDSL is one of only two depositories in India for electronic holding of securities. The
Company extends depository services to its trading clients as well as non-trading clients. The
custodial services include electronic holding of securities, Demat, Remat, pledge, unpledge etc.
and market and off-market transfers, transmission, transposition etc.
Mutual Funds & Insurance Products
DBFS, being a total solutions provider for the varied investment needs of the retail investors,
distributes Mutual Fund products of almost all major AMCs. Application Forms of NFOs are
available with the branches.
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Portfolio Management
DBFL Ltd. is a SEBI registered Portfolio Manager with an excellent track record of
performance. The group has a highly professional, experienced and result-oriented research teamwhich analyzes the markets and manages the customers funds accordingly in order to ensure
optimum results. DBFS Portfolio Managers have been able to consistently out-perform the
bench-mark indices.
Trading in Equities & Derivatives
DBFS has membership in both NSE and BSE. The group has been permitted to operate in the
cash as well as derivative segments of NSE and BSE. Online trading in Cash Market and FAOare available at all the branches. Connectivity is provided at the Branches by way of V-Sat or
VPN / Broad Band. The group services both retail and institutional customers.
SERVICES RENDERED BY DBFS
Institutional Distribution
Depository
Services
Commodities
Broking
Services
International
Equity &
CommoditiesWealth
Management
Services
Investment Banking
InternetTrading
Private Equity
Insurance Broking
Lending Services
Equity & Derivative
Trading
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CHAPTER 2REVIEW OF LITERATURE
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REVIEW OF LITERATURE
PORTFOLIO:
A portfolio is a collection of securities since it is really desirable to invest
the entire funds of an individual or an institution or a single security, it is essential that
every security be viewed in a portfolio context. Thus it seems logical that the expected return of
the portfolio. Portfolio analysis considers the determine of future risk and return in holding
various blends of individual securities
Portfolio expected return is a weighted average of the expected return of the individual
securities but portfolio variance, in short contrast, can be something reduced portfolio risk is
because risk depends greatly on the co-variance among returns of individual securities.
Portfolios, which are combination of securities, may or may not take on the aggregate
characteristics of their individual parts.
Since portfolios expected return is a weighted average of the expected return of its
securities, the contribution of each security the portfolios expected returns depends on its
expected returns and its proportionate share of the initial portfolios market value. It follows that
an investor who simply wants the greatest possible expected return should hold one security; the
one which is considered to have a greatest expected return. Very few investors do this, and very
few investment advisors would counsel such and extreme policy instead, investors should
diversify, meaning that their portfolio should include more than one security.
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OBJECTIVES OF PORTFOLIOMANAGEMENT:
The main objective of investment portfolio management is to maximize the
returns from the investment and to minimize the risk involved in investment. Moreover, risk in
price or inflation erodes the value of money and hence investment must provide a protection
against inflation.
Secondary objectives:
The following are the other ancillary objectives:
Regular return.
Stable income.
Appreciation of capital.
More liquidity.
Safety of investment.
Tax benefits.
Portfolio management services helps investors to make a wise choice between
alternative investments with pit any post trading hassles this service renders optimum returns to
the investors by proper selection of continuous change of one plan to another plane with in the
same scheme, any portfolio management must specify the objectives like maximum returns, and
risk capital appreciation, safety etc in their offer.
Return From the angle of securities can be fixed income securities such as:
(a) Debentures partly convertibles and non-convertibles debentures debt with tradable
Warrants.
(b) Preference shares
(c) Government securities and bonds
(d) Other debt instruments
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(2) Variable income securities
(a) Equity shares
(b) Money market securities like treasury bills commercial papers etc.
Portfolio managers has to decide up on the mix of securities on the basis
of contract with the client and objectives of portfolio
NEED FOR PORTFOLIO MANAGEMENT:
Portfolio management is a process encompassing many activities of investment in assets and
securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgment and action. The objective of this service is to help the unknown and investors with the
expertise of professionals in investment portfolio management. It involves construction of a
portfolio based upon the investors objectives, constraints, preferences for risk and returns and
tax liability. The portfolio is reviewed and adjusted from time to time in tune with the market
conditions. The evaluation of portfolio is to be done in terms of targets set for risk and returns.
The changes in the portfolio are to be effected to meet the changing condition.
Portfolio construction refers to the allocation of surplus funds in hand among a variety of
financial assets open for investment. Portfolio theory concerns itself with the principles
governing such allocation. The modern view of investment is oriented more go towards the
assembly of proper combination of individual securities to form investment portfolio.
A combination of securities held together will give a beneficial result if they grouped in
a manner to secure higher returns after taking into consideration the risk elements.
The modern theory is the view that by diversification risk can be reduced. Diversification
can be made by the investor either by having a large number of shares of companies in different
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regions, in different industries or those producing different types of product lines. Modern theory
believes in the perspective of combination of securities under constraints of risk and returns
PORTFOLIO MANAGEMENT PROCESS:
Investment management is a complex activity which may be broken down into the following
steps:
1) Specification of investment objectives and constraints:
The typical objectives sought by investors are current income, capital appreciation,
and safety of principle. The relative importance of these objectives should be specified further
the constraints arising from liquidity, time horizon, tax and special circumstances must be
identified.
2) choice of the asset mix :
The most important decision in portfolio management is the asset mix decision very broadly;
this is concerned with the proportions of stocks (equity shares and units/shares of equity-
oriented mutual funds) and bonds in the portfolio.
The appropriate stock-bond mix depends mainly on the risk tolerance and investment
horizon of the investor.
ELEMENTS OF PORTFOLIO MANAGEMENT:
Portfolio management is on-going process involving the following basic tasks:
Identification of the investors objectives, constraints and preferences.
Strategies are to be developed and implemented in tune with investment policy
formulated.
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Review and monitoring of the performance of the portfolio.
Finally the evaluation of the portfolio
Risk:
Risk is uncertainty of the income /capital appreciation or loss or both. All investments are
risky. The higher the risk taken, the higher is the return. But proper management of risk involves
the right choice of investments whose risks are compensating. The total risks of two companies
may be different and even lower than the risk of a group of two companies if their companies are
offset by each other.
SOURCES OF INVESTMENT RISK:
Business risk:
As a holder of corporate securities (equity shares or debentures), you are exposed to
the risk of poor business performance. This may be caused by a variety of factors like heightened
competition, emergence of new technologies, development of substitute products, shifts in
consumer preferences, inadequate supply of essential inputs, changes in governmental policies,
and so on.
Interest rate risk::
The changes in interest rate have a bearing on the welfare on investors. As the interest
rate goes up, the market price of existing firmed income securities falls, and vice versa. This
happens because the buyer of a fixed income security would not buy it at its par value of face
value o its fixed interest rate is lower than the prevailing interest rate on a similar security. For
example, a debenture that has a face value of RS. 100 and a fixed rate of 12% will sell a discount
if the interest rate moves up from, say 12% to 14%.while the chances in interest rate have a
direct bearing on the prices of fixed income securities, they affect equity prices too, albeit some
what indirectly.
The two major types of risks are:
Systematic or market related risk.
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Unsystematic or company related risks.
Systematic risks affected from the entire market are (the problems, raw material availability,
tax policy or government policy, inflation risk, interest risk and financial risk). It is managed by
the use of Beta of different company shares.
The unsystematic risks are mismanagement, increasing inventory, wrong financial policy,
defective marketing etc. this is diversifiable or avoidable because it is possible to eliminate or
diversify away this component of risk to a considerable extent by investing in a large portfolio of
securities. The unsystematic risk stems from inefficiency magnitude of those factors different
form one company to another.
RETURNS ON PORTFOLIO:
Each security in a portfolio contributes return in the proportion of its investments in
security. Thus the portfolio expected return is the weighted average of the expected return, from
each of the securities, with weights representing the proportions share of the security in the total
investment. Why does an investor have so many securities in his portfolio? If the security ABC
gives the maximum return why not he invests in that security all his funds and thus maximize
return? The answer to this questions lie in the investors perception of risk attached to
investments, his objectives of income, safety, appreciation, liquidity and hedge against loss of
value of money etc. this pattern of investment in different asset categories, types of investment,
etc., would all be described under the caption of diversification, which aims at the reduction or
even elimination of non-systematic risks and achieve the specific objectives of investors
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RISK ON PORTFOLIO :
The expected returns from individual securities carry some degree of risk. Risk on the
portfolio is different from the risk on individual securities. The risk is reflected in the variability
of the returns from zero to infinity. Risk of the individual assets or a portfolio is measured by the
variance of its return. The expected return depends on the probability of the returns and their
weighted contribution to the risk of the portfolio. These are two measures of risk in this context
one is the absolute deviation and other standard deviation.
Most investors invest in a portfolio of assets, because as to spread risk by not putting
all eggs in one basket. Hence, what really matters to them is not the risk and return of stocks in
isolation, but the risk and return of the portfolio as a whole. Risk is mainly reduced by
Diversification.
RISK RETURN ANALYSIS:
All investment has some risk. Investment in shares of companies has its own risk or uncertainty;
these risks arise out of variability of yields and uncertainty of appreciation or depreciation of
share prices, losses of liquidity etc
The risk over time can be represented by the variance of the returns. While the return over time
is capital appreciation plus payout, divided by the purchase price of the share.
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Normally, the higher the risk that the investor takes, the higher is the return. There
is, how ever, a risk less return on capital of about 12% which is the bank, rate charged by the
R.B.I or long term, yielded on government securities at around 13% to 14%. This risk less return
refers to lack of variability of return and no uncertainty in the repayment or capital. But other
risks such as loss of liquidity due to parting with money etc., may however remain, but are
rewarded by the total return on the capital. Risk-return is subject to variation and the objectives
of the portfolio manager are to reduce that variability and thus reduce the risky by choosing an
appropriate portfolio.
Traditional approach advocates that one security holds the better, it is according to the
modern approach diversification should not be quantity that should be related to the quality of
scripts which leads to quality of portfolio.
Experience has shown that beyond the certain securities by adding more securities expensive.
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Simple diversification reduces:
An assets total risk can be divided into systematic plus unsystematic risk, as shown below:
Systematic risk (undiversifiable risk) + unsystematic risk (diversified risk) =Total risk
=Var (r).
Unsystematic risk is that portion of the risk that is unique to the firm (for example, risk due to
strikes and management errors.) Unsystematic risk can be reduced to zero by simple
diversification.
Simple diversification is the random selection of securities that are to be added to a
portfolio. As the number of randomly selected securities added to a portfolio is increased, the
level of unsystematic risk approaches zero. However market related systematic risk cannot be
reduced by simple diversification. This risk is common to all securities.
Persons involved in portfolio management:
Investor:
Are the people who are interested in investing their funds?
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Portfolio managers:
Is a person who is in the wake of a contract agreement with a client, advices or directs or
undertakes on behalf of the clients, the management or distribution or management of the funds
of the client as the case may be.
Discretionary portfolio manager:
Means a manager who exercise under a contract relating to a portfolio management
exercise any degree of discretion as to the investment or management of portfolio or securities or
funds of clients as the case may be
.
The relation ship between an investor and portfolio manager is of a highly interactive nature
The portfolio manager carries out all the transactions pertaining to the investor under
the power of attorney during the last two decades, and increasing complexity was witnessed in
the capital market and its trading procedures in this context a key (uninformed) investor
formed ) investor found him self in a tricky situation , to keep track of market movement ,update
his knowledge, yet stay in the capital market and make money , there fore in looked forward to
resuming help from portfolio manager to do the job for him .The portfolio management seeks to
strike a balance between risks and return.
The generally rule in that greater risk more of the profits but S.E.B.I. in its guidelines
prohibits portfolio managers to promise any return to investor.
Portfolio management is not a substitute to the inherent risks associated with equity investment.
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Who can be a portfolio manager?
Only those who are registered and pay the required license fee are eligible to operate as
portfolio managers. An applicant for this purpose should have necessary infrastructure with
professionally qualified persons and with a minimum of two persons with experience in this
business and a minimum net worth of Rs. 50lakhs. The certificate once granted is valid for three
years. Fees payable for registration are Rs 2.5lakhs every for two years and Rs.1lakhs for the
third year. From the fourth year onwards, renewal fees per annum are Rs 75000. These are
subjected to change by the S.E.B.I.
The S.E.B.I. has imposed a number of obligations and a code of conduct on them. The
portfolio manager should have a high standard of integrity, honesty and should not have been
convicted of any economic offence or moral turpitude. He should not resort to rigging up of
prices, insider trading or creating false markets, etc. their books of accounts are subject to
inspection to inspection and audit by S.E.B.I... The observance of the code of conduct and
guidelines given by the S.E.B.I. are subject to inspection and penalties for violation are imposed.
The manager has to submit periodical returns and documents as may be required by the SEBI
from time-to- time.
.Functions of portfolio managers:
Advisory role: advice new investments, review the existing ones, identification of
objectives, recommending high yield securities etc.
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Conducting market and economic service: this is essential for recommending good
yielding securities they have to study the current fiscal policy, budget proposal;
individual policies etc further portfolio manager should take in to account the credit
policy, industrial growth, foreign exchange possible change in corporate laws etc.
Financial analysis: he should evaluate the financial statement of company in order to
understand, their net worth future earnings, prospectus and strength.
Study of stock market : he should observe the trends at various stock exchange and
analysis scripts so that he is able to identify the right securities for investment
Study of industry: he should study the industry to know its future prospects, technical
changes etc, required for investment proposal he should also see the problems of the
industry.
Decide the type of port folio: keeping in mind the objectives of portfolio a portfolio
manager has to decide weather the portfolio should comprise equity preference shares,
debentures, convertibles, non-convertibles or partly convertibles, money market,
securities etc or a mix of more than one type of proper mix ensures higher safety, yield
and liquidity coupled with balanced risk techniques of portfolio management.
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A portfolio manager in the Indian context has been Brokers (Big brokers) who
on the basis of their experience, market trends, Insider trader, helps the limited knowledge
persons.
Registered merchant bankers can acts as portfolio managers
Investors must look forward, for qualification and performance and ability and research base of
the portfolio managers.
Techniques of portfolio management:
As of now the under noted technique of portfolio management: are in vogue in our country
1. equity portfolio: is influenced by internal and external factors the internal factors effect
the inner working of the companys growth plans are analyzed with referenced to
Balance sheet, profit & loss a/c (account) of the company.
Among the external factor are changes in the government policies, Trade cycles,
Political stability etc.
2. equity stock analysis: under this method the probable future value of a share of a
company is determined it can be done by ratios of earning per share of the company and
price earning ratio
EPS == PROFIT AFTER TAX
NO: OF EQUITY SHARES
PRICE EARNING RATIO= MARKET PRICE
E.P.S (earnings per share)
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One can estimate trend of earning by EPS, which reflects trends of earning quality of company,
dividend policy, and quality of management.
Price earning ratio indicate a confidence of market about the company future, a high rating is
preferable
The following points must be considered by portfolio managers while analyzing the securities.
1. Nature of the industry and its product: long term trends of industries, competition with
in, and out side the industry, Technical changes, labour relations, sensitivity, to Trade cycle.
2. Industrial analysis of prospective earnings, cash flows, working capital, dividends,
etc.
3. Ratio analysis: Ratiosuch as debt equity ratios current ratios net worth, profit
earning ratio, return on investment, are worked out to decide the portfolio.
The wise principle of portfolio management suggests that Buy when themarket is low or
BEARISH,and sell when the market is risingorBULLISH.
Stock market operation can be analyzed by:
a) Fundamental approach :-based on intrinsic value of shares
b) Technical approach:-based on Dowjones theory, Random walk theory, etc.
Prices are based upon demand and supply of the market.
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i. Traditional approach assumes that
ii. Objectives are maximization of wealth and minimization of risk.
iii. Diversification reduces risk and volatility.
iv. Variable returns, high illiquidity; etc.
Capital Assets pricing approach (CAPM) it pays more weight age, to risk or portfolio
diversification of portfolio.
Diversification of portfolio reduces risk but it should be based on certain assessment such as:
Trend analysis of past share prices.
Valuation of intrinsic value of company (trend-marker moves are known for their
Uncertainties they are compared to be high, and low prompts of wave market trends are
constituted by these waves it is a pattern of movement based on past).
The following rules must be studied while cautious portfolio manager before decide to invest
their funds in portfolios.
1. Compile the financials of the companies in the immediate past 3 years such as turn over,
gross profit, net profit before tax, compare the profit earning of company with that of the
industry average nature of product manufacture service render and it future demand ,know
about the promoters and their back ground, dividend track record, bonus shares in the past 3
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to 5 years ,reflects companys commitment to share holders the relevant information can be
accessed from the RDC(registrant of companies)published financial results financed quarters,
journals and ledgers.
2. Watch out the highs and lows of the scripts for the past 2 to 3 years and their timing
cyclical scripts have a tendency to repeat their performance ,this hypothesis can be true of all
other financial ,
3. The higher the trading volume higher is liquidity and still higher the chance of
speculation, it is futile to invest in such shares whos daily movements cannot be kept track,
if you want to reap rich returns keep investment over along horizon and it will offset the wild
intra day trading fluctuations, the minor movement of scripts may be ignored, we must
remember that share market moves in phases and the span of each phase is 6 months to 5
years.
a. Long term of the market should be the guiding factor to enable you to invest and
quit. The market is now bullish and the trend is likely to continue for some more time.
b. UN tradable shares must find a last place in portfolio apart from return; even capital
invested is eroded with no way of exit with no way of exit with inside.
How at all one should avoid such scripts in future?
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(1) Never invest on the basis of an insider trader tip in a company which is not sound (insider
trader is person who gives tip for trading in securities based on prices sensitive up price sensitive
un published information relating to such security).
(2) Never invest in the so called promoter quota of lesser known company
(3) Never invest in a company about which you do not have appropriate knowledge.
(4) Never at all invest in a company which doesnt have a stringent financial record your
portfolio should not a stagnate
(4) Shuffle the portfolio and replace the slow moving sector with active ones , investors were
shatter when the technology , media, software , stops have taken a down slight.
(5) Never fall to the magic of the scripts dont confine to the blue chip companys, look out for
other portfolio that ensure regular dividends.
(6) In the same way never react to sudden raise or fall in stock market index such fluctuation is
movement minor corrections in stock market held in consolidation of market their by reading
out a weak player often taste on wait for the dust and dim to settle to make your move .
PORT FOLIO MANAGEMENT AND DIVESIFICATOIN:
Combinations of securities that have high risk and return features make up a portfolio.
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Portfolios may or may not take on the aggregate characteristics of individual part,
portfolio analysis takes various components of risk and return for each industry and consider the
effort of combined security.
Portfolio selection involves choosing the best portfolio to suit the risk return preferences
of portfolio investor management of portfolio is a dynamic activity of evaluating and revising the
portfolio in terms of portfolios objectives
It may include in cash also, even if one goes bad the other will provide protection from the loss
even cash is subject to inflation the diversification can be either vertical or horizontal the vertical
diversification portfolio can have script of different companys with in the same industry.
In horizontal diversification one can have different scripts chosen from different industries.
CEMENT INDUSTRY .TEXTILE INDUSTRY
ACC CEMENT
JK CEMENT
ULTRA TECH
BIRLA CEM
VISHNU CEM
PRIYA CEM
RAM CO CEM
RELILANCE INDUSTRIES
GARDEN SILK MILLS
NECP TEXTILE
BOMBAY DEYING
GRASIM INDUSTRIES
BORODA RAYON
CHESLIND TEXTILE
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HorizontalDiversification
TISCO MANUFACTURING
ACC
GARDEN TEXTILE
INFOSYS (SOFTWARE)
BSES LTD (POWER)
ULTRA TECH (CONSTRUCTION)
It should be an adequate diversification looking in to the size of portfolio.
Traditional approach advocates the more security one holds in a portfolio , the better it is according to
modern approach diversification should not be quantified but should be related to the quality of
scripts which leads to the quality and portfolio subsequently experience can show that beyond a certain
number of securities adding more securities become expensive.
Investment in a fixed return securities in the current market scenario which is passing through a
an uncertain phase investors are facing the problem of lack of liquidity combined with minimum
returns the important point to both is that the equity market and debt market moves in opposite
direction .where the stock market is booming, equities perform better where as in depressed market the
assured returns related securities market out perform equities.
It is cyclic and is evident in more global market keeping this in mind an investor can shift
from fixed income securities to equities and vise versa along with the changing market scenario , if
the investment are wisely planned they , fetch good returns even when the market is depressed most ,
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important the investor must adopt the time bound strategy in differing state of market to achieve the
optimum result when the aim is short term returns it would be wise for the investor to invest in equities
when the market is in boom & it could be reviewed if the same is done.
Maximum of returns can be achieved by following a composite pattern of investment by
having, suitable investment allocation strategy among the available resources.
Never invest in a single securities your investment can be allocated in the following areas:
1. Equities:-primary and secondary market.
2. Mutual Funds
3. Bank deposits
4. Fixed deposits & bonds and the tax saving schemes
The different areas of fixed income are as:-
Fixed deposits in company
Bonds
Mutual funds schemes
with an investment strategy to invest in debt investment in fixed deposit can be made for the simple
reason that assured fixed income of a high of 14-17% per annum can be expected which is much
safer then investing a highly volatile stock market, even in comparison to banks deposit which gives
a maximum return of 12% per annum, fixed deposit s in high profile esteemed will performing
companies definitely gives a higher returns.
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BETA:
The concept of Beta as a measure of systematic risk is useful in portfolio management. The
beta measures the movement of one script in relation to the market trend*. Thus BETA can be
positive or negative depending on whether the individual scrip moves in the same direction as the
market or in the opposite direction and the extent of variance of one scrip vis--vis the market is
being measured by BETA. The BETA is negative if the share price moves contrary to the general
trend and positive if it moves in the same direct ion. The scrips with higher BETA of more than
one are called aggressive, and those with a low BETA of less than one are called defensive.
It is therefore it is necessary, to calculate Betas for all scrips and choose those with high
Beta for a portfolio of high returns.
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INVESTMENT DECISIONS
Definition of investment:
According to F. AMLING Investment may be defined as the purchase by an individual or
an Institutional investor of a financial or real asset that produces a return proportional to the risk
assumed over some future investment period. According to D.E. Fisher and R.J. Jordon, Investment
is a commitment of funds made in the expectation of some positive rate of return. If the investment
is properly undertaken, the return will be commensurate with the risk of the investor assumes.
Concept of Investment:
Investment will generally be used in its financial sense and as such 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. Investment is a commitment of a persons funds to derive future income in the form
of interest, dividends, rent, premiums, pension benefits or the appreciation of the value of his
principal capital.
Many types of investment media or channels for making investments are available.
Securities ranging from risk free instruments to highly speculative shares and debentures are
available for alternative investments.
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All investments are risky, as the investor parts with his money. An efficient investor with
proper training can reduce the risk and maximize returns. He can avoid pitfalls and protect his
interest.
There are different methods of classifying the investment avenues. A major classification
is physical Investments and Financial Investments. They are physical, if savings are used to acquire
physical assets, useful for consumption or production. Some physical assets like ploughs,
tractors or harvesters are useful in agricultural production. A few useful physical assets like cars,
jeeps etc., are useful in business.
Many items of physical assets are not useful for further production or goods or create income
as in the case of consumer durables, gold, silver etc. among different types of investment, some are
marketable and transferable and others are not. Examples of marketable assets are shares and
debentures of public limited companies, particularly the listed companies on Stock Exchange, Bonds
of P.S.U., Government securities etc. non-marketable securities or investments in bank deposits,
provident fund and pension funds, insurance certificates, post office deposits, national savings
certificate, company deposits, private limited companies shares etc.
The investment process may be described in the following stages:
Investment policy:
The first stage determines and involves personal financial affairs and objectives before
making investment. It may also be called the preparation of investment policy stage. The investor
has to see that he should be able to create an emergency fund, an element of liquidity and quick
convertibility of securities into cash. This stage may, therefore be called the proper time of
identifying investment assets and considering the various features of investments.
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investment analysis:
After arranging a logical order of types of investment preferred, the next step is to analyze
the securities available for investment. The investor must take a comparative analysis of type of
industry, kind of securities etc. the primary concerns at this stage would be to form beliefs regarding
future behavior of prices and stocks, the expected return and associated risks
.
Investment valuation:
Investment value, in general is taken to be the present worth to the owners of future benefits
from investments. The investor has to bear in mind the value of these investments. An appropriate
set of weights have to be applied with the use of forecasted benefits to estimate the value of the
investment assets such as stocks, debentures, and bonds and other assets. Comparison of the value
with the current market price of the assets allows a determination of the relative attractiveness of the
asset allows a determination of the relative attractiveness of the asset. Each asset must be value on its
individual merit.
Portfolio construction and feed-back:
Portfolio construction requires knowledge of different aspects of securities in
relation to safety and growth of principal, liquidity of assets etc. In this stage, we study,
determination of diversification level, consideration of investment timing selection of investment
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assets, allocation of invest able wealth to different investments, evaluation of portfolio for feed-
back.
INVESTMENT DECISIONS- GUIDELINES FOR EQUITY INVESTMENT
Equity shares are characterized by price fluctuations, which can produce substantial gains
or inflict severe losses. Given the volatility and dynamism of the stock market, investor requires
greater competence and skill-along with a touch of good luck too-to invest in equity shares. Here are
some general guidelines to play to equity game, irrespective of weather you aggressive or
conservative.
Adopt a suitable formula plan.
Establish value anchors.
Assets market psychology.
Combination of fundamental and technical analyze.
Diversify sensibly.
Periodically review and revise your portfolio.
Requirement of portfolio:
1. Maintain adequate diversification when relative values of various securities in the portfolio
change.
2. Incorporate new information relevant for return investment.
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3. Expand or contrast the size of portfolio to absorb funds or with draw funds.
4.Reflect changes in investor risk disposition.
.
Qualitiles For successful Investing:
Contrary thinking
Patience
Composure
Flexibility
Openness
INVESTORS PORTFOLIO CHOICE:
An investor tends to choose that portfolio, which yields him maximum return by
applying utility theory. Utility Theory is the foundation for the choice under uncertainty.
Cardinal and ordinal theories are the two alternatives, which is used by economist to determine
how people and societies choose to allocate scare resources and to distribute wealth among one
another.
The former theory implies that a consumer is capable of assigning to every commodity or
combination of commodities a number representing the amount of degree of utility associated
with it. Were as the latter theory, implies that a consumer needs not be liable to assign numbers
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that represents the degree or amount of utility associated with commodity or combination of
commodity. The consumer can only rank and order the amount or degree of utility associated
with commodity.
In an uncertain environment it becomes necessary to ascertain how different individual
will react to risky situation. The risk is defined as a probability of success or failure or risk could
be described as variability of out comes, payoffs or returns. This implies that there is a
distribution of outcomes associated with each investment decision. Therefore we can say that
there is a relationship between the expected utility and risk. Expected utility with a particular
portfolio return. This numerical value is calculated by taking a weighted average of the utilities
of the various possible returns. The weights are the probabilities of occurrence associated with
each of the possible returns.
MARKOWITZ MODEL
THE MEAN-VARIENCE CRITERION
Dr. Harry M.Markowitz is credited with developing the first modern portfolio
analysis in order to arrange for the optimum allocation of assets with in portfolio. To reach this
objective, Markowitz generated portfolios within a reward risk context. In essence, Markowitzs
model is a theoretical framework for the analysis of risk return choices. Decisions are based on
the concept of efficient portfolios.
A portfolio is efficient when it is expected to yield the highest return for the level of risk
accepted or, alternatively, the smallest portfolio risk for a specified level of expected return. To
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build an efficient portfolio an expected return level is chosen, and assets are substituted until the
portfolio combination with the smallest variance at the return level is found. At this process is
repeated for expected returns, set of efficient portfolio is generated.
ASSUMPTIONS:
1. Investors consider each investment alternative as being represented by a probability
distribution of expected returns over some holding period.
2. Investors maximize one period-expected utility and posses utility curve, which demonstrates
diminishing marginal utility of wealth.
3. Individuals estimate risk on the risk on the basis of the variability of expected returns.
4. Investors base decisions solely on expected return and variance or returns only.
5. For a given risk level, investors prefer high returns to lower return similarly for a given level
of expected return, Investors prefer risk to more risk.
Under these assumptions, a single asset or portfolio of assets is considered to
be efficient if no other asset or portfolio of assets offers higher expected return with the same
risk or lower risk with the same expected return.
THE SPECIFIC MODEL
In developing his model, Morkowitz first disposed of the investment behavior rule
that the investor should maximize expected return. This rule implies that the non-diversified
single security portfolio with the highest return is the most desirable portfolio. Only by buying
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that single security can expected return be maximized. The single-security portfolio would
obviously be preferable if the investor were perfectly certain that this highest expected return
would turn out be the actual return. However, under real world conditions of uncertainty, most
risk adverse investors join with Markowitz in