equity investments

EQUITYEQUITY INVESTMENTS INVESTMENTS

Presented by HONEY POULOSE

USE OF MONEY

# Unit of accounts:

For calculating the value of assets

# Medium of exchange:

For catering his basic needs

# Store of value:

For transactional demand and precautionary demand

BOOKMAN LOW OF MONEYBOOKMAN LOW OF MONEY

“Wealth in the form of money will not multiply”

WEALTH IS CREATED BY CIRCULATTION OF MONEY MORE WE CIRCULATE MORE WE CREATE



“For a better life,

Earn money wisely

Saved money regularly

Invest them smartly”

SELECTION OF INVESTMENTS

RATE OF RETURN

RISK

LIQUIDITY

TAXES

CONVENIENTS

INVESTMENT VEHICLESINVESTMENT VEHICLESMONEY MARK ET 2-3.5%BONDS &DEBTS 4-5.8.5%

BANK DEPOSITE 6.6.75%GOLD 1.6-8%REAL ESTATE 12-18%INSURANCE 6-14%MUTUAL FUND 10-14%EQUITYS 12-20%

PLAN YOUR INVESTMENTPLAN YOUR INVESTMENTStep 1 #

Creating investment objectives & destinations and understanding threats & hurdles of the objectives

Step 2 #

Selecting the type of investments and ratios

Step 3 #

Active or passive portfolio working plans

Step 4 #

selection of securities

Step 5 #

portfolio management

Step 6 # portfolio analysis

INVESTMENT SRATEGY ROAD MAP

STAGE AGE CIRCUMSTANCES INVESTMENT STRATEGYASSET ALOCATION

No dependence Aggressive growth 40-40-20 Conservative

No investment High risk ability 60-30-10 Moderate

surplus 90-5-5 Aggressive

Married, young family Aggressive wealth 30-40-30 Conservative

Starts investment creation 50-35-15 Moderate

80-10-10 Aggressive

Expences Lowering risk 25-40-35 Conservative

High income Moove for safest 50-30-20 Moderate

60-20-20 Aggressive

Indipendent children Reduce portfolio risk 10-50-40 Conservative

Surplus income Build retirment corpus 30-40-30 Moderate

40-40-20 Aggressive

Creating regular Cash flow from safe 20/20/60 Conservative

cash flows safe investment 20-30-50 Moderate

30-40-30 AggressiveRETIERD

20

30

40

50

60

YOUNG ADULT

YOUNG FAMILY

MATURE FAMILY

EMTY NESTERS

CAPITAL MARKET

PUBLIC LIMITED COMPANIES

WORKING CAPITAL

BONDS

PREVILAGE SHARES

EQUITY SHARES

BONUS SHARES

PREFERENCE SHARES

CAPITAL MARKET

AIM :

Regulating capital flow from higher part to lower part

distribution of wealth generated in the nation to the public

Triggering economic growth of a nation

CAPITAL MARKET

Debt

Total Assets

Equity

Company borrowing. Must repay 100% at fixed point in future + rate of interest (fixed or floating). Bonds are issued by companies to investors.

Owners’ investment, + / - accumulated profits.

No repayment date for owner’s investment.

Owner will receive dividends.

DIFFERENCE BETWEEN DEBTS AND EQUITY

Companies

Governments, supra-national agencies, e.g. World Bank, Mortgage Backed, Asset Backed, Companies

Who issues?

High risk, high returnLow risk, consistent returnLong-term expected return

Equities considered an inflation hedge as companies can increase prices if costs rise

Inflation negative for bonds as it makes the final values worth less in real terms

Inflation

Much higher risks than bonds as no maturity date at which investment is returned, therefore, value set by market

Risk if held to maturity is default, otherwise will receive nominal bond value back. Bond investors have first call on company assets

Risk

Dividend + / - capital appreciation

Interest + / - capital appreciation

Return

NoYesMaturity

EquitiesBonds

DIFFERENCE BETWEEN DEBTS

AND EQUITY

DownUpEconomy will fall so interest rates will fall. Investors prepared to pay more for bond coupon (less demand for money)

c) Bird Flu outbreak

UpDownGovernment likely to increase interest rate so better value in new bonds

b) Booming economy (GDP + 8%)

UpDownFuture value of bond worth less in real terms

a) Rising inflation (+2%)

Bond interest rate

Bond priceResultScenario

Bonds are priced according to how much investors are prepared to pay for an interest payment stream over a time period (interest rate), and depending on the confidence that the final sum will be returned (credit

DIFFERENCE BETWEEN DEBTS

AND EQUITY

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Jan-

06

Reverse Repo Rate 10-yr GoI

INTREST RATE 2001-2006INTREST RATE 2001-2006

ROI %

11.80

10.20

7.957.958.509.20

11.8012.5512.5512.5512.3012.20

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.0019

94

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Period

Rat

e of

Inte

rest

%

LIC RETURNS 1994-2005LIC RETURNS 1994-2005

OPPURTUNITIES IN EQUITY OPPURTUNITIES IN EQUITY INVESTMENTINVESTMENT

CAPITAL APPRECIATION

DERIVATIVE INCOME

OVERCOME INFLATION

LIQUIDITY

CONVENIENCE

profit in two year 2003-2005

NAME OF COMPANY 2004 2005 %of return investmentno of sharespresent value profit maid in two yearsBHARATHY TETE VENTURES 185.45 328.25 77 100000 539 177,002 77,002BHEL 642.3 1135.5 77 100000 156 176,787 76,787HUGES MAGNETICS 539.9 697.85 29 100000 185 129,255 29,255ICICI BANK 353.45 506 43 100000 283 143,160 43,160HDFC BANK 214.65 658.25 207 100000 466 306,662 206,662INFOSIS 1109.03 2600.8 135 100000 90 234,511 134,511WIPRO 253.54 385.35 52 100000 394 151,988 51,988ITC 85.33 125.15 47 100000 1172 146,666 46,666L&T 999.5 1770.1 77 100000 100 177,099 77,099PANTALOON 580.8 1591 174 100000 172 273,933 173,933SOLECTON 119 246 107 100000 840 206,723 106,723TATA POWER 346.1 442.72 28 100000 289 127,917 27,917TCS 1235.35 1423.15 15 100000 81 115,202 15,202VSNL 226.8 328.95 45 100000 441 145,040 45,040APPOLO HOSPITALS 185.55 416.35 124 100000 539 224,387 124,387BAJAJ AUTO 1135.7 2135.25 88 100000 88 188,012 88,012BHARAT ELETRONICS 617.95 746.5 21 100000 162 120,803 20,803DIVIS LAB 1593 1830.2 15 100000 63 114,890 14,890STERLITE INDUSTRIES 740.4 805.3 9 100000 135 108,766 8,766SUN FARMA 299.02 660 121 100000 334 220,721 120,721TATA MOTORS 454.15 534.35 18 100000 220 117,659 17,659TATA TEA 350 795.35 127 100000 286 227,243 127,243ASIAN PAINTS 221.14 493.85 123 100000 452 223,320 123,320BICON 484.35 493.6 2 100000 206 101,910 1,910CIPLA 188.5 367.85 95 100000 531 195,146 95,146GUJRATH ABUJA 22.1 83.25 277 100000 4525 376,697 276,697ESSEL 180.2 366.1 103 100000 555 203,163 103,163HERQ HONDA 250.5 689.05 175 100000 399 275,070 175,070HINDALCO 59.15 132.4 124 100000 1691 223,838 123,838I FLEX 394 914.3 132 100000 254 232,056 132,056MOSER BEAR 91.72 208.5 127 100000 1090 227,322 127,322ONGC 371.9 992.25 167 100000 269 266,806 166,806RANBAXY 313 442.95 42 100000 319 141,518 41,518RELIEACE 297.5 900 203 100000 336 302,521 202,521TATA CONSULTACY 700 1552 122 100000 143 221,714 121,714HDFC 386 1160.06 201 100000 259 300,534 200,534SREE CON 15 37.5 150 100000 6667 250,000 150,000NELCO 5170 113.3 -98 100000 19 2,191 -97,809SEKKA 49.5 99.95 102 100000 2020 201,919 101,919JIDAL 46.25 92.4 100 100000 2162 199,784 99,784ZEIMENS 2352 3234 38 100000 43 137,500 37,500TITAN 310 660.8 113 100000 323 213,161 113,161

CAPITAL APRECIATION 2004-05

PREVILAGE ISSUES

EQUITIES

BONUS ISSUES

PREFERENCE ISSUES

TYPES OF SHARES

BONDS AND SHARES

Dividend with fixed rates

Cumulative dividends available

Will get preference in profit distribution

Aim:

Distribute shares to persons other than public

Features

PREFERENCE ISSUES

BONDS AND SHARES

Profit/loss sharing ownerships

Eligible for dividend,capital appreciation,bonus,rights

Risk, profit, rate of income high

Aim:

Capitalize money from public

Features

EQUITIES

BONDS AND SHARES

RIGHT ISSUES

Aim :

Capitalize more money with out issuing new shares

Features

Available only to existing share holders

Offer with respect to existing share holdings

Available with offer price or face value

Eligible for dividend, capital appreciation,bonus shares

BONUS ISSUES

Aim :

Add profit to the share capital of the company

Features :

Distribution of profit in the form of equities

Offer with respect to existing share holdings

Eligible for dividend , capital appreciation

BONDS AND SHARES

TYPES OF CAPITAL MARKETS

Capital market

Share market Debts Derivatives

Primary market Secondary market

IPOs,Bonds, Public issues,Privilege issues,Private placements

Trading of equities and bonds

PROCESS OF CAPITAL MARKET

PRIMARYMARKETSECONDARY MARKET

Finding a broker

Taking demat account

Giving order

Fixed price order

Stop loss order

Market order

Internet trading

Public issues

Book building issues

Right issues

Private placements

ADR

GDR

Limited company

Fundamental analysis Technical analysis

Intrinsic value

Management value

Industry value

Annual report

Share ratios

Economy analysis

Industry analysis

Company analysis

Technical analysis

SHARE ANALISIS

INTRINSIC VALUE :

Expected capital gains+expected dividends-risks

Objective : to analyze the market value of share is good to buy or not

MANAGEMENT VALUES:

•Integrity, group strength and weakness

•Performance history , Planning and implementation policies

•Unity, age,crisis management

•Diversification policies

•Vision and values

•d

•Promoters and directors and number of employees

FUNDAMENTAL ANALISIS

ANNUAL REPORTS

•Directors reports

•Auditors reports

Account statements

•Share capital

•Reserves and play backs

•Fixed and current assets

•Provisions and operating expenses

•Interest expense and depreciation

•Investments and taxation


INDUSTRY CYCLE ANALYSIS

•Entrepreneurship stage

•Growth stage

•Stabilization stage

•Sunset stage

•Research and developments of new products

COMPNY STRENGTHS

•Pocket depths

•Investment policies

•Competitiveness

•Aggressiveness


ECONOMY ANALISIS

•GDP and inflation

•Interest rates

•Exports , imports and foreign reserves

•Government revenues,expenses, deficit

•Income rates and investment rates

•Population

•Per capita income

•Monsoon

TECHNICAL ANALISIS

INDUSTRY ANALISIS

•Industry strengths, weakness , survival capacity

•Sales and profit history

•Stability of the industry

•Government policies

•Labor environment

•Product life cycle

•Demand supply analysis

•Raw material availability

•Entry level

TECHNICAL ANALISIS

COMPANY ANALYSIS

•Product market analysis

•Product category

•Market share, market potential,export potential

•Consumer strengths and segmentation

•Profits, price,credit policies,competition, expenses

•Sales networks, retails,sales force performance,

•Plant age,technology,brand image,R&D wing

TECHNICAL ANALISIS

COMPARISON RATIOS

BOOK VALUE:

Book value =share capital +reserves/number of shares

Indicate net value of shares by company

EARNING PER SHARE

E P S =net profit/number of shares

It indicate actual earning /return of a share ( dividend+reserve capital or capital gain )

PRICE EARNING RATIO

P/E= Market price/EPS

Indicate break even time for the particular shares

COMPARISON RATIOS

YEILD

Yield =dividend/market price*100

Indicate the percentage return of dividend return

RETURN ON EQUITY

ROE= Total share capital+ reserves/net profit

Indicate profit making ability of a particular company from available funds

COMPARISON RATIOS

SENSEX

SENSITIVE INDEX- what it mean ?

•Benchmark index for Indian stokes

•Reflects the price movements of the shares

•Reflects the expectation of income gain or loss of equity investments

•Reflects the confidence or risk taking ability of Indian equity investment

•Reflects the performance and trends of Indian companies

•Thermometer for Indian economy

•Power full tool for investment analysis of Indian equity investment

What is the Sensex made of ?

•Thirty stocks

•Most actively traded stokes in the country

•Represent thirteen industrial sectors of the country

•Stokes should have traded every working day for last one year

•Should include in top 150 company listed by average number of trades (buying and selling ) and value of trades( actual volume in rupees )

•Must have listed on BSE for last one year

Who select these thirty stocks?

They selected by the index committee

•Academicians

•Fund managers

•Finance journalists

•Independent governing board members

•Delegates form other financial sectors

20%

15%

15%10%5%

5%

4%

6%

3%

4%

8% 5%

FINANCE

IT

OIL AND GAS

FMCG

TRANSPORTATION

METAL

CAPITAL GOODS

POWER

HEALTH CARE

TELECOME

HOUSING

DIVERSIFIED

BSE –BOMBAY STOCK EXCHANGE

•Oldest index in the country

•Most popular index

•13 sectors and 30 stokes

MEMBER STOCKS OF SENSEX•BAJAJ AUTO LTD -AUTOMOBILE

•HERO HONDA MOTORS LTD - AOUTO MOBILE

•MARUTHY UDYOG LTD - AOUTO MOBILE

•TATA AUTOMOBILES -AUTOMOBILE

•BHARTHI TELE VENTURS LTD -TELECOME

•CIPLA LTD PHARMA

•RANBAXY PHARMA

•DR REDDYS LABORATARIES LTD PHARMA

•GRASIM INDUSTRIES LTD CEMENT

•GUJARATH ABBUJA CEMENTS CEMENT

•ACC CEMENTS COMPANY PVT LTD- CEMENT

•HDFC FINANCE

•HDFC BANK FINANCE

•ICICI BANK- FINANCE

•SBI _ FINANCE

•HINDALCO- ALUMINIUM

•HINDUSTAN LEVER – DIVERSIFIED

•INFOSIS – IT

•SATHYAM COMPUTERS IT

•TATA CONSULTANCY IT

•WIPRO IT

•LARSEN & TURBO ENGENEERING

•NTPC POWER

•RELIANCE POWER POWER

•ONGC OIL

•RELEINCE INDUSTRIES OIL

•TATA STEEL – STEEL

•TATA TEA - TEA AND COFEE

MEMBER STOCKS OF SENSEX

4% 4%

10%

4%

2%

15%

4%2%4%2%4%2%

15%

2%

2%

4%

2%

6%

1%

2%

1%

5% 3%

ALUMINEUM

AUTO 2

AUTO 4

BANKS

CEMENT

CIGERETS

COMPUTERS

DIVERSIFIED

ELETRICAL EQUIPMENT

ENGENEERING

FINACE HOUSING

GAS

MEDIA

OIL

PERSOAL CARE

PETROCHEMICALS

PHARMA

POWER

REFINARIES

SHIPPING

STEEL

TEA& COFEE

TELECOMMUNICATION

NSE NATIONAL STOCK EXCHANGE•More advanced index

•24 sectors and 50 stocks

INDIA BSE SENSEXINDIA NSE NIFTYUSA NYSE DOW JOHNSJAPAN TSE NIKYUK LSE FTSEHONKONG HSE HANG SENGSINGAPORE SSE STRAIT TIMESFRANCE PSE CABCANADA TSE TSE

LEADING STOCK EXCHANGES

Market is Expensive

TRENDS 0F INDIAN SENSEXStrong Market Rally

Source: Merrill Lynch Research

2500

3500

4500

5500

6500

7500

8500

9500

10500Ja

n-03

Mar

-03

May

-03

Jul-0

3

Sep

-03

Nov

-03

Jan-

04

Mar

-04

May

-04

Jul-0

4

Sep

-04

Dec

-04

Feb-

05

Apr

-05

Jun-

05

Aug

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Oct

-05

Dec

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Feb-

06

Budget

December quarter results

unexciting

India & Pakistan make fresh attempt

for peace

RBI cuts key rates

Good monsoons and FM's latest statement on Economy Growth

Mumbai Bomb Blast

Good Sept end quarter results

Strong FII buying and encouraging trend in

corporate fundamentals

Strong FII buying and good economy growth

Election results announced, FII Selling

Union Budget

Opinion polls predict BJP-led NDA win

Announcement ofManmohansingh - PMP Chidambaram - FM

VAT introduced

Disappointing earnings performance by

Tech stocks

Reliance Industries Family Dispute finally settled amicably

Interim Results Disappoint Market

Oil price hike Union Budget

Strong FII buying

WEALTH BY SHARE INVESTMENTS

BIILGATES 5000CR$ MICROSOFT

WAREN BOOFAY 3500CR $ BARKSHARE FATHWA

ASIM PREMJI 60000CR WIPRO

MUKESH AMBANI 4700CR RELIENCE

SUNIL MITHAL 3OOOCR BHARATHI TELECOME

Presented by HONEY POULOSE

equity investments

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