Amity Business School

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Amity Business School
MBA, Semester 3
Security Analysis and Portfolio Management
Akhil Swami
Batch 2015
Amity Business School Contents of unit 1
Investment versus Speculation,
Investment Alternatives and Their
Evaluation, Financial Markets, Portfolio
Management Process, Approaches to
Investment Decision Making, Common
Errors in Investment Management, and
Qualities of Successful Investing. Role of
Portfolio Management, Portfolio
Management Practices in International
markets.

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Amity Business School
The main difference between speculating
and investing is the amount of risk
undertaken in the trade. Typically, high-
risk trades that are almost akin to
gambling fall under the umbrella of
speculation, whereas lower-risk
investments based on fundamentals and
analysis fall into the category of investing.
Investors seek to generate a satisfactory
return on their capital by taking on an
average or below-average amount of risk.
On the other hand, speculators are
seeking to make abnormally high returns
from bets that can go one way or the
other. It should be noted that speculation
is not exactly like gambling because
speculators do try to make an educated
decision on the direction of the trade, but
the risk inherent in the trade tends to be
significantly above average.

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Amity Business School
Investors seek to generate a satisfactory
return on their capital by taking on an
average or below-average amount of risk.
On the other hand, speculators are
seeking to make abnormally high returns
from bets that can go one way or the
other.
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Amity Business School
It should be noted that speculation is not
exactly like gambling because speculators
do try to make an educated decision on
the direction of the trade, but the risk
inherent in the trade tends to be
significantly above average.


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1. Investment: Investment is rationally
based on the knowledge of past share
price behaviour. From such knowledge, it
is possible to compute the probability of
future return.
Speculation: Speculation is purely based
on the HOPE that the future price will be
higher rather than on anything tangible.




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Amity Business School
Investment: Investment requires an
investor to do some work before hand
and decisions are made based on known
facts and figure.
Speculation: Speculation is usually based
on wild rumors and unsubstantiated
hearsays which cannot be checked for
accuracy. Undoubtedly, speculation is a
lot easier than investment but one tends to
reap what one sows.




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Amity Business School
3. Investment: Investment is made for
the long term (i.e. two years or
more)based on the idea that one is much
more certain when one is trying to predict
the cumulative results of many daily
movement. Once invests with the
knowledge that over the long run, the real
investors will always make a gain.

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Amity Business School
Speculation: Speculation is usually for
the short run (i.e three months or
lessunless one is caught whence a
speculator is then forced to become an
investor), based on the idea that certain
events may result in a rise in price (bonus,
rights, takeovers, and others).

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Amity Business School Investment
One can invest in Jewelry /Real
estate/Bond/Shares/Warrants/Preference
stocks/Bank deposits/LIC/ULIP/PF
Schemes FCCB/NCD/FCD/PCD/Mutual
Funds/ETF-----What is the basis of these
investments?
Rule of 100-----Deduct your age from 100,
and what remains invest in equityrest in
Debt instruments---why????
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Amity Business School Contd
Risk bearing investors/risk averse
investorswhich depends upon
Demographic Characteristics of the
investor.
QIBS/Small investor/HNI/FII/DII/Mutual
funds.
ADR/GDR/IDR
Private equity Funds/Angel
Financers/anchor invester.
Large cap/mid cap/small cap stocks.

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Amity Business School
Venture capital (VC) is Financial
provided to early-stage, high-potential,
high risk, growth start up companies . The
venture capital fund makes money by
owning equity in the companies it invests
in, which usually have a novel technology
or business model in high technology
industries, such as Biotechnology, IT,
Software, etc.
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Amity Business School
The typical venture capital investment
occurs after the Seed Funding around as
growth funding round in the interest of
generating a return through an eventual
realization event, such as an IPO or Trade
sale of the company. It is important to note
that venture capital is a subset of private
equity . Therefore all venture capital is
private equity, but not all private equity is
venture capital.


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Amity Business School ADR
AMERICAN DEPOSITORY RECEIPT: Is a
certificate issued by United States in lieu
of a foreign security. The original
securities are lodged in a bank or with a
custodian abroad. American Depository
Receipt are traded in the US for all intents
and purposes as if they were a domestic
stock.
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Amity Business School Contd..
An American Depository Receipt dividend
is paid in the US dollars so it provides a
way for American investors to buy foreign
securities without having to abroad and
without having to switch in and out of
foreign currencies.
Strong hands/weak hands/..Dividend
yield on stock investment.SIP/ELSS.
Sectoral performance.

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Amity Business School
QIP, which came into effect on May 08,
2006, is a designation of securities issue,
through which SEBI, allows a company
listed in India to raise funds from the
domestic market without any pre-issue
filings to the regulators. This was
incorporated in order to encourage the
Indian companies to raise funds through
domestic markets, rather than resorting to
ADRs and getting those funds from the
foreign markets.
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Amity Business School
Bulls
Bears
Stags
Lame ducks
Bear traps
Bull Traps.
Private placement/bought out deal.
Interest sensitive stocks.
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Amity Business School
Bulls and Bear Traps---are major
breakouts that are soon followed by abrupt
sharp price reversals.
Defensive stocks/aggressive stocks.
Hedge funds.
Growth stocks/value stocks/momentum
stocks.
IPO/FPO/Right issue/stock split/bonus
issue/Record date/closure of books/

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Amity Business School Some terms
Registrar of issue/Registrar of company/.
Dead Cat Bounce---A temporary recovery
from a prolonged decline or bear market ,
after which the market continues to fall.
Blood Letting-----A period of severe
investing losses , The term comes from
the old medical practice that involved
bleeding out a patient.

Amity Business School
Scalping---Is a trading style where small
price gaps created by the Bid-Ask
spread(What are these) are exploited.
Market Breadth---The difference between
inclining stocks and declining stocks. How
market breadth helps predicting the
direction of the market
Thickness of the market-----difference
between ask and bid price. More thickness
means more trades probability.

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Amity Business School Hinder burg Omen
When there are both new 52 weeks high
and 52 weeks low, it indicates that the
market is going through a period of
extreme divergence and is not very
conducive for further rise,.

Amity Business School Some terms
Torpedo Stocks---A declining stock that
will most likely continue to decline.
Air pocket Stock---When the price of a
stock plunges unexpectedly similar to
airplane when it hits a air pocket.
Down Tick---A trade is on the down tick
when the last trade occurred at a price
lower than the previous one.

Amity Business School Some terms
Flight to quality----The action of investors
moving their capital away from riskier
investments to the safest investment
vehicle.
Capitulation---A military term , refers to
surrendering or giving up.
Falling knife---When the shares have a
free fall-Dont out your had below a falling
knife.
Amity Business School Some terms
Lame Duck---is a bear who has made a
short sale(what is short sale and short
covering) but is unable to his commitment
to deliver the securities sold by him on
account of rises in prices of securities
subsequently to short sale He is said to
be struggling like a lamer duck.
Stagis a trader who applies for shares in
IPO, He is a optimist .

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Financial Markets
Money Market
Market in which liquid funds (cash) as well as highly liquid securities
are traded for a very short duration
Main participants are banks and financial institutions
Few corporate houses, insurance companies, mutual funds, PF trusts
and NBFC also play an active role in this market
Provides liquidity support to banking system
Capital Market
Provides opportunities to companies to raise funds directly from
investors
Functions under supervision of Securities and Exchange Board of India
Amity Business School
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Money Market
Call Money Market
Government Securities/Gilt-edged security market
Commercial Papers
Markets for Bills of Exchange
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Call Money Market
Market in which surplus cash of banks and corporate houses is
traded for a very short duration (normally <15 days)
Main transactions carried by banks to fulfill their liquidity and
CRR requirements
Banks allowed to participate as provider and user of funds
Majority of transactions done by banks over telephone
Interest rate influenced by demand and supply of money
available in the market.
What does interest rate movement in money market
indicates????????
Amity Business School
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Gilt Edged Securities Market
Market for Government Securities
Issued by Central/State Govt. or any of their agencies
Highly safe instruments for investment
RBI acts as underwriter and market maker
Types of Gilt Edged Securities
Dated Securities of Government- Maturity period of more than 1 year
and carry a coupon rate
Treasury Bill-
Issued by RBI on behalf of central government
Maturity period not exceeding 364 days
Dont carry any interest, instead are issued at discount to face value
Issued through a system of auction
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Commercial Papers (CPs)
Unsecured papers issued by companies in the form of a
promissory note to raise finance for a short term
Dont carry any interest rate, instead are issued at a discount
Negotiable in nature
Minimum maturity period of 15 days and a maximum of one
year

Amity Business School
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Markets for Bills of Exchange
Bill of Exchange is an unconditional order by a writer (drawer)
of the bill to drawee to make a particular payment on a future
date upon the presentation of the bill
Bill may be presented by drawer himself or by the bearer on
behalf of the drawer
Banks and financial institutions also deal in bills of exchange
Amity Business School
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Capital Markets
Primary markets
Provides a platform for new as well as old companies to raise funds by
issuing securities directly to the ultimate investors
Provides bridge between savings and investments
Secondary Market/Stock Market
Regulated market place in which listed securities are bought and sold
through the intervention of brokers
Follow open system of 2-way quotation
23 stock exchanges in India.
Are Primary market and secondary market interrelated?
Listing agreement with stock exchanges/Clause 49/Delisting/odd
lots/Dispersal of shareholders/Share holding/
Amity Business School Contd----
Why SEBI made rule of minimum
shareholding and maximum shareholding
norms for Promoters?
Contents of Prospectus.
Insider Trading.
AMFI/IRDA/SEBI.
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Amity Business School
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Primary Market: Fund Raising
Mechanism
Public Issue---IPO/FPO---Fixed price issue/Price bands---
Prospectus vs Red herring prospectus/Book Runner/road
show/Underwriters/ROC/Registrar of issue/Bankers to the
issue/Role of brokers/Role of merchant bankers/Pre issue lead
managerpost issue lead manager.
Bought out deal
Controller of capital issues and SEBI.


Private Placement

Rights Issue


Amity Business School IIP
IIPbasically are presentation of Growth in
different sectors of Industry with respect to
same industry in corresponding period of
last year.
2. that means, growth is dependent not
only growth in absolute numbers but also
on base effect(If last growth was high last
year , it will look to be lesser this year
and vice versa, because of the base
effect)
3.. Thus , changing the base year will
result in different scenario, without change
in absolute numbers.

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Amity Business School Anchor Investor
An Anchor Investor is the first investor in
any round, that provides subsequent
investors a degree of confidence. Until you
have the first investor, no body wants to
be the first one to take a bite. Once you
have the first investors, others feel
assurance that others are willing to invest.
So typically an anchor investor will know
you and have a high degree of confidence
in your project.
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Amity Business School Contd.
The concept of anchor investors came up
in June 2010, following a directive by
SEBI. Put briefly, anchor investors are
entities which are offered, and subscribed
to, shares in an IPO before the offer opens
to the public.


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Amity Business School
As per new guidelines of SEBI, these
investors cannot sell off before 1 month of
the listing.
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Amity Business School International portfolio
A grouping of investment assets, such as
stocks, bonds and mutual funds, that
focuses on securities from foreign markets
rather than on domestic ones. An
international portfolio is designed to give
the investor exposure to growth in
emerging and international markets and
offers a form of diversification.
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