Capital Markets and
Portfolio Analysis
Role of Capital
Market
• It facilitates capital formation
in the economy.
• It establish direct link between FDEs
(Fund deficit entities)and FSEs(Fund
surplus entities).
• It basically supply funds to business
houses.
Portfolio
It is a Combination of different investment
assets mixed and matched for the purpose of
achieving investors goal .
PORTFOLIO MANAGEMENT STEPS ARE• Learn the basic principle of finance.
P/E ratio analysis
EIC Analysis
• Set portfolio objective.
• Formulate investment Strategy.
• Have a game plan for Portfolio revision.
• Evaluate Performance.
• Protect the portfolio when appropriate
Constituents of Capital Market• Primary Market
• Secondary Market
on investment are in form of• Capital yield
• Dividend Yield
Secondary Market ProductsShares
Bond
Equity investment
Equity investment Styles are1) Value investment style
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Turnaround story
Merger & Takeovers
Demerger
Reconstruction
Buyback/Open offer
Cont….
2) Growth Stock
3) Momentum/Sector Rotation
 Risk
 Estimated Expected Returns
Issues In Capital Market
Book Building
Book Building is basically a capital issuance
process used in Initial Public Offer (IPO) which
aids price and demand discovery. It is a process
used for marketing a public offer of equity shares
of a company.
Process
• The Issuer who is planning an IPO nominates a lead merchant
banker as a 'book runner'.
• specifies the number of securities to be issued and the price band
for orders.
• appoints syndicate members
• Investors place their order with a syndicate member through the
process of biding
• A Book should remain open for a minimum of 5 days
• Bids cannot be entered less than the floor price.
• Bids can be revised by the bidder before the issue closes.
• On the close of the book building period the 'book runner evaluates
the bids
• The book runner and the company conclude the final price
• Allocation of securities is made to the successful bidders.
• Book Building is a good concept and represents a capital market
which is in the process of maturing.
Bid and Ask Price
Price Mechanism or Market-Based Mechanism refers to a wide
variety of ways to match up buyers and sellers. An example of a price
mechanism uses announced bid and ask prices. Generally speaking,
when two parties wish to engage in a trade, the purchaser will
announce a price he is willing to pay (the bid price) and seller will
announce a price he is willing to accept (the ask price). The main
advantage of such a method is that conditions are laid out in advance
and transactions can proceed with no further permission or
authorization from any participant. When any bid and ask price are
compatible, a transaction occurs, in most cases automatically.
Products in the Secondary
Markets
Shares:
• Equity Share
• Rights Issue/ Rights Shares
• Bonus Share
• Preference shares
• Cumulative Preference Shares:
• Cumulative Convertible Preference Shares:
• Sweat Equity
Bond:
Zero Coupon Bond
Convertible Bond
Treasury Bills
1) Growth Stocks
2) Value Stocks
Short selling.
• The selling of a security that the seller does not own, or
any sale that is completed by the delivery of a security
borrowed by the seller
• The buyer (Speculator) of a security such as a stock,
commodity or currency, buy with the expectation that the
asset will rise in value
Rolling settlement
• India has T+2 rolling settlement as
opposed to T+3 in NYSE.
• Clearing Settlement
• Mark to Margin
Market Phase
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Bull Phase
Bear Phase
Open
Close
Trading
• Basket Trading
• Index Trading
• Buyback Trading
Portfolio Analysis
PORTFOLIO
• In finance, a portfolio is an appropriate mix or
collection of investments held by institutions or a
private individual.
• Holding a portfolio is part of an investment and
risk-limiting strategy called diversification. By
owning several assets, certain types of risk (in
particular specific risk) can be reduced.
Portfolio
real estates, 10%
gold
certificates,
6%
others, 2%
future contracts,
2%
stocks, 20%
stocks
bonds
warrants, 10%
bonds, 35%
options, 15%
options
warrants
gold certificates
real estates
future contracts
others
Portfolio Formation
Many strategies have been developed to form a
portfolio.
• equally-weighted portfolio
• capitalization-weighted portfolio
• price-weighted portfolio
• optimal portfolio (for which the Sharpe ratio
is highest)
PORTFOLIO MANAGEMENT
PORTFOLIO MANAGEMENT
• Portfolio management involves deciding
what assets to include in the portfolio, given
the goals of the portfolio owner and changing
economic conditions.
• Selection involves deciding
- what assets to purchase,
- how many to purchase,
- when to purchase them,
- and what assets to divest.
Types of portfolio management
ACTIVE
PORTFOLIO
MANAGEMENT
PASSIVE
PORTFOLIO
MANAGEMENT
Process of Portfolio Management
Risk Profile and Objectives Analysis
Investment Policy Statement
Diversification
Portfolio Rebalancing
Results Report
Results Report
Portfolio Analysis
• Analyzing elements of a firm's product mix to
determine the optimum allocation of its
resources. Two most common measures
used in a portfolio analysis are market growth
rate and relative market share.
MODELS
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The Jensen Index.
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The Treynor Index.
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The Sharpe Diagonal (or Index) model.
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Capital Asset Pricing Model (CAPM)
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Value at risk model.
Strategy - portfolio analysis - ge matrix
• The business portfolio is the collection of businesses and
products that make up the company.
• The company must:
(1) Analyse its current business portfolio and decide which
businesses should receive more or less investment, and
(2) Develop growth strategies for adding new products and
businesses to the portfolio, whilst at the same time deciding
when products and businesses should no longer be retained.
• The two best-known portfolio planning methods are the
Boston Consulting Group Portfolio Matrix and the
McKinsey / General Electric Matrix ..
The diagram illustrates some of the possible elements that determine market
attractiveness and competitive strength by applying the McKinsey/GE Matrix to the UK
retailing market:
Better Stock Picking
12 steps to better stock
picking
GET INFORMED
GET EDUCATED
DEFINE OBJECTIVES
UNDERSTAND RISK TOLERANCE
TRACK SUCCESS
FIND A FIT
WHAT INVESTORS DO
DO RESEARCH WORK
DISCIPLINE
CONFUSED?
MANAGEMENT
NEVER END PROCESS
Review of Portfolio
Review of Portfolio
• When something goes wrong that you realise it
hadn't been running as smoothly as you thought
it was. This gives Review to Portfolio
• Investors subject their investment portfolio to a
regular MOT.
• It includes:–
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Goals
Asset Allocation
Performance Check
Shopping for funds
Rebalance of Portfolio
Rebalance of Portfolio
• If our money is in several different kinds of
investment, the first thing we need to do is
check the balance is right.
• There are, very roughly, three types of
investor –
– risk-averse,
– medium-risk and
– adventurous.
Steps to Review and
Rebalance Our Portfolio
5 Steps to Reviewing and Rebalancing
Your Portfolio
Reinvest Dividends
Review each Investment
Review Portfolio for Deviations from Target
Allocation
Buy and Sell Shares to Regain Target Allocation
Sit Back and Watch Until it is Time to Rebalance
Again
References
Refrences
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Financial post.com
Investopedia.com
Equitymaster.com
Icicidirect.com
wsj.com(wallstreetjournal.com)
Personalfn.com
Security analysis and portfolio management by Dr. RP
Rustagi
Journal on financial analyst,
Economictimes.indiatimes.com
Capitalmarket.com
Capitaline.com
Presented By:Neeraj Mahendru
Iti Dubey
Vinay kapoor
Krishna pati Tripathi
Neelam Bhardwaj
Swati Sharma