Investment & Risk Management

Investment & Risk Management: Equity, Debt
& Alternate Assets

Equity
Role of Equity
Active and Passive Exposures
Returns from Passive Exposure to S&P CNX Nifty
Sector Exposure and Diversification
Fundamental and Technical Analysis
Fundamental Valuation Approaches
Investment and Speculation
Leveraging
Fundamental Analysis
Tries to estimate the intrinsic or true value of a security by focusing on factors that
affects companys actual business and future prospects.
-[It is all about doing quantitative and qualitative analysis about a business.
The fundamental analysis is helpful in establishing basic standards but can not be
totally rely because of the uncertainties associated with economic and market factors
Types of Fundamental Analysis

1. Quantitative Analysis is based on factors like operational efficiency, profitability,
capital structure, dividend policy etc.
a. Return on Investment = (Net Profit/ CE) x 100 the analysis of the firms
return on investment shows the efficiency in utilization of assets in achieving
the profits.
b. PE Ratio (Price Earning Ratio)= Market Price/EPS . this ratio reflects the
market assessments of the future earning potential of the company. Companies with
excellent track record of liquity, profi liberal distribution polic, have high PE ratio
and vice versa
c. EPS(Earning Per Share)= PAT/No. of outstanding share this ratio measures the
net profit earned per share.
d. DEBT EQUITY Ratio = Debt/Equity Higher the DE ratio more volatile the
shareholders return.
e. Divident Payment Ratio = DPS/EPS Higher the ratio means company has
liberal policy, Payout is less company is conservative.
2. Qualitative Analysis involves nature of the industry, factors related to the specific
industry, investment environment, quality of management, corporate governance etc.
Under this we basically study, macro economic analysis and industry
Macro Economic Analysis Inflation, GDP Growth, Money Supply, Unemployement,
Industrial Production, Capacity Utilization, Interest Rates, Fiscal Deficit, Productivity
of Factors of production, Monsoon Season, Cost of Living Index, Technological
Innovation, Foreign Investme
nts etc. the Analysis the above factors indicates the trends in the trends in macro
economy that affects the risk and return on investments.
Industry Analysis The security analyst will take into consideration the following
factors for assessing the industry potential in making investments Labour
Conditions, Government attitude towards industry, competitive conditions, industry
share price related to industry earnings, stage of industry life cycle, growing domestic
demand, performance of the industry, return on capital employed etc.
Technical Analysis is a method of evaluating securities by analysing statistics
generated by market activity such as past prices.
There are three assumptions made in technical analysis
1. Market value is determined by forces of demand and supply, it ignores the
fundamental factors that affects the company.
2. In technical analysis, price movements are beliefed to follow trend. After a trend
has been established, future price movements is likely to be in the same direction
the trend.
3. The price movements repeats itself as market participants react in a same way to
market conditions everytime.
Technical Analysis method of forecasting direction of prices through study of past market
trend.
1. DOW Theory given by a Charles DOW. Says that the market is always considered to
have
three
movements.
All
going
at
the
same
time.
1. Narrow Movement - Day to day
2. Short swing two weeks to a month or more
3. Mame mOvement That covers atleast four years in its duration.
This theory says that the stock price behaves is 90% psychological and 10% logical.
Defects
1. It signals the trend which is often too late
2. It depends on the interpretation and is subjected to all the hazards of a human
interpretative ability.
Charts
Security price and time

Trends a trend can be define as a direction in which the market is moving, if the succession
of highs and lows occurs at increasingly higher prices then the market is showing UP Trend.
Technical analysis is treis to short term prices

Fundamental long term
Speculators use Technical

Investors use Fundamental.
S More risky
I Calculative Risk
S short term
I Long term
S based on predications
I Based on knowledge and rational
Debt
Role of Debt Deposits and Debt Securities

Valuation of Debt Securities
Yield and Interest Rate Risk
Interest Rate and Debt Investments
Credit Exposure and Debt Investments
Concentration Risk
Passive Investment in Debt
Gold
Role of Gold
Gold Investment Routes
Rupee returns from Gold
Real Estate
Role of Real Estate
Real Estate Investment Routes
Real Estate Indices
Investment Products & Services
Derivatives (Future, Options)

Mutual Fund Venture Capital/Private Equity Funds,
Hedge Funds
Structured Products
Portfolio Management Services (PMS)
Portfolio Management Services (PMS)

Portfolio management service providers advise clients on buying or selling
shares, derivatives or other type of securities. Depending on the type of
PMS, the manager can also buy or sell securities on behalf of the clients.
An entity needs to be registered with the Securities and Exchange Board
of India as a portfolio manager. An investor individually owns the
securities in a PMS portfolio, unlike a mutual fund where investors only
own units of the fund and not the actual securities.
TYPES OF PMS
PMS are of three types.
1. Discretionary PMS: In a discretionary PMS, the decision to select,

buy or sell stocks is taken by the portfolio manager. The trades are also
executed by him.
2. Non-discretionary PMS: In a non-discretionary PMS, an investor can
take the trading decisions advised by the portfolio manager, which are
then executed by the manager.
3. Advisory PMS: In an advisory PMS, a manager gives only investment
ideas, and the trades can be executed by the investor.
FEES IN A PMS
Portfolio management services either have a fixed, profit-sharing or hybrid
fee structure. In a fixed-fee structure, the manager charges a set fee
every quarter or on the corpus. It is levied irrespective of the returns
generated by a portfolio. Then, there is the profit-sharing model, where
the fee paid by an investor is a percentage of profits. This is usually a
large chunk, around 20-25% of profits. A hybrid model combines both,
although charges are less.
ADVANTAGES OF PMS
PMS trade in a wide range of securities, including structured products,
which is not available to a mutual fund. PMS regulations are less strict
than MF regulations. A PMS is a more personalised investment solution;
some investors may ask their portfolio managers to allocate a large part
of corpus to non-equity products like fixed income, gold, etc.
DISADVANTAGES OF PMS
PMS do not disclose the portfolio as much as MFs. There have also been
cases where PMS Managers have misused the money.

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Investment & Risk Management: Equity, Debt

& Alternate Assets

Types of Fundamental Analysis

Security price and time

Technical analysis is treis to short term prices

Speculators use Technical

Role of Debt Deposits and Debt Securities

Investment Products & Services

Derivatives (Future, Options)

Portfolio Management Services (PMS)

1. Discretionary PMS: In a discretionary PMS, the decision to select,

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