RISK AND RETURN ANALYSIS CHAPTER 11.1 INTRODUCTION
Risk and return are most important concepts in finance. Risk and
return concepts are basic to the understanding of the valuation of
assets or securities.Return expresses the amount which an investor
actually earned on an investment during a certain period. Return
includes the interest, dividend and capital gains; while risk
represents the uncertainty associated with a particular task. In
financial terms, risk is the chance or probability that a certain
investment may or may not deliver the actual/expected returns. The
risk and return trade off says that the potential return rises with
an increase in risk. It is important for an investor to decide on a
balance between the desire for the lowest possible risk and highest
possible return. Risk in investment exists because of the inability
to make perfect or accurate forecasts. Risk in investment is
defined as the variability that is likely to occur in future cash
flows from an investment. The greater variability of these cash
flows indicates greater risk. Variance or standard deviation
measures the deviation about expected cash flows of each of the
possible cash flows and is known as the absolute measure of risk;
while co-efficient of variation is a relative measure of risk.The
term "risk and return" refers to the potential financial loss or
gain experienced through investments in securities. An investor who
has registered a profit is said to have seen a "return" on his or
her investment. The "risk" of the investment, meanwhile, denotes
the possibility or likelihood that the investor could lose
money.
If an investor decides to invest in a security that has a
relatively low risk, the potential return on that investment is
typically fairly small. Conversely, an investment in a security
that has a high risk factor also has the potential to garner higher
returns.Any rational investor, before investing his or her
invertible wealth in the stock, analyses the risk associated with
particular stock. The actual return he receives from a stock may
vary from his expected return and the risk is expressed in terms of
variability of return. The down side risk may be caused by several
factors, either common to all stock or specific to a particular
stock. Investor in general would like to analyze the risk factors
and a through knowledge of the risk help him to plan his portfolio
in such a manner so as to minimize the risk associated with the
investment.RISK & RETURN Investment decisions are influenced by
various motives. Some people invest in a business to acquire
control & enjoy the prestige associated with in. some people
invest in expensive yachts & famous villas to display their
wealth. Most investors, however, are largely guided by the
pecuniary motive of earning a return on their investment. For
earning returns investors have to almost invariably bear some risk.
In general, risk & return go hand in hand. Sometimes the best
investments are the ones you don't make. This is a maxim which best
explains the complexity of making investments. There are many
investment avenues available for investors today.In financial
planning, the investment goal must be considered in defining risk.
If your goal is to provide an acceptable amount of retirement
income, you should construct an investment portfolio to generate
anexpectedreturn that is sufficient to meet your investment goal.
But because there is uncertaintythat the portfolio will earn
itsexpectedlong-term return, the long-termrealizedreturn may fall
short of the expected return. This raises the possibility that
available retirement funds fall short of needs - that is,
theinvestor might outlive the investment portfolio.This is an
example of "shortfall risk." Themagnitudeandconsequencesof the
potential shortfall deserve special consideration from
investors.[3]However, since theuncertaintyof return couldalsoresult
in a realized return that ishigherthan the expected return,
theinvestment portfolio might "outlive" the investor.Therefore,
considerations of shortfall risk are subsumed by considering risk
as theuncertainty of investment return.Different people have
different motives for investing. For most investors their interest
in investment is an expectation of some positive rate of return.
But investors cannot overlook the fact that risk is inherent in any
investment. Risk varies with the nature of return commitment.
Generally, investment in equity is considered to be more risky than
investment in debentures & bonds. A closer look at risk reveals
that some are uncontrollable (systematic risk) and some are
controllable (unsystematic risk). RETURNReturn is the primary
motivating force that drives investment. It represents the reward
for undertaking investment. Since the game of investing is about
returns (after allowing for risk), measurement of realized
(historical) returns is necessary to assess how well the investment
manager has done. In addition, historical returns are often used as
an important input in estimating future prospective returns.
Components of ReturnThe return of an investment consists of two
components.Current Return:The first component that often comes to
mind when one is thinking about return is the periodic cash flow,
such as dividend or interest, generated by the investment. Current
return is measured as the periodic income in relation to the
beginning price of the investment.Capital Return:The second
component of return is reflected in the price change called the
capital return- it is simply the price appreciation (or
depreciation) divided by the beginning price of the asset. For
assets like equity stocks, the capital return predominates.Thus,
the total return for any security (or for that matter any asset) is
defined as:Total Return = Current return + Capital return
RISK AND RETURN ANALYSISRISKInvestor cannot talk about
investment returns without talking about risk because investment
decisions invariably involve a trade-off between the risk &
return. Risk refers to the possibility that the actual outcome of
an investment will differ from its expected outcome. More
specifically, most investors are concerned about the actual outcome
being less than the expected outcome. The wider range of possible
outcomes, the greater the risk. Investments have two components
that create risk. Risks specific to a particular type of
investment, company, or business are known as unsystematic risks.
Unsystematic risks can be managed through portfolio
diversification, which consists of making investments in a variety
of companies & industries. Diversification reduces unsystematic
risks because the prices of individual securities do not move
exactly together. Increases in value & decreases in value of
different securities tend to cancel one another out, reducing
volatility. Because unsystematic risk can be eliminated by use of a
diversified portfolio, investors are not compensated for this
risk.Systematic risks, also known as market risk, exist because
there are systematic risks within the economy that affect all
businesses. These risks cause stocks to tend to move together,
which is why investors are exposed to them no matter how many
different companies they own. Investors who are unwilling to accept
systematic risks have two options. First, they can opt for a
risk-free investment, but they will receive a lower level of
return. Higher returns are available to investors who are willing
to assume systematic risk. However, they must ensure that they are
being adequately compensated for this risk. The Capital Asset
Pricing Model theory formalizes this by stating that companies
desire their projects to have rates of return that exceed the risk-
free rate to compensate them for systematic risks & that
companies desire larger returns when systematic risks are greater.
The other alternative is to hedge against systematic risk by paying
another entity to assume that risk. A perfect hedge can reduce risk
to nothing except for the costs of the hedge.
The market tends to move in cycles. A John Train says:You need
to get deeply into your bones the sense that any market, &
certainly the stock market, moves in cycles, so that you will
infallibly get wonderful bargains every few years, & have a
chance to sell again at ridiculously high prices a few years
later.Systematic RiskSystematic Risk, as the name suggests is the
risk inherent in the economic system. Macro factors such as
domestic as well as international policies, employment rate, the
rate and momentum of inflation and general level of consumer
confidence etc. are what constitute systematic risk. Generally,
investors cannot hedge or diversify against this risk as it affects
all kinds of asset classes and affects the entire economy as
such.The systematic risk is further subdivided into three types.1.
Market risk 2. Interest rate risk3. Purchasing power risk1. Market
Risk:This is the possibility that the financial markets will drop
in value and create a ripple effect in your portfolio. For example,
if the stock market as a whole loses value, chances are your stocks
or stock funds will decrease in value as well until the market
returns to a period of growth. Market risk exposes you to potential
loss of principal, since some companies don't survive market
downturns. But the greater threat is the loss of principal that can
result from selling when prices are low.2. Interest rate risk:This
is the possibility that interest rates will go up. If that happens,
inflation increases, and the value of existing bonds and other
fixed-income investments declines, since they're worth less to
investors than newly issued bonds paying a higher rate. Rising
interest rates also usually mean lower stock prices, since
investors put more money into interest-paying investments because
they can get a strong return with less risk.3. Purchasing power
risk:Variations in the return are caused also by the loss of the
purchasing power of currency. Inflation is the reason behind the
loss of the purchasing power. Purchasing power risk is probable
loss in the purchasing power of returns to be received. Inflation
may be demand pull or cost push inflation. On demand pull inflation
the demand for goods and services are in excess of their supply. At
full employment level of factors of production, economy would not
be able to supply more goods in short run and the demand for the
products pushes the price upwards. The equilibrium between the
demand and the supply is attained at the higher price. The cost
push inflation as the name itself indicates that the inflation or
the raise in the price is caused by the increase in the cost. The
increase in the cost of raw material, labour and equipment makes
the cost of production high and ends in high price level. Thus the
cost inflation has a spiraling effect on the price level.
Unsystematic RiskThis is the risk inherent in a particular asset
class. The best way to combat this risk is by diversification.
However, one must remember that the diversification must be in the
class of asset and not the asset itself. An example of the above is
evenly distributing your portfolio in bank deposits, Reserve Bank
of India (RBI) bonds, real estate and equities. That way if a
certain unsystematic risk affects let's say the real estate market
(say the prices crashes), then the presence of other classes of
assets in your portfolio saves you from a total washout. However,
note that diversifying within the same asset class (buying
different equity shares) is not strictly combating unsystematic
risk.Unsystematic risk can be classified into five types.1.
Business Risk 2. Financial Risk 3. Regulation Risk 4. Reinvestment
Risk 5. International Risk
1. Business Risk:It is that portion of unsystematic risk caused
by operating environment of the business. Business risk arises from
the inability of the firm to maintain its competitive edge and the
growth of the stability of the earning variation that occurs in the
operating environment is reflected in the operating income and
expected dividends. It indicates business risk. Business risk is
any risk that can lower a businesss net assets or net income that
could, in turn, lower the return of any security based on it. Some
business risks are sector risks that can affect every company in a
particular sector, while some business risks affect only a
particular company.2. Financial Risk:It refers to the variability
of the income to the equity capital due to debt capital. Financial
risk in a company is associated with the capital structure of the
company. Capital structure of the company consists of equity funds
and borrowed funds. The presence of debt and preference capital
results in commitment of paying interest or prefixed rate of
dividend.This arises due to changes in the capital structure of the
company. It is also known as leveraged risk and expressed in the
terms of debt-equity ratio. Excess of debt over equity in the
capital structure of a company indicates that the company is highly
geared even if the per capital earnings of such company may be
more. Because of highly dependence on borrowings exposes to the
risk of winding up for its inability to honour its commitments
towards lenders and creditors. So the investors should be aware of
this risk and portfolio manager should also be very
careful.3.Regulation Risk:Some investment can be relatively
attractive to other investments because of certain regulations or
tax laws that give them an advantage of some kind. Municipal bonds,
for example pay interest that is exempt from local, state and
federal taxation. As a result of that special tax exemption,
municipal can price bonds to yield a lower interest rate since the
net after-tax yield may still make them attractive to investors.
The risk of a regulatory change that could adversely affect the
stature of an investment is a real danger. In 1987, tax laws
changes dramatically lessened the attractiveness of many existing
limited partnership that relied upon special tax considerations as
part of their total return. Prices for many limited partnership
tumbled when investors were left with different securities, in
effect, than what they originally bargained for. To make matter
worse, there was not an extensive secondary market for these liquid
securities and many investors found themselves unable to sell those
securities at anything but "fire sale" prices if at all.4.
Reinvestment Risk:It is important to understand that YTM is a
promised yield, because investors can earn the indicated yield only
if the bond is held to maturity and the coupons are reinvested at
the calculated YTM (yield to maturity). Obviously, no trading can
be done for a particular bond if the YTM is to earned. The investor
simply buys and holds. Reinvestment risk the YTM calculation
assumes that the investor reinvests all coupons received from a
bond at a rate equal to computed YTM at the bond, thereby earning
interest over interest over the life of the bond at the computed
YTM rate in effect, this calculation assumes that the reinvestment
rate is the yield to maturity. If the investor spends the coupons,
or reinvest them at a rate different from the assumed reinvestment
rate of 10 percent, the realized yield that will actually be earned
at the termination of the investment in the bond will differ from
the promised YTM. And, in fact-coupons almost always will be
reinvested at rates higher or lower than the computed YTM,
resulting in a realized yield that differs from the promised yield.
This gives rise to reinvestment rate risk. This
interest-on-interest concept significantly affects the potential
dollar return. The exact impact is a function of coupon and time of
maturity, with reinvestment becoming more important as either
coupon or time to maturity, or both, rises specifically.1. Holding
everything else constant, the longer maturity of a bond, the
greater the reinvestment risks. Holding everything else constant,
the higher the coupon rate, the greater the dependence of the total
dollar returns from the bond on the reinvestment of the coupon
payments.In fact, for long-term bonds the interest-on-interest
component of the total realized yield may account for more than
three-fourths of the bond's total dollar return.
5. International Risk:
International risk can include both country risk and exchange
rate risk. i. Exchange Rate Risk:All investors who invest
internationally in today's increasingly global investment arena
face the prospect of uncertainty in the returns after they convert
the foreign gain back to their own currency. Unlike the past when
most U.S. investors ignored international investing alternatives,
investors today must recognize and understand exchange rate risk,
which can be defined as the variability in returns on securities
caused by currency fluctuations. Exchange rate risk is sometimes
called currency risk. Currency risk affects international mutual
funds, global mutual funds, closed-end single country funds,
American depository receipts, foreign stocks and foreign bonds. For
example, a U.S. investor who buys a German stock denominated in
marks must ultimately convert the returns from this stock back to
dollars. If the exchange rate has moved against the investor,
losses from these exchange rate movements can partially or totally
negate the original return earned.ii. Country Risk:Country risk,
also referred to as political risk, is an important risk for
investors today. With more investors investing internationally,
both directly and indirectly, the political, and therefore
economic, stability and viability of a country's economy needs to
be considered. The United States has the lowest country risk, and
other countries can be judged on a relative basis using the United
States as a benchmark. Example of countries that needed careful
monitoring in the 1990s because of country risk included the former
Soviet Union and Yugoslavia, China, Hong Kong and South Africa.
iii. Liquidity risk Liquidity risk is the risk associated with
particular secondary market in which a security trades. An
investment that can be bought or sold quickly and without
significant price concession is considered liquid. The more
uncertainty about the time element and the price concession, the
greater the liquidity risks. A treasury bill has little or no
liquidity risk, whereas a small OTC stock may have substantial
liquidity risk. \
RISK AVOIDANCE: Investment planning is almost impossible without
a thorough understanding of risk. There is a risk/return trade off.
That is, the greater risk is accepted, and the greater must be the
potential return as reward for committing ones fund to an uncertain
outcome. Generally, as the level of risk rises, the rate of return
should also rise, and vice versa. One way to handle risk is to
avoid it. Risk avoidance occurs when one chooses to completely
avoid the activity the risk is associated with. In the investment
world, avoidance of some risk is deemed to be possible through the
act of investing in risk-free investments. Stock market risk can be
completely avoided by one choosing to have no exposure to it by not
investing in equity securities.1. Risk transfer: Another way to
handle risk is to transfer the risk. Risk transfer in investing can
be done where one may choose to purchase a municipal bond that is
insured. One may purchase a put option on a stock, which allows the
person to put to or sell to someone his or her stock at a set
price, regardless of how much lower the stock may drop. There are
many examples of risk transfer in the area of investing.2. The Risk
Averse Investor: Do investors dislike risk? In economics in
general, and investments in particular, the standard assumption is
that investors are rational. Rational investors prefer certainty to
uncertainty. A risk-averse investor is one who will not assume risk
simply for its own sake and will not incur any given level of risk
unless there is an expectation of adequate compensation for having
done so. In fact, investors cannot reasonably expect to earn larger
returns without assuming larger risks. Investors deal with risk by
choosing (implicitly or explicitly) the amount of risk they are
willing to incur. Some investors choose to incur high level of risk
with expectation of high levels of return. Other investors are
unwilling to assume much risk, and they should not expect to earn
large returns.
MEANING OF RETURN:Return is one of the primary objectives of
investment, which acts as a driving force for investment. Risk is
inevitable and it is positively correlated with expected return.
Return to an investor is of two types, current yield and capital
appreciation. Current yield is the return, which is got in the form
of individuals/interest whereas capital appreciation is the return,
which we get after liquidation of shares.Return = Current yield
(dividend/interest) + CapitalAppreciation/ Capital GainTYPES OF
RETURN1.HISTORICAL RETURNSReturn calculated are on past data which
has already occurred is called as historical return. Historical
return is a post-mortem analysis of investment, which lacks insight
for future. Historical return is less risky and more accurate
compared to expected return since it does not involve prediction of
interest or dividend or closing price. Historical return is also
called as post return or actual return.Return = Cash payment +
Closing price - Beginning priceBeginning Price2.EXPECTED
RETURNReturn calculated based or future estimates and calculation
is called as expected return. Expected Return = Expected Dividend +
Capital Gain (expected)Beginning price
RISK MEASUREMENTUnderstanding the nature of risk is not adequate
unless the investor or analyst is capable of expressing it in some
quantitative terms. Expressing the risk of a stock in quantitative
terms makes it comparable with other stocks. Measurement cannot be
assured of cent percent accuracy because risk is caused by numerous
factors such as social, political, economic and managerial
efficiency. Measurement provides and approximates qualification of
risk.1.Volatility:Of all the ways to describe risk, the simplest
and possibly most accurate is "the uncertainty of a future
outcome". The anticipated for some future period is known as
expected return. The actual return over some past period is known
as the realized return. The simplest fact that dominates investing
is that the realized return on an asset with any risk attached to
it may be different from what was expected. Volatility may be
described as the range of movement (or price fluctuation) from the
expected level of return. The more a stock. For example, goes up
and down in price, the more volatile that stock is. Because wide
price swings create more uncertainty of an eventual outcome,
increased volatility can be equated with increased risk. Being able
to measure and determine the past volatility of a security is
important in that it provides some insight into the riskness of
that security as an investment.2.Standard Deviation:Investors and
analyst should be at least familiar with study of probability
distributions. Since the return, an investor will earn from
investing is not known, it must be estimated.In statistics and
probability theory, standard deviation (represented by the symbol
sigma, ) shows how much variation or "dispersion" exists from the
average (mean, or expected value). A low standard deviation
indicates that the data points tend to be very close to the mean;
high standard deviation indicates that the data points are spread
out over a large range of values.The standard deviation of a random
variable, statistical population, data set, or probability
distribution is the square root of its variance. It is
algebraically simpler though practically less robust than the
average absolute deviation. A useful property of standard deviation
is that, unlike variance, it is expressed in the same units as the
data.FORMULARate of Return = Deviation = Return Avg. ReturnVariance
(2) = Standard deviation = PROCEDURE TO CALCULATE STANDARD
DEVIATION1. Calculate the mean of your data set.2. Subtract the
mean from each of the data values and list the differences.3.
Square each of the differences from the previous step and make a
list of the squares. In other words, multiply each number by
itself. Be careful with negatives. A negative times a negative
makes a positive.4. Add the squares from the previous step
together.5. Subtract one from the number of data values you started
with.6. Divide the sum from step four by the number from step
five.7. Take the square root of the number from the previous step.
This is the standard deviation. You may need to use a basic
calculator to find the square root. Be sure to use significant
figures when rounding your answer.
Probability Distribution:Probability represents the likelihood
of various outcomes and are typically expressed as a decimal
(sometimes fractions arc used). The sum of the probabilities of all
possible outcomes must be 1.0, because they must completely
describe all the (perceived) likely occurrences. Probability
distribution can be either discrete or continuous. With a discrete
probability, a probability is assigned to each possible outcome.
With a continuous probability distribution an infinite number of
possible outcomes exist. The most familiar continuous distribution
is the normal distribution depicted by the well-known bell shaped
curve often used in statistics. It is a two-parameter distribution
in that the mean and the variance fully describe it. To describe
the single most likely outcomes from a particular probability
distribution, it is necessary to calculate its expected value. The
expected value is average of all possible return outcomes, where
each outcome is weighted by its respective probability of
occurrence. For investors, this can be described as the expected
return. To calculate the total risk associated with the expected
return, the variance or standard deviation is used. Since variance,
volatility and risk can in this context be used synonymously, the
larger the standard deviation, the more uncertain the
outcome.Calculating a standard deviation using probability
distributions involves making subjective estimates of the
probabilities and the likely returns. However, we cannot avoid such
estimates because future returns are uncertain. The prices of
securities are based on investors' expectations about the future.
The relevant standard deviation in this situation is the ex-ante
standard deviation and not the ex-post based on realized returns.
Although standard deviations are based on realized returns are
often used as proxies for ex-ante standard deviations, investors
should be careful to remember that the past cannot always be
extrapolated into the future without modifications. Ex-post
standard deviations may be convenient, but they are subject to
errors. One important point about the estimation of standard
deviation is the distinction between individual securities and
portfolios. Standard deviation is a measure of the total risk of an
asset or a portfolio, including therefore both systematic and
unsystematic risk. It captures the total variability in the assets
or portfolio's return, whatever the sources of that variability. In
summary, the standard deviation of return measures the total risk
of one security or the total risk of a portfolio of securities.
The historical standard deviation can be calculated for
individual securities or portfolios of securities using total
returns for some specific period of time. This ex-post value is
useful in evaluating the total risk for a particular historical
period and in estimating the total risk that is expected to prevail
over some future period.3. Beta:Beta is a measure of the systematic
risk of a security that cannot be avoided through diversification.
Beta is a relative measure of risk-the-risk of an individual stock
relative to the market portfolio of all stocks. If the security's
returns move more (less) than the market's return as (he latter
changes, the security's returns have more (less) volatility
(fluctuations in price) than those of the market. It is important
to note that beta measures a security's volatility, or fluctuations
in price, relative to a benchmark, the market portfolio of all
stocks. Beta is useful for comparing the relative systematic risk
of different stocks and, in practice, is used by investors to judge
a stock's riskiness. Stocks can be ranked by their betas. Because
the variance of the market is a constant across all securities for
a particular period, ranking stocks by beta is the same as ranking
them by their absolute systematic risk. Stocks with high betas are
said to be high-risk securities.OPERATIONAL DEFINITION OF
CONCEPTSPortfolio: In finance, a portfolio is a collection of
investments held by an institution 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. The assets in
the portfolio could include stocks, bonds, options, warrants, gold
certificates, real estate, futures contracts, production
facilities, or any other item that is expected to retain its
value.Portfolio Management:Portfolio management involves deciding
what assets to include in the portfolio, given the goals of the
portfolio ow;ner and changing economic conditions. Selection
involves deciding what assets to purchase, how many to purchase,
when to purchase them, and what assets to divest.These decisions
always involve some sort of performance measurement, mostly
expected return on the portfolio, and the risk associated with this
return (i.e. the standard deviation of the return). Typically the
expected return from portfolios comprised of different asset
bundles is compared.Risk:The chance that an investment's actual
return will be different than expected. This includes the
possibility of losing some or all of the original investment. Risk
is usually measured by calculating the standard deviation of the
historical returns or average returns of a specific investment.A
fundamental idea in finance is the relationship between risk and
return. The greater the amount of risk that an investor is willing
to take on. the greater the potential return.The reason for this is
that investors need to he compensated for taking on additional
risk.Return:The gain or loss of a security in a particular period.
The return consists of the income and the capital gains relative on
an investment. It is usually quoted as a percentage. The general
rule is that the more risk you take, the greater the potential for
higher return - and loss.Risk-Free Rate of Return:The theoretical
rate of return of an investment with zero risk. The risk-free rate
represents the interest an investor would expect from an absolutely
risk-free investment over a specified period of time. The risk-free
rate is the minimum return an investor expects for any investment
because he or she will not accept additional risk unless the
potential rate of return is greater than the risk-free rate.
These decisions always involve some sort of performance
measurement, most y expected return on the portfolio, and the risk
associated with this return (i.e. the standard deviation of the
return). Typically the expected return from portfolios comprised of
different asset bundles is compared.Risk:The chance that an
investment's actual return will be different than expected. This
includes the possibility of losing some or all of the original
investment. Risk is usually measured by calculating the standard
deviation of the historical returns or average returns of a
specific investment.A fundamental idea in finance is the
relationship between risk and return. The greater the amount of
risk that an investor is willing to take on. the greater the
potential return.The reason for this is that investors need to be
compensated for taking on additional risk.Return:The gain or loss
of a security in a particular period. The return consists of the
income and the capital gains relative on an investment. It is
usually quoted as a percentage. The general rule is that the more
risk you take, the greater the potential for higher return - and
loss.Risk-Free Rate of Return:The theoretical rate of return of an
investment with zero risk. The risk-free rate represents the
interest an investor would expect from an absolutely risk-free
investment over a specified period of time. The risk-free rate is
the minimum return an investor expects for any investment because
he or she will not accept additional risk unless the potential rate
of return is greater than the risk-free rate.
Risk-Return TradeoffThe principle thai potential return rises
with an increase in risk. Low levels of uncertainty (low risk) are
associated with low potential returns, whereas high levels of
uncertainty (high risk) are associated with high potential returns.
According to the risk-return tradeoff, invested money can render
higher profits only if it is subject to the possibility of being
lost.
1.2 INDUSTRY PROFILEHISTORY OF INDIAN STOCK
MARKET:EvolutionIndian Stock Markets are one of the oldest in Asia.
Its history dates back to nearly 200 years ago. The earliest
records of security dealings in India are meagre and obscure. The
East India Company was the dominant institution in those days and
business in its loan securities used to be transacted towards the
close of the eighteenth century.By 1830's business on corporate
stocks and shares in Bank and Cotton presses took place in Bombay.
Though the trading list was broader in 1839, there were only half a
dozen brokers recognized by banks and merchants during 1840 and
1850.The 1850's witnessed a rapid development of commercial
enterprise and brokerage business attracted many men into the field
and by 1860 the number of brokers increased into 60.In 1860-61 the
American Civil War broke out and cotton supply from United States
of Europe was stopped; thus, the 'Share Mania' in India begun. The
number of brokers increased to about 200 to 250. However, at the
end of the American Civil War, in 1865, a disastrous slump began
(for example, Bank of Bombay Share which had touched Rs 2850 could
only be sold at Rs. 87).At the end of the American Civil War, the
brokers who thrived out of Civil War in 1874, found a place in a
street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally
established in Bombay, the "Native Share and Stock Brokers'
Association" (which is alternatively known as " The Stock Exchange
"). In 1895, the Stock Exchange acquired a premise in the same
street and it was inaugurated in 1899. Thus, the Stock Exchange at
Bombay was consolidated.Pre-Independance Scenario - Establishment
of Different Stock Exchanges1874With the rapidly developing share
trading business, brokers used to gather at a street (now well
known as "Dalal Street") for the purpose of transacting
business.
1875"The Native Share and Stock Brokers' Association" (also
known as "The Bombay Stock Exchange") was established in Bombay
1880'sDevelopment of cotton mills industry and set up of many
others
1894Establishment of "The Ahmedabad Share and Stock Brokers'
Association"
1880 - 90's Sharp increase in share prices of jute industries in
1870's was followed by a boom in tea stocks and coal
1908"The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock
Exchange" was transacted with 100 brokers.
1923When recession followed, number of brokers came down to 3
and the Exchange was closed down
1934 Establishment of the Lahore Stock Exchange
1936Merger of the Lahoe Stock Exchange with the Punjab Stock
Exchange
1937Re-organisation and set up of the Madras Stock Exchange
Limited (Pvt.) Limited led by improvement in stock market
activities in South India with establishment of new textile mills
and plantation companies
1940Uttar Pradesh Stock Exchange Limited and Nagpur Stock
Exchange Limited was established
1944Establishment of "The Hyderabad Stock Exchange Limited"
1947"Delhi Stock and Share Brokers' Association Limited" and
"The Delhi Stocks and Shares Exchange Limited" were established and
later on merged into "The Delhi Stock Exchange Association
Limited"
Post Independance Scenario:The depression witnessed after the
Independance led to closure of a lot of exchanges in the country.
Lahore Estock Exchange was closed down after the partition of
India, and later on merged with the Delhi Stock Exchange. Bnagalore
Stock Exchange Limited was registered in 1957 and got recognition
only by 1963. Most of the other Exchanges were in a miserable state
till 1957 when they applied for recognition under Securities
Contracts (Regulations) Act, 1956. The Exchanges that were
recognized under the Act were: 1. Bombay 2. Calcutta 3. Madras 4.
Ahmedabad 5. Delhi 6. Hyderabad 7. Bangalore 8. Indore Many more
stock exchanges were established during 1980's, namely:1. Cochin
Stock Exchange (1980) 2. Uttar Pradesh Stock Exchange Association
Limited (at Kanpur, 1982) 3. Pune Stock Exchange Limited (1982) 4.
Ludhiana Stock Exchange Association Limited (1983) 5. Gauhati Stock
Exchange Limited (1984) 6. Kanara Stock Exchange Limited (at
Mangalore, 1985) 7. Magadh Stock Exchange Association (at Patna,
1986) 8. Jaipur Stock Exchange Limited (1989) 9. Bhubaneswar Stock
Exchange Association Limited (1989) 10. Saurashtra Kutch Stock
Exchange Limited (at Rajkot, 1989) 11. Vadodara Stock Exchange
Limited (at Baroda, 1990) 12. Coimbatore Stock Exchange 13. Meerut
Stock Exchange Trading Pattern of the Indian Stock MarketIndian
Stock Exchanges allow trading of securities of only those public
limited companies that are listed on the Exchange(s). They are
divided into two categories:
Types of TransactionsThe flowchart below describes the types of
transactions that can be carried out on the Indian stock
exchanges:
Indian stock exchange allows a member broker to perform
following activities: 1. Act as an agent, 2. Buy and sell
securities for his clients and charge commission for the same, 3.
Act as a trader or dealer as a principal, 4. Buy and sell
securities on his own account and risk. Over The Counter Exchange
of India (OTCEI)Traditionally, trading in Stock Exchanges in India
followed a conventional style where people used to gather at the
Exchange and bids and offers were made by open outcry.
This age-old trading mechanism in the Indian stock markets used
to create many functional inefficiencies. Lack of liquidity and
transparency, long settlement periods and benami transactions are a
few examples that adversely affected investors. In order to
overcome these inefficiencies, OTCEI was incorporated in 1990 under
the Companies Act 1956. OTCEI is the first screen based nationwide
stock exchange in India created by Unit Trust of India, Industrial
Credit and Investment Corporation of India, Industrial Development
Bank of India, SBI Capital Markets, Industrial Finance Corporation
of India, General Insurance Corporation and its subsidiaries and
CanBank Financial Services.
Advantages of OTCEI1. Greater liquidity and lesser risk of
intermediary charges due to widely spread trading mechanism across
India 2. The screen-based scripless trading ensures transparency
and accuracy of prices 3. Faster settlement and transfer process as
compared to other exchanges 4. Shorter allotment procedure (in case
of a new issue) than other exchanges National Stock Exchange:In
order to lift the Indian stock market trading system on par with
the international standards. On the basis of the recommendations of
high powered Pherwani Committee, the National Stock Exchange was
incorporated in 1992 by Industrial Development Bank of India,
Industrial Credit and Investment Corporation of India, Industrial
Finance Corporation of India, all Insurance Corporations, selected
commercial banks and others.
NSE provides exposure to investors in two types of markets,
namely: 1. Wholesale debt market 2. Capital market Wholesale Debt
Market - Similar to money market operations, debt market operations
involve institutional investors and corporate bodies entering into
transactions of high value in financial instrumets like treasury
bills, government securities, commercial papers etc.
Trading at NSE 1. Fully automated screen-based trading mechanism
2. Strictly follows the principle of an order-driven market 3.
Trading members are linked through a communication network 4. This
network allows them to execute trade from their offices 5. The
prices at which the buyer and seller are willing to transact will
appear on the screen 6. When the prices match the transaction will
be completed 7. A confirmation slip will be printed at the office
of the trading member Advantages of trading at NSE 1. Integrated
network for trading in stock market of India 2. Fully automated
screen based system that provides higher degree of transparency 3.
Investors can transact from any part of the country at uniform
prices 4. Greater functional efficiency supported by totally
computerized network.
1.3 COMPANY PROFILE
Overview
The IIFL Group is a leading financial services company in India,
promoted by first generation entrepreneurs. We have a diversified
business model that includes credit and finance, wealth management,
financial product distribution, asset management, capital market
advisory and investment banking.
We have a largely retail focussed model, servicing over 2
million customers, including several lakh first-time customers for
mutual funds, insurance and consumer credit. This has been achieved
due to our extensive distribution reach of close to 4,000 business
locations and also innovative methods like seminar sales and use of
mobile vans for marketing in smaller areas.
Our evolution from an entrepreneurial start-up to a market
leadership position is a story of steady growth by adapting to the
changing environment, without losing the focus on our core domain
of financial services. Our NBFC and lending business accounts for
68% of our consolidated income in FY13 and has a diversified
product portfolio rather than remaining a mono-line NBFC. We are a
leader in distribution of life insurance and mutual funds among
non-bank entities. Although the share of equity broking in total
income was only 13% in FY13, IIFL continues to remain a leading
player in both, retail and institutional space.
LocationMumbai
Corporate officeIIFL Centre, Lower Parel
Registered officeIIFL House, Sun Infotech Park, Road No. 16V,
Plo t No. B-23, Thane
Industrial Area, Wagle Estate,Thane,Maharashtra 4 00604
Year of1995
incorporation
IndustryFinan cial Services
Key businessesCredit& Finance, Wealth Management,
FinancialProduct
Distribution, Capital Market Related
Employees14,00 0+
Business locationsAround 4,000 locations in 900 cities and
towns
Global reachSri Lanka, Singapore, Dubai, New York, Mauritius ,
UK, Hong Kong,
Switz erland
ListingsNSE,BSE
Listing date17 Ma y, 2005
RegistrarsLinkIntime India Pvt. Ltd.
Short term debtCRISI L A1+ & ICRA (A1+)
rating
Long term debtICRA(AA-) & CRISIL AA-/Stable
rating
Domainswww.indiainfoline.com, www.iiflfinance.com,
www.ttweb.indiainfoline.com, www.flame.org.in
ISIN codeINE530B01024
Bloomberg codeIIFL IN EQUITY
We have a track record of uninterrupted profits and dividends
since listing.
Revenues
EBIDTA
PAT
Net worth
ROE
Segmental revenue split
Vision To become the most respected company in the financial
services space in India.
Values Values are IIFL are summarised in one acronym: GIFTS.
Growth with focused team of dynamic professionals.
Integrity in all aspects of business no compromise in any
situation.
Fairness in all our dealings employees, customers, vendors and
sharehol ders all included.
Transparency in what we do and in how and why we do it.
Service orientation is our core value, imbibed by all sales as
well as suppo rt teams.
Business strategy
Steady growth by adapting to the changing environment, without
losing th e focus on our core domain of financial services.
De-risked business through multiple products and diversified
revenue strea m. Knowledge is the key to powe r superior financial
decisions.
Keep costs low and continuou sly strive for innovation.
Customer strategy
Remain largely a retail focused organisation, driving stickiness
through knowledge and quality service.
Cater to untapped areas in sem i-urban and rural areas, which is
relatively safe from cut-throat competition.
Target the micro, small and m edium enterprises mushrooming
across the country through a cluster approach for lending
business.
Use wide multi-modal network serving as one-stop shop to
customers.
People strategy Attract the best talent and driv en people.
Ensure conducive merit envir onment. Liberal ownership-sharing.
Our logo
The Shree Yantra is regarded in India as the most powerful and
mystically beautiful of all yantras (Sanskrit word for a symbol
used to focus the mind). It predates the Vedas and is supposed to
be the favourite Yantra of Lakshmi, the Goddess of Wealth and
Prosperity. This powerful symbol, said to promote harmony and
tranquillity as well, has endured for many centuries. IIFL is
engaged in the business of creating wealth and the adoption of the
Shree Yantra as its logo was but natural.
Positioning
When we pioneered online trading in India with the launch of our
brand 5 paisa, the tag line was Its all about money, honey.
We recently realigned our positioning from Knowledge is the E
dge to When its about Money .
The IIFL brand is associated with trust, knowledge and quality
service. But more importantly, the brand stands for timely
assistance provided to the countrys under-banked customers.
28
Our Strengths:
Managerial depth
Our promoters individually are first-generation Indian
entrepreneurs with meritorious academic backgrounds and impeccable
professional careers.
Nirmal Jain, Chairman, is a rank holder Chartered Accountant,
Cost Accountant and an MBA from IIM Ahmedabad and Mr. R.
Venkataraman, Managing Director, is an Electronics Engineer from
IIT Kharagpur and an MBA from IIM Bangalore.
The Promoters have built the business from scratch, without
pedigree of a large family business or inherited wealth and steered
it towards a market leading position by dint of hard work and
enterprise.
We have consistently attracted the best of the talent from
across the financial sector private sector banks, foreign banks,
public sector banks and established NBFCs. The senior management
team have years of experience and backgrounds similar to promoters
and leads competent teams. IIFL has uninterrupted history of
profits and dividends since listing. We have delivered total
shareholder returns of 34.3% CAGR from listing till March 31,
2013.
Governance
The Promoters have demonstrated an exemplary track record of
governance and utmost integrity. There have been no notable
regulatory strictures or oversight ever in the groups history. This
is despite a widespread and broad range of operations governed by
multiple regulators including RBI, SEBI, IRDA, FMC and NHB. In
addition, we have eight licensed subsidiaries in major global
financial centres.
Our Board has independent directors, highly respected for their
professional integrity as well as rich financial and banking
experience and expertise. We have an advisory board comprising
stalwarts with long and immaculate careers in banks, public service
and legal profession.
None of the promoters family members has held managerial or
board position or have related-party or financial transaction of
any significance, since listing. Further, we have not lent to any
related party or associated concerns. The promoters do not have any
other business interests and are committed to the core business of
financial services under the IIFL umbrella.
People
Our people form the backbone of our organization and are the
foundation of our success. We have significant ownership by
employees with a credo of owners work, workers own, which has
enabled us to maintain a highly motivated staff driven by owner
mindset. We create owners out of our employees not just by offering
a financial stake but also through autonomy to take decisions, make
mistakes and grow confidence, competence and career.
Knowledge
IIFL is a knowledge driven organization and has over the years
developed and institutionalized knowledge about its businesses at
all the levels.
Our roots are in original research on economy, sectors,
companies, capital markets and global financial trends. Our
in-house research capabilities gives us an edge in understanding
industry trends, macro-economic situations, business cycles,
inflation and interest rate trends, technological changes,
regulatory and legal updates, environmental factors impacting
labour, raw material supply, pollution norms and for intermediate
products- trends in end user sectors and for consumption products-
trends in customers habits.
We have strong origination and KYC processes across our
businesses to get deep understanding of customers needs and
profile.
Innovation
We have successfully executed a number of innovative and
disruptive ideas in the financial services industry to rise from a
start-up to leadership position in less than two decades. For
instance:
We gave away all our research free on indiainfoline.com and
acquired millions of readers.
We pioneered online trading and revolutionized broking at lowest
rate of 5 basis points.
We inducted a high profile institutional team from a foreign
brokerage house in a first of its kind deal in India broking
industry.
Distribution reach
We are present in around 4,000 business locations across more
than 900 cities in India. Our global footprint covers Colombo,
Dubai, New York, Mauritius, London, Geneva and Singapore.
De-risked business
IIFL has a de-risked and diversified business model across
multiple revenue streams. We offer multiple products across all
segments of financial services.
Risk management
The basis of our risk management and hence our sustainability is
our underlying conservatism. The objective of our risk management
process is to insulate the company from risks associated with the
business while simultaneously creating an environment conducive for
growth.
The effectiveness of our risk management practice emanates from
our rich experience. It is derived from a deep understanding of the
Indian economy, sectorial trends and corporate fundamentals.
Our ability to manage organizational risk cascades from our
board of directors, comprising professionals with rich and varied
experience. The risk appetite defined by our board is reflected in
our business plans and integrated into our operations.
We identify risks through appropriate systems, indicators and
risk surveys reinforced by our mangers. The companys well-defined
organizational structure, documented policies and standard
operating procedures, authority matrix and internal controls ensure
efficiency of operations, compliance with internal and regulatory
requirements.
We continuously strengthen our risk measurement tools customized
to the nature of each business segment. Many critical decision
levels for investments, major lending and policy initiatives are
institutionalized trough appropriate committees.
Well capitalized
The Group has net worth of around Rs20 billion. The company has
a significantly unutilized capacity to leverage.
Technology
Right from inception, IIFL has incubated and developed next
generation technology for its core businesses.
IIFLs front office software is seamlessly integrated to a highly
automated proprietary back office, risk management and MIS
software.
IIFL Trader Terminal is an entirely home grown proprietary
technology, which allows trading in Equities Cash &
Derivatives, Commodities, Forex, Mutual Funds, NFOs and IPOs on a
single screen.
Customer service
Our existing customer service organization has evolved with the
singular goal since inception that our customer experience should
be the best. We offer services through multiple customer
touch-points such as personal interaction at our offices, call
centre, email, and online web-based interface. We have made
significant investment in systems, technology, people and their
training, to ensure high service standards. We have also won an
award for Best Customer Service in Financial Services 2013.
34
What we do (Product an d Services)?
IIFL Group offers credit & finance facilities through its
subsidiaries:
India Infoline Finance Ltd (98 .87% subsidiary); and
India Infoline Housing Financ e Ltd (Wholly owned
subsidiary).
The NBFC has a high quality loan book of close to Rs10,000
crores, with a diversified portfolio including:
Home loans
SME & Trader lo ans
Healthcare & Eq uipment financing
Loans secured against Gold
Commercial Vehi cle financing
Loans secured against Property
Loans secured against Shares
We have chosen to be a dive rsified portfolio company rather
than a mono-line NBFC. Weexercise utmost prudence in c redit
selection, monitoring and avoid concentration. Our creditevaluation
process not only ta kes into account the value and quality of the
collateral, but alsothe cash-flows of the potential borrower.
Backed by a diversified portfolio, robust creditassessment,
effective risk ma nagement techniques and an efficient collect ion
mechanism, thenet NPAs are kept well und er control at less than
0.2%. The NBFC and lending businessaccounted for 68% of our
consolidated income in FY13.
35
Revenues
Loan book
36
Loan book break-up
NIM
37
Gross NPA
Net NPA
CAR
38
IIFL Group offers wealth adv isory services through its
subsidiary IIFL W ealth Management Ltd (82.44% subsidiary).
There is an increasing need f or a comprehensive wealth
management sol ution as opposed to disparate services to address c
omplexity related to treasury, personal portfolio, cashflows and
long-term investments. We are amongst the leading wealth management
companies with Assets under Advice (AuA) of more than Rs40,000
crores with a HNI client base of over 4,000 families.
Our fixed income practice coupled with a large bond desk
facilitate s direct access to sovereign, corporate and colla
teralised debt.
The business grew revenues from Rs180 million in 2008-09 to Rs2
b illion in 2012-13. We have managed the five sig nificant
constituents that go into successful wealth management and advisory
services:
We distribute a range of financial products like life insurance,
mutual funds, National Pension Scheme (NPS), gov ernment and
corporate bonds. In fact, we a re a market leader among non-bank
promoted entities in distribution of life insurance a nd mutual
funds.
We follow an open architect ure approach and constantly try to
innovate channels that reach out to customers in the most cost
effective way possible. Our strength in semi-urban and rural areas
has helped us reach several lakh first time customers. We conducted
a survey of our 100 small customers. Watch them on
www.indiainfoline.com/inclu sion
IIFLs annual premium mobil isation (APE) stood at over Rs320
crores during FY13.
We pioneered internet brokin g in India and rationalised
brokerage rates fro m 150 basis points in the late nineties to 5
basis p oints. Although the share of equity broking in total income
was only 13% in FY13, we continue to remain a leading player in
both, ret ail and institutional space.
Our extension into commoditi es and currency advisory reconciles
with its vision to emerge as a one-stop-shop financial
intermediary. We are in the process of bui lding a culture of
advisory and financial planni ng to move away from pure execution
and d e-risk our business further.
IIFL Capital, the institutional equities division of the IIFL
Group, is the f irst port of call for most leading foreign
institutional investors and mutual funds that in vest in India. Our
unmatched block placement c apability is renowned and is
underpinned b y our reputation for integrity and client
confidentiality.
Revenues increased 2.3% to R s552.53 cr in 2012-13.
Market share in equityMarket share in c ommodity
41We launched our Mutual Fu nd business to offer niche products.
The IIFL Nifty ETF, our maiden scheme, carries the lowest expenses
of any equity ETF in India.
Our passivelymanagedDiv idendOpportunities ETFhasbeen ranked the
second best
performer by Value Researc h. A total of six schemes havebeen
launc hed, including four
close-ended debt schemes and two open-ended equityschemes. T
otalassetsunder
management(AUM)stoo d atRs3,271 millionas on Ma rch31,2013.
Our strength lies in gauging the market pulse and launching
niche products with low churn and operational efficiency, thereby
keeping costs low.The business leverages upon the strength of our
research and placement capabilities of the institutional and retail
sales teams. Our experienced investment banking team possesses the
skill-set to manage all kinds of investment banking transactions.
Our clo se interactions with investors as well as corporate helps
us understand and offer tailor-made solutions to fulfil
requirements.
We possess strong placeme nt capabilities across institutional,
HNI and retail investors.
Some of our marquee transactions:
Awards:
1) Best Wealth Management House (India), 2011 & 2012, Triple
A 2) No. 1 in Fixed Income Portfolio Management in India, 2012 Euro
Money 3) Best Broking House with Global Presence, 2011 & 2012
D&B 4) Top Performer, Equity (FI Category), 2012 BSE Best
Commodities Investment, 2012 Euro Money 5) Best Customer Service in
Financial Services, 2013 - Retailer Customer Service Awards
India Infoline Ltd
BSE: 532636 | NSE: INDIAI NFO | ISIN: INE530B01024
Market Cap: [Rs.Cr.] 1,426 | Face Value: [Rs.] 2 Industry:
Finance & Investments
49.651.40 (2.9%)
BSE2014 Jul 31,00:00
Day's High | Low50.25 | 47.05
Day's Volumes64,802
52Wk High | Low93.35 | 47.05
Open Price48.50
Turnover3,136,730.00
Deliverable Vol.15,345
6 Mth. Avg. Vol.280,636.89
49.901.35 (2.8%)
NSE2014 Jul 31,00:00
Day's High | Low50.45 | 47.40
Day's Volumes384,610
52Wk High | Low93.30 | 47.40
Open Price48.85
Turnover18,527,443.10
Deliverable Vol.148,065
6 Mth. Avg. Vol.662,095.40
Dividend History
DateDividendFace value Rs)
(Rs)
25-Jan-06210
21-Jul-06110
24-Mar-310
07
30-Jun-08610
30-Jan-092.82
18-Aug-1.22
09
27-Jan-101.82
8-Mar-1132
21-May-1.52
12
5-Feb-133
2
Annual dividend (Rs) Dividend % of FV
FY06330
FY07330
FY08660
FY092.8140
FY0103150
FY0113150
FY0121.575
FY0133150
45
Shareholding PatternMar-2013Dec-2012Sep-2012Jun-2012Mar-2012
Promoterand31.10 %31.61 %31.68 %31.60 %31.61 %
Promoter Group
Indian31.10 %31.61 %31.68 %31.60 %31.61 %
Foreign----------
Public68.90 %68.39 %68.32 %68.40 %68.39 %
Institutions43.68 %44.19 %44.70 %44.86 %44.16 %
FII39.34 %39.92 %40.08 %39.63 %39.84 %
DII4.34 %4.27 %4.62 %5.23 %4.32 %
Non Institutions25.22 %24.20 %23.62 %23.54 %24.23 %
Bodies Corporate2.78 %2.99 %2.29 %2.39 %2.05 %
Custodians----------
Total29,52,29,88328,99,57,95328,91,16,95328,90,81,95328,90,24,203
Philosophy:
IIFL (India Infoline) is comm itted to placing the Investor
First, by continuously striving to increase the efficiency of th e
operations as well as the systems and pr ocesses for use of
corporate resources in such a way so as to maximize the value to
the stakeholders. The Group aims at achieving not only the highest
possible standards of legal and regu latory compliances, but also
of effective management.
Committees:
Audit Committee
Terms of reference & Compo sition, Name of members and
Chairman: Th e Audit committee comprises Mr Nilesh Vikams ey
(Chairman), Mr R Venkataraman, Mr Kranti Sinha, two of whom are
independent Dire ctors. The Chairman along with the Statutory and
Internal Auditors are invitees to the Meeting. The Terms of
reference of this committee are as under: - To investigate into any
matter that may be prescribed under the provisio ns of Section 292A
of The Companies Act, 195 6 - Recommendation and removal of Ex
ternal Auditor and fixation of the Audit Fees. - Reviewing with the
management the financia l statements before submission of the same
to the Board. - Overseeing of Company's financi al reporting
process and disclosure of its financial information. - Reviewing
the Adequacy of the Internal Audit Function.
Compensation/ Remunerati on Committee
Terms of reference & Comp osition, Name of members and
Chairman: The Compensation / Remuneration Committee co mprises Mr
Kranti Sinha (Chairman) & Mr Nilesh Vikamsey, both of whom are
independent Directors. The Terms of reference of this committee are
as under: - To fix suitable re muneration package of all the
Executive Directors and Non Executive Directors, Senior Employees
and officers i.e. Salary, perquisites, bonuses, stock options,
pensions etc. - Det ermination of the fixed component and p
erformance linked incentives along with the performance criteria to
all employees of the company - Service Contracts, Notice Period,
Severance Fees of Directors and employees. - St ock Option details:
whether to be issued at disc ount as well as the period over which
to b e accrued and over which exercisable. - To con duct
discussions with the HR department and form suitable remuneration
policies.
Share Transfer and Investor Grievance Committee
Details of the Members, Compliance Officer, No of Complaints
received and pending and pending transfers as on close of the
financial year. The committee functions under the Chairmanship of
Mr Kranti Sinha, a Non-executive independent Director. The other
Members of the committee are Mr. Nirmal Jain and Mr. R
Venkataraman. Ms Sunil Lotke, Company Secretary is the Compliance
Officer of the Company.
Board of Directors
Mr. Nirmal Jain (Chairman, India Infoline Ltd).
Mr. R. Venkataraman (Managing Director , India Infoline
Ltd).
Mr. Arun Kumar Purwar
(Independent Director of India Infoline Limited since March
2008).
Mr. Chandran Ratnaswami
(Non Executive Director of India Infoline Limited since May
2012).
Mr. Kranti Sinha (Independent Director of India Infoline Limited
since January 2005).
Mr. Mahesh Narayan Singh
(Independent Director of India Infoline Finance Limited since
September 2009).
Mr. Nilesh Vikamsey
(Independent Director of India Infoline Limited & India
Infoline Finance Limited since February 2005).
Dr. Subbaraman Narayan
(Independent Director of India Infoline Limited since July
2012).
Mr. Vijay Kumar Chopra
(Independent Director of India Infoline Finance Limited since
June 2012).
IIFL Foundation
In line with IIFLs vision to b e the most respected company in
the financial services space, the company recognises the importance
of contributing to and sustaining social transformation. The IIFL
Fou ndation has been set up to work in areas of skill development
for various industries and to ensure financial inclusion through
the suppor t and upliftment of the underprivileged sections o f
society.
The IIFL Foundation focuses on specific areas of need, including
health care and education. The foundation will screen and select
institutions and developmental a gencies which are working in these
domains and will provide necessary aid to improve the lives of the
underprivileged and help them in achieving their potential.
The IIFL Foundation has init iated career guidance to the
students of High School and Junior colleges in remote areas of M
aharashtra to enable them to pursue the career which provides right
employment opportuniti es.
FLAME
FLAME (Financial Literac y Agenda for Mass Empowerment) is an
IIFL Foundation initiative to promote financial literacy amongst
the masses in order to ma ke them an integral part of India's
spectacular gr owth story. In an era of accelerating GDP a nd
rising per capita growth, financial literacy has become more
critical than ever before such that we all reap the tangible
benefits of the nation 's economic prosperity. Financial inclusion
has been quite high on the governmental agenda , given its emphasis
on widening the Banking & Financial services network across the
c ountry. The FLAME initiative stands committed to complement this
effort by helping comm on people gain financial growth and sec
urity though better awareness and education on t he variety of
financial products while avoid ing the lure of and loss from
unrealistic claims made by unscrupulous agents and ponzi schemes.
Visit our dedicated site for financial l iteracy:
www.flame.org.in
Scholarships
H Nemkumar and Nirmal Jain Scholarship (May 2012) India has a
large number of gifted and deserving students who are unable to
avail of a high-quality learning experience from reputed
institutions in India or abroad due to financial or other
constraints. Young India Fellows reaches out to such students. The
YIF scholarships have been made possible by generous donations by a
stellar set of individuals including Mr. Nirmal Jain and Mr. H
Nemkumar on behalf of IIFL Foundation.
This year, 57 Young India Fellows of the Founding Class
graduated and embarked upon careers ranging from design technology
to rural development, from venture philanthropy to corporate
strategy, and from ethnographic research to institution building.
The Founding Fellows are Fulbright Scholars, INSEAD-Wharton MBA
candidates, Prime Ministers, Rural Development Fellows, legal
entrepreneurs, McKinsey and BCG consultants, budding psychologists,
artists, writers and film makers, research scholars at leading
think tanks and inspired entrepreneurs trying and testing new ideas
for technology-driven social change. Expressing gratitude for the
support offered by Mr. Nirmal Jain & Mr. Nemkumar, in launching
this program in its founding year, the Young India Fellows awarded
a personalized Valedictory Scroll to graduating Fellows.
Financial literacy for Supporting the Under-privileged
IIFL has also tied up with KJ Somaiya Institute of Management
Studies & Research (SIMSR) to impart basic financial knowledge
to underprivileged sections and physically handicapped sections of
the society. The programmes covers lessons on savings, budgeting,
banking, credit management, microfinance and self-help groups
(SHGs). The IIFL Foundation under the FLAME initiative has tied up
with Somaiya Institute to impart financial literacy to National
Society for Equal Opportunities for the Handicapped India (NASEOH )
since the last two years.
SWOT ANALYSIS OF IIFL
STRENGHTS:
Low brokerage system
Effective after sales services system
Advisory desk operations provided by fuller ton Well established
brand equity
Tele trade also possible
Freedom account with different facilities Personalize alerts
Consolidated statements-a unique service offering
WEAKNESSES:
Lack of Aggressive advertisements and sales promotion
programmed. The working of the sales force is traditional.
Inventory investments should be more.
Miscommunication and ineffective co-ordination at various level
of hierarchy.
OPPORTUNITIES:
Growing capital market in India & other country Political
stability in India & other country
Better governance by SEBI
Decreasing interest rates in India, so people are motivated to
earn more returns through capital market.
THREATS:
Demand & supply
Increasing competition in security market
Lost in faith in share market after big scams in the stock
market
Natural calamities
Inability of customers to pay brokerage at the right time
High risk involved in the stock market.
COMPETITORS OF IIFL:
SHAREKHAN
RELIANCE MONEY
UNICON
KARVY
INDIABULLS
RK GLOBAL SECURITIES
RELIGARE
CHAPTER 2REVIEW OF LITERATURERETURN:Return can be defined as
Income received on an investment plus any change in market price,
usually expressed as a percent of the beginning market price of the
investment. Rate of return (R) =DIV=dividend per share received in
year. P1=price of share in the beginning of the year.P0=price of
share at the end of the year.DIVIDEND YIELD: Dividend yield is the
percentage of dividend income, and it is given by dividing the
dividend per share at the end the year by the share price in the
beginning of the year. Dividend yield=DIV/p0CAPITAL GAIN: Capital
Gain is the difference of the share price at the end and share
price in the beginning divided by the share price in the beginning.
Capital Gain= (p1-p0)/p0Positive capital gain or loss: If the
ending price were greater than the beginning price, there would be
a positive capital gain or capital loss.Negative capital gain or
loss: If the ending price were less than the beginning price, there
would be a negative capital gain or capital loss.
Unrealized capital gain or loss: If an investor holds a share
and does not sell it at the end of a period ,the difference between
the beginning and ending share prices is the unrealized capital
gain(or loss).AVERAGE RATE OF RETUEN: The average rate of return is
the sum of the various one period rates of return by the number of
periods. Average rate of return can be calculated as follows.Ro= =
Ro = average rate of return.Rt=the observed or realized rates of
return in periods 1,2,t n = the total number of periods.RISKRisk
may be described as variability/fluctuation/deviation of actual
return from expected return from a given asset/investment. Higher
the variability, greater is the risk.TYPES OF RISK:The risk of a
security can be broadly classified into two types. Such as
systematic risk and unsystematic risk. Standard deviation has been
used as a proxy measure for total risk.SYSTEMATIC RISK:Systematic
risk is due to risk factors that affect the entire market such as
investment policy changes, foreign investment policy, change in
taxation clauses, shift in socio-economic parameters, global
security threats and measures etc.Systematic risk is the risk that
affects a security or portfolio due to its relationship with the
market. Systematic risk is also called market risk, aggregate risk,
or undiversifiable risk.Systematic risk cant be reduced through
portfolio diversification. Since this risk is associated with
overall market sentiment rather than performance of few stocks.
Systematic risk results from forces which cant be controlled by a
firm.Systematic risk is measured with beta coefficient. It
represents the securitys volatility relative to that of an average
security. if beta = 1 means that security is of average risk (or
exactly in sync with market). If beta > 1 means that security
has more unavoidable risk.If beta