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INTRODUCTION TO
REPORT
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1.1 INTRODUCTION TO REPORT
In most industrialized countries, a substantial part of financial wealth is not managed
directly by savers, but through a financial intermediary, which implies the existence of an
agency contract between the investor (the principal) and a broker or portfolio manager(the agent). Therefore, delegated brokerage management is arguably one of the most
important agency relationships intervening in the economy, with a possible impact on
financial market and economic developments at a macro level.
In most of the metros, people like to put their money in stock options instead of dumping
it in the bank-lockers. Now, this trend pick pace in small but fast developing cities of
India. My research is based on the investors in stock market in Pune and its nearby areas.
As the per-capita-income of the city is on the higher side, so it is quite obvious that they
want to invest their money in profitable ventures. On the other hand, a number of
brokerage houses make sure the hassle free investment in stocks. Asset management
firms allow investors to estimate both the expected risks and returns, as measured
statistically.
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1.2 COMPANY PROFILE
Type Public company
Traded as NSE: INDIABULLS
BSE: 532544
Industry Financial Services, Real Estate, Power
Founded May, 2000
Headquarters Gurgaon, India
Key people Sameer Gehlaut Chairman & CEO, Rajiv Rattan, ViceChairman, Saurabh Mittal, Vice Chairman
Products Securities, Consumer Finance, Mortgages, Real Estate
Employees 20000 (2007)
Website www.Indiabulls.com
http://en.wikipedia.org/wiki/Types_of_business_entityhttp://en.wikipedia.org/wiki/Types_of_business_entityhttp://en.wikipedia.org/wiki/Ticker_symbolhttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=INDIABULLS§ion=7http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532544http://en.wikipedia.org/wiki/Financial_Serviceshttp://en.wikipedia.org/wiki/Electrical_power_industryhttp://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Consumer_Financehttp://en.wikipedia.org/wiki/Mortgageshttp://www.indiabulls.com/http://en.wikipedia.org/wiki/File:Indiabulls_logo.svghttp://www.indiabulls.com/http://en.wikipedia.org/wiki/Mortgageshttp://en.wikipedia.org/wiki/Consumer_Financehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Electrical_power_industryhttp://en.wikipedia.org/wiki/Financial_Serviceshttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532544http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=INDIABULLS§ion=7http://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/Ticker_symbolhttp://en.wikipedia.org/wiki/Types_of_business_entity8/13/2019 Portfolio Analysis of INDIA BULLS.
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1.3 FORMATION OF THE COMPANY:
According to prevention of Money Laundering Act, 2002 and Rules framed there under,
Indiabulls Securities Ltd has developed and implemented the antimoney laundering
program designated to achieve and monitor the compliences with the requirement. Forthe purpose of compliance with requirements and provisions of the Act, Indiabulls is
maintaining a record of such transactions the nature and value of which has been
prescribed in the Rules under the Act. Such transaction include:
All cash transactions of the value more than Rs. 10 lacs or its equivalent in foreign
currency.
All series of cash transaction integrally connected to each other which have been valued
below Rs . 10 lacs or its equivalent in foreign currency where such series of transaction
take place within one calender month.
All suspicious transactions whether or not made in cash and including inter-alia, credit or
debits into from any non monetary account such as security account maintained by the
registered intermediary.
it may, however, be cleared that for the purpose of suspicious transaction reporting, apart
from 'transaction connected', transaction remotely connected or related are alsoconsidered.
Indiabulls existing policies and procedures for its various business functions from the
basis for its overall money laundering prevention programm. This assures that anti-
money laundering compliance reach all aspects of our firm's business.
Moreover anti-money laundering procedures set out by Indiabulls Securities Ltd. are
reviewed regularly and updated as necessary based on any legal/regulatory
orbusiness/operational changes, such as addition or amendments to existing anti-money
laundering rules and regulations or business expantion.
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ABOUT FOUNDER:
The fast paced growth, diversification and consolidation of the Group has been possible
due to the vision and leadership of the co- founders of Indiabulls.
Sameer Gehlaut
He is the Chairman, CEO and Whole Time Director of Indiabulls. Sameer
is an engineer from IIT, Delhi (1995) and has worked internationally with Halli burton in
its international services business in 1995. He has utilized his experience with the
international best practices and professional work culture at Halliburton to lead Indiabulls
successfully.
Rajiv RattanHe is the President, CFO and Whole Time Director ofIndiabulls. Rajiv is an
engineer from IIT, Delhi (1994) and has rich experience in the oil industry, having
worked extensively across the globe in highly responsible assignments with Schlumb
erger. Rajiv has managed remote exploration projects providing evaluation services for
different clients in India as well as abroad.
Saurabh Mittal
He is a Director at Indiabulls. Declared the best graduating student in IIT,
Delhi in (1995), Saurabh was also one of the engineers selected by Schlumber to work
for its international services business in 1995 and gained experience of working in
various global locations. He graduated as a Baker Scholar with an MBA from the
Harvard Business School. He has also developed in-depth understanding of international
financial markets.
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1.4 VISION & MISSION :
To be the largest & most profitable Financial Services Organisation in Indian Retail
Market.
Become one stop shop for all banking financial products & services for all retail
customer.
MISSION
Rapidaly increase the number of client relationship to be a clear market leader to provide
our clients a very broad array of products and services.
MILESTONES IN THE HISTORY
Indiabulls Financial Services Ltd. was incorporated on January 10,2000 as M/s Orbis
Infotech Private Limited at New Delhi under the Companies act, 1956.
The company was promoted by three engineers from IIT Delhi, and has attracted more
than Rs. 700 million as investments from various banks.
The name of company was changed to M/s Indiabulls Financial Services Private Ltd on
March 16,2001. Indiabulls came up with it own public issue & became public Ltd company on February
27, 2004. and the name of company changed to M/s. Indiabulls Financial Services
Limited.
The Indiabulls has developed significant relationship with large commercial banks such
as Citi banks, HDFC Bank, Union Bank, ICICI Bank, ABN Bank, Standard Charterd
Bank and IL& FS.
The company headquarters are co-located in Mumbai and Delhi.
The marketing and sales efforts are headquartered out of Mumbai, with a regional
headquarter in Delhi.
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There are headquartered out of Delhi/NCR allowing the company to scale these processes
efficiently for the nationwide network
FLAGSHIP IN OTHER SERVICES
Indiabulls
InsurancePersonal Loan
Real Estate
Resources Ltd.
Home Loan
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1.5 INDUSTRY PROFILE
Broking houses in India
India is a country having a big list of Broking Houses. The Equity Broking Industry in
India has several unique features like it is more than a century old, dynamic, forward
looking, and good service providers, well conversant, highly innovative and even
adaptable. The regulations and reforms been laid down in the Equity Market has
resulted in rapid growth and development. Basically, the growth in the equity market
is largely due to the effective intermediaries.
The Broking Houses not only act as an intermediate link for the Equity Market butalso for the Commodity Market, Foreign Currency Exchange Market, and many
more. The Broking Houses has also made an impact on the Foreign Investors to
invest in India to certain extent.
In the last decade, the Indian brokerage industry has undergone a dramatic
transformation. From being made of close groups, the broking industry today is one
of the most transparent and compliance oriented businesses. Long settlement cycles
and large scale bad deliveries are a thing of the past with the advent of T+2
settlement cycle and dematerialization. Large and fixed commissions have been
replaced by wafer thin margins, with competition driving down the brokerage fee, in
some cases, to a few basis points.
There have also been major changes in the way business is conducted. Technology
has emerged as the key driver of business and investment advice has become
research based. At the same time, adherence to regulation and compliance has
vastly increased. The scope of services have enhanced from being equity products
to a wide range of financial services. Investor protection has assumed significance,.
At present there are 23 recognized stock exchanges with about 6000 stockbrokers.
Organization structure of stock exchange varies.14 stock exchanges are organized as
public limited companies, 6 as companies limited by guarantee and 3 are non-profit
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voluntary organization. Of the total of 23, only 9 stock exchanges have been permanent
recognition. Others have to seek recognition on annual basis.
These exchange do not work of its own, rather, these are run by some persons and with
the help of some persons and institution. All these are down as functionaries on stock
exchange. These are
Stockbrokers
sub-broker
market makers
Portfolio consultants etc.
Stockbrokers:
Stock brokers are the members of stock exchanges. These are the persons who buy, sell
or deal in securities. A certificate of registration from SEBI is mandatory to act as a
broker. SEBI can impose certain conditions while granting the certificate of registrations.
It is obligatory for the person to abide by the rules, regulations and the buy-law. Stock
brokers are commission broker, floor broker, arbitrageur etc.
Detail of registered brokers
Total no. of registered brokers as on
31.03.2008
Total no. of sub-brokers as on
31.03.2008
9000 24,000
Sub broker:
A sub-broker acts as agent of stock broker. He is not a member of a stock exchange.
He assists the investors in buying, selling or dealing in securities through stockbroker.
The broker and sub-broker should enter into an agreement in which obligations of both
should be specified. Sub-broker must be registered SEBI for a dealing in securities. For
getting registered with SEBI, he must fulfill certain rules and regulation.
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Market Makers
Market maker is a designated specialist in the specified securities. They make both
bid and offer at the same time. A market maker has to abide by bye-laws, rules
regulations of the concerned stock exchange. He is exempt from the margin requirements.
As per the listing requirements, a company where the paid-up capital is Rs. 3 crore but
not more than Rs. 5 crore and having a commercial operation for less than 2 years should
appoint a market maker at the time of issue of securities.
Portfolio consultants
A combination of securities such as stocks, bonds and money market instruments
is collectively called as portfolio. Whereas the portfolio consultants are the persons, firms
or companies who advise, direct or undertake the management or administration of
securities or funds on behalf of their clients.
Types of Trade:
There are different types of trade depending on the type of shares and investors
interest and his mentality for investing the money in the Stock Exchange.
The trade depends upon
the type of shares listed viz. Cash or Futures & Options ( F&O), time period of investing whether long-term (may be months or years) or
short-term (for a day or a month) .
Intra-Day Trade:
This kind of trade is done in the cash market. Trading (here buying and selling of
shares) is done on the same day. Trade is carried on the daily basis. Whatever the stocks
are purchased at the beginning of the market is squared up till the market is closed the
same day. This kind of trade is suitable for daily traders who monitor stock market daily
and are interested in short p rofits and dont want to be logging for long profits. The
investors are short-term investors.
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For E.g.: If Mr. A purchases Tata Steel 50 shares @Rs.450 per share when the market
opens or else in the day time and wishes not to keep the delivery of the stock he can sale
the stock purchased the same day before the market closes( This is known as squaring of
position. The client instructs the broker/sub-broker to sell the square-up his position or
the broker takes the decision after consulting the client).
Future & Options (F&O) trade:
A futures contract is an agreement between two parties to buy or sell an asset at a
certain time in the future at a certain price. There are two types of futures contracts, those
that provide for physical delivery of a particular commodity and those that call for an
eventual cash settlement. The commodity itself is specifically defined, as is the month
when delivery or settlement is to occur. A July futures contract, for example, providesfordelivery or settlement in July. It should be noted that even in the case of delivery-type
futures contracts, very few actually resulting deliveries. The vast majority of both
speculators and hedgers choose to realize their gains or losses by buying or selling an
offsetting futures contract price to the delivery date. While there are some tools used by
futures investors to protect themselves from price fluctuations and from incurring heavy
losses. Some of them are as under:
Hedger:
By buying or selling in the futures market now, individuals and firms are able to
establish a known price level for something they intend to buy or sell later in the cash
market. Buyers are thus able to protect themselves against- that is, hedge against- higher
prices and sellers are able to hedge against lower prices. Hedgers can also use futures to
lock in an acceptable margin between their purchase cost and their selling price
Spreads:
While most speculative futures transactions involve a simple purchase of futures
contracts to profit from an expected price increase- or an equally simple sale to profit
from an expected price decrease- numerous other possible strategies exist. Spreads are
just one of the many examples. A spread involves buying one futures contract in one
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month and selling another futures contract in a different month. The purpose is to profit
from an expected change in the relationship between the purchase price of one and the
selling price of the other.
Stop Orders:
A stop order is an order, placed with the broker, to buy or sell a particular futures
contract at the market price if and when the price reaches a specified level. Stop orders
are often used by futures traders in an effort to limit the amount they might lose if the
futures price moves against their position.
An option is a contract in which the writer of the option grants the buyer of the
option the right, but not the obligation, to purchase from or sell to the writer an asset at a
specifies price within a specified period of time (or at a specified date). The writer, also
referred to as the seller, grants this right to the buyer in exchange for a certain sum of
money, which is called the option price or option premium. The price at which asset may
be bought or sold is called the exercise price or strike price.
The date after which an option is void is called the expiration date. As with a
futures contract, the asset that the buyer has the right to buy and the seller is obligated to
sell is referred to as the underlying. When an option grants the buyer the rig ht to
purchase the underlying from the writer (seller), it is referred to as a call option or call.
When the option buyer has the right to sell the underlying to the writer, the option is
called a put option or put.
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Index Trading:
In this type of trade the investors are allowed to buy and sell indices, in terms of
securities. Currently this facility is only for NIFTY securities. The buying and selling of
Index is simulated by putting orders in securities in proportion that comprises the chosenindex. The user can specify buy/sell and also provide Pro/Cli/Whs order attributes. For
orders the Cli/Whs account number is compulsory and has to be mentioned in the edit
box provided along with it.
The Host End divides the input amount mentioned in the Amount Edit Box
among the securities of Index according to their weightage , and generates orders priced
as market orders. Stock index futures contracts, for example are settled in cash on the
basis of the index number at the close of the final day of trading. Delivery of the actualshares of stock that comprise the index would obviously be impractical.
1.6 STATEMENT OF THE PROBLEM
The problem is to know the investors investing decisions towards their future
investments, their needs, wants in the best possible way so as to get the optimal return. So
the research will be carried out for the purpose of building a balanced portfolio.
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1.7 OBJECTIVES OF THE STUDY
The main objective of the project is to find out the needs of the current
and future investors.
For this analysis, customer perception and awareness level will be measured in important
areas such as:
1. To understand in depth about different investment avenues available in India.
2. The type of financial instruments, they would prefer to invest.
3. The duration for which they would prefer to keep their money invested.
4. What are the factors that they consider before investing5. To give a recommendations to the investors that where they should invest.
6. To identify the objective of savings of an investor.
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1.8 RESEARCH METHODOLOGY
WHAT IS MARKETING RESEARCH?
The natural starting point is to define our subject, and so we quote the traditional
definition of the American Marketing Association (A.M.A). Marketing Research is
The systematic, gathering, recording and analyzing of the data about problems
relating to the marketing of goods and services.
The systematic conduct of research requires particularly these two qualities
Orderliness, in which the measurement are accurate and cross section is fair, and Impartiality in analysis and interpretation.
The definition also indicates the scope of marketing research. We will modify that but
adding
Planning
Interpreting
The definition needs these stages of planning and interpreting, because__
Unless there has been planning in advance, a study would be unsystematic, and The research has to be completed by interpreting the data for it to have meaning
and value to its user.
A research model that fulfills that definition will be presented shortly.
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WHY MARKETING RESEARCH ?
It is usually said that if marketing would be a train, then market research would be
the locomotive. In other words, market research should ideally be the starting point of
any marketing exercise. Conducting any marketing exercise - be it related to pricing, promotion or distribution of a product or service, without researching the potential
market is as sensible as setting out to sell sand in the Sahara Desert.
MARKETING RESEARCH PROCESS: AN OVERVIEW
The marketing research process includes the systematic identification, collection,
analysis and distribution of information for the purpose of knowledge development
and decision making. Whether you are creating a new marketing research program or
perhaps revising an existing marketing research program, what are the steps you
should take?
While there are dozens of little steps along the way, each of those steps fits into one
of the 6 major steps of the marketing research process.
Problem Identification
Research Design
Data Collection
Data Analysis & Interpretation
Research Report & Presentation
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RESEARCH
Research comprises of defining & redefining problems, formulating hypothesis or
suggested solutions, collecting, organizing & evaluating data, making deductions &
reaching conclusions. In research design we decide about:
Type of data From whom to get data How to analyze data How to make report
DATA TYPE
Data collected was both Primary and Secondary in nature.
DATA COLLECTION
The information is collected through the PRIMARY SOURCES like:
Interviewing the employees of the department. Getting information from the clients through telephone & questionnaire. Discussion with the head of the department .
Data was collected from following SECONDARY SOURCES like
The information was gathered with the help of internet, newspapers and company
journals.
The collected information was edited & tabulated for the purpose of analysis
ANALYSIS OF DATA - The complete analysis is done through Pie charts and columngraphs in different questions.
SAMPLING SIZE - The sampling size to study the customer response is 100. The
numbers of respondent are 100 in sample size for the study.
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TOOLS USED FOR PROJECT
While making the project file various tools were used. These tools helped in doing the
work. These are:-
Microsoft Excel Microsoft Word Various analysis tools like Bar Graphs, Pie Graphs, tables
1.9 LIMITATIONS OF THE STUDY
1. The data collected is basically confined to secondary sources, with little amount
of primary data associated with the project.
2. There is a constraint with regard to time allocated for the research study.
3. The availability of information in the form of annual reports & price fluctuations
of the companies is a big constraint to the study.
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CONCEPTUAL
BACKGROUND
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2.1 LITERATURE REVIEW
From the investor point of view this portfolio followed by him is very important since
through this way one can manage the risk of investing in securities and thereby managing
to get good returns from the investment in diversified securities instead of putting all the
money into one basket. Now a days investors are very cautious in choosing the right
portfolio of securities to avoid the risks from the market forces and economic forces. So
this topic is chosen because in portfolio management one has to follow certain steps in
choosing the right portfolio in order to get good and effective returns by managing all the
risks.
This topic covers how a particular portfolio has to be chosen concerning all the securities
individual return and there by arriving at the overall portfolio return. So a Balanced
Portfolio was constructed which includes exposure both in equities and debt. So in
volatile periods also this portfolio will outperform the benchmark. This also covers the
various techniques of evaluation of the portfolio with regard to all the uncertainties and
gives an edge to select the right one. The purpose of choosing this topic is to know how
the portfolio management has to be done in arriving at the effective one and at the same
time make aware the investor to choose the securities which they want to put in their
portfolio. This also gives an edge in arriving at the right portfolio in consideration to
different securities rather than one single security. The project is undertaken for the study
of my subject thoroughly while understanding the different case studies for the better
understanding of the investor and myself.
The Balanced Portfolio which was constructed was revised six times i.e. every week and
then a model portfolio was made. Weekly revision was done as monthly was not possible
so I followed weekly revision of the portfolio.
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2.2 Objectives of Portfolio Management
The basic objective of Portfolio Management is to maximize yield and minimize risk.
The other ancillary objectives are as per needs of investors, namely:
Regular income or stable return Appreciation of capital Marketability and liquidity Safety of investment Minimizing of tax liability.
Five Popular Portfolio Types
Stock investors constantly hear the wisdom of diversification. The concept is to simply
not put all of your eggs in one basket, which in turn helps mitigate risk, and generally
leads to better performance or return on investment. Diversifying your hard-earned
dollars does make sense, but there are different ways of diversifying, and there are
different portfolio types. We look at the following portfolio types and suggest how to get
started building them: aggressive, defensive, income, speculative and hybrid. It is
important to understand that building a portfolio will require research and some effort.
Having said that, let's have a peek across our five portfolios to gain a betterunderstanding of each and get you started.
1. The Aggressive Portfolio
An aggressive portfolio or basket of stocks includes those stocks with high risk/high
reward proposition. Stocks in the category typically have a high beta, or sensitivity to the
overall market. Higher beta stocks experience larger fluctuations relative to the overall
market on a consistent basis. If your individual stock has a beta of 2.0, it will typically
move twice as much in either direction to the overall market - hence, the high-risk, high-
reward description.
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Most aggressive stocks (and therefore companies) are in the early stages of growth, and
have a unique value proposition. Building an aggressive portfolio requires an investor
who is willing to seek out such companies, because most of these names, with a few
exceptions, are not going to be common household companies. Look online for
companies with earnings growth that is rapidly accelerating, and have not been
discovered by Wall Street. The most common sectors to scrutinize would be technology,
but many other firms in various sectors that are pursuing an aggressive growth strategy
can be considered. As you might have gathered, risk management becomes very
important when building and maintaining an aggressive portfolio. Keeping losses to a
minimum and taking profit are keys to success in this type of portfolio.
2. The Defensive Portfolio
Defensive stocks do not usually carry a high beta, and usually are fairly isolated from
broad market movements. Cyclical stocks, on the other hand, are those that are most
sensitive to the underlying economic "business cycle." For example, during recessionary
times, companies that make the "basics" tend to do better than those that are focused on
fads or luxuries. Despite how bad the economy is, companies that make products
essential to everyday life will survive. Think of the essentials in your everyday life, and
then find the companies that make these consumer staple products.
The opportunity of buying cyclical stocks is that they offer an extra level of protection
against detrimental events. Just listen to the business stations and you will hear portfolios
managers talking about "drugs," "defense" and "tobacco." These really are just baskets of
stocks that these managers are recommending based upon where the business cycle is and
where they think it is going. However, the products and services of these companies are
in constant demand. A defensive portfolio is prudent for most investors. A lot of these
companies offer a dividend as well which helps minimize downside capital losses.
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3. The Income Portfolio
An income portfolio focuses on making money through dividends or other types of
distributions to stakeholders. These companies are somewhat like the safe defensive
stocks but should offer higher yields. An income portfolio should generate positive cashflow. Real estate investment trusts (REITs) and master limited partnerships (MLP) are
excellent sources of income producing investments. These companies return a great
majority of their profits back to shareholders in exchange for favourable tax status. REITs
are an easy way to invest in real estate without the hassles of owning real property. Keep
in mind, however, that these stocks are also subject to the economic climate. REITs are
groups of stocks that take a beating during an economic downturn, as building and
buying activity dries up. An income portfolio is a nice complement to most people's pay
check or other retirement income. Investors should be on the lookout for stocks that have
fallen out of favour and have still maintained a high dividend policy. These are the
companies that can not only supplement income but also provide capital gains. Utilities
and other slow growth industries are an ideal place to start your search.
4. The Speculative Portfolio
A speculative portfolio is the closest to a pure gamble. A speculative portfolio presents
more risk than any others discussed here. Finance gurus suggest that a maximum of 10%
of one's investable assets be used to fund a speculative portfolio. Speculative "plays"
could be initial public offerings (IPOs) or stocks that are rumoured to be takeover targets.
Technology or health care firms that are in the process of researching a breakthrough
product, or a junior oil company which is about to release its initial production results,
would also fall into this category.Another classic speculative play is to make an
investment decision based upon a rumour that the company is subject to a takeover. One
could argue that the widespread popularity of leveraged ETFs in today's marketsrepresent speculation. Again, these types of investments are alluring: picking the right
one could lead to huge profits in a short amount of time. Speculation may be the one
portfolio that, if done correctly, requires the most homework. Speculative stocks are
typically trades, and not your classic "buy and hold" investment.
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5. The Hybrid Portfolio
Building a hybrid type of portfolio means venturing into other investments, such as
bonds, commodities, real estate and even art. Basically, there is a lot of flexibility in the
hybrid portfolio approach. Traditionally, this type of portfolio would contain blue chipstocks and some high grade government or corporate bonds. REITs and MLPs may also
be an investable theme for the balanced portfolio. A common fixed income investment
strategy approach advocates buying bonds with various maturity dates, and is essentially
a diversification approach within the bond asset class itself. Basically, a hybrid portfolio
would include a mix of stocks and bonds in a relatively fixed allocation proportions. This
type of approach offers diversification benefits across multiple asset classes as equities
and fixed income securities tend to have a negative correlation with one another.
The Bottom Line
At the end of the day, investors should consider all of these portfolios and decide on the
right allocation across all five. Here, we have laid the foundation by defining five of the
more common types of portfolios. Building an investment portfolio does require more
effort than a passive, index investing approach. By going it alone, you will be required to
monitor your portfolio(s) and rebalance more frequently, thus racking up commission
fees. Too much or too little exposure to any portfolio type introduces additional risks.
Despite the extra required effort, defining and building a portfolio will increase your
investing confidence, and give you control over your finances.
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2.3 Schematic diagram of stages in portfolio management
Specification andquantification ofinvestor objectives,constraints, and risktolerance
Portfolio policies andstrategies
Capital market
expectations
Relevant economic,social, politicalsector and securityconsiderations
Monitoring investorrelated input factors
Portfolio construction andrevision asset allocation,portfolio optimization,security selection,implementation andexecution
Monitoring economicand market input factors
Attainment ofinvestorobjectives
Performancemeasurement
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2.4 NEED FOR PORTFOLIO MANAGEMENT
The Portfolio Management deals with the process of selection securities from the number
of opportunities available with different expected returns and carrying different levels of
risk and the selection of securities is made with a view to provide the investors themaximum yield for a given level of risk or ensure minimum risk for a level of return.
Portfolio Construction refers to the allocation of surplus funds in hand among a variety of
financial assets open for investment. Portfolio theory concerns itself with the principles
governing such allocation. The modern view of investment is oriented towards the
assembly of proper combinations held together will give beneficial result if they are
grouped in a manner to secure higher return after taking into consideration the risk
element
Portfolio Management Process
Security analysis Portfolio analysis Selection of securities
Portfolio revision Performance evaluation
Analysis of securities
Security analysis in both traditional sense and modern sense involves the projection of
future dividend or ensuring the intrinsic value of a security based on the forecast of
earnings or dividend. Security analysis in traditional sense is essentially on analysis of thefundamental value of shares and its forecast for the future through the calculation of its
intrinsic worth of the share.
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Modern security analysis relies on the Fundamental Analysis of the security, leading to
its intrinsic worth and also rise-return analysis depending on the variability of the returns,
covariance, safety of funds and the projection of the future returns. If the security analysis
based on fundamental factors of the company, then the forecast of the share price has to
take into account inevitably the trends and the scenario in the economy, in the industry to
which the company belongs and finally the strengths and weaknesses of the company
itself. Also Technical Analysis is also followed to determine breakout points and support
and resistance of the stock.
Approaches to Security Analysis
Fundamental analysis Technical analysis Efficient market hypothesis
Fundamental Analysis
The intrinsic value of an equity share depends on a multitude of factors. The earnings of
the company, the growth rate and the risk exposure of the company have a direct bearing
on the price of the share. These factors intern rely on the host of other factors like
economic environment in which they function, the industry they belong to, and finally
companys own performance. Mostly top -down approach is followed which is shown
below.
Economic analysis Industry analysis
Company analysis
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Company analysis
Investors should know the company results properly before making the investment. The
selection of investment is depends on optimum results of the following factors.
1) Marketing forces:
Manufacturing companies profit depends on marketing activities. If the marketing
activities are favourable than it can be concluded that the company may have more
profit in future years Depending upon the previous year results fluctuations in sales or
growth in sales can be identified. If the sales are increasing in trend investor may be
satisfied.
2. Accounting Profiles:
Different accounting policies are used by organization for the valuation of inventories
and fixed assets.
3. Profitability situation:
It is a major factor for the investor. Profitability of the company must be better compare
with the industry. The efficiency of the profitability position or operating activities can be
identified by studying the following factors
A) Gross profit margin ratio:
It should be more than 30%. But, other operating expenses should be less compare to
operating incomes.
Sales cost of goods sold
GPMR =
Sales
B) Operating & net profit ratio:
Operating profit is the real income of the business it is calculated before non
operating expenses and incomes. It should be nearly 20%. The net profit ratio must be
more than 10%.
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Profit after tax
NPR =
Sales
4. Returns on capital employed:
It measures the rate of return on capital investment of the business. Capital employed
includes shareholder funds, long-term loans, and other accumulated funds of the
company.
Operating profit
ROCE =
Capital employed
A) Earnings per share:
It is calculated by the company at the end of the every financial year. In case of more profit and less number of shares EPS will increase.
Profit after tax
EPS =
Number of equity shares outstanding
B) Return on equity:
It is calculated on total equity funds (equity share capital, general reserve and other
accumulated profits)
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Profit after taxes
ROE =
Net worth
5. Dividend policy:
It is determined in the general body meeting of the company, for equity shares at the
end of the year. The dividend payout ratio is determined as per the dividend is paid.
Dividend policies are divided into two types.
a) Stable dividend policy.
b) Unstable dividend policy.
When company reached to optimum level it may follow stable dividend policy it
indicates stable growth rate, no fluctuation are estimated. Unstable dividend policy may
be used by developing firms. In such a case study growth market value of share is not
possible to identify.
6. Capital structure of the company:
Generally capital structure of the company consists of equity shares, preference shares,debentures and other long term funds. On the basis of long term financial sources cost
of capital is calculated.
7. Operating efficiency:
It is determined on the basis of capital expenditure and operating activities of a
company. Increased capital expenditure indicates increase of operating efficiency.
Expected profits may be increased in coming years. The operating efficiency of a
company directly affects the earnings of a company an expanding company that
maintains high operating efficiency with low breakeven point. Efficient use of fixed
assets with raw materials, labour, and management would lead to more income from
sales.
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8. Operating leverage:
The firms fixed cost is high in total cost, the firm is said to have a high degree of
operating leverage. High degree of operating leverage implies other factors being held
constant, a relatively small change in sales result in a large change in return on equity.
9. Management:
Good and capable management generates profits to the investors. The management of
the firm should efficiency plan, organizes, actuate and control the activities of the
company. The good management depends of the qualities of the manager. Knootz and
O Donnell suggest the following as special traits of an able manager.
10. Financial analysis:
The best source of financial information about a company is its own financial
statements. This is a primary source of information for evaluating the investment
prospects in the particular companys stock. The statement gives the historical and
current information about the companys information aids to analysis the present status
of the company.
11 . Ratio analysis:
Ratio is relationship between two figures expressed mathematically. Financial ratio provides numerical relationship between two relevant financial data. Financial ratios are
calculated from the balance sheet and profit and loss account. The relationship can be
either expressed as a percent or as a quotient.
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Four Steps in building a profitable portfolio
In today's financial marketplace, a well-maintained portfolio is vital to any
investor's success. As an individual investor, you need to know how to determine an asset
allocation that best conforms to your personal investment goals and strategies. In other
words, your portfolio should meet your future needs for capital and give you peace of
mind. Investors can construct portfolios aligned to their goals and investment strategies
by following a systematic approach. Here we go over some essential steps for taking such
an approach.
Step 1: Determining the Appropriate Asset Allocation for You
Ascertaining your individual financial situation and investment goals is the first
task in constructing a portfolio. Important items to consider are age, how much time you
have to grow your investments, as well as amount of capital to invest and future capital
needs. A single college graduate just beginning his or her career and a 55-year-old
married person expecting to help pay for a child's college education and plans to retire
soon will have very different investment strategies. A second factor to take into account
is your personality and risk tolerance. Are you the kind of person who is willing to risk
some money for the possibility of greater returns? Everyone would like to reap high
returns year after year, but if you are unable to sleep at night when your investments take
a short-term drop, chances are the high returns from those kinds of assets are not worth
the stress.
As you can see, clarifying your current situation and your future needs for capital,
as well as your risk tolerance, will determine how your investments should be allocated
among different asset classes. The possibility of greater returns comes at the expense ofgreater risk of losses (a principle known as the risk/return tradeoff) - you don't want to
eliminate risk so much as optimize it for your unique condition and style. For example,
the young person who won't have to depend on his or her investments for income can
afford to take greater risks in the quest for high returns. On the other hand, the person
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nearing retirement needs to focus on protecting his or her assets and drawing income
from these assets in a tax-efficient manner.
Conservative Vs. Aggressive Investor s
Generally, the more risk you can bear, the more aggressive your portfolio will be,
devoting a larger portion to equities and less to bonds and other fixed-income securities.
Conversely, the less risk that's appropriate, the more conservative your portfolio will be.
Here are two examples: one suitable for a conservative investor and another for the
moderately aggressive investor.
The main goal of a conservative portfolio is to protect its value. The allocation shown
above would yield current income from the bonds, and would also provide some long-
term capital growth potential from the investment in high-quality equities.
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A moderately aggressive portfolio satisfies an average risk tolerance, attracting those
willing to accept more risk in their portfolios in order to achieve a balance of capital
growth and income.
Step 2: Achieving the Portfolio Designed in Step 1
Once you've determined the right asset allocation, you simply need to divide your capital
between the appropriate asset classes. On a basic level, this is not difficult: equities are
equities, and bonds are bonds. But you can further break down the different asset classes
into subclasses, which also have different risks and potential returns. For example, an
investor might divide the equity portion between different sectors and market caps, and
between domestic and foreign stock. The bond portion might be allocated between those
that are short term and long term, government versus corporate debt and so forth. There
are several ways you can go about choosing the assets and securities to fulfill your asset
allocation strategy (remember to analyze the quality and potential of each investment you
buy - not all bonds and stocks are the same):
Stock Picki ng - Choose stocks that satisfy the level of risk you want to carry in the equity
portion of your portfolio - sector, market cap and stock type are factors to consider.
Analyze the companies using stock screeners to shortlist potential picks, than carry out
more in-depth analyses on each potential purchase to determine its opportunities and risks
going forward. This is the most work-intensive means of adding securities to your
portfolio, and requires you to regularly monitor price changes in your holdings and stay
current on company and industry news.
Bond Picking - When choosing bonds, there are several factors to consider including the
coupon, maturity, the bond type and rating, as well as the general interest rateenvironment.
Mutual Funds - Mutual funds are available for a wide range of asset classes and allow
you to hold stocks and bonds that are professionally researched and picked by fund
managers. Of course, fund managers charge a fee for their services, which will detract
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from your returns. Index funds present another choice; they tend to have lower fees
because they mirror an established index and are thus passively managed.
Exchange-Traded Funds (ETFs) - If you prefer not to invest with mutual funds, ETFs can
be a viable alternative. You can basically think of ETFs as mutual funds that trade likestocks. ETFs are similar to mutual funds in that they represent a large basket of stocks -
usually grouped by sector, capitalization, country and the like - except that they are not
actively managed, but instead track a chosen index or other basket of stocks. Because
they are passively managed, ETFs offer cost savings over mutual funds while providing
diversification. ETFs also cover a wide range of asset classes and can be a useful tool for
rounding out your portfolio.
Step 3: Reassessing Portfolio Weightings
Once you have an established portfolio, you need to analyze and rebalance it periodically
because market movements may cause your initial weightings to change. To assess your
portfolio's actual asset allocation, quantitatively categorize the investments and determine
their values' proportion to the whole. The other factors that are likely to change over time
are your current financial situation, future needs and risk tolerance. If these things
change, you may need to adjust your portfolio accordingly. If your risk tolerance has
dropped, you may need to reduce the amount of equities held. Or perhaps you're now
ready to take on greater risk and your asset allocation requires that a small proportion of
your assets be held in riskier small-cap stocks. Essentially, to rebalance, you need to
determine which of your positions are over weighted and underweighted. For example,
say you are holding 30% of your current assets in small-cap equities, while your asset
allocation suggests you should only have 15% of your assets in that class. Rebalancing
involves determining how much of this position you need to reduce and allocate to other
classes.
Step 4: Rebalancing Strategically
Once you have determined which securities you need to reduce and by how much, decide
which underweighted securities you will buy with the proceeds from selling the over
weighted securities. To choose your securities, use the approaches discussed in Step
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2.When selling assets to rebalance your portfolio, take a moment to consider the tax
implications of readjusting your portfolio. Perhaps your investment in growth stocks has
appreciated strongly over the past year, but if you were to sell all of your equity positions
to rebalance your portfolio, you may incur significant capital gains taxes. In this case, it
might be more beneficial to simply not contribute any new funds to that asset class in the
future while continuing to contribute to other asset classes. This will reduce your growth
stocks' weighting in your portfolio over time without incurring capital gains taxes.
At the same time, always consider the outlook of your securities. If you suspect that those
same over weighted growth stocks are ominously ready to fall, you may want to sell in
spite of the tax implications. Analyst opinions and research reports can be useful tools to
help gauge the outlook for your holdings. And tax-loss selling is a strategy you can apply
to reduce tax implications.
Remember the Importance of Diversification .
Throughout the entire portfolio construction process, it is vital that you remember to
maintain your diversification above all else. It is not enough simply to own securities
from each asset class; you must also diversify within each class. Ensure that your
holdings within a given asset class are spread across an array of subclasses and industry
sectors. As we mentioned, investors can achieve excellent diversification by using mutual
funds and ETFs. These investment vehicles allow individual investors to obtain the
economies of scale that large fund managers enjoy, which the average person would not
be able to produce with a small amount of money.
The Bottom Line
Overall, a well-diversified portfolio is your best bet for consistent long-term growth ofyour investments. It protects your assets from the risks of large declines and structural
changes in the economy over time. Monitor the diversification of your portfolio, making
adjustments when necessary, and you will greatly increase your chances of long-term
financial success.
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2.5 CONCEPTS AND DEFINITIONS
PORTFOLIO MANAGEMENT
Portfolio is none other than Basket of Stocks. Portfolio Management is the professional
management of various securities (shares, bonds and other securities) and assets (e.g.,
real estate) in order to meet specified investment goals for the benefit of the investors. It
may refer to:
Investment management, handled by a portfolio manager
IT Program management
IT portfolio management
Project management
Project portfolio management
Market capitalization (or market cap) is the total value of the issued shares of a publicly
traded company; it is equal to the share price times the number of shares outstanding. As
outstanding stock is bought and sold in public markets, capitalization could be used as a
proxy for the public opinion of a company's net worth and is a determining factor in some
forms of stock valuation.
Traditionally, companies were divided into large-cap, mid-cap, and small-cap. The terms
mega-cap and micro-cap have also since come into common use and nano-cap is
sometimes heard. Different numbers are used by different indexes;[8] there is no official
definition of, or full consensus agreement about, the exact cutoff values. The cutoffs may
be defined as percentiles rather than in nominal dollars. The definitions expressed in
nominal dollars need to be adjusted over the decades due to inflation, population change,
and overall market valuation (for example, $1 billion was a large market cap in 1950, but
it is not very large now), and they may be different for different countries. A rule of
thumb may look like:
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A term used by the investment community to refer to companies with a market
capitalization value of more than $10 billion. Large cap is an abbreviation of the term
"large market capitalization". Market capitalization is calculated by multiplying the
number of a company's shares outstanding by its stock price per share.
Financial Markets
Introduction
There are a wide range of financial securities available in the markets these days. In this
chapter, we take a look at different financial markets and try to explain the various
instruments where investors can potentially park their funds. Financial markets can
mainly be classified into money markets and capital markets. Instruments in the money
markets include mainly short-term, marketable, liquid, low-risk debt securities. Capital
markets, in contrast, include longer-term and riskier securities, which include bonds and
equities. There is also a wide range of derivatives instruments that are traded in the
capital markets. Both bond market and money market instruments are fixed-income
securities but bond market instruments are generally of longer maturity period as
compared to money market instruments. Money market instruments are of very short
maturity period. The equities market can be further classified into the primary and the
secondary market. Derivative market instruments are mainly futures, forwards and
options on the underlying instruments, usually equities and bonds.
Primary and Secondary Markets
A primary market is that segment of the capital market, which deals with the raising of
capital from investors via issuance of new securities. New stocks/bonds are sold by the
issuer to the public in the primary market. When a particular security is offered to the
public for the first time, it is called an Initial Public Offering (IPO). When an issuer wantsto issue more securities of a category that is already in existence in the market it is
referred to as Follow-up Offerings.
Example: Reliance Power Ltd.s offer in 2008 was an IPO because it was for the first
time that Relian ce Power Ltd. offered securities to the public. Whereas, BEMLs public
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offer in 2007 was a Follow-up Offering as BEML shares were already issued to the
public before 2007 and were available in the secondary market.
It is generally easier to price a security during a Follow-up Offering since the market
price of the security is actually available before the company comes up with the offer,whereas in the case of an IPO it is very difficult to price the offer since there is no
prevailing market for the security. It is in the interest of the company to estimate the
correct price of the offer, since there is a risk of failure of the issue in case of non-
subscription if the offer is overpriced. If the issue is underpriced, the company stands to
lose notionally since the securities will be sold at a price lower than its intrinsic value,
resulting in lower realizations. The secondary market (also known as aftermarket) is the
financial market where securities, which have been issued before are traded. The
secondary market helps in bringing potential buyers and sellers for a particular security
together and helps in facilitating the transfer of the security between the parties. Unlike in
the primary market where the funds move from the hands of the investors to the issuer
(company/ Government, etc.), in case of the secondary market, funds and the securities
are transferred from the hands of one investor to the hands of another. Thus the primary
market facilitates capital formation in the economy and secondary market provides
liquidity to the securities. There is another market place, which is widely referred to as
the third market in the investment world. It is called the over-the-counter market or OTC
market. The OTC market refers to all transactions in securities that are not undertaken on
an Exchange. Securities traded on an OTC market may or may not be traded on a
recognized stock exchange. Trading in the OTC market is generally open to all registered
broker-dealers. There may be regulatory restrictions on trading some products in the OTC
markets. For example, in India equity derivatives is one of the products which is
regulatory not allowed to be traded in the OTC markets. In addition to these three, direct
transactions between institutional investors, undertaken primarily with transaction costsin mind, are referred to as the fourth market.
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Trading in Secondary Markets
Trading in secondary market happens through placing of orders by the investors and their
matching with a counter order in the trading system. Orders refer to instructions provided
by a customer to a brokerage firm, for buying or selling a security with specificconditions. These conditions may be related to the price of the security (limit order or
market order or stop loss orders) or related to time (a day order or immediate or cancel
order). Advances in technology have led to most secondary markets of the world
becoming electronic exchanges. Disaggregated traders across regions simply log in the
exchange, and use their trading terminals to key in orders for transaction in securities. We
outline some of the most popular orders below:
Types of Orders
Limit Price/Order: In these orders, the price for the order has to be specified while
entering the order into the system. The order gets executed only at the quoted price or at a
better price (a price lower than the limit price in case of a purchase order and a price
higher than the limit price in case of a sale order). Market Price/Order: Here the
constraint is the time of execution and not the price. It gets executed at the best price
obtainable at the time of entering the order. The system immediately executes the order,
if there is a pending order of the opposite type against which the order can match. The
matching is done automatically at the best available price (which is called as the market
price). If it is a sale order, the order is matched against the best bid (buy) price and if it is
a purchase order, the order is matched against the best ask (sell) price. The best bid price
is the order with the highest buy price and the best ask price is the order with the lowest
sell price. Stop Loss (SL) Price/Order: Stop-loss orders which are entered into the trading
system, get activated only when the market price of the relevant security reaches a
threshold price. When the market reaches the threshold or pre-determined price, the stoploss order is triggered and enters into the system as a market/limit order and is executed
at the market price / limit order price or better price. Until the threshold price is reached
in the market the stop loss order does not enter the market and continues to remain in the
order book. A sell order in the stop loss book gets triggered when the last traded price in
the normal market reaches or falls below the trigger price of the order. A buy order in the
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stop loss book gets triggered when the last traded price in the normal market reaches or
exceeds the trigger price of the order. The trigger price should be less than the limit price
in case of a purchase order and vice versa. Time Related Conditions Day Order (Day): A
Day order is valid for the day on which it is entered. The order, if not matched, gets
cancelled automatically at the end of the trading day. At the National Stock Exchange
(NSE) all orders are Day orders. That is the orders are matched during the day and all
unmatched orders are flushed out of the system at the end of the trading day. Immediate
or Cancel order (IOC): An IOC order allows the investor to buy or sell a security as soon
as the order is released into the market, failing which the order is removed from the
system. Partial match is possible for the order and the unmatched portion of the order is
cancelled immediately.
Matching of orders
When the orders are received, they are time-stamped and then immediately processed for
potential match. The best buy order is then matched with the best sell order. For this
purpose, the best buy order is the one with highest price offered, also called the highest
bid, and the best sell order is the one with lowest price also called the lowest ask (i.e.,
orders are looked at from the point of view of the opposite party). If a match is found
then the order is executed and a trade happens. An order can also be executed against
multiple pending orders, which will result in more than one trade per order. If an order
cannot be matched with pending orders, the order is stored in the pending orders book till
a match is found or till the end of the day whichever is earlier. The matching of orders at
NSE is done on a price-time priority i.e., in the following sequence:
Be st Price
Within Price, by time priority
Orders lying unmatched in the trading system are passive orders and orders that come in
to match the existing orders are called active orders. Orders are always matched at the
passive order price. Given their nature, market orders are instantly executed, as compared
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to limit orders, which remain in the trading system until their market prices are reached.
The set of such orders across stocks at any point in time in the exchange, is called the
Limit Order Book (LOB) of the exchange. The top five bids/asks (limit orders all) for any
security are usually visible to market participants and constitute the Market By Price
(MBP) of the security.
The Money Market
The money market is a subset of the fixed-income market. In the money market,
participants borrow or lend for short period of time, usually up to a period of one year.
These instruments are generally traded by the Government, financial institutions and
large corporate houses. These securities are of very large denominations, very liquid,
very safe but offer relatively low interest rates. The cost of trading in the money market(bid-ask spread) is relatively small due to the high liquidity and large size of the market.
Since money market instruments are of high denominations they are generally beyond the
reach of individual investors. However, individual investors can invest in the money
markets through money-market mutual funds. We take a quick look at the various
products available for trading in the money markets.
T-Bills
T-Bills or treasury bills are largely risk-free (guaranteed by the Government and hence
carry only sovereign risk - risk that the government of a country or an agency backed by
the government, will refuse to comply with the terms of a loan agreement), short-term,
very liquid instruments that are issued by the central bank of a country. The maturity
period for T-bills ranges from 3-12 months. T-bills are circulated both in primary as well
as in secondary markets. T-bills are usually issued at a discount to the face value and the
investor gets the face value upon maturity. The issue price (and thus rate of interest) of T-
bills is generally decided at an auction, which individuals can also access. Once issued,
T-bills are also traded in the secondary markets. In India, T-bills are issued by the
Reserve Bank of India for maturities of 91-days, 182 days and 364 days. They are issued
weekly (91-days maturity) and fortnightly (182-days and 364- days maturity )
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Commercial Paper
Commercial papers (CP) are unsecured money market instruments issued in the form of a
promissory note by large corporate houses in order to diversify their sources of short-
term borrowings and to provide additional investment avenues to investors. Issuingcompanies are required to obtain investment-grade credit ratings from approved rating
agencies and in some cases, these papers are also backed by a bank line of credit. CPs are
also issued at a discount to their face value. In India, CPs can be issued by companies,
primary dealers (PDs), satellite dealers (SD) and other large financial institutions, for
maturities ranging from 15 days period to 1-year period from the date of issue. CP
denominations can be Rs. 500,000 or multiples thereof. Further, CPs can be issued either
in the form of a promissory note or in de materialized form through any of the approved
depositories.
Certificates of Deposit
A certificate of deposit (CD), is a term deposit with a bank with a specified interest rate.
The duration is also pre-specified and the deposit cannot be withdrawn on demand.
Unlike other bank term deposits, CDs are freely negotiable and may be issued in
dematerialized form or as a Usance Promissory Note. CDs are rated (sometimes
mandatory) by approved credit rating agencies and normally carry a higher return than
the normal term deposits in banks (primarily due to a relatively large principal amount
and the low cost of raising funds for banks). Normal term deposits are of smaller ticket-
sizes and time period, have the flexibility of premature withdrawal and carry a lower
interest rate than CDs. In many countries, the central bank provides insurance (e.g.
Federal Deposit Insurance Corporation (FDIC) in the U.S., and the Deposit Insurance and
Credit Guarantee Corporation (DICGC) in India) to bank depositors up to a certain
amount (Rs. 100000 in India). CDs are also treated as bank deposit for this purpose. InIndia, scheduled banks can issue CDs with maturity ranging from 7 days 1 year and
financial institutions can issue CDs with maturity ranging from 1 year 3 years. CD are
issued for denominations of Rs. 1,00,000 and in multiples thereof
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Repos and Reverse Repos
Repos (or Repurchase agreements) are a very popular mode of short-term (usually
overnight) borrowing and lending, used mainly by investors dealing in Government
securities. The arrangement involves selling of a tranche of Government securities by theseller (a borrower of funds) to the buyer (the lender of funds), backed by an agreement
that the borrower will repurchase the same at a future date (usually the next day) at an
agreed price. The difference between the sale price and the repurchase price represents
the yield to the buyer (lender of funds) for the period. Repos allow a borrower to use a
financial security as collateral for a cash loan at a fixed rate of interest. Since Repo
arrangements have T-bills as collaterals and are for a short maturity period, they virtually
eliminate the credit risk. Reverse repo is the mirror image of a repo, i.e., a repo for the
borrower is a reverse repo for the lender. Here the buyer (the lender of funds) buys
Government securities from the seller (a borrower of funds) agreeing to sell them at a
specified higher price at a future date.
The Bond Market
Bond markets consist of fixed-income securities of longer duration than instruments in
the money market. The bond market instruments mainly include treasury notes and
treasury bonds, corporate bonds, Government bonds etc.
State and Municipal Government bonds
Apart from the central Government, various State Governments and sometimes municipal
bodies are also empowered to borrow by issuing bonds. They usually are also backed by
guarantees from the respective Government. These bonds may also be issued to finance
specific projects (like road, bridge, airports etc.) and in such cases, the debts are either
repaid from future revenues generated from such projects or by the Government from its
own funds. Similar to T-notes and T-bonds, these bonds are also granted tax-exempt
status. In India, the Government securities (includes treasury bills, Central Government
securities and State Government securities) are issued by the Reserve Bank of India on
behalf of the Government of India.
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Corporate Bonds
Bonds are also issued by large corporate houses for borrowing money from the public for
a certain period. The structure of corporate bonds is similar to T-Notes in terms of
coupon payment, maturity amount (face value), issue price (discount to face value) etc.However, since the default risk is higher for corporate bonds, they are usually issued at a
higher discount than equivalent Government bonds. These bonds are not exempt from
taxes. Corporate bonds are classified as secured bonds (if backed by specific collateral),
unsecured bonds (or debentures which do not have any specific collateral but have a
preference over the equity holders in the event of liquidation) or subordinated debentures
(which have a lower priority than bonds in claim over a firms assets).
International Bonds
These bonds are issued overseas, in the currency of a foreign country which represents a
large potential market of investors for the bonds. Bonds issued in a currency other than
that of the country which issues them are usually called Eurobonds. However, now they
are called by various names depending on the currency in which they are issued.
Eurodollar bonds are US dollar-denominated bonds issued outside the United States.
Euro-yen bonds are yen denominated bonds issued outside Japan. Some international
bonds are issued in foreign countries in currency of the country of the investors. The most
popular of such bonds are Yankee bond and Samurai Bonds. Yankee bonds are US dollar
denominated bonds issued in U.S. by a non-U.S. issuer and Samurai bonds are yen-
denominated bonds issued in Japan by non-Japanese issuers.
Convertible Bonds
Convertible bonds offer a right (but not the obligation) to the bondholder to get the bond
converted into predetermined number of equity stock of the issuing company, at certain, pre specified times during its life. Thus, the holder of the bond gets an additional value,
in terms of an option to convert the bond into stock (equity shares) and thereby
participate in the growth of the companys equity value. The investor receives the
potential upside of conversion into equity while protecting downside with cash flow from
the coupon payments. The issuer company is also benefited since such bonds generally
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offer reduced interest rate. However, the value of the equity shares in the market
generally falls upon issue of such bonds in anticipation of the stock dilution that would
take place when the option (to convert the bonds into equity) is exercised by the
bondholders.
Commodity
The word commodity came into use in English in the 15th century, from the French
commodit, to a benefit or profit. Going further back, the French word derived from the
Latin commoditatem (nominative commoditas) meaning "fitness, adaptation". The Latin
root commod- (from which English gets other words including commodious and
accommodate) meant variously "appropriate", "proper measure, time, or condition" and
"advantage, benefit".
In economics, a commodity is a marketable item produced to satisfy wants or needs.
Economic commodities comprise goods and services.
The more specific meaning of the term commodity is applied to goods only. It is used to
describe a class of goods for which there is demand, but which is supplied without
qualitative differentiation across a market. A commodity has full or partial fungibility;
that is, the market treats its instances as equivalent or nearly so with no regard to who
produced them. "From the taste of wheat it is not possible to tell who produced it, a
Russian serf, a French peasant or an English capitalist." Petroleum and copper are other
examples of such commodities, their supply and demand being a part of one universal
market. Items such as stereo systems, on the other hand, have many aspects of product
differentiation, such as the brand, the user interface and the perceived quality. The
demand for one type of stereo may be much larger than demand for another.
In contrast, one of the characteristics of a commodity good is that its price is determined
as a function of its market as a whole. Well-established physical commodities have
actively traded spot and derivative markets. Generally, these are basic resources and
agricultural products such as iron ore, crude oil, coal, salt, sugar, tea, coffee beans,
soybeans, aluminum, copper, rice, wheat, gold, silver, palladium, and platinum. Soft
http://fr.wikipedia.org/wiki/commodit%C3%A9http://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Wantshttp://en.wikipedia.org/wiki/Needshttp://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Qualitative_datahttp://en.wikipedia.org/wiki/Product_differentiationhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Spot_markethttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Iron_orehttp://en.wikipedia.org/wiki/Crude_oilhttp://en.wikipedia.org/wiki/Coalhttp://en.wikipedia.org/wiki/Salthttp://en.wikipedia.org/wiki/Sugarhttp://en.wikipedia.org/wiki/Teahttp://en.wikipedia.org/wiki/Coffee_beanhttp://en.wikipedia.org/wiki/Soybeanhttp://en.wikipedia.org/wiki/Aluminumhttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Ricehttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Silverhttp://en.wikipedia.org/wiki/Palladiumhttp://en.wikipedia.org/wiki/Platinumhttp://en.wikipedia.org/wiki/Platinumhttp://en.wikipedia.org/wiki/Palladiumhttp://en.wikipedia.org/wiki/Silverhttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Ricehttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Aluminumhttp://en.wikipedia.org/wiki/Soybeanhttp://en.wikipedia.org/wiki/Coffee_beanhttp://en.wikipedia.org/wiki/Teahttp://en.wikipedia.org/wiki/Sugarhttp://en.wikipedia.org/wiki/Salthttp://en.wikipedia.org/wiki/Coalhttp://en.wikipedia.org/wiki/Crude_oilhttp://en.wikipedia.org/wiki/Iron_orehttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Spot_markethttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Product_differentiationhttp://en.wikipedia.org/wiki/Qualitative_datahttp://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Needshttp://en.wikipedia.org/wiki/Wantshttp://en.wikipedia.org/wiki/Economicshttp://fr.wikipedia.org/wiki/commodit%C3%A98/13/2019 Portfolio Analysis of INDIA BULLS.
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commodities are goods that are grown, while hard commodities are the ones that are
extracted through mining.
This is a list of giant commodities trading companies who operate worldwide.
1. Vitol
2. Glencore International AG
3. Trafigura
4. Cargill
5. Archer Daniels Midland
6. Gunvor (company)
7. Mercuria Energy Group
8. Noble Group
9. Louis Dreyfus Group
10. Bunge Limited
11. Wilmar International
12. Olam International
Commodity trade
In the original and simplified sense, commodities were things of value, of uniform
quality, that were produced in large quantities by many different producers; the items
from each different producer were considered equivalent. On a commodity exchange, it is
the underlying standard stated in the contract that defines the commodity, not any quality
inherent in a specific producer's product.
Commodities exchanges include:
Chicago Board of Trade (CBOT)
Chicago Mercantile Exchange (CME)
Dalian Commodity Exchange (DCE)
Global Board of Trade (GBOT)
Euronext.liffe (LIFFE)
http://en.wikipedia.org/wiki/Mininghttp://en.wikipedia.org/wiki/Vitolhttp://en.wikipedia.org/wiki/Glencore_International_AGhttp://en.wikipedia.org/wiki/Trafigurahttp://en.wikipedia.org/wiki/Cargillhttp://en.wikipedia.org/wiki/Archer_Daniels_Midlandhttp://en.wikipedia.org/wiki/Gunvor_(company)http://en.wikipedia.org/wiki/Mercuria_Energy_Grouphttp://en.wikipedia.org/wiki/Noble_Grouphttp://en.wikipedia.org/wiki/Louis_Dreyfus_Grouphttp://en.wikipedia.org/wiki/Bunge_Limitedhttp://en.wikipedia.org/wiki/Bunge_Limitedhttp://en.wikipedia.org/wiki/Wilmar_Internationalhttp://en.wikipedia.org/wiki/Wilmar_Internationalhttp://en.wikipedia.org/wiki/Olam_Internationalhttp://en.wikipedia.org/wiki/Olam_Internationalhttp://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Chicago_Board_of_Tradehttp://en.wikipedi