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Ba7021 Security Analysis and Portfolio Management 1 Sce BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT A Course Material on SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT By Mrs.V.THANGAMANI ASSISTANT PROFESSOR DEPARTMENT OF MANAGEMENT SCIENCES SASURIE COLLEGE OF ENGINEERING VIJAYAMANGALAM 638 056 1 SCE DEPARTMENT OF MANAGEMENT SCIENCES BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT QUALITY CERTIFICATE This is to certify that the e-course material Subject Code : BA7021 Subject : Security Analysis and Portfolio Management Class : II Year MBA Being prepared by me and it meets the knowledge requirement of the university curriculum. Signature of the Author Name : V.THANGAMANI Designation: Assistant Professor This is to certify that the course material being prepared by Mrs.V.THANGAMANI is of adequate quality. He has referred more than five books amount them minimum one is from abroad author. Signature of HD Name: S.Arun Kumar SEAL 2 SCE DEPARTMENT OF MANAGEMENT SCIENCES BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT CONTENTS CHAPTER TOPICS PAGE NO INVESTMENT SETTING 1.1 Financial meaning of investment 1.2 Economic meaning of Investment 7-25 1 1.3 Characteristics and objectives of Investment 1.4 Types of Investment 1.5 Investment alternatives 1.6 Choice and Evaluation 1.7 Risk and return concepts. SECURITIES MARKETS 2.1 Financial Market 2.2 Types of financial markets 2.3 Participants in financial Market 2.4 Regulatory Environment 2 2.5 Methods of floating new issues, 26-64 2.6 Book building 2.7 Role & Regulation of primary market 2.8 Stock exchanges in India BSE, OTCEI , NSE, ISE 2.9 Regulations of stock exchanges 2.10 Trading system in stock exchanges 2.11 SEBI FUNDAMENTAL ANALYSIS 3.1 Fundamental Analysis 3.2 Economic Analysis 3.3 Economic forecasting 3.4 stock Investment Decisions 3.5 Forecasting Techniques 3 3.6 Industry Analysis 65-81 3.7 Industry classification 3.8 Industry life cycle 3.9 Company Analysis 3.10Measuring Earnings 3.11 Forecasting Earnings 3.12 Applied Valuation Techniques 3.13 Graham and Dodds investor ratios. 3 SCE DEPARTMENT OF MANAGEMENT SCIENCES BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT TECHNICAL ANALYSIS 4.1 Fundamental Analysis Vs Technical Analysis 4.2 Charting methods 4.3 Market Indicators. 4 4.4 Trend , Trend Reversals 82-87 4.5 Patterns 4.6 Moving Average & Exponential Moving Average 4.7 Oscillators 4.8 Market Indicators 4.9 Efficient Market Theory PORTFOLIO MANAGEMENT 5.1 Portfolio Analysis 5.2 Portfolio Selection 5 5.3 CAPM 88-100 5.4 Portfolio Revision 5.5 Portfolio Evaluation 5.6 Mutual Funds Question Bank 101-107 University Question Papers 108-114 BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT LT P C 3 0 0 3 OBJECTIVES : Enables student to 4 SCE DEPARTMENT OF MANAGEMENT SCIENCES BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT ∑ Understand the nuances of stock market operations ∑ Understand the techniques involved in deciding upon purchase or sale of securities OUTCOME ∑ Become a good investment analyst UNIT I INVESTMENT SETTING 8 Financial and economic meaning of Investment Characteristics and objectives of Investment Types of Investment Investment alternatives Choice and Evaluation Risk and return concepts. UNIT II SECURITIES MARKETS 10 Financial Market - Segments Types - - Participants in financial Market Regulatory Environment, Primary Market Methods of floating new issues, Book building Role of primary market Regulation of primary market, Stock exchanges in India BSE, OTCEI , NSE, ISE, and Regulations of stock exchanges Trading system in stock exchanges SEBI. UNIT III FUNDAMENTAL ANALYSIS 9 Economic Analysis Economic forecasting and stock Investment Decisions Forecasting techniques. Industry Analysis : Industry classification, Industry life cycle Company Analysis Measuring Earnings Forecasting Earnings Applied Valuation Techniques Graham and Dodds investor ratios. UNIT IV TECHNICAL ANALYSIS 9 Fundamental Analysis Vs Technical Analysis Charting methods Market Indicators. Trend Trend reversals Patterns - Moving Average Exponential moving Average Oscillators Market Indicators Efficient Market theory. UNIT V PORTFOLIO MANAGEMENT 9 Portfolio analysis Portfolio Selection Capital Asset Pricing model Portfolio Revision Portfolio Evaluation Mutual Funds. TOTAL: 45 PERIODS TEXTBOOKS 1. Donald E.Fischer & Ronald J.Jordan, Security Analysis & Portfolio Management, PHI Learning., New Delhi, 8th edition, 2011. 2. Prasannachandra, Investment analysis and Portfolio Management, Tata McGraw Hill, 2011. REFERENCES 1. Reilly & Brown, Investment Analysis and Portfolio Management, Cengage Learning, 9th edition, 2011. 2. S. Kevin , Securities Analysis and Portfolio Management , PHI Learning , 2012. 3. Bodi, Kane, Markus, Mohanty, Investments, 8th edition, Tata McGraw Hill, 2011. 4. V.A.Avadhan, Securities Analysis and Portfolio Management, Himalaya Publishing House, 2011. 5. V.K.Bhalla, Investment Management, S.Chand & Company Ltd., 2012. 5 SCE DEPARTMENT OF MANAGEMENT SCIENCES BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT Unit 1: Investment Setting Financial and economic meaning of Investment Characteristics and objectives of Investment Types of Investment Investment alternatives Choice and Evaluation Risk and return concepts. 1.1.Introduction: ∑ Investment is putting money into something with the expectation of profit. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets. ∑ The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset. 1.2.Financial meaning of investment: ∑ Financial investment involves of funds in various assets, such as stock, Bond, Real Estate, Mortgages etc. ∑ Investment is the employment of funds with the aim of achieving additional income or growth in value. ∑ It involves the commitment of resources which have been saved or put away from current consumption in the hope some benefits will accrue in future. Investment involves long term commitment of funds and waiting for a reward in the future. ∑ From the point of view people who invest their finds, they are the supplier of Capital and in their view investment is a commitment of a person s funds to derive future income in the form of interest, dividend, rent, premiums, pension benefits or the appreciation of the value of their principle capital. ∑ To the financial investor it is not important whether money is invested for a productive use or for the purchase of secondhand instruments such as existing shares and stocks listed on the stock exchange. 6 SCE DEPARTMENT OF MANAGEMENT SCIENCES BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT ∑ Most investments are considered to be transfers of financial assets from one person to another. 1.3.Economic meaning of investment: ∑ Economic investment means the net additions to the capital stock of the society which consists of goods and services that are used in the production of other goods and services. Addition to the capital stock means an increase in building, plants, equipment and inventories over the amount of goods and services that existed. ∑ The financial and economic meanings are related to each other because investment is a part of the savings of individuals which flow into the capital market either directly or through institutions, divided in new and secondhand capital financing. Investors as suppliers and investors as users of long-term funds find a meeting place in the market. 1.4.Basic Investment Objectives Investment triangle three compromising objectives Any investment decision will be influenced by three objectives security, liquidity and yield. A best investment decision will be one, which has the best possible compromise between these three objectives. Security Liquidity Yield ∑ Security: Central to any investment objective, we have to basically ensure the safety of the principal. One can afford to lose the returns at any given point of time but s/he can ill afford to lose the very principal itself. By identifying the importance of security, we will be able to identify and select the instrument that meets this criterion. For example, when 7 SCE DEPARTMENT OF MANAGEMENT SCIENCES BA7021 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT compared with corporate bonds, we can vouch safe the safety of return of investment in treasury bonds as we have more faith in governments than in corporations. Hence, treasury bonds are highly secured instruments. The safest investments are usually found in the money market and include such securities as Treasury bills (T-bills), certificates of deposit (CD), commercial paper or bankers' acceptance slips; or in the fixed income (bond) market in the form of municipal and other government bonds, and in corporate bonds ∑ Liquidity: Because we may have to convert our investment back to cash or funds to meet our unexpected demands and needs, our investment should be highly liquid. They should be en cashable at short notice, without loss and without any difficulty. If they cannot come to our rescue, we may have to borrow or raise funds externally at high cost and at unfavorable terms and conditions. Such liquidity can be possible only in the case of investment, which has always-ready market and willing buyers and sellers. Such instruments of investment are called highly liquid investment. ∑ Yield: Yield is best described
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