MBA: I

SEM: II

Securities Analysis & Portfolio

Management
Course Code: 217FIN
SUBJECT ELECTIVE (SE - IL)– 2 Credits

Course Faculty:
Prof. Ragini Indoriya
 Introduction Of Course
UNIT – 1
Introduction & Concepts
*Investment: Meaning, nature & objectives, Investments
Vs. Speculation & Gambling,
*Investment Process, Investment Environment, Investment
avenues: Marketable & Non marketable financial assets.
*Portfolio Management: Meaning, attributes, significance
and process of Portfolio Management, Portfolio manager
and his role (3+1)
 UNIT – 2
Risk & Return Analysis
*Risk & Return: Meaning and Elements of Risk & Return,
Measurements of Risk & Return, Relationship between
risk and return.
*Fundamental Analysis: Economy analysis, industry
analysis and company analysis, weaknesses of
fundamental analysis.
*Technical Analysis: Meaning, Tools of technical analysis,
Technical Analysis vs. Fundamental Analysis.
*Efficient Market Theory: Meaning. Forms of Market
Efficiency, Efficient Market Hypothesis vs. Fundamental
& Technical Analysis (7+1)
 UNIT – 3
Valuation of bonds and shares:

*Bond Valuation: Meaning, Types, Bond Prices, Bond

Return, Risks in Bonds.
*Equity Valuation: Meaning, Concept of Present Value,
Share Valuation Models, Multiplier Approach to Share
Valuation (5+1)
 UNIT – 4
Portfolio Analysis & Selection:
*Concept of portfolio and portfolio management: Meaning, Types
of Portfolio Risks, Diversification of Risks, Selection of Optimal
Portfolio.
*Markowitz Portfolio Selection Model: Efficient set of portfolios,
Optimal Portfolio selection, Limitations of the Model.
*Capital Asset Pricing Model (CAPM): Meaning, Assumptions &
Limitations of CAPM.
*Sharpe-The Single Index Model: Measuring security risk & return,
Measuring Portfolio Risk & Return.
*Factor Models and Arbitrage Pricing Theory: Arbitrage Pricing
Theory and its principles, Comparison of Arbitrage Pricing Theory
with the Capital Asset Pricing Model (7+1)
 UNIT – 5
Portfolio Revision & Evaluation :

*Portfolio Revision: Meaning and need of Portfolio

Revision, Constraints in Portfolio Revision, Revision
Strategies,
*Portfolio Evaluation: Meaning and need of Portfolio
Evaluation, Evaluation Perspectives, Measuring Portfolio
Returns & Risk Adjusted Returns (3+1)
*Concurrent Evaluation Parameters:
oEnd Term

oAssignments

oClass Test

oMCQ’s

oPresentations/ Class Participation

oSmall project
*Suggested Text Books:

1. Investment Analysis and Portfolio Management,

Chandra, Prasanna (Tata McGraw Hill Publishing Co. Ltd.)
2. Securities Analysis & Portfolio Mgmt., V A Avadhani
,Himalaya Publications
3. Security Analysis and Portfolio Management, S. Kevin,
PHI Learning Pvt. Ltd.
4. Investment Analysis & Portfolio Management,
Ranganathan&Madhumathi ,Pearson Education Pvt. Ltd.
*Suggested Reference Books:
1. Security Analysis and Portfolio Management, Fischer DE & Jordan
R J, Prentice Hall.
2. Portfolio Management, Barua, S. K.; Raghunathan V; Varma, J R
,Tata McGraw Hill Publishing Co. Ltd.
3. Investment Analysis and Portfolio Management, Frank K. Reilly
and Keith C. Brown ,Thomson Learning
4. Modern Investments and Security Analysis, Fuller R J; Farrel JL
,McGraw Hill
5. Investment Management, V.K. Bhalla ,[Link]& Co.
6. Security Analysis & Portfolio Management, [Link], Excel Books
7. Security Analysis and Portfolio Management, Punithavathy P.,
Vikas Publishing
8. Security Analysis and Portfolio Management, A.P. Dash,I.K.
International
 Study Material

Chapter wise :
oNotes
oPPTs
oPractice Questions ( 2, 5 & 10 marks)
oVideo and reference Links will be shared
oCase studies
 UNIT – 1
Introduction & Concepts:
*What is an Investment?
Investment is an activity that is engaged in by people
who have savings and investments are made from savings.
But all savers are not investors so investment is an activity
which is different from saving.
If one person has advanced some money to another,
he may consider his loan as an investment. He expects to get
back the money along with interest at a future date.
Another person may have purchased one kilogram of
gold for the purchase of price appreciation and may consider
it as an investment.
Yet another person may purchase an insurance plan
for the various benefit it promises in future. That is his
investment.
* Investment involves employment of funds with the
aim of achieving additional income or growth in values or
the commitment of resources which have been saved in the
hope that some benefits will accrue in future.
*Characteristics of Investment:
* Return:
Investments are made with the primary objective of
deriving a return. The return may be received in the form of
capital appreciation plus yield. The difference between the
sales price is capital appreciation. The dividend or interest
received from the investment is the yield.
* Risk:
Risk may relate to loss of capital, delay in repayment of
capital, non-payment of interest, or variability of returns.
While some investment like government securities and bank
deposits are riskless, others are risky.
1) The longer the maturity period, the larger is the risk.
2).The lower credit worthiness of the borrower, the higher
is the risk.
3). Investments in credit ownership securities like enquiry
shares carry higher risk compared to investments in debt
instruments like debentures and bonds.

Risk and return of an investment are related. Normally, the

higher the risk, the higher is the return.
*Safety:
Safety is another feature which an investor desires for
his investments. The safety of an investment implies the
certainty of return of capital on maturity without loss and
without delay.
* Liquidity:
An investment which is easily saleable or marketable
without loss of money and without loss of time is said
process liquidity. Some investments like company deposits
, bank deposits, P.O. deposits, NSC, NSS etc are not
marketable. Some investment instruments like preference
shares and debentures are marketable but there are no
buyers in many cases and hence their liquidity is easily
marketable through the stock exchanges.
* An Investor generally prefers liquidity for his
investment, safety of his funds, a good return with
minimum risk or minimization of risk and maximization of
return.
*Objectives of Investment:
*The main objectives of investments are:

1). Maximization of returns:

The rate of return could be defined as the total income
the investor receives during the holding period, stated as a
percentage price at the beginning of the holding period.
2) Minimizing the risk:
The risk of holding securities is related to the
probability of the actual return becoming less than the
expected return. If we consider the financial assets
available for investment, we can classify them into
different risk categories. Government securities would
constitute the low risk category as they are practically risk
free. Debentures and preference shares of companies may
be classified as medium risk assets. Equity shares of
companies would from the high risk category of financial
assets.
*Other subsidiary objectives are:
1). Maintaining Liquidity:
Liquidity depends upon marketing and trading
facilities. If a portion of the investment could be converted
into cash without much loss of time, it helps the investor to
meet emergencies. Stocks are liquid only if they commend
a good market by proving adequate returns through
dividends and capital appreciation.
2). Hedging against inflation:
The rate of return should ensure a cover against
inflation to against a rise in prices and fall in the
purchasing value of money. The rate of return should be
higher than the rate of inflation otherwise the investor will
experience loss in real terms.
3). Increasing safety:
The selected investment avenue should be under the
legal and regulatory framework. If it is not under the legal
framework, it will be difficult to represent grievances.
Approval of the law itself adds a flavour of safety. From
the safety point of view, investments can be ranked as
follows: bank deposit
*Investment Vs. Speculation:

*Investment: An investment is the current commitment of

money or other resources in the expectation of reaping
future benefits.

*Speculation: Act of trading in an asset, or conducting

transaction, that has significant risk of losing most or all of
initial outlay, in expectation of substantial gain.
*Difference between investment and speculation:
Investment Speculation

• Long term planning (at least • Short term planning(few days

one year) or months)
• Low or moderate risk. • High risk

• Low or moderate rate of • High rate of return.

return.
• Investment decisions are based • Decisions are based on hearsay
on fundamentals. and market psychology.
• Investors leveraged its own • Resort to borrowed funds.
funds.
*Gambling:

*Gambling is quite the opposite of investment. Typically

examples are horse races, card games, lotteries, etc.
*Itconsists in taking high risks not only for high returns,
but also for thrill and excitement.
*It is unplanned and non scientific.
*In gambling artificial and unnecessary risks are created for
increasing returns.
*Investment vs. Gambling:

Investment Gambling

• Carefully planned and • Unplanned & Unscientific.

scientific.
• Risk match with return. • Taking high risk for high
return.
• For regular income & • For thrill & excitement.
capital gain.
• Long term. • Very short term.;

• Detailed analysis. • Based on tips & rumors.

*The Investment Process:
*The process of investment includes five stages:
1. Investment policy: The policy is formulated on the basis
of investible funds, objectives and knowledge about
investment sources.
2. Security analyses: Economic, industry and company
analyses are carried out for the purchase of securities.
3. Valuation: Intrinsic value of the share is measured
through book value of the minimize risk.
4. Portfolio Construction: Portfolio is diversified to
maximize return and minimize risk.
5. Portfolio Evaluation: The performance of the portfolio is
appraised and revised.
*Investment avenues:
*Investment avenues are the different ways that a person
can invest his money. It also called investment alternatives
or investment schemes
*Alternatives of investment include share market,
debentures or bonds, money market instruments, mutual
funds, life insurance, real estate, precious
objects, derivatives, non-marketable securities.
*Investment in any of the alternatives depends on the needs
and requirements of the investor.
*Corporates and individuals have different needs. Before
investing, these alternatives of investments need to be
analyzed in terms of their risk, return, term, convenience,
liquidity etc.
1) EQUITY SHARES:
Equity investments represent ownership in a running company.
By ownership, we mean share in the profits and assets of the company
but generally, there are no fixed returns. It is considered as a risky
investment but at the same time, depending upon situation, it is liquid
investments due to the presence of stock markets.
2) DEBENTURES OR BONDS:
Debentures or bonds are long-term investment options with a
fixed stream of cash flows depending on the quoted rate of interest.
They are considered relatively less risky. An amount of risk involved
in debentures or bonds is dependent upon who the issuer is.
*Government securities
*Savings bonds
*Public Sector Units bonds
*Debentures of private sector companies
3) MONEY MARKET INSTRUMENTS:
Money market instruments are just like the debentures but the
time period is very less. It is generally less than 1 year. Corporate entities
can utilize their idle working capital by investing in money market
instruments. Some of the money market instruments are:
*Treasury Bills
*Commercial Paper
*Certificate of Deposits
4) MUTUAL FUNDS:
Mutual funds are an easy and tension free way of investment and
it automatically diversifies the investments. A mutual fund is an
investment only in debt or only in equity or mix of debts and equity and
ratio depending on the scheme. They provide with benefits such as
professional approach, benefits of scale and convenience. Further
investing in mutual fund will have advantage of getting professional
management services, at a lower cost, which otherwise was not possible
at all.
5) LIFE INSURANCE AND GENERAL INSURANCE:
They are one of the important parts of good investment portfolios.
Life insurance is an investment for the security of life. The main
objective of other investment avenues is to earn a return but the primary
objective of life insurance is to secure our families against unfortunate
event of our death. It is popular in individuals. Other kinds of general
insurances are useful for corporates.
6) REAL ESTATE:
* Every investor has some part of their portfolio invested in real
assets. Almost every individual and corporate investor invest in
residential and office buildings respectively. Apart from these, others
include:
*Agricultural Land
*Semi-Urban Land
*Commercial Property
*Raw House
*Farm House etc.
7) PRECIOUS OBJECTS:
Precious objects include gold, silver and other
precious stones like the diamond. Some artistic people
invest in art objects like paintings, ancient coins etc.
8) DERIVATIVES:
Derivatives means indirect investments in the assets.
The derivatives market is growing at a tremendous speed.
The important benefit of investing in derivatives is that it
leverages the investment, manages the risk and helps in
doing speculation. Derivatives include:
*Forwards
*Futures
*Options
*Swaps etc
*What are Marketable Securities?
Marketable securities are liquid financial instruments
that can be quickly converted into cash at a reasonable price.
The liquidity of marketable securities comes from the fact
that the maturities tend to be less than one year, and that the
rates at which they can be bought or sold have little effect on
prices.
*Commercial paper
*Money market instruments.
*What Is a Non-Marketable Security?
*A non-marketable security is typically a debt security that
is difficult to buy or sell due to the fact that they are not
traded on any major secondary market exchanges.
Such securities, if traded in any secondary market, are
usually only bought and sold through private transactions
or in an over-the-counter (OTC) market. For the holder of
a non-marketable security, finding a buyer can be difficult,
and some non-marketable securities cannot be resold at all
because government regulations prohibit any resale.
*Private shares
*Bank Deposits
*Post Office Deposits
*State or local government securities.
*Portfolio Management:

*What is a Portfolio?
*A portfolio can be defined as different investments tools
namely stocks, shares, mutual funds, bonds, cash all
combined together depending specifically on the investor’s
income, budget, risk appetite and the holding period. It is
formed in such a way that it stabilizes the risk of
nonperformance of different pools of investments.
*What is Portfolio Management?
*Portfolio Management is defined as the art and science of
making decisions about the investment mix and policy,
matching investments to objectives, asset allocation for
individuals and institutions, and balancing risk against
performance.
*Portfolio management is the act of building and
maintaining an appropriate investment mix for a given risk
tolerance.
*The key factors for any portfolio management strategy
involve asset allocation, diversification, and rebalancing
rules.
*Active portfolio management seeks to 'beat the market'
through identifying undervalued assets, often through
*Who is an Portfolio Manager?

*A portfolio manager is a person or group of people

responsible for investing a mutual, exchange-traded or
closed-end fund's assets, implementing its investment
strategy and managing day-to-day portfolio trading. A
portfolio manager is one of the most important factors to
consider when looking at fund investing. Portfolio
management can be active or passive, and historical
performance records indicate that only a minority of active
fund managers consistently beat the market.
*Process Of Portfolio Management:
1. Security Analysis: It is the first stage of portfolio creation process,
which involves assessing the risk and return factors of individual
securities, along with their correlation.
2. Portfolio Analysis: After determining the securities for investment
and the risk involved, a number of portfolios can be created out of
them, which are called as feasible portfolios.
3. Portfolio Selection: Out of all the feasible portfolios, the optimal
portfolio, that matches the risk appetite, is selected.
4. Portfolio Revision: Once the optimal portfolio is selected, the
portfolio manager, keeps a close watch on the portfolio, to make sure
that it remains optimal in the coming time, in order to earn good
returns.
5. Portfolio Evaluation: In this phase, the performance of the
portfolio is assessed over the stipulated period, concerning the
quantitative measurement of the return obtained and risk involved in
the portfolio, for the whole term of the investment.
*Portfolio Manager & his role:
*There are two types of portfolio managers, distinguished by the
type of clients they serve: individual or institutional. Both types
of portfolio manager serve to satisfy the earning goals for their
respective clientele
*A portfolio manager is responsible for making an individual
aware of the various investment tools available in the market
and benefits associated with each plan. Make an individual
realize why he actually needs to invest and which plan would be
the best for him.
*A portfolio manager is responsible for designing customized
investment solutions for the clients. No two individuals can
have the same financial needs. It is essential for the portfolio
manager to first analyze the background of his client. Know an
individual’s earnings and his capacity to invest. Sit with your
client and understand his financial needs and requirement.
*A portfolio manager must keep himself abreast with the latest
changes in the financial market. Suggest the best plan for your
client with minimum risks involved and maximum returns. Make
him understand the investment plans and the risks involved with
each plan in a jargon free language. A portfolio manager must be
transparent with individuals. Read out the terms and conditions and
never hide anything from any of your clients. Be honest to your
client for a long term relationship.
*A portfolio manager ought to be unbiased and a thorough
professional. Don’t always look for your commissions or money. It
is your responsibility to guide your client and help him choose the
best investment plan. A portfolio manager must design tailor made
investment solutions for individuals which guarantee maximum
returns and benefits within a stipulated time frame. It is the portfolio
manager’s duty to suggest the individual where to invest and where
not to invest? Keep a check on the market fluctuations and guide the
individual accordingly.
*A portfolio manager needs to be a good decision
maker. He should be prompt enough to finalize the best
financial plan for an individual and invest on his behalf.
*A portfolio manager plays a pivotal role in deciding the
best investment plan for an individual as per his
income, age as well as ability to undertake risks.
Investment is essential for every earning individual. One
must keep aside some amount of his/her income for tough
times. Unavoidable circumstances might arise anytime and
one needs to have sufficient funds to overcome the same.
THANK YOU….!!!