“PROJECT REPORT”
IND BANK MERCHANT BANKING
CANDIDATE NAME: [Link]
INSITUTION: GURU NANAK COLLEGE
CHENNAI
COURSE: BACHELOR OF BUSINESS
ADMINISTRATION
( INTERN FOR THE PERIOD OF MAY 2nd 2019 TO
MAY 31st 2019 FOR THE FULFILLMENT OF
COLLEGE PROJECT IN FINANCE MARKETS
2019-2020 )
UNDER THE GUIDENCE OF
DECLARATION
we hereby, declare that all the data which is been
collected through the primary source and secondary
source during the course of internship has been used
only for academic purpose to serve the objective of
the project keeping in mind its value and importance.
Data may differ tn some cases depending upon the
source from where it is taken , whereas enough care
has been taken while selecting the good sources.
Signature of the candidate,
ABOUT INDBANK :
Indbank Merchant Banking Services Limited provides merchant
banking, stock broking ,depository participant, and allied services in
India. It offers merchant banking services for public issues, rights
issues, private placement, acquisition of shares and takeovers, and
employee stock option schemes/stock purchase scheme by corporates.
The company also provides advisory services for valuation of shares
and other financial instruments;syndication of loans; acquisitions;
mergers and amalgamations;and project counseling,appraisal, and
feasibility studies. In addition, it offers stock broking services in the
cash, derivatives, and wholesale debt market segments of NSE for
retail and institutional investors and in cash segment of BSE; online
trading services;and depository participation services for institutions
and retail customers, as well as distributes mutual funds and other
investment products. The company was incorporated in 1989 and is
based in Chennai,India. Indbank Merchant Banking Services Limited is
a subsidiary of Indian Bank.
RISK MANAGEMENT:
Risk management occurs everywhere in the financial world. It occurs when
an investor buys low-risk government bonds over riskier corporate bonds,
when a fund manager hedges his currency exposure with currency derivatives
ﾧ, and when a bank performs a credit check on an individual before
issuing a personal line of credit. Stockbrokers use financial
instruments like options ﾧ and futures ﾧ, and money managers use strategies
like portfolio and investment diversification to mitigate or effectively
manage risk.
Inadequate risk management can result in severe consequences for
companies, individuals, and for the economy. For example, the subprime
mortgage meltdown ﾧ in 2007 that helped trigger the Great Recession
stemmed from poor risk-management decisions, such as lenders who
extended mortgages to individuals with poor credit, investment firms who
bought, packaged, and resold these mortgages, and funds that invested
excessively in the repackaged, but still risky, mortgage-backed securities
(MBS)ﾧ.
HOW DO INVESTORS MEASURES RISK:
Investors use a variety of tactics to ascertain risk. One of the most
commonly used absolute risk metrics is standard deviation ﾧ, a statistical
measure of dispersion ﾧ around a central tendency. You look at the average
return of an investment and then find its average standard deviation
over the same time period. Normal distributions (the familiar bell-
shaped curve) dictate that the expected return of the investment is
likely to be one standard deviation from the average 67% of the time and
two standard deviations from the average deviation 95% of the time. This
helps investors evaluate risk numerically. If they believe that they can
tolerate the risk, financially and emotionally, they invest.
For example, during a 15-year period from August 1, 1992, to July 31,
2007, the average annualized total return ﾧ of the S&P 500 ﾧ was 10.7%. This
number reveals what happened for the whole period, but it does not say
what happened along the way. The average standard deviation of the S&P
500 for that same period was 13.5%. This is the difference between the
average return and the real return at most given points throughout the
15-year period.
When applying the bell curve model, any given outcome should fall within
one standard deviation of the mean about 67% of the time and within two
standard deviations about 95% of the time. Thus, an S&P 500 investor
could expect the return, at any given point during this period, to be
10.7% plus or minus the standard deviation of 13.5% about 67% of the
time; he may also assume a 27% (two standard deviations) increase or
decrease 95% of the time. If he can afford the loss, he invests.
TYPES OF RISK:
Financial risk is one of the high-priority risk types for every
business. Financial risk is caused due to market movements and market
movements can include host of factors. Based on this, financial risk can
be classified into various types such as Market Risk, Credit Risk,
Liquidity Risk, Operational Risk and Legal Risk.
MARKET RISK:
This type of risk arises due to movement in prices of financial
instrument. Market risk can be classified as Directional Risk and Non
- Directional Risk. Directional risk is caused due to movement in
stock price, interest rates and more. Non- Directional risk on the other
hand can be volatility risks.
CREDIT RISK:
This type of risk arises when one fails to fulfill their obligations
towards their counter parties. Credit risk ﾧ can be classified into
Sovereign Risk and Settlement Risk. Sovereign risk usually arises due
to difficult foreign exchange policies. Settlement risk on the other
hand arises when one party makes the payment while the other party fails
to fulfill the obligation
LIQUIDITY RISK:
This type of risk arises out of inability to execute transactions.
Liquidity risk can be classified into Asset Liquidity Risk and
Funding Liquidity Risk. Asset Liquidity risk arises either due to
insufficient buyers or insufficient sellers against sell orders and buy
orders respectively.
OPERATIONAL RISK:
This type of risk arises out of operational failures such as
mismanagement or technical failures. Operational risk can be classified
into Fraud Risk and Model Risk. Fraud risk arises due to lack of
controls and Model risk arises due to incorrect model application.
LEGAL RISK:
This type of financial risk arises out of legal constraints such as
lawsuits. Whenever a company needs to face financial loses out of legal
proceedings, it is legal risk.
RISK MANAGEMENT STRATEGIES:
Following Market Trends:
Many investors believe that investing against the market trends can
yield them higher returns. However, following the trend is one of the
most important stock market strategies ﾧ to mitigate investment risk. The
difficulty in this strategy is being able to identify the trend because
the markets are dynamic and constantly changing. Being able to spot the
short-term trends within the longer duration is a difficult task.
Diversifying Investment Portfolio:
The Indian stock market provides investors several financial products,
such as equities, bonds, derivatives, and mutual funds. Investors can
opt for more than one of these financial instruments to diversify their
portfolios. Further diversification can be achieved by including
financial products offered by different companies belonging to distinct
sectors. This protects the overall returns from the investments from
market fluctuations and if a specific sector or company moves in an
unfavourable way, the other investments in the portfolio can achieve the
balance within the investors’ portfolios.
Being Patient and Avoiding Quick Decisions:
Several investors make quick and hasty decisions with every small
movement in the price of their investments. Moreover, another stock
market tip that investors forget to adhere to is taking the time to do
their research and due diligence before making their share market
investment ﾧ decisions. Determining the financial objectives prior to
investing and focusing on both short-term as well as long-term
objectives will help investors enjoy maximum returns on their stock
market investments.
Planning the Trades:
Planning and developing the strategy helps win wars. This is true for
investing in the Indian stock market too. Pre-planning can make all the
difference between success and failure through stock investing. Using
stop-loss and take-profit points are useful instruments in planning the
trades. Successful investors pre-determine the entry and exit price
levels to calculate the possible returns against the potential of the
shares hitting these price levels. On the other hand, unsuccessful
traders make investments without considering the prices at which they
will buy and sell the financial instruments. They often trade with
emotions; they continue holding on to their positions even when the
price decreases, in the hope of a turnaround, and fail to book profits
when the price rises with the greed of making higher profits.
Stop-Loss:
This is the lowest price that the investor is willing to sell and
prevent further loss. Setting a stop-loss point is useful when the
market does not move as per the investor expectations. It is beneficial
in preventing the ‘price will come back’ mentality and limiting the
loss on the investment.
Take-Profit:
This is the price at which the investor is willing to sell his
investment and book profits. This point is beneficial to reduce the
risks when the possibility of further price increase is huge. Booking
profits on stocks that are nearing their resistance levels after large
gains ensures that investors sell these before consolidation occurs and
prices begin to decrease.
The stock market is risky and smart investors take advantage of risk
management strategies to mitigate it. Careful and timely use of various
risk mitigation tools ensures investors can maximize profits through
stock investing
