Security Analysis and Portfolio

Management
Module 1
Presented by : Omkar

Concept of Investment
What is Investment..?
The money you earn is partly spent and partly saved for meeting
future expenses. Instead of keeping the savings idle you may to get
return on it in the future.
Saving your money (i.e. differ your consumption) into some
opportunity with an expectation of earning some returns within
stipulated amount of time is called investment.

One needs to invest in order to:

Earn return on your idle resources
Generate a specified sum of money for a specific goal in life
Make a provision for an uncertain future
Types of Investors
Individuals
Institutions
Government

Investment Objectives/
Characteristic
Principle objective of investment are
1. Safety
2. Growth (Capital Appreciation ROI)
3. Steady income
4. Tax shelter
5. Inflation
6. Liquidity

Attribute of investment
Rate of return

Risk
Marketability
Tax shelter
Convenience/ Liquidity

Investment Alternatives
(Types of Investment)
Financial forms

Non Financial

Equities (Shares)

Real estate

Mutual funds

Precious metals

Bonds

Antiques, Fine arts and Coins

Deposits, KVP, NSC

Insurance
Liquid Fund/Money Market
Instruments

Investment Alternatives
(Types of Investment)
Equities

Blue chip
Growth Shares
Defensive Shares
Income Shares
Cyclical Shares

Bonds
G-Sec (Gilt Securities)
Bonds & Debentures

Money Market Instruments

Treasury Bills
CP/CD

Investment Alternatives
(Types of Investment)
Fixed Income Securities
Fixed Deposit
KVP/NSC

Real Estate (Realty)

Commercial Properties
Resort/Home

Life Insurance Policies

Money Back
ULIP
Childrens Education Plan

Precious Metals
Gold/Silver
Copper

Arts and Antiques

Precious Stones
Art

Classification of Financial Market

Nature of
Claims

Maturity of
Claims

Seasoning
of Claims

Timing of
Delivery

Structure

Debt
(Creditors)

Money Market
(Short Term)

Primary
Markets
(New Issues)

Spot/ Cash
(Immd.Delivery)

ETM

Equity
(Owners)

Capital Market
(Long Term)

Secondary
Markets
(Trading)

Future/Forward
(Fut. Delivery)

OTC

Investment Vs Speculation
Investment means to place a portion of your

money in investment alternatives in order to

obtain a return.
Speculation: Speculation is a financial action that
does not promise safety of the initial investment
along with the return on the principal sum and is
mostly done
on the basisSpeculation
of borrowed
fund.
Investment
(Investor)
(Speculator)
Long term horizon

Short term horizon

Moderate risk

High risk

Moderate returns

High returns

Fundamental and technical analysis

Market condition

Own funds

Borrowed funds

BSE Sensitive & NSE Indices

What is an Index
An Index is a statistical measure of change in an

economy or a securities market.

In the case of financial markets, an index is an
imaginary portfolio (combination ) of securities
representing a particular market or a portion of it.
Each index has its own calculation methodology
and is usually expressed in terms of a change from
a base value.
Example: BSE Sensex; NSE Nifty; S&P; Dow Jones;
Nikke

S&P BSE SENSEX

The Barometer of Indian Capital
Markets
The S&P BSE SENSEX (S&P Bombay Stock

Exchange Sensitive Index), also-called the BSE

30 or simply the SENSEX, is an index computed
using 30 well-established and financially sound
companies listed on BSE Ltd.
The 30 component companies which are some of
the largest and most actively traded stocks, are
representative
of various industrial Details
sectors of the
Particulars
Indian
Base Yeareconomy
1978-79
Base Index Value

100

Date of Launch

1st January 1986

Number of Scrips

30

HDFC

Finance & Banking

MAH & MAH

Transport Equipments

CIPLA LTD.

Healthcare

TATA MOTORS

Transport Equipments

BHEL

Capital Goods

HIND UNI LT

FMCG

STATE BANK

Finance & Banking

ITC LTD.

FMCG

DR.REDDY'S

Healthcare

WIPRO LTD.

Information Technology

HDFC BANK

Finance & Banking

SUN PHARMA.

Healthcare

HEROMOTOCO

Transport Equipments

GAIL (I) LTD

Oil & Gas

INFOSYS LTD

Information Technology

ICICI BANK

Finance & Banking

SESA GOA

Metal Products & Mining

JINDAL STE

Metal Products & Mining

ONGC CORPN

Oil & Gas

BHARTI ARTL

Telecom

RELIANCE

Oil & Gas

MARUTISUZUK

Transport Equipments

TATA POWER

Power

TCS LTD.

Information Technology

HINDALCO

Metal Products & Mining

NTPC LTD

Power

TATA STEEL

Metal Products & Mining

BAJAJ AUTO

Transport Equipments

LARSEN & TOUBRO

Capital Goods

COAL INDIA

Metal Products & Mining

S&P BSE SENSEX - Calculation

S&P BSE SENSEX is calculated using the "Free-float

Market Capitalization" methodology, wherein, the

level of index at any point of time reflects the freefloat market value of 30 component stocks relative to
a base period.
The market capitalization of a company is determined
by multiplying the price of its stock by the number of
shares issued by the company.
Due to its wide acceptance amongst the investors;
S&P BSE SENSEX is regarded to be the pulse of the
Indian stock market.

S&P BSE SENSEX Calculation

Free-float

methodology refers to an index

construction methodology that takes into
consideration only the free-float market
capitalization of a company for the purpose of
index calculation and assigning weight to stocks
in the index.
Free-float market capitalization takes into
consideration only those shares issued by the
company that are readily available for trading in
the market.
It
generally excludes promoters' holding,
government holding, strategic holding and other
locked-in shares that will not come to the market

S&P BSE SENSEX Calculation

BSE has designed a Free-float format, which is

filled and submitted by all index companies on a

quarterly basis.
BSE determines the Free-float factor for each
company based on the detailed information
submitted by the companies in the prescribed
format. Free-float factor is a multiple with which the
total market capitalization of a company is adjusted
to arrive at the Free-float market capitalization.
Once the Free-float of a company is determined,
each company is categorized into one of the 20
bands.
A Free-float factor of say 0.55 means that only 55%

Free Float Bands

% Free-Float Free-Float Factor % Free-Float Free-Float Factor
>0 - 5%

0.05

>50 - 55%

0.55

>5 - 10%

0.10

>55 - 60%

0.60

>10 - 15%

0.15

>60 - 65%

0.65

>15 - 20%

0.20

>65 - 70%

0.70

>20 - 25%

0.25

>70 - 75%

0.75

>25 - 30%

0.30

>75 - 80%

0.80

>30 - 35%

0.35

>80 - 85%

0.85

>35 - 40%

0.40

>85 - 90%

0.90

>40 - 45%

0.45

>90 - 95%

0.95

>45 - 50%

0.50

>95 - 100%

1.00

S&P BSE SENSEX - Scrip

Selection Criteria
1.
2.
3.

4.

5.

Equities of companies listed on BSE Ltd & NSE

Ltd
Listing History: The scrip should have a listing
history of at least three months at BSE & NSE
The stock should have been traded on each
and every trading day in the last three months
at BSE
Companies that have reported revenue in the
latest four quarters from its core activity are
considered eligible.
Top 75 companies based on free-float market
capitalization are selected

S&P BSE SENSEX - Scrip

Selection Criteria
The Index Committee meets every quarter to

review all the BSE & NSE indices including S&P

BSE SENSEX & Nifty50
In case of a revision in the Index constituents,
the announcement of the incoming and outgoing
scrip's is made six weeks in advance of the actual
implementation of the replacements in the Index.
Frequency of BSE SENSEX calculation done
?
During market hours, prices of the index scrip's, at

which trades are executed, are automatically used

for calculation of SENSEX and disseminated every
2 seconds and continuously updated on all trading

S&P BSE IPO

S&P BSE 100

S&P BSE IT

S&P BSE 200

S&P BSE METAL

S&P BSE 500

S&P BSE MID CAP

S&P BSE AUTO

S&P BSE OIL & GAS

S&P BSE BANKEX

S&P BSE POWER

S&P BSE CAPITAL GOODS

S&P BSE PSU

S&P BSE CARBONEX

S&P BSE REALTY

S&P BSE CONSUMER DURABLES

S&P BSE SENSEX

S&P BSE FMCG

S&P BSE SMALL CAP

S&P BSE GREENEX

S&P BSE SME IPO

S&P BSE HEALTHCARE

S&P BSE TECK

Dollex 30 & CNX Difty 50

The S&P BSE Sensex and the CNX Nifty are the barometers

of the Indian equity markets.

The top 30 companies in terms of market capitalization
constitute the Sensex and in the Nifty, it is the top 50
companies.
The indices Sensex and the Nifty have dollar-term versions of
themselves
BSE Ltds Dollex-30 and National Stock Exchanges Defty
are indices that are adjusted for exchange rate movements
between the dollar and rupee.
The constituents remain the same and so do the weightage
of the stocks in the indices.
These indices were developed by the exchanges to provide
a benchmark to foreign institutional investors (FIIs) and offshore funds, to provide them with an instrument for

Construction of Stock Market

Index
Importance of an Index

Comparison to judge performance

Evaluate alternative investments
Measure market Rate of Return
Predict Market movements

Construction of Stock Market Index

Factors Affecting the Index Construction
Sample Size
Representative
Base Year
Weight Criterias
Convenient Units
Uniform Definition
Economical
Timeliness

RBI Index of Security Prices

The Reserve Bank of India started compiling

indices of security prices in 1949. These were

classified under the following heads:
Government and Semi-government securities;
Debentures of companies; and

Equity shares of companies

Presently, the RBI compiles the indices of prices

of equity shares of companies only and has

discontinued such compilation in respect of
debentures and government securities
RBI series covers 338 equity shares (base 198081 = 100)

Bond Indices or Bond Index

What is a bond index?

It is an index used to measure the performance of

bonds based on the market value that form a part of
the index.
What are the various types of bond indices?
Such an index may comprise government securities,
corporate bonds, high-yield bonds, etc.
Which are some of the well- known bond market
indices?
Popular ones include the
Barclays Capital Aggregate bond Index,
JP Morgan government bond index,

Merrill Lynch domestic master

Bond Indices or Bond Index

CRISIL - AMFI Gilt Fund Performance Index
CRISIL - AMFI Income Fund Performance Index
seeks to track the performance of the gilt funds.
2. CRISIL - AMFI Short Term Debt Fund Performance
Index seeks to track the performance of the short
term debt funds.
3. CRISIL - AMFI Liquid Fund Performance Index
seeks to track the performance of the liquid funds
1.

Thank you
(Questions..??)