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MANAGEMENT
SECURITIES CONTRACT REGULATION ACT HAS DEFINED SECURITY AS INCLUSIVE OF SHARES,SCRIPS,STOCKS,BONDS,DEBENTURE STOCK OR ANY MARKETABLE SECURITIES OF A LIKE NATURE IN OR OF ANY DEBENTURES OF A COMPANY OR BODY CORPORATE, GOVERNMENT,SEMI GOVT.ETC.
WHAT IS A SECURITY
SECURITY IS AN INSTRUMENT OF PROMISSORY NOTE OR A METHOD OF BORROWING OR LENDING, OR A SOURCWE OF CONTRIBUTING TO THE FUNDS NEEDED BY THE CORPORATE BODY OR NON-CORPORATE BODY. ( SUPERIOR REETURNS ARE POSSIBLE BY PROPEER SECURITY ANALYSIS, THROUGH BETTER FORECASTING ABILITIES AND SUPERIOR EXPEERTISE IN SECURITY ANALYSIS.)
WHAT IS A PORTFOLIO COMBINATION OF SECURITIES WITH DIFFERENT RISK-RETURN CHARACTERISTICS WILL CONSTITUTE PORTFOLIO OF THE INVESTOR
SPECULATION INVOLVES INVESTMENT AND VICE-VERSA. IN INVESTMENT ,THE OBJECTIVES ARE LONG TERM OR MEDIUM TERM. INVESTOR TAKES DELIVERY OF SECURITIES AND BOOKS PROFIT WHEN THE RETURNS ARE HIGHER THAN HIS TARGET EXPECTATION. IN SPECULATION THE PERSPECTIVE IS SHORT TERM, NO INTENTION OF TAKING DELIVERY BOOKS PROFIT FROM THE MOVEMENT OF PRICES IN INDIAN STOCK MARKETS 80% OF TRADE IS SPECULATION
SECURITY ANALYSIS
SECURITY ANALYSIS IN TRADITIONAL SENSE IS ANALYSIS OF THE FUNDAMENTAL VALUE OF THE SHARE DAND ITS FORECAST FOR THE FUTURE THROUGH THE CALCULATION OF ITS INTRINSIC WORTH. MODERN SECURITY ANALYSIS RELIES ON FUNDAMENTAL ANALYSIS, RISK-RETURN ANALYSIS DEPENDING ON VARIABILITY OF RETURNS , SAFETY OF FUNDS AND PROJECTION OF FUTURE RETURNS. FORECAST OF SHARE PRICE DEPENDS U[PON ANALYSIS OF TRENDS OF THE ECONOMY,INDUSTRY AND SWOT ANALYSIS OF THE COMPANY ITSELF
CHARACTERISTICS OF INVESTMENT
1. Risk depends on following factors a) Longer maturity period higher risk b) Creditworthiness of borrower more risks are lower (Govt. securities) c) Ownership securities as returns are based on net profitrates are variable. 2. Returns A major factor influencing pattern of investment is its returni.e. yield plus capital appreciation .(Yield is interest or dividend). Yield has to be calculated on the purchase price. Nature of tax liability also influences returns. In case of tax free instruments net return would be higher
NATIONAL STOCK EXCHANGE RECOGNISED IN APRIL 93 STARTED OPERATIONS IN GOVT.SECURITIES AND MONEY MARKETS INITIALLY..EQUITY TRADING STARTED IN NOVEMBER 1994. COMPUTERISED TRADING WITH COUNTRY WIDE NETWORK INTERCONNECTED STOCK EXCHANGE RECOGNISED BY SEBI IN NOV.1998..ELECTRONIC TRADING OF 15 REGIONAL EXCHANGES..
REGULAR INCOMEDIVIDEND/INTEREST CAPITAL GAINS OR CAPITAL APPRECIATION HEDGE AGAINST INFLATION I.E. POSITIVE REAL REETURNS. SAFETY OF FUNDS REGTULAR RETURNS AND REFIND ON MATURITY LIQUIDITY AND MATURITY
SECURITY ANALYSIS INVOLVES AN EXAMINATION OF EXPECTED RETURNS AND ACCOMPANYING RISKS. THE FIRST THREE MOTIVES REFER TO THE RETURNS, LAST TWO ARE RELATED TO RISKS.. RETURNS DEPEND ON RISKS INVESTORS WANT MORE RETURNS AND LOWER RISKS.
COMPONENTS OF RETURNS
RETURN IS MEASURED BY TAKING THE INCOME PLUS THE PRICE CHANGE. THE TERRM YIELD IS ALSO USED IN RESPECT OF FIXED INCOME SECURITIES. THE RETURN IS TO BE CALCULATED ON THE PURCHASE PRICE. THE EXPECTED RETURN MAY DIFFER FROM REALISED RETURNS AND THIS VARIATION IS A RISK FACTOR. TOTAL RETURN IS CALCULATED INCOME RECEIVED + PRICE CHANGE DIVIDED BY PURCHASE PRICE OF ASSET
MEASUREMENT OF RETURN
ARITHMATIC AVERAGE IT IS A SUMMATION OF RETURNS OVER A GIVEN NUMBER OF YEARS. GEOMETRIC RETURN MEASURES THE COMPOUND CUMULATIVE RETURNS OVER TIME. THE MEASUREMENT OF RETURN ON ANY SECURITY IS GENERALLY DONE ON THE BASIS OF THE MARKET RETURN, WHICH IS BASED ON AN APPROVED INDEX SUCH AS B.S.E. SENSETIVE INDEX (30 SCRIPS). BASE 1978-79=100
RISK ELEMENTS
THE COMPONENTS OF RISKS ARE BROADLY TWO 1. SYSTEMATIC RISKS THAT PORTION OF VARIABILITY OF RETURN CAUSED BY COMMON FACTORS AFFECTING THE PRICES OF ALL SECURITIES IN THE MARKET ALIKE THROUGH ECONOMIC,POLITICAL AND SOCIAL FACTORS. EXAMPLES OF SYSTEMATIC RISKS 1) MARKET RISKS CHANGES IN MARKET CONDITION 2) INTEREST RATE RISKS CHANGES IN INTEREST RATES. 3) INFLATION RISKS 4) TRADE CYCLES/BUSINESS CONDITION OR MONSOON FOR AGRICULTURE BASED ECONOMIES.
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UNSYSTEMATIC RISKS THAT PORTION AFFECTING THE VARIABILITY OF RETURNS CAUSED DUE TO UNIQUE FACTORSRELATING TO THE PARTICULAR INDUSTRY/FIRM THROUGH SUCH FACTORS SUCH AS MANAGEMENT FAILURES,LABOUR STRIKE,RAW MATERIAL SCARCITY,SUBSTITUTE PRODUCTS. EXAPMLES OF UNSYSTEMATIC RISKS 1) FINANCIAL RISKS HEAVY INTEREST/INEFFICIENT CAPITAL MANAGEMENT. 2) MANAGEMENT RISKS INEFFICIENCY/POOR PLANNING 3) LABOUR AND OTHER INPUT RISKS
ECONOMIC ANALYSIS
INVESTMENT DECISION IS BASED ON AVAILABILITY OF MONEY AND INFORMATION ON THE ECONOMY, INDUSTRY AND COMPANY CURRENT SHARE PRICE AND EXPECTED PRICE. CRITERIA FOR INVESTMENT DECISIONS 1. MOOD OF THE MARKET FUTURE MOVEMENT OF SHARE. 2. PAST,PRESENT AND EXPECTED PERFORMANCE OF THE COMPANY. 3. INVESTORS PERCEPTION ABOUT THE SHARE PRICE RIGHT, OVERVALUED,UNDERVALUED. 4. INVESTORS PREFERENCES/FANCIES/MOOD.
COMPANY SPECIFIC(UNSYSTEMATIC RISKS ) CAN BE REDUCED BY DIVERSIFYING. BUT SYSTEMATIC RISKS NEED TO BE STUDIED AND TIMING OF INVESTMENT DECIDED CAREFULLY.
INDUSTRY INFORMATION
INSTALLED CAPACITY, TREND OF DEMAND, COMPETING UNITS, CAPACITY UTILISATION,EXPORTS, COST OF INPUTS, SUBSTITUTE PRODUCTS, IMPORTS OF INPUTS, GOVERNMENT POLICY, LABOUT SCENARIO, TECHNOLOGY CHANGES.,TAX STRUCTURE, INFLOW OF NEW INVESTMENTS
COMPANY INFORMATION
INFORMATION IS AVAILABLE IN DAILY FINANCIAL NEWSPAPERS/FORTNIGHTLY JOURNALS, BOMBAY STOCK EXCHANGE ALSO PUBLISHES DIRECTORY OF COMPANIES ANNUAL REPORTS OF THE COPMPANIES/HALF YEARLY UNAUDITED RESULTS ALSO USEFUL. BIG BROKER FIRMS ALSO SEND NEWSLETTERS TO THEIR CLIENTS AND OTHER INVESTORS. INFORMATION ON THE BASIS OF THEIR RESEARCH, SECURITY PRICE INFORMATION IS PUBLISHED EVERYDAY IN FINANCIAL NEWSPAPERS/INTERNET SITES OF SELECTED FINANCE ORGANISATION DATA ON MUTUAL FUNDS IS PUBLISHED IN FINANCIAL NEWSPAPERS AND JOPURNALSCURRENT SCHEME/NAVS OF DIFFERENT SCHEMES/MARKET PRICE-REDEMPTION PRICE/REPURCHASE PRICE
VALUATION OF SHARES
SHARE IS UNDERVALUED IF ITS RISKS ARE LOWER THAN THE MARKEET RISK, AND RETURN IS HIGHER THAN MARKET RETURN.MARKET PRICE CAN BE COMPARED TO BOOK VALUE, OR P/E RATIO CAN BE COMPARED TO SIMILAR COMPANIES IN THE SAME INDUSTRY. PRICE DEPENDS ON SPECULATIVE ACTIVITY TECHNICAL, MANIPULATIVE, PSYCHOLOGICAL
FINANCIAL ANALYSIS
FINANCIAL MANAGEMENT INVOLVES PROCUREMENT AND UTILISATION OF FUNDS COST INVOLVED FOR RAISING FUNDS AND REVENUES GENERATED BY USING SUCH FUNDS. OVERALL CAPITAL STRUCTURE, STRUCTURE OF WORKING CAPITAL NEEDS TO BE STUDIED. CAPITAL UNNECESSARILY BLOCKED, UNDERUTILISED WILL NOT GENERATE INCOME. FINANCIAL ANALYSIS IS ANALYSIS OF FINANCIAL STATEMENTS TO ASSESS FINANCIAL SOUNDNESS. FINANCIAL STATEMENTS ARE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. STATEMENT INDICATING APPROPRIATION OF PROFIT ALSO NECESSARY.
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RATIO ANALYSIS
RATIO IS A STATISTICAL YARDSTICK THAT PROVIDES A MEASURE OF RELATIONSHIP BETWEEN ANY TWO VARIABLES. BALANCE SHEET RATIOS CURRENT ASSEETS TO CURRENT LIABILITIES (CURRENT RATIO) LIQUIDITY RATIO DEBT TO EQUITY RATIO ASSETS TO EQUITY RATIO. P & L ACCOUNT RATIOS GROSS PROFIT TO SALESS (GROSS PROFIT MARGIN) NET PROFIT RATIO STOCK TURNOPVER/TURNOVER OF INVENTORY RATIO ANALYSIS WILL BE USEFUL TO FIND OUT FINANCIAL PERFORMANCE, OPERATIONAL EFFICIENCY, PROFIT MARGINS OF THE SAME COMPANY INTER COMPANY COMPARISONS..
TREND ANALYSIS
IT IS A COMPARISON OF SOME IMPORTANT RATIOS AND RATES OF GROWTH OVER A TIME PERIOD OF FEW YEARS. TRENDS OF GPM,SALES TURNOVER, RATE OF DIVIDEND, EPS,ASSET/SALES GROWTH ARE USEFUL TO MEASURE OPERATIONAL PERFORMANCE. USE OF ANY RATIO WITHOUT REFERENCE TO OTHER RATIO MAY BE MISLEADING RATIOS ARE ONLY PRELIMINARY STEPS IN INTERPRETATION AND MUST BE SUPPLEMENTED BY INVESTIGATION INTO ALL OTHER ASPECTS OF OPERATIONS SCRUTINY OF DIRECTORS REPORTS,AUDITORS REPORTS IS ALSO NECESSARY IN RESPECT OF CONTIGENT LIABLITIES, UNPAID TAXES, DOUBTFUL DEBTS.