Equity Portfolio Management Strategies self.pptx

Cbkfhko9

1. Equity Portfolio Management Strategies Prof. Ravi Inder Singh

2. Equity portfolio management is the art and science of selecting and managing a group of equity investments to achieve specific financial goals, such as maximizing return, minimizing risk, or achieving a targeted alpha (excess return).

3. Objective Achieve desired risk-return trade-off Diversify across sectors and asset classes Beat a benchmark (e.g., NIFTY 50, S&P BSE Sensex)

4. Classification of Portfolio Management Strategies Broadly, strategies can be divided into two main types : Type Approach Example Active Portfolio Management Attempts to outperform the market through stock selection and timing. Growth investing, value investing, sector rotation Passive Portfolio Management Seeks to replicate the performance of a market index. Index funds, ETFs

5. Active Portfolio Management Strategies

6. Active strategies are based on the belief that markets are not fully efficient, and mispriced securities exist. Fundamental Analysis-Based Strategies Value Investing Identify undervalued stocks trading below intrinsic value. Example: Buying Coal India or ONGC when their P/E ratio is lower than the industry average. Inspired by Benjamin Graham & Warren Buffett. Growth Investing Focuses on companies with above-average earnings or revenue growth. Example: Investing in Infosys , TCS , or Zomato for long-term growth potential. GARP (Growth at a Reasonable Price) Blend of value and growth investing. Example: Investing in HDFC Bank which shows consistent growth at a fair valuation.

7. Technical Analysis-Based Strategies Momentum Investing Buy stocks showing upward momentum; sell laggards. Example: Trend-following strategy using moving averages (e.g., Buy when 50-day MA crosses above 200-day MA). Contrarian Strategy Buy stocks when others are selling (market pessimism). Example: Buying automobile sector stocks during demand slowdown expecting recovery.

8. Sector Rotation Strategy Invest in sectors expected to perform well in different economic cycles. Example: During expansion → Banking, Auto, Infrastructure During slowdown → FMCG, Pharma, Utilities

9. Market Timing Strategy Adjust portfolio exposure to equities depending on market outlook. Example: Increase equity exposure during bullish trends; shift to bonds or cash during bearish signals.

10. Passive Portfolio Management Strategies

11. Indexing Strategy Replicate performance of a broad market index (e.g., NIFTY 50, SENSEX). Low cost, long-term focus. Example: Nippon India Index Fund – NIFTY 50 Plan Exchange Traded Funds (ETFs) Hybrid of mutual funds and shares; traded on exchanges. Example: SBI Nifty ETF , CPSE ETF .

12. Quantitative & Modern Strategies

13. Smart Beta Strategies Combine active and passive features. Weight stocks based on factors like value, momentum, volatility, or quality instead of market capitalization.

14. Factor Investing Exposure to specific risk factors (size, value, quality, momentum, low volatility). Example: Value factor → undervalued stocks Momentum factor → trending stocks

15. Algorithmic/Quantitative Strategies Use mathematical models and data analytics to make trading decisions. Example: High-frequency trading using statistical arbitrage models

16. Portfolio Construction Process Setting Objectives → Return expectation, risk tolerance, time horizon Security Selection → Screening using fundamental/technical parameters Asset Allocation → Diversifying across sectors, styles, market caps Portfolio Optimization → Using models like Markowitz Mean-Variance Performance Evaluation → Using metrics such as Sharpe Ratio, Alpha, Beta, and Information Ratio

17. Evaluation of Portfolio Performance Measure Formula Interpretation Alpha ( α) Actual return − Expected return (from CAPM) +ve alpha = outperformance Beta ( β) Covariance (Portfolio, Market) / Variance (Market) Sensitivity to market movement Sharpe Ratio (Rp − Rf) / σ p Return per unit of risk Treynor Ratio (Rp − Rf) / β p Return per unit of systematic risk Jensen’s Alpha Rp − [Rf + β( Rm − Rf)] Measures manager’s performance over CAPM expectation

18. Thanks