Lexicon_Unit1 - Introduction to SAPM.pptx

introduction to Security Analysis and Portfolio Management

1. Security Analysis & Portfolio Management (SAPM) Prof. Pushkaraj Vishnu Joshi @ RAJ Disclaimer: This PPT is based on review of secondary and qualitative data obtained from several research papers, text books, reference books and articles and relevant information for the prescribed syllabus available on internet and in public domain. The entire credit is of the respective authors, content writers of the same.

2. Brief Introduction about myself: Born & Brought up in Mumbai – 40 years; Settled in Pune – 9 years; 1994 - Commerce Graduate from THE SYDENHAM COLLEGE OF COMMERCE & ECONOMICS , University of Mumbai,; 1996 - Qualified Chartered Accountant of India ; 1997 - Qualified Company Secretary of India & U.K ., ; 2003 - Law Graduate from University of Pune; 2005 - Life Insurance Professional ( Associate of Insurance Institute of India ) ; 2008 - Post Graduate Diploma holder in Business Administration (General Management ) ; 2009 - Qualified Management Accountant of Australia ; 2020 - Certified CSR Professional ICSI; 2023 - Registered INDEPENDENT DIRECTOR with Ministry of Corporate Affairs (MCA), Government of India, ; 28 years of Professional & Corporate Experience – Reliance Group, Mahindra Group, Merrill Lynch- Bank of America Group, Vodafone Idea Group

3. Brief Introduction about myself: Empanelled with “ Committee of Career Counseling ” of Institute of Chartered Accountants of India as a Career Counsellor ; Management Consultant & Corporate Advisor in Finance, Legal & General Management Domain for Start Ups, MSME, Corporates, Trusts, NGOs; MSME & Start-Up Specialist ; One of the Founder of MSMECARE Visiting / Guest Professor Faculty with top reputed Universities of Pune – SBUP, DYPIMS, PBS, SIMSREE, SAKAL-TECH MHINDRA Learning Centre, SPPU_RPF CSR Professional Investment Planner ; Corporate Restructuring Strategist ; Student of Vedic Scriptures and Principles ; PH.D. in Management Studies - Aspirant Appearing for UGC - NET (Management) PROF-FRIEND (A Professional Friend)

4. SAPM Syllabus OBJECTIVES Acquire practical and empirical knowledge of capital markets in India, different types of securities in capital markets in India – equity, debt, and derivatives & their returns . Explore Risks associated with investment – systemic, non-systemic, diversifiable, non-diversifiable etc. and constituents of a portfolio – Discretionary, non-discretionary to tackle the ups and downs in the market . Know how a Mutual Fund is a non-discretionary portfolio, Correlations among stocks in a portfolio – positive, negative, perfect, and imperfect Imbibe the skills like: Drafting the different models in portfolios Determining the beta for a given stock Applying the fundamental analysis to SAPM Applying technical analysis to SAPM

5. UNIT 1 – Nature & Scope of Investment Management and Portfolio Analysis Basics of stock markets Investment versus Speculation Investment Alternatives and Their Evaluation Financial Markets Portfolio Management Process Approaches to Investment Decision Making Common Errors in Investment Management and Qualities of Successful Investing Role of Portfolio Management, Portfolio Management Practices in International markets

6. a) Basics of Stock Market India has 2 leading stock exchanges for trading in shares; Bombay Stock Exchange (BSE) – Established in 1875, BSE is one of the oldest stock exchanges in the world. It is located in Mumbai and is known for its Sensitivity Index (Sensex), which tracks the performance of 30 major stocks listed on its exchange ; National Stock Exchange (NSE) Established in 1992, NSE is another prominent stock exchange in India. It is also based in Mumbai and is known for its NSE Fifty (Nifty) index, which represents the performance of 50 major stocks; Index – A financial index produces a numeric score based on inputs such as a variety of asset prices. It can be used to track the performance of a group of assets in a standardized way. Indexes typically measure the performance of a basket of securities intended to replicate a certain area of the market .

7. a) Basics of Stock Market Trading Hours: The regular trading hours for the Indian stock markets are usually from Monday to Friday. The market is closed on weekends and public holidays. The trading day is divided into several sessions, including pre-market, regular market, and post-market sessions. Regulations and Oversight: The Securities and Exchange Board of India (SEBI) is the regulatory body overseeing the securities market in India. Its role includes formulating regulations, promoting investor education, and protecting investor interests. Stocks and Indices : stock represent Ownership in the Company & Index tracks the collective performance of a group of stocks; Types of Orders: Investors place orders to buy or sell stocks. Common types of orders include: Market Order: An order to buy or sell a stock at the current market price. Limit Order: An order to buy or sell a stock at a specific price or better. Stop-Loss Order: An order to sell a stock when it reaches a certain price, designed to limit potential losses. Demat and Trading Accounts: To invest in the stock market, you need a Demat (Dematerialized) account to hold your shares in electronic format and a trading account to execute buy and sell orders. These accounts are provided by various brokerage firms

8. a) Basics of Stock Market Brokers : intermediaries between investors and the stock exchange. They facilitate buying and selling of stocks on behalf of investors. There are full-service brokers and discount brokers, offering different levels of services and charges. Risk and Volatility: Investing in stocks involves risks, including the potential for loss of capital. The stock market can be volatile, with prices influenced by various factors including economic conditions, company performance, and global events . Disclaimer :  All Investments in securities market are subject to market and economic risks , read all the related offer documents carefully before investing and seek professional knowledge & advise timely.

9. b ) Investment vs. Speculation Investment and speculation are two different approaches to allocating funds with the goal of generating returns, but they involve distinct levels of risk, time horizon, and underlying strategies. Here's a breakdown of the key differences between investment and speculation; Factors Investment Speculation 1) Purpose Long term returns while managing risk. intention of building wealth, funding financial goals, or preserving capital. rational assessment of an asset's intrinsic value and potential for future growth. Investors aim to buy assets that are undervalued and have the potential to appreciate over time. 2) Time Horizon a longer time horizon, years or even decades. willing to wait patiently for their investments to grow and compound over time. shorter time horizon, often ranging from days to months; profit from rapid price movements and may enter and exit positions quickly.

10. b ) Investment vs. Speculation Factors Investment Speculation Risk Management diversification to manage risk. means spreading investments across different asset classes (such as stocks, bonds, real estate, etc.) to reduce / set off/trade off the impact of poor performance in any one class. take on higher levels of risk compared to investors. strategies can involve significant leverage (borrowed money) and may lead to substantial losses. Research & Analysis Investors conduct thorough research and analysis before making decisions. assess a company's fundamentals, financial health, industry trends, and economic indicators to make informed choices. analyse market trends and news, their decisions are often influenced by short-term market sentiment rather than a deep analysis of an asset's underlying value. Informed Decision decisions are based on a rational assessment of an asset's intrinsic value and potential for future growth. Investors aim to buy assets that are undervalued and have the potential to appreciate over time. influenced by emotional factors and herd behaviour. buy or sell based on the fear of missing out (FOMO) or the fear of losing out (FOLO), contributing to market volatility.

11. c) Investment Alternatives and Their Evaluation Investment alternatives come in various forms, each with its own : characteristics , risk levels, potential returns, and suitability for different types of investors Evaluating investment alternatives is crucial to make informed decisions that align with your financial goals , time horizon, & TRIGUN (Risk, Return, Liquidity) ;

12. c) Investment Alternatives and Their Evaluation When evaluating investment alternatives, consider these key factors: Risk Tolerance : How comfortable are you with potential fluctuations in the value of your investments? Different investments carry varying levels of risk. Return Potential : What are the expected returns? Consider historical performance, projected growth, and income potential. Time Horizon : How long do you intend to keep your money invested? Some investments are better suited for short-term goals, while others are more suitable for long-term objectives. Diversification : Spreading your investments across different asset classes can help reduce risk. Liquidity : How easily can you convert your investment back to cash? Some investments are more liquid than others. Costs : Consider fees, commissions, management expenses, and taxes associated with each investment. Market Conditions : Understand how economic and market factors can impact the performance of different investment options.

13. d) Financial Markets Financial markets in India play a crucial role in the country's economic growth and development. These markets provide a platform for individuals, institutions, and businesses to trade various financial instruments, raise capital, manage risk, and invest. India has a well-established financial ecosystem that consists of several key components : Stock (Equity) Market – NSE & BSE Commodity Market – MCX & NCDEX Derivatives Market Currency / Forex Market Debt Market – Government and Corporate Bonds Money Market – Short term borrowings; Treasury Bills, Commercial Papers; Investment Funds – Mutual Funds the Indian financial markets are subject to regulatory changes and market dynamics, which can impact their functioning and structure.

14. e ) Portfolio Management Process managing a collection of investments (stocks, bonds, real estate, etc.) with the goal of achieving specific financial objectives while managing risks. involves several key steps to effectively construct, monitor, and adjust a portfolio. Here's an overview of the typical portfolio management process:

15. e ) Portfolio Management Process Goal Definition and Investment Policy Statement (IPS ) Asset Allocation Security Selection Portfolio Construction Risk Management Monitoring and Rebalancing Performance Evaluation Market and Economic Analysis Communication with Clients Adaptation and Flexibility It’s a dynamic process requires a blend of financial expertise, market knowledge, and a deep understanding of the investor's goals and risk tolerance. different investors may have different investment philosophies and strategies, so the portfolio management process can vary based on individual needs and preferences

16. f) Approaches to Investment Decision Making involves evaluating various investment opportunities to determine where to allocate resources in order to achieve financial goals. There are several approaches to investment decision-making, each with its own set of principles and strategies. Here are some of the key approaches:

17. f) Approaches to Investment Decision Making Fundamental Analysis; Technical Analysis; Quantitative Analysis; Behavioral Finance; Value Investing; Growth Investing; Income Investing; Active Investing; Socially Responsible Investing / ESG Investing Many investors use a combination of these approaches based on their personal preferences, risk tolerance, and investment goals. Additionally , successful investment decision-making requires on-going research, monitoring of assets, and adaptation to changing market conditions.

18. g) Common Errors in Investment Management and Qualities of Successful Investing Investment management involves making decisions about how to allocate funds in order to achieve certain financial goals. However , there are several common errors that investors and investment managers can fall prey to. Some of these errors include:

19. g) Common Errors in Investment Management and Qualities of Successful Investing Lack of Diversification Market Timing Over trading Chasing Trends Ignoring Costs Emotional Decision Making Confirmation Bias Lack of Research Neglecting Risk Tolerance Herd Mentality Not rebalancing Ignoring Tax Implications; Lack of Patience To avoid these common errors, it's important to have a well-defined investment plan that takes into account your financial goals, risk tolerance, and time horizon. Regularly reviewing and adjusting your portfolio based on changes in your personal circumstances and market conditions can also help you stay on track.

20. g) Common Errors in Investment Management and Qualities of Successful Investing Successful investing is a complex endeavour that requires a combination of knowledge, strategy, discipline, and adaptability. Remember that there's no one-size-fits-all approach to investing, and what works for one person might not work for another. It's important to align your investment approach with your individual financial goals, risk tolerance, and circumstances. Here are some key qualities that often contribute to successful investing:

21. g) Common Errors in Investment Management and Qualities of Successful Investing Knowledge & Research Clear Investment Goals Risk Management Long term perspective Discipline & Patience Adaptability Continuous Learning Avoiding herd mentality Emotional Intelligence Consistent Contributions Focus on fundamentals Tax efficiency Exit Strategy Professional Advice (if needed)

22. h) Role of Portfolio Management Portfolio management plays a crucial role in the world of finance and investment. It refers to the process of making decisions about how to allocate resources across a variety of investment assets to achieve specific financial objectives. The primary goal of portfolio management is to maximize returns while managing risk according to an individual's or an institution's risk tolerance and investment objectives. Overall, portfolio management is a dynamic and multifaceted process that involves a deep understanding of financial markets, risk management, and investor behaviour. It requires a combination of financial expertise, analytical skills, and the ability to adapt to changing market conditions. Here are some key roles and aspects of portfolio management:

23. h) Role of Portfolio Management Diversification Risk Management Asset Allocation; Active & Passive Management Continuous Monitoring and Rebalancing; Performance Evaluation Tax efficiency Client Communication

24. i ) Portfolio Management Practices in International Markets involve strategies and techniques that investors and fund managers use to effectively allocate and manage their investments across various countries and regions. Investing in international markets offers opportunities for diversification, exposure to different economies, and potential for higher returns, but it also comes with increased risks due to currency fluctuations, geopolitical factors, and varying market regulations. Here are some key practices in international portfolio management:

25. i ) Portfolio Management Practices in International Markets Diversification Currency Risk Management Research Analysis Local Partnerships Regulatory Compliance Risk Assessment Asset Allocation Active & Passive Management Monitor Global Trends Exit Strategies Cultural Sensitivity Tax Consideration Long term perspective Remember that international investing involves complexities beyond domestic markets, and seeking advice from financial professionals who specialize in international portfolio management can be highly beneficial. Additionally , the effectiveness of these practices can depend on the specific goals, risk tolerance, and circumstances of individual investors or fund managers

26. THAN (Q???)