References

• Investments - Bodie, Z., Kane, A., Marcus, A., and Mohanty, P.,
(2014)-Tenth Edition Tata McGraw Publishers.

• Investment analysis and Portfolio management. Reilly, F., and

Brown, K., (2003), Seventh Edition. Thomson south – Western
Publishers.

• Investment Analysis and Portfolio Management by Prasanna

Chandra (2010), Fourth Edition
• Modern Portfolio Theory and Investment analysis- Elton, E., and
Gruber, M., (1997), Fifth Edition. John Wiley & Sons (Asia) PTE. Ltd.
– Singapore, Publishers

• Investment Management –SAPM by V. K. Bhalla

1
 Challenges:
• Source of data
• Concepts clarity
• Tools to apply
• Analysis
• Writing skills

• …..all this will come from Reading…

2
 Websites
• http://www.rbi.org.in/home.aspx
• www.equitymaster.com
• http://nseguide.com/
• http://finmin.nic.in/
• http://www.mca.gov.in/index.html
• https://www.ccilindia.com/Pages/default.aspx

• Databases: EBSCO, Jstor, Proquest,

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 Project
Groups of 5 each (admin groups): (Individual and Group assignment)

• (I)) Each group to select from the Following sectors and identify 6 major companies in terms of market
share:

• 1) Metals 2) Auto and Auto ancillaries 3) Banking 4)Breweries and distilleries 5)Power

• 6)Telecom 7)Cement

• 8)Chemicals 9) Computers 10) IT 11)Construction 12) FMCG

• 13) Electronics 14)Engineering 15) Entertainment/Media 16)Finance and Investments

• 17) Hotel 18) Food processing 19) Healthcare 20) Pharma 21) Paint

• 22) paper 23) Petrochemicals

• 24) Plastic 25) Refineries 26) Sugar 27) Tea 28) Airline

• Put the Same in Economic times and Create a Portfolio and track the portfolio

• project.doc

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 Presentation topics: ORDER of group 5,6,7,8,9,10,1,2,3,4,12,13
•
Overlays: are generally superimposed over the main price chart.
Trend line — a sloping line of support or resistance 10
OHLC "Bar Charts"
Candlestick chart
5
5
Bollinger bands 10 Line chart 5
Channel — a pair of parallel trend lines 10 Point and figure chart 6
30 day Moving average 11 Bar chart 6
200 day moving average 11 Morning star and doji star 6
100 day moving average 11 Resistance and support 7
Parabolic SAR 1 Average true range 7
Pivot point 1 Dead cat bounce 7
Elliott wave principle and the golden ratio to
calculate successive price movements and
Matrix trading 1 retracements 8
Triple top and bottom 2 Fibonacci ratios 8
Heads and shoulders 2 Momentum 8
Inverse heads and shoulders 2 Point and figure analysis 9
triangle 2 Rate of change (ROC) 9
Price-based indicators : are generally shown below or above main price chart. Relative strength Index (RSI) 9
Advance decline line — a popular indicator of market breadth 3 Williams R % 13

Average Directional Index — a widely used indicator of trend strength 3 Volume-based indicators
PAC charts — two-dimensional method for charting
Commodity Channel Index — identifies cyclical trends 3 volume by price level 13
Ichimoku kinko hyo — a moving average-based
system that factors in time and the average point
MACD — moving average convergence/divergence 4 between a candle's high and low 13
Trix — an oscillator showing the slope of a triple-
Relative Strength Index (RSI) — oscillator showing price strength 4 smoothed exponential moving average 12
Stochastic oscillator — close position within recent trading range 4 Momentum — the rate of price change 5 12
Exponential moving average 12
• Terms to write and study for next week first lecture:

• 1. Corporate actions 2. Depository

• 3. Depository participant 4. Custodian 5. Book closure
• 6. Record date 7. Warrant 8. Stock split
• 9. ADR/GDR 10. Clearing and settlement process
• 11. Margin requirement 12. Mark to market
• 13. Margin trading 14. Direct market access 15. ASBA
• 16. NEAT system 17. Basket trading
• 18.stock split and Buy back of shares
• 19. Lot size 20. Block trading system

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 Terms to write and study for 2nd week first lecture:

• Q1) List 10 reasons for movement in Sensex, Nifty, Sector or an Individual share price up or down supported by
examples.
• Example: A stable pro – reform government in the centre leads to an increase in share price
• Example: A huge order to a company can increase its share price, etc
• Q2) Classify the 30 shares in the SENSEX and 50 shares in NIFTY into relevant sectors.
• Q3) what are A group shares, B group shares, T, Z and Penny stocks.
• Q4) what is a Mutual Fund. Explain types of Mutual Funds, example balanced funds, etc.
• Q5) what are proportions in an IPO for Retail investors, Institutional investors, QIB, etc.
• Q6) List the names of INDEX`s the following countries:
• Example: India - Sensex, Nifty, USA – DJIA, NASDAQ.
• Germany , UK, France, Australia, Japan, New Zealand, Russia, China, Brazil, Canada, South Africa, Bahrain,, Kuwait,
Zimbabwe, Venezuela, Saudi Arabia, South Korea, Singapore, Hongkong, Iceland, Portugal, Greece, Spain,
• Q7) List the exchange rates of the above countries vis-a-vis Indian Rupee.
• Q8) Prepare a trend line of the crude prices and Gold prices, Sensex for last 5 years.
• Q9) Give India’s GDP, Inflation, Fiscal deficit, IIP nos., Forex reserves, balance of
• Payment and Interest rates trend from 2005 to 2010 on a yearly basis.
• Q10) which 20 countries have the highest GDP in the world.
• Q11) what are GILTS.
• Q12) what is sovereign debt ?
• Q13) what is Fiscal deficit
• Q14) what is EURODOLLAR, EUROLIBOR
• Q15) what is P/E ratio. Explain its significance and its upward downward movement
• Q16) what is stop loss. What is Circuit and its types? How are Circuits calculated for Stocks under different
categories like A group, B group, etc.
• Q17) what ratios are important for decision making to invest in a Script of a listed company.
• Q18) Enlist all possible avenues of Investments in India and in the Rest of the World.
• Q19) what are the commodity indexes and exchanges in INDIA called as. Explain the top 5 frequently traded
commodities in INDIA.
•

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 Terms to write and study for third week first lecture:
• Enlist names of 3 funds in India/Abroad for the following funds and explain
the concepts:
• a) Pension Funds
• b) Hedge Funds
• c) ETFs
• d) REITs
• e) Index funds.
• f) Money Market Funds
• g) Objectives of Schemes in Mutual funds:
• H) SIP, STP, SWP, MIP
• i) Income fund
• j) Debt funds and their taxability
• K) Sector/thematic
• L) Liquid
• M) Hybrid
• N) Open ended
• 0) close ended
• p) tax saver
• Q) Loads
• R) BSE-MF platform
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 Session 1:
NATURE & SCOPE OF INVESTMENT MANAGEMENT

• Definition of Investment:
• According to F. Amling, “Investment can be defined as the purchase by an
individual or institutional investor of a financial or real asset that produces
a return proportional to risk assumed over some future investment
period.
• Elements of Investments:
• a) Return
• b) Risk
• c) Time
• a) Commitment Investment: refers to money committed to satisfy
personal desires, with no monetary rate of return. Example: Purchase of
car.
• b) Financial Investment: refers to investment in various assets, such as
stocks, bonds, real estate, etc, with a view to earn returns.

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• Why Investments are important:
• a) Increase in life expectancy b) Interest rates
• c) Increasing rates of taxation d) Beat Inflation
• e) Investments channels

• Investment Principles
• a) Safety b) Liquidity c) Profit d) Transferability &
e) Tangible.

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 Investment, Speculation and Gambling
• Pure (genuine) investment – Financial investment is like the exchange of financial
claims, i.e. buying of shares, debentures, purchasing insurance policies, investing in
post office, etc.

• A pure investment is carefully thought of, well-planned and based on fundamentals

for a long time period with assumed low risk.

• Speculation: starts where investment ends. Is an act of investing money on the

basis of market wide information. Such information includes trends of share prices
or traded volume of shares, etc.
• While speculating investor takes more risk as compared to pure investment
activity and accordingly expects higher returns too.
• Speculation is done by adopting jobbing, derivatives ,etc.

• Gambling: In this the investor is always ready to take high degree of risk and he
creates a situation leading to risk and then assumes the risk so created. Expects
high returns in a very short time.

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 The Investment Process

The investment process

Investor Investment
characteristics vehicles

Strategy
development
Strategy Strategy
monitoring monitoring
Strategy
implementation

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 Financial Markets – stakeholders
• Investors – Individuals, Business, government
• Issuers of Financial assets – Government, Corporates,
etc.
• Financial Intermediaries – Banks, Insurance
companies, mutual funds, financing companies, etc.

Issuers - Issue
Investors ….. Expect
different kinds of Intermediaries returns with minimum
securities
risk

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 Investors
• Retail Investors – Individual investors, HNIs (who invest more than INR
200,000 in a single transaction)

• Institutional Investors:

• Financial Institutions, Banks, Insurance Companies, Mutual Funds and FIIs.

• FII is an entity established or incorporated outside India that proposes to

make Investments in India

14
 Introduction to Securities Market
Financial Market
•

Money Market Securities Market

Organized Unorganized
Money Market Money Market Primary Market Secondary Market

Short Term Lending / Money Lenders/ Exchange traded OTC

Borrowing Private lenders market

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 Investment alternatives/modes:

• a) Fixed principal Investments: Cash, Savings account,

Savings certificates, Government bonds, and corporate bonds.

• b) Variable principal Investments: Equity shares

• c) Non-security based: Real estate, Mortgages,

Commodities and Business Ventures.

• d) Indirect Investments: Pension funds, Provident funds,

Insurance policies, Investment companies, Mutual Funds.

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 Investment vehicles –markets and instruments
• Money markets –short term interest bearing accounts.
– primary objective -- liquid asset, stability of principal.
– Secondary objective - income -- meet short term needs.

• Fixed income debt and bonds –intermediate and long term investments.
– primary objective -- income. For example a 5 year tax saving Fixed deposit .

• Equity (stocks in the U.S) - Investment in shares. Long term investment. Short
term too volatile.
– Primary objective is to provide growth of income in nominal terms, and capital
appreciation. Stability of principal compromised.

• Commodities –gold, oil etc.

– Useful when there is great deal of investment uncertainty. Linked to inflation
and global concerns.

• Real Estate

• Others –antiques, oil paintings, vintage cars and wine

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 Money Markets
• A money market is a mechanism in which short term funds (normally up to 1 year) are lent
and borrowed, and through which a large part of the financial transactions of a country or
world are cleared.

• It has 2 parts – Call money market and Bill market

• Call money – is that part of national money market where day-to-day surplus funds, mostly of
banks is traded in.

• Bill market – RBI makes advances towards the scheduled commercial banks in the form of
demand loans against promissory notes/ treasury bills

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 Money market instruments
• Securities issued by the Government of India are called as Government securities (G-sec)
or Gilt.

• Treasury bills (t-bill) are short term debt instruments issued by the Reserve Bank of India
on behalf of the Government of India. They carry a duration of normally - 91 day, 182 day,
364 days t-bill (In INDIA)

• Certificate of deposit – bearer certificate and is negotiable in the market, issued in

multiples of 5 Lakhs. Issued by Banks (for 91 days to 1 year) or by Financial Institutions (for
1 – 3 years)

• Commercial paper – is a short term unsecured instrument issued by a company in the form
of promissory notes with fixed maturities. The maturities period ranges from 15 days to less
than one year, available in multiples of 5 Lakhs.

• Bonds/Debentures: are generally issued for tenors beyond a year. Governments and public
sector companies tend to issue bonds, while private sector companies tend to issue
debentures.

• https://www.ccilindia.com/Pages/default.aspx
19
 MMKT instruments continued
• Eurodollars –dollar denominated deposits at foreign banks or foreign branches of US banks.
• Eurobonds- A eurobond is denominated in a currency other than the home currency of the country
or market in which it is issued. These bonds are frequently grouped together by the currency in
which they are denominated, such as eurodollar or euroyen bonds. Issuance is usually handled by
an international syndicate of financial institutions on behalf of the borrower, one of which may
underwrite the bond, thus guaranteeing purchase of the entire issue.

• Bankers Acceptances – A short-term debt instrument issued by a firm that is guaranteed by a

commercial bank. These instruments are similar to T-Bills and are frequently used in money market
funds.
• B.A. are traded at a discount from face value on the secondary market, which can be an advantage
because the banker's acceptance does not need to be held until maturity. Banker's acceptances are
regularly used financial instruments in international trade
Repos –dealers in government securities use repos as a form of short term (usually overnight)
borrowing.(sell today and buy tomorrow)
• Reverse repo –dealer seeks investor who holds bonds. He buys the bonds and agrees to sell the
bonds back at a specified higher price at a future date.
• LIBOR –rate at which large banks in London are willing to borrow and lend.
• MIBOR= Mumbai inter-bank offer rate.

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 Money market instruments
• Money market yields are calculated using YIELDs (returns)
• Yields are quoted on: Bank Discount yields, calculated as follows:
• BDY={(Face value – Price of bill)} X 360/n X 100 (note formulae+from bank
perspective) FV
• INDIA: All T-bills are sold through an auction process, as per a fixed schedule
announced by the Reserve Bank of India (RBI).
• T-bills are available for a minimum amount of Rs 25,000.
• These instruments are issued at a discount to the face value. On maturity of the
T-Bill, the holder received the face value.
• While 91-day T-bills are auctioned every week on Wednesdays, 182-day and 364-
day T-bills are auctioned every alternate week on Wednesdays.
• The Reserve Bank of India issues a quarterly calendar of T-bill auctions which is
available at the Banks’ website. It also announces the exact dates of auction, the
amount to be auctioned and payment dates by issuing press releases prior to
every auction.
• Where to purchase from?
• T-bills auctions are held on the Negotiated Dealing System (NDS) and the
members electronically submit their bids on the system. Non-competitive bids are
routed through the respective custodians or any bank or PD which is an NDS
member.

• https://www.rbi.org.in/scripts/ndsuserxsl.aspx
21
 Bonds
• Long term debt obligations
• Price of a bond = C/(1+i) +…. C/(1+i)n + R/(1+i)n. (will be discussed later)
• Coupon (semi-annual or annual payments), redemption, term to maturity
and yield to maturity. US bonds and notes sold in denominations of $1000.
European bonds sold in £100 or Euro 100.
• In India face value of bond varies.
• YTM = (Face value – Price of bill) X 365 X 100 (from Investor perspective)
• Price of bill n

• The yield to maturity reported in financial page is calculated by

determining the semi annual yield and then doubling it, rather then
compounding it for two half periods. This use of a simple interest
technique means that the yield is quoted on an annual percentage rate
(APR) basis rather then as an EFFECTIVE annual yield (compounding).

• The APR method in this context is also called BOND EQUIVALENT YIELD.

• If a bond's coupon rate is more than its YTM, then the bond is selling at a
premium. If a bond's coupon rate is equal to its YTM, then the bond is
selling at par.

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 Holding period Return
• It is also called as Rate of Return.
• It is the past return
• It is normally denoted by Ri

• HPR = P1 – Po + dividend x 100

• Po

• Where P1 is price on maturity/sale, Po is the initial investment/price

• Example: X opened an FD of Rs. 100,000 for 1 year. On maturity he received Rs. 110,000.
• His HPR (1 year) = (110,000 - 100,000) / 100,000 x100 = 10%

• CLASS EXERCISE ..module 1

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• A 364 day t-bill fv 100 were issued to a bank at 7% discount to fv. The bank
holds these for 91 days and sells at a discount of 6.2% to fv. Calculate the
HPR realized by the bank and the annualized hpr. Will your answer change
if the transaction cost at time of sales is 0.05 per bill by the bank
• Po = 93 { 100 – 0.07*100} P1 = 93.80 {100 – 0.062*100} n = 91 days
• HPR for 91 days = {93.80 – 93}/93 *100 = 0.8602%
• Annualized HPR = {1+0.008602}^4 -1 = 3.4846% p.a. (approx)

• When a transaction cost at the time of sales is Re. 0.05 per bill, then the
HPR would be:
• P1 = 93.80 - 0.05 (bank sells and hence bears the cost – brokerage, etc.)
• = 93.75
• At time of purchase no cost and hence Po = 93 itself
• HPR = {93.75 – 93} / 93 *100 = 0.806%
• Annualised HPR = {1+0.00806}^4 – 1 = 3.28% {approx}

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 International bond market
• T-notes and Bonds issued by the US Treasury and foreign governments.

• Federal Agency Debt –government agencies issue own debt.

• Eurobond : Dollar denominated bond sold in London is a Eurodollar bond.

• Municipal bonds –issued by state and local governments. Interest income exempt
from state and local taxes in the issuing state. Capital gains taxed.

• Corporate bonds - issued by corporate entities.

• Mortgage backed securities –ownership claim in a pool of mortgages or an

obligation secured on a mortgage pool.

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 Securities Markets:
• What are the segments of Securities Market? The securities market has
two interdependent segments: the primary (new issues) market and the
secondary market.
• The primary market provides the channel for sale of new securities while
the secondary market deals in securities previously issued.
• In short: Primary market – IPOs , Secondary market – Trading

• 4 segments:
• A) Wholesale Debt market (WDM),
• B) Capital markets,
• C) F&O segment and
• D) Currency derivatives market

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 What are the different kinds of issues?

•Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to the public.
This paves way for listing and trading of the issuer’s securities.

•A follow on public offering (Further Issue) is when an already listed company makes either
a fresh issue of securities to the public or an offer for sale to the public, through an offer
document.

•Rights Issue

•A Preferential issue is an issue of shares or of convertible securities by listed companies to

a select group of persons under Section 81 of the Companies Act, 1956 which is neither a
rights issue nor a public issue. This is a faster way for a company to raise equity capital……. It is
also termed as Private Placement

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• What is the difference between public issue and private placement?

• When an issue is not made to only a select set of people but is open to the general public and
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it
is called private placement.

• As per Companies Act, 1956, an issue becomes public if it results in allotment to 50 persons or
more. This means an issue can be privately placed where an allotment is made to less than 50
persons.

• Who decides price of an issue: The issuer in consultation with Merchant Banker shall decide the
price. There is no price formula stipulated by SEBI. There are two types of issues, one where
company and Lead Merchant Banker fix a price (called fixed price) and other,

• Where the company and the Lead Manager (LM) stipulate a floor price or a price band and
leave it to market forces to determine the final price (price discovery through book building
process).

• The spread between the floor and the cap of the price band shall not be more than 20%

• The Registrar finalizes the list of eligible allottees.

• NSE operates a fully automated screen based bidding system called NEAT for IPO bidding

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 Secondary market
• What is meant by Secondary market?
• Secondary market refers to a market where
securities are traded after being initially offered
to the public in the primary market and/or listed
on the Stock Exchange.

• Secondary market could be either auction or

dealer market. while stock exchange is the part of
an Auction market, Over-the-Counter (OTC) is a
part of the dealer market.
29
 What is the role of a Stock Exchange in buying and selling shares?

• => The stock exchanges in India, under the overall supervision of

the regulatory authority, SEBI, provide a trading platform, where
buyers and sellers can meet to transact in securities.

• Mutualisation/Demutualisation of a stock exchange:

• In a mutual exchange, the three functions of ownership,

management and trading are concentrated into a single Group.
Here, the broker members of the exchange are both the owners
and the traders on the exchange and they further manage the
exchange as well. This at times can lead to conflicts of interest in
decision making.

• A demutualised exchange, on the other hand, has all these three

functions clearly segregated, i.e. the ownership, management and
trading are in separate hands.
30
 Debt Market
• What are the Segments in the Debt Market in India?
• There are three main segments in the debt markets in India, viz., (1)
Government Securities, (2) Public Sector Units (PSU) bonds, and (3)
Corporate securities.

• Bond:
• The name of the bond itself conveys the key features of a bond.

• For example, a GS CG2020 11.40% bond refers to a Central Government

bond maturing in the year 2020 and paying an annual coupon of 11.40%.
• Since Central Government bonds have a face value of Rs.100 and normally
pay coupon semi-annually, this bond will pay Rs. 5.70 as six- monthly
coupon, until maturity.

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• Participants and Products in Debt Markets
http://www.bseindia.com/markets/debt/securitylist_cg.aspx?Type=C
• Issuer Instruments Maturity Investors
• Central Government Dated Securities 2 - 30 years RBI, Banks, Insurance, Companies, Provident
Funds, Mutual Funds, PDs, Individuals.
• Central Government T-Bills 91/182/364 RBI, Banks, Insurance, companies, Provident
Funds, PDs, Mutual Funds,, Individuals.
• State Government Dated Securities 5-13 years Banks, Insurance Companies,, Provident Funds,
Individuals
• PSUs Bonds, Structured 5-10 years Banks, Insurance Companies, Provident Funds,
obligations Mutual Funds, Individuals, Corporates.
•
• Corporates Debentures, Bonds 1 - 12 years Banks. Mutual Funds, Corporates, Individuals.
• Corporates, PDs Comm. Papers 15 days to 1 yr Banks, Mutual Funds,, Financial Institutions,
Corporates, Individuals, FIIs
• Scheduled Commercial Banks CoD 15 days to 1 yr Banks, Corporations, Individuals, companies,
trusts, funds, associations, FIs, NRIs
• Select Financial Institutions (under
• Umbrella Limit fixed RBI) CoD 1 year to 10years - same as above ---

• Scheduled Commercial Banks Bank bonds 1-10 years Corporations, Individuals, Companies, Trusts,
Funds, Associations, FIs, NRIs
• PSU Municipal bonds 0-7 Years Banks, Corporations, Individuals, companies,
trusts, funds, associations, Fis and NRIs

• (Dated securities have a maturity of more than 1 year, T-bills up to 1 year, Dated securities have a coupon rate,
t-bills have no coupons – sold at discounts)
32
 Market Index
• The grandfather of all equity indices is the DJIA which was first published in 1896

• There are three main types of indices, namely price index, quantity index and value index.

• The price index is most widely used. It measures changes in the levels of prices of products in the
financial, commodities or any other markets from one period to another.

• The most popular index in financial market is the stock (equity) index which uses a set of stocks
that are representative of the whole market, or a specified sector, to measure the change in
overall behaviour of the markets or sector over a period of time.

• A stock index is important for its use:

• 1. as the lead indicator of the performance of the overall economy or a sector of the economy:
A good index tells us how much richer or poorer investors have become.
• 2. as a barometer for market behaviour
• 3. as a benchmark for portfolio performance:
• 4. as an underlying for derivatives like index futures and option.
• 5. as it supports research (for example, as benchmarks for evaluating trading rules, technical
• analysis systems and analysts’ forecasts); risk measurement and management; and asset
allocation.
33
 Stock and bond market indexes
• Dow Jones Industrial Average –over 100 years old. Collective average of 30
large U.S Blue chip stocks.
• Price Weighted index. Give higher priced shares more weight.
• There are other indices in the US and broadly based indices are computed
and published daily.
• Standard and Poor’s Index is composite of 500 firms.(Market value
weighted index)
• Other US market value indexes are;

• NYSE composite of all NY listed stocks.

• National Association of Security Dealers Automated Quotations (NASDAQ)

publishes an index of 4,000 over the counter firms traded on the exchange.

• The widest US index is the Wilshire 5000 index of the market value of all
NYSE and AMEX stocks plus actively traded NASDAQ stocks.

• Vanguard offers an index mutual fund, the total stock market portfolio that
matches the performance of the Wilshire 5000 index.
34
 International Indexes
• Nikkei 225 –Japan. Price weighted index of largest Japanese shares trading on TSE.
• Nikkei 300 –is value weighted
• FTSE100 –value weighted. Also FTSE 250, All Share index.
• DAX
• Morgan Stanley Capital International (MSCI) computes over 50 countries indexes and regional
indexes. Market value weighted.
• MSCI Regional stock indexes (see page 54 BKM for full list).

• Developed countries;
• EAFE (Europe, Australia, Far East), EASEA (EAFE excluding Japan), Europe, Far East, Kokusai
(World Excl Japan), Nordic Countries, North America, Pacific and the World Index.

• Emerging markets –Emerging markets index (EM), EM Asia, EM Far East, EM Latin America,
etc.
• Individual Countries Indexes
• Emerging Markets Index; Argentina to Venezuela.

35
 Bond Market Indexes
• Several bond market indexes have been established to get a broad
measure of performance of a bond market.
• U.S. Bonds
• Salomon Smith Barney Bond Index
• (Bank of America) Merrill Lynch Domestic Master
• (Barclays) Lehman Brothers US Treasury Index
• The Capital Markets Bond Index
• Citi US Broad Investment-Grade Bond Index (USBIG)

• GLOBAL: http://www.bloomberg.com/markets/rates-bonds/benchmark-
bond-indexes

• INDIA : Fixed Income Indices

• Nifty 8-13 yr G-Sec Index
• Nifty 10 yr Benchmark G-Sec Index
• Nifty 10 yr Benchmark G-Sec (Clean Price) Index
• Nifty 4-8 yr G-Sec Index
• Nifty 11-15 yr G-Sec Index
• Nifty 15 yr and above G-Sec Index
• Nifty Composite G-Sec Index
36
 Risks associated with investing in financial
assets
• Price risk –assets value drops when investors is forced to sell

• Default risk –issuer cannot meet obligations.

• Inflation or purchasing power risk –price inflation erodes value of an asset.

• Exchange rate risk –adverse movement in the exchange rate erodes value of a
foreign currency denominated asset.

• Reinvestment risk –cash flow received from asset is reinvested in the same asset at
a lower rate of return.

• Call risk –issuer calls bond early to repay debt.

• Liquidity risk –asset can’t be liquidated easily.

37
 Holding period Return
• It is also called as Rate of Return.
• It is the past return
• It is normally denoted by Ri

• HPR = P1 – Po + dividend x 100

• Po

• Where P1 is price on maturity/sale, Po is the initial investment/price

• Example: X opened an FD of Rs. 100,000 for 1 year. On maturity he received Rs. 110,000.
• His HPR (1 year) = (110,000 - 100,000) / 100,000 x100 = 10%

38
 Terms
• Warrant – entitle an investor to buy equity shares after a specified period of time at a given
price

• Corporate actions adjustment – adjustments in closing prices are called for actions like
splitting of shares, declaring dividends. Etc.

• Corporate actions may be broadly classified under stock benefits and cash benefits.

• The stock benefits include:

• Bonus, Rights, Merger/Demerger, Amalgamation, Splits, Consolidations, etc.

• Cash benefit declared by the issuer of capital is cash dividend.

• Any adjustment for corporate actions would be carried out on the last day on which a
security is traded on a cum dividend basis after the close of trading hours.

• Adjustments include modifications to closing prices, strike prices, market lot, etc.

39
 Depository
• A Depository can be compared with a bank, which holds the funds for depositors.
An analogy between a bank and a depository may be drawn as follows:

• BANK DEPOSITORY
• Holds funds in an account Hold securities in an account

• Transfers funds between accounts Transfers securities

on the instruction of the a/c holder

• Facilitates transfers without Facilitates transfers of ownership

having to handle money without having to handle securities

• Facilitates safekeeping of money Safekeeping of shares

• At present there are 2 depositaries in India which provide dematerialization of

securities. NSDL and CDSL. (national securities depositary limited and central
depository services (India) Limited)

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• Who is a Depository Participant (DP)?
• The Depository provides its services to investors through
its agents called depository participants (DPs). These
agents are appointed by the depository with the
approval of SEBI. According to SEBI regulations, amongst
others, three categories of entities, i.e. Banks Financial
Institutions and SEBI registered trading members can
become DPs.
• What is an ISIN?
• ISIN (International Securities Identification Number) is a
unique identification number for a security

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• What is a Custodian?
• A Custodian is basically an organisation, which helps
register and safeguard the securities of its clients.
Besides safeguarding securities, a custodian also keeps
track of corporate actions on behalf of its clients:
• Maintaining a client’s securities account
• Collecting the benefits or rights accruing to the client in
respect of securities
• Keeping the client informed of the actions taken or to
be taken by the issue of securities, having a bearing on
the benefits or rights accruing to the client.
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What is a Book-closure/Record date?
• Book closure and record date help a company determine
exactly the shareholders of a company as on a given date.

• Book closure refers to the closing of the register of the

names of investors in the records of a company. Companies
announce book closure dates from time to time. It is to be
done at least once a year as per SEBI guidelines.

• The benefits of dividends, bonus issues, rights issue accrue

to investors whose name appears on the company's records
as on a given date which is known as the record date and is
declared in advance by the company so that buyers have
enough time to buy the shares, get them registered in the
books of the company and become entitled for the benefits
such as bonus, rights, dividends etc. 43