SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

ECONOMY, INDUSTRY AND COMPANY ANALYSIS

 
GROUP MEMBERS:
Rahul Raj 120096
Shilpi Kumari 120102
Shruti 120108
Tanu Singh 120115
Yukti Sharma 120120
Since Mr. Jones is in a dilemma where to invest his money, we have
decided to help him with the solution. Therefore, the following are the
steps that are followed to provide a solution to Mr. Jones. 
• We will be doing Economy Analysis to know which country to invest
based on their performance on some indicators.
• After deciding the country to invest, we will do industry analysis to
know which industries are performing well for year 2014 to 2020. 
• After Industry Analysis we will do the company analysis based on the
industries selected to know which company is good for investment.
Economy Analysis
• For economy analysis, we have selected 5 lead and lag indicators which are
BCI, Share Price, GDP growth, Unemployment rate, and Inflation.
• BRICS nations are chosen for the ease of our work because if more
countries are selected for economic analysis then it will be very difficult to
choose in which countries we should invest or we will have to select more
than one country for investment that will make it difficult our work.
• For BRICS nation we have selected data for the last 6 years (2014-2020),
then from the last 6years’ data we have taken average for each country so
that we can compare the average growth of the countries selected.
Unemployment rate%
Brazil 10.63 Since in a healthy economy, the unemployment rate is anywhere from 3% to 5%.
China 4.38
India 5.44 Therefore, on that basis, China, India, and Russia are considered as the unemployment
Russian Federation 5.16
rate of China, India, and Russia are 4.38%, 5.44%, and 5.16 % respectively.
South Africa 26.50
Average 10.42

The business confidence indicator provides information on future developments, based

BCI
South Africa 99.39 upon opinion surveys on developments in production, orders, and stocks of finished
Russia 100.99
goods in the industry sector. Numbers above 100 suggest increased confidence in near
China 98.65
India 99.06 future business performance, and numbers below 100 indicate pessimism towards future
Brazil 99.02
performance. Therefore, on that basis, Russia is considered as it has an average BCI of
Average 99.42
100.99 for the period 2014 -2020.
Average GDP growth %
Brazil -0.42
China 6.85 GDP is typically considered by economists to be the most important measure of the
India 6.98
economy’s current health. When GDP increases, it’s a sign the economy is strong. Here
Russia 0.78
South Africa 0.97 India has the highest GDP growth from 2014 to 2020 among the BRICS nation.
Average 3.03
Share Price
Brazil 135.972
The strong market may suggest that earnings estimates are up whereas a
Russia 119.598
India 111.535 down market may indicate that company earnings are expected to
China 81.3365
decrease. Therefore, based on data Brazil, Russia and India are
South Africa 102.811
Average 110.25 considered as they lie above-average price.

Average Inflation
The higher and lower inflation both are dangerous as higher inflation
Brazil 5.82
indicates a decrease in consumer purchasing power and a decline in the
Russia 1.99

India 5.36 average standard of living. Whereas the low rate of inflation indicates
China 6.91 consumers decide to cut back on their spending therefore people start
South Africa 5.17 saving more. Hence based on data India and South Africa are considered
Average 5.05
as two best economies.

Therefore, from the above analysis, we can say that 4 out of 5 indicators India is the preferred option to invest. Hence
we have chosen India to invest in among the BRICS nation.
Industry Analysis
• After the selection of economy, we did industry analysis for identifying suitable
industry for the Mr. Jones to investment.
• For industry analysis 10 industries were chosen, which included Mining,
Electricity, Education, Healthcare, Shipping & Transport allied services, Tobacco,
Assets Financing, Security Brokings, Consumer Goods and Real Estate.
• We have considered seven factors for the selection of suitable industry - Current
Ratio, Debt to Equity Ratio, Assets Turnover Ratio, Net Profit Ratio, Du Point, Sales
growth, Change in CAPEX.
• For all the industries we have selected data from 2014 to 2019, then from the last
6 years’ data we have taken average for each industry so that we can compare
the average of the industries selected.
 DuPont

Liquidity Leverage
Change in Ratio( Current Efficiency Ratio(Total Ratio( Debt Equity Net Profit
Industry Names Sales Growth Capex Ratio) Asset Turnover Ratio) Ratio) Ratio
1497%
Mining 15% 1491% 2.27 0.88 1.42 14%
-109%
Electricity 12% 15% 1.16 0.95 1.89 -3%
137316%
Education 15% -142% 1.35 2.37 0.59 0.38%
730941.48%
Healthcare 18% -23% 1.23 1.72 1.36 3.79%
52%

Shipping Transport &

Allied Services 62% 104% 1.43 3.73 1.81 665%
6629%
Tobacco 6% 2% 2.38 0.95 0.38 9%
-423766%

Assets Financing 11% 2812% 1.32 1180.68 4.41 2325%

-3688%

Security brokings 22% 237% 1.86 208.40 0.63 975%

14243%
Real Estate 2705% -15% 1.50 7.00 2.60 7%
-187%

Consumer Goods 22% 14% 1.30 0.70 1.00 5%

46293%

AVERAGE 289% 450% 1.58 140.74 1.61 400%

Higher the better.
Higher the
Higher the better. Higher the better. Higher the better. Higher the better. Low is good
better
 
Therefore, from the above analysis, three industries out of ten industries were selected as an
option to invest. The selected industries are mining, stockbroking, and tobacco. The reason
behind the selection of these three industries are given below: -
• Stock Broking is above the benchmark in four different ratios than other industries. i.e.
Liquidity Ratio, Efficiency Ratio, Leverage Ratio, Net Profit Ratio.
• The mining industry and asset finance industry are above the benchmark in three different
ratios but comparing both the industry based on the average for the last 6 years in 7
different ratios, the mining industry is performing better in four different ratios i.e. Sales
growth, liquidity ratio, leverage ratio, and DuPont than assets finance industry. And also the
asset financing industry is having a negative DuPont ratio. Therefore, both the industry
mining industry is being selected.
• Education, healthcare, and the tobacco industry are above the benchmark in two different
ratios. But the tobacco industry is performing better in four different ratios i.e. change in
CAPEX, liquidity ratio, Net profit ratio, and DuPont than the other two industries. And also
both the education and healthcare industries are having a negative average change in CAPEX
for the last 6 years. Therefore, between these three industries tobacco is being selected.
Company Analysis
• After selecting industries for investment, company analysis was done
to select the companies for investment.
• For company analysis adjusted closing price of the companies within
each industry were taken and the return and the standard deviation
are computed.
• After selecting the sectors through benchmarking process and
ignoring the companies with negative sales after that we get 24
companies and we have computed the Return= (present day
price/previous day price) -1.
 Table 2:- Top 10 companies based on risk
Table 1:- Top 9 companies on the basis of
(annual) or standard deviation are mentioned
return are mentioned below:
below:
S K P Securities Ltd. 1.64634% Gujarat N R E Coke Ltd. 0.3200%
Gujarat Mineral Devp. Corpn. Ltd. 0.68444% I T C Ltd. 0.7172%
Aditya Birla Money Ltd. 0.36158% MotilalOswal Financial Services
Godfrey Phillips India Ltd. 0.29836% Ltd. 0.7439%
Golden Tobacco Ltd. 0.12062% K I O C L Ltd. 0.9148%
Sinnar Bidi Udyog Ltd. 0.10383% N M D C Ltd. 0.9490%
V S T Industries Ltd. 0.09214% V S T Industries Ltd. 1.1340%
M O I L Ltd. 1.2116%
N T C Industries Ltd. 0.02328%
Emkay Global Financial Services
Oil & Natural Gas Corpn. Ltd. 0.00575%
Ltd. 1.2979%
Cairn India Ltd. [Merged] 1.3483%
Geojit Financial Services Ltd. 1.5671%

Based on the above calculation we can say that if he is a risk averse then he may invest in higher return giving
companies from table 1 and if he is low risk taker then he should go with the companies in table 2. Therefore,
the number of selected companies for investment is 19 out of 24.