Brainstorm
Why Closing Price for stocks and indices is
different from LTP (Last Traded Price)?
SECURITIES MARKET
Unit I (SAPM)
Learning objectives
Outline the different
approaches to investment in
the Capital markets
Evaluate the various
investment alternatives in
financial markets in
comparison to risk and return.
List the common errors in
investment process
Structure of the Securities Market
Securities
Market
Equity Debt Derivatives
Market Market Market
Government Corporate
Securities Debt Money Options Futures
Market Market Market Market Market
What is a Stock Exchange?
Stock exchange is that place where
trading of shares is done in terms of
sale and purchase.
Know your Stock Markets
Major Stock Exchanges in India:
National Stock Exchange (NSE)
Bombay Stock Exchange (BSE)
MCX’SX Stock Exchange (MCX’sx)
NCDEX Stock Exchange (NCDEX)
Indices: SENSEX & NIFTY
Stock Market performance is quantified by
calculating an index using the benchmark scrip’s
and as known to all SENSEX (Sensitive Index) is
associated with Bombay Stock Exchange and S&P
CNX NIFTY is associated with National Stock
Exchange
Stock Exchange Of India
Limited - NSE
Definition of 'National Stock Exchange Of
India Limited - NSE‘
The National Stock Exchange is India's
largest financial market. Established in
1992, the NSE has developed into a
sophisticated, electronic market, which
ranks third in the world for transacted
volume. The NSE conducts transactions
in the wholesale debt, equity and
derivative markets.
NSE: National Stock Exchange
Type Stock Exchange
Location Mumbai, India
Index NIFTY
Founded 1992
Owner National Stock Exchange of India Limited
Key people Vikram Limaye (MD&CEO)
Currency Indian rupee ( )
No. of listings > 1,950
MarketCap US$3.1 trillion (May 2021)
Indexes S&P CNX Nifty
Website www.nseindia.com
BSE: Bombay Stock Exchange
Type Stock Exchange
Location Mumbai, India
SENSEX
Index
Founded 1978-79
Owner Bombay Stock Exchange of India Limited
Key people Ashish Kumar Chauhan (MD)
Currency Indian rupee
No. of listings >7400
MarketCap US$3.2 trillion (May 2021)
Indexes Sensex
Website www.bseindia.com
Types of Financial Markets
Types of Financial Markets
Types
Types
Types of
of Financial
of Markets
Financial
Financial Markets Markets
Types of Financial Markets
Capital Money Forex Derivatives
Market Market Market Market
Agriculture
Equity T-Bills
Spots Produces,
Debt Call Money
Forwards Metals,
ICD, CP,
Financial
CD
futures like
Interest rate,
currency,
Retail
indices etc
Corporate
Banks Banks
Banks
FI Corporate
Corporate Banks, FIs
FIIs FI, FIIs
FI, FIIs Corporate
primary market secondary market
In primary markets, securities are In Secondary market share are
bought by way of public issue traded between two investors.
directly from the company. Securities usually bought and sold
New issue are available in through the secondary market.
primary market. The secondary market are broker
The primary is a middlemen. and dealer.
New issue of common The secondary market stock and
stock;bonds and preferred stock bonds issues are sold to the
are sold by companies. public.
Players in Stock Exchange
Corporations
Institutions (“Buy Side” Fund Managers)
Investment Banks (“Sell Side”)
Public Accounting Firms
Corporations
Corporations behave as operating businesses that require capital to grow and run their
operations.
Can vary in industry, size, and geographical location.
Examples of publicly traded corporations:
Alphabet
Amazon
Apple
Exxon
Toyota
Institutions (“Buy Side” Fund
Managers)
Institutions consist of fund managers, institutional investors, and retail investors.
Provide capital to corporations that need the money to grow and operate their
businesses.
In return for their capital, corporations issue debt or equity to the institutions in
the forms of bond and shares, respectively.
Examples of top “Buy Side” Firms:
Bridgewater Associates
Blackstone
KKR
The Carlyle Group
Apollo Global Management
Investment Banks (“Sell Side”)
Hired to facilitate deals between corporations and institutions.
To connect institutional investors with corporations, based on
risk and return expectations, and investment styles.
Examples of top investment banks:
Goldman Sachs, JP Morgan, Credit Suisse, HSBC and
Morgan Stanley
Public Accounting Firms
Can engage in multiple roles in the primary market.
These roles include financial reporting, auditing
financial statements, taxes, consulting on accounting
systems, M&A advisory, and capital raising.
Examples of top public accounting firms:
Deloitte, PwC, Ernst & Young, KPMG and Grant
Thornton
Introduction to Investment (Flow of
Savings)
Investment
An Investment is the COMMITMENT
of MONEY or other RESOURCES in
the expectation of obtaining FUTURE
BENEFITS.
Investment
A current commitment of Rupees for a period of time in
order to derive future payments that will compensate for:
the time the funds are committed
the expected rate of inflation
uncertainty of future flow of funds.
Investment Vs. Speculation
Basis Investment Speculation
Planning Horizon Long Short
Risk Moderate High
Return Modest High
decision Fundamental Technical
Leverage No High
Psychological attitude of Cautious and conservative Daring and careless
participants
BOND VALUATION
AND EQUITIES
Investment Alternative Analysis
https://www.motilaloswal.com/blog-details/How-bond-yields-
eventually-impact-equity-returns../1432
How bond yields eventually impact equity returns
bond yields are an important determinant of equity valuations.
the equity markets have normally moved negatively with bond yields
bond yields go down, the equity markets tend to outperform by a bigger margin
and as bond yields go up equity markets tend to falter.
consider it over a period of 5-10 years, this relationship will be clearly visible
as charted below
Factors that explains the relationship between bond
yields and equity valuations
Bond yields are the key to calculating opportunity cost of equities
Bond yields are normally compared with earnings yield
Bond yields impact financial costs
Bond yields impact the cost of capital in valuing equities
Bond yields impact color of Foreign Institutional flows
Investment Objectives
RETURN
RISK
LIQUIDITY
TAX SHELTER
CONVENIENCE
Quiz/Poll
Investment is the
A. Net addition made to the nations capital stocks
B. persons commitment to buy a flat or a house
C. employment of funds on assets to earn returns
D. employment of funds on good and services that
are used for production purpose
Quiz/Poll
Technically, investments include
A. only financial assets
B. only marketable assets
C. financial and real assets that is marketable or
non- marketable
D. only financial and real assets that is marketable
Quiz/Poll
Speculator is a person
A. Who evaluates the performance of the company
B. who uses his own funds only
C. who is willing to take risk for high return
D. who considers heresays and market behaviours
Quiz/Poll
Bombay Stock Exchange was established in the
year
A. 1956
B. 1875
C. 1903
D. 1949
Quiz/Poll
Clearing and Settlement operations of the NSE is
carried out by
A. NSDL
B. Clearing Cooperation
C. SBI
D. By the exchange itself
Quiz/Poll
Primary and Secondary Market
A. Compete with each other
B. Complement each other
C. function independently
D. control each other
Quiz/Poll
The underwriter has to take up
A. the fixed portion of the issued capital
B. the agreed portion of the unsubscribed part
C. the agreed portion or can refuse it
D. none of the above
Quiz/Poll
Speculation can be distinguished from investment
based on
A. financing meaning
B. economic meaning
C. risk
D. tax
Investment Alternatives
Financial Assets
Investment
Equity Shares
Avenues
Preference Shares
Non-
Bonds marketable Equity
Financial Shares
Money Market Instruments Assets
Money Market
Mutual Funds Bonds Instruments
Life Insurance
Mutual Fund
Financial Derivatives Life Insurance
Schemes
Policies
Real Assets
Real Estate
Precious
Real Estate Objects
Precious Objects Financial
Derivatives
Evaluation Of Various Investment Avenues
Return Marketability/
Current yield Capital Risk Liquidity Tax Shelter Convenience
appreciation
Equity
Low High High Fairly high High High
Shares
Non-
convertible High Negligible Low Average Nil High
Debentures
Equity
Low High High High High Very high
Schemes
Debt No tax on
Moderate Low Low High Very high
Schemes dividends
Bank
Moderate Nil Negligible High Nil Very high
Deposits
Public
Moderate Nil Section 80 C
Provident Nil Average Very high
benefit
Fund
Life
Nil Section 80 C
Insurance Nil Moderate Average Very High
benefit
Policies
Residential
Moderate Moderate Negligible Low High Fair
House
Gold and
Nil Moderate Average Average Nil Average
Silver
Portfolio Construction
Portfolio construction is a process of selecting securities optimally by taking minimum risk to achieve
maximum returns.
The portfolio consists of various securities such as bonds, stocks, and money market instruments.
The Portfolio is :
The process of blending together the broad classes
To obtain return with minimum risk
Diversification is done to spread
Reduces unsystematic risk
Portfolio Management Process
Investment Objective
Choice of asset Mix
Portfolio strategy
Selection of securities
Portfolio Execution
Portfolio Revision
Portfolio Evaluation
Errors
INADEQUATE COMPREHENSION OF RETURN AND RISK
VAGUELY FORMULATED INVESTMENT POLICY
NAÏVE EXTRAPOLATION OF THE PAST
CURSORY DECISION MAKING
SIMULTANEOUS SWITCHING
MISPLACED LOVE FOR CHEAP STOCKS
OVER-DIVERSIFICATION AND UNDER-DIVERSIFICATION
BUYING SHARES OF FAMILIAR COMPANIES
WRONG ATTITUDE TOWARD LOSSES AND PROFITS
TENDENCY TO SPECULATE
The 6 Biggest Mistakes Ordinary
Investors Make
https://www.visualcapitalist.com/6-biggest-
mistakes-ordinary-investors-make/
Info graphics through Website
Brainstorm NIFTY 50 or 51???
NSE Makes another addition to 50 constituents of NIFTY in
2016… WHY?????
Security Analysis
(Live)
Security Analysis
(Live)
