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.
 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
 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)
 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
 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
 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.
 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
 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.
 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. rational assessment of an

intention of building wealth, funding asset's intrinsic value and
financial goals, or preserving capital. potential for future growth.
Investors aim to buy assets
that are undervalued and
have the potential to
appreciate over time.
2) Time a longer time horizon, years or shorter time horizon,
Horizon even decades. willing to wait often ranging from days
patiently for their investments to to months; profit from
grow and compound over time. rapid price movements
and may enter and exit
positions quickly.
 b) Investment vs. Speculation
Factors Investment Speculation

Risk Management diversification to manage risk. means take on higher levels of risk
spreading investments across different asset compared to investors.
classes (such as stocks, bonds, real estate, strategies can involve significant
etc.) to reduce / set off/trade off the impact leverage (borrowed money) and
of poor performance in any one class. may lead to substantial losses.

Research & Analysis Investors conduct thorough research and analyse market trends and
analysis before making decisions. assess a news, their decisions are often
company's fundamentals, financial health, influenced by short-term market
industry trends, and economic indicators to sentiment rather than a deep
make informed choices. analysis of an asset's underlying
value.

Informed Decision decisions are based on a rational influenced by emotional factors

assessment of an asset's intrinsic value and and herd behaviour. buy or sell
potential for future growth. Investors aim to based on the fear of missing out
buy assets that are undervalued and have (FOMO) or the fear of losing out
the potential to appreciate over time. (FOLO), contributing to market
volatility.
 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);
 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.
 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.
 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:
 e) Portfolio Management Process
1) Goal Definition and Investment Policy Statement (IPS)
2) Asset Allocation
3) Security Selection
4) Portfolio Construction
5) Risk Management
6) Monitoring and Rebalancing
7) Performance Evaluation
8) Market and Economic Analysis
9) Communication with Clients
10) 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
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:
 f) Approaches to Investment Decision Making
1) Fundamental Analysis;
2) Technical Analysis;
3) Quantitative Analysis;
4) Behavioral Finance;
5) Value Investing;
6) Growth Investing;
7) Income Investing;
8) Active Investing;
9) 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.
 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:
 g) Common Errors in Investment Management and Qualities of Successful Investing

1) Lack of Diversification
2) Market Timing
3) Over trading
4) Chasing Trends
5) Ignoring Costs
6) Emotional Decision Making
7) Confirmation Bias
8) Lack of Research
9) Neglecting Risk Tolerance
10) Herd Mentality
11) Not rebalancing
12) Ignoring Tax Implications;
13) 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.
 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:
 g) Common Errors in Investment Management and Qualities of Successful Investing

1) Knowledge & Research

2) Clear Investment Goals
3) Risk Management
4) Long term perspective
5) Discipline & Patience
6) Adaptability
7) Continuous Learning
8) Avoiding herd mentality
9) Emotional Intelligence
10) Consistent Contributions
11) Focus on fundamentals
12) Tax efficiency
13) Exit Strategy
14) Professional Advice (if needed)
 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:
 h) Role of Portfolio Management
1) Diversification
2) Risk Management
3) Asset Allocation;
4) Active & Passive Management
5) Continuous Monitoring and Rebalancing;
6) Performance Evaluation
7) Tax efficiency
8) Client Communication
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:
i) Portfolio Management Practices in International Markets
1) Diversification
2) Currency Risk Management
3) Research Analysis
4) Local Partnerships
5) Regulatory Compliance
6) Risk Assessment
7) Asset Allocation
8) Active & Passive Management
9) Monitor Global Trends
10) Exit Strategies
11) Cultural Sensitivity
12) Tax Consideration
13) 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
THAN(Q???)