Transcript The Investment Environment

Submit To :Rutvi Sarang
Prepared BY :
Roll No : 3 Dipak S Bhayani
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Investment
Process
Investment
Policy
Investible
Fund,
Objective
knowledge
Analysis
Market
Industry
Company
Valuation
Intrinsic
value
Future
value
Portfolio
Construction
Diversifica
tion
- Selection
&
Allocation
Portfolio
Evaluation
-Appraisal
- Revision
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1. Investment Policy
Investible Funds:
The entire investment Procedure
revolves around availability of
funds.
Generating through savings and
borrowings.
Extra careful in the case of
selection of investment
alternatives, if funds are
borrowed.
interest pays is more than return
Objectives
 They should be framed on the premises of required
rate of return, need for liquidity, safety of principal
and regular income.
 Risk takers objective should be high rate of return in
the form of capital appreciation.
 Primary objective of risk averse is the safety of
principal.
Knowledge
 Know. About investment alternative and market plays an
imp role in the policy formulation.
 Investment alternative ranges from security to real estate.
 Risk and return associated with inv alt differ from each
other.
 E.g.
 investment in equity is high yielding but more risk than
fixed income securities.
 Tax sheltered schemes offer tax benefits to investors.
 Awareness of stock market structure and broker
charges.
 Mode of operation varies among BSE, NSE and OTCEI.
 Brokerage charges are also changes.
2. Security Analysis
Market Analysis
 The growth in GDP and inflation
are reflected in stock prices.
 The recession in the economy
results in a bear market.
 The stock prices may be fluctuating
in the short run but in the long run
they move in trends i.e. either
upwards or downwards.
Industry Analysis
 The industries that contribute to the output of the
major segments of the economy vary in their
growth rates and overall contribution to eco
activity.
 Some industry grow faster than the GDP and are
expected to continue in their growth.
 E.g IT industry has experienced higher
rate than GDP in 1998.
growth
Company Analysis
 CA is to help to investor for make better decisions.
 Company’s earnings, profitability, operating
efficiency, capital structure and mgmt have to be
screened.
 These factors have direct bearing on the stock
prices and return of the investors.
 Company with a high product market share is able
to create wealth to the investors in the form of
capital appreciation.
3. Valuation
 Valuation helps in determining risk-return
expected from an investment in common
stock
Intrinsic value:
Can be measured through book
value of the share and price
earning ratio.
The real worth of share is
compared with the market price
and then inv decision are made.
Future value
 F.V of securities can be measured
through simple statistical
technique like trend analysis.
 It helps to predict future value.
4.Construction of Portfolio
 Its combination of securities and its for to meet
investor’s goals and objectives.
 Max return and min risk.
4(a) Diversification:
 Objective is reducing a risk in loss of capital and
income
 Diversified portfolio is less risky then single
portfolio.
4(a.1).Industry diversification
 Industries’ growth and their reaction to govt
policies are different.
 Banking industry gives high return but
limited capital appericial.
 IT gives high return and high cap app but
growth potential after 2002 is not
predictable.
4(a.2).Company diversification
 Securities from different companies are
purchased to reduce risk.
4(B). Selection:
 Funds are allocates for the selected secu.
 Selection of secu and the allocation of funds
and seals the construction of portfolio
5. Evaluation
5(a). Appraisal
 The return and risk
performance of the
security vary time to time.
 It should be measured and
compared.
5(b). Revision
 Depend on result of the
appraisal
 Low yielding secu with high risk
are replaced with high yielding
secu with low risk factor.
 Keep the return at particular
level investor to revise the
components of the portfolio
predictably.
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