1.

Introduction
Rule No.1: Never lose money, Rule No.2: Never forget rule No.1.

-Warren

Buffett
The famous quote of investment Guru Warren Buffett reminds us that, money
should be invested through proper analysis and judgment. In financial terms,
Investment is putting money into something with the expectation of gain, usually
over a longer term. Different types of asset classes such as stock, bond, money
market instruments etc. are available in the financial market investing through
which an investor can hope to gain his expected return. While investing in these
asset classes an investors prime interest is in producing positive investment
returns while having a low probability of incurring losses in a reasonable time
frame. The concept of portfolio analysis is involved in delivering optimum asset
combinations. Generally, Portfolio analysis is a study of the performance of
specific portfolios under different circumstances which includes the efforts made
to achieve the best trade-off between risk tolerance and returns. Portfolio
analysis involves quantifying the operational and financial impact of the portfolio.
It is vital to evaluate the performances of investments and timing the returns
effectively. The analysis of a portfolio extends to all classes of investments such
as bonds, equities, indexes, commodities, funds, options and securities. Portfolio
analysis gains importance because each asset class has peculiar risk factors and
returns associated with it. Hence, the composition of a portfolio affects the rate
of return of the overall investment.
In this report we will make a portfolio of difference assets class that will give us a
good return with minimum risk, at the same time provide cash for our day to day
needs.

1.1. Objectives:
2.
3.
4.
5.

Developing investment policy statement

Examining financial and Economic Condition
Implementing the investment plan
Forecast the performance

1.2. Scope:

Our portfolio will consist of BDT 2000000.

Our time frame for this portfolio is 5 Years
1

We only consider the investment available in Bangladesh. We cannot

invest in international bonds, financial forward, financial future

2. Policy Statement
We want to create an investment fund that will give us a healthy return for next
5 years. Thepurpose of this Investment Policy Statement is to establish
guidelines for our investment portfolio. The statement also incorporates
accountability standards that will be used for monitoring the progress of the
Portfolios investment program and for evaluating the status of investment.

2.1. Investment objective and spending policy

The Fund is to be invested with the objective of preserving the long-term,

real purchasing power of assets while providing a relatively predictable

and growing stream of annual distributions in support of the Institution.

For the purpose of making distributions, the Fund shall make use of a totalreturn-based spending policy, meaning that it will fund distributions from
net investment income, net realized capital gains, and proceeds from the

sale of investments.
The distribution of Fund assets will be permitted to the extent that such
distributions do not exceeda level that would erode the Funds real assets
over time. We will seek to reduce thevariability of annual Fund
distributions by factoring past spending and Portfolio asset values into its

current spending decisions.

Periodic cash flow, either into or out of the Portfolio, will be used to better
align the investment portfolio to the target asset allocation.

2.2. Portfolio investment policies

Asset allocation policy
We know that the strategic allocation of Portfolio assets across broadly defined
financial asset and sub asset categories with varying degrees of risk, return, and
return correlation will be the most significant determinant of long-term
investment returns and Portfolio asset value stability.
2

Weexpects that actual returns and return volatility may vary from expectations
and return objectives across short periods of time. While we wish to retain
flexibility with respect to making periodic changes to the Portfolios asset
allocation, we expect to do so only in the event of material changes to the Fund,
to the assumptions underlying Fund spending policies, and/or to the capital
markets and asset classes in which the Portfolio invests.

Our assets will be managed as a balanced portfolio composed of two major

components: an equity portion and a fixed income portion. The expected role of
equity investments will be to maximize the long-term real growth of Portfolio
assets, while the role of fixed income investments will be to generate current
income, provide for more stable periodic returns, and provide some protection
against a prolonged decline in the market value of Portfolio equity investments.
Cash investments will, under normal circumstances, only be considered as
temporary Portfolio holdings, and will be used for Fund liquidity needs or to
facilitate a planned program of dollar cost averaging into investments in either or
both of the equity and fixed income asset classes.
Outlined

below

are

the

long-term

strategic

asset

allocation

guidelines,

determined to be the most appropriate, given long-term objectives and shortterm constraints. Portfolio assets will, under normal circumstances, be allocated
across broad asset and sub asset classes in accordance with the following
guidelines:

Asset Class

Sub Asset Class

Target Allocation

Stocks or equities

Stocks
Mutual Fund
FDR
Saving Deposits
Gold/Land
Investment in CNG auto
Rickshaw

10%
10%
20%
10%
10%
40%

Fixed Income
Tangible assets
Cash

0%

To the extent the Portfolio holds investments in nontraditional, illiquid, and/or

nonmarketable securities including (but not limited to) venture capital, hedge
funds, and real estate investments, these assets will be treated collectively as
alternative investments for purposes of measuring the Portfolios asset
3

allocation. While not specifically considered within this policy, alternative

investments may comprise no more than 15% of total Portfolio assets and, to the
extent they are owned, will proportionately reduce target allocations to the three
primary asset classes itemized above

Diversification policy
Diversification across and within asset classes is the primary means by which we
expect the Portfolio to avoid undue risk of large losses over long time periods. To
protect the Portfolio against unfavorable outcomes within an asset class due to
the assumption of large risks, we will take reasonable precautions to avoid
excessive investment concentrations. Specifically, the following guidelines will be
in place:
a) We went through intensive research in all available stocks in DSE and tried
to find the most profitable sector. We found that cement industry has a
good potential. To diversify our risk, we will try to invest in all 6 cement
companies stock available in the market.
b) To get a mix to risk and return, we will invest 60% in risky assets and 40%
in less risky assets.
c) We will make a mix of fixed income (investment in gold, stock, mutual
fund) and current income (Auto Rickshaw rent, FDR, Bond)

Rebalancing
It is expected that the Portfolios actual asset allocation will vary from its target
asset allocation as a result of the varying periodic returns earned on its
investments in different asset and subasset classes. The Portfolio will be
rebalanced to its target normal asset allocation under the following procedures:
1. We will use incoming cash flow (contributions) or outgoing money movements
(disbursements) of the Portfolio to realign the current weightings closer to the
target weightings for the Portfolio
2. We will regularly review the portfolio, and apply the following parameters
a) If any asset class (equity or fixed income) within the Portfolio is +/5
percentage points fromits target weighting, the Portfolio will be
rebalanced.
b) If any fund within the Portfolio has increased or decreased by greater than
20% of its target weighting, the fund will be rebalanced.

2.3. Investment Constraints:

There are certain investment constraints that we will face in making this
portfolio. They are:
1. Our total fund is 20 lakh taka
2. Our time horizon in 5 years
4

3. We cannot invest directly in treasury bond, or non-residential bonds

4. As we need current income we cannot heavily invest in long term assets
5. We cannot invest in derivatives, financial forward or financial futures

3. Examining financial and Economic Condition

The economy of Bangladesh has successfully tackled the contagion effect of
global economic crisis and managed tomaintain a sustained growth. According to
a provisional estimate, the economy has posted a growth of 6.71percentin
FY2010-11 and in FY2011-12 the estimated growth is 6.32 percent. This
performance is mainly attributable to the sustained growth in agriculture sector
coupled with recovery of growth in industry sector and the satisfactory
performance of service sector.

Global Economic Scenario

The world has come out of the recession of 2007-2009 stronger than anticipated.
However, the recovery ismarked by different speeds in different regions of the
world. The consolidation of the global recoverycontinues in two phases. In
advanced economies, the recovery has been less than expected coupled
withhuge fiscal imbalances, mounting public debt and increased unemployment.
In addition, the sovereigndebt crisis in the periphery of euro area has created
downside risks in the process of recovery. While theemerging and developing
economies have recouped from the slowdown during global downturn, there
hasbeen inflationary pressure in these economies, and there were some signs of
overheating driven in part bystrong capital inflows. Against this backdrop, the
World Economic Outlook, October 2011, showed adownward revision of global
output in 2011 and 2012 around half a percentage point to 4 percent fromApril
2011 Outlook.
The recent surges in global oil and food prices were adding further inflationary
pressures. Inflation in advanced economies was 1.6 percent in 2010, which was
5

expected to pick up to 2.6 percent in 2011. On the other hand, inflation in

emerging and developing economies was 6.10 percent in 2010, which was
expected to pick up to 7.5 percent in 2011 due to domestic demand and induced
foreign capital inflows alongside the price-hike of commodities like oil and food.

The Global Economic Recession and Bangladesh

The impact of the global financial crisis on Bangladesh economy was not
observed at the beginning of thecrisis. However, some weakening in export and
import was observed in the third quarter of FY2008-09,which continued through
the second quarter of FY2009-10. During these two fiscal years, exports grewby
10.31 percent and 4.11 percent respectively, while imports grew by 4.06 percent
and 5.53 percent respectively. In the context of negative growth in world trade,
these growth rates were satisfactory. Withthe rebound in global trade,
Bangladeshs

trade

sector

is

growing

significantly.

The

exports

and

importsregistered a growth over 40 percent in the last fiscal year. The

Government provided two incentive packages that included policy support and
cash incentives for export sector which helped quick turnaround from the
recessionary shocks. The slowdown in the growth of remittance reflected the
impactof global recession, particularly on the real estate markets in the Middle
East, and on industrial labour demand in some South East Asian economies such
as

Malaysia.

However,

remittance

performance

was

atsatisfactory

level

registering a growth rate of 22.42 percent in FY2008-09 and 13.40 percent in

FY2009-10. This growth further decelerated in FY2010-11 to 6.03 percent. It is
however to be noted that both remittance and overseas job replacement
rebounded since January 2011.

Economic Growth
The economy had experienced modest fall of GDP growth during the
recessionary period. Despitecontinuous growth in agriculture sector, the sluggish
growth in industry sector particularly in themanufacturing sector compared to
pre-recession period was responsible for slower GDP growth. However, in the
wake of global recovery the economy rebounded and has posted a growth of
6.66 inFY2010-11 as compared to 6.07 percent and 5.74 percent growth in
FY2009-10 and FY2008-09 respectively. This performance is mainly attributable
to the sustained growth in agriculture sector coupledwith recovery of growth in
industry

sector

and

the

satisfactory

performance

of

service

sector.

Agriculturerecorded sustained growth for the last three consecutive fiscal years
6

responding to favourable weather conditions, continued government support for

agriculture inputs and greater access to credit. Industry sector rebounded from
the sluggish growth during recession and recorded a robust growth of 8.16
percent,up from 6.49 percent of previous year. Massive initiatives taken by the
government in the overall infrastructure sectors including the power helped to
improve industrial production. Service sector hasmaintained satisfactory growth
path and recorded 6.63 percent growth, slightly higher than the growth
ofprevious year (6.47 percent). In FY2010-11, per capita GNI and per capita GDP
stood at US$ 818 andUS$ 755 respectively, up from US$ 751 and US$ 687
respectively a year earlier.

Savings and Investment

According to a provisional estimate, domestic savings decelerated from 20.10
percent of GDP in FY2009-10 to 19.59 percent of GDP in FY2010-11 mainly for
increasing consumption expenditure. While due toslower growth in remittance
inflow, national savings decelerated from 30.02 percent of GDP in FY2009-10 to
28.40 percent of GDP in FY2010-11. Moreover, due to higher investment in
Annual DevelopmentProgramme, investment-GDP ratio stood at 24.73 percent of
GDP in FY2010-11, up from 24.41 percentof GDP a year earlier.

Inflation
With the recovery of global economy, domestic demand is on the increase in
many countries. This hasresulted in unexpected upward pressures on both food
and non-food inflation. Moreover, there wereproduction short-falls in many food
producing countries due to inclement weather condition. Rapideconomic growth
also pushed up the global demand for food. Some of the countries put ban on
foodexport to ensure internal food security. The IMF Overall Commodity Price
index increased by 32 percent
in June 2011 compared to January 2010. Oil price had gone up and remained
volatile by the ongoingcrisis in the North Africa and Middle East. As a result crude
oil prices increased from US$ 95 per barrelin January 2011 to US$120 in April
2011. However, the prices fell in May 2011 and then stabilised ataround US$110.
As a consequence, inflation was on an upward trajectory during FY2010-11. The
year-on-year inflationreached 10.17 percent in June 2011 from 8.70 percent in

June 2010. The average inflation rate, therefore,rose to 8.80 percent in FY201011 compared to 7.31 percent in the previous year.

Money and Credit

The broad money increased by 21.34 percent during FY2010-11, which was
slightly lower than 22.44percent growth a year earlier. During this period, yearon-year growth of currency notes and coins withthe public increased by 18.71
percent compared to the increase of 28.04 percent a year earlier. Whiledemand
deposit increased by 15.48 percent from 37.70 percent and the time deposit
recorded an increaseby 22.68 percent from 19.55 percent a year earlier.

Year-on-year growth in domestic credit was 27.40 percent during FY2010-11, up

from 17.90 percentduring FY2009-10. Sector-wise analysis of domestic credit
indicates that the net credit to the governmentsector increased by 34.89 percent
at the end of June 2011 due to lower than estimated financing fromexternal and
non-bank sources. The net credit to the government sector was declined by 6.52
percentduring the previous year. Private sector credit growth was 25.84 percent
in FY2010-11, slightly higherthan year-on-year growth of 24.24 percent of
previous fiscal year. Private sector credit increased mainlydue to providing higher
subsidy/cash incentives under the 2nd stimulus package declared by the
overnment to promote export trade, increased quantum of credit to agriculture
sector including smalland medium scale enterprises, and term loan to generate
economic activities.
In FY2010-11, reserve money increased by 21.09 percent at the end of June
2011, up from 16.03 percentin the previous year. The growth of reserve money
was mainly attributable to the increase in net domesticassets (NDA) of
Bangladesh Bank by 87.42 percent. However, net foreign assets (NFA) of
BangladeshBank increased by only 0.17 percent during the period. Bangladesh
Banks claims on deposit moneybanks (DMBs), government sector (net) and nonbank depository corporations (NBDCs) increased by204.74 percent, 43.28
percent and 17.42 percent respectively which eventually contributed to
reservemoney growth. Money multiplier increased slightly to 4.52 at the end of
June 2011 from 4.51 at the endof June 2010. This outcome was mainly because

of increased reserve-deposit ratio to 0.111 from 0.108 inFY2009-10. Currencydeposit ratio, on the other hand, declined to 0.142 from 0.146 in FY2009-10.

Interest Rate
The weighted average rate of interest on commercial lending increased to 14.56
percent in January 2012.The interest rate spread narrowed to 4.28 in January
2012 from 4.54 percent in June 2011.

Capital Markets
The capital markets became volatile from the second half of FY2010-11. During
the period, the DSE general index increased by 98.43 percent from 3,010.26 to
6,153.68 indicating keen interests showed bythe investors in the capital market.
By the end of June 2010, the number of BO (Beneficiary Owner) accounts has
increased to 25.64 lakh from 14.15 lakh at the end of June 2009. At the
beginning of FY2010-11, the capital market showed buoyant. The DSE general
index stood at 8,290.41 in December2010, up by 34.72 percent compared to that
of June 2010. Similarly, market capitalization stood at 44.1percent of GDP at that
time. However, the overheated capital markets collapsed in January 2011 and
werein process of recovery and stabilisation during the last quarter of FY2010-11.
Market capitalization andgeneral index of DSE stood at 36.24 percent of GDP and
5,093.19 at the end of FY2010-11.
Monthly Market Statistics (October 2012)
DSI
DSE-20
DGEN

Index Point
3,798.98
3,506.74
4,493.92

Change
-46.72
5.13
-50.49

% Change
-1.23%
0.15%
-1.12%

YTD change
-13.34%
-10.32%
14.53%

Figure: market capitalization

Steps have been taken to amend Securities and Exchange Commission

(Public Issue) Rules, 2006 to avoid misuse of book building method.

In order to separate the ownership, management and trading of stock
exchange, the process of demutualization in Dhaka and Chittagong Stock
Exchanges has begun.

Near and Medium Term Outlook of Bangladesh Economy

The Medium-Term Macroeconomic Framework (MTMF) for FY2012-2016 sets out
the economic and
fiscal indicators for the next five fiscal years. Considering the prospects and
potentials risks in the contextof global and domestic economic scenario, real GDP
growth has been estimated at 7 percent for FY2011-12. The GDP growth is
targeted to be 8 percent in FY2014-15 based on the assumptions of
furtherimprovement in the global and domestic economic situation and taking
into account the expected impactsof reforms initiated in various sectors.
It is expected that given the initiatives at work, Bangladesh economy will be able
to achieve 7 percent growth in FY2011-12, which will gradually increase to 8
percent in FY2014-15. Table 1.2 highlights theprojection of key macroeconomic
indicators during FY2011-12 to FY2015-16.

10

Table: Medium Term Macroeconomic Framework, 2012-2016:

Indicator

2008-09

2009-10

2010-11

Actual

Actual

Estimated

2011-12

2012-13

2013-14

2014-15

2015-16

Projection

Real Sector
Nominal GDP Growth (%)

12.6

Real GDP Growth (%)

5.7

CPI Inflation (%)

6.7
24.4
19.7

Gross Investment (% GDP)

Private
Public

12.6

14.2

13.8

13.8

14.0

14.2

14.1

5.8

6.7

7.0

7.2

7.6

8.0

8.2

7.3

8.0

7.5

7.0

6.8

6.5

6.2

25.0

26.5

28.8

29.6

31.0

32.5

33.3

20.2

21.1

22.2

22.7

23.8

25.0

25.5

4.7

4.8

5.3

6.6

6.9

7.2

7.5

7.8

Domestic savings

20.1

19.0

18.8

20.7

21.5

22.4

24.1

25.2

National Savings

29.6

28.8

28.3

29.8

30.4

31.1

32.8

33.8

Total Revenue

10.4

10.9

12.0

13.2

13.4

14.0

14.6

15.2

Tax Revenue

8.6

9.0

10.0

10.6

11.2

11.8

12.4

13.0

NBR-Tax Revenue

8.2

8.6

9.6

10.2

10.8

11.4

12.0

12.6

Non-NBR Tax Revenue

0.4

0.4

0.4

0.4

0.4

0.4

0.4

0.4

1.8

1.9

2.0

2.5

2.2

2.2

2.2

2.2

14.3

14.6

16.3

18.2

18.4

19.0

19.6

20.2

11.2

10.9

11.9

13.1

13.1

13.3

13.5

13.7

3.2

3.7

4.4

5.1

5.3

5.7

6.1

6.5

-3.9

-3.7

-4.3

-5.0

-5.0

-5.0

-5.0

-5.0

Fiscal Sector (% of GDP)

Non-Tax Revenue
Total Expenditure
Revenue Expenditure
Annual Development Prog.
Overall Balance
Financing
Domestic Financing

3.1

2.2

3.0

3.0

3.0

3.0

3.0

3.0

Banking System

2.2

-0.3

2.2

2.2

2.2

2.2

2.2

2.2

Non-Bank

0.9

2.5

0.8

0.8

0.8

0.8

0.8

0.8

0.8

1.4

1.2

2.0

2.0

2.0

2.0

2.0

External Financing (net)

Money and Credit (Year-on-year % change

Net Domestic Assets

17.8

18.8

20.7

17.3

16.1

16.0

16.0

15.2

Domestic Credit

15.9

17.6

17.7

19.2

19.5

19.5

19.2

18.9

Credit to the Private sector

14.6

24.2

18.0

18.0

18.0

18.5

18.5

18.5

Broad Money

19.2

22.4

16.0

15.8

15.8

15.7

15.5

15.5

Export, f.o.b (% Change)

10.1

4.2

30.0

16.0

16.0

16.5

16.5

17.0

Import, f.o.b (% Change)

4.2

5.4

45.0

14.0

14.0

14.5

14.5

15.0

Remittance (billion US$)

9.7

11.0

11.5

12.4

13.6

15.1

17.0

19.0

2.7

3.7

-0.7

-0.8

-0.6

-0.4

-0.2

0.1

(billion US$)

7.5

10.7

10.0

10.6

11.8

13.2

14.5

16.7

Reserve in Month of Import

3.8

5.1

3.4

3.2

3.1

3.1

3.0

3.0

External Sector

Current account Balance (%

GDP)
Foreign Exchange Reserve

Key Indicators

11

4. Implementing the investment plan

4.1. Investment in Mutual Fund:
Analysis of Mutual Fund market in Bangladesh
Mutual Fund
NCCBL MUTUAL FUND-1
MBL 1ST MUTUAL FUND
ICB AMCL THIRD NRB MUTUAL FUND
IFIC BANK 1ST MUTUAL FUND
2ND ICB M.F.
FIRST BANGLADESH FIXED INCOME FUND
EBL FIRST MUTUAL FUND
AB BANK 1ST MUTUAL FUND
POPULAR LIFE FIRST MUTUAL FUND
AIBL 1ST ISLAMIC MUTUAL FUND
PHP FIRST MUTUAL FUND
LR GLOBAL BANGLADESH MUTUAL FUND
ONE
1ST ICB M.F.
ICB AMCL SECOND MUTUAL FUND
TRUST BANK 1ST MUTUAL FUND
FIRST JANATA BANK MUTUAL FUND
ICB EMPLOYEES PROVIDENT MF 1:
SCHEME 1
AIMS 1ST M.F.
PRIME FINANCE FIRST MUTUAL FUND
PHOENIX FINANCE 1ST MUTUAL FUND
1ST BANGLADESH SHILPA RIN SANGSTHA
M.F.
IFIL ISLAMIC MUTUAL FUND-1
GRAMEEN ONE : SCHEME TWO
ICB AMCL 1ST M.F.
DBH FIRST MUTUAL FUND
GRAMEEN MUTUAL FUND ONE
GREEN DELTA MUTUAL FUND
7TH ICB M.F.
ICB AMCL 1ST NRB MUTUAL FUND
4TH ICB M.F.
5TH ICB M.F.
3RD ICB M.F.
6TH ICB M.F.
ICB AMCL 2ND NRB MUTUAL FUND
ICB AMCL ISLAMIC MUTUAL FUND

Face
Value

Price

P/E Ratio

10
10
10
10
10
10
10
10
10
10
10

12
7.5
7.7
9.2
300
9.2
10.2
9.8
7.9
7.3
7.6

12
15
95
10.34
10.49
10.83
12.75
13.19
14.81
15.65
17.05

10
10
10
10
10

8.9
820
8.7
10.3
7.8

10
10
10
10

10.1
59
32.7
8.5

10
10
10
10
10
10
10
10
10
10
10
10
10
10
10

110.3
7.3
25.4
44.1
8.2
65.5
8
76
30.5
135
115.5
166
55.2
14.1
26.3

17.78
17.81
17.92
18.39
19.5
22.73
26.04
26.37
26.56
29.97
30.42
36.29
4.47
40.5
48.12
48.75
6.69
7.17
7.25
7.33
7.81
8.04
8.54
9.89

12

As all the mutual funds diversify their fund in various assets, we can use the
price earning ratio to find out the best mutual fund. We want to pick between the
P/E ratio of 20-35. (Here for we can see, the mutual funds that have P/E ratio
more than 35 all are relatively new. For safety reason we are avoiding them).
We can see there are only 6 mutual funds in this region (20-35%). (We discarded
IFIL ISLAMIC MUTUAL FUND-1 because its also a new mutual fund). If we
calculate the average dividend from these 6 mutual funds we get 29.45%

Name of Mutual Funds

ICB EMPLOYEES
PROVIDENT MF
AIMS 1ST M.F.
PRIME FINANCE FIRST MF
PHOENIX FINANCE 1ST MF
1ST BANGLADESH SHILPA
RIN SANGSTHA M.F.
GRAMEEN ONE : SCHEME
TWO
Total

face
value

Price

10
10
10
10

10.1
59
32.7
8.5

10

110.3

10

25.4

60

246

P/E
ratio
22.73
26.04
26.37
26.56
29.97
36.29

divide
nd
2012

divide
nd
2011

Average
dividend

5
20
20
5

12
28
12.5
10

8.5
24
16.25
7.5

100

125

112.5

10

8
29.458333
33

Total dividend earning from only these 6 mutual fund (1 unit each) is BDT 17.675
(face value x Average dividend). So we can calculate return on investment as
7.18% (total dividend return/total investment)

Name of Mutual Funds

ICB EMPLOYEES PROVIDENT MF 1:
SCHEME 1
AIMS 1ST M.F.
PRIME FINANCE FIRST MUTUAL FUND
PHOENIX FINANCE 1ST MUTUAL FUND
1ST BANGLADESH SHILPA RIN
SANGSTHA M.F.
GRAMEEN ONE : SCHEME TWO
Total

Lot
size

Price

Cost per
lot

Cost for 2
lot

500
250
500
500

10.1
59
32.7
8.5

5050
14750
16350
4250

10100
29500
32700
8500

500
500

110.3
25.4
246

55150
12700
108250

110300
25400
216500

So, we need to invest BDT 216500 on mutual fund, and each year we will earn
BDT 15555.44 (7.18%) (Without considering the price increase)

13

4.2. Sector Investment: Cement Industry:

Cement industry of Bangladesh has been observing tremendous growth during
last five years driven by increased pace of urbanization and implementation of
large infrastructure projects. Current installed capacity of the Bangladesh
Cement Industry is about 22 mn metric tonnes (mmt). Actual capacity of 15-17
mmt is much lower than installed capacity of 22 mmt due to supply constraints
for power and clinkers. Totalmarket size is nearly USD 1.36 bn.

*Source: BCMA & Research, IDLC Investments Ltd.

Portland Composite Cement (PCC) is widely used from the year 2003 substituting
Ordinary Portland Cement (OPC). Current availability of PCC is 95% against 5% of
OPC in our industry.
The industry is oligopoly in nature where top 12 players are alone controlling
over 86% of the total industry capacity and have pricing control.Among three
consumer groups of our industry, individual home makers are the largest with
40%, real estate developers constitute 25% and Government organization, i.e.,
Local Government Engineering Department (LGED), Roads and Highways
Department (RHD), Bangladesh Bridge Authority (BBA) constitutes 35% of the
industry consumption.
Low per capita consumption depicts growth in the long term
Despite the fact that the Bangladesh's cement industry has grown by 52% over
last fi ve years, per capita consumption still remains substantially poor; only 83
kg compared with the world average of 430 kg. Per capita consumption of
14

cement is 174 kg in India, 131 kg in Pakistan, 178 kg in Sri Lanka and 408 kg in
Vietnam. This underlines tremendous scope for growth in the Bangladesh cement
industry in the long term.

Figure: Industry Demand and Production scenario

Industry is regional and seasonal in nature
As the freight cost accounts for a substantial proportion of sales price, the ruling
market price of cement becomes different in different regions in our country.
Industry is split into five geographic segments; Dhaka 62%, Mongla 16%,
Chittagong 12%, Sylhet 8%, and Rajshahi 2%.
Bangladesh cement industry is also known for its seasonality which can be as
high as 50%. Cement demand declines during the monsoons due to a slowdown
in construction activities. On the other hand, though the yearly capacity of the
industry is saturated with overcapacity, market demand rises up to the effective
capacity or even crosses it during the first 5 to 6 months of the year.

Oligopoly industry dominated by local manufacturers

Heidelberg, Holcim and Lafarge are the leaders among multinational cement
manufacturers and Shah and Meghna are the leading domestic manufacturers in
the industry. Shah Cement is the market leader with 16% of the market share,
followed by Heidelberg with 10% of the market share. During the booming years
of 2009 and 2010, many small local manufacturers like Premier, Seven Circle, MI
Cement, Unique Cement and Meghna Cement increased their sales drastically
riding on their benefits ofeconomies of scale, backward linkage and aggressive
marketing effort.

15

Figure: Market share (%) of Major Cement companies

Positive outlook with strong demand drivers in near future
Cement industry of Bangladesh is in the growth stage considering theLife cycle
of the industry'. Cement consumption is expected toenter new growth trajectory
as many Govt. infrastructure schemes are about to take off , besides a growing
demand for individualhousing demand with rising remittance inflow. Demand
correlation

with

GDP

indicates

stable

growth

in

upcoming

years.

The

countrywitnessed 6.21% GDP growth on an average in last five years and 7.2% is
expected in next fiscal year. Acceleration of infrastructurespending should drive
cement demand at a higher rate in the upcoming years.
Portfolio formation:
We can see that the cement industry has a lot of potential. We are going to
invest BDT 200000 in this sector. Shah Cement is the market leader, but they do
not have any stocks in the secondary market. Because of their low market share,
we are discarding Aramit Cement and Confidence Cement.
Our Portfolio will consist the following stocks:

Heidelberg
Cement Bd
Meghna Cement
LAFARGE SURMA
CEMENT LTD.
M.I. Cement
Factory Limited

lot
size

Marke
t price

weig
ht

281.5

Cost
per
lot
14075

50

lot

Roun
ded

Total

40%

Allocat
ed
amount
80000

5.7

84450

100
33.8

115
500

11500
16900

30%
20%

60000
40000

5.2
2.4

5
2

57500
33800

100

111.6

11160

10%

20000

1.8

22320

53635

200000

198070

16

Figure: Stock price of Heidelberg cement over last 1 year

We can see that stock price is going up without much deviation. So, this will be a
less risky stock with a good potential return.

17

Figure: Stock price of Meghna Cement over last 1 year

We can see there are some variability in meghna cements price, but currently
the price is low. it is the best time to buy this stock.

Figure: Stock price of Lafarge S Cement over last 1 year

18

4.3. FDR investment

FDR is a fixed amount investment that earns fixed rates of Interest over a set
period of time. Interest will be added to fixed amount each year to build up the
value of investment. The interest is taxable at the rate of 10%.
Bank
IFIC Bank Ltd.
AB Bank
The City Bank
Prime Bank Ltd

Interest rate
12.50%
12.50%
12.50%
12.50%

Time
2 years
2 Years
2 Years
2 year

Figure: FDR Rates

From the above chart we can see that all banksprovide FDR at 12.50%. FDR is
offered in a choice of terms. We will choose two years term that will guarantee
12.5% interest income upon maturity. 20% of our fund which is taka 4lacs will be
invested in this term deposit. This investment will give us the chance of capital
preservation and total return at the same time it will give us the security of
earning as well as investment fund that match our investment objective.
But one problem is that to get the maximum benefit we will not be able to
withdraw money from this investment before maturity. If we want to cash-out it
earlier than maturity then interest will be deducted from the amount cash in. We
19

have planned to invest in 2 year FDR that will ensures smooth interest income on
the amount. Investing in FDRwill also give an option of diversification of our
portfolio that will contribute to the reduction of risk of the portfolio as
diversifications of funds reduce risk of an investment. By deciding to invest in
FDR we have taken up somewhat risk averse investment strategy as return from
FDR fund is almost certain. But some risk is almost inherent with this investment
one such risk is inflation as the inflation picks up power of capital preservation of
FDR funds go down significantly & on the background of higher inflation banks
may increase the rate on FDR which will then be lost opportunity of the funds to
get higher income as funds get locked in for a fixed period of time.

Earning from FDR

Deposited

2012
40000

(Deposit +
Interest)
Tax (10% on
interest)
Net

2013

2014

2015

2016

2017

0
45000

50625

569531.

640722.

3
11953.1

7
13447.2

720813
15128.1

5000
44500

50625
45562

3
557578.

7
627275.

7
705684.

17019.2
793895.

810914.

Ending balance at the end of 5th year is BDT 793895.4 after tax.

Summary
Name of Security: Fixed Deposit
Duration:2 Years, 2 Years, 1 Year (as FDR mature after 2 years)
Denomination: BDT 400000
Rate of Profit:12.5%
Total amount earned after 5 year: BDT 793895

20

4.4. Investment in saving certificate

It is an investment for a specified period of time of a specified amount. Once
investment is made money will be locked in for that period & early withdrawal
from investment will result in penalty of the interest deduction of the principal
amount & no interest is paid if cashed within one year. It is risk free investment
as it is backed by the government & at the same time guarantees (12.59-13.45)
% interest income depending on the maturity period. Tax on interest is also lower
only 5% of the earnings. We will invest in Poribarsanchayapatra (Family
Saving Certificate ). 10% of our capital will be invested in it as a means of
diversification of portfolio of assets.
But few problems might make our decision of investing in saving certificate less
effective if the current rate of inflation crosses double digit mark then it can
seriously affect our earnings as inflation will erode our interest income & thus
purchasing power of our money. On the other hand as the money gets locked in
for five years as we will invest so if the rate on other fixed income investment
goes up at that time then we will lose chance of gaining higher income of our
fund.

Investment

Monthly Profit amount (Taka)

amount (Taka)
Amount of Profit*

Amount of SSP**

Amount of Total profit

4 (2+3)

10,000.00

101.67

10.42

112.08

20,000.00

203.33

20.83

224.17

50,000.00

508.33

52.08

560.42

21

1,00,000.00

1,016.67

104.17

1,120.83

2,00,000.00

2,033.33

208.33

2,241.67

5,00,000.00

5,083.33

520.83

5,604.17

10,00,000.00

10,166.67

1,041.67

11,208.33

*Profit on which source tax deduction is applicable;

**SSP= Social Security Premium

We will investBDT 2, 00,000 in this security and earn BDT 2241 every month
for next 5 years.
Summary:
Name of Security:Poribarsanchayapatra (Family Saving Certificate )
Duration: 5 Years
Denomination: BDT 200000
Rate of Profit: 13.45% (on maturity).

4.5. Investment in Tangible Asset: CNG Auto Rickshaw

We will buy a CNG auto rickshaw and earn money by renting. At
current market a good quality CNG auto rickshaw is selling at
BDT 800000. This is 40% of our total investment fund.
Currently daily rent income from CNG Auto Riskshaw is BDT
1000.
Monthly maintenance cost for a CNG auto rickshaw is BDT 2500
in 2012.
We can expect a 7% inflation rate.
At the end of the 5 year period we can sell the Auto Rickshaw for 4 lakh
(optimistic) to 2 lakh (pessimistic) taka.

Optimistic view
22

In an optimistic view, we expect the CNG auto rickshaw will run 30 days a month.
(Without any break down). Terminal value of the CNG Auto Rickshaw is 4lakh
taka. In that case we get an IRR of 41.95%. Means, rate or return is 41.95%
2013
30000

2014
32100

2015
34347

2500

2675

27500

29425

Annual Income

330000

353100

2862.2
5
31484.
75
37781
7

2016
36751.
29
3062.6
08
33688.
68
40426
4.2

Terminal Value
total cash inflow

330000

353100

37781
7

40426
4.2

Monthly rent
income
Monthly
maintenance cost
Monthly Net Income

2017
39323.
88
3276.9
9
36046.
89
432562
.7
400000
832562
.7

Pessimistic view
In a pessimistic view, we can expect the CNG to run only 20 days a week,other
10 days It will be at the garage for maintenance. And the terminal value would
be just 2 lakh taka. In this case we get an IRR of 27.16%. Means, rate of return is
27.16%.
Monthly rent
income
Monthly
maintenance cost
Monthly Net
Income
Annual Income

2013
24000

2014
25680

2500

2675

21500

23005

258000

276060

258000

276060

2015
27477.
6
2862.2
5
24615.
35
29538
4.2

2016
29401.
03
3062.6
08
26338.
42
31606
1.1

29538
4.2

31606
1.1

Terminal Value
total cash inflow

2017
31459.
1
3276.9
9
28182.
11
33818
5.4
20000
0
53818
5.4

We can expect 50% chance of both optimistic and pessimistic case. As a result
our possible rate of return is

= (50% x 41.95% + 50% x 27.16%)= 34.55%

this investment will give us monthly net income from BDT 27500 to BDT 21500
(in the first year).

23

4.6. Investment in Tangible Asset: Gold

Investment in gold is not very illiquid but this investment can bring hefty profit. It
requires substantial capital investment. It generates no cash unless sold. Its
grading process determines its quality though subjective. In our portfolio we
wantto invest tk2lacs in gold. As part of our investment strategy of having large
gain on single investment we thought gold could be handy investment given the
rising trend of the gold price. According to our policy statement objective gold
investment will match our strategy as we wanted to invest some portion of funds
into hard asset. But there is some risks involved putting money on the gold.
Sometimes it could prove as gambleas gold price tend to be volatile over time so
chance of earning large profit may diminish quickly. It could also be risky in the
sense that if investors buy gold & hold it for a longer period of time but cannot
afford to sell it as the price does not go up to make up for bought price & holding
period costs. So investors will be in jeopardy if holds gold but cannot sell it to
make investment in other asset. But still we will invest in this solid asset as the
price of it is showing no sign of let up recently & is picking up almost daily basis.
$1,800.00
$1,600.00
$1,400.00
$1,200.00
$1,000.00
$800.00
$600.00
$400.00
$200.00
$0.00

Figure: gold price per ounce

Year
2009
2010
2011
2012
2013

Price per Ounce

$972.35
$1,224.53
$1,571.52
$1708.5
$1943.76 (forecasted)

Growth rate
12%
26%
28%
9%
14%
24

2014
2015
2016
2017

$2216.97 (forecasted)
$2515.98(forecasted)
$2812.95 (forecasted)
$3133.11 (forecasted)

14%
13%
12%
11%

For calculating the forecasted growth rate we used the weight of (50%. 30%,
10% and 10% for consecutive years)
We can see that, if we invest BDT 182126 (1.3 ounce of gold) on gold in 2012, we
can make BDT 333990.1453 at the end of year 5. Here the actual return in 12.9%
But gold is not a liquid asset, and the variability in price is very high. Considering
the risk the return is very low. After analyzing the situation we discarded
Gold from our portfolio.

4.7. Investment in Land

As we have limited budget, we will invest only in one Shotnagsho of Land. After
analyzing a lot of Land prices we have found a very suitable land for investment
in Natore (rajshahi).

Land Price
Growth
rate

2007
800000

2008
95000

2009
115000
0.210526

2010
135000
0.173913

2011
165000
0.222222

2012
200000
0.212121

We see the average growth rate for land in that area is 20.47% using the
average growth rate we can get the forecasted land price in that area

Forecasted
Price

2013
240939.1

2014
290258.3452

2015
349673

2016
421249.5

2017
507477.5

Here the growth rate is the rate of return for land. So we can expect a 20.47%
return from this investment.

Summary:
Name of Security:Land

Position:Natore (rajshahi), Just outside Natore Town.

Duration: 5 Years
25

Denomination: BDT 200000

Total amount received after 5 Years: BDT 507477
Rate of return: 20.47% (on maturity).

5. Conclusion:
In making our portfolio we have tried to be as much diversify as possible. The
maximum amount of our portfolio is attached with the CNG auto Rickshaw
project. We could not reduce the amount, because of the high price of CNG auto
Rickshaw. But for other assets, we tried to invest from 10% to 20% of our total
portfolio.
The bond we invested is a government bond, so this is the safest security in our
portfolio. It has a return of 13.5% (tough the capital will be fixed for 5 years).
Investment in FDR will give us slightly lower rate of return, 12.5%. But the
amount is liquid after every 2 years. So in case of inflation or other risk, we can
adjust as required.
Currently in Bangladesh, stock market is very volatile, thats why we tried to
invest very low in this sector (10%). We have analyzed the market and only
invested in cement sector (as sector fund). As we found that cement sector has a
good growth potential in future.
We have analyzed the mutual fund market, and selected the best mutual funds
and invested 2 lakh taka on them.
We initially wanted to invest in gold, but found that the return is very low (12.7%)
for this high risk asset. After considering the risk-return issue, we have decided
not to invest in Gold.
26

As we have limited asset, we could only invest very little in Land. We found a
suitable land, just in our budget (in Natore, Rajshahi). We calculated the rate of
return to be 20.47%.
If we implement this investment we can get both current income (from Auto
rickshaw and Saving deposit) and capital gain (from Stock, Mutual Fund, Land,
FDR).

27