SECURITY ANALYSIS & PORTFOLIO MANAGEMENT SECURITY :-Investments in capital markets is in various financial instruments, which are all

l claims on money. These instruments may be of various categories with different characteristics. These are called Securities in market place.

Securities Contracts Regulation Act, 1956 has defined the security as inclusive of shares, scrips, stocks, bonds, debenture stock or any other markatable instruments of a like nature in or of any debentures of a company or body corporate, the government and semi-government body etc. It includes all rights & interests in them including warrants and loyalty coupons etc., issued by any of the bodies, organisations or the government. The derivatives of securities and Security Index are also included as securities.

SECURITY ANALYSIS :- Security Analysis involves the projection of future dividend or earnings flows, forecast of the share price in the future and estimating the intrinsic value of a security based on forecast of earnings or dividends. Modern Security Analysis relies on the fundamental analysis of the security, leading to its intrinsic worth and also risk-return analysis depending on the variability of the returns, covariance, safety of funds and the projections of the future returns.

PORTFOLIO :- A combination of securities with different riskreturn profile will constitute the portfolio of the investor. Thus portfolio is a combination of assets and/or instruments of investments. The combination may have different features of risk & return,

separate from those of components.

PORTFOLIO MANAGEMENT :- Security Analysis is only a tool for efficient portfolio management. Traditional Portfolio theory aims at the selection of such securities that would fit in well with the asset preferences, needs and choices of the investor.

Modern Portfolio theory postulates that maximisation of return and/or minimisation of risk will yield optimal returns and the choice and attitudes of investors are only a starting point for investment decision and that vigrous risk return analysis is necessary for optimisation of returns.

INVESTMENT SCENARIO Investment activity involves the use of funds or savings for acquisition of assets & further creation of assets. INVESTMENT VS. SPECULATION An investment is a commitment of funds made in the expectation of some positive rate of return commensurate with the risk profile of the investment. The true investor is interested in a good rate of return, earned on a consistent basis for relatively long period of time.

The speculator seeks opportunities promising very large returns, earned quickly. Speculator is less interested in consistent performance than is the investor & is more interested in the abnormal, extremely high rate of return than the normal moderate rate. Furthermore, the speculator wants to get these returns in a short span of time &

switchover to other opportunities.

Speculator adds to the markets liquidity as he is frequently turning over his portfolio. Thus, the presence of speculator provides a market for securities, the much required depth & breadth for expansion of capital markets. INVESTMENT CATEGORIES Investments generally involve A) Real Assets (Physical Assets) :- They are tangible, material things such as buildings, automobiles, plant and machinery etc. B) Financial Assets :- These are pieces of paper representing an indirect claim to real assets held by someone else. One of the distinguishing features of Real Assets & Financial Assets is the degree of liquidity. Liquidity refers to the ease of converting an asset into money quickly, conveniently and at little exchange cost. Real Assets are less liquid than financial assets, largely because real assets are more heterogeneous, often peculiarly adapted to a specific use, and yield benefits only in cooperation with other productive factors. In addition to it the returns of real assets are frequently more difficult to measure accurately, owing to absence of broad, ready, and active markets.

FINANCIAL ASSETS Financial Assets can be categorised according to their source of issuance (public or private) and the nature of the buyers commitment (creditor or owner). Accordingly different financial assets are

DEBT INSTRUMENTS These are issued by government, corporations and individuals & represent money loaned rather than ownership to the investor. They call for fixed periodic payments, called interest and eventual

repayment of the amount borrowed, called the principal. The interest payment stated as a percentage of the face value or maturity value is referred to as the nominal or coupon rate.

Institutional Deposits & Contracts:- Demand & Time deposits, Certificate of Deposits, Life Insurance policies, Contributions to Pension Funds. Title cant be transferred to a third party.

Government Debt Securities :- These are the safest and most liquid securities. The short-term securities have maturities of one year or less and include Treasury Bills with maturities of 91 days to one year.

Long term securities include Treasury Notes (one to ten year maturity) and Treasury Bonds (maturities of ten to thirty years), which bear interest.

Private Issues:- Private debt issues are offered by corporations engaged in mining, manufacturing, merchandising and service activities. The most common short-term privately issued debt securities are Commercial Paper. CP is unsecured promissory note from 30 to 270 days maturity. These securities are issued to suppliment bank credit and are sold by companies of prime credit standing. Bankers acceptances are issued in international trade. They are of high quality having maturities from ninety days to one year.

The long-term debt contracts cosist of two basic promisesi) To pay regular interest ii) To redeem the principal at maturity.

The long-term debts are in the form of bonds, Debentures, Convertible bonds, Mortgage Bonds, Collateral Trust Bonds. International Bonds-International domestic bonds are sold by an issuer within the country of issue in that countrys currency- e.g. Sony Corp selling yen-denominated bonds in Tokyo.

Foreign bonds are issued in the currency of the country where they are sold but sold by a borrower of different nationality. E.g. A dollar denominated bond sold in Newyork by Sony Corp is called Yankee bond. Yen denominate bond sold by IBM in Tokyo is called Samurai bond.

Company Deposits Large corporate time deposits in commercial banks are often of certain minimum amounts for a specified time period. Unlike time deposits of individuals, these CDs are negotiable; i.e. They can be sold to & redeemed by third parties.

EQUITY INSTRUMENTS These instruments are divided into two categories one representing indirect equity investment through institutions and the other representing direct equity investment through the capital markets.

Investment Through Institutions :- These investments involve a commitment of funds to an institution of some sort that in return manages the investment for the investor.

Direct Equity Investments :- Equity investments are either in common stock or preferred stock. The holders of common stock are the owners of the firm, have the voting power, can elect the BOD and carry right to the earnings of the firm after all expenses & obligations have been paid and also carry a risk of losing earnings in case of losses.

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