Unit 1

1. Investment
Financial meaning of investment
● Investment is the commitment of a person’s funds to get a future income
● In the form of interest, dividend, capital appreciation etc.
● It includes purchasing of
● Shares
● Debentures
● Savings certificates
● Insurance policies etc.

Economic meaning of investment

● It means net additions to the economy’s capital stock which consists of goods and
services that are used in production of other goods and services
● Formation of new productive capital – new plants, machineries, infrastructure etc.
● Formation of physical assets
● Money invested in financial assets are ultimately converted into physical assets

2. Speculation
Speculation is the buying, holding and selling of stocks, commodities, currencies, real
estate or any valuable thing to profit from fluctuations in its prices as opposed to
buying it for use or for income dividents, rent etc.
Speculation involves trading a financial instrument involving high risk, in
expectations of significant returns. The motive is to take maximum advantage from
flucatations in the market.

3. Gambaling
the activity of risking money on the result of something, such as
a game or horse race, hoping to make money

4. Objectives of investment
Minimising the risk
Maximise current income
Long term capital growth
Maintaining liquidity
Hedging against inflation
Increasing safety

5. Risk
The chance of actual returns becoming less than expected returns
This may occur because of loss of capital, non payment of interest, or variability of
returns.
 Risk depends on maturity period, creditworthiness of the borrower and nature of
investment(Ownership securities)
Risk and return are related.
Higher the risk, higher the return.

6. Return
i. Return = yield + capital appreciation
ii. Yield = dividend or interest received
iii. Capital appreciation = sale price – purchase price
iv. Rates of returns will be different for different investments

7. Systematic and unsystematic risk

Systematic risk
This risk, which is inherent to the entire market or system, is termed as systematic risk
or uncontrollable risk. It also reffered to as undiversifiable risk. It affects the entire
market and not one specific stock or industry

Unsystematic risk
It is also called diversifiable risk. It can be managed and controlled. Unsystematic risk
may be specific to an industry or company and is caused due to one or more of the
following: lack of managerial ability, lack of hr, etc

8. Capital appreciation
i. Capital appreciation = sale price – purchase price
Capital appreciation is an increase in the price or value of assets. It may refer
to appreciation of company stocks or bonds held by an investor, an increase in land
valuation, or other upward revaluation of fixed assets.

9. Characterstic of investment
Risk
Return
Safety
Liquidity

Unit 2

1. Financial market
A financial market offers a platform for individuals, various entities, and institutions
to enter into trading activities in various financial instruments.
Financial market is a place, where the buyers and the sellers interested in trading
various financial instrument.

2. Capital market
 Capital market is an important segment of any financial market. Fincial assets having
long term maturity, generally more than one year. Capital market may be divided
into two components. They are primary and secondary market.

3. Participants of financial market

Individuals
Firms or corporates
Government
Regulators
Market intermediaries

4. Primary or new issue market

Primary market is also called new issue market. Where the share are issued for the
very first time. For new issue market, the existing companies and the new entrants can
bring the new issue

5. Book building
The company offers the price range instead of fixing a particular price of share. It also
known as price discovery method. The investors while bidding for the share need to
decide the price at which they would bid for share.
Book building is the process by which an underwriter attempts to determine the price
at which an initial public offering (IPO) will be offered.

6. Underwriting
“ An agreement with or without condition to subscribe to the securities of a body
corporate when the existing shareholders or public do not subscribe to the securities
offered to them” - SEBI

7. Bse
BSE was the first stock exchange that was set up in asia. In the year 1875, it was
basically formed as the native share and stock brokers association
Bse highly responsible for the growth and development of indian economy
More than 6000 companies are listed at BSE and that makes it the biggest stock
exchange when considering the sixe

8. Nse
In term of trading numbers nse is the largest stock exchange in india. The traders and
investors are provided with the service of trading in multiple securities which includes
the debe and equity that is issued by government
Nse is the leading stock exchange of india, located in Mumbai. It was established in
1992.

9. Otcei and objectives

 The over the counter exchange of india is an electronic stock exchange based in india
that consists of small and medium sized firms aiming to gain access to the capital
markets.

Objectives of otcei
To increase liquity for investors
To improve the availability of securities at fair market price
To make the process of buying and selling securities faster and simpler
To introduce new methods of offering new issue to the public

10. Ise
Inter connected stock exchange limited. It is an Indian national level stock exchange,
providing trading, clearing, settlement, risk management and surveillance support to
its trading members. It has 841 trading members, who are located in 131 cities spread
across 25 states.

11. Sebi
The securities and exchange board of india is regulator for the securities market in
india owned by government of india. It was established in 1988 and given statutory
powers on 30 jan 192 through the sebi act 1992.

Objectives
To protect the interest of investors
To regulate the stock exchange in india
To promote fair and proper functioning

12. What is listing and purpose

Listing means the formal admission of securities of a company to the trading platform
of the exchange.
It provides liquidity to investors and ensures effective monitoring of compliance of
the issuer and trading of the securities in the interest of investors.

13. Reverse book building

Reverse book building is the process by which a company that wants to delist from
the bourses decides on the price that needs to be paid to public shareholders to buy
back shares.

Unit 3
1. Fundamental analysis
Fundamental analysis is the process of Analyzing
a. Economic Influences
b. Industry Factors and
c. Company Information
Estimating future Dividends and Stock Price
The framework used is the E-I-C Framework also refered to as a ‘top-down’
method of analysis
The fundamental anysis is to establish the fair market value of a company stock.
This is done by assessing the value of the company’s potential to earn profits,
cashflow and to offer dividend

2. Economic analysis
Economic analysis may be defined as a process, which analysis the various weak
points as well as strong points prevailing in an economoy.

An economic analysis is a process followed by experts to understand how key

economic factors affect the functioning of an organization, industry or any other
particular population group, with the purpose of making wiser decisions for the future

There is a relationship between the economic activities and investment scenario

prevailing in a country. With a fast growing economy the industrial growth is also
imminent. If the economics activities are low level it is reflected in the stock market
activities.

3. Economic forecasing
Investment is future oriented Activity.
Forecasting the future performance of economy is important
Forecasting GNP
a. Short term – up to 3years
b. Medium term – 3 to 5 years
c. Long term – more than 5 years
Economic forcasting is a term used to apply to any methods that are utilized to predict
the future movements of an economy. The forecasting may focus on a specific
portion of the economy, or involve predicting the movement of the economy as a
whole.

4. Industry analysis

 Various sectors do not necessarily respond to the same degree to economic changes
 Recession or expansions in economic activity result in different relative price changes
among industry groups
 Investing is a business of relative changes
5. Industry life cycle
Industry life cycle refers to the evolution of an industry or business based on its stages
of growth and decline. The four phases of the industry life cycle are introduction,
growth, maturity, and decline

6. Classification of industry
Business cycle – cyclical, defensive, cyclical growth industries
Industry groups – small scale and medim, large scale

7. Company analysis
Company analysis involves assessment of a company’s performance in terms of its
profitability, market share, dividend payments, etc.
This analysis also tries to ascertain the reasons behind the good or bad performance
and strenghs and weakness of the company.

8. Applied valuation technique

Regression analysis
Correlation analysis
Trend anysis
Decision trees

9. GNP
Gross national product – it is an estimate of total value of all the final products and
services turned out in a given period by the means of production owned by a
country’s residents.

10. GDP
Gross domestic product – it is the value of all finished goods and services made
within a country during specific period. It calculated three ways, they are income,
expenditure or production.

Gdp is used to estimate the size of the economy and growth rate of a country.

11. Exchange rate

Exchange rate is the rate at which one currency will be exchanged for another. It is
also regarded will be exchanged as the value of one country’s currency in relation to
another currency.

12. Importance of PE ratio

 The price to earning ratio is the measure of the share price relative to the annual net
income earned by the firm per share. PE ratio shows current investor demand for a
company share.
PE ratio = share price/ EPS
Importance of PE ratio:
It provides a measuring stick for comparing whether a stock is overvalued or
undervalued.
To compare a company’s valuation to companies within its sector or industry

13. Factors affevt eps

Earning per share is the monetary value of earnings per outstanding share of common
stock for a company
Eps is the portion of a company’s profit allocated to each outstanding share of
common stock, serving as an indicator of the company’s financial health
Eps= earning available for the common shares /outstanding no of shares
Factors affect eps

14. Instrisic value of share

The instrisinic value of a stock is a price for the stock based on factors inside the
company. It eliminates the external noise involved in market prices.

Unit 4

1. Technical ansysis
Technical analysis of a security is a logical explanation and projection of possible
changes in its market price exclusively on the basis of indepth study of the available
data in the market.

2. Charting methods
Different kinds of charts is the best way to have a visual view of the trend or pattern
of price movements in respect of a specific stock. Stock prices are charted to provide
a graphical representation of stock prices.

3. Market indicators
Market indicators are quantitative in nature and seek to interpret stock or financial
index data in an attempt to forecast market moves. Market indicators are a subset of
technical indicators and are typically comprised of formulas and ratios. They aid
investors' investment / trading decisions.

4. Trend and trend reversal

Trend is the direction of movement of share price in the market
 When prices move upwards, it is rising trend or uptrend
When prices move downwards, it is falling trend or downtrend
When prices move in a narrow range, we have a flat trend

5. Patterns
Patterns are the distinctive formations created by the movements of security prices
on a chart. A pattern is identified by a line that connects common price points, such
as closing prices or highs or lows, during a specific period of time

6. Moving average
Moving average analysis is a tool which is helpful in determining the basic trend of
the price movement in a scientific manner.
 Moving averages are mathematical indicators of trend in price movements
 Two types of moving averages are commonly used by analysts:
 The simple moving average and
 The exponential moving average
 The closing prices of shares are generally used for the calculation of moving averages

7. Simple moving average

This is a simplest and most widespread method used for the calculation of the moving
averges of prices.

8. Exponential moving average

The EMA for the first day is taken as the closing price of that day itself
The correct 5 DMA will be available from sixth day onwards
5 DMA or 10 DMA indicates the short term trend
50 DMA indicates the medium term trend and
A 200 DMA would represent the long term trend

9. Oscillators
Oscillators are mathematical indicators calculated with the help of the closing price
data
They help to identify overbought and oversold conditions and also the possibility of
trend reversals
These indicators are called oscillators because they move across a reference point
from one extreme to the other

10. Efficient market

 Market efficiency refers to the degree to which market prices reflect all available,
relevant information. If markets are efficient, then all information is already
incorporated into prices, and so there is no way to "beat" the market because there
are no undervalued or overvalued securities available

11. Line charts

Closing prices of a share are plotted on the XY graph on a day-to-day basis
All these points would be connected by a straight line which would indicate the trend

12. Leading economic indicators

A leading indicator is any economic factor that changes before the rest of
the economy begins to go in a particular direction. Leading indicators help market
observers and policymakers predict significant changes in the economy. Leading
indicators aren't always accurate

13. Level of market efficiency

Weak form or level
Semi strong form
Strong form

14. Security market line

Security market line is the representation of the capital asset pricing model. It displays
the expected rate of return of an individual security as a function of systematic, non-
diversifiable risk.

Unit 5

1. Portfolio anysis
Portfolio can be referred to as the combination of various financial instruments like
the stocks and debentures. Portfolio Analysis is the process of reviewing or
assessing the elements of the entire portfolio of securities or products in a business.
The review is done for careful analysis of risk and return. ... The analysis also helps
in proper resource/asset allocation to different elements in the portfolio.

2. Capm
The capital market theory is the advancement in the Markowitz portfolio theory. The
portfolio describes the way in which the rational investors should plan their portfolis.
Capital market theory explains the pricing of assest in capital market as the investor
work according to portfolio theory

3. Portfolio revision
The process of addition of more assets in an existing portfolio or changing the ratio
of funds invested is called as portfolio revision. The sale and purchase of assets in an
 existing portfolio over a certain period of time to maximize returns and minimize risk
is called as Portfolio revision.

4. Portfolio evaluation
Portfolio evaluation means assessment of a portfolio performance in terms of its
earnings capabilities. This assessment is carried out by comparing the earning of a
portfolio during a specific period with the earnings of other portfolios during the same
period.

5. Portfolio selection
The process by which one chooses the securities, derivatives, and other assets to
include in a portfolio. In making securities selections, one considers the risk, the
return, the ethical implications, and other factors affecting both of the individual
securities and the portfolio as a whole.

6. Mutual funds
A mutual fund is a type of financial vehicle made up of a pool of money collected
from many investors to invest in securities like stocks, bonds, money market
instruments, and other assets.

7. Formula plan
Basic rules and regulations for purchase
and sale of securities

The amount for each security is fixed

Commonly used formula plans are

Rupee cost averaging

Constant rupee value

Constant ratio plan and

Variable ratio plan

Formula Plan. An investment strategy that calls for the buying and selling of
securities according to a set formula. ... Formula plans aim to eliminate personal
opinions, emotions, and judgments from investing by never deviating from
the formula.

8. Breadh of market
Breadth of market is an indicator used in security analysis. In its simplest form it is
computed on a stock market by taking the ratio of the number of advancing stocks to
declining stocks.
 The breadth of market theory is a technical analysis methodology that predicts the
strength of the market according to the number of stocks that advance or decline in a
particular trading day, or how much upside volume there is relative to downside
volume.

9. Passive management
Passive management is an investing strategy that tracks a market-weighted index or
portfolio..
Passive management is the opposite of active management in which a fund's
manager(s) attempt to beat the market with various investing strategies and
buying/selling decisions of a portfolio's securities. Passive management is also
referred to as "passive strategy," "passive investing," or " index investing.

10. Optimal portfolio

Optimal portfolio is a term used in portfolio theory to refer to the one portfolio on
the Efficient Frontier with the highest return-to-risk combination given the specific
investor's tolerance for risk. It's the point where the Efficient Frontier (supply) and
the Indifference Curve (demand) meet.

11. SML and CML

CML stands for Capital Market Line, and SML stands for Security Market Line.

The CML is a line that is used to show the rates of return, which depends on risk-free

rates of return and levels of risk for a specific portfolio. SML, which is also called a

Characteristic Line, is a graphical representation of the market’s risk and return at a

given time.

One of the differences between CML and SML, is how the risk factors are measured.

While standard deviation is the measure of risk for CML, Beta coefficient determines

the risk factors of the SML.

12. Index fund

An index fund is a type of mutual fund with a portfolio constructed to match or
track the components of a financial market index
An index fund is a mutual fund that imitates the portfolio of an index. These funds
are also known as index-tied or index-tracked mutual funds.