Professional Documents
Culture Documents
PROJECT REPORT ON
For partial fulfillment of MMS course MASTER OF MANAGEMENT STUDIES YEAR 2010 12
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2010-2012
Vivekanand Education Society s Institute of Management Studies & Research (VESIMSR) Chembur, Mumbai
DECLARATION
I, Jayesh K Changlani, student of Vivekanand Education Societys Institute of Management Studies and Research, have completed Summer Internship Project in BirlaSun Life Insurance, Mumbai on the topic Portfolio Management Services, from 2nd may 2011 to 15th July 2011.
I hereby declare that this project submitted to University of Mumbai, in partial fulfillment of MMS course, is true and original to the best of my knowledge.
Date:
ACKNOWLEDGEMENT
It is indeed a matter of great pleasure and privilege to work on the project titled Portfolio Management Services. I would like to express special thanks to and for providing me an excellent opportunity to complete my summer internship at BirlaSun Life Insurance. I would like to express my indebtedness to Mr. Nikesh Ruparel [Corporate Trainer], my project guide, who has played a pivotal role in the success of this summer internship program and has always been a source of inspiration to me. I would also like to express my deepest & sincerest thanks to the entire staff of Birla Sun Life Insurance Company Ltd. for their co-operation. Very special thanks to Prof. Nupur Gupta (Finance Faculty Head, VESIMSR), whose valuable inputs went a long way in refining this project. I would like to thank all those people who provided valuable inputs throughout my internship. Without the support of everyone mentioned above, this project wouldnt have been possible.
EXECUTIVE SUMMARY
In todays world, every individual wants to secure his future and one of the way is investment. While investing their money they expect capital appreciation along with security and minimum risk involved in it. Some investment avenues involve huge risk and some less risk. Depending on the changing risk environment and emerging investment opportunities, investments need to be evaluated on a regular basis and form strategies which will help in minimizing the risk and maximizing the returns to the investor. Portfolio management helps in predicting the relationship between the risk of a security and its returns. This in turn helps the investment avenues to stay ahead of risk return curve and generate positive returns for a long period of time. Portfolio management service helps in diversification of funds. It basically involves risk profiling, goal setting, asset allocation and reviewing of the investment. So, to study Portfolio Management Service as an overview is our objective of doing this project. This project considers and includes various markets like Equity Markets, Debt Markets, Mutual Funds, Insurance, Gold for investments and also Fundamental and Technical Analysis of stock to evaluate their performance and growth.
Table of Contents
1) About Birla Sun Life. 07 2) Portfolio Management Services. 09 3) Fund Manager 13 4) Asset Classes. 15 5) Equity Markets.. 16 6) Indian Debt Markets.. 23 7) Mutual Funds. 29 8) Insurance Sector in India... 39 9) Fundamental Analysis... 43 10) Technical Analysis 48 11) Sectoral Analysis i) Banking Sector52 ii) Overview of telecom Sector54 iii) Cement Sector57 12) Gold.59 13) Case Study a) Risk Profiling61 b) Goal Setting...68 c) Portfolio of the client.69 14) Recommendation..73 15) Experience 74
16) Biblography..75
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To be a leader and role model in a broad based and integrated financial services business.
Mission:
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To help people mitigate risks of life, accident, health, and money at all stages and under all circumstances Enhance the financial future of our customers including enterprises
Goal setting.
Asset Allocation.
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Objectives of Portfolio Management Various Objectives of Portfolio Management are mentioned below:
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Security / Safety of principal: Security not only involves keeping the principal sum intact but also keeping its purchasing power.
Stability of income so as to facilitate planning more accurately and systematically the reinvestment or consumption of income.
Capital growth, which can be attained by reinvesting in growth securities or through purchase of growth securities.
Marketability i.e. the case with which a security can be bought or sold. This is essentially for providing flexibility to investment portfolio.
Liquidity i.e. nearness to money. It is desirable for the investor so as to take advantage of attractive opportunities upcoming in the market.
Diversification: The basic objective of building a portfolio is to reduce the risk of loss of capital and/or income by investing in various types of securities and over a wide range of securities.
Favorable tax status: The effective yield an investor gets from his investment depends on tax to which he is subject. By minimizing the tax burden, yield can be effectively improved.
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This is the crucial point, which an investor must consider. There can be many objectives of making an investment. The objectives of an investment portfolio are normally expressed in terms of risk and return. Risk and return have direct relationship. Higher the return that one wishes to have from the investment portfolio, higher could be the risk that one has to take.
The investor can look for security (low risk) and may be satisfied with low returns. As aggressive investor may, however, be willing to take higher risk in order to have capital appreciation. How the objectives can affect in investment decision can be seen from the fact that Birla SunLife Insurance Limited has various funds like- Assure Fund (major investment into Government securities. Low returns, more safety), Enhancer Fund (a balanced fund investing in both equity and Government securities) and Maximiser Fund (with maximum exposure in equity. High return, high risk)
The investor can invest in any of these funds depending upon his objective and risk taking ability.
It is obvious; therefore, that the objectives must be clearly defined before an investment decision is taken. It is on this basis of the objectives that a fund manager decides upon the type of investment to be purchased.
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3. Fund Manager
Definition: The fund manager (also known as the "portfolio manager") is a person who manages a fund. They're responsible for deciding what stocks and bonds to purchase and how much to purchase. They typically have a team of analysts advising them and analyzing the fund's holdings. They are the individuals responsible for making decisions related to any portfolio of investments (often a mutual fund, pension fund, or insurance fund), in accordance with the stated goals of the fund The whole point of investing in a fund is to leave the security picking to professionals. Therefore, the fund manager is one of the most important factors to consider when looking at any particular fund. Researching a fund manager's past performance in the last five or more years will tell you a lot. Have they had consistent performance? Have they bounced around from fund to fund? Do they have a history of underperforming?
They study economic environment affecting the capital market and clients investment.
They study securities market and evaluate price trend of shares and securities in which investment is to be made.
They maintain complete and updated financial performance date of blue chip and other companies.
They study problems of industry affecting securities market and the attitude of investors.
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They study the financial behaviors of development financial institutions and other players in the capital markets to find out sentiments in the capital market.
They counsel the prospective investors on share market and suggest investments in certain assured securities.
They carry out investment in securities or sale or purchase of securities on behalf of the client to attain maximum return at lesser risk.
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4. Asset Classes
Asset Cl sses
Equity
Debt
Insurance
Mutual und
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5. Equity Markets
Primary Market
Secondary Market
New Securities
Existing Securities
Transfer of Securities
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A stock or any other security representing an ownership interest. On a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity".
In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.
In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage.
In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.
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are:
y Merchant Banker / Lead Manager y Underwriters y Bankers to an issue y Brokers to an Issue y Registrars to an issue and Share Transfer Agents y Debenture Trustees y Portfolio managers
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It is safer to invest in the primary markets than in the secondary markets as the scope for manipulation of price is smaller.
The investor does not have to pay any kind of brokerage or transaction fees or any tax such as service tax, stamp duty and STT.
No need to time the market as all investors will get the shares at the same price.
In case of over subscription, the shares are allotted in proportionate basis. Thus, small investors hardly get any allotment in such a case.
Money is locked for a long time and the shares are allotted after a few days where as in case of purchase from the secondary market the shares are credited within three working days.
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PRIMARY MARKET
1. Market for new securities. 2. No fixed geographical location.
SECONDARY MARKET
1. Market for existing securities. 2. Located at a fixed place.
3. Results in raising fresh resources for the 3. Facilitates transfer of securities from one corporate sector. corporate investor to another.
5. No tangible form or administrative set-up. 5. Have a definite administrative set-up and a Recognized only the services it renders. tangible form.
6. Subjected to outside control by SEBI Stock 6. Subjected to control both from within and exchanges and Companies Act. outside.
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Bond Market: It consists of Financial Institutions bonds, Corporate bonds and debentures and Public Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost and hence remove uncertainty in financial costs.
Debt Instruments
There are various types of debt instruments available that one can find in Indian debt market.
y Government Securities
It is the Reserve Bank of India that issues Government Securities or G-Secs on behalf of the Government of India. These securities have a maturity period of 1 to 30 years. G-Secs offer fixed interest rate, where interests are payable semi-annually. For shorter term, there are Treasury Bills or T-Bills, which are issued by the RBI for 91 days, 182 days and 364 days.
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y Corporate Bonds
These bonds come from PSUs and private corporations and are offered for an extensive range of tenures up to 15 years. There are also some perpetual bonds. Comparing to G-Secs, corporate bonds carry higher risks, which depend upon the corporation, the industry where the corporation is currently operating, the current market conditions, and the rating of the corporation. However, these bonds also give higher returns than the G-Secs
y Certificate of Deposit
These are negotiable money market instruments. Certificate of Deposits (CDs), which usually offer higher returns than Bank term deposits, are issued in demat form and also as a Usance Promissory Notes. There are several institutions that can issue CDs. Banks can offer CDs which have maturity between 7 days and 1 year. CDs from financial institutions have maturity between 1 and 3 years. There are some agencies like ICRA, FITCH, CARE, CRISIL etc. that offer ratings of CDs. CDs are available in the denominations of Rs. 1 Lac and in multiple of that.
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y Commercial Papers
There are short term securities with maturity of 7 to 365 days. CPs are issued by corporateentities at a discount to face value.
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Since the Government Securities are issued to meet the short term and long term financial needs of the government, they are not only used as instruments for raising debt, but have emerged as key instruments for internal debt management, monetary management and short term liquidity management.
Default Risk: This can be defined as the risk that an issuer of a bond may be unable to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture and is also referred to as credit risk.
Interest Rate Risk: can be defined as the risk emerging from an adverse change in the interest rate prevalent in the market so as to affect the yield on the existing instruments. A good case would be an upswing in the prevailing interest rate scenario leading to a situation where the investors money is locked at lower rates whereas if he had waited and invested in the changed interest rate scenario, he would have earned more.
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Reinvestment Rate Risk: can be defined as the probability of a fall in the interest rate resulting in a lack of options to invest the interest received at regular intervals at higher rates at comparable rates in the market.
The following are the risks associated with trading in debt securities:
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Counter Party Risk: is the normal risk associated with any transaction and refers to the failure or inability of the opposite party to the contract to deliver either the promised security or the sale-value at the time of settlement.
Price Risk: refers to the possibility of not being able to receive the expected price on any order due to an adverse movement in the prices.
Advantages
The biggest advantage of investing in Indian debt market is its assured returns. The returns that the market offer is almost risk-free (though there is always certain amount of risks, however the trend says that return is almost assured). Safer are the government securities. On the other hand, there are certain amounts of risks in the corporate, FI and PSU debt instruments. However, investors can take help from the credit rating agencies which rate those debt instruments. The interest in the instruments may vary depending upon the ratings. Another advantage of investing in India debt market is its high liquidity. Banks offer easy loans to the investors against government securities.
Disadvantages
As there are several advantages of investing in India debt market, there are certain disadvantages as well. As the returns here are risk free, those are not as high as the equities market at the same time. So, on one hand you are getting assured returns, but on the other hand, you are getting less return at the same time compared to equity market. Retail participation is also very less here, though increased recently. There are also some issues of liquidity and price discovery as the retail debt market is not yet quite well developed.
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7. MUTUAL FUNDS
Introduction
A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When one invests in a mutual fund, he is buying shares (or portions) of the mutual fund and becoming a shareholder of the fund. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regu lator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an Asset Management company to invest the funds according to the investment objective. It also hires another entity to be the Custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund.
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Sponsor
Trustee
AMC
Mutual Funds i India follow a 3-tier structure. There is a Sponsor the First tier), who thi ks of starti g a mutual fund. The sponsor approaches the securities & Exchange Board of India SEBI), which is the market regulator and also the regulator for mutual funds. Not everyone can start a mutual fund. SEBI checks whether then person is of i tegrity, whether he has enough experience i then fi ancial sector, his net worth etc. Once SEBI is convi ced, the Sponsor creates a Public Trust the second tier)as per the Indian Trusts Act, 1882. Trusts are the people authori ed to act on behalf of the trust. Contracts are entered i to i the name of the trustees. Once the trust is created, it is registered with SEBI after which this trust is known as the mutual fund.
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It is important to understand the difference between the Sponsor and the Trust. They are two separate entities. Sponsor is not the trust; i.e Sponsor is not the Mutual Fund. It is the trust which is the mutual fund. The trustees role is not to manage the money. Their job is only to see, whether the money is being managed as per stated objectives. Trustees may be seen as the internal regulators of a mutual fund. Asset Management Company ( the Third tier). Trustees appoint the Asset Management Company (AMC), to manage investors money. The AMC in return charges a fee for the services provided and this fee is borne by the investors as it is deducted from the money collected from them.
Calculation of NAV:
The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below. M.V of investments+Receivables+Accr. Number of Outstanding units Income Liabilities-Accr. Expenses
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-term. The Funds that i vest i equity shares are called equity funds. They carry the medium to long returns i such funds are volatile si ce they are directly li ked to the stock markets. They are best suited for i vestors who are seeki g capital appreciation. There are different types of equity funds such as large cap funds, mid cap funds, small cap funds, multi-cap funds, sector funds, contra funds, arbitrage funds, i dex based funds.
INDE FUNDS
These funds i vest i the pattern as popular market i dices like S&P 500 and BSE Index. The value of the i dex fund varies i proportion to the benchmark i d ex.
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DEBT/INCOME FUNDS
These Funds invest predominately in high-rated fixed income bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.
HEDGE FUNDS
These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio.
Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO) and thereafter closed for entry as well as exit. These funds have a fixed date of redemption. One of the characteristics of the closed ended schemes is that they are generally traded at a discount to NAV; but the discount narrows as maturity nears. These funds are open for subscription only once and can be redeemed only on the fixed date of redemption. The units of these funds are listed (with certain exceptions), are tradable and the subscribers to the fund would be able to exit from the fund at anytime through the secondary market.
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With the emphasis on increase in domestic savings and improvement in deployment of investment through markets, the need and scope for mutual fund operation has increased tremendously. The basic purpose of reforms in the financial sector was to enhance the generation of domestic Mutual Fund in India.
An ordinary investor who applies for share in a public issue of any company is not assured of any firm allotment. But mutual funds who subscribe to the capital issue made by companies get firm allotment of shares. Mutual fund latter sell these shares in the same market and to the Promoters of the company at a much higher price. Hence, mutual fund creates the investors confidence.
The psyche of the typical Indian investor has been summed up by Mr. S.A. Dave, Chairman of UTI, in three words; Yield, Liquidity and Security. The mutual funds, being set up in the public sector, have given the impression of being as safe a conduit for investment as bank deposits. Besides, the assured returns promised by them have given the Indian investors a great appeal.
As mutual funds are managed by professionals, they are considered to have a better knowledge of market behaviors. Besides, they bring a certain competence to their job. They also maximize gains by proper selection and timing of investment.
Mutual Fund has option either the investor receives dividend or it periodically gets reinvested.
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The mutual fund operation provides a reasonable protection to investors. Besides, presently all Schemes of mutual funds provide tax relief under Section 80 L of the Income Tax Act and in addition, some schemes provide tax relief under Section 88 of the Income Tax Act lead to the growth of importance of mutual fund in the minds of the investors.
Mutual funds creates awareness among urban and rural middle class people about the benefits of investment in capital market, through profitable and safe avenues, mutual fund could be able to make up a large amount of the surplus funds available with these people.
The mutual fund attracts foreign capital flow in the country and secures profitable investment avenues abroad for domestic savings through the opening of off shore funds in various foreign investors. Lastly another notable thing is that mutual funds are controlled and regulated by SEBI and hence are considered safe.
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The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.
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In India, insurance is generally considered as tax-saving device instead of its other implied long term financial benefits. Indian people are prone to investing in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance sector. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant.
Present Scenario
The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direst foreign ownership. Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. In the private sector 12 life insurance and 8 general insurance companies have been registered. A host of private insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001.
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The growing popularity of the private insurers shows in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the private insurers have already rested over 33 percent of the market. And in the popular unit-linked insurance schemes they have a virtual monopoly, with over 90 percent of the customers. The year 1998 saw a revolution in the Indian Insurance sector, as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership.
y Reasonable care:
The insured shall take all reasonable steps to safeguard the property insured against any loss or damage. Insured shall exercise reasonable care that only competent employees are employed and shall take all reasonable precautions to prevent all accidents and shall comply with all statuary or other regulations.
y Fraud:
If any claim under the policy may be in any respect fraudulent or if any fraudulent means or device are used by the insured or any one acting on the insureds behalf to obtain any benefit under the insurance policy, all the benefits under the insurance policy may be forfeited.
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9. FUNDAMENTAL ANALYSIS
Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy.
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Economic Forecast
First and foremost in a top-down approach would be an overall evaluation of the general economy. When the economy expands, most industry groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer. If the prognosis is for an expanding economy, then certain groups are likely to benefit more than others. An investor can narrow the field to those groups that are best suited to benefit from the current or future economic environment to assess an industry group's potential; an investor would want to consider the overall growth rate, market size, and importance to the economy. While the individual company is still important, its industry group is likely to exert just as much, or more, influence on the stock price. Many times it is more important to be in the right industry than in the right stock
Company Analysis
With a shortlist of companies, an investor might analyze the resources and capabilities within each company to identify those companies that are capable of creating and maintaining a competitive advantage. The analysis could focus on selecting companies with a sensible business plan, solid management and sound financials.
Business Plan
The business plan, model or concept forms the bedrock upon which all else is built. If the plan, model or concepts stink, there is little hope for the business. For a new business, the questions may be these: Does its business make sense? Is it feasible? Is there a market? Can a profit be made? For an established business, the questions may be: Is the company's direction clearly defined? Is the company a leader in the market? Can the company maintain leadership?
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Management
In order to execute a business plan, a company requires top-quality management. Investors might look at management to assess their capabilities, strengths and weaknesses. Even the best-laid plans in the most dynamic industries can go to waste with bad management.
Financial Analysis
The final step to this analysis process would be to take apart the financial statements and come up with a means of valuation. Following is a list of potential inputs into a financial analysis.
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Accounts Payable Accounts Receivable Acid Ratio Amortization Assets - Current Assets Fixed Book Value Brand Business Cycle Business Idea Business Model Business Plan Capital Expenses Cash Flow Cash on hand Current Ratio Customer Relationships Days Payable Days Receivable Debt Debt Structure Debt: Equity Ratio Depreciation Derivatives-Hedging Discounted Cash Flow Dividend Dividend Cover Earnings EBITDA Economic Growth Equity Equity Risk Premium Expenses
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Good Will Gross Profit Margin Growth Industry Interest Cover International Investment Liabilities - Current Liabilities - Long-term Management Market Growth Market Share Net Profit Margin Page-view Growth Page-views Patents Price/Book Value Price/Earnings PEG Price/Sales Product Product Placement Regulations R&D Revenues Sector Stock Options Strategy Subscriber Growth Subscribers Supplier Relationships Taxes Trademarks Weighted Average Cost of Capital
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10.
TECHNICAL ANALYSIS
Technical analysis is all about studying stock price graphs and a few momentum oscillators derived thereof. It must be understood that technical studies are based entirely on prices and do not include balance sheets, P&L accounts (fundamental analysis), the assumption being that the markets are efficient and all possible price sensitive information is built into the price graph of a security / index. Technical analysis is the examination of past price movements to forecast future price movements. Technical analysts are sometimes referred to as chartists because they rely almost exclusively on charts for their analysis.
BENEFITS
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TYPES OF CHARTS
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Candlestick
Line charts
Bar Chart
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11.
SECTORAL ANALYSIS
A brief Research on the following Sectors has been undertaken in Birla SunLife.
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Major Operators and Top Performing Banks in India Public Sector Banks State Bank of India State Bank of Mysore Allahabad Bank Vijaya Bank Punjab National Bank Dena Bank Private Sector Banks HDFC Bank UTI Bank ICICI Bank Axis Bank Centurion Bank of Punjab Kotak Mahindra Bank Foreign Banks Citi Bank Standard Chartered Bank HSBC Bank ABN Amro Bank American Express Bank
With banks having complied with Basel II and having sufficient capital in their books; it will be a challenge to deploy the same safely and profitably in the event of persistence of economic slowdown. Banks are likely to concentrate more on non-funded income in this scenario.
Banks, especially the private sector ones, are likely to face penetration concerns. The lack of credit penetration and the geographic concentration of bank credit are evident from the fact that 5 states having the highest proportion of per capita credit enjoy 55% of the total credit disbursals in the country.
RBI's roadmap for the entry of foreign banks and the acquisition of stake by the foreign entities in Indian private banks has been deferred for the time being. However, the tussle for higher market share in the already fragmented sector is only set to aggravate.
The proposal for Cabinet's approval to allow PSU banks to bring down the government's stake in them below the stipulated 51%, which is yet to be tabled, can help the bank raise substantial capital without borrowing at high rates and give the entities an opportunity to enhance their capital adequacy ratios besides competing with their private sector peers.
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Major operators i
Communications, and Tata Tele services, BSNL, MTNL and Idea Cellular.
There are many other operators who operate at limited circles like Aircel, Uninor, MTS, Spice, Loop, Videocon etc.
Market Share
Airc e l 6%
MTNL 1%
BSNL 12%
Uninor 1%
Vodafone 17%
L OOP (BPL ) 1% Idea 11%
Re lianc e Comm 1 7 .6 3 %
Bharti 22%
Source: Capital Li e Plus Future Prospects y As far as the fixed line business goes, the low penetration levels in the country and the increasing demand for data based services such as the Internet will act as major catalysts in the growth of this segment
The huge market share of public sector behemoth MTNL and BSNL is likely to get s, reduced further as the penetration by private players spreads. In spite of this, the PSUs will continue to retain their dominant position
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The industry has set out a target to cross the total subscriber base of 500 m by 2010 and 600 m the year after. Going by the current pace of subscriber additions, the target does not seem too farfetched. Cellular subscribers will continue to propel the subscriber growth.
With growing competitive pressure on all fronts and the inevitable need to keep pace with emerging technologies globally, telecom operators are re-examining their traditional business models and are making substantial investments in upcoming technologies. These include 3G Band Allocation, Worldwide Interoperability for Microwave Access (WiMax) and Future Generation Networks.
The arrival of new service providers in the market may lead to mergers and acquisitions which will bring consolidation in the market.
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Despite the fact that the Indian cement industry has clocked production of more than 100 MT for the last five years, registering a growth of nearly 9% to 10%, the per capita consumption of around 134 kgs compares poorly with the world average of over 263 kgs, and more than 950 kgs in China.
Future Prospects
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The industry is likely to maintain its growth momentum and continue growing at around 8% to 9% in the medium to long term.
Government initiatives in the infrastructure sector and the housing sector are likely to be the main drivers of growth for the industry.
Infrastructure spending has been a boon; there was also a strong cushion from the steady growth of the construction sector.
Growth of Indian cement industry has remained directly proportional to the growth of the countrys economy. However, in fiscal 2008-09, despite the economic slowdown, India produced around 181 Million Metric Tons of cement, representing a growth of around 7.8% over the fiscal 2007-08. Consumption has also increased with the same pace during the last fiscal.
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We expect that the cement production and consumption both will grow substantially during our forecast period (2009-10 to 2011-12). Moreover, housing sector accounts for more than 50% of the total cement consumption in India and the same trend is expected to continue in coming years.
Key Players Analyzed: Prominent Players in the Indian Cement Sector, like Associated Cement
Company Ltd (ACC), Grasim Industries Ltd, Ambuja Cement Ltd, UltraTech Cement Ltd, J.K. Cement Limited, Madras Cements Ltd, and Jaypee Group.
Key Notes: Domestic Demand for cement has been increasing at a fast pace in India and it has surpassed the economic growth rate of the country. Among the states, Maharashtra has the highest share in consumption at 12.8%, followed by Uttar Pradesh. In terms of production, Andhra Pradesh is leading with 14.72% of Total Production followed by Rajasthan. Housing Sector is expected to remain the largest cement consumer in coming years.
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12.
Gold
Gold is a unique asset based on few basic characteristics. First, it is primarily a monetary asset, and partly a commodity. As much as two-third of golds total accumulated holdings relate to store of value considerations. Holdings in this category include the central bank reserves, private investments, and high-cartage jewelry bought primarily in developing countries as a vehicle for savings. Thus, gold is primarily a monetary asset. Less than one-third of golds total accumulated holdings can be considered a commodity, the jewelry bought in Western markets for adornment, and gold used in industry. The distinction between gold and commodities is important. Gold has maintained its value in afterinflation terms over the long run, while commodities have declined. Some analysts like to think of gold as a currency without a country. It is an internationally recognized asset that is not dependent upon any governments promise to pay. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds, which unlike gold, do have counter-party risk. What makes Gold Special? Timeless and Very Timely Investment: For thousands of years, gold has been prized for its rarity, its beauty, and above all, for its unique characteristics as a store of value. Nations may rise and fall, currencies come and go, but gold endures. In todays uncertain climate, many investors turn to gold because it is an important and secure asset that can be tapped at any time, under virtually any circumstances. But there is another side to gold that is equally important, and that is its day-to-day performance as a stabilizing influence for investment portfolios. These advantages are currently attracting considerable attention from financial professionals and sophisticated investors worldwide.
Gold is an effective diversifier: Diversification helps protect your portfolio against fluctuations in the value of any one-asset class. Gold is an ideal diversifier, because the economic forces that determine the price of gold are different from, and in many cases opposed to, the forces that influence most financial assets.
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Gold is the ideal gift: In many cultures, gold serves as a family treasure or a wealth transfer vehicle that is passed on from generation to generation. Gold bullion coins make excellent gifts for birthdays, graduations, weddings, holidays and other occasions. They are appreciated as much for their intrinsic value as for their mystical appeal and beauty. And because gold is available in a wide range of sizes and denominations, you dont need to be wealthy to give the gift of gold. Gold is highly liquid: Gold can be readily bought or sold 24 hours a day, in large denominations and at narrow spreads. This cannot be said of most other investments, including stocks of the worlds largest corporations. Gold is also more liquid than many alternative assets such as venture capital, real estate, and timberland. Gold proved to be the most effective means of raising cash during the 1987 stock market crash, and again during the 1997/98 Asian debt crisis. So holding a portion of your portfolio in gold can be invaluable in moments when cash is essential, whether for margin calls or other needs. Gold responds when you need it most: Recent independent studies have revealed that traditional diversifiers often fall during times of market stress or instability. On these occasions, most asset classes (including traditional diversifiers such as bonds and alternative assets) all move together in the same direction. There is no cushioning effect of a diversified portfolio leaving investors disappointed. However, a small allocation of gold has been proven to significantly improve the consistency of portfolio performance, during both stable and unstable financial periods. Greater consistency of performance leads to a desirable outcome an investor whose expectations are met.
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13.
CASE STUDY - I
Y o ur A ttitu d e to I nv esting This Questionnaire aims to uncover your attitude to investing, your understanding of financial markets and how you may react during certain investment market and economic conditions. Financial planning is a long-term process, and many investments that can be used to help achieve long-term financial goals are also long-term in nature. However, while long-term growth is generally achieved, it may come with periods of negative returns. To ensure your financial goals are reached, generally you must remain invested true to your financial plan during these periods. The following questions help us to understand your tolerance for financial risk. The information gives us an overall understanding of your investment profile and helps us to understand what investment mix and products will be appropriate, or inappropriate, in helping to achieve your financial goals.
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CLIENT 1
Client 2
Points 0 10
on which to live. c) Maintain regular income with some exposure to capital growth. d) Maximise the growth of my investments.
20 40
2 How would you react if your investments were to decline in value by 20% over a one-year period?
a) Withdraw all my funds immediately and move them to bank
CLIENT 1
Client 2
Points 10
deposits. b) Withdraw part of my money and move it to an alternative strategy. c) Wait until I recovered the 20% loss and then consider alternative strategies. d) Remain invested and follow the recommended strategy.
e) Increase the amount invested if possible because the market
20 20 30 40
3 What is your willingness to risk shorter-term losses for the prospect of higher longer-term returns?
a) High. b) Moderate. c) Not sure. d) Low.
CLIENT 1
Client 2
Points 40 30 20 10
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4 An investment portfolio with high exposure to growth assets tends to generate higher returns, albeit with some volatility (fluctuations in value). To what extent are you willing to experience volatility to generate higher returns?
a) Im very comfortable. I understand that to generate higher
CLIENT 1
Client 2
Points
40
returns there is risk of fluctuation of my investments in the short-term. However, over the long-term, there is a low risk of capital loss. b) Im somewhat comfortable, assuming there is a limit to the volatility. c) Im a little uncomfortable seeing my investments fluctuate.
d) Im much more comfortable with investments that have
30 20 10
minimal volatility.
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5 Which of the following best describes your attitude towards investment losses?
a) I would check the value of my investments at least several
CLIENT 1
Client 2
Points 10
times a month and feel very uneasy if I began to lose money. b) Daily losses make me uncomfortable, but are no cause for alarm. I would, however, start to feel very uneasy if I made a loss on my investments over a 12-month period. c) I take substantial day-to-day changes in my stride. However, I would start to feel very uneasy if I didnt recover any significant losses with a 1 to 2 year time frame. d) If my investments suffered significant losses over a two-year period and I still believed in my long-term strategy, I would remain fully confident of a recovery in performance.
20
30
40
CLIENT 1
Client 2
Points 40 30 10 0
returns over the long-term. b) To have a diversified investment portfolio across a range of asset classes to minimise risk. c) To invest mainly in capital stable investments.
d) I dont understand the definition of investment risk. I rely
7 In the past, how would you describe your overall investment decisions?
a) Ive had some losses and am reluctant to invest in anything
CLIENT 1
Client 2
Points 0 10 20
that fluctuates in value. b) Good, I have stuck to stable and safe investments.
c) Not applicable. Im a first time investor or have only ever
invested via my superannuation fund. d) Fair, however I would like to improve my returns.
e) Ive had some losses, but am willing to give it another go. f) Good, I have been rewarded for making investments that can
20 30 40
fluctuate in value.
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8 Which of the following best describes your understanding of the investment market?
a) I am an experienced investor and constantly keep up to date
CLIENT 1
Client 2
Points 40
with the investment market. Ive had exposure to various asset classes and am fully aware of the risks involved to gain high returns. b) My awareness of the financial market is limited to information passed on by my broker or financial planner. I rely on the professionals to keep me updated. c) I have little awareness of the investment market. However, I have a desire to build my knowledge and understanding. d) Im not familiar with investments or financial markets.
30
20 10
9 Have you ever borrowed money to make an investment other than your own home (for example: an investment property; holiday home; share portfolio; margin loan; etc)?
a) No. b) Yes. c) No, but Im willing to consider it now. d) Yes, but Im not prepared to borrow at the moment to invest.
CLIENT 1
Client 2
Points
0 30 20 10
GRAND TOTAL
200
330
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In
sto R is P o fil
0% Growth Portfolio Protection of capital or certainty of income is your only objective. You do not wish to attain higher returns if your capital is at risk. This portfolio is suitable for investors with an investment term of less than 2 years or who are seeking a guaranteed level of income for a specified time duration. 30% Growth Portfolio You are a defensive investor. Risk must be very low and you are willing to accept lower returns to protect the value of your capital. The negative effects of tax and inflation will not concern you. The recommended minimum investment term is 2 years. If investing for less than 2 years, you should consider the 0% Growth Portfolio option. 40% Growth Portfolio You are a cautious investor seeking better than basic returns, but, risk must continue to be low. Therefore, you will maintain a greater weighting to defensive assets within your portfolio, but, will consider the inclusion of some of the less aggressive growth investments. Generally you are willing to chase improved short-term returns while accepting some, limited short-term volatility. The recommended minimum investment term is 3 years. If you are investing for less than 3 years, you should consider the 30% Growth Portfolio option. 50% Growth Portfolio You are a cautious investor seeking a combination of income and growth from your investment portfolio. Generally, you are willing to chase medium to longterm goals while accepting the risk of short-medium term negative returns. Your investment mix is likely to include an equal mix of the defensive assets and the less aggressive range of growth investments. Typically, this mix is suited to the investor seeking to protect the real value of wealth that has already been created. The recommended minimum investment term is 4 years. If you are investing for less than 4 years, you should consider the 40% Growth Portfolio
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Total Points -
50 110
111 160
161 210
option.
70% Growth Portfolio You are a growth investor. You are willing to consider assets with higher volatility in the short-term (such as shares and property) to achieve capital growth over the medium-longer term. Your investment mix will comprise a greater share of growth assets; allowing it to cope with the negative impacts of tax and inflation over time. The recommended minimum investment term is 5 years. If you are investing for less than 5 years, you should consider the 50% Growth Portfolio option. 85% Growth Portfolio You are a growth investor. You are probably earning sufficient income from other sources to enable your investments to focus on capital growth. Prepared to accept higher volatility and moderate risks, your primary concern is to accumulate growth assets over the medium to long-term. You require a diversified investment mix, spread across all asset sectors, which may also include some exposure to the more aggressive range of growth investments. The minimum investment term is 7 years. If you are investing for less than 7 years, you should consider the 70% Growth Portfolio option. 100% Growth Portfolio Your primary objective is capital growth. You are an aggressive growth investor and are prepared to compromise your portfolio balance to pursue greater longterm returns. You are willing to accept higher levels of risk. Fluctuation in capital is acceptable in the short-medium term for the greater potential for wealth accumulation. With the exception of a minimal level of cash for liquidity purposes, your investment mix will only consist of growth assets such as international and domestic shares and property. The minimum investment term is 7+ years.
211 260
261 310
311 350
Based on the above Questionnaire we have analyzed that that Client 1 is Balanced Person who is willing to take Moderate Risk and Client 2 is aggressive and willing to take High Risk.
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Client 2: Aggressive type (high risk taker) Goals: Short to medium term goals. Maximum investment should be around 5 years. Primary objective: Capital appreciation in short term. Diversified portfolio: Equity Content (80%- 100%) and Debt Content (0%-20%). Investment objective: Purchase of residential property, Car, Marriage.
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69
Sectorial Allocation
70
Return :
71
Sectorial Allocation
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14.
RECOMMENDATIONS
We all have different requirements at various phases in our lifespan. To meet all these requirements we must be financially capable. Financial Capability is not gained, it is achieved. To achieve it, we must plan wisely and realistically. We should know our goals, and must take appropriate steps in order to achieve it. Simple way of achieving our goals is Investing. Investing is an art as well as science. There are various questions like when to invest, where to invest and how much to invest which need to be answered. An individual may not be able to answer these. Therefore it is advisable to opt for Portfolio Management Service, where a specialized expert (fund manager) looks after the funds and through sound investments, helps us achieve our goals. We Recommend: One should start financial planning and investing early. Take advice of professional fund managers if the investor does not have appropriate knowledge about the financial market.
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15. EXPERIENCE
Every morning brings new hopes and every sunset ends with new experience. Our days at Birla Sunlife started with a new ray of hope and ended with great satisfaction of acquiring knowledge required to enter and conquer the so called Corporate world. How useful the training is to us cannot be quantified or expressed in words. It provided us an insight into what we must excel in when we enter the job market where the competition is immense. The subjects covered in the training programme have enhanced our understanding of Finance and PMS in particular. The trip to BSE & NSE was very educative. We learned about the functioning of both the stock markets, future of stock market, available opportunities and various courses offered by them to equip students and other individuals with the financial knowledge and make them financially literate. We sincerely thank Birla Sunlife for their support and guidance
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BIBLIOGRAPHY
y y y y y y y
www.birlasunlife.com www.bloomberg.com www.karvy.com www.indiainfoline.com Business Today Business World Economic Times
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