equity investments
DESCRIPTION
SIMPLE POINT TO UNDERSTAND EQUITY MARKETTRANSCRIPT
EQUITYEQUITY INVESTMENTS INVESTMENTS
Presented by HONEY POULOSE
USE OF MONEY
# Unit of accounts:
For calculating the value of assets
# Medium of exchange:
For catering his basic needs
# Store of value:
For transactional demand and precautionary demand
BOOKMAN LOW OF MONEYBOOKMAN LOW OF MONEY
“Wealth in the form of money will not multiply”
WEALTH IS CREATED BY CIRCULATTION OF MONEY MORE WE CIRCULATE MORE WE CREATE
BOOKMAN LOW OF MONEYBOOKMAN LOW OF MONEY
BOOKMAN LOW OF MONEYBOOKMAN LOW OF MONEY
“For a better life,
Earn money wisely
Saved money regularly
Invest them smartly”
SELECTION OF INVESTMENTS
RATE OF RETURN
RISK
LIQUIDITY
TAXES
CONVENIENTS
INVESTMENT VEHICLESINVESTMENT VEHICLESMONEY MARK ET 2-3.5%BONDS &DEBTS 4-5.8.5%
BANK DEPOSITE 6.6.75%GOLD 1.6-8%REAL ESTATE 12-18%INSURANCE 6-14%MUTUAL FUND 10-14%EQUITYS 12-20%
PLAN YOUR INVESTMENTPLAN YOUR INVESTMENTStep 1 #
Creating investment objectives & destinations and understanding threats & hurdles of the objectives
Step 2 #
Selecting the type of investments and ratios
Step 3 #
Active or passive portfolio working plans
Step 4 #
selection of securities
Step 5 #
portfolio management
Step 6 # portfolio analysis
INVESTMENT SRATEGY ROAD MAP
STAGE AGE CIRCUMSTANCES INVESTMENT STRATEGYASSET ALOCATION
No dependence Aggressive growth 40-40-20 Conservative
No investment High risk ability 60-30-10 Moderate
surplus 90-5-5 Aggressive
Married, young family Aggressive wealth 30-40-30 Conservative
Starts investment creation 50-35-15 Moderate
80-10-10 Aggressive
Expences Lowering risk 25-40-35 Conservative
High income Moove for safest 50-30-20 Moderate
60-20-20 Aggressive
Indipendent children Reduce portfolio risk 10-50-40 Conservative
Surplus income Build retirment corpus 30-40-30 Moderate
40-40-20 Aggressive
Creating regular Cash flow from safe 20/20/60 Conservative
cash flows safe investment 20-30-50 Moderate
30-40-30 AggressiveRETIERD
20
30
40
50
60
YOUNG ADULT
YOUNG FAMILY
MATURE FAMILY
EMTY NESTERS
CAPITAL MARKET
PUBLIC LIMITED COMPANIES
WORKING CAPITAL
BONDS
PREVILAGE SHARES
EQUITY SHARES
BONUS SHARES
PREFERENCE SHARES
CAPITAL MARKET
AIM :
Regulating capital flow from higher part to lower part
distribution of wealth generated in the nation to the public
Triggering economic growth of a nation
CAPITAL MARKET
Debt
Total Assets
Equity
Company borrowing. Must repay 100% at fixed point in future + rate of interest (fixed or floating). Bonds are issued by companies to investors.
Owners’ investment, + / - accumulated profits.
No repayment date for owner’s investment.
Owner will receive dividends.
DIFFERENCE BETWEEN DEBTS AND EQUITY
Companies
Governments, supra-national agencies, e.g. World Bank, Mortgage Backed, Asset Backed, Companies
Who issues?
High risk, high returnLow risk, consistent returnLong-term expected return
Equities considered an inflation hedge as companies can increase prices if costs rise
Inflation negative for bonds as it makes the final values worth less in real terms
Inflation
Much higher risks than bonds as no maturity date at which investment is returned, therefore, value set by market
Risk if held to maturity is default, otherwise will receive nominal bond value back. Bond investors have first call on company assets
Risk
Dividend + / - capital appreciation
Interest + / - capital appreciation
Return
NoYesMaturity
EquitiesBonds
DIFFERENCE BETWEEN DEBTS
AND EQUITY
DownUpEconomy will fall so interest rates will fall. Investors prepared to pay more for bond coupon (less demand for money)
c) Bird Flu outbreak
UpDownGovernment likely to increase interest rate so better value in new bonds
b) Booming economy (GDP + 8%)
UpDownFuture value of bond worth less in real terms
a) Rising inflation (+2%)
Bond interest rate
Bond priceResultScenario
Bonds are priced according to how much investors are prepared to pay for an interest payment stream over a time period (interest rate), and depending on the confidence that the final sum will be returned (credit
DIFFERENCE BETWEEN DEBTS
AND EQUITY
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Jan-
01
May
-01
Sep-
01
Jan-
02
May
-02
Sep-
02
Jan-
03
May
-03
Sep-
03
Jan-
04
May
-04
Sep-
04
Jan-
05
May
-05
Sep-
05
Jan-
06
Reverse Repo Rate 10-yr GoI
INTREST RATE 2001-2006INTREST RATE 2001-2006
ROI %
11.80
10.20
7.957.958.509.20
11.8012.5512.5512.5512.3012.20
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.0019
94
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Period
Rat
e of
Inte
rest
%
LIC RETURNS 1994-2005LIC RETURNS 1994-2005
OPPURTUNITIES IN EQUITY OPPURTUNITIES IN EQUITY INVESTMENTINVESTMENT
CAPITAL APPRECIATION
DERIVATIVE INCOME
OVERCOME INFLATION
LIQUIDITY
CONVENIENCE
profit in two year 2003-2005
NAME OF COMPANY 2004 2005 %of return investmentno of sharespresent value profit maid in two yearsBHARATHY TETE VENTURES 185.45 328.25 77 100000 539 177,002 77,002BHEL 642.3 1135.5 77 100000 156 176,787 76,787HUGES MAGNETICS 539.9 697.85 29 100000 185 129,255 29,255ICICI BANK 353.45 506 43 100000 283 143,160 43,160HDFC BANK 214.65 658.25 207 100000 466 306,662 206,662INFOSIS 1109.03 2600.8 135 100000 90 234,511 134,511WIPRO 253.54 385.35 52 100000 394 151,988 51,988ITC 85.33 125.15 47 100000 1172 146,666 46,666L&T 999.5 1770.1 77 100000 100 177,099 77,099PANTALOON 580.8 1591 174 100000 172 273,933 173,933SOLECTON 119 246 107 100000 840 206,723 106,723TATA POWER 346.1 442.72 28 100000 289 127,917 27,917TCS 1235.35 1423.15 15 100000 81 115,202 15,202VSNL 226.8 328.95 45 100000 441 145,040 45,040APPOLO HOSPITALS 185.55 416.35 124 100000 539 224,387 124,387BAJAJ AUTO 1135.7 2135.25 88 100000 88 188,012 88,012BHARAT ELETRONICS 617.95 746.5 21 100000 162 120,803 20,803DIVIS LAB 1593 1830.2 15 100000 63 114,890 14,890STERLITE INDUSTRIES 740.4 805.3 9 100000 135 108,766 8,766SUN FARMA 299.02 660 121 100000 334 220,721 120,721TATA MOTORS 454.15 534.35 18 100000 220 117,659 17,659TATA TEA 350 795.35 127 100000 286 227,243 127,243ASIAN PAINTS 221.14 493.85 123 100000 452 223,320 123,320BICON 484.35 493.6 2 100000 206 101,910 1,910CIPLA 188.5 367.85 95 100000 531 195,146 95,146GUJRATH ABUJA 22.1 83.25 277 100000 4525 376,697 276,697ESSEL 180.2 366.1 103 100000 555 203,163 103,163HERQ HONDA 250.5 689.05 175 100000 399 275,070 175,070HINDALCO 59.15 132.4 124 100000 1691 223,838 123,838I FLEX 394 914.3 132 100000 254 232,056 132,056MOSER BEAR 91.72 208.5 127 100000 1090 227,322 127,322ONGC 371.9 992.25 167 100000 269 266,806 166,806RANBAXY 313 442.95 42 100000 319 141,518 41,518RELIEACE 297.5 900 203 100000 336 302,521 202,521TATA CONSULTACY 700 1552 122 100000 143 221,714 121,714HDFC 386 1160.06 201 100000 259 300,534 200,534SREE CON 15 37.5 150 100000 6667 250,000 150,000NELCO 5170 113.3 -98 100000 19 2,191 -97,809SEKKA 49.5 99.95 102 100000 2020 201,919 101,919JIDAL 46.25 92.4 100 100000 2162 199,784 99,784ZEIMENS 2352 3234 38 100000 43 137,500 37,500TITAN 310 660.8 113 100000 323 213,161 113,161
CAPITAL APRECIATION 2004-05
PREVILAGE ISSUES
EQUITIES
BONUS ISSUES
PREFERENCE ISSUES
TYPES OF SHARES
BONDS AND SHARES
Dividend with fixed rates
Cumulative dividends available
Will get preference in profit distribution
Aim:
Distribute shares to persons other than public
Features
PREFERENCE ISSUES
BONDS AND SHARES
Profit/loss sharing ownerships
Eligible for dividend,capital appreciation,bonus,rights
Risk, profit, rate of income high
Aim:
Capitalize money from public
Features
EQUITIES
BONDS AND SHARES
RIGHT ISSUES
Aim :
Capitalize more money with out issuing new shares
Features
Available only to existing share holders
Offer with respect to existing share holdings
Available with offer price or face value
Eligible for dividend, capital appreciation,bonus shares
BONUS ISSUES
Aim :
Add profit to the share capital of the company
Features :
Distribution of profit in the form of equities
Offer with respect to existing share holdings
Eligible for dividend , capital appreciation
BONDS AND SHARES
TYPES OF CAPITAL MARKETS
Capital market
Share market Debts Derivatives
Primary market Secondary market
IPOs,Bonds, Public issues,Privilege issues,Private placements
Trading of equities and bonds
PROCESS OF CAPITAL MARKET
PRIMARYMARKETSECONDARY MARKET
Finding a broker
Taking demat account
Giving order
Fixed price order
Stop loss order
Market order
Internet trading
Public issues
Book building issues
Right issues
Private placements
ADR
GDR
Limited company
Fundamental analysis Technical analysis
Intrinsic value
Management value
Industry value
Annual report
Share ratios
Economy analysis
Industry analysis
Company analysis
Technical analysis
SHARE ANALISIS
INTRINSIC VALUE :
Expected capital gains+expected dividends-risks
Objective : to analyze the market value of share is good to buy or not
MANAGEMENT VALUES:
•Integrity, group strength and weakness
•Performance history , Planning and implementation policies
•Unity, age,crisis management
•Diversification policies
•Vision and values
•d
•Promoters and directors and number of employees
FUNDAMENTAL ANALISIS
ANNUAL REPORTS
•Directors reports
•Auditors reports
Account statements
•Share capital
•Reserves and play backs
•Fixed and current assets
•Provisions and operating expenses
•Interest expense and depreciation
•Investments and taxation
FUNDAMENTAL ANALISIS
INDUSTRY CYCLE ANALYSIS
•Entrepreneurship stage
•Growth stage
•Stabilization stage
•Sunset stage
•Research and developments of new products
COMPNY STRENGTHS
•Pocket depths
•Investment policies
•Competitiveness
•Aggressiveness
FUNDAMENTAL ANALISIS
ECONOMY ANALISIS
•GDP and inflation
•Interest rates
•Exports , imports and foreign reserves
•Government revenues,expenses, deficit
•Income rates and investment rates
•Population
•Per capita income
•Monsoon
TECHNICAL ANALISIS
INDUSTRY ANALISIS
•Industry strengths, weakness , survival capacity
•Sales and profit history
•Stability of the industry
•Government policies
•Labor environment
•Product life cycle
•Demand supply analysis
•Raw material availability
•Entry level
TECHNICAL ANALISIS
COMPANY ANALYSIS
•Product market analysis
•Product category
•Market share, market potential,export potential
•Consumer strengths and segmentation
•Profits, price,credit policies,competition, expenses
•Sales networks, retails,sales force performance,
•Plant age,technology,brand image,R&D wing
TECHNICAL ANALISIS
COMPARISON RATIOS
BOOK VALUE:
Book value =share capital +reserves/number of shares
Indicate net value of shares by company
EARNING PER SHARE
E P S =net profit/number of shares
It indicate actual earning /return of a share ( dividend+reserve capital or capital gain )
PRICE EARNING RATIO
P/E= Market price/EPS
Indicate break even time for the particular shares
COMPARISON RATIOS
YEILD
Yield =dividend/market price*100
Indicate the percentage return of dividend return
RETURN ON EQUITY
ROE= Total share capital+ reserves/net profit
Indicate profit making ability of a particular company from available funds
COMPARISON RATIOS
SENSEX
SENSITIVE INDEX- what it mean ?
•Benchmark index for Indian stokes
•Reflects the price movements of the shares
•Reflects the expectation of income gain or loss of equity investments
•Reflects the confidence or risk taking ability of Indian equity investment
•Reflects the performance and trends of Indian companies
•Thermometer for Indian economy
•Power full tool for investment analysis of Indian equity investment
What is the Sensex made of ?
•Thirty stocks
•Most actively traded stokes in the country
•Represent thirteen industrial sectors of the country
•Stokes should have traded every working day for last one year
•Should include in top 150 company listed by average number of trades (buying and selling ) and value of trades( actual volume in rupees )
•Must have listed on BSE for last one year
Who select these thirty stocks?
They selected by the index committee
•Academicians
•Fund managers
•Finance journalists
•Independent governing board members
•Delegates form other financial sectors
20%
15%
15%10%5%
5%
4%
6%
3%
4%
8% 5%
FINANCE
IT
OIL AND GAS
FMCG
TRANSPORTATION
METAL
CAPITAL GOODS
POWER
HEALTH CARE
TELECOME
HOUSING
DIVERSIFIED
BSE –BOMBAY STOCK EXCHANGE
•Oldest index in the country
•Most popular index
•13 sectors and 30 stokes
MEMBER STOCKS OF SENSEX•BAJAJ AUTO LTD -AUTOMOBILE
•HERO HONDA MOTORS LTD - AOUTO MOBILE
•MARUTHY UDYOG LTD - AOUTO MOBILE
•TATA AUTOMOBILES -AUTOMOBILE
•BHARTHI TELE VENTURS LTD -TELECOME
•CIPLA LTD PHARMA
•RANBAXY PHARMA
•DR REDDYS LABORATARIES LTD PHARMA
•GRASIM INDUSTRIES LTD CEMENT
•GUJARATH ABBUJA CEMENTS CEMENT
•ACC CEMENTS COMPANY PVT LTD- CEMENT
•HDFC FINANCE
•HDFC BANK FINANCE
•ICICI BANK- FINANCE
•SBI _ FINANCE
•HINDALCO- ALUMINIUM
•HINDUSTAN LEVER – DIVERSIFIED
•INFOSIS – IT
•SATHYAM COMPUTERS IT
•TATA CONSULTANCY IT
•WIPRO IT
•LARSEN & TURBO ENGENEERING
•NTPC POWER
•RELIANCE POWER POWER
•ONGC OIL
•RELEINCE INDUSTRIES OIL
•TATA STEEL – STEEL
•TATA TEA - TEA AND COFEE
MEMBER STOCKS OF SENSEX
4% 4%
10%
4%
2%
15%
4%2%4%2%4%2%
15%
2%
2%
4%
2%
6%
1%
2%
1%
5% 3%
ALUMINEUM
AUTO 2
AUTO 4
BANKS
CEMENT
CIGERETS
COMPUTERS
DIVERSIFIED
ELETRICAL EQUIPMENT
ENGENEERING
FINACE HOUSING
GAS
MEDIA
OIL
PERSOAL CARE
PETROCHEMICALS
PHARMA
POWER
REFINARIES
SHIPPING
STEEL
TEA& COFEE
TELECOMMUNICATION
NSE NATIONAL STOCK EXCHANGE•More advanced index
•24 sectors and 50 stocks
INDIA BSE SENSEXINDIA NSE NIFTYUSA NYSE DOW JOHNSJAPAN TSE NIKYUK LSE FTSEHONKONG HSE HANG SENGSINGAPORE SSE STRAIT TIMESFRANCE PSE CABCANADA TSE TSE
LEADING STOCK EXCHANGES
Market is Expensive
TRENDS 0F INDIAN SENSEXStrong Market Rally
Source: Merrill Lynch Research
2500
3500
4500
5500
6500
7500
8500
9500
10500Ja
n-03
Mar
-03
May
-03
Jul-0
3
Sep
-03
Nov
-03
Jan-
04
Mar
-04
May
-04
Jul-0
4
Sep
-04
Dec
-04
Feb-
05
Apr
-05
Jun-
05
Aug
-05
Oct
-05
Dec
-05
Feb-
06
Budget
December quarter results
unexciting
India & Pakistan make fresh attempt
for peace
RBI cuts key rates
Good monsoons and FM's latest statement on Economy Growth
Mumbai Bomb Blast
Good Sept end quarter results
Strong FII buying and encouraging trend in
corporate fundamentals
Strong FII buying and good economy growth
Election results announced, FII Selling
Union Budget
Opinion polls predict BJP-led NDA win
Announcement ofManmohansingh - PMP Chidambaram - FM
VAT introduced
Disappointing earnings performance by
Tech stocks
Reliance Industries Family Dispute finally settled amicably
Interim Results Disappoint Market
Oil price hike Union Budget
Strong FII buying
WEALTH BY SHARE INVESTMENTS
BIILGATES 5000CR$ MICROSOFT
WAREN BOOFAY 3500CR $ BARKSHARE FATHWA
ASIM PREMJI 60000CR WIPRO
MUKESH AMBANI 4700CR RELIENCE
SUNIL MITHAL 3OOOCR BHARATHI TELECOME
Presented by HONEY POULOSE