reading the financial markets

8/2/2019 Reading the Financial Markets

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A Paper Presentation

On

READING THE FINANCIAL MARKETS- CHALLENGES IN

PORTFOLIO MANAGEMENT

Submitted to

Durgadevi Saraf Institute of Management Studies

Submitted by

Sunil Kumar Yadav

[Sinhgad Institute of Business Management

Plot No. 126, Mahada Colony,

Chandiwali, Mumbai400 072]


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INDEX

SR. NO. PARTICULARS PAGE NO.

1 INTRODUCTION 4

2 LITERATURE OF REVIEW

Indian Financial Market Scope of Indian financial market Potential of the Indian financial market Features of the financial market in India

Financial Market Types of financial market

Money market Capital market Difference between money & capital market Difference between primary & secondary

market

Stock Exchange Function of stock exchange Advantages of stock exchange Limitation of stock exchange Speculation in stock exchange Stock exchange in India Regulation of stock exchange Role of SEBI

Portfolio Management Phases of portfolio management Goal of portfolio management Benefits of portfolio management Challenges of implementing portfolio management

Sectors Construction

Larsen and Toubro Pharmaceutical

Sun Pharmaceutical Industries Ltd. Banking

State Bank of India

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5

5 6 6

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8 8 10 10

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11 13 13 14 16 16 17

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19 22 22 23

26

26 29 30 33 34 36

3 METHODOLOGY 38

4 RESEARCH / STUDY 40

5 CONCLUSION 45

6 BIBLIOGRAPHY 46


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INTODUCTION

The purpose of the project is to find out what are the challenges in the portfolio management

while reading the financial market.

Financial market: You are fully aware that business units have to raise short-term as well as

long-term funds to meet their working and fixed capital requirements from time to time. This

necessitates not only the ready availability of such funds but also a transmission mechanism with

the help of which the providers of funds (investors/ lenders) can interact with the borrowers/

users (business units) and transfer the funds to them as and when required. This aspect is taken

care of by the financial markets which provide a place where or a system through which, the

transfer of funds by investors/lenders to the business units is adequately facilitated.

Portfolio management: A vital question in the product innovation battleground is, "How shouldcorporations most effectively invest their R&D and new product development resources?" Thatis what portfolio management is all about: resource allocation to achieve corporate productinnovation objectives.

This research topic includes what are the challenges of Implementing PortfolioManagement while having lots of information available to environment.In this we take three different Companies (Larsen and Toubro, SBI, Sun Pharmaceuticalindustries ltd.) from three different Sectors (Construction, Banking, Pharmaceutical) to analyzewhat are the challenges of Implementing Portfolio Management while having lots ofinformation like fundamental details, different ratios, news, technical charts for analyzing the

movement of shares

The following challenges of Implementing Portfolio Management:

Democracy Is Not Easy Getting Good Information Also Is Not Easy Not all Portfolios Are Equal An Additional Time Constraint on Busy Executives It Is Hard to Make Tough Decisions Software, While Important, Is Not the Main Issue


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LITERATURE REVIEW

INDIAN FINANCIAL MARKET

Organized financial markets have existed in India for more than a century. Today, markets of

varying maturity exist in equity, debt, commodities and foreign exchange. There are 25 stock

markets all over the country, the most important of which, are the Bombay Stock Exchange and

the National Stock Exchange. The rupee has been convertible on the current account since 1992.

You are fully aware that business units have to raise short-term as well as long-term funds tomeet their working and fixed capital requirements from time to time. This necessitates not onlythe ready availability of such funds but also a transmission mechanism with the help of which theproviders of funds (investors/ lenders) can interact with the borrowers/ users (business units) and

transfer the funds to them as and when required. This aspect is taken care of by the financialmarkets which provide a place where or a system through which, the transfer of funds byinvestors/lenders to the business units is adequately facilitated.

SCOPE OF THE INDIA FINANCIAL MARKET

The financial market in India at present is more advanced than many other sectors as it becameorganized as early as the 19th century with the securities exchanges in Mumbai, Ahmedabad andKolkata. In the early 1960s, the number of securities exchanges in India became eight - includingMumbai, Ahmedabad and Kolkata. Apart from these three exchanges, there was the Madras,

Kanpur, Delhi, Bangalore and Pune exchanges as well. Today there are 23 regional securitiesexchanges in India.

The Indian stock markets till date have remained stagnant due to the rigid economic controls. Itwas only in 1991, after the liberalization process that the India securities market witnessed aflurry of IPOs serially. The market saw many new companies spanning across different industrysegments and business began to flourish.

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchangeof India) in the mid 1990s helped in regulating a smooth and transparent form of securitiestrading.

The regulatory body for the Indian capital markets was the SEBI (Securities and Exchange Boardof India). The capital markets in India experienced turbulence after which the SEBI came intoprominence. The market loopholes had to be bridged by taking drastic measures.
http://library.thinkquest.org/11372/data/bse.htmhttp://library.thinkquest.org/11372/data/nse.htmhttp://library.thinkquest.org/11372/data/nse.htmhttp://library.thinkquest.org/11372/data/bse.htm


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POTENTIAL OF THE INDIA FINANCIAL MARKET

India Financial Market helps in promoting the savings of the economy - helping to adopt aneffective channel to transmit various financial policies. The Indian financial sector is well-developed, competitive, efficient and integrated to face all shocks. In the India financial market

there are various types of financial products whose prices are determined by the numerousbuyers and sellers in the market. The other determinant factor of the prices of the financialproducts is the market forces of demand and supply. The various other types of Indian marketshelp in the functioning of the wide India financial sector.

FEATURES OF THE FINANCIAL MARKET IN INDIA

India Financial Indices - BSE 30 Index, various sector indexes, stock quotes, Sensexcharts, bond prices, foreign exchange, Rupee & Dollar Chart

Indian Financial market news Stock News - Bombay Stock Exchange, BSE Sensex 30 index, S&P CNX-Nifty, company

information, issues on market capitalization, corporate earning statements Fixed Income - Corporate Bond Prices, Corporate Debt details, Debt trading activities,

Interest Rates, Money Market, Government Securities, Public Sector Debt, External DebtService

Foreign Investment - Foreign Debt Database composed by BIS, IMF, OECD,& WorldBank, Investments in India & Abroad

Global Equity Indexes - Dow Jones Global indexes, Morgan Stanley Equity Indexes Currency Indexes - FX & Gold Chart Plotter, J. P. Morgan Currency Indexes National and Global Market Relations Mutual Funds Insurance Loans Forex and BullionIf an investor has a clear understanding of the India financial market, then formulating investing

strategies and tips would be easier.


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FINANCIAL MARKET

We know that, money always flows from surplus sector to deficit sector. That means personshaving excess of money lend it to those who need money to fulfill their requirement.Similarly, in business sectors the surplus money flows from the investors or lenders to the

businessmen for the purpose of production or sale of goods and services. So, we find twodifferent groups, one who invest money or lend money and the others, who borrow or use themoney. Now you think, how these two groups meet and transact with each other. The financialmarkets act as a link between these two different groups. It facilitates this function by acting asan intermediary between the borrowers and lenders of money. So, financial market may bedefined as a transmission mechanism between investors (or lenders) and the borrowers (orusers) through which transfer of funds is facilitated. It consists of individual investors, financialinstitutions and other intermediaries who are linked by a formal trading rules and communicationnetwork for trading the various financial assets and credit instruments.

Before reading further let us have an idea about some of the credit instruments.

A bill of exchange is an instrument in writing containing an unconditional order, signed by themaker, directing a certain person to pay a certain sum of money only to or to the order of acertain person, or to the bearer of the instrument.

To clarify the meaning let us take an example. Suppose Gopal has given a loan of Rs. 50,000 toMadan, which Madan has to return? Now, Gopal also has to give some money to Madhu. In thiscase, Gopal can make a document directing Madan to make payment up to Rs. 50,000 to Madhuon demand or after expiry of a specified period. This document is called a bill of exchange,which can be transferred to some other persons name by Madhu.

A promissory note is an instrument in writing (not being a bank note or a currency note)containing an unconditional undertaking, signed by the maker, to pay a certain sum of moneyonly to or to the order of a certain person or to the bearer of the instrument. Suppose you take aloan of Rs. 20,000 from your friend Jagan. You can make a document stating that you will paythe money to Jagan or the bearer on demand. Or you can mention in the document that you willpay the amount after three months. This document, once signed by you, duly stamped andhanded over to Jagan, becomes a negotiable instrument. Now Jagan can personally present itbefore you for payment or give this document to some other person to collect money on hisbehalf. He can endorse it in somebody elses name who in turn can endorse it further till the finalpayment is made by you to whosoever presents it before you. This type of a document is called aPromissory Note.

Let us now see the main functions of financial market.a) It provides facilities for interaction between the investors and the borrowers.b) It provides pricing information resulting from the interaction between buyers and sellers

in the market when they trade the financial assets.c) It provides security to dealings in financial assets.d) It ensures liquidity by providing a mechanism for an investor to sell the financial assets.e) It ensures low cost of transactions and information.


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TYPES OF FINANCIAL MARKETS

A financial market consists of two major segments:(a) Money Market(b) Capital Market.

While the money market deals in short-term credit, the capital market handles themedium term and long-term credit.Let us discuss these two types of markets in detail.

MONEY MARKET

The money market is a market for short-term funds, which deals in financial assets whoseperiod of maturity is up to one year. It should be noted that money market does not dealin cash or money as such but simply provides a market for credit instruments such as billsof exchange, promissory notes, commercial paper, treasury bills, etc. These financialinstruments are close substitute of money. These instruments help the business units,

other organizations and the Government to borrow the funds to meet their short-termrequirement.Money market does not imply to any specific market place. Rather it refers to the wholenetworks of financial institutions dealing in short-term funds, which provides an outlet tolenders and a source of supply for such funds to borrowers. Most of the money markettransactions are taken place on telephone, fax or Internet. The Indian money marketconsists of Reserve Bank of India, Commercial banks, Co-operative banks, and otherspecialized financial institutions. The Reserve Bank of India is the leader of the moneymarket in India.Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC,GIC, UTI, etc. also operate in the Indian money market.

MONEY MARKET INSTRUMENTS

Following are some of the important money market instruments or securities.Call Money: Call money is mainly used by the banks to meet their temporaryrequirement of cash. They borrow and lend money from each other normally on a dailybasis. It is repayable on demand and its maturity period varies in between one day to afortnight. The rate of interest paid on call money loan is known as call rate.

(b)Treasury bill: A treasury bill is a promissory note issued by the RBI to meet theshort-term requirement of funds. Treasury bills are highly liquid instruments that mean, at

any time the holder of treasury bills can transfer of or get it discounted from RBI.These bills are normally issued at a price less than their face value; and redeemed at facevalue. So the difference between the issue price and the face value of the Treasury billrepresents the interest on the investment. These bills are secured instruments and areissued for a period of not exceeding 364 days.

(c) Commercial Paper: Commercial paper (CP) is a popular instrument for financingworking capital requirements of companies. The CP is an unsecured instrument issued in


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the form of promissory note. This instrument was introduced in 1990 to enable thecorporate borrowers to raise short-term funds. It can be issued for period ranging from 15days to one year. Commercial papers are transferable by endorsement and delivery. Thehighly reputed companies (Blue Chip companies) are the major player of commercialpaper market.

(d) Certificate of Deposit: Certificate of Deposit (CDs) is short-term instruments issuedby Commercial Banks and Special Financial Institutions (SFIs), which are freelytransferable from one party to another. The maturity period of CDs ranges from 91 daysto one year. These can be issued to individuals, co-operatives and companies.(e) Trade Bill: Normally the traders buy goods from the wholesalers or manufactures oncredit. The sellers get payment after the end of the credit period. But if any seller does notwant to wait or in immediate need of money he/she can draw a bill of exchange in favorof the buyer.When buyer accepts the bill it becomes a negotiable instrument and is termed as bill ofexchange or trade bill. This trade bill can now be discounted with a bank before its

maturity. On maturity the bank gets the payment from the drawee i.e., the buyer of goods.When trade bills are accepted by CommercialBanks it is known as Commercial Bills. So trade bill is an instrument, which enables thedrawer of the bill to get funds for short period to meet the working capital needs.

CAPITAL MARKET

Capital Market may be defined as a market dealing in medium and long-term funds. It isan institutional arrangement for borrowing medium and long-term funds and whichprovides facilities for marketing and trading of securities. So it constitutes all long-termborrowings from banks and financial institutions, borrowings from foreign markets and

raising of capital by issue various securities such as shares debentures, bonds, etc. In thepresent chapter let us discuss about the market for trading of securities.The market where securities are traded known as Securities market. It consists of twodifferent segments namely primary and secondary market. The primary market deals withnew or fresh issue of securities and is, therefore, also known as new issue market;whereas the secondary market provides a place for purchase and sale of existingsecurities and is often termed as stock market or stock exchange.

PRIMARY MARKET

The Primary Market consists of arrangements, which facilitate the procurement of long

term funds by companies by making fresh issue of shares and debentures. You know thatcompanies make fresh issue of shares and/or debentures at their formation stage and, ifnecessary, subsequently for the expansion of business. It is usually done through privateplacement to friends, relatives and financial institutions or by making public issue. In any

Business Finance case, the companies have to follow a well-established legal procedureand involve a numberof intermediaries such as underwriters, brokers, etc. who form anintegral part of theprimary market. You must have learnt about many initial public offers


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(IPOs) made recentlyby a number of public sector undertakings such as ONGC, GAIL,NTPC and the privatesector companies like Tata Consultancy Services (TCS), Biocon,Jet-Airways and so on.

SECONDARY MARKET

The secondary market known as stock market or stock exchange plays an equallyimportant role in mobilizing long-term funds by providing the necessary liquidity toholdings in shares and debentures. It provides a place where these securities can beencased without any difficulty and delay. It is an organized market where shares anddebentures are traded regularly with high degree of transparency and security. In fact, anactive secondary market facilitates the growth of primary market as the investors in theprimary market are assured of a continuous market for liquidity of their holdings. Themajor players in the primary market are merchant bankers, mutual funds, financialinstitutions, and the individual investors; and in the secondary market you have all these

and the stockbrokers who are members of the stock exchange who facilitate the trading.After having a brief idea about the primary market and secondary market let see thedifference between them.

DISTINCTION BETWEEN CAPITAL MARKET AND MONEY

MARKET

Capital Market differs from money market in many ways.Firstly, while money market is related to short-term funds, the capital market related tolong term funds.

Secondly, while money market deals in securities like treasury bills, commercial paper,trade bills, deposit.

DISTINCTION BETWEEN PRIMARY MARKET AND

SECONDARY MARKET

The main points of distinction between the primary market and secondary market are asfollows:1. Function: While the main function of primary market is to raise long-term funds

through fresh issue of securities, the main function of secondary market is to providecontinuous and ready market for the existing long-term securities.2. Participants: While the major players in the primary market are financial institutions,mutual funds, underwriters and individual investors, the major players in secondarymarket are all of these and the stockbrokers who are members of the stock exchange.3. Listing Requirement: While only those securities can be dealt within the secondarymarket, which have been approved for the purpose (listed), there is no such requirementin case of primary market.


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4. Determination of prices: In case of primary market, the prices are determined by themanagement with due compliance with SEBI requirement for new issue of securities.But in case of secondary market, the price of the securities is determined by forces ofdemand and supply of the market and keeps on fluctuating.

STOCK EXCHANGE

As indicated above, stock exchange is the term commonly used for a secondary market, whichprovide a place where different types of existing securities such as shares, debentures and bonds,government securities can be bought and sold on a regular basis. A stock exchange is generallyorganized as an association, a society or a company with a limited number of members. It is openonly to these members who act as brokers for the buyers and sellers. The Securities Contract(Regulation) Act has defined stock exchange as an association, organization or body ofindividuals, whether incorporated or not, established for the purpose of assisting, regulating and

controlling business of buying, selling and dealing in securities.The main characteristics of a stock exchange are:1. It is an organized market.2. It provides a place where existing and approved securities can be bought and sold easily.3. In a stock exchange, transactions take place between its members or their authorized agents.4. All transactions are regulated by rules and by laws of the concerned stock exchange.5. It makes complete information available to public in regard to prices and volume oftransactions taking place every day.It may be noted that all securities are not permitted to be traded on a recognized stock exchange.It is allowed only in those securities (called listed securities) that have been duly approved forthe purpose by the stock exchange authorities. The method of trading now a- days, however, is

quite simple on account of the availability of on-line trading facility with the help of computers.It is also quite fast as it takes just a few minutes to strike a deal through the brokers who may beavailable close by. Similarly, on account of the system of scrip-less trading and rollingsettlement, the delivery of securities and the payment of amount involved also take very littletime, say, 2 days.

FUNCTIONS OF A STOCK EXCHANGE

The functions of stock exchange can be enumerated as follows:1. Provides ready and continuous market: By providing a place where listed securities can be

bought and sold regularly and conveniently, a stock exchange ensures a ready and continuousmarket for various shares, debentures, bonds and government securities.This lends a high degree of liquidity to holdings in these securities as the investor can encashtheir holdings as and when they want.

2. Provides information about prices and sales: A stock exchange maintains complete recordof all transactions taking place in different securities every day and supplies regular informationon their prices and sales volumes to press and other media. In fact, now-a-days, you can get


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information about minute to minute movement in prices of selected shares on TV channels likeCNBC, Zee News, NDTV and Headlines Today. This enables the investors in taking quickdecisions on purchase and sale of securities in which they are interested. Not only that, suchinformation helps them in ascertaining the trend in prices and the worth of their holdings. Thisenables them to seek bank loans, if required.

3. Provides safety to dealings and investment: Transactions on the stock exchange areconducted only amongst its members with adequate transparency and in strict conformity to itsrules and regulations which include the procedure and timings of delivery and payment to befollowed. This provides a high degree of safety to dealings at the stock exchange. There is littlerisk of loss on account of non-payment or non delivery.Securities and Exchange Board of India (SEBI) also regulates the business in stock exchanges inIndia and the working of the stock brokers.Not only that, a stock exchange allows trading only in securities that have been listed with it; andfor listing any security, it satisfies itself about the genuineness and soundness of the companyand provides for disclosure of certain information on regular basis.

Though this may not guarantee the soundness and profitability of the company, it does providesome assurance on their genuineness and enables them to keep track of their progress.

4. Helps in mobilization of savings and capital formation: Efficient functioning of stockmarket creates a conducive climate for an active and growing primary market.Good performance and outlook for shares in the stock exchanges imparts buoyancy to the newissue market, which helps in mobilizing savings for investment in industrial and commercialestablishments. Not only has that, the stock exchanges provided liquidity and profitability todealings and investments in shares and debentures. It also educates people on where and how toinvest their savings to get a fair return. This encourages the habit of saving, investment and risk-taking among the common people. Thus it helps mobilizing surplus savings for investment incorporate and government securities and contributes to capital formation.

5. Barometer of economic and business conditions: Stock exchanges reflect the changingconditions of economic health of a country, as the shares prices are highly sensitive to changingeconomic, social and political conditions. It is observed that during the periods of economicprosperity, the share prices tend to rise. Conversely, prices tend to fall when there is economicstagnation and the business activities slow down as a result of depressions. Thus, the intensity oftrading at stock exchanges and the corresponding rise on fall in the prices of securities reflectsthe investors assessment of the economic and business conditions in a country, and acts as thebarometer which indicates the general conditions of the atmosphere of business.

6. Better Allocation of funds: As a result of stock market transactions, funds flow from the lessprofitable to more profitable enterprises and they avail of the greater potential for growth.Financial resources of the economy are thus better allocated.


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ADVANTAGES OF STOCK EXCHANGES

Having discussed the functions of stock exchanges, let us look at the advantages which can beoutlined from the point of view of (a) Companies, (b) Investors, and (c) the Society as a whole.

(a) To the Companies(i) The companies whose securities have been listed on a stock exchange enjoy a better goodwilland credit-standing than other companies because they are supposed to be financially sound.(ii) The market for their securities is enlarged as the investors all over the world become awareof such securities and have an opportunity to invest(iii) As a result of enhanced goodwill and higher demand, the value of their securities increasesand their bargaining power in collective ventures, mergers, etc. is enhanced.(iv)The companies have the convenience to decide upon the size, price and timing of the issue.

(b) To the Investors:

(i) The investors enjoy the ready availability of facility and convenience of buying and selling

the securities at will and at an opportune time.(ii) Because of the assured safety in dealings at the stock exchange the investors are free fromany anxiety about the delivery and payment problems.(iii) Availability of regular information on prices of securities traded at the stock exchanges helpsthem in deciding on the timing of their purchase and sale.(iv) It becomes easier for them to raise loans from banks against their holdings in securitiestraded at the stock exchange because banks prefer them as collateral on account of their liquidityand convenient valuation.

(c) To the Society

(i) The availability of lucrative avenues of investment and the liquidity thereof induces people to

save and invest in long-term securities. This leads to increased capital formation in the country.(ii) The facility for convenient purchase and sale of securities at the stock exchange providessupport to new issue market. This helps in promotion and expansion of industrial activity, whichin turn contributes, to increase in the rate of industrial growth.(iii) The Stock exchanges facilitate realization of financial resources to more profitable andgrowing industrial units where investors can easily increase their investment substantially.(iv) The volume of activity at the stock exchanges and the movement of share prices reflect thechanging economic health.(v) Since government securities are also traded at the stock exchanges, the governmentborrowing is highly facilitated. The bonds issued by governments, electricity boards; municipalcorporations and public sector undertakings (PSUs) are found to be on offer quite frequently and

are generally successful.

LIMITATIONS OF STOCK EXCHANGES

Like any other institutions, the stock exchanges too have their limitations. One of the commonevils associated with stock exchange operations is the excessive speculation. You know thatspeculation implies buying or selling securities to take advantage of price differential at differenttimes. The speculators generally do not take or give delivery and pay or receive full payment.


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They settle their transactions just by paying the difference in prices. Normally, speculation isconsidered a healthy practice and is necessary for successful operation of stock exchangeactivity. But, when it becomes excessive, it leads to wide fluctuations in prices and variousmalpractices by the vested interests. In the process, genuine investors suffer and are driven out ofthe market.

Another shortcoming of stock exchange operations is that security prices may fluctuate due tounpredictable political, social and economic factors as well as on account of rumours spread byinterested parties. This makes it difficult to assess the movement of prices in future and buildappropriate strategies for investment in securities. However, these days good amount of vigilanceis exercised by stock exchange authorities and SEBI to control activities at the stock exchangeand ensure their healthy functioning, about which you will study later.

SPECULATION IN STOCK EXCHANGES

The buyers and sellers at the stock exchange undertake two types of operations, one forspeculation and the other for investment. Those who buy securities primarily to earn a regularincome from such investment and possibly make some long-term gain on account of price rise infuture are called investors. They take delivery of the securities and make full payment of theprice. Such transactions are called investment transactions.But, when the securities are bought with the sole object of selling them in future at higher pricesor these are sold now with the intention of buying at a lower price in future, are calledspeculation transactions. The main objective of such transactions is to take advantage of pricedifferential at different times. The stock exchange also provides for settlement of suchtransactions even by receiving or paying, as the case may be, just the difference in prices. Forexample, Rashmi bought 200 shares of Moser Baer Ltd. at Rs. 210 per share and sold them at Rs.

235 per share. He does not take and give delivery of the shares but settles the transactions byreceiving the difference in prices amounting to Rs. 5,000 minus brokerage. In another case,Mohit bought 200 shares of Seshasayee Papers Ltd. at Rs. 87 per share and sold them at Rs. 69per share. He settles these transactions by simply paying the difference amounting to Rs. 3600plus brokerage. However, now-a-days stock exchanges have a system of rolling settlement. Suchfacility is limited only to transactions of purchase and sale made on the same day, as no carryforward is allowed.25x200 = 500018x200 = 3600

Rolling Settlement: Earlier trading in the stock exchange was held face-to-face (called pit-

trading) without the use of computers and the advanced computer software as it is today. In thosetimes, transactions were settled (i.e., actual delivery of shares, through share certificates, by theseller and payment of money by the buyer) in the stock exchange, only on a fixed day of theweek, say on a Saturday, or a Wednesday irrespective of which day of the week the shares werebought and sold. This was called Fixed Settlement.Today, with the electronic / computer based system of recording and carrying out of sharetransactions, stock exchanges go in for rolling settlement. That means, transaction is settledafter a fixed number of days of the transaction rather than on a particular day of the week. For


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example, if a stock exchange goes in for T+2 days of rolling settlement, the transaction issettled within two working days of occurring ofthe transaction, T being the day of thetransaction. In T+7 days of rolling settlement, the transaction is settled on the 7th day after thetransaction. This is facilitated through electronic transfer of shares, through DematerializedAccount or DE mat Account i.e., the share does not have a physical form of a paper document,

but is a computerized record of a person holding a share, and through transfer of moneyelectronically or through cheques payment is settled.Though speculation and investment are different in some respects, in practice it is difficult to saywho is a genuine investor and who is a pure speculator. Sometimes even a person who haspurchased the shares as a long-term investment may suddenly decide to sell to reap the benefit ifthe price of the share goes up too high or do it to avoid heavy loss if the prices starts decliningsteeply. But he cannot be called a speculator because his basic intention has been to invest. It isonly when a persons basic intention is to take advantage of a change in prices, and not to invest,then the transaction may be termed as speculation.In strict technical terms, however, the transaction is regarded as speculative only if it is settled byreceiving or paying the difference in prices without involving the delivery of securities. It is so

because, in practice, it is quite difficult to ascertain the intention.Some people regard speculation as nothing but gambling and consider it as an evil. But it is nottrue because while speculation is based on foresight and hard calculation, gambling is a kind ofblind and reckless activity involving high degree of chance element. No only that, speculation isa legal activity duly recognized as a prerequisite for the success of stock exchange operationswhile gambling is regarded as an evil and a punishable activity.However, reckless speculation may take the form of gambling and should be avoided.


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STOCK EXCHANGES IN INDIA

The first organized stock exchange in India was started in Mumbai known as BombayStock Exchange (BSE). It was followed by Ahmedabad Stock Exchange in 1894 andKolkata Stock Exchange in 1908. The number of stock exchanges in India went up to 7 by 1939

and it increased to 21 by 1945 on account of heavy speculation activity during Second WorldWar. A number of unorganized stock exchanges also functioned in the country without anyformal set-up and were known as kerb market. The Security Contracts(Regulation) Act was passed in 1956 for recognition and regulation of Stock Exchanges inIndia. At present we have 23 stock exchanges in the country. Of these, the most prominent stockexchange that came up is National Stock Exchange (NSE). It is also based inMumbai and was promoted by the leading financial institutions in India. It was incorporated in1992 and commenced operations in 1994. This stock exchange has a corporate structure, fullyautomated screen-based trading and nation-wide coverage.Another stock exchange that needs special mention is Over The Counter Exchange ofIndia (OTCEI). It was also promoted by the financial institutions like UTI, ICICI, IDBI,

IFCI, LIC etc. in September 1992 specially to cater to small and medium sized companies withequity capital of more than Rs.30 lakh and less than Rs.25 crore. It helps entrepreneurs in raisingfinances for their new projects in a cost effective manner. It provides for nationwide online ringless trading with 20 plus representative offices in all major cities of the country. On this stockexchange, securities of those companies can be traded which are exclusively listed on OTCEIonly. In addition, certain shares and debentures listed with other stock exchanges in India and theunits of UTI and other mutual funds are also allowed to be traded on OTCEI as permittedsecurities. It has been noticed that, of late, the turnover at this stock exchange has considerablyreduced and steps have been afoot to revitalize it. In fact, as of now, BSE and NSE are the twoStock Exchanges, which enjoy nation-wide coverage and handle most of the business in

securities in the country.

REGULATIONS OF STOCK EXCHANGES

As indicated earlier, the stock exchanges suffer from certain limitations and require strict controlover their activities in order to ensure safety in dealings thereon. Hence, as early as1956, the Securities Contracts (Regulation) Act was passed which provided for recognition ofstock exchanges by the central Government. It has also the provision of framing of properbylaws by every stock exchange for regulation and control of their functioning subject to the

approval by the Government. All stock exchanges are required submit information relating to itsaffairs as required by the Government from time to time. TheGovernment was given wide powers relating to listing of securities, make or amend bylaws,withdraw recognition to, or supersede the governing bodies of stock exchange inextraordinary/abnormal situations. Under the Act, the Government promulgated theSecurities Regulations (Rules) 1957, which provided inter alia for the procedures to be followedfor recognition of the stock exchanges, submission of periodical returns and annual returns by


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recognized stock exchanges, inquiry into the affairs of recognized stock exchanges and theirmembers, and requirements for listing of securities.

ROLE OF SEBI

As part of economic reforms program started in June 1991, the Government of India initiatedseveral capital market reforms, which included the abolition of the office of theController of Capital Issues (CCI) and granting statutory recognition to Securities ExchangeBoard of India (SEBI) in 1992 for:(a) Protecting the interest of investors in securities;(b) Promoting the development of securities market;(c) Regulating the securities market; and(d) Matters connected there with or incidental thereto.

SEBI has been vested with necessary powers concerning various aspects of capital market suchas:

1) Regulating the business in stock exchanges and any other securities market;2) Registering and regulating the working of various intermediaries and mutual funds;3) Promoting and regulating self regulatory organizations;4) Promoting investors education and training of intermediaries;5) Prohibiting insider trading and unfair trade practices;6) Regulating substantial acquisition of shares and take over of companies;7) Calling for information, undertaking inspection, conducting inquiries and audit of stock

exchanges, and intermediaries and self regulation organizations in the stock market; and

performing such functions and exercising such powers under the provisions of the CapitalIssues (Control) Act, 1947 and the Securities Contracts (Regulation) Act, 1956 as may bedelegated to it by the Central Government.

As part of its efforts to protect investors interests, SEBI has initiated many primary marketsreforms, which include improved disclosure standards in public issue documents, introduction ofprudential norms and simplification of issue procedures. Companies are now required to discloseall material facts and risk factors associated with their projects while making public issue. Allissue documents are to be vetted by SEBI to ensure that the disclosures are not only adequate butalso authentic and accurate. SEBI has also introduced a code of advertisement for public issuesfor ensuring fair and truthful disclosures. Merchant bankers and all mutual funds including UTI

have been brought under the regulatory framework of SEBI. A code of conduct has been issuedspecifying a high degree of responsibility towards investors in respect of pricing and premiumfixation of issues. To reduce cost of issue, underwriting of issues has been made optional subjectto the condition that the issue is not under-subscribed. In case the issue is under-subscribed i.e., itwas not able to collect 90% of the amount offered to the public, the entire amount would berefunded to the investors. The practice of preferential allotment of shares to promoters at pricesunrelated to the prevailing market prices has been stopped and private placements have beenmade more restrictive. All primary issues have now to be made through depository mode. The


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initial public offers (IPOs) can go for book building for which the price band and issue size haveto be disclosed. Companies with dematerialized shares can alter the par value as and when theyso desire.As for measures in the secondary market, it should be noted that all statutory powers to regulatestock exchanges under the Securities Contracts (Regulation) Act have now been vested with

SEBI through the passage of securities law (Amendment) Act in 1995. SEBI has duly notifiedrules and a code of conduct to regulate the activities of intermediaries in the securities marketand then registration in the securities market and then registration with SEBI is madecompulsory. It has issued guidelines for composition of the governing bodies of stock exchangesso as to include more public representatives. Corporate membership has also been introduced atthe stock exchanges. It has notified the regulations on insider trading to protect and preserve theintegrity of stock markets and issued guidelines for mergers and acquisitions. SEBI hasconstantly reviewed the traditional trading systems of Indian stock exchanges and tried tosimplify the procedure, achieve transparency inBook Building: It is a process of determining price of shares based on market feedback. In thisprocess the issue price of the share is not fixed in advance. It is determined by offer of potential

investors about the price they may be willing to pay for the issue. Transactions and reduce theircosts. To prevent excessive speculations and volatility in the market, it has done away with badlasystem, and introduced rolling settlement and trading in derivatives. All stock exchanges havebeen advised to set-up Clearing Corporation / settlement guarantee fund to ensure timelysettlements. SEBI organizes training programs for intermediaries in the securities market andconferences for investor education all over the country from time to time.

PORTFOLIO MANAGEMENT

What is New Product Portfolio Management?

A vital question in the product innovation battleground is, "How should corporations mosteffectively invest their R&D and new product development resources?" That is what portfoliomanagement is all about: resource allocation to achieve corporate product innovation objectives.

Today's new product projects decide tomorrow's product/market profile of the firm. An estimated50% of a firm's current sales come from new products introduced in the market within theprevious five years. Much like stock market portfolio managers, senior executives who optimizetheir R&D investments have a much better opportunity of winning in the long run. But how dowinning companies manage their R&D and product innovation portfolios to achieve higherreturns from their investments?


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There are many different approaches with no easy answers. However, it is a problem that everycompany addresses to produce and maintain leading edge products. Portfolio management fornew products is a dynamic decision process wherein the list of active new products and R&Dprojects is constantly revised. In this process, new projects are evaluated, selected, andprioritized. Existing projects may be accelerated, killed, or de-prioritized and resources are

allocated (or reallocated) to the active projects.

PHASES OF PORTFOLIO MANAGEMENT

Security AnalysisPortfolio Analysis

Portfolio Selection

Portfolio Revision

Portfolio Evaluation

Security Analysis

(a) Fundamental analysis: This analysis concentrates on the fundamental factors

affecting the company such as EPS (Earning per share) of the company, the dividend

payout ratio, competition faced by the company, market share, quality of management

etc.

(b) Technical analysis: The past movement in the prices of shares is studied to identify

trends and patterns and then tries to predict the future price movement. Current


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market price is compared with the future predicted price to determine the mispricing.

Technical analysis concentrates on price movements and ignores the fundamentals of

the shares.

(c) Efficient market hypothesis: This is comparatively more recent approach. This

approach holds that market prices instantaneously and fully reflect all relevant

available information. It means that the market prices will always be equal to the

intrinsic value.

Portfolio Analysis

A portfolio is a group of securities held together as investment. It is an attempt to

spread the risk allover. The return & risk of each portfolio has to be calculated

mathematically and expressed quantitatively. Portfolio analysis phase of portfoliomanagement consists of identifying the range of possible portfolios that can be

constituted from a given set of securities and calculating their risk for further

analysis.

Portfolio Selection

The goal of portfolio construction is to generate a portfolio that provides the highest

returns at a given level of risk. Harry Markowitzh portfolio theory provides both theconceptual framework and the analytical tools for determining the optimal portfolio

in a disciplined and objective way.

Portfolio Revision

The investor/portfolio manager has to constantly monitor the portfolio to ensure that

it continues to be optimal. As the economy and financial markets are highly volatile

dynamic changes take place almost daily. As time passes securities which were once

attractive may cease to be so. New securities with anticipation of high returns and

low risk may emerge.

Portfolio Evaluation


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Portfolio evaluation is the process, which is concerned with assessing the

performance of the portfolio over a selected period of time in terms of return & risk.

The evaluation provides the necessary feedback for better designing of portfolio the

next time around.

Measurement of risk

Risk refers to the possibility that the actual outcome of an investment will differ from the

expected outcome. In other words we can say that risk refers to variability or dispersion. If

any investment is said to invariable it means that it is totally risk free. Whenever we calculate

the mean returns of an investment we also need to calculate the variability in the returns.

Variance and Standard Deviation

The most commonly used measures of risk in finance are variance or its square root the

standard deviation. The variance and the standard deviation of a historical return series is

defined as follows:

n - 1

Beta

A measure of risk commonly advocated is beta. The beta of a portfolio is computed the

way beta of an individual security is computed. To calculate the beta of a portfolio,

regress the rate of return of the portfolio on the rate of return of a market index. The

slope of this regression line is the portfolio beta. It reflects the systematic risk of the

portfolio.


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GOALS OF PORTFOLIO MANAGEMENT

While the portfolio methods vary greatly from company to company, the common denominatoracross firms are the goals executives are trying to achieve. According to 'best-practice' researchby Dr. Cooper and Dr. Edgett, five main goals dominate the thinking of successful firms:

1. Value MaximizationAllocate resources to maximize the value of the portfolio via a number of key objectives such asprofitability, ROI, and acceptable risk. A variety of methods are used to achieve thismaximization goal, ranging from financial methods to scoring models.

2. BalanceAchieve a desired balance of projects via a number of parameters: risk versus return; short-termversus long-term; and across various markets, business arenas and technologies. Typical methodsused to reveal balance include bubble diagrams, histograms and pie charts.

3. Business Strategy AlignmentEnsure that the portfolio of projects reflects the companys product innovation strategy and thatthe breakdown of spending aligns with the companys strategic priorities. The three main

approaches are: top-down (strategic buckets); bottom-up (effective gatekeeping and decisioncriteria) and top-down and bottom-up (strategic check).

4. Pipeline Balance

Obtain the right number of projects to achieve the best balance between the pipeline resourcedemands and the resources available. The goal is to avoid pipeline gridlock (too many projectswith too few resources) at any given time. A typical approach is to use a rank ordered priority listor a resource supply and demand assessment.

5. SufficiencyEnsure the revenue (or profit) goals set out in the product innovation strategy are achievablegiven the projects currently underway. Typically this is conducted via a financial analysis of thepipelines potential future value.

WHAT ARE THE BENEFITS OF PORTFOLIO MANAGEMENT?

When implemented properly and conducted on a regular basis, Portfolio Management is a highimpact, high value activity:

Maximizes the return on your product innovation investments Maintains your competitive position Achieves efficient and effective allocation of scarce resources Forges a link between project selection and business strategy Achieves focus Communicates priorities Achieves balance Enables objective project selection


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Top performers emphasize the link between project selection and business strategy.

Why is it so important?

Companies without effective new product portfolio management and project selection face a

slippery road downhill. Many of the problems that plague new product development initiatives inbusinesses can be directly traced to ineffective portfolio management. According tobenchmarking studies conducted by Dr. Cooper and Dr. Edgett, some of the problems that arisewhen portfolio management is lacking are:

Projects are not high value to the business Portfolio has a poor balance in project types Resource breakdown does not reflect the product innovation strategy A poor job is done in ranking and prioritizing projects There is a poor balance between the number of projects underway and the resources

available

Projects are not aligned with the business strategy

As a result too many companies have:

Too many projects underway (often the wrong ones) Resources are spread too thin and across too many projects Projects are taking too long to get to market, and The pipeline has too many low value projects

Portfolio Management is about doing the right projects. If you pick the right projects, the result isan enviable portfolio of high value projects: a portfolio that is properly balanced and most

importantly, supports your business strategy.

THE CHALLENGES OF IMPLEMENTING PORTFOLIOMANAGEMENT

When implementing a change programmed to introduce or improve portfolio management (PM),

there are the inevitable issues associated. However, with PM, the issues may be even moreacutely felt because the most senior executives in the enterprise are often the people personallyinvolved in and affected by the change. This article describes some of the typical issues that arisewhen introducing PM practices, and identifies how they can be overcome, based on sharedexperience, and tried and tested practices.


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Democracy Is Not Easy

The goal of PM is to ensure that an enterprise secures optimal value across its portfolio of (IT-enabled) investments. Implementing PM, as described in Val IT, will result in much greatertransparency of the investment decisions that executives currently make behind closed doors.This may expose the business cases they personally sponsored as flawed and will highlight the

programs that are failing. They will initially feel uncomfortable and perhaps defensive orresistant to such transparency. They may, however, also recognize that the processes they werefollowing carry a high risk of failure, in terms of lost value or wasted resources. Business casesmay have been getting funding with little more than the cursory filling in of a token template anda compelling presentation to the board. What is certain is that without the understanding andsponsorship of executivesthose who make the investment decisionsimplementing PM willbe extremely difficult and is unlikely to be effective. PM involves far-reaching changes toprocesses, mindsets, policies and governance; the executives have to both buy into the changeand play a critical role in communicating the need for change to the rest of the enterprise.

Getting Good Information Also Is Not Easy

Doing PM well relies on the availability and intelligent use of sufficient, accurate and timely datato describe the items in the portfoliobe they candidate, planned or ongoing investments. PMalso means having a place to store all this data, preferably a central source that is regarded asbeing the single source of this data and under change control. Having a single source forreporting also enables the elimination of the double counting that may otherwise arise if eachprogram is permitted to use different sources of data and measures for its reports.

Not all Portfolios Are Equal

A portfolio is simply a logical grouping of investments. It is important to recognize thatportfolios can contain projects, programs or even other portfolios. Different categories ofinvestment need to be evaluated and managed differently, just as different questions need to beasked. A compliance/regulatory portfolio may need more scrutiny of costs, while a venture/growth portfolio may need more questions about potential benefits and risk. A portfolio ofenterprise change programs will need much more rigorous evaluation from a number ofperspectives than, for example, a portfolio of behind-the-scenes IT changes.

Portfolio management ought to take place wherever investment decisions are being made;however, the views of the portfolio and the questions that need to be answered will depend onwhose perspective affects the decisions. An enterprises alignment to corporate strategy may be a

score used to determine value at the board level, while alignment to IS/IT strategy will be ofprimary interest to the chief information officer.

An Additional Time Constraint on Busy Executives

Improving the way an enterprise creates and manages value is a change program in itself, whichwill need its own business case. Even with senior sponsorship and a strong appetite for positivechange, once the executives realize that the effort involved in doing things properly will, initiallyat least, require time and effort on their part, there is often nervousness, uncertainty and,sometimes, push-back.


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The executives may also struggle with the new data and processes involved and will needguidance, coaching and support. Of course, it may not be described as such!

The intention is to save these busy executives much more in terms of resources than mightotherwise be wasted by enabling them to allocate their scarce resources more wisely across theportfolio, with an acceptable level of risk and more in line with their target investment mix.Gathering lots of data and then putting them in front of those who make decisions is notnecessarily the right answer. Few executives are detail focused and very few would wish to be.They will simply see this data dump as an additional demand on their already overstretched time,or, worse, may feel unable to make a decision for fear of making the wrong one.

What is called for are the services of impartial experts who do not take the place of the decisionmakers, but who can offer insight, guidance and recommendations to the decision makers. Theseservices should be offered proactively and on-demand, so that they can answer questions,including: Are we doing the right things? Are we getting the benefits?

1

The home of such a service may be called a value management office, portfolio office or a

center of excellence. Whatever the title, its role is essentially that of trusted advisor or secretariatto those who make the investment decisions.

It Is Hard to Make Tough Decisions

In any maturity model that assesses an enterprises current level of PM capability, making a

decision to stop a program that is well underway appears only at the highest levels of maturity.This is for several reasons. Even when all the evidence points to a program failing, there is,inevitably, discussion of sunk costs, senior sponsorship, too much effort having gone in, or thesense of demotivation or embarrassment for those involved.

PM does not just mean making better investment decisions in the first place; it means constantly

seeking to make the best use of available resources and optimizing the value being deliveredfrom those resources. This means proactive management: monitoring the current state of theportfolio; revising the benefits; ensuring that resource and risk forecasts are in line with newinformation; and making decisions to start, accelerate, decelerate, suspend, replace or stop asappropriate. This requires a real change in mindsetto one that focuses on the next monetaryinvestment rather than the sunk costs. Although the portfolios status might be reviewedmonthly, clearly it would not make sense to execute big changes every month, as nothing wouldever get traction. Nor does it make sense to do planning only annually, especially in fast-movingcompetitive markets.

Software, While Important, Is Not the Main Issue

Once the decision has been made to do PM, where does the expertise come from? If theexpertise does not exist in-house, the enterprise may be tempted to immediately start a tenderingprocess for a supplier of PM services. These suppliers will offer a combination of consulting andsoftware, with the consulting primarily focused on the configuration, implementation and,sometimes, management of the software. Some enterprises award contracts of this type, only toget frustrated some months after implementation when programs are still failing, and doubt isthen cast on the value of doing PM and the software that was acquired.
http://www.isaca.org/Journal/Past-Issues/2009/Volume-1/Pages/The-Challenges-of-Implementing-Portfolio-Management1.aspx#1http://www.isaca.org/Journal/Past-Issues/2009/Volume-1/Pages/The-Challenges-of-Implementing-Portfolio-Management1.aspx#1http://www.isaca.org/Journal/Past-Issues/2009/Volume-1/Pages/The-Challenges-of-Implementing-Portfolio-Management1.aspx#1http://www.isaca.org/Journal/Past-Issues/2009/Volume-1/Pages/The-Challenges-of-Implementing-Portfolio-Management1.aspx#1


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Designing and implementing a software package and filling it with data are not worth doing untilit has been confirmed that all the other essential elements and resources are in place or can besecured, in terms of sponsorship, appetite, stakeholder involvement, process and governancechanges, and changes to support the implementation.

SECTORS

CONSTRUCTION

India is on the verge of witnessing a sustained growth in infrastructure

build up. The construction industry has been witness to a strong growth

wave powered by large spends on housing, road, ports, water supply andairport development. The construction sector has registered double digit

growth during the last few years and its share as a percentage of GDP has

increased considerably as compared to the last decade. The Planning

Commission of India has proposed an investment of around US$ 1 trillion

in the Twelfth five-year plan (2012-2017), which is double of that in the

Eleventh five-year plan.

From a policy perspective, there has been a growing consensus that a

private-public partnership is required to remove difficulties concerning the

development of infrastructure in the country. During the first two years ofthe eleventh five-year plan (2007-2012), the share of private players in the

total investment was 34%. This is higher than the target of 30% for the

eleventh five-year plan. During the twelfth five-year plan, the contribution

of private sector in total infrastructure investment is expected to increase

to 50%. The balance will be borne by the public sector.

The construction sector is a major employment driver, being the second

largest employer in the country, next only to agriculture. This is because

of the chain of backward and forward linkages that the sector has with

other sectors of the economy. About 250 ancillary industries such ascement, steel, brick, and timber and building material are dependent on

the construction industry. A unit increase in expenditure in this sector has

a multiplier effect and the capacity to generate income as high as five

times.


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Key points

Supply Past 4-5 years have seen a substantial increase in the number of

contractors and builders, especially in the housing and road

construction segment.

Demand Demand exceeds supply by a large margin. Demand for quality

infrastructure construction is mainly emanating from the housing,

transportation and urban development segments..

Barriers to entry Low for road and housing construction. However, high working

capital requirements can create growth problems for companies with

weak financial muscle.

Bargaining powerof suppliers

Low. Due to the rapid increase in the number of contractors andconstruction service providers, margins have been stagnant despite

strong growth in volumes.

Bargaining power

of customers

Low. The country still lacks adequate infrastructure facilities and

citizens have to pay for using public services.

Competition Very high across segments like road construction, housing and urban

infrastructure development. Relatively less in airport and port

development.


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Prospects

India is on the verge of witnessing a sustained growth in infrastructure buildup.

Infrastructure investments continue to be the most important growth driver forconstruction companies. The proposed increase in allocation in the twelfth five-year plan

(2012-2017) will translate into a healthy business for construction companies.

Real estate investments account for majority of the total construction investments.

Demand-supply gap for residential housing, favorable demographics, rising affordability

levels, availability of financing options as well as fiscal benefits available on availing of

home loan are the key drivers supporting the demand for residential construction.

According to the Technical Group on Estimation of Housing Shortage estimates, there

would be shortage of 26.53 m houses during the Eleventh Five Year Plan (2007-12),

which provides a big investment opportunity. In addition to this, demand for office space

from IT/KPO segment is expected to continue due to emergence of India as a preferred

outsourcing destination. Also, boom in organized retail is expected to result in huge

demand for real estate construction.

While long-term factors are likely to work in favors of the real estate developers, the

outlook for the short term remains bleak. The double whammy of plunging sales and

rising costs has taken their toll on the profitability of real estate majors. Also, banks

turned cautious towards rescheduling debt or issuing fresh loans to real estate

companies, as an aftermath of the bribe-for-loan scam. Prices of steel, cement and labor,which together make for almost 75% of overall construction cost, have risen by over

30% since 2009. Upward spiraling cost of construction materials has put great pressure

on project execution, in turn leading to project delays. Entry into affordable housing is

likely to pressurize margins but would arrest the free fall in topline as witnessed during

the downturn.

Larsen & Toubro (L&T) is Indias largest technology, engineering, manufacturing and

construction organization with a record of over 70 years. L&T is also adjudged Indias

best managed and most respected company on various attributes of customer delight andshareholder value.
http://www.lntecc.com/home.htm


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L&T Construction is the largest construction organization in the country. It figures

among the Worlds 77th Top Contractors and ranks 29th in global ranking as per the

survey conducted by the reputed international construction magazine Engineering News

Record, USA (August 2010).

L&T Constructions cutting edge capabilities cover every discipline of construction

civil, mechanical, and electrical and instrumentation engineering and services extend to

large industrial and infrastructure projects from concept to commissioning.

L&T Construction has played a prominent role in Indias industrial and infrastructure

development by executing several projects across length and breadth of the country and

abroad. For ease of operations and better project management, in-depth technology and

business development as well as to focus attention on domestic and international project

execution, entire operations of L&T Construction are structured into four Independent

Companies.

Building & Factories

The Buildings & Factories Independent Company is equipped with the domain knowledge,

requisite expertise and wide-ranging experience to undertake Engineering, Procurement and

Construction (EPC) of all types of building and factory structures.

Infrastructure

The Infrastructure Independent Company undertakes construction of heavy civil projects

meeting international standards of quality. EPC services are offered for transportationinfrastructure projects like roads, runways, bridges, metros, ports as well as hydel and

nuclear power projects.

PHARMACEUTICALS

The Indian Pharmaceutical industry is highly fragmented with about24,000 players (around 330 in the organised sector). The top ten

companies make up for more than a third of the market. The Indian

pharma industry grew by a robust 18% YoY in 2011 to ` 565 bn (approx.

US$ 12.5 bn). It accounts for about 1.4% of the world's pharma industry

in value terms and 10% in volume terms.


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Besides the domestic market, Indian pharma companies also have a large

chunk of their revenues coming from exports. While some are focusing on

the generics market in the US, Europe and semi-regulated markets, others

are focusing on custom manufacturing for innovator companies.

Biopharmaceuticals is also increasingly becoming an area of interest given

the complexity in manufacture and limited competition.

The drug price control order (DPCO) continues to be a menace for the

industry. There are three tiers of regulations - on bulk drugs, on

formulations and on overall profitability. This has made the profitability

of the sector susceptible to the whims and fancies of the pricing authority.

The new Pharmaceutical Policy 2006, which proposes to bring 354

essential drugs under price control has not been officially passed as yet

and has been stiffly opposed by the pharmaceutical industry.

The R&D spends of the top five companies is about 5% to 10% ofrevenues. This ratio is still way below the global average of 15% to 20%

of sales. Indian companies have adopted various strategies for their R&D

efforts. Some have entered into collaboration and partnership agreements

with innovator companies; others have out-licensed their molecules for

milestone payments. Hiving off R&D units into separate companies has

also become a preferred option for many Indian pharma players. That said,

given that the research pipelines of Big Pharma are drying up, they have

now begun to dabble in generics. In this regard, these innovator

companies are either buying out Indian firms or are forging alliances with

them.

Key Points

Supply Higher for traditional therapeutic segments, which istypical of a developing market. Relatively lower forlifestyle segment.

Demand Very high for certain therapeutic segments. Will changeas life expectancy, literacy increases.

Barriers to entry Licensing, distribution network, patents, plant approvalby regulatory authority.

Bargaining

power of

suppliers

Distributors are increasingly pushing generic products ina bid to earn higher margins.


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Bargaining

power of

customers

High, a fragmented industry has ensured that there iswidespread competition in almost all product segments.(Currently also protected by the DPCO).

Competition High. Very fragmented industry with the top 300 (of24,000 manufacturing units) players accounting for 85%of sales value. Consolidation is likely to intensify.

Prospects

The product patents regime heralds an era of innovation and research

resulting in the launch of new patented product launches. In the longer

run, domestic companies would face fresh competition from MNCs, as

they would make aggressive new launches. However, the latter would

most likely be subject to price negotiation.

Drugs having estimated sales of over US$ 100 bn are expected to go off

patent between CY10 and CY14. With the governments in the developed

markets looking to cut down healthcare costs by facilitating a speedy

introduction of generic drugs into the market, domestic pharma

companies will stand to benefit. However, despite this huge promise,

intense competition and consequent price erosion would continue to

remain a cause for concern.

The life style segments such as cardiovascular, anti-diabetes, anti-

depressants and anti-cancers will continue to be lucrative and fast

growing owing to increased urbanisation and change in lifestyle patterns.High growth in domestic sales in the future will depend on the ability of

companies to align their product portfolio towards the chronic segment as

the lifestyle diseases like hypertension, congestive heart failure,

depression, asthma, and diabetes are on the rise.


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Contract manufacturing and research (CRAMS) is expected to gain

momentum going forward. Indias competitive strengths in research

services include English-language competency, availability of low cost

skilled doctors and scientists, large patient population with diverse

disease characteristics and adherence to international quality standards.

As for contract manufacturing, both global innovators and generic majors

are finding it profitable to outsource production. Although the scenario

has yet not improved for this space after the financial crisis, it is expected

to improve going forward as the pressure to prune costs increases.

SUN PHARMACEUTICAL INDUSTRIES LTD.

We began as a startup with just five psychiatry brands in 1983. In the

time since, weve crossed several milestones to emerge as one of the

leading pharms companies in India, and one of the largest Indian

companies in the US generic market. In India were the largest

specialty prescription company and ranked 6th. In the US, we offer a

comprehensive portfolio of generics including controlled substances

and dermatological.

We are an international specialty pharms company, with a largepresence in the US and India, and a footprint across 40 othermarkets.

In the US, which is our largest market, we have built a strong pipelineof generics, directly and through our subsidiaries Carazo and SunPharmaceutical Inc. Taro add strong dermatology range to thisportfolio.

In India and rest of the world markets, our brands are prescribed inchronic therapy areas like cardiology, psychiatry, neurology,gastroenterology, dialectology etc. We are market leaders in specialtytherapy areas in India.

We retain the drive for growth that marked our early days, when wehad. begun in 1983 with just 5 products. Since then, we have crossedseveral milestones to emerge as a leading pharmacy companyin India where we are the 6 th largest by prescription sales, a rank thatwe have retained over a decade. (IMS ORG Stickiest Audit, Sept.2010)

Since the mid- nineties, we have used a combination of growth andacquisition to drive growth. Important acquisitions have included


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those of the US, Detroit-based Caraco Parma Labs and a plant at Halolwhich now holds UKMHRA and USFDA approvals. The 2010acquisition of Taro Pharmaceuticals doubles our US business andbrings us strengths in dermatology and pediatrics.

BANKING

The global financial system is still far away from a full recovery on

account of a slowdown in the US economy as well as the Euro debt crisis.

However, the Indian banking sector has been relatively well shielded bythe central bank and has managed to sail through most of the crisis with

relative ease. But, with the economic buoyancy the world over showing

signs of cooling off, the investment cycle has been wavering in the

country.

Public sector banks have been proactive in their restructuring initiatives be

it in technology implementation or pruning their loss assets. While the

likes of SBI have made already attempts towards consolidation, others are

keen to take off in that direction. Incremental provisioning made for asset

slippages have safeguarded the banks from witnessing a sudden impact ontheir bottomlines.

Retail lending (especially mortgage financing) that formed a significant

portion of the portfolio for most banks in the last two years lost some

weightage on the banks portfolios due to their risk weightage. However,

on the liabilities side, with better penetration in the semi urban and rural


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areas, banks garnered a higher proportion of low cost deposits thereby

economising on the cost of funds. However, the RBI recently deregulated

the savings account deposit rate. However only a few smaller private

sector banks have increased their rates while the others have maintained

status quo.

Apart from streamlining their processes through technology initiatives

such as ATMs, telephone banking, online banking and web based

products, banks also resorted to cross selling of financial products such as

credit cards, mutual funds and insurance policies to augment their fee

based income. They are also looking at various financial

inclusion initiatives in order to spread the use of financial services among

India's large unbanked population.

Key Points

Supply Liquidity is controlled by the Reserve Bank of India (RBI).

Demand India is a growing economy and demand for credit is high

though it could be cyclical.

Barriers to

entry

Licensing requirement, investment in technology and branch

network, capital requirements.

Bargaining

power of

suppliers

High during periods of tight liquidity. Trade unions in

public sector banks can be anti reforms. Depositors may

invest elsewhere if interest rates fall.

Bargaining

power of

customers

For good creditworthy borrowers bargaining power is high

due to the availability of large number of banks.

Competition High- There are public sector banks, private sector and

foreign banks along with non banking finance companies

competing in similar business segments. Plus the RBI is

planning to issue a few new banking licenses.
http://www.equitymaster.com/sfth/detail.asp?date=06/11/2011&story=3&title=Financial-inclusion-Bimal-Jalan-stylehttp://www.equitymaster.com/sfth/detail.asp?date=06/11/2011&story=3&title=Financial-inclusion-Bimal-Jalan-stylehttp://www.equitymaster.com/sfth/detail.asp?date=06/11/2011&story=3&title=Financial-inclusion-Bimal-Jalan-stylehttp://www.equitymaster.com/sfth/detail.asp?date=06/11/2011&story=3&title=Financial-inclusion-Bimal-Jalan-style


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Prospects

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. While, the government was

able to re-capitalize a few PSU banks in FY11, some of them especially SBI

still need to shore up their capital base.

In order to step up agricultural credit the target for bank credit has been

increased by Rs 1 trillion to Rs 4.8 trillion for FY12. Banks have been asked

to increase focus on credit lending to small and marginal farmers. Plus,

under the financial inclusion target, banking facilities will be provided to all

73,000 habitations having a population of over 2,000 during FY12.

New banking licenses are expected to be issued by the RBI to private sector

players. However, these licenses will only be awarded to certain players

meeting strict requirements on the capital, exposures, and corporate

governance front. Lots of players including NBFCs, industrial houses,

microfinance companies etc are all vying for this coveted license.

However, growth is still a concern for the banking sector in FY12 on

account of a slowdown in the economy as well as reduced demand for credit

on account of the current high interest rate environment. Asset qualityconcerns are also an issue especially in the infrastructure, power and real

estate space.

STATE BANK OF INDIA:

The Bank is actively involved since 1973 in non-profit activity called

Community Services Banking. All our branches and administrative officesthroughout the country sponsor and participate in large number of welfare

activities and social causes. Our business is more than banking because we

touch the lives of people anywhere in many ways.

Our commitment to nation-building is complete & comprehensive.

State Bank of India (SBI) is the nation's largest and oldest bank. Tracing its
http://www.equitymaster.com/detail.asp?date=08/30/2011&story=4&title=Coming-soon-New-private-sector-bankshttp://www.equitymaster.com/detail.asp?date=08/30/2011&story=4&title=Coming-soon-New-private-sector-banks


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roots back some 200 years to the British East India Company (and initiallyestablished as the Bank of Calcutta in 1806), the bank operates more than13,500 branches within India. It also owns majority stakes in five associatebanks. SBI also has more than 155 branches in about 30 foreign countries,including multiple locations in the US, Canada, and Nigeria. The bank has

other units devoted to capital markets, fund management, factoring andcommercial services, credit cards, insurance, and brokerage services. TheReserve Bank of India owns about 60% of State Bank of India.

Key numbers for fiscal year ending March, 2011:Sales: $32,570.0MOne year growth: 9.6%Net income: $2,462.9MIncome growth: (7.7%)

Officers:

Chairman: Om Prakash BhattManaging Director and Group Executive (Corporate Banking): TaraShankar (T.S.) BhattacharyaDeputy Managing Director, Information Technology: R.P. Sinha


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RESEARCH METHODOLGY

Research Methodology is a very organized and systematic medium through which aparticular case or problem can be solved efficiently.

It is analytical, descriptive and quantitative research where the comparison between thedifferent securities is made on the basis of risk, volatility and return.

It is a step-by-step logical process, which involves: Defining a problem Laying the objectives of the research Sources of data Methods of data collection Data analysis & processing Conclusions & Recommendations

For data collection purpose the secondary source is used like factsheet, books, websites. Research inculcates scientific and inductive thinking and it promotes the development of

logical habits of thinking and organization.

Methodology Used:

Descriptive Analytical Research

Under this type the researcher has to use the facts and information already available andanalyse them to make evaluation of the market.

In analytical research the researcher has to use the facts already available, and analysethese to make the critical evaluation data of the material.

Data has been collected from the Fact sheet of the various mutual fund schemes and usedthose data s for the research. In fact sheet past returns were given of different funds.

Data also included value of risk measuring instruments like Standard Deviation, Beta etcfrom the secondary data from the websites such as www.valueresearchonline.com.

FINDINGS AND ANALYSIS The collection of information is based on the secondary probe. The information has been collected through various books, studies and annual reports of

various institutions like Reliance, IDBI, ICICI, and HDFC etc. In addition variousjournals, magazines, articles, books, published documents have also been considered inthe project work.

An attempt has been made to evaluate the performance of the selected stocks Performance of stocks has been evaluated by using the following performance measures

(a) Risk (b) S.D. (c) Beta (d) Jensen alpha (e) Sharpe Ratio.


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The analysis of sector, industries, shares can be done through fundamental, and technicalcharts

LIMITATIONS

To get an insight in the process of portfolio allocation and deployment of funds by fundmanager is difficult.

The project is unable to analyze each and every stock to create the ideal portfolio. The portfolio of stocks can change according to the market conditions. There are following challenge have to face while portfolio management:

Democracy Is Not Easy Getting Good Information Also Is Not Easy Not all Portfolios Are Equal An Additional Time Constraint on Busy Executives It Is Hard to Make Tough Decisions Software, While Important, Is Not the Main Issue


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RESEARCH/STUDY

LARSEN AND TOUBRO:

Analysis:In this we get the information regardingLarsen and Toubrothroughfundamental details along

with the technical charts.

Through fundamental we get information of company potential, growth, market share etc. and

through technical charts we get the information of movement of share price.

Downtrend Cup pattern


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Through technical charts we get the downtrend, it show the price of share will decrease for a

long time and because of the December effect the price of share went down and after one week

of January again the price of share go up side and it forms a cup pattern that means the price of

share will increase.

Every time the share price moves ups and down and every times the patterns change so we cantpredict the exact price. This is one reason while managing portfolio.

STATE BANK OF INDIA:

DowntrendCup pattern


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Analysis:

In this we get the information regardingState Bank of Indiathroughfundamental details along

with the technical charts.



Through technical charts we get the downtrend, it show the price of share will decrease for along time and because of the December effect the price of share went down and after one week

of January again the price of share go up side and it forms a cup pattern that means the price of

share will increase.

Every time the share price moves ups and down and every times the patterns change so we cant

predict the exact price. This is one reason while managing portfolio.


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Cup & handle

Sun Pharmaceutical Industries Ltd.:

Sun Pharmaceutical Industries Ltd. - Key Fundamentals

Analysis:

Market cap (Rs cr.): 54772 Latest Div. (%): 350.00

EPS-TTM (Rs.) 15.22 Div. Yield (%): 0.66

P/E Ratio (x) 35.06 Book Value /sh. (Rs.): 64.51Face Value (Rs.) 1.00 P/B Ratio (x): 8.20

Uptrend


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In this we have information regardingSun Pharmaceutical Industries Ltd. throughfundamental

details along with the technical charts.



Through technical charts we get the cup and handle patterns that means the share price will go up

and it defiantly go up and after that it goes down because of January effect. After one week of

the share price again go up.

After December month the charts is making the Uptrend that means the price of the share may

increase.

Every time the share price moves ups and down and every times the patterns change so we cant

predict exact price. This is one reason while managing portfolio.


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CONCLUSION

This research paper talks about financial market, portfolio management. In this the paper

includes 3 different companies of different sectors based on that we made a portfolio and check

the movemen

reading the financial markets

Documents