Securities and Exchange Board of India (SEBI) has a primary responsibility of regulating and supervising the capital market. It has introduced a number of reforms for the control and supervision of capital market and investors protection. Primary Market Reforms by the SEBI The Securities and Exchange Board of India (SEBI) has introduced various guidelines and regulatory measures for capital issues for healthy and efficient functioning of capital market in India. The issuing companies are required to make material disclosure about the risk factors, in their offer documents and also to get their debt instruments rated. Steps have been taken to ensure that continuous disclosures are made by firms so as to enable to investors to make a comparison between promises and performance. The merchant bankers now have greater degree of accountability in the offer document and the issue process. The due diligence certificate by the lead manager regarding disclosure made Continue reading
Investment Analysis
Diversification of Securities in Portfolio Investments
Reduction of Risk through Diversification of Securities The process of combining securities in an investment portfolio is known as diversification. The aim of diversification of securities is to reduce total risk without sacrificing portfolio return. To understand the mechanism and power of diversification, it is necessary to consider the impact of co-variance or correlation on portfolio risk more closely. We shall examine three cases: (1) when security returns are perfectly positively correlated, (2) when security returns are perfectly negatively correlated and (3) when security returns are not correlated. Diversification means, investment of funds in more than one risky asset with the basic objective of risk reduction. The lay man can make good returns on his investment by making use of technique of diversification. Main forms of Diversification of Securities Simple Diversification, Over Diversification, Efficient Diversification. 1. Simple Diversification It involves a random selection of portfolio construction. The common man could Continue reading
Portfolio Analysis in Investment Portfolio Management
The main aim of portfolio analysis in investment portfolio management is to give a caution direction to the risk and return of an investor on portfolio. Individual securities have risk return characteristics of their own. Therefore, portfolio analysis indicates the future risk and return in holding of different individual instruments. The portfolio analysis has been highly successful in tracing the efficient portfolio. Portfolio analysis considers the determination of future risk and return in holding various blends of individual securities. An investor can sometime reduce portfolio risk by adding another security with greater individual risk than any other security in the portfolio. Portfolio analysis is mainly depending on Risk and Return of the portfolio. The expected return of a portfolio should depend on the expected return of each of the security contained in the portfolio. The amount invested in each security is most important. The portfolio’s expected holding period value relative Continue reading
Major Participants and Players in Financial Markets
In the financial markets, there is a flow of funds from one group of parties (funds-surplus units) known as investors to another group (funds-deficit units) which require funds. However, often these groups do not have direct link. The link is provided by market intermediaries such as brokers, mutual funds, leasing and finance companies, etc. In all, there is a very large number of players and participants in the financial market. These can be grouped as follows : The individuals: These are net savers and purchase the securities issued by corporates. Individuals provide funds by subscribing to these security or by making other investments. The Firms or corporates: The corporates are net borrowers. They require funds for different projects from time to time. They offer different types of securities to suit the risk preferences of investors’ Sometimes, the corporates invest excess funds, as individuals do. The funds raised by issue of Continue reading
The Dow Jones Theory on Stock Market Movements
The Dow Jones Theory The Dow Jones Theory is probably the most popular theory regarding the behavior of stock market prices. The Dow Jones theory has been around for almost 100 years, yet even in today’s volatile and technology-driven markets, the basic components of this theory still remain valid. The theory derives its name from Charles H. Dow, who established the Dow Jones & Co. and was the first editor of the Wall Street Journal — a leading publication on financial and economic matters in the U.S.A. Although Dow never gave a proper shape to the theory, ideas have been expanded and articulated by many of his successors. The Dow Jones theory classifies the movement of the prices on the share market into three major categories: Primary Movements, Secondary Movements and Daily Fluctuations. 1) Primary Movements: They reflect the trend of the stock market and last from one year Continue reading
What is Stock’s Beta?
An investor is concerned with the risk of his entire investment portfolio, and that the relevant risk of a particular security is the effect that the security has on the entire portfolio. By “diversified portfolio” we mean that each investor’s portfolio is representative if the market as a whole and that the portfolio Beta is 1.0. Stock’s Beta indicate how closely the security’s returns move with from a diversified portfolio. A beta of 1.0 for a given security means that, if the total value of securities in the market moves up by 10 percent, the stock’s price will also move up, on the average by 10 percent. If security has a beta of 2.0, its price will, on the whole, rises or falls by 20 percent when the market rises or falls by 10 percent. A share with —0.5 percent beta will rises by 10 percent, when the market falls Continue reading