Security Analysis

1. SECURITY ANALYSIS
Presented by
Simran Kaur
MBA 2nd year
IGICM

2. CONTENTS
• Capital Market
• Market of Securities
• Stock exchange & New issue market
• Trading of securities
• Equity
• Debentures
• SEBI
• Investment and Investors
• Aims and Approaches of security analysis

3. Capital Market
• Also known as “Securities market”
• Market for long term funds
• Supported by forum for equity and debt transactions
• Comprises of:
1. Stock/security exchanges/markets(secondary markets)
2. New issue/primary markets(initial public offering markets)

4. Market of Securities
• Market where securities can be bought and sold on the basis of
demand and supply
• Advantage to both investors and issuers
• Securities available for first time – primary securities market
• Existing securities transferred between parties – secondary market

5. Stock exchange & New issue markets
• New issue market deals in new securities while stock exchange is a
market for old securities.
• New issue market supplies funds to corporate enterprise directly
whereas Stock exchange play indirect role in industrial financing
by providing liquidity to investments already made
• Stock exchange has physical existence whereas new issue market
doesn’t have any organizational setup.

6. Stock exchange & New issue market(contd.)
• Functions of stock exchange
1. Nexus between savings and investments
2. Market place
3. Continuous price formation
• Functions of New issue market
1. Origination
2. Underwriting
3. Distribution

7. Trading of Securities
• Class of asset used by company to create profits by buying and
selling
• Very liquid and easily valued
• Marked to market
• Borrowing money to execute securities transaction is referred to
as using margin

8. Equity
• Concept
“long-term finance, representing ownership capital/securities to its
owners(equity holders/ordinary shareholders) share reward and risk
associated with ownership of corporate enterprises”
• Types
1. Authorized share capital
2. Subscribed Share capital

9. Equity(contd.)
• Features
1. Residual claim to income
2. Residual claim on assets
3. Right to control
• Merits
1. Permanent source of funds
2. Doesn’t involve obligatory dividend payment
3. Basis of long-term financing

10. Equity(contd.)
• Demerits
1. Higher cost of funds
2. High floatation cost
3. Dilution of control of existing shareholders

11. Debentures
• Definition
“debt instrument indicating company has borrowed certain sum of
money and promises to repay it in future”
• Attributes
1. Interest
2. Trust indenture
3. Maturity
4. Security

12. Debentures(contd.)
5. Debenture redemption reserve
6. Call price
7. Call premium
• Advantages
1. Lower cost
2. No dilution of control
• Disadvantages
1. Restrictive covenants in trust deed

13. Debentures(contd.)
2. Increased financial risk
3. High cost of quality
4. Legally enforceable contractual obligations

14. SEBI
• Introduction
1. Securities Exchange Board of India
2. Set up in 1988
3. Legal status in 1992
4. Orderly and healthy development in stock market
• Objectives
1. Regulate activities of stock exchange

15. SEBI(contd.)
2. Protect rights of investors
3. Prevent fraudulent and malpractices
4. Develop code of conduct for intermediaries
• Functions
1. Protective functions
 Checks price rigging
 Prohibits insider trading

16. SEBI(contd.)
 Prohibits Unfair trade practices
 Educate investors
 Code of conduct in security market
2. Developmental functions
 Training of intermediaries
 Promote activities of stock exchange
3. Regulatory functions
 Working of mutual funds

17. SEBI(contd.)
 Conduct inquiries and audit of stock exchange
 Takeover of companies
 Rules for intermediaries
• Role of SEBI in mutual funds
1. SEBI notified regulations for mutual funds in 1993
2. All mutual funds governed by SEBI
• Role of SEBI in IPO
1. Company going public should have permission from SEBI

18. SEBI(contd.)
2. SEBI validate IPO by making sure document has enough
information
• Protection guidelines by SEBI
1. Eligibility norms for companies issuing security
2. Pricing by companies issuing securities
3. Pre issue obligations
4. Contents of offer document

19. Investment and Investors
• Definition
“Making of a sacrifice in the present with the hope of deriving
future benefits”
• Nature of Investment decisions
1. Assumed that investors are rational and prefer uncertainty
2. Assumed that investors are risk takers
• Investment process
1. Work out objective and then evolve policy

20. Investment and Investors(contd.)
2. Identification of categories of financial assets
3. Security analysis
4. Portfolio construction
5. Speculation
• Types of Investors
1. Angel investors
2. Peer-to-peer lending

21. Investment and Investors(contd.)
3. Bank
4. Venture capitalist
5. Personal investors
• Investor protection
1. Assure investors not being defrauded
2. Investors informed about their purchase
3. Measured by indicators such as reorganization laws, SEBI
guidelines

22. Aims & approaches of Security analysis
• Aims
1.Regular income
2. Capital appreciation
3. Safety of capital
4. Liquidity
5. Hedge against inflation
• Approaches
1. Fundamental analysis

23. Aims & Approaches of Security
analysis(contd.)
2. Technical analysis
3. Fair game model

24. THANK YOU!!!