Portfolio Management – An Introduction and Process

Portfolio Management: Meaning, Evolution, Phases, Role of Portfolio Managers, Advantages of Portfolio Management.

Investment Environment in India and Factors Conducive for Investment in India.

Portfolio Analysis: Meaning and its Components, Calculation of Expected Return and Risk, Calculation of Covariance, Risk – Return Trade off.

Portfolio Selection: Meaning, Feasible Set of Portfolios, Efficient Set of Portfolios, Selection of Optimal Portfolio, Markowitz Model, Limitations of Markowitz Model, Measuring Security Return and Portfolio Return and Risk under Single Index Model and Multi Index Model.

Portfolio Evaluation: Meaning, Need, Measuring Returns.

(Sharpe, Treynor and Jensen Ratios) and Decomposition of Performance.

Bond Valuation: Meaning, Measuring Bond Returns, Yield to Maturity, Yield to Call and Bond Pricing. Bond Pricing Theorems, Bond Risks and Bond Duration. (Practical Problems on YTM and Bond Duration.)

Company Analysis: Financial Statements, Analysis of Financial Statements, (Practical questions on Debt Equity Ratios, Total Debt Ratio, Proprietary ratios, interest coverage ratio, Profitability ratios related to sales, investment and equity shares Efficiency or Activity Ratios) and Assessment of risk (Leverages).

Mathematical Indicators: Calculation of Moving Averages (Simple and Exponential Moving Average), Oscillators and Relative Strength Index.

Market Indicators.

Fundamental Analysis V/s Technical Analysis.

The Efficient Market Hypothesis.

Forms of Market Efficiency.

Competitive Market Hypothesis.

CAPM: Fundamental Notions of Portfolio Theory, Assumption of CAPM, Efficient Frontier with Riskless Lending and Borrowing, Capital Market Line, Security Market Line and Pricing of Securities with CAPM.

Arbitrage Pricing Theory (APT): The Return Generating Model, Factors Affecting Stock Return, Expected Return on Stock, APT V/s CAPM.

¨          Meaning and Definition of Finance

¨          Importance of Finance

¨          Types of Finance: Public and Private

¨          Sources of Finance:

(1)       Long Term Sources: Term Loans, Debentures, Bonds, Zero Coupon Bonds, Convertible Bonds, Equity Shares, Preference Shares, CD, CP, Public Deposits.

(2)       Short Term Sources: Bank Finance, Trade Credit, Other Short Term Sources.

(3)       Venture Capital and Hybrid Financing.

(B)       Financial Management:

¨          Meaning and Importance of Financial Management.

¨          Scope of Financial Management.

¨          Functions and Objectives of Financial Management.

¨          Primary Objective of Corporate Management.

¨          Agency Problem.

¨          Organization of Finance Function.

¨          Emerging Role of Finance Managers in India.

(C)       Objectives of the Firm:

¨          Profit Maximization and Shareholders Wealth Maximization.

¨          Profit v/s Value Maximization.

¨          Introduction.

¨          Financial Forecasting – Meaning, Techniques, Benefits.

¨          Approaches to Financial Planning.

¨          Economic Value Added (EVA) – Measurement and Components.

¨          Free Cash Flow (FCF).

¨          Concept.

¨          Present Value.

¨          Annuity.

¨          Techniques of Discounting.

¨          Techniques of Compounding.

¨          Nature of Capital Budgeting.

¨          Purpose of Capital Budgeting.

¨          Capital Budgeting Process.

¨          Types of Capital Investment.

¨          Basic Principle of Measuring Project Cash Flows.

¨          Increment Principle, Long Term Funds Principle, Exclusion of Financial Cost Principle, Post Tax Principle.

¨          Probability Technique for Measurement of Cash Flow.

¨          Capital Budgeting Techniques: Net Present Value; Profitability Index and Discounted Payback Method.

¨          A Comparison: Project Selection Under Capital Rationing.

(Note: Problems on computation of cash flow, ranking of projects on various techniques, selection and analysis with / without capital rationing.)

¨          Introduction and Definition of Cost of Capital.

¨          Measurement of Cost of Capital.

¨          Measurement of WACC using book value and market value method.

¨          Measuring Marginal Cost of Capital.

(B)       Capital Structure Decisions:

¨          Meaning and Choice of Capital Structure.

¨          Importance of Optimal Capital Structure.

¨          EBIT-EPS Analysis.

¨          Capital Structure Theories.

¨          Dividend  Policies (Walter and Gordon).