Investments Analysis

MBA(FinTech): Trimester-II

GITAM Institute of Management

GITAM University

3rd October 2017

Leben Johnson
Investments Analysis
Financial System
Capital Formation

Savings Investments
Financial
Intermediaries

Saving Surplus Saving Deficit

Economic Units Economic Units

Investments Analysis
Functions of Financial System

Pooling of Funds
Capital Formation
• Main Financial Activity
Facilitates Payment

Provides Liquidity
Short and Long Term Needs

Risk Functions
Better Decisions
Finances Government Needs
• Leads to Economic Development
Economic Development

Investments Analysis
Organization of Financial System

FINANCIAL INTERMEDIARIES
1 - Banks, NBFCs, Mutual Funds, Insurance

FINANCIAL MARKETS
2 Money Markets, Capital Markets

FINANCIAL ASSETS/ INSTRUMENTS

3 Primary, Indirect, Derivatives

Investments Analysis
Financial Intermediaries: Services

• Convenience
• Lower Risk
• Expert Management
• Economies of Scale

Investments Analysis
Financial Markets

• Money Markets
– Monetary assets of short term duration
• Call Market
• Treasury Market
• Commercial Bills/Paper
• Repo
• Certificate of Deposit
• Capital Markets
– Primary (New Issues) Market
– Secondary Market
Investments Analysis
Financial Assets/Instruments

• Primary/Direct Securities
– Ordinary Shares
– Preference Shares
– Debentures
– Innovative Debt Instruments
• Participating Debentures
• Convertible Debentures
• Debt Equity Swaps …etc
• Indirect Securities
– Mutual Funds
– Securitized Debt
• Derivatives
– Forwards
– Futures
– Options
Investments Analysis
Indian Financial System: Phases

• Pre 1951: Post independence

– Lacked Financial Intermediaries
• 1951 to mid-eighties: Planned Economic Growth
– Mixed (public, private) Economy
– Public(Govt.) ownership of Financial Institutions.
– Fortification of Institutional Structure
– Investor Protection
– Participation of Financial Inst. in Corp. Mgmt.
• 1991: Liberalization/Deregulation/Globalization
Investments Analysis
Circular Flow Model Of Economy

Investments Analysis
The Financial System

Investments Analysis
Principal of Finance

Present Value of Future Cash Flows > Proposed Investment Costs

Investments Analysis
Risk-Return Tradeoff
Risk Measures
• Standard Deviation, Variance
σ=

Variance =
• Beta

Where is the correlation coefficient

Investments Analysis
And is the covariance
Risk-Return Tradeoff

Return Measures
• Dividend/Interest Yield
r = Dividend / Invested Amount
• Capital Yield
r = (Ending Price – Invested Price) / Invested Price

Investments Analysis
Risk-Return Tradeoff

Inflation and Real Interest Rates

1 + Real Rate = (1+ Nominal Rate)/(1+ Inflation Rate)

Investments Analysis
Relationship of Finance to Economics

Macro Economics

Micro Economics

Finance = Applied
Micro Economics

Investments Analysis
Relationship of Finance to Accounting

Score Keeping Vs Value Maximising

Accrual Method Vs Cash Flow Method
Certainty Vs Uncertainty

Investments Analysis