SAPM-P09

SAPM-P09
(PGDM 2009-11: Term -IV)

Security Analysis and Portfolio Management (SAPM)
Facilitator: Prof. Shridhar Dash,
Email: shridhar@ximb.ac.in,
Credit: 3

Introduction
A successful investor is one who sees the future before anybody else sees. The subject would help in structured thinking about how surplus capital is invested to generate adequate return by investing in asset markets.

The course would provide understanding of theoretical concepts in the field of investment management and how these theories applied in real life. Students would learn how to use the concepts they have already learned in Accounting, Financial Management, and Macroeconomics courses in investment management. For the purpose of investment management, financial assets can be grouped into major asset classes: Equities, Fixed Income Securities, and Derivatives, Alternative Investments (Real Estate, Venture Capital, Private Equities, and International Investments etc.). In this course we will focus mostly on Equities.

We will cover the following topics in the course: asset allocation, portfolio optimization, asset pricing, portfolio management, market efficiency and behavioral finance, portfolio performance measurement, valuation of stocks, and equity research.

Recommended Text
· Investments, Special Indian Edition, 6th Edition, by Bodie, Kane, Marcus and Mohanty, Tata McGraw Hill, 2006. (BKMM hereafter).
· Modern Portfolio Theory and Investment Analysis, by Elton and Gruber (EG hereafter)

Reference Book
· Financial Intelligence, Harvard Business School Press, by Karen Berman and Joe Knight
· The Intelligent Investor, Revised Edition, Collins Business Essentials, by Benjamin Graham
· Understanding Arbitrage: A Intuitive Approach to Financial Analysis, Wharton School Publishing, by Randall S. Billingsley

Evaluation
This course would be quantitative & qualitative in nature and develop on the concepts that are being taught in FM and other finance courses. I would suggest that the students who are good in QM and FM should take the course.

The following table is self-explanatory.

Components	Weights (%)
Class Participation	10%
Class Assignment (group exercise)	10%
Surprise Quizzes (about 3 surprise quizzes)	30%
Group Exercise (Industry Analysis)	20%
End Term	30%

The class participation marks will be heavily biased towards students attending all classes, and students contributing towards overall learning process of the class.

Class assignment would be evaluated on the basis of presentations made by the group inside the class on the given companies (name of the companies would be provided by me). I would decide on the spot who would present in the class, therefore everybody in the group should be prepared to present the groups view. The person absent on the class on the day of the presentation would get zero on this component (except medical emergencies).

The industry analysis should use the concepts that are discussed during the security analysis module of the course. I would expect use of data, and original writing of the findings and conclusions. The students need to answer whether they would invest in the chosen industry or not, and provide reason for the same. I would provide the industry names to the groups. The group composition would be decided by me. The report should be submitted 4 days before the end-term examination. Those who fail to submit the assignment before the deadline would get zero on the component.

Content

The course has the following modules.

Module 1: Portfolio Theory – 9 Classes
Module 2: Investment Strategy – 3 Classes
Module 3: Security Analysis – 8 Classes

Module 2: Portfolio Theory
Session 1: Introduction
In this session we will study how an investor makes choice when he faced with certainty and how does that change when we introduce uncertainty of the outcome.

Reading Material:
· Chapters 1 of EG

Session 2: Portfolio Risk-Return Measurement, Asset Allocation between Risky and Risk-free assets and Markowitz Model
In this session we will study how measurement of risk and return of an individual asset is different from risk and return of a portfolio. Once we would introduce these measurement matrices, we would prove how diversification helps to reduce overall risk of the portfolio. In this session we will study the problem of asset allocation and how investor uses the risk-return matrices to make that choice. We would derive the Capital Allocation Line and discuss the separation principle which would be used in our latter sessions.

Reading Material:
· Chapters 4 of EG
· Chapters 7 of BKMM

Session 3&4: Choosing the Optimal Risky Portfolio & Index Model
In this session we would study how an investor chooses the risky portfolio. We would study the Markowitz portfolio theory and derive the efficient frontier which helps the investor to make an optimal choice. Once we derive the optimal portfolio we would study the index model to price the risk for the efficient portfolio.

Reading Material:
· Chapters 8 of BKMM
· Chapter 5 of EG

Session 5: Equilibrium Asset Pricing Model: CAPM and Enhancement to CAPM
In this session we would study one of the most popular asset pricing models and its enhancements. In these two sessions we would study the usefulness of the CAPM in details.

Reading Material:
· Chapters 9 of BKMM
· Chapter 13 of EG

Session 6: Other Asset Pricing Models
Though academicians and practitioners often use CAPM, there are alternative models to CAPM. These models include models like consumption-based CAPM, Conditional CAPM, APT, multi-factor models, single index models, etc. In these two sessions, we will study the basics of some of those alternative asset-pricing models.

Reading Material:
· Chapters 10 and 11 of BKMM

Session 7&8: Portfolio Performance Measurement & Active Portfolio Management
In this session, we will study the different tools that are used to assess the performance of the portfolios and who would one use this tool to actively manage the portfolio.

Reading Material:
· Chapter 24 of BKMM

Session 9: Market Microstructure and process of price discovery and implication for Operational Efficiency of markets

In this session we would understand the process of arbitrage and its implications on theory of one price and how arbitragers play a role in price discovery process. Besides role of the market efficient hypothesis on investment decision making process would be discussed.

Reading Material:
· Chapters 12, and 13 of BKMM
· Class discussion

Module 2: Investment Strategy
Day 10, 11 & 12: Learning from Industry Experts (Waiting for the confirmation)
In these 3 sessions we would learn from practitioners from two of the leading investment banks. These classes would be held during August and September month depending on the availability of the corporate executives.

Reading Material:
· Class notes

Module 3: Security Analysis
Session 13&14: Macroeconomics and Industry Analysis for Investment Decisions
In these two sessions, we will study some of learning from macro economics that can be used while making investment decisions. We will study the effects of fiscal, monetary policies on over all investment scenarios. In addition to macro economics factor we would discuss the industry structure and its implications for the company’s future prospects. Besides we would discuss the implication of business cycle on investment decisions.

Reading Material:
· Chapters 17 of BKMM

Days 15&16: Basic Principles of Stock Valuation
In these two sessions, we will study some of the stock valuation model. Some of the model we would discuss in details are, Dividend Discount Model, P/E multiple model, and Free Cash Flow Models.

Reading Material:
· Chapters 18 of BKMM

Session 17&18: Financial Intelligent: Interpreting the Publicly Available Information to Make an Intelligent Investment Decision
In these two sessions, we will how investor and fund manager should look at the financial statement in a microscope to understand what numbers are speaking, and how the numbers can be leveraged to manage the money.

Reading Material:
· Chapters 19 of BKMM
· Some more reference would be provided

Session 19&20: Class exercise and presentation
The class will be divided into groups and each group will be given a company to study in detail. Each individual should do their own analysis; it would be nice if the group members share their thoughts to enrich each others understanding. One student (randomly chosen by my self) will be asked to share the analysis with the class, where as other group members can participate in the discussion. Name of the companies would be given in the first class.
Created By: Debasis Mohanty on 05/10/2010 at 01:59 PM
Category: PGDM-II Doctype: Document

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