Investment & Portfolio management report

GMSI 413 Investment and Portfolio management project report

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CONTENTS

Introduction..........................................................................................................................2

Objectives..........................................................................................................................................................................................2

Portfolio...............................................................................................................................3

List of companies traded in:..............................................................................................................................................................3

Analysis tools.......................................................................................................................4

Fundamental analysis........................................................................................................................................................................4

Technical Analysis............................................................................................................................................................................4

Findings...............................................................................................................................5

ITC....................................................................................................................................................................................................5

Yes Bank...........................................................................................................................................................................................6

Kotak Mahindra Bank.......................................................................................................................................................................7

HDFC Bank.......................................................................................................................................................................................8

Apollo Tyres.....................................................................................................................................................................................9

Sun Pharma ltd................................................................................................................................................................................10

Mahindra and Mahindra..................................................................................................................................................................11

Outcomes & Conclusion....................................................................................................12

References..........................................................................................................................13

1

INTRODUCTION

This assignment pertains to application of theoretical learnings in real case scenario. However, it was a simulation and not an actual exercise. The simulation involved a sum of Rs. 1 million of virtual money that we used to invest only in NSC equity market.

For the same purpose one should start with the industries one is familiar with or the companies whose products are popular or they provide good services. Then the company’s financial statements should be run through for a minimum of five years of historical data. Information like valuation ratios, profitability ratios, revenue growth, dividend record, stability in balance sheet and cash flow statement et cetera should be given importance to while skimming through data. Then a person should go through the charting of the company stock that we are interested to buy. We should employ technical analysis tools in order to come to a sound decision. After that if everything checks out fine we should decide how much money you are willing to risk in terms of return. But before all these steps we should go through the ideology and strategies of accomplished investors like Warren Buffett, Benjamin Graham et cetera.

We should only go for stocks that are easy to understand in accordance with our knowledge and experience in the subject. Then we should only go for best in breed companies as we are just beginning are studies and should not go for obscure companies. And we should not rely solely on the historical charting and even the historical financials and also pay heed to the current scenario for the company as the past results may not guarantee a performance in future. And as a beginner we should limit the scope to large cap to mid-cap companies and try to avoid the small cap companies.

OBJECTIVES

Learn and gain experience in equity market.

Invest with only proper analysis and not news or speculation.

Henceforth we can invest for ourselves or act as an investment consultant for other people.

Understand how to create value by trading ethically.

Also to understand the lingo of trading like going long, going short, resistance, trough et cetera.

2

PORTFOLIO

My portfolio was a relatively small one, the rationale behind having such small portfolio was as I am a beginner in investment in marketable securities, I preferred to select and monitor the smaller pool of companies so that I can reflect better to my learnings. The industries I invested in included banking industry, automobile industry, FMCG industry, pharmaceutical industry.

LIST OF COMPANIES TRADED IN:

1. Apollo tyres2. HDFC bank3. ITC4. Kotak Mahindra bank5. Mahindra and Mahindra Ltd6. Sun pharmaceuticals Ltd7. Yes bank

The final portfolio before liquidation looked like:

Net returns ~ 1%

Portfolio final value Rs. 1,009,964/-

ITC was the main profit maker, while Kotak Mahindra bank was the main loss maker.

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ANALYSIS TOOLS

The companies were selected on the basis of the qualitative fundamental analysis and looking at business news.

FUNDAMENTAL ANALYSIS

It is a well-known saying that investing without fundamental analysis is not the really investing. There are innumerable different methods of investing yet the use of fundamentals is ubiquitous. It involves going through profit and loss statement, balance sheet and the cash flow statement and analyzing various quantitative figures to fathom the real value of a company’s stock. There are both qualitative and quantitative factors under the fundamental analysis. While doing this analysis we should keep in mind that we are looking for a steady trend in company’s revenue, profit making, debt coverage or simply looking for any window dressing. It is a highly comprehensive task and involves virtually unlimited perspectives and techniques to find out what is called the intrinsic value.

This analysis is criticized by proponents of technical analysis and efficient market hypothesis.

The ratios taken into consideration included EPS, P/E, D/E, yield, current ratio, return on equity, return on assets, prize by book value et cetera.

TECHNICAL ANALYSIS

The tool is mainly used were:

Trend line: it is one of the simplest indicators, there are important for identifying the direction of the trend and also can facilitate forecasting of the resistance and support and hence isolate important movements and significant points.

Simple moving average: they are lagging indicators which give another perspective to the trendline but reflect a better view in the momentum of the trend.

Bollinger bands: they are basically a measure of volatility in moving average which is basically based on standard deviation. The bands widen as the volatility increases and become narrow when it decreases. This way we can have an indication of an upcoming major change.

Volume: volume can also be a good indicator as it can measure buying and selling interest by recording the ups and downs in the volume in respect to price. Which can indicate the stability of a stock.

OHLC charting: open high low close chart is a little more accurate as it shows the price movement for the day. The same principles apply for daily, weekly or monthly timeframes. The | displays the high low price movement and the tick on the left represents the opening price and tick on the right represents the closing price. The red bar represents that the closing price of the previous timeframe was higher than the current one and for the blue one vice versa.

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FINDINGS

ITC

Buy date: 30 Oct 2014 09:31

Profit/loss: 16,780/-

It can be observed that the trend since 2000 to 2014 has been on a steady rise. Also analyzing the Bollinger bands and weighted average, for the period of this six months ITC has been steadily performing and the share price have been rising with a clear trend.

ITC 2010 2011 2012 2013 2014Earnings Per Share (Rs) 10.64 6.45 7.88 9.39 11.05DPS(Rs) 10 4.45 4.5 5.25 6ROA (%) 19.1 20.59 22.65 23.55 23.99ROE (%) 29.33 33.35 35.58 36.21 36.27Price / Book(x) 7.17 8.83 9.46 10.98 10.71Yield (%) 3.8 2.45 1.98 1.7 1.7Net Profit Growth 24.43 22.82 23.55 20.38 18.42

Although the net profit has been diminishing for ITC, the earning per share has been rising and so is the return on assets and return on equity. ITC is one of the most stable counters and should be invested in for long-term.

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YES BANK

Buy date: 28 Oct 2014 09:32

Profit/loss: 8,550/-

As we can see the volume of shares traded in yes bank has been vigorous and active. Also there is clear rising trend and it is not very difficult to forecast for the rise in intra-year timeframe. The analysis from the Bollinger band is quite obvious in the month of October that there would be a steep rise in mid-October.

Yes Bank 2010 2011 2012 2013 2014Earnings Per Share (Rs)

14.06 20.95 27.68 36.27 44.86

DPS(Rs) 1.5 2.5 4 6 8ROA (%) 1.61 1.52 1.47 1.51 1.55ROE (%) 20.27 21.13 23.07 24.81 25.02Price / Book(x) 2.8 2.84 2.77 2.65 2.09Yield (%) 0.59 0.81 1.09 1.4 1.93Net Profit Growth 57.23 52.2 34.36 33.13 24.38Total Debt / Equity(x) 0.07 0.07 0.05 0.05 0.06Current Ratio(x) 0.38 0.41 0.56 0.64 0.55Quick Ratio(x) 17.72 14.56 28.8 31.25 28.73

Yes bank has a promising future, the news pertaining to yes bank has been flamboyant with the performance of yes bank. EPS is on a phenomenal rise and there is stability in the rest of the fundamental tools.

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KOTAK MAHINDRA BANK

Buy date: 21 Nov 2014 09:31

Profit/loss: -10,200/-

The six-month trend looks promising for Kotak Mahindra, yet the reason for making such a loss was bad timing in the investment buying and also selling. If I had stuck to the analysis, the stock would have been one of the profit makers.

KTB 2010 2011 2012 2013 2014Earnings Per Share (Rs) 16.12 11.1 14.65 18.23 19.51DPS(Rs) 0.85 0.5 0.6 0.7 0.8ROA (%) 1.7 1.85 1.86 1.82 1.75ROE (%) 13.52 14.5 14.72 15.65 13.83Price / Book(x) 5.81 4.95 5.06 5.15 4.88Yield (%) 0.11 0.11 0.11 0.11 0.1Net Profit Growth 103.23 45.82 32.62 25.41 10.42Total Debt / Equity(x) 0.09 0.07 0.05 0.04 0.05Current Ratio(x) 0.52 0.59 0.56 0.57 0.43Quick Ratio(x) 25.71 40.07 43.06 40 21.83Total Debt to Owners Fund

5.26 4.31 4.85 5.4 4.81

We can see that the EPS has been steadily increasing since 2011, also return on assets are fairly stable. The total debt to equity has been fluctuating but on the long run is more or less the same. We can see that the price to book ratio has been decreasing which can indicate a future increase in the intrinsic value.

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HDFC BANK

Buy date: 26 Nov 2014 14:03

Profit/loss: -5,160/-

Although HDFC bank made a loss in my portfolio, if the time duration were longer it would have proved for profitable as well, since 2008 end, the share price have been increasing and has shown an increasing trend in the past six months as well. Is that the timing of selling off the share was inappropriate.

HDFC 2012 2013 2014Earnings Per Share (Rs) 22.02 28.27 35.34DPS(Rs) 4.3 5.5 6.85ROA (%) 1.68 1.82 1.9ROE (%) 18.69 20.34 21.28Price / Book(x) 4.08 4.1 4.13Net Profit Growth 31.6 30.18 26.05Total Debt / Equity(x) 0.06 0.05 0.07Current Ratio(x) 0.4 0.38 0.33Quick Ratio(x) 9.67 11.14 10.74Yield (%) 0.83 0.88 0.91

The fundamentals of HDFC bank stabilized in the year 2012 since then the EPS has been on a steady increase. The return on assets and return on equity have been proportionally increasing as well. The net profit is growing but at the slightly diminishing rate. Overall the fundamentals looked solid and the company seems to be worthwhile for safe investment in the long run.

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APOLLO TYRES

Buy date: 09 Dec 2014

Profit/loss: ~ (was not able to be given due time to reflect profit or loss due to closure of the project duration)

Again looking at the long-term trend since 2009 it has been on a rising trend and in 2014 the rate of increase augmented. The weighted average trend suggests stab sustainable increases and also in the month of December if you look at the Bollinger bands, the band are narrower which again portrays a stable return.

Apollo tyres 10 11 12 13 14Earnings Per Share (Rs) 8.23 3.93 3.6 6.2 8.78DPS(Rs) 0.75 0.5 0.5 0.5 0.75ROA (%) 10.93 3.87 2.98 4.83 6.54ROE (%) 26.98 10.97 9.21 14.3 17.52Total Debt to Owners Fund

0.66 1.01 1.05 0.81 0.33

Current Ratio 0.95 0.83 0.81 0.86 0.81

Quick Ratio 0.74 0.61 0.54 0.48 0.36

Price / Book(x) 2.07 1.85 1.96 1.81 2.95Yield (%) 1.06 0.72 0.63 0.6 0.47

Since 2012 the EPS has been on the rise and so have been the return on assets and return on equity. The debt content has been decreasing which might be favorable in the eyes of the creditors and a few stakeholders.

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SUN PHARMA LTD



Sun pharmaceuticals have a favorable long-term trend since 2008 and the six month charts suggests increase in trend.

Sun Pharma 2010 2011 2012Earnings Per Share (Rs)

43.39 13.36 16.39

DPS(Rs) 13.75 3.5 4.25ROA (%) 13.96 19.32 19.96ROE (%) 16.54 22.32 23.32Price / Book(x) 6.48 6.85 7.49Yield (%) 0.77 0.79 0.75Debt Equity Ratio 0.01 0.01 0.01

Although the EPS was quite high in 2010, but it has been increasing since 2011 and 12 it might also suggest a split in the shares in 2010 end. Because the return on assets and return on equity have been increasing in the same time. Sun pharmaceuticals has been involved in various mergers and acquisitions which has led to a strong standing as far as fundamentals are concerned.

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MAHINDRA AND MAHINDRA



Although the six-month charting of M&M has not been very stable but the long-term charts suggest steady gains. Not to ignore the weighted average as the time for buying this was ninth December, hence if we look at the chart since December, the moving average suggests steady increase and the Bollinger bands as they are narrower suggest stability.

M&M 2010 2011 2012 2013 2014Earnings Per Share (Rs) 30.69 36.89 45.33 48.87 56.8DPS (Rs) 10 9.5 11.5 12.5 13ROA (%) 6.88 13.81 14.92 13.29 13.09ROE (%) 17.56 32.07 29.46 25.88 25.3Price / Book(x) 2 3.95 4 3.43 3.5Yield (%) 2.61 1.74 1.65 1.79 1.51Long Term Debt Equity Ratio

0.46 0.22 0.26 0.22 0.22

M&M is vastly diversified, it is a company that beat companies like Tata, et cetera in the bidding for acquisition of SsangYong. Hence, a domestic company acquiring a foreign company reflects the strong foundation of itself. It is a market leader in tractors and is diversified into industries like aerospace, IT, agriculture et cetera. If we look at the EPS again on a stable rise, the ROA and ROE have been increasing too. The debt equity ratio has been comparatively stable and hence the companies quite worthwhile as far as fundamentals are concerned.

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OUTCOMES & CONCLUSION

In the duration of pursuing this exercise, there were a number of learnings. Firstly one should have a rational for the rate of return expected to be in line with the time duration and the nature of investment. Then, investment is the game of patience and analysis.

Ideally, there should not be investment in two companies from a same industry. There should not be investment based on speculation. Even the implications of news should also be analyzed carefully before coming to a conclusion.

Even after diligently performing analysis and investing, there is no guarantee that the market such as India has would go as per the forecasts.

This was a very interesting and fruitful exercise where the expected outcome not only pertains to analysis but also to sound decision making and development of virtues like non-impulsive buying and patients.

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REFERENCES

Fundamental Analysis: Introduction | Investopedia. 2014. Fundamental Analysis: Introduction | Investopedia. [ONLINE] Available at: http://www.investopedia.com/university/fundamentalanalysis/. [Accessed 16 December 2014].

. 2014. . [ONLINE] Available at: http://www.moneycontrol.com/stocks/company_info/print_main.php. [Accessed 16 December 2014].

Apollo Tyres: Balance Sheet of Apollo Tyres, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. 2014. Apollo Tyres: Balance Sheet of Apollo Tyres, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. [ONLINE] Available at: http://profit.ndtv.com/stock/apollo-tyres-ltd_apollotyre/financials-historical-ratio. [Accessed 16 December 2014].

Kotak Mahindra Bank: Balance Sheet of Kotak Mahindra Bank, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. 2014. Kotak Mahindra Bank: Balance Sheet of Kotak Mahindra Bank, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. [ONLINE] Available at: http://profit.ndtv.com/stock/kotak-mahindra-bank-ltd_kotakbank/financials-historical-ratio. [Accessed 16 December 2014]

Yes Bank: Balance Sheet of Yes Bank, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. 2014. Yes Bank: Balance Sheet of Yes Bank, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. [ONLINE] Available at: http://profit.ndtv.com/stock/yes-bank-ltd_yesbank/financials-historical-ratio. [Accessed 16 December 2014].

Mahindra & Mahindra: Balance Sheet of Mahindra & Mahindra, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. 2014. Mahindra & Mahindra: Balance Sheet of Mahindra & Mahindra, Profit & Loss, Cash Flow, Ratios, Quarterly, Half-Yearly, Yearly Financials - NDTVProfit.com. [ONLINE] Available at: http://profit.ndtv.com/stock/mahindra-&-mahindra-ltd_m&m/financials-historical-ratio. [Accessed 16 December 2014].

Apollo Tyres Stock Charts, Apollo Tyres Live Market Technical Charts. 2014. Apollo Tyres Stock Charts, Apollo Tyres Live Market Technical Charts. [ONLINE] Available at: http://www.moneycontrol.com/stock-charts/apollotyres/charts/AT14#AT14. [Accessed 16 December 2014].

HDFC Bank Stock Charts, HDFC Bank Live Market Technical Charts. 2014. HDFC Bank Stock Charts, HDFC Bank Live Market Technical Charts. [ONLINE] Available at: http://www.moneycontrol.com/stock-charts/hdfcbank/charts/HDF01#HDF01. [Accessed 16 December 2014].

ITC Stock Charts, ITC Live Market Technical Charts. 2014. ITC Stock Charts, ITC Live Market Technical Charts. [ONLINE] Available at: http://www.moneycontrol.com/stock-charts/itc/charts/ITC#ITC. [Accessed 16 December 2014].

Sun Pharmaceutical Industries Stock Charts, Sun Pharma Live Market Technical Charts. 2014. Sun Pharmaceutical Industries Stock Charts, Sun Pharma Live Market Technical Charts. [ONLINE] Available at: http://www.moneycontrol.com/stock-charts/sunpharmaceuticalindustries/charts/SPI#SPI. [Accessed 16 December 2014].

Kotak Mahindra Bank Stock Charts, Kotak Mahindra Live Market Technical Charts. 2014. Kotak Mahindra Bank Stock Charts, Kotak Mahindra Live Market Technical Charts. [ONLINE] Available at: http://www.moneycontrol.com/stock-charts/kotakmahindrabank/charts/KMB#KMB. [Accessed 16 December 2014].

Yes Bank Stock Charts, Yes Bank Live Market Technical Charts. 2014. Yes Bank Stock Charts, Yes Bank Live Market Technical Charts. [ONLINE] Available at: http://www.moneycontrol.com/stock-charts/yesbank/charts/YB#YB. [Accessed 16 December 2014].

Mahindra and Mahindra Stock Charts, M&M Live Market Technical Charts. 2014. Mahindra and Mahindra Stock Charts, M&M Live Market Technical Charts. [ONLINE] Available at: http://www.moneycontrol.com/stock-charts/mahindramahindra/charts/MM#MM. [Accessed 16 December 2014].

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Investment & Portfolio management report