1. ANALYSIS OF EQUITY AND DEBT INSTRUMENTS
FIXED INCOME SECURITIES

2. BOND Bonds refer to debt instruments bearing interest on maturity.
Organizations may borrow funds by issuing debt securities named bonds, having a fixed maturity period (more than one year) and pay a specified rate of interest (coupon rate) on the principal amount to the holders.
Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments.

3. BOND FEATURES
Nominal, Principal or Face Amount—The amount over which the issuer pays interest, and which has to be repaid at the end.
Maturity date—The date on which the issuer has to repay the nominal amount. The length of time until the maturity date is often referred to as the term or maturity of a bond.

4. Coupon—The interest rate that the issuer pays to the bond holders
Coupon—The interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. The name coupon originates from the fact that in the past, physical bonds were issued which had coupons attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment.

5. TYPES OF BONDS MUNICIPAL BONDS
Municipal bonds are debt obligations issued by states, cities, countries and other governmental entities, which use the money to build schools, highways, hospitals, and many other projects for the public good.
When you purchase a municipal bond, you are lending money to a state or local government entity, which in turn promises to pay you a specified amount of interest (usually paid semiannually) and return the principal to you on a specific maturity date.

6. GOVERNMENT BONDS
Government Bonds are securities issued by the Government for raising a public loan.
They consist of Government Promissory Notes, Bearer Bonds.
Government Securities are mostly interest bearing dated securities issued by RBI on behalf of the Government of India. GOI uses these funds to meet its expenditure commitments.
These securities are generally fixed maturity and fixed coupon securities carrying semi-annual coupon

7. Features of Government Securities
Issued at face value
Ample liquidity as the investor can sell the security in the secondary market
Interest payment on a half yearly basis on face value
Can be held in D-mat form.
Rate of interest and tenure of the security is fixed at the time of issuance and is not subject to change.
Redeemed at face value on maturity
Maturity ranges from of 2-30 years.

8. Corporate Bonds
Corporate bonds are debt obligations issued by private and public corporations. They are typically issued in multiples of 1,000 and/or 5,000. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding their business.

9. Zero Coupon Bonds
Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount a bond will be worth when it "matures" or comes due.
When a zero coupon bond matures, the investor will receive one lump sum equal to the initial investment plus the imputed interest.

10. Mortgage and Asset Backed Bonds
Mortgage-backed securities (MBS) and asset backed securities (ABS) represent the largest segment of the global bond market.
In simple terms, investing in MBS means lending the money to hundreds of individual mortgage borrowers across the country. Investors are subject to added "prepayment" risk, meaning money invested may be repaid much sooner than maturity.

11. Fixed rate bonds
These bonds carry a fixed rate of interest for the entire life of the bond.
All coupon payments are made at the defined fixed rate till the maturity of the bond.
Floating rate bonds
These bonds do not have a fixed coupon rate.
Such coupon rate changes as per changes in benchmark.

12. STRIPS
STRIPS is also known as separate trading of registered interest and principal of securities.
Issuer separates the interest or coupon payment receivable from a bond and converts these payments into separate securities and are sold to investors.

13. Callable bonds Puttable bonds
Right with the issuer of the bond to fully or partially redeem the bonds before its maturity
Puttable bonds
Right with the investors to sell the bonds to the issuer at any time before the actual maturity.

14. Convertible bonds
Convertible bonds gives its holder a right to convert the bond into equity shares of the issuer company.
Such conversion can be done on maturity or before.
Convertible bonds are mixture of debt and equity.

15. BOND RISKS Market risk Default risk Liquidity risk Call risk
Inflation risk
Interest rate risk

16. Default risk and credit rating
Meaning of credit rating-
Credit rating is a process of determining the ability of an issuer of a bond in meeting obligations under a debt instrument.
Thus it is a process that evaluates the ability of an issuer to make coupon payments and repay principal amount to investors.
The agency awards a particular credit rating to the bond in a symbolic form to indicate the level of default risk in a particular bond.

17. Factors considered in credit rating
Past performance of issuer
Business risk
Management risk
Financial risk

18. Credit rating agencies in India
CRISIL (Credit Rating Information Services Of India Ltd)
ICRA (Investment Information And Credit Rating Agency Of India Ltd)
CARE ( Credit Analysis And Research Ltd)
BWR(Brickwork Ratings)
SMERA (Small And Medium Enterprises Rating Agency Of India)
India Rating And Research Pvt Ltd

19. Advantages of credit rating to investors
Facilitates investment decision
Source of information
Facilitates comparison of investment options
Investor protection

20. Disadvantages of credit rating
Opinion and not a guarantee
Ratings are based on past performance
Biased ratings
Misleading ratings
Difference in ratings of more than agency

21. Estimating bond yields
Yield is a measure of return an investor earns on a bond.
Current yield
Yield to maturity
Yield to call

22. Bond market indices Sovereign bod market indices Total return indices
Principal return indices
Duration based indices
Corporate bond market index

23. Approaches to equity analysis
Introduction to fundamental analysis
Fundamental analysis is a study of underlying factors that impact securities prices
The stock prices would depend upon the earning potential of a company which is affected by factors that are internal or external.

24. Characteristic of fundamental analysis
Application of EIC framework
Determination of intrinsic worth
Based on real information

25. Process of fundamental analysis
Economic analysis
GDP growth rate
Inflation
Interest rates
Savings and investment growth
Budgetary deficit
Taxation
Infrastructure facilities
Monsoons
Business conditions
Foreign trade
International economic factors

26. Industry analysis Industry type analysis Industry life cycle analysis
Growth industry
Cyclical industry
Defensive industry
Industry life cycle analysis
Pioneering stage
Growth stage
Stabilization and maturity stage
Decline stage

27. Industry growth analysis
Industry cost structure
Labour conditions
Competition
Product differentiation
Economies of scale
Capital requirement
Government policy towards industry
Substitution

28. Company analysis Company management Integrity of management
Managerial competence
Encouragement to innovation
Level of professionalism
Tenure of top executives

29. Company characteristics
Perception about company
Business model
Market position
Labour relation

30. Company financial performance
Sales growth
Profitability and earnings growth
Composition of capital
Operating efficiency
Dividend payout
Solvency
Cash flow analysis

31. Technical analysis
Technical analysis refers to analysis of share price and volume data to identify profitable equity investment opportunities and make forecast of future price movements.
Characteristics of technical analysis
Based on historic price and volume data
Charts, patterns and indicators are major tools
Draws conclusion on trends, sentiments and market timings
Relies on multiple tools

32. Tools of technical analysis
Charts
Trend lines
Price patterns
technical indicators

33. Line chart

34. Bar chart

36. Candlestick chart

37. Upward trend

38. Downward trend

39. Trading range

40. Support and resistance level

41. PRICE PATTERNS
HEAD AND SHOULDERS

42. Double top and bottom

43. Price earnings multiple approach to equity valuation
Price earnings multiple establishes relationship between a company’s earnings and market price of the stock.
It is the ratio that represents the market value assigned to company’s earnings.
PE= market price of company’s share
Earnings per share

44. Interpretation of PE multiple
It is the price that market is ready to pay per rupee of earnings of the company.
PE multiple can be compared with the industry PE
PE multiple of two stocks in the same industry can be compared.

45. Limitations of PE multiple
There is no standard PE ratio for all companies
Extremely high PE can be dangerous and excessive overvaluation
PE is dependent on current market price
PE cannot be interpreted in isolation

46. Intrinsic value The true value of the stock is its intrinsic value
Intrinsic value is inherent which is derived from company fundamentals
It considers factors that are internal to a company.

47. Price to book value ratio
It is used to compare a stock markets price with its book value.
Book value of share indicates the amount of company’s assets available to equity shareholders after all liabilities are paid.
PB= market price per share/ book value per share
Book value per share = total assets- total liabilities and intangible assets/ No of outstanding shares

48. interpretation
If the ratio is high it would mean that market price is more than the book value of share.
if the ratio is low it indicates that market has possibly not discovered the true worth of company’s assets