Amity Symposium on An insight into Working of Dalal Street 12th February 2013

Compile !y Finan"e Area Amity !usiness S"hool

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AN OVERVIEW OF THE INDIAN STOCK MARKET

The BSE and NSE Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) !he BSE has been in existence since "#$% !he NSE& on the other hand& was fo'nded in "(() and started trading in "((* +owe,er& both exchanges follow the same trading mechanism& trading ho'rs& settlement process& etc -t the last co'nt& the BSE had abo't *&$.. listed firms& whereas the ri,al NSE had abo't "&).. /'t of all the listed firms on the BSE& only abo't %.. firms constit'te more than (.0 of its market capitali1ation2 the rest of the crowd consists of highly illi3'id shares Market Segments Sec'rities markets pro,ide a channel for allocation of sa,ings to those who ha,e a prod'cti,e need for them !he sec'rities market has two interdependent and inseparable segments: (i) primary market and (ii) secondary market Primar Market 4rimary market pro,ides an opport'nity to the iss'ers of sec'rities& both 5o,ernment and corporations& to raise reso'rces to meet their re3'irements of in,estment Sec'rities& in the form of e3'ity or debt& can be iss'ed in domestic 6international markets at face ,al'e& disco'nt or premi'm Se!"ndar Market Secondary market refers to a market where sec'rities are traded after being offered to the p'blic in the primary market or listed on the Stock Exchange Secondary market comprises of e3'ity& deri,ati,es and the debt markets !he secondary market is operated thro'gh two medi'ms& namely& the /,er7the78o'nter (/!8) market and the Exchange7!raded market /!8 markets are informal markets where trades are negotiated Key Indicators of Securities Market Inde# $ Sense# % Ni&t ' -n Index is 'sed to gi,e information abo't the price mo,ements of prod'cts in the financial& commodities or any other markets Stock market indices are meant to capt're the o,erall Beha,ior of the e3'ity markets !he stock market index is created by selecting a gro'p of stocks that are representati,e of the whole market or a specified sector or segment of the market !he two prominent Indian market indexes are Sense# and Ni&t Sensex is the oldest market index for e3'ities2 it incl'des shares of 9. firms listed on the BSE& which represent abo't *%0 of the index:s free7float market capitali1ation It was created in "(#; and pro,ides time series data from -pril "($(& onward Market Ca(ita)isati"n Market capitali1ation is defined as ,al'e of all listed shares on the co'ntry<s exchanges It is comp'ted on a daily basis Market capitali1ation of a partic'lar company on a partic'lar day can be comp'ted as prod'ct of the n'mber of shares o'tstanding and the closing price of the share +ere the n'mber of o'tstanding shares refers to the iss'e si1e of the stock Market Capitalisation = Closing price of share * Number of outstanding shares

Similarly& to comp'te the market capitali1ation of all companies listed on an Exchange we aggregate the market capitali1ation of all the companies traded on the Exchange =or example& Infosys is di,ided into o,er %$ 8rore shares and each share price is worth o,er >'pees )%..today !8S has o,er "(% 8rore shares and each share price is worth o,er >'pees "... today Market capitali1ation is nothing b't the total ,al'e of a company (!otal n'mber of shares m'ltiplied by c'rrent share price) -s the share price ,aries from time to time& so does the market capitali1ation
Market Capitalization of Infosys= (57 Crore * 2500)= 142500 Crore Market Capitalization of TCS = (195 Crore * 1000) = 195000 Crore

/ne way to look at market capitali1ation is: ?et<s say& if yo' ha,e >'pees "&*)&%.. 8rores in hand& yo' can technically b'y all shares of Infosys and be the sole owner of Infosys !hing to note here is& share price of Infosys (>'pees )%..) is more than the share price of !8S (>'pees "...) B't& !8S is the bigger company in terms of ,al'ations or market capitali1ation In a good company& ma@ority of the shares are held by promotersA their families (=o'nders of the company)& =II:s (=oreign Instit'tional In,estors)& M't'al ='nds and +NI:s (High Net worth Indi,id'als) !he common p'blic holds only a ,ery little portion Note: Market Capitalization is also commonly referred to as market cap in short. Market Ca(ita)isati"n Rati" !he market capitali1ation ratio is defined as market capitali1ation of stocks di,ided by 5B4 It is 'sed as a meas're of stock market si1e T*rn"+er !'rno,er for a share is comp'ted by m'ltiplying the traded 3'antity with the price at which the trade takes place Similarly& to comp'te the t'rno,er of the companies listed at the Exchange we aggregate the traded ,al'e of all the companies traded on the Exchange T*rn"+er Rati" !he t'rno,er ratio is defined as the total ,al'e of shares traded on a co'ntry<s stock Exchange for a partic'lar period di,ided by market capitali1ation at the end of the period It is 'sed as a meas're of trading acti,ity or li3'idity in the stock markets Turnover Ratio= Turnover at Exchange Market Capitalisation at Exchange !s per the "tandard and #oor$s %lobal "tock Market &act 'ook ()**+ ,ndia ranked -th in terms of Market Capitali.ation and *)th in terms of total traded value in stock exchanges

Trading
In the past& the trading on stock exchanges in India was based on open o'tcry system Cnder the system& brokers assemble at a central location 's'ally the exchange trading ring& and trade with each other !his was time cons'ming& inefficient and imposed limits on trading ,ol'mes and trading ho'rs In order to pro,ide efficiency& li3'idity and transparency& NSE introd'ced a nation7wide on7line& f'lly7a'tomated screen based trading system (SBTS) Cnder this system a trading member can p'nch into the comp'ter& the n'mber of sec'rities and the prices at which he wo'ld like to transact !he transaction is exec'ted as soon as it finds a matching sell or b'ys order from a co'nter party

!he trading network is depicted in Fig*re , NSE has main comp'ter which is connected thro'gh Dery Small -pert're !erminal (DS-!) installed at its office !he main comp'ter r'ns on a fa'lt tolerant S!>-!CS mainframe comp'ter at the Exchange Brokers ha,e terminals (identified as the 48s in the 4ict're) installed at their premises which are connected thro'gh DS-!s6leased lines6modems -n in,estor informs a broker to place an order on his behalf !he broker enters the order thro'gh his 48& which r'ns 'nder Eindows N! and sends signal to the Satellite ,ia DS-!6leased line6modem !he signal is directed to mainframe comp'ter at NSE ,ia DS-! at NSE<s office - message relating to the order acti,ity is broadcast to the respecti,e member !he order confirmation message is immediately displayed on the 48 of the broker !his order matches with the existing passi,e order(s) otherwise it waits for the acti,e orders to enter the system /n order matching& a message is broadcast to the respecti,e member Trading Net-"rk

!he trading system operates on a strict price time priority -ll orders recei,ed on the system are sorted with the best priced order getting the first priority for matching i e & the best b'y orders match with the best sell order Similar priced orders are sorted on time priority basis& i e the one that came in early gets priority o,er the later one /rders are matched a'tomatically by the comp'ter keeping the system transparent& ob@ecti,e and fair Ehere an order does not find a match& it remains in the system and is displayed to the whole market& till a fresh order comes in or the earlier order is cancelled or modified !he trading system pro,ides tremendo's flexibility to the 'sers in terms of kinds of orders that can be placed on the system ,ndex Trading

!he p'rpose of Index !rading is to pro,ide 'sers with a facility of b'ying and selling of Indexes& in terms of sec'rities that comprises the Index !he 'sers ha,e to specify the amo'nt& and other inp'ts that are sent to the host& and the host generates the orders !he Index !rading enables the 'sers for b'ying or selling an Index Basket 4'tting orders in sec'rities in proportion that comprises the chosen index& sim'lates the b'ying and selling of Index basket =orm'la Csed to calc'late no of shares of each sec'rity is No of Shares of a sec'rity in index F-mo'nt G Iss'ed 8apital for the sec'rity G =ree =loat =actor 8'rrent Market 8apitali1ation of the Index Sett)ement C !)e and Trading H"*rs E3'ity spot markets follow a !H) rolling settlement !his means that any trade taking place on Monday& gets settled by Eednesday -ll trading on stock exchanges takes place between (:%% am and 9:9. pm& Indian Standard !ime (H % % ho'rs 5M!)& Monday thro'gh =riday Beli,ery of shares m'st be made in demateriali1ed form& and each exchange has its own clearing ho'se& hich ass'mes all settlement risk& by ser,ing as a central co'nterparty

FA.s
I Ehat is the Bow Jones or the BJI-K -ns !he Bow Jones Ind'strial -,erage (often referred to as the LBowL) is an a,eraged n'mber representing the ,al'es of 9. C S Lbl'e7chipL stocks !he BJI- is the most well7known market indicator in the world and was created in "#(; by Bow Jones A 8ompany& which is act'ally a p'blicly7traded company (BJ) on the New Mork Stock Exchange (NMSE) !hey prod'ce many important b'siness p'blications incl'ding !he Eall Street Jo'rnal& Barron:s& and se,eral stock indexes I -ns Ehat is the Big BoardK !he Big Board is another name for the New Mork Stock Exchange

I Ehat is the SA4 %..K -ns !he SA4 %.. is a stock index p'blished by Standard A 4oor:s It meas'res %.. C S stocks that are s'pposed to be representati,e of the o,erall stock market It was created in "(%$ I Ehat is insider tradingK -ns Insider trading occ'rs (") when an insider to a company& s'ch as an officer or someone who owns a large percentage of the company& trades the company:s stock !his is legal and acceptable& as long as that person is not trading based 'pon non7p'blic company information Insider trading also occ'rs ()) when anyone& incl'ding employees& trades 'sing non7p'blic company information !his is considered illegal I Ehat is a m't'al f'ndK -ns M't'al f'nd is a f'nd created by an in,estment company which combines money from many in,estors and in,ests it in a gro'p of stocks& bonds& or other in,estment ,ehicles !he in,estment company acti,ely manages the portfolio to meet a desired goal& s'ch as long7term growth or steady di,idends /ne ma@or benefit is di,ersification Many m't'al f'nds also charge a fee when someone b'ys or sells shares

Ehen someone b'ys shares of a m't'al f'nd& they are not directly b'ying shares of the 'nderlying companies Instead& they are entitled to a proportional amo'nt of the f'nd:s profits& which are 's'ally distrib'ted two or three times per year I Ehat is a m't'al f'nd:s N - D K -ns !he Net -sset Dal'e (N-D) is the c'rrent price of a m't'al f'nd& which is calc'lated at the end of each b'siness day It is the total ,al'e of the f'nd:s assets min's its liabilities and di,ided by the total n'mber of shares o'tstanding It is similar to a stock:s closing price for the day I Ehat is short sellingK -ns Short selling is the act of selling stock that yo' don:t own at a high price by borrowing it from a brokerage and then b'ying it back at a lower price in the f't're !he hope is that the stock price will drop in ,al'e and a profit can be made !his is an ad,anced techni3'e that has strict re3'irements and higher risks I Ehat is a di,idendK -ns - di,idend is money that a company gi,es to its shareholders when it has extra profit Since the shareholders own the company& they deser,e its profits +owe,er& sometimes companies want to 'se these profits to help grow their b'siness and decide not to distrib'te di,idends& at least for a while I
&ns# !at is t!e "#$# ratio%

!he 4rice to Earnings ratio is simply the price of a company:s stock di,ided by its Earnings 4er Share It is often 'sed as an indicator of whether a stock is o,erpriced& 'nderpriced& or on par !he 4E ratio by itself is not always eno'gh to make a good determination b't it can be helpf'l to compare it with other companies in the same ind'stry I Ehat are a stock split and a re,erse stock splitK -ns - stock split is an increase in the n'mber of o'tstanding shares of a stock !he price of the stock is immediately ad@'sted so that the total e3'ity remains the same =or instance& if a >s "..6share stock splits ) for "& there will be twice as many shares b't they only be worth >s %. each now !his is 's'ally done to make the stock more affordable to the p'blic - re,erse stock split is a decrease in the n'mber of shares !his is 's'ally done to raise the price per share to meet stock exchange re3'irements or simply to look more Lhealthy L Ehat is a Bl'e 8hip stockK It is the stock of a large company that has a long history of stable operation and solid stock performance 8ompany with high li3'idity and large market capitali1ation Ehat is an I4/K -n initia) (*/)i! "&&ering (IPO) or st"!k market )a*n!h is a type of p'blic offering where shares of stock in a company are sold to the general p'blic& on a sec'rities exchange& for the first time !hro'gh this process& a pri,ate company transforms into a p'blic company Initial p'blic offerings are 'sed by companies to raise expansion capital& to possibly moneti1e the in,estments of early pri,ate in,estors& and to become p'blicly traded enterprises

Ehat is Beri,ati,eK Beri,ati,e is a prod'ct whose ,al'e is deri,ed from the ,al'e of one or more basic ,ariables& called bases ('nderlying asset& index& or reference rate)& in a contract'al manner !he 'nderlying asset can be e3'ity& forex& commodity or any other asset =or example& wheat farmers may wish to sell their har,est at a f't're date to eliminate the risk of a change in prices by that date S'ch a transaction is an example of a deri,ati,e !he price of this deri,ati,e is dri,en by the spot price of wheat which is the L'nderlyingL Ehat is SENSENK SENSEN or Sensiti,e Index is not only scientifically designed b't also based on globally accepted constr'ction and re,iew methodology =irst compiled in "(#;& SENSENO is a basket of 9. constit'ent stocks representing a sample of large& li3'id and representati,e companies !he base year of SENSENO is "($#7$( and the base ,al'e is".. !he index is widely reported in both domestic and international markets thro'gh print as well as electronic media !he index was initially calc'lated based on the L='ll Market 8apitali1ationL methodology b't was shifted to the free7float methodology with effect from September "& )..9 !he L=ree7float Market 8apitali1ationL methodology of index constr'ction is regarded as an ind'stry best practice globally -ll ma@or index pro,iders like MS8I& =!SE& S!/NN& SA4 and Bow Jones 'se the =ree7float methodology B'e to is wide acceptance amongst the in,estors2 SENSEN is regarded to be the p'lse of the Indian stock market -s the oldest index in the co'ntry& it pro,ides the time series data o,er a fairly long period of time (from "($( onwards) Small wonder& the SENSEN has o,er the years become one of the most prominent brands in the 8o'ntry Ca(ita) Market 0)"ssar
A!!"*nting /eta1 - related meas're of the sensiti,ity of a firm:s acco'nting earnings to the changes in the earnings of market portfolio Ad2*sted /eta1 -n estimate of a sec'rity:s f't're beta& deri,ed initially from historical data& b't modified by the ass'mption that the sec'rity:s tr'e beta has a tendency o,er time to mo,e toward the market a,erage of ". ADRs1 -merican Bepository >eceipts (-B>s) are negotiable receipts iss'ed to in,estors by an a'thorised depository& normally a CS bank or depository& in lie' of shares of the foreign company which are act'ally held by the depository -B>s can be listed and traded in a CS7based stock exchange and help the Indian company to be known in the highly li3'id CS stock exchanges Ar/itrage1 Sim'ltaneo's p'rchase and sale of the same or essentially similar sec'rity in two different markets for ad,antageo'sly different prices Beta1 It is a percentage change in the scrip ret'rn di,ided by the percentage change in market ret'rn Betas of well7traded companies are p'blished and are a,ailable in the =inance Jo'rnals If Beta is "& it means the scrip risk is same as market risk Beta !"e&&i!ient: - relati,e meas're of the sensiti,ity of an asset:s ret'rn to changes in the ret'rn on the market portfolio Mathematically beta coefficient of a sec'rity is the sec'rity:s co,ariance with the market portfolio di,ided by the ,ariance of the market portfolio B""k B*i)ding1 Book b'ilding is a process 'sed for marketing a p'blic offer of e3'ity shares of a company and is a common practice in most de,eloped co'ntries Book b'ilding is called so beca'se it refers to the collection of bids from in,estors& which is based on an indicati,e price range !he iss'e price is fixed after the bid closing date Ca)) "r (*t "(ti"n: !he right to b'y is called a call option while the right to sell is called a p't option !he b'yer of the call option can call 'pon the seller of the option and b'y from him& the 'nderlying instr'ment& at any point in time on or before the expiry date by exercising his option at the agreed price !he seller of the option has to f'lfill the obligation on exercise of the option !he right to sell is called the

p't option where the b'yer of the option can exercise his right to sell the 'nderlying instr'ment to the seller of the option& at the agreed price Ca(ita) Market 3ine: Set of portfolio obtainable by combining the market portfolios with risk free borrowing or lending& ass'ming homogeneo's expectations and perfect markets& the 8M? represents the efficient set Cash sett)ement and an a*!ti"n1 In a cash settlement& the b'yer is re3'ired to take the deli,ery of shares and the seller is re3'ired to gi,e deli,ery of shares at the end of the settlement period If the seller fails to deli,er& the exchange a'thorities resort to a'ction on his behalf& and the res'ltant loss is payable by the defa'lting seller Cr"ss4rate1 In inter7bank transactions& all c'rrencies are normally traded against the CS dollar& which becomes a frame of reference So if one is b'ying with r'pees a c'rrency N which is not normally traded& one can arri,e at a r'pee7N exchange rate by relating the r'pee7P rate to the P7N rate !his is known as a cross7rate De("sit"r 1 - depository is an organisation where share certificates of a shareholder are held in electronic form !his is done at the re3'est of the shareholder thro'gh a depository participant (B4) If an in,estor wants to 'se ser,ices offered by a depository& he6she has to open an acco'nt with the depository thro'gh a B4& m'ch like opening an acco'nt with any branch of a bank to 'tilise its ser,ices In fact& in many ways& a depository is similar to a bank Demateria)i5ati"n1 Bemateriali1ation (a e'phemism for shredding) is a process by which an in,estor:s physical share certificates are taken back by the company6registrar and destroyed !hen an e3'i,alent n'mber of sec'rities are credited in the electronic holdings of that in,estor E&&i!ient ("rt&")i"1 - portfolio with the feasible set that offers in,estors both maxim'm Expected >et'rn for ,arying le,els of risk and minim'm risk for ,arying le,els of Expected >et'rns E6*it &*nds1 !hese are f'nds which in,est in e3'ity shares of companies ESOP1 -n Employee Stock /ption 4lan (ES/4) is an employee benefit plan which makes the employees of a company owners of stock in that company E#4Ante1 Before the fact& f't're E#4("st1 -fter the fact& historical E#(e!ted Ret*rn1 >et'rn on a sec'rity or portfolio that an in,estor anticipates recei,ing o,er a holding period F"r-ard Premi*m and F"r-ard Dis!"*nt : Normally& the forward price and the spot price of a c'rrency differ If the forward price is higher than the spot price& we speak of a forward premi'm& and if it is lower& of a forward disco'nt !he premi'ms and disco'nts reflect the interest rates in that partic'lar co'ntry& which is& in t'rn& linked to the inflation rates So& high forward premi'ms are seen in co'ntries where inflation rate is high F"r-ard Transa!ti"n1 - forward transaction consists of a commitment to b'y or sell a specific amo'nt of foreign c'rrency at a later date or within a specific time period at an exchange rate stip'lated at the time the deal is str'ck !he deli,ery or receipt of the c'rrency takes place on the agreed 'pon ,al'e date In contrast to spot transactions& the commitment (concl'sion of the agreement) of a forward transaction and the f'lfillment (deli,ery and payment) are clearly separate in terms of time !he maxim'm period for most c'rrencies is ") months& tho'gh a maxim'm of fi,e years may be granted for principal c'rrencies F*ndamenta) Ana) sis1 It relates to an examination of the intrinsic worth of a company to find o't whether the c'rrent market price is fair or not& whether it is o,er7priced or 'nder7priced& in the backgro'nd of the company:s performance and in the backgro'nd of the performance of the ind'stry to which the company belongs and also the general socio7political scenario of the co'ntry F*t*res !"ntra!t1 - f't'res contract is an agreement between a b'yer and a seller for the p'rchase and sale of a partic'lar asset at a specific f't're date !he asset in the case of index f't'res is an index 7it co'ld be the SA4 8NN Nifty index or the BSE9. sensex 0r"-th C"m(an 1 It is a 8ompany in which in,estors like to ha,e long7term in,estment since ret'rn to e3'ity shareholders an s'ch a company contin'o'sly expands d'e to di,idends& growth in di,idends& in net worth& Bon's& >ights etc It is a good hedge against inflation and rising costs

0r"-th Share1 - share in a 5rowth 8ompany is called a 5rowth Share which has experienced or is expected to experience rapidly increasing Earning per Share (E4S) Hist"ri!a) Beta1 -n estimate of sec'rity:s beta deri,ed solely from historical ret'rns& e3'i,alently the slope of the market model or the E#("st characteristic line Inde# F*t*res1 Index f't'res are nothing b't betting on market indexes =or ex yo' b'y or sell an index f't're& yo' take a ,iew on what the index (say the sensex) will be at some point in the f't're Ine&&i!ient ("rt&")i"1 - portfolio that does not satisfy the criteria of an efficient portfolio and hence does not lie on the efficient set Market Inde#1 - collection of sec'rities whose prices are a,eraged to reflect the o,erall in,estment performance of a partic'lar market for financial assets Market P"rt&")i"1 - portfolio consisting of an in,estment in all sec'rities Market Risk1 !he portion of sec'rity:s total risk that is related to mo,es in the market portfolio hence cannot be di,ersified away NASDA.1 National association of sec'rities dealers a'tomated 3'otations O(("rt*nit Set1 Set of all portfolios that can be formed from the gro'p of sec'rities being considered by an in,estor O(tima) ("rt&")i"1 =easible portfolio that offers an in,estor the maxim'm le,el of satisfaction& this portfolio represents the tangency between the efficient set and an indifference c'r,e of the in,estor O(ti"ns1 /ptions are contracts which go a step f'rther than f't'res contracts in the sense that they pro,ide the b'yer of the option the right& witho't the obligation& to b'y or sell a specified asset at an agreed price on or 'pto a partic'lar date =or ac3'iring this right& the b'yer has to pay a premi'm to the seller !he seller on the other hand& has the obligation to b'y or sell that specified asset at that agreed price !his makes options more of an ins'rance prod'ct where the downside risk is co,ered for the payment of a certain fixed premi'm So the loss wo'ld be minimised to the extent of the premi'm paid& like in an ins'rance prod'ct Par +a)*e1 Nominal ,al'e of shares of common stock as legally carried on the books of a corporation P"rt&")i" !"nstr*!ti"n1 - component of the in,estment process that in,ol,es identifying which assets to in,est in and determining the proportion of f'nds to in,est in each of the assets P"rt&")i" Di+ersi&i!ati"n1 !he process of adding sec'rities to a portfolio in order to red'ce the portfolio 'ni3'e risk and thereby& the portfolio total risk P"rt&")i" manager1 -n indi,id'al who 'tilises the information pro,ided by financial analysts to constr'ct a portfolio of financial assets P"rt&")i" (er&"rman!e E+a)*ati"n1 - component of in,estment process in,ol,ing periodic analysis of how a portfolio performed in term of both ret'rn earned and risk inc'rred P"rt&")i" re+isi"n1 - component of in,estment process in,ol,ing periodically repeating the process of setting in,estment policy cond'cting sec'rity:s analysis and constr'cting portfolio Re(" rate1 >ate of interest in,ol,ed in a rep'rchase agreement Risk1 Cncertainty associated with the end of period ,al'e of an asset Risk4 &ree asset1 -n asset whose ret'rn o,er a gi,en holding period is certain and known at the beginning period Se!*rit 1 =inancial asset& a legal representation of the right to recei,e prospecti,e f't're benefits 'nder stated conditions Se!*rit ana) sis1 - component of the in,estment process that in,ol,es in determining the prospecti,e f't're benefits of a sec'rity& the conditions 'nder which s'ch benefits will be recei,ed& and likelihood that s'ch conditions will occ'r Se!*rit market )ine1 Beri,ed from capital asset pricing model& a linear relationship between the Expected >et'rns and sec'rities& and risk of those sec'rities& with risk expressed as the sec'rity:s beta S("t Transa!ti"n1 - spot transaction is the p'rchase or sale of foreign c'rrency at a fixed price& with deli,ery and payment to take place on the second b'siness day after the day of the transaction !ransactions with ,al'e dates (dates when payment and deli,ery are made) 'p to and incl'ding se,en b'siness days from the date of trading are also considered spot transactions& s'b@ect to agreement between

the parties at the time of the deal In s'ch cases& the b'yer has to pay slightly more an amo'nt worked into the exchange rate for the facility Most spot transactions are concl'ded o,er the telephone S'bse3'ent confirmation by the c'stomer is not necessary if the transaction is cond'cted ,ia foreign c'rrency acco'nts at the bank St"!k market Inde#1 - stock market index is like a good thermometer which acc'rately capt'res the o,erall changes in the stock market Mo,ements of the index represent the ret'rns obtained by typical share portfolios in the co'ntry S stemati! risk1 Same as market risk 7!he portion of sec'rity:s total risk that is related to mo,es in the market portfolio hence cannot be di,ersified away Te!hni!a) Ana) sis1 It is an -nalysis of the Market T"ta) risk1 Standard Be,iation of the ret'rn on a sec'rity or portfolio T*rn4ar"*nd C"m(an 1 It is an emerging Bl'e 8hip 8ompany which exhibits potentialities of growth and expansion in gross Block& Sales and Net profit 7ni6*e risk1 - portion of sec'rity:s total risk that is not related to mo,es in the market portfolio 7ns stemati! Risk1 - 8ompany specific risk is called an Cnsystematic >isk Varian!e1 S3'are ,al'e of the Standard Be,iation 8ie)d4T"4Mat*rit $8TM'1 Mield7to7mat'rity is the ann'ali1ed rate of ret'rn in percentage terms on a fixed income instr'ment s'ch as bond or debent're& taking into acco'nt co'pon rates& fre3'ency of payo'ts and capital gains or losses It is the composite rate of ret'rn of all payo'ts& co'pon and capital gains S'ppose& there is a choice of in,esting in two bonds iss'ed by two companies Q one where an interest warrant ann'ally at "; per cent is recei,able and the other where the interest payo't is spread o't o,er ") monthly installments at a rate of "% % per cent /n the face of it& the first instr'ment offers yo' a higher ret'rn B't the co'pon payments alone (payo'ts thro'gh interest warrants) do not gi,e a correct pict're abo't the yield of the instr'ment !his is beca'se the yield on an instr'ment will rise with the fre3'ency of payo'ts Beca'se& the yield to mat'rity also takes into acco'nt the capital gain (or loss) at the time of mat'rity