A STUDY ON

EQUITY SHARES
A Project Report Submitted to JNTU University, KAKINADA in Partial Fulfilment of the Requirements for Award of the Degree Of

MASTER OF BUSINESS ADMINISTRATION

In the subject

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

Submitted by

MALLA.HARIKRISHNA (Reg. No. 11PM1E0012)

Under the guidance of

Mr. B. BALARAMM.Com. M.B.A., M.Phil., (Ph.D.)

Assoc prof. MBA

Department Of Management Studies AITAM SCHOOL OF COMPUTER SCIENCES AND MANAGEMENT

(Approved by AICTE, New Delhi & Affiliated to JNTU, Kakinada) K.KOTTURU, TEKKALI-532201 (2011-2013)

CONTENTS 1) Introduction 2) Investment alternatives 3) Equity shares 4) Suggestions 5) Conclusion INTRODUCTION

Investment is the employment of funds an asset with the aim of earning income or capital appreciation Investment is a sacrifice of money or other recourses for future benefits. One common question I generally ask people is Why do you invest? Most answer because they want to multiply their wealth, become rich, etc. Everyone wants to become rich so they invest to multiply their wealth. Investment can be considered in various sources/vehicles such as equities, real asset, gold, etc.. An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

Various Investment Alternatives

Corporate bonds: - A commercial surety bond is sometimes referred to as a "non-contract bond" because it does not guarantee a specific contract like a construction bond would. However, commercial bonds are more commonly referred to as "license and permit bonds." Preference shares: -Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation.

Equity shares: - Equity shares are those shares which are ordinary in the course of company's business. They are also called as ordinary shares. These share holders do not enjoy preference regarding payment of dividend and- repayment of capital. Derivatives: - A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. Government Securities: - A government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default. Life Insurance: - A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured.

Private Insurance Companies:- A company that offers insurance policies to the public, either by selling directly to an individual or through another source such as an employee's benefit plan. An insurance company is usually comprised of multiple insurance agents. Unit trust of India:- An registered of investment company which purchases a fixed, unmanaged portfolio of income-producing securities and then sells shares in the trust to investors. The major difference between a Unit Trust and a mutual fund is that a mutual fund is actively managed, while a unit investment trust is not managed at all. Commercial Banks:- An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. Provident Fund:- A fund into which the employer and the employee both pay money regularly, so that when the employee retires or leave A fund into which the employer and the employee both pay money regularly, so that when the employee retires or leaves the company, he or she receives a sum of money.

Post Office Schemes:- Indian Post offers several Savings Schemes which are safe, ( earlier tax rebates, now are interest earned in these schemes are taxed under the income head of Income from Other Sources ) and relatively more interest rates than bank deposits National Savings Schemes: - Program designed to encourage savings through small but regular deposits or automatic deductions from salaries or wages. Fixed Deposit Schemes in companies: - In deposit terminology, the term Fixed Deposit refers to a savings account or certificate of deposit that pays a fixed rate of interest until a given maturity date. Funds placed in a Fixed Deposit usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed. New Instruments: - In general, any financial security such as a bond, stock, check, etc. Money market securities (such as a Treasury Bill, U.S. government bonds, or commercial paper) and capital market securities (such as a mortgage, Certificate of Deposit, or long-term bonds) are also referred to as instruments. Financial Engineering Securities: - Financial Engineering is employing theoretical finance and computer modeling skills to make pricing, hedging, trading and portfolio management decisions. Utilizing various derivative securities and other methods, financial engineering aims to precisely control the financial risk that an entity takes on.

Non-Bank Finance Companies: - Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still exercised under banking regulation Mutual Funds: - An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's

investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. Land and House Property: -A mortgage loan is a loan secured by real property through the use of a mortgage loan which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan. Gold: A particularly valuable precision metal Gold is an element with the atomic number 79. It is used for jewelry, electronics and for other purposes. Historically, gold was used in many cultures as the basis for currency, but this is no longer the case. Investments in gold are often used as a hedge against inflation because it tends to maintain its value over time. Silver: -Silver was one of the earliest metals known to humans, and it has been considered a precious metal since ancient times. Silver has been used as a form of currency by more people throughout history than any other metal, even gold. Although it is usually found in ores with less rare metals, such as copper, lead, and Zink, silver was apparently discovered in nuggets form, called native silver, about 4000 B.C. Silver utensils and ornaments have been found in ancient tombs

Coins and Stamp collection: -Coins of interest to collectors often include those that circulated for only a brief time, coins with mint errors and especially beautiful or historically significant pieces. Coin collecting can be differentiated from numismatics in that the latter is the systematic study of currency The hobby involving the collection and study of postage stamps and their history is called 'stamp collecting'. It can also be called 'philately'; both terms are correct. This term also refers to collecting stamps for reasons other than historical study: some people collect stamps because of the illustrations used on individual stamps, flowers, or aircraft, or buildings, for example; others collect stamps of a particular color. Diamonds & Antiques: - A diamond stimulant may be artificial, natural, or in some cases a combination thereof. While their material properties depart markedly from those of diamond An antique is an old collectable item. It is collected or desirable because of its age (see definition), beauty, rarity, condition, utility, personal emotional connection, and/or other unique features. It is an object that represents a previous era or time period in human society.

INTRODUCTION
Equity Basics: Introduction
Businesses procure money for their operations by issuing debt and equity capital. Companies are legally bound to pay their creditors interest income along with the original capital amount. There are two forms of equity capital: Preference (Preferred) Shares and Equity (Common) Shares. The preference shareholders have priority over equity shareholders in payments of dividends and when the company is terminated. Equity shareholders are the actual owners of the company. They have voting rights and share all the money remaining after the business' obligations are met. Over the last few decades, the average person's interest in the equity market has grown exponentially. This demand coupled with advances in trading technology has opened up the markets so that nowadays nearly anybody can own equity. Despite their popularity, however, most people don't fully understand equity. Chances are you've already heard people say things like "Watch out with equity--you can lose your shirt in a matter of days! People thought that equity were the magic answer to instant wealth with no risk. Equity can (and do) create massive amounts of wealth, but they aren't without risks. The only solution to this is education. The key to protecting yourself in the equity market is to understand where you are putting your money. It is for this reason that we've created this tutorial: To provide the foundation you need to make investment decisions yourself.

The Definition of Equity

Plain and simple, equity is a share in the ownership of a company. Equity represents a claim on the company's assets and earnings. As you acquire more equity, your ownership stake in the company becomes greater. Whether you say shares, equity, it all means the same thing.

Share capital (equity) Equity is the term commonly used to describe the ordinary share capital of a business. Ordinary shares in the equity capital of a business entitle the holders to all distributed profits after the holders of debentures and preference shares have been paid. Ordinary (equity) shares Ordinary shares are issued to the owners of a company. The ordinary shares of UK companies typically have a nominal or 'face' value (usually something like 1 or 5Op, but shares with a nominal value of 1p, 2p or 2Sp are not uncommon). However, it is important to understand that the market value of a company's shares has little (if any) relationship to their nominal or face value. The market value of a company's shares is determined by the price another investor is prepared to pay for them. In the case of publicly-quoted companies, this is reflected in the market value of the ordinary shares traded on the stock exchange (the "share price").

In the case of privately-owned companies, where there is unlikely to be much trading in shares, market value is often determined when the business is sold or when a minority shareholding is valued for taxation purposes.

In your studies, you may also come across "Deferred ordinary shares". These are a form of ordinary shares, which are entitled to a dividend only after a certain date or only if profits rise above a certain amount. Voting rights might also differ from those attached to other ordinary shares.

Being an Owner
Holding a company's equity means that you are one of the many owners (shareholders) of a company and, as such, you have a claim (albeit usually very small) to everything the company owns. Yes, this means that technically you own a tiny sliver of every piece of furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the equity. A stock is represented by a stock certificate. This is a piece of paper that is proof of your ownership. Today its in dematerialized form i.e. in electronic form shares have been kept safe. This is done to make the shares easier to trade. In the past, when a person wanted to sell his or her shares, that person physically took the certificates down to the brokerage. Now, trading with a click of the mouse or a phone call makes life easier for everybody. Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, one vote per share to elect the board of directors at annual meetings is the extent to which you have a say in the company. For instance, being a Reliance shareholder doesn't mean you can call up MukeshAmbani and tell him how you think the company should be run. The management of the company is supposed to increase the value of the firm for shareholders. If this doesn't happen, the shareholders can vote to have the management removed, at least in theory. In reality, individual investors like you and I don't own enough shares to have a material influence on the company.

Debt vs. Equity

Why does a company issue stock? Why would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock. A company can borrow by taking a loan from a bank or by issuing bonds. Both methods fit under the umbrella of debt financing. On the other hand,

issuing stock is called equity financing. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO). It is important that you understand the distinction between a company financing through debt and financing through equity. When you buy a debt investment such as a bond, you are guaranteed the return of your money (the principal) along with promised interest payments. This isn't the case with an equity investment. By becoming an owner, you assume the risk of the company not being successful - just as a small business owner isn't guaranteed a return, neither is a shareholder. As an owner, your claim on assets is less than that of creditors. This means that if a company goes bankrupt and liquidates, you, as a shareholder, don't get any money until the banks and bondholders have been paid out; we call this absolute priority. Shareholders earn a lot if a company is successful, but they also stand to lose their entire investment if the company isn't successful.

Risk
It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. And there is no obligation to pay out dividends even for those firms that have traditionally given them. Without dividends, an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock may go bankrupt, in which case your investment is worth nothing. Although risk might sound all negative, there is also a bright side. Taking on greater risk demands a greater return on your investment. This is the reason why stocks have historically outperformed other investments such as bonds or savings accounts. Over the long term, an investment in stocks has historically had an average return of around 10-12%.

Function:
The prices of equity shares, unlike preference shares, keep fluctuating. The price of the equity is determined by a number of factors, such as the financial standing and viability of both the company and the product, the companys past track record and the present condition of the stock market. Investors can buy equity shares on the stock market, from stock brokers, online stock brokering portals and banks.

Features:
The company provides preemptive rights to all its equity shareholders. When the company issues new equity shares, it must first offer them to the existing equity owners in accordance with their present ownership ratio. For example, an equity owner has 10,000 of the 1 million in issued capital, so he has a 1 percent stake in the company. Next time, whenever new shares are issued, 1 percent of the total issued capital must first be presented to him. It is at the discretion of the shareholder whether to purchase them or decline the offer. When the offer is declined, the company then presents the shares to outside investors.

Benefits:
Equity shareholders are the actual owners of the organization. They are in an advantageous position to influence the direction of the business. They can decide what markets the company must diversify into, the strategies they must employ and how they should be executed. These shareholders get huge dividends when the company makes enormous profits. They get to share whatever remains. Preference shareholders only get the dividends at pre-set rates, irrespective of the quantum of profits.

Considerations;
Equity shares are risky investments as their prices keep fluctuating. Credit rating agencies grade the safety and volatility features of these instruments. The investors must carefully review the ratings and read the prospectus of the company before investing

Different types of Stocks

Common Stock
Common stock is, well, common. When people talk about stocks they are usually referring to this type. In fact, the majority of stock is issued is in this form. We basically went over features of common stock in the last section. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management. Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. (This may vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium). Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares is to see them as being in between bonds and common shares.

How do Stock Price Change

Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. This comes down to figuring out what news is positive for a company and what news is negative. There are many answers to this problem and just about any investor you ask has their own ideas and strategies. That being said, the principal theory is that the price movement of a stock indicates what investors feel a company is worth. Don't equate a company's value with the stock price. The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding. For example, a company that trades at Rs 100 per share and has 1 million shares outstanding has a lesser value than a company that trades at Rs 50 that has 5 million shares outstanding (Rs 100 x 1 million = Rs 100 million while Rs 50 x 5 million = Rs 250 million).

To further complicate things, the price of a stock doesn't only reflect a company's current value, it also reflects the growth that investors expect in the future. The important things to grasp about this subject are the following: At the most fundamental level, supply and demand in the market determines stock price. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless. Theoretically, earnings are what affect investors' valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.

How to Read a Stock/ Quote

A stock quote will look like something below.

Stock Symbol -This is the unique alphabetic name which identifies the stock. If you watch financial TV, youhave seen the ticker tape move across the screen, quoting the latest prices alongside this symbol. If you are looking for stock quotes online, you always search for a company by the ticker symbol. In above stock quote its
Relcapital

52-Week High and Low - These are the highest and lowest prices at which a stock has traded over the previous 52weeks (one year). This typically does not include the previous day's trading.

SUGGESTIONS
Equity Desk focuses on why to buy shares and invest in share rather than what to buy. Live discussion forum wherein members can discuss the current Indian share Market trend, BSE Sensex or the Nifty Index. Have huge cache of information on Indian and World Share Market. Analysis of Indian stock market, Global events, Investing insights, portfolio management strategies and thoughts, Meet investors from round the globe check their investing strategies share experiences and learn for their experiences on stocks and shares, evaluate opinions on investing in India.

CONCLUSION
There is a wide variety of choice available for structuring the investment from external investors. This needs to be thought through by the Board in conjunction with the Company Financial Advisers, and with fund-raising sources who would be likely to know what would be likely to be acceptable to knowledgeable investors.