Portfolio management

Group 2
Akshay Nayak (leader)-50 Saili Sarmalkar-27 Vikram Bandal-02 Ankit Vichare-34 Sayli Patil-37

Primary Equity markets

The primary markets are: Markets for new securities. Generally of long term. Participated in by companies, governments etc. Leads to secondary markets.

Features of primary markets

Market for new long term equity capital. Shares sold for the first time. Directly issued by the company to the public. Facilitates the capital formation in the economy. Financial assets sold can only be redeemed by the original holder.

Methods of issuing securities

Following ways can be used to issue securities in the primary markets: Public issuance, including initial public offering. Rights issue. Preferential issues.

IPO
Initial public offering, in its simplest form means: First sale of stock by company. To convert from Private To Public company. To raise cheap source of finance. To increase market visibility.

Pros and cons

Pros
Diverifying equity base. Cheaper access to capital. Goodwill and corporate image. Multiple financing opportunities.

Cons
Dilution of control. Increased disclosures. Risk of hostile takeovers. Significant legal, accounting and marketing costs. Required funding may not be raised.

Steps for IPO

Develop a deep management team. Develop budgets and measure performance. Appoint independent directors to the board. Create an audit committee. Build a positive public image.

Factors determining attractiveness of the IPO

Attractive track record. Prior venture capital funding. Growth trend in future. Highly visible products and services. Capable and committed management. Timing the market for IPO.

Book-Building process
Book building refers to: The process of generating, capturing and recording investor demand for charges during an IPO. It is done to support efficient price discovery. Currently the most popular way for issuing new shares.

Need of book-building
Drawbacks of free pricing. Better price discovery. Time efficiency. Deriving the demand for a company. Providing business to various intermediaries in the financial system.

Book-Building process
Planning of IPO. Appointing a book runner. Issue a draft prospectus. Prospectus filling with SEBI. Appointing syndicate members. Price discovering process. Fixing final price.

Red herring prospectus

Red herring prospectus is: A document submitted by the company who wishes to have a public offering. It is submitted to the market regulator in which the company wishes to list its securities. It contains all the details regarding the public isssue except for the price.

Contents of a red herring prospectus

The red herring prospectus contains: Purpose of the issue. Proposed offering price range. Disclosures of any option agreement. Underwriters commissions Balance sheet etc.

Legal requirements
Red herring prospectus is a compulsory document required by SEBI, for the following reasons: Provide comprehensive details about the entity. To help investors take informed decisions. To check for inconsistencies in an entities' workings and framework.

Non traded financial assets

A financial asset is the one that earns a financial return. Financial assets which cannot be traded in an conventional way is called a non traded financial asset. These assets don't have an existing market.

Features of non traded financial assets

Doesn't have an effective market. Earns some form of financial return. Can be an asset or a liability. Held-to-maturity in most of the cases. Term of the asset can vary.

Types of non tradable financial assets

There are many types of financial assets, some of them are: Fixed deposits. Recurring deposits. Loans. National saving certificates. Pension and providend funds.

Securitisation
Securitisation is the process of converting existing assets or future cash flows into marketable securities. Assets such as loans, credit card payments etc.are converted into marketable securities. Securitisation makes non tradable assets into marketable securities.