SECURITIES ANALYSIS

GRADED
ASSIGNMENT 2

SUBMITTED BY: Dipak Kumar Sah

Goyal

SUBMITTED TO:Prof. Maninder

BBA 6TH SEM.

Asst.Professor

Q.1 Explain in detail the types of risk and return that are associated with bonds.
A bond is an "IOU" for money loaned by an investor to the bond's issuer. In return for the use of
that money, the issuer agrees to pay interest to the investor at a stated rate known as the "coupon
rate." At the end of an agreed-upon time period when the bond "matures" the issuer repays the
investor's principal.
Following are the types of risk associated with the bonds:
1. Interest rate risk
Risk that a rise (fall) in interest rates will result in a decline (rise) in the bonds value.
Interest rates and bond prices carry an inverse relationship; as interest rates fall, the price
of bonds trading in the marketplace generally rises. Conversely, when interest rates rise,
the price of bonds tends to fall. This happens because when interest rates are on the
decline, investors try to capture or lock in the highest rates they can for as long as they
can. To do this, they will scoop up existing bonds that pay a higher interest rate than the
prevailing market rate.
Let's look at an example:
Example - Interest Rates and Bond Price
An investor owns a bond that trades at par value and
carries a 4% yield. Suppose the prevailing market
interest rate surges to 5%. What will happen? Investors
will want to sell the 4% bonds in favor of bonds that
return 5%, which in turn forces the 4% bonds' price
below par.
2. Inflation risk
Risk that a rise (decline) in inflation will result in a decrease (increase) in the bonds
value.
When an investor buys a bond, he or she essentially commits to receiving a rate of return,
either fixed or variable, for the duration of the bond or at least as long as it is held.
But what happens if the cost of living and inflation increase dramatically, and at a faster
rate than income investment? When that happens, investors will see their purchasing
power erode and may actually achieve a negative rate of return (again factoring in
inflation).

Put another way, suppose that an investor earns a rate of return of 3% on a bond. If
inflation grows to 4% after the bond purchase, the investor's true rate of return (because
of the decrease in purchasing power) is -1%.
3. Business risk
Risk that the bonds value will decline due to problems with the companys business.
This is the most familiar of all risks. Also referred to as volatility, market risk is the dayto-day fluctuations in a stock's price. Market risk applies mainly to stocks and options. As
a whole, stocks tend to perform well during a bull market and poorly during a bear
market - volatility is not so much a cause but an effect of certain market forces. Volatility
is a measure of risk because it refers to the behavior, or "temperament", of your
investment rather than the reason for this behavior. Because market movement is the
reason why people can make money from stocks, volatility is essential for returns, and
the more unstable the investment the more chance there is that it will experience a
dramatic change in either direction.
4. Liquidity risk
Risk that investors will be unable to find a buyer or seller for a bond when they need to
sell or buy. While there is almost always a ready market for government bonds, corporate
bonds are sometimes entirely different animals. There is a risk that an investor might not
be able to sell his or her corporate bonds quickly due to a thin market with few buyers
and sellers for the bond.
Low interest in a particular bond issue can lead to substantial price volatility and possibly
have an adverse impact on a bondholder's total return (upon sale). Much like stocks that
trade in a thin market, you may be forced to take a much lower price than expected to sell
your position in the bond.
5. Financial risk
How the firm raises money could affect the financial performance of the firm and the
value of the bonds
6. Political or regulatory risk
Unanticipated changes in the tax or legal environment will have an impact on a
companys bonds. Political risk represents the financial risk that a country's government
will suddenly change its policies. This is a major reason why developing countries lack
foreign investment.
7. Exchange rate risk

Risk that changes in exchange rates will impact profitability for firms working
internationally. When investing in foreign countries you must consider the fact that
currency exchange rates can change the price of the asset as well. Foreign-exchange
risk applies to all financial instruments that are in a currency other than your domestic
currency. As an example, if you are a resident of America and invest in some Canadian
stock in Canadian dollars, even if the share value appreciates, you may lose money if the
Canadian dollar depreciates in relation to the American dollar.
Following are the return associated with the bonds:
Yield is a figure that shows the return you get on a bond. The simplest version of yield is
calculated using the following formula: yield = coupon amount/price. When you buy a bond at
par, yield is equal to the interest rate. When the price changes, so does the yield.
Let's demonstrate this with an example. If you buy a bond with a 10% coupon at its $1,000 par
value, the yield is 10% ($100/$1,000). Pretty simple stuff. But if the price goes down to $800,
then the yield goes up to 12.5%. This happens because you are getting the same guaranteed $100
on an asset that is worth $800 ($100/$800). Conversely, if the bond goes up in price to $1,200,
the yield shrinks to 8.33% ($100/$1,200).
A bond's issuer agrees to repay the investor the principal amount invested at the bond's maturity
date, along with regular interest payments at the bond's stated coupon rate.
Because bonds tend not to move in tandem with stock investments, they help provide
diversification in an investor's portfolio. They also provide investors with a steady income
stream, usually at a higher rate than money market investments. Zero-coupon bonds and
Treasury bills are exceptions: The interest income is deducted from their purchase price and the
investor then receives the full face value of the bond at maturity.
All bonds carry some degree of "credit risk," or the risk that the bond issuer may default on one
or more payments before the bond reaches maturity. In the event of a default, you may lose some
or all of the income you were entitled to, and even some or all of principal amount invested. To
help measure credit risk, many bonds are rated by independent entities such as Moody's and
Standard & Poor's (S&P). Ratings run from Aaa (Moody's) or AAA (S&P) through D (for
default), based on the rater's appraisal of the issuer's creditworthiness. Aaa (Moody's) and AAA
(S&P) are the highest credit ratings. Ratings better than BBB (S&P) and Baa (Moody's) are
considered to be "investment grade."
Bonds that are rated below investment grade (that is, BB or lower by S&P, Ba or lower by
Moody's) are sometimes called "junk" bonds. They may be appropriate for investors who can
withstand higher price volatility and default risk while seeking increased investment cash flow
potential.

Like stocks, all bonds can present the risk of price fluctuation (or "market risk") to an investor
who is unable to hold them until the maturity date (when the original principal amount is repaid
to the bondholder). If an investor is forced to sell or liquidate a bond before it matures, and the
bond's price has fallen, he or she will lose part of the principal investment as well as the future
income stream.

Q.2 Explain in detail the procedure for listing in BSE and NSE.
Listing means admission of securities to dealings on a recognized stock exchange. The securities
may be of any public limited company, Central or State Government, quasi-governmental and
other financial institutions/corporations, municipalities, etc.
The objectives of listing are mainly to:

provide liquidity to securities;

mobilize savings for economic development;

Protect interest of investors by ensuring full disclosures.

Following are the procedure for listing in BSE and NSE:

1. For listing Initial Public Offerings (IPO) are as below:
Paid up Capital
The paid up equity capital of the applicant shall not be less than 10 crores * and the capitalisation
of the applicant's equity shall not be less than 25 crores**
* Explanation 1
For this purpose, the post issue paid up equity capital for which listing is sought shall be taken
into account.
** Explanation 2
For this purpose, capitalization will be the product of the issue price and the post issue number of
equity shares. In respect of the requirement of paid-up capital and market capitalization, the
issuers shall be required to include, in the disclaimer clause of the Exchange required to put in
the offer document, that in the event of the market capitalisation (Product of issue price and the
post issue number of shares) requirement of the Exchange not being met, the securities would not
be listed on the Exchange.
Conditions Precedent to Listing:
The Issuer shall have adhered to conditions precedent to listing as emerging from inter-alia from
Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange
Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also

any circular, clarifications, guidelines issued by the appropriate authority under foregoing
statutes.
At least three years track record of either:
The applicant seeking listing; or
The promoters****/promoting company, incorporated in or outside India or Partnership firm and
subsequently converted into a Company (not in existence as a Company for three years) and
approaches the Exchange for listing. The Company subsequently formed would be considered
for listing only on fulfillment of conditions stipulated by SEBI in this regard.
For this purpose, the applicant or the promoting company shall submit annual reports of three
preceding financial years to NSE and also provide a certificate to the Exchange in respect of the
following:
The company has not been referred to the Board for Industrial and Financial Reconstruction
(BIFR). The networth of the company has not been wiped out by the accumulated losses
resulting in a negative networth The Company has not received any winding up petition admitted
by a court.
****Promoters mean one or more persons with minimum 3 years of experience of each of them
in the same line of business and shall be holding at least 20% of the post issue equity share
capital individually or severally.
The applicant desirous of listing its securities should satisfy the exchange on the following:
No disciplinary action by other stock exchanges and regulatory authorities in past three
years
There shall be no material regulatory or disciplinary action by a stock exchange or regulatory
authority in the past three years against the applicant company. In respect of
promoters/promoting company (ies), group companies, companies promoted by the
promoters/promoting company (ies) of the applicant company, there shall be no material
regulatory or disciplinary action by a stock exchange or regulatory authority in the past one year.
Redressal Mechanism of Investor grievance
The points of consideration are:
The applicant, promoters/promoting company (ies), group companies, companies promoted by
the promoters/promoting company (ies) track record in redressal of investor grievances
The applicant's arrangements envisaged are in place for servicing its investor.
The applicant, promoters/promoting company(ies), group companies, companies promoted by
the promoters/promoting company(ies) general approach and philosophy to the issue of investor
service and protection defaults in respect of payment of interest and/or principal to the
debenture/bond/fixed deposit holders by the applicant, promoters/promoting company(ies),
group companies, companies promoted by the promoters/promoting company(ies) shall also be
considered while evaluating a company's application for listing. The auditor's certificate shall
also be obtained in this regard. In case of defaults in such payments the securities of the applicant
company may not be listed till such time it has cleared all pending obligations relating to the
payment of interest and/or principal.

Distribution of shareholding
The applicant's/promoting company(ies) shareholding pattern on March 31 of last three calendar
years separately showing promoters and other groups' shareholding pattern should be as per the
regulatory requirements.
Details of Litigation
The applicant, promoters/promoting company (ies), group companies, companies promoted by
the promoters/promoting company (ies) litigation record, the nature of litigation, status of
litigation during the preceding three years period need to be clarified to the exchange.
Track Record of Director(s) of the Company
In respect of the track record of the directors, relevant disclosures may be insisted upon in the
offer document regarding the status of criminal cases filed or nature of the investigation being
undertaken with regard to alleged commission of any offence by any of its directors and its effect
on the business of the company, where all or any of the directors of issuer have or has been
charge-sheeted with serious crimes like murder, rape, forgery, economic offences etc.
Note:
a) In case a company approaches the Exchange for listing within six months of an IPO, the
securities may be considered as eligible for listing if they were otherwise eligible for listing at
the time of the IPO. If the company approaches the Exchange for listing after six months of an
IPO, the norms for existing listed companies may be applied and market capitalization be
computed based on the period from the IPO to the time of listing.
2. For securities of existing companies:
Paid up Capital & Market Capitalisation
The paid-up equity capital of the applicant shall not be less than 10 crores * and the market
capitalisation of the applicant's equity shall not be less than 25 crores**
Provided that the requirement of 25 crores market capitalisation under this clause 1(a) shall not
be applicable to listing of securities issued by Government Companies, Public Sector
Undertakings, Financial Institutions, Nationalized Banks, Statutory Corporations and Banking
Companies who are otherwise bound to adhere to all the relevant statutes, guidelines, circulars,
clarifications etc. that may be issued by various regulatory authorities from time to time.
or
The paid-up equity capital of the applicant shall not be less than 25 crores * (In case the market
capitalisation is less than 25 crores, the securities of the company should be traded for at least
25% of the trading days during the last twelve months preceding the date of submission of
application by the company on at least one of the stock exchanges where it is traded.)
or
The market capitalisation of the applicant's equity shall not be less than 50 crores. **
* Explanation 1 For this purpose the existing paid up equity capital as well as the paid up equity
capital after the proposed issue for which listing is sought shall be taken into account.

** Explanation 2 The market capitalisation shall be calculated by using a 12 month moving

average of the market capitalisation over a period of six months immediately preceding the date
of application. For the purpose of calculating the market capitalisation over a 12 month period,
the average of the weekly high and low of the closing prices of the shares as quoted on the
National Stock Exchange during the last twelve months and if the shares are not traded on the
National Stock Exchange such average price on any of the recognised Stock Exchanges where
those shares are frequently traded shall be taken into account while determining market
capitalisation after making necessary adjustments for Corporate Action such as Rights / Bonus
Issue/Split.
*** Explanation 3 Networth means Paid up equity capital + Free Reserves i.e. reserve, the
utilization of which is not restricted in any manner may be taken into consideration excluding
revaluation reserves Miscellaneous Expenses not written off Balance in profit and loss
account to the extent not set off.
Conditions Precedent to Listing:
The applicant shall have adhered to conditions precedent to listing as emerging from inter-alia,
Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange
Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also
any circular, clarifications, guidelines issued by the appropriate authority under foregoing
statutes.
At least three years track record of either:
The applicant seeking listing; or
The promoters****/promoting company, incorporated in or outside India or
For this purpose, the applicant or the promoting company shall submit annual reports of three
preceding financial years to NSE and also provide a certificate to the Exchange in respect of the
following:
The company has not been referred to the Board for Industrial and Financial Reconstruction
(BIFR)
The networth of the company has not been wiped out by the accumulated losses resulting in a
negative networth.
The company has not received any winding up petition admitted by a court.
The applicant desirous of listing its securities should also satisfy the Exchange on the following:
No Disciplinary action has been taken by other stock exchanges and regulatory authorities
in the past three years
The applicant, promoters/promoting company(ies), group companies, companies promoted by
the promoters/promoting company(ies) have not been in default in payment of listing fees to any
stock exchange in the last three years or has not been delisted or suspended in the past and has
not been proceeded against by SEBI or other regulatory authorities in connection with investor
related issues or otherwise.
Redressal mechanism of Investor grievance

The points of consideration are:

The applicant, promoters/promoting company(ies), group companies, companies promoted by
the promoters/promoting company(ies) track record in redressal of investor grievances
The applicants arrangements envisaged are in place for servicing its investor
The applicant, promoters/promoting company(ies), group companies, companies promoted by
the promoters/promoting company(ies) general approach and philosophy to the issue of investor
service and protection
defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit
holders by the applicant, promoters/promoting company(ies), group companies, companies
promoted by the promoters/promoting company(ies) shall also be considered while evaluating a
companys application for listing. The auditors certificate shall also be obtained in this regard.
In case of defaults in such payments, the securities of the applicant company may not be listed
till such time it has cleared all pending obligations relating to the payment of interest and/or
principal.
Distribution of shareholding
The applicant company/promoting company(ies) shareholding pattern on March 31 of preceding
three years separately showing promoters and other groups shareholding pattern should be as per
the regulatory requirements.
Details of Litigation
The applicant, promoters/promoting company(ies), group companies, companies promoted by
the promoters/promoting company(ies) litigation record, the nature of litigation, status of
litigation during the preceding three years need to be clarified to the exchange.
Track Record of Director(s) of the Company
In respect of the track record of the directors, relevant disclosures may be insisted upon in the
offer document regarding the status of criminal cases filed or nature of the investigation being
undertaken with regard to alleged commission of any offence by any of its directors and its effect
on the business of the company, where all or any of the directors of issuer have or has been
charge-sheeted with serious crimes.
Change in Control of a Company/Utilisation of funds raised from public
In the event of new promoters taking over listed companies which results in change in
management and/or companies utilising the funds raised through public issue for the purposes
other than those mentioned in the offer document, such companies shall make additional
disclosures (as required by the Exchange) with regard to change in control of a company and
utilisation of funds raised from public.
Note:
Where an unlisted company merges with a company listed on other stock exchanges and the
merged entity seeks listing on the NSE, the Exchange may grant listing to the merged entity only
if the listed company (prior to the merger with the unlisted company) meets all the criteria for
listing on its own account or the unlisted company meets the requirements for listing on the
Exchange, except for the market capitalisation condition, on its own account. In case either of the
above conditions are not met then such company may be considered for listing after a minimum

period of 18 months or more or after the publication of two annual reports whichever is later,
provided it satisfies the criteria at that point of time.