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Portfolio Management at Promarket Analytics

CASELET, FINANCIAL MANAGEMENT
ET Cases, 6 pages

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Portfolio Management at Promarket Analytics

 

On the afternoon of April 24th 2014, two young analysts Himansu and Suditi at Promarket Analytics (Promarket) were preparing for their regular weekly review meeting. Focussing on domestic capital markets, Promarket offered comprehensive investment banking solutions covering personal wealth management, portfolio solutions, equity and fixed income investment, mergers and acquisitions advisory and restructuring advisory. This weekly review meeting was not an unusual  phenomenon at Promarket and it was a time where each analyst had to put forward his/her views regarding the economic fundamentals and the expected behavior of portfolio that they were monitoring. Since, only one day was remaining to consolidate the report, the two analysts were worried about the repeated calls they received from the retail clients, and how to assess the market movement with economic significance.

Retail clients were worrying about the recent boom in the market with both the National Stock Index (S&P CNX Nifty) and Bombay Stock Index (S&P BSE Sensex) touching new high almost every day (Exhibit I). The day before markets’ scaled new highs with BSE Sensex that rose nearly 70 points to hit 22,620 and S&P CNX Nifty rose 24 points to hit its fresh high of 6776. Despite all kinds of economic news, everyone in the market wished to know whether the current market rally was real, and moreover, would it sustain. This reminded the investors about the sudden crash in 2008, which had left them shattered. The common query from clients’ side was, “Was it different this time?”, and there was fear in the market based on the earlier experiences that whenever Sensex crossed 21,000-mark, on both occasions, it had fallen sharply.1 Himansu and Suditi often come across potential clients wanting to know which way the benchmark indices, Sensex and Nifty would move from the current levels. The next common question they encountered was: “When was the right time to invest?”2.................................

 


 
  • 1 Ninan O. A., “Is the stock market rally sustainable?”, www.thehindu.com, November 2013
  • 2 N. P. Deoras, “Why Timing The Market Can Hurt”, http://www.business-standard.com, June 2013

Teaching Note Preview

Portfolio Management at Promarket Analytics

 

Synopsis

The caselet discusses portfolio decision dilemma of two young analysts in an investment firm. In the due course of their client interaction meeting during the market boom of April 2014, the young analysts found a critical situation regarding the stock market and economic fundamental analysis. While certain economic fundamentals support the current market states, few critical aspects also suggest that the market levels of different indices may not be supported. In one of the very specific client interaction meeting the analysts try to ascertain the different asset class in terms of the stock market indices to suggest a specific asset combination that can generate a higher return.

Prerequisite Conceptual Understanding

  • • Zvi Bodie, et al., Chapter 7 and Chapter 18: Investments, 8th Edition, McGraw-Hill/Irwin, June 18th 2008
  • • Frank K. Reilly and Keith C. Brown, Chapter-7: Investment Analysis & Portfolio Management, 8th Edition, Cengage Learning, January 2nd 2005
  • • Mark Hirschey and John Nofsinger, Chapter 4 and 9:Investment Analysis and Behavior, 1st Edition, McGraw-Hill/Irwin, December 1st 2006

 

Positioning and Setting

This caselet is intended for the Macroeconomic and Industry Analysis and Portfolio Management module of Security Analysis and Portfolio Management  Course. This caselet can be used for the courses/modules:

  • • Security Analysis and Portfolio Management – To understand the relationship between macroeconomic indicators and portfolio selection
  • • Security Analysis and Portfolio Management – To understand E-I-C (Economy, Industry and Company) analysis and establishing a relationship between E-I-C analysis and portfolio construction

 

Expected Learning Outcomes

  • • Understand the relationship between macroeconomic indicators and stock market behavior
  • • Forecast aggregate stock market
  • • Understand risk and return behavior in the portfolio asset allocation

 

Assignment Questions

  • I. If the stock market is the leading indicator of the economy, how and why the macroeconomic variables like GDP growth rate, interest rate, inflation, investment to GDP ratio, etc., are important to analyze the stock market behavior?
  • II. Estimate the Index values of BSE Sensex and CNX Nifty for the year 2015 and 2016. Do you think the Indian stock market is overvalued? Make a scenario analysis.
  • III. ..............

 

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Abstract


This caselet, meant to be a part of Security Analysis and Portfolio Management Course can be used to ascertain whether and how a progressive portfolio can be constructed based on the macroeconomic indicators. Specifically, this caselet tests the student’s ability to connect the dots between macroeconomic indicators, investment objectives, stock indices, risk-return profile and financial instruments. Himansu and Suditi, analysts with Promarket Analytics, the protagonists of this caselet, have to submit a comprehensive report during their review meeting giving their recommendations on the active portfolio construction. On the backdrop of buoyant stock market and macroeconomic scenario Himansu and Suditi have to think through the appropriate analysis before submitting their report for maximising return.



Pedagogical Objectives

  • To analyze the relationship between macroeconomic indicators and stock market behavior
  • To forecast aggregate stock market
  • To understand risk and return behavior in the portfolio asset allocation

Positioning and Setting
This caselet is intended for the Macroeconomic and Industry Analysis and Portfolio Management module of Security Analysis and Portfolio Management Course. This caselet can be used for the courses/modules:

  • Security Analysis and Portfolio Management - To understand the relationship between macroeconomic indicators and portfolio selection
  • Security Analysis and Portfolio Management - To understand E-I-C (Economy, Industry and Company) analysis and establishing a relationship between E-I-C analysis and portfolio construction



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- Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
$3.66
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