Fin Fastrack

Session on Markets
 1. Roles offered

2. Preparation structure (role specific)

3. Market macros
Agenda
4. Technical prep
- Buy - side
- Equity
- Debt, forex
1. Roles offered
 1. Buy-side – Private equity, Asset Mgmt co.s

Profile – To value companies and decide whether to buy them or not

Nature of work – Market research, Valuation, Pitching
Companies – Blackstone, Temasek, Fidelity
Roles offered
2. Markets – Equity, Debt, Forex

Profile – Broking (sales and/ or trading)

Nature of work – Analyzing markets and macros
Companies – Banks
2. Preparation structure (role specific)
 1. HR questions

2. Researching the company and its Common across

competitive environment profiles

3. Market macros
Preparation
structure (1/2) 4. Technical prep

Buy-side – IB content

Equity – IB content, understanding price movement, market

mechanisms

Debt, Forex – General know how of debt/ forex markets in India (and
abroad), understanding market mechanisms
 Researching the company
Good to know +
conversation General overview of company and its businesses
filler during
PPT
European/ American origin

CEO – global, India

Preparation
Competitors and their market share (roughly)
structure (2/2)
Recent news (or deals – in case of buy-side)

Do not ask them about controversies…...

3. Market macros
 Market variables – Inflation, Interest rates, GDP, Unemployment etc.

Market policies – fiscal, monetary, exchange rates

Oil, gold, stock market

Exchange rates

Market macros Politics (in terms of impact on economy – farm loan waiver etc.)

Recent events (Demon, GST, Bankruptcy code, Tata, Infosys issues etc.)

Tip: Prepare a one RBI basic read up (MPC, interest rate determination, NPA issue etc.)
pager per topic and
read from that a day International economies (USA, Euro-zone, Britain, China etc.)
before (rather than
scanning a ton of
newspapers) Global events (Recent – Brexit etc. and older – 2008 crisis for e.g.)
4. Technical prep
 Buy-side
Tip: Damodaran is a Recent deals – M&A, buyouts, divestments, SBI merger, cross border etc.
great source about
anything in valuation
Recent IPOs – know at least one IPO inside out

Ratio analysis
Technical prep
DCF valuation (free cash flow method)
(1/4)
Relative valuation – P/E, P/BV, EV/EBITDA

Pitching a stock – don’t pick banking or pharma if not comfortable

Sector analysis – have an opinion

 Equity

Equity landscape – India and abroad

Broking industry – get a sense of how the industry works

Types of equity instruments (preferred stock etc. – SEE EXHIBIT)

Technical prep
Trading lingo (bid ask spread, types of orders etc. – SEE EXHIBIT)
(2/4)
High frequency trading, dark pool and similar concepts

Tip: Start tracking How equity derivatives markets work, types of instruments
markets broadly
Buy side prep
 Debt, Forex

Debt, forex market landscape – India and abroad, market size etc.

Relationship between bond yield and price

Duration and convexity, yield curve

Technical prep
Impact of interest rates on bond prices and exchange rate
(3/4)
Types of risks in fixed income securities – default, interest rate risk etc.

Types of instruments (zero coupon bond, swaps etc. – SEE EXHIBIT)

Derivatives market for debt, forex (exchange traded and OTC)

Why markets in India are underdeveloped (see SEBI/ RBI papers etc.)
 Derivatives
Investopedia is
a good source Basic instruments – forwards, futures, options, swaps
for basics
Pay off diagrams

Devising a derivatives strategy for a given objective

Technical prep
(4/4) Math puzzles
 Thank you and good luck!
For any questions, please refer to the Networth module on Markets as well resources such as Investopedia.com
Exhibits
1. Current Affairs: Economy Perspective
  Prime Lending Rate
 Repo Rate
 Reverse Repo Rate
 Money Markets

 Fiscal Policy
 Government spending
 Fiscal deficit
Basics of  Monetary Policy
Economy  Money supply in the economy

 Inflation
 CPI – Focus on food and retail prices
 WPI – Focus on wholesale prices and industry

 Exchange Rate
 Pegged vs Floating
 Economic Event Inflation Interest Rates Bond Prices

Unemployment figures
Up Up Down
low

Impact of Dollar weakens against

Up Up Down
Yen
Economic
Events Consumer confidence
Down Down Up
Low

Stock Market drops Down Down Up

Companies report
Up Up Down
healthy earnings
  Reserve Bank of India
 Governor: Urjit Paterl
 Interest rate cuts (What is MCLR?)
 Governor Raghu Ram Rajan completed his term
 Domestic consumption driven
Indian  Services sector dominated
Economy  Goods & Services Tax
 Bankruptcy Code
 NPAs issue
 Industry Slowdown
 Willful Defaulter
  Federal Reserve Bank
 Chairperson: Janet Yellen
 Fed Dilemma
 To raise or not to raise
USA  Presidential Elections
Economy  Regulations in Fin Industry
 Archives:
 2001 Dot Com Boom Bust
 2008 Global Financial Crisis
  People’s Bank of China
 Exports heavy, manufacturing hub
 Focus shifting to domestic consumption and services
 Real Estate market bubble
China  Ghost townships
Economy  Archives:
 2015 Market Crash

Chinese Stock Market Crash: Causes and Consequences

  Prime Minister: Shinzo Abe
 Bank of Japan (BoJ)
 Governor: Haruhiko Kuroda
 Negative Interest Rates
Japan  Tepid Economic Growth
Economy  Suppressed consumption
 Deflation
 Ageing population
 Abenomics
 Recent focus on Yield Curve

What Ails Japan?

  European Central Bank (ECB)
 President: Mario Draghi
 Unconventional Monetary Policy
Eurozone  Negative Interest Rates

Economy  Brexit
 Immigration issue
 The issue with PIGS nations
 Greek Debt Crisis
  Brazil Debt Crisis
 Venezuela Government Debt Crisis
 Italian Bank NPA Issues
International
 Deutsche Bank situation in Germany
News
 Restructuring of Government policies in Saudi Arabia
 Archives:
 1997 Asian Financial Crisis
  The Networth Blog http://macrohappenings.wordpress.com
 GST Article
 Brexit (Part 1 & 2)
 Monetary Policy
 Union Budget 2016
Further  BoJ’s negative rate decision
References  http://Investopedia.com
 Macro economic Policy Environment by Shyamal Roy
 Options, Futures, and Other Derivatives by John C. Hull
2. Technical prep
  Securities
 Buy Low, Sell High
 Primary and Secondary Market
 Clearing House
 Risk Return Trade-off
 Bonds – low risk, low return
 Equities – high risk, high return
Equities  Exchange Traded vs OTC
 Bid vs Ask
 Price at which you sell vs Price at which you buy

 Long vs Short Positions

 Owned vs Owed

 Hedging vs Speculation
 Risk mitigation vs betting

 LIBOR (London Interbank Offered Rate)

  High risk, high return
 Common Stock vs Preferred Stock
 Returning money to shareholders
 Dividends
Equities
 Share buybacks
 Share price
 Determined through the future cash flow
 Share premium
  Fixed Income (Low risk)
 Zero coupon vs Coupon Paying
 Bond concepts
 Pricing through Net Present Value
 Yield to Maturity (YTM)
 Yield Curve
Debt Markets:  Impact of Interest rate fluctuations
Bonds  Inverse relationship between price and rate
 Risks
 Assessment using Credit Ratings
 Default risk (Credit risk)
 Classification based on risk
 High Yield Bonds
 Investment Grade Bonds
Debt
Markets:
Yield Curve
  Value derived from underlying
 Buy/Sell underlying at a fixed price at a fixed future date
 Underlying can be
 Equity
 Commodity (Crude oil, wheat, gold etc.)
 Interest rate
Derivatives  Exchange rate

 Mainly used for risk management

 Forwards
 Traded OTC, hence flexible

 Futures
 Traded through exchange, hence standardized
  Options
 Buyer vs Writer Belief/Call Action to Take
 Not an obligation!
Buy a Call
 Pay option premium Stock will go up
Write a Put
 Types
Buy a Put
 Call option Stock will go down
Derivatives  Put option
Write a Call
Continued…
 Swaps
 Parties exchange financial instruments
 Examples
 Interest Rate Swaps
 Currency Swaps
 Credit Default Swaps (CDS)