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Markets are at record high and are keeping the investors in a frenzy
while the exuberance in global equity markets is having its rub-off effect on
the Indian markets as well. On the other hand the liquidity driven rally in
global markets is showing no signs of retracement yet. The political decision
making and will power combined with turmoil in some states seems to have affect
positively on the investment market as it rallies high. Among the sectoral
indices in India , BSE Bankex was the best performer with 3% gain, Fast moving
consumer goods – FMCG the worst performer down by 4.2%. Broader markets along
with benchmark indices were seen trading with a positive bias as sensex gaining
0.7% and nifty gaining nothing less than 1% these are positive signs for
growing economy like India and this in turn attracts investments and encourages
investors. This research also centres on assessment of uncertainty ,
contingency and there after management of fiscal risk. Any economy is prone to
credit risk and market risk primarily while secondary risks like forex risk ,
liquidity risk, inflation risk, votality risk and shape risk may also damage
the pecuniary reserves of a firm. Desideratum
to offset potential or substantial losses/gains that may be incurred by an
organization.

 

KEYWORDS –  Market, Risk, Management,Finance.

 

INTRODUCTION

Financial
risk incorporates different type of risk pertaining to financial transactions
that include firm loans in possibility of default. The downside peril of
financial risk is always uncertain and unwanted by any firm because it accounts
for loss and debt. Even the best trading house across the globe can incur loss
with improper risk management. Risk management can be limiting and trade lot
size, hedging, trading only during certain hours or days, or knowing when
to take losses. On the investment side , The US GDP data was below estimates ,
but it has not had major impact on global equity markets, even as the global
GDP growth outlook remains positive. Abundant liquidity in the system aided by
solid corporate earnings growth in the US is expected to keep markets in good
shape. Apart from Federal Reserve maintaining status quo on interest rate for
now amid depreciating dollar and lower inflation , strong domestic cues kept
the market optimism intact. The output of core sectors in India slowed down to
0.4% in June with infra sector slowing down to 19 month low . Moreover , better
than expected corporate results despite GST implementation have restrained
correction in the markets so far. As of now the broader markets are lacking
momentum and the daily moves are driven by handful of stocks that trigger news
based extreme upside momentum. The markets are hitting highs , but the stocks
are highly volatile hence the investors should maintain targets and stop losses
strictly and act accordingly. Investors can add smaller quantities at every dip
in the stocks that have hit their peaks along with the markets.

OBJECTIVES

l  To study the current trends going in market to take
decisive steps on investment management strategy , detailed by latest case
conclusion.

l  To explore the areas associated with risk in firms
and its control by taking effective measures , supported by case study.

Here in this research paper , the
method adopted to conduct the study was extensive research approach. So
starting with the investment front we can say that investors must revisit the
long-term investment thesis and make sure it remains intact. If it doesn’t or
if the investment thesis has been fulfilled , one should then sell the
investment and put the proceeds to work elsewhere. That can happen in less than
a year. A stock is said to under perform if it gives a return that is worse
than an index or the overall stock market. Under performing stocks during
broader market uptrend are generally not good bets for long positions.
Investors who are holding such stocks need to look a bit closely as to why
these are under performing and take a call on whether they should exit the
stock.

Diversification good for
portfolio’s health – study on Virinchi Information Technology firm.

Virinchi healthcare a 100%
subsidiary of Virinchi Information Technology , expanded its footprint into
health care sector by setting up a 600 bed super specialty hospital in the
upmarket Banjara Hills in Hyderabad at an investment of rupees 300 crore. The
company has raised rupees 70 crore from Canara Bank- led consortium of lenders
, while the remaining funds for the project were raised internally. The
concentrated efforts and investments made to move up the value chain in its
chosen market augurs well for the stock. Virinchi is witnessing significant
traction from its existing customers and is able to generate healthy new leads
in the same market. On the financial front Virinchi Limited’s revenue increased
53.9% to rupees 38.76 crore in Q4FY17, as compared to the same period in the
previous fiscal. The company’s PBIDT too increased 144.76% to rupees 5.14 crore
in Q4FY17 on a yearly basis.

On an annual basis the company’s
revenue increased by 39% to rupees 137.15 crore in FY17 from rupees 98.64 crore
in the previous fiscal. The company’s PBIDT (Profit before interest, depreciation and tax) stood at
rupees 21.28 crore in FY17, an increase of 158.56% from rupees 8.23 crore in
the previous fiscal. The firm’s net profit stood at rupees 11.42 crore up over
by 173% in FY17 from rupees 4.18 crore in FY16.

 

RESULT – When
valued , the share price of Virinchi Limited is trading at a PE multiple of
9.94x as against it peers such as NIIT Technologies – 13.24x, Polaris
Consulting & Services – 15.46x . the company’s ROE stood at 13.10% and ROA
at 6.12% in FY17, while its total debt to equity ratio stood at 0.89x in FY17.
This can be termed as result of diversifying the investment for portfolio’s
better performance.

 

Financial
Risk Management

 Systematic risk is the
fundamental economic risk deep-rooted in the system that cannot be diversified
away. According to financial theory, systematic prospect is the only risk for
which equity investors are rewarded. To reduce the risk of an adverse price
movement is through the use of order management and with descendant. Order
management strategies, such as stop-loss orders, can be sparked to avoid excess
losses.

A case study on Financial Risk
Management in BMW – Bayerische Motoren Werke.

With the increasing effectiveness of
internationalization, multinational firms face challenge of sustaining in the
market with their earlier allure .Therefore BMW continuously improves its risk
management system in order to become intimate with the respective country,
industry and product risks and to ensure compliance with their sustainability
standards. BMW took a two-angled approach to manage its foreign exchange
exposure. 

1.    Natural hedge –  In this approach it would develop ways to
spend money in the same currency as where sales were taking place, meaning
revenues would also be in the local currency. 

 

2.    Financial hedge – To reduce
financial loss and manage the risk factor BMW set up regional treasury centres
in the US, the UK and Singapore.

Implementation of the natural hedge strategy was implemented in two ways. The
first involved establishing factories in the markets where it sold its
products; the second involved making more purchases denominated in the
currencies of its main markets. BMW now has production facilities for cars and components in
13 countries. In 2000, its overseas production volume accounted for 20 per cent
of the total. By 2011, it had risen to 44 per cent. BMW had become one of the
first premium carmakers from overseas to set up a plant in the US in mid 1990s.
In 2008, BMW announced it was investing $750m to expand its Spartanburg plant
in the US.

The company advanced its purchasing in US dollars generally,
especially in the NAFTA ( North American Free Trade Agreement ) region. Its
office in Mexico City made $ 615m of purchases of Mexican auto parts in 2009. A joint
venture with Brilliance China Automotive was set up in China, where half the
BMW cars for sale in the country are now manufactured. At the end of 2010, BMW announced
it would invest 1.8billion rupees in its production plant in Chennai, India,
and increase production capacity in India from 6,000 to 10,000 units.
Meanwhile, the overseas regional treasury centres were instructed to analyze
the exchange rate exposure in their regions on a weekly basis and report it to
a group treasurer, part of the group finance operation, in Munich. The group
treasurer team then consolidates risk figures globally and recommends actions
to mitigate foreign exchange risk.

 

RESULT – By manufacturing into foreign
markets the company not only reduces its foreign exchange exposure but also
benefits from being close to its customers. In addition, sourcing parts
overseas, and therefore closer to its foreign markets, also helps to diverge
supply chain risks.

 

CONCLUSION

The profit from investment management firms are
directly linked to the way in which market behaves. This means that the
company’s profits depend on market valuations and the scenarios and factors
influencing the market. There could be a major decline in asset prices with the
fall in the firm’s revenue, especially if the price fall is greater compared to
company costs. So overall to sum up the investment management practices we can
say that In  some corporate finance, investment management
is  ensures that a company’s tangible and
intangible assets are maintained, accounted for, and  to utilize
their highest and best possible use.

While on
the other hand the risk management explores the range of risks that
organizations may be exposed to. Many companies have not only managed
themselves to the main financial risks but also to the other risks which may
indirectly impact on the finances of organizations – such as operational,
reputational and legal and regulatory risk. There is, however, no ‘one size
fits all’ way of implementing financial risk management. Instead the process
must be modified to fit the size, complexity, industry competition and
environmental uncertainty facing the organization. Firms may have small
exposures to the individual risks, but when these are aggregated they may have,
in total, substantial financial and non-financial risks that require careful
management.

Here in this research paper , the
method adopted to conduct the study was extensive research approach. So
starting with the investment front we can say that investors must revisit the
long-term investment thesis and make sure it remains intact. If it doesn’t or
if the investment thesis has been fulfilled , one should then sell the
investment and put the proceeds to work elsewhere. That can happen in less than
a year. A stock is said to under perform if it gives a return that is worse
than an index or the overall stock market. Under performing stocks during
broader market uptrend are generally not good bets for long positions.
Investors who are holding such stocks need to look a bit closely as to why
these are under performing and take a call on whether they should exit the
stock.

Diversification good for
portfolio’s health – study on Virinchi Information Technology firm.

Virinchi healthcare a 100%
subsidiary of Virinchi Information Technology , expanded its footprint into
health care sector by setting up a 600 bed super specialty hospital in the
upmarket Banjara Hills in Hyderabad at an investment of rupees 300 crore. The
company has raised rupees 70 crore from Canara Bank- led consortium of lenders
, while the remaining funds for the project were raised internally. The
concentrated efforts and investments made to move up the value chain in its
chosen market augurs well for the stock. Virinchi is witnessing significant
traction from its existing customers and is able to generate healthy new leads
in the same market. On the financial front Virinchi Limited’s revenue increased
53.9% to rupees 38.76 crore in Q4FY17, as compared to the same period in the
previous fiscal. The company’s PBIDT too increased 144.76% to rupees 5.14 crore
in Q4FY17 on a yearly basis.

On an annual basis the company’s
revenue increased by 39% to rupees 137.15 crore in FY17 from rupees 98.64 crore
in the previous fiscal. The company’s PBIDT (Profit before interest, depreciation and tax) stood at
rupees 21.28 crore in FY17, an increase of 158.56% from rupees 8.23 crore in
the previous fiscal. The firm’s net profit stood at rupees 11.42 crore up over
by 173% in FY17 from rupees 4.18 crore in FY16.

 

RESULT – When
valued , the share price of Virinchi Limited is trading at a PE multiple of
9.94x as against it peers such as NIIT Technologies – 13.24x, Polaris
Consulting & Services – 15.46x . the company’s ROE stood at 13.10% and ROA
at 6.12% in FY17, while its total debt to equity ratio stood at 0.89x in FY17.
This can be termed as result of diversifying the investment for portfolio’s
better performance.

 

Financial
Risk Management

 Systematic risk is the
fundamental economic risk deep-rooted in the system that cannot be diversified
away. According to financial theory, systematic prospect is the only risk for
which equity investors are rewarded. To reduce the risk of an adverse price
movement is through the use of order management and with descendant. Order
management strategies, such as stop-loss orders, can be sparked to avoid excess
losses.

A case study on Financial Risk
Management in BMW – Bayerische Motoren Werke.

With the increasing effectiveness of
internationalization, multinational firms face challenge of sustaining in the
market with their earlier allure .Therefore BMW continuously improves its risk
management system in order to become intimate with the respective country,
industry and product risks and to ensure compliance with their sustainability
standards. BMW took a two-angled approach to manage its foreign exchange
exposure. 

1.    Natural hedge –  In this approach it would develop ways to
spend money in the same currency as where sales were taking place, meaning
revenues would also be in the local currency. 

 

2.    Financial hedge – To reduce
financial loss and manage the risk factor BMW set up regional treasury centres
in the US, the UK and Singapore.

Implementation of the natural hedge strategy was implemented in two ways. The
first involved establishing factories in the markets where it sold its
products; the second involved making more purchases denominated in the
currencies of its main markets. BMW now has production facilities for cars and components in
13 countries. In 2000, its overseas production volume accounted for 20 per cent
of the total. By 2011, it had risen to 44 per cent. BMW had become one of the
first premium carmakers from overseas to set up a plant in the US in mid 1990s.
In 2008, BMW announced it was investing $750m to expand its Spartanburg plant
in the US.

The company advanced its purchasing in US dollars generally,
especially in the NAFTA ( North American Free Trade Agreement ) region. Its
office in Mexico City made $ 615m of purchases of Mexican auto parts in 2009. A joint
venture with Brilliance China Automotive was set up in China, where half the
BMW cars for sale in the country are now manufactured. At the end of 2010, BMW announced
it would invest 1.8billion rupees in its production plant in Chennai, India,
and increase production capacity in India from 6,000 to 10,000 units.
Meanwhile, the overseas regional treasury centres were instructed to analyze
the exchange rate exposure in their regions on a weekly basis and report it to
a group treasurer, part of the group finance operation, in Munich. The group
treasurer team then consolidates risk figures globally and recommends actions
to mitigate foreign exchange risk.

 

RESULT – By manufacturing into foreign
markets the company not only reduces its foreign exchange exposure but also
benefits from being close to its customers. In addition, sourcing parts
overseas, and therefore closer to its foreign markets, also helps to diverge
supply chain risks.

 

CONCLUSION

The profit from investment management firms are
directly linked to the way in which market behaves. This means that the
company’s profits depend on market valuations and the scenarios and factors
influencing the market. There could be a major decline in asset prices with the
fall in the firm’s revenue, especially if the price fall is greater compared to
company costs. So overall to sum up the investment management practices we can
say that In  some corporate finance, investment management
is  ensures that a company’s tangible and
intangible assets are maintained, accounted for, and  to utilize
their highest and best possible use.

While on
the other hand the risk management explores the range of risks that
organizations may be exposed to. Many companies have not only managed
themselves to the main financial risks but also to the other risks which may
indirectly impact on the finances of organizations – such as operational,
reputational and legal and regulatory risk. There is, however, no ‘one size
fits all’ way of implementing financial risk management. Instead the process
must be modified to fit the size, complexity, industry competition and
environmental uncertainty facing the organization. Firms may have small
exposures to the individual risks, but when these are aggregated they may have,
in total, substantial financial and non-financial risks that require careful
management.

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