Module 12 · Exercises

Warm-up

E12.01 Derive equity duration from the Gordon model and compute it for g = 4%, 6%, 8% at r = 12%.

E12.02 List the channels from a repo-rate change to equity prices.

E12.03 State the RBI's policy rate, stance and the latest CPI as of September 2026, and where you would verify them.

E12.04 Define: earnings-yield gap; market cap/GDP; India VIX; SIP stoppage ratio; grey-market premium.

E12.05 Define: scheme of arrangement; record date; tender-offer buyback; acceptance ratio; open offer; reverse book building; rights entitlement; swap ratio.

Core

E12.06 Kaveri's reference WACC uses rf 6.5%. Rebuild it at 7.07% and compute the value change from the sensitivity grid; express it as duration.

E12.07 Fill the sector × macro matrix for a five-stock portfolio: a private bank, an IT major, an FMCG leader, a cement company and a small-cap pump maker. Identify the dominant shared exposure.

E12.08 Crude rises 25% and the rupee weakens 6%. Write the first-order P&L direction and magnitude driver for each of the five holdings in E12.07.

E12.09 The Nifty trades at 19.5x trailing with EPS growth slowing to single digits; the G-sec yields 7.07%. Compute the earnings yield and the gap, and write three sentences on whether the market is "cheap".

E12.10 DIIs invested ₹8.5 lakh Cr in FY26 while FPIs sold ₹1.8 lakh Cr. Describe two ways this regime supports valuations and two ways it is a risk, and the data you would watch monthly.

E12.11 Place these markers on the primary-market cycle: (a) an SME IPO subscribed 400x; (b) a large exchange IPO subscribed 5.7x with QIBs at 12.7x; (c) three IPOs listing below issue price in a month; (d) OFS-heavy issues by PE sellers. Which stage does each suggest?

E12.12 For the 2013–18 and 2020–25 small-cap cycles, list the narrative, the flow, the supply response and the governance tail, and the behaviour that survived.

E12.13 Demerger. A company at ₹800 with 10 Cr shares demerges a division valued by you at ₹1,500 Cr (1:2 ratio — one new share per two held); debt of ₹600 Cr moves with the division. Compute the value per parent share retained and per spun share, and describe the forced-selling dynamic.

E12.14 Buyback. Tender at ₹1,500 for 4% of shares; stock ₹1,250; small-shareholder acceptance 35%; you hold 120 shares (under the ₹2 lakh cap). Compute the pre-tax gain and the post-tax result at a 30% slab on proceeds treated as dividend (ignore the capital-loss offset).

E12.15 Open offer. An acquirer buys 30% at ₹420 and must offer 26% to the public; the stock trades at ₹395 with the offer closing in 8 weeks. Compute the spread, the annualised return if fully accepted, and the acceptance ratio if 60% of public shares are tendered.

E12.16 Rights. A 1:4 rights issue at ₹200 with the stock at ₹300. Compute the theoretical ex-rights price and the RE value; explain what happens to a holder who does nothing.

E12.17 Merger arbitrage. Target trades at ₹95; swap 1 acquirer share (₹210) for 2 target shares; completion in 6 months with 85% probability, and ₹70 if it fails. Compute the expected value and the implied return.

E12.18 Index event. A stock is announced for exclusion from a major index with passive holders at 8% of its float. Describe the expected price path and the opportunity, with the check you would run on fundamentals.

E12.19 Holdco event. A holdco at a 55% discount announces a merger into its operating company at NAV less 20%. Compute the return for a holdco holder and the probability-weighted return if the deal has a 70% chance of completing within a year (else the discount stays 55%).

Stretch

E12.20 Explain why domestic-flow-supported valuations are a "regime, not a law", and design the monitoring that would tell you the regime is changing.

E12.21 Write the NSE IPO through the six-step special-situation checklist, using the RHP's structure as you would expect it (or the actual document if available).

E12.22 Argue whether a bottom-up investor should hold more cash when the Nifty's P/E is above its 90th percentile; give the strongest case for each side and your rule.

Real-world task

E12.23 Build the macro audit for your actual portfolio (or a model one): the matrix, the dominant exposure, and a hedge you would consider (11.7).

E12.24 Read one 2025–26 demerger scheme document (ITC Hotels, Tata Motors CV, HUL ice cream, Vedanta) end to end; list the ratio, dates, liabilities moved, promoter holdings before/after, tax treatment, and the forced sellers — and what the two entities did after listing.

E12.25 Track the Nifty P/E, the 10-year G-sec, monthly FPI/DII flows and SIP data for the next three months in a spreadsheet; note where the pendulum sits each month.