Description

 

Capital Market and Portfolio Management

Dec 2025 Examination

 

 

Q1. Reeva Capital, a newly launched Indian fintech-driven brokerage firm, is planning to expand its services by catering to both retail and institutional investors. Their CTO wants to ensure smooth trade execution through the selection of appropriate trading platforms, order types, and mechanisms. As the Chief Market Strategist, you are tasked with drafting a strategy that outlines the application of market structure concepts to enhance trade efficiency and market access.

Based on this scenario, answer the following:

Question:

1. Discuss the role of different types of trading orders (Market, Limit, Stop- loss) that Reeva Capital should support for clients, with examples of when each would be practically used. (3 Marks)
2. Evaluate whether Reeva Capital should act as a broker, dealer, or market maker in the Indian context. Justify with functions and regulatory implications. (3 Marks)
3. How should Reeva Capital handle liquidity concerns, especially when catering to institutional investors? Explain using the concept of market depth and Indian trading platforms. (4 Marks)

(10 Marks)

Ans 1.

Introduction

The capital market plays a pivotal role in ensuring efficient allocation of financial resources, where trading platforms, order types, and market mechanisms influence investor experience and market access. For a fintech-driven brokerage like Reeva Capital, the ability to seamlessly cater to both retail and institutional clients depends on its adoption of structured trading concepts. In India’s evolving market, supported by platforms like NSE and BSE with advanced order-matching systems, efficient execution of trades requires not only technical infrastructure but also regulatory alignment with SEBI guidelines. By carefully choosing the right trading orders, defining its intermediary role, and addressing liquidity concerns, Reeva

 

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Q2(A). Astra Capital, a registered stockbroking firm in India, recently onboarded a new institutional client from Singapore. During the client onboarding process, Astra’s compliance officer notices that the client is indirectly linked to a promoter group of a listed Indian company. Meanwhile, one of Astra’s analysts accidentally shares a draft research report about that company before it is officially published.

As the Compliance Head of Astra Capital, you are required to evaluate the regulatory and ethical risks involved and suggest a compliant course of action under Indian capital market regulations.

Question:

Identify and explain two key regulatory and ethical concerns in this scenario.  How should  Astra  Capital  address  these  concerns  in accordance with Indian regulatory frameworks and ethical investment practices? (5 Marks)

Ans 2a.

Introduction

In the capital market, compliance is not only about regulatory obligations but also about maintaining the integrity of financial markets. The scenario with Astra Capital highlights two critical challenges: potential conflict of interest during client onboarding and premature disclosure of unpublished research material. Both issues carry serious regulatory and ethical implications under Indian securities laws. Addressing these concerns with transparency,

 

 

Q2(B). Ritika, a young fund manager at a boutique investment firm in Mumbai, is designing a new mutual fund scheme for moderately risk-tolerant investors. She selects 6 Indian stocks from various sectors (banking, IT, FMCG, pharma, infra, and renewable energy). Her objective is to maximize returns while reducing overall risk through diversification.

However, a senior analyst questions whether the selected portfolio truly follows Modern Portfolio Theory (MPT), especially in terms of risk-return trade- off and efficient frontier alignment.

Question:

Based on the above case, explain how Ritika can apply Modern Portfolio Theory to construct an efficient portfolio. In your answer, mention:

1. a) How diversification reduces risk
2. b) How expected return and standard deviation help in evaluating portfolios
3. c) What role the efficient frontier plays in this decision-making (5 Marks)

Ans 2b.

Introduction

Modern Portfolio Theory (MPT), introduced by Harry Markowitz, provides the foundation for constructing portfolios that optimize returns relative to risk. Ritika’s selection of six stocks across sectors reflects an attempt to diversify, yet true efficiency requires systematic application of MPT principles. By analyzing expected returns, risk correlations, and positioning portfolios on the efficient frontier, Ritika can ensure that her mutual fund scheme aligns with the preferences of moderately risk-tolerant investors while achieving optimal risk-