A

PROJECT REPORT
On
Performance Evaluation of Selected Stocks at NSE

Submitted in the partial fulfilment of the requirement for the award of degree of Master of Business Administration (MBA) To Maharshi Dayanand University, Rohtak

Supervised by: Dr Vikas Madhukar Professor ABS, Manesar

Submitted by: Harsha Gambhir Institute Roll No-2619 MBA (3rd Sem.)

AMITY BUSINESS SCHOOL, MANESAR

(2006-2008)

DECLARATION

I, Harsha Gambhir, Roll No. 2619, M.B.A. (4th Semester) of Amity Business School, Maneser, Gurgaon, hereby declare that the Project Report entitled Performance Evaluation of Selected Stocks at NSE is my original work and the same has not been submitted to any other institute for the award of any other degree. The interim report was presented to the supervisor on __________and the pre-submission presentation was made on __________. The feasible suggestions have been duly incorporated in consultation with supervisor

Countersigned Signature of the Supervisor Signature of Candidate

Forwarded by:

Director of the Institute

ACKNOWLEDGEMENT

A project report is never a sole product of one person, whose name appears on the cover. I consider it a privilege to acknowledge the contribution of all helping hands for their cooperation and guidance that enabled me to dedicate time and effort in framing my analysis in conceivable system. A special thanks to Dr R C Sharma, Professor & Advisor, Amity Business School, Manesar, whose consistent support and cooperation showed the way towards the successful completion of the project. I extend my deepest thanks to my mentor and guide, Dr. Vikas Madhukar, Professor, Amity Business School, Manesar, for giving me the opportunity to understand the project and for providing me the necessary information whenever required. Without his constant guidance and feedback, I would have never been able to complete the project.

Harsha Gambhir

TABLE OF CONTENTS Page No.

Declaration Acknowledgement Chapter-1
Significance of the study Review of existing literature Conceptualization Focus of the study Objectives of the study

i ii

Chapter-2
Research Methodology Limitations of the study

Chapter-3
Analysis and Interpretation

Chapter-4
Findings and Suggestions

Bibliography

Annexure

SIGNIFICANCE OF THE STUDY

Incredible performance of stock market in the recent past has attracted many investors to try their luck in the investment of equity, which has made the stocks the hottest investment option. Investment in equity is not only associated with high returns but also a high degree of involvement of risk. The decision may prove right or wrong depend upon the selection of securities in which investment is made. Due to this, the investors may earn or loose their hard earned money. Thus, it is imperative for investors to make their investments in the securities those may deliver high rate of return to them. But, because of stock market complexities, it is difficult to make projections about the securities that may deliver the highest returns to the investors. In the above backdrop, the present study entitled, Performance Evaluation of Selected Stocks at NSE helps the investors in knowing the performance of securities, whether they have performed well or not with respect to the benchmark. This understanding facilitates them the way to categorize the different securities based on their performance, which is useful in making the investment so that the returns can be maximized. Further, the study is also useful for the readers in understanding the various aspects of performance evaluation of equity.

REVIEW OF EXISTING LITERATURE

Baura (1991) made a pioneering attempt to evaluate the performance of the shares from the investors point of view. He computed the risk of master share scheme for the period of 1987 1991y using CAPM. The risk adjusted return was measured by using sharpe, Jensan and Treynor ratios. The benchmark selected here is the economic times ordinary sharpe price index. The study concluded hat master share performed better in systematic risk but not in terms of total risk. Sharad shukla (1995) evaluated the performance of can share and market share by applying the Sharpe and Treynor ratios for the period January 1998 June 1991. He concludes that the master share has performed tan the Can share. Jeyed (1998) analyzed the performance of 44 schemes of Mutual Funds and compared Jensens measure and Sharpes differential returns of scheme. He has stated that there was high difference between the two measures and concluded the lack of diversification was the reason for the decline trending performance. Ronald Best et al. (2000) analyzed Sharpe ratios based on realized returns provide a ranking of the past performance of portfolios, but many investors use these ratios when making investment choices. This use assumes that the portfolio return distribution is stable over timethat is, that the historical returns can predict future performance. In addition, Sharpe ratios are usually estimated using short-term intervals, e.g., the previous 36 monthly returns for Morningstar. The assumption is that investors also have a corresponding investment horizon and use the same return frequency Chander Ramesh (2001) evaluated the portfolio performance components across fund characteristics. The objective of the study was to identify different sources and components of performance to diverse but integrate activities of portfolio manager to analyze and

comment upon the nature and adequacy of

portfolio performance after making set

decomposition and attribution. The study covered a period of five calendar years from January 1994 December 1998. The study gives the result that the performance can be judged on the basis of the risk attached to the security. Singh (2003) studied the performance evaluation of equity fund for a period of two years, ending on December 2002. (i.e. Jan 2001 to Dec 2002). The objective of the study was to evaluate the performance of Mutual Fund schemes by applying Sharpe and Treynor indexes, funds sensitivity to the market movements by calculating alpha. The study was based on open ended schemes and has used Sharpe and Treynor index. The study was based on certain assumptions like rate of return 6.25%, secondary data sources are assumed to be true. The conclusion and suggestions given by him, after analysis, are: if investor portfolio of 10 15 stocks, if they dont have time they should go for diversified schemes, choosing may not be enough band sincerely if an investor has to invest in a fund wit a reasonably long term track record and have their entry reasonably well, hold their investment for at least 3 years. Malcolm Baker et al. (2004) analyzed that there are three well accepted methods or indexes in the literature for evaluating the performance of equities or other managed portfolios and all stem directly from the CAPM capital market theory. The most basic measure of equities performance is a stocks return over a certain period of time. While being the simplest and most appealing to investors, this measure can hardly discriminate among managers who have superior skill, those who are lucky and those who merely earn expected risk premium on their high-risk investment. Narayan Rao (2008) made an evaluation of Indian mutual funds and has analyzed that in a bear market is carried out through relative performance index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's measure, and Fama's measure. Then after excluding the funds whose returns are less than risk-free returns, 58 schemes were used for further analysis. Mean monthly (logarithmic) return and risk of the sample mutual fund schemes during the period were 0.59% and 7.10%, respectively, compared to

similar statistics of 0.14% and 8.57% for market portfolio. The results of performance measures suggest that most of the mutual fund schemes in the sample of 58 were able to satisfy investor's expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk. Fonseca et al. (2006) have analyzed the performance of Brazilian Investment Funds between May 2001 and May 2006, using as a guideline the division in fixed-income funds and equity funds. The performance is evaluated in terms of risk and return, using Sharpe and Treynor indexes, with the returns and volatilities being also analyzed. The results indicate that the two categories did not present any significant statistical difference in terms of the mean return in the period. However, differences in the variance along the period generated a better risk x return relation for the fixed income funds, a result that is associated with the high interest rates that were experienced during that period. M Jayadev has evaluated the performance of two growth oriented mutual funds (Master gain and Magnum Express) on the basis of monthly returns compared to benchmark returns. For this purpose, risk adjusted performance measures suggested by Jenson, Treynor and Sharpe are employed. It is found that, Master gain has performed better according to Jenson and Treynor measures and on the basis of Sharpe ratio its performance is not up to the benchmark.. It can be concluded that, the two growth oriented funds have not performed better in terms of total risk and the funds are not offering advantages of diversification and professionalism to the investors. Julien van den Broeck made performance evaluation of Indian mutual funds in a bear market is carried out through relative performance index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's measure. Study period is September 97. We started with a sample of 365 close-ended schemes (out of total schemes of 433) for computing relative performance index. Then after excluding the funds whose returns are less than risk-free returns, 30 schemes were used for further analysis respectively, compared to similar statistics of market portfolio. The results of performance measures suggest that most of the mutual fund schemes in the sample of 58 were able to satisfy

investor's expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk.

CONCEPTUALISATION
An investment is a sacrifice of current money or other resources for future benefits. It helps an individual to achieve its future financial goals. Numerous avenues of investment are available today. Investor can either deposit money in a bank account or purchase a longterm government bond or invest in equity share of a company or invest in some other form. The main objective of the investment is to increase the rate of return and to reduce the risk. Other objectives like liquidity and hedge against inflation can be considered as subsidiary objectives. Among all the investment option discussed above stocks is the hottest investment avenue. The potential rewards in terms of high return and the penalties associated with them make them an interesting, even exiting proposition. The term "Equity" is generally used interchangeably with the term "Stocks. In financial markets, stock is the capital raised by a corporation through the issuance and distribution of shares that represent ownership of a corporation. Included in this category are publicly traded common stocks, rights, warrants, convertible securities and American Depository Receipts The increase in the size of the industrial units and business corporations due to technological transactions, economies of scale and other factors has created a situation where in the capital at the disposable of one or few individuals is quite insufficient to meet the investment demands. The developed equity market can solve this problem of paucity of funds. The development of equity market can be seen at equal pass with the countrys growth. Indian stock exchange had over 9600 securities listed. Of course, the number of companies whose shares are actively traded is smaller, around 800 at the NSE and 2600 at the BSE. Each company may have a number of securities listed on an exchange. All this shows the potential of equity market for an investor. The stock market is full of complexities. Now the question arises, how an investor can choose the appropriate stock from a number of alternatives? How can he judge all the variables associated with each security? In addition to determine the rate of return, it is also

important to access the risk or uncertainty that may be associated with the return. A common person does not have the capability of analyzing the securities on his own. Most of the time they take guidance from the professionals, being based on the performance evaluation of securities. Performance evaluation is one of the most important dimensions of investment in to equity shares or constructed portfolios to achieve the objective in terms of risk and return. It helps the investors in making difference between the securities on the basis of their past performance.

FOCUS OF THE PROBLEM

The study entitled, Performance Evaluation of Selected Stocks of NSE is based on the approach of categorizing the selected securities on the basis of their performance so that a differentiation can be made between the high performer and low performer security.

OBJECTIVES OF THE STUDY

1. To understand the concept of performance evaluation of equity. 2. To study the various aspects of performance evaluation of equity. 3. To evaluate the performance of selected stocks on the basis of risk and return. 4. To make a categorization of selected stocks based on their performance.

RESEARCH METHODOLOGY
Nature of Research The study is empirical and analytical in nature. The researcher has used the facts and information already available to analyze the problem Universe The researcher has taken the National Stock Exchange (NSE) as the universe. Sample Size National Stock Exchange (NSE) is having total 50 securities listed under it. For the performance evaluation , 10 securities has been taken. 1. Reliance 2. ITC 3. ICICI Bank 4. ONGC 5. HDFC 6. Tata Powers 7. ACC 8. Grasim 9. Bajaj Auto 10. Siemens Data Collection and Data Sources The study is based on the secondary data only. No collection of primary data is involved in the study. The secondary data has been collected from the data bank of National Stock Exchange (NSE).

Analysis Pattern In order to analyze the research problem, the researcher has used various statistical tools. Nifty has been taken as the Benchmark. To present the data in more meaningful way, graphs and tables are being used. The following tools are used by the researcher: Treynor Ratio Sharpe Ratio Beta Standard Deviation

LIMITATIONS OF THE STUDY

1. The study may incorporate the limitations associated with the use of secondary data in study. 2. The study is restricted to few selected stocks only.

ANALYSIS AND INTERPRETATIONS

Investment is that type of activity, which attracts people from all walks of life irrespective of their occupation, economic status, education and family background. When a person has more money than the actual need for current consumption, the person would be coined as a potential investor. The person who is having extra cash could invest in securities or in other assets. The companies have extra income may like to invest their extra money in the extension of existing firm or undertake new ventures. All these activities in a broader sense mean investment. Investment is the employment of funds on assets with the aim of earning income or capital appreciation. Investment has two attributes namely time and risk. Present consumption is sacrificed to get a return in the future. The sacrifice that has to be borne is certain but the return in the future may be uncertain. What does one desire from one's investments? The obvious answer seems to be returns. And not just any returns but the higher the better. While an investor seeks to generate high returns the question arises, how high? Though the sky can be the limit, usually one asks for returns, which are higher than those, which we are normally accustomed to. These are returns from risk-less instruments like treasury bills, government securities or bank savings deposits. So the aim of investing seems to be to generate returns in excess of the risk free return. And in order to generate these higher returns we are willing to take risks. At the same times high returns are generally associated with a high degree of volatility. We accept this volatility only because we want higher returns. The main objective of the investment is to increase the rate of return and to reduce the risk. Other objectives like safety, liquidity, and hedge against inflation can be considered as subsidiary objectives. And that objective of getting high returns can be fulfilled only by investing in stock market. The growth of stock market and with its growth the investors growth can be seen easily. But the main hurdle that comes while investing in security like stock is the risk associated

with it otherwise investor also get tax advantage like long term capital gains are completely tax free. Now the question arises how an investor can judge all the variables associated with each security. A common person does not has the capability of analyzing the security of its own. Most of the time the professionals provides suggestion regarding these investments in the securities on the basis of performance evaluation. The evaluation of the past performance is based on the various statistical tools which helps an investor to pick out a particular stock on the basis of its past performance. Various types of securities are traded in the stock market, now where to invest and where not to invest is always a huge problem, which every investor faces. But its seriously very difficult to avoid the risk, as market is full of complexities and uncertainties. That is the main reason various type of analysis is done in order to maximize the profit and minimizing the risk. In addition to determine the rate of return, it is also important to access the risk or uncertainty that may be associated with earning the return. The variances of return and standard deviation of return are alternative statistical measures that are proxies for the uncertainty or risk of return. This statistical in effect measures the extent to which returns are expected to vary around an average over time. Standard deviation and variance is the risk ness of a security in an absolute sense. In order to analyze the performance of equity, the researcher has used various statistical tools ad techniques. These tools and techniques are as follow: Sharpe Ratio Treynor Ratio

SHARPE RATIO:

The Sharpe ratio was derived in 1966 by William Sharpe, it has been one of the most referenced risk/return measures used in finance, and much of this popularity can be attributed to its simplicity. The ratio describes how much excess return you are receiving for the extra volatility that you endure for holding a riskier asset. Remember, you always need to be properly compensated for the additional risk you take for not holding a risk free asset. The Sharpe ratio measures the relationship between risk and yield of an investment. For this a risk-free rate of interest is deducted from the yield and then divided by the standard deviation. The higher the Sharpe ratio, the better the risk-adjusted performance The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return (or Risk Premium) per unit of risk in an investment asset or a trading strategy. The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken. When comparing two assets each with the realised return [R] against the same benchmark with return Rf, the asset with the higher Sharpe ratio gives more return for the same risk. Investors are often advised to pick investments with high Sharpe ratios. The Sharpe Ratio is designed to measure the expected return per unit of risk for a zero investment strategy. The difference between the returns on two investment assets represents the results of such a strategy. The Sharpe Ratio does not cover cases in which only one investment return is involved. The Sharpe Ratio goes further: it actually helps you find the best possible proportion of these securities to use, in a portfolio that can also contain cash. Clearly, any measure that attempts to summarize even an unbiased prediction of performance with a single number requires a substantial set of assumptions for justification. In practice, such assumptions are, at best, likely to hold only approximately. Certainly, the use of unadjusted historic (ex post) Sharpe Ratios as surrogates for unbiased predictions of ex ante ratios is subject to serious question. Despite such caveats, there is much to recommend a measure that at least takes into account both risk and expected return over any alternative that focuses only on the latter.

For a number of investment decisions, ex ante Sharpe Ratios can provide important inputs. When choosing one from among a set of funds to provide representation in a particular market sector, it makes sense to favor the one with the greatest predicted Sharpe Ratio, as long as the correlations of the funds with other relevant asset classes are reasonably similar. When allocating funds among several such funds, it makes sense to allocate funds such that the selection (residual) risk levels are proportional to the predicted Sharpe Ratios for the selection (residual) returns. If some of the implied net positions are infeasible or involve excessive transactions costs, of course, the decision rules must be modified. Nonetheless, Sharpe Ratios may still provide useful guidance. The Sharpe ratio is a portfolio performance measure used to evaluate the return of a fund with respect to risk. The calculation is the return of the fund minus the "risk-free" rate divided by the fund's standard deviation. The Sharpe ratio provides you with a return for unit of risk measure. For example, assume equity fund 1 returned 20% over the last five years, with a standard deviation of 2%. The risk free rate is generally the interest rate on a government security. Assume that the average return of a risk-free government bond fund over this period was 6%. The Sharpe ratio would be (the return of the portfolio - the risk free rate)/the standard deviation of the portfolio. In the case of equity fund 1, the Sharpe ratio is (20%-6%)/2%, or 7%. Therefore, for each unit of risk, the fund returned 7% over the risk-free rate. Whatever the application, it is essential to remember that the Sharpe Ratio does not take correlations into account. When a choice may affect important correlations with other assets in an investor's portfolio, such information should be used to supplement comparisons based on Sharpe Ratios. All the same, the ratio of expected added return per unit of added risk provides a convenient summary of two important aspects of any strategy involving the difference between the return of a fund and that of a relevant benchmark. The Sharpe Ratio is designed to provide such a measure. Properly used, it can improve the process of managing investments.

A very simple case of this is where the benchmark is a risk free investment, in which case the Sharpe ratio is the excess return on the portfolio divided by the standard deviation of the return on the portfolio. Mathematically the Sharpe ratio is the returns generated over the risk free rate, per unit of risk. Risk in this case is taken to be the fund's standard deviation. As standard deviation represents the total risk experienced by a fund, the Sharpe ratio reflects the returns generated by undertaking all possible risks. It is thus one single number, which represents the trade off between risks and returns. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk. However, while looking at Sharpe ratio a few points have to be kept in mind to obtain an accurate reading of the fund's performance. Firstly, being a ratio, the Sharpe measure is a pure number. In isolation it has no meaning. It can only be used as a comparative tool. Thus the Sharpe ratio should be used to compare the performance of a number of funds. Alternatively one can compare the Sharpe ratio of a fund with that of its benchmark index. If the only information available is that the Sharpe ratio of a fund is 1.2, no meaningful inference can be drawn as nothing is known about the peer group performance. The Sharpe ratio uses standard deviation as it's risk component, a low standard deviation can unduly influence results. Thus a fund with low returns but with a relatively mild standard deviation can end up with a high Sharpe ratio. Such a fund will have a very tranquil portfolio and not generate high returns. For an investor who puts in all his/her money in a single fund, Sharpe ratio is a useful measure of risk-adjusted return. This is because standard deviation measures total risk and this is the case with a single portfolio. For additional funds in a portfolio, indicators like the Treynor ratio, which use market risk, can be used. Measures such as Sharpe ratio provide an unbiased look into fund's performance. This is because they are based solely on quantitative measures. However, these do not account for any risks inherent in a funds portfolio. For example, if a fund is loaded with technology stocks and the sector is performing then all quantitative measures will give such a fund high marks. But the possibility of the sector crashing and with it the fund sinking is not calculated. In view of these possibilities quantitative tools should be used along with

information on the nature of the funds strategies, its fund management style and risk inherent in the portfolio. Quantitative tools can be used for screening but they should not be the only indicator of a fund's performance. The Sharpe ratio is one of the most useful tools for determining a fund's performance. This measure is used the world over and there is no reason why you as an in investor should not use it. So sharpen the analysis of your fund's performance with the Sharpe Ratio. The Sharpe ratio is interesting because it is a measure of the relationship between risk and return, a concept that is central to financial theory. It can be applied to both ex-ante (expected) returns (to assess an investment) and to ex-poste (historical) returns (to test the relationship between risk and reward). One useful property of the Sharpe ratio is that the Sharpe ratio of a portfolio does not depend on the time over which it is measured. It will change with time period depending on the actual historic data, but there is no correlation between the Sharpe ratio and the length of time period. This is because the return and the standard deviation both increase with time. Sharpe ratios calculated over different periods of time are directly comparable.

Sharpe ratio (SR) Rp - Rr SR = S.D. Where, Rp = Average rate of return Rr = Risk free return S.D. = Standard deviation of return Sharpe Ratio Problems or Limitations

The Sharpe Ratio is a very useful statistic for portfolio or investment comparison. However, like many aspects of finance and investing the ratio has problems and limitations. The Sharpe Ratio uses standard deviation as a measure of volatility. Some argue, however, that standard deviation is not a proper measure of volatility. Standard deviation is only a rough proxy for a non definite concepts such as risk. The Portfolio return component of the Sharpe Ratio assumes or requires that returns are normally distributed. However, the markets are subject to many abnormalities, such as fatter tails, that can skew this normal distribution, thus limiting the Sharpe Ratios accuracy. Future market uncertainty also limits the Sharpe Ratio. Historic Sharpe Ratios are calculated using returns and standard deviations over previous periods. While historic data can provide a good general idea of trends and values, past performance is no guarantee of future results. Forward-looking Sharpe Ratios are based on projections which also are limited by future uncertainty. Sharpe Ratio calculation needs to be adjusted for portfolio analysis. Using the Sharpe Ratio to directly compare two investments as the basis for adding one to a portfolio is not entirely correct. The Sharpe Ratio may be inaccurate if one or more of the investments is highly correlated with other investments in the portfolio. The solution to this problem is to construct different Sharpe Ratios for different portfolios. Standard Deviation: Standard deviation is distinct advantage over beta. While beta compares a security with benchmark, standard deviation measures how far a securitys recent numbers stay from its long term average. Investors to measure the risk of a stock or a stock portfolio often use the standard deviation. The basic idea is that the standard deviation is a measure of volatility: the more a stock's returns vary from the stock's average return, the more volatile the stock. Standard deviation is a statistical measurement that sheds light on historical volatility. For

example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns Standard deviation is a statistical term that provides a good indication of volatility. It measures how widely values (closing prices for instance) are dispersed from the average. Dispersion is the difference between the actual value (closing price) and the average value (mean closing price). The larger the difference between the closing prices and the average price, the higher the standard deviation will be and the higher the volatility. The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility. The standard deviation is kind of the "mean of the mean," and often can help you find the story behind the data. To understand this concept, it can help to learn about what statisticians call normal distribution of data.A normal distribution of data means that most of the examples in a set of data are close to the "average," while relatively few examples tend to one extreme or the other. The standard deviation is a statistic that tells you how tightly all the various examples are clustered around the mean in a set of data. When the examples are pretty tightly bunched together and the bell-shaped curve is steep, the standard deviation is small. When the examples are spread apart and the bell curve is relatively flat, that tells you you have a relatively large standard deviation. The standard deviation formula is very simple: it is the square root of the variance. It is the most commonly used measure of spread. An important attribute of the standard deviation as a measure of spread is that if the mean and standard deviation of a normal distribution are known, it is possible to compute the percentile rank associated with any given score. In a normal distribution, about 68% of the scores are within one standard deviation of the mean and about 95% of the scores are within two standard deviations of the mean. The standard deviation has proven to be an

extremely useful measure of spread in part because it is mathematically tractable. Many formulas in inferential statistics use the standard deviation.

Standard deviation is a statistical term that provides a good indication of volatility. It measures how widely values (closing prices for instance) are dispersed from the average. Dispersion is the difference between the actual value (closing price) and the average value (mean closing price). The larger the difference between the closing prices and the average price, the higher the standard deviation will be and the higher the volatility. The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility.

TREYNOR RATIO: The Treynor Ratio differs from the Sharpe Ratio insofar as the beta to the Market Benchmark is used as a measure of risk rather than the standard deviation of the manager series. A ratio developed by Jack L. Treynor, to measure excess return per unit of risk, based on systematic risk (the beta of a portfolio versus the benchmark).The Treynor ratio is a measurement of the returns earned in excess of that which could have been earned on a riskless investment (per each unit of market risk assumed).The Treynor ratio (sometimes called reward-to-volatility ratio) relates excess return over the risk-free rate to the additional risk taken; however systematic risk instead of total risk is used. The higher the Treynor ratio, the better the performance under analysisTreynor Ratio (TR)

This ratio measures the amount of extra return for each unit of market risk taken by the fund, where risk is measured by the Beta of the fund relative to the market portfolio. The market portfolio is proxied by the appropriate accumulation index for that fund classification category.

Market risk is represented by Beta, where Beta measures the relationship between the volatility in the funds monthly returns compared to the volatility in the monthly returns of the market benchmark. A high Beta can be interpreted as a fund that is more volatile than the market, while a low Beta means the fund is less volatile than the market. Reflecting this, Beta can also be viewed as a measure of the funds sensitivity of returns to the markets returns. An investor wishing to compare different funds within the same asset class classification category should compare the Treynor Ratios as funds with higher Treynor Ratios are more efficient at converting market risk into excess return and so are more desirable for inclusion in investment portfolios. And because funds with high Treynor Ratios are delivering excess returns for lower amounts of market volatility, this means that funds with high Treynor Ratios can be grouped into portfolios while still maintaining lower overall risk levels. The Treynor ratio is a kind of rating standard. There are several portfolios that are well diversified and consist of several sub portfolios. If these sub portfolios are ranked by Treynor ratio, then the sub portfolios would be benefited. If there is no such portfolio, then those portfolios with same type of systematic risk but various types of total risk are going to be ranked as the same. At the same time, there are a number of different portfolios that are not diversified and thus, these portfolios are subjected to high amount of risk. These portfolios are rarely preferred by the investors. This ratio is used to make exact calculation of the amount of surplus return provided by a unit of risk. We can also say that the Treynor ratio is used to calculate that extra amount of return that is excess to what would have been earned through safe investments or without taking any kind of risk. The Treynor ratio is developed upon the systematic risk. The Treynor ratio is also termed as reward to volatility ratio as it measures the earnings made while facing the risks. Whenever the Treynor ratio is on the higher side, it denotes that the investor is provided with high yields by each unit of market risk.

Rp - Rr TR = Beta Where, Rp = Realized portfolio return Rr = Risk free return Beta: One of the most popular indicators of risk is a statistical measure called beta. Stock analysts use this measure all the time to get a sense of stocks' risk profiles. The Beta coefficient, in terms of finance and investing, is a measure of volatility of a stock or portfolio in relation to the rest of the financial market.[1] Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred to as a measure of the asset's sensitivity of the asset's returns to market returns, its non-diversifiable risk, its systematic risk or market risk. On an individual asset level, measuring beta can give clues to volatility and liquidity in the marketplace. On a portfolio level, measuring beta is thought to separate a manager's skill from his or her willingness to take risk. The beta movement should be distinguished from the actual returns of the stocks. For example, a sector may be performing well and may have good prospects, but the fact that its movement does not correlate well with the broader market index may decrease its beta. However, it should not be taken as a reflection on the overall attractiveness or the loss of it for the sector, or stock as the case may be. Beta is a measure of risk and not to be confused with the attractiveness of the investment. The total risk of a stock is measured by its standard deviation. In relation to a market, it is its co-variance with the market. If this covariance is standardised for the covariance of the market we get the beta value, which. Beta value is a standardised measure of covariance of return of an asset and that of the market.

Beta is a measure of non-diversifiable risk. We can say that the beta of a stock measures the sensitivity of the stock with reference to a broad based market index. The broad based index for instance, in India, could be the Sensex. We can understand what beta indicates by considering a few numbers. For instance, a beta of 1.2 for a stock would indicate that this stock is 20 per cent riskier than the Index. Similarly, a beta of 0.9 would indicate that this stock is 10 per cent (100-90) less risky than the Index. And, of course, a beta of one would mean that the stock is as risky as the stock market index. This has two simple implications: a) Beta is the measure of a stock's volatility with reference to the market index. Put another way, this would mean that the beta of a stock indicates the sensitivity of a stock to changes in the returns from the stock market. If the stock market as a class (measured by the Index) changes by 5 per cent, a stock with a beta of 1.2 should change by 5 x 1.2 = 6 per cent b) Expected risk premium of any stock is beta times the market risk premium: An investor gets extra reward for taking risk. This is called risk premium. If the stock market as a class (measured by the Index) gives a risk premium of, say, 10 per cent and the beta of a stock is 1.2 the risk premium from this stock ought to be 1.2 times, that is, 12 per cent. The beta value of a stock can be any number. If the beta value is greater than one, we call it a high beta stock. Such stocks are riskier than the "stock market". They move faster than the movement in the stock market. If the market goes up, this stock goes up faster. If the market falls, this stock falls faster. If the beta value is less than one, we call it a low beta stock. Such stocks are less risky than the "stock market". They move slower than the movement in the stock market. If the market goes up, this stock goes up slower. If the market falls down, this stock falls slower. Stocks with a beta value of one are called unity stocks. Such stocks mimic the market. They move in tandem with the market. If the market goes up by a certain percentage, this

stock too moves up by the same percentage. If the market falls by a certain percentage, this stock too falls by the same percentage. An investor therefore, views the beta of a security as a proper measure of risk, in evaluating how much the market will reward him for the non-diversifiable of element of risk that he is assuming in respect of a security. An investor who is evaluating the "non-diversifiable element" of risk, that is, extent of deviation of returns vis--vis the market, will therefore consider beta as a proper measure of risk. The Beta Coefficient in terms of finance and investing is a measure of the systematic risk of a stock or portfolio. It quantifies relative volatility in relation to the overall market, which is defined as having a beta of 1.0.A security or portfolio with a Beta value less than 1.0 indicates a higher degree of volatility than the market. A Beta of less than 1.0 reflects less volatility than the market. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market.

COV (Ra, Rp) Beta = VAR (Rp) Where: Ra = Rate of return of the security Rp = Rate of return of the portfolio When Beta > 1 (high volatility and high risk) Beta < 1 (less volatile) Beta = 1 (moving in proportion with the market)

TREYNOR RATIO

Securities ICICI Bank ONGC HDFC Tata Power

Beta Values 0.99 1.16 0.77 1.7

Risk Less Rate Of Return 0.81% 0.81% 0.81% 0.81%

Average Rate Of Return 2.58% 3.07% 5.70% 8.47%

Treynor Ratio 0.030329199 0.02585375 0.038726823 0.017638761

ACC Grasim Bajaj Auto Siemens Reliance ITC

1.07 1.19 0.54 1.18 0.98 0.45

0.81% 0.81% 0.81% 0.81% 0.81% 0.81%

0.69% 2.94% 0.23% 5.22% 7.39% 1.40%

0.027991358 0.025006947 0.054882229 0.025373321 0.030463528 0.065774325

Treynor Ratio 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0

an k Po we r IC IC IB Ba ja jA ut o Si em en s Re lia nc e AC C G ra sim O N HD IT C G C FC

Treynor Ratio

FINDINGS: The above drawn table is showing the beta values, risk less return, average rate of return and Treynor ratio of the different securities. And graph is the graphic presentation of the treynor ratio. That graph is showing the excess returns of securities over the risk less returns. According to this ITC is at number one in delivering the excess returns over risk.

Ta ta

SHARPE RATIO

Securities ICICI Bank ONGC HDFC

Standard Deviation 0.077680378 0.096533196 0.066461531

Risk Less Rate Of Return 0.81% 0.81% 0.81%

Average Rate Of Return 0.02584895 0.030719093 0.05695833

Sharpe Ratio 0.385597208 0.310290532 0.450686828

Tata Power ACC Grasim Bajaj Auto Siemens Reliance ITC

0.132766051 0.131361757 0.108838672 0.076002842 0.100444325 0.078303231 0.064375439

0.81% 0.81% 0.81% 0.81% 0.81% 0.81% 0.81%

0.084663735 0.006942523 0.029407805 0.00230478 0.052161999 0.073907489 0.014013401

0.225609911 0.228021744 0.275208584 0.394108113 0.298208355 0.382530024 0.465291383

Sharpe Ratio 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
an k Po we r IC IC IB Ba ja jA ut o Si em en s Re lia nc e AC C G ra sim O N HD IT C G C FC

Sharpe Ratio

FINDINGS: The above drawn table is showing the standard deviation, risk less return, average rate of return and Sharpe ratio of the different securities. And graph is the graphical presentation of Sharpe ratio through which is clearly that ITC is the company which is providing the maximum returns than others and in that way compensating better than others.

Ta ta

TOP FIVE SECURITIES AS PER SHARPE INDEX

COMPANIES ITC HDFC 1 2

RANKING

BAJAJ AUTO ICICI BANK RELIANCE

3 4 5

5 4 3 2 1 0 RANKING ITC HDFC BAJAJ AUTO ICICI BANK RELIANCE

FINDINGS: The above drawn table and graph is the tabular and graphic presentation of the top five securities as per Sharpe index. If we compare them on the basis of risk adjusted returns of Sharpe index then the following companies are at top five positions. The company who is having rank 1 is the maximum return providing company and risk is also very high. Rankings have been given in ascending order.

1. ITC 2. HDFC 3. Bajaj Auto 4. ICICI Bank 5. Reliance This above given ranking is showing that if an investor wants to choose the security by using Sharpe tool then he should go for ITC first and then for others like HDFC, Bajaj Auto, etc.

BOTTOM FIVE SECURITIES AS PER SHARPE INDEX

COMPANIES TATA POWER ACC GRASIM SIEMENS ONGC 1 2 3 4 5

RANKING

5 4 TATA POWER 3 2 1 0 RANKING ACC GRASIM SIEMENS ONGC

FINDINGS: The above drawn table and graph is the tabular and graphic presentation of the bottom five securities as per Sharpe index. If we compare them as per the risk adjusted returns of Sharpe index then the following companies are at the bottom position. The company who is having 1 is the minimum return providing company and the risk is also very high. Ranking has been given in ascending order. 1. TATA POWER 2. ACC 3. GRASIM

4. SIEMENS 5. ONGC According to the above rating an investor would prefer ONGC than other securities that are there because it is giving them the better reward for variability than other.

TOP FIVE SECURITIES AS PER TREYNOR RATIO

COMPANIES ITC BAJAJ AUTO HDFC RELIANCE ICICI BANK 1 2 3 4 5

RANKING

5 4 ITC 3 2 1 0 RANKING BAJAJ AUTO HDFC RELIANCE ICICI BANK

FINDINGS: The above drawn table and graph is the tabular and graphic presentation of the top five securities as per treynor ratio. If we compare the returns and treynor ratio of the securities then the following companies are at the top position. The company who is having rank 1 is the maximum return providing company and risk is also very less. Ranking has been given in ascending order. 1. ITC 2. BAJAJ AUTO 3. HDFC

4. RELIANCE 5. ICICI BANK That interpretation is indicating that in treynor ratio also which is used for getting excess return over risk less ITC is at no 1 or can say that the 1st choice of investor. And after that he would like to go for Bajaj Auto, HDFC, etc.

BOTTOM FIVE SECURITIES AS PER TREYNOR RATIO

COMPANIES
TATA POWER GRASIM SIEMENS ONGC ACC 1 2 3 4 5

RANKING

5 4 TATA POWER 3 2 1 0 RANKING GRASIM SIEMENS ONGC ACC

FINDINGS: The above drawn table and graph is the tabular and graphic presentation of the bottom five securities as per Treynor Ratio. If we compare the returns and Treynor Ratio of the securities then the following companies are at the bottom position. The company who is having rank 1 is the minimum return providing company and the risk is also very high. Ranking has been given in ascending order. 1. TATA POWER

2. GRASIM 3. SIEMENS 4. ONGC 5. ACC The Tata Power should be the last choice of an investor according to Treynor Ratio.

COMPARISION OF SECURITIES ON THE BASIS OF SHARPE AND TREYNOR RATIO

TOP FIVE SECURITIES:

SHARPE RATIO
ITC

TREYOR RATIO
ITC

HDFC

BAJAJ AUTO

BAJAJ AUTO ICICI BANK RELIANCE

HDFC RELIANCE ICICI BANK

BOTTOM FIVE SECURITIES:

SHARPE RATIO
TATA POWER ACC GRASIM SIEMENS ONGC

TREYNOR RATIO
TATA POWER GRASIM SIEMENS ONGC ACC

FINDINGS: The above done comparison of both Sharpe and Treynor ratio is depicting that the same security can be in the top most securities and can be in the bottom securities. The difference lies only in the part of tool used. So the investor while doing analysis, first of all must select what sort of technique he is using. Because same securities show different results when its performance will be evaluated by using different tools.

FINDINGS AND SUGGESTIONS

The present study has examined the performance of equity in terms of rate of return, Sharpe index, Treynor ratio, standard deviation and beta. The empirical results reported here indicate that different securities depict different pattern of performance when analysis is applied. There is no conclusive evidence available, which warrants us that which method of analysis for securities is better and which method is more reliable. However, there have been some instances where the securities are depicting the same behavior when their performance is evaluated by using different statistical tools and techniques. To large extent it depends on the practices followed by different professionals. The study has also focused on the part that the investor must analyze the securities before investing into them. Because market is so much volatile and complex that every step of investment demands rigorous analysis in order to maximize the return and minimize the risk.

Moreover, the study is depicting which security is performing well or where lies risk with in the security. With getting this knowledge, an investor can very well invest in the securities and can minimize the risk and can maximize the profits.

BIBLIOGRAPHY
Books
1. Baura (1991), Portfolio Management, Disha Printing House, New Dehli.
2.

Fisher Donald E (2000), Security Analysis & Portfolio Management, Prentice Hall of India 6th Edition.

3. Kothari, (2004), C.R., Research Methodology, New age International (P) Limited, New Delhi

Websites

www.nseindia.com www.investopedia.com www.moneycentral.com www.moneycontrol.com

ANNEXURE Nifty Analysis

Months Jan Feb Mar Apr May

Standard Deviation 0.01164875 0.015333798 0.020098846 0.01241549 0.008218496

Sharpe Ratio -0.605723389 -0.880498327 -0.386689749 -0.145592532 -0.772680309

Jun Jul Aug Sep Oct Nov Dec

0.008557058 0.011720832 0.019183919 0.011067659 0.023902343 0.011507718 0.028054373

-0.83317065 -0.487506555 -0.373481989 -0.176994381 -0.530877326 -0.165208221 -0.604523067

ITC

Months Jan Feb Mar Apr May Jun

Standard Deviation 0.000746578 0.017769783 0.02555955 0.020611309 0.0114035 0.013670168

Sharpe Ratio -0.4510245 -0.759794491 -0.304074909 -0.087699552 -0.556870217 -0.521536374

Jul Aug Sep Oct Nov Dec

0.023547683 0.021164497 0.018990002 0.020979695 0.030349818 0.017445566

-0.242655826 -0.338531477 -0.103154993 0.027796827 -0.401680095 -0.241101311

TATA POWER

Months Jan Feb Mar Apr May Jun

Standard Deviation 0.010738754 0.015599978 0.019027543 0.020765273 0.014840573 0.018380444

Sharpe Ratio -0.657052049 -0.865474523 -0.408461459 -0.087049308 -0.427899238 -0.387884515

Jul Aug Sep Oct Nov Dec

0.019675131 0.020408521 0.016930467 0.083763856 0.035622775 0.024122481

-0.290416488 -0.351071419 -0.115703453 -0.06965304 -0.342222574 -0.174366346