INTRODUCTION TO PORTFOLIO MANAGEMENT

Investing in securities such as shares, debentures and bonds is profitable as well as

exciting. It is indeed rewarding, but involves a great deal of risk and calls for scientific
knowledge as well as artistic skill. In such investments, both rational as well as
emotional responses are involved. Investing in financial securities is now considered to
be one of the best avenues for investing ones savings while it is acknowledged to be
one of the most risky avenues of investment.
It is rare to find investors investing their entire savings in a single security.
Instead, they tend to invest in a group of securities. Such a group of securities is called
portfolio. Creation of a portfolio helps to reduce risk without sacrificing returns.
Portfolio management deals with the analysis of individual securities as well as with the
theory and practice of optimally combining securities into portfolio. An investor who
understands the fundamental principles and analytical aspects of portfolio management
has a better chance of success.

Role of portfolio management

There was a time when portfolio management was an exotic term, an elite
practice beyond the reach of ordinary people, in India. The scenario has changed
drastically. Portfolio management is now a familiar term and is widely practiced in
India. The theories and concepts relating to portfolio management now find their way to
the front pages of financial newspapers and the cover pages of investment journals in
India.
INVESTMENT
The income that a person receives may be used for purchasing gods and services
that he currently requires or it may be saved for purchasing goods and services that he
may require in the future. In other words, income can be what is spent for current
consumption or saved for the future consumption.
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Savings are generated when a person or an organization abstains from present

consumption for a future use. The person saving a part of his income tries to find a
temporary repository for his saving until they are required to finance his future
expenditure. This results in investment.

Meaning of investment
Investment is an activity that is engaged in by people who have savings, i.e.
investments are made from savings, or in other words, people invest their savings, but
all savers are not investors, investment is an activity which is different from saving. Let
us see what is meant by investment.

Characteristics of investment
All investments are characterized by certain features. Let us analyze these
characteristics feature of investments
RETURN: All investments are characterized by the expectation of return. In fact,
investments are made with the primary objective of deriving a return. The return may be
received in the form of yield plus capital appreciation. The difference between the sale
price and the purchase price is capital appreciation.
RISK: Risk is inherent in any investment. This risk may relate to loss of capital, delay
in repayment of capital, non-payment of interest, or variability of returns. While some
investments like government securities and bank deposits are almost risk less, others are
more riskily. The risk of an investment depends on the following factors.
1. The longer the maturity period, the larger is the risk
2. The lower the credit worthiness of the borrower, the higher is the risk
3. the risk varies with the nature of investment. Investments in ownership securities
like equity shares carry higher risk compared to investments in debt instruments
like debentures and bonds.

SAFETY: The safety of an investment implies the certainty of return of capital without
loss of money or time. Safely is another feature which an investor desires for his
investments. Every investor expects to get back his capital on maturity without loss and
without delay
LIQUIDITY: An investment which is easily saleable or marketable without loss of
money and without loss of time is said to possess liquidity. Some investments like
company deposits, bank deposits, P.O. Deposits, NSC, NSS, etc. are not marketable.

Objectives of investments
An investor has various alternative avenues of investment for his savings to
flow to. Savings kept as cash are barren and do not earn anything. Hence, savings are
invested in assets depending on their risk and return characteristics. The objective of the
investor is to minimize the risk involved in investment and maximize the return from
investment.
Thus, the objectives of an investor can be stated as:
1. Maximization of return
2. Minimization of risk
3. Hedge against inflation

Investment vs. speculation

Investment and speculation are two terms which are closely related. Both
involve purchase of assets like shares and securities. Traditionally, investment is
distinguished from speculation with respect to three factors, viz. (1) risk, (2) capital gain
and (3) time period.

PORTFOLIO MANAGEMENT STEPS

An investor considering investment in securities is faced with the problem of
choosing from among a large number of securities. His choice depends upon the riskreturn characteristics of individual securities.
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He would attempt to choose the most desirable securities and like to allocate his funds
over the group of securities. Again the is faced with the problem of deciding which
securities to hold and how much to invest in each. The investor faces an infinite number
of possible portfolios or groups of securities. The risk and return characteristics of
portfolios differ from those of individual securities combining to form a portfolio. The
investor tries to choose the optimal portfolio taking into consideration the risk-return
characteristics of all possible portfolios.
An investor invests his funds in a portfolio expecting to get a good return
consistent with the risk that he has to bear. The return realized from the portfolio has to
be measured and the performance of the portfolio has to be evaluated.
Security analysis

Portfolio analysis

Portfolio selection

Portfolio revision

Portfolio evaluation

SECURITY ANALYSIS
The securities available to an investor for investment are numerous and of
various types. The share of over 700 companies is listed in the stock exchanges of the
country. Traditionally, the securities were classified into ownership securities such as
equity shares and preference shares and creditor ship securities such as debentures and
bonds.
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Security analysis is the initial phase of the portfolio management process. This step
consists of examine the risk-return characteristics of individual securities. A basic
strategy in securities investment is to buy under prices securities and sell overpriced
securities. But the problem is how to identify under priced and overpriced securities, or,
in other words, mispriced securities.
Security analyses in two types are
1. Fundamental analysis
2. Technical analysis
Fundamental analysis
The primary motive of buying a share is to sell it subsequently at a higher price.
In many case, dividends are also expected. Thus, dividends and price changes constitute
the return from investing I shares.
An investor who would like to be rational and scientific in his investment
activity thus to evaluate a lot of information about the past performance and the
expected future performance of companies, industries and the economy as a whole
before taking the investment decision. Such evaluation or analysis is called fundamental
analysis.
Meaning of fundamental analysis
Fundamental analysis is really a logical and systematic approach to estimating
the future dividends and share price. It is based on the basic premise that share price is
determined by a number of fundamental factors relating to the economy, industry and
company. Hence, the economy fundamentals, industry fundamentals and company
fundamentals have to be considered while analyzing a security for investment purpose.
Fundamental analysis is , in other words, a detailed analysis of the fundamental factors
affecting the performance of companies.
Economy-wide factors such as growth rate of the economy, inflation rate
Industry wide factors such as demand-supply gap in the industry
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Fundamental analysis thus involves three steps

1. Economy analysis
2. Industry analysis
3. Company analysis

Technical analysis
Prices of securities in the stock market fluctuate daily on account of
continuous buying and selling. Stock prices move in trends and cycles and are never
stable. An investor in the stock market is interested in buying securities at a low price
and selling them at a high price so as to get a good return on his investment. He,
therefore, tries to analyze the movement of share prices in the market. Two approaches
are commonly used for this purpose. One of these is the fundamental analysis where in
the analyst tries to determine the true worth or intrinsic value of a share based on the
current and future earning capacity of the company. He would buy the share when its
market price is below its intrinsic value. The second approach to security analysis is
called technical analysis. It is an alternative approach to the study of stock price
behavior.
Meaning of technical analysis
A technical analyst believes that share prices are determined by the demand
and supply forces operating in the market. These demand and supply forces in turn are
influenced by a number of fundamental factors as well as certain psychological or
emotional factors. Many of these factors cannot be quantified. The combined impact of
all these factors is reflected in the share price movement. A technical analyst therefore
concentrates on the movement of share prices. He claims that by examine past share
price movements future share prices can be accurately predicted. Technical analysis is
the name given to forecasting techniques that utilize historical share price data.

Basic principles of technical analysis

The market value of a security is related to demand and supply factors operating
in the market.
There are both rational and irrational factors which surround the supply and
demand factors of a security
Security prices behave in a manner that their movement is continuous in a
particular direction for some length of time.
Trends in stock prices have been seen to change when there is a shift in the
demand and supply factors.
The shifts in demand and supply can be detected through charts prepared
specifically to show market action.
Patterns which are projected by charts record price movements and these
recorded patterns are used by analysis to make forecasts about the movement of
prices in future

PORTFOLIO ANALYSIS
Individual securities have risk return characteristics of their own. The future
return expected from a security is variable and this variability of returns is termed risk. It
is rare to find investors investing their entire wealth in a single security. This is because
most investors have an aversion to risk. It is hoped that if money is invested in several
securities simultaneously, the loss in one will be compensated by the gain in others.
Thus, holding more than one security at a time is an attempt to spread and minimize risk
by not putting all our eggs in one basket.
Most investors thus tend to invest in a group of securities rather than a single
security. Such a group of securities held together as an investment is what is known as a
portfolio. The process of creating such a portfolio is called diversification. It is an
attempt to spread and minimize the risk in investment. This is sought to be achieved by
holding different types of securities across different industry groups.

From a given set of securities, any number of portfolios can be constructed. A

rational investor attempts to fid the most efficient of these portfolios. The efficiency of
each portfolio can be evaluated only in terms of the expected return and risk of the
portfolio as such. Thus, determining the expected return and risk of different portfolios
is primary step in portfolio management. This step is designed as portfolio analysis.

PORTFOLIO SELECTION
The objective of every rational investor is to maximize his returns and
minimize the risk. Diversification is the method adopted for reducing risk. It essentially
results in the construction of portfolios. The proper goal of portfolio construction would
be to generate a portfolio that provides the highest return and the lowest risk. Such a
portfolio would be known as the optimal portfolio. The process of finding the optimal
portfolio is described as portfolio selection.
The conceptual framework and analytical tools for determining the optimal
portfolio in disciplined and objective manner have been provided by Harry Markowitz
in his pioneering work on portfolio analysis described in his 1952 journal of finance
article and subsequent book in 1959. His method of portfolio selection has come to be
known as the Markowitz model. In fact, Markowitz work marks the beginning of what is
known today as modern portfolio.

PORTFOLIO REVISION
In portfolio management, the maximum emphasis is placed on portfolio
analysis and selection which leads to the construction of the optimal portfolio. Very little
discussion is seen on portfolio revision which is as important as portfolio analysis and
selection.
The financial markets are continually changing. In this dynamic environment, a
portfolio that was optimal when constructed may not continue to be optimal with the
passage of time. It may have to be revised periodically so as to ensure that it continues
to be optimal
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Meaning of portfolio revision

A portfolio is a mix of securities selected from a vast universe of securities.
Two variables determine the composition of a portfolio; the first is the securities
included in the portfolio and the second is the proportion of total funds invested in each
security.
Portfolio revision involves changing the existing mix of securities. This may
be effected either by changing the securities currently included in the portfolio or by
altering the proportion of funds invested in the securities. Now securities may be added
to the portfolio or some of the existing securities may be removed from the portfolio.
Portfolio revision thus leads to purchase and sales of securities.
Need for revision
The primary factor necessitating portfolio revision is changes in the financial
markets since the creation of the portfolio. The need for portfolio revision may arise
because of some investor related factors also. These factors may be listed as:
1. Availability of additional funds for investment
2. change in risk tolerance
3. change in the investment goals
4. need to liquidate a part of the portfolio to provide funds for some alternative use

The portfolio needs to be revised to accommodate the changes in the investors

position. Thus, the need for portfolio revision may arise from changes in the financial
market or changes in the investors position, namely his financial status and preference.

PORTFOLIO EVALUATION
Portfolio evaluation is the last step in the process of portfolio management.
Portfolio analysis, selection and revision are undertaken with the objective of

maximizing returns and minimizing risk. Portfolio evaluation is the stage where we
examine to what extent the objectives has been achieved.
Through portfolio evaluation the investor tries to find out how well the portfolio has
performed. The portfolio of securities held by an investor is the result of his investment
decisions. Portfolio evaluation is really a study of the impact of such decisions. Without
portfolio evaluation, portfolio is really a study of the impact of such decisions. Without
portfolio evaluation, portfolio management would be incomplete.
Two decades ago portfolio evaluation was not considered as an integral part of
portfolio management. It has evolved as an important aspect of portfolio management
over the last two deceases. Moreover, the evaluation process itself has changed from
crude return calculations to rather detailed explorations of risk and return and the
sources of each.
Meaning of portfolio evaluation
Portfolio evaluation refers to the evaluation refers to the evolution of the
performance of the portfolio. It is essentially the process of comparing the return earned
on a portfolio with return earned on one or more other portfolios or on a benchmark
portfolio. Portfolio evaluation essentially comprises two functions, performance
measurement and performances evaluation. Performance measurement is an accounting
function which measures the return earned on a portfolio during the holding period or
investment period. Performance evaluation, on the other hand, addresses such issues as
whether the performance was superior or inferior, whether the performance was due to
skill or luck, etc.
Need for evaluation
Investment may be carried out by individuals on their own. The funds available
with individual investors may not be large enough to create a well diversified portfolio
of securities. Moreover, the time, skill and other resources at the disposal of individual
investors may not be sufficient to manage the portfolio professionally. Institutional

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investors such as mutual funds and investment companies are better equipped to create
and manage well diversified portfolio in a professional fashion.
Risk Adjusted Returns
One obvious method of adjusting for risk is to look at the reward per unit of
risk. We know that investment in shares is risky. Risk free rate of interest is the return
that an investor can earn on a riskless security, i.e. without bearing any risk. The return
earned over and above the risk free rate is the risk premium that is the reward for
bearing risk. If this risk premium is divided by a measure of risk, we get the risk
premium per unit of risk. Thus, the reward per unit of risk for different portfolios or
mutual funds may be calculated and the funds may be ranked in descending order of the
ratio. A higher ratio indicates better performance.
Two methods of measuring the reward per unit of risk have been proposed by
William Sharpe and Jack Trey nor respectively in their pioneering work on evaluation of
portfolio performance.
Sharpe Ratio
The performance measure developed by William Sharpe is referred to as the
Sharpe ratio or the reward to variability ratio. It is the ratio of the reward or risk
premium to the variability of return or risk as measured by the standard deviation of
return. The formula for calculating Sharpe ratio may be stated as:
rp rf
Shape ratio (SR) = ____________
p
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 where
rp = Realized return on the portfolio
rf = Risk free rate of return.
p = Standard deviation of portfolio return.
Trey nor Ratio
The performance measure developed by Jack Trey nor is referred to as Trey
nor ratio or reward to volatility ratio. It is the ratio of the reward or risk premium to the
volatility of return as measured by the portfolio beta. The formula for calculating
Treynor ratio may be stated as:
rp rf
Treynor ratio (SR) = ____________
p
where
rp = Realized return on the portfolio
rf = Risk free rate of return.
p = Portfolio beta.

SEBI GUIDELINES FOR MUTUAL FUNDS

The SEBI regulations for the establishment and issue of schemes by mutual
funds are as follows:

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1.

Mutual fund shall be established in the form of trusts under the Indian Trust Act
and managed by separately formed Asset management Company.

2.

Money market mutual fund would be regulated by the RBI and other mutual
funds would be regulated by SEBI.

3.

Fifty per cent members of the board of AMC must be independent directors and
must have no connection with sponsoring organization.

4.

The directors should have at least 10 years experience in the field of portfolio
management, financial administration, etc.

5.

The AMC should have minimum net worth of Rs.10 crore.

6.

The SEBI has the authority to withdraw the authorization of AMC is they fail to
work for the interest of investors. This stipulation is not applicable to banks
sponsoring mutual funds.

7.

An AMC cannot act as the AMC for another mutual fund.

8.

AMCs are also allowed to do other fund based businesses such as providing
investment management services to offshore funds, other mutual funds, venture
capital funds, and insurance companies.

9.

The minimum amount to be raised with each closed-end scheme should be Rs.20
crore and for the open-ended scheme Rs.50 crore.

10.

Each scheme of the mutual fund is registered with SEBI before it is floated in the
market.

11.

Closed-end schemes should not be kept open for subscription for more than 45
days.

For open-ended schemes, the first 45 days should be considered for

determining the target figure.

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12.

If the minimum amount or 60% of the target amount is not raised, the entire
subscription has to be returned to the investors.

13.

For each scheme, there should be a separate and responsible fund manager.

14.

The SEBI guidelines (1999) restrict MFs to invest not more than 10% of NAV
of a scheme in shares or share related instruments of a single company.

15.

SEBI increased the maximum investment limit for MFs in listed companies from
5 to 10% of NAV in respect of the open-ended funds.

16.

The initial issue expenses should not exceed 6% of the funds raised under each
scheme.

17.

All mutual funds must distribute a minimum of 90% of their profits in any given
year.

18.

Every mutual fund is required to send the audited annual statements of accounts
and six months audited accounts of net assets for each of its schemes to the
SEBI.

19.

The SEBI shall lay down a common advertising code for all mutual funds to
comply with.

20.

The SEBI after due investigation may impose penalty on mutual funds for
violating the guidelines.

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NEED FOR THE STUDY

Portfolio management is a process encompassing many activities of
investment in assets and securities. It is a dynamic and flexible concept and
involved regular and systematic analysis, judgment and actions. The
objective of this service is to help the unknown investors with the expertise
of professionals in investment portfolio management. It involve
construction of a portfolio based upon the investors objectives, preference
for risk, return and tax liability. The portfolio is reviewed and adjusted from
time to time in tune with the market conditions. The evaluation of portfolio
is to be done in terms of targets set for risk and return. The changes in
portfolio are to be effected to meet the changing conditions.
Portfolio construction refers to the allocation of surplus funds in hand
among a variety of financial assets open or investment. Portfolio theory
concerns itself with the principles governing such allocations. The modern
view of investment is oriented more towards the assembly of proper
combinations of individual securities of form investment portfolio. A
combination of securities help together will give beneficial results if they
are grouped in a manner to secure higher return after taking into
consideration the risk elements.
The modern theory if of the view that by diversification, risk can be
reduced. The investor can make diversification either by having large
number of shares of companies in different regions, in different industries
or those producing different types of product line. Modern theory believes
in the perception of combination of securities under constraints of risk and
return.

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OBJECTIVES OF THE STUDY

To find out the risk perception of equity investors in a India Infoline Ltd.

To bring out the importance of portfolio management of equity investors

To know about the customers knowledge and experience in investing in equities.

To construct an optimal portfolio.

To estimate the average return of the securities depending upon the past 12

months return.
To estimate the individual securities risk, using Beta coefficient.
To identify the best portfolio among the others depending upon their portfolio
risk and portfolio return.

SCOPE OF THE STUDY

It relates to investment in equities

Understanding of customer / or investors about the equities

It also help us to know the port folio management of equity investors

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The study covers the details on selection of asset mix to be made in to the
portfolio.

The study covers the average returns and Beta value for different securities
of various sectors in order to find out what percentage of funds should be
invested among the companies in the portfolio.

Under this project first I have selected 5 industries each having three companies
which totals to 15 companies from Sensex.

RESEARCH METHODOLOGY
Research Design

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It is a conceptual structure within which research should be conducted. Thus the

preparation of such a design facilitates research to be as efficient as possible and will
yield maximal information.
Research Objectives

To find out the risk perception of equity investors in an India Infoline

Ltd.

To bring out the importance of portfolio management of equity investors.

To know about their knowledge and experience in investing in equities.

SOURCES OF DATA
The task of collecting data begins after a research problem has been defined and
plan is checked out for this study data is collected from primary and secondary sources.
Primary Data
Data are collected for the first time for a specific purpose in mind using the
structured questionnaire, through personal and telephonic interviews.
Secondary Data
The data, which already collected and published, are referred through the
following web sites. www.indiainfoline.com, www.nseindia.com and from the journals
of the organization.
Sample Design

Population

Sampling technique

Sampling unit

METHODOLOGY OF THE STUDY

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For implementing, 15 securities or scrip from 5 Different industries consulting

the Sensex market are selected for one-year based on the closing share price movement
data from BSE dated, from April 2009 to March 2010.
In order to know the average return of each security or stock, the formula used is,

Sum Of Returns Of The Scrip For 12Months

AVERAGE RETURN (R'i) =

________________________________________________________

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Ri = Return of a security for an individual month.

R'i = Average Return of a Security.
The next step is to know the risk of the security i.e. - Coefficient of security for which
the following formulae is used.
Covariance ( i,m)
BETA () =

_________________________

Variance (m)

Beta () = Beta Coefficient of Individual Security

Covariance (i,m) = Covariance of returns of individual security with market portfolio.
Variance (m) = Variance of returns of Market Portfolio.(2 m)
Covariance (i,m) = i m Cor im
Cor im = Correlation coefficient between the returns of individual security and market
portfolio
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i = Standard Deviation of returns of individual Security

m = Standard deviation of returns of Market Portfolio

LIMITATIONS OF THE STUDY

The Study was limited to India Infoline Ltd only.
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 The Result may be bias as some of the responses may not be accurate.
The idea behind constructing a portfolio of stocks is to choose best players in the
market so that the investor can get good returns with low risk

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INDUSTRY PROFILE
Stock Market
Stock market represents the secondary market where existing securities i.e.,
shares and debentures are traded. Stock exchange provides a securities share and debentures
provide an organized mechanism for purchase and sale of securities. By the end of 2005 there
are 23 stock exchanges in our country.
Stock exchange provides a place where securities of different companies can
be purchased and sold. Stock exchange is a body of persons, whether in corporate or not,
formed with a view to help, regular and control the business of buying and selling of securities.
II.1 Function of Stock exchange
o Ensure liquidity of capital
o Continuous market for securities
o The investor can evaluate the worth of their shares from the prices quoted at
o
o
o
o

different stock exchange for those securities

Mobilizing surplus savings
Helps in raising new capital
Platform for public debt
Cleaning house of business information

II.2 Speculators in stock exchange

BULL

BEAR

STAG
LAME DUCK

BULL: A bull or tejiwala an operator who expect prices to raise in future, purchase the
securities now and sells them in the future at a higher price. A bull tends to throw his victims
up in the air.
BEAR: A bear or mandiwala expects price to fall in future and sells securities at present with a
view to purchase them at lower price in future, just bear presses their victim down to the
ground.

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STAG: A stag is a cautious speculator in the stock exchange. He applies for the share in new
companies and expects to sell them at a premium if he gets an allotment. He sells the shares
before being called to pay the allotment money.
LAME DUCK: when a bear finds it difficult to fulfill his commitment, he is called struggling
like a lame duck.
II.3 Stock exchange in India
Bombay Stock Exchange
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.

- 1875

Ahmadabad share & Stock Brokers Association Ltd.- 1957

Calcutta Stock Exchange association limited
- 1957
Delhi Stock Exchange
- 1957
Madras Stock Exchange
- 1957
Indore Stock brokers association
- 1958
Bangalore Stock Exchange
- 1963
Hyderabad Stock Exchange
- 1963
Cochin Stock Exchange
- 1978
Pune Stock Exchange
- 1982
U.P Stock Exchange association limited
- 1982
Ludhiana Stock Exchange association limited
- 1983
Jaipur Stock Exchange association limited
- 1983
Guwahati stock Exchange limited
- 1984
Mangalore Stock Exchange limited
- 1985
Magadha Stock exchange limited, Patna
- 1986
Bhubaneswar Stock Exchange association Ltd.
- 1989
Over the counter Exchange of India, Bombay
- 1989
Saurastra Kutch Stock Exchange limited
- 1990
Vadodara Stock Exchange limited
- 1991
Coimbatore Stock Exchange limited
- 1991
The Meerut Stock Exchange limited
- 1991
National Stock Exchange limited
- 1992

National Stock Exchange

The National stock exchange of India was established in 1994 by financial institutions
and banks with IDBI as a nodal agency and is popularly known as NSE. The NSE has been
conceived as a modal exchange with nationwide electronic screen based scrip less and
floorless trading system in securities, which is both efficient and transparent and offers equal
and nationwide access to investors.

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National Stock Exchange Cash Segment

The National stock exchange operates mainly in two different segments:
1.
2.

Wholesale debt market, (WDM)

Capital market (CM)
The wholesale debt market (WDM) is concerned with trading in instruments like

Government Securities, PSU bonds, unites 64 of UTI, CDs and CPs by corporate entities (like
banks, institutions, brokerages). The Capital market (CM) is concerned with equity and
corporate with equity and corporate debt instruments by both corporate equities and individuals.
It will encourage high member with dealer network and short settlement cycles.
The Capital Market segment covers trading in equities, convertible debentures etc., retail
and I trade in debt instruments like non- convertible debentures. Securities of medium and large
companies with nationwide investor base, including securities traded on other Stock Exchange
are traded on the NSE. The NSE market is a fully automated screen based trading environment.
There no trading floor as is prevalent in the traditional stock exchanges. Nor do dealers use the
telephone to arrange money market deals. Rather, the market operators with all market
participants stationed at their officers and making use of computers terminals, to enter orders, to
receive the current market status, the trades executed and other market related information.
The identity of the trading member placing the order is not disclosed in the NSE computer
trading system. By enabling trading members and participants to hide their identity, without fear
of large orders influencing the price of the market. The system provides s complete transparency
of trading operations. Investors can see prices of traded securities and known whether their order
have been placed in to the system, the rate at which their deal has taken place, the counter party
and the time at which the trade was executed.
The trading system provides enormous flexibility to trading members. When entering an
order, a trading member can place various conditions on the order in terms of price, time or size.
Orders are matched automatically by the exchange computer system. All orders received are
stacked in price time priority. In the other words, the computer sorts orders as and when they are
received in terms of the price of each security and the time at which orders are entered.

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Indices of National Stock Exchanges

S & P NIFTY
S & P CNX Nifty is a well diversified 50 stock index accounting for 24 sectors of the
economy. It is used for a varieties of purposes such as benchmarking fund portfolios, index
based derivatives and index funds.
CNX NIFTY JUNIOR
The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty junior. It may be
useful to think of the SS&P CNX Nifty and the CNX Nifty junior as making up the 100 most
liquid stocks in India. As with the S&P CNX Nifty, stocks in the CNX Nifty junior are filtered
for liquidity, so they are the most liquid of the stocks excluded from the S & P CNX Nifty.
S&P CNX 500
The S&P CNX 500 is Indias first broad based benchmark of the Indian capital! Market
for comparing portfolio returns. The S&P CNX 500 represents about 94% of total market
capitalization and about 98% of the total turnover on the NSE.

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S&P CNX Deft

Almost every institutional investor and off- shore fund enterprise with an equity exposure
in the India would like to have an instrument for measuring returns on their equity investment in
dollar terms. To facilitate this, a new index the S&P CNX Nifty has been developed.
CNX MIDCAP200
The medium capitalized segment of the stock market is being increasingly perceived as an
attractive investment segment with high growth potential. The primary objective of the CNX
madcap 200 index is to capture the movement and be a benchmark of the madcap segment of the
market.
CNX IT SECTOR INDEX
Information technology (IT) industry has played a major role in the Indian economy during
the last few years, a number of large, profitable Indian companies today belong to the IT sector
and a great deal of investment interest is now focused on the IT sector. In order to have a good
benchmark of the Indian IT sector, IISL developed the CNX IT sector index. Companies in this
index are those that have more than 50% of their turnover from IT related activities like software
development, hardware manufacture, vending, support and maintenance.
Evolution of Online Trading
Online Trading
Stock exchange maintains a mainframe computer which is connected through very small
aperture terminal (VSAT) install at its office. This mainframe is heart of the online trading
system and it keeps all the market data. Brokers offices have terminal at their premises, which
are connected through VASTs/leased lines/modems. The brokers enter the order through his PC
which runs order window NT/2000 and send signal to the satellite via VAST/leased line modem.
The signal is directed to main frame computer at stock exchange via VAST.

26

Evolution
Online trading has become very popular in the last couple of years because of the
convenience of ease and use. Numerous companies have gone, online to meet their customers
enabling them to trade when they want and how they want to. Online trading has basically
replaced a phone call with the internet. Instead of interacting with brokers over the phone, the
customer is clicking the mouse; not to mention that other option are still available, but at a cost.
Online trading has given customers real-time access to account information, stock quotes,
elaborate market researches and interactive trading. Further, online trading has led to additional
features such as:
Limit/stop order - Order that can go unfilled, but there is an extra charge for this.
Market Order Order can be filled at unexpected prices, but this type is much more risky,
since you have to buy stock ay the given price.
Cash Account Where funds have to be available prior to placing the order.
Margin Account- Where order can be placed against stocks, to increase purchasing power.
Investors reason to trade online

They feel they have control over their account can make their own decisions and

do not have to give reasons their actions.

They are independent

They have a reason to participate in the market and learn about it.

They fit it interesting, cheap, easy, fast and convenient.

They are sure and confident.

They have access to numerous tolls to invest, and can create their own portfolio.
Dematerialization
In order to trade electronically /share held in the physical form (share certificate) have to
be dematerialized. Dematerialization is the process by which physical share converts certificates
of an investor to electronic form. De-mat is short form dematerialization.
Depository is an organization where the securities of a share holders held are held in
the form of electronic account. Depository holds electronic custody of securities and also

27

arranges for transfer of owner ship of securities on the settlement dates are traded and held in
custody.
This facilitates faster, risk free and low cost settlement. Depository is much like a bank and
performs many activities that are similar to bank the benefits of participation in a depository are:

Immediate transfer of securities.

No stamp duty on transfer of securities.
Elimination of risk associated with physical certificates such as bad delivery, fake

securities etc.

Reduction in paper work involved in transfer of securities.

Reduction in transaction cost.

Change in address recorded with depository participant (DP) gets registered with all
companies in with investor holds securities electronically elimination the need to correspond
with each of them separately.

Convenient method of consolidation of folios/ accounts.

National Securities Depository Limited
National securities depository limited (NSDL) is the first Indian depository and it was
inaugurated in November 1996. NSDL was set up with and initial capital of US $28 million
promoted by Industrial Development Bank of India (IDBI) unit trust of India (UTI) and national
stock exchange of India Ltd (NSEIL) later state bank of India (SBI) also became a share holder.
Clearing corporation / clearing houses. NSDL is electronically linked to each of these
business partners via a satellite links through very small aperture terminal (VSATs). The entire
integrated system (including VSAT linked ups and the software are NSDL at each business
partner end) has been named the NEST (National Electronics Settlement And Transfer) a system
the investor interacts with the depository thoughts a depository participants of NSDL a DP can
be bank, financial Institutions, custodian or a broker.

Trading system
NSE operates on the National exchange for automated reading (NEAT) system, a fully
automated screen based trading system, which adopts the principle of an order driven market.
NSE consciously opted in favor of an order driven system as opposed to a quote driven system.
28

This has helped reduce jobbing spreads not only on NSE but in other exchange as well, thus
reducing transaction costs.
Trading system market type
The NEAT system has four type of market. They are:
Normal Market
All order which are of regular lot size or multiples thereof are traded in the normal market.
Old lot market
All orders whose order size is less than the regular lot size are traded in the odd-lot market.
An order is called an odd lot order if the order size is less than regular lot size. These orders do
not have any special terms attributes attached to them. In an odd-lot market, both the price and
quantity of both of orders (buy and sell) should exactly match for the trade to take place.
Currently the odd lot market facility is used for the limited physical market as per the SEBI
directives.
Auction market
In the auction market, the exchange on behalf of trading members for settlement related reasons
initiates auctions. There are 3 participants in this market.
Initiator the party who initiates the auction process is called an initiator.
Competitor the party who enters orders on the same side as of the initiator.
Solicitor the party who enters orders on the opposite side as of the initiator.

Spot market

Settlement periods are same like normal market. These orders do not have any special terms
attributes attached to them. Currently the spot market is not in use.

COMPANY PROFILE

29

INTRODUCTION
The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd
(NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in
the Indian financial services space. IIFL offers advice and execution platform for the
entire range of financial services covering products ranging from Equities and
derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed
deposits, Loans, Investment Banking, Go I bonds and other small savings instruments.
IIFL recently received an in-principle approval for Securities Trading and Clearing
memberships from Singapore Exchange (SGX) paving the way for IIFL to become the
first Indian brokerage to get a membership of the SGX. IIFL also received membership
of the Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka.
IIFL owns and manages the website, www.indiainfoline.com, which is one of Indias
leading online destinations for personal finance, stock markets, economy and business.
IIFL has been awarded the Best Broker, India by Finance Asia and the Most
improved brokerage, India in the Asia Money polls. India Infoline was also adjudged as
Fastest Growing Equity Broking House - Large firms by Dun & Bradstreet. A
forerunner in the field of equity research, IIFLs research is acknowledged by none other
than Forbes as Best of the Web and a must read for investors in Asia. Our research
is available not just over the Internet but also on international wire services like
Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the
most read Indian brokers.
A network of over 2,500 business locations spread over more than 500 cities and
towns across India facilitates the smooth acquisition and servicing of a large customer
base. All our offices are connected with the corporate office in Mumbai with cutting
edge networking technology.
Company Profile:
IIFL - History & Milestones
1995 - Commenced operations as an Equity Research firm
30

1997 - Launched research products of leading Indian companies, key sectors and the
economy Client included leading FIIs, banks and companies
1999 - Launched www.indiainfoline.com
2000 - Launched online trading through www.5paisa.com Started distribution of life
insurance and mutual fund
2003 - Launched proprietary trading platform Trader Terminal for retail

customers

2004 - Acquired commodities broking license Launched Portfolio Management

Service
2005 - Maiden IPO and listed on NSE, BSE
2006 - Acquired membership of DGCX Commenced the lending business
2007 - Commenced institutional equities business under IIFL Formed

Singapore

subsidiary, IIFL (Asia) Pvt.Ltd

2008 - Launched IIFL Wealth Transitioned to insurance broking model
2009 - Acquired registration for Housing Finance SEBI in-principle

approval for

Mutual Fund Obtained Venture Capital license

2010 - Received in-principle approval for membership of the Singapore
Exchange Received membership of the Colombo Stock

Stock

Exchange

31

Corporate Structure
IIFL (India Infoline Ltd) - Corporate Structure

32

Board of directors

Mr. Nirmal Jain

Chairman & Managing Director, India Infoline Ltd.
Mr. Nirmal Jain is the founder and Chairman of India Infoline Ltd. He is a PGDM (Post
Graduate Diploma in Management) from IIM (Indian Institute of Management)
Ahmadabad, a Chartered Accountant and a rank-holder Cost Accountant. His
professional track record is equally outstanding. He started his career in 1989 with
Hindustan Lever Limited, the Indian arm of Unilever. During his stint with Hindustan
Lever, he handled a variety of responsibilities, including export and trading in agrocommodities. He contributed immensely towards the rapid and profitable growth of
Hindustan Levers commodity export business, which was then the nations as well as
the Companys top priority.
He founded Probity Research and Services Pvt. Ltd. (later re-christened India
Infoline) in 1995; perhaps the first independent equity research Company in India. His
work set new standards for equity research in India. Mr. Jain was one of the first
entrepreneurs in India to seize the internet opportunity, with the launch of
www.indiainfoline.com in 1999. Under his leadership, India Infoline not only steered
through the dotcom bust and one of the worst stock market downtrends but also grew
from strength to strength.

33

Mr. R. Venkataraman
Executive Director, India Infoline Ltd.

Mr. R Venkataraman, Co-Promoter and Executive Director of India Infoline Ltd,

is a B.Tech (electronics and electrical communications engineering, IIT Kharagpur) and
an MBA (IIM Bangalore). He joined the India Infoline Board in July 1999. He
previously held senior managerial positions in ICICI Limited, including ICICI Securities
Limited, their investment banking joint venture with J P Morgan of US, BZW and Taib
Capital Corporation Limited. He was also the Assistant Vice President with G E Capital
Services India Limited in their private equity division, possessing a varied experience of
more than 19 years in the financial services sector

Mr. Nilesh Vikamsey

Independent Director, India Infoline Ltd.

Mr. Nilesh Vikamsey Board Member since February 2005 - is a practicing

Chartered Accountant for 25 years and Senior Partner at M/s Khimji Kunverji & Co.,
Chartered Accountants, a member firm of HLB International, a world-wide organization
of professional accounting firms and business advisers, ranked amongst the top 12
accounting groups in the world. Mr. Vikamsey headed the audit department till 1990 and
thereafter also handled financial services, consultancy, investigations, mergers and
acquisitions, valuations and due diligence, among others. He is elected member of the
Central Council of Institute of Chartered Accountant of India (ICAI), the Apex decision
making body of the second largest accounting body in the world, 20102013.

34

He is on the ICAI study group member for the introduction of the Accounting
Standard 30 on financial instruments recognition and management. Convener of
the Study group Formed by ASB of ICAI to formulate comments on various Exposure
Drafts, Discussion Papers and other matters pertaining to IFRS originating from IASB,
Representative of the Institute of Chartered Accountants of India on the Committee for
Improvement in Transparency, Accountability and Governance(ITAG) of South Asian
Federation of Accountants (SAFA), Member of Executive Committee & IFRS
Implementation Committee of WIRC of Institute of Chartered Accountant of India
(ICAI), Accounting and Auditing Committee of Bombay Chartered Accountant Society
(BCAS) and also on its Core Group, member of Review, Reforms & Rationalization
Committee, IPR Committee of Bombay Chamber of Commerce and Industry (BCCI),
Member of Legal Affairs Committee of Bombay Chamber of Commerce and
Industry(BCCI), Corporate Members Committee of The Chamber of Tax Consultants
(CTC), Regular Contributor to WIRC Annual Reference on Bank Branch Audit,
Study/ Sub Group formed by ICAI for Considering Developments on Fair Value
Accounting (AS 30) post Sub Prime crisis, Sub Group formed by ICAI for approaching
the Government and Regulatory Authorities for Convergence with IFRS.
He is also a Vice Chairman of Financial Reporting Review Board Accounting
Standard Board and Member of Accounting Standard Board and various other Standing
and Non Standing Committees. Mr. Vikamsey is also a Director of Miloni Consultants
Private Limited, HLB Offices and Services Private Limited, Trunil Properties Private
Limited, Bark at Properties Private Limited and India Infoline Investment Services
Limited.
Mr. Kranti Sinha
Independent Director, India Infoline Ltd.

Mr. Kranti Sinha Board member since January 2005 completed his masters
from the Agra University and started his career as a Class I Officer with Life Insurance
Corporation of India.
35

He served as the Director and Chief Executive of LIC Housing Finance Limited
from August 1998 to December 2002 and concurrently as the Managing Director of
LICHFL Care Homes (a wholly-owned subsidiary of LIC Housing Finance Limited). He
retired from the permanent cadre of the Executive Director of LIC; served as the Deputy
President of the Governing Council of Insurance Institute of India and as a member of
the Governing Council of National Insurance Academy, Pune apart from various other
such bodies. Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited
and Cinemax (India) Limited.
Mr. A. K. Purwar
Independent Director, India Infoline Ltd.
Mr. Purwar is currently the Chairman of India

Venture

Advisors Pvt. Ltd., investment manager to IndiaVenture Trust Fund I, the healthcare
and life sciences focused private equity fund sponsored by the Primal Group. He has
also taken over as the Chairman of IL & FS Renewable Energy Limited in March 2008
and India Infoline Investment Services Ltd in November 2009. He is working as
Independent Director in leading companies in Telecom, Steel, Textiles, Power, and Auto
components, Renewable Energy, Engineering Consultancy, Financial Services and
Healthcare Services. He is an Advisor to Mizuho Securities in Japan and is also a
member of Advisory Board for Institute of Indian Economic Studies (IIES), Waseda
University, and Tokyo, Japan.
Mr. Purwar was the Chairman of State Bank of India, the largest bank in the
country from November 02 to May 06 and held several important and critical positions
like Managing Director of State Bank of Patiala, Chief Executive Officer of the Tokyo
branch covering almost the entire range of commercial banking operations in his
illustrious career at the bank from 1968 to 2006. Mr. Purwar also worked as Chairman
of Indian Bank Association during 2005 2006. Mr. Purwar has received the CEO of
the year Award from the Institute for Technology & Management (2004); Outstanding
Achiever of the year Award from Indian Banks Association (2004); Finance Man of
the Year Award by the Bombay Management Association in 2006.
36

2.8 MANAGEMENT
Institutional Equities

H.Nemkumar

Investment Banking

Ajit Menon, Donald D' Souza

Consumer Finance

Pratima Ram

Retail Broking

Nandip Vaidya

Wealth Management

Karan Bhagat

International Operations

Bharat Parajia

Offshore Asset Management

Deepesh Pandey

Insurance Distribution

IIFLs philosophy on Corporate Governance

IIFL (India Infoline) is committed to placing the Investor First, by continuously
striving to increase the efficiency of the operations as well as the systems and processes
for use of corporate resources in such a way so as to maximize the value to the
stakeholders. The Group aims at achieving not only the highest possible standards of
legal and regulatory compliances, but also of effective management.
Committees
Audit Committee
The Audit Committee of the Company comprises of Mr. Nilesh Vikamsey (Independent
Director & Chairman of the Committee), Mr. Kranti Sinha (Independent Director) and
Mr. R Venkataraman (Executive Director).

The Managing Director, the Executive Director along with the Statutory Auditors
and Internal Auditors are invitees to the Meeting.

37

The minutes of the Audit Committee Meetings form part of the agenda papers
circulated for the Board Meeting.

The minutes of the Audit Committee Meetings form part of the agenda papers
circulated for the Board Meeting.

The scope of the Audit Committee includes the references made under Clause 49
of the Listing Agreements as well as Section 292A of the Companies Act, 1956, besides
the other terms that may be referred by the Board of Directors. The Broad terms of
reference of the Audit Committee are:

To supervise the financial reporting process and all financial results;

To review statements and disclosures and recommend the same to the Board;

To review the adequacy of internal control systems of the Company, including

the scope and performance of the internal audit function; review of related party
transactions; review the performance of internal and statutory auditors with
management and fix their remuneration;

To hold discussions with statutory auditors on the nature and scope of audit;
ensure compliance with all applicable accounting standards; ensure compliance
with the listing and other legal requirements and the Companys financial and
risk management policies and

To ensure compliance with the statutory requirements

The minutes of the Audit Committee Meetings form part of the agenda papers
circulated for the Board Meeting.

The Company Secretary of the Company acts as the Secretary to the Committee

Compensation / Remuneration Committee

The Compensation/ Remuneration Committee comprises of Mr. Kranti Sinha
(Independent Director & Chairman of the Committee), Mr. Nilesh Vikamsey
(Independent Director) and Mr. A K Purwar (Independent Director).
The Broad Terms of the Compensation/ Remuneration Committee are as follows:

38

To review and make recommendations on annual salaries, perquisites,

performance linked bonus, stock options, pensions and other employment
conditions of Executive and Non-Executive Directors and senior employees.

To conducts discussions with the HR department and lays down suitable

remuneration policies for the employees.

To administer the Companys Stock Option plans.

Share Transfer and Investor Grievance Committee

The Share Transfer and Investor Grievance Committee comprises of Mr. Kranti
Sinha, Independent Director as the Chairman of the Committee and Mr. Nirmal Jain and
Mr. R. Venkataraman as the Members.
The Broad terms of reference of the Share Transfer and Investor Grievance Committee
are as follows:

Share / Debenture Transfers

Non Receipt of Annual Report and Balance Sheet

Non Receipt of Interest / Dividend payments

Non Receipt of Duplicate Share Certificates

Transfer and Transmission (with or without legal representation) of shares /

debentures

Any other grievances of the shareholder with Company

2.9 Product & Services

Investor Relations
Oct 27, 2010

India Infoline Limited Earnings Conference Call for

the quarter ended September 30, 2010

39

Nov 29, 2010

Transcript of the Conference call with market

participants hosted by IIFL on November 29, 2010

Oct 27, 2010

Results for Quarter ended September 30, 2010

Oct 27, 2010

IIFL Quarterly Consolidated Income and Net Profit up

11.1% and 25.5%

Jul 30, 2010

India Infoline (IIFL) Q1FY11 Consolidated Income up

28.7% yoy at Rs3.1bn

IIFL Products & Services

We are a one-stop financial services shop, most respected for quality of its
advice, personalized service and cutting-edge technology.
Equities:
IIFL is a member of BSE and NSE registered with NSDL and CDSL as a
depository participant and provides broking services in the cash, derivatives and
currency segments, online and offline. IIFL is a dominant player in the retail as well as
institutional segments of the market. It recently became the first Indian broker to get a
membership of the Colombo Stock Exchange and is also the first Indian broker to have
received an in-principle approval for membership of the Singapore Stock Exchange.
IIFLs Trader Terminal, its proprietary trading platform, is widely acknowledged as one
of the best available for retail investors. Investors opt for IIFL given its unique
combination of superior Service, cutting-edge proprietary Technology, Advice powered
by world-acclaimed research and its unparalleled Reach owing to its over 2500 business
locations across over 500 cities in India.
IIFL received the BQ1 broker grading (highest grading) from CRISIL. The
assigned grading reflects an effective external interface, robust systems framework and
strong risk management. The grading also reflects IIFLs healthy regulatory compliance
track record and adequate credit risk profile.

40

IIFLs analyst team won Zee Business Indias best market analysts awards
2009 for being the best in the Oil and Gas and Commodities sectors and a finalist in the
Banking and IT sectors.
IIFL has rapidly emerged as one of the premier institutional equities houses in
India with a team of over 25 research analysts, a full-fledged sales and trading team
coupled with an experienced investment banking team.
The Institutional equities business conducted a very successful Enterprising
India global investors conference in Mumbai in March 2010, which was
attended by funds with aggregate AUM over US$5 trillion and CEOs and other
executives representing corporate with a combined market capitalization of
over US$500 billion. The Discover Sri Lanka global investors conference,
held in Colombo in July 2010, was attended by more than 50 leading global
and major local investors and 25 Sri Lankan corporate, along with senior
Government officials

Employee development in the organization is very important.

It is essential for an employee to develop in the organization in order to improve
his performance, which will be helpful for the employee as well as to the
organization.
Employee will be able to develop only when his superior in the organization
appraises his performance and corrects his performance if he is not up to the
mark or is not performing to the expectation of the superior and rewards the
employee if his performance is good or satisfactory.
Thus employee development is critical in performance appraisal of an employee
in the organization.
PROGRAM ASSESSMENT
Program assessment is an important aspect of performance appraisal.

41

 The employee will assess the program of his work and duties in the organization
and try to appraise his performance on his own, which will help the employee to
develop and organization to grow and earn profits.
Program assessment is nothing but accessing the duties of the employee and
deciding on what work the employee has to do, how to do, in what way and is
there any time stipulation for the work to be completed.
Sometimes the management of the organization does this to their subordinates and
some times employees do it by themselves, which tells about their capacity to
complete the work in the organization.
Thus, program assessment is an important factor in the performance appraisal.
TRAINING ACTIVITIES
YEAR

NO.OF

Man Days

PROGRAMS
Senior

Employees

Total

Employees
2001-2002

55

700

1683

2383

2002-2003

128

1213

2209

3422

2003-2004

73

1031

1516

2547

2004-2005

72

997

1200

2197

2005-2006

75

1046

4373

5419

2006-2007

90

714

4944

5658

2008-2009

155

774

1936

2710

2009-2010

175

800

2300

3100

2010-2011

180

840

2340

3180

2011-2012

185

840

2340

3180

2012-2013

190

960

2800

42

PROCEDURE FOR PROVISION OF TRAINING

While preparing the training calendar, the training needs are broadly categorized
as safety oriented, behavioral/ managerial (soft skills) and technical /functional
requirements.
As per annual training calendar, training programmers will be arranged and
intimations will be sent to the convened department for deputing the nominees
for the training programmed as per schedule. However, in case of exigency and /
or in unavoidable circumstances, there will be slippage in the schedule and
attempt will be made to cover the same in the subsequent months/ year.
For such programmes, where nominations are to be get form different
department, intimation will be sent to the department for getting suitable
nominations from different departments.
For conducting the required training programmes, the services of employees as
internal faculty are utilized to the possible extent and wherever necessitated,
external faculties are engaged based on their expertise, reputation and relevance
to organizational requirement etc.
On completion of a training programme, feedback is obtained from the
participants to assess the effectiveness of the faculty and adequacy of the training
module besides participants action plan for utilization and or implementation of
key learning points.
The feedback from the participants will be considered, where found necessary
deemed and warranted, to introduce changes in the modules or faculty for
subsequent programmes.
Feed back on the effectiveness of the training imparted to employee is obtained
from the concerned head of the department (HOD) with in a quarter after
completion of the training programme.
Such feedback is used in designing subsequent training calendars in order to
bring improvements in the quality of training imparted and also for identification
of required training needs of employees.
43

PROCEDURE FOR PROVISIONS OF TRAINING

In addition to in-house training programmes, as per the recommendation of
department heads and / or functional heads, employees will be sent for external training
programmes, conferences, seminars, study tours and worships to hone up their skills and
improved the competency level.
Feedback is obtained form the participants as well as HODs on the effectiveness
of external programmes attended by the employees.
Head (HRD) will review the training calendar at the end of the calendar period
and intermittently, if necessary, and act upon as deemed fit to meet the organizational
requirements.
In case of employees stationed at corporate office and regional offices, the
concerned department heads will arrange for the required training and maintain the
training records of their respective personnel under their control. However, where ever
the services of HRD are required, the same will be extended for fulfilling the training
needs.

44

THEORITICAL FRAME WORK

PORTFOLIO
Portfolio may be described as a combination of various securities. It is
constructed by an investor either by himself or alternatively, the construction and
management of a portfolio may be entrusted to a professional portfolio manager. It is a
matter of common knowledge that objective of every investment in financial assets is to
maximize the return and minimize the risk from the investment made in securities. The
term maximization is relative and subjective and as such no standard measures of
maximization can be arrived at.
OBJECTIVES OF INVESTORS

Income
Appreciation of Capital
Safety
Liquidity
Hedge against inflation
A method of tax planning

A mix of these objectives may also depend upon the time frame of his investment
(a) Short term gains
(b) Medium term gains
(c) Long term gains
Returns from an investment consist of 2 components.
Yield:
It refers to the periodic cash inflows on the investment, in the form of interest on
debt securities and dividends in case of debt securities.

45

Capital Gains:
This component refers to the appreciation in the value of the financial asset over
a period of time. If the period is less than one year the capital gain is called short term
capital gain if more than one year it is long term capital gain.
An investor who is constantly getting high profits from his investment must
indeed be a genius since both return and risk are an integral part of the investment
process. If high returns are being generated then substantially high risk is also being
encountered. Risk is the possibility that the realized return may be less than the
anticipated returns.
Risk in investment can emanate from either of the following sources:

Interest rate risk

Market risk
Inflation risk
Business risk
Financial risk
Liquidity risk
Exchange risk
Country risk

PORTFOLIO MANAGEMENT STEPS

An investor considering investment in securities is faced with the problem of choosing
from among a large number of securities. His choice depends upon the risk-return
characteristics of individual securities. He would attempt to choose the most desirable
securities and like to allocate his funds over the group of securities. Again the is faced
with the problem of deciding which securities to hold and how much to invest in each.
The investor faces an infinite number of possible portfolios or groups of securities. The
risk and return characteristics of portfolios differ from those of individual securities
combining to form a portfolio. The investor tries to choose the optimal portfolio taking
into consideration the risk-return characteristics of all possible portfolios.

46

An investor invests his funds in a portfolio expecting to get a good return consistent
with the risk that he has to bear. The return realized from the portfolio has to be
measured and the performance of the portfolio has to be evaluated.
1. Security analysis

2. Portfolio analysis

3. Portfolio selection
4. Portfolio revision
5. Portfolio evaluation

47

SECURITY ANALYSIS
The securities available to an investor for investment are numerous and of
various types. The share of over 700 companies are listed in the stock exchanges of the
country. Traditionally, the securities were classified into ownership securities such as
equity shares and preference shares and creditor ship securities such as debentures and
bonds.
Security analysis is the initial phase of the portfolio management process. This
step consists of examine the risk-return characteristics of individual securities. A basic
strategy in securities investment is to buy under prices securities and sell overpriced
securities. But the problem is how to identify under priced and overpriced securities, or,
in other words, mispriced securities.
Security analyses in two types are
1.Fundamental analysis
2.Technical analysis

Fundamental analysis
The primary motive of buying a share is to sell it subsequently at a higher price.
In many case, dividends are also expected. Thus, dividends and price changes constitute
the return from investing I shares.
An investor who would like to be rational and scientific in his investment
activity thus to evaluate a lot of information about the past performance and the
expected future performance of companies, industries and the economy as a whole
before taking the investment decision. Such evaluation or analysis is called fundamental
analysis.
Meaning of fundamental analysis
Fundamental analysis is really a logical and systematic approach to estimating
the future dividends and share price. It is based on the basic premise that share price is
48

determined by a number of fundamental factors relating to the economy, industry and

company. Hence, the economy fundamentals, industry fundamentals and company
fundamentals have to be considered while analyzing a security for investment purpose.
Fundamental analysis is , in other words, a detailed analysis of the fundamental factors
affecting the performance of companies.

Economy-wide factors such as growth rate of the economy, inflation rate

Industry wide factors such as demand-supply gap in the industry
Fundamental analysis thus involves three steps
1. Economy analysis
2. Industry analysis
3. Company analysis

Technical analysis
Prices of securities in the stock market fluctuate daily on account of
continuous buying and selling. Stock prices move in trends and cycles and are never
stable. An investor in the stock market is interested in buying securities at a low price
and selling them at a high price so as to get a good return on his investment. He,
therefore, tries to analyze the movement of share prices in the market. Two approaches
are commonly used for this purpose. One of these is the fundamental analysis where in
the analyst tries to determine the true worth or intrinsic value of a share based on the
current and future earning capacity of the company. He would buy the share when its
market price is below its intrinsic value. The second approach to security analysis is
called technical analysis. It is an alternative approach to the study of stock price
behavior.

49

Meaning of technical analysis

A technical analyst believes that share prices are determined by the demand
and supply forces operating in the market. These demand and supply forces in turn are
influenced by a number of fundamental factors as well as certain psychological or
emotional factors. Many of these factors cannot be quantified. The combined impact of
all these factors is reflected in the share price movement. A technical analyst therefore
concentrates on the movement of share prices. He claims that by examine past share
price movements future share prices can be accurately predicted. Technical analysis is
the name given to forecasting techniques that utilize historical share price data.
Basic principles of technical analysis
The market value of a security is related to demand and supply factors operating
in the market.
There are both rational and irrational factors which surround the supply and
demand factors of a security
Security prices behave in a manner that their movement is continuous in a
particular direction for some length of time.
Trends in stock prices have been seen to change when there is a shift in the
demand and supply factors.
The shifts in demand and supply can be detected through charts prepared
specifically to show market action.
Patterns which are projected by charts record price movements and these
recorded patterns are used by analysis to make forecasts about the movement of
prices in future

PORTFOLIO ANALYSIS
Individual securities have risk return characteristics of their own. The future
return expected from a security is variable and this variability of returns is termed risk. It
is rare to find investors investing their entire wealth in a single security. This is because
most investors have an aversion to risk.
50

It is hoped that if money is invested in several securities simultaneously, the loss

in one will be compensated by the gain in others. Thus, holding more than one security
at a time is an attempt to spread and minimize risk by not putting all our eggs in one
basket.
Most investors thus tend to invest in a group of securities rather than a single
security. Such a group of securities held together as an investment is what is known as a
portfolio. The process of creating such a portfolio is called diversification. It is an
attempt to spread and minimize the risk in investment. This is sought to be achieved by
holding different types of securities across different industry groups.
From a given set of securities, any number of portfolios can be constructed. A
rational investor attempts to fid the most efficient of these portfolios. The efficiency of
each portfolio can be evaluated only in terms of the expected return and risk of the
portfolio as such. Thus, determining the expected return and risk of different portfolios
is primary step in portfolio management. This step is designed as portfolio analysis.

PORTFOLIO SELECTION
The objective of every rational investor is to maximize his returns and
minimize the risk. Diversification is the method adopted for reducing risk. It essentially
results in the construction of portfolios. The proper goal of portfolio construction would
be to generate a portfolio that provides the highest return and the lowest risk. Such a
portfolio would be known as the optimal portfolio. The process of finding the optimal
portfolio is described as portfolio selection.
The conceptual framework and analytical tools for determining the optimal
portfolio in disciplined and objective manner have been provided by Harry Markowitz
in his pioneering work on portfolio analysis described in his 1952 journal of finance
article and subsequent book in 1959. His method of portfolio selection has come to be
known as the Markowitz model. In fact, Markowitz work marks the beginning of what is
known today as modern portfolio.

51

PORTFOLIO REVISION
In portfolio management, the maximum emphasis is placed on portfolio analysis
and selection which leads to the construction of the optimal portfolio. Very little
discussion is seen on portfolio revision which is as important as portfolio analysis and
selection.
The financial markets are continually changing. In this dynamic environment, a
portfolio that was optimal when constructed may not continue to be optimal with the
passage of time. It may have to be revised periodically so as to ensure that it continues
to be optimal
Meaning of portfolio revision
A portfolio is a mix of securities selected from a vast universe of securities.
Two variables determine the composition of a portfolio; the first is the securities
included in the portfolio and the second is the proportion of total funds invested in each
security.
Portfolio revision involves changing the existing mix of securities. This may be
effected either by changing the securities currently included in the portfolio or by
altering the proportion of funds invested in the securities. Now securities may be added
to the portfolio or some of the existing securities may be removed from the portfolio.
Portfolio revision thus leads to purchase and sales of securities.
Need for revision
The primary factor necessitating portfolio revision is changes in the financial
markets since the creation of the portfolio. The need for portfolio revision may arise
because of some investor related factors also. These factors may be listed as:
1. Availability of additional funds for investment
2. change in risk tolerance
3. change in the investment goals
4. need to liquidate a part of the portfolio to provide funds for some alternative use
52

The portfolio needs to be revised to accommodate the changes in the investors

position. Thus, the need for portfolio revision may arise from changes in the financial
market or changes in the investors position, namely his financial status and preference.

PORTFOLIO EVALUATION
Portfolio evaluation is the last step in the process of portfolio management.
Portfolio analysis, selection and revision are undertaken with the objective of
maximizing returns and minimizing risk. Portfolio evaluation is the stage where we
examine to what extent the objectives has been achieved. Through portfolio evaluation
the investor tries to find out how well the portfolio has performed. The portfolio of
securities held by an investor is the result of his investment decisions. Portfolio
evaluation is really a study of the impact of

such decisions. Without portfolio

evaluation, portfolio is really a study of the impact of such decisions. Without portfolio
evaluation, portfolio management would be incomplete.
Two decades ago portfolio evaluation was not considered as an integral part of
portfolio management. It has evolved as an important aspect of portfolio management
over the last two deceases. Moreover, the evaluation process itself has changed from
crude return calculations to rather detailed explorations of risk and return and the
sources of each.
Meaning of portfolio evaluation
Portfolio evaluation refers to the evaluation refers to the evolution of the
performance of the portfolio. It is essentially the process of comparing the return earned
on a portfolio with return earned on one or more other portfolios or on a benchmark
portfolio. Portfolio evaluation essentially comprises two functions, performance
measurement and performances evaluation. Performance measurement is an accounting
function which measures the return earned on a portfolio during the holding period or
investment period. Performance evaluation, on the other hand, addresses such issues as
whether the performance was superior or inferior, whether the performance was due to
skill or luck, etc.

53

MODELS OF PORTFOLIO SELECTION

The identification and selection of an efficient portfolio is a complicated job. An
investor must select a portfolio, which will best suit his requirements, out off all those
available to him. The following are the most popular models for portfolio selection.
1. Markowitz Model
2. Capital Asset Pricing Mode
MARKOWITZ MODEL
Harry Markowitz opened new vistas to modern portfolio selection by publishing
an article in the journal of finance in March 1952. His publication indicated the
importance of correlation among different stock returns in the construction of a stock
portfolio. Markowitz also showed that for a given level of expected return in a group if
securities, one security dominate the other. To find out this, the knowledge of the
correlation coefficient between all possible securities combinations is required. This
model helped the managers to minimize the risk in the portfolio.
SIMPLE DIVERSIFICATION
Portfolio risk can be reduced by the simplest kind of diversification. Portfolio
means group of assets an investor owns. The assets may vary from stocks to different
type of bonds. Sometimes the portfolio may consist of securities of different industries.
When different assets are added to the portfolio, the total risk tends to decrease. In the
case of common stocks, diversification reduces the unsystematic risk or unique risk. The
native kind of diversification is known as simple diversification. In the case of simple
diversification, securities are selected at random and no analytical procedure is used.
Total risk of the portfolio consists of systematic and unsystematic risk and total risk is
measured by the variance of the rates of returns over time. Many studies have shown
that systematic risk forms one quarter of total risks. The simple random diversification
reduces the total risk. The reason behind this is the unsystematic price fluctuations are
not correlated with markets systematic fluctuations.
PROBLEMS OF VAST DIVERSIFICATION
54

Spreading the investment on too many assets will give rise to problems such as
PURCHASE OF POOR PERFORMERS
While buying numerous stocks, sometimes the investor may also buy stocks that
will not yield adequate return.
INFORMATION INADEQUACY
If there are too many securities in a portfolio, it is difficult for the portfolio
manager to get information about their individual performance. The portfolio manager
has to be in touch with the details regarding the individual company performance. To get
all the information simultaneously is quite difficult.
HIGH RESEARCH COST
If a large number of stocks are included, before the inclusion itself the returns
and risk of the individual stock have to be analyzed. Towards this end, lot of information
has to be gathered and kept in store and these procedures involved high cost.
HIGH TRANSACTION COST
When small quantities of costs are purchased frequently, the investor has to incur
higher transaction cost than the purchase of large blocks at less frequent intervals. In
spite of all these difficulties big financial institutions purchase 100s of different stocks.
THE CONCEPT OF MARKOWITZ MODEL
In developing this model, Markowitz had given up the single stock portfolio and
introduced diversification. The single security portfolio would preferable if the investor
is perfectly certain that his expectation of the highest return would turn out to be real. In
the world of uncertainty, most of the risk averse investor would like to join Markowitz
rather than keeping a single stock, because diversification reduces the risk.

FORMULAE

55

1. Return

Rp = Xi Ri

Where

Rp = Return on portfolio
Xi = Proportion of total Portfolio
Ri = Expected return of security

VARYING DEGREE OF CORRELATION

The relationships between securities, degree of correlation coefficient are
analyzed. Extreme cases like +1, -1, intermediate values and no correlation are
calculated for 2 securities namely X and Y. we assume that the investor has the specific
amount of money to invest and that can be allocated in any proportion between the
securities.
EFFICIENT FRONTIER
The efficient frontier was first defined by Harry Markowitz in his Ground
breaking (1952) paper that launched Portfolio Theory. That theory considers a universe
of risky investments and explores what might be an optimal portfolio based upon those
possible investments.
Consider an interval of time. It starts today. It can be any length, but a one-year
interval is typically assumed. Todays values for all the risky investments in the universe
are known. Their accumulated values (reflecting price changes, coupon payments,
dividends, stock splits, etc.) at the end of the horizon are random. As random quantities,
we may assign those expected returns and volatilities. We may also assign a correlation
to each pair of returns.
We can use these inputs to calculate the expected return and volatility of any
portfolio that can be constructed using the instruments that comprise the universe.
56

The notion of optimal portfolio can be defined in one of two ways:

a. For any level of volatility, consider all the portfolios which have that
volatility. From among them all, select the one which has the highest
expected return.
b. For any expected return, consider all the portfolios which have the
expected returns. From among them all, select the one which has the
lowest volatility.
Each definition produces a set of optimal portfolios. Definition (1) produces an
optimal portfolio for each possible level of risk. Definition (2) produces an optimal
portfolio for each expected return. Actually, the two definitions are equivalent. The set
of optimal portfolios obtained using one definition is exactly the same set which is
obtained from the other. That set of optimal portfolio is called the efficient frontier.
THE EFFICIENT FRONTIER AND PORTFOLIO DIVERSIFICATION
The previous concept says how volatility increases the risk of loss of principal,
and how this risk worsens as your time horizon shrinks. So all other things being equal,
you would like to maximize volatility in your portfolio.
Of course the problem is that there is another effect that works in the opposite
direction. If we limit ourselves to low-risk securities, we will be limiting ourselves
investments that tend to have low rates of return. So what we really want to do is include
some higher growth, higher risk securities in the portfolio, but combines them in a smart
way, so that some of their fluctuations cancel each other out.
In statistical terms, we are looking for a combined standard deviations low,
relative to the standard deviations of the individual securities). The result should give us
a high average rate of return, with less of the harmful fluctuations.
The science of risk-efficient portfolios is associated with a couple of guys (a
couple of Nobel laureates, actually) named Harry Markowitz and Bill Sharpe.
57

Suppose we have data for a collection of securities (like the S & P 500 stocks,
for example), and we graph the return and standard deviation for these securities, and for
all portfolios you can get by allocating them. Markowitz showed that we get a region
bounded by an upward sloping curve, which he called the efficient frontier.
ASSUMPTIONS OF MARKOWITZ THEORY
1. Investors are rational in a manner as to maximize their utility with a given
level of income or money.
2. Investors have free access to fair and correct information on the return and
risk
3. The markets are efficient and absorb the information quickly and perfectly.
4. Investors are risk averse and try to minimize the risks and maximize returns.
5. Investors base decision on expected return and variance or standard deviation
of these returns from the mean.
6. Investors choose higher return to lower returns for a given level of risk
CAPITAL ASSET PRICING MODEL
The capital asset pricing model (CAPM) is concerned with the equilibrium
relationship between the risk and the expected return on risky assets. The traditional
CAPM was developed independently by Sharpe, Linter, and Moss in the mid 1960s.
Capital market theory builds on Markowitz portfolio theory. Each investor is
assumed to diversify his or her portfolio according to the Markowitz model. Certain
additional assumption is made for ensuring similarity and homogeneity.
All investors have identical probability distribution for future rate of return.

All investors have the same one period time for horizon.
All investors can borrow or lend money at the risk free rate of return.
There are no transaction costs.
There are no personal taxes.
There is no inflation.
There are many investors and no single investor can affect the price of a

stock through his buying or selling.

Capital markets are in equilibrium.

58

The Capital Asset Pricing Model (CAPM) formally relates the expected rate of
return of any security or portfolio with the relevant risk measure. The CAPMs expected
return beta relationship is the most often cited form of relationship. Beta is the relative
measure of risk that cannot be diversified away in a portfolio of securities.
CAPM states that expected rate of return on an asset is a function of the two
components of required rate of return namely the risk free rate and the risk premium.
Thus
K =

risk free rate + risk premium

RF + Market risk premium

RF + [expected portfolio return risk free rate]

RF + [E (Rm) RF]

Where, K = required rate of return on asset

E (Rm) = Expected rate of return on market portfolio
= Beta coefficient asset

59

COMPARITIVE PERFORMANCE
Portfolio performance is the last step in the process of portfolio
management. Portfolio analysis, selection and revision are undertaken with the objective
of maximizing returns and minimizing risk. Portfolio performance is the stage where we
examine to what extent the objective has been achieved. Through portfolio performance
the investor tries to find out how well the portfolio gas performed. Portfolio securities
held by an investor is the result of his investment decisions. Portfolio performance is
really a study of the impact of such decisions. Without portfolio performance portfolio
management would be incomplete. Performance is an appraisal of evaluation. Portfolio
performance is the evaluation of the performance of the portfolio. Portfolio performance
essentially comprises of two functions, performance measurement and performance
evaluation. Performance measurement is an accounting function which measures the
return earned on a portfolio during the holding period or investment period.
Performance evaluation on the other hand addresses such issues as whether the
performance was superior or inferior, whether the performance was due to luck or skill
etc..
Evaluating the investment is nothing but portfolio performance. The
performance can be analyzed on the basis of
Sharpe Method
Treynor Method
Jenson Method
Fama method
SHARPE METHOD
The performance developed by William Sharpe is referred to as the Sharpe
Model or Adjusted Performance Risk Method. In this method Sharpe snickered only
systematic risk. The formula for calculating the performance through this model is
Sp = (Rm Rf) / p
Where, Rm = market return
Rf = risk free rate
p = risk of portfolio

60

TREYNOR METHOD
The performance measure developed by Jack Treynor is referred to as Treynor
Model. This method is also called as Velocity risk adjusted method or return to
variability ratio method. Treynor followed the same system of Sharpe, but he
considered both systematic and unsystematic risk. In this model he considered the
market risk (that is beta) but not the portfolio risk (I.e...Alpha)
The formula for calculating performance through this model is
TP = (Rm Rf)/
Where, Rm = market return
Rf = risk free rate
= market risk
JENSON MODEL
Another type of risk adjusted performance measure has been developed by
Michael Jenson and referred to as the Jenson model. This model attempt to measure the
difference between the actual return earned on portfolio and the return expected from the
portfolio given its level of risk same like Treynor, Jenson considered both systematic
and unsystematic risk. He considered market risk based on CAPM technique.
E(Rp) = Rf + p (Rm Rf)
FAMAS DECOMPOSITION
Fama decomposed excess return into two main components:
Risk

Managers risk

Investors risk

Selectivity

Diversification

Net selectivity
61

Excess return is defined as that portion of the return in excess of the risk-free rate
Famas Decomposition (cont.)

T o ta l R is k P r e m iu m
R is k P r e m iu m D u e to R is k
M a n a g e r ' s R is k I n v e s to r ' s R is k

R is k P r e m iu m D u e to S e le c tiv ity
D iv e r s if ic a tio n

N e t S e le c tiv ity

Famas Decomposition: Risk

This is the portion of the excess return that is explained by the portfolio beta and
the market risk premium:
RPRi sk

RM

RFR

Famas Decomposition: Investors Risk

If an investor specifies a particular target level of risk (i.e., beta) then we can
further decompose the risk premium due to risk into investors risk and
managers risk.

62

Investors risk is the risk premium that would have been earned if the portfolio
beta was exactly equal to the target beta:
RPInvestorRisk T RM R f

Famas Decomposition: Managers Risk

If the manager actually takes a different level of risk than the target level (i.e., the actual
beta was different than the target beta) then part of the risk premium was due to the extra
risk that the managers took:
RPManagerRisk i T RM R f

Famas Decomposition: Selectivity

This is the portion of the excess return that is not explained by the portfolio beta
and the market risk premium:
RP
Selectiv it
y

RP
To tal

RP
R is k

RP
To tal

RFR

Since it cannot be explained by risk, it must be due to superior security selection.

Famas Decomposition: Diversification

This is the difference between the return that should have been earned according
to the CML and the return that should have been earned according to the SML

If the portfolio is perfectly diversified, this will be equal to 0

i
RPDiversification RFR
M

RPDiversification

RFR

RFR

RFR R
i

RFR

i
i
M

63

Famas Decomposition: Net Selectivity

Selectivity is made up of two components:

o Net Selectivity
o Diversification

Diversification is included because part of the managers skill involves

knowing how much to diversify

We can determine how much of the risk premium comes from ability to
select stocks (net selectivity) by subtracting diversification from
selectivity

Additive Attribution

Famas decomposition of the excess return was the first attempt at an attribution
model. However, it has never really caught on.

Other attribution systems have been proposed, but currently the most widely
used is the additive attribution model of Brinson, Hood, and Bee bower (FAJ,
1986)

Brinson, et al showed that the portfolio return in excess of the benchmark return
could be broken into three components:
Allocation describes the portion of the excess return that is due to sector
weighting different from the benchmark
Selection describes the portion of the excess return that is due to
choosing securities that outperform in the benchmark portfolio
Interaction is a combined effect of allocation and selection.

ETA COEFFICIENT
The risk of an individual Security can be estimated under CAPM model. The
market related risk which is also called as systematic risk is unavoidable even by
diversification of the portfolio. The systematic risk of an individual security is measured
in terms of its sensitivity to market movements which is referred to as securitys beta.
Investors can avoid or eliminate the unsystematic risk by investing funds in wide range
of securities and by having well diversified portfolio.
64

Beta coefficient is a measure of the volatility of stock price in relation to

movement in stock index of the market; therefore, beta is the index of systematic risk.
Covariance ( i,m)
BETA () =

_________________________

Variance (m)

Beta ()

= Beta Coefficient of Individual Security

Covariance (i,m)

= Covariance of returns of individual security with market

Portfolio.

Variance (m)

= Variance of returns of Market Portfolio.(2 m)

Covariance (i,m)

= i m Cor im

Cor im

= Correlation coefficient between the returns of individual

Security and market portfolio

= Standard Deviation of returns of individual Security

= Standard deviation of returns of Market Portfolio

According to the CAPM, the equilibrium, the expected return of a portfolio is

equal to the risk free rate plus a risk premium, which is proportional to its beta. A beta
coefficient is a relative measure of the sensitivity of an assets return to changes in the
return on the market portfolio. Mathematically, the beta coefficient of a security is the
securitys covariance with the market portfolio divided by the variance of the market
portfolio.
The beta factor is the volatility of systematic risk of a security risk of a security
or investment in the portfolio. The beta factor of the market as a whole is 1.0. The beta
of 1.0 indicates average level of risk while more or less than that the securitys return
fluctuates more or less than that of market portfolio. A zero beta means no risk. The
degree of volatility is expressed as follows
65

 If beta is more than one, it is more sensitive to the market or systematic risk than
the average investment.
If the beta is one, then it has the same risk profile as the market as a whole, the
average risk profile.
If the beta is less than one, it is not as sensitive to systematic or market risk as
the average investment.

CAPM asserts that the risk is directly related to the earnings stability of a
company and its securities. A company with relatively stable earnings will have a
low beta value. A risk would be more if the companys earnings are more volatile.
The total variance of returns of a company is equal to the market related variance
plus companys specific variance. CAPM indicates the expected return of the
particular security in view of its systematic or market risk. The value of a share price
is determined in relation to investment in shares of individual companies rather than
as a portfolio.
Thus the average returns of the individual securities and its beta coefficient are
taken in it consideration while performing the comparative study of various securities to
construct an efficient portfolio by including the securities in a portfolio with the
principle of maximizing the returns and minimizing the risk in a portfolio

66

DATA ANALYSIS AND INTERPRETATION

Under this project first I have selected 5 industries each having 3 companies
which totals to 15 companies from Sensex. These companies were selected randomly
based on companys excellence and its past performance in the market.
Then the closing prices of these companies are taken for the last one calendar
year i.e.from Jan 2010 to Dec 2010 then the market values were also taken for the
same year. After this I have calculated the monthly returns for each scrip. Then the
average of each scrip is calculated and then the variance, covariance and beta are
calculated.
After calculating the beta I have selected one scrip from each industry which has
low beta coefficient value and returns proportionally and finally selected 5 companies to
form a portfolio and gave different weight ages to those scrip and finally found out a set
of portfolio which gives high returns and are low risky.
The following are the 5 industries and 3 companies from each industry which I
have selected from Sensex.
AUTO

Bajaj Auto Ltd.

Hero Honda Motors Ltd.
Maruthi Suzuki India Ltd.

BANKING

HDFC Bank Ltd.

ICICI Bank Ltd.
State Bank of India.

FMCG

Dabur India Ltd.

67

ITC Ltd.
Nestle India Ltd.

I.T INDUSTRY

Infosys Technologies.
Tata Consultancy Services Ltd.
Wipro Ltd.

POWER

NTPC Ltd
Bharath Heavy Electrical Ltd.
Tata Power Co. Ltd.

68

AUTO INDUSTRY
BAJAJ AUTO LTD.
Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Scrip Price
639.9
1,028.60
994.05
1,224.65
1,215.45
1,494.25
1,396.80
1,569.50
1,761.70
1,773.10
1,817.40
2,011.10

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

Index

Ri

Ri - R'i

Rm

Rm -R'm

60.7439
-3.3589
23.1980
-0.7512
22.9380
-6.5217
12.3640
12.2459
0.6471
2.4984
10.6581

48.5019
15.6009
10.9560
12.9932
10.6960
18.7637
0.1220
0.0039
11.5949
-9.7436
-1.5839

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

AVERAGE
De

12.2420
4.3665
COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

160.6929332
93.0955
1.7261

(Source :- From India Infoline Ltd)

69

AUTO INDUSTRY
HERO HONDA MOTORS LTD.
Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Scrip Price
1,184.25
1,340.90
1,397.85
1,605.50
1,511.35
1,669.65
1,565.80
1,720.90
1,716.45
1,558.70
1,772.15
1,942.55

Ri

Ri - R'i

Index

Rm

Rm

-R'm
23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

13.2278 8.2745
4.2471 -0.7062
14.8550 9.9017
-5.8642 -10.8175
10.4741 5.5208
-6.2199 -11.1732
9.9055
4.9522
-0.2586 -5.2119
-9.1905 -14.1438
13.6941 8.7408
9.6154
4.6621

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

AVERAGE =

4.9533

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

53.3565
93.0955
0.5731

(Source: - From India Infoline Ltd)

AUTO INDUSTRY
MARUTI SUZUKI INDIA LTD.
Month
July-13
Aug-13
Sep-13

Scrip Price
815.7
1,021.55
1,065.45

Sensex Value
11403.25
14625.25
14493.84

Index

Rm

Scrip Ri

Ri - R'i

Rm

-R'm

25.2360
4.2974

19.1429
-1.7957

28.2551
-0.8985

23.8886
-5.2650
70

Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

1,413.25
1,436.65
1,698.90
1,403.00
1,561.70
1,559.65
1,390.10
1,463.55
1,416.15

15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

32.6435
1.6558
18.2543
17.4172
11.3115
-0.1313
10.8710
5.2838
-3.2387

AVERAGE =

6.0931

26.5504
-4.4373
12.1612
23.5103
5.2184
-6.2244
16.9640
-0.8092
-9.3317

8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

3.7505
-4.3899
4.9539
11.5515
2.1126
-1.1845
10.7041
-3.9289
2.3179

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

99.9240
93.0955
1.0734

(Source: - From India Infoline Ltd)

BANKING INDUSTRY
HDFC BANK LTD.
Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Scrip Price
1,100.70
1,442.35
1,491.75
1,499.60
1,469.35
1,642.25
1,621.30
1,772.55
1,700.40
1,630.85
1,704.65
1,932.50

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

Ri

Ri - R'i

31.0393 25.3552
3.4250 -2.2591
0.5262 -5.1579
-2.0172 -7.7013
11.7671 6.0830
-1.2757 -6.9598
9.3289 3.6448
-4.0704 -9.7545
-4.0902 -9.7743
4.5252 -1.1589
13.3664 7.6823

Index

Rm

Rm

-R'm

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179
71

AVERAGE =

5.6841

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

80.8027
93.0955
0.8680

(Source: - From India Infoline Ltd)

Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Price
477.75
740.7
722
759.05
749.5
904.8
789.6
864.3
875.7
830.4
871.85
952.7

BANKING INDUSTRY
ICICI BANK LTD.
Sensex
Scrip
Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

Index

Ri

Ri - R'i

Rm

Rm -R'm

55.0392
-2.5246
5.1316
-1.2582
20.7205
12.7321
9.4605
1.3190
-5.1730
4.9916
9.2734

47.3803
10.1835
-2.5273
-8.9171
13.0616
20.3910
1.8016
-6.3399
12.8319
-2.6673
1.6145

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

AVERAGE
=

7.6589

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

152.5706506
93.0955
1.6389

72

(Source: - From India Infoline Ltd)

73

BANKING INDUSTRY

Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Price
1,277.70
1,869.10
1,742.05
1,814.00
1,743.05
2,195.70
2,191.00
2,238.15
2,269.45
2,058.00
1,975.85
2,079.00

STATE BANK OF INDIA.

Scrip
Sensex Value
Ri
11403.25
14625.25
46.2863
14493.84
-6.7974
15670.31
4.1302
15666.64
-3.9112
17126.84
25.9688
15896.28
-0.2141
16926.22
2.1520
17464.81
1.3985
16357.96
-9.3172
16429.55
-3.9917
17527.77
5.2205

Index

Ri - R'i

Rm

Rm -R'm

40.7477
12.3360
-1.4084
-9.4498
20.4302
-5.7527
-3.3866
-4.1401
14.8558
-9.5303
-0.3181

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

AVERAGE
=

5.5386

4.3665

COVARIANCE (RI,RM) =
130.5174728
VARIANCE(RM) =
93.0955
BETA VALUE =
1.4020
(Source: - From India Infoline Ltd)

74

FMCG INDUSTRY
DABUR INDIA LTD.
Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Scrip Price
103.55
110.35
126.05
137.9
124.85
142.3
151.85
158.2
158.95
159.85
168.7
158.6

Ri

Ri - R'i

Index

Rm

Rm

-R'm
23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

6.5669
2.3677
14.2275 10.0283
9.4010
5.2018
-9.4634 -13.6626
13.9768 9.7776
6.7112
2.5120
4.1818 -0.0174
0.4741 -3.7251
0.5662 -3.6330
5.5364
1.3372
-5.9870 -10.1862

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

AVERAGE =

4.1992

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

10.6426
93.0955
0.1143

(Source: - From India Infoline Ltd)

75

Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Price
189.1
183.65
190.45
250.05
231.2
231.9
255.15
257.8
250.85
250.25
232.05
263.15

FMCG INDUSTRY
ITC LTD.
Scrip
Ri

Ri - R'i

Index

Rm

Rm

-R'm
23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

-2.8821 -6.4401
3.7027
0.1447
31.2943 27.7363
-7.5385 -11.0965
0.3028 -3.2552
10.0259 6.4679
1.0386 -2.5194
-2.6959 -6.2539
-0.2392 -3.7972
-7.2727 -10.8307
13.4023 9.8443

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

AVERAGE =

3.5580

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

1.3995
93.0955
0.0150

(Source: - From India Infoline Ltd)

76

Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Price
1,704.85
1,726.35
2,001.60
2,205.15
2,200.00
2,269.80
2,573.45
2,537.35
2,547.95
2,558.90
2,622.00
2,676.15

FMCG INDUSTRY
NESTLE INDIA LTD.
Scrip
Sensex Value
Ri
Ri - R'i
11403.25
14625.25
1.2611 -3.0723
14493.84
15.9440 11.6106
15670.31
10.1694 5.8360
15666.64
-0.2335 -4.5669
17126.84
3.1727 -1.1607
15896.28
13.3778 9.0444
16926.22
-1.4028 -5.7362
17464.81
0.4178 -3.9156
16357.96
0.4298 -3.9036
16429.55
2.4659 -1.8675
17527.77
2.0652 -2.2682

Index
Rm

Rm -R'm

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

AVERAGE
=

4.3334

4.3665

COVARIANCE (RI,RM) =

-15.1298698

VARIANCE(RM) =
BETA VALUE =

93.0955
-0.1625

(Source :- From India Infoline Ltd)

I.T INDUSTRY

Scrip
Month
July-13
Aug-13

Price
1,507.30
1,602.00

INFOSYS TECHNOLOGIES LTD.

Sensex
Scrip
Index
Value
11403.25
14625.25

Ri

Ri - R'i

Rm

Rm -R'm

6.2828

0.9674

28.2551

23.8886
77

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

1,776.90
2,063.90
2,132.30
2,308.40
2,205.40
2,383.95
2,605.25
2,476.70
2,601.60
2,615.10

14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

10.9176 5.6022
16.1517 10.8363
3.3141 -2.0013
8.2587 2.9433
-4.4620 -9.7774
8.0960 2.7806
9.2829 3.9675
-4.9343 10.2497
5.0430 -0.2724
0.5189 -4.7965

-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

5.3154

4.3665

-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

AVERAGE
=

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

24.67320283
93.0955
0.2650

(Source: - From India Infoline Ltd

I.T INDUSTRY
TATA CONSULTANCY SERVICES LTD.
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14

Scrip Price
623.2
699.75
389.7
526.4
527
619.35
626.2
687.2
749.75
735.45

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96

Scrip Ri

Ri - R'i

12.2834 8.2099
-44.3087 -48.3822
35.0783 31.0048
0.1140
-3.9595
17.5237 13.4502
1.1060
-2.9675
9.7413
5.6678
9.1022
5.0287
-1.9073 -5.9808

Index

Rm

Rm

-R'm

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376

23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
78

May-14
June-14

761
780.8

16429.55
17527.77

3.4741
2.6018

AVERAGE =

4.0735

-0.5994
-1.4717

0.4376
6.6844

-3.9289
2.3179

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

68.5830
93.0955
0.7367

(Source: - From India Infoline Ltd)

I.T INDUSTRY

Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Scrip

WIPRO LTD.
Scrip

Price
330.5
381.55
377.65
490.65
550.75
601.75
607.65
628.9
679.4
647.4
676.7
706.8

Sensex Value
Ri
11403.25
14625.25
15.4463
14493.84
-1.0221
15670.31
29.9219
15666.64
12.2491
17126.84
9.2601
15896.28
0.9805
16926.22
3.4971
17464.81
8.0299
16357.96
-4.7100
16429.55
4.5258
17527.77
4.4481

Index

Rm

Ri - R'i

Rm

-R'm

7.9348
-8.5336
22.4104
4.7376
1.7486
-6.5310
-4.0144
0.5184
12.2215
-2.9857
-3.0634

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

23.8886
-5.2650
3.7505
-4.3899
4.9539
11.5515
2.1126
-1.1845
10.7041
-3.9289
2.3179

AVERAGE
=

7.5115

4.3665

COVARIANCE (RI,RM) =

46.1995

VARIANCE(RM) =

93.0955
79

BETA VALUE =

0.4963

(Source: - From India Infoline Ltd)

POWER INDUSTRY
NTPC LTD.
Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

Scrip Price
190.15
215.45
195.05
215.6
212.65
213.7
211.4
209.75
235.7
214.25
203
207

Ri

Ri - R'i

Index

Rm

Rm

-R'm
23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

13.3053 12.2478
-9.4686 -10.5261
10.5358 9.4783
-1.3683 -2.4258
0.4938 -0.5637
-1.0763 -2.1338
-0.7805 -1.8380
12.3719 11.3144
-9.1006 -10.1581
-5.2509 -6.3084
1.9704
0.9129

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

AVERAGE =

1.0575

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

48.5822
93.0955
0.5219

(Source: - From India Infoline Ltd)

POWER INDUSTRY
80

Scrip
Month
July-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

BHARAT HEAVY ELECTRICAL LTD.

Scrip
Index

Price
1,651.75
2,174.90
2,204.35
2,228.05
2,314.70
2,325.15
2,217.10
2,244.55
2,406.10
2,406.45
2,352.15
2,385.45

Rm

Sensex Value
11403.25
14625.25
14493.84
15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77

Ri

Ri - R'i

Rm

-R'm

31.6725
1.3541
1.0751
3.8891
0.4515
-4.6470
1.2381
7.1974
0.0145
-2.2564
1.4157

27.9084
-2.4100
-2.6890
0.1250
-3.3126
-8.4111
-2.5260
3.4333
-3.7496
-6.0205
-2.3484

28.2551
-0.8985
8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

23.8886
-5.2650
3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

AVERAGE =

3.7641

4.3665

COVARIANCE (RI,RM) =
VARIANCE(RM) =
BETA VALUE =

72.5855
93.0955
0.7797

(Source: - From India Infoline Ltd)

POWER INDUSTRY

Scrip
Month
July-13
Aug-13
Sep-13

Price
893.95
1,070.30
1,149.70

TATA POWER CO. LTD.

Scrip
Sensex Value
11403.25
14625.25
14493.84

Index

Rm

Ri

Ri - R'i

Rm

-R'm

19.7271
7.4185

15.4614
3.1528

28.2551
-0.8985

23.8886
-5.2650
81

Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
June-14

1,302.05
1,308.80
1,319.45
1,343.20
1,348.95
1,377.95
1,305.80
1,212.95
1,372.60

15670.31
15666.64
17126.84
15896.28
16926.22
17464.81
16357.96
16429.55
17527.77
AVERAGE =

13.2513 8.9856
0.5184 -3.7473
0.8137 -3.4520
1.8000 -2.4657
0.4281 -3.8376
2.1498 -2.1159
-5.2360 -9.5017
-7.1106 -11.3763
13.1621 8.8964

8.1170
-0.0234
9.3204
-7.1850
6.4791
3.1820
-6.3376
0.4376
6.6844

4.2657

4.3665

COVARIANCE (RI,RM) =

3.7505
-4.3899
4.9539
-11.5515
2.1126
-1.1845
-10.7041
-3.9289
2.3179

52.3370

VARIANCE(RM) = 93.0955
BETA VALUE =
0.5622
(Source: - From India Infoline Ltd)

Chart Representation Of Beta Values(Risk) of

various companies of an Industry
AUTO INDUSTRY
Company
Beta Values

Bajaj Auto Ltd

1.7261

Maruthi Suzuki India

1.0734

Hero Honda Motors

0.5731

82

Interpretation: From the above it is clear that Bajaj and Maruthi Suzuki recorded with

83

BANKING INDUSTRY

Company
Beta Values

HDFC
0.868

SBI
1.402

ICICI
1.6389

Interpretation: From the above it is clear that SBI and ICICI recorded with high beta
where as HDFC recorded with 0.868 systematic risk.

FMCG INDUSTRY

Company
Beta Values

Dabur India
0.1143

ITC
0.015

Nestle India
-0.0025

84

Interpretation: From the above it is clear that ITC and Dabur recorded with high beta
where as Nestle India recorded with -0.0025 systematic risk.

Interpretation: from the above it is clear that T.C.S and Wipro recorded with high
beta value where as Infosys Techs recorded with 0.265 systematic risk.

85

POWER INDUSTRY
Company
Beta Values

NTPC
0.5219

BHEL
0.7797

Tata Power
0.5622

Interpretation: From the above it is clear that BHEL and TATA Power recorded with
high beta where as NTPC recorded with 0.5219 systematic risk.

Representation of Beta (Risk) of Portfolio in Pie-Diagram

86

Serial
No

Company
Hero Honda Motors

Beta Values

1
2
3

Ltd
HDFC Bank Ltd
Nestle India Ltd
Infosys Technologies

0.5731
0.868
-0.1625

4
5

Ltd
NTPC Ltd

0.265
0.5219

Representation of Returns of

Serial No
1
2
3
4
5

Portfolio in Pie-Diagram

Company
Hero Honda Motors Ltd
HDFC Bank Ltd
Nestle India Ltd
Infosys Technologies Ltd
NTPC Ltd

Returns
4.9533
5.6841
4.3334
5.3154
1.0575

87

Allocation of Funds in Various Securities For Portfolio Construction

OPTION-I
SECTORS

SCRIPS
Hero Honda

RETURNS

20%

VALUE

20%

Auto Industry
Bankex

motors

4.9533

0.9907

0.5731

0.1146

Industry
FMCG

HDFC Bank Ltd

5.6841

1.1368

0.868

0.1736

Industry

Nestle India Ltd

Infosys

4.3334

0.8667

-0.1625

-0.0325

I.T Industry
Power

Technologies

5.3154

1.0631

0.265

0.0530

Industry

NTPC Ltd

1.0575
TOTAL =

0.2115
4.2687

0.5219

0.1044
0.4131

Interpretation:
OPTION-I
RETURNS

4.2687
88

RISKS

0.4131

89

OPTION-II

SECTORS

SCRIPS

Corresponding
-

Weightage RETURNSVALUE

RETURNSVALUE

Hero Honda
Auto Industry
motors
Bankex

23

4.9533

0.5731

1.1393

0.1318

Industry
FMCG

HDFC Bank Ltd

27

5.6841

0.868

1.5347

0.2344

Industry
I.T Industry
Power

Nestle India Ltd

Infosys Technologies

20
25

4.3334
5.3154

-0.1625
0.265

0.8667
1.3289

-0.0325
0.0663

Industry

NTPC Ltd
TOTAL:

1.0575

0.5219

0.0529
4.9224

0.0261
0.4260

Interpretation:
OPTION-II
RETURNS
RISKS

4.9224
0.426

OPTION- III
Corresponding
SECTORS

SCRIPS

Weightage

RETURNS VALUE RETURNS -Value

90

Hero Honda
Auto Industry
Bankex

motors

11

4.9533

0.5731

Industry
FMCG

0.5449 0.063041

HDFC Bank Ltd

5.6841

0.868

0.3979

0.06076

Industry

Nestle India Ltd

Infosys

36

4.3334

-0.1625

1.5600

-0.0585

I.T Industry
Power

Technologies

24

5.3154

0.265

1.2757

0.0636

Industry

NTPC Ltd

22

1.0575

0.5219

0.0529 0.114818
3.8313 0.243719

Interpretation :
OPTION-III
RETURNS
RISKS

3.8313
0.2437

FINDINGS
The analysis of the study for the past one accounting year reveals the following:
In each industry one single companys security is found to be the least risky
which are selected to form a portfolio.
Auto Industry- Hero Honda Motors
91

 Bankex Industry HDFC Bank Ltd.

FMCG Industry Nestle India Ltd.
I.T Industry Infosys Technology
Power Industry NTPC ltd.
The investors with very little risk averse can invest without any fear of loss
occurring for their investment in the Portfolio consisting of these selected
companies.

HDFC has the highest beta value and its returns are also high, which means
that the higher the risk higher will be the returns.

The second highest beta value is observed for Hero Honda Motors whose
corresponding returns are also second highest in comparison to the securities
selected.
The investors who are ready to face risk and are risk averse by nature can invest
larger portion of their investments in HDFC Bank Ltd. to earn higher returns
correspondingly.
In the rest of the selected securities rather than HDFC & Nestle India an investor
can invest the moderate proportion of their investment.

SUGGESTIONS
The investors are suggested to construct a portfolio consisting of the companies

Hero Honda Motors

Nestle India

92

HDFC Bank Ltd.

Infosys Technologies

NTPC Ltd.

They are suggested to divide their investment amount in the proportions of the
following to get maximum returns with minimum risk associated
Hero Honda Motors -- 23% of total investment
HDFC Bank Ltd.

-- 27% of total investment

Nestle India Ltd

-- 20% of total investment

Infosys Technology

-- 25% of total investment

NTPC Ltd

-- 5% of total investment

93

ANNEXURES
ANNEXURES OF THE COMPARED COMPANIES
AUTO INDUSTRY

Month

Open
Price

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

624.95
640.1
1,047.40
999
1,220.00
1,229.95
1,490.00
1,425.00
1,502.65
1,770.00

BAJA AUTO LTD.

High
Low
Close
Price
Price
Price
687.95
1,057.00
1,155.00
1,262.00
1,356.00
1,535.00
1,665.00
1,616.00
1,800.00
1,836.40

591
639
922.5
935.25
1,045.00
1,161.85
1,368.00
1,391.25
1,480.00
1,641.15

639.9
1,028.60
994.05
1,224.65
1,215.45
1,494.25
1,396.80
1,569.50
1,761.70
1,773.10

No. of
Trades
11,901
26,976
14,442
25,799
27,649
27,544
41,662
29,415
36,499
32,472

* Spread
(Rs.)
H-L
C-O
96.95
14.95
418
388.5
232.5
-53.35
326.75 225.65
311
-4.55
373.15 264.3
297
-93.2
224.75 144.5
320
259.05
195.25
3.1

94

MARUTI SUZIKI INDIA LTD.

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

775
825.95
1,035.00
1,070.00
1,425.00
1,448.00
1,690.00
1,410.00
1,580.00
1,584.70

873
1,060.00
1,120.00
1,428.65
1,515.00
1,740.00
1,705.00
1,657.90
1,648.00
1,597.00

741.5
796.55
1,011.00
995.3
1,227.00
1,447.00
1,368.50
1,366.75
1,515.00
1,345.60

815.7
1,021.55
1,065.45
1,413.25
1,436.65
1,698.90
1,403.00
1,561.70
1,559.65
1,390.10

1,18,953
80,258
48,941
99,528
1,24,103
1,20,201
1,16,321
1,09,117
76,041
1,35,829

* Spread
(Rs.)
H-L
C-O
131.5
40.7
263.45
195.6
109
30.45
433.35 343.25
288
11.65
293
250.9
336.5
-287
291.15
151.7
133
-20.35
251.4
-194.6

95

HERO HONDA MOTORS LTD.

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

1,075.00
1,206.00
1,368.85
1,465.00
1,615.00
1,522.00
1,665.00
1,550.00
1,740.00
1,739.00

1,198.00
1,500.00
1,550.10
1,780.00
1,641.00
1,746.00
1,687.00
1,797.80
1,776.00
1,739.00

1,011.00
1,164.00
1,346.00
1,301.15
1,345.10
1,504.00
1,534.00
1,452.00
1,644.00
1,497.00

1,184.25
1,340.90
1,397.85
1,605.50
1,511.35
1,669.65
1,565.80
1,720.90
1,716.45
1,558.70

42,589
26,246
25,204
64,584
74,474
55,632
33,646
55,821
35,819
38,017

* Spread
(Rs.)
H-L
C-O
187
109.25
336
134.9
204.1
29
478.85 140.5
295.9 103.65
242
147.65
153
-99.2
345.8
170.9
132
-23.55
242
-180.3

BANKING INDUSTRY
96

HDFC BANK LTD

Month

Open

High

Low

Close

No. of

* Spread

Price

Price

Price

Price

Trades

(Rs.)
H-L

C-O

Sep-13

978

1,138.00

952

1,100.70

1,31,399

186

122.7

Oct-13

1,119.00

1,498.00

1,110.10

1,442.35

1,18,521

387.9

323.35

Nov-13

1,455.00

1,580.00

1,352.80

1,491.75

97,168

227.2

36.75

Dec-13

1,499.00

1,548.80

1,333.00

1,499.60

1,23,698

215.8

0.6

Jan-14

1,504.00

1,525.00

1,353.30

1,469.35

72,356

171.7

-34.65

Feb-14

1,477.00

1,653.00

1,420.00

1,642.25

67,291

233

165.25

Mar-14

1,642.00

1,737.30

1,580.00

1,621.30

58,764

157.3

-20.7

Apr-14

1,599.95

1,807.80

1,582.00

1,772.55

59,633

225.8

172.6

May-14

1,751.00

1,836.00

1,642.10

1,700.40

56,814

193.9

-50.6

Jun-14

1,690.25

1,794.70

1,552.25

1,630.85

54,083

242.45

-59.4

STATE BANK OF INDIA

97

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

1,079.70
1,300.00
1,875.00
1,737.90
1,825.00
1,760.00
2,180.10
2,190.00
2,253.05
2,265.00

1,355.00
1,891.00
1,935.00
1,840.00
1,886.90
2,235.00
2,500.00
2,394.00
2,374.75
2,315.25

980
1,225.00
1,612.00
1,512.00
1,670.00
1,710.10
2,048.20
2,059.10
2,126.20
1,957.00

1,277.70
1,869.10
1,742.05
1,814.00
1,743.05
2,195.70
2,191.00
2,238.15
2,269.45
2,058.00

6,30,772
5,95,474
5,14,536
5,01,799
3,53,242
3,60,023
5,36,543
5,42,149
4,28,977
3,31,064

* Spread
(Rs.)
H-L
C-O
375
198
666
569.1
323
-132.95
328
76.1
216.9
-81.95
524.9
435.7
451.8
10.9
334.9
48.15
248.55
16.4
358.25
-207

ICICI BANK LTD

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13

338
489.9

482.5
797

324
487.1

477.75
740.7

11,38,191
11,28,102

* Spread
(Rs.)
H-L
C-O
158.5
139.75
309.9
250.8
98

Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

755
740
762
755
905
780
868
888

779.5
807
803.8
908.4
983.7
939
916.5
907.3

651.25
606.7
690.6
724
756.25
773.1
800.5
773

722
759.05
749.5
904.8
789.6
864.3
875.7
830.4

7,69,898
9,15,924
6,16,658
4,24,133
4,57,014
4,45,813
4,01,380
3,15,609

128.25
200.3
113.2
184.4
227.45
165.9
116
134.3

FMCG INDUSRTY
DABUR INDIA LTD

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14

99.9
104
111.45
128.8
139.1
125.5
139.5

108.7
120
127.8
139
141.35
147.5
158.7

93.3
103.9
106
115
119
124.95
135.3

103.55
110.35
126.05
137.9
124.85
142.3
151.85

23,164
36,226
44,242
33,888
20,063
26,560
29,179

* Spread
(Rs.)
H-L
C-O
15.4
3.65
16.1
6.35
21.8
14.6
24
9.1
22.35
-14.25
22.55
16.8
23.4
12.35
99

-33
19.05
-12.5
149.8
-115.4
84.3
7.7
-57.6

Apr-14
May-14
Jun-14

151.85
160
158.1

170
171.9
168.95

147.1
158.1
146.05

158.2
158.95
159.85

35,381
14,917
20,406

22.9
13.8
22.9

6.35
-1.05
1.75

100

ITC LTD

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

185.1
190.1
187
191.5
251.1
233.9
233
255
259
251

194.8
209
209.7
252.25
252
237.9
267.9
271.3
260.4
259.6

177.6
179.35
180.25
187.2
218
223
230
244
232
241.5

189.1
183.65
190.45
250.05
231.2
231.9
255.15
257.8
250.85
250.25

70,472
1,02,688
1,88,991
1,84,007
1,08,654
79,807
1,03,380
76,519
51,030
62,572

* Spread
(Rs.)
H-L
C-O
17.2
4
29.65
-6.45
29.45
3.45
65.05
58.55
34
-19.9
14.9
-2
37.9
22.15
27.3
2.8
28.4
-8.15
18.1
-0.75

101

NESTLE INDIA LTD

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

1,545.00
1,715.00
1,726.35
2,018.00
2,200.00
2,209.95
2,260.00
2,618.00
2,555.00
2,536.00

1,802.00
1,800.00
2,017.00
2,250.00
2,255.00
2,285.00
2,739.00
2,690.00
2,700.00
2,602.00

1,545.00
1,652.30
1,693.00
1,910.00
2,082.00
2,130.00
2,260.00
2,500.25
2,486.00
2,455.50

1,704.85
1,726.35
2,001.60
2,205.15
2,200.00
2,269.80
2,573.45
2,537.35
2,547.95
2,558.90

7,817
9,488
11,508
14,540
13,914
11,929
18,883
18,401
17,768
13,503

* Spread
(Rs.)
H-L
C-O
257
159.85
147.7
11.35
324
275.25
340
187.15
173
0
155
59.85
479
313.45
189.75 -80.65
214
-7.05
146.5
22.9

I.T INDUSTRY
INFOSYS TECHNOLOGIES LTD.
Month

Open

High

Low

Close

No. of

* Spread
102

Price
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

Price

1,326.00
1,515.00
1,605.00
1,776.80
2,060.00
2,139.80
2,301.00
2,195.00
2,399.00
2,606.00

1,514.90
1,830.00
1,854.00
2,076.95
2,202.70
2,414.70
2,352.50
2,457.90
2,614.90
2,710.00

Price

Price

1,275.00
1,485.05
1,602.00
1,635.00
1,936.00
2,122.35
2,141.00
2,127.10
2,355.25
2,406.15

Trades

1,507.30
1,602.00
1,776.90
2,063.90
2,132.30
2,308.40
2,205.40
2,383.95
2,605.25
2,476.70

1,56,034
1,84,300
1,47,658
1,69,337
1,10,763
1,07,837
1,16,425
1,07,400
1,14,966
1,12,509

(Rs.)
H-L
239.9
344.95
252
441.95
266.7
292.35
211.5
330.8
259.65
303.85

C-O
181.3
87
171.9
287.1
72.3
168.6
-95.6
188.95
206.25
-129.3

TATA CONSULTANCY SERVICES LTD

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14

505.25
600
680
380
527
534
620

627.2
794.7
805
540.1
559.9
621.9
656.85

505.25
600
355.25
368
435.55
519
556.6

623.2
699.75
389.7
526.4
527
619.35
626.2

1,61,202
1,79,199
1,93,318
2,93,235
2,06,866
1,72,527
1,95,951

* Spread
(Rs.)
H-L
C-O
121.95 117.95
194.7
99.75
449.75 -290.3
172.1
146.4
124.35
0
102.9
85.35
100.25
6.2
103

Apr-14
May-14
Jun-14

625
696
750.7

711.4
755.95
816.4

602.25
677.35
696.6

687.2
749.75
735.45

1,37,803
1,08,171
1,79,482

109.15
78.6
119.8

62.2
53.75
-15.25

WIPRO LTD.

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

246
334
384.8
379
491.3
555
591.2
605
632
697.7

332
448
454
496
573.9
605
640
658
699
753

240
333.15
368
362.3
476.05
538.05
548.5
575.15
630.9
630

330.5
381.55
377.65
490.65
550.75
601.75
607.65
628.9
679.4
647.4

1,14,929
1,15,472
99,027
1,13,355
95,232
62,997
1,06,286
81,133
76,526
1,12,711

* Spread
(Rs.)
H-L
C-O
92
84.5
114.85
47.55
86
-7.15
133.7
111.65
97.85
59.45
66.95
46.75
91.5
16.45
82.85
23.9
68.1
47.4
123
-50.3

104

105

Month

Open
Price

NTPC LIMITED
High
Low
Close
Price
Price
Price

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

181
193.7
219
195.9
215.6
214
214.5
211
208
238.7

205.5
222.75
233
220.1
220.4
215.3
223
218.85
241.7
239

176.1
185.15
186.55
188
200.85
203.55
205.25
201.65
205.1
210.5

190.15
215.45
195.05
215.6
212.65
213.7
211.4
209.75
235.7
214.25

No. of
Trades
2,58,173
2,46,613
3,49,639
2,02,635
99,342
77,688
87,424
60,978
1,15,418
1,20,355

* Spread
(Rs.)
H-L
C-O
29.4
9.15
37.6
21.75
46.45
-23.95
32.1
19.7
19.55
-2.95
11.75
-0.3
17.75
-3.1
17.2
-1.25
36.6
27.7
28.5
-24.45

TATA POWER CO LTD.

Month

Open
Price

High
Price

Low
Price

Close
Price

No. of
Trades

* Spread
(Rs.)
106

Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

778
903.8
1,095.00
1,152.00
1,320.00
1,309.05
1,312.00
1,343.00
1,350.00
1,381.00

914.25
1,126.70
1,225.00
1,330.00
1,457.00
1,345.00
1,487.00
1,374.00
1,388.00
1,518.55

762
861.1
1,007.05
995
1,206.10
1,222.70
1,258.50
1,262.00
1,308.25
1,269.00

893.95
1,070.30
1,149.70
1,302.05
1,308.80
1,319.45
1,343.20
1,348.95
1,377.95
1,305.80

65,422
50,329
62,026
68,992
60,947
44,542
50,467
55,115
29,500
35,922

H-L
152.25
265.6
217.95
335
250.9
122.3
228.5
112
79.75
249.55

107

C-O
115.95
166.5
54.7
150.05
-11.2
10.4
31.2
5.95
27.95
-75.2

CONCLUSION
As for investors, it is concerned that portfolio construction should be done
with much care and proper analysis under the close observation of the analysts.
As when the stock is concerned they tend to behave according the market
fluctuations because stock market is perfectly efficient in nature.

Three main routes for investing in shares:

Invest your capital in a single company.

Invest your capital in a number of different companies, a portfolio of shares.

Invest indirectly and spread your risk through collective investment such as
investment trust and unit trust.

108

BIBLIOGRAPHY
BOOKS
1. Investment Analysis and Portfolio Management
By V.A.Avadhani
2. Security Analysis And Portfolio Management
By Donald E.Fischer, Ronald J.Jordan
3. Security Analysis And Portfolio Management
By Prasanna Chandra

WEBSITES
1. www.indiainfoline.com
2. www.bseindia.com
3. www.moneycontrol.com
4. www.google.com

MAGAZINES
1. The Financial Express
2. Times of India
3. Portfolio Analysis From ICFAI Press

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