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SECURITY ANALYSIS

&
PORTFOLIO MANAGEMENT

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ABSTRACT
The present project work” PORTFOLIO MANAGEMENT” is carried out
“ICICI Direct- online share trading”.
This project is categorized in to seven chapters.
Chapter1: Deals with the design of the study where the objectives, scope of the
Study, the need and importance of the study.
Chapter-2 Review of literature
Chapter-3: Deals with the research methodology and limitations of the study has
been presented.
Chapter-4: Deals with organization profile.
Chapter-5: Deals with Introduction & briefing about the project topic.
Chapter5: Deals with Data Analysis & Interpretation and findings.
Chapter6: Deals with findings and conclusion.
Chapter7: Deals with suggestions followed by Bibliography.

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INDEX
CHAPTER-1

Introduction
1. Need of the study
2. Importance of the study
3. Objectives of the study
4. Limitations of the study

CHAPTER-2

Review of literature

CHAPTER-3

Research methodology

CHAPTER-4

Data analysis

CHAPTER-5
Suggestions & Conclusions
Annexure
Bibliography

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CHAPTER-1

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INTRODUCTION
PORTFOLIO MANAGEMENT:

Because investing is simple but not easy. When it comes to managing your hard-earned
money, making sure it goes that extra mile is a task best left to the experts. And who better to do
it for you than the Karvy. The recently launched Portfolio Management Service is sheer music
to investors' ears with the perfect symphony of our varied expertise honed over the years with
our experience in the stock markets.

The whole raison d’être of the Portfolio Management Service is ensuring that your
money goes that extra mile or earns that extra return, which dramatically improves the returns
structure for your investments.

To highlight the kind of value that we add to your investments, let us consider a small
example. From the age of 25 if you were to invest INR10000/ month and manage your
investments and consequently earn a good average of 14% p.a., your wealth at the time of
retirement (at the age of 60) would be INR 11.77 million. Simultaneously if we were to manage
your investment of a similar nature (INR10000/ month from the age of 25) using all the skills,
experience technology and infrastructure at our disposal and make an increment in your returns
of just 2% p.a., your wealth at the time of retirement would be INR 21.63 million which is a
whopping increment of about INR 10 million.

There are a number of factors, which contribute to earning such a great return on your
investments.
RESEARCH:
We have a team of over 15 research analysts, each with impeccable professional
credentials. With a collective experience spanning several hundred years, a veritable treasure-
trove of experience and understanding of the markets and of various sectors and companies, it
comes as no surprise that we are the obvious choice for none other than Forbes when it came to
choosing the Best of the Web for Asia. Under the Asian investing category, Forbes rates us as
`…a must read for investors across Asia'.

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ASSET ALLOCATION:
Our investment committee led by two of our directors with impeccable reputation for
stock picking decides on asset allocation across sectors and product categories. They bring to the
table their enormous experience and knowledge of economy, market sentiment and sectoral
trends. For every portfolio, the investment strategy is decided after a careful assessment of
several factors like your investment needs, preferences and risk profile. To ensure a consistent
performance, we apply rigorous methods to measure and control risk. As our investment
philosophy is not driven by brokerage income, you may find a surprisingly low churn in the
portfolios managed by us.

TIMING:
Proponents of the traditional long-term investment would have you believe that in the
long-term, timing hardly makes any difference. But given the extent of volatility that is prevalent
in the modern markets, stocks could swing more even in a given day more than a conservative
investor’s targeted return for an entire year. We have a team of dealers and technical analysts
who can help you capitalize on precisely these fluctuations in the markets.

RELATIONSHIP MANAGEMENT:
As a Portfolio management customer you will have the services of your very own Relationship
Manager. Relationship Managers at India Infoline are chosen after stringent checks related to the
character, integrity and the overall competence post which they undergo extensive training. You
can think of your Relationship Manager as your one point of contact for all your queries related
to your investments

BACKOFFICE:
An online back office means you always have online and anytime access to your ledger
account, your contract notes, bills and portfolio performance report. This is the result of our
immense investment in technology and systems over the years.
Apart from these you will discover many small and thoughtful features, which will add value to
your experience, literally

OBJECTIVES

 To study the investments pattern of an investor and its related risk and return.
 To analyze and select the portfolio of investment.

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 To help investors to choose the combination of securities reducing risk and maximizing
returns.
 To study how to construct portfolio using two securities.
 To study the overall profit of the portfolio
 To study what is the risk involved in the constructed portfolio

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 involves regular and systematic analysis,
judgments and actions. The objective of this service is to help the unknown investors with the
expertise of professionals in investment portfolio management. It involves construction of a of a
portfolio bases upon the investors objectives, constraints, preferences for risk and return and tax
ability. 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 a risk and return.
The changes in the 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 for investments. Portfolio theory concerns itself with the principles
governing such allocations. The modern view of investments is oriented more towards the
assembly of proper combinations of individual securities to form investment portfolios. A
combination of individual securities to form investments portfolios. A combination of securities
held together will give a beneficial result if they are grouped in a manner to secure higher return
after taking into consideration the risk elements.

SCOPE OF THE STUDY

This study covers the Markowitz model. Here in, the study covers the calculation of correlations
between the different securities in order to find out at what percentage of funds should be
invested among the companies in the portfolio. Also the study includes the calculation of weights

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of individual securities involved in the portfolio. These percentages help in allocation the funds
available for investments based on the risky portfolios.

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CHAPTER-2

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METHODOLOGY OF STUDY

For implementing the study, of securities or stocks consisting the sensex market are selected of
one year opening and closing share movement price date from BSE on date.

Closing price – Opening price


R= -------------------------------------------- ×100
Opening price
To know the average (R) the following formula has been used

Average (R’) = ∑ R
N
The next step is to know the risk of the stock or security; the following formula is given below.

Std.dev = √ Variance
n
Variance =1/n-1∑ (R-R’)²
t=1
Where
(R-R’) = squares of different between sample and mean.
n = number of sample observations.

After that, the correlation of the securities is calculated by using the following formula;

Corrélation Coefficient (rAB) = COV AB


(σA)(σB)

Co-variance (COVAB) = 1/n ∑ (RA)-(R’A) (RB-R’B)


t =1
Where,

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(RA-R’A)(RB-R’B) =combined deviations of A&B.

(σA) (σ B) =Standard Deviations of A&B

COV AB = Covariance between A&B

N= no of observations.
The next step would be the construction of the optimal portfolio on the basis of what percentage
of investment should be invested when two securities and stocks are combined ie, calculations of
assets portfolio weights by using minimum equation, which is given below

σB (σ B – rABσA)
WA = σA² +σB² - 2rABσAσB

WB = 1 - WA

Where WA= proportion of investment in A

WB= proportion of investment in B

The next and final step is to calculate the portfolio risk (combined risk) that shows how much is
reduced by combining two stocks or securities by using this formula.

FORMULA:
σp = √ σA²- WA² +σ B² W B² + 2r AB σA σA WA WB
Where,
σp = Portfolio Risk
σA = Standard Deviation of security A
WA = Proportion of investment in security B
σB = Standard Deviation of security of B

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WB = proportion of investment in security B
rAB = Co-relation Coefficient between security A&B.

LIMITATIONS OF THE STUDY

The study has certain constrains which has limited to its scope and objects of the study.
 The fulfillment of project to 45 days.
 From BSE and NSE listing – a very few and randomly selected scripts are analyzed.
 Construction of portfolio restricted to two- assets based in Markowitz model.
 Limited industries are only covered in the study.

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CHAPTER-3

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INDUSTRY PROFILE
Stock exchanges are the perfect type of market for securities whether of government and semi-
government bodies or other public bodies as also for shares and debentures issued by the joint-
stock companies. In the stock market, purchases and sales of shares are affected in conditions of
free competition. Government securities are traded outside the trading ring in the form of over
the counter sales or purchase. The bargains that are struck in the trading ring by the members of
the stock exchanges are at the fairest prices determined by the basic laws of supply and demand.

Definition of a stock exchange:


“Stock exchange means anybody or individuals whether incorporated or not, constituted
for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in
securities.” The securities include:
 Shares of public company.
 Government securities.

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 Bonds

History of Stock Exchanges:


The only stock exchanges operating in the 19th century were those of Mumbai setup in
1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit-making
associations of brokers to regulate and protect their interests. Before the control on securities
under the constitution in 1950, it was a state subject and the Bombay securities contracts
(control) act of 1925 used to regulate trading in securities. Under this act, the Mumbai stock
exchange was recognized in 1927 and Ahmadabad in 1937. During the war boom, a number of
stock exchanges were organized. Soon after it became a central subject, central legislation was
proposed and a committee headed by A.D.Gorwala went into the bill for securities regulation.
On the basis of the committee’s recommendations and public discussion, the securities contract
(regulation) act became law in 1956.
Functions of Stock Exchanges:
Stock exchanges provide liquidity to the listed companies. By giving quotations to the
listed companies, they help trading and raise funds from the market. Over the hundred and
twenty years during which the stock exchanges have existed in this country and through their
medium, the central and state government have raised crores of rupees by floating public loans.
Municipal corporations, trust and local bodies have obtained from the public their financial
requirements, and industry, trade and commerce- the backbone of the country’s economy-have
secured capital of crores or rupees through the issue of stocks, shares and debentures for
financing their day-to-day activities, organizing new ventures and completing projects of
expansion, diversification and modernization. By obtaining the listing and trading facilities,
public investment is increased and companies were able to raise more funds. The quoted
companies with wide public interest have enjoyed some benefits and assets valuation has become
easier for tax and other purposes.

Various Stock Exchanges in India:


At present there are 23 stock exchanges recognized under the securities contracts (regulation),
Act, 1956. Those are:
 Ahmadabad Stock Exchange Association Ltd.

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 Bangalore Stock Exchange
 Bhubaneshwar Stock Exchange Association
 Calcutta Stock Exchange
 Cochin Stock Exchange Ltd.
 Coimbatore Stock Exchange
 Delhi Stock Exchange Association
 Guwahati Stock Exchange Ltd
 Hyderabad Stock Exchange Ltd.
 Jaipur Stock Exchange Ltd
 Kanara Stock Exchange Ltd
 Ludhiana Stock Exchange Association Ltd
 Madras Stock Exchange
 Madhya Pradesh Stock Exchange Ltd.
 Magadh Stock Exchange Limited
 Meerut Stock Exchange Ltd.
 Mumbai Stock Exchange
 National Stock Exchange of India
 OTC Exchange of India
 Pune Stock Exchange Ltd.
 Saurastra Kutch Stock Exchange Ltd.
 Uttar Pradesh Stock Exchange Association
 Vadodara Stock Exchange Ltd.
Out of these major stock exchanges were:
NSE
The National Stock Exchange of India Limited has genesis in the report of the High Powered
Study Group on Establishment of New Stock Exchanges, which recommended promotion of a
National Stock Exchange by financial institutions (FI’s) to provide access to investors from all
across the country on an equal footing. Based on the recommendations, NSE was promoted by
leading Financial Institutions at the behest of the Government of India and was incorporated in

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November 1992 as a tax-paying company unlike other stock exchanges in the country. On its
recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April
1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994.
The Capital Market (Equities) segment commenced operations in November 1994 and operations
in Derivatives segment commenced in June 2000.
NSE's mission is setting the agenda for change in the securities markets in India. The NSE was
set-up with the main objectives of:
• Establishing a nation-wide trading facility for equities and debt instruments.
• Ensuring equal access to investors all over the country through an appropriate
communication network.
• Providing a fair, efficient and transparent securities market to investors using electronic
trading systems.
• Enabling shorter settlement cycles and book entry settlements systems, and
• Meeting the current international standards of securities markets.
The standards set by NSE in terms of market practices and technology, have become industry
benchmarks and are being emulated by other market participants. NSE is more than a mere
market facilitator. It's that force which is guiding the industry towards new horizons and greater
opportunities.
BSE
The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The
Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the
Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making
Association of Persons (AOP) and is currently engaged in the process of converting itself into
demutualised and corporate entity. It has evolved over the years into its present status as the
premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have
obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts
(Regulation) Act 1956.The Exchange, while providing an efficient and transparent market for
trading in securities, debt and derivatives upholds the interests of the investors and ensures
redresses of their grievances whether against the companies or its own member-brokers. It also
strives to educate and enlighten the investors by conducting investor education programmers and
making available to them necessary informative inputs.

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A Governing Board having 20 directors is the apex body, which decides the policies and
regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who
are from the broking community (one third of them retire ever year by rotation), three SEBI
nominees, six public representatives and an Executive Director & Chief Executive Officer and a
Chief Operating Officer.
The Executive Director as the Chief Executive Officer is responsible for the day-to-day
administration of the Exchange and the Chief Operating Officer and other Heads of Department
assist him.
The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining to constitution
of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting
of three elected directors, three SEBI nominees or public representatives, Executive Director &
CEO and Chief Operating Officer has been constituted. The Committee considers judicial &
quasi matters in which the Governing Board has powers as an Appellate Authority, matters
regarding annulment of transactions, admission, continuance and suspension of member-brokers,
declaration of a member-broker as defaulter, norms, procedures and other matters relating to
arbitration, fees, deposits, margins and other monies payable by the member-brokers to the
Exchange, etc.

REGULATORY FRAME WORK OF STOCK EXCHANGE:


A comprehensive legal framework was provided by the “Securities Contract Regulation Act,
1956” and “Securities Exchange Board of India 1952”. Three tier regulatory structure
comprising
 Ministry of finance
 The Securities And Exchange Board of India
 Governing body
Members of the stock exchange:
The securities contract regulation act 1956 has provided uniform regulation for the
admission of members in the stock exchanges. The qualifications for becoming a member of a
recognized stock exchange are given below:
• The minimum age prescribed for the members is 21 years.
• He should be an Indian citizen.

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• He should be neither a bankrupt nor compound with the creditors.
• He should not be convicted for fraud or dishonesty.
• He should not be engaged in any other business connected with a company.
• He should not be a defaulter of any other stock exchange.
• The minimum required education is a pass in 12th standard examination.
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI):
The securities and exchange board of India was constituted in 1988 under a resolution of
government of India. It was later made statutory body by the SEBI act 1992.according to this
act, the SEBI shall constitute of a chairman and four other members appointed by the central
government. With the coming into effect of the securities and exchange board of India act, 1992
some of the powers and functions exercised by the central government, in respect of the
regulation of stock exchange were transferred to the SEBI.
OBJECTIVES AND FUNCTIONS OF SEBI:
 To protect the interest of investors in securities.
 Regulating the business in stock exchanges and any other securities market.
 Registering and regulating the working of intermediaries associated with securities
market as well as working of mutual funds.
 Promoting and regulating self-regulatory organizations.
 Prohibiting insider trading in securities.
 Regulating substantial acquisition of shares and takeover of companies.
 Performing such functions and exercising such powers under the provisions of capital
issues (control) act, 1947and the securities to it by the central government.
SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES):
Board of Directors of Stock Exchange has to be reconstituted so as to include non-
members, public representatives and government representatives to the extent of 50% of total
number of members.
• Capital adequacy norms have been laid down for the members of various stock
exchanges depending upon their turnover of trade and other factors.
• All recognized stock exchanges will have to inform about transactions within 24 hrs.
TYPES OF ORDERS:

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Buy and sell orders placed with members of the stock exchange by the investors. The orders are
of different types.
Limit orders:
Orders are limited by a fixed price. E.g. ‘buy Reliance Petroleum at Rs.50.’Here, the order has
clearly indicated the price at which it has to be bought and the investor is not willing to give
more than Rs.50.
Best rate order: Here, the buyer or seller gives the freedom to the broker to execute the order at
the best possible rate quoted on the particular date for buying. It may be lowest rate for buying
and highest rate for selling.
Discretionary order:
The investor gives the range of price for purchase and sale. The broker can use his discretion to
buy within the specified limit. Generally the approximation price is fixed. The order stands as
this “buy BRC 100 shares around Rs.40”.
Stop loss order:
The orders are given to limit the loss due to unfavorable price movement in the market. A
particular limit is given for waiting. If the price falls below the limit, the broker is authorized to
sell the shares to prevent further loss. E.g. Sell BRC limited at Rs.24, stop loss at Rs.22.
Buying and selling shares:
To buy and sell the shares the investor has to locate register broker or sub broker who
render prompt and efficient service to him. The order to buy or sell specifying the number of
shares of the company of investors’ choice is placed with the broker. The order may be of any
type. After receiving the order the broker tries to execute the order in his computer terminal.
Once matching order is found, the order is executed. The broker then delivers the contract note to
the investor. It gives the details regarding the name of the company, number of shares bought,
price, brokerage, and the date of delivery of share. In this physical trading form, once the broker
gets the share certificate through the clearing houses he delivers the share certificate along with
transfer deed to the investor. The investor has to fill the transfer deed and stamp it. The stamp
duty is one of the percentage considerations, the investor should lodge the share certificate and
transfer deed to the register or transfer agent of the company. If it is bought in the DEMAT form,
the broker has to give a matching instruction to his depository participant to transfer shares
bought to the investors account. The investor should be account holder in any of the depository

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participant. In the case of sale of shares on receiving payment from the purchasing broker, the
broker effects the payment to the investor.
Share groups:
The scripts traded on the BSE have been classified into ‘A’,’B1’,’B2’,’C’,’F’ and ‘Z’
groups. The ‘A’ group represents those, which are in the carry forward system. The ‘F’ group
represents the debt market segment (fixed income securities). The Z group scripts are of the
blacklisted companies. The ‘C’ group covers the odd lot securities in ‘A’, ‘B1’&’B2’ groups.
ROLLING SETTLEMENT SYSTEM:
Under rolling settlement system, the settlement takes place n days (usually 1, 2, 3 or
5days) after the trading day. The shares bought and sold are paid in for n days after the trading
day of the particular transaction. Share settlement is likely to be completed much sooner after the
transaction than under the fixed settlement system.
The rolling settlement system is noted by T+N i.e. the settlement period is n days after the
trading day. A rolling period which offers a large number of days negates the advantages of the
system. Generally longer settlement periods are shortened gradually.
SEBI made RS compulsory for trading in 10 securities selected on the basis of the criteria
that they were in compulsory demats list and had daily turnover of about Rs.1 crore or more.
Then it was extended to “A” stocks in Modified Carry Forward Scheme, Automated Lending and
Borrowing Mechanism (ALBM) and Borrowing and lending Securities Scheme (BELSS) with
effect from Dec 31, 2001.
SEBI has introduced T+5 rolling settlement in equity market from July 2001 and subsequently
shortened the cycle to T+3 from April 2002. After the T+3 rolling settlement experience it was
further reduced to T+2 to reduce the risk in the market and to protect the interest of the investors
from 1st April 2003.
Activities on T+1:
Conformation of the institutional trades by the custodian is sent to the stock exchange by
11.00 am. A provision of an exception window would be available for late confirmation. The
time limit and the additional changes for the exception window are dedicated by the exchange.
The exchanges/clearing house/ clearing corporation would process and download the obligation
files to the broker’s terminals late by 1.30 p.m on T+1. Depository participants accept the

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instructions for pay in securities by investors in physical form up to 4 p.m and in electronic form
up to 6 p.m. the depositories accept from other DPs till 8p.m for same day processing.

Activities on T+2:
The depository permits the download of the paying in files of securities and funds till
10.30 am on T+2 from the brokers’ pool accounts. The depository processes the pay in requests
and transfers the consolidated pay in files to clearing House/clearing Corporation by 11.00am/on
T+2. The exchange/clearing house/clearing corporation executes the pay-out of securities and
funds latest by 1.30 p.m on T+2 to the depositories and clearing banks. In the Demat mode net
basis settlement is allowed. The buy and sale positions in the same scrip can be settled and net
quantity has to be settled
OUTCRY SYSTEM
The broker has to buy or sell securities for which he has received the orders. For this, the
broker or his authorized representatives goes to the stock exchange. This method is called the
open outcry system. Basically the brokers shout while buying or selling the securities. The floor
of the stock exchange is divided into a number of markets also known as ‘post pit’ or wing based
on particular securities dealt there.
In the post pit or wing, the broker using ‘open outcry’ method makes an offer or bid price. For
making the necessary bargain, he quotes his purchase or sale price, also known as offer or bid
price. The dealer, to whom the price is quoted, quotes his own price when the quotation of the
dealer suits the broker, he may lose the bargain. If he is not satisfied with the quote price, he may
turn to some other dealer. On the close of the bargain, the dealer as well as the broker makes a
brief note of the particulars of the deal. Such notes are made on some pad and on it the number
of shares, the price agreed upon, the name of the party, what membership number etc., are noted.
DISADVANTAGES OF OUTCRY SYSTEM:
• It lacks transparency.
• The scope of manipulation, speculation and mal practice is more.
• Signal were more important in the outcry system any member who could not interpret the
buy/sell signal correctly often landed himself in disaster situation.
• In audibility was another disadvantage of the outcry system.

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COMPANY PROFILE
ICICI GROUP

ICICI SECURITIES – INDIA’S LEADING INVESTMENT BANK

A subsidiary of ICICI Bank - the largest and most recognized private bank in India –
ICICI Securities Ltd is premier Indian Investment Bank, with a dominant position in its core
segments of its operations - Corporate Finance including Equity Capital Markets Advisory
Services, Institutional Equities, Retail and Financial Product Distribution With a full-service
portfolio, a roster of blue-chip clients and performance second to none, we have a formidable
reputation within the industry.
Under the able leadership of Mr.S Mukherji, Managing Director and CEO, ICICI
Securities is among the leading Financial Institutions both on the institutional as well as retail
side.
The Corporate Finance team regularly ranks highest among the leading capital markets
league tables and recently topped the Prime Database League tables for funds mobilized through
equity instruments in the first half of CY 07.

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Headquartered in Mumbai, I-Sec operates out of several locations in India.

ICICI SECURITIES LIMITED (ICICI SECURITIES)

HISTORY:
A subsidiary of ICICI Bank, ICICI Securities was set up in February 1993 to provide
investment-banking services to investors in India. As on date ICICI Bank holds 99.9% of the
share capital of ICICI Securities.

OVERVIEW:
ICICI Securities is a strongly positioned investment bank in India and provides products
and services in Fixed Income, Equities and Corporate Finance. In the fixed income business
ICICI Securities is a leading market participant in the country. ICICI Securities fixed income
activities include interest rate trading, derivatives trading, research and issue management.
The Corporate Finance business focuses on industry consolidation. ICICI Securities has
been involved in a number of mergers, cross border acquisition, equity and bidding for a number
of reputed companies. The equity business offers research, sales and execution services to
institutional investors in the secondary market and capital market related services such as
execution of public offerings, structuring and regulatory and legal documentation services.
In order to assist/provide corporate clients and institutional investors with investment banking
services in the United States of America, ICICI Securities has set up two subsidiaries namely,
ICICI Securities Holdings Inc and ICICI Securities Inc, ICICI Securities Inc, has become the
registered broker dealer with the National Association of Securities Dealers Inc, empowering it
to engage in a variety of securities transactions in the U.S. market.

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ICICI BROKERAGE SERVICES LIMITED

ICICI Brokerage Services Limited, a member of the National Stock Exchange of India
Limited, is the domestic broking subsidiary of ICICI Securities.

YEAR IN REVIEW:
ICICI Securities is amongst the largest arranger of funds in Debt and Equity segments
and also amongst the leading advisors in Mergers and Acquisitions. Its clients include a wide
range of Indian and foreign corporations and institutional investors.

ICICI Securities continued to maintain its leadership position in the industry and
delivered a remarkable performance. ICICI Securities net worth was Rs. 3.51 billion, an increase
of 10.03% over the previous year. ICICI Securities was placed as a No. 1 advisor for M&As in
India, with closure of 4 deals aggregating to US $ 142.47 million (This is as per recent rankings
published by Bloomberg for the first quarter of 2003).
ICICI Securities raised Rs. 6.7 billion through initial public offerings (IPO’s).

INSTITUTIONAL EQUITIES
I-Sec assists global institutional investors to make the right decisions through insightful
research coverage and a client focused Sales and Dealing team. A 30-member strong dedicated
and specialized research team ensures flow of well thought-out and well-researched stock ideas
and portfolio strategies. The Sales and Dealing team has demonstrated strong sales and execution
capabilities of actionable ideas to clients which have resulted in good relationships across
geographies.
I-Sec enjoys the first mover and market leader advantage in the derivatives segment. We
have the strongest derivatives desk and we offer the entire spectrum, from set-up to trading
strategy. The equity group leverages research and distribution reach to domestic and foreign
institutional investors in case of public offerings. The research team tracks over 15 key sectors of
the Indian economy and publishes in-depth research reports every year.

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The equity group acts as a bridge for institutional investors and corporate clients with the
markets. For its expertise, ICICI Securities has been adjudged as the “Best Brokerage House" by
Asia Money in 2003, a prestigious financial journal.

RETAIL EQUITIES
ICICI Securities has the largest reach to the retail segment through its two pioneering
brands – ICICIdirect.com and ICICIdirect.

ICICIDIRECT.COM
ICICIdirect.com is the most comprehensive website, which allows you to invest in
Shares, Mutual funds, Derivatives (Futures and Options), IPO, Commodities and other financial
products. Subscribers benefit from the unique 3-in-1 package - a Demat account, a trading
account, and a bank account, thus giving the customer an efficient and hassle free trading
platform. An adept research team facilitates the consumer in taking more informed investment
decisions.
ICICIdirect.com is the leader in the online share trading space with over 1.2 million
customers, which translates to a market share of over 65%. The firm has been winning the
prestigious Outlook Money - India’s Best e-Brokerage House for 2003-2004, 2004-2005 and
2006-07.
ICICI Securities has also set up a unique model of ‘neighborhood financial superstores’
called ICICIdirect. With an avowed purpose of ‘turning money to wealth’ the stores offer a slew
of financial products like Mutual Fund, IPO, Loans as well as Share trading and assist customers
in investing their funds wisely in options of their choice. The ICICIdirect centers, due to its
personalized advisory system, are firmly driven by the relationship with its customers.

27 | P a g e
AWARDS:
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Brand of Financial Advisory Services.
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manage your own Demat and bank accounts when you trade through ICICIdirect.com.
Trust: ICICIdirect.com comes to you from ICICI, the organization trusted by millions of
Indians.

28 | P a g e
INTRODUCTION TO PORTFOLIO
MANAGEMENT

PORTFOLIO
A portfolio is a collection of securities. Since it is rarely desirable to invest the entire
funds of an individual or an institution in a single security, it is essential that every security be
viewed in the portfolio context. Thus it seems logical that the expected return of each of the
security contained in the portfolio.
Portfolio analysis considers the determination of future risk and return in holding various
blends of the individual securities. Portfolio expected return is a weighted average of the
expected return of individual securities but portfolio variances, in short contrast, can be
something less than a weighted average of security variance. As a result an investor can
sometimes reduce portfolio risk by adding security with greater individual risk than any other
security in the portfolio. This is because risk depends greatly on the co-variance among returns
of individual security. Portfolio which is combination of securities may or may not take an
aggregate characteristic of their part.
Since portfolios expected return is a weighted average of the expected return of its
securities, the contribution of each security to the portfolio’s expected returns depends on its
expected returns and its proportionate share of the initial portfolio’s market value. It follows that
an investor who simply wants the greatest possible expected return should hold one security; the
one’ which is considered to have a greatest, expected return. Very few investors do this, and very
few investments advisors would counsel such an extreme policy. Instead, investors should
diversify, meaning that their portfolio should include more than one security.

OBJECTIVES OF PORTFOLIO MANAGEMENT

The objectives of investments/portfolio management can be classified as follows

Basic objectives

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The basic objectives of investment/portfolio management are
 To Maximize Yield, and
 To Minimize risk

Secondary objectives
The following are the other ancillary objectives are

 Regular return
 Stable income
 Appreciation of capital
• More liquidity
• Safety of investments, and
• Tax benefits.

NEED FOR PORTFOLIO MANAGEMENT


Portfolio management is a process encompassing many activities of investment in assets
and securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgments and actions. The objective of this service is to help the unknown investors with the
expertise of professionals in investment portfolio management. It involves construction of a of a
portfolio bases upon the investors objectives, constraints, preferences for risk and return and tax
ability. 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 a risk and return.
The changes in the 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 for investments. Portfolio theory concerns itself with the principles
governing such allocations. The modern view of investments is oriented more towards the
assembly of proper combinations of individual securities to form investment portfolios. A
combination of individual securities to form investments portfolios. A combination of securities
held together will give a beneficial result if they are grouped in a manner to secure higher return
after taking into consideration the risk elements.

30 | P a g e
The modern theory is of the view that by diversifications, risk can be reduced. The
investor can make diversification either by having a large number of shares of companies in
different region, in different industries or those producing different types products lines. Modern
theory believes in the perspective of combination of securities under constraints of risk and
return.

ELEMENTS OF PORTFOLIO MANAGEMENT


Portfolio management is an on-going process involving the following the following basic tasks:

 Identification of the investor’s objectives, constraints and preferences.


 Strategies are to be developed and implemented in tune with investments policy
formulated.
 Review and monitoring of the performance of the portfolio.
 Finally the evaluation of the portfolio

PORTFOLIO ANALYSIS
Portfolio analysis is needed for the selection of optimal portfolio by rational risk adverse
investors. Portfolio analysis is essential for portfolio construction. The objective of the portfolio
or maximize the risk subject to the desired level of return on the portfolio or maximize the return
subject to the constraint of a tolerable level of risk. It enables the investors to identify the
potential securities, which will maximize the following objectives such as security of the
principle, stability of income, capital growth marketability, liquidity & diversification.

CONCEPT OF RISK

Investment in shares has its own risk or uncertainty, which arises out of variability of
returns, yields and uncertainty of appreciation or depreciation of shares prices, loss of liquidity
etc. this risk over time, is capital appreciation. This risk is measured statistically by the degree of
variance or standard deviation of returns. Normally higher the risk that the investor taker higher
is the return.

DIVERSIFICATION OF RISK:

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The process of combining securities in a portfolio is known as diversification. The aim of
diversification is to reduce total risk without sacrificing portfolio. The risk in a portfolio can be
reduced by a proper diversification into a number of strips. The efforts to spread and minimizes
portfolio risk takes the form of diversification. Most investors prefer to hold several assets rather
than putting all their eggs into one basket with hope that if one goes bad, the other will provide
some protection from the extreme loss.

PORTFOLIO SELECTION
The determination and selection of a portfolio is a complicated affair as there is a
possibility of infinite number of combinations of various securities that can enter a portfolio. The
securities available to an investor can be combined in any proportion hence any number of
portfolios can be built. Each such portfolio can be described in terms of return and risk.
Portfolio construction refers to the allocation of funds among a variety of financial assets
open for investment. The objectives of the theory is to elaborate the principle in which the risk
can be minimized, subject to desired level of return on the portfolio or maximized the return,
subject to constrain of tolerable level of risk.

The most popular models used for portfolio selection are:


o Markowitz model.
o Capital assets pricing model.

Markowitz model
According to Markowitz, the portfolio theory establishes a relationship between portfolios
expected return and its level of risk as the criteria for selecting the optimal portfolio. Thus two
measures were suggested for evaluating the merits of portfolio.

 The expected return from the portfolio.


 The level of risk exposure associated with the portfolio.

This theory believes in asset correlation and combining assets so as to lower the risk. From the
efficient set of portfolios the best one would be selected on the basis of the risk and returns.

32 | P a g e
These risk and returns are calculated using standard deviations and the coefficient of variations.
It is also called as the “full co-variance model”. The expected return on the portfolio is calculated
by using the following;

N
Rp = ∑ RiXi
I=1
Where, Rp = expected return on portfolio
Ri = expected return on security ‘i’
Xi = the proportion of portfolio investment in security ‘i’
N = total number of securities in the portfolio.
The risk of a portfolio comprising of shares A and B van be expressed using variance as the
measures of risk. σ
Covariance of AB = X2 Aσ2 A +X2 Bσ2 B + 2XAXBrAB σA σ B
Cov.AB = the variance between the rates of return on shares A and B,
Where,
rAB = Coefficient of correlation between A and B shares
x2 A = Proportion invested in shares A
2
X B = proportion invested in shares B
σ2 A = Variance of the rate of return on share A.
σ2 B = Variance of the rate of return on share B.
The term covariance explains the relationship between the movements in the rates of
return from shares A and B; it is derived from the following formula:
Cov.AB = rAB σA σ B

CAPITAL ASSET PRICING MODEL


The Capital Asset Pricing Model (CAPM) attempts to measure the risk of a security in
the portfolio. It considers the required rate of return of a security on the basis of its contribution

33 | P a g e
to total portfolio risk. It provides that in a well-functioning efficient market, the risk premium
varies indirect proportion to risk. It also provides a measure of risk premium and method of
estimating market risk return line. The risk of well-diversified portfolio depends on the market
risk of the securities included in portfolio. The market risk of the security is measured in terms of
its sensitivity to the market movements. The core idea of CAPM is that only non-diversifiable
risk is relevant to the determination of the expected return on any asset.

CAPITAL MARKET LINE (CMP)


The portfolio theory states that rational investors would chose a combination of “efficient
frontier” but in capital market line relationship of total risk and expected return is reflected.

SECURITY MARKET LINE (SML)


For all well diversified portfolios nonsystematic risk tend to go to zero, and the only relevant risk
measured by beta SML describes the expected return for all assets and portfolios of assets,
efficient or not. The higher the beta the higher must be the return. The relationship between
expected return and beta is linear.

PORTFOLIO REVISION
Irrespective of how well a portfolio is constructed, it soon tends to change and hence
needs to be monitored and revised periodically. Portfolio once constructed undergoes changes in
the market prices; reassessment of companies, the portfolio risk and the proportion in each asset
class will change to bring back the portfolio to the targeted level of beta or risk and duration.
Overtime several things are likely to happen.

This usually involves two things:


PORTFOLIO REBALANCING.
It involves reviewing and revising the portfolio compositions. There are three basic policies with
respect to portfolio rebalancing.
By and hold policy,
Constant asset mix, and
Portfolio insurance policy.

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PORTFOLIO UPGRADING.
While portfolio rebalancing involves shifting from stocks to bonds or vice versa, it calls
for reassessing the risk return characteristics of various securities, selling over priced securities
and buying under priced securities. It may also involve the other changes the investor may
consider necessary to enhance the performance of portfolio.

PORTFOLIO EVALUATION
The performance of the portfolio should be evaluated periodically. The key dimensions
of a portfolio performance evaluation are risk and return and the key issue is whether the
portfolio return is commensurate with its risk exposure. Such a review may provide useful to
improve the quality of portfolio management process on a continuing basis.

For evaluating the performance of a portfolio it is necessary to consider both risk and return. The
following are the models for evaluating performance of a portfolio.

 Treynor Measure.
 Sharpe measure.
 Jensen measure.

INVESTMENT DECISION

Definition of investment
According to F. Amling “Investment may be defined as the purchase by an individual or
institutional investor of a financial or real asset that produces a return proportional to the risk
assumed over some future investment period”.
According to D.E. Fisher and R.J. Jordan, “investment is a commitment of funds made in
the expectation of some positive rate of return. If the investment is properly undertaken, the
return will be commensurate with the risk the investor assumes”.

35 | P a g e
Concept of investment
Investment will be generally be used in its financial sense and as such investment is an
allocation of monetary resources to assets that are expected to yield some gain or positive return
over a given period of time. Investment is a commitment of person’s funds to drive future
income in the form of interest, dividends rent, premiums, pension benefits or the appreciation of
the value of his principle capital

Any Investors would like to know the media or range of investment so that he can use his
discretion and save in those investments, which will give him both security and stable return.
The ultimate objective of the investor is to derive a variety of investments that meets his
preference for risk and expected return. The investor will select the portfolio, which will
maximize his utility. Another important consideration is the temperament and psychology of the
investor. It is not only the construction of a portfolio that will promise the highest expected
return, but it is the satisfaction of the need of the investor.
Many types of investment media or channels for making investment are available.
Securities ranging from risk free instruments to highly speculative shares and debentures are
available for alternative investments.
All investments are risky, as the investor parts with his money. An efficient investor with
proper training, can reduce the risk and maximize returns, he can avoid pitfalls and protect his
interests.
There are different methods of classifying the investment avenues. A physical, if savings
are used to acquire physical assets, useful for consumption or production. Some physical assets
like ploughs, tractors or harvesters are useful in agriculture production. A few useful physical
assets like cars, jeeps etc., are useful in business. Among different types of investments some are
marketable and transferable and other are not. Example of marketable assets are shares and
debentures of public ltd companies particularly the listed companies on stock exchange, bonds of
P.S.U. Government securities etc. non marketable securities of investments are bank deposits,
provident and pension funds, insurance certificates, company deposits, private Ltd Company
shares etc.,

Investment process
36 | P a g e
The investment process may be described in the following stages.
Investment Policy: The first state determines and involves personal financial affairs and
objectives before making investment. It can also be called the preparation of the investment
policy stage. The investor has to see that he should be able to create an emergency fund, an
element of liquidity and quick convertibility of securities into cash. This stage may, therefore, be
called the proper time for identifying investment assets and considering the various features of
investment.
Investment Analysis: After arranging a logical order of type of investment preferred, the next
step is to analyze the securities available for kind of securities etc. the primary concerns at this
stage would be to form beliefs regarding future behavior of prices and stocks, the expected return
and associated risks.

Investment Valuation: Investment value, in general is taken to be the present worth to the
owners of future benefits from investments. The investor has to bear in mind the value of these
investments. An appropriate set of weights have to be applied with the use of forecasted benefits
to estimate the value of investment assets such as stocks, debentures and bonds and other assets.
Comparison of the value with the current market price of the asset allows a determination of the
relative attractiveness of the asset must be valued on its individual merit.

Portfolio Construction and Feedback: Portfolio construction required a knowledge of the


different aspects of securities in relation to safety and growth of principal, liquidity of assets etc,
in this stage, we study determination of diversification level, consideration of investment timing,
selection of investment assets, allocation of ingestible wealth to different investment, evaluation
of portfolio feedback.

INVESTMENT DECISIONS – GUIDELINES FOR THE EQUITY INVESTMENT


Equity shares are characterized by price fluctuations, which can produce substantial gains
or inflict severe losses. Given the volatility and dynamism of the stock market, investor requires
greater competence and skill along with a touch of good luck to invest in equity shares. Here are
some general guidelines to play equity game, irrespective whether you are aggressive or
conservative.

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 Adopt a suitable formula plan
 Establish value anchors.
 Assess market psychology
 Combine fundamental and technical analysis.
 Diversify sensibly
 Periodically review and revise your revise portfolio.

Requirement of portfolio

 Maintain adequate diversification when relative values various securities in the portfolio
change.
 Incorporate new information relevant for risk return assessment.
 Expand or contract the size of portfolio to absorb funds or withdraw funds and,
 Reflect changes in investor risk disposition.

Factors influencing investors decision and type of investors


There are four types of investors in a market. They are as follows.
Types of Investors:
Type A Investors: No market timing and no stock picking skills.
If the investor does not believe that he has any special skills in picking undervalued stocks or in
predicting the movement of the market, then the portfolio design problem becomes relatively
simple. The investor simply chooses a diversified portfolio and then adjusts its beta to the desired
level. If he weights the chosen security in proportion to the market capitalization, he can expect
to get a portfolio beta close to one. To achieve a higher or lower beta, he can shift the weights
towards high or low beta stocks. He can achieve the same effects by increasing or decreasing the
allocation to the equity portfolio in the overall portfolio.
The type A investor would hold a passive, diversified portfolio with the constant beta
equal to the target beta. He may also prefer to invest his money in a mutual fund and let it do the
portfolio management for him.
Type B Investor: Only stock-picking skills

38 | P a g e
An investor who has and wishes to exploit his stock picking skills should start with a base
portfolio to that of type A investor. He should then adjust the weights of the stocks, which are in
his opinion mispriced. Specifically, he should overweight the stocks that are overvalued and
underweighted those which are under value. For example, the base portfolio may have 2% in
stock X and 1.5% in stock Y. the investor who finds X undervalued and Y over valued may
change the weights to 3% to X, he may have a portfolio. This may not be legally or practically
possible. The investors than has to raise the weight X to 4%, eliminate Y from the portfolio and
reduce the weight of some other stocks by 0.5%.

The investor can deal with this problem in a slightly different manner. He can put, say
90% of his equity investment in the diversified portfolio and reserve the remaining 10% for the
mispriced stocks. How large a fraction he should devote to mispriced scripts depends on how
good analyst may choose a larger fraction? What we are doing in this decision is to balance to
profit potential of investing is undervalued stocks against the benefits of diversification. Unless
we are confident about our analysis, we should give privacy to the need for diversification.
Since the average beta of the undervalued and overvalued stocks is likely to be closed to
one, the overall beta is likely to remain close to the target value, unless the target beta is
substantially different from one and the percentage of the portfolio devoted to mispriced stocks is
large. If, for some reason, this is not so, the investor would have to take future action to maintain
to the beta at the largest value. The portfolio of the type B investor is concentrated but has a
constant beta.

Type C Investor: Only market – timing skills


The type C investor holds a well-diversified portfolio but switches actively between
defensive and offensive portfolios to take advantage of the market timing. If the expects the
market to rise, he should push his portfolio beta above his target level by any of the techniques
described in the section on market timing. The converse should be done if the investor is bearish
about the market. In either case, the portfolio would remain diversified all through. The portfolio
of this investor diversified, but its beta is managed and not constant.
Type D Investor: Both stock picking and market timing skills

39 | P a g e
This type of investor would use the techniques used by both the type B and type C
investor. These investors would have the most active and aggressive portfolio management
strategies. Using their superior ability to predict boom and busts in the markets as a whole and
their skills in identifying undervalued scrips, they should hold highly concentrated portfolios and
let the beta fluctuate quiet sharply around the long run target value.
A pitfall is a very strenuously avoided is that of assuming that one has a skill, which one
in reality does not have. For example, an investor who does not have very good abilities in script
selection may still think that he does not have suck stills. He would then end up with an ill-
diversified portfolio, which earns mediocre returns: he would have been better off with a passive
portfolio.

Qualities for successful investing

 Contrary thinking
 Patience
 Composure
 Flexibility and
 Openness
Discounted cash flow (DCF) method of time adjusted technique
An important technique used by Karvy Stock Broking Limited for evaluating their shares
for trading purpose. The discounted cash flow technique is an improvement on the pay-back
period method. It takes into account both the interest factor as well as the return after pay-back
period. The method involves three stages:

 Calculation of cash flow, i.e. both inflows and out flows (preferable after tax) over the full
life of the asset.
 Discounting the cash flow so calculated by a discount factor.
 Aggregating of discounted cash inflows and out comparing the total with discounted cash
out flow

40 | P a g e
Discounted cash flow thus recognizes that Re1 of day (the cash out flow) is worth more than Re1
received at a future date (cash inflow). Discounted cash flow method s for evaluating capital
investment proposal is of three types as explained below:
(a) NPV method.
(b) Excess present value index
(c) Internal rate of return.

(a) The net present value (NPV) method:


In this method cash inflow and cash outflows associated with each project are first
worked out. The present value pt these cash inflows and outflows are then calculated at the rate
of return acceptable to the management. This rate of return is considered as the cut-off rate and is
generally determined on the basis of cost of capital suitable adjusted to allow for the risk element
involved in the project. Cost outflows represent the investment and commitments of cash in the
project at various point of time. The working capital is taken as a cash outflow in the year the
project starts. Commercial production profit after tax but before depreciation represents cash
inflow. The Net Present Value (NPV) is the difference between the total present value of future
cash inflows and the total present value of future cash outflows.

(b) Excess present value index:


This is refinement of the net present value index method. Instead of working out the net
present value, a present index is found out by comparing the total of present value of future cash
inflows and the total of the present value of future cash outflows.

(c) Internal Rate of Return:


IRR is that at which the sum of discounted cash inflows equals the sun of discounted cash
outflows. In other words, it is the rate which discounts their dash flows to zero. It can be started
in the form of a ratio as follows.

Cash inflows
Cash outflows =1

41 | P a g e
As for the technique followed shows only for the present value or a limited time period where as
the technique followed in analysis for portfolio building takes into account all the long term
capital gains.

42 | P a g e
CHAPTER-4

43 | P a g e
ICICI BANK LTD.
ICICI Bank is India's second-largest bank with total assets of Rs. 3,744.10 billion (US$
77 billion) at December 31, 2008 and profit after tax Rs. 30.14 billion for the nine months ended
December 31, 2008. The Bank has a network of 1,438 branches and about 4,644 ATMs in India
and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial
services to corporate and retail customers through a variety of delivery channels and through its
specialized subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital and asset management. The Bank currently has subsidiaries in the
United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong
Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in
United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our
UK subsidiary has established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are
listed on the New York Stock Exchange (NYSE).

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was
reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in
the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of
Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by
ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the
initiative of the World Bank, the Government of India and representatives of Indian industry.
The principal objective was to create a development financial institution for providing medium-
term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its
business from a development financial institution offering only project finance to a diversified
financial services group offering a wide variety of products and services, both directly and
through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first

44 | P a g e
Indian company and the first bank or financial institution from non-Japan Asia to be listed on the
NYSE.

Balance Sheet ------------------- in Rs. Cr. -------------------


Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Capital and Liabilities:
Total Share Capital 966.4 1,086.75 1,239.83 1,249.34 1,462.68
Equity Share Capital 616.4 736.75 889.83 899.34 1,112.68
Share Application Money 0 0.02 0 0 0
Preference Share Capital 350 350 350 350 350
Reserves 7,394.16 11,813.20 21,316.16 23,413.92 45,357.53
Net Worth 8,360.56 12,899.97 22,555.99 24,663.26 46,820.21
Deposits 68,108.58 99,818.78 165,083.17 230,510.19 244,431.05
Borrowings 30,740.24 33,544.50 38,521.91 51,256.03 65,648.43
Total Debt 98,848.82 133,363.28 203,605.08 281,766.22 310,079.48
Other Liabilities & Provisions 18,019.49 21,396.17 25,227.88 38,228.64 42,895.39
Total Liabilities 125,228.87 167,659.42 251,388.95 344,658.12 399,795.08

Assets
Cash & Balances with RBI 5,408.00 6,344.90 8,934.37 18,706.88 29,377.53
Balance with Banks, Money at Call 3,062.64 6,585.07 8,105.85 18,414.45 8,663.60
Advances 62,095.52 91,405.15 146,163.11 195,865.60 225,616.08
Investments 42,742.86 50,487.35 71,547.39 91,257.84 111,454.34
Gross Block 5,090.20 5,525.65 5,968.57 6,298.56 7,036.00
Accumulated Depreciation 1,033.79 1,487.61 1,987.85 2,375.14 2,927.11
Net Block 4,056.41 4,038.04 3,980.72 3,923.42 4,108.89
Capital Work In Progress 93.99 96.3 147.94 189.66 0
Other Assets 7,769.45 8,702.59 12,509.57 16,300.26 20,574.63
Total Assets 125,228.87 167,659.40 251,388.95 344,658.11 399,795.07
Contingent Liabilities 74,091.00 97,507.79 119,895.78 177,054.18 371,737.36
Bills for collection 8,025.13 9,803.67 15,025.21 22,717.23 29,377.55
Book Value (Rs) 130.67 170.35 249.55 270.37 417.64

45 | P a g e
Profit & Loss account ------------------- in Rs. Cr. -------------------
Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Income
Interest Earned 8,894.04 9,409.89 13,784.50 22,994.29 30,788.34
Other Income 3,064.92 3,416.23 5,036.62 6,962.95 8,878.85
Total Income 11,958.96 12,826.12 18,821.12 29,957.24 39,667.19
Expenditure
Interest expended 7,015.25 6,570.89 9,597.45 16,358.50 23,484.24
Employee Cost 546.06 737.41 1,082.29 1,616.75 2,078.90
Selling and Admin Expenses 921.58 1,040.49 2,360.72 4,900.67 5,834.95
Depreciation 539.44 590.36 623.79 544.78 578.35
Miscellaneous Expenses 1,299.53 1,881.77 2,616.78 3,426.32 3,533.03
Operating Expenses 2,955.35 3,177.78 5,274.23 8,849.86 10,855.18
Provisions & Contingencies 351.26 1,072.25 1,409.35 1,638.66 1,170.05
Total Expenses 10,321.86 10,820.92 16,281.03 26,847.02 35,509.47
Net Profit for the Year 1,637.11 2,005.20 2,540.07 3,110.22 4,157.73
Profit brought forward 5.05 53.09 188.22 293.44 998.27
Total 1,642.16 2,058.29 2,728.29 3,403.66 5,156.00
Equity Dividend 544.06 632.96 759.33 901.17 1,227.70
Corporate Dividend Tax 69.71 90.1 106.5 153.1 149.67
Per share data (annualized)
Earnings Per Share (Rs) 26.71 27.22 28.55 34.59 37.37
Equity Dividend (%) 75 85 85 100 110
Book Value (Rs) 130.67 170.35 249.55 270.37 417.64
Appropriations
Transfer to Statutory Reserves 975.3 547 248.69 1,351.12 1,342.31
Transfer to Other Reserves 0 600.01 1,320.34 0 0.01
Proposed Dividend/Transfer to Govt 613.77 723.06 865.83 1,054.27 1,377.37
Balance c/f to Balance Sheet 53.09 188.22 293.44 998.27 2,436.32
Total 1,642.16 2,058.29 2,728.30 3,403.66 5,156.01

ICICI BANK

Year Open Close Return


2005 141 295 109.2
2006 297 371 24.9
2007 375 585 56
2008 587 891 51.7
2009 892 1238 38.7
46 | P a g e
Risk of ICICI bank
Year Return ( R) Avg return ( r) (R-R) (R-r)2
2005 109 56 53 2809
2006 25 56 -31 961
2007 56 56 0 0
2008 51 56 -6 36
2009 39 56 -17 289
Total 4095

Variance = Total / no. of years

= 4095/ 5
= 819
S.D = √variance

= √819
= 28.6

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48 | P a g e
STATEBANK OF INDIA
State Bank of India welcomes you to explore the world of premier bank in India. In this
section, you can access detailed information on Overview of the Bank, Technology Up gradation
in the Bank, Board of Directors, Financial Results and Shareholder Info. The Bank is actively
involved since 1973 in non-profit activity called Community Services Banking. All our branches
and administrative offices throughout the country sponsor and participate in large number of
welfare activities and social causes. Our business is more than banking because we touch the
lives of people anywhere in many ways. Our commitment to nation-building is complete &
comprehensive.
State Bank of India (SBI), the country’s largest lender, has posted a net profit of
Rs.9,121 crore for 2008-09 as against Rs.6,729 crore the year before, a rise of 35.5 percent.
“Net profit for the fourth quarter (January-March) of 2008-09 increased 45.62 percent to
Rs.2,742 crore from Rs.1,883 crore in the corresponding quarter of 2007-08, The net non-
performing asset (NPA) ratio for 2008-09 stood at 1.76 percent, compared to 1.78 percent in
2007-08. The total amount restructured during the year was Rs.8,310 crore. The capital adequacy
ratio of the bank is above 14 percent.
The net interest margin (NIM) was at 2.93 percent as on March 31, 2009, compared to
3.07 percent in March 2008.SBI’s total income for the fiscal rose 33 percent to Rs.76,479.2 crore
from the previous year’s Rs.57,645.2 crore. Consolidated net profit was at Rs.10,955.2 crore, a
22 percent increase from Rs.8,960.6 crore in 2007-08. The group’s consolidated net income
crossed the trillion rupee mark to Rs.113,093 crore (Rs.1.1 trillion) in 2008-09, 25 percent up
from the previous fiscal’s Rs.90,218.8 crore.

49 | P a g e
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Capital and Liabilities:
Total Share Capital 526.3 526.3 526.3 526.3 631.47
Equity Share Capital 526.3 526.3 526.3 526.3 631.47
Reserves 19,704.98 23,545.84 27,117.79 30,772.26 48,401.19
Net Worth 20,231.28 24,072.14 27,644.09 31,298.56 49,032.66
Deposits 318,618.67 367,047.53 380,046.06 435,521.09 537,403.94
Borrowings 13,431.33 19,184.31 30,641.24 39,703.34 51,727.41
Total Debt 332,050.00 386,231.84 410,687.30 475,224.43 589,131.35
Other Liabilities & Provisions 55,534.00 49,578.89 55,538.17 60,042.26 83,362.30
Total Liabilities 407,815.28 459,882.87 493,869.56 566,565.25 721,526.31
Assets
Cash & Balances with RBI 19,041.28 16,810.33 21,652.70 29,076.43 51,534.62
Balance with Banks, Money at 24,525.33 22,511.77 22,907.30 22,892.27 15,931.72
Call
Advances 157,933.54 202,374.45 261,641.53 337,336.49 416,768.20
Investments 185,676.48 197,097.91 162,534.24 149,148.88 189,501.27
Gross Block 5,897.96 6,691.09 7,424.84 8,061.92 8,988.35
Accumulated Depreciation 3,399.38 4,114.67 4,751.73 5,385.01 5,849.13
Net Block 2,498.58 2,576.42 2,673.11 2,676.91 3,139.22
Capital Work In Progress 146.54 121.27 79.82 141.95 234.26
Other Assets 17,993.53 18,390.71 22,380.84 25,292.31 44,417.03
Total Assets 407,815.28 459,882.86 493,869.54 566,565.24 721,526.32
Contingent Liabilities 90,705.86 131,325.40 191,819.34 259,536.57 736,087.59
Bills for collection 31,313.00 44,794.10 57,618.44 70,418.15 93,652.89
Book Value (Rs) 384.41 457.39 525.25 594.69 776.48

Profit & Loss account ------------------- in Rs. Cr. -------------------

50 | P a g e
Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Income
Interest Earned 30,460.49 32,428.00 35,794.93 39,491.03 48,950.31
Other Income 7,612.67 7,119.90 7,388.69 7,446.76 9,398.43
Total Income 38,073.16 39,547.90 43,183.62 46,937.79 58,348.74
Expenditure
Interest expended 19,274.18 18,483.38 20,159.29 23,436.82 31,929.08
Employee Cost 6,447.69 6,907.35 8,123.04 7,932.58 7,785.87
Selling and Admin Expenses 4,910.52 2,634.64 1,853.32 3,251.14 2,165.00
Depreciation 698.35 752.21 729.13 602.39 679.98
Miscellaneous Expenses 2,363.71 6,465.82 7,912.15 7,173.55 9,059.69
Operating Expenses 12,938.86 11,278.18 11,872.89 13,251.78 12,608.61
Provisions & Contingencies 1,481.41 5,481.84 6,744.75 5,707.88 7,081.93
Total Expenses 33,694.45 35,243.40 38,776.93 42,396.48 51,619.62
Net Profit for the Year 4,378.72 4,304.52 4,406.67 4,541.31 6,729.12
Extraordinary Items -697.72 0 0 0 0
Profit brought forward 0.34 0.34 0.34 0.34 0.34
Total 3,681.34 4,304.86 4,407.01 4,541.65 6,729.46
Equity Dividend 578.93 657.87 736.82 736.82 1,357.66
Corporate Dividend Tax 74.18 93.75 103.34 125.22 165.87
Per share data (annualized)
Earnings Per Share (Rs) 83.2 81.79 83.73 86.29 106.56
Equity Dividend (%) 110 125 140 140 215
Book Value (Rs) 384.41 457.39 525.25 594.69 776.48
Appropriations
Transfer to Statutory Reserves 3,027.89 3,552.89 3,566.51 3,682.15 5,205.69
Transfer to Other Reserves 0 0.01 0 -2.88 -0.1
Proposed Dividend/Transfer to Govt 653.11 751.62 840.16 862.04 1,523.53
Balance c/f to Balance Sheet 0.34 0.34 0.34 0.34 0.34
Total 3,681.34 4,304.86 4,407.01 4,541.65 6,729.46

Return of SBI

51 | P a g e
Year Open Close Return
2005 289 537 85
2006 540 652 20
2007 654 908 38
2008 912 1245 36.5
2009 1250 2371 89.6

Risk of Sbi bank

Year Return (R) Avg return (r) (R-r) (R-r)2


2005 85 54 31 961
2006 20 54 -34 1156
2007 38 54 -16 256
2008 37 54 -17 289
2009 90 54 36 1296
3598

Variance = Total / no. of years

=3598/5
=792
S.D = √variance
= √792
= 28

52 | P a g e
53 | P a g e
Ranbaxy Laboratories Limited

Ranbaxy Laboratories Limited is an integrated, research based, international


pharmaceutical company, producing a wide range of quality, affordable generic medicines.
Ranbaxy is ranked amongst the top ten global generic companies and has a presence in 23 of the
top 25 Pharma markets of the world. The company is headquartered in India. It has presence in
49 countries, with manufacturing facilities in 11 and a diverse product portfolio.
Ranbaxy was incorporated in 1961. Bhai Mohan Singh was the founder of the company.
He bought the company from his cousins Ranjit Singh and Gurbax Singh. Ranbaxy's name is a
fusion of Ranjit and Gurbax's names. Ranbaxy went public in 1973. Ranbaxy's first joint venture
was set up in Lagos (Nigeria) in 1977. In 1985, Ranbaxy Research Foundation was established
and Stancare, Ranbaxy's second pharmaceutical market division started functioning. In 1987,
production started at Ranbaxy's Toansa Plant (Punjab) and with this Ranbaxy became India's
largest manufacturer of antibiotics/antibacterial. In 1988, Ranbaxy's Toansa Plant got US FDA
approval. In 1990, Ranbaxy was granted its first US patent, for Doxycyline. In 1993, Ranbaxy
set up a joint venture in China. In 1994, Ranbaxy established regional headquarters in UK and
USA. In the same year its GDR was listed in Luxembourg Stock Exchange. In 1995, Ranbaxy
acquired Ohm Laboratories, a manufacturing facility in the US and inaugurated state-of-the art
new manufacturing wing at Ranbaxy's US subsidiary Ohm Laboratories Inc. In 1997, Ranbaxy
crossed a sales turnover of Rs. 10,000 million.
In 1998, Ranbaxy entered USA, world's largest pharmaceutical market, with products
under its own name. In the same year, Ranbaxy filed its first Investigational New Drug (IND)
application with the Drugs Controller General OF India for approvals to conduct Phase 1 Clinical
trials. In 1999, Ranbaxy commenced trials for its NCE. In 2000, Ranbaxy acquired Bayer's
Generic business in Germany, and entered into Brazil, the largest pharmaceutical market in
South America. In 2001, Ranbaxy set up a manufacturing facility in Vietnam. In 2003, Ranbaxy
launched Cefuroxime Axetil after approval from USFDA. It was the first approval granted to any
generic company for this product. In 2003, Ranbaxy and Glaxo SmithKline Plc entered into an
alliance for drug discovery and development. In 2004, Ranbaxy acquired a wholly-owned
subsidiary RPG (Aventis) SA and began operations in France as a Top 10 generic company. In
54 | P a g e
2005, Ranbaxy launched operations in Canada and acquired generic product portfolio from
EFARMES of Spain. In 2006, Ranbaxy acquired Be Tabs pharmaceuticals of South Africa,
unbranded generic business of GSK in Italy & Spain, and Terapia of Romania.

Balance Sheet ------------------- in Rs. Cr. -------------------


Dec '04 Dec '05 Dec '06 Dec '07 Dec '08
Sources Of Funds
Total Share Capital 185.89 186.22 186.34 186.54 210.19
Equity Share Capital 185.89 186.22 186.34 186.54 210.19
Share Application Money 2.83 0.28 0.88 1.18 175.66
Reserves 2,320.79 2,190.80 2,162.79 2,350.68 3,330.92
Networth 2,509.51 2,377.30 2,350.01 2,538.40 3,716.77
Secured Loans 133.37 353.49 224.29 365.07 162.07
Unsecured Loans 2.49 676.31 2,954.31 3,137.96 3,563.30
Total Debt 135.86 1,029.80 3,178.60 3,503.03 3,725.37
Total Liabilities 2,645.37 3,407.10 5,528.61 6,041.43 7,442.14
Application Of Funds
Gross Block 1,402.79 1,799.32 2,133.57 2,261.48 2,386.75
Less: Accum. Depreciation 525.21 599.35 699.54 791.96 930.07
Net Block 877.58 1,199.97 1,434.03 1,469.52 1,456.68
Capital Work in Progress 264.16 432.84 301.88 327.42 428.77
Investments 679.07 762.78 2,679.95 3,237.55 3,618.03
Inventories 896.34 890.93 954.91 976.07 1,198.52
Sundry Debtors 784.69 806.62 1,013.75 882.91 1,024.54
Cash and Bank Balance 37.14 30.48 27.06 69.38 49.86
Total Current Assets 1,718.17 1,728.03 1,995.72 1,928.36 2,272.92
Loans and Advances 648.61 594.94 581.18 882.99 2,351.98
Fixed Deposits 0.13 86.11 44.09 111.07 1,885.08
Total CA, Loans & Advances 2,366.91 2,409.08 2,620.99 2,922.42 6,509.98
Current Liabilities 1,011.53 983.57 985.57 1,177.35 3,840.11
Provisions 530.8 413.99 522.67 738.14 731.2
Total CL & Provisions 1,542.33 1,397.56 1,508.24 1,915.49 4,571.31
Net Current Assets 824.58 1,011.52 1,112.75 1,006.93 1,938.67
Total Assets 2,645.39 3,407.11 5,528.61 6,041.42 7,442.15
Contingent Liabilities 307.95 202.4 159.4 201 252.85
Book Value (Rs) 134.85 63.82 63.03 68.01 84.24

55 | P a g e
Profit & Loss account ------------------- in Rs. Cr. -------------------
Dec '04 Dec '05 Dec '06 Dec '07 Dec '08
Income
Sales Turnover 3,865.86 3,727.05 4,218.98 4,344.39 4,676.21
Excise Duty 74.58 86.56 53.86 51.37 24.17
Net Sales 3,791.28 3,640.49 4,165.12 4,293.02 4,652.04
Other Income 64.78 122.25 -28.65 551.13 -1,587.64
Stock Adjustments 82.82 30.96 44.7 40.66 115.59
Total Income 3,938.88 3,793.70 4,181.17 4,884.81 3,179.99
Expenditure
Raw Materials 1,566.68 1,567.55 1,708.23 1,861.17 2,049.30
Power & Fuel Cost 62.67 69.55 80.7 90.35 108.83
Employee Cost 324.01 298.38 328.45 420.04 472.65
Other Manufacturing Expenses 68.68 67.09 79.52 82.6 94.65
Selling and Admin Expenses 1,143.13 1,339.12 1,234.42 1,341.03 1,402.77
Miscellaneous Expenses 76.28 144.32 146.23 123.9 383.26
Total Expenses 3,241.45 3,486.01 3,577.55 3,919.09 4,511.46
Operating Profit 632.65 185.44 632.27 414.59 256.17
PBDIT 697.43 307.69 603.62 965.72 -1,331.47
Interest 10.98 26.41 58.44 93.43 145.83
PBDT 686.45 281.28 545.18 872.29 -1,477.30
Depreciation 81.85 101.33 106.75 118.73 154.47
Profit Before Tax 604.6 179.95 438.43 753.56 -1,631.77
Extra-ordinary items 26.74 12.72 19.34 35.46 17.76
PBT (Post Extra-ord Items) 631.34 192.67 457.77 789.02 -1,614.01
Tax 99.87 -22.34 62.43 156.69 -574.24
Reported Net Profit 527.52 212.04 380.54 617.72 -1,044.80
Total Value Addition 1,674.77 1,918.46 1,869.31 2,057.93 2,462.16
Equity Dividend 316.26 316.67 316.89 317.15 0
Corporate Dividend Tax 44.04 44.41 44.44 53.9 0
Shares in issue (lakhs) 1,858.91 3,724.42 3,726.87 3,730.71 4,203.70
Earnings Per Share (Rs) 28.38 5.69 10.21 16.56 -24.85
Equity Dividend (%) 170 170 170 170 0
Book Value (Rs) 134.85 63.82 63.03 68.01 84.24

56 | P a g e
RETURN OF RANBAXY LABORATERIES PVT LTD

Year Open Close Return


2005 598 1095 83
2006 1109 1251 12.8.
2007 1268 359 -71
2008 363 396 9
2009 391 425 8.69
RANBAXY RISK

Year Returns Avg (R-r) (R-r)2


return
2005 83 42 41 1681
2006 12.8 42 -29 852
2007 -71 42 -113 12769
2008 9 42 -33 1089
2009 9 42 -33 1089
17480

Variance = Total / no. of years

= 17480 / 5
= 3496
S.D = √variance

= √ 3496
= 59

57 | P a g e
Wipro Technologies
58 | P a g e
Wipro Technologies is a global services provider delivering technology-driven business
solutions. Wipro is the No.1 provider of integrated business, technology and process solutions on
a global delivery platform. Azim Premji is the Chairman of Wipro Technologies. He took over
the mantle of leadership of Wipro at the age of 21 in 1966. Under his leadership, the fledgling
US$ 2 million hydrogenated cooking fat company has grown to a US$1.76 billion IT Services
organization serving customers across the globe. Wipro is presently ranked among the top 100
Technology companies in the world. It has 66,000+ employees, serves 592 clients, and has 46
development centers across globe.

Company Profile
Registered & Corporate Doddakannelli Sarjapur Road Bangalore - 560035 Karnataka
Office India
Tel. 28440011
Fax 28440054
Website http://www.wipro.com
Chief Executive Mr. Azim H Premji
Company Secretary NA
Business Group Wipro Group
Incorporation Date NA

Wipro Technologies deals in following businesses:

IT Services: Wipro provides complete range of IT Services to the organization. The range of
services extends from Enterprise Application Services (CRM, ERP, e-Procurement and SCM) to
e-Business solutions. Wipro's enterprise solutions serve a host of industries such as Energy and
Utilities, Finance, Telecom, and Media and Entertainment.

Product Engineering Solutions: Wipro is the largest independent provider of R&D services in
the world. Using "Extended Engineering" model for leveraging R&D investment and accessing
new knowledge and experience across the globe, people and technical infrastructure, Wipro
enables firms to introduce new products rapidly.

59 | P a g e
Technology Infrastructure Service: Wipro's Technology Infrastructure Services (TIS) is the
largest Indian IT infrastructure service provider in terms of revenue, people and customers with
more than 200 customers in US, Europe, Japan and over 650 customers in India.

Business Process Outsourcing: Wipro provides business process outsourcing services in areas
Finance & Accounting, Procurement, HR Services, Loyalty Services and Knowledge Services.
In 2002, Wipro acquiring Spectramind and became one of the largest BPO service players.

Consulting Services: Wipro offers services in Business Consulting, Process Consulting, Quality
Consulting, and Technology Consulting.

Group Companies of Wipro:

Wipro Infrastructure Engineering: It has emerged as the leader in the hydraulic cylinders and
truck tipping systems market in India.

Wipro Infotech: It is one of the leading manufacturers of computer hardware and a provider of
systems integration services in India.

Wipro Lighting: It manufactures and markets the Wipro brand of luminaries. Wipro Lighting
offers lighting solutions across various application areas such as commercial lighting for modern
work spaces, manufacturing and pharmaceutical companies, designer petrol pumps and outdoor
architecture.

Achievements of Wipro

 First Indian IT Service Provider to be awarded Gold-Level Status in Microsoft's


Windows Embedded Partner Program.
 World's largest independent R&D Services Provider.
 World's 1st PCMM Level 5 software company.
 World's 1st IT Services Company to use Six Sigma.
 The first to get the BS15000 certification for its Global Command Centre.
 Among the top 3 offshore BPO service providers in the world.

60 | P a g e
 Only Indian company to be ranked among the 'Top 10 Global Outsourcing Providers'
in the IAOP-Fortune Global 100 listings.
 First company in the world to be certified in BS 7799 (2002) security standards.

Balance Sheet ------------------- in Rs. Cr. -------------------


Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Sources Of Funds
Total Share Capital 46.55 140.71 285.15 291.8 292.3
Equity Share Capital 46.55 140.71 285.15 291.8 292.3

61 | P a g e
Share Application Money 0 1.21 7.49 3.5 58
Reserves 3,461.04 4,751.73 6,135.30 9,025.10 11,260.40
Networth 3,507.59 4,893.65 6,427.94 9,320.40 11,610.70
Secured Loans 94.75 21.59 45.06 23.2 4
Unsecured Loans 5.94 40.5 5.1 214.8 3,818.40
Total Debt 100.69 62.09 50.16 238 3,822.40
Total Liabilities 3,608.28 4,955.74 6,478.10 9,558.40 15,433.10
Application Of Funds
Gross Block 1,333.68 1,763.49 2,364.53 1,645.90 2,282.20
Less: Accum. Depreciation 678.66 855.53 1,246.27 0 0
Net Block 655.02 907.96 1,118.26 1,645.90 2,282.20
Capital Work in Progress 139.71 250.24 612.36 989.5 1,335.00
Investments 2,456.03 2,859.51 3,459.20 4,348.70 4,500.10
Inventories 102.08 127.37 148.65 240.4 448.1
Sundry Debtors 1,062.34 1,406.51 1,968.07 2,582.30 3,646.60
Cash and Bank Balance 290.09 536.89 822.42 1,849.20 3,732.10
Total Current Assets 1,454.51 2,070.77 2,939.14 4,671.90 7,826.80
Loans and Advances 583.9 602.08 1,136.96 1,666.50 4,231.30
Fixed Deposits 0.01 0.01 0.58 0 0
Total CA, Loans & Advances 2,038.42 2,672.86 4,076.68 6,338.40 12,058.10
Current Liabilities 856.32 1,211.14 1,776.83 2,998.90 3,361.60
Provisions 824.57 523.7 1,011.56 765.2 1,380.70
Total CL & Provisions 1,680.89 1,734.84 2,788.39 3,764.10 4,742.30
Net Current Assets 357.53 938.02 1,288.29 2,574.30 7,315.80
Total Assets 3,608.29 4,955.73 6,478.11 9,558.40 15,433.10
Contingent Liabilities 387.99 676.65 509.18 661.6 749.9
Book Value (Rs) 150.7 69.54 45.03 63.86 79.05

Profit & Loss account ------------------- in Rs. Cr. -------------------


Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Income
Sales Turnover 5,190.40 7,276.18 10,264.09 13,758.50 17,658.10
Excise Duty 55.51 43.02 36.97 74.6 165.5
Net Sales 5,134.89 7,233.16 10,227.12 13,683.90 17,492.60

62 | P a g e
Other Income 91.92 93.32 151.92 288.7 326.9
Stock Adjustments 11.79 9.29 24.21 86.3 187
Total Income 5,238.60 7,335.77 10,403.25 14,058.90 18,006.50
Expenditure
Raw Materials 858.07 1,194.77 1,391.88 1,975.30 3,139.30
Power & Fuel Cost 35.91 46.54 86.46 0 0
Employee Cost 864.44 2,878.53 4,279.03 5,768.20 7,409.10
Other Manufacturing Expenses 378.72 511.53 934.24 120.5 299.8
Selling and Admin Expenses 1,764.47 657.32 801.07 27.6 557.8
Miscellaneous Expenses 116.62 135.64 274.76 2,624.10 2,558.00
Preoperative Exp Capitalized -13.99 -37.12 0 0 0
Total Expenses 4,004.24 5,387.21 7,767.44 10,515.70 13,964.00
Operating Profit 1,142.44 1,855.24 2,483.89 3,254.50 3,715.60
PBDIT 1,234.36 1,948.56 2,635.81 3,543.20 4,042.50
Interest 3.52 5.57 3.13 7.2 116.8
PBDT 1,230.84 1,942.99 2,632.68 3,536.00 3,925.70
Depreciation 151.6 185.97 292.26 359.8 456
Profit Before Tax 1,079.24 1,757.02 2,340.42 3,176.20 3,469.70
Extra-ordinary items -23.11 -7.06 -33.85 0 0
PBT (Post Extra-ord Items) 1,056.13 1,749.96 2,306.57 3,176.20 3,469.70
Tax 141.27 255.15 286.1 334.1 406.4
Reported Net Profit 914.88 1,494.82 2,020.48 2,842.10 3,063.30
Total Value Addition 3,146.15 4,192.44 6,375.55 8,540.40 10,824.70
Equity Dividend 675 351.79 712.88 873.7 876.5
Corporate Dividend Tax 86.48 49.34 99.98 126.8 148.9
Per share data (annualized)
Shares in issue (lakhs) 2,327.59 7,035.71 14,257.54 14,590.00 14,615.00
Earning Per Share (Rs) 39.31 21.25 14.17 19.48 20.96
Equity Dividend (%) 1,450.00 250 250 300 300
Book Value (Rs) 150.7 69.54 45.03 63.86 79.05

Wipro
Returns
Year Opening Closing Returns
2005 1636.6 1736.05 6.07
2006 1752 784 -55.25
2007 755 463 -38.67

63 | P a g e
2008 462 605 31.14
2009 603 525.65 -12.82
Total -69.53

Risk returns in Wipro


Year Return Avg (R-r) (R-r)2
(R) return (r)
2005 6.07 -13.906 1.086 1.17
2006 -55.25 -13.906 45.04 2029
2007 -38.67 -13.906 -24.764 613
2008 31.14 -13.906 -41.344 1708
2009 -12.82 -13.906 19.976 399
-69.53 4751.52

Variance = total/n = 4751/5


= 950

S.d = √variance

= √950 =30.8

64 | P a g e
65 | P a g e
Hero Honda Motors Limited

Company
Hero Honda Motors Limited
Profile:
Ticker: 500182
Exchanges: BOM
2007 Sales: 99,000,000,000
Major Industry: Automotive
Sub Industry: Diversified Automotive Mfrs.
Country: INDIA
Employees: 4322

Business Description
Hero Honda Motors Limited. The Company's principal activity is to manufacture and
market motorcycles and spare parts. The Company is a joint venture between Hero Group, India
and Honda Motors Company of Japan. The motorcycle features include four stroke technology,
phenomenal fuel economy and low exhaust pollution levels. The major brands of the Company
include Splendor, CBZ and Passion. The Company has two manufacturing facilities located at
Dharuhera and Gurgaon in Haryana.

The joint venture between India's Hero Group and Honda Motor Company, Japan has not
only created the world's single largest two wheeler company but also one of the most successful
joint ventures worldwide.

During the 80s, Hero Honda became the first company in India to prove that it was
possible to drive a vehicle without polluting the roads. The company introduced new generation
motorcycles that set industry benchmarks for fuel thrift and low emission. A legendary 'Fill it -
Shut it - Forget it' campaign captured the imagination of commuters across India, and Hero
Honda sold millions of bikes purely on the commitment of increased mileage

Over 19 million Hero Honda two wheelers tread Indian roads today. These are almost as many as
the number of people in Finland, Ireland and Sweden put together!

66 | P a g e
Hero Honda has consistently grown at double digits since inception; and today, every
second motorcycle sold in the country is a Hero Honda. Every 30 seconds, someone in India
buys Hero Honda's top -selling motorcycle - Splendor. This festive season, the company sold
half a million two wheelers in a single month-a feat unparalleled in global automotive history.

Hero Honda bikes currently roll out from two globally benchmarked manufacturing
facilities based at Dharuhera and Gurgaon in Haryana. These plants together are capable of
churning out 3.9 million bikes per year. A third state of the art manufacturing facility at Hardwar
in Uttaranchal will soon be commissioned to cope with sustained customer demand.

Hero Honda's extensive sales and service network now spans over 3000 customer touch
points. These comprise a mix of dealerships, service and spare points, spare parts stockiest and
authorized representatives of dealers located across different geographies.

Hero Honda values its relationship with customers. Its unique CRM initiative - Hero
Honda Passport Program, one of the largest programs of this kind in the world, has over 3
million members on its roster. The program has not only helped Hero Honda understand its
customers and deliver value at different price points, but has also created a loyal community of
brand ambassadors.

Having reached an unassailable pole position in the Indian two wheeler market, Hero
Honda is constantly working towards consolidating its position in the market place. The
company believes that changing demographic profile of India, increasing urbanization and the
empowerment of rural India will add millions of new families to the economic mainstream. This
would provide the growth ballast that would sustain Hero Honda in the years to come. As
Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly points out, "We
pioneered India’s motorcycle industry, and it's our responsibility now to take the industry
to the next level. We'll do all it takes to reach there.''

Balance Sheet ------------------- in Rs. Cr. -------------------


Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Sources Of Funds

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Total Share Capital 39.94 39.94 39.94 39.94 39.94
Equity Share Capital 39.94 39.94 39.94 39.94 39.94
Reserves 1,098.87 1,453.44 1,969.39 2,430.12 2,946.30
Networth 1,138.81 1,493.38 2,009.33 2,470.06 2,986.24
Unsecured Loans 174.7 201.76 185.78 165.17 132
Total Debt 174.7 201.76 185.78 165.17 132
Total Liabilities 1,313.51 1,695.14 2,195.11 2,635.23 3,118.24
Application Of Funds
Gross Block 916.91 1,104.19 1,471.97 1,800.63 1,938.78
Less: Accum. Depreciation 345.79 429.71 522.6 635.1 782.52
Net Block 571.12 674.48 949.37 1,165.53 1,156.26
Capital Work in Progress 17.69 40.85 44.19 189.92 408.49
Investments 1,565.10 2,026.65 2,061.89 1,973.87 2,566.82
Inventories 188.2 204.26 226.55 275.58 317.1
Sundry Debtors 43.8 89.55 158.66 335.25 297.44
Cash and Bank Balance 36.68 17.14 23.22 35.26 130.58
Total Current Assets 268.68 310.95 408.43 646.09 745.12
Loans and Advances 240.55 243.75 278.63 268.04 196.37
Fixed Deposits 0.44 0.46 135.5 0.52 0.51
Total CA, Loans & Advances 509.67 555.16 822.56 914.65 942
Current Liabilities 1,093.88 1,117.29 1,192.98 1,171.50 1,455.57
Provisions 256.19 484.71 489.92 437.24 499.76
Total CL & Provisions 1,350.07 1,602.00 1,682.90 1,608.74 1,955.33
Net Current Assets -840.4 -1,046.84 -860.34 -694.09 -1,013.33
Total Assets 1,313.51 1,695.14 2,195.11 2,635.23 3,118.24
Contingent Liabilities 106 0 73.48 165.59 56.37
Book Value (Rs) 57.03 74.79 100.62 123.7 149.55

Profit & Loss account ------------------- in Rs. Cr. -------------------


Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Income
Sales Turnover 6,754.47 8,606.62 10,097.17 11,553.47 12,048.30
Excise Duty 916.33 1,178.22 1,377.96 1,647.52 1,703.29

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Net Sales 5,838.14 7,428.40 8,719.21 9,905.95 10,345.01
Other Income 166.62 138.2 160.46 197.68 216.3
Stock Adjustments -21.59 14.95 14.97 3.2 -14.14
Total Income 5,983.17 7,581.55 8,894.64 10,106.83 10,547.17
Expenditure
Raw Materials 4,055.36 5,276.42 6,142.78 7,255.66 7,465.36
Power & Fuel Cost 29.75 32.88 46.65 52.45 56.55
Employee Cost 275.52 267.97 320.61 353.81 383.45
Other Manufacturing Expenses 106.72 177.46 238.39 280.17 304.11
Selling and Admin Expenses 277.96 358.03 446.98 558.99 563.27
Miscellaneous Expenses 68.71 144.4 156.79 206.11 190.36
Total Expenses 4,814.02 6,257.16 7,352.20 8,707.19 8,963.10
Operating Profit 1,002.53 1,186.19 1,381.98 1,201.96 1,367.77
PBDIT 1,169.15 1,324.39 1,542.44 1,399.64 1,584.07
Interest 22.95 17.76 15.58 13.76 13.47
PBDT 1,146.20 1,306.63 1,526.86 1,385.88 1,570.60
Depreciation 73.33 89.38 114.62 139.78 160.32
Other Written Off 0.7 0 0 0 0
Profit Before Tax 1,072.17 1,217.25 1,412.24 1,246.10 1,410.28
Extra-ordinary items 0.29 0 0 0 0
PBT (Post Extra-ord Items) 1,072.46 1,217.25 1,412.24 1,246.10 1,410.28
Tax 344.14 406.78 440.9 388.21 442.4
Reported Net Profit 728.32 810.47 971.34 857.89 967.88
Total Value Addition 758.66 980.74 1,209.42 1,451.53 1,497.74
Equity Dividend 399.38 399.38 399.38 339.47 379.41
Corporate Dividend Tax 51.16 56.52 56.01 57.69 64.48
Per share data (annualized)
Shares in issue (lakhs) 1,996.88 1,996.88 1,996.88 1,996.88 1,996.88
Earnings Per Share (Rs) 36.47 40.59 48.64 42.96 48.47
Equity Dividend (%) 1,000.00 1,000.00 1,000.00 850 950
Book Value (Rs) 57.03 74.79 100.62 123.7 149.55

HERO HONDA MOTORS


Year Opening Closing Return
2005 265 448.4 69.2
2006 453.5 572.3 26.25
2007 580 859.2 48.13

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2008 865 763.7 -11.71
2009 765 696.35 -8.97
122.85

RISK OF HERO HONDA MOTORS

Year Return (R) Avg return ( r) (R-r) (R-r)2


2003 69.2 24.6 44.6 1989.16
2004 26.22 24.6 1.62 2.624
2005 48.13 24.6 23.53 553.6
2006 -11.71 24.6 -36.31 1318.42
2007 -8.973 24.6 -33.57 1127
4991

Variance = total/n
= 4991 / 5
= 998.2
S.d = √variance
= √ 998.2
= 31.59

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Considering two securities: HEROHONDA & RANBAXY

Company Avg. Return Risk

Hero Honda 24.6 31.59


Ranbaxy 42 59

Correlation Co-efficient RYPR = 0.15


Portfolio return(RP )=
Weights have to calculate first
W1 =σ 2
2
– σ 1.σ 2. r1, 2 / σ 1
2
+σ 2
2
- 2σ 1σ 2. r1, 2
= (59) 2 - (31.59) (59) (0.15) / (31.59) 2 + (59) 2 - 2 (31.59). (59).(0.15)
= 3481 – 280 / 997.9 + 3481 – 559.1
= 3201/3919.8
= 0.81

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W2 = 1-W1 = 1- 0.81 =0.19

RP = W1 r1+ W2. r2 = 0.81*24.6+0.19*42


= 27.9
T = [W12 σ 1+W2. σ 2
2
+ 2. W1. W2. σ 1. σ 2. . r1, 2] 1/2
= 29.4
Co Variance & Correlation Co-efficient

HERO HONDA & Ranbaxy

Year Return(X) Avg. Return (x) Returns Avg Returns dx=(X-x) dy= (Y-y) dx.dy
(Y) (y)
2005 69.2 24.6 83 42 44.6 41 1828.6
2006 26.22 24.6 12.8 42 1.62 -29 -46.98
2007 48.13 24.6 -71 42 23.53 -113 -2658.8
2008 -11.7 24.6 9 42 -36.3 -33 1198.23
2009 -8.97 24.6 9 42 -33.5 -33 1107.81

Covariance = 1428 /5=285

Coeff of Correl = CoV r.s / σ r*σ s =285/31.59* 59 = 258/1863.81 = 0.15

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Considering two securities: RANBAXY & SBI

Company Avg. Return Risk

Ranboxy 42 59
SBI 54 28

Correlation Co-efficient = 0.41


Portfolio return RP =
Weights have to calculate first
W1 =σ 2
2
– σ 1.σ 2. r1, 2 / σ 1
2
+σ 2
2
- 2σ 1σ 2. r1, 2
= (28) 2 - (28) (59) (0.41)/ (59) 2 + (28) 2 - 2 (59). (28) (0.41)
= 784 – 677.32 / 3481 + 784 – 1354.64
= 106.68 / 2910.36
= 0.03
W2 = 1-W1 = 1- 0.03 =0.97
RP = W1 r1+ W2. r2= 0.03*42+.97*54
= 53.64
T = [w12 σ 1+w2. σ 2
2
+ 2. W1. W2. σ 1. σ 2. . r1,2] 1/2
= 27.91

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Co Variance & Correlation Co-efficient

Ranboxy & S B I

Avg
Avg. Return
Year Return(X) Returns (Y) Returns dx=(X-x) dy= (Y-y) dx.dy
(x)
(y)
2005 83 42 85 54 41 31 1271
2006 12.8 42 20 54 -29 -34 986
2007 -71 42 38 54 -113 -16 1808
2008 9 42 37 54 -33 -17 561
2009 9 42 90 54 -33 36 -1188

Covariance = 3438 /5=687


Coeff of Correl = CoV r.s/ σ r *σ s =687/59 * 28 = 687/1652 = 0.41

Considering two securities: SBI & ICICI

Company Avg. Return Risk

SBI 54 28
ICICI 56 28.6

Correlation Co-efficient RYPR = 0.95


Portfolio return RP =
Weights have to calculate first

W1 =σ 2
2
– σ 1.σ 2. r1, 2 / σ 1
2
+σ 2
2
- 2σ 1σ 2. r1, 2
= (28.6) 2 - (28). (28.6) (0.95) / (28) 2 + (28.6) 2 - 2 (28). (28.6). (.95)
= (817.96) – (760.76) / 784+817.96+1521.52
= 57.2/ 80.44 = 0.71
W2 = 1-W1 = 1- 0.71 =0.29

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RP = W1 r1+ W2. r2= 0.71*54+0.29*56
= 54.58

T= [w12 σ 1+w2. σ 2
2
+ 2. W1. W2. σ 1. σ 2. . r1,2] 1/2

= 27.87

Co Variance & Correlation Co-efficient SBI & ICICI

Year Return(X) Avg. Return Returns Avg Returns dx=(X-x) dy= (Y-y) dx.dy
(x) (Y) (y)
2005 85 54 41 109 56 53 2173
2006 20 54 -29 25 56 -31 899
2007 38 54 -113 56 56 0 0
2008 37 54 -33 51 56 -6 198
2009 90 54 -33 39 56 -17 561
3831

Covariance = 3831/5=766

Coeff of Correlation = CoVar S, I/ σ S* σ I = 766/28*28.6 = 766/800.8=0.95

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Considering two securities: ICICI & WIPRO

Company Avg. Return Risk

ICICI 56 28.6
WIPRO -13.9 24.5

Correlation Co-efficient RYPR = 0.63


Portfolio return = RP =
Weights have to calculate first

W1 =σ 2
2
– σ 1.σ 2. r1, 2 / σ 1
2
+σ 2
2
- 2σ 1σ 2. r1, 2

= (24.5) 2 - (28.6). (24.5). (0.63) / (28.6) 2 + (24.5) 2 - 2 (28.6) (24.5) (0.63)

= 600.25 – 441.4 / (817.9)+(600.25)-882.8


= 158.85 / 535.35
= 0.29
W2 = 1-W1 = 1- 0.29 =0.71
RP = W1 r1+ W2. r2= 0.29X56+.71X-13.9
= 6.371
T = [w12 σ 1+w2. σ 2
2
+ 2. W1. W2. σ 1. σ 2. . r1,2] 1/2

= 16.34

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Co Variance & Correlation Co-efficient ICICI & WIPRO

Avg. Return Avg Returns


Year Return(X) Returns (Y) dx=(X-x) dy= (Y-y) dx.dy
(x) (y)
2005 109 56 53 6.07 -13.9 19.97 1058
2006 25 56 -31 -55.2 -13.9 -41.3 1282
2007 56 56 0 -38.6 -13.9 -24.7 0
2008 57 56 -6 31.1 -13.9 17.24 -103
2009 39 56 -17 -12.8 -13.9 1.1 -18.7
2218

CoVar S, I = 2218.1/5=443
Coefficient of Correlation=
CoV S.I / σ S* σ I = 443/28.6*24.5 = 443/702=0.63

Considering two securities: WIPRO & HERO HONDA

Company Avg. Return Risk

WIPRO -13.9 24.5


HERO HONDA 24.6 31.59

Correlation Co-efficient RYPR = -0.108


Portfolio return RP =
Weights have to calculate first

W1 =σ 2
2
– σ 1.σ 2. r1, 2 / σ 1
2
+σ 2
2
- 2σ 1σ 2. r1, 2

= (31.59) 2 - (24.5) (31.59) (-0.108) / (24.5) 2 + (31.59) 2 - 2 (24.5) (31.59) (-0.108)

= 997.9 – 83.58 / 600.25+997.9 – 167.16


= 1081.48 / 1765.31
= 0.61

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W2 = 1-W1 = 1- 0.61 =0.39

RP = W1 r1+ W2. r2 = 0.61*-13.9+.39*24.6


= 1.115
T = [W12 σ 12+W2. σ 2
2
+ 2.W1W2.σ 1. σ 2. r1, 2] 1/2

= 18.30
Co Variance & Correlation Co-efficient WIPRO &HERO HONDA

Avg.Return Avg Returns


Year Return(X) Returns (Y) dx=(X-x) dy= (Y-y) dx.dy
(x) (y)
2005 6.07 -13.9 19.97 69.2 24.6 44.6 890
2006 -55.25 -13.9 -41.3 26.22 24.6 1.6 -66.9
2007 -38.6 -13.9 -24.7 48.13 24.6 23.53 -581
2008 31.14 -13.9 17.24 -11.7 24.6 -36.31 -626
2009 -12.82 -13.9 1.1 -8.97 24.6 -33.57 -36.9
-420

CoVar S,I = -420.127/5=-84.02

R S, I = CoV S.I / σ S* σ I = -84.02/24.5*31.59 = -84.02/773= -0.108

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CHAPTER-5

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FINDINGS

Present project work has been undertaken to construct a portfolio using Markowitz theory .
Markowitz theory in applied to construct a portfolio using only two securities. According to this
theory five securities were selected from profitable sectors, their retunes were calculated using
previous and current prices. Using their returns risks are calculated during the project work
following facts were found.

 Ranbaxy is a profit making company from Pharma industry which is having


returns of 42% and risk 59%. Both returns and risk are very high for this
company.

 SBI is a profit making bank from banking industry which is having returns of
54% and risk only 28%. Comparing the risk and returns, risk is less for these
returns.

 ICICI is the bank but an MNC which is having a return of 56% and risk of
28.6%. Comparing SBI, these are more than that.

 Wipro is a good company from IT sector but its returns are negative i.e.;
-13.9% and risk is 24.5% which is very high for the returns.

 Hero Honda is a very good automobile company having returns of 24.6% and
risk of 31.59% which is very high for these returns.

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 All five securities have corresponding returns and risk. These risks are used to
calculate the covariance for various combinations using two securities each
time and correlation co-efficient.

The values are as follows.


COMPANIES CO-VARIANCE CORRELATION
COEFFICIENT
Hero Honda & Ranbaxy 285 0.15
Ranbaxy & SBI 687 0.41
SBI & ICICI 766 0.95
ICICI & Wipro 443 0.63
Wipro& Hero Honda -84.02 -0.108

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SUGGESTIONS
After collecting the data of five securities from different sectors to construct a portfolio. The
main aim of constructing a portfolio is to minimize the risk associated with individual securities
returns. Markowitz theory explains the process of constructing portfolios using their co-variance
and standard deviation using the weight ages. After collecting the returns, risk co-variance and
correlation coefficient between different sets of securities one can construct their own portfolio
using only two securities. The conditions for constructing the portfolios will be

If the correlation coefficient is negative for any two securities, they can be taken to
construct a portfolio.
Using the above conditions and seeing the five securities from different sectors, we can
suggest the following portfolios.
We can select under portfolios according to their rankings in correlation co-efficient.
1. Wipro & Hero Honda -0.108
1. Hero Honda & Ranbaxy 0.15
2. Ranbaxy & SBI 0.41
3. ICICI & Wipro 0.63
4. SBI & ICICI 0.93
Since they have arranged in the priority wise one can select.
 Firstly Wipro & Hero Honda since then correlation co-efficient is negative i.e.; -0.108. If
they are joined as a portfolio, they can minimize the risk.
 Secondly, Hero Honda & Ranbaxy can be chosen as they have least positive correlation
coefficients compared to other sets of securities.

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 Next to them we can select Ranbaxy and Hero Honda as they rank third in the series.
 Next we can select ICICI and Wipro.
 Finally we can select SBI and Wipro whose correlation coefficient is 0.91which is very
highly positive.

CONCLUSION
The present project work has been undertaken to study the investment opportunities
available to investors. These avenues are different for different profiles of investors. However it
is very important for an investor to identify the risk associated with the returns of various
securities. In order to manage the risk associated with the returns one has to construct the
portfolio .A portfolio is a set of securities which by adding reduces the risk in whole. In this
project work it is seen how the securities can be constructed as a portfolio. By using Markowitz
theory a portfolio is constructed and the returns and risks are calculated .the entire project work
is done to identify the best portfolio and it is found the results are satisfactory.

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Bibliography

 Portfolio management -Skein

 Security analysis and portfolio management. -V.K. Ballad

 Security management and portfolio management -Fischer & Jordon.

 Investment -V.K. Ballad & R.M inshore.

Websites :
www.nseindia.com
www.bseindia.com
www.icicidirect.com
www.valueresearch.com
www.indiaearnings.com

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