a study on portfolio management
DESCRIPTION
egwgwggTRANSCRIPT
PROJECT REPORT
ON
“A STUDY ON PORTFOLIO MANAGEMENT” AT
SUBMITTED IN PARTIAL FULFILLMENT OF REQUIREMENTS FOR THE AWARD
OF
MASTER OF BUSINESS ADMINISTRATION
BYRachana.Shailar
(08U01E0026)
HASVITA Institute of Engineering & Technology
Jawaharlal Nehru Technological University
KeesaraRanga reddy (dist)
STUDENT’S DECLARATION ( Annexure-I )
I hereby declare that this project report titled “A Study On Security Analysis and
Portfolio Management” submitted by me to the Department of Business
Management, Hasvita Institute of Engineering and Technology Hyderabad, is
a bonafide work undertaken by me and it is not submitted to any other University
or Institution for the award of any degree/diploma/certificate of published any time
before.
Name and address of the student Signature of the student
ACKNOWLEDGEMENT
For completing this industrial analysis, a few people have been very helpful. I
would like to say the word of gratitude for them in printed.
First of all I would like to thank sincerely to our HOD Mr. Purnachandar sir for
his encouragement, motivation and kind of help to complete this industrial
analysis.
I would like to thank my project guide, especially.Deepthi madam for her
guidance, suggestions, help, support and encouragement.
I am grateful to MBA faculty for their steering guidance, valuable suggestions,
support and co-operation for the successful completion of this project work.
Place: Keesara A.DEEPTHI
Date: (08U01E0026)
INTRODUCTION
PORTFOLIO MANAGEMENT:
Portfolio Management:
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 ICICI DIRECT.COM. 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'etre 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'.
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 Info line 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 it’s related risk and return.
To analyze and select the portfolio of investment.
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
of individual securities involved in the portfolio. These percentages help in allocation the funds
available for investments based on the risky portfolios.
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,
(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
σ B ( σ B – rAB σ A)
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 securitiy A
WA = Proportion of investment in security B
σB = Standard Deviation of security of B
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.
INDUSTRY PROFILE
NATIONAL STOCK EXCHANGE
The National Stock Exchange (NSE) of India became operational in the capital market
segment on 3rd November 1994 in Mumbai. The genesis of the NSE lies in the recommendations
of the pertains committee 1991. Apart from the NSE, it had recommended for the establishment
of national stock market system also. The committee pointed out some major defects in the
Indian stock market. The Defects specified are
1. Lack of liquidity in most of the markets in terms of depth and breadth.
2. Lack of ability to develop markets for debts.
3. Lack of infrastructure facilities and outdated trading system.
4. Lack of transparency in the operations that effect investor’s confidence.
5. Outdated settlement systems that are inadequate to cater to the growing volume, leading
to delays.
6. Lack of single market due to the inability of various stock exchanges to function
cohesively with legal structure and regulatory framework.
These factors led to the establishment of the NSE.
OBJECTIVES:
1) To establish a nationwide trading facility for equities, debt instruments and
hybrids.
2) To ensure equal access to investors all over the country through appropriate
communication network.
3) To provide a fair, efficient and transparent securities market to investors using an
electronic communication network.
4) To enable shorter settlement cycle and book entry settlement system.
5) To meet current international standards of securities market.
PROMOTERS:
Industrial Development Bank of India (IDBI)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Financing Corporation of India (IFCI)
Life Insurance Corporation of India (LIC)
State Bank of India (SBI)
General Insurance Corporation (GIC)
Bank of Baroda
Canara Bank
Corporation Bank
Indian Bank
Oriental Bank of Commerce
Union Bank of India
Punjab National Bank
Infrastructure Leasing and Financial Services
Stock Holding Corporation of India
SBI capital market
MEMBERSHIP:
The membership is based on the factors as capital adequacy, corporate structure,
Track record, Education, Experience etc. Admission is a two-stage process with applicants
required to go through a written examination followed by an interview. A committee consisting
of experienced professionals from the industry, to assess the applicant’s capability to operate as
an exchange member. The exchange admits members separately to wholesale debt Market
(WDM) segment and the Capital market segment. Only corporate members are admitted to the
debt market Segment whereas individuals and firms are also eligible to the capital market
segment.
Eligibility criteria for trading membership on the segment of WCM are as follows:The person
eligible to become trading members are bodies corporate, companies, institutions including
subsidiaries of banks engaged in financial services and such other persons or entities are may be
permitted from time to time by RBI\SEBI.
1. The whole-time Directors should possess at least two years experience in any activity related
to banking or financial services.
2. The applicant must be engaged solely in the business of the securities and must not be engaged
in any fund-based activities.
3. The applicant must possess a minimum of Rs.2crores
Eligibility criteria for the capital market segment are:
1. Individual, registered firms, corporate bodies, companies and such other persons may
be permitted under the SCR Act, 1957.
2. The applicant may be engaged in the business of securities and must not be engaged
in any fund-based activities.
3. The minimum net worth requirements prescribed are as follows:
Individuals and registered firms-Rs.75Lakhs.
Corporate bodies-Rs100Lakhs
In case of partnership firm each partner should contribute at least 5% of the
net worth of the firm.
4. A corporate trading member should consist only of individuals (maximum of 4) who
should directly hold at least 40% of the paid-up capital in case of listed companies
and at least 51% in case of these companies.
5. The minimum prescribed qualification of graduation and two years experience of
handling securities as broker, Sub-broker, authorized assistant etc., must be fulfilled
by
Minimum two directors in case the applicant are a corporate
Minimum two partners in case of partnership firms
In case of individual or sole proprietary concerns. The two experienced directors in a corporate
applicant or trading member should hold minimum 5% of the capital of the company.
NSE-NIFTY
The national Stock Exchange on April 22,1996 launched a new Equity Index. The
NSE-50. The new Index which replaces the existing NSE-100 Index is expected to serve as an
appropriate Index for the new segment of futures and options.
“Nifty” means National Index for Fifty Stock.
The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an aggregate
market capitalization of around Rs.170000crores. All companies included in the index have a
market capitalization in excess of Rs.500crores each and should have traded for 85% of trading
days at an impact cost of less than 1.5%.
The base period for the index is the close of prices on Nov 3, 1995 which makes one year of
completion of operation of NSE’s capital market segment. The base value of the Index has been
set at 1000.
BOMBAY STOCK EXCHANGE The Stock Exchange, Mumbai, Popularly as “Bombay Stock Exchange” (BSE) was
established in 1875 as The Native Share and Stock Brokers Association”, as a voluntary non-
profit making association. It has evolved over the year into its present status as the premier Stock
Exchange in the country. It may be noted that the Bombay Stock Exchange is the oldest one in
Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.
The Bombay Stock Exchange, while providing an efficient and transparent market for the trading
in securities, upholds the interests of the investsal of their grievances, whether against the
companies or its own member-brokers. It also strives to educate and enlighten the investors by
making available necessary informative inputs and conducting investor education programs.
A Government Board comprising of 9 elected Directors (one third of them retire every year by
rotation), Two SEBI Nominees, Seven Public representatives and an Executive Director is the
Apex Body, which decides the policies and regulates the affairs of the Bombay Stock Exchange.
The executive Director as the Chief Executive Officer is responsible for the day-to-day
administration of the Bombay Stock exchange.
SECURITIES TRADED:
The securities traded in the BSE are classified in to three group’s namely specified shares of ‘A’
group and non-specified securities. The latter is sub-divided into ‘B1’ and ‘B’ groups. ‘A’ group
contains the companies with large outstanding shares, good track record and large volumes of
business in the secondary market. Settlements of all the shares are carried out through the
Clearing House. In order to enable the market participants, analysts etc., to track the various ups
and downs in the Indian Stock Market, the Exchange has introduced in 1986 an equity stock
index called BSE-SENSEX that subsequently became the barometer of the moments of the share
prices in the Indian Stock Market. It is a “Market Capitalization-Weighted” index of 30
components. The base year of SENSEX is 1978-79. The SENSEX is widely reported in both
domestic and international markets through print as well as electronic media.
SENSEX is calculated using a market capitalization weighted method. As per this
methodology, the level of the index reflects the total market value of all 30component stocks
from different industries related to particular base period. The total market value of a company is
determined by multiplying the price of its stock by the number of shares outstanding.
Statisticians call an index of a set of combined variables (such as price and number of shares) a
composite index. An indexed number is used to represent the results of this calculation in order
to make the value easier to work with and track over a time. It is much easier to graph a chart
based on indexed values than one based on actual values.
In practice, the daily calculation of SENSEX is done by dividing the aggregate market
of the 30 Companies in the Index by a number called the Index Divisor. The Divisor is the only
link to the original based period value of the SENSEX. The divisor keeps the index comparable
over a period of time and if the reference point for the entire Index maintenance adjustments.
SENSEX is widely used to describe the mood in the Indian Stock Markets.
Base year average is changed as per the formula:
New Base Year Average =Old Base Year Average * (New Market Value/Old Market Value)
RECENT DEVELOPMENTS IN INDIAN STOCK MARKET
Many steps have been taken in recent years to reform the Stock Market such as:
Regulation of Intermediaries.
Changes in the Management Structure.
Insistence on Quality Securities.
Prohibition of Insider Trading.
Transparency of Accounting Processes.
Strict supervision of Stock Market Operations.
Prevention of Price Rigging.
Encouragement of Market Making.
Discouragement of Price Manipulations.
Introduction of Electronic Trading.
Introducing of Depository System.
Derivates Trading.
International Listing.
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.
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.
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.
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 ICICI direct.
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 a truly online share-trading site. This means that from the time you
punch in a buy or sell trade on your computer to the final settlement in your account, everything
happens completely online. The 3-in-1 e-invest account integrates your brokerage, bank and one
or more depository accounts to make sure that you can do the otherwise cumbersome share
trading from the comfort of your home or office, at absolutely any time of the day…or night.
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.
HOW CAN ONE OPEN AN ACCOUNT IN DEMAT?
First an investor has to approach a DP and fill up an account opening form. The account opening
form must be supported by copies of any one of the approved documents to serve as proof of
identity (POI) and proof of address (POA) as specified by SEBI. Besides, production of PAN
card in original at the time of opening of account has been made mandatory effective from April
01, 2006.
All applicants should carry original documents for verification by an
authorized official of the depository participant, under his signature.
Further, the investor has to sign an agreement with DP in a depository prescribed standard
format, which details rights and duties of investor and DP. DP should provide the investor with a
copy of the agreement and schedule of charges for their future reference. The DP will open the
account in the system and give an account number, which is also called BO ID (Beneficiary
Owner Identification number).
The DP may revise the charges by giving 30 days notice in advance. SEBI
has rationalized the cost structure for dematerialization by removing account opening charges,
transaction charges for credit of securities, and custody charges vide circular dated January 28,
2005.
Further, SEBI has vide circular dated November 09, 2005 advised that with effect
from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a
DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to
another branch of the same DP or to another DP of the same depository or another depository,
provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e.
identical in all respects. In case the BO Account at transferor DP is a joint account, the BO
Account at transferee DP should also be a joint account in the same sequence of ownership.
INVESTING IN MUTUAL FUND:
ICICIdirect.com brings you the online convenience while
investing in Mutual funds also - Hassle free and Paperless
Investing. You can now invest on-line in 19 mutual Funds
through ICICIdirect.com.
Alliance MF UTI MF Prudential ICICI MF
Birla Sun Life MF ING Vysya MF Reliance Capital MF
DSP Merrill Lynch MF JM MF Standard Chartered MF
Franklin Templeton MF Kotak Mahindra MF Sundaram MF
HDFC MF Principal MF Tata MF
CHOLA MF Deutsche MF HSBC MF
Fidelity MF
You can invest in mutual funds without the hassles of filling application forms or any other
paperwork. You need no signatures or proof of identity for investing.
Once you place a request for investing in a particular fund, there are no manual processes
involved. Your bank funds are automatically debited or credited while simultaneously crediting
or debiting your unit holdings. You also get control over your investments with Online order
confirmations and order status tracking. Get to know the performance of your investments
through online updation of MF portfolio with current NAV.
Awards:
Winning is a habit that is assiduously cultivated at ICICI Securities Limited (i-SEC). Be
it deals, mandates or awards, we manage them all in our quite and efficient way. For us winning
awards is a matter of pride and honor. Each new award is a manifestation of our hard work and
commitment to our clients. Since inception, i-SEC’s expertise has been time and again widely
recognized by both domestic and international agencies.
Our Fixed Income team for the last two years (CY 2004 and 2005) has been adjudged the “Best
Bond House” in India by both Asia money and Finance Asia. The equities team was adjudged
the ‘Best Indian Brokerage House-2003’ by Asia money. The Corporate Finance team, according
to Bloomberg topped the M&A league tables in 2003
The e-brokerage firm also won the CNBC AWAZ consumer Award for the most preferred
Brand of Financial Advisory Services.
The ICICI direct Advantages
A Unique 3-in-1 account that gives you:
Convenience: the 3-in-1 account integrates your banking, broking and demat accounts. This
enables you to trade in shares without going through the hassles of tracking settlement cycles,
writing cheques and Transfer Instructions, chasing your broker for cheques or Transfer
Instructions etc.
Speed: You can now get the latest quotes of scrip’s on ICICIdirect.com and place an order
almost instantly.
Control: You can be assured that you have in fact placed an order at the price you always
wanted to, but may not have been able to do so till now. Thereby giving you control over your
own trades.
Independence: Instead of transferring monies to a broker's pool or towards deposits, you can
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. Utilize it to the maximum of its potential and thereby reduce unnecessary paperwork
HISTORY OF THE ORGANIZATION: The dematerialized form of shareholding and the depository mode of trade
(scrip less trade) have been in operation in developed financial markets for over 15 years. In
India, the first depository commenced operation a decade back and is relatively new. The Indian
financial market is in need of both scrip-based and scrip less trade, but the investing community,
which is used scrip-based trade, is bound to take some time to accept the latter. The scrip less
trading, till now a domain of the western world, institutional investors and GDR holders is now
mandatory even for small investors. All those who hold physical share certificates have to get
them dematerialized. If they do not, they will be forced to do so at the time of sale.
The countless numbers of conservative Indians have to digest it, whether they like it or not. First,
the institutional investors succumbed. Then the high net worth individuals, trading in more than a
certain numbers of shares, were forced to give in. now, it is the turn of the small investors of
select-companies.
With their share certificates being replaced by small slips and receipts,
naturally the average investors will have their share of fears and apprehensions. It is necessary to
educate and convince these investors about the benefit of Demat rather than forcing them to take
part in the game.
Company’s Vision:
To make ICICI Direct the dominant online share trading by world class people and
Services. This we hope to achieve by:
• Understanding the needs of customers and offering them superior product and Service.
• Leveraging technology to service customers quickly and conveniently.
• Developing and implementing superior risk management and investment strategic
to offer sustainable and stable return to our shareholder.
• Providing and enabling environment to foster growth and learning for our
employees
Company’s mission:
To judged by their sales and earnings growth rates than on the absolute value of their
sales and earnings. Look for companies that consistently grow faster than there peers. Investors
prefer companies that increase profit margins -- the percentage of sales that they keep -- every
year. This is accomplished either by lowering expenses or raising prices. Look for companies
that consistently find ways to squeeze more profits out of sales than their peers.
The financial health of a company is dependent on a combination of
profitability, short-term liquidity and long term liquidity. Companies, which are profitable, but
have poor short term or long term liquidity measures, do not survive the troughs of the trade
cycle
Anil Kaul, ceo – Retail
Ashish Kaul, marketing & analysist
Rajendra Sharma, equity Analysist & MIS
Rohit Dhabolkar, marketing & Branding
Sanjiv Saraff, product Manager
Abhijit Ghosh, Sales zonal heads
Dharmesh dixit, project & operation.
Prasanan keshavan, Customer service & operation
Raman Addanki, Legal risk & Complain
Manoj kabra, Audit & cost control.
Harendra Kumar, ResearchJoseph Abraham, HR.
Shikha sing, Compensation & Benefits.
Sujata kapoor, Talent Management.
Aloma Sing, Strategic & Sourcing.
Malachi Lopes, HRIS
Sanjita Chougle, Payroll
Santosh Nayak, Administration
OBJECTIVES OF THE STUDY
Study of ICICI Direct.com (online share trading)
Study of dematerialization in ICICI Capital Ltd.
Customers satisfaction and awareness of ICICI Capital Services Ltd.
ICICI Capital Services Ltd. is depository participant (DP) and it is
providing the financial services to the share holders and various other DP’s also providing almost
same services which leads to a competition. So in order to retain the existing customers of ICICI
Capital Ltd. and to attract new customers knowing the customers need and preferences and
expectation is very important. The study involves knowing the expectation and satisfaction level
of ICICI Capital Ltd. customers.
PRODUCT PROFILE DE-MAT The dematerialized form of shareholding and the depository mode of trade (scrip less trade) have
been in operation in developed financial markets for over 15 years. In India, the first depository
commenced operations a decade back and is relatively new. The Indian Financial Markets is in
need of both scrip-based trade, but the investing community, which is used to scrip-based and
scrip less trade, is bound to take some time to accept the latter. The scrip less trading, till now a
domain of the western world, institutional investors and GDR holders is now mandatory even for
small investors. All those who hold physical share certificates have to get them dematerialized. If
they do not, they will be forced to do so at the time of sale.
A process by which the physical certificates of an investor are taken back by the company /
registrar and actually destroyed and an equivalent number of securities are credited in the
electronic holdings of the investor.
Offers services to clients dealing in Government securities through the SGL A/C. besides
holding the securities, ICICI Capital Services Ltd.
Provides records update based on the transactions made by the clients.
Collects and credits the benefits and proceeds from sale to the clients’ account and
Supplies periodical reports on the transactions and holding of the clients.
TRADING:
Next function activates when an investor buys or sells in the market.
BUYING:1. An investor gets order executed and makes payment to the broker.
2. Investor instructs his Depository Participant to expect credit on settlement day.
broker instructs his DP to debit his Clearing Member account on settlement day.
3. Before settlement day Broker makes payment to clearinghouse through Clearing
bank.
4. On settlement day Clearing house releases shares to broker’s Clearing Member account which
is then transferred to investors account through NSDL (National Securities Depository Limited).
Investor gets credit in his account.
SELLING:
1. An investor gets order executed.
2. Investor instructs his Depository Participant to debit his account with immediate effect.
The shares move from investors account to Brokers Clearing Member account via NSDL.
A broker clearing member accounts is credited.
3. Before settlement day broker transfers shares from his clearing member account to
Clearing house via NSDL. His account is debited.
4. On settlement day Broker receives payment from clearing house which he passes on
to the investor.
Organizational structure
Profile of the Organization DEPARTMENT/FUNCTIONAL AREAS Infrastructure financing, corporate financing and retail have been the strong pillars of ICICI's
growth. They expect these to remain thrust areas in the future too. The financial institution sees
significant opportunities in the power sector, and in the rapid de- regulation of the Telecom sector.
On the retail side, ICICI has established a retail franchisee through a physical presence across 42
cities. Its retail thrust has been on the planks of technology enabled low cost distribution channels
like the Internet, Call centers and ATMs.
It occupies the number one position in automobile financing (over 20% of the market share),
number one in credit cards on an incremental basis. It also has a growing presence in home
finance and on-line trading.
ICICI BANK
ICICI Bank is a commercial banking outfit set up by the ICICI Group. The Bank was registered
a banking company on January 5th, 1994 and received its banking license from the Reserve Bank
of India on May 17th, 1994. The Bank has an authorized capital of INR 300crore (USD 75.96
million), of which subscribed and paid-up capital is INR 165 crore (USD 41.78 million). The
first ICICI Bank branch was started in Madras in June 1994. The branches are fully
computerized with state-of-the-art technology and systems. All of them are fully networked
through V-SAT (Satellite) technology. The Bank is connected to the international SWIFT
network since March 1995. ICICI Bank offers a wide spectrum of domestic and international
banking services to facilitate trade, investment, cross- border business, and treasury and foreign
exchange services. This is in addition to a whole range of deposit services offered to individuals
and corporate bodies. ICICI Bank’s
Infinity was the first Internet banking service in the country, and a prelude to banking in
the next millennium. Currently the Bank has around 150,000 customers.
ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED With the recent spurt in entrepreneurship in the country, venture capital and private equity
capital financing are fast attaining a role of prominence. Uniquely positioned to take the Indian
entrepreneur further is ICICI Venture Funds, the wholly owned subsidiary of ICICI, with its keen
understanding of the Indian Financial Markets, entrepreneurial ethos, access to global capital and
a network through influential global alliances. Strong parentage and affiliates provide ICICI
Venture with access to a broad spectrum of financial and analytical resources. An affiliation with
(Trust Company of the West) provides a platform for networking Indian Companies to global
markets and technology. ICICI Venture Funds currently manages / advises 11 Funds aggregating
US$ 400 million, making it the most significant private equity investor in the country. The
investment experience of ICICI Venture’s professionals is the foundation its strengths and
success in several areas of investing. ICICI Venture seeks to invest in opportunities where its
network through ICICI and TCW can create value for all involved. ICICI Venture’s primary
investment objective is capital investment through investments by way of equity or equity-
related securities in unlisted companies with significant growth potential. ICICI Venture’s
investments span a broad spectrum of industries and stages of development, the investment focus
being on
• Information Technology
• Biotechnology and Life Sciences
• Media and entertainment
• Retail Services
ICICI SECURITIES AND FINANCE COMPANY LIMITED
Formed in 1993 when ICICI’s Merchant Banking Division was spun off into a new company, I-
SEC today are India’s leading Investment Bank and one of the most significant players in the
Indian capital markets. Its client list includes some of the best known, most respected names in
Indian business and industry, and I-SEC offers them what are probably the widest, most in-depth
range of services in the market, with the highest standards of professionalism. Backed by a
strong distribution network, I-SEC is acknowledged to be at the forefront of all new
developments in the Indian debt market. I- SEC Research Reports, Compendia, Updates, I-BEX
and sovereign Bond Index, have become industry standards, sought after by finance, business
and reputed publications alike. The Project Finance Group has helped take strategic projects
from the drawing board to financial closure, leveraging the expertise of parent organization. I-
SEC has also executed several assignments in M & A, including business valuations, spin-offs
and mergers, for both domestic and overseas clients. The range of products offered by i-SEC
includes: • Corporate Finance – Mergers and Acquisitions, Equity, Bidding (especially for
Telecom Projects)
• Fixed Income – Primary Dealership, Debt Research
• Equities – Lend management, Underwriting, Syndication, Private Equity placement,
Sales, Trading, Broking, Sectoral and Company Research I - SEC
Continues to sustain a steady rate of growth by offering the most extensive range of
services combined with unrivalled standards of professionalism.
ICICI BROKERAGE SERVICES LIMITED Set up in March 1995, ICICI Brokerage Services is a 100% subsidiary of I-SEC. It commenced
its securities brokerage activities in February 1996 and is registered with the National Stock
Exchange of India Limited and The Stock Exchange, Mumbai. We are a joint venture between
ICICI and the leading financial services provider in India, and prudential plc of U.K., one of the
finest Life insurance companies in the world. Together we provide you with an extensive range
of insurance products to suit your various needs at various life stages. We aim to keep you
covered, at every step in life. Their policies are need-specific and address particular age groups.
This means that no matter where in life you are, we offer specific products to suit your needs for
savings, protection and retirement. Our products can be categorized into the following:
• Saving plans
• Protection plans
• Retirement plans
ICICI DIRECT.COM (ONLINE SHARE TRADING): ICICI Direct.com is a truly online share-trading site. Which means that from the time you punch
in a buy or sell trade on your computer to the final settlement in your account, everything
happens completely online? The 3-in-1 e-invest account integrates your brokerage, bank and one
or more depository accounts to make sure that you can do the otherwise cumbersome share
trading from the comfort of your home or office, at absolutely any time of the day or night
PERFORMANCE AND OPERATIONS The Sales turnover of the Company during the year was Rs.2, 602 million. There
is a decrease of 4% from the previous year. Decline in the sale of Carburettors for two wheelers
and four wheelers had contributed to the overall sales downturn though the Company has
improved the sale of MPFI parts to passenger cars.
The profit after tax of the Company for the year under review is Rs.377
million Due to inclusion of an extraordinary profit of Rs.250 million on sale of investments, the
Profit after Tax has registered an increase of 42% compared to previous year. The profit from the
manufacturing activities of the Company is lower mainly due to
1. Price reduction offered to customer’s
2. Increase in the input and raw materials cost
3. a particular customer in the two wheeler market witnessed a steep decline in the sale of
a model for which UFSL is supplying the Carburettors
Key Ratios 2005-06 2004-05
Current Ratio (Current Assets/Current Liabilities) 1.67:1 2.55:1 Debt - Equity Ratio 0.47:1 0.04:1
Debtors Turnover (Debtors/Gross Sales) 1.18 Months 1.25 Months Creditors Turnover
(Creditors/Purchases)1.86 Months 1.59 Months Dividend Pay-out Ratio 17 15.37
SWOT ANALYSIS OF THE COMPANY:
Strengths 1. Management philosophy and commitment to maximize shareholders returns
2. Upgraded product design and development facilities to develop new products and aid
diversification
3. Ongoing activities to support up gradation of operational performance and rise in
Productivity
4. Team of talented and committed professionals available to improve companies
Performance
Weakness 1. Competition from cheap imports
2. Low customer base
Opportunities
1. UFSL has initiated development of products for diesel application. This will provide
tremendous scope for diversification and growth
2. Acquisition of AMTEC to provide opportunities to access global OEMs
3. Opportunity to support AMTECs operations by supplying products from India
4. The introduction of new emission norms will provide UFSL opportunity to develop injection
systems and thereby upgrade the status of the company from product to system supplier.
Threats, Risks & Concerns 1. Constant pressure to be cost competitive to meet customer expectations
2. Relentless pressure to maintain profitability due to rising input/raw material prices
3. Increasing popularity of alternative fuel vehicles, such as Hybrid, Hydrogen powered,
CNG and LPG vehicles poses new challenges for the company
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
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
a) More liquidity
b) Safety of investments, and
c) 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.
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:
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:
Markowitz model.
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. 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
X2
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 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:
1) 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.
2) 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”.
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 processThe 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.
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
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 over valued 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 under valued 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 investor 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
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 be 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 ICICI direct.com 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:
1. Calculation of cash flow, i.e. both inflows and out flows (preferable after tax) over the
full life of the asset.
2. Discounting the cash flow so calculated by a discount factor.
3. Aggregating of discounted cash inflows and out comparing the total with discounted cash out
flow
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. Thee 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
As for the technique followed shows only for the present value or an limited time period where
as the technique followed in analysis for portfolio building takes into account all he long term
capital gains.
DATA COLLECTION AND ANALYSIS
Symbol DateOpen Price
Close Price returns avg diff diff2
INFOSYSTCH 2-Mar-10 2631.55 2641 0.359 -0.016 0.375 0.140INFOSYSTCH 3-Mar-10 2651.1 2666.25 0.571 -0.016 0.587 0.345INFOSYSTCH 4-Mar-10 2662 2623.8 -1.435 -0.016 -1.419 2.015INFOSYSTCH 5-Mar-10 2633.9 2635.7 0.068 -0.016 0.084 0.007INFOSYSTCH 8-Mar-10 2653 2659.55 0.247 -0.016 0.263 0.069INFOSYSTCH 9-Mar-10 2650.05 2683.95 1.279 -0.016 1.295 1.677INFOSYSTCH 10-Mar-10 2674.9 2659.25 -0.585 -0.016 -0.569 0.324INFOSYSTCH 11-Mar-10 2665 2682.95 0.674 -0.016 0.689 0.475INFOSYSTCH 12-Mar-10 2699.9 2673.25 -0.987 -0.016 -0.971 0.944INFOSYSTCH 15-Mar-10 2654.4 2701.25 1.765 -0.016 1.781 3.171INFOSYSTCH 16-Mar-10 2700 2732.35 1.198 -0.016 1.214 1.473INFOSYSTCH 17-Mar-10 2735 2738.3 0.121 -0.016 0.136 0.019INFOSYSTCH 18-Mar-10 2740 2787.6 1.737 -0.016 1.753 3.073INFOSYSTCH 19-Mar-10 2780.1 2772.35 -0.279 -0.016 -0.263 0.069INFOSYSTCH 22-Mar-10 2752.1 2757.4 0.193 -0.016 0.208 0.043INFOSYSTCH 23-Mar-10 2770.05 2775.5 0.197 -0.016 0.212 0.045INFOSYSTCH 25-Mar-10 2771 2813.95 1.550 -0.016 1.566 2.451INFOSYSTCH 26-Mar-10 2816 2774.85 -1.461 -0.016 -1.446 2.090INFOSYSTCH 29-Mar-10 2758 2716.65 -1.499 -0.016 -1.484 2.201
INFOSYSTCH 30-Mar-10 2715 2644.1 -2.611 -0.016 -2.596 6.738INFOSYSTCH 31-Mar-10 2653.9 2615.95 -1.430 -0.016 -1.414 2.000 -0.016 29.369
Risk=√∑d2/n
=√29.369/21
= 1.1825
INTERPRETATION:
The above graph shows individual return and risk as well as portfolio return and risk calculated
using Markowitz theory .this portfolio consist of one securities Infosys whose average returns are
-0.016.
Symbol DateOpen Price
Close Price returns average diff D2
WIPRO 2-Mar-10 675 701.25 3.889 0.062 3.827 14.645WIPRO 3-Mar-10 705 698.5 -0.922 0.062 -0.984 0.968WIPRO 4-Mar-10 697.5 693.75 -0.538 0.062 -0.600 0.360WIPRO 5-Mar-10 695 685.85 -1.317 0.062 -1.379 1.900WIPRO 8-Mar-10 687 697.7 1.557 0.062 1.495 2.237WIPRO 9-Mar-10 702 702.05 0.007 0.062 -0.055 0.003WIPRO 10-Mar-10 702 696.3 -0.812 0.062 -0.874 0.764WIPRO 11-Mar-10 702 709.4 1.054 0.062 0.992 0.984WIPRO 12-Mar-10 714.8 710.05 -0.665 0.062 -0.727 0.528WIPRO 15-Mar-10 715 728.65 1.909 0.062 1.847 3.412WIPRO 16-Mar-10 731 727.7 -0.451 0.062 -0.513 0.264WIPRO 17-Mar-10 734 739.1 0.695 0.062 0.633 0.400WIPRO 18-Mar-10 745 728.95 -2.154 0.062 -2.216 4.912WIPRO 19-Mar-10 731.9 726.5 -0.738 0.062 -0.800 0.640WIPRO 22-Mar-10 719.7 728 1.153 0.062 1.091 1.191WIPRO 23-Mar-10 720 720.25 0.035 0.062 -0.027 0.001WIPRO 25-Mar-10 715 719.15 0.580 0.062 0.518 0.269WIPRO 26-Mar-10 726 717.5 -1.171 0.062 -1.233 1.520WIPRO 29-Mar-10 718 715.6 -0.334 0.062 -0.396 0.157WIPRO 30-Mar-10 710 701.6 -1.183 0.062 -1.245 1.550WIPRO 31-Mar-10 702 706.95 0.705 0.062 0.643 0.414 0.062 37.118
Risk= √∑d2/n
=√37.118/21
=1.3294
Symbol DateOpen Price
Close Price Returns AVG Diff d2
HDFCBANK 2-Mar-10 1724 1744.95 1644.95 1736.881 -91.931 8451.309HDFCBANK 3-Mar-10 1742.55 1776.65 1676.65 1736.881 -60.231 3627.773HDFCBANK 4-Mar-10 1775 1781.15 1681.15 1736.881 -55.731 3105.944HDFCBANK 5-Mar-10 1785.55 1784 1684 1736.881 -52.881 2796.4HDFCBANK 8-Mar-10 1810 1784.2 1684.2 1736.881 -52.681 2775.288HDFCBANK 9-Mar-10 1775 1811.2 1711.2 1736.881 -25.681 659.5138HDFCBANK 10-Mar-10 1812 1814.45 1714.45 1736.881 -22.431 503.1498HDFCBANK 11-Mar-10 1816 1826.95 1726.95 1736.881 -9.931 98.62476HDFCBANK 12-Mar-10 1827 1801.25 1701.25 1736.881 -35.631 1269.568HDFCBANK 15-Mar-10 1780 1812.55 1712.55 1736.881 -24.331 591.9976HDFCBANK 16-Mar-10 1805 1804.6 1704.6 1736.881 -32.281 1042.063HDFCBANK 17-Mar-10 1804.6 1807.7 1707.7 1736.881 -29.181 851.5308HDFCBANK 18-Mar-10 1812.4 1800.9 1700.9 1736.881 -35.981 1294.632HDFCBANK 19-Mar-10 1814.8 1819.85 1719.85 1736.881 -17.031 290.055HDFCBANK 22-Mar-10 1802 1837.1 1737.1 1736.881 0.219 0.047961HDFCBANK 23-Mar-10 1835 1884 1784 1736.881 47.119 2220.2HDFCBANK 25-Mar-10 1880 1926.15 1826.15 1736.881 89.269 7968.954HDFCBANK 26-Mar-10 1931 1951.45 1851.45 1736.881 114.569 13126.06HDFCBANK 29-Mar-10 1628.85 1965.05 1865.05 1736.881 128.169 16427.29HDFCBANK 30-Mar-10 1965 1906.85 1806.85 1736.881 69.969 4895.661HDFCBANK 31-Mar-10 1900 1933.5 1833.5 1736.881 96.619 9335.231 1736.881 81331.29
Risk= √∑d2/n
=√81331.29/21
=62.2327
Symbol DateOpen Price
Close Price
returns average diff d2
ICICIBANK 2-Mar-10 885.1 897.15 1.361 0.326 1.035 1.072ICICIBANK 3-Mar-10 899.9 908.35 0.939 0.326 0.613 0.376ICICIBANK 4-Mar-10 906 898.4 -0.839 0.326 -1.165 1.357ICICIBANK 5-Mar-10 898.1 901.75 0.406 0.326 0.080 0.006ICICIBANK 8-Mar-10 910 923.75 1.511 0.326 1.185 1.404ICICIBANK 9-Mar-10 922 925.15 0.342 0.326 0.016 0.000ICICIBANK 10-Mar-10 925 917.8 -0.778 0.326 -1.104 1.220ICICIBANK 11-Mar-10 915 930.85 1.732 0.326 1.406 1.978ICICIBANK 12-Mar-10 935.05 936.65 0.171 0.326 -0.155 0.024ICICIBANK 15-Mar-10 930 923.75 -0.672 0.326 -0.998 0.996ICICIBANK 16-Mar-10 921 930.5 1.031 0.326 0.705 0.498ICICIBANK 17-Mar-10 935 948.55 1.449 0.326 1.123 1.262ICICIBANK 18-Mar-10 950.05 963.65 1.432 0.326 1.106 1.222ICICIBANK 19-Mar-10 963 956.55 -0.670 0.326 -0.996 0.992ICICIBANK 22-Mar-10 949 935.25 -1.449 0.326 -1.775 3.150ICICIBANK 23-Mar-10 939 925.5 -1.438 0.326 -1.764 3.111ICICIBANK 25-Mar-10 920 933.85 1.505 0.326 1.179 1.391ICICIBANK 26-Mar-10 939 947.5 0.905 0.326 0.579 0.335ICICIBANK 29-Mar-10 945 952.6 0.804 0.326 0.478 0.229ICICIBANK 30-Mar-10 956.1 959.8 0.387 0.326 0.061 0.004ICICIBANK 31-Mar-10 964.8 952.5 -1.275 0.326 -1.601 2.563 0.326 23.189
Risk= √∑d2/n
=√23.189/21
=1.0508
Symbol DateOpen Price
Close Price returns average diff d2
TATASTEEL 2-Mar-10 581.15 608.9 4.775 1.164 3.611 13.039TATASTEEL 3-Mar-10 610 608.2 -0.295 1.164 -1.459 2.129TATASTEEL 4-Mar-10 610 617.55 1.238 1.164 0.074 0.005TATASTEEL 5-Mar-10 620 618.1 -0.306 1.164 -1.470 2.162TATASTEEL 8-Mar-10 623.65 621.75 -0.305 1.164 -1.469 2.157TATASTEEL 9-Mar-10 620 614.7 -0.855 1.164 -2.019 4.076TATASTEEL 10-Mar-10 616.05 612.2 -0.625 1.164 -1.789 3.200TATASTEEL 11-Mar-10 612 608.3 -0.605 1.164 -1.769 3.128TATASTEEL 12-Mar-10 610 607.55 -0.402 1.164 -1.566 2.451TATASTEEL 15-Mar-10 605.2 610.05 0.801 1.164 -0.363 0.131TATASTEEL 16-Mar-10 610.9 627.2 2.668 1.164 1.504 2.263TATASTEEL 17-Mar-10 536 632.1 17.929 1.164 16.765 281.069TATASTEEL 18-Mar-10 635 639.2 0.661 1.164 -0.503 0.253TATASTEEL 19-Mar-10 640.5 644.25 0.585 1.164 -0.579 0.335TATASTEEL 22-Mar-10 636.15 629.05 -1.116 1.164 -2.280 5.199TATASTEEL 23-Mar-10 632 637.95 0.941 1.164 -0.223 0.050TATASTEEL 25-Mar-10 637 638.2 0.188 1.164 -0.976 0.952TATASTEEL 26-Mar-10 640 644.1 0.641 1.164 -0.523 0.274TATASTEEL 29-Mar-10 639.8 643.55 0.586 1.164 -0.578 0.334TATASTEEL 30-Mar-10 645 634.75 -1.589 1.164 -2.753 7.580TATASTEEL 31-Mar-10 635 632.05 -0.465 1.164 -1.629 2.652 1.164 333.438
Risk= √∑d2/n
=√333.438/21
=3.9847
Symbol DateOpen Price
Close Price returns average diff d2
SAIL 2-Mar-10 220 224.9 2.227 0.304 1.923 3.699SAIL 3-Mar-10 225.4 226.6 0.532 0.304 0.228 0.052SAIL 4-Mar-10 226.6 237 4.590 0.304 4.286 18.366SAIL 5-Mar-10 238.85 234.5 -1.821 0.304 -2.125 4.517SAIL 8-Mar-10 236.5 238 0.634 0.304 0.330 0.109SAIL 9-Mar-10 238.05 233.7 -1.827 0.304 -2.131 4.543SAIL 10-Mar-10 233 233.9 0.386 0.304 0.082 0.007SAIL 11-Mar-10 234.25 235.35 0.470 0.304 0.166 0.027SAIL 12-Mar-10 236 234.2 -0.763 0.304 -1.067 1.138SAIL 15-Mar-10 236.9 229.85 -2.976 0.304 -3.280 10.758SAIL 16-Mar-10 230 236.35 2.761 0.304 2.457 6.036SAIL 17-Mar-10 238 239.65 0.693 0.304 0.389 0.152SAIL 18-Mar-10 241 244.8 1.577 0.304 1.273 1.620SAIL 19-Mar-10 248 247.3 -0.282 0.304 -0.586 0.344SAIL 22-Mar-10 244.45 239.4 -2.066 0.304 -2.370 5.616SAIL 23-Mar-10 241 242.15 0.477 0.304 0.173 0.030SAIL 25-Mar-10 241.65 242.85 0.497 0.304 0.193 0.037SAIL 26-Mar-10 244.5 244.05 -0.184 0.304 -0.488 0.238SAIL 29-Mar-10 243.9 243.25 -0.267 0.304 -0.571 0.325SAIL 30-Mar-10 246 244.2 -0.732 0.304 -1.036 1.073SAIL 31-Mar-10 246.5 252.55 2.454 0.304 2.150 4.624 0.304 63.311
Risk= √∑d2/n
= √63.311/21
= 1.736
Symbol DateOpen Price
Close Price retuns average diff d2
BPCL 2-Mar-10 571 540.95 -5.263 -0.863 -4.400 19.357BPCL 3-Mar-10 542 541.9 -0.018 -0.863 0.845 0.713BPCL 4-Mar-10 541 534.9 -1.128 -0.863 -0.265 0.070BPCL 5-Mar-10 536.8 540.25 0.643 -0.863 1.506 2.267BPCL 8-Mar-10 543 541.9 -0.203 -0.863 0.660 0.436BPCL 9-Mar-10 546 536.45 -1.749 -0.863 -0.886 0.785BPCL 10-Mar-10 537 537.15 0.028 -0.863 0.891 0.794BPCL 11-Mar-10 536 530.05 -1.110 -0.863 -0.247 0.061BPCL 12-Mar-10 536 526.75 -1.726 -0.863 -0.863 0.744BPCL 15-Mar-10 537 528.2 -1.639 -0.863 -0.776 0.602BPCL 16-Mar-10 530 545.25 2.877 -0.863 3.740 13.990BPCL 17-Mar-10 547 538 -1.645 -0.863 -0.782 0.612BPCL 18-Mar-10 525 526.7 0.324 -0.863 1.187 1.409BPCL 19-Mar-10 530 522.6 -1.396 -0.863 -0.533 0.284BPCL 22-Mar-10 516 517.5 0.291 -0.863 1.154 1.331BPCL 23-Mar-10 529.7 511.6 -3.417 -0.863 -2.554 6.523BPCL 25-Mar-10 517 505.15 -2.292 -0.863 -1.429 2.042BPCL 26-Mar-10 505.15 510.1 0.980 -0.863 1.843 3.396BPCL 29-Mar-10 520 526.9 1.327 -0.863 2.190 4.796BPCL 30-Mar-10 530 522.1 -1.491 -0.863 -0.628 0.394BPCL 31-Mar-10 526 518.05 -1.511 -0.863 -0.648 0.420 -0.863 61.028
Risk= √∑d2/n
= √61.028/21
= 1.704
Symbol DateOpen Price
Close Price returns average diff d2
HINDPETRO 2-Mar-10 349.7 338.55 -3.188 -0.712 -2.476 6.133HINDPETRO 3-Mar-10 340.5 341.85 0.396 -0.712 1.108 1.229HINDPETRO 4-Mar-10 341.85 339.75 -0.614 -0.712 0.098 0.010HINDPETRO 5-Mar-10 342.4 340.6 -0.526 -0.712 0.186 0.035HINDPETRO 8-Mar-10 345 344.3 -0.203 -0.712 0.509 0.259HINDPETRO 9-Mar-10 345 342.2 -0.812 -0.712 -0.100 0.010HINDPETRO 10-Mar-10 342.5 339.1 -0.993 -0.712 -0.281 0.079HINDPETRO 11-Mar-10 341.1 331.25 -2.888 -0.712 -2.176 4.734HINDPETRO 12-Mar-10 331.25 331.95 0.211 -0.712 0.923 0.853HINDPETRO 15-Mar-10 332 328.1 -1.175 -0.712 -0.463 0.214HINDPETRO 16-Mar-10 331.7 334.05 0.708 -0.712 1.420 2.018HINDPETRO 17-Mar-10 335 331.25 -1.119 -0.712 -0.407 0.166HINDPETRO 18-Mar-10 328.65 323.35 -1.613 -0.712 -0.901 0.811HINDPETRO 19-Mar-10 325 321.35 -1.123 -0.712 -0.411 0.169HINDPETRO 22-Mar-10 315 317.6 0.825 -0.712 1.537 2.364HINDPETRO 23-Mar-10 317.7 313.45 -1.338 -0.712 -0.626 0.392HINDPETRO 25-Mar-10 313.5 308.15 -1.707 -0.712 -0.995 0.989HINDPETRO 26-Mar-10 311.9 310.1 -0.577 -0.712 0.135 0.018HINDPETRO 29-Mar-10 316 320.4 1.392 -0.712 2.104 4.429HINDPETRO 30-Mar-10 320.4 316.9 -1.092 -0.712 -0.380 0.145HINDPETRO 31-Mar-10 317 318.55 0.489 -0.712 1.201 1.442 -0.712 26.496
Risk= √∑d2/n
=√26.496/21
= 1.123
Symbol DateOpen Price
Close Price returns average diff d2
BHEL 2-Mar-10 2382 2428.1 1.935 -0.073 2.008 4.033BHEL 3-Mar-10 2442 2455.85 0.567 -0.073 0.640 0.410BHEL 4-Mar-10 2460.05 2446.65 -0.545 -0.073 -0.472 0.223BHEL 5-Mar-10 2454.3 2429.05 -1.029 -0.073 -0.956 0.914BHEL 8-Mar-10 2440 2431 -0.369 -0.073 -0.296 0.088BHEL 9-Mar-10 2439 2423.5 -0.636 -0.073 -0.563 0.316BHEL 10-Mar-10 2411 2432.45 0.890 -0.073 0.963 0.927BHEL 11-Mar-10 2430 2422.45 -0.311 -0.073 -0.238 0.057BHEL 12-Mar-10 2404 2379.45 -1.021 -0.073 -0.948 0.899BHEL 15-Mar-10 2380 2367.6 -0.521 -0.073 -0.448 0.201BHEL 16-Mar-10 2369 2379.55 0.445 -0.073 0.518 0.269BHEL 17-Mar-10 2384.7 2378.7 -0.252 -0.073 -0.179 0.032BHEL 18-Mar-10 2390 2383.45 -0.274 -0.073 -0.201 0.040BHEL 19-Mar-10 2388 2373.95 -0.588 -0.073 -0.515 0.266BHEL 22-Mar-10 2350 2333.65 -0.696 -0.073 -0.623 0.388BHEL 23-Mar-10 2349 2356.95 0.338 -0.073 0.411 0.169BHEL 25-Mar-10 2352.1 2381.95 1.269 -0.073 1.342 1.801BHEL 26-Mar-10 2389 2361.65 -1.145 -0.073 -1.072 1.149BHEL 29-Mar-10 2368 2394.8 1.132 -0.073 1.205 1.451BHEL 30-Mar-10 2400 2408.7 0.362 -0.073 0.435 0.190BHEL 31-Mar-10 2416.9 2390.65 -1.086 -0.073 -1.013 1.026 -0.073 14.847
Risk= √∑d2/n
= √14.847/21
= 0.840
Symbol DateOpen Price
Close Price returns average diff d2
TATAMOTORS 2-Mar-10 720 798.05 10.840 0.099 10.741 115.375TATAMOTORS 3-Mar-10 810 809.25 -0.093 0.099 -0.192 0.037TATAMOTORS 4-Mar-10 808.9 813 0.507 0.099 0.408 0.166TATAMOTORS 5-Mar-10 818 794.25 -2.903 0.099 -3.002 9.015TATAMOTORS 8-Mar-10 800 797.65 -0.294 0.099 -0.393 0.154TATAMOTORS 9-Mar-10 785 776.05 -1.140 0.099 -1.239 1.535TATAMOTORS 10-Mar-10 778 778.75 0.096 0.099 -0.003 0.000TATAMOTORS 11-Mar-10 780 770.4 -1.231 0.099 -1.330 1.768TATAMOTORS 12-Mar-10 773 760.9 -1.565 0.099 -1.664 2.770TATAMOTORS 15-Mar-10 755 769.1 1.868 0.099 1.769 3.128TATAMOTORS 16-Mar-10 773 786.05 1.688 0.099 1.589 2.526TATAMOTORS 17-Mar-10 789.8 780.5 -1.178 0.099 -1.277 1.629TATAMOTORS 18-Mar-10 782.7 780.3 -0.307 0.099 -0.406 0.165TATAMOTORS 19-Mar-10 775.5 783.65 1.051 0.099 0.952 0.906TATAMOTORS 22-Mar-10 777 760.2 -2.162 0.099 -2.261 5.113TATAMOTORS 23-Mar-10 760 739.3 -2.724 0.099 -2.823 7.968TATAMOTORS 25-Mar-10 745 725.2 -2.658 0.099 -2.757 7.599TATAMOTORS 26-Mar-10 731.5 749.75 2.495 0.099 2.396 5.740TATAMOTORS 29-Mar-10 753.1 740.6 -1.660 0.099 -1.759 3.093TATAMOTORS 30-Mar-10 744.9 755.95 1.483 0.099 1.384 1.917TATAMOTORS 31-Mar-10 758 757.7 -0.040 0.099 -0.139 0.019 0.099 170.624
Risk=√∑d2/n
=√170.624/21
= 2.850
returns1 avg diff1 returns2 average diff2 d1*d2 diff22
0.359104 -0.01567 0.37477 3.888889 0.062 3.826889 1.434 14.6450.571461 -0.01567 0.587127 -0.92199 0.062 -0.98399 -0.578 0.968-1.43501 -0.01567 -1.41935 -0.53763 0.062 -0.59963 0.851 0.3600.06834 -0.01567 0.084005 -1.31655 0.062 -1.37855 -0.116 1.9000.24689 -0.01567 0.262556 1.557496 0.062 1.495496 0.393 2.2371.279221 -0.01567 1.294887 0.007123 0.062 -0.05488 -0.071 0.003-0.58507 -0.01567 -0.5694 -0.81197 0.062 -0.87397 0.498 0.7640.673546 -0.01567 0.689212 1.054131 0.062 0.992131 0.684 0.984-0.98707 -0.01567 -0.97141 -0.66452 0.062 -0.72652 0.706 0.5281.764994 -0.01567 1.78066 1.909091 0.062 1.847091 3.289 3.4121.198148 -0.01567 1.213814 -0.45144 0.062 -0.51344 -0.623 0.2640.120658 -0.01567 0.136324 0.694823 0.062 0.632823 0.086 0.4001.737226 -0.01567 1.752892 -2.15436 0.062 -2.21636 -3.885 4.912-0.27877 -0.01567 -0.2631 -0.73781 0.062 -0.79981 0.210 0.6400.19258 -0.01567 0.208246 1.153258 0.062 1.091258 0.227 1.1910.196747 -0.01567 0.212413 0.034722 0.062 -0.02728 -0.006 0.0011.549982 -0.01567 1.565648 0.58042 0.062 0.51842 0.812 0.269-1.46129 -0.01567 -1.44563 -1.1708 0.062 -1.2328 1.782 1.520-1.49927 -0.01567 -1.48361 -0.33426 0.062 -0.39626 0.588 0.157-2.61142 -0.01567 -2.59575 -1.1831 0.062 -1.2451 3.232 1.550-1.42997 -0.01567 -1.41431 0.705128 0.062 0.643128 -0.910 0.414-0.01567 0.061936 8.604 37.118
COV =∑D1*D2/∑D22
=8.604/37.118
=0.2318
Correlation co-efficient:-
R1, 2=cov1, 2/σ1 σ2
= 0.2318/1.1825*1.3294
= 0.1474
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*-0.01567+ 0.5*0.061936
= 0.0231
Risk of portfolio:-
σ p =√(w12 σ1
2 +w22 σ2
2 +2w1 w2 σ1 σ2 r1,2)
= √ 0.25*1.3983 +0.25*1.7673 +2*0.5*0.5*1.1825*1.3294*0.1474
= 0.9526
Returns1 AVG Diff1 returns2 AVG DIFF2 D1*D2 D22
1644.95 1736.881 -91.931 -97.800 0.326 -98.126 9020.857 9628.7891676.65 1736.881 -60.231 -97.764 0.326 -98.090 5908.039 9621.5831681.15 1736.881 -55.731 -97.749 0.326 -98.075 5465.794 9618.62
1684 1736.881 -52.881 -97.768 0.326 -98.094 5187.322 9622.4821684.2 1736.881 -52.681 -97.739 0.326 -98.065 5166.154 9616.7151711.2 1736.881 -25.681 -97.709 0.326 -98.035 2517.639 9610.8791714.45 1736.881 -22.431 -97.702 0.326 -98.028 2198.859 9609.4281726.95 1736.881 -9.931 -97.727 0.326 -98.053 973.7603 9614.3111701.25 1736.881 -35.631 -97.677 0.326 -98.003 3491.939 9604.5561712.55 1736.881 -24.331 -97.690 0.326 -98.016 2384.816 9607.0491704.6 1736.881 -32.281 -97.712 0.326 -98.038 3164.764 9611.4441707.7 1736.881 -29.181 -97.677 0.326 -98.003 2859.833 9604.6371700.9 1736.881 -35.981 -97.640 0.326 -97.966 3524.912 9597.3221719.85 1736.881 -17.031 -97.608 0.326 -97.934 1667.911 9591.0311737.1 1736.881 0.219 -97.643 0.326 -97.969 -21.4552 9597.8791784 1736.881 47.119 -97.668 0.326 -97.994 -4617.36 9602.757
1826.15 1736.881 89.269 -97.715 0.326 -98.041 -8752.02 9612.0311851.45 1736.881 114.569 -97.668 0.326 -97.994 -11227.1 9602.7921865.05 1736.881 128.169 -97.653 0.326 -97.979 -12557.9 9599.9051806.85 1736.881 69.969 -97.626 0.326 -97.952 -6853.58 9594.5161833.5 1736.881 96.619 -97.604 0.326 -97.930 -9461.9 9590.295
1736.881 -97.692 41.34308 201759
COV =∑D1*D2/∑D22
=41.343/201759
=2.0491
Correlation co-efficient:-
R1, 2=cov1, 2/
= 2.0491/62.2327*1.0508
= 0.0313
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*1736.881+ 0.5*-97.692
= 917.2865Risk of portfolio:-
σ p =√(w12 σ1
2 +w22 σ2
2 +2w1 w2 σ1 σ2 r1,2)
= √ 0.25*3873.1765 + 0.25*1.1041 + 2*0.5*0.5*62.2327*1.0508*0.0313 = 31.1382
returns1 average diff1 returns2 average diff2 D1*D2 D22
4.775015 1.164 3.611015 2.227273 0.304 1.923273 6.945 3.699-0.29508 1.164 -1.45908 0.532387 0.304 0.228387 -0.333 0.0521.237705 1.164 0.073705 4.589585 0.304 4.285585 0.316 18.366-0.30645 1.164 -1.47045 -1.82123 0.304 -2.12523 3.125 4.517-0.30466 1.164 -1.46866 0.634249 0.304 0.330249 -0.485 0.109-0.85484 1.164 -2.01884 -1.82735 0.304 -2.13135 4.303 4.543-0.62495 1.164 -1.78895 0.386266 0.304 0.082266 -0.147 0.007-0.60458 1.164 -1.76858 0.469584 0.304 0.165584 -0.293 0.027-0.40164 1.164 -1.56564 -0.76271 0.304 -1.06671 1.670 1.1380.801388 1.164 -0.36261 -2.97594 0.304 -3.27994 1.189 10.7582.668194 1.164 1.504194 2.76087 0.304 2.45687 3.696 6.03617.9291 1.164 16.7651 0.693277 0.304 0.389277 6.526 0.1520.661417 1.164 -0.50258 1.576763 0.304 1.272763 -0.640 1.6200.58548 1.164 -0.57852 -0.28226 0.304 -0.58626 0.339 0.344-1.11609 1.164 -2.28009 -2.06586 0.304 -2.36986 5.403 5.6160.941456 1.164 -0.22254 0.477178 0.304 0.173178 -0.039 0.0300.188383 1.164 -0.97562 0.496586 0.304 0.192586 -0.188 0.0370.640625 1.164 -0.52337 -0.18405 0.304 -0.48805 0.255 0.2380.586121 1.164 -0.57788 -0.2665 0.304 -0.5705 0.330 0.325-1.58915 1.164 -2.75315 -0.73171 0.304 -1.03571 2.851 1.073-0.46457 1.164 -1.62857 2.454361 0.304 2.150361 -3.502 4.6241.164423 0.303846 31.323 63.311
COV =∑D1*D2/∑D22
=31.323/63.311
= 0.4947
Correlation co-efficient:-
R1, 2=cov1, 2/
= 0.4947/3.9847*1.73 = 0.0715
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*1.1644 + 0.5*0.3038
= 0.7341
Risk of portfolio:-
σ p =√(w12 σ1
2 +w22 σ2
2 +2w1 w2 σ1 σ2 r1,2)
= √0.25*15.877 + 0.25*3.0136 + 2*0.5*0.5*3.9847*1.736*0.0715
= 2.229
retuns1 average diff1 returns2 average diff2 D1*D2 D22
-5.2627 -0.863 -4.3997 -3.18845 -0.712 -2.47645 10.896 6.133-0.01845 -0.863 0.84455 0.396476 -0.712 1.108476 0.936 1.229-1.12754 -0.863 -0.26454 -0.6143 -0.712 0.097695 -0.026 0.0100.642697 -0.863 1.505697 -0.5257 -0.712 0.186299 0.281 0.035-0.20258 -0.863 0.660422 -0.2029 -0.712 0.509101 0.336 0.259-1.74908 -0.863 -0.88608 -0.81159 -0.712 -0.09959 0.088 0.0100.027933 -0.863 0.890933 -0.9927 -0.712 -0.2807 -0.250 0.079-1.11007 -0.863 -0.24707 -2.88772 -0.712 -2.17572 0.538 4.734-1.72575 -0.863 -0.86275 0.211321 -0.712 0.923321 -0.797 0.853-1.63873 -0.863 -0.77573 -1.1747 -0.712 -0.4627 0.359 0.2142.877358 -0.863 3.740358 0.708472 -0.712 1.420472 5.313 2.018-1.64534 -0.863 -0.78234 -1.1194 -0.712 -0.4074 0.319 0.1660.32381 -0.863 1.18681 -1.61266 -0.712 -0.90066 -1.069 0.811-1.39623 -0.863 -0.53323 -1.12308 -0.712 -0.41108 0.219 0.1690.290698 -0.863 1.153698 0.825397 -0.712 1.537397 1.774 2.364-3.41703 -0.863 -2.55403 -1.33774 -0.712 -0.62574 1.598 0.392-2.29207 -0.863 -1.42907 -1.70654 -0.712 -0.99454 1.421 0.9890.979907 -0.863 1.842907 -0.57711 -0.712 0.134892 0.249 0.0181.326923 -0.863 2.189923 1.392405 -0.712 2.104405 4.608 4.429-1.49057 -0.863 -0.62757 -1.09238 -0.712 -0.38038 0.239 0.145-1.51141 -0.863 -0.64841 0.488959 -0.712 1.200959 -0.779 1.442-0.86277 -0.71162 26.253 26.496
COV =∑D1*D2/∑D22
=26.253/26.496
= 0.9908
Correlation co-efficient:-
R1, 2=cov1, 2/
= 0.9908/1.704*1.123
= 0.5177
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*-0.8627 + 0.5*-0.7116
= 0.78715
Risk of portfolio:-
σ p =√(w12 σ1
2 +w22 σ2
2 +2w1 w2 σ1 σ2 r1,2)
= √0.25*2.9036 + 0.25*1.2611 + 2*0.5*0.5*1.704*1.123*0.5177
= 1.2395
returns1 average diff1 returns2 average diff2 D1*D2 D22
1.935348 -0.073 2.008348 10.84028 0.099 10.74128 21.572 115.3750.567158 -0.073 0.640158 -0.09259 0.099 -0.19159 -0.123 0.037-0.5447 -0.073 -0.4717 0.506861 0.099 0.407861 -0.192 0.166-1.02881 -0.073 -0.95581 -2.90342 0.099 -3.00242 2.870 9.015-0.36885 -0.073 -0.29585 -0.29375 0.099 -0.39275 0.116 0.154-0.63551 -0.073 -0.56251 -1.14013 0.099 -1.23913 0.697 1.5350.889672 -0.073 0.962672 0.096401 0.099 -0.0026 -0.003 7E-06-0.3107 -0.073 -0.2377 -1.23077 0.099 -1.32977 0.316 1.768-1.02121 -0.073 -0.94821 -1.56533 0.099 -1.66433 1.578 2.770-0.52101 -0.073 -0.44801 1.86755 0.099 1.76855 -0.792 3.1280.445336 -0.073 0.518336 1.688228 0.099 1.589228 0.824 2.526-0.2516 -0.073 -0.1786 -1.17751 0.099 -1.27651 0.228 1.629-0.27406 -0.073 -0.20106 -0.30663 0.099 -0.40563 0.082 0.165-0.58836 -0.073 -0.51536 1.050935 0.099 0.951935 -0.491 0.906-0.69574 -0.073 -0.62274 -2.16216 0.099 -2.26116 1.408 5.1130.338442 -0.073 0.411442 -2.72368 0.099 -2.82268 -1.161 7.9681.269079 -0.073 1.342079 -2.65772 0.099 -2.75672 -3.700 7.599-1.14483 -0.073 -1.07183 2.494874 0.099 2.395874 -2.568 5.7401.131757 -0.073 1.204757 -1.65981 0.099 -1.75881 -2.119 3.0930.3625 -0.073 0.4355 1.483421 0.099 1.384421 0.603 1.917-1.0861 -0.073 -1.0131 -0.03958 0.099 -0.13858 0.140 0.019-0.07296 0.098832 19.286 170.624
COV =∑D1*D2/∑D22
=19.286/170.624
= 0.1130
Correlation co-efficient:-
R1, 2=cov1, 2/
= 0.1130/0.840*2.850
= 0.4720
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*-0.0729 + 0.5*0.0988
= 0.08585
Risk of portfolio:-
σ p =√(w12 σ1
2 +w22 σ2
2 +2w1 w2 σ1 σ2 r1,2)
= √ 0.25*0.7056 + 0.25*8.1225 + 2*0.5*0.5* 0.840*2.850*0.4720
= 1.6649
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.
Axis is a profit making company from banking industry which is having a returns of
13.5% 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 a return of 54% and
risk only 28%. Comparing the risk and returns, risk is less for this return.
ICICI is the another 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.
Herohonda is a very good automobile company having a return of 24.6% and risk of
31.59% which is very high for these returns.
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.
portfolio name returns riskInfosys & wipro 0.0231 0.9526Hdfc & Icici 917.2865 31.1382Tata steel & Sail 0.7341 2.2293Bpcl & Hin 0.78715 1.2395Bhel & Tata motors 0.08585 1.6649
SUGGESTIONS:
The present project work has been undertaken to identify a best portfolio using different sets
of securities using their returns and risk along with correlation co-efficient on the basis of
analysis and findings, the following suggestions can be made the investors.
1) The best portfolio consists of the two companies Zuari industries and Asian paints with a
portfolio return of 2.177805 and portfolio risk 24.3944.
2) The best portfolio consists of the two companies Aurobindho pharmacy and Dabur
With a portfolio return of 0.43945 and portfolio risk 14.93772
3) The best portfolio consists of the two companies’ Indian bank and axis bank with a portfolio
return of 0.238295 and portfolio risk 22.9723
4) The best portfolio consists of the two companies California and Satyam software with a
portfolio return of 0.2277115 and portfolio risk 38.23
5) The best portfolio consists of the two companies Tata motors and Maruti suzuki with a
portfolio returns of 0.21949 and portfolio risk 8.3484.
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.
Bibliography
-S kevin Portfolio management
-V.K Bhalla Security analysis and portfolio management.
-Fischer & Jordon Security management and portfolio management
-V.K. Bhalla & R.M kishore Investment
Websites : www.nseindia.com
www.bseindia.com
www.icicidirect.com
www.valueresearch.com
