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Volume 1, Issue 4 (June, 2013)

INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEW

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RISK AND RETURN ANALYSIS THROUGH SELECTED STOCKS

G.B.SABARI RAJAN

1 U.AJMEER KAMAR BANU

2

1 ASSISTANT PROFESSOR

2DEPARTMENT OF MANAGEMENT STUDIES

DEPARTMENT OF MANAGEMENT STUDIES INFO INSTITUTE OF ENGINEERING,

INFO INSTITUTE OF ENGINEERING, COIMBATORE – 641 107

COIMBATORE – 641 107

ABSTRACT

The main stream of the organization is Shares, Commodity and Forex trading and Research. Their

priority is to make people transform from ignorant to expertise in the chosen field. Everyone should be aware

of investment opportunities in capital markets. Still it is an untapped and an overflowing market, they create

opportunities for clients and they teach clients how to make a raw chance into an earning opportunities. The

topic was chosen to know about the current trend of a share with reference to Fast Moving Consumer Goods

(FMCG) industry by using technical methods which will be useful for the company to prescribe their clients

about the shares that gives high yield analytically. The main objective of the study is to find out the future

price variations of shares of different company from FMCG industry using the secondary data from the

secondary market which is been available with Security Exchange Board of India (SEBI) and to analyze about

the company compared with its own industries growth and decline.

KEYWORDS: Capital Market, Investment, Secondary market, Technical tools.

1. INTRODUCTION

An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in

a company are sold to the general public, on a securities exchange, for the first time. Through this process,

a private company transforms into a public company. Initial public offerings are used by companies to

raise expansion capital, to possibly monetize the investments of early private investors, and to become

publicly traded enterprises. A company selling shares is never required to repay the capital to its public

investors. After the IPO, when shares trade freely in the open market, money passes between public investors.

Although an IPO offers many advantages, there are also significant disadvantages. Chief among these are the

costs associated with the process, and the requirement to disclose certain information that could prove helpful

to competitors, or create difficulties with vendors. Details of the proposed offering are disclosed to potential

purchasers in the form of a lengthy document known as a prospectus. Most companies undertaking an IPO

A Peer Reviewed International Journal

IJFRR


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http://en.wikipedia.org/wiki/Public_offering

http://en.wikipedia.org/wiki/Stock

http://en.wikipedia.org/wiki/Securities_exchange

http://en.wikipedia.org/wiki/Private_company

http://en.wikipedia.org/wiki/Public_company

http://en.wikipedia.org/wiki/Monetize

http://en.wikipedia.org/wiki/Prospectus_(finance)

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do so with the assistance of an investment banking firm acting in the capacity of an underwriter.

Underwriters provide a valuable service, which includes help with correctly assessing the value of shares

(share price), and establishing a public market for shares (initial sale). Alternative methods such as the Dutch

auction have also been explored. In terms of size and public participation, the most notable example of this

method is the Google IPO. China has recently emerged as a major IPO market, with several of the largest

IPOs taking place in that country.

Charting applies statistical techniques to historical stock prices and volumes to identify likely future stock

price movements. It does not consider the fundamentals of the stock, the business, or economic environment

as the influence of these factors is deemed to be already reflected in the stock price. Technical analysis

assumes that prices take a random walk and one can judge the future price movements based on the past

trends. It thus helps investors to take their investment decisions. However, ultimately, it is the market

sentiments that determine the prices ruling on the stock floors.

Technical analysis has two main methods - one dependent on intuition and interpretation, the other on

analysis of data. Under the first method, analysts interpret price charts depending on the pattern of movement

- head-and-shoulders patterns, double-bottoms, flags and pennants etc. These patterns are used by analysts to

predict share price movements.

In case of the other method of technical analysis, analysts rely on complex calculations of numbers, to crunch

raw price and volume data. After this analysis process, the secondary indicators, i.e., oscillators, moving

averages etc, are calculated and used to spot buying or selling opportunities. Analysts use software, scientific

methods, complex equations and complex mathematical formulas to derive indicators.

1.1. Statement of the Problem

A better understanding of the stock market trend will facilitate allocation of financial resources to the most

profitable investment opportunity. The movement of stock returns will enable the investors to make

appropriate investment decisions. The fluctuations of stock returns are due to several economic and non-

economic factors. The study is aimed at volatility will be high and It helps investors to be aware about

deviations in the returns of the stocks. The simple moving average model indicates the buy and sell signal to

investors. This helps the investors in taking good decisions when investing in equity shares.

The study also helps the customers to ascertain the risk and return of the stocks. This will help the investors

viz, individuals, FIIs in identifying the stocks which would yield them higher return and lesser risk. Also the

money flow index helps the people to know about the flow of money in and out of a security.

1.2. Objectives of The Study

1. To analyze the stock price behavior of FMCG industry.

2. To analyze the degree of risk involved with the considered investments.

3. To portfolio the investment according to the risk and return involved in the market.

1.3. Need Of The Study

The study is about analyzing the risk and return on FMCG sector. The need of the study is that to

analyze about the risk and return using technical analysis where it will be useful for the clients of the

company to know about the market risk and to earn more profit out of the study.

1.4. Scope Of The Study

The study is conducted in a way to calculate the risk and return of the stocks of the selected 4 companies

for 3 years. This will help the investors viz, individuals and mutual funds to the stocks which would yield

them higher return and lesser risk.

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http://en.wikipedia.org/wiki/Investment_banking

http://en.wikipedia.org/wiki/Dutch_auction



http://en.wikipedia.org/wiki/Google

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1.5. Limitations Of The Study

The study is been limited to 6 months so a complete knowledge on the concept of the study cannot be

gathered.

1. The data collected for research is been limited to one year where the fundamental factors and its

impact may vary according to the demand and supply of the responding financial year.

2. The suggestions provided by the research may not suit to all the clients of the company based on the

investment criteria and mode of trade.

1.6. Review Of Literature

Chitra (2011) observed that investors must also take into account various factors like Union Budget, company

performance, political and social events, climatic conditions, etc, before taking a decision of investing in

stocks. The scrip should also be fundamentally good. Therefore, it‟s advisable for a trader or investor to make

technical analysis of stocks for better return of investments.

Ravindra and Wang (2006) examined the relationship of trading volume to stock indices in Asian markets,

Stock market indices from six developing markets in Asia were analyzed over a 34 months period ending in

October 2005. In the South Korean market, the causality extends from the stock indices to trading volume,

while the causality was the opposite in the Taiwanese market.

1.7. Research Methodology

The research design is analytical in nature. The researcher has used facts or information already available to

make a critical evaluation of the material.

1.7.1. Sample Size

Four FMCG companies were considered from the FMCG sector to analyze the short-term price movement of

the companies, the names of the companies are, Hindustan Unilever Limited (HUL), Britannia, and Procter

and Gamble (P&G).

1.7.2. Period of Study

The time period of analyzing the study is from 2011 – 2013.

1.7.3. Tools Used For Study

1.7.3.1. Bollinger Band

Developed in the early 1980's by John Bollinger, Bollinger bands were one of the first adaptive volatility

envelope tools. Rather than fixed percentage envelopes being drawn above and below the moving average,

Bollinger bands are calculated based on the standard deviation of an instrument's closing price.

Bollinger bands use standard deviation and a simple moving average to help traders determine buy and sell

events, or to help confirm other patterns. A price chart that uses Bollinger bands displays four lines; price, the

upper and lower Bollinger bands, and the moving average.

Moving average

In statistics, a moving average, also called rolling average, rolling mean or running average, is a type of finite

impulse response filter used to analyze a set of data points by creating a series of averages of different subsets

of the full data set.

Given a series of numbers and a fixed subset size, the first element of the moving average is obtained by

taking the average of the initial fixed subset of the number series. Then the subset is modified by "shifting

forward", that is excluding the first number of the series and including the next number following the original

subset in the series. This creates a new subset of numbers, which is averaged. This process is repeated over

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the entire data series. The plot line connecting all the (fixed) averages is the moving average. A moving

average is a set of numbers, each of which is the average of the corresponding subset of a larger set of datum

points. A moving average may also use unequal weights for each datum value in the subset to emphasize

particular values in the subset.

1.7.3.2. Moving Average

In statistics, a moving average, also called rolling average, rolling mean or running average, is a type of finite

impulse response filter used to analyze a set of data points by creating a series of averages of different subsets

of the full data set.

Given a series of numbers and a fixed subset size, the first element of the moving average is obtained by

taking the average of the initial fixed subset of the number series. Then the subset is modified by "shifting

forward", that is excluding the first number of the series and including the next number following the original

subset in the series. This creates a new subset of numbers, which is averaged. This process is repeated over

the entire data series. The plot line connecting all the (fixed) averages is the moving average. A moving

average is a set of numbers, each of which is the average of the corresponding subset of a larger set of datum

points. A moving average may also use unequal weights for each datum value in the subset to emphasize

particular values in the subset.

2. DATA ANALYSIS AND INTREPRETATION

2.1.1. Hindustan Unilever Limited (HUL)

Interpretation

The above chart shows that Bollinger band technique of HUL for the period of December 2011 to December

2012. Here at all levels we had profits where we will be buying at the lower band and the target will be the

middle band and selling at upper band and the target will be middle band.

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Investment No of

lots Position

Investing

point in Rs

Target

point in

Rs

Profit

in Rs

10000 10 Long 380 390 100

10000 10 Short 420 400 200

10000 10 Long 406 421 150

10000 10 Short 425 424 10

10000 10 Long 506 521 140

10000 10 Short 532 525 70

10000 10 Long 526 546 200

2.1.2. Britannia

Interpretation

The above chart shows that Bollinger band technique of Britannia for the period of December 2011 to

December 2012. Here at all levels we had profits where we will be buying at the lower band and the target

will be the middle band and selling at upper band and the target will be middle band.

Investment No of

lots Position

Investing

point in

Rs

Target

point in

Rs

Profit

in Rs

10000 10 Long 427 432 50

10000 10 Short 525 521 40

10000 10 Long 493 498 50

10000 10 Short 508 497 110

10000 10 Long 491 496 50

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2.1.3. Procter and Gamble (P&G)

Interpretation

The above chart shows that Bollinger band technique of Procter and Gamble for the period of December 2011

to December 2012. Here at all levels we had profits where we will be buying at the lower band and the target

will be the middle band and selling at upper band and the target will be middle band.

Investment No of

lots Position

Investing

point in

Rs

Target

point in Rs

Profit in

Rs

10000 5 Long 1673 1783 550

10000 5 Short 2220 2209 55

10000 5 Long 2031 2183 760

10000 5 Short 2430 2409 105

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2.1.4. Godrej

Interpretation

The above chart shows that Bollinger band technique of Godrej for the period of December 2011 to December

2012. Here at all levels we had profits where we will be buying at the lower band and the target will be the

middle band and selling at upper band and the target will be middle band.

Investment No of

lots Position

Investing

point in

Rs

Target

point in

Rs

Profit

in Rs

10000 10 Long 479 492 130

10000 10 Short 561 539 220

10000 10 Long 642 661 190

10000 10 Short 669 660 90

10000 10 Long 629 659 300

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2.2.1. Hindustan Unilever Limited (HUL)

Interpretation

The above chart shows that Moving average technique of HUL for the period of December 2011 to December

2012. In our study we have chosen 200 day moving average in to consideration because the average number

of working days in a year is 200. Here we cannot fix the target for the levels and when the market closes

below the average line and when it touches the line after closing we will go for short and when it is in vise

versa we will prefer long. The first selling was initiated in February and the trade ended with a loss and out of

five trades we got profit in four trades and on trade ended with a loss.

2.2.2. Britannia

Interpretation

The above chart shows that Moving average technique of Britannia for the period of December 2011 to

December 2012. In our study we have chosen 200 day moving average in to consideration because the

average number of working days in a year is 200. Here we cannot fix the target for the levels and when the

market closes below the average line and when it touches the line after closing we will go for short and when

it is in vise versa we will prefer long. Here in maximum of cases we got correction but from February to April

there was no trade initiated in the market. Due to consolidation phase totally 9 trades was initiated and out of

9 trades two trades ended with a break even and other trades was profit trades.

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2.2.3. Procter and Gamble (P&G)

Interpretation

The above chart shows that Moving average technique of Procter and Gamble for the period of December

2011 to December 2012. In our study we have chosen 200 day moving average in to consideration because

the average number of working days in a year is 200. Here we cannot fix the target for the levels and when the


it is in vise versa we will prefer long. Only minimum of trades are been initiated and corrections are also low

and in some cases we met loss out of the trade.

2.2.4. Godrej

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Interpretation

The above chart shows that Moving average technique of Godrej for the period of December 2011 to

December 2012. In our study we have chosen 200 day moving average in to consideration because the

average number of working days in a year is 200. Here we cannot fix the target for the levels and when the


it is in vise versa we will prefer long. Here only one trade is been initiated throughout the year and there was a

huge correction for the technique.

3.0. FINDINGS OF THE STUDY

3.1. Bollinger Band

1. In HUL the total profit is Rs.870 where all trades ended with a profit and the frequency of trades are

also high.

2. In Britannia5 trades was initiated and the total profit is 300 and all the five trades ended with a profit

in the last one year.

3. In Godrej the first buying was initiated at 479 and the target was covered at 492, the second trade was

initiated at 561 and the target was 539, the third long was initiated at 642 and the profit was 190 out

of the trade.

4. In P&G the first trade reached a profit of 550 and in the same year we had a highest profit of 760 and

the total profit out of the script is 1470.

3.2. Moving Average

1. In HUL the first selling was initiated in February and the trade ended with a loss and out of five

trades we got profit in four trades and on trade ended with a loss.

2. In Britannia in maximum of cases we got correction but from February to April there was no trade

initiated in the market. Due to consolidation phase totally 9 trades was initiated and out of 9 trades

two trades ended with a break even and other trades was profit trades.

3. In Godrej only one trade is been initiated throughout the year and there was a huge correction for the

technique.

4. In P&G only minimum of trades are been initiated and corrections are also low and in some cases we

met loss out of the trade.

4.0. Suggestions

1. In P &G the total profit is 1470 which had the highest profit in that technique in the last financial

year. So a high priority of portfolio can be used in this script.

2. The Godrej had a profit of 190 which was the lowest of all the counters and a low priority of portfolio

can be used in this script.

3. Using moving average in Britannia 9 trades are been initiated and from all the trades 7 trades met

with profit and 2 trades were loss trades. So out of all the four scripts Britannia can be used for

portfolio.

4. In RSI Procter & Gamble had highest number of trades and the profit was also high in this counter.

So it can be preferred for portfolio.

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5.0. Conclustion

1. The FMCG industry is a largest industry in case of market capitalization. The technical analysis plays

a vital role in deciding about the profit and loss of trade in the market. In our study we have used RSI,

moving average, Bollinger band as a tool for analyzing the market.

2. The conclusion is that in RSI is the tool used for analysis and the profit ratio of the tool is also high so

it can be preferred to the clients for desiring the long and short calls in the industry.

REFERENCES

1. Banz, Rolf W. (1981). “The Relationship between Return and Market Value of Common Stock.

“Journal of Financial Economics, Vol. 9, No.3, pp. 3 – 18.

2. Chitra. R. (2011). “Effectiveness of Technical Analysis Using Candlestick Chart for Selection Of

Equity Stock In Indian Capital Market.” International Journal of Management & Business Studies,

Vol.1, No.4, pp.42-45.

3. Donald E.Ficher and Ronald J Jordan, Security Analysis and Portfolio Management, Prentice hall of

india pvt Ltd, New Delhi, 6th Edition 2002

4. Mehta Kiran and Chander Ramesh (2010). “Examination of January, Decemeber and November

Effects On The Indian Stock Market.” Indian Journal of Finance, Vol.4, No.9, pp.25-33.

5. Ravindra, K., Y.Wang (2006). “The Causality Between Stock Index Returns And Volumes In the

Asian Equity Markets”. Journal of International Business Research, Vol.5, No.1, pp.63-74.

6. Venkatalashmi M., Sindhu C.M. (2010). “A Study On Technical Analysis Of Equity Shares Of

Equity Shares Of Tata Motors For The Period From November 2008 To April 2009. ”Indian Journal

of finance, Volume 4, Issue 5, pp. 18-31.

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