protfolio management(2)

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Chapter 1

INTRODUCTION

Portfolio managementInvesting in securities such as shares, debentures, and bonds is profitable as well as excitingIt is indeed rewarding, but involves a great deal of risk and calls for scientific knowledge awell artistic skill. In such investments both rationale and emotional responses are involvedInvesting in financial securities is now considered to be one of the best avenues for investinone savings while it is acknowledged to be one of the best avenues for investing one savinwhile it is acknowledged to be one of the most risky avenues of investment.

It is rare to find investors investing their entire savings in a single security. Instead,

they tend to invest in a group of securities. Such a group of securities is called

portfolio . Creation of a portfolio helps to reduce risk, without sacrificing returns. Portfoliomanagement deals with the analysis of individual securities as well as with the theory and practice of optimally combining securities into portfolios. An investor who understands thfundamental principles and analytical aspects of portfolio management has a better chance osuccess.

An investor considering investment in securities is faced with the problem of choosing fromamong a large number of securities and how to allocate his funds over this group ofsecurities. Again he is faced with problem of deciding which securities to hold and how mucto invest in each. The risk and return characteristics of portfolios. The investor tries to choosthe optimal portfolio taking into consideration the risk return characteristics of all possible portfolios.

As the risk return characteristics of individual securities as well as portfolios also changeThis calls for periodic review and revision of investment portfolios of investors.

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

It is evident that rational investment activity involves creation of an investment portfolioPortfolio management comprises all the processes involved in the creation and maintenancof an investment portfolio. It deals specifically with the security analysis, portfolio analysis portfolio selection, portfolio revision & portfolio evaluation. Portfolio management makeuse of analytical techniques of analysis and conceptual theories regarding rational allocationof funds. Portfolio management is a complex process which tries to make investment activitmore rewarding and less risky.

Selection of Portfolio

The selection of portfolio depends upon the objectives of the investor. The selection of portfolio under different objectives are dealt subsequently

Objectives and asset mix

If the main objective is getting adequate amount of current income, sixty percent of theinvestment is made in debt instruments and remaining in equity. Proportion varies according

to individual preference.

Growth of income and asset mix

Here the investor requires a certain percentage of growth as the income from the capital hehas invested. The proportion of equity varies from 60 to 100 % and that of debt from 0 to 4%. The debt may be included to minimize risk and to get tax exemption.

Capital appreciation and Asset Mix

It means that value of the investment made increases over the year. Investment in real estatecan give faster capital appreciation but the problem is of liquidity. In the capital market, thvalue of the shares is much higher than the original issue price.

Safety of principle and asset mix

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Usually, the risk adverse investors are very particular about the stability of principal.Generally old people are more sensitive towards safety.

Risk and return analysis

The traditional approach of portfolio building has some basic assumptions. An investor wanthigher returns at the lower risk. But the rule of the game is that more risk, more return. Sowhile making a portfolio the investor must judge the risk taking capability and the returnsdesired.

Diversification

Once the asset mix is determined and risk return relationship is analyzed the next step is to

diversify the portfolio. The main advantage of diversification is that the unsystematic risk iminimized.

Research:

We have a team of over 15 research analysts, each with impeccable professional credentialsWith a collective experience spanning several hundred years, a veritable treasure-trove ofexperience and understanding of the markets and of various sectors and companies, it comeas no surprise that we are the obvious choice for none other than Forbes when it came tochoosing the Best of the Web for Asia. Under the Asian investing category, Forbes rates us a`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 thtable their enormous experience and knowledge of economy, market sentiment and sectora

trends. For every portfolio, the investment strategy is decided after a careful assessment oseveral factors like your investment needs, preferences and risk profile. To ensure aconsistent performance, we apply rigorous methods to measure and control risk. As ourinvestment philosophy is not driven by brokerage income, you may find a surprisingly lowchurn in the portfolios managed by us.

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Timing:

Proponents of the traditional long-term investment would have you believe that in the longterm, timing hardly makes any difference. But given the extent of volatility that is prevalen

in the modern markets, stocks could swing more even in a given day more than aconservative investors targeted return for an entire year. We have a team of dealers andtechnical 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 ownRelationship Manager. Relationship Managers at IndiaInfoline are chosen after stringentchecks related to the character, integrity and the overall competence post which they undergoextensive training. You can think of your Relationship Manager as your one point of contacfor all your queries related to your investments

BackOffice:

An online back office means you always have online and anytime access to your ledgeraccount, your contract notes, bills and portfolio performance report. This is the result of ouimmense investment in technology and systems over the years.

Apart from these you will discover many small and thoughtful features, which will add valuto your experience, literally

OBJECTIVES

To study how to analyses securities

To know how to construct a portfolio

To know the benefits of constructs a portfolio

To know how to manage a portfolio

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Evolution of Portfolio Management

Portfolio management is essentially a systematic method of maintaining ones investmen

efficiently. Many factors have contributed to the existence and development of the concept.In the early years of the century analyst used financial statements to find the value of thesecurities. The first to be analyzed using this was Railroad Securities of the USA. A bookleentitled The Anatomy of the Railroadwas published by Thomas F. Woodlock in 1900. Asthe time progressed this method became very important in the investment field, althoughmost of the writers adopted different ways to publish there data.

They generally advocated the use of different ratios for this purpose. John Moody in his bookThe Art of wall Street Investing, strongly supported the use of financial ratios to know theworth of the investment. The proposed type of analysis later on became the common-sizeanalysis.

The other major method adopted was the study of stock price movement with the help of price charts. This method later on was known asTechnical Analysis . It evolved during 1900-1902 when Charles H. Dow, the founder of the Dow Jones and Co. presented his view in thseries of editorials in the Wall Street Journal in USA. The advocates of technical analysis believed that stock prices movement is ordered and systematic and the definite pattern coul be identified. There investment strategy was build around the identification of the trend an pattern in the stock price movement.

Another prominent author who supported the technical analysis was Ralph N. Elliot who published a book in the year 1938 titled The Wave Principle. After analyzing 75 yearsdata of share price, he concluded that the market movement was quite orderly and followed pattern of waves. His theory is known as Elliot Wave Theory

According to J.C. Francis the development of investment management can be tracedchronologically through three different phases

First phase is known as Speculative Phase. Investment was not a wide spread activity, but acake of few rich people. The process is speculative in nature. Investment management was a

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art and needed skills. Price manipulation was resorted to by the investors. During this time period pools and corners were used for manipulation. The result of this was the stockexchange crash in the year 1929. Finally the daring speculative ventures of investors weredeclared illegal in the US by the Securities Act of 1934.

Second phase began in the year 1930. The phase was of professionalism. After coming up othe Securities Act, the investment industry began the process of upgrading its ethics,establishing standard practices and generating a good public image. As a result theinvestments market became safer place to invest and the people in different income groupstarted investing. Investors began to analyze the security before investing.

During this period the research work of Benjamin Graham and DavidL. Dood was widely

publicized and publicly acclaimed. They published a book Security Analysisin 1934,which was highly sought after. There research work was considered first work in the field osecurity analysis and acted as the base for further study. They are considered as pioneers ofsecurity analysis as a discipline.

Third phase was known as the scientific phase. The foundation of modern portfolio theorywas laid byMarkowitz . His pioneering work on portfolio management was described in hisarticle in the Journal of Finance in the year 1952 and subsequent books published later on.

He tried to quantify the risk. He showed how the risk can be minimized through properdiversification of investment which required the creation of the portfolio. He providedtechnical tools for the analysis and selection of optimal portfolio. For his work he won the Noble Prize for Economics in the year 1990.

The work of Markowitz was extended by theWilliam Sharpe, John Linter andJan Mossinthrough the development of theCapital Asset Pricing Model (CAPM).

If we talk of the present the last two phases of Professionalism and Scientific Analysis arecurrently advancing simultaneously with investment in various financial instruments becoming safer, with proper knowledge to each and every investor.

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Another significant development in the field of investment management is the introduction tDerivatives with the availability of Options and Futures. This has broadened the scope oinvestment management.

Investment is no longer a simple process. It requires a scientific knowledge, a systematicapproach and also professional expertise. Portfolio management is the only way throughwhich an investor can get good returns, while minimizing risk at the same time.

So portfolio management objectives can be stated as: - Risk minimization.

Safeguarding capital.

Capital Appreciation.

Choosing optimal mix of securities.

Keeping track on performance.

NEED FOR THE STUDY

Portfolio management is a process encompassing many activities of investment in assets ansecurities. 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 thexpertise of professionals in investment portfolio management. It involves construction of portfolio bases upon the investors objectives, constraints, preferences for risk and return antax ability. The portfolio is reviewed and adjusted from time to time in tune with the marke

conditions. The evaluation of portfolio is to be done in terms of targets set for a risk andreturn. 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 ofinancial assets open for investments. Portfolio theory concerns itself with the principlesgoverning such allocations. The modern view of investments is oriented more towards th

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assembly of proper combinations of individual securities to form investment portfolios. Acombination of individual securities to form investments portfolios. A combination ofsecurities held together will give a beneficial result if they are grouped in a manner to securhigher 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 ofcorrelations between the different securities in order to find out at what percentage of fundshould be invested among the companies in the portfolio. Also the study includes thecalculation of weights of individual securities involved in the portfolio. These percentagehelp 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 selectedof 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

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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)

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;

Corrlation Coefficient (rAB) = COV AB

(A)(B)

Co-variance (COVAB) = 1/n (RA)-(RA)(RB-RB)

t =1

Where,

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

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

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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 combinedi.e., calculations of assets portfolio weights by using minimum equation, which is given below

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

FORMULA:

p = A- WA + B W B + 2r AB A A WA WB

Where,

p = Portfolio Risk

A = Standard Deviation of security A

WA = Proportion of investment in security B

B = 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.

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The time given for the study is very less i.e. only 45 days,

By studying only 10 companies we cannot came to any reference regarding securitiesanalysis and portfolio management completely

The data collected is purely historical, which is not sufficient for predictors future

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Chapter-2

INDUSTRY PROFILE

Bombay Stock Exchange (BSE)

About the Bombay Stock Exchange

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritagePopularly known as "BSE", it was established as "The Native Share Stock Brokers

Association" in 1875. It is the first stock exchange in the country to obtain permanentrecognition in 1956 from the Government of India under the Securities Contracts(Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development othe Indian capital market is widely recognized and its index, SENSEX, is tracked worldwideEarlier an Association of Persons (AOP), the Exchange is now a demutualised andcorporatized entity incorporated under the provisions of the Companies Act, 1956,

BSE(Corporatization and Demutualization) Scheme, 2005 notified by the Securities andExchange Board of India (SEBI).

With demutualization, the trading rights and ownership rights have been de-linked effectivelyaddressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board

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comprises eminent professionals, representatives of Trading Members and the ManagingDirector of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries.

In terms of organization structure, the Board formulates larger policy issues and exercisesover-all control. The committees constituted by the Board are broad-based. The day-to-dayoperations of the Exchange are managed by the Managing Director and a management teamof professionals.

The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. Thsystems and processes of the Exchange are designed to safeguard market integrity andenhance transparency in operations. During the year 2004-2005, the trading volumes on thExchange showed robust growth.

The Exchange provides an efficient and transparent market for trading in equity, debtinstruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietorysystem of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing &settlement functions of the Exchange are ISO 9001:2000 certified.

History of the Bombay Stock Exchange :

The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history tthe 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's TownHall. The location of these meetings changed many times, as the number of brokersconstantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. I1956, the BSE became the first stock exchange to be recognized by the Indian Governmen

under the Securities Contracts Regulation Act.

The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means tmeasure overall performance of the exchange. In 2000 the BSE used this index to open itsderivatives market, trading Sensex futures contracts. The development of Sensex optionalong with equity derivatives

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Followed in 2001 and 2002, expanding the BSE's trading platform.

Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to anelectronic trading system in 1995. It took the exchange only fifty days to make this transition

NATIONAL STOCK EXCHANGE (NSE)

INTRODUCTION:

The Organization

The National Stock Exchange of India Limited has genesis in the report of the High PowereStudy Group on Establishment of New Stock Exchanges, which recommended promotion oa National Stock Exchange by financial institutions (FIs) to provide access to investors fromall across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and waincorporated in November 1992 as a tax-paying company unlike other stock exchanges in th

country.On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 195in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segmenin June 1994. The Capital Market (Equities) segment commenced operations in Novembe1994 and operations in Derivatives segment commenced in June 2000.

The National Stock Exchange of India Ltd. is the largest stock exchange of the country. NSEis setting the agenda for change in the securities markets in India. The last 5 years have seenus play a major role in bringing investors from 363 cities and towns online, ensuringcomplete transparency, introducing financial guarantee of settlements, ensuring scientificallydesigned and professionally managed indices and by nurturing the dematerialization efforacross the country.

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NSE is a complete capital market prime mover. Its wholly-owned subsidiaries, NationaSecurities Clearing Corporation Ltd. (NSCCL) provides clearing and settlement of securitiesIndia Index Services and Products Ltd. (IISL) provides indices and index services with aconsulting and licensing agreement with Standard & Poor's (S&P), and NSE.IT Ltd. formthe technology strength that NSE works on.

Today, we are one of the largest exchanges in the world and still forging ahead. At NSE, weare constantly working towards creating a more transparent, vibrant & innovative capitamarket. This invariably implies that our need for competent people is continuous. As theleading stock exchange and fiscal entity in the country, we believe in recruiting the finest otalent in the industry. We are looking for talent to be developed into future leaders of ourorganization by cross-departmental exposure, continuous self-development opportunities anongoing reinforcement to develop & enhance customer orientation & leadership potentialAwaiting you is an excellent compensation package including medical benefits, super-annuation benefits and a reward system designed to promote merit and professionalism

Our Technology

Across the globe, developments in information, communication and network technologiehave created paradigm shifts in the securities market operations. Technology has enabledorganizations to build new sources of competitive advantage, bring about innovations in products and services, and to provide for new business opportunities. Stock exchanges alover the world have realized the potential of IT and have moved over to electronic tradingsystems, which are cheaper, have wider reach and provide a better mechanism for trade and post trade execution. NSE believes that technology will continue to provide the necessary impetus for theorganization to retain its competitive edge and ensure timeliness and satisfaction in customeservice. In recognition of the fact that technology will continue to redefine the shape of thesecurities industry, NSE stresses on innovation and sustained investment in technology toremain ahead of competition. NSE's IT set-up is the largest by any company in India. It use

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satellite communication technology to energies participation from around 320 cities spreadall over the country.

In the recent past, capacity enhancement measures were taken up in regard to the trading

systems so as to effectively meet the requirements of increased users and associated tradinloads. With up gradation of trading hardware, NSE can handle up to 6 million trades per dayin Capital Market segment. In order to capitalize on in-house expertise in technology, NSEset up a separate company, NSE.IT, in October 1999. This is expected to provide a platformfor taking up new IT assignments both within and outside India and attaining globalexposure.

NEAT is a state-of-the-art client server based application. At the server end, all tradinginformation is stored in an in-memory database to achieve minimum response time andmaximum system availability for users. The trading server software runs on a fault toleranSTRATUS main frame computer while the client software runs under Windows on PCs.The telecommunications network uses X.25 protocol and is the backbone of the automatedtrading system. Each trading member trades on the NSE with other members through a PClocated in the trading member's office, anywhere in India. The trading members on thevarious market segments such as CM / F&O , WDM are linked to the central computer at th NSE through dedicated 64Kbps leased lines and VSAT terminals. The Exchange uses powerful RISC -based UNIX servers, procured from Digital and HP for the back office processing. The latest software platforms like ORACLE 7 RDBMS, GUPTA -SQL/ORACLE FORMS 4.5 Front - Ends, etc. have been used for the Exchange applicationsThe Exchange currently manages its data centre operations, system and databaseadministration, design and development of in-house systems and design and implementationof telecommunication solutions.

NSE is one of the largest interactive VSAT based stock exchanges in the world. Today itsupports more than 3000 VSATs. The NSE- network is the largest private wide area networkin the country and the first extended C- Band VSAT network in the world. Currently morethan 9000 users are trading on the real time-online NSE application. There are over 15 largcomputer systems which include non-stop fault-tolerant computers and high end UNIX

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servers, operational under one roof to support the NSE applications. This coupled with thenationwide VSAT network makes NSE the country's largest Information Technology user

In an ongoing effort to improve NSE's infrastructure, a corporate network has been

implemented, connecting all the offices at Mumbai, Delhi, Calcutta and Chennai. Thiscorporate network enables speedy inter-office communications and data and voiceconnectivity between offices.

Careers with Us

The National Stock Exchange of India Ltd. is the largest stock exchange of the country. NSEis setting the agenda for change in the securities markets in India. The last 5 years have seenus play a major role in bringing investors from 363 cities and towns online, ensuringcomplete transparency, introducing financial guarantee of settlements, ensuring scientificallydesigned and professionally managed indices and by nurturing the dematerialization efforacross the country.

NSE is a complete capital market prime mover. Its wholly-owned subsidiaries, NationaSecurities Clearing Corporation Ltd. (NSCCL) provides clearing and settlement of securities

India Index Services and Products Ltd. (IISL) provides indices and index services with aconsulting and licensing agreement with Standard & Poor's (S&P), and NSE.IT Ltd. formthe technology strength that NSE works on.

Today, we are one of the largest exchanges in the world and still forging ahead. At NSE, weare constantly working towards creating a more transparent, vibrant & innovative capitamarket. This invariably implies that our need for competent people is continuous. As theleading stock exchange and fiscal entity in the country, we believe in recruiting the finest o

talent in the industry.We are looking for talent to be developed into future leaders of our organization by cross-departmental exposure, continuous self-development opportunities and ongoingreinforcement to develop & enhance customer orientation & leadership potential.

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Awaiting you is an excellent compensation package including medical benefits, super-annuation benefits and a reward system designed to promote merit and professionalism.

Trading

NSE introduced for the first time in India, fully automated screen based trading. It uses amodern, fully computerized trading system designed to offer investors across the length an breadth of the country a safe and easy way to invest.

The NSE trading system called 'National Exchange for Automated Trading' (NEAT) is a fullyautomated screen based trading system, which adopts the principle of an order driven market

Risk Management

A sound risk management system is integral to an efficient clearing and settlement system NSE introduced for the first time in India, risk containment measures that were commoninternationally but were absent from the Indian securities markets.

NSCCL has put in place a comprehensive risk management system, which is constantlyupgraded to pre-empt market failures. The Clearing Corporation ensures that trading membeobligations are commensurate with their net worth.

Risk containment measures include capital adequacy requirements of members, monitorinof member performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement fromtrading when limits are breached, etc.

Market Updates

IISL provides to specialized clients facts and figures, reports and equity market updates onregular intervals. This is a paid service.

Listing

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1) To establish a nationwide trading facility for equities, debt instruments andhybrids.

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

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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 applicantrequired to go through a written examination followed by an interview. A committeeconsisting of experienced professionals from the industry, to assess the applicants capabilityto operate as an exchange member. The exchange admits members separately to wholesale

debt Market (WDM) segment and the Capital market segment. Only corporate members aradmitted to the debt market Segment whereas individuals and firms are also eligible to thecapital market segment.

Eligibility criteria for trading membership on the segment of WCM are as follows:

1. The person eligible to become trading members are bodies corporate,companies, institutions including subsidiaries of banks engaged infinancial services and such other persons or entities are may be permitted from time to time by RBI\SEBI.

2. The whole-time Directors should possess at least two yearsexperience in any activity related to banking or financial services.

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3. The applicant must be engaged solely in the business of the securitiesand must not be engaged in any fund-based activities.

4. 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 personsmay be permitted under the SCR Act, 1957.

2. The applicant may be engaged in the business of securities and must not beengaged 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 listedcompanies and at least 51% in case of these companies.

5. The minimum prescribed qualification of graduation and two years experience ofhandling securities as broker, Sub-broker, authorized assistant etc., must befulfilled 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 directorsin a corporate applicant or trading member should hold minimum 5% of the capital of thecompany.

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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 a

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 anaggregate market capitalization of around Rs.170000crores. All companies included in thindex have a market capitalization in excess of Rs.500crores each and should have traded fo85% 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 ocompletion of operation of NSEs 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) wasestablished 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 premieStock Exchange in the country. It may be noted that the Bombay Stock Exchange is theoldest 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 thetrading in securities, upholds the interests of the investors and ensures redressal of theirgrievances, whether against the companies or its own member-brokers. It also strives toeducate and enlighten the investors by making available necessary informative inputs andconducting investor education programs.

A Government Board comprising of 9 elected Directors (one third of them retire every yea by rotation), Two SEBI Nominees, Seven Public representatives and an Executive Director ithe Apex Body, which decides the policies and regulates the affairs of the Bombay Stock

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Exchange. The executive Director as the Chief Executive Officer is responsible for the dayto-day administration of the Bombay Stock exchange.

SECURITIES TRADED:

The securities traded in the BSE are classified in to three groups namely specified shares oA group and non-specified securities. The latter is sub-divided into B1 and B groupsA group contains the companies with large outstanding shares, good track record and largevolumes of business in the secondary market. Settlements of all the shares are carried outhrough the Clearing House.

In order to enable the market participants, analysts etc., to track the various ups anddowns in the Indian Stock Market, the Exchange has introduced in 1986 an equity stockindex called BSE-SENSEX that subsequently became the barometer of the moments of thshare prices in the Indian Stock Market. It is a Market Capitalization-Weighted index of 30components. The base year of SENSEX is 1978-79. The SENSEX is widely reported in botdomestic 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 stockfrom different industries related to particular base period. The total market value of acompany is determined by multiplying the price of its stock by the number of sharesoutstanding. Statisticians call an index of a set of combined variables (such as price andnumber of shares) a composite index. An indexed number is used to represent the results othis calculation in order to make the value easier to work with and track over a time. It ismuch 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 aggregatemarket of the 30 Companies in the Index by a number called the Index Divisor. The Divisois the only link to the original based period value of the SENSEX. The divisor keeps theindex comparable over a period of time and if the reference point for the entire Index

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maintenance adjustments. SENSEX is widely used to describe the mood in the Indian StockMarkets.

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.

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Chapter-3

COMPANY PROFILE

Company Profile

Kotak Mahindra Bank Limited and its subsidiaries provide various financial products andservices primarily in India. It operates through eight segments: Lending, Corporate BankingTreasury and Investments, Retail Liabilities, Broking, Advisory and Transactional servicesAsset management, and Insurance. The lending segment offers car finance, commerciavehicle finance, personal loans, home loans, agriculture finance, and other loans and servicesThe Corporate Banking segment offers wholesale borrowing, lending, and other services tothe corporate sector. The Treasury and Investments segment deals in debt, equity, moneymarket, forex market, derivatives, and investments. The Retail Liabilities segment provide

retail borrowings, including savings accounts, current accounts, and branch banking networand services. The Broking segment distributes financial products and involves in forex broking. The Advisory and Transactional Services segment provides financial advisory antransactional services, such as mergers and acquisition advice, and equity/debt issuemanagement services. The Asset Management segment engages in the management ofinvestments on behalf of clients and funds. The Insurance segment provides life insurance. Iaddition, the company offers depository services, telephone banking, Internet bankingmobile banking, direct pay services, payment gateway for online shopping, debit cards, andfund transfer services. As of December 3, 2007, it operated a branch network of 147 brancheacross 96 locations in India. Kotak Mahindra Bank was founded in 1985 as Kotak CapitaManagement Finance Limited and changed its name to Kotak Mahindra Finance Limited in1986. Further, it changed its name to Kotak Mahindra Bank Limited. The company is basein Mumbai, India.

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Kotak Mahindra Bank Limited (the Bank) is a commercial bank. The Bank operates in fou business segments: Treasury and Balance Sheet Management Unit (BMU), which includedealing in money market, forex market, derivatives, investments and primary dealership ogovernment securities; Retail Banking, which includes lending, commercial vehicle finance personal loans, agriculture finance, other loans and home loans, branch banking, whichincludes retail borrowings covering savings, current, term deposit accounts and branch banking network/services including distribution of financial products, and credit cardsCorporate Banking, which comprises wholesale borrowings and lendings and other relatedservices to the corporate sector. As of March 31, 2010, it had a network of 249 branches. TheBank caters to the myriad needs of Resident Individuals, NRIs and Businesses.

Established in 1985, the Kotak Mahindra group has been one of India's most reputedfinancial conglomerates. In February 2003, Kotak Mahindra Finance Ltd, the group's flagshicompany was given the license to carry on banking business by the Reserve Bank of India(RBI). This approval created banking history since Kotak Mahindra Finance Ltd. is the firsnon-banking finance company in India to convert itself in to a bank as Kotak Mahindra BanLtd. Today, we are one of the fastest growing bank and among the most admired financialinstitutions in India.

Our Reach

Kotak Mahindra Bank has over 245 branches and a customer base of over 8 lakhs. Spread alover India, not just in the metros but in Tier II cities and rural India as well, we are redefiningthe reach and power of banking.

Our Offerings

We cater to the myriad needs of Resident Individuals, NRIs and Businesses.

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We offer complete financial solutions for infinite needs of all individual & non-individuacustomers depending on the customer's need - delivered through a state of the art technology platform. Investment products like Mutual Funds, Life Insurance, retailing of gold coins an bars etc are also offered. The Bank follows a mix of both open and closed architecture fodistribution of the investment products. All this is backed by strong, in-house research onMutual Funds. We cater to the myriad needs of Resident Individuals, NRIs and Businesses.

We offer complete financial solutions for infinite needs of all individual & non-individuacustomers depending on the customer's need - delivered through a state of the art technology platform. Investment products like Mutual Funds, Life Insurance, retailing of gold coins an bars etc are also offered. The Bank follows a mix of both open and closed architecture fodistribution of the investment products. All this is backed by strong, in-house research onMutual Funds.

Our Savings Account goes beyond the traditional role of savings, and allows you to put asida lot more than just money. The worry-free features of our Savings Account provides a rangof services from funds transfer, bill payments, 2-way sweep through our Active Moneyfeature & much more. You can place standing instructions for investment options that can be booked through Internet or through Phone banking services. The Savings Account thu provides for attractive returns earned through a comprehensive suite products and servicethat offer investment options, all delivered seamlessly to the customer by well integratedtechnology platforms.

Apart from Phone banking and Internet banking, the Bank offers convenient banking facilitthrough Mobile banking, SMS services, Netc@rd, Home banking and Bill Pay facility amonothers.

The Depository services offered by the Bank allows the customers to hold equity shares

government securities, bonds and other securities in electronic or Demat forms.

Our Salary 2 Wealth offering provides comprehensive administrative solutions for Corporatewith features such as easy and automated web based salary upload process therebyeliminating the paper work involved in the process, a dedicated relationship manager toservice the corporate account, customized promotions and tie - ups and many such uniqu

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features. The whole gamut of investment products and investment advisory services isavailable to the salary account holders as well.

For the business community, we offer comprehensive business solutions that include the

Current Account, Trade Services, Cash Management Service and Credit Facilities, keeping inmind the myriad needs of your business.. Our Wholesale banking products offer busines banking solutions for long-term investments and working capital needs, advice on mergerand acquisitions and equipment financing. To meet special needs of the rural market, we havdedicated business offerings for agricultural financing and infrastructure. Our AgricultureFinance division delivers customized products for capital financing and equipment financinneeds of our rural customers.

For financial liquidity we offer you loans that meet your personal requirements with quickapproval and flexible payment options. To complete the personal financial offerings spacewe now offer Kotak Credit Card which is a hassle-free, transparent product that also happento be the first vertical credit card in the industry.

Kotak Mahindra Bank addresses the entire spectrum of financial needs of Non-ResidenIndians. Our tie-up with the Overseas Indian Facilitation Centre (OIFC) as a strategic partnegives us a platform to share our comprehensive range of banking & investment products an

services for Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs). Our OnlinAccount Opening facility and Live Chat service helps you to get in touch with us at thecomfort of your homes and at your convenience. These offerings are specifically designed tosuit the overseas Indians personal financial needs and give the global Indians a near to homfeel.

Banking & Savings

Banking Accounts

Demat

Deposits

NRI Services

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Convenience Banking

Investments & Insurance

Life Insurance

Mutual Funds

Share Trading

Structured Products

Gold

EstatePlanning

Loans & Borrowings

Car Finance

Home Loans

Loans Against Property

PersonalLoans

Corporate & Institutional

Corporate Finance

Investment Banking

Institutional Equities

Treasury

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Kotak Mahindra Rank - 8

2004-05 2005-06

No. of Offices 54 78

No. of Employees 2099 3597

Business per Employee(in Rs.Lakhs) 387.27 352

Profit per Employee( in Rs.

Lakhs) 5.37 4.15Investments( in Rs. Crores) 1827 2856

Our Story

Milestones that have shaped the Kotak Mahindra Group, since 1986

Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been steady and confident journey leading to growth and success. The milestones of KotakMahindra's growth story are listed below by year.

2009 Kotak Mahindra Bank Ltd. opened a representative office in Dubai

Entered Ahmedabad Commodity Exchange as anchor investor.2008 Launched a Pension Fund under the New Pension System.200

6

Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Compan

Kotak Securities.2005

Kotak Group realigned joint venture in Ford Credit; their stake in Kotak Mahindra was bought out (formerly Launched a real estate fund. known as Kotak Mahindra PLtd) and Kotak groups stake in Ford credit Kotak Mahindra was sold.Launched a real estate fund.

2004 Launched India Growth Fund, a private equity fund.200 Kotak Mahindra Finance Ltd. converted into a commercial bank - the first Indian co

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3 to do so.2001 Matrix sold to Friday Corporation.

Launched Insurance Services.200

0 Kotak Mahindra tied up with Old Mutual plc. for the Life Insurance business.Kotak Securities launched its on-line broking site.Commencement of private equity activity through setting up of Kotak Mahindra VCapital Fund.

1992 Entered the Funds Syndication sector 1994 Kotak Securities Ltd. was incorporated1991

The Investment Banking Division was started. Took over FICOM, one of India's lfinancial retail marketing networks

199

0 The Auto Finance division was started1987 Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market1986 Kotak Mahindra Finance Ltd started the activity of Bill Discounting

Senior Management

Core Kotak Mahindra Group team

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Mr. C Jayaram

Executive Director

Mr. C. Jayaram, aged 53 years, is an Executive Director of the Bank and is currently incharge of the Wealth Management Business of the Kotak Group. An alumnus of IIM

Kolkata, he has been with the Kotak Group since 1990 and came on the Kotak board inOctober 1999. He also oversees the international subsidiaries and the alternate assetmanagement business of the group. He is the Director of the Financial Planning StandardBoard, India. He varied experience of over 25 years in many areas of finance and businesshas built numerous businesses for the Group and was CEO of Kotak Securities Ltd. An avi player and follower of tennis, he also has a keen interest in psephology.

Mr. Dipak Gupta

Executive Director

An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has been with theKotak Group since 1992 and joined the board in October 1999.

Mr. Dipak Gupta, aged 48 years, is an Executive Director of Kotak Bank. He headscommercial banking, retail asset businesses and looks after group HR function. Early on, h

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headed the finance function and was instrumental in the joint venture between KotakMahindra and Ford Credit International. He was the first CEO of the resulting entity, KotakMahindra Primus Ltd.

Our Corporate Identity

The Kotak Ace Savings Account with maximum free banking services.

This top end Savings Account variant is suited for those who would like to avail maximum banking and investment related benefits, over and above the numerous FREE services provided by the Kotak Pro Savings Account.

Some of the extra benefits of the Kotak Ace Savings Account include:

Free Access to all Domestic and International VISA ATMs

Free Gold Debit Card

Free Add-on and Supplementary Gold Debit Card

Three NMC Waived Edge Savings Accounts for family members*

Free Demand Drafts (Unlimited at Kotak locations)

Free RTGS

Extended Debit Card withdrawal limit of Rs. 1.75 lac per day through ATM / POS

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15% Discount on Locker Rent * 2% Discount on Gold Eternity Coins & Bars*

Waiver on first year Demat Annual maintenance charge

Free outstation cheque collection

You can enjoy the advantages of the Kotak Ace Savings Account by maintaining an AverageQuarterly Balance of Rs. 50,000.

*Subject to maintenance of the required AQB in the Ace Savings Account.

NMC: Non-Maintenance Charge

At Kotak Mahindra Bank we believe that everyone has the right to worry free banking. So d

take a closer look at the features of these accounts and decide which one fits your needs th best.

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LITERATURE REVIEW

INTRODUCTION TO PORTFOLIO MANAGEMENT

PORTFOLIOA portfolio is a collection of securities. Since it is rarely desirable to invest the entire funds oan individual or an institution in a single security, it is essential that every security be viewedin the portfolio context. Thus it seems logical that the expected return of each of the securitycontained in the portfolio.

Portfolio analysis considers the determination of future risk and return in holding variou blends of the individual securities. Portfolio expected return is a weighted average of thexpected return of individual securities but portfolio variances, inshort contrast, can besomething less then a weighted average of security variance. As a result an investor cansometimes reduce portfolio risk by adding security with greater individual risk than any othesecurity in the portfolio. This is because risk depends greatly on the co-variance amongreturns of individual security. Portfolio which is combination of securities may or may notake an aggregate characteristic of their part.

Since portfolios expected return is a weighted average of the expected return of its securitiesthe contribution of each security to the portfolios expected returns depends on its expectedreturns and its proportionate share of the initial portfolios market value. It follows that aninvestor who simply wants the greatest possible expected return should hold one security; th

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one which is considered to have a greatest, expected return. Very few investors do this, andvery few investments advisors would counsel such an extreme policy. Instead, investorsshould 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 capitala) More liquidity b) Safety of investments, andc) Tax benefits.

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Need for portfolio management

Portfolio management is a process encompassing many activities of investment in assets ansecurities. 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 th

expertise of professionals in investment portfolio management. It involves construction of of a portfolio bases upon the investors objectives, constraints, preferences for risk and returand tax ability. The portfolio is reviewed and adjusted from time to time in tune with themarket conditions. The evaluation of portfolio is to be done in terms of targets set for a riskand 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 ofinancial assets open for investments. Portfolio theory concerns itself with the principles

governing such allocations. The modern view of investments is oriented more towards thassembly of proper combinations of individual securities to form investment portfolios. Acombination of individual securities to form investments portfolios. A combination ofsecurities held together will give a beneficial result if they are grouped in a manner to securhigher return after taking into consideration the risk elements.

The modern theory is of the view that by diversifications, risk can be reduced. The investocan make diversification either by having a large number of shares of companies in differenregion, in different industries or those producing different types products lines. Moderntheory believes in the perspective of combination of securities under constraints of risk anreturn.

Elements of portfolio management

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

Identification of the investors objectives, constraints and preferences.

Strategies are to be developed and implemented in tune with investments policyformulated.

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 adverseinvestors. 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 ormaximize the return subject to the constraint of a tolerable level of risk. It enables theinvestors to identify the potential securities, which will maximize the following objectivesuch 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 returnsyields and uncertainty of appreciation or depreciation of shares prices, loss of liquidity etc. this risk over time, is capital appreciation. This risk is measuredstatistically by the degree of variance or standard deviation of returns. Normallyhigher the risk that the investor taker higher is the return.

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Markowitz model

According to Markowitz, the portfolio theory establishes a relationship between portfolioexpected return and its level of risk as the criteria for selecting the optimal portfolio. Thutwo 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 riskFrom the efficient set of portfolios the best one would be selected on the basis of therisk and returns. These risk and returns are calculated using standard deviations andthe coefficient of variations. It is also called as the full co-variance model. Theexpected return on the portfolio is calculated by using the following;

N

R p = R iXi

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 thmeasures of risk.

Covariance of AB = X2 A2 A +X2 B2 B +2XAXBr ABA B

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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

2 A= Variance of the rate of return on share A.

2 B= Variance of the rate of return on share B.

The term covariance explains the relationship between the movements in the rates ofreturn from shares A and B; it is derived from the following formula:

Cov.AB = r ABA B

Modern portfolio theory (MPT ) is a theory of investment which attempts to maximize

portfolio expected return for a given amount of portfolio risk, or equivalently minimize risfor a given level of expected return, by carefully choosing the proportions of various assetsAlthough MPT is widely used in practice in the financial industry and several of its creatorwon a Nobel memorial prize for the theory, in recent years the basic assumptions of MPThave been widely challenged by fields such as behavioral economics.

MPT is a mathematical formulation of the concept of diversification in investing, with theaim of selecting a collection of investment assets that has collectively lower risk than any

individual asset. That this is possible can be seen intuitively because different types of assetoften change in value in opposite ways. For example, as prices in the stock market tend tomove independently from prices in the bond market, a collection of both types of assets catherefore have lower overall risk than either individually. But diversification lowers risk evenif assets' returns are not negatively correlatedindeed, even if they are positively correlated.

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More technically, MPT models an asset's return as a normally distributed function (or moregenerally as an elliptically distributed random variable), defines risk as the standard deviatioof return, and models a portfolio as a weighted combination of assets so that the return of portfolio is the weighted combination of the assets' returns. By combining different assetwhose returns are not perfectly positively correlated, MPT seeks to reduce the total variancof the portfolio return. MPT also assumes that investors are rational and markets are efficient

MPT was developed in the 1950s through the early 1970s and was considered an importanadvance in the mathematical modeling of finance. Since then, many theoretical and practicacriticisms have been leveled against it. These include the fact that financial returns do nofollow a Gaussian distribution or indeed any symmetric distribution, and that correlations between asset classes are not fixed but can vary depending on external events (especially icrises). Further, there is growing evidence that investors are not rational and markets are noefficient.

Concept

The fundamental concept behind MPT is that the assets in an investment portfolio should no be selected individually, each on their own merits. Rather, it is important to consider howeach asset changes in price relative to how every other asset in the portfolio changes in price.

Investing is a tradeoff between risk and expected return. In general, assets with higherexpected returns are riskier. For a given amount of risk, MPT describes how to select a portfolio with the highest possible expected return. Or, for a given expected return, MPTexplains how to select a portfolio with the lowest possible risk (the targeted expected returncannot be more than the highest-returning available security, of course, unless negativeholdings of assets are possible.)

MPT is therefore a form of diversification. Under certain assumptions and for specificquantitative definitions of risk and return, MPT explains how to find the best possiblediversification strategy.

History

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Harry Markowitz introduced MPT in a 1952 article and a 1959 book. Markowitz classifiesit simply as "Portfolio Theory," because "There's nothing modern about it."

Mathematical model

In some sense the mathematical derivation belowis MPT, although the basic concepts behindthe model have also been very influential.

This section develops the "classic" MPT model. There have been many extensions since.

Risk and expected return

MPT assumes that investors are risk averse, meaning that given two portfolios that offer thsame expected return, investors will prefer the less risky one. Thus, an investor will take oincreased risk only if compensated by higher expected returns. Conversely, an investor whowants higher expected returns must accept more risk. The exact trade-off will be the same foall investors, but different investors will evaluate the trade-off differently based on individuarisk aversion characteristics. The implication is that a rational investor will not invest in a portfolio if a second portfolio exists with a more favorable risk-expected return profile i.eif for that level of risk an alternative portfolio exists which has better expected returns.

Note that the theory uses standard deviation of return as a proxy for risk, which is valid iasset returns are jointly normally distributed or otherwise elliptically distributed . Under themodel:

Portfolio return is the proportion-weighted combination of the constituent assets' returns.

Portfolio volatility is a function of the correlations ij of the component assets, for all asset pairs (i, j).

In general:

Expected return: E(R p)= i Wi E(R i)

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where R p is the return on the portfolio, Ri is the return on asseti and wi is the weighting of component asseti (that is, the share of asseti in the portfolio).

Portfolio return variance:

p2=i Wi2i2+ i jiWiW j i jij

where ij is the correlation coefficient between the returns on assetsi and j. Alternatively theexpression can be written as:

, p2= i jWiW j i jij

where ij = 1 for i= j.

Portfolio return volatility (standard deviation): p

= p2

For a two asset portfolio:

Portfolio return: E(R p)=WAE(R A)+ WBE(R B)

Portfolio variance: p2=WA2A2+ WB2B2+ 2WAW B A BAB

For a three asset portfolio:

Portfolio return: E(R p)=WAE(R A)+ WBE(R B) + WCE(R C)

Portfolio variance: p2=WA2A2+ WB2B2 + WC2C2 +2W AW B A BAB+ 2W AW C A CAC+2WBW C B CBC

Diversification

An investor can reduce portfolio risk simply by holding combinations of instruments whicare not perfectly positively correlated . In other words, investors can reduce their exposure toindividual asset risk by holding a diversified portfolio of assets. Diversification may allow fothe same portfolio expected return with reduced risk.

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If all the asset pairs have correlations of 0they are perfectly uncorrelatedthe portfolio'return variance is the sum over all assets of the square of the fraction held in the asset timethe asset's return variance (and the portfolio standard deviation is the square root of this sum)

The efficient frontier with no risk-free asset

Efficient Frontier. The hyperbola is sometimes referred to as the 'Markowitz Bullet', and isthe efficient frontier if no risk-free asset is available. With a risk-free asset, the straight line ithe efficient frontier.

As shown in this graph, every possible combination of the risky assets, without including anholdings of the risk-free asset, can be plotted in risk-expected return space, and the collectioof all such possible portfolios defines a region in this space. The left boundary of this regiois a hyperbola, the upper edge of this region is theefficient frontier in the absence of a risk-free asset (sometimes called "the Markowitz bullet"). Combinations along this upper edgerepresent portfolios (including no holdings of the risk-free asset) for which there is lowesrisk for a given level of expected return. Equivalently, a portfolio lying on the efficientfrontier represents the combination offering the best possible expected return for given risk

level.

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF ACC:

symbol date prev

close close

return Avg diff D2

48
http://en.wikipedia.org/wiki/File:Markowitz_frontier.jpg


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price

ACC1-Apr-

111074.5

5 1091.851.60997

60.2005

91.40938

6 1.98637

ACC

4-Apr-

11

1091.8

5 1116

2.21184

2

0.2005

9

2.01125

2 4.045136

ACC5-Apr-

11 1116 1123.350.65860

20.2005

90.45801

2 0.209775

ACC6-Apr-

111123.3

5 1129.350.53411

70.2005

90.33352

7 0.11124

ACC7-Apr-

111129.3

5 1128.85 -0.044270.2005

9 -0.24486 0.059958

ACC8-Apr-

111128.8

5 1120.85 -0.708690.2005

9 -0.90928 0.826783

ACC11-

Apr-111120.8

5 1097.1 -2.118930.2005

9 -2.31952 5.380162

ACC13-

Apr-11 1097.1 11171.81387

30.2005

91.61328

3 2.602682

ACC15-

Apr-11 1117 1113.4 -0.322290.2005

9 -0.52288 0.273405

ACC18-

Apr-11 1113.4 1098.2 -1.365190.2005

9 -1.56578 2.45166

ACC19-

Apr-11 1098.2 1101.550.30504

50.2005

90.10445

5 0.010911

ACC20-

Apr-111101.5

5 1106.950.49021

80.2005

90.28962

8 0.083885

ACC21-

Apr-111106.9

5 1112.50.50137

80.2005

90.30078

8 0.090473

ACC25-

Apr-11 1112.5 1112.550.00449

40.2005

9 -0.1961 0.038453

ACC

26-

Apr-11

1112.5

5 1124.45

1.06961

5

0.2005

9

0.86902

5 0.755204

ACC27-

Apr-111124.4

5 1110.1 -1.276180.2005

9 -1.47677 2.180848

ACC28-

Apr-11 1110.1 1104.5 -0.504460.2005

9 -0.70505 0.497094

ACC29-

Apr-11 1104.5 1112.80.75147

10.2005

90.55088

1 0.30347

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0.20059 21.90751RISK:

D2/(N-1)

21.90751/(18-1)

1.2886

1.1351

INTERPREPATION:

THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF ACCFOR THE MONTH OF APRIL 2011.

THE COMPANY HAS AN AVERAGE OF 0.20059 AN THE RISK 1.1351 .THEHIGHEST PRICE RUEING THE MONTH IS 1098.2 THE LOWEST PIECE IS 1104.5

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF AMBUJACEMENT:

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symbol Date

prev

close

close

price return avg diff D2AMBUJACEM

1-Apr-11 147.4 146.8 -0.40706

0.41387 -0.82093

0.673919

AMBUJACEM

4-Apr-11 146.8 148.45

1.123978

0.41387

0.710108

0.504254

AMBUJACEM

5-Apr-11

148.45 151.9

2.324015

0.41387

1.910145

3.648653

AMBUJACEM

6-Apr-11 151.9 150.55 -0.88874

0.41387 -1.30261 1.6968

AMBUJACE

M

7-Apr-

11

150.5

5 151.45

0.59780

8

0.4138

7

0.18393

8

0.03383

3AMBUJACEM

8-Apr-11

151.45 149.35 -1.3866

0.41387 -1.80047

3.241679

AMBUJACEM

11-Apr-11

149.35 149 -0.23435

0.41387 -0.64822

0.420188

AMBUJACEM

13-Apr-11 149 152.9 2.61745

0.41387 2.20358

4.855763

AMBUJACEM

15-Apr-11 152.9 150.6 -1.50425

0.41387 -1.91812

3.679189

AMBUJACEM

18-Apr-11 150.6 150 -0.39841

0.41387 -0.81228

0.659793

AMBUJACEM

19-Apr-11 150 150.55

0.366667

0.41387 -0.0472

0.002228

AMBUJACEM

20-Apr-11

150.55 154.4 2.55729

0.41387 2.14342

4.594249

AMBUJACEM

21-Apr-11 154.4 152.4 -1.29534

0.41387 -1.70921

2.921388

AMBUJACEM

25-Apr-11 152.4 155.6

2.099738

0.41387

1.685868

2.842149

AMBUJACEM

26-Apr-11 155.6 157.8

1.413882

0.41387

1.000012

1.000023

AMBUJACEM

27-Apr-11 157.8 150.95 -4.34094

0.41387 -4.75481 22.6082

AMBUJACE 28-Apr- 150.9 150.9 -0.03312 0.4138 -0.44699 0.19980

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M 11 5 7 3AMBUJACEM

29-Apr-11 150.9 158.2

4.837641

0.41387

4.423771

19.56975

0.41387

73.1518

6

RISK:

D2/(N-1)

73.15186/17

4.3035

2.07437

INTERPREPATION:

THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OFAMBUJA CEMENT FOR THE MONTH OF APRIL 2011.

THE COMPANY HAS AN AVERAGE OF 0.41387 AN THE RISK 2.07437 .THEHIGHEST PRICE RUEING THE MONTH IS 157.8 THE LOWEST PIECE IS 146.8

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STATEMENT SHOWING CALCULATION OF CORELATION COEFFIGENT OF ACCAND AMBUJA CEMENT:

Date return Avg D1 return avg D2 D2 D1*D21-Apr-

111.60997

60.2005

91.409386

27-

0.407060.4138

7-

0.820930.67391

9 -1.1574-Apr-

112.21184

20.2005

92.011252

291.12397

80.4138

70.71010

80.50425

41.42820

75-Apr-

11

0.65860

2

0.2005

9

0.458012

15

2.32401

5

0.4138

7

1.91014

5

3.64865

3 0.874876-Apr-

110.53411

70.2005

90.333526

7-

0.888740.4138

7-

1.30261 1.6968-

0.43446

7-Apr-11

-0.04427

30.2005

9

-0.244863

30.59780

80.4138

70.18393

80.03383

3-

0.04504

53


54/88

8-Apr-11

-0.70868

60.2005

9

-0.909275

8 -1.38660.4138

7-

1.800473.24167

9 1.63712

11-Apr-11

-

2.118928

0.20059

-

2.3195176

-0.23435

0.41387

-0.64822

0.420188

1.503555

13-Apr-11

1.813873

0.20059

1.61328294 2.61745

0.41387 2.20358

4.855763

3.554997

15-Apr-11

-0.32229

20.2005

9

-0.522881

9-

1.504250.4138

7-

1.918123.67918

91.00295

1

18-Apr-11

-

1.365188

0.20059

-

1.5657777

-0.39841

0.41387

-0.81228

0.659793

1.271844

19-Apr-11

0.305045

0.20059

0.10445462

0.366667

0.41387 -0.0472

0.002228

-0.00493

20-Apr-11

0.490218

0.20059

0.28962833 2.55729

0.41387 2.14342

4.594249

0.620795

21-Apr-11

0.501378

0.20059

0.30078766

-1.29534

0.41387

-1.70921

2.921388

-0.51411

25-Apr-11

0.004494

0.20059

-

0.1960956

2.099738

0.41387

1.685868

2.842149

-0.33059

26-Apr-11

1.069615

0.20059

0.86902485

1.413882

0.41387

1.000012

1.000023

0.869035

27-Apr-11

-1.27617

90.2005

9

-1.476769

5-

4.340940.4138

7-

4.75481 22.60827.02175

5

28-Apr-11

-

0.504459

0.20059

-

0.7050491

-0.03312

0.41387

-0.44699

0.199803

0.315152

29-Apr-11

0.751471

0.20059

0.55088125

4.837641

0.41387

4.423771

19.56975

2.436972

0.4138773.1518

620.0511

3

54


55/88

CORELATION COFFIENT=d1d2/d22

=20.05113/(73.05113)2

=20.05113/5336.467

=0.00384

PORTFOLIO CONSTRUTION:

W1=INVESTMENT WEIGHT1 50%

W2=INVESTMENT WEIGHT2=50%

R 1=RETURN OF INDIVIDUAL SECURITIES 0.20059

R 2=RETURN OF INDIVILDUAL SRCURITIES -0.03312

1=RISK OF 1ST SECURITIES 1.1351

2=RISK OF 2 NDSECURITIES 2.07437

12=CORELATION COEFFICENT BETWEETSECURITIES1&2=0.00384.

RETURN OF PORTFOLIO:

= W1R 1+W2R 2

=0.5*0.20059+0.5*0.41387

=0.100295+0.206935

=0.30723.

55


56/88

RISK OF PORTFOLIO=

= W1212+W2222+2W1W21212

=(0.5)2(1.1351)2+(0.5)2(2.07437)2+2(0.5)(0.5)(1.1351)(2.07437)(0.00384)

=0.3221+1.07575+0.00199

=1.39984

=1.18314

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF AXISBANK

Symbol Date

Prev

close

Close

price return avg Diff D2

AXISBANK 1-Apr-

111403.8

5 1407.750.27780

7

-0.4636

60.74146

7 0.549774

AXISBANK 4-Apr-

111407.7

5 1432.11.72971

1

-0.4636

62.19337

1 4.810874

AXISBANK 5-Apr-

11 1432.1 1424.75 -0.51323

-0.4636

6 -0.04957 0.002457

AXISBANK

6-Apr-

11

1424.7

5 1428.95

0.29478

9

-0.4636

6

0.75844

9 0.575244

AXISBANK 7-Apr-

111428.9

5 1445.751.17568

8

-0.4636

61.63934

8 2.687463AXISBANK 8-Apr-

111445.7

51449.7 0.27321

5-

0.46360.73687

50.542984

56


57/88

6

AXISBANK 11-Apr-

11 1449.7 1409.85 -2.74884

-0.4636

6 -2.28518 5.222069

AXISBANK 13-Apr-

111409.8

5 1438.32.01794

5

-0.4636

62.48160

5 6.158364

AXISBANK 15-Apr-

11 1438.3 1429.9 -0.58402

-0.4636

6 -0.12036 0.014487

AXISBANK

18-Apr-

11 1429.9 1389.8 -2.80439

-0.4636

6 -2.34073 5.479026

AXISBANK 19-Apr-

11 1389.8 1409.351.40667

7

-0.4636

61.87033

7 3.498161

AXISBANK 20-Apr-

111409.3

5 14482.74239

9

-0.4636

63.20605

9 10.27881

AXISBANK 21-Apr-

11 1448 1447.55 -0.03108

-0.4636

60.43258

3 0.187128

AXISBANK 25-Apr-

111447.5

5 1377.3 -4.85303

-0.4636

6 -4.38937 19.26655

AXISBANK 26-Apr-

11 1377.3 1356.35 -1.52109

-0.4636

6 -1.05743 1.118162

AXISBANK 27-Apr-

111356.3

5 1343.85 -0.92159

-

0.46366 -0.45793 0.209701

AXISBANK 28-Apr-

111343.8

5 1333.7 -0.75529

-0.4636

6 -0.29163 0.08505AXISBANK 29-Apr- 1333.7 1286.6 -3.53153 - -3.06787 9.411819

57


58/88

110.4636

6-0.46366 70.09813

Risk:D2/(N-1)

70.09813/(18-1)

4.1234

2.0306

INTERPREPATION:

THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF AXISBANK FOR THE MONTH OF APRIL 2011.

THE BANK HAS AN AVERAGE OF 0.46366 AN THE RISK 2.0306.THE HIGHESTPRICE RUEING THE MONTH IS 1449.7 THE LOWEST PIECE IS 1403.85

58


59/88

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF INDIANBANK

Symbol Date

Prev

Close

Close

Price return avg diff D2

INDIANB 1-Apr-11 232.75 229.9 -1.224490.2217

3 -1.44622 2.091552

INDIANB 4-Apr-11 229.9 236.452.84906

50.2217

32.62733

5 6.902888

INDIANB 5-Apr-11 236.45 242.92.72784

90.2217

32.50611

9 6.280635

INDIANB 6-Apr-11 242.9 241.8 -0.452860.2217

3 -0.67459 0.455073

INDIANB 7-Apr-11 241.8 245.551.55086

80.2217

31.32913

8 1.766609

INDIANB 8-Apr-11 245.55 232.85 -5.172060.2217

3 -5.39379 29.093

INDIANB11-Apr-

11 232.85 229.2 -1.567530.2217

3 -1.78926 3.201461

INDIANB

13-Apr-

11 229.2 235.9

2.92321

1

0.2217

3

2.70148

1 7.298001

INDIANB15-Apr-

11 235.9 234.2 -0.720640.2217

3 -0.94237 0.888069

INDIANB18-Apr-

11 234.2 237.251.30230

60.2217

31.08057

6 1.167644

INDIANB19-Apr-

11 237.25 232.9 -1.833510.2217

3 -2.05524 4.224007

INDIANB20-Apr-

11 232.9 238.92.57621

30.2217

32.35448

3 5.54359

INDIANB21-Apr-

11 238.9 239.350.18836

30.2217

3 -0.03337 0.001113

INDIANB25-Apr-

11 239.35 247.053.21704

60.2217

32.99531

6 8.971919

INDIANB26-Apr-

11 247.05 247.20.06071

60.2217

3 -0.16101 0.025925

59


60/88

INDIANB27-Apr-

11 247.2 251.81.86084

10.2217

31.63911

1 2.686686

INDIANB28-Apr-

11 251.8 245.5 -2.501990.2217

3 -2.72372 7.418627

INDIANB29-Apr-

11 245.5 241.1 -1.792260.2217

3 -2.01399 4.0561590.22173 92.07296

Risk:D2/(N-1)

92.07296/(18-1)

5.41605

2.3272

INTERPREPATION:

THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OFINDIAN BANK FOR THE MONTH OF APRIL 2011.

THE BANK HAS AN AVERAGE OF 0.22173 AN THE RISK 2.3272 THE HIGHESTPRICE RUEING THE MONTH IS 251.8 THE LOWEST PIECE IS 232.8

60


61/88

STATEMENT SHOWING CALCULATION OF CORELATION COEFFIGENT OF AXISAND INDIAN BANK

Date return avg D1 return avg D2 D2 D1*D21-Apr-

11

0.27780

7

-

0.46366

0.74146

7 -1.22449

0.2217

3 -1.44622

2.09155

2 -1.072324-Apr-

111.72971

1-

0.463662.19337

12.84906

50.2217

32.62733

56.90288

8 5.7627195-Apr-

11 -0.51323-

0.46366 -0.049572.72784

90.2217

32.50611

96.28063

5 -0.124236-Apr-

110.29478

9-

0.463660.75844

9 -0.452860.2217

3 -0.674590.45507

3 -0.511647-Apr-

111.17568

8-

0.463661.63934

81.55086

80.2217

31.32913

81.76660

9 2.1789218-Apr-

110.27321

5-

0.463660.73687

5 -5.172060.2217

3 -5.39379 29.093 -3.974511-Apr-

11 -2.74884-

0.46366 -2.28518 -1.567530.2217

3 -1.789263.20146

1 4.08879613-Apr-

112.01794

5-

0.463662.48160

52.92321

10.2217

32.70148

17.29800

1 6.70401

61


62/88

15-Apr-11 -0.58402

-0.46366 -0.12036 -0.72064

0.22173 -0.94237

0.888069 0.113427

18-Apr-11 -2.80439

-0.46366 -2.34073

1.302306

0.22173

1.080576

1.167644 -2.52934

19-Apr-11

1.406677

-0.46366

1.870337 -1.83351

0.22173 -2.05524

4.224007 -3.84399

20-Apr-11

2.742399

-0.46366

3.206059

2.576213

0.22173

2.354483 5.54359 7.548611

21-Apr-11 -0.03108

-0.46366

0.432583

0.188363

0.22173 -0.03337

0.001113 -0.01443

25-Apr-11 -4.85303

-0.46366 -4.38937

3.217046

0.22173

2.995316

8.971919 -13.1475

26-Apr-

11 -1.52109

-

0.46366 -1.05743

0.06071

6

0.2217

3 -0.16101

0.02592

5 0.17026127-Apr-

11 -0.92159-

0.46366 -0.457931.86084

10.2217

31.63911

12.68668

6 -0.750628-Apr-

11 -0.75529-

0.46366 -0.29163 -2.501990.2217

3 -2.723727.41862

7 0.79432429-Apr-

11 -3.53153-

0.46366 -3.06787 -1.792260.2217

3 -2.013994.05615

9 6.178659

92.0729

6 7.571072

CORRELATION COEFFICIENT:d1d2/d22

=7.571072/92.072962

=0.0676

PORTFOLIO CONSTRUTION:

W1=INVESTMENT WEIGHT1 50%

W2=INVESTMENT WEIGHT2=50%

62


63/88

R 1=RETURN OF INDIVIDUAL SECURITIES 0.46366

R 2=RETURN OF INDIVILDUAL SRCURITIES 0.22173

1=RISK OF 1ST SECURITIES 2.0306

2=RISK OF 2 NDSECURITIES 2.3272

12=CORELATION COEFFICENT BETWEETSECURITIES1&2=00676.

RETURN OF PORTFOLIO:

= W1R 1+W2R 2

=0.5*0.46366+0.5*0.2217

=0.23183+0.11085

=0.34268

RISK OF PORTFOLIO=

= W1212+W2222+2W1W21212

=(0.5)2(2.0306)2+(0.5)2(2.3272)2+2(0.5)(0.5)(2.0306)(2.3272)(0.0676)

=1.03083+1.35396+0.15972

=2.54451

=1.5951

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OFBAJAJ AUTO:

Symbol Date

Prev

Close

Close

Price Return avg Diff D2

63


64/88

BAJAJ-AUTO

1-Apr-11

1463.25

1458.95 -0.29387

0.046982 -0.34085 0.116178

BAJAJ-AUTO

4-Apr-11

1458.95

1456.95 -0.13708

0.046982 -0.18407 0.033881

BAJAJ-AUTO

5-Apr-11

1456.95

1438.15 -1.29037

0.046982 -1.33735 1.788502

BAJAJ-AUTO

6-Apr-11

1438.15 1451.6

0.935229

0.046982

0.888247 0.788983

BAJAJ-AUTO

7-Apr-11 1451.6

1440.25 -0.7819

0.046982 -0.82888 0.687038

BAJAJ-AUTO

8-Apr-11

1440.25

1416.95 -1.61777

0.046982 -1.66476 2.771415

BAJAJ-

AUTO

11-Apr-

11

1416.9

5 1382.1 -2.45951

0.04698

2 -2.50649 6.282493BAJAJ-AUTO

13-Apr-11 1382.1

1398.75

1.204689

0.046982

1.157707 1.340284

BAJAJ-AUTO

15-Apr-11

1398.75

1419.65

1.494191

0.046982

1.447209 2.094415

BAJAJ-AUTO

18-Apr-11

1419.65 1437.8

1.278484

0.046982

1.231502 1.516598

BAJAJ-AUTO

19-Apr-11 1437.8

1452.55

1.025873

0.046982

0.978891 0.958227

BAJAJ-AUTO

20-Apr-11

1452.55 1474.4

1.504251

0.046982

1.457269 2.123633

BAJAJ-AUTO

21-Apr-11 1474.4 1465 -0.63755

0.046982 -0.68453 0.468581

BAJAJ-AUTO

25-Apr-11 1465 1477.7

0.866894

0.046982

0.819912 0.672256

BAJAJ-AUTO

26-Apr-11 1477.7 1485.6

0.534615

0.046982

0.487633 0.237786

BAJAJ-AUTO

27-Apr-11 1485.6

1474.45 -0.75054

0.046982 -0.79752 0.636039

BAJAJ-AUTO

28-Apr-11

1474.45 1477.7

0.220421

0.046982

0.173439 0.030081

BAJAJ-AUTO

29-Apr-11 1477.7 1474 -0.25039

0.046982 -0.29737 0.08843

0.04698 22.63482

64


65/88

2

Risk:D2/(N-1)

22.63482/(18-1)

0.2425

INTERPREPATION:

THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OFBAJAJ AUTO FOR THE MONTH OF APRIL 2011.

THE COMPANY HAS AN AVERAGE OF 0.046982 AN THE RISK 0.2425 THEHIGHEST PRICE RUEING THE MONTH IS 1477.7 THE LOWEST PIECE IS 1382.1

65


66/88

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OFTATASTEEL:

Symbol Date

Prev

Close

Close

Price Return Avg Diff D2

TATASTEEL 1-Apr-11622.2

5 626.60.69907

6

-0.0440

10.74308

6 0.552177

TATASTEEL 4-Apr-11 626.6 631.150.72614

1

-0.0440

10.77015

1 0.593133


5 635.20.64168

6

-0.0440

10.68569

6 0.470179

TATASTEEL 6-Apr-11 635.2 634.4 -0.12594

-0.0440

1 -0.08193 0.006713

TATASTEEL 7-Apr-11 634.4 638.35

0.62263

6

-0.0440

1

0.66664

6 0.444416


5 629.85 -1.33156

-0.0440

1 -1.28755 1.65778

TATASTEEL11-Apr-

11629.8

5 624.95 -0.77796

-0.0440

1 -0.73395 0.538687

TATASTEEL13-Apr-

11624.9

5 636.41.83214

7

-

0.04401

1.876157 3.519963

TATASTEEL15-Apr-

11 636.4 630.6 -0.91138

-0.0440

1 -0.86737 0.752325TATASTEEL 18-Apr- 630.6 612.1 -2.93371 - -2.8897 8.350389

66


67/88

110.0440

1

TATASTEEL

19-Apr-

11 612.1 609.4 -0.4411

-0.0440

1 -0.39709 0.157684

TATASTEEL20-Apr-

11 609.4 624.52.47784

7

-0.0440

12.52185

7 6.359763

TATASTEEL21-Apr-

11 624.5 630.050.88871

1

-0.0440

10.93272

1 0.869968

TATASTEEL25-Apr-

11630.0

5 626.7 -0

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