A STUDY ON CAPITAL ASSET PRICING MODEL (CAPM) IN NELLAI CAPITAL MARKET SERVICES FOR THE PERIOD OF 2008-2009

CHAPTER- 1INTRODUCTIONIntroduction to Financial system:

Financial system is that part of economy, which includes all the financial institutions and markets involved in Moving savings from savers to borrowers; and Transferring, sharing & insuring risks. A nation consists of three economic units basically-Government, Industry and HouseholdThese units may perform various activities due to which they may be facing surplus or deficit budgetary situations.Industry: Industry sector may be able to generate funds from their activities and use them for various investment decisions like expansion, diversification, modernization, replacement etc.Government: Government needs fund for financing public expenditure involved is quite high, it generally is in deficit budgetary situation.Individuals: Individual/household sector requires funds for meeting basic necessities as well as for expenditure on luxury items. They however may have been surplus funds in the form of saving.Importance of financial system:

Financial system acts as such a channel, which allows funds to move from people, who lack productive investment opportunities (i.e. savers) to those have such opportunities. By doing so the financial system contributes to higher production and efficiency in the economy. It also improves the well-being of consumers by allowing them to time their purchases better. Financial institutions and financial markets are the two Components of financial system. Both of these further consists of the organized and unorganized sectorFinancial institutions:

1. Regulatory and promotional institutions-

The two major regulatory and promotional institutions in India are-

Reserve Bank of India (RBI) and Securities Exchange Board of India (SEBI)

Both RBI &SEBI administer, legislate, supervise, mentor, control and discipline the entire financial system. The reigns of financial institutions lie in the hands of RBI, while the financial markets are monitored by SEBI. Both of these have several policies, procedure and guidelines, which are changed from time to time so as to set the financial system in the right direction in, order it to contribute towards healthy functioning of the economy.2. Banking institutions:Banking institutions are the depositors and lenders of money and have been categorized on the basis of the function being performed by them. The basic categories areCommercial banks - Their function is to act as depositors of public savings and function with profit motive. They accept deposits and lend them to those in need for a charge called interest which is their profit.Cooperative banks- Cooperative banks are a part of cooperative institutions which are based principles of cooperation and mutual help. They accept deposits and lend short-term and long term credit at reasonable rate of interest.Developmental banks they are set-up for the purpose of promoting certain sectors of the economy and cater to those only for e.g. NABARD (National Bank for Agriculture & Rural Development), set-up for providing agriculture credit and development of the rural sector of the economy.Non banking finance companies-These are privately owned financial intermediaries, which are engaged in accepting and disbursing funds. They are categorized into various types depending on the fund based activities performed by them. The most common of them are1. Investment Companies- which provide loans for personal as well as commercial purpose and charge a higher rate of interest as compared to banks. Inspite of the interest rate charged being higher they are popular due to the hassle free procedure of providing loans on which no security is sought as compared to commercial banks which provide secured loans. They also provide higher interest on deposits accepted by them as compared to commercial banks.2. Housing companies- housing companies provide loan for the purpose of house construction in lieu of a charge or interest for different time periods. This loan is a secured loan and involves hypothecation of the land or building against it. Housing companies in India include Housing and Urban Development Corporation (HUDCO), State Housing Finance Societies (SHFS), Housing Development and Finance Corporation (HDFC), other than these LIC, GIC, UTI also have entered into the area of housing finance. All these institutions are monitored and controlled by a committee set-up by RBI.3. Lease Financing- A lease may be defined as a contractual arrangement in which lessor (one who owns the asset) provides the asset for the use to the lassee (who requires the asset) in return for a periodic payment (rentals) with or without further payment called premium. After the end of the lease period the equipment goes back to the lessor. So there is a separation of ownership and economic use of the asset. Major leasing companies in India are Infrastructure Leasing and Financial Services Ltd.(IL&FS),ICICI, Industrial Reconstruction Bank of India (IRBI), LIC, GIC,IFC,HDFC, some State Industrial Investment Corporations(SIICS).4. Hire purchase companies hire purchase is a system under which term loan is provided for purchase of goods or services and is then amortized in installments as laid down through a contract, under the contract the ownership of asset is transferred to the owner once the contract of loan is signed. Commercial banks, IDBI, ICICI, SFCs, NSIC etc. are involved in such financing.5. Specialized financial institutions- they include EXIM bank providing loans for Export Import, NABARD- National Bank for Agriculture and Rural Development, Tourism & Finance Corporation of India. Technology Development and Information Company of India ltd.

6. Investment institutions like Unit Trust of India providing portfolio management services, Life Insurance Corporation providing cover for risks other than life.7. State level institutions- they include State Financial Corporation (SFCs), which provide credit within the state and State Industrial Development Corporation (SIDCs) providing state industrial credit. Financial markets:1. Capital market: These are market where securities of life greater than one year are traded. They can be further subdivided into

a. Primary market It is a market where securities are floated for the first time. It consists of New issue market, Euro issue market and Private placements

b. Secondary market- It is a place where securities which have already been issued are traded. It is made up of Securities exchange, STCI (Securities Trading Corporation of India) and OTCEI (Over The Counter Exchange of India)

2. Money market: these are the markets where securities having life of less than one year are traded. It is also divided into

a. Primary market- It is made-up of new issues of instruments like T-Bills, Commercial Papers, Certificates of Deposits, Gift Edged Securities, Call money and reports etc.b. Secondary market-which includes Discount and Finance House of India.Major Stock Exchanges of IndiaBombay stock exchange

Bombay stock exchange (BSE) was established in 1875. It was starts as The Native Share & Stock Brokers Association and over the years it has become the premier stock exchange of the country. It is first stock exchange to have obtained permanent recognition in 1956 from the government of India under the securities contracts (Regulation) Act1956.

Departments of BSE Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmers were held in more than 200 cities.

The BSE On-line Trading (BOLT): BOLT facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India.

BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform.

Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts.

BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programme

National Stock Exchange

NSE was set-up in November 1992. It was recognized as a stock exchange in April 1993. In June 1994 a Whole Debt Market (WDM) segment was started and in November 1994 the capital market (Equities) segment commenced its operation. The operations of the derivatives segment commenced from June 2000.NSE & Its Subsidiaries

National Securities Clearing Corporation Ltd (NSCCL)

NSCCL was established in August 1995 as a wholly owned subsidiary of NSE. The objective of NSCCL was to bring & sustain confidence in clearing & settlement of securities, to promote & maintain, short consistent settlement cycles; to provide country risk guarantee and to operate a tight risk containment system.

NSE IT LTDNSEIT a 100% subsidiary of National Stock Exchange of India limited is the information technology arm of the largest stock exchange of the country. It has the major focus on providing top-of- the line products, services and solutions in the area of trading, broker front-end and back office, clearing & settlement, web-based trading, risk management, treasury management, asset-liability management, banking, insurance etc.India Index Services & Products Ltd. (IISL)

IISL is a joint venture between NSE & CRISIL limited. it was set-up in may 1998, to provide a variety of indices and index related services and products for the Indian capital market.National securities depository limited (NSDL)

NSE along with Industrial Development Bank of India (IDBI) & Unit Trust of India (UTI) set-up the National Securities Depository Limited (NSDL), the first depository in India so as to solve the problems related to trading in physical securities.Dot Ex International LimitedDot Ex International Limited was set-up as a joint venture between L-flex Solutions Ltd. & NSEIT. Ltd. Dot Ex was formed to provide a world-class internet trading platform which allows members of NSE to offer online trading facilities to their customers.Popular Indian indices NSEs S &P CNX NIFTY

S & P CNX NIFTY is comprised of 50 stocks and represents 23 sectors of the economy. NIFTY is computed using weighted average market average market capitalization method. The base period is november3, 1995 and its value is 1000.BSE Sensex-Bombay stock exchange sensitive index BSE is comprised of 30 stocks and represents 12 sectors of the economy. It is a value weighted index with base period as 1978 w. e. f. sep 1,2003 the free float, government and promoter holdings as well as locked-in-shares are excluded for calculating market capitalization of the companies and it called Free Float Cap. Weighing.Depository participant (DP)A DP is one with whom an investor needs to open an account to deal in electronic form. While the depository can be compared to a bank, DP is like a branch of the bank with which an investor can have an account. Total Depository Participants in India are 76.Brokers

Brokers are registered members of the stock exchanges through whom investors transact. There are about 10,000 brokers in India.Qualification

1. Must be a citizen of India, of an age not less than 21 years and education of not less than graduates

2. The broker must be having a minimum net-worth which varies from exchange to exchange, and a minimum experience of two years in this business.

3. Should not have been convicted of any offence involving fraud, dishonesty, cheating etc., and not compounded with creditors or declared insolvent.

4. Should not be doing any other business and not connected with any company or corporation as employee/director etc.

5. Not a defaulter on any other exchange.Broker operations

1. New issue marketing, underwriting, etc.2. Client and institutional brokering business for earning brokerage.

3. Jobbing business giving two way quotations and earning profit through margin between bid and offer rates.

4. Arbitrage business- trading as between two or more stock exchange to take advantage of price differential as profit.

5. Portfolio management of the clients funds.ABOUT THE COMPANY Nellai Capital Market Services

Nellai Capital Market Service has been established in the year 1997. It is one of the stock broking company. The proprietor of this company is Mr. S. Selvam, dealer for NSE. Mr. C. Thiruvangadhanathan, dealer for BSE. Services provided by the company is NSE, BSE, F&O, MCX, NCDEX, IPO, Mutual Funds, Portfolio Management Services and Home Trading, There are around 600 active investors. There are six branches in Palayamkottai, Town, Sankarankovil, Ambasamudram, Vallioor, Kayal and N.G.O A colony.Corporate managers:

Motilal Oswal Securities Ltd. (MOSL)

BSE trading has been held or registered here under the control of Motilal Oswal Securities Ltd. (MOSL) at Mumbai. Motilal Oswal Securities Ltd. (MOSL) was founded in 1987. Focus on customer-first-attitude, ethical and transparent business practices, respect for professionalism, research-based value investing and implementation of cutting-edge technology has enabled us to blossom into an almost 2000 member team. It had a network spread over 576 cities and townscomprising 1,257 Business Locations operated by Business Partners. As at September 30th, 2009, there are 5, 80,667 registered customersCoimbatore capital ltd

NSE trading has been held or registered under the constituent of Coimbatore capital ltd (1994).Coimbatore Capital is a financial services provider, operating as a stock broker, depository participant, mutual funds distributor, IPO distributor and insurance agent. It is also a depository participant with National Securities Depository Limited. It is also a dealer in the over the counter exchange of India Limited. A subsidiary of Coimbatore Capital is a member of inter connected stock exchange of India Limited. It has 26 NSE trading terminals across Tamilnadu & Pondicherry. C-Cap NSE trading network is one of the largest network in India and through this network serves over 35000 retail clients.ABOUT THIS PROJECTThere are many investment avenues available for investors today. Different people have different motives for investing. For most investors their interest in investment is an expectation of some positive rate of return. But investors cannot overlook the fact that risk is inherent in any investment. Risk varies with the nature of return commitment. Generally, investment in equity is considered to be more risky than investment in debentures & bonds. A closer look at risk reveals that some are uncontrollable (systematic risk) and some are controllable (unsystematic risk). Risk can be categorized into two types. The risk that cannot be diversified away like interest rate risk and recession is known as systematic risk. Unsystematic risk is stock specific and can be diversified away. Scarcities in raw material supply, labour strike, and management inefficiency are all problems specific to a company and are internal in nature. These negative factors can make the share price fall sharply but can be avoided if well thought. An investment in the shares of certain other companies with sound management can help minimize this risk. The capital asset pricing model, in essence, predicts the relationship between the risk of an assets and its expected return. Capital asset pricing model (CAPM)

CAPM postulates that in a perfect market, where shares are correctly priced, every security will give a return commensurate with risk. Beta is a measure of the risk. The market risk is different from the risks of individual scrips comprising the market. Capital Market Line (CML) relates to the total risk of the market. But Security Market Line (SML) refers to the risk, which is undiversifiable market related risk.Capital Market Line: the CML defines the relationship between total risk and expected return for portfolios consisting of risk-free asset and the market return.Security Market Line: the SML defines the relationship between systematic risk (beta) and expected return for individual securities consisting of risk-free asset and market return.Portfolio: the portfolio is a collection of securities. The investor can create a portfolio from his or her own risk-preferred combination.Efficient portfolio: Portfolios which have returns that are perfectly positively correlated with the market portfolio are referred to as efficient portfolio.Estimation period: The estimation period is two years February 2008 to December 2009.Market index: In this project S&P CNX Nifty has been taken as a market index.Risk-free return: The return on a zero-beta portfolio is the best estimate of the risk-free rate. The average return from different banks on two year term deposit has been taken as a risk free return.The securities selected from repeatedly invested securities in power, oil & gas, cement and steel sector in Nellai capital market services for the period of 2008-09.Present Scenario of Core-Infrastructure Industries

Cement

India, being the second largest cement producer in the world after China with a total capacity of 151.2 Million Tonnes (MT), has got a huge cement industry. With the government of India giving boost to various infrastructure projects, housing facilities and road networks, the cement industry in India is currently growing at an enviable pace. More growth in the Indian cement industry is expected in the coming years. It is also predicted that the cement production in India would rise to 236.16 MT in 2011. It's also expected to rise to 262.61 MT in 2012.Steel

India is currently the fifth largest steel-producing nation in the world with production of over 54 million tonnes (MT). Being a core sector, steel industry tracks the overall economic growth in the long term. Also, steel demand, being derived from other sectors like automobiles, consumer durables and infrastructure, its fortune is dependent on the growth of these user industries. The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labour. Finished (carbon) Steel production increased by 4.5 per cent (provisional) during April-May 2008-09 against an increase of 5.6 per cent during the same period of 2007-08. Electricity

India is the 6th largest consumer of electricity in the world. The rapidly growing economy is energy hungry and the deficit between demand and supply is growing. Revenue losses due to power failure are growing at an alarming rate of 11.9% in last 5 years. Power development is the key to the economic development. Electricity generation increased by 1.7 per cent during April-March 2008-09 against 9.0 per cent during the same period in 2007-08.

Oil & gas India, having the oldest petroleum industry in the world is also the fifth largest energy consumer with oil and gas forming large portion of its requirements. Majority of the supplies are sourced from overseas (more than 75 per cent) and consequently it is the ninth largest importer of the crude oil. Crude oil production saw a growth of 2.1 per cent during April-May 2008-09 against () 0.1 per cent during the same period of 2007-08.

ASSUMPTIONS OF THIS PROJECT1. To make research more convenient rate of return has be calculated by below formula without consideration of dividends Ending price Beginning price Rate of return =

Beginning price2. There are no taxes or transaction costs involved in buying and selling assets.

3. The investors have two-period time horizon (2008 2009).

4. All investments are infinitely divisible, which it is possible to buy or sell fractional shares of any asset or portfolio.

5. There is no inflation or any change in interest rates.

6. The investors are price-takers.7. Investor holds efficient portfolios higher expected returns involve higher risk.CHAPTER- 2OBJECTIVES To understand the risk-return relationship for market portfolio

Assessing portfolio performance

To understand the risk- return relationship for an individual security/asset Identification of under and overvalued assets.CHAPTER- 3RESEARCH METHODOLOGYResearch design: Analytical researchAnalytical research: The researcher has to use facts or information already available and analyze these to make a critical evaluation of the material.Nature of data: Secondary dataSecondary data: Data, which have already been collected by someone else and which have already been passed through the statistical process.Data source

Secondary data collected from National Stock Exchange, Reserve Bank of India and Bombay stock exchange websites.Tools used for analysis

Mean

Standard deviation

Variance

Covariance

Sharpe ratio

Treynor ratio

Mean: This is simply call as mean or arithmetic average. It is found by summing all the observations and dividing the sum by number of observation. xMean = nStandard deviation (SD): Standard Deviation is an indicator of the 'spread' of the data (dispersion of a distribution). If mean is taken as the measure of central tendency of distribution, standard deviation tells us how much each value on an average is 'away' from the mean value (square-root of mean of squared deviations from the mean). Variance: This is the mean of the squares of deviations of individual returns around their average value. (x - x)

2M =

n-1Covariance: Covariance is an absolute measure of the extent to which two sets of numbers move together over time, that is, how often they move up or down. (Ri Ri) (Rm-Rm)

Cov (Ri,Rj) = n-1Probability: Probability is basically the chance of happening or non-happening of an event.

P (A) Probability =

NSharpe ratio: The Sharpe measure reflects the excess return earned on a portfolio per unit of its total risk (standard deviation) RP - RF

Sharpe ratio =

SD (RP)Treynor ratio: The Treynor measure of portfolio performance relates the excess return on a portfolio to the portfolio beta (systemic risk). RP - RF

Treynor = PTools used for presentation:

Tables

Chart for CML: capital market line depicts the risk-return relationship for efficient portfolios. Charts for SML: security market line depicts the risk-return relationship for individual securities. Procedure for selection of companies: The 30 companies have been selected from repeatedly invested companies in power, oil & gas, steel and cement sectors in Nellai capital market services for the past two years.Company selection procedure for portfolios:

From the alphabetically arranged 30 companies, 10 companies are randomly selected through lottery method.Lottery method: In which individual units are picked from the whole group.CHAPTER -4DATA ANALYSIS AND INTERPRETATION Capital asset pricing model (CAPM)

Elements of the model:

I) Capital market line (CML)

II) Security market line(SML)To apply the CAPM estimates of the following factors those determine the CAPM line

Risk-free rate

Market risk premium ( ERM- RF) Beta

RISK- FREE RATE OF RETURNThe return on a zero-beta is the best estimate of the risk-free rate. The average return from different banks on two year term deposit has been taken as a risk free return. x Mean = nTable 4.1.1Interest rate in different banks on 730 days Term depositsS. noName of the BanksInterest rate per annual

1ABN Amro5.75

2Allahabad Bank6

3Andhra Bank6

4AXIS Bank6.5

5Bank of Baroda6.5

6Bank of India6

7Bank of Maharashtra5.75

8Bank of Rajasthan6.5

9Barclays6.25

10Canara Bank6.25

11Catholic Syrian Bank7.25

12Central Bank of India5.5

13Centurion Bank of Punjab6

14Citi Bank6.25

15Corporation Bank5.5

16Dena Bank6.5

17Deutsche Bank4.5

18Development Credit Bank Ltd.7.25

19Dhanalakshmi Bank7.25

20Federal Bank7.25

21HDFC Bank6

22HSBC Bank4.75

23ICICI Bank6.25

24IDBI Bank6.5

25Indian Bank6

26Indian Overseas Bank6

27IndusInd Bank7

28ING Vysya Bank5.25

29Jammu & Kashmir Bank6.75

30Karnataka bank8

31Karur Vysya Bank7.75

32Kotak5.75

33Oriental Bank of Commerce6

34Punjab National Bank6.5

35South Indian Bank7.75

36Standard Chartered Bank7.5

37State Bank of Bikaner and Jaipur7.5

38State Bank of Hyderabad7.5

39State Bank of India6

40State Bank of Indore7.5

41State Bank of Mysore7.25

42State Bank of Patiala5.75

43State Bank of Travancore5.75

44Syndicate Bank6.25

45UCO bank6.5

46Union Bank of India5

47Vijaya Bank6.5

48YES Bank6.5

Mean Risk-free return = 6.385 Risk- free returns for one month = 0.53%Interpretation: From the above table it shows that without any risk (beta = 0) the investor can earn 0.53 % per month.Capital Market Line (CML)

The relationship between risk and return is depicted by the straight line Rf. the equation for this line, called the capital market line (CML), is: E (Rj) = RF+ jWhere E (Rj)= expected return on portfolio j

RF = risk-free rate

= slope of the capital market line

j = standard deviation of portfolio j

Given that the market portfolio has an expected return of E (Rm) and standard deviation of m, the slope of the CML can be obtained as follows:E (Rm) Rf = mMarket Value: From the daily S&P CNX NIFTY value Monthly average value calculated.Market Return: Ending value Beginning value Return on S&P CNX NIFTY =

x 100 Beginning valueEstimation of Expected Market Return:

The expected market return can be calculated by P (A) Probability = N Expected market return = Return x Probability

Standard deviation:

Table 4.2.1 calculation of standard deviation and expected return for the market portfolioMonthMonthly S&P CNX NIFTY valueMonthly Return on S&P CNX NIFTY % (x)ProbabilityReturn x probability( x - x)2

2008- Jan5756.354348

2008-Feb5201.569048-9.640.043478-0.4191392.82066

2008-Mar4769.497222-8.310.043478-0.361368.96219

2008-Apr4651.905-2.470.043478-0.107396.07301

2008-May5028.66258.10.0434780.35217465.7016

2008-Jun4463.788095-11.20.043478-0.48696125.3134

2008-Jul4124.604348-7.60.043478-0.3304357.67412

2008-Aug4417.11757.10.0434780.30869650.49029

2008-Sep4206.685714-4.80.043478-0.208722.98577

2008-Oct3210.2225-23.70.043478-1.03043561.4221

2008-Nov2834.787222-11.70.043478-0.5087136.7578

2008-Dec2895.7976192.150.0434780.0934784.646836

2009-Jan2854.3625-1.40.043478-0.060871.944206

2009-Feb2804.328846-1.80.043478-0.078263.219684

2009-Mar2802.2725-0.070.043478-0.003040.004141

2009-Apr3359.82941219.90.0434780.865217396.235

2009-May3957.962517.80.0434780.773913317.0412

2009-Jun4436.38636412.090.0434780.525652146.3048

2009-Jul4343.097826-2.10.043478-0.09134.386293

2009-Aug4571.1095245.250.0434780.22826127.62188

2009-Sep4814.08755.320.0434780.23130428.36257

2009-Oct4994.10753.740.0434780.16260914.02991

2009-Nov4953.5375-0.810.043478-0.035220.646975

2009-Dec5152.8681824.020.0434780.17478316.20588

Mean market return = (- 0.00565)

Standard deviation for market return = 9.833E (RM) = (- 0.00565) %Interpretation: The above table shows that, at market portfolio total risk 9.833, the market expected rate of return for one month is -0.00565 percent. The market portfolio would give return less than risk-free rate, this shows that the CML will move to negative direction.Table 4.3.1.aSelected securities for individual portfolio-1 The securities for individual portfolio -1 randomly selected through lottery methodIndividual portfolio -1

S. noSecurities

1Chettinad Cement Corporation Ltd

2Bharat Petroleum Corporation. Ltd

3Power Finance Corporation

4Hindustan Petroleum Corporation Ltd.

5Mangalam Cement Ltd

6Jindal Steel & Power Ltd.

7NCL Industries Limited

8Electro Steel Castings Ltd

9Jaiprakash Hydro-Power Limited

10Visa Steel Limited

Cov (RA, RM) i = 2m

(RA RA) (RM-RM) Cov (RA, RM) = n-1 (RM RM) 2 2m = n- 1 Expected return E (R1) = RF + 1Table 4.3.1.bCalculation of standard deviation, beta and expected return for individual portfolio-1

Calculation of monthly portfolio value (Annexure- 1)MonthMonthly value of portfolio 1Return %( x1- x1)2Market return(RM-RM)(R2-R2) (RM - RM)(RM - RM)

Jan -0812296.67

Feb-084036.178-67.184057.76-9.64-9.63613.436392.7369

Mar-083630.209-10.0543.32459-8.31-8.354.6317868.89

Apr-083692.71.7227.01451-2.47-2.46-12.7866.0516

May-083898.2535.56681.768418.18.1173.3353965.7721

Jun-083436.935-11.83469.85344-11.2-11.1993.5242125.22

Jul-083205.396-6.7310.63211-7.6-7.5924.7486557.6081

Aug-083420.5436.712103.79867.17.1172.4378150.5521

Sep-082997.11-12.3879.26343-4.8-4.7942.6453822.9441

Oct-082099.838-29.94700.2269-23.7-23.69626.8801561.22

Nov-081933.321-7.92919.83671-11.7-11.6952.06542136.66

Dec-082138.95510.64199.162.152.1630.482794.667

Jan-092229.0254.2159.09101-1.4-1.39-10.6851.932

Feb-092447.3039.79176.0574-1.8-1.79-23.75093.204

Mar-092430.503-0.6867.7821-0.07-0.06-0.167380.0036

Apr-092872.09218.168468.494419.919.91430.9466396.408

May-093391.06918.07464.220317.817.81383.7302317.196

Jun-094064.14219.84544.033812.0912.1282.2268146.41

Jul-094406.9928.43141.8978-2.1-2.09-24.89634.3681

Aug-094841.7519.87177.99115.255.2670.175427.6676

Sep-093774.228-22.05344.92515.325.33-98.989628.4089

Oct-092526.18-33.0676875.65793.743.75-110.96814.0625

Nov-092523.398-0.1101511.32977-0.81-0.8-2.692780.64

Dec 092750.1738.986923155.32744.024.0350.2260616.2409

Mean return = - 3.48

Standard deviation of portfolio -1 = 20.02

Beta for portfolio-1= 1.218

= (-0.028)

Expected return E (R1) = (- 0.03056) %Interpretation:

When compare with market portfoilo, total risk of Individual portfolio-1 increased to 20.02, the expected rate of return decreased to 0.03056 percent. This shows that there is a negative relationship exists between risk and return. The beta 1.218 indicates that returns on portfolio-1 would change by 1.218 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).Table 4.3.2.aSelected securities for individual portfolio-2Individual portfolio -2

S. noSecurities

1Bil Power Limited

2Acc Ltd

3Bharat petroleum corporation. Ltd

4Gujarat State Petronet Limited

5Tata Steel Limited

6Oil & Natural Gas Corpn Ltd

7Jsw Steel Limited

8Msp Steel & Power Limited

9Visa Steel Limited

10Bhushan Steel Limited

Cov (RA, RM) i = 2m

(RA RA) (RM-RM) Cov (RA, RM) =

n-1 (RM RM) 2 2m = n- 1 Expected return E (R1) = RF + 1Table 4.3.2.bCalculation of standard deviation, beta and expected return for individual portfolio-2MonthMonthly value of portfolio 2Return %( x1- x1)2Market return(RM-RM)(R2-R2) (RM- RM)(RM-RM)

Jan -086,345.16

Feb-085,548.33-12.56168.14-9.64-9.63124.8792.74

Mar-084,957.16-10.65122.41-8.31-8.391.8368.89

Apr-084,874.06-1.6764.348-2.47-2.465.1296.052

May-085,084.404.31515.268.18.1131.6865.77

Jun-084,783.77-5.91239.96-11.2-11.1970.74125.22

Jul-084,297.21-10.17111.93-7.6-7.5980.3057.608

Aug-084,559.756.10932.4987.17.1140.5350.552

Sep-084,216.66-7.52462.94-4.8-4.7937.9922.944

Oct-083,023.22-28.30824.36-23.7-23.69680.18561.21

Nov-082,659.52-12.03154.73-11.7-11.69145.41136.66

Dec-082,429.61-8.64581.972.152.16-19.564.666

Jan-092,436.690.2920.014-1.4-1.390.1631.93

Feb-092,490.572.213.25-1.8-1.79-3.233.20

Mar-092,490.930.01410.16-0.07-0.060.0240.0036

Apr-093,037.8021.95464.2319.919.91428.98396.41

May-093,624.1019.30356.8817.817.81336.45317.2

Jun-094,342.7219.83377.1412.0912.1234.98146.41

Jul-094,250.34-2.1276.43-2.1-2.095.3014.3681

Aug-094,887.9015.00212.905.255.2676.7527.67

Sep-095,349.619.44681.675.325.3348.16828.409

Oct-095,740.447.30647.573.743.7525.8614.063

Nov-095,479.48-4.5524.55-0.81-0.83.970.64

Dec-095,905.467.7754.254.024.0329.6822716.241

Mean return = 0.408829Standard deviation of individual portfolio-2 =12.15Beta for individual portfolio -2 = 1.15

= (-0.028)

Expected return E (R2) = 0.1898 % Interpretation:When compare with market portfolio, total risk of Individual portfolio-2 increased to 12.15, the expected rate of return increased to 0.1898 percent. This shows that individual portfolio-2 better performed than market. The beta 1.15 indicates that returns on portfolio-2 would change by 1.15 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).Table 4.3.3.aSelected securities for individual portfolio-3

Individual portfolio -3

S. noSecurities

1NTPC Limited

2Petronet Lng Limited

3Dalmia Cement (Bharat) Ltd

4Ambuja Cements Ltd

5Jk Cement Limited

6Jindal steel & power ltd.

7Power Grid Corporation Of India Ltd

8Electro steel Castings Ltd



Cov (RA, RM) i = 2m


n-1 (RM RM) 2 2m = n- 1 Expected return E (R1) = RF + 1Table 4.3.3.bCalculation of standard deviation beta and expected return for individual portfolio-3MonthMonthly value of portfolio 3Return %( x1- x1)2Market return(RM-RM)(R2-R2)(RM - RM)(RM-RM)

Jan -0812,253.84

Feb-083,927.04-67.954040.5-9.64-9.63612.1292.7369

Mar-083,489.46-11.1445.63-8.31-8.356.06768.89

Apr-083,563.602.12542.41-2.47-2.46-16.026.0516

May-083,789.606.342115.138.18.1187.01865.7721

Jun-083,413.97-9.9130.52-11.2-11.1961.817125.2161

Jul-083,157.85-7.509.70-7.6-7.5923.63957.6081

Aug-083,315.714.9988.117.17.1166.7450.5521

Sep-082,836.72-14.45101.174-4.8-4.7948.18022.9441

Oct-081,849.26-34.81925.52-23.7-23.69720.70561.2161

Nov-081,642.16-11.19946.390-11.7-11.6979.62136.6561

Dec-081,781.198.467165.232.152.1627.7654.6656

Jan-091,835.963.07555.687-1.4-1.39-10.371.9321

Feb-092,011.399.56194.41-1.8-1.79-24.963.2041

Mar-092,066.572.7450.85-0.07-0.06-0.4280.0036

Apr-092,502.4221.09649.1419.919.91507.27396.4081

May-092,980.1419.09551.2117.817.81418.14317.1961

Jun-093,616.5021.35662.6012.0912.1311.47146.41

Jul-093,896.717.75147.28-2.1-2.09-25.3644.3681

Aug-094,261.579.36189.095.255.2672.33127.6676

Sep-093,146.12-26.17474.675.325.33-116.12428.4089

Oct-091,939.20-38.361154.283.743.75-127.40514.0625

Nov-091,928.62-0.54514.77-0.81-0.8-3.074020.64

Dec-092,028.505.17891.514.024.0338.55216.2409

Mean return = -3.92795Standard deviation for individual portfolio-4 =21.16

Beta for individual portfolio-3= 1.3065

= (-0.028)

Expected return E (R2) = RF + 2 = (-0.06248) % Interpretation:

When compare with market portfolio, total risk of Individual portfolio-3 increased to 21.16, the expected rate of return decreased to 0.06248 percent. This shows that there is a negative relationship exists between risk and return. The beta 1.3065 indicates that returns on portfolio-2 would change by 1.3065 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).

Table 4.3.4.aSelected securities for individual portfolio-4Individual portfolio -4

S. noSecurities

1Madras Cements Ltd

2Hindustan Petroleum Corporation Ltd.

3India Cements Ltd


5Chennai Petroleum Corporation Limited

6Steel Authority of India Ltd

7Bhushan Steel Limited


9Power Finance Corporation

10Jindal Steel & Power Ltd.

Cov (RA, RM) i = 2m


n-1 (RM RM) 2 2m = n- 1 Expected return E (R1) = RF + 1Table 4.3.4.bCalculation of standard deviation beta and expected return for individual portfolio-4

MonthMonthly value of portfolio 4Return % ( x1- x1)2Market return(RM-RM)(R2-R2)(RM- RM)(RM-RM)

Jan -0817,513.1

Feb-088,432.20-51.852296.72-9.64-9.63461.5192.736

Mar-087,493.93-11.1351.83-8.31-8.359.7568.89

Apr-087,359.17-1.804.536-2.47-2.46-5.246.0516

May-087,310.21-0.6710.648.18.1126.4665.772

Jun-086,693.37-8.4420.341-11.2-11.1950.47125.22

Jul-086,310.73-5.723.199-7.6-7.5913.5857.608

Aug-086,600.944.59972.707.17.1160.6250.552

Sep-085,829.94-11.6860.096-4.8-4.7937.1322.944

Oct-082,364.12-59.453082.6-23.7-23.691315.29561.22

Nov-082,213.87-6.365.89-11.7-11.6928.37136.66

Dec-082,120.73-4.210.0782.152.16-0.604.6656

Jan-092,044.45-3.600.109-1.4-1.39-0.461.9321

Feb-092,186.606.95118.4-1.8-1.79-19.483.2041

Mar-092,238.462.3739.69-0.07-0.06-0.3780.0036

Apr-092,772.1323.84771.1119.919.91552.9396.41

May-093,505.4126.45922.9317.817.81541.06317.19

Jun-094,374.3224.79824.5912.0912.1347.46146.41

Jul-094,631.455.8896.158-2.1-2.09-20.494.3681

Aug-095,302.0214.48338.805.255.2696.8227.668

Sep-094,575.39-13.795.5865.325.33-52.1128.409

Oct-093,405.18-25.58468.653.743.75-81.1814.06

Nov-093,332.67-2.133.23-0.81-0.8-1.440.64

Dec-093,552.386.59110.694.024.0342.39816.24

Mean return = - 3.92795

Standard deviation of individual portfolio -4 =20.67

Beta of individual portfolio-4 = 1.607

= (-0.028)

Expected return E (R2) = RF + 2 = (-0.04876) %Interpretation:

When compare with market, total risk of Individual portfolio-4 increased to 20.67, the expected rate of return decreased to 0.04876 percent. This shows that there is a negative relationship exists between risk and return. The beta 1.607 indicates that returns on portfolio-2 would change by 1.607 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).

Table 4.3.5.aSelected securities for individual portfolio-5


S. noSecurities

1Chennai Petroleum Corporation Limited

2Ambuja Cements Ltd

3Jsw Steel Limited

4Gujarat State Petronet Limited

5Tata Steel Limited

6Power Grid Corporation Of India Ltd

7Steel Authority of India Ltd


9Tata Steel Limited


Cov (RA, RM) i = 2m


n-1 (RM RM) 2 2m = n- 1 Expected return E (R1) = RF + 1Table 4.3.5.bCalculation of standard deviation beta and expected return for individual portfolio-5

MonthMonthly value of portfolio 5Return %( x1- x1)2Market return(RM-RM)(R2-R2)(RM - RM)(RM-RM)

Jan -083,874.92

Feb-083,651.22-5.7836.5169-9.64-9.6358.1933792.736

Mar-083,188.59-12.7167.46-8.31-8.3107.406468.89

Apr-083,138.96-1.55653.3360-2.47-2.464.4931466.0516

May-083,671.0516.95278.2538.18.11135.282465.772

Jun-083,440.70-6.2742.83-11.2-11.1973.23556125.22

Jul-082,794.59-18.78362.84-7.6-7.59144.57757.608

Aug-082,790.85-0.1340.16327.17.11-2.8723250.552

Sep-082,354.83-15.62252.59-4.8-4.7976.1276122.944

Oct-081,420.44-39.681595.96-23.7-23.69946.4044561.22

Nov-081,140.44-19.7399.3-11.7-11.69233.5946136.66

Dec-081,164.322.0943.3282.152.163.9405364.67

Jan-091,050.85-9.75100.33-1.4-1.3913.922651.9321

Feb-09985.44-6.2242.179-1.8-1.7911.625223.2041

Mar-09954.24-3.1711.807-0.07-0.060.2061670.0036

Apr-091,309.0737.181362.719.919.91734.9739396.41

May-091,653.3026.30677.3717.817.81463.5284317.2

Jun-092,136.9729.25840.12312.0912.1350.717146.41

Jul-092,080.30-2.6528.54-2.1-2.096.106724.3681

Aug-092,348.8312.908159.725.255.2666.4769527.67

Sep-092,528.687.6654.575.325.3339.3728728.41

Oct-092,710.787.20148.0443.743.7525.992514.06

Nov-092,709.23-0.0570.1071-0.81-0.80.2617780.64

Dec-092,945.218.71071.244.024.0334.0141516.24

Mean return = 0.269986

Standard deviation for individual portfolio-5 =17.214

Beta for individual portfolio- 5 = 1.64

= (-0.028)

Expected return E (R5) = 0.048 %Interpretation:

When compare with market, total risk of Individual portfolio-5 increased to 17.214, the expected rate of return increased to 0.048 percent. This portfolio better performed than market. The beta 1.607 indicates that returns on portfolio-2 would change by 1.607 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).

Table 4.3.6.aSelected securities for individual portfolio-6

Individual portfolio -6S. noSecurities

1Madras Cements Ltd


3Jindal steel & power ltd.

4India Cements Ltd

5Gail(India) Ltd

6Dalmia Cement (Bharat) Ltd


8Ambuja Cements Ltd


10Bil Power Limited

Cov (RA, RM) i = 2m


n-1 (RM RM) 2 2m = n- 1 Expected return E (R1) = RF + 1Table 4.3.6.bCalculation of standard deviation beta and expected return for individual portfolio-6MonthMonthly value of portfolio 6 Return %( x1- x1)2Market return(RM-RM)(R2-R2)(RM - RM)(RM-RM )

Jan -0816,487.48

Feb-087,779.37-52.822233.12-9.64-9.63455.075292.736

Mar-087,008.67-9.90718.8925-8.31-8.336.0763968.89

Apr-086,943.52-0.9321.4457-2.47-2.46-11.39226.0516

May-086,813.87-1.8713.64018.18.1129.9523165.772

Jun-086,204.27-8.9511.4641-11.2-11.1937.88797125.2161

Jul-085,812.67-6.320.56445-7.6-7.595.70236957.608

Aug-086,015.673.4981.95437.17.1164.3658550.552

Sep-085,361.37-10.8828.2611-4.8-4.7925.464222.944

Oct-082,013.84-62.443235.03-23.7-23.691347.426561.21

Nov-081,775.41-11.8439.4301-11.7-11.6973.40553136.66

Dec-081,933.188.89208.7122.152.1631.205284.6656

Jan-091,884.49-2.5199.25202-1.4-1.39-4.227981.9321

Feb-092,063.599.503902226.936-1.8-1.79-26.96533.2041

Mar-092,103.301.92456.0244-0.07-0.06-0.44910.0036

Apr-092,552.8021.37725.33119.919.91536.2157396.41

May-093,021.1518.346571.53917.817.81425.7816317.19

Jun-093,682.9821.907754.44412.0912.1332.3525146.41

Jul-094,003.178.69203.180-2.1-2.09-29.79114.3681

Aug-094,405.8110.058243.9365.255.2682.1531827.667

Sep-093,294.35-25.23386.785.325.33-104.82328.409

Oct-092,070.70-37.14997.513.743.75-118.43814.06

Nov-092,042.66-1.3517.693-0.81-0.8-3.365030.64

Dec-092,044.750.10232.0664.024.0322.8206216.24

Standard deviation of individual portfolio-6 =21.44

Beta = 1.49

= (-0.028)

E (R6) = RF+5 = (-0.07032) %Interpretation:

When compare with market, total risk of Individual portfolio-6 increased to 17.214, the expected rate of return decreased to 0.07032 percent. This portfolio better performed than market. The beta 1.49 indicates that returns on portfolio-2 would change by 1.49 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).

ASSESSING PORTFOLIO PERFORMANCEUSING SHARPE RATIO AND TREYNOR RATIOPerformance measure:

For evaluating the performance of a portfolio it is necessary to consider both risk and return. There are two techniques used to measure the portfolio performanceSharpe measure:

RP - RF Sharpe ratio =

SD (RP)Treynor measure:RP - RF Treynor =

PTable 4.4.1.aConsolidated table

s. noParticularsMeanStandard deviationExpected rate of returnBeta

1Market portfolio-0.00569.833-0.005651

2Individual portfolio -1-3.4761220.02-0.030561.218

3Individual portfolio -20.40912.150.18981.15



6Individual portfolio -50.2717.2140.0481.64

7Individual portfolio-6-5.5621.44-0.070321.49

Table 4.4.1.bAssessing portfolio performance

S. noParticularsSharpe RatioTreynor index

1Market portfolio-0.05447-0.5356

2Individual portfolio -1-0.20011-3.2891





7Individual portfolio-6-0.28405-4.08725

Interpretation:

Market portfolio:

Poor relative performance exists in the market portfolio. (Sharpe ratio < 0, Treynor index < 0).Both the Sharpe Ratio and the Treynor index are greater for the market than for the individual portfolio1, 3, 4 &6. These individual portfolios are underperformed the market. But portfolio 2 & 5 are better performed the market.Table 4.4.2.a Capital market line

s. noParticularsStandard deviationExpected rate of return

1Market portfolio9.833-0.00565

2Individual portfolio -120.02-0.03056

3Individual portfolio -212.150.1898



6Individual portfolio -517.2140.048

7Individual portfolio-621.44-0.07032

8Risk-free return00.53

Exhibit 4.4.2.a Capital Market Line (CML)

Inference:

There is a negative relationship between risk and return of the market portfolio. The efficient portfolios are the portfolio 2 (return =0.1898) & 5 (return=0.048) because these two portfolios are nearer to the CML when compare to others.Security Market Line (SML)The SML depicts the relationship between the expected rate of return and systematic risk for individual securities, because it deals with individual securities. There is a linear relationship between their expected return and their covariance with the market portfolio. This relationship, called the security market line (SML), is as follows:

im i =

2mE (Ri)=Rf + E (Rm) - Rf x i In words, the SML relationship says:

Expected return on security i= risk-free return + market risk premium x Beta of security iBeta calculation:

The beta calculated from the monthly average share price (Annexure III).

Table 4.5.1Estimation of expected rate of return for the securities of individual portfolio- 1


s. noSecuritiesRF

RM

BetaExpected return % ER =RF + (RM-RF)

1Chettinad Cement Corporation Ltd0.53-0.00570.090.482813

2Bharat petroleum corporation. Ltd0.53-0.00570.420.309794

3Power Finance Corporation0.53-0.00570.850.084345

4Hindustan Petroleum Corporation Ltd.0.530.00570.440.299308

5Mangalam Cement Ltd0.53-0.00571.32-0.162076

6Jindal steel & power ltd.0.53-0.00571.67-0.345581

7Ncl Industries Limited0.53-0.00571.31-0.156833

8Electro steel Castings Ltd0.53-0.00571.75-0.387525

9Jaiprakash Hydro-Power Limited0.53-0.00571.97-0.502871

10Visa Steel Limited0.53-0.00571.75-0.387525

Interpretation:

From the above table shows that Chettinad cement corporation ltd has low risk and high expected return when compared to other securities. The Jaiprakash Hydro-Power Limited has high risk and less return. This clearly shows that the negative relationship between risk & return.Table 4.5.2Estimation of expected rate of return for the securities of individual portfolio- 2


s. noSecuritiesRF

RM

BetaExpected return%ER =RF + (RM-RF)

1Bil power Limited0.53-0.00571.06-0.025758

2Acc Ltd0.53-0.00570.730.147261

3Bharat petroleum corporation. Ltd0.53-0.00570.420.309794

4Gujarat State Petronet Limited0.530.00571.22-0.109646

5Tata Steel Limited0.53-0.00571.87-0.450441

6Oil & Natural Gas Corporation Ltd0.53-0.00570.790.115803

7Jsw Steel Limited0.53-0.00572.26-0.654918

8Msp Steel & Power Limited0.53-0.00571.6-0.30888

9Visa Steel Limited0.53-0.00571.75-0.387525

10Bhushan Steel Limited0.53-0.00571.42-0.214506

Interpretation:

From the above table shows that Bharat petroleum corporation ltd has low risk and high expected return when compared to other securities. Jsw Steel Limited has high risk and less return.Table 4.5.3Estimation of expected rate of return for the securities of individual portfolio- 3


s. noSecuritiesRF

RM

BetaExpected return%ER =RF + (RM-RF)

1NTPC limited0.53-0.00570.460.288822

2Petronet Lng Limited0.53-0.00571.35-0.177805

3Dalmia Cement (Bharat) Ltd0.53-0.00571.48-0.245964

4Ambuja Cements Ltd0.530.00570.780.121046

5Jk Cement Limited0.53-0.00571.7-0.36131


7Power Grid corporation of India ltd0.53-0.00570.590.220663

8Electro steel castings ltd0.53-0.00571.75-0.387525

9Ncl industries limited0.53-0.00571.31-0.156833

10Chettinad cement corporation ltd0.53-0.00570.090.482813

Interpretation:

From the above table shows that Chettinad cement corporation ltd has low risk and high expected return when compared to other securities. The highest risk and lowest return present in Electro steel Castings Ltd has high risk and less return.Table 4.5.4Estimation of expected rate of return for the securities of individual portfolio- 4


s. noSecuritiesRF

RM

BetaExpected return % ER =RF + (RM-RF)

1Madras Cements Ltd0.53-0.00571.74-0.382282

2Hindustan Petroleum Corporation Ltd0.53-0.00570.440.299308

3India Cements Ltd0.53-0.00570.930.042401

4Jaiprakash hydro-power limited0.530.00571.97-0.502871

5Chennai Petroleum Corporation Ltd.0.53-0.00570.090.482813

6Steel Authority of India0.53-0.00570.1190.4676083

7Bhushan Steel Limited0.53-0.00571.42-0.214506


9Power Finance Corporation0.53-0.00570.850.084345


Interpretation:

From the above table shows that Chennai petroleum corporation ltd, has low risk and high expected return when compared to other securities. The high risk and low return present in Madras cement ltd.Table 4.5.5Estimation of expected rate of return for the securities of individual portfolio- 5


s. noSecuritiesRF

RM

BetaExpected returnER =RF + (RM-RF)

1Chennai Petroleum Corporation Limited0.53-0.00570.090.482813

2Ambuja Cements Ltd0.53-0.00570.780.121046

3Jsw Steel Limited0.53-0.00572.26-0.654918

4Gujarat State Petronet Limited0.530.00571.22-0.109646


6Power Grid Corporation of India Ltd0.53-0.00571.15-0.072945

7Steel Authority of India0.53-0.00570.1190.4676083

8Jaiprakash Hydro-Power Limited0.53-0.00571.97-0.502871


10NCL Industries Limited0.53-0.00571.31-0.156833

Interpretation:

From the above table shows that Chennai petroleum corporation ltd. has low risk and high expected return when compared to other securities. Here high risk and less return present in Jsw Steel Limited.Table 4.5.6Estimation of expected rate of return for the securities of individual portfolio- 6


s. noSecuritiesRF

RM

BetaExpected return ER =RF + (RM-RF)

1Madras Cements Ltd0.53-0.00571.74-0.382282


3Jindal Steel & Power Ltd.0.53-0.00571.67-0.345581

4India Cements Ltd0.530.00570.930.042401

5Gail (India)Ltd0.53-0.00570.950.021

6Dalmia Cement (Bharat) Ltd0.53-0.00571.48-0.245964

7NCL Industries Limited0.53-0.00571.31-0.156833

8Ambuja Cements Ltd0.53-0.00570.780.121046

9Chettinad Cement Corporation Ltd0.53-0.00570.090.482813

10Bilpower Limited0.53-0.00571.06-0.025758

Interpretation:

From the above table shows that Chettinad cement corporation ltd has low risk and high expected return when compared to other securities. Here the madras cements has high risk and less return.Table 4.6.1.aSecurity market line for cement sector

S. noSecuritiesBetaExpected return

1Acc Ltd0.730.147261

2Ambuja Cements Ltd0.780.121

3Chettinad Cement Corporation Ltd0.090.483

4Dalmia Cement (Bharat) Ltd1.48-0.246

5India Cements Ltd0.930.042

6Jk Cement Limited1.7-0.361

7Madras Cements Ltd1.74-0.382

8Mangalam Cement Ltd1.32-0.162

9Ncl Industries Limited1.31-1.157

10Market portfolio1-0.00565

11Risk-Free Return00.53

Exhibit 4.6.1.a Security Market Line (SML) for cement sector

Inference:

There is a negative relationship between risk and return for securities of cement sector. Except NCL Industries, other securities are moving with SML.Table 4.6.1.bSecurity market line for Oil & gas sector


1Bharat petroleum Corpn. Ltd0.420.3098

2Chennai Petroleum Corporation Limited1.520.48

3Gail (India) Limited0.950.021

4Gujarat State Petronet Limited1.22-0.1096

5Hindustan Petroleum Corporation Ltd.0.440.299

6Oil & Natural Gas Corpn Ltd0.790.116

7Petronet Lng Limited1.35-0.178


9Risk-Free Return00.53

Exhibit 4.4.6.1.b Security Market Line (SML) Oil & gas sector Inference:

There is a negative relationship between risk and return for securities of oil & gas sector. Except Chennai Petroleum Corporation, other securities are moving with SML.Table 4.6.1.cSecurity market line for Steel sector


1Bhushan Steel Limited1.420.2145

2Electrosteel Castings Ltd1.75-0.389

3Jindal Steel & Power ltd.1.67-0.346

4Jsw Steel Limited2.26-0.655

5MSP Steel & Power Limited1.6-0.3089

6Tata Steel Limited1.87-0.45

7Visa Steel Limited1.75-0.39

8Steel authority of india0.1190.468



Exhibit 4.4.6.1.c Security market line for Steel sector

Inference:

There is a negative relationship between risk and return for securities of steel sector. Except Bhushan Steel, other securities are moving with SML.Table 4.6.1.dSecurity market line for Power sector


1Bilpower Limited1.06-0.02576

2Gujarat industries Power Co. Ltd1.41-0.225

3Jaiprakash Hydro-Power Limited1.97-0.503

4NTPC Limited0.460.289

5Power Finance Corporation0.850.084

6Power Grid Corporation of India Ltd0.590.221



Exhibit 4.6.1.d Security market line for Power sector

Inference:

There is a negative relationship between risk and return of the individual securities of power sector. All securities are moving with SML.IDENTIFICATION OF UNDER- AND OVER VALUED ASSETSThe individual assets/ securities and portfolio are priced correctly; they lie exactly on the SMLAlpha: The vertical distance between the fair return predicted by the SML and return actually expected by an investor is called the alpha ().Under value assets: The security which has positive alpha is mispriced and undervalued asset. Over value assets: The security which has negative alpha is mispriced and overvalued asset.Fairly priced assets: The security which has zero alpha is fairly priced asset.TABLE 4.7.1

SECTOR WISE IDENTIFICATION OF UNDER-AND OVER-VALUED ASSETSCement sector:

S. noSecuritiesActual return

Expected return from SMLalphaDecision from alpha

1Acc Ltd0.460.1472610.312739fairly priced

2Ambuja Cements Ltd-0.740.121-0.861over priced

3Chettinad Cement Corporation Ltd-0.040.483-0.523over priced

4Dalmia Cement (Bharat) Ltd-3.39-0.246-3.144over priced

5India Cements Ltd-2.580.042-2.622over priced

6Jk Cement Limited0.82-0.3611.181under priced

7Madras Cements Ltd-4.4-0.382-4.018over priced

8Mangalam Cement Ltd0.66-0.1620.822under priced

9NCL Industries Limited-1.43-1.157-0.273fairly priced

Interpretation:

Hold

NCL industries ltd & ACC ltd are fairly priced securities, so it can be hold. Buy

The investor can buy under priced securities like Jk Cement Limited, Mangalam Cement Ltd. Sell

The investor can sell over priced securities like Chettinad Cement Corporation Ltd, Dalmia Cement (Bharat) Ltd India Cements Ltd and Madras Cements Ltd. Table 4.7.2Sector wise identification of under-and over-valued assetsOil & gas sector



1Bharat Petroleum Corporation. Ltd1.840.30981.5302under priced

2Chennai Petroleum Corporation Limited-0.710.48-1.19over priced

3GAIL (India) Limited0.190.0210.169fairly priced

4Gujarat State Petronet Limited1.51-0.10961.6196under priced

5Hindustan Petroleum Corporation Ltd.1.240.2990.941under priced

6Oil & Natural Gas Corpn Ltd0.50.1160.384fairly priced

7Petronet Lng Limited0.27-0.1780.448fairly priced

Interpretation:

Hold

Gail (India) Limited, Oil & Natural Gas Corporation Ltd, Petronet Lng Limited are fairly priced securities, so it can be hold.

Buy

The investor can buy under priced securities like Bharat Petroleum Corporation. Ltd , Gujarat State Petronet Limited, Hindustan Petroleum Corporation Ltd.Sell

The investor can sell over priced securities like Chennai Petroleum Corporation Limited

Table 4.7.3Sector wise identification of under-and over-valued assets

Steel sector



1Bhushan Steel Limited2.120.21451.9055under priced

2Electro Steel Castings Ltd-0.59-0.389-0.201fairly priced

3Jindal Steel & Power Ltd.-4.69-0.346-4.344over priced

4Jsw Steel Limited2.5-0.6553.155under priced

5Msp Steel & Power Limited-0.89-0.3089-0.5811over priced

6Tata Steel Limited0.64-0.451.09under priced

7Visa Steel Limited0.26-0.390.65under priced

8Steel Authority of India0.690.4680.222fairly priced

Interpretation:

Hold

Electro steel Castings Ltd and sail are fairly priced securities, so it can be hold. Buy

The investor can buy under priced securities like Bhushan Steel Limited, Jsw Steel Limited, Tata Steel Limited And Visa Steel Limited.Sell

The investor can sell over priced securities like Jindal Steel & Power Ltd, Msp Steel & Power Limited.Table 4.7.4Sector wise identification of under-and over-valued assetsPower sector:



1Bil Power Limited-0.79-0.02576-0.76424over priced

2Gujarat Industries Power co. Ltd0.58-0.2250.805under priced

3Jaiprakash Hydro-Power Limited0.73-0.5031.233under priced

4NTPC Limited-0.310.289-0.599over priced

5Power Finance Corporation1.050.0840.966under priced

6Power Grid Corporation of India Ltd-0.580.221-0.801over priced

Interpretation:

From the above table the investor can take two decisions.Buy

The investor can buy under priced securities like Gujarat Industries Power co. ltd, Jaiprakash Hydro-Power Limited and Power Finance Corporation.Sell

The investor can sell over priced securities like Bil power Limited, NTPC Limited & Power Grid Corporation Of India Ltd.CHAPTER -5FINDINGS1. From the capital market line, there is a negative relationship exists between risk and return of market portfolio.

2. Poor relative performance exists in the market portfolio. (Sharpe ratio

A STUDY ON CAPITAL ASSET PRICING MODEL (CAPM) IN NELLAI CAPITAL MARKET SERVICES FOR THE PERIOD OF 2008-2009

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