IIPM Project Analysis

8/8/2019 IIPM Project Analysis

1/26

1

Investment Analysis

&

Portfolio Management

PGDM 2009-11

Project Report

On

Efficiency of Small Stocks

with respect to risk & return

Prepared By: Submitted to:

Hunish Kumar (20) Dr. P.K.Aggarwal

Kamiya Rautela (22) Finance Faculty

Pankaj Aggarwal (34) IILM-CMS


2/26

2

Acknowl d nt

We want t express our sincere appreciation and gratitude to all t ose who have directl or

indirectl helped and contri uted towards the completion ofthis report

We would li e to thank Dr. P.K.Aggarwal, AHL-IILM-CM , Greater Noida for his constantguidance and support throughout this report. His knowledge and experience motivated us

towards the deep study of share market. During the report, we realized that the degree of

relevance and efficiency of small stocks in the current scenario is very high.

In our daily life, we observe thatthe share prices of small companies fluctuate more. Allthis

devoted ourinterestto study the efficiency of small stocks in case of risk and return. Allthese

have resulted in the enrichment of our knowledge and his inputs have hel ped us to

incorporate relevantissues into our project.


3/26


4/26

4

Small CapStocks

Companies that have small capitalization i.e. between $300 million to $2 billion are

considered small companies or smaller quoted companies (SQCs) and are sometimes called

small caps. The stocks from these companies are known as small cap stocks.

Scaling Up

Small-cap stocks are often cited as good investments due to theirlow valuations and potential

to grow into big-cap stocks, butthe definition of small cap has changed overtime. What was

considered a big-cap stockin 1980 is a small-cap stocktoday.

In the stock market, company size is measured not by number of employees or even by size

of profits, but rather by a company's market capitalization. While this seems complicated,it

really gives the best idea of the size of a company. Market capitalization is calculated by

considering the number of outstanding shares or the number of shares in issue. This number

is multiplied by the current price of each share. Basically,the number of shares available is

multiplied by the current price to get a value of the price of the company on the market.

Companies that have small capitalization amounts are considered small companies or smaller

quoted companies (SQCs) and are sometimes called small caps. The stocks from these

companies are known as small cap stocks.

What is considereda small capitalization and what is consideredlarge varies widel ?

In the United States, a company with a market capitalization of $300 million to $2 billion is

often considered small cap. Small cap stocks picks are attractive to amateur investors and

those who have budgetary constraints as these stocks can be priced as low as $5. Even if you

do not have a lot of money to spend, you may be able to afford investmentin small cap value

stocks. Since the best small cap stocks can sometimes double or even triple in value, smallcap does not have to mean small profits forthe investor who knows what he or she is doing.


5/26

5

Ranking Caps

The definition of big/large cap and small cap differs slightly in the brokerage houses and has

changed over time. The differences between the brokerage definitions are relatively

superficial and only matter for the companies that lie on the edges. The classification is

important for borderline companies because mutual funds use itto determine which stocks to

buy.

The current approximate definitions are as follows:

1. Mega Cap - Market cap of $200 billion and greater

2. Big Cap - $10 billion to $200 billion

3. Mid Cap - $2 billion to $10 billion

4. SmallCap - $300 million to $2 billion5. Micro Cap - $50 million to $300 million

6. Nano Cap - Under $50 million

These categories have increased overtime along with the marketindexes. In the early 1980s,

a big-cap stock had a market cap of $1 billion. Today that size is viewed as small. It remains

to be seen ifthese definitions also deflate when the market does.

Small-cap stocks have a bad reputation. The media usually focuses on the negative side of

small caps, saying they are risky, frequently fraudulent and lacking in quality those investors

should demand in a company. Certainly these are all valid concerns for any company, butin

the wake ofthe Enron and WorldCom scandals,there is certainly an argumentthat company

size is by no means the only factor when it comes to getting scammed. In this article we'lllay

out some of the most important factors comprising the good and the bad of the small-cap

universe. Knowing these factors you will be better able to decide whether investing in

smaller-capitalized companies is right for you.


6/26

6

Backgroundabout Small Cap

Before we get into the pros and cons of small caps let's just recap (no pun intended) what

exactly we mean by small cap. The term refers to stocks with a small market capitalization,

between US$250 million and $2 billion. Stocks with a market cap below $250 million are

referred to as micro caps, and those below $50 million are called Nano caps. Small-cap

stocks can trade on any exchange although a majority ofthem are found on the NASDAQ or

the OTCBB because of more lenient listing requirements. It is important to make the

distinction between small caps and penny stocks, which are a whole different ball game. You

can be a small cap without being a penny stock. There are plenty of small caps trading at

more than $1 per share, with more liquidity than the average penny stock.

The Pros

When you are eyeing small-cap stocks, a number of positive factors weigh against some

negative attributes. Below we have outlined three ofthe most compelling reasons why small

caps deserve representation in many investors' portfolios.

1) Huge growth potential

Most successfullarge-cap companies started at one time as small businesses. Small caps give

the individual investor a chance to get in on the ground floor. Everyone talks about finding

the next Microsoft, Wal-Mart or Home Depot, because at one point these companies were

small caps, diamonds in the rough if you will.

2) Most mutual funds don't invest in them

Itisn't uncommon for mutual funds to invest hundreds of millions of dollars in one company.

Most small caps don't have the market cap to supportthis size of investment. In orderto buy

a position large enough to make a difference to their fund's performance, a fund manager

would have to buy 20% or more of the company. This gives an advantage to individual

investors who have the ability to spot promising companies and getin before the institutional

investors do.

3) They are often under-recognized

This third attribute of small caps is very important. What we are saying here is that small caps

often have very little analyst coverage and garnerlittle to no attention from WallStreet. What

this means to the individual investor is that, because the small-cap universe is so under-

reported or even undiscovered, there is a high probability that small-cap stocks are

improperly priced.


7/26

7

4) Thin Market

Small caps tend to be thinly traded and, while this is a characteristic that can slice both ways,

it often presents a huge opportunity for shrewd investors. As the company grows its revenues

and earnings overtime and the public becomes more aware ofits existence and future growthprospects, demand for the stock inevitably perks up. And when a large number of investors

startto clamour over a very limited amount of stock,this gives small cap stocks the potential

to rise quite rapidly.

5) Lack of Analyst Coverage

According to First Call, on January 8, 2007, UBSSecurities raised its rating on IBM from

"neutral" to "buy". The stock edged up $1.17 on the news, or about 1%. Butthat move was

nothing compared to what happened on September 6, 2005, when Brean Murray upgraded

Wilson's Leather from "accumulate" to "strong buy". The day the report went outthe shares

moved up roughly 4%, and within a weekthey rose almost 12%.

The Cons

1) Risk

Despite the factthat small caps demonstrate attractive characteristics,there is a flip side. The

money you investin small caps should be money you can expose to a much higher degree of

riskthan that of proven cash-generating machines like large caps and blue chips.

2) Sometimes, Small CapStockis Low priced for aReason

Sometimes, stock falls dramatically in price - and will only continue falling. Often,there is a

reason for this. The company may be nearing economic crisis or may even be close to

bankruptcy. You should only buy small caps if there is a good chance that the price of the

stock will go up.

3) Time

Finding time to uncoverthat small cap is hard work - investors must be prepared to do someserious research, which can prove a deterrent. Financial ratios and growth rates are widely

published forlarge companies, but not for small ones. You must do allthe number crunching

yourself, which can be very tedious and time consuming.


8/26

8

Overview of the SmallStock Companies

1. ARROW TEXTILES, MAHARASTARA

Category S CATEGOTY SHARE

Main business - Elastic and Non-Elastic Tapes

Market price - Rs 8.9

2. BIRLA POWERSOLUTION, NEW DELHI

Category S CATEGORY SHARE

Main business - The Company is presently producing a wide range of Generators catering tothe power requirements of 500W to 40KW being fuelled by variety of fuel options like

Kerosene , Petrol, Diesel, LPG ,CNG ,Biogas etc

Market price - 2.26

3. GTN INDUSTRIES, HYDRABAD

Category - S CATGORY SHARE

Main business - Vertically integrated manufacturing set-up to produce fine and superfine

cotton yarns, grey knitted fabrics, gassed fabrics, mercerized fabrics and life style garments.

Market price 23.2

4. ZENITH BIRLA, MAHARASTARA


Main business pipes manufacturing

Market price-16.05

5. PARAMOUNT COMMUNICATION, VA

Category- S CATEGORY SHARE

Main business -principal activity is to manufacture and distribute a wide range of cables and

wires. It provides complete cabling solutions to almost allthe sectors ofthe economy, such as

power,telecom and,information technology and industrial sector.


9/26

9

Market price 10.25

6. VINATI ORGANICS, MUMBAI


Main business - chemical company producing organic intermediates

Market price - 73.25

7. FORCE MOTORS, PUNE


Main business - manufacturing of TEMPO, 3-WHEELERetc

Market price 465.1

8. ANSAL HOUSE AND CONSTRUCTION LTD

Category- S CATEGORY SHARE

Main business - engaged in the entire gamut of civil construction and real estate

development activity in India and abroad

Market price 68.45

9. PANASONIC HOME AND APPLIANCEINDIA COMPANY


Main business - engaged in the business of manufacturing,importing, marketing and selling

of kitchen appliances and small domestic appliances.


10. TRANSPEKINDUSTRIES, GUJARAT


Main business - manufacturers and exporters of a range of chemicals servicing the

requirements of customers from a diverse range of industries - Textiles, Pharmaceuticals,

Agrochemicals, Polymers, etc.

Market price 119


10/26

10

Large Stock Companies

1. CASTROL INDIA LTD, MUMBAI

Category - A CATEGORY SHARE

Main business - Manufacturing: Processing of lubricants for the automobile and shipping

industries, including lubricating oils, greases, brake fluids, cable-filling compounds and

jellies.


2. RELIGAREENTERPRISE, NEW DELHI

Category A CATEGORY SHARE

Main business - services in insurance, asset management, broking and lending solutions to

investment banking and wealth management


3. NESTLEINDIA

Category - A CATEGORY SHARE

Main business - variety of food products


4. BAJAJ HOLDING AND INVESTMENT LTD, MUMBAI

Category A CATEGORY SHARE

Main business - InvestmentCompany

Market price 748.5


11/26

11

Analysis and Findings ofSmallStocks

1. Arrow textile:

Months Arrow Textile Return (Rs) Nifty Market return (Rm)

Aug 2009 12.39 - 4662.1 -

Sep 2009 9.57 -0.23 5083.95 0.09

Oct 2009 8.62 -0.10 4711.7 -0.07

Nov 2009 8.1 -0.06 5032.7 0.07

Dec 2009 8.46 0.04 5201.05 0.03

Jan 2010 9.04 0.07 4882.05 -0.06

Feb 2010 8.55 -0.05 5017 0.03

Mar 2010 8.17 -0.04 5249.1 0.05

Apr 2010 8.15 0.00 5278 0.01

May 2010 8.07 -0.01 4970.2 -0.06

Jun 2010 12.95 0.60 5312.5 0.07

July 2010 9.02 -0.30 5367.6 0.01

Average Return -0.01 0.01

(Rm-m) (Rs-s) (Rm-m)(Rs-s) (Rm-m)2 (Rs-s)

2

0.08 -0.22 -0.02 0.01 0.048

-0.09 -0.09 0.01 0.01 0.008

0.05 -0.05 0.00 0.00 0.003

0.02 0.05 0.00 0.00 0.003

-0.08 0.08 -0.01 0.01 0.0060.01 -0.05 0.00 0.00 0.002

0.03 -0.04 0.00 0.00 0.001

-0.01 0.01 0.00 0.00 0.000

-0.07 0.00 0.00 0.01 0.000

0.05 0.61 0.03 0.00 0.375

0.00 -0.30 0.00 0.00 0.088

Total 0.02 0.03 0.534

Beta = 0.02/0.03 = 0.52 Risk = Sqrt(0.534/11) = 22.04%

Interpretation:

The first table tells about the average return (-0.01) of the company Arrow Textile which

shows thatthe market value ofthe company share is declining. While the marketindex return

shows the positive return (0.01). The beta value of the company is 0.52 which shows very

less volatility in stock as compared to market. Also there is a huge riskin investing money in

textile industry (Arrow Textile).


12/26


13/26

13

3. GTN Industries

Months GTN Industries Return Nifty Market return

Aug 2009 11.86 4662.10

Sep 2009 12.77 0.08 5083.95 0.09

Oct 2009 9.51 -0.26 4711.70 -0.07Nov 2009 10.31 0.08 5032.70 0.07

Dec 2009 15.90 0.54 5201.05 0.03

Jan 2010 14.30 -0.10 4882.05 -0.06

Feb 2010 15.20 0.06 5017.00 0.03

Mar 2010 14.85 -0.02 5249.10 0.05

Apr 2010 16.55 0.11 5278.00 0.01

May 2010 17.20 0.04 4970.20 -0.06

Jun 2010 25.35 0.47 5312.50 0.07

July 2010 25.45 0.00 5367.60 0.01

Average Return 0.09 0.01


0.076 -0.016 -0.001 0.006 0.000

-0.088 -0.348 0.030 0.008 0.121

0.054 -0.008 0.000 0.003 0.000

0.019 0.450 0.009 0.000 0.202

-0.076 -0.193 0.015 0.006 0.037

0.013 -0.030 0.000 0.000 0.001

0.032 -0.116 -0.004 0.001 0.013

-0.009 0.022 0.000 0.000 0.000

-0.073 -0.053 0.004 0.005 0.003

0.055 0.381 0.021 0.003 0.145

-0.004 -0.089 0.000 0.000 0.008

Total 0.073 0.032 0.532Beta = 0.073/0.032 Risk = sqrt(0.532/11)

= 2.27 = 21.98%

Interpretation:

The beta value shows that the fluctuation in return ofGTN Industries is 2.27 times more

than the fluctuation in market return. Ifthe investor wants to buy the share, he has to bearthe

risk of 21.98% by getting an average return of 9%.

So, return per unit risk = 9/21.98= +0.409


14/26

14

4. Zenith Birla

Months Zenith Birla Return Nifty Market return

Aug 2009 19.21 4662.10

Sep 2009 20.17 0.05 5083.95 0.09

Oct 2009 17.79 -0.12 4711.70 -0.07Nov 2009 17.58 -0.01 5032.70 0.07

Dec 2009 23.04 0.31 5201.05 0.03

Jan 2010 19.46 -0.16 4882.05 -0.06

Feb 2010 22.92 0.18 5017.00 0.03

Mar 2010 15.62 -0.32 5249.10 0.05

Apr 2010 18.92 0.21 5278.00 0.01

May 2010 19.92 0.05 4970.20 -0.06

Jun 2010 23.58 0.18 5312.50 0.07

July 2010 17.83 -0.24 5367.60 0.01



2

0.076 0.037 0.003 0.006 0.001

-0.088 -0.131 0.011 0.008 0.017

0.054 -0.024 -0.001 0.003 0.001

0.019 0.298 0.006 0.000 0.089

-0.076 -0.168 0.013 0.006 0.028

0.013 0.165 0.002 0.000 0.027

0.032 -0.331 -0.011 0.001 0.110

-0.009 0.199 -0.002 0.000 0.039-0.073 0.040 -0.003 0.005 0.002

0.055 0.171 0.009 0.003 0.029

-0.004 -0.256 0.001 0.000 0.066


= 0.896 = 19.29%

Interpretation:

Itis clear from firsttable thatthe average return on the stock and marketis same (0.01). Thevolatility in stockis less (0.896) as compared to last company stock. The investor has to bear

the risk of 19.29% to get a return of 1%.

Return per unit risk = 1/19.29 = +0.052


15/26

15

5. Paramount Communication

Months Paramount Comm. Return Nifty Market return

Aug 2009 14.12 4662.10

Sep 2009 12.80 -0.09 5083.95 0.09

Oct 2009 12.26 -0.04 4711.70 -0.07Nov 2009 15.30 0.25 5032.70 0.07

Dec 2009 15.40 0.01 5201.05 0.03

Jan 2010 14.20 -0.08 4882.05 -0.06

Feb 2010 12.31 -0.13 5017.00 0.03

Mar 2010 12.02 -0.02 5249.10 0.05

Apr 2010 13.58 0.13 5278.00 0.01

May 2010 11.97 -0.12 4970.20 -0.06

Jun 2010 11.41 -0.05 5312.50 0.07

July 2010 10.28 -0.10 5367.60 0.01

Average Return -0.02 0.01


2

0.076 -0.071 -0.005 0.006 0.005

-0.088 -0.019 0.002 0.008 0.000

0.054 0.271 0.015 0.003 0.073

0.019 0.029 0.001 0.000 0.001

-0.076 -0.055 0.004 0.006 0.003

0.013 -0.110 -0.001 0.000 0.012

0.032 -0.001 0.000 0.001 0.000

-0.009 0.153 -0.001 0.000 0.023-0.073 -0.096 0.007 0.005 0.009

0.055 -0.024 -0.001 0.003 0.001

-0.004 -0.076 0.000 0.000 0.006


= 0.59 = 11.02%

Interpretation:

The beta value of 0.59 shows thatthe with a increase/decrease of only 1% in market return,the stock return will fluctuate by 0.59% respectively. The risk in this stock is less as

compared to other stocks butit gives negative return. But a rationalinvestor can think about

it because the chances ofincrementin price are also here.


16/26

16

6. TranspekIndustries

Months Transpek Ind Return Nifty Marketreturn

Aug 2009 61.45 4662.10

Sep 2009 67.95 0.11 5083.95 0.09Oct 2009 60.30 -0.11 4711.70 -0.07

Nov 2009 61.05 0.01 5032.70 0.07

Dec 2009 61.75 0.01 5201.05 0.03

Jan 2010 63.05 0.02 4882.05 -0.06

Feb 2010 57.80 -0.08 5017.00 0.03

Mar 2010 63.50 0.10 5249.10 0.05

Apr 2010 72.65 0.14 5278.00 0.01

May 2010 72.30 0.00 4970.20 -0.06

Jun 2010 90.10 0.25 5312.50 0.07

July 2010 98.00 0.09 5367.60 0.01



0.076 0.058 0.004 0.006 0.003

-0.088 -0.160 0.014 0.008 0.026

0.054 -0.035 -0.002 0.003 0.001

0.019 -0.036 -0.001 0.000 0.001

-0.076 -0.027 0.002 0.006 0.001

0.013 -0.131 -0.002 0.000 0.017

0.032 0.051 0.002 0.001 0.003-0.009 0.096 -0.001 0.000 0.009

-0.073 -0.053 0.004 0.005 0.003

0.055 0.198 0.011 0.003 0.039

-0.004 0.040 0.000 0.000 0.002


= 0.98 = 9.78%

Interpretation:

Paramount Communications stock volatility (0.98) is approximately equalto the volatility of

market return. An investor will bearthe risk of 9.78% to get a return of 5% on this stock with

equal volatility. So,itis betterto investin this stock.

Return per unit risk = 5/9.78 = 0.51

So,to get 0.51% return, an investor has to bearthe risk of 1%.


17/26

17

7. Vinati Organics

Months Vinati Organics Return Nifty Marketreturn

Aug 2009 40.37 4662.10

Sep 2009 40.50 0.00 5083.95 0.09Oct 2009 57.30 0.41 4711.70 -0.07

Nov 2009 58.60 0.02 5032.70 0.07

Dec 2009 66.85 0.14 5201.05 0.03

Jan 2010 77.50 0.16 4882.05 -0.06

Feb 2010 72.25 -0.07 5017.00 0.03

Mar 2010 71.80 -0.01 5249.10 0.05

Apr 2010 75.70 0.05 5278.00 0.01

May 2010 68.85 -0.09 4970.20 -0.06

Jun 2010 70.30 0.02 5312.50 0.07

July 2010 73.35 0.04 5367.60 0.01



2

0.076 -0.060 -0.005 0.006 0.004

-0.088 0.352 -0.031 0.008 0.124

0.054 -0.041 -0.002 0.003 0.002

0.019 0.078 0.001 0.000 0.006

-0.076 0.096 -0.007 0.006 0.009

0.013 -0.131 -0.002 0.000 0.017

0.032 -0.069 -0.002 0.001 0.005-0.009 -0.009 0.000 0.000 0.000

-0.073 -0.154 0.011 0.005 0.024

0.055 -0.042 -0.002 0.003 0.002

-0.004 -0.020 0.000 0.000 0.000

Total -0.038 0.032 0.192

Beta = -0.038/0.032 Risk = sqrt(0.192/11)

= -1.20 = 13.21%

Interpretation:

As e can observe thatthe volatility in this stockis of negative nature i.e. (-1.20) it means that

ifthe market willincrease by 1%,the company stock will decline by 1.20%. an investor has

to bearthe risk of 13.21% to achieve the return of 6% which is not good in the case of so

much volatility.

Return per unit % risk = 6/13.21 = 0.45


18/26

18

8. Force Motors

Months Force Motors Return Nifty Market return

Aug 2009 162.20 4662.10

Sep 2009 170.05 0.05 5083.95 0.09

Oct 2009 216.30 0.27 4711.70 -0.07Nov 2009 286.35 0.32 5032.70 0.07

Dec 2009 286.55 0.00 5201.05 0.03

Jan 2010 275.55 -0.04 4882.05 -0.06

Feb 2010 271.70 -0.01 5017.00 0.03

Mar 2010 349.45 0.29 5249.10 0.05

Apr 2010 372.65 0.07 5278.00 0.01

May 2010 360.35 -0.03 4970.20 -0.06

Jun 2010 393.55 0.09 5312.50 0.07

July 2010 421.90 0.07 5367.60 0.01



2

0.076 -0.049 -0.004 0.006 0.002

-0.088 0.174 -0.015 0.008 0.030

0.054 0.226 0.012 0.003 0.051

0.019 -0.097 -0.002 0.000 0.009

-0.076 -0.136 0.010 0.006 0.019

0.013 -0.112 -0.001 0.000 0.013

0.032 0.188 0.006 0.001 0.035

-0.009 -0.031 0.000 0.000 0.001-0.073 -0.131 0.010 0.005 0.017

0.055 -0.006 0.000 0.003 0.000

-0.004 -0.026 0.000 0.000 0.001


= 0.50 = 12.74%

Interpretation:

This seems to be an advantage for a rational investorto enterin the stock ofthis company.Because here an investor can get a return of 10% only by bearing only a risk of 12.74%; and

the volatility in the stock is 0.50 as compared to market return. If we calculate the per unit

risk return:


This is too good for a rationalinvestor.


19/26

19

9. Ansal House and Construction

Months Ansal house Return Nifty Market return

Aug 200959.20 4662.10

Sep 2009 60.95 0.03 5083.95 0.09

Oct 2009 47.95 -0.21 4711.70 -0.07

Nov 2009 50.65 0.06 5032.70 0.07

Dec 2009 63.20 0.25 5201.05 0.03

Jan 2010 57.25 -0.09 4882.05 -0.06

Feb 2010 55.85 -0.02 5017.00 0.03

Mar 2010 53.80 -0.04 5249.10 0.05

Apr 2010 69.95 0.30 5278.00 0.01

May 2010 59.60 -0.15 4970.20 -0.06

Jun 2010 60.15 0.01 5312.50 0.07

July 2010 64.75 0.08 5367.60 0.01



0.076 0.011 0.001 0.006 0.000

-0.088 -0.232 0.020 0.008 0.054

0.054 0.038 0.002 0.003 0.001

0.019 0.229 0.004 0.000 0.053

-0.076 -0.113 0.009 0.006 0.013

0.013 -0.043 -0.001 0.000 0.0020.032 -0.055 -0.002 0.001 0.003

-0.009 0.282 -0.002 0.000 0.079

-0.073 -0.166 0.012 0.005 0.028

0.055 -0.009 -0.001 0.003 0.000

-0.004 0.058 0.000 0.000 0.003


= 1.33 = 14.65%

Interpretation:

After analysing this stock,itis advisable thatthe new investor should notinvesttoo much in

this stock. Firstly the volatility is too high as compared to market return. Second is that the

investor has to bearthe risk of 14.65% to get a return of only 2%.



20/26

20

10.Panasonic Home & Appliance India Company

Months Panasonic Home Return Nifty Market return

Aug 2009 42.20 4662.10

Sep 2009 55.00 0.30 5083.95 0.09

Oct 2009 54.15 -0.02 4711.70 -0.07Nov 2009 52.75 -0.03 5032.70 0.07

Dec 2009 60.40 0.15 5201.05 0.03

Jan 2010 70.85 0.17 4882.05 -0.06

Feb 2010 80.05 0.13 5017.00 0.03

Mar2010 146.25 0.83 5249.10 0.05

Apr2010 174.90 0.20 5278.00 0.01

May 2010 137.15 -0.22 4970.20 -0.06

Jun 2010 183.95 0.34 5312.50 0.07

July 2010 195.65 0.06 5367.60 0.01



2

0.076 0.129 0.010 0.006 0.017

-0.088 -0.190 0.017 0.008 0.036

0.054 -0.201 -0.011 0.003 0.040

0.019 -0.030 -0.001 0.000 0.001

-0.076 -0.002 0.000 0.006 0.000

0.013 -0.045 -0.001 0.000 0.002

0.032 0.652 0.021 0.001 0.426

-0.009 0.021 0.000 0.000 0.001-0.073 -0.391 0.028 0.005 0.153

0.055 0.167 0.009 0.003 0.028

-0.004 -0.111 0.000 0.000 0.012


= 2.29 = 25.48%

Interpretation:

As we see this companys data,the volatility rate is too high even unbelievable. It means the

stock willincrease/decrease by 2.29% with the 1% fluctuation in the market respectively. An

investor can get a high return of 17% but he/she has to bearthe risk of 25.48%.


This return is quite good for an investor.


21/26

21

Return per unit Risk ofSmallStocks:

Securities Return Risk Return Per unitRisk

Arrow Textile -1% 22.04% - 0.045Birla Power Sol -5% 13.63% - 0.367

GTN Industries 9% 21.98% +0.409

Zenith Birla 1% 19.29% +0.052

Paramount Comm. -2% 11.02% - 0.181

TranspekIndustries 5% 9.78% +0.511

Vinati Organics 6% 13.21% +0.454

Force Motors 10% 12.74% +0.785

Ansal House 2% 14.65% +0.137

Panasonic Home 17% 25.48% +0.667

Inference: The return per unit risk is calculated in the above table which shows that the

three stocks are giving negative return. Two securities Zenith Birla and Ansal House are

giving some positive return but not at all attractive. Only five stocks are giving good return

out of which Force Motors and Panasonic Home give very attractive return.

Froman investors point of View

Suppose an investor want to invest his/her money in the stock market. He/she chooses the

best four stocks out ofthe total no of stocks. Itis quite obvious thatthe rationalinvestor will

notinvestin the securities having negative return. So, atthe first glance,the investor chooses:

1. Force Motors

2. Panasonic Home

3. Transpek Industries

While investing the money, an investor will also look for the volatility of the stocks. To

choose fourth stock, he/she looks at the beta value ofGTN Industries (2.28) and Vinati


22/26

22

Organics (-1.15). Because Market return is positive as we can see in the table, he/she will

choose that securities which will have a positive beta. So,

4. GTN Industries

As there are not hard & fast rules to give weight-age to different securities in case of more

than two securities; it all depends upon the psychology of a rational investor how he think,

whether he is optimist or pessimist, his/her family background and responsibility.

So, we calculate the weights in proportion to per unit risk return:

Securities Return (R)Risk (

)Per Unit Riskreturn

Weight-age (?)

Force Motors 10% 12.74% +0.785 0.33

Panasonic House 17% 25.48% +0.667 0.28

Transpek Industries 5% 9.78% +0.511 0.22

GTN Industries 9% 21.98% +0.409 0.17

Total +2.372 1.00

Portfolio Return = R1W1 + R2W2 + R3W3 + R4= 10*0.33 + 17*0.28 + 5*0.22 + 9*0.17

= 10.69 %

Portfolio Risk = 1W1 + 2W2 + 3W3 + 4W4

= 12.74*0.33 + 25.48*0.28 + 9.78*0.22 + 21.98*0.17

= 17.23%

Inference: After calculating the portfolio risk and return, now the investor can take

decision whether he/she should invest in individual security or in portfolio in differentsecurities. If an investor wants to investin only one security, he/she willinvest all money in

Force Motors.Otherwise, he/she willinvestin portfolio of securities and can get a return of

10.69% by bearing a risk of 17.23%.


23/26

23

Comparison between Smalland Large Stocks

Research Objective: The objective of this study is to prove that the small cap stocks are

more risky than the large cap stocks. Because the day to day fluctuation going on in the small

stocks are too high,thats why we wantto study whetheritleads to more risk or not.

Research Hypothesis

Null Hypothesis (Ho): The risk factoris equalin both the cases, whetheritis small stock or

large stock.

Alternative Hypothesis (Ha): The small stocks are more risky than the large stocks.

Research MethodologyFor this research, we have taken a sample size of 8 companies, including 4 small stock

companies and 4 large stock companies, which are listed in NationalStock Exchange. The

sampling which have used is Random Sampling. For this, we have collected return of

previous 12 months and data source used is www.moneycontrol.com .

SmallStock Companies:

1. Force Motors

2. Panasonic Home

3. Transpek Industries

4. GTN Industries

Large Stock Companies:

1. Castrol

2. Religare

3. Nestle India

4. Bajaj Holding


24/26

24

Research & Findings

As we have already calculated the return, risk and per unit risk return of small stock

companies as shown in the table:

Small stock securities Return (R) Risk () Per UnitRiskreturn

Weight-age

Force Motors 10% 12.74% +0.785 0.33

Panasonic House 17% 25.48% +0.667 0.28

Transpek Industries 5% 9.78% +0.511 0.22

GTN Industries 9% 21.98% +0.409 0.17

1.00

Calculated Portfolio Return = 10.69%

And Portfolio Risk = 17.23%

Return per Unit Risk = 10.69/17.23 = 0.62 ................(1)

Now we will compare this data with large stock return and risk.

Large StockSecurities Risk (R) Return () Per unit risk return Weight-age

Castrol 4.82% 6% +1.24 0.443

Religare Enter 5.66% 0.07% +0.01 0.004

Nestle India 2.97% 3% +1.01 0.361

Bajaj Holding 8.02% 4.30% +0.54 0.192

1.000

Portfolio Return = R1W1 + R2W2 + R3W3 + R4

= 6*0.443 + 0.07*0.004 + 3*0.361 + 4.3 = 6.51%

Portfolio Risk = 1W1 + 2W2 + 3W3 + 4W4

= 4.82*0.443 + 5.66*0.004 + 2.97*0.361 + 8.02*0.19 = 4.78%

Return per Unit Risk = 6.51/4.78 = 1.36 .................(2)


25/26

25

From (1) & (2),

Itis clearthatthe return per unit riskis more in case oflarge stock securities as compares to

small stock securities. But after calculating the portfolio return and risk, it comes out that

whether the return is more in small securities, but the increment in risk is too much as

compare to increase in return in case of small securities.

So, by t i st t mentwe can say t at t ere is notenough evidence to accept

the nullhypothesis. In otherwords,

The risk factor is more in case of small securities as compared to large

securities.

Conclusion

The efficiency of small stocks in current scenario is increasing day by day. When we talk

about risk and return, today the investoris more optimistic or we can say, he/she is always

ready to bear the risk if expected return is also high. It is quite obvious that a new investor

doesnt wantto bearthe riskin initial years. But for an existing investor,itis quite different.

He is aware of market fluctuations, downs and upwards,the day to day decision criteria.

Now a Day, smaller companies are so thoroughly beating big companies in the stock market.

Many buyers of small-cap stocks might be just chasing performance. In other words,theyre piling onto small caps because they expecttheir momentum to continue.Investors are

willing to take risks, hoping for big returns from troubled companies. In the concept of

Evolution, the small, fast, agile and adaptable have the strongest possibility to survive and

grow. So it can be said thatthe there is huge riskinvolved in small stocks butto get a high

return because of high volatility,investors are willing to investin these kinds of stock.


26/26

References

www.indianstocksnews.com

www.10paisa.com

www.investopedia.com

www.hotfrog.in/Products/Small-Cap-Stocks

www.estockwise.com/estockwise-articles/cap-stocks.htm

www.corporateinformation.com

www.moneycontrol.com

www.indianstocknews.com

www.bseindia.com

www.nseindia.com

www.businessweek.com

Companies from Newspaper (Business Standard)

Top

IIPM Project Analysis

Documents