Project

INTRODUCTION :

Portfolio management and investment decision as a concept

came to be familiar with the conclusion of second world war when thing can be in the

stock market can be liberally ruined the fortune of individual, companies ,even

government ‘s it was then discovered that the investing in various scripts instead of

putting all the money in a single securities yielded weather return with low risk

percentage, it goes to the credit of HARYMERKOWITZ, 1991 noble laurelled to have

pioneered the concept of combining high yielded securities with these low but steady

yielding securities to achieve optimum correlation coefficient of shares.

Portfolio management refers to the management of portfolio’s for others by

professional investment managers it refers to the management of an individual investor’s

portfolio by professionally qualified person ranging from merchant banker to specified

portfolio company.

1.1 NEED FOR THE STUDY:

Portfolio management has emerged as a separate academic discipline in India.

Portfolio theory that deals with the rational investment decision-making process has now

become an integral part of financial literature.Investing in securities such as shares,

debentures & bonds is profitable Well as exciting. It is indeed rewarding but involves a

great deal of risk & need artistic skill. Investing in financial securities is now considered

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 group of securities is called as PORTFOLIO. Creation of portfolio helps

to reduce risk without sacrificing returns. Portfolio management deals with the analysis

of individual securities as well as with the theory & practice of optimally combining

securities into portfolios.

1.2 SCOPE OF STUDY

This study covers the Markowitz model. The study covers the calculation of

correlations between the different securities in order to find out at what percentage funds

should be invested among the companies in the portfolio. Also the study includes the

calculation of individual Standard Deviation of securities and ends at the calculation of

weights of individual securities involved in the portfolio. These percentages help in

allocating the funds available for investment based on risky portfolios.

1.3 OBJECTIVES:

1. To study the investment decision process.

2. To analyze the risk return characteristics of sample scripts.

3. Ascertain portfolio weights.

4. To construct an effective portfolio which offers the maximum return for minimum risk

1.4 METHODOLOGY:

Primary source

Information gathered from interacting with Mrs. Swathi in the class room. And the data

collect from the textbooks and other magazines.

Secondary Source

Daily prices of scripts from news papers

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1.5 LIMITATION :

1. Only two samples have been selected for constructing a portfolio.

2. Share prices of scripts of 5 years period was taken.

1.6 CHAPTERIZATION:

1. Chapter-1: It Containt Introduction, Need for the study, Scope and objectives of

the study, the methodology of the study, Limitations and chapterization.

2. Chapter-II: It Containt conceptual framework and policies.

3. Chapter-III: It Containt industry profile and company profile and background of

the company.

4. Chapter-IV: It Containt Data analysis and interpretation.

5. Chapter-V: It Containt findings and suggesting.

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THEORITICAL FRAME WORK OR CONCEPTUAL FRAME WORK

PORTFOLIO:

A portfolio is a collection of securities since it is really desirable to invest

the entire funds of an individual or an institution or a single security, it is essential that

every security be viewed in a portfolio context. Thus it seems logical that the expected

return of the portfolio. Portfolio analysis considers the determine of future risk and return

in holding various blends of individual securities

Portfolio expected return is a weighted average of the expected return of the

individual securities but portfolio variance, in short contrast, can be something reduced

portfolio risk is because risk depends greatly on the co-variance among returns of

individual securities. Portfolios, which are combination of securities, may or may not

take on the aggregate characteristics of their individual parts.

Since portfolios expected return is a weighted average of the expected return of its

securities, the contribution of each security the portfolio’s expected returns depends on its

expected returns and its proportionate share of the initial portfolio’s market value. It

follows that an investor who simply wants the greatest possible expected return should

hold one security; the one which is considered to have a greatest expected return. Very

few investors do this, and very few investment advisors would counsel such and extreme

policy instead, investors should diversify, meaning that their portfolio should include

more than one security.

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OBJECTIVES OF PORTFOLIO MANAGEMENT:

The main objective of investment portfolio management is to maximize

the returns from the investment and to minimize the risk involved in investment.

Moreover, risk in price or inflation erodes the value of money and hence investment must

provide a protection against inflation.

Secondary Objectives:

The following are the other ancillary objectives:

Regular return.

Stable income.

Appreciation of capital.

More liquidity.

Safety of investment.

Tax benefits.

Portfolio management services helps investors to make a wise choice

between alternative investments with pit any post trading hassle’s this service renders

optimum returns to the investors by proper selection of continuous change of one plan to

another plane with in the same scheme, any portfolio management must specify the

objectives like maximum return’s, and risk capital appreciation, safety etc in their offer.

Return From the angle of securities can be fixed income securities such as :

(a) Debentures –partly convertibles and non-convertibles debentures debt with tradable

Warrants.

(b) Preference shares

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(c) Government securities and bonds

(d) Other debt instruments

(2) Variable income securities

(a) Equity shares

(b) Money market securities like treasury bills commercial papers etc.

Portfolio managers has to decide up on the mix of securities on

the basis of contract with the client and objectives of portfolio

NEED FOR PORTFOLIO MANAGEMENT:

Portfolio management is a process encompassing many activities of investment in

assets and securities. It is a dynamic and flexible concept and involves regular and

systematic analysis, judgment and action. The objective of this service is to help the

unknown and investors with the expertise of professionals in investment portfolio

management. It involves construction of a portfolio based upon the investor’s objectives,

constraints, preferences for risk and returns and tax liability. The portfolio is reviewed

and adjusted from time to time in tune with the market conditions. The evaluation of

portfolio is to be done in terms of targets set for risk and returns. The changes in the

portfolio are to be effected to meet the changing condition.

Portfolio construction refers to the allocation of surplus funds in hand among a variety

of financial assets open for investment. Portfolio theory concerns itself with the

principles governing such allocation. The modern view of investment is oriented more go

towards the assembly of proper combination of individual securities to form investment

portfolio.

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A combination of securities held together will give a beneficial result if they

grouped in a manner to secure higher returns after taking into consideration the risk

elements.

The modern theory is the view that by diversification risk can be reduced.

Diversification can be made by the investor either by having a large number of shares of

companies in different regions, in different industries or those producing different types

of product lines. Modern theory believes in the perspective of combination of securities

under constraints of risk and returns

PORTFOLIO MANAGEMENT PROCESS:

Investment management is a complex activity which may be broken down into the

following steps:

1) Specification of investment objectives and constraints :

The typical objectives sought by investors are current income, capital

appreciation, and safety of principle. The relative importance of these objectives should

be specified further the constraints arising from liquidity, time horizon, tax and special

circumstances must be identified.

2) choice of the asset mix :

The most important decision in portfolio management is the asset mix decision very

broadly; this is concerned with the proportions of ‘stocks’ (equity shares and units/shares

of equity-oriented mutual funds) and ‘bonds’ in the portfolio.

The appropriate ‘stock-bond’ mix depends mainly on the risk tolerance and

investment horizon of the investor.

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ELEMENTS OF PORTFOLIO MANAGEMENT:

Portfolio management is on-going process involving the following basic tasks:

Identification of the investor’s objectives, constraints and preferences.

Strategies are to be developed and implemented in tune with investment policy

formulated.

Review and monitoring of the performance of the portfolio.

Finally the evaluation of the portfolio

Risk:

Risk is uncertainty of the income /capital appreciation or loss or both. All

investments are risky. The higher the risk taken, the higher is the return. But proper

management of risk involves the right choice of investments whose risks are

compensating. The total risks of two companies may be different and even lower than the

risk of a group of two companies if their companies are offset by each other.

SOURCES OF INVESTMENT RISK:

Business risk:

As a holder of corporate securities (equity shares or debentures), you are

exposed to the risk of poor business performance. This may be caused by a variety of

factors like heightened competition, emergence of new technologies, development of

substitute products, shifts in consumer preferences, inadequate supply of essential inputs,

changes in governmental policies, and so on.

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Interest rate risk:

The changes in interest rate have a bearing on the welfare on investors. As the

interest rate goes up, the market price of existing firmed income securities falls, and vice

versa. This happens because the buyer of a fixed income security would not buy it at its

par value of face value o its fixed interest rate is lower than the prevailing interest rate on

a similar security. For example, a debenture that has a face value of RS. 100 and a fixed

rate of 12% will sell a discount if the interest rate moves up from, say 12% to 14%.while

the chances in interest rate have a direct bearing on the prices of fixed income securities,

they affect equity prices too, albeit some what indirectly.

The two major types of risks are:

Systematic or market related risk.

Unsystematic or company related risks.

Systematic risks affected from the entire market are (the problems, raw material

availability, tax policy or government policy, inflation risk, interest risk and financial

risk). It is managed by the use of Beta of different company shares.

The unsystematic risks are mismanagement, increasing inventory, wrong financial

policy, defective marketing etc. this is diversifiable or avoidable because it is possible to

eliminate or diversify away this component of risk to a considerable extent by investing

in a large portfolio of securities. The unsystematic risk stems from inefficiency

magnitude of those factors different form one company to another.

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RETURNS ON PORTFOLIO:

Each security in a portfolio contributes return in the proportion of its

investments in security. Thus the portfolio expected return is the weighted average of the

expected return, from each of the securities, with weights representing the proportions

share of the security in the total investment. Why does an investor have so many

securities in his portfolio? If the security ABC gives the maximum return why not he

invests in that security all his funds and thus maximize return? The answer to this

questions lie in the investor’s perception of risk attached to investments, his objectives of

income, safety, appreciation, liquidity and hedge against loss of value of money etc. this

pattern of investment in different asset categories, types of investment, etc., would all be

described under the caption of diversification, which aims at the reduction or even

elimination of non-systematic risks and achieve the specific objectives of investors

RISK ON PORTFOLIO :

The expected returns from individual securities carry some degree of risk. Risk

on the portfolio is different from the risk on individual securities. The risk is reflected in

the variability of the returns from zero to infinity. Risk of the individual assets or a

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portfolio is measured by the variance of its return. The expected return depends on the

probability of the returns and their weighted contribution to the risk of the portfolio.

These are two measures of risk in this context one is the absolute deviation and other

standard deviation.

Most investors invest in a portfolio of assets, because as to spread risk by not

putting all eggs in one basket. Hence, what really matters to them is not the risk and

return of stocks in isolation, but the risk and return of the portfolio as a whole. Risk is

mainly reduced by Diversification.

RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or

uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or

depreciation of share prices, losses of liquidity etc

The risk over time can be represented by the variance of the returns. While the return

over time is capital appreciation plus payout, divided by the purchase price of the share.

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Normally, the higher the risk that the investor takes, the higher is the return.

There is, how ever, a risk less return on capital of about 12% which is the bank, rate

charged by the R.B.I or long term, yielded on government securities at around 13% to

14%. This risk less return refers to lack of variability of return and no uncertainty in the

repayment or capital. But other risks such as loss of liquidity due to parting with money

etc., may however remain, but are rewarded by the total return on the capital. Risk-return

is subject to variation and the objectives of the portfolio manager are to reduce that

variability and thus reduce the risky by choosing an appropriate portfolio.

Traditional approach advocates that one security holds the better, it is according

to the modern approach diversification should not be quantity that should be related to the

quality of scripts which leads to quality of portfolio.

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Experience has shown that beyond the certain securities by adding more securities

expensive.

Simple diversification reduces :

An asset’s total risk can be divided into systematic plus unsystematic risk, as shown

below:

Systematic risk (un diversifiable risk) + unsystematic risk (diversified risk) =Total

risk =Var (r).

Unsystematic risk is that portion of the risk that is unique to the firm (for example, risk

due to strikes and management errors.) Unsystematic risk can be reduced to zero by

simple diversification.

Simple diversification is the random selection of securities that are to be added to a

portfolio. As the number of randomly selected securities added to a portfolio is increased,

the level of unsystematic risk approaches zero. However market related systematic risk

cannot be reduced by simple diversification. This risk is common to all securities.

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Persons involved in portfolio management:

Investor:

Are the people who are interested in investing their funds?

Portfolio managers:

Is a person who is in the wake of a contract agreement with a client, advices or

directs or undertakes on behalf of the clients, the management or distribution or

management of the funds of the client as the case may be.

Discretionary portfolio manager:

Means a manager who exercise under a contract relating to a portfolio

management exercise any degree of discretion as to the investment or management of

portfolio or securities or funds of clients as the case may be

.

The relation ship between an investor and portfolio manager is of a highly

interactive nature

The portfolio manager carries out all the transactions pertaining to the investor

under the power of attorney during the last two decades, and increasing complexity was

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witnessed in the capital market and its trading procedures in this context a key

(uninformed) investor formed ) investor found him self in a tricky situation , to keep track

of market movement ,update his knowledge, yet stay in the capital market and make

money , there fore in looked forward to resuming help from portfolio manager to do the

job for him .The portfolio management seeks to strike a balance between risk’s and

return.

The generally rule in that greater risk more of the profits but S.E.B.I. in its

guidelines prohibits portfolio managers to promise any return to investor.Portfolio

management is not a substitute to the inherent risk’s associated with equity investment.

Who can be a portfolio manager?

Only those who are registered and pay the required license fee are eligible to

operate as portfolio managers. An applicant for this purpose should have necessary

infrastructure with professionally qualified persons and with a minimum of two persons

with experience in this business and a minimum net worth of Rs. 50lakh’s. The certificate

once granted is valid for three years. Fees payable for registration are Rs 2.5lakh’s every

for two years and Rs.1lakh’s for the third year. From the fourth year onwards, renewal

fees per annum are Rs 75000. These are subjected to change by the S.E.B.I.

The S.E.B.I. has imposed a number of obligations and a code of conduct on

them. The portfolio manager should have a high standard of integrity, honesty and should

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not have been convicted of any economic offence or moral turpitude. He should not

resort to rigging up of prices, insider trading or creating false markets, etc. their books of

accounts are subject to inspection to inspection and audit by S.E.B.I... The observance of

the code of conduct and guidelines given by the S.E.B.I. are subject to inspection and

penalties for violation are imposed. The manager has to submit periodical returns and

documents as may be required by the SEBI from time-to- time.

.Functions of portfolio managers:

Advisory role: advice new investments, review the existing ones, identification

of objectives, recommending high yield securities etc.

Conducting market and economic service: this is essential for recommending

good yielding securities they have to study the current fiscal policy, budget

proposal; individual policies etc further portfolio manager should take in to

account the credit policy, industrial growth, foreign exchange possible change in

corporate law’s etc.

Financial analysis: he should evaluate the financial statement of company in

order to understand, their net worth future earnings, prospectus and strength.

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Study of stock market : he should observe the trends at various stock exchange

and analysis scripts so that he is able to identify the right securities for

investment

Study of industry: he should study the industry to know its future prospects,

technical changes etc, required for investment proposal he should also see the

problem’s of the industry.

Decide the type of port folio : keeping in mind the objectives of portfolio a

portfolio manager has to decide weather the portfolio should comprise equity

preference shares, debentures, convertibles, non-convertibles or partly

convertibles, money market, securities etc or a mix of more than one type of

proper mix ensures higher safety, yield and liquidity coupled with balanced risk

techniques of portfolio management.

A portfolio manager in the Indian context has been Brokers (Big

brokers) who on the basis of their experience, market trends, Insider trader, helps the

limited knowledge persons.

Registered merchant bankers can act’s as portfolio manager’s

Investor’s must look forward, for qualification and performance and ability and research

base of the portfolio manager’s.

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Technique’s of portfolio management:

As of now the under noted technique of portfolio management: are in vogue in our

country

1. equity portfolio: is influenced by internal and external factors the internal factors

effect the inner working of the company’s growth plan’s are analyzed with

referenced to Balance sheet, profit & loss a/c (account) of the company.

Among the external factor are changes in the government policies, Trade cycle’s,

Political stability etc.

2. equity stock analysis : under this method the probable future value of a share of a

company is determined it can be done by ratio’s of earning per share of the

company and price earning ratio

EPS == PROFIT AFTER TAX

NO: OF EQUITY SHARES

PRICE EARNING RATIO= MARKET PRICE

E.P.S (earning’s per share)

One can estimate trend of earning by EPS, which reflects trends of earning quality of

company, dividend policy, and quality of management.

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Price earning ratio indicate a confidence of market about the company future, a high

rating is preferable

The following points must be considered by portfolio managers while analyzing the

securities.

1. Nature of the industry and its product: long term trends of industries,

competition with in, and out side the industry, Technical changes, labour relations,

sensitivity, to Trade cycle.

2. Industrial analysis of prospective earnings, cash flows, working capital,

dividends, etc.

3. Ratio analysis: Ratio such as debt equity ratio’s current ratio’s net worth,

profit earning ratio, return on investment, are worked out to decide the portfolio.

The wise principle of portfolio management suggests that “Buy when the market is

low or BEARISH, and sell when the market is rising or BULLISH”.

Stock market operation can be analyzed by:

a) Fundamental approach :- based on intrinsic value of share’s

b) Technical approach:-based on Dowjone’s theory, Random walk theory,

etc.

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Prices are based upon demand and supply of the market.

i. Traditional approach assumes that

ii. Objectives are maximization of wealth and minimization of risk.

iii. Diversification reduces risk and volatility.

iv. Variable returns, high illiquidity; etc.

Capital Assets pricing approach (CAPM) it pay’s more weight age, to risk or portfolio

diversification of portfolio.

Diversification of portfolio reduces risk but it should be based on certain assessment

such as:

Trend analysis of past share prices.

Valuation of intrinsic value of company (trend-marker moves are known for their

Uncertainties they are compared to be high, and low prompts of wave market trends are

constituted by these waves it is a pattern of movement based on past).

The following rules must be studied while cautious portfolio manager before decide to

invest their funds in portfolio’s.

1. Compile the financials of the companies in the immediate past 3 years such as turn

over, gross profit, net profit before tax, compare the profit earning of company with

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that of the industry average nature of product manufacture service render and it future

demand ,know about the promoters and their back ground, dividend track record,

bonus shares in the past 3 to 5 years ,reflects company’s commitment to share holders

the relevant information can be accessed from the RDC(registrant of

companies)published financial results financed quarters, journals and ledgers.

2. Watch out the high’s and lows of the scripts for the past 2 to 3 years and their

timing cyclical scripts have a tendency to repeat their performance ,this hypothesis

can be true of all other financial ,

3. The higher the trading volume higher is liquidity and still higher the chance of

speculation, it is futile to invest in such shares who’s daily movements cannot be kept

track, if you want to reap rich returns keep investment over along horizon and it will

offset the wild intra day trading fluctuation’s, the minor movement of scripts may be

ignored, we must remember that share market moves in phases and the span of each

phase is 6 months to 5 years.

a. Long term of the market should be the guiding factor to enable you to invest

and quit. The market is now bullish and the trend is likely to continue for some

more time.

b .UN tradable shares must find a last place in portfolio apart from return; even

capital invested is eroded with no way of exit with no way of exit with inside.

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How at all one should avoid such scripts in future?

(1) Never invest on the basis of an insider trader tip in a company which is not sound

(insider trader is person who gives tip for trading in securities based on prices sensitive

up price sensitive un published information relating to such security).

(2) Never invest in the so called promoter quota of lesser known company

(3) Never invest in a company about which you do not have appropriate knowledge.

(4) Never at all invest in a company which doesn’t have a stringent financial record your

portfolio should not a stagnate

(4) Shuffle the portfolio and replace the slow moving sector with active ones , investors

were shatter when the technology , media, software , stops have taken a down slight.

(5) Never fall to the magic of the scripts don’t confine to the blue chip company‘s, look

out for other portfolio that ensure regular dividends.

(6) In the same way never react to sudden raise or fall in stock market index such

fluctuation is movement minor correction’s in stock market held in consolidation of

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market their by reading out a weak player often taste on wait for the dust and dim to settle

to make your move” .

PORT FOLIO MANAGEMENT AND DIVESIFICATOIN:

Combinations of securities that have high risk and return features make up a

portfolio.

Portfolio’s may or may not take on the aggregate characteristics of individual

part, portfolio analysis takes various components of risk and return for each industry and

consider the effort of combined security.

Portfolio selection involves choosing the best portfolio to suit the risk return

preferences of portfolio investor management of portfolio is a dynamic activity of

evaluating and revising the portfolio in terms of portfolios objectives

It may include in cash also, even if one goes bad the other will provide protection from

the loss even cash is subject to inflation the diversification can be either vertical or

horizontal the vertical diversification portfolio can have script of different company’s

with in the same industry.

In horizontal diversification one can have different scripts chosen from different

industries.

It should be an adequate diversification looking in to the size of portfolio.

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Traditional approach advocates the more security one holds in a portfolio , the better it is

according to modern approach diversification should not be quantified but should be related to

the quality of scripts which leads to the quality and portfolio subsequently experience can show

that beyond a certain number of securities adding more securities become expensive.

Investment in a fixed return securities in the current market scenario which is passing

through a an uncertain phase investors are facing the problem of lack of liquidity combined

with minimum returns the important point to both is that the equity market and debt market

moves in opposite direction .where the stock market is booming, equities perform better where

as in depressed market the assured returns related securities market out perform equities.

It is cyclic and is evident in more global market keeping this in mind an investor can

shift from fixed income securities to equities and vise versa along with the changing market

scenario , if the investment are wisely planned they , fetch good returns even when the market

is depressed most , important the investor must adopt the time bound strategy in differing state

of market to achieve the optimum result when the aim is short term returns it would be wise for

the investor to invest in equities when the market is in boom & it could be reviewed if the same

is done.

Maximum of returns can be achieved by following a composite pattern of investment by

having, suitable investment allocation strategy among the available resources.

Never invest in a single securities your investment can be allocated in the following

areas:

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1. Equities:-primary and secondary market.

2. Mutual Funds

3. Bank deposits

4. Fixed deposits & bonds and the tax saving schemes

The different areas of fixed income are as:-

Fixed deposits in company

Bonds

Mutual funds schemes

with an investment strategy to invest in debt investment in fixed deposit can be made for the

simple reason that assured fixed income of a high of 14-17% per annum can be expected

which is much safer then investing a highly volatile stock market, even in comparison to

banks deposit which gives a maximum return of 12% per annum, fixed deposit s in high

profile esteemed will performing companies definitely gives a higher returns.

BETA:

The concept of Beta as a measure of systematic risk is useful in portfolio management.

The beta measures the movement of one script in relation to the market trend*. Thus BETA

can be positive or negative depending on whether the individual scrip moves in the same

direction as the market or in the opposite direction and the extent of variance of one scrip

vis-à-vis the market is being measured by BETA. The BETA is negative if the share price

moves contrary to the general trend and positive if it moves in the same direction. The

scrip’s with higher BETA of more than one are called aggressive, and those with a low

BETA of less than one are called defensive.

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It is therefore it is necessary, to calculate Betas for all scrip’s and choose those with

high Beta for a portfolio of high returns

INVESTMENT DECISIONS

Definition of investment:

According to F. AMLING “Investment may be defined as the purchase by an

individual or an Institutional investor of a financial or real asset that produces a return

proportional to the risk assumed over some future investment period”. According to D.E.

Fisher and R.J. Jordon, Investment is a commitment of funds made in the expectation of

some positive rate of return. If the investment is properly undertaken, the return will be

commensurate with the risk of the investor assumes”.

Concept of Investment:

Investment will generally be used in its financial sense and as such investment is the

allocation of monetary resources to assets that are expected to yield some gain or positive

return over a given period of time. Investment is a commitment of a person’s funds to derive

future income in the form of interest, dividends, rent, premiums, pension benefits or the

appreciation of the value of his principal capital.

Many types of investment media or channels for making investments are

available. Securities ranging from risk free instruments to highly speculative shares and

debentures are available for alternative investments.

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All investments are risky, as the investor parts with his money. An efficient investor

with proper training can reduce the risk and maximize returns. He can avoid pitfalls and

protect his interest.

There are different methods of classifying the investment avenues. A major

classification is physical Investments and Financial Investments. They are physical, if

savings are used to acquire physical assets, useful for consumption or production.

Some physical assets like ploughs, tractors or harvesters are useful in agricultural production.

A few useful physical assets like cars, jeeps etc., are useful in business.

Many items of physical assets are not useful for further production or goods or create

income as in the case of consumer durables, gold, silver etc. among different types of

investment, some are marketable and transferable and others are not. Examples of marketable

assets are shares and debentures of public limited companies, particularly the listed

companies on Stock Exchange, Bonds of P.S.U., Government securities etc. non-marketable

securities or investments in bank deposits, provident fund and pension funds, insurance

certificates, post office deposits, national savings certificate, company deposits, private

limited companies shares etc.

The investment process may be described in the following stages:

Investment policy:

The first stage determines and involves personal financial affairs and objectives

before making investment. It may also be called the preparation of investment policy stage.

The investor has to see that he should be able to create an emergency fund, an element of

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liquidity and quick convertibility of securities into cash. This stage may, therefore be called

the proper time of identifying investment assets and considering the various features of

investments.

investment analysis:

After arranging a logical order of types of investment preferred, the next step is to

analyze the securities available for investment. The investor must take a comparative analysis

of type of industry, kind of securities etc. the primary concerns at this stage would be to form

beliefs regarding future behavior of prices and stocks, the expected return and associated

risks

Investment valuation:

Investment value, in general is taken to be the present worth to the owners of future

benefits from investments. The investor has to bear in mind the value of these investments.

An appropriate set of weights have to be applied with the use of forecasted benefits to

estimate the value of the investment assets such as stocks, debentures, and bonds and other

assets. Comparison of the value with the current market price of the assets allows a

determination of the relative attractiveness of the asset allows a determination of the relative

attractiveness of the asset. Each asset must be value on its individual merit.

Portfolio construction and feed-back:

Portfolio construction requires knowledge of different aspects of securities in relation to

safety and growth of principal, liquidity of assets etc. In this stage, we study, determination

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of diversification level, consideration of investment timing selection of investment assets,

allocation of invest able wealth to different investments, evaluation of portfolio for feed-

back.

INVESTMENT DECISIONS- GUIDELINES FOR EQUITY INVESTMENT

Equity shares are characterized by price fluctuations, which can produce

substantial gains or inflict severe losses. Given the volatility and dynamism of the stock

market, investor requires greater competence and skill-along with a touch of good luck too-to

invest in equity shares. Here are some general guidelines to play to equity game, irrespective

of weather you aggressive or conservative.

Adopt a suitable formula plan.

Establish value anchors.

Assets market psychology.

Combination of fundamental and technical analyze.

Diversify sensibly.

Periodically review and revise your portfolio.

Requirement of portfolio:

1. Maintain adequate diversification when relative values of various securities in the

portfolio change.

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2. Incorporate new information relevant for return investment.

3. Expand or contrast the size of portfolio to absorb funds or with draw funds.

4. Reflect changes in investor risk disposition.

.

Qualitiles For successful Investing:

Contrary thinking

Patience

Composure

Flexibility

Openness

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INVESTOR’S PORTFOLIO CHOICE:

An investor tends to choose that portfolio, which yields him maximum return by

applying utility theory. Utility Theory is the foundation for the choice under uncertainty.

Cardinal and ordinal theories are the two alternatives, which is used by economist to

determine how people and societies choose to allocate scare resources and to distribute

wealth among one another.

The former theory implies that a consumer is capable of assigning to every

commodity or combination of commodities a number representing the amount of degree

of utility associated with it. Were as the latter theory, implies that a consumer needs not

be liable to assign numbers that represents the degree or amount of utility associated with

commodity or combination of commodity. The consumer can only rank and order the

amount or degree of utility associated with commodity.

In an uncertain environment it becomes necessary to ascertain how different

individual will react to risky situation. The risk is defined as a probability of success or

failure or risk could be described as variability of out comes, payoffs or returns. This

implies that there is a distribution of outcomes associated with each investment decision.

Therefore we can say that there is a relationship between the expected utility and risk.

Expected utility with a particular portfolio return. This numerical value is calculated by

taking a weighted average of the utilities of the various possible returns. The weights are

the probabilities of occurrence associated with each of the possible returns.

31

MARKOWITZ MODEL

THE MEAN-VARIENCE CRITERION

Dr. Harry M.Markowitz is credited with developing the first modern portfolio

analysis in order to arrange for the optimum allocation of assets with in portfolio. To

reach this objective, Markowitz generated portfolios within a reward risk context. In

essence, Markowitz’s model is a theoretical framework for the analysis of risk return

choices. Decisions are based on the concept of efficient portfolios.

A portfolio is efficient when it is expected to yield the highest return for the level

of risk accepted or, alternatively, the smallest portfolio risk for a specified level of

expected return. To build an efficient portfolio an expected return level is chosen, and

assets are substituted until the portfolio combination with the smallest variance at the

return level is found. At this process is repeated for expected returns, set of efficient

portfolio is generated.

ASSUMPTIONS:

1. Investors consider each investment alternative as being represented by a

probability distribution of expected returns over some holding period.

2. Investors maximize one period-expected utility and posse’s utility curve, which

demonstrates diminishing marginal utility of wealth.

3. Individuals estimate risk on the risk on the basis of the variability of expected

returns.

4. Investors base decisions solely on expected return and variance or returns only.

5. For a given risk level, investors prefer high returns to lower return similarly for a

given level of expected return, Investors prefer risk to more risk.

32

Under these assumptions, a single asset or portfolio of assets is

considered to be “efficient” if no other asset or portfolio of assets offers higher expected

return with the same risk or lower risk with the same expected return

THE SPECIFIC MODEL

In developing his model, Morkowitz first disposed of the investment

behavior rule that the investor should maximize expected return. This rule implies that

the non-diversified single security portfolio with the highest return is the most desirable

portfolio. Only by buying that single security can expected return be maximized. The

single-security portfolio would obviously be preferable if the investor were perfectly

certain that this highest expected return would turn out be the actual return. However,

under real world conditions of uncertainty, most risk adverse investors join with

Markowitz in discarding the role of calling for maximizing expected returns. As an

alternative, Markowitz offers the “expected returns/variance of returns” rule.

Markowitz has shown the effect of diversification by reading the risk of

securities. According to him, the security with covariance which is either negative or low

amongst them is the best manner to reduce risk. Markowitz has been able to show that

securities which have less than positive correlation will reduce risk without, in any way

bringing the return down. According to his research study a low correlation level between

securities in the portfolio will show less risk. According to him, investing in a large

number of securities is not the right method of investment. It is the right kind of security

which brings the maximum result.

33

In order to know how the risk of the stock or script, we use the formula, which is

given below:

------------

Standard deviation = √ variance

n _

Variance = (1/n-1) ∑(R-R) ^2

t =1

Where (R-R) ^2=square of difference between sample and mean.

n=number of sample observed.

After that, we need to compare the stocks or scripts of two companies with each other by

using the formula or correlation co-efficient as given below.

n _ _

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

t =1

(COV AB)

Correlation-Coefficient (P AB) = ---------------------

(Std. A) (Std. B)

Where (RA-RA) (RB-RB) = Combined deviations of A&B

(Std. A) (Std B) =standard deviation of A&B

COVAB= covariance between A&B

n =number of observation

34

The next step would be the construction of the optimal portfolio on the basis of

what percentage of investment should be invested when two securities and stocks are

combined i.e. calculation of two assets portfolio weight by using minimum variance

equation which is given below.

FORMULAE (Std. b) ^2 – pab (Std. a) (Std. b)

Xa =------------------- ----------------------------------

(Std. a) ^2 + (std. b) ^2 –2 pab (Std. a) (Std. b)

Where

Std. b= standard deviation of b

Std. a = standard deviation of a

Pab= correlation co-efficient between A&B

The next step is final step to calculate the portfolio risk (combined risk) ,that shows how

much is the risk is reduced by combining two stocks or scripts by using this formula:

___________________________________

σp= √ X1^2σ1^2+X2^2σ2^2+2(X1)(X2)(X12)σ1σ

Where

X1=proportion of investment in security 1.

X2=proportion of investment in security 2.

σ 1= standard deviation of security 1.

σ 2= standard deviation of security 2.

X12=correlation co-efficient between security 1&2.

σ p=portfolio risk

35

INDUSTRYPROFILE

HISTORY OF STOCK EXCHANGES IN INDIA

The origin of the stock exchange in India can be traced back to the later half of19th

century .After the American civil war (1860-61) due to the share mania of the public the

number of broker dealing in shares increased. The broker organized an informal

association in Mumbai named “the native stock and share brokers association” in 1875.

Increased activity in trade and commerce during the first world war and second world

resulted in an increase in stock trading. The growth of stock exchanges suffered asset

back the end of world war. Worldwide depression affected them. Most of stock exchange

in the early stages had a speculative nature of working without technical strength. After

independence, government took keen interest to regulate the speculative nature of stock

exchange working. In that direction, securities and contract government to regulation act

1956. was passed. This gave powers to central government to regulate the stock

exchanges. Further to develop secondary market in the country, stock exchanges were

established in different centers like Chennai, delhi, nagpur, kanpur, Hyderabad, and

banglore. The SER Act recognized the stock exchanges in Mumbai, Chennai, delhi,

Hyderabad, Ahemadabad, and indoor. The banglore stock exchange was recognized in

1963. at present there are 23 stock exchanges.

The setting up of national stock exchange (NSE) and OTCEI (Over the counter exchange

of india) with screen based trading facility resulted in more stock exchanges turning

towards the computer based trading. Bombay stock exchange (BSE) introduced the

screen based trading system in 1995, which is known as BOLT (Bombay on-line trading

system).

Madras stock exchange introduced Automated Network trding System (MANTRA) on

October 7th 1996. apart from Bombay stock exchange , (BSE), Delhi, Pune , Bangalore,

36

DEFINITION OF STOCK EXCHANGE:

“Stock exchange means any body or individual

whether in corporate or not, constituted for the purpose of assisting, regulating or

controlling the business of buying, selling or dealing in securities.”

NEED FOR STOCK EXCHANGE:

As the business and industry expanded and economy

became more complex in nature, a need for permanent finance arose. Entrepreneurs

require money for long-term needs, where as investors demand liquidity. The solution to

this problem gave way for the origin of “Stock Exchange”, which is a ready market for

investment and liquidity.

FUNCTIONS OF STOCK EXCHANGE:

Maintains active trading Shares are traded on the

stock exchanges, enabling the investors to buy and sell securities. The prices may vary

from transaction. A continuous trading increases the liquidity or marketability of the

shares traded on the stock exchanges.

Fixation of prices: prices are determined by the transition that flow from

investors demand and the supplies preference. Usually the trade’s prices are named

known to the public. This helps the investors to make better decisions

ENSURES SAFE AND FAIR DEALINGS:

The rules, regulations and byelaws of the stock exchanges provide a measure

of safety to the investor’s it get a fair deal. Aids in financing the industry. Continuous

market for shares provides a favorable climate for rising capital. The negotiability and

transferability of the securities help the companies to raise long term funds. Investor

willing to subscribe the initial pubic offerings (IOP).This stimulates the capital formation.

37

DISSEMINATION OF INFORMATION:

Stock exchange provide information through their various publics their

publish the share prices traded on their basis along with the volume traded. Directory of

corporate information is useful for the investor’s assessment regarding the corporate.

Handbooks and pamphlets provide information regarding of the stock exchanges.

PERFORMANCE INDUCERS:

The prices of stocks reflects the performance of the traded companies this makes the

corporate more the with its public image tries to maintain good performance.

SELF-REGULATING ORGANIZATION:

The stock exchange monitors the integrity of the member brokers listed companies and

clients continuous internal audit safeguards the investor’s against unfair practices it

settles the disputes between member brokers investors and brokers..

INSTRUMENT TRADEED IN THE STOCK EXCHANGE:

The securities in which individual investors are allowed ti trade in the

exchange are as follows

1. Equity shares

2. Preference shares.

3. Convertible&party convertible debentures

4. Government securities.

38

STOCK EXCHANGE IN INDIA:

S.No NAME OF THE STOCK EXCHANGE YEAR

1 BOMBAY Stock Exchange 1875

2 Hyderabad Stock Exchange 1943

3 Ahmedabad share & Stock Exchange 1957

4 Calcutta Stock Exchange association Limited 1957

5 Delhi Stock Exchange Association Limited 1957

6 Madras Stock Exchange Association Limited 1957

7 Indoor Stock Brokers Association 1958

8 Banglore Stock Exchange 1963

9 Cochin Stock Exchange 1978

10 Pine Stock Exchange Limited 1982

11 U.P Stock Exchange Association Limited 1982

12 Ludhiana Stock Exchange Association Limited 1983

13 Jaipur Stock Exchange Limited 1984

14 Gauhathi Stock Exchange Limited 1984

15 Mangalore Stock Exchange Limited 1985

16 Mabhad Stock Exchange Limited, Patna 1986

17 Bhuvaneswar Stock Exchange Limited 1989

18 Over the counter exchange of India, Bombay 1989

19 Saurashtra Kutch Stock Exchange Limited 1990

20 Vadodara Stock Exchange Limited 1991

21 Coimbatore Stock Exchange Limited 1991

22 Meerut Stock Exchange Limited 1991

23 National Stock Exchange Limited 1992

24 Integrarted Stock Exchange 1999

39

STOCK EXCHANGE IN WORLD:

S.No COUNTRY INDEX

1 Russia Moscow Times

2 Argentina Merval

3 Thailand SET

4 Pakistan Karachi 100

5 Indonesia Jak comp

6 US NASDAQ

7 Czech Republic PX50

8 Mexico IPC

9 Brazil Bovespa

10 Japan Nikkei 225

11 Malaysia KISE COMP

12 China Shanahai comp

13 Singapore Straits Times

14 South Korea Seoul COMP

15 Spain Madrid General

16 US S&P 500

17 India SENSEX

18 US Dow jones

19 Germany Dax

20 Hong Kong Hang seng

21 Canada S & P TSX COMPOSITE

22 India NIFTY

23 UK FISE 100

24 Australia All Ordinates

25 France CAC 40

40

BOMBAY STOCK EXCHANGE

The Bombay stock exchange, existed in Mumbai, popularly known as “BSE” was

established in 1875 as “The Native Share and Stock brokers association” as a voluntary

non-profit making association. It has an evolved over the year into its present status as the

premiere Stock exchange in the country it may be noted that the stock exchange the

oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in

1878.

The exchange, upholds the interest of the investors and insurers dressed of their

grievances, whether against the companies or its own member brokers. It also strives to

educate and enlighten the investors by making available necessary informative inputs and

conducing investor education programmers.

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public

representatives and an executive director is the apex body, which decides the policies and

regulates the affairs of the exchange.

The executive’s directors as the chief executive officer are responsible for the day to day

administration of the exchange. The average daily turnover of the exchange during the

year 2000-01 (April-March) was Rs.3984.19 cores and average number of Daily trades

5.69 lakes.

However the average daily turnover of the exchange during the year 2001-02 has

declined to Rs.1244.10 cores and number of average daily trades during the period to

5.17 lakes. The average daily turnover of the exchange during the year 2002-03 has

declined and number of average daily trades during the period is also decreased. The Ban

on all deferral products like BLESS AND ALBM in the Indian capital markets by SEBI

with effect from July 2, 2001, abolition of account period settlements, introduction of

compulsory rolling settlements in all scripts traded on the exchange with effect from Dec

31, 2001, etc., have adversely imprecated the liquidity and consequently there is a

considerable decline in the daily turnover of the exchange present scenario is 110363

lakes and number of average daily trades 1075 lakes.

41

BSE INDICES:

In order to enable the market participants, analysts etc., to track the various ups

and downs in the Indian stock market, the exchange has introduced in 1986 an equity

stock index called BSE-SENSEX that subsequently became the barometer of the

movements of the share prices in the Indian stock market. It is a “market capitalization

weighted” index of 30 components stocks representing a sample of large, well-

established and leading companies. The base year sensex is 1978-79. The sensex is

widely reported in both domestic and international markets through print as well as

electronic media.

Sensex is calculated using a market capitalization weighted method. As per this

methodology, the level of the index reflects the total market value of all 30 component

stocks from different industries related to particular base period. The total market value

of a company is determined by multiplying the price of its stocks by the number of shares

outstanding. Statisticians call an all index of a set of combined variables (such as price

and number of shares) a composite index. An indexed number is sued to represent the

results of this calculation in order to market the value easier to work with and track over a

time. It much easier to graph a chart based on indexed values than one based on actual

values world over majority of the well-known indices are constructed using “Market

Capitalization weighted method”. In practice, the daily calculation of SENSEX is done

by dividing the aggregate market value of the 30 companies in the index by a number

called the index Divisor. The Divisor is the only link to the original base period value of

the SENSEX. The Divisor keeps the Index comparable over a period or time and if the

reference point for the entire index maintenance adjustments. SENSEX is widely used to

describe the mood in the Indian stock markets. Base year average is changed as per the

formula new base year average = old base year average * (new market value/old market

value.

42

National Stock Exchange:

The NSE was incorporated in Nov 1992 with an equity capital of Rs.25 cores. The

international securities consultancy (ISC) of Hong Kong has helped in setting up NSE.

ISE has prepared the detailed business plans and installation of hardware and software

systems. The promotions for NSE were financial institutions, insurances companies,

banks and SEBI capital market Ltd, infrastructure leasing and financial services Ltd and

stock holding corporation Ltd.

It has been set up to strengthen the move towards professionalisation of the

capital market as well provided nation wide securities trading facilities to investors.

NSE is not an exchange in the traditional sense where brokers own and manage

the exchange.A two tier administrative set up involving a company board and a

governing abroad of the exchange envisaged. NSE is a national market for shares PSU

bonds, debentures and government securities since infrastructure and trading facilities are

provided.

NSE-NIFTY:

The NSE on April 22, 1996 launched a new equity index. The NSE-50. The new index,

which replaces the existing NSE-100 index, is expected, to serve as an appropriate index

for the new segment of futures and options. “Nifty” means National Index for Fifty

Stocks.

The NSE-50 comprises 50 companies that represent 20 broad industry groups with an

aggregate market capitalization of around Rs.1, 70,000 cores. All companies included in

the index have a market capitalization in excess of Rs.500 cores each and should have

traded for 85% of trading days at an impact cost of less than 1.5%. The base period for

the index is the close of prices on Nov, 1995, which makes one year of completion of

operation of Nose’s capital market segment. The base value of the index has been set at

1000.

43

COMPANY PROFILE

Unicon Investment Solutions

Unicon has been founded with the aim of providing world class investing experience to

hitherto underserved investor community. The technology today has made it possible to

reach out to the last person in the financial market and give him the same level of service

which was available to only the selected few.

We give personalized premium service with reasonable commissions on the NSE, BSE &

Derivative market through our Equity broking arm Unicon Securities Pvt Ltd. and

Commodities on NCDEX and MCX through our Commodity broking arm Unicon

Commodities Pvt. Ltd. With our sophisticated technology you can  trade through your

computer and if you want human touch you can also deal through our Relationship

Managers out of our more than 100 branches spread across the nation.

We also give personalized services on Insurance (Life & General) & Investments (Mutual

Funds & IPO's) needs, through our Insurance & Investment distribution arm Unicon

Insurance Advisors Pvt. Ltd. Our tailor-made customized solutions are perfect match to

different financial objectives. Our distribution network is backed by in-house back office

support to serve our customers promptly.

MISSION:

To create long term value by empowering individual investors through superior financial

services supported by culture based on highest level of teamwork, efficiency and

integrity.

VISION:

To provide the most useful and ethical Investment Solutions - guided by values driven

approach to growth, client service and employee development.

44

MANAGEMENT TEAM :

Mr.Gajendra Nagpal (founder and CEO)

Mr. Ram Gupta (Co-founder and president)

Mr .Y P Narang (chairman for fixed assets group)

Mr.sandeep Arora (Chief Operation Manager)

Mr.Vijay chopra(National Head)

OUR PRODUCTS AND SERVICES :

customers have the advantage of trading in all the market segments together in the same

window, as we understand the need of transactions to be executed with high speed and

reduced time. At the same time, they have the advantage of having all Advisory Services

for Life Insurance, General Insurance, Mutual Funds and IPO’s also.

Unicon is a customer focused financial services organization providing a range of

investment solutions to our customers. We work with clients to meet their overall

investment objectives and achieve their financial goals. Our clients have the opportunity

to get personalized services depending on their investment profiles. Our personalized

approach enables clients to achieve their Total INVESTMENT OBJECTIVES.

1. Equity

2. Commodity

3. Depository

4. Distribution

5. NRI Services

6. Back Office

7. Fixed Income

45

EQUITY :

1.UniconPlus

Browser based trading terminal that can be accessed by a unique ID and password. This

facility is available to all our online customers the moment they get registered with us.

FEATURES :

1. Trading at NSE & BSE: Add multiple scrips on the market watch.

2. Greater exposure for trading on the available margin.

3. Common window for display of market watch and order execution.

4. Real time updating of exposure and portfolio while trading.

5. Offline order placement facility.

6. Proxy link to enable trading behind firewalls.

2.UNICON SWIFT :

Application based terminal for active traders. It provides better speed, greater analytical

features & priority access to Relationship Managers.

FEATURES:

Trading at NSE & BSE:

1. Add any number of scripts in the Market Watch.

2. Tick by tick live updation of Intraday chart.

3. Greater exposure for trading on the margin available

4. Common window for market watch and order execution.

5. Key board driven short cuts for punching orders quickly.

6. Facility to customize any number of portfolios & watch lists.

7. Stop-loss feature.

COMMODITY:

46

Unicon offers a unique feature of a single screen trading platform in MCX

andNCDEX.Unicon offers both Offline & Online trading platforms. You can Walk in or

place your orders through telephone at any of our branch locations Online Commodity

Internet trading Platform through UniFlex.

Live Market Watch for commodity market (NCDEX, MCX) in one screen.

Add any number of scrips in the Market Watch.

Tick by tick live updation of Intraday chart.

1. Greater exposure for trading on the margin available Common window for market

watch and order execution.

2. Key board driven short cuts for punching orders quickly.

3. Real time updation of exposure and portfolio.

4. Facility to customize any number of portfolios & watchlists.

5. Market depth, i.e. Best 5 bids and offers, updated live for all scripts.

6. Facility to cancel all pending orders with a single click.

7. Instant trade confirmations.

8. Stop-loss feature.

DISTRIBUTION

Unicon is fast emerging as a leader in the Insurance and Mutual Funds distribution space.

Unicon has over 100 branches and a huge number of “Business Development

Executives” who help to source and service the customers throughout the country.

Unicon is fast becoming the preferred “Vendor Independent” distribution houses because

of providing efficient service like free pick-up of collection of cheques/DD’s, Keeping

track of the premiums etc to its customers.

47

Definition by SEBI:

A portfolio management is the total holdings of securities belonging to any person.

Portfolio is a combination of securities that have returns and risk characteristics of their

own; port folio may not take on the aggregate characteristics of their individual parts.

Thus a portfolio is a combination of various assets and /or instruments of

investments.

Combination may have different features of risk and return separate from those

of the components. The portfolio is also built up of the wealth or income of the investor

over a period of time with a view to suit is return or risk preference to that of the port

folio that he holds. The portfolio analysis is thus an analysis is thus an analysis of risk –

return characteristics of individual securities in the portfolio and changes that may take

place in combination with other securities due interaction among them and impact of

each on others.

Security analysis is only a tool for efficient portfolio management; both of them together

and cannot be dissociated. Portfolios are combination of assets held by the investors.

These combination may be various assets classed like equity and debt or of

different issues like Govt. bonds and corporate debts are of various instruments like

discount bonds, debentures and blue chip equity nor scripts of emerging Blue chip

companies.

48

Portfolio analysis includes portfolio construction, selection of securities revision

of portfolio evaluation and monitoring of the performance of the portfolio. All these are

part of the portfolio management

The traditional portfolio theory aims at the selection of such securities that would fit in

will with the asset preferences, needs and choices of the investors. Thus, retired executive

invests in fixed income securities for a regular and fixed return. A business executive or a

young aggressive investor on the other hand invests in and rowing companies and in risky

ventures.

The modern portfolio theory postulates that maximization of returns and minimization of

risk will yield optional returns and the choice and attitudes of investors are only a starting

point for investment decisions and that vigorous risk returns analysis is necessary for

optimization of returns

Portfolio analysis includes portfolio construction, selection of securities, and revision of

portfolio evaluation and monitoring of the performance of the portfolio. All these are part

of the portfolio management.

49

Calculation of return of ICICI

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 141.45 295.45 7.502007 297.90 371.35 7.50

2008 375.00 585.05 8.502009 587.70 891.5 8.50

2010 892.00 1238.7 10.00

Return=Dividend+(Ending Price-Beginning price) Beginning Price Return(2006)= 7.50+(295.45-141.45) * 100 = 114.17% 141.45Return(2007) = 7.50+(371.35-297.90) * 100 = 27.17% 297.90

Return(2008) = 8.50+(585.05-375) * 100 =58.28% 375

Return(2009) = 8.50+(891.5-587.70) * 100 =53.13% 587.70

Return(2010) = 10.00+(1238.7-892) * 100 =39.98% 892

50

CALCULATION OF RETURN OF HDFC

Return=Dividend+(Ending Price-Beginning price) Beginning Price Return(2006) = 3+(645.55-358.5) *100 =80.9% 358.5

Return(2007) = 3.50+(769.05-645.9) * 100 =19.60% 645.9

Return(2008) = 4.50+(1207-771) * 100 =57.13% 771

Return(2009) = 5.00+(1626.9-1195) * 100 =36.6% 1195.9

Return(2010) = 7.00+(2877.75-1630) * 100 =76.97% 1630

Year BeginningPrice

Ending price Dividend

2006 358.5 645.55 3

2007 645.9 769.05 3.50

2008 771 1207 4.50

2009 1195 1626.9 5.50

2010 1630 2877.75 7.00

51

Calculation of return of WIPRO

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 1630.60 1736.05 1.002007 1752.00 748.8 29.00

2008 755.00 463.35 5.002009 462.00 605.9 5.00

2010 603.00 525.65 8.00

Return=Dividend+(Ending Price-Beginning price) Beginning Price Return(2006) = 1.00+(1736.05-1630.60) * 100 = 8.184% 1630.60

Return(2007) = 29.00+(748.8-1752.00) * 100 = -55.60% 1752.00

Return(2008) = 5.00+(463.35-755.00) * 100 = -37.96% 755.00

Return(2009) = 5.00+(605.9-462.00) * 100 = 32.23% 462.00 Return(2010) = 8.00+(525.65-603.00) * 100 = -11.5% 603.00

52

Calculation of return of ITC

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 667 983.5 152007 990 1310.75 20

2008 1318.95 142.1 31.802009 142 176.1 2.65

2010 176.5 209.45 3.10

Return=Dividend+(Ending Price-Beginning p Beginning Price

Return(2006)=15+(983.5-667) * 100 = 49.7% 667

Return(2007)=20+(1310.75-990) * 100 = 34.4% 990

Return(2008)= 31+(142.1-1318.95) * 100 = 86.87% 1318.95

Return(2009) = 2.65+(176.1-142) * 100 = 25.8% 142

Return(2010)=3.10+(209.45-176.5) * 100 = 20.45 176.5

53

Calculation of return of COLGATE&PALMOLIVE

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 133.65 159.7 6.752007 161.5 179.1 6.75

2008 179.2 269.15 7.252009 270.5 388.45 6.00

2010 390.9 382.1 11.25

Return=Dividend+(Ending Price-Beginning p Beginning Price

Return(2006)=6.75+(159.7-133.65) * 100 = 24.5% 133.65

Return(2007)=6.75+(179.1-161.5) * 100 = 13.58 161.5

Return(2008)= 7.25+(269.15-179.2) * 100 = 54.2 179.2

Return(2009)=6.00+(388.45-270.5) * 100 = 45.8 270.5

Return(2010)=11.25+(382.1-390.9) * 100 = 0.62 390.9

54

Calculation of return of CIPLA

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 898.00 1371.05 10.002007 1334.00 317.8 3.00

2008 320.00 448 3.502009 447.95 251.35 2.00

2010 251.5 212.65 2.00

Return=Dividend+(Ending Price-Beginning price) Beginning Price Return(2006)=10.00+(1375.05-898.00) * 100 = 54.23% 898.00

Return(2007) = 3.00+(317.8-1334.00) * 100 = -75.95% 1334

Return(2008) = 3.50+(448-320.00) * 100 = 41.09% 320

Return(2009) = 2.00+(251.35-447.95) * 100 = -43.44% 447.95

Return(2010) = 2.00+(212.65-251.5) * 100 = -14.65% 251.5

55

Calculation of return of RANBAXY

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 598.45 1095.25 15.002007 1109.00 1251.15 17.00

2008 1268 362.75 14.502009 363 391.8 8.50

2010 391 425.5 8.50

Return=Dividend+(Ending Price-Beginning price) Beginning Price Return(2006) = 15.00+(1095.25-598.45) * 100 = 85.52% 598..45

Return(2007) = 17.00+(1251.15-1109.00) * 100 = 14.35% 1109

Return(2008) = 14.50+(362.75-1268.00) * 100 = -70.24% 1268.00

Return(2009) = 8.50+(391.8-363) * 100 = 10.27% 363

Return(2010) = 8.50+(425.5-391.00) * 100 = 10.99% 391.00

56

Calculation of return of MAHENDRA&MAHENDRA

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 113.45 388.8 5.502007 392.55 545.45 9.00

2008 547.10 511.6 13.002009 514.80 908.45 10.00

2010 913.00 861.95 11.50

Return=Dividend+(Ending Price-Beginning p Beginning Price

Return(2006)=5.50+(388.8-113.45) * 100 = 247.55% 113.45

Return(2007)=9.00+(545.45-392.55) * 100 = 41.24% 392.55

Return(2008)= 13.00+(511.6-547.10) * 100 = _-4.11% 547.10

Return(2009)=10.00+(908.45-514.80) * 100 = 78.41% 514.50Return(2010)=11.50+(861.95-913.00) * 100 = -4.3% 913.00

57

Calculation of return of BAJAJ AUTO

Year Beginning price(Rs)

Ending price(Rs)

Dividend(Rs)

2006 502 1136.3 14.002007 1125.05 1131.2 25.00

2008 1149.00 2001.1 25.002009 2016.00 2619.15 40.00

2010 2648.65 2627.9 40.00

Return=Dividend+(Ending Price-Beginning p Beginning Price

Return(2006)=14.00+(1136.3 -502) * 100 = 129.14% 502

Return(2007)=25.00+(1131.2-1125.05) * 100 = 2.77% 1125.05

Return(2008)= 25.00+(2001.1-1149.00) * 100 = _76.34% 1149.00

Return(2009)=40.00+(2619.15-2016.00) * 100 = 31.9% 2016.00Return(2010)=40.00+(2627.9-2648.65) * 100 = 0.726% 2648.65

58

Calculation of standard deviation of ICICI

Year Return (R) _ R

_ R-R

_( R-R )2

2006 114.7 58.652 56.048 3486.6

2007 27.17 58.652 -31.482 991.11

2008 58.28 58.652 -0.372 0.138384

2009 53.13 58.652 -5.522 30.492

2010 39.98 58.652 -18.672 348.64

293.26 4856.98 _ Average (R) = R = 293.26 = 58.652 N 5 _ Variance = 1 (R-R) 2 n-1

Standard Deviation = Variance

= 1 (11905.379) 5-1

= 34.846

Calculation of standard deviation of HDFC

59

_

Average (R) = R = 271.2 = 54.24 N 5 _ Variance = 1 (R-R) 2 n-1

Standard Deviation = Variance

= 1 (2476.8) 5-1 = 24.88

Year Return (R) _ R

_ R-R

_( R-R )2

2006 80.9 54.24 26.66 710.75

2007 19.60 54.24 -34.64 1199.92

2008 57.13 54.24 2.89 8.3521

2009 36.6 54.24 -17.64 311.16

2010 76.97 54.24 22.73 516.65

271.2 2476.8

60

Calculation of standard deviation of WIPRO

_ Average (R) = R = -64.646 = -12.93 N 5 _

Variance = 1/n-1 (R-R)2

Standard Deviation = Variance

= 1 (4934.5)

4

= 35.12

Calculation of standard deviation of ITC

Year Return (R) _ R

_ R-R

_( R-R )2

2006 8.184 -12.93 21.114 445.81

2007 -55.60 -12.93 -42.67 1820.73

2008 -37.96 -12.93 -25.03 626.5

2009 32.23 -12.93 45.16 2039.4

2010 -11.5 -12.93 1.43 2.0449

-64.646 4934.5

61

Year Return (R)

_ R

_ R-R

_( R-R )2

2006 49.7 8.686 41.04 1682.14

2007 34.4 8.686 25.714 661.209

2008 -86.87 8.686 -95.556 9130.94

2009 25.8 8.686 17.114 293.88

2010 20.4 8.686 11.714 137.21

43.43 11905.379 _ Average (R) = R = 43.43 = 8.686 N 5 __

Variance = 1 (R-R) 2 N- 1

Standard Deviation = Variance

= 1 (11905.379) 5-1

S.D = 54.55

Calculation of standard deviation of COLGATE&PALMOLIVE

Year Return (R)

_ R

_ R-R

_( R-R )2

62

2006 24.5 27.74 -3.24 10.5

2007 13.58 27.74 -14.16 200.5

2008 54.2 27.74 26.46 700.13

2009 45.8 27.74 18.06 326.16

2010 0.62 27.74 -27.12 735.5

138.7 27.74 1972.79

__ Average R = R N

= 138.7 = 27.74 5 __ variance = 1 (R-R )2

n-1 Standard Deviation = Variance

1 (1972.79) 4

= 22.2

Calculation of standard deviation of CIPLA

Year Return (R) _ R

_ R-R

_( R-R )2

63

2006 54.23 -7.744 61.974 3840

2007 -75.95 -7.744 -68.206 4652

2008 41.09 -7.744 48.834 2384

2009 -43.44 -7.744 -35.696 1274

2010 -14.65 -7.744 -6.906 47.692

-38.72 12197.692 _ Average (R) = R = -38.72 = -7.744 N 5 _ Variance = 1/n-1 (R-R)2 Standard Deviation = Variance _ = 1 (12197.692) 4

=55.22

Calculation of standard deviation of RANBAXY

64

_ Average (R) = R = 50.89 = 10.18 N 5 Variance = 1 (R-R) 2 n-1

Standard Deviation = Variance

= 1 (12161)

4

= 55.13

Calculation of standard deviation of MAHENDRA&MAHENDRA

Year Return (R) _ R

_ R-R

_( R-R )2

2006 85.52 10.18 75.34 5676

2007 14.35 10.18 4.17 17.39

2008 -70.24 10.18 -80.42 6467

2009 10.27 10.18 0.09 0.0081

2010 10.99 10.18 0.81 0.6561

50.89 12161

65

Year Return (R)

_ R

_ R-R

_( R-R )2

2006 247.45 71.758 175.79 30902.8

2007 41.24 71.758 -30.52 931.47

2008 -4.11 71.758 -75.868 5755.95

2009 78.41 71.758 6.652 44.25

2010 -4.3 71.758 -76.058 5784.82

358.79 43419.3

__ Average R = R n = 358.79 =71.758 5 __ Variance = 1 (R-R )2

n-1

Standard Deviation = Variance

= 1 (43419.3) = 104.186 4

Calculation of standard deviation of BAJAJ AUTO

66

Year Return (R)

_ R

_ R-R

_( R-R )2

2006 129.14 48.175 80.965 6555.3

2007 2.77 48.175 -45.405 2061.6

2008 76.34 48.175 28.165 793.3

2009 31.9 48.175 -16.275 264.9

2010 0.726 48.175 -47.449 2251.4

240.876 11926.5

__ Average R = R N

= 240.876 = 48.175 5 __ Variance = 1 (R-R) 2 N-1

Standard Deviation = Variance

= 1 (11926.5) 4 = 54.6

Correlation between HDFC & ICICI

YearDEVIATIONOFHDFC ___

DEVIATION OF ICICI __

COMBINED DEVIATION

67

RA-RA RB-RB ___ ___ (RA-RA ) (RB-RB)

2006 26.66 56.048 1494.24

2007 -34.64 -31.482 1090.5

2008 2.89 -0.372 -1.075

2009 -17.64 -5.522 97.41

2010 22.73 -18.672 -424.4

2256.675

nCo-variance (COVAB

) =1/n (RA-RA) (RB-RB) t=1

Co-variance (COVAB )=1/5 (2256.675)

=451.335

Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)

= 451.335 (24.88) (34.846) = 0.5206

Correlation between ITC&COLGATE -PALMOLIVE

68

YearDEVIATIONOF ITC ___RA-RA

DEVIATION OF COLGATE- PALMOLIVE __RB-RB

COMBINED DEVIATION ___ ___ (RA-RA ) (RB-RB)

2006 41.04 -3.24 -132.97

2007 25.714 -14.16 -364.1

2008 -95.556 26.46 -2528.4

2009 17.114 18.06 309.07

2010 11.714 -27.12 -317.68

-3034.08

nCo-variance (COVAB

)=1/n (RA-RA) (RB-RB) t=1

Co-variance (COVAB )=1/5 (-3034.08)

=-606.816 Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)

= - 606.816 (54.55) (22.21) = - 0.5008

Correlation between CIPLA & RANBAXY

69

YearDEVIATION 0FCIPLA ___RA-RA

DEVIATION OF RANBAXI __RB-RB

COMBINED DEVIATION ___ ___ (RA-RA ) (RB-RB)

2006 61.974 75.34 4669.12

2007 -68.206 4.17 -284.42

2008 48.834 -80.42 -3927.23

2009 -35.696 0.09 -3.213

2010 -6.906 0.81 -5.59

448.667

nCo-variance (COVAB

)=1/n (RA-RA) (RB-RB) t=1

Co-variance (COVAB )=1/5 448.667

= 89.7334Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)

= 89.7334

(55.22)(55.13)

=0.0295

Correlation between BAJAJ AUTO &MAHENDRA-

DEVIATIONOF DEVIATION OF M&M COMBINED DEVIATION

70

Year BAJAJ ___RA-RA

___RB-RB

___ ___ (RA-RA ) (RB-RB)

2006 80.965 175.79 14232.84

2007 -45.405 -30.52 1385.76

2008 28.165 -75.868 -1909.22

2009 -16.275 6.652 -108.26

2010 -47.449 -76.058 3608.87

17210

nCo-variance (COVAB

)=1/n (RA-RA) (RB-RB) t=1

Co-variance (COVAB )=1/5 (17210)

=3442 Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)

= 3442 (54.60) (104.586) = 0.605

Correlation between HDFC&WIPRO

71

YearDEVIATION OFHDFC ___RA-RA

DEVIATION OF WIPRO __RB-RB

COMBINED DEVIATION ___ ___ (RA-RA ) (RB-RB)

2006 26.06 21.114 550.23

2007 -34.64 -42.67 1478.1

2008 2.89 -25.03 -72.34

2009 -17.64 45.16 -796.6

2010 22.73 1.43 32.50

1191.89

nCo-variance(COVAB

)=1/n (RA-RA) (RB-RB)

t=1

Co-variance(COVAB )=1/5 (1191.89)

=238.38

Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)

= 238.38 (24.88) (35.123)

=0.273

Correlation between BAJAJ& ITC

72

YearDEVIATION OFBAJAJ ___RA-RA

DEVIATION OF ITC

__RB-RB

COMBINED DEVIATION ___ ___ (RA-RA ) (RB-RB)

2006 80.965 41.04 3322.80

2007 -45.405 25.714 -1167.54

2008 28.165 -95.556 -2691.33

2009 -16.275 17.114 -278.53

2010 -47.449 11.714 -555.82

-1370.42

nCo-variance(COVAB

)=1/n (RA-RA) (RB-RB) t=1

Co-variance(COVAB )=1/5 (-1370.42)

=-274.08

Correlation – Coefficient (PAB) = COV AB

(Std. A) (Std. B)

= - 274.08 (54.60) (54.55) =-0.092

73

STANDARD DEVIATION

COMPANY STANDARED DEVIATION

ITC 54.55COL-PAL 22.21BAJAJ 54.60M&M 104.186HDFC 24.88ICICI 34.846RANBAXY 55.13WIPRO 35.123CIPLA 55.22

AVERAGE

74

COMPANY AVERAGE

ITC 8.686

COLGATE&PALMOLIVE 27.74

BAJAJ 48.175

M&M 71.758

HDFC 54.24

ICICI 58.652RANBAXY 10.18WIPRO -12.93

CIPLA -7.744

Interpretation:

Standard deviation is the indication at risk associated with a security it shows

uncertainty of return from a security from above analysis M&M have high Standard

deviation and it has practical to get good return ITC is low risky

CORRELATION OF COEFFICIENT

75

COMPANY R

HDFC&ICICI 0.5206ITC&COLGATE 0.5008

BAJAJAUTO&MAHINDRA 0.605

CIPLA&RANBAXY 0.0295

HDFC&WIPRO 0.0273

BAJAJ&ITC -0.09

CIPLA&BAJAJ 0.690

PORTFOLIO WEIGHTS

HDFC&ICICI

76

Formula:

X a = ( Std.b) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)

X b = 1 – X a

Where X a = HDFC

X b = ICICI

Std.a = 24.88 Std.b = 34.85

p ab = 0.5206

X a = (34.85 ) 2 – (0.5206) (24.88 )(34.85)

(24.88) 2 + (34.85) 2 - 2 (0.5206) (24.88) (34.85)

X b = 1 – X a

X a = 0.8199

X b = 0.1801

PORTFOLIO WEIGHTS

77

Formula:

X a = ( Std.b) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)

X b = 1 – X a

Where X a = WIPRO

X a = (34.846) 2 – (0.586) (35.123 )(34.846)

(35.123) 2 + (34.846) 2 - 2 (0.586) (35.123) (34.846)

X b = 1 – X a

X a = 0.4905

X b = 0.5095

PORTFOLIO WEIGHTS

ITC&COLGATE:

78

Formula:

X a = ( Std.b) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)

X b = 1 – X a

Where X a = ITC

X b = COLGATE Std.a = 54.55

Std.b = 22.21

p ab = 0.5008

X a = (22.21) 2 – (0.5008) (54.55 )(22.21)

(54.55) 2 + (22.21) 2 - 2 (0.5008) (54.55) (22.21)

X b = 1 – X a

X a = 0.0503

X b = 0.9497

PORTFOLIO WEIGHTS

CIPLA&RANBAXY:

79

Formula:

X a = ( Std.b) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)

X b = 1 – X a

Where X a = CIPLA

X b = RANBAXY Std.a = 55.22

Std.b = 55.13

p ab = 0.0295

X a = (55.13) 2 – 0.0295 (55.22) (55.13) (55.22) 2 + (55.13) 2

- 2 (0.0295) (55.22) (55.13)

X b = 1 – X a

X a = 0.49916

X b = 0.50084

PORTFOLIO WEIGHTS

BAJAJ AUTO&MAHENDRA:

80

Formula:

X a = ( Std.b) 2 – p ab (std.a )(std.b)

(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)

X b = 1 – X a

Where X a = BAJAJ AUTO

X b = MAHENDRA Std.a = 54.60

Std.b = 104.186

p ab = 0.605

X a = (104.19) 2 – o.605 (54.60) (104.19) (54.60) 2 + (104.19) 2

- 2 (0.605) (54.60) (104.19)

X b = 1 – X a

X a = 1.6206

X b = -0.6206

Two Portfolios Correlation COMPANY COMPANY Xb PORTFOLI PORTFOLO

81

Coefficient Xa O RETURN Rp

RISK

σp

ICICI&HDFC 0.5206 0.8199 ..0.1801 114.24 31.14

ITC&COLGATE 0.5008 0.0563 0.9497 26.835 22.77

CIPLA&RANBAXI 0.605 0.49916 0.50084 1.2335 49.43

M&M &BAJAJ 0.0295 1.6206 -0.620 122.61 171.22

__ __

PORTFOLIO RETURN ( Rp)=(Ra)(Xa) + (Rb) (Xb)

PORTFOLIO RISK= ___________________________________

σp= √ X1^2σ1^2+X2^2σ2^2+2(X1)(X2)(X12)σ1σ2

Portfolio return Rp

ICICI&HDFC 114.24

ITC&COLGATE 26.835

82

CIPLA&RANBAXI 1.234

M&M &BAJAJ 122.61

Interpretation:

It is proved fact that portfolio is lower than individual risks at assets of portfolio we

absurd from the calculations in that risk of portfolio.

Portfolio risk

ICICI&HDFC 31.14

ITC&COLGATE 22.77

CIPLA&RANBAXI 49.43

M&M &BAJAJ 171.22

83

Interpretation:

It is proved fact that portfolio is lower than individual risks at assets of portfolio we

absurd from the calculations in that risk of portfolio.

FINDINGS:

1. As far as the average returns of the selected companies are concerned, M&M

BAJAJ is performing well in isolation where as CIPLA &RANBAXY is performing very

poor.

84

2. As far as the standard Deviation of the selected companies are concerned,

M&M&ICICI is very high, where as ITC&COLGATE, is giving less risk than other

companies. This means that the higher the risk the higher the return.

3. As far as the correlation co-efficient is concerned the study selects only negatively

correlated scripts as suggested by Markowitz.The combination of securities with ITC is

negatively correlated.

4. As far as Portfolio Risk & Return are concerned the combination of securities of

ITC & Bajaj Auto is giving more return and meanwhile the risk involved in that security

is also more.

SUGGESTIONS

85

1. As the average return of securities BAJAJ,ICICI, HDFC and ITC are HIGH, it is

suggested that investors who show interest in these securities taking risk into

consideration.

2. As the risk of the securities ITC, BAJAJ, M&M and CIPLA are risky securities it

suggested that the investors should be careful while investing in these securities.

3. The investors who require minimum return with low risk should invest in WIPRO

& CIPLA&COLGATE.

4. It is recommended that the investors who require high risk with high return should

invest in ICIC and BAJAJ and M&M .

5. The investors are benefited by investing in selected scripts of Industries.

CONCLUSIONS

ICICI&HDFC

86

The combination of ICICI and HDFC gives the proportion of investment is 1.1801 and

0.8199 for ICICI and HDFC, based on the standard deviations The standard deviation for

ICICI is 34.846 and for HDFC is 24.88.

Hence the investor should invest their funds more in HDFC when compared to

ICICI as the risk involved in HDFC is less than ICICI as the standard deviation of HDFC

is less than that of ICICI.

ITC & COLGATE PALMOLIVE

The combination of ITC and COLGATE gives the proportion of investment is 0.0563 and

0.50084 for ITC and COLGATE, based on the standard deviations The standard

deviation for ITC is 54.55 and for COLGATE is 22.2.

Hence the investor should invest their funds more in COLGATE when compared

to ITC as the risk involved in COLGATE is less than ITC as the standard deviation of

COLGATE is less than that of ITC.

CIPLA&RANBAXY

The combination of CIPLA and RANBAXY gives the proportion of investment is

0.49916 and 0.50084 for CIPLA and RANBAXY, based on the standard deviations The

standard deviation for CIPLA is 55.22 and for RANBAXY is 55.13. When compared to

both the risk is almost same, hence the risk is same when invested in either of the

security.

MAHENDRA & BAJAJ AUTO

87

The combination of M&M and BAJAJ AUTO gives the proportion of investment is

1.6206 and 0.6206 for M&M and BAJAJ AUTO, based on the standard deviations The

standard deviation for M&M is 104.186 and for BAJAJ AUTO is 54.6.

Hence the investor should invest their funds more in BAJAJ AUTO when

compared to M&M as the risk involved in BAJAJ AUTO is less than M&M as the

standard deviation of BAJAJ AUTO is less than that of M&M.

CONCLUSIONS FOR CORRELATION

In case of perfectly correlated securities or stocks, the risk can be reduced to a minimum

point.In case of negatively correlative securities the risk can be reduced to a zero.(which

is company’s risk) but the market risk prevails the same for the security or stock in the

portfolio.

As the study shows the following findings for portfolio construction;

Investor would be able to achieve when the returns of shares and debentures

Resultant portfolio would be known as diversified portfolio. Thus portfolio construction

would address itself to three major via., selectivity, timing and diversification

In case of portfolio management, negatively correlated assets are most

profitable .Correlation between the BAJAJ & ITC are negatively correlated which means

both the combinations of portfolios are at good position to gain in future .

Investors may invest their money for long run, as both the combinations are most

suitable portfolios. A rational investor would constantly examine his chosen portfolio

both for average return and risk.

88

BIBLIOGRAPHY

89

TEXT BOOKS

AUTHORNAME BOOKNAME PUBLICATION EDITION

1.DONALDE, FISHER SECURITIES ANYLISIS 6THEDITION &PORTFOLIOMANAGEMENT

2.RONALD J.JODON INVESTMENTS MANAGEMENT S.CHAND 3.V.A.AVADHANI INVESTMENT MANAGEMENT

Website

4. WWW. Investopedia.com

5. www.nseindia.com

6. www.bseindia.com.

7. www.unicon investmentsolutions.com

Newspapers& magazine

8. DAILY NEWS PAPERS.

ECONOMIC TIME, FINANCIAL EXPRES.ETC

ANNEXURE

90

Implementation of study:

For implementing the study,8 securitie’s or scripts constituting the sensex market are

selected of one month closing share movement price data From Economic Times and

financial express from jan 3rd to 31st jan 2009.

In order to know how the risk of the stock or script, we use the formula, which is given below..

_________ Standard deviation= √ variance n _ Variance= (1/n-1) ∑ (R-R)2 t=1 _ Where (R-R)2 = square of difference between sample and mean

n = number of sample observed

After that we need to compare the stocks or scripts of two companies with each other by

using the formula or correlation coefficient as given below.

n __ __ Covariance [COVAB] =1/n ∑ (RA-RA) (RB-RB)

t=1 correlation-Coefficient (PAB ) = (COVAB )

(std.A) (std.B)

Where (RA-RA)(RB-RB) = Combined deviation of A&B

(std.A) (std.B)deviation of A&B

COVAB = Covariance between A&B n= number 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

91

combined i.e. calculation of two assets portfolio weight by using minimum variance

equation which is given below.

FORMULA (Std. b) ^2 – pab (Std. a) (Std. b)

Xa =------------------- ---------------------------------- (Std. a) ^2 + (std. b) ^2 –2pab (Std. a) (Std. b) Where

Std. b= standard deviation of b

Std. a = standard deviation of a

Pab= correlation co-efficient between A&B The next step is final step to calculate the portfolio risk (combined risk),that shows how

much is the risk is reduced by combining two stocks or scripts by using this formula:

_________________________________-

σp= √ X1^2σ1^2+X2^2σ2^2+2(X1)(X2)(X12)σ1σ2 Where X1=proportion of investment in security 1.

X2=proportion of investment in security 2.

σ 1= standard deviation of security 1.

σ 2= standard deviation of security 2.

X12=correlation co-efficient between securities

σ p=portfolio risk.

92