Risk Analysis and Protfolio Management

A STUDY

ON

RISK ANALYSIS AND PORFOLIO MANAGEMENT

[IL&FS INVESTSMART]HSBC GROUP

In partial fulfillment for the Course in MBA (International Business)

[2008-2010]

Submitted by:

REGD NO: 1224108167

Under the esteemed guidance of

Shamshuddin Khan Dr.Kameshwara Rao Area Sales Manager Assistant Professor

(IL&FS Investmart Securities Ltd.) (GIIB)

GITAM INSTITUTE OF INTERNATIONAL BUSINESS

DECLERATION

I hereby declare that this project title ‘RISK ANALYSIS AND PORTFOLIO

MANAGEMENT’ is prepared by me under the guidance of Mr. Shamshuddin Khan,

Area Sales Manager, IL&FS Investsmart Securities Ltd., Viskhapatnam and Dr.

Kameshwara Rao, Asst. professor, GITAM Institute of International Business (GIIB)

Visakhapatnam, in partial fulfilment of requirement for the award of the degree of

Master of Business Administration (International Business).

I further declare that the primary information and secondary information accumulated

in the report is subject to time terms and conditions and may change with the same.

All interpretation, research and suggestions made in the report are my personal views.

DATE: G. NARESH

PLACE: VISAKHAPATNAM

2

CERTIFICATE

This is to certify that Mr. GOPALAM NARESH, a student of MBA

session 2008–2010 has completed her project titled ‘RISK ANALYSIS

AND PORTFOLIO MANAGEMENT’ during her summer internship

at IL&FS Investsmart, Visakhapatnam under my guidance and

supervision. He has worked with all honesty and sincerity.

DATE: Dr.K.KAMESHWARA RAO

PLACE: VISAKHAPATNAM (Asst. PROFESSOR)

3

ACKNOWLEDGEMENTS

I take this privilege to thank PROF. V.K. KUMAR, Director, GITAM INSTITUTE

of INTERNATIONAL BUSINESS for giving me this opportunity for Summer

Training at IL&FS Investsmart., Hyderabad.

I owe a great intellectual debt to Mr. KAMESHWAR RAO, Associate Asst.

Professor for his kind co- operation, valuable guidance and encouragement during this

project.

I express my sincere thanks to Mr. SHAMSHUDDIN KHAN, Area Sales Manager,

IL&FS Investsmart, Hyderabad for his experienced guidance to complete my project.

DATE: GOPALAM NARESH

PLACE: VISAKHAPATNAM

4

CONTENTS

S.NO. PARTICULARS PAGE NO. NO.

1. EXECUTIVE SUMMARY 6-7

2. INTRODUCTION 9

3. COMPANY PROFILE 11-15

4. RISK ANALYSIS 17-24

5. RISK RETURN PERFORMANCE OF CHOSEN SECURITIES 26-34

6. PORTFOLIO PERFORMANCE OF THE SECURITIES - Under Traditional Hypothesis 36-38

7. RETURNS ON BUY AND HOLD STRATEGY 40

8. PORTFOLIO PERFORMANCE OF THE SECURITIES 42-43 - Under Markowitz ModeL

9. LIMITATIONS AND RECOMMENDATIONS 45

10. ANNEXURES 46-55

11. REFERENCES 56

5

EXECUTIVE SUMMARY

Investment involves making of a sacrifice in the present with the hope of deriving

future benefits. Two most important features of an investment are current sacrifice

and future benefit. Investment is the sacrifice of certain present values for the

uncertain future reward. Investment may be defined as an activity that commits funds

in any financial/physical form in the present with an expectation of receiving

additional return in the future. The expectation brings with it a probability that the

quantum of return may vary from a minimum to a maximum. This possibility of

variation in the actual return is known as investment risk. Thus every investment

involves a return and risk.

Risk is explained theoretically as the fluctuation in returns from a security. A security

that yields consistent returns over a period of time is termed as “risk less security” or

“risk free security “. Risk is inherent in all walks of life. An investor cannot foresee

the future definitely; hence, risk will always exist for an investor. Risk is in fact the

watchword for all investors who enter capital markets.

Portfolios are combinations of assets. Portfolios consist of collections of securities.

Traditional portfolio planning emphasizes on the character and the risk bearing

capacity of the investor. For example, a young, aggressive, single adult would be

advised to buy stocks in newer, dynamic, rapidly growing firms. A retired widow

would be advised to purchase stocks and bonds in old-line, established, stable firms,

such as utilities. Modern portfolio theory suggests that the traditional approach to

portfolio analysis, selection, and management may yield less than optimum results.

Hence a more scientific approach is needed, based on estimates of risk and return of

the portfolio and the attitudes of the investor toward a risk-return trade-off stemming

from the analysis of the individual securities.

In this study 10 securities are selected which are ACC Ltd., Bharti Airtel, BHEL,

Grasim, ONGC, Infosys, Maruti Suzuki, Reliance infrastructure, SBI and Sun Pharma

6

and risk analysis of each security is done and a portfolio is constructed under

traditional hypothesis and also modern hypothesis – Markowitz theory.

The objective of the study is to analyse risk of the chosen 10 securities during the

period Jan 2007 to June 2009, to study the behavior of portfolio constructed under

traditional hypothesis and the Markowitz model, to find the benefits/losses of

adopting a buy and hold strategies for individual securities as well as a portfolio

The main findings of the study are

If the portfolio is composed of only one security, then it is prone to two kinds of risks

1.) systematic risk - risk emanating from conditions of the general economy such as

the business cycle, inflation, interest rates and exchange rates and 2.) Unsystematic

risk, which is firm-specific and can be related to Research and Development or

personnel changes.

As per the traditional hypothesis, it is observed that as the securities are added to the

portfolio, to the extent that the firm-specific influences on the stocks differ,

diversification should reduce portfolio risk, but systematic risk cannot be totally

reduced.

But as per the modern portfolio theory i.e., Markowitz theory, we can choose an

appropriate complete portfolio with the optimal risky portfolio. The variances and the

co variances between the securities can be calculated for the targeted expected return.

Under the Buy and Hold strategy, if the securities are purchased on Jan 2007 and are

held till July 2009, without trading during the period, the return yielded is better than

the average return yielded through regular trading. We can infer that during the

recession period, it is better to hold the securities instead of indulging in regular

trading and exposing to high volatility that prevail during that period.

7

INTRODUCTION

8

OBJECTIVES OF THE STUDY

• To analyze the risk of chosen 10 securities during the period Jan 2007 to June

2009.

• To study the risk return performance of the chosen 10 securities

• To examine the Risk Return performance of the portfolio of 10 securities.

• To study the behavior of portfolio constructed under traditional hypothesis.

• To study the behavior of portfolio under the Markowitz model.

• To find the benefits/losses of adopting a buy and hold strategies for individual

securities as well as a portfolio

METHODOLOGIES

• Selection of 10 securities from BSE 30 Sensex

• Regression - To find out the beta value - the sensitivity of the security with

respect to the market

• Correlation Matrix – For finding the co variances between the securities

9

COMPANY PROFILE

10

IL&FS INVESTSMART

IL&FS Investsmart Limited (IIL) is one of India’s leading financial services

organizations providing individuals and corporates with customised financial

management solutions. IL&FS Investsmart is one of India's prime financial services

company and is committed to creating a differentiated financial services organisation

by leveraging technology to deliver the most compelling combination of product,

service and price to a value driven consumer.

Hsbc’s stake in IL&FS Investsmart

HSBC has announced the acquisition of 93.86 per cent stake in leading Indian

brokerage, IL&FS Investsmart for a sum of Rs 1,311 crore (around USD 296.4

million) on September 30th 2008. It had acquired a 73.21 per cent stake in Investsmart

in May the same year, which included a 43.85 per cent stake previously held by

E*Trade Mauritius and 29.36 per cent stake holding of IL&FS. It later acquired an

additional 20.65 per cent through an open offer taking its total shareholding in

Investsmart to 93.86 per cent.

IL&FS INVESTSMART OFFERINGS

Retail Offerings Institutional Offerings

Advisory products Investment Banking

Trading products Institutional Equity

NRI Services Institutional Debts

ADVISORY PRODUCTS:

Mutual Fund Advisory Services - As a part of its Mutual Fund Advisory Services,

the team of experts across India helps one in selecting the right scheme from over 500

offerings, matching his needs, goals and risks. In addition to this, it also helps in

11

constantly monitoring one’s MF portfolio, making changes according to the changing

needs as per the market scenario, in order to make money work for oneself.

Portfolio Management Services - Its solutions include anticipating market trends,

assessing the impact of socio-economic changes on one’s investments, keeping

abreast of latest corporate developments and financial analysis in the context where

managing one’s investments has become nearly a full-time affair that requires

considerable time and expertise. It offers a choice of two types of PMS Schemes

i Preserve – It is a discretionary portfolio management scheme, which invests

in a mix of various mutual fund schemes. It is ideal for investors who wish to

invest in maximizing returns from mutual funds but cannot make the right

choices. The primary objective of iPreserve is to manage investments in

Mutual funds, encompassing both debt as well as equity schemes. iPreserve

takes care of complete execution of the investment and monitoring on client’s

behalf.

iGrowth - is a discretionary portfolio management scheme, focused on

equities. It aims at creating long-term wealth through judicious stock selection

and asset allocation. Sub-schemes are based on investors’ risk profile.

IPO Advisory & Distribution Services -

IL&FS Investsmart (IIL) is one of the India's leading companies engaged in the

activity IPO Advisory and Distribution. Its primary markets division does a

comprehensive research before recommending issues to clients. Its pan India reach

helps in mobilising large number of applications across India during public offerings,

this has ensured that it constantly figures amongst the top ranking performers in the

primary market distribution space. As a part of its online offering, customers can

invest in IPO's not only through its branches but also through their website, which

also provides one with regular updates on the IPO scenario. The primary markets

distribution division works in conjunction with the retail and wholesale distribution

networks, as well as its private client group.

Insurance Advisory Services

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IIL is one stop shop for all Insurance & Retirement needs. It is a composite insurance

broker providing comprehensive risk management solutions, both for corporates as

well as individuals. Its solutions include identification, measurement and assessment

of the risk and handling of the risk, of which insurance is an integral part. It deals into

both life insurance and general insurance products for all insurance companies across

India.

TRADING PRODUCTS:

Equities and Derivatives

Investsmart is a full service broking house offering services across both the Cash and

F&O segments. Investsmart is a member with National Stock Exchange (NSE) as

well as the Bombay Stock Exchange (BSE). It also offers comprehensive trading

solutions through its website www.investsmart.in which is equipped with host of

unique features to cater to customer trading needs. Its offerings include 3 different

trading platforms to suit one’s individual needs, depending upon his profile.

NRI PRODUCTS

Investsmart is committed to creating a differentiated financial services organisation by

leveraging technology to deliver the most compelling combination of product, service

and price to a value driven consumer.

It offers its investment solutions to meet the financial objectives of NRIs. Its end-to-

end investment solutions guide one at every step of one’s investment in India right

from PAN Card Assistance to formulating & executing investment plans based on

NRI requirements, robust trading platforms till the assistance on accounting & income

tax returns filing in India.

NRI Product Offerings

NREquity

NRI Portfolio Management Services

INSTITUTIONAL OFFERINGS:

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http://www.investsmart.in/

INVESTMENT BANKING

It offers an extensive range of Investment Banking Services for equity related

products and instruments. It advises on transactions like business structuring and

capital raising opportunities based on one’s corporate needs and state of capital

markets. Services specialized in include Management of:

Initial Public Offering (IPOs)

Follow-on Offerings

Qualified Institutional Placements (QIPs)

Buyback of Equities

Open Offers

Mergers & Acquisitions

Private Equity Placements

ESOPs

It identifies analyses and responds instantly to customer needs. Since inception, it has

been structuring and delivering financial solutions geared towards its clients needs.

This is implemented through an understanding of clients’ business needs and investor

preferences.

INSTITUTIONAL EQUITY BROKING SERVICES

It focuses on identifying undiscovered value stocks to investors. Through it’s gamut

of services, this division is well-suited to corporate investors, banks, financial

institutions, insurance companies and FII’s. Its Institutional Equity Business (IEB) is

well positioned to offer support for a complete range of investment banking service to

corporates.

It offers a wide array of products and services, specifically aimed at improving market

capitalization of forward looking companies. It works closely with institutional

investors, private equity investors and corporates. It conducts activities like organising

of road shows, enabling the senior management to interact with FIIs, regular

conference calls for institutional Investors etc. This works as a pre-requisite to

investing in stocks. Its expertise in this area also extends to international investors

from Singapore, Hong Kong, USA and the UK.

14

INSTITUTIONAL DEBT BROKING SERVICES

Its institutional debt broking division includes secondary market broking, primary

market debt placement & distribution and provident fund advisory services.

Secondary debt broking is the principle service provided by this division. The clients

mainly comprise of institutional debt players, such as banks, primary dealers, mutual

funds, large provident funds and in some cases corporate treasuries. The division

empanelled with almost all banks, primary dealers and mutual funds, on whose behalf

it acts either on the buying or selling side. All types of debt papers are covered,

including government securities, treasury bills, public sector bonds, corporate bonds

etc. This desk also provides transacting and advisory services to various provident

funds and HNI clients.

The primary market services cover placement of debt paper issued by corporates, with

institutional segments covering banks, mutual funds etc. These services cover various

activities :-

Advising the clients on the issuance including the instrument, quantum,

timing, other instrument specific structuring such as put / call option,

conversion option and rating. Assisting in the rating exercise and suggesting

various means and options to improve rating if so desired, through “Structured

Obligations” or other mechanisms.

Pre marketing the placement / issuance

Selling / placing the issuance

Assisting in any related documentation for the issuance

Assisting in all other steps to complete the issuance for draw down funds

The debt instrument covered by this division cover both short term as well as longer

term instruments. Commercial paper and MIBOR Linked Bonds are popular among

the short-term instruments. The division uses a proprietary online platform called

“DebtonNet” for online book building of debt issuances

15

RISK ANALYSIS

16

INVESTMENT

Investment involves making of a sacrifice in the present with the hope of deriving

future benefits. Two most important features of an investment are current sacrifice

and future benefit. Investment is the sacrifice of certain present values for the

uncertain future reward. Investment may be defined as an activity that commits funds

in any financial/physical form in the present with an expectation of receiving

additional return in the future. The expectation brings with it a probability that the

quantum of return may vary from a minimum to a maximum. This possibility of

variation in the actual return is known as investment risk. Thus every investment

involves a return and risk.

INVESTMENT PROCESS

An organized view of the investment process involves analyzing the basic nature of

investment decisions and organizing the activities in the decision process. Investment

process is governed by the two important facets of investment they are risk and return.

Therefore, we first consider these two basic parameters that are of critical importance

to all investors and the trade off that exists between expected return and risk. Given

the foundation for making investment decisions the trade off between expected return

and risk- we next consider the decision process in investments as it is typically

practiced today. Although numerous separate decisions must be made, for

organizational purposes, this decision process has traditionally been divided into a

two step process: security analysis and portfolio management. Security analysis

involves the valuation of securities, portfolio management involves the management

of an investor’s investment selections as a portfolio (package of assets), with its own

unique characteristics.

Characteristics of Investment

The characteristics of investment can be understood in terms of as

- return,

- risk,

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- safety,

- liquidity etc.

Return: All investments are characterized by the expectation of a return. In fact,

investments are made with the primary objective of deriving return. The expectation

of a return may be from income (yield) as well as through capital appreciation.

Capital appreciation is the difference between the sale price and the purchase price.

The expectation of return from an investment depends upon the nature of investment,

maturity period, market demand and so on.

Risk: Risk is inherent in any investment. Risk may relate to loss of capital, delay in

repayment of capital, non payment of return or variability of returns. The risk of an

investment is determined by the investments, maturity period, repayment capacity,

nature of return commitment and so on. Risk and expected return of an investment are

related. Theoretically, the higher the risk, higher is the expected return. The higher

return is a compensation expected by investors for their willingness to bear the higher

risk.

Safety: The safety of investment is identified with the certainty of return of capital

without loss of time or money. Safety is another feature that an investor desires from

investments. Every investor expects to get back the initial capital on maturity without

loss and without delay.

Liquidity: An investment that is easily saleable without loss of money or time is said

to be liquid. A well developed secondary market for security increases the liquidity of

the investment. An investor tends to prefer maximization of expected return,

minimization of risk, safety of funds and liquidity of investment.

Investment avenues can be broadly categorized under the following heads: -

1. Corporate securities

. Equity shares

. Preference shares

. Debentures/Bonds

. GDRs /ADRs

. Warrants

. Derivatives

2. Deposits in banks and non banking companies

3. Post office deposits and certificates

4. Life insurance policies

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5. Provident fund schemes

6. Government and semi government securities

7. Mutual fund schemes

8. Real assets

RETURN AND RISK – THE BASIS OF INVESTMENT DECISIONS:

An organized view of the investment process involves analyzing the basic nature of

investment decisions and organizing the activities in the decision process. Common

stocks have produced, on average, significantly larger returns over the years than

savings accounts or bonds. To pursue higher returns investors must assume larger

risks. Underlying all investment decisions is the trade off between expected return and

risk. Therefore, we first consider these two basic parameters that are of critical

importance to all investors and the trade- off that exists between expected return and

risk. Given the foundation for making investment decisions the trade off between

expected return and risk – we next consider the decision process in investments as it is

typically practiced today. Although numerous separate decisions must be made, for

organizational purposes, this decision process has traditionally been divided into a

two step process: security analysis and portfolio management. Security analysis

involves the valuation of securities, whereas portfolio management involves the

management of an investor’s investment selections as a portfolio (package of assets),

with its own unique characteristics.

Return: Why invest? Stated in simplest terms, investors wish to earn a return on their

money. Cash has an opportunity cost: By holding cash, you forego the opportunity to

earn a return on that cash. Furthermore, in an inflationary environment, the

purchasing power of cash diminishes, with high rates of inflation bringing a relatively

rapid decline in purchasing power. In investments it is critical to distinguish between

an expected return (the anticipated return for some future period) and a realized return

(the actual return over some past period). Investors invest for the future for the returns

they expect to earn but when the investing period is over, they are left with their

realized returns. What investors actually earn from their holdings may turn out to be

more or less than what they expected to earn when they initiated the investment. This

point is the essence of the investments process; Investors must always consider the

risk involved in investing.

19

Risk: Risk is explained theoretically as the fluctuation in returns from a security. A

security that yields consistent returns over a period of time is termed as “risk less

security” or “risk free security “. Risk is inherent in all walks of life. An investor

cannot foresee the future definitely; hence, risk will always exist for an investor. Risk

is in fact the watchword for all investors who enter capital markets. Investment risk

can be an extraordinary stress for many investors. When the secondary market does

not respond to rational expectations, the risk component of such markets is relatively

high and most investors fail to recognize the real risk involved in the investment

process. Risk aversion is the criteria commonly associated with many small investors

in the secondary market. Many small investors look upon the market for a definite

return and when their expectations are not met, the effect on the small investors’

morale is negative. Hence these investors prefer to lock up their funds in securities

that would rather give them back their investment with small returns than those

securities that yield high returns on an average but are subject to wild fluctuations.

There are different types and therefore different definition of risk. Risk is defined as

the uncertainty about the actual return that will earn on an investment. When one

invest, expects some particular return, but there is a risk that he ends up with a

different return when he terminates the investment. The more the difference between

the expected and the actual the more is the risk. Thus the investment decision involves

a trade-off between the two, return and risk.

Factors influence risk. Traditionally, investors have talked about several factors

causing risk such as business failure, market fluctuations, change in the interest rate

inflation in the economy, fluctuations in exchange rates changes in the political

situation etc. Based on the factors affecting the risk the risk can be understood in

following manners -

Interest rate risk: The variability in a security return resulting from changes in the

level of interest rates is referred to as interest rate risk. Such changes generally affect

securities inversely, that is other things being equal, security price move inversely to

interest rate.

Market risk: The variability in returns resulting from fluctuations in overall market

that is, the agree get stock market is referred to as market risk. Market risk includes a

wide range of factors exogenous to securities them selves, like recession, wars,

structural changes in the economy, and changes in consumer preference. The risk of

going down with the market movement is known as market risk.

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Inflation risk: Inflation in the economy also influences the risk inherent in

investment. It may also result in the return from investment not matching the rate of

increase in general price level (inflation). The change in the inflation rate also changes

the consumption pattern and hence investment return carries an additional risk. This

risk is related to interest rate risk, since interest rate generally rises as inflation

increases, because lenders demands additional inflation premium to compensate for

the loss of purchasing power.

Business risk: The changes that take place in an industry and the environment causes

risk for the company in earning the operational revenue creates business risk. For

example the traditional telephone industry faces major changes today in the rapidly

changing telecommunication industry and the mobile phones. When a company fails

to earn through its operations due to changes in the business situations leading to

erosion of capital, there by faces the business risk.

Financial risk: The use of debt financing by the company to finance a larger

proportion of assets causes larger variability in returns to the investors in the faces of

different business situation. During prosperity the investors get higher return than the

average return the company earns, but during distress investors faces possibility of

vary low return or in the worst case erosion of capital which causes the financial risk.

The larger the proportion of assets finance by debt (as opposed to equity) the larger

the variability of returns thus lager the financial risk.

Liquidity risk: An investment that can be bought or sold quickly without significant

price concession is considered to be liquid. The more uncertainty about the time

element and the price concession the greater the liquidity risk. The liquidity risk is the

risk associated with the particular secondary market in which a security trades.

Exchange rate risk: The change in the exchange rate causes a change in the value of

foreign holdings, foreign trade, and the profitability of the firms, there by returns to

the investors. The exchange rate risk is applicable mainly to the companies who

operate oversees. The exchange rate risk is nothing but the variability in the return on

security caused by currencies fluctuation.

Political risk: Political risk also referred, as country risk is the risk caused due to

change in government policies that affects business prospects there by return to the

investors. Policy changes in the tax structure, concession and levy of duty to products,

relaxation or tightening of foreign trade relations etc. carry a risk component that

changes the return pattern of the business.

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TYPES OF RISK

Modern investment analysis categorizes the traditional sources of risk identified

previously as causing variability in returns into two general types: those that are

pervasive in nature, such as market risk or interest rate risk, and those that are specific

to a particular security issue, such as business or financial risk.

Therefore, we must consider these two categories of total risk. The following

discussion introduces these terms. Dividing total risk in to its two components, a

general (market) component and a specific (issue) component, we have systematic

risk and unsystematic risk which are additive:

Total risk = general risk + specific risk

= market risk + issuer risk

= systematic risk + non systematic risk

Systematic risk: Variability in a securities total return that is directly associated with

overall moment in the general market or economy is called as systematic risk. This

risk cannot be avoided or eliminated by diversifying the investment. Normally

diversification eliminates a part of the total risk the left over after diversification is the

non-diversifiable portion of the total risk or market risk. Virtually all securities have

some systematic risk because systematic risk directly encompasses the interest rate,

market and inflation risk. The investor cannot escape this part of the risk, because no

matter how well he or she diversifies, the risk of the overall market cannot be

avoided. If the stock market declines sharply, most stock will be adversely affected, if

it rises strongly, most stocks will appreciate in value. Clearly mark risk is critical to

all investors.

Non-systematic risk: Variability in a security total return not related to overall

market variability is called unsystematic (non market) risk. This risk is unique to a

particular security and is associated with such factors as business, and financial risk,

as well as liquidity risk. Although all securities tend to have some non systematic risk,

it is generally connected with common stocks.

Beta and its Significance in the Portfolio

Beta is a measure which has been used for reducing risk or determining the risk and

return for stocks and portfolios. A number of research studies have been made to give

22

indications of beta coefficient for selection of stock. When beta is used significantly

for stock selection it is to be compared with the market. The investor can construct his

portfolio by drawing the relationship of beta coefficient with the prices prevailing in

the market. When there is buoyancy in the market, then beta coefficient which are

large can be selected. These betas would also carry with them a high risk but during

the boom period, high risk is expected. These betas would also carry with them a high

risk but during the boom period, high risk is expected to give a maximum of return. If

the market is bear market and the prices are falling, then it is possible to sell “short”

stocks which have high positive beta coefficient. The stocks which have a negative

beta would withstand the tag in the prices in the market. For example, when the beta

is + 1.0, the volatility which is relative to the market would indicate an average stock.

But when the beta changes to +2.0, it is excluding the value which is provided by

alpha, the stock would be estimated to show a return of 20% when the market return

is forecasted at 10%. This is in the case of a rising market. But when the prices show a

decline and the future is expected to provide a decline of 10%, then a beta which

shows + 2.0 would show that it is providing a negative return of 20% if the stock is

held by the investor for very long. But if the investor sells ‘short’ stock, then he can

plan to gain 20%. But if the beta is negatives 1.0, then there would be a gain of a

positives 10%, i.e., (-1.0 x .10)

Although betas help in selecting stock, care should be taken to select the stock with

the beta approach because selection of portfolio with beta is followed only when the

following assumptions are considered:

(a) The market movement in positives and negatives directions haves to be carefully

analyzed and

(b) The past historical considerations of beta must be analyzed for future prediction of

beta.

If portfolios selection is not made by and accurate reading of the movement of

markets, then the portfolios selection will be incorrect and will not determine the

preferences of the investor. The market movements explain between 15 and 65% of

the movement of the individual securities. The variability of returns is explained

further between 75 and 95% in the measurement of betas. The technique of beta,

therefore, although it is useful, has to be conducted with precision.

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Also, betas in order to be useful have to be predictive and cannot be upward looking.

A well diversified portfolio is linked with securities with the market movement. But

the market movement can be considered only when a survey of fundamental factors is

taken into consideration. The fundamental factors are the following:

(a) the earning of a firm;

(b) the movements of the market;

(c) continuous valuation of stock;

(d) survey of stock, whether it represents large or small firms, old and

established and new firms;

(e) growth of firms historically and

(f) The capital structure of the firm.

These factors are to be projected with the movements of the stock by assigning

probabilities for the occurrence of the particular factors. There fundamental factors

would also represent the changes in the returns of securities over the years, the

variability in their structure of earnings and the kind of success that is made by each

stock. When the stock is valued, a firm which has continuous high market valuation

will be considered as a good stock. The small firm is risky or safe and the financial

structure will be a means of finding out the kind of operations of a firm relating to its

liquidity position and the coverage of fixed charges. Rosenberg found that these

fundamental factors help in making and optimum portfolio. According to him, risks

are not only systematic and unsystematic but the latter one can be also sub-divided as

“specific risk and extra market co-variance “Specific risk which is a unique risk, is

independent to particular firm. It comprises the risk and uncertainty of only one

particular firm in isolation. The extra market co-variance is independent of the market

and it shows a tendency of the stock to move together. It also shows the co-variance

of a homogenous group of the finance group. It is in-between the systematic and

specific risk. The specific risk covers about 50% of the total risk and the covariance

and systematic risk together comprise the other half of 50%. While systematic risk

covers all the firms, the extra market co-variance is in-between and covers one group

classification of industries. A portfolio which is properly selected and is well

diversified usually consists of 80-90% of the systematic risk out of the total risk

involved in those securities.

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RISK RETURN PERFORMANCE OF SECURITIES

25

Risk Analysis of each security is shown below:

Monthly Returns of ACC

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis:

From the above table, the return arrived at is -1.69% and the risk is 13.39%. If an

investor puts all his money in this security he incurs a loss. The systematic risk as per

the calculations is 0.006611 and the unsystematic risk is 0.01134. The beta value, the

sensitivity of the security with respect to the market is 0.73. From the above chart,

there is much volatility that can be observed from the period Jan 2007 to July 2009.

When the recession hit in October 2008, it showed a downward trend and

immediately reached the peak by December 2008.

Bharti Airtel

26

Monthly Returns of Bharti Airtel

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis

From the above table, the return arrived at is 0.013% and the risk is 8.845%. If an

investor puts all his money in this security he gets a positive return. The systematic

risk, the undiversifiable risk as per the calculations is 0.005242 and the unsystematic

risk is 0.002582. The beta value, the sensitivity of the security with respect to the

market is 0.65. From the above chart, it can be observed that the security is highly

volatile. When the recession hit in October 2008, it showed a downward trend and

regained its positive value. It reached its peak in the month of May.

BHEL

Monthly Returns of BHEL

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

27

Analysis





there is not much volatility that can be observed from the period Jan 2007 to July

2009. We can see that BHEL is not affected by recession.

Grasim

Monthly Returns of Grasim

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis





there is not much volatility that can be observed from the period Jan 2007 to July

2009. Grasim is seriously hit by recession. Investors should not have traded during

that period instead should adopt ‘Buy and Hold’ strategy.

ONGC

28

ONGC Monthly Returns

-60.00-50.00

-40.00-30.00

-20.00-10.00

0.00

10.0020.00

30.0040.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis




sensitivity of the security with respect to the market is 0.59. From the above chart, it

can be inferred that during the period Jan 2007 to July 2009, there was a steep decline

in the returns in October 2008, which shows that ONGC is severely by the recession

since it is volatile with respect to the world markets.

Infosys

Monthly Returns of Infosys

-30.00-25.00-20.00-15.00-10.00-5.000.005.00

10.0015.0020.0025.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis

29





there is much volatility that can be observed from the period Jan 2007 to July 2009.

The highest low during the period is observed only when the recession hit in October

2008, it showed a downward trend.

Maruti Suzuki

Monthly Returns of Maruti Suzuki

-30.00-25.00-20.00-15.00-10.00-5.000.005.00

10.0015.0020.0025.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis




sensitivity of the security with respect to the market is 0.45. From the above chart, it

can be observed that there was a rise before recession hit signalling that there would

be a decline in the return. This is the period when the investor should have held the

securities without indulging in the regular trading.

Reliance Infrastructure

30

Monthly Returns of Reliance Infrastructure

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis




sensitivity of the security with respect to the market is 2.06, which is the highest of all

the securities selected. From the above chart, there is much volatility that can be

observed from the period Jan 2007 to July 2009. When the recession hit in October

2008, the return value decline and was low till December 2008.

SBI

Monthly Returns of SBI

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis

31




sensitivity of the security with respect to the market is 1.18; hence high volatility.

From the above chart, there is much volatility that can be observed from the period

Jan 2007 to July 2009. There is a double top and double bottom that is observed from

the period April to August and when the recession hit, the return value declined but in

the month of May it reached its peak, post June it dropped.

Sun Pharma

Monthly Returns of Sun Pharma

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

Feb-0

7

Apr-0

7

Jun-

07

Aug-0

7

Oct-07

Dec-07

Feb-0

8

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-08

Feb-0

9

Apr-0

9

Jun-

09

Month & Year

Ret

urn

Series1

Analysis

From the above table, the return arrived at is 0.04% and the risk is 9.251%. If an

investor puts all his money in this security he gets a positive return. The systematic

risk as per the calculations is 0.002741 and the unsystematic risk is 0.005815. The

beta value, the sensitivity of the security with respect to the market is 0.47. From the

above chart, we can infer that there is no much volatility from the period Jan 2007 to

July 2009. When the recession hit in October 2008, it showed a downward trend and

immediately regained its normal position by December 2008.

32

See Annexures: The calculation of returns and risks of the individual securities

RISK ANALYSIS OF 10 SECURITIES

COMPANY SECTORRETURN (%) RISK(%) Sys Risk

Unsys Risk Beta

ACC Ltd Cement – Major -1.69 13.396 0.006611 0.011334 0.73

Bharti AirtelTelecommunications – Service 0.013 8.845 0.005242 0.002582 0.65

BHEL Engineering – Heavy -2.16 18.97 0.007550 0.028436 0.78

Grasim Diversified -1.73 17.339 0.019391 0.010674 1.25

ONGC Oil Drilling And Exploration -0.36 15.066 0.004320 0.018379 0.59

Maruti Suzuki Auto - Cars & Jeeps -1.49 10.321 0.002622 0.008030 0.45

Infosys Computer – Software -0.02 10.738 0.004468 0.007063 0.6Reliance Infrastructure Ltd

Power - Generation/Distribution -0.42 25.274 0.052663 0.011194 2.06

SBI Banks - Public Sector -0.07 15.857 0.017280 0.007843 1.18

Sun Pharma Pharmaceuticals 0.04 9.251 0.002741 0.005815 0.47

SHAREHOLDER PATTERN

Companies VarianceForeign

PromotersIndian

Promoters Institutional Non Institutional

ACC Ltd 0.01795 0.3 46 32 21.2

Bharti Airtel 0.00782 22 45 27 5

BHEL 0.03599 0 67 26 6

33

Grasim 0.03006 0 25 44 21

ONGC 0.02270 0 74 12 13

Maruti Suzuki 0.01065 54 0 39 6

Infosys 0.01153 0 16 44 21

Reliance Infra 0.06386 0 38 45 17

SBI 0.02512 0 59 25 12

Sun Pharma 0.00856 0 64 24 12

Interpretation:

The shareholder pattern has an effect on the risk and volatility of the returns. The

more is the shareholder ownership by the Institutional promoters, the more are the

chances that they can sell them off at any point of time making such securities more

risky. The best instance was when at the time of closure of their Balance sheets and at

the same time recession hit, they sold off their investments, which largely affected our

markets.

It can be inferred from the above table that Bharti Airtel and Sun Pharma companies

show less variance when compared to other companies. Their shareholder pattern is

dominated by the Indian promoters with above 65%. Reliance Infrastructure shows

the highest variance indicating high volatility because of dominance of the

Institutional promoters, where the FIIs are also included.

34

PROTFOLIO PERFORMANCE OF

SECURITIES

Under Traditional Hypothesis

35

TRADITIONAL HYPOTHESIS:

The traditional hypothesis gives a normative approach to investors to make decisions

to invest their wealth in assets or securities under risk. It implies that the investors

should hold diversified portfolios instead of investing their entire wealth in a single or

a few assets. If the securities are mindlessly selected and construct a portfolio, the

unsystematic risk can be minimized or totally can be reduced.

This can be well illustrated with the help of the 10 selected securities from BSE 30.

PORTFOLIO PERFORMANCE OF 10 SECURITIES – TRADITIONAL

HYPOTHESIS

Portfolios Returns Variance Portfolio Beta

Systematic

Risk Unsystematic Risk

1 -1.6900 0.017945 0.73 0.0066 0.0113

2 -0.1677 0.000090 0.6900 0.0059 -0.0058

3 -0.3839 0.000131 0.7193 0.0064 -0.0063

4 -0.5569 0.000184 0.8525 0.0090 -0.0088

5 -4.1916 0.000191 0.8000 0.0079 -0.0077

6 -4.3406 0.000117 0.7413 0.0068 -0.0067

7 -4.3426 0.000103 0.7222 0.0065 -0.0064

36

8 -4.3846 0.000171 0.8888 0.0098 -0.0096

9 -4.3916 0.000170 0.9119 0.0103 -0.0101

10 -4.3876 0.000139 0.876 0.0095 -0.0094

Interpretation:

In the first portfolio, only ACC Ltd. Company is considered, where the variance is

0.017945 and the systematic risk is 0.0066 and unsystematic risk is 0.0113. It is risky

to invest the entire wealth in one security. In the second portfolio, ACC and Bharti

Airtel are included in the portfolio, where it can be observed that as the second

security ‘Bharti Airtel’ is added, the negative return i.e., the loss is decreased and

variance has come down to 0.000090, which shows that as we keep on increasing the

number of securities to the portfolio, the risk would be diversified, and an optimum

portfolio return can be obtained.

Graphical Representation of Portfolio Returns and Risks

37

COMPANY RETURNS

-9.000

-8.000

-7.000

-6.000

-5.000

-4.000

-3.000

-2.000

-1.000

0.000

1 2 3 4 5 6 7 8 9 10

SECURITIES

RET

UR

NS

(%)

Series1

Portfolio Risk

0.000000

0.005000

0.010000

0.015000

0.020000

1 2 3 4 5 6 7 8 9 10

No. of Securities

Ris

k

Series1

Interpretation:

As per the Portfolio return graph, after the inclusion of ONGC to the portfolio, the

portfolio return dropped down. Since the portfolio is constructed by taking the

securities randomly for inclusion. The portfolio risk graph shows that as the securities

are included in the portfolio, the risk can be diversified.

Performance of Portfolios pre and post crisis

During Pre-crisis, when the market sensed that the economic downturn in the US

would have an effect our country, the returns of the various securities declined. The

above graph shows the value of the returns of the 10 portfolios constructed.

38

Returns Pre-Crisis

-9.0000

-8.0000

-7.0000-6.0000

-5.0000

-4.0000

-3.0000-2.0000

-1.0000

0.0000

1 2 3 4 5 6 7 8 9 10

No. of Securities

Ret

urns

Series1

Returns Post-Crisis

0.0000

1.0000

2.0000

3.0000

4.0000

5.0000

6.0000

1 2 3 4 5 6 7 8 9 10

No.of Securities

Ret

urn

s

Series1

Post crisis, it is observed that the market is revived leading to positive returns on all

the portfolios.

RETURNS ON BUY AND HOLD STRATEGY

39

BUY AND HOLD STRATEGY

Buy and Hold strategy is usually adopted by long term investors. They put their

wealth in the securities and leave it for a good number of years. They attend the

Annual General Meetings of the Companies and check the performance of the

companies regularly. This strategy can also be adopted by those who do not want to

involve in trading when there is a signal that the market is going to be bad for a

certain period. The economic downturn which had affected our markets and economy

at large for the entire year of 2008 created a lot of volatility in the market. This could

have been avoided by adopting this strategy. One can play safe and yield better

returns when this strategy is adopted.

Table showing the returns under ‘Buy and Hold’ Strategy.

SECURITIES RETURNSACC -0.122Bharti Airtel 0.058BHEL -0.104Grasim -0.067ONGC 0.100Infosys -0.136Maruti Suzuki 0.082Reliance Infrastructure 0.464SBI 0.186Sun Pharma 0.067Average 0.053

40

It can be inferred that if the securities are bought in Jan, 2007 and are sold in the

month of June, 2009 the yields are as above. This strategy Bharti Airtel, ONGC,

Maruti Suzuki, Reliance Infrastructure, SBI and Sun Pharma yielded positive returns

as against those under regular trading. The highest return of all is obtained from

Reliance Infrastructure. The average return that could be obtained under ‘Buy and

Hold’ Strategy is 0.053%.

PORTFOLIO PERFORMANCE OF SECURITIES

Under Markowitz model

41

MARKOWITZ MODEL

Modern Portfolio theory proposes how rational investors will use diversification to

optimize their portfolios. This models an asset’s return as a random variable, and

models a portfolio as a weighted combination of assets so that the return of a portfolio

is the weighted combination of the assets’ returns.

The model assumes that investors are risk averse, meaning that given two assets that

offer the same expected return, investors will prefer the less risky one. Thus, an

investor will take on increased risk only if compensated by higher expected returns.

Conversely, an investor who wants higher returns must accept more risk. The exact

trade-off will differ by investor based in individual risk aversion characteristics. The

implication is that a rational investor will not invest in a portfolio if a second portfolio

exists with a more favourable risk-return profile – i.e., if for that level of risk an

alternative portfolio exists which has better expected returns.

Under the model:

Portfolio return is the proportion- weighted combination of the constituent

assets’ returns.

Portfolio volatility is a function of the correlation of the component assets.

The change in volatility is non-linear as the weighting of the component assets

changes.

The below is the matrix showing the correlations between 10 securities

42

ACC Bharti BHEL Grasim ONGC Infosys Maruti Rel SBI Sun ACC 1.00Bharti Airtel 0.52 1.00BHEL 0.37 0.37 1.00Grasim 0.73 0.64 0.43 1.00ONGC 0.52 0.70 0.51 0.72 1.00Infosys 0.18 0.32 0.21 0.27 0.16 1.00Maruti Suzuki 0.63 0.49 0.40 0.70 0.59 0.34 1.00Reliance Infrastructure 0.48 0.81 0.44 0.70 0.74 0.32 0.55 1.00SBI 0.62 0.69 0.31 0.65 0.66 0.11 0.41 0.81 1.00Sun Pharma 0.18 0.48 0.09 0.49 0.68 0.22 0.27 0.45 0.38 1.00

Under the traditional hypothesis, the co variances between the securities are ignored.

In reality there are industries and the companies which are affected by one another’s

performances. Thus the correlations calculated in order to see the association among

the 10 securities.

From the above matrix, five companies having low correlation among them are taken.

They are:

1. ACC

2. Bharti Airtel

3. Infosys

4. Reliance

5. Sun Pharma

Equal weights are given to each of the security i.e., 20% each. The return obtained

from the portfolio that is constructed is -0.00709. The risk calculated amounted to

0.0103. The portfolio return of 10 securities under the traditional hypothesis has been

-0.0439 and the risk has been 0.0118. The principal amount that is invested could be

gained back if the wealth is diversified as per the Markowitz theory.

43

LIMITATIONS AND RECOMMENDATIONS

44

LIMITATIONS

• The period chosen for the study is from Jan 2007 to July 2009, which includes

the economic downturn time and hence the study cannot be used to reflect the

chosen portfolio’s performance during normal times.

• The basis of assigning the weights to each of the securities in the portfolio is

subjective. Equal weights have been given to the securities in the portfolio,

due to which the variations in the portfolio return subject to changes in the

weights have not been observed.

RECOMMENDATIONS

• For long term investors, it is recommended during recession period, to follow

buy and hold strategy, which yielded better results

• As per the Markowirz model, the investors should include those securities

which are negatively correlated or less correlated to each other so that the

optimum returns are achieved and the risk is well diversified

45

ANNEXURES

Tables showing the calculations of Monthly security and market returns and

risks

TABLE I

ACC

Month Share Price Return (%)Market Return

Jan-07 1020.25Feb-07 900.05 -13.35 -8.91Mar-07 734.65 -22.51 1.03Apr-07 838.85 12.42 5.77May-07 855.6 1.96 4.62Jun-07 933.8 8.37 0.72Jul-07 1059.95 11.90 5.79Aug-07 1065.9 0.56 -1.52Sep-07 1194.9 10.80 11.41Oct-07 1077.5 -10.90 12.84Nov-07 1089.45 1.10 -2.45Dec-07 1024.5 -6.34 4.55Jan-08 782.65 -30.90 -14.95Feb-08 792.7 1.27 -0.40Mar-08 826.1 4.04 -12.36Apr-08 758.65 -8.89 9.50May-08 660.65 -14.83 -5.31Jun-08 522.5 -26.44 -21.94Jul-08 584.3 10.58 6.23Aug-08 561.65 -4.03 1.43Sep-08 611.65 8.17 -13.25Oct-08 493.4 -23.97 -31.39Nov-08 406.25 -21.45 -7.65Dec-08 477.9 14.99 5.75Jan-09 504.85 5.34 -2.37

46

Feb-09 539.8 6.47 -5.99Mar-09 576.65 6.39 8.41Apr-09 653 11.69 14.86May-09 783 16.60 22.03Jun-09 768.9 -1.83 -0.91Jul-09 786 2.18 -5.35

Mean -1.69 -0.66

Return -1.69 -0.66Std Deviation 13.396 11.138

As per the regression table,

α = -1.2, minimum return earned irrespective of the market’s behaviour

β = .73, the sensitivity of ACC with respect to the market (Sensex)

TABLE 2

Bharti Airtel

Month Share PriceReturn

(%)Market Return

Jan-07 707.5Feb-07 718.75 1.57 -8.91Mar-07 763.2 5.82 1.03Apr-07 812.05 6.02 5.77May-07 847.8 4.22 4.62Jun-07 835.95 -1.42 0.72Jul-07 903.45 7.47 5.79Aug-07 879.9 -2.68 -1.52Sep-07 941.2 6.51 11.41Oct-07 1006.6 6.50 12.84Nov-07 939.45 -7.15 -2.45Dec-07 994.55 5.54 4.55Jan-08 864.45 -15.05 -14.95Feb-08 825.6 -4.71 -0.40Mar-08 826.1 0.06 -12.36Apr-08 898.8 8.09 9.50May-08 876.45 -2.55 -5.31Jun-08 721.65 -21.45 -21.94Jul-08 799.15 9.70 6.23Aug-08 837.2 4.54 1.43Sep-08 785.05 -6.64 -13.25Oct-08 649 -20.96 -31.39Nov-08 671.05 3.29 -7.65Dec-08 715.1 6.16 5.75Jan-09 633.85 -12.82 -2.37Feb-09 636.65 0.44 -5.99Mar-09 625.8 -1.73 8.41Apr-09 749.3 16.48 14.86May-09 819.65 8.58 22.03Jun-09 802.1 -2.19 -0.91

47

Jul-09 792.25 -1.24 -5.350.01 -0.66

Return 0.013 -0.66Std

Deviation 8.845 11.138


α = .44, minimum return earned irrespective of the market’s behaviour


TABLE 3

BHEL

Month Share Price Return (%)Market

Return(%)Jan-07 2517.25Feb-07 2176.8 -15.64 -8.91Mar-07 2260.75 3.71 1.03Apr-07 2487.25 9.11 5.77May-07 1398.9 -77.80 4.62Jun-07 1538.25 9.06 0.72Jul-07 1731.7 11.17 5.79Aug-07 1889.15 8.33 -1.52Sep-07 2032.75 7.06 11.41Oct-07 2613.35 22.22 12.84Nov-07 2680.25 2.50 -2.45Dec-07 2584.25 -3.71 4.55Jan-08 2064.1 -25.20 -14.95Feb-08 2282 9.55 -0.40Mar-08 2056.55 -10.96 -12.36Apr-08 1897 -8.41 9.50May-08 1662.15 -14.13 -5.31Jun-08 1380.6 -20.39 -21.94Jul-08 1679.05 17.77 6.23Aug-08 1706.55 1.61 1.43Sep-08 1586 -7.60 -13.25Oct-08 1281.6 -23.75 -31.39Nov-08 1361.3 5.85 -7.65Dec-08 1362.4 0.08 5.75Jan-09 1320.45 -3.18 -2.37Feb-09 1396.3 5.43 -5.99Mar-09 1504.35 7.18 8.41Apr-09 1651.75 8.92 14.86May-09 2174.9 24.05 22.03

48

Jun-09 2204.35 1.34 -0.91Jul-09 2021.25 -9.06 -5.35

Mean -2.16 -0.66

Return -2.16 -0.66Std Dev 18.97 11.14




TABLE 4

Grasim

Month Share Price Return (%)Market Return

Jan-07 2778.55Feb-07 2212.6 -25.58 -8.91Mar-07 2091.25 -5.80 1.03Apr-07 2442.35 14.38 5.77May-07 2501.8 2.38 4.62Jun-07 2637.95 5.16 0.72Jul-07 2957.6 10.81 5.79Aug-07 2935.6 -0.75 -1.52Sep-07 3513.45 16.45 11.41Oct-07 3704.05 5.15 12.84Nov-07 3792.95 2.34 -2.45Dec-07 3651.6 -3.87 4.55Jan-08 2948.75 -23.84 -14.95Feb-08 2888.45 -2.09 -0.40Mar-08 2574.7 -12.19 -12.36Apr-08 2402.75 -7.16 9.50May-08 2220.3 -8.22 -5.31Jun-08 1846.45 -20.25 -21.94Jul-08 1800.45 -2.55 6.23Aug-08 1937.45 7.07 1.43Sep-08 1687.6 -14.81 -13.25Oct-08 1026.25 -64.44 -31.39Nov-08 889.25 -15.41 -7.65Dec-08 1217.95 26.99 5.75Jan-09 1197.3 -1.72 -2.37Feb-09 1371.5 12.70 -5.99Mar-09 1576.8 13.02 8.41Apr-09 1778.4 11.34 14.86May-09 2105.95 15.55 22.03

49

Jun-09 2310.25 8.84 -0.91Jul-09 2418.8 4.49 -5.35

Mean -1.73 -0.66

Return -1.73 -0.66Std Dev 17.339 11.138



β = 1.25, the sensitivity of ACC with respect to the market (Sensex)

TABLE 5

ONGC


(%)Market

Return(%)Jan-07 903.4Feb-07 790.6 -14.27 -8.91Mar-07 878.15 9.97 1.03Apr-07 911.9 3.70 5.77May-07 914.6 0.30 4.62Jun-07 902.15 -1.38 0.72Jul-07 914 1.30 5.79Aug-07 857.55 -6.58 -1.52Sep-07 957.9 10.48 11.41Oct-07 1247.9 23.24 12.84Nov-07 1170.75 -6.59 -2.45Dec-07 1236.5 5.32 4.55Jan-08 988.4 -25.10 -14.95Feb-08 1012.35 2.37 -0.40Mar-08 981.35 -3.16 -12.36Apr-08 1033.4 5.04 9.50May-08 864.3 -19.56 -5.31Jun-08 814.7 -6.09 -21.94Jul-08 996.05 18.21 6.23Aug-08 1023.3 2.66 1.43Sep-08 1035.55 1.18 -13.25Oct-08 669.8 -54.61 -31.39Nov-08 695.35 3.67 -7.65Dec-08 667.65 -4.15 5.75Jan-09 658.2 -1.44 -2.37Feb-09 691.15 4.77 -5.99Mar-09 779.7 11.36 8.41Apr-09 865.5 9.91 14.86May-09 1175.9 26.40 22.03

50

Jun-09 1067.1 -10.20 -0.91Jul-09 1092.85 2.36 -5.35

Mean -0.36 -0.66

Return -0.36 -0.66Std Dev 15.066 11.138




TABLE 6

Infosys


(%)Market

Return(%)Jan-07 2244.45Feb-07 2078.35 -7.99 -8.91Mar-07 2012.6 -3.27 1.03Apr-07 2049.35 1.79 5.77May-07 1920.25 -6.72 4.62Jun-07 1929.2 0.46 0.72Jul-07 1977.25 2.43 5.79Aug-07 1855.05 -6.59 -1.52Sep-07 1896.75 2.20 11.41Oct-07 1839.1 -3.13 12.84Nov-07 1604.05 -14.65 -2.45Dec-07 1768.4 9.29 4.55Jan-08 1503.9 -17.59 -14.95Feb-08 1546.85 2.78 -0.40Mar-08 1430.15 -8.16 -12.36Apr-08 1753.75 18.45 9.50May-08 1957.55 10.41 -5.31Jun-08 1734.75 -12.84 -21.94Jul-08 1583.3 -9.57 6.23Aug-08 1748.5 9.45 1.43Sep-08 1397.55 -25.11 -13.25Oct-08 1381.65 -1.15 -31.39Nov-08 1240.6 -11.37 -7.65Dec-08 1117.85 -10.98 5.75Jan-09 1305.5 14.37 -2.37Feb-09 1231.3 -6.03 -5.99Mar-09 1324.1 7.01 8.41Apr-09 1507.3 12.15 14.86May-09 1602 5.91 22.03

51

Jun-09 1776.9 9.84 -0.91Jul-09 1676.75 -5.97 -5.35

Mean -1.49 -0.66

Return -1.49 -0.66Std Dev 10.321 11.138




TABLE 7

Maruti Suzuki

Month Share Price Return (%)Market

Return(%)Jan-07 936.6Feb-07 839.7 -11.54 -8.91Mar-07 819.7 -2.44 1.03Apr-07 803.1 -2.07 5.77May-07 817.65 1.78 4.62Jun-07 743.1 -10.03 0.72Jul-07 843.15 11.87 5.79Aug-07 868.2 2.89 -1.52Sep-07 999.55 13.14 11.41Oct-07 1073.55 6.89 12.84Nov-07 1012.35 -6.05 -2.45Dec-07 990.05 -2.25 4.55Jan-08 848.7 -16.65 -14.95Feb-08 867.2 2.13 -0.40Mar-08 829.55 -4.54 -12.36Apr-08 741.9 -11.81 9.50May-08 764.5 2.96 -5.31Jun-08 617.75 -23.76 -21.94Jul-08 574.9 -7.45 6.23Aug-08 650.4 11.61 1.43Sep-08 687.15 5.35 -13.25Oct-08 564.45 -21.74 -31.39Nov-08 535.85 -5.34 -7.65Dec-08 520.1 -3.03 5.75Jan-09 571 8.91 -2.37Feb-09 677.6 15.73 -5.99Mar-09 775.1 12.58 8.41Apr-09 815.7 4.98 14.86May-09 1021.55 20.15 22.03

52

Jun-09 1065.45 4.12 -0.91Jul-09 1097.05 2.88 -5.35

Mean -0.02 -0.66

Return -0.02 -0.66Std Dev 10.738 11.138


α = 0.37, minimum return earned irrespective of the market’s behaviour


TABLE 8

Reliance Infrastructure


(%)Market

Return(%)Jan-07 513.6Feb-07 479.35 -7.15 -8.91Mar-07 495.15 3.19 1.03Apr-07 508.4 2.61 5.77May-07 539.65 5.79 4.62Jun-07 614.1 12.12 0.72Jul-07 793.45 22.60 5.79Aug-07 779.75 -1.76 -1.52Sep-07 1205.5 35.32 11.41Oct-07 1866.8 35.42 12.84Nov-07 1738.1 -7.40 -2.45Dec-07 2134.6 18.57 4.55Jan-08 1984.1 -7.59 -14.95Feb-08 1567.75 -26.56 -0.40Mar-08 1251.15 -25.30 -12.36Apr-08 1425.65 12.24 9.50May-08 1230.75 -15.84 -5.31Jun-08 784.8 -56.82 -21.94Jul-08 965.15 18.69 6.23Aug-08 991.15 2.62 1.43Sep-08 790.3 -25.41 -13.25Oct-08 456.75 -73.03 -31.39Nov-08 502.55 9.11 -7.65Dec-08 579.6 13.29 5.75Jan-09 582.3 0.46 -2.37Feb-09 490.6 -18.69 -5.99Mar-09 515.35 4.80 8.41Apr-09 695.2 25.87 14.86

53

May-09 1276.85 45.55 22.03Jun-09 1197.5 -6.63 -0.91Jul-09 1101 -8.76 -5.35

Mean -0.42 -0.66

Return -0.42 -0.66Std Dev 25.274 11.138




TABLE 9

SBI

MonthShare Price

Return (%)

Market Return(%)

Jan-07 1138.05Feb-07 1039.15 -9.52 -8.91Mar-07 992.9 -4.66 1.03Apr-07 1105.25 10.17 5.77May-07 1352.4 18.27 4.62Jun-07 1525.3 11.34 0.72Jul-07 1624.5 6.11 5.79Aug-07 1599.5 -1.56 -1.52Sep-07 1950.7 18.00 11.41Oct-07 2068.15 5.68 12.84Nov-07 2300.3 10.09 -2.45Dec-07 2371 2.98 4.55Jan-08 2162.25 -9.65 -14.95Feb-08 2109.7 -2.49 -0.40Mar-08 1598.85 -31.95 -12.36Apr-08 1776.35 9.99 9.50May-08 1443.35 -23.07 -5.31Jun-08 1111.45 -29.86 -21.94Jul-08 1414.75 21.44 6.23Aug-08 1403.6 -0.79 1.43Sep-08 1465.65 4.23 -13.25Oct-08 1109.5 -32.10 -31.39Nov-08 1086.85 -2.08 -7.65Dec-08 1288.25 15.63 5.75Jan-09 1152.2 -11.81 -2.37Feb-09 1027.1 -12.18 -5.99Mar-09 1066.55 3.70 8.41Apr-09 1277.7 16.53 14.86

54

May-09 1869.1 31.64 22.03Jun-09 1742.05 -7.29 -0.91Jul-09 1601.95 -8.75 -5.35

Mean -0.07 -0.66

Return -0.07 -0.66Std Dev 15.857 11.138




TABLE 10

Sun Pharma

MonthShare Price Return (%)

Market Return(%)

Jan-07 1027.75Feb-07 927.55 -10.80 -8.91Mar-07 1054 12.00 1.03Apr-07 1026.95 -2.63 5.77May-07 1108.3 7.34 4.62Jun-07 1022.1 -8.43 0.72Jul-07 930.5 -9.84 5.79Aug-07 931.05 0.06 -1.52Sep-07 965.5 3.57 11.41Oct-07 1054.2 8.41 12.84Nov-07 1102.5 4.38 -2.45Dec-07 1222.05 9.78 4.55Jan-08 1138.45 -7.34 -14.95Feb-08 1225.9 7.13 -0.40Mar-08 1231.4 0.45 -12.36Apr-08 1449.2 15.03 9.50May-08 1402.9 -3.30 -5.31Jun-08 1392.55 -0.74 -21.94Jul-08 1410.1 1.24 6.23Aug-08 1475.75 4.45 1.43Sep-08 1467.9 -0.53 -13.25Oct-08 1122.9 -30.72 -31.39Nov-08 1080.2 -3.95 -7.65Dec-08 1064.95 -1.43 5.75Jan-09 1073.45 0.79 -2.37Feb-09 1014.45 -5.82 -5.99Mar-09 1112.35 8.80 8.41

55

Apr-09 1275.25 12.77 14.86May-09 1209.7 -5.42 22.03Jun-09 1090.95 -10.89 -0.91Jul-09 1169.6 6.72 -5.35

Mean 0.04 -0.66

Return 0.04 -0.66Std Dev 9.251 11.138




REFERENCES

www.investopidi.com

www.bseindia.com

www.nseindia.com

www.capitaline.com

www.investsmartonline.com

www.yahoofinance.com

Guidelines issued by SEBI

Information provided by IL&FS

56

http://www.yahoofinance.com/

http://www.investsmartonline.com/

http://www.capitaline.com/

http://www.nseindia.com/

http://www.bseindia.com/

http://www.investopidi.com/

Risk Analysis and Protfolio Management

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numerous separate decisions

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deriving future benefits

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