Unicon

UNICON Investment Solutions Page 1

COMPANY PROFILE

Unicon Investment Solutions

Uniconhas 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.


MANAGEMENT TEAM :

Mr.GajendraNagpal (founder and CEO)

Mr. Ram Gupta (Co-founder and president)

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

Mr.SandeepArora (Chief Operation Manager)

Mr. Vijay Chopra(National Head)

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


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 :

Trading at NSE & BSE:

1. 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 scrips 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:

Uniconoffers a unique feature of a single screen trading platform in MCX and

NCDEX.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 exposures 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.


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 lakhs and number of average daily trades 1075 lakhs


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 of 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.


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 professionalization of the capital

market as well provided nationwide 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.


NSE-MIDCAP INDEX:

The NSE madcap index or the junior nifty comprises 50 stocks that represent 21 a board

industry groups and will provide proper representation of the madcap segment of the Indian

capital market. All stocks in the index should have market capitalization of greater than R’s

list of 200 crores and should have traded 85% of the trading days at an impact cost of less

2.5%.

The base period for the index is Nov 4, 1996, which signifies two years for completion of

operations of the capital market segment of the operations. The base value of the index has

been set at 1000.

Average daily turnover of the present scenarios 258212 lakhs and number of averages daily trades 2160 lakhs. At present, there are 24 stocks exchanges recognized under the securities contracts (regulations) Act, 1956.


INTRODUCTION

THEORETICAL BACKGROUND

The foundation of Modern Portfolio Theory was laid by Markowitz in 1951. He began

with the simple premise that since almost all investors invest in multiple securities rather than

one, there must be some benefit in investing in a portfolio of securities. He measured riskiness

of a portfolio through variability of returns and showed that investment in several securities

reduced this risk. His work won him the Nobel Prize for Economics in 1990. Markowitz's

work was extended by Sharpe in 1964, Lintner in1965 and Mossin in 1966. Sharpe shared the

Nobel Prize for Economics in 1990 with Markowitz and Miller for his contribution to the

Capital Asset Pricing Model (CAPM). This model breaks up the riskiness of each security

into two components - the market related risk which cannot be diversified called systematic

risk measured by the beta coefficient and another component which can be eliminated

through diversification called unsystematic risk.

The Markowitz model is extremely demanding in its data needs for generating the desired

efficient portfolio. It requires N (N+3)/2 estimates (N expected returns + N variances of

returns + N*(N-1 )/2 unique covariance's of returns). Because of this limitation the single index

model with less input data requirements has emerged. The Single index model requires 3N+2

estimates (estimates of alpha for each stock, estimates of beta for each stock, estimates of

variance σei2 for each stock, estimate for expected return on market index and an estimate of the

variance of returns on the market index σm2) to use the Markowitz optimization framework.

The single index model assumes that co-movement between stocks is due to movement in the

index. The basic equation underlying the single index model is:

Ri = ai + βi*Rm where

Ri = Return on the ith stock

ai = component of security i's that is independent of market performance βi= coefficient that measures expected change in Ri given a change in Rm

Rm = rate of return on market index


The term ai in the above equation is usually broken down into two elements ai which is

the expected value of ai and ei which is the random element of ai. The single index model

equation, therefore, becomes:

Ri = αi + βi*Rm + ei

Single index model has been criticized because of its assumption that stock prices move together only because of common co-movement with the market. Many researchers have found that there are influences beyond the market, like industry-related factors, that cause securities to move together.

FUNDAMENTAL ANALYSIS

Fundamental analysis of a business involves analyzing its income statement, financial

statements, its management, competitive advantages, its competitors and markets. The

analysis is performed on historical and present data, with the goal to make financial

projections. One of the primary assumptions of fundamental analysis is that the price on the

stock market does not fully reflect a stock's ―real‖ value.

Intrinsic value is defined to be the present value of all future net cash flows to the company.

The intrinsic value of an equity share depends on a multitude of factors. The earnings of the

company, the growth rate and risk exposure of the company have a direct bearing on the price

of the share. These factors in turn rely on the host of other factors like economic environment

in which they function, the industry which they belong to, and finally companies' own

performance. The fundamental school of thought appraised the intrinsic value of shares

through:

• Economic Analysis

• Industry Analysis

• Company Analysis


Economic Analysis

The level of economic activity has an impact on investment in many ways. If the economy

grows rapidly, the industry can also be expected to show rapid growth and vice- versa. When

the level of economic activity is low, stock prices are low, and when the level of economic

activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of

the firms. The analysis of macroeconomic environment is essential to understand the behavior

of the stock prices. The commonly analyzed macro-economic factors are as follows:

A. Gross Domestic Product:

GDP indicates the rate of growth of the economy. GDP represents the aggregate value of the

goods and services produced in the economy. GDP consists of personal consumption

expenditure, gross private domestic investment and government expenditure on goods and

services and net export of goods and services. The growth rate of economy points out the

prospects for the industrial sector and return investors can expect from investment in shares.

The higher growth rate is more favorable to the stock market.

B. Savings and invetment:

It is obvious that growth requires investment which in turn requires substantial amount of

domestic savings. Stock market is a channel through which the savings of the investors are

made available to corporate bodies. Savings are distributed over various assets like equity

shares, deposits, mutual fund units, real estate and bullion. The saving and investment

patterns of the public affect the stock to a great extent.

C. Inflation:

Along with the growth of GDP, if inflation also increases, then the real rate of growth would

be very little. The demand in the consumer product industry is significantly affected. If there

is a mid level of inflation, it is good to the stock market but high rate of inflation is harmful to

the stock market.


D. Interest rates:

The interest rate affects the cost of financing to the firms. A decrease in interest rate implies

lower cost of finance for firms and more profitability. More money is available at a lower

interest rate for the brokers who are doing business with borrowed money. Availability of

cheap fund encourages speculation and rise in price of shares.

E. Budget:

The budget draft provides an elaborate account of the government revenues and

expenditures. A deficit budget may lead to high rate of inflation and adversely affect the cost

of production. Surplus budget may result in deflation. Hence, balanced budget is highly

favorable to the stock market.

F. The tax structure:

Concessions and incentives given to a certain industry encourage investment in that

particular industry. Tax relief given to savings encourages savings. The type of tax exemption

has an impact on the profitability of the industries.

G. The Balance of payment:

The balance of payment is the record of a country's money receipts from and payments

abroad. The difference between receipts and payments may be surplus or deficit. BOP is the

measure of the strength of rupee on external account. If the deficit increases, the rupee may

depreciate against other currencies, thereby, affecting the cost of imports. The volatility of

the foreign exchange rate affects the investment of the foreign institutional investors in the

Indian Stock Market. A favorable balance of payment renders a positive effect on the stock

market.


H. Monsoon and Agriculture:

Agriculture is directly and indirectly linked with the industries. A good monsoon leads to

higher demand for input and results in bumper crop. This would lead to buoyancy in the

stock market. When the monsoon is bad, Agriculture and hydroelectric production would

suffer. They cast a shadow on the share market.

I. Infrastructure facilities:

Infrastructure facilities are essential for the growth of industrial and agricultural sector. A

wide network of communication system is a must for the growth of the economy. Regular

supply of power without any power cut would boost the production. Banking and financial

sectors should also be sound enough to provide adequate support to industry and agriculture.

J. Demographic factors:

The demographic data provides details about the population by age, occupation, literacy and

geographic location. This is needed to forecast the demand for the consumer goods. The

population by age indicates the availability of able work force. Population, by providing

labor and demand for products, affects the industry and stock market.

Industry Analysis

Industry analysis is a type of investment research that begins by focusing on the status of an

industry or an industrial sector. Each industry has differences in terms of its customer base,

market share among firms, industry-wide growth, competition, regulation and business

cycles. Learning about how the industry works will give an investor a deeper understanding

of a company's financial health. The Industry life cycle analysis and Porter's 5 forces model

for competitive advantage are common valuation techniques.

A. Industry Life Cycle Model:

This model is a useful tool for analyzing the effects of an industry's evolution on competitive

forces. Using the industry life cycle model, we can identify five industry environments, each

linked to a distinct stage of an industry's evolution.


a. Pioneering development: - During this start up stage, the industry experiences modest

sales growth and very small or negative profit margins and profits. The market for the

industry's product or service during this time period is small, and the firms involved incur

major development costs.

b. Rapid accelerating growth: - During this rapid growth stage, a market develops for the

product or service and demand becomes substantial. The profit margins are very high. The

industry builds its productive capacity as sales grow at an increasing rate as the industry

attempts to meet excess demands.

c. Mature stage: - The success in stage2 has satisfied most of the demands of the industry

goods and services. Thus, further sales growth may be above normal but it no longer

accelerates. The rapid growth of sales and the high profit margins attract competitors to the

industry, which causes an increase in supply and lower price, which the profit margin begin to

decline to normal levels.

d. Stabilization and market maturity: - During this stage which is probably the longest

stage, the industry growth rate declines to the growth rate of aggregate economy or its

industry segment. Competition produces tight profit margins, and the rate of return on capital

eventually becomes below the competitive level.

e. Deceleration of growth and decline: - At this stage of maturity, the industries sales

growth declines because of shifts in demand or growth in substitutes. Profit margins continue

to be squeezed, and some firms experiences low profits or even losses.

B. Porter's Five Forces Model

This model identifies five competitive forces that shape every single industry and market.

These forces help us to analyze everything from the intensity of competition to the

profitability and attractiveness of an industry.


a. Threat of New Entrants: - The easier it is for new companies to enter the industry, the

more cutthroat competition there will be. Factors that can limit the threat of new entrants

such as high fixed cost, existing loyalty to major brands, government regulations etc act as

barriers to entry.

b. Power of Suppliers: - This is how much pressure suppliers can place on a business. If

one supplier has a large enough impact to affect a company's margins and volumes, then they

hold substantial power. When there are very few suppliers of a particular product or there are

no substitutes or switching to another (competitive) product is very costly, the supplier is

powerful and vice versa.

c. Power of Buyers: - This is how much pressure customers can place on a business. Some

companies serve only a handful of customers, while others serve millions. In general, it's a

red flag (a negative) if a business relies on a small number of customers for a large portion

of its sales because the loss of each customer could dramatically affect revenues. If one

customer has a large enough impact to affect a company's margins and volumes, then they

hold substantial power.

d. Availability of Substitutes: - What is the likelihood that someone will switch to a

competitive product or service? If the cost of switching is low, then this poses to be a serious

threat. The main issue is the similarity of substitutes. If substitutes are similar, then it can be

viewed in the same light as a new entrant, which is a threat to the company.

e. Competitive Rivalry: - This describes the intensity of competition between existing firms

in an industry. A highly competitive market might result from:

• Many players of about the same size, no dominant firm.

• Little differentiation between competitor's products and

services.

• A mature industry with very little growth. Companies can only grow by

stealing customers away from competitors.


Company Analysis

In the company analysis the investor assimilates the several bit of information related to

the company and evaluates the present and future value of stock. The risk and return

associated with the purchase of the stock is analyzed to take better investment decision.

The present and future are affected by a number of factors. They are:- A. Competitive advantage of the company:

Competitive advantage (CA) is a position that a firm occupies in its competitive landscape.

A company's long-term success is driven largely by its ability to maintain a competitive

advantage - and keep it. Competitive advantages vary from situation to situation and from

time to time. Some basic examples of CAs can be divided in 4 main global areas:

• Cost - Low cost operations

• Quality - High quality and consistent quality

• Time - delivery speed, on time delivery and development speed

• Flexibility - customization, volume flexibility and variety

B. Earnings of the company: Sales alone do not increase the earnings but the costs and expenses of the company also

influence the earnings of the company. Further, earnings do not always increase with the

increase in sales. The company's sales might have increased but its earnings may decline due

to the rise in costs.

C. Capital structure:

The equity holders' return can be increased manifold with the help of financial leverage, i.e.

using debt financing along with equity financing. The effect of financial leverage is

measured by computing leverage ratios. The debt may be in the form of debentures and term

loans from financial institutions.


D. Management:

Good and capable management generates profit to the investors. The management of the firm

should efficiently plan, organize, actuate and control the activities of the company. The basic

objective of management is to attain the stated objectives of the company for the good of the

equity share holders, the public and the employers. Good management depends on the

quality of the manager. Some believe that management is the most important aspect for

investing in a company. It makes sense - even the best business model is doomed if the

leaders of the company fail to properly execute the plan.

E. Operating efficiency:

The operating efficiency of a company directly affects the earnings of a company. An

expanding company that maintains high operating efficiency with a low break-even point

earns more than the company with high break-even points. If a firm has stable operating

ratio, the revenue will also be stable. Efficient use of fixed assets with a raw materials,

labour and management would lead to more income from sales. This leads to internal fund

generation for the expansion of the firm. A growing company should have low operating ratio

to meet the growing demand for its product.

F. Business Model:

Even before an investor looks at a company's financial statements or does any research, one

of the most important questions that should be asked is: What exactly does the company do?

This is referred to as a company's business model - it's how a company makes money. You

can get a good overview of a company's business model by checking out its website. Unless

you understand a company's business model, you don't know what the drivers are for future

growth, and you leave yourself vulnerable to being blindsided.


G. Corporate Governance:

Corporate governance describes the policies in place within an organization denoting the

relationships and responsibilities between management, directors and stakeholders. These

policies are defined and determined in the company charter and its bylaws, along with

corporate laws and regulations. The purpose of corporate governance policies is to ensure

that proper checks and balances are in place, making it more difficult for anyone to conduct

unethical and illegal activities Good corporate governance is a situation in which a company

complies with all of its governance policies and applicable government regulations in order to

look out for the interests of the company's investors and other stakeholders.

H. Financial analysis:

The best source of financial information about a company is its own financial statements.

This is a primary source of information for evaluating the investments prospects in the

particular company's stock. Financial statement analysis is the study of a company's financial

statement from various viewpoints. The statement gives the historical and current information

about the company's operations. Historical financial statements help to predict the future. The

current information aids to analyze the present status of the company. The two main

statements used in analysis are:-

• Balance sheet

• Profit and loss account

Strengths Of Fundamental Analysis A. Long-term trends:

Fundamental analysis is good for long-term investments based on long-term trends, very

long-term. And also the ability to identify and predict long-term economic, demographic,

technological or consumer trends can benefit patient investors who pick the right industry

groups or companies.


B. Value Spotting:

Sound fundamental analysis will help identify companies that represent good value. Some of

the most legendary investors think long-term and value. Fundamental analysis can help

uncover companies with valuable assets, a strong balance sheet, stable earnings and staying

power.

C. Business Acumen:

One of the most obvious, but less tangible, rewards of fundamental analysis is the

development of a thorough understanding of the business. After such painstaking research and

analysis, an investor will be familiar with the key revenue and profit drivers behind a

company. Earnings and earnings expectations can be potent drivers of equity prices. Even

some technicians will agree to that. A good understanding can help investors avoid

companies that are prone to shortfalls and identify those that continue to deliver.

Weakness Of Fundamental Analysis A. Time Constraints:

Fundamental analysis may offer excellent insights, but it can be extraordinarily time

consuming. Time consuming models often produce valuations that are contradictory to the

current price prevailing on Wall Street. When this happens, the analyst basically claims that

the whole street has got it wrong. This is not to say that there are not misunderstood

companies out there, but it is quite brash to imply that the market price, and hence Wall Street,

is wrong.

B. Industry/Company Specific:

Valuation techniques vary depending on the industry group and specifics of each company.

For this reason, a different technique and model is required for different industries and

different companies. This can get quite time consuming and limit the amount of research that

can be performed.


C. Subjectivity:

Fair value is based on assumptions. Any changes to growth or multiplier assumptions can

greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use

sensitivity analysis to present a base-case valuation, a best-case valuation and a worst-case

valuation. However, even on a worst case, most models are almost always bullish, the only

question is how much so.

Obstacles in the way of a successful Fundamental Analysis: A. Inadequacies or incorrectness of data:

An analyst has to often wrestle with inadequate or incorrect data. While deliberate falsification

of data may be rare, subtle misrepresentation and concealment are common. Often, an

experienced and skilled analyst may be able to detect such ploys and cope with them.

However, in some instances, he too is likely to be misled by them into drawing wrong

conclusions.

B. Future uncertainties:

Future change are largely unpredictable more so when the economic and business

environment is buffeted by frequent winds of change. In an environment characterized by

discontinuities, the past record is a poor guide to future performance.

C. Irrational market behavior:

The market itself presents a major obstacle to the analyst. On account of neglect or

prejudice, under valuations may persist for extended periods; likewise overvaluations

arising from unjustified optimism and misplaced enthusiasm may endure for unreasonable

lengths of time. The slow correction of under or overvaluation poses a threat to the analyst.

Before the market eventually reflects the values established by the analyst, new forces may

emerge. As Benjamin Graham put it; ―The particulars danger to analyst is that, because of

such delay, new determining factors may supervene before the market price adjusts itself to

the value as he found it


Criticisms of Fundamental Analysis

The biggest criticisms of fundamental analysis come primarily from two groups:

proponents of ―technical analysis and believers of ―efficient market hypothesis. Put simply,

technical analysts base their investments (or, more precisely, their trades) solely on the price

and volume movements of securities. Using charts and a number of other tools, they trade on

momentum, not caring about the fundamentals. While it is possible to use both techniques in

combination, one of the basic tenets of technical analysis is that the market discounts

everything. Accordingly, all news about a company already is priced into a stock, and

therefore a stock's price movements give more insight than the underlying fundamental

factors of the business itself. Followers of the efficient market hypothesis, however, are

usually in disagreement with both fundamental and technical analysts. The efficient market

hypothesis contends that it is essentially impossible to produce market-beating returns in the

long run, through either fundamental or technical analysis. The rationale for this argument is

that, since the market efficiently prices all stocks on an ongoing basis, any opportunities for

excess returns derived from fundamental (or technical) analysis would be almost

immediately whittled away by the market's many participants, making it impossible for

anyone to meaningfully outperform the market over the long term.

Fundamental analysis can be valuable, but it should be approached with caution. We

all have personal biases and every analyst has some sort of bias. There is nothing wrong with

this and the research can still be of great value. Corporate statements and press releases offer

good information, but should be read with a healthy degree of scepticism to separate the

facts from the spin. Press releases don't happen by accident and are an important PR tool for

companies. Investors should become skilled readers to weed out the important information and

ignore the hype.

VALUATION

In selecting stocks that trade for less than their intrinsic value, value investors actively seek

stocks of companies with sound financial statements that they believe the market has

undervalued. They believe the market always overreacts to good and bad news, causing stock


price movements that do not correspond with their long-term fundamentals. The result is an

opportunity for value investors to profit by taking a position on an inflated/deflated price

and getting out when the price is later corrected by the market.

Valuation Approaches

• Discounted cash flow valuation:

This approach has its foundation in the ―present value‖ rule, where the value of any

asset is the present value of expected future cash flows on it. The discount rate will be

a function of the riskiness of the estimated cash flows, with higher rates for riskier

assets and lower rates for safer projects.

• Relative valuation:

Estimates the value of an asset by looking at the pricing of 'comparable' assets

relative to a common variable like earnings, cash flows, book value or sales.

• Contingent claim valuation:

A contingent claim or option is an asset that pays off only under certain

contingencies, if the value of the underlying asset exceeds a prescribed value for a call

option or is less than the prescribed value for a put option. Option pricing models are

used to measure the value of assets that share option characteristics.


CAPM- CAPITAL ASSET PRICING MODEL

The Capital Asset Pricing Model (CAPM) is used in finance to determine a theoretically

appropriate required rate of return (and thus the price if expected cash flows can be

estimated) of an asset, if that asset is to be added to an already well-diversified portfolio,

given that asset's non-diversifiable risk. The CAPM formula takes into account the asset's

sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often

represented by the quantity beta (β) in the financial industry, as well as the expected return of the

market and the expected return of a theoretical risk-free asset.

A. Assumptions of CAPM

• All investors have rational expectations.

• There are no arbitrage opportunities.

• Returns are distributed normally.

• Fixed quantity of assets.

• Perfectly efficient capital markets.

• Investors are solely concerned with level and uncertainty of future wealth

• Separation of financial and production sectors.

• Thus, production plans are fixed.

• Risk-free rates exist with limitless borrowing capacity and universal access.

• The Risk-free borrowing and lending rates are equal.

• No inflation and no change in the level of interest rate exist.

• Perfect information, hence all investors have the same expectations about

security returns for any given time period.


B. Formula

E (Ri) = Rf + [E (Rm) - Rf ]βi

Where,

E(Ri) - Expected return of security i

Rf - Risk Free Return

Rm - Market return

βi - Beta of the security

C. The Risk Free Asset

The risk-free asset is the (hypothetical) asset which pays a risk-free rate. It is usually proxied

by an investment in short-dated Government securities. The risk- free asset has zero variance

in returns (hence is risk-free); it is also uncorrelated with any other asset (by definition: since

its variance is zero).

D. Market Return The expected market rate of return is usually measured by looking at the arithmetic average

of the historical returns on a market portfolio (ex- S&P 500)

E. Risk and Diversification

The risk of a portfolio comprises systematic risk, also known as undiversifiablerisk, and

unsystematic risk which is also known as idiosyncratic risk or diversifiable risk. Systematic

risk refers to the risk common to all securities - i.e. market risk. Unsystematic risk is the risk

associated with individual assets. Unsystematic risk can be diversified away to smaller levels

by including a greater number of assets in the portfolio (specific risks "average out"). A

rational investor should not take on any diversifiable risk, as only non-diversifiable risks are

rewarded within the scope of this model. Therefore, the required return on an asset, that is,

the return that compensates for risk taken, must be linked to its riskiness in a portfolio

context - i.e. its contribution to overall portfolio riskiness - as opposed to its "stand alone

riskiness." In the CAPM context, portfolio risk is represented by higher variance i.e. less


predictability.

MEANINGS OF VARIOUS PERFORMANCE MEASURES

A. Sharpe Ratio:

This ratio was developed by William Forsyth Sharpe in 1966.Sharpe originally called it the

"reward-to-variability" ratio in before it began being called the Sharpe Ratio by later

academics and financial professionals. The Sharpe ratio or Sharpe index or Sharpe measure

or reward-to-variability ratio is a measure of the excess return (or Risk Premium) per unit of

risk in an investment asset or a trading strategy. The Sharpe ratio is used to characterize how

well the return of an asset compensates the investor for the risk taken. When comparing two

assets each with the expected return E[R] against the same benchmark with returnRf, the asset

with the higher Sharpe ratio gives more return for the same risk. Investors are often advised

to pick investments with high Sharpe ratios.

Sharpe measure = (Average rate of return on portfolio p - Average rate of return on a

risk - free investment) / Standard deviation of return of portfolio p

B. Treynor Ratio:

The Treynor ratio (sometimes called reward-to-volatility ratio) relates excess return over the

risk-free rate to the additional risk taken; however systematic risk instead of total risk is

used. Higher the Treynor ratio, better the performance under analysis. As systematic risk is

measure of risk, the Treynor measure implicitly assumes that the portfolio is well diversified.

Treynors measure = (Average rate of return on portfolio p - Average rate of

return on a risk- free investment)/ Beta of portfolio p

C. Jensen Measure:

In finance, Jensen's alpha (or Jensen's Performance Index, ex-post alpha) is used to

determine the excess return of a stock, other security, or portfolio over the security's

required rate of return as determined by the Capital Asset Pricing Model. This model is used

to adjust for the level of beta risk, so that riskier securities are expected to have higher

returns. The measure was first used in the evaluation of mutual fund managers by Michael


Jensen in the 1970's.

To calculate alpha, the following inputs are needed:

• The realized return (on the portfolio),

• The market return,

• The risk-free rate of return, and

• The beta of the portfolio.

Jensen's alpha = Portfolio Return - (Risk Free Rate + Portfolio Beta * (Market

Return - Risk Free Rate))


REVIEW OF LITERATURE: Elton, Edwin J, et al., (1977), are among the prominent researchers, who have worked on

Sharpe's Single Index Model. They presented a new method for selecting optimal portfolios

when upper bound constraints on investments in individual stocks were present and when the

variance-covariance matrix of returns possessed a special structure such as that implied by

standard single index model. Extending their previous work, more commonly called as EPG

approach to portfolio optimization, it was shown that upper bounds could be dealt with in a

more complex fashion that shares many of the features of ranking procedures of standard

single index model.

Bawa, Vijay S, et al., (1979), showed that the construction of optimal portfolio could be

simplified by using simple ranking procedures when returns followed a stable distribution and

the dependence structure had any of several standard forms. The ranking procedures

simplified the computations necessary to determine an optimum portfolio.

Faaland, Bruce H. and jacob, Nancy l, (1981), examined alternative solution procedure to

achieve the objective of chossing 'n' securities from a universe of 'm' securities in order to

maximise the portfolio's excess-return-to Beta ratio. The paper concluded with

computational experience on problems with 'n' ranging from 10 to 200 and 'm' from 500 to

1245.

Mulvey, John M, et al., (2003), observed that a multiperiod portfolio model provides

significant advantages over traditional single-period approaches-especially for long-term

investors. Such a framework can enhance risk adjusted performance and help investors

evaluate the probability of reaching financial goals by linking asset and liability policies.


STATEMENT OF PROBLEM

Investors generally hold a portfolio of securities to take advantage of diversification, while

individual return and risks are important, what matters finally is the return and risk of the

portfolio. In constructing a portfolio fundamental analysis can be used to select securities or

Sharpe single index model can be used to construct an optimal portfolio. In many cases it is

seen that securities trade above their intrinsic value because of boom in stock market, as a

result investors pay more to purchase them and the returns are not up to the mark. Hence the

study entitled:-―Portfolio Management at Unicon

OBJECTIVES OF THE STUDY

• To undertake study of different sector.

• To identify stocks in sectors which trade for less than their intrinsic value, less than

their Industrial Price to Earnings Ratio

• To construct a portfolio of stocks which are less than their Industrial Price to

Earnings Ratio

• To construct a portfolio of stocks using Sharpe single index model.

• To find if there is a significant difference in mean returns of portfolio constructed

using fundamental and optimization approach.

SCOPE OF THE STUDY

Scope of the research is confined to valuation of selected stocks, construction of portfolio

based on the analysis and to check the significant difference between returns of the portfolios.

OPERATIONAL DEFINITION OF CONCEPTS

• Fundamental Analysis:

A method of evaluating a stock by attempting to measure its intrinsic value.

Fundamental analysts study everything from the overall economy and industry

conditions, to the financial conditions and management of companies.


• Intrinsic value:

The economic value of a company or its common stock based on internally-

generated cash returns. Intrinsic value can be thought of as the discounted stream of

net cash flows from an asset

• Beta:

A statistical measure of the relative volatility of a stock, fund, or other security in

comparison with the market as a whole. The beta for the market is 1.00. Stocks with

betas above 1.0 are more responsive to the market, but are also more risky

investments. Stocks with a beta below 1.0 tend to move in the opposite direction of

the market. It is measure of systematic risk of a stock

• Single index model:

A model of stock returns that decomposes influences on returns into a systematic

factor, as measured by the return on the broad market index, and firm specific factors.


RESEARCH METHODOLOGY

• Type of Study:

The research conducted is an Analytical study. It may involve relating the

interaction of two or more variables. In this project a study is conducted to determine

the level of significance in portfolio mean returns constructed through fundamental

analysis and Sharpe single index model.

• Type of Data:

Data required for this study was secondary data which was collected from various

secondary sources likeUnicon, , Ministry of Finance,NSE India,Economic Times,

Moneycontrol, MSN Money etc.

• Method of Sampling:

The sampling technique followed for the study is non-probabilistic judgmental

sampling. The samples were collected based on certain criteria which suited the

research objective

• Sample Size:

The sample consists of 15 companies of the different industries selected on the basis

of the research objective

• Techniques of Analysis:

The Price to Earnings of companies which are lesser than the Industrial Price to

Earnings are selected , then portfolio is constructed using these stocks. This is

followed by selecting stocks to construct an optimum portfolio using past share price

data through the Sharpe's optimization model. The return and risk aspects were then

compared between the two portfolios.Then the significance between the return of

two portfolios constructed is determined. The following test is used to check the

hypothesis.


Test for equality /difference of mean portfolio returns

Ho : There is no significant difference between the returns of the two

Portfolios.

H1 : There is significant difference between the returns of the two portfolios.

The test statistics is

Where

Degrees of Freedom = (n1+ n2 – 2)

the means of the two samples

S12, S2

2the variances of the two samples

n1, n2 the sample sizes of the two samples

Compare the calculated t-value with degrees of freedom, to the critical t-value from

the t distribution table at the chosen confidence level and decide whether to accept or

reject the null hypothesis

Reject Null hypothesis when calculated t-value is > critical t-value


FUDAMENTAL ANALYSIS

ECONOMIC ANALYSIS

A. Gross Domestic Product (GDP) India's economy grew at its slowest pace, as rising interest rates crimped the consumption and

investment demand in economy. The slower performance in mining and quarrying,

manufacturing and financing, insurance, real estate & business services led to deceleration in

the GDP growth to7.8% from 8.3% in Q3FY11 & 9.4% in Q4FY10.

For the fiscal year 2011, India's economy has grown by 8.5% in FY11, just below the

government's 8.6% estimate, and up from 8% a year earlier.Evident from lower industrial

production numbers the manufacturing sector grew by 5.5%, compared with 15.2% in

Q4FY10 & 6% in Q3FY11. Also mining output decelerated by 1.7%, compared with 8.9% in

Q4FY10 & 7% in Q3FY11. Financing, insurance, real estate and business service grew 9%

versus 6.3% in Q4FY10, however, on sequential basis fell from 11%, also Construction grew

by 8.2% versus 9.2% in Q4FY10. The farm sector in Q4FY11 grew by 7.5% from 1.1% in

Q4FY10; however, it declined from 10% on sequential basis. Agriculture is expected to

perform well for the second straight year after the government forecast a normal monsoon in

2011. Agriculture, forestry and fishing sector in FY11 has shown a growth rate of 7%.

The Gross National Income (GNI) is estimated to have risen by 8.3% during FY11, in

comparison to the growth rate of 7.9% in FY10. The per capita net national income during

FY11 is estimated at 6.5% during 2010-11 as against 6.1% during FY10.

On the expenditure side in FY11, the private and government’s final consumption growth

marginally declined to 58.3% and 11.2% from 58.5% and 11.6% in FY10. Investment

activities in the country improved in FY11 as the gross fixed capital formation expanded by

32% same as in FY10.

Tighter monetary policy (due to higher inflationary pressures) has started to affect the

consumer demand in the economy. Going forward with a rise in crude oil & global


commodity prices inflation is likely to remain at elevated levels. Since March 2010 the

Reserve Bank of India has raised its policy rate by a total of 250 basis points as part of battle

against stubbornly high inflation and expected to continue this policy action.

For FY12, the industrial production is likely to remain volatile on back of rising input costs,

slower demand, rising interest rates. However, it is expected the agriculture & service sector

would continue to steer the Indian economy.

On the expenditure side, the pick-up in investment activity will be important for driving

growth and managing the supply side constraints.

Sector

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Agriculture

activities

1.8

1.2

-1.6

1.1

2.4

5.4

9.9

7.5

Mining

and Quarrying

6.9

6.6

5.2

8.9

7.1

8.2

6.9

1.7

Electricity, Gas

and

Water supply

6.2

7.5

4.5

7.3

5.6

2.8

6.4

7.8

Construction 5.4 5.1 8.3 9.2 7.7 6.7 9.7 8.2

Trade, Hotels,

Transport and

communication

5.4

8.2

10.8

13.7

12.6

10.9

8.6

9.3

Financing,

insurance, real

estate and

business

11.5

10.9

8.5

6.3

9.8

10

10.8

9

Manufacturing 2 6.1 11.4 15.2 12.7 10 6 5.5

Community

social and

personal

13

19.4

7.6

8.3

8.2

7.9

5.1

7


services

Real GDP 6.3 8.6 7.3 9.4 9.3 8.9 8.3 7.8

b. Index of Industrial Production (IIP)

IIP (Index of Industrial Production) denotes the total production activity that happens in the

country during a particular period as compared to a reference period. It helps us to understand

the general level of industrial activity in the economy. The products included for calculation

of IIP can be segregated into 3 major sectors – Manufacturing (79.36%), Mining &

Quarrying (10.47%) and Electricity (10.17%). Another way of categorizing the items used

in the calculation of IIP is a ‘Use based classification’ with categories like Basic Goods,

Capital goods, Intermediate goods, Consumer durables and Non-consumer durables.

The General Index for the month of May 2011 stands at 165.3, which is 5.6% higher as

compared to the level in the month of May 2010. The cumulative growth for the period April-

May 2011-12 stands at 5.7% over the corresponding period of the previous year.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for

the month of May 2011 stand at 130.4, 173.4 and 153.3 respectively, with the corresponding

growth rates of 1.4%, 5.6% and 10.3% as compared to May 2010 (Statement I). The

cumulative growth in the three sectors during April-May, 2011-12 over the corresponding

period of 2010-11 have been 1.3%, 6.0% and 8.4% respectively, which moved the overall

growth in the General Index to 5.7%

In terms of industries, fourteen (14) out of the twenty two (22) industry groups in the

manufacturing sector have shown positive growth during the month of May 2011 as

compared to the corresponding month of the previous year (Statement II). The industry group

‘Medical, precision & optical instruments, watches and clocks’ has shown the highest growth

of 42.9%, followed by 36.4% in ‘Office, accounting & computing machinery’ and 23.1% in

‘Motor vehicles, trailers & semi-trailers’. On the other hand, the industry groups ‘Textiles’

and ‘Wood and products of wood & cork except furniture; articles of straw & plating

materials’ have shown the highest negative growth of 6.6% each.


As per Use-based classification, the growth rates in May 2011 over May 2010 are 7.2% in

Basic goods, 5.9% in Capital goods and 0.9% inIntermediate goods (Statement III). The

Consumer durables and Consumer non-durables have recorded growth of 5.2% and 5.6%

respectively, with the overall growth in Consumer goods being 5.4%.

c. Inflation

The word “inflation” refers to a general rise in prices measured against a standard level of

purchasing power. Previously the term was used to refer to an increase in the money supply,

which is now referred to as expansionary monetary policy or monetary inflation. Inflation is

measured by comparing two sets of goods at two points in time, and computing the increase

in cost not reflected by an increase in quality.

The overall inflation was 9.06 per cent in May, up from 8.66 per cent in April while food

inflation rose to a one-month high of 8.55 per cent for the week ended May 14. However it is

expected that inflation will come down to 6.5 per cent by March 2012.

d. Foreign Exchange Rate

In fiscal 2009-10, rupee depreciated against major international currencies except pound

sterling. The annual average exchange rate of 45.99 per US dollar in 2008-09 depreciated

by 3.0 per cent to ` 47.42 per US dollar in 2009-10.

In fiscal 2010-11 between April and January 2011, the monthly average exchange rate of

rupee (average of buying and selling by Foreign Exchange Dealer Association of India

(FEDAI)) depreciated by 2.0 per cent against US dollar from ` 44.50 per US dollar in April

2010 to ` 45.39 per US dollar in January 2011. Similarly,depreciated by 4.6 per cent

against pound sterling, 1.4 per cent against euro and by 13.3 per cent against Japanese yen

during the same period.


e. Export Import

India’s exports have registered a growth of 56.9% during May 2011, at US $ 25.9 billion.

During the period April-May 2011, exports have reached a level of US $ 49.8 billion at a

growth of 45.3% while the imports were US $ 73.7 billion with a growth of 33.3% and a

trade deficit of US $ 23.9 billion, during the same period.

During April-May 2011, the following sectors have done well viz., engineering, 115% (US $

14.7 billion); Gems & Jewellery, 23% (5.7 billion US $); petroleum & oil products, 64% (US

$ 8.8 billion); cotton yarn & made-ups, 10.4% (US $ 1.04 billion); electronics, 80% (US $

1.83 billion) and Marine products, 15.8% (0.4 billion).

As regards imports during April-May 2011, the growth estimates on the following sectors

are: POL, 12.9% (US $ 20.3 billion); pearls & precious stones, 24.6% (US $ 5.2 billion); gold

& silver, 222% (US $ 13.5 billion); Iron & steel, -13% (US $ 1.8 billion) and machinery,

46.7% (US $ 5.9 billion) .

f. Fiscal deficit

Fiscal deficit for the year 2010-2011 is 5.6 per cent and it estimated that the Fiscal deficit for

the year 2011-2012 to be 4.6 per cent of GDP. India's fiscal deficit from April to May was

1.31 trillion rupees ($29.2 billion), or 31.7 percent of the full-year target

India's fiscal deficit had ballooned to 6.3 per cent of the GDP in 2009-10 in view of stimulus

spending worth billions of dollars to combat global financial meltdown.

g. Balance of Payments

For fiscal 2010-11, though there is marginal deterioration in the BoP situation vis-à-vis

2009- 10, reflected in higher trade deficit and current account deficit, there was higher

capital flows.

The merchandise exports on a BoP basis posted an increase of 33.8 per cent to US$ 110.5

billion in H1 (April-September 2010) of 2010-11 as against a negative growth of 25.7 per

cent in the corresponding period of the previous year. Similarly, import also increased by

28.3 per cent to US$ 177.5 billion during April-September 2010 as against a decrease of


21.1 per cent in the corresponding period of the previous year. The trade deficit was higher

at US$ 66.9 billion during H1 of 2010-11 as compared with US$ 55.9 billion in H1 of 2009-

10. This was mainly due to significant increase in imports which was in line with robust

domestic economic performance in first half of 2010-11.

The net invisibles surplus (invisibles receipts minus invisibles payments) stood lower at

US$ 39.1 billion during April-September of 2010 as compared to US$ 42.5 billion during

April-September 2009. Consequently the current account deficit increased to US$ 27.9

billion in H1 of 2010-11, as compared to US$ 13.3 billion during the corresponding period

of 2009-10. This was mainly attributed to higher trade deficit combined with lower net

invisible surplus.

Net capital flows at US$ 36.7 billion in April-September 2010 remained higher as compared

with US$ 23.0 billion in April-September 2009. Under net capital flows, all the

components except FDI and bank capital, showed improvement during April-September

2010 from their level in the corresponding period of the previous year. Net FDI into India

moderated to US$ 5.3 billion during April-September 2010 as against the US$ 12.3 billion

in April-September 2009.

h. FII

Portfolio investment mainly comprising foreign institutional investors (FIIs) investments

and American Depository Receipts (ADRs)/ Global Depository Receipts (GDRs), however,

witnessed large net inflows of US$ 23.8 billion in H1 of 2010-11 vis-a-vis US$ 17.9 billion

in H1 of 2009-10. The surge in portfolio investments especially FIIs investment could be

attributed to relatively sound economic fundamentals and increased international liquidity as

number of advanced economies has followed easy monetary policies


The Economic Scenario

The UNCTAD World Investment Report (WIR) 2010, in its analysis of the global trends and

sustained growth of Foreign Direct Investment (FDI) inflows, has reported India to be the

second most attractive location for FDI for 2010-2012.

Moreover, India attracted FDI equity inflows of US$ 1,274 million in February 2011. The

cumulative amount of FDI equity inflows from April 2000 to February 2011 stood at US$

193.7 billion, according to the data released by the Department of Industrial Policy and

Promotion (DIPP).

The services sector comprising financial and non-financial services attracted 21 per cent of

the total FDI equity inflow into India worth US$ 3,274 million during April-February 2011,

while telecommunications (including radio paging, cellular mobile and basic telephone

services) attracted the second largest amount of FDI worth US$ 1,410 million during the

same period. Automobile industry was the third highest sector attracting FDI worth US$

1,320 million followed by Housing and Real Estate industry which garnered FDI worth US$

1,109 million during the financial year April-February 2011.

Foreign institutional investors (FIIs)have purchased stocks and debt securities worthUS$ 222

billion in the financial year ending March 31, 2011, as per the data available with the

Securities and Exchange Board of India (SEBI).

Growth Potential Story

• The data centre services market in the country is estimated to grow at a compound

annual growth rate (CAGR) of 22.7 per cent and is estimated to touch close to US$

2.2 billion by the end of 2011, according to research firm IDC India’s report.

• The Q211 BMI India Retail Report forecasts that total retail sales will grow from US$

395.96 billion in 2011 to US$ 785.12 billion by 2015.

• According to a McKinsey Global Institute (MGI) study titled 'Bird of Gold': The Rise

of India's Consumer Market’, the total consumption in India is likely to quadruple

making India the fifth largest consumer market by 2025. Urban India will account for


nearly 68 per cent of consumption growth while rural consumption will grow by 32

per cent by 2025.

• India ranks first in the Nielsen Global Consumer Confidence survey released in

January 2011. “India is one of the fastest growing markets in the world and the

current consumer belief that recession would soon be a thing of the past has filled

Indians with confidence,” said PiyushMathur, Managing Director, South Asia, The

Nielsen Co. With 131 index points, India ranked number one in the recent round of

the survey, followed by Philippines (120) and Norway (119).


INDUSTRY ANALYSIS:

a. Gems and Jewellery sector

India possesses world’s most competitive gems and jewellery market due to its low cost of

production and availability of skilled labour and low cost manpower, along with strong

government support in the form of incentives and establishment of SEZs, has been the major

driver for the Indian gems and jewellery market. The market also plays a vital role in the

Indian economy as it is a leading foreign exchange earner and accounts for 19% of India’s

total exports. The Indian gems and jewellery sector is expected to grow at a CAGR of around

14%. At present, the Indian gems and jewellery market is dominated by the unorganized

sector; however, the trend is set to change in near future with the branded jewellery market

growing at an expected CAGR of more than 41% in the coming four years. India remains

world’s largest gold consumer and this share is expected to grow further.

One of India’s leading foreign exchange earning sectors over the year has witnessed a

considerable growth in the volume of exports from export figures of US$ 29358.49 million in

the FY 2009-2010, to US$ 43139.24 million in FY 2010-2011, thus indicating a net increase

of 46.89% in the total Gem & Jewellery exports. The performance of this industry is critical

as it contributes 16.67% to India’s total merchandise exports.

The growth in the sector was primarily driven by Cut & Polished Diamondswhich registered

an increase of 54.91% in FY '11. The exports grew from US$ 18243.92 million in 2009-10 to

US$ 28251.92 million in 2010-2011. Cut & Polished Diamonds accounted for 65.49% of the

total exports baskets with Gold Jewellery comprising of 29.86% while Colour Gemstones and

other accounted for 4.69%.

Gold Jewellery exports have also been on a rise with the figures accounting for a 33.27 %

increase over FY’11. From US$ 9678.67million in 2009-2010 to US$ 12885.59 million in

2010-2011, the increase is apparent. Coloured Gemstone exports also increased by 9.68% in

dollar terms with sector witnessing a rise from US$ 286.78 million in 2009-2010 to US$

314.54 millionin 2010-2011

FY10- FY’11 saw UAE emerge as the largest exporting destination with 47% of exports to

the market, followed by Hong Kong with 22% and USA with 11% of exports.


b. Oil and Gas

A significant catalyst in fuelling the growth of the Indian economy, the oil and gas sector

presents a powerful scope for investors in the years to come. Of late, the government has

followed deregulation path to attract foreign participants. The New Exploration Licensing

Policy (NELP), conceived to address the increasing demand supply gap of energy in India,

has proved to be successful in attracting the interest of both domestic private sector players

and some foreign players

Production and Consumption

According to the provisional production data released by the Ministry of Petroleum and

Natural Gas, dated June 2011,

• Crude Oil production for April 2011 was 3.186 million metric tonne (MMT), as

compared to the 2.871 MMT in April 2010.

• Natural Gas production during April-January 201 1 was 4096.3 million cubic metres

(MCM)

• During April 2011, 14.006 MMT of crude oil was refined, compared to 13.136 MMT

refined in April 2010.

ONGC Videsh Limited (OVL), the wholly-owned subsidiary of Oil and Natural Gas

Corporation Ltd. (ONGC), has registered a production of 9.433 million tonnes of oil

equivalents (MMTOE) in 2010-11, surpassing the earlier peak production of 8.870 MMTOE

of oil and oil equivalent gas in 2009-10.

India will account for 12.4 per cent of Asia Pacific regional oil demand by 2015, while

providing 11.2 per cent of supply, according to the BMI India Oil & Gas Report for third-

quarter 2011. Regional oil production was around 7.6mn barrels per day (b/d) in 2001 and

averaged an estimated 8.0mn b/d in 2010. It is set to increase to 8.2mn b/d by 2015.

Similarly, Regional oil use of 20.6mn b/d in 2001 reached an estimated 26.4mn b/d in 2010

and is forecast to rise to around 29.6mn b/d by 2015.India is the world’s fifth biggest energy

consumer and the need is continuously growing.


Petroleum

Demand for petroleum products rose by 4.4 per cent (year-on-year) to 144.35 million tonnes

(MT) during the financial year 2010-11, according to the latest figures released by the

Petroleum Planning and Analysis Cell (PPAC).

Currently, India's total demand for the petroleum products is estimated at around 140 million

tonnes per annum (MTPA). This creates a spare capacity of 48 MTPA at the refineries. The

spare capacity will increase to around 90 MTPA. The domestic demand is expected to be

around 142- 143 million tonnes per annum.

Gas

The proportion of natural gas in the total energy mix has increased to 10 per cent in 2009

from 4 per cent in 1999. The same is expected to increase to 20 per cent in 2025, playing a

vital role in the country’s total energy-mix

It is expected that gas production would rise from an estimated 45billion cubic meters (BCM)

in 2010 to a possible 95 BCM by 2019.

In a bid to develop its gas field in the KG Basin and produce up to 30 MCM a day in five

years, ONGC has earmarked US$ 7.7 billion for investment. The company plans to drill eight

additional wells in the block to maximize output from the deep-sea field in the Bay of Bengal

and has sought approval for the plan from the directorate general of hydrocarbons and the

petroleum ministry.

Oil & Gas – Key Developments and Investments

• Gujarat State Petroleum Corporation (GSPC) has awarded Larson & Turbo (L&T) an

offshore process platform contract KG Basin. Valued at US$ 317.5 million, the

offshore process cum living quarter platform project was awarded under international

competitive bidding by GSPC to meet its production target of hydrocarbon by July,

2013.

• GSPC and Russian petroleum giant, Gazprom Global LNG (GGLNG) have entered

into an agreement for supply of up to 2.5 MTPA of liquefied natural gas (LNG).


• The newly approved Petroleum, Chemicals and Petrochemicals Investment Region for

Tamil Nadu, set up at Cuddalore and Nagapattinam, has received government support

of US$ 1.14 billion.

• Quippo Oil & Gas Infrastructure Limited (QOGIL), promoted by Srei Infrastructure,

intends to start oil and gas exploration at Cambay Basin in Gujarat in 2011-12.

QOGIL was awarded an oil block, (NELP VII Round) for exploration and production

in Cambay basin in 2009

Oil & Gas - Government Policies

• NELP, implemented by government, permits 100 per cent FDI for small and medium

sized oil fields via competitive bidding.

• Public-private partnerships as well as only private investments can foray into the

refining sector. In case of an Indian private company, 100 per cent FDI is allowed.

• 100 per cent FDI is allowed for petroleum products and pipeline sector as well as

natural gas/LNG pipeline, for infrastructure related to marketing of petroleum

products, market study of formulation and investment financing.

• Minimum 26 per cent equity is covered over five years, in case of trading and

marketing

• The Karnataka Government has announced plans to set up a US$ 822 million, 700-

MW dedicated LNG power plant for its capital. The power plant’s work is expected to

be entrusted to the state-owned Karnataka Power Corporation — the nodal agency for

power generation.

Oil & Gas - Road Ahead

Entailing an investment of US$ 13.33-14.44 billion, India's petroleum refining capacities are

expected to rise to 240 MTPA by March 2012 from the current 188 MTPA. The capacity

addition would facilitate a boost in country's exports of petroleum products, S Sundereshan,

secretary, ministry of petroleum & natural gas, stated.


Following are the major projects that are likely to get commissioned within 2011-12:

• The Guru Gobind Singh refinery project will be commissioned by HPCL-Mittal

Energy by September 2011. The project on completion is expected to add a capacity

of 90 million tonnes.

• It is expected that Essar Oil will complete the phase-I project of its Vadinar Oil

refinery by July 2011. This will raise the existing capacity of 105 million tonnes per

annum to 180 million tonnes per annum. The company has also announced its plans to

add another 20 million tonnes per annum in phase-II and take the total capacity to 200

million tonnes per annum by September 2012.

• IOCL is expected to commission its green field Paradip refinery by mid-2012. The

project will add a refinery capacity of 150 lakh tonnes per annum.

c. Steel

Consumption of steel in the construction sector, industrial applications, and transport sector

has been on the rise and special steel usage in engineering industries such as power

generation, petrochemicals and fertiliser industry is also growing.

India has retained its position as the 5th largest producer in 2010 and recorded a growth of

11.3 per cent as compared to 2009. India has also emerged as the largest sponge iron/direct

reduced iron (DRI) producing country in the world in 2010

India is expected to become the second largest producer of steel in the world by 2015-16, on

account of growing steel demand, rich resources base of iron ore, skilled manpower and vast

experience of steel making and the huge capacity expansion planned and being executed in

the steel sector.

India has recorded a growth of over 8.6 per cent, producing 6.35 MT of steel in March 2011

as against 5.85 MT in the corresponding month in 2010, according to World Steel

Association (WSA).

Steel exports has increased by 17.3 per cent as it reached an estimated 2.46 MT, while steel

imports were at an estimated 5.36 MT, a growth of 2.8 per cent in 2010.


Crude steel production was registered at 51.57 MT during April-Dec 2010 in the country as

per Joint Plant Committee (JPC). The production is expected to be nearly 110 MT by 2012-

13.

Crude steel production grew at a compound annual growth rate (CAGR) of 8.4 per cent

during the five years, 2005-06 to 2009-10. The crude steel performance accounted for 31 per

cent of the total crude steel production in the country during 2009-10.

Steel Authority of India (SAIL) Ltd has planned to enhance its hot metal production capacity

from the level of 13.82 million tonnes per annum (MTPA) to 23.46 MTPA under its current

phase of expansion and modernisation which is expected to be completed by financial year

2012-13.

NMDC Ltd plans to increase the production of iron ore from the present level of about 24

MT to 40 MT by 2014-15. Besides, setting up a 3 MTPA Integrated Steel Plant at Nagarnar

in Chhattisgarh.

Government Initiatives

The current policy regime allows 100 per cent foreign domestic investment (FDI) in steel

sector, as per Minister of State for Steel. Some multinational steel companies like POSCO

and Arcelor Mittal have signed MoU with respective to State Governments to set up steel

production units in the country. The total proposed capacity under FDI is approximately 45

MT.

Some of the initiatives undertaken by the Indian Government in the Eleventh Five Year Plan

(2007-12) to promote the steel sector include:

• The Planning Commission has approved a total outlay of US$ 9.5 billion for the

development and promotion of the iron and steel sector.

• The scheme for the promotion of research and development in the iron and steel

sector has been approved with a budgetary provision of US$ 24.6 million to initiate

and implement the provisions of the scheme.

• National Steel Policy 2005 is under review and the process for drafting a 'National

Steel Vision' has since been initiated.


d. Engineering

The engineering sector is the largest segment of the overall Indian industrial sector. The

engineering industry accounts for 12 per cent of India's GDP.

India enjoys a cost-advantage in casting and forging, as manufacturing costs in India are 25-

30 per cent lower than western countries.

Engineering Services Outsourcing (ESO)

The Engineering Services Outsourcing (ESO) sector is another sector with great potential.

ESO includes product design, research and development and other technical services across

sectors like automotive, aerospace, hi-tech/telecom, utilities and construction/industrial

machinery.

According to a study by NASSCOM and Booz Allen Hamilton (a strategy and technology

consulting firm), the global engineering services market in 2020 is estimated to touch US$

1,100 billion, of which the outsourced component is estimated to reach around US$ 200

billion. As per the report, India may capture around 25 per cent of the global ESO pie, worth

around US$ 40 billion by 2020. At present the ESO market is around US$ 15 billion, with

India enjoying 12 per cent share. The engineering services landscape in India has evolved

significantly over the last four years, reflecting maturity, diversification and enhanced

verticalisation to partner with global corporations, as per the study.

Chennai is fast emerging a hub in engineering design, R&D and product development for a

number of global players. Companies across sectors- automobile, telecom, infrastructure,

wind energy have set up their centres in the city encouraged by the good eco-system, talent

pool and growing number of original equipment manufacturers (OEMs).



Indian service providers have invested considerably in increasing their global footprint to

provide services to geographically distributed customers. They have established sales teams

in North America and Europe and delivery centres in China and Japan for closer interaction

with customers in the former and to co-ordinate efforts with existing manufacturing facilities

in the latter. Within India, companies have begun to move to tier-2 cities to take advantage of

lower costs of operations and to access a large graduating pool of engineers.

The miscellaneous mechanical and engineering industries sector-wise foreign direct

investments (FDI) inflows from April 2000 to January 2010 was calculated at US$ 891.49

million, as per the Department of Industrial Policy and Promotion (DIPP).

The Government has announced a series of policy initiatives and programmes - a special

incentive package for investments in manufacturing, setting up a National Electronics

Mission and an Electronics Development Fund - in the field of information and

communication technology (ICT).

e. Banking

The banking system remains, as always, the most dominant segment of the financial sector.

Indian banks continue to build on their strengths under the regulator's watchful eye and

hence, have emerged stronger.

Nationalised banks, as a group, accounted for 51.2 per cent of the aggregate deposits, while

State Bank of India (SBI) and its associates accounted for 22.5 per cent, according to Reserve

Bank of India's (RBI) 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial

Banks. Foreign banks and Regional Rural banks in aggregate deposits was 13.5 per cent, 4.5

per cent, 5.2 per cent and 3.1 per cent respectively.

With respect to gross bank credit also, nationalised banks hold the highest share of 50.9 per

cent in the total bank credit, with SBI and its associates at 23.1 per cent and New Private

sector banks at 13.7 per cent. Foreign banks, Old private sector banks and Regional Rural

banks held relatively lower shares in the total bank credit with 5.2 per cent, 4.5 per cent and

2.5 per cent respectively.


Bank loans registered a growth of 21.38 per cent in 2010-11, while deposit growth stood at

15.84 per cent, according to data released by RBI. Analysts and it is expected that a growth

rate of 18 per cent in deposits and 20 per cent in credit should be sustainable for banks in

2011-12.

India's foreign exchange reserves stood at US$ 308.2 billion as on April 8, 2011, according to

the data in the weekly statistical supplement released by RBI.

Indians who live and work abroad have remitted US$ 55 billion in 2010 as compared to US$

49.6 billion in 2009 and have topped the world list in sending money back home, according

to World Bank's Migration and Remittances Factbook 2011

Major Developments

• Hindustan Unilever Limited (HUL) has tied up with State Bank of India (SBI) to start

a pilot project to promote financial inclusion in rural markets in Maharashtra and

Karnataka, through HUL's 'Shakti Ammas', a network of self-help groups to open

bank accounts for people.


The government would provide an additional US$ 1.35 billion capital to state-owned banks in

financial year 2011-12 to help them maintain at least 8 per cent capital adequacy ratio in Tier-

I level

“To liberalise the portfolio investment route, it has been decided to permit Sebi-registered

mutual funds to accept subscriptions from foreign investors who meet the KYC (Know Your

Customer) requirements for equity schemes,” This would enable Indian mutual funds to have

a direct access to foreign investors and widen the class of foreign investors in the Indian

equity market.


COMPANY ANALYSIS

TITAN INDUSTRIES

Titan Industries is the fifth largest integrated watch manufacturer in the world. The success

story began in 1984 with a joint venture between the Tata Group and the Tamil Nadu

Industrial Development Corporation. Presenting Titan quartz watches that sported an

international look, Titan Industries transformed the Indian watch market. After Sonata, a

value brand of functionally styled watches at affordable prices, Titan Industries reached out

to the youth segment with Fastrack, its third brand, trendy and chic. The company has sold

100 million watches world over and manufactures 12 million watches every year.

Titan Industries launched Tanishq, India’s most trusted and fastest growing jewellery brand.

Gold Plus, the later addition, focuses on the preferences of semi-urban and rural India.

Completing the jewellery portfolio is Zoya, the latest retail chain in the luxury segment.

Titan Industries has also made its foray into eyewear, launching Fastrack eyewear and

sunglasses, as well as prescription eyewear. The organization has leveraged its manufacturing

competencies and branched into precision engineering products and machine building.

With over 665 retail stores across a carpet area of over 8,10,072 sq. ft. Titan Industries has

India’s largest retail network. The company has over 311 exclusive ‘World of Titan'

showrooms and over 650 after-sales-service centers. Titan Industries is also the largest

jewellery retailer in India with over 120 Tanishq boutiques and Zoya stores, over 29 Gold

Plus stores and over 150 Titan Eye+ stores. The company has two exclusive design studios

for watches and jewellery

Backed by 4,934 employees, two exclusive design studios for watches and jewellery, 11

manufacturing units, and innumerable admirers world over, Titan Industries continues to

grow and sets new standards for innovation and quality. The organization is all geared to

repeat the Titan and Tanishq success story with each new offering.


Observations:

• The competitors include Titan include Timex industries Ltd. Titan Industries Market

capital is 20574.44(Rs. cr.) with a sales turnover of 6521.64(Rs. cr.) with a net profit

of 450.46(Rs, cr.). Market capital of Titan is more than its competitors, Timex Market

capital is 433.58(Rs. cr.) and a sales turnover of 173.19(Rs. cr.) with a net profit of

14.0(Rs. cr.)

• The Titan industries is having Price to Earnings ratio of 44.94 when compared to its

competitors Price to Earnings ratio of Timex industries is 30.90. However Titan

industries is performing equal to Industrial Price to Earnings ratio of 44.02

• It is observed that Earnings per share of Titan Industries is 4.85 which higher than the

Timex Industries Ltd. EPS of 1.39

• Titan Industries Limited aims to clock sales of over INR8200 crore (INR82 billion) in

fiscal 2012. According to Reuters Estimates, analysts on an average are expecting the

Company to report revenues of INR81 billion for fiscal 2012. • Titan Industries Limited announced that the Board of Directors of the Company at its

meeting held on April 29, 2011, inter alia, have recommended a dividend of 250%

viz., INR25 per share


INDRAPRASTHA GAS LIMITED

Incorporated in 1998, IGL took over Delhi city gas distribution project in 1999 from GAIL

(India) Limited (Formerly Gas Authority of India Limited).

The project was started to lay the network for the distribution of natural gas in the National

Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors.

With the backing of strong promoters – GAIL (India) Ltd. and Bharat Petroleum Corporation

Ltd. (BPCL) – IGL plans to provide natural gas in the entire capital region.

The two main business objectives of the company are -

• To provide safe, convenient and reliable natural gas supply to its customers in the

domestic and commercial sectors. • To provide a cleaner, environment-friendly alternative as auto fuel to Delhi’s

residents. This will considerably bring down the alarmingly high levels of pollution.

The transport sector uses natural gas as Compressed Natural Gas (CNG), the domestic and

commercial sectors use it as Piped Natural Gas (PNG) and re-gassified liquid natural gas (R-

LNG) is being supplied to industrial establishments.

IGL continues to augment its infrastructure so as to meet the increasing demand of CNG

arising out of growing number of CNG vehicles in Delhi. The growth drivers for increase in

demand of CNG are - car manufacturers coming up with CNG variants and Delhi

Government’s directive making it mandatory for all LCVs operating in Delhi to run on CNG.

The company is in the process of enhancing its compression capacity by adding new stations.

On the PNG front, IGL has planned to expand its business activities in Delhi and its

neighbouring towns like Noida, Greater Noida and Ghaziabad. Our customers will now be

benefited with supply of PNG for non-cooking applications like Geysers also. IGL is also

working towards expanding its PNG network to cover all charge areas of Delhi by 2012.

Industrial and commercial segments would be the focus areas for the organization in the

future.


Observations:

• Indraprastha Gas Limited(IGL) is having a Market capital of 5481.71(Rs. Cr.) with a

sales turnover of 1750.46(Rs. Cr.), Net profit of 259.77(Rs. Cr.)

• The competitors of Indraprastha Gas Limited are Gujarat Gas Limited, PetronetLng

• Percentage of Net profit to sales is comparatively higher for Indraprastha Gas

Llimited at 14.84 per cent which is more than its competitors

• IGL is having a Price to Earnings ratio of 19.89 is performing near with Industrial

Price to Earnings ratio of 21.24

• Earnings per share of IGL is 18.55 and the Net worth of the company is 1003.86 (Rs.

Cr.)

• It is observed that Indraprastha Gas Limited has been authorized to lay, build operate

or expand City Gas Distribution Network in Geographical area of Ghaziabad.

• IGL has guided for a volume growth of 20% to 25% for FY12 along with a capex of

INR 20 bn over the next three years. IGL plans to spend this amount to expand the

infrastructure for compressed natural gas (CNG) and piped natural gas (PNG).


WELSPUN CORP Ltd.

Welspun Corp Ltd. (WCL), the flagship company of Welspun Group, is today probably the

Largest Large Diameter Line Pipe Company in the World. It is ranked as the 2nd Largest

(Large Diameter) Pipe Producer by Financial Times UK and awarded 'The ‘Emerging

Company of the Year' by Economic Times, 2008, respectively. With a strong culture of

‘Engineering Excellence' WCL takes pride in manufacturing and supplying some of the most

critical pipelines in the World from its India and U.S. plants. With an installed line pipe

capacity of nearly 2.0 MTPA.

To its credit, the company has supplied pipes for World’s deepest pipeline project

(Independence Trail', Gulf of Mexico), Highest Pipeline project (Peru LNG), to the longest

pipeline (Canada to US) and the heaviest Pipeline (Persian Gulf). WCL’s has an esteemed

client list which includes Transcanada, Enterprise, Kinder Morgan, Texas Gas, Hunt Oil,

Saudi Aramco, Elpaso, Exxon Mobil and Qatar Petro DOW to name a few.

Welspun Corp Limited (Welspun), formerly Welspun Gujarat Stahl Rohren Ltd. is an India-

based company. The Company, together with its subsidiaries are engaged in the business of

production and coating of high grade submerged arc welded pipes, hot rolled steel plates and

coils, infrastructure, oil and gas exploration, and energy and power generation. The

Company’s subsidiaries include Welspun Pipes Limited, Welspun Natural Resources Private

Limited, Welspun Pipes Inc, WelspunTradings Limited and WelspunInfratech Limited. The

Company’s indirect subsidiaries include Welspun Tubular LLC, Welspun Global Trade LLC

and Welspun Plastics Private Limited. In April 2009, the Company announced the demerger

of its Plate-cum-Coil mill into a 100% subsidiary. On March 31, 2010, WelspunUrja India

Limited ceased to be the subsidiary of the Company


Observations:

• Welspuncorp has won plates, coating and other orders worth Rs 788 crore and pipe

orders worth INR1,182 crores (INR11.82 billion) (approx 155 KMT) largely from

international clients. Its current order book now stands at Rs 6,941 crore.

• Welspuncorp Market capital of Rs 3336.10 crore with a sales turnover of Rs 6269.44

crore, Net profit is Rs 364.45 crore

• Welspuncorp is having a price to earnings ratio of 9.28 performing near to Industrial

price to earnings ratio of 8.83

• Earnings per share of Welspun Corp Ltd is 17.81 and is having its competition from

Jindal saw

• The beta value of Welspuncorp is 1.462 and hence his having more sensitivity to

market


THERMAX

Thermax Ltd. is an INR 4,935 crore (USD 1.11 Billion) company, providing a range of

engineering solutions to the energy and environment sectors.

Headquartered in Pune, India and operate globally through 19 International offices, 12 Sales

& Service offices and 4 Manufacturing facilities - three of which are in India and one in

China. Its presence spans 75 countries across Asia Pacific, Africa and the Middle East, CIS

countries, Europe, USA and South America.

Solutions Suite – Innovative and Eco-friendly

• Heating equipment - using a variety of fuels, including biomass

• Absorption chillers - fired by waste heat or steam

• Power and captive cogeneration plants

• Waste heat recovery units

• Waste water management systems – pre-treatment, waste water treatment and

chemical conditioning of water, sewage effluent treatment and recycling

• Air pollution control systems

• Performance improving chemicals

Product Range – Diverse and Efficient

From our experience of over three decades in the energy sector, we offer a range of boilers

and thermal oil heaters, energy chillers and customized products like exhaust gas boilers.

Thermax absorption chillers have found a niche in green energy systems in Europe and

Australia. We also help industries reduce energy costs by shifting to abundantly available,

alternate energy such as biomass.


Industry-specific Solutions – Clean and Green

Thermax provides industries with clean technologies that recover pollutants; thereby reducing

their hazardous impact on the environment. Today, many iron & steel, cement, fertilizer and

chemical industries reduce emissions using our air pollution control systems.

Industries in the US and Japan consistently use our hi-grade ion exchange resins for

specialised applications.

Project Management Capabilities

Our project management capabilities extend to setting up energy-environment projects for

customers in several markets. This is backed by a robust and innovative R&D setup,

involved in technology development and adaptation for various industrial applications.

Observations:

• It has received a INR403 crore (INR4.03 billion) order from a producer of viscose

staple fibre to construct and commission a turnkey captive power plant in Western

India. The Company will supply four multi fuel, 175 TPH Capacity CFBC

(circulating fluidised bed combustion) boilers for the 3x32 MW co-generation plant.

Scope of work for Thermax includes entire engineering, procurement, construction of

power plant, including civil works, piping and miscellaneous balance of plant on a

turnkey basis.

• Thermax with a Market Capital of Rs 6946.81 cr, Sales turnover of Rs 4883.23 cr. is

having competition from Engineers India which is having a market capital of Rs.

9434.22 cr. However Engineers India is having a low sales turnover compared to

Thermax.

• Price to Earnings ratio of Thermax is 18.46 and is performing equal to Industrial Price

to Earnings ratio of 18.52 with a beta of 0.803


GODREJ CONSUMER PRODUCTS

Godrej Consumer Products Limited (GCPL) is engaged in manufacturing toilet soaps and

other toiletries. The Company manufactures and markets toilet soaps, hair color, liquid

detergents and other toiletries. The Company exports its products to 31 countries, including

Jordan, Egypt, Sudan, United Arab Emirates (UAE), Bangladesh and Port of Spain. The

Company’s subsidiaries include Godrej Netherlands B.V., Inecto Manufacturing Limited,

Rapidol Pty. Limited, Godrej Global Mideast FZE and Kinky Group Pty. Limited. In June

2009, the Company completed the acquisition of the remaining 50% stake in Godrej SCA

Hygiene Ltd. In April 2010, the Company announced the acquisition of PT.

MegasariMakmur Group and its distribution company in Indonesia. In addition, in May 2010,

the Company acquired the remaining 51% stake in Godrej Sara Lee Limited. In March 2010,

the Company announced the acquisition of Tura in Nigeria. In July 2010, Godrej Consumer

Products Limited acquired Argencos, Argentina.

Observations:

• Godrej consumer products are having competition from Dabur India, Colgate. It is

having a Market Capital of Rs 14381.96 cr. with a sales turnover of Rs 2442.64 cr.

• Godrej consumer products with a Net Profit of 434.96 cr are having 17.80 per cent as

percentage of net profit to sales which is more than its competitors Dabur India and

Colgate.

• Godrej consumer products are having a Price to Earnings ratio of 31.97 which is low

compared to Industrial Price to Earnings ratio of 33.7 and is hence a good stock to

accumulate.

• Godrej Consumer Products Limited has entered into an agreement for the rights to

acquire 51% stake in Darling Group Holdings that operates in 14 countries across

sub-Saharan Africa. The Darling Group manufactures and distributes the full range of

hair extension products.


• Operating profit per share of Godrej consumer products is 14.10 which is higher than

that of Dabur India, but is lower than that of Colgate

BANK OF MAHARASHTRA

Bank of Maharashtra is a public sector bank in Maharashtra, which is engaged in providing

treasury, corporate/ wholesale banking, retail banking, and other banking operations. During

the fiscal year ended March 31, 2010, the Bank opened 33 new branches. As on 31.03.2010,

the total branch network comprised of 1453 branches spread over 22 states and two union

territories. The branch network includes specialized branches for foreign exchange,

government business, treasury and international banking, industrial finance, micro, small and

medium enterprises including smallscale industry, hi-tech agriculture, pension payment,

pension processing, retail credit and asset recovery. The Bank’s investment portfolio includes

maturity, available for sale and held for trading.

Observations:

• Bank's Rural Development Centres at Hadapsar and Bhigwan are undertaking vaious

developmental activities for the benefit of the famers vi. Lab to Land project, reuse /

rehabilitation of Saline Soil and advice on scientific use of inputs for optimum results.

• The Mahabank Agricultural Research and Rural Development Foundation

(MARDEF) is active in socio-economic development of villages by encouraging

farmers to take diversified activities like dairy, EMU farming, goat rearing, grape

cultivation, horticulture and scientific use of various inputs like fertilizers etc. The

foundation assists farmers, especially small and marginal farmers, in receiving timely

bank credit. • Competitors of Bank of Maharashtra include Indian Bank, Allahabad Bank. It has

Market Capital of Rs. 2668.69 cr. with a net profit of 330.39 cr. • Bank of Maharashtra is having a Price to Earnings ratio of 8.14 and is lower than the

Industrial Price to Earnings ratio of 9.36 and is performing well with the Industry.


• Bank of Maharashtra is having a Earnings to Price ratio of 6.86 with a beta value of

0.94, means it is performing equal toMarket • The Net worth of the company is Rs 3970.93 cr as of March 31,2011

ENGINEERS INDIA LIMITED

Engineers India Limited (EIL) was set up in 1965 to provide engineering and related

technical services for petroleum refineries and other industrial projects. EIL is working under

the administrative control of Minstry of Petroleum and Natural Gas , Government of India.

EIL has emerged as Asia’s leading design, engineering and turnkey contracting providing a

complete range of project services needed to conceptualize, plan, design, engineer and

construct projects to meet the specific requirements of its clients in the following fields:

• Petroleum Refining

• Petro chemicals

• Pipelines

• Offshore Oil and Gas

• Terminals and Storages

• Mining and Metallurgy

• Infrastructure

Engineers India Limited is an engineering consultancy company providing design,

engineering, procurement, construction and integrated project management services,

principally focused on the oil and gas and petrochemicals industries in India and

internationally. It also operates in a diverse set of other sectors, including non-ferrous mining

and metallurgy and infrastructure. The Company is also a primary provider of engineering

consultancy services for the Government of India’s energy security initiative under its


Integrated Energy Policy for strategic crude storages. The Company has two segments: the

Consultancy and Engineering segment, and the Lumpsum Turnkey Projects segment. It has

provided a range of engineering consultancy and project implementation services on more

than 49 refinery projects, including eight greenfield refinery projects, seven petrochemical

complexes, 35 oil and gas processing projects and 205 offshore platforms projects.

Observations:

• EIL has onging projects in the fields of Refinery projects - Guru gobind refinery

project of HMEL, Capacity expansion cum modernisation project for BPCL, Visakh

clean refinery project of HPCL, in the field of Petrochemicals – Assam gas cracker

project of BCPL, Panipat Naphtha Cracket project of IOCL, in the field Overseas

projects - PMC services for Borouge -2 project in Abu Dhabi, PMC services of

Rehabilitation and Adaptation for SONATRACH, Algeria

• EIL competitors include Thermax, Punj Lloyd. However, Eil has a Market Capital of

Rs 9462.86 cr. with a sales turnover of Rs 160.37 cr.

• EIL is having a Price to Earnings ratio of 18.05 with an Industrial Price to Earnings

ratio of 16.87 and its sensitivity to market is 0.98. It means it is performing similar to

the market movements

• Earnings to Price ratio of EIL is 15.51


UNION BANK OF INDIA

Union Bank of India is an India-based public sector bank. The Bank’s business segments

include Treasury Operations, Retail Banking Operations, Corporate Wholesale Banking and

Other Banking Operations. The various types of deposits offered by the Bank include savings

bank deposits, current deposits, current and savings account (CASA) deposits, and term

deposits. Its advances portfolio includes large corporate advances; micro, small and medium

enterprises advances; agriculture advances, and retail advances. Its retail advances include

home loan, vehicle loan, education and other retail loans. Its investments portfolio includes

investments made in government securities, state development loans and other approved

securities. It holds a 51% interest in Union KBC Asset Management Company Pvt. Ltd. As of

March 31, 2010, it operated 2,805 branches and 2,327 automated teller machines. The total

outlets, including extension counters and services branches, stood at 2,910 as of March 31,

2010.

Observations:

• Revised interest rates for deposits by non-resident Indians (NRIs) across maturities

and currencies. Under the revised rate structure, NRIs will get up to 26 basis points

more for deposits in foreign currencies. A deposit in Euros for a maturity above four


years but less than five years will earn an NRI 3.90% per annum as against the earlier

3.64%

• Got the approval from the markets watchdog SEBI to enter the mutual fund (MF)

arena.

• Competitors of Union Bank of India include Allahabad Bank, Andhra Bank. Union

Bank is having a Market Capital of Rs 18599.28 cr. with a Net profit of Rs 2081.95

cr.

• Union Bank of India is expected to grow deposits & credit by 20% &22% in FY12E

respectively and fee-based income in line with the loan-book thus overall profitability

should be up by 22% in FY12E.

• Union Bank of India is having a Price to Earnings Ratio of 9.37 and is performing

equal to Industrial Price to Earnings ratio of 9.36 and hence is a good stock to hold.

PORTFOLIO CONSTRUCTION BASED ON PRICE TO EARNINGS R ATIO

Calculation of Beta

BETA - Beta is a measure of a stock's volatility in relation to the market. The beta

coefficient is a key parameter in the capital asset pricing model (CAPM). It measures the part

of the asset's statistical variance that cannot be mitigated by the diversification provided by

the portfolio of many risky assets, because it is correlated with the return of the other assets

that are in the portfolio. The formula for the Beta of an asset within a portfolio is,

Beta = Covariance (stock versus market returns) / Variance of the Stock Market

Price to Earnings Ratio

The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", or simply "multiple")

is a measure of the price paid for a share relative to the annual net income or profit earned by

the firm per share. The P/E ratio can therefore alternatively be calculated by dividing the

company's market capitalization by its total annual earnings.


Unlike the EV/EBITDA multiple, the price-to-earnings ratio reflects the capital structure of

the company in question. The price-to-earnings ratio is a financial ratio used for valuation: a

higher P/E ratio means that investors are paying more for each unit of net income, so the

stock is more expensive compared to one with a lower P/E ratio. The P/E ratio can be seen as

being expressed in years, in the sense that it shows the number of years of earnings which

would be required to pay back purchase price, ignoring inflation. The P/E ratio also shows

current investor demand for a company share. The reciprocal of the P/E ratio is known as

the earnings yield. The earnings yield is an estimate of the expected return from holding the

stock if we accept certain restrictive assumptions

Calculated as follows

Market value per share

Earnings per share

Results of Price to Earnings Ratio

company P/E Indstry P/E

β Stock Price as on 18/06/2011

EPS

BEML 16.40712 15.94 0.937 590 35.96

Bank of Maharashtra 8.141399 9.36 0.942 55.85 6.86

Century textiles 13.83229 15.58 1.619 353 25.52

Engineers India 18.05287 16.87 0.988 280 15.51

Godrejconsumer prts 31.97941 33.7 0.441 419.25 13.11

IDBI 7.711814 9.36 1.505 129.25 16.76

IOB 8.568956 9.36 1.211 148.5 17.33

Indraprastha Gas Ltd. 19.89218 21.24 0.617 369 18.55

Jindalsaw 9.436747 8.83 1.093 156.65 16.6

Optocircuits 21.37405 22.17 0.888 280 13.1

Thermax 18.46681 18.52 0.803 592.6 32.09


Titan 44.94433 44.02 1.022 217.98 4.85

Unionbank 9.368325 9.36 1.102 307 32.77

Welspuncorp 9.289725 8.83 1.462 165.45 17.81

• Generally it is observed that company’s having more price to earnings than others will

have more earnings compared to the lower price to earnings ratio

• As stocks having more price to earnings will have more earnings but stocks that are

below to Industrial price to Earnings are expected to earn more for the Investment

made and hence stocks that are performing near to Industrial price to earnings ratio

are selected to construct a Portfolio

• Here it is found that using present value method at a growth rate of 20 per cent, three

stocks have been identified with less price than the market value those stocks are

Century Textiles, Union Bank, Titan Industries and hence it is considered to construct

using Price to Earnings Ratio

• It is also found that the number of stocks selected using present value method

decreases with increase in Expected rate of return

Company Expected return

weights portfolio expected return

β porfolio β

Bank of Maharashtra

0.19304 0.031826082 0.006144 0.942 0.02998

Century textiles 0.27428 0.201156794 0.055173 1.619 0.325673

Godrejconsumer products

0.13292 0.238909308 0.031756 0.441 0.105359

IDBI 0.2606 0.073653019 0.019194 1.505 0.110848

IOB 0.22532 0.084622617 0.019067 1.211 0.102478

Indraprastha Gas Ltd.

0.15404 0.210274382 0.032391 0.617 0.129739

Optocircuits 0.18656 0.159557797 0.029767 0.888 0.141687

0.1935 0.945764

Here portfolios expected return is calculated using Capital Asset Pricing Model (CAPM).


It is as follows

E(r) = Rf + β(Rm-Rf)

Where Rf – Risk free rate, it is 8%

β – Company sensitivity towards market i.e. Market risk

Rm– Market return, it is 20%

Weights are given based on the share price and portfolios expected return is calculated by

multiplying the weights of each stock with their respective portfolio weights and then after

summing the whole expected returns one will get the portfolios expected return. The

portfolios beta value is calculated by multiplying the stock beta values with their respective

weights and then summing them one will get the portfolio beta.

CONSTRUCTION OF PORTFOLIO BASED ON SHARPES

OPTIMIZATION MODEL

Every investor faces the dilemma, of which scrip's to select for his portfolio to get adequate

return. Besides, the investor has to decide how much to invest in each scrip. Simple Sharpe

Portfolio optimisation model enables the investor to find a portfolio that best meets the

goals, objectives and risk tolerance of the investor. The method also stresses on portfolio

optimisation, which is an important component of the portfolio selection process. It helps to

select a set of scrip's, which provides the highest rate of return for the lowest risk that the

investor is willing to take.

Company ARR β α Ri-Rf ERTB RANK

BEML 7.3 0.937 -11.44 -0.7 -0.74707 11

Bank of

Maharashtra

34.03 0.942 15.19 26.03 27.6327 6

Century

textiles

5.72 1.619 -26.66 -2.28 -1.40828 12


Enginers

India

23.4 0.988 3.64 15.4 15.58704 8

Godrej

Consumer

products

20.54

0.441

11.72

12.54

28.43537

5

IDBI 27.46 1.505 -2.64 19.46 12.93023 9

IOB 14.24 1.211 -9.98 6.24 5.152766 10

IGL 33.33 0.617 20.99 25.33 41.05348 2

Jindal saw 0.99 1.093 -20.87 -7.01 -6.41354 13

Optocircuits -0.54 0.888 -18.3 -8.54 -9.61712 14

Thermax 37.32 0.803 21.26 29.32 36.51308 4

Titan 51.85 1.022 31.41 43.85 42.90607 1

Unionbank 35.42 1.102 13.38 27.42 24.88203 7

Welspuncorp 61.82 1.462 32.58 53.82 36.81259 3

Here in this portfolio first Average Rate of Returns of each stock are calculated for the past

five years with first finding their average price and then finding the dividend percentage and

then adding up the dividend as percentage of price to difference in the price compared to

previous year. Unsystematic risk based on the returns is calculated using the following

formula

α = Ri- βRm

Now after finding unsystematic risk, calculate the Excess returns to beta (ERTB) which tells

us risk premium per unit of risk. Based on this excess returns to beta the data is ranked the

stock with higher ERTB is given first rank and one with less ERTB is given last rank, after

assigning the ranks arrange the data in order of ranks given.

Company ARR β Unsystematic

risk

Ri-Rf ERTB RANK

Titan 51.85 1.022 31.41 43.85 42.90607 1

Indraprastha

Gas Ltd.

33.33 0.617 20.99 25.33 41.05348 2


Welspuncorp 61.82 1.462 32.58 53.82 36.81259 3

Thermax 37.32 0.803 21.26 29.32 36.51308 4

Godrejconsumer

products

20.54

0.441

11.72

12.54

28.43537

5

Bank of

Maharashtra

34.03 0.942 15.19 26.03 27.6327 6

Unionbank 35.42 1.102 13.38 27.42 24.88203 7

Enginers India 23.4 0.988 3.64 15.4 15.58704 8

Steps for finding the stocks to be included in the optimal portfolio are:

1. Find out the ―excess return to beta ratio for each stock under consideration.

2. Rank them from the highest to the lowest.

3. Proceed to calculate Ci for all stocks according to the ranked order

Sharpe’s Excess Return To Beta Ratio

It is a single number that measures the desirability of any stock to be included in the optimal

portfolio. The excess return to beta ratio measures the additional return on a security (excess

of the risk free asset return) per unit of systematic risk or non-diversifiable risk.

Excess return to beta = (Ri – RF) / βi

Where: Ri= expected return on stock i

Rf= return on risk free asset

βi= expected change in the rate of return on stock i associated with a 1% change in the

market return. Stocks are ranked by excess return to beta (from the highest to the lowest). The

higher the excess return to beta ratio, the more is the desirability of the stock to be included in

the portfolio.

Determination of Cut off Rate C*


σ2mΣ(Ri - Rf)β

σ2cj

Ci=Σ

1+σ2mΣβ

2/σ2cj

Where σ2m – variance in the market index

σ2cj– unsystematic risk

Ri – Expected return of the stock

Rf – Risk free return

Company Ri β σ2cj β

2 β2/σ2

cj (Ri-

Rf)β/σ2cj

Σ(Ri-

Rf)β/σ2cj

Σβ2/σ2

cj Ci


If we see in the above table only eight stocks has more that excess return to beta and for other

securities excess return to beta is less than Ci. So cut – off rate is fixed at 0.41924 and only

eight stocks are included in the portfolio.

Titan 51.85 1.022 31.41 1.044484 0.033253 1.426765 1.426765 0.033253 0.04276

Indraprastha

Gas Ltd.

33.33 0.617 20.99 0.380689 0.018137 0.744574 2.171339 0.05139 0.06504

Welspun 61.82 1.462 32.58 2.137444 0.065606 2.415127 4.586467 0.116996 0.137113

Thermax 37.32 0.803 21.26 0.644809 0.03033 1.10743 5.693896 0.147326 0.170065

Godrej 20.54 0.441 11.72 0.194481 0.016594 0.471855 6.165751 0.16392 0.184067

Bank of

Maharashtra

34.03 0.942 15.19 0.887364 0.058418 1.614237 7.779988 0.222337 0.231853

unionbank 35.42 1.102 13.38 1.214404 0.090763 2.258359 10.03835 0.3131 0.298348

Engineers

India

23.4 0.988 3.64 0.976144 0.268171 4.18 14.21835 0.581271 0.41924

IDBI 27.46 1.505 -2.64 2.265025 -0.85796 -11.0937 3.124673 -0.27669 0.094525

IOB 14.24 1.211 -9.98 1.466521 -0.14695 -0.75718 2.367495 -0.42364 0.071939


Determination of Optimal Portfolio

Once the securities to be included in the portfolio are decided, the next step is to determine

the weight of each security to be included in the portfolio as follows –

Wi = Zi/ ΣZj

Where, Zi= βi/σ2cj [(Ri – RF)/βi – C*]

In the above formula the second expression determines the relative investment in each

security. The first determines the weight of each security in the portfolio so that they sum to

one. This ensures full investment.

Company β/σ2cj Z Weight

Titan 0.032537 1.382411 0.095689

Indraprastha 0.029395 1.194442 0.082678

Welspun 0.044874 1.633121 0.113043

Thermax 0.03777 1.363281 0.094365

Godrej 0.037628 1.054191 0.07297

Bank of

Maharashtra

0.062014 1.687628 0.116816

Unionbank 0.082362 2.014798 0.139463

Enginers

India

0.271429 4.116976 0.284974

100.00%


Expected Returns On Portfolio And Beta Of Portfolio

Company Weight

Expected

Return

Portfolio

expected β Portfolio β

Titan 0.095689 0.20264 0.019391 0.36 0.034448

Indraprastha 0.082678 0.15404 0.012736 0.6 0.049607

Welspun 0.113043 0.25544 0.028876 0.7 0.07913

Thermax 0.094365 0.17636 0.016642 1.34 0.126449

Godrej 0.07297 0.13292 0.009699 1.23 0.089753

Bank of

Maharashtra 0.116816 0.19304 0.02255 0.36 0.042054

unionbank 0.139463 0.21224 0.0296 1.16 0.161777

Enginers

India 0.284974 0.19856 0.056584 1.27 0.361917

100.00% 19.61% 0.945136

The Expected returns on each stock of the portfolio are calculated by multiplying the Average

daily returns of the company with the weights or proportion of each stock to be included in

the portfolio. The Portfolio return is the sum of the average daily returns of each individual

stock. Here the portfolio return is 19.61% .The Beta of the portfolio is calculated by summing

up the product of the individual stock beta and their respective weights. The beta of the

portfolio is 0.945


COMPARISON OF RISK AND RETURN OF PORTFOLIO’S

Table showing performance of portfolio constructed based on price to earnings ratio

Measure

Value

Mean return

0.1920

Standard deviation

0.27821

Beta

0.94

Sharpe Ratio

0.4026

Treynor’s Ratio

0.1191

Jensens measure

0.0007

Interpretation of portfolio

• Portfolio constructedwas expected to give a return of 19.20%.

• Beta for this portfolio is exactly 0.94 which indicates the volatility of the portfolio is

below the market index

• Sharpe measure of portfolio is 0.4026 which indicates that the excess returns are the

results of the excess risk (standard deviation) which the investor can bear.

• Treynor‘s ratio of portfolio is 0.1191 which indicates that excess return of 0.1191

that of which could have been earned on a riskless investment per each unit of

market risk (Beta).


• Jensen‘s measure of portfolio has positive value which indicates that the portfolio has

beat the market.

Table showing performance of portfolio constructed using Sharpe optimization model.

Measure

Value

Mean return

0.3708

Standard deviation

0.2051

Beta

0.945

Sharpe Ratio

1.41

Treynor’s Ratio

0.3077

Jensens Measure

0.0027

Interpretation of portfolio

• Portfolio constructed using sharpes optimization model was expected to give a

return of 37.08%.

• Beta for this portfolio is exactly 0.945 which indicates the volatility of the portfolio is

below the market index

• Sharpe measure of portfolio is 1.41 which indicates that the excess returns are the

results of the excess risk (standard deviation) which the investor can bear.


• Treynor‘s ratio of Sharpes portfolio is 0.3077 which indicates that excess return of

0.3077 that of which could have been earned on a riskless investment per each unit

of market risk (Beta).

• Jensen‘s measure ofSharpes portfolio has positive value which indicates that the

portfolio has beat the market.

Table showing performance of two portfolios

Measure

Value

Value

Mean return

0.1920

0.3708

Standard deviation

0.27821

0.2051

Beta

0.94

0.945

Sharpe Ratio

0.4026

1.41

Treynor’s Ratio

0.1191

0.3077

Jensens measure

0.0007

0.0027

Interpretation of Portfolio constructed using Price to earnings ratio vs. Sharpe single

index model portfolio

• Portfolio constructed using Sharpe optimization model has higher return compare to

that of portfolio constructed using Price to earnings ratio

• The beta values of the portfolios are more or less similar to each other


• Sharpe ratio for portfolio constructed using Price to earnings ratio has been less than

the Sharpe portfolio which means that the Sharpe portfolio has given more positive

returns for every unit risk.

• Portfolio constructed as per Sharpe has higher Treynor‘s ratio compare to that of

Price to earnings ratio which indicates the returns earned in excess of that which

could have been earned on riskless investment per unit of market risk.

• Portfolio constructed as per Sharpe optimization portfolio has given excess return than

what was supposed to be earned , given it beta as per the capital asset pricing model

which is reflected by Jensen‘s alpha whereas portfolio constructed using Price to earnigs

ratio has given lesser return.

TEST FOR EQUALITY/DIFFERENCE OF MEAN OF PORTFOLIO

H0 : No difference in returns from the two portfolios.

H1 : Difference in returns from the two portfolios

Using the two sample t-test to test for difference in mean returns, the results were as

follows

Price to

earnins

n1 7 vriance 0.077404 mean 0.192014

Sharpes n2 8 variance 0.042067 mean 0.370881

t-value is 1.43


now we have to calculate degree of freedom using the following equation

df = (n1+n2-2)

Hence degree of freedom is two, now one has to look for table value that is at 10 per cent

for 13 degree of freedom table value is 1.35017

So my calculated value > table value

Hence null hypothesis Hois rejected, so it is found there is significant difference between the

portfolios constructed and hence there exists a risk return relation ship

Conclusion:

In general, a high Price to Earnings suggests that investors are expecting higher earnings

growth in the future compared to companies with a lower Price to Earnings. However, the

Price to Earnings ratio doesn't tell us the whole story by itself. It's usually more useful to

compare the Price to Earnings ratios of one company to other companies in the same

industry, to the market in general or against the company's own historical P/E. It would not

be useful for investors using the Price to Earnings ratio as a basis for their investmentas

each industry has much different growth prospects.


SUMMARY OF FINDINGS

• Portfolio constructed as per Sharpe optimization model has higher return compare

to that of portfolio constructed using price to earnings ratio.

• The beta values of the portfolios is more or less similar to each other

• Sharpe ratio for portfolio constructed using Price to Earnings ratio has been less than

the Sharpe portfolio which means that the Sharpe portfolio has given more positive

returns for every unit risk.

• Portfolio constructed as per Sharpe has higher Treynor‘s ratio compare to that of

Price to Earnings ratio which indicates the returns earned in excess of that which

could have been earned on riskless investment per unit of market risk.

• Portfolio constructed as per Sharpe optimization portfolio has given excess return

that what was supposed to be earned , given it beta as per the capital asset pricing

model which is reflected by Jensen‘s alpha whereas portfolio constructed using price

to earnings ratio has given lesser return.

• t-test at 95% confidence level shows that there is a significant difference between

the mean returns of the portfolio constructed by using Sharpe single index model

and Price to Earnings ratio


BIBILOGRAPHY

References:

Security Analysis and Portfolio Management by SUDHINDHRA BHAT

Websites:

www.unicon.in

www.moneycontrol.com

www.in.finance.yahoo.com

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