7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
1/115
Construction of Balanced Portfolio comprising of Equity and Debt
EXECUTIVE SUMMARY
Babasabpatilfreepptmba.com
1
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
2/115
Construction of Balanced Portfolio comprising of Equity and Debt
A stock market is a market for the trading of publicly held company stock and associated
financial instruments.
The stock market in India is very volatile and many investors are in a dilemma to invest in the
securities. Not surprisingly, recent market developments have once more focused attention on the
volatility that has come to characterise Indias stock markets. In volatile markets, domestic
speculators too attempt to manipulate markets in periods of unusually high prices.
Keeping in view the above observation about the Indian stock market, a project Construction of
Balanced Portfolio of Equity and Debt, with the problem statement being To test the
significance of excess return to beta and find out whether one can construct a portfolio whose
beta is equal to market beta (beta =1), with returns greater than market returns..
Ten sectors were picked randomly consisting of 6 companies I Cement and 4 Companies in each
sector. Also the 10 corporate bonds along with 5 govt. securities are taken. With the help of all,
the statistical measures were calculated and a TRI was constructed. Then again another portfolio
was constructed using a particular sector stocks and this portfolio was compared with the returns
on the index to look at the performance at different combinations.
The Project was carried out at SMC Solutions, stock broking firm situated in Hubli.
Analysis of cement sector and steel sector give an immense insight to invest in these these stocks.
The Report describes the analysis being carried out in project and results obtained.
At the las t , the portfo l io was constructed with h igher re turns than
index re turns with sys tematic r isk of 1
Babasabpatilfreepptmba.com
2
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
3/115
Construction of Balanced Portfolio comprising of Equity and Debt
THEORETICAL BACKGROUND
Babasabpatilfreepptmba.com
3
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
4/115
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
5/115
Construction of Balanced Portfolio comprising of Equity and Debt
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. 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.
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 ishighly favorable to the stock market.
The tax structure: Concessions and incentives given to a certain industry encourages
investment in that particular industry. Tax reliefs given to savings encourage savings.
The type of tax exemption has an impact on the profitability of the industries.
The Balance of payment: The balance of payment is the record of a countrys 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.
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.
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 labour and demand for products, affects the industry and
stock market.
Babasabpatilfreepptmba.com
5
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
6/115
Construction of Balanced Portfolio comprising of Equity and Debt
Industry analysis
Industry analysis is a type of business research that focuses on the status of an industry or an
industrial sector (a broad industry classification, like "manufacturing"). A complete industrialanalysis usually includes a review of an industry's recent performance, its current status, and the
outlook for the future. Many analyses include a combination of text and statistical data.
Five Forces Affecting Competitive Strategy
Porter identifies five forces that drive competition within an industry:
The threat of entry by new competitors.
The intensity of rivalry among existing competitors.
Pressure from substitute products.
The bargaining power of buyers.
The bargaining power of suppliers.
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: An embryonic industry environment
A growth industry environment
A shakeout industry environment
A mature industry environment
A declining industry environment
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:-
Babasabpatilfreepptmba.com
6
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
7/115
Construction of Balanced Portfolio comprising of Equity and Debt
Factors Share values
The competitive edge of the company:- The competitive edge of the company can be studied
with the help of:-
The market share
The growth of annual sales
The stability of annual sales
The market shares:- The market share of the annual sales helps to determine a companys
relative competitive position within the industry. If the market share is high the company would
be able to meet the competition successfully.
Growth of sales:- The company would be the leading company, but if the growth of sales is
comparatively lower than another company, it indicates the possibility of the company losing the
leadership. The rapid growth in sales would keep the shareholder in a better position than one
with a stagnant rapid growth.
Stability of sales: - If a firm has stable sales revenue, other things being remaining constant will
have more stable earnings. Wide variation in sales leads to variation incapacity utilization,
financial planning and dividend.
Earnings of the company:- Sales alone do not increase the sales the earnings but the costs and
expenses of the companyalso influence the earnings of the company. Further, earnings do
not always increase with the increase in sales. The companys sales might have increased but
its per share may decline due to the rise in costs.
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
Babasabpatilfreepptmba.com
Competitive edge
Earnings
Capital structure
Management
Operating efficiency
Financial performance
Historic price of stock
P/E ratio
Economic condition
Stock market condition
Present priceFuture price
7
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
8/115
Construction of Balanced Portfolio comprising of Equity and Debt
leverage is measured by computing leverage ratios. The debt ratio indicates the positions of long
term and short terms debts in the company finance. The debt may be in the form of debentures
and term loans from financial institutions.
Management: - Good and capable management generates profit to the investors. Themanagement 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. The good management
depends on the quality of the manager.
The following are special traits of an able manager:-
Ability to get along with people
Leadership
Analytical competence
Industry
Judgment
Ability to get things done
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-evenpoint 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.
Financial analysis:- the best source of financial information about a company is itsown financial
statements. This is a primary source of information for evaluating the investments prospect in theparticular companys stock. Financial statement analysis is the study of a companys financial
statement from various viewpoints. The statement gives the historical and current information
about the companys operations. Historical financial statements help to predict the future. The
current information aids to analyse the present status of the company. The two main statements
used in analysis are:-
Balance sheet
Profit and loss account
Babasabpatilfreepptmba.com
8
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
9/115
Construction of Balanced Portfolio comprising of Equity and Debt
Debt valuation techniques and concepts
In their simplest form bonds are pretty straightforward. After all, just about anybody cancomprehend the borrowing and lending of money. However, like many securities, bonds involve
some more complicated underlying concepts as they are traded and analyzed in the market.
Bond Pricing
It is important for prospective bond buyers to know how to determine the price of a bond because
it will indicate the yield received should the bond be purchased. Bonds can be priced at a
premium, discount, or at par. If the bonds price is higher than its par value, it would sell at a
premium because its interest rate is higher than current prevailing rates. If the bonds price is
lower than its par value, the bond would sell at a discount because its interest rate is lower than
current prevailing.
Bondholder's Expected Rate of Return (Yield to Maturity)
The bondholder's expected rate of return is the rate the investor will earn if the bond is held to
maturity, provided, of course, that the company issuing the bond does not default on the
payments.
Computing Yield-to-Maturity on a Bond (YTM)
( )
( )
++
+
=n
n
rI
r
rCMP
1
11
11
Solving the equation for r gives the YTM.
1) If the investor's required return is greater than the YTM, the investor should not buy the bond
2) If the investor's required return is less than the YTM, the investor should buy the bond
Three Important Relationships
First relationship
A decrease in interest rates (required rates of return) will cause the value of a bond to increase; an
interest rate increase will cause a decrease in value. The change in value caused by changing
interest rates is called interest rate risk.
Babasabpatilfreepptmba.com
9
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
10/115
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
11/115
Construction of Balanced Portfolio comprising of Equity and Debt
long in years it takes for the price of a bond to be repaid by its internal cash flows. It is an
important measure for investors to consider, as bonds with higher durations are more risky and
have higher price volatility than bonds with lower durations.
Factors affecting Duration
Besides the movement of time and the payment of coupons, there are other factors that affect a
bond's duration: the coupon rate and its yield. Bonds with high coupon rates and in turn high
yields will tend to have lower durations than bonds that pay low coupon rates, or offer a low
yield. This makes empirical sense, since when a bond pays a higher coupon rate, or has a high
yield, the holder of the security receives repayment for the security at a faster rate. The diagram
below summarizes how duration changes with coupon rate and yield.
Types of Duration
There are four main types of duration calculations, each of which differ in the way they account
for factors such as interest rate changes and the bond's embedded options or redemption features.
The four types of durations are Macaulay duration, modified duration, effective duration, and
key-rate duration.
Macaulay Duration
Macaulay duration is calculated by adding the results of multiplying the present value of each
cash flow by the time it is received, and dividing by the total price of the security. The formula
for Macaulay duration is as follows:
P
i
Mn
i
ct
DurMac
n
t
nt +
++
=1 )1(
*
)1(
*
Babasabpatilfreepptmba.com
11
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
12/115
Construction of Balanced Portfolio comprising of Equity and Debt
n = number of cash flows
t = time to maturity
C = cash flow
i = required yieldM = maturity (par) value
P = bond price
( )
( )
+
+
+
=n
n
r
Ir
rCMP
1
11
11
.
So the following is an expanded version of Macaulay duration:
n
n
n
t
nn
i
M
i
iC
i
Mn
i
ct
DurMac
)1(
)1(
1
1*
)1(
*
)1(
*
1
++
+
++
+=
Modified Duration
Modified duration is a modified version of the Macaulay model that accounts for changing
interest rates. Because they affect yield, fluctuating interest rates will affect duration, so this
modified formula shows how much the duration changes for each percentage change in yield. For
bonds without any embedded features, bond price and interest rate move in opposite directions, so
there is an inverse relationship between modified duration and an approximate one-percentage
change in yield. Because the modified duration formula shows how a bond's duration changes in
relation to interest rate movements, the formula is appropriate for investors wishing to measure
the volatility of a particular bond. Modified duration is calculated as the following:
Babasabpatilfreepptmba.com
12
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
13/115
Construction of Balanced Portfolio comprising of Equity and Debt
+
=
PeriodsCpnofNo
YTM
rartionmacaulayduDuratonModified
1
.
Total Return Index
Nifty is a price index and hence reflects the returns one would earn if investment is made in the ind
portfolio. However, a price index does not consider the returns arising from dividend receipts. Only capit
gains arising due to price movements of constituent stocks are indicated in a price index. Therefore, to get
true picture of returns, the dividends received from the constituent stocks also need to be factored in t
index values. Such an index, which includes the dividends received, is called the Total Returns Index.
Total Returns Index reflects the returns on the index arising from (a) constituent stock price movemen
and (b) dividend receipts from constituent index stocks.
Methodology for Total Returns Index (TR) is as follows:
The following information is a prerequisite for calculation of TR Index:
1. Price Index close
2. Price Index returns
3. Dividend payouts in Rupees
4. Index Base capitalisation on ex-dividend date
Dividend payouts as they occur are indexed on ex-date.
1000)(
)(=
rsndexBaseCapofi
rsyoutDividendPaidendIndexedDiv
Indexed dividends are then reinvested in the index to give TR Index.
Total Return Index = [Prev. TR Index + (Prev. TR Index * Index returns)] +
[Indexed dividends + (Indexed dividends * Index returns)]
The base for both the Price index close and TR index close will be the same.
Babasabpatilfreepptmba.com
13
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
14/115
Construction of Balanced Portfolio comprising of Equity and Debt
An investor in index stocks should benchmark his investments against the Total Returns index
instead of the price index to determine the actual returns vis--vis the index.
Operational Definitions
Bond: A debt instrument sold by a company or government to raise money. One who buys a
bond is a creditor of the company, but not an owner, as a stockholder would be.
Par: The value of a bond assigned by the issuer; also called face value.
Original issue discount: A bond with an offering price that is below par value.
Coupon: A bond's interest rate.
Premium: The amount by which a security sells above its par value.
Maturity: The length of time before the principal amount of a bond is due to the bondholders. It
is the time until a bond may be surrendered to its issuer, called as term-to-maturity.
Maturity date: The date on which a bond is to be redeemed and its principal and interest
returned to the owner.
Callability: The feature of some bonds whereby the issuer can redeem it before it matures.
Issuers often call their bonds when interest rates are falling and they want to replace high-yielding
bonds with lower-yielding bonds. Call provisions must be made clear before a bond is sold. A
bond with this feature is a callable bond.
Debenture: A bond backed by the issuer's general credit and ability to repay and not by an asset
or collateral.
Investment-grade: A classification of the ability of a bond issuer to repay a bond.
Babasabpatilfreepptmba.com
14
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
15/115
Construction of Balanced Portfolio comprising of Equity and Debt
Discount bond: A bond that sells at a discounted value of its face value. If a bond has a Rs 1000
par value but sells for Rs 900, it is "sold at a discount" of Rs100. Adverse market conditions and
reductions in interest rates can convince sellers to discount the bonds they sell.
Premium bond: A bond selling for more than its stated value. If a bond is Rs1000 par but sells
for Rs1100, it is "sold at a premium" of Rs100. Market conditions and increases in interest rates
can convince sellers to raise the prices of the bonds they sell.
Yield: The rate of return on an investment, described as a percentage of the amount of the
investment. For example, a bond purchased for Rs1,000 with a 7% yield would pay out 7% of
Rs1,000, or Rs70.
Yield to maturity: The fully compounded annual rate of return paid out over a bond's life, from
purchase date to maturity, including appreciation/depreciation and earnings. It is the most
comprehensive measure of yield.
Accrued interest: The interest that has been accumulating on a bond since the last time interest
was paid on it.
Current yield: The expected rate of return calculated by dividing the most recent annualized
distribution by the selling price. For example, a Rs.2,000 par bond that pays Rs140 but is bought
for Rs1600 has a current yield of 8 3/4 percent. The formula for deriving current yield is annual
income divided by current price.
Coupon rate: The interest as a percent of par paid by a bond. It is called a coupon rate because
historically bonds included attached coupons that were clipped and surrendered for cash. Today,
most bonds come without the attached coupons.
Duration: The change in value of a bond (expressed in years) caused by a change in the
prevailing interest rates.
Floating-interest rate: A variable interest rate, one that changes periodically.
Babasabpatilfreepptmba.com
15
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
16/115
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
17/115
Construction of Balanced Portfolio comprising of Equity and Debt
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 condition 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 attributable to an investment asset.
Terminal value: Terminal value refers to the value of the firm (or equity) at the end of the high
growth period. Terminal Value in year n= Cash Flow in year n+1/(r - g) .This approach requires
the assumption that growth is constant forever, and that the cost of capital will not change over
time.
Total Return Index: Anindex that calculates the performance of a group of stocks assuming that
all dividends and distributions are reinvested. This method is usually considered a more accurate
measure of actual performance than if dividends and distributions were ignored.
Beta: Statistically, beta is the measure of systematic risk in the CAPM and is the ratio of two co
variances: the individual security divided by a proxy for the market as a whole or the so-called
market portfolio. The beta factor is the expected change in the security's rate of return divided by
the accompanying change in the rate of return to the market portfolio.
Babasabpatilfreepptmba.com
17
http://www.investorwords.com/2426/index.htmlhttp://www.investorwords.com/2426/index.htmlhttp://www.investorwords.com/2426/index.html7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
18/115
Construction of Balanced Portfolio comprising of Equity and Debt
DESIGN OF THE STUDY
Babasabpatilfreepptmba.com
18
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
19/115
Construction of Balanced Portfolio comprising of Equity and Debt
Title :
Construction of Balanced Portfolio comprising of Equity and Debt
Statement of Problem:
To test the significance of excess return to beta and find out whether one can construct a portfolio
whose beta is equal to market beta (beta =1), with returns greater than market returns.
Objectives of the research:
To analyze the performance of the shares of cos in the steel and cement sector in
Indian stock market in light of the growth in infrastructure in India.
To study the factors influencing the share price of the company.
To analyze the companies based on Fundamental Analysis and TRI model
To construct a Portfolio (Balanced Fund) of Equities and Debt. The construction
would be based on Fundamental Analysis Model.
Research Methodology
Type of research
The study is a descriptive research, describing the construction of portfolios.
Tools for data collection:
The study involves collection of data from secondary sources and collected from internet,
magazines, news paper, and research reports.
Sampling:
Type of sampling:Non-probabilistic judgment sampling.
Sample size: Four stocks from the steel sector and six stocks from the cement sector; 10
companys Corporate debt; ten Government securities; and 364 day-T-bills
Babasabpatilfreepptmba.com
19
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
20/115
Construction of Balanced Portfolio comprising of Equity and Debt
Plan Of Analysis
After collecting financial data related to the entities, i.e. the sample selected from the selected
sectors, the various valuation ratios and other financial calculations which will help in thecompany valuation will be calculated. A portfolio will be constructed on the basis of fundamental
analysis and on the basis of risk-return analysis with different combinations of debt and equity to
maximize the returns and minimize the risk (beta).
Limitations of the Study
The study was confined only to the selected sectors.
The study was more confined with secondary data.
The study assumes no changes in the tax rates in the country.
As the scope is defined by the researcher, it restricts the number of variables which
influence the industry.
Sales growth were assumed on the basis of change in sales of yr 2007 and 2006
Babasabpatilfreepptmba.com
20
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
21/115
Construction of Balanced Portfolio comprising of Equity and Debt
EIC ANALYSIS
ECONOMY ANALYSIS
Babasabpatilfreepptmba.com
21
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
22/115
Construction of Balanced Portfolio comprising of Equity and Debt
Economic growth includes a raft of supply side policies that have helped to increase
competitiveness and productivity. For example financial markets have become more
deregulated, allowing more flexible loans. These have helped to increase investment
which has led to increased capacity and competitiveness. There has also been increasedfocus put on training and education of at least part of the population. Despite the rapid
economic growth so far the Indian economy has managed to maintain relatively stable
prices, with inflationary pressures remaining subdued.
The success of the Indian economy shares several parallels with the Chinese economy. Like
China the Indian economy has a plentiful supply of cheap labour. This has enabled low labour
costs for firms which have made them particularly competitive in labour intensive industries. This
has often been at the expense of Western manufacturing sectors. For example recently Dysons
announced it would switch production of vacuum cleaners from the UK to Indian where labour
costs are cheaper.
The Indian economy has also benefited from the process of globalisation and improved
technology. A good example of this is in call centres, which benefit from the low labour costs.
Due to the internet and cheap telephone calls many Western companies have found it profitable to
switch their call centres to places in India where labour costs are significantly lower. India is at aparticular advantage for this growing market because compared to other developing countries
English is spoken to a reasonable standard by a high share of the population. The Indian economy
has also been able to diversify from its primarily agricultural roots. Mumbai has emerged as one
of the leading financial centres in Asia. India is also increasingly benefiting from foreign
investment into a variety of industries.
Strengths of Indian Economy.
After several decades of sluggish growth the Indian economy is now amongst the fastest growing
economy in the world. Economic growth is currently 8-9%, second only to China.
Babasabpatilfreepptmba.com
22
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
23/115
Construction of Balanced Portfolio comprising of Equity and Debt
Despite several problems facing the Indian economy many economists point to potential strengths
of the Indian economy which could enable it to continue to benefit from high levels of economic
growth in the future.
1. Demographics of India are favourable.
India still has a positive birth rate meaning that the size of the workforce will continue to
grow for the foreseeable future. (unlike India) A rising workforce helps to increase saving and
investment. It also enables increased productivity.
2. There is much scope for increases in efficiency.
The infrastructure of India is so bad in places that even moderate improvements could lead to
significant improvements in the productive capacity of the economy.
3. India is well placed to benefit from globalization and outsourcing.
A legacy of the British Empire is that India has one of the largest English speaking
populations in the world. For labour intensive industries like call centres India is an obvioustarget for outsourcing. This is an economic development likely to continue in the future.
4. Positive Growth Forecasts
A recent study from Goldman Sachs, forecast that India could growth at a sustainable rate of
8% growth until 2020.However it is worth noting that this assumed Indian would make
several supply side policies such as labour market deregulation and improvements in
education and training.
Babasabpatilfreepptmba.com
23
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
24/115
Construction of Balanced Portfolio comprising of Equity and Debt
Problems Facing Indian Economy
1. Inflation.
Fuelled by rising wages, property prices and food prices inflation in India is an increasing
problem. Inflation is currently between 6-7%. A record 98% of Indian firms report operating
close to full capacity .With economic growth of 9.2% per annum inflationary pressures are likely
to increase, especially with supply side constraints such as infrastructure. The wholesale-price
index (WPI), rose to an annualized 6.6% in Janu 2007
2. Poor educational standards.
Although India has benefited from a high % of English speakers. (important for call centre
industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas
and amongst women. Over 50% of Indian women are illiterate
3. Poor Infrastructure.
Many Indians lack basic amenities lack access to running water. Indian public services are
creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it
reaches the market; this is one example of the supply constraints and inefficiencys facing the
Indian economy.
4. Balance of Payments deterioration.
Although India has built up large amounts of foreign currency reserves the current account deficit
has deteriorate in recent months. This deterioration is a result of the overheating of the economy.
Aggregate Supply cannot meet Aggregate demand so consumers are sucking in imports.
Excluding workers remittances Indias current account deficit is approaching 5% of GD
5. High levels of debt.
Buoyed by a property boom the amount of lending in India has grown by 30% in the past year.
However there are concerns about the risk of such loans. If they are dependent on rising property
prices it could be problematic. Furthermore if inflation increases further it may force the RBI to
Babasabpatilfreepptmba.com
24
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
25/115
Construction of Balanced Portfolio comprising of Equity and Debt
increase interest rates. If interest rates rise substantially it will leave those indebted facing rising
interest payments and potentially reducing consumer spending in the future
6. Inequality has risen rather than decreased.
It is hoped that economic growth would help drag the Indian poor above the poverty line.
However so far economic growth has been highly uneven benefiting the skilled and wealthy
disproportionately. Many of Indias rural poor are yet to receive any tangible benefit from the
Indias economic growth. More than 78 million homes do not have electricity. 33% (268million)
of the population live on less than $1 per day. Furthermore with the spread of television in Indian
villages the poor are increasingly aware of the disparity between rich and poor.
7. Large Budget Deficit.
India has one of the largest budget deficits in the developing world. Excluding subsidies it
amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little
scope for increasing investment in public services like health and education.
8. Rigid labour Laws.
As an example Firms employing more than 100 people cannot fire workers without government
permission. The effect of this is to discourage firms from expanding to over 100 people. It also
discourages foreign investment. Trades Unions have an important political power base and
governments often shy away from tackling potentially politically sensitive labour laws.
CURRENT STATE OF AN INDIAN ECONOMY
The economy ofIndia, when measured in USDexchange-rate terms, is the tenth largest in the
world, with a GDP of US $1.50 trillion (2008). It is the third largest in terms ofpurchasing power
parity. India is the second fastest growing major economy in the world, with a GDP growth rate
of 9.4% for the fiscal year 20062007. However, India's huge population has a per capita income
of $4,542 at PPP and $1,089 in nominal terms (revised 2007 estimate). The World Bankclassifies
India as a low-income economy.
Babasabpatilfreepptmba.com
25
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Economic_growthhttp://en.wikipedia.org/wiki/Population_of_Indiahttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/World_Bankhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Economic_growthhttp://en.wikipedia.org/wiki/Population_of_Indiahttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/World_Bank7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
26/115
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
27/115
Construction of Balanced Portfolio comprising of Equity and Debt
expenditure, administrative expenditure, subsidies, debt relief to farmers,postaldeficit,pensions,
social and economic services (education, health, agriculture, science and technology), grants to
states and union territories and foreign governments.
Headquarters of India's central bank, the Reserve Bank of India, in Mumbai (It's the tall building
in the background. The building in the foreground is the Asiatic Library)
India's non-development revenue expenditure has increased nearly fivefold in 200304 since
199091 and more than tenfold since 19851986. Interest payments are the single largest item of
expenditure and accounted for more than 40% of the total non development expenditure in the
200304 budget. Defence expenditure increased fourfold during the same period and has been
increasing due to growing tensions in the region, the expensive dispute with Pakistan overJammu
and Kashmirand an effort to modernise the military. Administrative expenses are compounded
by a large salary andpensionbill, which rises periodically due to revisions in wages, dearness
allowance etc. subsidies on food, fertilizers, education and petroleum and other merit and non-
merit subsidies account are not only continuously rising, especially because of rising crude oil
and food prices, but are also harder to rein in, because of political compulsions.
Public receipts
India has a three-tier tax structure, wherein the constitution empowers the union government to
levy income tax, tax on capital transactions (wealth tax, inheritance tax), sales tax, service tax,
customs and excise duties and the state governments to levy sales tax on intrastate sale of goods,
tax on entertainment andprofessions, excise duties on manufacture of alcohol, stamp duties on
transfer of property and collect land revenue (levy on land owned). The local governments are
empowered by the state government to levy property tax, Octroi and charge users for public
utilities like water supply, sewage etc. More than half of the revenues of the union and state
governments come from taxes, of which half come from Indirect taxes. More than a quarter of the
union government's tax revenues is shared with the state governments.
Babasabpatilfreepptmba.com
27
http://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Mailhttp://en.wikipedia.org/wiki/Deficithttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/w/index.php?title=Asiatic_Library&action=edit&redlink=1http://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Jammu_and_Kashmirhttp://en.wikipedia.org/wiki/Jammu_and_Kashmirhttp://en.wikipedia.org/wiki/Salaryhttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Dearness_allowancehttp://en.wikipedia.org/wiki/Dearness_allowancehttp://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Fertilizershttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Constitution_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Wealth_taxhttp://en.wikipedia.org/wiki/Inheritance_taxhttp://en.wikipedia.org/wiki/Sales_taxhttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/Excisehttp://en.wikipedia.org/wiki/States_and_territories_of_Indiahttp://en.wikipedia.org/wiki/Entertainment_taxhttp://en.wikipedia.org/wiki/Professionhttp://en.wikipedia.org/wiki/Alcoholic_beveragehttp://en.wikipedia.org/wiki/Stamp_dutyhttp://en.wikipedia.org/wiki/Local_governmentshttp://en.wikipedia.org/wiki/Property_taxhttp://en.wikipedia.org/wiki/Octroihttp://en.wikipedia.org/wiki/Public_utilitieshttp://en.wikipedia.org/wiki/Public_utilitieshttp://en.wikipedia.org/wiki/Water_supplyhttp://en.wikipedia.org/wiki/Sewagehttp://en.wikipedia.org/wiki/Indirect_taxeshttp://en.wikipedia.org/wiki/Image:Mumbai_India_.jpghttp://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Mailhttp://en.wikipedia.org/wiki/Deficithttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/w/index.php?title=Asiatic_Library&action=edit&redlink=1http://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Jammu_and_Kashmirhttp://en.wikipedia.org/wiki/Jammu_and_Kashmirhttp://en.wikipedia.org/wiki/Salaryhttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Dearness_allowancehttp://en.wikipedia.org/wiki/Dearness_allowancehttp://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Fertilizershttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Constitution_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Wealth_taxhttp://en.wikipedia.org/wiki/Inheritance_taxhttp://en.wikipedia.org/wiki/Sales_taxhttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/Excisehttp://en.wikipedia.org/wiki/States_and_territories_of_Indiahttp://en.wikipedia.org/wiki/Entertainment_taxhttp://en.wikipedia.org/wiki/Professionhttp://en.wikipedia.org/wiki/Alcoholic_beveragehttp://en.wikipedia.org/wiki/Stamp_dutyhttp://en.wikipedia.org/wiki/Local_governmentshttp://en.wikipedia.org/wiki/Property_taxhttp://en.wikipedia.org/wiki/Octroihttp://en.wikipedia.org/wiki/Public_utilitieshttp://en.wikipedia.org/wiki/Public_utilitieshttp://en.wikipedia.org/wiki/Water_supplyhttp://en.wikipedia.org/wiki/Sewagehttp://en.wikipedia.org/wiki/Indirect_taxes7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
28/115
Construction of Balanced Portfolio comprising of Equity and Debt
The tax reforms, initiated in 1991, have sought to rationalise the tax structure and increase
compliance by taking steps in the following directions:
Reducing the rates of individual and corporate income taxes, excises, customs and making
it more progressive
Reducing exemptions and concessions
Simplification of laws and procedures
Introduction ofPermanent account numberto track monetary transactions
21 of the 29 states introduced Value added tax (VAT) on April 1, 2005 to replace the
complex and multiple sales tax system.
The non-tax revenues of the central government come from fiscal services, interest receipts,
public sector dividends, etc., while the non-tax revenues of the States are grants from the central
government, interest receipts, dividends and income from general, economic and social services.
General budget
The Finance minister of India presents the annual union budget in the Parliament on the last
working day of February. The budget has to be passed by the Lok Sabha before it can come into
effect on April 1, the start of India's fiscal year. The Union budget is preceded by an economic
survey which outlines the broad direction of the budget and the economic performance of the
country for the outgoing financial year. This economic survey involves all the various NGOs,
women organizations, business people, old people associations etc.
Labour
The large population puts further pressure on infrastructure and social services. A positive factor
has been the large working-age population, which forms 45.33% of the population and is
expected to increase substantially, because of the decreasing dependency ratio. The national
labour market has been tightly regulated by successive governments ever since the Workmen's
Compensation Act was passed in 1923.
Babasabpatilfreepptmba.com
28
http://en.wikipedia.org/wiki/Permanent_account_numberhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/April_1http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/Fiscalhttp://en.wikipedia.org/wiki/Finance_minister_of_Indiahttp://en.wikipedia.org/wiki/Union_budget_of_Indiahttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/Working_dayhttp://en.wikipedia.org/wiki/Lok_Sabhahttp://en.wikipedia.org/wiki/April_1http://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Economic_survey_of_Indiahttp://en.wikipedia.org/wiki/Economic_survey_of_Indiahttp://en.wikipedia.org/wiki/Dependency_ratiohttp://en.wikipedia.org/wiki/Permanent_account_numberhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/April_1http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/Fiscalhttp://en.wikipedia.org/wiki/Finance_minister_of_Indiahttp://en.wikipedia.org/wiki/Union_budget_of_Indiahttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/Working_dayhttp://en.wikipedia.org/wiki/Lok_Sabhahttp://en.wikipedia.org/wiki/April_1http://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Economic_survey_of_Indiahttp://en.wikipedia.org/wiki/Economic_survey_of_Indiahttp://en.wikipedia.org/wiki/Dependency_ratio7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
29/115
Construction of Balanced Portfolio comprising of Equity and Debt
Natural resources
India's total cultivable area is 1,269,219 km (56.78% of total land area), which is decreasing due
to constant pressure from an ever growing population and increased urbanisation.
India has a total water surface area of 314,400 km and receives an average annual rainfall of
1,100 mm.Irrigation accounts for 92% of the water utilisation, and comprised 380 km in 1974,
and is expected to rise to 1,050 km by 2025, with the balance accounted for by industrial and
domestic consumers. India's inland water resources comprising rivers, canals, ponds and lakes
and marine resources comprising the east and west coasts of the Indian ocean and othergulfs and
bays provide employment to nearly 6 million people in the fisheries sector. India is the sixth
largest producer of fish in the world and second largest in inland fish production.
India's major mineral resources include Coal (fourth-largest reserves in the world), Iron ore,
Manganese, Mica, Bauxite, Titanium ore, Chromite, Natural gas, Diamonds, Petroleum,
Limestone and Thorium (world's largest along Kerala's shores). India's oil reserves, found in
Bombay High off the coast of Maharashtra, Gujarat, and in eastern Assam meet 25% of the
country's demand.
Rising energy demand concomitant with economic growth has created a perpetual state of energy
crunch in India. India is poor in oil resources and is currently heavily dependent on coal and
foreign oil imports for its energy needs. Though India is rich in Thorium, but not in Uranium,
which it might get access to if a nuclear deal with US comes to fruition. India is rich in certain
energy resources which promise significant future potential - clean / renewable energy resources
like solar,wind, biofuels (jatropha, sugarcane).
Physical infrastructure
Mumbai Airport
Babasabpatilfreepptmba.com
29
http://en.wikipedia.org/wiki/Square_kilometrehttp://en.wikipedia.org/wiki/Millimetrehttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Indian_oceanhttp://en.wikipedia.org/wiki/Headlands_and_bayshttp://en.wikipedia.org/wiki/Bayhttp://en.wikipedia.org/wiki/Fisherieshttp://en.wikipedia.org/wiki/Mineralhttp://en.wikipedia.org/wiki/Coalhttp://en.wikipedia.org/wiki/Ironhttp://en.wikipedia.org/wiki/Manganesehttp://en.wikipedia.org/wiki/Micahttp://en.wikipedia.org/wiki/Bauxitehttp://en.wikipedia.org/wiki/Titaniumhttp://en.wikipedia.org/wiki/Chromitehttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Diamondhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Limestonehttp://en.wikipedia.org/wiki/Thoriumhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/Oil_reserveshttp://en.wikipedia.org/wiki/Bombay_Highhttp://en.wikipedia.org/wiki/Maharashtrahttp://en.wikipedia.org/wiki/Gujarathttp://en.wikipedia.org/wiki/Assamhttp://en.wikipedia.org/wiki/Thoriumhttp://en.wikipedia.org/wiki/Uraniumhttp://en.wikipedia.org/wiki/Solar_power_in_Indiahttp://en.wikipedia.org/wiki/Wind_power_in_Indiahttp://en.wikipedia.org/wiki/Mumbai_Airporthttp://en.wikipedia.org/wiki/Image:Mumbai_Airport.jpghttp://en.wikipedia.org/wiki/Square_kilometrehttp://en.wikipedia.org/wiki/Millimetrehttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Indian_oceanhttp://en.wikipedia.org/wiki/Headlands_and_bayshttp://en.wikipedia.org/wiki/Bayhttp://en.wikipedia.org/wiki/Fisherieshttp://en.wikipedia.org/wiki/Mineralhttp://en.wikipedia.org/wiki/Coalhttp://en.wikipedia.org/wiki/Ironhttp://en.wikipedia.org/wiki/Manganesehttp://en.wikipedia.org/wiki/Micahttp://en.wikipedia.org/wiki/Bauxitehttp://en.wikipedia.org/wiki/Titaniumhttp://en.wikipedia.org/wiki/Chromitehttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Diamondhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Limestonehttp://en.wikipedia.org/wiki/Thoriumhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/Oil_reserveshttp://en.wikipedia.org/wiki/Bombay_Highhttp://en.wikipedia.org/wiki/Maharashtrahttp://en.wikipedia.org/wiki/Gujarathttp://en.wikipedia.org/wiki/Assamhttp://en.wikipedia.org/wiki/Thoriumhttp://en.wikipedia.org/wiki/Uraniumhttp://en.wikipedia.org/wiki/Solar_power_in_Indiahttp://en.wikipedia.org/wiki/Wind_power_in_Indiahttp://en.wikipedia.org/wiki/Mumbai_Airport7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
30/115
Construction of Balanced Portfolio comprising of Equity and Debt
Development of infrastructure was completely in the hands of the public sector and was plagued
by corruption, bureaucratic inefficiencies, urban-bias and an inability to scale investment.
Infosys Software Development Center in Pune.
India's low spending on power, construction, transportation, telecommunications and real estate,
at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates.
This had prompted the government to partially open up infrastructure to the private sector
allowing foreign investment which has helped in a sustained growth rate of close to 9% for the
past six quarters. India holds second position in the world in roadways' construction, more than
twice that of China. As of 2005 the electricity production was at 661.6 billion kWh with oilproduction standing at 785,000 bbl/day. India's prime import partners are : China 8.7%, US 6%,
Germany 4.6%, Singapore 4.6%, Australia 4% as of 2006 CIA FactBookAs of15 January2007,
there were 2.10 million broadband lines in India. Low tele-density is the major hurdle for slow
pickup in broadband services. Over 76% of the broadband lines were via DSL and the rest via
cable modems.
Financial institutions
Babasabpatilfreepptmba.com
30
http://en.wikipedia.org/wiki/Real_estatehttps://www.cia.gov/library/publications/the-world-factbook/print/in.htmlhttp://en.wikipedia.org/wiki/January_15http://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/Image:BangaloreInfosys.jpghttp://en.wikipedia.org/wiki/Image:Infosys_Pune.jpghttp://en.wikipedia.org/wiki/Real_estatehttps://www.cia.gov/library/publications/the-world-factbook/print/in.htmlhttp://en.wikipedia.org/wiki/January_15http://en.wikipedia.org/wiki/20077/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
31/115
Construction of Balanced Portfolio comprising of Equity and Debt
India has set up Special Economic Zones and software parks that offer tax benefits and better
infrastructure to set up business. Pictured here is the Infosys headquarters in Bangalore, one of
the largest software companies in India.
India inherited several institutions, such as the civil services, Reserve Bank of India, railways,
etc., from its British rulers. Mumbai serves as the nation's commercial capital, with the Reserve
Bank of India (RBI), Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE)
located here. The headquarters of many financial institutions are also located in the city.
Cyber Greens Office Complex. Containing offices like ABN Amro, Microsoft.
The RBI, the country's central bankwas established on 1 April 1935. It serves as the nation's
monetary authority, regulator and supervisor of the financial system, manager of exchange
control and as an issuer of currency. The RBI is governed by a central board, headed by a
governor who is appointed by the Central government of India.
Cuffe Parade is an important business district in Mumbai, home to the World Trade Center as
well as other important financial institutions
The BSE Sensex or the BSE Sensitive Index is a value-weighted index composed of 30
companies with April 1979 as the base year (100). These companies have the largest and most
actively traded stocks and are representative of various sectors, on the Exchange. They account
Babasabpatilfreepptmba.com
31
http://en.wikipedia.org/wiki/Special_Economic_Zonehttp://en.wikipedia.org/wiki/Infosyshttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Indian_Civil_Servicehttp://en.wikipedia.org/wiki/British_rajhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/April_1http://en.wikipedia.org/wiki/1935http://en.wikipedia.org/wiki/Cuffe_Paradehttp://en.wikipedia.org/wiki/BSE_Sensexhttp://en.wikipedia.org/wiki/Image:Mumbai_Downtown.jpghttp://en.wikipedia.org/wiki/Image:Cyber_Greens.jpghttp://en.wikipedia.org/wiki/Special_Economic_Zonehttp://en.wikipedia.org/wiki/Infosyshttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Indian_Civil_Servicehttp://en.wikipedia.org/wiki/British_rajhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/April_1http://en.wikipedia.org/wiki/1935http://en.wikipedia.org/wiki/Cuffe_Paradehttp://en.wikipedia.org/wiki/BSE_Sensex7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
32/115
Construction of Balanced Portfolio comprising of Equity and Debt
for around one-fifth of the market capitalisation of the BSE. The Sensex is generally regarded as
the most popular and precise barometer of the Indian stock markets. Incorporated in 1992, the
National Stock Exchange is one of the largest and most advanced stock markets in India. The
NSE is the world's third largest stock exchange in terms of transactions. There are a total of 23stock exchanges in India, but the BSE and NSE comprise 83% of the volumes.The Securities and
Exchange Board of India (SEBI), established in 1992, regulates the stock markets and other
securities markets of the country.
SECTORS
Agriculture
Composition of India's total production (million tonnes) of foodgrains and commercial crops, in
200304. India ranks second worldwide in farm output. Agriculture and allied sectors like
forestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total
workforce[4] and despite a steady decline of its share in the GDP, is still the largest economic
sector and plays a significant role in the overall socio-economic development of India. Yields per
unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in
the five-year plans and steady improvements in irrigation, technology, application of modernagricultural practices and provision of agricultural credit and subsidies since Green revolution in
India. However, international comparisons reveal that the average yield in India is generally 30%
to 50% of the highest average yield in the world.
The low productivity in India is a result of the following factors:
Illiteracy, general socio-economic backwardness, slow progress in implementing land
reforms and inadequate or inefficient finance and marketing services for farm produce.
The average size of land holdings is very small (less than 20,000 m) and is subject to
fragmentation, due to land ceiling acts and in some cases, family disputes. Such small
holdings are often over-manned, resulting in disguised unemployment and low productivity of
labour.
Adoption of modern agricultural practices and use of technology is inadequate, hampered
by ignorance of such practices, high costs and impracticality in the case of small land
holdings.
Babasabpatilfreepptmba.com
32
http://en.wikipedia.org/wiki/Barometerhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Board_of_Indiahttp://en.wikipedia.org/wiki/Securities_and_Exchange_Board_of_Indiahttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Forestryhttp://en.wikipedia.org/wiki/Logginghttp://en.wikipedia.org/wiki/Fishinghttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-CIA-3%23cite_note-CIA-3http://en.wikipedia.org/wiki/Yieldhttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_revolution_in_Indiahttp://en.wikipedia.org/wiki/Green_revolution_in_Indiahttp://en.wikipedia.org/wiki/Agricultural_machineryhttp://en.wikipedia.org/wiki/Barometerhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Board_of_Indiahttp://en.wikipedia.org/wiki/Securities_and_Exchange_Board_of_Indiahttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Forestryhttp://en.wikipedia.org/wiki/Logginghttp://en.wikipedia.org/wiki/Fishinghttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-CIA-3%23cite_note-CIA-3http://en.wikipedia.org/wiki/Yieldhttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_revolution_in_Indiahttp://en.wikipedia.org/wiki/Green_revolution_in_Indiahttp://en.wikipedia.org/wiki/Agricultural_machinery7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
33/115
Construction of Balanced Portfolio comprising of Equity and Debt
Irrigation facilities are inadequate, as revealed by the fact that only 53.6% of the land was
irrigated in 200001, which result in farmers still being dependent on rainfall, specifically the
Monsoon season. A good monsoon results in a robust growth for the economy as a whole,
while a poor monsoon leads to a sluggish growth. Farm credit is regulated by NABARD,which is the statutory apex agent for rural development in the subcontinent.
Industry
India is fourteenth in the world in factory output. They together account for 27.6% of the GDP
and employ 17% of the total workforce.However, about one-third of the industrial labour force is
engaged in simple household manufacturing only.
Economic reforms brought foreign competition, led to privatisation of certain public sector
industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the
production of fast-moving consumer goods.
Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family
firms and required political connections to prosper was faced with foreign competition, including
the threat of cheaper Chinese imports. It has since handled the change by squeezing costs,
revamping management, focusing on designing new products and relying on low labour costs and
technology.
34 Indian companies have been listed in the Forbes Global 2000 ranking for 2008.
Babasabpatilfreepptmba.com
33
http://en.wikipedia.org/wiki/Monsoonhttp://en.wikipedia.org/wiki/NABARDhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Cottage_industryhttp://en.wikipedia.org/wiki/Final_goodshttp://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Monsoonhttp://en.wikipedia.org/wiki/NABARDhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Cottage_industryhttp://en.wikipedia.org/wiki/Final_goodshttp://en.wikipedia.org/wiki/Forbes_Global_20007/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
34/115
Construction of Balanced Portfolio comprising of Equity and Debt
The 10 leading companies are:
World
Rank Company Logo Industry
Revenue
(billion
$)
Profits
(billion
$)
Assets
(billion
$)
Market
Value
(billion
$)
193Reliance
IndustriesOil & Gas Operations 26.07 2.79 30.67 89.29
198Oil and Natural
Gas CorporationOil & Gas Operations 18.90 4.11 33.79 54.11
219State Bank of
IndiaBanking 15.77 1.47 188.56 33.29
303Indian Oil
CorporationOil & Gas Operations 42.68 1.82 25.39 16.36
374ICICI Bank Banking 9.84 0.64 91.07 29.85
411NTPC Utilities 7.84 1.60 20.34 41.57
647Steel Authority of
India LimitedMaterials 7.88 1.45 8.05 26.37
738Tata Steel Materials 5.83 0.97 11.48 14.63
826Bharti Airtel TelecommunicationsServices
4.26 0.94 6.61 39.16
846Reliance
Communications
Telecommunications
Services3.13 0.65 13.08 29.63
Services
India is fifteenth in services output. It provides employment to 23% of work force, and it is
growing fast, growth rate 7.5% in 19912000 up from 4.5% in 195180. It has the largest share in
the GDP, accounting for 53.8% in 2005 up from 15% in 1950. Business services ( information
technology, information technology enabled services, business process outsourcing) are among
the fastest growing sectors contributing to one third of the total output of services in 2000. The
growth in the IT sector is attributed to increased specialisation, availability of a large pool of low
cost, but highly skilled, educated and fluent English-speaking workers. On the supply side and on
the demand side, increased demand from foreign consumers interested in India's service exports
or those looking to outsource their operations. India's IT industry, despite contributing
Babasabpatilfreepptmba.com
34
http://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Oil_and_Natural_Gas_Corporationhttp://en.wikipedia.org/wiki/Oil_and_Natural_Gas_Corporationhttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Indian_Oil_Corporationhttp://en.wikipedia.org/wiki/Indian_Oil_Corporationhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/Bankinghttp://en.wikipedia.org/wiki/NTPChttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Materialshttp://en.wikipedia.org/wiki/Tata_Steelhttp://en.wikipedia.org/wiki/Materialshttp://en.wikipedia.org/wiki/Bharti_Airtelhttp://en.wikipedia.org/wiki/Reliance_Communicationshttp://en.wikipedia.org/wiki/Reliance_Communicationshttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Information_technology_enabled_serviceshttp://en.wikipedia.org/wiki/Business_process_outsourcinghttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Outsourcinghttp://en.wikipedia.org/wiki/Indian_IT_industryhttp://en.wikipedia.org/wiki/Image:Relcomm.gifhttp://en.wikipedia.org/wiki/Image:In_01.gifhttp://en.wikipedia.org/wiki/Image:Saillogo.JPGhttp://en.wikipedia.org/wiki/Image:Icicibank.gifhttp://en.wikipedia.org/wiki/Image:Iocl_logo.jpghttp://en.wikipedia.org/wiki/Image:ONGC_Logo.jpghttp://en.wikipedia.org/wiki/Image:Ril_logo.jpghttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Oil_and_Natural_Gas_Corporationhttp://en.wikipedia.org/wiki/Oil_and_Natural_Gas_Corporationhttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Indian_Oil_Corporationhttp://en.wikipedia.org/wiki/Indian_Oil_Corporationhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/Bankinghttp://en.wikipedia.org/wiki/NTPChttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Materialshttp://en.wikipedia.org/wiki/Tata_Steelhttp://en.wikipedia.org/wiki/Materialshttp://en.wikipedia.org/wiki/Bharti_Airtelhttp://en.wikipedia.org/wiki/Reliance_Communicationshttp://en.wikipedia.org/wiki/Reliance_Communicationshttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Information_technology_enabled_serviceshttp://en.wikipedia.org/wiki/Business_process_outsourcinghttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Outsourcinghttp://en.wikipedia.org/wiki/Indian_IT_industry7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
35/115
Construction of Balanced Portfolio comprising of Equity and Debt
significantly to its balance of payments, accounted for only about 1% of the total GDP or 1/50th
of the total services.
Banking and finance
The Indian money market is classified into: the organised sector (comprising private, public and
foreign owned commercial banks and cooperative banks, together known as scheduled banks);
and the unorganised sector (comprising individual or family owned indigenous bankers ormoney
lenders and non-banking financial companies (NBFCs)). The unorganised sector and microcredit
are still preferred over traditional banks in rural and sub-urban areas, especially for non-
productive purposes, like ceremonies and short duration loans.
Prime MinisterIndira Gandhinationalised 14 banks in 1969, followed by six others in 1980, and
made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture,
small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social
and developmental goals. Since then, the number of bank branches has increased from 10,120 in
1969 to 98,910 in 2003 and the population covered by a branch decreased from 63,800 to 15,000
during the same period. The total deposits increased 32.6 times between 1971 to 1991 compared
to 7 times between 1951 to 1971. Despite an increase of rural branches, from 1,860 or 22% of thetotal number of branches in 1969 to 32,270 or 48%, only 32,270 out of 5 lakh (500,000) villages
are covered by a scheduled bank.
Since liberalisation, the government has approved significant banking reforms. While some of
these relate to nationalised banks (like encouraging mergers, reducing government interference
and increasing profitability and competitiveness), other reforms have opened up the banking and
insurance sectors to private and foreign players.
Socio-economic characteristics
Poverty
Babasabpatilfreepptmba.com
35
http://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Cooperativehttp://en.wikipedia.org/wiki/Moneylendinghttp://en.wikipedia.org/wiki/Moneylendinghttp://en.wikipedia.org/wiki/Non-banking_financial_companyhttp://en.wikipedia.org/wiki/Microcredithttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Nationalisationhttp://en.wikipedia.org/wiki/Bank_deposithttp://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Cooperativehttp://en.wikipedia.org/wiki/Moneylendinghttp://en.wikipedia.org/wiki/Moneylendinghttp://en.wikipedia.org/wiki/Non-banking_financial_companyhttp://en.wikipedia.org/wiki/Microcredithttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Nationalisationhttp://en.wikipedia.org/wiki/Bank_deposithttp://en.wikipedia.org/wiki/Lakh7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
36/115
Construction of Balanced Portfolio comprising of Equity and Debt
Large numbers of India's people live in abject poverty. Wealth distribution in India is improving
since the liberalization and with the end of the socialist rule termed as the license raj. While
poverty in India has reduced significantly, official figures estimate that 27.5% of Indians still
lived below the national poverty line in 2004-2005. A 2007 report by the state-run NationalCommission for Enterprises in the Unorganised Sector (NCEUS) found that 70% of Indians, or
800 million people, lived on less than 20 rupees per day with most working in "informal labour
sector with no job or social security, living in abject poverty."
Since the early 1950s, successive governments have implemented various schemes, under
planning, to alleviate poverty, that have met with partial success. All these programmes have
relied upon the strategies of the Food for work programme and National Rural Employment
Programme of the 1980s, which attempted to use the unemployed to generate productive assets
and build rural infrastructure. In August 2005, the Indian parliament passed the Rural
Employment Guarantee Bill, the largest programme of this type in terms of cost and coverage,
which promises 100 days of minimum wage employment to every rural household in 200 of
India's 600 districts. The question of whether economic reforms have reduced poverty or not has
fuelled debates without generating any clear cut answers and has also put political pressure on
further economic reforms, especially those involving the downsizing of labour and cutting
agricultural subsidies.
Occupations and unemployment
Agricultural and allied sectors accounted for about 57% of the total workforce in 19992000,
down from 60% in 199394. While agriculture has faced stagnation in growth, services have seen
a steady growth. Of the total workforce, 8% is in the organised sector, two-thirds of which are in
the public sector. The NSSO survey estimated that in 19992000, 106 million, nearly 10% of the
population were unemployed and the overall unemployment rate was 7.32%, with rural areas
doing marginally better (7.21%) than urban areas (7.65%).
Unemployment in India is characterised by chronic underemployment or disguised
unemployment. Government schemes that target eradication of both poverty and unemployment,
(Which in recent decades has sent millions of poor and unskilled people into urban areas in search
of livelihoods.) attempt to solve the problem, by providing financial assistance for setting up
businesses, skill honing, setting up public sector enterprises, reservations in governments, etc.
Babasabpatilfreepptmba.com
36
http://en.wikipedia.org/wiki/Wealth_distributionhttp://en.wikipedia.org/wiki/Planned_economyhttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/Districts_of_Indiahttp://en.wikipedia.org/wiki/Underemploymenthttp://en.wikipedia.org/wiki/Unemployment_types#Hidden_unemploymenthttp://en.wikipedia.org/wiki/Unemployment_types#Hidden_unemploymenthttp://en.wikipedia.org/wiki/Wealth_distributionhttp://en.wikipedia.org/wiki/Planned_economyhttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/Districts_of_Indiahttp://en.wikipedia.org/wiki/Underemploymenthttp://en.wikipedia.org/wiki/Unemployment_types#Hidden_unemploymenthttp://en.wikipedia.org/wiki/Unemployment_types#Hidden_unemployment7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
37/115
Construction of Balanced Portfolio comprising of Equity and Debt
The decreased role of the public sector after liberalisation has further underlined the need for
focusing on better education and has also put political pressure on further reforms.
Regional imbalance
One of the critical problems facing India's economy is the sharp and growing regional variations
among India's different states and territories in terms of per capita income, poverty, availability of
infrastructure and socio-economic development.
The five-year plans have attempted to reduce regional disparities by encouraging industrial
development in the interior regions, but industries still tend to concentrate around urban areas and
port cities. After liberalization, the more advanced states are better placed to benefit from them,
with infrastructure like well developed ports, urbanisation and an educated and skilled workforce
which attract manufacturing and service sectors. The union and state governments of backward
regions are trying to reduce the disparities by offering tax holidays, cheap land, etc., and focusing
more on sectors like tourism, which although being geographically and historically determined,
can become a source of growth and is faster to develop than other sectors.
External trade and investment
Global trade relations
Until the liberalization of 1991, India was largely and intentionally isolated from the world
markets, to protect its fledging economy and to achieve self-reliance. Foreign trade was subject to
import tariffs, export taxes and quantitative restrictions, while foreign direct investment was
restricted by upper-limit equity participation, restrictions on technology transfer, export
obligations and government approvals; these approvals were needed for nearly 60% of new FDI
in the industrial sector. The restrictions ensured that FDI averaged only around $200M annually
between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid,
commercial borrowing and deposits ofnon-resident Indians.
Babasabpatilfreepptmba.com
Share of top five investing countries in FDI inflows. (20002007)[79]
Rank CountryInflows
(Million USD)Inflows (%)
1 Mauritius 85,178 44.24%[80]
2 United States 18,040 9.37%
3 United Kingdom 15,363 7.98%
4 Netherlands 11,177 5.81%
5 Singapore 9,742 5.06%
37
http://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Non-resident_Indian_and_Person_of_Indian_Originhttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-fdi-1-78%23cite_note-fdi-1-78http://en.wikipedia.org/wiki/Mauritiushttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-Mauritius-fdi-79%23cite_note-Mauritius-fdi-79http://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Non-resident_Indian_and_Person_of_Indian_Originhttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-fdi-1-78%23cite_note-fdi-1-78http://en.wikipedia.org/wiki/Mauritiushttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-Mauritius-fdi-79%23cite_note-Mauritius-fdi-79http://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Singapore7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
38/115
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
39/115
Construction of Balanced Portfolio comprising of Equity and Debt
result, India's foreign currency reserves stood at $285 billion in 2008, which could be used in
infrastructural development of the country if used effectively.
India is a net importer: Per the CIA factbook in 2007, imports were $224bn and exports $140bn.
India's reliance on external assistance and commercial borrowings has decreased since 199192,
and since 200203, it has gradually been repaying these debts. Declining interest rates and
reduced borrowings decreased India's debt service ratio to 4.5% in 2007. In India, External
Commercial Borrowings (ECBs) are being permitted by the Government for providing an
additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates
these borrowings (ECBs) through ECB policy guidelines.
Foreign direct investment in India
As the third-largest economy in the world in PPP terms, India is a preferred destination for
foreign direct investments (FDI); India has strengths in information technology and other
significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery.India has always held promise for global investors, but its rigid FDI policies were a significant
hindrance in this regard. However, as a result of a series of ambitious and positive economic
reforms aimed at deregulating the economy and stimulating foreign investment, India has
positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region. India has
a large pool of skilled managerial and technical expertise. The size of the middle-class population
at 300 million exceeds the population of both the US and the EU, and represents a powerful
consumer market.
Babasabpatilfreepptmba.com
39
http://en.wikipedia.org/w/index.php?title=External_Commercial_Borrowing&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=External_Commercial_Borrowing&action=edit&redlink=1http://en.wikipedia.org/wiki/Ministry_of_Financehttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Image:India-BH-barge.jpghttp://en.wikipedia.org/w/index.php?title=External_Commercial_Borrowing&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=External_Commercial_Borrowing&action=edit&redlink=1http://en.wikipedia.org/wiki/Ministry_of_Financehttp://en.wikipedia.org/wiki/Foreign_direct_investment7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
40/115
Construction of Balanced Portfolio comprising of Equity and Debt
India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures.
Industrial policy reforms have substantially reduced industrial licensing requirements, removed
restrictions on expansion and facilitated easy access to foreign technology and foreign direct
investment FDI. The upward moving growth curve of the real-estate sector owes some credit to abooming economy and liberalized FDI regime. In March 2005, the government amended the rules
to allow 100 per cent FDI in the construction business. This automatic route has been permitted in
townships, housing, built-up infrastructure and construction development projects including
housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational
facilities, and city- and regional-level infrastructure.
A number of changes were approved on the FDI policy to remove the caps in most sectors.
Restrictions will be relaxed in sectors as diverse as civil aviation, construction development,
industrial parks, petroleum and natural gas, commodity exchanges, credit-information services
and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in
politically sensitive areas such as insurance and retailing.
FDI inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April-March),
according to the government's Secretariat for Industrial Assistance. This was more than double
the total of US$7.8bn in the previous fiscal year. Between April and September 2007, FDIinflows were US$8.2bn.
INDUSTRY ANALYSIS
Indian Money Market
Whenever a bear market comes along, investors realize that the stock market is a risky place for
their savings, a fact we tend to forget while enjoying the returns of a bull market! This,
unfortunately, is part of the risk/return tradeoff. That is, to get higher returns, you have to take on
a higher level of risk. But for many investors, a volatile market is too much to stomach - an
alternative is the money market. The money market is better known as a place for large
institutions and government to manage their short-term cash needs. However, individual investors
have access to the market through a variety of different securities.
The money market is a subsection of the fixed income market. Many people think of the term
"fixed income" as synonymous with bonds, but technically, a bond is just one type of fixed
Babasabpatilfreepptmba.com
40
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
41/115
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
42/115
Construction of Balanced Portfolio comprising of Equity and Debt
Debentures
These are the normal types of bonds. It is unsecured debt, backed only by the name and goodwill
of the corporation. In the event of the liquidation of the corporation, holders of debentures are
repaid before stockholders, but after holders of mortgage bonds.
Babasabpatilfreepptmba.com
42
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
43/115
Construction of Balanced Portfolio comprising of Equity and Debt
INDIAN CEMENT INDUSTRY
Background
The Indian cement industry (120 million tons per annum) is the fourth largest in he world afterChina, Japan and USA. However, per capita consumption in the country is only around 80-90 kg
compared to the world average of approximately 250 kg.
Historically, the Indian cement sector has been highly fragmented comprising 54 players that
operate 124 plants. The majority of the plants are small-sized and well spread through out the
country. The cement industry is cyclical and capital intensive. A new plant typically has a
gestation period of 3-4 years.
Overview of The Indian cement industry
The Indian cement industry with a total capacity of 144 m tonnes (including mini plants) in FY07,
has surpassed developed nations like USA and Japan and has emerged as the second largest
market after China. Although consolidation has taken place in the Indian cement industry with the
top six players controlling almost 60% of the capacity, the remaining 40% of the capacity remains
pretty fragmented with around 40 players in the fray.
Despite the fact that Indian cement industry has clocked a production of more than 100 m
tonnes for the second year in succession, the per capita consumption of 110 kgs compares poorly
with the world average of 260 kgs. This, more than anything underlines the tremendous scope for
growth in the Indian cement industry in the long term.
Cement, being a bulk commodity, is a freight intensive industry and transporting cement
over long distances can prove to be uneconomical. This has resulted in cement being largely a
regional play with the industry divided into five main regions viz. north, south, west, east and the
central region. While the southern region is excess is capacity owing to the availability of
limestone, the western and northern region are the most lucrative markets. Therefore, players like
Grasim, L&T and Gujarat Ambuja enjoy high price realisations compared to the all India average.
Although the government has reduced the import duty on cement, imports do not pose a
threat since prices of cement in India are lower than those prevailing in the international markets.
Moreover, the storage facilities on the Indian ports are inadequate for large-scale imports.
Babasabpatilfreepptmba.com
43
7/31/2019 A PROJECT REPORT on Construction of Balanced Portfolio Comprising of Equity and Debt at SCM
44/115
Constru