CHAPTER - 1

INTRODUCTION

A Portfolio is a collection of securities. Since it is rarely desirable to invest the

entire funds of an individual or an institution in a single security, it is essential that every
security be viewed in portfolio context. Thus it seems logical that the expected return on
a portfolio should depend on the expected return of each of the security contained in the
portfolio.
Portfolio analysis considers the determination of future risk and return in holding
various blends of the individual securities. Portfolio expected return is a weighted
average of the expected return of individual securities but portfolio variance, in short
contrast, can be something less then a weighted average of security variances. As a result
an investor can sometime reduce portfolio risk by adding security with greater individual
risk then any other security in the portfolio; this is because risk depends greatly on the co-
variance among returns of individual security. Portfolio, which is combination of
securities, may or may not take on the aggregate characteristics of their individuals parts.
Since portfolios expected return is a weighted average of the expected return of its
securities, the contribution of each security to the portfolio’s expected returns depends on
its expected returns and its proportionate share of the initial portfolio’s market value. It
follows that an investor who simply wants the greatest possible expected return should
hold one security, the one, which is considered to have a greatest, expected return. Very
few investors do this, and very few investment advisors would counsel such an extreme
policy. Instead, investors should diversify that their portfolio should include more than
one security.
In the finance field, it is a common knowledge that money or finance is scarce and that
investors try to maximize their return. But, the return is higher, if the risk is also higher.
Return and Risk go together and they have a tradeoff. The art of investment is to see that
the return is maximized with the minimum of the risk, which is inherent in invest. In the
above discussion, we concentrated on the word “investment” and for making invest we
need to make securities analysis. Combination of securities with different risk return
characteristics will constitute the portfolio of the investor. The portfolio is also built up
out of the wealth or income of the investor over period of a time, with a view to suit his
risk or return preferences to that of the portfolio analysis is thus an analysis of the risk
return characteristics of the individual securities in the portfolio and changes that may
1
take place in the combination with other securities due to interaction among themselves
and impact of each one of them on others.

SCOPE OF THE STUDY

 The report deals with the different investment decisions made by different people.
It explains the element of RISK & RETURN in detail while investing
 It explains how portfolio hedges the risk in investment and gives optimum return,
to a given amount of risk. It also goes to the in depth of mechanics of portfolio
creation, selection, revision & evaluation.
 The report also shows different ways of analysis of securities, different theories of
portfolio management for effective and efficient portfolio construction.

OBJECTIVES OF THE STUDY

 To help the investors to decide the effective portfolio of securities through Risk

and Return Analysis.

 To identify the best portfolio of securities.

 To Focused on concept of portfolio management.

 To study the role and impact of securities in investment decisions.

 To take decisions regarding risk, return and a host of other considerations.

2
 RESEARCH METHODOLOGY
PRIMARY DATA

 Primary data has been collected through personal interaction with the employees
of the company
SECONDARY DATA
 Data collected from newspaper & magazines

 data obtained from the internet

 Data collected from company’s financial records.

 data obtained from company journals

 Other financial journals

TOOLS USED IN PORTFOLIO MANAGEMENT

For implementing the study, 10 securities or stocks constituting the NIFTY
market are selected of one year opening and closing share movement prices data from
NSE dated,
From Jan 2022 to Dec 2023
In order to know the return of each stock or security, the formula which is used is
given below:
R = Closing price – Opening price x 100
Opening price
To know the Average (R) the following formula has been used

Average (R) =

The next step is to know the risk of the stock or security; the following formula is
given below.

Std. Dev =

Where (R- R1)2 = squares of difference between sample and mean

N = Number of sample observations

3
 After that, the correlation of the securities is calculated by using the following
formula:
Correlation Coefficient (rAB) = CovAB
(A)(B)
Co-variance CovAB = 1/n  (RA – R A) (RB – R B)
t=1
Where,
(RA – R A) (RB – R B) = Combined deviations of A & B.
(A)(B) = Standard Deviations of A & B
CovAB = Covariance between A & B.
N = no. of observations

The next step would be the construction of the optimal portfolio on the basis of
what percentage of investment should be invested when two securities and stocks are
combined i.e., Calculation of two assets portfolio weights by using minimum variance
equation, which is given below

WA =  B (B-rABA)
A2 + B2 – 2r ABAB

WB = 1-WA
Where WA = proportion of investment in A
WB = proportion of investment in B

The next and final step is to calculate the portfolio risk (combined risk) that shows
how much is the risk is reduced by combining two stocks or securities by using this
formula.

Formula:

P =
Where
P = Portfolio risk
A = Standard deviation of security A
WA = Proportion of investment in security A
B = Standard deviation of security B
4
 WB = Proportion of Investment in security B
rAB = Co relation coefficient between security A&B.

After calculating the portfolio risk the return of the portfolio is calculated using
the following formula.

RP = WA (RA) + WB (RB)

RA= Average return of security A

RB= Average return of security B

NEED & IMPORTANCE OF THE STUDY

 Investor can generate highest return at a given level of risk.

 It helps to identify the non -performing securities in the investment process and
for improving these areas.

 It helps the investors to choose the optimal portfolio.

 Effective utilization of resources.

LIMITATIONS OF THE STUDY

The study has certain limitation/constraints which have led to the obstruction, of
widening the scope and objectives of the study.

 The fulfillment of project limited to 45 days

 Construction of portfolio restricted to two-assets based in Markowitz model

 From NSE listing a very few and randomly selected scripts are analyzed

 Limited industries are only covered in the study.

5
 CHAPTER – 2
REVIEW OF LITERATURE

INVESTMENT MANAGEMENT

In the stock market parlance, investment decision refers to making a decision

regarding the buy and sell orders. As referred to already, these decisions are influenced
by availability of money and flow of information. What to buy and sell will also depend
on the fair value of a share and the extent of over valuation and under valuation and more
important expectation regarding them. For making such a decision the common investors
may have to depend more upon a study of fundamentals rather than technical’s, although
technicals are more important. Besides, even genuine investors have to guard themselves
against wrong timing regarding both buy and sell decisions.

It is necessary for a common investor to study the Balance Sheet and Annual
Report of the company or analysis the quarterly and half yearly results of the company
and decide on whether to buy that company’s shares or not. This is called fundamental
analysis, and then decision-making becomes scientific and rational. The likelihood of
high-risk scenario will come down to a low risk scenario and long-term investors will not
lose.

CRITERIA FOR INVESTMENT DECISION

Firstly, the investment decision depends on the mood of the market. As per the
empirical studies, share prices depends on the fundaments of the company only to the
extent of 50% and the rest is decided the mood of the market and the expectations of the
company’s performance and its share price.

These expectations depend on the analyst’s ability to foresee and forecast the future
performance of the company. For price paid for a share at present depends on the flow of
returns in future, expected from the company.

6
 Secondly and following from the above, decision to invest will be based on the past
performance, present working and the future expectations of the company’s performance,
both operationally and financially. These in turn will influence the share prices

.
Thirdly, investment decision depends on the investor’s perception on whether the
present share price is fair, overvalued or under valued. If the share price is fair he will
hold it (Hold Decision) if it is overvalued, he will sell it (Sell Decision) and if it is
undervalued, he will buy it (Buy Decision). These are general rule, but exceptions may be
there. Thus even when prices are rising, some investors may buy as their expectations of
further rise may outweigh their conception of overvaluation. That means, the concepts of
overvaluation or under valuation are relative to time, space and man. What may be over
valued a little while ago has become undervalued following later developments;
information or sentiment and mood may change the whole market scenario and of the
valuation of shares. There are two more decisions, namely, Average Up and Average
Down of prices.
The investment decision may also depend on the investor’s preferences, moods, or
fancies. Thus an investor may go on a spending spree and invest in cats and dogs of
companies, if he has taken a fancy or he is flooded with money from lottery or prizes. A
Rational investor would however make investment decisions on scientific study of the
fundamentals of the company and in a planned manner.

At present, investors mostly depend on hearsay and advice of friends, relatives,

sub-brokers, etc., for the investment decision, but not on any scientific study of the
company’s fundamentals. In view of the increasing mushroom growth of companies and
lack of any track record of many promoters, investment decision making became on
hunches, hearsay etc.

RISK AND INVESTMENT

Stock Market investment is risky and there are different types of investments, namely
equity, fixed deposits, debentures etc. Diversifying investment into 10 to 15 companies
can reduce company specific risk also called unsystematic risk.

7
 But the systematic risk relating to the market cannot be reduced but can be managed
by choosing companies with that much risk (high or low) that the investor can bear.

INVESTMENT OBJECTIVES

1) The first basic objective of investment is the return on it or yields. The yields
are higher, the higher is the risk taken by investors. The risk less return is the bank
deposit rate of 8% at present or Bank rate of 6.5%. Here the risk is least as funds are safe
and returns are certain.
2) Secondly, each investor has his own asset preferences and choice of
investments. Thus some risk adverse operators put their funds in bank or post office
deposits or deposits/certificates with co-operatives and PSU’s. Some invest in real estate;
land and building while others invest mostly in gold, silver and other precious stones,
diamonds etc.
3) Thirdly, every investor aims at providing for minimum comforts of house
furniture, vehicles, consumer durables and other household requirements. After satisfying
these minimum needs, he plans for his income, saving in insurance (LIC and GIC etc.)
pension and provident funds etc. In the choice of these, the return is subordinated to the
needs of the investor.
4) Lastly, after satisfying all the needs and requirements, the rest of the savings
would be invested in financial assets, which will give him future incomes and capital
appreciation so as to improve his future standard of living. These may be in stock/capital
market investments.

QUALITIES FOR SUCCESSFUL INVESTING

 Contrary thinking
 Patience
 Composure
 Flexibility and
 Openness

8
GUIDELINES FOR EQUITY INVESTMENT

Equity shares are characterized by price fluctuations, which can produce

substantial gains or inflict severe losses. Given the volatility and dynamism of the
stock market, investor requires greater competence and skill along with a touch of
good luck too-to invest in equity shares. Here are some general guidelines to play to
equity game, irrespective of whether you are aggressive or conservative.
 Adopt a suitable formula plan
 Establish value anchors
 Asses market psychology
 Combine fundamental and technical analysis
 Diversify sensibly
 Periodical review and revise your portfolio
PORTFOLIO MANAGEMENT

INTRODUCTION

In simple term Portfolio can be defined as combination of securities that have

Return and Risk characteristics of their own. Portfolio may or may not take on the
aggregate characteristics of their individual parts. Portfolio is the collection of financial
or real assets such as equity shares, debentures, bonds, treasury bills and property etc.
Portfolio is a combination of assets or it consists of collection of securities. These
holdings are the result of individual preferences, decisions of the holders regarding risk,
return and a host of other considerations.

Portfolio management concerns the construction & maintenance of a collection of

investment. It is investment of funds in different securities in which the total risk of the
portfolio is minimized, while expecting maximum return from it. It primarily involves
reducing risks rather that increasing return. Return is obviously important though,
and the ultimate objective of portfolio manager is to achieve a chosen level of return by
incurring the least possible risk.

9
PORTFOLIO MANAGEMENT

Investing in securities such as shares, debentures bonds is profitable as well as

exciting. It indeed involves a great deal of risk. It is rare to find investors investing their
entire savings in a single security. Instead, they tend to invest in a group of securities.
Such, group of securities is called a Portfolio. Creation of portfolio helps to reduce risk
without sacrificing returns.

An investor considering investment in securities is faced with the problem of

choosing from among a large number of securities. His choice depends upon the risk-return
characteristics of the individual securities. He would attempt to choose the most desirable
securities and like to allocate his funds over this group of securities. Again he is faced with
the problem of deciding which securities to hold and how much to invest in each.

The investor faces an infinite number of possible portfolio or group of securities.

The risk and return characteristics of portfolios differ from those of individual securities
combining to form a portfolio. The investor tries to choose the optimal portfolio taking
into consideration the risk-return characteristics of all possible portfolios.

As the economic and financial environment keeps changing the risk-return

characteristics of individual securities as well as portfolio also change. An investor
invests his funds in a portfolio expecting to get a good return with less risk to bear.

Portfolio management comprises all the processes involved in the creation and
maintenance of an investment portfolio. It deals specifically with Security analysis,
Portfolio analysis, Portfolio selection, Portfolio revision and Portfolio evaluation.

10
OBJECTIVES OF PORTFOLIO MANAGEMENT
The objective of portfolio management is to invest in securities in such a way that:
a) Maximize one’s Return and
b) Minimize risk
In order to achieve one’s investment objectives, a good portfolio should have multiple
objectives and achieve a sound balance among them. Any one objective should not be
given undue importance at the cost of others.
Some of the very main objectives are given below

 SAFETY OF THE INVESTMENT

The first important objective of a portfolio, no matter who owns it, is to ensure
that the investment is absolutely safe. Other considerations like Income, Growth, etc.,
only come into the picture after the safety of the investments is ensured.

Investment safety or minimization of risks is one of the important objectives of

portfolio management. There are many types of risks, which are associated with
investment in equity stocks, including super stocks. We should keep in mind that
there is no such thing as a Zero-Risk investment. Moreover, relatively Low-Risk
investments give correspondingly lower returns.

 STABLE CURRENT RETURNS

Once investments safety is guaranteed, the portfolio should yield a steady current
income. The current returns should at least match the opportunity cost of the funds of the
investor. What we are referring is current income by way of interest or dividends, not
capital gains.

 APPRECIATION IN THE VALUE OF CAPITAL

A good portfolio should appreciate in value in order to protect the investor from
any erosion in purchasing power due to inflation. In other words, a balanced portfolio
must consist certain investments, which tend to appreciate in real value after adjusting for
inflation.

11
  MARKETABILITY
A good portfolio consists of investments, which can be marketed without
difficulty. If there are too many unlisted or inactive shares in our portfolio, we will
have to face problems in enchasing them, and switching from one investment to
another. It is desirable to invest in companies listed on major stock exchanges, which
are actively traded.

 LIQUIDITY
The portfolio should ensure that there are enough funds available at short notice to
take care of the investor's liquidity requirements. It is desirable to keep a line of credit
from a bank fro use in case it become necessary to participate in Right Issues, or for any
other personal needs.

 TAX PLANNING
Since taxation is an important variable in total planning. A good portfolio should
enable its owner to enjoy a favorable tax shelter. The portfolio should be developed
considering not only income tax, but capital gains tax, and gift tax, as well. What a
good portfolio aims at is tax planning, not tax evasion or tax avoidance.

PORTFOLIO MANAGEMENT FRAMEWORK

Investment management is also known as Portfolio Management, it is a complex

process or activity that may be divided into seven broad phases:

 Specification of Investment Objectives and Constraints.

 Choice of Asset Mix.
 Formulation of Portfolio Strategy.
 Selection of Securities.
 Portfolio Execution.
 Portfolio Rebalancing.
 Performance Evaluation.

12
SPECIFICATION OF INVESTMENT OBJECTIVES AND CONSTRAINTS
The first step in the portfolio management process is to specify one's investment
objectives and constraints. The commonly stated investment goals are:
1. Income: - To provide a steady stream of income through regular interest/dividend
payment.
2. Growth: - To increase the value of the principal amount through capital appreciation.
3. Stability: - To protect the principal amount invested from the risk of Loss.

PORTFOLIO MANAGEMENT IN INDIA

In India, Portfolio Management is still in its infancy. Barring a few Indian banks, and
foreign banks and UTI, no other agency had professional Portfolio Management until
1987. After the setting up of public sector Mutual Funds, since 1987, professional
portfolio management, backed by competent research staff became the order of the day.
After the success of Mutual Funds in portfolio management, a number of brokers and
Investment consultants some of whom are also professionally qualified have become
Portfolio Managers. They have managed the funds of clients on both discretionary and
Non-discretionary basis. It was found that many of them, including Mutual Funds have
guaranteed a minimum return or capital appreciation and adopted all kinds of incentives
which are now prohibited by SEBI. They resorted to speculative over trading and insider
trading, discounts, etc., to achieve their targeted returns to the clients, which are also
prohibited by SEBI.

The recent CBI probe into the operations of many market dealers has revealed the
unscrupulous practices by banks, dealers and brokers in their Portfolio Operations. The
SEBI has then imposed stricter rules, which included their registration, a code of conduct
and minimum infrastructures, experience etc. It is no longer possible for any unemployed
youth, or retired person or self-styled consultant to engage in Portfolio Management
without the SEBI’s license. The guidelines of SEBI are in the direction of making
Portfolio Management a responsible professional service to be rendered by experts in the
field.

13
 SOME ASPECTS OF PORTFOLIO MANAGEMENT

Basically Portfolio Management involves:

1) A proper investment decision-making of what to buy and sell;

2) Proper money management in terms of investment in a basket of assets so as to
3) Satisfy the asset preferences of investors;
4) Reduce the risk and increase returns.

METHOD OF OPERATION

Any individual or organization with a minimum amount of investible funds of Rs.1

lakh or Rs.2 lakhs can approach the professional Portfolio Manager. If the Manager is
willing to accept him as his client, a contract is entered into for management of his funds
either on discretionary basis or non-discretionary basis, specifying the objectives, risk to
be tolerated, composition of assets/securities in the Portfolio and their relative
proportions, fees payable and time period of management, as per the preference of the
client etc. The clients data base is collected, namely, his available income and assets, his
needs, his risk preferences, his choice for income or growth or both and host of personal
details of the client so as to enable the Manager to design a proper Investment Strategy
for him.
SEBI NORMS

SEBI has prohibited the Portfolio Manager to assume any risk on behalf of the
client. Portfolio Manager cannot also assure any fixed return to the client. The
investments made or advised by him are subject to risk, which the client has to bear.

The investment consultancy and management has to be charged at rates, which

are fixed at the beginning and transparent as per the contract. No sharing of profits or
discounts or cash incentives to clients are permitted.

The Portfolio Manager is prohibited to do lending, badla financing and bills

discounting as per SEBI norms. He cannot put the clients funds in any investment, not

14
permitted by the contract, entered into with the client. Normally investments can be made
in both capital market and money market instruments.

Client’s money has to be kept in a separate account with the public sector bank
and cannot be mixed up with his own funds or investments.
All the deals done for a client’s account are to be entered in his name and Contract Notes,
Bills and etc., are all passed by his name. A separate ledger account is maintained for all
purchases/sales on client’s behalf, which should be done at the market price. Final
settlement and termination of contract is as per the contract. During the period of
contract, Portfolio Manager is only acting on a contractual basis and on a fiduciary basis.
No contract for less than a year is permitted by the SEBI.
SEBI GUIDELINES TO THE PORTFOLIO MANAGERS

On 7th January 1993 the Securities Exchange Board of India issued regulations to the
portfolio managers for the regulation of portfolio management services by merchant
bankers. They are as follows:

 Portfolio management services shall be in the nature of investment or

consultancy management for an agreed fee at client’s risk.
 The portfolio manager shall not guarantee return directly or indirectly the
fee should not be depended upon or it should not be return sharing basis.
 Various terms of agreements, fees, disclosures of risk and repayment
should be mentioned.
 Client’s funds should be kept separately in client wise account, which
should be subject to audit.
 Manager should report clients at intervals not exceeding 6 months.
 Portfolio manager should maintain high standard of integrity and not
desire any benefit directly or indirectly form client’s funds.
 The client shall be entitled to inspect the documents.
 Portfolio manger shall not invest funds belonging to clients in badla
financing, bills discounting and lending operations.
 Client money can be invested in money and capital market instruments.
 Settlement on termination of contract as agreed in the contract.

15
  Client’s funds should be kept in a separate bank account opened in
scheduled commercial bank.
 Purchase or Sale of securities shall be made at prevailing market price.

PORTFOLIO ANALYSIS

Portfolios, which are combinations of securities may or may not take the
aggregate characteristics of their individual parts. Portfolio analysis considers the
determination of future risk and return in holding various blends of individual securities.
An investor can some times reduce portfolio risk by adding another security with greater
individual risk than any other security in the portfolio. This seemingly curious result
occurs because risk depends greatly on the covariance among returns of individual
securities. An investor can reduce expected risk and also can estimate the Expected return
and expected risk level of a given portfolio of assets if he makes a proper diversification
of portfolios.

There are two main approaches for analysis of portfolio.

1. Traditional approach.
2. Modern approach.
TRADITIONAL APPROACH

The traditional approach basically deals with two major decisions. Traditional
security analysis recognizes the key importance of risk and return to the investor. Most
traditional methods recognize return as some dividend receipt and price appreciation over
a forward period. But the return for individual securities is not always over the same
common holding period, nor are the rates of return necessarily time adjusted. An analysis
may well estimate future earnings and a P/E to derive future price. He will surely
estimate the dividend. But he may not discount the values to determine the acceptability
of the return in relation to the investor’s requirements.

16
 In any case, given an estimate of return, the analyst is likely to think of and express
risk as the probable downside price expectation (either by itself or relative to upside
appreciation possibilities). Each security ends up with some rough measures of likely
return and potential downside risk for the future.

Portfolios or combinations of securities, are though of as helping to spread risk over

many securities. This is good. However, the interrelationship between securities may by
specified only broadly or nebulously. Auto stocks are, for examples, recognized as risk
interrelated with fire stocks: utility stocks displays defensive price movement relative to
the market and cyclical stocks like steel; and so on.

This is not to say that traditional portfolio analysis is unsuccessful. It is to say that
much of it might be more objectively specified in explicit terms.

They are:
A) Determining the objectives of the portfolio.
B) Selection of securities to be included in the portfolio
Normally this is carried out in four to six steps. Before formulating the objectives, the
constraints of the investor should be analyzed. With in the given framework of
constraints, objectives are formulated. Then based on the objectives securities are
selected. After that the risk and return of the securities should be studied. The investor
has to assess the major risk categories that he or she is trying to minimize. Compromise
of risk and non-risk factors has to be carried out. Finally relative portfolio weights are
assigned to securities like bonds, Stocks and debentures and then diversification is carried
out.
MODERN PORTFOLIO APPORACH

The traditional approach is a comprehensive financial plan for the individual. It takes
into account the individual needs such as housing, life insurance and pension plans. But
these types of financial planning approaches are not done in the Markowitz approach.
Markowitz gives more attention to the process of selecting the portfolio. His planning
can be applied more in the selection of common stocks portfolio than the bond portfolio.
The stocks are not selected on the basis of need for income or appreciation. But the
selection is based on the risk and return analysis. Return includes the market return
17
and dividend. The investor needs return and it may be either in the form of market return
or dividend.

They are assumed to be indifferent towards the form of the investor is assumed to
have the objective of maximizing the expected return and minimizing the risk. Further, it
is assumed that investors would take up risk in a situation when adequately rewarded for
it. This implies that individuals would prefer the portfolio of highest expected return for
a given level of risk.

In the modern approach the final step is asset allocation process that is to choose
the portfolio that meets the requirement of the investor. The risk taker that is who are
willing to accept higher probability of risk for getting the expected return would choose
high risk portfolio. Investor with lower tolerance for risk would choose low-level risk
portfolio. The risk neutral investor would choose the medium level risk portfolio.
The following are that major steps involved in this process.
Portfolio Management Process:
 Security analysis
 Portfolio analysis
 Selection of securities
 Portfolio revision
 Performance evaluation

SECURITY ANALYSIS
Definition:

For making proper investment involving both risk and return, the investor has to
make a study of the alternative avenues of investment- their risk and return characteristics
And make a proper projection or expectation of the risk and return of the alternative
investments under consideration. He has to tune the expectations to this preference of the
risk and return for making a proper investment choice. The process of analyzing the
individual securities and the market has a whole and estimating the risk and return
expected from each of the investments with a view to identifying undervalues securities
18
for buying and overvalues securities for selling is both an art and a science that is what
called security analysis.

Security:
The security has inclusive of share, scrips, stocks, bonds, debenture stock or any other
marketable securities of a like nature in or of any debentures of a company or body
corporate, the government and semi government body etc.

 Security contract regulation Act, 1956.

In the strict sense of the word, a security is an instrument of promissory note or a
method of borrowing or lending or a source of contributing to the funds need by a
corporate body or non-corporate body private security for example is also a security as it
is a promissory note of an individual or firm and gives rise to claim on money. But such
private securities or even securities of private companies or promissory notes of
individuals, partnership or firm to the intent that their marketability is poor or nil, are not
part of the capital market and do not constitute part of the security analysis.
Analysis of securities:

Security analysis in both traditional sense and modern sense involves the projection
of future dividend or ensuring flows, forecast of the share price in the future and
estimating the intrinsic value of a security based on the forecast of earnings or dividend.

Security analysis in traditional sense is essentially on analysis of the fundamental

value of shares and its forecast for the future through the calculation of its intrinsic worth
of the share.

Modern security analysis relies on the fundamental analysis of the security, leading to
its intrinsic worth and also rise-return analysis depending on the variability of the returns,
covariance, safety of funds and the projection of the future returns. If the security analysis
based on fundamental factors of the company, then the forecast of the share price has to
take into account inevitably the trends and the scenario in the economy, in the industry to
which the company belongs and finally the strengths and weaknesses of the company
19
itself. It’s management, promoters backward, financial results, projections of expansion,
diversification, term planning etc.
MODERN PORTFOLIO APPROACH

MARKOWITZ MODEL

Harry M. Markowitz has credited and introduced the new concept of risk
measurement and their application to the selection of portfolios. He started with the idea
of risk aversion of investors and their desire to maximize expected return with the least
risk.
Markowitz model is a theoretical framework for analysis of risk and return and their
relationships. He used statistical analysis for the measurement of risk and mathematical
programming for selection of assets in a portfolio in an efficient manner. His framework
led to the concept of efficient portfolios, which are expected to yield the highest return
for given a level of risk or lowest risk for a given level of return.
Risk and return two aspects of investment considered by investors. The expected
return may vary depending on the assumptions. Risk index is measured by the variance or
the distribution around the mean its range etc, and traditionally the choice of securities
depends on lower variability where as Markowitz emphasizes on the need for
maximization of returns through a combination of securities whose total variability is
lower.
The risk of each security is different from that of others and by proper combination of
securities, called diversification, one can form a portfolio where in that of the other
offsets the risk of one partly or fully. In other words, the variability of each security and
covariance for his or her returns reflected through their inter-relationship should be taken
into account
Thus, expected returns and the covariance of the returns of the securities within the
portfolio are to be considered for the choice of a portfolio.
A set of efficient portfolios can be generated by using the above process of combining
various securities whose combined risk is lowest for a given level of return for the same
amount of investment, that the investor is capable of the theory of Markowitz, as stated
above is based on the number of assumptions.

20
ASSUMPTIONS OF MARKOWITZ THEORY

The analytical framework of Markowitz model is based on several assumptions regarding

the behavior of Investor:

1. The investor invests his money for a particular length of time known as Holding
Period.
2. At the end of holding period, he will sell the investments.
3. Then he spends the proceeds on either for consumption purpose or for
reinvestment purpose or sum of both. The approach therefore holds good for a
single period holding.
4. The market efficient in the sense that, all investors are well informed of all the
facts about the stock market.
5. Since the portfolio is the collection of securities, a decision about an optimal
portfolio is required to be made from a set of possible portfolios.
6. The security returns over the forthcoming period are unknown, the investor could
therefore only estimate the Expected return (ER). A typical investor does not
only look for highest ER but also Return to be as certain as possible.
7. All investors are risk averse.
8. Investors study how the security returns are co-related to each other and combine
the assets in an ideal way so that they give maximum returns with the lowest
risk.
9. He would choose the best one based on the relative magnitude of these two
parameters.
[Link] investors base their decisions on the price- earning ratio. Standard deviation of
the rate of return, which is been offered on the investment, from the expected rate of
return of an investment, is one of the important criteria considered by the investors
for choosing different securities

21
 MARKOWITZ DIVERSIFICATION

Markowitz postulated that diversification should not only aim at reducing the risk of a
security by reducing its variability or standard deviation, but by reducing the covariance
or interactive risk of two or more securities in a portfolio.
As by combination of different securities, it is theoretically possible to have a range
of risk varying from zero to infinity.
Markowitz theory of portfolio diversification attaches importance to standard
deviation, to reduce it to zero, if possible, covariance to have as much as possible
negative interactive effect among the securities within the portfolio and coefficient of
correlation to have –1(negative) so that the overall risk of the portfolio as whole is nil or
negligible. Then the securities have to be combined in a manner that standard deviation
is zero.

Efficient Frontier As for Markowitz model minimum variance portfolio is used for
determination of proportion of investment in first security and second security. It
means the portfolio consists of two securities only. When different portfolios and their
expected return and standard deviation risk rates are given for determination of best
portfolio efficient frontier is used.
Efficient frontier is graphic representation on the basis of the optimum point, this
is to identified at that point the portfolio may give better returns at lowest risk. At that
point the investor can choose portfolio. On the basis of this holding period of portfolio
can be determined.

On “X” axis risk rate of portfolio ([Link] p), and on “Y” axis return on portfolios are
to be shown. Calculate return on portfolio and standard deviation of portfolio for
various combinations of weights of two securities. Various returns are shown on the
graphic and identify the optimal point.

Calculation of Expected Rate of Return (ERR):

 Calculate the proportion of each Security’s proportion in the total investment.

 It gives the weights for each component of Securities.
22
  Multiply the funds invested in each component with the weights.
 It gives the initial wealth or initial Market value.

Equation: Rp = w1R1 + w2R2 + w3R3 + . . . . . . . . . . .+wnRn

Where Rp = Expected return on portfolio

w1, w2, w3, w4 = proportional weight invested
R1, R2,R3,R4 = expected returns on securities
The rate of return on portfolio is always weighted average of the securities in the
portfolio.
ESTIMATION OF PORTFOLIO RISK:

A useful measure of risk should take into accounts both the probability of
various possible bad outcomes and their associated magnitudes. Instead of measuring
the probability of a number of different possible outcomes an ideal measure of risk
would estimate the extent to which the actual outcome is likely to diverge from the
expected outcome.

Two measures are used for this purpose:

1. Average absolute deviation.

2. Standard deviation.

In order to estimate the total risk of a portfolio of assets, several estimates are needed:

a) The variance of each individual asset under the consideration for inclusion in
the portfolio and the covariance and correlation co-efficient of each asset with
each of the other assets.

b) The predicted return on the portfolio is simply a weighted average of the

predicted returns on the securities, using the proportionate values as weights.

c) The risk of the portfolio depends not only on the risk of its securities
considered in isolation, but also on the extent to which they are affected
similarly by underlying events.

23
 d) The deviation of each security’s return from its expected value is determined
and the product of the two obtained.

e) The variance is a weighted average of such products, using the probabilities of

the events as weights.

Effect of combining two Securities:

It is believed that spreading the portfolio in two securities is less risky than
concentrating in only one security. If two stocks, which have negative correlation, were
chosen on a portfolio, risk could be completely reduced due to the gain in one would
offset the loss on the other. The effect of two securities, one more risky and the other less
risky, on one another can also be studied. Markowitz theory is also applied in the case of
multiple securities.

Corner portfolios:

A number of portfolios on the efficiency frontier are corner portfolios, it may be

either new securities or security or securities dropped from previous efficient portfolios.
By swapping one security with other, the portfolio expected return could be increased
with no change in its risk.

Dominance principle

It has been developed to understand risk return trade off conceptually it states that
efficient frontier analysis assumes that investors prefer returns and dislikes risk.

Criticism on Markowitz theory:

The Markowitz model is confronted with several criticisms on both theoretical

and practical point of view.

a) Very tedious and invariably required a computer to effect numerous

calculations.

b) Another criticism related to this theory is rational investor can avert risk.

24
c) Most of the works stimulated by Markowitz uses short term volatility to
determine whether the expected rate of return from a security should be
assigned a high or a low expected variance, But if an investor has limited
liquidity constraints, and is truly a long-term holder, then price volatility parse
does not really pose a risk. Rather in this case, the question of concern is one
ultimate price realization and not interim volatility.

d) Another apparent hindrance is that practicing investment managers found it

difficult to understand the conceptual mathematics involved in calculating the
various measures of risk and return. There was a general criticism that an
academic approach to portfolio management is essentially unsound.

e) Security analysts are not comfortable in calculating covariance among

securities while assessing the possible ranges of error in their expectations

25
 CHAPTER – 3
INDUSTRY AND COMPANY PROFILE

INDUSTRY PROFILE OF FINANCIAL SERVICES

Introduction

The financial services sector accounts for a significant share of economic activity in
most Countries. The sector is recognized for its contribution towards long-term growth
and efficiency given its intermediate role in channeling resources to all sectors of the
economy.
Improved provision of financial services enables greater efficiency in other sectors
by expanding the range and enhancing the quality of such services, by lowering costs of
funds, and by encouraging savings and more efficient use of these Savings. The financial
services sector has undergone important structural changes in recent years with growing
numbers of worldwide cross border mergers and acquisitions and increased competition
among different types of financial institutions. These structural trends are evident from
rising cross border trade and foreign investment flows in financial services, with the
developed countries being the main exporters of such services As a result, the financial
services sector has become an important part of the overall globalization of the service
sector.
The internationalization of financial services has mainly been driven by the
liberalization of this sector around the world, which includes domestic financial
deregulation, capital account liberalization, and opening up to foreign competition. In
addition, technological advances have also made possible a wider range of services and
competitors in this sector. Liberalization of financial services across countries has in turn
been prompted by the growing recognition of the need to have an efficient and globally
competitive financial sector with international practices and standards, and a high quality
and wide range of financial services that enables efficient intermediation of financial
resources. Studies indicate that openness to foreign competition puts pressure on
domestic financial firms to improve their productivity and services and also gives them

26
access to new technologies. However; internationalization of financial services has also
raised concerns about the potential risks of opening up this sector.

Financial Services in the Indian Economy:

Characteristics and Trends

The structure of India’s financial sector can be assessed in terms of the institutions that
comprise this sector as well as the various financial markets in which these institutions
interact and carry out transactions. The most important segment is the banking sector.
The latter comprises the Reserve Bank of India, commercial banks, and cooperative
banks. Commercial banks include scheduled and nonscheduled banks, which are banks
that are required to keep a minimum amount of capital and obey RBI directions
concerning the cash reserve requirement (CRR) and are permitted to borrow from the
RBI.

Non bank financial services

This segment consists of non-financial firms as well as non-banking companies,

which intermediate funds from lenders to borrowers and provide services that are
different from normal banking services. NBFCs constitute a very diverse group of
intermediaries, including investment companies, finance corporations, chit funds,
nidhis, mutual benefit funds, hire-purchase finance companies, loan companies, and
leasing companies.
They are characterized by their ability to provide niche financial services to a
wide range of customers, from small borrowers to established corporate.
In the early 1990s, there was rapid expansion in the number of NBFCs in areas
such as hire purchase, housing, equipment leasing and investment. This growth was
driven by financial liberalization.
The number of NBFCs grew from a mere 7,000 plus in 1981 to over 37,000 in
1997-98. However, there were several cases of bankruptcy and fraud due to promises of
unrealistically high returns by some NBFCs and unviable NBFC deposit schemes that
were made possible by weak regulatory oversight.

27
 As a result, the regulatory framework for NBFCs was tightened and there has
been a shakeout in this sector since 1998. As of March 31, 2003, there were 13,831
NBFCs registered with the RBI. Out of these, 730 were deposit accepting NBFCs. Total
outstanding public deposits of 875 reporting NBFCs, including miscellaneous non
banking companies, mutual benefit financial companies, and mutual benefit companies,
amounted to Rs. 20,100 crores as of end March 2003 (equivalent to 1.5 percent of the
total deposits of commercial banks), compared to Rs. 18,822 crores held by 910
reporting NBFCs a year ago.70 Residuary non-banking companies accounted for
around 75 percent of total deposits (or Rs. 15,065 crores) held by NBFCs as of end
March 2003.

The NBFC sector has been dominated by a few large companies and is
concentrated in a few activities. Twenty NBFCs in the asset range of Rs. 500 crores and
above account for the bulk of total assets, while most NBFCs have an asset size of less
than Rs. 10 croresToday, the RBI’s regulatory framework for NBFCs is similar to that
for scheduled commercial banks to a large extent but different in a few respects. The
regulations are relatively more stringent for deposit taking NBFCs. There is a ceiling on
the interest rates offered on these deposits. In order to align the interest rates offered by
NBFCs with those prevailing in the banking sector, the RBI has reduced the maximum
rate than can be offered by the NBFCs from 12.5 percent per year to 11 percent per year
as of March 2003 and rates offered by NBFCs on NRI deposits cannot exceed those
prescribed for commercial banks. Also, as of April 2004, NBFCs cannot accept fresh
NRI deposits, although they can renew existing ones. Supervision has also been
strengthened as of July 2003 to increase the frequency of inspections,including periodic
as well as ad hoc scrutiny of books of accounts of NBFCs. Deposit insurance was not
extended to NBFCs in view of the high risks and often inadequate compliance with the
regulatory and supervisory framework. In July 2004, the RBI rationalized the
investment pattern of RNBCs to ensure greater liquidity and safety to their investments,
enhancing the protection available to depositors, and reducing the overall systemic risk.

Due to the strengthening of prudential norms and the regulatory framework, the NBFC
segment has witnessed some improvement in its performance indicators. Today, most of
the reporting NBFCs meet the stipulated minimum required capital to risk weighted

28
assets ratio (CRAR) of 12 percent and almost three fourths of them report a CRAR of
above 30 percent. There has also been an improvement in the NPA position of the
NBFCs. Gross and net NPAs as a percentage of credit exposure have declined from
11.4 percent and 6.7 percent in March 1998 to 9.7 percent and 4.3 percent, respectively,
in September 2002. Gross NPAs to total assets fell further to 9.2 percent as of end
March 2003. Following the initial spurt in NBFCs in the early 1990s, there has also
been a decline in the number of operating NBFCs due to mergers, closures and
cancellation of licenses, and conversion to non-banking no financial companies.
However, this segment and especially the smaller NBFCs that specialize in addressing
local credit.

29
 COMPANY PROFILE

INTRODUCTION

ICCFL is a Non Banking Finance company engaged in various fee based activities
like Money Changing, Travel services and share broking. . Incorporated in 1985, the
company originally was part of the Aruna Sugars Group who had interests in Hotel and
Sugar industry. The company was taken over by the India Cements group in 1997. The
India Cements Ltd. is a major player in the southern cement market.

Sri V A George, a qualified Engineer and an ex-banker who has worked with
Syndicate Bank and Catholic Syrian Bank, heads the company as President. [Link] is
assisted by a team of senior officials, many of whom are ex-bankers and core NBFC
professionals. One of the first NBFCs to get RBI Registration, the company is
professionally managed and enjoys a tA-(ind) rating from Fitch Ratings India Private
limited.

The company operates out of 16 branches, with the Corporate Office at Chennai.
There are 5 branches in Kerala, 6 in Tamil Nadu and one each in Andhra and Karnataka.
The company also has branches in the 3 metros of Bombay, Delhi and [Link]
company has satellite offices within the city of Chennai at Adyar, Anna Nagar and
Nungambakkam.

SERVICES

ICCL is engaged in the following fee-based activities. it is the division engaged in

extending comprehensive travel related services like ticketing (international and
domestic), hotel bookings, car rentals, leisure packages within India and abroad, and
miscellaneous services like passpor issuance and visa processing .The services are
extended out of seven locations namley Chennai, Mumbai, New Delhi, Kolkota,
Bangalore, Hyderabad, and Gawuhati. [Link] Thilakan, a veteran in the travel industry
with earlier experience in ITC Travel House and TCI, is the CEO of Coromandel Travels.

30
 For X Change is the brand name under which the company extends money changing
services as an RBI approved Full fledged Money Changer.
The division operates out of 27 centres spread over the country and buys and sells
all major currencies. ForX Change also stocks and sells Amex Travellers Cheques, in
addition to encashing Visa and Masters travellers Cheques. The division is headed by
[Link], who started his career with Thomas Cook and has over 25 years of
experience in the [Link] know more about the product
For’Xchange, the Money Changing division of India Cements Capital Limited, is an
RBI authorized Full Fledged Money Changer. For’X Change which started operations in
the year 1995 at Chennai, presently operates out of 27 locations all over the country. We
have a team of experienced professionals headed by Mr.K.P. Premnath , Deputy General
Manager.
We cater to the foreign exchange requirements of retail clients by purchasing
from Foreigners, NRIs and others and selling to Resident Indians who go abroad either
on leisure or business travel.
The division is also engaged in Bulk Buying and Selling of various foreign currencies in
tie up with Banks and Money Changers.

“For'Xchange along with Coromandel Travels and Midas Forex (divisions of

India Cements Capital Ltd,) and our subsidiaries Swastik Forex and India Cements
Investment Services Limited in a one stop shop for an array of financial products.
ACHIEVEMENTS

For’Xchange is one among the top 10 sellers of American Express Travellers

Cheques.
For’Xchange handled the mega Haj Project in the year Dec 2002 for 70000
passengers across 11 centers over a period of 35 days with a team of 80 members in
association with ING Vysya Bank Ltd.
For’Xchange along with Coromandel Travels, Midas Forex as divisions of India
Cements Capital Ltd, along with Swastik Broking and India Cements Investment
Services in the only organisation to handle an array of financial products as a one- stop-
shop.

31
 Citi World Money Cards - CWM cards: the CWM bank cards are available in US
Dollars, G B Pounds and Euro.
Currency Notes : We buy and sell all major currencies of various countries.
Indians travelling abroad are advised to buy the destination currrencies to eliminate
exchange loss.

Inward Remittances : We are an agent for Western Union Money transfer services
allowing inward remittances from abroad. This is an extremely convenient method of
Money transfer from abroad and funds can be received in matter of minutes. Recipients
can walk into any of our For'Xchange outlets to avail these services with proof of
identification and 10 digit Secret Reference Number.

Travellers Cheques : We stock and sell American Express Travellers Cheques.

The travellers cheques are available in US Dollars, G B Pounds, Euro, Japanese Yen,
Swiss Francs, Canadian Dollars and Australian Dollars giving you the benefit of availing
destination currencies.

UTI Bank's Travel Currency Cards - TCC : The TCC cards are available in US
Dollars, GB Pounds, Euro, Australian Dollars and Canadian Dollars.

32
 LIST OF DIRECTORS

[Link] Name Designation

1 Mr. T S Raghupathy Additional Director

2 Mr. N Srinivasan Chairman / Chair Person

3 Dr. B S Adityan Director

4 Mr. N Ramachandran Director

5 Mr. T Dulip Singh Director

6 Mr. N Srinivasan Director

33
 CHAPTER – 3&4
DATA ANALYSIS AND INTERPRETATION

PRACTICAL ANANLYSIS

 Table Showing Average Returns of Various Scrip’s And Risk.

 Table 1: SBI

MONTH R R-R' ( R-R' )2

JANUARY -0.41 -0.47 0.2209
FEBRAURY -1.955 -2.015 4.06
MARCH -0.051 -0.01 0.001
APRIL 2.896 2.836 8.042
MAY -0.875 -0.935 0.874
JUNE 2.187 2.127 4.5824
JULY 1.281 1.221 1.49
AUGUST -0.187 -0.247 0.061
SEPTEMBER -1.47 -1.53 2.343
OCTOBER -0.395 -0.455 0.207
NOVEMBER 0.538 0.478 0.228
DECEMBER 0.352 0.292 0.085

σ= √Variance

Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(22.13)
(12 – 1)

Variance = 2.012

σ= √2.012
SD or σ= 1.418

34
Table 2: ICICI

MONTH R R-R' ( R-R' )2

JANUARY -2.187 -1.001 1
FEBRAURY 3.293 4.478 20.05
MARCH -1 0.185 0.034
APRIL 2.025 3.21 10.3
MAY -5.486 -4.301 18.49
JUNE 1.314 2.499 6.24
JULY 1.642 2.827 7.99
AUGUST -0.234 0.951 0.904
SEPTEMBER -12.02 -10.835 3.12
OCTOBER -2.227 -1.042 1.085
NOVEMBER -1.447 -0.262 0.0686
DECEMBER -1.295 -0.11 0.0121

σ= √Variance

Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(159.29)
(12 – 1)

Variance = 144.8

σ= √144.8

SD or σ= 12.03

35
Table 3: INFOTECH

MONTH R R-R' ( R-R' )2

JANUARY 0.234 0.435 0.189

FEBRAURY -2.452 -2.25 5.063

MARCH 0.426 0.63 0.394

APRIL 0.164 0.36 0.133

MAY 1.713 1.91 3.66

JUNE 2.255 2.46 6.03

JULY 0.58 0.78 0.611

AUGUST -1.54 -1.34 1.791

SEPTEMBER -0.8 -0.6 0.357

OCTOBER 1.664 1.86 3.48

NOVEMBER -3.319 -3.12 9.717

DECEMBER -1.346 -1.144 1.309

σ= √Variance
Variance= 1/ n-1 ∑ (R-R’)2

t=1
1
(32.73)
(12 – 1)

Variance = 2.97

σ= √2.97
SD or σ= 1.72

36
Table 4: WIPRO
MONTH
R R-R' ( R-R' )2

JANUARY 3.241 2.532 6.411

FEBRAURY -0.201 -0.91 0.828

MARCH 2.66 1.951 3.806

APRIL 0.965 0.256 0.605

MAY 3.49 2.788 7.77

JUNE 2.649 1.94 3.76

JULY 0.368 -0.341 0.11

AUGUST -0.218 -0.927 0.85

SEPTEMBER 0.066 -0.643 0.413

OCTOBER -3.183 -3.89 15.14

NOVEMBER -0.016 0.725 0.525

DECEMBER -0.346 -1.055 1.11

σ= √Variance

Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(40.8)
(12 – 1)
Variance = 3.70

σ= √3.7
SD or σ= 1.92

37
Table 5: BAJAJ

MONTH R R-R' ( R-R' )2

JANUARY -0.935 -1.22 1.48

FEBRAURY 1.137 0.852 0.725

MARCH 2.472 2.187 4.782

APRIL 1.34 1.064 1.132

MAY 1.486 1.201 1.442

JUNE 1.429 1.144 1.308

JULY -1.571 -1.856 3.44

AUGUST -0.151 -0.436 0.19

SEPTEMBER 2.26 1.981 3.924

OCTOBER -1.857 -2.142 4.58

NOVEMBER -1.34 -1.625 2.64

DECEMBER -0.864 -1.49 1.32

σ= √Variance
Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(26.96)
(12 – 1)

Variance = 2.40

σ= √2.40
SD or σ= 1.56

38
 Table 6: HERO MOTO CORP

MONTH R R-R' ( R-R' )2

JANUARY 0.023 -0.071 0.005

FEBRAURY -0.625 -0.791 0.517

MARCH -0.513 -0.607 0.368

APRIL 0.9094 0.0004 0

MAY -1.129 -1.223 1.496

JUNE 3.657 3.562 12.69

JULY 0.555 0.46 0.212

AUGUST -0.538 -0.632 0.399

SEPTEMBER -1.29 -1.393 1.941

OCTOBER 0.784 0.689 0.475

NOVEMBER 0.033 -0.061 0.003

DECEMBER 0.091 -0.0034 0.000011

σ= √Variance
Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(18.1)
(12 – 1)

Variance = 1.64

σ= √1.64

SD or σ= 1.282

39
Table7: DABUR

MONTH R R-R' ( R-R' )2

JANUARY 1.939 3.25 10.56

FEBRAURY -0.54 0.772 0.595

MARCH 0.822 2.13 4.54

APRIL -2.048 -0.736 0.54

MAY -3.642 -2.33 5.43

JUNE -1.18 0.132 0.017

JULY -2.33 -1.018 1.036

AUGUST -1.33 -0.025 0.006

SEPTEMBER -0.797 0.515 0.265

OCTOBER -0.746 0.566 0.32

NOVEMBER 2.384 3.696 13.66

DECEMBER -8.276 -6.961 48.45

σ= √Variance

Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(85.42)
(12 – 1)

Variance = 7.76

σ= √7.76
SD or σ= 2.79

40
Table 8: HUL

MONTH
R R-R' ( R-R' )2

JANUARY 0.852 1.119 1.25

FEBRAURY 1.12 1.387 1.92

MARCH -1.09 -0.8263 0.68

APRIL -0.686 -0.419 0.176

MAY -0.468 -0.201 0.04

JUNE 4.113 4.38 19.18

JULY -5.4 -5.133 26.35

AUGUST -1.86 -1.59 2.54

SEPTEMBER 0.961 1.22 1.508

OCTOBER 1.586 1.85 3.43

NOVEMBER -0.36 0.093 0.0086

DECEMBER -1.97 -1.703 2.9002

σ= √Variance

Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(59.98)
(12 – 1)

Variance = 5.45

σ= √5.45
SD or σ= 2.34

41
Table 9: RELIANCE

MONTH R R-R' ( R-R' )2

JANUARY 0.776 -0.11 0.012

FEBRAURY 0.724 -0.16 0.026

MARCH -0.575 1.461 2.135

APRIL 1.024 0.138 0.019

MAY 1.721 0.83 0.697

JUNE 3.41 2.52 6.37

JULY -0.931 1.817 3.3

AUGUST 7.437 6.55 42.91

SEPTEMBER -1.525 2.41 5.81

OCTOBER -0.728 1.61 2.66

NOVEMBER 0.523 1.41 1.99

DECEMBER -0.775 1.66 2.76

σ= √Variance

Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(68.63)

(12 – 1)

Variance = 6.24

σ= √6.24 SD or σ= 2.49

42
Table 10: ONGC

MONTH R R-R' ( R-R' )2

JANUARY -0.298 0.09 0.008

FEBRAURY -3.694 -3.486 12.15

MARCH -1.918 -1.71 2.92

APRIL 0.445 0.653 0.43

MAY 0.004 0.212 0.045

JUNE 3.275 2.48 12.13

JULY -0.58 -0.37 0.138

AUGUST -0.522 -0.314 0.099

SEPTEMBER -1.527 -1.32 1.74

OCTOBER 2.816 3.024 9.14

NOVEMBER -0.19 0.018 0.0003

DECEMBER -0.308 -0.1 0.01

43
σ= √Variance

Variance= 1/ n-1 ∑ (R-R’)2

t=1

1
(38.81)
(12 – 1)

Variance = 3.53

σ= √3.53
SD or σ= 1.88

Table 11: TABLE SHOWING EXPECRED RETURN &STANDARD DEVIATION

OF VARIOUS SCRIPS

Serial no Script Name Expected return (%) Standard Deviation (%)

1 SBI 0.06 1.418

2 ICICI -1.185 12.03

3 INFOTECH -0.2017 1.724

4 WIPRO 0.709 1.925

5 BAJAJ 0.285 1.565

6 0.0944 1.282
HERO MOTO
44
 CORP

7 DABUR -1.312 7.765

8 HUL -0.267 2.34

9 RELIANCE 0.8862 2.498

10 ONGC -0.208 1.88

Graph 1: GRAPH OF EXPECTED RETURN OF 10 SCRIPTS

45
INTERPRETATION:

The Expected return of SBI bank is 0.06, whereas ICICI Bank return is going in
negative i.e. -1.185. An INFOTECH return is at 0.2017 whereas a WIPRO return is also
doing well it is going at 0.709. BAJAJ returns is going positive at 0.285, ONGC, HUL,
and DABUR returns is going in negative. RELIANCE returns is also going in positive at
0.88 and HERO MOTO CORP is going at 0.09.

Graph 2: GRAPH OF STANDARD DEVIATION OF 10 SCRIPTS

46
 INTERPRETATION:

The Standard Deviation of SBI bank is 1.418%, whereas ICICI Bank standard
deviation is Maximum I.e.12.03. An INFOTECH Standard Deviation is at 1.724 whereas
a WIPRO Standard Deviation it is going at1.925. BAJAJ Standard Deviation is going at
1.565; ONGC, HUL, and DABUR Standard Deviation are 1.88, 2.34, and 7.765.
RELIANCE Standard Deviation is at 2.498 and HERO MOTO CORP is going at 1.282.

47
 TABLE SHOWING CO-VARIANCE & CO-RELATION OF VARIOUS SCRIPS

Table 12: SBI & HUL

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN -0.47 1.12 -0.5264
FEB -2.015 1.39 -2.80085
MAR -0.01 -0.82 0.0082
APR 2.84 -0.42 -1.1928
MAY -0.93 -0.2 0.186
JUN 2.127 4.38 9.31626
JUL 1.22 -5.13 -6.2586
AUG -0.25 -1.59 0.3975
SEP -1.35 1.23 -1.6605
OCT -0.46 1.85 -0.851
NOV 0.47 0.09 0.0423
DEC 0.29 -1.7 -0.493
-3.83289

Correlation coefficient of (rAB) = covariance (AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(-3.817)

Covariance= (-0.318)

Correlation coefficient of (rAB) = (-0.318)/1.418*2.34

Correlation coefficient of (rAB ) =(-0.083)

48
 Table 13: BAJAJ & RIL

Months (RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN -1.22 -0.11 0.1342
FEB 0.85 -0.16 -0.136
MAR 2.18 1.47 3.2046
APR 1.06 0.14 0.1484
MAY 1.2 0.83 0.996
JUN 1.15 2.52 2.898
JUL -1.85 1.82 -3.367
AUG -0.43 6.55 -2.8165
SEP 1.99 2.41 4.7959
OCT -2.14 1.61 -3.4454
NOV -1.62 1.41 -2.2842
DEC -1.15 1.66 -1.909
-1.781

Correlation coefficient of (rAB) = covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(-1.88)

Covariance= (-0.1567)

Correlation coefficient of (rAB) = (-0.1567)/1.567*2.498

Correlation coefficient of (rAB) = (-0.040)

49
 Table 14: INFOTEH & ICICI

Months (RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN 0.44 -1 -0.44
FEB -2.25 4.47 -10.0575
MAR 0.63 0.19 0.1197
APR 0.36 3.21 1.1556
MAY 1.91 -4.3 -8.213
JUN 2.45 2.5 6.125
JUL 0.79 2.82 2.2278
AUG -1.33 0.95 -1.2635
SEP -0.59 -10.83 6.3897
OCT 1.86 -1.04 -1.9344
NOV -3.12 -0.26 0.8112
DEC -1.14 -0.11 0.1254
-4.954

Correlation coefficient of (rAB) = covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(-4.98)

Covariance= (-0.4075)
Correlation coefficient of (rAB) = (-0.4075)/1.7248*12.033

Correlation coefficient of (rAB ) =(-0.0196)

50
 Table 15: HERO MOTO CORP AND DABUR

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN -0.07 3.25 -0.2275
FEB -0.72 0.78 -0.5616
MAR -0.61 2.13 -1.2993
APR -0.0004 -0.73 0.000292
MAY -1.22 -2.33 2.8426
JUN 3.56 0.13 0.4628
JUL 0.46 -1.02 -0.4692
AUG -0.63 -0.025 0.01575
SEP -1.39 0.52 -0.7228
OCT 0.68 0.57 0.3876
NOV -0.06 3.69 -0.2214
DEC -0.003 -6.96 0.02088
0.228122

Correlation coefficient of (rAB )= covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(0.25)

Covariance=(0.021.)

Correlation coefficient of (rAB ) = (0.021)/1.282*2.79

Correlation coefficient of (rAB ) =(0.0058)

51
 Table 16: WIPRO AND ONGC

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN 2.53 0.09 0.2277
FEB -0.91 -3.5 3.185
MAR 1.95 -1.71 -3.3345
APR 0.25 0.65 0.1625
MAY 2.79 0.21 0.5859
JUN 1.94 3.48 6.7512
JUL -0.34 -0.37 0.1258
AUG -0.93 -0.31 0.2883
SEP -0.64 -1.32 0.8448
OCT -3.9 3.02 -11.778
NOV -0.73 0.02 -0.0146
DEC -1.05 -0.1 0.105
-2.8509

Correlation coefficient of (rAB )= covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(-2.83)

Covariance=(-0.24)

Correlation coefficient of (rAB ) = (-0.24)/1.925*1.88

Correlation coefficient of (rAB ) =(-0.066)

52
 Table 17: ICICI AND ONGC

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN -1 0.09 -0.09
FEB 4.47 -3.5 -15.645
MAR 0.19 -1.71 -0.3249
APR 3.21 0.65 2.0865
MAY -4.3 0.21 -0.903
JUN 2.5 3.48 8.7
JUL 2.82 -0.37 -1.0434
AUG 0.95 -0.31 -0.2945
SEP -10.83 -1.32 14.2956
OCT -1.04 3.02 -3.1408
NOV -0.26 0.02 -0.0052
DEC -0.11 -0.1 0.011
3.6463

Correlation coefficient of (rAB )= covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(3.403)

Covariance=(0.28)

Correlation coefficient of (rAB ) = (0.28)/12.033*1.88

Correlation coefficient of (rAB ) =(0.012)

53
 Table 18: HUL AND BAJAJ

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN 1.12 -1.22 -1.3664
FEB 1.39 0.85 1.1815
MAR -0.82 2.18 -1.7876
APR -0.42 1.06 -0.4452
MAY -0.2 1.2 -0.24
JUN 4.38 1.15 5.037
JUL -5.13 -1.85 9.4905
AUG -1.59 -0.43 0.6837
SEP 1.23 1.99 2.4477
OCT 1.85 -2.14 -3.959
NOV 0.09 -1.62 -0.1458
DEC -1.7 -1.15 1.955
12.8514

Correlation coefficient of (rAB )= covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(12.8)

Covariance=(1.067)

Correlation coefficient of (rAB ) = (1.067)/2.34*1.565

Correlation coefficient of (rAB ) =(0.29)

54
 Table 19: RIL AND SBI

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN -0.11 -0.47 0.0517
FEB -0.16 -2.015 0.3224
MAR 1.47 -0.01 -0.0147
APR 0.14 2.84 0.3976
MAY 0.83 -0.93 -0.7719
JUN 2.52 2.127 5.36004
JUL 1.82 1.22 2.2204
AUG 6.55 -0.25 -1.6375
SEP 2.41 -1.35 -3.2535
OCT 1.61 -0.46 -0.7406
NOV 1.41 0.47 0.6627
DEC 1.66 0.29 0.4814
3.07804

Correlation coefficient of (rAB )= covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(2.65)

Covariance=(0.22)

Correlation coefficient of (rAB ) = (0.22)/2.498*1.418

Correlation coefficient of (rAB ) =(0.0625)

55
 Table 20: DABUR AND WIPRO

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN 3.25 2.53 8.2225
FEB 0.78 -0.91 -0.7098
MAR 2.13 1.95 4.1535
APR -0.73 0.25 -0.1825
MAY -2.33 2.79 -6.5007
JUN 0.13 1.94 0.2522
JUL -1.02 -0.34 0.3468
AUG -0.025 -0.93 0.02325
SEP 0.52 -0.64 -0.3328
OCT 0.57 -3.9 -2.223
NOV 3.69 -0.73 -2.6937
DEC -6.96 -1.05 7.308
7.66375

Correlation coefficient of (rAB )= covariance(AB)

σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(7.76)

Covariance=(0.65)

Correlation coefficient of (rAB ) = (0.65)/2.79*1.925

Correlation coefficient of (rAB ) =(0.12)

56
 Table 21: INFOTECH AND HERO MOTO CORP

(RA - RA') (RB - RB') (RA - RA') (RB - RB')

JAN 0.44 -0.07 -0.0308
FEB -2.25 -0.72 1.62
MAR 0.63 -0.61 -0.3843
APR 0.36 -0.0004 -0.00014
MAY 1.91 -1.22 -2.3302
JUN 2.45 3.56 8.722
JUL 0.79 0.46 0.3634
AUG -1.33 -0.63 0.8379
SEP -0.59 -1.39 0.8201
OCT 1.86 0.68 1.2648
NOV -3.12 -0.06 0.1872
DEC -1.14 -0.003 0.00342
11.07338

covariance(AB)
Correlation coefficient of (rAB )=
σA σB

Covariance=1/n ∑/t=1(RA- RA1)

Covariance=1/12(11.13)

Covariance=(0.93)

Correlation coefficient of (rAB ) = (0.93)/1.72*1.282

Correlation coefficient of (rAB ) =(0.42)

57
 Table 22: Table showing co-variance and co relation

S no Portfolio Co-variance Co-relation

1 SBI &HUL -0.318 -0.083

2 BAJAJ&RIL -0.1567 -0.04

3 INFOTECH&ICICI -0.4075 -0.0196

HERO MOTO &
4 DABUR 0.021 0.0058

5 WIPRO&ONGC -0.24 -0.066

6 ICICI&ONGC 0.28 0.012

7 HUL&BAJAJ 1.067 0.29

8 RIL&SBI 0.22 0.0625

9 DABUR&WIPRO 0.65 0.12

INFOTECH & HERO
10 MOTO 0.93 0.42
Graph: 3

58
 GRAPH OF CO-VARIANCE
-0.318
SBI &HUL
-0.1567
BAJAJ&RIL
0.93 -0.4075
INFOTECH&ICICI
0.021 HERO MOTO & DABUR
-0.24 WIPRO&ONGC
ICICI&ONGC
0.65 0.28
HUL&BAJAJ
RIL&SBI
0.22
1.067 DABUR&WIPRO
INFOTECH & HERO MOTO

Graph: 4

GRAPH OF CO-RELATION

-0.083
-0.04 SBI &HUL
0.12 BAJAJ&RIL
-0.0196
INFOTECH&ICICI
0.0058 HERO MOTO & DABUR
0.0625
-0.066 WIPRO&ONGC
ICICI&ONGC
0.012
HUL&BAJAJ
RIL&SBI
0.29
DABUR&WIPRO

59
  PORTFOLIO RISK ANALYSIS

 Calculation of portfolio risk SBI &HUL

___________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA=σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA=2.34(2.34-(-0.083)1.418
1.4182+2.342-[2(-0.083)1.418*2.34

WA=0.12

WB=0.88

______________________________________________
σp = √ 2.010*0.014+5.48*0.77+(-0.166)1.418*2.34*0.12*0.88

σp =2.05

60
  Calculation of portfolio risk BAJAJ&RIL

________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA= σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA=2.5(2.5-(-0.040)1.56
1.562+2.52-[2(-0.040)1.56*2.5

WA=0.71

WB=0.29

σp = √ 1.562 0.712+ 2.52* .292+2(-.04) (1.56)(2.5)(0.71)(0.29)

σp =1.29

61
  Calculation of portfolio risk INFOTECH & ICICI

________________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA=σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA= 12.033(12.033-(-0.0196)1.725
1.7252+12.0332-[2(-0.0196)1.725*12.033

WA=0.97

WB=0.03

σp= √ 2.98*0.972 +1.44.79 *0.032+2(-0.0196)1.75*12.033*0.97*0.03

σp=1.70

62
  Calculation of portfolio risk of HERO MOTO CORP & DABUR

_____________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA= σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA= 2.79(2.79-(-0.0058)1.28
1.282+2.792-[2(-0.0058)1.28*2.79

WA=0.83

WB=0.17

σp= √ 1.64*0.832 +7.78 *0.172+2(0.0058)1.28*2.79*0.83*0.17

σp=1.17

63
  Calculation of portfolio risk WIPRO & ONGC

______________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA=σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA = 1.88(1.88-2(-0.066)1.93
1.932+12.882-[2(-0.066)1.93*1.88

WA=0.52

WB=0.4

_______________________________________________
σp= √ 3.72*0.522 +3.53 *0.482+2(-0.066)1.93*1.88*0.52*0.48

σp=1.30

64
  Calculation of portfolio risk ICICI & ONGC

________________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA=σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA= 1.88(1.88-2(-0.012)12.03
12.032+1.882-[2(-0.012)12.03*1.88

WA=0.02

WB=0.98

___________________________________________________
σp= √ 144.72*0.022 +3.53*0.982+2(0.012)12.03*1.88*0.02*0.98

σp=1.99

65
  Calculation of portfolio risk HUL & BAJAJ

_______________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA=σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA=1.57(1.57-2(0.29)2.34
2.342+1.572-[2(0.29)2.34*1.57

WA=0.06

WB=0.94

σp= √ 5.48*0.062 +2.46 *0.942+2(0.29)2.34*1.57*0.06*0.94

σp=1.52

66
  Calculation of portfolio risk RIL & SBI

______________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA=σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA= 1.42(1.42-2(0.063)2.5
2.52+1.422-[2(0.63)2.5*1.42

WA=0.41

WB=0.59

_____________________________________________
σp= √ 6.25*0.412 +2.02 *0.592+2(0.63)2.5*1.42*0.41*0.59

σp=1.69

67
  Calculation of portfolio risk DABUR & WIPRO

___________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

0
WA= σB(σB -RAB σA)
σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA = 1.93(1.93-2(0.12)2.8
2.82+1.932-[2(0.12)2.8*1.93

WA=0.24

WB=0.76
_

___________________________________________
σp= √ 7.8*0.242 +3.72 *0.762+2(0.12)2.8*1.93*0.24*0.76

σp=2.63

68
  Calculation of portfolio risk INFOTECH & HERO MOTO CORP

________________________________
Portfolio risk =σp= √ σA2 WA2+ σB2 wB2+2(rAB) σA σB WA WB

WA= σB(σB -RAB σA)

σA2 + σB2 –(2(rAB) σA2 * σB2

WB = (1-WA)

WA= 1.28(1.28-2(0.42)1.73
1.732+1.282-[2(0.42)1.73*1.28

WA=(-0.08)

WB=1.08

_______________________________________________
σp= √ 2.99*0.082 +1.64*1.082+2(0.42)1.73*1.28*(-0.08)1.08

σp=1.33

69
 TABLE 23: TABLE SHOWING PORTFOLIO RISK

SNO PORTFOLIO PORTFOLIO RISK

1 SBI & HUL 2.05

2 BAJAJ & RIL 1.29

3 INFOTECH &ICICI 1.7

4 HERO MOTO & DABUR 1.17

5 WIPRO&ONGC 1.3

6 ICICI & ONGC 1.99

7 HUL & BAJAJ 1.52

8 RIL&SBI 1.69

9 DABUR&WIPRO 2.63

10 INFOTECH & HERO MOTO 1.33

Graph: 5

70
INTERPERTATION:

The Portfolio Risk of SBI & HUL is 2.05%, whereas Portfolio Risk of BAJAJ &
RELIANCE 1.29%. A Portfolio Risk of INFOTECH & ICICI is at 1.7% whereas a
HERO MOTO CORP & DABUR Portfolio Risk is going at 1.17%. WIPRO & ONGC
Portfolio Risk is going at 1.3%; Max Portfolio Risk belongs to a portfolio of DABUR &
WIPRO is 2.63%. The portfolio of ICICI & ONGE is also having max portfolio risk of
1.99%.

FINDINGS OF THE STUDY

71
 The analytical part of the study of 12 months data for different portfolios reveals the
following things

 As far as the average returns of the selected scripts are concerned DABUR is
performing well in isolation, where as ICICI average return in isolation for the
study is very poor.
.
 As far as the standard deviations of selected scripts are concerned ICICI
standard deviation is very high that is 12.03% so we conclude that ICICI scripts
are highly risky scripts.

 The second highest standard deviation belongs to DABUR that is 2.79%,

INFOTECT 1.72%, HUL 2.34%, RELIANCE 2.49%, WIPRO 1.92%, and
whereas ONGC 1.85%, are moderately risky scripts.

 The correlation co-efficient script of the concerned, the study says that only
negative co-related scripts as suggested by Markowitz.

 According the best co-relation and co-efficient is in between WIPRO and

ONGC but the portfolio risk with this combination is moderate that is 1.30%
when compare to other combination.

 The investor those who are slightly risk averse they can invest in WIPRO and
ONGC, another set of portfolio that is negatively co-related is BAJAJ and RIL
as (-0.040) this combination of portfolio risk is less when compare to risk of
other portfolio.

So the investors who are very much concerned about risk can invest their funds in
this combination

 Rest of the portfolio falls under moderate risk category.

72
 SUGGESTIONS & CONCLUSIONS

 The investor who is risk averse can invest their funds in the portfolio
combination of HERO MOTO CORP & DABUR that is 1.17%, BAJAJ &
RIL 1.29%,
 WIPRO & ONGC 1.30%, INFOTECH &HERO MOTO CORP1.33%,
HERO MOTO ORP &BAJAJ 1.52%.

 The investors who are risk taker are suggested to invest in portfolio
combination of DABUR & WIPRO2.63%, SBI &HUL 2.05%, ICICI
&ONGC 2%.

 The investors who are moderate risk taker can select the portfolio
combination of RIL&SBI that is 1.69% & HUL & BAJAJ 1.53%.

73
 Bibliography:

[Link] AUTHOR BOOKS EDITION PUBLISHER YEAR

DONALD E .FISCHER.
1. SECURITY XII TATA 2007
AND
ANALYSIS & MCGRAW
RONALD JORDAN
PORTFOLIO HILL(NEW
2. MANAGEMENT DELHI)

2. I.M. PANDEY FINANCIAL VIII TATA 2008

MANAGEMENT MCGRAW
HILL(NEW
DELHI)

3. PRASANNA INVESTMENT IV TATA 2007

CHANDRA MANAGEMENT MCGRAW
HILL(NEW
DELHI)

WEBSITES
[Link]
[Link]
[Link]
[Link]

74