Beruflich Dokumente
Kultur Dokumente
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market (debt). Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, overthe-counter, or elsewhere.
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The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60. In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.
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In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached. Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the First World War. In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence. In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated. In 1937, a stock exchange was once again organized in Madras Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited). Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936.
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The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated. In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi Stock Exchnage Association Limited.
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1125
1203
1599
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2265
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6229
8593
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Trading Pattern of the Indian Stock Market
Trading in Indian stock exchanges are limited to listed securities of public limited companies. They are broadly divided into two categories, namely, specified securities (forward list) and non-specified securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up capital of atleast Rs.50 million and a market capitalization of atleast Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified group. Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery transactions "for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract" : and (b) forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". The latter is permitted only in the case of specified shares. The brokers who carry over the outstandings pay carry over charges (cantango or backwardation) which are usually determined by the rates of interest prevailing. A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only. The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times.
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(3) NATIONAL STOCK EXCHANGE
National Stock Exchange of India (NSE) is India's largest Stock Exchange & World's third largest Stock Exchange in terms of transactions. Located in Mumbai, NSE was promoted by leading Financial Institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, NSE was recognized as a Stock exchange under the Securities Contracts (Regulation) Act-1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000. NSE has played a catalytic role in reforming Indian securities market in terms of microstructure, market practices and trading volumes. NSE has set up its trading system as a nation-wide, fully automated screen based trading system. It has written for itself the mandate to create World-class Stock Exchange and use it as an instrument of change for the industry as a whole through competitive pressure. NSE is set up on a demutualised model wherein the ownership, management and trading rights are in the hands of three different sets of people. This has completely eliminated any conflict of interest. NSE was set up with the objectives of:
Establishing nationwide trading facility for all types of securities Ensuring equal access to investors all over the country through an appropriate telecommunication network
Providing fair, efficient & transparent securities market using electronic trading system
Enabling shorter settlement cycles and book entry settlements Meeting International benchmarks and standards Within a very short span of time, NSE has been able to achieve its objectives
for which it was set up. Indian Capital Markets are a far cry from what they were 12 years back in terms of market practices, infrastructure, technology, risk management, clearing and settlement and investor service. To ensure continuity of business, NSE has built a full fledged BCP site operational for last 7 years.
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NSE's markets NSE provides a fully automated screen-based trading system with national reach in the following major market segments:
Equity OR Capital Markets {NSE's market share is over 65%} Futures & Options OR Derivatives Market {NSE's market share over 99.5%} Wholesale Debt Market (WDM) Mutual Funds (MF) Initial Public Offerings (IPO) are the IT initiatives of NSE in the last one year?
What
NSE believes that technology shall continue to provide necessary impetus for any organisation to retain its competitive edge, ensure timeliness & satisfaction in customer service. Being fully dependant on Information Technology, NSE has stressed on innovation and sustained investment in technology on a continual basis to ensure customer satisfaction, improvement in services which automatically helps in sustaining business and remain ahead of competition. As a policy, NSE looks to improve the quality of Services to its customers. Projects are not initiated based on a business model to reap profits but from a strategic perspective of better productivity, Value-adds & features, improving efficiency, reducing operational costs, compliance, operational transparency etc for the customers, investors and to the entire Indian Securities Industry. Some of the projects taken by NSE last year are as follows:1. Trading System Capacity enhancement 2. Re-engineering of Online Position Monitoring (OPMS) 3. Augmentation of Data Warehouse (DWH) 4. STP Central Hub
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(4) BOMBAY STOCK EXCHANGE
The BSE is a potent symbolism of the Indian capitalist economy, and is an important landmark in the financial domain. Till the National Stock Exchange was found in 1992, the BSE continued to be the center of the Indian corporate world. Its traditional open outcry system of trading, with a milling crowd of brokers jostling with each other to make deals, inspired many an aspiring entrepreneur. Over the years, BSE has been pivotal in providing the Indian business in that most vital of resources Capital. Every Indian corporate worth its salt has tapped the Indian capital market through the exchange, and every major company ha its shares listed on the BSE. A listing on the BSE was considered as the holy grail in the Indian corporate and business world. BSE lost a substantial amount of reputation after the securities scam perpetrated by Harshad Mehta, and various scams in the following years have continued to pound its goodwill. Yet, the BSE continues to move from strength to strength, and continues to be the flagship of the Indian capital markets. The location of BSE Dalal Street has become the Indian equivalent of Wall Street.
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Trading System. BOLT is currently available to thousands of traders across the country, and provides access to markets from the computer screens. BSEWEBX, a service introduced in 2001, was first of its kind in the world and enabled investors to deal in shares and stocks from the comfort of their computers. In addition to the equity market, BSE is also taking important steps to develop the retail debt market. This step will help the common investors to gain access to an alternative investment option, and provide greater diversification opportunities. BSE is also involved in a number of initiatives to educate the investors, monitor the markets and provide training and education on various aspects related to the Indian capital markets.
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Terminals
Almost 52% of the terminals in the sample are based in the Western region of India, followed by 25% in the North, 13% in the South and 10% in the East. Mumbai has got the maximum representation from the West, Chennai from the South, New Delhi from the North and Kolkata from the East. Mumbai also has got the maximum representation in having the highest number of terminals. 40% terminals are located in Mumbai while 12% are from Delhi, 8% from Ahmedabad, 7% from Kolkata, 4% from Chennai and 29% are from other cities in India.
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Future Plans
68% of the firms from the sample have envisaged strategies for future growth. With the middle class Indian investor as well as foreign investor willing to invest in the stock market, majority of the firms preferred expansion of institutional and the Foreign Institutional Investor clients in their areas of growth. Around 84% have shown interest in expanding their institutional client base. Nearly 51% of such firms are located in the West, 25% in North, 15% are from South and 9% from East. Since the past couple of years, India, along with Korea and Taiwan, has been one of the preferred destinations for the FIIs. With corporate restructuring, rising market
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capitalisation and sectoral friendly policies helping the FIIs, more than two thirds of the firms are interested in increasing their FII client base. Amongst these firms, West again has maximum representation of 53%, followed by North with 22%. South has 15% firms and East makes up for 9%.
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iii) Greater reliance on research Client advising in India has graduated from personal insights, market tips to becoming extensively research oriented and governed by fundamentals and technical factors. Vast progress has been made in developing company research and refining methods in technical and fundamental analysis. The research and advice are made online giving ready and real time access to market research for investors and clients, thus making research important brand equity for the brokerage firms. iv) Accessing equity capital markets Access to reliable financial resources has been one of the major constraints faced by the equity brokerage industry in India since long. Since the banking system is not fully integrated with the securities markets, brokerage firms face limitations in raising financial resources for business and expansion. With buoyancy of the stock markets and the rising prospects of several well organized broking firms, important opportunity to access capital markets for resource mobilization has become available. The recent past witnessed several leading brokerage firms accessing capital markets for financial resources with success. v) Foreign collaborations and joint ventures The way the brokerage industry is run and the manner in which several of them pursued growth and development attracted foreign financial institutions and investment banks to buy stakes in domestic brokerage firms, paving the way for stronger brokerage entities and possible scope for consolidation in the future. Foreign firms picked up stake in some of the leading brokerage firms, which might lead to creating of greater interest in investing in brokerage firms by entities in India and abroad.
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vi) Specialised services/niche broking While supermarkets approach are adopted in general by broking firms, there are some which are creating niche services that attract a particular client group such as day traders, arbitrage trading, investing in small cap stocks etc, and providing complete range of research and other support to back up this function. vii) Online broking Several brokers are extending benefits of online trading through creation of separate windows. Some others have dedicated online broking portals. Emergence of online broking enabled reduction in transaction costs and costs of trading. Keen competition has emerged in online broking services, with some of these offering trading services at the cost of a few basis points or costs which are fixed in nature irrespective of the volume of trading conducted. A wide range of incentives are being created and offered by online brokerage firms to attract larger number of clients. viii) Compliance oriented With stringent regulatory norms in operation, broking industry is giving greater emphasis on regulatory compliance and observance of market principles and codes of conduct. Many brokerage firms are investing time, money and resources to create efficient and effective compliance and reporting systems that will help them in avoiding costly mistakes and possible market abuses. Brokerage firms now have a compliance officer who is responsible for all compliance related aspects and for interacting with clients and other stake holders on aspects of regulation and compliance. ix) Focus on training and skill sets Brokerage firms are giving importance and significance to aspects such as training on skill sets that could prove to be beneficial in the long run. With the nature of markets and products becoming more complex, it becomes imperative for the
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broking firms to keep their staff continuously updated with latest development in practices and procedures. Moreover, it is mandated for certain types of dealers/brokers to seek specific certification and examinations that will make them eligible to carry business or trade. Greater emphasis on aspects such as research and analysis is giving scope for in-depth training and skills sets on topics such as trading programs, valuations, economic and financial forecasting and company research. x) From owners to traders A fundamental change that has taken place in the equity brokerage industry, which is a global trend as well, is the transformation of broking from owners of the stock exchange to traders of the stock market. Demutualization and corporatisation of stock exchanges bifurcated the ownership and trading rights with brokers vested only with the later and ownership being widely distributed. Demutualization is providing balanced welfare gains to both the stock exchanges and the members with the former being able to run as corporations and the latter being able to avoid conflict of interests that sometimes came as a major deterrent for the long term growth of the industry.
PORTFOLIO ANALYSIS
promotion of investor interests. ii) Capital Adequacy Capital adequacy has emerged as an important determinant that governs the scope of business in the financial sector. Current requirements stipulation capital adequacy in regard to trading exposure, but in future more tighter norms of capital adequacy might come into force as a part of the prudential norms in the financial sector. In this background, it becomes imperative for the brokerage firms to focus on raising capital resources that will enable to give continuous thrust and focus on business growth. iii) Global Opportunities Broking in the future will increasingly become international in character with the stock markets being open for domestic and international investors including institutions and individuals, as also opportunities for investing abroad. Keeping abreast with developments in international markets as also familiarisation with global standards in broking operations and assimilating major practices and procedures will become relevant for the domestic brokerage firms. iv) Opportunities from regional finance Regional economic integration such as that under the European Union and the ASEAN have greatly benefited businesses in the individual countries with cross border opportunities that helped to expand the scope and significance of the business. Initial measures to promote South Asian economic integration is being made by governments in the region first at the political level to be followed up in regard to financial markets. South Asian economic integration will provide greater opportunities for broking firms in India to pursue cross border business. In view of several of common features prevailing in the markets, it would be easier to make progress in this regard.
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v) Product Dynamics As domestic finance matures and greater flow of cross border flows continue, new market segments will come into force, which could benefit the domestic brokerage firms, if they are well prepared. For instance, in the last three to four years, brokerage firms had newer opportunities in the form of commodities futures, distribution of insurance products, wealth management, mutual funds etc, and as the market momentum continues, broking firms will have an opportunity to introduce a wider number of products.
vi) Competition from foreign firms Surging markets and growing opportunities will attract a number of international firms that will increase the pace of competition. Global firms with higher levels of capital, expertise and market experience will bring dramatic changes in the brokerage industry space which the local firms should be able to absorb and compete. Domestic broking firms should always give due focus to emerging trends in competition and prepare accordingly. vii) Investor Protection Issues of investor interest and protection will assume centre stage. Firms found not having suitable infrastructure and processes to ensure investor safety and protection will encounter constraints from regulation as also class action suits that investors might bring against erring firms. The nature of penalties and punitive damages would become more severe. It is important for brokerage firms to establish strong and streamlined systems and procedures for ensuring investor safety and protection.
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..
KSL, though having commenced operations in Feb 1993, has a group expertise in financial services dating back all the way to 1934. Today, we continue to demonstrate our value and expertise of several decades and are today ranked as one of the most reputed brokerage house in the country.
We have inherited a tradition. A tradition built on relationship, performance and trust. These values and principles of the Group are primarily responsible for achieving excellence in market intermediation and financial advisory services. And we take pride in doing this consistently, year after year, decade after decade.
KSL's top management has combined wealth of experience of several decades in the Indian financial markets, led by eminent Board of Directors, with impeccable credentials. Niche, Value Focused Company
Strong service differentiators - Investment and Trading Strategies Good understanding of the business drivers - Market Dynamics and Operations Structuring Product Innovations - Instruments, Fund Raising, Value Investments Investment Expertise - The Principal Business Driver
Executing investment strategies that meet customer's return objectives - Maximising Valuations Value-based Strategies - Intrinsic Strengths
The advantage of using proven strategies for multiple assets / markets - Monetising Strategies
Ensures deeper customer engagement and market penetration - Strong Customer Traction
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Vision
Be a Globally Competitive and Successful, Cross-Segment Focused, Financial Services Group
Mission
"To provide unique solutions to meet client specific needs, given time and resource parameters"
At KSL, it has always been our vision and objective to build an organisation that can be proud of its achievements and contribution as well as at the same point in time continue to build value for all its stakeholders in a consistent, yet conservative manner.
The cornerstones of our service offerings to our customers - "patience" and "discipline" - are something that we strive to carry out in our business operations as well as to protect and maximise the stakeholder value.
We are confident that with our proven expertise and skill sets, over the next few years the Group would have charted and moved forward on its ambitious plans of building a globally competitive, financial services business conglomerate.
SERVICES:
1. Equity 2. Derivatives 3. Online Trading 4. Commodities 5. IPOs 6. Portfolio Management
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MANAGEMENT TEAM
BOARD OF DIRECTORS Mr. Shreedhar Parande (Chairman) Mr. Paresh J. Khandwala (Managing Director & CEO) Mr. Rohit Chand Mr. Kalpen Shukla Mr. Ajay Narasimhan
COMPANY SECRETARY & COMPLIANCE OFFICER Ms. Manisha Srivastava REGISTERED OFFICE Ground Floor, Vikas Building, Green Street, Fort, Mumbai - 400 023.
CORPORATE OFFICE Ground Floor, White House Annexe White House, 91, Walkeshwar Road, Walkeshwar, Mumbai 400 006.
AUDITORS UDYEN JAIN & ASSOCIATES Chartered Accountants, 540, 5th Floor, D Wing, Clover Centre, 7 Moledina Road, Pune 411 001
BANKERS Union Bank of India Mumbai Samachar Marg, Mumbai - 400 023. Canara Bank NSE Branch, Mumbai - 400 001
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REGISTRARS & TRANSFER AGENTS KARVY COMPUTERSHARE PRIVATE LIMITED 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad - 500 034.
KSL relies on its solid research capabilities and superior execution methodologies to lead the market movements. The model recommended portfolio of KSL has outperformed benchmark indices Several hundred clients are currently registered with KSL under its PMS scheme, wherein funds are being managed / advised on a discretionary and non-discretionary basis, which bears testimony to our expertise, specialization and consistent performance.
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Stock exchange operations are peculiar in nature and most of the Investors feel insecure in managing their investment on the stock market because it is difficult for an individual to identify companies which have growth prospects for investment. Further due to volatile nature of the markets, its require constant reshuffling of portfolios to capitalized on the growth opportunities. Even after identifying the growth oriented companies and their securities, the trading practices are also complicated, making it a difficult task for investors to trade in all the exchange and follow up on post trading formalities. That is why professional investment advice through portfolio management service can help the investors to make an intelligent and informed choice between alternative investments opportunities without the worry of loosing their invested money.Hence this is very much important to the stock dealers specially who are new to the market.
Portfolio management in common refers to the selection of securities and their continuous shifting in the portfolio to optimize returns to suit the objectives of an investor. In India, as well as in a number of western countries, portfolio management service has assumed the role of a specialized service now a days and a number of professional merchant bankers compete aggressively to provide the best to high
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networth clients, who have little time to manage their investments. The idea is catching on with the boom in the capital market and an increasing number of people are inclined to make profits out of their hard-earned savings.
Portfolio management service is one of the merchant banking activities recognized by Securities and Exchange Board of India(SEBI). The service can be rendered either by merchant bankers or portfolio managers or discretionary portfolio manager as define in clause (e) and (f) of Rule 2 of Securities and Exchang Board of India(Portfolio Managers)Rules, 1993 and their functioning are guided by the SEBI.
The major objectives of portfolio management are summarized as below:i. Keep the security, safety of Principal sum intact both in terms of money as well as its purchasing power. ii. Stability of the flow of income so as to facilitate planning more accurately and systematically the re-investment or consumption of income. iii. To attain capital growth by re-investing in growth securities or through purchase of growth securities. iv. Marketability of the security which is essential for providing flexibility to investment portfolio. v. Liquidity i.e.nearness to money which is desirable for the investor so as to take advantage of attractive opportunities upcoming in the market. vi. Diversification: The basic objective of building a portfolio is to reduce the risk of loss of capital and income by investing in various types of securities and over a wide range of industries. vii. Favourable tax status : The effective yield an investor gets from his investment depends on tax to which it is subject. By minimizing the tax burden, yield can be effectively improved.
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4. BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT:-
There are two basic principles for effective portfolio management which are given below:1. Effective investment planning for the investment in securities by considering the following factorsa. Fiscal,financial and monetary policies of the Govt.of India and the Reserve Bank of India. b. Industrial and economic environment and its impact on industry Prospect in terms of prospective technological changes, competition in the market, capacity utilization with industry and demand prospects etc. 2.Constant review of investment: Its require to review the investment in securities and to continue the selling and purchasing of investment in more profitable manner. For this purpose they have to carry the following analysis: a. To assess the quality of the management of the companies in which investment has been made or proposed to be made. b. To assess the financial and trend analysis of companies balance sheet and profit&loss Accounts to identify the optimum capital structure and better performance for the purpose of withholding the investment from poor companies. c. To analysis the security market and its trend in continuous basis to arrive at a conclusion as to whether the securities already in possession should be disinvested and new securities be purchased. If so the timing for investment or dis-investment is also revealed.
A. There are three major activities involved in an efficient portfolio management which are as follows:a. Identification of assets or securities, allocation of investment and also identifying the classes of assets for the purpose of investment. b. They have to decide the major weights, proportion of different assets in the portfolio by taking in to consideration the related risk factors.
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c. Finally they select the security within the asset classes as identify. The above activities are directed to achieve the sole purpose to maximize return and minimize risk in the investment even if there are unlimited risk in the market. Let us have a look on the composite risk involve in the market during operation:-
I. Interest rate risk: This arises due to variability in the interest rates from time to time. A changes in the interest rates establishes an inverse relationship in the price of the security i.e. price of securities trends to move inversely with change in rate of interest. Long term securities shows greater variability in compare to short term securities by this risk.
II. Purchasing power risk: It is also known as inflation risk and the inflation affect the purchasing power adversely. Inflation rates vary over time and changes unexpectedly causing erosion in the value of real return and expected return. Thus purchasing power risk is more in inflationary conditions especially in respect of bond and fixed income securities. It is not desirable to invest in such securities during inflationary situations. Purchasing power risk is however less in flexible income securities like equity shares or common stock where rise in dividend income off-sets increase in the rate of inflation and provides advantage of capital gain.
III. Business risk: Business risk arises from sale and purchase of securities affected by business cycles, technological changes etc. Business cycles affect all types of securities viz. there is cheerful movement in boom due to bullish trend in stock price where as bearish trend in depression brings down fall in the prices of all types of securities. Therefore securities bearing flexible income affected more than the fixed rated securities during depression due to decline in their market price.
IV. Financial Risk: This arises due to changes in the capital structure of the company. It is also known as leveraged risk and expressed in the terms of debtequity ratio. Excess of debt over equity in the capital structure of a company indicates that the company is highly geared even if the per capital earnings(EPS) of such company may be more. Because highly dependence on borrowings exposes to the risk of winding up for its inability to honour its commitments towards lenders and
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creditors. So the investors should be aware of this risk and portfolio manager should also be very careful. By taking in to accounts of all the above factors, investment decision in portfolio management are taken as followings:
B. INVESTMENT DECISION: By a certain sum of funds, the investment decision are basically depends upon the following factors:I. Objectives of investment portfolio: This is a crucial point which a Finance Manager must consider. There can be many objectives of making an investment. The manager of a provident fund portfolio has to look for security and may be satisfied with none too high a return, where as an aggressive investment company be willing to take high risk in order to have high capital appreciation. How the objectives can affect in investment decision can be seen from the fact that the Unit Trust of India has two major schemes : Its capital units are meant for those who wish to have a good capital appreciation and a moderate return, where as the ordinary unit are meant to provide a steady return only. The investment manager under both the scheme will invest the money of the Trust in different kinds of shares and securities. So it is obvious that the objectives must be clearly defined before an investment decision is taken.
II. Selection of investment: Having defined the objectives of the investment, the next decision is to decide the kind of investment to be selected. The decision what to buy has to be seen in the context of the following:a. There is a wide variety of investments available in market i.e. Equity shares, preference share, debentures, convertible bond, Govt.securities and bond, capital units etc. Out of these what types of securities to be purchased .
b. What should be the proportion of investment in fixed interest dividend securities an.d variable dividend bearing securities. The fixed one ensure a definite return and thus a lower risk but the return is usually not as higher as that from the variable dividend bearing shares.
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potential in growth should be taken in first line. Industry-wise-analysis is important since various industries are not at the same level from the investment point of view. It is important to recognized that at a particular point of time, a particular industry may have a better growth potential than other industries. For example, there was a time when jute industry was in great favour because of its growth potential and high profitability ,the industry is no longer at this point of time as a growth oriented industry.
d. Once industries with high growth potential have been identified, the next step is to select the particular companies, in whose shares or securities investments are to be made.
To identify the industries, which have a high growth potential the following techniques/approaches may be taken in to consideration:-
A.Statistical analysis of past performance: A statistical analysis of the immediate past performance of the share price indices of various industries and changes there in related to the general price index of shares of all industries should be made. The Reserve Bank of India index numbers of security prices published every month in its bulletin may be taken to represent the behaviour of share prices of various industries in the last fiew years. The related changes in the price index of each industry as compare with the changes in the average price index of the shares of all industries would show those industries which are having a higher growth potential in the past fiew years. It may be noted that a Industry may not remaining a growth Industry for all the time. So we have to make an assessment of the various Industries keeping in view the present potentiality also to finalized the list of Industries in which we will try to spread our investment.
After identifying the Industry, we have to assess the various factors which influence the value of a particular share. Those factors generally relate to the strengths and
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weaknesses of the company under consideration, Characteristics of the industry within which the company fails and the national and international economic scene. The major objective of the analysis is to determine the relative quality and the quantity of the security. It is also to be seen that the security is good at current market prices. This approach is known as intrinsic value approach. Industry analysis can help to assess the nature of demand of a particular product, Cost structure of the industry and other economic and Govt. constraints on the same. An appraisal of the particular industries prospect is essential and the basic profitability of any company is depends upon the economic prospect of the industry to which it belongs. The following factors are important in this regards:-
a. Demand and Supply pattern for the industries products and its growth potential: The management expert identify fives stages in the life of an industry. These are Introduction, development, rapid growth, maturity and decline. If an industry has already reached the maturity or decline stage, its future demand potential is not likely to be high. b. Profitability : It is a vital consideration for the investors as profit is the measures of performance and a source of earning for him. So the cost structure of the industry as related to its sale price is an important consideration. The other point to be considered is the ratio analysis, specially return on investment, gross profit and net profit ratio of the existing companies in the industry. c. Particular characteristics of the industry: Each industry has its own characteristics, which must be studied in depth in order to understand their impact on the working of the industry. Because the industry having a fast changing technology become obsolete at a faster rate. Similarly, many industries are characterized by high rate of profits and losses in alternate years. Such fluctuations in earnings must be carefully examine. d. Labour management relations in the industry: The state of labour-management relationship in the particular industry also has a great deal of influence on the future profitability of the industry. So it is vital to see that the industry under analysis has been maintaining a cordial relationship between labour and management. e. Company Analysis: To select a company for investment a number of qualitative
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factors have to be seen to visualize the performance of the company in future by analyzing its past performance such as :1. Size and ranking: In this regard the net capital employed, the net profits,the return on investment and the sales volume of the company under consideration may be compared with similar data of other company in the same industry group to assess the risk associated with the company. 2. Growth record: Three growth indicators may be looked in to i.e. Price earnings ratio, Percentage growth rate of earnings per annum and Percentage growth rate of net block of the company in the past fiew years should be examined. 3. Financial analysis: By the help of Financial analysis we can understand the financial solvency and liquidity, the efficiency, the profitability and the financial and operating leverage of the company in which the fund are used.
4. Pattern of existing stock holding: This analysis would show the stake of Various parties associate with the company. An interesting case in this regard is that of the Panjab National Bank in which the L.I.C. and other financial institutions had substantial holdings. When the bank was nationalized, the residual company proposed a scheme whereby those shareholders, who wish to opt out, could received a certain amount as compensation in cash. It was only at the instant and bargaining strength of institutional investors that the compensation offered to the shareholders, who wish to opt out of the company, was raised considerably.
5. Marketability of the shares: Mere listing of a share on the stock exchange does not automatically mean that the share can be sold and purchase. There may be inactive shares with no transaction for long period. So we have to examined the speculative interest of such scrip, extent of public holding and the particular stock exchange where it is traded.
Fundamental analysis thus is basically an examination of the economics and financial aspects of a company with the aim of estimating future earnings and dividend prospect. So after having analysed of all the relevant information we have to decide whether we should buy or sell the securities.
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The timing of dealings in the securities, specially shares is of crucial importance, because after correctly identifying the companies one may lose money if the timing is bad due to wide fluctuation in the price of shares of that companies.
The decision regarding timing of purchases is particularly difficult because of certain psychological factors. It is obvious that if a person wishes to make any gains, he should buy cheap and sell dear, i.e. buy when the share are selling at a low price and sell when they are at a higher price. But in practical it is a difficult task. When the prices are rising in the market i.e. there is bull phase, everybody joins in buying without any delay because every day the prices touch a new high. Later when the bear face starts, prices tumble down everyday and everybody starts counting the losses. The ordinary investor regretted such situation by thinking why he did not sell his shares in previous day and ultimately sell at a lower price. This kind of investment decision is entirely devoid of any sense of timing.
There are various theories and technique to deal with the portfolio management, some of their concept are discuss shortly hereunder:-
Dow Jones theory: According to this theory of Charles H. Dow , purchase should be made when bull trend started i.e. when price of the share are on the rise and sells them when they are on the fall i.e. at the time when bearish trend started.
Randam walk theory: Basically stock prices can never be predicted because they are not a result of any underlying factors but are mere statistical ups and downs. This hypothesis is known as Randam walk hypothesis. In the Laymans language it may be said that prices on the stock exchange behave exactly the way a drunk would behave while walking in a blind lane, i.e. up and down, with an unsteady way going
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in any direction he likes, bending on the side once and on the other side the second time.
Capital Assets Pricing Model(CAPM): CAPM provides a conceptual framework for evaluating any investment decision. It is used to estimate the expected return of any portfolio with the following formula:
E(Rp) = Rf+Bp(E(Rm)-Rf) Where, E(Rp) = Expected return of the portfolio Rf = Risk free rate of return Bp = Beta portfolio i.e. market sensitivity index E(Rm)= Expected return on market portfolio (E(Rm)-Rf)= Market risk premium
The above model of portfolio management can be used effectively to:*Estimate the required rate of return to investors on companys common stock. **Evalute risky investment projects involving real Assets. ***Explain why the use of borrowed fund increases the risk and increases the rate of return. ****Reduce the risk of the firm by diversifying its project portfolio. Moving Average: It refers to the mean of the closing price which changes constantly and moves ahead in time, there by encompasses the most recent days and deletes the old one.
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CONCLUSION
From the above discussion it is clear that portfolio functioning is based on market risk, so one can get the help from the professional portfolio manager or the Merchant banker if required before investment. Because applicability of practical knowledge through technical analysis can help an investor to reduce risk. In other words Security prices are determined by money manager and home managers, students and strikers, doctors and dog catchers, lawyers and landscapers, the wealthy and the wanting. This breadth of market participants guarantees an element of unpredictability and excitement. If we were all totally logical and could separate our emotions from our investment decisions then, the determination of price based on future earnings would work magnificently. And since we would all have the same completely logical expectations, price would only change when quarterly reports or relevant news was released. I believe the future is only the past again, entered through another gate Sir Arthur wing Pinero. 1893.
If price are based on investors expectations, then knowing what a security should sell for become less important than knowing what other investors expect it to sell for. There are two times of a mans life when he should not speculate; when he cant afford it and when he can Mark Twin,1897.
A Casino make money on a roulette wheel , not by knowing what number will come up next, but by slightly improving their odds with the addition of a 0 and 00. Yet many investors buy securities without attempting to control the odds. If we believe that this dealings is not a Gambling we have to start up it with intelligent way. Through it is basically a future estimation or expectation , one should know the standard norms and related rules for lowering the risk.
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Types of Portfolio
1.
Diversified Portfolio?
Diversified portfolios greatly reduce risk while smoothing investment returns by owning many securities across a wide range of industries. This allows investors to invest in a wide variety of opportunities while reducing the risk of large losses due to any one security. (A)What Are the Components of a Diversified Portfolio? A diversified portfolio is a collection of asset classes. The purpose of the diversified portfolio should be to offer maximum return while minimizing the overall risk of the portfolio. (B)Asset Classes Make a Diversified Portfolio Asset classes are a unique group of stocks that have common properties. Common asset classes are stocks, bonds, commodities and currencies. Stocks and preferred stocks can be considered different classes but they are not as diversified as a combination of stocks and foreign currencies. (C)Diversify Within Each Asset Class Owning a stock portfolio is better than owning a single stock. Owning a stock and bond fund adds another new asset class. (D)A Diversified Portfolio Is a Core Principle of Investing Investing is not being smarter than the market. It is about riding the market trends as profitably as possible under a variety of circumstances; diversified portfolios help ride out market uncertainty. (E)Indices Are Diversified Portfolios You can buy an index fund of stocks, bonds or other asset classes that is a proportionate sample of all the securities in that index. A purchase of many asset classes create a cost effective diversified portfolio.
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(F)The Alternatives to a Diversified Portfolio Owning securities that are very similar or highly correlated provides irregular returns and high risk. Investors suddenly needing to convert their assets to cash at inopportune times will have no choice but to accept the current market price.
3. Hybrid portfolio
A category of mutual fund that is characterized by portfolio that is made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed. Morningstar separates hybrid funds into domestic hybrid and international hybrid categories.
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SYSREMETIC RISK
The systematic risk affected the entire market; often we read in the newspaper that the stock market is in the bear hug or in the bull grip. This indicates that the entire market is moving in a particular direction either download or upward. The economic condition, political situation and sociological change affect the securities market. The recession in the economy affect the profit prospect of the industry and the stock market. The systematic risk is uncontrollable and unavoidable. This is further sub divided in to: I. II. III. Market risk Interest rate risk Purchasing power risk
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1. Market risk
The Clark Francis has defined market as that portion of total variability of return caused by the alerting forces of bull and bear markets, when the security index moves upward haltingly for a significant period of time, it is known as bull market. In the bull market, the index moves from a low level to peak. Bear market just a reverse to the bull market.
UNSYSTAMETIC RISK
Unsystematic risk is peculiar to a firm or an industry. Unsystematic risk stems from managerial inefficiency technological changed in the production process, availability of raw material, changes in the consumer preference, and labour problems. The nature and magnitude of the above-mentioned factor differ from industry to industry, and company to company. They have to analyze separately for each industry and firm.
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Unsystematic risk is classified in to: I. II. Business risk Financial risk
I)BUSINESS RISK Business risk is that portion of systematic risk caused by the operating enviroment of the business. Business risk arises from the inability of a firm to maintain its competitive edge and growth or stability of the earning. Business risk can be divided into external business risk and internal risk.
External risk
External risk is the result of operating condition imposed on the firm by circumstances beyond its control. The external environment in which it operates exerts some pressure on the firm. The external factors, monetary and fiscal policies of the government, business cycle and general economic environment within which a firm or industry operates. II)FINANCIAL RISK It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of company consists of equity funds and borrowed funds. The presence of debt and preference capital results in a commitment of paying interest or prefixed rate of dividend. The residual income alone would be available to the equity holders. The financial risk considers the difference between EBIT and EBT. The financial risk is an avoidable risk because it is the management who has to decide, how much to be funded with the equity capital and borrowed capital.
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RESEARCH METHODOLOGY
Problem statement
Risk return of the portfolio" (with relation to Equity Market)
Objective
1) To understand different investment avenues. 2) To know about How to make a portfolio?. 3) To know the relationship of a security return with market return.
Importance of research
1) Current scenario in the market for investment. 2) To get the knowledge about how to make a analysis for making handsome returnable portfolio. 3) This is the opportunity for me to get knowledge about stock exchange. Above all are the important reasons for doing this project.
Research design
A research design specifies the method and procedures for conducting a particular study. My problem solution needs the secondary data, which is already available in the market. So I am going to use the exploratory research method, which is based on the discovery of ideas and secondary data.
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DATA COLLECTION
Here I am going to use exploratory research design, which is based on secondary data. Data of index return and scrip return. Period for data collection 1-9-2010 to 31-1-2011 Two Industries are randomly selected that are: 1) FMCG 2) IT From the above industries companies from the same index are selected that are: 1) TCS 2) THINKSOFT 3) WIPRO 4) SATYAM COMPUTER 5) 3I INFOTECH 6) INFOSYS 7) PATNI 8) ITC LTD. 9) NESTLE INDIA LTD. 10) BRITANNIA INDIA LTD. 11) PROCTER & GAMBLE HYGIENE & HEALTHCARE LTD. 12) DABUR INDIA LTD. 13) NIRMA LTD.
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LIMITATIONS OF THE PROJECT As the data available to me has been taken from the secondary sources (like internet). It is not sure that collected data are accurate and complete.
Because of the time limitation, it may be possible that some important data are left out.
Due to lack of experience and knowledge it cant be said that the projection has been made totally correct and accurate.
As the time available was very less, so portfolio analysis has been done only on 2 sectors.
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For making a portfolio first of all we have to analise the particular stock.so I have taken two industry to analise the securities of that sector.Before that we will see about industrialization in india.
Industrialization in India
Since independence to 1980: During this period there was restrictive growth of private sector and government's permission was required to set up any private enterprise in India. Despite this the GDP grew at a rate of 1.4% per annum from 1940 1970. Other factors such as poverty and famine lowered India's economic growth rate during this period and with the presence of very few top producers of major industrial goods the absorption of domestic productivity was greater, which lead to monopolistic pricing. India during this phrase lagged behind in terms of economic growth as the rest of world grew and flourished through overseas trade.
1980 to mid-1990s: Post 1980s India saw liberalization and achieved further impetus in Mid-1991. The nation witnessed historical upsurge in per capita GNP. In 1994-95 the industrial output-growth registered 8.4% growth and the exports rose by 27%. This resulted in a 10% drop in inflation in the mid-1990s
1990s to 2000s: Since its liberalization policy, India has opened several public sector enterprises. The exports saw a 17% rise in 1994 and 28% in 1995-96. Over 90% of India's imports are backed by export revenues. At present the current account arrears is less than 1% of GDP and foreign-exchange profits are soaring at $20 billion. The food stocks have witnessed an all-time increase of 37m tonnes.
The private sector, which was neglected by previous governments, contributes to two-thirds of India's GDP. The shift of the state's responsibility from a chief investor to a catalyst of private enterprise has paved way to a new accord on liberalization. Industries in India
Experts believe that the contribution of India in the world GDP is estimated to
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increase from 6% to 11% by the year 2025, while on the flip side the contribution of US in world GDP is presumed to decline from 21% to 18%. This indicates towards the emergence of India as the third biggest global economy after US and China. The evaluation is supported by the overall development in all the sectors in India, in which the key sector is the industry sector.
Going by the past records the Industry sector in India registered a growth rate of 6.2% in October 2003 which further increased by 4% in the corresponding month of the next fiscal year.
Textile Industry: This industry covers a wide range of activities ranging from generation of raw materials such as jute, wool, silk and cotton to greater value added goods such as ready made garments prepared from different types of man made or natural fibres. Textile industry provides job opportunity to over 35 million individuals thus playing a major role in the nation's economy. It has 4 per cent share in GDP and shares 35% of the gross export income besides adding 14% of value addition in merchandizing sector.
Food Processing Industry: In terms of global food business, India accounts less than 1.5% inspite of being one of the key food producing nations worldwide. But this on the other hand also indicates the enormous possibilities for the growth of this industry. Supported by the GDP estimates, the approximate expansion of this sector is between 9-12% and during the tenth plan period the growth rate was around 6-8%. Food Processing Industry provides job opportunities to 1.6 mn people and it is estimated to expand by 37 mn by 2025.
Chemical Industry: Indian Chemical industry generates around 70,000 commercial goods ranging from plastic to toiletries and pesticides to beauty products. It is regarded as the oldest domestic sector in India and in terms of volume it gives a sense of pride to India by featuring as the 12 largest producer of chemicals. With an approximate cost of $28 billion, it amounts to 12.5% of the entire industrial output of India and 16.2% of its entire exports. Under
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Chemical industries some of the other rapidly emerging sectors are petrochemical, agrochemical, and pharmaceutical industries.
Cement Industry: India has 10 large cement plants governed by the different State governments. Besides this India have 115 cement plants and around 300 small cement plants. The big cement plans have installed competence of 148.28 million tones per annum whereas the mini cement plants have the total capacity of 11.10 million tonnes per annum. This totals the capacity of Indian cement industry at 159.38 million tonnes. Ambuja cement, J K Cement, Aditya Cement and L & T Cement are some of the major steel companies in India.
Steel Industry: Indian Steel Industry is a 400 years old sector which has a past record of registering 4% growth in 2005-06. The production during this period reached at 28.3 million tones. India steel industry is the 10th largest in the world which is evident from its Rs 9,000 crore of capital contribution and employment opportunities to more than 0.5 million people. The key players in Steel Industry are Steel Authority of India (SAIL), Bokaro Steel Plant, Rourkela Steel Plant, Durgapur Steel Plant and Bbilai Steel Plant.
Software Industry: Software Industry registered a massive expansion in the last 10 years. This industry signifies India's position as the knowledge based economy with a Compounded Annual Growth Rate (CAGR) of 42.3%. In the year 2008, the industry grew by 7% as compared to 0.59% in 1994-95.
Mining Industry: The GDP contribution of the mining industry varies from 2.2% to 2/5% only but going by the GDP of the total industrial sector it contributes around 10% to 11%. Even mining done on small scale contributes 6% to the entire cost of mineral production. Indian Mining Industry provides job opportunities to around 0.7 million individuals.
Petroleum Industry: Petroleum industry started its operations in the year 1867 and is considered as the oldest Indian industry. India is one of the most flourishing oil markets in the world and in the last few decades has witnessed the expansion of top national companies like ONGC, HPCL, BPCL and IOC.
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These are two sectors & there introduction which I have taken for analysis.
(1)
Introduction
Information
and management of computer-based information systems, particularly software applications and computer hardware. Today, it has grown to cover most aspects of computing and technology. The reason why it has catapulted in importance is due to the improving accessibility, awareness and utility of technology. It is a common fact that a countrys IT potential is paramount for its march towards global competitiveness, healthy GDP and defense capabilities. IT professionals perform a variety of duties ranging from data management, networking, engineering computer hardware, database and software design, to the management and administration of entire systems. With the already high penetration of conventional personal computer and network technology, coupled with the growing convergence of information, communication and entertainment, the industry is now keenly focused on the integration with other technologies such as mobile phones, automobiles and televisions etc, thereby increasing the demand for such jobs. The largest firms globally include IBM, HP, Dell and Microsoft.
Performance
In India, it is important to make the distinction between IT and ITES (IT enabled services). The latter refers to services delivered over telecom networks/ Internet to a range of external business areas (Colloquially referred to as KPO and BPO) and is treated elsewhere on this website (see ITES industry overview). Hence, we shall focus on the IT industry here by limiting the discussion to electronics hardware manufacturing and software development and services. Despite the unprecedented global economic downturn, the Indian IT industry has weathered the storm well, and will achieve sustainable growth going forward. India is
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expected to witness an average 8% salary increase in 2010 and ~50% of companies have strong hiring plans, according to a survey by global HR consultancy Mercer, giving yet another indication of the high confidence levels among the countrys corporate houses after the economy staged a faster-than-expected recovery from the slowdown. While the larger players continue to lead growth, gradually increasing their share in the industry aggregate, several high-performing small and medium enterprises have also stood out.
Growth Potential
The strong demand for electronic hardware and software in India has been fuelled by a variety of drivers including the high growth rate of the economy, emergence of a vast domestic market catering to the new generation of young consumers, a thriving middleclass populace with increasing disposable incomes and a relatively low-cost work force having advanced technical skills. Indeed, the Government has also identified growth of this sector as a thrust area as there remains great expectation for significant growth given the fairly low levels of penetration of technology among the 1.1 billion population; There were only 60 million Internet users in 2009, 7 million DVD players and personal computers were sold in 2008-09, and 11 million new mobile subscribers were added every month in the same period. In this scenario there is now a big opportunity to step up the production to gain higher global share besides meeting the domestic demands. The Indian IT sector has also built a strong reputation for its high standards of software development ability, service quality and information security in the foreign market- which has been acknowledged globally and has helped enhance buyer confidence. The industry continues its drive to set global benchmarks in quality and information security through a combination of provider and industry-level initiatives and strengthening the overall frameworks, creating greater awareness and facilitating wider adoption of standards and best practices.
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Future Prospects
The industry is likely to continue growing from strength to strength, as local players incorporate best in class practices from global counterparts whilst retaining their edge in terms of lower cost of labor and focused governmental investments. New graduates with degrees in related fields such as electrical engineering and computer science can hope to achieve significant professional growth and a healthy remuneration from companies looking to hire the best talent available, given the high proportion who leave to pursue jobs in this sector overseas.
This are the comapanies in IT sector for analysis: TCS THINKSOFT WIPRO SATYAM COMPUTER 3I INFOTECH INFOSYS PATNI
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1>TCS
Month September 2010 October 2010 November 2010 December 2010 January 2011
Opening Closing Return on opening price price TCS (y) 858.40 935.50 1053.40 1081.90 1159.55 926.95 1052.90 1076.00 1160.80 1157.15 0.0799 0.125 0.0215 0.073 -0.02 18027 20094 20072 19529 20621
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Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.0799 0.125 0.0215 0.073 -0.02 0.2794 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.009 -0.000375 -0.00058 0.00365 0.0022 0.013895 Y2 0.0064 0.015625 0.00046 0.005329 0.0004 0.028214 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of Y) (sum of XY )/ N = 0.028214 - 0.05388 ( 0. 2794) 0.44(0.013895)/5 = 0.028214 0.015 0.00611/5 = 0.0071/5 = 0.0014 Method of calculation of r
Variance of tcs = 0.2794/5 = 0.05588 Y return 0.0799 0.125 0.0215 0.073 -0.02 Total = 0.2794 dy 0.02402 0.06912 -0.03438 0.01712 -0.07588 0 Dy2 0.000576 0.004777 0.00118 0.00029 0.00575 0.012573
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Standard deviation
= 0.05
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Variance of sensex = 0.023/5 = 0.0046 X return 0.113 -0.003 -0.027 0.05 -0.11 Total = 0.023 dx 0.1084 -0.0076 -0.0316 0.0454 -0.1146 0 Dx2 0.01175 0.00005776 0.00099856 0.002061 0.01313 0.028
= 0.075
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2 > THINKSOFT GLOBAL Month September 2010 Opening Closing Return on opening price price stock (y) 126.30 117.65 109.6 81.8 92 73.5 -0.068 -0.082 -0.253 0.024 -0.193 18027 20094 20072 19529 20621 closing 20069 20032 19521 20509 18327 Return on sensex (x) 0.113 -0.003 -0.027 0.05 -0.11
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Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y -0.068 -0.082 -0.253 0.024 -0.193 -0.572 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY -0.0077 0.000246 0.00683 0.0012 0.02123 0.029506 Y2 0.004624 0.006724 0.064 0.000576 0.03725 0.1132 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = -0.572/5 = -0.1144 Alpha = Y (X) = -0.1144 1.14(0.0046) = -0.1144 0.0052 = -0.1196
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Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.1132 - (-0.1196) ( -0.572) 1.14(0.029506)/5 = 0.1132 0.068 0.0034/5 = 0.0418/5 = 0.00836 Method of calculation of r
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Variance = Edy2 / N = 0.16352/ 5 = 0.03270
Standard deviation
= 0.1808
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3> WIPRO Month Opening Closing Return on opening price price stock (Y) 401.35 448.35 427.15 418 483.95 438.45 0.117 -0.073 -0.013 0.167 -0.092 18027 20094 20072 19529 20621 closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010
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Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.117 -0.073 -0.013 0.167 -0.092 0.106 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.013221 0.000219 0.000351 0.00835 0.01012 0.032261 Y2 0.01369 0.0053 0.000169 0.02789 0.0085 0.0555 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = 0.106/5 = 0.0212 Alpha = Y (X) = 0.0212 1.15(0.0046) = 0.0212 0.00529 = 0.01591
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Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.0555 - (0.01591) ( 0.106) 1.15(0.032261)/5 = 0.0555 - 0.0017 0.037/5 = 0.0168/5 =0.00336 Method of calculation of r
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Standard deviation
= 0.1030
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4> SATYAM COMPUTER Month Opening Closing Return on opening price price stock (Y) 79.20 96.45 78.90 61.9 67.20 60.15 0.22 -0.13 -0.22 -0.03 -0.10 18027 20094 20072 19529 20621 closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010
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Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.22 -0.13 -0.22 -0.03 -0.10 -0.26 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.02486 0.00039 0.00594 -0.0015 0.011 0.04069 Y2 0.0484 0.0169 0.0484 0.0009 0.01 0.1246 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = -0.26/5 = -0.052 Alpha = Y (X) = -0.052 1.49(0.0046) = -0.052 0.0069 = -0.0589
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Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.1246 - (-0.0589) ( -0.26) 1.49(0.04069)/5 = 0.1246- 0.01531 0.061/5 = 0.04829/5 = 0.0097 Method of calculation of r
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Variance = Edy2 / N = 0.08036/ 5 = 0.016
Standard deviation
= 0.1265
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5 > 3i INFOTECH
Month Opening Closing Return on opening price price stock (Y) 58.10 62.10 67.90 58.35 59.80 60.10 67.20 55.90 57.70 49.45 0.034 0.076 -0.215 -0.011 -0.21 18027 20094 20072 19529 20621 closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
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Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.034 0.076 -0.215 -0.011 -0.21 -0.326 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.003842 -0.000228 0.0058 -0.00055 0.0231 0.03220 Y2 0.001156 0.005776 0.046225 0.000121 0.0441 0.097378 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = -0.326/5 = -0.0652 Alpha = Y (X) = -0.0652 1.20(0.0046) = -0.0652 0.00552 = -0.07072
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Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.097378 - (-0.07072) ( -0.326) 1.20(0.03220)/5 = 0.097378 + 0.023 0.039/5 = 0.08138/5 = 0.016 Method of calculation of r
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Variance = Edy / N = 0.0756/ 5 = 0.015
2
Standard deviation
= 0.12
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6> INFOSYS Month Opening Closing Return on price price stock (Y) 2750.65 3103.40 2994.65 3054.55 3445 3076.70 2969.60 3049.45 3440.50 3116.30 0.12 -0.04 0.018 0.126 -0.0954 opening closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
Calculations
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Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.12 -0.04 0.018 0.126 -0.0954 0.1286 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.01356 0.00012 -0.000486 0.0063 0.0105 0.0290 Y2 0.0144 0.0016 0.000324 0.01588 0.0091 0.0413 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = 0.1286/5 = 0.026 Alpha = Y (X) = 0.026 1.01(0.0046) = 0.026 0.0046 = 0.0214
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PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.0413 - (0.0214) ( 0.1286) 1.01(0.0290)/5 = 0.0413 - 0.0028 0.02929/5 = 0.00921/5 = 0.001842 Method of calculation of r
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PORTFOLIO ANALYSIS
Variance = Edy2 / N = 0.03796/ 5 = 0.0076
Standard deviation
= 0.087
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PORTFOLIO ANALYSIS
7> PATNI COMPUTERS Month Opening Closing Return on opening price price stock(Y) 450.15 425.90 467.75 467.35 469.6 416 461.30 466 473 461.3 -0.08 0.08 -0.004 0.012 -0.018 18027 20094 20072 19529 20621 closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
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PORTFOLIO ANALYSIS
Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y -0.08 0.08 -0.004 0.012 -0.018 -0.01 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY -0.00904 -0.00024 0.000108 0.0006 0.00198 -0.006592 Y2 0.0064 0.0064 0.000016 0.000144 0.000324 0.013284 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = -0.01/5 = -0.002 Alpha = Y (X) = -0.002 (-0.24)(0.0046) = -0.002 + 0.0011
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PORTFOLIO ANALYSIS
= -0.0009
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.013284 - (-0.0009) ( -0.01) (-0.24)(-0.006592)/5 = 0.013284 - 0.000009 0.0016/5 = 0.01168/5 = 0.002335 Method of calculation of r
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PORTFOLIO ANALYSIS
Standard deviation
= 0.17
All the companies findings Company name TCS beta 0.44 alpha 0.05388 -0.1196 0.01591 -0.0589 -0.07072 0.0214 -0.0009 Variance of sensex 0.0014 0.00836 0.00336 0.0097 0.016 0.001842 0.002335 r 0.4934 0.52 0.83 0.69 0.62 0.85 -0.35 Variance of stock 0.00251 0.03270 0.0106 0.016 0.015 0.0076 0.0028 Standard deviation 0.05 0.1808 0.1030 0.1265 0.12 0.087 0.17
THINKSOFT 1.14 WIPRO SATYAM 3I INFOTECH INFOSYS 1.15 1.49 1.20 1.01
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PORTFOLIO ANALYSIS
FMCG in 2006
The performance of the industry was inconsistent in terms of sales and growth for over 4 years. The investors in the sector were not gainers at par with other booming sectors. After two years of sinking performance of FMCG sector, the year 2005 has witnessed the FMCGs demand growing. Strong growth was seen across various segments in FY06. With the rise in disposable income and the economy in good health, the urban consumers continued with their shopping spree. - Food and health beverages, branded flour, branded sugarcane, bakery products such as bread, biscuits, etc., milk and dairy products, beverages such as
SHRI S.V.PATEL COLLEGE OF COMPUTER SCIENCE AND BUSINESS MANAGEMENT Page 82
PORTFOLIO ANALYSIS
tea, coffee, juices, bottled water etc, snack food, chocolates, etc. - Frequently replaced electronic products, such as audio equipments, digital cameras, Laptops, CTVs;other electronic items such as Refrigerator, washing machines, etc. coming under the category of White Goods in FMCG;
Sector Outlook
FMCG is the fourth largest sector in the Indian Economy with a total market size of Rs. 60,000 crores. FMCG sector generates 5% of total factory employment in the country and is creating employment for three million people, especially in small towns and rural India.
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PORTFOLIO ANALYSIS
Opportunities: 1. Untapped rural market 2. Rising income levels, i.e. increase in purchasing power of consumers 3. Large domestic market- a population of over one billion. 4. Export potential 5. High consumer goods spending Threats: 1. Removal of import restrictions resulting in replacing of domestic brands 2. Slowdown in rural demand Tax and regulatory structure
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PORTFOLIO ANALYSIS
This are the comapanies in FMCG sector for analysis: ITC LTD. NESTLE INDIA LTD. BRITANNIA INDIA LTD. PROCTER & GAMBLE HYGIENE & HEALTHCARE LTD. DABUR INDIA LTD. NIRMA LTD.
Month
Opening Closing Return on opening price price stock (Y) 163.15 178.8 171.85 171.45 174.35 178.05 171.15 171 174.5 162.95 0.09 -0.04 -0.005 0.018 -0.065 18027 20094 20072 19529 20621
closing
September 2010 October 2010 November 2010 December 2010 January 2011
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PORTFOLIO ANALYSIS
Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.09 -0.04 -0.005 0.018 -0.065 -0.002 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.01017 0.00012 0.000135 0.0009 0.00715 0.018475 Y2 0.0081 0.0016 0.000025 0.000324 0.004225 0.014274 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = -0.01/5 = -0.002 Alpha = Y (X) = -0.002 (0.66)(0.0046) = -0.002 + 0.0030 = 0.001
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PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.014274 - (0.001) ( -0.002) (0.66)(-0.006592)/5 = 0.014274 + 0.000002 + 0.004/5 = 0.1467/5 = 0.029 Method of calculation of r
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PORTFOLIO ANALYSIS
Variance = Edy2 / N = 0.014286/ 5 = 0.0029
Standard deviation
= 0.053
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PORTFOLIO ANALYSIS
2 > NESTLE INDIA LTD. Month Opening Closing Return on price price stock (Y) 3058 3346 3536 3566.65 3829.15 3351.95 3517 3564.90 3765 3252.30 0.096 0.05 0.008 0.06 -0.15 opening closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
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PORTFOLIO ANALYSIS
Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.096 0.05 0.008 0.06 -0.15 0.064 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.01085 -0.00015 -0.000216 0.003 0.0165 0.02998 Y2 0.009216 0.0025 0.000064 0.0036 0.0225 0.03788 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = 0.064/5 = 0.0128 Alpha = Y (X) = 0.0128 (1.06)(0.0046) = 0.0128 + 0.0049 = 0.0177
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PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.03788 - (0.0177) ( 0.064) (1.06)(0.02998)/5 = 0.03788 - 0.0011 0.032/5 = 0.00478/5 = 0.00096 Method of calculation of r
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PORTFOLIO ANALYSIS
Variance = Edy2 / N = 0.0371/ 5 = 0.0074
Standard deviation
= 0.086
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PORTFOLIO ANALYSIS
3 > BRITANNIA INDIA LTD. Month Opening price Closing price Return on stock (Y) 0.058 -0.047 -0.027 -0.003 -0.08 opening closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
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PORTFOLIO ANALYSIS
Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.058 -0.047 -0.027 -0.003 -0.08 -0.099 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY -0.08927 0.000141 0.000729 -0.00015 0.0088 -0.07975 Y2 0.003364 0.002209 0.000729 0.000009 0.0064 0.01271 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = -0.099/5 = -0.0198 Alpha = Y (X) = -0.0198 (-2.83)(0.0046) = -0.0198 + 0.013 = -0.0068
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PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.01271 - (-0.0068) ( -0.099) (-2.83)(-0.07975)/5 = 0.01271 - 0.000067 0.2257/5 = -0.2131/5 = -0.0426 Method of calculation of r
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PORTFOLIO ANALYSIS
Standard deviation
= 0.047
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PORTFOLIO ANALYSIS
4 > PROCTER & GAMBLE HYGIENE & HEALTHCARE LTD. Month Opening Closing Return on price price stock (Y) 2210 2206.75 2023.15 1858.50 1847.25 2235 2005 1788.80 1855.60 1658.55 0.0113 -0.09 -0.12 -0.0016 -0.102 opening closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
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PORTFOLIO ANALYSIS
Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.0113 -0.09 -0.12 -0.0016 -0.102 -0.3023 X 0.113 -0.003 -0.027 0.05 -0.11 0.023 XY 0.001277 0.00027 0.00324 -0.00008 0.01122 0.015927 Y2 0.00013 0.0081 0.0144 0.00000256 0.010404 0.033 X2 0.01276 0.000009 0.000729 0.0025 0.0121 0.028098
= 0.023/5 = 0.0046 = -0.3023/5 = -0.060 Alpha = Y (X) = -0.060 (0.62)(0.0046) = -0.060 + 0.0028 = -0.0572
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PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.033 - (-0.0572) ( -0.3023) (0.62)(0.15927)/5 = 0.033 - 0.0017 0.099/5 = -0.0677/5 = -0.014 Method of calculation of r
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PORTFOLIO ANALYSIS
Variance = Edy / N = 0.015/ 5 = 0.0030
2
Standard deviation
= 0.055
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PORTFOLIO ANALYSIS
5 > DABUR INDIA LTD. Month Opening Closing Return on price price stock (Y) 211.85 109.10 99.45 95.30 100.70 107.45 99.60 93.55 100.25 93.90 -0.49 -0.087 -0.059 0.052 -0.068 opening closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
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PORTFOLIO ANALYSIS
Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y -0.49 -0.087 X 0.113 -0.003 XY -0.05537 0.000261 Y2 0.2401 0.007569 X2 0.01276 0.000009
= 0.2342 / 0.1399
= 1.67
= 0.023/5 = 0.0046 = -0.756/5 = -0.1512 Alpha = Y (X) = -0.1512 (1.67)(0.0046) = -0.1512 - 0.007682 = -0.1589
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PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.2585 - (-0.1589) ( -0.756) (1.67)(-0.04344)/5 = 0.2585 - 0.120+ 0.073/5 = 0.2115/5 = 0.0423 Method of calculation of r
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PORTFOLIO ANALYSIS
Variance = Edy2 / N = 0.1756/ 5 = 0.035
Standard deviation
= 0.19
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PORTFOLIO ANALYSIS
6 > NIRMA LTD. Month Opening Closing Return on price price stock (Y) 199.70 218.35 228.90 224.5 232.05 215.30 230.5 223.05 231.5 250.40 0.078 0.056 -0.026 0.031 0.079 opening closing Return on sensex (X) 0.113 -0.003 -0.027 0.05 -0.11
September 2010 October 2010 November 2010 December 2010 January 2011
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PORTFOLIO ANALYSIS
Calculations Month September 2010 October 2010 November 2010 December 2010 January 2011 Total Y 0.078 0.056 X 0.113 -0.003 XY 0.0088 -0.000168 Y2 0.0061 0.003136 X2 0.01276 0.000009
= 0.00604 / 0.1399
= 0.043
= 0.023/5 = 0.0046 = 0.218/5 = 0.0436 Alpha = Y (X) = 0.0436 (0.043)(0.0046) = 0.0436 - 0.00020 = 0.0434
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PORTFOLIO ANALYSIS
Variance e 2 = sum of Y2 (sum of y) (sum of XY )/ N = 0.017098 - (0.0434) ( 0.218) (0.043)(0.002208)/5 = 0.017098 - 0.0095 - 0.00009/5 = 0.007508/5 = 0.0015 Method of calculation of r
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PORTFOLIO ANALYSIS
Standard deviation
= 0.039 All the companies findings Company name ITC LTD. NESTLE beta 0.66 1.06 alpha 0.001 0.0177 -0.0068 -0.0572 -0.1589 0.0434 Variance of sensex 0.029 0.00096 -0.0426 -0.014 0.0423 0.0015 r 0.92 0.94 -4.20 5.309 -0.543 0.10 Variance of stock 0.0029 0.0074 0.0022 0.0030 0.035 0.0015 Standard deviation 0.053 0.086 0.047 0.055 0.19 0.039
BRITANNIA -2.83 P&G DABUR INDIA LTD. NIRMA INDIA 0.62 1.67 0.043
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PORTFOLIO ANALYSIS
For making a effective portfolio we have to select the particular stock so there are several criteria for selecting the particular stock. Followings are criteria: P/E ratio Earnings per share The (%) amount of capital with different shareholders like FII , mutual fund . The amount of reserve & surplus with the company Book value of the company Return on capital Net profit of the company Beta
This all are the criteria for select a particular stock but in this report i have taken beta for the study. The concept of BETA BETA describes the relationship between the stocks return and the market index return. This can be positive & nagetive. It is the percentage change in the price of the stock related to the percentage change in to the market index. If beta is 1, a one percentage change in market index will lead to one percentage change in the price of the stock. If beta is zero, stock price is unrelated to market index. If the beta is minus 1 it indicates a negative relationship with the market index and if the market goes up by +1% than the the price of the stock will fall by 1%. Beta measures the systematic market related risk , which can not be eliminated by divercification. If the portfolio is efficient , beta measures the systematic risk effectively . on the other hand alpha & epsilon measures rhe unsystematic risk , which can be reduced by efficient diversification .
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PORTFOLIO ANALYSIS
PORTFOLIO CONSTRUCTION ON THE BASIS OF BETA No. of security 1 2 3 4 5 6 7 8 9 10 11 12 13 Stock name TCS THINKSOFT WIPRO SATYAM 3I INFOTECH INFOSYS PATNI COMPUTER ITC LTD. NESTLE BRITANNIA P&G DABUR INDIA LTD. NIRMA INDIA BETA 0.44 1.14 1.15 1.49 1.20 1.01 -0.24 0.66 1.06 -2.69 0.62 1.67 0.043
According to the anlysis the stocks which are preferable for the portfolio are: TCS PATNI COMPUTER INFOSYS ITC PROCTER & GAMBLE HYGIENE & HEALTHCARE LTD. NIRMA LTD.
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PORTFOLIO ANALYSIS
Return on portfolio stocks: Stock TCS PATNI COMPUTER INFOYSIS ITC PROCTER & GAMBLE NIRMA LTD. Return(z) -0.02 -0.01 0.1286 -0.002 -0.3023 0.128
Return on portfolio stocks: Stock TNIKSOFT WIPRO SATYAM 3I INFOTECH INFOSYS NESTLE DABUR INDIA LTD. Total return Return on portfolio = Ez / 7 = -1.6154 / 7 = -0.23 Return(z) -0.572 0.106 -0.26 -0.326 0.1286 0.064 -0.756 -1.6154
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PORTFOLIO ANALYSIS
PORTFOLIO WHEN BETA < 1
Return on portfolio stocks: Stock TCS ITC LTD. P&G NIRMA INDIA Total return Return(z) 0.2794 -0.002 -0.3023 0.218 0.1931
Return on portfolio stocks: Stock PATNI COMPUTER BRITANNIA Total return Return on portfolio = Ez / 2 = -0.957 / 2 = -0.4785 Return(z) -0.01 -0.947 -0.957
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PORTFOLIO ANALYSIS
Stock name TCS THINK SOFT WIPRO SATYAM COMPUTER 3I INFOTECH INFOSYS PATNI COMPUTER ITC LTD. NESTLE BRITANNIA P&G DABUR INDIA LTD. NIRMA LTD.
Return 0.2794 -0.572 0.106 -0.26 -0.326 0.1286 -0.01 -0.002 0.064 -0.099 -0.3023 -0.756 0.218
From this all the stocks there are 5 stocks which have a positive return : TCS WIPRO INFOSYS NESTLE NIRMA LTD.
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PORTFOLIO ANALYSIS
(A) Stock name TCS WIPRO INFOSYS NESTLE NIRMA LTD. Xi(return on particular stock) 27.94% 10.6% 12.86% 6.4% 21.8% P(Xi) 0.20 0.20 0.20 0.20 0.20
Formula for return is : E ( RP ) = [ Xi E ( R ) ] Where Xi = proportion of portfolio invested in 1 security So according to this formula E ( RP ) = [ Xi E ( R ) ] = X1 E(R1 ) + X2 E(R2 ) + X3 E(R3 ) + X4 E(R4 ) + X5 E(R5 ) = 0.20 * 27.94 + 0.20 * 10.6 + 0.20 * 12.86 + 0.20 * 6.4 + 0.20 * 21.8 = 5.588 + 2.12 + 2.572 + 1.28 + 4.36 = 15.92
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PORTFOLIO ANALYSIS
In above same example we willl take the different proportion of the investment in each security. (B) Stock name TCS WIPRO INFOSYS NESTLE NIRMA LTD. Xi(return on particular stock) 27.94% 10.6% 12.86% 6.4% 21.8% P(Xi) 0.10 0.15 0.20 0.25 0.30
E ( RP ) = [ Xi E ( R ) ] = X1 E(R1 ) + X2 E(R2 ) + X3 E(R3 ) + X4 E(R4 ) + X5 E(R5 ) = 0.10 * 27.94 + 0.15 * 10.6 + 0.20 * 12.86 + 0.25 * 6.4 + 0.30 * 21.8 = 2.794 + 1.59 + 2.572 + 1.6+ 6.54 = 15.096
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PORTFOLIO ANALYSIS
In above same example we will take the different proportion of the investment in each security. (C) Stock name TCS WIPRO INFOSYS NESTLE NIRMA LTD. Xi(return on particular stock) 27.94% 10.6% 12.86% 6.4% 21.8% P(Xi) 0.30 0.05 0.30 0.05 0.30
E ( RP ) = [ Xi E ( R ) ] = X1 E(R1 ) + X2 E(R2 ) + X3 E(R3 ) + X4 E(R4 ) + X5 E(R5 ) = 0.30 * 27.94 + 0.05 * 10.6 + 0.30 * 12.86 + 0.05 * 6.4 + 0.30 * 21.8 = 8.38 + 0.53 + 3.858 + 0.32 + 6.54 = 19.628
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PORTFOLIO ANALYSIS
In above same example we will take the different proportion of the investment in each security. (D) Stock name TCS WIPRO INFOSYS NESTLE NIRMA LTD. Xi(return on particular stock) 27.94% 10.6% 12.86% 6.4% 21.8% P(Xi) 0.50 0.05 0.10 0.05 0.30
E ( RP ) = [ Xi E ( R ) ] = X1 E(R1 ) + X2 E(R2 ) + X3 E(R3 ) + X4 E(R4 ) + X5 E(R5 ) = 0.50 * 27.94 + 0.05 * 10.6 + 0.10 * 12.86 + 0.05 * 6.4 + 0.30 * 21.8 = 13.97 + 0.53 + 1.286 + 0.32 + 6.54 = 22.646
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PORTFOLIO ANALYSIS
In above same example we will take the different proportion of the investment in each security. (E) Stock name TCS WIPRO INFOSYS NESTLE NIRMA LTD. Xi(return on particular stock) 27.94% 10.6% 12.86% 6.4% 21.8% P(Xi) 0.60 0.05 0.13 0.02 0.20
E ( RP ) = [ Xi E ( R ) ] = X1 E(R1 ) + X2 E(R2 ) + X3 E(R3 ) + X4 E(R4 ) + X5 E(R5 ) = 0.60 * 27.94 + 0.05 * 10.6 + 0.13 * 12.86 + 0.02 * 6.4 + 0.20 * 21.8 = 16.764 + 0.53 + 1.6718 + 0.128 + 4.36 = 23.4538
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PORTFOLIO ANALYSIS
Tcs company have a very law beta so it gives a very handsome return in compare to other security so the 1st security which we have to take in our portfolio is tcs.
The second company which have a law beta is nirma ltd. Which is associated with the fmcg products.
At the last we have take the different different investment proportion to get the maximum return & to minimise the risk. From all the 5 different different proportions A,B,C,D,E the E portfolio gives us a maximum return so we take this proportion for purchasing the securities.
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PORTFOLIO ANALYSIS
From the above all the portfolio we have to select portfolio E because this portfolio gives a higher return than all the portfolios.
Give the higher proportion to the higher returnable security to invest & give the lower proportion to the lower returnable security.
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PORTFOLIO ANALYSIS
BOOKS 1) Security analysis & portfolio management : Author : V . K . Bhalla 2) Investment management : Author : V . A. Avdhani WEBSITES http://www.nseindia.com/ http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.asp x?scripcode=532540 http://money.rediff.com/ http://www.moneycontrol.com/technicals/
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