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PORTFOLIO MANAGEMENT-
A STUDY ON NIFTY MIDCAP
50 SCRIP’S
ABSTRACT
The title of the project is “portfolio management- A study on NIFTY midcap scrip’s. The project is based on
analyzing the nifty midcap scrip’and prepare a equity portfolio of 20 scrip’s and evaluate the performance of
portfolio for 60 days. The study is conducted on nifty midcap 50 scrip’s and data taken for study is between 1 April,
2004 to 1 June, 2009. The objectives are to prepare an optimal portfolio which gives optimal return with minimum
risk .The methodology used is conclusive research .the sample size is 50 companies .a portfolio is constructed using
20 best companies out of 50 companies using coefficient of variation .the amount invested in the portfolio is 1 crore.
The daily return of portfolio is calculated for 45 days and benchmarked the portfolio return with various indices like
nifty and sensex .The average portfolio return is 51% in a period of 2 months. The systematic risk of portfolio is
0.99 which shows that portfolio is less risky.
ACKNOWLEDGEMENT
I express my deep sense of gratitude to faculty guide” MR. RAVI KUMAR” sir who has been a great source of
strength and inspiration at every stage of my project and I am thankful to Mr. Ravi Paturi director of ABS,
panjagutta for making all facilities available to me.
I express thanks to MR. VENAKTESHWARLU (HEAD) and his team members for providing all necessary
information.
CONTENTS
SERIAL
TOPIC PAGE NO.
NO.
1 COMPANY PROFILE 1
2 INTRODUCTIO TO NIFTY MIDCAP 2
3 OBJECTIVES OF THE STUDY 7
4 INTRODUCTION TO PORTFOLIO MANAGEMENT 8
5 MODERN PORTFOLIO THEORY 11
6 STEPS INVOLVED IN PORTFOLIO CONSTRUCTION 13
7 PORTFOLIO CONSTRUCTION AND PORTFOLIO ANALYSIS 16
8 RESULTS AND FINDINGS 17
9 SUGGESTIONS 18
10 BIBILOGRAPHY AND ANNEXURES 19
INTRODUCTION
COMPANY PROFILE
B.N.RATHI SECURITIES LIMITED(BNRSL) is a public limited company incorporated as per the companies
Act , 1956 in the year 1958. The company’s paid-up capital in Rs. 2.92 crores. The company acquired
membership of National Stock Exchange of India in 1995 and membership of Bombay Stock Exchange Ltd. In
the year 2008 and is also depository participant of central Depositoey Service Ltd. The company is listed at
Bombay Stock Exchange Ltd.
Mr. B.N Rathi is the founder of the B.N Rathi Group of companies. Mr. B.N. Rathi, Graduate in Arts in 1943.He
was the Managing Director of Hyderabad chemicals & pharmaceuticals Ltd, Subsequently He was the Executive
Director of m/s M.S.K Mills Ltd from 1980 to 1982. He was also promoter and was chairman (for two terms) of
the A.P. Mahesh cooperative urban bank Ltd.
Mr. B.N.Rathi is also on the board of several companies like B.N.Rathi securities Limited, M/s BNR Udyog
Limited, M/s BNR Capital Services Pvt.Ltd, M/s Suryavanshi spinning Mills Ltd. He is also associated with
several social organization and was president of All India Maheshwari Mahasabha (a social organization of
about 100 years of standing)
The company is engaged in all spheres of stock broking which enables the company to cater to a full range of
requirements of a growing and diversified retail and institutional clientele. The services provided are as follows:-
➢ Comprehensive stock broking services on NSE Capital Market & Derivatives segments BSE cash
Segment
➢ Depository services of central depository services Ltd.
➢ IPO
➢ Internet trading
We have about 40 offices in Andhra Pradesh and other cities in India and 25 number of sub brokers.
We have track record of payment of dividend continuously for the past 4 years.
We are empanelled as approved Broker for with LIC of India and UTI Bank Ltd. For their equity
operation. We have net work communication system and connected to all branches/sub-brokers with the
latest technology of HCL VSATs which has emerged as the company forte enable BNRSL to give the
best services to its valuable clientele.
SOURCE- www.bnrsecurities.com
NIFTY MIDCAP 50
The medium capitalized segment of stock market is being increasingly perceived as an attractive investment
segment with high growth potential. The primary objective of NIFTY MIDCAP 50 INDEX is to capture the
movement of midcap segment of the market.
The NIFTY MIDCAP INDEX has a base date of JAN 1, 2004 and a base value of 1000.the constituent and the
criteria for selection judge the effectiveness of the index. Selection of index set is based on the following criteria:
• Stocks with average market capitalization ranging from Rs 1000 crore to 5000 crore at the time of
selection.
• Stocks which are not the part of derivative segment are excluded.
• Stocks which are forming the part of S&P CNX NIFTY index are excluded.
NIFTY MIDCAP 50 is computed using market capitalization weighted method, where in the level of the index
reflects the total; market value of all the stocks in the index relative to the particular base period. The method also
takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc
without affecting the index value.
NIFTY MIDCAP 50 represent about 3.78% of the total market capitalization as on MARCH 31,2009.The trading
volume for the last six months of all NIFTY MIDCAP 50 stocks is approximately5.41% of the traded volume of all
stocks on the NSE.
SOURCE- WWW.NSEINDIA.COM
To find out optimal portfolio, which will give optimal returns at a minimum risk to the investor
To study whether the portfolio risk is less than individual risk on whose basis the portfolio are constituted.
To analyze whether the selected portfolio is yielding a satisfactory & constant return to the investor.
The scope of study is limited to collecting the data published in the reports of the company and NSE website and
theoretical frame work of the data with a view to suggest solutions to various problems relating to portfolio
management.
The study includes study of only NIFTY MIDCAP segment, not whole Equity markets the other
asset classes are also not included in preparation of portfolio.
PORTFOLIO MANAGEMENT
MEANING OF PORTFOLIO:
“A portfolio is a collection of securities, since it is really desirable to invest the entire funds of individual or an
institution or a single security”- (http://en.oboulo.com/finance-1-category.html)
. It is essential that every security be viewed in a portfolio context. Thus it seems logical that the expected return of
the portfolio. Portfolio Analysis considers future risk and return in holding various blends of individual securities.
Portfolio expected return is a weighted average of the expected return of the individual securities, but
portfolio variance in short contrast, can be something reduced portfolio risk is because, risk depends greatly on the
co-variance among returns of individual securities. Portfolios, which are combination of securities, may or may not
take on the aggregate characteristics of their individual parts.
INTRODUCTION OF PORTFOLIO MANAGEMENT:
Portfolio Management and investment decision as a concept came to be familiar with the conclusion of
second world war when thing can be in the stock market can be liberally ruined the fortune of individual, companies,
even government’s it was then discovered that the investing in various scripts instead of putting all the money in a
single securities yielded weather return with low risk percentage, it goes to the credit of HARY MERKOWITZ,
1991 noble laurelled to have pioneered the concept of combining high yielded securities with these low but steady
yielding securities to achieve optimum correlation co-efficient of shares.
Portfolio Management refers to the management of portfolios for others by professional investment
managers it refers to the management of an individual investor’s portfolio by professionally qualified person ranging
from merchant banker to specified portfolio company.
OBJECTIVES OF PORTFOLIO MANAGEMENT:
The main objective of investment portfolio management is to maximize the returns from the investments and
to minimize the risk involved in investment. Moreover, risk in price or inflation erodes the value of money and
hence investment must provide a protection against inflation.
Secondary Objectives:
The following are the other ancillary objectives:
• Regular Return
• Stable Income
• Appreciation Of Capital
• More Liquidity
• Safety Of Investment
• Tax Benefits
Portfolio Management services helps investors to make a wise choice between alternative investments with
pit any post trading hassle’s this service renders optimum returns to the investors by proper selection of
continuous change of one plan to another plane with in the same scheme, any portfolio management must
specify the objectives like maximum return’s, and risk capital appreciation, safety etc in their offer.
(a) Debentures –partly convertible and non-convertible debentures debt with tradable warrants.
(b) Preference shares
(c) Government securities and bonds
(d) Other debt instruments
Portfolio Management is a process encompassing many activities of investment in assets and securities. It is a
dynamic and flexible concept and involves regular and systematic analysis, judgment and action. The objective of
this service is to help the unknown and investors with the expertise of professionals in investment portfolio
management. It involves construction of a portfolio based upon the investor’s objectives, constrains, preference for
risk and returns and tax liability. The portfolio is reviewed and adjusted from time to time in tune with the market
conditions. The evaluation of portfolio is to be one in terms of targets set for risk and returns. The changes in the
portfolio are to be effected to meet the changing condition.
Portfolio construction refers to the allocation of surplus funds in hand among a variety of financial assets
open for investment. Portfolio theory concerns itself with the principles governing such allocation. The modern view
of investment is oriented more go towards the assembly of proper combination of individual securities to form
investment portfolio.
A combination of securities held together will give a beneficial result if they grouped in a manner to secure
higher returns after taking into consideration the risk elements. The modern theory is the view that by different
regions, in different industries or those producing different types of product lines. Modern theory believes in the
perspective of combination of securities under constraints of risk and returns.
Different units in the same industry (example in the Cement sector, ACC and Birla Cements)
Different instruments of finance – debt instruments like bond and debentures or share capital instruments like equity
share capital or preference share capital or even short-term instruments called money market instruments
The above is to spread the risk of investment but at the same time optimizing the return from the investment and not
minimizing it. Therefore we need to understand the concept of “risk” and “return” in the context of a portfolio.
Portfolio Return
The expected return of a portfolio is simply the weighted average of the expected returns of the securities
constituting that portfolio. The weights are equal to the proportion of total funds invested in each security (the total
of weights must equal to 100 percent). The general formula for the expected return of a portfolio Rp is as follows:
Rp = ∑ Aj x Rj
J=1
Where Aj is the proportion of total funds invested in security j; Rj is the expected return for the security j and m is
the total number of different securities in the portfolio. The expected return and standard deviation of the probability
distribution of possible returns for two securities are shown below:
Security A Security B
If equal amounts of money are invested in these two securities, the expected return of the portfolio containing two
securities namely A and B is 0.5 x 14% + 0.5 x 11.5% = 12.75%.
Portfolio Risk
The portfolio expected return is a straightforward weighted average of returns on the individual securities; the
portfolio standard deviation is not the weighted average of individual security standard deviations. We should not
ignore the relationship or correlation between the returns of two different securities in a portfolio. The ultimate
result is reduction in the total risk of the portfolio. This is the very objective of a portfolio.
The portfolio could contain stocks of ACC, Larsen & Toubro and Dalmia Cements. This is called unit
diversification in the same sector. You will choose again such units as are not having perfect correlation. The
portfolio could contain one-year investment (bond or debenture), more than one-year investment and long-term
investment too. This is called maturity diversification. Here the relationship will rarely be perfect.
The portfolio could contain investment into equity shares, debt instruments and money market instruments. This is
called instruments diversification. Here too the relationship will not be perfect as these relate to different segments
of the Financial Markets.
All the above are examples of diversifiable risks. One can use detailed analytical study of the past trends and
knowledge about the various sectors and specific units for true diversification of stocks in a portfolio. Such
diversifiable risks are often referred to as “non-systemic risks” or “specific risks” as such risks are not thrown in by
the system.
Non-diversifiable or systemic risks
The risk which cannot be eliminated or which cannot be controlled is called as non-diversifiable risks.
Typical example of a market risk in India – Sensex crashing from 21000 odd points in early 2008 to less than 7000
points in late 2008. The markets becoming nervous on news of global recession are another example.
Total risk of a portfolio = market risk of the portfolio + specific risk of the portfolio
Concept of “Beta”
What is “Beta” of a stock?
The risk associated with a given stock can be measured either by standard deviation.
Beta is a true measure of the relative volatility of the return of a given stock in comparison with the volatility of
return of market portfolio. The higher the Beta, the higher the risk and the higher the risk premium in comparison
with the market premium and vice-versa.
Investment in Government securities is considered to be “risk free” investment. We may not agree with the
statement that they are totally risk-free. In the absence of any better alternative that is 100% risk free, this has been
accepted as “risk-free” investment. Suppose the average return from investment in Govt. securities in India say, is
6.5% p.a.
BETA RETUR
Company Name VALUE RISK N C.V
PREPARATION OF PORTFOLIO:
See Annexure 2
PORTFOLIO ANALYSIS
1) The portfolio has been analyzed for a period of 2 months. The portfolio has been analyzed on a daily basis
with respect to NIFTY MIDCAP INDEX.
2) The portfolio has been benchmarked with other indices such as BSE 100, NIFTY 50 and NIFTY JUNIOR
INDEX.
3) The systematic risk of the portfolio is 0.99 which shows that portfolio is less risky than individual stocks
and index.
SEE ANNEXURE 3
SEE ANNEXURE 4
RESULT
The optimal portfolio has been prepared, which will give optimal returns of 36% at a minimum risk of 0.99
to the investor
The study has found out that the portfolio risk is less than individual risk on whose basis the portfolio is
constituted.
The selected portfolio is yielding a satisfactory & variable return to the investor.
FINDINGS
During the study, following are some of the observations that are found out:
As the market is doing well, current prices of various stocks have increased when compared to purchase
prices. Therefore, investor will get positive returns.
1. Since the term “returns” from an investment refers to the benefits that an investor receives from that
particulars investment, hence we can infer that portfolio is generating more returns when compared to
individual.
2. If risk parameter is taken in consideration, portfolio has low risk to that of individual risk.
SUGGESTIONS
1. As market is doing well, investor should wait invest now, in order to get positive returns.
2. In order to enjoy more returns, he should invest more; investor should invest in more risky securities as a
risk taker.
3. In order to get less risky, the company should include Treasury bills is one of the securities in portfolio as
the treasury bills, the least risky of financial assets, earned the lowest average annual rate of return.
4. If the company is ready to take the high risk they can choose small firm-common stock is one of the
securities in portfolio to get the higher risk,. But the company should take a long watch over the market to
5. If the investor is a risk-averse investor, then he should invest in less risky securities and enjoy normal
returns.
BIBILOGRAPHY
BOOKS REFERRED:
• Security Analysis & Portfolio Management by PRASANNA CHANDRA, Tata McGraw hill publishers.
• Security Analysis & Portfolio Management by FISCHER D.E. & JORDAN R.J
VISITED WEBSITIES:
www.bnrsecurities.com
www.nseindia.com
www.investopedia.com
www.bseindia.com
www.economictimes.com
www.sebi.gov.in
www.moneycontrol.com
ANNEXURE
ANNEXURE 1
ANNEXURE 2
PORTFOLIO.xlsx
ANNEXURE 3
avinash\PORTFOLIO ANALYSIS.xlsx
ANNEXURE4
avinash\PORTFOLIO VALUES.xlsx