RI SK AND RETURN ANALYSI S OF AUTOMOBI LE AND OI L &GAS

SECTORS A STUDY

INTRODUCTION TO THE STUDY

The risk/return relationship is a fundamental concept in not only financial analysis, but in
every aspect of life. If decisions are to lead to benefit maximization, it is necessary that
individuals/institutions consider the combined influence on expected (future) return or benefit as
well as on risk/cost. The requirement that expected return/benefit be commensurate with
risk/cost is known as the "risk/return trade-off" in finance.

This discusses the trade-off and, using conventional statistical tools, provides a method
for quantifying risk. Two categories of risk borne by the firm's stockholders, business risk and
financial risk, are discussed and demonstrated, as is the concept of leverage. The session also
examines risk reduction via portfolio diversification and what requirements need to be met for
firms to experience the benefits of diversification. The Capital Asset Pricing Model (CAPM) is
used to demonstrate the risk/return trade-off by relating the required return on the firm's
investments to its beta (or market) risk.

The relationship between risk and return is an essential factor inall human decision
making. Each investment a firm undertakes, for example, must offer a return that is at least as
high as the return on a similarly risky investment on financial markets. Otherwise shareholders
would choose to invest in the financial markets rather than in the firm.

The aim of this essay is to give students an overview of the relationship between risk and
return in modern portfolio theory.

After a conclusion in the first section, there are definitions given about the types of risk
and the composition of the expected return of an asset and its relation to standard deviation. The
second section will give an overview on modern portfolio theory and in particular on how the
Capital.


Types of risk
There are two different types of risk. We need to distinguish between:
Market risk and
Unique risk.
Market (Systematic) risk affects a large number of assets in the economy and is generally
market wide. Uncertainties about the general economy, such as GDP, interest rates, inflation, etc.
Affect systematic risk. Market risk cannot be eliminated by holding a well-diversified
portfolio; its non diversifiable. Firms that produce for example long-living goods such as
aircraft are highly sensitive and thus have high market risk. Conversely, firms that produce goods
for daily needs have a lower market risk.

INTEREST RATE RISK
Interest rate risk is the risk that an investment's value will change as a result of a change
in interest rates. This risk affects the value of bonds more directly than stocks. the root cause of
interest rate risk lies in the fact that ,if the RBI increase or decrease the interest rate (repo rate )
the interest on government securities rise or fall ,the rate of return demanded on alternative
investment vehicle ,such as stocks and bonds issued in the private sector ,rise or fall .in other
words as the cost of money changes for nearly risk free securities, the cost of money to more risk
prone issues will also change.




INFLATION RISK (PURCHASING POWER RISK)
The loss of purchasing power due to the effects of inflation. When inflation is present, the
currency loses its value due to the rising price level in the economy. The higher the inflation rate,
the faster the money loses its value.
LIQUIDITY RISK
The uncertainty associated with the ability to sell an asset on short notice without loss of
value. A highly liquid asset can be sold for fair value on short notice. This is because there are
many interested buyers and sellers in the market.
An illiquid asset is hard to sell because there there few interested buyers. This type of risk
is important in some project investment decisions but is discussed extensively in Investment
courses.

FOREIGN EXCHANGE RISKS
Uncertainty that is associated with potential changes in the foreign exchange value of a
currency. There are two major types: translation risk and transaction risks.

TRANSLATION RISKS
Uncertainty associated with the translation of foreign currency denominated accounting
statements into the home currency. This risk is extensively discussed in Multinational Financial
Management courses.

TRANSACTIONS RISKS
Uncertainty associated with the home currency values of transactions that may be
affected by changes in foreign currency values. This risk is extensively discussed in the
Multinational Financial Management courses.


Unique Risk (unsystematic risk)
Affects only a single firm or a small number of firms. Uncertainties about a firms labor
contracts or suppliers are part of unsystematic risk. Unique risk describes a firms specific risk
related to the market, which is assumed to be diversified away. It has already been mentioned
that you can eliminate unique risk by holding a well-diversified portfolio. Hence, diversification
is a means of reducing risk. If we hold a large enough portfolio, unsystematic risk of individual
companies cancel each other out, leaving just the systematic risk associated with each company.
This will be the risk in that portfolio.

Statistics gives us the opportunity to measure risk and how to translate risk into a risk
premium.
BUSINESS RISK
The uncertainty associated with a business firm's operating environment and reflected in
the variability of earnings before interest and taxes (EBIT). Since this earnings measure has not
had financing expenses removed, it reflects the risk associated with business operations rather
than methods of debt financing. This risk is often discussed in General Business Management
courses.
Business risk can be divided into two board categories: external and internal .internal
business risk is largely associated with the efficiency with which a firm conduct its operation
within the border operating environment imposed upon it .each firm has it s on internal risk, and
the degree to which it is successful in coping with them is reflected in operating efficiency.

FINANCIAL RISK
The uncertainty brought about by the choice of a firms financing methods and reflected
in the variability of earnings before taxes (EBT), a measure of earnings that has been adjusted for
and is influenced by the cost of debt financing. This risk is often discussed within the context of
the Capital Structure topics.

By Engaging in debt financing the firm changes the characteristics of the earning stream
available to the common stock holders, specifically ,the reliance in debt financing ,called
financial leverage ,has at least three important effect on common stock holders.

1) Increase the variability of their return
2) Effect their expectation concerning to the return
3) Increase the risk of being ruined.

Risk-Free Interest Rate and Risk Premium
Short-term Treasury bills (e.g. 3-month U.S. Treasury bills) can be seen as risk-free investments.
They bring out benchmarks of risk-free interest rates. As a result, the beta (describing asset
riskiness) for risk-free assets is 0.
If an investor prefers to invest in an asset which is riskier than treasury bills, he is likely
to demand a higher yield. In other words, an investment in risky assets like stocks should give a
higher return than that of a risk-free asset. The difference between the market risk and the risk-
free rate is called risk premium.

The risk premium can be seen as a reward for investors. This reward is what they may
expect for bearing systematic risk. Therefore, it is systematic risk alone which is critical and will
be higher for riskier projects than for safer projects. Risk premium represents the extra return
(beyond the risk-free interest rate) investors demand for moving their funds away from a risk-
free asset to a risky asset. The risk premium should increase with the risk aversion of an investor
and the average riskiness of the investment.

Expected Return and Standard Deviation

Expected return is the weighted average of possible outcomes where the weights
represent the outcome probabilities. Standard deviation describes the risk that expected return
will or will not happen. This means that risk-free assets have a standard deviation of 0. Assuming
an investor with the opportunity to choose between two possible investments.

Say investment A and B. Both investments give you an expected return of 10%, but A
has a standard deviation of 15% and therefore a wider spread of possible outcomes than B with
its 7.5%. Obviously, everybody would invest in B rather than in A to avoid unnecessary risk. If
you get the chance to invest in investment A or C with an expected return of 15% and a standard
deviation of 10% its clear that in that situation everybody would prefer C to A. In real life where
there are an almost unlimited range of possibilities to invest money and not just in one asset, as
in the example above. This leads us to the next section.

Portfolio Theory
Modern portfolio theory is based on an article Harry Markowitz released in 1952. His
Portfolio Selection Model describes how an investor can reduce the standard deviation of
portfolio returns while selecting stocks that are correlated differently.
The Capital Asset Pricing Model (CAPM)

The theory behind the CAPM and all other modern finance theories are based on the
portfolio theory, developed in the early 1950`s by Harry Markowitz. His statement was that an
investor can reduce the standard deviation of portfolio returns by choosing stocks that do not
move exactly together (that are correlated differently).

Furthermore, expected returns and standard deviation are the only two variables that need
to be considered in an investment decision. The intuition behind the CAPM is the insurance
motive of risk adverse investors. The main statement of the CAPM is that one can reduce risk
nicely diversifying ones portfolio.

Capital Market Line (Security Market line)

In the following model it is assumed that an investor can choose portfolios which consist
of a share of a risk-free asset like a treasury bill and a share of risky assets. Capital market line
connects the risk-free asset with the risky market portfolio. This combination creates a greater set
of possible portfolios and a 'new' efficient frontier line.
AUTOMOBILE INDUSTRY PROFILE
Maruti Suzuki Profile
Maruti Suzuki is India and Nepal's number one leading automobile manufacturer and the
market leader in the car segment, both in terms of volume of vehicles sold and revenue earned.
Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by
Suzuki of Japan. The BJP-led government held an initial public offering of 25% of the company
in June 2003. As of 10 May 2007, Govt. of India sold its complete share to Indian financial
institutions. With this, Govt. of India no longer has stake in Maruti Udyog
Tata Motors Profile
1998 - Indian manufacturers Tata Motors have quite the history under their belt, starting
with the company's foundation in 1945 as a locomotive producer. Tata Motors is just one part of
the business group Tata, formerly known as TELCO (Tata Engineering and Locomotive
Company), which also has several other ventures, including a steel making plant and even a tea
producing company.
Tata got into the motoring business in 1954 when it starting producing heavy trucks in a
joint venture with Daimler-Benz AG. So, in 1960. the first truck rolled out of the factory's door
in Pune, India, a copy of a German Daimler truck.
Tata starting exporting heavy-duty trucks but for the local market, they had to come up
with lighter versions because of the infrastructure of the country. The first LCV (Light
Commercial Vehicle) model, the Tata 407, began production in 1986.
Mahindra & Mahindra Profile
Mahindra & Mahindra was set up as a steel trading company in 1945. It soon expanded
into manufacturing general-purpose utility vehicles, starting with assembly under license of the
iconic Willis Jeep in India. Soon established as the Jeep manufacturers of India, M&M later
branched out into the manufacture of light commercial vehicles (LCVs) and agricultural tractors.
Today, M&M is the leader in the utility vehicle segment in India with its flagship UV
Scorpio and enjoys a growing global market presence in both the automotive and tractor
businesses.
Over the past few years, M&M has expanded into new industries and geographies. They
entered into the two-wheeler segment by taking over Kinetic Motors in India. M&M also has
controlling stake in REVA Electric Car Company and acquired South Korea's SsangYong Motor
Company in 2011.
Hero Honda Profile
Hero is the brand name used by the Munjal brothers for their flagship company Hero
Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was
established in 1984 as the Hero Honda Motors Limited At Dharuhera India. Munjal family and
Honda group both own 26% stake in the Company. In 2010, it was reported that Honda planned
to sell its stake in the venture to the Munjal family.
During the 1980s, the company introduced motorcycles that were popular in India for
their fuel economy and low cost. A popular advertising campaign based on the slogan 'Fill it -
Shut it - Forget it' that emphasized the motorcycle's fuel efficiency helped the company grow at a
double-digit pace since inception. The technology in the bikes of Hero Honda for almost 26
years (19842010) has come from the Japanese counterpart Honda.
Hero Honda has three manufacturing facilities based at Dharuhera, Gurgaon in Haryana
and at Haridwar in Uttarakhand.
These plants together are capable of churning out 3 million bikes per year. Hero Honda
has a large sales and service network with over 3,000 dealerships and service points across India.
Hero Honda has a customer loyalty program since 2000, called the Hero Honda Passport
Program.


Bajaj Auto Profile
Bajaj Auto is a major Indian vehicle manufacturer started by a Rajasthani merchant. It is
based in Pune, Maharashtra, with plants in Chakan (Pune), Waluj (near Aurangabad) and Pant
agar in Uttaranchal.
The oldest plant at Akurdi (Pune) now houses the R&D centre ahead. Bajaj Auto makes
and exports automobiles scooters, motorcycles and the auto rickshaw. The Forbes Global 2000
list for the year 2005 ranked Bajaj Auto at 1,946 although it does not feature in the 2010 list.
Over the last decade, the company has successfully changed its image from a scooter
manufacturer to a two wheeler manufacturer. Its product range encompasses scooterettes,
scooters and motorcycles. Its real growth in numbers has come in the last four years after
successful introduction of a few models in the motorcycle segment.
Bajaj Auto came into existence on 29 November 1945 as M/s Bachraj Trading
Corporation Private Limited. It started off by selling imported two- and three-wheelers in India.
In 1959, it obtained license from the Government of India to manufacture two- and three-
wheelers and it went public in 1960. In 1970, it rolled out its 100,000th vehicle. In 1977, it
managed to produce and sell 100,000 vehicles in a single financial year. In 1985, it started
producing at Waluj near Aurangabad.
In 1986, it managed to produce and sell 500,000 vehicles in a single financial year.
According to the authors of Globality: Competing with Everyone from Everywhere for
Everything, Bajaj has grown operations in 50 countries by creating a line of value-for-money
bikes targeted to the different preferences of entry-level buyers
Auto Mobile Industry Information
Driving the most luxurious car has been made possible by the stiff competition in the
automobile industry in India, with overseas players gathering the same momentum as the
domestic participants.
Every other day, we have been hearing about some new launches, some low cost cars - all
customized in a manner such that the common man is not left behind. In 2009, the automobile
industry is expected to see a growth rate of around 9%, with the disclaimer that the auto industry
in India has been hit badly by the ongoing global financial crisis.
The automobile industry in India happens to be the ninth largest in the world. Following
Japan, South Korea and Thailand, in 2009, India emerged as the fourth largest exporter of
automobiles.
Several Indian automobile manufacturers have spread their operations globally as well,
asking for more investments in the Indian automobile sector by the MNCs.
Potential of the Automobile industry In 2008, Hyundai Motors alone exported 240,000
cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India
plant by 2011. Similar plans are for General Motors.
OIL AND GAS INDUSTRY
Chennai Petroleum Corporation Profile
Chennai Petroleum Corporation Limited (CPCL), formerly known as Madras
Refineries Limited (MRL) is located at Manali (Tamil Nadu), near Chennai, Tamilnadu.
It was formed as a joint venture in 1965 between the Government of India (GOI),
AMOCO and National Iranian Oil Company (NIOC) having a share holding in the ratio 74%:
13%: 13% respectively. From the grassroots stage CPCL Refinery was set up with an installed
capacity of 2.5 Million Tonnes Per Annum (MMTPA) in a record time of 27 months at a cost of
Rs. 43 crore without any time or cost over run.
In 1985, AMOCO disinvested in favour of GOI and the shareholding percentage of GOI
and NIOC stood revised at 84.62% and 15.38% respectively. Later GOI disinvested 16.92% of
the paid up capital in favor of Unit Trust of India, Mutual Funds, Insurance Companies and
Banks on 19 May 1992, thereby reducing its holding to 67.7 %.
The public issue of CPCL shares at a premium of Rs. 70 (Rs. 90 to FIIs) in 1994 was
oversubscribed to an extent of 27 times and added a large shareholder base of over 90000.As a
part of the restructuring steps taken up by the Government of India, Indian Oil Corporation
Limited ( IOCL) acquired equity from GOI in 2000-01 Currently IOC holds 51.88% while NIOC
continued its holding at 15.40%.
Indian Oil Corporation Profile
Indian Oil began operation in 1964 as Indian Oil Company Ltd. The Indian Oil
Corporation was formed in 1964, with the merger of Indian Refineries Ltd. Feroze Gandhi was
the first chairman of Indian Oil Corporation Limited.
Product
Indian Oils product range covers petrol, diesel, LPG, auto LPG, aviation turbine fuel,
lubricants, naphtha, bitumen, paraffin, kerosene etc. Xtra Premium petrol, Xtra Mile diesel,
Servo lubricants, Indane LPG, Autogas LPG, Indian Oil Aviation are some of its prominent
brands.
Recently Indian Oil has also introduced a new business line of supplying LNG (liquefied
natural gas) by cryogenic transportation. This is called "LNG at Doorstep". LNG headquarters
are located at the Scope Complex, Lodhi Road, Delhi
Bharat Petroleum Corporation Profile
The 1860s saw vast industrial development. A lot of petroleum refineries came up. An
important player in the South Asian market then was the Burmah Oil Company Ltd. Though
incorporated in Scotland in 1886, the company grew out of the enterprises of the Rangoon Oil
Company, which had been formed in 1871 to refine crude oil produced from primitive hand dug
wells in Upper Burma.
The search for oil in India began in 1886, when Mr. Goodenough of McKillop Stewart
Company drilled a well near Jaypore in upper Assam and struck oil. In 1889, the Assam Railway
and Trading Company (ARTC) struck oil at Digboi marking the beginning of oil production in
India.
While discoveries were made and industries expanded, John D Rockefeller together with
his business associates acquired control of numerous refineries and pipelines to later form the
giant Standard Oil Trust. The largest rivals of Standard Oil - Royal Dutch, Shell, Rothschilds -
came together to form a single organisation....: Asiatic Petroleum Company to market petroleum
products in South Asia.
In 1928, Asiatic Petroleum (India) joined hands with Burmah Oil Company - an active
producer, refiner and distributor of petroleum products, particularly in Indian and Burmese
markets. This alliance led to the formation of Burmah-Shell Oil Storage and Distributing
Company of India Limited. A pioneer in more ways than one, Burmah Shell began its operations
with import and marketing of Kerosene.
This was imported in bulk and transported in 4 gallon and 1 gallon tins through rail, road
and country craft all over India. With motor cars, came canned Petrol, followed by service
stations. In the 1930s, retail sales points were built with driveways set back from the road;
service stations began to appear and became accepted as a part of road development. After the
war Burmah Shell established efficient and up-to-date service and filling stations to give the
customers the highest possible standard of service facilities.
Hindustan Petroleum Corporation Profile
Which has capacity of 9 Hindustan Petroleum Corporation (HPCL) is one of the leading
petroleum companies in India. Established in 1953, its business activities ventures include
exploration, production, and marketing of petroleum and petroleum-related products.
It has two refineries -- one located in Mumbai with of 5.5 million metric tonnes per
annum (MMTPA) capacity and another in Vishakhapatnam with 7.5 MMTPA capacity. It owns
and operates the largest lube refinery in India with capacity of 335 TMT and accounts for 40% of
Indias total lube oil production. HPCL has a 16% market share in refining and marketing in
India. It holds 16.95% equity stake in Mangalore Refinery & Petrochemicals MMTPA.

ONGC Profile
ONGC (Oil and Natural Gas Corporation Limited) is India's leading oil & gas exploration
company. ONGC has produced more than 600 million metric tonnes of crude oil and supplied
more than 200 billion cubic metres of gas since its inception. Today, ONGC is India's highest
profit making corporate. It has a share of 77 percent in India's crude oil production and 81 per
cent in India's natural gas production.
The origins of ONGC can be traced to the Industrial Policy Statement of 1948, which
called for the development of petroleum industry in India. Until 1955, private oil companies such
as Assam Oil Company at Digboi, Oil India Ltd (a 50% joint venture between Government of
India and Burmah Oil Company) at Naharkatiya and Moran in Assam, and Indo-Stanvac
Petroleum project (a joint venture between Government of India and Standard Vacuum Oil
Company of USA) at West Bengal, were engaged in exploration work.
The vast sedimentary tract in other parts of India and adjoining offshore were largely
unexplored. In 1955, Government of India decided to develop the oil and natural gas resources in
the various regions of the country as part of the Public Sector development. To achieve this
objective an Oil and Natural Gas Directorate was set up in1955, as a subordinate office under the
then Ministry of Natural Resources and Scientific Research.
The Industrial Policy Resolution of 1956 placed mineral oil industry among the schedule
'A' industries. In August 1956, to ensure efficient functioning of the Oil and Natural Gas
Directorate, the Directorate was raised to the status of a commission with enhanced powers. In
October 1959, the Commission was converted into a statutory body by an act of the Indian
Parliament, which enhanced powers of the commission further. In 1960s, ONGC found new
resources in Assam and established new oil province in Cambay basin (Gujarat).
In early 1970s went offshore and discovered a giant oil field in the form of Bombay
High. After liberalization in 1991, ONGC was re-organized as a limited Company under the
Company's Act, 1956 in February 1994.
Recently, ONGC has made six new discoveries, at Vasai West (oil and gas) in Western
Offshore, GS-49 (gas) and GS-KW (oil and gas) in Krishna-Godavari Offshore, Chinnewala
Tibba (gas) in Rajasthan, and Laipling-gaon (oil and gas) and Banamali (oil), both in Assam.
ONGC has a fully owned subsidiary, ONGC Videsh Ltd (OVL) that looks for exploration
opportunities in other parts of the world. OVL is pursuing exploration of oil and gas in Russia,
Iran, Iraq, Libya Myanmar and other countries. ONGC has also acquired 72% stake in MRPL
with full management control of the 9.69 tonne, state-of-the-art refinery.
Oil and Gas Information

Automobile sale have been surging every year. Car sales are up by nearly 30%, heavy &
medium commercial vehicle sales have climbed an even more steep 40%, consumption of diesel
and LPG are on a steep rise.
That should be pretty good news for the industry, which is counting on surging sales and
economic boom to absorb the huge refining capacity that has built up in the country. The
interesting story is that oil products consumption has started picking up in line with the economic
boom, though with a certain lag. Going forward, we should see much larger pick- up in sales of
oil products in line with the GDP growth rate, feel analysts.
High consumption has meant high profit margins for oil companies, particularly refining
majors like Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL),
Indian Oil Corporation (IOC) and a host of other smaller refining companies.
Refining margins are now ruling at their highest levels over the past decade. According to
analysts tracking the sector, refining margins are now at $8 per barrel, one of the highest levels
in many years. And these margins have stayed high despite a rise in prices of crude oil. For
integrated refining & marketing companies, like HPCL, BPCL and IOC, the gains are even more
substantial and their numbers may look very impressive.
However, sentiment for the sector would be significantly impacted by the performance of
the biggest oil company in the country- ONGC .The company is by far the biggest player in the
oil exploration & production sector and has a presence in the refining sector through its arm-
MRPL. As crude prices have held firm in the global markets over the past months, the company
should show good performance for the year. The company should benefit from a surge in
demand in this region.
According to CLSA. "While Asia (excluding, Middle East) accounts for only 10% of oil
production, it accounts for as much as 25% of oil consumption and refining capacity. Oil
consumption in Asia is returning, driven mainly by a surge in Chinese demand over the shorter
term.
With most Asian economies on track for a solid recovery, we would expect demand
growth to top 3-4% in the next few years leading to a quick recovery. With Asia forming 45% of
global incremental demand between 2000 and 2010, we expect Asian refining margins to remain
at higher than global averages".

OBJECTIVES OF THE STUDY


To evaluate the risk of the selected sectors.

To measure the return of the selected sectors.

To ascertain the relationship between the share price and indices.
SCOPE OF THE STUDY

The scope of the study is limited to Indian stock market. The recommendation in
this study only subject to the Indian capital market situation. The present studies will mainly
focusing on the 2years performance of automobiles and oil & gas industry companies in India.
This study reviles the various factors that are to be considering for the risk return of companies.

In the investors point of view this study will help them to understand how a
companies is evaluated against benchmark indices also this will definitely enable
them to find out how the companies had performed for the last two years. For the
new investors the study will serve as a guideline to know about the investment
pattern in companies.


REVIEW OF LITERATURE

In the area of risk and return analysis two well known economist made effort to study the
relation between risk and return and they are the people who quantify the risk and return aspects
of an instrument .they are Harry markowitz and William Sharpe.
Very broadly the investment process consists of two tasks. The first task is security analysis
which focuses on assessing the risk and return characteristics of the available investment
alternatives. The second task is portfolio selection which involves choosing the best possible
portfolio from the set of feasible portfolio.
Portfolio theory, originally proposed by Harry markowitz in the 1950s was the first formal
attempt to quantify the risk of portfolio and develop a methodology for determining the optimal
portfolio .prior to the development of portfolio theory ,investors dealt with the concept of return
and risk somewhat loosely .Harry markowitz was the first person to show quantitatively why and
how diversification reduce risk .in recognition of his seminal contribution in this field he was
awarded the Nobel prize in economics in 1990.

Harry markowitz developed an approach that helps the investors to achieve his optimal
portfolio position .in this contest William Sharpe and others try to find out an answer for a
question ,what is the relationship between risk and return and they developed capital asset
pricing theory .(CAPM)

The CAPM, in essence, predicts the relationship between the risk of an asset and its
expected return .this relationship is very useful in two important ways .first, it produces a bench
mark for evaluating various instrument .second it helps us to make an informal guess about the
return that can be expected from an assets that has not yet been traded in the market.





De Bondt and Thayler study the price in relation to book value in a universe of all
NYSE and American Stock Exchange equity issue. It has explained the relation between the
market price and book value, with stock being assigned in quintiles from lowest price to book
ratios. The earning yields effect on stock return is significantly positive only in January for the
sub period.

Piotroski investigates whether fundamental analysis can be used to provide abnormal
returns, and right shift the returns spectrum earned by a value investor. He focused on high book
to 20 market securities, and show that the mean return earned by a high book to market investor
can beshifted to the right by at least 7.5% annually

The authors developed portfolio based on four fundamental conditions namely: Single
Value P/E, Market Price <Book Value, established track recode on the shareholders return.

Barely and Myers supported Quality of earning as a key performance measure. It is
based on the following argument the problem is that the earnings that firms report are book, or
accounting figures, and as such reflect a series of more or less arbitrary choices of accounting
methods. A switch in the depreciation method used for reporting purposes directly affects
earning per share.

Other accounting choices which affect reported earning are the valuation of inventory,
the procedures by which the account for two merging companies are combined the choice
between expensing and capitalizing. The total value of the companies existing stock is equal to
the discounted value of that portion of the total dividend stream which will be paid to the stock
outstanding today.

The net cash flow to share holders after paying for future investment is sometime s
knows as companys cash flow.This analysis is done at portfolio return on the excess returns
for the market factors using CAPM.


REASEARCH METHODOLOGY
RESEARCH DESIGN
This project is based on exploratory research with both qualitative analysis as well as
quantitative analysis. The research methodology adopted is based on secondary data. The
various sources of secondary data include

Internet.
Share prices of different NSE Sensex companies.
Information provided by ARA Securities.
Magazine.

STATISTICAL TOOLS

The following measures were used to analyze the data collected;
MS excel is used in order to calculate standard deviation and beta as well as to draw charts.
The other kinds of formulae used are

Computation of Rate of Return
RATEOF
RETURN
=(CLOSING STOCK OPENING STOCK) /(OPENING STOCK * 100)



Alpha ()
Alpha represents the difference between a mutual funds actual performances that would
be expected based on the level of risk taken by the manager. If a fund produced the expected
return for the level of risk assumed, the fund would have an alpha equal to zero.


X and Y respectively represent the arithmetic averages of x and y.
An alpha of 1.0 means the fund outperformed the market 1.0%. A positive alpha is the
extra return awarded to the investor for taking additional risk rather than accepting the market
return.

Beta:

Beta is the slope of the characteristic regression line. Beta describes the relationship
between the stock and the index returns.

Standard Deviation
Risk is the chance that an investment's actual return will be different than expected.
Technically, this is measured in statistics by standard deviation. Risk means you have the
possibility of losing some, or even all, of our original investment. Standard deviation is a
statistical measurement that measures the risk of the securities. It is to be computed with the
following formula.

Variance

The variance measures the fluctuation of the observations around their mean. The larger
the value of variance, the greater the fluctuation. The population variance is given by:

2 2
1
1
( )
n
i
i
X
n

Alpha = Y-beta* X

Where X is the sample mean and n is the number of observations in the sample. In most
applications, the sample variance is calculated rather than the population variance because
calculation of the latter is possible only when every value in the population is known (i.e. the
population variance has no practical application for empirical analyses).
Dividing by (n-1) instead of by n (which may seem more logical) is done to make the
sample variance correspond to . Division by n can be proven to produce an s-value that
underestimates the population variance.

Since our analyses are based on sample data with no complete understanding of the
population, the sample variance from now on will be referred to as simply variance.

Correlation

The strength of the linear association between two variables is quantified by the
correlation coefficient.

Given a set of observations (x
1
, y
1
), (x
2
,y
2
),...(x
n
,y
n
), the formula for computing the
correlation coefficient is given by

The correlation coefficient always takes a value between -1 and 1, with 1 or -1 indicating
perfect correlation (all points would lie along a straight line in this case). A positive correlation
indicates a positive association between the variables (increasing values in one variable
correspond to increasing values in the other variable), while a negative correlation indicates a
negative association between the variables (increasing values is one variable correspond to
decreasing values in the other variable). A correlation value close to 0 indicates no association
between the variables.

Since the formula for calculating the correlation coefficient standardizes the variables,
changes in scale or units of measurement will not affect its value. For this reason, the correlation
coefficient is often more useful than a graphical depiction in determining the strength of the
association between two variable.

Capital Asset Pricing Model
A model that describes the relationship between risk and expected return and that is used
in the pricing of risky securities. The
general idea behind CAPM is that
investors need to be compensated in two
ways: time value of money and risk. The
time value of money is represented by the
risk-free (rf) rate in the formula and
compensates the investors for placing
money in any investment over a period of
time. The other half of the formula
represents risk and calculates the amount of compensation the investor needs for taking
on additional risk. This is calculated by taking a risk measure (beta) that compares the returns of
the asset to the market over a period of time and to the market premium (Rm-rf).


LIMITATION OF THE STUDY
The study is purely based on published data.

The study is limited to two years.

Only 5companies from Automobiles industries Oil and Gas Industries



Automobile Sector
Table showing Risk Analysis

Interpretation
From the above table it is inferred that beta value of Maruti Suzuki (0.352824726) .This
Company had been taken higher risk than the other company like Tata motors. The risk against
the market risk of Maruti Suzuki was good.
The Hero Honda has higher standard deviation and Tata Motors had and Mahindra
Mahindra and Bajaj Auto. The Company have been taken the moderate risk and also valid the
moderate benefit.
Table showing Volatility Analysis

Interpretation
Company Beta Standard deviation
Maruti Suzuki 0.352824726 7.850632
Tata Motors 0.236793807 12.00778
Mahindra& Mahindra 0.100158112 12.63503
Hero Honda 0.294931849 6.906998
Bajaj Auto 0.049613436 11.15666
Company Standard deviation Variance
Maruti Suzuki 7.850632 61.63242
Tata Motors 12.00778 144.1867
Mahindra &Mahindra 12.63503 159.6439
Hero Honda 6.906998 47.70662
Bajaj Auto 11.15666 124.471
The above table inferred that volatility of return Mahindra &Mahindra was good and
followed by Tata motors and Bajaj Auto and Maruti Suzuki and Hero Honda. The volatility
ratio of others has to be improved. The company should give more attention to improve and
maintain the optimum level of volatility in year future.








Table showing Return Analysis


Interpretation

The above table shows that the return perception of companies ,Tata Motors had higher
rate return and followed by Maruti Suzuki and Mahindra&Mahindra and Hero Honda and Bajaj
Auto.


COMPANY MEAN RETURN ALPHA
Maruti Suzuki 0.920517 0.557718
Tata Motors 6.005416 5.761928
Mahindra& Mahindra 0.803037 0.700047
Hero Honda 1.178288 0.875018
Bajaj Auto 1.76873 1.717714
Table showing Risk -Return Analysis





Interpretation

From the above table it is inferred that the Maruti Suzuki (0.352) have taken higher risk
than other companies in case of risk against the market index, followed by Hero Honda (0.294),
and Tata Motors(0.236793807) has taken respectively .The excess return against the risk was
provided highly by Tata Motors, followed by Bajaj Auto.
Table showing Relationship Analysis










Company BETA ALPHA
Maruti Suzuki 0.352825 0.557718
Tata Motors 0.236794 5.761928
Mahindra & Mahindra 0.100158 0.700047
Hero Honda 0.294932 0.875018
Bajaj Auto 0.049613 1.717714
Company Correlation
Maruti Suzuki 0.6503852
Tata Motors 0.6705204
Mahindra & Mahindra 0.2969146
Hero Honda 0.4777513
Bajaj Auto 0.1286109
Interpretation

From the above table it is inferred that the relationship is higher in Tata Motors , Maruti
Suzuki and Hero Honda with the market index.
Table showing CAPM Analysis








Interpretation

It show market price of Maruti Suzuki is highly associated with risk perception followed
by Hero Honda and Tata Motors .






Company CAPM
Maruti Suzuki 40.48652
Tata Motors 29.30962
Mahindra &Mahindra 16.14792
Hero Honda 34.90988
Bajaj Auto 11.27911
Company Beta Standard deviation
CPCL 0.295296 8.753754
HPCL 0.168109 9.224932
IOC 0.087886 12.94676
BPCL 0.171015 7.715803
ONGC 0.110722 16.0702
OIL AND GAS SECTOR
Table showing Risk Analysis

Interpretation

From the above table it is inferred that beta value of Chennai petroleum .This Company
had been taken higher risk than the other company like Hindustan. The risk against the market
risk of Chennai petroleum was good.
The BPCL had (7.715803) has standard deviation and HPCL had (9.224932) and IOC
(12.94676) ONGC (16.0702). The Company have been taken the moderate risk and also valid
the moderate benefit.



Table showing Volatility Analysis


Interpretation

The above table inferred that volatility of return ONGC was good . IOCandHPCL and
Chennai petroleum and BPCL , these companies volatility ratio of others has to be improved.
These companies should give more attention to improve and maintain the optimum level of
volatility in future .
Company Standard deviation variance
CPCL 8.753754 76.62821
HPCL 9.224932 85.09936
IOC 12.94676 167.6185
BPCL 7.715803 59.53362
ONGC 16.0702 258.2512
Table showing Return Analysis

Interpretation

The above table shows that the return perception of BPCL had higher rate return and
followed by HP , Chennai petroleum. IOC and ONGC had a negative return, so these companies
must be taken immediate and groups action to improve the return in year future.

Table showing Risk -Return Analysis




Company Alpha Mean Return
CPCL 0.801259 1.104903
HPCL 0.965291 1.138152
IOC -1.21368 -1.12331
BPCL 1.733708 1.909558
ONGC -3.90522 -3.79137
Company Alpha Beta
CPCL 0.801259 0.295296
HPCL 0.965291 0.168109
IOC -1.21368 0.087886
BPCL 1.733708 0.171015
ONGC -3.90522 0.110722

Interpretation

From the above table it is inferred that the BPCL(1.733708) have taken higher risk than
other companies in case of risk against the market index, followed by HPCL (0.965291), and
CHENNAI PRTROLEUM(0.801259) has taken respectively . . The excess return against the
risk was provided highly by CHENNAI PETROLEUM, followed by BPCL.
Table showing Relationship Analysis


Interpretation

From the above table it is inferred that the relationship is higher in CHENNAI
PETROLEUM (0.606839), followed by ONGC (0.421836) and HINDUSTAN PETROLEUM
(0.36355) with the market index.

Table showing CAPM Analysis

Company CORRELATION
CPCL 0.606839
HPCL 0.36355
IOC 0.268519
BPCL 0.308454
ONGC 0.421836
Company CAPM
CPCL 34.94497
HPCL 22.69345

Interpretation

It show market price of Chennai petroleum (34.944) is highly associated with risk
perception followed by BPCL, HP, ONGC and IOC.
Findings

Automobile Sector:

In the Risk analysis the Maruti Suzuki and Mahindra &Mahindra were taken higher risk
against the market risk
In the return analysis Tata motors are comparatively earned higher return.
Tata motors are provided excess return against the risk and if was followed by the
Maruti Suzuki.
Tata motors are having better correlation with market during the study period.

Oil and Gas Sector:

Chennai petroleum has taken the higher than the market risk.
During the period of study BPCL has secured high risk and higher votality.
In the return analysis BPCL are comparatively taken higher return than the other
companies
The excess return and low risk has provided by BPCL and Chennai petroleum.
The relationship higher is Chennai petroleum.
Chennai petroleum higher associated with risk perception.


IOC 14.9658
BPCL 22.97339
ONGC 17.16552
Suggestions

The investors can invest money in Maruti Suzuki and Tata Motors in order to reduce risk.

The relationship between the share price and the market of the Tata motors limited is
very high than the other companies. Therefore the investors can be investing their money
in the above sector; it will be given more return in future.

In the Oil &Gas sector, Chennai petroleum and BPCL has better performed than the
market. So investor is suggested to invest in Chennai petroleum and BPCL in the Oil&
Gas sector.
CONCLUSION

The risk, return and volatility are the most important measurement technique
to measure movements of the share market. It helps to make decision either to buy or sell
the securities. from the analysis, the researcher found that Maruti Suzuki ,Tata Motors
and Hero Honda are in automobile sector and Chennai petroleum and BPCL are in Oil &
Gas sector category have performed better during the study period. Therefore the
investors advice to invest money in purchasing more number of shares in these two
emerging sectors to get a better return.