A

PROJECT ON
PORTFOLIO MANAGMENT
AT
STRATEGEM SOLUTIONS
Submitted
by
FEREEN DODHIYA
(H.T.NO: 1238-11-684012)
Submitted in partial fulfillment of the requirement for the award of the

BACHELORS OF BUSINESS ADMINISTRATION

(FINANCE)
Under the Guidance of
Mrs. SHALINI MENON

VILLA MARIE DEGREE COLLEGE FOR WOMEN

(Affiliated toOsmania University)
Somajiguda, Hyderabad.
2011-2014.

DECLARATION

I hereby declare that the project report titled PORTFOLIO

MANAGEMENT submitted by me to the Department of Business
Administration, VILLA MARIE DEGREE COLLEGE FOR WOMEN, is a
bonafide work undertaken by me and it is not submitted to any other
University or Institution for the award of any Degree/Diploma certificate or
published any time before.

Place: Hyderabad

MS. FEREEN DODHIYA

ABSTRACT
Portfolio is a combination of securities that have Return and Risk
characteristics of their own. It is a combination of various assets and instruments of
investment with a combination of different features of risk and return, it is built up of
wealth or income of the investor over the period of time to suit his risk and return
preferences. Portfolio may or may not take on the aggregate characteristics of their
individual parts. Portfolio is the collection of financial or real assets such as equity
shares, debentures, bonds, treasury bills, and property etc.
The objective of portfolio management is security/safety of principal, stability of
income, capital growth, marketability, liquidity, and diversification and Favorable tax
status. Security is not only involves keeping the principal sum intact but also keeping
intact its purchasing power. Stability of income so as to facilitate planning more
accurately and systematically the reinvestment of income.
The investors who are risk averse can invest their funds in the portfolio
combination GAIL & Titan , Infosys & BHEL , in the calculated proportions. The
investors who are slightly risk averse or who are not so risk averse are suggested
to invest in BHEL & Titan , Wipro & Jindal Steel and

as these combinations

bear slightly high risk when compared with other combinations.

ACKNOWLEDGEMENT
I would like to thank STRATEGEM SOLUTIONS for giving me an opportunity to do a
project work in the company. I would like to extend my sincere thanks to Mr.K.Mallesh
for taking time of his busy schedule and guiding me through out the course of project.

I would also like to thank Dr. Y. Philomena mam, Principal of villa marie degree
college for women for her support.

I would like to thank Mrs. SapnaMathur, Head Of Department for her inspiration and
timely support in successful completion of this project work.

I am deeply indebted to Ms. Shalini Menon, facultymember for her valuable guidance
throughout the course.

FEREEN DODHIYA

CONTENTS
CHAPTER 1

INTRODUCTION

1-19

1.1 Introduction
1.2 Objectives of the study
1.3 Scope and Period of the Study
1.4 Conceptual and Methodological Framework
1.5 Plan of the Study
1.6 Limitations of the Study

CHAPTER 2

REVIEW OF LITERATURE

20-23

CHAPTER 3

COMPANY PROFILE

24-34

CHAPTER 4

ANALYSIS& INTERPRETATION

35-62

CHAPTER 5

SUMMARY & CONCLUSIONS

63-65

CHAPTER 6

RECOMMENDATIONS

66-67

BIBLIOGRAPHY

LIST OF TABLES
Table.
No
1.
2.
3.
4.
5.
6.
7.
8.
9
10

Name of the Table

Standard Deviation of HCL Technologies
Standard Deviation of reliance industries
Standard Deviation of Wipro
Standard Deviation of jindal steel
Standard Deviation of Infosys
Standard Deviation of BHEL
Standard Deviation of GAIL
Standard Deviation of Titan
Average Returns & Standard Deviation of Securities
Correlations & Portfolio Risk

Page No
37
39
42
44
47
49
52
54
57
60

LIST OF CHARTS

Chart. No

Name of the Chart

Page No

1.

Average return of selected securities

58

2.

Standard Deviation securities

59

3.

Correlation Coefficient

61

4.

Portfolio Risk

62

CHAPTER 1

INTRODUCTION

Chapter 1

INTRODUCTION
1.1 INTRODUCTION
Portfolio management in common parlance refers to the selection securities and
their continues shifting in the portfolio to optimize returns to suit the objectives of an

10

investor. This, however, requires financial expertise in selecting the right mix of securities
in change market conditions to get the best out of the stock market. In India, as well as in
a number 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 net worth clients, who have little time to manage
their investment. 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 Exchange Board of India (SEBI). The Portfolio management service can be
rendered either by the SEBI authorized categories I&II Merchant Bankers or portfolio
managers or discretionary portfolio manager as defined in clauses (e) and (f) of rule 2 of
Securities and Exchange Board of India RULES, 1993. Portfolio is the collection of
financial or real assets such as equity shares, debentures, bonds, treasury bills,
and

property

etc.

PORTFOLIO:
Holding of different securities is called portfolio
(OR)
Managed of securities is called portfolio

PORTFOLIO MANAGEMENT:
Portfolio Management guides the investor in a method of selecting
the best available securities that will provide the expected rate of return for any given
degree of risk and also to mitigate (reduce) the risks. It is a strategic decision which is
addressed by the top-level managers. Portfolio management is concerned with efficient
11

management of portfolio investment in financial assets, including shares and debentures

of companies. Portfolio is the combination of assets (or) it can also be called as the
combination of securities The art and science of making decisions about investment mix
and policy, matching investments to objectives, asset allocation for individuals and
institutions, and balancing risk against performance. Portfolio management is all about
strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic
vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt
to maximize return at a given appetite for risk.
There are many types of portfolios including the market portfolio and the zeroinvestment portfolio.[4] A portfolio's asset allocation may be managed utilizing any of the
following investment approaches and principles: equal weighting, capitalizationweighting, price-weighting, risk parity, the capital asset pricing model, arbitrage pricing
theory, the Jensen Index, the Treynor Index, the Sharpe diagonal (or index) model, the
value at risk model, modern portfolio theory and others.
There are several methods for calculating portfolio returns and performance. One
traditional method is using quarterly or monthly money-weighted returns, however the
true time-weighted method is a method preferred by many investors in financial markets.
[5] There are also several models for measuring the performance attribution of a
portfolio's returns when compared to an index or benchmark, partly viewed as investment
strategy.
Portfolios are the securities held by individuals and it may be recalled that the
expected return from individuals securities carries some degree of risk. Risk can be
defined as the standard deviation around the expected return. The simple fact that
securities carried different degrees of expect risk leads most investors to the notion of
holding more than one security at a time in a attempt to spared risk by not putting all
their eggs into one basket In the case of mutual and exchange-traded funds (ETFs), there
are two forms of portfolio management: passive and active. Passive management simply
tracks a market index, commonly referred to as indexing or index investing. Active
management involves a single manager, co-managers, or a team of managers who attempt
to beat the market return by actively managing a fund's portfolio through investment

12

decisions based on research and decisions on individual holdings. Closed-end funds are
generally actively managed.
Modern portfolio theory (MPT) refers to the theory of investment that seeks to
maximize the expected return of portfolio at a given level of risk. Similarly it also
attempts to diminish risk for a given level of return expected. To achieve this, portfolio
manager choose the proportions of different assets in a portfolio carefully. The modern
portfolio theory is extensively used for practice in the financial industry, however basic
assumptions of this theory has faced certain challenges in fields like behavioral
economics.
Modern Portfolio theory (MPT) presents the concept of diversification in
investing by using mathematical formulation. It aims to select a collection of investment
assets which has lower risk than any individual asset. It can be observed spontaneously as
dynamic market conditions cause changes in value of different types of assets in
conflicting ways. The prices in the bond market may fall independently from prices in the
stocks market, thus there is overall lower risk in a collection of both bond and stocks
assets as compared to individual asset. Moreover, the diversification reduces the risk even
if cases where assets returns are positively correlated.
A Portfolio Manager is responsible for building a portfolio of assets such as
stocks, bonds and other assets that generates the maximum possible rate of return at the
least possible level of risk. The portfolio management involves allocation of funds in
various assets to achieve diversification of portfolio that offer maximum return at the
lowest possible risk. A stock portfolio management refers to the management of
investment decisions for a stock portfolio and it is usually performed by stock
management professional due to its complex nature. The stock portfolio managers are the
experts in the field of stocks and well suited for making decisions for those who want to
manage their own investment.

1.2 Objectives of the Study:

13

To evaluate the optimal portfolio which gives optimal return at a minimal risk to
the investor.
To examine whether the portfolio risk is less than individual risks of the

securities on whose basis the portfolios are constituted.

To evaluate the yield of the selected portfolio.

To examine which industries / sectors combination is yielding a good return

or not.
To study the risk return characteristics of the selected portfolios.

1.3 Scope and Period of the Study:

This Study covers the Markowitz model. Herein, the study covers the
calculation of correlation between the different securities in order to select the
optimal combination securities where the fund should be invested. Also the study
includes the calculation of the individual standard deviations of securities and ends
with the calculation of weights of individual securities involved in the portfolios.
The study covers the returns of randomly selected 20 equity scripts for a period
of 12 months i.e., from April 2011 to March 2012

OBJECTIVES

OF PORTFOLIO MANAGEMENT:

The following are the objectives of portfolio management

Security/safety of principal

Marketability

Liquidity

Diversification

Favorable tax status

Capital appreciation

Stability of income

Risk avoidance

14

NEED FOR

PORTFOLIO

Portfolio
investment
concept

in
and

actions .The
with
It

the

objectives,
The

management
assets

objective

of

construction

constraints,

portfolio

is

a process

securities.

regular

of

expertise

is

and

involves

involves

MANAGEMENT:

this
of

It

and

preferences

is

systematic

service

professionals

encompassing

dynamic

to

in

investment

for

risk

help

the

based
and

activities
and

unknown

portfolio
upon

returns

and

investors

management.

the

and

of

flexible

analysis, judgments

is

portfolio

many

tax

investors
liability.

reviewed and adjusted from time to time intune with the

market conditions. The evaluation of a portfolio is to be done in terms of targets

set for a risk and return, the changes in the portfolio are to be effected to meet
the changing conditions.
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 principals governing such allocations. The modern view of investments
is oriented more towards the assembly of the proper combinations of individual
securities to form investment portfolios. A combination of

securities held together

will give a beneficial result if they are grouped in a manner to secure higher
return after taking into consideration the risk elements.
The modern theory is of the view that by diversification, risk can be reduced.
The investor can make diversification either by having large number of shares of
companies in different regions, in different industries or those producing different
Types of product lines. Modern theory believes in the perspective of combinations
of securities under constraints of risk and return.

ACTIVITIES IN PORTFOLIO MANAGEMENT

The following three major activities are involved in an efficient portfolio
management:
(a) Identification of assets or securities, allocation of investment and identifying assets
classes
15

(b) Deciding about major weights/proportion of different assets/securities in the portfolio

(c).Securities selection within the asset classes as identified earlier.
The above activities are directed to achieve the sole purpose to maximize return
and minimize risk in the investment. This will however be depending upon the class of
assets chosen for investment

BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT

There are two basic principles for effective portfolio management
(I)

Effective

investment planning for The Investment In Securities By

Considering The Following Factors

(a) Fiscal, financial and monetary policies of the government 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 Prospect Etc.
(II)

Constant review of investment:

(a) Assessment of quality of management of the companies in which investment
Has already been made or is proposed to be made
(b) The analysis of securities market and its trend is to be done on a continuous
basis.

1.4 Conceptual & methodological frameworks

Approaches to the Portfolio Management
In this portfolio management there are two approaches
a) TRADITIONAL APPROACH
The traditional approach to the portfolio management concern itself with the study
of the investors objectives, investment strategic diversification and selection of individual
investment.

16

Traditional security analysis recognizing the key importance of risk and return to
the investor. Most traditional methods recognize the return as some dividend receipt and
price appreciation over a forward period. But the return for an individual security is not
always over the some common holding period and the rates of return are also not
necessarily time adjusted
The traditional approach to portfolio management is to maximize the investors
wealth, diversification reduces volatile of returns and risks hence adequate equity
diversification is required..
THE TRADITIONAL APPROACH COVERS THE FOLLOWING:
(i)

Balancing fixed interest securities against equity.

(ii)

Balancing high dividend Payout Company against high earning growth

companies.

(iii)

Finding the income of growth portfolio.

(iv)

Balancing high income tax payable against capital gains tax.

(v)

Balancing transition cost against capital gains from rapid securities and
retaining some liquidity to size up on bargains.

Selection of individual investment:

(i)

Calculating the intrinsic value of a share and compare at which the

market value.

(ii)

Study of published accounts to calculate book value and trading

intrinsic value.

(iii)

Tradicit feature share prices from past price movements by following

technical analysis.

(iv)

By way of inside information the switch over Quigley to winner than

losing companies.

17

(v)

Companies with good asset backing, dividend growth, good earning

record, high quality management with appropriate dividend polices
(or) traced out constantly for selection of portfolio holdings.

(vi)

By adhering to the expect advice

b) Modern Approach
In this modern approach in portfolio management consists of the
discussion of camp (capital asset pricing model) and Markowitz approach
CAPITAL ASSET PRICING MODEL (CAPM)
CAMP explains how the price and interest rates on risk financial assets
securities are determined the capital Market .It combines the principal of portfolio theory
with certain assumptions regarding investors , expectation and market characteristics.
Assumptions:
The individual are Rick avers.
(1) Individual have homogeneous expectations

regarding risk and

return of securities
(2) Individuals can borrow and lend free at risk, free rate of interest.
(3) The market is perfect and competitive.
(4) There are no trancation cost and no taxes.
(5) Securities are completely divisible.

CAPM Express The Following Concept:

(1) The required rate of an all financial assets depends on risk less rate
of interest.
(2) The higher risk the greater is the expected return.
(3) Investors should be primarily concerned with risk that cant be
diversified away by holding portfolios.
(4) Investors require a premium for bearing risk and premium times
the securities (beta) which measure the its relative market risk.
18

ARBITRAGE PRICING THORY

Arbitrage

pricing theory is one of the tools used by the investors and

Portfolio managers. The capital asset pricing theory explains the returns of the Securities
on the basis of their respective betas. According to the previous models, the investors
choose the investment on the basis of expected return variance. The alternative model
devolved in asset pricing by Stephen Ross is known as arbitrage pricing theory (APT).
The apt theory explains the nature of equilibrium in the asset pricing in a less complicated
manner with fewer assumptions compared to CAPM
ARBITARAGE
Arbitrage is a process of earning profit by taking advantage of differential pricing
for the same asset. The process generates risk less profit. In the security market, it is of
selling security as a high price and the simultaneous purchase of the same security as a
relatively lower price .Since the profit earned through arbitrage is risk less, the investors
have the incentive to undertake this whenever an opportunity arises. In general, some
investors indulge more in this type of activities than other. However, the buying and
selling activities of the arbitrageur reduce and eliminate the profit margin, brining the
market price to the equilibrium level.

Markowitz Model
a) The Mean Variance Criterion:
Professor Harry M Markowitz formulated the risk-return relationship in a situation
with market in efficiency. He developed the concept of efficient frontier. He defined as
the other hedge of set portfolios when each portfolio when each portfolio in the frontier
provides the highest possible expected return any degree of risk (or) the lowest possible
degree of risk of any expected return.

19

To the help of efficient frontier and indifference curves the optional investment
point can be located where the indifference curves is tangency reflex level respectable to
the investor in order to achieve a desired return and provide efficient return for a level of
risk.
The portfolio various indicates the importance of diversification for reducing risk
and shows how to diversity Markowitz advocate that the various of the rate of return is a
meaningful measure of risk under reasonable setoff assumptions and derives the formula
for computing the various of portfolio
He credited with developing the first modern portfolio analysis model in
order to arrange for the optimum allocation of assets within portfolio. To which
this objective Markowitz generated portfolios within a rewards a risk context. In
essence Markowitz model is theoretical framework for the analysis of risk return
choices. Decisions are based on the concept of efficient portfolios.
A portfolio is efficient when it is expected to yield the highest return for
the level of risk accepted or alternatively the smallest portfolio risk for a specified
level of expected return to build an efficient portfolio an expected return level is
chosen, and the assets are substituted until the portfolio combination with the
smallest variance at the return level is found this process is repeated for other
expected returns. Hence, a set of efficient portfolio is generated.

Assumptions of Markowitz Model:

The Markowitz model is based on several assumptions regarding investor
behavior.
1. Investors consider each investment alternative as being represented by a
probability distribution of expected returns over some holding period.
2. Investors maximize one period expected utility curve which demonstrates
diminishing marginal utility of wealth.
3. Individuals estimate risk on the basis of variability of expected returns.
4. Investor base decisions solely on expected return and variance of returns only.

20

5. For a given risk level, investors prefer high returns to lower returns similarly,
for a given level of expected return investors prefer less risk to more risk.
Under these assumptions a single asset or portfolio of assets is considered
to be Efficient if no other assets or portfolio of assets offers higher expected
return with the same risk or lower risk with the same expected return.
b) The Specific Model:
In developing this model Markowitz first disposed of the investment
behavior rule that the investor should maximize expected return. This rule implies
that the non-diversification single security portfolio with the highest expected
return is the most desirable portfolio. Only by buying that single security can
expected return be maximized. The single security portfolio would obviously be
preferable if the investor work perfectly certain that this highest expected return
would turn out to be the actual return. However, under real world conditions of
uncertainty, most risk averse investors join with Markowitz in discarding the role
of calling for maximizing expected returns. As an alternative Markowitz offers the
expected returns / variance of returns rule.
The goal of portfolio manager should be to minimize portfolio risk for any
level of expected returns and suggested that this can be accomplished by
following equation.

Minimize Portfolio Risk:

N N
2 2
W AA
A 1
A 1 B 1

WAWB r AB

1/ 2

Subject to:
A minimum Stated Expected Return.

21

E(Rp) =

WA E(RA)

A 1

Efficient Frontier or Efficient Portfolio:

The portfolio managers task is to select the investment weights that will
result

in

dominant

investments.

These dominant assets are called as Efficient

Portfolios. An efficient portfolio is any asset or combination of assets that has

1.

The maximum expected return in its risk class.

2.

The minimum risk at its level of expected return.

The objective of portfolio management is to analyze different individual

assets and delineate efficient portfolios. The group of all efficient portfolios will
be called as efficient set of portfolios which compresses the efficient frontiers.
The efficient frontier is the locus of points in risk return space having the
maximum return at each risk class. The efficient frontier dominates all other
investments. The risk and return can be seen in the following graph:

22

The vertical axis denotes expected return (ER) while the horizontal axis
measures the standard deviation of the return given its expected returns and
standard deviation , any investment option can be represented by a point on such
a plane and the set of all potential options can be enclosed by an area. The
efficient portfolios are given by arc AB and is a boundary of an attainable set.
The shaded area represents the attainable set of portfolio consideration. Any point inside
the shaded area is not as efficient as corresponding point on efficient frontier.
Point X1 offers the same expected returns ER1 as X2 but has a smaller
standard deviation. Any point below X1 such as X3 has the same standard
deviation as X1 but a smaller expected return. The portfolio on the efficient
frontiers are said to be dominant. The set of attainable set is called Feasible Region.

Concept of Efficient Portfolio:

The dominance principle states that among all the investment opportunities
available with a given return, the investment with the least risk is the most
desirable one or among the investment in the given risk class, the one with the
highest return with the most desirable one. Risk principle is called as efficient set
theorem.
In the light of this the segment AB is a relevant portion of the feasible set
is called the Markowitz Efficient Frontier. It is so called because all efficient
portfolios lies on this frontier.
An efficient portfolio is one that gives the highest return for a given return
or a minimum risk for a given return, these efficient portfolios are also referred
as mean variance efficient portfolios. The shape of the efficient frontier is given
by Rp / p.

Selection of Appropriate Portfolio:

23

After the generation of the efficient frontier, the investor must select the
most appropriate portfolio from among the many portfolios present on the efficient
frontier.
The Markowitz model allows a trade of between expected returns and risks,
which depends upon the each investors risk preferences. Investors unique
personal preferences can be described by using indifference curve as follows:

Efficient Frontier with Indifferent Curve

The arc AB shows the efficient frontier and the investors utility preference
functions are assumed to take the shapes of the curve I1, I2, and I3. The investor
would prefer curve I3 or I2 because curve I3 provide more return per unit than
curve I2 at any point on the curve. The same can be said of curve I2 related to
I1. But point N1, the point of tangency between an indifference curve I1 and the
efficient frontier gives the optimal portfolio because the portfolio at point N
maximizes utility. It is the most satisfied available portfolio.

24

METHODOLOGICAL FRAMEWORK
For

implementing

the

study

20

securities

or

stocks

(equity

stock)

constituting the Nifty market are selected, of one year opening and closing sharing
moment prices data from NSE dated from April 2005 to March 2006.
In order to know the return of each stock or security the formulae that is used is
given below:
Closing price - Opening price
R=

--------------------------------------------------X 100
Opening price

To know the average (R) the following formula has been used.

Average (R) =

The next step is to know the risk of the stock or security the formula is
given below.
Standard Deviation () =

( R R' ) 2
T

Where
(R R)2 = Square of the difference between sample return and mean return.
T = Number of sample observations for a period.
After that, the correlation of the securities is calculated by using the
following formula:
(rAB) =

COV AB
A B

1
Covariance (COVAB) =
N

R
T 1

R ' A R B R ' B

Where,

RA R' A RB R'B

= Combined Deviations of Security A & Security B.

A B = Standard Deviation of Security A and Security B

COVAB= Covariance between A and B.
N = number of observations.
25

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

WA =

B B rAB A
B2 2rAB A B
2
A

WB=1-WA
Where,
WA = Proportion of investment in security A
WB = Proportions of investment in Security B
The next and final step is to calculate the portfolio risk (combined risk)
that shows how much risk would be reduced by combining 2 stocks or securities
with the use of the following formula:

P =

A2W A2 B2W B2 2rAB A BW AW B

Where
p = Portfolio Risk
A = Standard Deviation of Security A
B = Standard Deviation of Security B
WA = Proportion of Investment in Security A
WB = Proportion of Investment in Security B
rAB = Correlation coefficient between Security A and Security B.

1.5 Plan of the study:

The present study is divided into five chapters:
Chapter 1: Covers introduction, need and importance of study, scope of
study, objectives and limitations of the study.
Chapter 2: Company profile, which gives an introduction to HSE and
how it carries out day to day activities is concerned in this chapter.
Chapter 3: It covers the conceptual and methodological framework which
deals with the following:
26

The conceptual framework deals with the Markowitz model and investment
divisions.
The methodological consists of the various formulae that are used in the
calculations of the return, standard deviation, variance, correlation coefficient,
covariance of securities, weights and risk return of portfolio.
Chapter 4: It consists of the analysis and interpretation.
Chapter 5: Deals with findings and conclusions.

1.6

Limitations of the Study:

The Study has certain limitations / Constraints which has led to the

obstruction of widening the scope and objectives of study.

1.

The fulfillment of project limited to 60 days.

2.

Construction of portfolio restricted with two assets based on

Markowitz model.

3.

From NSE listing a very few and randomly selected scripts are
Analyzed.

4.

Limited industries are only covered in the study.

5.

Some of the securities that are covered under the study are not the
Representative stocks in NSE Nifty.

27

CHAPTER 2
REVIEW OF LITERATURE

28

Chapter 2

REVIEW OF LITERATURE
1. Portfolio Management in General Insurance Industry1
1) Overview of Study:
The main purpose of the study is to examine the policy adopted for decision
Making in the area of portfolio management in general insurance corporation (GIC) with
a special focus on portfolio management of NIACL.
2) Scope and Period of the Study:
The present study covers through examination of procedure of decision-making.
Portfolio management environment, selection of securities, weight of different securities
and earnings of portfolio of NIACL. The data is collected from secondary sources
comprises of published reports of Government of India,RBI,GIC and Annual Reports Of
NIACL for the time period from 1994-95 To2011-12
3) Conclusion:
The new India assurance company limited (NIACL), which is a subsidiary of
General Insurance Company (GIC), is playing a crucial role as a custodian of public
funds for investment in various securities and loans. The study reveals that the Stock
Exchange Securities in India and outside India have shown an increasing trend whereas
the Loan Securities denoted a decreasing trend. The analysis regarding the sector wise
investment shows that in Public and Private and Private sectors Investment showed an
increasing trend whereas Co-operative sector recorded a decreasing trend. Though the
investments in Mutual Funds are at the inception stage, it recorded an increasing trend,
which is higher than both the Public and private sectors.
There seem better prospects for investment by NIACL IN Mutual Fund the study
relating to Investment and Income denotes an increasing trend throughout the study
period. Thus, the study indicates that the resources of general Public, Government and all

29

the other investors funds are safe and secure in the hands of NIACL as it has selected
portfolios asper the norms, directions of IRDA.

4) Findings:
1. The trend of the Stock Exchange Securities in India has shown increasing trend.
On an average, the investment in such securities increased by 183.47%yearly over the
study period. The average increase in Investment in this case is 184.77% per year over the
study period
2. Investment in the stock exchange securities in outside India has also shown
increasing trend over the study period except in the year 2000-01, which denotes a
significant decline to 4.21%
3. The average increase in Investment in this case is 184.77% per year over the
study period

2. Portfolio Selection Using the CAPM 2

1) Overview of the study:
The present study aims to measure the actual risk and return of securities. The
actual expected returns of securities and calculated using SML. The study aims to suggest
a lest portfolio mix and also assist the investors in making rational investment decision
2) Scope and Period of the Study:
The scope of the study is limited to the use of the Securities Market Line as a tool
for selecting securities and advising the investors about the best portfolio mix. The period
chosen for study is August 2013- December 2013
3) Conclusion:
This system is linear, since the weights (xi) are the variables and they are all of
degree one; thus the system may be solved as a system of linear equations. This system
may be solved in different ways with matrix notation, the inverse of the coefficient
matrix, denoted C1, and may be used to find the solution (weight) vector X as shown
2

30

below. I denote the identity matrix. The weights in the first nine equations sum to unity
are a linear function of E*, and represent the weights of the nine securities in the efficient
portfolio at the point where(rp) = E*. Varying E* generates the weights of all the efficient
portfolios.

4) Findings
1.

There is significant difference between expected returns and actual returns.

2.

The securities are said to be undervalued when their expected return is more
than actual return.

3.

It can be observed that the undervalued securities are Cipla, Dr.Reddy Labs,
HDFC Bank, HPCL, Infosys, ITC, MTNL, Ranbaxy and Satyam.

31

CHAPTER 3

COMPANY PROFILE

32

Chapter 3

COMPANY PROFILE
INDUSTRY PROFILE
THE HYDERABAD STOCK EXCHANGE
3.1 ORIGIN:
Rapid growth in industries in the erstwhile Hyderabad State saw efforts at
starting the Stock Exchange. In November, 1941 some leading bankers and brokers
formed the share and stock Brokers Association. In 1942, Mr. Gulab Mohammed,
the Finance Minister formed a Committee for the purpose of constituting Rules
and Regulations of the Stock Exchange. Sri Purushothamdas Thakurdas, President
and Founder

Member of the Hyderabad Stock Exchange performed the opening

ceremony of the Exchange on 14.11.1943 under Hyderabad Companies Act, Mr.

Kamal Yar Jung Bahadur was the first President of the Exchange. The HSE
started functioning under Hyderabad Securities Contract Act of No. 21 of 1352
under H.E.H. Nizams Government as a Company Limited by guarantee. It was the 6 th
Stock Exchange recognized under Securities Contract Act, after the Premier Stock
Exchanges, Ahmedabad, Bombay, Calcutta, Madras and Bangalore stock Exchange.
All deliveries were completed every Monday or the next working day.
The Securities Contracts (Regulation) Act, 1956 was enacted by the
Parliament, passed into Law and the rules were also framed in 1957. The Act and
the Rules were brought into force from 20 th February 1957 by the Government of
India.
The HSE was first recognised by the Government of India on 29 th
September 1958 as Securities Regulation Act was made applicable to twin cities
of Hyderabad and Secunderabad from that date. In view of substantial growth in
trading activities, and for the yeoman services rendered by the Exchange, the
Exchange was bestowed with permanent recognition with effect from 29th
September 1983.
33

The Exchange has a significant share in achievements of erstwhile State of

Andhra Pradesh to its present state in the matter of Industrial development.

3.2 OBJECTIVES:
The Exchange was established on 18 th October, 1943 with the main
objective to create , protect and develop a healthy Capital Market in the State of
Andhra Pradesh to effectively serve the Public and Investors interests.
The property, capital and income of the Exchange, as per the Memorandum
and Articles of Association of the Exchange, shall have to be applied solely
towards the promotion of the objects of the Exchange. Even in case of
dissolution, the surplus funds shall have to be devoted to any activity having the
same objects, as Exchange or be distributed in Charity, as may be

determined by

the Exchange or the High Court of judicature. Thus, in short, it is a Charitable

Institution.
The Hyderabad Stock Exchange Limited is now on its stride of completing
its 62nd year in the history of Capital Markets serving the cause of saving and
investments. The Exchange has made its beginning in 1943 and today occupies a
prominent place among the Regional Stock Exchanges

in India. The Hyderabad

Stock Exchange has been promoting the mobilization of funds into the
Industrial sector for development of industrialization in the State of Andhra
Pradesh.

3.3 GROWTH:
The Hyderabad Stock Exchange Ltd., established in 1943 as a Non-profit
making organization, catering to the needs of investing population started its
operations in a small way in a rented building in Koti area. It had shifted into
Aiyangar Plaza, Bank Street in 1987. In September 1989, the then Vice-President of
India, Honble

Dr. Shankar Dayal Sharma had inaugurated the own building

of

the Stock exchange at Himayathnagar, Hyderabad. Later in order to bring all the
34

trading members under one roof, the exchange acquired still a larger premises
situated 6-3-654/A ; Somajiguda, Hyderabad - 82, with a six storied building and
a constructed area of about 4,86,842 sift (including cellar of 70,857 sft).
Considerably, there has been a tremendous perceptible growth which could be
observed from the statistics.
The number of members of the Exchange was 55 in 1943, 117 in 1993
and increased to 300 with

869 listed companies having paid up capital of

Rs.19128.95 crores as on 31/03/2000. The business turnover has also substantially

increased to Rs. 1236.51 crores in 1999-2000. The Exchange has got a very smooth
settlement system.

3.4 COMPUTERIZATION :
The

Stock

Exchange

business

operations

are

equipped

with

modern

communication systems. Online computerization for simultaneously carrying out the

trading transactions, monitoring functions have been introduced at this Exchange
since 1988 and the Settlement and Delivery System has become simple and easy
to the Exchange members.
The HSE On-line Securities Trading System was built around the most
sophisticated state of the art computers, communication systems, and the proven
VECTOR Software from CMC and was one of the most powerful SBT Systems
in the country, operating in a WAN environment, connected through 9.6 KBPS 2
wire Leased Lines from the offices of the members to the office of the Stock
Exchange at Somajiguda, where the Central System CHALLENGE-L DESK SIDE
SERVER made of Silicon Graphics(SGI Model No. D-95602-S2) was located and
connected all the members who were provided with COMPAQ DESKPRO
2000/DESKTOP 5120 Computers connected through MOTOROLA 3265 v. 34
MANAGEABLE STAND ALONE MODEMS (28.8 kbps) for carrying out business
from computer terminals located in the offices of the members.

35

The HOST System

enabled the Exchange to expand its operations later to

other prime trading centers outside the twin cities of Hyderabad and Secunderabad.

3.5 CLEARING HOUSE:

The Exchange set-up a Clearing House to collect the Securities from all
the Members and distribute to each member, all the securities

due in respect of

every settlement. The whole of the operations of the Clearing House were also
computerized. At present through DP all the settlement obligations are met.

INTER CONNECTED MARKET SYSTEM (ICMS)

The HSE was the convener of a Committee constituted by the Federation
of

Indian

Stock

Exchanges

for

implementing

an

Inter-connected

Market

System(ICMS) in which the Screen Based Trading systems of various Stock

Exchanges was inter-connected to create a large National Market. SEBI welcomed
the creation of ICMS.
The HOST provided the net-work for HSE to hook itself into the ISE. The
ISE provided the members of HSE and their investors, access to a large national
network of Stock Exchanges.

3.6 ON-LINE SURVEILLANCE:

HSE pays special attention to Market Surveillance and monitoring exposures
of the members, particularly the mark to market losses. By taking prompt steps to
collect the margins for mark to market losses, the risk of default by members is
avoided. It is heartening that there have been no defaults by members in any
settlement since the introduction of Screen Based Trading.

36

Company Profile:
A Spectra solution is a wealth trading startup platform which provides financial
services in the fields of brokerage and human resources. We liaise with high net worth
clients in providing them advisory services for greatest levels of consumer satisfaction.
The company also offers training modules for students who looking at a career in the
financial services industry by certifying them to high industry standards. We also
undertake the placement of qualified financial professionals. Mission statement To set
the standard for excellence in service. To continually monitor our portfolio of products
to meet the ever- changing needs of our customer as they plan for the future. To assist
our independent force in an atmosphere of team sprit to professionally serve the customer
and communities. To maintain profitable growth and provide challenging opportunities
for our employees while continually stressing unquestioned business ethics and integrity

Vision charter:
Spectra solutions will embark on a quest to become a pioneer company
and a leader in the defined fields.
We will always demonstrate dedication, professionalism, integrity and
strength in service to our customer

SERVICES PROVIDED BY THE COMPANY

Financial services:
Brokerage services :
Brokerage firms are most commonly thought of in relationship to the
sale and purchase of stock shares. Depending on the degree to which the brokerage is
37

involved in decisions about purchase. Spectra stock owners give their brokers high power
to make decisions about when to buy or sell stock and depend upon their brokers fo
researching new stock for purchase. Brokerage firms can be helpful because they save
their clients, whether buying or selling, time. Not everyones brokerage firms would take
care of their clients completely thorough, but Spectra is the exceptional, that takes an
enormous care about its clients throughout

Portfolio management services:

As a focused service, Spectra pays attention to details, and
portfolios are customized to suit the unique requirements of investors. Each scheme of
Spectra is designed keeping in mind the varying tastes, objectives and risk tolerance of
our investors. The desire to grow money is a natural instinct. But as simple as the desire
is, the process to do so is just as complex. At Spectra in the Asset Management, we
believe that growing and protecting your wealth is an art. Just as art is the culmination of
talent and experience in an artist, so also growing money depends on the natural instinct
and experience of a financial master. At Spectra, our financial masters use their combined
talents and experience to build up your portfolio of investments with an endeavor to bring
out the best in it

Gold and silver bullion trading:

Gold and silver is a very valuable commodity. Spectra has got
its expertise hand in this stream as well to serve its clients. Some of these users along with
investors trade gold options. Obviously the users of the metal want the price to be stable
or go down. Gold, since it was first found, has captured the imagination of man. The
earliest signs of crude gold jewelry happened over 10,000 years ago. From that point on,
gold has been a globally prized metal. Gold does not tarnish or fade and it retains its value
in every place in the world. These trading related tit-bits can be informed by the Spectra.

38

Margin funding:
Margin funding trades were responsible for the huge volumes generated in
recent times. The total turnover (derivatives and cash) on NSE alone has come down by
50 per cent since the January peak. Either margin funding has come to a standstill or
there is much lower activity, said an executive in a broking outfit. Investors typically
bring in some portion of money to purchase shares, while the broking outfit finances the
remaining amount. Margin funding enables an individual to buy stocks even if he cannot
put up the entire amount of money. Spectra is the big house that deals with margin
funding profoundly

Mutual funds:
A mutual fund is a professionally managed type of collective investment scheme
that pools money from many investors and invests it in stocks, bonds and short-term
money market instruments, and/or other securities. Mutual funds can invest in many kinds
of securities. Most mutual funds' investment portfolios are continually adjusted under the
supervision of a professional manager, who forecasts cash flows into and out of the fund
by investors, as well as the future performance of investments appropriate for the fund
and chooses those which he or she believes will most closely match the fund's stated
investment objective. Spectra will completely take care of your future funds.

Life insurance:
Life insurance or life assurance is a contract between the policy owner and the insurer,
where the insurer agrees to pay a sum of money upon the occurrence of the insured
individual's or individuals' death or other event, such as terminal illness or critical illness.
In return, the policy owner agrees to pay a stipulated amount called a premium at regular
intervals or in lump sums. There are some profitable designs in Spectra for the benefit of

39

client. As with most insurance policies, life insurance is a contract between the insurer
and the policy owner whereby a benefit is paid to the designated beneficiaries if an
insured event occurs which is covered by the policy.

General insurance:
Insurance other than Life Insurance falls under the category of General
Insurance. General Insurance comprises of insurance of property against fire, and non
living properties insurances. Spectras Unique policies provides protection against the
losses incurred as a result of unavoidable instances. It helps cover against theft, financial
loss caused by accidents and any subsequent liabilities. The cover level of Car insurance
can be the insured party, the insured vehicle, third parties (car and people). The premium
of the insurance is dependent on certain parameters like gender, age, vehicle
classification, etc our reports suggest customers saving up to 40% the premium by
comparing, while getting the most suitable policy

Housing and infrastructure finance:

As communities turn increasingly to impact fees to help
cover the growing costs of government services, existing and potential homeowners
suffer as these fees serve as a tax on home buyers and put the price of housing beyond the
reach of many families. The Spectra has some innovative schemes to vitalize the housing
and infrastructure finance in mutually beneficial way. Financing issues received major
attention in the discussions of human settlement development policy through the
preparatory process for all Habitats and at the Conference itself. Spectra finds the creative
ways to all kind of finances.

40

Project funding with CC, OD and term loan limits:

Cash Credit Account is the primary method in which Banks lend money against
the security of commodities and debt. It runs like a current account except that the money
that can be withdrawn from this account is not restricted to the amount deposited in the
account. Instead, the account holder is permitted to withdraw a certain sum called "limit"
or "credit facility" in excess of the amount deposited in the account. Cash Credits are, in
theory, payable on demand. These are, therefore, counter part of demand deposits of the
Bank. Overdraft (OD) is also a different kind of bank account where the account holder
withdraws more money from a Bank Account than has been deposited in it. Spectra plays
an active role in these projects funding with Cash Credits for the welfare of its clients
investments and its related finances.

Stepping Stone Training:

Cooperative education is a structured method of combining classroom- based
education with practical work experience. A cooperative education experience,
commonly known as a "co-op", provides academic credit for structured job
experience. Cooperative education is taking on new importance in helping young
people to make the school- to-work transition, service learning, and experiential
learning initiatives.
A highly competitive marketplace has made it imperative for the companies to
effectively utilize their resources to increase productivity and succeed. This has
increased the need for complex systems and shorter product life cycle. The work
force should be trained on these complexities to meet the goal of the organization.
This has necessitated the corporate training model where the companies utilize the
expertise of experienced trainers for their project specific customized training
needs. These training programs are also organized for skill development and
retention of the existing workforce.So formeeting the customer demands in the

41

right time at a right way Spectra has Profound Training facility as its core value in
achieving organization goal.

Higher productivity The Spectra has higher levels of productivity, owing to the
training program which will give them all the knowledge they require to be adapt at
handling their work routines.
Edge over competition Since the employees are better skilled at handling
network infrastructure through the training program, one can achieve the business
objectives in a better way than before, giving a definitive edge over the competitors as the
time to deliver results is shorter and faster.
Higher return on investment The training program will make employees adept at
handling their responsibility, which can result in higher productivity and quicker
achievement of business objectives.

42

CHAPTER 4
ANALYSIS
&
INTERPRETATION

43

Chapter 4

ANALYSIS & INTERPRETATION

The following portfolio combinations are selected. Calculated correlation

1. HCL Technologies & Reliance Industries.
2. Wipro & Jindal Steel Co...
3. Infosys Technologies & BHEL.
4. GAIL & Titan.
From the correlation table the above given portfolio combinations are
selected , as the correlation coefficient between securities is -1.0, then a perfect
correlation exists (rxy cannot be less than -1.0). If the coefficient of correlation is
zero , then returns are said to be independent of one another . If the returns on
two securities are perfectly correlated , the coefficient of correlation will be 1.0,
and perfect positive correlation is said to exist (rxy cannot exceed 1.0).

44

Analysis and Interpretation of Each Set of Portfolio

1. HCL Technologies & Reliance Industries

Table: 1
Calculation of Standard Deviation of HCL Technologies Ltd
DATE
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12

RETURN
R
-9.743935
8.323529
5.27027
2.436548
14.125
-0.708833
-7.868132
20.236406
4.679612
16
-2.563898
8.1232956

R =

58.3098626

MEAN RETURN
R'
4.859155
4.859155
4.859155
4.859155
4.859155
4.859155
4.859155
4.859155
4.859155
4.859155
4.859155
4.859155

DEVIATION
( R - R' )
-14.60309
3.464374
0.411115
-2.422607
9.265845
-5.567988
-12.727287
15.377251
-0.179543
11.140845
-7.423053
3.2641406

SQUARE DEVIATION
( R-R' )2
213.2502375
12.00188721
0.169015543
5.869024676
85.85588356
31.00249037
161.9838344
236.4598483
0.032235689
124.1184273
55.10171584
10.65461386
936.4992143

45

R
Average

R' =

58.30986
-----

------------12

-------(R-R')2
Standard Deviation = -------T
-------------936.49921
=

-----------------12
= 8.83412

46

= 4.85915

Table: 2
Standard Deviation of
DATE

Reliance Industries

Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12

RETURN
R
-5.19748654
1.03871577
19.4330855
9.385692068
2.332859175
10.36856745
-2.86624204
7.168597169
5.617577197
-20.055991
-0.80464596
12.33757062

R =

38.75829939

MEAN RETURN
R'
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282
3.229858282

DEVIATION
( R - R' )
-8.42734482
-2.19114251
16.20322722
6.155833786
-0.89699911
7.138709173
-6.09610032
3.938738886
2.387718915
-23.2858493
-4.03450424
9.107712339

SQUARE DEVIATION
( R-R' )2
71.02014067
4.801105511
262.5445723
37.8942896
0.804607398
50.96116865
37.16243912
15.51366402
5.701201617
542.2307787
16.27722445
82.95042405
1127.861616

47

R
Average

R' =

38.75829

-----

-------------

= 3.229858

12
-------

(R-R')2
Standard Deviation = -------T
------------1127.8616
=

-----------------12

9.6947

PORTFOLIO RISK
HCL Technologies & Reliance Industries

--------------------------------------------------P = A2 WA2+ B2 WB2 + 2 rAB A B WA WB

-----------------------------------------------------------------------------------------= (8.8341)2 (0.5462)2 +(9.6947)2(0.4538)2 +2((8.8341)(9.6947)(0.5462)(0.4538)

-----------------------------= 23.2824+19.3552-0.11830
= 6.5207

48

0.00278)

HCL Technologies & Reliance Industries

As per the calculations and the study, HCL Technologies bears a
proportion of 0.5462 and Reliance Industries bears a proportion of 0.4538. The risk
of HCL Technologies is less than that of Reliance Industries

i.e. 8.3341<9.6947,

which means an investor can invest 54% of his/her funds in HCL technologies and
the remaining funds in Reliance Industries. Even the portfolio risk of 6.5207% is
less when compared to the individual risk of both the companies.

49

2. Wipro & Jindal Steel Co.

Table : 3

DATE

RETURN

MEAN RETURN

DEVIATION

R
R'
( R - R' )
Apr-11
-6.4094955
0.225945525
-6.6354411
May-11 12.010955
0.225945525
11.7850091
Jun-11 6.8758717
0.225945525
6.64992616
Jul-11
-1.82
0.225945525
-2.0459455
Aug-11 -50.047945
0.225945525
-50.273891
Sep-11 0.6639566
0.225945525
0.43801111
Oct-11
-2.8251599
0.225945525
-3.0511054
Nov-11 14.701897
0.225945525
14.4759515
Dec-11 9.0748588
0.225945525
8.84891323
Jan-12 14.65368
0.225945525
14.4277341
Feb-12 -1.8018868
0.225945525
-2.0278323
Mar-12 7.6346154
0.225945525
7.40866986
R =
2.7113463
Calculation of Standard Deviation of WIPRO

50

SQUARE DEVIATION
44.02907824
138.8864393
44.22151797
4.18589309
2527.464089
0.191853737
9.309244402
209.5531717
78.30326539
208.1595121
4.112103907
54.88838909
3323.304558

R
Average

R' =

2.71135

-----

------------12

------(R-R')2
Standard Deviation = -------T
------------3323.3046
=

-----------------12

=16.6415

51

= 0.22595

Table: 4
Standard Deviation of

DATE
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
R =

Jindal Steel Ltd

RETURN
R
-2.791590764
-6.020408163
-7.497297297
18.09883721
15.26600985
22.25178428
-17.09855132
13.64746387
11.8891759
-0.390775144
0.499671269
23.90849673
71.76281643

MEAN RETURN
R'
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702
5.980234702

52

DEVIATION
( R - R' )
-8.7718255
-12.000643
-13.477532
12.1186025
9.28577515
16.2715496
-23.078786
7.66722917
5.90894119
-6.3710098
-5.4805634
17.928262

SQUARE DEVIATION
76.944922
144.0154292
181.6438688
146.8605267
86.22562014
264.7633257
532.6303641
58.78640311
34.91558603
40.58976646
30.03657555
321.4225794
1918.834967

R
Average

R' =

71.76282

-----

------------12

------(R-R')2
Standard Deviation = -------T
------------1918.8349
=

-----------------12

=12.6453

53

= 5.98023

PORTFOLIO RISK
Wipro & Jindal Steel Ltd

--------------------------------------------------P = A2 WA2+ B2 WB2 + 2 rAB A B WA WB

-------------------------------------------------------------------------------------------------------= (16.6416)2 (0.3827)2 +(12.6453)2(0.6173)2 +2(-0.1472)(16.6416)(12.6453)(0.3827)
(0.6173)
-----------------------------= 40.5608+60.9328-14.6358
= 9.3197

Wipro & Jindal Steel Ltd

As per the study ,Wipro bears a proportion of 0.0.3827 and Jindal Steel
bears a proportion of 0.6173. The risk of Jindal Steel is less than that of Wipro
i.e.12.6453<16.6416, which means an investor can invest 62% of his/her funds in
Jindal Steel

and the remaining funds in Wipro. Even the portfolio risk of

9.3197% is less when compared to the individual risk of both the companies.

54

3. Infosys Technologies & BHEL

Table: 5
Calculation of Standard Deviation of

DATE
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12

Infosys

RETURN
R
-16.504425
18.608328
4.567627
-3.283582
7.901907
4.704413
-0.118812
5.254902

MEAN RETURN
R'
2.674265
2.674265
2.674265
2.674265
2.674265
2.674265
2.674265
2.674265

DEVIATION
( R - R' )
-19.178695
15.934063
1.893362
-5.957847
5.227642
2.030148
-2.793077
2.580637

SQUARE DEVIATION
( R-R' )2
367.822342
253.894364
3.584819
35.495941
27.328241
4.121501
7.801279
6.659687

11.412639
-4.223478
-1.975052
5.746718
32.091185

2.674265
2.674265
2.674265
2.674265

8.738374
-6.897743
-4.649317
3.072453

76.35918
47.578858
21.616149
9.439967
861.702328

55

R
Average

R' =

32.09118

-----

------------12

------(R-R')2
Standard Deviation = -------T
--------------861.70233
=

-----------------12

=8.4735

56

= 2.6743

Table: 6
Standard Deviation of BHEL
DA
TE
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
R =

RETURN
R
0.5583756
10.66499
-1.5929705
17.07558
5.6848569
14.943662
-7.695135
25.740088
-3.0034965
31.05613
11.680441
9.899509
115.01203

MEAN RETURN
R'
9.584336
9.584336
9.584336
9.584336
9.584336
9.584336
9.584336
9.584336
9.584336
9.584336
9.584336
9.584336

57

DEVIATION
( R - R' )
-9.02596
1.080654
-11.177306
7.491244
-3.899479
5.359326
-17.279471
16.155752
-12.587832
21.471794
2.096105
0.315173

SQUARE DEVIATION
( R-R' )2
81.467961
1.167813
124.932181
56.118737
15.205936
28.722375
298.580118
261.008323
158.453514
461.037937
4.393656
0.099334
1491.187885

R
Average

R' =

115.01203

-----

------------12

------(R-R')2
Standard Deviation = -------T
--------------1491.18789
=

-----------------12

= 11.1475

58

= 9.584336

PORTFOLIO RISK
Infosys & BHEL

--------------------------------------------------P = A2 WA2+ B2 WB2 + 2 rAB A B WA WB

-------------------------------------------------------------------------------------------------------= (8.4739)2 (0.6568)2 +(11.1474)2(0.3432)2 +2(-0.0543)(8.4739)(11.1474)(0.6568)(0.3432)
-----------------------------= 30.97654+14.63665-2.31242
=6.5803

Infosys & BHEL

As per the study, Infosys
proportion is 0.3432. The

proportion of investment is 0.6568 and of BHELs

risk of

Infosys

is

less

than

that

of

BHEL

i.e.8.4739<11.1474, which means an investor can invest 66% of his/her funds in

Infosys and the remaining funds in BHEL.

The portfolio risk of 6.5803% is less

when compared to the individual risk of both the companies

59

4. GAIL & Titan

Table: 7
Calculation of Standard Deviation of

GAIL

MEAN
DATE
Apr11
May11
Jun11
July11
Aug11
Sep11
Oct11
Nov11
Dec11
Jan12
Feb12
Mar12

RETURN
R
-5.162790698
4.730392157
5.762081784
-0.702987698
3.187250996
12.12765957
10.70281124
12.20844715
-0.746268657
9.943609023
-6.894197952
17.09558824
62.25159516

RETURN
R'
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293
5.18763293

60

DEVIATION
( R - R' )
-10.35042363
-0.457240773
0.574448854
-5.890620628
-2.000381934
6.940026644
5.515178315
7.020814223
-5.933901587
4.755976092
-12.08183088
11.90795531

SQUARE DEVIATION
( R-R' )2
107.1312693
0.209069125
0.329991486
34.69941138
4.001527883
48.16396982
30.41719184
49.29183235
35.21118804
22.61930859
145.9706375
141.7993995
619.8447968

R
Average

R' =

62.25159

-----

------------12

------(R-R')2
Standard Deviation = -------T
--------------619.84479
=

-----------------12

=7.1871

61

= 5.18763

Table: 8
Standard Deviation of

DATE
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
R =

Titan

RETURN
R
4.38784247
21.9477627
25.4843517
27.5591581
1.3394683
14.9923628
1.18126273
32.19
23.6917293
-12.4787879
8.36313618
5.87341772
154.531704

MEAN RETURN
R'
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201
12.87764201

62

DEVIATION
( R - R' )
-8.4897995
9.0701207
12.60671
14.681516
-11.538174
2.1147208
-11.696379
19.312358
10.814087
-25.35643
-4.5145058
-7.0042243

SQUARE DEVIATION
( R-R' )2
72.07669633
82.26708939
158.9291295
215.5469135
133.1294525
4.472044116
136.8052883
372.9671711
116.9444844
642.9485368
20.38076294
49.05915791
2005.526727

R
Average

R' =

154.5317

-----

------------12

------(R-R')2
Standard Deviation = -------T
--------------2005.5267
=

-----------------12

= 12.9277

63

= 12.8776

PORTFOLIO RISK
GAIL& Titan

--------------------------------------------------P = A2 WA2+ B2 WB2 + 2 rAB A B WA WB

-------------------------------------------------------------------------------------------------------= (7.1871)2 (0.7452)2 +(12.9277)2(0.2548)2 +2(-0.08996)(7.1871)(12.9277)(0.7452)(0.2548)
-----------------------------= 28.68488+10.85029-3.17414
=6.03

GAIL & Titan

As per the study, GAILS

proportion of investment is 0.7452 and that of Titan

is 0.2548. The risk of GAIL is less than that of Titan i.e.7.1871<12.9277, which
means an investor can invest 75% of his/her funds in GAIL and the remaining
funds in Titan. The portfolio risk of 6.03% is less when compared to the individual
risk of of both companies.

64

Table: 9
Calculated Average Returns & Standard Deviation of Securities

Scrip Name

Average Return

Standard Deviation

HCL Technologies

4.8915

8.8341

Reliance Industries

3.2298

9.6947

Wipro

0.2259

16.6415

Jindal Steel Co

5.9802

12.6453

BHEL

9.5843

11.1475

GAIL

5.1876

7.1871

Grasim Industries

4.8088

10.9245

Infosis

2.6743

8.4739

Titan

12.8776

12.9277

Chart: 1
Average Return of Individual Securities

65

Interpretation
As per chart, the average return of Titan is high; Titans performance in isolation
is well compared to other securities. Next higher return securities are BHEL, Titan, and
HCL &GAIL. The chart shows Wipro is the poor return security. Rest of the securities is
satisfactory.
The data for the above chart is taken from Table no: 9

66

Chart: 2
Calculated Individual Standard Deviation of Securities

Interpretation
The above chart represents the standard deviation of selected securities. The
securities such as Wipro, HLL, Titan and Jindal Steel are high risk securities .HDFC
Bank is less risky security among selected securities, all other securities are moderately
risky
The data for the above chart is taken from Table: 9

67

Table: 10
Correlations &

Portfolio Risk of Portfolio Combinations

Portfolio

Correlations Portfolio Risk

HCL & Reliance Industries

-0.00278

6.5207

BHEL & Reliance Industries

-0.12198

6.8582

Wipro & Jindal Steel Co.

-0.14716

9.3197

Wipro & Grasim Industries

-0.02806

9.0135

BHEL & Titan

-0.03834

8.280

Infosys Tech & BHEL

-0.05429

6.5803

GAIL & Titan

-0.08996

6.03

68

Chart: 3

Interpretation
The chart represents the calculated correlation coefficient of selected portfolio
combinations. The Portfolios selected are perfect negatively correlated securities which
minimizes the risk level of individual securities. The Portfolios BHEL & Reliance
Industries, Wipro & Jindal Steel, GAIL & Titan are highly correlated securities where
(r<-1) selected. ICICI Bank & ACC are less correlated and remaining are medium
correlated securities.
The data for the above chart is taken from Table: 10

69

Chart: 4

Interpretation
The above chart represents the portfolio risk of the selected portfolio
combinations. As per the chart, the portfolio risk of Wipro & Grasim Industries, BHEL
& Titan and Wipro & Jindal Steel are high. The investor has minimum portfolio risk
with portfolio GAIL & Titan .All other portfolios are moderately risky.
The data for the above chart is taken from Table: 10

70

CHAPTER 5

SUMMARY
&
CONCLUSIONS

71

Chapter 5

SUMMARY & CONCLUSIONS

5.1 SUMMARY
The analytical part of study for the 12 month period reveals the following
1.

As far as the average returns of the selected companies are

concerned, Titan is performing very well with the average return of 16% ,
followed by BHEL , Wipro is the poor performing security from the selected
securities. All other securities have medium returns.
2.

As far as the standard deviations are concerned, HLL is highly risky

security, next high risk securities are Wipro, Titan, Jindal Steel Co. has less
standard deviation with a moderate return ,it is a low risk security. The
remaining securities are moderately risky.
3.

As far as the correlations are concerned, the

securities GAIL is

highly correlated with the minimum portfolio risk ,the investors who are
risk averse will invest in this combination which gives them good return
with low risk. The next high correlated securities are Wipro & Jindal Steel
Co and BHEL & Reliance Industries . The portfolios HLL & Reliance
Industries and Wipro & Jindal Steel are less correlated and remaining
portfolios are optimum correlated.
4.

The portfolio risk of

Wipro & Grasim Industries is high ,this

combination of portfolio is very risky with low returns and high risk.
The combinations such as BHEL & Titan ,

has high risk and high return

characteristics ,the investors who are ready to take high risk for high
returns can invest in these combinations. GAIL & Titan is combination
which gives

a good return with a minimum risk is the suggested

portfolio.

72

5.2 CONCLUSIONS
1.

The investors who are risk averse can invest their funds in the

portfolio combination GAIL & Titan , Infosys & BHEL , in the calculated
proportions.
2.

The investors who are slightly risk averse or who are not so risk

averse are suggested to invest in BHEL & Titan , Wipro & Jindal Steel
and

as these combinations bear slightly high risk when compared with

other combinations.

73

CHAPTER 6

RECOMMENDATIONS

74

Chapter 6

RECOMMENDATIONS
1.

As the average returns of securities Titan, BHEL, is high it is suggested that

investors should invest in these securities taking their risk in to consideration

2.

As the risk of the securities are concerned WIPRO, Titan & Jindal steel are risky
securities. it is suggested that investor should be careful which investing in these
securities

3.

It is recommended to the investors who want high returns to high risk should
invest in portfolio BHEL & TITAN.

4.

The investor who requires a minimum return with low risk should invest in GAIL.

5.

The investors are benefited by investing in selected scripts of Banking Industries.

75

BIBLIOGRAPHY

76

BIBLIOGRAPHY

TITLE OF THEBOOK

AUTHOR

Security Analysis & Portfolio Management

Donald

J.Jordan
Portfolio Management

Avadhani

JOURNALS AND MAGAZINES:

The management Accountant

Dr. K.Rajender

Osmania journal of management

Dr.SudhaVepa

WEBSITES:
www.nseindia.com
www.nseindia.org

77

E.Fisher&Ronald