Stock-Tracker

Investor Policy Statement

&
Portfolio Analysis

Submitted by,
Gurjot Singh (13PGP081)

Investor Policy Statement(IPS)

This Investment Policy is being made for Mr. Arvinderpal Singh he is aged 35 . His Yearly after
Tax Income is Rs. 145,4000. After all the expenses including monthly and yearly he is being
able to have monthly saving of about Rs.33000. It is expected that in future his increase in
expenses and effect of inflation will be compensated by increase in income that he is having.
Short Term Plans:
Down payment for House 10 Lakhs , Admission fees for school - 2 lakhs in 3 years.
Long Term Plans: Wealth Growth at the rate of 11% based on monthly income
Based on our discussions and clients responses to our risk tolerance questionnaire, it has been
identified that clients comfort with investment risk to be Average. An objective analysis of
your personal risk tolerance combined with an understanding of your investment objectives,
provides the basis for an investment strategy that client will feel comfortable maintaining
through market volatility.
Time Horizon:
Though it is advisable to have an investment policy for minimum of 5 years in order to have
growth plan for an individual. But the requirement of the client is short term horizon of around 3
years. Though as per the requirement of the course we will be tracking the portfolio of
investment for next 2 months only.
Risk Capacity:
As the clients goals are short term which requires rate of return of about 11%, 60-70% of the
portfolio will be in equity only. As equity are highly volatility and is client is having assets in
cash as well as gold so we require risk capacity is of the client to be high.

Performance Expectations:
The Clients expectation from the portfolio is that his short term goals of down payment for house
and initial admission fees for his children. Long term objectives are getting a continuous growth
on his portfolio by 11 %

Current Holding and Liabilities:

Assets
Cash : Rs. 900000 (Current value)
Gold: Rs.500000 (Current value)
FD : Rs 21000 (Current value)

Liabilities
Car Loan: Rs 350000 as of Date
Personal Loan: Rs 200000 as of Date

Medical Insurance: Rs 1000000

Economic Condition:

Economy to grow at an expected GDP rate of 5.6 %

Indian Stock market mood is positive after new government formation. The market is
expected to give return of about 12.5% this fiscal year.
Bond market rate of return is expected to be about 8.6%
Inflation is expected for next three years is average 6 %

Asset Allocation:
Based on the clients requirement of short ,long term goals and the economic parameters that
prevail in the country we have come up with the strategic assets allocation plan . This include
the adjustment limit that we allow for each of the asset class based on the performance of the
portfolio and timely review of return vs objectives.
Assets Type
Equity
Fixed Deposit
Fixed Income
Cash

Strategic
Allocation
60%
20%
10%
10%

Lower Limit

Upper Limit

50%
10%
0%
0%

70%
30%
20%
20%

Expected
Return
12.5%
9%
8.5%
0%

Execution: Portfolio Construction and Revision:

Criteria for Shortlisting of Equity Stocks:
As the return required from the equity is not very high so we have chosen the stocks from
NSE50. Out of 50 stocks we have chosen following stocks from NSE 50 stocks for evaluation.
This equity was shortlisted out of three sectors. These sectors chosen are Cement sector, Energy
Sector and IT Sector. Following are 15 companies whose last 3 years prices were analyzed.
1. ACC Ltd.
2. Ambuja Cements Ltd.
3. UltraTech Cement Ltd.
4. Bharat Petroleum Corporation Ltd.
5. Cairn India Ltd.
6. GAIL (India) Ltd.
7. NTPC Ltd.
8. Oil & Natural Gas Corporation Ltd.
9. HCL Technologies Ltd.
10. Infosys Ltd.
11. Tata Consultancy Services Ltd.
12. Tech Mahindra Ltd.
13. Wipro Ltd.

Criteria for Weightage allocation:

We have chosen these three sectors as they beta in not very highly or negative.
As it assumed that market might crash in future to profit booking. So the stocks selected
are from this sector.
From these 15 stocks we applied Global minimum Variance method to obtain the optimal
risky portfolio.
Due to perceived risk in future of the stock exchange we have restricted the max limit for
a share from one company to limited to 15% of total equity portfolio

Based on the above criteria below is the allocation of equity portion of the investment in the total
investment. As mentioned earlier to diversify the risk we have not taken more than 15% percent
of the equity investment.

Ambuja
ACC
Ultratech
BPCL
Cairn
Gail
NTPC
ONGC
HCL
Wipro
Infosys
Tech Mahindra
TCS

Return
Variance
Risk
Sharpe Ratio
Max per stock

Beta of Stock Averge Return

-0.28
-0.10
0.05
0.01
0.12
-0.12
-0.24
0.01
-0.20
-0.41
-0.27
0.06
0.02

Variance
17.52%
13.99%
29.14%
22.00%
7.82%
3.73%
-1.13%
17.66%
47.69%
19.07%
14.28%
42.02%
32.74%

24.837%
0.089%
2.977%
0.46
15.000%

5.99%
8.63%
8.32%
12.02%
4.13%
5.55%
8.35%
7.68%
6.76%
8.63%
10.20%
7.74%
5.20%

Allocation (%)
15.00%
0.00%
12.41%
0.00%
15.00%
1.43%
5.59%
6.17%
14.52%
7.63%
0.00%
7.25%
15.00%

Investment Performance:
Based on the above section equity allocation and other asset allocation we can expect a
total of Rs1400000 after the deduction of tax from the interest gain on Fixed Deposit.
This return is more than what the client was expecting initially of 12 %

Total Cash
Asset
Equity
FD
Fixed Income
Cash
Total

900000.00
Allocation Cash to Invested
50%
450000
40%
360000
0%
0
10%
90000

Expected ROI
Yearly Future Value
24.84% 875463.9713
9% 466210.44
0
0
0
90000

After Tax (30%)

875463.9713
434347.308
90000.00
1399811.279

As we are analyzing the stock for 2 months only so based on the previous performance of our
portfolio we expect to give us a return of 1.33%. However our required return is 1.04% of the
period of one month.
Expected
monthly
Asset
Return Allocation
Equity
2.07%
50%
FD
0.8%
40%
Fixed Income
0
0%
Cash
0
10%
Total

Expected Return
1.03%
0.30%
0.00%
0.00%
1.33%

Required
Return

1.04%

Performance Review of Allocation:

Ambuja
ACC
Ultratech
BPCL
Cairn
Gail
NTPC
ONGC
HCL
Wipro
Infosys
Tech Mahindra
TCS
Total Return

June Closing July Closing

206.4

August Closing Return(Jul) Return(Aug)

206.3
209.2
-0.05%

2420.85

2550.5

2599.85

5.22%

315.25
430
143.23
395.13
1555.1
544

326.25
443.4
137.4
434.76
1630.75
565.25

324.6
445.8
133.65
407.55
1626.55
567.35

3.43%
3.07%
-4.16%
9.56%
4.75%
3.83%

2150.6
2580.05

2363
2522.25

2424.8
2591.2

9.42%
-2.27%

Allocation (%) Jul

August
1.40%
15.00% -0.0073% -0.0001%
0.00% 0.0000% 0.0000%
1.92%
12.41% 0.6472% 0.0124%
0.00% 0.0000% 0.0000%
-0.51%
15.00% 0.5145% -0.0026%
0.54%
1.43% 0.0439% 0.0002%
-2.77%
5.59% -0.2323% 0.0064%
-6.46%
6.17% 0.5895% -0.0381%
-0.26%
14.52% 0.6899% -0.0018%
0.37%
7.63% 0.2925% 0.0011%
0.00% 0.0000% 0.0000%
2.58%
7.25% 0.6827% 0.0176%
2.70%
15.00% -0.3399% -0.0092%
2.8808% -0.0140%

July Month Review:

In the month of July Tech Mahindra, Ultratech and ONGC were the top performers.
This made return of our equity investment as 2.88808% which is greater than expected
equity return per month of 1.03%.
There is no need to restructure the portfolio as such as returns are more than expected for
this month.

August Month Review:

In this month our portfolio is giving minimal negative return. This is in line with market return.

There has been negative returns both from midcap and large cap
Market is bearish

Though portfolio gave negative return but restructuring in this market condition is not very
advisable. In addition restructuring cost will add to loss we are making. So we will stick to
our portfolio in equity.

Learning from This Project:

How to understand the customer future requirement as client are sometime not sure of
their requirement.
Convert this requirement in to financial term and create a strategy to achieve the
goals.
Then to implement the strategy we need to do practical allocation in stocks. Key
learning how you should shortlist the stocks and then how to form an optimal
portfolio.