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INTRODUCTION

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INTRODUCTION

Investing in equities requires time, knowledge and constant monitoring of the market. For those
who need an expert to help to manage their investments, portfolio management service (PMS)
comes as an answer. The business of portfolio management has never been an easy one. Juggling
the limited choices at hand with the twin requirements of adequate safety and sizeable returns is
a task that includes many complexities. As the market is very unpredictable, it requires solid
experience and strong research to make the right decision. In the end it boils down to make the
right move in the right direction at the right time. That’s where the expert comes in.

The term portfolio management in common practice refers to selection of securities and their
continuous shifting in a way that the holder gets maximum returns with a minimum possible risk.
Portfolio management services are merchant banking activities recognized by SEBI and these
activities can be rendered by SEBI authorized portfolio managers or discretionary portfolio
managers. A portfolio manager by the virtue of his knowledge, background and experience helps
his clients to make investment in profitable avenues and help them in getting maximum return
out of their investments. Every portfolio manager must comply with the provisions of the SEBI
(portfolio managers) rules and regulations, 1993. This project includes the different portfolios
available for the investors and different services rendered by the company. It includes the
functions to be performed by the portfolio manager.

Time and money play an important role in the any kind of investment. When it comes to the
importance of time, how many of us believe that time is money?. We all know that the work done
by us is calculated by units of time. Have you ever considered the difference between an
employee who is working on an hourly rate and the other who is working on salary basis? The
only difference between them is of the unit of time. One thing common in all is that the amount
is paid to you according to amount of time you spent on working. In other words, time is
precious and holds much more importance than money. This is the reason why time is considered
as an important factor in wealth creation. The project also shows the factors that one considers
for making an investment decision and briefs about the information related to asset allocation.

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NEED FOR THE STUDY

Portfolio Management is a process encompassing many activities of investment in assets and


securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgement and action. The objective of this project to know the importance of portfolio
management and to understand the diversification in portfolio management. It involves in
constructing portfolios based on the companies that I chose and finding out which portfolio gives
me the better returns when compared to the other portfolios. A combination of securities held
together will give a beneficial result if they are grouped in a manner to secure higher returns after

taking into consideration of the risk elements.

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OBJECTIVES

The main aim of this study is to understand the portfolio management. Also, to understand the
effect while investing in single security and investing in more than one security i.e.
diversification.

The objectives of my study are as follows:


 To know about the portfolio management and various services offered by the firm to its
investors.
 To know the various strategies and practices adopted by the firm offering portfolio
management services for its investors.
 To calculate the risk and return of various companies.
 To understand the effect of diversification of investment on various platforms.
 To calculate the portfolio, return & risk of different portfolios designed for the
combination of various companies.
 To understand, analyze and select the best portfolio.
 To understand the effect of diversification of investment.

SCOPE OF THE STUDY

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My study involves in knowing about the portfolio management. It also involves in knowing the
major difference between the investment in various portfolios and investment in the single
security. The study includes the study of portfolio management of five Indian companies and
calculating the portfolio risk and return of those companies and concluding about the benefits of
the diversification in the portfolio management. The study covers the calculation of correlations
between the different securities in order to find out at what percentage funds should be invested
among the companies in the portfolio. Also, the study includes the calculation of individual
Standard Deviation of securities and ends at the calculation of weights of individual securities
involved in the portfolio. These percentages help in allocating the funds available for investment
based on risky portfolios.

RESEARCH METHODOLOGY

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Research design is exploratory as the basic objective is to identify the securities to create a
portfolio.

DATA COLLECTION:

Data is the key for any study. Without data, we cannot perform anything except assumptions.

Data is of two types: They are:

 Primary data: This data is collected by personal conversion with the company heads and
other important members in the organization.
 Secondary data: This data is collected by personal observation of the market over my
internship and other business magazines, company books and newspapers. The data was
collected from the secondary source. Internet is main source of secondary sources of date
collection used.

Research methodology:

Research type: exploratory research.

Sample size: 5 companies from different sectors is selected from NSE CNX Nifty.

Research tools used:

 Arithmetic average or mean


 Return = Dividend + (Current price - Previous price)/ Previous price * 100
 Standard deviation.
 Variance
 Correlation.

Analysis and Interpretations:

The analysis and interpretation has been made with the help of graphs and percentage of returns
of securities. Microsoft Excel 2013 is used for completing this project.

LIMITATIONS OF THE STUDY

The limitations of my project are:

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 The sample size is limited by 5 stocks from 5 different sectors.
 The data has been collected from secondary sources only, relevance of information may
not fully trustworthy.
 The data was collected from the time horizon of one financial year starting from April
2018 to March 2019.
 While constructing portfolios the stocks are given equal weightage, return & risk will
change if weightage is different.
 The study involves only EQUITY MARKET.
 The study involves the risk and return levels of only 5 different companies in the NSE.
 Market is very volatile, so it is difficult to predict the future.

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COMPANY PROFILE

FINACCHI WEALTH MANAGEMENT LTD.

FINACCHI Consulting Pvt Ltd, is one of the most prominent financial services provider
Headquartered in Bangalore, India. It mainly focuses in Stock Markets, FX advisory services,

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Treasury Elite, Commodity Market and provide training & consulting mainly in the fields of
BSE, NSE, MCX, NCDEX, COMEX, and CFD.

They facilitate Individuals, Corporates, Investors and Traders as a torchlight to show the path of
secured source of passive income. In stock market trading, Traders learn and gain by undergoing
training courses with the company.

Prospective Client's

Finacchi is committed to educate and transform the way people invest and trade their hard-
earned money. Its goal is to financially empower millions of investors and traders to understand
better side of Financial markets.

Their distinct clientele list includes the following:

• Retails investors/Traders

• Brokerage firms

• Venture Capitalist

• Foreign Institutional Investor (FII)

• Corporate

• Students / Unemployed individuals

In holistic views, Finacchi main objectives are not only to provide qualitative services &
employment opportunities, but also to transform individuals into entrepreneurs. Indian Financial
market has the highest potentials to create employment opportunities in the next 10 years.

SWOT ANALYSIS:

SWOT analysis will help us to know the key areas that the company should focus upon its
weakness and grab the opportunities available to the company.

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STRENGTH:

 Well-managed workforce who have domain knowledge.


 Efficient teamwork, partnership and joint efforts.
 Relationship with the clients.
 Big client base.
 Excellent order execution speed and reliability
 Transparent.

WEAKNESS:

 Bad word of mouth.


 Misutilization of company’s brand for the individual benefits.

OPPERTUNITIES:

 Personal advice to clients regarding the investments.


 Since stock market is booming, many people would like to get into these services.
 Surviving in the competitive world with the best services.

THREATS:

 Threat of competitors.
 Stock market is very volatile, risk involves is very high.

PORTERS FIVE FORCE ANALYSIS:

This analysis helps us to evaluate the major five factors that determine the industry competition.

THREAT OF NEW COMPETITORS:

 Strong promotional network required.


 Easy registration for a new set up of office and less capital is required.
 Brand plays a major role.

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THREAT OF EXISTING COMPETITORS:

 Survival in the huge competition is a tough task.


 Exit barriers are left open and free.
 Fast industry growth rate.

BARGAINING POWER OF CUSTOMERS:

 Investors require special strategy-based services.


 Maximization of profits in a short period of time.

BARGAINING POWER OF SUPPLIERS:

 High competition among suppliers.


 It’s approach to dealing with this market force is, again, to work diligently to attract new
clients and to increase the extent to which existing depositors hold funds and access
services through the company.

THREAT OF SUBSTITUTES:

 Limited awareness among the investors about the substitutes.


 Big players in the market.
 Market volatility.

FINACCHIE’S PHILOSOPHY:

It believes in Transparency + Knowledge Driven =Quality Result

MISSION

 Building personalized portfolio that suits your need.

VISION

 To deliver ABQ (Awareness, Branding & Quality) in financial market.

VALUES

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 We believe that the success of our clients, our program participants and all those whom
we can help with our services is a true reflection of our success. Our beliefs and values
define on what we stand and determine towards what we work.

INTEGRITY

 We believe in our self, our client, and our competencies. We know what WE CAN DO,
we say WHAT WE KNOW, and Most importantly, we do WHAT WE SAY.

COMMITMENT

 We are committed to Quality of services at every platform, which ultimately leads to


better Performance & Result.

RELATIONSHIP

 We allow relationship to drive our business and not otherwise.

They believe that these values define their efforts to work for our “SUCCESS”.

These are the vision, mission and values of the company and their integration and dedication
towards their work.

BOARD OF DIRECTORS

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Co-founder and Director, co-founder and Director,

Mr. Satya Ramalingam. Mr. Mritunjay.

LIFE AT FINCCHIE:

FINACCHI’s its people. That’s what makes our environment very competitive in a healthy way.
For us workplace is our second home, where we go every day. It defines us. It gives us reason to
think, to explore, and to innovate and above all it gives us a reason to live ahead of time.

1.Culture & Diversity-Diversity is deeply ingrained in our culture. Our experts come from
diverse backgrounds, Including CA, CFA, CS, MBA, Law, Engineering - bringing with them
distinctive ideas, perspective and expertise. But for us, diversity goes beyond mere background
and includes greater dimensions such as ethnicity, culture and gender.

2.Innovation & Creativity-Every individual is taught approach each client’s portfolio with an
open mind and apply unique analysis to arrive at the solution that offers the greatest benefits to
our clients. New employees receive extensive training, support and mentoring from the seniors
and are encouraged to bring initiative and ‘Out-of-the-box” thinking on each engagement.

3.Equal opportunities -In Finacchi people come together with greater dreams and finding
bigger opportunities. Right from the top management to the down line they all have different
beliefs and self-respects towards their ideas. The believe in equal opportunities, rights and most
importantly empowering Women’s.

Internship at Finacchi:

As an intern, I got complete knowledge and training experience focusing on trading


-Fundamental technical, risk management, with highly-developed skills of execution for any
trading.

I was surprised by their culture and recruitment strategy as they tailored towards its unique brand
of excellence & desire to exceeds expectations. They helped me becoming Smart, Thoughtful, &
creative aspirant, along with being a hardworking individual, who is ready to function in a
collaborative environment and be a team leader.

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FINACCHIE’S PRODUTS AND SERVICES:

PRODUCTS:

EQUITY:

Shares are one of the best long-term investments in the financial market place. However, it can
be a precarious proposition due to the risks involved in potential returns. The level of risk
involved varies but, if you want to make money, you can't cut out all the risk. It’s best to take
help of an experienced and trustworthy expert who will guide you on when, where and how to
invest. Investor provides thorough guidance on the stock market along with multiple trading
solutions and value-added tools & services so that you get the best returns out of your
investments.

COMMODITIES:

Commodities, whether they are related to food, energy or metals, are an important part of
everyday life. Anyone who drives a car can become significantly impacted by rising crude oil
prices. The impact of a drought on the soybean supply may influence the composition of your
next meal. Similarly, commodities can be an important way to diversify a portfolio beyond
traditional securities – either for the long term, or as a place to park cash during unusually
volatile or bearish stock markets, as commodities traditionally move in opposition to stocks.

DERIVATIVES:

The derivative segment is a highly lucrative market that gives investors an opportunity to earn
superlative profits (or losses) by paying a nominal amount of margin. Over past few years,
Future & Options segment has emerged as a popular medium for trading in financial markets.
Future contracts are available on Equities, Indices, Currency and Commodities.

CURRENCY TRADING:

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The global increase in trade and foreign investments has led to inter-connection of many national
economies. This and the resulting fluctuations in exchange rates, has created a huge international
market for Forex, opening another exciting avenue for trading. The Forex market offers
unmatched potential for profitable trading in any market condition or any stage of the business
cycle.

SERVICES:

TRADING AND CONSULTING:

An online trading account helps you trade financial instruments through the internet. You can
execute buy/sell orders at the click of a mouse. It is easy to set up and offers telephonic and
online access. It contains a wealth of information about your trading details. Hence, you can
make financially sound decisions to increase profitability. Such an account provides information
on gross profit and loss. It also increases the speed of the execution and settlement of trade
orders.

DEMAT ACCOUNT:

DEMAT Account came into existence in India in 1996, stocks and shares were issued and traded
in physical paper form. With the age of computers and Technology, shares and securities are held
electronically in a dematerialized form (DEMAT Account), instead of the investor taking
physical possession of certificates. It allows you to buy, sell as well as transact conveniently
without the need of any paperwork. Open your DEMAT account by registering with a Stock
Broker from FINACCHI.

STOCK ADVISORY:

With our specialization and deep research, we provide tips in Indian Share Market like Stock
Tips, Commodity Tips, Intraday Tips, Equity Tips, Nifty Future Tips, Stock Future Tips and
Premium Services in all segments. We are dedicated at working with just one goal which is to
make high profit for our customers with our deep technical and fundamental analysis. We

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dedicatedly work for benefit of our personal and commercial trading clients by providing those
best tips and information.

PORTFOLIO MANAGEMENT:

FINACCHI offers professional Portfolio Management Services (PMS) to HNIs who seek
customized solutions to realize their investment goals. PMS is a customized offering, providing a
range of investment options best suited for you in the current market scenario. Our Portfolio
Managers are equipped to create an investment portfolio across various investment avenues like
Equities, Fixed Deposits, Bonds etc. to meet your unique needs.

COURSES:

1.Domestic market

2.International market.

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THEORITICAL FRAMEWORK

INTRODUCTION TO INVESTMENT

Investment may be defined as an activity that commits funds in any financial form in the present
with an expectation of receiving additional return in the future. The expectations bring with it a
probability that the quantum of return may vary from a minimum to a maximum. This possibility
of variation in the actual return is known as investment risk. Thus, every investment involves a
return and risk.

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Investment is an activity that is undertaken by those who have savings. Savings can be defined as
the excess of income over expenditure. An investor earns/expects to earn additional monetary
value from the mode of investment that could be in the form of financial assets.

The three important characteristics of any financial asset are:

 Return-the potential return possible from an asset.


 Risk-the variability in returns of the asset form the chances of its value going down/up.
 Liquidity-the ease with which an asset can be converted into cash.

Investors tend to look at these three characteristics while deciding on their individual preference
pattern of investments. Each financial asset will have a certain level of each of these
characteristics.

Investment Avenues

There are many investment avenues for savers in India. Some of them are marketable and liquid,
while others are non-marketable. Some of them are highly risky while some others are almost
risk less. Investment avenues can be broadly categorized under the following heads:

 Corporate securities
 Equity shares.
 Preference shares.
 Debentures/Bonds.
 Derivatives.
 Others

Corporate Securities Joint stock companies in the private sector issue corporate securities. These
include equity shares, preference shares, and debentures. Equity shares have variable dividend
and hence belong to the high risk-high return category; preference shares and debentures have
fixed returns with lower risk.

The classification of corporate securities that can be chosen as investment avenues can be
depicted as shown below:

 Equity Shares
 Preference shares
 Bonds

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 Warrants
 Derivative

Equity Shares:

By investing in shares, investors basically buy the ownership right to the company. When the
company makes profits, shareholders receive their share of the profits in the form of dividends.
In addition, when company performs well and the future expectation from the company is very
high, the price of the company’s shares goes up in the market. This allows shareholders to sell
shares at a profit, leading to capital gains. Investors can invest in shares either through primary
market offerings or in the secondary market. The primary market has shown abnormal returns to
investors who subscribed for the public issue and were allotted shares.

Investment Alternatives

Assets: Assets are things that people own. The two kinds of assets are financial assets and real
assets. The distinction between these terms is easiest to see from an accounting viewpoint. A
financial asset carries a corresponding liability somewhere. If an investor buys shares of stock,
they are an asset to the investor but show up on the right side of the corporation’s balance sheet.
A financial asset, therefore, is on the left-hand side of the owner’s balance sheet and the right-
hand side of the issuer’s balance sheet. A real asset does not have a corresponding liability
associated with it, although one might be created to finance the real asset. Financial assets have a
corresponding liability, but real assets do not.

Securities: A security is a legal document that shows an ownership interest. Securities have
historically been associated with financial assets such as stocks and bonds, but in recent years
have also been used with real assets. Securitization is the process of converting an asset or
collection of assets into a more marketable forum.

Security Groupings: Securities are placed in one of three categories: equity securities, fixed
income securities or derivative assets.

 Equity Securities: The most important equity security is common stock. Stock
represents ownership interest in a corporation. Equity securities may pay dividends from

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the company’s earnings, although the company has no legal obligation to do so. Most
companies do pay dividends, and most companies try to increase these dividends on a
regular basis.
 Fixed Income Securities: A fixed income security usually provides a known cash flow
with no growth in the income stream. Bonds are the most important fixed income
securities. A bond is a legal obligation to repay a loan’s principal and interest but carries
no obligation to pay more than this. Interest is the cost of borrowing money. Although
accountants classify preferred stock as an equity security, the investment characteristics
of preferred stock are more like those of a fixed income security. Most preferred stocks
pay a fixed annual dividend that does not change overtime consequently. An investment
manager will usually lump preferred shares with bonds rather than with common stocks.
Conversely, a convertible bond is a debt security paying a fixed interest rate. It has the
added feature of being convertible into shares of common stocks by the bond holders. If
the terms of the conversion feature are not particularly attractive at a given moment, the
bonds behave like a bond and are classified as fixed income securities. On the other hand,
rising stock prices make the bond act more like the underlying stock, in which case the
bond might be classified as an equity security. The point is that one cannot generalize and
group all stock issues as equity securities and all bonds as fixed income securities. Their
investment characteristics determine how they are treated. For investment purposes,
preferred stock is considered a fixed income security

Derivative Assets: Derivative assets have received a great deal of attention in the 1990s. A
derivative asset is probably impossible to define universally. In general, the value of such an
asset derives from the value of some other asset or the relationship between several other assets.
Future and options contracts are the most familiar derivative assets. These building blocks of risk
management programs are used by all large investment houses and commercial banks. The three
broad categories of securities are equities, fixed income securities, and derivative asset. A good
way to begin understanding what portfolio management is (and is not) may be to define the term
portfolio. In a business context, we can look to the mutual fund industry to explain the term's
origins. Morgan Stanley's Dictionary of Financial Terms offers the following explanation: It says
if you own more than one security, you have an investment portfolio. You build the portfolio by

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buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase the
portfolio's value by selecting investments that you believe will go up in price. According to
modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio
that includes enough different types, or classes, of securities so that at least some of them may
produce strong returns in any economic climate. Note that this explanation contains several
important ideas: A portfolio contains many investment vehicles. Owning a portfolio involves
making choices -- that is, deciding what additional stocks, bonds, or other financial instruments
to buy; when to buy; what and when to sell; and so forth. Making such decisions are a form of
management. The management of a portfolio is goal-driven. For an investment portfolio, the
specific goal is to increase the value. Managing a portfolio involves inherent risks. Over time,
other industry sectors have adapted and applied these ideas to other types of "investments,"
including the following:

 Application portfolio management This refers to the practice of managing an entire group
or major subset of software applications within a portfolio. Organizations regard these
applications as investments because they require development (or acquisition) costs and
incur continuing maintenance costs. Also, organizations must constantly make financial
decisions about new and existing software applications, including whether to invest in
modifying them, whether to buy additional applications, and when to "sell" -- that is,
retire – an obsolete software application.
 Product portfolio management Businesses group major products that they develop and
sell into (logical) portfolios, organized by major line-of-business or business segment.
Such portfolios require ongoing management decisions about what new products to
develop (to diversify investments and investment risk) and what existing products to
transform or retire (i.e., spin off or divest). Project or initiative portfolio management, an
initiative, in the simplest sense, is a body of work with:
 A specific (and limited) collection of needed results or work products.
 A group of people who are responsible for executing the initiative and use resources, such
as funding.

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 A defined beginning and end. Managers can group a number of initiatives into a portfolio
that supports a business segment, product, or product line. These efforts are goal-driven;
that is, they support major goals and/or components of the enterprise's business strategy.

Managers must continually choose among competing initiatives (i.e., manage the organization's
investments), selecting those that best support and enable diverse business goals (i.e., they
diversify investment risk). They must also manage their investments by providing continuing
oversight and decision-making about which initiatives to undertake, which to continue, and
which to reject or discontinue.

Risk :

Risk is a concept that denotes a potential negative impact to an asset or some characteristic of
value that may arise from some present process or future event. In everyday usage, risk is often
used synonymously with the probability of a known loss. Risk is uncertainty of the income /
capital appreciation or loss of the both. The total risk of an individual security comprises two
components, the market related risk called systematic risk also known as undiversifiable risk and
the unique risk of that particular security called unsystematic risk or diversifiable risk.

TYPES OF RISK:

The following are the types of risk.

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PORTFOLIO MANAGEMENT

Portfolio management is 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 determining strengths,
weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international,
growth vs. safety, and many other trade-offs encountered in the attempt to maximize return at a
given appetite for risk.

OBJECTIVES OF PORTFOLIO MANAGEMENT

When the portfolio manager builds a portfolio, he should keep the following objectives in mind
based on an individual’s expectation. The choice of one or more of these depends on the
investor’s personal preference.

 Capital Growth
 Security of Principal Amount Invested
 Liquidity
 Marketability of Securities Invested in
 Diversification of Risk
 Consistent Returns
 Tax Planning

Investors hire portfolio managers and avail professional services for the management of portfolio
by as paying a pre-decided fee for these services.

Functions of Portfolio Management:

The basic purpose of portfolio management is to maximize yield and minimize risk. Every
investor is risk averse. In order to diversify the risk by investing into various securities following
functions are required to be performed. The functions undertaken by the portfolio management
are as follows:

1. To frame the investment strategy and select an investment mix to achieve the desired
investment objective;

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2. To provide a balanced portfolio this not only can hedge against the inflation but can also
optimize returns with the associated degree of risk;

3. To make timely buying and selling of securities;

4. To maximize the after-tax return by investing in various taxes saving investment instruments

The Key Elements of Portfolio Management

Asset Allocation: The key to effective portfolio management is the long-term mix of assets.
Asset allocation is based on the understanding that different types of assets do not move in
concert, and some are more volatile than others. Asset allocation seeks to optimize the risk/return
profile of an investor by investing in a mix of assets that have low correlation to each other.
Investors with a more aggressive profile can weight their portfolio toward more volatile
investments. Investors with a more conservative profile can weight their portfolio toward more
stable investments.

Diversification: The only certainty in investing is it is impossible to consistently predict the


winners and losers, so the prudent approach is to create a basket of investments that provide
broad exposure within an asset class. Diversification is the spreading of risk and reward within
an asset class. Because it is difficult to know which subset of an asset class or sector is likely to
outperform another, diversification seeks to capture the returns of all the sectors over time but
with less volatility at any one time. Proper diversification takes place across different classes of
securities, sectors of the economy and geographical regions.

Rebalancing: It is a method used to return a portfolio to its original target allocation at annual
intervals. It is important for retaining the asset mix that best reflects an investor’s risk/return
profile. Otherwise, the movements of the markets could expose the portfolio to greater risk or
reduced return opportunities. For example, a portfolio that starts out with a 70% equity and 30%
fixed-income allocation could, through an extended market rally, shift to an 80/20 allocation that
exposes the portfolio to more risk than the investor can tolerate. Rebalancing almost always
entails the sale of high-priced/low-value securities and the redeployment of the proceeds into
low-priced/high-value or out-of-favor securities. The annual iteration of rebalancing enables

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investors to capture gains and expand the opportunity for growth in high potential sectors while
keeping the portfolio aligned with the investor’s risk/return profile.

Need for Portfolio Management

Portfolio management presents the best investment plan to the individuals as per their income,
budget, age and ability to undertake risks.

Portfolio management minimizes the risks involved in investing and increases the chance of
making profits.

Portfolio managers understand the client’s financial needs and suggest the best and unique
investment policy for them with minimum risks involved.

Portfolio management enables the portfolio managers to provide customized investment


solutions to clients as per their needs and requirements.

Types of Portfolio Management

Portfolio Management is further of the following types:

Active Portfolio Management: As the name suggests, in an active portfolio management


service, the portfolio managers are actively involved in buying and selling of securities to ensure
maximum profits to individuals.

Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals
with a fixed portfolio designed to match the current market scenario.

Discretionary Portfolio management services: In Discretionary portfolio management


services, an individual authorizes a portfolio manager to take care of his financial needs on his

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behalf. The individual issues money to the portfolio manager who in turn takes care of all his
investment needs, paper work, documentation, filing and so on. In discretionary portfolio
management, the portfolio manager has full rights to take decisions on his client’s behalf.

Non-Discretionary Portfolio management services: In non-discretionary portfolio


management services, the portfolio manager can merely advise the client what is good and bad
for him but the client reserves full right to take his own decisions.

Who is a Portfolio Manager?

An individual who understands the client’s financial needs and designs a suitable investment
plan as per his income and risk-taking abilities is called a portfolio manager. A portfolio manager
is one who invests on behalf of the client.

A portfolio manager counsels the clients and advises him the best possible investment plan which
would guarantee maximum returns to the individual.

A portfolio manager must understand the client’s financial goals and objectives and offer a tailor-
made investment solution to him. No two clients can have the same financial needs.

Roles and Responsibilities of a Portfolio Manager

A portfolio manager is one who helps an individual invest in the best available investment plans
for guaranteed returns in the future.

 A portfolio manager plays a pivotal role in deciding the best investment plan for an
individual as per his income, age as well as ability to undertake risks. Investment is
essential for every earning individual. One must keep aside some amount of his/her
income for tough times. Unavoidable circumstances might arise anytime and one needs to
have sufficient funds to overcome the same.

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 A portfolio manager is responsible for making an individual aware of the various
investment tools available in the market and benefits associated with each plan. Make an
individual realize why he actually needs to invest and which plan would be the best for
him.

 A portfolio manager is responsible for designing customized investment solutions for


the clients. No two individuals can have the same financial needs. It is essential for the
portfolio manager to first analyze the background of his client. Know an individual’s
earnings and his capacity to invest. Sit with your client and understand his financial needs
and requirement.

 A portfolio manager must keep himself abreast with the latest changes in the
financial market. Suggest the best plan for your client with minimum risks involved and
maximum returns. Make him understand the investment plans and the risks involved with
each plan in a jargon free language. A portfolio manager must be transparent with
individuals. Read out the terms and conditions and never hide anything from any of your
clients. Be honest to your client for a long term relationship.

 A portfolio manager ought to be unbiased and a thorough professional. Don’t always


look for your commissions or money. It is your responsibility to guide your client and
help him choose the best investment plan. A portfolio manager must design tailor made
investment solutions for individuals which guarantee maximum returns and benefits
within a stipulated time frame. It is the portfolio manager’s duty to suggest the individual
where to invest and where not to invest? Keep a check on the market fluctuations and
guide the individual accordingly.

 A portfolio manager needs to be a good decision maker. He should be prompt enough


to finalize the best financial plan for an individual and invest on his behalf.

 Communicate with your client on a regular basis. A portfolio manager plays a major role
in setting financial goal of an individual. Be accessible to your clients. Never ignore

27 | P a g e
them. Remember you have the responsibility of putting their hard earned money into
something which would benefit them in the long run.

 Be patient with your clients. You might need to meet them twice or even thrice to explain
them all the investment plans, benefits, maturity period, terms and conditions, risks
involved and so on. Don’t ever get hyper with them.

 Never sign any important document on your client’s behalf. Never pressurize your
client for any plan. It is his money and he has all the rights to select the best plan for
himself.

Phases of Portfolio Management Five phases can be identified in this process:

1. Security analysis 2. Portfolio analysis 3. Portfolio selection 4. Portfolio revision 5. Portfolio


evaluation

Security analysis An examination and evaluation of the various factors affecting the value of a
security. Security Analysis stands for the proposition that a well-disciplined investor can
determine a rough value for a company from all of its financial statements, make purchases when
the market inevitably underprices some of them, earn a satisfactory return, and never be in real
danger of permanent loss.

Portfolio analysis: This phase of portfolio management consists of identifying the range of
possible portfolios that can be constituted from a given set of securities and calculating their
return and risk for further analysis.

Portfolio selection The proper goal of portfolio construction is to generate a portfolio that
provides the highest returns at a given level of risk. A portfolio having this characteristic is
known as an efficient portfolio. The inputs from portfolio analysis can be used to identify the set
of efficient portfolios. From this set of efficient portfolios, the optimal portfolio has to be
selected for investment. Harry Markowitz portfolio theory provides both the conceptual

28 | P a g e
framework and analytical tools for determining the optimal portfolio in a disciplined and
objective way.

Portfolio revision Having constructed the optimal portfolio, the investor has to constantly
monitor the portfolio to ensure that it continues to be optimal. Portfolio revision is as important
as portfolio analysis and selection.

Portfolio evaluation It is the process, which is concerned with assessing the performance of the
portfolio over a selected period in terms of returns and risk. This involves quantitative
measurement of actual return realized and the risk born by the portfolio over the period of
investment. It provides a feedback mechanism for improving the entire portfolio management
process.

Models for Portfolio Management Some of the financial models used in the process of
Valuation, stock selection, and management of portfolios include:

 Maximizing return, given an acceptable level of risk.

 Modern portfolio theory—a model proposed by Harry Markowitz among others.  The
single-index model of portfolio variance.

 Capital asset pricing model.

 Arbitrage pricing theory.

 The Jensen Index.

 The Treynor Index.

 The Sharpe Diagonal (or Index) model.

 Value at risk model.

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Steps in Portfolio Management

As guided by SEBI, the 6 steps for an ideal portfolio management should be

1. Establish the client's investment objectives.

2. Measure a client's attitude to risk by completion of a risk profile questionnaire.

3. Determine the asset class allocation appropriate to a client's risk grade profile.

4. Undertake portfolio fund selection in association with a global asset management company.
This will provide:

 Access to some of the world’s best managers, not just mass market retail funds.

 A process with the rigorous objectivity to change drifting managers.

 A solution previously only available to large institutional investors.

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 Continual daily monitoring and replacement of managers - by a dedicated global team of
more than 100 analysts.

 An investment process designed to manage risk and deliver consistent returns.

5. Tax wrapper allocation (ISA's, Bonds, Units Trusts, OEICs) according to client's tax position
and investment requirements.

6. Ongoing Portfolio Management (on a quarterly, six monthly or annually basis) to undertake
regular fund performance reviews, reaffirm client investment requirements, and implement any
agreed fund switch recommendations. 24x7 online access to the Portfolio Management Platform.

Code of Conduct-Portfolio Managers

1. A portfolio manager shall, in the conduct of his business, observe high standards of integrity
and fairness in all his dealings with his clients and other portfolio managers.

2. The money received by a portfolio manager from a client for an investment purpose should be
deployed by the portfolio manager as soon as possible for that purpose and money due and
payable to a client should be paid forthwith.

3. A portfolio manager shall render at all-time high standards of services exercise due diligence,
ensure proper care and exercise independent professional judgment. The portfolio manager shall
either avoid any conflict of interest in his investment or disinvestments decision, or where any
conflict of interest arises; ensure fair treatment to all his customers. He shall disclose to the
clients, possible sources of conflict of duties and interest, while providing unbiased services. A
portfolio manager shall not place his interest above those of his clients.

4. A portfolio manager shall not make any statement or become privy to any act, practice or
unfair competition, which is likely to be harmful to the interests of other portfolio managers or it
likely to place such other portfolio managers in a disadvantageous position in relation to the
portfolio manager himself, while competing for or executing any assignment.

31 | P a g e
5. A portfolio manager shall not make any exaggerated statement, whether oral or written, to the
client either about the qualification or the capability to render certain services or his
achievements regarding services rendered to other clients.

6. At the time of entering into a contract, the portfolio manager shall obtain in writing from the
client, his interest in various corporate bodies, which enables him to obtain unpublished price-
sensitive information of the body corporate.

7. A portfolio manager shall not disclose to any clients or press any confidential information
about his clients, which has come to his knowledge.

8. The portfolio manager shall where necessary and in the interest of the client take adequate
steps for registration of the transfer of the client’s securities and for claiming and receiving
dividend, interest payment and other rights accruing to the client. He shall also take necessary
action for conversion of securities and subscription of/or rights in accordance with the client’s
instruction.

9. Portfolio manager shall ensure that the investors are provided with true and adequate
information without making any misguiding or exaggerated claims and are made aware of
attendant risks before they take any investment decision.

10. He should render the best possible advice to the client having regard to the client’s needs and
the environment, and his own professional skills.

Factors Affecting the Investor

There may be many reasons why the portfolio of an investor may have to be changed. The
portfolio manager always remains alert and sensitive to the changes in the requirements of the
investor. The following are some factors affecting the investor, which make it necessary to
change the portfolio composition.

 Change in Wealth.

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 Change in the time horizon.

 Change in liquidity needs.

 Change in taxes.

 Others.

SEBI RULES & REGULATIONS FOR PORTFOLIO MANAGERS

Rules for portfolio managers

 No person to act as portfolio manager without certificate

 No person shall carry on any activity as a portfolio manager unless he holds a certificate
granted by the Board under this regulation.

 Provided that such person, who was engaged as portfolio manager prior to the coming
into force of the Act, may continue to carry on activity as portfolio manager, if he has
made an application for such registration, till the disposal of such application.

 Provided further that nothing contained in this rule shall apply in case of merchant banker
holding a certificate granted by the board of India Regulations, 1992 as category I or
category II merchant banker, as the case may be.

 Provided also that a merchant banker acting as a portfolio manager under the second
provision to this rule shall also be bound by the rules and regulations applicable to a
portfolio manager.

Conditions for grant or renewal of certificate to portfolio manager the board may grant or
renew certificate to portfolio manager subject to the following conditions namely:

33 | P a g e
The portfolio manager in case of any change in its status and constitution shall obtain prior
permission of the board to carry on its activities;

 He shall pay the amount of fees for registration or renewal, as the case may be, in the
manner provided in the regulations;

 He shall make adequate steps for redressed of grievances of the clients within one month
of the date of receipt of the complaint and keep the board informed about the number,
nature and other particulars of the complaints received;

 He shall abide by the rules and regulations made under the Act in respect of the activities
carried on by the portfolio manager.

 Period of validity of the certificate The certificate of registration on its renewal, as the
case may be, shall be valid for a period of here years from the date of its issue to the
portfolio manager.

Regulations for portfolio managers

Application for grant of certificate

 An application by a portfolio manager for grant of a certificate shall be made to the


board on Form A.

 Notwithstanding anything contained in sub regulation (1), any application made by a


portfolio manager prior to coming into force of these regulations containing such or as
near thereto as mentioned in form A shall be treated as an application made in pursuance
of sub-regulation and dealt with accordingly.

Application of confirm to the requirements

34 | P a g e
 Subject to the provisions of sub-regulation (2) of regulation 3, any application, which
is not complete in all respects and does not confirm to the instructions specified in the
form, shall be rejected:

 Provided that, before rejecting any such application, the applicant shall be given an
opportunity to remove within the time specified such objections as may be indicated by
the Board.

Furnishing of further information, clarification and personal representation.

 The Board may require the applicant to furnish further information or clarification
regarding matters relevant to his activity of a portfolio manager for the purposes of
disposal of the application.

 The applicant or, its principal officer shall, if so required, appear before the Board for
personal representation.

Consideration of application: The Board shall take into account for considering the grant of
certificate, all matters which are relevant to the activities relating to portfolio manager and in
particular whether the applicant complies with the following requirements namely:

 The applicant has the necessary infrastructure like to adequate office space, equipment’s and
manpower to effectively discharge his activities;

 The applicant has his employment minimum of two persons who have the experience to
conduct the business of portfolio manager;

 A person, directly or indirectly connected with the applicant has not been granted registration
by the Board in case of the applicant being a body corporate;

 The applicant, fulfils the capital adequacy requirements specified in regulation 7

35 | P a g e
 The applicant, his partner, director or principal officer is not involved in any litigation
connected with the securities market and which has an adverse bearing on the business of the
applicant;

 The applicant, his director, partner or principal officer has not at any time been convinced for
any offence involving moral turpitude or has been found guilty of any economic offences;

 The applicant has the professional qualification from an institution recognized by the
government in finance, law, and accountancy or business management.

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LITERATURE REVIEW

Jamadar Lal (1992) presents a profile of Indian investors and evaluates their investment
decisions. He tried to study their familiarity with, and comprehension of financial information,
and the extent to which this is use. The information that the companies provide generally fails to
meet the needs of a variety of individual investors and there is a general impression that the
company's Annual Report and other statements are not well received by them.

Jack Clark Francis (1986) revealed the importance of the rate of return in investments and
reviewed the possibility of default and bankruptcy risk. He opined that in an uncertain world,
investors cannot predict exactly what rate of return an investment will yield. However, he
suggested that the investors can formulate a probability distribution of the possible rates of
return.

37 | P a g e
New academic portfolio theory is an extension of traditional portfolio advice first posited by
Markowitz (Journal of Finance, 1952). The traditional advice suggests a “two-fund theorem”
that allocates between risk-free bonds and a broad-based passively managed stock fund. The
most efficient portfolios, those on the mean– variance frontier, can be formed by combining
those two asset classes. Tailoring portfolios by adding style-based asset classes is inefficient
because each of these classes lies on or inside the frontier. Therefore, every investor needs to
hold only the two basic asset classes, with risk aversion determining the proportions.

John H. Cochrane Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23, no. 3
(Third Quarter 1999):59–78 Investors today face numerous and often bewildering investment
decisions. Investors used to have straightforward choices to make, selecting among managed
mutual funds, index funds, and expensive trading in a personal account. Today, a wide variety of
styles exist among funds, active managers offer customized and complex strategies, and
inexpensive online trading is widely available. The author reviews these issues and addresses
how they affect asset allocation decisions, particularly in multifactor models. He also examines
return predictability and describes how the stock market acts as a large insurance market by
facilitating the transfer of risk among investors.

Lubos, Pastor Journal of Finance, vol. 55, no. 1 (February 2000):179–223 The author develops
a portfolio-selection method using a Bayesian framework that incorporates a prior degree of
belief in an asset-pricing model. In the empirical analysis, the author evaluates sample evidence
on home bias, value, and size effect from an asset allocation perspective. The results provide a
different perspective from that normally found in the literature on the benefits of international
diversification.

Gustavo Grullon and Roni Michaely Journal of Finance, vol. 57, no. 4 (August 2002):1649–84
Cash dividends and stock repurchases are two major forms of payout to stockholders. They
influence stock prices and returns and thus decisions for investing and trading in stocks. The
authors analyze the behavior of U.S. corporations that paid dividends and repurchased shares in
the 1972–2000 period. They address the relative merits of dividends and repurchases from the
corporation’s point of view, the substitutability between the two forms of payout, and the

38 | P a g e
differences in their tax treatment from the investor’s perspective. Their findings are of interest to
corporate financial officers, equity analysts, and portfolio managers.

Osthoff, Peer C. and Kempf, Alexander. (2007) “The Effect of Socially Responsible Investing
on Portfolio Performance”. In European Financial Management, Vol. 13, No. 5, pp. 908-922.
Abstract: More and more investors apply socially responsible screens when building their stock
portfolios. This raises the question whether these investors can increase their performance by
incorporating such screens into their investment process. To answer this question, we implement
a simple trading strategy based on socially responsible ratings from the KLD Research &
Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially
responsible ratings. We find that this strategy leads to high abnormal returns of up to 8.7% per
year. The maximum abnormal returns are reached when investors employ the best-in-class
screening approach, use a combination of several socially responsible screens at the same time,
and restrict themselves to stocks with extreme socially responsible ratings. The abnormal returns
remain significant even after considering reasonable transaction costs.

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ANALYSIS AND

INTERPRETATION

Return & Risk of Benchmark index: NSE CNX NIFTY


As part of my study on portfolio management, I calculated the risk and rerun level
of NSE CNX NIFTY for the financial year 2019.
P0 – opening price of the NSE CNX NIFTY
P1 – closing price of the NSE CNX NIFTY.

Return, R (Avg) Calculation:


FY 2018-19 P0 P1 DIVIDEND RETUR
N

40 | P a g e
30-Apr-18 10705.7 10739.35 0 0.31
5
31-May-18 10670.1 10736.15 0 0.62
29-Jun-18 10612.8 10714.3 0 0.96
5
31-Jul-18 11311.05 11356.5 0 0.40
31-Aug-18 11675.85 11680.5 0 0.04
28-Sep-18 11008.1 10930.45 0 -0.71
31-Oct-18 10209.5 10386.6 0 1.73
5
30-Nov-18 10892.1 10876.75 0 -0.14
31-Dec-18 10913.2 10862.55 0 -0.46
31-Jan-19 10690.5 10830.95 0 1.31
5
28-Feb-19 10865.7 10792.5 0 -0.67
29-Mar-19 11625.45 11623.9 0 -0.01
TOTAL 3.38
Avg. Return, R 0.28

RETURN = Dividend + (P1 - P0)/P0*100


Financial Year 2019,
Return for NSE CNX Nifty = 0.28%

Risk, Standard Deviation Calculation


Risk, S.D Calculation of NSE CNX Nifty:
FY 2018-19 R AVG R (R - Avg R) (R - Avg R)^2
30-Apr-18 0.31 0.28 0.03 0.00
31-May-18 0.62 0.28 0.34 0.11
29-Jun-18 0.96 0.28 0.68 0.46
41 | P a g e
31-Jul-18 0.40 0.28 0.12 0.01
31-Aug-18 0.04 0.28 -0.24 0.06
28-Sep-18 -0.71 0.28 -0.99 0.97
31-Oct-18 1.73 0.28 1.45 2.11
30-Nov-18 -0.14 0.28 -0.42 0.18
31-Dec-18 -0.46 0.28 -0.74 0.55
31-Jan-19 1.31 0.28 1.03 1.07
28-Feb-19 -0.67 0.28 -0.95 0.91
29-Mar-19 -0.01 0.28 -0.29 0.09
TOTAL 6.53
VARIANCE 0.59
SD 0.77

Risk, S.D, σ = Square root (∑(R - Avg R) ^2) / N-1


FY19 (MoM) Risk for NSE CNX Nifty = 0.77
Variance = 6.53/11 = 0.59
Standard deviation = √0.59 = 0.77
From the above table:
P0 : opening price of NSE CNX NIFTY.
P1 : closing price of NSE CNX NIFTY.

The NSE CNX Nifty had given a good return of 0.28% per month with an adjusted
risk rate of 0.77 during the financial year 2019.

Return & Risk of Individual Stocks

HDFC Bank Limited:

HDFC Bank Limited (Housing Development Finance Corporation) is an Indian banking and
financial services company headquartered in Mumbai, Maharashtra. Incorporated in 1994, it is

42 | P a g e
one of the largest banks in India as measured by assets. It has 94,907 permanent employees as of
September,2018 and has a presence in Bahrain, Hongkong, Dubai.

Return, R (Avg) Calculation:

FY 2018-19 P0 P1 DIVIDEND RETURN


30-04-18 1930 1944.3 0 0.74
31-05-18 2202 2202 0 0.00
29-06-18 2121.7 2108.4 0 -0.62
5
31-07-18 2160 2179.5 0 0.90
31-08-18 2069.2 2061.2 0 -0.39
28-09-18 1980.65 2006.0 0 1.28
5
31-10-18 1902.05 1911.75 0 0.51
30-11-18 2130 2128.4 0 -0.07
5
31-12-18 2137 2121.7 0 -0.72
31-01-19 2031 2079.9 0 2.41
5
28-02-19 2093.1 2077.5 0 -0.74
5
29-03-19 2304.6 2318.9 0 0.62
RETURN 3.92
AVG 0.33
RETURNS

Return, R = Dividend + (P1 - P0)/P0*100

FY2018-19, Return for HDFC Bank Limited = 3.92%

Risk, S.D Calculation:

FY 2018-19 R AVG R R-AVG R (R-AVG R)^2

43 | P a g e
30-04-18 0.74 0.33 0.41 0.17
31-05-18 0 0.33 -0.33 0.11
29-06-18 -0.62 0.33 -0.95 0.90
31-07-18 0.9 0.33 0.57 0.32
31-08-18 -0.39 0.33 -0.72 0.52
28-09-18 1.28 0.33 0.95 0.90
31-10-18 0.51 0.33 0.18 0.03
30-11-18 -0.07 0.33 -0.4 0.16
31-12-18 -0.72 0.33 -1.05 1.10
31-01-19 2.41 0.33 2.08 4.33
28-02-19 -0.74 0.33 -1.07 1.14
29-03-19 0.62 0.33 0.29 0.08
TOTAL 9.78
VARIANCE 0.89
SD 0.94

Risk, S.D, σ = Square root (∑ (R - Avg R) ^2) / N-1

FY2018-19, Risk for HDFC Bank Limited = 0.94

The HDFC Bank Limited had given a good return of 3.92%per month with a low risk rate of
0.94 during the financial year 2018-19.

WIPRO:

Wipro Limited is a leading global information technology, consulting and business process
services company. They harness the power of cognitive computing, hyper automation, robotics,
cloud, analytics and emerging technologies to help their clients adapt the digital world and make
them successful. They have 1,60,000 dedicated employees serving clients across six continents.
They have a net operating income of $1.66 billion U.S dollars as of march 2019.

Return, R (avg) calculation:

44 | P a g e
FY 2018- P0 P1 DIVIDEND RETURN
19 S
30-04-18 276.15 278.75 0 0.94
31-05-18 261.8 261.9 0 0.04
29-06-18 259 261.5 0 0.97
31-07-18 273.5 276.4 0 1.06
31-08-18 300 301.25 0 0.42
28-09-18 319 324 0 1.57
31-10-18 328.2 331.2 0 0.91
30-11-18 315.05 324.65 0 3.05
31-12-18 331 330.85 0 -0.05
31-01-19 366 369.2 0 0.87
28-02-19 374.9 368.9 0 -1.60
29-03-19 257.1 254.8 0 -0.89
RETURN 7.28
AVG 0.61
RETURNS

Return, R = Dividend + (P1 - P0)/P0*100

FY2018-19, Return for WIPRO Limited= 7.28%

Risk, S.D Calculation:

FY 2018-19 R AVG R R-AVG R (R-AVG R)^2


30-04-18 0.94 0.61 0.33 0.1089
31-05-18 0.04 0.61 -0.57 0.3249
29-06-18 0.97 0.61 0.36 0.1296
31-07-18 1.06 0.61 0.45 0.2025
31-08-18 0.42 0.61 -0.19 0.0361
28-09-18 1.57 0.61 0.96 0.9216
31-10-18 0.91 0.61 0.3 0.09
30-11-18 3.05 0.61 2.44 5.9536
31-12-18 -0.05 0.61 -0.66 0.4356
31-01-19 0.87 0.61 0.26 0.0676
28-02-19 -1.6 0.61 -2.21 4.8841
29-03-19 -0.89 0.61 -1.5 2.25
TOTAL 15.40
VARIANCE 1.40

45 | P a g e
SD 1.18

Risk, S.D, σ = Square root (∑ (R - Avg R) ^2) / N-1

FY2018-19, Risk for WIPRO Limited= 1.18

The WIPRO Limited has given a good return of 7.28%per month with a low risk rate of 1.18
during the financial year 2018-19.

Tata Consulting Services: (TCS)

Tata Consultancy Services Limited (TCS) is an Indian multinational information technology (IT)
service, consulting and business solutions company headquartered in Mumbai, Maharashtra. TCS
operates in 46 countries. It is a subsidiary of the Tata Group and is listed on the Bombay Stock
Exchange and the National Stock Exchange of India. TCS is the second largest Indian company
by market capitalization and is the largest India-based IT services company. TCS is now placed
among the ‘Big 4’ most valuable IT services brands worldwide. In March 2018, Tata sons
decided to sell stocks of TCS worth $1.25 billion in a bulk deal.

Return, R (avg) calculation:

FY 2018- P0 P1 DIVIDEN RETUR


19 D N
30-04-18 3451.9 3532.1 0 2.32
5
31-05-18 1734 1741.0 0 0.41
5
29-06-18 1844.9 1874.7 0 1.62
5
31-07-18 1942 1940.2 0 -0.09
31-08-18 2082.3 2078.4 0 -0.19

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28-09-18 2178 2183.7 0 0.26
31-10-18 1900 1938.1 0 2.01
5
30-11-18 1966 1968.2 0 0.11
5
31-12-18 1908 1893.0 0 -0.78
5
31-01-19 1987 2014.1 0 1.36
28-02-19 2060 1983.4 0 -3.72
5
29-03-19 2019 2001.6 0 -0.86
5
RETURN 2.46
AVG 0.20
RETURNS
Return, R = Dividend + (P1 - P0)/P0*100

FY2018-19, Return for TCS= 2.46%

Risk, S.D Calculation:

FY 2018-19 R AVG R R-AVG R (R-AVG R)^2


30-04-18 2.32 0.2 2.12 4.49
31-05-18 0.41 0.2 0.21 0.04
29-06-18 1.62 0.2 1.42 2.02
31-07-18 -0.09 0.2 -0.29 0.08
31-08-18 -0.19 0.2 -0.39 0.15
28-09-18 0.26 0.2 0.06 0.00
31-10-18 2.01 0.2 1.81 3.28
30-11-18 0.11 0.2 -0.09 0.01
31-12-18 -0.78 0.2 -0.98 0.96
31-01-19 1.36 0.2 1.16 1.35
28-02-19 -3.72 0.2 -3.92 15.37
29-03-19 -0.86 0.2 -1.06 1.12
TOTAL 28.87
VARIANCE 2.62
SD 1.62

47 | P a g e
Risk, S.D, σ = Square root (∑ (R - Avg R) ^2) / N-1

FY2018-19, Risk for TCS= 1.62

The TCS has given a bad return of 2.46%per month with a risk rate of 1.18 during the financial
year 2018-19 which is not good with that returns.

Hindustan Unilever Limited:

HUL is a British – Dutch manufacturing company headquartered in Mumbai, India. Its products
include foods, beverages, cleaning agents, personal care products, water purifiers, and consumer
goods.it was established in the year 1933 as Lever brothers. In December 2018, HUL announced
its acquisition of Glaxo Smith Kline’s India business for $3.8 billion in an all equity merger deal
with 1:4.39 ratio. In January 2019, HUL said that it expects to complete the merger with Glaxo
Smith Kline consumer healthcare this year.

Return, R (avg) calculation:

FY 2018-19 P0 P1 DIVIDEN RETURN


D
30-04-18 1475 1508.9 0 2.30
31-05-18 1595 1611.45 0 1.03
29-06-18 1605.4 1641.1 0 2.22
5 5
31-07-18 1690 1731.6 0 2.46
5
31-08-18 1777 1780.1 0 0.17
28-09-18 1620.1 1608.4 0 -0.72
31-10-18 1593 1621.7 0 1.80
30-11-18 1770.9 1754 0 -0.96

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5
31-12-18 1830 1819.6 0 -0.57
5
31-01-19 1735.9 1763.2 0 1.58
5
28-02-19 1749 1732.6 0 -0.93
5
29-03-19 1695.3 1706.8 0 0.68
RETURN 9.07
AVG 0.76
RETURNS

Return, R = Dividend + (P1 - P0)/P0*100

FY2018-19, Return for HUL= 9.07%

Risk, S.D Calculation:

FY 2018-19 R AVG R R-AVG R (R-AVG R)^2


30-04-18 2.3 0.76 1.54 2.37
31-05-18 1.03 0.76 0.27 0.07
29-06-18 2.22 0.76 1.46 2.13
31-07-18 2.46 0.76 1.7 2.89
31-08-18 0.17 0.76 -0.59 0.35
28-09-18 -0.72 0.76 -1.48 2.19
31-10-18 1.8 0.76 1.04 1.08
30-11-18 -0.96 0.76 -1.72 2.96
31-12-18 -0.57 0.76 -1.33 1.77
31-01-19 1.58 0.76 0.82 0.67
28-02-19 -0.93 0.76 -1.69 2.86
29-03-19 0.68 0.76 -0.08 0.01
TOTAL 19.35
VARIANCE 1.76
SD 1.33

Risk, S.D, σ = Square root (∑ (R - Avg R) ^2) / N-1

FY2018-19, Risk for TCS= 1.33

49 | P a g e
The HUL has given a great return of 9.07%per month with a risk rate of 1.33 during the financial
year 2018-19.

INFOSYS LIMITED:

Infosys Limited is an Indian multinational corporation that provides business consulting,


information technology and outsourcing services. It has its headquarters in Bangalore,
Karnataka, India. It has 2,28,123 employees as of March 2019. It is the second largest IT
company by 2107 revenues and 596th largest public company in the world based on revenue. On
September 2018, its market capitalization was $44.32 billion.

Return, R (avg) calculation:

FY 2018-19 P0 P1 DIVIDEND RETUR


N
30-04-18 1181.7 1199.5 0 1.51
31-05-18 1211.7 1231.8 0 1.66
29-06-18 1298.0 1307.2 0 0.70
5
31-07-18 1348.5 1365.1 0 1.23
5
31-08-18 1425.1 1441.1 0 1.12
28-09-18 721 730.05 0 1.26
31-10-18 663.9 686.4 0 3.39
30-11-18 661 667.45 0 0.98
31-12-18 660 658.95 0 -0.16
31-01-19 726 749.55 0 3.24
28-02-19 738.7 734.3 0 -0.60
29-03-19 743.9 743.85 0 -0.01
RETURN 14.32
AVG 1.19

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RETURNS

Return, R = Dividend + (P1 - P0)/P0*100

FY2018-19, Return for INFOSYS LIMITED= 14.32%

Risk, S.D Calculation:

FY 2018-19 R AVG R R-AVG R (R-AVG R)^2


30-04-18 1.51 1.19 0.32 0.10
31-05-18 1.66 1.19 0.47 0.22
29-06-18 0.7 1.19 -0.49 0.24
31-07-18 1.23 1.19 0.04 0.00
31-08-18 1.12 1.19 -0.07 0.00
28-09-18 1.26 1.19 0.07 0.00
31-10-18 3.39 1.19 2.2 4.84
30-11-18 0.98 1.19 -0.21 0.04
31-12-18 -0.16 1.19 -1.35 1.82
31-01-19 3.24 1.19 2.05 4.20
28-02-19 -0.6 1.19 -1.79 3.20
29-03-19 -0.01 1.19 -1.2 1.44
TOTAL 16.13
VARIANCE 1.47
SD 1.21

Risk, S.D, σ = Square root (∑ (R - Avg R) ^2) / N-1

FY2018-19, Risk for INFOSYS LIMITED= 1.21

The INFOSYS LIMITED has given a great return of 14.32% per month with a low risk rate of
1.21 during the financial year 2018-19 which is great to opt for with the given return per month.

51 | P a g e
Beta, β of stocks

Beta, β of stocks with respect to NSE CNX Nifty

Where, ra = return of individual stock

rp = return of NSE CNX Nifty.

Stocks Covariance Nifty Variance Beta, ß Result


HDFC 0.26 0.59 0.44 conservative
BANK
INFOSYS 0.75 0.59 1.27 Aggressive
HUL 0.78 0.59 1.32 Aggressive
TCS 0.88 0.59 1.49 Aggressive
WIPRO 0.17 0.59 0.29 conservative

When,

β > 1 = Aggressive, β = 1 = Moderate, β < 1 = Conservative

Interpretation:

INFOSYS, TCS, HUL are beating the market return with beta of 1.27, 1.49, 1.32
respectively. So, they are aggressive. While,

HDFC Bank Limited and WIPRO has got low beta values of 0.44, 0.29
respectively. So, they are conservative.

Return, Risk, & Beta of Stocks

52 | P a g e
Return, Risk, & Beta of individual stock for FY2018-19 are as follows:

STOCKS Return, R RISK, SD Beta, ß


HDFC 0.33 0.94 0.44
BANK
INFOSYS 1.19 1.21 1.27
HUL 0.76 1.33 1.32
TCS 0.2 1.62 1.49
WIPRO 0.61 1.18 0.29

Graphical representation of RETURN, RISK AND BETA of stocks:

RISK,RETURN&BETA
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
HDFC BANK INFOSYS HUL TCS WIPRO
RETURN,R RISK, SD BETA,ß

Interpretation:

The Infosys and HUL are the top performers in terms of return. But while
comparing the risk adjusted return Infosys is the out-performer compared to other
stocks. The Infosys has a given a return of 1.19% per month with adjustable risk of
and got a beta of 1.27.

Correlation & Covariance of Portfolios


PORTFOLIO STOCKS CORRELATION COVARIANCE
COMBINATION
1 HDFC & WIPRO -0.44 0.12
53 | P a g e
2 HDFC & TCS -0.48 0.61
3 HDFC & HUL 0.41 -0.81
4 HDFC & 0.07 0.69
INFOSYS
5 WIPRO & TCS -0.13 1.03
6 WIPRO & HUL 0.41 0.33
7 WIPRO & -0.63 0.58
INFOSYS
8 TCS & HUL -0.59 1.33
9 TCS & INFOSYS -0.22 1.34
10 HUL & INFOSYS 0.18 0.76

Interpretation:

Correlation between stocks/securities should be negative. So, that if one stock


moves up other moves down therefore the loss and profit will be limited in the
portfolio and risk also will be low.

If the correlation between stocks/securities is positive, there is a chance of


unlimited loss and unlimited profit in the portfolio. The risk of portfolio will be
comparatively high.

And in the above portfolios, there is a positive correlation with some portfolios.

Return & Risk of Various Portfolios:

Calculation of Portfolio Return:

Rp = (RA*WA) + (RB*WB)

Where,

Rp = portfolio return

54 | P a g e
RA= return of A

WA= weight of A

RB= return of B

WB= weight of B

Calculation of Portfolio Risk:

Portfolio Risk = SQRT [((Wx^2*SdX^2) + (Wy^2*SdY^2) +


(2*Wx*Wy*(rxy*Sdx*Sdy)))]

WHERE,

Wx, Wy = proportion of total portfolio invested in security X& Y respectively

sdx, sdy = standard deviation of stock X & stock Y respectively

rxy = correlation coefficient of x & y.

So, the portfolio risk and return is calculated to all the portfolios available from the
above combination of companies.

Where, P.R = Portfolio risk, P.R = Portfolio Return, P.V = Portfolio Variance.

PORTFOLIO 1

STOCKS RETURN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
HDFC 0.33 0.5 0.89 0.94 -0.44 0.165
BANK
WIPRO 0.61 0.5 1.4 1.18 0.305
P.R 0.47
PV 0.324976

55 | P a g e
PR 0.570066663

Portfolio Return, Rp = (0.33*0.50) + (0.61*0.50) = 0.47%

Portfolio Risk = 0.57.

PORTFOLIO 2

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
HDFC 0.33 0.5 0.89 0.94 -0.48 0.165
BANK
TCS 0.2 0.5 2.62 1.62 0.1
PR 0.265
PV 0.511528
PR 0.715211857

Portfolio Return, Rp = (0.33*0.50) + (0.2*0.50) = 0.265%

Portfolio Risk = 0.715.

PORTFOLIO 3

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
HDFC 0.33 0.5 0.89 0.94 0.41 0.165
BANK
HUL 0.76 0.5 1.76 1.33 0.38
PR 0.545
PV 0.919416
PR 0.958861825

56 | P a g e
Portfolio Return, Rp = (0.33*0.50) + (0.73*0.50) = 0.545%

Portfolio Risk = 0.958.

PORTFOLIO 4

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
HDFC 0.33 0.5 0.89 0.94 0.07 0.165
BANK
INFOSY 1.19 0.5 1.47 1.21 0.595
S
PR 0.76
PV 0.626734
PR 0.791665333

Portfolio Return, Rp = (0.33*0.50) + (1.19*0.50) = 0.77%

Portfolio Risk = 0.791.

PORTFOLIO 5

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
WIPRO 0.61 0.5 1.4 1.18 -0.13 0.305
TCS 0.2 0.5 2.62 1.62 0.1
PR 0.405
PV 0.879946
PR 0.938054369

Portfolio Return, Rp = (0.61*0.50) + (0.2*0.50) = 0.405%

Portfolio Risk = 0.938.

57 | P a g e
PORTFOLIO 6

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
WIPRO 0.61 0.5 1.4 1.18 0.41 0.305
HUL 0.76 0.5 1.76 1.33 0.38
PR 0.685
PV 1.112052
PR 1.054538762

Portfolio Return, Rp = (0.61*0.50) + (0.76*0.50) = 0.685%

Portfolio Risk = 1.05.

PORTFOLIO 7

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
WIPRO 0.61 0.5 1.4 1.18 -0.63 0.305
INFOSY 1.19 0.5 1.47 1.21 0.595
S
PR 0.9
PV 0.264368
PR 0.514167288

Portfolio Return, Rp = (0.61*0.50) + (1.19*0.50) = 0.98%

Portfolio Risk = 0.51.

PORTFOLIO 8

58 | P a g e
STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL
E E RETURN
TCS 0.2 0.5 2.62 1.62 -0.59 0.1
HUL 0.76 0.5 1.76 1.33 0.38
PR 0.48
PV 0.462718
PR 0.680233783

Portfolio Return, Rp = (0.2*0.50) + (0.76*0.50) = 0.5%

Portfolio Risk = 0.68.

PORTFOLIO 9

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
TCS 0.2 0.5 2.62 1.62 -0.22 0.1
INFOSY 1.19 0.5 1.47 1.21 0.595
S
PR 0.695
PV 0.806503
PR 0.898055121

Portfolio Return, Rp = (0.2*0.50) + (1.19*0.50) = 0.7%

Portfolio Risk = 0.9.

PORTFOLIO 10

STOCKS RETUN WEIGHTAG VARIANC SD CORRELATION INDIVIDUAL


E E RETURN
HUL 0.76 0.5 1.76 1.33 0.18 0.38
INFOSY 1.19 0.5 1.47 1.21 0.595
S
PR 0.975

59 | P a g e
PV 0.953087
PR 0.976261748

Portfolio Return, Rp = (0.76*0.50) + (1.19*0.50) = 0.97%

Portfolio Risk = 0.97.

Beta, β of Portfolios

Beta, β of portfolio with respect to NSE CNX Nifty

βp = (βx*Wx) + (βy*Wy)

Where,

βp = Beta of portfolio

βx & βy = Beta of stock 1 & stock 2 respectively

Wx & Wy = Weightage of stock 1 & stock 2 respectively.

Portfoli Stocks βx Wx βy Wy βp Result


o Combination
1 HDFC & WIPRO 0.44 0.5 0.29 0.5 0.365 Conservative
2 HDFC & TCS 0.44 0.5 1.49 0.5 0.965 Conservative
3 HDFC & HUL 0.44 0.5 1.32 0.5 0.88 Conservative
4 HDFC & 0.44 0.5 1.27 0.5 0.855 Conservative
INFOSYS
5 WIPRO & TCS 0.29 0.5 1.49 0.5 0.89 Conservative
6 WIPRO & HUL 0.29 0.5 1.32 0.5 0.805 Conservative
7 WIPRO & 0.29 0.5 1.27 0.5 0.78 Conservative
INFOSYS
8 TCS & HUL 1.49 0.5 1.32 0.5 1.405 Aggressive
9 TCS & INFOSYS 1.49 0.5 1.27 0.5 1.38 Aggressive

60 | P a g e
10 HUL & INFOSYS 1.32 0.5 1.27 0.5 1.295 Aggressive

When,

βp > 1 = Aggressive, βp = 1 = Moderate, βp < 1 = Conservative

Return, Risk, & Beta of Portfolios

Return, Risk, & Beta of various portfolios for FY2018-19 are as follows:

Portfoli Stocks Combination RISK RETUR BETA


o N
1 HDFC & WIPRO 0.57 0.47 0.365
2 HDFC & TCS 0.71 0.26 0.965
3 HDFC & HUL 0.95 0.54 0.88
4 HDFC & INFOSYS 0.79 0.76 0.855
5 WIPRO & TCS 0.93 0.4 0.89
6 WIPRO & HUL 1.05 0.68 0.805
7 WIPRO & INFOSYS 0.5 0.9 0.78
8 TCS & HUL 0.68 0.48 1.405
9 TCS & INFOSYS 0.89 0.69 1.38
10 HUL & INFOSYS 0.97 0.97 1.295

Graphical representation of Return, Risk, & Beta of various portfolios for FY2018-
19:

61 | P a g e
Return, Risk and Beta of Portfolios
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
RISK RETURN BETA

Interpretation:

Taking risk adjusted return: HDFC Bank & Infosys, Wipro & Infosys, & HUL &
Infosys are the combinations which are out-performers.

FINDINGS

AND
62 | P a g e
CONCLUSION

Findings:

63 | P a g e
Conclusion
On behalf of the portfolio management study I can conclude that:

 The aim and objectives of the study has achieved.


 Investors with low risk averse can go for investing in a combination Wipro & Infosys, as
the risk is very low.
 Investors with moderate risk can go for investing in a combination of HDFC &Infosys
and HUL & Infosys, as the risk is not so high.
 Investors, who are aggressive can for investing in a combination of Wipro & HUL,
HDFC & HUL, HDFC & Wipro.
 Don’t put your trust in only one investment. It is like “putting all the eggs in one basket”
This will help to reduce the risk in the long term.
 The investors are benefited by investing in selected scripts of Industries.
 Always diversification is very much important when in comes to investment.
 Maximum return by mitigating the risk the primary objective of Portfolio Management.

64 | P a g e
“Greater Portfolio Return with less Risk is always is an attractive
combination”

REFERENCES

Websites

 www.nseindia.com
 www.bseindia.com
 www.moneycontrol.com
 www.indiainfoline.com/Markets/News
 www.globalresearch.co.in
 www.valueresearchonline.com
 www.amfi.com
 www.sebi.gov.in
 www.reuters.com
 wikipedia.org/wiki/portfolio management
 www.rbi.co
 www.businesstimes.com
 www.economicstimes.com
 www.stocktraderschat.com
 www.economictimes.indiatimes.com/definition/portfolio management services
 www.rediff.com/business
 www.thereformedbroker.com/2012/04/08/10-things-you-need-to-know-aboutindias-
stock-market
 www.forbes.com

65 | P a g e
Magazines, Articles & Journals:

 Markowitz, Harry M. (1952). "Portfolio Selection".


 Security Analysis & Portfolio Management – Dhanesh Khatri
 Financial Management – Prasanna Chandra
 Financial Management, 10th Edition – I M Pandey

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