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A Project Report on

PORTFOLIO MANAGEMENT

(V.BALARAJU)

(10QN1E0000)

Project submitted in partial fulfilment for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION By JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD.

LIST OF CONTENTS
Chapters Chapter-I Introduction of the study Methodology Objectives of study Scope of the study Limitations Chapter II Company profile e Chapter-III Review of Literature Chapter-IV Data Analysis & Interpretations Chapter-V Conclusion & Suggestions Chapter-VI Bibliography
77 92 71 76 38 70 26 37 15 25

Description

Pg.No.
06 14

INTRODUCTION
INVESTMENT
(CHAPTER-1)
Investors may be individual or institutions there is large no. of investment avenues for savers in India. Corporate securities, deposits in the banks and Non-Banking companies, Investment is a financial activity that involves risk. It is the commitment of funds for a return expected to be realized in the future. Investment can be made in financial assets or physical assets. In either case there is possibility that the actual return may vary from the expected return that possibility is risk involved in it. Investment is generally distinguished from speculation in terms of 3 factors namely risk, capital gain and time period. Gambling is the extreme form of speculationmutual funds schemes, provident fund schemes, life insurance policies, government securities are some of the important avenues.

INVESTMENT AVENUES
There are a large number of 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 head. 1. 2. 3. 4. 5. 6. 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:

Characteristics of investment are Return, Risk, Safety and liquidity. Risk and return of an investment related. Normally, the higher the risk, the higher is the return. Hence an investor generally prefers liquidity for his investment, safety of his funds, good return with minimum risk and maximum return.

RETURN
The term Return from an investment refers to the benefits from that investment. In the field of finance in general and security analysis in particular, the term return is almost invariably associated with a percentage (say, return on investment of 12%) and not a mere amount (like, profit of Rs. 150.). In security analysis we are primarily concerned with return forms a particular investment say, a share or a debenture or other financial instrument.

Single period Returns

It refers to a situation where an investor is concerned with return from a single period (Say, one day, one week, one month or one year).

Multi period Returns

It refers to situation where more than single period returns are under consideration. Investor is concern with computing the return per period, over a longer period.

Ex-Post Returns
Ex-

The measurement of return from the historical data can be referred to Post returns. This includes the both current income and capital gains (or

losses) brought about by gains price of the security. The income and capital gains are then expressed as a percentage of the initial investment.

Ex-Ante Returns
The majority of investors tend to emphasize the return they expect from

a security while making investment decision and the expected return of a security. This enables the investors to look into future prospects from an

investment and the measurement of returns from expectation of benefits is known as ex-ante returns.

RISK AND EXPECTED RETURN


There is a positive relationship between the amount of risk and the amount of expected return i.e., the greater the risk, the larger the expected return and larger the chances of substantial loss. One of the most difficult problems for an investor is to estimate the highest level of risk he is able to assume.

Risk is measured along the horizontal axis and increases from the left to right. Expected rate of return is measured on the vertical axis and rises from bottom to The line from 0 to R (f) is called the rate of return or risk less investments Commonly associated with the yield on government securities.

The diagonal line form R (f) to E(r) illustrates the concept of expected rate of

Return increasing as level of risk increases.

TYPES OF RISKS
Risk consists of two components. They are 1. 2. Systematic Risk Un-systematic Risk

1. Systematic Risk:
Systematic risk is caused by factors external to the particular company and uncontrollable by the company. The systematic risk affects the market as a whole. Factors affect the systematic risk are economic conditions political conditions sociological changes

The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They are Market Risk Interest Rate Risk Purchasing Power Risk

a) Market Risk: One would notice that when the stock market surges up, most stocks post higher price. On the other hand, when the market falls sharply, most common stocks will drop. It is not uncommon to find stock prices falling from time to time while a companys earnings are rising and vice-versa. The

price of stock may fluctuate widely within a short time even though earnings remain unchanged or relatively stable.

b). Interest Rate Risk:


Interest rate risk is the risk of loss of principal brought about the changes in the interest rate paid on new securities currently being issued.

c). Purchasing Power Risk:


The typical investor seeks an investment which will give him current income and / or capital appreciation in addition to his original investment.

2. Un-systematic Risk:
Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of raising finance and paying back the loans, involve the risk element. Financial leverage of the companies that is debt-equity portion of the companies differs from each other. All these factors Factors affect the un-systematic risk and contribute a portion in the total variability of the return. Managerial inefficiently Technological change in the production process Availability of raw materials Changes in the consumer preference Labour problems The nature and magnitude of the above mentioned factors differ from industry to industry and company to company. They have to be analyzed separately for each industry and firm. Un-systematic risk can be broadly classified into:

Business Risk Financial Risk

BUSINESS RISK
Business risk is that portion of the unsystematic risk caused by the operating environment of the business. Business risk arises from the inability of a firm to maintain its competitive edge and growth or stability of the earnings. The volatibility in stock prices due to factors intrinsic to the company itself is known as Business risk. Business risk is concerned with the difference between revenue and earnings before interest and tax. Business risk can be divided into.

i)

Internal Business Risk


Internal business risk is associated with the operational efficiency of the

firm. The operational efficiency differs from company to company. The efficiency of operation is reflected on the companys achievement of its preset goals and the fulfilment of the promises to its investors.

ii)

External Business Risk


External business risk is the result of operating conditions imposed on

the firm by circumstances beyond its control. The external environments in which it operates exert some pressure on the firm. The external factors are social and regulatory factors, monetary and fiscal policies of the government, business cycle and the general economic environment within which a firm or an industry operates.

FINANCIAL RISK
It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of the company consists of equity funds and borrowed funds.

METHODOLOGY
r

SOURCES OF DATA COLLECTION: The methodology

adopted or employed in this study was Mostly on secondary data collection i.e.., Companies Annual Reports Information from Internet Publications Information provided by Networth Stock Broking Ltd.

2005-2010.

Period of study

For different companies, financial data has been collected from the year

SCOPE OF THE STUDY


The study covers basic means concept of equity and equity related instruments. The study is restricted to explain only the risk associated with various products. The tools used for a graphical presentation of data include pie charts and other accessories

OBJECTIVES OF THE STUDY

To analyze securities. To study the investment pattern and its related risk & returns To understand, analyze and select the best portfolio.

To help the investor to chose wisely between alternative investment. To strike balance between costs of funds, risk and returns

To provide basic idea of different stock market investment instrument to investor. To provide knowledge to investor about various type of risk associated various investment instruments.

LIMITATIONS OF THE STUDY

1. 2. 3. 4.

Data collection was strictly confined to secondary source. No Detailed study of the topic was not possible due to limited size of The time duration given to complete the report was not sufficient. The report is basically is made. Between the horizon of two months

primary data is associated with the project. the project.

and the situation of market is very dynamic. so the conclusion of the return might not reflect the true picture.

(CP)

REVIEW OF LITERATURE
PORTFOLIO MANAGEMENT & ITS PHASES PORTFOLIO MANAGEMENT
(CHAPTER-3)

INTRODUCTION
Many times the investors go on acquiring assets in an ad hoc & unplanned manner & the result is high risk, low return profile that they may face. All such assets of financial nature such as gold, silver, real-estate, building, insurance policies, post office certificate. NSC or NSS would constitute his portfolio & the wise investor not only plans his portfolio as per risk return profile or preferences but manages his portfolio efficiently so as to secure the highest return for the lowest risk possible at that level of investment. This is in short the portfolio management. The basic principle is that the higher the risk, the higher is the return &investor should have clear perception of elements of risk & return when he makes investments. Risk return analysis is essential for the investment & portfolio management. An investor considering investment is securities is faced with the problem of choosing from among a large no. of securities. His choice depends upon the risk return characteristics of individual securities. He would attempt to choose the most desirable securities & like to allocate his funds over group of securities. As the economic and financial environment keep changing the risk return characteristics of individual securities as well as portfolios also change. An investor invests his funds in a portfolio expecting to get a good return consistent with the risk that he has to bear. Portfolio management comprises all the processes involved in the creation & maintenance of an investment portfolio. It deals specifically with Security Analysis, Portfolio Analysis,

RESEARCH (e.g.SecurityAnal ysi)

PORTFOLIOMAN AGERS

OPERATIONS (e.g. buying and selling of Securities)

CLIENTS

There was a time when portfolio management was an exotic term. The scenario has changed drastically. It is now a familiar term and is widely practiced in India. The theories and concepts relating to portfolio management now find their way to the front pages of financial newspapers and the cover pages of investment journals in India. Indian capital markets have become active. The Indian stock markets are steadily moving towards higher efficiency, with rapid computerization, increasing market transparency, better infrastructure, better customer service etc. The markets are dominated by large institutional investors with their diversified portfolios. A large no of mutual funds has been set up the county since 1987. With this development investment in securities has gained considerable momentum. Professional portfolio management backed by competent research begun to be practiced by mutual funds, investment consultants and big brokers. The Securities Exchange Board of India (SEBI). The Stock Market Regulatory body in India is supervising the whole process. With the advent of computers the whole process of portfolio management has become quite easy. The computer can absorb large volumes of data perform computations accurately and quickly give out results in desired form. The trend towards liberalization and globalization of the economy has promoted free flow of capital across international border. Portfolio now includes not only domestic securities but also foreign securities such as Options and Futures in the field of investment management and trading in derivative securities. Their valuation etc.., has broadened its scope. PORTFOLIO MANAGEMENT IS a process encompassing many activities aimed at optimizing investment of funds, each phase is an integral part of the whole process and the success of portfolio management depends upon the efficiency in carrying out each phase. Five phases can be identified:1. Security analysis 2. Portfolio analysis 3. Portfolio selection 4. Portfolio revision 5. Portfolio evaluation

SECURITY ANALYSIS
It refers to the analysis of trading securities from the point of view of their prices, return, and risk. All investment is risky and the expected return is related to risk. The securities available to an investor for investment are numerous and of various types. The shares of over more than 7000 are listed in stock exchanges of the country. Securities classified into ownership securities such as equity shares and preference shares and debentures and bonds. Recently ,a number of new securities such as convertible debentures and deep discount bonds, zero coupon bonds, Flexi bonds, Floating rate bonds GDRs Euro currency bonds etc, are issued to raise funds for their projects by companies from which investor has to choose those securities the is worthwhile to be included in his investment portfolio. This calls for detailed analysis of the available securities. Security analysis is the initial phase of the portfolio management process. It examines the risk return characteristics of individual securities. A basic strategy in securities investment is to buy under priced securities and sell over priced securities. But the problem is how to identify such securities in other words mis priced securities. This is what security analysis is all about.

Prices of the securities in the stock market fluctuate daily on the account of continuous buying and selling. Stock prices move in trends and cycles and are never stable. An investor in the stock market is interested in buying securities at low price and selling them at high price so as to get a good return on his investment made. He therefore tries to analyse the movement of share prices in the market.

Two approaches are commonly used for this purpose.

Fundamental analysis wherein the analyst tries to determine

the intrinsic value of the share based on the current and future earning capacity of the company.

Technical analysis is an alternative approach to the study of

stock price behaviour

Portfolio of Selection : - Then according to the risk appetite


and return pattern an optimum portfolio is designed for the investor. The basket of investment instrument selected in the previous step are given due weightage and appropriate amount of money is invested in each of the investment avenue so as to get maximum return with minimum possible risk.

Portfolio Revision: The fund managers main objective is


revision of portfolio on monthly basis, The actual meaning is one person is taking care of investor s capital. Addition of stock, deletion of stocks happen based on market conditions.

Portfolio Evaluation: - The next step would be evaluating the


needs. Other investment instruments and options should be analyzed. The risk-return profile of investment products is evaluated in this step. Every investment product varies according to its return potential and riskiness. Investment products giving a high rate of return are generally risky and volatile. The products giving a lower rate of return usually are less risky.

PORTFOLIO ANALYSIS
MARKOWITZ MODEL:
Markowitz model is a theoretical framework for analysis of risk and return and their relationships. He used statistical analysis for the measurement of risk and mathematical programming for selection of assets in a portfolio in an efficient manner. Markowitz approach determines for the investor the efficient set of portfolio through three important variables i.e.

Return Standard deviation Co-efficient of correlation


Markowitz model is also called as a Full Covariance Model. Through

this model the investor can find out the efficient set of portfolio by finding out the trade off between risk and return, between the limits of zero and infinity. According to this theory, the effects of one security purchase over the effects of the other security purchase are taken into consideration and then the results are evaluated. Most people agree that holding two stocks is less risky than holding one stock. For example, holding stocks from textile,

banking and electronic companies is better than investing all the money on the textile companys stock. Markowitz had given up the single stock portfolio and introduced diversification. The single stock portfolio would be preferable if the investor is perfectly certain that his expectation of highest return would turn out to be real. In the world of uncertainty, most of the risk adverse investors would like to join Markowitz rather than keeping a single stock, because diversification reduces the risk.

ASSUMPTIONS
All investors would like to earn the maximum rate of return that they can achieve from their investments. All investors have the same expected single period investment horizon.

All investors before making any investments have a common goal. This is the avoidance of risk because Investors are risk-averse. Investors base their investment decisions on the expected return and standard deviation of returns from a possible investment. The investor assumes that greater or larger the return that he achieves on his investments, the higher the risk factor surrounds him. On the contrary when risks are low the return can also be expected to be low. The investor can reduce his risk if he adds investments to his portfolio.

An investor should be able to get higher return for each level of risk by determining the efficient set of securities. An individual seller or buyer cannot affect the price of a stock. This assumption is the basic assumption of the perfectly competitive market.

THE EFFECT OF COMBINING TWO SECURITIES


It is believed that holding two securities is less risky than by having only one investment in a persons portfolio. When two stocks are taken on a portfolio and if they have negative correlation then risk can be completely

reduced because the gain on one can offset the loss on the other. This can be shown with the help of following example:

INTER- ACTIVE RISK THROUGH COVARIANCE:


Covariance of the securities will help in finding out the inter-active risk. When the covariance will be positive then the rates of return of securities move together either upwards or downwards. Alternatively it can also be said that the inter-active risk is positive. Secondly, covariance will be zero on two investments if the rates of return are independent. Holding two securities may reduce the portfolio risk too. The portfolio risk can be calculated with the help of the following formula

CAPITAL ASSET PRICING MODEL (CAPM)


Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure of Capital Asset Pricing Model. It is a model of linear general equilibrium return. In the CAPM theory, the required rate return of an asset is having a linear relationship with assets beta value i.e. undiversifiable or systematic risk (i.e. market related risk) because non market risk can be eliminated by diversification and systematic risk measured by beta. Therefore, the relationship between an assets return and its systematic risk can be expressed by the CAPM, which is also called the Security Market Line.

Rp
Rp Xf assets 1- Xf assets RF Rm = = = =

RF Xf+ Rm (1- Xf)


Portfolio return the proportion of funds invested in risk free = the proportion of funds invested in risky

Risk free rate of return Return on risky assets

Formula can be used to calculate the expected returns for different situations, like mixing risk less assets with risky assets, investing only in the risky asset and mixing the borrowing with risky assets.

THE CONCEPT
According to CAPM, all investors hold only the market portfolio and risk less securities. The market portfolio is a portfolio comprised of all stocks in the market. Each asset is held in proportion to its market value to the total value of all risky assets.

THE SHARPES INDEX MODEL:


The investor always like to purchase a combination of stock that provides the highest return and has lowest risk. He wants to maintain a satisfactory reward to risk ratio traditionally analysis paid more attention to the return aspects of the stocks. Now a days risk has received increased attention and analysts are providing estimates of risk as well as return. Sharp has developed a simplified model to analyze the portfolio. He assumed that the return of a security is linearly related to a single index like to market index. Strictly speaking the market index should consist of all the securities trading on the exchange. In the absence of it, a popular index can

be treated as a surrogate for the market index. Sharpe has provided a model for the selection of appropriate securities in a portfolio. The selection of any stock is directly related to its excess return beta ratio

Ri Rf/ai
Where Ri Rf Ai = = = the expected return on stock i the return on a risk less asset

the expected change in the rate of return on stock

I associated With one unit change in the market return SINGLE INDEX MODEL
Causal observation of the stock prices over a period of time reveals that most of the stock process move with the market index. When sensex increases, stock prices also tend to increase and vice versa. This indicates that some underlying factor affect the market index as well as the stock prices. Stock prices are related to the market index and this relationship could be used to estimate the return on stock. Towards the purpose, the following equation can be used: Ri = a+a iRm+ei Where R=expected return on security i a= intercept of the straight line or alpha co-efficient

ai= slope of straight line or beta co-efficient Rm = the rate of return on market index ei= error term with a mean of zero & a std.dev. Which is a constant?

ARBITRAGE PRICING THEORY


According to this theory the returns of the securities are influenced by a number of macroeconomic factors such as growth rate of industrial production rate of inflation, spread between low-grade and high grade bonds.

The Law of One Price


The foundation for Apt is the law of one price. The law of one price states that two identical goods should sell at the same price. If they sold at different prices anyone could engage in arbitrage by simultaneously buying at low prices and selling at the high prices and make a risk less profit. Arbitrage also applies to financial assets. If two financial assets have the same risk, they should have the same expected return. If they do not have the same expected return, a riskless profit could be earned by simultaneously issuing(or selling short) at the low return and buying the high-returnf asset. Arbitrage causes prices to be revised as suggested by the law of one price. The arbitrage pricing line for one risk factor can be written as

= 0+ Ii
Where is the expected return on the security i

0 I i

is the return on the zero beta portfolio is the factor risk premium is the sensitivity of the ith asset to the risk factor it security as follows

Two factor Arbitrage pricing: The Two-factor model describes the return of

= 0+ I1i+ 2i2 Where 2 i2 is the risk premium associated with risk factor2 is the factor beta coefficient for factor 2 and the factor 1 &2 are uncorrelated

FORMULAES USED: Return = (P1-P0)/P0*100 Total return = (P1-P0)/P0*100 Average return = Total return N Variance = (R-R)2/N Standard Deviation = variance Co-Variance = [R1-R1] [R2-R2] N Co-efficient of Co-relations = cov1.2
1*2

Portfolio Weights Wa

b-nab*a*b a+b-2nab *a*b

Portfolio Risks

Wb = 1-Wa

Portfolio Return = [(RA*WA) + (RB*WB)]

DATA ANALYSIS
DATA ANALYSIS
(CHAPTER-4) Return = (P1-P0)/P0*100 Total return = (P1-P0)/P0*100 Average return = Total return N

Andhra bank
Year
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

opening share price (p0)


109.41 82.85 71.96 74.57 45.89 total return

Closing Share price(p1)


80.88 76.18 74.72 45.73 107.83

P1-Po
-28.53 -6.67 2.76 -28.84 61.94

(p1-Po)/Po * 100
-26.07622704 -8.050694025 3.835464147 -38.6750704 134.9749401 66.00841276 13.20168255

Average return

ANDHRA BANK

Interpretation
Above pie chat indicates returns generated during the FY 2005-06 to 200910. For the FY2005-06 -26.07 Negative returns and 2006-07 -8.050 2008-09 -38.67

Infosys
year
2005-2006

opening share price (p0)


2238.03

Closing Share price(p1)


3002.86

P1-Po
764.83

(p1-Po)/Po * 100
34.17425146

2006-2007 2007-2008 2008-2009 2009-2010

3091.47 1951.1 1433.9 1346.29 total return

2015.37 1431.43 1323.27 2632.62

-1076.1 -519.67 -110.63 1286.33

-34.80868325 -26.63471888 -7.71532185 95.54627903 60.56180652 12.1123613

Average return

INFOSYS

Interpretation
Above pie chat indicates returns generated during the FY 2005-06 to 200910. For the FY 2005-06 34.17 and FY 2009-10 95.54 Positive returns. FY 2006-07 -34.80 and FY 2007-08 -26.63 and FY 2008-09 -7.71 Negative returns.

Airtel

Year
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

opening share price (p0)


210.63 417.99 735.46 805.86 611.43 total return

Closing Share price(p1)


411.78 764.47 820.32 625.06 314.25

P1-Po
201.15 346.48 84.86 -180.8 -297.18

(p1-Po)/Po * 100
95.49921664 82.89193521 11.53835695 -22.4356588 -48.60409205 118.889758 23.77795159

Average return

AIRTEL

Interpretation
Above pie chat indicates returns generated during the FY 2005-06 95.49 and FY 2006-07 82.89 and FY 2007-08 11.53 Positive Returns. For the FY 2008-09 -22.43 AND FY 2009-10 -48.60 Negative returns .

Hero Honda
Year opening share Closing Share P1-Po (p1-Po)/Po *

price (p0)
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 547.85 895.65 651.27 702.41 1047.46 total return

price(p1)
899.07 689.91 707.32 1065.73 1976.03 351.22 -205.74 56.05 363.32 928.57

100
64.1087889 -22.97102663 8.606261612 51.72477613 88.64968591 190.1184859 38.02369718

Average return

HERO HONDA

Interpretation
Above pie chat indicates returns generated during the FY 2005-06 64.10 and FY 2007-08 8.60 and FY 2008-09 51.72 and FY 2009-10 88.64 Positive Returns. For the FY 2006-07 -22.97 Negative returns.

Cipla
Year Opening Closing Share P1-Po (p1-Po)/Po *

share price (p0)


2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 258.48 683.84 228.19 219.52 218.18 total return

price(p1)
656.46 235.58 221.41 221.02 339.04 397.98 -448.26 -6.78 1.5 120.86

100
153.9693593 -65.55042115 -2.971208204 0.683309038 55.39462829 141.5256673 28.30513346

Average return

CIPLA

Interpretation
Above pie chat indicates returns generated during the FY 2005-06 153.96 and FY 2008-09 0.68 and FY 2009-10 55.39 Positive Returns. For the FY 2006-07 -65.55 and FY 2007-08 -2.97 Negative returns.

ANDHRA 13.20168255 BANK INFOSYS 12.1123613 AIRTEL HERO HONDA CIPLA 23.77795159 38.02369718 28.30513346

AVERAGE RETURNS

AVERAGE RETURNS

13.20168255 28.30513346 12.1123613 ANDHRA BANK INFOSYS AIRTEL 23.77795159 38.02369718 HERO HONDA CIPLA

Interpretation According to above the pie chat it is prove it


In longer time equity markets as high fluctuated products in the market on yearly basis vacancy up and down in the market but in market but in larger time week ended positive returns on equity investment.

CALCULATION OF STANDARD DEVIATION


Variance = (R-R)2/N Standard Deviation = variance

Andhra Bank
Year
20052006 20062007 20072008 20082009 20092010

return
26.07622704 -8 3.835467417 -38.6750704 134.9749401 Total

AVG Return (R)


13.20168255 13.20168255 13.20168255 13.20168255 13.20168255

R-R
-39.27791 21.25237 7 9.366215 1 51.87675 3 121.7732 6

(R-R)
1542.754182 451.6635101 87.72598592 2691.197497 14828.72625 19602.06743 3920.413486 62.61320536

Varience Stnadard Deviation

ANDHRA BANK

Interpretation: It is proving higher risk and high returns.

Infosys Year 20052006 20062007 20072008 20082009 20092010 return 31.92619142 32.71166667 -28.005 -7.71532185 99.5467903 Total AVG Return (R) 12.1123613 12.1123613 12.1123613 12.1123613 R-R 18.317422 44.824028 40.117361 19.827683 (R-R) 335.5279396 2009.193483 1609.402678 393.1370191

12.1123613 87.434429 7644.779375 11992.04049 2398.408099 48.97354489

Variance Standard Deviation

INFOSYS

Interpretation It is proving higher risk and high returns

Airtel
Year
20052006 20062007 20072008 20082009 20092010

return
96.68811056 89.11664226 11.27196822 -22.4356588 48.60409205 Total

AVG Return (R)


23.77550414 23.77550414 23.77550414 23.77550414 23.77550414

R-R
72.912606 65.341138 12.503536 46.211163 72.379596

(R-R)
5316.248175 4269.464331 156.3384105 2135.47158 5238.805945 17116.32844 3423.265688 58.50868045

Varience Stnadard Deviation

AIRTEL

Interpretation It is proving higher risk and high returns

Hero Honda
Year
20052006 20062007 20072008 20082009 20092010

return
64.1087889 -22.97102663 8.606261612 51.72477613 88.64968591 Total

AVG Return (R)


38.02369718 38.02369718 38.02369718 38.02369718 38.02369718

R-R
26.085092 60.994724 29.417436 13.701079 50.625989

(R-R)
680.43201 3720.356333 865.3855154 187.7195644 2562.990735 8016.884157 1603.376831 40.04218815

Variance Standard Deviation

HERO HONDA

Interpretation It is proving higher risk and high returns

Cipla
Year
20052006 20062007 20072008 20082009 20092010 return 153.9693593 -65.55042115 -2.971208204 0.683309038 55.39462829 Total

AVG Return (R)


28.30513346 28.30513346 28.30513346 28.30513346 28.30513346

R-R
125.6642 3 93.85555 5 31.27634 2 27.62182 4 27.08949 5

(R-R)
15791.49766 8808.865131 978.2095479 762.9651844 733.8407301 27075.37825 5415.07565 73.587197

Variance Standard Deviation

CIPLA

Interpretation: It is proving higher risk and high returns

AVERAGE RISKS
ANDHRA BANK INFOSYS AIRTEL HERO HONDA CIPLA 62.61320536 48.97354489 58.50868045 40.04218815 73.587197

AVERAGE RISKS

73.587197

62.61320536 ANDHRA BANK INFOSYS AIRTEL HERO HONDA CIPLA 58.50868045

40.04218815

48.97354489

Interpretation
It is proving higher risk and high returns

CALCULATION OF COVARIENCE AND CORRELATION


1. Andhra Bank with Others
Co-Variance = [R1-R1] [R2-R2]

Andhra Bank R(A) and Infosys R(B) Year RA-RA RB-RB (RA-RA)(RB-RB) 2005-2006 -39.2779 -18.3174 719.47 2006-2007 -21.2524 -44.824 952.6171 2007-2008 -9.36622 -40.1174 375.7478 2008-2009 -51.8768 -19.8277 1028.596 2009-2010 121.7733 87.43443 10647.18 Total 13723.61 Covariance Correlation Andhra Bank R(A) and Airtel R(B)
year 20052006 20062007 20072008 20082009 20092010 RA-RA 39.27790959 21.25237658 9.366215133 51.87675295 121.7732576 Total RB-RB 72.91260642 65.34113812 12.50353592 46.21116294 72.37959619

Co-efficient of Co-relations = cov1.2 1* 2

2744.721 0.895098

(RA-RA)(RB-RB) -2863.8548 -1388.6545 117.11081 2397.2851 -8813.8992 -10552.013

Covariance Correlation

-2110.4025 -0.576075

Andhra Bank R(A) and Hero Honda R(B) Year RA-RA RB-RB (RA-RA)(RB-RB) 2005-2006 -39.27790959 26.08509 -1024.57 2006-2007 -21.25237658 -60.9947 1296.283 2007-2008 -9.36622 -29.41743557 275.53 2008-2009 -51.87675295 13.70108 -710.767 2009-2010 121.7732576 50.62599 6164.892 Total 6001.369

Covariance Correlation Andhra Bank R(A) and Cipla R(B) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 RA-RA 39.27790959 21.25237658 9.366215133 51.87675295 Total Covarience Correlation RB-RB 125.6642258 93.85555461 31.27634166 27.62182442

1200.274 0.478737

(RA-RA) (RB-RB) -4935.8281 1994.6536 292.94094 1432.9306 3298.776 2083.473 416.69461 0.0904377

121.7732576 27.08949483

Infosys R(A) and Airtel R(B)


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Covarience correlation RA-RA -18.31742175 -44.82402797 -40.1173613 -19.82768315 87.434429 RB-RB 72.91260642 65.34113812 -12.50353592 -46.21116294 -72.37959619 (RA-RA)(RB-RB) -1335.571 -2928.853 501.60887 916.2603 -6328.4687 -9175.0235 -1835.0047 -0.0130766

2. Infosys with Others

Infosys R(A) and Hero Honda R(B)


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 RA-RA -18.31742175 -44.82402797 -40.1173613 -19.82768315 87.434429 Total RB-RB 26.08509172 -60.99472381 -29.41743557 13.70107895 50.62598873 (RA-RA) (RB-RB) -477.81163 2734.0292 1180.1499 -271.66065 4426.4544 7591.1612 1518.2322 0.0158087

Covariance Correlation

Infosys R(A) and Cipla R(B)


Year 2005-2006 2006-2007 2007-2008 2008-2009 RA-RA -18.31742175 -44.82402797 -40.1173613 -19.82768315 RB-RB 125.6642258 93.85555461 31.27634166 (RA-RA) (RB-RB) -2301.8446 4206.984 1254.7243 547.67678

2009-2010

87.434429 Total

27.62182442 27.08949483

2368.5545 6076.095

Covariance Correlation

1215.219 0.0068854

3.Airtel with Others


Airtel R(A) and Hero Honda R(B)
Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 RA-RA 26.08509172 -60.99472381 -29.41743557 13.70107895 50.62598873 Total RB-RB 26.08509172 -60.99472381 -29.41743557 13.70107895 50.62598873 (RA-RA) (RB-RB) 680.43201 3720.3563 865.38552 187.71956 2562.9907 8016.8842

Covarience Correlation

1603.3768 0.6843803

Airtel R(A) and Cipla R(B)


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 RA-RA 26.08509172 -60.99472381 -29.41743557 13.70107895 50.62598873 RB-RB 125.6642258 -93.85555461 -31.27634166 -27.62182442 27.08949483 (RA-RA) (RB-RB) 3277.9629 5724.6936 920.06977 -378.4488 1371.4325

Total

10915.71

Covarience Correlation

2183.142 0.5070601

4. Hero Honda with Others


Hero Honda R(A) and cipla R(B)
Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 RA-RA 26.08509172 -60.99472381 -29.41743557 13.70107895 50.62598873 Total RB-RB 125.6642258 -93.85555461 -31.27634166 -27.62182442 27.08949483 (RA-RA) (RB-RB) 3277.9629 5724.6936 920.06977 -378.4488 1371.4325 10915.71

Covarience Correlation

2183.142 0.740904

Calculation of weights
Wa = b-nab*a*b a+b-2nab *a*b

Wb = 1-Wa

1. Andhra bank & Others

A ndhra Bank W(A) and Infosys W(B)


Wa = (48.97354489)2-5(0.895098)*(62.61320536)*(48.97354489) / (62.61320536)2+(48.97354489)22[5(0.895098)]*(62.61320536)*(48.97354489) Wa = -0.417557045 Wb = 1-Wa Wb = 1- (-0.417557045) Wb = 1.417557045 Andhra Bank W(A) and Infosys W(B)
Wa Wb -0.417557045 1.417557045

Andhra Bank W(A) and Airtel W(B)


Wa = (58.50868045)2-5(0.576075)*(62.61320536)*(58.50868045) / (62.61320536)2+(58.50868045)22[5(0.576075)]*(62.61320536)*(58.50868045) Wa = 0.478505405 Wb = 1-Wa Wb = 1-0.478505405 Wb = 0.521494595

Andhra Bank W(A)and Airtel W(B)


Wa Wb 0.478505405 0.521494595

Andhra Bank W(A) and Hero Honda W(B)

Wa = (40.04218815)2-5(0.478737)*(62.61320536)*(40.04218815) / (62.61320536)2(40.04218815)22[5(0.478737)]*(62.61320536)*(40.04218815) Wa = 0.129065544 Wb = 1-Wa Wb = 1-0.129065544 Wb = 0.870934456 Andhra Bank W(A) and Hero Honda W(B)
Wa Wb 0.129065544 0.870934456

Andhra Bank W(A) and Cipla W(B)

Wa = (73.587197)2*5(0.0904377)*(62.61320536)*(73.587197) / (62.61320536)2*(73.587197)22[5(0.0904377)]*(62.61320536)*(73.587197) Wa = 0.580600505 Wb = 1-Wa Wb = 1-0.580600505 Wb = 0.419399495

Andhra Bank W(A) and Cipla W(B)


Wa Wb 0.580600505 0.419399495

2.Infosys & Others

Infosys W(A) and Airtel W(B)

Wa = (58.50868045)2-5(-0.0130766)*(62.61320536)*(58.50868045) / (62.61320536)2+(58.50868045)2- 2[5(0.0130766)]*(62.61320536)*(58.50968045) Wa = 0.586902235 Wb = 1-Wa Wb = 1-0.586902235 Wb = 0.413097765 Infosys W(A) and Airtel W(B)
Wa Wb 0.586902235 0.413097765

Infoys W(A) and Hero Honda W(B)

Wa = (40.04218815)2-5(0.0158087)*(48.97354489)*(40.04218815) / (48.97354489)2+(40.04218815)22[5(0.0158087)]*(58.97354489)2*(40.04218815) Wa = 0.399102145 Wb = 1-Wa Wb = 1-0.399102145 Wb = 0.600897855

Infosys W(A) and Hero Honda W(B)


Wa Wb 0.399102145 0.600897855

Infosys W(A) and Cipla W(B)

Wa = (73.587197)2-5(0.0068854)*(48.97354489)*(73.587197) / (48.97354489)2+(73.587197)22[5(0.0068854)]*48.97354489)*73.587197) Wa = 0.694276367 Wb = 1-Wa Wb = 1-0.694276367 Wb = 0.30572363 Infosys W(A) and Cipla W(B)
Wa Wb 0.694276367 0.305723633

3. Airtel & Others


Airtel W(A) and Hero Honda W(B)
Wa = (40.04218815)2-5(0.6843083)*(58.50868045)*(40.04218815) / (58.50868045)2+(40.04218815)22[5(0.6843803)]*(58.50868045)*(40.04218815) Wa = 1 Wb = 1-Wa Wb = 1-1 Wb = 0

Airtel W(A) and Hero Honda W(B)


Wa Wb 1 0

Airtel W(A) and Cipla W(B)

Wa = (73.587197)2-5(0.5070601)*(58.50868045)*(73.587197) / (58.50868045)2+(73.587197)22[5(0.5070601)*(58.50868045)*(73.587197) Wa = 0.722695037 Wb = 1-Wa Wb = 1-0.722695037 Wb = 0.277304963 Airtel W(A) and Cipla W(B)
Wa Wb 0.722695037 0.277304963

5 . Hero Honda & Others Hero Honda W(A) and Cipla W(B)

Wa = (73.587197)2-(0.740904)*(40.04218815)*(73.587197) / (40.04218815)2+(73.587197)22[5(0.740904)*(40.04218815)*(73.587197) Wa = 1.21860042 Wb = 1-Wa Wb = 1-1.21860042 Wb = -0.21860042

Hero Honda W(A) and Cipla W(B)


Wa Wb 1.21860042 -0.21860042

Calculation Portfolio Risks

1. Calculation of Portfolio Risks of Andhra Bank

with Others
1. ANDHRA BANK R(A) AND INFOSYS (B) RP =

Rp

47.66

ANDHRA BANK R(A) AND AIRTEL R(B) Rp =

Rp

28.64

2. ANDHRA BANK R(A) AND HERO HONDA R(B)

RP=

RP

39.32

3. ANDHRA BANK R(A) AND CIPLA R(B) Rp=

RP = 19.34 2. Calculation of Portfolio Risks of Infosys with Others 4. INFOSYS R(A) AND AIRTEL R(B)

Rp =

RP

37.30

5.INFOSYS R(A) AND HERO HONDA R(B)

Rp=

RP

31.23

6.INFOSYS R(A) AND CIPLA R(B)


Rp=

3. Calculations of Portfolio Risks of Airtel with

RP

40.89

Others

7. AIRTEL R(A) AND HERO HONDA R(B) Rp =

RP

40.04

8.

AIRTEL R(A) AND CIPLA R(B)

Rp =

RP
4.

55.53

Calculations of Portfolio Risks of Hero Honda with Others


9. HERO HONDA R(A) AND CIPLA R(B) Rp =

RP

95.73

Calculations of Portfolio Returns

Portfolio Return= [(RA*WA) + (RB*WB)]

I. Calculations of Portfolio Returns of Andhra Bank with Others


Andhra Bank R(A) and Infosys R(B) Portfolio Return= [(RA*WA) + (RB*WB)] (13.20168255*-0.417557045) + (12.1126313*1.417557045)
Portfolio Return = 11.66

Andhra Bank R(A) and Airtel R(B)


(13.20168255*0.478505405) + (23.77795159*0.521494595) Portfolio Return = 18.69

Andhra Bank R(A) and Hero Honda R(B)


(13.20168255*0.129065544) + (38.02369718*0.870934456) Portfolio Return = 34.79

Andhra Bank R(A) and Cipla R(B)


(13.290168255*0.580600505) + (28.30513346*0.419399495) Portfolio Return = 19.34

II. Calculations of Portfolio Returns of Infosys with Others


Infosys R(A) and Airtel R(B)
(12.1123613*0.586902235) + (23.77795159*0.413097765) Portfolio Return = 16.89

Infosys R(A) and Hero Honda R(B)


(12.1123613*0.399102145) + (38.02369718*0.600897855) Portfolio Return = 27.65

Infosys R(A) and Cipla R(B)


(12.1123613*0.694276367) + (28.36513346*0.305723633 Portfolio Return = 16.96

III. Calculations of Portfolio Returns of Airtel with Others Airtel R (A) and Hero Honda R (B)
(23.77795159*0) + (38.02369*1) Portfolio Return = 38.02

Airtel R (A) and Cipla R (B)


(23.77795159*0.722695037) + (28.30513346*0.277304963) Portfolio Return =25.63

IV. Calculations of Portfolio Returns of Hero Honda

with Others
Hero Honda R(A) and Cipla R(B)
(38.02369718*1.21860042) + (28.30513346*-0.21860042) Portfolio Return = 40.06

INTERPRETATIONS
The analytical part of the study for the 5 years period the following interpretations.

Andhra Bank with Infosys


In this combination as per the calculations and the study; The Andhra Bank bears proportion of investment -0.41 and Infosys 1.41, which is more than when compared to Andhra Bank. The Standard deviation i.e. risks are 62.61 and 48.97 with returns of Andhra Bank 13.20, and 12.11 Infosys In this combination there are high risks but returns are very low. Investors who are willing to take high risk can invest in Andhra Bank.

Andhra Bank with Airtel


The Portfolio weights of Andhra Bank 0.48 and 0.52 of Airtel, the standard deviation of Andhra Bank and Airtel are 62.61, 58.50 which are reduced to 28.61 the investors who are willing to take risk can invest in Airtel because its returns are 23.77 which is more than Andhra Bank 13.20.

Andhra Bank with Hero Honda

The Portfolio weights of Andhra Bank and Hero Honda are 0.13 and 0.87 and their standard deviations are 62.1 and 40.02 which is reduced to 39.02 the returns of Andhra Bank and HeroHonda are 13.20 and 28.30 The Portfolio return of this combination is 34.79. The investors are suggest to invest in Hero Honda because it is giving high return compare to Andhra Bank.

Andhra Bank with Cipla


risk and returns are moderate..

Infosys with Airtel


The Portfolio weights of Infosys and Airtel are 0.59 and 0 In this combination the portfolio weights are 0.58 and 0.42 and the standard deviations of Andhra Bank and Cipla are 28.30 and 73.58 which is reduced to 47.68. The returns are 13.20 and 28.30. In this combination the investors are suggested to go for Andhra Bank because its.41 the standard deviations are 48.97 and 58.50 which is reduced to 37.30, the returns are Infosys and Airtel are 12.11 and 23.77. Investors who are willing face high risk can invest in Airtel because its returns are more than Infosys.

Infosys with Hero Honda


The Portfolio weights of Infosys and Hero Honda 0.40 and the standard deviations are 48.97 and 40.02 which are reduced to 31.23 and returns are 12.11 and 38.02. It is suggested to investors to invest in Hero Honda because it is giving fair returns when compared to Infosys.

Infosys with Cipla

The Portfolio Weights of Infosys and Cipla are 0.64 and 0.31 and standard deviations are 48.97 and 73.89 and returns of Infosys and Cipla are 12.11 and 28.30 This combination is not that much good risks are very high when compared to the returns, investors who will face high risk can invest in Cipla.

Airtel with Hero Honda


The Portfolio weights are 1 and 0 the standard deviations i.e. risks are 58.50 and 40.02, the returns are 23.77 and 38.02. In this Combination Hero Honda is the best option to invest.

Airtel with Cipla


The Portfolio weights of 0.72 and 0.28 and the standard deviations are 58.50 and 73.58, the returns are 23.77 and 28.30. In this combination The Airtel is giving moderate reruns with moderate standard deviation when compared to Cipla because it is having high risk.

Hero Honda with Cipla:


The Portfolio weights are 1.21 and -0.21 of Hero Honda and Cipla the weights suggests that invest more in Hero Honda but the Standard deviations are 40.02 and 73.58 and returns are 38.02 and 28.30 the Hero Honda is the best option to invest.

GREATER PORTFOLIO RETURNS WITH LESS RISKS IS ALLWAYS AN ATTRACTIVE COMBINATION FOR THE INVESTORS.

CONCLUSION &SUGGESTION
CONCLUSIONS

(CHAPTER-5)

Hero Honda, Cipla and Airtel are good enough to invest because there As per as Standard Deviations Cipla has Highest risk security and Next

returns are good when compared to Andhra Bank and Infosys. highest risk securities are Andhra Bank and Airtel. Hero Honda and Infosys are having moderate risks. As per as Correlation concerned the securities of Airtel and Hero Honda are the good combinations because they are having normal returns with normal risk

SUGGESTIONS

As per Average Return of securities Hero Honda Airtel and Cipla are

high when compared to other Companies so investors can invest in these Companies but they have considered the risk. As the risk securities Andhra Bank, Cipla and Airtel are very high investor has to careful while investing in these. The investor who requires minimum return can acquire the securities of Andhra Bank and Infosys. It is recommended that the investors who require high risk with high return should invest in Hero Honda. The investors are benefited byinvesting in selected scripts of Industries Before investing in shares you should look at the type of shares, you want to buy and the way in Want to deal on the stock market.

Their main routes for investing in shares


of shares. Invest your capital in a single company. Invest your capital in number of different companies, a portfolio through collective

Invest indirectly and spread your risk investments such as investment trusts and unit trust.

INVEST IN SHARES
Public companies issue shares, which allow investors to buy a part of a particular company share ownership entitles you to part of the company Profits of dividends are paid. Shares may be classified in a range from conservative to speculative. Blue chip is often used to describe the highest quality and shares, as they are shares in companies with a proven track record, producing profits in good times and bad. They usually set the level of the market. All shares are affected by share market fluctuation.

Individual share process also varies based on supply and demand from sellers and buyers. Information about shares listed on the stock exchange is printed largely daily in News papers. You can buy and sell shares listed on the stock exchange through a stockbroker. When you buy a parcel of shares, you receive a CHESS statement of holdings form the company, showing the number of shares you own and the date you bought them. As a share holder you have to say in the companys future through voting rights, you will be kept informed about the company, through its annual reports and other correspondence.

THINGS TO CONSIDER
Share prices fall as well as rise. Large losses may occur, particularly if shares are sold when market has dropped. If you are happy with the gains made with your share and are concerned about their Future value, you could sell them and realize your profit. If you retain them with a view to profit further and the market value drops, it is important to remember this loss is only on paper unless you sell. Incomes from dividends may vary, when profits are low, dividends may be low or even Nil. Unless you plan to actively trade your shares, you should consider them a long term investment You need to keep careful records, because capital gains tax collections can become complex, especially in a dividend reinvestment paid. THINGS TO REMEMBER Remember, shares are not short term investment; usually the best returns will be gained over the medium and long term. Past performance is not a reliable guide to future performance.

As with any investment that offers capital growth, wide fluctuations in value can occur. Spread you share holdings to include different companies across different markets sectors, such as industry, mining of finance. This helps reduce the risk. Ask your stock broker for information about the companys profile, performance history and economic forecasts before buying or selling any shares. Much of his information is also now available on various INTERNET site. Balance of the proportion of share in your overall investment portfolio with the level of risk you are prepared to take. If a company goes into liquidation, shareholders are the lost to be paid.

DOS and DONTS The time spent increasing your knowledge will pay

dividends later:
At the end of the day, it is your money and you owe it to yourself to know where and Why it is being invested. Use resource available today, take a cause, read books, browse The internet club read newspapers and company Annual General Meetings.

Almost the first & last rule( DIVERSIFY)

Make sure your investments are diversified. This means including in your portfolio Different assets classes such as property, shares and fixed interest, different industries (To shield against economic impact on one category) and different countries (To take into Account global cycles, economic dynamics and different exchange rates).

Start conservatively

If you are sure just starting out, build a firm base around Blue chip share and gain Experience form this. securities. Investing in reputable managed funds is also as excellent way to build a diversified portfolio without selecting specific

BIBLIOGRAPHY
BIBLIOGRAPHY
1. Books
1. SECURITYANALYSIS

(CHAPTER-5)

AND

PORTFOLIO
Donald.E.Fisher,

MANAGEMENT
Ronald.J.Jordan

2. INVESTMENTS
William .F. Sharpe, Gordon, J Alexander and Jeffery.V.Baily

3. PORTFOLIO MANAGEMENT

Strong R.A.

2. 3.

Report Newspaper

ISE Reports

Economic Times of India Business Standard

4. Magazines: 5. Web-site:

Business World www.nseindia.org

www.bseindia.org www.iseindia.com www.nsccl.com

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