A STUDY ON PORTFOLIO MANAGEMENT

A. PRASHANTHI HALL TICKET: 1251-0967-2043

PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE MASTER OF BUSINESS ADMINISTRATION

WESLEY POST GRADUATE COLLEGE OSMANIA UNIVERSITY 2009 2011

ACKNOWLEDGEMENT
The perfect way to document this project would be to start with acknowledging all those people who directly or indirectly encouraged, supported me with their value added inputs without them this project would not have been this better. To start with I would like to thank A. PRASHANTHI for giving me an opportunity to do my project work. I would like to give special acknowledgement to MR.VIMALSUKUMAR Director, Wesley post graduate studies for his consistent support and motivation. My sincere thanks to my faculty Mrs. MAHESHWARI Associate professor in finance, for his technical expertise, advice and excellent guidance. He not only gave my project scrupulous reading, but added many examples and ideas to improve it. I would like to express my appreciation towards my friends for their encouragement and support throughout this project. Finally I would like to owe my sincere appreciation to all the Employees of the organization who provided a friendly environment and supported through out my project.

A. PRASHANTHI

DECLARATION
I here by declare that this project report titled A STUDY ON PORTFOLIO MANAGEMENT at Submitted by me to the department of Masters of Business Administration, Wesley Post Graduate college, Osmania University is a bonafide work undertaken by me and it is not submitted to any other university or Institution for the award of any degree diploma / certificate or published any time before.

Date : Place: (signature)

TABLE OF CONTENTS

CHAPTER-1
1.1. INTRODUCTION 1.2. OBJECTIVE OF THE STUDY 1.3. METHODOLOGY 1.4. LIMITATIONS OF THE STUDY

CHAPTER-2
2. LITERATURE REVIEW

CHAPTER 3
3. INDUSTRIAL PROFILE

CHAPTER-4
4. COMPANYPROFILE

CHAPTER-5
5. PORTFOLIO MANAGEMENT OFSECURITYRETURN &RISK

CHAPTER-6 6. ANALYSIS & INTERPRETATION CHAPTER-7

7. CONCLUSION 8. SUGGESTIONS
9. BIBLIOGRAPHY

CHAPTER - I

INTRODUCTION
This project deals with the different investment decisions made by different people and focuses on element of risk in detail while investing in securities. It also explains how portfolio hedges the risk in investment and giving optimum return to a given amount of risk. It also gives an in depth analysis of portfolio creation, selection, revision and evaluation. The report also shows different ways of analysis of securities, different theories of portfolio management for effective and efficient portfolio construction. It also gives a brief analysis of how to evaluate a portfolio.

OBJECTIVES OF THE STUDY To make detailed study on the overall concepts of the portfolio management

To do an in detailed analysis of the risk and return characteristics of stocks related to and different companies To help the investors to decide the effective portfolio of securities

To identify the best of securities

METHODOLOGY
PRIMARY DATA: Data collected from brokers.

SECONDARY DATA: Data collected from various books and sites. Data collected from internet.

DATA COLLECTION Price deals from national stock exchange totally it is secondary data.

SAMPLE Different companies from different sector randomly list of compancy 1: acc 2:L&T 3:RANBAXY 4:DR REDDY 5:MTNL 6:BHARTI AIRTEL 7:STATE BANK OF INDIA 8:ICICI 9:WIPRO 10;MAHINDRA SATYAM

SAMPLE SIZE: No of companies selected 10 companies from different sector.

DATA ANALYSIS FORMULA: Return calculation:[p1-p0]/p0*100 Averagr return:[p1-p0]/p0*100/5 Standard deviation:variance Variance=1/n-1(d2) PEROID OF STUDY: Data has been collected from year 2005-2010.

LIMITATIONS OF THE STUDY

The data collected is basically confined to secondary sources, There is a constraint with regard to time allocated for the research study. The availability of information about different& price fluctuations of the companies is a big constraint to the study. The data collected for a period of one year i.e., from2005-2010 In this study the statistical tools used are risk, return, average, variance, cor

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CHAPTER - II

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LITERATURE REVIEW
1. RISK
Risk refers to the probability that the return and therefore the value of an asset or security may have alternative outcomes. Risk is the uncertainty (today) surrounding the eventual outcome of an event which will occur in the future. Risk is uncertainty of the income/capital appreciation or loss of both. All investments are risky. The higher the risk taken, the higher is the return. But proper management of risk involves the right choice of investments whose risks are compensation.

2. RETURN Return-yield or return differs from the nature of instruments, maturity period and the creditor or debtor nature of the instrument and a host of other factors. The most important factor influencing return is risk return is measured by taking the price income plus the price change.

3. PORTFOLIO RISK Risk on portfolio is different from the risk on individual securities. This risk is reflected by in the variability of the returns from zero to infinity. The expected return depends on probability of the returns and their weighted contribution to the risk of the portfolio.

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4. The mix of assets to hold in a portfolio is referred to as portfolio management. A fundamental aspect of portfolio management is choosing assets which are consistent with the portfolio holder's investment objectives and risk tolerance. The ultimate goal of portfolio management is to achieve the optimum return for a given level of risk. Investors must balance risk and performance in making portfolio management decisions. Portfolio management strategies may be either active or passive. An investor who prefers passive portfolio management will likely choose to invest in low cost index funds with the goal of mirroring the market's performance. An investor who prefers active portfolio management will choose managed funds which have the potential to outperform the market. Investors are generally charged higher initial fees and annual management fees for active portfolio management.

5. The act or practice of making investment decisions in order to make the largest possible return. Portfolio management takes two basic forms: active and passive. Active management involves using technical, fundamental, or some other analysis to make trades on a fairly regular basis. For example, one may sell stock A in order to buy stock B. Then, a few days or weeks later, one may sell stock B to buy bond C. Passive management, on the other hand, involves buying an index, an exchange-traded fund, or some other investment vehicle with securities the investor does not directly choose. For example, one may buy an exchange-traded fund that holds all the stocks on the S&P 500. See also: Asset management, Investment adviser. 13

6. The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against. performance. Portfolio management is all about strengths, weaknesses, opportunities and threats 4. The mix of assets to hold in a portfolio is referred to as portfolio management. A fundamental aspect of portfolio management is choosing assets which are consistent with the portfolio holder's investment objectives and risk tolerance. The ultimate goal of portfolio management is to achieve the optimum return for a given level of risk. Investors must balance risk and performance in making portfolio management decisions. Portfolio management strategies may be either active or passive. An investor who prefers passive portfolio management will likely choose to invest in low cost index funds with the goal of mirroring the market's performance. An investor who prefers active portfolio management will choose managed funds which have the potential to outperform the market. Investors are generally charged higher initial fees and annual management fees for active portfolio management.

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CHAPTER - III

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INDUSTRY PROFILE Security market and Capital market

There are 22 stock exchanges in India, the first being the Bombay Stock Exchange (BSE), which began formal trading in 1875, making it one of the oldest in Asia. Over the last few years, there has been a rapid change in the Indian securities market, especially in the secondary market. Advanced technology and online-based transactions have modernized the stock exchanges. In terms of the number of companies listed and total market capitalization, the Indian equity market is considered large relative to the countrys stage of economic development. The number of listed companies increased from 5,968 in March 1990 to about 10,000 by May 1998 and market capitalization has grown almost 11 times during the same period.

The debt market, however, is almost nonexistent in India even though there has been a large volume of Government bonds traded. Banks and financial institutions have been holding a substantial part of these bonds as statutory liquidity requirement. The portfolio restrictions on financial institutions statutory liquidity requirement are still in place. A primary auction market for Government securities has been created and a primary dealer system was introduced in 1995. There are six authorized primary dealers. Currently, there are 31 mutual funds, out of which 21 are in the private sector. Mutual funds were opened to the private sector in 1992. Earlier, in 1987, banks were allowed to enter this business, 16

breaking the monopoly of the Unit Trust of India (UTI), which maintains a dominant position. Before 1992, many factors obstructed the expansion of equity trading. Fresh capital issues were controlled through the Capital Issues Control Act. Trading practices were not transparent, and there was a large amount of insider trading. Recognizing the importance of increasing investor protection, several measures were enacted to improve the fairness of the capital market. The Securities and Exchange Board of India (SEBI) was established in 1988. Despite the rules it set, problems continued to exist, including those relating to disclosure criteria, lack of broker capital adequacy, and poor regulation of merchant bankers and underwriters. There have been significant reforms in the regulation of the securities market since 1992 in conjunction with overall economic and financial reforms. In 1992, the SEBI Act was enacted giving SEBI statutory status as an apex regulatory body. And a series of reforms was introduced to improve investor protection, automation of stock trading, integration of national markets, and efficiency of market operations. India has seen a tremendous change in the secondary market for equity. Its equity market will most likely be comparable with the worlds most advanced secondary markets within a year or two. The key ingredients that underlie market quality in Indias equity market are

exchanges based on open electronic limit order book; nationwide integrated market with a large number of informed traders and fluency of short or long positions; and no counterparty risk.

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Among the processes that have already started and are soon to be fully implemented are electronic settlement trade and exchange-traded derivatives. Before 1995, markets in India used open outcry, a trading process in which traders shouted and handsignaled from within a pit. One major policy initiated by SEBI from 1993 involved the shift of all exchanges to screen-based trading, motivated primarily by the need for greater transparency. The first exchange to be based on an open electronic limit order book was the National Stock Exchange (NSE), which started trading debt instruments in June 1994 and equity in November 1994. In March 1995, BSE shifted from open outcry to a limit order book market. Currently, 17 of Indias stock exchanges have adopted open electronic limit order. Before 1994, Indias stock markets were dominated by BSE. In other parts of the country, the fiINDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 113 financial industry did not have equal access to markets and was unable to participate in forming prices, compared with market participants in Mumbai (Bombay). As a result, the prices in markets outside Mumbai were often different from prices in Mumbai. These pricing errors limited order flow to these markets. Explicit nationwide connectivity and implicit movement toward one national market has changed this situation (Shah and Thomas, 1997). NSE has established satellite communications which give all trading members of NSE equal access to the market. Similarly, BSE and the Delhi Stock Exchange are both expanding the number of trading terminals located all over the country. The arbitrages are eliminating pricing discrepancies between markets. Despite these big improvements in microstructure, the Indian capital market has been in decline during the last three years. The amount of capital issued has dropped from the level of its 18

peak year,1994/95, and so have equity prices. In 1994/95, Rs276 billion was raised in the primary equity market. This figure fell to Rs208 billion in 1995/96 and to Rs142 billion in 1996/97. The BSE-30 index or Sensex, the sensitive index of equity prices, peaked at 4,361 in September 1994 and fell during the following years. A leading cause was that financial irregularities and overvaluations of equity prices in the earlier years had eroded public confidence in corporate shares. Also, there was a reduced inflow of foreign investment after the Mexican and Asian financial crises. In a sense, the market is now undergoing a period of adjustment. Thus, it is time for regulatory authorities to make greater efforts to recover investors confidence and to further improve the efficiency and transparency of market operations.

The Indian capital market still faces many challenges if it is to promote more efficient allocation and mobilization of capital in the economy. First, market infrastructure has to be improved as it hinders the efficient flow of information and effective corporate governance. Accounting standards will have to adapt to internationally accepted accounting practices. The court system and legal mechanism should be enhanced to better protect small shareholders rights and their capacity to onitor corporate activities. Second, the trading system has to be made more transparent.

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Capital Market Reforms and Developments Reforms in the Capital Market

Over the last few years, SEBI has announced several far-reaching reforms to promote the capital a market and protect investor interests. Reforms in the secondary market have focused on three main areas: structure and functioning of stock exchanges, automation of trading and post trade systems, and the introduction of surveillance and monitoring systems. (See Appendix 1 for a listing of reforms since 1992). Computerized online trading of securities, and setting up of clearing houses or settlement guarantee funds were made compulsory for stock exchanges. Stock exchanges were permitted to expand their trading to locations outside their jurisdiction through computer terminals. Thus, major stock exchanges in India have started locating computer terminals in far-flung areas, while smaller regional exchanges are planning to consolidate by using centralized trading under a federated structure. Online trading systems have been introduced in almost all stock exchanges. Trading is much more transparent and quicker than in the past. Until the early 1990s, the trading and settlement infrastructure of the Indian capital market was poor. Trading on all stock exchanges was through open outcry, settlement systems were paper-based, and market intermediaries were largely unregulated. The regulatory structure was fragmented and there was neither comprehensive registration nor an apex body of regulation of the securities market. Stock exchanges were run as brokers clubs as their management was largely composed of brokers. There was no prohibition on insider trading, or fraudulent 20

and unfair trade practices (see Appendix 2). Since 1992, there has been intensified market reform, resulting in a big improvement in securities trading, especially in the secondary market for equity. Most stock exchanges have introduced online trading and set up clearing houses/corporations. A depository has become operational for scripless trading and the regulatory structure has been overhauled with most of the powers for regulating the capital market vested with SEBI. The Indian capital market has experienced a process of structural transformation with operations conducted to tandards equivalent to those in the developed markets. It was opened up for investment by foreign institutional investors (FIIs) in 1992 and Indian companies were allowed to raise resources abroad through Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds (FCCBs). The primary and secondary segments of the capital market expanded rapidly, with greater institutionalization and wider participation of individual investors accompanying this growth. However, many problems, including lack of confidence in stock investments, institutional verlaps, and other governance issues, remain as obstacles to the improvement of Indian capital market efficiency.

Stock Market PRIMARY MARKET

Since 1991/92, the primary market has grown fast as a result of the removal of investment restrictions in the overall economy and a repeal of the restrictions imposed by the Capital Issues Control Act. In 1991/92, Rs62.15 billion was raised in the primary market. This figure rose to Rs276.21 billion in 1994/95. Since 1995/1996, however, smaller amounts have been raised due to the overall downtrend in the market and tighter entry barriers introduced by SEBI for investor protection.

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EQUITY PRICE
For the past 12 years, equity prices have seen two extended periods of declining prices nd two periods of rising prices. Between April 1986 and March 1988, Sensex decreased from 589 to 398, or by 32 percent. Prices also fell between March 1992, when the monthly closing level of Sensex was 4,258, and April 1993, when the level was 2,122, a decline of 50.5 percent. Prices generally rose for extended periods from March 1988 to March 1992 and from May 1993 to August 1994. The monthly closing level of Sensex climbed from 398 in March 1988 to 4,285 in March 1992, an increase of more than 10 times. In the second period of extended rising equity prices, Sensex increased 1.16 times. Since 1995, it has fluctuated around the 3,000-4,000 mark In April 1998, it hovered around 3,000. In the period of declining prices, from August 1994 to March 1998, the price-earnings (P/E) ratio fell more sharply than prices (Figure 1). In March 1998, the monthly average Sensex P/E ratio was 15.65 while the figure for October 1993 was 38.76.

Risk Management System

SEBI has taken several measures to improve the integrity of the secondary market. Legislative and regulatory changes have facilitated the corporatization of stockbrokers. Capital adequacy norms have been prescribed and are being enforced. A mark-to-market margin and intraday trading limit have also been imposed. Further, the stock exchanges have put in place circuit breakers, which are applied in times of excessive volatility. The disclosure of short sales and long purchases is now required at 22

the end of the day to reduce price volatility and further enhance the integrity of the secondary market.

MARK-TO-MARKET MARGIN AND INTRADAY LIMIT

Under the current clearing and settlement system, if an Indian investor buys and subsequently sells the same number of shares of stock during a settlement period, or sells and subsequently buys, it is not necessary to take or deliver the shares. The difference between the selling and buying prices can be paid or received. In other words, the squaring-off of the trading position during the same settlement period results in nondelivery of the shares that the investor traded. A short-term and speculative investment is thus possible at a relatively low cost. FIIs and domestic institutional investors are, however, not permitted to trade without delivery, since nondelivery transactions are limited only to individual investors. One of SEBIs primary concerns is the risk of settlement chaos that may be caused by an increasing number of nondelivery transactions as the stock market becomes excessively speculative. Accordingly, SEBI has introduced a daily mark-to-market margin and intraday trading limit. The daily marktomarket margin is a margin on a brokers daily position. The intraday trading limit is the limit to a brokers intraday trading volume. Every broker is subject to these requirements. Each stock exchange may take any other measures to ensure the safety of the market. BSE and NSE impose on members a more stringent daily margin, including one based on concentration of business. A daily mark-to-market margin is 100 percent of the notional loss of the stockbroker for every stock, calculated as the difference between buying or selling price and the closing price of that stock at the end of that day. However, there is a threshold limit of 25 percent of the base minimum capital plus additional capital kept 23

with the stock exchange or Rs1 million, whichever is lower. Until the notional loss exceeds the threshold limit, the margin is not payable. This margin is payable by a stockbroker to the stock exchange in cash or as a bank guarantee from a scheduled commercial bank, on a net basis. It will be released on the pay-in day for the settlement period. The margin money is held by the exchange for 6-12 days. This costs the broker about 0.4-1.2 percent of the notional loss, assuming that the brokers funding cost is about 24-36 percent (Endo 1998). Thus, speculative trading without the delivery of shares is no longer cost-free. Each brokers trading volume during a day is not allowed to exceed the intraday trading limit. This limit is 33.3 times the base minimum capital deposited with the exchange on a gross basis, i.e., purchase plus sale. In the event of brokers wishing to exceed this limit, they have to deposit additional capital with the exchange and this cannot be withdrawn for six months.

CIRCUIT BREAKER
SEBI has imposed price limits for stocks whose market prices are above Rs10 up to Rs20, a daily price change limit and weekly price change limit of 25 percent. BSE imposes price limits as a circuit breaker system to maintain the orderly trading of shares on the exchange. BSEs computerized trading system rejects buy or sell orders of a stock at prices outside the price limits. The daily price limit of a stock is measured from the stocks closing price in the previous trading session. The weekly price limit is based on its closing price of the last trading in the previous week, usually its closing price on the previous Friday.

SHORT SALES AND LONG PURCHASES

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SEBI regulates short selling in the stock market by requiring all stock exchanges to enforce reporting by members of their net short sale and long purchase positions in each stock at the end of each trading day.

Stock Lending
A scheme for regulating stock lending was introduced in February 1997, following changes in tax regulations. Stock lending can take place through an intermediary registered for this purpose with SEBI, and which has a minimum capital of Rs500 million. Lenders and borrowers of securities have to enter into agreements with the intermediary. Stock lending facilitates the timely settlement of transactions on the stock exchanges, especially in an environment where physical delivery of certificates is required for settlement

Policy Issues Regulatory Framework REGULATION OF INTERMEDIARIES

Participants in the Indian capital market are required to register with SEBI to carry out heir businesses. These include:

Stockbrokers, subbrokers, share transfer agents, bankers to an issue, trustees of a trust deed, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, and other such intermediaries who may be associated with the securities market in any manner; Depositories, participants, custodians of securities, FIIs, credit rating agencies, and other such intermediaries who may be associated with the securities market in any manner; 25

 Venture capital funds and collective investment schemes, including mutual funds.

However, the registration system is far from complete. For some professional categories such as subbrokers, the registration system is in place, but limitations to SEBIs enforcement power permits hundreds of thousands of unregistered subbrokers to conduct their securities businesses, while registered subbrokers are not effectively regulated. There is no registration system at all for investment advisors. The capital adequacy requirements for registered market participants are surprisingly low. Consequently, entry barriers are also low. This is probably because the vested interest of existing market participants cannot be totally ignored since the Indian capital market would stop functioning without them. The majority are thinly capitalized. As a result, SEBIs limited resources are spread too thinly to register many small participants and regulate them.

Stockbrokers
Most stockbrokers in India are still relatively small. They cannot afford to directly cover every retail investor in a geographically vast country and in such a complex society. Thus, they are permitted to transact with subbrokers as the latter play an indispensable role in intermediating between investors and the stock market. An applicant for a subbroker certificate must be affiliated with a stockbroker of a recognized stock exchange. A subbroker application may take the form of sole proprietorship, partnership, or corporation. There are two major issues concerning subbrokersin the Indian capital market: Majority of subbrokers are not registered with SEBI; The function of the subbroker is not clearly defined.No subbroker is supposed to buy, sell, or deal in securities, without a certificate granted by SEBI. Nevertheless, there were 26

only about 2,593 subbrokers registered with SEBI as of end-June 1997, while the number of stock subbrokers in India was estimated in the range of 50,000 to 200,000 (Endo, 1998). The Indian law defines a subbroker as any person, not being a member of a stock exchange, who acts on behalf of a stockbroker as an agent, or otherwise, to assist the investors in buying, selling, or dealing securities through such a stockbroker. Based on this definition, the subbroker is either a stockbrokers agent or an arranger for the nvestor. Thus, legally speaking, the stockbroker as a principal will be responsible to the investor for a subbrokers conduct if a subbroker acts as his or her agent. However, the market practice is different from this legally defined relationship. In reality, the stockbroker, in general, issues a contract note of a transaction even to a registered subbroker, thus treating the latter as a counterparty. This implicitly denies the stockbrokers privity with the investor. NSE does not officially allow its members to transact with end-investors through a subbroker. This is probably because NSE has liberal membership criteria and its computerized trading network can easily provide geographically scattered stockbrokers with direct access to trading on NSE. Nevertheless, many trading members of NSE have been using registered and unregistered subbrokers. To sort out this confusion, SEBI enforced the following measures in March 1997: Initiation of criminal actions on complaints received against unregistered sub-brokers in suitable cases; Revival of the institution of remisier under rules and bylaws of the stock exchanges; prohibition of stockbrokers in dealing with unregistered subbrokers or unregistered remisiers after 1 June 1997 (this deadline was later extended to 1 July 1997). In spite of these actions, the confusion has remained. There is a need to address the basic issue of clarifying the role of the subbroker and to operationally define its relationship with the stockbrokers. 27

Merchant Bankers
Under the old regulations, there were four categories of registered merchant bankers with different minimum net worth requirements. Under the nw regulations, the categories were abolished. Among other provisions, a merchant banker applicant is required to have a minimum net worth of Rs50 million. The new regulations have drawn a clear-cut line between the merchant banker and the nonbanking finance company (NBFC). Under the old regulations, a merchant banker is permitted to carry out fundbased activities such as deposit-taking, leasing, bill discounting and hire-purchasing. The new regulations no longer allow a merchant banker to engage in these fund-based activities except for those related exclusively to the capital market such as underwriting. The merchant banker is required to cease such activities within two years. Correspondingly, an existing NBFC performing merchant banking activities is required to relinquish such activities after a certain period of time. The merchant banking industry in India has many problems, the main ones being that there are too many merchant bankers, and that they are considered to be relatively incompetent. Only 20 merchant bankers account for 60-85 percent of the merchant banking business, while 148 of them are in business only on paper. In May 1997, a substantial number of merchant bankers were found to be professionally imprudent or negligent (Endo 1998). SEBI listed 134 merchant bankers of Categories I, II, and III who broke their underwriting commitments for possible disciplinary actions. Of this number, 95 were in Category I. Furthermore, 28

there have been records of listing delay or rejection of initial public offerings (IPOs) in the recent past.

FRAGMENTATION OF REGULATORY AUTHORITIES

The present functions and powers of regulatory agencies for the securities market seem to be fragmented. SEBI is the primary body responsible for regulation of the securities market, deriving its powers of registration and enforcement primarily from the SEBI Act. There was an existing regulatory framework for the securities market, provided by the Securities Contract Regulation (SCR) Act and the Companies Act, administered by the Ministry of Finance and the Department of Company Affairs (DCA) of the Ministry of Law, respectively. SEBI has been delegated most of the functions and powers under the SCR Act, and shares the rest with the Ministry of Finance. It has also been delegated certain powers under the Companies Act. RBI also has regulatory involvement in the capital market regarding foreign exchange control liquidity support to market participants and debt management through primary dealers. It is RBI and not SEBI that regulates primary dealers in the Government securities market. However, securities transactions that involve a foreign exchange transaction need the permission of RBI. So far, fragmentation of the regulatory authoritieshas not been a major obstacle to effective regulation of the securities market. Rather, lack of enforcement capacity by SEBI has been a more significant cause of poor regulation. But since the Indian stock markets are rapidly being integrated, the authorities may follow the global trend of consolidation of regulatory authorities or better coordination among them.

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SELF-REGULATORY BODY

Self-regulatory organizations (SROs) have been adopted in many countries to regulate various participants in the securities market. Members are bound by the SROs bylaws and codes of conduct. Through the SEBI Act of 1992, SROs were introduced in the Indian capital market, but they are not yet operational. A clear regulatory framework has yet to be set up, and relevant market participants are not ready to regulate themselves for professional purposes. The only securities-related SROs in India whose regulatory frameworks have been well established and which are actually functioning are the recognized stock exchanges. Participants in the Indian capital market seem to have successfully preserved the spirit and practice of self-regulation or self-governance in the old stock exchanges such as BSE. However, it is true that the old stock exchanges have been rife with vested interests of member brokers who are not fully friendly to investors.

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Market Stock
FRAGMENTED MARKET

Of the 22 stock exchanges in the country, 17 have introduced screen-based trading. With the expansion of trading networks of BSE and other stock exchanges beyond their original jurisdictions, an increasing number of investors in different parts of the country are within the reach of a national market system. This has raised informational efficiency and helped rapid market integration. NSE, which provides a screen-based order driven system, has already extended its network to more than 100 centers in the country that are connected to its central computer via its satellite network. The Over-the-Counter Exchange of India (OTCEI) also provides a nationwide electronic system for trading relatively smaller stocks. BSE has introduced its ownscreen-based quote-driven trading system. However, the market is still fragmented and needs further integration. The international trend is to consolidate and merge existing stock exchanges rather than to set up new ones. In the UK, there were about 20 stock exchanges in the late 1960s, which were reduced to about half a dozen in 1972 and further down to one, i.e., the London Stock Exchange, in 1986. NSE has already provided connectivity to more than 100 cities, and other major stock exchanges are in the process of extending their trading terminals outside their places of operation. Thus, it is questionable whether

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India needs as many as 22 stock exchanges, even taking into account the vastness of the country.

SPECULATIVE INVESTMENT

Turnover in the Indian stock exchanges is high, implying that they are dominated by speculative investments, which is not unusual in emerging markets. However, trading volumes in the Indian capital market are fairly large compared to those in other emerging markets. While price levels have been depressed, the total turnover on BSE and NSE has been increasing. The combined turnover for 1996/97 was almost three times the level of the previous year. Figure 3 shows the total turnover of stock trading on all 22 stock exchanges in India. The annual average growth rate from 1994/95 to 1996/97 was 56 percent in nominalterms. The dollar turnovers and liquidity ratios on BSE and NSE with stock exchanges in other economies in 1996. The combined turnover on BSE and NSE, which are both located in Mumbai, exceeded that of some other stock markets in Asia. This is because of the remarkably high liquidity ratio on NSE. Considering that the majority of about 6,000 stocks listed on BSE have low liquidity, it can be inferred that a group of the 1,500 most traded stocks INDIAN on BSE would also have a considerably high liquidity ratio (Endo 1998). The substantial increase in turnover may be attributed primarily to the recent expansion of the NSEs trading network. But this also reflects the fact that the Indian stock market is dominated by speculative investments for short-term capital gains, rather than long-term investment. 32

BARRIERS TO INITIAL PUBLIC OFFERINGS

In April 1996, SEBI announced a policy initiative that makes access to the primary market more restrictive. SEBI requires that a firm that wishes to go public should have a three-year track record of dividends. If this is not satisfied, it should at least have a project with investment from a financial institution of at least 5 percent of the total project cost. There has been a debate on whether this entry condition is too restrictive. But the measure seems necessary to help recover investor confidence in the corporate sector. The process of public subscription in the Indian market is lengthy and fraught with uncertainty. For domestic equity issues, the process requires compulsory fallback underwriting, setting up of 30 mandatory collection centers across the country for collecting subscriptions from investors, and price determination of at least 45 days before the date of issue. Once an issue has been subscribed, postsubscription procedures require 60 days to elapse before the securities are listed. Investors are forced to remain illiquid during that period, or resort to the gray market to meet liquidity needs. The cost of delay is likely to be incorporated by investors in the price at which they are prepared to subscribe to an issue. This raises costs to an issuer, besides encouraging clandestine activities such as gray markets.

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Transaction Costs in the Secondary Market

Screen-based trading introduces a greater degree of transparency and reduces spreads. Market manipulation becomes more difficult with screen-based trading and easier to investigate on account of the transparent audit trails that are established. As estimated by Shah and Thomas (1997), the total transaction costs in Indias equity market have been reduced by half, i.e., from 5 to 2.5 percent since the introduction of screen-based trading (Table 8). But this is still high compared to advanced markets. When depository, derivatives, and indexation are fully in place, the transaction costs of the Indian equity market could be even lower than those of most advanced countries.

Debt Market

The debt market is not well developed in India. Even though the volume of Government bonds outstanding is large, banks and other financial institutions hold a substantial part of these bonds as liquidity requirement. The statutory liquidity requirement (on top of cash requirement of 10 percent) has been reduced from 25 to 23 34

percent. But this is still high and should be further decreased to activate the private debt market.

MARK-TO-MARKET

Banks tend to hold Government securities to maturity to avoid a capital loss on the balance sheet. Until 1996, only 40 percent of the portfolio of Government securities had to be marked-to-market. Starting fiscal year 1996/97, the requirement has been raised to 50 percent for existing banks and 100 percent for the new private sector banks. The pattern of ownership of Government securities is shown in Table 9. The biggest holders of both central and state Government securities are commercial banks, with more than two thirds of the total. Life insurance companies have also increased their holdings of Government securities. Banks and life insurance companies are captive markets for Government securities due to the portfolio restrictions imposed on them. Meanwhile, the market for private companies debentures is not yet well developed.

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CHAPTER IV

36

COMPANY PROFILE
ICLE loans and secured loans Welcome To Indiabulls Financial Services Limited Indiabulls Financial Services is one of Indias leading non-banking financial companies (NBFCs). Indiabulls Financial Services enjoys AA+ rating and has among the lowest leverage and one of the highest net worth among its peer groups. With a cumulative disbursal of over Rs.45,000 crores over the past five years, Indiabulls Financial Services is a leading provider of lending and other financial products including home loans, commercial vehicle loans and secured loans to SMEs through its 140 locations across India. It provides extremely competitively priced loans focused on quality and secure customers. High customer servicing standards and customer friendly processes through our well trained staff and large distribution networks are its fundamental strengths.

Indiabulls
Company

Securities Limited Company Snapshot

Purchase a Full Report on this

Business

Description:

Indiabulls Securities Limited (IBSL) is an India-based company. The Company's primary business activity is to carry on business of stock and share broker on National Stock Exchange of India Limited and Bombay Stock Exchange Limited, and other related 37

ancillary services. The Company also provides depository services, mutual fund and initial public offering (IPO) distribution to its clients. The Company is a depositary participant with the National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) for settlement of dematerialised shares. It performs clearing services for all securities and commodities transactions. Clients of the brokerage business are able to use the depositary services to execute trades through the Company and settle transactions. Its subsidiaries include Indiabulls Commodities Limited, India Ethanol And Sugar Limited, Devata Tradelink Limited, Indiabulls Distribution Services Limited and Indiabulls Brokerage Limited.

Indiabulls Financial Services is one of Indias leading non-banking financial companies (NBFCs). Indiabulls Financial Services enjoys AA+ rating and has among the lowest leverage and one of the highest net worth among its peer groups. With a cumulative disbursal of over Rs.45,000 crores over the past five years, Indiabulls Financial Services is a leading provider of lending and other financial products including home loans, commercial veh to SMEs through its 140 locations across India. It provides extremely competitively priced loans focused on quality and secure customers. High customer servicing standards and customer friendly processes through our well trained staff and large distribution networks are its fundamental strengths.

Indiabulls Power Ltd is a unit of Indiabulls Real Estate Ltd. The company focuses on developing, constructing, and operating power projects in India and internationally. They 38

participate in various coal based thermal, hydro, and renewable energy projects, as well as in coal mining opportunities. The company is developing five thermal power projects with an aggregate installed capacity of 6,615 megawatts. These projects include, Amravati Phase-I, Amravati Phase-II, Nasik in Maharashtra; and Bhaiyathan Thermal Power Project and Chhattisgarh Power Project in Chhattisgarh. It is also developing four medium sized hydro-power projects aggregating to 167 megawatts in Arunachal Pradesh. Indiabulls Power Ltd was incorporated on October 8, 2007 as Sophia Power Company Ltd. The company was established to capitalize on emerging opportunities in the Indian power sector. In October 25, 2007, the Government of Arunachal Pradesh entered into a memorandum of agreement with Indiabulls Real Estate Ltd for the execution of the 30 MW Tharang Warang Hydro Electric Project, 31 MW Pichang Hydro Electric Project, 46 MW Sepla Hydro Electric Project and 60 MW Phangchung Hydro Electric Project. In December 17, 2007, the company received the letter of support from Government of Maharashtra for the Amravati Phase I Power Project. In April 2, 2008, the company received the letter of intent from Chhattisgarh State Electricity Board for the proposal and bid in relation to the Bhaiyathan Power Project. In June 6, 2008, the company signed an MoU with the Government of Jharkhand with regard to the establishment of 1,320 MW coal fired thermal power project in Jharkhand. In July 30, 2008, they signed an MoU with the Government of Madhya Pradesh for the establishment of a 2,640 MW coal fired thermal power project in Chhindwara, Madhya Pradesh. In October 13, 2008, Indiabulls CSEB Bhaiyathan Power Ltd. a subsidiary company entered into a long term power purchase agreement with Chhattisgarh State Electricity Board in terms of which 65% of the installed capacity of the Bhaiyathan Power Project to be sold to Chhattisgarh State Electricity Board. In November 3, 2008, the company received the letter of support from Government of Maharashtra for the Nashik Power Project. In December 2008, as per the 39

scheme of arrangement, Indiabulls Power Service Ltd was amalgamated with the company with effect from April 1, 2008. In April 29, 2009, the company signed an MoU with Maharashtra State Electricity Distribution Company Ltd for procuring generation capacity and for the purchase of electricity on a long term basis. The company is developing the Stage I of the 1,320 MW of the 2640 MW Amravati Thermal Power Plant and has offered generation capacity in aggregate of 1000 MW as well as sale and supply of electricity in bulk there from to Maharashtra State Electricity Distribution Company Ltd for a term of 25 years. In June 5, 2009, the company entered into a power purchase agreement with Tata Power Trading Company Ltd for sale of upto 1,000 MW of power to Tata Power Trading Company Ltd from their Amravati Phase I Power Project. In July 2009, the name of the company was changed from Sophia Power Company Ltd to Indiabulls Power Ltd.

40

CHAPTER - V

41

PORTFOLIO MANAGEMENT

A portfolio is a collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value. Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return). Typically the expected returns from portfolios, comprised of different asset bundles are compared.

42

The unique goals and circumstances of the investor must also be considered. Some investors are more risk averse than others. Mutual funds have developed particular techniques to optimize their portfolio holdings. Thus, portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety and numerous other trade-offs encountered in the attempt to maximize return at a given appetite for risk.

Aspects of Portfolio Management: Basically portfolio management involves A proper investment decision making of what to buy & sell Proper money management in terms of investment in a basket of assets so as to satisfy the asset preferences of investors. Reduce the risk and increase returns.

OBJECTIVES OF PORTFOLIO MANAGEMENT: The basic objective of Portfolio Management is to maximize yield and minimize risk. The other ancillary objectives are as per needs of investors, namely: Regular income or stable return Appreciation of capital Marketability and liquidity Safety of investment Minimizing of tax liability.

NEED FOR PORTFOLIO MANAGEMENT: The Portfolio Management deals with the process of selection securities from the number of opportunities available with different expected returns and carrying different levels of

43

risk and the selection of securities is made with a view to provide the investors the maximum yield for a given level of risk or ensure minimum risk for a level of return.

Portfolio Management is a process encompassing many activities of investment in assets and securities. It is a dynamics and flexible concept and involves regular and systematic analysis, judgment and actions. The objectives of this service are to help the unknown investors with the expertise of professionals in investment Portfolio Management. It involves construction of a portfolio based upon the investors objectives, constrains, preferences for risk and return and liability. The portfolio is reviewed and adjusted from time to time with the market conditions. The evaluation of portfolio is to be done in terms of targets set for risk and return. The changes in portfolio are to be effected to meet the changing conditions.

Portfolio Construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. Portfolio theory concerns itself with the principles governing such allocation. The modern view of investment is oriented towards the assembly of proper combinations held together will give beneficial result if they are grouped in a manner to secure higher return after taking into consideration the risk element.

The modern theory is the view that by diversification, risk can be reduced. The investor can make diversification either by having a large number of shares of companies in different regions, in different industries or those producing different types of product lines. Modern theory believes in the perspectives of combination of securities under constraints of risk and return.

ELEMENTS: Portfolio Management is an on-going process involving the following basic tasks. Identification of the investors objective, constrains and preferences which help formulated the invest policy. Strategies are to be developed and implemented in tune with invest policy formulated. This will help the selection of asset classes and securities in each class depending upon their risk-return attributes. 44

 Review and monitoring of the performance of the portfolio by continuous overview of the market conditions, companys performance and investors circumstances. Finally, the evaluation of portfolio for the results to compare with the targets and needed adjustments have to be made in the portfolio to the emerging conditions and to make up for any shortfalls in achievements (targets).

Schematic diagram of stages in portfolio management:

45

Specification and quantification of investor objectives, constraints, and preferences

Monitoring investor related input factors

Portfolio policies and strategies

Capital market expectations

Portfolio construction and revision asset allocation, portfolio optimization, security selection, implementation and execution

Attainment of investor objectives Performance measurement

Relevant economic, social, political sector and security considerations

Monitoring economic and market input factors

46

Process of portfolio management: The Portfolio Program and Asset Management Program both follow a disciplined process to establish and monitor an optimal investment mix. This six-stage process helps ensure that the investments match investors unique needs, both now and in the future.

1.

IDENTIFY GOALS AND OBJECTIVES:

When will you need the money from your investments? What are you saving your money for? With the assistance of financial advisor, the Investment Profile Questionnaire will guide through a series of questions to help identify the goals and objectives for the investments. 2. DETERMINE OPTIMAL INVESTMENT MIX: Once the Investment Profile Questionnaire is completed, investors optimal investment mix or asset allocation will be determined. An asset allocation represents the mix of investments (cash, fixed income and equities) that match individual risk and return needs. This step represents one of the most important decisions in your portfolio construction, as asset allocation has been found to be the major determinant of longterm portfolio performance.

47

3. CREATE A CUSTOMIZED INVESTMENT POLICY STATEMENT When the optimal investment mix is determined, the next step is to formalize our goals and objectives in order to utilize them as a benchmark to monitor progress and future updates. 4. SELECT INVESTMENTS The customized portfolio is created using an allocation of select QFM Funds. Each QFM Fund is designed to satisfy the requirements of a specific asset class, and is selected in the necessary proportion to match the optimal investment mix. 5 MONITOR PROGRESS Building an optimal investment mix is only part of the process. It is equally important to maintain the optimal mix when varying market conditions cause investment mix to drift away from its target. To ensure that mix of asset classes stays in line with investors unique needs, the portfolio will be monitored and rebalanced back to the optimal investment mix 6. REASSESS NEEDS AND GOALS Just as markets shift, so do the goals and objectives of investors. With the flexibility of the Portfolio Program and Asset Management Program, when the investors needs or other life circumstances change, the portfolio has the flexibility to accommodate such changes. RISK: Risk refers to the probability that the return and therefore the value of an asset or security may have alternative outcomes. Risk is the uncertainty (today) surrounding the eventual outcome of an event which will occur in the future. Risk is uncertainty of the income/capital appreciation or loss of both. All investments are risky. The higher the risk taken, the higher is the return. But proper management of risk involves the right choice of investments whose risks are compensation. RETURN: Return-yield or return differs from the nature of instruments, maturity period and the creditor or debtor nature of the instrument and a host of other factors. The most important factor influencing return is risk return is measured by taking the price income plus the price change.

48

PORTFOLIO RISK: Risk on portfolio is different from the risk on individual securities. This risk is reflected by in the variability of the returns from zero to infinity. The expected return depends on probability of the returns and their weighted contribution to the risk of the portfolio. RETURN ON PORTFOLIO: Each security in a portfolio contributes returns in the proportion of its investment in security. Thus the portfolio of expected returns, from each of the securities with weights representing the proportionate share of security in the total investments. RISK RETURN RELATIONSHIP: The risk/return relationship is a fundamental concept in not only financial analysis, but in every aspect of life. If decisions are to lead to benefit maximization, it is necessary that individuals/institutions consider the combined influence on expected (future) return or benefit as well as on risk/cost. The requirement that expected return/benefit be commensurate with risk/cost is known as the "risk/return trade-off" in finance. All investments have some risks. An investment in shares of companies has its own risks or uncertainty. These risks arise out of variability of returns or yields and uncertainty of appreciation or depreciation of share prices, loss of liquidity etc. and the overtime can be represented by the variance of the returns. Normally, higher the risk that the investors take, the higher is the return.

GRAPHICAL REPRESENTATION OF RISK AND RETURN ANALYSIS

. .

49

CHAPTER VI

DATA ANALYSIS
50

11.MAHINDRA SATYAM DATA ANALYSIS AND INTERPRETATION

2. ASSOCIATED CEMENT COMPANIES (ACC) Opening share Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 price (P0) 360.60 786.00 720.00 829.05 576.80 Closing share price (P1) 782.20 735.25 826.00 575.00 946.85 (P1-P0) 421.6 -50.75 106 -254.05 370.05 (P1-P0)/ P0*100 116.91 -6.45 14.72 -30.64 64.15 158.69

TOTAL RETURN

Average
1200 1000 800 600 400 200 0

return

158.69/5

31.73

Opening Closing (P1-P0) (P1-P0)/ P0*100

-400

Interpretation: When compared with 2005 opening share price it has increased considerably in 2009 even there is rise and falls in prices.

20 05 -2

-200

00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 0 L R E TU R N

51

3. LARSEN AND TOUBRO (LNT)

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 1002.80 2424.45 1590.00 3062.00 679.00

Closing share price (P1) 2432.70 1620.10 3004.00 666.70 1631.30 (P1-P0) 1429.9 -804.35 1414 -2395.3 952.3

(P1-P0)/ P0*100 142.59 -33.17 88.93 -78.22 140.25 260.38

TOTAL RETURN

Average return = 260.38/5 = 52.07

4000 3000 2000 Opening 1000 0 -1000 -2000 -3000 Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: Even though there is decrease in price, the average return is well compared to every year.

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 L 0 RE TU RN

52

4.RANBAXY LABORATORIES

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 529.00 436.50 347.20 444.00 166.35

Closing share price (P1) 432.35 351.90 438.00 166.70 475.40 (P1-P0) -96.65 -84.6 90.8 -277.3 309.05

(P1-P0)/ P0*100 -18.27 -19.38 26.15 -62.45 185.78 111.83

TOTAL RETURN

Average return = 111.83/5 =22.36

600 500 400 300 200 100 0 -100 -200 -300 -400 Opening Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: There is constant increase and decrease in share price year on year and average return is positive.

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 0 L RE TU RN

53

5. DR. REDDY LABORATORIES, LTD.

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 744.90 1420.00 720.00 595.00 495.00

Closing share price (P1) 1421.40 728.25 590.00 490.00 1281.00 (P1-P0) 676.5 -691.75 -130 -105 786

(P1-P0)/ P0*100 90.81 -48.71 -18.05 -17.64 158.78 165.19

TOTAL RETURN

Average return = 165.19/5 = 33.03

2000 1500 1000 500 0

Opening Closing (P1-P0) (P1-P0)/ P0*100

05 -2

06 -2

07 -2

08 -2

20

20

20

20

20

Interpretation: Opening price in 2005 and closing price in 2010 shows the good return on investments made and investor will be satisfactory.

54

-1000

O T

R E

-500

09 -2

U R N

00 6

00 7

00 8

00 9

01 0

6. MTNL

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 116.00 185.45 146.40 97.00 69.95

Closing share price (P1) 183.80 146.70 96.35 69.10 73.20 (P1-P0) 67.8 -38.75 -50.05 -27.9 3.25

(P1-P0)/ P0*100 58.44 -20.89 -34.18 -28.76 4.64 -20.75

TOTAL RETURN

Average return = -20.75/5 = -4.15

200 150 100 50 0 -50 -100

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 0 L RE TU RN

Opening Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: The stock was not performing well but has not even given much loss to investor as there was subsidiary decrease and increase in price. 55

7. BHARTI AIRTEL

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 210.00 420.00 728.10 832.05 625.80

Closing share price (P1) 412.85 763.20 826.10 625.80 311.90 (P1-P0) 202.85 343.2 98 -206.25 -313.9

(P1-P0)/ P0*100 96.59 81.71 13.45 -24.78 -50.15 116.82

TOTAL RETURN

Average return = 116.82/5 = 23.64

1000 800 600 Opening 400 200 0 -200 -400 Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: In the beginning the stock performed good and given profitable return compared to latest scenario.

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 0 L RE TU RN

56

8. STATE BANK OF INDIA

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 655.00 970.00 979.40 1605.00 1076.15

Closing share price (P1) 968.50 994.45 1608.00 1055.00 2078.00 (P1-P0) 313.5 24.45 628.6 -550 1001.85

(P1-P0)/ P0*100 47.86 2.520 64.18 -34.26 93.09 173.39

TOTAL RETURN

Average return = 173.39/5 = 34.67

2500 2000 1500 Opening 1000 500 0 -500 -1000 Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: There was constant return each year except there was negative return in the year 2008-2009. 57

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 L 0 RE TU RN

9. ICICI

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 399.50 592.00 823.00 775.00 338.00

Closing share price (P1) 589.325 853.10 770.10 332.60 952.70 (P1-P0) 189.825 261.1 -52.9 -442.4 614.7

(P1-P0)/ P0*100 47.51 44.10 -6.42 -57.08 181.86 209.99

TOTAL RETURN

Average return = 209.99/5 = 41.99

1200 1000 800 600 400 200 0 -200 -400 -600 Opening Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: This stock performed well without incurring much loss to investor. As compared with opening price and closing price the was more than 100% return. 58

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 0 L RE TU RN

10. WIPRO

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 671.00 565.00 568.00 425.00 246.00

Closing share price (P1) 558.55 558.35 425.30 245.40 706.80 (P1-P0) -112.45 -6.65 -142.7 -179.6 460.8

(P1-P0)/ P0*100 -16.75 -1.176 -25.12 -42.25 187.31 102.02

TOTAL RETURN

Average return = 102.02/5 = 20.40

800 700 600 500 400 300 200 100 0 -200 -300 Opening Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: Even though the returns were not satisfactory the average return was positive as in 2009 -2010 the closing price is higher than

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 0 L RE TU RN

-100

59

11:MAHINDRA SATYAM

Opening Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 share price (P0) 410.75 848.40 460.00 401.00 38.70

Closing share price (P1) 849.20 470.10 394.55 38.35 92.60 (P1-P0) 438.45 -378.3 -65.45 -362.65 53.9

(P1-P0)/ P0*100 106.74 -44.58 -14.22 -90.43 139.27 96.78

TOTAL RETURN

Average return = 96.78/5 = 19.35

1000 800 600 400 200 0 -200 -400 -600 Opening Closing (P1-P0) (P1-P0)/ P0*100

Interpretation: The return was good in the beginning and in the end without incurring any huge loss to short term investors when compared to long term investors.

20 05 -2 00 6 20 06 -2 00 7 20 07 -2 00 8 20 08 -2 00 9 20 09 TO -2 TA 01 0 L RE TU RN

60

CALCULATION OF STANDARD DEVIATION Standard Deviation = Variance Variance = 1/n-1 (d2)

12. ASSOCIATED CEMENT COMPANIES (ACC)

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

Return (R) 116.91 -6.45 14.72 -30.64 64.15

Avg. Return (R ) 31.73 31.73 31.73 31.73 31.73 TOTAL

d=(R-R) 85.18 -38.18 -17.01 -62.37 32.42

d2 7255.63 1457.71 289.34 3890.01 1051.05 d2=13943.74

Variance = 1/n-1 (d2) = 1/5-1 (13943.74) = 3485.93 Standard Deviation = 13. LARSEN & TOUBRO Variance = 3485.93 = 59.04

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

Return (R) 142.59 -33.17 88.93 -78.22 140.25

Avg. Return (R ) 52.07 52.07 52.07 52.07 52.07 TOTAL

d= (R-R) 90.52 -85.24 36.86 -130.29 88.18

D2 8193.87 7265.85 1358.65 16975.48 7775.71 d2=41569.56

Variance = 1/n-1 (d2) = 1/5-1 (41569.56) = 10392.39 Standard Deviation = Variance = 61 10392.39 = 101.94

14. RANBAXY LABORATORIES

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

Return (R) -18.27 -19.38 26.15 -62.45 185.78

Avg. Return (R ) 22.36 22.36 22.36 22.36 22.36 TOTAL

d= (R-R) -40.63 -41.74 3.79 -84.81 163.42

D2 1650.79 1742.22 14.36 7192.73 26706.09 d2=37306.19

Variance = 1/n-1 (d2) = 1/5-1 (12020.58) = 9326.54 Standard Deviation = Variance = 9326.54 = 96.57

15. Dr. REDDY LABORATORIES, LTD.

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

Return (R) 90.81 -48.71 -18.05 -17.64 158.78

Avg. Return (R ) 33.03 33.03 33.03 33.03 33.03 TOTAL

d= (R-R) 57.78 -81.74 -51.08 -50.67 125.75

D2 3338.52 6681.42 2609.16 2567.44 15813.06 d2=31009.6

Variance = 1/n-1 (d2) = 1/5-1 (31009.6) = 7752.4 Standard Deviation = Variance 62 = 7752.4=

16. MTNL

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

Return (R) 58.44 -20.89 -34.18 -28.76 4.64

Avg. Return (R ) -4.15 -4.15 -4.15 -4.15 -4.15 TOTAL

d= (R-R) 62.59 -16.74 -30.03 -24.61 8.79

d2 3917.50 280.22 901.80 605.65 77.26 d2=5782.43

Variance = 1/n-1 (d2) = 1/5-1 (5782.43) = 1445.60 Standard Deviation = Variance = 1445.60 = 38.02

17. BHARTI AIRTEL

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

Return (R) 96.59 81.71 13.45 -24.78 -50.15

Avg. Return (R ) 23.64 23.64 23.64 23.64 23.64 TOTAL

d= (R-R) 72.95 58.07 -10.19 -48.42 -73.79

D2 5321.70 3372.12 103.83 2344.49 5444.96 d2=16587.1

Variance = 1/n-1 (d2) = 1/5-1 (16587.1) = 4146.77 Standard Deviation = Variance = 4146.77 = 64.39

63

18. STATE BANK OF INDIA

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

Return (R) 47.86 2.520 64.18 -34.26 93.09

Avg. Return (R ) 34.67 34.67 34.67 34.67 34.67 TOTAL

d= (R-R) 13.19 -32.15 29.51 -68.93 58.42

D2 173.97 1033.62 870.84 4751.34 3412.89 d2=10242.66

Variance = 1/n-1 (d2) = 1/5-1 (10242.66) = 2560.66 Standard Deviation = Variance = 2560.66 = 50.6

19. ICICI

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

Return (R) 47.51 44.10 -6.42 -57.08 181.86

Avg. Return (R ) 41.99 41.99 41.99 41.99 41.99 TOTAL

d= (R-R) 5.52 2.11 -48.41 -99.07 139.87 30.47 4.45

d2

2343.52 9814.86 19563.61 d2=31756.91

Variance = 1/n-1 (d2) = 1/5-1 (31756.91) = 7939.22 Standard Deviation = Variance = 7939.22 = 89.10

64

20. WIPRO

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

Return (R) -16.75 -1.176 -25.12 -42.25 187.31

Avg. Return (R ) 20.40 20.40 20.40 20.40 20.40

d=(R-R) -37.15 -21.576 -45.52 -62.65 166.91

d2 1380.12 465.26 2072.07 3925.02 27858.94 d2=35701.41

TOTAL Variance = 1/n-1 (d2) = 1/5-1 (35701.41) = 8925.35 Standard Deviation = Variance = 8925.35 = 94.47

21. MAHENDRA SATYAM

Year

Return (R)

Avg. Return (R ) 19.35 19.35 19.35 19.35 19.35 TOTAL

d=(R-R) 87.39 -63.93 -33.57 -109.78 119.92

d2 7637.01 4087.04 1126.94 12051.64 14380.80 d2=39283.43

2005-2006 106.74 2006-2007 -44.58 2007-2008 -14.22 2008-2009 -90.43 2009-2010 139.27

Variance = 1/n-1 (d2) = 1/5-1 (39283.43) = 9820.85 Standard Deviation = Variance = 9820.85 = 99.10

65

22. AVERAGE RETURN OF ALL COMPANIES

Sino 1 1 2

COMPANY ACC L&T RANBAXY DR.REDDY

AVERAGE RETURN 31.73 52.07 22.36 33.03 -4.15 23.64 34.67 41.99 20.40 19.35

3 4 5 6 7 8

MTNL BHARTI AIRTEL STATE BANK OF INDIA ICICI WIPRO MAHINDRA SATYAM
AVERAGE RETURN

AC C R L& AN T D BA R. RE XY ST DD AT BH E AR M Y BA TI TN NK AIR L O TE F IN L D M IA AH IC IN DR W ICI A IPR SA O TY AM

60 50 40 30 20 10 0 -10

AVERAGE RETURN

66

23. STANDARD DEVIATION OF ALL COMPANIES

Sino

COMPANY

STANDARD DEVIATION

1 2 3 4 5 6 7 8 9 10

ACC L&T RANBAXY DR. REDDY MTNL BHARTI AIRTEL STATE BANK OF INDIA ICICI WIPRO MAHINDRA SATYAM

59.04 101.94 96.57 88.04 32.02 64.39 50.60 89.10 94.47 99.10

67

CHAPTER-VII

68

CONCLUSIONS MTNL & BHARTI ARTL

The standard deviations of the two companies are 38.02 and 64.39 respectively. The average return of -4.15 for MTNL and 23.64 for Bharati Airtel. Hence investor should invest his major proportion in BHARTI ARTL in order to minimize risk.

STATE BANK OF INDIA & ICICI

The standard deviations of the companies are 50.60 for SBI and 89.10 for ICICI Bank. Giving average return of 34.67 and 41.99 respectively.

Hence, it is recommended to invest the major proportion of the funds in ICICI, in order to reduce the portfolio risk

WIPRO & SATYAM

The standard deviations of the companies are 94.47 for Wipro and 99.10 for Satyam Giving average return of 20.40 and 19.35 respectively.

Here the investor can either invest in Wipro or Satyam as the standard deviation and average return are not having much differenc

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SUGGESTIONS

Select your investments on economic grounds. Public knowledge is no

advantage. Buy stock with a disparity and discrepancy between the situation of the firm and the expectations and appraisal of the public (Contrarian approach vs. Consensus approach). Buy stocks in companies with potential for surprises. Take advantage of volatility before reaching a new equilibrium. Listen to rumors and tips, check for yourself. Dont put your trust in only one investment. It is like putting all the eggs in one basket . This will help lesson the risk in the long term. The investor must select the right advisory body which is has sound knowledge about the product which they are offering. Professionalized advisory is the most important feature to the investors. Professionalized research, analysis which will be helpful for reducing any kind of risk to overcome.

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CONCLUSIONS INVESTMENTS

FOR

PORTFOLIO

RISK,

RETURN

&

When we form the optimum of two securities by using minimum variance equation, then the return of the portfolio may decrease in order to reduce the portfolio risk.

Limitations of the study

Time constraint is major factor.

Construction of portfolio is restricted to assets.

Limited industries are covered in the study.

Constrained to a small number of investors

Large scope for long term investments

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BIBLIOGRAPHY

BOOKS REFERRED Security analysis and portfolio management by V.A. Avadhani, Himalaya publisher, 9th edition. Security analysis and portfolio management by Fischer & Jordan, Amazon publisher, 6th edition. Investment decisions by V.K. Bhalla, Himalaya Publishing House.15th edition. Security analysis & portfolio management by Punitavati Pandiayan, Vikas Publishing House.

WEBSITES http://geojitbnpparibas.com/CompanyProfile/QuoteFinder.asp x http://www.indiainfoline.com/SearchQuotes.aspx http://www.bseindia.com/scripsearch/scrips.aspx www.nse.com http://www.icicidirect.com/market/market.asp www.capitalmarket.com www.investopedia.com http://finance.yahoo.com

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MAGAZINES Investors Business Daily The Wall Street Journal Forbes Magazine The Economist Financial Times

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