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A STUDY ON

A COMPARITIVE STUDY OF SECURITIES


AT
KOTAK SECURITIES LIMITED
HYDERABAD
A Project Report Submitted to
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY,

KAKINADA.

In partial fulfillment of the requirements for the awards of the degree of

MASTER OF BUSINESS ADMINISTRATION


Submitted by
Ms. CHILLA.SWATHI
Regd.No: 09NP1E0027
Under the Guidance of
Mrs. P.PRASANTHI
M.B.A, ICWA (INTER)

DEPARTMENT OF BUSINESS ADMINISTRATION

Vijaya Institute Of Technology For Women


(Affiliated to the JNTU, Kakinada)

Enikepadu, Vijayawada (Rural), Krishna Dist.


DECLARATION

I hereby profess that this dissertation work entitled “A


Comparative Study of Securities at KOTAK
SECURITIES”, composed in partial fulfillment for the award of
the degree of Master of Business Administration, is my original work
and has not been submitted/Presented for the award of any other
Degree/Diploma or any other similarities of any other
University/Institution.

CHILLA.SWATHI
PGDMBA-IV
(Dec2010-Jan2011)
ACKNOWLEDGEMENT

I take this opportunity to express my gratitude to the principal


Dr.P.Venkateswarulu of VIJAYA INSTIUTTE OF
TECHNOLOGY FOR WOMEN for permitting me to undertake
project work in an esteemed organization.

I take this opportunity to express my gratitude to the Head of The


Dr.N.Subramanyam of VIJAYA INSTIUTTE
Department
OF TECHNOLOGY FOR WOMEN for permitting me to undertake
project work in an esteemed organization.

I stand indebted for the extensive help rendered to me by my guide


Mr.B.ChandraSekhar, Deputy Manager-Client
Acquisition, Kotak Securities, for helping me to get exposed to
the wonderful world of Investments in Securities and in making this project successful.

I profoundly grateful to my faculty guide Mrs.P.Prasanthi for


providing her valuable suggestion and instruction in completion of the project.

I thank the Faculty Members of Vijaya Institute


of Technology for women, College for Master
Degree for their support, without which this project would not be successful.
Last but not the least I would extend my heartiest gratitude to my parents,
relatives and friends for their constant support and endeavor that helped me to move
ahead with my work and make it a success.

CHILLA.SWATHI
(09NP1E0027)

CONTENTS

Chapter – 1
INTRODUCTION
 Security Analysis
 Portfolio Management
Chapter – 2

INDUSTRY PROFILE OF CAPITAL MARKET

Chapter – 3

COMPANY PROFILE OF KOTAK SECURITIES

Chapter – 4

THEORITICAL FRAMEWORK OF PORTFOLIO


MANAGEMENT

Chapter – 5

DATA ANALYSIS AND INTERPRETATION

 Data analysis

 Representation of Beta with Chart

Chapter - 6
FINDINGS AND SUGGESSTIONS
ANNEXURES AND BIBLOGRAPHY

Chapter-1
INTRODUCTION
INTRODUCTION
SECURITY ANALYSIS

SECURITY ANALYSIS is the analysis of tradable financial instruments called securities.


These can be classified into debt securities, equities, or some hybrid of the two. More broadly, futures
contracts and tradable credit derivatives are sometimes included. Security analysis is typically
divided into fundamental analysis, which relies upon the examination of fundamental business factors
such as financial statements, and technical analysis, which focuses upon price trends and momentum.
Quantitative analysis may use indicators from both areas.

FUNDAMENTAL ANALYSIS is performed on historical and present data, but with the goal
of making financial forecasts. There are several possible objectives:

 to conduct a company stock valuation and predict its probable price evolution,

 to make a projection on its business performance,

 to evaluate its management and make internal business decisions,

 to calculate its credit risk.

TECHNICAL ANALYSIS maintains that all information is reflected already in the stock
price. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors'
emotional responses to price movements lead to recognizable price chart patterns. Technical analysis
does not care what the 'value' of a stock is. Their price predictions are only extrapolations from
historical price patterns.

PORTFOLIO
Portfolio may be described as a combination of various securities. It is constructed by an
investor either by himself or alternatively, the construction and management of a portfolio may be
entrusted to a professional portfolio manager. It is a matter of common knowledge that objective of
every investment in financial assets is to maximize the return and minimize the risk from the
investment made in securities. The term “maximization” is relative and subjective and as such no
standard measures of maximization can be arrived at.
OBJECTIVES OF INVESTORS

 Income
 Appreciation of Capital
 Safety
 Liquidity
 Hedge against inflation
 A method of tax planning

A mix of these objectives may also depend upon the time frame of his investment
(a) Short term gains

(b) Medium term gains

(c) Long term gains

Returns from an investment consist of 2 components.

Yield:
It refers to the periodic cash inflows on the investment, in the form of interest on debt securities and
dividends in case of debt securities.

Capital Gains:
This component refers to the appreciation in the value of the financial asset over a period of time. If
the period is less than one year the capital gain is called “short term capital gain” if more than one
year it is “long term capital gain”.
An investor who is constantly getting high profits from his investment must indeed be a genius since
both return and risk are an integral part of the investment process. If high returns are being generated
then substantially high risk is also being encountered. Risk is the possibility that the realized return
may be less than the anticipated returns.
Risk in investment can emanate from either of the following sources:

 Interest rate risk

 Market risk

 Inflation risk

 Business risk

 Financial risk

 Liquidity risk

 Exchange risk

 Country risk

INTEREST RATE RISK


Interest rate risk is defined as the potential variability of return caused by changes in the market
interest rates. Interest rate risk can be demonstrated if we reconsider the single period rate of return
formula for a bond or a stock. It says that if market interest rate rise (fall), then the investment’s
present value will fall (rise).

MARKET RISK
Market risk is caused by investor reaction to tangible as well as intangible events. Investors are
expressing their judgment that too much is being paid for earnings in the light of anticipated events.
The basis for reaction is set of real, tangible events-political, social or economic. Intangible events
are related to market psychology. Market risk is normally touched off by a reaction to real events, but
the emotional instability of investors acting collectively leads to a snowballing overreaction.
INFLATION RISK
Market risk and interest rate risk can be defined in terms of uncertainties as to the amount of
current dollars to be received by an investor. Purchasing-power risk is the uncertainty of the
purchasing power of the amounts to be received. In more everyday terms, purchasing-power risk
refers to the impact of inflation or deflation on an investment.

BUSINESS RISK
Business risk is a function of operating conditions faced by a firm and the variability these
conditions inject into operating income and expect dividends. Business risk can be divided into two
broad categories: external and internal. Internal business risk is largely associated with the efficiency
with which a firm conducts its operations within the border operating environment imposed upon it.
External business risk is the result of operating conditions imposes upon the firm by circumstances
beyond its control.

FINANCIAL RISK
Financial risk is associated with the way in which a company finances its activities. Financial
risk is avoidable risk to the extent that managements have the freedom to decide to borrow or not to
borrow funds. A firm with no debt financing has no financial risk.

LIQUIDITY RISK
It is that portion of an assets total variability of return which results from price discounts
given or sales concessions paid in order to sell the asset without delay. Perfectly liquid assets are
highly marketable and suffer no liquidation costs.
Liquid assets are not readily marketable. Either price discounts must be given or sales
commission must be paid or both costs must be incurred by the seller, in order to find a new investor
for an illiquid asset. The more illiquid the asset is, the larger the price discounts or the commission
that must be paid to dispose of the asset.
NEED FOR PORTFOLIO MANAGEMENT

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


securities.
It is a dynamic and flexible concept and involves regular and systematic analysis, judgment and
actions.
The objective of this service is to help the unknown investors with the expertise of professionals in
investment portfolio management.
It involves construction of a portfolio based upon the investor’s objectives, preferences for risk,
return and tax liability.
The portfolio is reviewed and adjusted from time to time in tune 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

PROCESS OF PORTFOLIO MANAGEMENT

Portfolio management is divided into five phases:

Specification of investment objectives and constraints

Selection of investment mix

Formulation of portfolio strategy

Portfolio execution and rebalancing

Performance evaluation

PHASE I: - SPECIFICATION OF INVESTMENT OBJECTIVES


AND CONSTRAINTS
The first step in portfolio management process is to specify the investment policy which summarizes
the objectives, constraints and preferences of the investor. The investment policy may be expressed as
follows:

Objectives:
Establishing portfolios for individuals is the most diverse of investment situation. Every investor has
different set of circumstances, needs and opportunities.

 Return Requirements: Minimize the risk exposure without sacrificing a certain expected
rate of return.

 Risk Tolerance: Maximize the expected rate of return, subject to the risk exposure being
held with a certain limit

Constraints and Preferences:


.
 Liquidity: It refers to the speed with which an asset can be sold, without suffering any
discount to its fair market price.
 Investment Horizon: It is the time when the investment or part thereof is planned to be
liquidated to meet a specific need.
 Taxes: Carefully review the tax shelters available and incorporate the same in the investment
decision.

PHASE II :- SELECTION OF INVESTMENT ASSET MIX


Based on the objectives and constraints, asset allocation has to decide how much of portfolio has to
be invested in each of the asset categories:
Non-Marketable Financial Assets:-
 Blue chip shares
 Growth shares
 Income shares
 Cyclical shares
 Speculative shares
Bonds :- Bond or debenture represents long-term debt instruments. Bonds may be classified into
the following categories:
 Government securities
 Saving bonds
 Government agency securities
 PSU bonds
 Debentures of private sector companies
 Preference shares
Mutual Funds :- Instead of directly buying of equity shares and/or fixed instruments, you can
participate in various schemes floated by mutual funds which, in turn, invest in equity shares and
fixed income securities. There are three broad types of mutual fund schemes:
 Equity schemes
 Debt schemes
 Balanced schemes
Money Market Instruments :- Debt instruments which have maturity less than one year at the
time of issue are called money market instruments. The important money market instruments are:
 Treasury bills
 Commercial paper
 Certificates of deposit
Life Insurance :- In a broad sense, life insurance may be viewed as an instrument. Insurance
premiums represent the sacrifice, and the assured sum, the benefit. The important types of insurance
policies in India are:
 Endowment assurance policy
 Money back policy
 Whole life policy
 Term assurance policy
Government Debt Securities :- Debt securities are issued by central, state and local
governments. They differ in risk, yield and maturity. Government securities are among the safest and
more liquid securities available anywhere. They can be of:
 Short term: Short term securities have maturities of one year or less and include treasury
bills offered weekly at a discount, with maturities of ninety-one days up to one year.
 Long term: The government issues treasury notes (one to ten year maturities) and treasury
bonds (maturities of ten to thirty years). These securities are sold at discounted price and can be
acquired via payroll deductions.

Real Estate :- For the bulk of investors the most important asset in their portfolio is a resident
house. In addition to a residential house, the more affluent investors are likely to be interested in the
following type of real estate:
 Agricultural land
 Semi-urban land
 Commercial property

Precious Objects :- Precious objects are the items that are generally small in size but highly
valuable in monetary terms. Some important precious objects are:
 Gold and silver
 Precious stones
 Art objects

Financial Derivatives :- A financial derivative is an instrument whose value is derived from the
value of an underlying asset. The most important financial derivatives from the point of view of
investors are:
 Options
 Futures

PHASE III :- FORMULATION OF PORTFOLIO STRATEGY

After choosing a certain investment mix, an appropriate portfolio strategy has to be formulated:
 Active portfolio strategy
 Passive strategy
 Portfolio strategy matrix

Selection of Securities :- Selection of securities is of two types:
Selection of bonds (fixed income avenues) :- We should carefully evaluate the following
factors in selecting fixed income avenues.
 Yield to maturity
 Risk of default
 Tax shield
 Liquidity
Selection of stocks (equity shares) :- Three broad approaches are employed for the selection
of equity shares:
 Technical analysis
 Fundamental analysis
 Random selection

PHASE IV :-PORTFOLIO SELECTION

The next step is to implement the portfolio plan by buying and/or selling specified securities in given
amounts. This is the phase of portfolio execution which is often glossed over in portfolio
management literature. It is an important practical step that has a significant bearing on investment
results.

PHASE V :- PORTFOLIO REVISION

Irrespective of how well the portfolio has been constructed, it soon tends to become inefficient and
hence needs to be monitored and revised periodically. The asset allocation in the portfolio may be
drifted away from the target, the risk and return characteristics of various securities may have altered
and the objective and preferences of the investor may have changed. Dynamic developments in the
capital market and changes in the circumstances, the portfolio has to be periodically monitored and
revised. This usually entails two things, viz. portfolio rebalancing and portfolio upgrading.

PHASE VI :-PERFORMANCE EVALUATION

Portfolio managers continuously monitor and review the performance of the portfolio. Evaluation has
to take into account whether the portfolio secured an above average returns, average or below
average, as compared to the market return. The ability to diversify with a view to reduce and
eliminate all unsystematic risk and expertise in managing the systematic risk related to the market by
use of appropriate risk measures. Thus the key dimension of portfolio performance evaluation is rate
of return and risk.

Rate of Return
The rate of return from a given portfolio for a given period (which may be defined as a period of one
year) is measured as follows:

Dividend Value + Terminal Value – Initial Value


Initial Value

Risk

The risk of a portfolio can be measured in various ways. The two most commonly used measures of
risk are: Variability and Beta.
ABSTRACT

I.1 Objectives of the study

 To find out the risk perception of equity investors in a Kotak capital Stock Broking Limited.

 To bring out the importance of portfolio management of equity investors

 To know about the customers knowledge and experience in investing in equities.


 To construct an optimal portfolio.

 To estimate the average return of the securities depending upon the past 12 months return.

 To estimate the individual securities risk, using Beta coefficient.

 To identify the best portfolio among the others depending upon their portfolio risk and
portfolio return.

I.2 Scope of the study

 It relates to investment in equities

 Understanding of customer / or investors about the equities

 It also help us to know the port folio management of equity investors

 The study covers the details on selection of asset mix to be made in to the portfolio.
 The study covers the average returns and Beta value for different securities of various
sectors in order to find out what percentage of funds should be invested among the
companies in the portfolio.

 Under this project first I have selected 5 industries each having 3 companies which totals to 15
companies from Sensex.

AUTO
 Bajaj Auto Ltd.
 Hero Honda Motors Ltd.
 Maruthi Suzuki India Ltd.

BANKING
 HDFC Bank Ltd.
 ICICI Bank Ltd.
 State Bank Of India.

FMGC
 Dabur India Ltd.
 ITC Ltd.
 Nestle India Ltd.
I.T INDUSTRY
 Infosys Technologies.
 Tata Consultancy Services Ltd.
 Wipro Ltd.

POWER
 NTPC Ltd
 Bharat Heavy Electrical Ltd.
 Tata Power Co. Ltd.

I.3 Limitations of the study

 The Study was limited to kotak capital Ltd only.

 The Result may be bias as some of the responses may not be accurate.

 The idea behind constructing a portfolio of stocks is to choose best players in the market so
that the investor can get good returns with low risk

RESEARCH METHODOLOGY

Research Design

It is a conceptual structure within which research should be conducted. Thus the preparation of
such a design facilitates research to be as efficient as possible and will yield maximal information.
Research Objectives

 To find out the risk perception of equity investors in an Kotak Capital Stock
Broking Limited.

 To bring out the importance of portfolio management of equity investors.

 To know about their knowledge and experience in investing in equities.

Sources of data

The task of collecting data begins after a research problem has been defined and plan is
chalked out for this study data is collected from primary and secondary sources.

Primary Data

Data are collected for the first time for a specific purpose in mind using the structured
questionnaire, through personal and telephonic interviews.

Secondary Data
The data, which already collected and published, are referred through the following web sites.
www.kotaksecurities.com, www.nseindia.com and from the journals of the organization.

Sample Design

 Population
 Sampling technique
 Sampling unit

Chapter-2
INDUSTRY PROFILE OF
CAPITAL MARKET

PROFILE OF CAPITAL MARKET INDUSTRY

Stock Market
Stock market represents the secondary market where existing securities i.e.,
shares and debentures are traded. Stock exchange provides a securities share and debentures provide
an organized mechanism for purchase and sale of securities. By the end of 2005 there are 23 stock
exchanges in our country.
Stock exchange provides a place where securities of different companies can be
purchased and sold. Stock exchange is a body of persons, whether in corporate or not, formed with a
view to help, regular and control the business of buying and selling of securities.

II.1 Function of Stock exchange


 Ensure liquidity of capital
 Continuous market for securities
 The investor can evaluate the worth of their shares from the prices quoted at different
stock exchange for those securities
 Mobilizing surplus savings
 Helps in raising new capital
 Platform for public debt
 Cleaning house of business information

II.2 Speculators in stock exchange


 BULL
 BEAR
 STAG
 LAME DUCK

BULL: A bull or tejiwala an operator who expect prices to raise in future, purchase the securities
now and sells them in the future at a higher price. A bull tends to throw his victims up in the air.

BEAR: A bear or mandiwala expects price to fall in future and sells securities at present with a
view to purchase them at lower price in future, just bear presses their victim down to the ground.

STAG: A stag is a cautious speculator in the stock exchange. He applies for the share in new
companies and expects to sell them at a premium if he gets an allotment. He sells the shares before
being called to pay the allotment money.

LAME DUCK: when a bear finds it difficult to fulfill his commitment, he is called struggling like
a lame duck.

II.3 Stock exchange in India

Bombay Stock Exchange - 1875

1. Ahmadabad share & Stock Brokers Association Ltd.- 1957


2. Calcutta Stock Exchange association limited - 1957
3. Delhi Stock Exchange - 1957
4. Madras Stock Exchange - 1957
5. Indore Stock brokers association - 1958
6. Bangalore Stock Exchange - 1963
7. Hyderabad Stock Exchange - 1963
8. Cochin Stock Exchange - 1978
9. Pune Stock Exchange - 1982
10. U.P Stock Exchange association limited - 1982
11. Ludhiana Stock Exchange association limited - 1983
12. Jaipur Stock Exchange association limited - 1983
13. Guwahati stock Exchange limited - 1984
14. Mangalore Stock Exchange limited - 1985
15. Magadha Stock exchange limited, Patna - 1986
16. Bhubaneswar Stock Exchange association Ltd. - 1989
17. Over the counter Exchange of India, Bombay - 1989
18. Saurastra Kutch Stock Exchange limited - 1990
19. Vadodara Stock Exchange limited - 1991
20. Coimbatore Stock Exchange limited - 1991
21. The Meerut Stock Exchange limited - 1991
22. National Stock Exchange limited - 1992

National Stock Exchange

The National stock exchange of India was established in 1994 by financial institutions and
banks with IDBI as a nodal agency and is popularly known as NSE. The NSE has been conceived as a
modal exchange with nationwide electronic screen based “scrip less” and “floorless” trading system in
securities, which is both efficient and transparent and offers equal and nationwide access to investors.

National Stock Exchange Cash Segment

The National stock exchange operates mainly in two different segments:

1. Wholesale debt market, (WDM)


2. Capital market (CM)

The wholesale debt market (WDM) is concerned with trading in instruments like Government
Securities, PSU bonds, unites 64 of UTI, CDs and CPs by corporate entities (like banks, institutions,
brokerages). The Capital market (CM) is concerned with equity and corporate with equity and
corporate debt instruments by both corporate equities and individuals. It will encourage high member
with dealer network and short settlement cycles.

The Capital Market segment covers trading in equities, convertible debentures etc., retail and I trade
in debt instruments like non- convertible debentures. Securities of medium and large companies with
nationwide investor base, including securities traded on other Stock Exchange are traded on the NSE.
The NSE market is a fully automated screen based trading environment. There no trading floor as is
prevalent in the traditional stock exchanges. Nor do dealers use the telephone to arrange money market
deals. Rather, the market operators with all market participants stationed at their officers and making
use of computers terminals, to enter orders, to receive the current market status, the trades executed and
other market related information.

The identity of the trading member placing the order is not disclosed in the NSE computer trading
system. By enabling trading members and participants to hide their identity, without fear of large orders
influencing the price of the market. The system provides s complete transparency of trading operations.
Investors can see prices of traded securities and known whether their order have been placed in to the
system, the rate at which their deal has taken place, the counter party and the time at which the trade
was executed.

The trading system provides enormous flexibility to trading members. When entering an order, a
trading member can place various conditions on the order in terms of price, time or size. Orders are
matched automatically by the exchange computer system. All orders received are stacked in price time
priority. In the other words, the computer sorts’ orders as and when they are received in terms of the
price of each security and the time at which orders are entered.

Indices of National Stock Exchanges

S & P NIFTY

S & P CNX Nifty is a well – diversified 50 stock index accounting for 24 sectors of the economy.
It is used for a varieties of purposes such as benchmarking fund portfolios, index based derivatives and
index funds.

CNX NIFTY JUNIOR

The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty junior. It may be useful
to think of the SS&P CNX Nifty and the CNX Nifty junior as making up the 100 most liquid stocks in
India. As with the S&P CNX Nifty, stocks in the CNX Nifty junior are filtered for liquidity, so they are
the most liquid of the stocks excluded from the S & P CNX Nifty.

S&P CNX 500


The S&P CNX 500 is India’s first broad – based benchmark of the Indian capital! Market for
comparing portfolio returns. The S&P CNX 500 represents about 94% of total market’ capitalization
and about 98% of the total turnover on the NSE.

S&P CNX Deft

Almost every institutional investor and off- shore fund enterprise with an equity exposure in the
India would like to have an instrument for measuring returns on their equity investment in dollar terms.
To facilitate this, a new index the S&P CNX Nifty has been developed.

CNX MIDCAP200

The medium capitalized segment of the stock market is being increasingly perceived as an attractive
investment segment with high growth potential. The primary objective of the CNX madcap 200 index
is to capture the movement and be a benchmark of the madcap segment of the market.

CNX IT SECTOR INDEX

Information technology (IT) industry has played a major role in the Indian economy during the last
few years, a number of large, profitable Indian companies today belong to the IT sector and a great deal
of investment interest is now focused on the IT sector. In order to have a good benchmark of the Indian
IT sector, IISL developed the CNX IT sector index. Companies in this index are those that have more
than 50% of their turnover from IT related activities like software development, hardware manufacture,
vending, support and maintenance.

Evolution of Online Trading


Online Trading

Stock exchange maintains a mainframe computer which is connected through very small aperture
terminal (VSAT) install at its office. This mainframe is heart of the online trading system and it keeps
all the market data. Broker’s offices have terminal at their premises, which are connected through
VASTs/leased lines/modems. The brokers enter the order through his PC which runs order window
NT/2000 and send signal to the satellite via VAST/leased line modem. The signal is directed to main
frame computer at stock exchange via VAST.

Evolution

Online trading has become very popular in the last couple of years because of the convenience of
ease and use. Numerous companies have gone, online to meet their customers’ enabling them to trade
when they want and how they want to. Online trading has basically replaced a phone call with the
internet. Instead of interacting with brokers over the phone, the customer is clicking the mouse; not to
mention that other option are still available, but at a cost. Online trading has given customers real-time
access to account information, stock quotes, elaborate market researches and interactive trading.
Further, online trading has led to additional features such as:

Limit/stop order - Order that can go unfilled, but there is an extra charge for this.

Market Order – Order can be filled at unexpected prices, but this type is much more risky, since
you have to buy stock ay the given price.

Cash Account – Where funds have to be available prior to placing the order.

Margin Account- Where order can be placed against stocks, to increase purchasing power.

Investor’s reason to trade online


 They feel they have control over their account can make their own decisions and do not
have to give reasons their actions.
 They are independent
 They have a reason to participate in the market and learn about it.
 They fit it interesting, cheap, easy, fast and convenient.
 They are sure and confident.
 They have access to numerous tolls to invest, and can create their own portfolio.
Dematerialization
In order to trade electronically /share held in the physical form (share certificate) have to be
dematerialized. Dematerialization is the process by which physical share converts certificates of an
investor to electronic form. De-mat is short form dematerialization.
Depository is an organization where the securities of a share holders held are held in the
form of electronic account. Depository holds electronic custody of securities and also arranges for

transfer of owner ship of securities on the settlement dates are traded and held in custody.
This facilitates faster, risk free and low cost settlement. Depository is much like a bank and
performs many activities that are similar to bank the benefits of participation in a depository are:

 Immediate transfer of securities.


 No stamp duty on transfer of securities.
 Elimination of risk associated with physical certificates such as bad delivery, fake securities etc.
 Reduction in paper work involved in transfer of securities.
 Reduction in transaction cost.
 Change in address recorded with depository participant (DP) gets registered with all companies
in with investor holds securities electronically elimination the need to correspond with each of them
separately.
 Convenient method of consolidation of folios/ accounts.

National Securities Depository Limited

National securities depository limited (NSDL) is the first Indian depository and it was
inaugurated in November 1996. NSDL was set up with and initial capital of US $28 million promoted
by Industrial Development Bank of India (IDBI) unit trust of India (UTI) and national stock exchange
of India Ltd (NSEIL) later state bank of India (SBI) also became a share holder.
Clearing corporation / clearing houses. NSDL is electronically linked to each of these business
partners via a satellite links through very small aperture terminal (VSATs). The entire integrated system
(including VSAT linked ups and the software are NSDL at each business partner end) has been named
the NEST (National Electronics Settlement And Transfer) a system the investor interacts with the
depository thoughts a depository participants of NSDL a DP can be bank, financial Institutions,
custodian or a broker.

Trading system

NSE operates on the National exchange for automated reading (NEAT) system, a fully automated
screen based trading system, which adopts the principle of an order driven market. NSE consciously
opted in favor of an order driven system as opposed to a quote driven system. This has helped reduce
jobbing spreads not only on NSE but in other exchange as well, thus reducing transaction costs.

Trading system – market type

The NEAT system has four type of market. They are:

Normal Market

All order which are of regular lot size or multiples thereof are traded in the normal market.

Old lot market


All orders whose order size is less than the regular lot size are traded in the odd-lot market. An
order is called an odd lot order if the order size is less than regular lot size. These orders do not have
any special terms attributes attached to them. In an odd-lot market, both the price and quantity of both
of orders (buy and sell) should exactly match for the trade to take place. Currently the odd lot market
facility is used for the limited physical market as per the SEBI directives.

Auction market

In the auction market, the exchange on behalf of trading members for settlement related reasons
initiates’ auctions. There are 3 participants in this market.

 Initiator – the party who initiates the auction process is called an initiator.
 Competitor – the party who enters orders on the same side as of the initiator.
 Solicitor – the party who enters orders on the opposite side as of the initiator.

Spot market

Settlement periods are same like normal market. These orders do not have any special terms
attributes attached to them. Currently the spot market is not in use.
Chapter-3
COMPANY PROFILE
OF
KOTAK SECURITIES

PROFILE OF KOTAK SECURITIES

The Kotak Mahindra Group was established in 1985 as Kotak Capital Management Finance Limited.
Uday Kotak, Sidney A. A. Pinto and Kotak & Company promoted this company.
Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when
the company changed its name to Kotak Mahindra Finance Limited. Since then it's been a steady and
confident journey to growth and success
KOTAK MAHINRDA GROUP

The Kotak Mahindra Bank head office is located in Mumbai, the trade capital of India and a
branch network spread all across India. The other wholly owned subsidiaries of Kotak
Mahindra Bank Limited are:

For

Kotak Mahindra mutual funds.


Asset Management
Company Limited
(KMAMC)
Kotak Mahindra life insurance services
Old Mutual Life
Insurance

Kotak Mahindra car financing


Prime Limited
(KMPL)

Kotak Securities internet stock broking, online share trading, and online
Ltd. IPO and mutual fund investments

Kotak Mahindra investment banking services


Capital Company
(KMCC)

Kotak Private equity capital for business expansion


Equity Group
(KPEG)

Kotak Realty Fund private equity funds for real estate investments

Kotak Mahindra providing investment and financing solutions in India by


International collaborating with foreign companies

Kotak Group Products & Services


1. Bank
2. Credit Cards

3. Life Insurance

4. Mutual Funds

5. Car Finance

6. Securities

7. Institutional Equities

8. Investment Banking

9. International Business

10. Kotak Private Equity

11. Kotak Realty Fund

12. Wealth Management

OUR STORY:

Milestones that have shaped the Kotak Mahindra Group, since 1986
Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a steady and
confident journey leading to growth and success. The milestones of Kotak Mahindra's growth story are listed
below by year.
1986 Kotak Mahindra Finance Limited started off with Bill Discounting

Kotak Mahindra Finance Limited makes its foray into the Lease and Hire Purchase
1987
market

1990 The Auto Finance division starts

The Investment Banking Division starts off. They take over FICOM, one of India's
1991
largest financial retail marketing networks

1992 Penetrates into the Funds Syndication sector

The brokerage and distribution businesses of the Group gets incorporated into a
1995 separate company - Kotak Securities, whereas the investment banking arm is
incorporated into a separate company - Kotak Mahindra Capital Company

The Auto Finance Business of the Group is hived off into a separate company - Kotak
Mahindra Prime Limited. Kotak Mahindra takes up a major stake in Ford Credit
1996
Kotak Mahindra Limited to finance Ford vehicles. They launch Matrix Information
Services Limited, marking the group's entry in information distribution.

Kotak Mahindra Asset Management Company is incepted and they enter into the
1998
mutual fund market.

Kotak Mahindra makes a tie with Old Mutual plc. For their Life Insurance business.
Kotak Securities launches the site (now www.kotaksecurities.com). Kotak Mahindra
2000
Venture Capital Fund is formed and the private equity business of the group
commences.

2001 Matrix is sold to Friday Corporation and the Insurance Services is launched.

2003 Kotak Mahindra Finance Ltd. gets converted into a commercial bank.

2004 A private equity fund (India Growth Fund) is launched.

2005 Kotak Group launches a real estate fund

The Group buys 25% stake held by Goldman Sachs in Kotak Mahindra Capital
2006
Company and Kotak Securities
2008 Launched a Pension Fund under the New Pension System.

Kotak Mahindra Bank Ltd. opened a representative office in Dubai


2009
Entered Ahmedabad Commodity Exchange as anchor investor.

Kotak Mahindra is among the leading financial organization of India, with a range of
financial services that caters to all customers' day to day requirements. Their products spans from
commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking –
diverse needs of individuals and corporates are catered to.
The Kotak group has a net worth of more than Rs. 6,799 crore with the branches,
franchisees, representative offices and satellite offices spread across cities and towns in India. They
also have global offices in New York, London, San Francisco, Dubai, Mauritius and Singapore.
The Kotak Group offers their services to approximately 6.4 million customer Highlights of Kotak
Mahendra Group.

Kotak Securities Ltd. is one of the members of Kotak Mahindra Group. And it is one of India's
largest brokerage and securities distribution House in India. Over the years Kotak Securities has
been one of the leading investment broking houses catering to the needs of both institutional and
non-institutional investor categories with presence all over the country through franchisees and co-
ordinates. Kotak being the market leader in PMS, which is having corpus 3200 crores out of 6200
crores total market corpus.

Kotak Securities Ltd. offers online (through www.kotaksecurities.com ) and offline services
based on well-researched expertise and financial products to the non-institutional investors.

Kotak Securities Limited is one of the larger players in distribution of IPOs - it was ranked number
One in 2003-04 as Book Running Lead Manager in public equity offerings by PRIME Database. It
has also won the “Best Equity House” Award from Finance Asia - April 2004.
The Company has a full-fledged Research division involved in macroeconomic studies, Sectoral
research and Company specific equity research combined with a strong and well networked sales
force which helps deliver current and up-to-date market information and news.

Kotak Securities Limited is also a depository participant with National Securities Depository Limited
(NSDL) and Central Depository Services Limited (CDSL) providing dual benefit services wherein
the investors can use the brokerage services of the company for executing the transactions and the
depository services for settling them.

Kotak Securities has 122 branches servicing more than 1,70,000 customers and coverage of 187
cities. Kotaksecurities.com, the online division of Kotak Securities Limited offers Internet Broking
services and also online IPO and Mutual Fund Investments. Kotak Securities Limited manages assets
over 2500 cores of Assets under Management (AUM).

Kotak securities provide portfolio Management Services, catering to the high end of the market.
Portfolio Management from Kotak Securities comes as an answer to those who would like to grow
exponentially on the crest of the stock market, with the backing of an expert.
KOTAK SECURITIES:

VISION: To be the most preferred employer in the financial services space.

MISSION: We offer world class working environment and a young vibrant


atmosphere where everyone has chance to do well and grow.

VALUES: Kotak Securities Ltd., a 100 % subsidiary of Kotak Mahindra Bank, is one of the
oldest and largest stock brokers in the Industry. Our offerings include stock broking services for stock
trading through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management
services.

We have been the first in providing many products and services which have now become industry
standards.

 Facility of Margin Finance to the customers for online stock trading.


 Investing in IPOs and Mutual Funds on the phone.
 SMS alerts before execution of depository transactions.
 Mobile application to track portfolio of your investments in stock market.
 Auto Invest - A systematic investing plan in Equities and Mutual funds.
 Provision of margin against securities automatically against shares in your Demat account.

We have a full-fledged research division involved in Macro Economic studies, Sectoral research and
Company Specific Equity Research which publishes in-depth stock market analysis. This combined
with a strong and well networked sales force which helps deliver current and up to date market
information and news.

We are also a depository participant with National Securities Depository Limited (NSDL) and Central
Depository Services Limited (CDSL), providing dual benefit services wherein the investors can avail
our stock broking services for executing the transactions and the depository services for settling them.
We process more than 400000 trades a day which is much higher even than some of the renowned
international brokers. Our network spans over 400 cities with 1113 outlets.

Kotak Securities Limited has Rs. 2300 crore of Assets Under Management (AUM) as of 31st March,
2010. The portfolio Management Service provides top class service, catering to the high end of the
market.
ORGANIZATIONAL STRUCTURE

KOTAK
SECURITIES

MANAGING
DIRECTOR

ONLINE CENTRAL BRANCH SUB BROKER OPERATIONS


SALES DEALING ROOM

HNI SALES DEALINGS SALES DEALINGS FRANCHISE COORDINATOR

A/C DD RM
RM IT INTERNAL
INTERNAL IPO
IPO
SUB
SUB LEGAL
LEGAL
PP SS CONTROL
CONTROL
OPENING BROKER
BROKER DEPARTMENT
DEPARTMENT
OPERATION AND
AND
S OPERATION
COMPLIANC
COMPLIANC
EE

DEBTOR FUNDING SERVICE


REGISTRATION OF
FOLLOWING FOLLOWING
SUB BROKERS
S S

RMS - RISK MANAGEMENT SYSTEM

DP - DEPOSITAROY PARTICIPANT

IPO - INITIAL PUBLIC OFFERINGS

A/C OPENINGS - ACCOUNT OPENING


Kotak Securities Limited follows decentralization in the company. This helps in having wide span of
control, with a bottom-up decision making and flow of thoughts, thus facilitating a flat organizational
structure

BANK
CHANNEL

ON LINE OFF LINE


PRODUCTS OFFERED BY KOTAK SECURITIES LIMITED

PRODUCTS

ONLINE OFFLINE

NORMAL SEBI NORMAL SEBI KMIL


FUNDIN FUNDIN FUNDIN
G G G

WITH POA WITHOUT


POA

SERVICES PROVIDED BY KOTAK SECURITIES


1) Portfolio Management Services [PMS ]
2) Margin Trading Facility
3) Demat Account Facility
4) IPOs
5) Mutual Funds
PROCESS

CLIENT
A/C OP FORM SENT

WELCOME LETTER

TRADE

SHARES
ODIN
CLIENT CODE FUNDS

CONTRACT

EXCHANGE

TRADE FILE

CRPS
A/C OPERATIONS
CLIENT CODE TELESOFT
CELL
SBOS
DBOS
BOSS

BOSS- BACK OFFICE SUPPORT SYSTEM (used for ledger and trade information)

CPRS-CENTRALIZED RECEIPT AND PAYMENT SYSTEM (for funds)

DBOS-DEMATERIALIZED BACK OFFICE SYSTEM

ODIN-OPEN DEALER INTEGRATED NETWORK

KC3-KOTAK COMMON CLIENT CODE


COMPETITORS
Competition leads to improvement and helps to provide quality service. In the same line the
competitors of Kotak securities make the company strive for excellence and also maintain the
consistency in its operations and services and won many awards for its excellence and outstanding
performance.

Its competitors are:

ICICI Securities
HSBC Investments
Religear
India Infoline
Karvy
Motilal Oswal

SWOT ANALYSIS

STRENGTHS

Kotak Securities is a customer centric company which provides long term values according to their
needs. The major strengths of Kotak securities are as follows:

Brand
Logo
Innovations in the industry
Reliability
Value
Service
Robust technology
Exceptional research
Large presence

Kotak securities were the first to introduce various innovative products and services which now have
become the industry standards.

WEAKNESS

No weakness is seen in analysis.


OPPORTUNITIES

Kotak is registered with National Security Depository Limited (NSDL) which is a DP provider
and this is an advantage for Kotak but in this the DP charges are more but Kotak also has an
opportunity to register with Central Depository Service Limited (CDSL) which is also again a DP
provider but the main advantage is the DP charges here are less from which the Kotak can gain an
advantage.

THREATS

Kotak securities operates with strict rules as per the regulations laid by SEBI like an a/c
opening takes a long process under Kotak where as other brokering houses open it with pan card as
witness and few signatures from the client and the client can start trading but Kotak goes as per SEBI
rules and this makes Kotak lose its clients to competitors which may be a threat to the company.

AWARDS GRAB BY KOTAK SECURITIES LTD.

 Prime Ranking Award (2003-04) - Largest Distributor of IPOs

 Finance Asia Award (2004)- India's best Equity House

 Finance Asia Award (2005)-Best Broker in India

 Euro money Award (2005)-Best Equities House in India

 Finance Asia Award (2006) - Best Broker in India

 Euro money Award (2006) - Best Provider of Portfolio Management in Equities


CHAPTER – 4
THEORETICAL FRAMEWORK OF
PORTFOLIO MANAGEMENT

 Portfolio Analysis

 Comparative Performance
PORTFOLIO ANALYSIS

Individual securities have risk return characteristics of their own. Portfolios which are combination of
securities may or may not take on the aggregate characteristics of their individual parts.

Portfolio analysis considers the determination of future risk and return in holding various blends of
individual securities.

METHODOLOGY OF THE STUDY

For implementing, 15 securities or scrip from 5 Different industries consulting the Sensex market are
selected for one-year based on the closing share price movement data from BSE dated, from April
2009 to March 2010.

In order to know the average return of each security or stock, the formula used is,

Sum Of Returns Of The Scrip For 12Months


________________________________________________________
AVERAGE RETURN (R'i) =

12

Ri = Return of a security for an individual month.

R'i = Average Return of a Security.


The next step is to know the risk of the security i.e. β- Coefficient of security for which the following
formulae is used.

Covariance ( i,m)
_________________________
BETA (β) =

Variance (m)

Beta (β) = Beta Coefficient of Individual Security

Covariance (i,m) = Covariance of returns of individual security with market portfolio.

Variance (m) = Variance of returns of Market Portfolio.(σ2 m)

Covariance (i,m) = σi σm Cor im

Cor im = Correlation coefficient between the returns of individual security and market

portfolio

σi = Standard Deviation of returns of individual Security

σm = Standard deviation of returns of Market Portfolio


TRADITIONAL PORTFOLIO THEORY

This is the selection of those securities that best fit the personal needs and desires of the investor.

MODERN PORTFOLIO THEORY

The modern portfolio theory suggests that the traditional approach to portfolio analysis, selection and
management may yield less than the optimal result that a more scientific approach is needed based on
the estimates of risk and return off steaming from the analysis of the individual securities.
In India, government’s policy of liberalization has unleashed foreign market forces that have a direct
impact on the capital markets. An individual investor cannot easily monitor these complex variables
in the securities market because of lack of time, information and know-how. That is when investors
look into alternative investment option. One such option is mutual fund.
With the portfolio investment gaining popularity, it is emphasized on having a proper portfolio theory
to meet the needs of the investors and operate in the capital market using thorough scientific analysis
backed by dependable market investigations to minimize risk and maximize returns.

MODELS OF PORTFOLIO SELECTION

The identification and selection of an efficient portfolio is a complicated job. An investor must select
a portfolio, which will best suit his requirements, out off all those available to him. The following are
the most popular models for portfolio selection.

1. Markowitz Model
2. Capital Asset Pricing Model

MARKOWITZ MODEL
Harry Markowitz opened new vistas to modern portfolio selection by publishing an article in the
journal of finance in March 1952. His publication indicated the importance of correlation among
different stock returns in the construction of a stock portfolio. Markowitz also showed that for a given
level of expected return in a group if securities, one security dominate the other. To find out this, the
knowledge of the correlation coefficient between all possible securities combinations is required.
This model helped the managers to minimize the risk in the portfolio.

SIMPLE DIVERSIFICATION
Portfolio risk can be reduced by the simplest kind of diversification. Portfolio means group of assets
an investor owns. The assets may vary from stocks to different type of bonds. Sometimes the
portfolio may consist of securities of different industries. When different assets are added to the
portfolio, the total risk tends to decrease.

PROBLEMS OF VAST DIVERSIFICATION


Spreading the investment on too many assets will give rise to problems such as

 PURCHASE OF POOR PERFORMERS

While buying numerous stocks, sometimes the investor may also buy stocks that will not yield
adequate return.

 INFORMATION INADEQUACY

If there are too many securities in a portfolio, it is difficult for the portfolio manager to get
information about their individual performance. The portfolio manager has to be in touch with the
details regarding the individual company performance. To get all the information simultaneously is
quite difficult.

 HIGH RESEARCH COST


If a large number of stocks are included, before the inclusion itself the returns and risk of the
individual stock have to be analyzed. Towards this end, lot of information has to be gathered and kept
in store and these procedures involved high cost.

 HIGH TRANSACTION COST

When small quantities of costs are purchased frequently, the investor has to incur higher transaction
cost than the purchase of large blocks at less frequent intervals. In spite of all these difficulties big
financial institutions purchase 100’s of different stocks.

THE CONCEPT OF MARKOWITZ MODEL


In developing this model, Markowitz had given up the single stock portfolio and introduced
diversification. The single security portfolio would preferable if the investor is perfectly certain that
his expectation of the highest return would turn out to be real. In the world of uncertainty, most of the
risk averse investor would like to join Markowitz rather than keeping a single stock, because
diversification reduces the risk.

FORMULAE
1. Return

Rp = Σ Xi Ri

Where Rp = Return on portfolio


Xi = Proportion of total Portfolio
Ri = Expected return of security
VARYING DEGREE OF CORRELATION
The relationships between securities, degree of correlation coefficient are analyzed. Extreme cases
like +1, -1, intermediate values and no correlation are calculated for 2 securities namely X and Y. we
assume that the investor has the specific amount of money to invest and that can be allocated in any
proportion between the securities.

EFFICIENT FRONTIER
The efficient frontier was first defined by Harry Markowitz in his Ground breaking (1952) paper that
launched Portfolio Theory. That theory considers a universe of risky investments and explores what
might be an optimal portfolio based upon those possible investments.
Consider an interval of time. It starts today. It can be any length, but a one-year interval is typically
assumed. Today’s values for all the risky investments in the universe are known. Their accumulated
values (reflecting price changes, coupon payments, dividends, stock splits, etc.) at the end of the
horizon are random. As random quantities, we may assign those expected returns and volatilities. We
may also assign a correlation to each pair of returns. We can use these inputs to calculate the expected
return and volatility of any portfolio that can be constructed using the instruments that comprise the
universe.

The notion of “optimal” portfolio can be defined in one of two ways:

For any level of volatility, consider all the portfolios which have that volatility. From among them all,
select the one which has the highest expected return.

For any expected return, consider all the portfolios which have the expected returns. From among
them all, select the one which has the lowest volatility.

CAPITAL ASSET PRICING MODEL


The capital asset pricing model (CAPM) is concerned with the equilibrium relationship between the
risk and the expected return on risky assets. The traditional CAPM was developed independently by
Sharpe, Lintner, and Mossin in the mid 1960’s.

All investors have identical probability distribution for future rate of return.

 All investors have the same one period time for horizon.
 All investors can borrow or lend money at the risk free rate of return.
 There are no transaction costs.
 There are no personal taxes.
 There is no inflation.
 There are many investors and no single investor can affect the price of a stock through his
buying or selling.
 Capital markets are in equilibrium.

Beta is the relative measure of risk that cannot be diversified away in a portfolio of securities.

CAPM states that expected rate of return on an asset is a function of the two components of required
rate of return namely the risk free rate and the risk premium. Thus

K = risk free rate + risk premium

= RF + Market risk premium

= RF + [expected portfolio return – risk free rate]

= RF + β [E (Rm) – RF]

Where, K = required rate of return on asset

E (Rm) = Expected rate of return on market portfolio

β = Beta coefficient asset

COMPARITIVE PERFORMANCE
Portfolio performance is the last step in the process of portfolio management. Portfolio
analysis, selection and revision are undertaken with the objective of maximizing returns and
minimizing risk. Portfolio performance is the stage where we examine to what extent the objective
has been achieved. Portfolio securities held by an investor is the result of his investment decisions.
Portfolio performance is really a study of the impact of such decisions. Without portfolio
performance portfolio management would be incomplete. Portfolio performance is the evaluation of
the performance of the portfolio.

Evaluating the investment is nothing but portfolio performance. The performance can be analyzed on
the basis of

 Sharpe Method
 Treynor Method
 Jenson Method

SHARPE METHOD

The performance developed by William Sharpe is referred to as the “Sharpe Model” or “Adjusted
Performance Risk Method”. In this method Sharpe snickered only systematic risk. The formula for
calculating the performance through this model is

Sp = (Rm – Rf) / ⌐p

Where, Rm = market return

Rf = risk free rate

⌐p = risk of portfolio

TREYNOR METHOD

The performance measure developed by Jack Treynor is referred to as ‘Treynor Model”. This method
is also called as “Velocity risk adjusted method” or “return to variability ratio method”. Treynor
followed the same system of Sharpe, but he considered both systematic and unsystematic risk. In this
model he considered the market risk (that is beta) but not the portfolio risk (i.e...Alpha)

The formula for calculating performance through this model is

TP = (Rm – Rf)/β

Where, Rm = market return

Rf = risk free rate

β = market risk

JENSON MODEL

Another type of risk adjusted performance measure has been developed by Michael Jenson and
referred to as the Jenson model. This model attempt to measure the difference between the actual
return earned on portfolio and the return expected from the portfolio given its level of risk same like
Treynor, Jenson considered both systematic and unsystematic risk. He considered market risk based
on CAPM technique.

ΒETA COEFFICIENT
The risk of an individual Security can be estimated under CAPM model. The market related risk
which is also called as “systematic risk” is unavoidable even by diversification of the portfolio. The
systematic risk of an individual security is measured in terms of its sensitivity to market movements
which is referred to as security’s beta. Investors can avoid or eliminate the unsystematic risk by
investing funds in wide range of securities and by having well diversified portfolio.

Beta coefficient is a measure of the volatility of stock price in relation to movement in stock index of
the market; therefore, beta is the index of systematic risk.
Covariance ( i,m)
_________________________
BETA (β) =
Variance (m)

Beta (β) = Beta Coefficient of Individual Security

Covariance (i,m) = Covariance of returns of individual security with market

Portfolio.

Variance (m) = Variance of returns of Market Portfolio.(σ2 m)

Covariance (i,m) = σi σm Cor im

Cor im = Correlation coefficient between the returns of individual

Security and market portfolio

σi = Standard Deviation of returns of individual Security

σm = Standard deviation of returns of Market Portfolio

According to the CAPM, the equilibrium, the expected return of a portfolio is equal to the
risk free rate plus a risk premium, which is proportional to its beta. A beta coefficient is a relative
measure of the sensitivity of an assets’ return to changes in the return on the market portfolio.
Mathematically, the beta coefficient of a security is the security’s covariance with the market
portfolio divided by the variance of the market portfolio.
The beta factor is the volatility of systematic risk of a security risk of a security or investment in the
portfolio. The beta factor of the market as a whole is 1.0. The beta of 1.0 indicates average level of
risk while more or less than that the security’s return fluctuates more or less than that of market
portfolio. A zero beta means no risk. The degree of volatility is expressed as follow

 If beta is more than one, it is more sensitive to the market or systematic risk than the average
investment.

 If the beta is one, then it has the same risk profile as the market as a whole, the average risk
profile.

 If the beta is less than one, it is not as sensitive to systematic or market risk as the average
investment.

Thus the average returns of the individual securities and its beta coefficient are taken in it
consideration while performing the comparative study of various securities to construct an efficient
portfolio by including the securities in a portfolio with the principle of maximizing the returns and
minimizing the risk in a portfolio.
Chapter-5
DATA ANALYSIS AND INTERPRETATION

 Analysis of each set of portfolio


 Graphical Representation

DATA ANALYSIS AND INTERPRETATION


Under this project first I have selected 5 industries each having 3 companies which totals to 15
companies from Sensex. These companies were selected randomly based on company’s excellence
and its past performance in the market.

Then the closing prices of these companies are taken for the last one calendar year i.e.…from Jan
2010 to Dec 2010 then the market values were also taken for the same year. After this I have
calculated the monthly returns for each scrip. Then the average of each scrip is calculated and then
the variance, covariance and beta are calculated.

After calculating the beta I have selected one scrip from each industry which has low beta coefficient
value and returns proportionally and finally selected 5 companies to form a portfolio and gave
different weightages to those scrip and finally found out a set of portfolio which gives high returns
and are low risky.

The following are the 5 industries and 3 companies from each industry which I have selected from
Sensex.

AUTO
 Bajaj Auto Ltd.
 Hero Honda Motors Ltd.
 Maruthi Suzuki India Ltd.

BANKING
 HDFC Bank Ltd.
 ICICI Bank Ltd.
 State Bank of India.

FMGC
 Dabur India Ltd.
 ITC Ltd.
 Nestle India Ltd.

I.T INDUSTRY
 Infosys Technologies.
 Tata Consultancy Services Ltd.
 Wipro Ltd.

POWER
 NTPC Ltd
 Bharat Heavy Electrical Ltd.
 Tata Power Co. Ltd.

INTERPRETATIONS
AUTO INDUSTRY

BAJAJ AUTO LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 639.9 11403.25
Feb-10 1,028.60 14625.25 60.7439 48.5019 28.2551 23.8886
Mar-10 994.05 14493.84 -3.3589 -15.6009 -0.8985 -5.2650
Apr-10 1,224.65 15670.31 23.1980 10.9560 8.1170 3.7505
May-10 1,215.45 15666.64 -0.7512 -12.9932 -0.0234 -4.3899
June-10 1,494.25 17126.84 22.9380 10.6960 9.3204 4.9539
July-10 1,396.80 15896.28 -6.5217 -18.7637 -7.1850 -11.5515
Aug-10 1,569.50 16926.22 12.3640 0.1220 6.4791 2.1126
Sep-10 1,761.70 17464.81 12.2459 0.0039 3.1820 -1.1845
Oct-10 1,773.10 16357.96 0.6471 -11.5949 -6.3376 -10.7041
Nov-10 1,817.40 16429.55 2.4984 -9.7436 0.4376 -3.9289
Dec-10 2,011.10 17527.77 10.6581 -1.5839 6.6844 2.3179

De AVERAGE = 12.2420 4.3665

COVARIANCE (RI,RM) = 160.6929332

VARIANCE(RM) = 93.0955

BETA VALUE = 1.7261


AUTO INDUSTRY

HERO HONDA MOTORS LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 1,184.25 11403.25
Feb-10 1,340.90 14625.25 13.2278 8.2745 28.2551 23.8886
Mar-10 1,397.85 14493.84 4.2471 -0.7062 -0.8985 -5.2650
Apr-10 1,605.50 15670.31 14.8550 9.9017 8.1170 3.7505
May-10 1,511.35 15666.64 -5.8642 -10.8175 -0.0234 -4.3899
June-10 1,669.65 17126.84 10.4741 5.5208 9.3204 4.9539
July-10 1,565.80 15896.28 -6.2199 -11.1732 -7.1850 -11.5515
Aug-10 1,720.90 16926.22 9.9055 4.9522 6.4791 2.1126
Sep-10 1,716.45 17464.81 -0.2586 -5.2119 3.1820 -1.1845
Oct-10 1,558.70 16357.96 -9.1905 -14.1438 -6.3376 -10.7041
Nov-10 1,772.15 16429.55 13.6941 8.7408 0.4376 -3.9289
Dec-10 1,942.55 17527.77 9.6154 4.6621 6.6844 2.3179

AVERAGE = 4.9533 4.3665

COVARIANCE (RI,RM) = 53.3565

VARIANCE(RM) = 93.0955

BETA VALUE = 0.5731


AUTO INDUSTRY

MARUTI SUZUKI INDIA LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 815.7 11403.25
Feb-10 1,021.55 14625.25 25.2360 19.1429 28.2551 23.8886
Mar-10 1,065.45 14493.84 4.2974 -1.7957 -0.8985 -5.2650
Apr-10 1,413.25 15670.31 32.6435 26.5504 8.1170 3.7505
May-10 1,436.65 15666.64 1.6558 -4.4373 -0.0234 -4.3899
June-10 1,698.90 17126.84 18.2543 12.1612 9.3204 4.9539
July-10 1,403.00 15896.28 -17.4172 -23.5103 -7.1850 -11.5515
Aug-10 1,561.70 16926.22 11.3115 5.2184 6.4791 2.1126
Sep-10 1,559.65 17464.81 -0.1313 -6.2244 3.1820 -1.1845
Oct-10 1,390.10 16357.96 -10.8710 -16.9640 -6.3376 -10.7041
Nov-10 1,463.55 16429.55 5.2838 -0.8092 0.4376 -3.9289
Dec-10 1,416.15 17527.77 -3.2387 -9.3317 6.6844 2.3179

AVERAGE = 6.0931 4.3665

COVARIANCE (RI,RM) = 99.9240

VARIANCE(RM) = 93.0955

BETA VALUE = 1.0734


BANKEX INDUSTRY

HDFC BANK LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 1,100.70 11403.25
Feb-10 1,442.35 14625.25 31.0393 25.3552 28.2551 23.8886
Mar-10 1,491.75 14493.84 3.4250 -2.2591 -0.8985 -5.2650
Apr-10 1,499.60 15670.31 0.5262 -5.1579 8.1170 3.7505
May-10 1,469.35 15666.64 -2.0172 -7.7013 -0.0234 -4.3899
June-10 1,642.25 17126.84 11.7671 6.0830 9.3204 4.9539
July-10 1,621.30 15896.28 -1.2757 -6.9598 -7.1850 -11.5515
Aug-10 1,772.55 16926.22 9.3289 3.6448 6.4791 2.1126
Sep-10 1,700.40 17464.81 -4.0704 -9.7545 3.1820 -1.1845
Oct-10 1,630.85 16357.96 -4.0902 -9.7743 -6.3376 -10.7041
Nov-10 1,704.65 16429.55 4.5252 -1.1589 0.4376 -3.9289
Dec-10 1,932.50 17527.77 13.3664 7.6823 6.6844 2.3179

AVERAGE = 5.6841 4.3665

COVARIANCE (RI,RM) = 80.8027

VARIANCE(RM) = 93.0955

BETA VALUE = 0.8680

BANKEX INDUSTRY

ICICI BANK LTD.


Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm
Jan-10 477.75 11403.25
Feb-10 740.7 14625.25 55.0392 47.3803 28.2551 23.8886
Mar-10 722 14493.84 -2.5246 -10.1835 -0.8985 -5.2650
Apr-10 759.05 15670.31 5.1316 -2.5273 8.1170 3.7505
May-10 749.5 15666.64 -1.2582 -8.9171 -0.0234 -4.3899
June-10 904.8 17126.84 20.7205 13.0616 9.3204 4.9539
July-10 789.6 15896.28 -12.7321 -20.3910 -7.1850 -11.5515
Aug-10 864.3 16926.22 9.4605 1.8016 6.4791 2.1126
Sep-10 875.7 17464.81 1.3190 -6.3399 3.1820 -1.1845
Oct-10 830.4 16357.96 -5.1730 -12.8319 -6.3376 -10.7041
Nov-10 871.85 16429.55 4.9916 -2.6673 0.4376 -3.9289
Dec-10 952.7 17527.77 9.2734 1.6145 6.6844 2.3179

AVERAGE = 7.6589 4.3665

COVARIANCE (RI,RM) = 152.5706506

VARIANCE(RM) = 93.0955

BETA VALUE = 1.6389


BANKEX INDUSTRY

STATE BANK OF INDIA.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 1,277.70 11403.25
Feb-10 1,869.10 14625.25 46.2863 40.7477 28.2551 23.8886
Mar-10 1,742.05 14493.84 -6.7974 -12.3360 -0.8985 -5.2650
Apr-10 1,814.00 15670.31 4.1302 -1.4084 8.1170 3.7505
May-10 1,743.05 15666.64 -3.9112 -9.4498 -0.0234 -4.3899
June-10 2,195.70 17126.84 25.9688 20.4302 9.3204 4.9539
July-10 2,191.00 15896.28 -0.2141 -5.7527 -7.1850 -11.5515
Aug-10 2,238.15 16926.22 2.1520 -3.3866 6.4791 2.1126
Sep-10 2,269.45 17464.81 1.3985 -4.1401 3.1820 -1.1845
Oct-10 2,058.00 16357.96 -9.3172 -14.8558 -6.3376 -10.7041
Nov-10 1,975.85 16429.55 -3.9917 -9.5303 0.4376 -3.9289
Dec-10 2,079.00 17527.77 5.2205 -0.3181 6.6844 2.3179
Jan-10
AVERAGE = 5.5386 4.3665

COVARIANCE (RI,RM) = 130.5174728

VARIANCE(RM) = 93.0955

BETA VALUE = 1.4020


FMCG INDUSTRY

DABUR INDIA LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 103.55 11403.25
Feb-10 110.35 14625.25 6.5669 2.3677 28.2551 23.8886
Mar-10 126.05 14493.84 14.2275 10.0283 -0.8985 -5.2650
Apr-10 137.9 15670.31 9.4010 5.2018 8.1170 3.7505
May-10 124.85 15666.64 -9.4634 -13.6626 -0.0234 -4.3899
June-10 142.3 17126.84 13.9768 9.7776 9.3204 4.9539
July-10 151.85 15896.28 6.7112 2.5120 -7.1850 -11.5515
Aug-10 158.2 16926.22 4.1818 -0.0174 6.4791 2.1126
Sep-10 158.95 17464.81 0.4741 -3.7251 3.1820 -1.1845
Oct-10 159.85 16357.96 0.5662 -3.6330 -6.3376 -10.7041
Nov-10 168.7 16429.55 5.5364 1.3372 0.4376 -3.9289
Dec-10 158.6 17527.77 -5.9870 -10.1862 6.6844 2.3179

AVERAGE = 4.1992 4.3665

COVARIANCE (RI,RM) = 10.6426

VARIANCE(RM) = 93.0955

BETA VALUE = 0.1143

FMCG INDUSTRY
ITC LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 189.1 11403.25
Feb-10 183.65 14625.25 -2.8821 -6.4401 28.2551 23.8886
Mar-10 190.45 14493.84 3.7027 0.1447 -0.8985 -5.2650
Apr-10 250.05 15670.31 31.2943 27.7363 8.1170 3.7505
May-10 231.2 15666.64 -7.5385 -11.0965 -0.0234 -4.3899
June-10 231.9 17126.84 0.3028 -3.2552 9.3204 4.9539
July-10 255.15 15896.28 10.0259 6.4679 -7.1850 -11.5515
Aug-10 257.8 16926.22 1.0386 -2.5194 6.4791 2.1126
Sep-10 250.85 17464.81 -2.6959 -6.2539 3.1820 -1.1845
Oct-10 250.25 16357.96 -0.2392 -3.7972 -6.3376 -10.7041
Nov-10 232.05 16429.55 -7.2727 -10.8307 0.4376 -3.9289
Dec-10 263.15 17527.77 13.4023 9.8443 6.6844 2.3179

AVERAGE = 3.5580 4.3665

COVARIANCE (RI,RM) = 1.3995

VARIANCE(RM) = 93.0955

BETA VALUE = 0.0150

FMCG INDUSTRY
NESTLE INDIA LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 1,704.85 11403.25
Feb-10 1,726.35 14625.25 1.2611 -3.0723 28.2551 23.8886
Mar-10 2,001.60 14493.84 15.9440 11.6106 -0.8985 -5.2650
Apr-10 2,205.15 15670.31 10.1694 5.8360 8.1170 3.7505
May-10 2,200.00 15666.64 -0.2335 -4.5669 -0.0234 -4.3899
June-10 2,269.80 17126.84 3.1727 -1.1607 9.3204 4.9539
July-10 2,573.45 15896.28 13.3778 9.0444 -7.1850 -11.5515
Aug-10 2,537.35 16926.22 -1.4028 -5.7362 6.4791 2.1126
Sep-10 2,547.95 17464.81 0.4178 -3.9156 3.1820 -1.1845
Oct-10 2,558.90 16357.96 0.4298 -3.9036 -6.3376 -10.7041
Nov-10 2,622.00 16429.55 2.4659 -1.8675 0.4376 -3.9289
Dec-10 2,676.15 17527.77 2.0652 -2.2682 6.6844 2.3179

AVERAGE = 4.3334 4.3665

COVARIANCE (RI,RM) = -15.1298698

VARIANCE(RM) = 93.0955

BETA VALUE = -0.1625

I.T INDUSTRY
INFOSYS TECHNOLOGIES LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 1,507.30 11403.25
Feb-10 1,602.00 14625.25 6.2828 0.9674 28.2551 23.8886
Mar-10 1,776.90 14493.84 10.9176 5.6022 -0.8985 -5.2650
Apr-10 2,063.90 15670.31 16.1517 10.8363 8.1170 3.7505
May-10 2,132.30 15666.64 3.3141 -2.0013 -0.0234 -4.3899
June-10 2,308.40 17126.84 8.2587 2.9433 9.3204 4.9539
July-10 2,205.40 15896.28 -4.4620 -9.7774 -7.1850 -11.5515
Aug-10 2,383.95 16926.22 8.0960 2.7806 6.4791 2.1126
Sep-10 2,605.25 17464.81 9.2829 3.9675 3.1820 -1.1845
Oct-10 2,476.70 16357.96 -4.9343 -10.2497 -6.3376 -10.7041
Nov-10 2,601.60 16429.55 5.0430 -0.2724 0.4376 -3.9289
Dec-10 2,615.10 17527.77 0.5189 -4.7965 6.6844 2.3179

AVERAGE = 5.3154 4.3665

COVARIANCE (RI,RM) = 24.67320283

VARIANCE(RM) = 93.0955

BETA VALUE = 0.2650

I.T INDUSTRY
TATA CONSULTANCY SERVICES LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 623.2 11403.25
Feb-10 699.75 14625.25 12.2834 8.2099 28.2551 23.8886
Mar-10 389.7 14493.84 -44.3087 -48.3822 -0.8985 -5.2650
Apr-10 526.4 15670.31 35.0783 31.0048 8.1170 3.7505
May-10 527 15666.64 0.1140 -3.9595 -0.0234 -4.3899
June-10 619.35 17126.84 17.5237 13.4502 9.3204 4.9539
July-10 626.2 15896.28 1.1060 -2.9675 -7.1850 -11.5515
Aug-10 687.2 16926.22 9.7413 5.6678 6.4791 2.1126
Sep-10 749.75 17464.81 9.1022 5.0287 3.1820 -1.1845
Oct-10 735.45 16357.96 -1.9073 -5.9808 -6.3376 -10.7041
Nov-10 761 16429.55 3.4741 -0.5994 0.4376 -3.9289
Dec-10 780.8 17527.77 2.6018 -1.4717 6.6844 2.3179

AVERAGE = 4.0735 4.3665

COVARIANCE (RI,RM) = 68.5830

VARIANCE(RM) = 93.0955

BETA VALUE = 0.7367

I.T INDUSTRY
WIPRO LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 330.5 11403.25
Feb-10 381.55 14625.25 15.4463 7.9348 28.2551 23.8886
Mar-10 377.65 14493.84 -1.0221 -8.5336 -0.8985 -5.2650
Apr-10 490.65 15670.31 29.9219 22.4104 8.1170 3.7505
May-10 550.75 15666.64 12.2491 4.7376 -0.0234 -4.3899
June-10 601.75 17126.84 9.2601 1.7486 9.3204 4.9539
July-10 607.65 15896.28 0.9805 -6.5310 -7.1850 -11.5515
Aug-10 628.9 16926.22 3.4971 -4.0144 6.4791 2.1126
Sep-10 679.4 17464.81 8.0299 0.5184 3.1820 -1.1845
Oct-10 647.4 16357.96 -4.7100 -12.2215 -6.3376 -10.7041
Nov-10 676.7 16429.55 4.5258 -2.9857 0.4376 -3.9289
Dec-10 706.8 17527.77 4.4481 -3.0634 6.6844 2.3179

AVERAGE = 7.5115 4.3665

COVARIANCE (RI,RM) = 46.1995

VARIANCE(RM) = 93.0955

BETA VALUE = 0.4963


POWER INDUSTRY

NTPC LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 190.15 11403.25
Feb-10 215.45 14625.25 13.3053 12.2478 28.2551 23.8886
Mar-10 195.05 14493.84 -9.4686 -10.5261 -0.8985 -5.2650
Apr-10 215.6 15670.31 10.5358 9.4783 8.1170 3.7505
May-10 212.65 15666.64 -1.3683 -2.4258 -0.0234 -4.3899
June-10 213.7 17126.84 0.4938 -0.5637 9.3204 4.9539
July-10 211.4 15896.28 -1.0763 -2.1338 -7.1850 -11.5515
Aug-10 209.75 16926.22 -0.7805 -1.8380 6.4791 2.1126
Sep-10 235.7 17464.81 12.3719 11.3144 3.1820 -1.1845
Oct-10 214.25 16357.96 -9.1006 -10.1581 -6.3376 -10.7041
Nov-10 203 16429.55 -5.2509 -6.3084 0.4376 -3.9289
Dec-10 207 17527.77 1.9704 0.9129 6.6844 2.3179

AVERAGE = 1.0575 4.3665

COVARIANCE (RI,RM) = 48.5822

VARIANCE(RM) = 93.0955

BETA VALUE = 0.5219


POWER INDUSTRY

BHARAT HEAVY ELECTRICAL LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 1,651.75 11403.25
Feb-10 2,174.90 14625.25 31.6725 27.9084 28.2551 23.8886
Mar-10 2,204.35 14493.84 1.3541 -2.4100 -0.8985 -5.2650
Apr-10 2,228.05 15670.31 1.0751 -2.6890 8.1170 3.7505
May-10 2,314.70 15666.64 3.8891 0.1250 -0.0234 -4.3899
June-10 2,325.15 17126.84 0.4515 -3.3126 9.3204 4.9539
July-10 2,217.10 15896.28 -4.6470 -8.4111 -7.1850 -11.5515
Aug-10 2,244.55 16926.22 1.2381 -2.5260 6.4791 2.1126
Sep-10 2,406.10 17464.81 7.1974 3.4333 3.1820 -1.1845
Oct-10 2,406.45 16357.96 0.0145 -3.7496 -6.3376 -10.7041
Nov-10 2,352.15 16429.55 -2.2564 -6.0205 0.4376 -3.9289
Dec-10 2,385.45 17527.77 1.4157 -2.3484 6.6844 2.3179

AVERAGE = 3.7641 4.3665

COVARIANCE (RI,RM) = 72.5855

VARIANCE(RM) = 93.0955

BETA VALUE = 0.7797

POWER INDUSTRY
TATA POWER CO. LTD.

Month Scrip Price Sensex Value Scrip Ri Ri - R'i Index Rm Rm -R'm


Jan-10 893.95 11403.25
Feb-10 1,070.30 14625.25 19.7271 15.4614 28.2551 23.8886
Mar-10 1,149.70 14493.84 7.4185 3.1528 -0.8985 -5.2650
Apr-10 1,302.05 15670.31 13.2513 8.9856 8.1170 3.7505
May-10 1,308.80 15666.64 0.5184 -3.7473 -0.0234 -4.3899
June-10 1,319.45 17126.84 0.8137 -3.4520 9.3204 4.9539
July-10 1,343.20 15896.28 1.8000 -2.4657 -7.1850 -11.5515
Aug-10 1,348.95 16926.22 0.4281 -3.8376 6.4791 2.1126
Sep-10 1,377.95 17464.81 2.1498 -2.1159 3.1820 -1.1845
Oct-10 1,305.80 16357.96 -5.2360 -9.5017 -6.3376 -10.7041
Nov-10 1,212.95 16429.55 -7.1106 -11.3763 0.4376 -3.9289
Dec-10 1,372.60 17527.77 13.1621 8.8964 6.6844 2.3179

AVERAGE = 4.2657 4.3665

COVARIANCE (RI,RM) = 52.3370

VARIANCE(RM) = 93.0955

BETA VALUE = 0.5622

Chart Representation Of Beta Values(Risk) of


various companies of an Industry
AUTO INDUSTRY

Company Bajaj Auto Ltd Maruthi Suzuki India Hero Honda Motors
Beta Values 1.7261 1.0734 0.5731

Interpretation: From the above it is clear that Bajaj and Maruthi Suzuki recorded with high beta
where as herohonda recorded with 0.5731 systematic risk.
BANKEX INDUSTRY

Company HDFC SBI ICICI


Beta Values 0.868 1.402 1.6389

Interpretation: From the above it is clear that SBI and ICICI recorded with high beta where as HDFC recorded
with 0.868 systematic risk.
FMCG INDUSTRY

Company Dabur India ITC Nestle India


Beta Values 0.1143 0.015 -0.0025

Interpretation: From the above it is clear that ITC and Dabur recorded with high beta where as
Nestle India recorded with -0.0025 systematic risk.
I.T INDUSTRY

Company Infosys Tech's T.C.S Wipro


Beta Values 0.265 0.7367 0.4963

POWER INDUSTRY

Company NTPC BHEL Tata Power


Beta Values 0.5219 0.7797 0.5622

Interpretation: From the


above it is clear that BHEL
and TATA Power recorded
with high beta where as
NTPC recorded with
0.5219 systematic
risk.
Representation of Beta (Risk) of Portfolio in
Pie-Diagram

Serial No Company Beta Values


1 Hero Honda Motors Ltd 0.5731
2 HDFC Bank Ltd 0.868
3 Nestle India Ltd -0.1625
4 Infosys Technologies Ltd 0.265
5 NTPC Ltd 0.5219
Representation of Returns of
Portfolio in Pie-Diagram
Serial No Company Returns
1 Hero Honda Motors Ltd 4.9533
2 HDFC Bank Ltd 5.6841
3 Nestle India Ltd 4.3334
4 Infosys Technologies Ltd 5.3154
5 NTPC Ltd 1.0575
Allocation of Funds in Various Securities For Portfolio Construction
OPTION-I

SECTORS SCRIPS RETURNS 20% β-VALUE 20%

Auto Industry Hero Honda motors 4.9533 0.9907 0.5731 0.1146


Bankex Industry HDFC Bank Ltd 5.6841 1.1368 0.868 0.1736
FMCG Industry Nestle India Ltd 4.3334 0.8667 -0.1625 -0.0325
I.T Industry Infosys Technologies 5.3154 1.0631 0.265 0.0530
Power Industry NTPC Ltd 1.0575 0.2115 0.5219 0.1044
TOTAL = 4.2687 0.4131
OPTION-II

Corresponding
SECTORS SCRIPS Weightage RETURNS β-VALUE RETURNS β- VALUE

Auto Industry Hero Honda motors 23 4.9533 0.5731 1.1393 0.1318


Bankex Industry HDFC Bank Ltd 27 5.6841 0.868 1.5347 0.2344
FMCG Industry Nestle India Ltd 20 4.3334 -0.1625 0.8667 -0.0325
I.T Industry Infosys Technologies 25 5.3154 0.265 1.3289 0.0663
Power Industry NTPC Ltd 5 1.0575 0.5219 0.0529 0.0261
4.9224 0.4260
OPTION-III
Corresponding
RETURN
SECTORS SCRIPS Weightage RETURNS β-VALUE β-Value

Auto Industry Hero Honda motors 11 4.9533 0.5731 0.5449 0.063041


Bankex Industry HDFC Bank Ltd 7 5.6841 0.868 0.3979 0.06076
FMCG Industry Nestle India Ltd 36 4.3334 -0.1625 1.5600 -0.0585
I.T Industry Infosys Technologies 24 5.3154 0.265 1.2757 0.0636
Power Industry NTPC Ltd 22 1.0575 0.5219 0.0529 0.114818
3.8313 0.243719
Interpretation of Risks & Returns of Various Portfolio options.

OPTION-I OPTION-II OPTION-III


RETURNS 4.2687 4.9224 3.8313
RISKS 0.4131 0.426 0.2437
Chapter-6
FINDINGS
&
SUGGESTIONS
FINDINGS OF THE STUDY

The analysis of the study for the past one accounting year reveals the following:

 In each industry one single company’s security is found to be the least risky which are selected
to form a portfolio.

 Auto Industry- Hero Honda Motors

 Bankex Industry – HDFC Bank Ltd.

 FMCG Industry – Nestle India Ltd.

 I.T Industry – Infosys Technology

 Power Industry – NTPC ltd.

 The investors with very little risk averse can invest without any fear of loss occurring for their
investment in the Portfolio consisting of these selected companies.

 As far the average returns of selected companies in the portfolio are concerned, HDFC Bank
ltd. is performing well in isolation and Hero Honda, Nestle & Infosys are also performing well with
little variations compared to each other.

 As far as the beta coefficient or risk of an single asset of selected companies in a portfolio are
considered Nestle India is of less risky and even its returns are high in comparison to other selected
securities, so it is advisable to invest a larger portion of the investment in this particular scrip of the
portfolio.

 HDFC has the highest beta value and its returns are also high, which means that the higher
the risk higher will be the returns.

 The second highest beta value is observed for Hero Honda Motors whose corresponding
returns are also second highest in comparison to the securities selected.

 The investors who are ready to face risk and are risk averse by nature can invest larger portion
of their investments in HDFC Bank Ltd. to earn higher returns correspondingly.

 The investors who are very much concerned about the principle of minimizing risk and
maximizing the returns can opt for higher proportion of their investment in Nestle India ltd.

 In the rest of the selected securities rather than HDFC & Nestle India an investor can invest the
moderate proportion of their investment.

 If the allocation of funds is done equally in the all the selected companies of the portfolio the
returns and risk of the portfolio is found to be 9% and 91% respectively.

 Where as if they are allocated depending upon the returns, their proportion is found to be in the
ratio 8 : 92

 In the case of beta value considered the return and risk ratio is found to be 6 : 94
SUGGESTIONS

The investors are suggested to construct a portfolio consisting of the companies

 Hero Honda Motors

 Nestle India

 HDFC Bank Ltd.

 Infosys Technologies

 NTPC Ltd.

They are suggested to divide their investment amount in the proportions of the following to get
maximum returns with minimum risk associated

Hero Honda Motors -- 23% of total investment

HDFC Bank Ltd. -- 27% of total investment

Nestle India Ltd -- 20% of total investment

Infosys Technology -- 25% of total investment

NTPC Ltd -- 5% of total investment


CONCLUSION

As for investors, it is concerned that portfolio construction should be done with much
care and proper analysis under the close observation of the analysts.

As when the stocks are concerned they tend to behave according the market
fluctuations because stock market is perfectly efficient in nature.
ANNEXURES & BIBLIOGRAPHY

ANNEXURES OF THE COMPARED COMPANIES

AUTO INDUSTRY

BAJA AUTO LTD.

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 624.95 687.95 591 639.9 11,901 96.95 14.95
May-10 640.1 1,057.00 639 1,028.60 26,976 418 388.5
Jun-10 1,047.40 1,155.00 922.5 994.05 14,442 232.5 -53.35
Jul-10 999 1,262.00 935.25 1,224.65 25,799 326.75 225.65
Aug-10 1,220.00 1,356.00 1,045.00 1,215.45 27,649 311 -4.55
Sep-10 1,229.95 1,535.00 1,161.85 1,494.25 27,544 373.15 264.3
Oct-10 1,490.00 1,665.00 1,368.00 1,396.80 41,662 297 -93.2
Nov-10 1,425.00 1,616.00 1,391.25 1,569.50 29,415 224.75 144.5
Dec-10 1,502.65 1,800.00 1,480.00 1,761.70 36,499 320 259.05
Jan-11 1,770.00 1,836.40 1,641.15 1,773.10 32,472 195.25 3.1
MARUTI SUZIKI INDIA LTD.

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 775 873 741.5 815.7 1,18,953 131.5 40.7
May-10 825.95 1,060.00 796.55 1,021.55 80,258 263.45 195.6
Jun-10 1,035.00 1,120.00 1,011.00 1,065.45 48,941 109 30.45
Jul-10 1,070.00 1,428.65 995.3 1,413.25 99,528 433.35 343.25
Aug-10 1,425.00 1,515.00 1,227.00 1,436.65 1,24,103 288 11.65
Sep-10 1,448.00 1,740.00 1,447.00 1,698.90 1,20,201 293 250.9
Oct-10 1,690.00 1,705.00 1,368.50 1,403.00 1,16,321 336.5 -287
Nov-10 1,410.00 1,657.90 1,366.75 1,561.70 1,09,117 291.15 151.7
Dec-10 1,580.00 1,648.00 1,515.00 1,559.65 76,041 133 -20.35
Jan-11 1,584.70 1,597.00 1,345.60 1,390.10 1,35,829 251.4 -194.6
HERO HONDA MOTORS LTD.

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 1,075.00 1,198.00 1,011.00 1,184.25 42,589 187 109.25
May-10 1,206.00 1,500.00 1,164.00 1,340.90 26,246 336 134.9
Jun-10 1,368.85 1,550.10 1,346.00 1,397.85 25,204 204.1 29
Jul-10 1,465.00 1,780.00 1,301.15 1,605.50 64,584 478.85 140.5
Aug-10 1,615.00 1,641.00 1,345.10 1,511.35 74,474 295.9 -103.65
Sep-10 1,522.00 1,746.00 1,504.00 1,669.65 55,632 242 147.65
Oct-10 1,665.00 1,687.00 1,534.00 1,565.80 33,646 153 -99.2
Nov-10 1,550.00 1,797.80 1,452.00 1,720.90 55,821 345.8 170.9
Dec-10 1,740.00 1,776.00 1,644.00 1,716.45 35,819 132 -23.55
Jan-11 1,739.00 1,739.00 1,497.00 1,558.70 38,017 242 -180.3
BANKEX INDUSTRY
HDFC BANK LTD

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 978 1,138.00 952 1,100.70 1,31,399 186 122.7
May-10 1,119.00 1,498.00 1,110.10 1,442.35 1,18,521 387.9 323.35
Jun-10 1,455.00 1,580.00 1,352.80 1,491.75 97,168 227.2 36.75
Jul-10 1,499.00 1,548.80 1,333.00 1,499.60 1,23,698 215.8 0.6
Aug-10 1,504.00 1,525.00 1,353.30 1,469.35 72,356 171.7 -34.65
Sep-10 1,477.00 1,653.00 1,420.00 1,642.25 67,291 233 165.25
Oct-10 1,642.00 1,737.30 1,580.00 1,621.30 58,764 157.3 -20.7
Nov-10 1,599.95 1,807.80 1,582.00 1,772.55 59,633 225.8 172.6
Dec-10 1,751.00 1,836.00 1,642.10 1,700.40 56,814 193.9 -50.6
Jan-11 1,690.25 1,794.70 1,552.25 1,630.85 54,083 242.45 -59.4
STATE BANK OF INDIA

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 1,079.70 1,355.00 980 1,277.70 6,30,772 375 198
May-10 1,300.00 1,891.00 1,225.00 1,869.10 5,95,474 666 569.1
Jun-10 1,875.00 1,935.00 1,612.00 1,742.05 5,14,536 323 -132.95
Jul-10 1,737.90 1,840.00 1,512.00 1,814.00 5,01,799 328 76.1
Aug-10 1,825.00 1,886.90 1,670.00 1,743.05 3,53,242 216.9 -81.95
Sep-10 1,760.00 2,235.00 1,710.10 2,195.70 3,60,023 524.9 435.7
Oct-10 2,180.10 2,500.00 2,048.20 2,191.00 5,36,543 451.8 10.9
Nov-10 2,190.00 2,394.00 2,059.10 2,238.15 5,42,149 334.9 48.15
Dec-10 2,253.05 2,374.75 2,126.20 2,269.45 4,28,977 248.55 16.4
Jan-11 2,265.00 2,315.25 1,957.00 2,058.00 3,31,064 358.25 -207
ICICI BANK LTD

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 338 482.5 324 477.75 11,38,191 158.5 139.75
May-10 489.9 797 487.1 740.7 11,28,102 309.9 250.8
Jun-10 755 779.5 651.25 722 7,69,898 128.25 -33
Jul-10 740 807 606.7 759.05 9,15,924 200.3 19.05
Aug-10 762 803.8 690.6 749.5 6,16,658 113.2 -12.5
Sep-10 755 908.4 724 904.8 4,24,133 184.4 149.8
Oct-10 905 983.7 756.25 789.6 4,57,014 227.45 -115.4
Nov-10 780 939 773.1 864.3 4,45,813 165.9 84.3
Dec-10 868 916.5 800.5 875.7 4,01,380 116 7.7
Jan-11 888 907.3 773 830.4 3,15,609 134.3 -57.6
FMCG INDUSRTY

DABUR INDIA LTD

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 99.9 108.7 93.3 103.55 23,164 15.4 3.65
May-10 104 120 103.9 110.35 36,226 16.1 6.35
Jun-10 111.45 127.8 106 126.05 44,242 21.8 14.6
Jul-10 128.8 139 115 137.9 33,888 24 9.1
Aug-10 139.1 141.35 119 124.85 20,063 22.35 -14.25
Sep-10 125.5 147.5 124.95 142.3 26,560 22.55 16.8
Oct-10 139.5 158.7 135.3 151.85 29,179 23.4 12.35
Nov-10 151.85 170 147.1 158.2 35,381 22.9 6.35
Dec-10 160 171.9 158.1 158.95 14,917 13.8 -1.05
Jan-11 158.1 168.95 146.05 159.85 20,406 22.9 1.75
ITC LTD

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 185.1 194.8 177.6 189.1 70,472 17.2 4
May-10 190.1 209 179.35 183.65 1,02,688 29.65 -6.45
Jun-10 187 209.7 180.25 190.45 1,88,991 29.45 3.45
Jul-10 191.5 252.25 187.2 250.05 1,84,007 65.05 58.55
Aug-10 251.1 252 218 231.2 1,08,654 34 -19.9
Sep-10 233.9 237.9 223 231.9 79,807 14.9 -2
Oct-10 233 267.9 230 255.15 1,03,380 37.9 22.15
Nov-10 255 271.3 244 257.8 76,519 27.3 2.8
Dec-10 259 260.4 232 250.85 51,030 28.4 -8.15
Jan-11 251 259.6 241.5 250.25 62,572 18.1 -0.75
NESTLE INDIA LTD

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 1,545.00 1,802.00 1,545.00 1,704.85 7,817 257 159.85
May-10 1,715.00 1,800.00 1,652.30 1,726.35 9,488 147.7 11.35
Jun-10 1,726.35 2,017.00 1,693.00 2,001.60 11,508 324 275.25
Jul-10 2,018.00 2,250.00 1,910.00 2,205.15 14,540 340 187.15
Aug-10 2,200.00 2,255.00 2,082.00 2,200.00 13,914 173 0
Sep-10 2,209.95 2,285.00 2,130.00 2,269.80 11,929 155 59.85
Oct-10 2,260.00 2,739.00 2,260.00 2,573.45 18,883 479 313.45
Nov-10 2,618.00 2,690.00 2,500.25 2,537.35 18,401 189.75 -80.65
Dec-10 2,555.00 2,700.00 2,486.00 2,547.95 17,768 214 -7.05
Jan-11 2,536.00 2,602.00 2,455.50 2,558.90 13,503 146.5 22.9
I.T INDUSTRY

INFOSYS TECHNOLOGIES LTD.

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 1,326.00 1,514.90 1,275.00 1,507.30 1,56,034 239.9 181.3
May-10 1,515.00 1,830.00 1,485.05 1,602.00 1,84,300 344.95 87
Jun-10 1,605.00 1,854.00 1,602.00 1,776.90 1,47,658 252 171.9
Jul-10 1,776.80 2,076.95 1,635.00 2,063.90 1,69,337 441.95 287.1
Aug-10 2,060.00 2,202.70 1,936.00 2,132.30 1,10,763 266.7 72.3
Sep-10 2,139.80 2,414.70 2,122.35 2,308.40 1,07,837 292.35 168.6
Oct-10 2,301.00 2,352.50 2,141.00 2,205.40 1,16,425 211.5 -95.6
Nov-10 2,195.00 2,457.90 2,127.10 2,383.95 1,07,400 330.8 188.95
Dec-10 2,399.00 2,614.90 2,355.25 2,605.25 1,14,966 259.65 206.25
Jan-11 2,606.00 2,710.00 2,406.15 2,476.70 1,12,509 303.85 -129.3
TATA CONSULTANCY SERVICES LTD

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 505.25 627.2 505.25 623.2 1,61,202 121.95 117.95
May-10 600 794.7 600 699.75 1,79,199 194.7 99.75
Jun-10 680 805 355.25 389.7 1,93,318 449.75 -290.3
Jul-10 380 540.1 368 526.4 2,93,235 172.1 146.4
Aug-10 527 559.9 435.55 527 2,06,866 124.35 0
Sep-10 534 621.9 519 619.35 1,72,527 102.9 85.35
Oct-10 620 656.85 556.6 626.2 1,95,951 100.25 6.2
Nov-10 625 711.4 602.25 687.2 1,37,803 109.15 62.2
Dec-10 696 755.95 677.35 749.75 1,08,171 78.6 53.75
Jan-11 750.7 816.4 696.6 735.45 1,79,482 119.8 -15.25
WIPRO LTD.

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 246 332 240 330.5 1,14,929 92 84.5
May-10 334 448 333.15 381.55 1,15,472 114.85 47.55
Jun-10 384.8 454 368 377.65 99,027 86 -7.15
Jul-10 379 496 362.3 490.65 1,13,355 133.7 111.65
Aug-10 491.3 573.9 476.05 550.75 95,232 97.85 59.45
Sep-10 555 605 538.05 601.75 62,997 66.95 46.75
Oct-10 591.2 640 548.5 607.65 1,06,286 91.5 16.45
Nov-10 605 658 575.15 628.9 81,133 82.85 23.9
Dec-10 632 699 630.9 679.4 76,526 68.1 47.4
Jan-11 697.7 753 630 647.4 1,12,711 123 -50.3
NTPC LIMITED
Open High Low Close No. of * Spread
Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 181 205.5 176.1 190.15 2,58,173 29.4 9.15
May-10 193.7 222.75 185.15 215.45 2,46,613 37.6 21.75
Jun-10 219 233 186.55 195.05 3,49,639 46.45 -23.95
Jul-10 195.9 220.1 188 215.6 2,02,635 32.1 19.7
Aug-10 215.6 220.4 200.85 212.65 99,342 19.55 -2.95
Sep-10 214 215.3 203.55 213.7 77,688 11.75 -0.3
Oct-10 214.5 223 205.25 211.4 87,424 17.75 -3.1
Nov-10 211 218.85 201.65 209.75 60,978 17.2 -1.25
Dec-10 208 241.7 205.1 235.7 1,15,418 36.6 27.7
Jan-11 238.7 239 210.5 214.25 1,20,355 28.5 -24.45
TATA POWER CO LTD.

Open High Low Close No. of * Spread


Month Price Price Price Price Trades (Rs.)
H-L C-O
Apr-10 778 914.25 762 893.95 65,422 152.25 115.95
May-10 903.8 1,126.70 861.1 1,070.30 50,329 265.6 166.5
Jun-10 1,095.00 1,225.00 1,007.05 1,149.70 62,026 217.95 54.7
Jul-10 1,152.00 1,330.00 995 1,302.05 68,992 335 150.05
Aug-10 1,320.00 1,457.00 1,206.10 1,308.80 60,947 250.9 -11.2
Sep-10 1,309.05 1,345.00 1,222.70 1,319.45 44,542 122.3 10.4
Oct-10 1,312.00 1,487.00 1,258.50 1,343.20 50,467 228.5 31.2
Nov-10 1,343.00 1,374.00 1,262.00 1,348.95 55,115 112 5.95
Dec-10 1,350.00 1,388.00 1,308.25 1,377.95 29,500 79.75 27.95
Jan-11 1,381.00 1,518.55 1,269.00 1,305.80 35,922 249.55 -75.2
BIBLIOGRAPHY

BOOKS

1. Investment Analysis and Portfolio Management

By V.A.Avadhani

2. Security Analysis And Portfolio Management


By Donald E.Fischer, Ronald J.Jordan

3. Security Analysis And Portfolio Management


By Prasanna Chandra

WEBSITES

1. www.kotaksecurities.com
2. www.bseindia.com
3. www.moneycontrol.com
4. www.google.com