Optimal Portfolio Jaggu Project

OPTIMAL PORTFOLIO PERFORMANCE
Project Submitted By
Mr. G. JAGADEESH KUMAR

(REGISTER NO : 90349013)
In partial fulfillment of the degree of MASTER OF BUSINESS ADMINISTRATION Under the guidance of Mr. N. RAMAKRISHNA, B.A. , M.B.A.,
Asst. Professor
DR. JYOTHIRMAYI DEGREE COLLEGE (MBA)

SRI KRISHNADEVARAYA UNIVERSITY MBA 2009-2011
BONAFIDE CERTIFICATE
DEPARTMENT OF MANAGEMENT STUDIES
This is to certify that the project work entitled OPTIMAL PORTFOLIO
PERFORMANCE is a bonafide record work done by Mr. G. JAGADEESH KUMAR
(Reg. No.90349013) submitted in the partial fulfillment of the requirement for the award of the degree of MASTER OF BUSINESS ADMINISTRATION of the SRI KRISHNADEVARAYA UNIVERSITY.
Faculty guide
Head of the Department
Principal
Place:
Date:
DECLARATION
Mr. G. JAGADEESH KUMAR
(Reg. No.90349013) a bonafide student of the
Department of Management studies, DR. JYOTHIRMAYI DEGREE COLLEGE ( MBA) , ADONI. would like to declare that the project titled OPTIMAL PORTFOLIO PERFORMANCE in the partial fulfillment of MASTER OF BUSINESS
ADMINISTRATION course of the SRI KRISHNADEVARAYA UNIVERSITY is

my original work and will not be submitted for the award of an other degree, diploma, fellowship or other title or prize.
Signature
Date: Place:
Name: Reg.No:
ACKNOWLEDGEMENT
I would like to express my sincere thanks to our Correspondent Mr. MURALIBABU for encouraging us to do the training well from the college. I would like to thank our Principal Mr. K. VIJAYA KUMAR and for helping me to undergo the training well. Next I owe gratitude to my Head of the Department (HOD) Mr. KIRAN MESA permitting me to undertake the project in my interested specialization. Last but not least I would thank my guide Mr. N. RAMAKRISHNA and also our staff members, DR. JYOTHIRMAYI DEGREE COLLEGE (MBA) for their support during the course of my project which is worth praising. I also express my gratitude to my parents for blessing me and encouraging me to undergo the project effectively.
Signature
TABLE OF CONTENTS
CHAPTER 1 2 3 Introduction Company Profile Study Design 3.1 Importance and Need 3.2 Objectives of the Project 3.3 Scope of the Project 4 3.4 Limitations of the Project Review of Literature 4.1 Overview Of Capital Market 4.2 Stock Exchange 4.3 Investment Analysis 4.4 Portfolio Management 4.5 Risk And Return In Portfolio Theory 5 4.6 William Sharpes Single Index Model Research Design 5.1 Research Methodology 5.2 Primary data and Secondary data 5.3 Sampling 5.3.1 Sample Size 6 7 5.3.2. Sampling Technique Analysis and Interpretation Findings, Recommendations, Conclusion 7.1 Findings 7.2 Recommendations I 7.3 Conclusion I .i Bibiliography I. ii Annexure CONTENTS PAGE NO 7 9 24 25 26 27 28 29 30 33 44 49 54 60 68 69 69 69 69 69 70 80 81 81 82 83
List of Tables
TABLE NO CONTENTS PAGE NO
1 2 3 4
8 securities across the sectors. Values of each securities Optimal portfolio performance values of each securities Total risk of the securities
71 72 78 79
Optimal Portfolio Performance
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CHAPTER 1
Dr. Jyothirmayi Degree College (MBA), Adoni
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1. INTRODUCTION
Economic liberalization and globalization of financial markets have accelerated to the pace of Indian securities market. The role of securities markets in mobilizing and channeling the private capital for the economic development of the country has increased over the years. Introduction of computerized online trading and interconnected market system have lead to further growth. However, the huge success of IPOs, public issue of many companies and disinvestments of PSUs stake has proved this. FIIs have shown great interest in investing in Indian securities. Welcome change has been the active participation from retail investors. In this context, the security analysis and portfolio management has emerged as the most concerned aspect for rational investment, decision making. A portfolio is combination of securities held together as in investment. A portfolio tries to trade off the risk return preferences of an investor by not putting all eggs in single basket. A portfolio allows for sufficient diversification. Traditionally diversification meant holding large numbers of securities scattered across industries. Many would feel that holding fifty such scattered stocks is five times more diversified than holding ten scattered stocks. However modern portfolio doesnt believe in holding many stocks. It believes in having right kind of diversification, the right timing and the right reason. Markowitz was the first who laid foundation for Modern portfolio theory. He attempted to quantity risk. He provided analytical tools for analysis and selection of optimal portfolio. This portfolio approach won him Nobel Prize in 1990. The work done by Markowitz was extended by William Sharpe. He simplified the amount and type of input data required to perform portfolio analysis. He made the numerous and complex computations easy which were essential to attain optimal portfolio. This simplification is achieved through single index model. This model proposed by Sharpe in the simplest and the most widely used one. The study focuses on finding out an optimal portfolio using single index model.
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CHAPTER 2
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2. COMPANY PROFILE
Brics is one of the top-ranked brokerage houses in India today, with market share volumes consistently ranked among the best in the industry. A comprehensive financial advisory solutions provider, Brics offers an array of services comprising equity, debt and commodity broking, portfolio management, distribution of third-party products and depository facilities. Boasting a rich pedigree as the financial services arm of the JV Gokal Groupan international conglomerate with over 50 years of experience in tea and commodities tradingBrics is ideally placed to inherit the vast reserves of experience amassed by its parent company. With a view towards business expansion and diversification, Brics Securities was created in October 2003 following the acquisition and rechristening of Birla Sun Life Securitiesa joint venture between the Aditya Birla Group and the Sunlife Group of Canada.With a mandate of servicing the investment needs of clients, Brics Securities set off by drawing from the vast knowledge pool at Birla Sun Life Securities, and infusing fresh talent into it, crafting a team of top-notch financial professionals capable of accurately interpreting and meeting client needs. Headquartered in Mumbai, Brics operations are currently spread over a network of 13 offices in 8 cities across India. This essentially means greater accessibility for clientswhenever and wherever they need it. In just over two years, the company has established an enviable standing amongst the top brokerage houses. Analysts from Brics Securities have been featured among the top 10 in the country by business magazines and the company has consistently been placed in the top league of the Thompson First Call rankings. Brics Securities is also among the top five intermediaries in retail debt, making it a significant player in this segment. Brics has trading and clearing memberships with leading stock exchanges in India, thereby offering broking services across market segments at all national level exchanges including The Stock Exchange, Mumbai (BSE), the National Stock Exchange of India (NSE), the Multi Commodity Exchange of India (MCX) and the National Commodity and Derivatives Exchange (NCDEX). And, as a depository participant with the Central Depository Services (India) (CSDL), clients can also look forward to the smooth
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settlement of transactions. Armed with extensive experience in the financial services market, Brics aims to consolidate its position as a leading player through a staunch philosophy of client-centric services, underpinned by its core value proposition of intelligent investment ideas, informed insights and consistent, timely advice.
Parentage
Brics Securities is a 100% owned subsidiary of the JV Gokal Groupan international tea and commodities trading house with over five decades of experience in tea and commodities trading, and operations spread over six countries worldwide. Founded in 1952 by the late Mr. Jagjivan Gokal, the group has burgeoned into a US $150 million conglomerate with diverse business interests in tea, textiles, financial services and software. Its commodity business spans several emerging economies including Brazil, Russia, India, China, and South Africa. A leading international player in the tea trade, it has an extensive reach with offices in India, Sri Lanka, Russia, Kazakhstan, Hong Kong and Dubai, and a distribution network spanning 25 countries.The reins of this financially robust group are in the hands of Mr. Ravindra Gokal, Mr. Nakul Arun Jagjivan, Mr. Nayan Arun Jagjivan and Mr. Bhavesh R Gokal. The strong financial backbone of the group endows Brics with a strong balance sheet and reinforces its commitment towards business.
ASSOCIATE COMPANIES:
Brics Commodities Pvt. Ltd.
Brics Commodities draws its experience and expertise in commodities from its parent, the JV Gokal Group, which has been engaged in commodity trading since 1952. Brics Commodities is a registered Trading-cum-Clearing Member of the Multi Commodity Exchange of India (MCX) and the National Commodity and Derivatives Exchange (NCDEX), and is currently in the process of setting up operations across India.
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The company is supported by the twin pillars of superior infrastructure and an experienced research team. The depth of the research can be gauged from the fact that it conducts proprietary 4-stage crop surveys and soil condition analyses before taking calls on agricultural commodities.
Wealth Advisors India Pvt. Ltd.

Wealth Advisors India (WAI) is promoted by a team of professionals with more than two decades of experience in the financial services industry. The WAI team has a successful track record in financial advisory services by virtue of its client focus, which ensures customized, value-added and prompt services. Services offered by WAI include the distribution of third party products (mutual funds, life and general insurance, postal savings, government bonds, corporate debt) and in-house products (debt, equity, demat).The target audience mainly comprises corporate, SMEs, banks, PFs, trusts, HNIs and retail individuals.
Botree Software
Incorporated in 1997 Botree Software International (BSIL) is a product development and Internet solutions company, offering a bouquet of technical, creative, operational and consultancy services. Its brand Stocky has built up a strong presence with a gamut of products in the areas of distributor automation, C&FA automation, middleware solutions (web-based), sales force automation (using handheld devices) and integration with ERP systems. Today, BSIL (ISO 9001:2000 certified) has established itself as one of the finest downstream supply chain service providers. It has a noteworthy client list comprising reputed names in the FMCG, pharmaceutical and mobile verticals such as Johnson & Johnson, Nestle, Hindustan Lever, Marico Industries, Philips, Procter & Gamble, L'Oreal and Godrej Industries. Botree also provides solutions in healthcare management and turnkey project execution for international clients.
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BOARD OF DIRECTORS:
Prabhat Awasthi, Head, Equities & Research
An IIT-Kanpur and IIM-Lucknow alumnus, Prabhat has more than a decade of diverse experience in Equity Research, and was rated Indias Top Analyst by Business Today (May 2005).
Rahul Rege, Head, Non-Institutional Business

Rahul comes to us with his rich experience in non-institutional broking space at Sharekhan. Rahul was a key member at Share khan since its inception and has spent seven years with them.
Smita Das, Head, Institutional Sales

Smita brings with her over nine years of experience in institutional sales, handling prestigious domestic as well as international clients. She holds an MBA degree in Marketing & Finance from XIM, Bangalore.
Nirav Sheth, Head, Portfolio Management Services

Nirav has an 11-year track record covering the FMCG, Media and Retail sectors. Nirav holds an MBA degree in Finance from Symbiosis Institute of Business Management, Pune.
Bidisha Ganguly, Chief Economist

Bidisha harbours over 10 years of rich experience. In her prior role as Senior CII Economist, she garnered wide-ranging experience in banking & finance, and overall monetary & fiscal policy. Bidisha holds an M.A. in Economics, followed by graduate studies at Columbia University and the University of Maryland, USA.
Distribution Of Products And Services

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Wealth Advisors' basket of products is wide enough to address the diverse requirements of clients and includes distribution of third party products like Mutual funds, Corporate Debt, Equities, Corporate Deposits, GOI Bonds, Life Insurance, General Insurance and Small Savings Schemes.WAI has strong in-house and group research capabilities in mutual funds, debt and equities to analyze products and markets and then recommend them accordingly.
Mutual Funds: A multiplicity of schemes necessitate an in-depth understanding of their investment objectives, regular monitoring and analysis of risk adjusted returns of schemes vis--vis benchmark performances. We have to then identify schemes that deliver superior performance while adhering to their specific investment policy.
Equities: There is often more to a company's story than what numbers alone reveal. Which is why, we look beyond published reports and rely on in-house research. While quantitative analysis using the in-house and group research capabilities serves as a first stage filter, our research team meets with company managements and observes operations on-site to get meaningful insights into a company's ability to translate vision into reality.
Debt: The overall objective is to optimize returns while attempting to minimize both interest rate risk and credit risk. Based on regular monitoring of the economy and factors which impact interest rate and credit quality, our research team arrives at broad investment strategies in debt mutual fund schemes or corporate debentures.
Fixed Income Research

Brics Securities Fixed Income Group provides secondary market broking services over a range of debt instruments, including government securities, treasury bills, and public and private sector bonds. Our experienced dealing team currently services over 200 institutional clients which include Banks, Mutual Funds, Insurance Companies, Financial Institutions and Primary Dealers (PDs). Company has a member of the WDM segment of the NSE and BSE, and the companys access to the latest movements in the wholesale debt market allows clients to reap the rich benefits of accurate and timely information. In the retail debt segment, Brics Securities currently services over 2,000 clients across the country on a regular basis, comprising Corporate Retirement Trusts, NBFCs and High Net Worth
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Individuals (HNI). The transaction ticket size varies from a few thousand rupees to a few crores, depending on client requirements. Company offer services to provident fund, gratuity and superannuation trusts in the Retirement Trusts category. Effective April 1, 2003, nongovernment trusts are required follow a statutory investment pattern as laid down by the finance ministry. In the NBFC client segment, Brics offers broking as well as advisory services, and helps maintain client SLRs at the required level (15% of total deposits for NBFCs that accept deposits from the public). Brics Securities also offers broking services to retail investors for government securities. Individual investors can avail of our services with a minimum investment of Rs 1000, and also conveniently obtain two-way quotes from us by telephone. We deal only in the de-materialised form of securities.
BRICS SECURITIES ADVANTAGE

Access to the latest market trends:
Armed with the unique advantage of having access to the latest trends in the wholesale debt market, Brics is able to provide clients with accurate and timely market information. Our dedicated sales persons pre-empt client needs and provide fitting investment advice. Apart from this, Brics also acts as a principal party in buying and selling securities, thus helping clients maintain their statutory investment patterns.
In-depth analysis:
An intimate understanding of the market helps Brics Securities produce cutting-edge reports. The Fixed Income Group conducts in-depth analysis of key issues influencing the Indian debt, money and foreign exchange markets. Companys research team provides opinions on asset allocation, helps identify significant market trends and publishes global forecasts on economic activity, policies, interest rates and the Indian rupee, so as to highlight opportunities for investors and issuers. Additionally, a dedicated team tracks developments on the Indian economy. Insightful portfolio analysis coupled with extremely efficient post deal execution ensures complete client satisfaction.
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Privacy Policy
At Brics Securities Ltd. they consider the relationship with customer as invaluable and strive to respect and safeguard the right to privacy. During the relationship customer has to provide the company with various information for the purpose of availing various facilities and services, such as online share trading. The personal information company gets from customer will help to provide with the improved services and products that match customer needs as closely as possible. Company ensure to protect the personal and financial details submitted by the customer and the transaction detail done through the company. Customers account information is protected by placing it in the secure portion of the company Web site, which is why access to the account is restricted to customer only through your unique login ID and password. Customer should not reveal the ID and password to any body to maintain confidentiality of the information. Company shall not disclose customers personal details to any third party. However under certain conditions we would share this information: (1) The company or its affiliates may use your personal information to keep you updated about new product or information which is offered from time to time, that may be of interest to you. (2) As a part of normal legal/regulatory purposes required by the Securities and Exchange Board of India, Bombay Stock Exchange Limited, National Stock Exchange of India Ltd. and other regulatory and government entities, and (3) Entities, if any, to whom we give contract for processing your application and transactions and such disclosure would be exclusive to the performance of the specific service we have assigned. Please note that this privacy policy does not create any contractual or other legal rights in or on behalf of any party, nor is it intended to do so.
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RULES AND REGULATIONS AFFECTING CLIENT TRADING MEMBER RELATIONSHIP

Contract Note
Every Trading Member shall issue a contract note to his constituents for trades executed in such format as may be prescribed by the Exchange from time to time with all relevant details as required therein to be filled in and issued in such manner and within such time as prescribed by the Exchange. A contract note shall be signed by a Trading Member or his Authorised signatory or constituted Attorney. The Contract Notes shall be numbered with unique running serial number commencing from one which shall be reset only at the beginning of every financial year. In case separate series are maintained in respect of different dealing offices of the trading member, then the dealing office name or code shall be prefixed to the serial number. A contract note may also be issued by a Trading Member in electronic form in such format as may be prescribed by the Exchange from time to time duly authenticated by means of a digital signature as specified in the Information Technology Act, 2000 and the Rules made there under.
Brokerage
All the orders entered on the Trading System shall be at prices exclusive of brokerage.Trading Members shall charge brokerage at rates not exceeding such scale as the Exchange may from time to time prescribe. A Trading Member shall charge brokerage separately to their constituents and this shall be indicated separately from the price, in the contract note.
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Interest, Dividend, Rights / Bonus And Calls

The buyer shall be entitled to receive all coupons, dividends, bonus, rights and other privileges which may appertain to securities cum coupon, cum dividend, cum bonus, cum rights, etc. and the seller shall be entitled to receive all coupons, dividends, bonus issues, rights and other privileges which may appertain to securities sold ex coupon, ex dividend, ex bonus, ex rights, etc.
Margin From The Constituents

The Trading Members shall have the right to demand from its constituents the Margin Deposit which the member has to provide under these Trading Regulations in respect of the business done by the Members for such constituents. The Trading Members shall buy securities on behalf of the constituent only on the receipt of margin of minimum such percentage as the relevant authority may decide from time to time, on the price of the securities proposed to be purchased, unless the constituent already has an equivalent credit with the broker. The Trading Member may not, if so desire, collect such a margin from Financial Institutions, Mutual funds and Foreign Institutional Investors. The Trading Members shall buy securities on behalf of the constituent only on the receipt of margin of minimum of such percentage as the relevant authority may decide from time to time, on the price of the securities proposed to be sold, unless the Trading Member has received the securities to be sold with valid transfer documents to his satisfaction prior to such sale. The Trading Member may not, if so desire, collect such a margin from Financial Institutions, Mutual funds, and Foreign Institutional Investors. The Trading Member shall obtain a written undertaking from the constituents that the latter shall when called upon to do so forthwith from time to time provide a Margin Deposit and/or furnish additional Margin as required under these Rules and Regulations in respect of the business done for the constituent by and/or as agreed upon by constituent with the Trading Member concerned. The Trading Member may keep the unutilized margin deposits of his client in bank deposits and pay interest on the same at such rate as may be mutually agreed in writing between the Trading Member and his constituent out of the interest accrued on the said deposits.
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Trading Member In Default

For the purpose of Byelaw 8 of Chapter X of the Byelaws of the Exchange, the period within which a constituent shall close out his contract shall be seven trading days from the date of pay out of securities due to him; Provided however, if the constituent has not effected the close out as stated above, he shall be deemed to have closed out at the highest price of the said security deliverable to him from the date of trading till the 7th trading day from the date of pay out and loss or damage referred in the said Byelaw shall be ascertained accordingly.
Constituent In Default
If a constituent fails to make payment of consideration to the trading member in respect of any one or more securities purchased by him before the pay- in date notified by the Exchange from time to time. The Trading Member shall be at liberty to sell the securities received in pay-out, in proportion to the amount not received, after taking into account any amount lying to the credit of the Constituent, by selling equivalent securities at any time on the Exchange not later than the fifth trading day reckoned from the date of pay- in. If the trading member has not sold the securities for any reason whatsoever, such securities shall be deemed to have been closed out at the close out price declared by the Exchange for the fifth trading day. The loss, if any, on account of the close out shall be to the account of the Constituent. If a Constituent fails to deliver any one or more securities to the pool account of the trading member in respect of the securities sold by him before the pay- in date notified by the Exchange from time to time. Such undercharged obligation in relation to delivering any one or more securities shall be deemed to have been closed out at the auction price or close-out price, as may be debited to the Trading Member in respect of the security for the respective settlement, To the extent traceable to the Constituent who has failed to deliver; otherwise the close out price on the date of pay-out in respect of the relevant securities, declared by the Exchange. The loss, if any, on account of the close out shall be to the account of the Constituent. Subject to what is stated above, no further claims shall lie between the Constituent and Trading Member.Explanation: If for any reason, schedule of pay-in and pay-out is modified the above provision shall be made applicable reckoning the actual date of pay-in and/or pay-out, as the case may be.
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CODE OF CONDUCT FOR TRADING MEMBERS ADHERENCE TO SEBI CODE OF CONDUCT

The Trading Member shall at all times subscribe to the Code of Conduct as prescribed by the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992.
General Principles
Professionalism:
A Trading Member in the conduct of his business shall observe high standards of commercial honour of just and equitable principles of trade.
Adherence to Trading Practices:

Trading Members shall adhere to the Rules, Regulations and Byelaws of the Exchange and shall comply with such operational parameters, rulings, notices, guidelines and instructions of the relevant authority as may be applicable from time to time.
Honesty and Fairness:

In conducting his business activities, a Trading Member shall act honestly and fairly, in the best interests of his constituents.
Capabilities:
A Trading Member shall have and employ effectively the resources and procedures which are needed for the proper performance of his business activities.
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Trading Principles
(a) Trading Members/Participants shall ensure that the fiduciary and other obligations imposed on them and their staff by the various statutory Acts, Rules and Regulations are complied with. (b) Trading Members/Participants shall ensure (i) that any employee who commits the Trading Members or Participants to a transaction has the necessary authority to do so. (ii) that employees are adequately trained in operating in the relevant market segment in which they deal, are aware of their own, and their organisation's responsibilities as well as the relevant Statutory Acts governing the Trading Member, the Rules, Regulations and Bye-laws of the Exchange including any additions or amendments thereof. (c) Trading Member shall be responsible for all the actions including trades originating through or with the use of all following variables - Trading Member Id, User Id, valid User password at that point of time. However if the Trading Member satisfies the Exchange that the action(s) and /or trade(s) took place due to fraud or misrepresentation by any other person other than his authorized person(s) and that the action(s) and/or trades did not originate from any of his approved workstations, the Exchange may issue such directions as it considers just and reasonable. The directions may include referring the matter to arbitration and/or annulment of trade(s) so effected. (d) When entering into transactions on behalf of constituents, the Trading Members shall ensure that they abide by the Code of Conduct and regulations as enumerated in the current chapter of these regulations. (e) No Trading Member or person associated with a Trading Member shall make improper use of constituent's securities or funds.
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(f) No Trading Member shall publish and circulate or cause to be published or circulated, any notice, circular, advertisement, newspaper article, investment service or communication of any kind which purports to report any transaction as a purchase or sale of any security unless such Trading Member can establish if called for that such transaction was a bonafide purchase or sale of such security or which purports to quote the purchase/sale price for any security unless such Trading Member can establish if called for that such quotation represents a bonafide order of such security. (g) When entering into or arranging transactions, Trading Members must ensure that at all times great care is taken not to misrepresent in any way the nature of transaction. (h) No Trading Member shall exercise any discretionary power in a client's account unless such client has given prior written authorization to a stated individual or individuals and the account has been accepted by the Trading Member, as evidenced in writing by the Trading Member. (i) A Trading Member shall not act as a principal or enter into any agreement or arrangement with a client or client's agents, employees or any other person connected to the client, employee or agency, whereby special or unusual rates are given with intent to give special or unusual advantage to such client for the purpose of securing his business. (j) The facility of placing orders on Pro-account through trading terminals shall be availed by the Trading Members only at one location of the Trading Members as specified / required by the Trading Members. Any trading terminal located at a place other than the above location shall have a facility to place order only for and on behalf of a Constituent by entering client code details as required by the Exchange / SEBI. In case any trading member requires the facility of using Pro-account through trading terminals from more than one location, such trading member shall request the Exchange stating the reason for using the Proaccount at multiple locations and the Exchange may, on a case to case basis after due diligence, consider extending the facility of allowing use of Pro-account from more than one location.
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Unfair Trading Practices

4.6.1 No Trading Member shall execute or cause to be executed or participate in an account for which there are executed purchases of any eligible security at successively higher prices, or executed sales of any such security at successively lower prices, for the purpose of creating or inducing a false, misleading or artificial appearance of activity in such security or for the purpose of unduly or improperly influencing the market price for such security or for the purpose of establishing a price which does not reflect the true state of the market in such security.4.6.2 No Trading Member shall, for the purpose of creating or inducing a false or misleading appearance of activity in an eligible security or creating or inducing a false or misleading appearance with respect to the market in such security, (a) enter any order or orders for the purchase of such security with knowledge that an order or orders of substantially the same size, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (b) enter any order or orders for the sale of such security with the knowledge that an order or orders of substantially the same size, and at substantially the same price for the purchase of such security has been or will be entered by or for the same or different parties.4.7 Every Subbroker shall comply with all relevant statutory Acts, including Securities Contracts (Regulation) Act, 1956 and Rules there under of 1957, and Securities Exchange Board of India Act, 1992 and Rules, Regulations and guidelines there under, Byelaws, Rules and Regulations of the Exchange and the requirements of and under any notifications, directives, guidelines and circulars issued by SEBI and/or the Exchange.
Philosophy of the company

Inspiration, Innovation and Integrity are the three elements that lie at the very core of the companys philosophy. Brics philosophy is: To become an inspiration not only for employees but also for their peers by adopting fair and just practices in their conduct with all the stakeholders of the company. They continually strive to be innovative in their approach to the solutions they provide, and also in their processes and services. At Brics, ethics take top priority.
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CHAPTER 3
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3. STUDY DESIGN
3.1 IMPORTANCE AND NEED OF THE STUDY
It helps the investor in identifying the systematic and unsystematic risk
involved in the share prices of the companys stocks. It makes careful analysis of the past, planning and diversification of the
investment to moderate the effects of the various risk factors. Statistical use of standard deviation and expected rate of return help to
quantify the risk. Analysis of risk and return trade off helps to measure how fast, how
often, how much and so on and give a measurement of the heat and speed of the market as well as identifying the best and worst constituents at the time. It helps the investor in making decision on buying and selling the
securities according to the risk involved and the returns associated with the particular stock. It helps the investor to analyze and find out the possible yield from his
investments.
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3.2 OBJECTIVES OF THE PROJECT
1. To construct an optimal portfolio using Sharpe single index model. 2. To identify stocks and proportion of stocks to be included in portfolio. 3. To find out the stocks to be sold, if existing in current portfolio. 4. To maximize the returns at a given level of risk. 5. To minimize the risk at a given level of returns.
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3.3 SCOPE OF THE PROJECT

As the stock market is highly volatile, it is very difficult for the ordinary investor or speculator to predict the movements of stock prices. The movements of stock prices are predicted where the investors could minimize the risk and there by maximize their profits. Once an investor is able to identify the trend, through this he can maximize his profits. In this scenario many companies are available. Many people want to invest in shares in order to make huge profits. In this scenario many companies are available and the investors are in a dilemma to choose a particular company for investing which gives more returns for them rather than putting their hands in a company, which is more risky. To assess the potential for an industry group, an investor would like to consider the overall growth rate, market size and importance to the economy. While the individual company is still important, its industry group likely to exert just as much, or more, influence on the stock price. When stocks move, they usually move a group; there arte very few lone guns out there. Many times it is more important to be in the right industry than in the right stock. Once the industry is chosen, an investor would need to narrow the list of companies before proceeding to a more detailed analysis. Investors are usually interested in finding the leaders and the innovators within the group. The first task is to identify the current business and competitive environment with in a group as well as the future trend. How do the companies rank according to market share, product position and competitive advantage? Success depends on an edge, be it marketing, technology, market share or innovation. Comparative analysis will help identify those companies, which are best to invest with an edge by using methods like expected rate of return, standard deviation and risk free rate of return calculation. The study is to construct an optimal portfolio by using an William Sharpes Single Index Model. The stocks chosen to include in portfolio are limited to 8 stocks, which are constituents of NIFTY.
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3.4 LIMITATIONS OF THE PROJECT
1. The project is limited to the extent of information available. 2. Study is restricted to only 8 stocks, which are constituents of market portfolio i.e., NSENIFTY. 3. Dividend incomes are not considered. 4. Stock prices considered are restricted to only the previous 24-months closing prices.
5. The study of purely academic interest.

6. Due to time constraint and lack of information, no gilt edged securities, mutual funds, debentures, etc. could be included in this portfolio.
7. All the calculations could not be brought into the report.
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CHAPTER 4
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4. REVIEW OF LITERATURE
4.1 OVERVIEW OF CAPITAL MARKET
Capital Market is a wide term used to comprise all operations in the New Issues and Stock Market. New Issues made by companies constitute the Primary Market, while trading in the existing securities relates to the Secondary Market. While we can only buy in the Primary Market, we can buy and sell securities in the Secondary Market. Capital Market encompasses all operations of F.I.I., Banks etc., at the long end of spectrum of maturities. It is concerned with those private savings that are turned into investments through new capital issues and also new public loans floated by government and semi-government bodies. Capital Market is a market for borrowing and lending of funds of more than one year. This market supplies funds for financing the fixed capital requirements of trade and commerce as well as the long-term requirements of the government. Developing banks and Insurance companies play a dominant role in the capital market. Transactions in the capital market have to be conducted only through authorized dealers.
Primary Market:
Primary market is a market for new issues or new financial claims. Hence, it is also called Initial Public Offering (IPO). Primary market deals with those securities, which are issued to the public for the first time. In the primary market, the borrower exchange new financial securities for long-term funds. Thus primary market facilitates capital formation. There are three ways by which a company may raise capital in the primary market. They are: Primary issue, Rights issue, & Private placement.
The most common method of raising capital by new companies is through sale of securities to the public. It is called public issue or Initial Public Offering (IPO).
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When an existing company wants to raise additional capital, securities are first offered to the existing shareholders on a pre-emptive basis. It is called rights issue. Private placement is a way of selling securities privately to a small group of investors.
Secondary Market:
Secondary market is a market for secondary sale of securities. Securities that are already traded in the new issue market are traded in this market. Generally such securities are quoted in the Stock Exchanges and it provides a continuous and regular market for buying and selling of securities. This market consists of all stock exchanges recognized by the Government of India. The stock exchanges in India are regulated under the Securities Contracts (Regulation) Act, 1956. The Bombay Stock Exchange is the principal stock exchange in India, which sets the tone of the other stock markets.
Structure of the Market:

There are various sub-markets in the Capital Market in India. The structure has undergone vast changes in recent years. New instruments and new institutions have emerged on the scene. The sub-markets in the Capital Market are1. Market for Corporate securities-for new issues and old securities, 2. Market for Government securities, 3. Market for Debt instruments-debentures and bonds of private corporate sector, bond of public sector undertakings, public financial institutions, etc. 4. Mutual fund schemes and UTI schemes, etc. So far as the individual investors are concerned, the market for Corporate securities and Mutual funds schemes are more relevant. They satisfy requirements of investors namely, appreciation of capital, safety, liquidity and hedge against inflation.
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Importance of Capital Market:

Absence of a capital market acts as a hindrance to the capital formation and economic growth. Resources would remain idle if finances were not funneled through capital market. The importance of capital market can be briefly summarized as The capital market serves as an important source for the productive use of the economys savings. It mobilizes the savings of the people for further investment and thus avoids their wastage in unproductive uses. It provides incentives to savings and facilitates capital formation by offering suitable rates of interest as per the price of capital. It provides an avenue for investors, particularly the household sector to invest if financial assets which are more productive then physical assets. It facilitates increase in production and productivity in the economy and thus enhances the economic welfare of the society. Thus, it facilitates the movement of stream of command over capital to the point of highest yield towards those who can apply them productively and profitably to enhance the national income in the aggregate. The operations of different institutions in the capital market induce economic growth. They give qualitative and quantitative directions to the flow of funds and bring about rational allocation of scarce resources. A healthy capital market consisting of expert intermediaries promotes stability in values of securities representing capital funds.
Capital Market Instruments:

The main capital market instruments one can invest in and include in his portfolio are: 1. 2. 3. 4. 5. 6. 7. Equity Shares, Preference Shares, Debentures (convertible and non-convertible), Secured Premium Notes, Zero Coupon Bonds, & Discount Bonds and Deep Discount Bonds. Mutual Funds.
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4.2 STOCK EXCHANGE:

A stock exchange or share market is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as, other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a local & central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions.
Trade on an exchange is by members only & stock & share holders. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market.
A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
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List of Stock Exchanges In India:

Bombay Stock Exchange National Stock Exchange Regional Stock Exchange Ahmedabad Stock Exchange Bangalore Stock Exchang Bhubaneshwar Stock Exchange Calcutta Stock Exchange Cochin Stock Exchange Coimbatore Stock Exchange Delhi Stock Exchang Guwahati Stock Exchange Hyderabad Stock Exchange Jaipur Stock Exchange Ludhiana Stock Exchange Madhya Pradesh Stock Exchange Madras Stock Exchange Magadh Stock Exchange Mangalore Stock Exchange Meerut Stock Exchange OTC Exchange Of India Pune Stock Exchange Saurashtra Kutch Stock Exchange Uttar Pradesh Stock Exchange
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History of Stock Exchanges In India:

In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania' in India began with the American Civil War broke and the cotton supply from the US to Europe stopped. Further the brokers increased to 250. At the end of the war in 1874, the market found a place in a street (now called Dalal Street). In 1887, "Native Share and Stock Brokers' Association" was established. In 1895, the exchange acquired a premise in the street, which was inaugurated in 1899.
Objectives:
Create a single integrated national level solution with access to multiple markets providing high cost-effective service to millions of investors across the country. Create a liquid and vibrant national level market for all listed companies in general and small capital companies in particular. Optimally utilize the existing infrastructure and other resources of Participating Stock Exchanges, which are under-utilized now. Provide a level playing field to small Traders and Dealers by offering an opportunity to participate in a national market having investment-oriented business. Reduce transaction cost. Provide clearing and settlement facilities to the Traders and Dealers across the Country at their doorstep in a decentralized mode. Spread demat trading across the Country. for
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The Role Of Stock Exchanges

Stock exchanges have multiple roles in the economy, this may include the following:
Raising capital for businesses:

The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.
Mobilizing savings for investment:

When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels.
Facilitating company growth:

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
Redistribution of wealth:
Stocks exchanges do not exist to redistribute wealth although casual and professional stock investors through stock price increases and dividends get a chance to share in the wealth of profitable businesses.
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Corporate governance:
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some welldocumented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies (e.g. Enron Corporation, MCI WorldCom, Pets.com, Webvan, or Parmalat). Creating investment opportunities for small investors: As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors, and to enjoy similar rates of return.
Government capital-raising for development projects:

Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
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Barometer of the economy:

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
Listing requirements:
Listing requirements are the set of conditions imposed by a given stock exchange upon companies that want to be listed on that exchange. Such conditions sometimes include minimum number of shares outstanding, minimum market capitalization, and minimum annual income.
REQUIREMENTS BY STOCK EXCHANGE:

Companies have to meet the requirements of the exchange in order to have their stocks and shares listed and traded there, but requirements vary by stock exchange:
London Stock Exchange: The main market of the London Stock Exchange has requirements for a minimum market capitalization (700,000), three years of audited financial statements, minimum public float (25 per cent) and sufficient working capital for at least 12 months from the date of listing.
NASDAQ Stock Exchange: To be listed on the NASDAQ a company must have issued at least 1.25 million shares of stock worth at least $70 million and must have earned more than $11 million over the last three years.
New York Stock Exchange: To be listed on the New York Stock Exchange (NYSE), for example, a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over the last three years.
Stock Market:
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Indian stock market marks to be one of the oldest stock market in Asia. Stock Market, which is a market where the trading of company stock, both listed company securities and unlisted takes place. It is different from stock exchange because it also put all stock indices and stock index movements on the same platform. For example, we use the term, "the stock market was up today" or "the stock market bubble."
The National Stock Exchange:

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.
Mission of NSE:
NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of: establishing a nation-wide trading facility for equities, debt instruments and hybrids, ensuring equal access to investors all over the country through an appropriate communication network, providing a fair, efficient and transparent securities market to investors using electronic trading systems, enabling shorter settlement cycles and book entry settlements systems, and meeting the current international standards of securities markets.
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Promoters:
NSE has been promoted by leading financial institutions, banks, insurance companies and other financial intermediaries: Industrial Development Bank of India Limited Industrial Finance Corporation of India Limited Life Insurance Corporation of India State Bank of India ICICI Bank Limited IL & FS Trust Company Limited Stock Holding Corporation of India Limited SBI Capital Markets Limited Bank of Baroda Canara Bank General Insurance Corporation of India National Insurance Company Limited The New India Assurance Company Limited The Oriental Insurance Company Limited United India Insurance Company Limited Punjab National Bank Oriental Bank of Commerce Corporation Bank Indian Bank Union Bank of India Infrastructure Development Finance Company Ltd.
Corporate Structure:
NSE is one of the first de-mutualized stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has
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been set up as a public limited company, owned by the leading institutional investors in the country.
From day one, NSE has adopted the form of a demutualised exchange - the ownership, management and trading is in the hands of three different sets of people. NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange. This has completely eliminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework.
The NSE model however, does not preclude, but in fact accommodates involvement, support and contribution of trading members in a variety of ways. Its Board comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc, public representatives, nominees of SEBI and one full time executive of the Exchange. While the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to various committees constituted by it. Such committees include representatives from trading members, professionals, the public and the management. The day-to-day management of the Exchange is delegated to the Managing.
Logo of NSE:
The logo of the NSE symbolizes a single nationwide securities trading facility ensuring equal and fair access to investors, trading members and issuers all over the country. The initials of the Exchange viz., N, S and E have been etched on the logo and are distinctly visible.
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The logo symbolizes use of state of the art information technology and satellite connectivity to bring about the change within the securities industry. The logo symbolizes vibrancy and unleashing of creative energy to constantly bring about change through innovation.
Securities and Exchange Board of India (SEBI):

SEBI is a board (autonomous body) created by the Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 with its head office at Mumbai. It is chaired by Mr. M. Damodaran a respected turnaround civil servant credited with turning around large public sector companies from near death scenarios including the famous Unit Trust of India. Below the Board, headed by the Chairman, the staff/officers of the organization are led by Executive Directors. SEBI has three functions rolled into one body: legislative, judicial and executive. It drafts rules in its legislative capacity, it conducts enquiries and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it exceedingly powerful, there is an appeals process to create accountability. SEBI has had a mixed history in terms of its success as a regulator. Though it has pushed systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless), it seems to lack the legal expertise needed to sustain prosecutions/enforcement actions. It has often received flak from the appellate body known as the Securities Appellate Tribunal (SAT). From the SAT, an appeal lies straight to the Supreme Court of India
Functions of SEBI:
Its main functions are: 1. Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers,
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underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner.
2.
Registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the board may, by notification, specify in this behalf.
3.
Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds;
4. 5. 6. 7. 8.
Prohibiting fraudulent and unfair trade practices relating to securities markets; Promoting investors' education and training of intermediaries of securities markets; Prohibiting insider trading in securities; Regulating substantial acquisition of shares and takeover of companies; Calling for information from undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds and other persons associated with the securities market and intermediaries and self- regulatory organisations in the securities market;
9.
Calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any central, state or provincial act in respect of any transaction in securities which is under investigation or inquiry by the board;19
10.
Performing such functions and exercising such powers under the provisions of 20 securities contracts (regulation) act, 1956, as may be delegated to it by the central government;
11. 12.
Levying fees or other charges for carrying out the purpose of this section; Conducting research for the above purposes;
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13.
Calling from or furnishing to any such agencies, as may be specified by the board, such information as may be considered necessary by it for the efficient discharge of its functions ,performing such other functions as may be prescribed.
4.3
INVESTMENT ANALYSIS
INVESTMENT : Investment is the sacrifice of certain present values for the uncertain future reward
Meaning:
Investment of Investing is a word of many interpretations. There are basically two concepts of investments.
1. Economic Investment
In the Economic sense, investment means net additions to the economys capital stock which consists of goods and services that are used in the production of other goods and services. Investment in this sense implies the formation of new and productive capital in the form of new constructions, plant used machinery etc. Such investment generates physical assets.
2. Financial Investment
In the financial sense, investment is the commitment of a persons fund to derive future income in the turn of interest, dividend, premiums, pension benefits or appreciation in the value of their capital. Purchasing of shares, debentures, post office saving certificates,
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insurance policies are all investments in the financial sense. Such investment generates financial assets.
INVESTMENT ALTERNATIVES:
For an investor, he has got a wide array of investment avenues to choose sacrificing some rig our, these may be classified as shown in exhibit.
Investment Avenues
Non-marketable Financial Assets Equity Shares
Bonds
Money Markets Instruments
Mutual found Schemes
Life Insurance Policies
Real Estate Precious Objects

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Financial Derivatives
Non marketable Financial Assets:

A good portion of financial assets is represented by non-marketable financial assets. These can be classified in to the following broad categories.
Bank deposits Post office deposits Company deposits Provident fund deposits
Equity Shares:
Equity shares represent ownership capital. As an equity shareholder, he has an ownership stake in the company. This essentially means that he has residual interest in income and wealth. Perhaps, the most romantic among various investment avenues, equity shares are classified into the following broad categories by stock market analysts :
Blue chip shares Growth shares Income shares Cyclical shares Speculative shares
Bonds:
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Bonds or debentures represent long-term debt instruments. The issuer of a bond promises to pay a stipulated stream of cash flows. Bonds may be classified into the following categories:
Government securities Government of India relief bonds Government agency securities PSU bonds Debentures of private sector companies
Money Market Instruments:

Debt instruments which have a maturity of 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
Mutual Funds:
Instead of directly buying equity shares and/or fixed income instruments, If 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
The insurance:
The insurance in a broad sense, life insurance may be viewed as an investment. Insurance premiums represented for the sacrifice and the assured sum the benefit. The important types of insurance policies in India are :
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Endowment assurance policy Money back policy Whole life policy Term assurance policy
Real Estate:
For the bulk of the investors the most important asset in their portfolio is a residual house. In addition to a residential house, the more affluent investors are likely to be interested in the following types of real estate:
Agricultural land Semi-urban land Time-share in a holiday resort.
Precious Objects:
Precious objects are 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:
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A financial derivative is an instrument whose value is derived form the value of an underlying asset. It may be viewed as a side on the asset. The most important financial derivatives from the point of investors are :
Options Futures
4.4
PORTFOLIO MANAGEMENT
A portfolio consists of any combination of assets, the outcome of which cannot be
defined with certainty. A portfolio goes with a saying that A wise man never puts all his eggs in one basket. A portfolio is a collection of securities. Since it is rarely desirable to invest the entire funds of an individual or an institution in a single security, it is essential that every security be viewed in a portfolio context. Two basic principles of finance form the basis for portfolio theory. Namely, Time value of money and the Safety of money. A rupee today is worth more tan a rupee tomorrow or a year later, and as parting with money involves the loss of present consumption, it has to be rewarded by a return commensurate with time of waiting. Secondly a safe rupee is preferred to an unsafe rupee at any point of time. Due to risk aversion of investors, they feel risk is inconvenient and has to be rewarded by a return. The larger the risk, the higher should be the return.
Objectives of a Portfolio:
The objective of a portfolio theory is two folded1. To optimize risk for a given level of yield or 2. To optimize return for a given level or risk.
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This objective of portfolio management is termed as a search for Efficient Portfolio. It is useful here to clarify what an efficient portfolio. A portfolio is efficient if and only if there is no alternative with1. The same return at a lower risk or 2. The same risk at a lower return or 3. A higher return and a lower risk.
A portfolio theory is based on two assumptions, other things remaining the same-
1. Investors prefer higher rate of return to a lower rate of return.

2. Investors are risk averse, i.e., not willing to take risk. The traditional portfolio managers diversified their funds over a large number of securities to strike a balance between risk and return. However this was done on intuition without really understanding the magnitude of risk reduction. The 1950s saw a body of knowledge being developed, which measures the expected rate of return and risk associated with combining assets. This study came to be known as Portfolio Theory. The important portfolio theories have been developed by1. Harry M. Markowitz 2. William Sharpe
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 continuous and systematic analysis, judgment and operations. The objective of portfolio management is to help the investors with the expertise of professionals. Portfolio Management is the management of large investible funds with a view to maximizing return and minimizing risk. Portfolio Management is an art and requires high degree of expertise. It is essentially a systematic method of managing ones investment efficiently. Basically Portfolio Management involves;
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1. A proper investment decision-making of what to buy and sell; 2. Proper money management in terms of investment in a basket of assets so as to satisfy the asset preferences of investors; 3. Reduce the risk and increase returns.
Objective of Portfolio Management:

The objective of portfolio management is to maximize the return and minimize the risk. A portfolio is a basket of investments or assets held by an individual or a corporate body.
Phases of Portfolio Management:

Portfolio Management is a process encompassing many activities aimed at optimizing the investment of ones funds. Five phases can be identified in the portfolio management process1. Security Analysis, 2. Portfolio Analysis, 3. Portfolio Selection, 4. Portfolio Revision 5. And Portfolio Evaluation. Each phase is an integral part of the whole process and the success of portfolio management depends upon the efficiency in carrying out each of these phases.
1.
Security Analysis:
Security analysis is the initial phase of the portfolio management process. This step consists of examining the risk-return characteristics of individual securities. A basic strategy in securities investment is to buy under priced securities and sell overpriced securities. But
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the problem is how to identify these under priced and overpriced securities. This is what security analysis is all about. There are two alternative approaches to security analysis, namely, Fundamental Analysis and Technical Analysis. Fundamental Analysis provides and analytical framework for rational investment decision-making. It concentrates Fundamental analysis studies not only the fundamental factors affecting the company but also the fundamental factors affecting the industry to which the company belongs and also the economy fundamentals. Fundamental analysis works out intrinsic value of a security based on its fundamentals; then compares this intrinsic value with the current market price. Fundamental Analysis helps to identify fundamentally strong companies whose shares is worth to be included in the investors portfolio. Technical Analysis believes that share price movements are systematic and exhibit certain consistent patterns. It studies the past movements in the prices of shares to identify trends and patterns and then tries to predict the future price movements. Technical analysis ignores the fundamental of shares.
2.
Portfolio Analysis:
A portfolio is a group of securities held together as investment. Investors invest their funds in a portfolio of securities rather than in a single security to spread risk by not putting all their eggs in one basket. The return and risk of each portfolio has to be calculated mathematically and expressed quantitatively. Portfolio analysis phase of portfolio management consists of identifying the range of possible portfolios that can be constituted from a given set of securities and calculating their return and risk for further analysis.
3.
Portfolio Selection:
Portfolio selection is the process of finding the optimal portfolio. The main goal of portfolio selection is to generate a portfolio that provides the highest return and the lowest risk. The portfolio having this characteristic is known as efficient portfolio. The portfolio selection problem is the process of delineating the efficient portfolios and then selection the
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best portfolio from the set. The selection of the optimal portfolio depends upon the investors risk aversion or conversely on his risk tolerance.
4.
Portfolio Revision:
Having constructed the optimal portfolio, the investor has to monitor it constantly to ensure that it continues to be optimal. The investor has to revise his portfolio in the light of the developments in the market. This revision leads to purchase of some new securities and sale of some of the existing securities from the portfolio. The mix of securities and their proportion changes as a result of the revision. Portfolio revision may also be necessitated by some investor related changes such as availability of additional funds, change in risk attitude, need of cash for other alternative use, etc.
Portfolio revision has to be done scientifically and objectively so as to ensure the optimality of the revised portfolio. Portfolio revision is as important as portfolio analysis and selection and hence the revision process has to be carried out with much care.
5.
Portfolio Evaluation:
Portfolio evaluation is the process, which is concerned with assessing the performance
of the portfolio over a selected period of time in terms of return and risk. This involves quantitative measurement of actual return realized and the risk borne by the portfolio over the period of investment. Alternative measures of performance evaluation have been developed for use by investors and portfolio managers. Portfolio evaluation provides a mechanism for identifying weaknesses in the investment process and for improving these deficit areas. It provides a feedback mechanism for improving the entire portfolio management process.
Role of Portfolio Management:

Portfolio management is now a familiar term and is widely practiced in India. The theories and concepts relating to portfolio management now find their way in the front pages
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of financial newspapers and the cover pages of investment journals in India. In the beginning of the nineties India embarked on a program of economic liberalization and globalization. This reform process has made the Indian capital markets active.
The Indian stock markets are steadily moving towards higher efficiency, with rapid computerization, increasing market transparency, better infrastructure, better customer service, closer integration and higher volumes. Large institutional investors with their diversified portfolios dominate the markets. A large number of mutual funds have been set up in the country since 1987. With this development, investment in securities has gained considerable momentum. Along with the spread of securities investment among ordinary investors, the acceptance of quantitative techniques by the investment community changed the investment scenario in India. Professional portfolio management, backed by competent research, began to be practiced by mutual funds, investment consultants and big brokers.
4.5 RISK AND RETURN IN PORTFOLIO THEORY

Risk is the uncertainty of the income and capital appreciation or loss of both. Risk is inherent in any investment. This risk may relate to loss or delay in repayment of the principal capital or loss on non-payment of interest or variability of returns. While some securities are almost risk less like Government securities others are more risky. The degree of risk however varies on the basis of the features of the assets, investment instrument, the mode of investment, the issuer of security, etc. The uncertainty associated with the returns from an investment introduces risk into an investment. The possibility of variation of the actual return from the expected return is termed as risk.
An investment whose returns are fairly stable is considered as low-risk investment, whereas an investment whose returns fluctuate significantly is considered to be a high-risk instrument.
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Risk depends on the following factors: 1. Wrong decision of what to invest in, 2. Wrong timings of investments, 3. Nature of the instruments invested in, 4. Creditworthiness of the issuer, 5. Maturity period or the length of investment, & 6. Amount of investment.
Calculation of Risk:
The most popular measure of risk is the variance or standard deviation of profitability distribution of possible returns. Variance is usually denoted by and is calculated by the following formula:
2 = ( xi x ) . p ( xi ) i =1 n
Where,
xi x
= Variance or total risk of security I = Variability of possible returns from expected return of security; = Related probability of occurrence.
P(xi)
Elements of Risk:
The essence of risk in an investment is the variation in its returns. This variation in returns of a security is caused by a number of factors that constitute the elements of risk. The total variability in returns of a security represents the total risk of that security. Systematic
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risk and Unsystematic risk are two components of total risk. Thus Total Risk = Systematic Risk + Unsystematic Risk
Systematic Risk:
Systematic risk is the variability in the security returns caused by changes in the economy or market. All securities are affected by such risks to some extent. The systematic risk of a security can be measured by relating that securitys variability with the variability in the stock market index. Systematic risks are the market problems, tax policy or any Government policy, inflation risk, interest rate risk and financial risk. Systematic risk is further sub-divided into interest rate risk, market risk and purchasing power risk. i. Interest rate risk: The variation in bond prices caused due to the variations in the interest rates is known as interest rate risk. Interest rate risk affects bonds directly and shares indirectly. ii. Market risk: Market risk is the increased variability of the investor returns due to the alternating movements of the share market. In other words, the variation in returns caused by the volatility of the stock market is referred to as market risk. iii. Purchasing power risk: Purchasing power risk refers to the variation in investor returns caused by inflation.
Unsystematic Risk:
Unsystematic risk is the risk that is specific or unique to a company. This is associated with the security of a particular company and can be reduced by combining it with another security having opposite characteristics. The investor does not seek to measure the unsystematic risk of a security as it can be reduced through diversification. Unsystematic risks are mismanagement, increasing inventory, wrong financial policy, defective marketing, etc. The unsystematic or unique risk affecting specific securities arises from two sources: i. The operating environment of the company, and ii. The financing pattern adopted by the company.
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These two types of risks are referred to as business risk and financial risk. i. Business risk: Business risk is a function of operating conditions faced by a company and is the variability in operating income caused by the operating conditions of the company like sales, income, profits, market conditions for product mix, input supplies, strength of competitors, etc. Business risk may be sometimes external to the company or sometimes due to internal factors. ii. Financial risk: Financial risk relates to the method of financing adopted by the company, delayed receivables, fall in current assets or rise in current liabilities and such other factors. Financial risk is avoidable and these risks could no doubt be solved but they may lead to fluctuations in earnings, profits and dividends to the shareholders. Proper financial planning and other adjustments can used to correct financial risks.
Minimization of risk:
The company specific risk (unsystematic risk) can be reduced by diversifying into a few companies belonging to various industry groups (tea, sugar, paper, cement, steel, etc.) or asset groups (bank deposits, gold bonds, land, real estate, shares, etc.). Each of them has different risk return characteristics and investments are to be made based on individuals risk preferences. The second category of risk (systematic risk) can be managed by the use of Beta ( ) of different company shares.
Diversification of risk:
It is clear that systematic risk is unavailable and it is common to all the securities. But unsystematic risk is stock specific. Unsystematic risk associated with the security of a particular company can be reduced by combining it with another security having opposite characteristics. This process is known as diversification. Diversifications can serve unsystematic risk to zero as shown in figure below:
-- 57--
Dept. of Management
Chapter - 4
Thus, a well-diversified portfolio suffers only systematic risk and provides a better tradeoff between risk and return.
Risk(standard deviation)
Unsystematic risk
Total risk No. Of securities held
Systematic risk
What is Return?
Return is the income plus capital appreciation. The difference between purchase price and sale price is capital appreciation. The return on a security depends upon the amount of risk taken. Higher the risk taken, the higher will be the risk. We can distinguish between expected return and realized return from an investment. The expected return is the uncertain future return that an investor expects to get from his investment. The realized return, on the contrary, is the certain return that an investor has actually obtained from his investment at the end of the holding period. Return on a typical investment consists of two components: Income or current yield capital gain/capital losses yield. Income or current yield is in the form of interest or dividends. Capital gain/loss is the charge in the price of asset-the difference between purchase price and the price at which the asset can be or is sold. In symbols:
An a nul in o e cm p ic r e S llin e g + P ic u c a e r e Pr h s Pr h s uc ae p ic r e p ic r e
Returns = P r h s uc ae
Current yield
Capital gain/capital loss
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Dept. of Management
Chapter - 4
Calculation of Expected Return:

The expected return of the investment is the probability weighted average of all possible returns. In symbols. x i = Where,
x
i =1
p ( xi )
xi
xi
p ( xi )
= Expected return on security i = possible return on security i = related probability of occurrence
It is sum of the products of possible returns with their respective probability.
What is Beta ( )?
In simple language, Beta is percentage change in the individual scrip returns divided by the percentage change in market returns. In other words Beta describes the relationship between a stocks return and the market index return. Here, the appreciation in the individual scrip price relative to the market index is considered. Beta is the index of the systematic risk of an asset. The Beta of an asset is the measure of variability of that asset relative to the variability of the market as a whole. A Beta measures the volatility of a securitys returns relative to the market. The larger the Beta the more volatile is the security. If Beta is 1, it indicates that the scrip risk is the same as the market risk. If Beta is greater than 1, the scrip risk is more than the market risk and if the Beta is less than 1, then the scrip risk is less than the market risk. A defensive or risk averse investor should invest in scrips with Beta less than 1 and an aggressive investor should invest in scrips with a Beta of more than1. Beta can also be negative, implying that the stock returns move in the direction opposite to that of the market returns. If Beta is zero, prices are said to be unrelated to the market index.
Calculation of Beta:
1) Calculate Market index return = Todays index Yesterdays index
-- 59--
Dept. of Management
Chapter - 4
Yesterdays index 2) Calculate security return = Todays Price Yesterdays Price Yesterdays Price 3) Calculate Beta: a) b)
( R
Ri )( Rm Rm ) n 1
Rm )
2
--------------- (A) --------------- (B)
( R
n 1
c) =
A or B
( R R )( R R ) ( R R )
i i m m 2 m m
Risk Return Analysis:

\
All investments are risky. Higher the risk taken, greater will be the return. But proper management of risk involves the right choice of investments whose risks are compensating. The total risks of two companies may be different and even lower than the risk of a group of companies if each other offset their risks.
4.6 WILLIAM SHARPEs SINGLE INDEX MODEL

There are two elements of security returns-independent and dependent. The basic notion underlying the single index model is that the movements in stock market affect all stocks. Casual observation of share prices reveals that when the market moves up, prices of most shares tend to increase when the market drops, the prices of most shares tend to decline. William Sharpe assumed that, for the sake of simplicity, the return on security could be regarded as being linearly adapted to a single index like the market index. Theoretically, the market index should consist of all the securities trading in the market. However a popular average can be treated as a surrogate for the market index. Acceptance of idea of a market index, Sharpe argued, would obviate the need for calculating thousands of covariances between individual securities in the single underlying factor being measured by the market index. Hence, this model has come to be known as The market model or single index model. The return of an individual security is assumed to depend on the return on the market index. The return of an individual security may be expressed as:
Chapter - 4
Ri = i + i Rm + ei Where, i Rm i ei = The component of security is return that is independent of the markets performance. = The rate of return on the market index = The constant that measures the expected change in Ri given a change in Rm. = The error term representing the random or residual return.
This equation breaks the return on a stock into two components, one part due to the market and the other part independent of the market. The beta in the equation, indicates how extensively the return of a security will vary would suggest greater responsiveness on the part of the stock in relation to the market and vice-versa. The alpha parameter i indicates what the return of the security would be when the market return is zero. The positive alpha represents a sort of bonus return and would be a highly desirable aspect of a security, whereas a negative alpha represents a penalty to the investor and is an undesirable aspect of a security. The final term in the equation, ei, is the unexpected return resulting from influences not identified by the model. It is referred to as the random or residual return. It may take on any value, but over a large number of observations it will average out to zero. William Sharpe, who tried to simplify the data tabulation required for the Markowitz model of portfolio analysis suggested that a satisfactory simplification would be achieved by abandoning covariance of each security with each other security and substituting in its place the relationship of each security with a market index as measured by the single index model suggested by him that is well know as Sharpes index model. In the place of [N (N-1)/2] covariance required for the Markowitz model, Sharpe model requires only N measures of Beta co-efficient
Security Characteristic Line:

An analysts view of relationship between return on individual securities and return on market portfolio can be expressed by using a characteristic line. A characteristic line is a proxy for the relationship between excess returns for shock and excess returns for market. The following figure shows an example of characteristic line.
Chapter - 4
Y L
Excess return on security
im
C O Excess return on market portfolio X
The vertical axis plots excess return on security. This is the difference between the holding period return security and risk less rate of return. Excess return on security Where, i=
R i R f
Ri = Holding period return on security-I Rf = Risk less rate of return
The horizontal axis plots excess return on the market. This is the difference between holding period return on market and the risk less rate of return. Excess return on market portfolio m = ( Rm Rf Where,
Rm =
Holding period return on market portfolio.
Rf = Risk less rate of return. The characteristic like summarizing the relationship between two excess returns can be written as
R i R f =i + im ( Rm R f ) + ei
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Dept. of Management
Chapter - 4
The value of alpha ( i) is indicated by intercept of characterization line on the vertical axis. The value of is an excess return on security when the excess return on market is zero. The beta (im) is the measure of systematic risk. It is the scope of the characteristic line. It depicts the sensitivity of the securities excess return to that of market portfolio. Securities with beta values greater than one are termed aggressive: in up markets their price tends to rise at faster rate than the market. On the other hand, they tend to full sharper than the market in down markets. Securities with beta less than one is termed defensive: in up market their prices tend to rise at slower rate than the market. On the other hand, they tend of full at slower rate than markets. Securities with beta equal to 1, it means that return for security vary proportionally with market. These securities move in tune with the marketupward or downward. The error term (ei) represents the uncertain portion of the non-market of the excess return as security. This can be demonstrated by referring the characteristic line into two parts as follows:
(R
R f ) = im ( Rm Rf ) + (i ei )
By convention, i represents the expected non-market excess return while e i represents deviation from this expectation. It may take any value but over a large number of observation it will average out to be zero.
Computation of Beta and Alpha of a security:

Given the market returns and security returns the beta is calculated by using the formula. im = Cov
( Ri R f ), ( R m Rf ) Var ( R m R f )
Where, Cov ( Ri R f ) = Covariance between excess return in security i and excess return on market. Var ( Rm R f ) = Variance of excess return on market.
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Dept. of Management
Chapter - 4
Once the beta is calculated, the equation reduces to as below and i is easily computed.
I = Exp .( Ri R f ) exp( Rm R )
Where, Exp ( Ri R f ) = Expected excess return on security i. Exp ( Rm R f ) = Expected return on market.
Market and Non-market risk and return on security:

The characteristic line procedure dichotomizes a securities return into two components, one. Market related Non-market related. In symbols, Exp ( Ri R f ) = 1 +imExp
( Rm R f )
In symbols:
Similarly the risk of a security is the sum of variety of two components i.e., Market related and Non-market related
2 Vari ( Ri R f ) = im var( Rm R f ) +Var (ei )
In symbols:
Total risk = Market related risk Non market related risk
Selection of securities to be included in an optimal portfolio:

The constriction of an optimal portfolio gets simplified if a single number measures the desirability of including a stock in the optimal portfolio. Under William Sharpe Model the
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Dept. of Management
Chapter - 4
desirability of a stock being selected is directly related to the ratio of excess returns of a security of its Beta. Ratio of excess returns to Beta (Ri-Rf) / i The stocks are ranked by excess return to Beta in descending order. The number of stocks selected depends on a unique cut off rate known as C and is determined in such a way that all stocks with higher ratio of excess returns of Beta will be included and stocks with lower Beta will be excluded. C is the highest Value of Cj when j securities are assumed to belong to the optimal portfolio.
m
Ci =
( Ri Rf ) im 2 ei i =1 2 n i 2 1+ m 2 i =1 ei
2
To determine which stocks are included in the optimal portfolio, the following steps are to be carried out1. Calculate the excess return to Beta ratio for each stock under review and rank them in highest to lowest order. 2. The optimal portfolio consists of investing in all stocks for which the ratio of excess returns to Beta is greater than C.
Arriving at the optimal portfolio with percentage of investment to be made in each selected securities:
Once we have decided as to which securities are to be included in the optimal portfolio, we must calculate the proportion or the percentage of investment to be invested in each security. This percentage to be invested in each security is calculated as follows: Zi X=
Zi
i= 1
Where,
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Dept. of Management
Chapter - 4
Zi =
i Ri R f C 2 ei i
Where,
ei 2 = Unsystematic risk
Ri = Mean return of stock Rf = Risk free rate of return C* = Cutoff rate X = Proportion of investment to be invested in that stock. Rj = Return of individual security Zj = Total of Zis
Portfolio characteristic line:

A characteristic line of a portfolio can be constricted the manner used for a single security. It can be expressed as follows:
(R
Where,
R f ) = p + e p + pm ( Rm R f )
Rp p ep pm
= Excess expected return on portfolio P = Expected value of non-market component of portfolio ps excess return. = Deviation of actual non-market component of portfolio ps excess return from expected value. = Beta of the portfolio i.e., sensitivity of portfolio to market.
The value of p (alpha of portfolio) is the weighted average of alpha vales for its component securities, using relative market values as weights.
n
p = xii
i =1
Where,
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Dept. of Management
Chapter - 4
p xi i N
= Value of alpha of the portfolio. = Proportion of security i in portfolio P. = Value of alpha for security i = Number of securities in the portfolio. The Beta of the portfolio is the weighted average of the beta value of its component
securities using relative market values as weights.
pm = xi im
i =1
pm = Value of beta for portfolio P xi im N = Proportion of market security i invested in portfolio P. = Value of beta of security i = Number of securities in the portfolio.
Portfolio return and risk:

Portfolio analysis and selection requires, as inputs are expected portfolio return and risk for all possible portfolios that can be constructed with a given set of securities. The return and risk of portfolios can be calculated using the single index model. The excepted return of a portfolio may be taken as portfolio Alpha plus portfolio Beta times expected market return. In symbols: Where,
Rp R p =p + p Rm
= Expected return on portfolio
p = Alpha of portfolio
= Beta of portfolio p
Rm
= Expected return on market.
The risk of a portfolio is measured as variance of portfolio returns.

n
In symbols:
p = p m + wi ei
2 2 2 2 i =1
-- 67--
Dept. of Management
Chapter - 4
Where,
p 2 = Total risk of the portfolio
p 2 = Variance of the market portfolio
m 2 = Square of the portfolio Beta

wi = Square of the proportion of security
2
ei 2 = Variance of residual return (unsystematic component) of security

n = Number of securities in the portfolio.
-- 68--
Dept. of Management
Chapter - 5
CHAPTER 5
-- 69--
Dept. of Management
Chapter - 5
5. RESEARCH DESIGN
5.1 RESEARCH METHODOLOGY:
The research design constitutes the blue print for the collection, measurement and analysis of data. A research design is the plan, structure and strategy of investigation conceived so as to obtain answer to research questions and to control variances. A research design specifies the methods and procedures for conducting a particular study. It may be emphasized that the main criteria of good research design is that it must answer the question posed earlier. To constitute NSE-Nifty, are taken for construction of an optimal
portfolio.
5.2 PRIMARY DATA AND SECONDARY DATA:

The research method is descriptive in nature. The whole study is based on both primary and secondary data. They are:
1. Information collected from the company and Internet.

2. Data collected from newspaper, books and journals. 3. Data collected from National Stock Exchange websites.
5.3 SAMPLING :
To constitute NSE-Nifty, are taken for construction of an optimal portfolio. Since the
data is based on secondary data.
5.3.1 SAMPLE SIZE: The stocks chosen to include in portfolio are limited to 8 stocks, which are constituents of NIFTY. 5.3.2 SAMPLING TECHNIQUE:
-- 70--
Dept. of Management
Chapter - 5
The expected rate of return, risk free rate of return and standard deviation values of each securities.
-- 71--
Dept. of Management
Chapter - 6
CHAPTER 6
-- 72--
Dept. of Management
Chapter - 6
6. ANALYSIS AND INTERPRETATION
The following 8 stocks, which constitute of NSE-Nifty, are taken for construction of an optimal portfolio.
Table 1 : 8 securities across the sectors.
AUTOMOBILE SECTOR MARUTHI SUZUKI TATA MOTORS
PHARMACEUTICAL SECTOR RANBAXY LAB CIPLA LTD
INFORMATION TECHNOLOGY SECTOR TATA COMMUNICATIONS FMCG SECTOR DABUR INDIA ITC LTD WIPRO LTD
The expected rate of return, standard deviation, and risk free rate of return values of each securities are given below.
-- 73--
Dept. of Management
Chapter - 6
Table 2 : values of each securities
Sl.No
COMPANY
Rp 26%
Rf
MARUTI SUZUKI
18%
7%
TATA MOTORS
19%
16%
7%
RANBAXY LAB
15%
17%
7%
CIPLA LTD
12%
16%
7%
TATA COMMUNICATIONS
12%
14%
7%
WIPRO LTD
14%
11%
7%
DABUR INDIA
11%
10%
7%
ITC LTD
10%
8%
7%
Construction of optimal portfolio performance by using an william sharpes single index model
The following is the formula used to calculate the optimal portfolio performance as per sharpe model.
-- 74--
Dept. of Management
Chapter - 6
Optimal Portfolio Performance =

Where; Rp = Rf
= p =
Rp - Rf
Rate Of Return Risk Free Rate Of Return Standard Deviation
1 . Showing the calculations of the expected rate of return, standard deviation, and risk free rate of return values of each securities are given below.
Sl.NO
Company
Rp 26%
Rf
MARUTI SUZUKI
18%
7%
Rp - Rf
= 26-7/18 = 19/18 = 1.0555.
2 . Showing the calculations of the expected rate of return, standard deviation, and risk free rate of return values of each securities are given below.
Sl.NO
Company
Rp
Rf
-- 75--
Dept. of Management
Chapter - 6
TATA MOTORS
19%
16%
7%
Rp - Rf
= 19-7/16 = 12/16 = 0.75. 3 . showing the calculations of the expected rate of return, standard deviation, and risk free rate of return values of each securities are given below.
Sl.NO
Company
Rp 15%
( p)
Rf
RANBAXY LAB
17%
7%
Rp - Rf
= 15-7/17 = 8/17 = 0.4705. 4 . showing the calculations of the expected rate of return, standard deviation, and risk free rate of return values of each securities are given below.
Sl.NO
Company
Rp 12%
( p)
16%
Rf 7%
CIPLA LTD
-- 76--
Dept. of Management
Chapter - 6

`
Rp - Rf
= 12-7/16 = 5/16 = 0.3125.
5 . showing the calculations of the expected rate of return, standard deviation, and risk free rate of return values of each securities are given below.
Sl.NO
Company
Rp 12%
( p)
14%
Rf
TATA COMMUICATIONS
7%
Rp - Rf
= 12-7/14 = 5/14 = 0.3571. 6 . Showing the calculations of the expected rate of return, standard deviation, and risk free rate of return values of each securities are given below.
Sl.NO
Company
Rp 14%
( p)
11%
Rf
WIPRO LTD
7%
-- 77--
Dept. of Management
Chapter - 6
Rp - Rf
Sl.NO
Company
Rp 11%
( p)
10%
Rf
DABUR INDIA
7%
Rp - Rf
Sl.NO
Company
Rp 10%
( p)
Rf
ITC
8%
7%

Dr. Jyothirmayi Degree College (MBA), Adoni -- 78--
Rp - Rf
Dept. of Management
Chapter - 6
= 10-7/8 = 3/8 = 0.375.
Table 3 : Optimal Portfolio Performance Values Of Each Securities

Sl . No. Company ( Rp-Rf )/
MARUTHI SUZUKI
1.0555
TATA MOTORS
0.75
-- 79--
Dept. of Management
Chapter - 6
RANBAXY LAB
0.4705
CIPLA LTD
0.3125
TATA COMMUNICATIONS
0.3571
WIPRO LTD
0.6363
DABUR INDIA
0.4
ITC LTD
0.375
INTERPRETATION:
From the above analysis it is clear that from among the eight companies listed above Maruthi suzuki has highest value i.e., 1.0555.
Table 4 : Total risk of the securities
Sl No
Company
Total Risk
Systematic Risk
Unsystematic Risk 85.1050
MARUTHI SUZUKI
127.9290
42.8240
TATA MOTORS
151.1205
46.2748
104.8457
RANBAXY LAB
311.3644
37.2734
274.0909
-- 80--
Dept. of Management
Chapter - 6
CIPLA LTD
283.3046
28.7584
254.5462
TATA COMMUNICATIONS
210.5443
42.5967
167.9475
WIPRO LTD
218.7218
37.0577
181.6640
DABUR INDIA
203.1629
17.0167
186.1461
ITC LTD
461.6539
10.0187
451.6352
-- 81--
Dept. of Management
Chapter - 7
CHAPTER 7
-- 82--
Dept. of Management
Chapter - 7
7.1. FINDINGS
The study was to construct an optimal portfolio using Sharpe single index model. The securities considered for study were eight stocks, which constitutes NSE-Nifty.
From the datas considered for study are the closing prices of each security for 24 months (from Jan 2009-Dec 2010). The risk free rate of return arrived at was 7%. The expected rate of return, standard deviation and risk free rate of return values of each securities was calculated. Then the systematic risk and unsystematic were computed. As the MARUTHI SUZUKI highest value got was 1.0555.
7.2. RECOMMENDATIONS
The investor should read news papers, business journals, websites, etc. to get the awareness about the stock market situations and factors this will affect the stock market. He should give key attention on the activities of the major players in the market. For creating optimal portfolio selection securities from different sectors. Before entering to risk reduction strategy the investor should determine the level to this has to reduce his risk. He should determine the cost and benefit of the strategy with the existing market conditions. The investor should not stick to one strategy in the whole time he should change his strategies according to their market situations. The investor should take advantage from the option premium movements by selling or buying options, where the investor feels it comfortable. He should not wait for the expiry of the contract.
-- 83--
Dept. of Management
Chapter - 7
7.3. CONCLUSIONS
The share market is more challenging, fulfilling and rewarding to resourceful investors willing to learn the trade for having effective returns with minimum risk involved. The optimal portfolio analysis and risk, return trade off are determined by the challenging attitudes of investors towards a variety of economic, monetary, political and psychological forces prevailing in the stock market. By studying the nature of previous market turning points it is possible to develop some characteristics that can help to identify major markets tops and bottoms (i.e., highs and lows). From this analysis the investor gets a correct view of the volatility of the shares prices and hence can make decisions or selling the securities. .
-- 84--
Dept. of Management
Chapter -
i. BIBLIOGRAPHY
REFERENCE BOOKS:
1. Donald E.Fischer, Ronald J. Jordan, Security Analysis and Portfolio Management 2. ICFAI University Press, Introduction to Security Analysis 3. Punithavathy Pandian, Security Analysis and Portfolio Management.
NEWSPAPERS:
1. Economic Times 2. Business Line
WEBSITES:
1. 2. www.moneycontrol.com www.nseindia.com 3. www.standardcharteredwealthmanagers.com
-- 85--
Dept. of Management

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OPTIMAL PORTFOLIO PERFORMANCE

Mr. G. JAGADEESH KUMAR

DR. JYOTHIRMAYI DEGREE COLLEGE (MBA)

Head of the Department

(Reg. No.90349013) a bonafide student of the

ADMINISTRATION course of the SRI KRISHNADEVARAYA UNIVERSITY is

Optimal Portfolio Performance

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

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Optimal Portfolio Performance

Wealth Advisors India Pvt. Ltd.

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Rahul Rege, Head, Non-Institutional Business

Smita Das, Head, Institutional Sales

Nirav Sheth, Head, Portfolio Management Services

Bidisha Ganguly, Chief Economist

Distribution Of Products And Services

Optimal Portfolio Performance

Fixed Income Research

Dr. Jyothirmayi Degree College (MBA), Adoni

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BRICS SECURITIES ADVANTAGE

Dr. Jyothirmayi Degree College (MBA), Adoni

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RULES AND REGULATIONS AFFECTING CLIENT TRADING MEMBER RELATIONSHIP

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Interest, Dividend, Rights / Bonus And Calls

Margin From The Constituents

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Trading Member In Default

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

CODE OF CONDUCT FOR TRADING MEMBERS ADHERENCE TO SEBI CODE OF CONDUCT

Adherence to Trading Practices:

Honesty and Fairness:

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Unfair Trading Practices

Philosophy of the company

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

It helps the investor in identifying the systematic and unsystematic risk

Dr. Jyothirmayi Degree College (MBA), Adoni

Optimal Portfolio Performance

3.2 OBJECTIVES OF THE PROJECT