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ABSTRACT The present project work RISK RETURN ANALYSIS IN EQUITIES with reference to NSE Sensex companies is carried

out At MAHINDRA finance. The project consists: S.NO. 1 TOPIC Deals with Introduction of Risk Return Analysis in equities, Objectives and Need, 2 3 4 5 6 7 Scope & Importance. Deals with the Methodology and Limitations. Deals with the Organization profile and Company profile. Deals with the Introduction & Briefing about RISK RETURN ANALYSIS IN EQUITIES Deals with Data analysis & Interpretation Deals with Findings & Conclusions Deals with Suggestions and Bibliography. Page #

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INTRODUCTION The risk/return relationship is a fundamental concept in not only financial analysis, but in every aspect of life. If decisions are to lead to benefit maximization, it is necessary that individuals/institutions consider the combined influence on expected (future) return or benefit as well as on risk/cost. The requirement that expected return/benefit be commensurate with risk/cost is known as the "risk/return trade-off" in finance. This discusses the trade-off and, using conventional statistical tools, provides a method for quantifying risk. Two categories of risk borne by the firm's stockholders, business risk and financial risk, are discussed and demonstrated, as is the concept of leverage. The session also examines risk reduction via portfolio diversification and what requirements need to be met for firms to experience the benefits of diversification. The Capital Asset Pricing Model (CAPM) is used to demonstrate the risk/return trade-off by relating the required return on the firm's investments to its beta (or market) risk. OBJECTIVES

1. To calculate the risk return of a industries to estimate weather the


company is reliable for the investor to invest in the shares of the company. 2. To analyze the various risks and returns patterns in shares. 3. To know the risk involved with invests in equities. 4. To observe the degree of volatility in equities market. 5. To understand the price fluctuations & the factors influencing the fluctuations. NEED, SCOPE & IMPORTANCE OF STUDY Need of the study: Investment decisions are influenced by various motives. Some people invest in a business to acquire control and enjoy the prestige associated with it. Some people invest in expensive yachts and famous villas to display their wealth. Most investors however are largely guided by the pecuniary motive of earning a return on their investment.

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Return is the primary motivating force that drives investment. It represents the reward for undertaking investment. Since the game of investing is about returns (after allowing for risk), measurement of realized (historical) returns is necessary to access how well the investment manager has done. In addition, historical returns are often used as an important input in estimating future (prospective) returns. Scope of the study: The scope of the study is confined to only four sectors that are Information technology, telecom, automobile and pharmacy. Importance of the study: ROE is important to every organization: for-profit, not-for-profit, educational Institutions, government agencies, and more. There are variations in how they define value, however, all organizations want value for the investments they make. What makes ROE important is it provides leaders with an important way of deciding in which programs to invest and which programs to delay or reject.

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REASEARCH METHODOLOGY RESEARCH DESIGN This project is based on exploratory research with both qualitative analysis as well as quantitative analysis. The research methodology adopted is based on secondary data. The various sources of secondary data include Internet Share prices of different NSE Nifty companies. Information provide by mahindra finance Magazine

LIMITATIONS OF THE STUDY The present project work has been undertaken to provide information regarding risk return on equities. The following are the limitations of the study. Any rational investor, before investing his or her investible wealth in the stock, analysis the risk associated with the particular stock. The actual return he receives from a stock may vary from his expected return and the risk is expressed in terms of variability of return. The study is based on the secondary data which is available from various.

The study is limited to only four sectors. The time taken to undertaken the project work is very short; hence only
four sectors were chosen for the study.

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INDUSTRY PROFILE INDUSTRY OVERVIEW The securities market achieves one of the most important functions of channeling idle resources to productive resources or from less productive resources to more productive resources. Hence in the broader context the people who save and investors who invest focus more towards the economys abilities to invest and save respectively. This enhances savings and investments in the economy, the two pillars for economic growth. The Indian Capital Market has come a long way in this process and with a strong regulator it has been able to usher an era of a modern capital market regime. The past decade in many ways has been remarkable for securities market in India. It has grown exponentially as measured in terms of amount raised from the market, the number of listed stocks, market capitalization, trading volumes and turnover on stock exchanges, and investor population. The market has witnessed fundamental institutional changes resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency and safety. Stock Exchange: A stock exchange, share market or bourse 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 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. 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 a market is driven by various factors which, as in all free markets, affect the price of stocks (see

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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. History of stock exchanges: In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers. Some stories suggest that the origins of the term "bourse" come from the Latin bursa meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three purses), hung on the front of the house where merchants met. However, it is more likely that in the late 13th century commodity traders in Bruges gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized this until now informal meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and neighboring counties and "Bourses" soon opened in Ghent and Amsterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th century. This was only possible because these were independent city states ruled by a council of Influential citizens, not by a duke. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London. Stock Exchange

The role of stock exchanges: Stock exchanges have multiple roles in the economy, this may include the following:

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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 exchange 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 prices increases (that may result in capital gains for the Investor) and dividends get a chance to share in the wealth of profitable businesses. 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

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owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies (pets.com (2000), Enron corporation (2001), One.tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), Mci world com (2002), or paramalat(2003), are among the most widely scrutinized by the media). 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. 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 issuance of such municipal bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, 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. 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.

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Major stock exchanges: Twenty Largest Stock Exchanges by Market Capitalization as of July 12, 2007 (in trillions of US dollars)

NYSE Euro next Tokyo Stock Exchange NASDAQ London Stock Exchange Hong Kong Stock Exchange Toronto Stock Exchange Frankfurt Stock Exchange (Deutsche Brose) Shanghai Stock Exchange Madrid St ock Exchange (BME Spanish Exchanges) Australian Securities Exchange Swiss Exchange Nordic Stock Exchange Group OMX (Copenhagen, Helsinki, Iceland, Stockholm, Tallinn, Riga and Vilnius Stock Exchanges) Milan Stock Exchange (Boras Italian) Bombay Stock Exchange Korea Exchange Sao Paulo Stock Exchange Bovespa National Stock Exchange of India

STOCK EXCHANGE & SHARES The market or place, where securities, viz. shares are exchange / traded or simply where buying and selling takes place, is called stock exchange or stock market. Presently, the stock market in India consists of twenty three regional stock exchanges and two national exchanges, namely, the National Stock Exchange (NSE) And Over the Counter Exchange of India (OTC). The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in the country, where maximum transactions, in terms of money and shares take place. The other major stock exchanges are Calcutta, Madras and Delhi Stock Exchanges. Other one at Ahmedabad, Jaipur, Bangalore, Kanpur, Rajkot,

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Hyderabad,

Cochin,

Pune,

Bhubaneshwar,

Guwahti,

Indore,

Mangalore,

Ludhiana, Patna, Saurashtra, Vadodara, Coimbatore, Meerut, and Surat.

FUNCTIONING OF STOCK EXCHANGE: LISTING: Listing of shares, on a stock exchange, means, such shares can be bought and sold, in stock exchange. A Company, which intends to issue shares, through prospectus, shall have to apply to one or more stock exchanges, for getting its shares listed. The detailed and elaborate procedure of getting the shares listed on a stock exchange is monitored by SEBI. The SEBI, issues guidelines and notifications, from time to time, with regard to listing of securities. Once the shares are listed, the are divided into two categories: 1. GROUP A SHARES 2. GROUP "B" SHARES

GROUP "A" SHARES: are referred to as Cleaned Securities or specified shares". The facility for carrying forward a transaction from one account period to another is available for these shares. Group "A" shares represent companies, with huge amount of capital, and equally a large scope for investment. These shares are frequently traded and command higher price earning multiples.

GROUP "B" SHARES: are referred to as, none cleaned securities or nonspecified shares. For these groups facility of carrying forward is not available. Whenever a share is moved from Group "B" to Group "An" its market price rises; likewise, when a share is shifted from Group "A" to Group "B", its market price declines. There are some criteria and guide lines, laid down by stock exchange, for shifting stocks from the non-specified list to the specified list.

PRIMARY MARKET

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Since 1991/92, the primary market has grown fast as a result of the removal of investment restrictions in the overall economy and a repeal of the restrictions imposed by the Capital Issues Control Act. In 1991/92, Rs62.15 billion was raised in the primary market. This figure rose to Rs276.21 billion in 1994/95. Since 1995/1996, however, smaller amounts have been raised due to the overall downtrend in the market and tighter entry barriers introduced by SEBI for investor protection .SEBI has taken several measures to improve the integrity of the secondary market. Legislative and regulatory changes have facilitated the corporatization of stockbrokers. Capital adequacy norms have been prescribed and are being enforced. A mark-to-market margin and intraday trading limit have also been imposed. Further, the stock exchanges have put in place circuit breakers, which are applied in times of excessive volatility. The disclosure of short sales and long purchases is now required at the end of the day to reduce price volatility and further enhance the integrity of the secondary market. The primary is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. FEATURES OF PRIMARY MARKET ARE:1. This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM). 2. In a primary issue, the securities are issued by the company directly to investors. 3. The company receives the money and issue new security certificates to the investors 4. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. 5. The primary market performs the crucial function of facilitating capital formation in the economy.

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6. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as going public. Methods of issuing securities in the Primary Market 1. Initial Public Offer; 2. Rights Issue (For existing Companies); and 3. Preferential Issue Secondary market: The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. [1] Alternatively, secondary market can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock. Function In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid (Originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly. This is how stock exchanges originated; see History of the Stock Exchange). Secondary marketing is vital to an efficient and modern capital market. Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time. For example, a traditional loan allows the borrower to pay back the loan, with interest, over a certain period. For the length of that period of time, the bulk of the lender's investment is inaccessible to the lender, even in cases of emergencies. Likewise, in an emergency, a partner in a traditional partnership is only able to access his or her original investment if he or she finds another investor willing to buy out his or her interest in the partnership. With a securitized loan or equity interest (such as bonds) or tradable stocks,

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the investor can sell, relatively easily, his or her interest in the investment, particularly if the loan or ownership equity has been broken into relatively small parts. This selling and buying of small parts of a larger loan or ownership interest in a venture is called secondary market trading. Under traditional lending and partnership arrangements, investors may be less likely to put their money into long-term investments, and more likely to charge a higher interest rate (or demand a greater share of the profits) if they do. With secondary markets, however, investors know that they can recoup some of their investment quickly, if their own circumstances change. Private equity secondary market In finance, the private equity secondary market (also often called private equity secondary or secondary) refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds. Sellers of private equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds. By its nature, the private equity asset class is illiquid, intended to be a long-term investment for buy-and-hold investors. For the vast majority of private equity investments, there is no listed public market; however there is a robust and maturing secondary market available for sellers of private equity assets. Driven by strong demand for private equity exposure, a significant amount of capital has been committed to dedicated secondary market funds from investors looking to increase and diversify their private equity exposure

Laws governing capital market The four main legislations governing the securities market are: (a) The SEBI Act, 1992 which establishes SEBI to protect investors and develop and Regulate the Markets. (b) The Companies Act, 1956, which sets out the code of conduct for the corporate sector in relation to issue, allotment and transfer of securities, and disclosures to be made in public issues. (c) The Securities Contracts (Regulation) Act, 1956, read with the Securities Contracts (Regulation) Rules, 1957 which provide for regulation of transactions in securities through control over stock exchanges; and

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(d) The Depositories Act, 1996 which provides for electronic maintenance and transfer of ownership of demat securities.

Regulators SEBI is the primary regulator of the Securities Market and the entities operating therein. The SEBI Act and the Depositories Act are mostly administered by SEBI. The rules under the securities laws are framed by government and regulations by SEBI. All these are administered by SEBI. The powers under the Companies Act relating to issue and transfer of securities and non-payment of dividend are administered by SEBI in case of listed public companies and public companies proposing to get their securities listed Market Value The current quoted price at which investors buy or sell a share of common stock or a bond at a given time. Also known as "market price The market capitalization plus the market value of debt. Sometimes referred to as "total market value". In the context of securities, market value is often different from book value because the market takes into account future growth potential. Most investors who use fundamental analysis to pick stocks look at a company's market value and then determine whether or not the market value is adequate or if it's undervalued in comparison to its book value, net assets or some other measure. Stock A type of security that signifies ownership in a corporation and represents a Claim on part of the corporations assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes. Bankrupt and is liquidated. Also known as "shares" or "equity".

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A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have. Claim to 10% of the companys assets Stocks are the foundation of nearly every portfolio. Historically, they have outperformed most other investments over the long run.

Shareholder Any person, company, or other institution that 3 own at least 1 share in a company. A shareholder may also be referred to as a stockholder. Shareholders are the owners of a company. They have the potential to profit if the company does well, but that comes with the potential to lose if the company does poorly. Share A unit of ownership interest in a corporation or financial asset. While owning shares in a business does not mean that the shareholder has direct control over the business's day-to-day operations, being a shareholder does entitle the possessor to an equal distribution in any profits, if any are declared in the form of dividends. The two main types of shares are common shares and preferred shares. In the past, shareholders received a physical paper stock certificate that indicated that they owned "x" shares in a company. Today, brokerages have electronic records that show ownership details. Owning a paperless share makes conducting trades a simpler and more streamlined process, which is a far cry from the days were stock certificates needed to be taken to a. Brokerage before a trade could be conducted. While shares are often used

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to refer to the stock of a corporation, shares can also represent ownership of other classes of financial assets, such as mutual funds. BSE INDICES:INDEX: An Index is used to summarize the price movements of a unique set of goods in the financial, commodity, forex or any other market place. Financial indices are created to measure price movements of stocks, bonds, T-bills and other type of financial securities. More specifically, a stock index is created to provide investors with the information regarding the average share price in the stock market. Broad indices are expected to capture the overall behavior of equity market and need to represent the return obtained by typical portfolios in the country SENSEX: SENSEX is India's first Index compiled in 1986. It is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of BSE-SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media. Due to its wide acceptance amongst the investors, SENSEX is regarded to be the pulse of the Indian stock market. All leading business newspapers and the business channels report SENSEX, as it is the language that all investors understand. As the oldest index in the country, it provides the time series data over a fairly long period of time (from 1979 onwards) to be used for various research purposes. The Index Cell of the exchange is responsible for the day-to-day maintenance of the index within the broad index policy set by the Index Committee. The Index Cell ensures that the SENSEX and all other BSE indices maintain their benchmark properties by striking a delicate balance

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between frequent replacements in index and maintaining its historical continuity. SENSEX is calculated using a market capitalization weighted method. As per this methodology, the level of the index reflects the total market value of all 30- component stocks from different industries related to particular base period. The total market value of a company is determined by multiplying the price of the stock by the number of shares outstanding Statisticians call the index of a set of combined variables (such as price and No. of shares) a composite index. An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over a time. It is much easier to graph a chart based on indexed values than one used on actual values. World over majority of the well known indices are constructed using Market Capitalization Weighted Method. In practice, the daily calculation of SENSEX is done by dividing the aggregate market value of the 30 Companies in the index by a number called the Index Divisor. The Divisor is the only link to the original based period value of the SENSEX. The Divisor keeps the Index comparable over a period of time and the reference point for the entire index maintenance adjustments. SENSEX is widely used to describe the mood in the Indian Stock Markets.

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COMPANY PROFILE Mahindra and Mahindra financial service limited: History: Mahindra finance was incorporated on January 01, 1991 with Mahindra and Mahindra ltd, leading manufacturer of utility vehicles and tractors in the country and kotak Mahindra finance limited. Vision statement: To be the number one rural finance company and continue to retain leader ship position for Mahindra products. Mahindra finance will provide products and services tailored to the needs of m&m, its most favored customers. In case of demand supply mismatch of funds, Mahindra finance will put all their resources to find a solution. Mahindra finance may finance other products after catering to the needs of m&m. however; this would always constitute a small portion of Mahindra finances total business. Mahindra finance will help m&m develop better products by providing first hand information received from the target market. Mahindra finance strengths: The vision of Mahindra finance is validated by its strength, which are Parentage of m&m ltd RBI classification as hp company Excellent reputation for prompt repayment Wide rural network Dealer shareholding and relationship of dealers with m&m ensure dealer commitment Well connected to m&m/dealer net work. Wide knowledge of rural finance Mahindra finance values:

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Good corporate citizenship Professionalism Customer first Quality focus Dignity of the individual Horizon 2010:

Department of Mahindra finance: To ensure smooth &effective functioning of organization, Mahindra finance has been divided into various departments Operations Finance Marketing Legal IT HR Administration Each department has its own norms. Lets see the dos and dont of each department General

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Dos Mark attendance on a daily basis Take prior approval from your immediate supervisor for leave, travel or any expenses. Inform your supervisor immediately in case you come across any case of misconduct relating to cash or assets Trust and respect colleagues, customers, vendors and associates Donts Salary information should not be shared or compared Dont indulge in misappropriation of cash or assets, this will invite disciplinary action. Do not use abusive language in public Operations Dos Only Mahindra finance employees should deal with customers/dealers for their payments and collections. date Dont No payment and/or collection should be carried out by any of the dealers/brokers/DSAs/DMAs etc. Finance Dos Customer center (internal as well as external): adhere and observe compliance to company policies Data accuracy and updating Always meet/ beat the dead lis Dont Do not accept/rely on anything without proper documentation and authorization thereby ensuring adult trail Do not make any activity people oriented but try to make it process oriented with help of systems Documents must have duly stamped and signed agreement along with pdcs and security cheque Collect &habituate customers to pay on or before due

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Avoid duplication of work Marketing Dos Always keep your eyes open for any competitive marketing activities like new media campaigns Keep yourself updated with the latest happening in the industry/function through continuous learning(like books etc) Maintain strict confidentiality of the companys marketing plan Always provide a structured and written brief to the advertising agency for all kind of communication Dont Never tamper with the corporate identity of the organization(like logos, symbols, font, colours etc) Dont execute any activity (eg: promotional campaign, product launch, etc.) with the involvement and inputs from the local representatives of the field operations team Legal Dos Be proactive rather than reactive Keep the documents immaculate. Its better to prepare than to repair Dont Dont ignore any correspondence, whether from the customer, guarantor, their lawyers, insurance company, statutory authorities or any court or forum Repossessed vehicles are not to be used by any official IT Dos Utilize it to the maximum of its potential and thereby reduce unnecessary paperwork Save power and reduce wastage of consumables Dont Dont use pirated software of any nature while working with MMFSL. Mahindra finance maintains a strict policy against piracy.

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As a member of IT department, you may have access to sensitive company information contained in the system data base. The company trusts you with this information. Dont violate company trust by prying through this information or disclosing the same HR Maintain confidentiality of all information All employees of the organization are our internal customers. Treat them with respect & provide necessary resources to help them perform better. Reserve criticism for private discussions whereas reward and recognitation to be addressed in public Dont make biased decisions-all employees should receive equal respect and opportunity Do not make commitments on behalf of management without prior permission

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THEORETICAL BASE TO THE STUDY INTRODUCTION The risk/return relationship is a fundamental concept in not only financial analysis, but in every aspect of life. If decisions are to lead to benefit maximization, it is necessary that individuals/institutions consider the combined influence on expected (future) return or benefit as well as on risk/cost. The requirement that expected return/benefit be commensurate with risk/cost is known as the "risk/return trade-off" in finance. This session discusses the trade-off and, using conventional statistical tools, provides a method for quantifying risk. Two categories of risk borne by the firm's stockholders, business risk and financial risk, are discussed and demonstrated, as is the concept of leverage. The session also examines risk reduction via portfolio diversification and what requirements need to be met for firms to experience the benefits of diversification. The Capital Asset Pricing Model (CAPM) is used to demonstrate the risk/return trade-off by relating the required return on the firm's investments to its beta (or market) risk. Important Learning Terms Risk Systematic risk Unsystematic risk Return Portfolio Beta

Systematic Risk Systematic Risk, as the name suggests is the risk inherent in the economic system. Macro factors such as domestic as well as international policies, employment rate, the rate and momentum of inflation and general level of consumer confidence etc. are what constitute systematic risk. Generally, investors cannot hedge or diversify against this risk as it affects all kinds of asset classes and affects the entire economy as such. Unsystematic Risk

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This is the risk inherent in a particular asset class. The best way to combat this risk is by diversification. However, one must remember that the diversification must be in the class of asset and not the asset itself. An example of the above is evenly distributing your portfolio in bank deposits, Reserve Bank of India (RBI) bonds, real estate and equities. That way if a certain unsystematic risk affects let's say the real estate market (say the prices crashes), then the presence of other classes of assets in your portfolio saves you from a total washout. However, note that diversifying within the same asset class (buying different equity shares) is not strictly combating unsystematic risk. Understanding Unsystematic Risk The one thing that almost all investors would agree upon is the fact that equity is definitely more risky than debt. Irrational exuberance with a rising market has left many an investor losing their shirts and in some cases even more sensitive garments. However, does this mean that investing in debt instruments is entirely riskfree? Unfortunately, the answer is in the negative though the volatility is much less. So first, let us examine what kind of risks do debt instruments pose. Interest Rate Risk Interest rates and prices of fixed income instruments share an inverse relationship. In other words, when the overall interest rates in the economy rise, the prices of fixed income earning instruments fall and vice versa. Interest rates in the economy may fluctuate due to several factors such as a change in the RBI's monetary policy, Cash Reserve Ratio (CRR) requirements, forex reserves, the level of the fiscal deficit and the consequent inflation outlook etc. Extraneous factors such as energy price fluctuations, commodity demand and supply and even capital flows may result in rates fluctuating. Then there are the event-based factors that affect interest rates. For example, the 11/9 episode in the United States of America and 13/12 in India. If there is a war, interest rates will rise. However, typically such events are temporary in nature and in fact a good fund manager can actually take advantage of such hiccups.

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To illustrate how fluctuations in interest rates affect the returns, let us take the example of mutual funds (MFs). Adjusting the portfolio to the market rate of returns is called 'marking to market'. We assume that the current Net Asset Value (NAV) of the MF is Rs. 10 and its corpus is Rs. 1000 crores. This means that if the fund sells all the assets of the scheme and distributes the money on equitable basis to all the unit holders, they will receive Rs. 10 per unit. Now suppose, the interest rate falls from 10% to 9%. Immediately, thereafter you wish to invest Rs. 1 lakh in the scheme. Realise that the entire corpus of the fund stands invested at an average return of 10%. If the fund sells the units to you at its current NAV of Rs. 10, you will be allotted 10,000 units. This will benefit you immensely. You will be a partner in sharing the benefit of the higher returns of 10%, though the fund will be forced to invest your Rs. 1 lakh at the lower rate of 9%. This is injustice to the existing investors. Therefore, something has got to be done to protect their interest. Here comes the 'mark to market' concept. The fund raises its NAV to Rs. 11.11. You will be allotted only 9,000 units and not 10,000. The returns on 9,000 units at 10% would be identical with the returns on 10,000 units at 9%. In other words, the NAV rises when the interest falls. Credit Risk This is the risk of default. What if the company whose fixed deposit you invested in goes bankrupt? There have already been several such cases. Deposits with plantation companies and time-share resorts are more cases in point. True, you have legal remedy...but everyone knows how much time our courts take. The only factor, which dilutes this risk somewhat, is the credit rating. Fixed income earning instruments get rated for varying degrees of safety. Investing in a highly rated instrument is safe but not sufficient. Firstly, the instrument may be down graded; you have to be on the lookout for the same. Then there have been cases where the issuer has got rated by different agencies but chooses to indicate only the higher ones. Elimination of Risks

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There is some good news though. Credit risk can be simply eliminated by investing in sovereign securities --securities issued by the government. There is simply no risk of default. Or so we hope, for retail investors, MFs offer gilt schemes, where almost the entire corpus is invested in sovereign securities thereby achieving the same result. Interest rate risk discussed earlier is always prevalent. However, it comes into play only when a transaction is undertaken during the pendancy of the fixed income instrument. Ergo, it follows that if the investment is held till maturity, there would be no interest rate risk.Investments such as Public Provdent Fund (PPF), Relief Bonds etc. are normally held till maturity. These are examples where both the risks inherent in debt instruments are at a bare minimum Government Action Risk This is a unique kind of risk, which has reared its ugly head in recent times. In the previous paragraph, it is mentioned that the interest rate risk is eliminated by simply holding the instrument till maturity. However, such principles of investment had not contended with unilateral governmental action. For example, the rates of PPF over the past three years have been consistently reduced by the authorities from 12% p.a. to 8% p.a. To add insult to injury these rates are applicable on the entire corpus and not on additional investment. Relief Bonds have come down to 8%. Rates on other small saving instruments have also been slashed across the board. Unfortunately, there is no escape from this risk --- that of our government Measuring Risk So far, we have acquainted ourselves with the kinds of risks inherent in investment instruments. However, merely knowing this much may not be enough to take an informed decision. The article began with the premise that return is

Risks In equity investment:

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Although an equity investment is the most rewarding in terms of returns generated, certain risks are essential to understand before venturing into the world of equity. These can be described as follows:

a. Market/ Economy Risk:


The performance of any company depends on the growth of an economy. An economy, which continues to prosper, ensures that companies operating in it benefit from its growth. However, an equity shareholder also runs the risk of any downturn in the economy affecting the performance of his company. Economy related risks are usually reflected in the factors such as GDP growth, inflation, balance of payment positions, interest rates, credit growth etc. A slowdown in the economy pinches almost all sectors, especially infrastructure, services and manufacturing companies.

b. Industry Risk: All industries undergo some kind of cyclical growth.


Shareholders get rewarded most during the expansion stage. For instance, the last few years have been very rewarding for investors in real estate. However, once the industry reaches a maturity stage, the rewards from investment are limited. Further, companies belonging to industries where growth has retarded incur losses or declining gains. Industry specific government regulations too impact returns from investments made therein.

c. Management Risk: The management is the face of an enterprise. It is


the team which gives direction to the future course of action that a company will take. Quality of management is hence paramount. Management changes often have a serious impact on policy matters of companies, thereby impacting the share price. A management which is unable to meet the challenges posed by competition is likely to suffer in performance.

d. Business Risk: Business risk is a function of the operating conditions


faced by a company and the variability that these conditions inject into operating income and hence expected dividends. Business risk can be classified into two broad categories: external and internal. Internal business risk is largely associated with the efficiency with which a company conducts its operations within the broader environment

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imposed upon it. External risk is the result of operating conditions imposed upon the company by circumstances beyond its control.

e. Financial Risk: Financial risk is associated with the way in which a


company finances its activities. A company, borrowing money for business, creates fixed payment obligations in form of interest that must be sustained. Beyond a specified limit, the residual income left for shareholders gets reduced, thereby affecting the returns on shares. More importantly, it increases default risk, i.e, a heavily leveraged company, is at a greater risk of not being able to meet its liabilities and hence going bankrupt.

f. Exchange Rate Risk: Companies today earn sizeable revenues from


outside their parent country. Hence, any appreciation in the currency, as was recently witnessed with technology companies, adversely affects earnings, which results in falling or stagnant share prices.

g. Inflation Risk: Rising prices or inflation reduces purchasing power for


the common man resulting in a slowdown in the demand in the economy. This has implications for all the sectors in the economy. Hence, in an inflationary environment, share prices of most companies face a downturn as the expected fall in demand reduces their future expected income.

h. Interest Rate Risk: Interest rate risk refers to the uncertainty of future
market values and size of future income, caused by fluctuations in the general level of interest rates. Rising interest rates increase cost of borrowing, which results in an increase in the prices of products and a corresponding slowdown in demand. Hence, an interest rate hike affects share prices of companies cutting across the board.

How to overcome risks: Most risks associated with investments in shares can be reduced by using the tool of diversification. Purchasing shares of different companies and creating a diversified portfolio has proven to be one of the most reliable tools of risk reduction. How to overcome risks: Most risks associated with investments in shares can be reduced by using the tool of diversification. Purchasing shares of different companies and creating a

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diversified portfolio has proven to be one of the most reliable tools of risk reduction. The process of Diversification: When you hold shares in a single company, you run the risk of a large magnitude. As your portfolio expands to include shares of more companies, the company specific risk reduces. The benefits of creating a well diversified portfolio can be gauged from the fact that as you add more shares to your portfolio, the weightage of each companys share gets reduced. Hence any adverse event related to any one company would not expose you to immense risk. The same logic can be extended to a sector or an industry. In fact, diversifying across sectors and industries reaps the real benefits of diversification. Sector specific risks get minimized when shares of other sectors are added to the portfolio. This is because a recession or a downtrend is not seen in all sectors together at the same time.

However all risks cannot be reduced: Though it is possible to reduce risk, the process of equity investing itself comes with certain inherent risks, which cannot be reduced by strategies such as diversification. These risks are called systematic risk as they arise from the system, such as interest rate Risk and inflation risk. As these risks cannot be diversified, theoretically, investors . are reward for taking systematic risk for equity investment

The Risk/Return Trade-off in Financial Analysis

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It is widely accepted that the major determinant of the required return on the asset (or the rate to be applied to a stream of receipts to capitalize its value) is its degree of risk. Risk refers to the probability that the return and therefore the value of an asset or security may have alternative outcomes. Risk is the uncertainty (today) surrounding the eventual outcome of an event which will occur in the future. Example: when tossing a coin, some one is not sure exactly what will be the outcome. The outcome may be to have a Tail or the Head, so there is a concept of risk. In a football match, three outcomes can be experienced: win, lose or draw. In business, the same can happen regarding the expected return on the investments in various sectors. In Financial Analysis, the risk/return trade-off states that financial decisions that subject stockholders to more risk must offer a higher expected return. Risk a version is the tendency to try to avoid risky situations unless adequate compensation is offered. Example: The risk adverse individual faced with two events each having the same expected outcome will choose t he outcome with the lower level of risk

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Measurement of risk & return The expected benefits or returns to be received from an investment come in the form of the cash flows the investment generates.

Categories

of

Risk

and

Leverage

Faced

by

the

Firm

and

by

Stockholders This type of risk is magnified by the degree to which the firm relies on fixed operating expenses in producing sales.

In many cases there is not much the firm can do about this type of risk; some industries have more volatile sales and higher fixed operating expense than others.

Operating leverage results when the firm has fixed operating expenses in its cost structure.

These expenses do not disappear when sales drop, nor do they increase when sales increase. Operating leverage tends to magnify any change in sales on Earnings before Interest and Taxes (EBIT). Stockholders are the ultimate bearers of the risk that results from leverage and they are the residual recipients of higher EBIT should sales increase.

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B: Financial risk This type of risk arises primarily because of the fixed interest payments firms must make to their long-term creditors (debt capital).

This type of risk is reflected in volatile Net Income and Earnings per Share.

Financial leverage Results when the firm finances some portion of its assets with borrowed funds

Financial leverage means that changes in EBIT will magnify changes in net income and Earnings Per Share As a firm increases its degree of financial leverage, its expected return (net income and Earnings Per Share) increases as does its risk The financial manager has some discretion in determining the extent of financial leverage.

RISK DIVERISIFICATION Diversification occurs when different assets make up a portfolio. The benefit of diversification is risk reduction; the extent of this depends upon how the returns of various assets behave over time. The market rewards diversification. We can lower risk without sacrificing expected return, and/or we can increase expected return without having to assume more risk. Diversifying among different kinds of assets is called asset allocation. E.g. A telephone operator with many physical assets such as houses can diversify by acquiring financial assets which in turn earns return to the company. Compared to diversification within the different asset classes, the benefits received are far greater through effective asset allocation e.g. diversifying among different types of financial assets. benefit

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Example of diversification in Telecom industry is when a licensed mobile operator who provides fixed line telephones services also operates the community based telecenters, teleshops, card phones, etc. Other ways to reduce risk include the use of the following strategies:

Mass advertising to reduce erratic sales and hence to increased profit Entering into long-term sales or purchase contracts Recapitalizing toward more equity and less debt so as to reduce the burden of fixed financial expenses The use of temporary labour instead of permanent employees

RISK IN A PORTFOLIO A portfolio is a collection of risky assets. If we view individual assets as one big asset we have a portfolio.Because of risk reduction, the nature of risk is fundamentally different when an asset is viewed as part of a portfolio instead of being viewed in isolation. Measuring the Expected Return and Standard Deviation of a Portfolio The expected return on a portfolio is the weighted average of the returns of individual assets, where each asset's weight is determined by its weight in the portfolio.

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This equation gives the theoretically correct required rate of return on a project based upon its systematic (or beta) risk. The formula is applicable only in situations where all diversifiable risk has been eliminated. The risk-free rate (RFR) is a base rate reflecting the fact that the project should at a minimum offer a return equal to what could be earned in the Treasury bill market. Even risk less investments has a positive required rate of return. The market risk premium, (km - RFR), indicates the premium investors require over the risk-free rate to invest in the general market index. The required return on a project is positively related to the project's beta. A very risky project (say a new expansion venture) will have a high beta coefficient, whereas low risk projects (such as a replacement machine) will have a lower beta. Knowing a project's beta (and thus its minimum required return) is important for good financial management, because it indicates whether or not the

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expected rate of return is above, equal to, or below the required rate of return and whether or not stockholders are being properly compensated for the nondiversifiable risk they bear due to the project. Formulas: CLOSING PRICE-OPENING PRICE RETURNS -----------------------------------------------OPENING PRICE (R-r) 2 Variance (2) = -------------N Standard Deviation () = () 2 x100

NOTE: For all the calculations please refer to the excel files attached.

Date 2-Apr-07 3-Apr-07

Nifty 3633.6 3690.65

Returns (X) -4.8795812 1.56308048

MARUTI 749.25 756.45

Returns (Y) -8.65 0.96

XY 42.20838 1.500557

X2 23.81031 2.443221

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4-Apr-07 5-Apr-07 9-Apr-07 10-Apr-07 11-Apr-07 12-Apr-07 13-Apr-07 16-Apr-07 17-Apr-07 18-Apr-07 19-Apr-07 20-Apr-07 23-Apr-07 24-Apr-07 25-Apr-07 26-Apr-07 27-Apr-07

3733.25 3752 3843.5 3848.15 3862.65 3829.85 3917.35 4013.35 3984.95 4011.6 3997.65 4083.55 4085.1 4141.8 4167.3 4177.85 4083.5

1.17894166 0.44977511 2.41413307 0.10405421 0.37158782 -0.8286184 2.27133291 2.36832037 -0.733609 0.55143373 -0.021258 2.08236985 0.03795717 1.38797092 0.79941948 0.18704812 -2.3553324

745.95 755.9 789.45 786.15 781.95 758.95 771.95 778 762.1 764.25 771.9 778.6 766.9 796 791 797.5 795.9

-1.39 1.33 4.44 -0.42 -0.53 -2.94 1.71 0.78 -2.04 0.28 1 0.87 -1.5 3.79 -0.63 0.82 -0.2

-1.63873 0.598201 10.71875 -0.0437 -0.19694 2.436138 3.883979 1.84729 1.496562 0.154401 -0.02126 1.811662 -0.05694 5.26041 -0.50363 0.153379 0.471066

1.389903 0.202298 5.828038 0.010827 0.138078 0.686608 5.158953 5.608941 0.538182 0.304079 0.000452 4.336264 0.001441 1.926463 0.639072 0.034987 5.547591

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Calculation for - Value

X Y XY X2 X.Y (X)2 N Numerator Denominator - Value

-17.4632398 13.85 1883.116562 2686.697852 -241.87 304.96 494 930,501.45 1,326,923.77 0.70

Average Risk & Return: Return s Risk 0.03 2.77

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Date 2-Apr-07 3-Apr-07 4-Apr-07 5-Apr-07 9-Apr-07 10-Apr-07 11-Apr-07 12-Apr-07 13-Apr-07 16-Apr-07 17-Apr-07 18-Apr-07 19-Apr-07 20-Apr-07 23-Apr-07 24-Apr-07 25-Apr-07 26-Apr-07

Nifty 3633.6 3690.65 3733.25 3752 3843.5 3848.15 3862.65 3829.85 3917.35 4013.35 3984.95 4011.6 3997.65 4083.55 4085.1 4141.8 4167.3 4177.85

Returns (X) 4.879581152 1.563080479 1.178941663 0.449775112 2.41413307 0.104054212 0.371587823 0.828618408 2.271332907 2.368320367 0.733609008 0.551433728 0.021257972 2.082369852 0.03795717 1.387970919 0.799419484 0.187048117

INFOSYS 1922.95 1964.65 1994.3 1992.3 2047.55 1998.85 1996.25 2045.85 2086.9 2128.7 2082.75 2076.3 2039.9 2055.1 2069.25 2057.9 2018.5 2018.85

Returns (Y) -4.74 2.17 1.51 -0.1 2.77 -2.38 -0.13 2.48 2.01 2 -2.16 -0.31 -1.75 0.75 0.69 -0.55 -1.91 0.02

XY 23.12921 3.391885 1.780202 -0.04498 6.687149 -0.24765 -0.04831 -2.05497 4.565379 4.736641 1.584595 -0.17094 0.037201 1.561777 0.02619 -0.76338 -1.52689 0.003741

X2 23.81031 2.443221 1.389903 0.202298 5.828038 0.010827 0.138078 0.686608 5.158953 5.608941 0.538182 0.304079 0.000452 4.336264 0.001441 1.926463 0.639072 0.034987

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Calculation for - Value

X Y XY X2 X.Y (X)2 N Numerator Denominator - Value

-17.4632398 -25.28 1785.571568 2686.697852 441.47 304.96 494 881,630.88 1,326,923.77 0.66

Average Risk & Return:


Return s Risk -0.04 2.62

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Date 2-Apr-07 3-Apr-07 4-Apr-07 5-Apr-07 9-Apr-07 10-Apr-07 11-Apr-07 12-Apr-07 13-Apr-07 16-Apr-07 17-Apr-07 18-Apr-07 19-Apr-07 20-Apr-07 23-Apr-07 24-Apr-07 25-Apr-07 26-Apr-07 27-Apr-07 30-Apr-07

Nifty 3633.6 3690.65 3733.25 3752 3843.5 3848.15 3862.65 3829.85 3917.35 4013.35 3984.95 4011.6 3997.65 4083.55 4085.1 4141.8 4167.3 4177.85 4083.5 4087.9

Returns (X) -4.8795812 1.56308048 1.17894166 0.44977511 2.41413307 0.10405421 0.37158782 -0.8286184 2.27133291 2.36832037 -0.733609 0.55143373 -0.021258 2.08236985 0.03795717 1.38797092 0.79941948 0.18704812 -2.3553324 0.15435123

CIPLA 225.6 224.15 229.5 232.55 235.3 234.7 236.1 232.4 232.4 235.4 229.55 233.4 234.3 235.45 234.15 238.8 252.45 253.4 217.1 210.95

Returns (Y) -4.73 -0.64 2.39 1.33 1.18 -0.25 0.6 -1.57 0 1.29 -2.49 1.68 0.39 0.49 -0.55 1.99 5.72 0.38 -14.33 -2.83

XY 23.08042 -1.00037 2.817671 0.598201 2.848677 -0.02601 0.222953 1.300931 0 3.055133 1.826686 0.926409 -0.00829 1.020361 -0.02088 2.762062 4.572679 0.071078 33.75191 -0.43681

X2 23.81031 2.443221 1.389903 0.202298 5.828038 0.010827 0.138078 0.686608 5.158953 5.608941 0.538182 0.304079 0.000452 4.336264 0.001441 1.926463 0.639072 0.034987 5.547591 0.023824

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Calculation for - Value

X Y XY X2 X.Y (X)2 N Numerator Denominator - Value

-17.4632398 6.78 1405.577015 2686.697852 -118.40 304.96 494 694,473.45 1,326,923.77 0.52

Average Risk & Return: Return s Risk 0.01 2.37

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Date 2-Apr-07 3-Apr-07 4-Apr-07 5-Apr-07 9-Apr-07 10-Apr-07 11-Apr-07 12-Apr-07 13-Apr-07 16-Apr-07 17-Apr-07 18-Apr-07 19-Apr-07 20-Apr-07 23-Apr-07 24-Apr-07 25-Apr-07 26-Apr-07 27-Apr-07

Nifty 3633.6 3690.65 3733.25 3752 3843.5 3848.15 3862.65 3829.85 3917.35 4013.35 3984.95 4011.6 3997.65 4083.55 4085.1 4141.8 4167.3 4177.85 4083.5

Returns (X) -4.8795812 1.56308048 1.17894166 0.44977511 2.41413307 0.10405421 0.37158782 -0.8286184 2.27133291 2.36832037 -0.733609 0.55143373 -0.021258 2.08236985 0.03795717 1.38797092 0.79941948 0.18704812 -2.3553324

IDEA 91.05 91.85 93.5 94.85 95.5 95 96.4 98.2 102.65 104.7 103.55 104.05 103.95 114.3 114.95 114.6 117.6 116.25 112.5

Returns (Y) -3.75 0.88 1.8 1.44 0.69 -0.52 1.47 1.87 4.53 2 -1.1 0.48 -0.1 9.96 0.57 -0.3 2.62 -1.15 -3.23

XY 18.29843 1.375511 2.122095 0.647676 1.665752 -0.05411 0.546234 -1.54952 10.28914 4.736641 0.80697 0.264688 0.002126 20.7404 0.021636 -0.41639 2.094479 -0.21511 7.607724

X2 23.81031 2.443221 1.389903 0.202298 5.828038 0.010827 0.138078 0.686608 5.158953 5.608941 0.538182 0.304079 0.000452 4.336264 0.001441 1.926463 0.639072 0.034987 5.547591

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Calculation for - Value

X Y XY X2 X.Y (X)2 N Numerator Denominator - Value

-17.4632398 -33.36 2663.180545 2686.697852 582.57 304.96 494 1,315,028.62 1,326,923.77 0.99

Average Risk & Return:


Return s Risk -0.07 3.49

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Date 2-Apr-07 3-Apr-07 4-Apr-07 5-Apr-07 9-Apr-07 10-Apr-07 11-Apr-07 12-Apr-07 13-Apr-07 16-Apr-07 17-Apr-07 18-Apr-07 19-Apr-07 20-Apr-07 23-Apr-07 24-Apr-07 25-Apr-07 26-Apr-07 27-Apr-07

Nifty 3633.6 3690.65 3733.25 3752 3843.5 3848.15 3862.65 3829.85 3917.35 4013.35 3984.95 4011.6 3997.65 4083.55 4085.1 4141.8 4167.3 4177.85 4083.5

Returns (X) 4.879581152 1.563080479 1.178941663 0.449775112 2.41413307 0.104054212 0.371587823 0.828618408 2.271332907 2.368320367 0.733609008 0.551433728 0.021257972 2.082369852 0.03795717 1.387970919 0.799419484 0.187048117 2.355332377

AIRTEL 738.55 728.95 733.7 747.5 746.05 761.05 765.6 774.1 769 781.55 782.9 802.4 813 829 799.75 814.75 823 818.4 845.65 850

Returns (Y) -4.7 -4.58 0.65 1.88 -0.19 2.01 0.6 1.11 -0.66 1.63 6.01 2.67 3.84 1.97 -0.33 1.88 -0.72 0.45 3.33 3.28

XY 22.93403 -7.15891 0.766312 0.845577 -0.45869 0.209149 0.222953 -0.91977 -1.49908 3.860362 -4.40899 1.472328 -0.08163 4.102269 -0.01253 2.609385 -0.57558 0.084172 -7.84326 0.506272

X2 23.81031 2.443221 1.389903 0.202298 5.828038 0.010827 0.138078 0.686608 5.158953 5.608941 0.538182 0.304079 0.000452 4.336264 0.001441 1.926463 0.639072 0.034987 5.547591 0.023824

30-Apr-07 4087.9 0.154351235 Finding of the study

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As far as risk factor is taken into consideration, Telecom is higher than IT, followed by automobile and pharma. In spite of risk associated with t it is telecom it is showing better performance with maximum returns. The security in pharma sector is associated with moderate risk. But it is to note that the returns are also moderate. It is to be noted that recession has affected market badly. Suggestions and conclusions Most investors are risk averse and attempt to maximize their wealth at the minimum risk. Risk can be reduced to a minimum but cannot be completely erased or eliminated If a person or investor is risk seeker, he will definitely choose or invest in pharma. If a person is risk aversor, he will option for investing in telecom and he is satisfied with the minimal returns Some investors prefer moderate risk. Such persons invest in scripts like IT sector.. Investor in general would like to analyze the risk factors and a thorough knowledge of risk helps him to plan his portfolio in such a manner so as to minimize the risk associated with the investment.

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BIBLIOGRAPHY Websites: Www. bseindia.com www.nseindia.com Www. ICICIdirect.com Www. moneycontrol.com Www. capitalmarket.com Www capitalline.com Www. investopedia.com Www. google.com BOOKS:

a) b) c) d) e)

Investment management V.K.Bhalla Investment management Preethi Singh Security Analysis And Portfolio Management V.A.Avadhani Marketing of Financial Services V.A.Avadhani Indian Financial System M.Y.Khan -

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