porfolio management.doc

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INTRODUCTIOTO PORTFOLIO MANAGEMENT

Portfolio management and investment decision as a concept came

to be familiar with the conclusion of second world war when thing can be

in the stock market can be liberally ruined the fortune of individual,

companies ,even government s it was then discovered that the investing

in various scripts instead of putting all the money in a single securities

yielded weather return with low risk percentage, it goes to the credit of

HARYMERKOWITZ, 1991 noble laurelled to have pioneered the concept

of combining high yielded securities with these low but steady yielding

securities to achieve optimum correlation coefficient of shares.

Portfolio management refers to the management of portfolios for

others by professional investment managers it refers to the management

of an individual investors portfolio by professionally qualified person

ranging from merchant banker to specified portfolio company.

Definition by SEBI:

A portfolio management is the total holdings of securities belonging

to any person. Portfolio is a combination of securities that have returns

and risk characteristics of their own; port folio may not take on the

aggregate characteristics of their individual parts.

Thus a portfolio is a combination of various assets and /or

instruments of investments.

Combination may have different features of risk and return separate

from those of the components. The portfolio is also built up of the wealth

or income of the investor over a period of time with a view to suit is

return or risk preference to that of the port folio that he holds. The

portfolio analysis is thus an analysis is thus an analysis of risk return

characteristics of individual securities in the portfolio and changes that


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may take place in combination with other securities due interaction among

them and impact of each on others.

Security analysis is only a tool for efficient portfolio management;

both of them together and cannot be dissociated. Portfolios are

combination of assets held by the investors.

These combination may be various assets classed like equity and

debt or of different issues like Govt. bonds and corporate debts are of

various instruments like discount bonds, debentures and blue chip equity

nor scripts of emerging Blue chip companies.

Portfolio analysis includes portfolio construction, selection of

securities revision of portfolio evaluation and monitoring of the

performance of the portfolio. All these are part of the portfolio

management

The traditional portfolio theory aims at the selection of such

securities that would fit in will with the asset preferences, needs and

choices of the investors. Thus, retired executive invests in fixed income

securities for a regular and fixed return. A business executive or a young

aggressive investor on the other hand invests in and rowing companies

and in risky ventures.

The modern portfolio theory postulates that maximization of

returns and minimization of risk will yield optional returns and the choice

and attitudes of investors are only a starting point for investment

decisions and that vigorous risk returns analysis is necessary for

optimization of returns.

Portfolio analysis includes portfolio construction, selection of

securities, and revision of portfolio evaluation and monitoring of the

performance of the portfolio. All these are part of the portfolio

management.

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IMPORTANCE & NEED OF STUDY

Portfolio management or investment helps investors in effective and

efficient management of their investment to achieve this goal. The rapid

growth of capital markets in India has opened up new investment avenues

for investors.

The stock markets have become attractive investment options for the

common man. But the need is to be able to effectively and efficiently

manage investments in order to keep maximum returns with minimum

risk.

Hence this study on PORTFOLIO MANAGEMENT & INVESTMENT

DECISION to examine the role process and merits of effective

investment management and decision.

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OBJECTIVES

To study the investment decision process.

To analysis the risk return characteristics of sample scripts.

Ascertain portfolio weights.

To construct an effective portfolio which offers the maximum returnfor minimum risk

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METHODOLOGY

Primary source

Information gathered from interacting with Mr. Prabakar in the

Class room. And the data from the textbooks and other magazines.

Secondary source:Daily prices of scripts from news papers

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REVIEW OF LITERATURE

PORTFOLIO:

A portfolio is a collection of securities since it is really desirable to

invest the entire funds of an individual or an institution or a single

security, it is essential that every security be viewed in a portfolio context.

Thus it seems logical that the expected return of the portfolio. Portfolio

analysis considers the determine of future risk and return in holding

various blends of individual securities

Portfolio expected return is a weighted average of the expected

return of the individual securities but portfolio variance, in short contrast,

can be something reduced portfolio risk is because risk depends greatly on

the co-variance among returns of individual securities. Portfolios, which

are combination of securities, may or may not take on the aggregate

characteristics of their individual parts.

Since portfolios expected return is a weighted average of the

expected return of its securities, the contribution of each security the

portfolios expected returns depends on its expected returns and its

proportionate share of the initial portfolios market value. It follows that

an investor who simply wants the greatest possible expected return

should hold one security; the one which is considered to have a greatestexpected return. Very few investors do this, and very few investment

advisors would counsel such and extreme policy instead, investors should

diversify, meaning that their portfolio should include more than one

security.

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OBJECTIVES OF PORTFOLIOMANAGEMENT

The main objective of investment portfolio management is

to maximize the returns from the investment and to minimize the risk

involved in investment. Moreover, risk in price or inflation erodes the

value of money and hence investment must provide a protection against

inflation.

Secondary objectives:

The following are the other ancillary objectives:

Regular return.

Stable income.

Appreciation of capital.

More liquidity.

Safety of investment.

Tax benefits.

Portfolio management services helps investors to make a

wise choice between alternative investments with pit any post trading

hassles this service renders optimum returns to the investors by proper

selection of continuous change of one plan to another plane with in the

same scheme, any portfolio management must specify the objectives likemaximum returns, and risk capital appreciation, safety etc in their offer.

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Return From the angle of securities can be fixed income

securities such as:

(a) Debentures partly convertibles and non-convertibles debentures debt

with tradable Warrants.

(b) Preference shares

(c) Government securities and bonds

(d) Other debt instruments

(2) Variable income securities

(a) Equity shares

(b) Money market securities like treasury bills commercial papers etc.

Portfolio managers has to decide up on the mix of

securities on the basis of contract with the client and objectives of

portfolio

NEED FOR PORTFOLIO MANAGEMENT:

Portfolio management is a process encompassing many activities of

investment in assets and securities. It is a dynamic and flexible concept

and involves regular and systematic analysis, judgment and action. The

objective of this service is to help the unknown and investors with the

expertise of professionals in investment portfolio management. It involves

construction of a portfolio based upon the investors objectives,

constraints, preferences for risk and returns and tax liability. The portfolio

is reviewed and adjusted from time to time in tune with the market

conditions. The evaluation of portfolio is to be done in terms of targets set

for risk and returns. The changes in the portfolio are to be effected to

meet the changing condition.

Portfolio construction refers to the allocation of surplus funds in hand

among a variety of financial assets open for investment. Portfolio theory

concerns itself with the principles governing such allocation. The modern

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view of investment is oriented more go towards the assembly of proper

combination of individual securities to form investment portfolio.

A combination of securities held together will give a beneficial

result if they grouped in a manner to secure higher returns after taking

into consideration the risk elements.

The modern theory is the view that by diversification risk can be

reduced. Diversification can be made by the investor either by having a

large number of shares of companies in different regions, in different

industries or those producing different types of product lines. Modern

theory believes in the perspective of combination of securities under

constraints of risk and returns

PORTFOLIO MANAGEMENT PROCESS:

Investment management is a complex activity which may be broken

down into the following steps:

1) Specification of investment objectives and constraints:

The typical objectives sought by investors are current income,capital appreciation, and safety of principle. The relative importance of

these objectives should be specified further the constraints arising from

liquidity, time horizon, tax and special circumstances must be identified.

2) choice of the asset mix :

The most important decision in portfolio management is the asset mix

decision very broadly; this is concerned with the proportions of stocks

(equity shares and units/shares of equity-oriented mutual funds) and

bonds in the portfolio.

The appropriate stock-bond mix depends mainly on the risk

tolerance and investment horizon of the investor.

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ELEMENTS OF PORTFOLIO MANAGEMENT:

Portfolio management is on-going process involving the

following basic tasks:

Identification of the investors objectives, constraints and

preferences.

Strategies are to be developed and implemented in tune with

investment policy formulated.

Review and monitoring of the performance of the portfolio.

Finally the evaluation of the portfolio

Risk:

Risk is uncertainty of the income /capital appreciation or loss or

both. All investments are risky. The higher the risk taken, the higher is

the return. But proper management of risk involves the right choice of

investments whose risks are compensating. The total risks of two

companies may be different and even lower than the risk of a group of

two companies if their companies are offset by each other.

SOURCES OF INVESTMENT RISK:

Business risk:

As a holder of corporate securities (equity shares or

debentures), you are exposed to the risk of poor business performance.

This may be caused by a variety of factors like heightened competition,emergence of new technologies, development of substitute products,

shifts in consumer preferences, inadequate supply of essential inputs,

changes in governmental policies, and so on.

Interest rate risk:

The changes in interest rate have a bearing on the welfare on

investors. As the interest rate goes up, the market price of existing firmed

income securities falls, and vice versa. This happens because the buyer of

a fixed income security would not buy it at its par value of face value o its

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fixed interest rate is lower than the prevailing interest rate on a similar

security. For example, a debenture that has a face value of RS. 100 and a

fixed rate of 12% will sell a discount if the interest rate moves up from,

say 12% to 14%.while the chances in interest rate have a direct bearing

on the prices of fixed income securities, they affect equity prices too,

albeit some what indirectly.

The two major types of risks are:

Systematic or market related risk.

Unsystematic or company related risks.

Systematic risks affected from the entire market are (the problems,

raw material availability, tax policy or government policy, inflation risk,

interest risk and financial risk). It is managed by the use of Beta of

different company shares.

The unsystematic risks are mismanagement, increasing inventory,

wrong financial policy, defective marketing etc. this is diversifiable or

avoidable because it is possible to eliminate or diversify away this

component of risk to a considerable extent by investing in a large portfolio

of securities. The unsystematic risk stems from inefficiency magnitude of

those factors different form one company to another.

RETURNS ON PORTFOLIO:

Each security in a portfolio contributes return in the proportion

of its investments in security. Thus the portfolio expected return is the

weighted average of the expected return, from each of the securities, with

weights representing the proportions share of the security in the total

investment. Why does an investor have so many securities in his

portfolio? If the security ABC gives the maximum return why not he

invests in that security all his funds and thus maximize return? The

answer to this questions lie in the investors perception of risk attached to

investments, his objectives of income, safety, appreciation, liquidity and

hedge against loss of value of money etc. this pattern of investment in

different asset categories, types of investment, etc., would all be

described under the caption of diversification, which aims at the reduction

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or even elimination of non-systematic risks and achieve the specific

objectives of investors

RISK ON PORTFOLIO :The expected returns from individual securities carry some

degree of risk. Risk on the portfolio is different from the risk on individual

securities. The risk is reflected in the variability of the returns from zero to

infinity. Risk of the individual assets or a portfolio is measured by the

variance of its return. The expected return depends on the probability of

the returns and their weighted contribution to the risk of the portfolio.

These are two measures of risk in this context one is the absolute

deviation and other standard deviation.

Most investors invest in a portfolio of assets, because as to

spread risk by not putting all eggs in one basket. Hence, what really

matters to them is not the risk and return of stocks in isolation, but the

risk and return of the portfolio as a whole. Risk is mainly reduced by

Diversification.

RISK AND RETURN ANALYSIS:All investment has some risk. Investment in shares of companies has its

own risk or uncertainty; these risks arise out of variability of yields and

uncertainty of appreciation or depreciation of share prices, losses of

liquidity etc

The risk over time can be represented by the variance of the returns.

While the return over time is capital appreciation plus payout, divided by

the purchase price of the share.

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Normally, the higher the risk that the investor takes, the

higher is the return. There is, how ever, a risk less return on capital of

about 12% which is the bank, rate charged by the R.B.I or long term,

yielded on government securities at around 13% to 14%. This risk less

return refers to lack of variability of return and no uncertainty in the

repayment or capital. But other risks such as loss of liquidity due to

parting with money etc., may however remain, but are rewarded by the

total return on the capital. Risk-return is subject to variation and the

objectives of the portfolio manager are to reduce that variability and thus

reduce the risky by choosing an appropriate portfolio.

Traditional approach advocates that one security holds the

better, it is according to the modern approach diversification should not

be quantity that should be related to the quality of scripts which leads to

quality of portfolio.

Experience has shown that beyond the certain securities by adding more

securities expensive.

Simple diversification reduces:

An assets total risk can be divided into systematic plus unsystematic risk,

as shown below:

Systematic risk (undiversifiable risk) + unsystematic risk

(diversified risk) =Total risk =Var (r).

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Unsystematic risk is that portion of the risk that is unique to the firm (for

example, risk due to strikes and management errors.) Unsystematic risk

can be reduced to zero by simple diversification.

Simple diversification is the random selection of securities that are to

be added to a portfolio. As the number of randomly selected securities

added to a portfolio is increased, the level of unsystematic risk

approaches zero. However market related systematic risk cannot be

reduced by simple diversification. This risk is common to all securities.

Persons involved in portfolio management:

Investor:

Are the people who are interested in investing their funds?

Portfolio managers:

Is a person who is in the wake of a contract agreement with a

client, advices or directs or undertakes on behalf of the clients, the

management or distribution or management of the funds of the client asthe case may be.

Discretionary portfolio manager:

Means a manager who exercise under a contract relating to a

portfolio management exercise any degree of discretion as to the

investment or management of portfolio or securities or funds of clients as

the case may be

.The relation ship between an investor and portfolio manager is of

a highly interactive nature

The portfolio manager carries out all the transactions

pertaining to the investor under the power of attorney during the last two

decades, and increasing complexity was witnessed in the capital market

and its trading procedures in this context a key (uninformed) investor

formed ) investor found him self in a tricky situation , to keep track of

market movement ,update his knowledge, yet stay in the capital market

and make money , there fore in looked forward to resuming help from

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portfolio manager to do the job for him .The portfolio management seeks

to strike a balance between risks and return.

The generally rule in that greater risk more of the profits but

S.E.B.I. in its guidelines prohibits portfolio managers to promise any

return to investor.

Portfolio management is not a substitute to the inherent risks associated

with equity investment.

Who can be a portfolio manager?

Only those who are registered and pay the required license fee

are eligible to operate as portfolio managers. An applicant for this purpose

should have necessary infrastructure with professionally qualified persons

and with a minimum of two persons with experience in this business and a

minimum net worth of Rs. 50lakhs. The certificate once granted is valid

for three years. Fees payable for registration are Rs 2.5lakhs every fortwo years and Rs.1lakhs for the third year. From the fourth year onwards,

renewal fees per annum are Rs 75000. These are subjected to change by

the S.E.B.I.

The S.E.B.I. has imposed a number of obligations and a code of

conduct on them. The portfolio manager should have a high standard of

integrity, honesty and should not have been convicted of any economic

offence or moral turpitude. He should not resort to rigging up of prices,

insider trading or creating false markets, etc. their books of accounts are

subject to inspection to inspection and audit by S.E.B.I... The observance

of the code of conduct and guidelines given by the S.E.B.I. are subject to

inspection and penalties for violation are imposed. The manager has to

submit periodical returns and documents as may be required by the SEBI

from time-to- time.

Functions of portfolio managers:

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Advisory role: advice new investments, review the existing ones,

identification of objectives, recommending high yield securities etc.

Conducting market and economic service:this is essential for

recommending good yielding securities they have to study the

current fiscal policy, budget proposal; individual policies etc further

portfolio manager should take in to account the credit policy,

industrial growth, foreign exchange possible change in corporate

laws etc.

Financial analysis:he should evaluate the financial statement of

company in order to understand, their net worth future earnings,

prospectus and strength.

Study of stock market : he should observe the trends at various

stock exchange and analysis scripts so that he is able to identify

the right securities for investment

Study of industry:he should study the industry to know its future

prospects, technical changes etc, required for investment proposal

he should also see the problems of the industry.

Decide the type of port folio:keeping in mind the objectives of

portfolio a portfolio manager has to decide weather the portfolio

should comprise equity preference shares, debentures,

convertibles, non-convertibles or partly convertibles, money

market, securities etc or a mix of more than one type of proper

mix ensures higher safety, yield and liquidity coupled with balanced

risk techniques of portfolio management.

A portfolio manager in the Indian context has been

Brokers (Big brokers) who on the basis of their experience, market trends,

Insider trader, helps the limited knowledge persons. Registered merchant

bankers can acts as portfolio managers Investors must look forward, for

qualification and performance and ability and research base of the

portfolio managers.

Techniques of portfolio management:

As of now the under noted technique of portfolio management: are in

vogue in our country

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1. equity portfolio: is influenced by internal and external factors

the internal factors effect the inner working of the companys

growth plans are analyzed with referenced to Balance sheet, profit

& loss a/c (account) of the company. Among the external factor are

changes in the government policies, Trade cycles, Political stability

etc.

2. equity stock analysis: under this method the probable future

value of a share of a company is determined it can be done by

ratios of earning per share of the company and price earning ratio

EPS = PROFIT AFTER TAX

NO: OF EQUITY SHARES

PRICE EARNING RATIO = MARKET PRICE

E.P.S (earnings per share)

One can estimate trend of earning by EPS, which reflects trends of earning

quality of company, dividend policy, and quality of management.

Price earning ratio indicate a confidence of market about the company

future, a high rating is preferable

The following points must be considered by portfolio

managers while analyzing the securities.

1. Nature of the industry and its product: long term trends of

industries, competition with in, and out side the industry, Technical

changes, labour relations, sensitivity, to Trade cycle.

2. Industrial analysis of prospective earnings, cash flows,

working capital, dividends, etc.

3. Ratio analysis: Ratio such as debt equity ratios current ratios

net worth, profit earning ratio, return on investment, are worked

out to decide the portfolio.

The wise principle of portfolio management suggests that Buy when

the market is low or BEARISH, and sell when the market is

risingorBULLISH.

Stock market operation can be analyzed by:

a) Fundamental approach :- based on intrinsic value of shares

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b) Technical approach:-based on Donjons theory, Random walk

theory, etc.

Prices are based upon demand and supply of the market.

i. Traditional approach assumes that

ii. Objectives are maximization of wealth and minimization of risk.

iii. Diversification reduces risk and volatility.

iv. Variable returns, high illiquidity; etc.

Capital Assets pricing approach (CAPM) it pays more weight age, to risk

or portfolio diversification of portfolio.

Diversification of portfolio reduces risk but it should be

based on certain assessment such as:

Trend analysis of past share prices, Valuation of intrinsic value of

company (trend-marker moves are known for their Uncertainties they are

compared to be high, and low prompts of wave market trends are

constituted by these waves it is a pattern of movement based on past).

The following rules must be studied while cautious portfolio manager

before decide to invest their funds in portfolios.1. Compile the financials of the companies in the immediate past 3

years such as turn over, gross profit, net profit before tax, compare

the profit earning of company with that of the industry average nature

of product manufacture service render and it future demand ,know

about the promoters and their back ground, dividend track record,

bonus shares in the past 3 to 5 years ,reflects companys commitment

to share holders the relevant information can be accessed from the

RDC(registrant of companies)published financial results financed

quarters, journals and ledgers.

2. Watch out the highs and lows of the scripts for the past 2 to 3

years and their timing cyclical scripts have a tendency to repeat their

performance ,this hypothesis can be true of all other financial ,

3. The higher the trading volume higher is liquidity and still higher

the chance of speculation, it is futile to invest in such shares whos

daily movements cannot be kept track, if you want to reap rich returnskeep investment over along horizon and it will offset the wild intra day

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trading fluctuations, the minor movement of scripts may be ignored,

we must remember that share market moves in phases and the span

of each phase is 6 months to 5 years.

a. Long term of the market should be the guiding factor to

enable you to invest and quit. The market is now bullish and the

trend is likely to continue for some more time.

b. UN tradable shares must find a last place in portfolio apart from

return; even capital invested is eroded with no way of exit with no way

of exit with inside.

How at all one should avoid such scripts in future?

(1) Never invest on the basis of an insider trader tip in a company which

is not sound (insider trader is person who gives tip for trading in securities

based on prices sensitive up price sensitive un published information

relating to such security).

(2) Never invest in the so called promoter quota of lesser known

company

(3) Never invest in a company about which you do not have appropriate

knowledge.(4) Never at all invest in a company which doesnt have a stringent

financial record your portfolio

(4) Shuffle the portfolio and replace the slow moving sector with active

ones , investors were shatter when the technology , media, software ,

stops have taken a down slight.

(5) Never fall to the magic of the scripts dont confine to the blue chip

companys, look out for other portfolio that ensure regular dividends.

(6) In the same way never react to sudden raise or fall in stock market

index such fluctuation is movement minor corrections in stock market

held in consolidation of market their by reading out a weak player often

taste on wait for the dust and dim to settle to make your move .

PORT FOLIO MANAGEMENT AND DIVESIFICATOIN:

Combinations of securities that have high risk and return features

make up a portfolio. Portfolios may or may not take on the aggregatecharacteristics of individual part, portfolio analysis takes various

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components of risk and return for each industry and consider the effort of

combined security.

Portfolio selection involves choosing the best portfolio to suit the

risk return preferences of portfolio investor management of portfolio is a

dynamic activity of evaluating and revising the portfolio in terms of

portfolios objectives. It may include in cash also, even if one goes bad the

other will provide protection from the loss even cash is subject to inflation

the diversification can be either vertical or horizontal the vertical

diversification portfolio can have script of different companys with in the

same industry. In horizontal diversification one can have different scripts

chosen from different industries.

CEMENT INDUSTRY .TEXTILE INDUSTRY

ACC CEMENT

JK CEMENT

ULTRA TECH

BIRLA CEM

VISHNU CEM

PRIYA CEM

RAM CO CEM

RELILANCE INDUSTRIES

GARDEN SILK MILLS

NECP TEXTILE

BOMBAY DEYING

GRASIM INDUSTRIES

BORODA RAYON

CHESLIND TEXTILE

Horizontal Diversification

TISCO MANUFACTURING

ACC

GARDEN TEXTILEINFOSYS (SOFTWARE)

BSES LTD (POWER)

ULTRA TECH (CONSTRUCTION)

It should be an adequate diversification looking in to the size of

portfolio. Traditional approach advocates the more security one holds in a

portfolio , the better it is according to modern approach diversification

should not be quantified but should be related to the quality of scripts which

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leads to the quality and portfolio subsequently experience can show that

beyond a certain number of securities adding more securities become

expensive.

Investment in a fixed return securities in the current market scenario which is

passing through a an uncertain phase investors are facing the problem of lack

of liquidity combined with minimum returns the important point to both is that

the equity market and debt market moves in opposite direction .where the

stock market is booming, equities perform better where as in depressed

market the assured returns related securities market out perform equities.

It is cyclic and is evident in more global market keeping this in mind

an investor can shift from fixed income securities to equities and vise versa

along with the changing market scenario , if the investment are wisely planned

they , fetch good returns even when the market is depressed most , important

the investor must adopt the time bound strategy in differing state of market to

achieve the optimum result when the aim is short term returns it would be

wise for the investor to invest in equities when the market is in boom & it could

be reviewed if the same is done.

Maximum of returns can be achieved by following a composite pattern

of investment by having, suitable investment allocation strategy among the

available resources.

Never invest in a single securities your investment can be

allocated in the following areas:

1. Equities:-primary and secondary market.

2. Mutual Funds

3. Bank deposits

4. Fixed deposits & bonds and the tax saving schemes

The different areas of fixed income are as:-

Fixed deposits in company

BondsMutual funds schemes

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with an investment strategy to invest in debt investment in fixed deposit can

be made for the simple reason that assured fixed income of a high of 14-17%

per annum can be expected which is much safer then investing a highly

volatile stock market, even in comparison to banks deposit which gives a

maximum return of 12% per annum, fixed deposit s in high profile esteemed

will performing companies definitely gives a higher return.

BETA:

The concept of Beta as a measure of systematic risk is useful in

portfolio management. The beta measures the movement of one script in

relation to the market trend*. Thus BETA can be positive or negative

depending on whether the individual scrip moves in the same direction as

the market or in the opposite direction and the extent of variance of one

scrip vis--vis the market is being measured by BETA. The BETA is negative

if the share price moves contrary to the general trend and positive if it

moves in the same direction. The scrips with higher BETA of more than one

are called aggressive, and those with a low BETA of less than one are called

defensive.

It is therefore it is necessary, to calculate Betas for all scrips and

choose those with high Beta for a portfolio of high returns.

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INVESTMENT DECISIONS

Definition of investment:

According to F. AMLING Investment may be defined as thepurchase by an individual or an Institutional investor of a financial or real

asset that produces a return proportional to the risk assumed over some

future investment period. According to D.E. Fisher and R.J. Jordon,

Investment is a commitment of funds made in the expectation of some

positive rate of return. If the investment is properly undertaken, the return

will be commensurate with the risk of the investor assumes.

Concept of Investment:

Investment will generally be used in its financial sense and as such

investment is the allocation of monetary resources to assets that are

expected to yield some gain or positive return over a given period of time.

Investment is a commitment of a persons funds to derive future income in

the form of interest, dividends, rent, premiums, pension benefits or the

appreciation of the value of his principal capital.

Many types of investment media or channels for making

investments are available. Securities ranging from risk free instruments tohighly speculative shares and debentures are available for alternative

investments.

All investments are risky, as the investor parts with his money. An

efficient investor with proper training can reduce the risk and maximize

returns. He can avoid pitfalls and protect his interest.

There are different methods of classifying the investment

avenues. A major classification is physical Investments and Financial

Investments. They are physical, if savings are used to acquire physical

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assets, useful for consumption or production. Some physical

assets like ploughs, tractors or harvesters are useful in agricultural

production. A few useful physical assets like cars, jeeps etc., are useful in

business.

The investment process may be described in the following

stages:

Investment policy:

The first stage determines and involves personal financial

affairs and objectives before making investment. It may also be called the

preparation of investment policy stage. The investor has to see that he

should be able to create an emergency fund, an element of liquidity and

quick convertibility of securities into cash. This stage may, therefore be called

the proper time of identifying investment assets and considering the various

features of investments.

investment analysis:

After arranging a logical order of types of investment preferred,

the next step is to analyze the securities available for investment. The

investor must take a comparative analysis of type of industry, kind of

securities etc. the primary concerns at this stage would be to form beliefs

regarding future behavior of prices and stocks, the expected return and

associated risks

.Investment valuation:

Investment value, in general is taken to be the present worth to theowners of future benefits from investments. The investor has to bear in mind

the value of these investments. An appropriate set of weights have to be

applied with the use of forecasted benefits to estimate the value of the

investment assets such as stocks, debentures, and bonds and other assets.

Comparison of the value with the current market price of the assets allows a

determination of the relative attractiveness of the asset allows a

determination of the relative attractiveness of the asset. Each asset must be

value on its individual merit.

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Portfolio construction and feed-back:

Portfolio construction requires knowledge of different

aspects of securities in relation to safety and growth of principal, liquidity of

assets etc. In this stage, we study, determination of diversification level,

consideration of investment timing selection of investment assets, allocation

of invest able wealth to different investments, evaluation of portfolio for

feed-back.

INVESTMENT DECISIONS- GUIDELINES FOR EQUITY

INVESTMENT

Equity shares are characterized by price fluctuations, which can

produce substantial gains or inflict severe losses. Given the volatility and

dynamism of the stock market, investor requires greater competence and

skill-along with a touch of good luck too-to invest in equity shares. Here are

some general guidelines to play to equity game, irrespective of weather you

aggressive or conservative.

Adopt a suitable formula plan.

Establish value anchors. Assets market psychology.

Combination of fundamental and technical analyze.

Diversify sensibly.

Periodically review and revise your portfolio.

Requirement of portfolio:

1. Maintain adequate diversification when relative values of varioussecurities in the portfolio change.

2. Incorporate new information relevant for return investment.

3. Expand or contrast the size of portfolio to absorb funds or with draw

funds.

4.Reflect changes in investor risk disposition.

Qualitiles For successful Investing:

Contrary thinking

Patience

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Composure

Flexibility

Openness

INVESTORS PORTFOLIO CHOICE:

An investor tends to choose that portfolio, which yields him

maximum return by applying utility theory. Utility Theory is the foundation

for the choice under uncertainty. Cardinal and ordinal theories are the two

alternatives, which is used by economist to determine how people and

societies choose to allocate scare resources and to distribute wealth

among one another.

The former theory implies that a consumer is capable of assigning

to every commodity or combination of commodities a number

representing the amount of degree of utility associated with it. Were as

the latter theory, implies that a consumer needs not be liable to assign

numbers that represents the degree or amount of utility associated with

commodity or combination of commodity. The consumer can only rank

and order the amount or degree of utility associated with commodity.

In an uncertain environment it becomes necessary to ascertain

how different individual will react to risky situation. The risk is defined as

a probability of success or failure or risk could be described as variability

of out comes, payoffs or returns. This implies that there is a distribution of

outcomes associated with each investment decision. Therefore we can say

that there is a relationship between the expected utility and risk. Expected

utility with a particular portfolio return. This numerical value is calculated

by taking a weighted average of the utilities of the various possible

returns. The weights are the probabilities of occurrence associated with

each of the possible returns.

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MARKOWITZ MODEL

THE MEAN-VARIENCE CRITERION

Dr. Harry M.Markowitz is credited with developing the first

modern portfolio analysis in order to arrange for the optimum allocation of

assets with in portfolio. To reach this objective, Markowitz generated

portfolios within a reward risk context. In essence, Markowitzs model is a

theoretical framework for the analysis of risk return choices. Decisions are

based on the concept of efficient portfolios.

A portfolio is efficient when it is expected to yield the highest

return for the level of risk accepted or, alternatively, the smallest portfolio

risk for a specified level of expected return. To build an efficient portfolioan expected return level is chosen, and assets are substituted until the

portfolio combination with the smallest variance at the return level is

found. At this process is repeated for expected returns, set of efficient

portfolio is generated.

ASSUMPTIONS:

1. Investors consider each investment alternative as being

represented by a probability distribution of expected returns over

some holding period.

2. Investors maximize one period-expected utility and posses utility

curve, which demonstrates diminishing marginal utility of wealth.

3. Individuals estimate risk on the risk on the basis of the variability

of expected returns.

4. Investors base decisions solely on expected return and variance or

returns only.

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5. For a given risk level, investors prefer high returns to lower return

similarly for a given level of expected return, Investors prefer risk

to more risk.

Under these assumptions, a single asset or portfolio

of assets is considered to be efficient if no other asset or portfolio of

assets offers higher expected return with the same risk or lower risk with

the same expected return.

THE SPECIFIC MODEL

In developing his model, Morkowitz first disposed of the

investment behavior rule that the investor should maximize expected

return. This rule implies that the non-diversified single security portfolio

with the highest return is the most desirable portfolio. Only by buying that

single security can expected return be maximized. The single-security

portfolio would obviously be preferable if the investor were perfectly

certain that this highest expected return would turn out be the actual

return. However, under real world conditions of uncertainty, most risk

adverse investors join with Markowitz in discarding the role of calling formaximizing expected returns. As an alternative, Markowitz offers the

expected returns/variance of returns rule.

Markowitz has shown the effect of diversification by reading

the risk of securities. According to him, the security with covariance which

is either negative or low amongst them is the best manner to reduce risk.

Markowitz has been able to show that securities which have less than

positive correlation will reduce risk without, in any way bringing the return

down. According to his research study a low correlation level between

securities in the portfolio will show less risk. According to him, investing in

a large number of securities is not the right method of investment. It is

the right kind of security which brings the maximum result.

CONSTRUCTION OF THE STUDY

Purpose of the study:

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The purpose of the study is to find out at what percentage of

investment should be invested between two companies, on the basis of

risk and return of each security in comparison. These percentages helps in

allocating the funds available for investment based on risky portfolios.

Implementation of study:

For implementing the study,8 securitys or scripts constituting the

Sensex market are selected of one month closing share movement price

data from Economic Times and financial express from Jan 3rd to 31st Jan

2008.

In order to know how the risk of the stock or script, we use the

formula, which is given below:

Standard deviation = variance

n _

Variance = (1/n-1) (R-R) ^2

t =1

Where (R-R) ^2=square of difference between sample and mean.

n=number of sample observed.

After that, we need to compare the stocks or scripts of two companies

with each other by using the formula or correlation co-efficient as givenbelow.

Co-variance(COVAB) = 1/n (RA-RA) (RB-RB)

t =1

(COV AB)Correlation-Coefficient (P AB) = --------------------- (Std. A) (Std. B)

Where (RA-RA) (RB-RB) = Combined deviations of A&B

(Std. A) (Std B) =standard deviation of A&B

COVAB= covariance between A&B

n =number of observation.

The next step would be the construction of the optimal portfolio on the

basis of what percentage of investment should be invested when two

securities and stocks are combined i.e. calculation of two assets portfolio

weight by using minimum variance equation which is given below.

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FORMULA (Std. b) ^2 pab (Std. a) (Std. b) Xa =------------------- -------------------------

(Std. a) ^2 + (std. b) ^2 2pab (Std. a) (Std. b)

Where

Std. b= standard deviation of b

Std. a = standard deviation of a

Pab= correlation co-efficient between A&B

The next step is final step to calculate the portfolio risk (combined risk)

,that shows how much is the risk is reduced by combining two stocks or

scripts by using this formula:

p= X1^21^2+X2^22^2+2(X1)(X2)(X12)1

Where

X1=proportion of investment in security 1.

X2=proportion of investment in security 2.

1= standard deviation of security 1.

2= standard deviation of security 2.X12=correlation co-efficient between security 1&2.

p=portfolio risk

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COMPANY PROFILE

ARIHANT CAPITAL MARKETS LIMITED

Introduction

Arihant Capital Markets Limited is a leading financial intermediary

established in 1994. Arihant is managed by a team of experienced and

qualified professionals across all the Levels of management. The company

is promoted by Mr. Ashok Kumar Jain, a Chartered Accountant having

more than 20 years of experience in capital markets. Arihant has been on

a growth path under his able leadership and rich experience. He has been

our guide all throughout our success path. His values of integrity and

transparency have been inculcated in over the years Arihant has played a

successful role in client's wealth creation. In the Process Arihant also

refined itself, as an investment advisor and is poised to provide Complete

Investment Management Solutions Arihant's values of integrity and

transparency in all its transactions are embedded deep into roots helps it

to provide excellent services, steady growth and complete satisfaction toall its clients. Arihant strongly believes that success is only the end result

of client's growth. Arihant has followed a consistent growth path and is

established as one of the leading broking houses of the country with the

support and confidence of clients, Investors, employees and associates.

Services

Over the period of time Arihant has acquired memberships of

National Stock Exchange (NSE), Bombay Stock Exchange (BSE), National

Securities Depositories Limited (NSDL), Central Depository Services Ltd.

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(CDSL), National Commodities Exchange (NCDEX), Multi Commodities

Exchange (MCX) and also registered with SEBI for Portfolio Management

Services (PMS).Over the period of time Arihant has acquired memberships

of National Stock Exchange (NSE), Bombay Stock Exchange (BSE),

National Securities Depositories Limited (NSDL), Central Depository

Services Ltd. (CDSL), National Commodities Exchange (NCDEX), Multi

Commodities Exchange (MCX) and also registered with SEBI for Portfolio

Management Services (PMS)

VISION

To be a leader in setting standards for quali ty, investor

satisfaction and to enhance the wealth of our investors.

PHILOSOPHY

Integrity and transparency in all transactions.

Providing investment solutions based on quality and unbiased

research.

Providing personalized services to all investors, institutions, business

associates.

Achieving success through client's growth.

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MILE STONES

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RESOURCES

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People...Arihant has always invested in quality human resources

continuously striving to provide Best services to valued clientele. Arihant's

strong pool consists of a team of 200+ Professionals including CAs, CS.

MBAs. Engineers. Arihant's professionals are fully geared towards

achieving excellence in the field of equity research, investment advisory,

derivative strategies, efficient execution, customer relationship and back

office Operations.

Infrastructure...

In its efforts to continuously provide value added services Arihant has

adopted latest technology and offers excellent execution and post sales

support at all branches. Arihant'sWeb enabled back office operationsenables clients to have online information about their transactions. Arihant

ensures continuous information flow to clients on their mobile phones

through SMS and on their desktops through email and chat. Arihant uses

latest Software for market analysis in order to ensure continuous

information flow to clients.Arihant also provides trading terminals at

client's location through CTCL technology providing live trading at their

ownlocations.

Network...

Arihant has a strong network of 150+ branches/business associates

providing services to a more than 50000+ number of active retail clients

across the country. Arihant provides complete investment solutions to

clients offering a gamut of products and services. All branches are

equipped to provide complete advisory to clients for investments in

equities, derivatives, commodities, mutual funds and bonds.

RESEARCH

Fundamental Equity Research

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Arihant has a strong team of analysts covering large cap, mid cap & small

cap companies across sectors. Arihant research team is credited with the

discovery of a number of multi-Baggers creating immense wealth for

investors. Arihant's research reports have clarity, Accuracy, in-depth

coverage and the latest information about companies.

Technical Equity Research

Arihant provides technical analysis on various securities and markets on

website as well as on e-mail to valued clientele. Arihant also provides "On

line market commentary" to make the intra day trading more profitable

and for minimizing the risk of investors. Arihant's analysts' team keeps

minute-to-minute track of the market and broadcasts buy and sell

recommendations on the basis of market momentum. Arihant's research

team sends trading and investment call alerts on daily basis on mobile

phones. This facility is available free of cost to all investors, associates

and active traders.

ABOUT MANAGEMENT

Arihant is managed by a team of experienced and qualified professionals

across all the levels of management. The company is promoted by Mr.

Ashok Kumar Jain, a Chartered Accountant. The company currently

employs more than 200+ professionals dedicatedly Working in equity

research, risk management, marketing and wealth management.

KEY PERSONNEL

M. AshokJain, Chairman

Arihant has been on a growth path under his able leadership and rich

experience. He is a Chartered Accountant aged 50 years having more than

20 years of experience in capital markets. He has been our guide all

throughout our success path. His values of integrity and transparency

have been inculcated in all our employees. He always innovates new

ideas, adapt latest technology so as to provide quality andunbiasedinvestmentsolutiontotheinvestors.

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Ms Anita Gandhi, Head Institutional Business

A Chartered Accountant having overall 12 years experience in Financial-

Services and 6 Years of experience in the Manufacturing Industry. She is

with the organization since June, 2002. She is instrumental in setting up

Mutual Funds Distribution and Research wing of the company. She is

overall in-charge of the Institutional business of the Company.

Mr.ArpitAgrawal,HeadEquityResearch

A Chartered Accountant with an experience of 5 years in Financial

Services, Management Consulting and Financial Audit. He joined Arihant inNov 2008 and played an important role in new technology initiatives,

business development and equity research. He is presently handling

portfolio management and investment advisory division of the company.

MrRakeshGarg,CTO

His administrative and technical skills help us to continuously improve our

operations and provide excellent services to all our clients. A Company

Secretary by profession, he has been in the forefront of our technology

drive ensuring completely web-enabled back-office providing prompt

services to our clients.

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Mutual Funds

High Cost

Standard investment

approach

Lack of flexibility

reducing returns

Large corpus return

negative

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What you get?

Professional Management: t

specialist investment team through disciplined investment

process, who look over the portfolios constantly, reacting

instantly to changes and taking investment decisions on your

behalf. These decisions are based on many years of experience, a

deep understanding of the market and the latest, most

comprehensive investment research.

Continuous Monitoring : You are always informed abo

investment decisions.

Hassle Free Operation : High standards of service a

complete portfolio transparency.

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EQUITY BROKING BSE AND NSE

Arihant provides online trading facility to retail clients, High Net worth

Individuals (HNI's ). Through branches, sub-brokers, franchisees and

remises. All its offices are connected to the exchange through leased lineor VSAT technology. Arihant also uses CTCL technology to provide trading

terminals at investors home or office. Arihant has appointed experienced

and NCFM CERTIFIED dealers at all its branches making "share trading

just a phone call away' for valued clientele. Arihant's trading facilities are

supported by equity research input which are available online as well as

offline. Arihantensures complete client satisfaction by a routine audit of

service standards.

DERIVATIVES (FUTURES AND OPTIONS)

Arihant offers online derivative trading facilities. Arihant provides support

in terms of recommending trading strategies for derivatives and

monitoring of positions of clients. Arihant has a derivative research team,

which keeps working on new trading strategies on a continuous basis.

Arihant team is able to provide clients with the best possible derivative

products in the constantly expanding market.

FUTURES

A Future is financial contract obligating the buyer to purchase an asset (or

the seller to sell an asset), such as a physical commodity or a financial

instrument, at a predetermined future date and price. Futures contracts

detail the quality and quantity of the underlying asset; they are

standardized to facilitate trading on a futures exchange. Some futures

contracts may call for physical delivery of the asset, while others are

settled in cash. The futures markets are characterized by the ability to use

very high leverage relative to stock markets

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ADVISORY SERVICES

On Investments in Equity

On both primary and secondary markets

On both local and offshore

On mutual funds

Port folio management services

On Commodities & Currencies

On Arbitrage Opportunities

Financial planning services

MARCHANT BANKING SERVICES

Arihants Merchant Banking Division is strongly positioned to offer

perfect financial solutions to your business. We are registered with

SEBI as Category I Merchant Banker. At Arihant we believe that

meeting our clients needs requires an in-depth knowledge and

understanding of the financial markets, thorough knowledge of

industry dynamics, individual strategic issues and competitive

challenges. Our merchant banking team comprises of leading

professionals who deliver high-quality strategic advice and creative

financing solutions to our clients including capital issues, corporate

and financial restructuring, private equity, mergers and acquisitions.

Situations range from determining the appropriate capital structure

for a leveraged buy-out, advising a company on a merger,

structuring the Initial public offering of a subsidiary or managing a

reverse book building. We have a devoted team and office in Mumbai

which is exclusively dedicated to financial services offerings. This

office houses the Merchant banking and allied financial services such

as research, HNI services. Our large retail base and nation-wide

presence supplements the specialized Merchant Banking activities.

Our association with institutional investors and companies via

research route augments business acquisition and execution for

Investment Banking services.

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Our approach is characterized by an emphasis on developing strong

relationships with clients through: Long-term commitment

Understanding the needs and businesses of our clients Focusing on

adding value through the generation of new ideas for business

development and in the structuring, negotiation and execution of

transactions Building close working relationships at all levels

DEPOSITORY SERVICES

Arihant is a depository participant with National Securities Depositories

Limited(NSDL) and Central Depository Services Limited(CDSL).Arihant

offers depository facility at attractive rates to investors and traders. The

depository operations are net enabled and user friendly. Arihant gives

complete support to clients in dematerialization of their physical shares.

Holding statements are regularly sent to clients and are also available on

emails.

UNIQICNESS OF ARIHANTH

At Arihant, you can enjoy a personal relationship with our executives. You

will benefit from an outstanding service, up-to-date technology,

comprehensive financial products And services, complete guidance and

support. That is not it. We make constant endeavor to understand your

needs and make every effort to fulfill them. We strongly believe that our

clients growth is strongly correlated to our growth.

Personal Relationship

At Arihant we believe that it is not just the product or service that we are

offering, it is a relationship we are building with our clients. Being a client

you deserve a personal relationship based on trust, reliability,

understanding and respect. This relationship is the underpinning from

which we will support you in meeting your financial objective. Our clients

growth is our objective.

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Unbiased and comprehensive Research

We can help you make more informed decisions through our in-depth,

unbiased research. Whether you want help managing your own portfolio

or want us to manage it for you, youll get investment guidance and

portfolio planning thats right for you. Our research team will offer

excellent investment opportunities, will help you identify significant

market trends, and will make sure that the information

reaches you at the earliest. We will provide you an integrated approach of

fundamental and technical research. Short-term, long-term or intraday

trading, whatever your investment objective, we will meet your needs.

Our solitary objective is to help you achieve your goals.

Nationwide branch/franchisee network

Our offices are scattered all over the country. Get individualized

assistance and personal guidance by visiting one of our nationwide

branches or franchisee near you. Our executive will guide you about all

the products and services we offer to help you meet your investment

needs. Whatever you require, well cater to your need.

Potent Trading and Service tools

We have made transacting with markets convenient for you. You can seize

potential market opportunities with our online trading tools. Whether you

are at office, at home, on a holiday or on the move, with our online

services you can - trade, view your trade orders and bill summary,

subscribe for IPO, view your DP holdings from wherever you want1[1]. Ourinternet trading portal gives you continuous flow of market information

and investment opportunities. We have sophisticated, state-of- the-art

order routing technology which allows speedy and accurate execution of

your orders. We offer full Backoffice support through internet. All this is

for you to make informed decisions on time and with convenience

1

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Excellent service and complete support

Were here for you. On the phone, through email, or one-on-one through

personal service. No matter what level of support you need, our

executives are always ready to assist you. We have always been known to

provide quality and genuine information. To make our dealings convenient

for you, we offer doorstep servicei[2] to our valued clients whether it is

regarding collection of payments.

BOARD OF DIRECTORS

Size and Composition of the Board:

The current policy of your Company is to have an optimum combination of

executive and Non executive directors, with not less than 50 per cent

consisting of no executivedirectorsto maintain the independence of the

Board, and to separate the Board functions of governance and

management. Besides, with an Executive Director as the head of the

Board, half of the Board members are independent directors. This is aptly

in conformity with the provisions of the amended clause 49. The Board, at

present consists of 6members and the Board believes that the current

sizeis appropriate, based on the Companys present circumstances The

composition of the Board and the number of outside directorships held by

each of the Directors is given in the table below:

Mr. Ashok Kumar Jain Executive 3

Mr. Sunil Kumar Jain Non-

Executive 3Mr. Ashish Maheshwari Non-

Executive1Mr. Achilles Rathi Independent 1

Mr. Pramod Devpura Independent

NILMr. Rakesh Jain Independent NIL

.

DATA ANALYSIS

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Calculation of return of ICICI

Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 141.45 295.45 7.50

2005 297.90 371.35 7.50

2006 375.00 585.05 8.50

2007 587.70 891.5 8.50

2008 892.00 1238.7 10.00

Return=Dividend+(Ending Price-Beginning price)Beginning Price

Return(2004)= 7.50+(295.45-141.45) * 100 = 114.17%141.45

Return(2005) = 7.50+(371.35-297.90) * 100 = 27.17%297.90

Return(2006) = 8.50+(585.05-375) * 100 =58.28%375

Return(2007) = 8.50+(891.5-587.70) * 100 =53.13%

587.70

Return(2008) = 10.00+(1238.7-892) * 100 =39.98%892

CALCULATION OF RETURN OF HDFC

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Return = Dividend+(Ending Price-Beginning price)

Beginning Price

Return(2004) = 3+(645.55-358.5) *100 =80.9%358.5

Return(2005) = 3.50+(769.05-645.9) * 100 =19.60%645.9

Return(2006) = 4.50+(1207-771) * 100 =57.13%771

Return(2007) = 5.00+(1626.9-1195) * 100 =36.6%

1195.9

Return(2008) = 7.00+(2877.75-1630) * 100 =76.97%1630

Calculation of return of WIPRO

Year Beginning

Price

Ending price Dividend

2004 358.5 645.55 3

2005 645.9 769.05 3.50

2006 771 1207 4.50

2007 1195 1626.9 5.50

2008 1630 2877.75 7.00

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Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 1630.60 1736.05 1.00

2005 1752.00 748.8 29.00

2006 755.00 463.35 5.00

2007 462.00 605.9 5.00

2008 603.00 525.65 8.00


Return(2004) = 1.00+(1736.05-1630.60) * 100 = 8.184%1630.60

Return(2005) = 29.00+(748.8-1752.00) * 100 = -55.60%1752.00

Return(2006) = 5.00+(463.35-755.00) * 100 = -37.96%755.00

Return(2007) = 5.00+(605.9-462.00) * 100 = 32.23%462.00

Return(2008) = 8.00+(525.65-603.00) * 100 = -11.5%

603.00

Calculation of return of ITC

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Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 667 983.5 15

2005 990 1310.75 202006 1318.95 142.1 31.80

2007 142 176.1 2.65

2008 176.5 209.45 3.10

Return=Dividend+(Ending Price-Beginning pBeginning Price

Return (2004) =15+(983.5-667) * 100 = 49.7%667

Return (2005) =20+ (1310.75-990) * 100 = 34.4%990

Return (2006) = 31+(142.1-1318.95) * 100 = 86.87%1318.95

Return (2007) = 2.65+(176.1-142) * 100 = 25.8% 142

Return (2008) =3.10+(209.45-176.5) * 100 = 20.45176.5

Calculation of return of COLGATE&PALMOLIVE

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Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 133.65 159.7 6.75

2005 161.5 179.1 6.752006 179.2 269.15 7.25

2007 270.5 388.45 6.00

2008 390.9 382.1 11.25


Return (2004) =6.75+(159.7-133.65) * 100 = 24.5%133.65

Return (2005) =6.75+(179.1-161.5)* 100 = 13.58161.5

Return (2006) =7.25+(269.15-179.2) * 100 = 54.2179.2

Return (2007) =6.00+(388.45-270.5) * 100 = 45.8270.5

Return (2008)=11.25+(382.1-390.9) * 100 = 0.62390.9

Calculation of return of CIPLA

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Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 898.00 1371.05 10.00

2005 1334.00 317.8 3.002006 320.00 448 3.50

2007 447.95 251.35 2.00

2008 251.5 212.65 2.00


Return (2004) =10.00+(1375.05-898.00) * 100 = 54.23%898.00

Return (2005) = 3.00+(317.8-1334.00) * 100 = -75.95%1334

Return (2006) = 3.50+(448-320.00) * 100 = 41.09%320

Return (2007) = 2.00+(251.35-447.95) * 100 = -43.44%447.95

Return (2008) = 2.00+(212.65-251.5) * 100 = -14.65%251.5

Calculation of return of RANBAXY

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Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 598.45 1095.25 15.00

2005 1109.00 1251.15 17.002006 1268 362.75 14.50

2007 363 391.8 8.50

2008 391 425.5 8.50


Return (2004) = 15.00+(1095.25-598.45) * 100 = 85.52%598.45

Return (2005) = 17.00+ (1251.15-1109.00) * 100 = 14.35%1109

Return (2006) = 14.50+ (362.75-1268.00) * 100 = -70.24%1268.00

Return (2007) = 8.50+ (391.8-363) * 100 = 10.27%363

Return (2008) = 8.50+ (425.5-391.00) * 100 = 10.99%391.00

Calculation of return of MAHENDRA&MAHENDRA

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Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 113.45 388.8 5.50

2005 392.55 545.45 9.002006 547.10 511.6 13.00

2007 514.80 908.45 10.00

2008 913.00 861.95 11.50


Return (2004) =5.50+ (388.8-113.45) * 100 = 247.55%113.45

Return (2005)=9.00+(545.45-392.55)*100 = 41.24%392.55

Return (2006) = 13.00+ (511.6-547.10) * 100 = _-4.11%547.10

Return (2007) =10.00+ (908.45-514.80) * 100 = 78.41%514.50

Return (2008) =11.50+(861.95-913.00) * 100 = -4.3%913.00

Calculation of return of BAJAJ AUTO

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Year Beginning

price(Rs)

Ending

price(Rs)

Dividend(Rs)

2004 502 1136.3 14.00

2005 1125.05 1131.2 25.002006 1149.00 2001.1 25.00

2007 2016.00 2619.15 40.00

2008 2648.65 2627.9 40.00


Return (2004) =14.00+ (1136.3 -502) * 100 = 129.14%502

Return (2005) =25.00+ (1131.2-1125.05)* 100 = 2.77%1125.05

Return (2006) = 25.00+ (2001.1-1149.00) * 100 = _76.34%1149.00

Return (2007) =40.00+ (2619.15-2016.00) * 100 = 31.9%2016.00

Return (2008)=40.00+(2627.9-2648.65) * 100 = 0.726%2648.65

Calculation of standard deviation of ICICI

55


56/89

Year Return (R)

_

R

_

R-R

_

( R-R )2

2004 114.7 58.652 56.048 3486.6

2005 27.17 58.652 -31.482 991.11

2006 58.28 58.652 -0.372 0.138384

2007 53.13 58.652 -5.522 30.492

2008 39.98 58.652 -18.672 348.64

293.26 4856.98

_

Average (R) = R = 293.26 = 58.652N 5

_

Variance = 1 (R-R) 2

N-1

Standard Deviation = Variance

= 1 (11905.379)

5-1

= 34.846

Calculation of standard deviation of HDFC

56


57/89

Year Return (R)

_

R

_

R-R

_

( R-R )2

2004 80.9 54.24 26.66 710.75

2005 19.60 54.24 -34.64 1199.92

2006 57.13 54.24 2.89 8.3521

2007 36.6 54.24 -17.64 311.16

2008 76.97 54.24 22.73 516.65

271.2 2476.8

_

Average (R) = R = 271.2 = 54.24N 5

_

Variance = 1 (R-R) 2N-1


= 1 (2476.8)

5-1

= 24.88

Calculation of standard deviation of WIPRO

57


58/89

_

Average (R) = R = -64.646 = -12.93N 5

_

Variance = 1/n-1 (R-R) 2


= 1 (4934.5)4

= 35.12

Calculation of standard deviation of ITC

Year Return (R)

_

R

_

R-R

_

( R-R )2

2004 8.184 -12.93 21.114 445.81

2005 -55.60 -12.93 -42.67 1820.73

2006 -37.96 -12.93 -25.03 626.5

2007 32.23 -12.93 45.16 2039.4

2008 -11.5 -12.93 1.43 2.0449

-64.646 4934.5

58


59/89

Year Return

(R)

_

R

_

R-R

_

( R-R )2

2004 49.7 8.686 41.04 1682.14

2005 34.4 8.686 25.714 661.209

2006 -86.87 8.686 -95.556 9130.94

2007 25.8 8.686 17.114 293.88

2008 20.4 8.686 11.714 137.21

43.43 11905.379

_

Average (R) = R = 43.43 = 8.686N 5

__

Variance = 1 (R-R) 2N- 1


= 1 (11905.379)5-1 __

S.D = 54.55

Calculation of standard deviation of COLGATE&PALMOLIVE

Year Return

_

R

_

R-R

_

( R-R )2

59


60/89

(R)

2004 24.5 27.74 -3.24 10.5

2005 13.58 27.74 -14.16 200.52006 54.2 27.74 26.46 700.13

2007 45.8 27.74 18.06 326.16

2008 0.62 27.74 -27.12 735.5

138.7 27.74 1972.79

__Average R = R

N

= 138.7 = 27.745

__

Variance = 1 (R-R) 2N-1


1 (1972.79)4

= 22.2

Calculation of standard deviation of CIPLA

60


61/89

Year

Return (R)

_

R

_

R-R

_

( R-R )2

2004 54.23 -7.744 61.974 3840

2005 -75.95 -7.744 -68.206 4652

2006 41.09 -7.744 48.834 2384

2007 -43.44 -7.744 -35.696 1274

2008 -14.65 -7.744 -6.906 47.692

-38.72 12197.692

_

Average (R) = R = -38.72 = -7.744n 5

_

Variance = 1/n-1 (R-R)2

Standard Deviation = Variance _

= 1 (12197.692)4

=55.22

Calculation of standard deviation of RANBAXY

61


62/89

_

Average (R) = R = 50.89 = 10.18n 5

Variance = 1 (R-R) 2n-1


= 1(12161)4

= 55.13

Calculation of standard deviation of MAHENDRA&MAHENDRA

Year Return (R)

_

R

_

R-R

_

( R-R )2

2004 85.52 10.18 75.34 5676

2005 14.35 10.18 4.17 17.39

2006 -70.24 10.18 -80.42 6467

2007 10.27 10.18 0.09 0.0081

2008 10.99 10.18 0.81 0.6561

50.89 12161

62


63/89

Year Return

(R)

_

R

_

R-R

_

( R-R )2

2004 247.45 71.758 175.79 30902.8

2005 41.24 71.758 -30.52 931.47

2006 -4.11 71.758 -75.868 5755.95

2007 78.41 71.758 6.652 44.25

2008 -4.3 71.758 -76.058 5784.82

358.79 43419.3

__

Average R = Rn

= 358.79 =71.7585

__

Variance = 1 (R-R) 2n-1


= 1 (43419.3) = 104.1864

Calculation of standard deviation of BAJAJ AUTO

63


64/89

Year Return

(R)

_

R

_

R-R

_

( R-R )2

2004 129.14 48.175 80.965 6555.3

2005 2.77 48.175 -45.405 2061.6

2006 76.34 48.175 28.165 793.3

2007 31.9 48.175 -16.275 264.9

2008 0.726 48.175 -47.449 2251.4

240.876 11926.5

__

Average R = RN

= 240.876 = 48.1755

__

Variance = 1 (R-R) 2

N-1


= 1 (11926.5)

4

= 54.6

Correlation between HDFC & ICICI

64


65/89

Year

DEVIATIONOFHDFC

___

RA-RA

DEVIATION OF ICICI

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 26.66 56.048 1494.24

2005 -34.64 -31.482 1090.5

2006 2.89 -0.372 -1.075

2007 -17.64 -5.522 97.41

2008 22.73 -18.672 -424.4

2256.675

n

Co-variance (COVAB) =1/n (RA-RA) (RB-RB)

t=1

Co-variance (COVAB)=1/5 (2256.675)

=451.335

Correlation Coefficient (PAB) = COV AB(Std. A) (Std. B)

= 451.335(24.88) (34.846)

= 0.5206

Correlation between WIPRO& SATYAM

65


66/89

Year

DEVIATION OF

WIPRO

___

RA-RA

DEVIATION OF

SATYAM

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 21.114 15.176 320.426

2005 -42.67 -4.694 200.30

2006 -25.03 62.996 1576.79

2007 45.16 -49.994 2257.73

2008 1.43 -23.484 33.582

4388.83

n

Co-variance(COVAB)=1/n (RA-RA) (RB-RB)

t=1

Co-variance(COVAB)=1/5 (4388.83)

=877.766


= 877.766(35.123) (42.63)

=0.586

Correlation between ITC&COLGATE -PALMOLIVE

-

66


67/89

Year

DEVIATIONOF ITC

___

RA-RA

DEVIATION OF

COLGATE-

PALMOLIVE

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)

2004 41.04 -3.24 -132.97

2005 25.714 -14.16 -364.1

2006 -95.556 26.46 -2528.4

2007 17.114 18.06 309.07

2008 11.714 -27.12 -317.68

-3034.08

n


t=1

Co-variance(COVAB)=1/5 (-3034.08)

=-606.816


= - 606.816

(54.55) (22.21)

= - 0.5008

Correlation between CIPLA & RANBAXI

67


68/89

Year

DEVIATION 0F

CIPLA

___

RA-RA

DEVIATION OF

RANBAXI

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 61.974 75.34 4669.12

2005 -68.206 4.17 -284.42

2006 48.834 -80.42 -3927.23

2007 -35.696 0.09 -3.213

2008 -6.906 0.81 -5.59

448.667

n


t=1

Co-variance(COVAB)=1/5 448.667

= 89.7334


= 89.7334(55.22)(55.13)

=0.0295

Correlation between BAJAJ AUTO &MAHENDRA

-

68


69/89

Year

DEVIATIONOF

BAJAJ

___

RA-RA

DEVIATION OF M&M

___

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 80.965 175.79 14232.84

2005 -45.405 -30.52 1385.76

2006 28.165 -75.868 -1909.22

2007 -16.275 6.652 -108.26

2008 -47.449 -76.058 3608.87

17210

n


t=1

Co-variance(COVAB)=1/5 (17210)

=3442


= 3442(54.60) (104.586)

= 0.605

Correlation between HDFC&WIPRO

69


70/89

Year

DEVIATION OF

HDFC

___

RA-RA

DEVIATION OF

WIPRO

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 26.06 21.114 550.23

2005 -34.64 -42.67 1478.1

2006 2.89 -25.03 -72.34

2007 -17.64 45.16 -796.6

2008 22.73 1.43 32.50

1191.89

n


t=1


=238.38


= 238.38(24.88) (35.123)

=0.273

Correlation between BAJAJ& ITC

70


71/89

Year

DEVIATION OF

BAJAJ

___

RA-RA

DEVIATION OF ITC

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 80.965 41.04 3322.80

2005 -45.405 25.714 -1167.54

2006 28.165 -95.556 -2691.33

2007 -16.275 17.114 -278.53

2008 -47.449 11.714 -555.82

-1370.42

n


t=1

Co-variance(COVAB)=1/5 (-1370.42)

=-274.08


= - 274.08(54.60) (54.55)

=-0.092

Correlation between CIPLA& HDFC

71


72/89

Year

DEVIATION OF

CIPLA

___

RA-RA

DEVIATION OF HDFC

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 61.974 26.06 1615.04

2005 -68.206 -34.64 2362.66

2006 48.834 2.89 141.13

2007 -35.696 -17.64 629.68

2008 -6.906 22.73 -156.97

4591.54

n


t=1


=918.31


= 918.31(55.22) (24.88)

=0.668

Correlation between RANBAXY&WIPRO

72


73/89

Year

DEVIATION OF

RANBAXY

___

RA-RA

DEVIATION OF

WIPRO

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 75.34 21.114 1590.73

2005 4.17 -42.67 -177.93

2006 -80.42 -25.03 2012.91

2007 0.09 45.16 4.0644

2008 0.81 1.43 1.158

3430.93

n


t=1


=686.19


= 686.19(55.13)(35.123)

= 0.354

Correlation between CIPLA&BAJAJ

73


74/89

Year

DEVIATION OF

CIPLA

___

RA-RA

DEVIATION OF

BAJAJ

__

RB-RB

COMBINED DEVIATION

___ ___

(RA-RA ) (RB-RB)2004 61.974 80.965 5017.72

2005 -68.206 -45.405 3096.90

2006 48.834 28.165 1375.41

2007 -35.696 -16.275 580.95

2008 -6.906 -47.449 327.68

10398.70

n


t=1


=2079.74


= 2079.74(55.22)(54.60)

= 0.690

STANDARD DEVIATION

COMPANY STANDARED

74


75/89

DEVIATIONITC 54.55COL-PAL 22.21BAJAJ 54.60M&M 104.186

HDFC 24.88ICICI 34.846RANBAXY 55.13WIPRO 35.123CIPLA 55.22

Standared deviation

0

20

40

60

80

100

120

IT

COL-P

BAJA

M&

HDF

ICIC

RANB

A

WIPR

CIPL

Series2

AVERAGE

COMPANY AVERAGE

ITC 8.686

75


76/89

COLGATE&PALMOLIVE 27.74

BAJAJ 48.175

M&M 71.758

HDFC 54.24

ICICI 58.652RANBAXY 10.18

WIPRO -12.93

CIPLA -7.744

-20

-10

0

10

20

30

40

50

60

70

80

1

ITC

COLGATE&PALM

OLIVE

BAJAJ

M&M

HDFC

ICICI

RANBAXY

WIPRO

CORRELATION COEFFICIENT

COMPANY R

HDFC&ICICI 0.5206ITC&COLGATE 0.5008

BAJAJAUTO&MAHINDRA 0.605

CIPLA&RANBAXY 0.0295HDFC&WIPRO 0.0273

76


77/89

COLGATE&SATYAM 0.30

BAJAJ&ITC -0.09

CIPLA&HDFC 0.668

RANBAXY&WIPRO 0.354

CIPLA&BAJAJ 0.690

0.5206

0.5008

0.605

0.0295

0.0273

0.3

0.09 -

0.354

0.69

0.668

1

CIPLA&BAJA

J

RANBAXY&WI

PRO

CIPLA&HDFC

BAJAJ&ITC

COLGATE&S

ATYAM

HDFC&WIPR

O

CIPLA&RANB

PORTFOLIO WEIGHTS

HDFC&ICICI

Formula:

X a = (Std.b) 2 p ab (std.a )(std.b)(std.a) 2 + (std.b) 2 -2 pab (std.a) (std.b)

X b = 1 X a

77


78/89

Where X a = HDFC

X b = ICICI

Std.a = 24.88

Std.b = 34.85

p ab = 0.5206

X a = (34.85) 2 (0.5206) (24.88 )(34.85)(24.88) 2 + (34.85) 2 - 2 (0.5206) (24.88) (34.85)

X b = 1 X a

X a = 0.8199

X b = 0.1801

PORTFOLIO WEIGHTS

ITC&COLGATE:

Formula:


X b = 1 X a

Where X a = ITC

78


79/89

X b = COLGATE

Std.a = 54.55

Std.b = 22.21

p ab = 0.5008

X a = (22.21) 2 (0.5008) (54.55 )(22.21)(54.55) 2 + (22.21) 2 - 2 (0.5008) (54.55) (22.21)

X b = 1 X a

X a = 0.0503

X b = 0.9497

PORTFOLIO WEIGHTS

CIPLA&RANBAXY:

Formula:


X b = 1 X a

Where X a = CIPLA

X b = RANBAXY

79


80/89

Std.a = 55.22

Std.b = 55.13

p ab = 0.0295

X a = (55.13) 2 0.0295 (55.22) (55.13)(55.22) 2 + (55.13) 2 - 2 (0.0295) (55.22) (55.13)

X b = 1 X a

X a = 0.49916

X b = 0.50084

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