A STUDY ON

CHAPTER I - INTRODUCTIONINTRODUCTION

Portfolios are combinations of assets held by the investors. These combinations may be of various asset classes like equity and debt and of different issuers like Government bond and corporate debt or of various instruments like discount bonds, warrants, debentures and Blue chip equity or scrips of emerging blue chip companies.

The traditional Portfolio Theory aims at the selection of such securities that would fit in well with the asset preferences, need and choice of investor. Modern Portfolio Theory postulates that maximization of return and or minimization of risk will yield optimal returns and choice and attitudes of investors are only a starting point for investment decision and that vigorous risk-return analysis is necessary for optimization of returns. The return on portfolio is weighted average of returns of individual stocks and the weights are proportional to each stocks percentages in the total portfolio.

Portfolio analysis includes portfolio construction, and performance of portfolio. All these are part of the subject of portfolio Management which is a dynamic concept, subject to daily and hourly changes based on information flows, money flows and economic and non-economic forces operating in the country on the markets and securities

NEED OF THE STUDY

Emergence of institutional investing on behalf of individuals. A number of financial institutions, mutual funds and other agencies are undertaking the task of investing money of small investors, on their behalf.

Growth in the number and size of ingestible funds a large part of household savings is being directed towards financial assets.

Increased market volatility risk and return parameters of financial assets are continuously changing because of frequent changes in governments industrial and fiscal policies, economic uncertainty and instability.

Greater use of computers for processing mass of data.

OBJECTIVES OF THE STUDY

To understand how Portfolio Management is done.

To analyze the risk return characteristics of sample scripts.

To calculate the correlation between different stocks.

Ascertain portfolio weights.

To compute the portfolio returns and portfolio risks.

To construct an effective portfolio which offers maximum return for minimum risksSCOPE OF THE STUDY

The study covers the calculation of correlations between the different securities in order to find out at what percentage funds should be invested among the companies in the portfolio. Also the study includes the calculation of individual Standard Deviation of securities and ends at the calculation of weights of individual securities involved in the portfolio. These percentages help in allocating the funds available for investment based on risky portfolios.

METHODOLOGY

Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to diagnose the problem and react to the opportunity in such a way where the costs can be minimized and the desired level of accuracy can be achieved to arrive at a particular conclusion.

SOURCES OF DATA COLLECTION: The methodology adopted or employed in this study was Mostly on secondary data collection i.e..,

Companies Annual Reports

Information from Internet

Publications

Information provided by Inter Connected Stock Exchange.

Period of study:

For different companies, financial data has been collected from the year 2009-2013.

Selection of Companies:

Companies selected for analysis are

MARUTI ACC ICICI RELIANCE TCSLIMITATIONS

Construction of Portfolio is restricted to two companies based on Markowitz model. Very few and randomly selected scripts / companies are analyzed from BSE Listings. Data collection was strictly confined to secondary source. No primary data is associated with the project. Detailed study of the topic was not possible due to limited size of the project. CHAPTER II - REVIEW OF LITERATURE

PORTFOLIO MANAGEMENT & ITS PHASES

PORTFOLIO MANAGEMENT IS a process encompassing many activities aimed at optimizing investment of funds, each phase is an integral part of the whole process and the success of portfolio management depends upon the efficiency in carrying out each phase. Five phases can be identified:-

1. Security analysis

2. Portfolio analysis

3. Portfolio selection

4. Portfolio revision

5. Portfolio evaluation

SECURITY ANALYSIS: It refers to the analysis of trading securities from the point of view of their prices, return, and risk. All investment is risky and the expected return is related to risk. The securities available to an investor for investment are numerous and of various types. The shares of over more than 7000 are listed in stock exchanges of the country. Securities classified into ownership securities such as equity shares and preference shares and debentures and bonds. Recently ,a number of new securities such as convertible debentures and deep discount bonds, zero coupon bonds, Flexi bonds, Floating rate bonds GDRs Euro currency bonds etc, are issued to raise funds for their projects by companies from which investor has to choose those securities the is worthwhile to be included in his investment portfolio. This calls for detailed analysis of the available securities.

Security analysis is the initial phase of the portfolio management process. It examines the risk return characteristics of individual securities. A basic strategy in securities investment is to buy under priced securities and sell over priced securities. But the problem is how to identify such securities in other words mispriced securities. This is what security analysis is all about.

PORTFOLIO REVISION

The portfolio which is once selected has to be continuously reviewed over a period of time and then revised depending on the objectives of the investor. The care taken in construction of portfolio should be extended to the review and revision of the portfolio. Fluctuations that occur in the equity prices cause substantial gain or loss to the investors.

The investor should have competence and skill in the revision of the portfolio. The portfolio management process needs frequent changes in the composition of stocks and bonds. In securities, the type of securities to be held should be revised according to the portfolio policy.

An investor purchases stock according to his objectives and return risk framework. The prices of stock that he purchases fluctuate, each stock having its own cycle of fluctuations. These price fluctuations may be related to economic activity in a country or due to other changed circumstances in the market.

If an investor is able to forecast these changes by developing a framework for the future through careful analysis of the behaviour and movement of stock prices is in a position to make higher profit than if he was to simply buy securities and hold them through the process of diversification. Mechanical methods are adopted to earn better profit through proper timing. The investor uses formula plans to help him in making decisions for the. future by exploiting the fluctuations in prices

EVALUATION OF PORTFOLIOPortfolio manager evaluates his portfolio performance and identifies the sources of strengths and weakness. The evaluation of the portfolio provides a feed back about the performance to evolve better management strategy. Even though evaluation of portfolio performance is considered to be the last stage of investment process, it is a continuous process. There are number of situations in which an evaluation becomes necessary and important.

i. Self Valuation: An individual may want to evaluate how well he has done. This is a part of the process of refining his skills and improving his performance over a period of time.

ii. Evaluation of Managers: A mutual fund or similar organization might want to evaluate its managers. A mutual fund may have several managers each running a separate fund or sub-fund. It is often necessary to compare the performance of these managers.

iii. Evaluation of Mutual Funds: An investor may want to evaluate the various mutual funds operating in the country to decide which, if any, of these should be chosen for investment. A similar need arises in the case of individuals or organizations who engage external agencies for portfolio advisory services.

iv. Evaluation of Groups: have different skills or access to different information. Academics or researchers may want to evaluate the performance of a whole group of investors and compare it with another group of investors who use different techniques .

NEED FOR EVALUATION OF PORTFOLIO:

We can try to evaluate every transaction. Whenever a security is brought or sold, we can attempt to assess whether the decision was correct and profitable.

We can try to evaluate the performance of a specific security in the portfolio to determine whether it has been worthwhile to include it in our portfolio.

We can try to evaluate the performance of portfolio as a whole during the period without examining the performance of individual securities within the portfolio.

PORTFOLIO THEORIES

MARKOWITZ MODEL:

Markowitz model is a theoretical framework for analysis of risk and return and their relationships. He used statistical analysis for the measurement of risk and mathematical programming for selection of assets in a portfolio in an efficient manner. Markowitz apporach determines for the investor the efficient set of portfolio through three important variables i.e.

Return

Standard deviation

Co-efficient of correlation

Markowitz model is also called as a Full Covariance Model. Through this model the investor can find out the efficient set of portfolio by finding out the trade off between risk and return, between the limits of zero and infinity. According to this theory, the effects of one security purchase over the effects of the other security purchase are taken into consideration and then the results are evaluated. Most people agree that holding two stocks is less risky than holding one stock. For example, holding stocks from textile, banking and electronic companies is better than investing all the money on the textile companys stock.

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

ASSUMPTIONS:

All investors would like to earn the maximum rate of return that they can achieve

from their investments.

All investors have the same expected single period investment horizon.

All investors before making any investments have a common goal. This is the avoidance of risk because Investors are risk-averse.

Investors base their investment decisions on the expected return and standard deviation of returns from a possible investment.

Perfect markets are assumed (e.g. no taxes and no transaction costs)

The investor assumes that greater or larger the return that he achieves on his investments, the higher the risk factor surrounds him. On the contrary when risks are low the return can also be expected to be low.

The investor can reduce his risk if he adds investments to his portfolio.

An investor should be able to get higher return for each level of risk by determining the efficient set of securities.

An individual seller or buyer cannot affect the price of a stock. This assumption is the basic assumption of the perfectly competitive market.

Investors make their decisions only on the basis of the expected returns, standard deviation and covariances of all pairs of securities.

Investors are assumed to have homogenous expectations during the decision-making period.

The investor can lend or borrow any amount of funds at the risk less rate of interest. The risk less rate of interest is the rate of interest offered for the treasury bills or Government securities.

Investors are risk-averse, so when given a choice between two otherwise identical portfolios, they will choose the one with the lower standard deviation.

Individual assets are infinitely divisible, meaning that an investor can buy a fraction of a share if he or she so desires.

There is a risk free rate at which an investor may either lend (i.e. invest) money or borrow money.

There is no transaction cost i.e. no cost involved in buying and selling of stocks.

There is no personal income tax. Hence, the investor is indifferent to the form of return either capital gain or dividend.

THE EFFECT OF COMBINING TWO SECURITIES:

It is believed that holding two securities is less risky than by having only one investment in a persons portfolio. When two stocks are taken on a portfolio and if they have negative correlation then risk can be completely reduced because the gain on one can offset the loss on the other. This can be shown with the help of following example:

INTER- ACTIVE RISK THROUGH COVARIANCE:

Covariance of the securities will help in finding out the inter-active risk. When the covariance will be positive then the rates of return of securities move together either upwards or downwards. Alternatively it can also be said that the inter-active risk is positive. Secondly, covariance will be zero on two investments if the rates of return are independent. Holding two securities may reduce the portfolio risk too. The portfolio risk can be calculated with the help of the following formula:

CAPITAL ASSET PRICING MODEL (CAPM):

Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure of Capital Asset Pricing Model. It is a model of linear general equilibrium return. In the CAPM theory, the required rate return of an asset is having a linear relationship with assets beta value i.e. undiversifiable or systematic risk (i.e. market related risk) because non market risk can be eliminated by diversification and systematic risk measured by beta. Therefore, the relationship between an assets return and its systematic risk can be expressed by the CAPM, which is also called the Security Market Line.

Rp= Rf Xf+ Rm(1- Xf)

Rp =Portfolio return

Xf =The proportion of funds invested in risk free assets

1- Xf = The proportion of funds invested in risky assets

Rf =Risk free rate of return

Rm =Return on risky assets

Formula can be used to calculate the expected returns for different situations, like mixing risk less assets with risky assets, investing only in the risky asset and mixing the borrowing with risky assets.

THE CONCEPT

According to CAPM, all investors hold only the market portfolio and risk less securities. The market portfolio is a portfolio comprised of all stocks in the market. Each asset is held in proportion to its market value to the total value of all risky assets.

THE SHARPES INDEX MODEL:

The investor always like to purchase a combination of stock that provides the highest return and has lowest risk. He wants to maintain a satisfactory reward to risk ratio traditionally analysis paid more attention to the return aspects of the stocks. Now a days risk has received increased attention and analysts are providing estimates of risk as well as return. Sharp has developed a simplified model to analyze the portfolio. He assumed that the return of a security is linearly related to a single index like to market index. Strictly speaking the market index should consist of all the securities trading on the exchange.In the absence of it, a popular index can be treated as a surrogate for the market index.Sharpe has provided a model for the selection of appropriate securities in a portfolio.

The selection of any stock is directly related to its excess return beta ratio

Ri Rf/ai

Where Ri = the expected return on stock i

Rf= the return on a risk less asset

Ai= the expected change in the rate of return on stock I associatd

with one unit change in the market return

SINGLE INDEX MODEL: Causal observation of the stock prices over a period of time reveals that most of the stock process move with the market index. When sensex increases, stock prices also tend to increase and vice versa. This indicates that some underlying factor affect the market index as well as the stock prices. Stock prices are related to the market index and this relationship could be used to estimate the return on stock. Towards the purpose, the following equation can be used:

Ri = a+a iRm+ei

Where R=expected return on security i

a = intercept of the straight line or alpha co-efficient

ai = slope of straight line or beta co-efficient

Rm = the rate of return on market index

ei = error term with a mean of zero & a std.dev. Which is a constant?

ARBITRAGE PRICING THEORY

According to this theory the returns of the securities are influenced by a number of macroeconomic factors such as growth rate of industrial production rate of inflation, spread between low-grade and high grade bonds.

The Law of One Price:

The foundation for Apt is the law of one price. The law of one price states that two identical goods should sell at the same price. If they sold at different prices anyone could engage in arbitrage by simultaneously buying at low prices and selling at the high prices and make a risk less profit. Arbitrage also applies to financial assets. If two financial assets have the same risk, they should have the same expected return. If they do not have the same expected return, a riskless profit could be earned by simultaneously issuing(or selling short) at the low return and buying the high-return asset. Arbitrage causes prices to be revised as suggested by the law of one price.

The arbitrage pricing line for one risk factor can be written as:

r= 0+ Ii

Where is the expected return on the security i

0 is the return on the zero beta portfolio

I is the factor risk premium

i is the sensitivity of the ith asset to the risk factor

Two factor Arbitrage pricing:

The Two-factor model describes the return of ith security as follows

= 0+ I1i+ 2i2

Where 2 is the risk premium associated with risk factor2

i2 is the factor beta coefficient for factor

2 and the factor 1 &2 are uncorrelated

Portfolio ManagementPORTFOLIO MANAGEMENT

A portfolio is a collection of assets. The assets may be physical or financial like Shares, Bonds, Debentures, Preference Shares, etc. The individual investor or a fund manager would not like to put all his money in the shares of one company that would amount to great risk. He would therefore, follow the age old maxim that one should not put all the eggs into one basket. By doing so, he can achieve objective to maximize portfolio return and at the same time minimizing the portfolio risk by diversification.

Portfolio management is the management of various financial assets which comprise the portfolio.

Portfolio management is a decision support system that is designed with a view to meet the multi-faced needs of investors.

According to Securities and Exchange Board of India Portfolio Manager is defined as: Portfolio means the total holdings of securities belonging to any person.

STRUCTURE / PROCESS OF TYPICAL PORTFOLIO MANAGEMENTIn the small firm, the portfolio manager performs the job of security analyst.

In the case of medium and large sized organizations, job function of portfolio manager and security analyst are separate.

CHARACTERISTICS OF PORTFOLIO MANAGEMENT:

Individuals will benefit immensely by taking portfolio management services for the following reasons:

Whatever may be the status of the capital market, over the long period capital markets have given an excellent return when compared to other forms of investment. The return from bank deposits, units, etc., is much less than from the stock market.

The Indian Stock Markets are very complicated. Though there are thousands of companies that are listed only a few hundred which have the necessary liquidity. Even among these, only some have the growth prospects which are conducive for investment. It is impossible for any individual wishing to invest and sit down and analyze all these intricacies of the market unless he does nothing else.

Even if an investor is able to understand the intricacies of the market and separate from the grain the trading practices in India are so complicated that it is really a difficult task for an investor to trade in all the major exchanges of India, look after his deliveries and payments

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

1. IDENTIFY GOALS AND OBJECTIVES:When will you need the money from your investments? What are you saving your money for? With the assistance of financial advisor, the Investment Profile Questionnaire will guide through a series of questions to help identify the goals and objectives for the investments.

2. DETERMINE OPTIMAL INVESTMENT MIX:Once the Investment Profile Questionnaire is completed, investors optimal investment mix or asset allocation will be determined. An asset allocation represents the mix of investments (cash, fixed income and equities) that match individual risk and return needs. This step represents one of the most important decisions in your portfolio construction, as asset allocation has been found to be the major determinant of long-term portfolio performance.

3. CREATE A CUSTOMIZED INVESTMENT POLICY STATEMENT:

When the optimal investment mix is determined, the next step is to formalize our goals and objectives in order to utilize them as a benchmark to monitor progress and future updates.

4. SELECT INVESTMENTS:

The customized portfolio is created using an allocation of select QFM Funds. Each QFM Fund is designed to satisfy the requirements of a specific asset class, and is selected in the necessary proportion to match the optimal investment mix.

5 MONITOR PROGRESS:

Building an optimal investment mix is only part of the process. It is equally important to maintain the optimal mix when varying market conditions cause investment mix to drift away from its target. To ensure that mix of asset classes stays in line with investors unique needs, the portfolio will be monitored and rebalanced back to the optimal investment mix

6. REASSESS NEEDS AND GOALS:

Just as markets shift, so do the goals and objectives of investors. With the flexibility of the Portfolio Program and Asset Management Program, when the investors needs or other life circumstances change, the portfolio has the flexibility to accommodate such changes.

Functions of Portfolio Mangers:

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 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 portfolio:

Keeping in mind the objectives of portfolio a portfolio manager has to decide weather the portfolio should comprise equity preference shares, debenture, 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

RISK

Risk is uncertainty of the income/capital appreciation or loss or both. All investment is risky. The higher the risk taken, the higher is the return. But proper management of risk involves the right choice of investment whose risks are compensating. The total risk involves the right choice of investment whose risks are compensating. The total risks of two 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. SOURCE OF INVESTMENT RISKS:

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 product, shifts in consumer preferences, inadequate supply of essential inputs, changes in government al 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 values of face values its fixed interest rate is lower than the prevailing interest rate on a similar security. For example, a debenture that has 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. Financial Risk:

It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of the company consists of equity funds and borrowed funds. The two major types of risks are:

* Systematic or market related risk.

* Unsystematic or company related risks.

Systematic risk affected from the entire market is (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.

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 considerable extent by investing in large portfolio of securities. The unsystematic risk stems from inefficiency magnitude of those factors different form one company

Based on the below pyramid diagram the type of risks will be described

1. Systematic Risk:

Systematic risk is caused by factors external to the particular company and uncontrollable by the company. The systematic risk affects the market as a whole. Factors affect the systematic risk are

economic conditions

political conditions

sociological changes

The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They are

Market Risk

Interest Rate Risk

Purchasing Power Risk

a) Market Risk:

One would notice that when the stock market surges up, most stocks post higher price. On the other hand, when the market falls sharply, most common stocks will drop. It is not uncommon to find stock prices falling from time to time while a companys earnings are rising and vice-versa. The price of stock may fluctuate widely within a short time even though earnings remain unchanged or relatively stable.

b). Interest Rate Risk:Interest rate risk is the risk of loss of principal brought about the changes in the interest rate paid on new securities currently being issued.

c). Purchasing Power Risk:

The typical investor seeks an investment which will give him current income and / or capital appreciation in addition to his original investment. 2. Un-systematic Risk:

Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of raising finance and paying back the loans, involve the risk element. Financial leverage of the companies that is debt-equity portion of the companies differs from each other. All these factors affect the un-systematic risk and contribute a portion in the total variability of the return.

Managerial inefficiently

Technological change in the production process

Availability of raw materials

Changes in the consumer preference

Labour problems

The nature and magnitude of the above mentioned factors differ from industry to industry and company to company. They have to be analyzed separately for each industry and firm. Un-systematic risk can be broadly classified into:

Business Risk

Financial Risk

BUSINESS RISK:

Business risk is that portion of the unsystematic risk caused by the operating environment of the business. Business risk arises from the inability of a firm to maintain its competitive edge and growth or stability of the earnings. The volatibility in stock prices due to factors intrinsic to the company itself is known as Business risk. Business risk is concerned with the difference between revenue and earnings before interest and tax. Business risk can be divided into.i) Internal Business Risk

Internal business risk is associated with the operational efficiency of the firm. The operational efficiency differs from company to company. The efficiency of operation is reflected on the companys achievement of its pre-set goals and the fulfilment of the promises to its investors.

ii) External Business Risk

External business risk is the result of operating conditions imposed on the firm by circumstances beyond its control. The external environments in which it operates exert some pressure on the firm. The external factors are social and regulatory factors, monetary and fiscal policies of the government, business cycle and the general economic environment within which a firm or an industry operates.

FINANCIAL RISK:

It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of the company consists of equity funds and borrowed funds.

RETURN ON PORTFOLIO:

Each security in a portfolio contributes return in the proportion of its investment in security. Thus the portfolio expected returns is the weighted average of the expected return, from each of securities, with weights representing the proportions share of the security in the total investment. Why does an investor have so many securities in his total investment? Why does an investor have so many securities in this 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 these questions lies in the investors perception of risk attached in investments. Objectives of income, safety, appreciation, liquidity and hedge against loss of values 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 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 the 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 portfolio of assets, because as to spread risk by not putting all eggs in one basket. Hence, what really mater to them are 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 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 shares prices, losses of liquidity etc. The risk over time can be represented by the variance of the returns. While the returns over time is capital appreciation plus payout, divided by the purchase price of the share.

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 round 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.

RISK AND EXPECTED RETURN:

There is a positive relationship between the amount of risk and the amount of expected return i.e., the greater the risk, the larger the expected return and larger the chances of substantial loss. One of the most difficult problems for an investor is to estimate the highest level of risk he is able to assume.

Risk is measured along the horizontal axis and increases from the left to right.

Expected rate of return is measured on the vertical axis and rises from bottom to

top.

The line from 0 to R (f) is called the rate of return or risk less investments

commonly associated with the yield on government securities.

The diagonal line form R (f) to E(r) illustrates the concept of expected rate of

return increasing as level of risk increases.

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).

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.

INDUSTRY PROFILE

INTRODUCTION OF STOCK EXCHANGE

Stock exchange is an organized market place where securities are traded These securities are issued by the Government, Semi-Government Bodies, public sector undertakings and companies for borrowing funds and raising resources. Securities are defined as any monetary claims (promissory notes or I.O.U)and also include shares, debentures, bonds and etc., if these securities are marketable as in the case of the Government stock, they are transferable by endorsement and alike movable property. They are trade able on the stock exchange, So is the case with the shares of the companies.

Under the securities Contract Regulation Act of 1956, securities trading are regulated by the central Government and such trading can take place only in Stock Exchanges recognized by the Government under this Act. As referred to earlier there are at present 23 such recognized stock exchanges in India, of these major stock Exchanges, like Bombay, Calcutta, Delhi, Chennai, Hyderabad, and Bangalore etc., are permanently recognized while a few are temporarily recognized. The above act has also laid down that trading in approved contracts should be done through registered members of the Exchange. As per the rules made under the above act, trading in securities permitted to be trade would be in the normal trading hours (10 A.M to 4 P.M) on working days in the trading ring, as specified for trading purpose. Contracts approved to be traded are the following:

a. Spot delivery deals are for delivery of shares on the same day or the next day as the payment is made.

b. Hand delivery deals for delivering shares within a period of 7 to 14 days form the date of contract.

c. Delivery through clearing for delivering shares within a period of two months from the date of the contract, which is now reduced to 15 days.

d. Special Delivery deals for delivering of shares for specified longer periods as may be approved by the governing board of the Stock Exchange.

Except in those deals meant for delivery on a spot basis, all the rest are to be put through by the registered brokers of a Stock Exchange. The securities Contracts (Regulation) rules of 1957 laid down the condition for such trading, the treading hours, rules of trading, settlement of disputes, etc. as between the members and of the members with reference to their clients.

HISTORY OF STOCK EXCHANGES IN INDIAThe origin of the Stock Exchange in India can be traced back to the later half of 19 century. After the American Civil War (1860-61) due to the share mania of the public, the number of brokers dealing in shares increased. The brokers Organized an informal association tin Mumbai named "The Native Stock and Share Brokers association in 1875"

Increased activity in trade and commerce during the First World War and Second World War resulted in an increase in the stock trading. The Growth of Stock Exchanges suffered a set after the end of World War. World wide depression affected them most of the Stock Exchanges in the early stages had a speculative nature of interest to regulate the speculative nature of stock exchange working. In that direction, securities and Contract Regulation Act 1956 was passed, this gave powers of Central Government to regulate the stock exchanges. Further to develop secondary makes in the country, stock exchanges are Mumbai, Chennai, Delhi, Hyderabad, Ahmadabad and Indore. The Bangalore Stock Exchange was recognized in 1963. At present there are 23 Stock Exchanges.

Till recent past, floor trading took place in all the Stock Exchanges. In the floor trading system the trade takes place through open outcry system during the official trading hours. Trading posts are assigned for different securities where by and sell activities of securities took place. This system needs a face - to - face contact among the traders and restricts the trading volume. The speed of the new information reflected on the prices was rather then the investors.

The setting up of NSE and OTCEI (Over the counter change of India with the screen based trading facility resulted in more and more Sock exchanges turning towards the computer based trading. BSE introduced the screen based trading system in 1995, which known as BOLT (Bombay on - Line Trading System).

Madras Stock Exchanges introduced Automated Network Trading System (MANTRA) on October 7, 1996 Apart from Bombay Stock Exchanges has introduced screen based trading.FUNCTION OF STOCK EXCHANGE

Maintain Active Trading: Shares are traded on the stock exchanges, enabling the investors to buy and sell securities. The prices may vary from transaction to transaction. A continuous trading increases the liquidly or marketability or the shares traded on the stock exchanges.

Fixation of Prices: Price is determined by the transactions that flow from investors demand and the suppliers preferences. Usually the traded prices are made known to the public. This helps the investors to make the better decision.

Ensures safe and fair dealings: The rules, regulations and bylaws of the Stock Exchanges provide a measure of safety to the investors. Transactions are conducted under competitive conditions enabling the investors to get a fair deal.

Aids in Financing the Industry: A continuous market for shares provides a favorable climate for raising capital. The negotiability and transferability of the securities, investors are willing to subscribe to the initial public offering (IPO). This stimulates the capital formation.

Dissemination of Information: Stock Exchanges provide information through their various publications. They publish the share prices traded on their basis along with the volume traded. Directory of Corporate Information is useful for the investors assessment regarding the corporate. Handouts, handbooks and pamphlets provide information regarding the functioning of the stock Exchanges.

Performance Inducer: The prices of stocks reflect the performance of the traded companies. This makes the corporate more concerned with its public image and tries to maintain good performance.

Self-regulating organization: The Stock Exchanges monitor the integrity of the members, brokers, listed companies and clients. Continuous internal audit safeguards the investors against unfair trade practices. It settles the disputes between members brokers, investors and brokers.

REGULATORY FRAME WORK:

This Securities Contract Regulation Act, 1956 and securities and Exchange hoard of India (SEBI) Act, 1992, provides a comprehensive legal framework. A 3-tier retaliatory structure comprising the ministry of finance, SEBI and the Governing Boards of the Stock Exchanges regulates the functioning of Stock Exchanges.

Ministry of finance: The Stock Exchange division of the Ministry of Finance has powers related to the application of the provision of the SCR Act and licensing of dealers in the other area. According to SEBI Act, The ministry of Finance has the appellate and the supervisory power over the SEBI It has powered to grant recognition to the stock Exchanges and regulation of their operations. Ministry of finance has the power to approve the appointments of executive chiefs and the nominations of the public representatives in the Governing Boards of the Stock Exchanges. It has the responsibility of preventing undesirable speculation.

The Securities and Exchange Board of India: The securities and Exchange Board of India even though established in the year 1988, received statutory powers are vested in the hands of SEBI. SEBI has the powers to regulate the business of Stock exchanges, other security and mutual funds. Registration and regulation of market intermediaries are also carried out By SEBI. It has responsibility to prohibit the fraudulent unfair trade practices and insider dealings. Takeovers are also monitored by the SEBI has the multi pronged duty to promote the healthy growth of the capital market and protect the investors.

The Governing Board: The Governing Board of the Stock exchange consists of elected members directors, government nominees and public representatives. Rules, by laws and regulations of the Stock Exchange substantial powers to the executive director for maintaining efficient and smooth day - to -day functioning of stock Exchange. The Governing Board has the responsibility to maintain and orderly and well-regulated market.

The Governing body of the Stock Exchange consists of 13 members of which

Six members of the stock exchange are elected by the member of the stock exchange.

Central Government nominates not more then three members.

The board nominates three public representatives.

SEBI nominates persons not exceeding three and

The Stock Exchange appoints One Executive Director.

One third of the elected members retire at annual general meeting (AGM). The retired members can offer himself for election if he is not elected for two consecutive years. If a member serves in the governing body for two year consecutively, he should refrain offering himself for another two years.

The members of the governing body elect the president and vice-president. It needs to approval from and Central Government or the Board. The office tenure for the president and vice-president is on year. They can offer themselves for re-elections, if for re-election after a gap of one-year period.

INSTRUMENT FOR TRADED ON THE STOCK EXCHANGE:

The instruments traded are securities that are quoted after being listed by the companies that issued them to the public. The securities issued by the central and state government, semi-government bodies are also listed and quoted on the Stock Exchanges as per the rules. The broker members are eligible to deal in them also. In fact some members specialized in Government securities market, but public are not in general interested in these securities, and they are less attractive to the public, banks, financial institutions, insurance companies etc, deal in Government securities market. But for individual investors, corporate securities are relevant as they higher rate of interests and higher returns due to capital appreciation and dividends.

The corporate securities in which individual investors are invested and are traded on the exchanges are as follows:

Equity Shares: These are ownership capital and have a variable dividend, depending on the net earnings and dividend policy of the company. The prices of these shares vary widely and with a face value of Rs. 10/- (or Rs.50/- or Rs.100/-) they are normally quoted at a premium, which leads to capital appreciation.

Preference Shares: These are also ownership capital but with a fixed dividend, now a days preference shares are not popular and have no public interest in them; only financial interests hold them.

Convertible or Partly Convertible Debentures: The debentures are popular only if they are convertible into equity shares after a period. Non-convertible debentures carry a fixed rate of interest. But as there is now no ceiling on such interest rates, they have also become attractive to the investors. They have to choose only good companies with a good credit rating so that there would be no problem in getting there interest warrants and repayment of principal. Convertible are now popular both with companies and investors as they have advantages of both fixed income up to a period and capital appreciation later on due to conversion into equity.

STOCK EXCHANGES

The stock markets in India are regulated by the central government under the Securities Contracts (Regulation) Act, 1956 which provides for the recognition of stock exchanges, supervision and control of recognized stock exchanges, regulation of contracts in securities, listing of securities, transfer of securities, and many other related functions. The Securities and Exchange Board of India Act, 1992 provides for the establishment of the Securities and Exchange Board of India (SEBI) to protect investors interest in securities and promote and regulate the securities market.

BOMBAY STOCK EXCHANGE

Trading in securities has been in vogue in India for a little over 200 years. Dealing in securities dates back to 1793, most of them being transactions in loan securities of the East India Company. Rampant speculation was a common feature even during those times. The broking community prospered as there was high rise in prices which led to a share mania during 1861-65. This bubble burst in 1865 when the American Civil War ended. The brokers realized that investor confidence in securities market could be sustained only by organizing themselves into a regulated body with defined rules and regulations. This realization resulted in formation of The Native Share and Stock Brokers Association which later came to be known as Bombay Stock Exchange. In 1875, these brokers assembled at a place, now called Dalal Street.

Bombay Stock Exchange is a voluntary, non-profit-making association of broker members. It emerged as a premier stock exchange after 1960s. The increased pace of industrialization caused by the two world wars, protection to the domestic industry, and governments fiscal policies aided the growth of new issues which, in turn, helped the BSE to prosper. BSE dominated the Indian capital market by accounting for more than 60 per cent of the all-India turnover.

Carry Forward Deals, or Badla

The carry forward system, or badla, was a unique feature of the Indian stock exchanges, particularly of BSE. Badla was a unique selling proposition of the BSE. Badla provided the facility for carrying forward the transaction from one settlement to another. In simple terms, it was the postponement of the delivery of or payment for the purchase of securities from one settlement period to another.

Badla Mechanism

Badla was allowed in the specified group of shares of BSE. This specified group was also known as the forward group as one could buy or sell shares in it without physical delivery. The carry forward session (badla session) was held on every Saturday at BSE.

THE NATIONAL STOCK EXCHANGE OF INDIA

The stock markets witnessed many institutional changes in the 1990s. One of them was the establishment of NSE, a modern stock exchange which brought with it the best global practices.

The National Stock Exchange (NSE) becomes operational in the capital market segment on third November 1994 in Mumbai. The genesis of the NSF lies in the recommendations of the pharwani committee (1991). Apart from the NSE it had recommended for the established of National Stock market system also, the committee pointed out some major defects in the Indian Stock market. The defects specified are.

Luck of liquidity in most of the markets in terms of depth and breadth.

Lack of ability to develop markets for debt.

Lack of infrastructures facilities and outdated trading system.

Lack of transparency in the operations that affect investor's confidence.

Outdated settlement system that are inadequate to cater to the growing volume, leading to delays.

Lack of single market due to the inability of various stock exchanges to function cohesively with legal structure and regulatory framework.

The main objectives of NSE are the follows:

. To establish a nation wide trading facility for equities, debt instruments and hybrids.

To ensure equal access investors all over the country through appropriate communication network.

To provide a fair, efficient and transparent securities market to investors using an electronic communication network.

To enable shorter settlement cycle and book entry settlement system.

To meet current international standards of securities market.

Promoters of NSE: IDBI, ICICI, IFCI, LIC, GIC, SBI, Bank of Baroda. Canara Bank, Corporation Bank, Indian, Oriental Bank of commerce. Union Bank of India, Punjab National Bank, Infrastructure Leasing and Financial Services, Stock Holding Corporation of India and SBI capital market are the promoters of NSE.

MEMBERSHIP: Membership is based on factors such as capital adequacy, corporate structure, track record, education, experience etc. admission is a two - stage process with applicants requiring going through a written examination followed by an interview. A committee consisting of experienced people from the industry to assess the applicant's capability to operate as an exchange member, interviews candidates. The exchange admits members separately to whole self Debt Market (WDM) segment and the capital market segment. Only corporate members are admitted on the debt market segment whereas individuals and firms are also eligible on the capital market segment. Eligibility criteria for trading membership on the segment of WDM are as follows. The persons eligible to become trading members are bodies corporate, companies institutions including subsidiaries of banks engaged in financial services and such other persons or entities as may be permitted from time to time by RBI/SEBI

The whole - time directors should possess at least two years experience in any activity related to banking or financial services or treasury.

The whole - time directors should possess at least two years experience in any activity related to banking or financial services or treasury.

The applicant must possess a minimum net worth of Rs. 2crores.

The applicant must be engaged solely in the business of securities and must not be engaged in any fund- based activities.

The eligibility criteria for the capital market segment are:

A. Individuals, registered firms, bodies corporate, companies and such other persons may be permitted under SCRA, 1957.

B. The applicant must be engaged in the business of securities and must not be engaged in any fund-based activities.

C. The minimum net worth requirements prescribed are as follows:

i. Individual and registered firm - Rs. 75 Lakes.

ii. Corporate bodies - Rs.100Lakhs.

iii. In the case of registered partnership firm each partner should contribute at least 5% of the minimum net worth requirement of the firm.

D. A corporate trading member should consist only of individuals (maximum of 4) who should directly hold at least 405 of the paid-up capital in case of listed companies and at least 51% IN CASE OF OTHER COMPANIES.

E. The minimum prescribed qualification of graduation and two years experience of handling securities as broker, sub-broker, authorized assistant, etc must be fulfilled by

i. Minimum two directors in case the applicant is a corporate.

ii. Minimum two partners in case of partnership firms and

iii. The individual in case of individual or sole proprietary concerns.

The two experienced director in a corporate applicant or trading member should hold minimum of 5% of the capital of the company.

COMPANY PROFILE

Incorporated in 1993, Net worth Stock Broking Limited (NSBL) has been a listed company at Bombay Stock Exchange (BSE), Mumbai since 1995.

A Member, at the National Stock Exchange of India (NSE) and Bombay Stock Exchange, Mumbai (BSE) on the Capital Market and Derivatives (Futures & Options) segment, NSBL has been traditionally servicing Institutional clients and in the recent past has forayed into retail broking, establishing branches across the country. Presence is being marked in the Middle East, Europe and the United States too, as part of our attempts to cater to global markets. We are a Depository participant at Central Depository Services India (CDSL) with plans to become one at National Securities Depository (NSDL) by the end of this quarter. We have our customers participating in the booming commodities markets with our membership at the Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX), through Networth Stock.Com Ltd. With its strong support and business units of research, distribution & advisory, NSBL aims to become a one-stop solution to the broking and investment needs of its clients, globally.

Strong team of professionals experienced and qualified pool of human resources drawn from top financial service & broking houses form the backbone of our sizeable infrastructure. Highly technology oriented, the companys scalability of operations and the highest level of service standards has ensured rapid growth in the number of locations & the clients serviced in a very short span of time. Networth, as each one of our 400 plus and ever growing team members are addressed, is a dedicated team motivated to continuously progress by imbibing the best of global practices, Indian sing

such practices, and to constantly evolve a comprehensive suite of products &

services trying to meet every financial / investment need of the clients.

NSE CM and Derivatives Segment SEBI Regn. 1NB230638639 & 1NF230638639

BSE CM and Derivatives Segment SEBI Regn. 1NB010638634 &

PMS SEBI Regn. 1NP000001371 CDSL DP SEBI Regn. IN-DP-CDSL

251-2004

Commodities Trading: MCX -10585 and NCDEX - 00011 (through Networth Stock.Com Ltd.)

Hyderabad (Somajiguda)

401, Dega Towers, 4th Floor, Raj Bhavan Road, Somajiguda Hyderabad - 500 082

Andhra Pradesh.

Phone Nos.: 040-55560708, 55562256, and 30994985

Mumbai (MF Division)

49, Au Chambers, 4th Floor, Tamarind Lane, Fort

Mumbai - 400 001

Maharashtra.

Phone Nos.: 022- 22650253

Mumbai (Registered Office)

5, Church gate House, 2nd Floor, 32/ 34 Veer Narirnan Road, Fort

Mumbai - 400 001

Maharashtra.

Phone No. 022-22850428

The Networth connectivity with 107 branches and growing

Products and services portfolio

Retail and institutional broking

Research for institutional and retail clients

Distribution of financial products

PMS

Corporate finance

Net trading

Depository services

Commodities Broking

Infrastructure A corporate office and 3 divisional offices in CBD of Mumbai which houses state-of-the-art dealing room, research wing & management and back offices.

All of 107 branches and franchisees are fully wired and connected to hub at Corporate office at Mumbai. Add on branches also will be wired and connected to central hub

Web enabled connectivity and software in place for net trading.

60 operative IDs for dealing room

In house technology back up team to ensure un-interrupted connectivity.

1993: Networth Started with 300 Sq.ft. of office space & 10 employees

2006: Spread over 42 cities (around 70,000 Sq.ft of office space) with over 107 branches & employee strength over 400Market & research

Focusing on your needs

Every investor has different needs, different preferences, and different viewpoints. Whether investor prefer to make own investment decisions or desire more in-depth assistance, company committed to providing the advice and research to help you succeed.

Networth providing following services to their customers,

Daily Morning Notes

Market Musing

Company Reports

Theme Based Reports

Weekly Notes

IPOs

Sector Reports

Stock Stance

Pre-guarter/Updates

Bullion Tracker

F&O Tracker

QUALITY POLICY

To achieve and retain leadership, Networth shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Networth will strive to exceed Customers expectations.

As per the quality policy, Networth will:

Build in house processes that will ensure transparent and harmonious relationships with its clients and investors to provide high quality of services.

Establish a partner relationship with in its investor service agents and vendors that will help in keeping up its commitments to the customers.

Provide high quality of work life for all its employees and equip them with adequate knowledge & skill so as to respond to customers needs.

Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics.

Use state-of-the art information technology in developing new and innovative financial products and services to meet the changing needs of investors and clients.

Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of it.

Strive to keep all stake-holders (share holders, clients, investors, employees, suppliers and regulatory authorities) proud and satisfied.

Key Personnel:

Mr. S P Jain CMD Networth Stock Broking Ltd.

A qualified Chartered Accountant with over 15 years of experience in the capital markets.

Mr. Deepak Mehta Head PMS

Over 12 years of experience in the capital markets and has the prior work experience of serving on the Equity desk of Reliance.

Mr.Viral Doshi Equity Strategist

A qualified Chartered Accountant with experience of over a decade in technical analysis with respect to equity markets.

Mr. Vinesh Jain Asst. Fund Manager

A qualified MBA graduate specializing in finance and over two years of experience in the capital markets.

Research and the Back office.we have sought to provide premium financial services and information, so that the power of investment is vested with the client. We equip those who invest with us to make intelligent investment decisions, providing them with the flexibility to either tap into our extensive knowledge and expertise, or make their own decisions. We made our debut into the financial world by servicing Institutional clients, and proved its high scalability of operations by growing exponentially over a short period of time. Now, powered by a top-notch research team and a network of experts, we provide an array of financial products & services spanning entire India.Our strong support, technology-driven operations and business units of research, distribution, advisory, wide array of products & services coalesce to provide you with a one-stop solution to cater to all your investment needs. Our single minded objective is to help you grow your Networth.

OUR GROUP COMPANIESNetworth Stock Broking Ltd. [NSBL]NSBL is a member of the National Stock Exchange of India Ltd (NSE) and the Bombay Stock Exchange Ltd (BSE) in the Capital Market and Derivatives (Futures & Options) segment. NSBL has also acquired membership of the currency derivatives segment withNSE, BSE & MCX-SX.It is Depository participants with Central Depository Services India (CDSL) and National Securities Depository (India) Limited (NSDL). With a client base of over 1L loyal customers, NSBL is spread across the country though its over 230+ branches. NSBL is listed on the BSE since 1994.

Networth Wealth Solutions Ltd. [NWSL]NWSL is into the business of delivery of Financial Planning & Advice. Its vision is to Advice & Execute money related solutions to/for our customers in the most Convenient & Consolidated manner, while making sure that their experience with us is always pleasant & memorable resulting in positive advocacy. The product & Services include Financial Planning, Life Insurance, On-line Trading Account, Mutual Funds, Debentures/Bonds, General Insurance, Loans and Depository Services.

NetworthStock.ComLtd.[NSCL]NSCL is the commodities arm of NSBL. It is a member at the Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX) and is backed by solid research & analytics in Commodities.

NetworthSoftTechLtd.[NSL]NSL is an ISO 9001:2000 Certified Company. It is into Application Development & maintenance. Building & Implementation of packaged software across various functions within the Financial Services Industry is at its core. It also provides data center services which include hosting of websites, applications & related services. It combines a unique delivery model infused by a distinct culture of customer satisfaction.

Ravisha Financial Services Pvt. Ltd. [RFSL]RFSL is a RBI registered NBFC engaged in financing, primarily it provides loan against securities

Principles & Values

At Net worth Stock Broking Ltd. success is built on teamwork, partnership and the diversity of the people.

At the heart of our values lie diversity and inclusion. They are a fundamental part of our culture, and constitute a long-term priority in our aim to become the world's best international bank.Values

Responsive

Trustworthy

Creative

Courageous

Approach

Participation:- Focusing on attractive, growing markets where we can leverage our relationships and expertise

Competitive positioning:- Combining global capability, deep local knowledge and creativity to outperform our competitors

Management Discipline:- Continuously improving the way we work, balancing the pursuit of growth with firm control of costs and risks Commitment to stakeholders

Customers:- Passionate about our customers' success, delighting them with the quality of our service

Our People:- Helping our people to grow, enabling individuals to make a difference and teams to win

Communities:- Trusted and caring, dedicated to making a difference

Investors:- A distinctive investment delivering outstanding performance and superior returns

CHAPTER V

DATA ANALYSIS & INTERPRETATIONS

MARUTI SUZIKI:

Year(P0)(P1)D(P1-P0)D+(P1-P0)/ P0*100

20109249924.56811.86

20119925205-472-42.58

201252015603.51,040203.50

2013156014216-139-2.91

201414219357.5-486-26.70

AVERAGE RETURN28.63

ACC CEMENTS:

Year(P0)(P1)D(P1-P0)D+(P1-P0)/ P0*100

20101074102820-4615.72

2011102847820-550-33.50

201247887223394105.43

2013872107630.520453.89

201410761136116016.58

AVERAGE RETURN31.62

ICICI BANK:

Year(P0)(P1)D(P1-P0)D+(P1-P0)/ P0*100

201089912311033246.93

2011123144811-783-52.61

201244887611428106.54

201387611451226942.71

2014114568414-461-26.26

AVERAGE RETURN23.46

RELIANCE:

Year(P0)(P1)D(P1-P0)D+(P1-P0)/ P0*100

2010638142411786134.20

2011142461513-809-43.81

201261510891347490.07

2013108910587-314.15

201410586928-366-26.59

AVERAGE RETURN31.60

TCS:

Year(P0)(P1)D(P1-P0)D+(P1-P0)/ P0*100

201060452711.5-77-1.25

201152723914-288-40.65

201223975014511227.81

201375011652041575.33

20141165116114-413.66

AVERAGE RETURN54.98

Comparative Returns on Selected Scrips:

ScripRate of Return (%)

Maruti28.63

ACC31.62

ICICI23.46

Reliance31.60

TCS54.98

CALCULATION OF STANDARD DEVIATION:Standard Deviation = Variance

__

Variance=1/n (R-R)2

MARUTI:YearReturn (R)Avg. Return (R)(R-R)(R-R)2

201011.8628.63-16.77281.37

2011-42.5828.63-71.215071.44

2012203.5028.63174.8730578.32

2013-2.9128.63-31.54995.00

2014-26.7028.63-55.333061.93

TOTAL39988.07

__

Variance = 1/n (R-R)2 = 1/5 (39988.07) = 7997.613162

Standard Deviation = Variance

= 7997.613162

= 89.43

ACC CEMENTS:YearReturn (R)Avg. Return (R)(R-R)(R-R)2

201015.7231.62-15.91252.99

2011-33.5031.62-65.124241.19

2012105.4331.6273.805447.07

201353.8931.6222.27496.04

201416.5831.62-15.05226.39

TOTAL10663.68

__

Variance = 1/n (R-R)2 = 1/5 (10663.68) = 2132.73

Standard Deviation = Variance = 2132.73

= 46.18ICICI BANK: YearReturn (R)Avg. Return (R)(R-R)(R-R)2

201046.9323.4623.47550.79

2011-52.6123.46-76.075786.30

2012106.5423.4683.076901.42

201342.7123.4619.25370.44

2014-26.2623.46-49.722472.37

TOTAL16081.33

__

Variance = 1/n (R-R)2 = 1/5 (16081.33) = 3216.26

Standard Deviation = Variance = 3216.26 = 56.712

RELIANCE:YearReturn (R)Avg. Return (R)(R-R)(R-R)2

2010134.2031.60102.5910525.48

2011-43.8131.60-75.425687.50

201290.0731.6058.473418.68

20134.1531.60-27.45753.52

2014-26.5931.60-58.203386.93

TOTAL23772.11

__

Variance = 1/n.(R-R)2 = 1/5 (23772.11) = 4754.42

Standard Deviation = Variance = 4754.42 = 68.95TCS:YearReturn (R)Avg. Return (R)(R-R)(R-R)2

2010-1.2554.98-56.233161.63

2011-40.6554.98-95.639144.91

2012227.8154.98172.8329869.34

201375.3354.9820.35414.26

201413.6654.98-41.321707.62

TOTAL44297.76

__

Variance = 1/n-1 (R-R)2 = 1/5 (44297.76) = 8859.55

Standard Deviation = Variance = 8859.55 = 94.125

DIAGRAMATIC PRESENTATION OF COMPANIES RISK

ScripRisk (%)

Maruti89.43

ACC46.18

ICICI56.71

Reliance68.95

TCS94.13

CALCULATION OF CORRELATION: Covariance (COV ab) = 1/n (RA-RA)(RB-RB)

Correlation Coefficient = COV ab/a*b

MARUTI WITH OTHER COMPANIES

MARUTI (RA) & ACC (RB)

YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010-16.77-15.91266.8016

2011-71.21-65.124637.777

2012174.8773.8012905.9

2013-31.5422.27-702.541

2014-55.33-15.05832.5818

17940.52

Covariance (COV ab) = 1/5 (17940.52) = 3588.1

Correlation Coefficient = COV ab/a*b

a = 89.43 ; b = 46.18

= 3588/(89.43)(46.18) = 0.868

MARUTI (RA) & ICICI (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010-16.7723.47-393.672

2011-71.21-76.075417.093

2012174.8783.0714527.01

2013-31.5419.25-607.117

2014-55.33-49.722751.403

21694.71

Covariance (COV ab) = 1/5 (21695) = 4339

Correlation Coefficient = COV ab/a*b

a = 89.43; b = 56.71

= 4339/ (89.43) (56.71) = 0.855

MARUTI (RA) & RELIANCE (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010-16.77102.59-1720.92

2011-71.21-75.425370.647

2012174.8758.4710224.35

2013-31.54-27.45865.886

2014-55.33-58.203220.33

17960.29

Covariance (COV ab) = 1/5 (17960) = 3592

Correlation Coefficient = COV ab/a*b

a = 89.43; b = 68.95

= 3592/ (89.43) (68.95) = 0.582 MARUTI (RA) & TCS (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010-16.77-56.23943.1817

2011-71.21-95.636810.131

2012174.87172.8330221.75

2013-31.5420.35-642.018

2014-55.33-41.322286.617

39619.66

Covariance (COV ab) = 1/5 (39619) = 7924

Correlation Coefficient = COV ab/a*b

a = 89.43; b = 94.13

= 7924/ (89.43) (94.13) = 0.941

ACC WITH OTHER COMPANIES

ACC (RA) & ICICI (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010-15.9123.47-373.288

2011-65.12-76.074953.869

201273.8083.076131.276

201322.2719.25428.6658

2014-15.05-49.72748.1454

11888.67

Covariance (COV ab) = 1/5 (11889) = 2378

Correlation Coefficient = COV ab/a*b

a = 46.18; b = 56.71

= 2378/ (46.18) (56.71) = 0.908

ACC (RA) & RELIANCE (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010-15.91102.59-1631.81

2011-65.12-75.424911.394

201273.8058.474315.295

201322.27-27.45-611.375

2014-15.05-58.20875.6534

7859.158

Covariance (COV ab) = 1/5 (7859) = 1571

Correlation Coefficient = COV ab/a*b

a = 46.18; b = 68.95

= 1608 / (46.18)(68.95) = 0.505

ACC (RA) & TCS (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010-15.91-56.23894.3435

2011-65.12-95.636227.785

201273.80172.8312755.41

201322.2720.35453.3085

2014-15.05-41.32621.7637

20952.61

Covariance (COV ab) = 1/5 (20953) = 4191

Correlation Coefficient = COV ab/a*b

a = 46.18; b = 94.13

= 4191/(46.18)(94.13) = 0.964

ICICI WITH OTHER COMPANIES

ICICI (RA) & RELIANCE (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

201023.47102.592407.774

2011-76.07-75.425736.688

201283.0758.474857.337

201319.25-27.45-528.333

2014-49.72-58.202893.74

15367.21

Covariance (COV ab) = 1/5 (15367) = 3073

Correlation Coefficient = COV ab/a*b

a = 56.71; b = 68.95

= 3073/ (56.71)(68.95) = 0.785

ICICI (RA) & TCS (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

201023.47-56.23-1319.62

2011-76.07-95.637274.282

201283.07172.8314357.61

201319.2520.35391.7367

2014-49.72-41.322054.72

22758.72

Covariance (COV ab) = 1/5 (22759) = 4552

Correlation Coefficient = COV ab/a*b

a = 56.71; b = 94.13

= 4552/ (56.71)(94.13) = 0.852RELIANCE WITH OTHER COMPANIES

RELIANCE (RA) & TCS (RB)YEAR(RA-RA)(RB-RB)(RA-RA) (RB-RB)

2010102.59-56.23-5768.68

2011-75.42-95.637211.911

201258.47172.8310105.13

2013-27.4520.35-558.705

2014-58.20-41.322404.91

TOTAL 13394.56

Covariance (COV ab) = 1/5 (13395) = 2679

Correlation Coefficient = COV ab/a*b

a = 68.95; b = 94.13

= 2679/(68.95)(94.13) = 0.413

CALCULATION OF PORTFOLIO WEIGHTSWa = b [b-(nab*a)]

a2 + b2 - 2nab*a*b

Wb = 1 Wa

WEIGHTS OF MARUTI & OTHER COMPANIES: MARUTI & ACC

a = 89.43b = 46.18nab = 0.868Wa =

46.18 [46.18-(0.868*89.43)]

89.432 + 46.182 2(0.868)* 89.43* 46.18

Wa = -1452.14

2960.850 Wa =-0.49

Wb = 1 Wa

Wb = 1- (-0.49) = 1.49MARUTI (a) & ICICI (b)a = 89.43b = 56.71nab = 0.855Wa =

56.71 [56.71- (0.855*89.43)]

89.432 + 56.712 2(0.855)* 89.43*56.71

Wa = -1120.17

2541.35 Wa = -0.44 Wb = 1 Wa

Wb = 1- (-0.19) = 1.44 MARUTI (a) & RELIANCE (b)

a = 89.43b = 68.95nab = 0.582Wa =

68.95 [68.95 - (0.582*89.43)]

89.432 + 68.952 2(0.582)* 89.43*68.95

Wa = 1165.37

5574.37 Wa = 0.21Wb = 1 Wa

Wb = 1-0.21 =0.79 MARUTI (a) & TCS (b)

a = 89.43b = 94.13nab = 0.941Wa =

94.13 [94.13-(0.941*89.43)]

89.432 + 94.132 2(0.941)* 89.43*94.13

Wa = 939.07

1015.41 Wa =0.924Wb = 1 Wa = 1-0.924 = 0.075CALCULATION OF WEIGHTS OF ACC & OTHER COMPANIES:

ACC (a) & ICICI (b) a = 46.18b = 56.71nab = 0.908Wa =

56.71 [56.71-(0.908*46.18)]

46.182 + 56.712 2(0.908)* 46.18*56.71

Wa = 838.09

592.75Wa =1.413Wb = 1 Wa

= 1- 1.413 = -0.413ACC (a) & RELIANCE (b)

a = 46.18b = 68.95nab = 0.505Wa =

68.95 [68.95 - (0.505*46.18)]

46.182 + 68.952 2(0.505)* 46.18*68.95

Wa = 3146.12

3670.74Wa =0.85Wb = 1 Wa = 1- 0.85 = 0.15ACC (a) & TCS (b)a = 46.18b = 94.13nab = 0.964Wa =

94.13 [94.13-(0.964*46.18)]

46.182 + 94.132 2(0.964)* 46.18*94.13

Wa = 4670

2612.18 Wa =1.78 Wb = 1 Wa = 1- 1.78 = -0.78

WEIGHTS OF ICICI & OTHER COMPANIES:

ICICI(a) & RELIANCE (b)

a = 56.71b = 68.95 nab = 0.785 Wa =

68.95 [68.95-(0.785*56.71)]

56.712 + 68.952 2(0.785)* 56.71*68.95

Wa = 1684.63

1831.184Wa =0.919

Wb = 1 Wa = 1- 0.919 = 0.08ICICI (a) & TCS (b)a = 56.71b = 94.13nab = 0.852Wa =

94.13 [94.13-(0.852*56.71)]

56.712 + 94.132 2(0.852)* 56.71*94.13

Wa = 4312.38

2980.337

Wa =1.446

Wb = 1 Wa = 1-1.446 = -0.446WEIGHTS OF RELIANCE & OTHER COMPANIES

RELIANCE (a) & TCS (b)

a = 68.95b = 94.13nab = 0.413Wa =

94.13 [94.13-(0.413*68.95)]

68.952 + 94.132 2(0.413)* 68.95*94.13

Wa = 6180

8253.60Wa =0.748Wb = 1 Wa

= 1- 0.748 = 0.251CALCULATION OF PORTFOLIO RISK:

RP= (a*Wa)2 + (b*Wb)2 + 2*a*b*Wa*Wb*nabMARUTI & OTHER COMPANIES:MARUTI (a) & ACC (b):

a = 89.43

b = 46.18Wa = -0.49Wb = 1.49nab = 0.868

RP = (89.43*-0.49)2+ () 2+2*(46.18)*(-0.49)*(1.49)*(0.868)

1420.394 = 37.68%

MARUTI (a) & ICICI (b):a = 89.43b = 56.71

Wa = -0.44Wb = 1.44nab = 0.855

RP = (89.43*-0.44)2+(56.71*1.44)2+2(89.43)**(1.44)*(0.855)

2722.28= 52.17%MARUTI (a) & RELIANCE (b):

a = 89.43b = 68.95Wa = 0.21Wb = 0.79nab = 0.582

RP = (89.43*0.21)2+(68.95*0.79)2+2(89.43)**(0.79)*(0.582)

4510.475

= 67.16%MARUTI (a) & TCS (b):

a = 89.43b = 94.13Wa = 0.924Wb = 0.075nab = 0.941

RP = (89.43*0.924)2+()2+2(89.43)***(0.075)*(0.941)

7976 = 89.308%

ACC & OTHER COMPANIESACC (a) & ICICI (b):

a = 46.18b = 56.71Wa = 1.413Wb = -0.413nab = 0.908RP = (46.18*1.413)2+(56.71*-0.413)2+2(46.18)*(-0.413)*(0.908)

2031.047= 45.067%ACC (a) & RELIANCE (b):

a = 46.18

b = 68.95Wa= 0.85Wb= 0.15nab = 0.505RP = (46.18*0.85)2+(68.95*0.15)2+2(46.18**(0.15)*(0.505)

2057.80 = 45.362%

ACC (a) & TCS(b):a = 46.18b = 94.13

Wa= 1.78Wb= -0.78nab = 0.964RP = (46.18*1.78)2+(94.13*-0.78)2+2(46.18)**(-0.78)*(0.964)

511.61 = 22.61%ICICI & OTHER COMPANIES

ICICI (a) & RELIANCE (b):

a = 56.71b = 68.95Wa = 0.919Wb = 0.081nab = 0.785

RP = (56.71*0.919)2+(68.95*0.081)2+2(56.71)**(0.081)*(0.785) 3204.3 = 56.60%

ICICI (a) & TCS (b):a = 56.71b = 94.13Wa = 1.446Wb = -0.446nab = 0.852RP = (56.71*1.446)2 + (94.13*-0.446)2 + 2(56.71) * * (-0.446) * (0.852)

2620.675 = 51.19%

RELIANCE & OTHER COMPANIES

RELIANCE (a) & TCS (b):

a = 68.95b = 94.13Wa = 0.748Wb = 0.251nab = 0.413

RP = (68.95*0.748)2+(94.13* 0.251)2+2(68.95)**( 0.251)*(0.413)

4224.66 = 65%

CALCULATION OF PORTFOLIO RETURNS

Rp=(RA*WA) + (RB*WB)

Where Rp = portfolio return

RA= return of A

WA= weight of A

RB= return of B

WB= weight of B

CALCULATION OF PORTFOLIO RETURN OF MARUTI & OTHER COMPANIES:

MARUTI (A) & ACC (B):

RA= 28.63WA=--0.49RB=31.62WB=1.49Rp = (28.63*-0.49) + (31.62*1.49)

Rp = (-14.03 + 47.11)

Rp = 33.08%

MARUTI (A) & ICICI (B):

RA= 28.63WA=-0.44RB=23.46WB=1.44Rp = (28.63*0.-0.44) + (23.46*1.44)Rp = (-12.59 + 33.78)

Rp = 21.2%

MARUTI (A) & RELIANCE (B):

RA= 28.63WA=0.21RB= 31.60WB=0.79Rp = (28.63*0.21) + (31.60*0.79)

Rp = (6.0123+24.96)

Rp = 30.97%

MARUTI (A) & TCS (B):RA= 28.63WA=0.924RB= 54.98WB= 0.075Rp = (28.63*0.924) + (54.98*0.075)

Rp = (26.45+4.12)

Rp = 30.57CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER COMPANIES

ACC (A) & ICICI (B):

RA= 31.62WA=1.413RB= 23.46WB= -0.413Rp = (31.62*1.413) + (23.46*-0.413)

Rp = 44.67 - 9.68Rp = 35%

ACC (A) & RELIANCE (B):

RA= 31.62WA=0.85RB= 31.60WB=0.15Rp = (31.62*0.85) + (31.60*0.15)

Rp = (26.877+4.74)

Rp = 31.617%

ACC (A) & TCS (B):

RA= 31.62WA=1.78RB= 54.98WB= -0.78Rp = (31.62*1.78) + (54.98*-0.78)

Rp = (56.28-42.88)

Rp = 13.39%CALCULATION OF PORTFOLIO RETURN OF ICICI & OTHER COMPANIESICICI (A) & RELIANCE (B):

RA= 23.46WA=0.919RB=31.60WB=0.081Rp = (23.46*0.919) + (31.60*0.081)Rp = (21.55+2.55)

Rp = 24.10%ICICI (A) & TCS (B):

RA= 23.46WA=1.446RB=54.98WB= -0.446Rp = (23.46*1.446) + (54.98*-0.446)Rp = 33.92 24.52Rp = 9.4%

CALCULATION OF PORTFOLIO RETURN OF RELIANCE & OTHER COMPANIES

RELIANCE (A) & TCS (B):

RA= 31.60WA=0.748RB=54.98WB=0.251Rp = (31.60*0.748) + (54.98*0.251)

Rp = (23.63 + 13.79)

Rp = 37.43%

PORTFOLIO RETURNS & RISKS

OF THE SELECTED STOCKS

Scrip AScrip BPortfolio ReturnPortfolio Risk

MarutiACC33.08%37.68%

MarutiICICI21.2%52.17%

MarutiReliance30.97%67.16%

MarutiTCS30.57%89.3%

ACCICICI35%45.06%

ACCReliance31.61%45.36%

ACCTCS13.39%22.61%

ICICIReliance24.10%56.60%

ICICITCS9.4%51.19%

RelianceTCS37.43%65%

CHAPTER VI

FINDINGS, SUGGESTIONS & CONCLUSION

FINDINGSInvestors would be able to achieve when the returns of shares and debentures Resultant would be known as diversified portfolio. Thus portfolio construction would address itself to three major via, selectivity, timing and diversification. In case of portfolio management, negatively correlated assets are most profitable. A rational investor would constantly examine his chosen portfolio both for average return and risk.

Individual returns on the selected stocks including Maruti, ACC, ICICI, Reliance & TCS are 28.63%, 31.62%, 23.46%, 31.60% and 54.98% respectively.

Individual risks on the selected stocks including Maruti, ACC, ICICI, Reliance & TCS are 89.43%, 46.18%, 56.71%, 68.95% and 94.13% respectively.

Correlation between all the companies is positive which means all the combinations of portfolios are at good position to gain in future.

Portfolios Returns of Reliance & TCS (37.43%) followed by ACC & ICICI (35%) and Maruti & ACC (33.08%) stood on the top while Portfolio Returns of ICICI & TCS (9.4%) , Maruti & ICICI (21.2%) and ICICI & Reliance (24.10) stood at the bottom.

Portfolios Risk of Maruti & TCS (89. 3%) followed by Reliance & Maruti (67%) and Reliance & TCS (65%) are very high while Portfolio Risks of ACC & TCS (22.61%) , Maruti & ACC (37.68%) stood at the bottom.

SUGGESTIONS

All the stocks under consideration have given positive return which indicates the positive performance of the stock market, specially the SENSEX stocks. TCS has been the outstanding performer with a return of nearly 55%. This indicates that Investors can be assured of good returns in the long run by investing in blue chip companies. Rest of the stocks has given average returns ranging from 24% to 32%. Comparing the individual risks, TCS and Maruti are risky securities compared to the other securities like Reliance, ACC and ICICI and it suggested that the investors should be careful while investing in these securities. The investors who require minimum return with low risk can invest in ICICI and ACC. It is recommended that the investors who require high risk with high return should invest in TCS. All the investors who invest in the securities are ultimately benefited by investing in selected scripts of Industries. Investors are advised to invest in Portfolios of Reliance & TCS (37.43%) followed by ACC & ICICI (35%) and Maruti & ACC (33.08%) which have given the maximum returns.

Low Risk investors are advised to keep away from Maruti & TCS (risk of 89. 3%) and prefer the Portfolios of ACC & TCS (22.61%) , Maruti & ACC (37.68%) which have the least risk.

Some general rules to follow while investing in securities include: 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).

Never invest in the so called promoter quota of lesser known company.

Never invest in a company about which you do not have appropriate knowledge.

Never at all invest in a company which doesnt have a stringer financial record your portfolio should not stagnate.

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.

Never fall to magic of the scripts dont confine to the blue chip companys look out for other portfolio that ensure regular dividends.

In the same way never react to sudden raise or fall in stock market index such fluctuations in 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.

CONCLUSIONS

Portfolio management is a process of encompassing many activities of investment assets and securities. It is a dynamic and flexible concept and involves regular and systematic analysis, judgment, and action. 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 main objective of the Portfolio management is to help the investors to make wise choice between alternate investments without a post trading shares. Any portfolio management must specify the objectives like Maximum returns, Optimum Returns, Capital appreciation, Safety etc., in the same prospectus.

This service renders optimum returns to the investors by proper selection and continuous shifting of portfolio from one scheme to another scheme of from one plan to another plan within the same scheme.

Greater Portfolio Return with less Risk is always is an attractive combination for the Investors.BIBLIOGRAPHY

Books referred:

Investment Analysis and Portfolio Management, written by M.Ranganathan, R.Madhumathi published by Dorling Kindersley (India) Pvt.Ltd., 3rd Edititon.

Investment Analysis and Portfolio Management, written by Prasanna Chandra Published by Tata Mc.Graw-Hill, 3rd Edition.

Security Analysis and Portfolio Management, written by V.A.Avadhani, Published by Himayala Publishing house Pvt.Ltd.9th Revised Editon.

Security Analysis and Portfolio Management, Published by McGraw-Hill, Written by Punithavathi Pandian, 8th Edition.

Web-site:

www.nseindia.com,http://www.answers.com/topics/national_stock_exchange_of_india.

www.bseindia.com,http;//www.answers.com/topics/bombay _stock_exchange_of_india.

www.money control.com/nifty/nse

www.moneycontrol.com/sensex/bse

www.networthdirect.com

CLIENTS

OPERATIONS

(E.g. buying and

Selling of Securities)