1

A STUDY ON RISK-RETURN ANALYSIS OF HDFC AND

ICICI SECURITIES

(WITH REFERENCE TO VENTURA SECURITIES LTD)

A Project report submitted to Jawaharlal Nehru Technological University,

Hyderabad, in partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

By

AISHA BEGUM

Reg. No. 10241E0003

Under the Guidance of

S.Ravindra Chary

Associate Professor

Department of Management Studies

Gokaraju Rangaraju Institute of Engineering & Technology

(Affiliated to Jawaharlal Technological University, Hyderabad)

Hyderabad

2010-2012

2

CERTIFICATE

This is to certify that the project entitled “A Study on Risk-Return

Analysis of HDFC and ICICI Securities” has been submitted by Ms.Aisha

Begum (Reg. No. 10241E0003) in partial fulfillment of the requirements for the

award of Master of Business Administration from Jawaharlal Nehru

Technological University, Hyderabad. The results embodied in the project have

not been submitted to any other University or Institution for the award of any

Degree or Diploma.

(S.Ravindra Chary) (KVS Raju)

Internal Guide Professor & HOD Associate Professor Department of Management Studies Department of Management Studies GRIET GRIET

(S. Ravindra Chary)

(Project Coordinator) Associate Professor Department of Management Studies GRIET

DECLARATION

3

I hereby declare that the project entitled “ A Study On Risk-Return

Analysis of HDFC and ICICI Securities At Ventura Securities Ltd”

submitted in partial fulfillment of the requirements for award of the degree of MBA at

Gokaraju Rangaraju Institute of Engineering and Technology, affiliated to

Jawaharlal Nehru Technological University, Hyderabad, is an authentic work and has

not been submitted to any other University/Institute for award of any degree/diploma.

AISHA BEGUM

(10241E0003)

MBA, GRIET

HYDERABAD

ACKNOWLEDGEMENT

4

Firstly I would like to express our immense gratitude towards our institution

Gokaraju Rangaraju Institute of Engineering & Technology, which created a great

platform to attain profound technical skills in the field of MBA, thereby fulfilling our most

cherished goal.

I would thank the Research analyst of VENTURA SECURITIES LTD specially Mr.

Mohammed Akbar (Manager) and Mr.Vasiuddin (proprietor) of Franchise Ventura Securities

Limited for guiding me and helping me in successful completion of the project

I am very much thankful to our Mr. S. Ravindra Chary (Internal Guide) sir for

extending his cooperation in doing this project.

I am also thankful to our project coordinator Mr. S. Ravindra Chary for extending his

cooperation in completion of Project.

I convey my thanks to my beloved parents and my faculty who helped me directly or

indirectly in bringing this project successfully.

AISHA BEGUM

(10241E0003)

INDEX

Chapters Contents Page No:

Chapter 1 Introduction

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1.1 Introduction 2

1.2 Need of the study 3

1.3 Scope of the study 4

1.4 Objectives of the study 5

1.5 Research methodology 6

1.6 Limitations of the study 7

Chapter 2 2.1 Industry profile 9

2.2 Company profile 22

Chapter 3 Literature Review

3.1 Risk Analysis 32

3.2 Types of risks 34

3.3 Measurement of risk 39

3.4 Return Analysis 42

3.5 Risk and return Trade off 45

3.6 Risk-return relationship 46

Chapter 4 Data Analysis & Interpretation 49

Chapter 5 Findings & suggestion 67

Chapter 6 Bibliography 71

CHAPTER: 1

1.1 Introduction

1.2 Need of the study

1.3 Scope of the study

6

1.4 Objectives of the study

1.5 Research methodology

1.6 Limitations of the study

7

1.1 INTRODUCTION

The risk/return relationship is a fundamental concept in not only financial analysis, but in

every aspect of life. If decisions are to lead to benefit maximization, it is necessary that

individuals/institutions consider the combined influence on expected (future) return or benefit

as well as on risk/cost. Return expresses the amount which an investor actually earned on an

investment during a certain period. Return includes the interest, dividend and capital gains;

while risk represents the uncertainty associated with a particular task. In financial terms, risk

is the chance or probability that a certain investment may or may not deliver the

actual/expected returns.

The risk and return trade off says that the potential return rises with an increase in risk. It is

important for an investor to decide on a balance between the desire for the lowest possible

risk and highest possible return.

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1.2 NEED FOR THE STUDY

In the finance field, it is a common knowledge that money or finance is scarce and that

investors try to maximize their returns. But when the return is higher, the risk is also higher.

Return and risk go together and they have a tradeoff. The art of investment is to see that

return is maximized with minimum risk.

In the above discussion we concentrated on the word “investment” and to invest we need to

analyze securities. Combination of securities with different risk-return characteristics will

constitute the portfolio of the investor.

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1.3 SCOPE OF THE STUDY

The study covers all the information related to the investor risk-return relationship of

securities. It is confined to five years data of ICICI and HDFC securities. It also includes the

calculation of individual standard deviations which helps in allocating the funds available for

investment based on risky portfolios.

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1.4 OBJECTIVES OF THE STUDY

1. To study the fluctuations in share prices of selected companies.

2. To study the risk involved in the securities of selected companies.

3. To make comparative study of risk and return of ICICI& HDFC.

4. To study the systematic risk involved in the selected companies securities.

5. To offer some suggestions to the investors.

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1.5 METHODOLOGY OF THE STUDY

The data used in this project is of secondary nature. The data is collected from secondary

sources such as various websites, journals, newspapers, books, etc., the analysis used in this

project has been done using selective technical tools. In Equity market, risk is analyzed and

trading decisions are taken on basis of technical analysis. It is collection of share prices of

selected companies for a period of five years.

This is the study of Risk-Return analysis for a period of five years (2007-2012).

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1.6 LIMITATIONS

� This study has been conducted purely to understand Risk-return characteristics for

investors.

� The study is restricted to only two selected companies.

� Very few and randomly selected scripts/companies are analyzed from BSE listings

� The study is limited to banking companies only.

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CHAPTER: 2

2.1 INDUSTRY PROFILE

2.2 COMPANY PROFILE

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INDUSTRY PROFILE

Indian financial market consists of money market and capital market. Money market is

mainly for the short-term needs and capital market for long term needs.

CAPTAL MARKET AND ITS STRUCTURE

Capital market is a financial market, which provides and facilitates an orderly exchange of

long term needs. The capital market in India is classified into

• Primary market

• Secondary market

The primary market deals with new issue of long term securities. Whereas the secondary

market deals with buying and selling of old, second hand, existing securities, which are

already listed in official trading list of recognized stock exchange.

Players of ‘New Issue Market’ are mainly, among them the most important are:

• Merchant banker’s

• Registrars

• Collecting and coordinating bankers

• Underwriters and broker

Players of secondary market are:

• Issuers of securities like companies

• Intermediaries like brokers, and sub-brokers etc.

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ABOUT NSE

The National Stock Exchange (NSE) is India's leading stock exchange covering various cities

and towns across the country. NSE was set up by leading institutions to provide a modern,

fully automated screen-based trading system with national reach. The Exchange has brought

about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up

facilities that serve as a model for the securities industry in terms of systems, practices and

procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms of

microstructure, market practices and trading volumes. The market today uses state-of-art

information technology to provide an efficient and transparent trading, clearing and

settlement mechanism, and has witnessed several innovations in products & services viz.

demutualization of stock exchange governance, screen based trading, compression of

settlement cycles, dematerialization and electronic transfer of securities, securities lending

and borrowing, professionalization of trading members, fine-tuned risk management systems,

emergence of clearing corporations to assume counterparty risks, market of debt and

derivative instruments and intensive use of information technology.

The National Stock Exchange of India Limited has genesis in the report of the High Powered

Study Group on Establishment of New Stock Exchanges, which recommended promotion of

a National Stock Exchange by financial institutions (FIs) to provide access to investors from

all across the country on an equal footing. Based on the recommendations, NSE was

promoted by leading Financial Institutions at the behest of the Government of India and was

incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the

country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956

in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment

in June 1994. The Capital Market (Equities) segment commenced operations in November

1994 and operations in Derivatives segment commenced in June 2000.

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MISSION OF NSE

NSE's mission is setting the agenda for change in the securities markets in India.

OBJECTIVES OF NSE

The NSE was set-up with the main objectives of:

• Establishing a nation-wide trading facility for equities, debt instruments and hybrids,

• Ensuring equal access to investors all over the country through an appropriate

communication network,

• Providing a fair, efficient and transparent securities market to investors using

electronic trading systems,

• Enabling shorter settlement cycles and book entry settlements systems, and

• Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology has become industry

benchmarks and is being emulated by other market participants. NSE is more than a mere

market facilitator. It's that force which is guiding the industry towards new horizons and

greater opportunities.

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PROMOTERS

NSE has been promoted by leading financial institutions, banks, insurance companies and

other financial intermediaries:

� Industrial Development Bank of India Limited

� Industrial Finance Corporation of India Limited

� Life Insurance Corporation of India

� State Bank of India

� ICICI Bank Limited

� IL & FS Trust Company Limited

� Stock Holding Corporation of India Limited

� SBI Capital Markets Limited

� The Administrator of the Specified Undertaking of Unit Trust of India

� Bank of Baroda

� Canara Bank

� General Insurance Corporation of India

� National Insurance Company Limited

� The New India Assurance Company Limited

� The Oriental Insurance Company Limited

� United India Insurance Company Limited

� Punjab National Bank

� Oriental Bank of Commerce

� Corporation Bank

� Indian Bank

� Union Bank of India

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Logo

The logo of the NSE symbolizes a single nationwide securities trading facility ensuring equal

and fair access to investors, trading members and issuers all over the country. The initials of

the Exchange viz., N, S and E have been etched on the logo and are distinctly visible. The

logo symbolizes use of state of the art information technology and satellite connectivity to

bring about the change within the securities industry. The logo symbolizes vibrancy and

unleashing of creative energy to constantly bring about change through innovation.

CORPORATE STRUCTURE

NSE is one of the first de-metalized stock exchanges in the country, where the ownership and

management of the Exchange is completely divorced from the right to trade on it. Though the

impetus for its establishment came from policy makers in the country, it has been set up as a

public limited company, owned by the leading institutional investors in the country.

From day one, NSE has adopted the form of a demutualised exchange - the ownership,

management and trading is in the hands of three different sets of people. NSE is owned by a

set of leading financial institutions, banks, insurance companies and other financial

intermediaries and is managed by professionals, who do not directly or indirectly trade on the

Exchange. This has completely eliminated any conflict of interest and helped NSE in

aggressively pursuing policies and practices within a public interest framework.

The NSE model however, does not preclude, but in fact accommodates involvement, support

and contribution of trading members in a variety of ways. Its Board comprises of senior

executives from promoter institutions, eminent professionals in the fields of law, economics,

accountancy, finance, taxation, etc, public representatives, nominees of SEBI and one full

time executive of the Exchange.

While the Board deals with broad policy issues, decisions relating to market operations are

delegated by the Board to various committees constituted by it. Such committees include

representatives from trading members, professionals, the public and the management. The

day-to-day management of the Exchange is delegated to the Managing Director who is

supported by a team of professional staff.

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COMMITTEES

The Exchange has constituted various committees to advise it on areas such as good market

practices, settlement procedures, risk containment systems etc. These committees are manned

by industry professionals, trading members, Exchange staff as also representatives from the

market regulator.

• Executive Committee

• Committee On Trade Related Issues (COTI)

• Advisory Committee - Listing of Securities

Executive Committee:

Objective: To manage the day-to-day operations of the Exchange Composition.

Committee On Trade Related Issues (COTI):

Objective: To provide guidance on trade related issues which crop up during the day-to-day

functioning of the Exchange Composition.

Advisory Committee - Listing of Securities:

Objective: To advise NSE on

• The suitability of the Companies for listing on the Exchange within the parameters set

out by the listing agreement

• To ensure that the applicant company has complied with all the conditions set out in

the listing agreement as well as other formalities, SEBI regulations, etc.

• Systems and procedures to be adopted for listing of securities

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ABOUT BSE

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage.

Popularly known as "BSE", it was established as "The Native Share & Stock Brokers

Association" in 1875. It is the first stock exchange in the country to obtain permanent

recognition in 1956 from the Government of India under the Securities Contracts

(Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of

the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide.

Earlier an Association of Persons (AOP), the Exchange is now a demutualised and

corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant

to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities

and Exchange Board of India (SEBI).

With demutualization, the trading rights and ownership rights have been de-linked effectively

addressing concerns regarding perceived and real conflicts of interest. The Exchange is

professionally managed under the overall direction of the Board of Directors. The Board

comprises eminent professionals, representatives of Trading Members and the Managing

Director of the Exchange. The Board is inclusive and is designed to benefit from the

participation of market intermediaries.

In terms of organization structure, the Board formulates larger policy issues and exercises

over-all control. The committees constituted by the Board are broad-based. The day-to-day

operations of the Exchange are managed by the Managing Director and a management team

of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and

towns of India. The systems and processes of the Exchange are designed to safeguard market

integrity and enhance transparency in operations. During the year 2004-2005, the trading

volumes on the Exchange showed robust growth.

The Exchange provides an efficient and transparent market for trading in equity, debt

instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary

system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing &

settlement functions of the Exchange are ISO 9001:2000 certified.

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HERITAGE

The oldest exchange in Asia and the first exchange in the country to be granted permanent

recognition under the Securities Contract Regulation Act, 1956, Bombay Stock Exchange

Limited (BSE) have had an interesting rise to prominence over the past 130 years.

While the BSE is now synonymous with Dalal Street, it wasn’t always so. In fact the first

venues of the earliest stock broker meetings in the 1850s were amidst rather natural environs

- under banyan trees - in front of the Town Hall, where Horniman Circle is now situated. A

decade later, the brokers moved their venue to another set of foliage, this time under banyan

trees at the junction of Meadows Street and Mahatma Gandhi Road. As the number of

brokers increased, they had to shift from place to place, and wherever they went, through

sheer habit, they overflowed in to the streets. At last, in 1874, found a permanent place, and

one that they could, quite literally, call their own. The new place was, aptly, called Dalal

Street.

The journey of BSE is as eventful and interesting as the history of India’s securities markets.

India’s biggest bourse, in terms of listed companies and market capitalization, BSE has

played a pioneering role in the Indian Securities Market - one of the oldest in the world.

Much before actual legislations were enacted, BSE had formulated comprehensive set of

Rules and Regulations for the Indian Capital Markets. It also laid down best practices

adopted by the Indian Capital Markets after India gained its Independence.

Perhaps, there would not be any leading corporate in India, which has not sourced BSE’s

services in resource mobilization.

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BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the

benchmark equity index that reflects the robustness of the economy and finance. At par with

international standards, BSE has been a pioneer in several areas. It has several firsts to its

credit even in an intensely competitive environment.

� First in India to introduce Equity Derivatives

� First in India to launch a Free Float Index

� First in India to launch US$ version of BSE Sensex

� First in India to launch Exchange Enabled Internet Trading Platform

� First in India to obtain ISO certification for Surveillance, Clearing & Settlement

� 'BSE On-Line Trading System’ (BOLT) has been awarded the globally

recognized the Information Security Management System standard

BS7799-2: 2002.

� First to have an exclusive facility for financial training

� Moved from Open Outcry to Electronic Trading within just 50 days

An equally important accomplishment of BSE is the launch of a nationwide investor

awareness campaign - Safe Investing in the Stock Market - under which nationwide

awareness campaigns and dissemination of information through print and electronic medium

was undertaken. BSE also actively promoted the securities market awareness campaign of the

Securities and Exchange Board of India.

In 2002, the name The Stock Exchange, Mumbai, was changed to BSE. BSE, which had

introduced securities trading in India, replaced its open outcry system of trading in 1995,

when the totally automated trading through the BSE Online trading (BOLT) system was put

into practice. The BOLT network was expanded, nationwide, in 1997. It was at the BSE's

International Convention Hall that India’s 1st Bell ringing ceremony in the history Capital

Markets was held on February 18th, 2002. It was the listing ceremony of Bharti Tele ventures

Ltd.

BSE with its long history of capital market development is fully geared to continue its

contributions to further the growth of the securities markets of the country, thus helping India

increase its sphere of influence in international financial markets.

23

For the premier Stock Exchange that pioneered the stock broking activity in India, 125 years

of experience seem to be a proud milestone. A lot has changed since 1875 when 318 persons

became members of what today is called "Bombay Stock Exchange Limited" by paying a

princely amount of Re1.

Since then, the stock market in the country has passed through both good and bad periods.

The journey in the 20th century has not been an easy one. Till the decade of eighties, there

was no measure or scale that could precisely measure the various ups and downs in the Indian

stock market. Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index

that subsequently became the barometer of the Indian Stock Market.

BSE-SENSEX, first compiled in 1986 is a "Market Capitalization-Weighted" index of 30

component stocks representing a sample of large, well-established and financially sound

companies. The base year of BSE-SENSEX is 1978-79. The index is widely reported in both

domestic and international markets through print as well as electronic media. BSE-SENSEX

is not only scientifically designed but also based on globally accepted construction and

review methodology. The "Market Capitalization-Weighted" methodology is a widely

followed index construction methodology on which majority of global equity benchmarks are

based.

The growth of equity markets in India has been phenomenal in the decade gone by. Right

from early nineties the stock market witnessed heightened activity in terms of various bull

and bear runs. More recently, the bourses in India witnessed a similar frenzy in the 'TMT'

sectors. The BSE-SENSEX captured all these happenings in the most judicial manner. One

can identify the booms and bust of the Indian equity market through BSE-SENSEX.

24

The launch of BSE-SENSEX in 1986 was later followed up in January 1989 by introduction

of BSE National Index (Base: 1983-84 = 100). It comprised of 100 stocks listed at five major

stock exchanges in India at Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE

National Index was renamed as BSE-100 Index from October 14, 1996 and since then it is

calculated taking into consideration only the prices of stocks listed at BSE.

With a view to provide a better representation of the increased number of companies listed,

increased market capitalization and the new industry groups, the Exchange constructed and

launched on 27th May, 1994, two new index series viz., the 'BSE-200' and the 'DOLLEX-

200' indices. Since then, BSE has come a long way in attuning itself to the varied needs of

investors and market participants. In order to fulfill the need of the market participants for

still broader, segment-specific and sector-specific indices, the Exchange has continuously

been increasing the range of its indices. The launch of BSE-200 Index in 1994 was followed

by the launch of BSE-500 Index and 5 sectoral indices in 1999. In 2001, BSE launched the

BSE-PSU Index, DOLLEX-30 and the country's first free-float based index - the BSE TECk

Index taking the family of BSE Indices to 13.

The Exchange also disseminates the Price-Earnings Ratio, the Price to Book Value Ratio and

the Dividend Yield Percentage on day-to-day basis of all its major indices.

The values of all BSE indices (except the Dollar version of indices) are updated every 15

seconds during the market hours and displayed through the BOLT system, BSE website and

news wire agencies.

All BSE-Indices are reviewed periodically by the "Index Committee" of the Exchange. The

committee frames the broad policy guidelines for the development and maintenance of all

BSE indices. The Index Cell of the Exchange carries out the day to day maintenance of all

indices and conducts research on development of new indices.

25

LISTING OF SECURITIES

Listing means admission of the securities to dealings on a recognized stock exchange. The

securities may be of any public limited company, Central or State Government, quasi-

governmental and other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to :

• Provide liquidity to securities;

• Mobilize savings for economic development;

• Protect interest of investors by ensuring full disclosures.

The Exchange has a separate Listing Department to grant approval for listing of securities of

companies in accordance with the provisions of the Securities Contracts (Regulation) Act,

1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines

issued by SEBI and Rules, Bye-laws and Regulations of the Exchange.

A company intending to have its securities listed on the Exchange has to comply with the

listing requirements prescribed by the Exchange. Some of the requirements are as under: -

1. Minimum Listing Requirements for new companies

2. Minimum Requirements for companies delisted by this Exchange seeking

relisting of this Exchange

3. Minimum Requirements for companies delisted by this Exchange seeking

relisting of this Exchange

4. Permission to use the name of the Exchange in an Issuer Company's prospectus

5. Submission of Letter of Application

6. Allotment of Securities

7. Trading Permission

8. Requirement of 1% Security

9. Payment of Listing Fees

10. Compliance with Listing Agreement

11. "Z" Group

12. Cash Management Services (CMS) - Collection of Listing Fees .

26

The Cheque should be drawn in favour of Bombay Stock Exchange Limited , and should be

payable, locally .Companies are requested to mention in the deposit slip, the financial year(s)

for which listing fee is being paid. Payment made through any other slips would not be

considered. The above slips will have to be filled in quadruplicate. One acknowledged copy

would be provided to the depositor by the HDFC Bank.

27

COMPANY PROFILE

• Ventura Securities Ltd., is a leading stock broking organization

• Promoted and managed by professionals having exceptional knowledge of Capital

Market.

• Ventura believes in philosophy that the key to their business is service which will result

in total satisfaction to the clients.

VENTURA – PROMOTERS

Sajid Malik, Director, is a member of the Institute of Chartered Accountants of India.He has

nearly fifteen years of varied experience in corporate advisorystructured finance and private

equity transaction. He has an international exposure to developed markets in Europe, US and

the Far East and has been personally involved in international equity offerings and cross

border acquisitions. He is the CEO of Genesys International, a company focused on

outsourcing of GIS and engineering design services. He is a non-executive director of

Ventura Securities.

HemantMajethia, Director is member of the Institute of Chartered Accountant of India. He

has nearly fifteen years of rich experience in the capital markets intermediation, equity

research and has a wide cross section of market relationships. Mr. Majethia is the CEO of

Ventura Securities. It was his vision to create an all India network of brokers’ relationship

and build the distribution strength of Ventura.

COMPANY'S GOAL

We aim to add value and provide our clients with an unrivalled and specialized service which

reflects the expertise and efficiency of our dedicated support teams.

28

HISTORY

FOUNDATION OF VENTURA

� Founded in 1994 by Chartered Accountants Sajid Malik and HemantMajethia. They are

the first generation entrepreneurs and are the principal promoters of Ventura.

� A dedicated and efficient team of senior managers assists Mr. Majethia the CEO of the

company.

� Ventura is a full-service domestic brokerage house providing value-based advisory

services to Institutions (Foreign and Domestic), High Net Worth and Retail Investors with

its core area of operations being stock-broking.

� Ventura have considerable strength and domain knowledge in the booming derivatives

market.

� Ventura has achieved a reputation for innovative and unbiased research along with

excellent technical analysis and execution capabilities.

� Not only has Ventura provided value-added services to the gamut of India-based funds, it

has also developed the advice-driven business of high net worth and corporate clients.

WHY VENTURA?

• Ventura’s services are offered under total confidentiality and integrity with the sole

purpose of maximizing returns for their clients.

• Equity Broking - Corporate Member of The Stock Exchange, Mumbai (BSE) and

National Stock Exchange of India Ltd. (NSE).

• Pan India reach - 380 terminals spread across 75 different locations, in semi urban, urban

and metropolitan areas.

• More than 100,000 retail clients serviced from the above locations

• Ventura have heavily invested in technology (customized and ready to use software)

involving front and back end operations offering seamless process and flawless execution

and raising our service levels.

• Ventura operate on an alert and well-defined system in risk management and settlement

mechanism

29

OFFERINGS

30

RESEARCH COMPETENCY

• Market Outlooks and Strategy Analysis Market research at Ventura is structured to meet a

wide variety of customer needs.

• Services in this area range from the intra-day analysis of the most recent fundamental

and technical developments affecting pricing to longer-term strategic research of supply,

demand, and inventory trends.

• Along with its price forecasting capability, the Team undertakes analytical research on

hedging and trading strategies.

• The Team also publishes monographs on topics of broad interest to its customers, such as

the impact of changing accounting standards, developments in risk management, and

current hedge activities and strategic thought in the various sectors of the market.

MARKETS IN WHICH VENTURA DEALS:

EQUITY & DERIVATIVES

Equity and derivatives go hand in hand as they help maximize return and minimize risk at the

same time! Ventura Securities Ltd clients are assisted in protecting the downside risk to their

portfolio using appropriate combination of options. Our advisory is skilled to help you in

maximizing your gains from your existing corpus using numerous strategies based on the

direction and intensity of the views. Ventura Securities Ltd ensures that you get the one of the

finest trading experiences through:

An experienced and qualified team of Equity professionals offering unbiased advice on

equity investment decisions.

All members having immense experience and each of them being professionally certified

by the National Stock Exchange.

A high level of personalized and confidential service.

Constant monitoring of client portfolio so that the returns are maximized and the risks are

minimized

Secure, integrated broking system

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Powerful Research & Analytics

Ventura Securities Ltd has a great retail network, with its presence through more than 150

branches across more than 10 states. This means, you can walk into any of these branches and

get in touch with our highly skilled and dedicated staff to get the best services.

COMMODITIES

Commodities are now an asset class! For those who want to diversify their portfolios beyond

shares, bonds and real estate, commodities are an excellent option. Commodities are one of

the easiest investment avenues to understand as they are based on the fundamentals of

demand and supply. Historically, prices in commodities futures have been less volatile

compared with equity and bonds, thus providing an efficient portfolio diversification option.

Ventura Securities Ltd helps investors understand the risks and advantages of trading in

commodities futures before take they take the big leap. It provides clients with an effective

platform to participate and trade in Commodities with both the leading Commodity

Exchanges of the country. Ventura Securities Ltd commodity services are a class apart and

the following features differentiate our services from others:

Professionally qualified analysts with rich industry experience

Research on Agro, Precious Metals, Base Metals, Energy products and Polymers

Market watch for MCX and NCDEX with BSE / NSE

Streaming quotes and live updates, Relationship management desk

Educating clients on commodities futures market

32

DEPOSITORY

Ventura Securities Ltd is a depository participant with Central Depository Services (India)

Limited (CDSL) and uses the latest in technology to deliver DP Services in a hassle free,

secure and transparent environment.

There are two main reasons why you should use Ventura Securities Ltd’s DP services:

Ventura Securities Ltd ensures that its clients focus on investment and trading decisions

rather than the drudgery of operational and transactional processes.

Ventura Securities Ltd offers a risk free, prompt and efficient depository process.

Depository Services provided by Ventura Securities Ltd include:

Account Opening

Dematerialization

Rematerialisation

Account Transfer

Nomination

Pledging

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INSTITUTIONAL SERVICES

Dedicated institutional desks at Mumbai and Chennai cater to our rapidly growing

Institutional clientele, which include FIIs, Mutual Funds, Banks, Insurance Companies,

Corporate clients and Overseas Corporate Bodies With our dedicated and superior quality

service to our clients, Ventura Securities Ltd is being recognized as the broker of choice

among various institutional investors Some of our esteemed clients include:

Allsec Technologies Limited

Videsh Sanchar Nigam Limited

Power Trading Co Limited

Star Health and Allied Insurance

Indian Overseas Bank

Ramakrishna Mission

NRI SERVICES

The NRI Services' Department is an exclusive arm of Ventura Securities Ltd dedicated to

impart professional advice to NRIs the world over. Our exclusive single-window NRI

Services’ Department integrates and simplifies multiple processes into one - opening of NRI

bank account, demat account and trading account NRI’s, NRO’s (Non-Resident of Indian

Origin) and OCB’s (Overseas Corporate Bodies) can now exploit multiple opportunities to

profit from India's NRI-friendly investment environment and a booming Indian economy

Ventura Securities Ltd enables all operations from trading to settlement in an absolutely

hassle-free manner

Pro-activeness right from opening necessary accounts to advising tax payments on capital

gains.

Prompt response to queries or step by step guiding through a business process.

34

INVESTMENT ADVISORY

Ventura Securities Ltd has a dedicated team of professionals handling the investment

advisory services of the firm. These experts use their knowledge of investments, tax laws,

and insurance to recommend financial options to clients in accordance with their short-term

and long-term goals. Some of the issues that the specialists address are general investments,

retirement planning, tax planning and child education & welfare planning. Our certified

Investment Advisory Managers strive to understand each individual client’s needs, risk

profiles and investment goals to provide the best advice. Apart from advising, they help

clients build and track their investments. They also regularly monitor report and recommend

changes based on the performance of the portfolio.

Investment Advisory helps you in the following ways:

Provides you with the information to make fruitful and timely financial decisions.

Helps you understand how each financial decision other areas of your finances.

Aids you in assessing the level of risk that is suited to your lifestyle and financial situation.

Facilitates you to manage your finances based on the goals that you are looking to

achieve.

Facilitates you to manage your finances based on the goals that you are looking to achieve.

We offer advice on and help invest in the following products:

Mutual Funds

Insurance - Life & Non - Life

Bonds

Deposits

IPO’s

Small Savings Instruments

35

RESEARCH

Our primary strengths lie in research and operational efficiency. The day-to-day operations

are managed by some of the best professionals in the industry having in-depth understanding

of underlying market trends and sound business practices The Research Team comprises of

competent professionals with vast experience, insightful analytical abilities and high

standards of integrity.

Some of our research reports are as below:

Economic Outlook and Updates

Sector & Company Reports

Technical Recommendations

Daily Market Report

Daily Technical Outlook

Reports on New Fund Offerings

Weekly analysis of mutual funds – Fund Focus

Weekly debt report: Debt Dose

Monthly Newsletter - Ventura Securities Ltd Investment Flash

Monthly 4 Pager - Ventura Securities Ltd Wealth Wise

We also offer daily technical calls through SMS to our clients free of charge.

36

CHAPTER: 3

LITERATURE REVIEW

3.1 Risk Analysis

3.2 Types of risks

3.3 Measurement of risk

3.4 Return Analysis

3.5 Risk and return Trade off

3.6 Risk-return relationship

37

Risk Analysis

Risk in investment exists because of the inability to make perfect or accurate forecasts. Risk

in investment is defined as the variability that is likely to occur in future cash flows from an

investment. The greater variability of these cash flows indicates greater risk.

Variance or standard deviation measures the deviation about expected cash flows of each of

the possible cash flows and is known as the absolute measure of risk; while co-efficient of

variation is a relative measure of risk.

For carrying out risk analysis, following methods are used-

Payback [How long will it take to recover the investment]

Certainty equivalent [The amount that will certainly come to you]

Risk adjusted discount rate [Present value i.e. PV of future inflows with discount rate]

However in practice, sensitivity analysis and conservative forecast techniques being simpler

and easier to handle, are used for risk analysis. Sensitivity analysis [a variation of break even

analysis] allows estimating the impact of change in the behavior of critical variables on the

investment cash flows. Conservative forecasts include using short payback or higher discount

rates for discounting cash flows.

Types of risks:

Investment Risks:

Investment risk is related to the probability of earning a low or negative actual return as

compared to the return that is estimated. There are 2 types of investments risks:

38

Stand-alone risk:

This risk is associated with a single asset, meaning that the risk will cease to exist if that

particular asset is not held. The impact of stand alone risk can be mitigated by diversifying

the portfolio.

Stand-alone risk = Market risk + Firm specific risk

Where,

Market risk is a portion of the security's stand-alone risk that cannot be eliminated trough

diversification and it is measured by beta

Firm risk is a portion of a security's stand-alone risk that can be eliminated through proper

diversification

Portfolio risk

This is the risk involved in a certain combination of assets in a portfolio which fails to deliver

the overall objective of the portfolio. Risk can be minimized but cannot be eliminated,

whether the portfolio is balanced or not. A balanced portfolio reduces risk while a non-

balanced portfolio increases risk.

Sources of risks:

Inflation

Business cycle

Interest rates

Management

Business risk

Financial risk

39

Types of Risk

Unfortunately, the concept of risk is not a simple concept in finance. There are many

different types of risk identified and some types are relatively more or relatively less

important in different situations and applications. In some theoretical models of economic or

financial processes, for example, some types of risks or even all risk may be entirely

eliminated. For the practitioner operating in the real world, however, risk can never be

entirely eliminated. It is ever-present and must be identified and dealt with.

In the study of finance, there are a number of different types of risk has been identified. It is

important to remember, however, that all types of risks exhibit the same positive risk-return

relationship.

Systematic Risk Vs Unsystematic Risk

There is one more way to classify financial risk – is risk will impact whole economy or

particular company or a sector.

Systematic Risk – it is also known as market risk or economic risk or non diversifiable risk

& it impacts full economy or share market. Let’s say if interest rate will increase whole

economy will slow down & there is no way to hide from this impact. As such there is no way

to reduce systematic risk other than investing your money in some other country. Beta can be

helpful in understanding this.

Unsystematic Risk – it affects a small part of economy or sometime even single company.

Bad management or low demand in some particular sector will impact a single company or a

single sector – such risks can be reduced by diversifying once investments. So this is also

called Diversifiable Risk.

40

41

Systematic risk

1. Interest Rate Risk

The uncertainty associated with the effects of changes in market interest rates. There are two

types of interest rate risk identified; price risk and reinvestment rate risk. The price risk is

sometimes referred to as maturity risk since the greater the maturity of an investment, the

greater the change in price for a given change in interest rates. Both types of interest rate

risks are important in investments, corporate financial planning, and banking.

� Price Risk: The uncertainty associated with potential changes in the price of an asset

caused by changes in interest rate levels and rates of return in the economy. This risk

occurs because changes in interest rates affect changes in discount rates which, in

turn, affect the present value of future cash flows. The relationship is an inverse

relationship. If interest rates (and discount rates) rise, prices fall. The reverse is also

true.

Since interest rates directly affect discount rates and present values of future cash

flows represent underlying economic value, we have the following relationships.

� Reinvestment Rate Risk: The uncertainty associated with the impact that changing

interest rates have on available rates of return when reinvesting cash flows received

from an earlier investment. It is a direct or positive relationship.

42

2. Market risk

This is the risk that the value of a portfolio, either an investment portfolio or a trading

portfolio, will decrease due to the change in market risk factors. The four standard market

risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices:

� Equity risk is the risk that stock prices in general (not related to a particular company or

industry) or the implied volatility will change.

� Interest rate risk is the risk that interest rates or the implied volatility will change.

� Currency risk is the risk that foreign exchange rates or the implied volatility will change,

which affects, for example, the value of an asset held in that currency.

� Commodity risk is the risk that commodity prices (e.g. corn, copper, crude oil) or implied

volatility will change.

3. Inflation Risk (Purchasing Power Risk)

Inflation risk is the loss of purchasing power due to the effects of inflation. When inflation is

present, the currency loses its value due to the rising price level in the economy. The higher

the inflation rate, the faster the money loses its value.

43

Unsystematic risk

1. Business risk

The uncertainty associated with a business firm's operating environment and reflected in the

variability of earnings before interest and taxes (EBIT). Since this earnings measure has not

had financing expenses removed, it reflects the risk associated with business operations rather

than methods of debt financing. This risk is often discussed in General Business

Management courses.

2. Financial risk

The uncertainty brought about by the choice of a firm’s financing methods and reflected in

the variability of earnings before taxes (EBT), a measure of earnings that has been adjusted

for and is influenced by the cost of debt financing. This risk is often discussed within the

context of the Capital Structure topics.

Total Risk

While there are many different types of specific risk, we said earlier that in the most general

sense, risk is the possibility of experiencing an outcome that is different from what is

expected. If we focus on this definition of risk, we can define what is referred to as total

risk. In financial terms, this total risk reflects the variability of returns from some type of

financial investment.

Measures of Total Risk

The standard deviation is often referred to as a "measure of total risk" because it captures the

variation of possible outcomes about the expected value (or mean). In financial asset pricing

theory the Capital Asset Pricing Model (CAPM) separates this "total risk" into two different

types of risk (systematic risk and unsystematic risk). Another related measure of total risk is

the "coefficient of variation" which is calculated as the standard deviation divided by the

expected value. It is often referred to as a scaled measure of total risk or a relative measure

of total risk. The following notes will discuss these concepts in more detail.

44

Measurement of risks

Statistical measures that are historical predictors of investment risk and volatility and major

components in modern portfolio theory (MPT) . MPT is a standard financial and academic

methodology for assessing the performance of a stock or a stock fund compared to its

benchmark index.

There are five principal risk measures:

Alpha: Measures risk relative to the market or benchmark index

Beta: Measures volatility or systemic risk compared to the market or the benchmark index

R-Squared: Measures the percentage of an investment's movement that are attributable to

movements in its benchmark index

Standard Deviation: Measures how much return on an investment is deviating from the

expected normal or average returns

Sharpe Ratio: An indicator of whether an investment's return is due to smart investing

decisions or a result of excess risk.

Each risk measure is unique in how it measures risk. When comparing two or more potential

investments, an investor should always compare the same risk measures to each different

potential investment to get a relative performance.

45

Definition of 'Beta'

A measure of the volatility, or systematic risk of a security or a portfolio in comparison to the

market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that

calculates the expected return of an asset based on its beta and expected market returns.

Also known as "beta coefficient".

Beta is calculated using regression analysis, and you can think of beta as the tendency of a

security's returns to respond to swings in the market. A beta of 1 indicates that the security's

price will move with the market. If beta is less than 1 means that the security will be less

volatile than the market. A beta of greater than 1 indicates that the security's price will be

more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20%

more volatile than the market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-based

stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also

posing more risk.

Definition of 'Alpha'

1. A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk)

of a mutual fund and compares its risk-adjusted performance to a benchmark index. The

excess return of the fund relative to the return of the benchmark index is a fund's alpha.

2. The abnormal rate of return on a security or portfolio in excess of what would be predicted

by an equilibrium model like the capital asset pricing model (CAPM).

3. Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared,

and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory

(MPT). All of these indicators are intended to help investors determine the risk-reward profile

of a mutual fund. Simply stated, alpha is often considered to represent the value that a

portfolio manager adds to or subtracts from a fund's return.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%.

Correspondingly, a similar negative alpha would indicate an underperformance of 1%.

4. If a CAPM analysis estimates that a portfolio should earn 10% based on the risk of the

portfolio but the portfolio actually earns 15%, the portfolio's alpha would be 5%. This 5% is

the excess return over what was predicted in the CAPM model.

46

Definition of 'Standard Deviation'

1. A measure of the dispersion of a set of data from its mean. The more spread apart the data,

the higher the deviation. Standard deviation is calculated as the square root of variance.

2. In finance, standard deviation is applied to the annual rate of return of an investment to

measure the investment's volatility. Standard deviation is also known as historical volatility

and is used by investors as a gauge for the amount of expected volatility.

Standard deviation is a statistical measurement that sheds light on historical volatility. For

example, a volatile stock will have a high standard deviation while the deviation of a stable

blue chip stock will be lower. A large dispersion tells us how much the return on the fund is

deviating from the expected normal returns.

Definition of 'R-Squared'

A statistical measure that represents the percentage of a fund or security's movements that can

be explained by movements in a benchmark index. For fixed-income securities, the

benchmark is the T-bill. For equities, the benchmark is the S&P 500.

R-squared values range from 0 to 100. An R-squared of 100 means that all movements of

a security are completely explained by movements in the index. A high R-squared (between

85 and 100) indicates the fund's performance patterns have been in line with the index. A

fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a fund has

an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher

risk-adjusted returns. A low R-squared means you should ignore the beta.

When most people think of investments they think of stocks or mutual funds. An investment

is more than this. An investment requires one to set aside an amount today with the

expectation of receiving a larger sum in the future.

47

Return Analysis

An investment is the current commitment of funds done in the expectation of earning greater

amount in future. Returns are subject to uncertainty or variance Longer the period of

investment, greater will be the returns sought. An investor will also like to ensure that the

returns are greater than the rate of inflation.

An investor will look forward to getting compensated by way of an expected return based on

3 factors -

Risk involved

Duration of investment [Time value of money]

Expected price levels [Inflation]

The basic rate or time value of money is the real risk free rate [RRFR] which is free of any

risk premium and inflation. This rate generally remains stable; but in the long run there could

be gradual changes in the RRFR depending upon factors such as consumption trends,

economic growth and openness of the economy.

If we include the component of inflation into the RRFR without the risk premium, such a

return will be known as nominal risk free rate [NRFR]

NRFR = ( 1 + RRFR ) * ( 1 + expected rate of inflation ) - 1

Third component is the risk premium that represents all kinds of uncertainties and is

calculated as follows -

Expected return = NRFR + Risk premium.

48

Any investor who lays aside money today expects to get more in return later. How much is

more? Well, the best way to calculate this is to look at your rate of return. In its simplest

form, you would take the ending value of your investment, divide it by your initial

investment, take the n root of it (where n= the number of years you held the investment), and

minus one. Confused? Well, let's give an example.

If I invested $100 for three years and after this period it was worth $150, my rate of return

would be [150/100^ (1/3)]-1=14.47%. Don't worry we'll look at this concept more when we

study present and future values.

Now that you have your rate of return you may be asking, "How much is enough?" Well,

looking at past market history, equities on average returned 10% annually, small caps 12%,

bonds 5%, and t-bills around 3-4%. We will ignore all this for now and state the required

return more formally.

Firstly, investors should be compensated for the real interest rate and inflation (note: the real

rate plus inflation=nominal rate). This nominal rate is the rate of return on US Government

bonds. Investors expect at least this when they buy a stock. The reason? A stock has risk and

government bonds don't. If stock does not outperform bonds then investors will prefer the

bonds. The second component of required return is inflation which is already incorporated

into our nominal rate.

Lastly we have a premium for risk. Since investors do not know for sure if their investment

will make them money, they want to be compensated for this additional risk with additional

return.

49

Return on security (single asset) consists of two parts:

Return = dividend + capital gain rate

R = D1 + (P1 – P0) P0

WHERE R = RATE OF RETURN IN YEAR 1

D1 = DIVIDEND PER SHARE IN YEAR 1

P0 = PRICE OF SHARE IN THE BEGINNING OF THE YEAR

P1 = PRICE OF SHARE IN THE END OF THE YEAR

Average rate of return

R = 1 [ R1+R2+……+Rn] n

R =1ΣRtnt=1 Where,

R = average rate of return.

Rt = Realised rates of return in periods 1,2, …..t

n = total no. of periods

Expected rate of return:

It is the weighted average of all possible returns multiplied by

their respective probabilities.

E(R) = R1P1 + R2P2 + ………+ RnPn

E(R) = ΣRiPii Where,

Ri is the outcome i,

Pi is the probability of occurrence of i.

n= No of periods

50

Risk and return trade off:

Investors make investment with the objective of earning some tangible benefit. This benefit

in financial terminology is termed as return and is a reward for taking a specified amount of

risk.

Risk is defined as the possibility of the actual return being different from the expected return

on an investment over the period of investment. Low risk leads to low returns. For instance,

incase of government securities, while the rate of return is low, the risk of defaulting is also

low. High risks lead to higher potential returns, but may also lead to higher losses. Long-term

returns on stocks are much higher than the returns on Government securities, but the risk of

losing money is also higher.

Rate of return on an investment cal be calculated using the following formula-

Return = (Amount received - Amount invested) / Amount invested

He risk and return trade off says that the potential rises with an increase in risk. An investor

must decide a balance between the desire for the lowest possible risk and highest possible

return.

51

Risk-Return relationship

By now you should understand that even with the most conservative investments you face

some element of risk. However, not investing your money is also risky. For example, putting

your money under the mattress invites the risk of theft and the loss in purchasing power if

prices of goods and services rise in the economy. When you recognize the different levels of

risk for each type of investment asset, you can better manage the total risk in your investment

portfolio.

A direct correlation exists between risk and return and is illustrated in Figure. The greater the

risk, the greater is the potential return. However, investing in securities with the greatest

return and, therefore, the greatest risk can lead to financial ruin if everything does not go

according to plan.

Risk and Return

Understanding the risks pertaining to the different investments is of little consequence unless

you’re aware of your attitude toward risk. How much risk you can tolerate depends on many

factors, such as the type of person you are, your investment objectives, the dollar amount of

your total assets, the size of your portfolio, and the time horizon for your investments.

52

How nervous are you about your investments? Will you check the prices of your stocks

daily? Can you sleep at night if your stocks decline in price below their acquisition prices?

Will you call your broker every time a stock falls by a point or two? If so, you do not tolerate

risk well, and your portfolio should be geared toward conservative investments that generate

income through capital preservation. The percentage of your portfolio allocated to stocks may

be low to zero depending on your comfort zone. If you are not bothered when your stocks

decline in price because with a long holding period you can wait out the decline, your

portfolio of investments can be designed with a higher percentage of stocks. Figure 2

illustrates the continuum of risk tolerance.

A wide range of returns is associated with each type of security. For example, the many types

of common stocks, such as blue-chip stocks, growth stocks, income stocks, and speculative

stocks, react differently. Income stocks generally are lower risk and offer returns mainly in

the form of dividends, whereas growth stocks are riskier and usually offer higher returns in

the form of capital gains. Similarly, a broad range of risks and returns can be found for the

different types of bonds. You should be aware of this broad range of risks and returns for the

different types of securities so that you can find an acceptable level of risk for yourself.

Figure 2: Continuum of Risk Tolerance

53

CHAPTER: 4

INTERPRETATION

AND

ANALYSIS

54

HDFC:

Analysis of Return

Rate of Return = Share price in the closing – Share price at the opening

Share price in the opening

Year

Opening

value (P0)

Closing value

(P1) (P1-P0)

(P1-

P0)/P0*100

2007-08 186 286.99 100.99 54.30

2008-09 264 189 -75 -28.41

2009-10 202.4 381.28 178.88 88.38

2010-11 387.8 467.57 79.77 20.57

2011-12 469.22 510.7 41.48 8.84

Total return 143.68

Average return =143.68/5

=28.74

Interpretation: The average returns of HDFC are 28.74 wherein the maximum returns are in

the third year i.e. 2009-10.

186

264

387.8

469.22

286.99

189

381.28

467.57 510.7

100.99 79.77

41.4854.30

-28.41

88.38

8.84

202.4 178.88

-75

20.57

-200

-100

0

100

200

300

400

500

600

1 2 3 4 5

opening value (P0)

closing value (P1)

(P1-P0)

(P1-P0)/P0*100

55

ICICI:

Analysis of Return

Year

Opening value

(P0)

Closing value

(P1) (P1-P0)

(P1-

P0)/P0*100

2007-08 823 835.2 12.2 1.48

2008-09 799.95 337.85 -462.1 -57.77

2009-10 360 960.05 600.05 166.68

2010-11 952 1107.25 155.25 16.31

2011-12 1110 856.05 -253.95 -22.88

Total return

103.83

Average return =103.83/5

= 20.77

Interpretation: The average returns of ICICI are 20.77 wherein the maximum returns are in

the third year i.e. 2009-10.

Investment in HDFC is more profitable to the investor as the average returns are

comparatively more than the average returns of ICICI. Thus, an investor who is only

concerned about the returns in long run should invest in HDFC securities.

823 799.95

952

1110

835.2

337.85

960.05

1107.25

856.05

12.2

155.25

-253.95

1.48-57.77

166.68

-22.88

103.83

360

600.05

-462.1

16.31

-600

-400

-200

0

200

400

600

800

1000

1200

1 2 3 4 5 6

opening value (P0)

closing value (P1)

(P1-P0)

(P1-P0)/P0*100

56

RISK ANALYSIS

Standard Deviation

This is the most commonly used measure of risk in fiancé. Its square also is

widely used to find out the risk associated with a security.

Computation of Variance = ( )∑=

−n

i

RRi1

2or d2

1−n

Standard Deviation = 2

σ

HDFC:

Analysis of risk:

Year Return (R )

Avg return (R

) Deviations(R-R)

Square

deviations(R-R)

d2

2007-08 54.3 28.74 25.564 653.52

2008-09 -28.41 28.74 -57.146 3265.67

2009-10 88.38 28.74 59.644 3557.41

2010-11 20.57 28.74 -8.166 66.68

2011-12 8.84 28.74 -19.896 395.85

Total 143.68 7939.12

Variance = 1/n-1 (∑d2) = 1/5-1 (7939.12)

= 1984.78

Standard deviation=√variance

=√1984.78

= 44.55

57

ICICI:

Analysis of Risk:

Year Return (R ) Avg Return (R ) Deviations(R-R)

Square

deviations(R-R)

d2

2007-08 1.48 20.77 -19.286 371.95

2008-09 -57.77 20.77 -78.536 6167.90

2009-10 166.68 20.77 145.914 21290.90

2010-11 16.31 20.77 -4.456 19.86

2011-12 -22.88 20.77 -43.646 1904.97

Total 103.83 29755.58

Variance = 1/n-1 (∑d2) = 1/5-1 (29755.58)

= 7438.89

Risk=Standard deviation=√variance

=√7438.89

=86.25

Interpretation: Risk associated with the investment in long run is less for the HDFC

securities when compared to ICICI. Thus, when an investor is only considering risk factor, it

is advisable to invest in HDFC securities.

58

AVERAGE RETURN OF BOTH COMPANIES:

Interpretation: From the above table and graph it can be understood by considering both

risk and return factors that the returns are more and risk is less for HDFC securities.

44.55

86.25

0

10

20

30

40

50

60

70

80

90

100

HDFC ICICI

Sh

are

s p

rice

Standard deviation

Standard deviation

S.No COMPANY AVERAGE RETURN STANDARD DEVIATION

1 HDFC 28.74 44.55

2 ICICI 20.77 86.25

59

CALCULATION OF COVARIANCES

COVARIANCE = COV. AB = (∑[RA-RA] [RB-RB]) / N

WHERE:

RA = Return on A

RB = Return on B

RA = Expected return on A

RB = Expected return on B

N = Number of securities

COVARIANCE OF BANK SECURITIES PORTFOLIO:

CovA,B = ∑(riA-rA) (riB-rB) / n-1

HDFC & ICICI

Years DEVIATIONS OF

HDFC (RA-RA)

DEVIATIONS OF

ICICI (RB-RB)

COMBINED

DEVIATIONS

2007-08 25.564 -19.286 -493.027

2008-09 -57.146 -78.536 4488.018

2009-10 59.644 145.914 8702.895

2010-11 -8.166 -4.456 36.3877

2011-12 -19.896 -43.646 868.3808

TOTAL

13602.65

COVARIANCE (COVAB) = 13602.65/5

= 2720.531

60

CALCULATION OF COEFFICIENT CORRELATION

Coefficient of Correlation

Coefficient of Correlation is a statistical technique, which measures the degree or

extent to which two or more variables fluctuate with reference to one another. Correlation

analysis helps in determining the degree of relationship between two variables but correlation

does not always imply cause and effect relationship

The Coefficient of Correlation is essentially the covariance taken not as an absolute

value but relative to the standard deviations of the individual securities. It indicates, in effect,

how much x and y vary together as a proportion of their combined individual variations,

measured by SD of x multiplied by SD of Y

Coefficient of Correlation:

ICICI AND HDFC

Correlation coefficient (PAB) = COV AB

(Std.A)(Std.B)

(COVAB) = 13602.65 /5

= 2720.531

(PAB) = 2720.531

(86.25)(44.55)

= 0.70802172

61

PORTFOLIO COMPANY S.D COVARI

ANCE

COMBINED S.D

(Std.A)(Std.B)

CO-EF.

CORRELATION

(COV/C.S.D)

I.

HDFC 44.55

2720.531

3842.44

0.70802172 ICICI 86.25

CONCLUSION FOR CORRELATION:

In case of perfectly correlated securities or stocks, the risk can be reduced to a minimum

point. In case of negatively correlated securities, the risk can be reduced to a zero (which is

company’s risk) but market risk prevails the same for the securities or stock in the portfolio.

Interpretation:

In case of portfolio management, negatively correlated assets are most profitable. In the

above calculated correlation, the companies’ correlation is 0.7080, which means both these

combinations of portfolio’s are at a good position to gain in future. So, the investor may

invest their money for long run.

62

BETA VALUES

SENSEX:

Years Price Returns (R

)

(In %)

Average

returns ( R

)

( R- R)

(R – R)2

2007-2008 16371.29 - - - -

2008-2009 9568.14 -41.555 10.095 -51.6504 2667.761

2009-2010 17590.17 83.841 10.095 73.74606 5438.481

2010-2011 19290.18 9.665 10.095 -0.43045 0.185291

2011-2012 17058.61 -11.568 10.095 -21.6634 469.304

Total 40.383 8575.731

Standard Deviation = √ Variance

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

= 1/ (4-1) (8575.731)

= 1/3(8575.731)

= 2858.57

Standard Deviation = √2858.57

= 53.465

63

Correlation between Sensex and HDFC:

Date Deviations of sensex

Dsensex = (R-R)

Deviations of

HDFC

DHDFC = (R-R)

Combined

Deviations

DsensexDHDFC

2007-2008 - - -

2008-2009 -51.650 -57.146 2951.59

2009-2010 73.746 59.644 4398.50

2010-2011 -0.430 -8.166 3.5113

2011-2012 -21.663 -19.896 431.00

Total 7784.61

Correlation between Sensex and ICICI:

Date Deviations of sensex

Dsensex = (R-R)

Deviations of

ICICI

DICICI = (R-R)

Combined

Deviations

DsensexDICICI

2007-2008 - - -

2008-2009 -51.650 -78.536 4056.384

2009-2010 73.746 145.914 10760.57

2010-2011 -0.430 -4.456 1.91

2011-2012 -21.663 -43.646 945.50

Total 15764.38

64

Calculation of Beta Values:

β = COV AB /σ m2

Where COVAB = 1/ n-1 (D1D2)

σ m2 = Variance sensex

1. HDFC:-

β = COV sensex, HDFC /Variance sensex

COV sensex, HDFC = 1/ 4-1 (7784.61)

= 2594.87

Variance sensex = 2858.57

β = 2594.87/ 2858.57

β = 0.907

2. ICICI:-

β = COV sensex, ICICI /Variance sensex

COV sensex, ICICI = 1/ 4-1 (15764.38)

= 5254.793

Variance sensex = 2858.57

β = 5254.793/ 2858.57

β = 1.83

65

Calculated Beta Values:

COMPANY NAME BETA VALUE

HDFC 0.907

ICICI 1.838

CONCEPT OF BETA:

� It is a measure of movement of share price with the movement of market.

� Beta is positive, if share price moves in the direction of the movement of market.

� Beta is negative, if share price moves opposite to the direction of market.

Table Depicting All Calculated Values:

ICICI HDFC

Average returns 20.77 28.74

Standard deviation 86.25 44.55

Covariance 2720.531 2720.531

Coefficient correlation 0.708 0.708

Beta 1.838 0.907

66

HDFC Bank

Interpretation: From the above table by considering the opening and closing values it can be

clearly stated that almost in 4 years the share value is increasing whereas only in 2008-09

share price has reduced.

Profit/Loss:

Interpretation: From the above table it can be clearly stated that investor has enjoyed more

profits in 2009-10 and bears loss in 2008-09 as the opening and closing share values

fluctuate.

186

264

202.4

387.8

469.22

286.99

189

381.28

467.57510.7

0

100

200

300

400

500

600

2007-08 2008-09 2009-10 2010-11 2011-12

Sh

are

s p

rice

Years

Opening and closing values

opening

closing

100.99

-75

178.88

79.77

41.48

-100

-50

0

50

100

150

200

1 2 3 4 5

Sha

res

Pri

ce

Years

Profit/loss

Profit/loss

67

Maximum Profit:

Interpretation: From the above table it can be stated that with the fluctuations in the opening

value and highest share price, 2009-10 is the most profitable year for the investor.

Maximum Loss:

Interpretation: From the above table by considering the difference between opening value

and lowest share price, it can be stated that in 2008-09 there was huge loss to investors.

179

51

184.83

115.8

68.28

0

2040

6080

100120140

160180

200

1 2 3 4 5

Sha

res

Pri

ce

Years

Maximum profit

Maximum profit

4

-109.2

-3.9

-30.8

-68.77

-120

-100

-80

-60

-40

-20

0

20

2007-08 2008-09 2009-10 2010-11 2011-12

Sh

are

s p

rice

Years

Maximum loss

Maximum loss

68

ICICI bank

Interpretation: From the above table by considering the opening and closing values it can be

clearly stated that in the year 2007-08 there was a slight change in the market share value and

in 2008-09 the share value decreased to Rs.462.1 whereas in 2009-10 it again increased by

Rs.600.05. In 2010-11 it increased by Rs.155.25 and again fell down by Rs.253.95 in 2011-

12. If the investor is ready to bear more risk then, 2009-10 is favorable year with high returns.

823 799.95

360

952

1110

835.2

337.85

960.05

1107.25

856.05

0

200

400

600

800

1000

1200

2007-08 2008-09 2009-10 2010-11 2011-12

Sh

are

s p

rice

Years

Opening and Closing values

opening value

closing value

69

Profit/Loss

Interpretation: From the above table it can be clearly stated that investor can enjoy more

profits in 2009-10 and bear high loss in 2008-09 as the opening and closing share values

fluctuate.

Maximum Profit

Interpretation: From the above table it can be stated that with the fluctuations in the opening

value and highest share price, 2007-08 is the most profitable year for the investor.

12.2

-462.1

600.05

155.25

-253.95

-600

-400

-200

0

200

400

600

800

2007-08 2008-09 2009-10 2010-11 2011-12Sh

are

s P

rice

Years

Profit/loss

Profit/loss

642

160.95

608.5

325

27.9

0

100

200

300

400

500

600

700

2007-08 2008-09 2009-10 2010-11 2011-12

Sha

res p

rice

Years

Maximum profit

Maximum profit

70

Maximum Loss

Interpretation: From the above table by considering the difference between opening value

and lowest share price, it can be stated that 2008-09 is most unfavorable year for the investor

with huge loss.

-103

-547.2

30.6

-143.9

-469

-600

-500

-400

-300

-200

-100

0

100

2007-08 2008-09 2009-10 2010-11 2011-12

Sh

are

s p

rice

Years

Maximum loss

Maximum loss

71

CHAPTER 4:

FINDINGS

AND

SUGGESTIONS

72

FINDINGS:

� As far as the returns of the selected companies is concerned, HDFC is

comparatively performing well in isolation where as ICICI is performing very

poor.

� As far as the Standard deviation of the selected companies is concerned, ICICI

is very high where as HDFC is giving less risk. This means that higher the

risk, the higher the returns.

� As far as the Correlation co-efficient of ICICI and HDFC is concerned, it is

0.7080.

� The covariance of the ICICI and HDFC is 2720.531.

� The systematic risk (Beta) of HDFC is 0.907.

� The systematic risk (Beta) of ICICI is 1.838.

73

SUGGESTIONS: The investor should consider the securities with maximum returns and minimum risk. Thus, it is advisable to invest in HDFC securities.

� Investors should hold securities which give high returns with less risk.

� As an investor, see that there is a negative correlation among the securities.

� Do not relay completely on technical analysis.

� Investors should give importance to fundamental analysis of securities.

� Industrial policy also has a major role in facilitating the growth of the economy.

� Holding two or more securities reduce the unsystematic risk.

74

CONCLUSIONS: In the recent past the market has reached great heights as a result of expansion of business

and much more of globalization, the increased percentage of Foreign Direct Investment

which has a direct affect on the demand and supply of the shares of a particular company. In

this way the index of the stock market has reached to the maximum. With the boom in the

market there are many investors who are willing to take more risk and so to cover the risk.

Financial sector is booming and the need for Risk-Return Analysis is growing. Also because

of the very tricky stock market behaviors it has become mandatory to manage portfolio so as

to reduce the risk while maximizing the returns. Taking into consideration the investor’s risk-

return requirements portfolio should be constructed and reviewed regularly.

75

CHAPTER: 6

BIBLIOGRAPHY

76

BIBLIOGRAPHY

Book References:

1. Financial management

- M Y Khan and P K Jain

2. Investments

- William F. Sharpe, Gordon J.Alexander & Jeffery V. Baily

3. Security Analysis and Portfolio Management

- Prasanna Chandra

4. GRIET Library

Web References:

� www.nseindia.com

� www.moneycontrol.com

� www.indiamart.com

� www.google.com

� www.ventural.com