Security Analysis and

Portfolio Management

Presenting By:

Himanshu Jain

913003

International School of Business & Media

INTRODUCTION

• Live Project is all about studying the company’s financial health through the movement of their stock price.

• It discusses various aspects of portfolio management, ranging from analysis, selection, and revision to evaluation of portfolio, securities market and risk evaluation.

• This live project helped to understand how the stock prices vary. It also helped to know and calculate several technical terms.

• Stocks that assigned are:

1. Ambuja Cement (AMBUJACEM)

2. Cipla

3. Hero Motors (HEROMOTOCO)

4. Kotak Mahindra Bank (KOTAKBANK)

5. Ranbaxy

OBJECTIVE

• The main objective of this live assignment is to give the optimum returns to

the investor by considering risk and return, portfolio risk, portfolio return and

several other factors which helps to determine where to invest for an investor.

PROCESS

UPDATE DAILY CLOSING

PRICE,OPENING PRICE,HIGH,LOW,

PREV.CLOSE

Data Analysis of each through NSE per day

CALCULATE %CHANGE

Finding the reason for percentage change for every change of above

+5 and -5.

calculate correlation,variance,B

of all stocks

CALCULATE PORTFOLIO OF B

EVALUATION OF PORTFOLIO(RISK AND RETURN OF

ALL)

PERFORM EQUITY ANALYSIS

ANALYSE THE DATA WITH THE HELP OF

TECHNICAL ANALYSIS

ALSO PERFORM COMPANY ANALYSIS

DECISION TO BE TAKEN

EQUITY VALUATION

• Finding the Intrinsic Value of the Different stocks by finding the Return on

Equity, Dividend, Earning per share, Retention Ratio, Growth, Future

Dividend and Expected Return by taking the Closing Price of the stocks.

• Growth= ROE * Retention Ratio

• Expected Return(Ke), Intrinsic value(Po)

• Po= D1/(Ke-g)

AMBUJA CEMENT

Year ROE Divd. EPS Retention Ratio

2008-09 -41% 2.2 9.21 72%

2009-10 67% 2.4 8.00 65%

2010-11 25% 2.6 8.28 63%

2011-12 17% 3.2 8.02 54%

2012-13 1% 3.6 8.43 50%

14% 61%

Growth 0.08

Future Div. 3.901772

Expected Return 0.11

Ke-g 0.03

Expected price 149.07

CIPLA

Year ROE Divd. Profit Retained Retained %

2007-08 -2.48% 2 701.43 519.55 74.07

2008-09 -0.11% 2 776.81 594.93 76.59

2009-10 54.60% 2 1081.49 894.24 82.69

2010-11 -5.12% 2.8 960.39 698.86 72.77

2011-12 -4.61% 2 1123.96 937.32 83.39

2012-13 22.84% 2 1507.11 1319.24 87.53

11% 79.51

Growth 0.09

Future Div. 2.17

Expected Return 0.11

Ke-G 0.02

Expected M.P 217.00

HERO MOTORS

Year ROE Div. EPS Retention Ratio

2006-07 38.30% 17 43 60.47%

2007-08 35.50% 19 48.5 60.82%

2008-09 37.80% 20 64.2 68.85%

2009-10 61.40% 110 111.8 1.61%

2010-11 65.20% 105 96.5 -8.81%

2011-12 55.40% 45 119.1 62.22%

2012-13 42.30% 60 106.1 43.45%

47.99% 41.23%

Growth 0.1978

Future Div. 71.87

Expected Return 0.24

Ke-g 0.04

Expected Price 1704.78

KOTAK MAHINDRA BANK

Year ROE Dividend EPS Retention Ratio

2006-07 68% 0.70 4.33 83.83%

2007-08 36% 0.75 8.53 91.21%

2008-09 -56% 0.75 7.99 90.61%

2009-10 150% 0.85 16.12 94.73%

2010-11 -39% 0.50 11.1 95.50%

2011-12 21% 0.60 14.65 95.90%

2012-13 17% 0.70 18.23 96.16%

28.32% 92.56%

Growth 0.2622

Future Div. 0.884

Expected Return 0.29

Ke-g 0.0278

Expected M.P 31.80

RANBAXYYear ROE Dividend EPS Retention Ratio

2006-07 -20.09% 8.5 9.87 13.88%

2007-08 28.35% 8.5 11.31 24.85%

2008-09 -62.85% 0 -27.29 0%

2009-10 166.33% 0 10.74 100.00%

2010-11 -6.43% 2 23.75 91.58%

2011-12 4.18% 0 -72.42 0%

2012-13 -4.40% 0 -3.85 0%

15.01% 32.90%

Growth 0.0494

Future Div. 0

Expected Return 0.10

Ke-g 0.0506

Expected Price 0

BETA

• Beta is a Sensitivity of an individual stock or portfolio’s return to the return

on the market index.

• Beta measures the SENSITIVITY of the stocks responsiveness to the market

factors.

• Beta measures how much a stock would rise or fall if market raises/falls

Beta(B)=Cov.( x, y)/ Var.x

Beta of Stocks(13 Jan-07 March)

SI.NO. STOCKS COV. VAR. BETA(B)

1 AMBUJACEM 1.27 0.72 1.76

2 CIPLA 0.42 0.72 0.58

3 HEROMOTOCO 0.37 0.72 0.51

4 KOTAKBANK 1.13 0.72 1.58

5 RANBAXY 1.51 0.72 2.11

Beta of Portfolio

SI. No. Stock Price Quantity Beta(B) Value Weightage WiBi

1 Ambujacem 162.00 4999 1.76 ₹ 8,09,838.00 0.16 0.29

2 Cipla 369.20 3000 0.58 ₹ 11,07,600.00 0.22 0.13

3 Heromotoco 1919.15 570 0.51 ₹ 10,93,915.50 0.22 0.11

4 Kotakbank 672.05 1905 1.58 ₹ 12,80,255.25 0.26 0.40

5 Ranbaxy 354.15 2000 2.11 ₹ 7,08,300.00 0.14 0.30

Total ₹ 49,99,908.75 1.23

Portfolio Beta(B) 1.23

EXPECTED RETURN

• The amount one would anticipate receiving on an investment that has various

known or expected rates of return.

• The expected return is a tool used to determine whether or not an investment

has a positive or negative average net outcome - it is not a hard and fast figure

of profit or loss.

• E(R)=Avg. of returns from stock

• E(Rp)=Ʃ Wi * E(Ri) Where W is weight of a security in portfolio

Expected Return(13 Jan- 07 March)

SI.NO. STOCKS E[R]

1 NIFTY 0.11%

2 AMBUJACEM 0.20%

3 CIPLA -0.13%

4 HEROMOTOCO -0.03%

5 KOTAKBANK -0.01%

6 RANBAXY -0.36%

Expected Return of Portfolio

SI.NO. STOCKS

1 AMBUJACEM

2 CIPLA

3 HEROMOTCOP

4 KOTAKBANK

5 RANBAXY

Expected Return of

Portfolio

E(R)(1 &2) 0.04

E(R)(1 &3) 0.09

E(R)(1 &4) 0.10

E(R)(1 &5) -0.08

E(R)(2 &3) -0.08

E(R)(2 &4) -0.07

E(R)(2 &5) -0.24

E(R)(3 &4) -0.02

E(R)(3 &5) -0.20

E(R)(4 &5) -0.18

Risk

• Risk refers to the possibility that the actual outcome of an investment will

differ from its expected outcomes.

• Most investors are concerned about the actual outcomes being less then the

expected outcome.

• The wider the range of possible outcomes, the greater the risk.

• Risk for individual stocks

σ=√Ʃ((Ri-E(R))^2)/(n-1)

• Risk for Portfolio(1 & 2)

σp=√((W1*σ1)^2) + ((W2*σ2)^2) + (2* W1*σ1* W2*σ2*ρ)

Where ρ= Correlation cofficent

Individual Risk

SI.NO. STOCKS RISK

1 AMBUJACEM 2.11%

2 CIPLA 1.73%

3 HEROMOTCOP 1.23%

4 KOTAKBANK 1.72%

5 RANBAXY 3.91%

Portfolio Risk

Co variance Coff. Of Correlation Risk of Portfolio

COV.(1 &2) 0.01 Coff. Of Corr.(1 &2) 31.94 Risk(1 & 2) 7.75%

COV.(1 &3) 0.01 Coff. Of Corr.(1 &3) 25.12 Risk(1 & 3) 5.83%

COV.(1 &4) 0.02 Coff. Of Corr.(1 &4) 51.26 Risk(1 & 4) 9.74%

COV.(1 &5) 0.03 Coff. Of Corr.(1 &5) 42.07 Risk(1 & 5) 13.36%

COV.(2 &3) 0.00 Coff. Of Corr.(2 &3) 20.93 Risk(2 & 3) 4.83%

COV.(2 &4) 0.01 Coff. Of Corr.(2 &4) 23.45 Risk(2 & 4) 6.03%

COV.(2 &5) 0.01 Coff. Of Corr.(2&5) 7.88 Risk(2 & 5) 5.59%

COV.(3 &4) 0.01 Coff. Of Corr.(3 &4) 40.28 Risk(3 & 4) 6.60%

COV.(3 &5) 0.01 Coff. Of Corr.(3 &5) 19.55 Risk(3 & 5) 7.15%

COV.(4 &5) 0.03 Coff. Of Corr.(4 &5) 42.87 Risk(4 & 5) 12.20%

SI.NO. STOCKS

1 AMBUJACEM

2 CIPLA

3 HEROMOTCOP

4 KOTAKBANK

5 RANBAXY

Portfolio Evaluation

Three Tools to calculate :

1. Sharpe Ratio= (E(R)-Rf)/σp

2. Treynor Ratio=(E(R)-Rf)/βp

3. Jenson’s Alpha= E(R)-RR

Portfolio Evaluation

Sharp Ratio Beta(B) Treynors Ratio Jensens Alpha

-0.29 24.75 -0.09 -1.86

0.45 14.64 0.18 -1.31

0.39 49.92 0.08 -3.06

-1.05 56.22 -0.25 -3.55

-2.85 10.10 -1.36 -1.24

-2.09 14.14 -0.89 -1.43

-5.46 4.40 -6.92 -1.12

-1.17 26.59 -0.29 -2.01

-3.58 13.98 -1.83 -1.56

-2.00 52.32 -0.47 -3.46

Technical Analysis

NIFTY

AMBUJA CEMENT

CIPLA

HERO MOTORS

KOTAK MAHINDRA BANK

RANBAXY

Company Analysis

Financial analysis of Ambuja Cement (FOR THE YEAR 2012-13)

1. Return on equity =1 %

2. Book Value per share = 57.24

3. Earnings per share = 8.43

4. Dividend payout ratio = 50 %

5. Dividend per share = 3.60

Company Analysis

Growth Performance

• CAGR of sales = (sales for 2008/sales for 2012)1/5 - 1

= (6220/9675)1/5-1

= -0.08

• CAGR of E.P.S = (E.P.S of 2008/E.P.S of 2012)1/5 -1

= (9.21/8.43)1/5-1

= 0.02

• CAGR of dividend = (D.P.S of 2008/ D.P.S of 2012)1/5-1

= (2.2/3.6)1/5-1

= -0.09

Sustainable growth Rate

• SGR = Retention ratio * Return on equity

= 0.50 * 0.01

=0.0050

=0.50%

LARNINGS & CONCLUSION

• This live project helped me to understand the following things:

• Different approaches of Evaluation of expected return and risk for each stock.

• Under this project, I got to know about portfolio management including the evaluation of portfolio with the objectiveof maximising returns and minimising risk.

• Diversification of investment in order to reduce the risk of loss by not putting all the eggs into one basket.

• Analysis of market condition and forecasting future changes.

• To know how to reduce the risk and get more return in the portfolio.

• Understanding the volatility of the stocks and their returns.

• To know the company credibility in the stock market.

• Calculate of deviation, correlation of the stocks.

• How technical analysis is done.

• Fundamental analysis of a company.

Conclusion:

• Live project had enabled to perform analysis and then to decide the best portfolio for investment to get higherreturn