A STUDY ON SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT AND INVESTMENT DECISION

At
India Infoline Ltd
Submitted in Partial fulfillment of the requirement for the award of Degree of
MASTER OF COMMERCE
BY

POCHENDER VAJROJ
Regd. No : (1176-09-408014)

DEPARTMENT OF COMMERCE

SAI SUDHER PG COLLAGE

(Affiliated to Osmania University)
Hyderabad
(2009

-2011)
1

ABSTRACT
Portfolio management is a process encompassing many
activities of investment is 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.
Six different companies are chosen for the studyWIPRO, ITC, DR.REDDY, ACC, BHEL, and HEROHONDA. The
companies chosen for the study are some of the top
performers in the securities market.

The study gives the returns offered by the companies of

various securities are compared and conclusions are brought
out which produces large and better portfolio combinations
for the investors.
It

is

evident

from

this

analysis

that

BHEL

and

HEROHONDA are providing good returns when compared to

other companies.

ACKNOWLEDGEMENT
At the outset, I wish to thank the Management of India Infoline for their kind
gesture of allowing me to undertake this project, and its various employees who lent their
helping hand towards the completion of this study.

The very high degree of informal co-operation received during my discussion on

the topic has been one of the greatest pleasures of working in the organization.
The co-operation I received from the wide cross-section of employees India Infoline of
makes it difficult to list out individuals for acknowledgement.

However, I particularly indebted to Mr. RAGHAVENDER for appraising me of

the situation with necessary background and helping me to complete this project.

It is with great pleasure that I express my gratitude to my Finance Faculty

Mrs. under whose guidance and advice this study has been carried out.
3

Finally I thank to my parents & friends for their continuous support and help in the
completion of my project work.

(POCHENDER
VAJROJ)

DECLARATION

hereby

declare

that

this

Project

Report

titled

PORTFOLIO

MANAGEMENT INVESTMENT DECISIONS at INDIA INFOLINE

submitted by me to the Department of Commerce and Accountancy, O.U., Hyderabad, is
a bonafide work undertaken by me and it is not submitted to any degree diploma /
certificate or published any time before.

(POCHENDER.

VAJROJ)

INDEX
CHAPTER--1.

INTRODUCTION

Page number

1.0

Company profile

1.1

Portfolio Management

14

1.2

Functions

20

1.3

Objectives

18

1.4

Types of Risk

24

1.5

Conceptual and Methodological Frame Work

39

1.6

Limitations of the study

39

CHAPTER2

REVIEW OF LITERATURE

CHAPTER3

ANALYSIS & INTERPRETATION

40
45

CHAPTER4

CONCLUSION

84

CHAPTER5

BIBLIOGRAPHY

88

CHAPTER -1
COMPANY PROFILE

COMPANY PROFILE
Circa 1995 A group of professional formed a company called Probity Research &
Services Pvt Ltd. The name was later changed to India Infoline Ltd. The Objective was to
provide unbiased and independent information to market intermediaries and investors.
The quality of research soon caught the imagination of all major participants in the
financial market. In a span of 2 to 3 years the client list read like the whos who of Indian
Financial market. The list included consulting firms like Mckinsey, companies like
Hindustan Lever, Banks like Citibank, Rating agencies like CRISIL, D&B, FIs, foreign
brokers as well as leading Indian brokers.
One fine morning in early 1999, a colleague had a crazy idea that if the company made
all the research available free on the web, the number of users may well jump from 250 to

2,5 million. To make it true, the business required a reincarnation. And the pre-requisite
was a death. It meant that the company put up all the information free on the website and
let go of all the revenues and profits. Worse, if the new avatar failed, there would be no
comebacks.
The company became heavily dependent on its e-broking business for survival. The odds
were against them. There was no money available from the private equity investors at any
valuation. The core promoters of the company had little experience of broking. To add to
it, the market was hit by a scam. They also had their share of price to pay and lessons to
learn. It was difficult to retain people. Although devastating for morale, but not
surprising, most market observers had written them off.

There was a core group who never lost hope. They cut all possible costs and worked on a
bare bones structure. They survived against all odds and started capturing market share.
The company rose from strength to strength to become the leading corporate agent in life
insurance and among the top retail players in mutual fund and broking space.

India Info line Ltd

India Info line Limited is listed on both the leading stock exchanges in India, viz. the
Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a
member of both the exchanges. It is engaged in the businesses of Equities broking,
Wealth Advisory Services and Portfolio Management Services. It offers broking services

in the Cash and Derivatives segments of the NSE as well as the Cash segment of the
BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a
one-stop solution for clients trading in the equities market. It has recently launched its
Investment banking and Institutional Broking business.

Our Key Milestones:

Incorporated on October 18, 1995 as Probity Research & Services.

 Launched Internet portal www.indianinfoline.com in May 1999.

Commenced distribution of personal financial products like Mutual Funds and RBI
Bonds in April 2000.
Launched online trading in shares and securities branded as www.5paisa.com in July
2000.
Started life insurance agency business in December 2000 as a Corporate Agent of
ICICI Prudential Life Insurance.
Became a depository participant of NSDL in September 2001.
Launched stock messaging service in May 2003.
Acquired commodities broking license in March 2004.
Launched portfolio management services in August 2004.
Listed on NSE and BSE on May 17, 2005.
Acquired 75% stake holding in Money tree Consultancy services, which is a
distributor of Mortgages and other Loan products, in October 2005.
Acquired 100% equity of Marchmont Capital Advisors Pvt Ltd in December 2005
through which we have ventured into Merchant Banking.
DSP Merrill Lynch Capital subscribed to convertible bonds aggregating Rs.80 crores
in December 2005. Their current stake in India Infoline is a little over 14 % as on 31st
March 2007.
Bennett Coleman & Co Ltd (BCCL) invested Rs.20 crores in India Infoline by way of
preferential allotment in December 2005.
Became a depository participant of CDSL in June 2006.
Merger of India Infoline Securities Private Limited with India Infoline Limited in
10

January 2007.
Entered into an alliance with Bank of Baroda for Baroda e-trading in February 2007.
IRDA license for Insurance Broking April 2007.

Our Management Team:

Mr. Nirmal Jain (Chairman and Managing Director)
Nirmal Jain is the founder and Chairman of India Infoline Ltd.
He holds an MBA degree from IIM Ahmedabad, and is a Chartered Accountant (All
India Rank 2) and a Cost Accountant.
Mr. R.Venkataraman (Executive Director)
R. Venkataraman is the co-promoter and Executive Director of India Infoline Ltd.

He holds a B.Tech degree in Electronics and Electrical Communications Engineering

from IIT Kharagpur and an MBA degree from IIM Bangalore.
He has held the position of Assistant Vice President with G E Capital Services India
Limited in their private equity division.

The Board of Directors

Mr. Sat Pal Khattar (Non Executive Director)
Mr. Sat Pal Khattar joined the Board with effect from April 20, 2001.
Mr. Sat Pal Khattar is a lawyer by profession.
He is a director of a number of public companies in Singapore and India.

11

Mr. Sanjiv Ahuja (Independent Director)

Mr. Sanjiv Ahuja joined the Board with effect from August 28, 2002.
Mr. Ahuja graduated from National University of Singapore with a degree in
Computer Science and is also a Certified Public Accountant.
He started his own investment advisory and consulting company in 2001, named
Centennial Management Consultants Private Limited.

Mr. Nilesh Vikamsey (Independent Director)

Mr. Nilesh Shivji Vikamsey joined the Board with effect from February 11, 2005.
Mr. Vikamsey qualified as a Chartered Accountant in 1985 and has been a member of
the Institute of Chartered Accountants of India since 1985.
Mr. Kranti Sinha (Independent Director)
Mr. Kranti Sinha joined the Board with effect from January 27, 2005.
Mr. Sinha graduated from the Agra University with a Masters degree.

12

 Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited, Larsen &
Turbo Limited & LICHFL Care Homes Limited.
Our Vision will not be accomplished only by maintaining high growth alone. Our vision
is to emerge as the most respected financial services company in India. Needless to
emphasize that it is imperative for all us to align our personal goals and values to this
vision.
Knowledge:
Always keep yourself up-to-date by reading newspapers like Economics Times,
Business standard and Business Line daily. Passing NCFM, AMFI, IRDA exams also
help you to get basic domain understanding.
We are in a knowledge industry and hence we cannot afford to go to a client and
appear ignorant and foolish by not even knowing basic things.

Technology:
By technology, we mean that as an organization, we leverage technology to deliver
best service to our clients at the least cost.
Our trading interface for broking is absolutely world class.
We expect our employees to be comfortable with and confident of using technology.

Service:

13

Our customer service is warm, friendly and responsive that media cannot help but
rave about. Today, service is the key driver for growth in financial services. We take
pride in our ability to add value that our customers can feel and appreciate.

Remember we have to always ensure that simple things like ensuring customer problems
are solved, requests are catered to, giving him investment ideas etc. Basically, whatever it
takes to keep him served.

PORTFOLIO MANAGEMENT
MEANING:
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.

14

 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.

PORTFOLIO MANAGER

means any person who pursuant to a contract or

arrangement with a client, advises or directs or undertakes on behalf of the client

(whether as a discretionary portfolio manager or otherwise) the management or
administration of a portfolio of securities or the funds of the client.
DISCRETIONARY PORTFOLIO MANAGER means a portfolio manager who
exercises or may, under a contract relating to portfolio management exercises any degree
of discretion as to the investments or management of the portfolio of securities or the
funds of the client.

FUNCTIONS OF PORTFOLIO MANAGEMENT:

To frame the investment strategy and select an investment mix to achieve the desired
investment objectives
To provide a balanced portfolio which not only can hedge against the inflation but can
also optimize returns with the associated degree of risk
To make timely buying and selling of securities

15

 To maximize the after-tax return by investing in various tax saving investment

instruments.

STRUCTURE

PROCESS

OF

TYPICAL

PORTFOLIO

MANAGEMENT
In 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 secu
rity analyst are separate.

RESEARCH
(e.g. Security
Analysis)

PORTFOLIO
MANAGERS

OPERATIONS
(e.g. buying and
selling of Securities)

CLIENTS

CHARACTERISTICS OF PORTFOLIO MANAGEMENT:

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

16

 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 chaff
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

TYPES OF PORTFOLIO MANAGEMENT:

1. DISCRETIONARY

PORTFOLIO

MANAGEMENT

SERVICE

(DPMS):
In this type of service, the client parts with his money in favor of the manager, who in
return, handles all the paper work, makes all the decisions and gives a good return on the
investment and charges fees. In the Discretionary Portfolio Management Service, to maximize
the yield, almost all portfolio managers park the funds in the money market securities such as
overnight market, 18 days treasury bills and 90 days commercial bills. Normally, the return of
such investment varies from 14 to 18 percent, depending on the call money rates prevailing at the
time of investment.

17

2. NON-DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE

(NDPMS):
The manager functions as a counselor, but the investor is free to accept or reject the
managers advice; the paper work is also undertaken by manager for a service charge. The
manager concentrates on stock market instruments with a portfolio tailor-made to the risk taking
ability of the investor.

18

IMPORTANCE OF PORTFOLIO MANAGEMENT:

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.
Professionalization of the field and increasing use of analytical methods (e.g. quantitative
techniques) in the investment decision making
Larger direct and indirect costs of errors or shortfalls in meeting portfolio objectives
increased competition and greater scrutiny by investors.

19

OBJECTIVES OF THE STUDY:

To study the investment pattern and its related risks & returns.
To find out optimal portfolio, which gave optimal return at a minimize risk to the investor
To see whether the portfolio risk is less than individual risk on whose basis the portfolios
are constituted
To see whether the selected portfolios is yielding a satisfactory and constant return to the
investor
To understand, analyze and select the best portfolio

STEPS IN PORTFOLIO MANAGEMENT:

Specification and qualification of investor objectives, constraints, and preferences in the

form of an investment policy statement.
Determination and qualification of capital market expectations for the economy, market
sectors, industries and individual securities.
Allocation of assets and determination of appropriate portfolio strategies for each asset
class and selection of individual securities.
Performance measurement and evaluation to ensure attainment of investor objectives.
Monitoring portfolio factors and responding to changes in investor objectives, constrains
and / or capital market expectations.
Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio
strategy and security selection.

20

CRITERIA FOR PORTFOLIO DECISIONS:

In portfolio management emphasis is put on identifying the collective importance of all
investors holdings. The emphasis shifts from individual assets selection to a more
balanced emphasis on diversification and risk-return interrelationships of individual
assets within the portfolio. Individual securities are important only to the extent they
affect the aggregate portfolio. In short, all decisions should focus on the impact which the
decision will have on the aggregate portfolio of all the assets held.
Portfolio strategy should be molded to the unique needs and characteristics of the
portfolios owner.
Diversification across securities will reduce a portfolios risk. If the risk and return are
lower than the desired level, leverages (borrowing) can be used to achieve the desired
level.
Larger portfolio returns come only with larger portfolio risk. The most important decision
to make is the amount of risk which is acceptable.
The risk associated with a security type depends on when the investment will be
liquidated. Risk is reduced by selecting securities with a payoff close to when the
portfolio is to be liquidated.
Competition for abnormal returns is extensive, so one has to be careful in evaluating the
risk and return from securities. Imbalances do not last long and one has to act fast to
profit from exceptional opportunities.

21

QUALITIES OF PORTFOLIO MANAGER:

1.

SOUND GENERAL KNOWLEDGE: Portfolio management is an exciting and

challenging job. He has to work in an extremely uncertain and confliction environment. In the
stock market every new piece of information affects the value of the securities of different
industries in a different way. He must be able to judge and predict the effects of the information
he gets. He must have sharp memory, alertness, fast intuition and self-confidence to arrive at
quick decisions.

ANALYTICAL ABILITY: He must have his own theory to arrive at the

2.

instrinsic value of the security.

An analysis of the securitys values, company, etc. is s

continuous job of the portfolio manager. A good analyst makes a good financial consultant. The
analyst can know the strengths, weaknesses, opportunities of the economy, industry and the
company.

3.

MARKETING SKILLS: He must be good salesman. He has to convince the

clients about the particular security. He has to compete with the stock brokers in the stock
market. In this context, the marketing skills help him a lot.

4.

EXPERIENCE: In the cyclical behaviour of the stock market history is often

repeated, therefore the experience of the different phases helps to make rational decisions. The
experience of the different types of securities, clients, market trends, etc., makes a perfect
professional manager.

22

PORTFOLIO BUILDING:
Portfolio decisions for an individual investor are influenced by a wide variety of factors.
Individuals differ greatly in their circumstances and therefore, a financial programme well suited
to one individual may be inappropriate for another. Ideally, an individuals portfolio should be
tailor-made to fit ones individual needs.

Investors Characteristics:
An analysis of an individuals investment situation requires a study of personal
characteristics such as age, health conditions, personal habits, family responsibilities, business or
professional situation, and tax status, all of which affect the investors willingness to assume risk.

Stage in the Life Cycle:

One of the most important factors affecting the individuals investment objective is his
stage in the life cycle. A young person may put greater emphasis on growth and lesser emphasis
on liquidity. He can afford to wait for realization of capital gains as his time horizon is large.

Family responsibilities:
The investors marital status and his responsibilities towards other members of the family can
have a large impact on his investment needs and goals.

Investors experience:
The success of portfolio depends upon the investors knowledge and experience in
financial matters. If an investor has an aptitude for financial affairs, he may wish to be more
aggressive in his investments.

23

Attitude towards Risk:

A persons psychological make-up and financial position dictate his ability to assume the
risk. Different kinds of securities have different kinds of risks. The higher the risk, the greater the
opportunity for higher gain or loss.

Liquidity Needs:
Liquidity needs vary considerably among individual investors. Investors with regular
income from other sources may not worry much about instantaneous liquidity, but individuals
who depend heavily upon investment for meeting their general or specific needs, must plan
portfolio to match their liquidity needs. Liquidity can be obtained in two ways:
1. By allocating an appropriate percentage of the portfolio to bank deposits, and
2. By requiring that bonds and equities purchased be highly marketable.

Tax considerations:
Since different individuals, depending upon their incomes, are subjected to different marginal
rates of taxes, tax considerations become most important factor in individuals portfolio strategy.
There are differing tax treatments for investment in various kinds of assets.

Time Horizon:
In investment planning, time horizon becomes an important consideration. It is highly
variable from individual to individual. Individuals in their young age have long time horizon for
planning, they can smooth out and absorb the ups and downs of risky combination. Individuals
who are old have smaller time horizon, they generally tend to avoid volatile portfolios.

24

Individuals Financial Objectives:

In the initial stages, the primary objective of an individual could be to accumulate wealth via
regular monthly savings and have an investment programme to achieve long term capital gains.

Safety of Principal:
The protection of the rupee value of the investment is of prime importance to most investors.
The original investment can be recovered only if the security can be readily sold in the market
without much loss of value.

Assurance of Income:
`Different investors have different current income needs. If an individual is dependent of its
investment income for current consumption then income received now in the form of dividend
and interest payments become primary objective.

Investment Risk:
All investment decisions revolve around the trade-off between risk and return. All
rational investors want a substantial return from their investment. An ability to understand,
measure and properly manage investment risk is fundamental to any intelligent investor or a
speculator. Frequently, the risk associated with security investment is ignored and only the
rewards are emphasized. An investor who does not fully appreciate the risks in security
investments will find it difficult to obtain continuing positive results.

RISK AND EXPECTED RETURN:

25

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.

26

TYPES OF RISKS:
Risk consists of two components. They are
1. Systematic Risk
2. Un-systematic Risk

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
a) Market Risk
b) Interest Rate Risk
c) Purchasing Power Risk

27

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

28

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. Unsystematic risk can be broadly classified into:
a) Business Risk
b) Financial Risk

a.

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 volatility 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 fulfillment 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.

b.

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.

29

PORTFOLIO ANALYSIS:
Various groups of securities when held together behave in a different manner and give
interest payments and dividends also, which are different to the analysis of individual securities.
A combination of securities held together will give a beneficial result if they are grouped in a
manner to secure higher return after taking into consideration the risk element.
There are two approaches in construction of the portfolio of securities. They are
Traditional approach
Modern approach

TRADITIONAL APPROACH:
Traditional approach was based on the fact that risk could be measured on each
individual security through the process of finding out the standard deviation and that security
should be chosen where the deviation was the lowest. Traditional approach believes that the
market is inefficient and the fundamental analyst can take advantage of the situation. Traditional
approach is a comprehensive financial plan for the individual.

It takes into account the

individual need such as housing, life insurance and pension plans. Traditional approach basically
deals with two major decisions. They are

a)

Determining the objectives of the portfolio

b)

Selection of securities to be included in the portfolio

30

MODERN APPROACH:
Modern approach theory was brought out by Markowitz and Sharpe. It is the combination
of securities to get the most efficient portfolio. Combination of securities can be made in many
ways. Markowitz developed the theory of diversification through scientific reasoning and
method. Modern portfolio theory believes in the maximization of return through a combination
of securities. The modern approach discusses the relationship between different securities and
then draws inter-relationships of risks between them. Markowitz gives more attention to the
process of selecting the portfolio. It does not deal with the individual needs.

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 an 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.

31

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 transition 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.

32

 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.

33

THE EFECT 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.

34

R =

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.
For example, if Satyam Industry share represents 15% of all risky assets, then the market
portfolio of the individual investor contains 15% of Satyam Industry shares. At this stage, the
investor has the ability to borrow or lend any amount of money at the risk less rate of interest.

E.g.: assume that borrowing and lending rate to be 12.5% and the return from the risky
assets to be 20%. There is a trade off between the expected return and risk. If an investor invests
in risk free assets and risky assets, his risk may be less than what he invests in the risky asset
alone. But if he borrows to invest in risky assets, his risk would increase more than he invests his
own money in the risky assets. When he borrows to invest, we call it financial leverage. If he
invests 50% in risk free assets and 50% in risky assets, his expected return of the portfolio would
be

35

Rp= Rf Xf+ Rm(1- Xf)

= (12.5 x 0.5) + 20 (1-0.5)
= 6.25 + 10
= 16.25%

if there is a zero investment in risk free asset and 100% in risky asset, the return is
Rp= Rf Xf+ Rm(1- Xf)
= 0 + 20%
= 20%

if -0.5 in risk free asset and 1.5 in risky asset, the return is
Rp= Rf Xf+ Rm(1- Xf)
= (12.5 x -0.5) + 20 (1.5)
= -6.25+ 30
= 23.75%

36

EVALUATION OF PORTFOLIO:
Portfolio 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 or who

37

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.

NEED & IMPORTANCE:

Portfolio management has emerged as a separate academic discipline in India. Portfolio
theory that deals with the rational investment decision-making process has now become an
integral part of financial literature.
Investing in securities such as shares, debentures & bonds is profitable well as exciting.
It is indeed rewarding but involves a great deal of risk & need artistic skill. Investing in financial
securities is now considered to be one of the most risky avenues of investment. It is rare to find
investors investing their entire savings in a single security. Instead, they tend to invest in a group
of securities. Such group of securities is called as PORTFOLIO. Creation of portfolio helps to
reduce risk without sacrificing returns.

Portfolio management deals with the analysis of

individual securities as well as with the theory & practice of optimally combining securities into
portfolios.

38

The modern theory is of the view that by diversification, risk can be reduced. The
investor can make diversification either by having a large number of shares of companies in
different regions, in different industries or those producing different types of product lines.
Modern theory believes in the perspective of combinations of securities under constraints of risk
and return.

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 behavior 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.

39

FORMULA PLANS:
The formula plans provide the basic rules and regulations for the purchase and sale of
securities. The amount to be spent on the different types of securities is fixed. The amount may
be fixed either in constant or variable ratio. This depends on the investors attitude towards risk
and return. The commonly used formula plans are
i.

Average Rupee Plan

ii.

Constant Rupee Plan

iii.

Constant Ratio Plan

iv.

Variable Ratio Plan

v.

ADVANTAGES:
Basic rules and regulations for the purchase and sale of securities are provided.
The rules and regulations are rigid and help to overcome human emotion.
The investor can earn higher profits by adopting the plans.
A course of action is formulated according to the investors objectives
It controls the buying and selling of securities by the investor.

DISADVANTAGES:
The formula plan does not help the selection of the security. The selection of the security
has to be done either on the basis of the fundamental or technical analysis.
It is strict and not flexible with the inherent problem of adjustment.
The formula plans should be applied for long periods, otherwise the transaction cost may
be high.
Even if the investor adopts the formula plan, he needs forecasting. Market forecasting
helps him to identify the best stocks.

40

METHODOLOGY AND FRAMEWORK

SCOPE OF STUDY:
This study covers the Markowitz model. 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.

DATA COLLECTION METHODS

The data collection methods include both the primary and secondary collection methods.
Primary collection methods:
This method includes the data collection from the personal discussion with the authorized clerks
and members of the exchange.
Secondary collection methods:
The secondary collection methods includes the lectures of the superintend of the department of
market operations and so on., also the data collected from the news, magazines of the ISE and
different books issues of this study

LIMITATIONS OF THE STUDY

1. Construction of Portfolio is restricted to two companies based on Markowitz model.
2. Very few and randomly selected scripts / companies are analyzed from BSE listings.
3. Data collection was strictly confined to secondary source. No primary data is
associated with the project.
4. Detailed study of the topic was not possible due to limited size of the project.
5. There was a constraint with regard to time allocation for the research study i.e. for a
period of two months.

41

CHAPTER-2
REVIEW OF LITARETURE

42

REVIEW OF LITERATURE

TOPIC 1 ; PORTFOLIO MANAGEMENT

1. OVERVIEW

The main purpose of studying is to examine

the policy adopted for decision making in
the area of Portfolio management in General
Insurance Company with a special focus on
Portfolio of NIACL.

2. SCOPE

In the presence study cover through

examination of procedures of decision
making portfolio management
environment, selection of securities
Weights of different securities and
Earning of Portfolio NIACL.

3. FINDINGS

The trend of Stock Exchange, securities in

India has shown increasing trend on an
Average the investments in such securities
increased by 183.47% yearly over the study
period. How ever the trend of investment in
stock exchange, securities both in India and
Outside India has shown investment incase
Is 184.77% per year over the study period.

43

TOPIC 2 : PORTFOLIO MANAGEMENT USING CAPM

1. OVERVIEW

: Portfolio analysis to measure this actual risk

And return of securities and to calculate the
Expected returns of securities using
Security market line to compare the expected
Return with actual return to assist investor in
Making rational investment decision to which
Security to buy or sell using security market
Line which is to suggested the best portfolio
Mix .

2. SCOPE

: The scope of the study is limited to this use of

Security market line as a tool of selecting
Security and advising the investors about the
Best portfolio mix.

3. FINDINGS

: There is a significant different between the

Expected returns and actual returns. The next
Step is to identify the securities which are under
Value when their expected returns is more than
Actual returns, it can be observed undervalued
Securities like Cipla, Dr. Reddy Labs, HDFC
Bank, Satyam etc., Satyam is linear since the
Weights (X) are the variables

44

INVESTMENT
Investment may be defined as an activity that commits funds in any financial form in the
present with an expectation of receiving additional return in the future. The expectations bring
with it a probability that the quantum of return may vary from a minimum to a maximum. This
possibility of variation in the actual return is known as investment risk. Thus every investment
involves a return and risk.
Investment is an activity that is undertaken by those who have savings. Savings can be
defined as the excess of income over expenditure. An investor earns/expects to earn additional
monetary value from the mode of investment that could be in the form of financial assets.

The three important characteristics of any financial asset are:

Return-the potential return possible from an asset.

Risk-the variability in returns of the asset form the chances of its value going down/up.

Liquidity-the ease with which an asset can be converted into cash.

Investors tend to look at these three characteristics while deciding on their individual

preference pattern of investments. Each financial asset will have a certain level of each of these
characteristics.

Investment avenues
There are a large number of investment avenues for savers in India. Some of them are
marketable and liquid, while others are non-marketable. Some of them are highly risky while
some others are almost risk less.
Investment avenues can be broadly categorized under the following head.

45

1. Corporate securities
2. Equity shares.
3. Preference shares.
4. Debentures/Bonds.
5. Derivatives.
6. Others.

Corporate Securities
Joint stock companies in the private sector issue corporate securities. These include
equity shares, preference shares, and debentures. Equity shares have variable dividend and hence
belong to the high risk-high return category; preference shares and debentures have fixed returns
with lower risk.The classification of corporate securities that can be chosen as investment
avenues can be depicted as shown below:

Equity
Shares

Preference
shares

Bonds

Warrants

46

Derivatives

CHAPTER-3
ANALYSIS AND INTERPRETATION

ANALYSIS & INTERPRETION

47

CALCULATION OF AVERAGE RETURN OF COMPANIES:

_
Average Return (R) = (R)/N
(P0) = Opening price of the share
(P1) = Closing price of the share
D = Dividend
WIPRO:
Year

2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(P0)
1,700.60
1,233.45
1,361.20
2012
1900.75

(P1)
1233.45
1361.20
2,012
1900.75
1900.45

D
1
29
5
5
8

(P1-P0)
-467.15
127.75
650.8
-111.25
-0.3

D+(P1-P0)/ P0*100
-27.41
12.71
48.16
-15.84
1.38

TOTAL RETURN

19

Average Return = 19/5 = 3.8

ITC LTD:

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(P0)
(P1)
696.70 628.25
628.25 1043.10
1043.10 1342.05
1342.05
2932
2932
2976

D
15
20
31.8
2.65
3.1

TOTAL RETURN
Average Return = 213.5/5 =42.702
dR REDDY LABORATORIES LTD:

48

(P1-P0)
-68.45
414.85
298.95
1589.95
44

D+(P1-P0)/
P0*100
-7.67
69.25
31.7
118.67
1.61
213.5

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(P0)
(P1)
1090.95
916.30
916.30
974.35
974.35
739.15
739.15 1,421.40
1,421.40 1456.55

D
5
5
5
5
3.75

(P1-P0)
-174.65
58.2
23.52
682.25
35.15

TOTAL RETURN

D+(P1-P0)/
P0*100
-15.55
6.89
-23.63
92.98
2.74
63.43

Average Return = 63.43/5 = 12.67

ACC:

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(P0)
153.40
138.50
254.65
360.55
782.20

(P1)
138.50
254.65
360.55
782.20
735.25

D
2.5
4
7
8
25

(P1-P0)
-14.19
116.15
105.9
421.61
-46.95

TOTAL RETURN

D+(P1-P0)/
P0*100
-8.08
86.71
44.34
119.19
-2.8
239.35

Average Return = 239.35/5 = 47.87

BHARAT HEAVY ELECTRICALS LTD:

Year
2007-2008
2008-2009
2009-2010
2010-2011

(P0)
169.00
223.15
604.35
766.40

(P1)
223.15
604.35
766.40
2241.95

D
4
9.5
8.5
10.5

49

(P1-P0)
54.15
38.12
162.05
1475.55

D+(P1-P0)/
P0*100
34.4
175.08
28.2
193.9

2011-2012

2241.95

2261.35

18.5

19.4

TOTAL RETURN

1.69
433.27

Average Return = 433.27/5 = 86.65

HEROHONDA AUTOMOBILES LIMITED:

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(P0)
338.55
188.20
490.60
548.00
890.45

(P1)
188.20
490.60
548.00
890.45
688.75

D
18
20
20
20
17

(P1-P0)
-150.35
302.40
57.40
342.45
-20.17

TOTAL RETURN

193.4

Average Return = 193.4/5 = 38.7

DIAGRAMATIC PRESENTATION
COMPANY

RETURN

WIPRO

3.8

ITC

42.7

DR.REDDY

12.6

ACC

47.8
86.5

BHEL
HEROHONDA

50

D+(P1-P0)/
P0*100
-39.08
171.3
15.77
66.14
-20.74

38.6

CALCULATION OF STANDARD DEVIATION:

Standard Deviation = Variance
__
Variance
=
1/n (R-R)2
WIPRO:

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

Return
Avg.
(R)
Return (R) (R-R)
-27.41
3.8 -31.214
12.71
3.8
16.51
48.16
3.8
51.96
-15.84
3.8 -19.64
1.38
3.8
-2.42

(R-R)2
974.06
272.58
2,649.84
385.72
5.85

TOTAL
4,288.05
_
Variance = 1/n (R-R)2 = 1/5 (4,288.05) = 857.61
Standard Deviation = Variance =

857.61

=29.28

(R-R)
50.37
26.5
-11
75.97
-41.09

(R-R)2
2,537
702.25
121
5,771.4
1,688.39

ITC LTD:

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

Return
Avg.
(R)
Return (R)
-7.67
42.702
69.25
42.702
31.7
42.702
118.67
42.702
1.61
42.702
TOTAL

10,820.04

Variance = 1/n (R-R)2 = 1/5 (10,820.04) = 2,164.008

Standard Deviation =

Variance =

51

2,164.008= 46.5

DR. REDDY:

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

Return
Avg.
(R)
Return (R)
-15.55
12.67
6.89
12.67
-23.63
12.67
92.98
12.67
2.74
12.67

(R-R)2
796.37
33.41
1,317.7
6,449.6
98.6

(R-R)
-28.22
-5.78
-36.3
80.31
-9.93

TOTAL

8,696

Variance = 1/n-1 (R-R)2 = 1/5 (8,696) = 1,739.2

Standard Deviation = Variance = 1,739.2= 41.7

ACC:

Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

Return
Avg.
(R)
Return (R)
-8.08
47.87
86.71
47.87
44.34
47.87
119.19
47.87
-2.8
47.87

(R-R)
-55.95
38.84
-3.53
71.32
-50.67

(R-R)2
3,130.4
1,508.5
12.46
5,086.5
2,567

TOTAL

12,305

Variance = 1/n-1 (R-R)2 = 1/5 (12,305) = 2,461

Standard Deviation = Variance = 2,461 = 49.61

52

BHEL:
Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

Return
Avg.
(R)
Return (R) (R-R)
34.4
86.65 -52.25
175.08
86.65
88.43
28.2
86.65 -58.454
193.9
86.65 107.25
1.69
86.65 -84.96
TOTAL

(R-R)2
2,730
7,820
3,416
11,502.5
7,218.2
32,687

Variance = 1/n-1 (R-R)2 = 1/5 (32,687) = 6537.4

Standard Deviation = Variance = 6537.4 = 80.85
HERO HONDA:
Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

Return
Avg.
(R)
Return (R)
-39.08
38.7
171.3
38.7
15.77
38.7
66.14
38.7
-20.74
38.7
TOTAL

(R-R)
-77.8
132.6
-22.93
27.44
-59.44

(R-R)2
6,053
17,583
525.8
752.95
3,533
28,448

Variance = 1/n-1 (R-R)2 = 1/5 (28,448) = 5689.6

Standard Deviation = Variance = 5689.6 = 75.4

53

DIAGRAMATIC PRESENTATION

COMPANY

RISK

WIPRO

29.28

ITC

46.5

DR.REDDY

41.7

ACC

49.61

BHEL

80.85

HEROHONDA

75.4

54

CALCULATION OF CORRELATION:
Covariance (COV ab) = 1/n (RA-RA)(RB-RB)
Correlation Coefficient = COV ab/a*b

WIPRO WITH OTHER COMPANIES

i. WIPRO (RA) & ITC (RB)

YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-31.21
16.51
51.96
-19.64
-2.42

(RB-RB)
(RA-RA) (RB-RB)
50.37
-1572
26.5
437.5
-11
-571.5
75.97
-1492
-41.09
99.44
TOTAL
-3099

Covariance (COV ab) = 1/5 (-3099) = -619.8

Correlation Coefficient = COV ab/a*b
a = 29.3 ; b = 46.52
= -619.8/(29.3)(46.52) = -0.45
ii) WIPRO (RA)&DR.REDDY (RB)

YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-31.21
16.51
51.96
-19.64
-2.42

(RB-RB)
(RA-RA) (RB-RB)
-28.22
881
-5.78
-95.43
-36.3
-1886
80.31
-1577.3
-9.93
24

TOTAL

-2654

Covariance (COV ab) = 1/5 (-2654) = -530.8

Correlation Coefficient = COV ab/a*b
a = 29.3 ; b = 41.7
55

= -530.8/(29.3)(41.7) = -0.43

iii. WIPRO (RA) & ACC (RB)

YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-31.21
16.51
51.96
-19.64
-2.42

(RB-RB)
(RA-RA) (RB-RB)
-55.95
1746
38.84
641
-3.53
-183
71.32
-1400
-50.67
122.6

TOTAL

926.6

Covariance (COV ab) = 1/5 (926.6) = 185.32

Correlation Coefficient = COV ab/a*b
a = 29.28 ; b = 49.61
= 185.32/(29.28)(49.61) = 0.13

iv. WIPRO (RA) & BHEL (RB)

YEAR

2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-31.21
16.51
51.96
-19.64
-2.42

(RB-RB)
52.25
88.43
-58.45
107.25
-84.96

TOTAL

(RA-RA) (RB-RB)
-1630
1460
-3037
-2106
205.6
-5107

56

Covariance (COV ab) = 1/5 (-5107) = -1021

Correlation Coefficient = COV ab/a*b
a = 29.3; b = 80.85
= -1021/(29.3)(80.85) = -0.43

v. WIPRO (RA) & HERO HONDA (RB)

YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-31.21
16.51
51.96
-19.64
-2.42

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

-77.8
2428
132.6
2189
-22.93
-1191
27.44
-539
-59.44
143.8

TOTAL

3031

Covariance (COV ab) = 1/5 (3031) = 606.2

Correlation Coefficient = COV ab/a*b
a = 29.3 ; b = 75.4
= 606.2/(29.3)(75.4) = 0.27

57

2. Correlation between ITC & other Companies:

i. ITC (RA) & DR REDDY (RB)
YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
50.37
26.5
-11
75.97
-41.09

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

-28022
-1421
-5.78
-153.17
-36.3
399.3
80.31
6101
-9.93
408

TOTAL
Covariance (COV ab) = 1/5 (5334) = 1066.8

5334

Correlation Coefficient = COV ab/a*b

a = 46.52; b =41.7
= 1066.8/(46.52)(41.7) = 0.55
ii. ITC (RA) &ACC (RB)

YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
50.37
26.5
-11
75.97
-41.09

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

-55.95
-2818
38.84
1029
-3.53
38.83
71.32
5418.19
-50.67
2082

TOTAL

5750

Covariance (COV ab) = 1/5 (5750) = 1150

Correlation Coefficient = COV ab/a*b
a = 46.52; b = 49.61
= 1150/(46.52)(49.61) = 0.5

58

iii. ITC (RA) &BHEL (RB)

YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
50.37
26.5
-11
75.97
-41.09

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

52.25
2632
88.43
2343
-58.45
643
107.25
8148
-84.96
3491

TOTAL

17257

Covariance (COV ab) = 1/5 (17257) = 3451.4

Correlation Coefficient = COV ab/a*b
a = 46.52 ; b = 80.85
= 3451.4/(46.52)(80.85) = 0.92
iv. ITC (RA) & HERO HONDA (RB)
YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
50.37
26.5
-11
75.97
-41.09

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

-72.8
-3667
132.6
3514
-22.93
252.23
27.44
2085
-59.44
2442

TOTAL

4626

Covariance (COV ab) = 1/5 (4626) = 925.2

Correlation Coefficient = COV ab/a*b
a = 46.52; b = 75.4
= 925.2/(46.25)(75.4) = 0.26

59

3. Correlation Between DR REDDY & Other

Companies
i. DR REDDY(RA) &ACC(RB)
YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-28.22
-5.78
-36.3
80.31
-9.93

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

-55.95
1579
38.84
-224.5
-3.53
128
71.32
5728
-50.67
503

TOTAL

7714

Covariance (COV ab) = 1/5 (7714) = 1543

Correlation Coefficient = COV ab/a*b
a = 41.7 ;b = 49.61
= 1543/(41.7)(49.61) = 0.75
ii. DR. REDDY (RA) & BHEL (RB)
YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-28.22
-5.78
-36.3
80.31
-9.93

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

52.25
-1474
88.43
-511.1
-58.45
2122
107.25
8613
-84.96
843.6

TOTAL

9593.5

Covariance (COV ab) = 1/5 (9593.5) = 1919

Correlation Coefficient = COV ab/a*b
a = 41.7 ; b =80.85
60

= 1919/(41.7)(80.85) = 0.6
iii. DR REDDY (RA) &HEROHONDA(RB)
YEAR
(RA-RA) (RB-RB) (RA-RA) (RB-RB)
YEAR
2007-2008(RA-RA)
-28.22 (RB-RB)
-77.8(RA-RA) (RB-RB)
2196
2007-2008
-55.95
52.25
-2923.4
2008-2009
-5.78
132.6
-766
2008-2009
38.84
88.43
3435
2009-2010
-36.3
-22.93
832.36
2009-2010
-3.53
-58.45
206.3
YEAR
2010-2011
80.31
27.44
2204
2010-2011
71.32
107.25
7649590
2011-2012(RA-RA)
-9.93 (RB-RB)
-59.44 (RA-RA) (RB-RB)
2007-2008
-55.95
52.25
-2923.4
2011-2012
-50.67
-84.96
4305
5056
2008-2009
38.84
88.43
3435
TOTAL
12,672
2009-2010 TOTAL
-3.53
-58.45
206.3
2010-2011
71.32
107.25
7649
2011-2012
-50.67
-84.96
4305
TOTAL
Covariance (COV ab) = 1/5 (5056) = 1011

12,672

Correlation Coefficient = COV ab/a*b

a = 41.7 ; b = 75.4
= 1011/(41.7)(75.4) = 0.32

4. Correlation With ACC & Other Companies

i. ACC (RA) & BHEL(RB)
Covariance (COV ab) = 1/5(12,672) = 2534

61

Covariance (COV ab) = 1/5(12,672) = 2534

Correlation Coefficient = COV ab/a*b
a = 49.61: b = 80.85
= 2534/(49.61)(80.85) = 0.63
ii. ACC(RA) & HERO HONDA(RB)

YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

(RA-RA)
-55.95
38.84
-3.53
71.32
-50.67

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

-77.8
4353
132.6
5150
-22.93
80.9
27.44
1957
-59.44
3012

TOTAL
Covariance (COV ab) = 1/5 (14553) = 2911
Correlation Coefficient = COV ab/a*b
a = 49.61; b = 75.4
=2911/(49.61)(75.4) = 0.78

62

14553

CORRELATION
HONDA
YEAR
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

BETWEEN

(RA-RA)
52.25
88.43
-58.45
107.25
-84.96

BHEL(RA)

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

-77.8
-4065.05
132.6
11726
-22.93
1340.25
27.44
2943
-59.44
5050

TOTAL

16,994.25

Covariance (COV ab) = 1/5 (16,994.25) = 3398.85

Correlation Coefficient = COV ab/a*b
a = 80.85; b = 75.4
= 3398.85/(80.85)(75.4) = 0.55

63

&HERO

CALCULATION OF PORTFOLIO WEIGHTS:

FORMULA
Wa =

b [b-(nab*a)]
a2 + b2 - 2nab*a*b

Wb = 1 Wa
WEIGHTS OF WIPRO & OTHER COMPANIES:
i.

WIPRO & ITC

a = 29.28
b = 46.52
nab = -0.45
Wa =
Wa =

46.52 [46.52-(-0.45*29.28)]
2 + 2 2(-0.45)**
2777
4247.3

Wa = 0.65
Wb = 1 Wa
Wb = 1- 0.65 = 0.35

i.

WIPRO & DR. REDDY

a = 29.28
b = 41.7
nab = 0.43
Wa =

41.7 [41.7-(0.43*)]
2 + 2 2(0.43)**

Wa =

1213.47
1546.19
Wa = 0.78
Wb = 1 Wa
Wb = 1- 0.78 = 0.22

64

ii.

WIPRO (a) & ACC (b)

a = 29.28
b = 49.61
nab = 0.13
Wa =

Wa =

49.61 [- (0.13*)]
2 + 2 2(0.13)**
2272.14
2940.6

Wa =0.77
Wb = 1 Wa
Wb = 1- 0.77 = 0.23

iii.

WIPRO (a) & BHEL (b)

a = 29.28
b = 80.85
nab = -0.43

Wa =

80.85 [80.85 - (-0.43*)]

+ 2 2(-0.43)**
2

Wa =

7554.6
9430

Wa = 0.8
Wb = 1 Wa
Wb = 1-0.8 =0.2

65

iv.

WIPRO(a) & HERO HONDA(b)

a = 29.28
b = 75.4
nab = 0.27

75.4 [75.4-(0.27*2)]
+ 2 2(0.27)**

Wa =

Wa =

5088.77
5350.46

Wa = 0.95
Wb = 1 Wa
Wb = 1-0.95 = 0.05

CALCULATION OF WEIGHTS OF ITC & OTHER COMPANIES:

i. ITC (a) & DR.REDDY(b)
a = 46.52
b = 41.7
nab = 0.55
Wa =

Wa =

41.7 [41.7-(0.55*46.52)]
2 + 2 2(0.55)**
671.79
1769.13

Wa = 0.38
Wb = 1 Wa
Wb = 1- 0.38 = 0.62

66

ii. ITC (a) & ACC (b)

a = 46.52
b = 49.61
nab = 0.5
Wa =

49.61 [49.61-(0.5*46.52)]
+ 2 2(0.5)**
2

Wa =

1307.2
2317.4

Wa = 0.56
Wb = 1 Wa
Wb = 1- 0.56 = 0.44

iii. ITC (a) & BHEL (b)

a = 46.52
b = 80.85
nab = 0.92
Wa =

80.85 [80.85 - (0.92*46.52)]

+ 2 2(0.92)**
2

Wa =

3076.74
1780.33

Wa =1.73
Wb = 1 Wa
Wb = 1- 1.73 = -0.73

iv. ITC(a) & HERO HONDA (b)

a = 46.52
b = 75.4

67

nab = 0.26
Wa =

Wa =

75.4 [75.4-(0.26*46.52)]
2 + 2 2(0.26)**

4772.82
6025.31

Wa = 0.79
Wb = 1 Wa
Wb = 1- 0.79 = 0.21

WEIGHTS OF DRREDDY & OTHER COMPANIES:

DRREDDY (a) & ACC (b)
a = 41.7
b = 49.61
nab = 0.75
Wa =

49.61 [49.61- (0.75*41.7)]

+ 2 2(0.75)**
2

Wa =

907.8
1094

Wa = 0.83
Wb = 1 Wa
Wb = 1- 0.83 = 0.17

DRREDDY (a) & BHEL (b)

a = 41.7
b = 80.85
nab = 0.6
Wa =

80.85 [80.85-(0.6*41.7)]

68

2 + 2 2(0.60)**
Wa =

4513.85
4230.26

Wa = 1.06
Wb = 1 Wa
Wb = 1- 1.06 = -0.06
v. DRREDDY (a) & HEROHONDA (b)
a = 41.7
b = 75.4
nab = 0.32
Wa =

75.4 [75.4-(0.32*41.7)]
+ 2 2(0.32)**
2

Wa =

4679
5412.16

Wa = 0.86
Wb = 1 Wa
Wb = 1-0.86 = 0.14

WEIGHTS OF ACC & OTHER COMPANIES

ACC(a) & BHEL (b)
a = 49.61
b = 80.85
nab = 0.63
Wa =

Wa =

80.85 [80.85-(0.63*49.61)]
2 + 2 2(0.63)**
4010.16
3944.08

Wa = 1.02

69

Wb = 1 Wa
Wb = 1- 1.02 = 0.02

ACC (a) & HEROHONDA (b)

a = 49.61
b = 75.4
nab = 0.78
Wa =

75.4 [75.4 - (0.78*49.61)]

+ 2 2(0.78)**
2

Wa =

2767.18
2310.98

Wa = 1.20
Wb = 1 Wa
Wb = 1- 1.20 = -0.20

WEIGHTS OF BHEL (a) & HEROHONDA(b)

a = 80.85
b = 75.4
nab = 0.55
Wa =

75.4 [75.4-(0.55*80.85)]
+ 2 2(0.55)**
2

Wa =

2332
5515.88

Wa =0.42
Wb = 1 Wa
Wb = 1-0.42 = 0.58

70

CALCULATION OF PORTFOLIO RISK:

RP

(a*Wa)2 + (b*Wb)2 + 2*a*b*Wa*Wb*nab

CALCULATION OF PORTFOLIO RISK OF WIPRO & OTHER

COMPANIES:
WIPRO (a) & ITC (b):
a = 29.28
b = 46.52
Wa = 0.65
Wb = 0.35
nab = -0.45
(29.28*0.65)2+ () 2+2*(46.52)*(0.65)*(0.35)*(-0.45)

RP =

348.3

= 18.66%

WIPRO (a) & DR.REDDY (b):

a = 29.28
b = 41.7
Wa = 0.78
Wb = 0.22
nab = 0.43

71

RP

(29.28*0.78)2+(41.7*0.22)2+2(29.28)**(0.22)*(0.43)

785.94

= 28%

WIPRO (a) &ACC (b):

a = 29.28
b = 49.61
Wa = 0.77
Wb = 0.23
nab = 0.13
RP

(29.28*0.77)2+(49.61*0.23)2+2(29.28)**(0.23)*(0.13)

705.37

= 26.55%

WIPRO (a) & BHEL (b):

a = 29.28
b = 80.85
Wb = 0.8
Wa = 0.2
nab = 0.43
RP =

(29.28*0.8)2+()2+2(29.28)**(0.2)*(0.43)
484.45

= 22%

WIPRO (a) & HERO HONDA (b):

a = 29.28
b = 80.85
Wa= 2/3
Wb=1/3
nab = 0.92
RP =

(2/3)2(49.57)2+(1/32(80.25)2+2(49.57)**(2/3)*(1/3)

72

4786

= 69.18

CALCULATION OF PORTFOLIO RISK OF ITC & OTHER

COMPANIES
ITC(a) &DR.REDDY(b):
a = 46.52
b = 41.7
Wa = 0.38
Wb = 0.62
nab = 0.55

RP =

(46.52*0.38)2+(41.7*0.62)2+2(46.52)**(0.62)*(0.55)

1483.67

= 38.52%

ITC (a) & ACC (b):

a = 46.52
b =49.61
Wa= 0.56
Wb= 0.44
nab = 0.5
RP =

(46.52*0.56)2+(49.61*0.44)2+2(46.52**(0.44)*(0.5)

1723.81 =41.52%
ITC (a) & BHEL (b):
a = 46.52
b = 80.85
Wa= 1.73
Wb= -0.73
nab = 0.92

73

RP =

(46.52*1.73)2+(80.85*-0.73)2+2(46.52)**(-0.73)*(0.92)

1220.49

= 34.94%

ITC (a) & HEROHONDA (b):

a = 46.52
b = 75.4
Wa= 0.79
Wb= 0.21
nab
= 0.26

RP =

(46.52*0.79)2+(75.4*0.21)2+2(46.52)**(0.21)*(0.26)

1903.93

= 43.63

74

CALCULATION OF PORTFOLIO RISK OF DR REDDY & OTHER

COMPANIES
DRREDDY (a) & ACC (b):
a = 41.7
b = 49.61
Wa = 0.83
Wb = 0.17
nab = 0.75
(41.7*0.83)2+(49.61*0.17)2+2(41.7)**(0.17)*(0.75)

RP =

1706.93

= 41.3%

DRREDDY (a) & BHEL (b):

a = 41.7
b = 80.85
Wa = 1.06
Wb = -0.06
nab = 0.43
RP =

(41.7*1.06)2+(80.85*-0.06)2+2(41.7)**(-0.06)*(0.43)

1672.97

= 40.95%

DRREDDY (a) & HERO HONDA (b):

a = 41.7
b = 75.4
Wa = 0.86
Wb = 0.14
nab = 0.32
75

(41.7*0.86)2+(75.4*0.14)2+2(41.7)**(0.14)*(0.32)

RP =

1639.69

= 40.49%

CALCULATION OF PORTFOLIO RISK OF ACC & OTHER

COMPANIES
ACC (a) & BHEL (b):
a = 49.61
b = 80.85
Wa = 1.02
Wb
= -0.02
nab = 0.63
RP =

(49.61*1.02)2+(80.85* -0.02)2+2(49.61)**( -0.02)*(0.63)

2460.09

= 49.6%

ACC(a) &HEROHONDA (b):

a = 49.61
b = 75.4
Wa= 1.2
Wb = -0.2
nab = 0.78
RP =

(49.61*1.2)2+(75.4* -0.2)2+2(49.61)**(-0.2)*(0.78)
2370.99 = 48.69%

CALCULATION OF PORTFOLIO RISK OF BHEL (a) & HERO

HONDA(b)
a = 80.85

76

b = 75.4
Wa =0.42
Wb =0.58
nab = 0.55
(80.85*0.42)2+(75.4*0.58)2+2(80.85)**(0.58)*(0.55)

RP =

4591.88

= 67.76%

CALCULATION OF PORTFOLIO RETURN:

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 WIPRO & OTHER
COMPANIES:
WIPRO (a) & ITC (b):
RA= 3.8

WA=0.65

RB=42.7

WB=0.35

Rp = (3.8*0.65) + (42.7*0.35)
Rp = (2.47+ 14.945)
Rp = 17.415%

WIPRO (a) & DR.REDDY (b):

RA= 3.8

WA=0.78

RB=12.67

WB=0.22

Rp = (3.8*0.78) + (12.67*0.22)
Rp = (2.964 + 2.787)
Rp = 5.75%

77

WIPRO (a) &ACC (b):

RA= 3.8

WA=0.77

RB= 42.87

WB=0.23

Rp = (3.8*0.77) + (42.87*0.23)
Rp = (2.926+9.86)
Rp = 12.78

WIPRO (a) & BHEL (b):

RA= 3.8

WA=0.80

RB= 86.5

WB=0.20

Rp = (3.8*0.80) + (86.65*0.20)
Rp = (3.04+17.13)
Rp = (20.17)

WIPRO (a) & HERO HONDA (b):

RA= 3.8

WA=0.95

RB= 38.7

WB=0.05

Rp = (3.8*0.95) + (38.7*0.05)
Rp = (3.61 + 1.935)
Rp = 5.5%

CALCULATION OF PORTFOLIO RETURN OF ITC & OTHER

COMPANIES
ITC(a) &DR.REDDY(b):
RA= 42.7

WA=0.38

RB= 12.67

WB=0.62

Rp = (42.7*0.38) + (12.67*0.62)
Rp = 16.22+7.85
Rp = 24%

ITC (a) & ACC (b):

78

RA= 42.7

WA=0.56

RB= 47.87

WB=0.44.

Rp = (42.7*0.56) + (47.87*0.44)
Rp = (23.9+21.03)
Rp = 45%

ITC (a) & BHEL (b):

RA= 42.7

WA=1.73

RB= 86.65

WB=-0.73

Rp = (42.7*1.73) + (86.65*-0.73)
Rp = (73.87-63.25)
Rp = 10.62%

ITC (a) & HEROHONDA (b):

RA= 42.7

WA=0.79

RB= 38.7

WB=0.21

Rp= (42.7*0.79) + (38.7*0.21)

Rp= (33.73+8.12)
Rp= 41.85%

CALCULATION OF PORTFOLIO RETURN OF DR REDDY &

OTHER COMPANIES
DRREDDY (a) & ACC (b):
RA= 12.67

WA=0.38

RB=47.87

WB=0.62

Rp = (12.67*0.38) + (47.87*0.62)
Rp = (10.51+8.14)
Rp = 18.65%

DRREDDY (a) & BHEL (b):

79

RA= 12.67

WA=1.06

RB=86.65

WB= -0.06

Rp 12.67*1.06 + 86.65*-0.06
Rp 13.43 5.2
Rp 8.23%

DRREDDY (a) & HERO HONDA (b):

RA= 12.67

WA=0.86

RB=38.7

WB=0.14

Rp (12.67*0.86) + (38.7*0.14)
Rp 10.9 + 5.4
Rp 16%

CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER

COMPANIES
ACC (a) & BHEL (b):
RA= 47.87

WA=1.02

RB=86.65

WB=-0.02

Rp = (47.87*1.02) + (86.65*-0.02)
Rp = (48.82 1.733)
Rp = 47.1%

ACC(a) &HEROHONDA (b):

RA= 47.87

WA=1.20

RB=38.7

WB=-0.20

Rp = (47.87*1.20) + (38.7*-0.20)
Rp = (57.444 7.74)
Rp = 49.7%

80

CALCULATION OF PORTFOLIO RETURN OF BHEL (a) & HERO

HONDA(b)
RA= 86.65

WA=0.42

RB=38.7

WB=0.58

Rp= (86.65*0.42) + (38.7*0.58)

=(36.41 + 22.44)
= 58.85

DISPLAY OF ALL CALCULATED VALUES

COMBINATION
WIPRO & ITC
WIPRO & DR.REDDY
WIPRO & ACC
WIPRO & BHEL
WIPRO &H.HONDA
ITC & DR.REDDY
ITC &ACC
ITC &BHEL
ITC &HEROHONDA
DR.REDDY & ACC
DR.REDDY & BHEL
DR.REDDY & H.HONDA
ACC & BHEL
ACC & H.HONDA
BHEL & H.HONDA

CORRELATION
-0.45
-0.43
0.13
-0.43
0.27
0.55
0.5
0.92
0.26
0.75
0.6
0.32
0.63
0.78
0.55

COVARIANCE
-619.8
-530.8
185.32
-1021
606.2
1066.8
1150
3451.4
925.2
1543
1919
1011
2534
2911
3398.85

81

PORTFOLIO
RETURN
17.4
5.75
12.78
20.17
5.5
24
45
10.62
41.85
18.65
8.23
16.3
47.1
49.7
58.85

PORTFOLIO
RISK
18.66
28
26.55
22
69.18
38.52
41.52
34.94
43.63
41.3
40.95
40.49
49.6
48.69
67.76

Interpretations
The analytical part of the study for the 5 years period reveals the following
interpretations,
wipro with itc:
In this combination as per the calculations and the study; the Wipro bears a portion of investment
of (0.65) and where as ITC bears a proportion of (0.35) which is less when compared to the
Wipro. The standard Deviation i.e., the risk is reduced to 17.4%.
From the Return point of view the ITC is giving more returns than Wipro; so the investors are
advised to invest more in ITC, so that they can earn more returns.
From the Risk point of view Wipro so less risky than ITC, so the investors who are willing to
face high risk the better option will be investing in the Wipro.

wipro with bhel:

In this situation the portfolio weights of the two companies are 0.80 in Wipro and 0.20 in BHEL.
The Standard deviation of Wipro is 29.28 and 80.85 for BHEL This combination is less risky
i.e., both the companies risk has come down to 22% and is providing an optimal return of
20.17% when compared to all the other options.

Wipro with herohonda:

82

The another combination for portfolio decision making is Wipro and Hero Honda. The Wipros
investment proportion is 0.95 and for Hero Honda is 0.05. And the standard Deviation for the
Wipro is 29.28 and 75.4 for Hero Honda. And the returns of them are (3.8) and (38.7). It is a
risky combination for the investors, because both the companies having more risk less return
with them.

Acc with bhel:

The portfolio weights suggest that more investments should be made in ACC than BHEL.
Portfolio weights for ACC and BHEL are 1.02 and -0.02 respectively. This indicates that the
investors who are interested to take more risks can invest in this combination and also they can
earn high returns.
Optimal investment decision from the investor point of view is that investing all his funds in
ACC, which will give him better returns with less risk.

Dr.reddy with herohonda:

The investor has another alternative bearing the investment proportion of Dr. Reddy and Hero
Honda. Which are having weights of (0.86) for Dr.Reddy and (0.14) for Hero Honda.
The Standard Deviation for both the companies is Dr.Reddy and Hero Honda having 41.7% and
75.4% respectively which has been reduced to 40.49%.
If the investor is ready to take the risk then he has to make more investments in Hero Honda to
get more returns up to (38.7%). which is than Dr.Reddy (12.67)

Dr.reddy with acc:

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According to this combination the portfolio weights are (0.83) in DR.Reddy and (0.17) in the
ACC. The Standard Deviation of ACC is more than the DR.Reddy i.e., 49.61>41.7;
If the investor wants to take low risk the Dr.Reddy is better option. And the return point of view
ACC is providing more returns than that of Dr.Reddy.
According to this combination if the investor wants to get returns then he has to take more risk.

Bhel and herohonda:

The portfolio combination of BHEL and Hero Honda gives the proportion of investment of 0.42
and 0.58 respectively. The returns for BHEL and Hero Honda are (86.65) and (38.7) respectively.
The Standard Deviation of BHEL is 80.85 and for Hero Honda is 75.4 this gives the indication
to the investors to invest more Funds BHEL.
Even if investor thinks the risk associated with Hero Honda is less but the return is very poor
when compared to BHEL (a slight difference in risk will lead more than double return of Hero
Honda)

Itc with acc:

Heres the another best alternative of portfolio combination for the investor is investing in the
companies ITC and ACC which are having the portfolio weights of (0.56) and (0.44)
respectively. The standared deviations of ITC and ACC are 46.5 and 49.61 respectively. And the
returns of (42.7) and (47.87) in ACC.
The risk associated with these companies has diversified and have been reduced to 41.5 and the
return is 45%.

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Greater Portfolio Return with less Risk is always is an

attractive combination for the Investors.

CHAPTER-4
Summary and conclusions

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SUMMARY & CONCLUSION

SUMMARY

The investors who ae risk averse can invest their funds in the portfolio
combination of WIPRO, ITC, DR.REDDY, ACC, BHEL, HEROHONDA
companies are in the proportion. The investors who are slightly risk averse are
suggested to invest in WIPRO, DR. REDDY, ITC & ACC as the combination is
slightly low risk when compared with other companies.

The analysis regarding the compaines BHEL, ACC, ITC AND

HEROHONDA has showed a wise investment in public and in private sector with
an increasing trend where as corporate sector has recorded a decreasing trends
income which denotes an increasing trend throught out the study period.

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CONCLUSIONS
The analytical part of study for the 5 years reveals the following as for as:

As far as the average return of the company is concerned ITC ACC

BHEL is high with an average return of 59% followed by WIPRO
DR.REDDY HEROHONDA securities are performing at medium
returns.

As far at the Standard Deviation is concerned with BHEL is at highly

risk security and next high securities is HERO HONDA and ITC,
DR.REDDY and ACC are performing with moderate risk and other
securities are performing with low risk.

As far as the correlation is concerned the securities WIPRO and

DR.REDDY are high correlated with minimum portfolio risk. The
investor who is risk averse will have to invest in this combination
which gives good return with low risk.

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RECOMMENDATIONS
As the average return of securities BHEL ACC and HEROHONDAIS
HIGH, it is suggested that investors who show interest in these
securities taking risk into consideration.
As the risk of the securities ACC BHEL HEROHONDA are risky
securities it suggested that the investors should be careful while
investing in these securities.
The investors who require minimum return with low risk should
invest in WIPRO & DR.REDDY.
It is recommended that the investors who require high risk with high
return should invest in BHEL and HEROHONDA.
The investors are benefited by investing in selected scripts of
Industries.

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CHAPTER-5
BIBILOGRAPHY

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BIBILOGRAPHY

1.SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

-donald.E.Fisher,Ronald.J.Jordan
2.INVESTMENTS
-William .F.Sharpe,gordon,J Allexander and
Jeffery.V.Baily
3.PORTFOLIOMANAGEMENT
-Strong R.A

WEB REFERENCES
http;//www.nseindia.com
http;//www.bseindia.com
http;//www.economictimes.com
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http;//www.answers.com

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