2010

Portfolio Development
Live Project BANKING Sector
Disclaimer: The report is based on the stocks from 3 sectors viz. Banking , Information Technology and Pharmaceutical from the publically available data and cannot be taken as the guide for investment related decision making as it is purely for fulfillment of academic submission for INVESTMENT MANAGEMENT Course.

Kunal Jain Richa Agarwal Ritu Prakash Rochit Rajyavanshi Rahul Raghavan

2009161 2009193 2009194 2009195 2009205

INSTITUTE OF MANAGEMENT TECHNOLOGY 9/8/2010

1. F

UNDAMENTAL ANALYSIS

I. ECONOMIC ANALYSIS
The Indian economy grew by 7.4 per cent (FY10). At the end of 2009, the Indian economy was growing at 7% a year. The strongest growth was coming from the manufacturing and construction sector (with growth of 9% a year). The weakest section of the economy was agriculture which showed growth of just 0.9% The strong rate of economic growth boosts prospects for the Indian Rupee in 2010. With such a high rate of growth, interest rates are likely to be higher in India than elsewhere. It could make India an attractive place for depositing money. The drawback of such a rapid economic expansion is a rise in inflation and prospects of more inflation in 2010. In the middle of 2009, the official inflation rate was briefly negative, but this was due to prices being much higher the previous year. More worrying has been the food price inflation, which has touched 15%. This food price inflation hits the poorest the hardest and threatens to widen the gulf of inequality that exists in India. A) Inflation rate: The inflation rate in India was 13.73 percent in June of 2010. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.

B. Interest Rate: The benchmark interest rate in India stands at 4.50 percent. In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors. The official interest rate is the benchmark repurchase rate. ,, From 2000 until 2010, India's reference interest rate averaged 5.82 percent reaching an historical high of 14.50 percent in August of 2000 and a record low of 3.25 percent in April of 2009.

C. Foreign Exchange Rate: The Indian Rupee exchange rate (USDINR) depreciated 2.81 percent during the last 12 months. From 1973 until 2010 the USDINR exchange averaged 29.45 reaching an historical high of 51.97 in March of 2009 and a record low of 7.19 in March of 1973. The Indian Rupee spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the INR. While the Indian Rupee spot exchange rate is quoted and exchanged in the same day, the Indian Rupee forward rate is quoted today but for delivery and payment on a specific future date.

D. GDP Growth Rate: India Gross Domestic Product (GDP) expanded 8.80% in the second quarter of 2010 from a year earlier. The India Gross Domestic Product is worth 1217 billion dollars or 1.96% of the world economy, according to the World Bank. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points.

Exchange Rates

Indian rupees (INR) per US dollar - 48.766 (2009), 43.319 (2008), 41.487 (2007), 45.3 (2006), 44.101 (2005)

GDP (PPP) GDP (Real Growth Rate) GDP (per capita PPP)

$3.548 trillion (2009 EST.) 6.1% (2009 EST.) $3,100 (2009 EST.)

Monetary Policy: The current highlights of the monetary policy stands as following: The Bank Rate has been retained at 6.0 per cent. It has been decided to increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.5 per cent to 5.75 per cent with immediate effect. It has been decided to increase the reverse repo rate under the LAF by 50 basis points from 4.0 per cent to 4.50 per cent with immediate effect.

The cash reserve ratio (CRR) of scheduled banks has been retained at 6.0 per cent of their net demand and time liabilities (NDTL).

Monetary policy actions are expected to: Moderate inflation by reining in demand pressures and inflationary expectations. Maintain financial conditions conducive to sustaining growth. Generate liquidity conditions consistent with more effective transmission of policy actions. Reduce the volatility of short-term rates in a narrower corridor.

Thus, Indian monetary policy looks pretty much favourable for investors and as such, does not affect any sort of investment in any manner.

II. INDUSTRY ANALYSIS

A. BANKING
The main distinction between the banking industry and other industries is that there is a high involved of government which has a major impact on their daily operations. This industry has also become a very competitive industry with the number of players increasing everyday and still the demand for their services is far from over. The industry is in the growth stage of its business cycle. The various challenges are as follows: Technology up gradations Non Performing Assets Risk management Government and RBI policies Skilled manpower

Porters Five force model: Threat of New Entrants: Starting a bank is not an easy task but there are services, such as internet bill payment, on which entrepreneurs can capitalize. Banks are fearful of being squeezed out of the payments business, because it is a good source of fee-based revenue. Another trend that poses a threat is companies offering other financial services. Also, when analyzing a regional bank, the possibility of a mega bank entering into the market poses a real threat. Power of Suppliers. The suppliers of capital might not pose a big threat, but the threat of suppliers luring away human capital does. If a talented individual is working in a smaller regional bank, there is the chance that person will be enticed away by bigger banks, investment firms, etc and thus, human resource needs to be nurtured and protected. Power of Buyers. The individual does not pose much of a threat to the banking industry because one major factor affecting the power of buyers is relatively high switching costs. If a person has a car loan, credit card, checking account and mutual funds with one particular bank, it can be extremely tough for that person to switch to another bank. In an attempt to lure in customers, banks try to lower the price of switching, but many people would still rather stick with their current bank. On the other hand, large corporate clients have banks wrapped around their little fingers. Financial institutions - by offering better exchange rates, more services, and exposure to foreign capital markets - work extremely hard to get high-margin corporate clients.

Availability of Substitutes: There are plenty of substitutes in the banking industry. Banks offer a suite of services over and above taking deposits and lending money, but whether it is insurance, mutual funds or fixed income securities, chances are there is a non-banking financial services company that can offer similar services. On the lending side of the business, banks are seeing competition rise from unconventional companies. Sony, Maruti, Bajaj and Microsoft, all offer preferred financing to customers who buy big ticket items. If car companies are offering 0% financing.

Competitive Rivalry. The banking industry is highly competitive. The financial services industry has been around for hundreds of years and just about everyone who needs banking services already has them. Because of this, banks must attempt to lure clients away from competitor banks. They do this by offering lower financing, preferred rates and investment services. The banking sector is in a race to see who can offer both the best and fastest services, but this also causes banks to experience a lower ROA. They then have an incentive to take on high-risk projects. In the long run, we're likely to see more consolidation in the banking industry. Larger banks would prefer to take over or merge with another bank rather than spend the money to market and advertise to people.

B. PHARMACEUTICALS

The Indian Pharmaceutical Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of pharmaceutical formulations. India has emerged a prominent supplier of high quality generic drugs globally. This success can be attributed to the recognition of process patents over the last three decades, which played a pivotal role in the development of the country's reverse engineering and chemical synthesis skills. The strategic alliance between Innovators and Indian drug makers well signifies this success.

SWOT analysis of Pharma Industry:Strengths Low cost of production. Large pool of installed capacities Efficient technologies for large number of Generics. Large pool of skilled technical manpower. Increasing policies. liberalization of government Opportunities: Aging of the world population. Growing incomes. Growing attention for health. New diagnoses and new social diseases. Spreading prophylactic approaches. Saturation point of market is far away. New therapy approaches. New delivery systems. Spreading attitude for soft medication (OTC drugs). Spreading use of Generic Drugs. Globalization Easier international trading. New markets are opening

Weaknesses: Fragmentation of installed capacities. Non-availability of major intermediaries for bulk drugs. Lack of experience to exploit efficiently the new patent regime. Low share of India in World of but

Threats: Containment of rising health-care cost. High Cost of discovering new products and fewer discoveries. Stricter registration procedures. High entry cost in newer markets. High cost of sales and marketing. Competition, particularly from generic products. More potential new drugs and more efficient therapies. Switching over form process patent to product patent

Pharmaceutical world

Production production

(1.2%

having 16.1% of worlds population). Very low level of Biotechnology in India and also for New Drug Discovery Systems.

Pharma sector growth vis vis economic growth India is the world's fourth largest Pharmaceutical market in terms of volume and thirteenth in terms of value. The Indian Domestic Formulation industry registered a CAGR of 14% during FY2003-08 from around US $3.9bn in FY2003 to US $7.7bn in FY2008 outpacing the Global Pharma Industry growth rate of 7%. Going ahead, the Indian Domestic Formulation market is expected to register robust CAGR of 12.2% over FY2008-13E to US $13.7bn. By CY2015, India is expected to rank among the Top-10 global Pharmaceutical markets. The domestic Pharma industry has been typically growing at around 1.5-1.6x the country's GDP growth. The Indian economy is expected to continue to outperform several developed and emerging economies, and the domestic drug market is expected to continue growing at double-digits and outperform several other key Pharma markets.

This growth is expected to be driven by socio-economic factors such as rising income levels, increasing affordability, gradual penetration of health insurance and organised retail chains, increasing healthcare awareness in rural markets, increased willingness to pay for treatment in rural areas and rising prevalence of Chronic and Lifestyle diseases. Key Challenges Slowdown in product approvals: Over the last few quarters there has been a slowdown in the approvals by the US FDA / EMEA. One commonly cited reason is that the US FDA office is overburdened and is facing a shortage of manpower. It is also believed that the US FDA / EMEA, already considered to be amongst the toughest regulatory agencies globally, have become more stringent over quality and manufacturing standards. Economic meltdown: The Indian companies are also being adversely hit by the tight liquidity conditions, greater risks of realization of receivables and overall reduction in demand due to a lower inventory turnover ratio.

C. INFORMATION TECHNOLOGY
The Indian Information Technology industry accounts for a 5.9% of the country's GDP and export earnings as of 2009, while providing employment to a significant number of its tertiary sector workforce. More than 2.3 million people are employed in the sector either directly or indirectly, making it one of the biggest job creators in India and a mainstay of the national economy. According to the annual report 2009-10, prepared by the Department of Information Technology (DIT), the IT-BPO industry is expected to garner a revenue aggregate of US$ 73.1 billion in 2009-10 as compared to US$ 69.4 billion in 2008-09, growing at a rate of over 5 per cent. The report predicts that the Indian ITBPO revenues may reach US$ 225 billion in 2020. According to DIT, the Indian software and services exports is expected to reach US$ 49.7 billion in 2009-10 as compared to US$ 47.1 billion in 2008-09, registering an increase of 5.5 per cent in dollar terms. Further, the IT services exports is estimated to grow from US$ 25.8 billion in 2008-09 to US$ 27.3 billion in 2009-10, showing a growth of 5.8 per cent. India is a preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is a financially attractive location when viewed in combination with the business environment it offers and the availability of skilled people. Some big deals in the outsourcing space include:

Wipro Ltd, an IT services company, has entered into a strategic collaboration with Hitachi Data Systems, to offer co-branded products and services on Hitachi Technology in India. Software company, Tata Consultancy Services (TCS) has won a multi-year outsourcing contract from Norway-based telecom company, Telenor Norway to provide application maintenance and development services.

HCL Technologies has entered into a five-year IT infrastructure outsourcing deal with Singapore Exchange (SGX) for US$ 110 million. The company has also won a US$ 500 million strategic IT outsourcing contract from US-based drug manufacturer, Merck Sharp and Dohme (MSD).

Computer services firm, Mahindra Satyam has signed a four-year offshore contract with Denmark-based IT company, KMD for US$ 48 million. Software exporter Patni Computer Systems won a five-year IT and back-office contract potentially worth around US$ 200 million from US-based health insurance provider Universal American.

The market for enterprise networking equipment in India is estimated to grow from US$ 1 billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rate (CAGR) of 15 per cent during this period, according to a study by Springboard Research titled Epicenter of GrowthIndian Enterprise Networking Equipment Market Report' released in December 2009.

Government has also taken several Initiatives to develop IT Sector. Some of them are:

The government has constituted the Technical Advisory Group for Unique Projects (TAGUP) under the chairmanship of Nandan Nilekani. The Group would develop IT infrastructure in five key areas, which includes the New Pension System (NPS) and the Goods and Services Tax (GST)

The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion of software exports from the country, there are currently 51 STPI centres where apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. But the most important incentive available is 100 per cent exemption from Income Tax of export profits, which has been extended till 31st March 2011.

Government is also setting up Information Technology Investment Regions (ITIRs). These regions would be endowed with excellent infrastructure and would reap the benefits of co-siting, networking and greater efficiency through use of common infrastructure and support services

Moreover, according to NASSCOM government, IT spend was US$ 3.2 billion in 2009 and is expected to reach US$ 5.4 billion by 2011. Further, according to NASSCOM, there is US$ 9 billion business opportunity in e-governance in India. The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise.

SWOT of IT Industry: Strengths: Highly skilled human resource Low wage structure Quality of work Initiatives (setting taken by the Government Parks and Opportunities: High quality IT education market

Increasing number of working age people India 's well developed software

infrastructure Upcoming International Players in the market Rapid proliferation of the Internet in the domestic and global markets Shift in the global markets from legacy systems to more of web-based systems Indian governments thrust towards

upHi-Tech

implementation of e- governance projects) Many global players have set-up operations in India like Microsoft, Oracle, Adobe, etc. English-speaking professionals Cost competitiveness Quality telecommunications infrastructure Indian time zone (24 x 7 services to the global customers). Time difference

increased computerization of offices, banks etc. IT enabled services in the country and across the globe is forecasted to explode Instant development of world software industry

between India-America is approximately 12 hours, which is beneficial for

outsourcing of work. Flexibility, adaptability and reliability in operations Experience in working on large projects

Weaknesses: Inadequate marketing skills Less Research and Development Contribution of IT sector to Indias GDP is still rather small. Employee salaries in IT sector are

Threats: Instability of political environments Lack of data security systems

Countries like China and Philippines with qualified workforce making efforts to overcome the English language barrier IT development concentrated in a few cities only.

increasing tremendously. It means low wages benefits will soon come to an end. Depending on software outsourcing and less domestic demand Weakness of hardware industry

III. COMPANY ANALYSIS

A. BANKING
State Bank of India State Bank of India is the largest state-owned banking and financial services company in India, by almost every parameter - revenues, profits, assets, market capitalization, etc. SBI provides a range of banking products through its vast network of branches in India and overseas, including products aimed at NRIs. The State Bank Group, with over 16,000 branches, has the largest banking branch network in India. With an asset base of $352 billion and $285 billion in deposits, it is a regional banking behemoth. It has a market share among Indian commercial banks of about 20% in deposits and advances, and SBI accounts for almost one-fifth of the nation's loans. CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%) 2859.10 20.32 06/08/10 140.65 Mar 2010 70,993.92 Mar 2010 10 1038.60 10.66 Mar 2010

SBI Net Profit % Dividend Payout Ratio

2006 10.21 19.06

2007 9.68 18.98

2008 11.53 22.64

2009 11.93 22.9

2010 10.66 23.36

Thus, on the basis of the information given, we can conclude the following: The company is financially going very well. The profit percentage has remained stable which implies that the operations of the company are efficient and effective. Promoters holding in the firm is very high at around 59.41% and exposure to foreign holdings is very low at around 14.88% which ensures stability of prices.

ICICI Bank ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is a major banking and financial services organization in India. It is the second largest bank in India and the largest private sector bank in India by market capitalization. The bank also has a network of 2,016 branches (as on 31 March 2010) and about 5,219 ATMs in India and presence in 18 countries, as well as some 24 million customers (at the end of July 2007). ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and specialization subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. ICICI Bank's shares are listed on the stock exchanges at BSE, NSE, Kolkata and Vadodara; its ADRs trade on the New York Stock Exchange (NYSE). CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%) 1037.7 29.96 06/08/10 34.63 Mar 2010 25,706.93 Mar 2010 10 450.20 20.71 Mar 2010

ICICI Net Profit % Dividend Payout Ratio

2006 14.50 34.08

2007 11.36 33.89

2008 13.00 33.12

2009 15.80 36.6

2010 20.71 37.31

Thus, on the basis of the information given, we can conclude the following: The company is financially going well with some variability. Exposure to foreign holdings is very high at around 67.6% which bring the price stability under speculation.

HDFC Bank Ltd Housing Development Finance Corporation Limited or HDFC (BSE: 500010), founded 1977 by Ravi Maurya and Hasmukhbhai Parekh, is an Indian NBFC, focusing on home mortgages. HDFC's distribution network spans 243 outlets that include 49 offices of HDFC's distribution company, HDFC Sales Private Limited. In addition, HDFC covers over 90 locations through its outreach programmes. HDFC's marketing efforts continue to be concentrated on developing a stronger distribution network. Home loans are also Sharked through HDFC Sales, HDFC Bank Limited and other third party Direct Selling Agents (DSA). CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%) 2205.75 35.33 06/08/10 62.43 Mar 2010 16,172.90 Mar 2010 10 466.70 19.68 Mar 2010

HDFC Net Profit % Dividend Payout Ratio

2006 30.20 22.55

2007 33.78 22.91

2008 28.59 22.16

2009 24.33 22.16

2010 32.08 21.72

Thus, on the basis of the information given, we can conclude the following: The company has seen some major fluctuations in their performance. Dividend payout ratio has remained almost constant, thus, it states about the performance and increasing returns to the shareholders. Promoters holding in the firm stands at around 23.93% and foreign holdings are at 46.46%.

B. PHARMACEUTICALS
Biocon Ltd Biocon is a leading biotechnology enterprise in India. Established in 1978, the company today is an integrated biotechnology enterprise focused on the development of biopharmaceuticals. The company serves partners and customers in over 50 countries. Within the biotechnology space, the company ranks first in Asia in terms of revenues and market capitalisation and sixteenth globally. The company is headed by Kiran Mazumdar-Shaw. Biocon went for an IPO in 2004. Biocon became only the second Indian company to cross a market capitalisation of one billion U.S. $ on the first day of listing. Mazumdar-Shaw and her husband John Shaw own over 60% of the company's stock. CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%) 343.4 10.14 06/08/10 12.05 Mar 2010 1,193.11 Mar 2010 5 78.30 19.68 Mar 2010

Biocon Net Profit % Dividend Payout Ratio

2006 18.58 21.35

2007 17.66 22.16

2008 34.64 13.45

2009 12.21 62.78

2010 19.68 31.17

Thus, on the basis of the information given, we can conclude the following: The company has seen some major fluctuations in their performance but still play a pivotal role in the pharmaceutical industry which has remained very stable. Although the dividend payout ratio is decreasing but the dividend has increased in the absolute basis. Promoters holding in the firm is very high at around 60.92%.

GlaxoSmithkline Pharma Ltd GlaxoSmithKline is a global pharmaceutical, biologics, vaccines and consumer healthcare company headquartered in London, United Kingdom. It is the world's third largest pharmaceutical company measured by revenues (after Johnson & Johnson and Pfizer). It has a portfolio of products for major disease areas including asthma, cancer, virus control, infections, mental health, diabetes and digestive conditions. It also has a large consumer healthcare division which produces and markets oral healthcare products, nutritional drinks and over-the-counter medicines, including Sensodyne, Horlicks and Gaviscon.

CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%)

1917.65 34.40 06/08/10 55.74 Mar 2010 1,912.77 Mar 2010 10 207.70 25.51 Mar 2010

Glaxo Net Profit % Dividend Payout Ratio

2006 28.92 53.86

2007 30.00 54.88

2008 29.82 66.35

2009 30.43 68.75

2010 25.51 57.43

Thus, on the basis of the information given, we can conclude the following: With a large global presence, company is enjoying a god market share. Dividend payout ratio is very high, thus, shareholders are enjoying high returns from this stock. Promoters holding in the firm is very high at around 50.67%.

Sun Pharmaceutical Industries Ltd Sun Pharmaceutical (or Sun Pharmaceutical Industries Limited) is an international pharmaceutical company based in Mumbai, India. It makes many generic and brand name drugs that are distributed in the United States, Europe, Asia and worldwide. Sun manufactures both pharmaceuticals and active pharmaceutical ingredients (API), in essence, ingredients to be used in finished pharmaceutical products. Its products are in several therapeutic areas, including psychiatry, neurology, cardiology, diabetology, gastroenterology, respiratory, and orthopaedics.

CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%)

1732.35 42.15 06/08/10 41.10 Mar 2010 2,568.82 Mar 2010 5 276.10 33.56 Mar 2010

Sun Pharma Net Profit % Dividend Payout Ratio

2006 24.61 25.29

2007 25.63 23.57

2008 30.72 25.11

2009 31.05 26.33

2010 33.56 36.95

Thus, on the basis of the information given, we can conclude the following: The company is consistently increasing their profit percentage. Dividend payout ratio is very high but in the FY 2010 their overall sales had dropped but still they keep the dividend same as the previous year. Promoters holding in the firm is very high at around 63.72%.

C. INFORMATION TECHNOLOGY
Infosys Technologies Ltd Infosys is an information technology Services Company headquartered in Bangalore, India. Infosys is one of the largest IT companies in India with 114,822 employees (including subsidiaries) as of 2010. It has offices in 30 countries and development centres in India, China, Australia, UK, Canada and Japan. CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%) 2831.5 29.21 06/08/10 96.92 Mar 2010 21,140.00 Mar 2010 5 384.00 26.26 Mar 2010

Infosys Net Profit % Dividend Payout Ratio

2006 26.40 58.32

2007 27.96 19.85

2008 27.37 49.77

2009 28.02 27.03

2010 26.26 28.84

Thus, on the basis of the information given, we can conclude the following: The company is consistently increasing their profit percentage. Dividend payout ratio is inconsistent, but, the capital gains are substantial for this stock. Foreign holdings are around 55.30%, thus, it makes the stock very risky.

Tata Consultancy Services Tata Consultancy Services (TCS) is a Software services consulting company headquartered in Mumbai, India. TCS is the largest provider of information technology and business process outsourcing services in Asia. TCS has offices in 42 countries with more than 142 branches across the globe. The company is listed on the National Stock Exchange and Bombay Stock Exchange of India. TCS is a flagship subsidiary of one of India's largest and oldest conglomerate company, the Tata Group, which has interests in areas such as energy, telecommunications, financial services, manufacturing, chemicals, engineering, materials, government and healthcare. CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%) 853.1 33.77 06/08/10 25.26 Mar 2010 23,044.84 Mar 2010 1 76.70 24.19 Mar 2010

TCS Net Profit % Dividend Payout Ratio

2006 24.19 27.72

2007 24.80 34.46

2008 23.76 35.55

2009 21.40 34.2

2010 24.19 81.61

Thus, on the basis of the information given, we can conclude the following: The company is consistently increasing their profit percentage. Dividend payout ratio is very high for the FY 2010, the company had shared the increase in the profits with the shareholders. Promoters stake is at around 74.12%, thus, it makes the stock very stable.

Tech Mahindra Tech Mahindra Ltd. (TechM) formerly Mahindra British Telecom (MBT) is an Information Technology service provider company headquartered in Pune, India. It is a joint venture between Mahindra & Mahindra Limited (M&M) and BT Group plc, UK with M&M (Mahindra and Mahindra) holding 44% and BT holding 39% of the equity. Tech Mahindra has its headquarters at Pune, India. Tech Mahindra has grown rapidly to become the 5th largest software exporter in India (Nasscom, 2009) and 1st largest Telecom Software Provider in India (Voice & Data, 2009). It has more than 33,524 employees as in Mar 10. With its core strength in providing Telecom Solutions, Tech Mahindra provides a wide variety of services ranging from IT Strategy and Consulting to Systems Integration, etc. Tech Mahindra is ISO 9001:2000 certified and is assessed at SEI-CMMi Level 5 and SEI-PCMMi Level 5. Tech Mahindra is also BS7799 certified across all development centers. CMP PE ratio EPS (Rs) Sales (crores) Face Value (Rs) Book Value (Rs) Net profit margin (%) 704.1 11.70 06/08/10 60.14 Mar 2010 4,483.80 Mar 2010 10 230.20 16.35 Mar 2010

Tech Mahindra Net Profit % Dividend Payout Ratio

2006 17.98 53.83

2007 2.92 46.52

2008 10.01 23.97

2009 22.97 5.78

2010 16.35 6.74

Thus, on the basis of the information given, we can conclude the following: The company has not been consistent with the profit percentage but their sales have increased steadily over the given time span. The decline in the FY 2010 is due to the high interest cost. Dividend payout ratio has also varied but the capital appreciation has been substantial. Promoters stake is at around 73.79%, thus, it makes the stock very stable.

2. T
alpha.

ECHNICAL ANALYSIS

The following is the technical analysis of the 9 stocks that we have chosen for our portfolio. In practice, when a portfolio is built, there is a need to determine at what levels the individual company scripts are to be bought or sold. Portfolio balancing and readjustment is not merely a macro level procedure, it does require a lot of fine tuning as well, which inevitable means a level of trading as well to maximize portfolio

With this in mind, since this is the first step in constructing the portfolio, the aim here is to use technical analysis to determine whether it is appropriate to acquire the target stock at the present market price, and if not, whether there is any indication of what price we need to look at. In order to do this, we have used 5 indicators. These are: Bollinger Bands KST Moving Average Convergence Divergence (MACD) Relative Strength Index

A. SOFTWARE/INFORMATION TECHNOLOGY
Infosys (NSE: INFOSYSTCH) The stock is presently trading at 2829. i) Bollinger Bands:

As can be clearly seen, the stock has made a recent double top, closing outside the upper band on the 12 of July. Failed attempts to clear the upper band on the 23 rd of July and the 5th of August makes this what could be interpreted as a triple top. The band has maintained its width, which is contraindicative of a breakout. However, the indicator is bearish and one could look to the stock reaching the lower band.

ii)

KST:

The KST is negative at present, with the KST line cutting the indicator top down on 4 th of August. However, the apparent trend in both lines indicates that there is some forthcoming strength in the stock and there could soon be a buying opportunity. Presently, though, the stock is given a bearish outlook by KST.

iii)

RSI:

The RSI is presently at 53, in the process of a downswing. There is no divergence since the stock price is also in a downtrend. There is no clear signal given here, but the RSI indicator would seem to indicate weakness in the stock, indicating that it is a bearish signal at this point in time. Failures to make new highs have impaired the strength of the stock.

iv)

MACD:

The MACD is currently in the overbought zone, and more importantly, the MACD line has cut the signal line top down, signaling weakness. However, there may be a buying opportunity in the short term with the signal showing signs of the MACD line cutting the signal line bottom up. Presently, though there is weakness indicated. Decision: With every indictor agreeing on present weakness in the stock, the decision taken is to defer the addition of Infosys to the portfolio. There appear to be buying opportunities in the future, and the stock should be watched for dips to be accumulated.

Tata Consultancy Services (NSE: TCS) The stock is currently trading at 864.5 i) Bollinger Bands:

The indicator shows that the stock has shown some strength in recent weeks, but has failed to clear the upper band with any significance. There is a large amount of volatility in the stock, with a very large widening of the channel. There is no clear indicator of the direction, but there is contraindication of a breakout in either direction. Chances are the stock will remain range bound with upside bias, given the widening of the channel. The recent month long uptrend means this stock is a potential buy at current prices.

ii)

KST:

KST signal shows that the stock is at the end of its long uptrend. The uptrend was signaled by the KST line cutting the signal line bottom up, but now the KST line has almost completed a top down cut. With the increased volatility, there is a strong chance of a retracement of the recent gains on the script.

iii)

RSI:

The RSI also shows some weakness, with the share just having exited the overbought zone. The indicator is that the recent uptrend has caused the share to become overbought and now there is going to be a trend reversal. This weakness conforms to the other indicators. Additionally, there is the feature of a double top, where the RSI line tries to form a new high twice, but both times fails to do so. The indicator also shows that in all likelihood, the stock will retrace its way back to the pre- uptrend levels. This could be a shorting opportunity for the stock.

iv)

MACD:

In the overbought zone, the MACD line is approaching the signal line, but a call cannot be taken at this time what the direction of the cut will be. However, here again we can see the clearness of the indicator when it indicated the start of the uptrend when the MACD line cuts the signal line bottom up at the neutral mark. MACD in the overbought zone is a sign of weakness.

Decision: With every indicator showing some weakness in the stock at present levels, there is value seen in waiting for a further dip before acquiring the stock.

Tech Mahindra (NSE: TECHM) The stock is currently trading at 715.35 i) Bollinger Bands:

There is some signal of strength in this stock, with a recent bull signal of the close outside the band, and the next close inside the band. However, it would also appear that the promise of that bull signal quickly petered out and the stock was unable to cross the middle channel line. With the first stop loss at the middle band, it appears that the stock lacked the strength to establish a clear uptrend. The signal here is mixed, with some negative bias.

ii)

RSI:

RSI does not show a clear trend, but there is a rounded bottom, and the accompanying falling off at the lip formation. The stock does remain overbought, and so RSI would seem to indicate a level of weakness for the script. The signal is not clearly defined, however.

iii)

MACD:

MACD is in the under bought zone, with the stock appearing to have come out of a negative trend, clearing the over-bought zone and off the back of a top down cut of the signal line by the MACD line. However, the signal line and the MACD line are almost parallel, and it is hard to make a call at this point in time.

iv)

KST:

Definite signs of weakness here, with the KST line having cut the signal line top down sometime back. However, the stock is in the under bought zone, and there seems to be a strong chance that the KST line will cut the signal line bottom up sometime in the future. Again, there is no clear signal available here.

Decision: With next to no clear signals being given by any indicator, taking a call on Tech Mahindra is difficult. However, since the stock is trading on a slight negative bias, it is prudent to wait for some clarity, especially with the IT sector itself looking shaky.

B. PHARMACEUTICALS
Biocon (NSE: BIOCON) The stock currently trades at 312.3. i) Bollinger Bands:

The stock is coming off a bounce on the lower band. With a series of lower than previous day closes, there is evidence that it will travel to the lower band once again. This presents a strong buy opportunity. The call given here would be to buy at 308 levels, with a stop loss at 305 in case it breaches the lower band.

ii)

RSI:

Down-trending RSI means that this stock has seen some recent weakness. However, the script is seen to be under bought, and there is a strong possibility of recovery in the very near future. The call taken here it to buy when the RSI oscillator reaches the 40 levels with a tight stop loss.

iii)

MACD:

The MACD line is approaching the over sold zone, and there appears to be a strong chance of the MACD line cutting the signal line bottom up very soon. These are signs of strength, but the MACD call is to wait for the current downtrend to abate before making a buy in this stock, there seems to be at least another week of weakness.

iv)

KST:

Downtrends are seen again in this oscillator as well. These are all indicative of the recent downturn in the stock prices that is clearly seen. However, it also appears that the KST line will soon reverse and cut the signal line bottom up.

Decision: Biocon due to the recent sell off of its stock is not an immediate buy. It will take some time, up to a month for the technical indicators to read a buy for the stock. This portfolio acquisition cannot be made at the present price levels.

Glaxo Smith Kline (NSE: GLAXO) The stock is currently at 1990.

i)

Bollinger Bands:

Right at the bottom of the band, there is going to be in all likelihood a buy signal from Glaxo within the next 2-3 days. This will complete the second part of the double bottom, and the price has not closed outside the lower band yet. One days close outside, with the next days close inside the band will trigger the rise. This share is a buy at these levels, or maximum over the next 2 days.

ii)

MACD

The MACD is strongly over sold. The signal line has yet to interact with the MACD line, but since they are parallel, the interaction should occur in a matter of days. As can be seen, the MACD line s about to cut the signal line bottom up.

iii)

RSI:

RSI is in the strongly over sold zone. It has been there for a prolonged period of time, indicating that the stock will soon rise. This is perhaps the time to buy into the stock in order to take advantage of the soon to occur up-trend.

iv)

KST:

The KST is in a massively oversold zone, with the interactions between the KST and signal lines showing inherent upcoming strength. There is a buy opportunity in this share.

Decision: Glaxo Smith Kline shows some weakness presently, but there is overwhelming signs of strength. This stock is a buy at the currently levels, perhaps waiting for a day or 2 for any further downward correction to add it to the portfolio.

Sun Pharma (NSE: SUNPHARMA) The stock is trading at 1854. i) Bollinger Bands:

There is no clear signal either way on the stock currently. The trend is down, the stock having failed to break the upper band. There have been lower closes for 3 consecutive days and the overall trend is weak, though not definitively so.

ii)

MACD:

The share is in the overbought zone, with the MACD line cutting the signal line top down. This is a sign of weakness in the stock, which is in line with the trend from the Bollinger bands as well.

iii)

RSI:

RSI is down trending, no clear patterns being formed, and the stock is moving towards the over sold zone. There is some weakness in the stock according to the indicator.

iv)

KST:

The stock is in the slightly over bought zone, and despite the KST line having intersected the signal line bottom up recently, the KST line appears to be about to cut the signal line top down in the very near future.

Decision: The stock is overvalued and we need to wait for a buying opportunity to present itself before it can be added to the portfolio. A wait and watch strategy is suggested.

C. BANKING
State Bank of India (NSE: SBIN) The stock is trading at 2629 currently. i) Bollinger Bands:

The stock is surging to new short term highs, and the increased volatility is plain to see with the channel width. The stock has not broken through the upper band, but is in a very sharp uptrend at present.

ii)

MACD:

The MACD line is in the overbought zone, but there is a huge uptrend, and the signal line is moving away from the MACD line in an upward direction, indicating a very strong stock. The signal is clearly a bullish one.

iii)

RSI:

RSI indicates heavily over bought, but the stock does show consistent strength. There is a potential correction occurring soon, but the stock is very strong even at the present levels.

iv)

KST:

KST shows tremendous strength, with the KST line cutting the signal line bottom up, and both moving in tandem now in a steep uptrend.

Decision: The indicators are unequivocal about the strength of the share at the current levels and State Bank should be acquired as part of the portfolio without delay.

ICICI Bank (NSE: ICICIBANK) The share is currently at 988.9. i) Bollinger Bands:

Extremely strong buy signals given with a close inside the top band followed immediately by two closes outside the top band. There is good breadth in the channel as well, and the stock is trending upwards strongly.

ii)

MACD:

Extremely bullish signals are seen here, the MACD line cut the signal line bottom up some weeks ago and the bull run from then continues. Both the signal and MACD lines are in parallel and move steeply upwards.

iii)

RSI:

RSI line is moving upwards as well, towards the overbought zone, but has yet to cross the upper limit of the overbought zone. Therefore, there is still indications that there is some amount of strength left in the stock.

iv)

KST:

The KST line has cut the signal line from bottom up some time previously and the bullish effects of this have been continuing to this point. Both signal and KST lines have been up trending and show no signs of a reversal.

Decision: Every indicator shows that ICICI Bank is a buy at the current market prices.

HDFC Bank (NSE: HDFC BANK) The stock is currently trading at 2095. i) Bollinger Bands:

The entire channel is moving in an uptrend, but the stock has come off the upper band and is at the middle band at present. There are higher closes than previous day, but the signal is not clearly a bullish or bearish one.

ii)

MACD:

MACD is in the overbought zone, with the MACD line cutting the signal line top down. This is a weak signal, and indicates that there is some downside to the share at the present levels at which it is trading.

iii)

RSI

RSI line shows weakness, with a well defined double top formed. There is a slight uptick at the end of the period, but the double top formation bears watching for a possible triple top. The stock can be bought at the upper overbought level.

iv)

KST:

KST shows clear signs of weakness with the KST line cutting the signal line from top down. It is in the over bought zone as well, and so the stock should be watched and not purchased at this price.

Decision: There is too much current weakness to recommend a buy for the stock at this level. We should wait for some time before buying the stock for the portfolio.

3. P
Company State Bank of India ICICI Bank HDFC Bank Biocon Ltd GlaxoSmithKline Sun Pharmaceutical Infosys Technologies Ltd TCS Tech Mahindra

ORTFOLIO SELECTION

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Purchase Price (1 June 10) 2210.15 838.35 1857.55 288.15 2088.85 1680.25 2625.25 738.8 637.65

Quantity 60 50 100 100 100 140 40 40 40

Amount 132609 41917.5 185755 28815 208885 235235 105010 29552 25506 993284.5

Banking sector: This sector is having a good performance but the beta for these stocks is very high, thus, HDFC is the major stock from this sector has it has lower beta value and also the fundamentals of the company are very strong.

Pharmaceutical Sector: This is a booming sector and is expected to give average returns with relatively low risk. The majority of the stocks are GlaxoSmithKline and Sun Pharma as these stocks have got a lower value of beta and thus, it will also help in reducing the overall risk of the portfolio.

IT Sector: The stocks of this sector are having a high beta value and from our technical analysis have shown that the stocks are not at the best buy price. Thus, lesser quantity has been purchased of this stock as to avoid the high risks.

In the short-run i.e. 3 months, the Pharma stocks will be reduced and IT stocks will be increased in the portfolio. As we expect that after the much expected market correction, IT stocks will be priced correctly and Pharma is expected to have lesser influence of the correction.

A. BANKING SECTOR
Table 1 Sales Bank SBI PNB Bank of Baroda Union Bank HDFC Bank Kotak bank IDBI Bank of India Axis Bank Canara ICICI Table 2 Net Profit Bank SBI PNB Bank of Baroda Union Bank HDFC Bank Kotak bank IDBI Bank of India Axis Bank Canara ICICI 2006 4,407.01 1,439.31 826.96 716.17 1,718.28 312.65 1,348.23 921.44 682.49 1,343.22 2,728.29 2007 4,541.65 1,723.57 1,026.46 845.94 2,837.21 644.49 1,661.02 1,664.93 1,358.27 1,420.81 3,403.66 2008 6,729.46 2,064.28 1,435.52 1,387.51 3,522.15 648.11 2,044.36 2,551.16 2,100.10 1,565.01 5,156.00 2009 9,121.57 3,090.88 2,227.20 1,727.20 4,818.98 804.27 879.58 3,007.35 3,369.23 2,072.42 6,193.87 2010 9,166.39 3,913.00 3,058.33 2,075.75 6,403.33 1,212.06 1,102.33 1,741.07 4,862.62 3,021.43 6,834.63 2006 43,183.62 11,062.38 8,291.69 6,488.81 5,688.98 931.35 6,661.17 8,213.08 3,602.50 10,089.02 18,821.12 2007 46,937.79 12,881.12 10,594.43 8,223.98 8,399.26 1,641.93 7,392.16 10,743.28 5,546.89 12,876.36 29,957.24 2008 58,348.74 16,262.58 13,864.52 10,679.97 12,320.38 2,845.84 9,772.10 14,472.15 8,755.91 16,509.05 39,667.19 2009 76,479.78 22,245.85 17,849.24 13,371.93 19,802.89 3,222.70 13,107.35 19,399.22 13,732.37 19,546.15 39,210.31 2010 85,962.07 25,032.22 19,504.70 15,277.42 19,958.76 3,676.59 17,614.59 20,494.63 15,583.80 21,752.78 32,999.36

Table 3 Dividend Payout Ratio Bank SBI PNB Bank of Baroda Union Bank HDFC Bank Kotak bank IDBI Bank of India Axis Bank Canara ICICI 2006 19.06 14.98 25.11 29.85 22.55 18.76 22.07 23.76 23.2 22.97 34.08 2007 18.98 30.71 24.59 24.2 22.91 18.91 20.16 17.51 22.57 23.63 33.89 2008 22.64 23.4 23.75 17.04 22.16 10.29 22.92 12.23 23.49 24.53 33.12 2009 22.9 23.86 17.22 17.11 22.16 10.07 24.69 16.34 23.16 18.51 36.6 2010 23.36 20.74 20.9 15.66 21.72 5.28 24.14 24.61 22.56 15.88 37.31

Table 4 Profit Bank SBI PNB Bank of Baroda Union Bank HDFC Bank Kotak bank IDBI Bank of India Axis Bank Canara ICICI 2006 10.21 13.01 9.97 11.04 30.20 33.57 20.24 11.22 18.94 13.31 14.50 2007 9.68 13.38 9.69 10.29 33.78 39.25 22.47 15.50 24.49 11.03 11.36 2008 11.53 12.69 10.35 12.99 28.59 22.77 20.92 17.63 23.98 9.48 13.00 2009 11.93 13.89 12.48 12.92 24.33 24.96 6.71 15.50 24.53 10.60 15.80 2010 10.66 15.63 15.68 13.59 32.08 32.97 6.26 8.50 31.20 13.89 20.71

Table 5 Profit Percentage Bank Kotak bank HDFC Bank Axis Bank ICICI Bank of Baroda PNB Canara Union Bank SBI Bank of India IDBI 2009 24.96 24.33 24.53 15.80 12.48 13.89 10.60 12.92 11.93 15.50 6.71 2010 32.97 32.08 31.20 20.71 15.68 15.63 13.89 13.59 10.66 8.50 6.26 Dividend Payout Ratio 2009 10.07 22.16 23.16 36.6 17.22 23.86 18.51 17.11 22.9 16.34 24.69 2010 5.28 21.72 22.56 37.31 20.9 20.74 15.88 15.66 23.36 24.61 24.14 Net Profit 2010 1212.06 6403.33 4862.62 6834.63 3058.33 3913 3021.43 2075.75 9166.39 1741.07 1102.33

Table 6 : stock selection from Banking sector SBI Net Profit % Dividend Payout Ratio PNB Net Profit % Dividend Payout Ratio ICICI Net Profit % Dividend Payout Ratio HDFC Net Profit % Dividend Payout Ratio 2006 10.21 19.06 2006 13.01 14.98 2006 14.50 34.08 2006 30.20 22.55 2007 9.68 18.98 2007 13.38 30.71 2007 11.36 33.89 2007 33.78 22.91 2008 11.53 22.64 2008 12.69 23.4 2008 13.00 33.12 2008 28.59 22.16 2009 11.93 22.9 2009 13.89 23.86 2009 15.80 36.6 2009 24.33 22.16 2010 10.66 23.36 2010 15.63 20.74 2010 20.71 37.31 2010 32.08 21.72

B. IT SECTOR:
Table 7 Sales IT Infosys TCS Wipro Tech Mahindra HCL Technologies Mahindra Satyam 2006 9,172.00 11,233.45 10,403.25 1,224.58 1,508.55 2,620.16 2007 13,528.00 15,153.22 14,058.90 2,233.46 3,033.60 3,545.19 2008 16,331.00 18,974.13 18,006.50 3,252.90 4,208.04 5,011.39 2009 20,766.00 21,947.41 21,023.10 4,296.10 4,506.48 6,409.29 2010 22,098.00 23,225.17 23,908.30 4,542.30 4,766.58 8,392.71

Table 8 Net Profit IT Infosys TCS Wipro Tech Mahindra HCL Technologies Mahindra Satyam 2006 2,421.00 2,716.87 2,020.48 220.12 329.27 555.79 2007 3,783.00 3,757.29 2,842.10 65.23 638.38 750.26 2008 4,470.00 4,508.76 3,063.30 325.7 1,101.82 1,239.75 2009 5,819.00 4,696.21 2,973.80 986.6 780.65 1,423.23 2010 5,803.00 5,618.51 4,898.00 742.8 997.31 1,715.74

Table 9 Profit % IT Infosys TCS Wipro Tech Mahindra HCL Technologies Mahindra Satyam 2006 26.3956 24.1855 19.4216 17.9751 21.8269 21.2121 2007 27.9642 24.7953 20.2157 2.92058 21.0436 21.1628 2008 27.3713 23.7627 17.0122 10.0126 26.1837 24.7386 2009 28.0218 21.3976 14.1454 22.965 17.3228 22.2057 2010 26.2603 24.1915 20.4866 16.3529 20.923 20.4432

Table 10 Dividend Payout Ratio IT Infosys TCS Wipro Tech Mahindra HCL Technologies Mahindra Satyam 2006 58.32 27.72 40.23 53.83 173.08 25.72 2007 19.85 34.46 35.2 46.52 92.18 24.05 2008 49.77 35.55 33.47 23.97 55.1 21.09 2009 27.03 34.2 23.05 5.78 89.7 18.92 2010 28.84 81.61 20.6 6.74 55.08 16.01

Table 11: Stock selection from IT Sector Infosys Net Profit % Dividend Payout Ratio 2006 26.40 58.32 2007 27.96 19.85 2008 27.37 49.77 2009 28.02 27.03 2010 26.26 28.84

TCS Net Profit % Dividend Payout Ratio

2006 24.19 27.72

2007 24.80 34.46

2008 23.76 35.55

2009 21.40 34.2

2010 24.19 81.61

Tech Mahindra Net Profit % Dividend Payout Ratio

2006 17.98 53.83

2007 2.92 46.52

2008 10.01 23.97

2009 22.97 5.78

2010 16.35 6.74

C. PHARMACEUTICAL SECTOR
Table 12 Sales Pharma Biocon Cipla Dr. Reddys Labortories Glaxo Smith Kline Ranbaxy Labortories Sun Industries Table 13 Net Profit Pharma Biocon Cipla Dr. Reddys Labortories Glaxo Smith Kline Ranbaxy Labortories Sun Industries Table 14 Profit % Pharma Biocon Cipla Dr. Reddys Labortories Glaxo Smith Kline Ranbaxy Labortories Sun Pharmaceutical Industries 2006 18.58 19.06 9.88 28.92 5.59 24.61 2007 17.66 18.39 29.13 30.00 9.10 25.63 2008 34.64 16.02 13.07 29.82 12.65 30.72 2009 12.21 14.91 13.12 30.43 -32.86 31.05 2010 19.68 18.28 17.75 25.51 10.79 33.56 Pharmaceutical 461.29 628.93 1,014.04 1,265.29 898.65 2006 133.48 607.64 211.12 502.08 212.04 2007 158.35 668.03 1,176.86 545.51 380.54 2008 434.92 701.43 475.22 537.66 617.72 2009 111.8 776.81 560.9 576.57 -1,044.80 2010 248.36 1,081.49 846.1 512.29 571.98 Pharmaceutical 1,874.42 2,454.23 3,300.72 4,074.65 2,677.63 2006 718.59 3,187.90 2,135.96 1,736.08 3,793.70 2007 896.49 3,631.94 4,040.44 1,818.52 4,181.17 2008 1,255.72 4,379.58 3,635.05 1,803.29 4,884.81 2009 915.39 5,208.33 4,275.80 1,894.72 3,179.99 2010 1,262.10 5,915.49 4,766.90 2,007.94 5,301.21

Table 15 Dividend Payout Ratio Pharma Biocon Cipla Dr. Reddys Labortories Glaxo Smith Kline Ranbaxy Labortories Sun Pharmaceutical Industries 2006 21.35 29.17 20.71 53.86 170.28 25.29 2007 22.16 27.22 6.25 54.88 94.95 23.57 2008 13.45 25.92 15.52 66.35 60.06 25.11 2009 62.78 23.41 21.94 68.75 -26.33 2010 31.17 17.31 26.19 57.43 -36.95

Table 16: Stock Selection form Pharma Sector Biocon Net Profit % Dividend Payout Ratio 2006 18.58 21.35 2007 17.66 22.16 2008 34.64 13.45 2009 12.21 62.78 2010 19.68 31.17

Glaxo Net Profit % Dividend Payout Ratio

2006 28.92 53.86

2007 30.00 54.88

2008 29.82 66.35

2009 30.43 68.75

2010 25.51 57.43

Sun Pharma Net Profit % Dividend Payout Ratio

2006 24.61 25.29

2007 25.63 23.57

2008 30.72 25.11

2009 31.05 26.33

2010 33.56 36.95

4. P
Risk Free Rate = 8%

ORTFOLIO RETURNS / EXPECTED RETURN

1. Expected Return (CAPM model)

Country Risk Premium = 9%

Company State Bank of India ICICI Bank HDFC Bank Biocon Ltd GlaxoSmithKline Sun Pharmaceutical Infosys Technologies Ltd TCS Tech Mahindra

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Weighted Expected Beta Return 0.15 18.38% 0.07 22.03% 0.15 14.99% 0.03 16.61% 0.04 9.90% 0.08 11.17% 0.09 15.36% 0.02 15.47% 0.02 15.88% 0.65

Expected Weighted Return 2.45% 0.93% 2.80% 0.48% 2.08% 2.64% 1.62% 0.46% 0.41% 13.89%

Expected Return = 13.89% 2. Portfolio Return

Portfolio Return (P1) = Weighted Return + weighted beta*risk premium = 9.55% + .65*9% = 15.44%

Company State Bank of India ICICI Bank HDFC Bank Biocon Ltd GlaxoSmithKline Sun Pharmaceutical Infosys Technologies Ltd TCS Tech Mahindra

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Purchase Price (1 june 10) 2210.15 838.35 1857.55 288.15 2088.85 1680.25 2625.25 738.8 637.65

Current Price 2859.1 1037.7 2205.75 343.3 1917.65 1732.35 2831.5 853.1 704.1

Quantity 60 50 100 100 100 140 40 40 40

Amount 132609 41917.5 185755 28815 208885 235235 105010 29552 25506 993284.5

Weights Weighted Beta 0.13 0.15 0.04 0.07 0.19 0.15 0.03 0.03 0.21 0.04 0.24 0.08 0.11 0.09 0.03 0.02 0.03 0.02 65.40%

Return 29.36% 23.78% 18.75% 19.14% -8.20% 3.10% 7.86% 15.47% 10.42%

Weighted Expected Expected Return Return Weighted Return 3.92% 18.38% 2.45% 1.00% 22.03% 0.93% 3.51% 14.99% 2.80% 0.56% 16.61% 0.48% -1.72% 9.90% 2.08% 0.73% 11.17% 2.64% 0.83% 15.36% 1.62% 0.46% 15.47% 0.46% 0.27% 15.88% 0.41% 9.55% 13.89%

Risk Free Rate Country Risk Premium

8% 9%

Portfolio return
Expected Return

15.44%
13.89%

PORTFOLIO 1 Expected Return Risk as S.D. Weight State Bank of India 18.38% 5.50% ICICI Bank 22.03% 6.06% HDFC Bank 14.99% 4.24% Biocon Ltd 16.61% 6.11% GlaxoSmithKline 9.90% 3.13% Sun Pharmaceutical 11.17% 3.66% Infosys Technologies Ltd 15.36% 4.53% TCS 15.47% 5.60% Tech Mahindra 15.88% 8.57%

Weight X Risk2 Weighted Beta Return Weighted Return 0.13 0.000404063 15.40% 29.36% 3.92% 0.04 0.000155077 6.58% 23.78% 1.00% 0.19 0.00033675 14.52% 18.75% 3.51% 0.03 0.000108255 2.77% 19.14% 0.56% 0.21 0.000206123 4.44% -8.20% -1.72% 0.24 0.000317341 8.33% 3.10% 0.73% 0.11 0.00021701 8.64% 7.86% 0.83% 0.03 0.00 2.47% 15.47% 0.46% 0.03 0.000188741 2.25% 10.42% 0.27% 0.00202665 65.40% 9.55% Portfolio Risk 50.21% Portfolio return 15.44%

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Quantity 60 50 100 100 100 140 40 40 40

Amount 132609 41917.5 185755 28815 208885 235235 105010 29552 25506 993284.5

Weights 0.13 0.04 0.19 0.03 0.21 0.24 0.11 0.03 0.03

Purchase Price (1 june 10) 2210.15 838.35 1857.55 288.15 2088.85 1680.25 2625.25 738.8 637.65

PORTFOLIO 2 Expected Return Risk as S.D. Weight State Bank of India 18.38% 5.50% ICICI Bank 22.03% 6.06% HDFC Bank 14.99% 4.24% Biocon Ltd 16.61% 6.11% GlaxoSmithKline 9.90% 3.13% Sun Pharmaceutical 11.17% 3.66% Infosys Technologies Ltd 15.36% 4.53% TCS 15.47% 5.60% Tech Mahindra 15.88% 8.57% Portfolio Risk

0.22 0.08 0.19 0.03 0.02 0.24 0.16 0.03 0.03

Weight X Risk2 Weighted Beta Return Weighted Return 0.000676961 25.80% 29.36% 6.57% 0.000311775 13.22% 23.78% 2.02% 0.000338512 14.60% 18.75% 3.52% 0.000108822 2.79% 19.14% 0.56% 2.07201E-05 0.45% -8.20% -0.17% 0.000319001 8.37% 3.10% 0.74% 0.000327218 13.03% 7.86% 1.25% 0.00 2.48% 15.47% 0.46% 0.000189728 2.26% 10.42% 0.27% 0.002386513 83.00% 15.22% 51.13% Portfolio return 22.69%

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Quantity 100 100 100 100 10 140 60 40 40

Amount 221015 83835 185755 28815 20888.5 235235 157515 29552 25506 988116.5

Weights 0.22 0.08 0.19 0.03 0.02 0.24 0.16 0.03 0.03

Purchase Price (1 june 10) 2210.15 838.35 1857.55 288.15 2088.85 1680.25 2625.25 738.8 637.65

PORTFOLIO 3 Expected Return Risk as S.D. Weight State Bank of India 18.38% 5.50% ICICI Bank 22.03% 6.06% HDFC Bank 14.99% 4.24% Biocon Ltd 16.61% 6.11% GlaxoSmithKline 9.90% 3.13% Sun Pharmaceutical 11.17% 3.66% Infosys Technologies Ltd 15.36% 4.53% TCS 15.47% 5.60% Tech Mahindra 15.88% 8.57% Portfolio Risk

0.34 0.13 0.11 0.02 0.02 0.20 0.13 0.02 0.02

Weight X Risk2 Weighted Beta Return Weighted Return 0.00101674 38.74% 29.36% 9.86% 0.000468261 19.86% 23.78% 3.03% 0.000203367 8.77% 18.75% 2.12% 8.71686E-05 2.23% 19.14% 0.45% 2.07466E-05 0.45% -8.20% -0.17% 0.000273779 7.19% 3.10% 0.63% 0.000273031 10.87% 7.86% 1.04% 0.00 1.86% 15.47% 0.35% 0.000142478 1.70% 10.42% 0.20% 0.002555993 91.67% 17.51% 51.52% Portfolio return 25.76%

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Quantity 150 150 60 80 10 120 50 30 30

Amount 331522.5 125752.5 111453 23052 20888.5 201630 131262.5 22164 19129.5 986854.5

Weights 0.34 0.13 0.11 0.02 0.02 0.20 0.13 0.02 0.02

Purchase Price (1 june 10) 2210.15 838.35 1857.55 288.15 2088.85 1680.25 2625.25 738.8 637.65

PORTFOLIO 4 Expected Return Risk as S.D. Weight State Bank of India 18.38% 5.50% ICICI Bank 22.03% 6.06% HDFC Bank 14.99% 4.24% Biocon Ltd 16.61% 6.11% GlaxoSmithKline 9.90% 3.13% Sun Pharmaceutical 11.17% 3.66% Infosys Technologies Ltd 15.36% 4.53% TCS 15.47% 5.60% Tech Mahindra 15.88% 8.57% Portfolio Risk

0.51 0.21 0.02 0.00 0.02 0.17 0.03 0.03 0.01

Weight X Risk2 Weighted Beta Return Weighted Return 0.001553306 59.19% 29.36% 15.07% 0.000777583 32.98% 23.78% 5.03% 3.37706E-05 1.46% 18.75% 0.35% 1.08563E-05 0.28% 19.14% 0.06% 2.06708E-05 0.45% -8.20% -0.17% 0.000227315 5.97% 3.10% 0.53% 5.44066E-05 2.17% 7.86% 0.21% 0.00 2.48% 15.47% 0.46% 4.73192E-05 0.56% 10.42% 0.07% 0.002818781 105.52% 21.60% 52.08% Portfolio return 31.10%

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Quantity 230 250 10 10 10 100 10 40 10

Amount 508334.5 209587.5 18575.5 2881.5 20888.5 168025 26252.5 29552 6376.5 990473.5

Weights 0.51 0.21 0.02 0.00 0.02 0.17 0.03 0.03 0.01

Purchase Price (1 june 10) 2210.15 838.35 1857.55 288.15 2088.85 1680.25 2625.25 738.8 637.65

PORTFOLIO 5 Expected Return Risk as S.D. Weight State Bank of India 18.38% 5.50% ICICI Bank 22.03% 6.06% HDFC Bank 14.99% 4.24% Biocon Ltd 16.61% 6.11% GlaxoSmithKline 9.90% 3.13% Sun Pharmaceutical 11.17% 3.66% Infosys Technologies Ltd 15.36% 4.53% TCS 15.47% 5.60% Tech Mahindra 15.88% 8.57% Portfolio Risk

0.02 0.01 0.19 0.00 0.32 0.42 0.03 0.01 0.01

Weight X Risk2 Weighted Beta Return Weighted Return 6.73952E-05 2.57% 29.36% 0.65% 3.10389E-05 1.32% 23.78% 0.20% 0.000337007 14.53% 18.75% 3.51% 1.08338E-05 0.28% 19.14% 0.06% 0.00030942 6.67% -8.20% -2.59% 0.000567112 14.88% 3.10% 1.31% 5.42939E-05 2.16% 7.86% 0.21% 0.00 0.62% 15.47% 0.12% 4.72213E-05 0.56% 10.42% 0.07% 0.001447662 43.59% 3.53% 48.36% Portfolio return 7.46%

Beta 1.1533 1.5585 0.7766 0.9564 0.2112 0.3517 0.8174 0.8296 0.875

Quantity 10 10 100 10 150 250 10 10 10

Amount 22101.5 8383.5 185755 2881.5 313327.5 420062.5 26252.5 7388 6376.5 992528.5

Weights 0.02 0.01 0.19 0.00 0.32 0.42 0.03 0.01 0.01

Purchase Price (1 june 10) 2210.15 838.35 1857.55 288.15 2088.85 1680.25 2625.25 738.8 637.65

Based on Share price of past 5 years :

Date

SBI

Return

Sun Pharma

Return

Infosys

Return

TCS

Return

Tech Mahindra Return

GSK

Return

ICICI

Return

HDFC

Return

Biocon Return

SD Variance Annualised SD

12.30% 0.015133 5.50%

8.19% 0.0067 3.66%

10.13% 0.010263 4.53%

12.52% 0.015678 5.60%

19.17% 0.036751 8.57%

7.00% 0.004901 3.13%

13.55% 0.018374 6.06%

9.49% 0.009003 4.24%

13.66% 0.018658 6.11%

PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3 PORTFOLIO 4 PORTFOLIO 5

Portfolio Risk Portfolio Return 50.21% 15.44% 51.13% 22.69% 51.52% 25.76% 52.08% 31.10% 48.36% 7.46%

Since the no. of portfolio are too less to derive Efficient Frontier Curve, looking to the risk return of various portfolios, PORTFOLIO 3 and 4 are the efficient portfolio for investment.