![2
Father if Ashishbhai was an employee of ―Bardoli sugar factory‖ holding a
key position of an accountant earned goodwill of hundred of farmer
member of the sugar factory. With this background, they launched in
June 1996; a partnership firm called ―Devashish Investment‖ Those were
the day when there were no official share brokers in Bardoli. Interested
customer had to go to Surat for their share dealing. Telephone facility
was poor. On-line Trading and E-mail facilitates came in to the picture
year later. But due to extra-ordinary support their client of Bardoli&
surrounding area Devashish Succeed in switching over to demand of the
changing time.
Devashish securities Pvt. Ltd [DSPL]‖ was sponsored in November 1999.
Then after in November -2005 ―Devashish Commodity Pvt. Ltd [DSPL]‖
was promoted.DSPL registration number is 04-38370 dated 17thJuly’
2000. While that of DCPL is U51100GJ2005PTC7197 at 16thJanuary’
2006. Both are private limited concerns controlled by the separate board
of director.
Shri.Krishnakant Desai is the chairman &Shri.Ashish Desai is the
managing director of the DSPL as well as DCPL.
Growth of the commercial activity of DSPL & DCPL demanded extension
of areas of departments. Hence opening of branches at Navsari in
January 2005 at Vyara in May 2005& at Mahuva in April 2010.
In the previous year in June they successfully completed Fourteen year of
their existence. Presently strength of their manpower on their payroll is
31 in the main office at Bardoli, 6 in Navsari branch 7 Vyara branch.
In January 2003 DSPL becomes the sub broker of ―KishanRatilalChoksey
share &security Pvt. Ltd.‖, Mumbai. A registered share broker of SEBI,
Mumbai. DSPL is also approved as broker firm of SEBI. Mumbai DSPL is
also approved as sub broker firm of SEBI. Mumbai DSPL manage DEMAT
as section as sub-department of messes ―K R Choksey‖. Their DP-CDS
registration number is 12010700. Their clients run their DP Account](https://image.slidesharecdn.com/tostudyweathmaximization-portfolio-171015142300/85/To-study-weath-maximization-portfolio-8-320.jpg)
To study weath maximization portfolio
- 1. A PROJECT REPORT ON “TO STUDY WEATH MAXIMIZATION-PORTFOLIO INVESTMENT” UNDERTAKEN AT DEVASHISH SECURITIES PVT. LTD,BARDOLI SUBMITTED BY: BHAVESH N.KUNDANANI (13 BBA 44) GUIDED BY: MS. VAISHALI R. PANCHAL BBA PROGRAMME (YEAR 2013-16) THE MANDVI EDUCATION SOCIETY CCOOLLLLEEGGEE OOFF BBUUSSIINNEESSSS AADDMMIINNIISSTTRRAATTIIOONN MMAANNDDVVII..
- 2. DECLARATION I BHAVESH KUNDANANI, student of The Mandvi Education Society BBA College Mandvi, hereby declare that this project report has been undertaken as a part of 6th Semester of Bachelor of Business Administration (BBA) syllabus of Veer Narmad South Gujarat University, Surat. I declare that this report has not been submitted to any other university or institute for any other purposes. Date: BHAVESH KUNDANANI Place: Mandvi (13 BBA 44)
- 3. ACKNOWLEDGEMENT I am greatly thankful to DEVASHISH SECURITIES PVT .Ltd for giving me an opportunity to work on this project at their company. I am thankful to my external guide Mr. DHARMESH H. PRAJAPATI, without whom this project would not have been completed successfully. I wish to express my sincere thanks to Mr. Vimal Mahida, I/c director of college & Mr. Pratik Shukla HOD of BBA who gave me the chance to do this project report under DEVASHISH SECURITIES PVT .Ltd. I wish to express my heartfelt gratitude to my internal guide Ms.Vaishali R. Panchal who constant helped and supported me at all stages of this project has enabled me to complete it. Last but not least, I thank all those who have helped me directly or indirectly during the course of this project. BHAVESH KUNDANANI (13 BBA 44)
- 4. EXECUTIVE SUMMARY Wealth maximization means maximizing the net present value of a course of action which is the difference between the gross present value of the benefits of that action and the amount of investment require to achieve those benefits. The most widely accepted primary objective of the firm is to maximize the value of the firm for its owner i.e. to maximize equity shareholder wealth is represented by maximize price of the equity shares of the firm. The objective of my research project are to help investor selecting the appropriate investment avenue for asset allocation, to study need for risk profiting of an individual where by suggesting an ideal portfolio. A research design specifies method and procedures for conducting a particular study my problem solution needs the secondary data, which is already available in market so I have used Descriptive Research method which is based on the secondary data. In my project, I have used Sharpe’s model. Period of my data collection was 01/01/2014 to 31/12/2015. From the above mention period I have collected closing value of 10 companies. For analysis I have used the tools like variance, Beta, Alpha, Means and Sharpe’s model. From data analysis and interpretation it has been concluded that out of total, only 6 securities HDFC, YES BANK, ASIAN PAINTS, ULTRATECH CEMENT, GRASIM INDUSTRIES, TATA CHEMICALS are selected for portfolio investment according to Sharpe’s model.
- 5. TABLE OF CONTENT SR.NO. TOPIC PAGE NO. 1 INTRODUCTION 1-24 1.1 COMPANY PROFILE 1-10 1.2 ABOUT TOPIC 11-24 2 REVIEW OF LITERATURE 25-26 3 RESEARCH METHODOLOGY 27-30 4 DATA ANALYSIS AND INTERPRETATION 31-42 5 FINDINGS 43 6 CONCLUSION & RECOMMANDATION 44-45 7 BIBLIOGRAPHY 46
- 7. 1 COMPANY PROFILE INTRODUCTION OF DEVASHISH SECURITIES PVT.LTD. During June 1996, we started as Devashish Investment, a family firm with partners Krishankant Desai and his son Ashish Desai as partners. Senior Partner Krishnakant Desai had long experience as Accountant in Bardoli Sugar Factory and in SardarBagayat. Devashish Investment with a gallop start as Financial Advisors due to overwhelming support from surrounding residents of Bardoli areas, was converted into Devashish Securities Pvt. Ltd. within three /four years. Devashish Securities Pvt. Ltd Is a recognized sub-broker of SEBI, our network Partner being Messes. KisanRatilalChoksey, Bombay based Share Brokers. Gradually we started other departments – Mutual Fund – Insurance Company Deposits etc. Our office accommodation when we started our Business Activities was only 150 Sq. Ft. of our own. Now it is one of the established companies in these areas having 4500 Sq. Ft. office space. We have full modern on-line equipments and infrastructure. We have also established our website. So that our clients can track their portfolio, can also know market related day- to-day news and information’s. Our aim is full satisfaction of our valued customers and our Moto ―Service before Self‖. Our sister concern Devashish Commodities Pvt. Ltd. is approved recognized member of India’s only Multi-commodities Exchange, having rating of Asia’s third Commodity Exchange. We have Branches in Navsari,Mahuva, Surat and Vyara where all types of our Business Activities are successfully handled. Our franchises are operating in Surat, Songadh, Bharuch, Unai, Ankleshwar, Palsana, Kamrej,Nandurbar, Dehradun, Chandigadh, Indore, Chhapra, Mumbai, Nasik & Jodhpur in their family they had agency of government of India.
- 8. 2 Father if Ashishbhai was an employee of ―Bardoli sugar factory‖ holding a key position of an accountant earned goodwill of hundred of farmer member of the sugar factory. With this background, they launched in June 1996; a partnership firm called ―Devashish Investment‖ Those were the day when there were no official share brokers in Bardoli. Interested customer had to go to Surat for their share dealing. Telephone facility was poor. On-line Trading and E-mail facilitates came in to the picture year later. But due to extra-ordinary support their client of Bardoli& surrounding area Devashish Succeed in switching over to demand of the changing time. Devashish securities Pvt. Ltd [DSPL]‖ was sponsored in November 1999. Then after in November -2005 ―Devashish Commodity Pvt. Ltd [DSPL]‖ was promoted.DSPL registration number is 04-38370 dated 17thJuly’ 2000. While that of DCPL is U51100GJ2005PTC7197 at 16thJanuary’ 2006. Both are private limited concerns controlled by the separate board of director. Shri.Krishnakant Desai is the chairman &Shri.Ashish Desai is the managing director of the DSPL as well as DCPL. Growth of the commercial activity of DSPL & DCPL demanded extension of areas of departments. Hence opening of branches at Navsari in January 2005 at Vyara in May 2005& at Mahuva in April 2010. In the previous year in June they successfully completed Fourteen year of their existence. Presently strength of their manpower on their payroll is 31 in the main office at Bardoli, 6 in Navsari branch 7 Vyara branch. In January 2003 DSPL becomes the sub broker of ―KishanRatilalChoksey share &security Pvt. Ltd.‖, Mumbai. A registered share broker of SEBI, Mumbai. DSPL is also approved as broker firm of SEBI. Mumbai DSPL is also approved as sub broker firm of SEBI. Mumbai DSPL manage DEMAT as section as sub-department of messes ―K R Choksey‖. Their DP-CDS registration number is 12010700. Their clients run their DP Account
- 9. 3 with Devashish in their office only. DCPL has a direct no. of ―multi commodity exchange‖, Mumbai. Their member registration no. being 29745.As registration approved the broker of MCX, and due to all on-line e-business machinery & equipment installed in their all of three offices. Their clients do their commodity dealing from Devashish office. In their head office at Bardoli& branch in Navsari and Vyara they have main three departments – equity dealing, commodity dealing, saving investment viz, mutual funds, insurance schemes & company deposit. BRANCHES: NAVSARI, VYARA, SURAT, MAHUVA FRANCHISE:PALSANA,KAMREJ,UNAI,SONGADH,SURAT,BHARUCH,AN KLESHWAR, NANDURBAR, DEHRADUN, CHANDIGADH, INDORE, CHAPRA, MUMBAI, NASIKH, JODHPUR
- 10. 4 AWARDS AND CERTIFICATES Devashish Pvt. Ltd. has received the following certificates and awards: In the year 2004 their outstanding overall performance by TATA mutual fund. In March-2005 for their outstanding mobilization in the JM equity and derivative fund IPO by JM Financial Co. In July/Aug-2005 for outstanding performance during reliance tax services (ELSS) fund by Reliance Pvt. Ltd. In August-2005 for being winner Surat UCF in UTI opportunities funds. In January 2006 for being a winner in financial advisor leadership by unit trust of India. ―Silver Membership Award‖ From ICICI Prudential in 2007-08. Certificate of Achievement (Best Performance) in West zone &Surat Region from Reliance Life Insurance (2008-09) Certificate of Excellence from CDAC Channel Surat Cluster on 15th & 28th March 2008 for winning the March Bonanza contest by Reliance Life Insurance. ICRA 5-Star Gold Award-2009 Largest Income Fund in Category-ICICI Prudential Income Plan Reader’s Digest Trust Brand Gold Award-2008 Reliance Mutual Fund-Partner Loyalty Program-gold Partner in 2009 The Best Investor Award by UTI Mutual Fund-2010. The Most Preferred Partner 2010 From UTI Mutual Fund. Outstanding Support & Partnership Award by ICICI Pru. Mutual Fund- Jan,2011. The Best Investor Award by Birla sun Life Mutual Fund- April,2011
- 11. 5 QUALITY POLICY & MISSION: Quality Policy Dedication: We dedicate ourselves in consistently delivering more than customer expectations and believe in customer delight. To achieve this, we have utilized our human and technological resources to provide superior quality financial services Efficiency: We are efficient and committed to total quality by putting our best at our resources and services at optimum cost and strive continually to improve ourselves, our team and our services to get total customer satisfaction. Valuation: We will achieve our objectives through creation of a strong, responsive, and innovative organization by a total quality commitment and by emphasizing on total customer satisfaction, wealth & Value creation of stakeholders through profitable growth and providing best working environment to our employees Mission ―To create enduring value for customers and stakeholders by providing total quality products & Services at optimum cost, through creation of a strong, responsive and innovative organization and strive constantly to improve ourselves, our team & our services to meet customer expectation‖
- 12. 6 PRODUCT & SERVISES: Devashish has wide range of product and services creating to Retail, HNI, Corporate and NRI Customers spread all across the globe, we are leading Broker in BSE/NSE and leading distributor of Mutual Funds, Insurance and Equity IPO Products. Broking BSE & NSE Cash market Derivatives Trading Commodities Share Bank (DEMAT) Depository Services Online Execution Fixed Income Mutual Funds RBI Bonds Fixed Deposits Postal Schemes KVP NSC MIS SCSS
- 13. 7 Life Insurance Child Life Solutions Student Life Solutions Young Earner’s Life Solutions Wealth Creator Life Solutions Retirement Plan Term Insurance Financial Planning Retirement Planning Education Planning Portfolio Advisory Equity Portfolio Advisory Wealth Creation Customized Solution for NRI’s Services SMS alert Monthly Statement Internet Services Research Tips Morning Milk Evening Tea Stock News Techno Trends
- 14. 8 DEVASHISH SECURITIES PVT.LTD. Mr. Krishnakant Desai CHAIRMAN Mr. Ashish Desai DIRECTOR Mr. Viral Naik HOD A/C Mr. Dharmesh Prajapati BDM Mr. Nilesh Ramanandi Mr. Dharmendra Tailor HOD Demat Mr. Mayur Panchal HOD System. Mrs. NikishaSurati Insurance Exc. Mr. Viral Naik HR Mrs. AnjuKhanger A/C Exc. Mr. AnantModi A/C Exc. Mr. AnupBhavsar Dealing Exc. (F & O) Mr. Pratik Patel Dealing Exc. Ms. Hemaxi Bhavsar Demat Exc. Mr. Nehal Naik Mutual Fund Mr. Nishant Shukla Mrktg Exc. Mr. Pradip Patel Pan Card Exc. Mr. Badal Desai SystemExe.Ex c.
- 15. 9 DEVASHISH COMMODITIES PVT.LTD. Mr. Meghal Patel HODCommodity Mr. MayurPanchal HOD System. Mr. Viral Naik HOD A/C Mr. Hitesh Panchal A/C Exc. Commodities Mr. NehalNaik Mutual Fund Mr. Viral Naik HR Mr. Krishnakant Desai CHAIRMAN Mr. Ashish Desai DIRECTOR Mr. NishantShukla Mrktg Exc. Mr. MayankSoni Commodity Exc. Mr. Riken Chauhan Commodity Exc. Mr. Badal Desai System Exe.Exc. Ms. HemaxiBhavsar Demat Exc.
- 16. 10 DEVASHISH ADVISORY SERVICES PVT.LTD. Mr. NehalNaik HOD of MF Mr. Mayur Panchal HOD System. Mr. Viral Naik HOD A/C Mr. Gaurav Parekh A/C Exc. Miss. Dharti Desai CRM Exe. Miss.Radhika Mistry B.O. Exc. Mr. Pradip Patel PAN CARD Exc. Mr. Nishant Shukla Mrktg Exc. Mr. Viral Naik HR Mr. Nehal Naik Mutual Fund Mr. Krishnakant Desai CHAIRMAN Mr. Ashish Desai DIRECTOR Mr. Badal Desai System Exe.Exc.
- 17. 11 ABOUT THE TOPIC WEALTH MAXIMIZATION According to experts like profit Solomon Ezra, Van Horne etc. the ultimate objective to financial might should be wealth maximization. This criteria on is based on the concept of cash flows generated by the decision. Its inflows generation out flows, it will, maximize the wealth to the owners. Wealth maximization means maximizing the net present value of a course of action, which is the different between the gross present value of the benefits of that action and the amount of investment required to achieve those benefits. The most widely accepted primary objective of the firm is to maximize the value of the firm for its owners i.e. to maximize equity shareholders wealth is represented by maximize price of the equity shares of the firm. From the share holders point of view, the wealth created by a company through its actions is reflected in the market value of company share. The shareholder wealth maximization goal state may be that ought to seek to maximize the present value of the expected future refers to the owners of the firm. Present value i defined as the value today of some future put or stream of prints. The objective of shareholders wealth maximization is an appropriate and operationally feasible criterion to choose among the alternative financial albinos. It provides an unambiguous measure of what financial might should seek to maximize in making investment and financing decisions on behalf of shareholder. For a publicly traded company, Shareholder wealth maximization is the part of its capitalization that is equity as opposed to long-term debt. In the case of only one type of stock, this would roughly be the number of outstanding shares times current share price. Things like
- 18. 12 dividendsaugment shareholder value while issuing of shares (stock options) lower it. This Shareholder value added should be compared to average/required increase in value, aka cost of capital. ADVANTAGE OF WEALTH MAXIMIZATION 1. The objective explicitly considers the financing and risk of the benefits expected to be received from stock ownership. 2. It is an impersonal objective. 3. In most of the cases decision made by firm has the effect to increasing the market price of the firm’s stock. DISADVANTAGE OF WEALTH MAXIMIZATION 1. EMPOLYMENT Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as: "A person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed. 2. ETHICS Ethics is the major branch of philosophy, encompassing proper conduct and good living. It is significantly broader than the common conception of ethics as the analyzing of right and wrong. A central aspect of ethics is "the good life", the life worth living or that is simply satisfying, which is held by many philosophers to be more important than moral conduct. Profit Maximization Vs Wealth Frequently, maximization of profits is regarded as the proper objective of the firm, but it is not as inclusive a goal as that of maximizing stockholder wealth. For one thing, total profits are not as important as earnings per stock. A firm could always raise total profits by issuing
- 19. 13 stock and using the proceeds to invest in Treasury bills. Even maximization of earnings per stock, however, is not a fully appropriate objective, partly because it does not specify the timing or duration of expected returns. Is the investment project that will produce a $100,000 return 5 years from now more valuable than the project that will produce annual returns of $15,000 in each of the next 5 years? An answer to this question depends upon the time value of money. Few existing stockholders would think favourably of a project that promised its first return in 100 years, no matter how large this return. We must take into account the time pattern of returns in our analysis. Another shortcoming of the objective of maximizing earnings per stock is that it does not consider the risk or uncertainty of the prospective earnings stream. Some investment projects are far more risky than others. As a result, the prospective stream of earnings per stock would be more uncertain if these projects were undertaken. In addition, a company will be more or less risky depending upon the amount of debt in relation to equity in its capital structure. This financial risk is another uncertainty in the minds of investors when they judge the firm in the marketplace. Finally, earnings per stock objective do not take into account any dividend the company might pay. For the reasons given, an objective of maximizing earnings per stock may not be the same as maximizing market price per stock. The market price of a firm's stock represents the value that market participants place on the firm.
- 20. 14 PORTFOLIO INVESTMENT Portfolio investment represents passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities' issuer by the investor; where such control exists, it is known as foreign direct investment. Generally, this means the investor holds less than 10% of the total shares or less than the amount needed to hold the majority vote. Some examples of portfolio investment are: Purchase of shares in a foreign company. Purchase of bonds issued by a foreign government. Acquisition of assets in a foreign country. Factors affecting international portfolio investment: tax rates on interest or dividends (investors will normally prefer countries where the tax rates are relatively low) interest rates (money tends to flow to countries with high interest rates) exchange rates (foreign investors may be attracted if the local currency is expected to strengthen) Portfolio investment is part of the capital account on the balance of payments statistics. MODERN PORTFOLIO THEORY Modern portfolio theory (MPT) proposes how rational investors will use diversification to optimize their portfolios, and how a risky asset should be priced. The basic concepts of the theory are Markowitz diversification, the efficient frontier, capital asset pricing model, the alpha and beta coefficients, the Capital Market Line and the Securities Market Line. MPT models an asset's return as a random variable, and models a portfolio as a weighted combination of assets so that the return of a
- 21. 15 portfolio is the weighted combination of the assets' returns. Moreover, a portfolio's return is a random variable, and consequently has an expected value and a variance. Risk, in this model, is the standard deviation of return. Risk and return The model assumes that investors are risk averse, meaning that given two assets that offer the same expected return, investors will prefer the less risky one. Thus, an investor will take on increased risk only if compensated by higher expected returns. Conversely, an investor who wants higher returns must accept more risk. The exact trade-off will differ by investor based on individual risk aversion characteristics. The implication is that a rational investor will not invest in a portfolio if a second portfolio exists with a more favorable risk-return profile – i.e., if for that level of risk an alternative portfolio exists which has better expected returns.
- 22. 16 Mean and variance It is further assumed that investor's risk / reward preference can be described via a quadraticutility function. The effect of this assumption is that only the expected return and the volatility (i.e., mean return and standard deviation) matter to the investor. The investor is indifferent to other characteristics of the distribution of returns, such as its skew (measures the level of asymmetry in the distribution) or kurtosis (measure of the thickness or so-called "fat tail"). Note that the theory uses a parameter, volatility, as a proxy for risk, while return is an expectation on the future. This is in line with the efficient market hypothesis and most of the classical findings in finance such as Black and Scholes European Option Pricing (martingale measure: shortly speaking means that the best forecast for tomorrow is the price of today). Recent innovations in portfolio theory, particularly under the rubric of Post-Modern Portfolio Theory (PMPT), have exposed several flaws in this reliance on variance as the investor's risk proxy: 1. The theory uses a historical parameter, volatility, as a proxy for risk, while return is an expectation on the future. (It is noted though that this is in line with the Efficiency Hypothesis and most of the classical findings in finance such as Black and Scholes which make use of the martingale measure, i.e. the assumption that the best forecast for tomorrow is the price of today). 2. The statement that "the investor is indifferent to other characteristics" seems not to be true given that skewness risk appears to be priced by the market. Under the model: 3. Portfolio return is the proportion-weighted combination of the constituent assets' returns. 4. Portfolio volatility is a function of the correlation ρ of the component assets. The change in volatility is non-linear as the weighting of the component assets changes.
- 23. 17 Diversification An investor can reduce portfolio risk simply by holding instruments which are not perfectly correlated. In other words, investors can reduce their exposure to individual asset risk by holding a diversified portfolio of assets. Diversification will allow for the same portfolio return with reduced risk. If all the assets of a portfolio have a correlation of 1, i.e., perfect correlation, the portfolio volatility (standard deviation) will be equal to the weighted sum of the individual asset volatilities. Hence the portfolio variance will be equal to the square of the total weighted sum of the individual asset volatilities. If all the assets have a correlation of 0, i.e., perfectly uncorrelated, the portfolio variance is the sum of the individual asset weights squared times the individual asset variance (and volatility is the square root of this sum).If correlation is less than zero, i.e., the assets are inversely correlated, the portfolio variance and hence volatility will be less than if the correlation is 0. The efficient frontier Every possible asset combination can be plotted in risk-return space, and the collection of all such possible portfolios defines a region in this space. The line along the upper edge of this region is known as the efficient frontier (sometimes "the Markowitz frontier"). Combinations along this line represent portfolios (explicitly excluding the risk-free alternative) for which there is lowest risk for a given level of return. Conversely, for a given amount of risk, the portfolio lying on the efficient frontier represents the combination offering the best possible return. Mathematically the Efficient Frontier is the intersection of the Set of Portfolios with Minimum Variance (MVS) and the Set of Portfolios with Maximum Return.
- 24. 18 The efficient frontier is illustrated above, with return μp on the y-axis, and risk σp on the x-axis; an alternative illustration from the diagram in the CAPM article is at right. The efficient frontier will be convex – this is because the risk-return characteristics of a portfolio change in a non-linear fashion as its component weightings are changed. (As described above, portfolio risk isa function of the correlation of the component assets, and thus changes in a non-linear fashion as the weighting of component assets changes.) The efficient frontier is a parabola (hyperbola) when expected return is plotted against variance (standard deviation). The region above the frontier is unachievable by holding risky assets alone. No portfolios can be constructed corresponding to the points in this region. Points below the frontier are suboptimal. A rational investor will hold a portfolio only on the frontier. The risk-free asset The risk-free asset is the (hypothetical) asset which pays a risk-free rate. It is usually provided by an investment in short-dated Government securities. The risk-free asset has zero variance in returns (hence is risk- free); it is also uncorrelated with any other asset (by definition: since its variance is zero). As a result, when it is combined with any other asset, or portfolio of assets, the change in return and also in risk is linear.
- 25. 19 Because both risk and return change linearly as the risk-free asset is introduced into a portfolio, this combination will plot a straight line in risk-return space. The line starts at 100% in cash and weight of the risky portfolio = 0 (i.e., intercepting the return axis at the risk-free rate) and goes through the portfolio in question where cash holding = 0 and portfolio weight = 1. Portfolio leverage An investor adds leverage to the portfolio by borrowing the risk-free asset. The addition of the risk-free asset allows for a position in the region above the efficient frontier. Thus, by combining a risk-free asset with risky assets, it is possible to construct portfolios whose risk-return profiles are superior to those on the efficient frontier. 1. An investor holding a portfolio of risky assets, with a holding in cash, has a positive risk-free weighting (a de-leveraged portfolio). The return and standard deviation will be lower than the portfolio alone, but since the efficient frontier is convex, this combination will sit above the efficient frontier – i.e., offering a higher return for the same risk as the point below it on the frontier. 2. The investor who borrows money to fund his/her purchase of the risky assets has a negative risk-free weighting – i.e., a leveraged portfolio. Here the return is geared to the risky portfolio. This combination will again offer a return superior to those on the frontier. The market portfolio The efficient frontier is a collection of portfolios, each one optimal for a given amount of risk. A quantity known as the Sharpe ratio represents a measure of the amount of additional return (above the risk-free rate) a portfolio provides compared to the risk it carries. The portfolio on the efficient frontier with the highest Sharpe Ratio is known as the market
- 26. 20 portfolio, or sometimes the super-efficient portfolio; it is the tangency- portfolio in the above diagram. This portfolio has the property that any combination of it and the risk-free asset will produce a return that is above the efficient frontier—offering a larger return for a given amount of risk than a portfolio of risky assets on the frontier would. Portfolio Investment Plan A major thesis of investment is the need to consider individual investments as components of an overall investment plan. Without limiting the range of instruments covered, it is convenient to call individual investment securities and the totality the portfolio. The basic problem of portfolio management is to establish an investment goal or objective and then decide how best to reach that goal with the securities available. This has been stated as an attempt by the investor to obtain the maximum return with minimum risk. In order to do a proper job of portfolio management, the investor must be aware of the investment process. Basic Principles: 1. It is the portfolio that matters. 2. Larger expected portfolio returns come only with larger portfolio risk. 3. The risk associated with a security type depends on when the investment will be liquidated. 4. Diversification works. 5. Each portfolio should be tailored to the particular needs of its owner. 6. Competition for abnormal returns is extensive.
- 27. 21 Portfolio Investment Process: The process used to manage a security portfolio is conceptually the same as that used in any managerial decision. The portfolio process is as follows: Portfolio Investment Process Planning 1. Investor Condition 2. Market Condition 3. Investment/Speculative Policies 4. Statement of Investment Policy 5. Strategic Asset Allocation Implementation 1. Rebalance Strategic Asset Allocation 2. Tactical Asset Allocation 3. Security Selection Monitoring 1. Evaluate Statement of Investment Policy 2. Evaluate Investment Performance
- 28. 22 A. Planning The aspect of portfolio management is the most important element of proper portfolio investment and speculation. In the planning stage, a careful review should be conducted of the investor's financial situation and current capital market conditions. Investor and capital market conditions are blended in order to determine a set of investment and speculative policies as well as a long-run strategic asset allocation. Portfolio Planning Stage Investor condition 1. Financialsituation Marketable and non- marketable assets and liabilities Financial Distress 2. Knowledge 3. Risk Tolerance Market conditions 1. Long-term Expectations 2. Short-term Expectations Investor policies 1. Strategic Asset Allocation Current Passive Rebalancing 2. Speculative strategy Tactical Asset Allocation Security Selection 3. Internal/External Management Statement of Investment Policy Policy 1. Objective 2. Strategy (Policies) 3. Constraints
- 29. 23 B. Implementation In the implementation stage, three decisions need to be made, if the percentage holdings of various classes are currently different from the desired holdings. The implementation stage is shown as follows: Portfolio Implementation Stage Statement of investment policy Current market conditions Rebalance Strategic Asset Allocation Rebalance Tactical Asset Allocation 1. Asset classes 2. Sectors/Industries Security selection
- 30. 24 C. Portfolio Monitoring The last stage in the portfolio investment process consists of monitoring portfolio returns in order to determine which speculative decisions seem to be adding value to the portfolio and to ascertain that the portfolio's objective and constraints are being met and have not changes. There are 3 aspects to this monitoring. First, the actual portfolio held should be examined to ascertain that it is in compliance with the statement of investment policy and to determine whether any passive rebalancing of the asset mix is required. Second, investment performance should be reviewed. This shou ld consist of a review of returns on: 1. The aggregate portfolio; 2. Each asset class and investment manager; 3. The returns from any speculative strategies employed. Finally, adjustments to the statement of investment policies and investment managers should be made if necessary. The portfolio monitoring stage is as follows: Statement of Investment Policy 1. Compliance 2. Periodic Revision Portfolio performance 1. Aggregate Portfolio 2. Asset classes and Managers 3. Speculative Strategy Return Actions Required Control 1. Statement of Investment Policy 2. Manager Selection
- 32. 25 REVIEW OF LITERATURE Ananth N. madhavan (2003) Conducted the research on, review of literature of risk analysis in portfolio management the tools of this study are accurate measurement and analysis of risk. The tools of this study is choice of risk model , risk measurement tools can provided invaluable insights as to portfolio risk , they must be applied with considerable care. This detailed overview of recent development in risk analysis and modeling focus on practical application. Peter Christoersen, Xuhui (Nick) Pan (2014) Conducted the research on Equity Portfolio Management using Option Price Information. The researcher survey the recent academic literature that uses option-implied information to construct equity portfolios. Studies show that equity managers can earn a positive alpha by using information in individual equity options, by using stocks. Exposure to information in market index options, and by using stocks.Exposure to crude oil option information. Option-implied information can also help construct better mean-variance portfolios and better estimates of market beta. PRIYANKA G. BHATT, PROF. (DR.) VIJAY H.VYAS (2014) Conducted the research on A Study on Performance Evaluation of Selected Equity Mutual Funds in India. The main objective of this study work is to study financial performance of selected mutual fund schemes This study is aimed at evaluating performance of mutual funds and also to inspecting the role of asset management companies in reference to public and private sector. beta, standard deviation, coefficient of determination, Sharpe ratio. The findings of this study will helpful to investors for their investment decisions in future.
- 33. 26 S Rohitraj, Dr D H Rao (2015) Conducted the research on performance evaluation of open ended large cap equity mutual fund and mid & small cap equity mutual fund growth Scheme with special reference to SBI mutual Fund and HDFC mutual fund.The benchmark taken for this is CNX NIFTY Index. The study is primarily Done to evaluate the performance of the selected Mutual Funds schemes over a period ranging from 2009 to 2014. In this research work the performance of the fund will be evaluated using five portfolios Performance measurement parameters like Beta, Standard Deviation, Sharpe Ratio, Treynor Ratio and Jensen’s Alpha.The performance of the fund in various securities such as in stocks, bonds and short-term money market instruments depends upon the economic condition of the country and the world as a whole.
- 35. 27 Research Methodology Need for research The investor should have knowledge of the risk and return of a securities he invest and if he lacks in this knowledge he may lose the invested money also so necessary to minimize risk maximize the return through portfolio. Any researcher being a logical process definitely follows our predetermined sequence or step in order to obtain the desire result or outcomes. Problem statement The Research problem statement is that the “To study the wealth maximization – portfolio investment”. Objectives 1) To help investor selecting the appropriate investment avenue for asset allocation. 2) To study need for risk profiting of an individual where by suggesting an ideal portfolio. Research design Descriptive research design is essentially a research to describe something. It may also be used for prediction purposes. Descriptive information. Descriptive study is used to study the situation. This study helps to describe the situation. A detail descriptive about present situation can be found out by the descriptive study. In this involves the analysis of the situation using the secondary data. Descriptive Research Design is used in this study
- 36. 28 Data Collection: Secondary data means the data, which are already collected and used by somebody else. Secondary data has been collected from the following This study is based on only secondary data which are collected from website, magazine, and journals. During my research study, Secondary data collection method is used. Sample Unit NSE listed 50 securities. Sample Size NSE 10 SECURITIES Sample Period JAN-2014 to Dec-2015(Monthly basis). Limitation of the study 1. There was limited time period for research 2. Due to change in economic condition it is possible that result very time to time
- 37. 29 Data Analysis Tools Average In mathematics, an average, of a data set refers to a measure of the "middle" or "expected" value of the data set. There are many different descriptive statistics that can be chosen as a measurement of the central tendency of the data items. An average is a single value that is meant to typify a list of values. If all the numbers in the list are the same, then this number should be used. If the numbers are not all the same, an easy way to get a representative value from a list is to randomly pick any number from the list. However, the word 'average' is usually reserved for more sophisticated methods that are generally found to be more useful. Arithmetic mean In mathematics and statistics, the arithmetic mean (or simply the mean) of a list of numbers is the sum of all of the list divided by the number of items in the list. If the list is a statistical population, then the mean of that population is called a population mean. If the list is a statistical sample, we call the resulting statistic a sample mean. The mean is the most commonly-used type of average and is often referred to simply as the average. The term "mean" or "arithmetic mean" is preferred in mathematics and statistics to distinguish it from other averages such as the median and the mode. Beta (β) Beta describes the relationship between the stocks return & the market index returns. This can be positive & negative. It is the percentage change in the price of the stock regressed to the percentage changes in
- 38. 30 the market index. If beta is 1, a one percentage change in market index will feed to one percentage change in price & stock. If beta is zero, stock price is unrelated to the market index. If beta is minus one, it indicates a negative relationship with market index. BETA (β) = ( )( ) ( ) Alpha (α) Alpha is the distance between the horizontal axis & lines intersection with x axis. It measures the unsystematic risk of company. If x is a positive return, then that scrip will have high returns. If x=0, then the regression line goes through the origin & its returns simply depend on the beta times the market return. ALFA (α) = ( ) ( ) Residual variance It is unique and peculiar to a firm or an industry. It stems from managerial inefficiency, technological change in the production process, availability of raw material, changes in the consumer preference, and labour problems. The nature and magnitude of the above mentioned factors differ from industry to industry, and company to company. They have to be analyzed separately for each industry and firm. Residual variance (σ 2ei) = ( ( ) )
- 40. 31 1. ACC MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 1108.20 Jan-14 6223.16 1010.85 -1.28 -8.78 11.26 1.64 77.17 Feb-14 6098.75 1103.45 -2.00 9.16 -18.31 4.00 83.92 Mar-14 6507.98 1391.55 6.71 26.11 175.20 45.03 681.68 Apr-14 6754.74 1291.70 3.79 -7.18 -27.21 14.38 51.49 May-14 7083.16 1339.50 4.86 3.70 17.99 23.64 13.69 Jun-14 7542.84 1468.05 6.49 9.60 62.28 42.12 92.10 Jul-14 7676.76 1394.50 1.78 -5.01 -8.89 3.15 25.10 Aug-14 7787.35 1491.70 1.44 6.97 10.04 2.08 48.58 Sep-14 8053.53 1404.15 3.42 -5.87 -20.06 11.68 34.45 Oct-14 7953.11 1500.90 -1.25 6.89 -8.59 1.55 47.48 Nov-14 8417.06 1470.35 5.83 -2.04 -11.87 34.03 4.14 Dec-14 8309.87 1399.40 -1.27 -4.83 6.15 1.62 23.28 Jan-15 8517.77 1560.05 2.50 11.48 28.72 6.26 131.79 Feb-15 8750.44 1683.25 2.73 7.90 21.57 7.46 62.37 Mar-15 8664.06 1560.60 -0.99 -7.29 7.19 0.97 53.09 Apr-15 8524.01 1438.70 -1.62 -7.81 12.63 2.61 61.01 May-15 8300.81 1514.55 -2.62 5.27 -13.81 6.86 27.80 Jun-15 8195.61 1440.65 -1.27 -4.88 6.18 1.61 23.81 Jul-15 8479.52 1383.15 3.46 -3.99 -13.83 12.00 15.93 Aug-15 8309.92 1334.55 -2.00 -3.51 7.03 4.00 12.35 Sep-15 7814.89 1344.15 -5.96 0.72 -4.29 35.49 0.52 Oct-15 8172.32 1376.10 4.57 2.38 10.87 20.92 5.65 Nov-15 7887.64 1347.00 -3.48 -2.11 7.37 12.14 4.47 Dec-15 7802.64 1343.95 -1.08 -0.23 0.24 1.16 0.05 TOTAL 22.78 26.65 257.87 296.39 1581.91 AVERAGE 0.95 1.11 VARIANCE 11.95 β 0.85 α 0.31 σ 2ei 61.61 Ri 1.11 INTERPRETATION β= 0.85 Here, beta of ACC is 0.85 which indicates that , 1% change in market index leads to 0.85 % change in price of ACC. α= 0.31 Here α=0.31,It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 0.31.
- 41. 32 2. ASIAN PAINTS LTD. MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 490.75 Jan-14 6223.16 472.25 -1.28 -3.77 4.83 1.64 14.21 Feb-14 6098.75 472.95 -2.00 0.15 -0.30 4.00 0.02 Mar-14 6507.98 546.50 6.71 15.55 104.35 45.03 241.84 Apr-14 6754.74 505.15 3.79 -7.57 -28.69 14.38 57.25 May-14 7083.16 509.45 4.86 0.85 4.14 23.64 0.72 Jun-14 7542.84 592.70 6.49 16.34 106.05 42.12 267.03 Jul-14 7676.76 629.15 1.78 6.15 10.92 3.15 37.82 Aug-14 7787.35 624.15 1.44 -0.79 -1.14 2.08 0.63 Sep-14 8053.53 629.40 3.42 0.84 2.88 11.68 0.71 Oct-14 7953.11 656.15 -1.25 4.25 -5.30 1.55 18.06 Nov-14 8417.06 743.70 5.83 13.34 77.84 34.03 178.04 Dec-14 8309.87 751.75 -1.27 1.08 -1.38 1.62 1.17 Jan-15 8517.77 857.45 2.50 14.06 35.18 6.26 197.70 Feb-15 8750.44 818.35 2.73 -4.56 -12.46 7.46 20.79 Mar-15 8664.06 808.75 -0.99 -1.17 1.16 0.97 1.38 Apr-15 8524.01 762.90 -1.62 -5.67 9.16 2.61 32.14 May-15 8300.81 787.00 -2.62 3.16 -8.27 6.86 9.98 Jun-15 8195.61 754.45 -1.27 -4.14 5.24 1.61 17.11 Jul-15 8479.52 881.45 3.46 16.83 58.31 12.00 283.37 Aug-15 8309.92 848.60 -2.00 -3.73 7.45 4.00 13.89 Sep-15 7814.89 841.10 -5.96 -0.88 5.26 35.49 0.78 Oct-15 8172.32 828.70 4.57 -1.47 -6.74 20.92 2.17 Nov-15 7887.64 840.45 -3.48 1.42 -4.94 12.14 2.01 Dec-15 7802.64 883.85 -1.08 5.16 -5.56 1.16 26.67 TOTAL 22.78 65.44 358.00 296.39 1425.49 AVERAGE 0.95 2.73 VARIANCE 11.95 β 1.08 α 1.70 σ 2ei 42.20 Ri 2.73 INTERPRETATION β= 1.08 Here, beta of ASIAN PAINTS is 1.08. Which indicates that, 1% change in market price leads to 1.08 % change in price of ASIANPAINTS. α= 1.70 It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 1.70.
- 42. 33 3. GRASIM INDUSTRIES LTD. MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 2714.50 Jan-14 6223.16 2573.85 -1.28 -5.18 6.64 1.64 26.85 Feb-14 6098.75 2537.90 -2.00 -1.40 2.79 4.00 1.95 Mar-14 6507.98 2886.55 6.71 13.74 92.18 45.03 188.73 Apr-14 6754.74 2613.60 3.79 -9.46 -35.85 14.38 89.41 May-14 7083.16 3180.25 4.86 21.68 105.41 23.64 470.06 Jun-14 7542.84 3428.40 6.49 7.80 50.64 42.12 60.88 Jul-14 7676.76 3220.90 1.78 -6.05 -10.75 3.15 36.63 Aug-14 7787.35 3398.75 1.44 5.52 7.95 2.08 30.49 Sep-14 8053.53 3550.00 3.42 4.45 15.21 11.68 19.80 Oct-14 7953.11 3510.70 -1.25 -1.11 1.38 1.55 1.23 Nov-14 8417.06 3554.35 5.83 1.24 7.25 34.03 1.55 Dec-14 8309.87 3391.20 -1.27 -4.59 5.85 1.62 21.07 Jan-15 8517.77 3882.05 2.50 14.47 36.21 6.26 209.50 Feb-15 8750.44 3759.15 2.73 -3.17 -8.65 7.46 10.02 Mar-15 8664.06 3622.15 -0.99 -3.64 3.60 0.97 13.28 Apr-15 8524.01 3597.35 -1.62 -0.68 1.11 2.61 0.47 May-15 8300.81 3643.05 -2.62 1.27 -3.33 6.86 1.61 Jun-15 8195.61 3441.60 -1.27 -5.53 7.01 1.61 30.58 Jul-15 8479.52 3708.65 3.46 7.76 26.88 12.00 60.21 Aug-15 8309.92 3439.05 -2.00 -7.27 14.54 4.00 52.85 Sep-15 7814.89 3492.90 -5.96 1.57 -9.33 35.49 2.45 Oct-15 8172.32 3709.70 4.57 6.21 28.39 20.92 38.53 Nov-15 7887.64 3739.70 -3.48 0.81 -2.82 12.14 0.65 Dec-15 7802.64 3747.25 -1.08 0.20 -0.22 1.16 0.04 TOTAL 22.78 38.65 342.11 296.39 1368.84 AVERAGE 0.95 1.61 VARIANCE 11.95 Β 1.11 α 0.56 σ 2ei 43.96 Ri 1.61 INTERPRETATION β= 1.11 Here, beta of GRASIM INDUSTRIES LTD. is 1.11 which indicates that, 1% change in market price leads to 1.11 %change in price of GRASIM INDUSTRIES LTD. α= 0.56 Here α=0.555 ,It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 0.56
- 43. 34 4. HCL TECHNOLOGIES LTD MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 1263.10 Jan-14 6223.16 1464.70 -1.28 15.96 -20.47 1.64 254.74 Feb-14 6098.75 1576.00 -2.00 7.60 -15.19 4.00 57.74 Mar-14 6507.98 1390.50 6.71 -11.77 -78.98 45.03 138.54 Apr-14 6754.74 1403.65 3.79 0.95 3.59 14.38 0.89 May-14 7083.16 1417.35 4.86 0.98 4.75 23.64 0.95 Jun-14 7542.84 1496.55 6.49 5.59 36.26 42.12 31.22 Jul-14 7676.76 1554.90 1.78 3.90 6.92 3.15 15.20 Aug-14 7787.35 1630.35 1.44 4.85 6.99 2.08 23.55 Sep-14 8053.53 1715.35 3.42 5.21 17.82 11.68 27.18 Oct-14 7953.11 1605.25 -1.25 -6.42 8.00 1.55 41.20 Nov-14 8417.06 1662.15 5.83 3.54 20.68 34.03 12.56 Dec-14 8309.87 1595.95 -1.27 -3.98 5.07 1.62 15.86 Jan-15 8517.77 1794.10 2.50 12.42 31.06 6.26 154.15 Feb-15 8750.44 2020.50 2.73 12.62 34.47 7.46 159.24 Mar-15 8664.06 979.65 -0.99 -51.51 50.85 0.97 2653.74 Apr-15 8524.01 879.50 -1.62 -10.22 16.53 2.61 104.51 May-15 8300.81 1011.80 -2.62 15.04 -39.39 6.86 226.28 Jun-15 8195.61 921.05 -1.27 -8.97 11.37 1.61 80.45 Jul-15 8479.52 996.60 3.46 8.20 28.42 12.00 67.28 Aug-15 8309.92 971.60 -2.00 -2.51 5.02 4.00 6.29 Sep-15 7814.89 982.15 -5.96 1.09 -6.47 35.49 1.18 Oct-15 8172.32 869.55 4.57 -11.46 -52.44 20.92 131.44 Nov-15 7887.64 871.85 -3.48 0.26 -0.92 12.14 0.07 Dec-15 7802.64 855.45 -1.08 -1.88 2.03 1.16 3.54 TOTAL 22.78 -10.52 75.96 296.39 4207.83 AVERAGE 0.95 -0.44 VARIANCE 11.95 β 0.31 α -0.74 σ 2ei 189.83 Ri -0.44 INTERPRETATION β=0.31 Here, beta of HCL TECHNOLOGY LTD.Is 0.31 which indicates that, 1% change in market price leads to 0.31% change in price of HCL TECHNOLOGY LTD . α= -0.74 Here α=-0.74, it indicates that the company performance is less than market performance.
- 44. 35 5. HDFC MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 665.75 Jan-14 6223.16 628.90 -1.28 -5.54 7.10 1.64 30.64 Feb-14 6098.75 667.50 -2.00 6.14 -12.27 4.00 37.67 Mar-14 6507.98 748.85 6.71 12.19 81.78 45.03 148.53 Apr-14 6754.74 718.25 3.79 -4.09 -15.49 14.38 16.70 May-14 7083.16 794.10 4.86 10.56 51.35 23.64 111.52 Jun-14 7542.84 821.35 6.49 3.43 22.27 42.12 11.78 Jul-14 7676.76 833.65 1.78 1.50 2.66 3.15 2.24 Aug-14 7787.35 842.95 1.44 1.12 1.61 2.08 1.24 Sep-14 8053.53 871.50 3.42 3.39 11.58 11.68 11.47 Oct-14 7953.11 912.20 -1.25 4.67 -5.82 1.55 21.81 Nov-14 8417.06 957.40 5.83 4.96 28.91 34.03 24.55 Dec-14 8309.87 952.00 -1.27 -0.56 0.72 1.62 0.32 Jan-15 8517.77 1076.00 2.50 13.03 32.59 6.26 169.66 Feb-15 8750.44 1067.85 2.73 -0.76 -2.07 7.46 0.57 Mar-15 8664.06 1022.85 -0.99 -4.21 4.16 0.97 17.76 Apr-15 8524.01 989.20 -1.62 -3.29 5.32 2.61 10.82 May-15 8300.81 1051.10 -2.62 6.26 -16.39 6.86 39.16 Jun-15 8195.61 1067.45 -1.27 1.56 -1.97 1.61 2.42 Jul-15 8479.52 1111.20 3.46 4.10 14.20 12.00 16.80 Aug-15 8309.92 1028.15 -2.00 -7.47 14.95 4.00 55.86 Sep-15 7814.89 1068.90 -5.96 3.96 -23.61 35.49 15.71 Oct-15 8172.32 1097.05 4.57 2.63 12.05 20.92 6.94 Nov-15 7887.64 1075.95 -3.48 -1.92 6.70 12.14 3.70 Dec-15 7802.64 1074.05 -1.08 -0.18 0.19 1.16 0.03 TOTAL 22.78 51.46 220.48 296.39 757.89 AVERAGE 0.95 2.14 VARIANCE 11.95 β 0.62 α 1.55 σ 2ei 24.56 Ri 2.14 INTERPRETATION β= 0.62 Here, beta of HDFC is 0.62 which indicates that, 1% change in market price leads to 0.62%change in price of HDFC. α= 1.55 Here α=1.55 ,It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 1.55.
- 45. 36 6. PNB MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 626.65 Jan-14 6223.16 548.60 -1.28 -12.46 15.97 1.64 155.13 Feb-14 6098.75 552.20 -2.00 0.66 -1.31 4.00 0.43 Mar-14 6507.98 744.10 6.71 34.75 233.19 45.03 1207.69 Apr-14 6754.74 784.20 3.79 5.39 20.43 14.38 29.04 May-14 7083.16 944.15 4.86 20.40 99.17 23.64 416.02 Jun-14 7542.84 992.30 6.49 5.10 33.10 42.12 26.01 Jul-14 7676.76 956.35 1.78 -3.62 -6.43 3.15 13.13 Aug-14 7787.35 946.00 1.44 -1.08 -1.56 2.08 1.17 Sep-14 8053.53 887.30 3.42 -6.21 -21.21 11.68 38.50 Oct-14 7953.11 930.70 -1.25 4.89 -6.10 1.55 23.92 Nov-14 8417.06 1076.95 5.83 15.71 91.67 34.03 246.93 Dec-14 8309.87 219.10 -1.27 -79.66 101.44 1.62 6345.00 Jan-15 8517.77 189.90 2.50 -13.33 -33.34 6.26 177.62 Feb-15 8750.44 165.55 2.73 -12.82 -35.03 7.46 164.42 Mar-15 8664.06 144.40 -0.99 -12.78 12.61 0.97 163.22 Apr-15 8524.01 159.65 -1.62 10.56 -17.07 2.61 111.53 May-15 8300.81 153.40 -2.62 -3.91 10.25 6.86 15.33 Jun-15 8195.61 139.15 -1.27 -9.29 11.77 1.61 86.29 Jul-15 8479.52 150.90 3.46 8.44 29.25 12.00 71.30 Aug-15 8309.92 144.85 -2.00 -4.01 8.02 4.00 16.07 Sep-15 7814.89 133.45 -5.96 -7.87 46.88 35.49 61.94 Oct-15 8172.32 128.40 4.57 -3.78 -17.31 20.92 14.32 Nov-15 7887.64 144.65 -3.48 12.66 -44.09 12.14 160.17 Dec-15 7802.64 120.20 -1.08 -16.90 18.21 1.16 285.71 TOTAL 22.78 -69.16 548.53 296.39 9830.89 AVERAGE 0.95 -2.88 VARIANCE 11.95 β 2.24 α -5.00 σ 2ei 375.40 Ri -2.88 INTERPRETATION β= 2.24 Here, betais 2.24 of PNB which indicates that, 1% change in market price leads to 2.24 % change in price of PNB. α= -5.00 Here α=-5.00, it indicates that the company performance is less than market performance.
- 46. 37 7. RELIANCE MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 894.80 Jan-14 6223.16 830.85 -1.28 -7.15 9.16 1.64 51.08 Feb-14 6098.75 799.25 -2.00 -3.80 7.60 4.00 14.47 Mar-14 6507.98 929.50 6.71 16.30 109.35 45.03 265.58 Apr-14 6754.74 935.30 3.79 0.62 2.37 14.38 0.39 May-14 7083.16 1065.15 4.86 13.88 67.50 23.64 192.74 Jun-14 7542.84 1014.70 6.49 -4.74 -30.74 42.12 22.43 Jul-14 7676.76 1006.00 1.78 -0.86 -1.52 3.15 0.74 Aug-14 7787.35 999.25 1.44 -0.67 -0.97 2.08 0.45 Sep-14 8053.53 945.35 3.42 -5.39 -18.44 11.68 29.10 Oct-14 7953.11 999.20 -1.25 5.70 -7.10 1.55 32.45 Nov-14 8417.06 990.85 5.83 -0.84 -4.87 34.03 0.70 Dec-14 8309.87 891.15 -1.27 -10.06 12.81 1.62 101.25 Jan-15 8517.77 915.35 2.50 2.72 6.79 6.26 7.37 Feb-15 8750.44 866.25 2.73 -5.36 -14.65 7.46 28.77 Mar-15 8664.06 824.70 -0.99 -4.80 4.73 0.97 23.01 Apr-15 8524.01 862.85 -1.62 4.63 -7.48 2.61 21.40 May-15 8300.81 877.15 -2.62 1.66 -4.34 6.86 2.75 Jun-15 8195.61 1000.45 -1.27 14.06 -17.81 1.61 197.60 Jul-15 8479.52 1001.65 3.46 0.12 0.42 12.00 0.01 Aug-15 8309.92 856.80 -2.00 -14.46 28.92 4.00 209.12 Sep-15 7814.89 860.50 -5.96 0.43 -2.57 35.49 0.19 Oct-15 8172.32 947.85 4.57 10.15 46.43 20.92 103.04 Nov-15 7887.64 968.00 -3.48 2.13 -7.41 12.14 4.52 Dec-15 7802.64 1000.90 -1.08 3.40 -3.66 1.16 11.55 TOTAL 22.78 17.65 174.53 296.39 1320.70 AVERAGE 0.95 0.74 VARIANCE 11.95 β 0.57 α 0.19 σ 2ei 55.32 Ri 0.74 INTERPRETATION β= 0.57 Here, betais 0.57 of RELIANCE which indicates that, 1% change in market price leads to 0.57 %change in price of RELIANCE. α= 0.19 It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 0.19
- 47. 38 8. TATA CHEMICALS LTD. MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 274.90 Jan-14 6223.16 262.35 -1.28 -4.57 5.85 1.64 20.84 Feb-14 6098.75 267.60 -2.00 2.00 -4.00 4.00 4.00 Mar-14 6507.98 286.85 6.71 7.19 48.27 45.03 51.75 Apr-14 6754.74 284.50 3.79 -0.82 -3.11 14.38 0.67 May-14 7083.16 303.45 4.86 6.66 32.39 23.64 44.37 Jun-14 7542.84 343.85 6.49 13.31 86.40 42.12 177.25 Jul-14 7676.76 347.25 1.78 0.99 1.76 3.15 0.98 Aug-14 7787.35 375.95 1.44 8.26 11.91 2.08 68.31 Sep-14 8053.53 398.75 3.42 6.06 20.73 11.68 36.78 Oct-14 7953.11 406.85 -1.25 2.03 -2.53 1.55 4.13 Nov-14 8417.06 436.70 5.83 7.34 42.80 34.03 53.83 Dec-14 8309.87 434.30 -1.27 -0.55 0.70 1.62 0.30 Jan-15 8517.77 456.70 2.50 5.16 12.90 6.26 26.60 Feb-15 8750.44 453.60 2.73 -0.68 -1.85 7.46 0.46 Mar-15 8664.06 442.00 -0.99 -2.56 2.52 0.97 6.54 Apr-15 8524.01 427.05 -1.62 -3.38 5.47 2.61 11.44 May-15 8300.81 432.45 -2.62 1.26 -3.31 6.86 1.60 Jun-15 8195.61 420.90 -1.27 -2.67 3.38 1.61 7.13 Jul-15 8479.52 489.05 3.46 16.19 56.09 12.00 262.16 Aug-15 8309.92 400.10 -2.00 -18.19 36.38 4.00 330.82 Sep-15 7814.89 380.95 -5.96 -4.79 28.51 35.49 22.91 Oct-15 8172.32 408.30 4.57 7.18 32.84 20.92 51.54 Nov-15 7887.64 420.25 -3.48 2.93 -10.20 12.14 8.57 Dec-15 7802.64 401.35 -1.08 -4.50 4.85 1.16 20.23 TOTAL 22.78 43.88 408.75 296.39 1213.21 AVERAGE 0.95 1.83 VARIANCE 11.95 β 1.34 α 0.56 σ 2ei 29.21 Ri 1.83 INTERPRETATION β= 1.34 Here, beta of TATA CEMICALS is 1.34 which indicates that, 1% change in market price leads to 1.34 % change in price of TATA CEMICALS. α= 0.56 It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 0.56
- 48. 39 9. ULTRATECH CEMENT LTD. MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 1763.35 Jan-14 6223.16 1707.20 -1.28 -3.18 4.08 1.64 10.14 Feb-14 6098.75 1839.85 -2.00 7.77 -15.53 4.00 60.37 Mar-14 6507.98 2188.90 6.71 18.97 127.30 45.03 359.92 Apr-14 6754.74 2027.90 3.79 -7.36 -27.89 14.38 54.10 May-14 7083.16 2384.75 4.86 17.60 85.56 23.64 309.66 Jun-14 7542.84 2599.45 6.49 9.00 58.43 42.12 81.05 Jul-14 7676.76 2421.85 1.78 -6.83 -12.13 3.15 46.68 Aug-14 7787.35 2546.90 1.44 5.16 7.44 2.08 26.66 Sep-14 8053.53 2625.20 3.42 3.07 10.51 11.68 9.45 Oct-14 7953.11 2551.35 -1.25 -2.81 3.51 1.55 7.91 Nov-14 8417.06 2490.05 5.83 -2.40 -14.02 34.03 5.77 Dec-14 8309.87 2671.25 -1.27 7.28 -9.27 1.62 52.95 Jan-15 8517.77 3139.80 2.50 17.54 43.88 6.26 307.67 Feb-15 8750.44 3137.40 2.73 -0.08 -0.21 7.46 0.01 Mar-15 8664.06 2875.00 -0.99 -8.36 8.26 0.97 69.95 Apr-15 8524.01 2666.10 -1.62 -7.27 11.75 2.61 52.80 May-15 8300.81 2976.65 -2.62 11.65 -30.50 6.86 135.68 Jun-15 8195.61 2991.40 -1.27 0.50 -0.63 1.61 0.25 Jul-15 8479.52 3149.65 3.46 5.29 18.33 12.00 27.99 Aug-15 8309.92 2898.10 -2.00 -7.99 15.97 4.00 63.79 Sep-15 7814.89 2679.80 -5.96 -7.53 44.87 35.49 56.74 Oct-15 8172.32 2883.70 4.57 7.61 34.80 20.92 57.89 Nov-15 7887.64 2806.95 -3.48 -2.66 9.27 12.14 7.08 Dec-15 7802.64 2820.25 -1.08 0.47 -0.51 1.16 0.22 TOTAL 22.78 55.44 373.27 296.39 1804.74 AVERAGE 0.95 2.31 VARIANCE 11.95 Β 1.17 α 1.20 σ 2ei 59.20 Ri 2.31 INTERPRETATION β= 1.17 Here, beta of ULTRATECH CEMENT is 1.17 which indicates that, 1% change in market price leads to 1.17 %change in price of ULTRATECH CEMENT. α= 1.20 It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 1.20.
- 49. 40 10. YES BANK MONTH NSE COMPANY Return X Return Y XY X² Y² X Y Dec-13 6304.00 370.10 Jan-14 6223.16 307.95 -1.28 -16.79 21.53 1.64 282.00 Feb-14 6098.75 304.75 -2.00 -1.04 2.08 4.00 1.08 Mar-14 6507.98 413.50 6.71 35.68 239.45 45.03 1273.42 Apr-14 6754.74 440.70 3.79 6.58 24.94 14.38 43.27 May-14 7083.16 569.45 4.86 29.21 142.05 23.64 853.51 Jun-14 7542.84 541.90 6.49 -4.84 -31.40 42.12 23.41 Jul-14 7676.76 541.05 1.78 -0.16 -0.28 3.15 0.02 Aug-14 7787.35 571.65 1.44 5.66 8.15 2.08 31.99 Sep-14 8053.53 558.50 3.42 -2.30 -7.86 11.68 5.29 Oct-14 7953.11 684.15 -1.25 22.50 -28.05 1.55 506.15 Nov-14 8417.06 710.40 5.83 3.84 22.38 34.03 14.72 Dec-14 8309.87 772.85 -1.27 8.79 -11.19 1.62 77.28 Jan-15 8517.77 862.50 2.50 11.60 29.02 6.26 134.56 Feb-15 8750.44 862.75 2.73 0.03 0.08 7.46 0.00 Mar-15 8664.06 816.55 -0.99 -5.35 5.29 0.97 28.68 Apr-15 8524.01 839.80 -1.62 2.85 -4.60 2.61 8.11 May-15 8300.81 882.60 -2.62 5.10 -13.35 6.86 25.97 Jun-15 8195.61 843.00 -1.27 -4.49 5.69 1.61 20.13 Jul-15 8479.52 828.70 3.46 -1.70 -5.88 12.00 2.88 Aug-15 8309.92 689.50 -2.00 -16.80 33.59 4.00 282.15 Sep-15 7814.89 729.60 -5.96 5.82 -34.65 35.49 33.82 Oct-15 8172.32 759.10 4.57 4.04 18.49 20.92 16.35 Nov-15 7887.64 766.50 -3.48 0.97 -3.40 12.14 0.95 Dec-15 7802.64 726.15 -1.08 -5.26 5.67 1.16 27.71 TOTAL 22.78 83.94 417.76 296.39 3693.44 AVERAGE 0.95 3.50 VARIANCE 11.95 β 1.23 α 2.33 σ 2ei 135.63 Ri 3.50 INTERPRETATION β= 1.23 Here, beta of YES BANK is 1.23 which indicates that, 1% change in market price leads to 1.23 %change in price of YES BANK . α= 2.33 It indicates the independent return of security. It means if market return is zero then still security will able to earn return of 2.33.
- 51. 42 CALCULATION OF WEIGHTS SECURITY NAME Zi Wi % HDFC 0.0814 0.282 28.205 YES BANK 0.0243 0.084 8.4016 ASIAN PAINTS LTD. 0.0601 0.2081 20.809 ULTRATECH CEMENT LTD. 0.0356 0.1234 12.34 GRASIM INDUSTRIES LTD. 0.0322 0.1115 11.153 TATA CHEMICALS LTD. 0.0551 0.1909 19.093 TOTAL 0.2888 INTERPRETATION: From the above table we can say that 28.21% amount is to be invested in HDFC, 8.40% amount is to be invested in YES BANK, 20.81% amount is to be invested in ASIAN PAINTS LTD, 12.34% amount is to be invested in ULTRATECH CEMENT LTD, 11.15% amount is to be invested in GRASIM INDUSTRIES LTD, 19.09% amount is to be invested in TATA CHEMICALS LTD. 28% 9% 21% 12% 11% 19% HDFC YES BANK ASIAN PAINTS LTD. ULTRATECH CEMENT LTD. GRASIM INDUSTRIES LTD. TATA CHEMICALS LTD.
- 53. 43 FINDINGS The YES bank has the highest return of 3.5% and the PNB has the lowest return of -2.88%. If the investor wants to earn a maximum return without considering the risk aspect then investment can be made on those securities which yield high returns. The return from PNB has the highest beta value of 2.24 which means that it is highly volatile. ULTRATECH CEMENT LTD (1.17), YES BANK (1.23), Larsen & Toubro Limited (1.95), GRASIM INDUSTRIES LTD (1.11) , TATA CHEMICALS LTD (1.34) ASIAN PAINTS LTD stock returns (1.08) have the beta values greater than 1 which means that they are also volatile. But, they are less volatile compared to the PNB security's return. The excess return to beta ratio measures the additional return on a security per unit of systematic risk. The HDFC's stock return has the highest excess return to beta ratio of 3.306 and that of HCL TECHNOLOGY Limited is the lowest at -1.650. This ratio provides the relationship between potential risk and reward involved in a security's return. The PNB’s stock return has the highest unsystematic risk σei2 of 375.40 and that of the HDFC bank has the least risk of 24.56. It is the unique risk affecting the firm due to certain factors affecting only the company issuing such security. It is the avoidable risk. The four securities ranking from 1 to 6 based on the Ci values were identified along with the proportion of investment to be made. The proportion of the investment to be made is 28.21% in HDFC’s stock, 8.40% in YES BANK’s stock, 20.81% in ASIAN PAINTS’s stock, 12.34% in ULTRATECH CEMENT’s stock, 11.15% in GRASIM INDUSTRIES’s stock, 19.09% in TATA CHEMICALS ’s stock. This implies that the majority of funds may be invested on the HDFC bank's stock.
- 55. 44 CONCLUSIONS Risk and return play an important role in making any investment decisions. This study aims at analyzing the opportunity that are available for investors as per as returns are concerned and the investment of risk thereof. Out of 10 companies taken for the study, 2 companies are showing negative return and the other 8 companies are showing positive returns. Risk is high in one company compare to other companies and also with negative return. Out of total ten companies, only 6 securities HDFC, YES BANK, ASIAN PAINTS, ULTRATECH CEMENT, GRASIM INDUSTRIES, TATA CHEMICALS. Securities are selected for portfolio investment with the help of Sharpe Model. And also the portion is made to invest in each security which frame as an efficient portfolio which can give higher return with minimum risk.
- 56. 45 RECOMMENDATIONS As per the study any investors can minimize his risk and maximize his return of his investment with the analyzing each securities which are included in his portfolio. With help of this analysis the investor can take decision whether a security should be included in the portfolio or not. The investor should be careful about including the data of various security at economic condition in his portfolio will give proper result. Investors should not select securities randomly in their portfolios. Investors should also consider the factors other than risk & return, which may affect from the outside in their investment decision.
- 58. 46 BIBLIOGRAPHY Web links http://www.nseindia.com/ http://www.netmba.com/statistics/covariance/ http://www.moneycontrol.com/ http://www.bseindia.com/ Reference Book: Security analysis and portfolio management, VIKAS PUBLISHING HOUSE PVT. LTD, PUNITHAVATHY PANDIAN & PHI learning private limited, S. KEVIN.