Risk & Return of Selected Company Securities Traded in BSE Sensex

Analytical study on the risk & return of selected company securities traded in BSE Sensex
INTRODUCTION
Any rational investor, before investing his or her invertible wealth in the stock, analyses
the risk associated with particular stock. The actual return he receives from a stock may vary
from his expected return and the risk is expressed in terms of variability of return. The down
side risk may be caused by several factors, either common to all stock or specific to a particular
stock. Investor in general would like to analyze the risk factors and a through knowledge of the
risk help him to plan his portfolio in such a manner so as to minimize the risk associated with
the investment.
RISK & RETURN:
Investment decisions are influenced by various motives. Some people invest in a

business to acquire control & enjoy the prestige associated with in. some people invest in
expensive yachts & famous villas to display their wealth. Most investors, however, are largely
guided by the pecuniary motive of earning a return on their investment. For earning returns
investors have to almost invariably bear some risk. In general, risk & return go hand in hand.
Sometimes the best investments are the ones you don't make. This is a maxim which
best explains the complexity of making investments. There are many investment avenues
available for investors today.
Different people have different motives for investing. For most investors their interest
in investment is an expectation of some positive rate of return. But investors cannot overlook
the fact that risk is inherent in any investment. Risk varies with the nature of return
commitment. Generally, investment in equity is considered to be more risky than investment in
debentures & bonds. A closer look at risk reveals that some are uncontrollable (systematic risk)
and some are controllable (unsystematic risk).
RETURN:
CMR CENTER FOR BUSINESS STUDIES

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Return is the primary motivating force that drives investment. It represents the reward
for undertaking investment. Since the game of investing is about returns (after allowing for
risk), measurement of realized (historical) returns is necessary to assess how well the
investment manager has done.
In addition, historical returns are often used as an important input in estimating future
prospective returns.
Components of Return:
The return of an investment consists of two components.
Current Return:
The first component that often comes to mind when one is thinking about return is the
periodic cash flow, such as dividend or interest, generated by the investment. Current return is
measured as the periodic income in relation to the beginning price of the investment.
Capital Return:
The second component of return is reflected in the price change called the capital
return- it is simply the price appreciation (or depreciation) divided by the beginning price of the
asset. For assets like equity stocks, the capital return predominates.Thus, the total return for any
security (or for that matter any asset) is defined as:
Total Return = Current return + Capital return
The current return can be zero or positive, whereas the capital return can be negative,
zero, or positive.
RISK AND RETURN ANALYSIS

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RISK:
Investor cannot talk about investment returns without talking about risk because
investment decisions invariably involve a trade-off between the risk & return. Risk refers to the
possibility that the actual outcome of an investment will differ from its expected outcome.
More specifically, most investors are concerned about the actual outcome being less
than the expected outcome. The wider range of possible outcomes, the greater the risk.
Investments have two components that create risk. Risks specific to a particular type of
investment, company, or business are known as unsystematic risks. Unsystematic risks can be
managed through portfolio diversification, which consists of making investments in a variety of
companies & industries. Diversification reduces unsystematic risks because the prices of
individual securities do not move exactly together. Increases in value & decreases in value of
different securities tend to cancel one another out, reducing volatility. Because unsystematic
risk can be eliminated by use of a diversified portfolio, investors are not compensated for this
risk.
Systematic risks, also known as market risk, exist because there are systematic risks
within the economy that affect all businesses. These risks cause stocks to tend to move
together, which is why investors are exposed to them no matter how many different companies
they own.
Investors who are unwilling to accept systematic risks have two options. First, they can
opt for a risk-free investment, but they will receive a lower level of return. Higher returns are
available to investors who are willing to assume systematic risk. However, they must ensure
that they are being adequately compensated for this risk. The Capital Asset Pricing Model
theory formalizes this by stating that companies desire their projects to have rates of return that
exceed the risk- free rate to compensate them for systematic risks & that companies desire
larger returns when systematic risks are greater. The other alternative is to hedge against
systematic risk by paying another entity to assume that risk. A perfect hedge can reduce risk to
nothing except for the costs of the hedge.
The market tends to move in cycles. A John Train says:

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“You need to get deeply into your bones the sense that any market, & certainly the
stock market, moves in cycles, so that you will infallibly get wonderful bargains every few
years, & have a chance to sell again at ridiculously high prices a few years later.”
Systematic Risk:
There is some risk, called systemic risk that you can't control. But if you learn to accept
risk as a normal part of investing, you can develop asset allocation and diversification strategies
to help ease the impact of these situations. And knowing how to tolerate risk and avoid panic
selling is part of a smart investment plan. The systematic risk is caused by the factors external
to the particular company and uncontrollable by the company. These are market risks that
cannot be diversified away. Interest rates, recessions & wars are examples of systematic risk.
The systematic risk is further subdivided into three types.
1. Market risk
2. Interest rate risk
3. Purchasing power risk
1. Market Risk:
This is the possibility that the financial markets will drop in value and create a ripple
effect in your portfolio. For example, if the stock market as a whole loses value, chances are
your stocks or stock funds will decrease in value as well until the market returns to a period of
growth. Market risk exposes you to potential loss of principal, since some companies don't
survive market downturns. But the greater threat is the loss of principal that can result from
selling when prices are low.
2. Interest rate risk:

This is the possibility that interest rates will go up. If that happens, inflation increases,
and the value of existing bonds and other fixed-income investments declines, since they're
worth less to investors than newly issued bonds paying a higher rate. Rising interest rates also
usually mean lower stock prices, since investors put more money into interest-paying
investments because they can get a strong return with less risk.
3. Purchasing power risk:

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Variations in the return are caused also by the loss of the purchasing power of currency.
Inflation is the reason behind the loss of the purchasing power. Purchasing power risk is
probable loss in the purchasing power of returns to be received.
Inflation may be demand pull or cost push inflation. On demand pull inflation the
demand for goods and services are in excess of their supply. At full employment level of
factors of production, economy would not be able to supply more goods in short run and the
demand for the products pushes the price upwards. The equilibrium between the demand and
the supply is attained at the higher price.
The cost push inflation as the name itself indicates that the inflation or the raise in the
price is caused by the increase in the cost. The increase in the cost of raw material, labour and
equipment makes the cost of production high and ends in high price level. Thus the cost
inflation has a spiraling effect on the price level.
Unsystematic Risk:
It is unique and peculiar to the firm or an industry. Unsystematic risk stems from
managerial inefficiency, technological change in the production process, availability of the raw
materials, changes in consumers preferences and labour problems. The unsystematic risk can be
classified into two types.
1. Business Risk 2. Financial Risk
1. Business Risk:
It is that portion of unsystematic risk caused by operating environment of the business.
Business risk arises from the inability of the firm to maintain its competitive edge and the
growth of the stability of the earning variation that occurs in the operating environment is
reflected in the operating income and expected dividends. It indicates business risk. Business
risk is any risk that can lower a business’s net assets or net income that could, in turn, lower the
return of any security based on it. Some business risks are sector risks that can affect every
company in a particular sector, while some business risks affect only a particular company.
2. Financial Risk:

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It refers to the variability of the income to the equity capital due to debt capital.
Financial risk in a company is associated with the capital structure of the company. Capital
structure of the company consists of equity funds and borrowed funds. The presence of debt
and preference capital results in commitment of paying interest or prefixed rate of dividend.
This arises due to changes in the capital structure of the company. It is also known as
leveraged risk and expressed in the terms of debt-equity ratio. Excess of debt over equity in the
capital structure of a company indicates that the company is highly geared even if the per
capital earnings of such company may be more. Because of highly dependence on borrowings
exposes to the risk of winding up for its inability to honour its commitments towards lenders
and creditors. So the investors should be aware of this risk and portfolio manager should also
be very careful.
3. Regulation Risk:
Some investment can be relatively attractive to other investments because of certain

regulations or tax laws that give them an advantage of some kind. Municipal bonds, for
example pay interest that is exempt from local, state and federal taxation. As a result of that
special tax exemption, municipal can price bonds to yield a lower interest rate since the net
after-tax yield may still make them attractive to investors. The risk of a regulatory change that
could adversely affect the stature of an investment is a real danger. In 1987, tax laws changes
dramatically lessened the attractiveness of many existing limited partnership that relied upon
special tax considerations as part of their total return. Prices for many limited partnership
tumbled when investors were left with different securities, in effect, than what they originally
bargained for. To make matter worse, there was not an extensive secondary market for these
liquid securities and many investors found themselves unable to sell those securities at anything
but “fire sale” prices if at all.
4.Reinvestment Risk:
It is important to understand that YTM is a promised yield, because investors can earn
the indicated yield only if the bond is held to maturity and the coupons are reinvested at the
calculated YTM (yield to maturity). Obviously, no trading can be done for a particular bond if
the YTM is to earned. The investor simply buys and holds.

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Reinvestment risk the YTM calculation assumes that the investor reinvests all
coupons received from a bond at a rate equal to computed YTM at the bond, thereby earning
interest over interest over the life of the bond at the computed YTM rate .in effect, this
calculation assumes that the reinvestment rate is the yield to maturity.
If the investor spends the coupons, or reinvest them at a rate different from the assumed
reinvestment rate of 10 percent, the realized yield that will actually be earned at the termination
of the investment in the bond will differ from the promised YTM. And, in fact, coupons almost
always will be reinvested at rates higher or lower than the computed YTM, resulting in a
realized yield that differs from the promised yield. This gives rise to reinvestment rate risk.
This interest-on-interest concept significantly affects the potential dollar return. The
exact impact is a function of coupon and time of maturity, with reinvestment becoming more
important as either coupon or time to maturity, or both, rises specifically.
1. Holding everything else constant, the longer maturity of a bond, the greater the
reinvestment risks.
2. Holding everything else constant, the higher the coupon rate, the greater the
dependence of the total dollar returns from the bond on the reinvestment of the coupon
payments.
In fact, for long-term bonds the interest-on-interest component of the total realized
yield may account for more than three-fourths of the bond’s total dollar return.
5.International Risk :
International risk can include both country risk and exchange rate risk.
1. Exchange Rate Risk:
All investors who invest internationally in today’s increasingly global investment arena
face the prospect of uncertainty in the returns after they convert the foreign gain back to their
own currency. Unlike the past when most U.S. investors ignored international investing
alternatives, investors today must recognize and understand exchange rate risk, which can be
defined as the variability in returns on securities caused by currency fluctuations. Exchange rate
risk is sometimes called currency risk.
Currency risk affects international mutual funds, global mutual funds, closed-end single
country funds, American depository receipts, foreign stocks and foreign bonds. For example, a
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U.S. investor who buys a German stock denominated in marks must ultimately convert the
returns from this stock back to dollars. If the exchange rate has moved against the investor,
losses from these exchange rate movements can partially or totally negate the original return
earned.
2. Country Risk:
Country risk, also referred to as political risk, is an important risk for investors today.
With more investors investing internationally, both directly and indirectly, the political, and
therefore economic, stability and viability of a country’s economy needs to be considered. The
United States has the lowest country risk, and other countries can be judged on a relative basis
using the United States as a benchmark. Example of countries that needed careful monitoring in
the 1990s because of country risk included the former Soviet Union and Yugoslavia, China,
Hong Kong and South Africa.
3. Liquidity Risk :
Liquidity risk is the risk associated with particular secondary market in which a security
trades. An investment that can be bought or sold quickly and without significant price
concession is considered liquid. The more uncertainty about the time element and the price
concession, the greater the liquidity risks. A treasury bill has little or no liquidity risk, whereas
a small OTC stock may have substantial liquidity risk.
RISK AVOIDANCE:
Investment planning is almost impossible without a thorough understanding of risk.

There is a risk/return trade off. That is, the greater risk is accepted, and the greater must be the
potential return as reward for committing one’s fund to an uncertain outcome. Generally, as the
level of risk rises, the rate of return should also rise, and vice versa. One way to handle risk is
to avoid it. Risk avoidance occurs when one chooses to completely avoid the activity the risk is
associated with. In the investment world, avoidance of some risk is deemed to be possible
through the act of investing in “risk-free” investments. Stock market risk can be completely
avoided by one choosing to have no exposure to it by not investing in equity securities.
1. Risk transfer:

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Another way to handle risk is to transfer the risk. Risk transfer in investing can be done
where one may choose to purchase a municipal bond that is insured. One may purchase a put
option on a stock, which allows the person to “put to” or sell to someone his or her stock at a
set price, regardless of how much lower the stock may drop. There are many examples of risk
transfer in the area of investing.
2. The Risk Averse Investor:
Do investors dislike risk? In economics in general, and investments in particular, the

standard assumption is that investors are rational. Rational investors prefer certainty to
uncertainty. A risk-averse investor is one who will not assume risk simply for its own sake and
will not incur any given level of risk unless there is an expectation of adequate compensation
for having done so. In fact, investors cannot reasonably expect to earn larger returns without
assuming larger risks. Investors deal with risk by choosing (implicitly or explicitly) the amount
of risk they are willing to incur. Some investors choose to incur high level of risk with
expectation of high levels of return. Other investors are unwilling to assume much risk, and
they should not expect to earn large returns.
MEANING OF RETURN :
Return is one of the primary objectives of investment, which acts as a driving force for
investment. Risk is inevitable and it is positively correlated with expected return. Return to an
investor is of two types, current yield and capital appreciation. Current yield is the return,
which is got in the form of individuals/interest whereas capital appreciation is the return, which
we get after liquidation of shares.
Return = Current yield (dividend/interest) + Capital
Appreciation/ Capital Gain
TYPES OF RETURN
1. HISTORICAL RETURN:
Return calculated are on past data which has already occurred is called as historical
return. Historical return is a post-mortem analysis of investment, which lacks insight for future.
Historical return is less risky and more accurate compared to expected return since it does not
involve prediction of interest or dividend or closing price. Historical return is also called as post
return or actual return.

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Return = Cash payment + Closing price – Beginning price
Beginning Price
2. EXPECTED RETURN
Return calculated based or future estimates and calculation is called as expected return.
Expected Return = Expected Dividend + Capital Gain (expected)
Beginning price
RISK MEASUREMENT:
Understanding the nature of risk is not adequate unless the investor or analyst is capable
of expressing it in some quantitative terms. Expressing the risk of a stock in quantitative terms
makes it comparable with other stocks. Measurement cannot be assured of cent percent
accuracy because risk is caused by numerous factors such as social, political, economic and
managerial efficiency. Measurement provides and approximates qualification of risk.
1. Volatility:
Of all the ways to describe risk, the simplest and possibly most accurate is “the
uncertainty of a future outcome”. The anticipated for some future period is known as expected
return. The actual return over some past period is known as the realized return. The simplest
fact that dominates investing is that the realized return on an asset with any risk attached to it
may be different from what was expected. Volatility may be described as the range of
movement (or price fluctuation) from the expected level of return. The more a stock. For
example, goes up and down in price, the more volatile that stock is. Because wide price swings
create more uncertainty of an eventual outcome, increased volatility can be equated with
increased risk. Being able to measure and determine the past volatility of a security is important
in that it provides some insight into the riskness of that security as an investment.
2. Standard Deviation :
Investors and analyst should be at least familiar with study of probability distributions.
Since the return, an investor will earn from investing is not known, it must be estimated.
Probability Distribution:
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Probability represent the likelihood of various outcomes and are typically expressed as a
decimal (sometimes fractions are used). The sum of the probabilities of all possible outcomes
must be 1.0, because they must completely describe all the (perceived) likely occurrences.
Probability distribution can be either discrete or continuous. With a discrete

probability, a probability is assigned to each possible outcome. With a continuous probability
distribution an infinite number of possible outcomes exist. The most familiar continuous
distribution is the normal distribution depicted by the well-known bell shaped curve often
used in statistics. It is a two-parameter distribution in that the mean and the variance fully
describe it.
To describe the single most likely outcomes from a particular probability distribution, it
is necessary to calculate its expected value. The expected value is average of all possible return
outcomes, where each outcome is weighted by its respective probability of occurrence. For
investors, this can be described as the expected return. To calculate the total risk associated
with the expected return, the variance or standard deviation is used. Since variance, volatility
and risk can in this context be used synonymously, the larger the standard deviation, the more
uncertain the outcome.
Calculating a standard deviation using probability distributions involves making

subjective estimates of the probabilities and the likely returns. However, we cannot avoid such
estimates because future returns are uncertain. The prices of securities are based on investors’
expectations about the future. The relevant standard deviation in this situation is the ex-ante
standard deviation and not the ex-post based on realized returns.
Although standard deviations are based on realized returns are often used as proxies for
ex-ante standard deviations, investors should be careful to remember that the past cannot
always be extrapolated into the future without modifications. Ex-post standard deviations may
be convenient, but they are subject to errors. One important point about the estimation of
standard deviation is the distinction between individual securities and portfolios.
Standard deviation is a measure of the total risk of an asset or a portfolio, including

therefore both systematic and unsystematic risk. It captures the total variability in the assets or
portfolio’s return, whatever the sources of that variability. In summary, the standard deviation
of return measures the total risk of one security or the total risk of a portfolio of securities.

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The historical standard deviation can be calculated for individual securities or portfolios
of securities using total returns for some specific period of time. This ex-post value is useful in
evaluating the total risk for a particular historical period and in estimating the total risk that is
expected to prevail over some future period.
3. Beta:
Beta is a measure of the systematic risk of a security that cannot be avoided through
diversification. Beta is a relative measure of risk-the-risk of an individual stock relative to the
market portfolio of all stocks. If the security’s returns move more (less) than the market’s
return as the latter changes, the security’s returns have more (less) volatility (fluctuations in
price) than those of the market. It is important to note that beta measures a security’s volatility,
or fluctuations in price, relative to a benchmark, the market portfolio of all stocks. Beta is
useful for comparing the relative systematic risk of different stocks and, in practice, is used by
investors to judge a stock’s riskiness. Stocks can be ranked by their betas. Because the variance
of the market is a constant across all securities for a particular period, ranking stocks by beta is
the same as ranking them by their absolute systematic risk. Stocks with high betas are said to be
high-risk securities.
OPERATIONAL DEFINITION OF CONCEPTS:
Portfolio: In finance, a portfolio is a collection of investments held by an institution or a

private individual. Holding a portfolio is part of an investment and risk-limiting strategy called
diversification. By owning several assets, certain types of risk (in particular specific risk) can
be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold
certificates, real estate, futures contracts, production facilities, or any other item that is
expected to retain its value.
Portfolio Management:
Portfolio management involves deciding what assets to include in the portfolio, given
the goals of the portfolio owner and changing economic conditions. Selection involves deciding
what assets to purchase, how many to purchase, when to purchase them, and what assets to
divest.

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These decisions always involve some sort of performance measurement, most typically
expected return on the portfolio, and the risk associated with this return (i.e. the standard
deviation of the return). Typically the expected return from portfolios comprised of different
asset bundles is compared.
Risk:
The chance that an investment's actual return will be different than expected. This
includes the possibility of losing some or all of the original investment. Risk is usually
measured by calculating the standard deviation of the historical returns or average returns of a
specific
investment. A fundamental idea in finance is the relationship between risk and return. The
greater the amount of risk that an investor is willing to take on, the greater the potential return.
The reason for this is that investors need to be compensated for taking
on additional risk.
Return:
The gain or loss of a security in a particular period. The return consists of

the income and the capital gains relative on an investment. It is usually quoted as a percentage.
The general rule is that the more risk you take, the greater the potential for higher return - and
loss.
Risk-Free Rate of Return:
The theoretical rate of return of an investment with zero risk. The risk-free rate
represents the interest an investor would expect from an absolutely risk-free investment over a
specified period of time. The risk-free rate is the minimum return an investor expects for any

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investment because he or she will not accept additional risk unless the potential rate of return is
greater than the risk-free rate.
Risk-Return Tradeoff:
The principle that potential return rises with an increase in risk. Low levels of
uncertainty (low risk) are associated with low potential returns, whereas high levels of
uncertainty (high risk) are associated with high potential returns. According to the risk-return
tradeoff, invested money can render higher profits only if it is subject to the possibility of being
lost.
RESEARCH DESIGN:
This chapter basically deals with the methodology that has been employed in this
dissertation. It covers the type of research used in this dissertation, sample size chosen, sample
description, data collection. Each will be described separately under the following headings.
A) Type of research:
This study is descriptive in nature. The main purpose of descriptive research is to
describe the state of view as it exists at present. The descriptive research deals with
demographic characteristics.
B) Sample size:

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For the dissertation 15 companies has been selected to conduct the study. The study
considers the financial year of 2010-11. Only ten months duration has been taken, its starts
from April 2010 to January 2011.
C) Data collection:
Basically, the data used in this study are secondary in nature. The monthly closing share
prices of companies. The dividend issued by the company. The data’s are collected in the from
of secondary in sources. The companies selected for research purpose consist of pharmacy,
heavy electrical, construction, finance, IT, petroleum, tobacco, and automobile sector.
The monthly closing share prices of the selected companies of BSE Sensex & the
dividends of the selected companies are obtained in business news papers like Economic Times
& Business Standard & also obtained through some of webs are BSE, Moneypore.com,
Rediffmoney.com, Moneycontrol.com and NSE India.com.
D) Techniques of Data Analysis:

In this study the data analysis is made through the statistical techniques of Modern
portfolio Theory Efficient Frontier (Markowitz frontier).
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").

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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. The efficient frontier is illustrated above, with return μ p on the y-axis, and risk σp on the
x-axis. 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
The various statistical tools used in this study are shown below.
Rate of Return:
The return of a security is nothing but the weighted average of the historical returns of
the securities held in a portfolio. Historical return (Rate of Return) of any security can be
calculated as the holding period yield of that security. It is to be computed with the following
formula:
Dividend + (P1- P0)
Rate of Return =
P0
Where P1 represents Current price of share
P0 represents Opening price of share
Expected Rate of Return:
The average of rate of returns, in securities analysis, it is the expected value, or mean, of
all the likely returns of investments comprising a portfolio. It is also known as "expected
return".
It is calculated by the following formula:

R = Rn
Standard Deviation
Risk is the chance that an investment's actual return will be different than expected.
Technically, this is measured in statistics by standard deviation. Risk means you have the
possibility of losing some, or even all, of our original investment. Standard deviation is a
statistical measurement that measures the risk of the securities. It is to be computed with the
following formula.

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σ=( R- ͞R )2n-1
Beta
Beta is the slope of the characteristic regression line. Beta describes the relationship
between the stock and the index returns.
β=n∑xy-(∑x)(∑y)n∑x2-(∑x)2
1) BETA = +1.0
One percent change in market return index return causes exactly one percent change in the
stock return. It indicates that the stock moves in tandem with the market.
2) BETA = +0.5
One percent change in market index return causes 0.5 per cent change in the stock return.
The stock is less volatile compared to the market.
3) BETA = +2.0
One percent change in market index return causes 2 percent change in the stock return. The
stock return is more volatile. When there is a decline of 10 percent in the market return, the
stock with a beta of 2 would give a negative return of 20 percent. The stock with more than 1
beta value is considered to be risky.
4) Negative beta value indicates that the stock return moves in the opposite direction to the market
return. A stock with a negative beta of -1 would provide a return of 10 percent, if the market
return declines by 10percent and vice versa.
5) Stocks with negative beta resist the decline in the market return, but stocks with negative
returns are very rare.
Alpha
The intercept of the characteristic regression line is alpha i.e. the distance between the
intersection and the horizontal axis. It indicates that the stock return is independent of the
market returns. A positive value of alpha is a healthy sign. Positive alpha value would yield
profitable return. According to the portfolio theory, in a well diversified portfolio the average
value of the alpha of all stock turns to be zero.

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= y-βx
OBJECTIVES OF THE STUDY:
1. To find expected rate of return & standard deviation of the companies.

2. To know the price fluctuations of the shares in the stock market for a particular period.
3. To know the importance of the risk analysis in trading.
4. To measure price volume relationship for individual stocks.
5. To know the shares yielding highest return from the companies selected for the study.
6. To know risk level of various companies selected for the study.
7. To give an insight to the investor who are looking for low risk and better return trade off from
the above analysis.
SCOPE OF THE STUDY:
To find expected rate of return & standard deviation of the shortlisted companies .To
know the price fluctuations of the shares in the stock market for a particular period .To know
the importance of the risk analysis in trading .To measure price volume relationship for
individual stocks .To know the shares yielding highest return from the companies selected for
the study .To know risk level of various companies selected for the study .To give an insight to
the investor who are looking for low risk and better return trade off from the above analysis.
This will helpful to the investors while investing in the securities.
LIMITATIONS OF THE STUDY:
1. This project covers only selected companies of BSE Sensex

2. The closing share prices of selected companies were taken only for the time period from March
2009 to January 2010.
3. Only ‘A’ group scrip of BSE Sensex in taken in this study.

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4. The study limited only to 15 stocks. The BSE Sensex consist of 30 scripts. So it does not truly
reflect as a whole.
OVERVIEW OF THE CHAPTER SCHEME:
The investors take a number of decisions in the process of investment. The investor has
to decide about his risk tolerance level and the nature of assets to be bought. Once he decides
he has to select it from the different alternatives. It should be selected on the basis of their risk
and return. The investors analyses the risk and returns of holding a particular stock for a
particular term. The study helps the investor to decide among different alternatives depending
on his/her risk tolerance.
Risk is the potential impact (positive or negative) to an asset or some characteristics of

value that may arise from some present process or from some future event. In everyday usage,
“risk” is often used synonymously with “probability” and restricted to negative risk or threat. In
professional risk assessment, risk combines the probability of an event occurring with the
impact that event would be.
Risk is a characteristics feature of all commodity and capital markets. Prices of all
commodities be they agricultural like wheat, cotton rice, coffee or tea or non-agricultural Like
silver, gold etc – are subject to fluctuation over time in keeping with prevailing demand and
supply conditions. Procedures or processors of these commodities obviously cannot be sure of
the prices that their production or processors are not sure what they would have to pay for their
buy. Similarly prices of shares and debentures or bonds and other securities are also subject to
continuous change. Those who are charged with the responsibility of managing money, their
own or of others are therefore constantly exposed to the threat of risk.
Risk is an essential yet precarious element of investing, one should, regardless of what
kind of investor you are; gain a fairly good awareness of how investors and companies work to
protect themselves. Whether or not you decide to start practicing these intricate uses of
derivatives, learning about how hedging works will help advance your understanding the
market, which will always help you be a better investor.
As risk management and their functions have become more prominent, it plays a vital
role for the investors to know the risk levels involved in their investment. It helps them to

19
analyze the levels of risk and opt for those securities, which yields high returns with minimal
risk.
The researcher has used various books, magazines, articles and Internet to analyze the
report. The study undertaken includes secondary data. The researcher has adopted casual
research for the study. A casual research is undertaken when the researcher is interested in
knowing the cause and effect relationship between two or more variables. Such studies are
based on reasoning along with tested lines.
The tables for main points are prepared and analyzed, graphs has been drawn where
ever necessary. Therefore, secondary data have been tabulated, graphically depicted and
analyzed. Based on this analysis the conclusions are drawn and recommendations are made.
The following methods are used for this analysis:
1. Rate of Return
2. Expected Return.
3. Standard deviation
4. Alpha.
5. Beta.
For the purpose of analyzing the long term trading return of the particular stock,
expected return, standard deviation, alpha, beta are calculated in order to know the variations of
the shares in the share market and companies that are considered for this analysis are

20
SL. No COMPANY
1 Axis Bank
2 Asian Paints
3 BHEL
4 Cipla
5 DLF
6 Hero Honda
7 Infosys
8 ITC
9 Indian Oil
10 ONGC
11 Mahindra & Mahindra
12 Reliance Capital
13 Tata Consultancy Services
14 Tata Steel
15 Wipro OVERVIEW OF
THE
COMPANY:
At Acumen, they believe that life is all about dreaming a big dream, planning how to
make that dream come true and then working towards achieving it. That’s why they made it
our driving force. And that is what they help our clients and associates to do.
The Dream
Cut to 1996: The Indian markets were still very small, largely unorganized, and more or
less a closed &opaque market. A group of professional stockbrokers dreamed of changing that.
The dream was to spread the equity market cult across the country and making investing a
pleasant experience. The Idea was to take the markets to the investors instead of the investors
having to come to the markets and to give them fair, transparent efficient & time bound
services. It was with this dream that the Acumen group was born.
The Plan

21
A lot of planning was required to achieve the lofty dreams that the promoters had. The
5 most important areas were identified :
• Great Human resource
• Entire range of financial products
• Great Technology
• Great Research and awareness programmes
• Great Infrastructure & Reach
Once the fundamentals were identified, they set about the putting the plan into action. A
good team was put in place, and HR policies were chalked out to fairly reward and retain our
human talents.
Memberships of all the leading exchanges, both in the capital markets (BSE & NSE for
both Cash and futures segment), commodities markets (MCX, NCDEX and NMCE) and
currency markets (NSE & MCX SX) were taken, as was that of NSDL for depository
operations, and portfolio management license for managing client portfolios. They also took
membership of DGCX, an international commodity and currency exchange based in Dubai.
They are also members of the MCX SX.
They now offer all financial products to our clients :
• Equity trading
• Commodity trading
• Currency Futures
• Interest Rate Futures
• Depository Services
• Mutual funds
• Insurance

22
• IPO
Realizing at a very early stage that technology would drive future growth and play the
key role in developing the Indian markets, they invested heavily in it, being one of the first to
use the CTCL ODIN software for front end trading, HCL’s private V Sat network for
connectivity, Apex Software’s Lidha Didha for back office servicing, and Asian CERC’s online
trading software for internet trading. It was a move that paid off, as is proven from the fact that
these software and technologies are today among the most sought after in the Indian Capital
markets. Talk about early movers.
They conducted training programmers’ across the country to make investors aware of
the changes happening in the financial markets and the opportunities that were opening up,
developed in-house research that were sent to our associates on a regular basis. Technical calls
for intraday trading and investments calls are regularly given to all our clients over mail, chat,
SMS and trading platforms.
Our service is customer oriented and so they believe the dictum: Customer is the king.
This ensures that our service and support adorns a cutting edge experience while dealing with
us.
Our dream is converted into action by the following group companies :
• Acumen Capital Market (India) Ltd
• Acumen Commodities (India) Ltd
• Peninsular Middle East DMCC
• PCML Properties Pvt. Ltd.
The Achievement
Thanks to the planning that went in into converting our dream into reality, they are well
on our way to achieve our dream. Over time, Acumen has emerged as a leading financial
services provider, having a network of 40,000 customers, spread over 12 states across the
country, served by over 375 associates, a figure that continues to grow aggressively in the near
future, thanks to our young, ambitious and service oriented team that combines well with the
23
team of experienced professionals at senior levels who have spent a life time in the financial
services sector.
At Acumen, they promise to keep to rediscovering ourselves & redefining our services
to ensure that they deliver what they dreamt and promised to deliver.
OVERVIEW OF THE INDUSTRY

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now
spanning three centuries in its 133 years of existence. What is now popularly known as BSE
was established as "The Native Share & Stock Brokers' Association"in1875.
BSE is the first stock exchange in the country which obtained permanent recognition (in 1956)
from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's
pivotal and pre-eminent role in the development of the Indian capital market is widely
recognized. It migrated from the open outcry system to an online screen-based order driven
trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatized
and demutualised entity incorporated under the provisions of the Companies Act, 1956,
pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the
Securities and Exchange Board of India (SEBI). With demutualization, BSE has two of world's
best exchanges, Deutsche Bores and Singapore Exchange, as its strategic partners.
Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector
by providing it with an efficient access to resources. There is perhaps no major corporate in
India which has not sourced BSE's services in raising resources from the capital market.
Today, BSE is the world's number 1 exchange in terms of the number of listed
companies and the world's 5th in transaction numbers. The market capitalization as on
December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700
listed companies, which for easy reference, are classified into A, B, S, T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic
stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The
SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and
market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices.
BSE has entered into an index cooperation agreement with Deutsche Brose. This agreement has
24
made SENSEX and other BSE indices available to investors in Europe and America. Moreover,
Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has
created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF
enables investors in Hong Kong to take an exposure to the Indian equity market.
BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated
futures trading of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly
participate in India's equity markets for the first time, without requiring American Depository
Receipt (ADR) authorization. The first Exchange Traded Fund (ETF) on SENSEX, called
"SPICE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the
purposes of investment, trading, hedging and arbitrage. SPICE allows small investors to take a
long-term view of the market.
BSE provides an efficient and transparent market for trading in equity, debt instruments
and derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of
India. BSE has always been at par with the international standards. The systems and processes
are designed to safeguard market integrity and enhance transparency in operations. BSE is the
first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It
is also the first exchange in the country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading
System (BOLT).
BSE continues to innovate. In recent times, it has become the first national level stock
exchange to launch its website in Gujarati and Hindi to reach out to a larger number of
investors. It has successfully launched a reporting platform for corporate bonds in India
christened the ICDM or Indian Corporate Debt Market and a unique ticker screen aptly named
'BSE Broadcast' which enables information dissemination to the common man on the street.
In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic
Reporting System) to facilitate information flow and increase transparency in the Indian capital
market. While the Directors Database provides a single-point access to information on the
boards of directors of listed companies, the ICERS facilitates the corporate in sharing with BSE
their corporate announcements.

25
BSE also has a wide range of services to empower investors and facilitate smooth
transactions
Investor Services: The Department of Investor Services redresses grievances of

investors. BSE was the first exchange in the country to provide an amount of Rs.1 million
towards the investor protection fund; it is an amount higher than that of any exchange in the
country. BSE launched a nationwide investor awareness program me- 'Safe Investing in the
Stock Market' under which 264 programmes were held in more than 200 cities.
The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line
screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations
located across over 450 cities in India.
BSEWEBX.com: In February 2001, BSE introduced the world's first centralized

exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors
anywhere in the world to trade on the BSE platform.
Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis

the price movements, volume positions and members' positions and real-time measurement of
default risk, market reconstruction and generation of cross market alerts.
BSE Training Institute: BTI imparts capital market training and certification, in
collaboration with reputed management institutes and universities. It offers over 40 courses on
various aspects of the capital market and financial sector. More than 20,000 people have
attended the BTI programmes.
AWARDS:
➢ The World Council of Corporate Governance has awarded the Golden Peacock Global CSR
Award for BSE's initiatives in Corporate Social Responsibility (CSR).
➢ The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31
2007 have been awarded the ICAI awards for excellence in financial reporting.

26
➢ The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its
efforts in employer branding through talent management at work, health management at work
and excellence in HR through technology.
➢ Drawing from its rich past and its equally robust performance in the recent times, BSE will
continue to remain an icon in the Indian capital market.
ANALYSIS & INTERPRETATION OF DATA
The rate of return, expected rate of return (Mean) & Risk (Standard Deviation, Alpha &
beta) are determined by using the formulas for the following company.
1- Market return
Month Market Month Market

April 0.0055 September 0.1161
May -0.0364 October -0.0020
June 0.0444 November -0.0258
July 0.0104 December 0.0464
August 0.0065 January -0.1025
Table 1.Market Rate of Return, Expected Rate of Return & Risk
[Source: Primary Data NSDL]
Risk (Standard
Expected Rate of Return
Deviation)
0.00626 0.0828

27
Exhibit 1- Return of market
Inference:
The expected rate of return of S&P CNX NIFTY for the past ten months from April
2010 to January 2011 is showing the positive trend of 0.00626 with the standard deviation of
0.0828.
Month Axis Bank Month Axis Bank
April September
0.0976 0.1639
May October
-0.0205 -0.0345
June November
0.0179 -0.0632
July December
0.0910 -0.0154
August January -0.0593
-0.0007
2- Axis bank
Table 2: Axis Bank Rate of Return, Expected Rate of Return & Risk

28
Beta Alpha Expected Rate of Risk (Standard

Return Deviation)
0.9368 0.1182
0.01768 0.1783
Exhibit 2- Axisbank rate of return
Inference:
The expected rate of return of Axis Bank for the past ten months from April 2010 to
January 2011 is showing the positive trend of 0.01768 with the standard deviation of 0.1783. It
is interpreted that the share price of Axis Bank is not improving trend. The company yields a
dividend of Rs.12 per share. Since the beta is positive and is almost one (0.9368) the stock
tends to move with the market. The excess return to risk (i.e. alpha) is positive which is very
good for stock.
3- Asian paints
Table 3: Asian paints Rate of Return, Expected Rate of Return & Risk

29
Month Asian paints Month Asian paints
April September
0.0238 -0.0328
May October
0.0079 0.0122
June November
0.1071 -0.0110
July December
0.1349 0.0897
August January
0.0643 -0.1016

Return Deviation)
0.5220 0.2618
0.02947 0.2884
Exhibit 3 Asian paints rate of return
Inference:
The expected rate of return of Asian Paints for the past ten months from April 2010 to January
2011 is showing the positive trend of 0.2947 with the standard deviation of 0.2884. It is
interpret that the lesser the risk lesser the return. The dividend yield by the company is Rs.8.5
per share. Since the beta is less than one (i.e. 0.5220) . The excess return to risk (i.e. alpha) is
positive which is a good sign of the stock for the investor to invest.

30
4- BHEL
Table 4: BHEL Rate of Return, Expected Rate of Return & Risk
Month BHEL Rate of return Month BHEL Rate of return

May -0.0508 October -0.0039
July -0.0035 December 0.0600
August -0.0077 January -0.0399

Return Deviation)
0.5935 -0.0479 -0.0010 0.0520
Exhibit 4: BHEL rate of return

31
Inference:
The expected rate of return of BHEL for the past ten months from April 2010 to January
2011 is showing the negative trend of -0.00107 with the standard deviation of 05935. It is
interpret that the share price of BHEL is in improving trend. The company yields a dividend of
Rs.12.3 per share. Since the beta is less than one (i.e. 0.05935). The excess return to risk (i.e.
alpha) is negitive and the investors are not advisable to invest in this stock.
5- CIPLA
Table 5: Cipla Rate of Return, Expected Rate of Return & Risk
Month Cipla Rate of Return Month Cipla Rate of Return

May -0.0671 October 0.0994

32

Return Deviation)
0.8405 -0.0040 0.0048 0.2507
Exhibit 5: CIPLA rate of return
Inference:
The expected rate of return of Cipla for the past ten months from April 2010 to January
interpret that the lesser the standard deviation lesser the expected return. The dividend yield by
the company is Rs.1 per share. Since the beta is positive (i.e.0.8405) the stock will move in
normal direction to the market. The excess return to risk (i.e. alpha) is negitive and not
advisable for the investors to invest in this stock.
6- DLF
Table 6: DLF Rate of Return, Expected Rate of Return & Risk

33
Month DLF Rate of Return Month DLF Rate of Return

May -0.1029 October -0.0661
July 0.0484 December -0.0392
Beta: Alpha: Expected Rate of Risk (Standard

Return Deviation)
2.0861 -0.3072 -0.01766 0.2118
Exhibit 6: DLF rate of return
Inference:
The expected rate of return of DLF for the past ten months from April 2010 to January
2011 is showing the negative trend of -0.01766 with the standard deviation of 0.2118. Though
the company yield a dividend of Rs.2 per share. Since this is a high beta stock (i.e. 2.0861). The
excess return to risk (i.e. alpha) is negative and it is not advisable for investment

34
7- HEROHONDA
Table 7: Hero Honda Rate of Return, Expected Rate of Return & Risk
Hero Honda Rate of

Month Hero Honda Rate of Return Month
Return
0
April September
0.0536
May 0.0272 October 0.0199
June 0.0733 November 0.0794

Return Deviation)
0.7658 -0.0359 0.00118 0.0774
Exhibit 7: HEROHONDA rate of return
Inference:

35
The expected rate of return of Hero Honda for the past ten months from April 2010 to
is interpret that the lesser the risk lesser the return. The dividend yield by the company is Rs.30
per share. Since the beta is less than one (i.e. 0.7658). The excess return to risk (i.e. alpha) is
negative and it is not advisable to invest in this stock.
8- INFOSYS
Table 8: Infosys Rate of Return, Expected Rate of Return & Risk
Month Infosys Rate of Return Month Infosys Rate of Return

May -0.0146 October -0.0128

36

Return Deviation)
1.0664 0.2717 0.03385 0.3288
Exhibit 8: INFOSYS rate of return
Inference:
The expected rate of return of Infosys Technologies for the past ten months from April
2010 to January 2011 is showing the positive trend of 0.03385 with the standard deviation of
0.3288. It is interpreted that the higher the risk higher the return, the share price of the Infosys
Technologies is in positive trend. The dividend yield by the company is Rs.40 per share. Since
the beta is more then one (i.e. 1.0664). The excess return to risk (i.e. alpha) is positive and it is
advisable to invest in this stock.
9 - ITC
Table 9: ITC Rate of Return, Expected Rate of Return & Risk

37
Month ITC Rate of Return Month ITC Rate of Return


Return Deviation)
0.6340 0.1289 0.01685 0.2315
Exhibit 9: ITC rate of return
Inference:
The expected rate of return of ITC for the past ten months from April 2010 to January
interpreted that the lesser the risk lesser the return, the share price of the ITC is in positive
trend. The dividend yield by the company is Rs.10 per share. The excess return to risk (i.e.
alpha) is positive and advisable for investment for investors.

38
10 - INDIANOIL
Table 10: Indian oil Rate of Return, Expected Rate of Return & Risk
Month Indian oil Rate of Return Month Indian oil Rate of Return
August 0.1713 January 0.0234

Return Deviation)
0.1246 0.5333 0.05561 0.5399
Exhibit 10: INDIAN OIL rate of return
Inference:
The expected rate of return of Indian Oil for the past ten months from April 2010 to

39
is interpreted that the lesser the risk lesser the return, the share price of the Indian oil is in
positive trend. The dividend yield by the company is Rs.13 per share. Since the beta is more
then one (i.e. 0.1246) . The excess return to risk (i.e. alpha) is positive which is a good sign of
the stock for investment.
11- ONGC
Table 6.11 ONGC Rate of Return, Expected Rate of Return & Risk
Month ONGC Rate of Return Month ONGC Rate of Return

April -0.0237 September 0.0620
May 0.1232 October -0.0591

Return Deviation)
0.6106 0.1980 0.02361 0.2188

40
Exhibit 11: ONGC rate of return
Inference:
The expected rate of return of ONGC for the past ten months from April 2010 to
January 2011 is showing the positive trend of 0.02361 with the lesser standard deviation of
0.2188. It is interpret that the share price of ONGC is in declining trend. Due to the fact that the
current price of ONGC is less than the base price, though the company yield a dividend of
Rs.17 per share. Since the beta is more than one (i.e. 0.6106). The excess return to risk (i.e.
alpha) is positive & it is advisable for the investors to invest.
12- MAHINDRA & MAHINDRA
Table 12- Mahindra & Mahindra Rate of Return, Expected Rate of Return & Risk

41
Mahindra & Mahindra Rate Mahindra & Mahindra

Month Month
of Return Rate of Return
September
April -0.0139 0.1140

Return Deviation)
0.6455 0.3752 0.04156 0.3997
Exhibit 12: MAHINDRA & MAHINDRA rate of return
Inference:
The expected rate of return of Mahindra & Mahindra for the past ten months from April
2010 to January 2011 is showing the positive trend of 0.04156 with the lesser standard
deviation of 0.3997. It is interpret that the share price of Mahindra & Mahindra is in declining
trend. Due to the fact that the current price of Mahindra & Mahindra is less than the base price,
though the company yield a dividend of Rs.7.5 per share. Since the beta is more than one (i.e.
0.6455). The excess return to risk (i.e. alpha) is positive and it is advisable for the investors to
invest.

42
13- RELIANCE CAPITAL
Table 13: Reliance capital Rate of Return, Expected Rate of Return & Risk
Reliance capital Rate of Reliance capital Rate of

Month Month
Return Return
May -0.1062 October 0.0519

Return Deviation)
1.5180 -0.3010 -0.02060 0.2285
Exhibit 13: RELIANCE CAPITAL rate of return
Inference:

43
The expected rate of return of Reliance Capital for the past ten months from April 2010
to January 2011 is showing the negitive trend of -0.02060 with the lesser standard deviation of
0.2285. It is interpret that the share price of Reliance Capital is in declining trend. Due to the
fact that the current price of Reliance Capital is less than the base price, though the company
yield a dividend of Rs.6.50 per share. Since the beta is more then one (i.e. 2.62) . The excess
return to risk (i.e. alpha) is negative which is not a good sign of the stock for investment.
14- TATA CONSULTANCY
Table 14: Tata consultancy services Rate of Return, Expected Rate of Return & Risk
Tata consultancy services Tata consultancy

Month Month
Rate of Return services Rate of Return
May -0.0261 October 0.1387
[Source: Primary data NSDL]

44

Return Deviation)
0.5011 0.4127 0.04435 0.4251
Exhibit 14: TATA CONSULTANCY SERVICES rate of return
Inference:
The expected rate of return of TCS for the past ten months from April 2010 to January
2011 is showing the positive trend of 0.04435 with the lesser standard deviation of 0.4251. It is
interpret that the share price of TCS is in declining trend. Due to the fact that the current price
of TCS is less than the base price, though the company yield a dividend of Rs.2 per share.
Since the beta is (i.e. 0.5011) . The excess return to risk (i.e. alpha) is positive & advisable to
invest by the investors.
15- TATA STEEL
Table 15: Tata steel Rate of Return, Expected Rate of Return & Risk

45
Bank of Baroda Rate of

Month Tata steel Rate of Return Month
Return
May -0.1793 October -0.0828
June -0.0140 November 0.0051

Return Deviation)
1.6432 0.1217 0.02245 0.2494
Exhibit 15: TATA STEEL rate of return
Inference:
The expected rate of return of Tata Steel for the past ten months from April 2010 to
January 2011 is showing the positive trend of 0.02245 with the lesser standard deviation of
0.2494. It is interpret that the share price of Tata Steel is in declining trend. Due to the fact that
the current price of Tata Steel is less than the base price, though the company yield a dividend
of Rs.8 per share. Since the beta is more then one (i.e. 1.6432) . The excess return to risk (i.e.
alpha) is positive which is a good sign of the stock for investment.

46
16- WIPRO
Table 16: Wipro Rate of Return, Expected Rate of Return & Risk
Month Wipro Rate of Return Month Wipro Rate of Return

May 0 October -0.0622
June -0.4230 November 0.0024

Return Deviation)
0.5796 -0.3093 -0.0273 0.3067
Exhibit 16: WIPRO rate of return
Inference:
The expected rate of return of Wipro for the past ten months from April 2010 to January
2011 is showing the negitive trend of -0..2730 the lesser standard deviation of 0.3067. It is
interpret that the share price of Wipro is in declining trend. Due to the fact that the current price
47
of Wipro is less than the base price, though the company yield a dividend of Rs.2 per share.
Since the beta is more then one (i.e. 0.5796) . The excess return to risk (i.e. alpha) is negative
which is not a good sign of the stock for investment.
Table 17:
Expected Return & Risk (Standard Deviation) of Selected Companies
RISK
SL. EXPECTED
COMPANY (STANDARD
No RETURN
DEVIATION)
1 Axis Bank
0.01768 0.1783
2 Asian Paints
0.02947 0.2884
3 BHEL
-0.00107 0.0520
4 Cipla
0.00487 0.2507
5 DLF
-0.01766 0.2118
6 Hero Honda
0.00118 0.0774
7 Infosys
0.03385 0.3288
8 ITC
0.01685 0.2315
9 Indian Oil
0.05561 0.5399
10 ONGC
0.02361 0.2188
11 Mahindra & Mahindra
0.04156 0.3997

48
12 Reliance Capital
-0.02060 0.2285
13 Tata Consultancy
0.04435 0.4251
Services
14 Tata Steel
0.02245 0.2494
15 Wipro
-0.0273 0.3067
Exhibit 17: Expected Return of selected companies.
The graph is exibiting the expected return of all the companies that has selected for the
purpose of calculation.
Exhibit 18: Risk (standard deviation) of selected companies
The graph is showing exibiting the risk standard deviation of all the companies that has
selected for the purpose of calculation.
Exhibit 19: Expected return and risk of selected companies

49
The table is showing expected return and risk (standard deviation) of the selected 15
companies. All the companies is showing positive expected return but 4 companies which is
showing negative expected return. INDIAN OIL is the company which is having high expected
return (55.61%) and risk (standard deviation) 53.99% and it is interpreted in the graph.
FINDINGS :
There is a huge variation of return and standard deviation given by different companies.
There is an inconsistency in rate of return of the selected companies.
The return and risk doesn’t follow linear relationship.Ref table/Chart
From the study it is clear that the Indian Oil Company earn the highest expected return of
55.61%. & it has the highest risk of 53.99%
There is much volatility in the rate of return of the selected companies.
Analysis of risk & return of the 15 securities of BSE Sensex shows that majority of securities
shows positive trend in the expected return (4 company is in negative trend).
From the study it is clear that ‘A’ group scrip BSE Sensex the low return at low risk.
From the study it is clear that the ONGC earn the highest expected return of 23.61%. & it has
the Lowest risk of 21.88%

50
SUGGESTIONS:
(a) Suggestions For The Investors:
The company should go for projected risk to reduce future risk.
Even, companies with negative returns will diversify risk by short selling.
The company should earn the consistent rate of return; it results in high expected return.
Investments in equities should be given longer time horizon to perform.
If the investor wants the high return of securities then the investor is ready to take the higher
risk.
(b) Suggestions for the brokers:
Brokers should analyze the risk and return of the companies and suggest the investors in
which company they can invest and the reasons why they are suggesting these companies. If
possible show the investors about the findings and calculation for the investors.

51
CONCLUSION:
Given longer time horizon, equities perform better compared to other investments.
Relatively stocks are very volatile.
Diversification reduces risk, more the diversification, less is the risk associated.
Past returns does not promise future returns.
Risk persists even after diversification.

Analyses of individual securities bring out the performance of risk & return of the
securities.

52
BIBLIOGRAPHY
Books:
1. Prasanna Chandra, second edition (2005), “Investment Analysis & Portfolio Management”,
Tata McGraw Hill Publication.
2. Portfolio Management Theory & Practice, ICFAI.
3. Security analysis and portfolio management- punithavathy pandian
Websites
www.moneycontrol.com
investopedia.com
www.rediffmoneywiz.com
www.economictimes.com
www.bseindia.com
www.googlefinance.com

53
ANNEXURE
SL. No COMPANY DIVIDEND PER SHARE (Rs)
1 Axis Bank 12
2 Asian Paints 8.5
3 BHEL 12.3
4 Cipla 1
5 DLF 2
6 Hero Honda 30
7 Infosys 40
8 ITC 10
9 Indian Oil 13
10 ONGC 17
11 Mahindra & Mahindra 7.5
12 Reliance Capital 6.5
13 Tata Consultancy Services 2
14 Tata Steel 8
15 Wipro 2
Dividends of the Companies

54
The closing share price of the companies from March 2010 to January 2011
Com
Asian
pany Axis Bank BHEL Cipla DLF
Paints
Months
March 1168 2038 2390 338 309
April 1270 2078 2492 343 311
May 1232 2086 2353 319 277
June 1242 2301 2459 339 289
July 1343 2603 2438 326 301
August 1330 2762 2407 303 302
September 1536 2663 2478 322 378
October 1471 2687 2456 353 351
November 1366 2649 2204 343 306
December 1333 2878 2324 370 292
January 1242 2577 2219 332 224

55
Com
Mahindra
pany Hero
Infosys Indian oil ITC &
Honda
Mahindra
Months
March 1945 2616 294 263 541
April 1915 2738 295 266 526
May 1937 2658 353 283 573
June 2049 2791 403 305 627
July 1814 2788 362 309 661
August 1792 2713 411 163 627
September 1858 3050 417 178 691
October 1865 2971 418 171 734
November 1983 3051 347 172 765
December 1988 3443 342 175 778
1633 3118 337 163 713

January

56
Com
Reliance
pany ONGC Tata steel TCS Wipro
capital
Months
March 1098 756 632 780 706
April 1055 739 619 765 671
May 1168 654 500 743 669
June 1321 763 485 751 384
July 1240 783 537 840 412
August 1338 758 523 844 400
September 1404 780 652 927 450
October 1304 814 590 1053 420
November 1245 650 585 1076 419
December 1288 668 680 1165 491
January 1178 523 640 1160 438

57

58

Risk & Return of Selected Company Securities Traded in BSE Sensex

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Risk & Return of Selected Company Securities Traded in BSE Sensex

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Analytical study on the risk & return of selected company securities traded in BSE Sensex

RISK & RETURN:

Investment decisions are influenced by various motives. Some people invest in a

CMR CENTER FOR BUSINESS STUDIES

Total Return = Current return + Capital return

RISK AND RETURN ANALYSIS

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CMR CENTER FOR BUSINESS STUDIES

2. Interest rate risk:

3. Purchasing power risk:

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Some investment can be relatively attractive to other investments because of certain

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1. Exchange Rate Risk:

Investment planning is almost impossible without a thorough understanding of risk.

CMR CENTER FOR BUSINESS STUDIES

2. The Risk Averse Investor:

Do investors dislike risk? In economics in general, and investments in particular, the

Return = Current yield (dividend/interest) + Capital

Appreciation/ Capital Gain

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Return = Cash payment + Closing price – Beginning price

Expected Return = Expected Dividend + Capital Gain (expected)

Probability distribution can be either discrete or continuous. With a discrete

Calculating a standard deviation using probability distributions involves making

Standard deviation is a measure of the total risk of an asset or a portfolio, including

CMR CENTER FOR BUSINESS STUDIES

OPERATIONAL DEFINITION OF CONCEPTS:

Portfolio: In finance, a portfolio is a collection of investments held by an institution or a

CMR CENTER FOR BUSINESS STUDIES

The gain or loss of a security in a particular period. The return consists of

Risk-Free Rate of Return:

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CMR CENTER FOR BUSINESS STUDIES

D) Techniques of Data Analysis:

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It is calculated by the following formula:

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CMR CENTER FOR BUSINESS STUDIES

OBJECTIVES OF THE STUDY:

1. To find expected rate of return & standard deviation of the companies.

3. To know the importance of the risk analysis in trading.

4. To measure price volume relationship for individual stocks.

6. To know risk level of various companies selected for the study.

SCOPE OF THE STUDY:

LIMITATIONS OF THE STUDY:

1. This project covers only selected companies of BSE Sensex

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OVERVIEW OF THE CHAPTER SCHEME:

Risk is the potential impact (positive or negative) to an asset or some characteristics of

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The following methods are used for this analysis:

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