1

A STUDY ON RISK-RETURN ANALYSIS OF HDFC AND

ICICI SECURITIES
(WITH REFERENCE TO VENTURA SECURITIES LTD)


A Project report submitted to Jawaharlal Nehru Technological University,
Hyderabad, in partial fulfillment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION


By
AISHA BEGUM
Reg. No. 10241E0003

Under the Guidance of
S.Ravindra Chary
Associate Professor



Department of Management Studies
Gokaraju Rangaraju Institute of Engineering & Technology
(Affiliated to Jawaharlal Technological University, Hyderabad)
Hyderabad
2010-2012
2

CERTIFICATE

This is to certify that the project entitled A Study on Risk-Return
Analysis of HDFC and ICICI Securities has been submitted by Ms.Aisha
Begum (Reg. No. 10241E0003) in partial fulfillment of the requirements for the
award of Master of Business Administration from Jawaharlal Nehru
Technological University, Hyderabad. The results embodied in the project have
not been submitted to any other University or Institution for the award of any
Degree or Diploma.





(S.Ravindra Chary) (KVS Raju)
Internal Guide Professor & HOD
Associate Professor Department of Management Studies
Department of Management Studies GRIET
GRIET




(S. Ravindra Chary)
(Project Coordinator)
Associate Professor
Department of Management Studies
GRIET











DECLARATION

3




I hereby declare that the project entitled A Study On Risk-Return
Analysis of HDFC and ICICI Securities At Ventura Securities Ltd
submitted in partial fulfillment of the requirements for award of the degree of MBA at
Gokaraju Rangaraju Institute of Engineering and Technology, affiliated to
Jawaharlal Nehru Technological University, Hyderabad, is an authentic work and has
not been submitted to any other University/Institute for award of any degree/diploma.









AISHA BEGUM
(10241E0003)
MBA, GRIET
HYDERABAD















ACKNOWLEDGEMENT



4

Firstly I would like to express our immense gratitude towards our institution
Gokaraju Rangaraju Institute of Engineering & Technology, which created a great
platform to attain profound technical skills in the field of MBA, thereby fulfilling our most
cherished goal.
I would thank the Research analyst of VENTURA SECURITIES LTD specially Mr.
Mohammed Akbar (Manager) and Mr.Vasiuddin (proprietor) of Franchise Ventura Securities
Limited for guiding me and helping me in successful completion of the project

I am very much thankful to our Mr. S. Ravindra Chary (Internal Guide) sir for
extending his cooperation in doing this project.

I am also thankful to our project coordinator Mr. S. Ravindra Chary for extending his
cooperation in completion of Project.

I convey my thanks to my beloved parents and my faculty who helped me directly or
indirectly in bringing this project successfully.




AISHA BEGUM
(10241E0003)












INDEX

Chapters Contents Page No:

Chapter 1 Introduction
5

1.1 Introduction 2
1.2 Need of the study 3
1.3 Scope of the study 4
1.4 Objectives of the study 5
1.5 Research methodology 6
1.6 Limitations of the study 7
Chapter 2 2.1 Industry profile 9
2.2 Company profile 22
Chapter 3 Literature Review
3.1 Risk Analysis 32
3.2 Types of risks 34
3.3 Measurement of risk 39
3.4 Return Analysis 42
3.5 Risk and return Trade off 45
3.6 Risk-return relationship 46
Chapter 4 Data Analysis & Interpretation 49
Chapter 5 Findings & suggestion 67
Chapter 6 Bibliography 71


CHAPTER: 1


1.1 Introduction
1.2 Need of the study
1.3 Scope of the study
6

1.4 Objectives of the study
1.5 Research methodology
1.6 Limitations of the study


7

1.1 INTRODUCTION

The risk/return relationship is a fundamental concept in not only financial analysis, but in
every aspect of life. If decisions are to lead to benefit maximization, it is necessary that
individuals/institutions consider the combined influence on expected (future) return or benefit
as well as on risk/cost. Return expresses the amount which an investor actually earned on an
investment during a certain period. Return includes the interest, dividend and capital gains;
while risk represents the uncertainty associated with a particular task. In financial terms, risk
is the chance or probability that a certain investment may or may not deliver the
actual/expected returns.
The risk and return trade off says that the potential return rises with an increase in risk. It is
important for an investor to decide on a balance between the desire for the lowest possible
risk and highest possible return.






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1.2 NEED FOR THE STUDY

In the finance field, it is a common knowledge that money or finance is scarce and that
investors try to maximize their returns. But when the return is higher, the risk is also higher.
Return and risk go together and they have a tradeoff. The art of investment is to see that
return is maximized with minimum risk.
In the above discussion we concentrated on the word investment and to invest we need to
analyze securities. Combination of securities with different risk-return characteristics will
constitute the portfolio of the investor.




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1.3 SCOPE OF THE STUDY

The study covers all the information related to the investor risk-return relationship of
securities. It is confined to five years data of ICICI and HDFC securities. It also includes the
calculation of individual standard deviations which helps in allocating the funds available for
investment based on risky portfolios.





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1.4 OBJECTIVES OF THE STUDY

1. To study the fluctuations in share prices of selected companies.
2. To study the risk involved in the securities of selected companies.
3. To make comparative study of risk and return of ICICI& HDFC.
4. To study the systematic risk involved in the selected companies securities.
5. To offer some suggestions to the investors.








11

1.5 METHODOLOGY OF THE STUDY

The data used in this project is of secondary nature. The data is collected from secondary
sources such as various websites, journals, newspapers, books, etc., the analysis used in this
project has been done using selective technical tools. In Equity market, risk is analyzed and
trading decisions are taken on basis of technical analysis. It is collection of share prices of
selected companies for a period of five years.


This is the study of Risk-Return analysis for a period of five years (2007-2012).



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1.6 LIMITATIONS


This study has been conducted purely to understand Risk-return characteristics for
investors.
The study is restricted to only two selected companies.
Very few and randomly selected scripts/companies are analyzed from BSE listings
The study is limited to banking companies only.




13








CHAPTER: 2





2.1 INDUSTRY PROFILE

2.2 COMPANY PROFILE
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INDUSTRY PROFILE
Indian financial market consists of money market and capital market. Money market is
mainly for the short-term needs and capital market for long term needs.

CAPTAL MARKET AND ITS STRUCTURE
Capital market is a financial market, which provides and facilitates an orderly exchange of
long term needs. The capital market in India is classified into
Primary market
Secondary market
The primary market deals with new issue of long term securities. Whereas the secondary
market deals with buying and selling of old, second hand, existing securities, which are
already listed in official trading list of recognized stock exchange.
Players of New Issue Market are mainly, among them the most important are:
Merchant bankers
Registrars
Collecting and coordinating bankers
Underwriters and broker
Players of secondary market are:
Issuers of securities like companies
Intermediaries like brokers, and sub-brokers etc.









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ABOUT NSE
The National Stock Exchange (NSE) is India's leading stock exchange covering various cities
and towns across the country. NSE was set up by leading institutions to provide a modern,
fully automated screen-based trading system with national reach. The Exchange has brought
about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up
facilities that serve as a model for the securities industry in terms of systems, practices and
procedures.
NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. The market today uses state-of-art
information technology to provide an efficient and transparent trading, clearing and
settlement mechanism, and has witnessed several innovations in products & services viz.
demutualization of stock exchange governance, screen based trading, compression of
settlement cycles, dematerialization and electronic transfer of securities, securities lending
and borrowing, professionalization of trading members, fine-tuned risk management systems,
emergence of clearing corporations to assume counterparty risks, market of debt and
derivative instruments and intensive use of information technology.
The National Stock Exchange of India Limited has genesis in the report of the High Powered
Study Group on Establishment of New Stock Exchanges, which recommended promotion of
a National Stock Exchange by financial institutions (FIs) to provide access to investors from
all across the country on an equal footing. Based on the recommendations, NSE was
promoted by leading Financial Institutions at the behest of the Government of India and was
incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the
country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956
in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment
in June 1994. The Capital Market (Equities) segment commenced operations in November
1994 and operations in Derivatives segment commenced in June 2000.


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MISSION OF NSE
NSE's mission is setting the agenda for change in the securities markets in India.
OBJECTIVES OF NSE
The NSE was set-up with the main objectives of:
Establishing a nation-wide trading facility for equities, debt instruments and hybrids,
Ensuring equal access to investors all over the country through an appropriate
communication network,
Providing a fair, efficient and transparent securities market to investors using
electronic trading systems,
Enabling shorter settlement cycles and book entry settlements systems, and
Meeting the current international standards of securities markets.
The standards set by NSE in terms of market practices and technology has become industry
benchmarks and is being emulated by other market participants. NSE is more than a mere
market facilitator. It's that force which is guiding the industry towards new horizons and
greater opportunities.














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PROMOTERS
NSE has been promoted by leading financial institutions, banks, insurance companies and
other financial intermediaries:
Industrial Development Bank of India Limited
Industrial Finance Corporation of India Limited
Life Insurance Corporation of India
State Bank of India
ICICI Bank Limited
IL & FS Trust Company Limited
Stock Holding Corporation of India Limited
SBI Capital Markets Limited
The Administrator of the Specified Undertaking of Unit Trust of India
Bank of Baroda
Canara Bank
General Insurance Corporation of India
National Insurance Company Limited
The New India Assurance Company Limited
The Oriental Insurance Company Limited
United India Insurance Company Limited
Punjab National Bank
Oriental Bank of Commerce
Corporation Bank
Indian Bank
Union Bank of India









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Logo

The logo of the NSE symbolizes a single nationwide securities trading facility ensuring equal
and fair access to investors, trading members and issuers all over the country. The initials of
the Exchange viz., N, S and E have been etched on the logo and are distinctly visible. The
logo symbolizes use of state of the art information technology and satellite connectivity to
bring about the change within the securities industry. The logo symbolizes vibrancy and
unleashing of creative energy to constantly bring about change through innovation.

CORPORATE STRUCTURE
NSE is one of the first de-metalized stock exchanges in the country, where the ownership and
management of the Exchange is completely divorced from the right to trade on it. Though the
impetus for its establishment came from policy makers in the country, it has been set up as a
public limited company, owned by the leading institutional investors in the country.
From day one, NSE has adopted the form of a demutualised exchange - the ownership,
management and trading is in the hands of three different sets of people. NSE is owned by a
set of leading financial institutions, banks, insurance companies and other financial
intermediaries and is managed by professionals, who do not directly or indirectly trade on the
Exchange. This has completely eliminated any conflict of interest and helped NSE in
aggressively pursuing policies and practices within a public interest framework.
The NSE model however, does not preclude, but in fact accommodates involvement, support
and contribution of trading members in a variety of ways. Its Board comprises of senior
executives from promoter institutions, eminent professionals in the fields of law, economics,
accountancy, finance, taxation, etc, public representatives, nominees of SEBI and one full
time executive of the Exchange.
While the Board deals with broad policy issues, decisions relating to market operations are
delegated by the Board to various committees constituted by it. Such committees include
representatives from trading members, professionals, the public and the management. The
day-to-day management of the Exchange is delegated to the Managing Director who is
supported by a team of professional staff.
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COMMITTEES
The Exchange has constituted various committees to advise it on areas such as good market
practices, settlement procedures, risk containment systems etc. These committees are manned
by industry professionals, trading members, Exchange staff as also representatives from the
market regulator.
Executive Committee
Committee On Trade Related Issues (COTI)
Advisory Committee - Listing of Securities
Executive Committee:
Objective: To manage the day-to-day operations of the Exchange Composition.
Committee On Trade Related Issues (COTI):
Objective: To provide guidance on trade related issues which crop up during the day-to-day
functioning of the Exchange Composition.
Advisory Committee - Listing of Securities:
Objective: To advise NSE on
The suitability of the Companies for listing on the Exchange within the parameters set
out by the listing agreement
To ensure that the applicant company has complied with all the conditions set out in
the listing agreement as well as other formalities, SEBI regulations, etc.
Systems and procedures to be adopted for listing of securities









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ABOUT BSE
Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage.
Popularly known as "BSE", it was established as "The Native Share & Stock Brokers
Association" in 1875. It is the first stock exchange in the country to obtain permanent
recognition in 1956 from the Government of India under the Securities Contracts
(Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of
the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide.
Earlier an Association of Persons (AOP), the Exchange is now a demutualised and
corporatized 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, the trading rights and ownership rights have been de-linked effectively
addressing concerns regarding perceived and real conflicts of interest. The Exchange is
professionally managed under the overall direction of the Board of Directors. The Board
comprises eminent professionals, representatives of Trading Members and the Managing
Director of the Exchange. The Board is inclusive and is designed to benefit from the
participation of market intermediaries.
In terms of organization structure, the Board formulates larger policy issues and exercises
over-all control. The committees constituted by the Board are broad-based. The day-to-day
operations of the Exchange are managed by the Managing Director and a management team
of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and
towns of India. The systems and processes of the Exchange are designed to safeguard market
integrity and enhance transparency in operations. During the year 2004-2005, the trading
volumes on the Exchange showed robust growth.
The Exchange provides an efficient and transparent market for trading in equity, debt
instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary
system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing &
settlement functions of the Exchange are ISO 9001:2000 certified.

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HERITAGE
The oldest exchange in Asia and the first exchange in the country to be granted permanent
recognition under the Securities Contract Regulation Act, 1956, Bombay Stock Exchange
Limited (BSE) have had an interesting rise to prominence over the past 130 years.
While the BSE is now synonymous with Dalal Street, it wasnt always so. In fact the first
venues of the earliest stock broker meetings in the 1850s were amidst rather natural environs
- under banyan trees - in front of the Town Hall, where Horniman Circle is now situated. A
decade later, the brokers moved their venue to another set of foliage, this time under banyan
trees at the junction of Meadows Street and Mahatma Gandhi Road. As the number of
brokers increased, they had to shift from place to place, and wherever they went, through
sheer habit, they overflowed in to the streets. At last, in 1874, found a permanent place, and
one that they could, quite literally, call their own. The new place was, aptly, called Dalal
Street.
The journey of BSE is as eventful and interesting as the history of Indias securities markets.
Indias biggest bourse, in terms of listed companies and market capitalization, BSE has
played a pioneering role in the Indian Securities Market - one of the oldest in the world.
Much before actual legislations were enacted, BSE had formulated comprehensive set of
Rules and Regulations for the Indian Capital Markets. It also laid down best practices
adopted by the Indian Capital Markets after India gained its Independence.
Perhaps, there would not be any leading corporate in India, which has not sourced BSEs
services in resource mobilization.





22

BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the
benchmark equity index that reflects the robustness of the economy and finance. At par with
international standards, BSE has been a pioneer in several areas. It has several firsts to its
credit even in an intensely competitive environment.

First in India to introduce Equity Derivatives
First in India to launch a Free Float Index
First in India to launch US$ version of BSE Sensex
First in India to launch Exchange Enabled Internet Trading Platform
First in India to obtain ISO certification for Surveillance, Clearing & Settlement
'BSE On-Line Trading System (BOLT) has been awarded the globally
recognized the Information Security Management System standard
BS7799-2: 2002.
First to have an exclusive facility for financial training
Moved from Open Outcry to Electronic Trading within just 50 days
An equally important accomplishment of BSE is the launch of a nationwide investor
awareness campaign - Safe Investing in the Stock Market - under which nationwide
awareness campaigns and dissemination of information through print and electronic medium
was undertaken. BSE also actively promoted the securities market awareness campaign of the
Securities and Exchange Board of India.
In 2002, the name The Stock Exchange, Mumbai, was changed to BSE. BSE, which had
introduced securities trading in India, replaced its open outcry system of trading in 1995,
when the totally automated trading through the BSE Online trading (BOLT) system was put
into practice. The BOLT network was expanded, nationwide, in 1997. It was at the BSE's
International Convention Hall that Indias 1st Bell ringing ceremony in the history Capital
Markets was held on February 18th, 2002. It was the listing ceremony of Bharti Tele ventures
Ltd.
BSE with its long history of capital market development is fully geared to continue its
contributions to further the growth of the securities markets of the country, thus helping India
increase its sphere of influence in international financial markets.
23

For the premier Stock Exchange that pioneered the stock broking activity in India, 125 years
of experience seem to be a proud milestone. A lot has changed since 1875 when 318 persons
became members of what today is called "Bombay Stock Exchange Limited" by paying a
princely amount of Re1.
Since then, the stock market in the country has passed through both good and bad periods.
The journey in the 20th century has not been an easy one. Till the decade of eighties, there
was no measure or scale that could precisely measure the various ups and downs in the Indian
stock market. Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index
that subsequently became the barometer of the Indian Stock Market.
BSE-SENSEX, first compiled in 1986 is a "Market Capitalization-Weighted" index of 30
component stocks representing a sample of large, well-established and financially sound
companies. The base year of BSE-SENSEX is 1978-79. The index is widely reported in both
domestic and international markets through print as well as electronic media. BSE-SENSEX
is not only scientifically designed but also based on globally accepted construction and
review methodology. The "Market Capitalization-Weighted" methodology is a widely
followed index construction methodology on which majority of global equity benchmarks are
based.
The growth of equity markets in India has been phenomenal in the decade gone by. Right
from early nineties the stock market witnessed heightened activity in terms of various bull
and bear runs. More recently, the bourses in India witnessed a similar frenzy in the 'TMT'
sectors. The BSE-SENSEX captured all these happenings in the most judicial manner. One
can identify the booms and bust of the Indian equity market through BSE-SENSEX.





24

The launch of BSE-SENSEX in 1986 was later followed up in January 1989 by introduction
of BSE National Index (Base: 1983-84 = 100). It comprised of 100 stocks listed at five major
stock exchanges in India at Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE
National Index was renamed as BSE-100 Index from October 14, 1996 and since then it is
calculated taking into consideration only the prices of stocks listed at BSE.
With a view to provide a better representation of the increased number of companies listed,
increased market capitalization and the new industry groups, the Exchange constructed and
launched on 27th May, 1994, two new index series viz., the 'BSE-200' and the 'DOLLEX-
200' indices. Since then, BSE has come a long way in attuning itself to the varied needs of
investors and market participants. In order to fulfill the need of the market participants for
still broader, segment-specific and sector-specific indices, the Exchange has continuously
been increasing the range of its indices. The launch of BSE-200 Index in 1994 was followed
by the launch of BSE-500 Index and 5 sectoral indices in 1999. In 2001, BSE launched the
BSE-PSU Index, DOLLEX-30 and the country's first free-float based index - the BSE TECk
Index taking the family of BSE Indices to 13.
The Exchange also disseminates the Price-Earnings Ratio, the Price to Book Value Ratio and
the Dividend Yield Percentage on day-to-day basis of all its major indices.
The values of all BSE indices (except the Dollar version of indices) are updated every 15
seconds during the market hours and displayed through the BOLT system, BSE website and
news wire agencies.
All BSE-Indices are reviewed periodically by the "Index Committee" of the Exchange. The
committee frames the broad policy guidelines for the development and maintenance of all
BSE indices. The Index Cell of the Exchange carries out the day to day maintenance of all
indices and conducts research on development of new indices.


25

LISTING OF SECURITIES
Listing means admission of the securities to dealings on a recognized stock exchange. The
securities may be of any public limited company, Central or State Government, quasi-
governmental and other financial institutions/corporations, municipalities, etc.
The objectives of listing are mainly to :
Provide liquidity to securities;
Mobilize savings for economic development;
Protect interest of investors by ensuring full disclosures.

The Exchange has a separate Listing Department to grant approval for listing of securities of
companies in accordance with the provisions of the Securities Contracts (Regulation) Act,
1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines
issued by SEBI and Rules, Bye-laws and Regulations of the Exchange.
A company intending to have its securities listed on the Exchange has to comply with the
listing requirements prescribed by the Exchange. Some of the requirements are as under: -
1. Minimum Listing Requirements for new companies
2. Minimum Requirements for companies delisted by this Exchange seeking
relisting of this Exchange
3. Minimum Requirements for companies delisted by this Exchange seeking
relisting of this Exchange
4. Permission to use the name of the Exchange in an Issuer Company's prospectus
5. Submission of Letter of Application
6. Allotment of Securities
7. Trading Permission
8. Requirement of 1% Security
9. Payment of Listing Fees
10. Compliance with Listing Agreement
11. "Z" Group
12. Cash Management Services (CMS) - Collection of Listing Fees .
26

The Cheque should be drawn in favour of Bombay Stock Exchange Limited , and should be
payable, locally .Companies are requested to mention in the deposit slip, the financial year(s)
for which listing fee is being paid. Payment made through any other slips would not be
considered. The above slips will have to be filled in quadruplicate. One acknowledged copy
would be provided to the depositor by the HDFC Bank.
27

COMPANY PROFILE


Ventura Securities Ltd., is a leading stock broking organization
Promoted and managed by professionals having exceptional knowledge of Capital
Market.
Ventura believes in philosophy that the key to their business is service which will result
in total satisfaction to the clients.
VENTURA PROMOTERS

Sajid Malik, Director, is a member of the Institute of Chartered Accountants of India.He has
nearly fifteen years of varied experience in corporate advisorystructured finance and private
equity transaction. He has an international exposure to developed markets in Europe, US and
the Far East and has been personally involved in international equity offerings and cross
border acquisitions. He is the CEO of Genesys International, a company focused on
outsourcing of GIS and engineering design services. He is a non-executive director of
Ventura Securities.

HemantMajethia, Director is member of the Institute of Chartered Accountant of India. He
has nearly fifteen years of rich experience in the capital markets intermediation, equity
research and has a wide cross section of market relationships. Mr. Majethia is the CEO of
Ventura Securities. It was his vision to create an all India network of brokers relationship
and build the distribution strength of Ventura.

COMPANY'S GOAL
We aim to add value and provide our clients with an unrivalled and specialized service which
reflects the expertise and efficiency of our dedicated support teams.
28

HISTORY
FOUNDATION OF VENTURA
Founded in 1994 by Chartered Accountants Sajid Malik and HemantMajethia. They are
the first generation entrepreneurs and are the principal promoters of Ventura.
A dedicated and efficient team of senior managers assists Mr. Majethia the CEO of the
company.
Ventura is a full-service domestic brokerage house providing value-based advisory
services to Institutions (Foreign and Domestic), High Net Worth and Retail Investors with
its core area of operations being stock-broking.
Ventura have considerable strength and domain knowledge in the booming derivatives
market.
Ventura has achieved a reputation for innovative and unbiased research along with
excellent technical analysis and execution capabilities.
Not only has Ventura provided value-added services to the gamut of India-based funds, it
has also developed the advice-driven business of high net worth and corporate clients.
WHY VENTURA?
Venturas services are offered under total confidentiality and integrity with the sole
purpose of maximizing returns for their clients.
Equity Broking - Corporate Member of The Stock Exchange, Mumbai (BSE) and
National Stock Exchange of India Ltd. (NSE).
Pan India reach - 380 terminals spread across 75 different locations, in semi urban, urban
and metropolitan areas.
More than 100,000 retail clients serviced from the above locations
Ventura have heavily invested in technology (customized and ready to use software)
involving front and back end operations offering seamless process and flawless execution
and raising our service levels.
Ventura operate on an alert and well-defined system in risk management and settlement
mechanism
29


OFFERINGS














30
RESEARCH COMPETENCY
Market Outlooks and Strategy Analysis Market research at Ventura is structured to meet a
wide variety of customer needs.
Services in this area range from the intra-day analysis of the most recent fundamental
and technical developments affecting pricing to longer-term strategic research of supply,
demand, and inventory trends.
Along with its price forecasting capability, the Team undertakes analytical research on
hedging and trading strategies.
The Team also publishes monographs on topics of broad interest to its customers, such as
the impact of changing accounting standards, developments in risk management, and
current hedge activities and strategic thought in the various sectors of the market.
MARKETS IN WHICH VENTURA DEALS:
EQUITY & DERIVATIVES
Equity and derivatives go hand in hand as they help maximize return and minimize risk at the
same time! Ventura Securities Ltd clients are assisted in protecting the downside risk to their
portfolio using appropriate combination of options. Our advisory is skilled to help you in
maximizing your gains from your existing corpus using numerous strategies based on the
direction and intensity of the views. Ventura Securities Ltd ensures that you get the one of the
finest trading experiences through:
An experienced and qualified team of Equity professionals offering unbiased advice on
equity investment decisions.
All members having immense experience and each of them being professionally certified
by the National Stock Exchange.
A high level of personalized and confidential service.
Constant monitoring of client portfolio so that the returns are maximized and the risks are
minimized
Secure, integrated broking system
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Powerful Research & Analytics
Ventura Securities Ltd has a great retail network, with its presence through more than 150
branches across more than 10 states. This means, you can walk into any of these branches and
get in touch with our highly skilled and dedicated staff to get the best services.
COMMODITIES
Commodities are now an asset class! For those who want to diversify their portfolios beyond
shares, bonds and real estate, commodities are an excellent option. Commodities are one of
the easiest investment avenues to understand as they are based on the fundamentals of
demand and supply. Historically, prices in commodities futures have been less volatile
compared with equity and bonds, thus providing an efficient portfolio diversification option.
Ventura Securities Ltd helps investors understand the risks and advantages of trading in
commodities futures before take they take the big leap. It provides clients with an effective
platform to participate and trade in Commodities with both the leading Commodity
Exchanges of the country. Ventura Securities Ltd commodity services are a class apart and
the following features differentiate our services from others:
Professionally qualified analysts with rich industry experience
Research on Agro, Precious Metals, Base Metals, Energy products and Polymers
Market watch for MCX and NCDEX with BSE / NSE
Streaming quotes and live updates, Relationship management desk
Educating clients on commodities futures market

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DEPOSITORY
Ventura Securities Ltd is a depository participant with Central Depository Services (India)
Limited (CDSL) and uses the latest in technology to deliver DP Services in a hassle free,
secure and transparent environment.
There are two main reasons why you should use Ventura Securities Ltds DP services:
Ventura Securities Ltd ensures that its clients focus on investment and trading decisions
rather than the drudgery of operational and transactional processes.
Ventura Securities Ltd offers a risk free, prompt and efficient depository process.
Depository Services provided by Ventura Securities Ltd include:
Account Opening
Dematerialization
Rematerialisation
Account Transfer
Nomination
Pledging

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INSTITUTIONAL SERVICES
Dedicated institutional desks at Mumbai and Chennai cater to our rapidly growing
Institutional clientele, which include FIIs, Mutual Funds, Banks, Insurance Companies,
Corporate clients and Overseas Corporate Bodies With our dedicated and superior quality
service to our clients, Ventura Securities Ltd is being recognized as the broker of choice
among various institutional investors Some of our esteemed clients include:
Allsec Technologies Limited
Videsh Sanchar Nigam Limited
Power Trading Co Limited
Star Health and Allied Insurance
Indian Overseas Bank
Ramakrishna Mission
NRI SERVICES
The NRI Services' Department is an exclusive arm of Ventura Securities Ltd dedicated to
impart professional advice to NRIs the world over. Our exclusive single-window NRI
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34
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Investment Advisory helps you in the following ways:
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Helps you understand how each financial decision other areas of your finances.
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35
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36





CHAPTER: 3



LITERATURE REVIEW

3.1 Risk Analysis
3.2 Types of risks
3.3 Measurement of risk
3.4 Return Analysis
3.5 Risk and return Trade off
3.6 Risk-return relationship

37

Risk Analysis

Risk in investment exists because of the inability to make perfect or accurate forecasts. Risk
in investment is defined as the variability that is likely to occur in future cash flows from an
investment. The greater variability of these cash flows indicates greater risk.
Variance or standard deviation measures the deviation about expected cash flows of each of
the possible cash flows and is known as the absolute measure of risk; while co-efficient of
variation is a relative measure of risk.

For carrying out risk analysis, following methods are used-
Payback [How long will it take to recover the investment]
Certainty equivalent [The amount that will certainly come to you]
Risk adjusted discount rate [Present value i.e. PV of future inflows with discount rate]

However in practice, sensitivity analysis and conservative forecast techniques being simpler
and easier to handle, are used for risk analysis. Sensitivity analysis [a variation of break even
analysis] allows estimating the impact of change in the behavior of critical variables on the
investment cash flows. Conservative forecasts include using short payback or higher discount
rates for discounting cash flows.

Types of risks:

Investment Risks:
Investment risk is related to the probability of earning a low or negative actual return as
compared to the return that is estimated. There are 2 types of investments risks:








38

Stand-alone risk:
This risk is associated with a single asset, meaning that the risk will cease to exist if that
particular asset is not held. The impact of stand alone risk can be mitigated by diversifying
the portfolio.
Stand-alone risk = Market risk + Firm specific risk
Where,

Market risk is a portion of the security's stand-alone risk that cannot be eliminated trough
diversification and it is measured by beta

Firm risk is a portion of a security's stand-alone risk that can be eliminated through proper
diversification

Portfolio risk
This is the risk involved in a certain combination of assets in a portfolio which fails to deliver
the overall objective of the portfolio. Risk can be minimized but cannot be eliminated,
whether the portfolio is balanced or not. A balanced portfolio reduces risk while a non-
balanced portfolio increases risk.

Sources of risks:
Inflation
Business cycle
Interest rates
Management
Business risk
Financial risk




39

Types of Risk
Unfortunately, the concept of risk is not a simple concept in finance. There are many
different types of risk identified and some types are relatively more or relatively less
important in different situations and applications. In some theoretical models of economic or
financial processes, for example, some types of risks or even all risk may be entirely
eliminated. For the practitioner operating in the real world, however, risk can never be
entirely eliminated. It is ever-present and must be identified and dealt with.
In the study of finance, there are a number of different types of risk has been identified. It is
important to remember, however, that all types of risks exhibit the same positive risk-return
relationship.
Systematic Risk Vs Unsystematic Risk
There is one more way to classify financial risk is risk will impact whole economy or
particular company or a sector.
Systematic Risk it is also known as market risk or economic risk or non diversifiable risk
& it impacts full economy or share market. Lets say if interest rate will increase whole
economy will slow down & there is no way to hide from this impact. As such there is no way
to reduce systematic risk other than investing your money in some other country. Beta can be
helpful in understanding this.

Unsystematic Risk it affects a small part of economy or sometime even single company.
Bad management or low demand in some particular sector will impact a single company or a
single sector such risks can be reduced by diversifying once investments. So this is also
called Diversifiable Risk.



40



41

Systematic risk
1. Interest Rate Risk
The uncertainty associated with the effects of changes in market interest rates. There are two
types of interest rate risk identified; price risk and reinvestment rate risk. The price risk is
sometimes referred to as maturity risk since the greater the maturity of an investment, the
greater the change in price for a given change in interest rates. Both types of interest rate
risks are important in investments, corporate financial planning, and banking.
Price Risk: The uncertainty associated with potential changes in the price of an asset
caused by changes in interest rate levels and rates of return in the economy. This risk
occurs because changes in interest rates affect changes in discount rates which, in
turn, affect the present value of future cash flows. The relationship is an inverse
relationship. If interest rates (and discount rates) rise, prices fall. The reverse is also
true.

Since interest rates directly affect discount rates and present values of future cash
flows represent underlying economic value, we have the following relationships.

Reinvestment Rate Risk: The uncertainty associated with the impact that changing
interest rates have on available rates of return when reinvesting cash flows received
from an earlier investment. It is a direct or positive relationship.



42

2. Market risk
This is the risk that the value of a portfolio, either an investment portfolio or a trading
portfolio, will decrease due to the change in market risk factors. The four standard market
risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices:
Equity risk is the risk that stock prices in general (not related to a particular company or
industry) or the implied volatility will change.
Interest rate risk is the risk that interest rates or the implied volatility will change.
Currency risk is the risk that foreign exchange rates or the implied volatility will change,
which affects, for example, the value of an asset held in that currency.
Commodity risk is the risk that commodity prices (e.g. corn, copper, crude oil) or implied
volatility will change.

3. Inflation Risk (Purchasing Power Risk)
Inflation risk is the loss of purchasing power due to the effects of inflation. When inflation is
present, the currency loses its value due to the rising price level in the economy. The higher
the inflation rate, the faster the money loses its value.



43

Unsystematic risk
1. Business risk
The uncertainty associated with a business firm's operating environment and reflected in the
variability of earnings before interest and taxes (EBIT). Since this earnings measure has not
had financing expenses removed, it reflects the risk associated with business operations rather
than methods of debt financing. This risk is often discussed in General Business
Management courses.
2. Financial risk
The uncertainty brought about by the choice of a firms financing methods and reflected in
the variability of earnings before taxes (EBT), a measure of earnings that has been adjusted
for and is influenced by the cost of debt financing. This risk is often discussed within the
context of the Capital Structure topics.

Total Risk
While there are many different types of specific risk, we said earlier that in the most general
sense, risk is the possibility of experiencing an outcome that is different from what is
expected. If we focus on this definition of risk, we can define what is referred to as total
risk. In financial terms, this total risk reflects the variability of returns from some type of
financial investment.
Measures of Total Risk
The standard deviation is often referred to as a "measure of total risk" because it captures the
variation of possible outcomes about the expected value (or mean). In financial asset pricing
theory the Capital Asset Pricing Model (CAPM) separates this "total risk" into two different
types of risk (systematic risk and unsystematic risk). Another related measure of total risk is
the "coefficient of variation" which is calculated as the standard deviation divided by the
expected value. It is often referred to as a scaled measure of total risk or a relative measure
of total risk. The following notes will discuss these concepts in more detail.
44

Measurement of risks

Statistical measures that are historical predictors of investment risk and volatility and major
components in modern portfolio theory (MPT) . MPT is a standard financial and academic
methodology for assessing the performance of a stock or a stock fund compared to its
benchmark index.
There are five principal risk measures:

Alpha: Measures risk relative to the market or benchmark index
Beta: Measures volatility or systemic risk compared to the market or the benchmark index
R-Squared: Measures the percentage of an investment's movement that are attributable to
movements in its benchmark index
Standard Deviation: Measures how much return on an investment is deviating from the
expected normal or average returns
Sharpe Ratio: An indicator of whether an investment's return is due to smart investing
decisions or a result of excess risk.
Each risk measure is unique in how it measures risk. When comparing two or more potential
investments, an investor should always compare the same risk measures to each different
potential investment to get a relative performance.







45

Definition of 'Beta'
A measure of the volatility, or systematic risk of a security or a portfolio in comparison to the
market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that
calculates the expected return of an asset based on its beta and expected market returns.
Also known as "beta coefficient".

Beta is calculated using regression analysis, and you can think of beta as the tendency of a
security's returns to respond to swings in the market. A beta of 1 indicates that the security's
price will move with the market. If beta is less than 1 means that the security will be less
volatile than the market. A beta of greater than 1 indicates that the security's price will be
more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20%
more volatile than the market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-based
stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also
posing more risk.

Definition of 'Alpha'
1. A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk)
of a mutual fund and compares its risk-adjusted performance to a benchmark index. The
excess return of the fund relative to the return of the benchmark index is a fund's alpha.
2. The abnormal rate of return on a security or portfolio in excess of what would be predicted
by an equilibrium model like the capital asset pricing model (CAPM).
3. Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared,
and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory
(MPT). All of these indicators are intended to help investors determine the risk-reward profile
of a mutual fund. Simply stated, alpha is often considered to represent the value that a
portfolio manager adds to or subtracts from a fund's return.
A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%.
Correspondingly, a similar negative alpha would indicate an underperformance of 1%.
4. If a CAPM analysis estimates that a portfolio should earn 10% based on the risk of the
portfolio but the portfolio actually earns 15%, the portfolio's alpha would be 5%. This 5% is
the excess return over what was predicted in the CAPM model.
46


Definition of 'Standard Deviation'

1. A measure of the dispersion of a set of data from its mean. The more spread apart the data,
the higher the deviation. Standard deviation is calculated as the square root of variance.

2. In finance, standard deviation is applied to the annual rate of return of an investment to
measure the investment's volatility. Standard deviation is also known as historical volatility
and is used by investors as a gauge for the amount of expected volatility.

Standard deviation is a statistical measurement that sheds light on historical volatility. For
example, a volatile stock will have a high standard deviation while the deviation of a stable
blue chip stock will be lower. A large dispersion tells us how much the return on the fund is
deviating from the expected normal returns.

Definition of 'R-Squared'

A statistical measure that represents the percentage of a fund or security's movements that can
be explained by movements in a benchmark index. For fixed-income securities, the
benchmark is the T-bill. For equities, the benchmark is the S&P 500.

R-squared values range from 0 to 100. An R-squared of 100 means that all movements of
a security are completely explained by movements in the index. A high R-squared (between
85 and 100) indicates the fund's performance patterns have been in line with the index. A
fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a fund has
an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher
risk-adjusted returns. A low R-squared means you should ignore the beta.

When most people think of investments they think of stocks or mutual funds. An investment
is more than this. An investment requires one to set aside an amount today with the
expectation of receiving a larger sum in the future.

47

Return Analysis

An investment is the current commitment of funds done in the expectation of earning greater
amount in future. Returns are subject to uncertainty or variance Longer the period of
investment, greater will be the returns sought. An investor will also like to ensure that the
returns are greater than the rate of inflation.
An investor will look forward to getting compensated by way of an expected return based on
3 factors -
Risk involved
Duration of investment [Time value of money]
Expected price levels [Inflation]


The basic rate or time value of money is the real risk free rate [RRFR] which is free of any
risk premium and inflation. This rate generally remains stable; but in the long run there could
be gradual changes in the RRFR depending upon factors such as consumption trends,
economic growth and openness of the economy.
If we include the component of inflation into the RRFR without the risk premium, such a
return will be known as nominal risk free rate [NRFR]
NRFR = ( 1 + RRFR ) * ( 1 + expected rate of inflation ) - 1
Third component is the risk premium that represents all kinds of uncertainties and is
calculated as follows -
Expected return = NRFR + Risk premium.









48

Any investor who lays aside money today expects to get more in return later. How much is
more? Well, the best way to calculate this is to look at your rate of return. In its simplest
form, you would take the ending value of your investment, divide it by your initial
investment, take the n root of it (where n= the number of years you held the investment), and
minus one. Confused? Well, let's give an example.
If I invested $100 for three years and after this period it was worth $150, my rate of return
would be [150/100^ (1/3)]-1=14.47%. Don't worry we'll look at this concept more when we
study present and future values.
Now that you have your rate of return you may be asking, "How much is enough?" Well,
looking at past market history, equities on average returned 10% annually, small caps 12%,
bonds 5%, and t-bills around 3-4%. We will ignore all this for now and state the required
return more formally.
Firstly, investors should be compensated for the real interest rate and inflation (note: the real
rate plus inflation=nominal rate). This nominal rate is the rate of return on US Government
bonds. Investors expect at least this when they buy a stock. The reason? A stock has risk and
government bonds don't. If stock does not outperform bonds then investors will prefer the
bonds. The second component of required return is inflation which is already incorporated
into our nominal rate.
Lastly we have a premium for risk. Since investors do not know for sure if their investment
will make them money, they want to be compensated for this additional risk with additional
return.






49

Return on security (single asset) consists of two parts:
Return = dividend + capital gain rate
R = D1 + (P1 P0) P0
WHERE R = RATE OF RETURN IN YEAR 1
D1 = DIVIDEND PER SHARE IN YEAR 1
P0 = PRICE OF SHARE IN THE BEGINNING OF THE YEAR
P1 = PRICE OF SHARE IN THE END OF THE YEAR
Average rate of return
R = 1 [ R1+R2++Rn] n
R =1Rtnt=1 Where,
R = average rate of return.
Rt = Realised rates of return in periods 1,2, ..t
n = total no. of periods

Expected rate of return:
It is the weighted average of all possible returns multiplied by
their respective probabilities.
E(R) = R1P1 + R2P2 + + RnPn
E(R) = RiPii Where,
Ri is the outcome i,
Pi is the probability of occurrence of i.
n= No of periods

50

Risk and return trade off:

Investors make investment with the objective of earning some tangible benefit. This benefit
in financial terminology is termed as return and is a reward for taking a specified amount of
risk.
Risk is defined as the possibility of the actual return being different from the expected return
on an investment over the period of investment. Low risk leads to low returns. For instance,
incase of government securities, while the rate of return is low, the risk of defaulting is also
low. High risks lead to higher potential returns, but may also lead to higher losses. Long-term
returns on stocks are much higher than the returns on Government securities, but the risk of
losing money is also higher.
Rate of return on an investment cal be calculated using the following formula-
Return = (Amount received - Amount invested) / Amount invested
He risk and return trade off says that the potential rises with an increase in risk. An investor
must decide a balance between the desire for the lowest possible risk and highest possible
return.
















51

Risk-Return relationship
By now you should understand that even with the most conservative investments you face
some element of risk. However, not investing your money is also risky. For example, putting
your money under the mattress invites the risk of theft and the loss in purchasing power if
prices of goods and services rise in the economy. When you recognize the different levels of
risk for each type of investment asset, you can better manage the total risk in your investment
portfolio.

A direct correlation exists between risk and return and is illustrated in Figure. The greater the
risk, the greater is the potential return. However, investing in securities with the greatest
return and, therefore, the greatest risk can lead to financial ruin if everything does not go
according to plan.
Risk and Return



Understanding the risks pertaining to the different investments is of little consequence unless
youre aware of your attitude toward risk. How much risk you can tolerate depends on many
factors, such as the type of person you are, your investment objectives, the dollar amount of
your total assets, the size of your portfolio, and the time horizon for your investments.




52


How nervous are you about your investments? Will you check the prices of your stocks
daily? Can you sleep at night if your stocks decline in price below their acquisition prices?
Will you call your broker every time a stock falls by a point or two? If so, you do not tolerate
risk well, and your portfolio should be geared toward conservative investments that generate
income through capital preservation. The percentage of your portfolio allocated to stocks may
be low to zero depending on your comfort zone. If you are not bothered when your stocks
decline in price because with a long holding period you can wait out the decline, your
portfolio of investments can be designed with a higher percentage of stocks. Figure 2
illustrates the continuum of risk tolerance.

A wide range of returns is associated with each type of security. For example, the many types
of common stocks, such as blue-chip stocks, growth stocks, income stocks, and speculative
stocks, react differently. Income stocks generally are lower risk and offer returns mainly in
the form of dividends, whereas growth stocks are riskier and usually offer higher returns in
the form of capital gains. Similarly, a broad range of risks and returns can be found for the
different types of bonds. You should be aware of this broad range of risks and returns for the
different types of securities so that you can find an acceptable level of risk for yourself.


Figure 2: Continuum of Risk Tolerance




53






CHAPTER: 4

INTERPRETATION

AND

ANALYSIS
54

HDFC:
Analysis of Return

Rate of Return = Share price in the closing Share price at the opening
Share price in the opening

Year
Opening
value (P0)
Closing value
(P1) (P1-P0)
(P1-
P0)/P0*100
2007-08 186 286.99 100.99 54.30
2008-09 264 189 -75 -28.41
2009-10 202.4 381.28 178.88 88.38
2010-11 387.8 467.57 79.77 20.57
2011-12 469.22 510.7 41.48 8.84
Total return 143.68

Average return =143.68/5
=28.74


Interpretation: The average returns of HDFC are 28.74 wherein the maximum returns are in
the third year i.e. 2009-10.
186
264
387.8
469.22
286.99
189
381.28
467.57
510.7
100.99
79.77
41.48
54.30
-28.41
88.38
8.84
202.4
178.88
-75
20.57
-200
-100
0
100
200
300
400
500
600
1 2 3 4 5
opening value (P0)
closing value (P1)
(P1-P0)
(P1-P0)/P0*100
55

ICICI:

Analysis of Return

Year
Opening value
(P0)
Closing value
(P1) (P1-P0)
(P1-
P0)/P0*100
2007-08 823 835.2 12.2 1.48
2008-09 799.95 337.85 -462.1 -57.77
2009-10 360 960.05 600.05 166.68
2010-11 952 1107.25 155.25 16.31
2011-12 1110 856.05 -253.95 -22.88
Total return
103.83


Average return =103.83/5
= 20.77



Interpretation: The average returns of ICICI are 20.77 wherein the maximum returns are in
the third year i.e. 2009-10.
Investment in HDFC is more profitable to the investor as the average returns are
comparatively more than the average returns of ICICI. Thus, an investor who is only
concerned about the returns in long run should invest in HDFC securities.

823
799.95
952
1110
835.2
337.85
960.05
1107.25
856.05
12.2
155.25
-253.95
1.48
-57.77
166.68
-22.88
103.83
360
600.05
-462.1
16.31
-600
-400
-200
0
200
400
600
800
1000
1200
1 2 3 4 5 6
opening value (P0)
closing value (P1)
(P1-P0)
(P1-P0)/P0*100
56

RISK ANALYSIS
Standard Deviation
This is the most commonly used measure of risk in fianc. Its square also is
widely used to find out the risk associated with a security.
Computation of Variance = ( )

n
i
R Ri
1
2
or d
2
1 n
Standard Deviation =
2

HDFC:

Analysis of risk:

Year Return (R )
Avg return (R
) Deviations(R-R)
Square
deviations(R-R)
d
2

2007-08 54.3 28.74 25.564 653.52
2008-09 -28.41 28.74 -57.146 3265.67
2009-10 88.38 28.74 59.644 3557.41
2010-11 20.57 28.74 -8.166 66.68
2011-12 8.84 28.74 -19.896 395.85
Total 143.68 7939.12

Variance = 1/n-1 (d
2
) = 1/5-1 (7939.12)
= 1984.78

Standard deviation=variance
=1984.78
= 44.55

57

ICICI:

Analysis of Risk:

Year Return (R ) Avg Return (R ) Deviations(R-R)
Square
deviations(R-R)
d
2

2007-08 1.48 20.77 -19.286 371.95
2008-09 -57.77 20.77 -78.536 6167.90
2009-10 166.68 20.77 145.914 21290.90
2010-11 16.31 20.77 -4.456 19.86
2011-12 -22.88 20.77 -43.646 1904.97
Total 103.83 29755.58


Variance = 1/n-1 (d
2
) = 1/5-1 (29755.58)
= 7438.89

Risk=Standard deviation=variance
=7438.89
=86.25

Interpretation: Risk associated with the investment in long run is less for the HDFC
securities when compared to ICICI. Thus, when an investor is only considering risk factor, it
is advisable to invest in HDFC securities.


58

AVERAGE RETURN OF BOTH COMPANIES:







Interpretation: From the above table and graph it can be understood by considering both
risk and return factors that the returns are more and risk is less for HDFC securities.


44.55
86.25
0
10
20
30
40
50
60
70
80
90
100
HDFC ICICI
S
h
a
r
e
s

p
r
i
c
e
Standard deviation
Standard deviation
S.No COMPANY AVERAGE RETURN STANDARD DEVIATION
1 HDFC 28.74 44.55
2 ICICI 20.77 86.25
59

CALCULATION OF COVARIANCES

COVARIANCE = COV. AB = ([RA-RA] [RB-RB]) / N
WHERE:
RA = Return on A
RB = Return on B
RA = Expected return on A
RB = Expected return on B
N = Number of securities

COVARIANCE OF BANK SECURITIES PORTFOLIO:
Cov
A
,
B
= (r
iA
-r
A
) (r
iB
-r
B
) / n-1

HDFC & ICICI
Years DEVIATIONS OF
HDFC (RA-RA)
DEVIATIONS OF
ICICI (RB-RB)
COMBINED
DEVIATIONS
2007-08 25.564 -19.286 -493.027
2008-09 -57.146 -78.536 4488.018
2009-10 59.644 145.914 8702.895
2010-11 -8.166 -4.456 36.3877
2011-12 -19.896 -43.646 868.3808

TOTAL
13602.65


COVARIANCE (COV
AB
)

= 13602.65/5
= 2720.531



60

CALCULATION OF COEFFICIENT CORRELATION

Coefficient of Correlation
Coefficient of Correlation is a statistical technique, which measures the degree or
extent to which two or more variables fluctuate with reference to one another. Correlation
analysis helps in determining the degree of relationship between two variables but correlation
does not always imply cause and effect relationship
The Coefficient of Correlation is essentially the covariance taken not as an absolute
value but relative to the standard deviations of the individual securities. It indicates, in effect,
how much x and y vary together as a proportion of their combined individual variations,
measured by SD of x multiplied by SD of Y

Coefficient of Correlation:

ICICI AND HDFC

Correlation coefficient (P
AB
) = COV
AB


(Std.A)(Std.B)

(COV
AB
) = 13602.65 /5
= 2720.531

(P
AB
) = 2720.531

(86.25)(44.55)

= 0.70802172


61


PORTFOLIO COMPANY S.D
COVARI
ANCE
COMBINED S.D
(Std.A)(Std.B)
CO-EF.
CORRELATION
(COV/C.S.D)
I.
HDFC 44.55
2720.531

3842.44
0.70802172
ICICI 86.25


CONCLUSION FOR CORRELATION:

In case of perfectly correlated securities or stocks, the risk can be reduced to a minimum
point. In case of negatively correlated securities, the risk can be reduced to a zero (which is
companys risk) but market risk prevails the same for the securities or stock in the portfolio.

Interpretation:
In case of portfolio management, negatively correlated assets are most profitable. In the
above calculated correlation, the companies correlation is 0.7080, which means both these
combinations of portfolios are at a good position to gain in future. So, the investor may
invest their money for long run.


62

BETA VALUES

SENSEX:

Years Price Returns (R
)
(In %)
Average
returns ( R
)

( R- R)

(R R)
2

2007-2008 16371.29 - - - -
2008-2009 9568.14 -41.555 10.095 -51.6504 2667.761
2009-2010 17590.17 83.841 10.095 73.74606 5438.481
2010-2011 19290.18 9.665 10.095 -0.43045 0.185291
2011-2012 17058.61 -11.568 10.095 -21.6634 469.304
Total 40.383 8575.731


Standard Deviation = Variance
Variance = 1/ (n-1) (R-R)

= 1/ (4-1) (8575.731)
= 1/3(8575.731)
= 2858.57

Standard Deviation = 2858.57
= 53.465
63

Correlation between Sensex and HDFC:


Date Deviations of sensex
D
sensex
= (R-R)
Deviations of
HDFC
D
HDFC
= (R-R)
Combined
Deviations
D
sensex
D
HDFC

2007-2008 - - -
2008-2009 -51.650 -57.146 2951.59
2009-2010 73.746 59.644 4398.50
2010-2011 -0.430 -8.166 3.5113
2011-2012 -21.663 -19.896 431.00
Total 7784.61


Correlation between Sensex and ICICI:


Date Deviations of sensex
D
sensex
= (R-R)
Deviations of
ICICI
D
ICICI
= (R-R)
Combined
Deviations
D
sensex
D
ICICI

2007-2008 - - -
2008-2009 -51.650 -78.536 4056.384
2009-2010 73.746 145.914 10760.57
2010-2011 -0.430 -4.456 1.91
2011-2012 -21.663 -43.646 945.50
Total 15764.38




64

Calculation of Beta Values:

= COV
AB
/ m
2


Where COV
AB
= 1/ n-1 (D1D2)

m
2
= Variance
sensex


1. HDFC:-

= COV
sensex, HDFC
/Variance
sensex


COV
sensex, HDFC
= 1/ 4-1 (7784.61)
= 2594.87

Variance
sensex
= 2858.57

= 2594.87/ 2858.57
= 0.907

2. ICICI:-

= COV
sensex, ICICI
/Variance
sensex


COV
sensex, ICICI
= 1/ 4-1 (15764.38)
= 5254.793

Variance
sensex
= 2858.57

= 5254.793/ 2858.57
= 1.83


65

Calculated Beta Values:

COMPANY NAME BETA VALUE
HDFC 0.907
ICICI 1.838


CONCEPT OF BETA:

It is a measure of movement of share price with the movement of market.
Beta is positive, if share price moves in the direction of the movement of market.
Beta is negative, if share price moves opposite to the direction of market.


Table Depicting All Calculated Values:


ICICI HDFC
Average returns 20.77 28.74
Standard deviation 86.25 44.55
Covariance 2720.531 2720.531
Coefficient correlation 0.708 0.708
Beta 1.838 0.907


66

HDFC Bank



Interpretation: From the above table by considering the opening and closing values it can be
clearly stated that almost in 4 years the share value is increasing whereas only in 2008-09
share price has reduced.

Profit/Loss:


Interpretation: From the above table it can be clearly stated that investor has enjoyed more
profits in 2009-10 and bears loss in 2008-09 as the opening and closing share values
fluctuate.
186
264
202.4
387.8
469.22
286.99
189
381.28
467.57
510.7
0
100
200
300
400
500
600
2007-08 2008-09 2009-10 2010-11 2011-12
S
h
a
r
e
s

p
r
i
c
e
Years
Opening and closing values
opening
closing
100.99
-75
178.88
79.77
41.48
-100
-50
0
50
100
150
200
1 2 3 4 5
S
h
a
r
e
s

P
r
i
c
e
Years
Profit/loss
Profit/loss
67

Maximum Profit:



Interpretation: From the above table it can be stated that with the fluctuations in the opening
value and highest share price, 2009-10 is the most profitable year for the investor.

Maximum Loss:




Interpretation: From the above table by considering the difference between opening value
and lowest share price, it can be stated that in 2008-09 there was huge loss to investors.
179
51
184.83
115.8
68.28
0
20
40
60
80
100
120
140
160
180
200
1 2 3 4 5
S
h
a
r
e
s

P
r
i
c
e
Years
Maximum profit
Maximum profit
4
-109.2
-3.9
-30.8
-68.77
-120
-100
-80
-60
-40
-20
0
20
2007-08 2008-09 2009-10 2010-11 2011-12
S
h
a
r
e
s

p
r
i
c
e
Years
Maximum loss
Maximum loss
68
ICICI bank





Interpretation: From the above table by considering the opening and closing values it can be
clearly stated that in the year 2007-08 there was a slight change in the market share value and
in 2008-09 the share value decreased to Rs.462.1 whereas in 2009-10 it again increased by
Rs.600.05. In 2010-11 it increased by Rs.155.25 and again fell down by Rs.253.95 in 2011-
12. If the investor is ready to bear more risk then, 2009-10 is favorable year with high returns.



823 799.95
360
952
1110
835.2
337.85
960.05
1107.25
856.05
0
200
400
600
800
1000
1200
2007-08 2008-09 2009-10 2010-11 2011-12
S
h
a
r
e
s

p
r
i
c
e
Years
Opening and Closing values
opening value
closing value
69

Profit/Loss



Interpretation: From the above table it can be clearly stated that investor can enjoy more
profits in 2009-10 and bear high loss in 2008-09 as the opening and closing share values
fluctuate.
Maximum Profit



Interpretation: From the above table it can be stated that with the fluctuations in the opening
value and highest share price, 2007-08 is the most profitable year for the investor.

12.2
-462.1
600.05
155.25
-253.95
-600
-400
-200
0
200
400
600
800
2007-08 2008-09 2009-10 2010-11 2011-12 S
h
a
r
e
s

P
r
i
c
e

Years
Profit/loss
Profit/loss
642
160.95
608.5
325
27.9
0
100
200
300
400
500
600
700
2007-08 2008-09 2009-10 2010-11 2011-12
S
h
a
r
e
s

p
r
i
c
e
Years
Maximum profit
Maximum profit
70

Maximum Loss




Interpretation: From the above table by considering the difference between opening value
and lowest share price, it can be stated that 2008-09 is most unfavorable year for the investor
with huge loss.


-103
-547.2
30.6
-143.9
-469
-600
-500
-400
-300
-200
-100
0
100
2007-08 2008-09 2009-10 2010-11 2011-12
S
h
a
r
e
s

p
r
i
c
e
Years
Maximum loss
Maximum loss
71









CHAPTER 4:

FINDINGS
AND
SUGGESTIONS

72


FINDINGS:



As far as the returns of the selected companies is concerned, HDFC is
comparatively performing well in isolation where as ICICI is performing very
poor.

As far as the Standard deviation of the selected companies is concerned, ICICI
is very high where as HDFC is giving less risk. This means that higher the
risk, the higher the returns.

As far as the Correlation co-efficient of ICICI and HDFC is concerned, it is
0.7080.

The covariance of the ICICI and HDFC is 2720.531.


The systematic risk (Beta) of HDFC is 0.907.


The systematic risk (Beta) of ICICI is 1.838.


73

SUGGESTIONS:


The investor should consider the securities with maximum returns and minimum risk. Thus, it
is advisable to invest in HDFC securities.

Investors should hold securities which give high returns with less risk.

As an investor, see that there is a negative correlation among the securities.

Do not relay completely on technical analysis.

Investors should give importance to fundamental analysis of securities.

Industrial policy also has a major role in facilitating the growth of the economy.

Holding two or more securities reduce the unsystematic risk.


74

CONCLUSIONS:


In the recent past the market has reached great heights as a result of expansion of business
and much more of globalization, the increased percentage of Foreign Direct Investment
which has a direct affect on the demand and supply of the shares of a particular company. In
this way the index of the stock market has reached to the maximum. With the boom in the
market there are many investors who are willing to take more risk and so to cover the risk.

Financial sector is booming and the need for Risk-Return Analysis is growing. Also because
of the very tricky stock market behaviors it has become mandatory to manage portfolio so as
to reduce the risk while maximizing the returns. Taking into consideration the investors risk-
return requirements portfolio should be constructed and reviewed regularly.

75







CHAPTER: 6

BIBLIOGRAPHY


76

BIBLIOGRAPHY
Book References:
1. Financial management
- M Y Khan and P K Jain
2. Investments
- William F. Sharpe, Gordon J.Alexander & Jeffery V. Baily
3. Security Analysis and Portfolio Management
- Prasanna Chandra
4. GRIET Library

Web References:
www.nseindia.com
www.moneycontrol.com
www.indiamart.com
www.google.com
www.ventural.com