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A STUDY ON PORTFOLIO MANAGEMENT
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INTRODUCTION

Portfolios are combinations of assets held by the investors. These combinations may
be of various asset classes like equity and debt and of different issuers like Government bond and
corporate debt or of various instruments like discount bonds, warrants, debentures and Blue chip
equity or scrips of emerging blue chip companies.
The traditional Portfolio Theory aims at the selection of such securities that would fit
in well with the asset preferences, need and choice of investor. Modern Portfolio Theory
postulates that maximization of return and or minimization of risk will yield optimal returns and
choice and attitudes of investors are only a starting point for investment decision and that
vigorous risk-return analysis is necessary for optimization of returns. The return on portfolio is
weighted average of returns of individual stocks and the weights are proportional to each stocks
percentages in the total portfolio.
Portfolio analysis includes portfolio construction, and performance of portfolio. All
these are part of the subject of portfolio Management which is a dynamic concept, subject to
daily and hourly changes based on information flows, money flows and economic and non-
economic forces operating in the country on the markets and securities

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NEED OF THE STUDY

Emergence of institutional investing on behalf of individuals. A number of financial institutions,
mutual funds and other agencies are undertaking the task of investing money of small investors, on
their behalf.

Growth in the number and size of ingestible funds a large part of household savings is being
directed towards financial assets.

Increased market volatility risk and return parameters of financial assets are continuously changing
because of frequent changes in governments industrial and fiscal policies, economic uncertainty and
instability.

Greater use of computers for processing mass of data.

OBJECTIVES OF THE STUDY

To understand how Portfolio Management is done.
To analyze the risk return characteristics of sample scripts.
To calculate the correlation between different stocks.
Ascertain portfolio weights.
To compute the portfolio returns and portfolio risks.
To construct an effective portfolio which offers maximum return for minimum risks

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METHODOLOGY

Research design or research methodology is the procedure of collecting, analyzing and
interpreting the data to diagnose the problem and react to the opportunity in such a way where
the costs can be minimized and the desired level of accuracy can be achieved to arrive at a
particular conclusion.

SOURCES OF DATA COLLECTION:
The methodology adopted or employed in this study was Mostly on secondary data collection
i.e..,
Companies Annual Reports
Information from Internet
Publications
Information provided by Inter Connected Stock Exchange.

PERIOD OF STUDY:
For different companies, financial data has been collected from the year 2008-2013.

SELECTION OF COMPANIES:
GAIL (from Gas Utilities Sector)
HUL (from FMCG Sector )
CIPLA (from Pharma Sector)
AIRTEL (from Telecom Sector)
DLF (from Infrastructure Sector)

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LIMITATIONS
Construction of Portfolio is restricted to two companies based on Markowitz model.
Very few and randomly selected scripts / companies are analyzed from BSE Listings.
Data collection was strictly confined to secondary source. No primary data is associated with the
project.
Detailed study of the topic was not possible due to limited size of the project.

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REVIEW OF LITERATURE
Process of Portfolio Management:
The Portfolio Program and Asset Management Program both follow a disciplined
process to establish and monitor an optimal investment mix. This six-stage process helps ensure
that the investments match investors unique needs, both now and in the future.

The steps involved the portfolio management are

1. IDENTIFY GOALS AND OBJECTIVES:
When will you need the money from your investments? What are you saving your money
for? With the assistance of financial advisor, the Investment Profile Questionnaire will guide
through a series of questions to help identify the goals and objectives for the investments.

2. DETERMINE OPTIMAL INVESTMENT MIX:
Once the Investment Profile Questionnaire is completed, investors optimal investment mix
or asset allocation will be determined. An asset allocation represents the mix of investments
(cash, fixed income and equities) that match individual risk and return needs. This step
represents one of the most important decisions in your portfolio construction, as asset
allocation has been found to be the major determinant of long-term portfolio performance.
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3. CREATE A CUSTOMIZED INVESTMENT POLICY STATEMENT:
When the optimal investment mix is determined, the next step is to formalize our goals and
objectives in order to utilize them as a benchmark to monitor progress and future updates.

4. SELECT INVESTMENTS:
The customized portfolio is created using an allocation of select QFM Funds. Each QFM
Fund is designed to satisfy the requirements of a specific asset class, and is selected in the
necessary proportion to match the optimal investment mix.

5 MONITOR PROGRESS:
Building an optimal investment mix is only part of the process. It is equally important to
maintain the optimal mix when varying market conditions cause investment mix to drift
away from its target. To ensure that mix of asset classes stays in line with investors unique
needs, the portfolio will be monitored and rebalanced back to the optimal investment mix

6. REASSESS NEEDS AND GOALS:
Just as markets shift, so do the goals and objectives of investors. With the flexibility of the
Portfolio Program and Asset Management Program, when the investors needs or other life
circumstances change, the portfolio has the flexibility to accommodate such changes.

RISK

Risk is uncertainty of the income/capital appreciation or loss or both. All investment is
risky. The higher the risk taken, the higher is the return. But proper management of risk involves
the right choice of investment whose risks are compensating. The total risk involves the right
choice of investment whose risks are compensating. The total risks of two of two companies may
be different and even lower than the risk of a group of two companies if their companies are
offset by each other.

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The two major types of risks are:

* Systematic or market related risk.
* Unsystematic or company related risks.

Systematic risk affected from the entire market is (the problems, raw material
availability, tax policy or government policy, inflation risk, interest risk and financial risk).It is
managed by the use of Beta of different company shares.

Unsystematic risks are mismanagement, increasing inventory, wrong financial policy,
defective marketing etc. this is diversifiable or avoidable because it is possible to eliminate or
diversify away this component of risk to considerable extent by investing in large portfolio of
securities. The unsystematic risk stems from inefficiency magnitude of those factors different
form one company

Based on the above pyramid diagram the type of risks will be described

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RETURN ON PORTFOLIO:

Each security in a portfolio contributes return in the proportion of its investment in
security. Thus the portfolio expected returns is the weighted average of the expected return, from
each of securities, with weights representing the proportions share of the security in the total
investment. Why does an investor have so many securities in his total investment? Why does an
investor have so many securities in this portfolio? If the security ABC gives the maximum return
why not he invests in that security all his funds and thus maximize return? The answer to these
questions lies in the investors perception of risk attached in investments. Objectives of income,
safety, appreciation, liquidity and hedge against loss of values of money etc. this pattern of
investment in different asset categories, types of investment, etc., would all be described under
the caption of diversification, which aims at the reduction or even elimination of non-systematic
risks and achieve the specific objectives of investors.

RISK ON PORTFOLIO:

The expected returns from individual securities carry some degree of risk. Risk on the
portfolio is different from the risk on the individual securities. The risk is reflected in the
variability of the returns from zero to infinity. Risk of the individual assets or a portfolio is
measured by the variance of its return. The expected return depends on the probability of the
returns and their weighted contribution to the risk of the portfolio. These are two measures of
risk in this context one is the absolute deviation and other standard deviation.
Most investors invest in portfolio of assets, because as to spread risk by not putting all
eggs in one basket. Hence, what really mater to them are not the risk and return of stocks in
isolation, but the risk and return of the portfolio as a whole. Risk is mainly reduced by
Diversification.

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RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or
uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or
depreciation of shares prices, losses of liquidity etc. The risk over time can be represented by the
variance of the returns. While the returns over time is capital appreciation plus payout, divided
by the purchase price of the share.

Normally, the higher the risk that the investor takes, the higher is the return. There is,
how ever, a risk less return on capital of about 12% which is the bank, rate charged by the R.B.I
or long term, yielded on government securities at round 13% to 14%. This risk less return refers
to lack of variability of return and no uncertainty in the repayment or capital. But other risks such
as loss of liquidity due to parting with money etc., may however remain, but are rewarded by the
total return on the capital, Risk-return is subject to variation and the objectives of the portfolio
manager are to reduce that variability and thus reduce the risky by choosing an appropriate
portfolio. Traditional approach advocates that one security holds the better, it is according to the
modern approach diversification should not be quantity that should be related to the quality of
scripts which leads to quality of portfolio.

RISK AND EXPECTED RETURN:

There is a positive relationship between the amount of risk and the amount of expected
return i.e., the greater the risk, the larger the expected return and larger the chances of substantial
loss. One of the most difficult problems for an investor is to estimate the highest level of risk he
is able to assume.

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Risk is measured along the horizontal axis and increases from the left to right.
Expected rate of return is measured on the vertical axis and rises from bottom to
top.
The line from 0 to R (f) is called the rate of return or risk less investments
commonly associated with the yield on government securities.

The diagonal line form R (f) to E(r) illustrates the concept of expected rate of
return increasing as level of risk increases.
Experience has shown that beyond the certain securities by adding more securities expensive.

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INDUSTRY PROFILE

INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the fastest
growing and best among all the markets of the emerging economies. .

The history of Indian capital markets dates back 200 years toward the end of the 18th century
when India was under the rule of the East India Company. The development of the capital
market in India concentrated around Mumbai where no less than 200 to 250 securities brokers
were active during the second half of the 19th century.
The financial market in India today is more developed than many other sectors because it was
organized long before with the securities exchanges of Mumbai, Ahmadabad and Kolkata were
established as early as the 19th century.
By the early 1960s the total number of securities exchanges in India rose to eight, including
Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi, Bangalore and Pune.
Today there are 21 regional securities exchanges in India in addition to the centralized NSE
(National Stock Exchange) and OTCEI (Over the Counter Exchange of India).
However the stock markets in India remained stagnant due to stringent controls on the market
economy that allowed only a handful of monopolies to dominate their respective sectors. The
corporate sector wasn't allowed into many industry segments, which were dominated by the state
controlled public sector resulting in stagnation of the economy right up to the early 1990s.
Thereafter when the Indian economy began liberalizing and the controls began to be dismantled
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or eased out; the securities markets witnessed a flurry of IPOs that were launched. This resulted
in many new companies across different industry segments to come up with newer products and
services.
A remarkable feature of the growth of the Indian economy in recent years has been the role
played by its securities markets in assisting and fuelling that growth with money rose within the
economy. This was in marked contrast to the initial phase of growth in many of the fast growing
economies of East Asia that witnessed huge doses of FDI (Foreign Direct Investment) spurring
growth in their initial days of market decontrol. During this phase in India much of the organized
sector has been affected by high growth as the financial markets played an all-inclusive role in
sustaining financial resource mobilization. Many PSUs (Public Sector Undertakings) that
decided to offload part of their equity were also helped by the well-organized securities market
in India. .

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter
Exchange of India) during the mid 1990s by the government of India was meant to usher in an
easier and more transparent form of trading in securities. The NSE was conceived as the market
for trading in the securities of companies from the large-scale sector and the OTCEI for those
from the small-scale sector. While the NSE has not just done well to grow and evolve into the
virtual backbone of capital markets in India the OTCEI struggled and is yet to show any sign of
growth and development. The integration of IT into the capital market infrastructure has been
particularly smooth in India due to the countrys world class IT industry. This has pushed up the
operational efficiency of the Indian stock market to global standards and as a result the country
has been able to capitalize on its high growth and attract foreign capital like never before.
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COMPANYPROFILE:
IIFL Ltd (India ifoline):
The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd and
its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers
advice and execution platform for the entire range of financial services covering products
ranging from Equities and derivatives, Commodities, Wealth management, Asset management,
Insurance, Fixed deposits, Loans, Investment Banking, Gold bonds and other small savings
instruments. IIFL recently received an in-principle approval for Securities Trading and Clearing
memberships from Singapore Exchange (SGX) paving the way for IIFL to become the first
Indian brokerage to get a membership of the SGX. IIFL also received membership of the
Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and
manages the website, www.indiainfoline.com, which is one of Indias leading online destinations
for personal finance, stock markets, economy and business.

IIFL has been awarded the Best Broker, India by Finance Asia and the Most improved
brokerage, India in the Asia Money polls. India Infoline was also adjudged as Fastest Growing
Equity Broking House - Large firms by Dun & Bradstreet. A forerunner in the field of equity
research, IIFLs research is acknowledged by none other than Forbes as Best of the Web and
a must read for investors in Asia.

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The companys research is available not just over the Internet but also on international wire
services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of
the most read Indian brokers.
A network of over 2,500 business locations spread over more than 500 cities and towns across
India facilitates the smooth acquisition and servicing of a large customer base. All our offices are
connected with the corporate office in Mumbai with cutting edge networking technology. The
group caters to a customer base of about a million customers, over a variety of mediums viz.
online, over the phone and at our branches.

India Infoline Media and Research Services Limited
India Infoline Commodities Limited.
India Infoline Marketing & Services
India Infoline Investment Services Limited
IIFL (Asia) Private Limited

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PRODUCTS & SERVICES
Equities
India Infoline provided the prospect of researched investing to its clients, which was hitherto
restricted only to the institutions. Research for the retail investor did not exist prior to India
Infoline. India Infoline leveraged technology to bring the convenience of trading to the investors
location of preference (residence or office) through computerized access. India Infoline made it
possible for clients to view transaction costs and ledger updates in real time. The Company is
among the few financial intermediaries in India to offer a complement of online and offline
broking. The Companies network of branches also allows customers to place orders on phone or
visit our branches for trading.
Commodities
India Infolines extension into commodities trading reconciles its strategic intent to emerge as a
one stop solutions financial intermediary. Its experience in securities broking has empowered it
with requisite skills and technologies. The Companies commodities business provides a contra-
cyclical alternative to equities broking. The Company was among the first to offer the facility of
commodities trading in Indias young commodities market (the MCX commenced operations in
2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs
20.02 bn.

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Insurance
An entry into this segment helped complete the client's product basket; concurrently, it graduated
the Company into a one stop retail financial solutions provider. To ensure maximum reach to
customers across India, it has employed a multi pronged approach and reaches out to customers
via our Network, Direct and Affiliate channels. India Infoline was the first corporate in India to
get the agency license in early 2001.
Invest Online
India Infoline has made investing in Mutual funds and primary market so effortless. Only
registration is needed. No paperwork no queues and No registration charges. India Infoline offers
a host of mutual fund choices under one roof, backed by in-depth research and advice from
research house and tools configured as investor friendly.
Wealth Management
The key to achieving a successful Investment Portfolio is to have a carefully planned financial
strategy based on a thorough understanding of the client's investment needs and risk appetite.
The IIFL Private Wealth Management Team of financial experts will recommend an appropriate
financial strategy to effectively meet customers investment requirements.

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Asset Management
India Infoline is a leading pan-India mutual fund distribution house associated with leading asset
management companies. It operates primarily in the retail segment leveraging its existing
distribution network to reach prospective clients. It has received the in-principle approval to set
up a mutual fund.
Portfolio Management
IIFL Portfolio Management Service is a product wherein an equity investment portfolio is
created to suit the investment objectives of a client. India Infoline invests the clients resources
into stocks from different sectors, depending on clients risk-return profile. This service is
particularly advisable for investors who cannot afford to give time or don't have that expertise for
day-to-day management of their equity portfolio.
Newsletters
As a subscriber to the Daily Market Strategy, clients get research reports of India Infoline
research team on a priority basis. The Indiainfoline Weekly Newsletter is the flashback for the
week gone by. A weekly outlook coupled with the best of the web stories from Indiainfoline and
links to important investment ideas, Leader Speak and features is delivered in the clients inbox
every Friday evening.

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DATA ANALYSIS

COMPARATIVE RETURNS ON SELECTED SCRIPS:

(from annexure 1)

DIAGRAMATIC PRESENTATION OF COMPANIES RISK

(from annexure 2)

Rate of Return (%)
21.87
20.87
21.51
0.84
1.9
0
5
10
15
20
25
GAIL HUL Cipla Bharti Airtel DLF
Risk (%)
48.71
9.34
34.23
4.83
41.35
0
10
20
30
40
50
60
GAIL HUL Cipla Bharti Airtel DLF
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PORTFOLIO RETURNS & RISKS OF THE SELECTED STOCKS:

Scrip A Scrip B Portfolio Return Portfolio Risk
GAIL HUL 20.99 6.31
GAIL CIPLA 21.25 30.37
GAIL AIRTEL 0.50 4.70
GAIL DLF 5.94 40.79
HUL CIPLA 20.96 7.45
HUL AIRTEL 5.44 4.13
HUL DLF 19.28 8.58
CIPLA AIRTEL 1.06 4.81
CIPLA DLF 36.11 32.44
AIRTEL DLF 0.86 4.74
(From annexure 3 and 4)

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FINDINGS WITH INTERPETATIONS
Investors would be able to achieve when the returns of shares and debentures Resultant
would be known as diversified portfolio. Thus portfolio construction would address itself to three
major via, selectivity, timing and diversification. In case of portfolio management, negatively
correlated assets are most profitable. A rational investor would constantly examine his chosen
portfolio both for average return and risk. i

Individual returns on the selected stocks including GAIL, HUL, Cipla, Bharati Airtel &
DLF are 21.87%, 20.87%, 21.51%, 0.84% and 1.90% respectively.
Individual risks on the selected stocks including GAIL, HUL, Cipla, Bharati Airtel &
DLF are 48.71%, 9.34%, 34.23%, 4.83% and 41.35% respectively.
Correlation between all the companies is positive except HUL & All Other Stocks and
Airtel & DLF which means most of the combinations of portfolios are at good position to
gain in future.
Portfolios Returns of DLF & Cipla (36.11%) followed by Gail & Cipla (21.25%) and
GAIL & HUL (20.99%) stood on the top while Portfolio Returns of GAIL & Airtel
(0.50%), DLF & Airtel (0.86%) and Airtel & Cipla (1.06%) stood at the bottom with
minimum profits.
Portfolios Risk of GAIL & DLF (40.79%) and DLF & Cipla (32.44%) are very high
while Portfolio Risks of Airtel with Other Companies (around 4%) and stood at the
bottom.

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SUGGESTI ONS
Of the five stocks selected, all the stocks have given positive returns. FMCG Company
HUL, Healthcare Company Cipla and Utilities Company GAIL have been giving good
profits while Telecom Company Airtel and Real Estate Company DLF have given profits
between 1-2%. Investors should put caution while investing in Telecom and Real Estate
Companies.

Comparing the individual risks, GAIL, DLF and Cipla are high risky compared to the
other securities like HUL and Airtel and it is suggested that the investors should be
careful while investing in high risk securities.

The investors who require average returns with low risk can invest in HUL.

All the investors who invest in the securities are ultimately benefited by investing in
selected scripts of Industries.

Investors are advised to invest in Portfolios of DLF & Cipla (36.11%) followed by GAIL
&Cipla (21.25%), GAIL & HUL (20.99%) and Cipla & HUL (20.96%) which have given
the maximum returns.

Low Risk investors are advised to keep away from GAIL & DLF (risk of 40. 79%),
GAIL & Cipla (30.37%) and prefer the Portfolios of Cipla & HUL (9.016%), Airtel &
HUL (9.822%) which have the least risk.

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Some general rules to follow while investing in securities include:

Never invest on the basis of an insider trader tip in a company which is not sound (insider
trader is person who gives tip for trading in securities based on prices sensitive up price
sensitive un published information relating to such security).
Never invest in the so called promoter quota of lesser known company.

Never invest in a company about which you do not have appropriate knowledge.
Never at all invest in a company which doesnt have a stringer financial record your
portfolio should not stagnate.
Shuffle the portfolio and replace the slow moving sector with active ones, investors were
shatter when the technology, media, software, stops, have taken a down slight.
Never fall to magic of the scripts dont confine to the blue chip companys look out for
other portfolio that ensure regular dividends.
In the same way never react to sudden raise or fall in stock market index such fluctuations in
movement minor corrections in stock market held in consolidation of market their by reading
out a weak player often taste on wait for the dust and dim to settle to make your move.

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CONCLUSI ONS

Portfolio management is a process of encompassing many activities of investment assets
and securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgment, and action. A combination of securities held together will give a beneficial result if
they grouped in a manner to secure higher returns after taking into consideration the risk
elements.

The main objective of the Portfolio management is to help the investors to make wise
choice between alternate investments without a post trading shares. Any portfolio management
must specify the objectives like Maximum returns, Optimum Returns, Capital appreciation,
Safety etc., in the same prospectus.

This service renders optimum returns to the investors by proper selection and continuous
shifting of portfolio from one scheme to another scheme of from one plan to another plan within
the same scheme.
Greater Portfolio Return with less Risk is always is an attractive combination for the
Investors.
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BIBLIOGRAPHY
Books referred:
Investment Analysis and Portfolio Management, written by M.Ranganathan,
R.Madhumathi published by Dorling Kindersley (India) Pvt.Ltd., 3
rd
Edititon.
Investment Analysis and Portfolio Management, written by Prasanna Chandra Published
by Tata Mc.Graw-Hill, 3
rd
Edition.
Security Analysis and Portfolio Management, written by V.A.Avadhani, Published by
Himayala Publishing house Pvt.Ltd.9
th
Revised Editon.

Security Analysis and Portfolio Management, Published by McGraw-Hill, Written by
Punithavathi Pandian, 8th Edition.

Web-site:
www.nseindia.com,http://www.answers.com/topics/national_stock_exchange_of_india.
www.bseindia.com,http;//www.answers.com/topics/bombay _stock_exchange_of_india.
www.money control.com/nifty/nse
www.moneycontrol.com/sensex/bse
www.indiainfoline.com

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A STUDY ON PORTFOLIO MANAGEMENT

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