Portfolio Management Networth

CHAPTER I - INTRODUCTION
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
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
SCOPE OF THE STUDY

The study covers the calculation of correlations between the different securities in
order to find out at what percentage funds should be invested among the companies in the
portfolio. Also the study includes the calculation of individual Standard Deviation of
securities and ends at the calculation of weights of individual securities involved in the
portfolio. These percentages help in allocating the funds available for investment based on
risky portfolios.
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 2009-2013.
Selection of Companies:
Companies selected for analysis are
MARUTI
ACC
ICICI
RELIANCE
TCS
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.
CHAPTER II - REVIEW OF LITERATURE
PORTFOLIO MANAGEMENT & ITS PHASES

PORTFOLIO MANAGEMENT IS a process encompassing many
activities aimed at optimizing investment of funds, each phase is an integral part of the
whole process and the success of portfolio management depends upon the efficiency
in carrying out each phase. Five phases can be identified:1. Security analysis
2. Portfolio analysis
3. Portfolio selection
4. Portfolio revision
5. Portfolio evaluation
SECURITY ANALYSIS: It refers to the analysis of trading securities from the point
of view of their prices, return, and risk. All investment is risky and the expected return
is related to risk. The securities available to an investor for investment are numerous
and of various types. The shares of over more than 7000 are listed in stock exchanges
of the country. Securities classified into ownership securities such as equity shares and
preference shares and debentures and bonds. Recently ,a number of new securities
such as convertible debentures and deep discount bonds, zero coupon bonds, Flexi
bonds, Floating rate bonds GDRs Euro currency bonds etc, are issued to raise funds
for their projects by companies from which investor has to choose those securities the
is worthwhile to be included in his investment portfolio. This calls for detailed
analysis of the available securities.
Security analysis is the initial phase of the portfolio management
process. It examines the risk return characteristics of individual securities. A basic
strategy in securities investment is to buy under priced securities and sell over priced
securities. But the problem is how to identify such securities in other words mispriced
securities. This is what security analysis is all about.
PORTFOLIO REVISION
The portfolio which is once selected has to be continuously reviewed over a period of
time and then revised depending on the objectives of the investor. The care taken in
construction of portfolio should be extended to the review and revision of the portfolio.
Fluctuations that occur in the equity prices cause substantial gain or loss to the investors.
The investor should have competence and skill in the revision of the portfolio. The
portfolio management process needs frequent changes in the composition of stocks and
bonds. In securities, the type of securities to be held should be revised according to the
portfolio policy.
An investor purchases stock according to his objectives and return risk framework.
The prices of stock that he purchases fluctuate, each stock having its own cycle of
fluctuations. These price fluctuations may be related to economic activity in a country or due
to other changed circumstances in the market.
If an investor is able to forecast these changes by developing a framework for the
future through careful analysis of the behaviour and movement of stock prices is in a position
to make higher profit than if he was to simply buy securities and hold them through the
process of diversification. Mechanical methods are adopted to earn better profit through
proper timing. The investor uses formula plans to help him in making decisions for the.
future by exploiting the fluctuations in prices
EVALUATION OF PORTFOLIO
Portfolio manager evaluates his portfolio performance and identifies the sources of
strengths and weakness. The evaluation of the portfolio provides a feed back about the
performance to evolve better management strategy. Even though evaluation of portfolio
performance is considered to be the last stage of investment process, it is a continuous
process. There are number of situations in which an evaluation becomes necessary and
important.
i.
Self Valuation: An individual may want to evaluate how well he has done. This is a
part of the process of refining his skills and improving his performance over a period
of time.
ii.
Evaluation of Managers: A mutual fund or similar organization might want to

evaluate its managers. A mutual fund may have several managers each running a
separate fund or sub-fund. It is often necessary to compare the performance of these
managers.
iii.
Evaluation of Mutual Funds: An investor may want to evaluate the various mutual
funds operating in the country to decide which, if any, of these should be chosen for
investment. A similar need arises in the case of individuals or organizations who
engage external agencies for portfolio advisory services.
iv.
Evaluation of Groups: have different skills or access to different information.

Academics or researchers may want to evaluate the performance of a whole group of
investors and compare it with another group of investors who use different techniques
.
NEED FOR EVALUATION OF PORTFOLIO:

We can try to evaluate every transaction. Whenever a security is brought or sold, we
can attempt to assess whether the decision was correct and profitable.
We can try to evaluate the performance of a specific security in the portfolio to
determine whether it has been worthwhile to include it in our portfolio.
We can try to evaluate the performance of portfolio as a whole during the period
without examining the performance of individual securities within the portfolio.
PORTFOLIO THEORIES
MARKOWITZ MODEL:
Markowitz model is a theoretical framework for analysis of risk and return and
their relationships.
He used statistical analysis for the measurement of risk and
mathematical programming for selection of assets in a portfolio in an efficient manner.

Markowitz apporach determines for the investor the efficient set of portfolio through
three important variables i.e.
Return
Standard deviation
Co-efficient of correlation
Markowitz model is also called as a Full Covariance Model. Through this

model the investor can find out the efficient set of portfolio by finding out the trade
off between risk and return, between the limits of zero and infinity. According to this
theory, the effects of one security purchase over the effects of the other security
purchase are taken into consideration and then the results are evaluated. Most people
agree that holding two stocks is less risky than holding one stock. For example,
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holding stocks from textile, banking and electronic companies is better than investing
all the money on the textile companys stock.
Markowitz had given up the single stock portfolio and introduced
diversification. The single stock portfolio would be preferable if the investor is
perfectly certain that his expectation of highest return would turn out to be real. In the
world of uncertainty, most of the risk adverse investors would like to join Markowitz
rather than keeping a single stock, because diversification reduces the risk.
ASSUMPTIONS:
All investors would like to earn the maximum rate of return that they can
achieve
from their investments.
All investors have the same expected single period investment horizon.
All investors before making any investments have a common goal. This is the
avoidance of risk because Investors are risk-averse.
Investors base their investment decisions on the expected return and standard
deviation of returns from a possible investment.
Perfect markets are assumed (e.g. no taxes and no transaction costs)
The investor assumes that greater or larger the return that he achieves on his
investments, the higher the risk factor surrounds him. On the contrary when
risks are low the return can also be expected to be low.
The investor can reduce his risk if he adds investments to his portfolio.
An investor should be able to get higher return for each level of risk by
determining the efficient set of securities.
An individual seller or buyer cannot affect the price of a stock. This

assumption is the basic assumption of the perfectly competitive market.
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Investors make their decisions only on the basis of the expected returns,
standard deviation and covariances of all pairs of securities.
Investors are assumed to have homogenous expectations during the decisionmaking period.
The investor can lend or borrow any amount of funds at the risk less rate of
interest. The risk less rate of interest is the rate of interest offered for the
treasury bills or Government securities.
Investors are risk-averse, so when given a choice between two otherwise

identical portfolios, they will choose the one with the lower standard deviation.
Individual assets are infinitely divisible, meaning that an investor can buy a
fraction of a share if he or she so desires.
There is a risk free rate at which an investor may either lend (i.e. invest)
money or borrow money.
There is no transaction cost i.e. no cost involved in buying and selling of

stocks.
There is no personal income tax. Hence, the investor is indifferent to the form
of return either capital gain or dividend.
THE EFFECT OF COMBINING TWO SECURITIES:

It is believed that holding two securities is less risky than by having only one
investment in a persons portfolio. When two stocks are taken on a portfolio and if
they have negative correlation then risk can be completely reduced because the gain
on one can offset the loss on the other. This can be shown with the help of following
example:
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INTER- ACTIVE RISK THROUGH COVARIANCE:

Covariance of the securities will help in finding out the inter-active risk. When
the covariance will be positive then the rates of return of securities move together
either upwards or downwards. Alternatively it can also be said that the inter-active risk
is positive. Secondly, covariance will be zero on two investments if the rates of return
are independent. Holding two securities may reduce the portfolio risk too. The
portfolio risk can be calculated with the help of the following formula:
CAPITAL ASSET PRICING MODEL (CAPM):

Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic
structure of Capital Asset Pricing Model. It is a model of linear general equilibrium
return. In the CAPM theory, the required rate return of an asset is having a linear
relationship with assets beta value i.e. undiversifiable or systematic risk (i.e. market
related risk) because non market risk can be eliminated by diversification and
systematic risk measured by beta. Therefore, the relationship between an assets return
and its systematic risk can be expressed by the CAPM, which is also called the
Security Market Line.
Rp
Rf Xf+ Rm(1- Xf)
Rp
Portfolio return
Xf
The proportion of funds invested in risk free assets
1- Xf =
The proportion of funds invested in risky assets
Rf
Risk free rate of return
Rm
Return on risky assets
Formula can be used to calculate the expected returns for different situations, like
mixing risk less assets with risky assets, investing only in the risky asset and mixing
the borrowing with risky assets.
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THE CONCEPT
According to CAPM, all investors hold only the market portfolio and risk less
securities. The market portfolio is a portfolio comprised of all stocks in the market.
Each asset is held in proportion to its market value to the total value of all risky assets.
THE SHARPES INDEX MODEL:

The investor always like to purchase a combination of stock that provides the
highest return and has lowest risk. He wants to maintain a satisfactory reward to risk
ratio traditionally analysis paid more attention to the return aspects of the stocks. Now
a days risk has received increased attention and analysts are providing estimates of
risk as well as return. Sharp has developed a simplified model to analyze the portfolio.
He assumed that the return of a security is linearly related to a single index like to
market index. Strictly speaking the market index should consist of all the securities
trading on the exchange.In the absence of it, a popular index can be treated as a
surrogate for the market index.Sharpe has provided a model for the selection of
appropriate securities in a portfolio.
The selection of any stock is directly related to its excess return beta ratio
Ri Rf/ai
Where Ri
the expected return on stock i
Rf
the return on a risk less asset
Ai
the expected change in the rate of return on stock I associatd

with one unit change in the market return
SINGLE INDEX MODEL:

Causal observation of the stock prices over a period of time reveals that most
of the stock process move with the market index. When sensex increases, stock prices
also tend to increase and vice versa. This indicates that some underlying factor affect
the market index as well as the stock prices. Stock prices are related to the market
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index and this relationship could be used to estimate the return on stock. Towards the
purpose, the following equation can be used:
Ri = a+a iRm+ei
Where R=expected return on security i
a = intercept of the straight line or alpha co-efficient
ai
= slope of straight line or beta co-efficient
Rm = the rate of return on market index

ei
= error term with a mean of zero & a std.dev. Which is a constant?
ARBITRAGE PRICING THEORY

According to this theory the returns of the securities are influenced by a
number of macroeconomic factors such as growth rate of industrial production rate of
inflation, spread between low-grade and high grade bonds.
The Law of One Price:
The foundation for Apt is the law of one price. The law of one price states that
two identical goods should sell at the same price. If they sold at different prices
anyone could engage in arbitrage by simultaneously buying at low prices and selling
at the high prices and make a risk less profit. Arbitrage also applies to financial assets.
If two financial assets have the same risk, they should have the same expected return.
If they do not have the same expected return, a riskless profit could be earned by
simultaneously issuing(or selling short) at the low return and buying the high-return
asset. Arbitrage causes prices to be revised as suggested by the law of one price.
The arbitrage pricing line for one risk factor can be written as:
r= 0+ Ii
Where
is the expected return on the security i
is the return on the zero beta portfolio
is the factor risk premium
is the sensitivity of the ith asset to the risk factor

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Two factor Arbitrage pricing:

The Two-factor model describes the return of ith security as follows
= 0+ I1i+ 2i2
Where
is the risk premium associated with risk factor2
i2 is the factor beta coefficient for factor

2 and the factor 1 &2 are uncorrelated
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Portfolio Management
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PORTFOLIO MANAGEMENT
A portfolio is a collection of assets. The assets may be physical or financial like
Shares, Bonds, Debentures, Preference Shares, etc. The individual investor or a fund manager
would not like to put all his money in the shares of one company that would amount to great
risk. He would therefore, follow the age old maxim that one should not put all the eggs into
one basket. By doing so, he can achieve objective to maximize portfolio return and at the
same time minimizing the portfolio risk by diversification.
Portfolio management is the management of various financial assets which comprise the
portfolio.
Portfolio management is a decision support system that is designed with a view to
meet the multi-faced needs of investors.
According to Securities and Exchange Board of India Portfolio Manager is defined as:
Portfolio means the total holdings of securities belonging to any person.
STRUCTURE / PROCESS OF TYPICAL PORTFOLIO MANAGEMENT
In the small firm, the portfolio manager performs the job of security analyst.
In the case of medium and large sized organizations, job function of portfolio manager and
security analyst are separate.
RESEARCH
(E.g. Security
Analysis)
PORTFOLIO
MANAGERS
CLIENTS
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OPERATIONS
(E.g. buying and
Selling of
Securities)
CHARACTERISTICS OF PORTFOLIO MANAGEMENT:

Individuals will benefit immensely by taking portfolio management services for the
following reasons:
Whatever may be the status of the capital market, over the long period capital markets
have given an excellent return when compared to other forms of investment. The
return from bank deposits, units, etc., is much less than from the stock market.
The Indian Stock Markets are very complicated. Though there are thousands of
companies that are listed only a few hundred which have the necessary liquidity. Even
among these, only some have the growth prospects which are conducive for
investment. It is impossible for any individual wishing to invest and sit down and
analyze all these intricacies of the market unless he does nothing else.
Even if an investor is able to understand the intricacies of the market and separate
from the grain the trading practices in India are so complicated that it is really a
difficult task for an investor to trade in all the major exchanges of India, look after his
deliveries and payments
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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.
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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.
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
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investors needs or other life circumstances change, the portfolio has the
flexibility to accommodate such changes.
Functions of Portfolio Mangers:

Advisory role:
Advice new investments, review the existing ones, identification of objectives,
recommending high yield securities etc.
Conducting market and economic service:

This is essential for recommending good yielding securities they have to study
the current fiscal policy, budget proposal; individual policies etc further portfolio
manager should take in to account the credit policy, industrial growth, foreign
exchange possible change in corporate laws etc.
Financial analysis:
He should evaluate the financial statement of company in order to understand,
their net worth future earnings, prospectus and strength.
Study of stock market:

He should observe the trends at various stock exchange and analysis scripts so
that he is able to identify the right securities for investment.
Study of industry:
He should study industry to know its future prospects, technical changes etc,
required for investment proposal he should also see the problems of the industry.
Decide the type of portfolio:

Keeping in mind the objectives of portfolio a portfolio manager has to decide
weather the portfolio should comprise equity preference shares, debenture,
convertibles, non-convertibles or partly convertibles, money market, securities etc or
a mix of more than one type of proper mix ensures higher safety, yield and liquidity
coupled with balanced risk techniques of portfolio management.
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A portfolio manager in the Indian context has been Brokers (Big brokers) who
on the basis of their experience, market trends, insider trader, helps the limited
knowledge persons.
Registered merchant bankers can acts as portfolio managers. Investors must
look forward, for qualification and performance and ability and research base of the
portfolio managers
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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SOURCE OF INVESTMENT RISKS:
Business risk:
As a holder of corporate securities (equity shares or debentures), you are
exposed to the risk of poor business performance. This may be caused by a variety of
factors like heightened competition. Emergence of new technologies, development of
substitute product, shifts in consumer preferences, inadequate supply of essential
inputs, changes in government al policies, and so on.
Interest rate risk:

The changes in interest rate have a bearing on the welfare on investors. As the
interest rate goes up, the market price of existing firmed income securities falls, and
vice versa. This happens because the buyer of a fixed income security would not buy
it at its par values of face values its fixed interest rate is lower than the prevailing
interest rate on a similar security. For example, a debenture that has face value of
RS.100 and a fixed rate of 12% will sell a discount if the interest rate moves up from,
say 12 % to 14% .While the chances in interest rate have a direct bearing on the prices
of fixed income securities, they affect equity prices. Too, albeit some what indirectly.
Financial Risk:
It refers to the variability of the income to the equity capital due to the debt capital.
Financial risk in a company is associated with the capital structure of the company.
Capital structure of the company consists of equity funds and borrowed funds.
The 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.
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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 below pyramid diagram the type of risks will be described
1. Systematic Risk:
Systematic risk is caused by factors external to the particular company and
uncontrollable by the company. The systematic risk affects the market as a whole.
Factors affect the systematic risk are
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economic conditions
political conditions
sociological changes
The systematic risk is unavoidable. Systematic risk is further sub-divided into three
types. They are
Market Risk
Interest Rate Risk
Purchasing Power Risk
a) Market Risk:
One would notice that when the stock market surges up, most stocks post higher
price. On the other hand, when the market falls sharply, most common stocks will
drop. It is not uncommon to find stock prices falling from time to time while a
companys earnings are rising and vice-versa. The price of stock may fluctuate widely
within a short time even though earnings remain unchanged or relatively stable.
b). Interest Rate Risk:
Interest rate risk is the risk of loss of principal brought about the changes in the
interest rate paid on new securities currently being issued.
c). Purchasing Power Risk:
The typical investor seeks an investment which will give him current income and / or
capital appreciation in addition to his original investment.
2. Un-systematic Risk:
Un-systematic risk is unique and peculiar to a firm or an industry. The nature and
mode of raising finance and paying back the loans, involve the risk element. Financial
leverage of the companies that is debt-equity portion of the companies differs from
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each other. All these factors affect the un-systematic risk and contribute a portion in
the total variability of the return.
Managerial inefficiently
Technological change in the production process
Availability of raw materials
Changes in the consumer preference
Labour problems
The nature and magnitude of the above mentioned factors differ from industry
to industry and company to company. They have to be analyzed separately for each
industry and firm. Un-systematic risk can be broadly classified into:
Business Risk
Financial Risk
BUSINESS RISK:
Business risk is that portion of the unsystematic risk caused by the operating
environment of the business. Business risk arises from the inability of a firm to
maintain its competitive edge and growth or stability of the earnings. The volatibility
in stock prices due to factors intrinsic to the company itself is known as Business risk.
Business risk is concerned with the difference between revenue and earnings before
interest and tax. Business risk can be divided into.
i) Internal Business Risk

Internal business risk is associated with the operational efficiency of the firm. The
operational efficiency differs from company to company. The efficiency of operation
is reflected on the companys achievement of its pre-set goals and the fulfilment of the
promises to its investors.
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ii) External Business Risk

External business risk is the result of operating conditions imposed on the firm by
circumstances beyond its control. The external environments in which it operates exert
some pressure on the firm. The external factors are social and regulatory factors,
monetary and fiscal policies of the government, business cycle and the general
economic environment within which a firm or an industry operates.
FINANCIAL RISK:
It refers to the variability of the income to the equity capital due to the debt
capital. Financial risk in a company is associated with the capital structure of the
company. Capital structure of the company consists of equity funds and borrowed
funds.
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:
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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.
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.
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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.
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.
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Experience has shown that beyond the certain securities by adding more securities
expensive.
Simple diversification reduces:

An assets total risk can be divided into systematic plus unsystematic risk, as
shown below
Systematic risk (undiversifiable risk) + unsystematic risk (diversified risk)
=Total risk
=Var(r).
Unsystematic risk is that portion of the risk that is unique to the firm
(for example, risk due to strikes and management errors.) Unsystematic risk can be
reduced to zero by simple diversification.
Simple diversification is the random selection of securities that are to be added
to a portfolio. As the number of randomly selected securities added to a portfolio is
increased, the level of unsystematic risk approaches zero. However market related
systematic risk cannot be reduced by simple diversification. This risk is common to
all securities.
31
INDUSTRY PROFILE
32
INTRODUCTION OF STOCK EXCHANGE

Stock exchange is an organized market place where securities are traded These
securities are issued by the Government, Semi-Government Bodies, public sector
undertakings and companies for borrowing funds and raising resources. Securities are
defined as any monetary claims (promissory notes or I.O.U)and also include shares,
debentures, bonds and etc., if these securities are marketable as in the case of the
Government stock, they are transferable by endorsement and alike movable property.
They are trade able on the stock exchange, So is the case with the shares of the
companies.
Under the securities Contract Regulation Act of 1956, securities trading are
regulated by the central Government and such trading can take place only in Stock
Exchanges recognized by the Government under this Act. As referred to earlier there
are at present 23 such recognized stock exchanges in India, of these major stock
Exchanges, like Bombay, Calcutta, Delhi, Chennai, Hyderabad, and Bangalore etc.,
are permanently recognized while a few are temporarily recognized. The above act
has also laid down that trading in approved contracts should be done through
registered members of the Exchange. As per the rules made under the above act,
trading in securities permitted to be trade would be in the normal trading hours (10
A.M to 4 P.M) on working days in the trading ring, as specified for trading purpose.
Contracts approved to be traded are the following:
a. Spot delivery deals are for delivery of shares on the same day or the next day
as the payment is made.
b. Hand delivery deals for delivering shares within a period of 7 to 14 days form
the date of contract.
c. Delivery through clearing for delivering shares within a period of two months
from the date of the contract, which is now reduced to 15 days.
d. Special Delivery deals for delivering of shares for specified longer periods as
may be approved by the governing board of the Stock Exchange.
33
Except in those deals meant for delivery on a spot basis, all the rest are to be put
through by the registered brokers of a Stock Exchange. The securities Contracts
(Regulation) rules of 1957 laid down the condition for such trading, the treading
hours, rules of trading, settlement of disputes, etc. as between the members and of the
members with reference to their clients.
HISTORY OF STOCK EXCHANGES IN INDIA
The origin of the Stock Exchange in India can be traced back to the later half
of 19 century. After the American Civil War (1860-61) due to the share mania of the
public, the number of brokers dealing in shares increased. The brokers Organized an
informal association tin Mumbai named "The Native Stock and Share Brokers
association in 1875"
Increased activity in trade and commerce during the First World War and
Second World War resulted in an increase in the stock trading. The Growth of Stock
Exchanges suffered a set after the end of World War. World wide depression affected
them most of the Stock Exchanges in the early stages had a speculative nature of
interest to regulate the speculative nature of stock exchange working.
In that
direction, securities and Contract Regulation Act 1956 was passed, this gave powers
of Central Government to regulate the stock exchanges. Further to develop secondary
makes in the country, stock exchanges are Mumbai, Chennai, Delhi, Hyderabad,
Ahmadabad and Indore. The Bangalore Stock Exchange was recognized in 1963. At
present there are 23 Stock Exchanges.
Till recent past, floor trading took place in all the Stock Exchanges. In the
floor trading system the trade takes place through open outcry system during the
official trading hours. Trading posts are assigned for different securities where by and
sell activities of securities took place. This system needs a face - to - face contact
among the traders and restricts the trading volume. The speed of the new information
reflected on the prices was rather then the investors.
The setting up of NSE and OTCEI (Over the counter change of India with the
screen based trading facility resulted in more and more Sock exchanges turning
towards the computer based trading. BSE introduced the screen based trading system
in 1995, which known as BOLT (Bombay on - Line Trading System).
34
Madras Stock Exchanges introduced Automated Network Trading System

(MANTRA) on October 7, 1996 Apart from Bombay Stock Exchanges has introduced
screen based trading.
FUNCTION OF STOCK EXCHANGE

Maintain Active Trading: Shares are traded on the stock exchanges, enabling
the investors to buy and sell securities. The prices may vary from transaction to
transaction. A continuous trading increases the liquidly or marketability or the shares
traded on the stock exchanges.
Fixation of Prices: Price is determined by the transactions that flow from
investors demand and the suppliers preferences. Usually the traded prices are made
known to the public. This helps the investors to make the better decision.
Ensures safe and fair dealings: The rules, regulations and bylaws of the
Stock Exchanges provide a measure of safety to the investors. Transactions are
conducted under competitive conditions enabling the investors to get a fair deal.
Aids in Financing the Industry: A continuous market for shares provides a
favorable climate for raising capital. The negotiability and transferability of the
securities, investors are willing to subscribe to the initial public offering (IPO). This
stimulates the capital formation.
Dissemination of Information: Stock Exchanges provide information
through their various publications. They publish the share prices traded on their basis
along with the volume traded. Directory of Corporate Information is useful for the
investors assessment regarding the corporate. Handouts, handbooks and pamphlets
provide information regarding the functioning of the stock Exchanges.
Performance Inducer: The prices of stocks reflect the performance of the
traded companies. This makes the corporate more concerned with its public image
and tries to maintain good performance.
35
Self-regulating organization: The Stock Exchanges monitor the integrity of

the members, brokers, listed companies and clients.
Continuous internal audit
safeguards the investors against unfair trade practices. It settles the disputes between
members brokers, investors and brokers.
REGULATORY FRAME WORK:
This Securities Contract Regulation Act, 1956 and securities and Exchange
hoard of India (SEBI) Act, 1992, provides a comprehensive legal framework. A 3-tier
retaliatory structure comprising the ministry of finance, SEBI and the Governing
Boards of the Stock Exchanges regulates the functioning of Stock Exchanges.
Ministry of finance: The Stock Exchange division of the Ministry of Finance
has powers related to the application of the provision of the SCR Act and licensing of
dealers in the other area. According to SEBI Act, The ministry of Finance has the
appellate and the supervisory power over the SEBI It has powered to grant
recognition to the stock Exchanges and regulation of their operations. Ministry of
finance has the power to approve the appointments of executive chiefs and the
nominations of the public representatives in the Governing Boards of the Stock
Exchanges. It has the responsibility of preventing undesirable speculation.
The Securities and Exchange Board of India: The securities and Exchange
Board of India even though established in the year 1988, received statutory powers
are vested in the hands of SEBI. SEBI has the powers to regulate the business of
Stock exchanges, other security and mutual funds. Registration and regulation of
market intermediaries are also carried out By SEBI. It has responsibility to prohibit
the fraudulent unfair trade practices and insider dealings.
Takeovers are also
monitored by the SEBI has the multi pronged duty to promote the healthy growth of
the capital market and protect the investors.
The Governing Board: The Governing Board of the Stock exchange consists
36
of elected members directors, government nominees and public representatives.

Rules, by laws and regulations of the Stock Exchange substantial powers to the
executive director for maintaining efficient and smooth day - to -day functioning of
stock Exchange. The Governing Board has the responsibility to maintain and orderly
and well-regulated market.
The Governing body of the Stock Exchange consists of 13 members of which
Six members of the stock exchange are elected by the member of the stock
exchange.
Central Government nominates not more then three members.
The board nominates three public representatives.
SEBI nominates persons not exceeding three and
The Stock Exchange appoints One Executive Director.
One third of the elected members retire at annual general meeting (AGM).
The retired members can offer himself for election if he is not elected for two
consecutive years.
If a member serves in the governing body for two year
consecutively, he should refrain offering himself for another two years.

The members of the governing body elect the president and vice-president. It
needs to approval from and Central Government or the Board. The office tenure for
the president and vice-president is on year.
They can offer themselves for re-
elections, if for re-election after a gap of one-year period.

INSTRUMENT FOR TRADED ON THE STOCK EXCHANGE:
The instruments traded are securities that are quoted after being listed by the
companies that issued them to the public. The securities issued by the central and
state government, semi-government bodies are also listed and quoted on the Stock
Exchanges as per the rules. The broker members are eligible to deal in them also. In
fact some members specialized in Government securities market, but public are not in
general interested in these securities, and they are less attractive to the public, banks,
37
financial institutions, insurance companies etc, deal in Government securities market.

But for individual investors, corporate securities are relevant as they higher rate of
interests and higher returns due to capital appreciation and dividends.
The corporate securities in which individual investors are invested and are
traded on the exchanges are as follows:
Equity Shares: These are ownership capital and have a variable dividend,
depending on the net earnings and dividend policy of the company. The prices of
these shares vary widely and with a face value of Rs. 10/- (or Rs.50/- or Rs.100/-)
they are normally quoted at a premium, which leads to capital appreciation.
Preference Shares: These are also ownership capital but with a fixed
dividend, now a days preference shares are not popular and have no public interest in
them; only financial interests hold them.
Convertible or Partly Convertible Debentures: The debentures are popular only if
they are convertible into equity shares after a period. Non-convertible debentures
carry a fixed rate of interest. But as there is now no ceiling on such interest rates, they
have also become attractive to the investors.
They have to choose only good
companies with a good credit rating so that there would be no problem in getting there
interest warrants and repayment of principal. Convertible are now popular both with
companies and investors as they have advantages of both fixed income up to a period
and capital appreciation later on due to conversion into equity.
STOCK EXCHANGES
The stock markets in India are regulated by the central government
under the Securities Contracts (Regulation) Act, 1956 which provides for the
recognition of stock exchanges, supervision and control of recognized stock
exchanges, regulation of contracts in securities, listing of securities, transfer of
securities, and many other related functions. The Securities and Exchange Board of
India Act, 1992 provides for the establishment of the Securities and Exchange
Board of India (SEBI) to protect investors interest in securities and promote and
regulate the securities market.
38
BOMBAY STOCK EXCHANGE

Trading in securities has been in vogue in India for a little over 200
years. Dealing in securities dates back to 1793, most of them being transactions in
loan securities of the East India Company. Rampant speculation was a common
feature even during those times. The broking community prospered as there was
high rise in prices which led to a share mania during 1861-65. This bubble burst in
1865 when the American Civil War ended. The brokers realized that investor
confidence in securities market could be sustained only by organizing themselves
into a regulated body with defined rules and regulations. This realization resulted in
formation of The Native Share and Stock Brokers Association which later came to
be known as Bombay Stock Exchange. In 1875, these brokers assembled at a place,
now called Dalal Street.
Bombay Stock Exchange is a voluntary, non-profit-making association
of broker members. It emerged as a premier stock exchange after 1960s. The
increased pace of industrialization caused by the two world wars, protection to the
domestic industry, and governments fiscal policies aided the growth of new issues
which, in turn, helped the BSE to prosper. BSE dominated the Indian capital market
by accounting for more than 60 per cent of the all-India turnover.
Carry Forward Deals, or Badla

The carry forward system, or badla, was a unique feature of the Indian stock
exchanges, particularly of BSE. Badla was a unique selling proposition of the BSE.
Badla provided the facility for carrying forward the transaction from one settlement
to another. In simple terms, it was the postponement of the delivery of or payment
for the purchase of securities from one settlement period to another.
Badla Mechanism
Badla was allowed in the specified group of shares of BSE. This specified
group was also known as the forward group as one could buy or sell shares in it
39
without physical delivery. The carry forward session (badla session) was held on
every Saturday at BSE.
THE NATIONAL STOCK EXCHANGE OF INDIA
The stock markets witnessed many institutional changes in the 1990s. One of
them was the establishment of NSE, a modern stock exchange which brought with it
the best global practices.
The National Stock Exchange (NSE) becomes operational in the capital
market segment on third November 1994 in Mumbai. The genesis of the NSF lies in
the recommendations of the pharwani committee (1991). Apart from the NSE it had
recommended for the established of National Stock market system also, the
committee pointed out some major defects in the Indian Stock market. The defects
specified are.
Luck of liquidity in most of the markets in terms of depth and breadth.
Lack of ability to develop markets for debt.
Lack of infrastructures facilities and outdated trading system.
Lack of transparency in the operations that affect investor's confidence.
Outdated settlement system that are inadequate to cater to the growing
volume, leading to delays.
Lack of single market due to the inability of various stock exchanges to
function cohesively with legal structure and regulatory framework.
The main objectives of NSE are the follows:
. To establish a nation wide trading facility for equities, debt instruments and
hybrids.
To ensure equal access investors all over the country through appropriate
communication network.
To provide a fair, efficient and transparent securities market to investors using
an electronic communication network.
To enable shorter settlement cycle and book entry settlement system.
To meet current international standards of securities market.
40
Promoters of NSE: IDBI, ICICI, IFCI, LIC, GIC, SBI, Bank of Baroda.
Canara Bank, Corporation Bank, Indian, Oriental Bank of commerce. Union Bank of
India, Punjab National Bank, Infrastructure Leasing and Financial Services, Stock
Holding Corporation of India and SBI capital market are the promoters of NSE.
MEMBERSHIP: Membership is based on factors such as capital adequacy,
corporate structure, track record, education, experience etc. admission is a two - stage
process with applicants requiring going through a written examination followed by an
interview. A committee consisting of experienced people from the industry to assess
the applicant's capability to operate as an exchange member, interviews candidates.
The exchange admits members separately to whole self Debt Market (WDM) segment
and the capital market segment. Only corporate members are admitted on the debt
market segment whereas individuals and firms are also eligible on the capital market
segment. Eligibility criteria for trading membership on the segment of WDM are as
follows.
The persons eligible to become trading members are bodies corporate, companies
institutions including subsidiaries of banks engaged in financial services and such
other persons or entities as may be permitted from time to time by RBI/SEBI
The whole - time directors should possess at least two years

experience in any activity related to banking or financial services
or treasury.
The whole - time directors should possess at least two years

experience in any activity related to banking or financial services
or treasury.
The applicant must possess a minimum net worth of Rs. 2crores.
The applicant must be engaged solely in the business of securities

and must not be engaged in any fund- based activities.
The eligibility criteria for the capital market segment are:

A. Individuals, registered firms, bodies corporate, companies and such other
persons may be permitted under SCRA, 1957.
B. The applicant must be engaged in the business of securities and must not be
engaged in any fund-based activities.
C. The minimum net worth requirements prescribed are as follows:
41
i.
Individual and registered firm - Rs. 75 Lakes.
ii.
Corporate bodies - Rs.100Lakhs.
iii.
In the case of registered partnership firm each partner should

contribute at least 5% of the minimum net worth requirement of the
firm.
D. A corporate trading member should consist only of individuals (maximum of

4) who should directly hold at least 405 of the paid-up capital in case of listed
companies and at least 51% IN CASE OF OTHER COMPANIES.
E. The minimum prescribed qualification of graduation and two years experience
of handling securities as broker, sub-broker, authorized assistant, etc must be
fulfilled by
i.
Minimum two directors in case the applicant is a corporate.
ii.
Minimum two partners in case of partnership firms and
iii.
The individual in case of individual or sole proprietary concerns.
The two experienced director in a corporate applicant or trading member should hold
minimum of 5% of the capital of the company.
42
COMPANY PROFILE
43
COMPANY PROFILE
Incorporated in 1993, Net worth Stock Broking Limited (NSBL) has been a
listed company at Bombay Stock Exchange (BSE), Mumbai since 1995.
A Member, at the National Stock Exchange of India (NSE) and Bombay Stock
Exchange, Mumbai (BSE) on the Capital Market and Derivatives (Futures & Options)
segment, NSBL has been traditionally servicing Institutional clients and in the recent
past has forayed into retail broking, establishing branches across the country. Presence
is being marked in the Middle East, Europe and the United States too, as part of our
attempts to cater to global markets. We are a Depository participant at Central
Depository Services India (CDSL) with plans to become one at National Securities
Depository (NSDL) by the end of this quarter. We have our customers participating in
the booming commodities markets with our membership at the Multi Commodity
Exchange of India (MCX) and National Commodity & Derivatives Exchange
(NCDEX), through Networth Stock.Com Ltd. With its strong support and business
units of research, distribution & advisory, NSBL aims to become a one-stop solution
to the broking and investment needs of its clients, globally.
Strong team of professionals experienced and qualified pool of human
resources drawn from top financial service & broking houses form the backbone of
our sizeable infrastructure. Highly technology oriented, the companys scalability of
operations and the highest level of service standards has ensured rapid growth in the
number of locations & the clients serviced in a very short span of time. Networth, as
each one of our 400 plus and ever growing team members are addressed, is a
44
dedicated team motivated to continuously progress by imbibing the best of global

practices, Indian sing
such practices, and to constantly evolve a comprehensive suite of products &
services trying to meet every financial / investment need of the clients.
NSE CM and Derivatives Segment SEBI Regn. 1NB230638639 & 1NF230638639
BSE CM and Derivatives Segment SEBI Regn. 1NB010638634 &
PMS SEBI Regn. 1NP000001371 CDSL DP SEBI Regn. IN-DP-CDSL
251-2004
Commodities Trading: MCX -10585 and NCDEX - 00011 (through Networth
Stock.Com Ltd.)
Hyderabad (Somajiguda)
401, Dega Towers, 4th Floor, Raj Bhavan Road, Somajiguda Hyderabad - 500 082
Andhra Pradesh.
Phone Nos.: 040-55560708, 55562256, and 30994985
Mumbai (MF Division)
49, Au Chambers, 4th Floor, Tamarind Lane, Fort
Mumbai - 400 001
Maharashtra.
Phone Nos.: 022- 22650253
Mumbai (Registered Office)
5, Church gate House, 2nd Floor, 32/ 34 Veer Narirnan Road, Fort
Mumbai - 400 001
Maharashtra.
Phone No. 022-22850428
45
The Networth connectivity with 107 branches and growing
Products and services portfolio
Retail and institutional broking
Research for institutional and retail clients
Distribution of financial products
PMS
Corporate finance
Net trading
Depository services
46
Commodities Broking
Infrastructure
A corporate office and 3 divisional offices in CBD of Mumbai which houses

state-of-the-art dealing room, research wing & management and back offices.
All of 107 branches and franchisees are fully wired and connected to hub at
Corporate office at Mumbai. Add on branches also will be wired and
connected to central hub
Web enabled connectivity and software in place for net trading.
60 operative IDs for dealing room
In house technology back up team to ensure un-interrupted connectivity.

47
1993: Networth Started with 300 Sq.ft. of office space & 10 employees
2006: Spread over 42 cities (around 70,000 Sq.ft of office space) with over 107
branches & employee strength over 400
Market & research
Focusing on your needs
Every investor has different needs, different preferences, and different viewpoints.
Whether investor prefer to make own investment decisions or desire more in-depth
assistance, company committed to providing the advice and research to help you
succeed.
Networth providing following services to their customers,
Daily Morning Notes
Market Musing
Company Reports
Theme Based Reports
Weekly Notes
IPOs
Sector Reports
Stock Stance
Pre-guarter/Updates
Bullion Tracker
F&O Tracker
48
QUALITY POLICY
To achieve and retain leadership, Networth shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide superior
quality financial services. In the process, Networth will strive to exceed Customers
expectations.
As per the quality policy, Networth will:
Build in house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of services.
Establish a partner relationship with in its investor service agents and vendors
that will help in keeping up its commitments to the customers.
Provide high quality of work life for all its employees and equip them with
adequate knowledge & skill so as to respond to customers needs.
Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in business ethics.
Use state-of-the art information technology in developing new and innovative
financial products and services to meet the changing needs of investors and
clients.
Strive to be a reliable source of value-added financial products and services and

constantly guide the individuals and institutions in making a judicious choice of it.
Strive to keep all stake-holders (share holders, clients, investors, employees, suppliers
and regulatory authorities) proud and satisfied.
49
Key Personnel:
Mr. S P Jain CMD Networth Stock Broking Ltd.

A qualified Chartered Accountant with over 15 years of experience
in the
capital markets.
Mr. Deepak Mehta Head PMS

Over 12 years of experience in the capital markets and has the prior work
experience of serving on the Equity desk of Reliance.
Mr.Viral Doshi Equity Strategist

A qualified Chartered Accountant with experience of over a decade in
technical analysis with respect to equity markets.
Mr. Vinesh Jain Asst. Fund Manager

A qualified MBA graduate specializing in finance and over two years of
experience in the capital markets.
Research and the Back office.
we have sought to provide premium financial services and information, so that the
power of investment is vested with the client. We equip those who invest with us to
make intelligent investment decisions, providing them with the flexibility to either tap
into our extensive knowledge and expertise, or make their own decisions. We made
our debut into the financial world by servicing Institutional clients, and proved its
high scalability of operations by growing exponentially over a short period of time.
50
Now, powered by a top-notch research team and a network of experts, we provide an

array of financial products & services spanning entire India.Our strong support,
technology-driven operations and business units of research, distribution, advisory,
wide array of products & services coalesce to provide you with a one-stop solution to
cater to all your investment needs. Our single minded objective is to help you grow
your Networth.
OUR GROUP COMPANIES
Networth Stock Broking Ltd. [NSBL]
NSBL is a member of the National Stock Exchange of India Ltd (NSE) and the
Bombay Stock Exchange Ltd (BSE) in the Capital Market and Derivatives (Futures &
Options) segment. NSBL has also acquired membership of the currency derivatives
segment with NSE, BSE & MCX-SX. It is Depository participants with Central
Depository Services India (CDSL) and National Securities Depository (India) Limited
(NSDL). With a client base of over 1L loyal customers, NSBL is spread across the
country though its over 230+ branches. NSBL is listed on the BSE since 1994.
Networth Wealth Solutions Ltd. [NWSL]

NWSL is into the business of delivery of Financial Planning & Advice. Its vision is
to Advice & Execute money related solutions to/for our customers in the most
Convenient & Consolidated manner, while making sure that their experience with us
is always pleasant & memorable resulting in positive advocacy. The product &
Services include Financial Planning, Life Insurance, On-line Trading Account, Mutual
Funds, Debentures/Bonds, General Insurance, Loans and Depository Services.
51
NetworthStock.ComLtd.[NSCL]
NSCL is the commodities arm of NSBL. It is a member at the Multi Commodity
Exchange of India (MCX) and National Commodity & Derivatives Exchange
(NCDEX) and is backed by solid research & analytics in Commodities.
NetworthSoftTechLtd.[NSL]
NSL is an ISO 9001:2000 Certified Company. It is into Application Development &
maintenance. Building & Implementation of packaged software across various
functions within the Financial Services Industry is at its core. It also provides data
center services which include hosting of websites, applications & related services. It
combines a unique delivery model infused by a distinct culture of customer
satisfaction.
Ravisha Financial Services Pvt. Ltd. [RFSL]

RFSL is a RBI registered NBFC engaged in financing, primarily it provides loan
against securities
Principles & Values

At Net worth Stock Broking Ltd. success is built on teamwork, partnership and the
diversity of the people.
At the heart of our values lie diversity and inclusion. They are a fundamental part of
our culture, and constitute a long-term priority in our aim to become the world's best
international bank.
52
Values
Responsive
Trustworthy
Creative
Courageous
Approach
Participation:- Focusing on attractive, growing markets where we can leverage

our relationships and expertise
Competitive positioning:- Combining global capability, deep local knowledge

and creativity to outperform our competitors
Management Discipline:- Continuously improving the way we work,

balancing the pursuit of growth with firm control of costs and risks
Commitment to stakeholders
Customers:- Passionate about our customers' success, delighting them with the
quality of our service
Our People:- Helping our people to grow, enabling individuals to make a

difference and teams to win
Communities:- Trusted and caring, dedicated to making a difference
Investors:- A distinctive investment delivering outstanding performance and

superior returns
53
CHAPTER V
DATA ANALYSIS & INTERPRETATIONS
54
MARUTI SUZIKI:
Year
(P0)
(P1)
D
2010
4.5
924
992
2011
5
992
520
2012
3.5
520
1560
2013
6
1560
1421
2014
7.5
1421
935
AVERAGE RETURN
(P1-P0)
68
-472
1,040
-139
-486
D+(P1-P0)/ P0*100
11.86
-42.58
203.50
-2.91
-26.70
28.63
ACC CEMENTS:
Year
(P0)
(P1)
D
2010
20
1074
1028
2011
20
1028
478
2012
23
478
872
2013
30.5
872
1076
2014
11
1076
1136
AVERAGE RETURN
(P1-P0)
-46
-550
394
204
60
D+(P1-P0)/
P0*100
15.72
-33.50
105.43
53.89
16.58
31.62
(P1-P0)
332
-783
428
269
-461
D+(P1-P0)/
P0*100
46.93
-52.61
106.54
42.71
-26.26
23.46
ICICI BANK:
Year
(P0)
(P1)
D
2010
899
1231
2011
1231
448
2012
448
876
2013
876
1145
2014
1145
684
AVERAGE RETURN
10
11
11
12
14
RELIANCE:
55
Year
(P0)
(P1)
D
2010
11
638
1424
2011
13
1424
615
2012
13
615
1089
2013
7
1089
1058
2014
8
1058
692
AVERAGE RETURN
(P1-P0)
786
-809
474
-31
-366
D+(P1-P0)/
P0*100
134.20
-43.81
90.07
4.15
-26.59
31.60
(P1-P0)
-77
-288
511
415
-4
D+(P1-P0)/
P0*100
-1.25
-40.65
227.81
75.33
13.66
54.98
TCS:
Year
(P0)
(P1)
D
2010
11.5
604
527
2011
14
527
239
2012
14
239
750
2013
20
750
1165
2014
14
1165
1161
AVERAGE RETURN
Comparative Returns on Selected Scrips:
56
Scrip
Rate of Return (%)
Maruti
ACC
ICICI
Reliance
TCS
28.63
31.62
23.46
31.60
54.98
CALCULATION OF STANDARD DEVIATION:
Standard Deviation = Variance

__
Variance
1/n (R-R)2
MARUTI:
57
Year
Return (R)
11.86
-42.58
203.50
-2.91
-26.70
2010
2011
2012
2013
2014
Avg. Return (R)

28.63
28.63
28.63
28.63
28.63
TOTAL
(R-R)
-16.77
-71.21
174.87
-31.54
-55.33
(R-R)2
281.37
5071.44
30578.32
995.00
3061.93
39988.07
__
2
Variance = 1/n (R-R) = 1/5 (39988.07) = 7997.613162
Standard Deviation = Variance

=
7997.613162
= 89.43
ACC CEMENTS:
Year
Return (R)
15.72
-33.50
105.43
53.89
16.58
2010
2011
2012
2013
2014
Avg. Return (R)

(R-R)
31.62
-15.91
31.62
-65.12
31.62
73.80
31.62
22.27
31.62
-15.05
TOTAL
(R-R)2
252.99
4241.19
5447.07
496.04
226.39
10663.68
__
2
Variance = 1/n (R-R) = 1/5 (10663.68) = 2132.73
Standard Deviation =
Variance
2132.73
= 46.18
ICICI BANK:
Year
Return (R)
Avg. Return (R)

58
(R-R)
(R-R)2
2010
2011
2012
2013
2014
46.93
-52.61
106.54
42.71
-26.26
23.46
23.46
23.46
23.46
23.46
23.47
-76.07
83.07
19.25
-49.72
550.79
5786.30
6901.42
370.44
2472.37
16081.33
TOTAL
__
Variance = 1/n (R-R)2 = 1/5 (16081.33) = 3216.26
Standard Deviation = Variance =
3216.26
= 56.712
RELIANCE:
Year
Return (R)
2010
2011
2012
2013
2014
Avg. Return (R)
134.20
-43.81
90.07
4.15
-26.59
(R-R)
31.60
31.60
31.60
31.60
31.60
102.59
-75.42
58.47
-27.45
-58.20
TOTAL
(R-R)2
10525.48
5687.50
3418.68
753.52
3386.93
23772.11
__
Variance = 1/n.(R-R)2 = 1/5 (23772.11) = 4754.42
Standard Deviation = Variance = 4754.42
= 68.95
TCS:
Year
Return (R)
2010
2011
Avg. Return (R)
-1.25
-40.65
54.98
54.98
59
(R-R)
-56.23
-95.63
(R-R)2
3161.63
9144.91
2012
2013
2014
227.81
75.33
13.66
54.98
54.98
54.98
172.83
20.35
-41.32
TOTAL
__
Variance = 1/n-1 (R-R)2 = 1/5 (44297.76) = 8859.55
Standard Deviation = Variance = 8859.55 = 94.125
DIAGRAMATIC PRESENTATION OF COMPANIES RISK
60
29869.34
414.26
1707.62
44297.76
Scrip
Risk (%)
Maruti
89.43
ACC
ICICI
46.18
56.71
Reliance
68.95
TCS
94.13
CALCULATION OF CORRELATION:
Covariance (COV ab) = 1/n (RA-RA)(RB-RB)
Correlation Coefficient = COV ab/a*b
MARUTI WITH OTHER COMPANIES

MARUTI (RA) & ACC (RB)
YEAR
2010
2011
2012
2013
2014
(RA-RA)
(RB-RB)
-16.77
-71.21
174.87
-31.54
-55.33
-15.91
-65.12
73.80
22.27
-15.05
61
(RA-RA) (RB-RB)
266.8016
4637.777
12905.9
-702.541
832.5818
17940.52
Covariance (COV ab) = 1/5 (17940.52) = 3588.1

a = 89.43 ; b = 46.18
= 3588/(89.43)(46.18) = 0.868
MARUTI (RA) & ICICI (RB)
YEAR
(RA-RA)
2010
2011
2012
2013
2014
(RB-RB)
-16.77
-71.21
174.87
-31.54
-55.33
23.47
-76.07
83.07
19.25
-49.72
(RA-RA) (RB-RB)
-393.672
5417.093
14527.01
-607.117
2751.403
21694.71
Covariance (COV ab) = 1/5 (21695) = 4339

a = 89.43; b = 56.71
= 4339/ (89.43) (56.71) = 0.855
MARUTI (RA) & RELIANCE (RB)
YEAR
(RA-RA)
2010
2011
2012
2013
2014
(RB-RB)
-16.77
-71.21
174.87
-31.54
-55.33
102.59
-75.42
58.47
-27.45
-58.20

a = 89.43; b = 68.95
62
(RA-RA) (RB-RB)
-1720.92
5370.647
10224.35
865.886
3220.33
17960.29
= 3592/ (89.43) (68.95) = 0.582
MARUTI (RA) & TCS (RB)

YEAR
(RA-RA)
2010
2011
2012
2013
2014
(RB-RB)
-16.77
-71.21
174.87
-31.54
-55.33
-56.23
-95.63
172.83
20.35
-41.32
(RA-RA) (RB-RB)
943.1817
6810.131
30221.75
-642.018
2286.617
39619.66

a = 89.43; b = 94.13
= 7924/ (89.43) (94.13) = 0.941
ACC WITH OTHER COMPANIES

ACC (RA) & ICICI (RB)
YEAR
2010
2011
2012
2013
2014
(RA-RA)
(RB-RB)
-15.91
-65.12
73.80
22.27
-15.05
23.47
-76.07
83.07
19.25
-49.72

63
(RA-RA) (RB-RB)
-373.288
4953.869
6131.276
428.6658
748.1454
11888.67
a = 46.18; b = 56.71
= 2378/ (46.18) (56.71) = 0.908
ACC (RA) & RELIANCE (RB)
YEAR
(RA-RA)
2010
2011
2012
2013
2014
(RB-RB)
-15.91
-65.12
73.80
22.27
-15.05
102.59
-75.42
58.47
-27.45
-58.20
(RA-RA) (RB-RB)
-1631.81
4911.394
4315.295
-611.375
875.6534
7859.158

a = 46.18; b = 68.95
= 1608 / (46.18)(68.95) = 0.505
ACC (RA) & TCS (RB)
YEAR
2010
2011
2012
2013
2014
(RA-RA)
(RB-RB)
-15.91
-65.12
73.80
22.27
-15.05
-56.23
-95.63
172.83
20.35
-41.32

a = 46.18; b = 94.13
= 4191/(46.18)(94.13) = 0.964
64
(RA-RA) (RB-RB)
894.3435
6227.785
12755.41
453.3085
621.7637
20952.61
ICICI WITH OTHER COMPANIES

ICICI (RA) & RELIANCE (RB)
YEAR
(RA-RA)
2010
2011
2012
2013
2014
(RB-RB)
23.47
-76.07
83.07
19.25
-49.72
102.59
-75.42
58.47
-27.45
-58.20
(RA-RA) (RB-RB)
2407.774
5736.688
4857.337
-528.333
2893.74
15367.21

a = 56.71; b = 68.95
= 3073/ (56.71)(68.95) = 0.785
ICICI (RA) & TCS (RB)
YEAR
2010
2011
2012
2013
2014
(RA-RA)
(RB-RB)
23.47
-76.07
83.07
19.25
-49.72
-56.23
-95.63
172.83
20.35
-41.32

a = 56.71; b = 94.13
= 4552/ (56.71)(94.13) = 0.852
65
(RA-RA) (RB-RB)
-1319.62
7274.282
14357.61
391.7367
2054.72
22758.72
RELIANCE WITH OTHER COMPANIES

RELIANCE (RA) & TCS (RB)
YEAR
2010
2011
2012
2013
2014
(RA-RA)
(RB-RB)
102.59
-75.42
58.47
-27.45
-58.20
-56.23
-95.63
172.83
20.35
-41.32
TOTAL

a = 68.95; b = 94.13
= 2679/(68.95)(94.13) = 0.413
66
(RA-RA) (RB-RB)
-5768.68
7211.911
10105.13
-558.705
2404.91
13394.56
CALCULATION OF PORTFOLIO WEIGHTS

b [b-(nab*a)]
Wa =
a2 + b2 - 2nab*a*b
Wb = 1 Wa
WEIGHTS OF MARUTI & OTHER COMPANIES:
MARUTI & ACC
a = 89.43
b = 46.18
nab = 0.868
Wa =
46.18 [46.18-(0.868*89.43)]
89.432 + 46.182 2(0.868)* 89.43* 46.18
Wa =
-1452.14
2960.850
Wa = -0.49
Wb = 1 Wa
Wb = 1- (-0.49) = 1.49
MARUTI (a) & ICICI (b)

a = 89.43
b = 56.71
nab = 0.855
Wa =
56.71 [56.71- (0.855*89.43)]

89.432 + 56.712 2(0.855)* 89.43*56.71
Wa =
-1120.17
2541.35
Wa = -0.44
Wb = 1 Wa
Wb = 1- (-0.19) = 1.44
67
MARUTI (a) & RELIANCE (b)

a = 89.43
b = 68.95
nab = 0.582
Wa =
68.95 [68.95 - (0.582*89.43)]

89.432 + 68.952 2(0.582)* 89.43*68.95
Wa =
1165.37
5574.37
Wa = 0.21
Wb = 1 Wa
Wb = 1-0.21 =0.79
MARUTI (a) & TCS (b)

a = 89.43
b = 94.13
nab = 0.941
94.13 [94.13-(0.941*89.43)]
Wa =
89.432 + 94.132 2(0.941)* 89.43*94.13

Wa =
939.07
1015.41
Wa = 0.924
Wb = 1 Wa
= 1-0.924 = 0.075
CALCULATION OF WEIGHTS OF ACC & OTHER COMPANIES:

68
ACC (a) & ICICI (b)

a = 46.18
b = 56.71
nab = 0.908
Wa =
56.71 [56.71-(0.908*46.18)]
46.182 + 56.712 2(0.908)* 46.18*56.71
Wa =
838.09
592.75
Wa = 1.413
Wb = 1 Wa
= 1- 1.413 = -0.413
ACC (a) & RELIANCE (b)

a = 46.18
b = 68.95
nab = 0.505
Wa =
68.95 [68.95 - (0.505*46.18)]

46.182 + 68.952 2(0.505)* 46.18*68.95
Wa =
3146.12
3670.74
Wa =0.85
Wb = 1 Wa = 1- 0.85 = 0.15
ACC (a) & TCS (b)

a = 46.18
69
b = 94.13
nab = 0.964
Wa =
94.13 [94.13-(0.964*46.18)]
46.182 + 94.132 2(0.964)* 46.18*94.13
Wa =
4670
2612.18
Wa =
1.78
Wb = 1 Wa = 1- 1.78 = -0.78
WEIGHTS OF ICICI & OTHER COMPANIES:

ICICI(a) & RELIANCE (b)
a = 56.71
b = 68.95
nab = 0.785
Wa =
68.95 [68.95-(0.785*56.71)]
56.712 + 68.952 2(0.785)* 56.71*68.95
Wa =
1684.63
1831.184
Wa = 0.919
Wb = 1 Wa = 1- 0.919 = 0.08
ICICI (a) & TCS (b)

a = 56.71
b = 94.13
nab = 0.852
70
Wa =
94.13 [94.13-(0.852*56.71)]
56.712 + 94.132 2(0.852)* 56.71*94.13
Wa =
4312.38
2980.337
Wa = 1.446
Wb = 1 Wa = 1-1.446 = -0.446
WEIGHTS OF RELIANCE & OTHER COMPANIES

RELIANCE (a) & TCS (b)
a = 68.95
b = 94.13
nab = 0.413
Wa =
94.13 [94.13-(0.413*68.95)]
68.952 + 94.132 2(0.413)* 68.95*94.13
Wa =
6180
8253.60
Wa = 0.748
Wb = 1 Wa
= 1- 0.748 = 0.251
CALCULATION OF PORTFOLIO RISK:

RP
(a*Wa)2 + (b*Wb)2 + 2*a*b*Wa*Wb*nab
MARUTI & OTHER COMPANIES:

71
MARUTI (a) & ACC (b):

a = 89.43
b = 46.18
Wa = -0.49
Wb = 1.49
nab = 0.868
RP =
(89.43*-0.49)2+ () 2+2
*(46.18)*(-0.49)*(1.49)*(0.868)
1420.394 = 37.68%
MARUTI (a) & ICICI (b):

a = 89.43
b = 56.71
Wa = -0.44
Wb = 1.44
nab = 0.855
RP
(89.43*-0.44)2+(56.71*1.44)2+2(89.43)
**(1.44)*(0.855)
2722.28
= 52.17%
MARUTI (a) & RELIANCE (b):

a = 89.43
b = 68.95
Wa = 0.21
Wb = 0.79
nab = 0.582
RP
(89.43*0.21)2+(68.95*0.79)2+2(89.43)
**(0.79)*(0.582)
72
4510.475
= 67.16%
MARUTI (a) & TCS (b):

a = 89.43
b = 94.13
Wa = 0.924
Wb = 0.075
nab = 0.941
(89.43*0.924)2+(
)2+2(89.43)***(0.075)*(0.941)
RP =
7976
= 89.308%
ACC & OTHER COMPANIES

ACC (a) & ICICI (b):
a = 46.18
b = 56.71
Wa = 1.413
Wb = -0.413
nab = 0.908
(46.18*1.413)2+(56.71*-0.413)2+2(46.18)
*(-0.413)*(0.908)
RP =
2031.047
= 45.067%
ACC (a) & RELIANCE (b):

a = 46.18
73
b = 68.95
Wa= 0.85
Wb= 0.15
nab = 0.505
RP =
(46.18*0.85)2+(68.95*0.15)2+2(46.18
**(0.15)*(0.505)
2057.80
= 45.362%
ACC (a) & TCS(b):

a = 46.18
b = 94.13
Wa= 1.78
Wb= -0.78
nab = 0.964
RP =
(46.18*1.78)2+(94.13*-0.78)2+2(46.18)**(-0.78)*(0.964)
511.61
= 22.61%
ICICI & OTHER COMPANIES

ICICI (a) & RELIANCE (b):
a = 56.71
b = 68.95
Wa = 0.919
Wb = 0.081
nab = 0.785
RP
(56.71*0.919)2+(68.95*0.081)2+2(56.71)
**(0.081)*(0.785)
3204.3
= 56.60%
ICICI (a) & TCS (b):

a = 56.71
74
b = 94.13
Wa
= 1.446
Wb
= -0.446
nab = 0.852
RP =
(56.71*1.446)2 + (94.13*-0.446)2 + 2(56.71) * * (-0.446) *
(0.852)
2620.675
= 51.19%
RELIANCE & OTHER COMPANIES

RELIANCE (a) & TCS (b):
a = 68.95
b = 94.13
Wa = 0.748
Wb = 0.251
nab = 0.413
RP =
(68.95*0.748)2+(94.13* 0.251)2+2(68.95)**( 0.251)*(0.413)
4224.66
= 65%
75
CALCULATION OF PORTFOLIO RETURNS

Rp=(RA*WA) + (RB*WB)
Where Rp = portfolio return
RA= return of A
WA= weight of A
RB= return of B
WB= weight of B
CALCULATION OF PORTFOLIO RETURN OF MARUTI &

OTHER COMPANIES:
MARUTI (A) & ACC (B):
RA= 28.63
WA=--0.49
RB=31.62
WB=1.49
76
Rp = (28.63*-0.49) + (31.62*1.49)
Rp = (-14.03 + 47.11)
Rp = 33.08%
MARUTI (A) & ICICI (B):

RA= 28.63
WA=-0.44
RB=23.46
WB=1.44
Rp = (28.63*0.-0.44) + (23.46*1.44)
Rp = (-12.59 + 33.78)
Rp = 21.2%
MARUTI (A) & RELIANCE (B):

RA= 28.63
WA=0.21
RB= 31.60
WB=0.79
Rp = (28.63*0.21) + (31.60*0.79)
Rp = (6.0123+24.96)
Rp = 30.97%
MARUTI (A) & TCS (B):

RA= 28.63
WA=0.924
RB= 54.98
WB= 0.075
Rp = (28.63*0.924) + (54.98*0.075)
Rp = (26.45+4.12)
Rp = 30.57
77
CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER

COMPANIES
ACC (A) & ICICI (B):
RA= 31.62
WA=1.413
RB= 23.46
WB= -0.413
Rp = (31.62*1.413) + (23.46*-0.413)
Rp = 44.67 - 9.68
Rp = 35%
ACC (A) & RELIANCE (B):

RA= 31.62
WA=0.85
RB= 31.60
WB=0.15
Rp = (31.62*0.85) + (31.60*0.15)
Rp = (26.877+4.74)
Rp = 31.617%
ACC (A) & TCS (B):

RA= 31.62
WA=1.78
RB= 54.98
WB= -0.78
Rp = (31.62*1.78) + (54.98*-0.78)
Rp = (56.28-42.88)
Rp = 13.39%
CALCULATION OF PORTFOLIO RETURN OF ICICI & OTHER

COMPANIES
ICICI (A) & RELIANCE (B):
RA= 23.46
WA=0.919
RB=31.60
WB=0.081
Rp = (23.46*0.919) + (31.60*0.081)
78
Rp = (21.55+2.55)
Rp = 24.10%
ICICI (A) & TCS (B):

RA= 23.46
WA=1.446
RB=54.98
WB= -0.446
Rp = (23.46*1.446) + (54.98*-0.446)
Rp = 33.92 24.52
Rp = 9.4%
CALCULATION OF PORTFOLIO RETURN OF RELIANCE &

OTHER COMPANIES
RELIANCE (A) & TCS (B):
RA= 31.60
WA=0.748
RB=54.98
WB=0.251
Rp = (31.60*0.748) + (54.98*0.251)
Rp = (23.63 + 13.79)
Rp = 37.43%
79
PORTFOLIO RETURNS & RISKS

OF THE SELECTED STOCKS
Scrip A
Maruti
Maruti
Maruti
Maruti
ACC
ACC
ACC
ICICI
ICICI
Reliance
Scrip B
ACC
ICICI
Reliance
TCS
ICICI
Reliance
TCS
Reliance
TCS
TCS
Portfolio Return
33.08%
21.2%
30.97%
30.57%
35%
31.61%
13.39%
24.10%
9.4%
37.43%
80
Portfolio Risk
37.68%
52.17%
67.16%
89.3%
45.06%
45.36%
22.61%
56.60%
51.19%
65%
CHAPTER VI
81
FINDINGS, SUGGESTIONS & CONCLUSION
82
FINDINGS
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.
Individual returns on the selected stocks including Maruti, ACC, ICICI,

Reliance & TCS are 28.63%, 31.62%, 23.46%, 31.60% and 54.98%
respectively.
Individual risks on the selected stocks including Maruti, ACC, ICICI, Reliance
& TCS are 89.43%, 46.18%, 56.71%, 68.95% and 94.13% respectively.
Correlation between all the companies is positive which means all the
combinations of portfolios are at good position to gain in future.
Portfolios Returns of Reliance & TCS (37.43%) followed by ACC & ICICI
(35%) and Maruti & ACC (33.08%) stood on the top while Portfolio Returns
of ICICI & TCS (9.4%) , Maruti & ICICI (21.2%) and ICICI & Reliance
(24.10) stood at the bottom.
Portfolios Risk of Maruti & TCS (89. 3%) followed by Reliance & Maruti
(67%) and Reliance & TCS (65%) are very high while Portfolio Risks of ACC
& TCS (22.61%) , Maruti & ACC (37.68%) stood at the bottom.
83
SUGGESTIONS
All the stocks under consideration have given positive return which indicates
the positive performance of the stock market, specially the SENSEX stocks.
TCS has been the outstanding performer with a return of nearly 55%. This
indicates that Investors can be assured of good returns in the long run by
investing in blue chip companies. Rest of the stocks has given average returns
ranging from 24% to 32%.
Comparing the individual risks, TCS and Maruti are risky securities compared
to the other securities like Reliance, ACC and ICICI and it suggested that the
investors should be careful while investing in these securities.
The investors who require minimum return with low risk can invest in ICICI
and ACC.
It is recommended that the investors who require high risk with high return
should invest in TCS.
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 Reliance & TCS (37.43%)
followed by ACC & ICICI (35%) and Maruti & ACC (33.08%) which have
given the maximum returns.
Low Risk investors are advised to keep away from Maruti & TCS (risk of 89.
3%) and prefer the Portfolios of ACC & TCS (22.61%) , Maruti & ACC
(37.68%) which have the least risk.
84
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.
85
CONCLUSIONS
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.
86
BIBLIOGRAPHY
Books referred:
Investment Analysis and Portfolio Management, written by M.Ranganathan,

R.Madhumathi published by Dorling Kindersley (India) Pvt.Ltd., 3rd Edititon.
Investment Analysis and Portfolio Management, written by Prasanna Chandra

Published by Tata Mc.Graw-Hill, 3rd Edition.
Security Analysis and Portfolio Management, written by V.A.Avadhani,

Published by Himayala Publishing house Pvt.Ltd.9th 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_i
ndia.
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.networthdirect.com
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CHAPTER I - INTRODUCTION

NEED OF THE STUDY

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

SCOPE OF THE STUDY

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

Information provided by Inter Connected Stock Exchange.

Construction of Portfolio is restricted to two companies based on Markowitz model.

Data collection was strictly confined to secondary source. No primary data is

CHAPTER II - REVIEW OF LITERATURE

PORTFOLIO MANAGEMENT & ITS PHASES

Evaluation of Managers: A mutual fund or similar organization might want to

Evaluation of Groups: have different skills or access to different information.

NEED FOR EVALUATION OF PORTFOLIO:

He used statistical analysis for the measurement of risk and

mathematical programming for selection of assets in a portfolio in an efficient manner.

Markowitz model is also called as a Full Covariance Model. Through this

Perfect markets are assumed (e.g. no taxes and no transaction costs)

An individual seller or buyer cannot affect the price of a stock. This

Investors are risk-averse, so when given a choice between two otherwise

There is no transaction cost i.e. no cost involved in buying and selling of

THE EFFECT OF COMBINING TWO SECURITIES:

INTER- ACTIVE RISK THROUGH COVARIANCE:

CAPITAL ASSET PRICING MODEL (CAPM):

Rf Xf+ Rm(1- Xf)

The proportion of funds invested in risk free assets

The proportion of funds invested in risky assets

Risk free rate of return

Return on risky assets

THE SHARPES INDEX MODEL:

the expected return on stock i

the return on a risk less asset

the expected change in the rate of return on stock I associatd

SINGLE INDEX MODEL:

= slope of straight line or beta co-efficient

Rm = the rate of return on market index

= error term with a mean of zero & a std.dev. Which is a constant?

ARBITRAGE PRICING THEORY

is the expected return on the security i

is the return on the zero beta portfolio

is the factor risk premium

is the sensitivity of the ith asset to the risk factor

Two factor Arbitrage pricing:

is the risk premium associated with risk factor2

i2 is the factor beta coefficient for factor

CHARACTERISTICS OF PORTFOLIO MANAGEMENT:

Process of Portfolio Management:

1. IDENTIFY GOALS AND OBJECTIVES:

Functions of Portfolio Mangers:

Conducting market and economic service:

Study of stock market:

Decide the type of portfolio:

Risk is uncertainty of the income/capital appreciation or loss or both. All

SOURCE OF INVESTMENT RISKS:

Interest rate risk:

The two major types of risks are: