INDEX

S.No: CONTENTS PAGENO.

CHAPTER1 19

INTRODUCTION
ScopeoftheStudy
ObjectivesoftheStudy
MethodologyoftheStudy
LimitationsoftheStudy
CHAPTER2 1029

. INDUSTRYPROFILE

COMPANYPROFILE
CHAPTER3 3056
REVIEWOFLITERATURE
CHAPTER4 5766
DATAANALYSISANDINTERPRETATION
CHAPTER5 6771
FINDINGS
CONCLUSION
SUGGESTIONS
BIBLIOGRAPHY

6
 CHAPTERI
INTRODUCTION

7
 INTRODUCTION
A portfolio is a collection of investments held by an institution or a private
individual.Inbuildingupaninvestmentportfolioafinancialinstitutionwilltypically
conductitsowninvestmentanalysis,whilstaprivateindividualmaymakeuseofthe
services of a financial advisor or a financial institution which offers portfolio
management services. Holding a portfolio is part of an investment and risklimiting
strategy called diversification. By owning several assets, certain types of risk (in
particularspecificrisk)canbereduced.Theassetsintheportfoliocouldincludestocks,
bonds, options, warrants, gold certificates, real estate, futures contracts, production
facilities,oranyotheritemthatisexpectedtoretainitsvalue.

Portfoliomanagementinvolvesdecidingwhatassetstoincludeintheportfolio,
given the goals of the portfolio owner and changing economic conditions. Selection
involvesdecidingwhatassets topurchase,howmanytopurchase,whentopurchase
them, and what assets to divest. These decisions always involve some sort of
performancemeasurement,mosttypicallyexpectedreturnontheportfolio,andtherisk
associated with this return (i.e. the standard deviation of the return). Typically the
expectedreturnsfromportfolios,comprisedofdifferentassetbundlesarecompared.

The unique goals and circumstances of the investor must also be considered.
Someinvestorsaremoreriskaversethanothers.Mutualfundshavedevelopedparticular
techniquestooptimizetheirportfolioholdings.

Thus, portfolio management is all about strengths, weaknesses, opportunities and

threatsinthechoiceofdebtvs.equity,domesticvs.international,growthvs.safety
andnumerousothertradeoffsencounteredintheattempttomaximizereturnata
givenappetiteforrisk.
8
 AspectsofPortfolioManagement:
Basicallyportfoliomanagementinvolves
Aproperinvestmentdecisionmakingofwhattobuy&sell
Propermoneymanagementintermsofinvestmentinabasketofassetssoas
tosatisfytheassetpreferencesofinvestors.

ThebasicobjectiveofPortfolioManagementistomaximizeyieldandminimizerisk.
Theotherancillaryobjectivesareasperneedsofinvestors,namely:

Regularincomeorstablereturn
Appreciationofcapital

Marketability and liquidity

Safetyofinvestment
Minimizingoftaxliability.

9
NEEDANDIMPORTANCEOFSTUDY:
ThePortfolioManagementdealswiththeprocessofselectionsecuritiesfromthenumber
ofopportunitiesavailablewithdifferentexpectedreturnsandcarryingdifferentlevelsof
riskand theselection ofsecurities is madewith aview to providethe investors the
maximumyieldforagivenlevelofriskorensureminimumriskforalevelofreturn.

PortfolioManagementisaprocessencompassingmanyactivitiesofinvestmentinassets
andsecurities.Itisadynamicsandflexibleconceptandinvolvesregularandsystematic
analysis,judgmentandactions.Theobjectivesofthisservicearetohelptheunknown
investors with the expertise of professionals in investment Portfolio Management. It
involves construction of a portfolio based upon the investors objectives, constrains,
preferencesforriskandreturnandliability.Theportfolioisreviewedandadjustedfrom
timetotimewiththemarketconditions.Theevaluationofportfolioistobedoneinterms
oftargetssetforriskandreturn.Thechangesinportfolioaretobeeffectedtomeetthe
changingconditions.

PortfolioConstructionreferstotheallocationofsurplusfundsinhandamongavarietyof
financialassetsopenforinvestment.Portfoliotheoryconcernsitselfwiththeprinciples
governing such allocation. The modern view of investment is oriented towards the
assembly of proper combinations held together will give beneficial result if they are
grouped in a manner to secure higher return after taking into consideration the risk
element.

Themoderntheoryistheviewthatbydiversification,riskcanbereduced.The
investorcanmakediversificationeitherbyhavingalargenumberofsharesofcompanies
indifferentregions,indifferentindustriesorthoseproducingdifferenttypesofproduct
lines. Modern theory believes in the perspectives of combination of securities under
constraintsofriskandreturn.
10
SCOPEOFSTUDY:
ThisstudycoverstheMarkowitzmodel.Thestudycoversthecalculationofcorrelations
betweenthedifferentsecuritiesinordertofindoutatwhatpercentagefundsshouldbeinvested
among the companies in the portfolio. Also the studyincludes the calculation of individual
StandardDeviationofsecuritiesandendsatthecalculationofweightsofindividualsecurities
involvedintheportfolio.Thesepercentageshelpinallocatingthefundsavailableforinvestment
basedonriskyportfolios.

11
OBJECTIVEOFSTUDY

To calculate the return of various companies.

To calculate the risk of various companies.

To calculate the portfolio return of different portfolios designed

for the combination of various companies.
To understand, analyze and select the best portfolio.

12
RESEARCHMETHODOLOGY

Arithmeticaverageormean:
Thearithmeticaveragemeasuresthecentraltendency.Thepurposeof
computinganaveragevalueforasetofobservationsistoobtainasinglevalue,whichis
representativeofalltheitems.Themainobjectiveofaveragingistoarriveatasingle
valuewhichisarepresentativeofthecharacteristicsoftheentiremassofdataand
arithmeticaverageormeanofaseries(usuallydenotedbyx)isthevalueobtainedby
dividingthesumofthevaluesofvariousitemsinaseries(sigmax)dividedbythe
numberofitems(N)constitutingtheseries.

Thus,ifX1,X2..XnarethegivenNobservations.
ThenX=X1+X2+.Xn
N
RETURN
Currentpricepreviousprice*100
Previousprice
STANDARDDEVIATION:
TheconceptofstandarddeviationwasfirstsuggestedbyKarlPearson
in1983.itmaybedefinedasthepositivesquarerootofthearithmeticmeanofthe
squaresofdeviationsofthegivenobservationsfromtheirarithmeticmeanInshortS.D
maybedefinedasRootMeanSquareDeviationfromMean

Itisbyfarthemostimportantandwidelyusedmeasureofstudying
dispersions.ForasetofNobservationsX1,X2..XnwithmeanX,

DeviationsfromMean:(X1X),(X2X),.(XnX)
MeansquaredeviationsfromMean:

=1/N(X1X)2+(X2X)2+.+(Xn
X)2=1/Nsigma(XX)2
Rootmeansquaredeviationfrommean,i.e.
13
VARIANCE:
ThesquareofstandarddeviationisknownasVariance.
Varianceisthesquarerootofthestandarddeviation:
Variance=(S.D)2
Where,(S.D)isstandarddeviation
CORRELATION
Correlationisastatisticaltechnique,whichmeasuresandanalysesthedegreeor
extenttowhichtwoormorevariablesfluctuatewithreferencetooneanother.Correlation
thusdenotestheinterdependenceamongstvariables.Thedegreesareexpressedbya
coefficient,whichrangesbetween1and+1.Thedirectionofchangeisindicatedby(+)
or()signs.Theformerreferstoasympatheticmovementinasamedirectionandthe
laterintheoppositedirection.

KarlPearsonsmethodofcalculatingcoefficient(r)isbasedoncovarianceofthe
concernedvariables.ItwasdevisedbyKarlPearsonagreatBritishBiometrician.

ThismeasureknownasPearsoniancorrelationcoefficientbetweentwovariables
(series)XandYusuallydenotedbyrisanumericalmeasureoflinearrelationshipand
isdefinedastheratioofthecovariancebetweenXandY(writtenasCov(X,Y)tothe
productofstandarddeviationofXandY

Symbolically
r=Cov(X,Y)
SDofX,Y
= xy/N =XY
SDofX,Y N
Wherex=XX,y=YY

xy=sumoftheproductofdeviationsinXandYseriescalculatedwithreferenceto
theirarithmeticmeans.

X =standarddeviationoftheseriesX.
Y=standarddeviationoftheseriesY.
14
LIMITATIONS

1. InthisstudythenumberoffundsconsideredisonlytwofundsofKARVYand
theyaredividendfundandgrowthfund.

2. Thedatacollectedforaperiodofoneyeari.e.,fromDecember2014toJanuary
2015

3. In this study the statistical tools used are risk, return, average, variance,
correlation.
4. Inthisstudyspecificdataiscollected.

15
 CHAPTERII

INDUSTRYPROFILE

&

COMPANYPROFILE

16
INDUSTRYPROFILE

Evolution

IndianStockMarketsareoneoftheoldestinAsia.Itshistorydatesbacktonearly200
yearsago.TheearliestrecordsofsecuritydealingsinIndiaaremeagerandobscure.The
EastIndiaCompanywasthedominantinstitutioninthosedaysandbusinessinitsloan
securitiesusedtobetransactedtowardsthecloseoftheeighteenthcentury.

By1830'sbusinessoncorporatestocksandsharesinBankandCottonpressestookplace
inBombay.Thoughthetradinglistwasbroaderin1839,therewereonlyhalfadozen
brokersrecognizedbybanksandmerchantsduring1840and1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage

businessattractedmanymenintothefieldandby1860thenumberofbrokersincreased
into60.

In186061theAmericanCivilWarbrokeoutandcottonsupplyfromUnitedStatesof
Europe was stopped;thus,the 'ShareMania' inIndiabegun. Thenumber ofbrokers
increasedtoabout200to250.However,attheendoftheAmericanCivilWar,in1865,a
disastrousslumpbegan(forexample,BankofBombaySharewhichhadtouchedRs2850
couldonlybesoldatRs.87).

AttheendoftheAmericanCivilWar,thebrokerswhothrivedoutofCivilWarin1874,
foundaplaceinastreet(nowappropriatelycalledasDalalStreet)wheretheywould
conveniently assemble and transact business. In 1887, they formally established in
Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively
knownas"TheStockExchange").In1895,theStockExchangeacquiredapremisein
thesamestreetanditwasinauguratedin1899.Thus,theStockExchangeatBombaywas
consolidated.
17
Otherleadingcitiesinstockmarketoperations

AhmadabadgainedimportancenexttoBombaywithrespecttocottontextileindustry.
After1880,manymillsoriginatedfromAhmadabadandrapidlyforgedahead.Asnew
millswerefloated,theneedforaStockExchangeatAhmadabadwasrealizedandin
1894thebrokersformed"TheAhmadabadShareandStockBrokers'Association".

WhatthecottontextileindustrywastoBombayandAhmadabad,thejuteindustrywasto
Calcutta.AlsoteaandcoalindustriesweretheothermajorindustrialgroupsinCalcutta.
AftertheShareManiain186165,inthe1870'stherewasasharpboominjuteshares,
whichwasfollowedbyaboominteasharesinthe1880'sand1890's;andacoalboom
between1904and1908.OnJune1908,someleadingbrokers formed "TheCalcutta
StockExchangeAssociation".

Inthebeginningofthetwentiethcentury,theindustrialrevolutionwasonthewayin
IndiawiththeSwadeshiMovement;andwiththeinaugurationoftheTataIronandSteel
CompanyLimitedin1907,animportantstageinindustrialadvancementunderIndian
enterprisewasreached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies
generallyenjoyedphenomenalprosperity,duetotheFirstWorldWar.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioninginitsmidst,underthenameandstyleof"TheMadrasStockExchange"with
100members.However,whenboomfaded,thenumberofmembersstoodreducedfrom
100to3,by1923,andsoitwentoutofexistence.

In1935,thestockmarketactivityimproved,especiallyinSouthIndiawheretherewasa
rapidincreaseinthenumberoftextilemillsandmanyplantationcompanieswerefloated.
In1937,astockexchangewasonceagainorganizedinMadrasMadrasStockExchange
Association(Pvt)Limited.(In1957thenamewaschangedtoMadrasStockExchange
Limited).
18
LahoreStockExchangewasformedin1934andithadabrieflife.Itwasmergedwith
thePunjabStockExchangeLimited,whichwasincorporatedin1936.

IndianStockExchangesAnUmbrellaGrowth

TheSecondWorldWarbrokeoutin1939.Itgaveasharpboomwhichwasfollowedbya
slump.But,in1943,thesituationchangedradically,whenIndiawasfullymobilizedasa
supplybase.

Onaccountoftherestrictivecontrolsoncotton,bullion,seedsandothercommodities,
thosedealinginthemfoundinthestockmarketastheonlyoutletfortheiractivities.
Theywereanxioustojointhetradeandtheirnumberwasswelledbynumerousothers.
ManynewassociationswereconstitutedforthepurposeandStockExchangesinallparts
ofthecountrywerefloated.

The Uttar Pradesh Stock Exchange Limited (1940),Nagpur StockExchange Limited

(1940)andHyderabadStockExchangeLimited(1944)wereincorporated.

InDelhitwostockexchangesDelhiStockandShareBrokers'AssociationLimitedand
theDelhiStocksandSharesExchangeLimitedwerefloatedandlaterinJune1947,
amalgamatedintotheDelhiStockExchangeAssociationLimited.

PostindependenceScenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore
ExchangewasclosedduringpartitionofthecountryandlatermigratedtoDelhiand
mergedwithDelhiStockExchange.

BangaloreStockExchangeLimitedwasregisteredin1957andrecognizedin1963.

Most of the other exchanges languished till 1957 when they applied to the Central
GovernmentforrecognitionundertheSecuritiesContracts(Regulation)Act,1956.Only
Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well
establishedexchanges,wererecognizedundertheAct.Someofthemembersoftheother
Associations were required to be admitted by the recognized stock exchanges on a
concessionalbasis,butactingontheprincipleofunitarycontrol,allthesepseudostock
19
exchanges were refused recognition by the Government of India and they thereupon
ceasedtofunction.

Thus, during early sixties there were eight recognized stock exchanges in India
(mentionedabove).Thenumbervirtuallyremainedunchanged,fornearlytwodecades.
During eighties, however, many stock exchanges were established: Cochin Stock
Exchange(1980),UttarPradeshStockExchangeAssociationLimited(atKanpur,1982),
and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association
Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange
Limited(atMangalore,1985),MagadhStockExchangeAssociation(atPatna,1986),
Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association
Limited(1989),SaurashtraKutchStockExchangeLimited(atRajkot,1989),Vadodara
Stock Exchange Limited (at Baroda, 1990) and recently established exchanges
CoimbatoreandMeerut.Thus,atpresent,therearetotallytwentyonerecognizedstock
exchangesinIndiaexcludingtheOverTheCounterExchangeofIndiaLimited(OTCEI)
andtheNationalStockExchangeofIndiaLimited(NSEIL).

TheTablegivenbelowportraystheoverallgrowthpatternofIndianstockmarketssince
independence.ItisquiteevidentfromtheTablethatIndianstockmarketshavenotonly
grownjustinnumberofexchanges,butalsoinnumberoflistedcompaniesandincapital
oflistedcompanies.Theremarkablegrowthafter1985canbeclearlyseenfromthe
Table,andthiswasduetothefavoringgovernmentpoliciestowardssecuritymarket
industry.

TradingPatternoftheIndianStockMarket

Trading in Indian stock exchanges are limited to listed securities of public limited
companies.Theyarebroadlydividedintotwocategories,namely,specifiedsecurities
(forwardlist)andnonspecifiedsecurities(cashlist).Equitysharesofdividendpaying,
growthorientedcompanieswithapaidupcapitalofatleastRs.50millionandamarket
capitalizationofatleastRs.100millionandhavingmorethan20,000shareholdersare,
normally,putinthespecifiedgroupandthebalanceinnonspecifiedgroup.
20
TwotypesoftransactionscanbecarriedoutontheIndianstockexchanges:(a)spot
deliverytransactions"fordeliveryandpaymentwithinthetimeoronthedatestipulated
whenenteringintothecontractwhichshallnotbemorethan14daysfollowingthedate
ofthecontract":and(b)forwardtransactions"deliveryandpaymentcanbeextendedby
furtherperiodof14dayseachsothattheoverallperioddoesnotexceed90daysfromthe
dateofthecontract".Thelatterispermittedonlyinthecaseofspecifiedshares.The
brokers who carry over the outstanding pay carry over charges (cantango or
backwardation)whichareusuallydeterminedbytheratesofinterestprevailing.

AmemberbrokerinanIndianstockexchangecanactasanagent,buyandsellsecurities
forhisclientsonacommissionbasisandalsocanactasatraderordealerasaprincipal,
buy and sell securities on his own account and risk, in contrast with the practice
prevailingonNewYorkandLondonStockExchanges,whereamembercanactasa
jobberorabrokeronly.

ThenatureoftradingonIndianStockExchangesarethatofageoldconventionalstyleof
facetofacetradingwithbidsandoffersbeingmadebyopenoutcry.However,thereisa
greatamountofefforttomodernizetheIndianstockexchangesintheveryrecenttimes.

OverTheCounterExchangeofIndia(OTCEI)

ThetraditionaltradingmechanismprevailedintheIndianstockmarketsgavewayto
manyfunctionalinefficiencies,suchas,absenceofliquidity,lackoftransparency,unduly
longsettlementperiodsandbenamitransactions,whichaffectedthesmallinvestorstoa
great extent. To provide improved services to investors, the country's first ringless,
scripless,electronicstockexchangeOTCEIwascreatedin1992bycountry'spremier
financialinstitutionsUnitTrustofIndia,IndustrialCreditandInvestmentCorporation
ofIndia,IndustrialDevelopmentBankofIndia,SBICapitalMarkets,IndustrialFinance
CorporationofIndia,GeneralInsuranceCorporationanditssubsidiariesandCanBank
FinancialServices.

TradingatOTCEIisdoneoverthecentresspreadacrossthecountry.Securitiestradedon
theOTCEIareclassifiedinto:
21
 ListedSecuritiesThesharesanddebenturesofthecompanieslistedontheOTC
canbeboughtorsoldatanyOTCcounteralloverthecountryandtheyshouldnotbe
listedanywhereelse

PermittedSecuritiesCertainsharesanddebentureslistedonotherexchangesand
unitsofmutualfundsareallowedtobetraded

Initiated debentures Any equity holding at least one lakh debentures of a

particularscripcanofferthemfortradingontheOTC.

OTChasauniquefeatureoftradingcomparedtoothertraditionalexchanges.Thatis,
certificates of listed securities and initiated debentures are not traded at OTC. The
originalcertificatewillbesafelywiththecustodian.But,acounterreceiptisgenerated
outatthecounterwhichsubstitutesthesharecertificateandisusedforalltransactions.

Inthecaseofpermittedsecurities,thesystemissimilartoatraditionalstockexchange.
Thedifferenceisthatthedeliveryandpaymentprocedurewillbecompletedwithin14
days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:

OTCEI has widely dispersed trading mechanism across the country which
providesgreaterliquidityandlesserriskofintermediarycharges.

Greatertransparencyandaccuracyofpricesisobtainedduetothescreenbased
scriplesstrading.

Sincetheexactpriceofthetransactionisshownonthecomputerscreen,the
investorgetstoknowtheexactpriceatwhichs/heistrading.

Fastersettlementandtransferprocesscomparedtootherexchanges.

InthecaseofanOTCissue(newissue),theallotmentprocedureiscompletedina
monthandtradingcommencesafteramonthoftheissueclosure,whereasittakesa
longerperiodforthesamewithrespecttootherexchanges.
22
Thus, with the superior trading mechanism coupled with information transparency
investorsaregraduallybecomingawareofthemanifoldadvantagesoftheOTCEI.

NationalStockExchange(NSE)

WiththeliberalizationoftheIndianeconomy,itwasfoundinevitabletolifttheIndian
stockmarkettradingsystemonparwiththeinternationalstandards.Onthebasisofthe
recommendationsofhighpoweredPherwaniCommittee,theNationalStockExchange
wasincorporatedin1992byIndustrialDevelopmentBankofIndia,IndustrialCreditand
InvestmentCorporationofIndia,IndustrialFinanceCorporationofIndia,allInsurance
Corporations,selectedcommercialbanksandothers.

TradingatNSEcanbeclassifiedundertwobroadcategories:

(a) Wholesaledebtmarketand

(b) Capitalmarket.

Wholesaledebtmarketoperationsaresimilartomoneymarketoperationsinstitutions
andcorporatebodiesenterintohighvaluetransactionsinfinancialinstrumentssuchas
government securities, treasury bills, public sector unit bonds, commercial paper,
certificateofdeposit,etc.

TherearetwokindsofplayersinNSE:

(a) tradingmembersand

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of
themselvesandtheirclients.Participantsincludetradingmembersandlargeplayerslike
bankswhotakedirectsettlementresponsibility.

TradingatNSEtakesplacethroughafullyautomatedscreenbasedtradingmechanism
whichadoptstheprincipleofanorderdrivenmarket.Tradingmemberscanstayattheir
23
 officesandexecutethetrading,sincetheyarelinkedthroughacommunicationnetwork.
Thepricesatwhichthebuyerandsellerarewillingtotransactwillappearonthescreen.
Whenthepricesmatchthetransactionwillbecompletedandaconfirmationslipwillbe
printedattheofficeofthetradingmember.

NSEhasseveraladvantagesoverthetraditionaltradingexchanges.Theyareasfollows:

NSEbringsanintegratedstockmarkettradingnetworkacrossthenation.

Investorscantradeatthesamepricefromanywhereinthecountrysinceinter
marketoperationsarestreamlinedcoupledwiththecountrywideaccesstothesecurities.

Delaysincommunication,latepaymentsandthemalpracticesprevailinginthe
traditionaltradingmechanismcanbedoneawaywithgreateroperationalefficiencyand
informational transparency in the stock market operations, with the support of total
computerizednetwork.

Unless stock markets provide professionalized service, small investors and foreign
investorswillnotbeinterestedincapitalmarketoperations.Andcapitalmarketbeingone
ofthemajorsourceoflongtermfinanceforindustrialprojects,Indiacannotaffordto
damagethecapitalmarketpath.InthisregardNSEgainsvitalimportanceintheIndian
capitalmarketsystem.

Preamble

Often,intheeconomicliteraturewefindthetermsdevelopmentandgrowthareused
interchangeably.However,thereisadifference.Economicgrowthreferstothesustained
increaseinpercapitaortotalincome,whilethetermeconomicdevelopmentimplies
sustainedstructuralchange,includingallthecomplexeffectsofeconomicgrowth.In
otherwords,growthisassociatedwithfreeenterprise,whereasdevelopmentrequires
somesortofcontrolandregulationoftheforcesaffectingdevelopment.Thus,economic
developmentisaprocessandgrowthisaphenomenon.

Economicplanningisverycriticalforanation,especiallyadevelopingcountrylikeIndia
totakethecountryinthepathofeconomicdevelopmenttoattaineconomicgrowth.

24
WhyEconomicPlanningforIndia?

One of the major objective of planning in India is to increase the rate of economic
development,implyingthatincreasingtherateofcapitalformationbyraisingthelevels
ofincome,savingandinvestment.However,increasingtherateofcapitalformationin
Indiaisbesetwithanumberofdifficulties.Peoplearepovertyridden.Theircapacityto
saveis extremelylow duetolowlevels ofincomeandhighpropensitytoconsume.
Therefore, the rate of investment is low which leads to capital deficiency and low
productivity.Lowproductivitymeanslowincomeandtheviciouscirclecontinues.Thus,
tobreakthisviciouseconomiccircle,planningisinevitableforIndia.

Themarketmechanismworksimperfectlyindevelopingnationsduetotheignoranceand
unfamiliaritywithit.Therefore,toimproveandstrengthenmarketmechanismplanningis
veryvital.InIndia,alargeportionoftheeconomyisnonmonitised;theproduct,factors
ofproduction,moneyandcapitalmarketsisnotorganizedproperly.Thustheprevailing
pricemechanismfailstobringaboutadjustmentsbetweenaggregatedemandandsupply
ofgoodsandservices.Thus,toimprovetheeconomy,marketimperfectionshastobe
removed;availableresourceshastobemobilizedandutilizedefficiently;andstructural
rigiditieshastobeovercome.Thesecanbeattainedonlythroughplanning.

InIndia,capitalisscarce;andunemploymentanddisguisedunemploymentisprevalent.
Thus, where capital was being scarce and labour being abundant, providing useful
employmentopportunitiestoanincreasinglabourforceisadifficultexercise.Onlya
centralizedplanningmodelcansolvethismacroproblemofIndia.

Further,inacountrylikeIndiawhereagriculturaldependenceisveryhigh,onecannot
ignorethissegmentintheprocessofeconomicdevelopment.Therefore,aneconomic
developmentmodelhastoconsiderabalancedapproachtolinkbothagricultureand
industryandleadforaparalleledgrowth.Nottomention,bothagricultureandindustry
cannot develop without adequate infrastructural facilities which only the state can
provide and this is possible only through a well carved out planning strategy. The
governmentsroleinprovidinginfrastructureisunavoidableduetothefactthattherole
of private sector in infrastructural development of India is very minimal since these
infrastructureprojectsareconsideredasunprofitablebytheprivatesector.
25
Further,Indiaisaclearcaseofincomedisparity.Thus,itisthedutyofthestatetoreduce
theprevailingincomeinequalities.Thisispossibleonlythroughplanning.

PlanningHistoryofIndia

The development of planning in India began prior to the first Five Year Plan of
independent India, long before independence even. The idea of central directions of
resourcestoovercomepersistentpovertygradually,becauseoneofthemainpolicies
advocatedbynationalistsearlyinthecentury.TheCongressPartyworkedoutaprogram
foreconomicadvancementduringthe1920s,and1930sandbythe1938theyformeda
NationalPlanningCommitteeunderthechairmanshipoffuturePrimeMinisterNehru.
TheCommitteehadlittletimetodoanythingbutprepareprogramsandreportsbeforethe
SecondWorldWarwhichputanendtoit.Butitwasalreadymorethananacademic
exerciseremotefromadministration.Provisionalgovernmenthadbeenelectedin1938,
andtheCongressPartyleadersheldpositionsofresponsibility.Afterthewar,theInterim
governmentofthepreindependenceyearsappointedanAdvisoryPlanningBoard.The
BoardproducedanumberofsomewhatdisconnectedPlansitself.But,moreimportantin
thelongrun,itrecommendedtheappointmentofaPlanningCommission.

ThePlanningCommissiondidnotstartworkproperlyuntil1950.Duringthefirstthree
yearsofindependentIndia,thestateandeconomyscarcelyhadastablestructureatall,
whilemillionsofrefugeescrossedthenewlyestablishedbordersofIndiaandPakistan,
andwhileexprincelystates(over500ofthem)werebeingmergedintoIndiaorPakistan.
The Planning Commission as it now exists, was not set up until the new India had
adopteditsConstitutioninJanuary1950.
26
 ObjectivesofIndianPlanning

ThePlanningCommissionwassetupthefollowingDirectiveprinciples:

To make an assessment of the material, capital and human resources of the

country,includingtechnicalpersonnel,andinvestigatethepossibilitiesofaugmenting
suchoftheseresourcesasarefoundtobedeficientinrelationtothenationsrequirement.

To formulateaplan forthe mosteffective andbalanceduseofthe countrys

resources.

Havingdeterminedthepriorities,todefinethestagesinwhichtheplanshouldbe
carriedout,andproposetheallocationofresourcesforthecompletionofeachstage.

Toindicatethefactorswhicharetendingtoretardeconomicdevelopment,and
determine the conditions which, in view of the current social and political situation,
shouldbeestablishedforthesuccessfulexecutionofthePlan.

Todeterminethenatureofthemachinerythiswillbenecessaryforsecuringthe
successfulimplementationofeachstageofPlaninallitsaspects.

Toappraisefromtimetotimetheprogressachievedintheexecutionofeachstage
ofthePlanandrecommendtheadjustmentsofpolicyandmeasuresthatsuchappraisals
mayshowtobenecessary.

To make such interim or auxiliary recommendations as appear to it to be

appropriate either for facilitating the discharge of the duties assigned to it or on a
considerationoftheprevailingeconomicconditions,currentpolicies,measures

27
 anddevelopmentprograms;oronanexaminationofsuchspecificproblemsas
maybereferredtoitforadvicebyCentralorStateGovernments.

ThelongtermgeneralobjectivesofIndianPlanningareasfollows:

IncreasingNationalIncome

Reducinginequalitiesinthedistributionofincomeandwealth

Eliminationofpoverty

Providingadditionalemployment;and

Alleviatingbottlenecksintheareasof:agriculturalproduction,manufacturing
capacityforproducersgoodsandbalanceofpayments.

Economicgrowth,astheprimaryobjectivehasremainedinfocusinallFiveYearPlans.
Approximately,economicgrowthhasbeentargetedatarateoffivepercentperannum.
HighprioritytoeconomicgrowthinIndianPlanslooksverymuchjustifiedinviewof
longperiodofstagnationduringtheBritishrule
28
COMPANYPROFILE
Background:

KarvyConsultantsLimitedwasstartedintheyear1981,withthevisionandenterpriseof
asmallgroupofpracticingCharteredAccountants.Initiallyitwasstartedwithconsulting
andfinancialaccountingautomation,andcarvedinroadsintothefieldofregistryand
share accounting by 1985. Since then, it has utilized its experience and superlative
expertisetogofromstrengthtostrengthtobetteritsservices,toprovidenewones,to
innovate, diversify and in the process, evolved as one of Indias premier integrated
financialserviceenterprise.

Today,KarvyhasaccesstomillionsofIndianshareholders,besidescompanies,
banks,financialinstitutionsandregulatoryagencies.Overthepastoneandhalfdecades,
Karvyhasevolvedasaveritablelinkbetweenindustry,financeandpeople.InJanuary
1998,KarvybecamethefirstDepositoryParticipantinAndhraPradesh.AnISO9002
company, Karvy's commitment to quality and retail reach has made it an integrated
financialservicescompany.

AnOverview:

KARVY,isapremierintegratedfinancialservicesprovider,andrankedamongthetop
five in the country in all its business segments, services over 16 million individual
investorsinvariouscapacities,andprovidesinvestorservicestoover300corporates,
comprisingthewhoiswhoofCorporateIndia.KARVYcoverstheentirespectrumof
financial services such as Stock broking, Depository Participants, Distribution of
financial products mutual funds, bonds, fixed deposit, equities, Insurance Broking,
Commodities Broking, Personal Finance Advisory Services, Merchant Banking &
CorporateFinance,placementofequity,IPOs,amongothers.Karvyhasaprofessional

29
 managementteamandranksamongthebestintechnology,operationsandresearchof
variousindustrialsegments.

Today,Karvyserviceover6lakhscustomeraccountsspreadacrossover250cities/towns
inIndiaandservesmorethan75millionshareholdersacross7000corporateclientsand
makesitspresencefeltinover12countriesacross5continents.AllofKarvyservicesare
alsobackedbystrongqualityaspects,whichhavehelpedKarvytobecertifiedasanISO
9002companybyDNV.

ACHIEVEMENTS:

Amongthetop5stockbrokersinIndia(4%ofNSEvolumes)
India'sNo.1Registrar&SecuritiesTransferAgents
Amongthetop3DepositoryParticipants

LargestNetworkofBranches&BusinessAssociates
ISO9001:2000certifiedoperationsbyDNV
Amongtop10Investmentbankers
LargestDistributorofFinancialProducts

Adjudgedasoneofthetop50ITusesinIndiabyMIS
AsiaFullFledgedITdrivenoperations
FirstISO9002CertifiedRegistrarsinIndia

RankedasTheMostAdmiredRegistrarbyMARG
LargestmobilizeoffundsasperPRIMEDATABASE
FirstdepositoryparticipantfromAndhraPradesh.
Handledover500publicissuesasRegistrars.

Handling the Reliance account, which accounts for nearly 10 million account
holders?

Rangeofservices:

Stockbrokingservices
Distribution of Financial Products (investments&loanproducts)
Depository Participant services
30
 ITenabledservices
PersonalfinanceAdvisory Services
PrivateClientGroup
Debtmarketservices
Insurance&merchantbanking
MutualFundServices
CorporateShareholderServices
Otherglobalservices

Besides these, they also offer special portfolio analysis packages that provide daily
technicaladviceonscripsforsuccessfulportfoliomanagementandprovidecustomized
advisoryservicestohelpcustomersmaketherightfinancialmovesthatarespecifically
suitedtotheirportfolio.Theyarecontinuallyengagedindesigningtherightinvestment
portfolioforeachcustomeraccordingtoindividualneedsandbudgetconsiderations.

KarvyConsultantslimiteddealsinRegistrarandInvestmentServices.Karvyisoneofthe
early entrants registered as Depository Participant with NSDL (National Securities
DepositoryLimited),thefirstDepositoryinthecountryandthenwithCDSL(Central
DepositoryServicesLimited).

KarvystockbrokingisamemberofNationalStockExchange(NSE),TheBombayStock
Exchange(BSE),andTheHyderabadStockExchange(HSE).Theservicesprovidedare
multidimensionalandmultifocusedintheirscope:toanalyzethelateststockmarket
trendsandtotakeacloselooksatthevariousinvestmentoptionsandproductsavailable
inthemarket.Besidesthis,theyalsoofferspecialportfolioanalysispackages.
31
 Theparadigmshiftfrompuresellingtoknowledgebasedsellingdrivesthe
businesstoday.Themonthlymagazine,Finapolis,providesupdatedmarketinformation
onmarkettrends,investmentoptions,opinionsetc.Thusempoweringtheinvestortobase
everyfinancialmoveonrationalthoughtandprudentanalysisandembarkonthepathto
wealthcreation.

Karvyisrecognizedasaleadingmerchantbankerinthecountry,Karvyisregisteredwith
SEBIasaCategoryImerchantbanker.Thisreputationwasbuiltbycapitalizingon
opportunitiesincorporateconsolidations,mergersandacquisitionsandcorporate
restructuring.

Karvyhasatieupwiththeworldslargesttransferagent,theleadingAustralian
company,ComputershareLimited.Ithasattainedapositionofimmensestrengthasa
provider of acrosstheboard transfer agency services to AMCs, Distributors and
Investors.Besidesprovidingtheentirebackofficeprocessing,italsoprovidesthelink
betweenvariousMutualFundsandtheinvestor.

Karvy global services limited covers Banking, Financial and Insurance Services
(BFIS),RetailandMerchandising,LeisureandEntertainment,EnergyandUtilityand
Healthcaresectors.
32
 Karvycomtradelimitedtradesinallgoodsandproductsofagriculturalandmineral
originthatincludelucrativecommoditieslikegoldandsilverandpopularitemslike
oil,pulsesandcottonthroughawellsystematizedtradingplatform.

KarvyInsuranceBrokingPvt.Ltd.providesbothlifeandnonlifeinsuranceproductsto
retailindividuals,highnetworthclientsandcorporates.WithIndianmarketsseeingasea
change,bothintermsofinvestmentpatternandattitudeofinvestors,insuranceisnomore
seenasonlyataxsavingproductbutalsoasaninvestmentproduct.

KarvyInc.islocatedinNewYorktoprovidevariousfinancialproductsand
informationonIndianequitiestopotentialforeigninstitutionalinvestors(FIIs)inthe
region.ThisentitywouldextensivelyfacilitatevariousbusinessesofKarvyviz.,stock
broking(Indianequities),researchandinvestmentbyQIBsinIndianmarketsforboth
secondaryandprimaryofferings.

.QualityPolicy:

Toachieveandretainleadership,Karvyshallaimforcompletecustomersatisfaction,
bycombiningitshumanandtechnologicalresources,toprovidesuperiorquality
financialservices.Intheprocess,KarvywillstrivetoexceedCustomer'sexpectations.
33
QualityObjectives

AspertheQualityPolicy,Karvywill:

Buildinhouseprocessesthatwillensuretransparentandharmoniousrelationships
withitsclientsandinvestorstoprovidehighqualityofservices.

Establishapartnerrelationshipwithitsinvestorserviceagentsandvendorsthat
willhelpinkeepingupitscommitmentstothecustomers.

Provide high quality of work life for all its employees and equip them with
adequateknowledge&skillssoastorespondtocustomer'sneeds.

Continue to uphold the values of honesty & integrity and strive to establish
unparalleledstandardsinbusinessethics.

Use stateofthe art information technology in developing new and innovative

financialproductsandservicestomeetthechangingneedsofinvestorsandclients.

Strivetobeareliablesourceofvalueaddedfinancialproductsandservicesand
constantlyguidetheindividualsandinstitutionsinmakingajudiciouschoiceof
same.

Strivetokeepallstakeholders(shareholders,clients,investors,employees,suppliersand
regulatoryauthorities)proudandsatisfied

34
 CHAPTERII
REVIEWOFLITERATURE

35
PORTFOLIOMANAGEMENT:

Specificationandqualificationofinvestorobjectives,constraints,andpreferencesinthe
formofaninvestmentpolicystatement.

Determinationandqualificationofcapitalmarketexpectationsfortheeconomy,market
sectors,industriesandindividualsecurities.

Allocationofassetsanddeterminationofappropriateportfoliostrategiesforeachasset
classandselectionofindividualsecurities.

Performancemeasurementandevaluationtoensureattainmentofinvestorobjectives.

Monitoringportfoliofactorsandrespondingtochangesininvestorobjectives,constrains
and/orcapitalmarketexpectations.

Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio
strategyandsecurityselection.

CRITERIA FOR PORTFOLIO DECISIONS:

Inportfoliomanagementemphasisisputonidentifyingthecollectiveimportanceofall
investors holdings. The emphasis shifts from individual assets selection to a more
balanced emphasis on diversification and riskreturn interrelationships of individual
assetswithintheportfolio.Individualsecuritiesareimportantonlytotheextentthey
affecttheaggregateportfolio.Inshort,alldecisionsshouldfocusontheimpactwhichthe
decisionwillhaveontheaggregateportfolioofalltheassetsheld.

Portfolio strategy should be molded to the unique needs and characteristics of the
portfoliosowner.

Diversificationacrosssecuritieswillreduceaportfoliosrisk.Iftheriskandreturnare
lowerthanthedesiredlevel,leverages(borrowing)canbeusedtoachievethedesired
level.

Largerportfolioreturnscomeonlywithlargerportfoliorisk.Themostimportantdecision
tomakeistheamountofriskwhichisacceptable.
36
 The risk associated with a security type depends on when the investment will be
liquidated. Risk is reduced by selecting securities with a payoff close to when the
portfolioistobeliquidated.

Competitionforabnormalreturnsisextensive,soonehastobecarefulinevaluatingthe
riskandreturnfromsecurities.Imbalancesdonotlastlongandonehastoactfastto
profitfromexceptionalopportunities.

Provides user interfaces that allow for the extraction of data based on user
definedparameters.

Providesacomprehensivesetoftoolstoperformportfolioandriskevaluation
againstparameterssetwithintheriskframework.
Providesasetoftoolstooptimizeportfoliovalueandriskpositionby:

Considering various legs of different contracts to create an optimal

tradingstrategy.
Thecalculationofresidualpurchaserequirements.

Performsanalysisthatprovidestherelevantinformationtocreatehedgeandtrade
plans.
Performsanalysisoncurrentandpotentialtrades.

Evaluatesthebestmixofcontractsonofferfromcounterpartiestominimize
theoverallpurchasecostandmaximizeprofits.
Createsandmaintainstradingandhedgestrategiesby:
Allocatingtradestocontractsandbooks.
Maintainingtradesagainstcontractsandbooks.
Reviewingtradesagainstexistingtradingstrategy.
Maintainsanaudittrailofdecisionstakenandqueryresolution.
Producesaccurateandtimelyreports

PortfolioManagement

Tosustainlongtermgrowth,companiesmanageanumberofproductsandcandidatesat
differentstagesofmaturity.However,differentproductprofilesandthetherapeuticareas
theyservehavedisparatecommercialopportunities.

Ourportfolioprioritization,pipelineanalysis,categoryfranchisestrategy,andtechnology
licensingassessmentsprovideasystematicmeansofoptimizingdevelopmentprograms
37
 andproductopportunities.Weoutlineandquantifytheareasofgreatestopportunityfor
your organization and recommend actionable strategies that establish orexpand your
positionintargetmarkets.

Keyportfoliomanagementquestionsthatweaddress:

Which technologies and product candidates have the greatest potential

commercialvalue?
Howcanwebroadenanddeepenourtherapypenetration?

What actions can we take to maximize return on investment for individual

candidatesanddiscoveries?
Whichproprietaryrightsdowebuy,comarket,license,orsell?

Howdowebalanceshortandlongtermproductneedstomaximizetherapeutic
franchisevalue?

We detail the value ofdiscoveries in clinical phases,candidates in the pipeline, and

products onthemarket.Theseindividualandtherapeuticcategoryevaluations enable
executivestomakestrategicinvestment,licensingandprioritizationdecisionstorealize
theirportfolio'sfullpotential.

PortfolioManagement

youcannowreceivethesameportfoliomanagementservicesasmany
institutionalinvestorswhetheritisaseparatelymanagedaccountoramutual
fundwrapportfolio.
38
 Somebenefitsofmanagedportfoliosinclude:

Providingaccesstotoptierinvestmentmanagementprofessionals
Tailoredportfoliostomeetspecificinvestmentneeds
Ownershipofindividualsecurities
Easeofpredesignedmutualfundportfolios

Everyinvestorisunique,andinvestmentadvisoryservicesprovideyouwith
professionalinvestmentadviceandapersonalizedinvestmentstrategy.Whether
you'reseekingatailored,professionallymanagedportfolio,ortheconvenience
andsimplicityofadiversifiedmutualfundwrapprogram,yourinvestment
choiceshouldfocusonmeetingyourfinancialgoals.Duringthisprocess,you
shouldconsidercurrentandfuturegrowthobjectives,incomeneeds,timehorizon
andrisktolerance.Theseconsiderationsformtheblueprintfordevelopinga
portfoliomanagementstrategy.Theprocessinvolves,butisnotlimitedto,the
followingimportantstages.

Setinvestmentobjectives
Developanassetallocationstrategy
Evaluate/Selectinvestmentvehicle
PortfolioreviewOngoingportfoliomonitoring

PortfolioManagementMaturity

Summarizesfivelevelsofprojectportfoliomanagementmaturity.eachlevelrepresents
theadoptionofanincreasinglycomprehensiveandeffectivesubsetofrelatedsolutions
discussed in the previous parts of this 6part paper for addressing the reasons that
organizations choose the wrong projects. Understanding organizational maturity with
regardtoprojectportfoliomanagementisuseful.Itfacilitatesidentifyingperformance
gaps, indicates reasonable performance targets, and suggests an achievable path for
improvement.
39
Thefactthatfivematuritylevelshavebeenidentifiedisnotmeanttosuggestthatall
organizations ought to strive for toplevel performance. Each organization needs to
determinewhatlevelofperformanceisreasonableatthecurrenttimebasedonbusiness
needs,resourcesavailableforengineeringchange,andorganizationalabilitytoaccept
change. Experience shows that achieving high levels of performance typically takes
severalyears.Itisdifficulttoleapfrogseveralstepsatonce.Makingprogressiswhat
counts.

Fivelevelsofprojectportfoliomanagement.

Thedetaileddefinitionsofthelevels,providedbelow,arenotprecise.Realorganizations
willtendtobemoreadvancedwithregardtosomecharacteristicsandlessadvancedrelative
toothers.Formostorganizations,though,itiseasytopickoneofthelevelsas
characterizingthecurrentmaturityofprojectportfoliomanagementperformance.

Level1:Foundation

Level1organizesworkintodiscreteprojectsandtrackscostsattheprojectlevel.

40
 Project decisions are made projectbyproject without adherence to formal
projectselectioncriteria.

Theportfolioconceptmayberecognized,butportfoliodataarenotcentrally
managedand/ornotregularlyrefreshed.

Roles and responsibilities have not been defined or are generic, and no
valuecreationframeworkhasbeenestablished.

Onlyrarelyarebusinesscaseanalysesconductedforprojects,andthequality
isoftenpoor.

Project proposals reference business benefits generally, but estimates are

nearlyalwaysqualitativeratherthanquantitative.

Thereislittleornoformalbalancingbetweenthesupplyanddemandfor
projectresources,andthereislittleifanycoordinationofresourcesacross
projects,whichoftenresultsinresourceconflicts.
Overcommitmentofresourcesiscommon.

Theremaybeagrowingrecognitionthatrisksneedtobemanaged,butthere
islittlerealmanagementofrisk.

Level1organizationsarenotyetbenefitingfromprojectportfoliomanagement,but
theyaremotivatedtoaddresstherelevantproblemsandhavetheminimumfoundation
inplacetobeginbuildingprojectportfoliomanagementcapability.Atthislevel,
organizationsshouldfocusonestablishingconsistent,repeatableprocessesforproject
scheduling,resourceassignment,timetracking,andgeneralprojectoversightand
support.

Level2:Basics

Level2replacesprojectbyprojectdecisionmakingwiththegoalofidentifyingthe
bestcollectionofprojectstobeconductedwithintheresourcesavailable.Ata
minimumthisrequiresaggregatingprojectdataintoacentraldatabase,assigning
responsibilitiesforprojectportfoliomanagement,andforcerankingprojects.

Redundantprojectsareidentifiedandeliminatedormerged.

Businesscasesareconductedforlargerprojects,althoughqualitymay
beinconsistent.
41
 Individualdepartmentsmaybeestablishingstructurestooverseeandcoordinate
theirprojects.

Thereissomedegreeofoptionsanalysis(i.e.,differentversionsoftheprojectwill
beconsidered).

Projectselectioncriteriaareexplicitlydefined,butthelinktovaluecreation
issketchy.
Planningismostlyactivityschedulingwithlimitedperformanceforecasting.

There are attempts to quantify some nonfinancial benefits, but estimates are
mostly"guestimates"generatedwithouttheaidofstandardtechniques.
Overlapanddoublecountingofbenefitsbetweenprojectsiscommon.
Ongoingprojectsarestillrarelyterminatedbasedonpoorperformance.

The PPM tools being used may have good data display and management
capabilities, but project prioritization algorithms may be simplistic and the results
potentiallymisleadingtodecisionmakers.

Portfolio data has an established refresh cycle or is regularly accessed and

updated. Resource requirements at the portfolio level are recognized but not
systematicallymanaged.
Knowledgesharingislocalandadhoc.

Risk analysis may be conducted early in projects but is not maintained as a

continualmanagementprocess.Uncertaintiesinprojectschedule,costandbenefitsare
notquantified.

Schedule and cost overruns are still common, and the risks of project failure
remainlarge.

Level 2 organizations are beginning to implement project portfolio management, but

mostoftheopportunityhasnotyetbeenrealized.Thefocusshouldbeonformalizingthe
framework for evaluating and prioritizing projects and on implementing tools and
processes for supporting project budgeting, risk and issues tracking, requirements
tracking,andresourcemanagement.

Level3:ValueManagement

Level3,themostdifficultstepformostorganizations,requiresmetrics,models,andtools
forquantifyingthevaluetobederivedfromprojects.Althoughprojectinterdependencies
42
 andportfoliorisksmaynotbefullyandrigorouslyaddressed,analysisallowsprojectsto
berankedbasedon"bangforthebuck,"oftenproducingagoodapproximationofthe
valuemaximizingprojectportfolio.

Theprinciplesofportfoliomanagementarewidelyunderstoodandaccepted.

Theprojectportfoliohasawelldefinedperimeter,withcleardemarcationand
understandingofwhatitcontainsanddoesnotcontain.

Portfoliomanagementprocessesarecentrallydefinedandwelldocumented,as
arerolesandresponsibilityforgovernanceanddelivery.

Portfoliomanagementcandemonstratethatitsroleinscrutinizingprojectshas
resultedinsomeinitiativesbeingstoppedorreshapedtoincreaseportfoliovalue.

Executives are engaged, provide tradeoff weights for the value model, and
provideactiveandinformedsupport.
Plansaredevelopedtoaconsistentstandardandareoutcomeorvaluebased.

Effectiveestimationtechniquesarebeingusedwithinplanningandarangeof
projectalternativesareroutinelyconsidered.

Data quality assurance processes are in place and independent reviews are
conducted.
Thereisacommon,consistentpracticeforprojectapprovalandmonitoring.
Projectdependenciesareidentified,tracked,andmanaged.

Decisions are made with the aid of a tool based on a defensible logic for
computingprojectvaluethatgeneratestheefficientfrontier.
Portfoliodataarekeptuptodateandaudittrailsaremaintained.

Costs, expenditures and forecasts are monitored at the portfolio level in

accordancewithestablishedguidelinesandprocedures.

Interfaceswithfinancialandotherrelatedfunctionswithintheorganizationhave
beendefined.
Aprocessisinplaceforvalidatingtherealizationofprojectbenefits.

Thereisadefinedriskanalysisandmanagementprocess,witheffortsappropriate
to risk significance, although some sources of risk are not quantified in terms of
probabilityandconsequence.
43
 Level3organizationsdemonstrateacommitmenttoproactive,standardizedprojectand
project portfolio management. They are achieving significant return from their
investment,althoughmorevalueisavailable.

Level4:Optimization

Level4ischaracterizedbymatureprocesses,superioranalytics,andquantitatively
managedbehavior.

Tools for optimizing the project portfolio correctly and fully account for
projectrisksandinterdependencies.

The business processes of value creation have been modeled and

measurementdataiscollectedtovalidateandrefinethemodel.

Themodelisthebasisforthelogicforestimatingprojectvalue,
prioritizingprojects,makingprojectfundingandresourceallocation
decisions,andoptimizingtheprojectportfolio.

Theorganization'stoleranceforriskisknown,andusedtoguidedecisions
thatdeterminethebalanceofriskandbenefitacrosstheportfolio.
Thereisclearaccountabilityandownershipofrisks.

Externalrisksaremonitoredandevaluatedaspartoftheinvestmentmanagement
processandcommonrisksacrossthewholeportfolio(whichmaynotbevisibleto
individualprojects)arequantifiedandinsupportofportfoliooptimization.

Senior executives are committed, engaged, and proactively seek out

innovativewaystoincreasevalue.

Thereislikelytobeanestablishedtrainingprogramtodeveloptheskillsand
knowledgeofindividualssothattheycanmorereadilyperformtheirdesignated
roles.

Anextensiverangeofcommunicationschannelsandtechniquesareused
forcollaborationandstakeholdermanagement.

Highlevel reports on key aspects of portfolio are regularly delivered to

executivesandtheinformationisusedtoinformstrategicdecisionmaking.

Thereistrendreportingonprogress,actualandprojectedcost,value,andlevelof
risk.
44
 Assessments of stakeholder confidence are collected and used for
processimprovement.
Portfoliodataiscurrentandextensivelyreferencedforbetterdecisionmaking.

Level4organizationsareusingquantitativeanalysisandmeasurementstoobtain
efficientpredictableandcontrollableprojectandprojectportfoliomanagement.Theyare
obtainingthebulkofthevalueavailablefrompracticingprojectportfoliomanagement.

Level5:CoreCompetency

Level5occurswhentheorganizationhasmadeprojectportfoliomanagementacore
competency,usesbestpracticeanalytictools,andhasputprocessesinplacefor
continuouslearningandimprovement.

Portfoliomanagementprocessesareprovenandprojectdecisions,
includingprojectfundinglevelsandtiming,areroutinelymadebasedthe
valuemaximizationvalue.

Processes are continually refined to take into account increasing

knowledge,changingbusinessneeds,andexternalfactors.

Portfoliomanagementdrivestheplanning,development,andallocationof
projects to optimize the efficient use of resources in achieving the
strategicobjectivesoftheorganization.

Highlevelsofcompetenceareembeddedinallportfoliomanagementroles,
andportfoliomanagementskillsareseenasimportantforcareeradvancement.

Portfolio gate reviews are used to proactively assess and manage portfolio
valueandrisk.

Portfolio management informs future capacity demands, capability

requirementsarerecognized,andresourcelevelsarestrategicallymanaged.

Informationishighlyvalued,andtheorganization'sabilitytomitigateexternal
risksandgraspopportunitiesisenhancedbyidentifyinginnovativewaysto
acquireandbettershareknowledge.

Benefitsmanagementprocessesareembeddedacrosstheorganization,with
benefitsrealizationexplicitlyalignedwiththevaluemeasurementframework.
45
 Theportfolioisactivelymanagedtoensurethelongtermsustainabilityof
theenterprise.

Stakeholder engagement is embedded in the organization's culture,

andstakeholdermanagementprocesseshavebeenoptimized.
Riskmanagementunderpinsdecisionmakingthroughouttheorganization.

Quantitatively measurable goals for process improvement have been

establishedandperformanceagainstthemtracked.

Therelationshipbetweentheportfolioandstrategicplanningisunderstood
andmanaged.

Resourceallocationstoandfromprojectsareintimatelyalignedsoas
themaximizevaluecreation.

Level5organizationsareobtainingmaximumpossiblevaluefromprojectportfolio
management.Byfullyinstitutionalizingprojectportfoliomanagementintotheirculture
theyfreepeopletobecomemorecreativeandinnovativeinachievingbusinesssuccess.

BuildingProjectPortfolioManagementMaturity

Experienceshowsthatbuildingprojectportfoliomanagementmaturitytakestime.As
suggestedby,significantshorttermperformancegainscanbeachieved,butmaking
stepchangesrequiresunderstandingcurrentweaknessesandthecommitmentofeffort
andresources.

Stepchangescanbemade,butachievinghighlevelsofmaturitytypicallytakesyears
46
 QUALITIESOFPORTFOLIOMANAGER:

1. SOUNDGENERALKNOWLEDGE: Portfoliomanagementisanexcitingandchallenging
job.Hehastoworkinanextremelyuncertainandconflictionenvironment.Inthestockmarket
everynewpieceofinformationaffectsthevalueofthesecuritiesofdifferentindustriesina
differentway.Hemustbeabletojudgeandpredicttheeffectsoftheinformationhegets.He
must have sharp memory, alertness, fast intuition and selfconfidence to arrive at quick
decisions.

2. ANALYTICALABILITY:Hemusthavehisowntheorytoarriveattheintrinsicvalueofthe
security.Ananalysisofthesecuritysvalues,company,etc.isscontinuousjoboftheportfolio
manager.Agoodanalystmakesagoodfinancialconsultant.Theanalystcanknowthestrengths,
weaknesses,opportunitiesoftheeconomy,industryandthecompany.

3. MARKETINGSKILLS:Hemustbegoodsalesman.Hehastoconvincetheclientsaboutthe
particularsecurity.Hehastocompetewiththestockbrokersinthestockmarket.Inthiscontext,
themarketingskillshelphimalot.

4. EXPERIENCE:Inthecyclicalbehaviorofthestockmarkethistoryisoftenrepeated,therefore
theexperienceofthedifferentphaseshelpstomakerationaldecisions.Theexperienceofthe
differenttypesofsecurities,clients,markettrends,etc.,makesaperfectprofessionalmanager.

PORTFOLIOBUILDING:

Portfoliodecisionsforanindividualinvestorareinfluencedbyawidevarietyoffactors.
Individualsdiffergreatlyintheircircumstancesandtherefore,afinancialprogrammewellsuited
tooneindividualmaybeinappropriateforanother.Ideally,anindividualsportfolioshouldbe
tailormadetofitonesindividualneeds.

INVESTORS CHARACTERISTICS:

An analysis of an individuals investment situation requires a study of personal

characteristicssuchasage,healthconditions,personalhabits,familyresponsibilities,businessor
professionalsituation,andtaxstatus,allofwhichaffecttheinvestorswillingnesstoassumerisk.
47
StageintheLifeCycle:

Oneofthemostimportantfactorsaffectingtheindividualsinvestmentobjectiveishis
stageinthelifecycle.Ayoungpersonmayputgreateremphasisongrowthandlesseremphasis
onliquidity.Hecanaffordtowaitforrealizationofcapitalgainsashistimehorizonislarge.

Familyresponsibilities:

Theinvestorsmaritalstatusandhisresponsibilitiestowardsothermembersofthefamilycan
havealargeimpactonhisinvestmentneedsandgoals.

Investorsexperience:

The success of portfolio depends upon the investors knowledge and experience in
financialmatters.Ifaninvestorhasanaptitudeforfinancialaffairs,hemaywishtobemore
aggressiveinhisinvestments.

AttitudetowardsRisk:

Apersonspsychologicalmakeupandfinancialpositiondictatehisabilitytoassumethe
risk.Differentkindsofsecuritieshavedifferentkindsofrisks.Thehighertherisk,thegreaterthe
opportunityforhighergainorloss.

LiquidityNeeds:

Liquidity needs vary considerably among individual investors. Investors with regular
incomefromothersourcesmaynotworrymuchaboutinstantaneousliquidity,butindividuals
whodependheavilyuponinvestmentformeetingtheirgeneralorspecificneeds,mustplan
portfoliotomatchtheirliquidityneeds.Liquiditycanbeobtainedintwoways:

1. Byallocatinganappropriatepercentageoftheportfoliotobankdeposits,and
48
2. Byrequiringthatbondsandequitiespurchasedbehighlymarketable.
Taxconsiderations:

Sincedifferentindividuals,dependingupontheirincomes,aresubjectedtodifferentmarginal
ratesoftaxes,taxconsiderationsbecomemostimportantfactorinindividualsportfoliostrategy.
Therearedifferingtaxtreatmentsforinvestmentinvariouskindsofassets.

TimeHorizon:

In investment planning, time horizon becomes an important consideration. It is highly

variablefromindividualtoindividual.Individualsintheiryoungagehavelongtimehorizonfor
planning,theycansmoothoutandabsorbtheupsanddownsofriskycombination.Individuals
whoareoldhavesmallertimehorizon,theygenerallytendtoavoidvolatileportfolios.

IndividualsFinancialObjectives:

Intheinitialstages,theprimaryobjectiveofanindividualcouldbetoaccumulatewealthvia
regularmonthlysavingsandhaveaninvestmentprogrammedtoachievelongtermcapitalgains.
SafetyofPrincipal:

Theprotectionoftherupeevalueoftheinvestmentisofprimeimportancetomostinvestors.
Theoriginalinvestmentcanberecoveredonlyifthesecuritycanbereadilysoldinthemarket
withoutmuchlossofvalue.

AssuranceofIncome:

`Differentinvestorshavedifferentcurrentincomeneeds.Ifanindividualisdependentofits
investmentincomeforcurrentconsumptionthenincomereceivednowintheformofdividend
andinterestpaymentsbecomeprimaryobjective.

InvestmentRisk:

All investment decisions revolve around the tradeoff between risk and return. All
rationalinvestorswantasubstantialreturnfromtheirinvestment.Anabilitytounderstand,
49
measureandproperlymanageinvestmentriskisfundamentaltoanyintelligentinvestorora
speculator. Frequently, the risk associated with security investment is ignored and only the
rewards are emphasized. An investor who does not fully appreciate the risks in security
investmentswillfinditdifficulttoobtaincontinuingpositiveresults.

RISKANDEXPECTEDRETURN:

Thereisapositiverelationshipbetweentheamountofriskandtheamountofexpected
returni.e.,thegreatertherisk,thelargertheexpectedreturnandlargerthechancesofsubstantial
loss.Oneofthemostdifficultproblemsforaninvestoristoestimatethehighestlevelofriskhe
isabletoassume.

Riskismeasuredalongthehorizontalaxisandincreasesfromthelefttoright.

Expectedrateofreturnismeasuredontheverticalaxisandrisesfrombottomtotop.

Thelinefrom0toR(f)iscalledtherateofreturnorrisklessinvestmentscommonly
associatedwiththeyieldongovernmentsecurities.

ThediagonallineformR(f)toE(r)illustratestheconceptofexpectedrateofreturn
increasingaslevelofriskincreases.
50
TYPESOFRISKS:

Riskconsistsoftwocomponents.Theyare
1. SystematicRisk
2. UnsystematicRisk

1. SystematicRisk:

Systematicriskiscausedbyfactorsexternaltotheparticularcompanyanduncontrollable
bythecompany.Thesystematicriskaffectsthemarketasawhole.Factorsaffectthesystematic
riskare

economicconditions

politicalconditions

sociologicalchanges

Thesystematicriskisunavoidable.Systematicriskisfurthersubdividedintothreetypes.They
are

a) MarketRisk

b) InterestRateRisk

c) PurchasingPowerRisk

A). MarketRisk

Onewouldnoticethatwhenthestockmarketsurgesup,moststocksposthigherprice.
Ontheotherhand,whenthemarketfalls sharply,mostcommonstocks willdrop.Itis not
uncommontofindstockpricesfallingfromtimetotimewhileacompanysearningsarerising
51
andviceversa.Thepriceofstockmayfluctuatewidelywithinashorttimeeventhoughearnings
remainunchangedorrelativelystable.

B). InterestRateRisk:

Interestrateriskistheriskoflossofprincipalbroughtaboutthechangesintheinterest
ratepaidonnewsecuritiescurrentlybeingissued.

C). PurchasingPowerRisk:

Thetypicalinvestorseeksaninvestmentwhichwillgivehimcurrentincomeand/or
capitalappreciationinadditiontohisoriginalinvestment.

2. UnsystematicRisk:

Unsystematicriskisuniqueandpeculiartoafirmoranindustry.Thenatureandmodeof
raisingfinanceandpayingbacktheloans,involvetheriskelement.Financialleverageofthe
companiesthatisdebtequityportionofthecompaniesdiffersfromeachother.Allthesefactors
affecttheunsystematicriskandcontributeaportioninthetotalvariabilityofthereturn.

Managerialinefficiently

Technologicalchangeintheproductionprocess

Availabilityofrawmaterials

Changesintheconsumerpreference

Laborproblems

Thenatureandmagnitudeoftheabovementionedfactorsdifferfromindustrytoindustry
andcompanytocompany.Theyhavetobeanalyzedseparatelyforeachindustryandfirm.Un
systematicriskcanbebroadlyclassifiedinto:
52
 a) BusinessRisk
b) FinancialRisk

a. BusinessRisk:
Businessriskisthatportionoftheunsystematicriskcausedbytheoperatingenvironmentofthe
business.Businessriskarisesfromtheinabilityofafirmtomaintainitscompetitiveedgeand
growthorstabilityoftheearnings.Thevolatilityinstockpricesduetofactorsintrinsictothe
companyitselfisknownasBusinessrisk.Businessriskisconcernedwiththedifferencebetween
revenueandearningsbeforeinterestandtax.Businessriskcanbedividedinto.

i).InternalBusinessRisk
Internal business risk is associated with the operational efficiency of the firm. The
operationalefficiencydiffersfromcompanytocompany.Theefficiencyofoperationisreflected
onthecompanysachievementofitspresetgoalsandthefulfillmentofthepromisestoits
investors.

ii).ExternalBusinessRisk
External business risk is the result of operating conditions imposed on the firm by
circumstancesbeyonditscontrol.Theexternalenvironmentsinwhichitoperatesexertsome
pressureonthefirm.Theexternalfactorsaresocialandregulatoryfactors,monetaryandfiscal
policiesofthegovernment,businesscycleandthegeneraleconomicenvironmentwithinwhicha
firmoranindustryoperates.
b. FinancialRisk:

Itreferstothevariabilityoftheincometotheequitycapitalduetothedebtcapital.Financialrisk
inacompanyisassociatedwiththecapitalstructureofthecompany.Capitalstructureofthe
companyconsistsofequityfundsandborrowedfunds.

PORTFOLIOANALYSIS:

Variousgroupsofsecuritieswhenheldtogetherbehaveinadifferentmannerandgive
interestpaymentsanddividendsalso,whicharedifferenttotheanalysisofindividualsecurities.
Acombinationofsecuritiesheldtogetherwillgiveabeneficialresultiftheyaregroupedina
mannertosecurehigherreturnaftertakingintoconsiderationtheriskelement.
53
 Therearetwoapproachesinconstructionoftheportfolioofsecurities.Theyare

Traditionalapproach

Modernapproach

TRADITIONALAPPROACH:

Traditional approach was based on the fact that risk could be measured on each
individualsecuritythroughtheprocessoffindingoutthestandarddeviationandthatsecurity
shouldbechosenwherethedeviationwasthelowest.Traditionalapproachbelievesthatthe
marketisinefficientandthefundamentalanalystcantakeadvantageofthesituation.Traditional
approachisacomprehensivefinancialplanfortheindividual.Ittakesintoaccounttheindividual
needsuchashousing,lifeinsuranceandpensionplans.Traditionalapproachbasicallydealswith
twomajordecisions.Theyare

a) Determiningtheobjectivesoftheportfolio

b) Selectionofsecuritiestobeincludedintheportfolio

MODERNAPPROACH:

ModernapproachtheorywasbroughtoutbyMarkowitzandSharpe.Itisthecombination
ofsecuritiestogetthemostefficientportfolio.Combinationofsecuritiescanbemadeinmany
ways. Markowitz developed the theory of diversification through scientific reasoning and
method.Modernportfoliotheorybelievesinthemaximizationofreturnthroughacombination
ofsecurities.Themodernapproachdiscussestherelationshipbetweendifferentsecuritiesand
54
thendrawsinterrelationships ofrisksbetweenthem.Markowitzgives moreattentiontothe
processofselectingtheportfolio.Itdoesnotdealwiththeindividualneeds.

MARKOWITZMODEL:

Markowitzmodelisatheoreticalframeworkforanalysisofriskandreturnandtheir
relationships. He used statistical analysis for the measurement of risk and mathematical
programmingforselectionofassetsinaportfolioinanefficientmanner.Markowitzapporach
determinesfortheinvestortheefficientsetofportfoliothroughthreeimportantvariablesi.e.
Return
Standarddeviation
Coefficientofcorrelation

MarkowitzmodelisalsocalledasanFullCovarianceModel.Throughthismodelthe
investorcanfindouttheefficientsetofportfoliobyfindingoutthetradeoffbetweenriskand
return, between the limits of zero and infinity. According to this theory, the effects of one
securitypurchaseovertheeffectsoftheothersecuritypurchasearetakenintoconsiderationand
then the results are evaluated. Most people agree that holding twostocks is less riskythan
holdingonestock.Forexample,holdingstocksfromtextile,bankingandelectroniccompaniesis
betterthaninvestingallthemoneyonthetextilecompanysstock.

Markowitzhadgivenupthesinglestockportfolioandintroduceddiversification.The
singlestockportfoliowouldbepreferableiftheinvestorisperfectlycertainthathisexpectation
ofhighestreturnwouldturnouttobereal.Intheworldofuncertainty,mostoftheriskadverse
investorswouldliketojoinMarkowitzratherthankeepingasinglestock,becausediversification
reducestherisk.

ASSUMPTIONS:

Allinvestorswouldliketoearnthemaximumrateofreturnthattheycanachievefrom
theirinvestments.

Allinvestorshavethesameexpectedsingleperiodinvestmenthorizon.

Allinvestorsbeforemakinganyinvestmentshaveacommongoal.Thisistheavoidance
ofriskbecauseInvestorsareriskaverse.
55
 Investorsbasetheirinvestmentdecisionsontheexpectedreturnandstandarddeviationof
returnsfromapossibleinvestment.

Perfectmarketsareassumed(e.g.notaxesandnotransitioncosts)

Theinvestorassumesthatgreaterorlargerthereturnthatheachievesonhisinvestments,
thehighertheriskfactorsurroundshim.Onthecontrarywhenrisksarelowthereturn
canalsobeexpectedtobelow.

Theinvestorcanreducehisriskifheaddsinvestmentstohisportfolio.

Aninvestorshouldbeabletogethigherreturnforeachlevelofriskbydeterminingthe
efficientsetofsecurities.

Anindividualsellerorbuyercannotaffectthepriceofastock.Thisassumptionisthe
basicassumptionoftheperfectlycompetitivemarket.

Investors make their decisions only on the basis of the expected returns, standard
deviationandcovariancesofallpairsofsecurities.

Investors are assumed to have homogenous expectations during the decisionmaking

period

Theinvestorcanlendorborrowanyamountoffundsattherisklessrateofinterest.The
risklessrateofinterestistherateofinterestofferedforthetreasurybillsorGovernment
securities.

Investors are riskaverse, so when given a choice between two otherwise identical
portfolios,theywillchoosetheonewiththelowerstandarddeviation.

Individualassetsareinfinitelydivisible,meaningthataninvestorcanbuyafractionofa
shareifheorshesodesires.
56
 Thereis ariskfreerateatwhichaninvestormayeitherlend(i.e.invest)moneyor
borrowmoney.

Thereisnotransactioncosti.e.nocostinvolvedinbuyingandsellingofstocks.

Thereisnopersonalincometax.Hence,theinvestorisindifferenttotheformofreturn
eithercapitalgainordividend.

THEEFFECTOFCOMBININGTWOSECURITIES:

Itisbelievedthatholdingtwosecuritiesislessriskythanbyhavingonlyoneinvestment
inapersonsportfolio.Whentwostocksaretakenonaportfolioandiftheyhavenegative
correlationthenriskcanbecompletelyreducedbecausethegainononecanoffsetthelossonthe
other.Thiscanbeshownwiththehelpoffollowingexample:

INTERACTIVERISKTHROUGHCOVARIANCE:

Covariance of the securities will help in finding out the interactive risk. When the
covariancewillbepositivethentheratesofreturnofsecuritiesmovetogethereitherupwardsor
downwards.Alternatively it can also besaid that the interactive risk is positive. Secondly,
covariancewillbezeroontwoinvestmentsiftheratesofreturnareindependent.

Holding two securities may reduce the portfolio risk too. The portfolio risk can be
calculatedwiththehelpofthefollowingformula:

CAPITALASSETPRICINGMODEL(CAPM):

Markowitz,WilliamSharpe,JohnLintnerandJanMossinprovidedthebasicstructureof
CapitalAssetPricingModel.Itisamodeloflineargeneralequilibriumreturn.IntheCAPM
theory,therequiredratereturnofanassetishavingalinearrelationshipwithassetsbetavalue
i.e.undiversifiableorsystematicrisk(i.e.marketrelatedrisk)becausenonmarketriskcanbe
eliminatedbydiversificationandsystematicriskmeasuredbybeta.Therefore,therelationship
57
betweenanassetsreturnanditssystematicriskcanbeexpressedbytheCAPM,whichisalso
calledtheSecurityMarketLine.

R= RfXf+Rm(1Xf)
Rp =Portfolioreturn
Xf =Theproportionoffundsinvestedinriskfreeassets
1Xf=Theproportionoffundsinvestedinriskyassets
Rf =Riskfreerateofreturn
Rm=Returnonriskyassets

Formulacanbeusedtocalculatetheexpectedreturnsfordifferentsituations,likemixing
risklessassetswithriskyassets,investingonlyintheriskyassetandmixingtheborrowingwith
riskyassets.
THECONCEPT:

AccordingtoCAPM,allinvestorsholdonlythemarketportfolioandrisklesssecurities.
Themarketportfolioisaportfoliocomprisedofallstocksinthemarket.Eachassetisheldin
proportiontoitsmarketvaluetothetotalvalueofallriskyassets.

Forexample,ifwiproIndustrysharerepresents15%ofallriskyassets,thenthemarket
portfoliooftheindividualinvestorcontains15%ofwiproIndustryshares.Atthisstage,the
investorhastheabilitytoborroworlendanyamountofmoneyattherisklessrateofinterest.

E.g.:assumethatborrowingandlendingratetobe12.5%andthereturnfromtherisky
assetstobe20%.Thereisatradeoffbetweentheexpectedreturnandrisk.Ifaninvestorinvests
inriskfreeassetsandriskyassets,hisriskmaybelessthanwhatheinvestsintheriskyasset
alone.Butifheborrowstoinvestinriskyassets,hisriskwouldincreasemorethanheinvestshis
ownmoneyintheriskyassets.Whenheborrowstoinvest,wecallitfinancialleverage.Ifhe
invests50%inriskfreeassetsand50%inriskyassets,hisexpectedreturnoftheportfoliowould
be
58
Rp=RfXf+Rm(1Xf)
= (12.5x0.5)+20(10.5)
= 6.25+10
= 16.25%

ifthereisazeroinvestmentinriskfreeassetand100%inriskyasset,thereturnis
Rp=RfXf+Rm(1Xf)
= 0+20%
= 20%

if0.5inriskfreeassetand1.5inriskyasset,thereturnis

Rp=RfXf+Rm(1Xf)
= (12.5x0.5)+20(1.5)
= 6.25+30
= 23.75%
59
 CHAPTERIV
DATAANALYSISANDINTERPRETATION

60
CALCULATIONOFAVERAGERETURNOFCOMPANIES:
_
AverageReturn(R)=(R)/N
(P0) =Openingpriceoftheshare
(P1) =Closingpriceoftheshare
D =Dividend
WIPRO:

D+(P1P0)/
Year (P0) (P1) D (P1P0) P0*100
20052006 1,233.45 1361.20 279 127.75 12.71
20062007 1,361.20 2,012 5 650.8 48.16
20072008 2012 1900.75 5 111.25 15.84
20082009 1900.75 1900.45 8 0.3 1.38
20092014 1900.45 425.30 1475.15 0.776

TOTALRETURN 45.634

AverageReturn=45.63/5=9.12

DRREDDYLABORATORIESLTD:

D+(P1P0)/
Year (P0) (P1) D (P1P0) P0*100
20052006 916.30 974.35 5 58.2 6.89
20062007 974.35 739.15 5 23.52 23.63
20072008 739.15 1,421.40 5 682.25 92.98
20082009 1,421.40 1456.55 3.75 35.15 2.74
20092014 1456.55 591.25 .75 865.3 59.4

TOTALRETURN 19.58
AverageReturn=19.58/5=3.916

61
ACC:

D+(P1P0)/
Year (P0) (P1) D (P1P0) P0*100
20052006 138.50 254.65 4 116.15 86.71
20062007 254.65 360.55 7 105.9 44.34
20072008 360.55 782.20 8 421.61 119.19
20082009 782.20 735.25 25 46.95 2.8
20092014 735.23 826.10 2 90.85 12.63

TOTALRETURN 258.07

AverageReturn=258.07/5=51.614

HEROMOTOCORPLIMITED:

D+(P1P0)/
Year (P0) (P1) D (P1P0) P0*100
20052006 188.20 490.60 20 302.40 171.3
20062007 490.60 548.00 20 57.40 15.77
20072008 548.00 890.45 20 342.45 66.14
20082009 890.45 688.75 17 20.17 20.74
20092014 688.75 9.5 1.45 1.45 1.958

TOTALRETURN 234.428

AverageReturn=234.428/5=46.885

DIAGRAMATICPRESENTATION

62
 COMPANY RETURN

WIPRO 9.12

DR.REDDY 3.916

ACC 51.614

HEROMOTOCORP 46.885

RETURNS

63
CALCULATIONOFSTANDARDDEVIATION:

StandardDeviation=Variance
__
Variance = 1/n(RR)2
WIPRO:

Return Avg.
Year (R) Return(R) (RR) (R R)2
20052006 12.71 9.12 3.59 12.8881
20062007 48.16 9.12 39.04 1524.122
20072008 15.84 9.12 24.96 623.0016
20082009 1.38 9.12 7.74 59.9076
20092014 0.776 9.12 9.896 97.93082

TOTAL 2317.85
_
Variance=1/n(RR)2 =1/5(2317.85)=463.57
Variance
StandardDeviation= = 463.57 =21.53

DR.REDDY:

Return Avg.
Year (R) Return(R) (RR) (R R)2
20052006 6.89 46.88 2.98 8.8804
20062007 23.63 46.88 27.54 758.4516
20072008 92.98 46.88 89.07 7933.465
20082009 2.74 46.88 1.17 1.3689
20092014 59.4 46.88 63.31 4008.156

TOTAL 12710.32

Variance=1/n1(RR)2=1/5(12710.32)=2542.06
StandardDeviation=Variance=2542.06=50.14

64
ACC:

Return Avg.
2
Year (R) Return(R) (RR) (R R)
20052006 86.71 51.61 35.1 1232.01
20062007 44.34 51.61 7.27 52.8529
20072008 119.19 51.61 67.58 4567.056
20082009 2.8 51.61 54.41 2960.448
20092014 12.63 51.61 38.98 1519.44

TOTAL 10331.81

Variance=1/n1(RR)2 =1/5(10331.81)=2066.36
StandardDeviation= Variance= 2066.36=45.45

HEROMOTOCORP:

Return Avg.
Year (R) Return(R) (RR) (R R)2
20032004 171.3 32.59 138.71 19,240.5
20062007 15.77 32.59 16.82 284.1
20072008 66.14 32.59 33.57 1,126.273
20082009 20.74 32.59 53.33 2,844.1
20092014 1.958 32.59 31 960.8

TOTAL 29,592.4

Variance=1/n1(RR)2 =1/5(29,592.4)=4,232.1

StandardDeviation= Variance= 4,232.1=70.23

65
DIAGRAMATICPRESENTATION

COMPANY RISK
WIPRO 22.86
DR.REDDY 46.66
ACC 47.963
HEROMOTOCORP 70.23

RISK

66
 CALCULATIONOFPORTFOLIORETURN:

Rp=(RA*WA)+(RB*WB)

WhereRp=portfolioreturn
RA=returnofA WA=weightofA
RB=returnofB WB=weightofB

CALCULATIONOFPORTFOLIORETURNOFWIPRO&
OTHERCOMPANIES:

WIPRO(a)&DR.REDDY(b):

RA=4.6 WA=0.77
RB=0.67 WB=0.23
Rp=(4.6*0.77)+(0.67*0.23)
Rp=(3.542+0.1541)
Rp=3.6961%

WIPRO(a)&ACC(b):

RA=4.6 WA=0.70
RB=42.02 WB=0.30
Rp=(4.6*0.70)+(42.02*0.30)
Rp=(0.92+12.606)
Rp=13.52%

WIPRO(a)&HEROMOTOCORP(b):

RA=4.6 WA=0.98
RB=32.498WB=0.02
Rp=(4.6*0.9)+(32.498*0.02)
Rp=(4.508+0.6499)
Rp=5.16%
67
CALCULATIONOFPORTFOLIORETURNOFDRREDDY&
OTHERCOMPANIES

DRREDDY(a)&ACC(b):
RA=0.67 WA=0.52
RB=42.02 WB=0.48
Rp=(0.67*0.52)+(42.02*0.48)

Rp=(.3487+20.139)
Rp=20.5%

DRREDDY(a)&HEROMOTOCORP(b):

RA=0.67 WA=0.82
RB=32.498 WB=0.18
Rp(0.67*0.82)+(32.498*0.18)
Rp(0.5494+5.84964)
Rp6.399%

CALCULATIONOFPORTFOLIORETURNOFACC&OTHER
COMPANIES

ACC(a)&HEROMOTOCORP(b):
RA=42.02 WA=0.79
RB=32.498 WB=0.21
Rp=(42.02*0.79)+(32.498*0.21)
Rp=(33.1958+6.8248)
Rp=40.02%
68
 DISPLAYOFALLCALCULATEDVALUES

PORTFOLIO PORTFOLIO
COMBINATION CORRELATION COVARIANCE RETURN RISK
WIPRO&
DR.REDDY 0.184 196.72 3.7 18.9
WIPRO&ACC 0.247 267.69 0.49 23.5
WIPRO&HERO 0.28 449.7 5.0 22.9
ITC&DR.REDDY 0.89 2736.2 9.8 26.9
ITC&ACC 0.830 2591.4 36.542 50
ITC&HERO 0.587 2736.33 25.4 60.6
DR.REDDY&ACC .7434 1639.8 20.5 43.9
DRREDDY&HERO 0.705 1,124.1095 14.6 15.3
ACC&HERO 0.7873 2,613.7 43.9 42

INTERPRETATION

Fromtheabovecalculatedvaluesitisobservedthatthecombinationofthecompanies
ACC&HEROgivesthehighportfolioreturnof43.9withmediumvaluesofrisk
correlation&covariance.

Theinvestorswhoareriskaversecaninvesttheirfundsintheportfoliocombination
of,ACC,HEROMOTOCORPANDWIPROproportion.Theinvestorswhoareslightly
riskaversearesuggestedtoinvestinWIPRO,DR.REDDY,ACCasthecombinationis
slightlylowriskwhencomparedwithothercompanies.

69
 CHAPTERV

FINDINGS
CONCLUSION
SUGGESTIONS
BIBILOGRAPHY

70
 FINDINGS

Theanalyticalpartofthestudyforthe6yearsperiodrevealsthefollowing
interpretations,
wiprowithitc:
Inthiscombinationasperthecalculationsandthestudythewiprobearsaproportionof
investmentof(0.93)andwhereasITCbearsaproportionof(0.07)whichislessthancompared
towipro.Thestandarddeviationofwiprois(22.86)and(66.04)inITC.

Fromthereturnpointofviewwiprois(4.6)and(20.1)isITC.Fromriskpointofviewwiprois
lessriskthan,ITCsotheinvestorswhoarewilltofacehighriskthebetteroptionwillbe
investinginITC.

Wiprowithacc:
PortfolioweightsforwiproandACCare(0.70)and(0.30)respectively.Thisindicates
thattheinvestorswhoareinterestedtotakemorerisktheycaninvestinthiscombination,and
alsocangethighreturns.

Drreddy&acc:

Theportfolioofweightsoftheboth(0.52)isDr.reddy(.048)isforacc.Thestandard
deviationofDr.reddyis(46.66)and(47.27)foracc.Thereturnsofdrreddyis(0.67)and(42.02)
isacc.Accordingtothiscombinationinvestorcaninvestacc,thisismoreriskaswellasmore
returnscangetupto(42.02).Ifinvestorwantslessriskhehastoinvestinacc.Drreddyisalow
riskaswellaslowreturnsalso.

GreaterPortfolioReturnwithlessRiskisalwaysisanattractive
combinationfortheInvestors.
71
CONCLUSION

Theinvestorswhoareriskaversecaninvesttheirfundsintheportfolio
combinationof,ACC,HEROMOTOCORPANDWIPROproportion.The
investorswhoareslightlyriskaversearesuggestedtoinvestinWIPRO,DR.
REDDY,ACCasthecombinationisslightlylowriskwhencomparedwith
othercompanies.

TheanalysisregardingthecompaniesACC,HEROMOTOCORPhas
howedawiseinvestmentinpublicandinprivatesectorwithanincreasingtrend
whereascorporatesectorhasrecordedadecreasingtrendsincomewhich
denotesanincreasingtrendthroughoutthestudyperiod.

AsfarastheaveragereturnofthecompanyisconcernedACC,,HERO
MOTOCORP is high with an average return of 48.41%. WIPRO,
DR.REDDY is getting low returns. HERO MOTOCORP securities are
performingatmediumreturns.

AsfarasthecorrelationisconcernedthesecuritiesDR.REDDYarehigh
correlatedwithminimumportfoliorisk.Theinvestorwhoisriskaversewill
havetoinvestinthiscombinationwhichgivesgoodreturnwithlowrisk.
72
SUGGESTIONS:

Astheaveragereturnofsecurities,ACC,HEROMOTOCORPandareHIGH,it
issuggestedthatinvestorswhoshowinterestinthesesecuritiestakingriskinto
consideration.

AstheriskofthesecuritiesITC,ACC,HEROMOTOCORPandBHELarerisky
securitiesitsuggestedthattheinvestorsshouldbecarefulwhileinvestinginthese
securities.

TheinvestorswhorequireminimumreturnwithlowriskshouldinvestinWIPRO
&DR.REDDY.

Itisrecommendedthattheinvestorswhorequirehighriskwithhighreturnshould
investinITCandHEROMOTOCORP.

The investors are benefited by investing in selected scripts of

Industries.Buystocksincompanieswithpotentialforsurprises.

Takeadvantageofvolatilitybeforereachinganewequilibrium.

Listentorumorsandtips,checkforyourself.

Dontputyourtrustinonlyoneinvestment.Itislikeputtingalltheeggsin

onebasket.Thiswillhelplessontheriskinthelongterm.

The investor must select the right advisory body which is has sound

knowledgeabouttheproductwhichtheyareoffering.

Professionalizedadvisoryisthemostimportantfeaturetotheinvestors.

Professionalizedresearch,analysiswhichwillbehelpfulforreducinganykindof

risktoovercome.

73
 BIBLIOGRAPHY

Books
SecurityAnalysis&PortfolioManagementFishers&Jordon
FinancialManagementM.Y.Khan
FinancialManagementPrasannaChandra
NewsPapers
TimesofIndia
IndiaToday
Websites
www.amfiindia.com
www.sebi.com
www.google.com
www.ingvysyabank.com
74