A Report On: Construction and Management of Equity Portfolio

Construction and Management of Equity portfolio
A REPORT ON
Construction and management of
equity portfolio
By:
Vikram Kumar
REG NO:09AM60814
Religare Securities limited
Vikram Kumar BSB , Bangalore Page 1

Report
On
CONSTRUCTION AND MANAGEMENT OF
EQUITY PORTFOLIO
Submitted by
Vikram Kumar
REG NO: 09AM60814
SUBMITTED TO
COMPANY GUIDE
FACULTY GUIDE
Mr. Abdul Hameed

Prof. Mrs Lavanya Balaji

Area Sales Manager

Bangalore School of Business
Religare Securities Limited
Bangalore
A report submitted on partial fulfillment of the requirement of MBA

(finance) program of BSB, Bangalore.
Religare securities Limited
No. 15, 15/1, 2nd floor, Above Nissan
Car Showroom, Queens Road, Bangalore-01
TO WHOMSOEVER IT MAY CONCERN
This is to certify that Mr. Vikram Kumar has undertaken a project with Religare
securities Limited in Stock trading from 1st August to 30th November.
During the course of the project he has analyzed ON CONSTRUCTION AND

MANAGEMENT OF EQUITY PORTFOLIO.
His participation in training programme was excellent with 100% efficiency &
involvement & we wish him all the best in his Future endeavor.
COMPANY GUIDE

Abdul Hameed
Area Sales Manager
Religare Securities Limited.

DECLARATION
I hereby declare that this project report entitled Construction and Management
of Equity Portfolio has been prepared by me under guidance of Prof. Ms Lavanya
BAlaji, BSB Bangalore and also Mr. Abdul Hameed, Area Sales Manager,
Religare Securities Limited, in the Partial fulfillment of the requirement for the
award of the MBA (finance) from BSB, Bangalore during the two year program
2009-2011.
Place: Bangalore
Date:

ACKNOWLEDGEMENT
I dedicated this page to convey my deepest and heartfelt appreciation for all those
people who purposefully and inadvertently assisted me this project, without their
thoughtfulness, the satisfactory competition of this project would not have been
possible.
Firstly, I would like to thank my faculty guide Prof. Mrs Lavanya BAlaji, who
guided and supported throughout the entire project.
Secondly, I take the privilege to express my sincere feeling to gratitude to my

company guide Mr. Abdul Hameed, who has always given patient hearing to all
my doubts and has been there to guide me and support me whenever I require his
help at any point of the time during the course of my project and who always
spared his time and attention for discussing the problem.
And, my colleague for their continuous encouragement and support throughout the
last three months during my Summer Internship Program.
Last but not the least I thank my entire team of Religare Securities, Bangalore,
who have been a pillar of support for me and have given me a free hand in
choosing my course of project.
A special thanks of them
Name of Candidate
Vikram Kumar

TABELS OF CONTENT
Topic
Page No
1. ACKNOWLEDGEMENT……………………………………5
2. EXECUTIVE SUMMARY…………………………………...9
3. INTRODUCTION
a. Background………….……………………………………. .12
b. Justification for this study…..…………………………….....13
c. Company Background………………………………. .…….14
d. Objective of study…………………………………………...17
e. Scope of study………………………………………………17
f. Limitation of the study……………………………………...18
4. EQUITY PORTFOLIO- CONSTRUCTION & MANAGEMENT
a. Role of Equity………………………………………………22
b. Steps involving in construction of portfolio………………...24
c. Equity Portfolio Management………………………………29

d. Tools used for data interpretation…………………………...31
e. Markowitz Portfolio Model………………………………....33
f. Simple Sharpe Portfolio Optimization………………………35
g. Efficient Market Hypothesis……………………………...…36
5. DATA COLLECTION AND INTERPRETATION
a. Investor Profile………………………………………………41
b. Why Sharpe Model I choose ………………………………..43
c. Construction of portfolio…………………………………....43
d. Calculation of proportion of portfolio………………………45
e. Suggested portfolio………………………………………….46
f. How the portfolio of the five investor will be

managed…………………………… ……………………….55
6. FINDINGS…………………………………………………….60

7. CONCLUSION……………………………………………….62
8. REFERENCE………………………………………………....63

Executive Summary
Executive Summary:
The project undertaken in Religare Securities Limited under the SIP was
“CONSTRUCTION AND MANAGEMENT OF EQUITY PORTFOLIO”.
Considering the growing capital market and growth of retail investors and growth
of mutual fund. It is consider the appropriate to understand the technologies and

process involve in construction and management of equity portfolio. According I

had taken this project under summer internship programme .
Objective of the Study:
 To have clear understanding of as to how construction and management of

equity portfolio be made.
 In depth knowledge of strategic selection of securities in which risk is

minimum, and to understand the various tools available for such activities.
 To have an understanding if portfolio management with specific reference to

theoretical and practical aspects involved in this process.
Scope of the study:
The scope is limited to study :
 Predicting the movement of stock and its prices.
 Understanding the investor’s need and behavior in market.
 Designing appropriate portfolio which includes Equities.
Limitation of the study:

• Industry is not willing to part with actual or real data base so; therefore the
study is based on available secondary data with certain assumptions.
• Due to time constraint and due to non availability of required data neither
from secondary source nor from the corporate.
• The study also is limited by using more financial tools used for selection of
securities like Sharpe ratios, Treynor ratios since the required data is
unavailable.
As a part of my study, I have taken detailed literature survey through journals,

newspapers, and websites to gain knowledge and also collect the data for this
study.
The project explains in brief of how the construction and management of equity
portfolio is done, why management of equity portfolio is important, tools used for
selecting securities. In the absence of any actual and current data available in
secondary source for construction and management of equity portfolio was not
feasible.

INTRODUCTION
CHAPTER – 01 – INTRODUCTION
Back Ground of the study: As a student of Finance it was my interest to know

more about how constructing and management of equity portfolio made and how
the investor decides or chooses an investment opportunity out of various

alternatives available to him. Also as part of the requirement to be fulfilled for

getting MBA Finance degree from , I have to undergo Summer Internship
Programme in a company and do a SIP Project.
BSB has nominated me to Religare Securities Limited to undertake the SIP

programme. The project proposed is to study the process, tools, and methods to be
used in constructing and management of equity portfolio, to obtain decision inputs
for making Investment decisions. Also the study is to identify the process of
managing portfolio, with specific reference to Religare financial products which
calls for ascertaining customer’s constraints related to time horizon, income needs,
and risk tolerance and other associated factors. Primarily, Religare being an
institution of marketing of financial products, as the project attempts to relate the
Analysis of the as how constructing and management of equity portfolio a whole.
Justification of this study: Construction of Equity portfolio is a critical activity

in making right investment decisions which shall bring desired result of optimizing
the return with minimum or acceptable of risk integrating the integration of
fundamental markets and faster growth. This activity assume greater relevance
these days due to level of liquidity available in financial markets- cash chasing the
best markets, the best products, the best investment sectors, and the next best
investment opportunity. Noting this situation I consider more appropriate to study
all aspects of how the construction and management of equity portfolio is done.
Accordingly I have chosen this topic for my SIP Project.

Company Background:
(a) Nature of business :
Religare Enterprises Ltd (REL) is a financial services provider promoted by

Ranbaxy group. REL is a holding company, which are engaged in offering diverse
bouquet of services ranging from equities, commodities, insurance broking, wealth
advisory, and portfolio management services, personal finance services,
investment banking and institutional broking. The services are broadly clubbed
across three key business verticals- Retail, Wealth management and the
Institutional spectrum. Religare Enterprises Limited is the holding company
for all its businesses, structured and being operated through various subsidiaries.
Religare retail network spreads across the length and breadth of the country with
its presence through more than 1300 locations across more than 400 cities and
towns. Having spread itself fairly well across the country and with the promise of
not resting on its laurels, it has also aggressively started eyeing global geographies.
• Religare has been constantly innovating in terms of product and services and
to offer such incisive services to specific user segments it has also started the
NRI, FII, and Corporate Servicing groups. These groups take all the portfolio
investment decisions depending upon a client’s risk / return parameter.
• Religare which provides value inputs to institutional clients, investment
brokers and also to retail investors.

• Religare is also providing in-house Depository services to its clientele and is

one of the leading depository service providers in the country.
(b) Vision - To build Religare as a globally trusted brand in the financial

services domain and present it as the ‘Investment Gateway of India’.
(c) Mission - To provide financial care driven by the core values of diligence &
transparency.
(d) Objective – The objective of the issue is to fuel the future growth plans of
the company including the expansion of the domestic operations as well as the
network of the branches of two of its subsidiaries, Religare Securities Limited
and Religare Insurance Broking Limited. It plans to fund the retail finance
business as well as expand its financing activity, through its subsidiaries, Religare
Finvest Limited and Religare Finance Limited.
(e) Future Plans - The Company proposes to raise funds through the initial
public offering (IPO) to expand domestic operations and network of branches,
fund retail finance business, and expand financing activity.
I am associating with only Religare Securities Limited. This is a subsidiary of

Religare Enterprises limited.

1.3(a) Religare Securities Limited (RSL) is a leading equity and securities firm
in India. The company currently handles sizeable volumes traded on NSE and in
the realm of online trading and investments it currently holds a reasonable share of
the market. The major activities and offerings of the company today are Equity
broking, Depository Participant Services, Portfolio Management Services,
Institutional Brokerage & Research, Investment Banking and Corporate Finance.
To broaden the gamut of services offered to its investors, the company has also
recently unveiled a new avatar of its online investment portal armed with a host of
revolutionary features.
RSL is a member of the National Stock Exchange of India, Bombay Stock

Exchange of India, Depository Participant with National Securities Depository
Limited and Central Depository Services Limited, and SEBI approved Portfolio
Managers.
(b) Products and Services offered by Religare Securities Limited:
 Equities and Derivatives
 Depository
 Portfolio Management Services
 International Advisory
 Institutional Broking Services
 Investment Banking
Objective of the Study:
 To have clear understanding of as to how construction and management of

equity portfolio be made.

 In depth knowledge of strategic selection of securities in which risk is

minimum, and to understand the various tools available for such activities.
 To have an understanding if portfolio management with specific reference to

theoretical and practical aspects involved in this process.
Scope of the study:
The scope is limited to study :
 Predicting the movement of stock and its prices.
 Understanding the investor’s need and behavior in market.
 Designing appropriate portfolio which includes Equities.
Limitation of the study:

• Industry is not willing to part with actual or real data base so; therefore the
study is based on available secondary data with certain assumptions.
• Due to time constraint and due to non availability of required data neither
from secondary source nor from the corporate.
• The study also is limited by using more financial tools used for selection of
securities like Sharpe ratios, Treynor ratios since the required data is
unavailable.

Equity Portfolio-Construction & Management
CHAPTER-TWO
Equity Portfolio-Construction & Management

With retail investor showing significant interest in deviating their saving and
investment specially when the mutual funds starting showing high return with
minimum risk. The fund manager and the retail investor are faced with few
questions like how the optimize my return with minimum risk? Can I invest all
money in equity or is it profitable to have debt and equity in same proportion?
Even if equity is chosen-how to construct the portfolio, what process involve in
sector, industries, decision in proportionate in these investment or to made to be
portfolio.
To find these answer its essential to the fund manager to full knowledge the
process involve in equity market, especially when.
1) Performance has become an increasingly important issue in all sectors of

asset management, including equity portfolio management, as investors seek
better strategies and higher returns on their investments. Equity portfolio
managers need access to a wide range of resources to perform effectively.
2) Investors want information services that provide comprehensive coverage of

the global equity markets and the news that affects them. But to work
efficiently, they seek functionality to find and filter specific information
from all the available data and to build displays customized to their own
equity portfolio management requirements.
3) Investors also need powerful research and analysis tools to help them form
investment strategies. Equity portfolio managers may need to analyze
company fundamental data, study estimates of future financial performance

and review broker research. They may want to look at the performance of an
equity instrument or equity index or determine the overall direction of
equity markets. And because their customers frequently seek a risk-managed
approach to investment management, portfolio managers need the ability to
analyze risk and test strategies before taking decisions.
4) Equity portfolio managers look for advanced portfolio management systems

that enable them to value their equity portfolios and measure performance
against defined benchmarks. They also need to be able to analyze their
portfolios to ensure they comply with investment guidelines set by their
firm's management or by investors.
5) In the wealth management sector, they want portfolio management systems

that give their private clients direct access to the information they require
about the management of their investments - from portfolio valuation to
transaction history.
6) Equity portfolio managers need to keep abreast of market developments

while routing trading orders. As a result, they want access to equity market
data and to trade connectivity from a single desktop interface. To trade
successfully, they need equity order routing systems that enable them to
send orders to multiple brokers and to track the progress of orders through to
trade execution.

Religare offers a range of products for equity portfolio management. They

provide news, market data, research analysis, and sophisticated analytic and
risk management tools. Religare order routing and order management
services provide access to multiple trading parties. Religare also offers an
advanced portfolio management system. Religare products include instant
messaging functionality.
Role of Equity Portfolio
Investment in equity is the basis on which the company is able to promote and run
their business of equity. Since equity shareholder and the owner of the industry,
the keen interest in wealth which ultimately drive in better product, value added
services which provides the Indian product and services that decide competitive
price where the shareholder wealth maximum without investment in equity thrive
and survive.
The mutual fund brought lot of confidence in retail investor to take risk and invest
the money into equity. This result in the equity market value growth considerably.

Equity represents a significant source of wealth in the world today. As on 30 sep,

2004-the aggregate market value of the equities in the Morgan Stanley Capital
Interaction All Country World Index (MSCI ACWI) was more than $19 trillion of
the almost half represented markets outside the united states. Further nearly 5% of
the $19 trillion total equal to the market value of nearly $950 billion, represented
emerging markets.
The vast fool of equity share is held in both individual and institutional portfolio.
Below figure show the equity allocation weighting for institutional clients in
various markets. Both domestic and international equities play a large role of
portfolio-domestic equities are in the investor’s home markets; international
equities are outside of those markets. Below figure make clear that international
equities constitute differing proportion of the equity portfolio in different
countries.

Source-Greenwich Associates 2006.
FIG - Equity allocation for Institutional Investor
This difference probably reflects at least in part difference in the market

capitalization (value) of investor home equity markets in relation to a global
portfolio of equities; the larger the domestic market global weight, the more we
might expect investor to emphasize he market. The difference attitude and
investment constraints may affect those international differences.
Investing across multiples market also offers diversification benefits, because no

one market fully capture all global economic factor. Further many companies
located outside of an investor , home market have no exact home market equities

regardless of whether the domestic market or as large and decrease in the united
states.
Equities comparatively high historical long term real rates of return have been
important in establishing the widely held perspective that they play a growth role
in a portfolio.
Many successful long term investors have had an equity bias in their asset
allocation, diversification with instruments such as bond to obtain an acceptable
level of risk and/or income.
Steps involving in construction of portfolio
STEP 1- Identify and specifying the investor objective and constraints.
The primary objective of customer any customer is to maximum return for the risk
return taken by him and he also looks for the growth of investment. Therefore the
requirement of the investor is to have an expectable trade off. To ensure of safety
for investment, expected rate of return and also the growth expected. Generally the
constraint of investor pertains of the following factors:-
1) Safety of investment, 2) Return exception-both current income and growth,

3) Time horizon, 4) Risk perception.
STEP-2 Select specific asset for portfolio.
In order to construct a portfolio of individual or for a company, the portfolio

manager must consider objective and constraints as described step 1and than
proceed to have the following steps in selecting the security:-
1) Macro economic anslysis,2) Fundamental Analysis,3) Technical Analysis,

based on these analysis one has to select the sector, than the rating of these
securities and decide the proportion of investment. Once the company is selected,
the portfolio manager makes decision for asset allocation.
STEP-3 Asset allocation
Asset allocation is of two types:-
Strategic asset allocation- The Strategic asset allocation is an investor return

objective, risk tolerance and investment constraint are integrated with long run
Capital market expectation to establish exposure to IPS (investment policy
statement) permissible asset class. The manager is to satisfy the investor’s
investment objective and constraints. Thus strategic asset allocation can be viewed
as a process with a certain well defined steps. Performing those steps produces as a
set of portfolio weight for asset classes: we all this set to weight the strategic asset
allocation (o the policy portfolio).Thus, strategic asset allocation may refer to
either a process or its end result.
Tactical asset allocation: - This involves making short term adjustment to asset
class weight based on short term expected relative performance among asset
classes.
At times, a portfolio actual asset allocation may purposefully and temporarily

differ from the strategic asset allocation. For e.g. the asset allocation might change
to reflect an investor’s current circumstances that are difference from normal. The
temporary allocation may remain in place until circumstances that are different

from normal. The temporary allocation may remain in place until circumstances
return to those subscribed in the IPS and reflected in the strategic asset allocation if
the changed circumstances become permanent.
The tactical asset allocation also results in difference strategic asset allocation.
The portfolio implementation decision is a important as the portfolio

selection/composition decision. Poorly managed execution result in transaction
cost that reduces performance. Transaction cost includes all cost of trading,
including explicit transaction cost, implicit transaction cost and missed trade
opportunity cost.
STEP:-4 Achieving the portfolio designed
Once we determined the right asset allocation, we simply need to divide your
capital between appropriate asset classes. Once a basic level, this is not difficult
equities.
But we can further break down the different asset classes into subclass, who also
have different risks and potential returns. For e.g. Investor might divide the equity
between difference sector and market caps and between domestic and foreign
stock. The bond portion might be allocated between there that are short term and
long term government versus corporate debt and so forth.
STEP:-5 Re-assessing portfolio weighting
Once the portfolio is established, we need to analyze and rebalance it periodically

because market movement may cause your initial weighting to change to assess

your portfolio actual asset allocating, quantatively categorize the investment and
determine their value proportion to the value.
The others factors that are likely to change our time and your current financial
situation, future needs and risk tolerance. If the risk tolerance has dropped, we may
need to reduce the amount of equities held or perhaps, we are now ready to take a
risk and asset allocation requires a small proportion of the asset to be hold in
riskier small cap stock.
Essentially, to rebalance we need to determine which of the position are over

weighted and those are underweight. For e.g. say you are holding 30% of the
current asset allocation suggest you should only have 15% of your asset kept in
that class. We need to determine how much of this position, which need to reduce
and allocate to other classes.
STEP:-6 Rebalancing strategically
Once we determined the securities we need to reduce and how much, decide which
under weighted securities you will buy with the proceeds from selling the
overweight securities. To choose securities, best approach discuss below:-
When selling assets to rebalance the portfolio, take a moment to consider the tax
implication of readjusting your portfolio. Perhaps the investment in growth stock
has appreciated strongly over the past year, but investor to sell all your equity
position to rebalance the portfolio it may incur significant capital gain/losses.
In this case it might be more beneficial to simply not contribute any new funds to
that asset class in the future while continuing to contribute to other asset classes.

This will reduce your growth stock weighting in portfolio over time without
incurring capital gain taxes.
At the same time however always consider the outlook of your securities. If
investor suspect that these same over weight growth stock are ready to fall,
investor may want to sell in spite of the tax implication. Analyst opinion and
research reports can be useful tools to help the gauge the outlook for your holding
and tax loss selling is a strategy can apply to reduce tax implication.
STEP:-7 Remember the importance of Diversification
Throughout the entire portfolio construction process, it is vital that you remember
to maintain your diversification above all else. It is not enough simply to own
securities from each asset class. You must also diversify within each class. Ensure
that you are holding within a given asset class are spread across an array of
subclass and industry sector.
As we mentioned, investors can achieve excellent diversification by utilizing

mutual fund. The investment vehicles allow individual investor to obtain the
economy of scale that large fund manager enjoy which the average person would
not be able to produce with a small amount of money.

Equity Portfolio Management
PASSIVE VERSUS ACTIVE MANAGEMENT
Equity portfolio management styles falls into either a passive or an active

category. Unlike the immunization of equity portfolio, no real middle ground
exists between active and passive equity management strategies. Some argue that
“hybrid” active/passive equity portfolio strategies exist (e.g., enhanced indexing),
but such style really are variation of active management philosophies. Similar to
traditional active management, hybrid style managers invest to find undervalued
sector or securities. The following discussion reviews the traditional meaning of
the terms passive and active portfolio management.
PASSIVE EQUITY PORTFOLIO MANAGEMENT is a long term buys and holds

strategy. Usually, stocks are purchased so he portfolio returns will track those of
an index over time. Because of the goal of tracking an index, this approach to
investing is generally referred to as indexing. Occasional rebalancing is needed as
dividends must be reinvested and because stocks merge or drop out of the target
index and the stocks are added. The purpose of indexed portfolio is not to “beat”
the target index but to match its performance. A manager of equity index portfolio
is judged on how well he or she tracks the target index- that is, minimize the
deviation between portfolio and index returns similar to the bond index portfolio
manager.
ACTIVE EQUITY PORTFOLIO MANAGEMENT is an attempt by the manager to

outperform, on a risk adjusted basis, a passive benchmark portfolio. A benchmark
portfolio is a passive portfolio whose average characteristic (including such factors

as beta, dividend yield, industry weighting, and the firm size) match the risk return
objective of the client.
When deciding whether to follow an active or a passive strategy (or

some combination of the two), an investor must assess the trade- off between the
low cost but less exciting alternative of indexing versus the higher cost but
potentially more lucrative alternative of active management. Using pension fund
performance data from the 1985-1997 periods, it showed that the optimal
allocation to the indexing declines a managerial skill increases. However it also
include that some indexing is appropriate for the funds in most risk objective
classes.
As an indication of the tendency for investor to select active or passive

portfolio managers, below figures shows the amount of money in the U.S. equity
and fixed income markets using these approaches for two recent years. The data
are compiled from a survey of more than 2500 professional managers on behalf of
their clients. The main conclusion is that while active management strategies
control the largest percentage of investor wealth, passively managed investment
products are growing in importance at a more rapid pace. From the data it is also
clear that both active and passive funds play a prominent role with investors.
STRATEGY 2006(Billions) 2005(Billions) %CHANGE
Active Equity $ 1,945.10 $1,338.01 45.4

Indexed Equity 275.22 135.54 103.1
Active fixed income 1,677.45 1,370.63 22.4
Indexed fixed income 82.73 32.69 153.3

Total $ 3980.50 $ 2876.87 324.2
Fig-Comparison of different equity (source-equityresearch.com)
Tools used for data interpretation
Modern portfolio theory (MPT) proposes how rational investors will use
diversification to optimize their portfolios, and how a risky asset should be priced.
The basic concepts of the theory are Markowitz diversification, the efficient
frontier, capital asset pricing model, the alpha and beta coefficients, the Capital
Market Line and the Securities Market Line.

MPT models an asset's return as a random variable, and models a portfolio as a

weighted combination of assets so that the return of a portfolio is the weighted
combination of the assets' returns. Moreover, a portfolio's return is a random
variable, and consequently has an expected value and a variance. Risk, in this
model, is the standard deviation of return.
So we came across three tools which are used for data interpretation which are as
follows:-
1) The Markowitz Portfolio Model.

2) Simple sharp portfolio optimization.
3) Efficient market hypothesis.

1) The Markowitz Portfolio Model Consider a 'market' consisting of observed

asset prices for a number of assets, say , over a certain time span. If the observed
price for an asset is denoted , the perceptual return of the asset for a time step is
. The portfolio selection problem can be expressed as

maximizing the return with respect to the risk of the investment (or, alternatively,
minimizing the risk with respect to a given return). The Markowitz model for
portfolio selection uses the standard deviation of an asset's return as a measure of
its risk. In addition, returns of different assets are pair wise correlated, that is,
'moving in the same direction', to various degrees. By using the standard
deviations and correlations of assets, a composite risk measure for the portfolio
can be calculated.
Consider two assets, and , and let the expected returns of the assets be given by
the arithmetic means of the returns,
(1)
(2)
where is the number of observations. Let the standard deviations and the
correlation coefficient between the assets be given by
(3)

(4)
(5)
A portfolio is a set of numbers representing the proportions (or

weights) of each asset in the portfolio. Normally these weights are normalized so
that the sum of the weights equals one.
For two assets and , the portfolio consists of and and the return of the
portfolio is then . The weights should be chosen so that (for example)

the risk is minimized, that is
for each chosen return and subject to . The last two

constraints simply imply that the assets cannot be in short positions. The
generalization to portfolios containing assets is straight forward.
It turns out that there is always a portfolio with minimum standard deviation, the
minimum risk portfolio, and a portfolio with maximum return, which consist of
only one asset - the one with the largest return. In between, portfolios for different
returns and minimal risks can be computed. This problem is a nonlinear
optimization problem, a quadratic program, which typically is solved with an
active set strategy. The collection of two-dimensional points with coordinates
representing return and risk is called the (Markowitz) efficient frontier.
If a risk-free asset with an interest rate is included in the portfolio, a higher

return at a lower risk can sometimes be achieved by investing a proportion in a
portfolio on the efficient frontier and the rest in risk-free assets. Similarly, if an
investor can borrow money at the rate , an optimal portfolio may consist of
borrowing money to invest in a portfolio on the efficient frontier.
2) Simple Sharpe portfolio optimization
The construction of an equity portfolio is simplified if a single number measures

the desirability of including a stock in the optimal portfolio. In this case, the
desirability of any stock is directly related to its excess return to beta ratio:-
Ri- Rl /
Where, Ri = expected return on stock i
Beta (i)
Rl = Return on riskless asset
Beta (i) = expected change in the rate of return on stock I associated with a
1 percent change in the market return.
If stocks are ranked by excess return to beta (from highest to lowest), the ranking
represents the desirability of any stock’s inclusion in a portfolio. The number of
stocks selected depends on a unique cutoff rate such that all stocks with higher
ratio of (Ri-Rl)/Beta (i), will included and all stocks with lower ratios excluded.

3)The Efficient Markets Hypothesis
The efficient markets hypothesis (EMH), popularly known as the Random Walk
Theory, is the proposition that current stock prices fully reflect available
information about the value of the firm, and there is no way to earn excess profits,
(more than the market overall), by using this information. It deals with one of the
most fundamental and exciting issues in finance – why prices change in security
markets and how those changes take place. It has very important implications for
investors as well as for financial managers.
The first time the term "efficient market" was in a 1965 paper by E.F. Fama who
said that in an efficient market, on the average, competition will cause the full
effects of new information on intrinsic values to be reflected "instantaneously" in
actual prices. Many investors try to identify securities that are undervalued, and
are expected to increase in value in the future, and particularly those that will
increase more than others.
THREE VERSIONS OF THE EFFICIENT MARKETS HYPOTHESIS
The efficient markets hypothesis predicts that market prices should incorporate all
Available information at any point in time. There are, however, different kinds of
Information that influence security values. Consequently, financial researchers
Distinguish among three versions of the Efficient Markets Hypothesis, depending
on what is meant by the term “all available information”.

Weak Form Efficiency
The weak form of the efficient markets hypothesis asserts that the current price
fully incorporates information contained in the past history of prices only. That is,
nobody can detect mis-priced securities and “beat” the market by analyzing past
prices. The weak form of the hypothesis got its name for a reason – security prices
are arguably the most public as well as the most easily available pieces of
information. Thus, one should not be able to profit from using something that
“everybody else knows”. On the other hand, many financial analysts attempt to
generate profits by studying exactly what this hypothesis asserts is of no value -
past stock price series and trading volume data. This technique is called technical
analysis.
Semi-strong Form Efficiency
The semi-strong-form of market efficiency hypothesis suggests that the current

price fully incorporates all publicly available information. Public information
includes not only past prices, but also data reported in a company’s financial
statements (annual reports, income statements, filings for the Security and
Exchange Commission, etc.), earnings and dividend announcements, announced
merger plans, the financial situation of company’s competitors, expectations
regarding macroeconomic factors (such as inflation, unemployment), etc. In fact,
the public information does not even have to be of a strictly financial nature. For
example, for the analysis of pharmaceutical companies, the relevant public
information may include the current (published) state of research in pain-relieving

drugs. The assertion behind semi-strong market efficiency is still that one should
not be able to profit using something that “everybody else knows” (the information
is public).
Strong Form Efficiency
The strong form of market efficiency hypothesis states that the current price fully
incorporates all existing information, both public and private (sometimes called
inside information). The main difference between the semi-strong and strong
efficiency hypotheses is that in the latter case, nobody should be able to
systematically generate profits even if trading on information not publicly known
at the time.
In other words, the strong form of EMH states that a company’s management
(insiders) are not be able to systematically gain from inside information by buying
company’s shares ten minutes after they decided (but did not publicly announce) to
pursue what they perceive to be a very profitable acquisition.
Evidence in favor of the efficient markets hypothesis
Since its introduction into the financial economics literature over almost 40 years
ago, the efficient markets hypothesis has been examined extensively in numerous
studies. The vast majority of this research indicates that stock markets are indeed
efficient. In this section, we briefly discuss the evidence regarding the weak form,
semi-strong form, and strong-form versions of the efficient markets hypothesis.

Evidence in against of the efficient markets hypothesis
Although most empirical evidence supports the weak-form and semi-strong forms
of the EMH, they have not received uniform acceptance. Many investment
professionals still meet the EMH with a great deal of skepticism. For example,
legendary portfolio manager Michael Price does not leave anybody guessing which
side he is on: “…markets are not perfectly efficient. The academics are all wrong.
100% wrong. It’s black and white.” (taken from Investment Gurus by Peter
Tanous).
IMPLICATIONS OF MARKET EFFICIENCY FOR INVESTORS
Much of the existing evidence indicates that the stock market is highly efficient,
and consequently, investors have little to gain from active management strategies.
Such attempts to beat the market are not only fruitless, but they can reduce returns
due to the costs incurred (management, transaction, tax, etc).
Investors should follow a passive investment strategy, which makes no attempt to
beat the market. This does not mean that there is no role for portfolio management.
Returns can be optimized through diversification and asset allocation, and by
minimization of investment costs and taxes. In addition, the portfolio manager
must choose a portfolio that is geared toward the time horizon and risk profile of
the investor. The appropriate mixture of securities may vary according to the age,
goals, tax bracket, employment, and risk aversion of the invest

DATA COLLECTION, ANALYSIS AND

INTERPRETATION

Chapter-3
Data collection and interpretation
For this chapter, I collected data from the five individual investors – What his
prediction and assumption. Each investor has different income , investing ratio,
investing prefence –debt or security, expected return on investment, growth of
security, how much is the safety, how much is the risk tolerance and last but not
the least that is time horizon.
While contacting these five investors, I gained a lot of experience.

For knowing the construction and management of equity portfolio practically, I
made the portfolio of the five people from which I contacted already, considering
his objective and constraints.
The profiles of five investors are as follows:-
1) Name: - Allen Lawerence
Age: - 45 years
Company: - IFB Automotive private Limited
Job profile: - Manager
Income: - Above 5 lakhs p.a.
2) Name: - Thomas Vinod Geo
Age: - 34 years

Company: - Cranes software private limited
Job profile: - Team Leader
Income: - 3- 5 lakhs p.a.
3) Name: - Tinku Mishra
Age: - 42 years
Company: - Salarpuria Group
Job profile: - Finance Manager
4) Name: - J Venugopal
Age: - 39 years
Company: - Valtech software
Job profile: - Assistant Manager
Income: - 3-5 lakhs p.a.
5) Name: - Mr. Srinivas
Age: - 40 years
Company: - Emphasis
Job profile: - Assistant Manager

Below table show investor’s investing ratio, prefence to invest either in equity
market or debt market, expected return, growth in return, safety, risk tolerance and
what its time horizon.
NAME AGE INCOME INVESTINGLE

PRVE
EFL
E/P
NC.A
EOF
EX
INVE
PECT
SE
TD
ME
GROW
E
NT
TUT
RH
N/LIQU
SAF
ID
ET
IT
YY RISKTOLERANC
TIME
E HORIZON
ALLEN LAWRENCE 45 <5 LAKHS 15% SECURITIES,MF
20-25% 20% 70% 25-30% 1 YEAR
THOMASVINOD GEO 34 3-5 LAKHS 20% SECURITIES,MF
25-30% 25% 60% 30-50% 5 YEAR
TINKU MISHRA 42 3-5 LAKHS 15% MUTUAL FUND,LIC
15-20% 15% 90% 25-30% 2 YEAR
J. VENUGOPAL 39 3-5 LAKHS 20% SECURITIES,MF 25% 20% 70% 30-50% 5 YEAR
SRINIVAS 40 3-5 LAKHS 20% SECURITIES,MF 25% 25% 70% 30-50% 3 YEAR
I took ten securities into consider, because in past six months these 10 securities
performance was good i.e return is maximum. For calculation of proportion of
portfolio I used Simple Sharpe Model, because it gives the rank of the security and
its easy to invest according their rank. For ten securities I calculate beta, risk,
return, variance, Zi and cut off rate and the proportion of each security for the each
investor. Here are the formulae which are used in proportion of portfolio.
1) Ri = Mean return
2) Ri-Rf = Excess return
3) UR= Unsystematic risk
4) Ci= (Market risk)*(sum of (Ri-Rf)*beta/UR)
5) Zi= (Beta^2/UR)*((Ri-Rf)/Beta-Ci)
6) Sharpe Ratio= (Return-coefficient)/UR
Calculation of proportion of portfolio for Mr. Thomas:-

Security Ri Ri-Rf (Ri-Rf)/Bi Beta Rank UR

RELIANCEPETROLEUM 30 30 25.00 1.2 3 20
I BINFOTECH 15 15 18.75 0.8 8 30
ITC 25 25 27.78 0.9 2 40
ASIANPAINTS 20 20 30.77 0.65 1 20
IFCI 25 25 20.83 1.2 6 15
RELIANCEMF 30 30 16.67 1.8 7 50
ICICI MF 25 25 14.71 1.7 9 16
SBI MF 20 20 16.67 1.2 8 25
SUNDARAM MF 15 15 22.06 0.68 5 30
UTI MF 25 25 25.00 1 4 10
cotd..
Security Ri Beta UR Ri-Rf (Ri-Rf)/Bi Rank (Ri-Rf)*Bi(Beta)^2

ASIAN PAINTS 20 0.65 20 20 30.77 1 13.00 0.42
ITC 25 0.9 40 25 27.78 2 22.50 0.81
RELIANCEPETROLEUM 30 1.2 20 30 25.00 3 36.00 1.44
UTI MF 25 1 10 25 25.00 4 25.00 1.00
IFCI 25 1.2 15 25 20.83 6 30.00 1.44
SUNDARAM MF 15 0.68 30 15 22.06 5 10.20 0.46
RELIANCEMF 30 1.8 50 30 16.67 7 54.00 3.24
SBI MF 20 1.2 25 20 16.67 8 24.00 1.44
I BINFOTECH 15 0.8 30 15 18.75 8 12.00 0.64
ICICI MF 25 1.7 16 25 14.71 9 42.50 2.89
cotd..
Source:- Prowess

Security Rank (Ri-Rf)*Bi/URSUM(Ri-Rf)*Bi/UR(Beta)^2/URsum(Beta)^2/UR Ci

ASIAN PAINTS 1 0.49 0.49 0.02 0.02 4.08
ITC 2 0.45 0.94 0.02 0.04 6.70
RELIANCEPETROLEUM 3 1.50 2.44 0.07 0.11 11.50
UTI MF 4 2.00 4.44 0.10 0.21 14.22
IFCI 5 1.60 6.04 0.10 0.31 14.79
SUNDARAM MF 6 0.23 6.27 0.02 0.32 14.79
RELIANCEMF 7 0.90 7.17 0.06 0.39 14.67
SBI MF 8 0.72 7.89 0.06 0.45 14.44
I BINFOTECH 8 0.27 8.15 0.02 0.47 14.37
ICICI MF 9 2.13 10.28 0.18 0.65 13.74
cotd..
Security Zi proportioninportfolio
ASIANPAINTS 0.62 27.38
ITC 0.35 15.49
RELIANCEPETROLEUM 0.56 24.85
UTI MF 0.58 25.64
Since, I calculate the
IFCI 0.15 6.64
SUNDARAMMF proportion of the investor
RELIANCEMF
SBI MF name Thomas; from that link
I BINFOTECH I calculate proportion of rest
ICICI MF
four investors, which are as
follows:-

proportion of portfolio
COMPAN J. ALLEN TINKU

Y VENUGOPAL SRINIVAS LAWRENCE MISHRA
ASIAN
PAINTS 29 27 20 10
ITC 18 17 25 12
RELIANC
EP 25 24 22 22
UTI MF 16 22 20 40
IFCI 12 10 13 16
On the basis of proportion of portfolio, I allocate the assets to the investor consider
the requirements of the investor.
According to the investor, I constructed the portfolio for investors- in reference the
security data available on prowess database. Apart from that I suggested two
portfolios for each investor. Below the tables shows the calculated portfolio as
well as suggested portfolio. I showed individual calculation for each and every
investor.
Mr. Thomas Vinod Geo

ASIA
N RETU
PAINT RELIANCE RN RISK
S UTI MF PETRO ITC IFCI TOTAL (%) (%)
Risk (%) 20 16 20 22 15
Return (%) 22 25 30 25 25
30000
Investment 82140 76290 74550 46470 19920 0 25.37 17.9
suggested p 30000
1 30000 60000 80000 50000 80000 0 28.68 15.2
30000
suggested p2 10000 60000 100000 30000 100000 0 32.44 14.6
Above table shows the risk and return of a security and also the investment
according his expected risk and return. I suggested two portfolios for him which
will give him maximum returns and less risk.
Below graph show the risk and return of each security relate to his actual
investment which I got from calculation and I also relate the risk and return with
he two suggested portfolio.

SHARP RATIO
Return U Be sharp Ra
(%) R ta ratio nk
2 0.6
ASIAN PAINTS 22 0 5 0.53 4
1
UTI MF 25 0 1 1.35 1
2
RELIANCE PETROLEUM 30 0 1.2 0.93 2
4
ITC 25 0 0.9 0.34 5
1
IFCI 25 5 1.2 0.90 3
2
Market index 13 0 1
Above table show the sharp ratio of each security and I rank the security according
the sharp ratio. According to rank I suggest the investor to take that security first
which got rank one and so on.
Mr. Venugopal
RETU
ASIAN RELIANCE RN RISK
PAINTS UTI MF PETRO ITC IFCI TOTAL (%) (%)
Risk (%) 18 15 17 22 20
Return (%) 24 23 22 24 26
Investment 3600
1 87000 48000 75000 54000 0 300000 25.11 18.4
suggested p 6000
1 60000 100000 30000 50000 0 300000 28.89 16.5
suggested p 6000
2 60000 120000 20000 40000 0 300000 30.69 15.2
the two suggested portfolio.
SHARP RATIO
Return U Bet sharp Ran

(%) R a ratio k
ASIAN PAINTS 24 20 0.65 0.60 3
UTI MF 23 10 1 1.10 1


ITC 24 40 0.9 0.30 5
IFCI 26 15 1.2 0.93 2
Market index 13 20 1
Mr. Srinivas
RETU
ASIAN UTI RELIANCE TOTA RN RISK
PAINTS MF PETRO ITC IFCI L (%) (%)
Risk (%) 17 15 17 22 20
Return (%) 23 24 22 24 24
Investment 30000
1 81000 66000 72000 51000 30000 0 26.28 19.3
suggested 10000 30000
p1 70000 0 60000 20000 50000 0 28.88 17.2
suggested 12000 30000
p2 80000 0 60000 10000 30000 0 30.43 15.5

SHARP RATIO
Return U Bet Ran

(%) R a sharp ratio k
2 0.6
1
UTI MF 24 0 1 1.30 1
2
4
ITC 24 0 0.9 0.33 5
1
IFCI 24 5 1.2 0.87 2
2
Market index 13 0 1

Mr. Allen Lawrence
ASIAN RELIANC TOTA RETUR RISK

PAINTS UTI MF E PETRO ITC IFCI L N (%) (%)
Risk (%) 20 14 20 17 15
Return (%) 22 24 30 25 25
Investment 3000
1 60000 60000 66000 75000 39000 00 24.31 17.8
suggested p 3000
1 10000 80000 80000 50000 80000 00 28.09 16.2
suggested p 3000
2 0 90000 90000 30000 90000 00 30.33 15.8

SHARP RATIO
Return U Be sharp Ra
(%) R ta ratio nk
2 0.6
1
UTI MF 24 0 1 1.12 1
RELIANCE 2
PETROLEUM 30 0 1.2 0.86 2
4
ITC 25 0 0.9 0.31 5
IFCI 25 1 1.2 0.82 3

5
2
Market index 13 0 1
Mr. Tinku Mishra
RELIANC
E
ASIAN UTI PETROLE TOTA RETUR
PAINTS MF UM ITC IFCI L N (%) RISK (%)
Risk (%) 18 15 19 22 20
Return (%) 24 26 22 24 26
Investmen 12000 4800 3000
t 30000 0 66000 36000 0 00 26.32 18.87
suggested 13000 6000 3000
p1 60000 0 30000 20000 0 00 28.88 17.7
suggested 15000 6000 3000
p2 60000 0 20000 10000 0 00 29.54 16.43
the two suggested portfolio.

SHARP RATIO
Return U Bet Ran

(%) R a sharp ratio k
ASIAN PAINTS 24 20 0.65 0.54 3
UTI MF 26 10 1 1.29 1
ITC 24 40 0.9 0.27 5
IFCI 26 15 1.2 0.86 2
Market index 13 20 1

Equity Portfolio Management
Performance has become an increasingly important issue in all sectors of asset

management, including equity portfolio management, as investors seek better
strategies and higher returns on their investments. Equity portfolio managers need
access to a wide range of resources to perform effectively.
Managing the investor portfolio is a great job. Market always goes up and down
and after some time interval, investor objective and constraints changes –these are
some factor which make a little bit tough in managing portfolio.
For the investors who want to hold security for a longer period can go for passive
management and for those who want to frequent sell or buy can go for active
management.
From investor’s objective and constraints, I found that Mr. Allen Lawrence and
Mr. Tinku Mishra should go for passive portfolio management. The remaining all
three should go for active portfolio management.
Passive Portfolio Management

Under this management, I adopt three strategies for two investors’ i.e Mr. Allen
and Mr. Tinku; they want to hold the security for longer period.
1ST STRATEGY :- The first strategy can be called market timing. Basically this is
the decision to move funds in or out of the equity market in an attempt to enhance
returns. In reality, it is as much an asset allocation strategy as it is an equity
strategy because it calls for shifting funds to another asset category.
2ND STRATEGY: - The second strategy can be called as theme selection. On the
domestic front, this could be choosing to emphasize small capitalization rather
than large capitalization securities, to overweight specific industries or sectors
versus other that are underweighted, or to emphasize factors such as growth and
yield.
3RD STRATEGY: - The final strategy is to add value through the selection of
individual stocks.
A portfolio that doesn’t engage in stock selection and does not engage actively in
market timing or theme selection can be thought of passive. Passive management
is a strategy of holding a portfolio of generic securities, without attempting to
outperform other investors through superior market forecasting or superior ability
to find mispriced securities.
Active Portfolio Management
For the remaining three investors, I adopt active portfolio management, they all
want to buy and sell securities frequently. Under this management, I selected two
approaches, a) Top down approach and b) Bottom up approach.

a) Top down approach
I commonly referred to as top-down approach if their emphasis is on sector,

industry, or the theme bets as opposed to individual stock selection. Stocks are
actively selected, but they are chosen in large part to bring out a theme.
According to me, a top-down approach might structure in this way:-
a) Identify broad themes that will influence the Indian markets.
b) Incorporate those themes into specific economic and market forecast for
country.
c) Factor in currency forecast.
d) Use an asset allocation type model to determine optimal country allocations.
e) Given economic forecasts, determine sector weightings for each country.
f) Select stocks within these weightings.
b) Bottom up approach:-
If I consider a bottom up approaches, it takes the opposite track from the top-down
approach. The main motto is on selecting attractive securities. Industries, sector,
and countries are incidental consideration.

Tax Sensitivity
A lot of institutional equity portfolios, such as pension funds, are not taxable. This
gives portfolio managers more managerial flexibility than taxable portfolios. Non-
taxable portfolios may use greater exposure to dividend income and short-term
capital gains than their taxable counterparts. I gave special attention to stock
holding periods, tax lots, capital losses, tax selling and dividend income generated
by portfolios. Taxable portfolios may be more effective with a lower portfolio
turnover rate relative to non-taxable portfolios.
FINDINGS
The tables provided below, brings out the investment option chosen by individual
and accordingly portfolio is constructed which is given in the third row of each
individual’s table.
Considerably the risk and return given for various securities in the 1st and 2nd row,
two alternate Portfolios are constructed and details for these two options are given
in 4th and 5th row.
The portfolio return and risk calculated for each options taking weighted average
of return and risk are given in the last two rows of each table. It can be seen
from table in all the cases for the lowest risk percentage highest returns are
available in all the cases.
Mr. Thomas Vinod Geo
ASIA
N RETU
PAINT RELIANCE RN RISK
S UTI MF PETRO ITC IFCI TOTAL (%) (%)
Risk (%) 20 16 20 22 15
Return (%) 22 25 30 25 25
30000
Investment 82140 76290 74550 46470 19920 0 25.37 17.9
suggested p 30000
1 30000 60000 80000 50000 80000 0 28.68 15.2
30000
suggested p2 10000 60000 100000 30000 100000 0 32.44 14.6

Mr. Venugopal
RETU
ASIAN RELIANCE RN RISK
PAINTS UTI MF PETRO ITC IFCI TOTAL (%) (%)
Risk (%) 18 15 17 22 20
Return (%) 24 23 22 24 26
Investment 3600
1 87000 48000 75000 54000 0 300000 25.11 18.4
suggested p 6000
1 60000 100000 30000 50000 0 300000 28.89 16.5
suggested p 6000
2 60000 120000 20000 40000 0 300000 30.69 15.2
Mr. Srinivas
RETU
ASIAN UTI RELIANCE RN RISK
PAINTS MF PETRO ITC IFCI TOTAL (%) (%)
Risk (%) 17 15 17 22 20
Return (%) 23 24 22 24 24
Investment 3000
1 81000 66000 72000 51000 0 300000 26.28 19.3
suggested p 5000
1 70000 100000 60000 20000 0 300000 28.88 17.2
suggested p 3000
2 80000 120000 60000 10000 0 300000 30.43 15.5
Mr. Allen Lawrence
ASIAN RELIANC TOTA RETUR RISK

PAINTS UTI MF E PETRO ITC IFCI L N (%) (%)
Risk (%) 20 14 20 17 15
Return (%) 22 24 30 25 25

Investment 3000
1 60000 60000 66000 75000 39000 00 24.31 17.8
suggested p 3000
1 10000 80000 80000 50000 80000 00 28.09 16.2
suggested p 3000
2 0 90000 90000 30000 90000 00 30.33 15.8
Mr. Tinku Mishra
RELIANC
E
ASIAN UTI PETROLE TOTA RETUR
PAINTS MF UM ITC IFCI L N (%) RISK (%)
Risk (%) 18 15 19 22 20
Return (%) 24 26 22 24 26
Investmen 12000 4800 3000
t 30000 0 66000 36000 0 00 26.32 18.87
suggested 13000 6000 3000
p1 60000 0 30000 20000 0 00 28.88 17.7
suggested 15000 6000 3000
p2 60000 0 20000 10000 0 00 29.54 16.43
From the above, it can be stated that most of retail investor do not have neither the
professional knowledge nor the time data available to chose and decide on an
advantageous portfolio to obtain maximum return and minimum risk.
Therefore it is necessary for retail investor to consult professionals or experts in

the field while construction of the portfolio to derive best advantage of minimum
risk and optimum returns for their risk tolerance level.
In the management of equity portfolio , it is necessary for fund managers to have

very active management of the portfolio taking into account into dynamic changes

in the economy, international markets and domestic markets including

government policies like- monetary policy, fiscal policy GDP, foreign investment
flow, balance of payments, etc.
CONCLUSION
A well-diversified portfolio is the best bet for consistent long-term growth of the
investments and protects the assets from the risks of large declines and structural
changes in the economy over time. Monitor the diversification of the portfolio,
making adjustments when necessary and find greatly increase your chances of
long-term financial success.
Portfolio modeling is a good way to apply analysis and evaluation of a key set of
stocks - those that the portfolio manager wants to own - to a set of portfolios in one
group or style. Portfolio modeling is an efficient link between equity analysis and
portfolio management. As the outlook for individual stocks improves or
deteriorates over time, the portfolio manager only needs to change the weightings
of those stocks in the portfolio model to optimize the return of all portfolios in the
group or style. As long as the individual portfolio accounts are traded efficiently,
the group will perform as a homogeneous element.

REFERNCES
BOOKS:-
Portfolio management-ICFAI publication
Investment analysis and portfolio management- Reilly/Brown
Investment analysis and portfolio management- Prasanna Chandra
Security analysis and portfolio management- Donald E. Fischer, Ronald J. Jordon.
WEBSITE:-
www.valueresearchonline.com
www.moneycontrol.com.
www.investopedia.com

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Construction and Management of Equity portfolio

Religare Securities limited

Vikram Kumar BSB , Bangalore Page 1

REG NO: 09AM60814

Mr. Abdul Hameed

Vikram Kumar BSB , Bangalore Page 2

Area Sales Manager

A report submitted on partial fulfillment of the requirement of MBA

Religare securities Limited

No. 15, 15/1, 2nd floor, Above Nissan

Car Showroom, Queens Road, Bangalore-01

TO WHOMSOEVER IT MAY CONCERN

During the course of the project he has analyzed ON CONSTRUCTION AND

Vikram Kumar BSB , Bangalore Page 3

Area Sales Manager

Religare Securities Limited.

Vikram Kumar BSB , Bangalore Page 4

Vikram Kumar BSB , Bangalore Page 5

Secondly, I take the privilege to express my sincere feeling to gratitude to my

A special thanks of them

Vikram Kumar BSB , Bangalore Page 6

b. Justification for this study…..…………………………….....13

c. Company Background………………………………. .…….14

f. Limitation of the study……………………………………...18

4. EQUITY PORTFOLIO- CONSTRUCTION & MANAGEMENT

b. Steps involving in construction of portfolio………………...24

c. Equity Portfolio Management………………………………29

Vikram Kumar BSB , Bangalore Page 7

d. Tools used for data interpretation…………………………...31

e. Markowitz Portfolio Model………………………………....33

f. Simple Sharpe Portfolio Optimization………………………35

g. Efficient Market Hypothesis……………………………...…36

5. DATA COLLECTION AND INTERPRETATION

b. Why Sharpe Model I choose ………………………………..43

d. Calculation of proportion of portfolio………………………45

f. How the portfolio of the five investor will be

Vikram Kumar BSB , Bangalore Page 8

Vikram Kumar BSB , Bangalore Page 9

Vikram Kumar BSB , Bangalore Page 10

process involve in construction and management of equity portfolio. According I

Objective of the Study:

 To have clear understanding of as to how construction and management of

 In depth knowledge of strategic selection of securities in which risk is

 To have an understanding if portfolio management with specific reference to

Scope of the study:

The scope is limited to study :

 Predicting the movement of stock and its prices.

 Understanding the investor’s need and behavior in market.

 Designing appropriate portfolio which includes Equities.

Limitation of the study:

Vikram Kumar BSB , Bangalore Page 11

As a part of my study, I have taken detailed literature survey through journals,

Vikram Kumar BSB , Bangalore Page 12

Back Ground of the study: As a student of Finance it was my interest to know

Vikram Kumar BSB , Bangalore Page 13

alternatives available to him. Also as part of the requirement to be fulfilled for

BSB has nominated me to Religare Securities Limited to undertake the SIP

Justification of this study: Construction of Equity portfolio is a critical activity

Vikram Kumar BSB , Bangalore Page 14

(a) Nature of business :

Religare Enterprises Ltd (REL) is a financial services provider promoted by

Vikram Kumar BSB , Bangalore Page 15