Portfolio Management

Assortment of Investments Options to Enhance Portfolio Value

Portfolio Management
PORTFOLIO ALLOCATION Mutual
10% 10%
20% Funds
Equity
Fixed
Income
Instruments
15%
Fixed
Deposit
Commodity
5% 40%
IPO's

In regards to a portfolio, one should keep in mind that, the more diverse the
portfolio, the better. This is required as a wide portfolio gives the investor a chance
to leverage his risk.
A balanced portfolio would be one that includes 50% investment in equity and
equal in risk free investment. This would give a chance to leverage the equity risk
with the risk free investment options.

Assumption:
1. Risk appetite moderate
2. Money invested on prices prevailing on December 10th 2010
Investment in Direct Equity

NO OF
SCRIPTS SHARE PRICE AMOUNT
SHARE
POWER & GAS
Coal India 316.20 49856 64
NTPC 189.75 50094 264
OIL
Cairn India 328 49856 152
ONGC 1322.6 50258 38
BANKS
SBI 2723 49014 18
YES Bank 297.5 51170 172
METALS
Tata Steel 606 24846 41
Hindalco Industries Ltd. 214.2 25061 117
INFRASTRUCTURE
L&T 779 24928 32
Godrej Properties 189.75 25047 132
TOTAL
TOTAL - 400130 1030
SECTORS:

POWER & ENERGY

The government has been focusing on power sector lately. Many reforms have
been initiated and huge funds have been allocated for this sector as it requires huge
capital expenditure.

 On Dec 10, 2010 the ministry of power has said that state power distribution
companies should increase their power tariffs to bring down losses
 US president Obama’s visit to India, gave a platform to initiate bilateral clean
energy initiatives in the power sector
 India - US signing for nuclear deal is all set to explode the power sector
 Power sector to grow at 7.5 to 8 CAGR till 2017
 The need for power in India is immense with over 44% household not having
access to electricity.

NTPC

 It's sales turnover and net profit is the highest amongst all the competitors and
it’s a government organization
 It has the highest market capitalization
 Other news
 It’s facility agreement with Bank of Tokyo of 300Million $ on Dec 1st
will bring in modernization to the plant
 Dec 14; through its unit NTPC Vidyut Vyapar Nigam, it will lead the
solar plan's initial phase via long-term contracts to buy the first 1 GW of
 energy from developers. One gigawatt is enough to power close to 1
million homes
 Dec 14; NTPC will revive and expand two ailing coal-based projects
with 1,260 mw capacities in Jharkhand. Agreements in this regard are
likely to be signed with state government within a month. They plan to
ramp their capacity to 1320mw each

Current Market Price 189.75

P/E 17.9
EPS 10.59
Dividend 3.8

Coal India

 Dec 13; SBI Mutual Funds & HDFC Mutual funds invests around 1.7crore
shares into Coal India by disinvesting from telecom
 Dec 14; Indian coal consortium including 5 state run companies (International
Coal Ventures) is in talks to invest in Australian Riversdale Mining
 Coal India is planning to eye 10% of the one of the NYSE listed company
Peabody’s Australia coal mine

Current Market Price 316.2

P/E 19.9
EPS 15.6
Dividend 3.5
 OIL & GAS

India is ranking 2nd in consumption of crude oil. It comes 2nd to China who is
the largest consumer of oil

 Dec 17; Understanding between the 1st and 2nd ranked consumers, of not to
book orders together, as prices of oil crude rise due to scarcity, has profound
advantages

Cairn India

Current Market Price 328

P/E -224
EPS -1.25
Dividend 0

 Dec 6; Rising crude prices and speculation of a further rise is an indication

that this stock has a bullish trend
 Speedy developments and clearances for Vendanta to takeover Cairn. Govt
has set the ruling month to be March 2011
 The level expected if the deal were to take place could be anywhere in the
range of 350 to 360
ONGC

Current Market Price 1322.6

P/E 15.5
EPS 85.11
Dividend 33

 ONGC likely to declare dividend

 Stock Split likely to be declared in tune of 2:1, hence signaling a buy for the
stock
 Dec 13; ONGC in talks with Bashneft of Russia to help develop the giant
Arctic Trebs and Titov oil fields. They hold 200 million tonne of oil reserves
 Dec 15; High crude prices and a stock of 6,00,000 barrels of February Nile
Blend Crude makes it lucrative to export it. Other than ONGC(25%); other
stakeholders in the Greater Nile Project include China National Petroleum
Corp (40%), Petronas (30%) and Sudapest (5%)
 BANKS

Banks form an integral part of any portfolio, as all the money that is made has
to be invested with banks. Banks show a stable return and have a huge customer
base to provide good returns to the shareholders.

 Nov 24; On wake of one of the biggest scams in the history of the country.
The bank scams have spooked investors from investing in the sector. But 25 &
26 should good trends in the sector with marginal fall. Hence, it still remains a
good buy
 Dec 16; The Reserve Bank of India and China Banking Regulatory
Commission concluded a memorandum of understanding to increase banking
and financial cooperation. Already SBI and Bank of Baroda have its
branches in the China

YES Bank

Current Market Price 297.5

P/E 19.41
EPS 14.06
Dividend 1.5

 Targets given by top investors and analysts shows that it could well reach 350
to 400
 Its Gross NPA are as low as 0.25%
 Dividend declared this year in March after 5 yrs; showing that the company is
here not just to stay but prosper
  Its EPS has been phenomenal, increasing every year Rs 4 from past 3ys
 It’s working and financial structure is very strong and the management is
highly competent

SBI

Current Market Price 1322.6

P/E 15.5
EPS 18.27
Dividend 144.37

 A nationalized bank and is a safe bet

 Showed progress in rough times and did not turn up in the list of defaulters in
the banking scam
 Target expected is in the range of 2850 to 2900
 METALS

The metals market in India is huge. India is in its developing stage and now
has entered heavy development which requires metals on a large scale. Metals are
the backbone of any industrial set-up. Infrastructure, machining, automobiles and
many other sectors depend on metals.

TATA Steel

Current Market Price 606

P/E 10.83
EPS 56.37
Dividend 8

 Target expected to be 700 to 720

 SAIL bad performance can assist TATA Steel in getting the investors a better
share as it is ranked the 2nd in the market capitalization in the steel sector
 It’s a reliable bet and has always shown good results

Hindalco Industries

Current Market Price 214.2

P/E 21.24
EPS 10.01
Dividend 1.35
 Dec 7; Analysts believe that any investor should go bullish on metals for the
present market scenario
 Dec 13; SBI Mutual funds has heavily invested in this company. It has
invested by buying 31,86,462 shares of Hindalco
 Dec 13; Hindalco’s high cost debt would be paid off and expansion would be
financed from the return of capital of Rs 7650cr from its Canadian subsidiary
Novelis Inc
 INFRASTRUCTURE

Infrastructure is such a sector that defines the progress of a country.

 Great infrastructure can boost an economy

 A developing economy has tremendous demand for infrastructure
 Infrastructure has shown great improvements despite the banking scam
 Liquidity is an issue, if companies can finance their projects through other
sources, they would not feel the burden

Larsen & Tubro

Current Market Price 779

P/E 21.24
EPS 72.66
Dividend 12.5

 Dec 2; L&T bags an order for thermal power plan from Hindalco and Sepco 1
of Rs 415cr
 Dec 3; L&T bags an order in UAE of Rs 716cr
 Dec 13; L&T chairman confirmed that they are planning to restructure and
they would move out of noncore businesses and concentrate on core ones
 Dec 14; L&T Finance will be able to get its IPO out, as Government has given
a nod to its FDI to the tune of Rs 641cr. L&T Finance will be able to finance
certain projects of its parent and help them sail the liquidity crunch
Godrej Properties

Current Market Price 189.75

P/E 32.99
EPS 18.33
Dividend 4

 Phase 2 of the Kolkata project in way. 3 towers with 450 apartments, booking
have been opened. Apartments range from 1100 to 1360 sq feet
 Equity Dividend % and EPS has been decent over the years
 They have a vibrant unit as they have just gone for brand restructuring some
years back
Investment in Mutual Funds

Investing in Mutual Funds is far safer than investing in direct equity. This industry
is a growing at a very high pace. Main reasons of investing in Mutual Funds are:

 Affordability
 Diversification
 Variety
 Professional Management
 Convenient Administration
 Return Potential
 Low Costs
 Liquidity
 Transparency
 Flexibility

NAV = {(Market value of the fund’s investment + Current assets + Accrued

income) – (Current Liabilities + Accrued Expenses)} / (Total No of units
Outstanding)

An investor can invest in mutual funds through various schemes:

 Fixed Maturity Plan

 Systematic Investment Plan
 Systematic Term Plan
Mutual Fund Portfolio

Mutual Funds
Debt
(Short)
25% 25%
Equity

Liquid

25% 25% Debt

(Long)

Allocation of fund under various schemes:

Invst Policy Asset

Amount
Name of Fund TYPE Period Min Size NAV
Plan Invested
(Min) Sum (Cr)
BNP Paribas
Debt
Bond Fund - 165.2 12.10
(Short Growth 1 5000 50000
Regular Plan 5 1
)
(G)
ICICI Pru Gilt - Debt
Dividen 18.95
Investment Plan (Long 1 25000 50000 86.29
d 7
- PF Option )
DSP BlackRock
Micro Cap Fund 16.52
Equity Growth 3 10000 50000 460
- Regular Plan 9
(G)
JM High Liquid Growth - 5000 50000 2967 26.11
 Liquidity Fund
0
(G)
TOTAL 200000
DSP BlackRock Micro Cap Fund - Regular Plan (G) (Equity)
Returns (as on Dec 16, 10) Absolute Returns (in %)
Returns Rank Qtr
Period (%) # Year Qtr 1 Qtr 2 3 Qtr 4 Annual
201
1 mth -8.3 252 0 9.2 9.4 14.2 - -
200
3 mths -7.5 235 9 -13.7 66 30.5 14.1 120.2
200
6 mths 8.8 175 8 -40.2 -12.4 -3 -29.1 -66.8
200
1 year 43 1 7 - 1.4 9.5 32.7 50.5
2 year 73.5 1
3 year 4.5 39
5 year - -
#
Moneycontrol Rank within 265
Equity Diversified Schemes

ICICI Pru Gilt - Investment Plan - PF Option (Debt Long)

Returns (as on Dec 16, 10) Absolute Returns (in %)
Returns Rank Qtr
Period (%) # Year Qtr 1 Qtr 2 3 Qtr 4 Annual
201
1 mth 1.2 3 0 0.3 1.5 1.4 - -
200
3 mths 2.2 8 9 -9.9 7.2 -1.6 0.3 -3.2
200
6 mths 3.8 4 8 -0.3 -0.9 7.9 35.1 44.8
200
1 year 5.7 9 7 -2 1.9 3.1 4.5 7.7
2 year 3.1 31 200 0.2 0.6 4.7 3.4 9.5
 6
200
3 year 14.6 1 5 0.8 2.3 1.1 1.7 5
5 year 12.1 1
#

Moneycontro
l Rank within
88 Debt -
Long Term
Schemes

BNP Paribas Bond Fund - Regular Plan (G) (Debt Short)

Returns (as on Dec 16, 10) Absolute Returns (in %)
Returns Rank Qtr
Period (%) # Year Qtr 1 Qtr 2 3 Qtr 4 Annual
201
1 mth 0.1 106 0 1.7 1.4 1.4 - -
200
3 mths 1.1 87 9 -9 4.5 -0.6 3.7 -1.6
200
6 mths 2.6 52 8 - - - 15.7 15.7
1 year 7.4 2
2 year 4.6 45
3 year - -
5 year - -
#
Moneycontrol Rank within 118
Debt - Short Term Schemes

JM High Liquidity Fund (G) (Liquid)

Returns (as on Dec 16, 10) Absolute Returns (in %)
Returns Rank Qtr
Period (%) # Year Qtr 1 Qtr 2 3 Qtr 4 Annual
1 mth 0.6 4 201 1 1.1 1.5 - -
 0
200
3 mths 1.7 4 9 1.7 1.3 1 1 5.1
200
6 mths 3.2 5 8 2 2 2.3 2.3 9
200
1 year 5.3 11 7 2 1.8 1.5 1.9 7.4
200
2 year 5.3 14 6 1.2 1.4 1.6 1.8 6.1
200
3 year 6.5 10 5 1.1 1.2 1.2 1.2 4.9
5 year 6.6 10
#
Moneycontrol Rank within 68
Money Market Schemes

Investment in Fixed Income Instruments

Indian Capital Markets comprise of the Equities Market and the Debt Markets.
Debt Markets are markets for the issuance, trading and settlement in fixed income
securities of various types and features. Fixed income securities can be issued by
almost any legal entity like Central and State Governments, Public Bodies, Statutory
corporations, Banks and Institutions and Corporate Bodies.

Fixed Income securities offer one of the most attractive investment

opportunities with regard to safety of investments, adequate liquidity, and flexibility
in structuring a portfolio, easier monitoring, long term reliability and decent returns.
They are an essential component of any portfolio of financial and real assets,
whether in form of pure interest bearing bonds, innovative and varied type of debt
instruments or asset-backed mortgages and securitized instruments.

Fixed income instruments are basically obligations undertaken by the issuer of

the instrument as regards to repayment of interest and principal (At predetermined
intervals of time), which the issuer would pay to the legal owner of the instrument.
Fixed Income instruments are essentially of two types.
 Tradable. E.g. A debenture
 Non-Tradable. E.g. A bank deposit

Central Government Securities

1. Treasury Bills
2. Dated Securities
3. Zero coupon Bonds
4. Partly Paid Stock
5. Floating Rate Bonds
6. Capital Indexed Bonds
7. Coupon Bearing Bonds
8. Govt. with call and put option
9. Strips

State Government Securities

1. State Development Loan
2. Coupon Bearing Bonds

Zero Coupon Yield Curve

Public Sector Bonds

1. Govt. Guaranteed Bonds
2. PSU Bonds
3. Commercial Papers
4. Fixed Income Instruments in India
5. Debentures

Private Sector Bonds

1. Corporate Bonds
2. Corporate Debentures
3. Inter-Corporate Deposits
4. Certificate of Deposits
5. SPN
6. Commercial Papers
7. Floating Interest Rate
8. Zero Coupon Bond
Other Fixed Income Instruments
1. Company fixed Deposits
2. Employee’s Provident Fund
3. Mutual Funds
4. Guilt Funds
5. Bank Fixed Deposits
6. Other Prominent Govt. Schemes
 Public Provident Fund
 National savings Certificates (viii) Issue
 Post Office Monthly Income Scheme
 Post Office Recurring Deposits Scheme
 Post Office Savings Account
 Post Office Time Deposit Schemes
 Kisan Vikas Patra
 RBI Relief Bonds
 Deposit Scheme for Retiring Employees of PSUs
 Deposit Scheme for Retiring Govt. Employees-89
Investment in Fixed Deposit

A fixed deposit account allows you to deposit your money for a set period of
time, thereby earning you a higher rate of interest in return. Fixed Deposits also give
you a higher rate of interest than a savings bank account.
FD’s tend to give a high rate of return during rising interest rate scenario.
However this is safe source of investment but in long run gives lower return than
equity.

Fixed Deposit Maturity Invested Return

Corporation Bank 1 year 150000 8.40*
th
*- Revised Rate (as per the new rates brought out on 13 December 2010)
Investment in Silver & Crude Oil

Investment in Commodity gives the portfolio a wider base to hedge the risk.
Investment can be made:

 Gold
 Silver
 Copper
 Gold ETF
 Crude Oil
 Natural Gas
 Aluminum
 Nickel
 Lead
 Zinc
 Commodity Unit Price per Unit Invested Invested Size
Crude Oil Barrels Rs 4121 49452 12
Silver Kg Rs 43855 50548 1.1526

Investment in silver is better than investing in gold, as silver can be used for
industrial purpose. Also it is less volatile and risky than gold.
Crude Oil prices are going higher and higher, and the prices are expected to
reach 100$ i.e Rs 4500 (assuming 1$ - 45Rs).
If money available was around 10lakhs for commodity, one could also invest
with SBI’s Gold Deposit Scheme (Min 500grams) with a view to earn interest and
save the burden of storage cost of the gold.

Investment in IPO’s

Knowing that the market has always shown:

1. Consistent IPO’s by new entrants
2. Share price rising when launched
It is advisable to keep money aside for such booms. These investments would
give an investor a great chance to make quick money.

But the money that is kept aside should be put into schemes wherein 4 to 5 % can
be made, till the time IPO’s are not introduced.
Conclusion

Following are the hypothetical returns which the portfolio will yield

Type %

Equity 20 – 22
Mutual Fund 20 - 22
Fixed Deposit 8.40
Fixed Income Instrument 7.50
Commodity 16 – 18
IPO’s 8-9

However it is important to note:

1. The portfolio should be reviewed continuously
2. The portfolio has to be diversified
3. The portfolio should have negative correlated scripts
4. Government and Private sector investment would be a safe bet
5. One should be alert to the smallest of changes