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INTRODUCTION
Investing in securities such as shares debentures and bonds is profitable as well as
exciting It is indeed rewarding. But involves a great deal of risk and calls for scientific
knowledge as well as artistic skill. In such investments, both rational as well as emotional
responses are involved. Investing in financial securities is now considered to be one of the best
avenues for investing one¶s savings while it is acknowledged to be one of the most risky
avenues of investment.
It is rare to find investors investing their entire savings in a single security. Instead of
they tend to invest in group of securities. Such a group of securities is called portfolio. Creation
of portfolio helps to reduce risk without sacrificing returns. Portfolio management deals with the
analysis of individual securities as well as with the theory and practice of optimally combining
securities into portfolios. cn investor who under stands the fundamental principles and analytical
aspects of portfolio management has better chance of success. cn investor considering
investment in securities is faced with a problem of choosing from among a large number of
securities. His choice depends upon the risk return characteristics of individual securities. He
would attempt to choose the most desirable securities and like to allocate his funds over this
group of securities. cgain he is faced with the problem of deciding which securities to hold and
how much invest in each. The investor faces an infinite number of possible portfolios or group of
securities. The risk and return nature of portfolio differ from those individual securities
combining from a portfolio. The investor tries to choose the optimal portfolio taking in to
consideration the risk return characteristics of all possible portfolios. cs the economic and
financial environment keeps changing, the risk return characteristics of individual securities as
well as portfolios also change. This calls for periodic review and revision of investment
portfolios of investors.
cn investor invests his funds in a portfolio expecting to get a good return consistent with
the risk that he has to bear. The return realized from the portfolio has to be measured and the
performance of the portfolio has to be evaluated.

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It is evident that rational investment activity involves creation of an investment portfolio.

Portfolio management comprises all the process involved in the creation and maintenance of an
investment portfolio. It deals specially with security analysis , portfolio analysis, portfolio
selection, portfolio revision and portfolio evaluation it also make use of analytical techniques of
analysis and conceptual theories regarding rational allocation of funds. Portfolio management is
a complex process which tries to make investment activity more rewarding and less risky.
c portfolio is a group of securities held together as investment. Investors invest their
funds in a portfolio of securities rather than in a single security because they are risk averse. By
constructing a portfolio, investors attempt to spread risk by not putting all their eggs in to one
basket. Thus diversification of one¶s holdings is intended to reduce risk in investment.
Security analysis provides the investor with a set of worthwhile or desirable securities.
From this set of securities an indefinitely large number of portfolios can be constructed by
choosing different sets of securities and also by varying the portion of investment in each
security. Each individual security has its own risk-return characteristics which can be measured
and expressed quantitatively. Each individual security has its own risk-return characteristics
which can be measured and expressed quantitatively. Each portfolio constructed by combining
the individual securities has its own specific risk and return characteristics which are not just the
aggregate of the individual security characteristics. The return and risk of each portfolio has to be
calculated mathematically and expressed quantitatively.
Portfolio analysis phase of portfolio management consists of identifying the range of
possible portfolios that can be constituted from a given set of securities and calculating their
return and risk for further analysis.
Portfolio analysis provides the input for the next phase in portfolio management which is
portfolio selection. The goal of portfolio construction is to generate a portfolio that provides the
highest returns at a given level of risk. c portfolio having this characteristic is known as an
efficient portfolio. The inputs from portfolio analysis can be used to identify the set of efficient
portfolios. From this efficient set of portfolios, the optimal portfolio has to be selected for
investment.

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STcTING THE PROBLEM

Risk arises where there is possibility of variation between expectations and realization
with regard to an investment. The risk in holding securities such as shares, debentures etc are of
two types. The first group comprises factors that are external to a company that affect large
number of securities simultaneously. Second group includes those factors which are internal to
companies and affect only those particular companies. The study basically aimed to avert those
risks by constructing a suitable portfolio.

OBJECTIVE OF THE STUDY

O‘ To construct a portfolio with minimum risk.
O‘ cscertain the risk-return relationship.
O‘ To ascertain the volatility of shares in the market.
O‘ To identify the top companies in each sector.

IMPORTcNCE OF THE STUDY

O‘ It helps the researcher to construct a diversified portfolio.

O‘ Provide an insight on return and risk analysis.
O‘ The study helps to identify the growth potential of each sector.

SCOPE OF THE STUDY

The goal of portfolio construction is to generate a portfolio that provides the highest
returns at a given level of risk. In a highly volatile market it is very essential to follow an
efficient portfolio in order to avert the risk. The study mainly covers the volatility and risk return
characteristics of shares through various techniques. It has taken six sectors for the study, which
are having high growth potential.
PERIOD OF STUDY

 
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LIMITcTIONS OF THE STUDY

O‘ The company Geojit BNP Paribas Financial Services Ltd is highly centralized in nature
so it was very difficult to get strategic information from the organization.
O‘ Research wing of the company is operating in the head office. So frequent contact with
them was not possible.
O‘ Data were collected only on the basis of NSE trading.

RESEcRCH METHODOLOGY

c research design is the arrangement of condition for collecting and analysis of data in a
manner that aim to combine relevance to the research purpose with economy in procedure. The
research design adopted for the study is descriptive in nature.

For the research top six industries have been taken.

1. cutomotive Industry.
Ñ. Banking Industry.
-. Information Technology industry.
£. Real Estate Industry
 . Telecom Industry.
å. Pharmaceuticals Industry.

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This ratio helps in the assessment of the profitability of a firm from a standard point of
equity share holders. This measures the profit available to the equity share holders.
E.P.S= Net profit available to equity share holders ÷ Number of equity shares issued.
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The price earning ratio expresses the relationship between the market price of a share and the
E.P.S.
P.E. Ratio= Market price per equity share ÷ Earning per share
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Beta value measures the volatility of a share. The systematic risk of a security is measured by
this statistical tool.
Beta = N™XY - ™X.™Y ÷ N™X^Ñ - (™X)^Ñ

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clpha measures, the unsystematic risk of the company. It indicates the extra return
earned by the stock over and above the market return. If alpha is positive, then scrip will have
higher return. If alpha is zero, then return depends on the market return.

clpha = Stock return ± ( Beta * Market return)

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The selection and evaluation of portfolio is on the basis of the Sharpe¶s performance
index. Sharpe¶s performance index gives us a single value to be used for the performance
ranking of various funds or portfolio. When compared to the other ratios for selection shapers
ratio is the only ratio giving importance to risk as well as return. The risk premium is the
difference between the portfolios average rate of return and the risk less rate of return. The
standard deviation of the portfolio indicates the risk. This index assigns the highest value to the
assets ie, portfolio, that have the best risk adjusted rate of return. The formula for calculating the
sharpes performance index is as follows.

Sharpe index = Portfolio return- Risk Free rate ÷ Standard deviation of population

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INDUSTRY PROFILE
c stock market or equity market is a private or public market for the trading of company stock
and derivatives of company stock at an agreed price; these are securities listed on a stock
exchange as well as those only traded privately.
The cmsterdam Stock exchange or cmsterdam Beurs is also said to have been the first stock
exchange to introduce continuous trade in the early 1üth century. The size of the stock market is
estimated about $ 1 trillion. The world derivatives market has been estimated at about $£
trillion face or nominal value, - times the size of the U.S. economy, and 1Ñ times the size of the
entire world economy. It must be noted though that the value of the derivatives market, because
it is stated in terms of notional values, and cannot be directly compared to a stock or fixed
income security, which traditionally refers to an actual value. Many such relatively illiquid
securities are valued as marked to model, rather than actual market price.
The stocks are listed and traded on stock exchanges which are entities a corporation or
mutual organization specialized in the business of bringing buyers and sellers of stocks and
securities together. The stock market in the United States includes the trading of all securities
listed on the NYSE, the NcSDc
, the cmex, as well as on the many regional exchanges,
e.g.OTCBB and Pink Sheets. Europian examples of stock exchanges include the London
stockexcange, the Deutsche Borse and the Paris Bourse, now part of Euronext.
The National Stock exchange of India Limited (NSE), is a Mumbai-Based stock exchange. It
is the largest stock exchange in India and the third largest in the world in terms of volume of
transactions. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange
are the two most significant stock exchanges in India, and between them are irresponsible for the
vast majority of share transactions.
NSE is mutually- owned by a set of leading financial institutions, banks, insurance
companies and other financial intermediaries in India but its ownership and management operate

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as separate entities. cs of Ñ å, the NSE VScT terminals, Ñüÿÿ in total, cover more than 1 
cities across India. In October Ñ ü, the equity market capitalization of the companies listed on
the NSE was US$ 1.£å trillion, making it the second largest stock exchange in South csia. NSE
is the third largest Stock Exchange in the world in terms of the number of traders in equities. It is
the second fastest growing stock exchange in the world with a recorded growth of 1å.å.
The Bombay Stock Exchange Limited is the oldest stock exchange in csia. It is also the
biggest stock exchange in the world in terms of listed companies with £, listed companies as
of cugust Ñ ü. It is located at Dalal Street, Mumbai, India. In October Ñ ü, the equity market
capitalization of companies listed on the BSE was US$ 1.å1 trillion, making it the largest stock
exchange in South csia and the tenth largest in the world.
The Bombay Stock Exchange was established in 1ü . cround £, Indian companies list
on the stock exchange, and it has a significant trading volume. The BSE SENSEX (SENSitive
indEX) , also called the ³BSE - , is a widely used market index in India and csia. Though
many other exchange exist, BSE and the National Stock Exchange of India account for most of
the trading in shares in India.

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COMPcNY PROFILE

It all started in the year 1ÿü when Mr. C.J. George and Mr. Ranajit Kanjilal founded Geojit as a
partnership firm. In 1ÿÿ-, Mr.Ranajit Kanjilal retired from the firm and Geojit became the
proprietary concern of Mr. C .J. George. In 1ÿÿ£, it became a Public Limited Company named
Geojit Securities Ltd. The Kerala State Industrial Development Corporation Ltd. (KSIDC), in
1ÿÿ , became a co-promoter of Geojit by acquiring a Ñ£ percent stake in the company, the only
instance in India of a government entity participating in the equity of a stock broking company.
The year 1ÿÿ  also saw Geojit being listed on the leading regional stock exchanges. Geojit listed
at The Stock Exchange, Mumbai (BSE) in the year Ñ . Company¶s wholly owned subsidiary,
Geojit Commodities Limited, launched Online Futures Trading in agri-commodities, precious
metals and energy futures on multiple commodity exchanges in Ñ -. This was also the year
when the company was renamed as Geojit Financial Services Ltd. (GFSL). The Board consists of
professional directors; including a Kerala Government nominee. With effect from July Ñ  , the
company is also listed at The National Stock Exchange (NSE). Company is a charter member of
the Financial Planning Standards Board of India and is one of the largest Depository
Participant(DP) brokers in the country.

On -1st December Ñ ü, the company closed its commodities business and surrendered
its membership in the various commodity exchanges held by Geojit Commodities Ltd. Global
banking major BNP Paribas took a stake in the year Ñ ü to become the single largest
shareholder. Consequently, Geojit Financial Services Limited has been renamed as Geojit BNP
Paribas Financial Services Ltd.

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Geojit BNP Paribas today is a leading retail financial services company in India with a
growing presence in the Middle East. The company rides on its rich experience in the capital
market to offer its clients a wide portfolio of savings and investment solutions. The gamut of
value-added products and services offered ranges from equities and derivatives to Mutual Funds,
Life & General Insurance and third party Fixed Deposits. The needs of over £å clients are
met via multichannel services - a countrywide network of   offices, phone service, dedicated
Customer Care centre and the Internet.

Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange
(NSE) and the Bombay Stock Exchange (BSE). In Ñ ü, global banking major BNP Paribas
joined the company¶s other major shareholders - Mr. C.J.George, KSIDC (Kerala State Industrial
Development Corporation) and Mr.Rakesh Jhunjhunwala ± when it took a stake to become the
single largest shareholder.

ct the forefront of the many fruitful associations between Geojit BNP Paribas and BNP
Paribas is their joint venture, namely, BNP Paribas Securities India Private Limited. This JV was
created exclusively for domestic and foreign institutional clients. cn industry first was achieved
when Geojit BNP Paribas became the first broker in India to offer full Direct Market
cccess(DMc) on NSE to the JV¶s institutional clients.

c strong brand identity and extensive industry knowledge coupled with BNP Paribas¶
international expertise gives Geojit BNP Paribas a competitive advantage.

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Geojit BNP Paribas has proven expertise in providing online services. In the year Ñ ,
the company was the first stock broker in the country to offer Internet Trading. This was
followed by integrating the first Bank Payment Gateway in the country for Internet Trading, and
many other industry firsts. Riding on this experience, and harnessing BNP Paribas Personal
Investors¶ expertise as the leading online broker in Europe, is helping the company to rapidly
expand its business in this segment. Presently, clients can trade online in equities, derivatives,
currency futures, mutual funds and IPOs, and select from multiple bank payment gateways for
online transfer of funds. Strategic BÑB agreements with cxis Bank and Federal Bank enables the
respective bank¶s clients to open integrated --in-1 accounts to seamlessly trade via a
sophisticated Online Trading platform.

Further, deployment of BNP Paribas¶ state-of-the-art globally accepted systems and

processes is already scaling up the sales of Mutual Funds and Insurance.

7    ' 

  
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Certified financial advisors help clients to arrive at the right financial solution to meet
their individual needs. The wide range of products and services on offer includes -
Equities, Derivatives, Currency Futures, Custody cccounts, Mutual Funds, Life Insurance &
General Insurance, IPOs, Portfolio Management Services, Property Services, Margin Funding,
Loans against Shares

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With a presence in almost all the major states of India, the network of   offices across
- cities and towns presently covers cndhra Pradesh, Bihar, Chattisgarh, Goa, Gujarat,
Haryana, Jammu & Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, New Delhi,
Orissa, Punjab, Rajasthan,Tamil Nadu & Pondicherry, Uttar Pradesh, Uttarakhand and West
Bengal.

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McNcGING DIRECTORS OF THE COMPcNY

Mr. Satish Menon Director (Operations)

Mr. c. Balakrishnan Chief Technology Officer
Mr. K. Venkitesh National Head - Distribution
Mr. Stefan Groening Director (Planning and Control)
Mr. Jean-Christophe G Director (Marketing)
Mr. Binoy .V.Samuel Chief Financial Officer
Mrs. Jaya Jacob clexander Chief of Human Resources

Name Designation
Mr. c. P. Kurian Non - Executive & Independent Chairman
Mr. C. J. George Managing Director & Chief Promoter
Mr. Manoj Joshi Non - Executive & Independent Director
Mr. Mahesh Vyas Non - Executive & Independent Director
Mr. Rakesh Jhunjhunwala Non - Executive Director)
Mr. Ramanathan Bupathy Non - Executive & Independent Director
Mr. Punnoose George Non - Executive Director
Mr. Olivier Le Grand Non - Executive Director
Mr. Pierre Rousseau Non - Executive Director

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PORTFOLIO McNcGEMENT
Individual securities have risk return characteristics of their own. The future return
expected from a security is variable and this variability of returns is termed risk. It is rare to find
investors investing their entire wealth in a single security. This is because most investors have an
aversion to risk. It is hoped that if money is invested in several securities simultaneously, the loss
in one will be compensated by the gain in others. Thus, holding more than one security at a time
is an attempt to spread and minimize risk by not putting all our eggs in one basket.

Most investors thus tend to invest in a group of securities rather than a single security.
Such a group of securities held together as an investment is what is known as a portfolio. The
process of creating such a portfolio is called diversification. It is an attempt to spread and
minimize the risk in investment. This is sought to be achieved by holding different types of
securities across different industry groups.
From a given set of securities, any number of portfolios can be constructed. c rational
investor attempts to find the most efficient of these portfolios. The efficiency of each portfolio
can be evaluated on in terms of the expected return and risk of the portfolio as such. Thus,
determining the expected return and risk of different portfolios is a primary step in portfolio
management. This step is designated as portfolio analysis.

EXPECTED RETURN OF c PORTFOLIO

cs a first step in portfolio analysis, an investor needs to specify the list of securities
eligible for selection or inclusion in the portfolio. Next he has to generate the risk-return
expectations for these securities. These are typically expressed as the expected rate of return
(mean) and the variance or standard deviation of the return.

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The expected return of a portfolio of assets is simply the weighted average of the return of the
individual securities held in the portfolio. The weight applied to reach return is the fraction of the
portfolio invested in that security.

RISK OF c PORTFOLIO
The variable of return and standard deviation of return are alternative statistical measures
that are used for measuring risk in investment. These statistics measure the extent to which
returns are expected to vary around an average overtime. The calculation of variance of a
portfolio is a little more difficult than determining its expected return. The variance or standard
deviation of an individual security measures the risk ness of a security in absolute sense. For
calculating the risk of a portfolio of securities, the risk ness of each security within the context of
the overall portfolio has to be considered. This depends on their interactive risk, i.e. how the
returns of a security move with the returns of other securities in the portfolio and contribute to
the overall risk of the portfolio.

Covariance is the statistical measure that indicates the interactive risk of a security
relative to others in a portfolio of securities. In other words, the way security returns vary with
each other affects the overall risk of the portfolio.

REDUCTION OF PORTFOLIO RISK THROUGH DIVERSIFICcTION

The process of combining securities in a portfolio is known as diversification. The aim of

diversification is to reduce total risk without sacrificing portfolio return. In the example
considered above, diversification has helped to reduce risk. The portfolio standard deviation of
1ü- ÿ is lower than the standard deviation of either of the two securities taken separately, which
were   and - respectively.

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To understand the mechanism and power of diversification, it is necessary to consider the impact
of covariance or correlation on portfolio risk more closely. We shall examine three cases: (a)
when security returns are perfectly positively correlated, (b) when security returns are perfectly
negatively correlated, and (c) when security returns are not correlated.

PORTFOLIOS WITH MORE THcN TWO SECURITIES.

So far we have considered a portfolio with only two securities. The benefits for
diversification increase as more and more securities with less than perfectly positively correlated
returns are included in the portfolio. cs the number of securities added to a portfolio increases,
the standard deviation of the portfolio becomes smaller and smaller. Hence, an investor can
make the portfolio risk arbitrarily small by including a large number of securities with negative
or zero correlation in the portfolio.
But, in reality, no securities show negative or even zero correlation. Typically, securities
show some positive correlation that is above zero but less than the perfectly positive value (+ 1).
cs a result, diversification (that is, adding securities to a portfolio) results in some reduction in
total portfolio risk but not in complete elimination of risk. Moreover, the effects of
diversification are exhausted fairly rapidly. That is, most of the reduction in portfolio standard
deviation occurs by the time the portfolio size increases to Ñ  or - securities. cdding securities
beyond this size bring about only marginal reduction in portfolio standard deviation.
cdding securities to a portfolio reduces risk because securities are not perfectly positively
correlated. But the effects of diversification are exhausted rapidly because the securities are still
positively correlated to each other though not perfectly correlated. Had they been negatively
correlated, the portfolio risk would have continued to decline as portfolio size increased. Thus,
in practice, the benefits of diversification are limited.
The total risk of an individual security comprises two components; the market related risk
called

!  

and the unique risk of that particulars security called 

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By combining securities into a portfolio the unsystematic risk specific to different securities is

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cancelled out. Consequently, the risk of the portfolio as a whole is reduced as the size of the
portfolio increases. Ultimately when the size of the portfolio reaches a certain limit, it will
contain only the systematic risk of securities included in the portfolio. The systematic risk,
however, cannot be eliminated. Thus, a fairly large portfolio has only systematic risk and has
relatively little unsystematic risk. That is why there is no gain in adding securities to a portfolio
beyond a certain portfolio size.

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No. COMPcNY NcME E.P.S. P.E/ RcTIO
1 Hero Honda motors ltd å£.Ñ ÑÑ.
Ñ Maruthi Suzuki £Ñ.Ñ Ñ .1
- Tata Motors 1 .ü -1.
£ Mahindra & mahindra - . ÑÑ.å
  cshok Layland 1.  Ñ1.Ñ

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No. COMPcNY NcME E.P.S. P.E/ RcTIO

1 cxis bank ltd £.ÿ 1å.ü
Ñ H.D.F.C.   .ÿ Ñÿ.£
- ICICI bank -Ñ.- Ñ-.£
£ Bank of Boroda  ÿ.Ñ ü.£
  Union bank --.Ñ ü.

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No. COMPcNY NcME E.P.S. P.E/ RcTIO

1 Infosys technologies ltd ÿü.å 1.ü
Ñ Tata consultancy services ltd ÑÑ.  1ü.å
- Mphasis ltd Ñ1.1 1ÿ.£
£ Wipro Ñ .- 1.ÿ
  Tech Mahindra ltd 1. ÿ.1

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No. COMPcNY NcME E.P.S. P.E/ RcTIO
1 H.D.I.L. - .1 .£
Ñ GMR Infrastructures ltd 1£.ÿ 1-.ü
- Parsvnath developers å.1 1-.ü
£ Unitech -.å ÑÑ.ÿ
  DLF ltd ÿ.1 -.

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No. COMPcNY NcME E.P.S. P.E/ RcTIO

1 Bharti cirtel £ . 1ÿ.
Ñ Tata Teliservices (Maharashtra) ltd . .
- Reliance(R.com) ÿ.  -Ñ.ÿ
£ Idea Cellullar -.- Ñ£.1
  Tata Communications ltd 11.ü £ .£

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No. COMPcNY NcME E.P.S. P.E/ RcTIO
1 Glenmark Pharmaceuticals ltd 11.£Ñ Ñ .-1
Ñ Lupin ltd   .1 1å.
- Cipla ltd ÿ.ÿ Ñå.£
£ Wockhardt ltd -.üü -ü.åÿ
  Glaxo Smithline Pharma ltd  £. Ñ ÑÑ.1

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Sl.No Company Name Beta Value Market Capitalization

(Rs. Cr.)
1 Hero Honda Motors ltd .£ ÑÑ1 .å1
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- Tata Motors 1.1å 1ü  1.Ñÿ
£ Mahindra & Mahindra 1. å 1ÿ££ü.ü
  cshok Layland .Ñ £Ñ- .- 

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In this cutomotive Industry Maruthi Suzuki India show less volatility and high market
capitalization when compared to the other companies in the same industry. So Maruthi Suzuki
India is selected for he portfolio construction.

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Sl. No. Company name Beta Value Market Capitalization

(Rs. Cr.)

1 cxis bank ltd 1. Ñÿ£££. å

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- ICICI Bank ltd 1.å -ÿ-.Ñÿ

£ Bank Of Baroda .ü 1 ÿ£.åÿ

  Union Bank of India .üÿ 11ü å.1å

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In This banking industry HDFC bank shows the average volatility and high market capitalization
when compared to the other companies in the same industry. So HDFC bank is selected for the
port folio construction.

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CHcRT SHOWING McRKET CcPITcLIZcTION OF BcNKING INDUSTRY

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Sl. No. Company Name Beta Value Market Capitalization

(Rs. Cr.)

. 

 
 +%@+ .+&1/,%,+

Ñ Tata Consultancy services ltd .ÿ üüå1.Ñü

- Mphasis ltd .åü  £ .ÿÑ

£ Wipro ltd .ÿ£  åÑÑü.£

  Tech Mahindra ltd .ÿÑ ÿ .å-

Interpretation

In this information technology industry Infosys technologies ltd shows the less volatility
and high market capitalization when compared to the other companies in the same industry. So
Infosys technologies ltd is selected for the portfolio construction.

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Sl. No. Company Name Beta Value Market Capitalization

(Rs. Cr.)

1 H.D.I.L 1.£ åÿ£ .1

Ñ GMR Infrastructure ltd 1.Ñ  Ñ  ü . 

- ParsvnathDevelopers 1.-- 1 £ü.üÿ

£ Unitech 1.åü 1å-å.  

0 (  .%00 00*0*%/0

Interpretation
In this real estate industry DLF ltd shows the average volatility and high market
capitalization when compared to the other companies in the same industry. So DLF ltd is
selected for the portfolio construction .

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Sl.No Company Name Beta Value Market Capitalization

(Rs.Cr.)

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Ñ Tata Teleservices (Maharashtra) ltd 1.Ñ  ü- £.ÑÑ

- Reliance 1.£ÿ 壣£ÿ. Ñ

£ Idea Cellular 1.11 ѣ壠.üÑ

  Tata communications 1.   1-£ü.å-

Interpretation

In this telecom industry Bharti cirtel ltd shows the less volatility and high market
capitalization when compared to the other companies in the same industry. So Bharti cirtel is
selected for the portfolio construction.

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Sl. No. Company Name Beta Value Market Capitalization

(Rs.Cr.)

1 Glenmark Pharmaceuticals ltd .üü  Ñ1.åÑ

Ñ Lupin ltd .£Ñ ü 1Ñ.ü

/  '  +%0+ *+/+,%0&

£ Wockhardt ltd .åå 1  .£-

  Glaxo Smithline Pharma ltd . ü 1 £- .ÿ

Interpretation

In this pharmaceuticals industry Cipla ltd shows the average volatility and high market
capitalization when compared to the other companies in the same industry. So Cipla ltd is
selected for the portfolio construction.

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Sl. No. Company Name Beta Market Capitalization

1 Maruthi Suzuki India ltd .åÿ -  ÿ .1

Ñ HDFC Bank ltd 1. å-üå.-å

- Infosys Technologies ltd .ü 1 £å-ÿ.ÿ

£ DLF ltd 1.     Ñ Ñ.- 

  Bharti cirtel ltd .ÿ- 1 -åü. 

å Cipla ltd .  Ñ - ÿ. £

 '   

cmong those companies selected for the port folio construction DLF LTD shows the
high beta value and Cipla ltd shows the low beta value. On the basis of market capitalization
Bharti cirtel ranks first and Infosys Technologies ltd holds the second position. Most of the
companies selected for the portfolio are top companies in each industry.

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clpha measures, the unsystematic risk of the company. It indicates the extra return earned by the
stock over and above the market return. If alpha is positive, then scrip will have higher return. If
alpha is zero, then return depends on the market return.

clpha = Stock return ± ( Beta * Market return)

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Sl. No. Company Name clpha

1 Maruthi Suzuki India ltd - .1Ñ- 

Ñ HDFC bank ltd .£

- Infosys Technologies ltd - .£- 

£ DLF ltd .ÑåüÑ

  Bharti cirtel ltd .ÿ£  

å Cipla ltd . £ 

 '   

On the basis of the alpha value only two companies ie, Maruthi Suzuki India ltd and Infosys
Technologies ltd have the negative value. It shows that those two companies earning below the
market return but all other companies shows the positive alpha value that means those companies
have return higher than the market. Over all the major part of the portfolio securities have the
more return than the market return.

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Sl.No. Company Name Beta ^Ñ Unsystematic Systematic Risk

Risk

1 Maruthi Suzuki India ltd .£üå1 å.£  1.-1 

Ñ HDFC bank ltd 1. ÿ.å  Ñ.ü 

- Infosys Technologies ltd .£ÿ  .£- 1.£11-

£ DLF ltd Ñ.£ Ñ  1Ñ. £  1 . -

  Bharti airtel ltd .å£ÿ  .Ñü   .å£

å Cipla ltd .Ñ  -.ü  1.Ñ 

 '   
From the above table it is clear that DLF ltd has the maximum systematic risk and
unsystematic risk. The minimum systematic risk and unsystematic risk is to Cipla ltd.

£ 
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Portfolio construction and selection is done by adopting the following format:

1.‘ Five securities namely,Maruthi Suzuki India ltd,HDFC bank, Infosys technologies
ltd,DLF ltd,Bharti cirtel and Cipla ltd are grouped together to form a portfolio.
Ñ.‘ Constructed four different portfolio by changing the weight of each for the purpose of
fund allocation.
-.‘ cpply the Sharp Index to each of the portfolio
£.‘ Select that portfolio which has the highest Sharp

£å
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V‘ By giving equal weight to each security in the portfolio

V‘ By giving weight to each security based on P/E Ratio.
V‘ By giving weight to each security based on E.P.S.
V‘ By giving weight to each security on the basis of risk adjusted rate of return.

   . (By giving equal weight to each security in the portfolio)

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Sl. No. Company Name Beta Weight Weight * Beta

1 Maruthi Suzuki India ltd .åÿ .1åå .11£ 

Ñ HDFC bank ltd 1. .1åå .1åå

- Infosys technologies ltd .ü .1åå .11åÑ

£ DLF ltd 1.   .1åå .Ñ ü-

  Bharti cirtel .ÿ- .1åå . .1 ££

å Cipla ltd .  .1åå . -

Total 1 .ÿ1£

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Sl. No. Company Name clpha Weight Weight * clpha

1 Maruthi Suzuki India ltd - .1Ñ-  .1åå - .Ñ  

Ñ HDFC bank ltd .£ .1åå .1-ÿ£

- Infosys technologies ltd - .£-  .1åå - . üÑÑ
£ DLF ltd .ÑåüÑ .1åå . ££-

  Bharti cirtel .ÿ£   .1åå .1 å1

å Cipla ltd . £  .1åå . ÿ  

Total 1 .1 -1

TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO UNSYSTEMcTIC

RISK
No Company Name Unsystematic Weight Weight^Ñ*
Risk Unsystematic
Risk

1 Maruthi Suzuki India ltd å.£  .1åå .1üå 

Ñ HDFC bank ltd ÿ.å  .1åå .Ñ壠
- Infosys technologies ltd  .£- .1åå .1  ü
£ DLF ltd 1Ñ. £  .1åå .-£å
  Bharti cirtel  .Ñü  .1åå .1£ 
å Cipla ltd -.ü  .1åå .1 £

£
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Portfolio return = Portfolio alpha + (portfolio beta * Market return)

= .1 -1+ ( .ÿ1£ * -1. )
= Ñ.Ñ-ÑÑ

Portfolio risk = Systematic risk + Unsystematic risk

= ( Beta ^Ñ*Market Variance)+Unsystematic risk
= .üÿ£å*å.  å+1.1ü 
= å.-ÿåÿ

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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO WEIGHT

No. Company name P/E ratio Weight

1 Maruthi Suzuki India ltd ÑÑ.1 .1£Ñ£

Ñ HDFC bank ltd Ñÿ.£ .1ÿ£

- Infosys technologies ltd 1.ü .1Ñ £

£ DLF ltd -. .Ñ 

  Bharti cirtel ltd 1ÿ. .1Ñü 

å Cipla ltd Ñå.£ .1ü 1

Total 1  .Ñ 1

 
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO BETc

No. Company name Beta Weight Weight* Beta

1 Maruthi Suzuki India ltd .åÿ .1£Ñ£ . ÿ-

Ñ HDFC ltd 1. .1ÿ£ .1ÿ£

- Infosys technologies ltd .ü .1Ñ £ . £Ñ

£ DLF ltd 1.   .Ñ  .-ü 

  Bharti cirtel .ÿ- .1Ñü  .11å

å Cipla ltd .  .1ü 1 .  

Total .ÿå-

 1
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO cLPHc

No Company Name clpha Weight Weight *

clpha

1 Maruthio Suzuki India - .1Ñ-  .1£Ñ£ - .1ü 

ltd

Ñ HDFC bank ltd .£ .1ÿ£ .1 ÿ

- Infosys technologies ltd - .£-  .1Ñ £ - .  Ñ-

£ DLF ltd .ÑåüÑ .Ñ  . åå

  Bharti cirtel ltd .ÿ£   .1Ñü  .11ÿÿ

å Cipla ltd . £  .1ü 1 . ÿÑü

Total 1 .Ñ1 -

 Ñ
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO UNSYSTEMcTIC

RISK

No. Company Name Unsystematic weight Weight^Ñ*Unsystematic

Risk risk

1 Maruthio Suzuki India å.£  .1£Ñ£ .1Ñÿÿ

ltd

Ñ HDFC bank ltd ÿ.å  .1ÿ£ .-£££

- Infosys technologies ltd  .£- .1Ñ £ . üÿ£

£ DLF ltd 1Ñ. £  .Ñ  .üå 

  Bharti cirtel ltd  .Ñü  .1Ñü  .  å

å Cipla ltd -.ü  .1ü 1 .1 ÿ 

Total 1 1. - -

 -
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Portfolio return = Portfolio alpha+ (portfolio beta*Market return)

= .Ñ1 -+( .ÿå- *-1. )
=- . £

Portfolio risk = Systematic risk + Unsystematic risk

= (beta^Ñ*Market variance) + Unsystematicrisk
= .ÿÑü-*å.  å+1. - -
= ü.å1 1

 £
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Portfolio - (By giving weight to each security based on E.P.S)

TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO WEIGHT

No. Company Name E.P.S. Weight

1 Maruthi Suzuki India ltd £Ñ.Ñ .1å£

Ñ HDFC bank ltd   .ÿ .Ñ -Ñ

- Infosys technologies ltd ÿü.å .-ÿå

£ DLF ltd ÿ.1 . -å-

  Bharti cirtel ltd £ . .1åÑ

å Cipla ltd ÿ.ÿ . -ÿ 

Total Ñ  .  1

  
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO BETc

No. Company Name Beta Weight Weight*Beta

1 Maruthi Suzuki India ltd .åÿ .1å£ .11å1

Ñ HDFC bank ltd 1. .Ñ -Ñ .Ñ -Ñ

- Infosys technologies ltd .ü .-ÿå .ÑüÑü

£ DLF ltd 1.   . -å- .  å-

  Bharti cirtel ltd .ÿ- .1åÑ .1 1£

å Cipla ltd .  . -ÿ  . 1ÿ

Total 1 .1ÿ 

 å
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO cLPHc

No. Company Name clpha weight Weight*clpha

1 Maruthi Suzuki India ltd - .1Ñ-  .1å£ - . Ñ 

Ñ HDFC bank ltd .£ .Ñ -Ñ .1ü å

- Infosys technologies ltd - .£-  .-ÿå - .1åÿ 

£ DLF ltd .ÑåüÑ . -å- . ÿü

  Bharti cirtel ltd .ÿ£   .1åÑ .1 -1

å Cipla ltd . £  . -ÿ  . Ñ1 

Total 1 .1å£å

 ü
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO UNSYSTEMcTIC

RISK

No. Company Name Unsystematic Weight Weight^Ñ*Unsystematic

Risk Risk

1 Maruthi Suzuki India å.£  .1å£ .11ü

ltd

Ñ HDFC bank ltd ÿ.å  .Ñ -Ñ .-ÿå£

- Infosys technologies  .£- .-ÿå .-Ñ-

ltd

£ DLF ltd 1Ñ. £  . -å- . 1åå

  Bharti cirtel ltd  .Ñü  .1åÑ .1-ÿ

å Cipla ltd -.ü  . -ÿ  .  ÿ

Total 1 1. üÑü

 
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Portfolio return = Portfolio alpha+ (portfolio beta*Market return)

= .1å£å + ( .1ÿ *-1. )
= Ñ .ÿ

Portfolio risk = Systematic risk + Unsystematic risk

= (beta^Ñ*Market variance) + Unsystematicrisk

= ( .åü1å*å.  å)+1. üÑü
=  .ÿü  

 ÿ
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Portfolio £ (By giving weight to each security on the basis of risk adjusted rate of
return)

TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO WEIGHT

No. Company name Return S.D. Risk Ri ± Rf Weight

(Ri) Free S.D.
Rate
(Rf)

1 Maruthi Suzuki -Ñ. 1Ñ Ñ.üü å.ü  -1.1ÿÿ  1.Ñå

India ltd

Ñ HDFC bank ltd 1-.1åÑ -. 111 å.ü  . Ñ 1 - .  

- Infosys -1£.ü- Ñ.åÑ å å.ü  --.11 ÿ -.--ü

Technologies ltd

£ DLF ltd Ñ.åü £. å å.ü  .ÿ£  -1. 1å

  Bharti cirtel ltd -£.壣 -.- -£ å.ü  -1. ££1 1.11 

å Cipla ltd Ñ1.üå Ñ.Ñ Ñÿ å.ü  Ñ.ÿ ü£ --.1å

- .ÿ--  1

å
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO BETc

No. Company Name Beta Weight Weight*Beta

1 Maruthi Suzuki India ltd .åÿ 1.Ñå .ü

Ñ HDFC bank ltd 1. - .   - .  

- Infosys Technologies ltd .ü -.--ü Ñ.-- ÿ

£ DLF ltd 1.   -1. 1å -1. ü£

  Bharti cirtel ltd .ÿ- 1.11  1. £ Ñ

å Cipla ltd .  --.1å -1. £

Total .  £-

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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO cLPHc

No. Company Name clpha Weight Weight*clpha

1 Maruthi Suzuki India ltd - .1Ñ-  1.Ñå - .1 

Ñ HDFC bank ltd .£ - .   - .£åÑ

- Infosys Technologies ltd - .£-  -.--ü -1.£ 1å

£ DLF ltd .ÑåüÑ -1. 1å - .Ñü1 

  Bharti cirtel ltd .ÿ£   1.11  1.  1ÿ

å Cipla ltd . £  --.1å -1.üÑåå

Total -1. åü

åÑ
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TcBLE SHOWING THE CcLCULcTION OF PORTFOLIO UNSYSTEMcTIC

RISK

No. Company Name Unsystematic Weight Weight^Ñ*

Risk Unsystematic
risk

1 Maruthi Suzuki India ltd å.£  1.Ñå 1 . ÿü 

Ñ HDFC bank ltd ÿ.å  - .   - .Ñ £

- Infosys Technologies ltd  .£- -.--ü 1.Ñÿå

£ DLF ltd 1Ñ. £  -1. 1å -1Ñ.ÿÿ £

  Bharti cirtel ltd  .Ñü  1.11   .ÿ

å Cipla ltd -.ü  --.1å -11.ÿÿ 

Total £. -Ñü

å-
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MEcSURING PORTFOLIO RISK cND RETURN

Portfolio return = Portfolio alpha+ (portfolio beta*Market return)

= -1. åü + ( .  £-*-1. )
= 1 .ÿ- 

Portfolio risk = Systematic risk + Unsystematic risk

= (beta^Ñ*Market variance) + Unsystematicrisk
=( .- üÑ*å.  å)+£. -Ñü
=å. £åü

PORTFOLIO EVcLUcTION cND SELECTION

The selection and evaluation is on the basis of the Sharpe¶s performance index. Sharpe¶s
performance index gives us a single value to be used for the performance ranking of various
funds or portfolio. When compared to the other ratios for selection shapers ratio is the only ratio
giving importance to risk as well as return. The risk premium is the difference between the
portfolios average rate of return and the risk less rate of return. The standard deviation of the
portfolio indicates the risk . This index assigns the highest value to the assets ie, portfolio ,that
have the best risk adjusted rate of return . The formula for calculating the sharpes performance
index is as follows.

Sharpe index = Portfolio return- Risk Free rate ÷ Standard deviation of population

å£
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TcBLE SHOWING THE CcLCULcTION OF THE SHcRPE¶S

PERFORMcNCE RcTIO
Portfolio Return Risk Total S.D. Ri ± Rf Rank
Free Risk S.D
Rate

1 Ñ.Ñ- å.ü  å.-ÿåÿ .å £ - . å II

Ñ - . £ å.ü  ü.å1 1 .å £ -ÿ.-ÿ I

- Ñ .ÿ å.ü   .ÿü   .å £ -1.- III

£ 1 .ÿ å.ü  å. £åü .å £ 1 .1- IV

Interpretation

On the basis of Sharpe¶s performance ratio portfolio-Ñ is selected as the best alternative among
the four portfolios this indicates that the performance of the second portfolio is superior as
compared with other portfolios. Therefore, the portfolio-Ñ is selected.

å 
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CHcRT SHOWING THE BEST PORTFOLIO USING SHcRPE¶S

PERFORMcNCE INDEX


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1. cmong those companies selected for the port folio construction DLF LTD shows the high
beta value and Cipla ltd shows the low beta value. On the basis of market capitalization Bharti
cirtel ranks first and Infosys Technologies ltd holds the second position. Most of the companies
selected for the portfolio are top companies in each industries.

Ñ. On the basis of the alpha value only two companies ie, Maruthi Suzuki India ltd and Infosys
Technologies ltd have the negative value. It shows that those two companies earning below the
market return but all other companies shows the positive alpha value that means those companies
have return higher than the market. Over all the major part of the portfolio securities have the
more return than the market return.

-. DLF ltd has the maximum systematic risk and unsystematic risk. The minimum systematic
risk and unsystematic risk is to Cipla ltd.

£. We can reduce the risk by selecting a suitable portfolio, we can¶t avid the risk fully.
 . c share having high beta value shows its high volatility. Similarly a share having low beta
value shows low volatility.

å. The trader can effectively use the strategy for return enhancement provided he has the correct
market information.
ü. It has been found that all the strategies applied on historical data of the period of the study
were able to reduce the loss that rose from price risk substantially.

åü
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1. cn investor should always prefer a diversified portfolio, through this he can compensate the
loss incurred in one sector by the profit gained in from another sector.

Ñ. If there are two portfolios with the same expected return, the investor would prefer the one
with the lower risk.

-. If there are two portfolios with the same risk, the investor would prefer the one with the higher
expected return.

£. cn unscientific investment always ends in loss. So be aware of the market fluctuations and
respond accordingly.

 . Investor should also consider his risk free return like treasury bills etc.

å. Most of the investors are not aware of the trends in market. So the broking institutions should
come forward and give valuable advice to them regarding the matter of investment.

å
Member sree narayana pillai institute of management and technology
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The objective of constructing a portfolio and revising it periodically is to earn maximum

returns with minimum risk. The portfolio can ensure a high return with a minimum risk. But the
investor has to constantly monitor the portfolio to ensure that it continues to be optimal. cs the
economy and financial markets are dynamic, the changes take place almost daily. cs time
passes, securities which were once attractive may cease to be so. New securities with promises of
high returns and low risk may emerge. The investor now has to revise the portfolio in the light of
the developments in the market. The portfolio developed through this research can ensure
maximum return with the present economic conditions.

åÿ
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1. Kevin.S, Security cnalysis & Portfolio Management, PHI Learning private Limited, New
Delhi, Ñ å
Ñ. Gorden.E & Natarajan.K, Financial market & Services, Himalaya Publishing House, Mumbai,
Ñ -
-. Dr.K.G.C.Nair & Dr.Jayan, Higher cccounting, Chand Publications, Trivandrum, Ñ -
£. Potti.L.R,
uantitative techniques, Yamuna Publications, Thiruvananthapuram, Ñ  
 . Potti. L.R, Research Methodology, Yamuna publications, Thiruvananthapuram, Ñ ü

7?


1.www.nseindia.com
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