R.K.D.F.

SCHOOL OF ENGINEERING INDORE

MAJOR RESEARCH PROJECT Revised synopsis on

A COMPARATIVE ANALYSIS OF RISK AND RETURN ON EQUITY WITH SPECIAL REFERENCE TO INFOTECH AND WIPRO
For the partial fulfillment of the requirement of degree of

Master of Business Administration Session- 2009-2011

GUIDED BYRASHMI DUBEY

SUBMITED BYRAJESH LODHI

TABLE OF CONTENTS
1. INTRODUCTION 2. LITERATURE REVIEW 3. RATIONALE OF THE STUDY 4. OBJECTIVES OF THE STUDY 5. RESEARCH METHODOLOGY  THE STUDY  TOOLS FOR THE DATA COLLECTION  TOOLS FOR THE DATA ANALYSIS

6. REFRENCES

INTRODUCTION

A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties.Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere to gain satisfactory return where the risk factors also present.

Equity Capital stock (or just stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in quantity and value. In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, At the start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business.

Return on Equity Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are considered desirable

Risk on equity Equity risk is the risk that one's investments will depreciate because of stock market dynamics causing one to lose money. The measure of risk used in the equity markets is typically the standard deviation of a security's price over a number of periods. The standard deviation will delineate the normal fluctuations one can expect in that particular security above and below the mean, or average. However, since most investors would not consider fluctuations above the average return as "risk", some economists prefer other means of measuring it. WIPRO Wipro IT Business, a division of Wipro Limited (NYSE:WIT), is amongst the largest global IT services, BPO and Product Engineering companies. In addition to the IT business, Wipro also has leadership position in niche market segments of consumer products and lighting solutions. The company has been listed since 1945 and started its technology business in 1980. Today, Wipro generates USD 6 billion (India GAAP figure 2009-10) of annual revenues. Its equity shares are listed in India on the Mumbai Stock Exchange and the National Stock Exchange; as well as on the New York Stock Exchange in the US. Wipro makes an ideal partner for organizations looking at transformational IT solutions because of its core capabilities, great human resources, commitment to quality and the global infrastructure to deliver a wide range of technology and business consulting solutions and services, 24/7. Wipro enables business results by being a transformation catalyst. It offers integrated portfolio of services to its clients in the areas of Consulting, System Integration and Outsourcing for key-industry verticals.

INFOTECH In August,1991, InfoTech incorporated as a Private limited company. The company receives its first ISO 9002 certification from BVQi London for its conversion services. In 1997, Infotech Acquires M/s SRG Infotech a 16-year-old local software company providing software services in oracle and Visual basic client server environments. Infotech did Partnership with IBM for developing Enterprise wide Information System. Infotech diversifies into business software development by adding 50 developers, creating an independent profit center. It had Becomes a public limited company, IPO of Equity shares at Rs.20/- per share and listed in all major stock exchanges in India. Infotech Board recommends issue of bonus shares at 1:1 ratio, subject to Shareholders Approval. Infotech Bags the Federation of Andhra Pradesh Chambers of Commerce & Industry (FAPPCI) best Information Technology (IT) industry of the state of Andhra Pradesh -2001-2002.

REVIEW OF LITERATURE

According to Leroi Raputsoane (2009)During the course of literature review about the an analysis of risk and return on equity. It was evident that there is hardly any significant research done applying the concept of different technique. risk return relationship in the south African stock marketseveral challenges to successfully estimating the risk return trade of remain these are issue of the mythological approached volatile characteristics of the risk premium as well as data span and frequency. According to N.Gregory mankiw and Mathew D (2007) risk and return: consumption beta versus market beta The data will examine in the paper provide no support for the consumption CAPM as compared to the traditional formulation. A stock market beta contains must more information on its return than does it consumption beta since the conception beta CAPM applying preferable on theoretical grounds. Market hypothesis is a kind of investing. Information that is predictable is worthless because it is already reflected in stock prices. The information that is valuable and can be used to make money is that information which cannot be predicted Some assets offer higher average returns than other assets, or, equivalently, they attract lower prices. These "risk premium" should reflect aggregate, macroeconomic risks; they should reflect the tendency of assets to do badly in bad economic times. According to Jim picerno (2010) equity risk premium An equity investment generally refers to the buying and holding of shares of stock on a stock by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. It may also refer to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup company. When the investment is in infant companies, it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed goingconcern situations.

The equities held by private individuals are often held via mutual funds or other forms of collective investment scheme, many of which have quoted prices that are listed in financial newspapers or magazines; the mutual funds are typically managed by prominent fund management firms, such as Schroders, Fidelity Investments or The Vanguard Group. Such holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund managers in charge of the fund(s). An alternative, which is usually

employed by large private investors and pension funds, is to hold shares directly; in the institutional environment many clients who own portfolios have what are called segregated funds, as opposed to or in addition to the pooled mutual fund alternatives.

A calculation can be made to assess whether an equity is over or underpriced, compared with a long-term government bond. This is called the Yield Gap or Yield Ratio. It is the ratio of the dividend yield of equity and that of the long-term bond.

private equity investments are primarily made by private equity firms, venture capital firms, or angel investors, each with their own set of goals, preferences, and investment strategies, yet each providing working capital to a target company to nurture expansion, new product development, or restructuring of the companys operations, management, or ownership. Among the most common investment strategies in private equity are: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. In a typical leveraged buyout transaction, a private equity firm buys majority control of an existing or mature firm. This is distinct from a venture capital or growth capital investment, in which the investors (typically venture capital firms or angel investors) invest in young or emerging companies, and rarely obtain majority control.

RATIONALE

Indian security market moving to newer heights since from the last few years and the investors also getting reasonable income, that some time more than expected but the next day the price would be crumbling down like a glass house this is the picture of Indian stock market, means market is highly volatile and is still in the hands of speculators and gamblers. In this case where is the common investor who investing their hard earned money expecting a regular income and security of his investment so here its come the importance of risk and return analysis on equity The purpose of the study is to identify the risk and return on equity. This study will help in minimizing risk and increasing profitability. The study will help the investor by suggesting them the areas for investing which have less risk and high return.

OBJECTIVE

1. To analyze the risk and return of the companies.

2. To find out explicit information about the available returns.

3. To find out relative expected returns. 4. To analyze actual return and expected return with the help of standard deviation and beta 5. To analyze the volatility of companies in comparison with the market and to find out the risk less companies to invest.

RESEARCH METHODOLOGY

The study:
The research is completely analytical in nature as it will be dealing with risk on the equity market on current scenario and the investors move more profitability so that researcher may study in exploratory analysis of the capital market,

Tools for data Collection .

In this research secondary data will be used.

Tools for Data Analysis:

The researcher will use the following statistical tool for analyzing data. Mean method of data analysis
For a data set, the mean is the sum of the values divided by the number of values. The mean of a set of numbers x1, x2, ..., xn is typically denoted by , pronounced "x bar". This mean is a type of arithmetic mean. If the data set was based on a series of observations obtained by

Sampling a statistical population, this mean is termed the "sample mean" to distinguish it from the "population mean"

Standard deviation method of data analysis

Standard deviation is a widely used measurement of variability or diversity used in statistics and probability theory. It shows how much variation or "dispersion" there is from the "average" (mean, or expected/budgeted value). A low standard deviation indicates that the data points tend to be very close to

the mean, whereas high standard deviation indicates that the data are spread out over a large range of values.

Computation of standard deviation:

Rate of return = (closing stock- opening stock)/(opening stock)*100 Standard deviation calculated as per the excel formula

Variance = square of the standard deviation

Beta In finance, the Beta ( ) of a stock or portfolio is a number describing the relation of its returns with that of the financial market as a whole. An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below its average. The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It measures the part of the asset's statistical variance that cannot be removed by the diversification provided by the portfolio of many risky assets, because of the correlation of its returns with the returns of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. Computation of beta
Stock price (Y) =(closing- opening)/(opening)*100 (of stock price)

Market return(x)=(closing-opening)/(opening)*100 (of index price) N= co-relation coefficient Beta = N*(X*Y) (X*Y)/(N*(X^2)-(X)^2) REFERENCES

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