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PORTFOLIO MANAGEMENT
MEANING:
A portfolio is a collection of assets. The assets may be physical or financial like Shares,
Bonds, Debentures, Preference Shares, etc. The individual investor or a fund manager would not
like to put all his money in the shares of one company that would amount to great risk. He
would therefore, follow the age old maxim that one should not put all the eggs into one basket.
By doing so, he can achieve objective to maximize portfolio return and at the same time
minimizing the portfolio risk by diversification.
Portfolio management is the management of various financial assets which comprise the
portfolio.
Portfolio management is a decision – support system that is designed with a view to meet
the multi-faced needs of investors.
According to Securities and Exchange Board of India Portfolio Manager is defined as:
“Portfolio means the total holdings of securities belonging to any person”.
PORTFOLIO MANAGER means any person who pursuant to a contract or
arrangement with a client, advises or directs or undertakes on behalf of the client
(whether as a discretionary portfolio manager or otherwise) the management or
administration of a portfolio of securities or the funds of the client.
DISCRETIONARY PORTFOLIO MANAGER means a portfolio manager who
exercises or may, under a contract relating to portfolio management exercises any degree
of discretion as to the investments or management of the portfolio of securities or the
funds of the client.
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RESEARCH(e.g. SecurityAnalysis)
PORTFOLIOMANAGERS
OPERATIONS(e.g. buying and selling of Securities)
CLIENTS
FUNCTIONS OF PORTFOLIO MANAGEMENT:
To frame the investment strategy and select an investment mix to achieve the desired
investment objectives
To provide a balanced portfolio which not only can hedge against the inflation but can
also optimize returns with the associated degree of risk
To make timely buying and selling of securities
To maximize the after-tax return by investing in various tax saving investment
instruments.
STRUCTURE / PROCESS OF TYPICAL PORTFOLIO
MANAGEMENT
In the small firm, the portfolio manager performs the job of security analyst.
In the case of medium and large sized organizations, job function of portfolio manager and secu
rity analyst are separate.
\
2
CHARACTERISTICS OF PORTFOLIO MANAGEMENT:
Individuals will benefit immensely by taking portfolio management services for the
following reasons:
Whatever may be the status of the capital market, over the long period capital markets
have given an excellent return when compared to other forms of investment. The return
from bank deposits, units, etc., is much less than from the stock market.
The Indian Stock Markets are very complicated. Though there are thousands of
companies that are listed only a few hundred which have the necessary liquidity. Even
among these, only some have the growth prospects which are conducive for investment.
It is impossible for any individual wishing to invest and sit down and analyze all these
intricacies of the market unless he does nothing else.
Even if an investor is able to understand the intricacies of the market and separate chaff
from the grain the trading practices in India are so complicated that it is really a difficult
task for an investor to trade in all the major exchanges of India, look after his deliveries
and payments
TYPES OF PORTFOLIO MANAGEMENT :
1. DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE
(DPMS):
In this type of service, the client parts with his money in favor of the manager, who in
return, handles all the paper work, makes all the decisions and gives a good return on the
investment and charges fees. In the Discretionary Portfolio Management Service, to maximize
the yield, almost all portfolio managers park the funds in the money market securities such as
overnight market, 18 days treasury bills and 90 days commercial bills. Normally, the return of
such investment varies from 14 to 18 percent, depending on the call money rates prevailing at the
time of investment.
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2. NON-DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE
(NDPMS):
The manager functions as a counselor, but the investor is free to accept or reject the
manager‘s advice; the paper work is also undertaken by manager for a service charge. The
manager concentrates on stock market instruments with a portfolio tailor-made to the risk taking
ability of the investor.
IMPORTANCE OF PORTFOLIO MANAGEMENT:
Emergence of institutional investing on behalf of individuals. A number of financial
institutions, mutual funds and other agencies are undertaking the task of investing money of
small investors, on their behalf.
Growth in the number and size of ingestible funds – a large part of household savings is
being directed towards financial assets.
Increased market volatility – risk and return parameters of financial assets are continuously
changing because of frequent changes in government‘s industrial and fiscal policies,
economic uncertainty and instability.
Greater use of computers for processing mass of data.
Professionalization of the field and increasing use of analytical methods (e.g. quantitative
techniques) in the investment decision – making
Larger direct and indirect costs of errors or shortfalls in meeting portfolio objectives –
increased competition and greater scrutiny by investors.
4
NEED & IMPORTANCE:
Portfolio management has emerged as a separate academic discipline in India. Portfolio
theory that deals with the rational investment decision-making process has now become an
integral part of financial literature.
Investing in securities such as shares, debentures & bonds is profitable well as exciting.
It is indeed rewarding but involves a great deal of risk & need artistic skill. Investing in financial
securities is now considered 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, they tend to invest in a group
of securities. Such group of securities is called as 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 & practice of optimally combining securities into
portfolios.
The modern theory is of the view that by diversification, risk can be reduced. The
investor can make diversification either by having a large number of shares of companies in
different regions, in different industries or those producing different types of product lines.
Modern theory believes in the perspective of combinations of securities under constraints of risk
and return.
5
OBJECTIVES OF THE STUDY:
To study the investment pattern and its related risks & returns.
To find out optimal portfolio, which gave optimal return at a minimize risk to the investor
To see whether the portfolio risk is less than individual risk on whose basis the portfolios
are constituted
To see whether the selected portfolios is yielding a satisfactory and constant return to the
investor
To understand, analyze and select the best portfolio
METHODOLOGY AND FRAMEWORK
SCOPE OF STUDY:
This study covers the Markowitz model. The study covers the calculation of correlations
between the different securities in order to find out at what percentage funds should be invested
among the companies in the portfolio. Also the study includes the calculation of individual
Standard Deviation of securities and ends at the calculation of weights of individual securities
involved in the portfolio. These percentages help in allocating the funds available for investment
based on risky portfolios.
6
DATA COLLECTION METHODS
The data collection methods include both the primary and secondary collection methods.
Primary collection methods:
This method includes the data collection from the personal discussion with the authorized clerks
and members of the hdfc.
Secondary collection methods:
The secondary collection methods includes the lectures of the superintend of the department of
market operations and so on., also the data collected from the news, magazines and different
books issues of this study .
LIMITATIONS OF THE STUDY
1. Construction of Portfolio is restricted to two companies based on Markowitz model.
2. Very few and randomly selected scripts / companies are analyzed from BSE listings.
3. Data collection was strictly confined to secondary source. No primary data is
associated with the project.
4. Detailed study of the topic was not possible due to limited size of the project.
5. There was a constraint with regard to time allocation for the research study i.e. for a
period of five years.
7
INDUSTRY PROFILE
8
Banking in IndiaBanking in India originated in the last decades of the 18th century. The oldest bank in
existence in India is the State Bank of India, a government-owned bank that traces its
origins back to June 1806 and that is the largest commercial bank in the country. Central
banking is the responsibility of the Reserve Bank of India, which in 1935 formally took
over these responsibilities from the then Imperial Bank of India, relegating it to
commercial banking functions. After India's independence in 1947, the Reserve Bank
was nationalized and given broader powers. In 1969 the government nationalized the 14
largest commercial banks; the government nationalized the six next largest in 1980.
Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake), 31 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges) and
38 foreign banks. They have a combined network of over 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively
Early history
Banking in India originated in the last decades of the 18th century. The first banks were
The General Bank of India which started in 1786, and the Bank of Hindustan, both of
which are now defunct. The oldest bank in existence in India is the State Bank of India,
which originated in the Bank of Calcutta in June 1806, which almost immediately
became the Bank of Bengal. This was one of the three presidency banks, the other two
being the Bank of Bombay and the Bank of Madras, all three of which were established
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under charters from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks merged in
1921 to form the Imperial Bank of India, which, upon India's independence, became the
State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as
a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in
1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the
first though. That honor belongs to the Bank of Upper India, which was established in
1863, and which survived until 1913, when it failed, with some of its assets and liabilities
being transferred to the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton. With
large exposure to speculative ventures, most of the banks opened in India during that
period failed. The depositors lost money and lost interest in keeping deposits with banks.
Subsequently, banking in India remained the exclusive domain of Europeans for next
several decades until the beginning of the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in
1862; branches in Madras and Pondichery, then a French colony, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active trading port in India,
mainly due to the trade of the British Empire, and so became a banking center.
The Bank of Bengal, which later became the State Bank of India.
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The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established
in Lahore in 1895, which has survived to the present and is now one of the largest banks
in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian Mutiny, and the
social, industrial and other infrastructure had improved. Indians had established small
banks, most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different
segments of the economy. The exchange banks, mostly owned by Europeans,
concentrated on financing foreign trade. Indian joint stock banks were generally under
capitalized and lacked the experience and maturity to compete with the presidency and
exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political
figures to found banks of and for the Indian community. A number of banks established
then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,
Bank of Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks in
Dakshina Kannada and Udupi district which were unified earlier and known by the name
South Canara ( South Kanara ) district. Four nationalised banks started in this district
and also a leading private sector bank. Hence undivided Dakshina Kannada district is
known as "Cradle of Indian Banking".
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13
Company Profile
The Housing Development Finance Corporation Limited (HDFC) was amongst the first
to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a
bank in the private sector, as part of the RBI's liberalisation of the Indian Banking
Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank
Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations
as a Scheduled Commercial Bank in January 1995.
HDFC is India's premier housing finance company and enjoys an impeccable track record
in India as well as in international markets. Since its inception in 1977, the Corporation
has maintained a consistent and healthy growth in its operations to remain the market
leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling
units. HDFC has developed significant expertise in retail mortgage loans to different
market segments and also has a large corporate client base for its housing related credit
facilities. With its experience in the financial markets, a strong market reputation, large
shareholder base and unique consumer franchise, HDFC was ideally positioned to
promote a bank in the Indian environment.
HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build
sound customer franchises across distinct businesses so as to be the preferred provider of
banking services for target retail and wholesale customer segments, and to achieve
healthy growth in profitability, consistent with the bank's risk appetite. The bank is
committed to maintain the highest level of ethical standards, professional integrity,
corporate governance and regulatory compliance. HDFC Bank's business philosophy is
based on four core values - Operational Excellence, Customer Focus, Product Leadership
and People.
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Capital Structure
As on 31st December, 2009 the authorized share capital of the Bank is Rs. 550 crore. The
paid-up capital as on said date is Rs. 455,23,65,640/- (45,52,36,564 equity shares of Rs.
10/- each). The HDFC Group holds 23.87 % of the Bank's equity and about 16.94 % of
the equity is held by the ADS Depository (in respect of the bank's American Depository
Shares (ADS) Issue). 27.46 % of the equity is held by Foreign Institutional Investors
(FIIs) and the Bank has about 4,58,683 shareholders.
The shares are listed on the Bombay Stock Exchange Limited and The National Stock
Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed on
the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global
Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No
US40415F2002.
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network
of 1,725 branches spread in 771 cities across India. All branches are linked on an online
real-time basis. Customers in over 500 locations are also serviced through Telephone
Banking. The Bank's expansion plans take into account the need to have a presence in all
major industrial and commercial centres where its corporate customers are located as well
as the need to build a strong retail customer base for both deposits and loan products.
Being a clearing/settlement bank to various leading stock exchanges, the Bank has
branches in the centres where the NSE/BSE have a strong and active member base.
The Bank also has 4,000 networked ATMs across these cities. Moreover, HDFC Bank's
ATM network can be accessed by all domestic and international Visa/MasterCard, Visa
Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr.
Capoor was a Deputy Governor of the Reserve Bank of India.
The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25
years, and before joining HDFC Bank in 1994 was heading Citibank's operations in
15
Malaysia.
The Bank's Board of Directors is composed of eminent individuals with a wealth of
experience in public policy, administration, industry and commercial banking. Senior
executives representing HDFC are also on the Board.
Senior banking professionals with substantial experience in India and abroad head
various businesses and functions and report to the Managing Director. Given the
professional expertise of the management team and the overall focus on recruiting and
retaining the best talent in the industry, the bank believes that its people are a significant
competitive strength.
HDFC Bank operates in a highly automated environment in terms of information
technology and communication systems. All the bank's branches have online
connectivity, which enables the bank to offer speedy funds transfer facilities to its
customers. Multi-branch access is also provided to retail customers through the branch
network and Automated Teller Machines (ATMs).
The Bank has made substantial efforts and investments in acquiring the best technology
available internationally, to build the infrastructure for a world class bank. The Bank's
business is supported by scalable and robust systems which ensure that our clients always
get the finest services we offer.
The Bank has prioritised its engagement in technology and the internet as one of its key
goals and has already made significant progress in web-enabling its core businesses. In
each of its businesses, the Bank has succeeded in leveraging its market position, expertise
and technology to create a competitive advantage and build market share.
HDFC Bank offers a wide range of commercial and transactional banking services and
treasury products to wholesale and retail customers. The bank has three key business
segments:
16
Wholesale Banking Services
The Bank's target market ranges from large, blue-chip manufacturing companies in
the Indian corporate to small & mid-sized corporates and agri-based businesses. For
these customers, the Bank provides a wide range of commercial and transactional
banking services, including working capital finance, trade services, transactional
services, cash management, etc. The bank is also a leading provider of structured
solutions, which combine cash management services with vendor and distributor
finance for facilitating superior supply chain management for its corporate
customers. Based on its superior product delivery / service levels and strong
customer orientation, the Bank has made significant inroads into the banking
consortia of a number of leading Indian corporates including multinationals,
companies from the domestic business houses and prime public sector companies. It
is recognised as a leading provider of cash management and transactional banking
solutions to corporate customers, mutual funds, stock exchange members and
banks.
Retail Banking Services
The objective of the Retail Bank is to provide its target market customers a full
range of financial products and banking services, giving the customer a one-stop
window for all his/her banking requirements. The products are backed by world-
class service and delivered to customers through the growing branch network, as
well as through alternative delivery channels like ATMs, Phone Banking,
NetBanking and Mobile Banking.
The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank
Plus and the Investment Advisory Services programs have been designed keeping in
mind needs of customers who seek distinct financial solutions, information and
advice on various investment avenues. The Bank also has a wide array of retail loan
products including Auto Loans, Loans against marketable securities, Personal
Loans and Loans for Two-wheelers. It is also a leading provider of Depository
Participant (DP) services for retail customers, providing customers the facility to
hold their investments in electronic form.
17
HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Mastercard Maestro debit
card as well. The Bank launched its credit card business in late 2001. By March
2009, the bank had a total card base (debit and credit cards) of over 13 million. The
Bank is also one of the leading players in the “merchant acquiring” business with
over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at
merchant establishments. The Bank is well positioned as a leader in various net
based B2C opportunities including a wide range of internet banking services for
Fixed Deposits, Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. With
the liberalisation of the financial markets in India, corporates need more
sophisticated risk management information, advice and product structures. These
and fine pricing on various treasury products are provided through the bank's
Treasury team. To comply with statutory reserve requirements, the bank is required
to hold 25% of its deposits in government securities. The Treasury business is
responsible for managing the returns and market risk on this investment portfolio.
Credit Rating
The Bank has its deposit programs rated by two rating agencies - Credit Analysis &
Research Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed
Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by CARE, which
represents instruments considered to be "of the best quality, carrying negligible
investment risk". CARE has also rated the bank's Certificate of Deposit (CD) programme
"PR 1+" which represents "superior capacity for repayment of short term promissory
obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.) has assigned
the "AAA ( ind )" rating to the Bank's deposit programme, with the outlook on the rating
as "stable". This rating indicates "highest credit quality" where "protection factors are
very high"
18
The Bank also has its long term unsecured, subordinated (Tier II) Bonds rated by CARE
and Fitch Ratings India Private Limited and its Tier I perpetual Bonds and Upper Tier II
Bonds rated by CARE and CRISIL Ltd. CARE has assigned the rating of "CARE AAA"
for the subordinated Tier II Bonds while Fitch Ratings India Pvt. Ltd. has assigned the
rating "AAA (ind)" with the outlook on the rating as "stable". CARE has also assigned
"CARE AAA [Triple A]" for the Banks Perpetual bond and Upper Tier II bond issues.
CRISIL has assigned the rating "AAA / Stable" for the Bank's Perpetual Debt programme
and Upper Tier II Bond issue. In each of the cases referred to above, the ratings awarded
were the highest assigned by the rating agency for those instruments.
Corporate Governance Rating
The bank was one of the first four companies, which subjected itself to a Corporate
Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating
Information Services of India Limited (CRISIL). The rating provides an independent
assessment of an entity's current performance and an expectation on its "balanced value
creation and corporate governance practices" in future. The bank has been assigned a
'CRISIL GVC Level 1' rating which indicates that the bank's capability with respect to
wealth creation for all its stakeholders while adopting sound corporate governance
practices is the highest.
On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was
formally approved by Reserve Bank of India to complete the statutory and regulatory
approval process. As per the scheme of amalgamation, shareholders of CBoP received 1
share of HDFC Bank for every 29 shares of CBoP.
The merged entity will have a strong deposit base of around Rs. 1,22,000 crore and net
advances of around Rs. 89,000 crore. The balance sheet size of the combined entity
would be over Rs. 1,63,000 crore. The amalgamation added significant value to HDFC
Bank in terms of increased branch network, geographic reach, and customer base, and a
bigger pool of skilled manpower.
19
In a milestone transaction in the Indian banking industry, Times Bank Limited (another
new private sector bank promoted by Bennett, Coleman & Co. / Times Group) was
merged with HDFC Bank Ltd., effective February 26, 2000. This was the first merger of
two private banks in the New Generation Private Sector Banks. As per the scheme of
amalgamation approved by the shareholders of both banks and the Reserve Bank of India,
shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of
Times Bank.
HDFC Bank Ltd. (BSE: 500180, NYSE: HDB) is a commercial bank of India,
incorporated in August 1994, after the Reserve Bank of India allowed establishing private
sector banks. The Bank was promoted by the Housing Development Finance
Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank
has 1,412 branches and over 3,295 ATMs, in 528 cities in India, and all branches of the
bank are linked on an online real-time basis. As of September 30, 2008 the bank had total
assets of INR 1006.82 billion. For the fiscal year 2008-09, the bank has reported net
profit of Rs.2,244.9 crore, up 41% from the previous fiscal. Total annual earnings of the
bank increased by 58% reaching at Rs.19,622.8 crore in 2008-09.
Business Focus
HDFC Bank deals with three key business segments - WholesaleBanking Services, Retail
Banking Services, Treasury. It has entered the bankingconsortia of over 50 corporates for
providing working capital finance, tradeservices, corporate finance and merchant
banking. It is also providingsophisticated product structures in areasof foreign exchange
and derivatives, money markets and debt trading and equityresearch.
Wholesale Banking Services
The Bank's target m inroads into the banking consortia of a number of leading Indian
corporates including multinationals, companies from the domestic business houses and
prime public sector companies. It is recognised as a leading provider of cash management
20
and transactional banking solutions to corporate customers, mutual funds, stock exchange
members and banks.
Retail Banking Services
The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and
delivered to customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile
Banking.
HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as
well. The Bank launched its credit card business in late 2001. By March 2009, the bank
had a total card base (debit and credit cards) of over 13 million. The Bank is also one of
the leading players in the “merchant acquiring” business with over 70,000 Point-of-sale
(POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank
is well positioned as a leader in various net based B2C opportunities including a wide
range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. These
services are provided through the bank's Treasury team. To comply with statutory reserve
requirements, the bank is required to hold 25% of its deposits in government securities.
The Treasury business is responsible for managing the returns and market risk on this
investment portfolio.
Distribution Network
21
HDFC Bank is headquartered in Mumbai. The Bank has an network of 1,725 branches
spread in 771 cities across India. All branches are linked on an online real-time basis.
Customers in over 500 locations are also serviced through Telephone Banking. The Bank
has a presence in all major industrial and commercial centres across the country. Being a
clearing/settlement bank to various leading stock exchanges, the Bank has branches in the
centres where the NSE/BSE have a strong and active member base.
The Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC Bank's
ATM network can be accessed by all domestic and international Visa/MasterCard, Visa
Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.
Housing Development Finance Corporation Limited or HDFC (BSE: 500010),
founded 1977 by Ravi Maurya and Hasmukhbhai Parekh, is an Indian NBFC, focusing
on home mortgages. HDFC's distribution network spans 243 outlets that include 49
offices of HDFC's distribution company, HDFC Sales Private Limited. In addition,
HDFC covers over 90 locations through its outreach programmes. HDFC's marketing
efforts continue to be concentrated on developing a stronger distribution network. Home
loans are also Sharcket through HDFC Sales, HDFC Bank Limited and other third party
Direct Selling Agents (DSA).
To cater to non-resident Indians, HDFC has an office in London and Dubai and service
associates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi, Al Khobar, Jeddah and Riyadh
in Saudi Arabia.
AWARDS
2010
Euromoney Private
Banking and
Wealth
Management Poll
1) Best Local Bank in India (second year in a row) 2) Best
Private Banking Services overall (moved up from No. 2 last
year)
22
2010
Financial Insights
Innovation Awards
2010
Innovation in Branch Operations - Server Consolidation
Project
Global Finance
Award
Best Trade Finance Provider in India for 2010
2 Banking
Technology
Awards 2009
1) Best Risk Management Initiative and 2) Best Use of
Business Intelligence.
SPJIMR Marketing
Impact Awards
(SMIA) 2010
2nd Prize
Business Today
Best Employer
Survey
Listed in top 10 Best Employers in the country
2009
Business India
Businessman of the
Year Award for
2009.
Mr. Aditya Puri, MD, HDFC Bank
Businessworld Best
Bank Awards 2009
Most Tech-savvy Bank
Outlook Money
NDTV Profit
Awards 2009
Best Bank
Forbes Asia Fab 50 Companies in Asia Pacific
23
GQ India's Man of
the Year (Business)
Mr. Aditya Puri, MD, HDFC Bank
UTI MF-CNBC
TV18 Financial
Advisor Awards
2009
Best Performing Bank
Wall Street Journal
survey of Asia's
Best 200
Companies 2009
Our Bank among India's 10 Most Admired Companies
Rated 3rd Best in terms of Financial Reputation
Business Standard
Best Banker Award
Mr. Aditya Puri, MD, HDFC Bank
Fe Best Bank
Awards 2009
- Best Innovator of the year award for our MD Mr.
Aditya Puri
- Second Best Private Bank in India
- Best in Strength and Soundness Award
Euromoney Awards
2009
Best Bank in India
Economic Times
Brand Equity &
Nielsen Research
annual survey 2009
Most Trusted Brand - Runner Up
Asia Money 2009
Awards
Best Domestic Bank in India
IBA Banking
Technology
Awards 2009
Best IT Governance Award - Runner up
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Global Finance
Award
Best Trade Finance Bank in India for 2009
IDRBT Banking
Technology
Excellence Award
2008
Best IT Governance and Value Delivery
Finance Asia
magazine's annual
poll of Investors
and Analysts 2009
Mr. Aditya Puri - India's Best CEO
Our Bank is 3rd in 'Best managed Company' category
Asian Banker
Excellence in Retail
Financial Services
Asian Banker Best Retail Bank in India Award 2009
25
STEPS IN PORTFOLIO MANAGEMENT:
Specification and qualification of investor objectives, constraints, and preferences in the form of an investment policy statement.
Determination and qualification of capital market expectations for the economy, market sectors, industries and individual securities.
Allocation of assets and determination of appropriate portfolio strategies for each asset class and selection of individual securities.
Performance measurement and evaluation to ensure attainment of investor objectives.
Monitoring portfolio factors and responding to changes in investor objectives, constrains and / or capital market expectations.
Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio strategy and security selection.
CRITERIA FOR PORTFOLIO DECISIONS:
In portfolio management emphasis is put on identifying the collective importance of all
investor’s holdings. The emphasis shifts from individual assets selection to a more
balanced emphasis on diversification and risk-return interrelationships of individual
assets within the portfolio. Individual securities are important only to the extent they
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affect the aggregate portfolio. In short, all decisions should focus on the impact which the
decision will have on the aggregate portfolio of all the assets held.
Portfolio strategy should be molded to the unique needs and characteristics of the
portfolio‘s owner.
Diversification across securities will reduce a portfolio‘s risk. If the risk and return are
lower than the desired level, leverages (borrowing) can be used to achieve the desired
level.
Larger portfolio returns come only with larger portfolio risk. The most important decision
to make is the amount of risk which is acceptable.
The risk associated with a security type depends on when the investment will be
liquidated. Risk is reduced by selecting securities with a payoff close to when the
portfolio is to be liquidated.
Competition for abnormal returns is extensive, so one has to be careful in evaluating the
risk and return from securities. Imbalances do not last long and one has to act fast to
profit from exceptional opportunities.
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Provides user interfaces that allow for the extraction of data based on user defined
parameters.
Provides a comprehensive set of tools to perform portfolio and risk evaluation
against parameters set within the risk framework.
Provides a set of tools to optimise portfolio value and risk position by:
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Considering various legs of different contracts to create an optimal trading
strategy.
The calculation of residual purchase requirements.
Performs analysis that provides the relevant information to create hedge and trade
plans.
Performs analysis on current and potential trades.
Evaluates the best mix of contracts on offer from counterparties to minimise the
overall purchase cost and maximize profits.
Creates and maintains trading and hedge strategies by:
Allocating trades to contracts and books.
Maintaining trades against contracts and books.
Reviewing trades against existing trading strategy.
Maintains an audit trail of decisions taken and query resolution.
Produces accurate and timely reports
Project Portfolio Management Software
The Business Need.
Project Professionals need a Project Management solution that enables them to
complete their projects faster, with higher quality and within a logical, easy-to-follow
roadmap.
Executives need a system that identifies the projects with the highest ROI potential,
provides broad, deep and timely reporting, and enables scalability.
The Power of Templates:
Standards, Consistency, Repeatability.
Your company and your industry have unique ways of managing
processes, procedures and projects at the highest level. Best Practice Templates, linked
training, productivity tools, and guidelines provide a framework for your optimal
performance.
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SigmaFlow’s Project Portfolio Management Solution is the only solution that uses
flexible templates with an integrated project management, document library and metric
management system to drive your workflow.
Best practice templates are the most efficient way to develop and maintain standards,
consistency and repeatability. With these Templates, new employees can become more
self-sufficient and deliver a higher quality work product - they know what to do next,
with easy access to reference materials and guidelines. The template roadmap provides
structure and enables the interchange of resources mid-process or project.
Once a project has been completed and designated as successful, the Template
framework can be used again, even by inexperienced employees, with the same benefits
at a fraction of the original implementation cost.
Reap the Benefit of Best Practices.
Whether you are a manufacturer or service organization, you can import selected best
practices, standards, and compliance requirements into SigmaFlow’s system to ensure
that your projects and processes perform at the highest possible level. Once you create
your workflow template in SigmaFlow, you’ll have a step-by-step methodology to guide
you through the process with all your training, documents, tools and deliverables at your
fingertips.
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The SigmaFlow Difference
SigmaFlow’s unique architecture includes operational level process productivity tools
and project management tools, as well as a strategic level web-based repository for
portfolio analysis and reporting. This means you are always working in the system of
record, where the process and project work actually take place. This leads to a fully
integrated information flow, from the lowest level tool to the highest level scorecard.
Optionally, SigmaFlow’s operational level tools can be integrated with your existing
Project Management system.
SigmaFlow’s system gives executives timely project status visibility without burdening
practitioners with redundant data entry into a web-based project tracking system. This
provides executives the ability to manage by exception and derive deeper and more
meaningful business insights. The system ensures relevance of information by
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automatically populating status detail whenever a SigmaFlow desktop project file is
saved into the system. It also reduces the risk of re-work and errors caused by having
multiple “unofficial” versions of project documents. As a result, your practitioners will be
more self-sufficient and productive.
By bridging desktop tools with an enterprise system, SigmaFlow’s solution is fully
scaleable. A small, growing company can start with a single license and expand into a
web system when ready. In addition, SigmaFlow offers integration with Microsoft
Project for easy import and export of project files.
Easy, Efficient & Effective.
SigmaFlow’s Project Portfolio Management System is designed to derive the greatest
benefit with the most efficient use of your time:
Create any template as easily as drawing a process map. The system is infinitely
flexible to match your unique needs.
Easily integrate Project Management Metrics, Document Library and
Performance Metrics with the template, giving you a one-stop shop for your
critical project resources.
Work where you are most efficient, online or offline.
Improve your project consistency: Know what to do next, when to use tools, and
how to use tools throughout your project or process.
Replicate your best practices. Easily convert your recent best practice project into
a template for tomorrow’s use
Portfolio Management
To sustain long-term growth, companies manage a number of products and candidates at
different stages of maturity. However, different product profiles and the therapeutic areas
they serve have disparate commercial opportunities.
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Our portfolio prioritization, pipeline analysis, category franchise strategy, and technology
licensing assessments provide a systematic means of optimizing development programs
and product opportunities. We outline and quantify the areas of greatest opportunity for
your organization and recommend actionable strategies that establish or expand your
position in target markets.
Key portfolio management questions that we address:
Which technologies and product candidates have the greatest potential
commercial value?
How can we broaden and deepen our therapy penetration?
What actions can we take to maximize return on investment for individual
candidates and discoveries?
Which proprietary rights do we buy, co-market, license, or sell?
How do we balance short and long term product needs to maximize therapeutic
franchise value?
We detail the value of discoveries in clinical phases, candidates in the pipeline, and
products on the market. These individual and therapeutic category evaluations enable
executives to make strategic investment, licensing and prioritization decisions to realize
their portfolio's full potential.
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Portfolio Management
You can now receive the same portfolio management services as many institutional
investors-whether it is a separately managed account or a mutual fund wrap portfolio.
Some benefits of managed portfolios include:
Providing access to top-tier investment management professionals
Tailored portfolios to meet specific investment needs
Ownership of individual securities
Ease of pre-designed mutual fund portfolios
Every investor is unique, and investment advisory services provide you with
professional investment advice and a personalized investment strategy. Whether
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you're seeking a tailored, professionally managed portfolio, or the convenience
and simplicity of a diversified mutual fund wrap program, your investment choice
should focus on meeting your financial goals. During this process, you should
consider current and future growth objectives, income needs, time horizon and
risk tolerance. These considerations form the blueprint for developing a portfolio
management strategy. The process involves, but is not limited to, the following
important stages.
Set investment objectives
Develop an asset allocation strategy Evaluate/Select investment vehicle Portfolio review -- Ongoing portfolio monitoring
Risk Management
A sound financial plan must address the insurance coverages you, your spouse
and family members may require.
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Life insurance is used to pay for funeral expenses, repay outstanding debts,
make charitable donations and provide living expenses for surviving family
members. It can also be used to cover estate taxes and probate fees to enable
your estate to be liquidated in the most appropriate manner.
Disability income insurance§ is to help partially replace income of persons
who are unable to work because of sickness or accident. In terms of its
financial effect on the family, long-term disability can be just as severe as
death. Disability income protection can come from several sources: social
insurance programs, employer-provided benefits, and individually purchased
policies.
Portfolio Management Maturity
Summarizes five levels of project portfolio management maturity .each level represents
the adoption of an increasingly comprehensive and effective subset of related solutions
discussed in the previous parts of this 6-part paper for addressing the reasons that
organizations choose the wrong projects. Understanding organizational maturity with
regard to project portfolio management is useful. It facilitates identifying performance
gaps, indicates reasonable performance targets, and suggests an achievable path for
improvement.
The fact that five maturity levels have been identified is not meant to suggest that all
organizations ought to strive for top-level performance. Each organization needs to
determine what level of performance is reasonable at the current time based on business
needs, resources available for engineering change, and organizational ability to accept
change. Experience shows that achieving high levels of performance typically takes
several years. It is difficult to leap-frog several steps at once. Making progress is what
counts.
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Five levels of project portfolio management.
The detailed definitions of the levels, provided below, are not precise. Real organizations
will tend to be more advanced with regard to some characteristics and less advanced
relative to others. For most organizations, though, it is easy to pick one of the levels as
characterizing the current maturity of project portfolio management performance.
Level 1: Foundation
Level 1 organizes work into discrete projects and tracks costs at the project level.
Project decisions are made project-by-project without adherence to formal project
selection criteria.
The portfolio concept may be recognized, but portfolio data are not centrally
managed and/or not regularly refreshed.
Roles and responsibilities have not been defined or are generic, and no value-
creation framework has been established.
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Only rarely are business case analyses conducted for projects, and the quality is
often poor.
Project proposals reference business benefits generally, but estimates are nearly
always qualitative rather than quantitative.
There is little or no formal balancing between the supply and demand for project
resources, and there is little if any coordination of resources across projects,
which often results in resource conflicts.
Over-commitment of resources is common.
There may be a growing recognition that risks need to be managed, but there is
little real management of risk.
Level 1 organizations are not yet benefiting from project portfolio management, but they
are motivated to address the relevant problems and have the minimum foundation in
place to begin building project portfolio management capability. At this level,
organizations should focus on establishing consistent, repeatable processes for project
scheduling, resource assignment, time tracking, and general project oversight and
support.
Level 2: Basics
Level 2 replaces project-by-project decision making with the goal of identifying the best
collection of projects to be conducted within the resources available. At a minimum this
requires aggregating project data into a central database, assigning responsibilities for
project portfolio management, and force-ranking projects.
Redundant projects are identified and eliminated or merged.
Business cases are conducted for larger projects, although quality may be
inconsistent.
Individual departments may be establishing structures to oversee and coordinate
their projects.
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There is some degree of options analysis (i.e., different versions of the project will
be considered).
Project selection criteria are explicitly defined, but the link to value creation is
sketchy.
Planning is mostly activity scheduling with limited performance forecasting.
There are attempts to quantify some non-financial benefits, but estimates are
mostly "guestimates" generated without the aid of standard techniques.
Overlap and double counting of benefits between projects is common.
Ongoing projects are still rarely terminated based on poor performance.
The PPM tools being used may have good data display and management
capabilities, but project prioritization algorithms may be simplistic and the results
potentially misleading to decision makers.
Portfolio data has an established refresh cycle or is regularly accessed and
updated. Resource requirements at the portfolio level are recognized but not
systematically managed.
Knowledge sharing is local and ad hoc.
Risk analysis may be conducted early in projects but is not maintained as a
continual management process. Uncertainties in project schedule, cost and
benefits are not quantified.
Schedule and cost overruns are still common, and the risks of project failure
remain large.
Level 2 organizations are beginning to implement project portfolio management, but
most of the opportunity has not yet been realized. The focus should be on formalizing the
framework for evaluating and prioritizing projects and on implementing tools and
processes for supporting project budgeting, risk and issues tracking, requirements
tracking, and resource management.
Level 3: Value Management
Level 3, the most difficult step for most organizations, requires metrics, models, and tools
for quantifying the value to be derived from projects. Although project interdependencies
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and portfolio risks may not be fully and rigorously addressed, analysis allows projects to
be ranked based on "bang-for-the-buck," often producing a good approximation of the
value-maximizing project portfolio.
The principles of portfolio management are widely understood and accepted.
The project portfolio has a well-defined perimeter, with clear demarcation and
understanding of what it contains and does not contain.
Portfolio management processes are centrally defined and well documented, as
are roles and responsibility for governance and delivery.
Portfolio management can demonstrate that its role in scrutinizing projects has
resulted in some initiatives being stopped or reshaped to increase portfolio value.
Executives are engaged, provide tradeoff weights for the value model, and
provide active and informed support.
Plans are developed to a consistent standard and are outcome- or value-based.
Effective estimation techniques are being used within planning and a range of
project alternatives are routinely considered.
Data quality assurance processes are in place and independent reviews are
conducted.
There is a common, consistent practice for project approval and monitoring.
Project dependencies are identified, tracked, and managed.
Decisions are made with the aid of a tool based on a defensible logic for
computing project value that generates the efficient frontier.
Portfolio data are kept up-to-date and audit trails are maintained.
Costs, expenditures and forecasts are monitored at the portfolio level in
accordance with established guidelines and procedures.
Interfaces with financial and other related functions within the organization have
been defined.
A process is in place for validating the realization of project benefits.
There is a defined risk analysis and management process, with efforts appropriate
to risk significance, although some sources of risk are not quantified in terms of
probability and consequence.
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Level 3 organizations demonstrate a commitment to proactive, standardized project and
project portfolio management. They are achieving significant return from their
investment, although more value is available.
Level 4: Optimization
Level 4 is characterized by mature processes, superior analytics, and quantitatively
managed behavior.
Tools for optimizing the project portfolio correctly and fully account for project
risks and interdependencies.
The business processes of value creation have been modeled and measurement
data is collected to validate and refine the model.
The model is the basis for the logic for estimating project value, prioritizing
projects, making project funding and resource allocation decisions, and
optimizing the project portfolio.
The organization's tolerance for risk is known, and used to guide decisions that
determine the balance of risk and benefit across the portfolio.
There is clear accountability and ownership of risks.
External risks are monitored and evaluated as part of the investment management
process and common risks across the whole portfolio (which may not be visible to
individual projects) are quantified and in support of portfolio optimization.
Senior executives are committed, engaged, and proactively seek out innovative
ways to increase value.
There is likely to be an established training program to develop the skills and
knowledge of individuals so that they can more readily perform their designated
roles.
An extensive range of communications channels and techniques are used for
collaboration and stakeholder management.
High-level reports on key aspects of portfolio are regularly delivered to
executives and the information is used to inform strategic decision making.
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There is trend reporting on progress, actual and projected cost, value, and level of
risk.
Assessments of stakeholder confidence are collected and used for process
improvement.
Portfolio data is current and extensively referenced for better decision making.
Level 4 organizations are using quantitative analysis and measurements to obtain
efficient predictable and controllable project and project portfolio management. They are
obtaining the bulk of the value available from practicing project portfolio management.
Level 5: Core Competency
Level 5 occurs when the organization has made project portfolio management a core
competency, uses best-practice analytic tools, and has put processes in place for
continuous learning and improvement.
Portfolio management processes are proven and project decisions, including
project funding levels and timing, are routinely made based the value
maximization value.
Processes are continually refined to take into account increasing knowledge,
changing business needs, and external factors.
Portfolio management drives the planning, development, and allocation of
projects to optimize the efficient use of resources in achieving the strategic
objectives of the organization.
High levels of competence are embedded in all portfolio management roles, and
portfolio management skills are seen as important for career advancement.
Portfolio gate reviews are used to proactively assess and manage portfolio value
and risk.
Portfolio management informs future capacity demands, capability requirements
are recognized, and resource levels are strategically managed.
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Information is highly valued, and the organization's ability to mitigate external
risks and grasp opportunities is enhanced by identifying innovative ways to
acquire and better share knowledge.
Benefits management processes are embedded across the organization, with
benefits realization explicitly aligned with the value measurement framework.
The portfolio is actively managed to ensure the long term sustainability of the
enterprise.
Stakeholder engagement is embedded in the organization's culture, and
stakeholder management processes have been optimized.
Risk management underpins decision-making throughout the organization.
Quantitatively measurable goals for process improvement have been established
and performance against them tracked.
The relationship between the portfolio and strategic planning is understood and
managed.
Resource allocations to and from projects are intimately aligned so as the
maximize value creation.
Level 5 organizations are obtaining maximum possible value from project portfolio
management. By fully institutionalizing project portfolio management into their culture
they free people to become more creative and innovative in achieving business success.
Building Project Portfolio Management Maturity
Experience shows that building project portfolio management maturity takes time. As
suggested by, significant short-term performance gains can be achieved, but making step
changes requires understanding current weaknesses and the commitment of effort and
resources.
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Step changes can be made, but achieving high levels of maturity typically takes years
QUALITIES OF PORTFOLIO MANAGER:
1. SOUND GENERAL KNOWLEDGE : Portfolio management is an exciting and
challenging job. He has to work in an extremely uncertain and confliction environment. In the
stock market every new piece of information affects the value of the securities of different
industries in a different way. He must be able to judge and predict the effects of the information
he gets. He must have sharp memory, alertness, fast intuition and self-confidence to arrive at
quick decisions.
2. ANALYTICAL ABILITY : He must have his own theory to arrive at the
instrinsic value of the security. An analysis of the security‘s values, company, etc. is s
continuous job of the portfolio manager. A good analyst makes a good financial consultant. The
analyst can know the strengths, weaknesses, opportunities of the economy, industry and the
company.
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3. MARKETING SKILLS : He must be good salesman. He has to convince the
clients about the particular security. He has to compete with the stock brokers in the stock
market. In this context, the marketing skills help him a lot.
4. EXPERIENCE : In the cyclical behavior of the stock market history is often
repeated, therefore the experience of the different phases helps to make rational decisions. The
experience of the different types of securities, clients, market trends, etc., makes a perfect
professional manager.
PORTFOLIO BUILDING :
Portfolio decisions for an individual investor are influenced by a wide variety of factors.
Individuals differ greatly in their circumstances and therefore, a financial programme well suited
to one individual may be inappropriate for another. Ideally, an individual‘s portfolio should be
tailor-made to fit one‘s individual needs.
Investor‘s Characteristics:
An analysis of an individual‘s investment situation requires a study of personal
characteristics such as age, health conditions, personal habits, family responsibilities, business or
professional situation, and tax status, all of which affect the investor‘s willingness to assume
risk.
Stage in the Life Cycle:
One of the most important factors affecting the individual‘s investment objective is his
stage in the life cycle. A young person may put greater emphasis on growth and lesser emphasis
on liquidity. He can afford to wait for realization of capital gains as his time horizon is large.
Family responsibilities:
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The investor‘s marital status and his responsibilities towards other members of the family can
have a large impact on his investment needs and goals.
Investor‘s experience:
The success of portfolio depends upon the investor‘s knowledge and experience in
financial matters. If an investor has an aptitude for financial affairs, he may wish to be more
aggressive in his investments.
Attitude towards Risk:
A person‘s psychological make-up and financial position dictate his ability to assume the
risk. Different kinds of securities have different kinds of risks. The higher the risk, the greater the
opportunity for higher gain or loss.
Liquidity Needs:
Liquidity needs vary considerably among individual investors. Investors with regular
income from other sources may not worry much about instantaneous liquidity, but individuals
who depend heavily upon investment for meeting their general or specific needs, must plan
portfolio to match their liquidity needs. Liquidity can be obtained in two ways:
1. By allocating an appropriate percentage of the portfolio to bank deposits, and
2. By requiring that bonds and equities purchased be highly marketable.
Tax considerations:
Since different individuals, depending upon their incomes, are subjected to different marginal
rates of taxes, tax considerations become most important factor in individual‘s portfolio strategy.
There are differing tax treatments for investment in various kinds of assets.
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Time Horizon:
In investment planning, time horizon becomes an important consideration. It is highly
variable from individual to individual. Individuals in their young age have long time horizon for
planning, they can smooth out and absorb the ups and downs of risky combination. Individuals
who are old have smaller time horizon, they generally tend to avoid volatile portfolios.
Individual‘s Financial Objectives:
In the initial stages, the primary objective of an individual could be to accumulate wealth via
regular monthly savings and have an investment programmed to achieve long term capital gains.
Safety of Principal:
The protection of the rupee value of the investment is of prime importance to most investors.
The original investment can be recovered only if the security can be readily sold in the market
without much loss of value.
Assurance of Income:
`Different investors have different current income needs. If an individual is dependent of its
investment income for current consumption then income received now in the form of dividend
and interest payments become primary objective.
Investment Risk:
All investment decisions revolve around the trade-off between risk and return. All
rational investors want a substantial return from their investment. An ability to understand,
measure and properly manage investment risk is fundamental to any intelligent investor or a
speculator. Frequently, the risk associated with security investment is ignored and only the
rewards are emphasized. An investor who does not fully appreciate the risks in security
investments will find it difficult to obtain continuing positive results.
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RISK AND EXPECTED RETURN:
There is a positive relationship between the amount of risk and the amount of expected
return i.e., the greater the risk, the larger the expected return and larger the chances of substantial
loss. One of the most difficult problems for an investor is to estimate the highest level of risk he
is able to assume.
Risk is measured along the horizontal axis and increases from the left to right.
Expected rate of return is measured on the vertical axis and rises from bottom to top.
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The line from 0 to R (f) is called the rate of return or risk less investments commonly
associated with the yield on government securities.
The diagonal line form R (f) to E(r) illustrates the concept of expected rate of return
increasing as level of risk increases.
TYPES OF RISKS:
Risk consists of two components. They are
1. Systematic Risk
2. Un-systematic Risk
1. Systematic Risk:
Systematic risk is caused by factors external to the particular company and uncontrollable
by the company. The systematic risk affects the market as a whole. Factors affect the systematic
risk are
economic conditions
political conditions
sociological changes
The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They
are
a) Market Risk
b) Interest Rate Risk
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c) Purchasing Power Risk
a). Market Risk
One would notice that when the stock market surges up, most stocks post higher price.
On the other hand, when the market falls sharply, most common stocks will drop. It is not
uncommon to find stock prices falling from time to time while a company‘s earnings are rising
and vice-versa. The price of stock may fluctuate widely within a short time even though earnings
remain unchanged or relatively stable.
b). Interest Rate Risk:
Interest rate risk is the risk of loss of principal brought about the changes in the interest
rate paid on new securities currently being issued.
c). Purchasing Power Risk:
The typical investor seeks an investment which will give him current income and / or
capital appreciation in addition to his original investment.
2. Un-systematic Risk:
Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of
raising finance and paying back the loans, involve the risk element. Financial leverage of the
companies that is debt-equity portion of the companies differs from each other. All these factors
affect the un-systematic risk and contribute a portion in the total variability of the return.
Managerial inefficiently
Technological change in the production process
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Availability of raw materials
Changes in the consumer preference
Labor problems
The nature and magnitude of the above mentioned factors differ from industry to industry
and company to company. They have to be analyzed separately for each industry and firm. Un-
systematic risk can be broadly classified into:
a) Business Risk
b) Financial Risk
a. Business Risk:
Business risk is that portion of the unsystematic risk caused by the operating environment of the
business. Business risk arises from the inability of a firm to maintain its competitive edge and
growth or stability of the earnings. The volatility in stock prices due to factors intrinsic to the
company itself is known as Business risk. Business risk is concerned with the difference between
revenue and earnings before interest and tax. Business risk can be divided into.
i). Internal Business Risk
Internal business risk is associated with the operational efficiency of the firm. The
operational efficiency differs from company to company. The efficiency of operation is reflected
on the company‘s achievement of its pre-set goals and the fulfillment of the promises to its
investors.
ii).External Business Risk
External business risk is the result of operating conditions imposed on the firm by
circumstances beyond its control. The external environments in which it operates exert some
pressure on the firm. The external factors are social and regulatory factors, monetary and fiscal
policies of the government, business cycle and the general economic environment within which a
firm or an industry operates.
b. Financial Risk:
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It refers to the variability of the income to the equity capital due to the debt capital. Financial
risk in a company is associated with the capital structure of the company. Capital structure of the
company consists of equity funds and borrowed funds.
PORTFOLIO ANALYSIS:
Various groups of securities when held together behave in a different manner and give
interest payments and dividends also, which are different to the analysis of individual securities.
A combination of securities held together will give a beneficial result if they are grouped in a
manner to secure higher return after taking into consideration the risk element.
There are two approaches in construction of the portfolio of securities. They are
Traditional approach
Modern approach
TRADITIONAL APPROACH:
Traditional approach was based on the fact that risk could be measured on each
individual security through the process of finding out the standard deviation and that security
should be chosen where the deviation was the lowest. Traditional approach believes that the
market is inefficient and the fundamental analyst can take advantage of the situation. Traditional
approach is a comprehensive financial plan for the individual. It takes into account the
individual need such as housing, life insurance and pension plans. Traditional approach basically
deals with two major decisions. They are
a) Determining the objectives of the portfolio
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b) Selection of securities to be included in the portfolio
MODERN APPROACH:
Modern approach theory was brought out by Markowitz and Sharpe. It is the combination
of securities to get the most efficient portfolio. Combination of securities can be made in many
ways. Markowitz developed the theory of diversification through scientific reasoning and
method. Modern portfolio theory believes in the maximization of return through a combination
of securities. The modern approach discusses the relationship between different securities and
then draws inter-relationships of risks between them. Markowitz gives more attention to the
process of selecting the portfolio. It does not deal with the individual needs.
MARKOWITZ MODEL:
Markowitz model is a theoretical framework for analysis of risk and return and their
relationships. He used statistical analysis for the measurement of risk and mathematical
programming for selection of assets in a portfolio in an efficient manner. Markowitz apporach
determines for the investor the efficient set of portfolio through three important variables i.e.
Return
Standard deviation
Co-efficient of correlation
Markowitz model is also called as an “Full Covariance Model“. Through this model the
investor can find out the efficient set of portfolio by finding out the trade off between risk and
return, between the limits of zero and infinity. According to this theory, the effects of one
security purchase over the effects of the other security purchase are taken into consideration and
then the results are evaluated. Most people agree that holding two stocks is less risky than
holding one stock. For example, holding stocks from textile, banking and electronic companies is
better than investing all the money on the textile company‘s stock.
Markowitz had given up the single stock portfolio and introduced diversification. The
single stock portfolio would be preferable if the investor is perfectly certain that his expectation
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of highest return would turn out to be real. In the world of uncertainty, most of the risk adverse
investors would like to join Markowitz rather than keeping a single stock, because diversification
reduces the risk.
ASSUMPTIONS:
All investors would like to earn the maximum rate of return that they can achieve from
their investments.
All investors have the same expected single period investment horizon.
All investors before making any investments have a common goal. This is the avoidance
of risk because Investors are risk-averse.
Investors base their investment decisions on the expected return and standard deviation of
returns from a possible investment.
Perfect markets are assumed (e.g. no taxes and no transition costs)
The investor assumes that greater or larger the return that he achieves on his investments,
the higher the risk factor surrounds him. On the contrary when risks are low the return
can also be expected to be low.
The investor can reduce his risk if he adds investments to his portfolio.
An investor should be able to get higher return for each level of risk “by determining the
efficient set of securities“.
An individual seller or buyer cannot affect the price of a stock. This assumption is the
basic assumption of the perfectly competitive market.
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Investors make their decisions only on the basis of the expected returns, standard
deviation and covariance’s of all pairs of securities.
Investors are assumed to have homogenous expectations during the decision-making
period
The investor can lend or borrow any amount of funds at the risk less rate of interest. The
risk less rate of interest is the rate of interest offered for the treasury bills or Government
securities.
Investors are risk-averse, so when given a choice between two otherwise identical
portfolios, they will choose the one with the lower standard deviation.
Individual assets are infinitely divisible, meaning that an investor can buy a fraction of a
share if he or she so desires.
There is a risk free rate at which an investor may either lend (i.e. invest) money or
borrow money.
There is no transaction cost i.e. no cost involved in buying and selling of stocks.
There is no personal income tax. Hence, the investor is indifferent to the form of return
either capital gain or dividend.
55
THE EFFECT OF COMBINING TWO SECURITIES:
It is believed that holding two securities is less risky than by having only one investment
in a person‘s portfolio. When two stocks are taken on a portfolio and if they have negative
correlation then risk can be completely reduced because the gain on one can offset the loss on the
other. This can be shown with the help of following example:
INTER- ACTIVE RISK THROUGH COVARIANCE:
Covariance of the securities will help in finding out the inter-active risk. When the
covariance will be positive then the rates of return of securities move together either upwards or
downwards. Alternatively it can also be said that the inter-active risk is positive. Secondly,
covariance will be zero on two investments if the rates of return are independent.
Holding two securities may reduce the portfolio risk too. The portfolio risk can be
calculated with the help of the following formula:
CAPITAL ASSET PRICING MODEL (CAPM):
Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure of
Capital Asset Pricing Model. It is a model of linear general equilibrium return. In the CAPM
theory, the required rate return of an asset is having a linear relationship with asset‘s beta value
i.e. un-diversifiable or systematic risk (i.e. market related risk) because non market risk can be
eliminated by diversification and systematic risk measured by beta. Therefore, the relationship
between an assets return and its systematic risk can be expressed by the CAPM, which is also
called the Security Market Line.
56
R = Rf Xf+ Rm(1- Xf)
Rp = Portfolio return
Xf =The proportion of funds invested in risk free assets
1- Xf = The proportion of funds invested in risky assets
Rf = Risk free rate of return
Rm = Return on risky assets
Formula can be used to calculate the expected returns for different situations, like mixing
risk less assets with risky assets, investing only in the risky asset and mixing the borrowing with
risky assets.
THE CONCEPT:
According to CAPM, all investors hold only the market portfolio and risk less securities.
The market portfolio is a portfolio comprised of all stocks in the market. Each asset is held in
proportion to its market value to the total value of all risky assets.
For example, if wipro Industry share represents 15% of all risky assets, then the market
portfolio of the individual investor contains 15% of wipro Industry shares. At this stage, the
investor has the ability to borrow or lend any amount of money at the risk less rate of interest.
E.g.: assume that borrowing and lending rate to be 12.5% and the return from the risky
assets to be 20%. There is a trade off between the expected return and risk. If an investor invests
in risk free assets and risky assets, his risk may be less than what he invests in the risky asset
alone. But if he borrows to invest in risky assets, his risk would increase more than he invests his
own money in the risky assets. When he borrows to invest, we call it financial leverage. If he
57
invests 50% in risk free assets and 50% in risky assets, his expected return of the portfolio would
be
Rp= Rf Xf+ Rm(1- Xf)
= (12.5 x 0.5) + 20 (1-0.5)
= 6.25 + 10
= 16.25%
if there is a zero investment in risk free asset and 100% in risky asset, the return is
Rp= Rf Xf+ Rm(1- Xf)
= 0 + 20%
= 20%
if -0.5 in risk free asset and 1.5 in risky asset, the return is
Rp= Rf Xf+ Rm(1- Xf)
= (12.5 x -0.5) + 20 (1.5)
= -6.25+ 30
= 23.75%
EVALUATION OF PORTFOLIO:
58
Portfolio manager evaluates his portfolio performance and identifies the sources of
strengths and weakness. The evaluation of the portfolio provides a feed back about the
performance to evolve better management strategy. Even though evaluation of portfolio
performance is considered to be the last stage of investment process, it is a continuous process.
There are number of situations in which an evaluation becomes necessary and important.
i. Self Valuation : An individual may want to evaluate how well he has done. This
is a part of the process of refining his skills and improving his performance over a period
of time.
ii. Evaluation of Managers : A mutual fund or similar organization might
want to evaluate its managers. A mutual fund may have several managers each running a
separate fund or sub-fund. It is often necessary to compare the performance of these
managers.
iii. Evaluation of Mutual Funds : An investor may want to evaluate the
various mutual funds operating in the country to decide which, if any, of these should be
chosen for investment. A similar need arises in the case of individuals or organizations
who engage external agencies for portfolio advisory services.
iv. Evaluation of Groups : have different skills or access to different
information. Academics or researchers may want to evaluate the performance of a whole
group of investors and compare it with another group of investors who use different
techniques or who
NEED FOR EVALUATION OF PORTFOLIO:
We can try to evaluate every transaction. Whenever a security is brought or sold, we can
attempt to assess whether the decision was correct and profitable.
59
We can try to evaluate the performance of a specific security in the portfolio to determine
whether it has been worthwhile to include it in our portfolio.
We can try to evaluate the performance of portfolio as a whole during the period without
examining the performance of individual securities within the portfolio.
PORTFOLIO REVISION:
The portfolio which is once selected has to be continuously reviewed over a period of
time and then revised depending on the objectives of the investor. The care taken in construction
of portfolio should be extended to the review and revision of the portfolio. Fluctuations that
occur in the equity prices cause substantial gain or loss to the investors.
The investor should have competence and skill in the revision of the portfolio. The
portfolio management process needs frequent changes in the composition of stocks and bonds. In
securities, the type of securities to be held should be revised according to the portfolio policy.
An investor purchases stock according to his objectives and return risk framework. The
prices of stock that he purchases fluctuate, each stock having its own cycle of fluctuations.
These price fluctuations may be related to economic activity in a country or due to other changed
circumstances in the market.
If an investor is able to forecast these changes by developing a framework for the future
through careful analysis of the behavior and movement of stock prices is in a position to make
higher profit than if he was to simply buy securities and hold them through the process of
diversification. Mechanical methods are adopted to earn better profit through proper timing. The
investor uses formula plans to help him in making decisions for the future by exploiting the
fluctuations in prices.
60
FORMULA PLANS:
The formula plans provide the basic rules and regulations for the purchase and sale of
securities. The amount to be spent on the different types of securities is fixed. The amount may
be fixed either in constant or variable ratio. This depends on the investor‘s attitude towards risk
and return. The commonly used formula plans are
i. Average Rupee Plan
ii. Constant Rupee Plan
iii. Constant Ratio Plan
iv. Variable Ratio Plan
ADVANTAGES:
Basic rules and regulations for the purchase and sale of securities are provided.
The rules and regulations are rigid and help to overcome human emotion.
The investor can earn higher profits by adopting the plans.
A course of action is formulated according to the investor‘s objectives
It controls the buying and selling of securities by the investor.
DISADVANTAGES:
The formula plan does not help the selection of the security. The selection of the security
has to be done either on the basis of the fundamental or technical analysis.
It is strict and not flexible with the inherent problem of adjustment.
The formula plans should be applied for long periods, otherwise the transaction cost may
be high.
Even if the investor adopts the formula plan, he needs forecasting. Market forecasting
helps him to identify the best stocks.
61
TOPIC 1 ; PORTFOLIO MANAGEMENT
1. OVERVIEW : The main purpose of studying is to examine
the policy adopted for decision making in
the area of Portfolio management in General
Insurance Company with a special focus on
Portfolio.
2. SCOPE : In the presence study cover through
examination of procedures of decision
making portfolio management
environment, selection of securities
Weights of different securities and
Earning of Portfolio.
3. FINDINGS : The trend of Stock Exchange, securities in
India has shown increasing trend on an
Average the investments in such securities
increased by 153.47% yearly over the study
period. How ever the trend of investment in
stock exchange, securities both in India and
Outside India has shown investment incase
62
Is 154.77% per year over the study period.
TOPIC 2 : PORTFOLIO MANAGEMENT USING CAPM
1. OVERVIEW : Portfolio analysis to measure this actual risk
And return of securities and to calculate the
Expected returns of securities using
Security market line to compare the expected
Return with actual return to assist investor in
Making rational investment decision to which
Security to buy or sell using security market
Line which is to suggested the best portfolio
Mix .
2. SCOPE : The scope of the study is limited to this use of
Security market line as a tool of selecting
Security and advising the investors about the
Best portfolio mix.
3. FINDINGS : There is a significant difference between the
Expected returns and actual returns. The next
Step is to identify the securities which are under
Value when their expected returns is more than
Actual returns, it can be observed undervalued
63
Securities like Cipla, Dr. Reddy Labs, HDFC
Bank, wipro etc., wipro is linear since the
Weights (X) are the variables
INVESTMENT
Investment may be defined as an activity that commits funds in any financial form in the
present with an expectation of receiving additional return in the future. The expectations bring
with it a probability that the quantum of return may vary from a minimum to a maximum. This
possibility of variation in the actual return is known as investment risk. Thus every investment
involves a return and risk.
Investment is an activity that is undertaken by those who have savings. Savings can be
defined as the excess of income over expenditure. An investor earns/expects to earn additional
monetary value from the mode of investment that could be in the form of financial assets.
The three important characteristics of any financial asset are:
Return-the potential return possible from an asset.
Risk-the variability in returns of the asset form the chances of its value going down/up.
Liquidity-the ease with which an asset can be converted into cash.
Investors tend to look at these three characteristics while deciding on their individual
preference pattern of investments. Each financial asset will have a certain level of each of these
characteristics.
64
Investment avenues
There are a large number of investment avenues for savers in India. Some of them are
marketable and liquid, while others are non-marketable. Some of them are highly risky while
some others are almost risk less.
Investment avenues can be broadly categorized under the following head.
1. Corporate securities
2. Equity shares.
3. Preference shares.
4. Debentures/Bonds.
5. Derivatives.
6. Others.
Corporate Securities
Joint stock companies in the private sector issue corporate securities. These include
equity shares, preference shares, and debentures. Equity shares have variable dividend and hence
belong to the high risk-high return category; preference shares and debentures have fixed returns
with lower risk.The classification of corporate securities that can be chosen as investment
avenues can be depicted as shown below:
ANALYSIS & INTERPRETION
CALCULATION OF AVERAGE RETURN OF COMPANIES: _ Average Return (R) = (R)/N
65
Equity Shares
Preference shares
Bonds Warrants Derivatives
(P0) = Opening price of the share (P1) = Closing price of the share D = DividendWIPRO:
Year (P0) (P1) D (P1-P0)D+(P1-P0)/
P0*1002005-2006 1,233.45 1361.20 29 127.75 12.712006-2007 1,361.20 2,012 5 650.8 48.162007-2008 2012 1900.75 5 -111.25 -15.842008-2009 1900.75 1900.45 8 -0.3 1.382009-2010 1900.45 425.30 - -1475.15 -0.776
TOTAL RETURN 27.809
Average Return = 27.81/6 = 4.6
ITC LTD:
Year (P0) (P1) D (P1-P0)D+(P1-P0)/
P0*1002005-2006 628.25 1043.10 20 414.85 69.252006-2007 1043.10 1342.05 31.8 298.95 31.72007-2008 1342.05 2932 2.65 1589.95 118.672008-2009 2932 2976 3.1 44 1.612009-2010 2976 206.35 3.5 -2769.7 -93
TOTAL RETURN 120.5
Average Return = 120.5/6 =20.1
66
DR REDDY LABORATORIES LTD:
Year (P0) (P1) D (P1-P0)D+(P1-P0)/
P0*1002005-2006 916.30 974.35 5 58.2 6.892006-2007 974.35 739.15 5 23.52 -23.632007-2008 739.15 1,421.40 5 682.25 92.982008-2009 1,421.40 1456.55 3.75 35.15 2.742009-2010 1456.55 591.25 .75 -865.3 -59.4
TOTAL RETURN 4.03
Average Return = 4.03/6 = .067
ACC:
Year (P0) (P1) D (P1-P0)D+(P1-P0)/
P0*1002005-2006 138.50 254.65 4 116.15 86.712006-2007 254.65 360.55 7 105.9 44.342007-2008 360.55 782.20 8 421.61 119.192008-2009 782.20 735.25 25 -46.95 -2.82009-2010 735.23 826.10 2 90.85 12.63
TOTAL RETURN 252.09
Average Return = 252.09/6 =42.02
BHARAT HEAVY ELECTRICALS LTD:
67
Year (P0) (P1) D (P1-P0)D+(P1-P0)/
P0*1002005-2006 223.15 604.35 9.5 38.12 175.082006-2007 604.35 766.40 8.5 162.05 28.22007-2008 766.40 2241.95 10.5 1475.55 193.92008-2009 2241.95 2261.35 18.5 19.4 1.692009-2010 2661.35 2056.55 1.53 -204.8 -8.99
TOTAL RETURN 424.28
Average Return = 424.28/6 = 70.713
HEROHONDA AUTOMOBILES LIMITED:
Year (P0) (P1) D (P1-P0)D+(P1-P0)/
P0*1002005-2006 188.20 490.60 20 302.40 171.32006-2007 490.60 548.00 20 57.40 15.772007-2008 548.00 890.45 20 342.45 66.142008-2009 890.45 688.75 17 -20.17 -20.742009-2010 688.75 9.5 1.45 1.45 1.958
TOTAL RETURN 194.99
Average Return = 194.99/6 = 32.498
DIAGRAMATIC PRESENTATION
68
RETURN
CALCULATION OF STANDARD DEVIATION:
COMPANY RETURN
WIPRO 4.6
ITC 20.1
DR.REDDY .067
ACC 42.02
BHEL 70.713
HEROHONDA 32.498
69
Standard Deviation = Variance __Variance = 1/n (R-R)2
WIPRO:
YearReturn
(R)Avg.
Return (R) (R-R) (R-R)2
2005-2006 12.71 4.6 8.11 65.772006-2007 48.16 4.6 43.56 1897.52007-2008 -5.84 4.6 -10.44 108.992008-2009 .0405 4.6 -4.678 17.5982009-2010 -0.776 4.6 -4.678 21.881
TOTAL 3,136.39
_Variance = 1/n (R-R)2 = 1/6 (3136.39) = 552.73
Standard Deviation = Variance = 552.73 =22.86
ITC LTD:
YearReturn
(R)Avg.
Return (R) (R-R) (R-R)2
2005-2006 69.25 20.1 49.17 2416.792005-2006 31.7 20.1 11.6 134.562006-2007 118.67 20.1 98.57 9,716.842007-2008 1.61 20.1 -18.49 341.892009-2010 -93 20.1 -113.1 12,791.6
TOTAL 26,172.9
Variance = 1/n (R-R)2 = 1/6 (26,172.9) =4,362.14
Standard Deviation = Variance = 4,362.14= 66.04
DR. REDDY:
70
YearReturn
(R)Avg.
Return (R) (R-R) (R-R)2
2005-2006 6.89 .067 6.22 38.692006-2007 -23.63 .067 -24.3 590.472007-2008 92.98 .067 92.31 8,521.1362008-2009 2.74 .06 2.07 4.28472009-2010 -59.4 .067 -60.07 3,646.24
TOTAL 13,063.9
Variance = 1/n-1 (R-R)2 = 1/6 (13,063.9) = 2,177.32
Standard Deviation = Variance = 2,177.32= 41.7
ACC:
YearReturn
(R)Avg.
Return (R) (R-R) (R-R)2
2005-2006 86.71 42.02 44.67 1,996.3022006-2007 42.02 42.02 2.32 5.3832007-2008 119.19 42.02 77.17 5,955.202008-2009 -2.8 42.02 -44.82 -2008.832009-2010 12.63 42.02 -29.37 863.18
TOTAL 13,09.52
Variance = 1/n-1 (R-R)2 = 1/6 (13,09.52) = 2,234.920
Standard Deviation = Variance = 2,234.920 = 47.27
71
BHEL:
YearReturn
(R)Avg.
Return (R) (R-R) (R-R)2
2005-2006 175.08 70.71 104.37 10,893.12006-2007 28.2 70.71 -42.51 1,807.12007-2008 193.9 70.71 123.17 15,173.32008-2009 1.69 70.71 -69.02 4,763.762009-2010 -8.99 70.71 -79.7 6,352.09
TOTAL 40,307.8
Variance = 1/n-1 (R-R)2 = 1/6 (40,307.8) = 6,717.96
Standard Deviation = Variance = 6,717.96 = 81.963
HERO HONDA:
YearReturn
(R)Avg.
Return (R) (R-R) (R-R)2
2003-2004 171.3 32.59 138.71 19,240.52006-2007 15.77 32.59 -16.82 284.12007-2008 66.14 32.59 33.57 1,126.2732008-2009 -20.74 32.59 -53.33 2,844.12009-2010 1.598 32.59 -31 -960.8
TOTAL 29,592.4
Variance = 1/n-1 (R-R)2 = 1/6 (29,592.4) = 4,232.1
Standard Deviation = Variance = 4,232.1 = 70.23
DIAGRAMATIC PRESENTATION
72
COMPANY RISK
WIPRO 22.86
ITC 66.04
DR.REDDY 46.66
ACC 47.963
BHEL 81.963
HEROHONDA 70.23
RISK
CALCULATION OF CORRELATION:
73
Covariance (COV ab) = 1/n (RA-RA)(RB-RB) Correlation Coefficient = COV ab/a*b
WIPRO WITH OTHER COMPANIESi. WIPRO (RA) & ITC (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 49.17 398.862006-2007 43.56 11.6 505.2962007-2008 -10.44 98.57 -1,029.12008-2009 -4.195 -18.49 77.572009-2010 -4.678 -113.1 529.1
TOTAL 1,370.65Covariance (COV ab) = 1/6 (1,370.65) = 228.44Correlation Coefficient = COV ab/a*b
a = 22.86 ; b = 66.04 = 228.44/(22.86)(66.04) = .0151
ii) WIPRO (RA)&DR.REDDY (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 6.22 50.442006-2007 43.56 -24.3 -1,058.52007-2008 -10.44 92.31 -963.72008-2009 -4.195 2.07 -8.692009-2010 -4.678 -60.07 281.01
TOTAL -1,180.3
Covariance (COV ab) = 1/9 (-1,180.3) = -196.72 Correlation Coefficient = COV ab/a*b
a = 22.86 ; b = 46.66 = -196.72/(22.86)(46.66) = -0.184
iii. WIPRO (RA) & ACC (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)
74
2005-2006 -32.01 -50.7 1,622.912006-2007 8.11 44.67 362.32007-2008 43.56 2.32 101.182008-2009 -10.44 77.17 -805.72009-2010 -4.195 -44.82 188.02
TOTAL 1,606.11
Covariance (COV ab) = 1/6(1,606.11) = 267.69
Correlation Coefficient = COV ab/a*ba = 22.86 ; b = 47.27 = 267.69/(22.86)(47.27) = .0247
iv. WIPRO (RA) & BHEL (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 104.37 846.452006-2007 43.56 -42.51 -1,851.72007-2008 -10.44 123.17 -1,285.92008-2009 -4.195 -69.02 289.542009-2010 -4.678 -79.7 372.84
TOTAL -466.51
Covariance (COV ab) = 1/6(-466.51) = -77.8Correlation Coefficient = COV ab/a*b
a = 22.86; b = 81.963
= -77.8/(22.86)(81.96) = -0.042
v. WIPRO (RA) & HERO HONDA (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 138.71 1,124.9
75
2006-2007 43.56 -16.82 -732.682007-2008 -10.44 33.57 -358.482008-2009 -2.42 -59.44 143.82009-2010 -4.68 -31 145.1
TOTAL 2,697
Covariance (COV ab) = 1/6 (2,697) = 449.7
Correlation Coefficient = COV ab/a*ba = 22.86 ; b = 70.23= 2,697/(22.86)(70.23) = 0.28
2. Correlation between ITC & other Companies:
i. ITC (RA) & DR REDDY (RB)
Covariance (COV ab) = 1/6 (16,417.2) = 2,736.2
Correlation Coefficient = COV ab/a*ba = 66.04; b =46.66 = 2,736.2/(66.04)(46.66) = .089
ii. ITC (RA) &ACC (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 44.67 2,196.42006-2007 11.6 2.32 26.9122007-2008 98.54 77.17 7,686.7
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 6.22 385.842006-2007 11.6 -243. -281.92007-2008 98.57 92.31 9,099.962008-2009 -18.49 2.07 -38.32009-2010 -113.1 -60.07 6,793.92
TOTAL 16,417.1
76
2008-2009 -18.49 -44.82 828.722009-2010 -113 -29.37 3,321.75
TOTAL 15,548.4
Covariance (COV ab) = 1/6 (15,548.4) = 2,591.4
Correlation Coefficient = COV ab/a*ba = 66.04; b = 47.23= 2,591.4/(66.04)(66.23) = 0.830
iii. ITC (RA) &BHEL (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 104.37 5,131.872006-2007 11.6 -42.51 -493.122007-2008 98.57 123.17 12,140.872008-2009 -18.49 -69.02 1,276.182009-2010 -113.1 -79.7 9,014.1
TOTAL 28,078.3
Covariance (COV ab) = 1/6 (28,078.3) = 4,679.71
Correlation Coefficient = COV ab/a*ba = 66.04 ; b = 81.963= 4,679.71/(66.04)(81.963) = 0.865
iv. ITC (RA) & HERO HONDA (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 138.7 6,820.42006-2007 11.6 -16.71 -198.842007-2008 98.57 33.57 3,308.992008-2009 -18.49 -53.33 986.0722009-2010 -113.1 -31 3,506.1
TOTAL 16,417.98
77
Covariance (COV ab) = 1/6 (16,417.98) = 2,736.33
Correlation Coefficient = COV ab/a*ba = 66.04; b = 70.23= 2,736.33/(66.04)(70.23) = 0.587
3. Correlation Between DR REDDY & Other Companies
i. DR REDDY(RA) &ACC(RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 44.67 277.852006-2007 -24.31 2.32 -56.3992007-2008 92.31 77.17 7,123.562008-2009 2.07 -44.82 -92.782009-2010 -60.07 -29.37 1,764.26
TOTAL 9,838.84
Covariance (COV ab) = 1/6 (9,838.84) =1,639.81
Correlation Coefficient = COV ab/a*ba = 46.66 ;b = 47.27= 1,639.81/(46.66)(47.27) = 0.743
ii. DR. REDDY (RA) & BHEL (RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 104.37 649.182006-2007 -24.31 123.17 1,033.422007-2008 92.31 -69.02 11,369.822008-2009 2.07 -84.96 -142.872009-2010 -60.07 -79.7 4,787.6
TOTAL 18,286.1
78
Covariance (COV ab) = 1/6 (18,286.1) = 3,047.7
Correlation Coefficient = COV ab/a*ba = 46.66 ; b =81.96
=
3,047.7/(46.66)(81.96) = 0.796
iii. DR REDDY (RA) &HEROHONDA(RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 138.71 862.722006-2007 -24.3 -16.82 408.732007-2008 92.31 33.57 3,098.852008-2009 2.07 -53.33 -110.3932009-2010 -60.07 -31 1,862.2
TOTAL 7,284.66
Covariance (COV ab) = 1/6 (7,284.66) = 1,214.109Correlation Coefficient = COV ab/a*b
a = 46.66 ; b = 70.23= 1,214.109/(46.66)(70.23) = 0.370
4. Correlation With ACC & Other Companies
i. ACC (RA) & BHEL(RB)
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 44.67 104.37 4,662.292006-2007 2032 -42.51 -98.622007-2008 77.17 123.17 9,505.032008-2009 -44.82 -69.02 3,093.482009-2010 -29.37 -79.7 2,340.79
TOTAL 21,351.89
79
Covariance (COV ab) = 1/6(21,351.89) = 3,558.65
Correlation Coefficient = COV ab/a*ba = 47.27: b = 81.963=3,558.65/(47.27)(81.963) = 0.917
ii. ACC(RA) & HERO HONDA(RB)
Covariance (COV ab) = 1/6 (15,682.15) = 2,613.7Correlation Coefficient = COV ab/a*b
a = 47.27; b =70.23=2,613.7/(47.27)(70.23) = 0.787
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 44.67 138.71 6,196.182006-2007 2032 -16.82 -39.0222007-2008 77.17 33.57 2,590.592008-2009 -44.82 -53.33 2,390.2512009-2010 -29.37 -31 910.5
TOTAL 15,682.15
80
CORRELATION BETWEEN BHEL(RA) &HERO HONDA
YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 104.37 138.71 14,477.22006-2007 -42.51 -16.82 715.822007-2008 123.17 33.57 4,134.822008-2009 -69.02 -53.33 3,680.842009-2010 -79.7 -31 2,470.7
TOTAL 27,541.7
Covariance (COV ab) = 1/ (27,541.7) = 4,590.29
Correlation Coefficient = COV ab/a*ba = 81.96; b =70.23= 4,590.29/(81.96)(70.23) = 0.797
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CALCULATION OF PORTFOLIO WEIGHTS:
FORMULA :
Wa = b [b-(nab*a)] a2 + b2 - 2nab*a*b
Wb = 1 – Wa WEIGHTS OF WIPRO & OTHER COMPANIES:
i. WIPRO & ITC a = 22.86
b = 66.04nab = 0.151
Wa = 66.04 [66.04-(0151*22.86)] 2 + 2 – 2(0.151)**
Wa = 4,133.311 4,427.94
Wa = 0.93Wb = 1 – Wa Wb = 1- 0.93 = 0.066
i. WIPRO & DR. REDDY
a = 22.86b = 46.66nab = -0.184
Wa = 46.66 [46.66-(-0.184*)] 2 + 2 – 2(-0.184)**
Wa = 2,373.42 3,092.2615
Wa = 0.77Wb = 1 – Wa Wb = 1- 0.77 = 0.23
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ii. WIPRO (a) & ACC (b)
a = 22.86b = 47.27nab = 0.247
Wa = 47.27 [- (0.25*)] 2 + 2 – 2(0.5)**
Wa = 1,964.82 1,767.66
Wa =1.11
Wb = 1 – Wa
Wb = 1- 1.11 = -0.11
iii. WIPRO (a) & BHEL (b)
a = 22.86b = 81.963nab = -0.042
Wa = 81.96 [81.96 - (-0.042*)] 2 + 2 – 2(-0.042)**
Wa = 6,796.18 7,397.5
Wa = 0.92
Wb = 1 – Wa
Wb = 1-0.93 =0.08
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iv. WIPRO(a) & HERO HONDA(b)
a = 22.86b = 70.23nab = 0.28
Wa = 70.23 [70.23-(0.28*22.86)] 2 + 2 – 2(0.28)**
Wa = 4,482.88 4,555.77
Wa = 0.98
Wb = 1 – Wa
Wb = 1-0.98 = 0.02
CALCULATION OF WEIGHTS OF ITC & OTHER COMPANIES:
i. ITC (a) & DR.REDDY(b)
a = 66.04b = 46.66nab = -0.89
Wa = 46.66[46.66-(-0.89*66.04)] 2 + 2 – 2(-0.89)**
Wa = -565.31 1,053.49
Wa = -054
Wb = 1 – Wa
Wb = 1- (-054) = 1.54
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ii. ITC (a) & ACC (b) a = 66.04b = 47.27nab = 0.830
Wa = 47.27 [47.27-(0.830*66.04)] 2 + 2 – 2(0.830)**
Wa = 356.57 1,413.690
Wa = 0.25
Wb = 1 – Wa
Wb = 1- 0.25 = 0.75
iii. ITC (a) & BHEL (b)
a = 66.04b = 81.96nab = 0.87
Wa = 81.96 [81.96 - (0.87*66.04)] 2 + 2 – 2(0.87)**
Wa = 208.8 1,660.79
Wa =1.21
Wb = 1 – Wa
Wb = 1- 1.21 = -0.21
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iv. ITC(a) & HERO HONDA (b)
a = 66.04b = 70.23nab = 0.59
Wa = 70.23 [70.23-(0.59*66.04)] 2 + 2 – 2(0.59)**
Wa = 2,196.1 3,820.7
Wa = 0.57
Wb = 1 – Wa
Wb = 1- 0.57 = 0.43
WEIGHTS OF DRREDDY & OTHER COMPANIES:
DRREDDY (a) & ACC (b)
a = 46.7b = 47.7nab = 0.74
Wa = 47.7 [47.7- (0.74*46.7)] 2 + 2 – 2(0.74)**
Wa = 602.6 1,149.01
Wa = 0.52Wb = 1 – Wa Wb = 1- 0.52 = 0.48
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DRREDDY (a) & BHEL (b) a = 46.7
b = 81.96nab = 0.80
Wa = 81.96 [81.96-(0.80*46.7)] 2 + 2 – 2(0.80)**
Wa = 3,655.42 2,774.3
Wa = 1.32Wb = 1 – Wa
Wb = 1- 1.32 = -032
v. DRREDDY (a) & HEROHONDA (b)
a = 46.67b = 70.23nab = 0.37
Wa = 70.23 [70.23-(0.37*46.67)] 2 + 2 – 2(0.37)**
Wa = 3,722.2 2,506.9
Wa = 1.48Wb = 1 – Wa Wb = 1-1.48 = -0.48
WEIGHTS OF ACC & OTHER COMPANIES
ACC(a) & BHEL (b)
a = 47.3b = 81.7nab = 0.92
Wa = 81.7 [81.7-(0.92*47.3)] 2 + 2 – 2(0.92)**
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Wa = 3,119.6 1,801.7
Wa = 1.73
Wb = 1 – Wa
Wb = 1- 1.73 = -0.73
ACC (a) & HEROHONDA (b)
a = 47.3b = 70.23nab = 0.79
Wa = 70.23 [70.23- (0.79*47.3)] 2 + 2 – 2(0.79)**
Wa = 2,308.5 1,921.43
Wa = 1.20
Wb = 1 – Wa
Wb = 1- 1.20 = -0.20
WEIGHTS OF BHEL (a) & HEROHONDA(b)
a = 82b = 70.23nab = 0.80
Wa = 70.23 [70.23-(0.80*82)] 2 + 2 – 2(0.80)**
Wa = 325.464 7,049.21
Wa =0.046Wb = 1 – Wa Wb = 1-0.046 = 0.95
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CALCULATION OF PORTFOLIO RISK:
RP = (a*Wa)2 + (b*Wb)2 + 2*a*b*Wa*Wb*nab
CALCULATION OF PORTFOLIO RISK OF WIPRO & OTHER COMPANIES:
WIPRO (a) & ITC (b):
a = 22.86 b = 66.04Wa = 0.93Wb = 0.07nab = 0.151
RP = (22.86*0.93) 22+2(22.86)(66.04)(0.93)(0.07)(0.151)
502.88 22.4%
WIPRO (a) & DR.REDDY (b):
a = 22.86b = 46.66Wa = 0.78Wb = 0.23nab = -0184
RP = (22.86*0.78.)2+(46.66*0.23) 2(22.86)(46.66)(0.78(0.23)(-0.184)
355.6 18.86%
WIPRO (a) &ACC (b):
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a = 22.86b = 47.27Wa = 1.11Wb = -0.11nab = 0.25
RP = (22.86*1.11) 2+(47.27*-0.11) 2+2(22.86)(47.27)(1.11)(-0.11)(0.25)
551.2 23.5%
WIPRO (a) & BHEL (b):
a = 22.86b = 81.96Wb = 0.92Wa = 0.08nab = -0.042
RP = (22.86*0.9)2+(81.96*0.08) 2(22.86)(81.96)(0.92)(0.08)(-0.042)
491 = 22.2%
WIPRO (a) & HERO HONDA (b):
a = 22.86b = 70.23Wa= 0.98Wb=0.02nab = 028
RP = (22.86*0.98)2(70.23*0.02)2+2(22.86)(70.23)(0.98)(0.02)(0.28)
525 = 22.85%
CALCULATION OF PORTFOLIO RISK OF ITC & OTHER COMPANIES
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ITC(a) &DR.REDDY(b):
a = 66.04b = 46.66Wa = -0.54Wb = 1.54nab = 0.89
RP = (66.04*-0.54)2+(46.66*1.54)2+2(66.04)**(1.54)*(0.89)
-678.4 = 26.85%
ITC (a) & ACC (b):
a = 66.04b =47.27Wa= 0.25Wb= 0.75nab = 0.830
RP = (66.04*0.25)2+(47.27*0.75)2+2(66.04**(0.75)*(0.830)
2,500.67 =50%
ITC (a) & BHEL (b):
a = 66.04b = 81.96 Wa= 1.21Wb= -0.21nab = 087
RP = (66.04*1.21)2+(81.96*-021)2+2(66.04)**(-0.21)*(087)
3,696.2 = 60.79%
ITC (a) & HEROHONDA (b):
a = 66.04b = 70.23Wa= 0.57
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Wb= 0.43nab= 0.59
RP = (66.04*0.57)2+(70.23*0.43)2+2(66.04)**(0.43)*(0.59)
3,670.21 = 60.58%
CALCULATION OF PORTFOLIO RISK OF DR REDDY & OTHER COMPANIES
DRREDDY (a) & ACC (b):
a = 46.7b = 47.3Wa=0.52Wb= 0.48nab = 0.74
RP = (46.7*0.52)2+(47.3*0.48)2+2(46.7)**(0.48)*(0.74)
1,922.80 = 43.85%
DRREDDY (a) & BHEL (b):
a = 46.7b = 81.96Wa= 1.32Wb = -032nab = 0.80
RP = (46.7*1.32)2+(81.96**0.32)2+2(46.7)**(-0.32)*(0.80)
525.36 = 22.93
DRREDDY (a) & HERO HONDA (b):
a = 46.67b = 70.23
92
Wa = 1.48Wb= -0.48nab = 0.37
RP = (46.67*1.48)2+(70.23*-0.48)2+2(46.67)**(-048)*(0.37)
234.89 = 15.33%
CALCULATION OF PORTFOLIO RISK OF ACC & OTHER COMPANIES
ACC (a) & BHEL (b):
a = 47.3b = 81.7Wa = 1.73Wa = -073nab = 0.92
RP = (47.3*1.73)2+(81.7*-073)2+2(47.3)**( -0.73)*(0.92)
-3,972.12 = 63.82%
ACC(a) &HEROHONDA (b):a = 47.3b = 70.23Wa= 1.20Wb = -0.20nab = 0.79
RP = (47.3*1.20)2+(70.23*-0.20)2+2(47.3)**(-0.20)*(0.79)
1,764.84 = 42%
CALCULATION OF PORTFOLIO RISK OF BHEL (a) & HERO HONDA(b)
93
a = 82b = 70.23Wa = 0.046 Wa= 0.95nab = 0.80
RP = (82*0.046)2+(70.23*0.95)2+2(82)*70.23)*0.046)*0.95)*(0.80)
4,868.34 =69.77%
CALCULATION OF PORTFOLIO RETURN:
Rp=(RA*WA) + (RB*WB)
Where Rp = portfolio return RA= return of A WA= weight of A RB= return of B WB= weight of B
CALCULATION OF PORTFOLIO RETURN OF WIPRO & OTHER COMPANIES:
WIPRO (a) & ITC (b):
RA= 4.6 WA=0.93
RB=20.1 WB=0.07
Rp = (4.6*0.93) + (20.1*0.07)
Rp = (4.28+1.41)
Rp = 5.69%
WIPRO (a) & DR.REDDY (b):
RA= 4.6 WA=0.77
RB=0.67 WB=0.23
Rp = (4.6*0.77) + (0.67*0.23)
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Rp = (3.542 + 0.1541)Rp = 3.6961%
WIPRO (a) &ACC (b):
RA= 4.6 WA=1.11
RB= 42.02 WB=-0.11
Rp = (4.6*1.11) + (42.02*-0.11)Rp = (5.106+4.622)Rp = 0.484
WIPRO (a) & BHEL (b):
RA= 4.6 WA=0.92
RB= 70.713 WB=0.08
Rp = (4.6*0.92) + (70.713*0.08)Rp = (4.322+5.657)Rp = 9.889%
WIPRO (a) & HERO HONDA (b):
RA= 4.6 WA=0.98
RB= 32.498 WB=0.02
Rp = (4.6*0.9) + (32.498*0.02)
Rp = (4.508 + 0.6499)
Rp = 5.16%
CALCULATION OF PORTFOLIO RETURN OF ITC & OTHER COMPANIES
ITC(a) &DR.REDDY(b):RA= 20.1 WA=-0.54
RB= 0.67 WB=1.54
Rp = (20.1*-0.54) + (0.67*1.54)Rp = (-10.854+1.0318)
95
Rp = -9.822%
ITC (a) & ACC (b):RA= 20.1 WA=0.25
RB= 42.02 WB=0.75
Rp = (20.1*0.25) + (42.02*0.75)
Rp = (5.23+31.52)
Rp = 36.54%
ITC (a) & BHEL (b):
RA= 20.1 WA=1.21
RB= 70.713 WB=--0.21
Rp = (20.1*1.21) + (70.713*-021)
Rp = (24.321-14.849)
Rp = 9.472%
ITC (a) & HEROHONDA (b):RA= 20.1 WA=0.57
RB= 32.498 WB=0.48
Rp= (20.1*0.57) + (32.498*0.43)
Rp= (11.45+13.978)
Rp= 25.43%
CALCULATION OF PORTFOLIO RETURN OF DR REDDY & OTHER COMPANIES
DRREDDY (a) & ACC (b):
RA= 0.67 WA=0.52
RB=42.02 WB=0.48
Rp = (0.67*0.52) + (42.02*0.48)
Rp = (.3487+20.139)
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Rp = 20.5%
DRREDDY (a) & BHEL (b):RA= 0.67 WA=1.32
RB=70.713 WB= -0.32
Rp (0.67*1.32)+(70.713*-0.32)
Rp (0.8844-22.628)
Rp -21.743%
DRREDDY (a) & HERO HONDA (b):
RA= 0.67 WA=1.48
RB=32.498 WB=-0.48
Rp (0.67*1.48) + (32.498*-0.48)
Rp (0.9916-15.599)
Rp -14.60%
CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER COMPANIES
ACC (a) & BHEL (b):
RA= 42.02 WA=1.73
RB=70.713 WB=--073
Rp = (42.02*1.73) + (70.713*-0.73)
Rp = (72.69-51.62)
Rp = 21.07%
ACC(a) &HEROHONDA (b):
RA= 42.02 WA=1.20
RB=32.498 WB=-0.20
Rp = (42.02*1.20) + (32.498*-0.20)
Rp = (50.424-6.499)Rp = 43.92%
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CALCULATION OF PORTFOLIO RETURN OF BHEL (a) & HERO HONDA(b)
RA= 70.713 WA=0.046
RB=32.498 WB=0.95
Rp= (70.713*0.046) + (32.498*098)
=(3.252+30.873)
= 34.13%
DISPLAY OF ALL CALCULATED VALUES
COMBINATION CORRELATION COVARIANCEPORTFOLIO RETURN
PORTFOLIO RISK
WIPRO & ITC 0.151 228.44 5.7 22.4
WIPRO & DR.REDDY -0.184 -196.72 3.7 18.9
WIPRO & ACC 0.247 267.69 0.49 23.5
WIPRO & BHEL -0.042 -77.8 9.9 22.2
WIPRO &H.HONDA 0.28 449.7 5.0 22.9
ITC & DR.REDDY 0.89 2736.2 -9.8 26.9
ITC &ACC 0.830 2591.4 36.542 50
ITC &BHEL 0.865 4649.71 9.5 60.8
ITC &HEROHONDA 0.587 2736.33 25.4 60.6
DR.REDDY & ACC .7434 1639.8 20.5 43.9
DR.REDDY & BHEL 0.7969 3047.7 -21.7 22.9
DR REDDY&HONDA 0.705 1,124.1095 -14.6 15.3
ACC&BHEL 0.917 3,558.65 21.07 63.8
ACC & H.HONDA 0.7873 2,613.7 43.9 42
BHEL & H.HONDA 0.797 4,590.29 34.13 69.8
I nterpretations
The analytical part of the study for the 6 years period reveals the following
interpretations,
wipro with itc:
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In this combination as per the calculations and the study the wipro bears a proportion of
investment of (0.93)and where as ITC bears a proportion of (0.07)which is less than compared to
wipro. The standard deviation of wipro is (22.86) and (66.04) in ITC.
From the return point of view wipro is (4.6) and (20.1) is ITC. From risk point of view wipro is
less risk than, ITC so the investors who are will to face high risk the better option will be
investing in ITC.
wipro with bhel:
In this situation the portfolio weights of the two companies are (0.92) is Wipro and (0.08)
in BHEL. The Standard deviation of Wipro is( 22.86) and (81.96) for BHEL. The returns of
wipro and BHEL are (4.6)and (70.713) respectively. The indication is to invest more funds in
BHEL.
Wipro investments are high but where as returns or less.
Wipro with acc:
Portfolio weights for wipro and ACC are (1.11)and (-0.11) respectively. This indicates
that the investors who are interested to take more risk they can invest in this combination, and
also can get high returns.
Itc& drreddys.
The investors have another alternative bearing the investment of ITC& DR REDDY
which are having weights are (-0.54) for itc and (1.54) for dr reddy. The standard deviation of
both are itc and dr reddy having (66.04)and (46.66) respectively.
And returns of them (20.1)and (0.67) respectively. The investors are reedy to to kake the high
risk they have to invest in itc. They can get more returns up to (66.04)
Itc&acc:
Here’s another best alternative of portfolio combination for the investor is investing in
the companies itc and acc which are having the portfolio weights of (.025) and (0.75)
respectively. The standard deviation of itc & acc are (66.04) and (47.27) respectively. And
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returns of (20.1)and (42.02) in acc. Risk is more in itc , if investor wants low risk he can invest
in acc.
Itc&herohonda:
The portfolio combination of itc and herohonda gives the proportion of investment of
(0.57)and (0.43) respectively. The returns of itc and hero Honda are (20.1) and (32.49)
respectively. The standard deviation of itc and herohonda are (66.04) and (70..4) respectively.
Even if investor thinks the risk associated with itc is less but the returns is also poor.
Dr reddy & herohonda:
In this combination as per the calculation & the study of portfolio weights of dr reddy
and herohonda are (1.48) and (-0.48) respectively. Here the standard deviation of drreddy
&herohonda are (46.66) and (70.23) respectively. Returns are (0.67) is for dr reddy (32.43) is
for herohonda.In this, position invest in hero Honda is high risk as well as high returns also up to
(32.43) when compared to dereddy.
Dr reddy&acc:
The portfolio of weights of the both (0.52)is drreddy (.048) is for acc. The standard
deviation of dr reddy is (46.66) and (47.27) for acc. The returns of drreddy is (0.67) and (42.02)
is acc. According to this combination investor can invest acc, this is more risk as well as more
returns can get up to (42.02). If investor wants less risk he has to invest in acc.Dr reddy is a low
risk as well as low returns also.
Acc&herohonda:
According to this combination of the portfolio weights are (1.20) in acc and (-0.20) is
herohonda. The standard deviation of acc is less than herohonda 47.27>70.23. if the investor
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wants to take low risk, acc is the better option. And the return point of view herohonda is
providing more returns that of acc.
According to this combination if the investor wants to get returns then he has to take the
more risk. This is the good combination for investors for investing in the acc&herohonda. For
more profits.
Bhel&herohonda:
The another combination of for portfolio decision making is bhel and herohonda. The
investment proportion of bhel is(0.046) and for herohonda is (0.95). The standard deviation of
bhel is (81.96) and (70.23) for herohonda. And the returns of them are (0.71) and (32.49). In
this combination, if investor wants high risk he can invest in bhel. If investor wants low risk a
he can invest in herohonda.
“Greater Portfolio Return with less Risk is always is an
attractive combination” for the Investors.
SUMMARY & CONCLUSION
SUMMARY
101
The investors who are risk averse can invest their funds in the portfolio
combination of ITC,ACC,HEROHONDA, BHEL AND WIPRO proportion. The
investors who are slightly risk averse are suggested to invest in WIPRO, DR.
REDDY, ACC& ITC as the combination is slightly low risk when compared with
other companies.
The analysis regarding the compaines ACC, HEROHONDA AND ITC has
howed a wise investment in public and in private sector with an increasing trend
where as corporate sector has recorded a decreasing trends income which denotes
an increasing trend throught out the study period.
CONCLUSIONS
The analytical part of study for the 6 years reveals the following as for as:
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As far as the average return of the company is concerned ACC,BHEL, HEROHONDA is high with an average return of 48.41%. WIPRO, DR.REDDY are getting low returns. HEROHONDA securities are performing at medium returns.
As far as the Standard Deviation is concerned with BHEL is at highly risk security and next high securities is HERO HONDA and ITC, DR.REDDY and ACC are performing with moderate risk and other securities are performing with low risk.
As far as the correlation is concerned the securities ITC and DR.REDDY are high correlated with minimum portfolio risk. The investor who is risk averse will have to invest in this combination which gives good return with low risk.
RECOMMENDATIONS
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As the average return of securities BHEL,ACC,HEROHONDA and ITC are HIGH, it is suggested that investors who show interest in these securities taking risk into consideration.
As the risk of the securities ITC, ACC, HEROHONDA and BHEL are risky securities it suggested that the investors should be careful while investing in these securities.
The investors who require minimum return with low risk should invest in WIPRO & DR.REDDY.
It is recommended that the investors who require high risk with high return should invest in ITC and HEROHONDA and BHEL.
The investors are benefited by investing in selected scripts of Industries.
BIBILOGRAPHY
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1.SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT-donald.E.Fisher,Ronald.J.Jordan
2.INVESTMENTS -William .F.Sharpe,gordon,J Allexander and
Jeffery.V.Baily 3.PORTFOLIOMANAGEMENT -Strong R.A
WEB REFERENCES
http;//www.nseindia.com
http;//www.bseindia.comhttp;//www.economictimes.comhttp;//www.answers.comhttp;//www.hdfc.com
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