Portfolio Management in Kotak Securites

7/29/2019 Portfolio Management in Kotak Securites

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PORTFOLIO MANAGEMENT IN STOCK MARKETING

AT KOTAK SECURITIES

PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF THE DEGREE OF P.B.SIDDHARTHA

COLLAGE OF ART & SCIENCE

BY

G.ABISHIEK

REGD.NO:-Y12MBA155017

SCHOOL OF MANAGEMENT STUDIES

PARVATHANENI BRAHMAIAH SIDDHARTHA COLLAGE OF ART & SCIENCE

Accredited by NAAC with A Grade and Affiliated to KRISHNA UNIVERSITY


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ACKNOWLEDGEMENT

Acknowledgement is due to many, without whose valuable help the project would not have been

success . my sincere thanks to Dr.RAJESH.C.JAMPALA P.B.SIDDHARTHA COLLEGE OF

ARTS & SCIENCE for providing all necessary faculties to complete this dissertation

Support and faculties were essential indicators for creating this documentation. I would

therefore, like to express my guide to Ms.KALPANA MADAM , P.B.SIDDHARTHACOLLEGE OF ARTS & SCIENCE , for her guidance encouragement and support at all stages

of the project work.I express my deep sense of gratitude and sincere guide Mr. MIR SUJATH HUSSAIN GARU,

for the voluble guidance and constant encouragement throughout the course of this work. Her

exemplary and patience, concern and understanding have resulted in completion of this work to

my fullest satisfaction

I endow my sincere thanks for her kind cooperation and inspiration

Finally I take this opportunity to convey my sincere thanks to all those to have directly and

indirectly contributed for successfully complication of this my project

G.ABISHIEK


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DECLARATION

This id to certify on a study on portfolio management and security analysis in kotak securities is

a bonafide work done by me and it is not being submitted for the award of any other degree.

G.ABISHIEK

( Y12MBA155017)


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CONTENTS

CHAPTERS PAGE NOS.

CHAPTER 1 6 - 13

INTRODUCTION

Need for the study

Scope for the study

Objectives of the study

Methodology and tools

Limitations of the study

CHAPTER 2 14 - 29

REVIEW OF LITERATURE

About the literature

Different types

Organizations survey theory

CHAPTER 3 30 - 38 INDUSTRY PROFILE

CHAPTER 4 39 - 54

Company Profile

CHAPTER 5 55 - 93

DATA ANALYSIS ANDINTERPRETATION

CHAPTER 6 94 - 99

FINDING SUGGESTIONS AND CONCLUSIONS

BIBLIOGRAPHY


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ABSTACT

Portfolio management is a process encompassing many activities of investment is assets

and securities. It is a dynamic and flexible concept and involves regular and systematic analysis,

judgment, and action.A combination of securities held together will give a beneficial result ifthey grouped in a manner to secure higher returns after taking into consideration the risk

elementsThe main objective of the Portfolio management is to help the investors to make wise

choice between alternate investments without a post trading shares. Any portfolio management

must specify the objectives like Maximum returns, Optimum Returns, Capital appreciation,

Safety etc., in the same prospectus.

This service renders optimum returns to the investors by proper selection and continuous

shifting of portfolio from one scheme to another scheme of from one plan to another plan within

the same scheme.

Five different companies are chosen for the study- WIPRO, ICICI, RELIANCE, RANBAXY,

and ITC.

The study gives the returns offered by the companies of various securities are compared

and conclusions are brought out which produces large and better portfolio combinations for the

investors.


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CHAPTER - I

INTRODUCTION


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INTRODUCTION TO THE STUDY

A portfolio is a collection of investments held by an institution or a private individual. In

building up an investment portfolio a financial institution will typically conduct its own

investment analysis, whilst a private individual may make use of the services of a

financial advisor or a financial institution which offers portfolio management services.

Holding a portfolio is part of an investment and risk-limiting strategy called

diversification. By owning several assets, certain types of risk (in particular specific risk)

can be reduced. The assets in the portfolio could include stocks, bonds, options,

warrants, gold certificates, real estate, futures contracts, production facilities, or any

other item that is expected to retain its value.Portfolio management involves deciding

what assets to include in the portfolio, given the goals of the portfolio owner and

changing economic conditions. Selection involves deciding what assets to purchase,

how many to purchase, when to purchase them, and what assets to divest. These

decisions always involve some sort of performance measurement, most typically

expected return on the portfolio, and the risk associated with this return (i.e. the

standard deviation of the return). Typically the expected returns from portfolios,

comprised of different asset bundles are compared.

The Portfolio management is a continuous process. It is a dynamic activity. The

following are the basic operations of a portfolio management.

a) Monitoring the performance of portfolio by incorporating the latest market conditions.

b) Identification of the investors objective, constraints and preferences.

c) Making an evaluation of portfolio income (comparison with targets and achievement).
http://en.wikipedia.org/wiki/Expected_returnhttp://en.wikipedia.org/wiki/Expected_returnhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Expected_return


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d) Making revision in the portfolio.

e) Implementation of the strategies in tune with investment objectives.

NEED OF THE STUDY

Portfolio management is a process encompassing many activities of investment in assets and

Securities. It is a dynamic and flexible concept and involves regular and systematic analysis,

Judgment and action. The objective of this service is to help the unknown and investors with the

expertise of professionals in investment portfolio management. It involves construction of a

portfolio based upon the investors objectives, constraints, preferences for risk and returns and

tax liability. The portfolio is reviewed and adjusted from time to time in tune with the market

conditions. The evaluation of portfolio is to be done in terms of targets set for risk and returns.

The changes in the portfolio are to be effected to meet the changing condition.

Portfolio construction refers to the allocation of surplus funds in hand among a variety of

financial assets open for investment. Portfolio theory concerns itself with the principles

Governing such allocation. The modern view of investment is oriented more go towards the

assemble of proper combination of individual securities to form investment portfolio.

A combination of securities held together will give a beneficial result if they grouped in a

manner to secure higher returns after taking into consideration the risk elements.

The modern theory is the view that by diversification risk can be reduced. Diversification

can be made by the investor 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 combination of securities under constraints of risk and returns.


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OBJECTIVES OF THE STUDY

To study the investment pattern and its related risks & returns.

To find out optimal portfolio, that gives optimal return at a minimized risk to the

investor.

To check whether the selected portfolios are yielding a satisfactory and constant return to

the investor over a period of time.

The main objective of investment portfolio management is to maximize the returns from the

investment and to minimize the risk involved. Moreover, risk in price or inflation erodes thevalues of money and hence investment must provide a protection against inflation.

Return

Portfolio management is technique ofinvesting in securities. The ultimate object of investmentin the securities is return. Hence, the first objective of portfolio management is getting higher

return.

Capital GrowthSome investors do not need regular returns. Their object of portfolio management is that not only

their current wealth is invested in the securities; they also want a channel where their future

incomes will also be invested.

LiquiditySome investors prefer that the portfolio should be such that whenever they need their money,they may get the same.

Maintaining the Purchasing Power

Inflation eats the value of money, i.e., purchasing power. Hence, one object of the portfolio isthat it must ensure maintaining the purchasing power of the investor intact besides providing the

return.

Risk ReductionthroughDiversificationIt is the perhaps most important object of the portfolio management. All other objectives

(mentioned above) can be achieved even without portfolio, i.e., through investment in a single

security, but reduction (without sacrificing the return) is possible only through portfolio.
http://en.wikipedia.org/wiki/Rate_of_returnhttp://en.wikipedia.org/wiki/Investment_managementhttp://www.wikinvest.com/metric/Investmentshttp://en.wikipedia.org/wiki/Security_%28finance%29http://en.wikipedia.org/wiki/Goalhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Goalhttp://en.wikipedia.org/wiki/Security_%28finance%29http://www.wikinvest.com/metric/Investmentshttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Rate_of_return


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SCOPE OF THE STUDY:

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.

IMPORTANCE OF THE STUDY

A project is a collection of tasks designed to create a new product, infrastructure, service or

result within a specified period. A project portfolio is a collection of projects. A company may

have several project portfolios of technology, quality-control and human resource projects.

Project portfolio management is the centralized management of project portfolios and the

responsibility of the project or portfolio management office (PMO).

Basics: Structure

The PMO structure depends on the company size and the number of ongoing projects. For

example, a large public-sector organization may have several PMOs staffed with dozens of

employees, while a small business may have an informal PMO structure of mainly part-time

staff. The PMO manager usually reports to senior management, such as the chief operating

officer. PMO staff may include portfolio managers, project managers and project analysts, along

with administrative staff.


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Coordination

The PMO is usually the central coordinating office for a company's projects. It makes resource-

allocation decisions after considering the impact on the entire company. For example, it may

move resources between two projects to ensure they are both on schedule. Similarly, it may

move equipment or funds between resource-constrained projects to ensure timely project

completion.

Implementation

PMOs play an important role in the portfolio implementation process, which usually begins with

a list of viable projects. PMO analysts may use cost/benefit analysis to whittle down this list to

one or two projects that generate the most return. Cost/benefit analysis determines the net cost or

benefit of undertaking a project. The next step is to determine if there are enough capital and

human resources on hand to manage the existing projects. In addition to allocating resources

among projects, PMOs may lend out experienced project managers to serve as internal

consultants and mentors on critical projects. They can bring a fresh perspective to problems and

work with the project team to resolve these problems.

Issues

PMOs do not guarantee project success. For example, a project may fall behind schedule because

of last-minute changes demanded by the client or if product testing uncovers a quality problem

that requires a major redesign. PMOs are cost centers, which mean that they do not make any

money. Therefore, they have to control costs and add value to ongoing projects to maintain

management support. A successful PMO is supportive, not intrusive. It fits within the corporate

culture and serves as a knowledgeable resource for project staff.


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RESEARCH METHODOLOGY OF THE STUDY:

Research design or research methodology is the procedure of collecting, analyzing and

interpreting the data to diagnose the problem and react to the opportunity in such a way where

the costs can be minimized and the desired level of accuracy can be achieved to arrive at a

particular conclusion.

The methodology used in the study for the completion of the project and the fulfillment of the

project objectives, is as follows:

Market prices of the companies have been taken for the years of different dates, there by

dividing the companies into 5 sectors.

A final portfolio is made at the end of the year to know the changes (increase/decrease) in

the portfolio at the end of the year.

DATA COLLECTIONS:

Primary data:

The primary data information is gathered from KOTAK SECURITIES by interviewing KOTAK

SECURITIES executives.

Secondary data:

The secondary data is collected from various financial books, magazines and from stock lists of

various newspapers and KOTAK SECURITIES as part of the training class undertaken for

project.


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LIMITATION OF THE STUDY

This study has been conducted purely to understand Portfolio Management for

investors.

Construction of Portfolio is restricted to two companies based on Markowitz model.

Very few and randomly selected scripts / companies are analyzed from BSE listings.

Detailed study of the topic was not possible due to limited size of the project.

There was a constraint with regard to time allocation for the research study i.e. for a

period of 45 days.


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CHAPTER - II

LITERATURE REVIEW


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It is essential for individuals to invest wisely for the rainy days and to make their future secure.

What is a Portfolio?

A portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds,cash and so on depending on the investors income, budget and convenient time frame.

Following are the two types of Portfolio:

1. Market Portfolio

2. Zero Investment Portfolio

What is Portfolio Management?

The art of selecting the right investment policy for the individuals in terms of minimumrisk and maximum return is called as portfolio management.

Portfolio management refers to managing an individuals investments in the form of bonds,

shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time

frame.

Portfolio management refers to managing money of an individual under the expert guidance of

portfolio managers.In a laymans language, the art of managing an individuals investment is called as portfolio

management.

Types of Portfolio Management

Portfolio Management is further of the following types:

Active Portfolio Management: As the name suggests, in an active portfolio management

service, the portfolio managers are actively involved in buying and selling of securities to ensuremaximum profits to individuals.

Passive Portfolio Management: In a passive portfolio management, the portfolio manager

deals with a fixed portfolio designed to match the current market scenario.

Discretionary Portfolio management services: In Discretionary portfolio managementservices, an individual authorizes a portfolio manager to take care of his financial needs on his

behalf. The individual issues money to the portfolio manager who in turn takes care of all his

investment needs, paper work, documentation, filing and so on. In discretionary portfoliomanagement, the portfolio manager has full rights to take decisions on his clients behalf.

Non-Discretionary Portfolio management services: In non discretionary portfolio

management services, the portfolio manager can merely advise the client what is good and bad

for him but the client reserves full right to take his own decisions.


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Who is a Portfolio Manager?

An individual who understands the clients financial needs and designs a suitable investment

plan as per his income and risk taking abilities is called a portfolio manager. A portfolio manager

is one who invests on behalf of the client.A portfolio manager counsels the clients and advises him the best possible investment plan

which would guarantee maximum returns to the individual.A portfolio manager must understand the clients financial goals and objectives and offer a tailormade investment solution to him. No two clients can have the same financial needs.

Roles and Responsibilities of a Portfolio Manager

A portfolio manager is one who helps an individual invest in the best available investment plansfor guaranteed returns in the future.

Let us go through some roles and responsibilities of a Portfolio manager:

A portfolio manager plays a pivotal role in deciding the best investment plan for anindividual as per his income, age as well as ability to undertake risks .

A portfolio manager is responsible for making an individual aware of the variousinvestment tools available in the market and benefits associated with each plan.

A portfolio manager is responsible for designing customized investment solutionsfor the clients.

A portfolio manager must keep himself abreast with the latest changes in thefinancial market.

RISK

Risk is uncertainty of the income / capital appreciations or loss or both. All investments are

risky. The higher the risk taken, the higher is the return. But proper management of risk involves

the rights choices of investments whose risks are compensating. The total risks of two companies

may be different and even lower than the risk of a group of two companies if their companies are

offset by each other.


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The two major types of risks are

Systematic or market related risk.

Unsystematic or company related risks.

Systematic risks

Systematic risks affected from the entire market are (the problems, raw material availability, tax

policy or government policy, inflation risk, interest risk and financial risk). It is managed by the

use of Beta of different company shares.

Unsystematic risks

Unsystematic risks are mismanagement, increasing inventory, wrong financial policy, defectivemarketing etc. this is diversifiable or avoidable because it is possible to eliminate or diversify

away this components of risks to a considerable extents by investing in a large portfolio of

securities. The unsystematic risk stems from inefficiency magnitude of those factors differentfrom one company to another.

RETURNS ON PORTFOLIO

Each security in a portfolio contributes returns in the proportion of its investments in security.Thus the portfolio expected return is the weighted average of the expected return, from each of

the securities, with weights representing the proportions share of the security in the totalinvestment. Why does an investor have so many securities in his portfolio? If the security ABC

gives the maximum return why not he invests in that security all his funds and thus maximize

return? The answer to this questions lie in the investors perception of risk attached toinvestments, his objectives of income, safety, appreciation, liquidity and hedge against loss of

value of money etc. this pattern of investment in different asset categories, types of investment,

etc, would all be described under the caption of diversification, which aims at the reduction or

even elimination of non-systematic risks and achieve the specific objectives of investors.

RISK ON PORTFOLIO

The expected returns from individual securities carry some degree of risk. Risk on the portfoliois different from the risk on individual securities. The risk is reflected in the variability of the

returns from zero to infinity. Risk of the individual assets or a portfolio is measured by the

variance of its returns. The expected return depends on the probability of the returns and theirweighted contribution to the risk of the portfolio. These are two measures of risk in this context

one is the absolute deviation and other standard deviation.


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RISK RETURN ANALYSIS

All investment has some risk. Investment in shares of companies has its own risk or uncertainty;

these risks arise out of variability of yields and uncertainty of appreciation or depreciation ofshare prices, losses of liquidity etc.

The risk over time can be represented by the variance of the returns. While the return over time

is capital appreciation plus payout, divided by the purchase price of the share


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Normally, the higher the risk that the investor takes, the higher is the return. There is, however, a

risk less return on capital of about 12% which is the bank rate charged by the R.B.I or long term,

yielded on government securities at around 13% to 14%. This risk less return refers to lack of

variability of return and no uncertainty in the repayment or capital. But other risks such as loss of

liquidity due to parting with money etc. may however remain, But are rewarded by the total

return on the capital. Risk-return is subject to variation and the objectives of the portfolio

manager are to reduce that variability and thus reduce the risk by choosing an appropriate

portfolio.

Portfolio Theories

MARKOWITZ THEORY

Markowitz approach determines for the investor the efficient set of portfolio through 3 important

variables, i.e., Standard Deviation, Covariance and Co-efficient of Correlation. Markowitz model

is called the Full Covariance Model. Through this method, the investor can with the use of

computer, find out the efficient set of portfolio by finding out the tradeoff between risk and

return between the limits of zero to 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.

Assumption under Markowitz Theory

Markowitz theory is based on the modern portfolio theory under several assumptions.

The assumptions are:-

1. The market is efficient and all investors have in their knowledge all the facts about the stock

market and so on investor can continuously make superior returns either by predicting past

behavior of stocks through technical analysis the intrinsic value of shares. Thus all investors

are in equal category.


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2. All investor before making any investment have a common goal. This is the avoidance of risk

because they are risk averse.

3. All investors would like to earn the maximum rate of return that they can achieve from their

investments.

4. The investors base their decisions on he expected rate of return of an investment. The

expected rate of return can be found out by finding out the purchase price of a security

divided by the income per year and by adding annual capital gains. It is also necessary to

know the standard deviation of the rate of return, which is begin offered on the investment.

The rate of return and standard deviation are important parameters for finding out whether

investment is worthwhile for a person.

5. Markowitz brought out the theory that it was useful insight to find out how the security

returns are correlated to each other. By combining the assets in such way that they give the

lowest risk maximum returns could be brought out by the investor.

6. From the above it is clear that investor assumes that while making an investment he will

combine his investments in such a way that he gets a maximum return and is surrounded by

minimum risk.

7. The investor assumes that greater or larger the return that he achieves on his investments, the

higher the risk factor that surrounds him. On the contrary when risks are low the return can

also be expected to be below.8. The investor can reduce his risk if he adds investments to his portfolio.

9. An investor should be able to get higher for each level of risk by determining the efficient

set of securities.

THE SHARPE INDEX MODEL

The investor always likes to purchase a combination of stock that provides the highest return and

has lowest risk. He wants to maintain a satisfactory reward to risk ratio. Traditionally analysis

paid more attention to the return aspect of the stocks. Now a days risk has received increased

attention and analysts are providing estimates of risk as well as return.

Sharp has developed a simplified model to analyze the portfolio. He assumed that the return

of a security is linearly related to a single index like the market index. Strictly speaking, the

market index should consist of all the securities trading on the exchange.


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In the absence of it, a popular index can be treated as a surrogate for the market index.

SINGLE INDEX MODEL

Casual observation of the stock prices over a period of time reveals that most of the stock pricesmove with the market index. When sensex increases, stock prices also tend to increase and vice-

versa. This indicates that some underlying factors affect the market index as well as the stock

prices. Stock prices are related to the market index and the relationship could be used to estimate

the return on stock. Towards this purpose, the following equation can be used.

imiij eRaaR

Where R = Expected return on security I

ia = Intercept of the straight line or alpha co-efficient

ia = Slope of straight line or beta co-efficient

Rm = The rate of return on marker index

ei = Error team

Corner Portfolio

The entry or exit of a new stock in the portfolio generates a series of corner portfolio. In a one

stock portfolio, itself is the corner portfolio. In a two stock portfolio, the minimum attainable risk

(variance) and the lowest return would be the corner portfolio. As the member of stocks

increases in a portfolio, the corner portfolio would be the one with lowest return and risk

combination.

Sharpes Optimal Portfolio

Sharpe has provided a model for the selection of appropriate securities in a portfolio. The

selection of any stock is directly related to its excess returnbeta ration.

ia/RfRi


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Where, Ri = The expected return on stock i

Rf = The return on a risk less asset

ia = The expected change in the rate of return on stock I associated with one unit

changer in the market return.

The excess return is the difference between the expected return on the stock and the risk less rate

of interest such as the rate offered on the government security or Treasury bill. The excess return

to beta ratio measures the additional return on security (excess of the risk less asset return) per

unit of systematic risk or non-diversifiable risk. This ratio provides a relationship between

potential risk and reward.

The steps for finding out the stocks to be included in the optimal portfolio are given below:

1. Finding out the excess return to beta ratio for each stock under consideration.

2. Rank them from the highest to the lowest

3. Proceed to calculate C for all the stocks according to the ranked order using the following

formula.

ei/iN1/ei/iRfRiNmCi 2222

4. The calculated values of Ci start declining after a particular Ci and that point is taken as

the cut-off point and that stock ratio is the cut-off ratio.

Capital Asset Price Theory

We have seen that diversifiable risk can be eliminated by diversification. The remaining risk

portion is the un-diversifiable risk i.e., market risk. As a result, investors are interested in

knowing the systematic risk when they search for efficient portfolios. They would like to have

assets with low beta coefficient i.e., systematic risk. Investors would opt for high beta co-

efficient only if they provide high rate of return. The risk were averse nature of the investors is

the underlying factor for this behavior. The capital asset pricing theory helps the investors top

understand and the risk and return relationship of the securities. It also explains how assets

should be priced in the capital market.


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The CAPM Theory

Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basis structure for the

CAPM model. It is a model of linear general equilibrium return. In the CAPM theory, the

required rate of return of an asset is having a linear relationship with assets beta value i.e.,

undiversifiable or systematic risk.

Lending and Borrowing

Here, it is assumed that the investor could borrow or lend any amount of money at risk less rate

of interest. When this opportunity is given to the investors, they can mix risk free assets with the

risk assets in a portfolio to obtain in desired rate of risk return combination.

The expected return on the combination of risky and risk free combination

Rp = RfXf+ Rm(1Xf)

Where, Rp = Portfolio return

Xf= The proportion of funds invested in risk free assets

1Xf= The proportion of funds invested in risk assets.

Rf= Risk free rate of return

Rm = Return on risky assets

This formula can be used to calculate the expected returns for different situation like mixing risk

less assets with risky assets, investing only in the risky asset and mixing the borrowing with risk

assets.


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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 all risky assets. For example, if Reliance Industry share

represents 20% of all risky assets, then the market portfolio of the individual investor contains

20% of Reliance 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. The efficient frontier of the investor is given in

figure.

The figure shows the efficient of the investor. The investor prefers any point between B & C

because, with the same level of risk they face on line BA, they are liable to get superior profits.

The ABC lines show the investors portfolio of risky assets. The investors can combine risk less

asset either by lending or borrowing. This is shown in figure,

The line RfS represent all possible combination of risk less and risky asset. The S portfolio

does not represent any risk less asset but the line RfS gives the combination of both. The

portfolio along the path RfS is called lending portfolio i.e., some money is invested in the risk

less asset or may b deposited in the bank for a fixed rate of interest if it crosses the point S, it

becomes borrowing portfolio. Money is borrowed and invested in the risky asset. The straight

lines are called Capital Market Line (CML). It gives the desirable set of investment opportunities

between risk free and risky investments. The CML represents linear relationship between the

required rates of return for efficient portfolio and their standard deviations.


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pm

fmfp

RRRRE

E(Rp) = Portfolios expected rate of return

Rm = Expected return on market portfolio

m = Standard deviation of market portfolio

p = Standard deviation of the portfolio

For a portfolio on the capital market line, the expected rate of return in excess of the risk free rate

is in proportion to the standard deviation of the market portfolio. The slope of the line gives the

price of the risk. The slope equals the risk premium for the market portfolio RmRf divided by

the risk or standard deviation of the market portfolio. Thus, the expected return of an efficient

portfolio is Expected return = Price of time + (Price of risk X amount of risk)

Price of time is the risk free rate of return. Price of risk is the premium amount higher and above

the risk free return.

Security Market Line

The Capital Market Line measures the risk-return relationship of an efficient portfolio. But, it

does not show the risk- return trade off for other portfolio and individual securities. Inefficient

portfolios lie below the capital market line and the risk-return relationship cannot be establishedwith the help of his capital market line. Standard deviation includes the systematic and

unsystematic risk. Unsystematic risk can be diversified and it is not related to the market. If the

unsystematic risk is eliminated, then the matter of concern is systematic risk alone. This

systematic risk could be measured by beta. The beta analysis is useful for individual securities

and portfolio whether efficient or inefficient.

When an additional security is added to the market portfolio, an additional risk is also added to

it. The variance of a portfolio is equal to the weighted sum of the covariance of the individual

securities in the portfolio. If we add an additional security to the market portfolio, its marginal

contribution to the variance of the market is the covariance between the securitys return and

market portfolios return.

If the security is included, the covariance between the security and the market measures the risk.

Dividing it by standard deviation of market portfolio Cov m/lm can standardize covariance.


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This shows the systematic risk of the security, and then the expected return of the security is

given by the equation.

mim

m

fmfi /VCov

RRRR

This equation can be rewritten as follows:

fmm

2

imfi RR

CovRR

The first term of the equation is nothing but the beta coefficient of the stock. The beta coefficient

of the equation of SML is same as the beta of the market (Single index) model. In equilibrium,

all efficient and inefficient portfolio lie along the security market line, The SML line helps to

determine the expected return for a given security beta. In other words, when betas are given, we

can generate expected returns for the given securities. This is explained in figure. If we assume

the expected market risk premium to be 8% and the risk free rate of return to be 7%, we can

calculate expected return for A, B, C and D securities using the formula.

fm1i RRERfRE

Present Validity of CAPM

The CAPM is greatly appealing at an intellectual level, logical and rational. The basic

assumptions on which the model is built raise, some doubts in the minds of the investors. Yet,

investment analysis has been more creative in adapting CAPM for their uses.

1. The CAPM focuses on the market risk, makes the investors to think about the

riskyness of the assets in general CAPM provides basic concept, which is truly

fundamental values.

2. The CAPM has been useful in the selection of securities and portfolio. Securities with

higher returns are considered to be undervalued and attractive for buy. The below

normal excepted return yielding securities are considered to be overvalued andsuitable for sale.

3. In the CAPM, it has been assumed that investors consider only the market risk. Given

the estimate of the risk free rate, the beta of the firm, stock and the required market

rate of return, one can find out the expected returns for a firms security. This

expected return could be used as an estimate of the cost of retained earnings.


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4. Even through CAPM has been regarded as useful tools to financial analysis; it has it

won critics too. They point out, when the model is ex-ante; the inputs also should be

ex-ante, i.e. based on the expecat5ions of the f8re. Empirical test and analysis have

used ex-post i.. Past data only:

5. The historical data regarding the market return, risk free rate of return and betas vary

differently for different periods. The various methods used to estimate these inputs

also affect the beta value. Since the inputs cannot be estimated precisely, the expected

return found out through the CAPM model is also subjected to criticism.

Arbitrage pricing theory

Arbitrage pricing theory is one of the tools used by the investors and portfolio managers. The

capital asset pricing theory explains the returns of the securities on the basis of their respectivebets. According to the previous model, the investor chooses the investment on the basis of

expected return and variance. The alternative model deployed in asset pricing by Stephen Ross is

known as Arbitrage Pricing Theory. The APT explains the nature of equilibrium in the asset

pricing in a less complicated manner with fewer assumptions compare to CAPM.

The Assumptions

1. The investors have homogeneous expectations.

2. The investor are risk averse and utility maxi misers

3. Perfect competition prevails in the market and there is no transaction cost.

The APT theory does not assume:

a) Single period investment horizon

b) No taxes

c) Investors can borrow and lend at risk free rate of interest and

d) The selection of the portfolio is based on the mean and variance analysis.

These assumptions are present in CAPM theory.

Arbitrage portfolio

According to the APT theory an investor tries to find out the possibility to increase returns from

his portfolio without increasing the funds in the portfolio. He also likes to keep the risk at the

same level.


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For example, the investor holds A, B and C securities and he wants to change in proportion of

securities can be denoted by X, bX and CX . The increase in the investment in security A could be

carried out only if he reduces the proportion of investment either in B or C because it has already

stated that the investor tries to earn more income without increasing his financial commitment.

Thus, arbitrage portfolio. If X indicates the change in proportion,

0XXX CBA

The factor sensitivity indicates the responsiveness of a securitys return to a particular factor.

The sensitiveness of securities to any factor is the weighted average of the sensitivities of the

securities, weighted being the changes made in the proportion. For example, bA, bB and bC are

sensitive in an arbitrage portfolio the sensitive become zero.

0XbXbXb CCBBAA

APT and CAPM

The simplest form of APT model is consistent with the simple form of the CAPM model, whenonly one factor is taken into consideration, the APT can be stated as.

Ii0i bR

It is similar to the capital market line equation:

)RR(RR Fmifi , Which is similar to CAPM MODEL?

APT is more general and less restrictive than CAPM, in APT, the investor has no need to hold

the market portfolio because it does not make use of the market portfolio concept. The portfolios

are constructed on the basis of the factors eliminate arbitraged profits. APT is based on the law

of one price to hold for all possible portfolio combinations.

The APT model takes on to account of the impact of numerous factors on the security. The

|Macro economic factors are taken into consideration and it is closer to reality then CAPM.


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The market portfolio is well defined conceptually. In APT model, factors are not well specified.

Hence, the investor finds it difficult to establish equilibrium relationship. The well defined

market portfolio is a significant advantage of the CAPM leading to the wide usage of the modelin the stock market.

The factors that have impact on one group of securities may not affect other group securities.

There is a lack of constituency in the measurement of the APT model. Further, the influences of

the factors are not independent of each other. It may be difficult to identify the influence

corresponds exactly to each factor. Apart from this, not all variable that exerts influence on

factor measurable.


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CHAPTER - III

INDUSTRY PROFILE


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HISTORY OF STOCK EXCHANGE

The only stock exchanges operating in the 19 the century were those of Bombay set up in 1875

and Ahmadabad set up in 1894. These were organized as voluntary non-profit-making

association of brokers to regulate and protect their interests. Before the control on securities

trading become a central subject and the Bombay securities contracts (control) Act of 1925 usedto regulate trading in securities. Under this Act, the Bombay stock exchange was recognized in

1927 and Ahmadabad in 1937

During the war boom, a number of stock exchanges were organized even in Bombay,

Ahmadabad and other centers, but they were not recognized. Soon after it became a central

subject, central legislation was proposed and a committees and public discussion, the securities

contracts (regulation) Act became law in 1956.

DEFINITION OF STOCK EXCHANGE

Stock exchange means anybody or individuals whether incorporated or not, constituted for the

purpose of assisting, regulating or controlling the business of buying, selling or dealing in

securities.

It is an association of member brokers for the purpose of self-regulation and protecting the

interests of its members.

It can operate only if it is recognized by the Government under the securities contracts

(regulation) Act, 1956. The recognition is granted under section 3 of the act by the central

government, Ministry of Finance.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

Securities and Exchange Board of India (SEBI) set up as an autonomous regulatory authority by

the government ofIndia in 1988 to protect the interests of investors in securities and to promote

the development of, and to regulate the securities market and for matters connected therewith or

incidental thereto. It is empowered by two acts namely the SEBI Act, 1992 and the securities

contract (regulation) Act, 1956 to perform the function of protecting investors rights and

regulating the capital markets.

Securities and Exchange Board of India (SEBI) regulatory reach has been extended to more areas

and there is a considerable change in the capital market. SEBI's annual report for 1997-98 has


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stated that throughout its six-year existence as a statutory body, it has sought to balance the twin

objectives of investor protection and market development. It has formulated new rules and

crafted regulations to foster development. Monitoring and surveillance was put in place in the

Stock Exchanges in 1996-97 and strengthened in 1997-98.

SEBI was set up as an autonomous regulatory authority by the government of India in 1988 to

protect the interests of investors in securities and to promote the development of, and to regulate

the securities market and for matters connected therewith or incidental thereto. It is empowered

by two acts namely the SEBI Act, 1992 and the securities contract (regulation) Act, 1956 to

perform the function of protecting investors rights and regulating the capital markets.

OBJECTIVES OF SEBI

The promulgation of the SEBI ordinance in the parliament gave statutory status to SEBI in 1992.

According to the preamble of the SEBI, the three main objectives are: -

To protect the interests of the investors in securities.

To promote the development of securities market.

To regulate the securities market.

FUNCTIONS OF SEBI

Regulating the business in Stock Exchange and any other securities market.

Registering and regulating the working of Stock Brokers, Sub-Brokers, Share Transfer

Agents, Bankers to the issue, Trustees to trust deeds, Registrars to an issue, Merchant

Bankers, Underwriters, Portfolio Managers, Investment Advisers and such other

Intermediaries who may be associated with securities market in any manner.

Registering and regulating the working of collective investment schemes including

Mutual Funds.

Promoting and regulating self-regulatory organizations.

Prohibiting fraudulent and unfair trade practices in the securities market.


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Promoting investor's education and training of intermediaries in securities market.

Prohibiting Insiders Trading in securities.

Regulating substantial acquisition of shares and take-over of companies.

Calling for information, understanding inspection, conducting enquiries and audits of the

Stock Exchanges, Intermediaries and Self-Regulatory organizations in the securities

market.

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich

heritage. Popularly known as "BSE", it was established as "The Native Share & Stock

Brokers Association" in 1875. BSE has played a pioneering role in the Indian Securities

Market - one of the oldest in the world. Much before actual legislations were enacted,

BSE had formulated comprehensive set of Rules and Regulations for the Indian Capital

Markets. It also laid down best practices adopted by the Indian Capital Markets after

India gained its Independence.

BSE is the first stock exchange in the country to obtain permanent recognition in 1956 from

the Government of India under the Securities Contracts (Regulation) Act, 1956. The base year of

SENSEX is 1978-79. From September 2003, the SENSEX is calculated on a free-float market

capitalization methodology. The "free-float Market Capitalization-Weighted" methodology is

a widely followed index construction methodology on which majority of global equity

benchmarks are based.

The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The

systems and processes of the Exchange are designed to safeguard market integrity and enhance


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transparency in operations. During the year 2004-2005, the trading volumes on the Exchange

showed robust growth.

The Exchange is professionally managed under the overall direction of the Board of

Directors. The Board comprises eminent professionals, representatives of Trading

Members and the Managing Director of the Exchange. The Board is inclusive and is

designed to benefit from the participation of market intermediaries.

NATIONAL STOCK EXCHANGE OF INDIA LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High

Powered Study Group on Establishment of New Stock Exchanges, which recommended

promotion of a National Stock Exchange by financial institutions (FIs) to provide access to

investors from all across the country on an equal footing. Based on the recommendations, NSE

was promoted by leading Financial Institutions at the behest of the Government of India and was

incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the

country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in

April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June

1994. The Capital Market (Equities) segment commenced operations in November 1994 and

operations in Derivatives segment commenced in June 2000.

The national stock exchange of India ltd is the largest stock exchange of the country. NSE is

setting the agenda for change in the securities markets in India. For last 5 years it has played a

major role in bringing investors from 347 cities and towns online, ensuring complete

transparency, introducing financial guarantee to settlements, ensuring scientifically designed and


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professionally managed indices and by nurturing the dematerialization effort across the

country.NSE is a complete capital market prime mover. Its wholly owned subsidiaries, National

securities clearing corporation ltd (NSCCL) provides cleaning and settlement of securities, India

index services and products ltd (IISL) provides indices and index services with a consulting and

licensing agreement with Standard & Poors (S&P), and IT ltd forms the technology strength that

NSE works on.

OBJECITVES OF NATIONAL STOCK EXCHANGE

To establish a nationwide trading facility for equities, debt instruments and hybrids.

To ensure equal access to investors all over the country through appropriate

communication network.

To provide a fair, efficient and transparent securities market to investors using an

electronic communication network.

To enable shorter settlement cycle and book entry settlement system.

To meet current international standards of securities market.

PROMOTERS OF NATIONAL STOCK EXCHANGE

IDBI, ICICI, IFCI, LIC, GIC, SBI, Bank of Baroda, Canara Bank, Corporation Bank, Indian

Bank, Oriental Bank of Commerce, Union Bank of India, Punjab National Bank, Infrastructure

Leasing and Financial Services, Stock

Holding Corporation of India and SBI Capital Market are the promoters of NSE.


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NSE-NIFTY

The National Stock Exchange on April 22, 1996 launched a new Equity Index. The NSE-50.The new Index which replaces the existing NSE-100 Index is expected to serve as an appropriate

Index for the new segment of futures and options.

"Nifty" means National Index for Fifty Stock.

The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an aggregate

market capitalization of around Rs.1,70,000 crores. All companies included in the Index have a

market capitalization in excess of Rs.500crores each and should have traded for 85% of trading

days at an impact cost of less than 1.5%.

The base period for the index is the close of prices on Nov 3, 1995, which makes one year of

completion of operation of NSE's capital market segment. The base value of the Index has beenset at 1000.

NSE-MIDCAP INDEX

The National Stock Exchange Midcap Index or the Junior Nifty comprises 50 stocks that

represents 21 board Industry groups and will provide proper representation of the madcap

segment of the Indian Capital Market. All stocks in the Index should to establish a

nationwide trading facility for equities, debt instruments and hybrids.

To ensure equal access to investors all over the country through appropriate

communication network.

To provide a fair, efficient and transparent securities market to investors using an

electronic communication network.

To enable shorter settlement cycle and book entry settlement system.

To meet current international standards of securities market.


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STOCK EXCHANGES IN INDIA

S.No NAME OF THE STOCK EXCHANGE YEAR

1. Bombay Stock Exchange 1875

2. Hyderabad Stock Exchange. 1943

3. Ahmadabad Share and Stock Brokers Association. 1957

4. Calcutta Stock Exchange Association Limited. 1957

5. Delhi Stock Exchange Association Limited. 1957

6. Madras Stock Exchange Association Limited. 1957

7. Indoor Stock Brokers Association. 1958

8. Bangalore Stock Exchange. 1963

9. Cochin Stock Exchange. 1978

10. Pune Stock Exchange Limited. 1982

11. U.P Stock Exchange Association Limited. 1982

12. Ludhiana Stock Exchange Association Limited. 1983

13. Jaipur Stock Exchange Limited. 1984

14. Gauhathi Stock Exchange Limited. 1984

15. Mangalore Stock Exchange Limited. 198516. Maghad Stock Exchange Limited, Patna. 1986

17. Bhubaneswar Stock Exchange Association Limited. 1989

18. Over the Counter Exchange of India, Bombay. 1989

19. Saurasthra Kutch Stock Exchange Limited. 1990

20. Vadodara Stock Exchange Limited. 1991

21. Coimbatore Stock Exchange Limited. 1991

22. Meerut Stock Exchange Limited. 1991

23. National Stock Exchange Limited. 1992

24. Integrated Stock Exchange. 1999


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CHAPTER -IV

COMPANY PROFILE


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OUR STORY

The Kotak Mahindra Group is one of Indias leading financial institutions, offering

complete financial solutions that encompass every sphere of life.OUR MANAGEMENT

Know the board of directors at the Kotak Mahindra Group and meet some of the most

knowledgeable and recognized names in the financial world.

OUR INITIATIVES

Kotak Mahindra supports a number of humanitarian and charitable projects in India as

part of our social initiatives.

Corporate Responsibility:

Community investment and development

Kotak Mahindra views Corporate Social Responsibility as an investment in society and inits own future. Kotak uses the power of its human and financial capital to help in

transforming communities into vibrant, desirable places for people to live. The group

leverages its core competencies in three areas:

Sustainability An integral part of all Kotak Mahindra Group activities is to be consistently

responsible to shareholders, clients, employees, society and the environment.


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The Kotak Mahindra Group:

Kotak Mahindra is one of Indias leading financial institutions offering complete

financial solutions that encompass every sphere of life. From commercial banking, to Stock

broking, to mutual funds, to life insurance, to investment banking the group caters to the

financial needs of individuals and corporate.

The group has net worth of around Rs.3100crore, employs around 9,600 people in its

various businesses and has a distribution network of branches, franchisees, representative offices

in New York, London, Dubai and Mauritius. The Group services around 2.2million customer

accounts.

Vision:

The global Indian financial services brand: Our customers will enjoy the benefits of

dealing with a global Indian brand that best understands their needs and delivers customized

pragmatic solutions across multiple platforms. We will be a world group. Our technology and

best practices will be benchmarked along international lines while our understanding of

customers will be uniquely Indian. We will be more than a repository of our customers savings.

We, the group, will be a single window to every financial service in a customers universe.

The most preferred employer in financial services: A culture of empowerment and spirit

of enterprise attracts bright minds with an entrepreneurial streak to join us and stay with us.

Working with a home-grown, professionally-managed company, which has partnerships with

international leaders, gives our people a perspective that is universal as well as unique.

The most trusted financial services company: We will create an ethos of trust across all

our constituents. Adhering to high standards of compliance and corporate governance will be an

integral part of building trust.

Value Creation: Value creation rather than size alone will be our business driver.

Kotak Securities Ltd. 100% subsidiary of Kotak Mahindra Bank is one of the oldest and largest

broking firms in the industry.


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Our offerings include stock broking through the branch and Internet, Investments in IPO, Mutual

Funds and portfolio management service.

Our Accolades Include:

UTI MF CNBC TV 18 Financial Advisor Awards Best performing Equity Broker

(National) for the year 2009

Finance Asia Award (2009)- Bet Brokerage Firm In India

Best Brokerage firm in India by Asia money in 2008,2007&2006

Best Performing firm in India by Asia money in 2008,2007&2006

Best performing Equity Broker in India- CNBC Financial Advisor Awards 2008

Avaya Customers Responsiveness Awards (2007 & 2006) in Financial Services Sector

The Leading Equity House In India in Thomson Extel Surveys Awards For the year 2007

Euro money Award (2007 & 2006)Best Provider of portfolio Management: Equities

Euro money Award (2005)Best Equities House In India

We have been the first in providing many products and services which have now becomeindustry standards. Some of them are:

Facility of Margin Finance to the customer

Investing in IPOs and Mutual Funds on the phone

SMS alerts before execution of depository transactions

Mobile application ta track portfolios

We have a fully-fledged research division involved in Macro Economic Studies, Sectorial

research and Company Specific Equity Research combined with a strong and well networked

sales force which helps deliver current and up to date market information and news.

We are also a depository participant with National Securities Depository Limited (NSDL) and

Central Depository Services Limited (CDSL), providing dual benefit services wherein the

investors can avail our brokerage services for executing the transactions and the depository


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services for settling them. We process more than 400000 trades a day which is much higher even

spans over 331 cities with 843 outlets.

Kotak Securities Limited has Rs.2599 Crore of assets under Management (AUM) as of 30th

June,

2009. The portfolio Management from Kotak Securities comes as an answer to those who would

like to grow exponentially on the crest of the stock market, with the backing of an expert.

Kotak Mahindra Group

Kotak Mahindra is one of Indias leading financial organizations, offering a wide range of

financial services that encompass every sphere of life. From commercial banking, to stock

broking, to mutual funds, to life insurance , to investment banking, the group has a net worth of

over Rs.6,799 crore and has a distribution network of branches, franchises, representative officesand satellite offices across cities and towns in India and offices in New York, London, San

Francisco, Dubai, Maurities and Singapore. The group services around 6.4 million customer

accounts.

Kotak Securities Ltd.;

Kotak Securities Ltd. Is one of the oldest and leading stock broking houses in India with a

market Kotak Securities Ltd. has also been the largest in IPO Distribution.

The accolades that Kotak Securities has been graced with include:

Finance Asia Award (2009)- Best Brokerage Firm In India

Best performing Equity Broker in India CNBC TV 18 Optimix Financial Advisory

Awards,2008

Best Brokerage Firm in India By Asia money 2007

the Leading Equity House in India in Thomson Extel Surveys Awards for the year

2007

Euro money Award (2006 & 2007) = Best Provide of Portfolio Management : Equities

Avaya Customer responsiveness Awards (2006) in Financial Institution Sector

Asia Money Award (2006)Best Broker In India

The company has a full fledged research division involved in Macro Economic

Studies, Sect oral research and company Specific Equity Research combined with a


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strong and well networked sales force which helps deliver current and up to date market

information and news.

Kotak securities Ltd is also a depository participant with National securities Depository Limited

(NSDL) and Central Depository Services Limited (cdsl), providing dual benefit services wherein

the investors can use the brokerage services company for executing the transactions and the

depository services for settling them.

Kotak Securities has 843 outlets servicing over 8.5 lakhs customer accounts and coverage of 331

cities. Kotaksecurities.com, the online division of Kotak Securities Limited Offers Internet

Broking services and also online IPO and Mutual fund Investments.

Our History:

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited.

This company was promoted by Uday Kotak, Sidney A.A.Pinto and kotak & Company.

Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and thats when the

company changed its name to kotak Mahindra Finance Limited.

Since then its been a steady and confident journey to growth and success

1986

Kotak Mahindra Finance Limited starts the Activity of Bill Discounting.

1987

Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market.

1990

The auto Finance division is started.

1991

The Investment Banking Division is started,. It takes over FICOM, one of Indias largest

financial retail marketing networks.

1992

It enters the funds Syndication sector.

1995


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Brokerage and Distribution businesses incorporated into a separate company Kotak securities.

Investment banking division incorporated into a separate company kotak Mahindra Capital

Company.

1996

The Auto Finance Business is hived off into a separate company Kotak Mahindra Prime

limited (formerly known as Kotak Mahindra Primus limited). Kotak Mahindra takes as

significant stake in ford vehicles.

1998

It was entered in to the mutual fund market with the launch of Kotak Mahindra Asset

Management Company

2000

Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business. Kotak Securities

launches its on-line broking site (now www.kotaksecurities.com).Commencement of

private equity activity through setting up of Kotak Mahindra Venture Capital Fund.

2001

Matrix sold to Friday Corporation Launches Services.

2003

Kotak Mahindra Finance Ltd. Converts to a commercial bank the first Indian company to do so.

2004

Launches India Growth Fund, a private equity fund.

2005

Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime (formerly

known as kotak Mahindra Primus Limited) and sells Ford credit Kotak Mahindra.

It was Launched a Real estate fund.

2006

Bought the 25% stake held by Goldman Sachs in kotak Mahindra capital Company and Kotak

Securities.
http://www.kotaksecurities.com/http://www.kotaksecurities.com/http://www.kotaksecurities.com/


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Kotak group Products & Services:

Bank

Life Insurance

Mutual Fund

Car Finance

Securities

Institutional Equities

Investment Banking

Kotak Mahindra International

Kotak Private equity

Kotak Realty Fund

Kotak Securities Ltd. Is Indias leading Stock broking house with a market share of around

8.5% as on 31st

March. Kotak Securities Ltd. Has Been the Largest in IPO distribution.

The accolades that Kotak Securities has been graced with include: Prime Ranking Award (2003-

04) Largest Distributor of IPOs, Finance Asia Award (2004) Indias best Equity House.

Finance Asia Award (2005) Best Broker in India. Euro Money Award (2005)-Best Equities

House in India. Euro Money award (2006)Best Provider of portfolio Management: Equities.

The companies has a full-fledged research division involved in Macro Economic studies,

Sectoral research and Company Specific Equity Research combined with a strong and well

networked sales force which helps deliver current and up to date market information and news.

Kotak Mahindra Ltd is also a depository participant with National Securities Depository Limited

(NSDL) and Central Depository Services Limited (CDSL), providing dual benefit the

transactions and the depository services for settling them.

Kotak Securities has 195 branches servicing more than 2, 20,000 customers and coverage of 231

cities. Kotaksecyrities.com the online division of kotak securities limited offer internet broking

services and also online IPO and mutual fund investment.


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Corporate profile:

Kotak Mahindra is one of Indias leading financial institutions, offering complete financial

solutions that encompass every sphere of life. From commercial banking, to stock broking, to

mutual funds, to life insurance, to investment banking, the group caters to the financial needs of

individuals and corporate.

As on June 30, 2006, the group has a net worth of over rRs.2,840 crore, the AUM across the

group is around 182.3 billion and employs over 7,800 employees in its various businesses. With

a presence in 264 cities in India and offices in New York, London, Dubai and Mauritius, itservices a customer base of over 1.6 million.

The group specializes in offering top class financial services, catering to every segment of the

industry. The various group companies include:

Kotak Mahindra capital Company Limited

Kotak Mahindra Securities Limited

Kotak Mahindra Inc.

Kotak Mahindra (international) Limited

Global Investments Opportunities Fund Limited

Kotak Mahindra (UK) Limited

Kotak Securities Limited

Kotak Mahindra Old Mutual Life Insurance Limited

Kotak Mahindra Asset Management Company Limited

Kotak Mahindra Investment Limited

Kotak Mahindra PrivateEquity Trustee Limited.

About kotak securities limited

Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and

distribution arm of the Kotak Mahindras Group. The company was set up in 1994. Kotak


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Securities is a corporate member of both The Bombay Stock Exchange and The national Stock

Exchange of India Limited. Its operations include stock broking and distribution of various

financial products including private and secondary placement of debt and equity and mutual

funds. Currently, Kotak Securities is one of the Largest broking houses in India with wide

geographical reach. The company has four main areas of business: (1) Institutional Equities, (2)

Retail, (3) portfolio Management and (4) Depositary Services.

Institutional Business:

This division primarily covers secondary market broking. It caters to the needs of foreign

and Indian institutional investors in Indian equities (both local shares and GDRs).

The division also incorporates a comprehensive research cell with sectoral analysts who

cover all the major areas of the Indian economy.

Client Money Management:

This division provides professional portfolio management services to high net-worth

individuals and corporates. Its expertise in research and stock broking gives the company

the right perspective from which to provide its clients with investment advisory services.

Retail distribution of financial producers:

Kotak Securities has a comprehensive retail distribution network, comprising

approximately 7000 agents, 13 branches and over 20franchisees across India. This

network is used for the distribution and placement of arrange of financial products that

includes company fixed deposits, mutual funds, Initial Public Offerings, secondary debt

and equity and small savings schemes.

Depositary Services:


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Kotak Securities is a depository participant with the National Securities Depositary

Limited and Central Depository Services (India) limited for trading and settlements of

dematerialized shares.

Kotak Securities width, volume and equity of offerings regularly earn it accolades from

industry monitors. In recent times, these have included:

Euro Money Award (2005): Best Equities House in India

Finance Asia Award (2005): Best Broker in India

Finance Asia Award(2004): Indias Best Equity House

Euro Money (2004): Best Equity House in India

Prime Ranking Award (2003-2004):Largest Distributor of IPOs

Asia money (2004):Best Equity House in India

Kotak institutional Equities:

Kotak Institutional equities, among the top institutional brokers in India .it mainly covers

secondary market broking and the marketing of equity offerings, including IPOs, to domestic

and foreign institutional investors. Its full- fledged research division comprises 18 analysts

engaged in macroeconomic studies, industry and companyspecific research.

Kotak Institutional Equities has full financial services capability, which includes derivatives,

facilitating market access through affiliates and the distinctive offering of corporate access to

investors. The division services over 250 clients including FIIs, pension and mutual funds. The

division has sales desks in Mumbai. London and New York, with the India desk also servicing

clients in Hong Kong, Singapore, Japan and Australia.

Trading System:

NSE introduced for the first time in India, fully automated screen based trading. It uses a

modern, fully computerized trading system designed to offer investors across the length and

breadth of the country a safe and easy way to invest.

The NSE trading system called National Exchange for Automated Trading (NEAT) is a fullyautomated screen based trading system, which adopts the principle of an order driven market.

The Futures and Options Trading System provides a fully automated trading environment for

screen-based, floor-less trading on a nationwide basis and an online monitoring and surveillance

mechanism. The systems support an order driven market and provides complete transparency of

trading operations.


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Orders, as and when they are received, are first time stamped and then the orders are stored in

different books. Orders are stored in price-time priority in various books in the following

sequence:o Best Price

o Within Price, by time priority

Products:

o S& P CNX Nifty futures

o S& P CNX Nifty options

o CNXIT futures

o CNXIT options

o BANK Nifty futures

o BANK Nifty options

o Futures on Individual Securities

o options on Individual Securit

CHAPTER-V

DATA ANALYSIS

AND

INTERPRETATION


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PORTFOLIO MANAGEMENT CONCEPTUAL FRAME WORK

Portfolio analysis believes in the maximization of return through a combination of securities. The

modern portfolio theory discusses the relationship between different securities and then draws

inter-relationship of risks between them. It is not necessary to achieve success only by trying toget all securities of minimum risk. The theory states that by combining a security of low risk

with another security of high risk, success can be achieved by an investor in making a choice of

investment outlets.

Average Returns: The arithmetic average measures the central tendency. The purpose of

computing an average value for a set of observations is to obtain a single value, which is

representative of all the items. The main objective of averaging is to arrive at a single value

which is a representative of the characteristics of the entire mass of data and arithmetic average

or mean of a series(usually denoted by x) is the value obtained by dividing the sum of the values

of various items in a series (sigma x) divided by the number of items (N) constituting the series.

Thus, if X1,X2..Xn are the given N observations. Then

X= X1+X2+.Xn

N

RETURN Current price-previous price *100

Previous price


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Average Returns of The Company:

Table No 1

S. No. Security Average

1 WIPRO 1.84

2 ICICI 8.48

3 RELIANCE 11.76

4 RANBAXY 23.06

5 ITC -1.76

Average Return = N/RiR

Where

R = Average Return

Ri = Return of the Security I for the year T

N = Number of Years

INTERPRETATION

In this particular securities the RANBAXY Company had highest

Average returns is 23.06 compare to the remaining companies. For

instance the reason behind their high sales or expanded business. The ITC

Company had lowest returns is -1.76 compare to other companies, the

reason behind there is low sales. Other securities are earning medium

range returns such as Wipro, ICICI and Reliance.


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STANDARD DEVIATION: The concept of standard deviation was first suggested by Karl

pearson in 1983. It may be defined as the positive square root of the arithmetic mean of the

squares of deviations of the given observations from their arithmetic mean. In short S.D may be

defined as Root Mean Square Deviation from MeanIt is by far the most important and widelyused measure of studying dispersions.

For a set of N observations X1,X2..Xn with mean X,

Deviations from Mean: (X1-X),(X2-X),.(Xn-X)

Mean-square deviations from Mean: = 1/N (X1-X)2+(X2-X)2+.+(Xn-X)2

=1/N sigma(X-X)2

Root-mean-square deviation from means i.e.,

VARIANCE:

The square of standard deviation is known as Variance.

Variance is the square root of the standard deviation:

Variance = (S.D) 2

Where, (S.D) is standard deviation

Standard Deviation of the Companies:

Table No 2

S. No. Security Std dev

1 WIPRO 65.49

2 ICICI 72.11

3 RELIANCE 86.30

4 RANBAXY 96.62

5 ITC 33.59

2)RR(1n/1D.S

T = 1


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FIGURE NO 2

INTERPRETATION

Based on above calculations Standard deviations like that Ranbaxy is highest i.e., 96.62 and ITC

is lower i.e., 33.59 where other securities are having medium standard deviation. Other securities

are earning medium range such as Wipro, ICICI and Reliance.


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CORRELATION: Correlation is a statistical technique, which measures and analyses thedegree or extent to which two or more variables fluctuate with reference to one another.

Correlation thus denotes the inter-dependence amongst variables. The degrees are expressed by a

coefficient, which ranges between1 and +1. The direction of change is indicated by (+) or (-)

signs. The former refers to a sympathetic movement in a same direction and the later in the

opposite direction.

Karl Pearsons method of calculating coefficient (r) is based on covariance of the

concerned variables. It was devised by Karl Pearson a great British Biometrician.

This measure known as Pearson an correlation coefficient between two variables (series)

X and Y usually denoted by r is a numerical measure of linear relationship and is defined as the

ratio of the covariance between X and Y (written as Cov(X,Y) to the product of standard

deviation of X and Y.

Symbolically

r = Cov (X,Y)

SD of X,Y

= xy/N = XY

SD of X,Y N

Where x =X-X, y=Y-Y

xy = sum of the product of deviations in X and Y series calculated with reference to their

arithmetic means.

X = standard deviation of the series X.

Y = standard deviation of the series Y.


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CORRELATION CO-EFFICIENT BETWEEN THE SECURITIES

Security Wipro ICICI Reliance Ranbaxy ITC

Wipro 1 0.3787 0.2774 0.9333 0.6444

ICICI 1 0.3093 0.8050 0.3911

Reliance 1 0.4326 0.7980

Ranbaxy 1 0.7445

ITC 1

Formula

Correlation Co-efficient b.a/)ab(COV)abn(

Where COV (ab) = RBRB)(RARA(1n/1

PORTFOLIO WEIGHTS: Table No 3

S.NO PORTFOLIO CORRELATION WEIGHT

OF A

WEIGHT OF

B1 Wipro & ITC 0.6444 -0.1120 1.1120

2 Wipro & Ranbaxy 0.9333 1.89 -0.89

3 Wipro & ICICI 0.3787 0.5770 0.423

4 Wipro & Reliance 0.2774 0.683 0.317

5 ITC & Ranbaxy 0.7445 1.228 -0.228

6 ITC & ICICI 0.3911 0.959 0.041

7 ITC & Reliance 0.7980 1.300 -0.30

8 Ranbaxy & ICICI 0.8050 -0.123 1.123

9 Ranbaxy & Reliance 0.4326 0.401 0.599

10 ICICI & Reliance 0.3093 0.627 0.373

Formula

Weight of a (Wa) = )b.a.nab2()ba/()anabb(b 22

Weight of b (Wb) = 1Wa


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Portfolio Risk: Table No 4

S.NO COMBINATION PORTFOLIO

RISK

1 Wipro & ITC 33.10

2 Wipro & Ranbaxy 109.27

3 Wipro & ICICI 56.84

4 Wipro & Reliance 58.54

5 ITC & Ranbaxy 11.69

6 ITC & ICICI 33.47

7 ITC & Reliance 23.82

8 Ranbaxy & ICICI 69.76

9 Ranbaxy & Reliance 23.62

10 ICICI & Reliance 63.09

Formula:

WaWb.b.a.nab.2WbbWaap 2222

Where:

RiskPortfoliop

b&aSecutirybetweenCoeffientnCorrelationab

bSecurityofWeightWb

aSecurityofWeightWa

bSecurityofdeviationdradtanSb

aSecuritiyofdeviationdrardtanSa


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Portfolio Return: Table No 5

S.NO COMBINATION PORTFOLIO

RETURN

1 Wipro & ITC -2.1632

2 Wipro & Ranbaxy -17.045



5 ITC & Ranbaxy -7.418

6 ITC & ICICI -1.340

7 ITC & Reliance -5.816

8 Ranbaxy & ICICI 6.686

9 Ranbaxy & Reliance 16.291

10 ICICI & Reliance 9.703

Formula:

Rp = (Ra X Wa) + (Rb X Wb)

Where:

Ra = Average Return of Security a

Rb = Average Return of Security b

Wa = Weight of Security a

Wb = Weight of Security b

Rp = Portfolio Return


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Portfolio Risk & Return: Table No 6

S.NO COMBINATION PORTFOLIORISK

PortfolioReturn

1 Wipro & ITC 33.10 -

2.1632

2 Wipro & Ranbaxy 109.27 -

17.045


4.648


4.984

5 ITC & Ranbaxy 11.69 -

7.418

6 ITC & ICICI 33.47 -

1.340

7 ITC & Reliance 23.82 -

5.816

8 Ranbaxy & ICICI 69.76 6.686

9 Ranbaxy &

Reliance

23.62

16.291

10 ICICI & Reliance 63.09 9.703


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FIGURE NO 3

INTERPRETATION

The combination of Portfolio Risk & Portfolio Return, In this particular combination of WIPRO

& RANBAXY Company had highest Portfolio risk is 109.27 compare to the remaining

companies. The ITC & RANBAXY Company had lowest risk is 11.69 compare to other

companies.

Based on above calculations Portfolio Return like that RANBAXY & RRELIANCE are highest

i.e., 16.29 and WIPRO & RANBAXY are lowest i.e., -17.04 where other Co. are having medium

returns.


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PORTFOLIO SELECTION, REVISION & EVALUATION

Portfolio Selection

Portfolio analysis provides the input for next phase in portfolio management, which is portfolio

selection. The proper goal of portfolio construction is to generate a portfolio that provides thehighest returns at a given level of risk. The inputs from portfolio analysis can be used to identify

the set of efficient portfolios. From this the optimal portfolio must be selected for investment.

Harry Markowitz portfolio theory provides both the conceptual framework and analytical tools

for determining the optimal portfolio in a disciplined and objective way.

So, out of the various combinations (related to five companies), the optimal portfolio is Ranbaxy

& Reliance, as this portfolio has minimum risk of 23.62% with maximum return of 16.291%.

Hence, I can say that it is better to invest in these portfolios.

Portfolio revision

Economy and financial markets are dynamic, change take place almost daily. As time passes

securities which were once attractive may lease to be so. New securities with promise of high

return and low risk may emerge. The investor now has to revise his portfolio in the light of

developments in the market. This leads to purchase of some new securities and sale of some of

the existing securities and their proportion in the portfolio changes as a result of the revision.

The revision has to be scientifically and objectively so as to ensure the optimality of the revised

portfolio, it important as portfolio analysis and selection.

Portfolio Evaluation

The objective of constructing a portfolio and revising me t periodically is to earn maximum

returns with minimum risk. Portfolio evaluation is the process, which is concerned with

assessing the performance of the portfolio over a selected period of time in terms of returns and

risk. This involves quantities measurement of actual return realized. Alternative measures of

performance evaluation have been developed by investor and portfolio managers for their use.It provides a mechanism for identifying weakness in the investment process and improving them.

The portfolio management process is an ongoing process to portfo

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