129 Project Report

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A REPORT

ON

EQUITY PORTFOLIO MANAGEMENT

BY

Sandeep Sindhu

(12912303910)

A Report submitted in partial fulfilment of the

Requirements ofMBA Program of

Delhi Institute of Advanced Studies

Submitted to:

Mr. Rakesh Sharma Prof. Shilki Bhatia

Company Guide Faculty

DIAS, Rohini


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DECLARATION

This is to certify that project titled Equity Portfolio Management And The Risks

Involed. is a bonafide work done by Mr. Sandeep Sindhu, Enrollment No: 12912303910,

Batch 2010-12 in partial fulfillment of the requirements for the award of the degree MBA

and submitted to Delhi Institute of Advanced Studies, Rohini.

I also declare that this project is a result of my own efforts and has not been copied from

anyone and I have taken only citations from the literary resources which are mentioned in the

reference section.

This work was not submitted earlier at any other University or Institute for the award of the

degree.


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ACKNOWLEDGEMENT

A project is like a fruit grown out of hard labor and meticulous guidance. The project covered

by me is not full but just a part of the topic given to me. I had tried my best to cover as much

as is required for this topic.

I would like to convey my deep sense of gratitude to my company guide Mr. Rakesh

Sharma, Relationship Manager, Bonanza Portfolio Ltd., for imparting his invaluable

suggestions and guidance.

I am heartily thankful to ProfessorShilki Bhatia, Faculty Guide Delhi Institute of AdvancedStudies, Rohini, for encouraging me & boosting my morale to move ahead my very first step

in the world so called Corporate.

I extend my heart-felt thanks to all the employees staff & other Sippers ofBonanza

Portfolio Ltd. for giving me such a wonderful opportunity and support to show my abilities.

Im grateful to the all the respondents for sparing me their valuable time and for their

amicable and friendly treatment. Even though being busy person, they remained humble and

polite throughout the survey.

At last but not the least Im grateful to all those who helped me a lot from the very beginning

of this project.

Thank you.

Sandeep Sindhu


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Table of content

1. Purpose of the study 5

2 Objectives of the study 5

3 Methodology 6

4 Limitations 7

5 Summary 8

6 Literature Review 9

7 Company Profile 35

8 Portfolio Management 38

9 Data Interpretation 53

10 Findings 69

11 Conclusion 73

12 Bibliography 74


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Purpose of the study

The purpose of the study is to know the fluctuations in the share price of sample

companies.

The purpose of the study is to help the unknown investors for investing in

securities.

To update the portfolio reviewed and adjusted from time to time in tune with

market condition.

To analyze the risk and return on securities.

To test portfolio strategies before taking decisions.

Objectives of the study

To provide basic idea of different stock market investment instruments to investor.

To provide knowledge to investor about various type of risk associated with

various investment instruments.

To provide investor knowledge about P\E, Beta that would help them in selection

of script and creation of portfolio.

To help investor in learning about derivative instrumentfuture for the purpose

of speculation and hedging.


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LIMITATIONS OF THE PROJECT

The time duration given to complete the report was not sufficient.

The report is basically is made between the horizon of two months and the

situation of market is very dynamic so the conclusion or the return might not

reflect the true picture.

To predict stock market it is just impossible.


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Summary

Bonanza Portfolio Ltd. is an esteemed Depository Participant of NSDL registered with SEBI.

It is a stock broking firm and India based provider of investment banking and corporate

finance. The topic for the project is investment strategies using portfolio management and the

risks involved. The report has two fold objectives which are Portfolio diversification and

management of clients need and giving clients a complete framework for managing their

portfolio and informing risk in the marketfrom identification to resolution.

In the context of the decreasing confidence of investors in the stock market after the big crash

that occurred years back and decreasing popularity of the portfolio management services.

This project does a study regarding the same and produces some findings for the same. The

methodology adopted for the project consists of designing of questionnaire, thereby analyzing

the primary and secondary data thus collected.

As the report also includes investment strategies of investors according to the market

development so a questionnaire has been prepared for the same laying stress on certain

attributes like investors preference to invest (equity, debt, mutual funds etc.) and investors as

well as brokers and analysts decision of time of buying or selling of stocks as well as entry

and exit time from the stock market. Responses from the questionnaire reveals that Investors

prefer to invest in equity due to higher returns, long term investments are preferred and

investors are willing to exit from the investment when they get higher returns compared to

when their targets are met. There are following types of risks like credit risk, market risk,

liquidity risk, capital risk, interest rate risk. There are different kinds of portfolio risk

measures. One of the risk measures used in the project is standard deviation and portfolio

variance.

The report has three portfolio recommendations based on the risk classes. Stocks with high

beta and standard deviation were added to aggressive investor, stocks with lower standard

deviation and beta value to moderate risk investor, and stocks with medium beta values were

added moderate risk investors. It also consist of a sectoral portfolio. A particular sector is

taken which has good potential and can able to give good returns.


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Literature Review

Journey of Indian stock market

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years

ago. The earliest records of security dealings in India are meager and obscure. The East India

Company was the dominant institution in those days and business in its loan securities used

to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in

Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers

recognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage business

attracted many men into the field and by 1860 the number of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of

Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased

to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous

slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be

sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,

found a place in a street (now appropriately called as Dalal Street) where they would

conveniently assemble and transact business. In 1887, they formally established in Bombay,

the "Native Share and Stock Brokers' Association" (which is alternatively known as "The

Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it

was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.


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Growth Pattern of the Indian Stock Market

Sr.

No.

As on 31st

December 1946 1961 1971 1975 1980 1985 1991 1995

1

No. of

Stock

Exchanges

7 7 8 8 9 14 20 22

2No. of

Listed Cos.1125 1203 1599 1552 2265 4344 6229 8593

3

No. of Stock

Issues of

Listed Cos.

1506 2111 2838 3230 3697 6174 8967 11784

4

Capital of

ListedCos. (Cr. Rs.)

270 753 1812 2614 3973 9723 32041 59583

5

Market value

of

Capital of

Listed

Cos. (Cr. Rs.)

971 1292 2675 3273 6750 25302 110279 478121

6

Capital per

Listed Cos.

(4/2)

(Lakh Rs.)

24 63 113 168 175 224 514 693

7

Market Valueof

Capital per

Listed

Cos. (Lakh

Rs.)

(5/2)

86 107 167 211 298 582 1770 5564

8

Appreciated

value

of Capital per

Listed Cos.

(Lakh Rs.)

358 170 148 126 170 260 344 803


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Economic investments:-

These investments refer to the net addition to the capital stock of the society. The capital

stock of the society refers to the investments made in plant, building, land and machinery

which are used for the further production of the goods. This type of investments are very

important for the development of the economy because if the investment are not made in the

plant and machinery the industrial production will come down and which will bring down the

overall growth of the economy.

Financial Investments:-

This type of investments refers to the investments made in the marketable securities which

are of tradable nature. It includes the shares, debentures, bonds and units of the mutual funds

and any other securities which is covered under the ambit of the Securities Contract

Regulations Act definition of the word security. The investments made in the capital market

instruments are of vital important for the country economic growth as the stock market index

is called as the barometer of the economy.

General Investments:-

These investments refer to the investments made by the common investor in his own small

assets like the television, car, house, motor cycle. These types of investments are termed as

the household investments. Such types of investment are important for the domestic economy

of the country. When the demand in the domestic economy boost the over all productions and

the manufacturing in the industrial sectors also goes up and this causes rise in the

employment activity and thus boost up the GDP growth rate of the country. The

organizations like the Central Statistical Organization (CSO) regularly takes the study of the

investments made in the household sector which shows that the level of consumptions in the

domestic markets.


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CHARACTERISICS OF INVESTMENT

Certain features characterize all investments. The following are the main characteristics

features if investments: -

1.Return: -

All investments are characterized by the expectation of a return. In fact, investments are made

with the primary objective of deriving a return. The return may be received in the form of

yield plus capital appreciation. The difference between the sale price & the purchase price is

capital appreciation. The dividend or interest received from the investment is the yield.

Different types of investments promise different rates of return. The return from an

investment depends upon the nature of investment, the maturity period & a host of other

factors.

2.Risk: -

Risk is inherent in any investment. The risk may relate to loss of capital, delay in repayment

of capital, nonpayment of interest, or variability of returns. While some investments like

government securities & bank deposits are almost risk less, others are more risky. The risk of

an investment depends on the following factors.

The longer the maturity period, the longer is the risk.

The lower the credit worthiness of the borrower, the higher is the risk.

The risk varies with the nature of investment. Investments in ownership securities like equity

share carry higher risk compared to investments in debt instrument like debentures & bonds.

3. Safety: -

The safety of an investment implies the certainty of return of capital without loss of money or

time. Safety is another features which an investors desire for his investments. Every investor

expects to get back his capital on maturity without loss & without delay.

4. Liquidity: -

An investment, which is easily saleable, or marketable without loss of money & without loss

of time is said to possess liquidity. Some investments like company deposits, bank deposits,


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P.O. deposits, NSC, NSS etc. are not marketable. Some investment instrument like preference

shares & debentures are marketable, but there are no buyers in many cases & hence their

liquidity is negligible. Equity shares of companies listed on stock exchanges are easily

marketable through the stock exchanges.

An investor generally prefers liquidity for his investment, safety of his funds, a good return

with minimum risk or minimization of risk & maximization of return.


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3. Rates of interest: -

It is also an important aspect for sound investment plan. It varies between investment &

another. This may vary between risky & safe investment, they may also differ due different

benefits schemes offered by the investments. These aspects must be considered beforeactually investing. The investor has to include in his portfolio several kinds of investments

stability of interest is as important as receiving high rate of interest.

4. Inflation: -

Since the last decade, now a days inflation becomes a continuous problem. In these years of

rising prices, several problems are associated coupled with a falling standard of living. Before

funds are invested, erosion of the resource will have to be carefully considered in order tomake the right choice of investments. The investor will try & search outlets, which gives him

a high rate of return in form of interest to cover any decrease due to inflation. He will also

have to judge whether the interest or return will be continuous or there is a likelihood of

irregularity. Coupled with high rate of interest, he will have to find an outlet, which will

ensure safety of principal. Beside high rate of interest & safety of principal an investor also

has to always bear in mind the taxation angle, the interest earned through investment should

not unduly increase his taxation burden otherwise; the benefit derived from interest will be

compensated by an increase in taxation.


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5. Income: -

For increasing in employment opportunities in India., investment decisions have assumed

importance. After independence with the stage of development in the country a number of

organization & services came into being.

For example: -

The Indian administrative services,

Banking recruitment services,

Expansion in private corporate sector,

Public sector enterprises,

Establishing of financial institutions, tourism, hotels, and education.

More avenues for investment have led to the ability & willingness of working people to save

& invest their funds.

6. Investment channels: -

The growth & development of country leading to greater economic activity has led to the

introduction of a vast array of investment outlays. Apart from putting aside saving in savings

banks where interest is low, investor have the choice of a variety of instruments. The question

to reason out is which is the most suitable channel? Which media will give a balanced growth

& stability of return? The investor in his choice of investment will give a balanced growth &

stability of return? The investor in his choice of investment will have try & achieve a proper

mix between high rates of return to reap the benefits of both.

For example: -

Fixed deposit in corporate sector

Unit trust schemes.


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INVESTMENTS AVENUES:-

There are various investments avenues provided by a country to its people depending upon

the development of the country itself. The developed countries like the USA and the Japanprovide variety of investments as compared to our country. In India before the post

liberalization era there were limited investments avenues available to the people in which

they could invest. With the opening up of the economy the number of investments avenues

have also increased and the quality of the investments have also improved due to the use of

the professional activity of the players involved in this segment. Today investment is no

longer a process of trial and error and it has become a systematized process, which involves

the use of the professional investment solution provider to play a greater role in the

investment process.

Earlier the investments were made without any analysis as the complexity involved the

investment process were not there and also there was no availability of variety of instruments.

But today as the number of investment options have increased and with the variety of

investments options available the investor has to take decision according to his own risk and

return analysis.


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Types of Equity Instruments:

Ordinary Shares

Ordinary shareholders are the owners of a company, and each share entitles the holder to

ownership privileges such as dividends declared by the company and voting rights at meetings.

Losses as well as profits are shared by the equity shareholders. Without any guaranteed income

or security, equity shares are a risk investment, bringing with them the potential for capital

appreciation in return for the additional risk that the investor undertakes in comparison to debt

instruments with guaranteed income.

Preference Shares

Unlike equity shares, preference shares entitle the holder to dividends at fixed rates subject to

availability of profits after tax. If preference shares are cumulative, unpaid dividends for years of

inadequate profits are paid in subsequent years. Preference shares do not entitle the holder to

ownership privileges such as voting rights at meetings.

Equity Warrants

These are long term rights that offer holders the right to purchase equity shares in a company at

a fixed price (usually higher than the current market price) within a specified period. Warrants

are in the nature of options on stocks.

EQUITY SHARES: -


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Classification in terms of Market Capitalisation

Market capitalisation is equivalent to the current value of a company i.e. current market price per

share times the number of outstanding shares. There are Large Capitalisation companies, Mid-

Cap companies and Small-Cap companies. Different schemes of a fund may define their fund

objective as a preference for Large or Mid or Small-Cap companies' shares. Large Cap shares

are more liquid and hence easily tradable. Mid or Small Cap shares may be thought of as

having greater growth potential. The stock markets generally have different indices available

to track these different classes of shares.

Classification in terms of Anticipated Earnings

In terms of the anticipated earnings of the companies, shares are generally classified on the

basis of their market price in relation to one of the following measures:

* Price/Earnings Ratio is the price of a share divided by the earnings per share, and

indicates what the investors are willing to pay for the company's earning potential. Young

and/or fast growing companies usually have high P/E ratios. Established companies in

mature industries may have lower P/E ratios. The P/E analysis is sometimes supplemented

with ratios such as Market Price to Book Value and Market Price to Cash Flow per

share.

Dividend Yield for a stock is the ratio of dividend paid per share to current market price.

Low P/E stocks usually have high dividend yields. In India, at least in the past, investors

have indicated a preference for the high dividend paying shares. What matters to fund managers

is the potential dividend yields based on earnings prospects.

Based on companies' anticipated earnings and in the light of the investment management

experience the world over, stocks are classified in the following groups:

Cyclical Stocks are shares of companies whose earnings are correlated with the state of

the economy. Their earnings (and therefore, their share prices) tend to go up during

upward economic cycles and vice versa. Cement or Aluminium producers fall into

this category, just as an example. These companies may command relatively lower

P/E ratios, and have higher dividend pay-outs.


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Growth Stocks are shares of companies whose earnings are expected to increase at rates that

exceed normal market levels. They tend to reinvest earnings and usually have high P/E ratios and

low dividend yields. Software or information technology company shares are an

example of this type. Fund managers try to identify the sectors or companies that have a

high growth potential.

Value Stocks are shares of companies in mature industries and are expected to yield low

growth in earnings. These companies may, however, have assets whose values have not been

recognised by investors in general. Fund managers try to identify such currently under-

valued stocks that in their opinion can yield superior returns later. A cement company with

a lot of real estate and a company with good brand names are examples of potential value

shares.


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Many instruments give regular income. Debt instruments may be secured by the assets of the

borrowers as generally in case of Corporate Debentures, or be unsecured as is the case with

Indian Financial Institution Bonds.

A debt security is issued by a borrower and is often known by the issuer category, thus

giving us Government Securities and Corporate Securities or FI bonds. Debt instruments are also

distinguished by their maturity profile. Thus, instruments issued with short-term maturities,

typically under one year, are classified as Money Market Securities. Instruments carrying

longer than one-year maturities are generally called Debt Securities.

Most debt securities are interest-bearing. However, there are securities that are discounted

securities or zero-coupon bonds that do not pay regular interest at intervals but are bought at a

discount to their face value. A large part of the interest-bearing securities are generally Fixed

Income-paying, while there are also securities that pay interest on a Floating Rate basis.

A Review of the Indian Debt Market

The Wholesale Debt Market segment deals in fixed income securities and is fast gaining

ground in an environment that has largely focused on equities.

The Wholesale Debt Market (WDM) segment of the Exchange commenced operations on

June 30, 1994. This provided the first formal screen-based trading facility for the debt market

in the country.

This segment provides trading facilities for a variety of debt instruments including

Government Securities, Treasury Bills and Bonds issued by Public Sector Undertakings/

Corporates/ Banks like Floating Rate Bonds, Zero Coupon Bonds, Commercial Papers,

Certificate of Deposits, Corporate Debentures, State Government loans, SLR and Non-SLR

Bonds issued by Financial Institutions, Units of Mutual Funds and Securitized debt by banks,

financial institutions, corporate bodies, trusts and others.

FIXED INCOME SECURITIES


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Large investors and a high average trade value characterize this segment. Till recently, the

market was purely an informal market with most of the trades directly negotiated and struck

between various participants. The commencement of this segment by NSE has brought about

transparency and efficiency to the debt market, along with effective monitoring and

surveillance to the market.


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Business Growth in WDM Segment

Year

Market

Capitalisation(Rs.crores)

Number

ofTrades

Net Traded

Value(Rs.crores)

Average

Daily Value(Rs.crores)

Average

Trade Size(Rs.crores)

2005-

20061,553,448 60,159 458,434.94 1,833.74 7.62

2004-

20051,461,734 124,308 887,293.66 3,028.31 7.14

2003-

20041,215,864 189,518 1,316,096.24 4,476.52 6.94

2002-

2003864,481 167,778 1,068,701.54 3,598.32 6.37

2001-

2002756,794 144,851 947,191.22 3,277.48 6.54

2000-

2001580,835 64,470 428,581.51 1,482.98 6.65

1999-

2000494,033 46,987 304,216.24 1,034.75 6.47

1998-

1999411,470 16,092 105,469.13 364.95 6.55

1997-

1998343,191 16,821 111,263.28 377.16 6.61

1996-

1997292,772 7,804 42,277.59 145.28 5.42

1995-

1996207,783 2,991 11,867.68 40.78 3.97

1994-

1995158,181 1,021 6,781.15 30.41 6.64
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Instruments in the Indian Debt Market

Certificate of Deposit

Certificates of Deposit (CD) are issued by scheduled commercial banks excluding regional rural

banks. These are unsecured negotiable promissory notes. Bank CDs have a maturity period of

91 days to one year, while those issued by FIs have maturities between one and three years.

Commercial Paper

Commercial paper (CP) is a short term, unsecured instrument issued by corporate bodies

(public & private) to meet short-term working capital requirements. Maturity varies between 3

months and 1 year. This instrument can be issued to individuals, banks, companies and other

corporate bodies registered or incorporated in India. CPs can be issued to NRIs on non-

repatriable and non-transferable basis.

Corporate Debentures

The debentures are usually issued by manufacturing companies with physical assets, as secured

instruments, in the form of certificates They are assigned a credit rating by rating agencies.

Trading in debentures is generally based on the current yield and market values are based on

yield-to-maturity. All publicly issued debentures are listed on exchanges.


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Floating Rate Bonds (FRB)

These are short to medium term interest bearing instruments issued by financial

intermediaries and corporates. The typical maturity of these bonds is 3 to 5 years. FRBs issued

by financial institutions are generally unsecured while those from private corporates are

secured. The FRBs are pegged to different reference rates such as T-bills or bank deposit rates.

The FRBs issued by the Government of India are in the form of Stock Certificates or issued

by credit to SGL accounts maintained by the RBI.

Government Securities

These are medium to long term interest-bearing obligations issued through the RBI by the

Government of India and state governments. The RBI decides the cut-off coupon on the basis of

bids received during auctions. There are issues where the rate is pre-specified and the investor

only bids for the quantity. In most cases the coupon is paid semi-annually with bullet

redemption features.

Treasury Bills

T-bills are short-term obligations issued through the RBI by the Government of India at a

discount. The RBI issues T-bills for different tenures: now 91 -days and 364-days. These treasury

bills are issued through an auction procedure. The yield is determined on the basis of bids

tendered and accepted.

Bank/FI Bonds

Most of the institutional bonds are in the form of promissory notes transferable by

endorsement and delivery. These are negotiable certificates, issued by the Financial Institutions

such as the IDBI/ICICI/ IFCI or by commercial banks. These instruments have been issued

both as regular income bonds and as discounted long-term instruments (deep discount bonds).

Public Sector Undertakings (PSU) Bonds

PSU Bonds are medium and long term obligations issued by public sector companies in

which the government share holding is generally greater than 51%. Some PSU bonds carry tax

exemptions. The minimum maturity is 5 years for taxable bonds and 7 years for tax-free bonds.


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PSU bonds are generally not guaranteed by the government and are in the form of promissory

notes transferable by endorsement and delivery. PSU bonds in electronic form (demat) are

eligible for repo transactions.

An investor can participant in various schemes floated by mutual fund instead of buying

equity shares. In mutual funds invest in equity shares & fixed income securities. There are

three broad types of mutual fund schemes.

Growth schemes

Income schemes

Balanced schemes

MUTUAL FUND SCHEMES


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It is just like fixed income securities earn a fixed return. However, unlike fixed income

securities, deposits are negotiable or transferable. The important types of deposits in India

are:

Bank deposits

Company deposits

Postal deposits.

It provides benefits to those who participate in them. The most important tax sheltered saving

schemes in India is:

Employee provident fund scheme

Public provident fund schemes

National saving certificate

In a broad sense, life insurance may be viewed as an investment. Insurance premiums

represent the sacrifice & the assured sum the benefit. In India, the important types of

insurance polices are:

Endowment assurance policy

Money back policy

Whole life policy

Premium back term assurance policy

DEPOSITS

TAX-SHELTERED SAVING SCHEMESTAX-SHELTERED SAVING SCHEMES

LIFE INSURANCE


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For the bilk of the investors the most important asset in their portfolio is a residential house.

In addition to a residential house, the more affluent investors are likely to be interested in the

following types of real estate:

Agricultural land

Semi-urban land

PRECIOUS OBJECTS: -

It is highly valuable in monetary terms but generally they are small in size. The important

precious objects are:

Gold & silver

Precious stones

Art objects

FINANCIAL DERIVATIVES: -

A financial derivative is an instrument whose value is derived from the value of underlying

asset. It may be viewed as a side bet on the asset. The most import financial derivatives from

the point of view of investors are:

Options

Futures.

REAL ESTATE

PRECIOUS OBJECTS

FINANCIAL DERIVATIVES


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RISKRETURN OF VARIOUS INVESTMENT AVENUES

Every investment is characterized by return & risk. Investors intuitively understand the

concept of risk. A person making an investment expects to get some return from theinvestment in the future. But, as future is uncertain, so is the future expected return. It is this

uncertainty associated with the returns from an investment that introduces risk into an

investment. Risk arises where there is a possibility of variation between expectation and

realization with regard to an investment.

Meaning of Risk

Risk & uncertainty are an integrate part of an investment decision. Technically risk

can be defined as situation where the possible consequences of the decision that is to be

taken are known. Uncertainty is generally defined to apply to situations where the

probabilities cannot be estimated. However, risk & uncertainty are used

interchangeably.


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Types of risks

1. Systematic risk: -

Systematic risk is non-diversifiable & is associated with the securities market as well as the

economic, sociological, political, & legal considerations of prices of all securities in the

economy. The effect of these factors is to put pressure on all securities in such a way that the

prices of all stocks will more in the same direction.

Example: -

During a boom period prices of all securities will rise & indicate that the economy is moving

towards prosperity. Market risk, interest rate risk & purchasing power risk are grouped under

systematic risk.

RISKS

SYSTAMATIC UNSYSTAMATIC

Market Risk Business Risk

Interest Rate Risk Financial Risk

Purchasing power Risk


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1. Systematic Risk

(A) Market risk

Market risk is referred to as stock variability due to changes in investors attitudes &

expectations. The investor reaction towards tangible and intangible events is the chief cause

affecting market risk.

(B) Interest rate risk

There are four types of movements in prices of stocks in the markets. These may termed as

(1) long term, (2) cyclical (bull and bear markets), (3) intermediate or within the cycle, and

(4) short term.The prices of all securities rise or fall depending on the change in interest rates.

The longer the maturity period of a security the higher the yield on an investment & lower the

fluctuations in prices.

(C) Purchasing Power risk

Purchasing power risk is also known as inflation risk. This risk arises out of change in the

prices of goods & services and technically it covers both inflation and deflation periods.

During the last two decades it has been seen that inflationary pressures have been

continuously affecting the Indian economy. Therefore, in India purchasing power risk is

associated with inflation and rising prices in the economy.


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2. Unsystematic Risk: -

The importance of unsystematic risk arises out of the uncertainty surrounding of particular

firm or industry due to factors like labour strike, consumer preferences and management

policies. These uncertainties directly affect the financing and operating enviourment of the

firm. Unsystematic risks can owing to these considerations be said to complement the

systematic risk forces.

(A) Business risk

Every corporate organization has its own objectives and goals and aims at a particular gross

profit & operating income & also accepts to provide a certain level of dividend income to its

shareholders. It also hopes to plough back some profits. Once it identifies its operating level

of earnings, the degree of variation from this operating level would measure business risk.

Example:-

If operating income is expected to be 15% in a year, business risk will be low if the operating

income varies between 14% and 16%. If the operating income were as low as 10% or as high

as 18% it would be said that the business risk is high.

(B) Financial Risk: -

Financial risk in a company is associated with the method through which it plans its financial

structure. If the capital structure of a company tends to make earning unstable, the company

may fail financially. How a company raises funds to finance its needs and growth will have

an impact on its future earnings and consequently on the stability of earnings. Debt financing

provides a low cost source of funds to a company, at the same time providing financial

leverage for the common stock holders. As long as the earnings of the company are higher

than the cost of borrowed funds, the earning per share of common stock is increased.

Unfortunately, a large amount of debt financing also increases the variability of the returns of

the common stock holder & thus increases their risk. It is found that variation in returns for

shareholders in levered firms (borrowed funds company) is higher than in unlevered firms.

The variance in returns is the financial risk.


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Risk Return Of Various Investment Alternatives

Management

Decision

Required

Investment

Market

RiskBusiness

Risk

Interest

Risk

Purchasing

Power

Risk

H Growth stock H H L L

HSpeculative

common stockH H L L

M Blue chips M M L L

MConvertible referred

stockM M L L

LConvertible

debenturesM M L L

L Corporate bonds L L H H

L Government bonds L L H H

L Short-term bonds L L L H

L Money market funds L L L H

O Life insurance L L L H

O Commercial banks L L L H

O Unit trusts L L L M-H

O Saving a/c L L L H

O Cash L L L H

So, there are so many investment options & the different option have different benefits &

limitations in the sense risk associated with it. So it is difficult for them to chose option,

which give maximum return at minimum risk.


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Vision

To be one of the most trusted and globally reputed financial distribution companies.

Values

Customer-centric approachAt Bonanza, customers come first. And their satisfaction is not just our top priority

but also the driving force for us, every single day.

TransparencyHonesty is our forte. We believe in dealing on thoroughly ethical grounds, being fair

and transparent with our customers.

MeritocracyWe recognize and appreciate efforts put in by our employees. And we, as a matter of

fact, reward and distinguish each one of them, ceaselessly.

SolidarityWe believe in sharing a forthright and respectful relationship with our business

partners and employees. We consider them both as our team associates, who work

together. Succeed together.

Corporate Social Responsibility

Other than being the masters of financial services, Bonanza also believes in the power of

giving. We are a company who is socially responsible towards the community and

contributes to the well-being of others through various welfare initiatives and charities.

Because like they say No act of kindness, no matter how small, is ever wasted


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PORTFOLIO

Meaning of portfolio:-

Portfolio

A combination of securities with different risk & return characteristics will constitute the

portfolio of the investor. Thus, a portfolio is the combination of various assets and/or

instruments of investments. The combination may have different features of risk & return,

separate from those of the components. The portfolio is also built up out of the wealth or

income of the investor over a period of time, with a view to suit his risk and return preference

to that of the portfolio that he holds. The portfolio analysis of the risk and return

characteristics of individual securities in the portfolio and changes that may take place in

combination with other securities due to interaction among themselves and impact of each

one of them on others.

An investor considering investments in securities is faced with the problem of choosing from

among a large number of securities. His choice depends upon the risk and return

characteristics of individual securities. He would attempt to choose the most desirable

securities and like to allocate is funds over this group of securities. Again he is faced with the

problem of deciding which securities to hold and how much to invest in each. The investor

faces an infinite number of possible portfolios or groups of securities. The risk and return

characteristics of portfolio differ from those of individual securities combining to form a

portfolio. The investor tries to choose the optimal portfolio taking in to consideration the risk

return characteristics of all possible portfolios.

As the economy and the financial environment keep changing the risk return characteristics

of individual securities as well as portfolios also change. This calls for periodical review and


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revision of investment portfolios of investors. An investor invests his funds in a portfolio

expecting to get a good return consistent with the risk that he has to bear. The return realized

from the portfolio has to be measured and the performance of the portfolio has to be

evaluated.

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

Portfolio management comprises all the processes involved in the creation and maintenance

of an investment portfolio. It deals specifically with the security analysis, portfolio analysis,

portfolio selection, portfolio revision and portfolio evaluation. Portfolio management makes

use of analytical techniques of analysis and conceptual theories regarding rational allocation

of funds. Portfolio management is a complex process which tries to make investment activity

more rewarding and less risky.


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Before designing a portfolio one will have to know the intention of the investor or the

returns that the investor is expecting from his investment. This will help in adjusting the

amount of risk. This becomes an important point from the point of view of the portfolio

designer because if the investor will be ready to take more risk at the same time he will also

get more returns. This can be more appropriately understood from the figure drawn below.

R1

Expected Returns

R2

Risk less

InvestmentM1 M2

Risk

From the above figure we can see that when the investor is ready to take risk of M1, he is

likely to get expected return of R1, and if the investor is taking the risk of M2, he will be

getting more returns i.e. R2. So we can conclude that risk and returns are directly related

with each other. As one increases the other will also increase in same of different

proportion and same if one decreases the other will also decrease.

PORTFOLIO DESIGN


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From the above discussion we can conclude that the investors can be of the following

three types:

1. Investors willing to take minimum risk and at the same time are also expecting

minimum returns.

2. Investors willing to take moderate risk and at the same time are also expecting

moderate returns.

3. Investors willing to take maximum risk and at the same time are also expecting

maximum returns.


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Your age will help you determine what a good mix is / portfolio is

Age Portfolio

below 30 80% in stocks or mutual funds

10% in cash

10% in fixed income

30 t0 40 70% in stocks or mutual funds

10% in cash

20% in fixed income

40 to 50 60% in stocks or mutual funds

10% in cash

30% in fixed income

50 to 60 50% in stocks or mutual funds

10% in cash

40% in fixed income

above 60 40% in stocks or mutual funds

10% in cash

50% in fixed income

These aren't hard and fast allocations, just guidelines to get you thinking about how your

portfolio should look. Your risk profile will give you more equities or more fixed income

depending on your aggressive or conservative bias. However, it's important to always have

some equities in your portfolio (or equity funds) no matter what your age. If inflation roars

back, this will be the portion of your investments that protects you from the damage, not your

fixed income.

Also, the fixed income of your portfolio should be diversified. If you buy bonds and

debentures directly or if you invest in FDs, then make sure you have at least five different

maturities to spread out the interest rate risk.

Diversifying in equities and bonds means more than buying a number of positions. Each

position needs to be scrutinized as to how it fits into the stocks or bonds that already are in

your portfolio, and how they might be affected by the same event such as higher interest

rates, lower fuel prices, etc. Put your portfolio together like a puzzle, adding a piece at a time,

PORTFOLIO AGE RELATIONSHIP


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each one a little different from the other but achieving a uniform whole once the portfolio is

complete.

Types of portfolio for study:

In portfolio Design, we are considering only two types of portfolio. They are as follow:

1. Random Portfolio

2. Sector Portfolio

1. Random portfolio

Random portfolio consists of the scripts that are randomly selected by the investor by its own

knowledge and preference of the stocks. Here there is no analysis is done of the script, they

are selected on the tips and buts received by the investors from the external sources.

Features of random portfolio

There is no method used for selection of the script in the portfolio.

Selection is based on the individual criteria for the scripts.

The investment is made for higher return in short term.

Generally in India most of the portfolio are selected according to this random methods

as no investor himself in that much analysis of the script.

Advantages of random portfolio

Easier to keep a track on the market as not much time wasted in the analysis.

This portfolio seems to have perform better in short term as script are generally which

are performing better at that time.

Tips are available every where for the investor to pouch.

It is the experience of the individual that can fetch him good return.


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Disadvantages of random portfolio

There is every chance that you may select a script that has a very bad background in

the market.

Not every time the tips pay off for you. You need to have strong reason to select that

script.

Such portfolios are not able to sustain when there is a crisis in the market.

There is a very high risk and return involve in such portfolio.


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2. Sector specific portfolio

Sector specific portfolio includes securities of those companies which are in the same

business. Sector portfolios are very useful when there is a particular sector which is doingvery good and has a bright future a head. Sector portfolio has the securities of those

companies that engage in same kind of business.

e.g. In late 1990s sector that was providing the highest return was information technology.

Investors who have invested their money in these securities had earned very high return.

Features of sector portfolio

Script form the same group of companies that are in to the similar type of business.

Maximum exposure to the industry/sector. So any news or event has the direct effect

on the portfolio.

Risk regarding the portfolio increases as it is expose to sector specific ups and downs.

Useful investment tools for speculator and short-sellers.

It is better suited for the sectors which have been providing good revenue in the near

past.

Advantages of sector portfolio

It is better suited to investors who are willing to take risk.

It provides better short term return then other portfolios.

It is easy to keep a watch on one sector rather than many. You can have a good

command over the things happening.

Limited exposure to other sectors keeps the portfolio safe from the performance of

other sectors in the economy.

Disadvantages of sector portfolio

It is a highly risky portfolio as risk associated with the sector directly affects the

performance of the portfolio.


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These types of portfolios are not suited for long-term investor as risk taken for the

return can be too high.

There is always the possibly many scripts in the sector may not be giving that much good

attractive return as others. They may eat the profits from other scripts.


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Book value is based on historical costs, not current values, but can provide an important

measure of the relative value of a company over time. Book value can be figured as assets

minus liabilities, or assets minus liabilities and intangible items such as goodwill; either way,

the figure that results is the company's net book value. This is contrasted with its market

capitalization, or total share price value, which is calculated by multiplying the outstanding

shares by their current market price.

You can also compare a company's market value to its book value on a per-share basis.

Divide book value by the number of shares outstanding to get book value per share and

compare the result to the current stock price to help determine if the company's stock is fairly

valued. Most stocks trade above book value because investors believe that the company willgrow and the value of its shares will, too. When book value per share is higher than the

current share price, a company's stock may be undervalued and a bargain to investors.

In case of our sensex as we can see that it is currently trading at a P/B ratio of 4.41 this

shows the average P/B ratio prevailing in the market. So any script trading below the P/B of

4.41 can said to be under valued if we keep the BSE SENSEX as bench mark. But it would

be advisable for an investor to also look at the sector leaders P/B ratio to know what is the

common industry P/B and based on that he can decide about whether to invest in the

company or not. As such there is no guarantee that low P/B would able to give better return

but this stocks are considered to be undervalued so one can think that this companies are

undervalued so chances of appreciation are very high in case of low P/B scrip. Such

companies having low P/B ratio can be considered as value stock and one can thin about

investing in those companies.


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The P/E ratio as a guide to investment decisions

Earnings per share alone mean absolutely nothing. In order to get a sense of how expensive

or cheap a stock is, you have to look at earnings relative to the stock price and hence employthe P/E ratio. The P/E ratio takes the stock price and divides it by the last four quarters' worth

of earnings. If AB ltd is currently trading at Rs. 20 a share with Rs. 4 of earnings per share

(EPS), it would have a P/E of 5. Big increase in earnings is an important factor for share

value appreciation. When a stock's P-E ratio is high, the majority of investors consider it as

pricey or overvalued. Stocks with low P-E's are typically considered a good value. However,

studies done and past market experience have proved that the higher the P/E, the better the

stock.

First, one can obtain some idea of a reasonable price to pay for the stock by comparing its

present P/E to its past levels of P/E ratio. One can learn what is a high and what is a low P/E

for the individual company. One can compare the P/E ratio of the company with that of the

market giving a relative measure. One can also use the average P/E ratio over time to help

judge the reasonableness of the present levels of prices. All this suggests that as an investor

one has to attempt to purchase a stock close to what is judged as a reasonable P/E ratio based

on the comparisons made. One must also realize that we must pay a higher price for a quality

company with quality management and attractive earnings potential.

In the case if we look at the benchmark of BSE sensex on 1st

of December it is trading at a

P/E of 24.49. So if we just keep the benchmark P/E in mind then we can say that any stock

which is trading bellow the P/E of 24.49 is available cheaply. But for an investor it is also

advisable to look at the industry P/E as it is more important because just looking at the above

position we can see that SBI is trading at a very low P/E of around 8 but if you see that in

banking sector that to public sector banks the normal industry P/E is 8 all most all banks are

trading around 8 or bellow the P/E of 8.

So always it is advisable to look at what is the P/E of industry in which we want to invest to

get the better idea, because if we take the example of IT industry there almost you will find

companies around P/E of 30. so if any IT company having of P/E would considered to be a

cheap option for the investor to invest in to. So the investor should also look at the industry


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average P/E. The new investor can know about the industry P/E or any other companies P/E

in any financial magazine or from the internet also if he does not know how to calculate the

P/E or is not having the data available with them.

The formula for calculating the P/E ratio is

P/E = Current Market Price

Earning Per Share


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RANDOM PORTFOLIO

Random portfolio consists of the scripts that are randomly selected by the investor by its own

knowledge and preference of the stocks. Here there is no analysis is done of the script, they

are selected on the tips and buts received by the investors from the external sources.

We are considering BETA factor to design our Random Portfolio.

Beta FactorBeta indicates the proportion of the yield of a portfolio to the yield of the

entire market (as indicated by some index). If there is an increase in the yield of the market,

the yield of the individual portfolio may also go up. If the index goes up by 1.5% and the

yield of your portfolio goes up by 0.9%, the beta is 0.9/1.5 i.e 0.6. in other words, betaindicates that for every 1 % increase in the market yield, the yield of the portfolio goes up by

0.6%. High beta shares do move higher than the market when the market rises and the yield

of the fund declines more than the yield of the market when the market falls. In the Indian

context a beta of 1.2% is considered very bullish.

You can be indifferent to market swings if you know your stocks well. Or you can put your

portfolio into neutral or bias for the upside if you're bullish or a little for the downside if

you're bearish. One way to do that is to have a mix of stocks that have certain betas in your

portfolio. When investors are bullish on the market, they like to have high beta stocks in their

portfolios because if they're right, then their stocks go up faster than the market in general,

and their performance is better than the market. If investors are bearish on the market, then

they use the low beta or negative beta stocks because their portfolios will go down less than

the market and their performance will be better than the general market. And if they want to

be neutral, they can then make sure that they have stocks with a beta of 1 or develop a

portfolio that has stocks with betas greater than 1 and less than 1 so that they have the whole

portfolio with an average beta of 1.

A beta for a stock is derived from historical data. This means it has no predictive value for

the future, but it does show that if the stock continues to have the same price patterns relative

to the market in general as it has in the past, you've got a way of knowing how your portfolio

will perform in relation to the market. And with a portfolio


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with an average beta of 1, you can create your own index fund since you'll move more or less

in tandem with the market.


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Interpretation of Beta

When B = 1means that the scrip has same volatility as compared to Index. Suitable for

moderate investor.

When B>1means that scrip is more volatile as compared to market suitable for aggressive

investors.

When B


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Data Interpretation

DEFENSIVE PORTFOLIO

SR NO. SCRIPT BETA PRICE ON 13-06-2011 Wi

1 ACC 0.72 1004.9 9.68

2 CIPLA 0.60 338.90 10.48

3 BHARTI AIRTEL 0.72 377.40 10.22

4 GRASIM 0.76 2221.8

9.275 ONGC 0.76 1137.7 10.22

6 ITC 0.71 190.80 10.89

7 RANBUXY 0.69 531.4 9.27

8 HERO MOTOCO 0.60 1735.85 10.75

9 NTPC 0.73 160.2 11.02

10 HUL 0.48 313.6 8.20

Total Portfolio Beta = Wi * BETA

= 9.68*0.72 + 10.48*0.60 + 10.22*0.72 + 9.27*0.76 +

10.22*0.76 + 10.89*0.71 + 9.27*0.69 + 10.75*0.60 +

11.02*0.73 + 8.20*0.48

= 6.97+6.29+7.36+7.05+7.77+7.73+6.40+6.45+8.04+3.94

= 67.98 = 68


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SCRIPTS RETURN ON INDIVIDUAL

SR NO. SCRIPT BETA 13-06-2011 29-07-2011

RETURN IN %1 ACC 0.72 1004.9 1010.28 0.54

2 CIPLA 0.60 338.90 307.90 -9.14

3 BHARTI AIRTEL 0.72 377.40 437 15.75

4 GRASIM 0.76 2221.8 2193.45 -1.27

5 ONGC 0.76 1137.7 1152.8 1.32

6 ITC 0.71 190.80 208.3 9.17

7 RANBUXY 0.69 531.4 539 1.43

8 HERO MOTOCO 0.60 1735.85 1787.2 2.95

9 NTPC 0.73 160.2 173.70 8.42

10 HUL 0.48 313.6 323.95 3.30

RETURN IN DEFENSIVE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000

VALUE OF PORTFOLIO AS ON 29-07-2011 = 1033732.111

Total Return on Portfolio = 33,732.11

TOTAL RETURN IN % TERM = 3.37%


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MODRATE PORTFOLIO


1 BHARTI 0.99 377.4 9.32

2 TCS LTD 1.06 1175.6 10.73

3 BAJAJ AUTO 0.85 1342.1 9.21

4 RELIANCE 1.05 926.65 9.53

5 BHEL 0.87 1930.55 9.00

6 LT 1.02 1707.9 10.16

7 MAH & MAH 1.12 664.25 10.83

8 HDFC BANK 1.02 2372.3 10.68

9 HDFC 1.08 657.5 10.64

10 INFOSIS 0.96 2877.55 9.90


=9.22+11.37+7.83+10+7.83+10.36+12.13+10.89+11.49

+9.50

=100.64


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RETURN ON INDIVIDUAL SCRIPTS

SR NO. SCRIPT BETA 13-06-2011 29-07-11 RETURNIN %

1 ICICI BANK LTD 1.31 1028.5 1037.75 0.902 HINDALCO 1.39 180.35 168.4 -6.623 STERLITE IN 1.29 164.7 159.9 -2.94 DLF LIMITED 1.39 229.3 232.9 1.575 JAIPRA ASSO 1.81 84.25 72.85 -13.536 SBI 1.09 2220.1 2356.45 6.147 TATA POWER 1.11 1234.65 1285.5 4.11

8 TATA MOTER 1.19 1012.8 947.4 -6.459 TATA STEEL 1.13 562.8 565.1 0.4010 WIPRO 1.06 435.5 406.4 -6.68

RETURN IN AGGRESSIVE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = Rs 10,00,000/-

VALUE OF PORTFOLIO AS ON 29-07-2011 = Rs 977738.678

TOTAL RETURN IN % TERM = -2.22 %

TOTAL RETURN ON PORTFOLIO

= -22261.32


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Interpretation of Random Portfolio

As in the theoretical way we have scene that the Beta shows the movement or change

in the price of script vis--vis index. And a Beta >1 is more riskier and hence should

give more return as compared to the script having Beta < 1. as the person is taking

more risk then he should get more return. But in our case we have scene that

Defensive and Moderate portfolio having Beta < 1 and equal to 1 has given more

return as compared to Aggressive Portfolio.

So we can easily say that the investment in equity market is subject to market risk and

any one having long-term investment horizon should only enter into equity market.

This analysis that has been carried out was only for a period of two month there are

chances that in the long run aggressive portfolio would outperform the other portfolio.


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Sectoral Portfolio

Sector specific portfolio includes securities of those companies which are in the same

business. Sector portfolios are very useful when there is a particular sector which is doing

very good and has a bright future a head. Sector portfolio has the securities of those

companies that engage in same kind of business.

e.g. In late 1990s sector that was providing the highest return was information technology.

Investors who have invested their money in these securities had earned very high return.

We are considering Automobile Sector as our Sector Portfolio.


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Industry Analysis

The Automotive industry in India is one of the largest in the world and one of the fastest

growing globally. India's passenger car and commercial vehicle manufacturing industry is the

seventh largest in the world, with an annual production of more than 3.7 million units in2010. According to recent reports, India is set to overtake Brazil to become the sixth largest

passenger vehicle producer in the world, growing 16-18 per cent to sell around three million

units in the course of 2011-12. In 2009, India emerged as Asia's fourth largest exporter of

passenger cars, behind Japan, South Korea, and Thailand.

As of 2010, India is home to 40 million passenger vehicles and more than 3.7 million

automotive vehicles were produced in India in 2010 (an increase of 33.9%), making the

country the second fastest growing automobile market in the world. According to the Society

of Indian Automobile Manufacturers, annual car sales are projected to increase up to 5

million vehicles by 2015 and more than 9 million by 2020.By 2050, the country is expected

to top the world in car volumes with approximately 611 million vehicles on the nation's

roads.

Indian Automobile Industry is manufacturing over 11 million vehicles and exporting about

1.5 million every year. The dominant products of the industry are two wheelers with a market

share of over 75% and passenger cars with a market share of about 16%. Commercial

vehicles and three wheelers share about 9% of the market between them. About 91% of the

vehicles sold are used by households and only about 9% for commercial purposes. The

industry has attained a turnover of more than USD 35 billion and provides direct and indirect

employment to over 13 million people.

Interestingly, the level of trade exports in this sector in India has been medium and imports

have been low. However, this is rapidly changing and both exports and imports are

increasing. The demand determinants of the industry are factors like affordability, product

innovation, infrastructure and price of fuel. Also, the basis of competition in the sector is high

and increasing, and its life cycle stage is growth. With a rapidly growing middle class, all the

advantages of this sector in India are yet to be leveraged.


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Note that, with a high cost of developing production facilities, limited accessibility to new

technology and soaring competition, the barriers to enter the Indian Automotive sector are

high. On the other hand, India has a well-developed tax structure. The power to levy taxes

and duties is distributed among the three tiers of Government. The cost structure of the

industry is fairly traditional, but the profitability of motor vehicle manufacturers has been

rising over the past five years. Major players, like Tata Motors and Maruti Suzuki have

material cost of about 80% but are recording profits after tax of about 6% to 11%.

The level of technology change in the Motor vehicle Industry has been high but, the rate of

change in technology has been medium. Investment in the technology by the producers has

been high. System-suppliers of integrated components and sub-systems have become the

order of the day. However, further investment in new technologies will help the industry be

more competitive. Over the past few years, the industry has been volatile. Currently, Indias

increasing per capita disposable income which is expected to rise by 106% by 2015 and

growth in exports is playing a major role in the rise and competitiveness of the industry.

Tata Motors is leading the commercial vehicle segment with a market share of about 64%.

Maruti Suzuki is leading the passenger vehicle segment with a market share of 46%. Hyundai

Motor India and Mahindra and Mahindra are focusing expanding their footprint in the

overseas market. Hero Honda Motors is occupying over 41% and sharing 26%[17] of the two

wheeler market in India with Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the

three wheeler market.

Consumers are very important of the survival of the Motor Vehicle manufacturing industry.

In 2008-09, customer sentiment dropped, which burned on the augmentation in demand of

cars. Steel is the major input used by manufacturers and the rise in price of steel is putting a

cost pressure on manufacturers and cost is getting transferred to the end consumer. The price

of oil and petrol affect the driving habits of consumers and the type of car they buy.

The key to success in the industry is to improve labour productivity, labour flexibility, and

capital efficiency. Having quality manpower, infrastructure improvements, and raw material

availability also play a major role. Access to latest and most efficient technology and

techniques will bring competitive advantage to the major players. Utilizing manufacturing


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plants to optimum level and understanding implications from the government policies are the

essentials in the Automotive Industry of India.

STATISTICS

GROSS TUNROVER OF THE AUTOMOBILE

INDUSTRY IN INDIA

Year (IN USD MILLION)

2004-05 20,896

2005-06 27,011

2006-07 34,285

2007-08 36,612

2008-09 38,238


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Domestic Sales

The cumulative growth of the Passenger Vehicles segment during April 2007 March 2008

was 12.17 per cent. Passenger Cars grew by 11.79 per cent, Utility Vehicles by 10.57 per cent

and multi-purpose Vehicles by 21.39 per cent in this period. The Commercial Vehicles

segment grew marginally at 4.07 per cent. While Medium & Heavy Commercial Vehicles

declined by 1.66 per cent, light Commercial Vehicles recorded a growth of 12.29 per cent.

Three Wheelers sales fell by 9.71 per cent with sales of Goods Carriers declining drastically

by 20.49 per cent and Passenger Carriers declined by 2.13 per cent during April- March 2008

compared to the last year.

Two Wheelers registered a negative growth rate of 7.92 per cent during this period, with

motorcycles and electric two wheelers segments declining by 11.90 per cent and 44.93 per

cent respectively. However, Scooters and Mopeds segment grew by 11.64 per cent and 16.63

per cent respectively

Automobile Domestic Sales Trends

Category 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Passenger

Vehicles1,061,572 1,143,076 1,379,979 1,549,882 1,552,703 1,951,333 2,520,421

Commercial

Vehicles318,430 351,041 467,765 490,494 384,194 532,721 676,408

Three

Wheelers307,862 359,920 403,910 364,781 349,727 440,392 526,022

Two

Wheelers6,209,765 7,052,391 7,872,334 7,249,278 7,437,619 9,370,951 11,790,305

GrandTotal

7,897,629 8,906,428 10,123,988 9,654,435 9,724,243 12,295,397 15,513,156


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Growth potential of indian automobile industry

Growth Drivers

1.Rising per capita Income and the changing demographic distribution are

conducive for growth. India has the highest proportion of population below

35 years, 70%, (potential buyers), which means that 130 million people will

get added to the working population between 2003 and 2009.


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Automobile sector Portfolio


1 Bajaj auto 0.85 1342.1 19

2 Maruti Suzuki India Ltd 0.79 1227.6 18

3 Mahindra & Mahindra 1.12 664.25 16

4 Ashok Leyland 1.17 50.85 13

5 Hero MotoCo 0.60 1735.85 18

6 Tata Motors 1.46 1012.8 16


= 16.15+14.22+17.92+15.21+10.8+23.36

= 97.66


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SR NO. SCRIPT BETA 13-06-2011 29-07-11 RETURNIN %

1 Bajaj auto 0.85 1342.1 1464.85 9.15

2 Maruti Suzuki India Ltd 0.79 1227.6 1207.9 -1.60

3 Mahindra & Mahindra 1.12 664.25 718.25 8.13

4 Ashok Leyland 1.17 50.85 51.80 1.86

5 Hero MotoCo 0.60 1735.85 1787.2 2.95

6 Tata Motors 1.46 1012.8 947.4 -6.46

RETURN IN SECTORAL PORTFOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000/- Rs..

VALUE OF PORTFOLIO AS ON 29-07-2011 = 1024917.932

TOTAL RETURN ON PORTFOLIO

= 24917

In percentage terms = 2.49%


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FINDING OF THE REPORT

Findings of the report gives the fruit of the all the analysis done on the research of

measuring and comparing performance of the portfolio with the market portfolio.

Random portfolio

It is advisable to use the direct equity investment only if the investors have

adequate knowledge about selection of stocks. Their task does not ends with

the selection of script but they are also required to pay close attention to the

various happening in the economy that have direct or indirect effect on stock

market as we have learn that the price of the script is affected by two factor,

one is company specific news and the other is economy specific news so any

investor investing in the equity directly has to keep the close track of the

economy as well as the company in which they invest to look out for any new

development that take place

As in the theoretical way we have scene that the Beta shows the movement

or change in the price of script vis--vis index. And a Beta >1 is more riskier

and hence should give more return as compared to the script having Beta < 1.

as the person is taking more risk then he should get more return. But in our

case we have scene that Moderate portfolio having Beta < 1 has given more

return as compared to Aggressive Portfolio.

So we can easily say that the investment in equity market is subject to market

risk and any one having long-term investment horizon should only enter into

equity market. This analysis that has been carried out was only for a period of

two month there are chances that in the long run aggressive portfolio would

outperform the other portfolio.


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So if one does not have enough knowledge, expertise & analytical capabilities

then one should avoid going for direct equity investment as the chances of

loss increases. And the other very important aspect is the regular monitoring

of the portfolio and reviewing is also an important aspect that one needs to

pay close attention to.


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Sector portfolio

Sector portfolio has given less return in the month of the study as there is

systemic risk as very high in the sector portfolio because of non

diversification. This portfolio has given 2.36% returns on the one month

performance so it is advisable for the investor not to go for such a high risky

investment options.

All the individual scripts and the portfolio showing very steady chart, there is

very little movement in the performance chart.

There is a very high Beta of majority of the scripts in the portfolio edging more

than 1.4 in most of the script. Only one script having a Beta under 1 but it istoo low to give a good return on the investment. Because of that the overall

portfolio Beta is also sizing more than 1.4.

In the sector portfolio the volatility of the majority of script is under 10. Thats

shows less risk with the portfolio and also less fluctuation means less chance

of return.


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RECOMMENDATION

From the above given findings and the conclusions of the study done by me, here

are the list of recommendations that comes out of the study.

Form the study it is also proven that even in short run sector portfolio is highly

risky option for investment. Here in the study it is providing negative return.

That shows that investors who want to have safe return must think twice

before selecting sector portfolio for a long term investment.

Though random portfolio is having scripts with highest return and volatility,

but for a long term prospect is becomes hard to fetch good return out of it as

it is hard to take use of high volatility.

There is a requirement for frequent portfolio checking to maintain the higher

return and to make use of high volatility.


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CONCLUSION

The total risk associated with a portfolio can be reduced by mixing stocks of high return, high

risk with stocks of low return, low risk. That keeps the return of the portfolio at moderate but

stable level and with a risk of manageable proportion. After study of the above three portfolio

of the 10 number of stocks each, it can be seen that some of the stocks like that of Unitech

Ltd, Sterlites Industries, Jaiprakash Associates, , and ICICI bank were the stocks with high

variance in their monthly return. These stocks are riskier with high return.

Lower the beta and higher the funds performance is the better equity for investment. One

might expect the best performance by funds with low diversification because they apparently

are attempting to beat the market by being unique in their selection or timing.

The sectors which is selected has a good potential to outperform the market in long-term to

its good fundamentals. And companies, which are selected, have made technical breakout in

March 2011, so such companies will perform better in recent future.

If we categorize the investor in three categoriesrisk taker, moderate risk taker and

conservative, we can advise him to invest in portfolios of different degree of risk as per his

risk appetite. Then various investors preference has also been covered in the in report which

can act as a primer for the Bonanza Portfolio Ltd employees.


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Bibliography

Books

1. Derivatives Module of NSE ( NCFM )

2. Securities analysis and Portfolio Management

-B.K. Bhalla

Web Bibliography

1. www.bonanzaonline.com

2. www.nseindia.com

3. www.bseindia.com

4. www.derivativesindia.com

5. www.moneycontrol.com

Others

News Papers

- Economic Times of India

- Times of India
http://www.bonanzaonline.com/http://www.bonanzaonline.com/http://www.nseindia.com/http://www.nseindia.com/http://www.bseindia.com/http://www.bseindia.com/http://www.derivativesindia.com/http://www.derivativesindia.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.derivativesindia.com/http://www.bseindia.com/http://www.nseindia.com/http://www.bonanzaonline.com/


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129 Project Report

Documents

Transcript of 129 Project Report