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Assignment on

Paindex

Index for Paints Industry in India

for

Securities Analysis and Portfolio Management

Submitted toDr. Pradeep Banerjee

Institute of Management TechnologyGhaziabad

Submitted by:

Ayan Ghosh (10FN-031)

Ayush Agrawal (10FN-032)

Chetan Sabadra (10FN-034)

Chinmay Vashisht (10FN-035)

Dheeraj Pandey (10FN-036)

Dhruv Kapoor (10FN-038)

Contents

Introduction......................................................................................................................................3

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Highlights........................................................................................................................................3

Market Representation.................................................................................................................3

Paindex Companies-....................................................................................................................4

Eligibility Criteria............................................................................................................................3

Liquidity......................................................................................................................................4Market Capitalization..................................................................................................................4

Shares Outstanding......................................................................................................................4

Domicile......................................................................................................................................4

Eligible Securities........................................................................................................................4

Other Variables............................................................................................................................4

Methodology....................................................................................................................................5

Formula to Calculate Paindex......................................................................................................5

Adjustments.................................................................................................................................5

Performance of Paindex v/s Sensex.................................................................................................5

Conclusion.......................................................................................................................................6

Conclusion

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Introduction

A wide range of paint companies are available in India. While some are foreign manufacturers,there are several ones which are truly Indian in content and style.

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The Paindex is the index based on the Bombay Stock Exchange of India Ltd for the stocks of thecompanies from Paint Industry which are listed. The Paindex tracks the behaviour of a portfolioof Paints Industries largest and most liquid Indian securities. It includes 4 of the 6 companies

listed on the BSE and is a true reflection of the Indian stock market.

Highlights

The Paindex is a 4 stock, market-capitalization-weighted index for Paint Industry in India. It canbe used for a variety of purposes such as benchmarking fund portfolios, index based derivativesand index funds. The Paindex is based on solid economic research and is created for thoseinterested in investing and trading in equities related to Paints Industry

Market Representation-

The Paindex stocks represent about 90% of the total Paint market capitalization of the BombayStock Exchange (BSE).

Following are the companies listed on BSE:

AKZO NOBEL (I) ASAHI SONGWON COLORS ASIAN PAINTS BERGER PAINT JENSON & NICHOLSON KANSAI NEROLAC

Eligibility Criteria

The table below gives us a snap-shot the financial strength and the market capitalization of thepaint companies listed in the bourses:

Name of theCompany

MarketCap

Free-floatFactor

Free-FloatCap

31-12-2010

30-09-2010

30-06-2010

31-12-2009

30-09-2009

Akzo Nobel 3165 0.4 1266 3837 3652 4394 3027 4184

AsahiSongwonColors 122 0.4 48 329 1185 498 158 830

Asian Paints 30517 0.5 15258 17143 20660 19616 20096 17704

BergerPaints 3445 0.25 861 3764 3691 3674 3702 2817

Jenson andNicholson 17 0.7 12 -97.93 -80.84 -97.58

-125.08

-163.47

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KansaiNerolac 4851 0.35 1697 5886 4159 5361 5192 3392

The constituents and the criteria for the selection judge the effectiveness of the index. Selectionof the index set is based on following four criterias:

Financial Results: For inclusion in the index, the scrip company should have positive networth for at least last 5 quarters. Jenson and Nicolson failed to clear this criterion.

Trading Interest: For inclusion in the index, the companies must have a minimum listingrecord of 6 months on the Exchange. In addition these companies must have demonstrated highturnover and trading frequency. All the companies passed this criterion.

Market Capitalization - Companies eligible for inclusion in the Paindex must have a six-month average market capitalization ofRs 5 billion or more, during the latest six months. Twocompanies, namely, Asahi Songwon Colors and Jenson and Nicolson failed to clear thiscriterion.

Shares Outstanding - Companies eligible for inclusion in the Paindex should have at least12% of its stock available to investors (float). For this purpose, float shall mean stocks which arenot held by the promoters and associated entities (where identifiable) of such companies. All thecompanies passed this filter.

Domicile - The Company must be domiciled in India and trade on the BSE. All the companiespassed this filter.

Eligible Securities - All common shares listed on the BSE (which are of equity and not of afixed income nature) are eligible. Convertible stock, bonds, warrants, rights, and preferred stock

that provide a guaranteed fixed return are not eligible. All the companies passed this filter.

Other VariablesA company which comes out with an IPO will be eligible for inclusion in the index, if it fulfilsthe normal eligibility criteria for the index -- impact cost, market capitalization and floating stock-- for a 3-month period instead of a 6-month period. None of the companies were listed in thelast 6 months, so we did not make any adjustment for this criterion.

Paindex Companies-

Following are the four companies which represents Paindex based on below mentioned eligibityCriteria

AKZO NOBEL (I) ASIAN PAINTS BERGER PAINT KANSAI NEROLAC

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Methodology

Paindex is being calculated on a free-float market capitalization methodology on daily basis forlast 5 years. Base date for Paindex is 3rd July 2006, and the base value considered is Rs 100.

While calculating Paindex following factors were considered

Price of the stock Number of Shares Free Float Factor

Based on above values Weighted Market cap for each company was calculated and aggregated toform Paindex

Formula to Calculate Paindex

Free-float market capitalization of Paindex constituents/ Base Market capitalization * Base value

Adjustments

When the bonus shares were issued by the company, adjustments were made in the in thecalculations. The ratio in which bonus shares were issued by the company, accordingly the priceof the share and the numbers of shares of that particular company were adjusted.

For Example: On 12th October 2006, Berger Paints issued bonus shares in the ratio of 3:5. Henceits price was adjusted from Rs 86.35 to Rs. 56.35 and the numbers of shares were increased from199295290 to 318872464.

Performance of Paindex v/s Sensex

Following chart shows the performance of Paindex v/s Sensex. The performance was calculatedconsidering the indexes on 1st July 2006. The performance of Sensex and Paindex was paralleltill June 2009, post Paindex have performed much better than Sensex. Paindex has outperformedSensex, giving returns by more than 4 times.

Conclusion

We have successfully created Paindex which represents the Paints Industry in India. ThePaindex have been calculated based on the shares of companies which comes under Paints

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Industry listed in Bombay Stock Exchange. Paindex was calculated on the free float marketcapitalization methodology.

The comparison of Paindex v/s Sensex shows that Paints Industry has performed better than theideal portfolio made by largest 30 companies by market capitalization from different sectors.