CHAPTER-I

INTRODUCTION

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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 unique goals and circumstances of the investor must also be considered. Some

investors are more risk averse than others. Mutual funds have developed particular

techniques to optimize their portfolio holdings.

Thus, portfolio management is all about strengths, weaknesses, opportunities and

threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety

and numerous other trade-offs encountered in the attempt to maximize return at a

given appetite for risk.

Aspects of Portfolio Management:

Basically portfolio management involves

A proper investment decision making of what to buy & sell

Proper money management in terms of investment in a basket of assets so as

to satisfy the asset preferences of investors.

Reduce the risk and increase returns.

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OBJECTIVES OF PORTFOLIO MANAGEMENT:

The basic objective of Portfolio Management is to maximize yield and minimize risk.

The other ancillary objectives are as per needs of investors, namely:

Regular income or stable return

Appreciation of capital

Marketability and liquidity

Safety of investment

Minimizing of tax liability.

NEED AND IMPORTENCE OF STUDY:

The Portfolio Management deals with the process of selection securities from the number

of opportunities available with different expected returns and carrying different levels of

risk and the selection of securities is made with a view to provide the investors the

maximum yield for a given level of risk or ensure minimum risk for a level of return.

Portfolio Management is a process encompassing many activities of investment in assets

and securities. It is a dynamics and flexible concept and involves regular and systematic

analysis, judgment and actions. The objectives of this service are to help the unknown

investors with the expertise of professionals in investment Portfolio Management. It

involves construction of a portfolio based upon the investor’s objectives, constrains,

preferences for risk and return and liability. The portfolio is reviewed and adjusted from

time to time with the market conditions. The evaluation of portfolio is to be done in

terms of targets set for risk and return. The changes in portfolio are to be effected to meet

the changing conditions.

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 towards

the assembly of proper combinations held together will give beneficial result if they are

grouped in a manner to secure higher return after taking into consideration the risk

element.

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

can make diversification either by having a large number of shares of companies in

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different regions, in different industries or those producing different types of product

lines. Modern theory believes in the perspectives of combination of securities under

constraints of risk and return.

SCOPE OF STUDY:

This study covers the Markowitz model. The study covers the calculation of

correlations between the different securities in order to find out at what percentage funds

should be invested among the companies in the portfolio. Also the study includes the

calculation of individual Standard Deviation of securities and ends at the calculation of

weights of individual securities involved in the portfolio. These percentages help in

allocating the funds available for investment based on risky portfolios.

OBJECTIVE OF STUDY

How to analyze securities

How portfolio management is done

A study to find the returns, variance, & standard deviation of dividend and

growth fund.

Based on the returns I tried to correlate these two funds, to know whether there

exist positive or negative correlations.

To study the investment pattern and its related risks & return

To help the investors to choose wisely between alternative

investment

To understand, analyze and select the best portfolio

RESEARCH METHODOLOGY

Arithmetic average or mean:

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

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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

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 Mean”

It is by far the most important and widely used 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 mean,i.e.

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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

CORRELATION

Correlation is a statistical technique, which measures and analyses the degree 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 between –1 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 Pearson’s 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 Pearsonian 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

= Σ xy/N = ΣXY

SD of X,Y N

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

Σxy = 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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LIMITATIONS

1. In this study the number of funds considered is only two funds of KARVY and

they are dividend fund and growth fund.

2. The data collected for a period of one year i.e., from December 2010 to January

2011

3. In this study the statistical tools used are risk, return, average, variance,

correlation.

4. In this study specific data is collected.

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CHAPTER-II

COMPANY PROFILE

Background:

Karvy Consultants Limited was started in the year 1981, with the vision and enterprise of

a small group of practicing Chartered Accountants. Initially it was started with

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consulting and financial accounting automation, and carved inroads into the field of

registry and share accounting by 1985. Since then, it has utilized its experience and

superlative expertise to go from strength to strength…to better its services, to provide

new ones, to innovate, diversify and in the process, evolved as one of India’s premier

integrated financial service enterprise.

Today, Karvy has access to millions of Indian shareholders, besides companies,

banks, financial institutions and regulatory agencies. Over the past one and half decades,

Karvy has evolved as a veritable link between industry, finance and people. In January

1998, Karvy became the first Depository Participant in Andhra Pradesh. An ISO 9002

company, Karvy's commitment to quality and retail reach has made it an integrated

financial services company.

An Overview:

KARVY, is a premier integrated financial services provider, and ranked among the top

five in the country in all its business segments, services over 16 million individual

investors in various capacities, and provides investor services to over 300 corporates,

comprising the who is who of Corporate India. KARVY covers the entire spectrum of

financial services such as Stock broking, Depository Participants, Distribution of

financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking,

Commodities Broking, Personal Finance Advisory Services, Merchant Banking &

Corporate Finance, placement of equity, IPOs, among others. Karvy has a professional

management team and ranks among the best in technology, operations and research of

various industrial segments.

Today, Karvy service over 6 lakhs customer accounts spread across over 250

cities/towns in India and serves more than 75 million shareholders across 7000 corporate

clients and makes its presence felt in over 12 countries across 5 continents. All of Karvy

services are also backed by strong quality aspects, which have helped Karvy to be

certified as an ISO 9002 company by DNV.

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ACHIEVEMENTS :

Among the top 5 stock brokers in India (4% of NSE volumes)

India's No. 1 Registrar & Securities Transfer Agents

Among the top 3 Depository Participants

Largest Network of Branches & Business Associates

ISO 9001:2000 certified operations by DNV

Among top 10 Investment bankers

Largest Distributor of Financial Products

Adjudged as one of the top 50 IT uses in India by MIS Asia

Full Fledged IT driven operations

First ISO-9002 Certified Registrars in India

Ranked as “The Most Admired Registrar” by MARG

Largest mobilize of funds as per PRIME DATABASE

First depository participant from Andhra Pradesh.

Handled over 500 public issues as Registrars.

Handling the Reliance account, which accounts for nearly 10 million account

holders?

Range of services:

Stock broking services

Distribution of Financial Products (investments & loan products)

Depository Participant services

IT enabled services

Personal finance Advisory Services

Private Client Group

Debt market services

Insurance & merchant banking

Mutual Fund Services

Corporate Shareholder Services

Other global services

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Besides these, they also offer special portfolio analysis packages that provide daily

technical advice on scrips for successful portfolio management and provide customized

advisory services to help customers make the right financial moves that are specifically

suited to their portfolio. They are continually engaged in designing the right investment

portfolio for each customer according to individual needs and budget considerations.

Karvy Consultants limited deals in Registrar and Investment Services. Karvy is one of

the early entrants registered as Depository Participant with NSDL (National Securities

Depository Limited), the first Depository in the country and then with CDSL (Central

Depository Services Limited).

Karvy stock broking is a member of National Stock Exchange (NSE), The Bombay

Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE). The services

provided are multi dimensional and multi-focused in their scope: to analyze the latest

stock market trends and to take a close looks at the various investment options and

products available in the market. Besides this, they also offer special portfolio analysis

packages.

The paradigm shift from pure selling to knowledge based selling drives the

business today. The monthly magazine, Finapolis, provides up-dated market information

on market trends, investment options, opinions etc. Thus empowering the investor to

base every financial move on rational thought and prudent analysis and embark on the

path to wealth creation.

Karvy is recognized as a leading merchant banker in the country, Karvy is registered

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with SEBI as a Category I merchant banker. This reputation was built by capitalizing on

opportunities in corporate consolidations, mergers and acquisitions and corporate

restructuring.

Karvy has a tie up with the world’s largest transfer agent, the leading Australian

company, Computer share Limited. It has attained a position of immense strength as a

provider of across-the-board transfer agency services to AMCs, Distributors and

Investors. Besides providing the entire back office processing, it also provides the link

between various Mutual Funds and the investor.

Karvy global services limited covers Banking, Financial and Insurance Services

(BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and

Healthcare sectors.

Karvy comtrade limited trades in all goods and products of agricultural and mineral

origin that include lucrative commodities like gold and silver and popular items like oil,

pulses and cotton through a well-systematized trading platform.

Karvy Insurance Broking Pvt. Ltd. provides both life and non-life insurance products

to retail individuals, high net-worth clients and corporates. With Indian markets seeing a

sea change, both in terms of investment pattern and attitude of investors, insurance is no

more seen as only a tax saving product but also as an investment product.

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Karvy Inc. is located in New York to provide various financial products and

information on Indian equities to potential foreign institutional investors (FIIs) in the

region. This entity would extensively facilitate various businesses of Karvy viz., stock

broking (Indian equities), research and investment by QIBs in Indian markets for both

secondary and primary offerings.

.Quality Policy: To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Karvy will strive to exceed Customer's expectations.

Quality Objectives

As per the Quality Policy, Karvy will:

Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of services.

Establish a partner relationship with its investor service agents and vendors that

will help in keeping up its commitments to the customers.

Provide high quality of work life for all its employees and equip them with

adequate knowledge & skills so as to respond to customer's needs.

Continue to uphold the values of honesty & integrity and strive to establish

unparalleled standards in business ethics.

Use state-of-the art information technology in developing new and innovative

financial products and services to meet the changing needs of investors and

clients.

Strive to be a reliable source of value-added financial products and services and

constantly guide the individuals and institutions in making a judicious choice of

same.

Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers

and regulatory authorities) proud and satisfied

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CHAPTER-II

REVIEW OF LITERATURE

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PORTFOLIO MANAGEMENT:

Specification and qualification of investor objectives, constraints, and preferences

in the form of an investment policy statement.

Determination and qualification of capital market expectations for the economy,

market sectors, industries and individual securities.

Allocation of assets and determination of appropriate portfolio strategies for each

asset class and selection of individual securities.

Performance measurement and evaluation to ensure attainment of investor

objectives.

Monitoring portfolio factors and responding to changes in investor objectives,

constrains and / or capital market expectations.

Rebalancing the portfolio when necessary by repeating the asset allocation,

portfolio strategy and security selection.

CRITERIA FOR PORTFOLIO DECISIONS:

In portfolio management emphasis is put on identifying the collective importance

of all investor’s holdings. The emphasis shifts from individual assets selection to

a more balanced emphasis on diversification and risk-return interrelationships of

individual assets within the portfolio. Individual securities are important only to

the extent they affect the aggregate portfolio. In short, all decisions should focus

on the impact which the decision will have on the aggregate portfolio of all the

assets held.

Portfolio strategy should be molded to the unique needs and characteristics of the

portfolio‘s owner.

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Diversification across securities will reduce a portfolio‘s risk. If the risk and

return are lower than the desired level, leverages (borrowing) can be used to

achieve the desired level.

Larger portfolio returns come only with larger portfolio risk. The most important

decision to make is the amount of risk which is acceptable.

The risk associated with a security type depends on when the investment will be

liquidated. Risk is reduced by selecting securities with a payoff close to when the

portfolio is to be liquidated.

Competition for abnormal returns is extensive, so one has to be careful in

evaluating the risk and return from securities. Imbalances do not last long and

one has to act fast to profit from exceptional opportunities.

Provides user interfaces that allow for the extraction of data based on user

defined parameters.

Provides a comprehensive set of tools to perform portfolio and risk evaluation

against parameters set within the risk framework.

Provides a set of tools to optimise portfolio value and risk position by:

Considering various legs of different contracts to create an optimal trading

strategy.

The calculation of residual purchase requirements.

Performs analysis that provides the relevant information to create hedge and trade

plans.

Performs analysis on current and potential trades.

Evaluates the best mix of contracts on offer from counterparties to minimise the

overall purchase cost and maximize profits.

Creates and maintains trading and hedge strategies by:

Allocating trades to contracts and books.

Maintaining trades against contracts and books.

Reviewing trades against existing trading strategy.

Maintains an audit trail of decisions taken and query resolution.

Produces accurate and timely reports

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Portfolio Management

To sustain long-term growth, companies manage a number of products and candidates at

different stages of maturity. However, different product profiles and the therapeutic areas

they serve have disparate commercial opportunities.

Our portfolio prioritization, pipeline analysis, category franchise strategy, and

technology licensing assessments provide a systematic means of optimizing development

programs and product opportunities. We outline and quantify the areas of greatest

opportunity for your organization and recommend actionable strategies that establish or

expand your position in target markets.

Key portfolio management questions that we address:

Which technologies and product candidates have the greatest potential

commercial value?

How can we broaden and deepen our therapy penetration?

What actions can we take to maximize return on investment for individual

candidates and discoveries?

Which proprietary rights do we buy, co-market, license, or sell?

How do we balance short and long term product needs to maximize therapeutic

franchise value?

We detail the value of discoveries in clinical phases, candidates in the pipeline, and

products on the market. These individual and therapeutic category evaluations enable

executives to make strategic investment, licensing and prioritization decisions to realize

their portfolio's full potential.

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Portfolio Management

you can now receive the same portfolio management services as many institutional

investors-whether it is a separately managed account or a mutual fund wrap portfolio.

Some benefits of managed portfolios include:

 Providing access to top-tier investment management professionals

 Tailored portfolios to meet specific investment needs

 Ownership of individual securities

 Ease of pre-designed mutual fund portfolios

 Every investor is unique, and investment advisory services provide you with

professional investment advice and a personalized investment strategy. Whether you're

seeking a tailored, professionally managed portfolio, or the convenience and simplicity

of a diversified mutual fund wrap program, your investment choice should focus on

meeting your financial goals. During this process, you should consider current and future

growth objectives, income needs, time horizon and risk tolerance. These considerations

form the blueprint for developing a portfolio management strategy. The process involves,

but is not limited to, the following important stages.

 

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Set investment objectives

Develop an asset allocation strategy

Evaluate/Select investment vehicle

Portfolio review -- Ongoing portfolio monitoring

Portfolio Management Maturity

Summarizes five levels of project portfolio management maturity .each level represents

the adoption of an increasingly comprehensive and effective subset of related solutions

discussed in the previous parts of this 6-part paper for addressing the reasons that

organizations choose the wrong projects. Understanding organizational maturity with

regard to project portfolio management is useful. It facilitates identifying performance

gaps, indicates reasonable performance targets, and suggests an achievable path for

improvement.

The fact that five maturity levels have been identified is not meant to suggest that all

organizations ought to strive for top-level performance. Each organization needs to

determine what level of performance is reasonable at the current time based on business

needs, resources available for engineering change, and organizational ability to accept

change. Experience shows that achieving high levels of performance typically takes

several years. It is difficult to leap-frog several steps at once. Making progress is what

counts.

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Five levels of project portfolio management.

The detailed definitions of the levels, provided below, are not precise. Real organizations

will tend to be more advanced with regard to some characteristics and less advanced

relative to others. For most organizations, though, it is easy to pick one of the levels as

characterizing the current maturity of project portfolio management performance.

Level 1: Foundation

Level 1 organizes work into discrete projects and tracks costs at the project level.

Project decisions are made project-by-project without adherence to formal project

selection criteria.

The portfolio concept may be recognized, but portfolio data are not centrally

managed and/or not regularly refreshed.

Roles and responsibilities have not been defined or are generic, and no value-

creation framework has been established.

Only rarely are business case analyses conducted for projects, and the quality

is often poor.

Project proposals reference business benefits generally, but estimates are nearly

always qualitative rather than quantitative.

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There is little or no formal balancing between the supply and demand for project

resources, and there is little if any coordination of resources across projects,

which often results in resource conflicts.

Over-commitment of resources is common.

There may be a growing recognition that risks need to be managed, but there is

little real management of risk.

Level 1 organization is not yet benefiting from project portfolio management, but they

are motivated to address the relevant problems and have the minimum foundation in

place to begin building project portfolio management capability. At this level,

organizations should focus on establishing consistent, repeatable processes for project

scheduling, resource assignment, time tracking, and general project oversight and

support.

Level 2: Basics

Level 2 replaces project-by-project decision making with the goal of identifying the best

collection of projects to be conducted within the resources available. At a minimum this

requires aggregating project data into a central database, assigning responsibilities for

project portfolio management, and force-ranking projects.

Redundant projects are identified and eliminated or merged.

Business cases are conducted for larger projects, although quality may be

inconsistent.

Individual departments may be establishing structures to oversee and coordinate

their projects.

There is some degree of options analysis (i.e., different versions of the project

will be considered).

Project selection criteria are explicitly defined, but the link to value creation is

sketchy.

Planning is mostly activity scheduling with limited performance forecasting.

There are attempts to quantify some non-financial benefits, but estimates are

mostly "guestimates" generated without the aid of standard techniques.

Overlap and double counting of benefits between projects is common.

Ongoing projects are still rarely terminated based on poor performance.

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The PPM tools being used may have good data display and management

capabilities, but project prioritization algorithms may be simplistic and the results

potentially misleading to decision makers.

Portfolio data has an established refresh cycle or is regularly accessed and

updated. Resource requirements at the portfolio level are recognized but not

systematically managed.

Knowledge sharing is local and ad hoc.

Risk analysis may be conducted early in projects but is not maintained as a

continual management process. Uncertainties in project schedule, cost and

benefits are not quantified.

Schedule and cost overruns are still common, and the risks of project failure

remain large.

Level 2 organizations are beginning to implement project portfolio management, but

most of the opportunity has not yet been realized. The focus should be on formalizing the

framework for evaluating and prioritizing projects and on implementing tools and

processes for supporting project budgeting, risk and issues tracking, requirements

tracking, and resource management.

Level 3: Value Management

Level 3, the most difficult step for most organizations, requires metrics, models, and

tools for quantifying the value to be derived from projects. Although project

interdependencies and portfolio risks may not be fully and rigorously addressed, analysis

allows projects to be ranked based on "bang-for-the-buck," often producing a good

approximation of the value-maximizing project portfolio.

The principles of portfolio management are widely understood and accepted.

The project portfolio has a well-defined perimeter, with clear demarcation and

understanding of what it contains and does not contain.

Portfolio management processes are centrally defined and well documented, as

are roles and responsibility for governance and delivery.

Portfolio management can demonstrate that its role in scrutinizing projects has

resulted in some initiatives being stopped or reshaped to increase portfolio value.

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Executives are engaged, provide tradeoff weights for the value model, and

provide active and informed support.

Plans are developed to a consistent standard and are outcome- or value-based.

Effective estimation techniques are being used within planning and a range of

project alternatives are routinely considered.

Data quality assurance processes are in place and independent reviews are

conducted.

There is a common, consistent practice for project approval and monitoring.

Project dependencies are identified, tracked, and managed.

Decisions are made with the aid of a tool based on a defensible logic for

computing project value that generates the efficient frontier.

Portfolio data are kept up-to-date and audit trails are maintained.

Costs, expenditures and forecasts are monitored at the portfolio level in

accordance with established guidelines and procedures.

Interfaces with financial and other related functions within the organization have

been defined.

A process is in place for validating the realization of project benefits.

There is a defined risk analysis and management process, with efforts appropriate

to risk significance, although some sources of risk are not quantified in terms of

probability and consequence.

Level 3 organizations demonstrate a commitment to proactive, standardized project and

project portfolio management. They are achieving significant return from their

investment, although more value is available.

Level 4: Optimization

Level 4 is characterized by mature processes, superior analytics, and quantitatively

managed behavior.

Tools for optimizing the project portfolio correctly and fully account for

project risks and interdependencies.

The business processes of value creation have been modeled and measurement

data is collected to validate and refine the model.

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The model is the basis for the logic for estimating project value, prioritizing

projects, making project funding and resource allocation decisions, and

optimizing the project portfolio.

The organization's tolerance for risk is known, and used to guide decisions that

determine the balance of risk and benefit across the portfolio.

There is clear accountability and ownership of risks.

External risks are monitored and evaluated as part of the investment management

process and common risks across the whole portfolio (which may not be visible

to individual projects) are quantified and in support of portfolio optimization.

Senior executives are committed, engaged, and proactively seek out innovative

ways to increase value.

There is likely to be an established training program to develop the skills and

knowledge of individuals so that they can more readily perform their designated

roles.

An extensive range of communications channels and techniques are used for

collaboration and stakeholder management.

High-level reports on key aspects of portfolio are regularly delivered to

executives and the information is used to inform strategic decision making.

There is trend reporting on progress, actual and projected cost, value, and level of

risk.

Assessments of stakeholder confidence are collected and used for process

improvement.

Portfolio data is current and extensively referenced for better decision making.

Level 4 organizations are using quantitative analysis and measurements to obtain

efficient predictable and controllable project and project portfolio management. They are

obtaining the bulk of the value available from practicing project portfolio management.

Level 5: Core Competency

Level 5 occurs when the organization has made project portfolio management a core

competency, uses best-practice analytic tools, and has put processes in place for

continuous learning and improvement.

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Portfolio management processes are proven and project decisions, including

project funding levels and timing, are routinely made based the value

maximization value.

Processes are continually refined to take into account increasing knowledge,

changing business needs, and external factors.

Portfolio management drives the planning, development, and allocation of

projects to optimize the efficient use of resources in achieving the strategic

objectives of the organization.

High levels of competence are embedded in all portfolio management roles, and

portfolio management skills are seen as important for career advancement.

Portfolio gate reviews are used to proactively assess and manage portfolio value

and risk.

Portfolio management informs future capacity demands, capability requirements

are recognized, and resource levels are strategically managed.

Information is highly valued, and the organization's ability to mitigate external

risks and grasp opportunities is enhanced by identifying innovative ways to

acquire and better share knowledge.

Benefits management processes are embedded across the organization, with

benefits realization explicitly aligned with the value measurement framework.

The portfolio is actively managed to ensure the long term sustainability of the

enterprise.

Stakeholder engagement is embedded in the organization's culture, and

stakeholder management processes have been optimized.

Risk management underpins decision-making throughout the organization.

Quantitatively measurable goals for process improvement have been established

and performance against them tracked.

The relationship between the portfolio and strategic planning is understood and

managed.

Resource allocations to and from projects are intimately aligned so as the

maximize value creation.

Level 5 organizations are obtaining maximum possible value from project portfolio

management. By fully institutionalizing project portfolio management into their culture

they free people to become more creative and innovative in achieving business success.

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Building Project Portfolio Management Maturity

Experience shows that building project portfolio management maturity takes time. As

suggested by, significant short-term performance gains can be achieved, but making step

changes requires understanding current weaknesses and the commitment of effort and

resources.

Step changes can be made, but achieving high levels of maturity typically takes years

QUALITIES OF PORTFOLIO MANAGER:

1. SOUND GENERAL KNOWLEDGE : Portfolio management is an

exciting and challenging job. He has to work in an extremely uncertain and confliction

environment. In the stock market every new piece of information affects the value of the

securities of different industries in a different way. He must be able to judge and predict

the effects of the information he gets. He must have sharp memory, alertness, fast

intuition and self-confidence to arrive at quick decisions.

2. ANALYTICAL ABILITY : He must have his own theory to arrive at

the instrinsic value of the security. An analysis of the security‘s values, company, etc. is

s continuous job of the portfolio manager. A good analyst makes a good financial

consultant. The analyst can know the strengths, weaknesses, opportunities of the

economy, industry and the company.

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3. MARKETING SKILLS : He must be good salesman. He has to

convince the clients about the particular security. He has to compete with the stock

brokers in the stock market. In this context, the marketing skills help him a lot.

4. EXPERIENCE : In the cyclical behavior of the stock market history is

often repeated, therefore the experience of the different phases helps to make rational

decisions. The experience of the different types of securities, clients, market trends, etc.,

makes a perfect professional manager.

PORTFOLIO BUILDING:

Portfolio decisions for an individual investor are influenced by a wide variety of

factors. Individuals differ greatly in their circumstances and therefore, a financial

programme well suited to one individual may be inappropriate for another. Ideally, an

individual‘s portfolio should be tailor-made to fit one‘s individual needs.

Investor‘s Characteristics:

An analysis of an individual‘s investment situation requires a study of personal

characteristics such as age, health conditions, personal habits, family responsibilities,

business or professional situation, and tax status, all of which affect the investor‘s

willingness to assume risk.

Stage in the Life Cycle:

One of the most important factors affecting the individual‘s investment objective

is his stage in the life cycle. A young person may put greater emphasis on growth and

lesser emphasis on liquidity. He can afford to wait for realization of capital gains as his

time horizon is large.

Family responsibilities:

The investor‘s marital status and his responsibilities towards other members of the

family can have a large impact on his investment needs and goals.

27

Investor‘s experience:

The success of portfolio depends upon the investor‘s knowledge and experience

in financial matters. If an investor has an aptitude for financial affairs, he may wish to be

more aggressive in his investments.

Attitude towards Risk:

A person‘s psychological make-up and financial position dictate his ability to assume

the risk. Different kinds of securities have different kinds of risks. The higher the risk,

the greater the opportunity for higher gain or loss.

Liquidity Needs:

Liquidity needs vary considerably among individual investors. Investors with

regular income from other sources may not worry much about instantaneous liquidity,

but individuals who depend heavily upon investment for meeting their general or specific

needs, must plan portfolio to match their liquidity needs. Liquidity can be obtained in

two ways:

1. By allocating an appropriate percentage of the portfolio to bank deposits, and

2. By requiring that bonds and equities purchased be highly marketable.

Tax considerations:

Since different individuals, depending upon their incomes, are subjected to different

marginal rates of taxes, tax considerations become most important factor in individual‘s

portfolio strategy. There are differing tax treatments for investment in various kinds of

assets.

Time Horizon:

In investment planning, time horizon becomes an important consideration. It is

highly variable from individual to individual. Individuals in their young age have long

time horizon for planning, they can smooth out and absorb the ups and downs of risky

combination. Individuals who are old have smaller time horizon, they generally tend to

avoid volatile portfolios.

28

Individual‘s Financial Objectives:

In the initial stages, the primary objective of an individual could be to accumulate

wealth via regular monthly savings and have an investment programmed to achieve long

term capital gains.

Safety of Principal:

The protection of the rupee value of the investment is of prime importance to most

investors. The original investment can be recovered only if the security can be readily

sold in the market without much loss of value.

Assurance of Income:

`Different investors have different current income needs. If an individual is

dependent of its investment income for current consumption then income received now

in the form of dividend and interest payments become primary objective.

Investment Risk:

All investment decisions revolve around the trade-off between risk and return.

All rational investors want a substantial return from their investment. An ability to

understand, measure and properly manage investment risk is fundamental to any

intelligent investor or a speculator. Frequently, the risk associated with security

investment is ignored and only the rewards are emphasized. An investor who does not

fully appreciate the risks in security investments will find it difficult to obtain continuing

positive results.

29

RISK AND EXPECTED RETURN:

There is a positive relationship between the amount of risk and the amount of

expected return i.e., the greater the risk, the larger the expected return and larger the

chances of substantial loss. One of the most difficult problems for an investor is to

estimate the highest level of risk he is able to assume.

Risk is measured along the horizontal axis and increases from the left to right.

Expected rate of return is measured on the vertical axis and rises from bottom to

top.

The line from 0 to R (f) is called the rate of return or risk less investments

commonly associated with the yield on government securities.

The diagonal line form R (f) to E(r) illustrates the concept of expected rate of

return increasing as level of risk increases.

TYPES OF RISKS:

Risk consists of two components. They are

1. Systematic Risk

2. Un-systematic Risk

30

1. Systematic Risk:

Systematic risk is caused by factors external to the particular company and

uncontrollable by the company. The systematic risk affects the market as a whole.

Factors affect the systematic risk are

economic conditions

political conditions

sociological changes

The systematic risk is unavoidable. Systematic risk is further sub-divided into three

types. They are

a) Market Risk

b) Interest Rate Risk

c) Purchasing Power Risk

a). Market Risk

One would notice that when the stock market surges up, most stocks post higher

price. On the other hand, when the market falls sharply, most common stocks will drop.

It is not uncommon to find stock prices falling from time to time while a company‘s

earnings are rising and vice-versa. The price of stock may fluctuate widely within a short

time even though earnings remain unchanged or relatively stable.

b). Interest Rate Risk:

Interest rate risk is the risk of loss of principal brought about the changes in the

interest rate paid on new securities currently being issued.

31

c). Purchasing Power Risk:

The typical investor seeks an investment which will give him current income

and / or capital appreciation in addition to his original investment.

2. Un-systematic Risk:

Un-systematic risk is unique and peculiar to a firm or an industry. The nature and

mode of raising finance and paying back the loans, involve the risk element. Financial

leverage of the companies that is debt-equity portion of the companies differs from each

other. All these factors affect the un-systematic risk and contribute a portion in the total

variability of the return.

Managerial inefficiently

Technological change in the production process

Availability of raw materials

Changes in the consumer preference

Labor problems

The nature and magnitude of the above mentioned factors differ from industry to

industry and company to company. They have to be analyzed separately for each

industry and firm. Un-systematic risk can be broadly classified into:

a) Business Risk

b) Financial Risk

a. Business Risk:

Business risk is that portion of the unsystematic risk caused by the operating

environment of the business. Business risk arises from the inability of a firm to maintain

its competitive edge and growth or stability of the earnings. The volatility in stock prices

due to factors intrinsic to the company itself is known as Business risk. Business risk is

32

concerned with the difference between revenue and earnings before interest and tax.

Business risk can be divided into.

i). Internal Business Risk

Internal business risk is associated with the operational efficiency of the firm.

The operational efficiency differs from company to company. The efficiency of

operation is reflected on the company‘s achievement of its pre-set goals and the

fulfillment of the promises to its investors.

ii).External Business Risk

External business risk is the result of operating conditions imposed on the firm by

circumstances beyond its control. The external environments in which it operates exert

some pressure on the firm. The external factors are social and regulatory factors,

monetary and fiscal policies of the government, business cycle and the general economic

environment within which a firm or an industry operates.

b. Financial Risk:

It refers to the variability of the income to the equity capital due to the debt capital.

Financial risk in a company is associated with the capital structure of the company.

Capital structure of the company consists of equity funds and borrowed funds.

PORTFOLIO ANALYSIS:

Various groups of securities when held together behave in a different manner and

give interest payments and dividends also, which are different to the analysis of

individual securities. A combination of securities held together will give a beneficial

result if they are grouped in a manner to secure higher return after taking into

consideration the risk element.

There are two approaches in construction of the portfolio of securities. They are

Traditional approach

Modern approach

33

TRADITIONAL APPROACH:

Traditional approach was based on the fact that risk could be measured on each

individual security through the process of finding out the standard deviation and that

security should be chosen where the deviation was the lowest. Traditional approach

believes that the market is inefficient and the fundamental analyst can take advantage of

the situation. Traditional approach is a comprehensive financial plan for the individual.

It takes into account the individual need such as housing, life insurance and pension

plans. Traditional approach basically deals with two major decisions. They are

a) Determining the objectives of the portfolio

b) Selection of securities to be included in the portfolio

MODERN APPROACH:

Modern approach theory was brought out by Markowitz and Sharpe. It is the

combination of securities to get the most efficient portfolio. Combination of securities

can be made in many ways. Markowitz developed the theory of diversification through

scientific reasoning and method. Modern portfolio theory believes in the maximization

of return through a combination of securities. The modern approach discusses the

relationship between different securities and then draws inter-relationships of risks

between them. Markowitz gives more attention to the process of selecting the portfolio.

It does not deal with the individual needs.

MARKOWITZ MODEL:

Markowitz model is a theoretical framework for analysis of risk and return and

their relationships. He used statistical analysis for the measurement of risk and

mathematical programming for selection of assets in a portfolio in an efficient manner.

Markowitz apporach determines for the investor the efficient set of portfolio through

three important variables i.e.

Return

Standard deviation

Co-efficient of correlation

34

Markowitz model is also called as an “Full Covariance Model“. Through this

model the investor can find out the efficient set of portfolio by finding out the tradeoff

between risk and return, between the limits of zero and infinity. According to this theory,

the effects of one security purchase over the effects of the other security purchase are

taken into consideration and then the results are evaluated. Most people agree that

holding two stocks is less risky than holding one stock. For example, holding stocks

from textile, banking and electronic companies is better than investing all the money on

the textile company‘s stock.

Markowitz had given up the single stock portfolio and introduced diversification.

The single stock portfolio would be preferable if the investor is perfectly certain that his

expectation of highest return would turn out to be real. In the world of uncertainty, most

of the risk adverse investors would like to join Markowitz rather than keeping a single

stock, because diversification reduces the risk.

ASSUMPTIONS:

All investors would like to earn the maximum rate of return that they can achieve

from their investments.

All investors have the same expected single period investment horizon.

All investors before making any investments have a common goal. This is the

avoidance of risk because Investors are risk-averse.

Investors base their investment decisions on the expected return and standard

deviation of returns from a possible investment.

Perfect markets are assumed (e.g. no taxes and no transition costs)

The investor assumes that greater or larger the return that he achieves on his

investments, the higher the risk factor surrounds him. On the contrary when risks

are low the return can also be expected to be low.

The investor can reduce his risk if he adds investments to his portfolio.

35

An investor should be able to get higher return for each level of risk “by

determining the efficient set of securities“.

An individual seller or buyer cannot affect the price of a stock. This assumption

is the basic assumption of the perfectly competitive market.

Investors make their decisions only on the basis of the expected returns, standard

deviation and covariance’s of all pairs of securities.

Investors are assumed to have homogenous expectations during the decision-

making period

The investor can lend or borrow any amount of funds at the risk less rate of

interest. The risk less rate of interest is the rate of interest offered for the treasury

bills or Government securities.

Investors are risk-averse, so when given a choice between two otherwise identical

portfolios, they will choose the one with the lower standard deviation.

Individual assets are infinitely divisible, meaning that an investor can buy a

fraction of a share if he or she so desires.

There is a risk free rate at which an investor may either lend (i.e. invest) money

or borrow money.

There is no transaction cost i.e. no cost involved in buying and selling of stocks.

There is no personal income tax. Hence, the investor is indifferent to the form of

return either capital gain or dividend.

36

THE EFFECT OF COMBINING TWO SECURITIES:

It is believed that holding two securities is less risky than by having only one

investment in a person‘s portfolio. When two stocks are taken on a portfolio and if they

have negative correlation then risk can be completely reduced because the gain on one

can offset the loss on the other. This can be shown with the help of following example:

INTER- ACTIVE RISK THROUGH COVARIANCE:

Covariance of the securities will help in finding out the inter-active risk. When

the covariance will be positive then the rates of return of securities move together either

upwards or downwards. Alternatively it can also be said that the inter-active risk is

positive. Secondly, covariance will be zero on two investments if the rates of return are

independent.

Holding two securities may reduce the portfolio risk too. The portfolio risk can

be calculated with the help of the following formula:

CAPITAL ASSET PRICING MODEL (CAPM):

Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic

structure of Capital Asset Pricing Model. It is a model of linear general equilibrium

return. In the CAPM theory, the required rate return of an asset is having a linear

relationship with asset‘s beta value i.e. un-diversifiable or systematic risk (i.e. market

related risk) because non market risk can be eliminated by diversification and systematic

risk measured by beta. Therefore, the relationship between an assets return and its

systematic risk can be expressed by the CAPM, which is also called the Security Market

Line.

R = Rf Xf+ Rm(1- Xf)

Rp = Portfolio return

Xf =The proportion of funds invested in risk free assets

1- Xf = The proportion of funds invested in risky assets

Rf = Risk free rate of return

Rm = Return on risky assets

37

Formula can be used to calculate the expected returns for different situations, like

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

borrowing with risky assets.

THE CONCEPT:

According to CAPM, all investors hold only the market portfolio and risk less

securities. The market portfolio is a portfolio comprised of all stocks in the market. Each

asset is held in proportion to its market value to the total value of all risky assets.

For example, if wipro Industry share represents 15% of all risky assets, then the

market portfolio of the individual investor contains 15% of wipro Industry shares. At

this stage, the investor has the ability to borrow or lend any amount of money at the risk

less rate of interest.

E.g.: assume that borrowing and lending rate to be 12.5% and the return from the

risky assets to be 20%. There is a tradeoff between the expected return and risk. If an

investor invests in risk free assets and risky assets, his risk may be less than what he

invests in the risky asset alone. But if he borrows to invest in risky assets, his risk would

increase more than he invests his own money in the risky assets. When he borrows to

invest, we call it financial leverage. If he invests 50% in risk free assets and 50% in

risky assets, his expected return of the portfolio would be

Rp= Rf Xf+ Rm(1- Xf)

= (12.5 x 0.5) + 20 (1-0.5)

= 6.25 + 10

= 16.25%

if there is a zero investment in risk free asset and 100% in risky asset, the

return is

Rp= Rf Xf+ Rm(1- Xf)

= 0 + 20%

= 20%

38

if -0.5 in risk free asset and 1.5 in risky asset, the return is

Rp= Rf Xf+ Rm(1- Xf)

= (12.5 x -0.5) + 20 (1.5)

= -6.25+ 30

= 23.75%

39

CHAPTER-IV

DATA ANALYSIS AND INTERPRETATION

40

CALCULATION OF AVERAGE RETURN OF COMPANIES:

_ Average Return (R) = (R)/N

(P0) = Opening price of the share (P1) = Closing price of the share D = DividendWIPRO:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 1,233.45 1361.20 29 127.75 12.712006-2007 1,361.20 2,012 5 650.8 48.162007-2008 2012 1900.75 5 -111.25 -15.842008-2009 1900.75 1900.45 8 -0.3 1.382009-2010 1900.45 425.30 - -1475.15 -0.776 

TOTAL RETURN 45.634

Average Return = 45.63/5 = 9.12

DR REDDY LABORATORIES LTD:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 916.30 974.35 5 58.2 6.892006-2007 974.35 739.15 5 23.52 -23.632007-2008 739.15 1,421.40 5 682.25 92.982008-2009 1,421.40 1456.55 3.75 35.15 2.742009-2010 1456.55 591.25 .75 -865.3 -59.4

 TOTAL RETURN 19.58

Average Return = 19.58/5 = 3.916

41

ACC:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 138.50 254.65 4 116.15 86.712006-2007 254.65 360.55 7 105.9 44.342007-2008 360.55 782.20 8 421.61 119.192008-2009 782.20 735.25 25 -46.95 -2.82009-2010 735.23 826.10 2 90.85 12.63

  TOTAL RETURN  258.07

Average Return = 258.07/5 =51.614

HERO MOTOCORP LIMITED:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 188.20 490.60 20 302.40 171.32006-2007 490.60 548.00 20 57.40 15.772007-2008 548.00 890.45 20 342.45 66.142008-2009 890.45 688.75 17 -20.17 -20.742009-2010 688.75 9.5 1.45 1.45 1.958

 TOTAL RETURN 234.428

Average Return = 234.428/5 = 46.885

42

DIAGRAMATIC PRESENTATION

RETURN

CALCULATION OF STANDARD DEVIATION:

Standard Deviation = Variance __Variance = 1/n (R-R)2

43

COMPANY RETURN

WIPRO 9.12

DR.REDDY 3.916

ACC 51.614

HERO MOTOCORP 46.885

WIPRO:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 12.71 9.12 3.59 12.88812006-2007 48.16 9.12 39.04 1524.1222007-2008 -15.84 9.12 -24.96 623.00162008-2009 1.38 9.12 -7.74 59.90762009-2010 -0.776 9.12 -9.896 97.93082

  TOTAL 2317.85 _

Variance = 1/n (R-R)2 = 1/5 (2317.85) = 463.57

Standard Deviation = Variance = 463.57 =21.53

DR. REDDY:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 6.89 46.88 2.98 8.88042006-2007 -23.63 46.88 -27.54 758.45162007-2008 92.98 46.88 89.07 7933.4652008-2009 2.74 46.88 -1.17 1.36892009-2010 -59.4 46.88 -63.31 4008.156

 TOTAL 12710.32

Variance = 1/n-1 (R-R)2 = 1/5 (12710.32) = 2542.06

Standard Deviation = Variance = 2542.06= 50.14

44

ACC:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 86.71 51.61 35.1 1232.012006-2007 44.34 51.61 -7.27 52.85292007-2008 119.19 51.61 67.58 4567.0562008-2009 -2.8 51.61 -54.41 2960.4482009-2010 12.63 51.61 -38.98 1519.44

  TOTAL 10331.81

Variance = 1/n-1 (R-R)2 = 1/5 (10331.81) = 2066.36

Standard Deviation = Variance = 2066.36 = 45.45

HERO MOTOCORP:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2003-2004 171.3 32.59 138.71 19,240.52006-2007 15.77 32.59 -16.82 284.12007-2008 66.14 32.59 33.57 1,126.2732008-2009 -20.74 32.59 -53.33 2,844.12009-2010 1.958 32.59 -31 -960.8  

TOTAL 29,592.4

Variance = 1/n-1 (R-R)2 = 1/5 (29,592.4) = 4,232.1

Standard Deviation = Variance = 4,232.1 = 70.23

45

DIAGRAMATIC PRESENTATION

COMPANY RISK

WIPRO 22.86

DR.REDDY 46.66

ACC 47.963

HERO MOTOCORP 70.23

RISK

CALCULATION OF CORRELATION:

Covariance (COV ab) = 1/n (RA-RA)(RB-RB) Correlation Coefficient = COV ab/a*b

46

WIPRO WITH OTHER COMPANIES

ii) WIPRO (RA)&DR.REDDY (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 6.22 50.442006-2007 43.56 -24.3 -1,058.52007-2008 -10.44 92.31 -963.72008-2009 -4.195 2.07 -8.692009-2010 -4.678 -60.07 281.01

  TOTAL -1,180.3

Covariance (COV ab) = 1/5 (-1,180.3) = -196.72 Correlation Coefficient = COV ab/a*b

a = 22.86 ; b = 46.66 = -196.72/(22.86)(46.66) = -0.184

iii. WIPRO (RA) & ACC (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 -32.01 -50.7 1,622.912006-2007 8.11 44.67 362.32007-2008 43.56 2.32 101.182008-2009 -10.44 77.17 -805.72009-2010 -4.195 -44.82 188.02

  TOTAL 1,606.11

Covariance (COV ab) = 1/5(1,606.11) = 267.69

Correlation Coefficient = COV ab/a*ba = 22.86 ; b = 47.27 = 267.69/(22.86)(47.27) = .0247

47

v. WIPRO (RA) & HERO MOTOCORP (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 138.71 1,124.92006-2007 43.56 -16.82 -732.682007-2008 -10.44 33.57 -358.482008-2009 -2.42 -59.44 143.82009-2010 -4.68 -31 145.1

  TOTAL 2,697

Covariance (COV ab) = 1/6 (2,697) = 449.7

Correlation Coefficient = COV ab/a*ba = 22.86 ; b = 70.23= 2,697/(22.86)(70.23) = 0.28

3. Correlation Between DR REDDY & Other Companies

i. DR REDDY(RA) &ACC(RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 44.67 277.852006-2007 -24.31 2.32 -56.3992007-2008 92.31 77.17 7,123.562008-2009 2.07 -44.82 -92.782009-2010 -60.07 -29.37 1,764.26

  TOTAL 9,838.84

Covariance (COV ab) = 1/6 (9,838.84) =1,639.81

Correlation Coefficient = COV ab/a*ba = 46.66 ;b = 47.27= 1,639.81/(46.66)(47.27) = 0.743

48

iii. DR REDDY (RA) &HERO MOTOCORP (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 138.71 862.722006-2007 -24.3 -16.82 408.732007-2008 92.31 33.57 3,098.852008-2009 2.07 -53.33 -110.3932009-2010 -60.07 -31 1,862.2

  TOTAL 7,284.66

Covariance (COV ab) = 1/6 (7,284.66) = 1,214.109Correlation Coefficient = COV ab/a*b

a = 46.66 ; b = 70.23= 1,214.109/(46.66)(70.23) = 0.370

4. Correlation With ACC & Other Companies

ACC(RA) & HERO MOTOCORP(RB)

Covariance (COV ab) = 1/6 (15,682.15) = 2,613.7Correlation Coefficient = COV ab/a*b

a = 47.27; b =70.23=2,613.7/(47.27)(70.23) = 0.787

49

CALCULATION OF PORTFOLIO WEIGHTS:

FORMULA :

Wa = b [b-(nab*a)] a2 + b2 - 2nab*a*b

Wb = 1 – Wa WEIGHTS OF WIPRO & OTHER COMPANIES:

i. WIPRO & DR. REDDY

a = 22.86b = 46.66nab = -0.184

Wa = 46.66 [46.66-(-0.184* )] 2 + 2 – 2(-0.184)* *

Wa = 2,373.42 3,092.2615

Wa = 0.77Wb = 1 – Wa Wb = 1- 0.77 = 0.23

ii. WIPRO (a) & ACC (b)

a = 22.86b = 47.27nab = 0.247

Wa = 47.27 [ - (0.25* )] 2 + 2 – 2(0.5)* *

Wa = 1,964.82 1,767.66

Wa =1.11

Wb = 1 – Wa

Wb = 1- 1.11 = -0.11

iii. WIPRO(a) & HERO MOTOCORP(b)

50

a = 22.86b = 70.23nab = 0.28

Wa = 70.23 [70.23-(0.28*22.86)] 2 + 2 – 2(0.28)* *

Wa = 4,482.88 4,555.77

Wa = 0.98

Wb = 1 – Wa

Wb = 1-0.98 = 0.02

WEIGHTS OF DRREDDY & OTHER COMPANIES:

DRREDDY (a) & ACC (b)

a = 46.7b = 47.7nab = 0.74

Wa = 47.7 [47.7- (0.74*46.7)] 2 + 2 – 2(0.74)* *

Wa = 602.6 1,149.01

Wa = 0.52Wb = 1 – Wa Wb = 1- 0.52 = 0.48

i. DRREDDY (a) & HERO MOTOCORP (b)

a = 46.67b = 70.23nab = 0.37

Wa = 70.23 [70.23-(0.37*46.67)] 2 + 2 – 2(0.37)* *

Wa = 3,722.2 2,506.9

Wa = 1.48

51

Wb = 1 – Wa Wb = 1-1.48 = -0.48

WEIGHTS OF ACC & OTHER COMPANIES

ACC (a) & HERO MOTOCORP (b)

a = 47.3b = 70.23nab = 0.79

Wa = 70.23 [70.23- (0.79*47.3)] 2 + 2 – 2(0.79)* *

Wa = 2,308.5 1,921.43

Wa = 1.20

Wb = 1 – Wa

Wb = 1- 1.20 = -0.20

CALCULATION OF PORTFOLIO RISK:

RP = (a*Wa)2 + (b*Wb)2 + 2*a*b*Wa*Wb*nab

CALCULATION OF PORTFOLIO RISK OF WIPRO & OTHER COMPANIES:

WIPRO (a) & DR.REDDY (b):

a = 22.86

52

b = 46.66Wa = 0.78Wb = 0.23nab = -0184

RP = (22.86*0.78.)2+(46.66*0.23) 2(22.86)(46.66)(0.78(0.23)(-0.184)

355.6 18.86%

WIPRO (a) &ACC (b):

a = 22.86b = 47.27Wa = 1.11Wb = -0.11nab = 0.25

RP = (22.86*1.11) 2+(47.27*-0.11) 2+2(22.86)(47.27)(1.11)(-0.11)(0.25)

551.2 23.5%

WIPRO (a) & HERO MOTOCORP (b):

a = 22.86b = 70.23Wa= 0.98Wb=0.02nab = 028

RP = (22.86*0.98)2(70.23*0.02)2+2(22.86)(70.23)(0.98)(0.02)(0.28)

525 = 22.85%

CALCULATION OF PORTFOLIO RISK OF DR REDDY & OTHER COMPANIES

DRREDDY (a) & ACC (b):

a = 46.7

53

b = 47.3Wa=0.52Wb= 0.48nab = 0.74

RP = (46.7*0.52)2+(47.3*0.48)2+2(46.7) * *(0.48)*(0.74)

1,922.80 = 43.85%

DRREDDY (a) & HERO MOTOCORP (b):

a = 46.67b = 70.23Wa = 1.48Wb= -0.48nab = 0.37

RP = (46.67*1.48)2+(70.23*-0.48)2+2(46.67) * *(-048)*(0.37)

234.89 = 15.33%

CALCULATION OF PORTFOLIO RISK OF ACC & OTHER COMPANIES

ACC(a) &HERO MOTOCORP (b):a = 47.3b = 70.23Wa= 1.20Wb = -0.20nab = 0.79

RP = (47.3*1.20)2+(70.23*-0.20)2+2(47.3) * *(-0.20)*(0.79)

1,764.84 = 42%

CALCULATION OF PORTFOLIO RETURN:

Rp=(RA*WA) + (RB*WB)

Where Rp = portfolio return RA= return of A WA= weight of A

54

RB= return of B WB= weight of B

CALCULATION OF PORTFOLIO RETURN OF WIPRO & OTHER COMPANIES:

WIPRO (a) & DR.REDDY (b):

RA= 4.6 WA=0.77

RB=0.67 WB=0.23

Rp = (4.6*0.77) + (0.67*0.23)

Rp = (3.542 + 0.1541)Rp = 3.6961%

WIPRO (a) &ACC (b):

RA= 4.6 WA=1.11

RB= 42.02 WB=-0.11

Rp = (4.6*1.11) + (42.02*-0.11)Rp = (5.106+4.622)Rp = 0.484

WIPRO (a) & HERO MOTOCORP (b):

RA= 4.6 WA=0.98

RB= 32.498 WB=0.02

Rp = (4.6*0.9) + (32.498*0.02)

Rp = (4.508 + 0.6499)

Rp = 5.16%

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CALCULATION OF PORTFOLIO RETURN OF DR REDDY & OTHER COMPANIES

DRREDDY (a) & ACC (b):

RA= 0.67 WA=0.52

RB=42.02 WB=0.48

Rp = (0.67*0.52) + (42.02*0.48)

Rp = (.3487+20.139)Rp = 20.5%

DRREDDY (a) & HERO MOTOCORP (b):

RA= 0.67 WA=1.48

RB=32.498 WB=-0.48

Rp (0.67*1.48) + (32.498*-0.48)

Rp (0.9916-15.599)

Rp -14.60%

CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER COMPANIES

ACC(a) &HERO MOTOCORP (b):

RA= 42.02 WA=1.20

RB=32.498 WB=-0.20

Rp = (42.02*1.20) + (32.498*-0.20)

Rp = (50.424-6.499)Rp = 43.92%

DISPLAY OF ALL CALCULATED VALUES

COMBINATION CORRELATION COVARIANCEPORTFOLIO RETURN

PORTFOLIO RISK

WIPRO & DR.REDDY -0.184 -196.72 3.7 18.9

WIPRO & ACC 0.247 267.69 0.49 23.5

WIPRO &HERO 0.28 449.7 5.0 22.9

ITC & DR.REDDY 0.89 2736.2 -9.8 26.9

ITC &ACC 0.830 2591.4 36.542 50

ITC &HERO 0.587 2736.33 25.4 60.6

DR.REDDY & ACC .7434 1639.8 20.5 43.9

DR REDDY&HERO 0.705 1,124.1095 -14.6 15.3

ACC & HERO 0.7873 2,613.7 43.9 42

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CHAPTER-V

FINDINGS

CONCLUSION

SUGGESTIONS:

BIBILOGRAPHY

57

FINDINGS

The analytical part of the study for the 6 years period reveals the

following interpretations,

wipro with itc:

In this combination as per the calculations and the study the wipro bears a

proportion of investment of (0.93)and where as ITC bears a proportion of (0.07)which is

less than compared to wipro. The standard deviation of wipro is (22.86) and (66.04) in

ITC.

From the return point of view wipro is (4.6) and (20.1) is ITC. From risk point of view

wipro is less risk than, ITC so the investors who are will to face high risk the better

option will be investing in ITC.

Wipro with acc:

Portfolio weights for wipro and ACC are (1.11)and (-0.11) respectively. This

indicates that the investors who are interested to take more risk they can invest in this

combination, and also can get high returns.

Dr reddy & Hero Motocorp:

In this combination as per the calculation & the study of portfolio weights of dr

reddy and Hero Motocorp are (1.48) and (-0.48) respectively. Here the standard

deviation of drreddy &Hero Motocorp are (46.66) and (70.23) respectively. Returns are

(0.67) is for dr reddy (32.43) is for Hero Motocorp.In this, position invest in Hero

Motocorp is high risk as well as high returns also up to (32.43) when compared to

dereddy.

Dr reddy&acc:

The portfolio of weights of the both (0.52)is drreddy (.048) is for acc. The

standard deviation of dr reddy is (46.66) and (47.27) for acc. The returns of drreddy is

(0.67) and (42.02) is acc. According to this combination investor can invest acc, this is

more risk as well as more returns can get up to (42.02). If investor wants less risk he has

to invest in acc.Dr reddy is a low risk as well as low returns also.

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Acc&Hero Motocorp:

According to this combination of the portfolio weights are (1.20) in acc and (-

0.20) is Hero Motocorp. The standard deviation of acc is less than Hero Motocorp

47.27>70.23. if the investor wants to take low risk, acc is the better option. And the

return point of view Hero Motocorp is providing more returns that of acc.

According to this combination if the investor wants to get returns then he has to

take the more risk. This is the good combination for investors for investing in the

acc&Hero Motocorp. For more profits.

“Greater Portfolio Return with less Risk is always is an attractive

combination” for the Investors.

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CONCLUSION

The investors who are risk averse can invest their funds in the

portfolio combination of, ACC, HERO MOTOCORP AND WIPRO

proportion. The investors who are slightly risk averse are suggested to

invest in WIPRO, DR. REDDY, ACC as the combination is slightly low

risk when compared with other companies.

The analysis regarding the compaines ACC, HERO MOTOCORP

has howed a wise investment in public and in private sector with an

increasing trend where as corporate sector has recorded a decreasing trends

income which denotes an increasing trend throught out the study period.

As far as the average return of the company is concerned ACC, , HERO

MOTOCORP is high with an average return of 48.41%. WIPRO,

DR.REDDY is getting low returns. HERO MOTOCORP securities are

performing at medium returns.

As far as the correlation is concerned the securities DR.REDDY are high

correlated with minimum portfolio risk. The investor who is risk averse will

have to invest in this combination which gives good return with low risk.

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SUGGESTIONS:

As the average return of securities, ACC, HERO MOTOCORP and

are HIGH, it is suggested that investors who show interest in these

securities taking risk into consideration.

As the risk of the securities ITC, ACC, HERO MOTOCORP and

BHEL are risky securities it suggested that the investors should be

careful while investing in these securities.

The investors who require minimum return with low risk should

invest in WIPRO & DR.REDDY.

It is recommended that the investors who require high risk with high

return should invest in ITC and HERO MOTOCORP.

The investors are benefited by investing in selected scripts of

Industries.

Buy stocks in companies with potential for surprises.

Take advantage of volatility before reaching a new equilibrium.

Listen to rumors and tips, check for yourself.

Don’t put your trust in only one investment. It is like “putting all the

eggs in one basket “. This will help lesson the risk in the long term.

The investor must select the right advisory body which is has sound

knowledge about the product which they are offering.

Professionalized advisory is the most important feature to the

investors. Professionalized research, analysis which will be helpful

for reducing any kind of risk to overcome.

61

BIBLIOGRAPHY

Books

Security Analysis & Portfolio Management - Fishers & Jordon

Financial Management – M.Y. Khan

Financial Management – Prasanna Chandra

News Papers

Times of India

India Today

Websites

www.amfiindia.com

www.sebi.com

www.google.com

www.ingvysyabank.com

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