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Transcript of Stock Exchange Main Project
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TABLE OF CONTENTS
CHAPTER NO TOPIC PG. NO
EXECUTIVE SUMMARY
CHAPTER 1 INTRODUCTION
OBJECTIVES
SCOPE OF THE STUDY
CHAPTER 2 INDUSTRY PROFILE
CAPITAL MARKET
MAJOR STOCK EXCHANGES IN INDIA
COMPANY PROFILE
CHAPTER 3 REVIEW OF LITERATURE
DERIVATIVES
RISK
HEDGING
CHAPTER 4 RESEARCH METHODOLOGY
DESIGN OF THE STUDY
PERIOD OF THE STUDY
SOURCE OF DATA
TOOLS USED
RESEARCH METHODOLOGY
LIMITATIONS OF THE STUDY
CHAPTER 5 ANALYSIS AND INTERPRETATION OF DATA
INERPRETATION
CHAPTER 6 FINDINGS AND SUGGESTION
CHAPTER 7 CONCLUSION
BIBILIOGRAPHY
ANNEXTURE
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LIST OF TABLES
SI. NO. Table Headings Pg. No
1 Details of Portfolio as on 01/05/2009
2 Beta values of scrip for the month of May
3 Analysis of portfolio without hedging for the monthof May
4 Daily movements of portfolio and profit/loss for themonth of May
5 Calculation of amount to be hedged on 04/05/09
6 Calculation of amount to be hedged on 05/05/09
7Calculation of amount to be hedged on 06/05/09
8 Calculation of amount to be hedged on 07/05/09
9 Calculation of amount to be hedged on 08/05/09
10 Calculation of amount to be hedged on 11/05/09
11 Calculation of amount to be hedged on 12/05/09
12 Calculation of amount to be hedged on 13/05/09
13 Calculation of amount to be hedged on 14/05/09
14 Calculation of amount to be hedged on 15/05/09
15 Calculation of amount to be hedged on 18/05/09
16 Calculation of amount to be hedged on 19/05/09
17 Calculation of amount to be hedged on 20/05/09
18 Calculation of amount to be hedged on 21/05/09
19 Calculation of amount to be hedged on 22/05/09
20 Calculation of amount to be hedged on 25/05/09
21 Calculation of amount to be hedged on 26/05/09
22 Calculation of amount to be hedged on 27/05/09
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23 Calculation of amount to be hedged on 28/05/09
24 Calculation of amount to be hedged on 29/05/09
25 Daily movement of hedged portfolio and profit and
Loss26 Details of Portfolio as on 01/06/2009
27 Beta values of scrips for the month of June
28 Analysis of portfolio without hedging for the month ofJune
29 Summary of portfolio movement and profit / loss forthe month of June
30 Calculation of amount to be hedged on 01/06/09
31 Calculation of amount to be hedged on 02/06/09
32 Calculation of amount to be hedged on 03/06/09
33 Calculation of amount to be hedged on 04/06/09
34 Calculation of amount to be hedged on 05/06/09
35 Calculation of amount to be hedged on 08/06/09
36 Calculation of amount to be hedged on 09/06/09
37 Calculation of amount to be hedged on 10/06/09
38 Calculation of amount to be hedged on 11/06/09
39 Calculation of amount to be hedged on 12/06/09
40 Calculation of amount to be hedged on 15/06/09
41 Calculation of amount to be hedged on 16/06/09
42 Calculation of amount to be hedged on 17/06/09
43 Calculation of amount to be hedged on 18/06/09
44 Calculation of amount to be hedged on 19/06/09
45 Calculation of amount to be hedged on 22/06/09
46 Calculation of amount to be hedged on 23/06/09
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47 Calculation of amount to be hedged on 24/06/09
48 Calculation of amount to be hedged on 25/06/09
49 Calculation of amount to be hedged on 26/06/09
50 Calculation of amount to be hedged on 29/06/09
51 Calculation of amount to be hedged on 30/06/0952 Movement of hedged portfolio and its profit/loss for
The month of June
LIST OF CHARTS
SI. NO. CHART HEADINGS
1Appreciation or depreciation of portfolio for the month of
May
2 Profit or loss for the portfolio during the month of may
3 Appreciation or depreciation of hedged portfolio for themonth of may
4 Profit or loss of hedged portfolio for the month of may
5 Movement of both unhedged and hedged portfolio for the
month of may
6 Appreciation or depreciation of portfolio for the month ofJune
7 Profit or loss from the portfolio for the month of june
8 Appreciation or depreciation of hedged portfolio for themonth of June
9Profit / loss from the hedged portfolio for the month of
june
10 Movement of hedged and unhedged portfolio for themonth of June
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EXECUTIVE SUMMARY
The financial derivatives are the emerging trend in capital market. These are
used to minimize the losses of investors portfolio. This project studies the
effectiveness of Hedging Using Index Futures. It deals with the construction of a
portfolio on the basis of risk-return evaluation and loss minimization using
hedging. The companies are selected from the top list of NSE based on price
earning ratio and beta value. The securities selected are Airtel, Cipla, Infosys,
Reliance industries, SBI and ONGC. Trading was done on these six securities in
both bullish and bearish market condition, and then the same securities were
hedged with index futures.
The data collected were tabulated and the values of portfolios on different days, the
profit or loss made by the portfolio and the amount to be hedged were calculated
manually. Finally, the net profit or loss arising out of both hedged as well as
unhedged positions for these two periods were calculated and comparison were
made. Through this study it is found out that in the month of May hedging was not
effective because of Bullish trend in the market and in the month of June it was
effective and it eliminated loss and made a small amount of profit too.
This study revealed that hedging with index futures proved to be an effective
instrument for minimizing the loss. Through the index futures, investor can reduce
the risk of the index movement. Thus hedging reduces the loss of portfolio and
sometimes it creates a profit or loss according to this study.
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CHAPTER 1INTRODUCTION
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In current scenario, investing in stock markets is a major challenge even for
seasoned professionals, investment become complicated and is both an art and a
science. Investing in various types of assets is an interesting activity that attracts
people from all walks of life irrespective of their occupation, economic status,
education and family background. When a person has more money than he requires
for current consumption, he would be coined as a potential investor. The investor
who is having extra cash could invest in securities or any other asset like real estate
or gold or could simply deposit on a bank account. In the finance field, its a
common knowledge that money or finance is scares and those investors try to
maximize their return. Return changes with the degree of risk chosen by the
investor. Return and risk go together and they have a trade off. The art of
investment is to see the return maximized with the minimum of risk, which is
inherent in investment.
The project entries A study on effectiveness of Hedging Using Index Futures,
deals with the construction of a portfolio on the basic of risk-returnevaluation and
loss minimization using hedging. The companies are selected from the top lists of
NSE based on p/e ratio and a beta value. Investing in individualsecurities involves
lot of risks. It is better to invest in-group of securities to reduce risk. Selecting the
group of securities is an important task. Investors are interested inmaximizing the
return with minimum risk. Here six securities have been selected forconstructing
the portfolio; these securities are representatives of different sector. Thesecurities
selected are Airtel, Cipla, Infosys, Reliance industries, SBI and ONGC.There exist
a considerable degree of difference in return and risk of varioussecurities.
Futures and options are now traded on many exchanges throughout the world. A
hedge is any act that reduces the price risk of an existing or anticipated position in
the cash market. A future contact involves an obligation to buy or sell an asset of
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certain time in the future for a certain price. Basically there are two types of
hedging with futures; long hedge and short hedge. There are two types of options:
calls and puts. A call option gives the holder the right to buy an asset by a certain
date for a certain price. A put option gives the holder to cell an asset by a certain
date for certain price. A optimal portfolio is a group of securities, which has the
maximum return and minimum risk. Futures and options trade on a wide range of
different underlining assets.
OBJECTIVES OF THE STUDY
SPECIFIC OBJECTIVES
To find out the effectiveness of hedging using index futures.GENERAL OBJECTIVES
To study about the impact of hedging in derivative market. To analyze the usefulness of hedging to reduce the risk.To study about the investment opportunities in index capital market.
The main focus of the study is to find out the effectiveness of index futures as a
hedging technique. As the share market is volatile i.e. Changes may happen at any
time, the risk and return are equally uncertain. The risk and uncertainty need to be
minimized
SCOPE OF THE STUDY
The derivatives especially the financial derivatives are now a days emerging
trend in financial market. The financial derivatives are used to minimize the losses
of investors. The risk taking investors can minimize their loss by using derivatives.
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The scope of the study is limited to the Indian stock market and Indian derivative
market. The recommendation in the study is only subject to the Indian capital
situations. The study covers both hedging and speculation. The main aim of the
study is to know whether the investor can minimize his losses and met maximum
return compare to other investment.
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CAPITAL MARKET
The capital market refers to all institutions and procedures that provide for
transactions such as long run financial instruments. Long term here means having
maturity period that extent beyond one year. In broad sense it encompasses term
loans and financial losses, corporate equities and bonds. The funds that comprise
the firms capital structure are raised in the capital market.
Capital market divided in to two:
Primary market
Secondary market
PRIMARY MARKET
Companies issue securities from time to time to raise the funds for modernization,
expansion and diversification programs. These securities are issued directly to the
investors through the mechanism called IPO which constituters primary market.
The primary market refers to the setup which helps the industry to raise funds by
issuing different types of securities.
SECONDARY MARKET
Secondary market refers to the system for the subsequent sales and purchase of
securities. The secondary market consists of that portion of capital market where
the previously issued securities are transacted. The secondary market is represented
by the stock exchanges in any capital market. The stock exchanges provided an
organized market place for the investors to trade in the securities
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MAJOR STOCK EXCHANGES IN INDIA
1. NATIONAL STOCK EXCHANGES (NSE)
National Stock Exchanges (NSE) of India commenced its operation India the
capital market on 3rd November 1994 India Mumbai. The recommendation of
Pherwani committee led to the beginning of NSE. The recognized members of
NSE are called trading members who trade on behalf of themselves and their
clients. Participants include trading member and large players like bank whop take
direct settlement responsibility.
2. OTC EXCHANGE OF INDIA (OTCEI)
The OTC e of India (OTCEI) has been setup to provide a cost effective and
convenient plat forms for raising finance from the capital market. OTCEI was
promoted by a consortium of financial institutions sated its operations in 1992. It is
a ring less, electronic, nation wider stock exchange committed to providing
entrepreneurs with a smooth economical vehicle for going public and investors
with a fair, sable and efficient market. Thus the OTCEI brings investors and
promoters closer together.
3. BOMBAY STOCK EXCHANGE (BSE)
The Bombay stock exchange, popularly known as BSE. It is oldest one in 1875
as The Native Share and sock Brokers Association of Person (AOP) and is
currently engaged in the process of converting itself into demutualised and
corporate entity. It has evolved over the years into its present status as the premier
Stock Exchange in the country to have obtained Permanent recognition in 1956
from the Govt. of India under the securities contracts (Regulation) Act, 1956.
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COMPANY PROFILE
COCHIN STOCK EXCHANGE (CSE)
Cochin Stock Exchange limited (CSE) is one of he premier sock exchanges in
India. Established in the year 1978, the exchange has undergone tremendous
transformation over the years. The Exchange had a humble beginning with just 5
companies listen in 1978-79, and had onl7 14 members. The trading operation on
the Exchange commenced in 1980, which were till then carried out through the
brokers located outside Kerala. Today, the Exchange has 240 listed companies and
508 members.
In 1989 the company went for computerization of its offices. In order to keep with
the pace with the changing scenario in the capital market CSE took various
initiatives including trading in dematerialized shares. CSE introduced the facility
of computerized trading called Cochin Online trading (COLT) on March 17,
1997. CSE is one of the promoters of the interconnected stock exchange of India
(ISE). The objective was to consolidate the small fragmented and less liquid
markets into a national level integrated liquid markets.
With the enforcement of efficient margin system and surveillance, CSE has
successfully prevented defaults. Introduction of fast track system made CSE thestock exchange with shortest settlement cycle in the country at that time. By the
dawn of the new century, the regional exchange faced the serious challenges from
the NSE &BSE. To face this challenge CSE promoted a 100% subsidiary called
the Cochin Sand Stock Brokers Ltd (CSBL) and started trading in the National
Stock Exchange (NSE) and Bombay Stock Exchange (BSE).CSBL is the first
subsidiary of a Sock Exchange to get membership in both NSE&BSE , and become
a participant in the Central Depository Service Ltd (CDSL). The CSE has been
playing a vital role in the economic development of the country and the state.
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Chapter. 3REVIEW OF LITERATURE
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DERIVATIVES
A derivative is, as the name suggests, a financial contract whose value is derived
from the value of another asset. The underlying asset can be securities,commodities, bullion, currency, live stock or anything else. In other word,
Derivative means a forward, future, option or any other hybrid contract of pre
determined fixed duration, linked for the purpose of contract fulfillment to the
value of a specified real or financial asset to an index of securities.
The basic concept of derivative is a simple ancient one, with evidence that the
Romans used them thousands of years ago, and that they have roots in Japan and
Netherlands dating back to the early sixteenth centaury (Market History). Acommon example is a farmer use forward contract, type of derivative, to sell wheat
before the harvest at a predetermined fixed price. The derivative in this case is used
to protect the farmer against an expected decrease of the price in wheat, thus
reducing g his exposure organization market risk (link organization market risk).
On the other hand, the buyer accepts the risk associated with the fixed price and
faces the poss8ibiliy of either financial gain or loss, depending on the difference
between the fixed price and the actual price at the time of harvest. Consequently,
one may think of derivatives as tool to buy and sell risk
DEFINITION OF DERVATIVES
It is a financial instrument whose characteristics and value depends upon the
characteristics and value of an underlines, typically a commodity, bond equity or
currency .Example of derivatives include futures and options. Advanced investors
sometimes purchase or sell derivates to manage the risk associated with the
underlying security, to protect against fluctuations in values, or to profit from
periods of inactivity or decline. These techniques can be quite complicated andquite risky..With securities Laws (Second Amendment) Act, 1999,
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Derivatives has been include in the definition of Securities. The term Derivative
has been defined in Securities Contracts (Regulations) Act, as:-
a. Security derived from a debt instrument, share loan whether secured orunsecured, risk instrument or contract for difference or any other from of
security.
b. Contract which derives its value from the prices, or index of prices, ofunderlying securities.
TYPES OF DERIVATIVE INSTRUMENTS
FUTURES
Future Contracts organized/standardized contracts, which are traded on the
exchanges. These contracts can be defined as a standardized, exchange traded
agreement specifying a quality and price of particular type of commodity
(Soybeans, gold, oil, etc.) to be purchased or sold at predetermined date in the
future. On contract date, delivery and physical possession take place unless
contract has been closed out. Futures are also available on various financial
products and indexes today.
Futures markets were design to solve the problem that exists in forward market. A
future contracts an agreement between two parties to buy or sell asset at certain
time in the future at a certain price but unlike forward contracts, futures contracts
are standardized and exchange traded. To facilitate liquidity in the futures
contracts, the exchange specifies certain standards features of the contracts. It is a
standardized contracts with standard underline instrument, a standard quantity and
quality of the underlying instrument that can be delivered, ( or which can be used
for references purpose in settlement 0 and a standard timing of such settlement,. A
futures contract may be offset prior to maturity by entering into an equal and
opposite transactions. More than 99% of futures transactions are offset this way.
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FORWARD
A forward contract is one to one bi- partite contract, to be performed in the future,
at the terms decided today. (E.g. forward currency market in India). Forward
contracts offer tremendous flexibility to the parties design the contract in terms ofthe price, quality (in case if commodities), delivery time and place but it suffers
from poor liquidity and default risk.
Forward contract different from a spot transaction, where payment of price and
delivery of commodity concurrently takes place immediately the transaction is
settled. In a forward contract the sale /purchase transaction of an asset is settled
including the price payable, not for delivery/ settlement at spot, but a specified
future date. India has strong dollar rupee forward market with contracts being
traded for one, two sixmonth expiration. This contract includes currencies,
stocks, swaps etc. Indian users of hedging services are also allowed to buy
derivatives involving other currencies on foreign markets.
SWAPS
A swap, another type of liner derivatives, is a contract that allows two parties to
exchange, or swap, payments for a period of time based on some notional principle
amount. Swaps are private agreement between two parties to exchange cash flowsin the futures according to the pre-arranged formulae. The notional principle
amount is not swapped, only the payment flows are exchange. i.e., Swaps are
exchange of stream payment over agreed period. They can be regarded as a
portfolio of forward contracts.
OPTIONS
Options are the standardized financial contracts that allows the buyer (holder) of
the options, i.e. the right at the cost of option premium, not the obligation, to by
(call options) or space sell (put options) a specified asset at a price on or before a
specified date through exchanges under stringent financial securities against
default.
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Options are instruments whereby the right is given by the option seller to option
buyer to buy or sell asset at a specific prince price on or before a specific date.
INDEX FUTURES
Index Futures are the futures contract where the underlying asset is the cash market
index. This of great help when one wants to take a position on market movements.
Suppose if investors feel that, the markets are bullish and the Sensex world
cross5000 points, instead of buying shares that constitute the Index he can buy the
market by taking a position on the Index Futures. Both the Bombay Stock
Exchange (BSE) and National Stock Exchange (NSE) have launched index futures
in June 2000.
ASSUMPTIONS OF FUTURES MARKET
1. No seasonal demand and supply in the underlying asset.
2. Storability of the underlying asset is not a problem
3. The underlying asst can be sold short
4. No transaction cost; No taxes
5. No margin requirements, and so the analysis relates to a forward contract, rather
than a futures contract.
RISK
Every investment is characterized by return and risk. Risk can be defined in terms
of variability of returns. Risk is the potential of for variability in returns. An
investment whose returns are fairly stable is considered to be a low risk
investment, where as an investment whose returns fluctuate significantly is
considered to be a high risk investment equity share whose returns are likely to
fluctuate widely are considered risky investment .
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ELEMENTS OF RISK
The total variability return of a security represents the total risk of that security.
Systematic risk and unsystematic risk are the two components of total risk.Thus,
Total risk = Systematic risk +Unsystematic risk.
SYSTEMATIC RISK
These are risk associated with the economic, political, sociological and other
macro level changes. They effects and entire market whole and cannot be
controlled or eliminated merely by diversifying ones portfolio. Systematic risk isfurther sub divided into interest rate risk, market risk, and purchasing power risk.
UNSYSTEMATIC RISK
These risks are unique to a firm or industry. Factors such as management
capability, consumer preferences, labour, etc. contribute to unsystematic risk .
Unsystematic risks are controllable by nature and can be considerably reduced by
sufficiently diversifying ones portfolio.
MEASURE OF BETA
Beta is a measure of systematic risk (it is itself is not a systematic risk). It measures
the sensitivity of a scrip/portfolio vies-a-vies index movement. Beta describes the
relationship between the stocks return and the index return. Beta of scrip is index
specific, i.e., Beta of the same scrip vis--vis sensex will be different from the beta
value vies-a-vies Nifty. Also beta is a time frame specific value, i.e. beta of scrip
vis--vis sensex taking last 6 months historical data into consideration , will bedifferent from the beta value that we get by taking the last one-year date into
consideration , keeping all the other parameters constant.
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1. Beta = +1.0
One percent change in market index return causes exactly one percent change in
the stock return hence they move in tandem.
2. Beta = +0.5.
One percent change in market index return caused 0.5% change. so the stock is less
volatile compared to the market .
3. Beta = +2.0
One percent change in market index return causes 2% change in the stock return,
so the stock is highly volatile and hence risky.
4. Negative beta
This value indicates that stock return moves in the opposite direction to the market
return. A negative beta will give positive return.
HEDGING
Hedging is the process of managing the risk of price changes in physical material
by offsetting that risk in the futures market. Hedging can vary in complexity from a
relatively simple activity, through to highly complex strategies, including the use
of oppositions. The ability to hedge means that industry can decide on the amount
of risk it is prepared to accept. It may wish to eliminate the risk entirely and can
generally stock do so quickly and easily. Managing price risk means achieving
greater control of either the cost of inputs, or revenues; and eliminating concerns
that a sharply adverse move in the price of material could turn on otherwise
flourishing and efficient business into a loss maker.
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DESIGN OF THE STUDY
y Two market conditions were selected i.e. bullish trend in the month of mayand bearish trend in the month of June
y Scrips were selected from different industry based on P/E ratio, beta valueand past track record.
y Beta values were taken from NSEs websitey A portfolio was constructed.y Portfolio was hedged with index futures and net profit/loss were found o
The study was basically empirical in nature. The aim was to test the effectiveness
of hedging strategy with respect to Nifty Index Futures. The study was conducted
by constructing a portfolio of six stocks from major industries. Trading was done
on these six securities in both bullish and bearish market condition, then same
securities were hedged with index futures to find out whether hedging is effective
or not in both market condition. Fresh investment is done in the beginning of each
period and a comparison study is done on these two separate periods.
PERIOD OF THE STUDY
The study was carried out for a two separate investment period
1. First period from 04-05-2009 to 29-05-2009(Bullish market condition)
2. Second period from 01.06.2009 to 30.06.2009.(Bearish market condition)
SOURCE OF DATA
Data used for study were historical or secondary in nature. They include:
y Data relating to securities published by NSE.y Data from various web sites.
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TOOLS USED
1. Portfolio analysis2. Beta value analysis
PORTFOLIO ANALYSIS
Number of securities to e taken = Value of Shares / Spot Price
Gain or loss from the portfolio = Portfolio at the end Initial portfolio.
BETA VALUE ANALYSIS
BETA VALUE
Beta= n xy+x y
n x2- x2
Where, n is the number of data points
X is the bench mark returns, and
Y is the investment returns.
Portfolio Beta = Value of Beta Amount / Value of Portfolio
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
HEDGE RATIO
Hedge ratio is referred to the number of futures contracts required to be sold or
bought provide maximum offset of risk of a given value of investment in shares orother goods. This depends on the following:
1. Value of a future contract
2. Value of the portfolio or socks to be hedged and
3. Sensitivity of the movement of the portfolio price to that of the index
(beta).
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It is calculated by using the following formula.
Hedge ratio = value of portfolio * beta value/ value index
The hedge ratio is closely related to the correlation between the asset (portfolio of
shares) to be hedged and underlying (index) from which the future is derived.
RESEARCH METHODOLOGY
For the effectiveness of study total investment period was divided into a bullish
period and a bearish period i.e. May and June respectively. A portfolio was created
at the beginning of each month. It was assumed that on the beginning of both
periods i.e. on 01-05-2009 and 01-06-2009 , the portfolio comprises of stocks of
six companies worth nearly Rs 3Lakh each, amounting to Rs. 18 lakh. After thecollection of relevant data for the above mentioned period, these data were
tabulated in meaningful manner. Calculation of the values of portfolios on different
days, the profit or loss made by the portfolio and the hedge amount were calculated
manually. Finally, the net profit or loss arising out of both hedged as well as
unhedged positions for these periods were calculated and comparison was
indicated graphically
LIMITATIONS OF THE STUDY
y The duration of the study was limited to period of two month so that the extensive and deep study could not be possible.
y The beta value for risk assessment is not precisely current as it changes fromtime to time.
y The study were limited to 6 companies of NSE.y Financial statement is the record of past events only. Past events can never
be 100% representative for future.
y The study was depended based on secondary data.
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Chapter 5
ANALYSIS AND
INTERPRETATION OF DATA
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ANALYSIS OF PORTFOLIO WITHOUT HEDGING
Suppose an investor makes an investment of Rs 18 lacks and makes his investment
in 6 different companies of different industries. He decided to invest 3 lacks of
investment in each industry. He brought the shares from the stock market at priceon 01/05/09 and 1/06/09. The quantity of shares that he buys is determined by the
following formulae
Quantity = Value of Share / Spot Price
The main aim of every investment is earn profit. The main problem before the
investor is that, will the portfolio earn expected return or the value of the portfolio
will appreciate or not? Stock markets are volatile, so that there is equal chance of
appreciation and depreciation. If the stock price increases, that will help the
investor to gain profit and vice versa. Hence the investor will try to reduce the risk.
One of the tool available to him is hedging in the future market. Investment is done
in two separate periods
Analysis for the month of may
The portfolio of R. 18 lacks which contains scrip of 6 different industries. So, on
the date (04.05.2009), the quantity of each companys share
Table 1: Details of Portfolio as on 01/05/2009
strip name spot price No of shares value of investment
Airtel 759.25 395 299903.8
CIPLA 238.55 1257 299857.4
Infosys 1628.2 185 301217
ONGC 891 337 300267
Reliance 1887.1 158 298161.8
SBI 1366.25 220 300575
Total investment =1799982
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The portfolio is assumed to be kept for a period of one month. .He can minimize
the risk and uncertainty by hedging in the market the beta value of portfolio for onemonth is given below.
Table no: 2 Beta values of scrips for the month of May
STRIP NAME BETA VALUE
Airtel 1.02
CIPLA 0.5
Infosys 0.7
ONGC 0.88
Reliance 1.23
SBI 1.11
(Beta values are taken from NSEs website)
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Table no: 3 Analysis of portfolio without hedging for the month of MayDate strip name spot price No of
shares
value of
investment
total value
of
investment
profit/loss
4-May-09 Airtel 759.25 395 299903.8
1799982 0
CIPLA 238.55 1257 299857.4
Infosys 1628.2 185 301217
ONGC 891 337 300267
Reliance 1887.1 158 298161.8
SBI 1366.25 220 300575
5-May-09 Airtel 750.75 395 296546.3
1778403 -21578.7
CIPLA 236.05 1257 296714.9
Infosys 1582.05 185 292679.3
ONGC 886.95 337 298902.2
Reliance 1883.65 158 297616.7
SBI 1345.2 220 295944
6-May-09
7-May-09
Airtel 757.5 395 299212.5
1763722 -36260
CIPLA 227.85 1257 286407.5
Infosys 1573.25 185 291051.3
ONGC 886.75 337 298834.8
Reliance 1881.5 158 297277
SBI 1322.45 220 290939
Airtel 782.55 395 309107.3
1790608 -9373.85
CIPLA 230.65 1257 289927.1
Infosys 1552.75 185 287258.8
ONGC 891.3 337 300368.1
Reliance 1915.55 158 302656.9
SBI 1369.5 220 301290
8-May-09 Airtel 768.35 395 303498.3
1758054 -41927.9
CIPLA 225.9 1257 283956.3
Infosys 1520.7 185 281329.5ONGC 883.15 337 297621.6
Reliance 1900.3 158 300247.4
SBI 1324.55 220 291401
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Date strip name spot price No ofshares
value ofinvestment
total valueofinvestment
profit/loss
18-May-09 Airtel 1003.2 395 396264
2086041 286059.2
CIPLA 251.9 1257 316638.3
Infosys 1800.1 185 333018.5
ONGC 947.2 337 319206.4
Reliance 2367.55 158 374072.9
SBI 1576.55 220 346841
19-May-09 Airtel 915.1 395 361464.5
2009174 209192.3
CIPLA 227.05 1257 285401.9
Infosys 1558.95 185 288405.8
ONGC 995.7 337 335550.9Reliance 2230.9 158 352482.2
SBI 1753.95 220 385869
20-May-09 Airtel 859.65 395 339561.8
1976695 176713.5
CIPLA 228.2 1257 286847.4
Infosys 1530.9 185 283216.5
ONGC 994.45 337 335129.7
Reliance 2152.45 158 340087.1
SBI 1781.15 220 391853
20-May-09 Airtel 859.65 395 339561.8
1976695 176713.5
CIPLA 228.2 1257 286847.4
Infosys 1530.9 185 283216.5
ONGC 994.45 337 335129.7
Reliance 2152.45 158 340087.1
SBI 1781.15 220 391853
22-May-09 Airtel 859.6 395 339542
1980323 180341.1
CIPLA 222.95 1257 280248.2
Infosys 1522.3 185 281625.5
ONGC 1046.05 337 352518.9
Reliance 2185.75 158 345348.5
SBI 1732 220 381040
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1799982, on the last day, ie.on30th June 2009 the portfolio is reached to Rs.
2099181. It is a gain of Rs.299199.
Table no: 4 Daily movements of portfolio and profit/loss for the month of May
Date Portfolio profit/loss4-May-09 1799982 05-May-09 1778403 -215786-May-09 1763722 -362607-May-09 1790608 -93738-May-09 1758054 -4192711-May-09 1718281 -81701
12-May-09 1778353 -2162913-May-09 1755323 -4465814-May-09 1741879 -5810315-May-09 1772062 -2791918-May-09 2086041 28605919-May-09 2009174 20919220-May-09 1976695 17671321-May-09 1960103 16012122-May-09 1980323 18034125-May-09 1957273 157290
26-May-09 1920983 12100127-May-09 1988927 18894428-May-09 2021688 22170629-May-09 2099181 299199
Above table gives a summary of daily movement of portfolio for the month of
May. At the end portfolio went up to Rs.2099181 and it registered a profit of Rs.
299199
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Chart no: 1 Gain or loss in portfolio amount in the month of May
Above graph shows the movement of portfolio for the month of may. During the
initial period portfolio was stable untill 18th May. From that date portfolio shown a
upward trend and end upwith a appreciated amount of Rs.2099181.
0
500000
1000000
1500000
2000000
2500000
4-may-09
6-may-09
8-may-09
10-may-09
12-may-09
14-may-09
16-may-09
18-may-09
20-may-09
22-may-09
24-may-09
26-may-09
28-may-09
__ portifolio
Appreciation/Depreciation
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Chart no: 2 profit /loss for the portfolio during the month of May
Above chart shows the profit/loss arises out of unhedged portfolio for a one month
period. During the initial stage it showed a downward trend but from 18th onwards
it showed a positive trend and end up with profit of Rs.299199.
-200000
-100000
0
100000
200000
300000
__ profit/loss
Profit/loss
4-may-09
6-may-09
8-may-09
10-may-09
12-may-09
14-may-09
16-may-09
18-may-09
20-may-09
22-may-09
24-may-09
26-may-09
28-may-09
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ANALYSIS OF PORTFOLIO WITH HEDGING
Table no: 5 Calculation of amount to be hedged on 04/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amountAirtel 759.25 395 299903.8 1.02 305901.8CIPLA 238.55 1257 299857.4 0.5 149928.7
Infosys 1628.2 185 301217 0.7 210851.9ONGC 891 337 300267 0.88 264235
Reliance 1887.1 158 298161.8 1.23 366739SBI 1366.25 220 300575 1.11 333638.3total 1799982 1631295
Portfolio Value = 1799982
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1631295/1799982
= 0.906
Value of Index = 3654
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1799982*0.906/3654
= 446
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 446 /50
= 8.92 rounded to 9 lots
The amount to be hedged = 3654*9*50
= 1644300
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Table no: 7 Calculation of amount to be hedged on 06/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amountAirtel 757.5 395 299212.5 1.02 305196.8CIPLA 227.85 1257 286407.5 0.5 143203.7Infosys 1573.25 185 291051.3 0.7 203735.9ONGC 886.75 337 298834.8 0.88 262974.6Reliance 1881.5 158 297277 1.23 365650.7SBI 1322.45 220 290939 1.11 322942.3total 1763722 1603704
Portfolio Value = 1763722
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1603704/1763722
= 0.909
Value of Index = 3625
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1763722*0.909/3625
= 442
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 442 /50
= 8.84 rounded to 9 lots
The amount to be hedged = 3625*9*50
= 1631250
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Table no: 10 Calculation of amount to be hedged on 11/05/09
strip name spot price No ofShares
value of
investmentBeta Beta
amount
Airtel 748.65 395 295716.8 1.02 301631.1
CIPLA 218.3 1257 274403.1 0.5 137201.6
Infosys 1517.65 185 280765.3 0.7 196535.7
ONGC 879.7 337 296458.9 0.88 260883.8
Reliance 1861.6 158 294132.8 1.23 361783.3
SBI 1258.2 220 276804 1.11 307252.4
total 1718281 1565288
Portfolio Value = 1718281
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1565288/1718281
= 0.910
Value of Index = 3554
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1718281*0.910/3554
= 439
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 439 /50
= 8.78 rounded to 9 lots
The amount to be hedged = 3554*9*50
= 1599300
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Table no: 11 Calculation of amount to be hedged on 12/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 793.8 395 313551 1.02 319822
CIPLA 220.45 1257 277105.7 0.5 138552.8
Infosys 1598.45 185 295713.3 0.7 206999.3
ONGC 882.45 337 297385.7 0.88 261699.4
Reliance 1959.9 158 309664.2 1.23 380887
SBI 1295.15 220 284933 1.11 316275.6
total 1778353 1624236
Portfolio Value = 1778353
Portfolio Bet = Value of Beta Amount / Value of Portfolio
= 1624236/1778353
= 0.913
Value of Index = 3681
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1778353*0.913/3681
= 441
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 441 /50
= 8.82 rounded to 9 lots
The amount to be hedged = 3681*9*50
= 1656450
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Table no: 12 Calculation of amount to be hedged on 13/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 795.75 395 314321.3 1.02 320607.7
CIPLA 221.85 1257 278865.5 0.5 139432.7
Infosys 1573.95 185 291180.8 0.7 203826.5
ONGC 854.7 337 288033.9 0.88 253469.8
Reliance 1933 158 305414 1.23 375659.2
SBI 1261.4 220 277508 1.11 308033.9
total 1755323 1601030
Portfolio Value = 1755323
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1601030/1755323
= 0.912
Value of Index = 3635
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1755323*0.912/3635
= 440
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 440 /50
= 8.8 rounded to 9 lots
The amount to be hedged = 3635*9*50
= 1635750
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Table no: 14 Calculation of amount to be hedged on 15/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 799.85 395 315940.8 1.02 322259.6
CIPLA 230.9 1257 290241.3 0.5 145120.7
Infosys 1592.8 185 294668 0.7 206267.6
ONGC 813.15 337 274031.6 0.88 241147.8
Reliance 1950.7 158 308210.6 1.23 379099
SBI 1313.5 220 288970 1.11 320756.7
total 1772062 1614651
Portfolio Value = 1772062
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1614651/1772062
= 0.911
Value of Index = 3671
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1772062*0.911/3671
= 446
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 446/50
= 8.78rounded to 9 lots
The amount to be hedged = 3671*9*50
= 1651950
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Table no: 15 Calculation of amount to be hedged on 18/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 1003.2 395 396264 1.02 404189.3
CIPLA 251.9 1257 316638.3 0.5 158319.2
Infosys 1800.1 185 333018.5 0.7 233113
ONGC 947.2 337 319206.4 0.88 280901.6
Reliance 2367.55 158 374072.9 1.23 460109.7
SBI 1576.55 220 346841 1.11 384993.5
total 2086041 1921626
Portfolio Value = 2086041
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1921626/2086041
= 0.921
Value of Index = 4323
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 2086041*0.921/4323
= 444
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 444 /50
= 8.88rounded to 9 lots
The amount to be hedged = 4323*9*50
= 1945350
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Table no: 23 Calculation of amount to be hedged on 28/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 795.9 395 314380.5 1.02 320668.1
CIPLA 223.75 1257 281253.8 0.5 140626.9
Infosys 1579 185 292115 0.7 204480.5
ONGC 1129.35 337 380591 0.88 334920
Reliance 2220.55 158 350846.9 1.23 431541.7
SBI 1829.55 220 402501 1.11 446776.1
total 2021688 1879013
Portfolio Value = 2021688
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1879013/2021688
= 0.929
Value of Index = 4337
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 2021688*0.929/4337
= 433
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 433 /50
= 8.66rounded to 9 lots
The amount to be hedged = 4337*9*50
= 1951650
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Table no: 24 Calculation of amount to be hedged on 29/05/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 820.9 395 324255.5 1.02 330740.6
CIPLA 222.8 1257 280059.6 0.5 140029.8
Infosys 1605.1 185 296943.5 0.7 207860.5
ONGC 1169.25 337 394037.3 0.88 346752.8
Reliance 2271.9 158 358960.2 1.23 441521
SBI 1868.85 220 411147 1.11 456373.2
total 2065403 1923278
Portfolio Value = 2065403
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1923278/2065403
= 0.931
Value of Index = 4448
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 2065403*0.931/4448
= 432
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 432 /50
= 8.64rounded to 9 lots
The amount to be hedged = 4448*9*50
= 2001600
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Table no: 25 Daily movements of hedged portfolio and profit and loss
Date Hedged portfolio profit/losses
4-May-09 1644300 0
5-May-09 1647450 3150
6-May-09 1631250 -13050
7-May-09 1657350 13050
8-May-09 1629000 -15300
11-May-09 1599300 -45000
12-May-09 1656450 12150
13-May-09 1635750 -8550
14-May-09 1616850 -27450
15-May-09 1651950 7650
18-May-09 1945350 301050
19-May-09 1943100 298800
20-May-09 1921500 277200
21-May-09 1894500 250200
22-May-09 1907100 26280025-May-09 1906650 262350
26-May-09 1852200 207900
27-May-09 1924200 279900
28-May-09 1951650 307350
29-May-09 2001600 357300
Above table gives a summary of movement of hedged portfolio and its gain/loss
during the month of may. It started with an amount of Rs. 1644300 and end with a
loss of 357300. On the initial day investor sold the securities without its possession
through futures. Later its prices were gone up and he need to buy the securities at a
higher price than he agreed so he suffered a loss of Rs.357300
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Chart no: 3 Appreciation / depreciation of hedged portfolio for the month of
May
During the intial period portfolio was stable, but after 18th it shown a upward trend
and appreciated to Rs.2001600 on 29th may.
0
500000
1000000
1500000
2000000
2500000
4-may-09 11-may-09 18-may-09 25-may-09
__ hedged portifolio
HedgedPortifolio
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Chart no: 4 Profit / loss from hedged portfolio for the month of May
This chart shows the profit /loss part of the hedged portfolio and registered a loss
of Rs.357300
-200000
-100000
0
100000
200000
300000
--------profit/loss
4-may-09
6-may-09
8-may-09
10-may-09
12-may-09
14-may-09
16-may-09
18-may-09
20-may-09
22-may-09
24-may-09
26-may-09
28-may-09
400000
Profit/loss
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Chart no: 5 movement of both unhedged and hedged portfolio for the month
of May
The above chart shows that both hedged and unhedged portfolios are moving in a
same direction. This happens just because of the same market condition. Hedged
portfolio line will always lies behind the unhedged portfolio line because of the
uncertainty in the market until it reach the maturity date.
0
500000
1000000
1500000
2000000
2500000
--------unhedged portifolio ----------hedged portifolio
HedgedPortifolio
4-may-09
6-may-09
8-may-09
10-may-09
12-may-09
14-may-09
16-may-09
18-may-09
20-may-09
22-may-09
24-may-09
26-may-09
28-may-09
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EFFECT OF HEDGING
As on 04/05/2009 As on 29/05/2009
Portfolio Value = 1799982 Portfolio Value = 2099181
Hedged Amount = 1644300 Hedged Amount = 2001600
GAIN FROM THE PORTFOLIO
2099181- 1799982 = 299199
LOSS FROM HEDGING
1644300 2001600 = -357300
NET GAIN = Gain from the portfolio - loss from hedging
299199 357300 = -58101
INERPRETATION
On 4th May 2009, investor bought the portfolio with the aim of holding it for a
period of one month. He decided to hedge the portfolio for the whole time period.
The full time hedging reduces the loss and the risk. By looking the value of
appreciation / depreciation from 4th May 2009 to 29th May 2009, the value of the
portfolio got appreciated leads to a profit of Rs. 299199. And investor expects a
downward trend in the market and he decided to hedge the portfolio. Unfortunately
market showed upward trend from 18th may because of the election result. By
hedging the value of the portfolio for the same period leads him to a loss of Rs.
357300 . The point of analysis tells us that the investor expected a negative trend
and gone for hedging to minimize his losses but the market goes in the opposite
direction and that leads to loss of Rs.58101.
To avoid or minimize loss the investor should be wise enough to predict the
down word trends of share prices. But also; an investor may not wise always!
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There are many unforeseen and unexpected features may affect the sentiments of
the market.
Analysis for the month of June
The portfolio of R. 18 lacks which contains scrip of 6 different industries. So, on
the date (01.06.2009), the quantity of each companys share
Table 26: Details of Portfolio as on 01/06/2009
scrip name spot price No of shares value ofinvestment
Airtel 804.8 373 300190.4Cipla 219.05 1371 300317.6Infosys 1676.5 179 300093.5ONGC 1176.7 255 300058.5Reliance 2282.2 131 298968.2
SBI 1876.75 160 300280
Total investment =1799908
The portfolio is assumed to be kept for a period of one month. .He can minimize
the risk and uncertainty by hedging in the market the beta value of portfolio for one
month is given below.
Table no: 27 Beta values of scrips for the month of June
scrip name Beta
Airtel 1
Cipla 0.5
Infosys 0.69
ONGC 0.89
Reliance 1.23
SBI 1.09
(beta values are taken from NSEwebsite)
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ANALYSIS OF PORTFOLIO WITHOUT HEDGING
Table no: 28 Analysis of portfolio without hedging for the month of JuneDate strip name spot price No of shares value of
investment
total value of
investment
profit/loss
1-Jun-09 Airtel 804.8 373 300190.4
1799908 0
CIPLA 219.05 1371 300317.6
Infosys 1676.5 179 300093.5
ONGC 1176.7 255 300058.5
Reliance 2282.2 131 298968.2
SBI 1876.75 160 300280
2-Jun-09 Airtel 800.4 373 298549.2
1806737 6829.15
CIPLA 222.8 1371 305458.8
Infosys 1688.65 179 302268.4ONGC 1163.85 255 296781.8
Reliance 2279.2 131 298575.2
SBI 1906.9 160 305104
3-Jun-09 Airtel 798.45 373 297821.9
1803321 3412.9
CIPLA 232.55 1371 318826.1
Infosys 1641.5 179 293828.5
ONGC 1168.25 255 297903.8
Reliance 2245.9 131 294212.9SBI 1879.55 160 300728
4-Jun-09 Airtel 816.4 373 304517.2
1813369 13461.05
CIPLA 234.4 1371 321362.4
Infosys 1629.9 179 291752.1
ONGC 1169.35 255 298184.3
Reliance 2261.75 131 296289.3
SBI 1882.9 160 301264
5-Jun-09
Airtel826.75 373
308377.8
1815280 15371.4
CIPLA 233.95 1371 320745.5
Infosys 1698.9 179 304103.1
ONGC 1181.8 255 301359
Reliance 2212.75 131 289870.3
SBI 1817.65 160 290824
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Date strip name spot price No of shares value ofinvestment
total value of
investment
profit/loss
8-Jun-09 Airtel 813.85 373 303566.1
1774481 -25426.7
CIPLA 230.75 1371 316358.3
Infosys 1742.1 179 311835.9
ONGC 1113.55 255 283955.3
Reliance 2194 131 287414
SBI 1695.95 160 271352
9-Jun-09 Airtel 812.45 373 303043.9
1812488 12579.45
CIPLA 233.15 1371 319648.7
Infosys 1794.8 179 321269.2
ONGC 1132.15 255 288698.3Reliance 2272.15 131 297651.7
SBI 1763.6 160 282176
10-Jun-09 Airtel 834.6 373 311305.8
1846434 46526
CIPLA 239.95 1371 328971.5
Infosys 1808.8 179 323775.2
ONGC 1166.1 255 297355.5
Reliance 2320.2 131 303946.2
SBI 1756.75 160 281080
11-Jun-09 Airtel 854.4 373 318691.2
1819646 19737.65
CIPLA 240.05 1371 329108.6
Infosys 1750.95 179 313420.1
ONGC 1120.55 255 285740.3
Reliance 2303.25 131 301725.8
SBI 1693.5 160 270960
12-Jun-09 Airtel 828.15 373 308900
1820851 20942.75
CIPLA 251.05 1371 344189.6
Infosys 1728.45 179 309392.6
ONGC 1127.05 255 287397.8
Reliance 2362.1 131 309435.1
SBI 1634.6 160 261536
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Date strip name spot price No of shares value ofinvestment
total value of
investment
profit/loss
15-Jun-09 Airtel 819.45 373 305654.9
1797585 -2323.2
CIPLA 255.15 1371 349810.7
Infosys 1715.1 179 307002.9
ONGC 1125.45 255 286989.8
Reliance 2178.8 131 285422.8
SBI 1641.9 160 262704
16-Jun-09 Airtel 809.5 373 301943.5
1810540 10632.05
CIPLA 260.75 1371 357488.3
Infosys 1724.65 179 308712.4
ONGC 1126.75 255 287321.3
Reliance 2143.35 131 280778.9
SBI 1714.35 160 274296
17-Jun-09 Airtel 802.95 373 299500.4
1764054 -35854
CIPLA 257.4 1371 352895.4
Infosys 1711.45 179 306349.6
ONGC 1061.2 255 270606
Reliance 2051.35 131 268726.9
SBI 1662.35 160 265976
18-Jun-09 Airtel 804.85 373 300209.1
1755951 -43956.7
CIPLA 256.8 1371 352072.8
Infosys 1725.75 179 308909.3
ONGC 1007.65 255 256950.8
Reliance 2025.05 131 265281.6
SBI 1703.3 160 272528
19-Jun-0 Airtel 807.2 373 301085.6
1782676 -17232.2
CIPLA 265.45 1371 363932
Infosys 1770.4 179 316901.6
ONGC 1009.35 255 257384.3
Reliance 2041.5 131 267436.5
SBI 1724.6 160 275936
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Date strip name spot price No of shares value ofinvestment
total value
of
investment
profit/loss
22-Jun-09 Airtel 790.7 373 294931.1
1750244 -49664.6
CIPLA 261.6 1371 358653.6
Infosys 1766.4 179 316185.6
ONGC 993.85 255 253431.8
Reliance 1952.5 131 255777.5
SBI 1695.4 160 271264
23-Jun-09 Airtel 786.4 373 293327.2
1760688 -39220.2
CIPLA 259.3 1371 355500.3
Infosys 1747.35 179 312775.7
ONGC 1026.7 255 261808.5
Reliance 2015.3 131 264004.3
SBI 1707.95 160 273272
24-Jun-09 Airtel 798.3 373 297765.9
1780731 -19177.1
CIPLA 265.05 1371 363383.6
Infosys 1757.55 179 314601.5
ONGC 1050.95 255 267992.3
Reliance 2002.35 131 262307.9
SBI 1716.75 160 274680
25-Jun-09 Airtel 793.85 373 296106.1
1752507 -47401.6
CIPLA 257 1371 352347
Infosys 1759.1 179 314878.9
ONGC 1019.7 255 260023.5
Reliance 1958.1 131 256511.1
SBI 1704 160 272640
26-Jun-09 Airtel 810.1 373 302167.3
1799881 -26.7
CIPLA 261.55 1371 358585.1
Infosys 1827.1 179 327050.9
ONGC 1044.6 255 266373
Reliance 2029.2 131 265825.2
SBI 1749.25 160 279880
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Date strip name spot price No of shares value ofinvestment
total value
of
investment
profit/loss
29-Jun-09 Airtel 807.25 373 301104.3 1808189 8281.2CIPLA 262.8 1371 360298.8
Infosys 1782.95 179 319148.1
ONGC 1065.95 255 271817.3
Reliance 2087 131 273397
SBI 1765.15 160 282424
30-Jun-09 Airtel 802.15 373 299202 1781013 -18894.9
CIPLA 253.35 1371 347342.9
Infosys 1776.5 179 317993.5
ONGC 1067.3 255 272161.5
Reliance 2023.4 131 265065.4
SBI 1745.3 160 279248
Table no 29: Summary of portfolio movement and profit / loss for the month of June
date portfolio Profit/loss
1-Jun-09 1799908 0
2-Jun-09 1806737 6829
3-Jun-09 1803321 3413
4-Jun-09 1813369 13461
5-Jun-09 1815280 15372
8-Jun-09 1714481 -85427
9-Jun-09 1812488 12580
10-Jun-09 1846434 4652611-Jun-09 1819646 19738
12-Jun-09 1820851 20943
15-Jun-09 1797585 -2323
16-Jun-09 1810540 10632
17-Jun-09 1764054 -35854
18-Jun-09 1755951 -43957
19-Jun-09 1782676 -17232
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22-Jun-09 1750244 -49664
23-Jun-09 1760688 -39220
24-Jun-09 1780731 -19177
25-Jun-09 1752507 -47401
26-Jun-09 1799881 -27
29-Jun-09 1808189 828130-Jun-09 1781013 -18895
On june 1st portfolio begins with Rs. 1799908 and end up with Rs. 1781013 and it
register a loss of Rs. -18895. Through out the month portfolio shown a mixed trend
and finally depreciated.
Chart no: 6 Appreciation / depreciation of portfolio amount for the month of
June
Portfolio amount started at Rs. 1799908 and ends with Rs. 1781013. So this graph
shows a mixed trend and end with a depreciated amount.
1650000
1700000
1750000
1800000
1850000
-------- portifolio
Appreciation/Depreciation
1-jun-09
3-jun-09
5-jun-09
7-jun-09
9-jun-09
11-jun-09
13-jun-09
15-jun-09
17-jun-09
19-jun-09
21-jun-09
23-jun-09
25-jun-09
27-jun-09
29-jun-09
1600000
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Chart no: 7 profit or loss from the portfolio for the month of June
During this month market shown a mixed trend on30th June it end up with a loss
of Rs.-18895. This happened because of depreciation in the value of portfolio.
-40000
-20000
0
20000
40000
-------- profit/losses
Profit/losses
-60000
-80000
-100000
- - - - - - - - - -
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Table no: 31 Calculation of amount to be hedged on 02/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel800.4 373 298549.2 1 298549.2
CIPLA 222.8 1371 305458.8 0.5 152729.4
Infosys 1688.65 179 302268.4 0.69 208565.2
ONGC 1163.85 255 296781.8 0.89 264135.8
Reliance 2279.2 131 298575.2 1.23 367247.5
SBI 1906.9 160 305104 1.09 332563.4
total 1806737 1623790
Portfolio Value = 1806737
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1623790/1806737
= 0.898
Value of Index = 4525.25
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1806737*0.898/4525.25
= 358.53
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 358.53/50
= 7.17 rounded to 7 lots
The amount to be hedged = 4525.25*7*50
= 1583837.5
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Table no: 33 Calculation of amount to be hedged on 04/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel816.4 373 304517.2 1 304517.2
CIPLA 234.4 1371 321362.4 0.5 160681.2
Infosys 1629.9 179 291752.1 0.69 201308.9
ONGC 1169.35 255 298184.3 0.89 265384
Reliance 2261.75 131 296289.3 1.23 364435.8
SBI 1882.9 160 301264 1.09 328377.8
total 1813369 1624705
Portfolio Value = 1813369
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1624705/1813369
= 0.895
Value of Index = 4572.65
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1813369*0.895/4572.65
= 354.92
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 354.92/50
= 7.09 rounded to 7 lots
The amount to be hedged = 4572.65*7*50
= 1600427
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Table no: 34 Calculation of amount to be hedged on 05/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel826.75 373 308377.8 1 308377.8
CIPLA 233.95 1371 320745.5 0.5 160372.7
Infosys 1698.9 179 304103.1 0.69 209831.1
ONGC 1181.8 255 301359 0.89 268209.5
Reliance 2212.75 131 289870.3 1.23 356540.4
SBI 1817.65 160 290824 1.09 316998.2
total 1815280 1620330
Portfolio Value = 1815280
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1620330/1815280
= 0.893
Value of Index = 4586.9
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1815280*0.893/4586.9
= 353.41
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 353.41/50
= 7.06 rounded to 7 lots
The amount to be hedged = 4586.9*7*50
= 1605415
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Table no: 37 Calculation of amount to be hedged on 10/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel834.6 373 311305.8 1 311305.8
CIPLA 239.95 1371 328971.5 0.5 164485.7
Infosys 1808.8 179 323775.2 0.69 223404.9
ONGC 1166.1 255 297355.5 0.89 264646.4
Reliance 2320.2 131 303946.2 1.23 373853.8
SBI 1756.75 160 281080 1.09 306377.2
total 1846434 1644074
Portfolio Value = 1846434
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1644074/1846434
= 0.890
Value of Index = 4655.25
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1846434*0.890/4655.25
= 353.01
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 353.01/50
= 7.06 rounded to 7 lots
The amount to be hedged = 4655.25*7*50
= 1629337
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Table no: 39 Calculation of amount to be hedged on 12/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel828.15 373 308900 1 308900
CIPLA 251.05 1371 344189.6 0.5 172094.8
Infosys 1728.45 179 309392.6 0.69 213480.9
ONGC 1127.05 255 287397.8 0.89 255784
Reliance 2362.1 131 309435.1 1.23 380605.2
SBI 1634.6 160 261536 1.09 285074.2
total 1820851 1615939
Portfolio Value = 1820851
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1615939/1820851
= 0.887
Value of Index = 4583.4
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1820851*0.887/4583.4
= 352.37
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 352.37/50
= 7.04 rounded to 7 lots
The amount to be hedged = 4583.4*7*50
= 1604190
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Table no: 40 Calculation of amount to be hedged on 15/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel819.45 373 305654.9 1 305654.9
CIPLA 255.15 1371 349810.7 0.5 174905.3
Infosys 1715.1 179 307002.9 0.69 211832
ONGC 1125.45 255 286989.8 0.89 255420.9
Reliance 2178.8 131 285422.8 1.23 351070
SBI 1641.9 160 262704 1.09 286347.4
total 1797585 1585230
Portfolio Value = 1797585
Portfolio Beta= Value of Beta Amount / Value of Portfolio
= 1585230/1797585
= 0.881
Value of Index = 4484
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1797585*0.881/4484
= 353.18
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 353.18/50
= 7.06 rounded to 7 lots
The amount to be hedged = 4484*7*50
= 1569400
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Table no: 45 Calculation of amount to be hedged on 22/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 790.7 373 294931.1 1 294931.1CIPLA 261.6 1371 358653.6 0.5 179326.8
Infosys 1766.4 179 316185.6 0.69 218168.1
ONGC 993.85 255 253431.8 0.89 225554.3
Reliance 1952.5 131 255777.5 1.23 314606.3
SBI 1695.4 160 271264 1.09 295677.8
total 1750244 1528264
Portfolio Value = 1750244
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1528264/1750244
= 0.873
Value of Index = 4235.25
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1750244*0.873/4235.25
= 360.77
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 360.77/50 = 7.21 rounded to 7 lots
The amount to be hedged = 4235.25*7*50
= 1482337
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Table no: 46 Calculation of amount to be hedged on 23/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 786.4 373 293327.2 1 293327.2
CIPLA 259.3 1371 355500.3 0.5 177750.2
Infosys 1747.35 179 312775.7 0.69 215815.2
ONGC 1026.7 255 261808.5 0.89 233009.6
Reliance 2015.3 131 264004.3 1.23 324725.3
SBI 1707.95 160 273272 1.09 297866.5
total 1760688 1542494
Portfolio Value = 1760688
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1542494/1760688
= 0.876
Value of Index = 4247
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1760688*0.876/4247
= 363.16
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 363.16/50 = 7.26 rounded to 7 lots
The amount to be hedged = 4247*7*50
= 1486450
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Table no: 48 Calculation of amount to be hedged on 25/06/09
strip name spot price No ofshares
value of
investmentBeta Beta
amount
Airtel 793.85 373 296106.1 1 296106.1
CIPLA 257 1371 352347 0.5 176173.5
Infosys 1759.1 179 314878.9 0.69 217266.4
ONGC 1019.7 255 260023.5 0.89 231420.9
Reliance 1958.1 131 256511.1 1.23 315508.7
SBI 1704 160 272640 1.09 297177.6
total 1752507 1533653
Portfolio Value = 1752507
Portfolio Beta = Value of Beta Amount / Value of Portfolio
= 1533653/1752507
= 0.875
Value of Index = 4241.85
Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index
= 1752507*0.875/4241.85
= 361.5
Permitted Lot Size = 50
No. Of Nifty Lot to be hedged= 361.5/50 = 7.23 rounded to 7 lots
The amount to be hedged = 4241.85*7*50
= 1484647
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Table No.52 Movement of hedged portfolio and its profit/loss for the month of
June
Date hedged portfolio profit /loss
1-Jun-09 1585465 0
2-Jun-09 1583837 -1628
3-Jun-09 1585745 280
4-Jun-09 1600427 14962
5-Jun-09 1605415 19950
8-Jun-09 1550465 -35000
9-Jun-09 1592832 7367
10-Jun-09 1629337 43872
11-Jun-09 1623195 37730
12-Jun-09 1604190 18725
15-Jun-09 1596400 10935
16-Jun-09 1581230 -4235
17-Jun-09 1524652 -60813
18-Jun-09 1487990 -97475
19-Jun-09 1509760 -75705
22-Jun-09 1482337 -103128
23-Jun-09 1486450 -9901524-Jun-09 1502532 -82933
25-Jun-09 1484647 -100818
26-Jun-09 1531425 -54040
29-Jun-09 1536832 -48633
30-Jun-09 1501885 -83580
This table shows the daily movement of hedged portfolio and profit and loss from
hedging only.
It shows a loss of Rs.-83580. But investor made benefit out of that through buying
securities at lower price than he agreed to sell the same.
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Chart no:8 Appreciation or Depreciation of hedged portfolio for the month of
June
1450000
1500000
1550000
1600000
1650000
-------- hedged portifolio
Hedged portifolio
1400000
1-jun-09 8-jun-09 15-jun-09 22-jun-09 29-jun-09
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Chart no:9 profit / loss from the hedged portfolio for the month of June
-40000
-20000
0
20000
40000
-------- profit/losses
Profit/losses
-60000
-80000
-100000
- - - - - - - - - -
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Chart no: 10 movement of hedged and unhedged portfolio for the month of
june
The above chart shows both hedged and unhedged portfolios movements and they
are moving in a same pattern. This happens just because of the same market
condition. Hedged portfolio line will always lies behind the unhedged portfolio
line because of the uncertainty in the market until it reach the maturity date
0
500000
1000000
1500000
2000000
2500000
---------unhedged ------------- hedged portifolio
HedgedPortifolio
1-jun-09
3-jun-09
5-jun-09
7-jun-09
9-jun-09
11-jun-09
13-jun-09
15-jun-09
17-jun-09
19-jun-09
21-jun-09
23-jun-09
25-jun-09
27-jun-09
29-jun-09
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EFFECT OF HEDGING
As on 01/06/2009 As on 30/06/2009
Portfolio Value = 1799908 Portfolio Value = 1781013
Hedged Amount = 1585465 Hedged Amount = 1501885
LOSS FROM THE PORTFOLIO
1781013- 1799908 = -18895
GAIN FROM HEDGING
1585465- 1501885 = 83580
NET GAIN = Gain from hedging - loss from portfolio
83580 -18895= 64685
INERPRETATION
On 1ST JUNE 2009, investor bought a portfolio with the aim of holding it for a
period of one month. We have to hedge the portfolio for the whole time period.
The full time hedging reduces the loss and the risk. By looking the value of
appreciation / depreciation from 1ST JUNE 2009 to 30TH JUNE 2009, the value
of the portfolio got depreciated leading to a loss of Rs. 18895. By hedging the
value of the portfolio is seen to have appreciated and leads to a profit of Rs. 83580.
The point of analysis tells us that If the investor had gone for hedging on 1st JUNE
2009 using nifty future index, the investor could have earn a profit the of Rs.
64685. To avoid or minimize loss the investor should be wise enough to predict the
down word trends of share prices
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Chapter.6
FINDINGS AND SUGGESTION
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FINDINGS
Findings based on Bullish Market (MAY 2009)
Investor spend Rs.1799982 on the initial day of investment and on the lastday his investment went up to 2099181 and registered a profit of Rs.299199
While on hedging he suffered a loss of Rs.(-)357300, and end up with a netloss of Rs.(-)58101
Losses from hedging can be minimized with gain in actual portfolio Some particular incidents can influence the prices of the securities (e.g.
election results ) which may held during the period of study
Wrong interpretation about the market may cause loss to the investorsportfolio.
Index futures are better for hedging, since they are convenient and representthe true nature of the security market as a whole
Findings based on Bearish market (June 2009)
Initial investment in the month of June was Rs. 1799908 and on the last dayitend up in a loss of Rs.(-)18895
Through hedging investor earned a profit of Rs. 83580 and it helped him tocover his loss and he got a net profit of Rs.64685
Loss in portfolio can be minimized or removed with hedging. Hedging is comparatively safer to the investor mostly gives positive results. Hedging with same portfolio with equal amount of investment gives
different result during two different market condition
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RECOMMENDATIONS
On the basic of the analysis done and findings observed the following
recommendations were given to existing and prospective investors:-
1. If any one wants to hedge with portfolio, the portfolio must consist of scrips
from different sectors and here index futures are better for hedging, since they are
convenient and represent the true nature of the security market as a whole. The
advantage is that the risk within the portfolio can be minimized completely and the
portfolio will only be affected by the market risk.
2. Hedging is actually a tool to reduce the losses that may arise from the market
risk . Its primary objective is loss minimization, not profit maximization, some
times. it gives profit/loss also. The profit or loss from futures or shares will be
offset from the losses or gain of the shares and futures as the case may be. In this
case, however it was possible to come up with two different result one with profit
and another with loss. So it helps the investor to reduce risk in his portfolio
3. Investor should be able to comprehend market trend and fluctuations. Otherwise
the strategies adopted by him will cause loss.
4. Hedging technique is more suited to an investor who is having a portfolio and
the profit or loss caused to the portfolio can be offsets by profit or loss from
hedging
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Chapter.7CONCLUSION
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