2011

[PORTFOLIO INVESTMENT]
SUBMITTED BY GROUP 21 @ MONEY MIRAGE @ THRIVE 2011

PORTFOLIO INVESTMENT
TASK AS PRESENTED

Mr. Kishore is of 38 years of age. He is married and has a 12 year old son studying in 8th standard in Bishop Cotton Boys School. He receives a salary (Cash in Hand) of Rs. 1,50,000 per month. He also takes care of his elder brothers wifes expenses and her daughters (19 years old) educational expenses, as his elder brother is no more. Their burden is on Mr. Kishore. He also wishes to purchase a BMW 5 series sedan the next year which costs approx. Rs. 50 lakhs. He has a corpus fund of Rs. 2 crores to invest. You, as the Portfolio Manager are required to prepare a high risk portfolio for Mr. Kishore keeping the above factors in mind. Note: Youll can Invest in all the instruments i.e., Equity, Debt, Bullion and Real Estate.

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CLIENT ANALYSIS PARTICULARS
Salary Amount to invest Family Background

DETAILS
Rs. 150,000*12 --------------------Age : 38 years Son : 12 years Dependent: Brothers Wife & his Daughter

AMOUNT (Rs.)
18,00,000 Rs. 2,00,00,000/- (Rs. 2Crs.)

Risk Appetite

High Risk and Return

*Mr. Kishore was married at the age of 25. Assuming he is a first time investor we make the best possible investment proposal for him

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TREATMENT OF MONTHLY INCOME (YEAR 1) Salary Less: **Expenses Total = = 150,000*12 93,500*12 = = Rs. 18,00,000/Rs. 11,22,000/Rs. 678,000/-

TREATMENT OF MONTHLY INCOME (YEAR 2) Salary Less: **Expenses Total = = 150,000*12 145,775*12 = = Rs. 18,00,000/Rs. 17,49,300/Rs. 50,700/-

Particular House Rent Maintenance Insurance Medi-Claim Other Medical Expenses Utility Bills Children Education Domestic Help Dependents Travelling & Entertainment Food Loan Payment Misc. Total

Year 1 30,000 1,500 13,000 7,000 2,000 5,000 6,000 8,000 6,000 4,000 6,000 0 5,000 93,500

Year 2 31500 1575 14300 7700 2200 5500 6600 8800 6600 4400 6600 44500 5500 145775

**Increment 5% 5% 10% 10% 10% 10% 10% 10% 10% 10% 10%
Car Loan Taken in 2nd Year EMI for Rs. 20,00,000

10% 10%

**Increment is done on 10% from year 1 to year 2 because of inflation. House Rent and Maintenance to increase @ 5% as per the rental agreement. Loan for the care taken for Rs. 20,000,000@12% p.a. int. payable. The reaming withdrawn from the corpus.

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ASSUMPTIONS
Mr. Kishore, Mrs. Kishore and their son are covered by insurance and medi-claim by company sponsorship. (As the question says cash in hand that means certainly cost to company is more than his salary and under such programme of company he is covered under insurance and medi-claim). His dependents (Brothers Wife and Daughter) are covered under insurance and mediclaim which is sponsored by him. Rs. 2 Crs. is the total corpus which has to be invested. He lives in Bangalore and has a rented Flat at Wilson Manner, Wilson Garden (3 BHK). For his car we have withdrawn Rs. 30,00,000 from the corpus at the end of 1st year. The remaining Rs. 2o,00,000 is taken as a loan @ 12% hypothecated to Catholic Syrian Bank, Wilson Garden Branch. He comes from Upper Middle Class family. They have no tax liability as they get salary after TDS but have to file returns. Stocks have been bought from National Stock Exchange Limited, India and shares are purchased in multiples of 5 only. Brokerage and other transaction charges have been ignored. All investments are done on 22nd November, 2011 and closing prices of the same day is taken into consideration for any investment decision.

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FUND ALLOCATION

Particulars Equity Debt Bullion Real Estate Cash Total

Percentage in Rs. 30% 10% 35% 20% 5% 100% 60,00,000 20,00,000 70,00,000 40,00,000 10,00,000 2,00,00,000

5% 20%

30% Equity Debt 10% Bullion Real Estate Cash

35%

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EQUITY FUND ALLOCATION (30% of the Corpus Fund)
Investment Company Sector % No. of Expected Value(X*Y) Returns

**PCP(X) Shares (Y)

Bank of India State Bank of India L&T Infosys Bharti Airtel ITC Apollo Hospitals R. Power SAIL ACC Tata Motors

Banking Banking Capital Goods IT Telecom FMCG Health Care Power Steel Cement Auto Mobile

10% 8% 10% 10% 10% 10% 7% 8% 10% 7% 10%

329 1688.65 1226.25 2723.15 378.85 196.1 556.5 91.7 90.1 1140 172.6

1820 285 490 220 1580 3060 750 5185 7500 400 3400

508780 481265.25 600862.5 599093 598583 600066 417375 475464.5 675750 456000 586840

15% 10% 10% 20% 15% 20% 15% 25% 30% 14% 20%

** PCP Previous Close Price (in Rs.)

ROI = Returns Investments/ Investments * 100 = 17.92%

***Above prices and percentage of investment done are calculated in approx value. PCP is rounded off to nearest whole number

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DEBT MARKET (10% of the Corpus Fund)

BONDS

% Invested

Amount (Rs.)

Interest Rate p.a. %

Interest

Expected amount

NABARD

70%

14,00,000

12%

168,000

15,68,000

ICICI Safety Bond

30%

6,00,000

10%

60,000

660,000

TOTAL

100%

20,00,000

On maturity the Debt Fund will be valued at Rs. 22,28,000/- i.e. at the end of 1st year. Rs. 800,000 will be liquidated for buying his car at the end of 1st year (i.e Rs. 600,000 from ICICI Safety Bonds + Rs. 200,000 profit)

ROI = Returns Investments/ Investments * 100 = 11.14%

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BULLION MARKET (35% 0f the Corpus Value)

BULLION

% Invested

Current (Mumbai)

price Amount

Return Future Expected Valuation

Expected

SILVER (1 K.G)

60%

53,382 28,730

42,00,000 28,00,000

40% 25%

58,80,000 35,00,000

GOLD (10 Gms) TOTAL

40% 100% 70,00,000 93,80,000

Valuation of Gold and Silver will be Rs. 93,80,000/- at the end of 1 year. From this we will withdraw the remaining fund for the car i.e. Rs. 22,00,000

On calculating ROI we get a return of 34%

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REAL ESTATE (20% of the corpus value)
Mr. Kishore is advised to invest Rs. 20,00,000/- by purchasing a flat in Indiranagar @ Rs. 1,200 per sq. foot which will amount to Rs. 20,00,000/- approx. and this is expected to grow @ 14.8% p.a. It is a 1600 sq. flat.

Mr. Kishore is advised to invest another Rs. 20,00,000/- in purchase of land in Electronic City Phase 2 at Rs. 840/- per sq. foot. Fetching him almost 2380 sq. foot of land. This is expected to grow at 13% p.a.

ROI form real estate to be 12% approx..

The reason behind he investing in Bangalore is because he belongs to a nuclear family and so if he invested outside Bangalore then it would have been difficult for him to keep a track of it.

CASH RESERVES (5% of the corpus value)

The cash we have kept as reserves amounts to 5% i.e. Rs. 10, 00,000. We are keeping it in the saving account of the investor and it will earn him interest @ 6% compounded half yearly with Kotak Mahindra Bank (Kormangala Branch). The interest will be credited to the investors Account. The bank will take care of the account and timely payment of interest. So he will be getting an annual interest of Rs. 63,600/-. This is the amount of interest which the investor will get unless he uses that money to take advantage of the opportunity provided by the market. Additional Information for Reserves To meet the specific situations like Right Issue Bonus Dividend
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PORTFOLIO INVESTMENT
COMPUTATION FOR HIS CAR WHICH HE WILL BUY IN NEXT YEAR PARTICULARS By Liquidating ICICI Safety Bonds By Profit accumulated from Debts By Profits accumulated from Bullion By Bank Loan Total

AMOUNT Rs. 600,000/Rs. 200,000/Rs. 22,00,000/Rs. 20,00,000/Rs. 50,00,000/-

We have designed his portfolio in such a manner that we have eroded Rs. 600,000/- of his capital corpus and rest is covered by bank loan and profits in lieu of investments. Its only a notional capital erosion. The profits earned from equity and real estate have not been taken into consideration because if he sell out real estate then he has to sell his entire plot and for equity we are having a portfolio of almost all companies which pay good dividends. So in order to earn him dividends we are keeping his investments in tact.

INVESTMENT RETURN ANALYSIS

Particulars Equity Debt Bullion Real Estate Cash at Bank Returns 17.92% 11.14% 34% 12% 6%

Equity Debt Bullion Real Estate Cash at Bank

***The above graph show returns earned after 1 year.

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JUSTIFICATION SBI and Bank of India It is surprising to know that net interest income(NII) that is interest income interest expense, grew at a higher rate in June 2011 quarter, than in previous quarters. None of the top ten banks reported a drop in NII growth indicating that loan off take at macro level was still healthy. Off the ten largest banks, seven recorded improvements in their credit-deposit ratio. SBI and Bank Of India posted improvements of approximately 300 basis points each in their credit deposit ratio. In fact a few PSUs like SBI, Canara bank, Bank of India posted high growths in their business in June 2011 quarter compared to March 2011 quarter. It must be noted that June quarter is typically the slowest quarter, while March is the busiest quarter for banks. Despite this, the above mentioned PSU banks managed to grow their advances and deposits at a higher rate which shows that they are for less vulnerable to economic fears than otherwise. In financial year 2002, just before the bull run started, net NPAs as a percentage of net advances stood at an average 4.3% for the top ten banks. This ratio fell to less than 1% in the financial year 2008. However ICICI bank witnessed highest NPA in the financial year 2011 than in the financial year 2010 and the Bank of India for their stable performance and lesser exposure to AFS securities. Bank of India It is recommended by almost all the stock broking firms. The non performing asset is only .56% when comparing to other banks with high NPA like ICICI. Midsized banking. Exposure to loan market.

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SBI Countries largest bank in terms of profits and assets. NPA is only .069. Most powerful Treasury, contributing to a major chunk of the total turnover in the money and forex markets. Infosys In the present scenario, most of the countries over the world have relied upon Indian softwares and prefer them over the rest of them plus rupee devaluation at Rs.52.45 when compared to 1 USD thereby bringing cheers on exporters faces. There is a huge scope for development of this sector as there are many organisations coming up with new and updated softwares day after day. India's market share, with estimated exports of US$ 12 bn, stands at a mere 2%. As such, the growth potential for the sector continues to be immense. The strength of the Indian software industry is indicated by the fact that the Indian software and services exports have managed to grow by around 26%-28% over the past few years despite the economic downturn that swept worldwide markets. It is not depended only on the U.S market even during recession of the U.S economy the prices does not fall steeply as it has European customers also.

SAIL The year gone by saw steel authority of India limited scaling new highs in production, sales and profits. Simultaneous capacity expansion and modernisation were given a major push so that SAIL makes available larger quantities of steel, the demand for which is rapidly growing in the country. Approvals for investments in excess of Rs.54000 crore for simultaneous modernization and expansion of SAIL plants. Such investments will raise SAIL hot metal capacity to over 26m tonnes by 2012.

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Record saleable steel production of 13m tonnes at capacity utilisation of 118%. SAIL special steel plants also achieved best ever production. Highest ever turnover of Rs.45,555 crore and record net profit of Rs.7537 crore. Dividend of 37%, including an interim of 19% is also a record. In principle approval accorded for installation of steel processing units in the states where SAIL has no plants. DR REDDY Dr. Reddys is the first pharmaceutical company in Asia outside of Japan to be listed on the NYSE. It is also the sixth company in India to be listed in the nyse Our strong portfolio of businesses, geographies and products gives us an edge in an increasingly competitive global market and allows us to provide affordable medication to people across the world, regardless of geographic and socio-economic barriers. Revenues increase by 25% to Rs. 15 billion ($350 million) in quarter 1 of financial year 2009 from Rs. 12 billion ($279 million) in quarter 1 financial year 2011. EBITDA at Rs. 2.7 billion ($63 million) in quarter 1 of financial year 2010 as against Rs. 2.9 billion ($68 million) in quarter 1 financial year 2011. PAT at Rs. 1.3 billion ($31 million) in quarter 1 of financial year 2010 as against Rs. 1.8 billion ($43 million) in quarter 1 financial year 2011. Revenues from Global Generics business increase by 25% to Rs. 10.3 billion ($241 million) in quarter 1 of financial year 2009 from Rs. 8.3 billion ($192 million) in quarter 1 financial year 2011. ACC (ASSOCIATION OF CEMENT COMPANIES) There has been an increase in the demand for cement as the government is focussing on developing the infrastructure of the country. The government has supported this sector for better efficiency and development of this sector. Despite the fact that Indian cement industry has clocked a production of more than 100 m tonnes for the last four consecutive years, the per capita consumption of 115 kgs compares poorly with the world average of over 250 kgs and more than 450 kgs in China. This, more
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than anything underlines the tremendous scope for growth in the Indian cement industry in the long term. ACC Limited is Indias foremost manufacturer of cement and ready mix concrete with a countrywide network of factories and marketing offices. Established in 1936, ACC has been a pioneer and trend-setter in cement and concrete technology. The EBITDA of the company has increased from 17561 in 2010-2011 to 20462 in 2010-2011

Bharti Airtel The development of the telecommunication sector has added to the development of the country in a significant manner. This company has been growing at the rate of 20-22% every year. This company has a wide scope as it has become a basic necessity for every individual surviving. It has been fuelled by the growing mobile sector.

L&T The Gross Sales at Rs. 6993 crore grew by 53% over the corresponding quarter of the previous year L&T bags Rs. 10,470 million order from the Railways. This is the first instance of an Indian company executing a project of such complexity without any foreign collaboration. The only other such plant was set up in Bangalore by the Indian Railways in early 80s with American collaboration. The project is to be completed within a tight schedule of 2 years It has a conglomerate diversified product. The contract for next 10 years are already in hand so there no second thought of the company losing out in the long run.

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FMCG (Fast Moving Consumer Goods) With the developments in the products provided by the company by regular research and development, there is an increase in the demand for these goods helping in the development of this sector. There is a widening of the market with the varied products and different companies. With the consistent increase in the population, there will be an increase in the demand for such goods in the future and so development of this sector is sure of, in the future. The consumer products sector mainly consists of personal care (oral care, hair care, soaps, cosmetics and toiletries) and household care (fabric wash and household cleaners). Why Reliance Power? Company is initiated by The Reliance group. Six coal-fired projects (14,620 MW) to be fueled by reserves from captive mines and supplies from India and abroad, two gas-fired projects (10,280 MW) to be fueled primarily by reserves from the Krishna Godavari Basin (the "KG Basin") off the east coast of India, and four hydroelectric projects (3,300 MW), three of them in Arunachal Pradesh and one in Uttarakhand.

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