A STUDY ON RISK-RETURN ANALYSIS OF HDFC AND

ICICI SECURITIES
INDEX

Chapters Contents Page No:

Chapter 1 Introduction

1.1 Introduction 2
1.2 Need of the study 3
1.3 Objectives of the study 5
1.4 Research methodology 6
1.5 Limitations of the study 7
Chapter 2 2.1 Industry profile 9
2.2 Company profile 22
Chapter 3 Literature Review
3.1 Risk Analysis 32
3.2 Types of risks 34
3.3 Measurement of risk 39
3.4 Return Analysis 42
3.5 Risk and return Trade off 45
3.6 Risk-return relationship 46
Chapter 4 Data Analysis & Interpretation 49
Chapter 5 Findings & suggestion 67
Chapter 6 Bibliography 71
1.1 INTRODUCTION

The risk/return relationship is a fundamental concept in not only financial

analysis, but in every aspect of life. If decisions are to lead to benefit
maximization, it is necessary that individuals/institutions consider the
combined influence on expected (future) return or benefit as well as on
risk/cost. Return expresses the amount which an investor actually earned
on an investment during a certain period. Return includes the interest,
dividend and capital gains; while risk represents the uncertainty associated
with a particular task. In financial terms, risk is the chance or probability
that a certain investment may or may not deliver the actual/expected
returns.
The risk and return trade off says that the potential return rises with an
increase in risk. It is important for an investor to decide on a balance
between the desire for the lowest possible risk and highest possible
return.
 1.2 NEED FOR THE STUDY

In the finance field, it is a common knowledge that money or finance is

scarce and that investors try to maximize their returns. But when the
return is higher, the risk is also higher. Return and risk go together and
they have a tradeoff. The art of investment is to see that return is
maximized with minimum risk.
In the above discussion we concentrated on the word investment and to
invest we need to analyze securities. Combination of securities with
different risk-return characteristics will constitute the portfolio of the
investor.

1.3.OBJECTIVES OF THE STUDY

1. To study the fluctuations in share prices of selected companies.

2. To study the risk involved in the securities of selected companies.

3. To make comparative study of risk and return of ICICI& HDFC.

4. To study the systematic risk involved in the selected companies
securities.
5. To offer some suggestions to the investors.
1.4 METHODOLOGY OF THE STUDY

The data used in this project is of secondary nature. The data is collected
from secondary sources such as various websites, journals, newspapers,
books, etc., the analysis used in this project has been done using selective
technical tools. In Equity market, risk is analyzed and trading decisions
are taken on basis of technical analysis. It is collection of share prices of
selected companies for a period of five years.
This is the study of Risk-Return analysis for a period of five years (2007-
2012).

1.5 LIMITATIONS

This study has been conducted purely to understand Risk-return

characteristics for investors.
The study is restricted to only two selected companies.
Very few and randomly selected scripts/companies are analyzed from
BSE listings The study is limited to banking companies only.
 CHAPTER 2
2.1 INDUSTRY PROFILE
Indian financial market consists of money market and capital market.
Money market is mainly for the short-term needs and capital market
for long term needs.

CAPTAL MARKET AND ITS STRUCTURE

Capital market is a financial market, which provides and facilitates an
orderly exchange of long term needs. The capital market in India is
classified into
Primary market
Secondary market

The primary market deals with new issue of long term securities.
Whereas the secondary market deals with buying and selling of old,
second hand, existing securities, which are already listed in official
trading list of recognized stock exchange.
Players of New Issue Market are mainly, among them the most important
are:
Merchant bankers
Registrars
Collecting and coordinating bankers
Underwriters and broker

Players of secondary market are:

Issuers of securities like companies
Intermediaries like brokers, and sub-brokers etc.

ABOUT NSE
The National Stock Exchange (NSE) is India's leading stock exchange
covering various cities and towns across the country. NSE was set up by
leading institutions to provide a modern, fully automated screen-based
trading system with national reach. The Exchange has brought about
unparalleled transparency, speed & efficiency, safety and market integrity.
It has set up facilities that serve as a model for the securities industry in
terms of systems, practices and procedures.

NSE has played a catalytic role in reforming the Indian securities market in
terms of microstructure, market practices and trading volumes. The market
today uses state-of-art information technology to provide an efficient and
transparent trading, clearing and settlement mechanism, and has witnessed
several innovations in products & services viz. demutualization of stock
exchange governance, screen based trading, compression of settlement
cycles, dematerialization and electronic transfer of securities, securities
lending and borrowing, professionalization of trading members, fine-tuned
risk management systems, emergence of clearing corporations to assume
counterparty risks, market of debt and derivative instruments and intensive
use of information technology.

The National Stock Exchange of India Limited has genesis in the report of
the High Powered Study Group on Establishment of New Stock
Exchanges, which recommended promotion of a National Stock Exchange
by financial institutions (FIs) to provide access to investors from all across
the country on an equal footing. Based on the recommendations, NSE was
promoted by leading Financial Institutions at the behest of the Government
of India and was incorporated in November 1992 as a tax-paying company
unlike other stock exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts
(Regulation) Act, 1956 in April 1993, NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The Capital Market
(Equities) segment commenced operations in November 1994 and
operations in Derivatives segment commenced in June 2000.

MISSION OF NSE

NSE's mission is setting the agenda for change in the securities markets in
India.

OBJECTIVES OF NSE

The NSE was set-up with the main objectives of:

Establishing a nation-wide trading facility for equities, debt

instruments and hybrids,
Ensuring equal access to investors all over the country through an
appropriate communication network,
Providing a fair, efficient and transparent securities market to
investors using electronic trading systems,
Enabling shorter settlement cycles and book entry settlements
systems, and
Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology has
become industry benchmarks and is being emulated by other market
participants. NSE is more than a mere market facilitator. It's that force
which is guiding the industry towards new horizons and greater
opportunities.

PROMOTERS
NSE has been promoted by leading financial institutions, banks, insurance
companies and
other financial intermediaries:

Industrial Development Bank of India

Limited Industrial Finance
Corporation of India Limited Life
Insurance Corporation of India
State Bank of
India ICICI
Bank Limited
IL & FS Trust Company Limited
Stock Holding Corporation of India
Limited SBI Capital Markets
Limited
The Administrator of the Specified Undertaking of Unit
Trust of India Bank of Baroda
Canara Bank
General Insurance Corporation
of India National Insurance
Company Limited
The New India Assurance Company
Limited The Oriental Insurance
Company Limited
United India Insurance Company
Limited Punjab National Bank
Oriental Bank of
Commerce
Corporation Bank
Indian Bank
 Union Bank of India

Logo

The logo of the NSE symbolizes a single nationwide securities trading

facility ensuring equal and fair access to investors, trading members and
issuers all over the country. The initials of the Exchange viz., N, S and E
have been etched on the logo and are distinctly visible. The logo
symbolizes use of state of the art information technology and satellite
connectivity to bring about the change within the securities industry. The
logo symbolizes vibrancy and unleashing of creative energy to constantly
bring about change through innovation.

CORPORATE STRUCTURE

NSE is one of the first de-metalized stock exchanges in the country, where
the ownership and management of the Exchange is completely divorced
from the right to trade on it. Though the impetus for its establishment came
from policy makers in the country, it has been set up as a public limited
company, owned by the leading institutional investors in the country.

From day one, NSE has adopted the form of a demutualised exchange - the
ownership, management and trading is in the hands of three different sets
of people. NSE is owned by a set of leading financial institutions, banks,
insurance companies and other financial intermediaries and is managed by
professionals, who do not directly or indirectly trade on the Exchange. This
has completely eliminated any conflict of interest and helped NSE in
aggressively pursuing policies and practices within a public interest
framework.
The NSE model however, does not preclude, but in fact accommodates
involvement, support and contribution of trading members in a variety of
ways. Its Board comprises of senior executives from promoter institutions,
eminent professionals in the fields of law, economics, accountancy,
finance, taxation, etc, public representatives, nominees of SEBI and one
full time executive of the Exchange.

While the Board deals with broad policy issues, decisions relating to
market operations are delegated by the Board to various committees
constituted by it. Such committees include representatives from trading
members, professionals, the public and the management. The day-to-day
management of the Exchange is delegated to the Managing Director who is
supported by a team of professional staff.

COMMITTEES

The Exchange has constituted various committees to advise it on areas

such as good market practices, settlement procedures, risk containment
systems etc. These committees are manned by industry professionals,
trading members, Exchange staff as also representatives from the market
regulator.

Executive Committee
Committee On Trade Related Issues (COTI)
Advisory Committee - Listing of Securities
Executive Committee:
Objective: To manage the day-to-day operations of the Exchange
Composition.
Committee On Trade Related Issues (COTI):
Objective: To provide guidance on trade related issues which crop up
during the day-to-day functioning of the Exchange Composition.

Advisory Committee - Listing of Securities:

Objective: To advise NSE on

The suitability of the Companies for listing on the Exchange within

the parameters set out by the listing agreement
To ensure that the applicant company has complied with all the
conditions set out in the listing agreement as well as other
formalities, SEBI regulations, etc.
Systems and procedures to be adopted for listing of securities
ABOUT BSE

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with
a rich heritage. Popularly known as "BSE", it was established as "The
Native Share & Stock Brokers Association" in 1875. It is the first stock
exchange in the country to obtain permanent recognition in 1956 from the
Government of India under the Securities Contracts (Regulation) Act,
1956.The Exchange's pivotal and pre-eminent role in the development of
the Indian capital market is widely recognized and its index, SENSEX, is
tracked worldwide. Earlier an Association of Persons (AOP), the Exchange
is now a demutualised and corporatized entity incorporated under the
provisions of the Companies Act, 1956, pursuant to the BSE
(Corporatization and Demutualization) Scheme, 2005 notified by the
Securities and Exchange Board of India (SEBI).

With demutualization, the trading rights and ownership rights have been
de-linked effectively addressing concerns regarding perceived and real
conflicts of interest. The Exchange is professionally managed under the
overall direction of the Board of Directors. The Board comprises eminent
professionals, representatives of Trading Members and the Managing
Director of the Exchange. The Board is inclusive and is designed to benefit
from the participation of market intermediaries.

In terms of organization structure, the Board formulates larger policy issues

and exercises over-all control. The committees constituted by the Board are
broad-based. The day-to-day operations of the Exchange are managed by
the Managing Director and a management team of professionals. The
Exchange has a nation-wide reach with a presence in 417 cities and towns
of India. The systems and processes of the Exchange are designed to
safeguard market integrity and enhance transparency in operations. During
the year 2004-2005, the trading volumes on the Exchange showed robust
growth.

The Exchange provides an efficient and transparent market for trading in

equity, debt instruments and derivatives. The BSE's On Line Trading
System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-
2002 certified. The surveillance and clearing & settlement functions of the
Exchange are ISO 9001:2000 certified.

For the premier Stock Exchange that pioneered the stock broking activity
in India, 125 years of experience seem to be a proud milestone. A lot has
changed since 1875 when 318 persons became members of what today is
called "Bombay Stock Exchange Limited" by paying a princely amount of
Re1.

Since then, the stock market in the country has passed through both good
and bad periods. The journey in the 20th century has not been an easy one.
Till the decade of eighties, there was no measure or scale that could
precisely measure the various ups and downs in the Indian stock market.
Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock
Index that subsequently became the barometer of the Indian Stock Market.

BSE-SENSEX, first compiled in 1986 is a "Market Capitalization-

Weighted" index of 30 component stocks representing a sample of large,
well-established and financially sound companies. The base year of BSE-
SENSEX is 1978-79. The index is widely reported in both domestic and
international markets through print as well as electronic media. BSE-
SENSEX is not only scientifically designed but also based on globally
accepted construction and review methodology. The "Market
Capitalization-Weighted" methodology is a widely followed index
construction methodology on which majority of global equity benchmarks
are based.

The growth of equity markets in India has been phenomenal in the decade
gone by. Right from early nineties the stock market witnessed heightened
activity in terms of various bull and bear runs. More recently, the bourses
in India witnessed a similar frenzy in the 'TMT' sectors. The BSE-SENSEX
captured all these happenings in the most judicial manner. One can identify
the booms and bust of the Indian equity market through BSE-SENSEX.

The launch of BSE-SENSEX in 1986 was later followed up in January

1989 by introduction of BSE National Index (Base: 1983-84 = 100). It
comprised of 100 stocks listed at five major stock exchanges in India at
Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National
Index was renamed as BSE-100 Index from October 14, 1996 and since
then it is calculated taking into consideration only the prices of stocks
listed at BSE.

With a view to provide a better representation of the increased number of

companies listed, increased market capitalization and the new industry
groups, the Exchange constructed and launched on 27th May, 1994, two
new index series viz., the 'BSE-200' and the 'DOLLEX-200' indices. Since
then, BSE has come a long way in attuning itself to the varied needs of
investors and market participants. In order to fulfill the need of the market
participants for still broader, segment-specific and sector-specific indices,
the Exchange has continuously been increasing the range of its indices. The
launch of BSE-200 Index in 1994 was followed by the launch of BSE-500
Index and 5 sectoral indices in 1999. In 2001, BSE launched the BSE-PSU
Index, DOLLEX-30 and the country's first free-float based index - the BSE
TECk Index taking the family of BSE Indices to 13.
The Exchange also disseminates the Price-Earnings Ratio, the Price to
Book Value Ratio and the Dividend Yield Percentage on day-to-day basis
of all its major indices.

The values of all BSE indices (except the Dollar version of indices) are
updated every 15 seconds during the market hours and displayed through
the BOLT system, BSE website and news wire agencies.

All BSE-Indices are reviewed periodically by the "Index Committee" of the

Exchange. The committee frames the broad policy guidelines for the
development and maintenance of all BSE indices. The Index Cell of the
Exchange carries out the day to day maintenance of all indices and
conducts research on development of new indices.

LISTING OF SECURITIES

Listing means admission of the securities to dealings on a recognized stock

exchange. The securities may be of any public limited company, Central or
State Government, quasi-governmental and other financial
institutions/corporations, municipalities, etc.

The objectives of listing are mainly to :

Provide liquidity to securities;

Mobilize savings for economic development;
Protect interest of investors by ensuring full disclosures.

The Exchange has a separate Listing Department to grant approval for

listing of securities of companies in accordance with the provisions of the
Securities Contracts (Regulation) Act, 1956, Securities Contracts
(Regulation) Rules, 1957, Companies Act, 1956, Guidelines issued by
SEBI and Rules, Bye-laws and Regulations of the Exchange.
A company intending to have its securities listed on the Exchange has to
comply with the listing requirements prescribed by the Exchange. Some of
the requirements are as under: -

1. Minimum Listing Requirements for new companies

2. Minimum Requirements for companies delisted by this Exchange
seeking relisting of this Exchange
3. Minimum Requirements for companies delisted by this Exchange
seeking relisting of this Exchange
4. Permission to use the name of the Exchange in an Issuer
Company's prospectus
5. Submission of Letter of Application
6. Allotment of Securities
7. Trading Permission
8. Requirement of 1% Security
9. Payment of Listing Fees
10. Compliance with Listing Agreement
11. "Z" Group
12. Cash Management Services (CMS) - Collection of Listing Fees .
13. Minimum Listing Requirements for new companies
14. Minimum Requirements for companies delisted by this
Exchange seeking relisting of this Exchange
15. Minimum Requirements for companies delisted by this
Exchange seeking relisting of this Exchange
16. Permission to use the name of the Exchange in an Issuer
Company's prospectus
17. Submission of Letter of Application
18. Allotment of Securities
19. Trading Permission
20. Requirement of 1% Security
21. Payment of Listing Fees
22. Compliance with Listing Agreement
 23. "Z" Group
24. Cash Management Services (CMS) - Collection of Listing Fees .

25. Minimum Listing Requirements for new companies

26. Minimum Requirements for companies delisted by this
Exchange seeking relisting of this Exchange
27. Minimum Requirements for companies delisted by this
Exchange seeking relisting of this Exchange
28. Permission to use the name of the Exchange in an Issuer
Company's prospectus
29. Submission of Letter of Application
30. Allotment of Securities
31. Trading Permission
32. Requirement of 1% Security
33. Payment of Listing Fees
34. Compliance with Listing Agreement
35. "Z" Group
36. Cash Management Services (CMS) - Collection of Listing Fees .

The Cheque should be drawn in favour of Bombay Stock Exchange

Limited , and should be payable, locally .Companies are requested to
mention in the deposit slip, the financial year(s) for which listing fee is
being paid. Payment made through any other slips would not be considered.
The above slips will have to be filled in quadruplicate. One acknowledged
copy would be provided to the depositor by the HDFC Bank.
 CHAPTER 2

COMPANY PROFILE

Ventura Securities Ltd., is a leading stock broking organization

Promoted and managed by professionals having exceptional knowledge
of Capital Market.
Ventura believes in philosophy that the key to their business is service
which will result in total satisfaction to the clients.

VENTURA PROMOTERS

Sajid Malik, Director, is a member of the Institute of Chartered

Accountants of India.He has nearly fifteen years of varied experience in
corporate advisorystructured finance and private equity transaction. He has
an international exposure to developed markets in Europe, US and the Far
East and has been personally involved in international equity offerings and
cross border acquisitions. He is the CEO of Genesys International, a
company focused on outsourcing of GIS and engineering design services.
He is a non-executive director of Ventura Securities.

HemantMajethia, Director is member of the Institute of Chartered

Accountant of India. He has nearly fifteen years of rich experience in the
capital markets intermediation, equity research and has a wide cross section
of market relationships. Mr. Majethia is the CEO of Ventura Securities. It
was his vision to create an all India network of brokers relationship and
build the distribution strength of Ventura.
COMPANY'S GOAL
We aim to add value and provide our clients with an unrivalled and
specialized service which reflects the expertise and efficiency of our
dedicated support teams.

HISTORY
FOUNDATION OF VENTURA
Founded in 1994 by Chartered Accountants Sajid Malik and
HemantMajethia. They are the first generation entrepreneurs and are the
principal promoters of Ventura.

A dedicated and efficient team of senior managers assists Mr. Majethia

the CEO of the company.

Ventura is a full-service domestic brokerage house providing value-

based advisory services to Institutions (Foreign and Domestic), High
Net Worth and Retail Investors with its core area of operations being
stock-broking.

Ventura have considerable strength and domain knowledge in the

booming derivatives market.

Ventura has achieved a reputation for innovative and unbiased research

along with excellent technical analysis and execution capabilities.

Not only has Ventura provided value-added services to the gamut of

India-based funds, it has also developed the advice-driven business of
high net worth and corporate clients.
WHY VENTURA?
Venturas services are offered under total confidentiality and integrity
with the sole purpose of maximizing returns for their clients.

Equity Broking - Corporate Member of The Stock Exchange, Mumbai

(BSE) and National Stock Exchange of India Ltd. (NSE).

Pan India reach - 380 terminals spread across 75 different locations, in

semi urban, urban and metropolitan areas.

More than 100,000 retail clients serviced from the above locations

Ventura have heavily invested in technology (customized and ready to

use software) involving front and back end operations offering seamless
process and flawless execution and raising our service levels.

Ventura operate on an alert and well-defined system in risk management

and settlement mechanism
OFFERINGS
RESEARCH COMPETENCY
Market Outlooks and Strategy Analysis Market research at Ventura is
structured to meet a wide variety of customer needs.

Services in this area range from the intra-day analysis of the most recent
fundamental and technical developments affecting pricing to longer-
term strategic research of supply, demand, and inventory trends.

Along with its price forecasting capability, the Team undertakes

analytical research on hedging and trading strategies.

The Team also publishes monographs on topics of broad interest to its

customers, such as the impact of changing accounting standards,
developments in risk management, and current hedge activities and
strategic thought in the various sectors of the market.

MARKETS IN WHICH VENTURA DEALS:

EQUITY & DERIVATIVES

Equity and derivatives go hand in hand as they help maximize return and
minimize risk at the same time! Ventura Securities Ltd clients are assisted
in protecting the downside risk to their portfolio using appropriate
combination of options. Our advisory is skilled to help you in maximizing
your gains from your existing corpus using numerous strategies based on
the direction and intensity of the views. Ventura Securities Ltd ensures that
you get the one of the finest trading experiences through:

An experienced and qualified team of Equity professionals offering

unbiased advice on equity investment decisions.

All members having immense experience and each of them being

professionally certified by the National Stock Exchange.
 A high level of personalized and confidential service.

Constant monitoring of client portfolio so that the returns are

maximized and the risks are minimized

Secure, integrated broking system Powerful Research & Analytics

Ventura Securities Ltd has a great retail network, with its presence through
more than 150 branches across more than 10 states. This means, you can
walk into any of these branches and get in touch with our highly skilled
and dedicated staff to get the best services.

COMMODITIES

Commodities are now an asset class! For those who want to diversify their
portfolios beyond shares, bonds and real estate, commodities are an
excellent option. Commodities are one of the easiest investment avenues
to understand as they are based on the fundamentals of demand and
supply. Historically, prices in commodities futures have been less volatile
compared with equity and bonds, thus providing an efficient portfolio
diversification option.

Ventura Securities Ltd helps investors understand the risks and

advantages of trading in commodities futures before take they take the
big leap. It provides clients with an effective platform to participate and
trade in Commodities with both the leading Commodity Exchanges of
the country. Ventura Securities Ltd commodity services are a class apart
and the following features differentiate our services from other.
Ventura Securities Ltd has a great retail network, with its presence through
more than 150 branches across more than 10 states. This means, you can
walk into any of these branches and get in touch with our highly skilled
and dedicated staff to get the best services.
Professionally qualified analysts with rich industry experience

Research on Agro, Precious Metals, Base Metals, Energy products and

Polymers

Market watch for MCX and NCDEX with BSE / NSE

Streaming quotes and live updates, Relationship management desk

Educating clients on commodities futures market

INSTITUTIONAL SERVICES

Dedicated institutional desks at Mumbai and Chennai cater to our rapidly

growing Institutional clientele, which include FIIs, Mutual Funds,
Banks, Insurance Companies, Corporate clients and Overseas Corporate
Bodies With our dedicated and superior quality service to our clients,
Ventura Securities Ltd is being recognized as the broker of choice among
various institutional investors Some of our esteemed clients include:

Allsec Technologies Limited

Videsh Sanchar Nigam Limited
Power Trading Co Limited
Star Health and Allied Insurance
Indian Overseas Bank
Ramakrishna Mission

NRI SERVICES

The NRI Services' Department is an exclusive arm of Ventura Securities

Ltd dedicated to impart professional advice to NRIs the world over. Our
exclusive single-window NRI Services Department integrates and
simplifies multiple processes into one - opening of NRI bank account,
demat account and trading account NRIs, NROs (Non-Resident of Indian
Origin) and OCBs (Overseas Corporate Bodies) can now exploit multiple
opportunities to profit from India's NRI-friendly investment environment
and a booming Indian economy

Ventura Securities Ltd enables all operations from trading to settlement

in an absolutely hassle-free manner
Pro-activeness right from opening necessary accounts to advising tax
payments on capital gains.
INVESTMENT ADVISORY

Ventura Securities Ltd has a dedicated team of professionals handling the

investment advisory services of the firm. These experts use their
knowledge of investments, tax laws, and insurance to recommend
financial options to clients in accordance with their short-term and long-
term goals. Some of the issues that the specialists address are general
investments, retirement planning, tax planning and child education &
welfare planning. Our certified Investment Advisory Managers strive to
understand each individual clients needs, risk profiles and investment
goals to provide the best advice. Apart from advising, they help clients
build and track their investments. They also regularly monitor report and
recommend changes based on the performance of the portfolio.

Investment Advisory helps you in the following ways:

Provides you with the information to make fruitful and timely financial
decisions.
Helps you understand how each financial decision other areas of your
finances.
Aids you in assessing the level of risk that is suited to your lifestyle and
financial situation.
Facilitates you to manage your finances based on the goals that
you are looking to achieve.

Facilitates you to manage your finances based on the goals that you are
looking to achieve.

We offer advice on and help invest in the following products:

Mutual Funds
Insurance - Life & Non - Life
 Bonds
Deposits
IPOs
Small Savings Instruments

RESEARCH

Our primary strengths lie in research and operational efficiency. The day-
to-day operations are managed by some of the best professionals in the
industry having in-depth understanding of underlying market trends and
sound business practices The Research Team comprises of competent
professionals with vast experience, insightful analytical abilities and high
standards of integrity.

Some of our research reports are as below:

Economic Outlook and Updates

Sector & Company Reports
Technical Recommendations
Daily Market Report
Daily Technical Outlook
Reports on New Fund Offerings
Weekly analysis of mutual funds Fund Focus
Weekly debt report: Debt Dose
Monthly Newsletter - Ventura Securities Ltd Investment Flash
Monthly 4 Pager - Ventura Securities Ltd Wealth Wise

We also offer daily technical calls through SMS to our clients free of
charge.
 CHAPTER: 3
LITERATURE REVIEW

Risk Analysis

Risk in investment exists because of the inability to make perfect or

accurate forecasts. Risk in investment is defined as the variability that is
likely to occur in future cash flows from an investment. The greater
variability of these cash flows indicates greater risk.
Variance or standard deviation measures the deviation about expected
cash flows of each of the possible cash flows and is known as the
absolute measure of risk; while co-efficient of variation is a relative
measure of risk.

For carrying out risk analysis, following methods

are used-Payback [How long will it take to recover
the investment] Certainty equivalent [The amount
that will certainly come to you]
Risk adjusted discount rate [Present value i.e. PV of future inflows with
discount rate]

However in practice, sensitivity analysis and conservative forecast

techniques being simpler and easier to handle, are used for risk analysis.
Sensitivity analysis [a variation of break even analysis] allows estimating
the impact of change in the behavior of critical variables on the investment
cash flows. Conservative forecasts include using short payback or higher
discount rates for discounting cash flows.
Sources of risks:
Inflation
Business cycle
Interest rates
Management
Business risk
Financial risk

Types of Risk

Unfortunately, the concept of risk is not a simple concept in finance. There

are many different types of risk identified and some types are relatively
more or relatively less important in different situations and applications. In
some theoretical models of economic or financial processes, for example,
some types of risks or even all risk may be entirely eliminated. For the
practitioner operating in the real world, however, risk can never be entirely
eliminated. It is ever-present and must be identified and dealt with.

In the study of finance, there are a number of different types of risk has
been identified. It is important to remember, however, that all types of
risks exhibit the same positive risk-return relationship.

Systematic Risk Vs Unsystematic Risk

There is one more way to classify financial risk is risk will impact whole
economy or particular company or a sector.

Systematic Risk it is also known as market risk or economic risk or non

diversifiable risk & it impacts full economy or share market. Lets say if
interest rate will increase whole economy will slow down & there is no
way to hide from this impact. As such there is no way to reduce systematic
risk other than investing your money in some other country. Beta can be
helpful in understanding this.

Unsystematic Risk it affects a small part of economy or sometime even

single company. Bad management or low demand in some particular sector
will impact a single company or a single sector such risks can be reduced
by diversifying once investments. So this is also called Diversifiable Risk.
 Systematic risk

1. Interest Rate Risk

The uncertainty associated with the effects of changes in market interest

rates. There are two types of interest rate risk identified; price risk and
reinvestment rate risk. The price risk is sometimes referred to as maturity
risk since the greater the maturity of an investment, the greater the change
in price for a given change in interest rates. Both types of interest rate risks
are important in investments, corporate financial planning, and banking.

Price Risk: The uncertainty associated with potential changes in the

price of an asset caused by changes in interest rate levels and rates
of return in the economy. This risk occurs because changes in
interest rates affect changes in discount rates which, in turn, affect
the present value of future cash flows. The relationship is an inverse
relationship. If interest rates (and discount rates) rise, prices fall.
The reverse is also true.

Since interest rates directly affect discount rates and present

values of future cash flows represent underlying economic value,
we have the following relationships.
 Reinvestment Rate Risk: The uncertainty associated with the
impact that changing interest rates have on available rates of return
when reinvesting cash flows received from an earlier investment. It
is a direct or positive relationship.

2. Market risk

This is the risk that the value of a portfolio, either an investment

portfolio or a trading portfolio, will decrease due to the change in
market risk factors. The four standard market risk factors are stock
prices, interest rates, foreign exchange rates, and commodity prices:

Equity risk is the risk that stock prices in general (not related to a
particular company or industry) or the implied volatility will change.
Interest rate risk is the risk that interest rates or the implied volatility will
change.
Currency risk is the risk that foreign exchange rates or the implied
volatility will change, which affects, for example, the value of an asset
held in that currency.
Commodity risk is the risk that commodity prices (e.g. corn, copper,
crude oil) or implied volatility will change.

3. Inflation Risk (Purchasing Power Risk)

Inflation risk is the loss of purchasing power due to the effects of inflation.
When inflation is present, the currency loses its value due to the rising
price level in the economy. The higher the inflation rate, the faster the
money loses its value.
Unsystematic risk
1.Business risk

The uncertainty associated with a business firm's operating environment

and reflected in the variability of earnings before interest and taxes (EBIT).
Since this earnings measure has not had financing expenses removed, it
reflects the risk associated with business operations rather than methods of
debt financing. This risk is often discussed in General Business
Management courses.

2. Financial risk

The uncertainty brought about by the choice of a firms financing

methods and reflected in the variability of earnings before taxes (EBT), a
measure of earnings that has been adjusted for and is influenced by the
cost of debt financing. This risk is often discussed within the context of
the Capital Structure topics.

Total Risk

While there are many different types of specific risk, we said earlier that
in the most general sense, risk is the possibility of experiencing an
outcome that is different from what is expected. If we focus on this
definition of risk, we can define what is referred to as total risk. In
financial terms, this total risk reflects the variability of returns from some
type of financial investment.

.
Measurement of risks

Statistical measures that are historical predictors of investment risk and

volatility and major components in modern portfolio theory (MPT) .
MPT is a standard financial and academic methodology for assessing the
performance of a stock or a stock fund compared to its benchmark index.
There are five principal risk measures:

Alpha: Measures risk relative to the market or benchmark index

Beta: Measures volatility or systemic risk compared to the market or the
benchmark index
R-Squared: Measures the percentage of an investment's movement that
are attributable to movements in its benchmark index
Standard Deviation: Measures how much return on an investment is
deviating from the expected normal or average returns
Sharpe Ratio: An indicator of whether an investment's return is due
to smart investing decisions or a result of excess risk.
Each risk measure is unique in how it measures risk. When comparing
two or more potential investments, an investor should always compare the
same risk measures to each different potential investment to get a relative
performance.

Definition of 'Beta'
A measure of the volatility, or systematic risk of a security or a portfolio in
comparison to the market as a whole. Beta is used in the capital asset
pricing model (CAPM), a model that calculates the expected return of an
asset based on its beta and expected market returns.
Also known as "beta coefficient".
Beta is calculated using regression analysis, and you can think of beta as
the tendency of a security's returns to respond to swings in the market. A
beta of 1 indicates that the security's price will move with the market. If
beta is less than 1 means that the security will be less volatile than the
market. A beta of greater than 1 indicates that the security's price will be
more volatile than the market. For example, if a stock's beta is 1.2, it's
theoretically 20% more volatile than the market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech
Nasdaq-based stocks have a beta of greater than 1, offering the possibility
of a higher rate of return, but also posing more risk.

Definition of 'Alpha'
1. A measure of performance on a risk-adjusted basis. Alpha takes the
volatility (price risk) of a mutual fund and compares its risk-adjusted
performance to a benchmark index. The excess return of the fund relative
to the return of the benchmark index is a fund's alpha.
2. The abnormal rate of return on a security or portfolio in excess of what
would be predicted by an equilibrium model like the capital asset pricing
model (CAPM).
3. Alpha is one of five technical risk ratios; the others are beta, standard
deviation, R-squared, and the Sharpe ratio. These are all statistical
measurements used in modern portfolio theory (MPT). All of these
indicators are intended to help investors determine the risk-reward profile
of a mutual fund. Simply stated, alpha is often considered to represent the
value that a portfolio manager adds to or subtracts from a fund's return.
A positive alpha of 1.0 means the fund has outperformed its
benchmark index by 1%. Correspondingly, a similar negative alpha
would indicate an underperformance of 1%.
4. If a CAPM analysis estimates that a portfolio should earn 10% based on
the risk of the portfolio but the portfolio actually earns 15%, the
portfolio's alpha would be 5%. This 5% is the excess return over what
was predicted in the CAPM model.

Definition of 'Standard Deviation'

1. A measure of the dispersion of a set of data from its mean. The more
spread apart the data, the higher the deviation. Standard deviation is
calculated as the square root of variance.

2. In finance, standard deviation is applied to the annual rate of return of

an investment to measure the investment's volatility. Standard deviation
is also known as historical volatility and is used by investors as a gauge
for the amount of expected volatility.

Standard deviation is a statistical measurement that sheds light on

historical volatility. For example, a volatile stock will have a high
standard deviation while the deviation of a stable blue chip stock will be
lower. A large dispersion tells us how much the return on the fund is
deviating from the expected normal returns.

Definition of 'R-Squared'

A statistical measure that represents the percentage of a fund or security's

movements that can be explained by movements in a benchmark index. For
fixed-income securities, the benchmark is the T-bill. For equities, the
benchmark is the S&P 500.

R-squared values range from 0 to 100. An R-squared of 100 means that all
movements of
a security are completely explained by movements in the index. A high
R-squared (between 85 and 100) indicates the fund's performance
patterns have been in line with the index. A fund with a low R-squared
(70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For
example, if a fund has an R-squared value of close to 100 but has a beta
below 1, it is most likely offering higher risk-adjusted returns. A low R-
squared means you should ignore the beta.

When most people think of investments they think of stocks or mutual

funds. An investment is more than this. An investment requires one to set
aside an amount today with the expectation of receiving a larger sum in
the future.

Risk-Return relationship

By now you should understand that even with the most conservative
investments you face some element of risk. However, not investing your
money is also risky. For example, putting your money under the mattress
invites the risk of theft and the loss in purchasing power if prices of goods
and services rise in the economy. When you recognize the different levels
of risk for each type of investment asset, you can better manage the total
risk in your investment portfolio.

A direct correlation exists between risk and return and is illustrated in

Figure. The greater the risk, the greater is the potential return. However,
investing in securities with the greatest return and, therefore, the greatest
risk can lead to financial ruin if everything does not go according to plan.
 Risk and Return

Understanding the risks pertaining to the different investments is of little

consequence unless youre aware of your attitude toward risk. How much
risk you can tolerate depends on many factors, such as the type of person
you are, your investment objectives, the dollar amount of your total assets,
the size of your portfolio, and the time horizon for your investments.

How nervous are you about your investments? Will you check the prices of
your stocks daily? Can you sleep at night if your stocks decline in price
below their acquisition prices? Will you call your broker every time a stock
falls by a point or two? If so, you do not tolerate risk well, and your
portfolio should be geared toward conservative investments that generate
income through capital preservation. The percentage of your portfolio
allocated to stocks may be low to zero depending on your comfort zone. If
you are not bothered when your stocks decline in price because with a long
holding period you can wait out the decline, your portfolio of investments
can be designed with a higher percentage of stocks. Figure 2 illustrates the
continuum of risk tolerance.
A wide range of returns is associated with each type of security. For
example, the many types of common stocks, such as blue-chip stocks,
growth stocks, income stocks, and speculative stocks, react differently.
Income stocks generally are lower risk and offer returns mainly in the form
of dividends, whereas growth stocks are riskier and usually offer higher
returns in the form of capital gains. Similarly, a broad range of risks and
returns can be found for the different types of bonds. You should be aware
of this broad range of risks and returns for the different types of securities
so that you can find an acceptable level of risk for yourself.

Figure 2: Continuum of Risk Tolerance

Risk-Return relationship

By now you should understand that even with the most conservative
investments you face some element of risk. However, not investing your
money is also risky. For example, putting your money under the mattress
invites the risk of theft and the loss in purchasing power if prices of goods
and services rise in the economy. When you recognize the different levels
of risk for each type of investment asset, you can better manage the total
risk in your investment portfolio.

A direct correlation exists between risk and return and is illustrated in

Figure. The greater the risk, the greater is the potential return. However,
investing in securities with the greatest return and, therefore, the greatest
risk can lead to financial ruin if everything does not go according to plan.
 Risk and Return

Understanding the risks pertaining to the different investments is of little

consequence unless youre aware of your attitude toward risk. How much
risk you can tolerate depends on many factors, such as the type of person
you are, your investment objectives, the dollar amount of your total assets,
the size of your portfolio, and the time horizon for your investments.
CHAPTER 4
INTERPRETATION AND ANALYSIS

HDFC:
Analysis of Return

Rate of Return = Share price in the closing Share price at the opening

Share price in the opening

Opening Closing value (P1-

Year value (P0) (P1) (P1-P0) P0)/P0*100
2007-08 186 286.99 100.99 54.30
2008-09 264 189 -75 -28.41
2009-10 202.4 381.28 178.88 88.38
2010-11 387.8 467.57 79.77 20.57
2011-12 469.22 510.7 41.48 8.84
Total return 143.68

Average return =143.68/5

Interpretation: The average returns of HDFC are 28.74 wherein the

maximum returns are in the third year i.e. 2009-10.
 ICICI:
Analysis of Return

Opening value Closing value (P1-

Year (P0) (P1) (P1-P0) P0)/P0*100
2007-08 823 835.2 12.2 1.48
2008-09 799.95 337.85 -462.1 -57.77
2009-10 360 960.05 600.05 166.68
2010-11 952 1107.25 155.25 16.31
2011-12 1110 856.05 -253.95 -22.88
103.83
Total return

Average return =103.83/5

Interpretation: The average returns of ICICI are 20.77 wherein the

maximum returns are in the third year i.e. 2009-10.
Investment in HDFC is more profitable to the investor as the
average returns are comparatively more than the average returns of
ICICI. Thus, an investor who is only concerned about the returns in
long run should invest in HDFC securities.

HDFC Bank

Opening and closing

values
600
510.7
500 467.57 469.22
381.28 387.8
400
priceShares

286.99 264
300
openin
186 189 202.4 g
200
closin
g
100
0
 Years

Interpretation: From the above table by considering the opening and

closing values it can be clearly stated that almost in 4 years the share value
is increasing whereas only in 2008-09 share price has reduced.

Profit/Loss:

Profit/loss
200 178.88

150
100.99
100 79.77
Shares Price

41.48
50
Profit/loss

0
1 2 3 4 5
-50

-100 -75
Years

Interpretation: From the above table it can be clearly stated that investor
has enjoyed more profits in 2009-10 and bears loss in 2008-09 as the
opening and closing share values
fluctuate.
 Maximum Profit:

Maximum profit
200 179 184.83
180
Price

160
120

140 115.8
Shares

100 51 Maximum profit

68.28
60

80

40
20
0
1 2 3 4 5
Years

Interpretation: From the above table it can be stated that with the
fluctuations in the opening value and highest share price, 2009-10 is the
most profitable year for the investor.

Maximum Loss:

Maximum loss
20
4
-3.9
0
2007-08 2008-09 2009-10 2010-11 2011-12
-20
Shares price

-40 -30.8

-60 Maximum loss

-80 -68.77

-100

-120 -109.2
Years

Interpretation: From the above table by considering the difference

between opening value and lowest share price, it can be stated that in
2008-09 there was huge loss to investors.
 ICICI bank

Opening and
Closing values
Shares
price

1107.25
1200 1110
835. 960.05 952
1000 2
856.05
823 799.95
800
opening
600 value
36 closing
400 337.85 0 value
Interpretation: From the above table by considering the opening and
closing values it can be clearly stated that in the year 2007-08 there was a
slight change in the market share value and in 2008-09 the share value
decreased to Rs.462.1 whereas in 2009-10 it again increased by Rs.600.05.
In 2010-11 it increased by Rs.155.25 and again fell down by Rs.253.95 in
2011-12. If the investor is ready to bear more risk then, 2009-10 is
favorable year with high returns.

Maximum Profit

Maximum profit

700 642
608.5
600
500
price

400 325
Shares

160.95
300 Maximum profit
200
100 27.9
0
2007-08 2008-092009-102010-112011-12
Years
Interpretation: From the above table it can be stated that with the
fluctuations in the opening value and highest share price, 2007-08 is the
most profitable year for the investor.
SUGGESTIONS:

The investor should consider the securities with maximum returns and
minimum risk. Thus, it is advisable to invest in HDFC securities.
Investors should hold securities which give high returns with less risk.

As an investor, see that there is a negative correlation among the

securities.

Do not relay completely on technical analysis.

Investors should give importance to fundamental analysis of securities.

Industrial policy also has a major role in facilitating the growth of the
economy.

Holding two or more securities reduce the unsystematic risk.

CONCLUSIONS:
In the recent past the market has reached great heights as a result of
expansion of business and much more of globalization, the increased
percentage of Foreign Direct Investment which has a direct affect on the
demand and supply of the shares of a particular company. In this way the
index of the stock market has reached to the maximum. With the boom in
the market there are many investors who are willing to take more risk and
so to cover the risk.

Financial sector is booming and the need for Risk-Return Analysis is

growing. Also because of the very tricky stock market behaviors it has
become mandatory to manage portfolio so as to reduce the risk while
maximizing the returns. Taking into consideration the investors risk-return
requirements portfolio should be constructed and reviewed regularly.
BIBLIOGRAPHY
www.nseindia.com
www.moneycontrol.com
www.indiamart.com
www.google.com
www.ventural.com
10
11
12
13
23
52
70
71
72
73
74
 CHAPTER: 6

BIBLIOGRAPHY

75
BIBLIOGRAPHY

Web References:

www.nseindia.com
www.moneycontrol.com
www.indiamart.com
www.google.com
www.ventural.com

76