Introduction

We have constructed a portfolio of 5 stocks using the stock prices on 1st July 2019. The aggregate
investment which we have taken is approx. Rs 1,00,00,000.

The 5 stocks that we have taken are

 HDFC Bank
 Britannia Industries Ltd
 Infosys
 Reliance Industries Ltd
 Indraprastha Gas Limited (IGL)

The Below factors were checked in detail before assigning the weights to the stock
 Financial statements analysis
 Historical Trends
 Stability- Every company is going to have periods where the stock loses value
 Relative Strength in Industry
 Management

The No of shares taken for each stock along with their market prices are shown in the below
table:
Price Number Market Value Beta Weighted
Stock Weight
(01/07/2019) of Shares (01/07/2019) (Individual) Beta

BRITANNIA 2727.90 734.00 20,02,279.60 0.20018965 0.7754312 0.155233

INFOSYS 732.00 2,732.00 19,99,824.00 0.19994413 0.5020605 0.100384

RELIANCE 1246.20 1,605.00 20,00,148.96 0.19997662 1.4532705 0.29062

HDFC 2159.21 926.00 19,99,431.36 0.19990488 1.212117 0.242308

IGL 314.65 6,357.00 20,00,230.01 0.19998473 0.8537627 0.170739

Portfolio Value 1,00,01,913.94 Portfolio Beta 0.959285

The Portfolio beta comes out to be 0.959285.

The individual beta calculation is shown in the attached excel sheet.
Hedging Portfolio by using NIFTY Futures

No. of NIFTY Futures to be Short

NIFTY FUTURE (01/07/2019) 11903.65

NIFTY FUTURE (25/07/2019) 11252.15
NIFTY FUTURE CONTRACT SIZE 75
NIFTY FUTURE CONTRACT VALUE (01/07/2019) 892773.75

No of Contracts to SHORT 10.75

Therefore 11

GAIN/LOSS ON PORTFOLIO 1,18,359.99

GAIN/LOSS ON FUTURES 5,37,487.50
TOTAL GAIN 6,55,847.49

To hedge the risk in the portfolio the number of contracts shorted was calculated using the
following formula:
V
 A
VF

Where, VA is the value of the portfolio,  is its beta, and VF is the value of one futures contract.
The lot size was taken to be 75 according to NSE standards. In the given time frame the
market had fallen so the effect of hedging couldn’t be experienced as we were in a short
position and we gained both on the portfolio and the futures.
Increasing  of Portfolio by 0.3 going Long on NIFTY Futures

PORTFOLIO BETA 0.959285086

TARGET BETA 1.259285086

NIFTY FUTURE (01/07/2019) 11903.65

NIFTY FUTURE (25/07/2019) 11252.15
NIFTY FUTURE CONTRACT SIZE 75
NIFTY FUTURE CONTRACT VALUE (01/07/2019) 892773.75

No of Contracts to go Long 3.36

Therefore 4 Contracts

GAIN/LOSS ON PORTFOLIO 1,18,359.99

GAIN/LOSS ON FUTURES -1,95,450.00
TOTAL GAIN -77,090.01

Usually  of the portfolio is increased by fund managers if they have a bullish expectation from
the market. In the above case we can see that the  was increased by going long on futures. The
number of contracts were determined by the following formula:
VA
( *   )
VF

Where, VA is the value of the portfolio,  is its beta,  is the increased   more than
portfolio  and VF is the value of one futures contract.
In the above scenario we could see that the market had fallen and as a result the futures lost
due to a long position (total loss of INR 1,95,450 approx.) however the return from the portfolio
resulted in a gain (total gain of INR 1,18,360 approx.). This resulted in a net loss of INR 77,090.
Decreasing  of Portfolio by 0.3 going Short on NIFTY Futures

PORTFOLIO BETA 0.959285086

TARGET BETA 0.659285086

NIFTY FUTURE (01/07/2019) 11903.65

NIFTY FUTURE (25/07/2019) 11252.15
NIFTY FUTURE CONTRACT SIZE 75
NIFTY FUTURE CONTRACT VALUE (01/07/2019) 892773.75

No of Contracts to SHORT 3.36

Therefore 3

GAIN/LOSS ON PORTFOLIO 1,18,359.99

GAIN/LOSS ON FUTURES 1,46,587.50
TOTAL GAIN 2,64,947.49

Usually  of the portfolio is decreased by fund managers if they have a bearish expectation
from the market. In the above case we can see that the  was decreased by going short on
futures. The number of contracts were determined by the following formula:
VA
(   * )
VF

Where, VA is the value of the portfolio,  is its beta,  is the decreased   less than portfolio
 and VF is the value of one futures contract.
In the above scenario we could see that the market had fallen and as a result the portfolio gained
from its own return (total gain of INR 1,18,360 approx.) and the same can be said for the short
position on futures which gained INR 1,46,587 approx. This resulted in a net gain of INR
2,64,947 approx.