CHAPTER-I INTRODUCTION

A portfolio is a collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value. Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return). Typically the expected returns from portfolios, comprised of different asset bundles are compared. The unique goals and circumstances of the investor must also be considered. Some investors are more risk averse than others. Mutual funds have developed particular techniques to optimize their portfolio holdings. Thus, portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety and numerous other trade-offs encountered in the attempt to maximize return at a given appetite for risk. Aspects of Portfolio Management: Basically portfolio management involves A proper investment decision making of what to buy & sell Proper money management in terms of investment in a basket of assets so as to satisfy the asset preferences of investors. Reduce the risk and increase returns.

OBJECTIVES OF PORTFOLIO MANAGEMENT:

The basic objective of Portfolio Management is to maximize yield and minimize risk. The other ancillary objectives are as per needs of investors, namely: Regular income or stable return Appreciation of capital Marketability and liquidity Safety of investment Minimizing of tax liability.

NEED AND IMPORTENCE OF STUDY:

The Portfolio Management deals with the process of selection securities from the number of opportunities available with different expected returns and carrying different levels of risk and the selection of securities is made with a view to provide the investors the maximum yield for a given level of risk or ensure minimum risk for a level of return. Portfolio Management is a process encompassing many activities of investment in assets and securities. It is a dynamics and flexible concept and involves regular and systematic analysis, judgment and actions. The objectives of this service are to help the unknown investors with the expertise of professionals in investment Portfolio Management. It involves construction of a portfolio based upon the investors objectives, constrains, preferences for risk and return and liability. The portfolio is reviewed and adjusted from time to time with the market conditions. The evaluation of portfolio is to be done in terms of targets set for risk and return. The changes in portfolio are to be effected to meet the changing conditions. Portfolio Construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. Portfolio theory concerns itself with the principles governing such allocation. The modern view of investment is oriented towards the assembly of proper combinations held together will give beneficial result if they are grouped in a manner to secure higher return after taking into consideration the risk element. The modern theory is the view that by diversification, risk can be reduced. The investor can make diversification either by having a large number of shares of companies in 3

different regions, in different industries or those producing different types of product lines. Modern theory believes in the perspectives of combination of securities under constraints of risk and return.

SCOPE OF STUDY:
This study covers the Markowitz model. The study covers the calculation of correlations between the different securities in order to find out at what percentage funds should be invested among the companies in the portfolio. Also the study includes the calculation of individual Standard Deviation of securities and ends at the calculation of weights of individual securities involved in the portfolio. These percentages help in allocating the funds available for investment based on risky portfolios.

OBJECTIVE OF STUDY
How to analyze securities How portfolio management is done A study to find the returns, variance, & standard deviation of dividend and growth fund. Based on the returns I tried to correlate these two funds, to know whether there exist positive or negative correlations. To study the investment pattern and its related risks & return To help the investors to choose wisely between alternative investment To understand, analyze and select the best portfolio

RESEARCH METHODOLOGY Arithmetic average or mean:

The arithmetic average measures the central tendency. The purpose of computing an average value for a set of observations is to obtain a single value, which is representative of all the items. The main objective of averaging is to arrive at a single value which is a representative of the characteristics of the entire mass of data and arithmetic average or mean of a series(usually denoted by x) is the value obtained by

dividing the sum of the values of various items in a series (sigma x) divided by the number of items (N) constituting the series. Thus, if X1,X2..Xn are the given N observations. Then X= X1+X2+.Xn N

RETURN
Current price-previous price *100 Previous price

STANDARD DEVIATION:
The concept of standard deviation was first suggested by Karl Pearson in 1983.it may be defined as the positive square root of the arithmetic mean of the squares of deviations of the given observations from their arithmetic mean In short S.D may be defined as Root Mean Square Deviation from Mean It is by far the most important and widely used measure of studying dispersions. For a set of N observations X1,X2..Xn with mean X, Deviations from Mean: (X1-X),(X2-X),.(Xn-X) Mean-square deviations from Mean: = 1/N (X1-X)2+(X2-X)2+.+(Xn-X)2 =1/N sigma(X-X)2 Root-mean-square deviation from mean,i.e.

VARIANCE:
The square of standard deviation is known as Variance. Variance is the square root of the standard deviation: Variance = (S.D) 2 Where, (S.D) is standard deviation

CORRELATION
Correlation is a statistical technique, which measures and analyses the degree or extent to which two or more variables fluctuate with reference to one another. Correlation thus denotes the inter-dependence amongst variables. The degrees are expressed by a coefficient, which ranges between 1 and +1. The direction of change is indicated by (+) or (-) signs. The former refers to a sympathetic movement in a same direction and the later in the opposite direction. Karl Pearsons method of calculating coefficient (r) is based on covariance of the concerned variables. It was devised by Karl Pearson a great British Biometrician. This measure known as Pearsonian correlation coefficient between two variables (series) X and Y usually denoted by r is a numerical measure of linear relationship and is defined as the ratio of the covariance between X and Y (written as Cov(X,Y) to the product of standard deviation of X and Y Symbolically r = Cov (X,Y) SD of X,Y = xy/N SD of X,Y Where x =X-X, y=Y-Y = XY N

xy = sum of the product of deviations in X and Y series calculated with reference to their
arithmetic means. X = standard deviation of the series X. Y = standard deviation of the series Y.

LIMITATIONS
1. In this study the number of funds considered is only two funds of KARVY and they are dividend fund and growth fund. 2. The data collected for a period of one year i.e., from December 2010 to January 2011 3. In this study the statistical tools used are risk, return, average, variance, correlation. 4. In this study specific data is collected.

CHAPTER-II COMPANY PROFILE

Background: Karvy Consultants Limited was started in the year 1981, with the vision and enterprise of a small group of practicing Chartered Accountants. Initially it was started with consulting 8

and financial accounting automation, and carved inroads into the field of registry and share accounting by 1985. Since then, it has utilized its experience and superlative expertise to go from strength to strengthto better its services, to provide new ones, to innovate, diversify and in the process, evolved as one of Indias premier integrated financial service enterprise. Today, Karvy has access to millions of Indian shareholders, besides companies, banks, financial institutions and regulatory agencies. Over the past one and half decades, Karvy has evolved as a veritable link between industry, finance and people. In January 1998, Karvy became the first Depository Participant in Andhra Pradesh. An ISO 9002 company, Karvy's commitment to quality and retail reach has made it an integrated financial services company. An Overview: KARVY, is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporates, comprising the who is who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs, among others. Karvy has a professional management team and ranks among the best in technology, operations and research of various industrial segments. Today, Karvy service over 6 lakhs customer accounts spread across over 250 cities/towns in India and serves more than 75 million shareholders across 7000 corporate clients and makes its presence felt in over 12 countries across 5 continents. All of Karvy services are also backed by strong quality aspects, which have helped Karvy to be certified as an ISO 9002 company by DNV.

ACHIEVEMENTS: Among the top 5 stock brokers in India (4% of NSE volumes) India's No. 1 Registrar & Securities Transfer Agents Among the top 3 Depository Participants Largest Network of Branches & Business Associates ISO 9001:2000 certified operations by DNV Among top 10 Investment bankers Largest Distributor of Financial Products Adjudged as one of the top 50 IT uses in India by MIS Asia Full Fledged IT driven operations First ISO-9002 Certified Registrars in India Ranked as The Most Admired Registrar by MARG Largest mobilize of funds as per PRIME DATABASE First depository participant from Andhra Pradesh. Handled over 500 public issues as Registrars. Handling the Reliance account, which accounts for nearly 10 million account holders? Range of services: Stock broking services Distribution of Financial Products (investments & loan products) Depository Participant services IT enabled services Personal finance Advisory Services Private Client Group Debt market services Insurance & merchant banking Mutual Fund Services Corporate Shareholder Services Other global services 10

Besides these, they also offer special portfolio analysis packages that provide daily technical advice on scrips for successful portfolio management and provide customized advisory services to help customers make the right financial moves that are specifically suited to their portfolio. They are continually engaged in designing the right investment portfolio for each customer according to individual needs and budget considerations.

Karvy Consultants limited deals in Registrar and Investment Services. Karvy is one of the early entrants registered as Depository Participant with NSDL (National Securities Depository Limited), the first Depository in the country and then with CDSL (Central Depository Services Limited).

Karvy stock broking is a member of National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE). The services provided are multi dimensional and multi-focused in their scope: to analyze the latest stock market trends and to take a close looks at the various investment options and products available in the market. Besides this, they also offer special portfolio analysis packages.

The paradigm shift from pure selling to knowledge based selling drives the business today. The monthly magazine, Finapolis, provides up-dated market information on market trends, investment options, opinions etc. Thus empowering the investor to base every financial move on rational thought and prudent analysis and embark on the path to wealth creation.

Karvy is recognized as a leading merchant banker in the country, Karvy is registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing on 11

opportunities in corporate consolidations, mergers and acquisitions and corporate restructuring.

Karvy has a tie up with the worlds largest transfer agent, the leading Australian company, Computer share Limited. It has attained a position of immense strength as a provider of across-the-board transfer agency services to AMCs, Distributors and Investors. Besides providing the entire back office processing, it also provides the link between various Mutual Funds and the investor.

Karvy global services limited covers Banking, Financial and Insurance Services (BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and Healthcare sectors.

Karvy comtrade limited trades in all goods and products of agricultural and mineral origin that include lucrative commodities like gold and silver and popular items like oil, pulses and cotton through a well-systematized trading platform.

Karvy Insurance Broking Pvt. Ltd. provides both life and non-life insurance products to retail individuals, high net-worth clients and corporates. With Indian markets seeing a sea change, both in terms of investment pattern and attitude of investors, insurance is no more seen as only a tax saving product but also as an investment product.

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Karvy Inc. is located in New York to provide various financial products and information on Indian equities to potential foreign institutional investors (FIIs) in the region. This entity would extensively facilitate various businesses of Karvy viz., stock broking (Indian equities), research and investment by QIBs in Indian markets for both secondary and primary offerings. .Quality Policy: To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Karvy will strive to exceed Customer's expectations. Quality Objectives As per the Quality Policy, Karvy will: Build in-house processes that will ensure transparent and harmonious Establish a partner relationship with its investor service agents and vendors Provide high quality of work life for all its employees and equip them with Continue to uphold the values of honesty & integrity and strive to establish Use state-of-the art information technology in developing new and

relationships with its clients and investors to provide high quality of services. that will help in keeping up its commitments to the customers. adequate knowledge & skills so as to respond to customer's needs. unparalleled standards in business ethics. innovative financial products and services to meet the changing needs of investors and clients. same. Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and regulatory authorities) proud and satisfied Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of

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CHAPTER-II REVIEW OF LITERATURE

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PORTFOLIO MANAGEMENT: Specification and qualification of investor objectives, constraints, and preferences in the form of an investment policy statement. Determination and qualification of capital market expectations for the economy, market sectors, industries and individual securities. Allocation of assets and determination of appropriate portfolio strategies for each asset class and selection of individual securities. Performance measurement and evaluation to ensure attainment of investor objectives. Monitoring portfolio factors and responding to changes in investor objectives, constrains and / or capital market expectations. Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio strategy and security selection.

CRITERIA FOR PORTFOLIO DECISIONS:

In portfolio management emphasis is put on identifying the collective importance of all investors holdings. The emphasis shifts from individual assets selection to a more balanced emphasis on diversification and risk-return interrelationships of individual assets within the portfolio. Individual securities are important only to the extent they affect the aggregate portfolio. In short, all decisions should focus on the impact which the decision will have on the aggregate portfolio of all the assets held. Portfolio strategy should be molded to the unique needs and characteristics of the portfolios owner.

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 Diversification across securities will reduce a portfolios risk. If the risk and return are lower than the desired level, leverages (borrowing) can be used to achieve the desired level. Larger portfolio returns come only with larger portfolio risk. The most important decision to make is the amount of risk which is acceptable. The risk associated with a security type depends on when the investment will be liquidated. Risk is reduced by selecting securities with a payoff close to when the portfolio is to be liquidated. Competition for abnormal returns is extensive, so one has to be careful in evaluating the risk and return from securities. Imbalances do not last long and one has to act fast to profit from exceptional opportunities.

Provides user interfaces that allow for the extraction of data based on user defined parameters. Provides a comprehensive set of tools to perform portfolio and risk evaluation against parameters set within the risk framework. Provides a set of tools to optimise portfolio value and risk position by: Considering various legs of different contracts to create an optimal trading strategy. The calculation of residual purchase requirements. Performs analysis that provides the relevant information to create hedge and trade plans. Performs analysis on current and potential trades. Evaluates the best mix of contracts on offer from counterparties to minimise the overall purchase cost and maximize profits. Creates and maintains trading and hedge strategies by: Allocating trades to contracts and books. Maintaining trades against contracts and books. Reviewing trades against existing trading strategy. Maintains an audit trail of decisions taken and query resolution. Produces accurate and timely reports

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Portfolio Management
To sustain long-term growth, companies manage a number of products and candidates at different stages of maturity. However, different product profiles and the therapeutic areas they serve have disparate commercial opportunities. Our portfolio prioritization, pipeline analysis, category franchise strategy, and technology licensing assessments provide a systematic means of optimizing development programs and product opportunities. We outline and quantify the areas of greatest opportunity for your organization and recommend actionable strategies that establish or expand your position in target markets. Key portfolio management questions that we address:

Which technologies and product candidates have the greatest potential commercial value? How can we broaden and deepen our therapy penetration? What actions can we take to maximize return on investment for individual candidates and discoveries? Which proprietary rights do we buy, co-market, license, or sell? How do we balance short and long term product needs to maximize therapeutic franchise value?

We detail the value of discoveries in clinical phases, candidates in the pipeline, and products on the market. These individual and therapeutic category evaluations enable executives to make strategic investment, licensing and prioritization decisions to realize their portfolio's full potential.

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Portfolio Management you can now receive the same portfolio management services as many institutional investors-whether it is a separately managed account or a mutual fund wrap portfolio. Some benefits of managed portfolios include: Providing access to top-tier investment management professionals Tailored portfolios to meet specific investment needs Ownership of individual securities Ease of pre-designed mutual fund portfolios Every investor is unique, and investment advisory services provide you with professional investment advice and a personalized investment strategy. Whether you're seeking a tailored, professionally managed portfolio, or the convenience and simplicity of a diversified mutual fund wrap program, your investment choice should focus on meeting your financial goals. During this process, you should consider current and future growth objectives, income needs, time horizon and risk tolerance. These considerations form the blueprint for developing a portfolio management strategy. The process involves, but is not limited to, the following important stages.

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Set investment objectives Develop an asset allocation strategy Evaluate/Select investment vehicle Portfolio review -- Ongoing portfolio monitoring

Portfolio Management Maturity

Summarizes five levels of project portfolio management maturity .each level represents the adoption of an increasingly comprehensive and effective subset of related solutions discussed in the previous parts of this 6-part paper for addressing the reasons that organizations choose the wrong projects. Understanding organizational maturity with regard to project portfolio management is useful. It facilitates identifying performance gaps, indicates reasonable performance targets, and suggests an achievable path for improvement. The fact that five maturity levels have been identified is not meant to suggest that all organizations ought to strive for top-level performance. Each organization needs to determine what level of performance is reasonable at the current time based on business needs, resources available for engineering change, and organizational ability to accept change. Experience shows that achieving high levels of performance typically takes several years. It is difficult to leap-frog several steps at once. Making progress is what counts.

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Five levels of project portfolio management. The detailed definitions of the levels, provided below, are not precise. Real organizations will tend to be more advanced with regard to some characteristics and less advanced relative to others. For most organizations, though, it is easy to pick one of the levels as characterizing the current maturity of project portfolio management performance.

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

Project decisions are made project-by-project without adherence to formal project selection criteria. The portfolio concept may be recognized, but portfolio data are not centrally managed and/or not regularly refreshed. Roles and responsibilities have not been defined or are generic, and no valuecreation framework has been established. Only rarely are business case analyses conducted for projects, and the quality is often poor. Project proposals reference business benefits generally, but estimates are nearly always qualitative rather than quantitative. 20

There is little or no formal balancing between the supply and demand for project resources, and there is little if any coordination of resources across projects, which often results in resource conflicts.

Over-commitment of resources is common. There may be a growing recognition that risks need to be managed, but there is little real management of risk.

Level 1 organization is not yet benefiting from project portfolio management, but they are motivated to address the relevant problems and have the minimum foundation in place to begin building project portfolio management capability. At this level, organizations should focus on establishing consistent, repeatable processes for project scheduling, resource assignment, time tracking, and general project oversight and support.

Level 2: Basics
Level 2 replaces project-by-project decision making with the goal of identifying the best collection of projects to be conducted within the resources available. At a minimum this requires aggregating project data into a central database, assigning responsibilities for project portfolio management, and force-ranking projects.

Redundant projects are identified and eliminated or merged. Business cases are conducted for larger projects, although quality may be inconsistent. Individual departments may be establishing structures to oversee and coordinate their projects. There is some degree of options analysis (i.e., different versions of the project will be considered). Project selection criteria are explicitly defined, but the link to value creation is sketchy. Planning is mostly activity scheduling with limited performance forecasting. There are attempts to quantify some non-financial benefits, but estimates are mostly "guestimates" generated without the aid of standard techniques. Overlap and double counting of benefits between projects is common. Ongoing projects are still rarely terminated based on poor performance.

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The PPM tools being used may have good data display and management capabilities, but project prioritization algorithms may be simplistic and the results potentially misleading to decision makers.

Portfolio data has an established refresh cycle or is regularly accessed and updated. Resource requirements at the portfolio level are recognized but not systematically managed.

Knowledge sharing is local and ad hoc. Risk analysis may be conducted early in projects but is not maintained as a continual management process. Uncertainties in project schedule, cost and benefits are not quantified.

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

Level 2 organizations are beginning to implement project portfolio management, but most of the opportunity has not yet been realized. The focus should be on formalizing the framework for evaluating and prioritizing projects and on implementing tools and processes for supporting project budgeting, risk and issues tracking, requirements tracking, and resource management.

Level 3: Value Management

Level 3, the most difficult step for most organizations, requires metrics, models, and tools for quantifying the value to be derived from projects. Although project interdependencies and portfolio risks may not be fully and rigorously addressed, analysis allows projects to be ranked based on "bang-for-the-buck," often producing a good approximation of the value-maximizing project portfolio.

The principles of portfolio management are widely understood and accepted. The project portfolio has a well-defined perimeter, with clear demarcation and understanding of what it contains and does not contain. Portfolio management processes are centrally defined and well documented, as are roles and responsibility for governance and delivery. Portfolio management can demonstrate that its role in scrutinizing projects has resulted in some initiatives being stopped or reshaped to increase portfolio value.

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Executives are engaged, provide tradeoff weights for the value model, and provide active and informed support. Plans are developed to a consistent standard and are outcome- or value-based. Effective estimation techniques are being used within planning and a range of project alternatives are routinely considered. Data quality assurance processes are in place and independent reviews are conducted. There is a common, consistent practice for project approval and monitoring. Project dependencies are identified, tracked, and managed. Decisions are made with the aid of a tool based on a defensible logic for computing project value that generates the efficient frontier. Portfolio data are kept up-to-date and audit trails are maintained. Costs, expenditures and forecasts are monitored at the portfolio level in accordance with established guidelines and procedures. Interfaces with financial and other related functions within the organization have been defined. A process is in place for validating the realization of project benefits. There is a defined risk analysis and management process, with efforts appropriate to risk significance, although some sources of risk are not quantified in terms of probability and consequence.

Level 3 organizations demonstrate a commitment to proactive, standardized project and project portfolio management. They are achieving significant return from their investment, although more value is available.

Level 4: Optimization
Level 4 is characterized by mature processes, superior analytics, and quantitatively managed behavior.

Tools for optimizing the project portfolio correctly and fully account for project risks and interdependencies. The business processes of value creation have been modeled and measurement data is collected to validate and refine the model. 23

The model is the basis for the logic for estimating project value, prioritizing projects, making project funding and resource allocation decisions, and optimizing the project portfolio.

The organization's tolerance for risk is known, and used to guide decisions that determine the balance of risk and benefit across the portfolio. There is clear accountability and ownership of risks. External risks are monitored and evaluated as part of the investment management process and common risks across the whole portfolio (which may not be visible to individual projects) are quantified and in support of portfolio optimization.

Senior executives are committed, engaged, and proactively seek out innovative ways to increase value. There is likely to be an established training program to develop the skills and knowledge of individuals so that they can more readily perform their designated roles.

An extensive range of communications channels and techniques are used for collaboration and stakeholder management. High-level reports on key aspects of portfolio are regularly delivered to executives and the information is used to inform strategic decision making. There is trend reporting on progress, actual and projected cost, value, and level of risk. Assessments of stakeholder confidence are collected and used for process improvement. Portfolio data is current and extensively referenced for better decision making.

Level 4 organizations are using quantitative analysis and measurements to obtain efficient predictable and controllable project and project portfolio management. They are obtaining the bulk of the value available from practicing project portfolio management.

Level 5: Core Competency

Level 5 occurs when the organization has made project portfolio management a core competency, uses best-practice analytic tools, and has put processes in place for continuous learning and improvement.

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Portfolio management processes are proven and project decisions, including project funding levels and timing, are routinely made based the value maximization value.

Processes are continually refined to take into account increasing knowledge, changing business needs, and external factors. Portfolio management drives the planning, development, and allocation of projects to optimize the efficient use of resources in achieving the strategic objectives of the organization.

High levels of competence are embedded in all portfolio management roles, and portfolio management skills are seen as important for career advancement. Portfolio gate reviews are used to proactively assess and manage portfolio value and risk. Portfolio management informs future capacity demands, capability requirements are recognized, and resource levels are strategically managed. Information is highly valued, and the organization's ability to mitigate external risks and grasp opportunities is enhanced by identifying innovative ways to acquire and better share knowledge.

Benefits management processes are embedded across the organization, with benefits realization explicitly aligned with the value measurement framework. The portfolio is actively managed to ensure the long term sustainability of the enterprise. Stakeholder engagement is embedded in the organization's culture, and stakeholder management processes have been optimized. Risk management underpins decision-making throughout the organization. Quantitatively measurable goals for process improvement have been established and performance against them tracked. The relationship between the portfolio and strategic planning is understood and managed. Resource allocations to and from projects are intimately aligned so as the maximize value creation.

Level 5 organizations are obtaining maximum possible value from project portfolio management. By fully institutionalizing project portfolio management into their culture they free people to become more creative and innovative in achieving business success. 25

Building Project Portfolio Management Maturity

Experience shows that building project portfolio management maturity takes time. As suggested by, significant short-term performance gains can be achieved, but making step changes requires understanding current weaknesses and the commitment of effort and resources.

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

QUALITIES OF PORTFOLIO MANAGER:

1. SOUND GENERAL KNOWLEDGE: Portfolio management is an exciting and challenging job. He has to work in an extremely uncertain and confliction environment. In the stock market every new piece of information affects the value of the securities of different industries in a different way. He must be able to judge and predict the effects of the information he gets. He must have sharp memory, alertness, fast intuition and self-confidence to arrive at quick decisions. 2.

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

the instrinsic value of the security. An analysis of the securitys values, company, etc. is s continuous job of the portfolio manager. consultant. economy, industry and the company. A good analyst makes a good financial The analyst can know the strengths, weaknesses, opportunities of the

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3.

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

convince the clients about the particular security. He has to compete with the stock brokers in the stock market. In this context, the marketing skills help him a lot.

4.

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

often repeated, therefore the experience of the different phases helps to make rational decisions. The experience of the different types of securities, clients, market trends, etc., makes a perfect professional manager.

PORTFOLIO BUILDING:
Portfolio decisions for an individual investor are influenced by a wide variety of factors. Individuals differ greatly in their circumstances and therefore, a financial programme well suited to one individual may be inappropriate for another. Ideally, an individuals portfolio should be tailor-made to fit ones individual needs. Investors Characteristics: An analysis of an individuals investment situation requires a study of personal characteristics such as age, health conditions, personal habits, family responsibilities, business or professional situation, and tax status, all of which affect the investors willingness to assume risk.

Stage in the Life Cycle:

One of the most important factors affecting the individuals investment objective is his stage in the life cycle. A young person may put greater emphasis on growth and lesser emphasis on liquidity. He can afford to wait for realization of capital gains as his time horizon is large.

Family responsibilities:
The investors marital status and his responsibilities towards other members of the family can have a large impact on his investment needs and goals.

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Investors experience: The success of portfolio depends upon the investors knowledge and experience in financial matters. If an investor has an aptitude for financial affairs, he may wish to be more aggressive in his investments.

Attitude towards Risk: A persons psychological make-up and financial position dictate his ability to assume the risk. Different kinds of securities have different kinds of risks. The higher the risk, the greater the opportunity for higher gain or loss.

Liquidity Needs: Liquidity needs vary considerably among individual investors. Investors with regular income from other sources may not worry much about instantaneous liquidity, but individuals who depend heavily upon investment for meeting their general or specific needs, must plan portfolio to match their liquidity needs. Liquidity can be obtained in two ways: 1. By allocating an appropriate percentage of the portfolio to bank deposits, and 2. By requiring that bonds and equities purchased be highly marketable. Tax considerations: Since different individuals, depending upon their incomes, are subjected to different marginal rates of taxes, tax considerations become most important factor in individuals portfolio strategy. There are differing tax treatments for investment in various kinds of assets.

Time Horizon: In investment planning, time horizon becomes an important consideration. It is highly variable from individual to individual. Individuals in their young age have long time horizon for planning, they can smooth out and absorb the ups and downs of risky combination. Individuals who are old have smaller time horizon, they generally tend to avoid volatile portfolios. 28

Individuals Financial Objectives: In the initial stages, the primary objective of an individual could be to accumulate wealth via regular monthly savings and have an investment programmed to achieve long term capital gains. Safety of Principal: The protection of the rupee value of the investment is of prime importance to most investors. The original investment can be recovered only if the security can be readily sold in the market without much loss of value.

Assurance of Income: `Different investors have different current income needs. If an individual is dependent of its investment income for current consumption then income received now in the form of dividend and interest payments become primary objective.

Investment Risk: All investment decisions revolve around the trade-off between risk and return. All rational investors want a substantial return from their investment. An ability to understand, measure and properly manage investment risk is fundamental to any intelligent investor or a speculator. Frequently, the risk associated with security investment is ignored and only the rewards are emphasized. An investor who does not fully appreciate the risks in security investments will find it difficult to obtain continuing positive results.

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RISK AND EXPECTED RETURN:

There is a positive relationship between the amount of risk and the amount of expected return i.e., the greater the risk, the larger the expected return and larger the chances of substantial loss. One of the most difficult problems for an investor is to estimate the highest level of risk he is able to assume.

Risk is measured along the horizontal axis and increases from the left to right. Expected rate of return is measured on the vertical axis and rises from bottom to top. The line from 0 to R (f) is called the rate of return or risk less investments commonly associated with the yield on government securities. The diagonal line form R (f) to E(r) illustrates the concept of expected rate of return increasing as level of risk increases.

TYPES OF RISKS: Risk consists of two components. They are 1. Systematic Risk 2. Un-systematic Risk 30

1. Systematic Risk:
Systematic risk is caused by factors external to the particular company and uncontrollable by the company. The systematic risk affects the market as a whole. Factors affect the systematic risk are economic conditions political conditions sociological changes The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They are a) Market Risk b) Interest Rate Risk c) Purchasing Power Risk

a). Market Risk One would notice that when the stock market surges up, most stocks post higher price. On the other hand, when the market falls sharply, most common stocks will drop. It is not uncommon to find stock prices falling from time to time while a companys earnings are rising and vice-versa. The price of stock may fluctuate widely within a short time even though earnings remain unchanged or relatively stable. b). Interest Rate Risk: Interest rate risk is the risk of loss of principal brought about the changes in the interest rate paid on new securities currently being issued.

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c). Purchasing Power Risk: The typical investor seeks an investment which will give him current income and / or capital appreciation in addition to his original investment.

2. Un-systematic Risk: Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of raising finance and paying back the loans, involve the risk element. Financial leverage of the companies that is debt-equity portion of the companies differs from each other. All these factors affect the un-systematic risk and contribute a portion in the total variability of the return. Managerial inefficiently Technological change in the production process Availability of raw materials Changes in the consumer preference Labor problems

The nature and magnitude of the above mentioned factors differ from industry to industry and company to company. They have to be analyzed separately for each industry and firm. Un-systematic risk can be broadly classified into: a) Business Risk b) Financial Risk

a. Business Risk:
Business risk is that portion of the unsystematic risk caused by the operating environment of the business. Business risk arises from the inability of a firm to maintain its competitive edge and growth or stability of the earnings. The volatility in stock prices due to factors intrinsic to the company itself is known as Business risk. Business risk is concerned with 32

the difference between revenue and earnings before interest and tax. Business risk can be divided into.

i). Internal Business Risk

Internal business risk is associated with the operational efficiency of the firm. The operational efficiency differs from company to company. The efficiency of operation is reflected on the companys achievement of its pre-set goals and the fulfillment of the promises to its investors.

ii).External Business Risk

External business risk is the result of operating conditions imposed on the firm by circumstances beyond its control. The external environments in which it operates exert some pressure on the firm. The external factors are social and regulatory factors, monetary and fiscal policies of the government, business cycle and the general economic environment within which a firm or an industry operates.

b. Financial Risk:
It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of the company consists of equity funds and borrowed funds.

PORTFOLIO ANALYSIS:
Various groups of securities when held together behave in a different manner and give interest payments and dividends also, which are different to the analysis of individual securities. A combination of securities held together will give a beneficial result if they are grouped in a manner to secure higher return after taking into consideration the risk element. There are two approaches in construction of the portfolio of securities. They are Traditional approach Modern approach

33

TRADITIONAL APPROACH:
Traditional approach was based on the fact that risk could be measured on each individual security through the process of finding out the standard deviation and that security should be chosen where the deviation was the lowest. Traditional approach believes that the market is inefficient and the fundamental analyst can take advantage of the situation. Traditional approach is a comprehensive financial plan for the individual. It takes into account the individual need such as housing, life insurance and pension plans. Traditional approach basically deals with two major decisions. They are a) b) Determining the objectives of the portfolio Selection of securities to be included in the portfolio

MODERN APPROACH:
Modern approach theory was brought out by Markowitz and Sharpe. It is the combination of securities to get the most efficient portfolio. Combination of securities can be made in many ways. Markowitz developed the theory of diversification through scientific reasoning and method. Modern portfolio theory believes in the maximization of return through a combination of securities. The modern approach discusses the relationship between different securities and then draws inter-relationships of risks between them. Markowitz gives more attention to the process of selecting the portfolio. It does not deal with the individual needs.

MARKOWITZ MODEL:
Markowitz model is a theoretical framework for analysis of risk and return and their relationships. He used statistical analysis for the measurement of risk and mathematical programming for selection of assets in a portfolio in an efficient manner. Markowitz apporach determines for the investor the efficient set of portfolio through three important variables i.e. Return Standard deviation Co-efficient of correlation

34

Markowitz model is also called as an Full Covariance Model. Through this model the investor can find out the efficient set of portfolio by finding out the tradeoff between risk and return, between the limits of zero and infinity. According to this theory, the effects of one security purchase over the effects of the other security purchase are taken into consideration and then the results are evaluated. Most people agree that holding two stocks is less risky than holding one stock. For example, holding stocks from textile, banking and electronic companies is better than investing all the money on the textile companys stock. Markowitz had given up the single stock portfolio and introduced diversification. The single stock portfolio would be preferable if the investor is perfectly certain that his expectation of highest return would turn out to be real. In the world of uncertainty, most of the risk adverse investors would like to join Markowitz rather than keeping a single stock, because diversification reduces the risk.

ASSUMPTIONS:
All investors would like to earn the maximum rate of return that they can achieve from their investments. All investors have the same expected single period investment horizon. All investors before making any investments have a common goal. This is the avoidance of risk because Investors are risk-averse. Investors base their investment decisions on the expected return and standard deviation of returns from a possible investment. Perfect markets are assumed (e.g. no taxes and no transition costs) The investor assumes that greater or larger the return that he achieves on his investments, the higher the risk factor surrounds him. On the contrary when risks are low the return can also be expected to be low. The investor can reduce his risk if he adds investments to his portfolio. 35

 An investor should be able to get higher return for each level of risk by determining the efficient set of securities. An individual seller or buyer cannot affect the price of a stock. This assumption is the basic assumption of the perfectly competitive market. Investors make their decisions only on the basis of the expected returns, standard deviation and covariances of all pairs of securities. Investors are assumed to have homogenous expectations during the decisionmaking period The investor can lend or borrow any amount of funds at the risk less rate of interest. The risk less rate of interest is the rate of interest offered for the treasury bills or Government securities. Investors are risk-averse, so when given a choice between two otherwise identical portfolios, they will choose the one with the lower standard deviation. Individual assets are infinitely divisible, meaning that an investor can buy a fraction of a share if he or she so desires. There is a risk free rate at which an investor may either lend (i.e. invest) money or borrow money. There is no transaction cost i.e. no cost involved in buying and selling of stocks. There is no personal income tax. Hence, the investor is indifferent to the form of return either capital gain or dividend.

36

THE EFFECT OF COMBINING TWO SECURITIES:

It is believed that holding two securities is less risky than by having only one investment in a persons portfolio. When two stocks are taken on a portfolio and if they have negative correlation then risk can be completely reduced because the gain on one can offset the loss on the other. This can be shown with the help of following example:

INTER- ACTIVE RISK THROUGH COVARIANCE:

Covariance of the securities will help in finding out the inter-active risk. When the covariance will be positive then the rates of return of securities move together either upwards or downwards. Alternatively it can also be said that the inter-active risk is positive. Secondly, covariance will be zero on two investments if the rates of return are independent. Holding two securities may reduce the portfolio risk too. The portfolio risk can be calculated with the help of the following formula:

CAPITAL ASSET PRICING MODEL (CAPM):

Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure of Capital Asset Pricing Model. It is a model of linear general equilibrium return. In the CAPM theory, the required rate return of an asset is having a linear relationship with assets beta value i.e. un-diversifiable or systematic risk (i.e. market related risk) because non market risk can be eliminated by diversification and systematic risk measured by beta. Therefore, the relationship between an assets return and its systematic risk can be expressed by the CAPM, which is also called the Security Market Line.

R = Rp Xf Rf Rm

Rf Xf+ Rm(1- Xf) = Portfolio return =The proportion of funds invested in risk free assets = Risk free rate of return = Return on risky assets

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

37

Formula can be used to calculate the expected returns for different situations, like mixing risk less assets with risky assets, investing only in the risky asset and mixing the borrowing with risky assets.

THE CONCEPT:
According to CAPM, all investors hold only the market portfolio and risk less securities. The market portfolio is a portfolio comprised of all stocks in the market. Each asset is held in proportion to its market value to the total value of all risky assets. For example, if wipro Industry share represents 15% of all risky assets, then the market portfolio of the individual investor contains 15% of wipro Industry shares. At this stage, the investor has the ability to borrow or lend any amount of money at the risk less rate of interest.

E.g.: assume that borrowing and lending rate to be 12.5% and the return from the
risky assets to be 20%. There is a tradeoff between the expected return and risk. If an investor invests in risk free assets and risky assets, his risk may be less than what he invests in the risky asset alone. But if he borrows to invest in risky assets, his risk would increase more than he invests his own money in the risky assets. When he borrows to invest, we call it financial leverage. If he invests 50% in risk free assets and 50% in risky assets, his expected return of the portfolio would be

Rp= Rf Xf+ Rm(1- Xf) = (12.5 x 0.5) + 20 (1-0.5) = 6.25 + 10 = 16.25% if there is a zero investment in risk free asset and 100% in risky asset, the return is Rp= Rf Xf+ Rm(1- Xf) = 0 + 20% = 20%
38

if -0.5 in risk free asset and 1.5 in risky asset, the return is Rp= Rf Xf+ Rm(1- Xf) = (12.5 x -0.5) + 20 (1.5) = -6.25+ 30 = 23.75%

39

CHAPTER-IV DATA ANALYSIS AND INTERPRETATION

40

CALCULATION OF AVERAGE RETURN OF COMPANIES:

_ Average Return (R) = (R)/N (P0) = Opening price of the share (P1) = Closing price of the share D = Dividend
WIPRO: D+(P1-P0)/ P0*100 12.71 48.16 -15.84 1.38 -0.776 45.634

Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(P0) 1,233.45 1,361.20 2012 1900.75 1900.45

(P1) 1361.20 2,012 1900.75 1900.45 425.30

D 29 5 5 8 -

(P1-P0) 127.75 650.8 -111.25 -0.3 -1475.15

TOTAL RETURN

Average Return = 45.63/5 = 9.12

DR REDDY LABORATORIES LTD:

Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(P0) 916.30 974.35 739.15 1,421.40 1456.55

(P1) 974.35 739.15 1,421.4 0 1456.55 591.25

D 5 5 5 3.75 .75

(P1-P0) 58.2 23.52 682.25 35.15 -865.3

D+(P1-P0)/ P0*100 6.89 -23.63 92.98 2.74 -59.4 19.58

TOTAL RETURN Average Return = 19.58/5 = 3.916

41

ACC:

Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(P0) 138.50 254.65 360.55 782.20 735.23

(P1) 254.65 360.55 782.20 735.25 826.10

D 4 7 8 25 2

(P1-P0) 116.15 105.9 421.61 -46.95 90.85

D+(P1-P0)/ P0*100 86.71 44.34 119.19 -2.8 12.63 258.07

TOTAL RETURN Average Return = 258.07/5 =51.614

HERO MOTOCORP LIMITED:

Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(P0) 188.20 490.60 548.00 890.45 688.75

(P1) 490.60 548.00 890.45 688.75 9.5

D 20 20 20 17 1.45

(P1-P0) 302.40 57.40 342.45 -20.17 1.45

D+(P1-P0)/ P0*100 171.3 15.77 66.14 -20.74 1.958 234.428

TOTAL RETURN Average Return = 234.428/5 = 46.885

42

DIAGRAMATIC PRESENTATION COMPANY WIPRO DR.REDDY ACC HERO MOTOCORP RETURN 9.12 3.916 51.614 46.885 RETURN

CALCULATION OF STANDARD DEVIATION:

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

43

WIPRO:

Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Return Avg. (R) Return (R) 12.71 9.12 48.16 9.12 -15.84 9.12 1.38 9.12 -0.776 9.12

(R-R) 3.59 39.04 -24.96 -7.74 -9.896

(R-R)2 12.8881 1524.122 623.0016 59.9076 97.93082

TOTAL 2317.85 _ Variance = 1/n (R-R)2 = 1/5 (2317.85) = 463.57 Standard Deviation = Variance = 463.57 =21.53

DR. REDDY:

Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Return Avg. (R) Return (R) 6.89 46.88 -23.63 46.88 92.98 46.88 2.74 46.88 -59.4 46.88 TOTAL

(R-R) 2.98 -27.54 89.07 -1.17 -63.31

(R-R)2 8.8804 758.4516 7933.465 1.3689 4008.156 12710.32

Variance = 1/n-1 (R-R)2 = 1/5 (12710.32) = 2542.06 Standard Deviation = Variance = 2542.06= 50.14

44

ACC:

Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Return Avg. (R) Return (R) 86.71 51.61 44.34 51.61 119.19 51.61 -2.8 51.61 12.63 51.61 TOTAL

(R-R) 35.1 -7.27 67.58 -54.41 -38.98

(R-R)2 1232.01 52.8529 4567.056 2960.448 1519.44 10331.81

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

HERO MOTOCORP:

Variance = 2066.36 = 45.45

Year 2003-2004 2006-2007 2007-2008 2008-2009 2009-2010

Return Avg. (R) Return (R) 171.3 32.59 15.77 32.59 66.14 32.59 -20.74 32.59 1.958 32.59 TOTAL

(R-R) 138.71 -16.82 33.57 -53.33 -31

(R-R)2 19,240.5 284.1 1,126.273 2,844.1 -960.8 29,592.4

Variance = 1/n-1 (R-R)2 = 1/5 (29,592.4) = 4,232.1 Standard Deviation = Variance = 4,232.1 = 70.23

45

DIAGRAMATIC PRESENTATION
COMPANY WIPRO DR.REDDY ACC HERO MOTOCORP RISK
22.86 46.66 47.963 70.23

RISK

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

46

WIPRO WITH OTHER COMPANIES

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

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(RA-RA) 8.11 43.56 -10.44 -4.195 -4.678

(RB-RB) (RA-RA) (RB-RB) 6.22 50.44 -24.3 -1,058.5 92.31 -963.7 2.07 -8.69 -60.07 281.01

TOTAL -1,180.3 Covariance (COV ab) = 1/5 (-1,180.3) = -196.72 Correlation Coefficient = COV ab/ b a* a = 22.86 ; b = 46.66 = -196.72/(22.86)(46.66) = -0.184

iii. WIPRO (RA) & ACC (RB)

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(RA-RA) -32.01 8.11 43.56 -10.44 -4.195 TOTAL

(RB-RB) (RA-RA) (RB-RB) -50.7 1,622.91 44.67 362.3 2.32 101.18 77.17 -805.7 -44.82 188.02 1,606.11

Covariance (COV ab) = 1/5(1,606.11) = 267.69 Correlation Coefficient = COV ab/a*b a = 22.86 ; b = 47.27 = 267.69/(22.86)(47.27) = .0247

47

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

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(RA-RA) 8.11 43.56 -10.44 -2.42 -4.68 TOTAL

(RB-RB) (RA-RA) (RB-RB) 138.71 1,124.9 -16.82 -732.68 33.57 -358.48 -59.44 143.8 -31 145.1 2,697

Covariance (COV ab) = 1/6 (2,697) = 449.7 Correlation Coefficient = COV ab/a*b a = 22.86 ; b = 70.23 = 2,697/(22.86)(70.23) = 0.28

3. Correlation Between DR REDDY & Other Companies

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

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(RA-RA) 6.22 -24.31 92.31 2.07 -60.07

(RB-RB) (RA-RA) (RB-RB) 44.67 277.85 2.32 -56.399 77.17 7,123.56 -44.82 -92.78 -29.37 1,764.26

TOTAL 9,838.84 Covariance (COV ab) = 1/6 (9,838.84) =1,639.81 Correlation Coefficient = COV ab/a*b a = 46.66 ;b = 47.27 = 1,639.81/(46.66)(47.27) = 0.743

48

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

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

(RA-RA) 6.22 -24.3 92.31 2.07 -60.07 TOTAL

(RB-RB) (RA-RA) (RB-RB) 138.71 862.72 -16.82 408.73 33.57 3,098.85 -53.33 -110.393 -31 1,862.2 7,284.66

Covariance (COV ab) = 1/6 (7,284.66) = 1,214.109 Correlation Coefficient = COV ab/a*b a = 46.66 ; b = 70.23 = 1,214.109/(46.66)(70.23) = 0.370

4. Correlation With ACC & Other Companies ACC(RA) & HERO MOTOCORP(RB)

Covariance (COV ab) = 1/6 (15,682.15) = 2,613.7 Correlation Coefficient = COV ab/a*b a = 47.27; b =70.23 =2,613.7/(47.27)(70.23) = 0.787

49

CALCULATION OF PORTFOLIO WEIGHTS:

FORMULA Wa = :

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

Wb = 1 Wa WEIGHTS OF WIPRO & OTHER COMPANIES: i. WIPRO & DR. REDDY

= 22.86 a b = 46.66 nab = -0.184 Wa = Wa = 46.66 [46.66-(-0.184* ) ] 2 + 2 2(-0.184)**

2,373.42 3,092.2615 Wa = 0.77 Wb = 1 Wa Wb = 1- 0.77 = 0.23

ii.

WIPRO (a) & ACC (b)

a = 22.86 b = 47.27 nab = 0.247 Wa = Wa = 47.27 [ - (0.25* ) ] 2 + 2 2(0.5)** 1,964.82 1,767.66

Wa =1.11 Wb = 1 Wa Wb = 1- 1.11 = -0.11

iii.

WIPRO(a) & HERO MOTOCORP(b)

50

a = 22.86 b = 70.23 nab = 0.28 Wa =

70.23 [70.23-(0.28*22.86)] 2 + 2 2(0.28)**

4,482.88 4,555.77

Wa =

Wa = 0.98 Wb = 1 Wa Wb = 1-0.98 = 0.02

WEIGHTS OF DRREDDY & OTHER COMPANIES:

DRREDDY (a) & ACC (b)
a = 46.7 b = 47.7 nab = 0.74 Wa = 47.7 [47.7- (0.74*46.7)] + 2 2(0.74)**
2

Wa =

602.6 1,149.01

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

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

a = 46.67 b = 70.23 nab = 0.37 Wa = Wa = 3,722.2 2,506.9 70.23 [70.23-(0.37*46.67)] 2 + 2 2(0.37)**

Wa = 1.48 Wb = 1 Wa 51

Wb = 1-1.48 = -0.48

WEIGHTS OF ACC & OTHER COMPANIES ACC (a) & HERO MOTOCORP (b)
a = 47.3 b = 70.23 nab = 0.79 Wa = Wa = 70.23 [70.23- (0.79*47.3)] 2 + 2 2(0.79)** 2,308.5 1,921.43

Wa = 1.20 Wb = 1 Wa Wb = 1- 1.20 = -0.20

CALCULATION OF PORTFOLIO RISK:

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

CALCULATION OF PORTFOLIO RISK OF WIPRO & OTHER COMPANIES: WIPRO (a) & DR.REDDY (b):
a = 22.86 52

b = 46.66 Wa = 0.78 Wb = 0.23 nab = -0184 RP = (22.86*0.78.)2+(46.66*0.23) 2(22.86)(46.66)(0.78(0.23)(-0.184)

355.6

18.86%

WIPRO (a) &ACC (b):

a = 22.86 b = 47.27 Wa = 1.11 Wb = -0.11 nab = 0.25 RP = (22.86*1.11) 2+(47.27*-0.11) 2+2(22.86)(47.27)(1.11)(-0.11)(0.25) 551.2 23.5%

WIPRO (a) & HERO MOTOCORP (b):

a = 22.86 b = 70.23 Wa= 0.98 Wb=0.02 nab = 028 RP = (22.86*0.98)2(70.23*0.02)2+2(22.86)(70.23)(0.98)(0.02)(0.28) 525 = 22.85%

CALCULATION OF PORTFOLIO RISK OF DR REDDY & OTHER COMPANIES DRREDDY (a) & ACC (b):
a = 46.7 53

b = 47.3 Wa=0.52 Wb= 0.48 nab = 0.74 RP = (46.7*0.52)2+(47.3*0.48)2+2(46.7) * *(0.48)*(0.74)

1,922.80

= 43.85%

DRREDDY (a) & HERO MOTOCORP (b):

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

RP =

(46.67*1.48)2+(70.23*-0.48)2+2(46.67)**(-048)*(0.37) 234.89 = 15.33%

CALCULATION OF PORTFOLIO RISK OF ACC & OTHER COMPANIES ACC(a) &HERO MOTOCORP (b):
a = 47.3 b = 70.23 Wa= 1.20 Wb = -0.20 nab = 0.79 RP =

(47.3*1.20)2+(70.23*-0.20)2+2(47.3)**(-0.20)*(0.79) 1,764.84 = 42%

CALCULATION OF PORTFOLIO RETURN: Rp=(RA*WA) + (RB*WB) Where Rp = portfolio return RA= return of A WA= weight of A
54

RB= return of B

WB= weight of B

CALCULATION OF PORTFOLIO RETURN OF WIPRO & OTHER COMPANIES:

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

RA= 4.6 RB=0.67 WA=0.77 WB=0.23

Rp = (4.6*0.77) + (0.67*0.23) Rp = (3.542 + 0.1541) Rp = 3.6961%

WIPRO (a) &ACC (b):

RA= 4.6 RB= 42.02 WA=1.11 WB=-0.11

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

WIPRO (a) & HERO MOTOCORP (b):

RA= 4.6 RB= 32.498 WA=0.98 WB=0.02

Rp = (4.6*0.9) + (32.498*0.02) Rp = (4.508 + 0.6499) Rp = 5.16%

55

CALCULATION OF PORTFOLIO RETURN OF DR REDDY & OTHER COMPANIES DRREDDY (a) & ACC (b):
RA= 0.67 RB=42.02 WA=0.52 WB=0.48

Rp = (0.67*0.52) + (42.02*0.48) Rp = (.3487+20.139) Rp = 20.5%

DRREDDY (a) & HERO MOTOCORP (b):

RA= 0.67 RB=32.498 WA=1.48 WB=-0.48

Rp (0.67*1.48) + (32.498*-0.48) Rp (0.9916-15.599) Rp -14.60%

CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER COMPANIES ACC(a) &HERO MOTOCORP (b):
RA= 42.02 RB=32.498 WA=1.20 WB=-0.20

Rp = (42.02*1.20) + (32.498*-0.20) Rp = (50.424-6.499) Rp = 43.92% DISPLAY OF ALL CALCULATED VALUES

COMBINATION WIPRO & DR.REDDY WIPRO & ACC WIPRO &HERO ITC & DR.REDDY ITC &ACC ITC &HERO DR.REDDY & ACC DR REDDY&HERO ACC & HERO CORRELATION -0.184 0.247 0.28 0.89 0.830 0.587 .7434 0.705 0.7873 COVARIANCE -196.72 267.69 449.7 2736.2 2591.4 2736.33 1639.8 1,124.1095 2,613.7 PORTFOLIO RETURN 3.7 0.49 5.0 -9.8 36.542 25.4 20.5 -14.6 43.9 PORTFOLIO RISK 18.9 23.5 22.9 26.9 50 60.6 43.9 15.3 42

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CHAPTER-V FINDINGS CONCLUSION SUGGESTIONS: BIBILOGRAPHY

57

FINDINGS
The analytical part of the study for the 6 years period reveals the following interpretations, wipro with itc:
In this combination as per the calculations and the study the wipro bears a proportion of investment of (0.93)and where as ITC bears a proportion of (0.07)which is less than compared to wipro. The standard deviation of wipro is (22.86) and (66.04) in ITC. From the return point of view wipro is (4.6) and (20.1) is ITC. From risk point of view wipro is less risk than, ITC so the investors who are will to face high risk the better option will be investing in ITC.

Wipro with acc:

Portfolio weights for wipro and ACC are (1.11)and (-0.11) respectively. This indicates that the investors who are interested to take more risk they can invest in this combination, and also can get high returns.

Dr reddy & Hero Motocorp:

In this combination as per the calculation & the study of portfolio weights of dr reddy and Hero Motocorp are (1.48) and (-0.48) respectively. Here the standard deviation of drreddy &Hero Motocorp are (46.66) and (70.23) respectively. Returns are (0.67) is for dr reddy (32.43) is for Hero Motocorp.In this, position invest in Hero Motocorp is high risk as well as high returns also up to (32.43) when compared to dereddy.

Dr reddy&acc:
The portfolio of weights of the both (0.52)is drreddy (.048) is for acc. The standard deviation of dr reddy is (46.66) and (47.27) for acc. The returns of drreddy is (0.67) and (42.02) is acc. According to this combination investor can invest acc, this is more risk as well as more returns can get up to (42.02). If investor wants less risk he has to invest in acc.Dr reddy is a low risk as well as low returns also.

Acc&Hero Motocorp:
58

According to this combination of the portfolio weights are (1.20) in acc and (-0.20) is Hero Motocorp. The standard deviation of acc is less than Hero Motocorp 47.27>70.23. if the investor wants to take low risk, acc is the better option. And the return point of view Hero Motocorp is providing more returns that of acc. According to this combination if the investor wants to get returns then he has to take the more risk. This is the good combination for investors for investing in the acc&Hero Motocorp. For more profits.

Greater Portfolio Return with less Risk is always is an attractive combination for the Investors.

59

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

portfolio combination of, ACC, HERO MOTOCORP AND WIPRO proportion. The investors who are slightly risk averse are suggested to invest in WIPRO, DR. REDDY, ACC as the combination is slightly low risk when compared with other companies. The analysis regarding the compaines ACC, HERO MOTOCORP has howed a wise investment in public and in private sector with an increasing trend where as corporate sector has recorded a decreasing trends income which denotes an increasing trend throught out the study period.

As far as the average return of the company is concerned ACC, , HERO MOTOCORP is high with an average return of 48.41%. WIPRO, DR.REDDY is getting low returns. HERO MOTOCORP securities are performing at medium returns.

As far as the correlation is concerned the securities DR.REDDY are high correlated with minimum portfolio risk. The investor who is risk averse will have to invest in this combination which gives good return with low risk.

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SUGGESTIONS:
As the average return of securities, ACC, HERO MOTOCORP and are HIGH, it is suggested that investors who show interest in these securities taking risk into consideration. As the risk of the securities ITC, ACC, HERO MOTOCORP and BHEL are risky securities it suggested that the investors should be careful while investing in these securities. The investors who require minimum return with low risk should invest in WIPRO & DR.REDDY. It is recommended that the investors who require high risk with high return should invest in ITC and HERO MOTOCORP. The investors are benefited by investing in selected scripts of Industries. Buy stocks in companies with potential for surprises. Take advantage of volatility before reaching a new equilibrium. Listen to rumors and tips, check for yourself. Dont put your trust in only one investment. It is like putting all the eggs in one basket . This will help lesson the risk in the long term. The investor must select the right advisory body which is has sound knowledge about the product which they are offering. Professionalized advisory is the most important feature to the investors. Professionalized research, analysis which will be helpful for reducing any kind of risk to overcome.
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BIBLIOGRAPHY
Books
Security Analysis & Portfolio Management - Fishers & Jordon Financial Management M.Y. Khan Financial Management Prasanna Chandra

News Papers
Times of India India Today

Websites
www.amfiindia.com www.sebi.com www.google.com www.ingvysyabank.com

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