portfolio allocation

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Portfolio Management

Assortment of Investments Options to Enhance Portfolio Value



Portfolio Management

In regards to a portfolio, one should keep in mind that, the more diverse the portfolio, the better. This is required as a wide portfolio gives the investor a chanceto leverage his risk.

A balanced portfolio would be one that includes 50% investment in equity andequal in risk free investment. This would give a chance to leverage the equity risk with the risk free investment options.

Assumption:

1. R

isk appetite moderate2. Money invested on prices prevailing on December 10 th 2010

20%

40%5%

15%

10%

10%

PORTFOLIO ALLOCATIONMutual Funds

Equity

Fixed IncomeInstrumentsFixed Deposit

Commodity

IPO's



I nvestment in Direct Equity

SCR I PTS SHARE PR I CE AMOUNT NO OFSHARE

POWER & GASCoal India 316.20 49856 64

NTPC 189.75 50094264O IL

Cairn India 328 49856 152ONGC 1322.6 50258 38

BANKSSBI 2723 49014 18

YES Bank 297.5 51170 172META L S

Tata Steel 606 24846 41Hindalco Industries Ltd. 214.2 25061 117

INFRASTRUCTURE

L&T 779 24928 32Godrej Properties 189.75 25047 132

TOTA L TOTAL - 400130 1030



SECTORS:

POWER & ENERGY

The government has been focusing on power sector lately. Many reforms have been initiated and huge funds have been allocated for this sector as it requires huge

capital expenditure.y On Dec 10, 2010 the ministry of power has said that state power distribution

companies should increase their power tariffs to bring down lossesy U S president Obama¶s visit to India, gave a platform to initiate bilateral clean

energy initiatives in the power sector y India - U S signing for nuclear deal is all set to explode the power sector y Power sector to grow at 7.5 to 8 CAG R till 2017y

The need for power in India is immense with over 44% household not havingaccess to electricity.

NTPC

y It's sales turnover and net profit is the highest amongst all the competitors andit¶s a government organization

y It has the highest market capitalization

y Other news It¶s facility agreement with Bank of Tokyo of 300Million $ on Dec 1 st

will bring in modernization to the plant Dec 14; through its unit NTPC Vidyut Vyapar Nigam, it will lead the

solar plan's initial phase via long-term contracts to buy the first 1 GW of



energy from developers. One gigawatt is enough to power close to 1million homes

Dec 14; NTPC will revive and expand two ailing coal-based projectswith 1,260 mw capacities in Jharkhand. Agreements in this regard arelikely to be signed with state government within a month. They plan toramp their capacity to 1320mw each

Current Market Price 189.75P/E 17.9EPS 10.59

Dividend 3.8

Coal India

y Dec 13; SBI Mutual Funds & HDFC Mutual funds invests around 1.7croreshares into Coal India by disinvesting from telecom

y Dec 14; Indian coal consortium including 5 state run companies (InternationalCoal Ventures) is in talks to invest in Australian R iversdale Mining

y Coal India is planning to eye 10% of the one of the NYSE listed companyPeabody¶s Australia coal mine


Dividend 3.5



O IL & GAS

India is ranking 2 nd in consumption of crude oil. It comes 2 nd to China who isthe largest consumer of oil

y Dec 17; U nderstanding between the 1 st and 2 nd ranked consumers, of not to book orders together, as prices of oil crude rise due to scarcity, has profoundadvantages

Cairn India

Current Market Price 328P/E -224EPS -1.25

Dividend 0

y Dec 6; R ising crude prices and speculation of a further rise is an indicationthat this stock has a bullish trend

y Speedy developments and clearances for Vendanta to takeover Cairn. Govthas set the ruling month to be March 2011

y The level expected if the deal were to take place could be anywhere in therange of 350 to 360



ONGC


Dividend 33

y ONGC likely to declare dividendy Stock Split likely to be declared in tune of 2:1, hence signaling a buy for the

stock y Dec 13; ONGC in talks with Bashneft of R ussia to help develop the giant

Arctic Trebs and Titov oil fields. They hold 200 million tonne of oil reservesy Dec 15; High crude prices and a stock of 6,00,000 barrels of February Nile

Blend Crude makes it lucrative to export it. Other than ONGC(25%); other stakeholders in the Greater Nile Project include China National PetroleumCorp (40%), Petronas (30%) and Sudapest (5%)



BANKS

Banks form an integral part of any portfolio, as all the money that is made hasto be invested with banks. Banks show a stable return and have a huge customer

base to provide good returns to the shareholders.

y Nov 24; On wake of one of the biggest scams in the history of the country.The bank scams have spooked investors from investing in the sector. But 25 &26 should good trends in the sector with marginal fall. Hence, it still remains a

good buyy Dec 16; The R eserve Bank of India and China Banking R egulatory

Commission concluded a memorandum of understanding to increase bankingand financial cooperation. Already SBI and Bank of Baroda have its

branches in the China

YES Bank


Dividend 1.5

y Targets given by top investors and analysts shows that it could well reach 350to 400

y Its Gross NPA are as low as 0.25%y Dividend declared this year in March after 5 yrs; showing that the company is

here not just to stay but prosper



y Its EPS has been phenomenal, increasing every year R s 4 from past 3ysy It¶s working and financial structure is very strong and the management is

highly competent

SBI


Dividend 144.37

y A nationalized bank and is a safe bety Showed progress in rough times and did not turn up in the list of defaulters in

the banking scamy Target expected is in the range of 2850 to 2900



META L S

The metals market in India is huge. India is in its developing stage and nowhas entered heavy development which requires metals on a large scale. Metals arethe backbone of any industrial set-up. Infrastructure, machining, automobiles andmany other sectors depend on metals.

TATA Steel

Current Market Price 606P/E 10.83EPS 56.37

Dividend 8

y Target expected to be 700 to 720y SAIL bad performance can assist TATA Steel in getting the investors a better

share as it is ranked the 2 nd in the market capitalization in the steel sector y It¶s a reliable bet and has always shown good results

Hindalco Industries




Dividend 1.35

y Dec 7; Analysts believe that any investor should go bullish on metals for the

present market scenarioy Dec 13; SBI Mutual funds has heavily invested in this company. It has

invested by buying 31,86,462 shares of Hindalcoy Dec 13; Hindalco¶s high cost debt would be paid off and expansion would be

financed from the return of capital of R s 7650cr from its Canadian subsidiary Novelis Inc



I NFRASTRUCTURE

Infrastructure is such a sector that defines the progress of a country.

y Great infrastructure can boost an economyy A developing economy has tremendous demand for infrastructurey Infrastructure has shown great improvements despite the banking scamy Liquidity is an issue, if companies can finance their projects through other

sources, they would not feel the burden

Larsen & Tubro

Current Market Price 779

P/E 21.24EPS 72.66

Dividend 12.5

y Dec 2; L&T bags an order for thermal power plan from Hindalco and Sepco 1of R s 415cr

y Dec 3; L&T bags an order in U AE of R s 716cr y Dec 13; L&T chairman confirmed that they are planning to restructure and

they would move out of noncore businesses and concentrate on core onesy Dec 14; L&T Finance will be able to get its IPO out, as Government has given

a nod to its FDI to the tune of R s 641cr. L&T Finance will be able to financecertain projects of its parent and help them sail the liquidity crunch



Godrej Properties


Dividend 4

y Phase 2 of the Kolkata project in way. 3 towers with 450 apartments, bookinghave been opened. Apartments range from 1100 to 1360 sq feet

y Equity Dividend % and EPS has been decent over the yearsy They have a vibrant unit as they have just gone for brand restructuring some

years back



I nvestment in Mutual Funds

Investing in Mutual Funds is far safer than investing in direct equity. This industryis a growing at a very high pace. Main reasons of investing in Mutual Funds are:

y Affordabilityy Diversificationy Varietyy Professional Managementy Convenient Administrationy R eturn Potentialy Low Costsy Liquidityy Transparencyy Flexibility

NAV = {(Market value of the fund¶s investment + Current assets + Accruedincome) ± (Current L iabilities + Accrued Expenses)} / (Total No of units

Outstanding)

An investor can invest in mutual funds through various schemes:

y Fixed Maturity Plany Systematic Investment Plany Systematic Term Plan



Mutual Fund Portfolio

Allocation of fund under various schemes:

Name of Fund TYPEInvst Policy Amount

Invested

AssetSize(Cr)

NAVPlan Period(Min)

Min Sum

BNP ParibasBond Fund -

R egular Plan (G)

Debt(Short) Growth 1 5000 50000 165.25 12.101

ICICI Pru Gilt -

Investment Plan -PF Option

Debt(Long) Dividend 1 25000 50000 86.29 18.957

DSP Black R ock Micro Cap Fund- R egular Plan

(G)

Equity Growth 3 10000 50000 460 16.529

25%

25%25%

25%

Mutual F unds

Debt(Short)

Equity

Liquid

Debt(Long)



JM HighLiquidity Fund

(G)Liquid Growth - 5000 50000 2967 26.110

TOTAL 200000

DSP BlackRock Micro Cap Fund - Regular Plan (G) (Equity)Returns (as on Dec 16, 10) Absolute Returns (in %)

PeriodR eturns

(%)R ank

# Year Qtr 1 Qtr 2Qtr

3 Qtr 4 Annual1 mth -8.3 252 2010 9.2 9.4 14.2 - -3 mths -7.5 235 2009 -13.7 66 30.5 14.1 120.26 mths 8.8 175 2008 -40.2 -12.4 -3 -29.1 -66.81 year 43 1 2007 - 1.4 9.5 32.7 50.52 year 73.5 13 year 4.5 395 year - -# Moneycontrol R ank within 265Equity Diversified Schemes

I C I C I Pru Gilt - I nvestment Plan - PF Option (Debt L ong)Returns (as on Dec 16, 10) Absolute Returns (in %)

PeriodR eturns

(%)R ank


3 Qtr 4 Annual1 mth 1.2 3 2010 0.3 1.5 1.4 - -3 mths 2.2 8 2009 -9.9 7.2 -1.6 0.3 -3.26 mths 3.8 4 2008 -0.3 -0.9 7.9 35.1 44.81 year 5.7 9 2007 -2 1.9 3.1 4.5 7.7

2 year 3.1 31 2006 0.2 0.6 4.7 3.4 9.53 year 14.6 1 2005 0.8 2.3 1.1 1.7 55 year 12.1 1# MoneycontrolR ank within



88 Debt -Long TermSchemes

BNP Paribas Bond Fund - Regular Plan (G) (Debt Short)

Returns (as on Dec 16, 10) Absolute Returns (in %)

PeriodR eturns

(%)R ank


3 Qtr 4 Annual1 mth 0.1 106 2010 1.7 1.4 1.4 - -3 mths 1.1 87 2009 -9 4.5 -0.6 3.7 -1.6

6 mths 2.6 52 2008 - - - 15.7 15.71 year 7.4 22 year 4.6 453 year - -5 year - -# Moneycontrol R ank within 118Debt - Short Term Schemes

JM High L iquidity Fund (G) ( L iquid)Returns (as on Dec 16, 10) Absolute Returns (in %)

PeriodR eturns

(%)R ank


3 Qtr 4 Annual1 mth 0.6 4 2010 1 1.1 1.5 - -3 mths 1.7 4 2009 1.7 1.3 1 1 5.16 mths 3.2 5 2008 2 2 2.3 2.3 9

1 year 5.3 11 2007 2 1.8 1.5 1.9 7.42 year 5.3 14 2006 1.2 1.4 1.6 1.8 6.13 year 6.5 10 2005 1.1 1.2 1.2 1.2 4.95 year 6.6 10# Moneycontrol R ank within 68Money Market Schemes



Investment in Fixed Income Instruments

Indian Capital Markets comprise of the Equities Market and the Debt Markets.Debt Markets are markets for the issuance, trading and settlement in fixed incomesecurities of various types and features. Fixed income securities can be issued byalmost any legal entity like Central and State Governments, Public Bodies, Statutorycorporations, Banks and Institutions and Corporate Bodies.

Fixed Income securities offer one of the most attractive investment

opportunities with regard to safety of investments, adequate liquidity, and flexibilityin structuring a portfolio, easier monitoring, long term reliability and decent returns.They are an essential component of any portfolio of financial and real assets,whether in form of pure interest bearing bonds, innovative and varied type of debtinstruments or asset-backed mortgages and securitized instruments.

Fixed income instruments are basically obligations undertaken by the issuer of the instrument as regards to repayment of interest and principal (At predeterminedintervals of time), which the issuer would pay to the legal owner of the instrument.

Fixed Income instruments are essentially of two types. Tradable. E.g. A debenture Non-Tradable. E.g. A bank deposit

Central Government Securities1. Treasury Bills2. Dated Securities3. Zero coupon Bonds4. Partly Paid Stock

5. Floating R ate Bonds6. Capital Indexed Bonds7. Coupon Bearing Bonds8. Govt. with call and put option9. Strips



State Government Securities1. State Development Loan2. Coupon Bearing Bonds

Z ero Coupon Yield Curve

Public Sector Bonds1. Govt. Guaranteed Bonds2. PSU Bonds3. Commercial Papers4. Fixed Income Instruments in India5. Debentures

Private Sector Bonds1. Corporate Bonds2. Corporate Debentures3. Inter-Corporate Deposits4. Certificate of Deposits5. SPN6. Commercial Papers7. Floating Interest R ate8. Zero Coupon Bond

Other Fixed I ncome I nstruments1. Company fixed Deposits2. Employee¶s Provident Fund3. Mutual Funds4. Guilt Funds5. Bank Fixed Deposits6. Other Prominent Govt. Schemes

Public Provident Fund National savings Certificates (viii) Issue Post Office Monthly Income Scheme Post Office R ecurring Deposits Scheme Post Office Savings Account Post Office Time Deposit Schemes Kisan Vikas Patra



R BI R elief Bonds Deposit Scheme for R etiring Employees of PS U s Deposit Scheme for R etiring Govt. Employees-89

Investment in Fixed Deposit

A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. Fixed Deposits also giveyou a higher rate of interest than a savings bank account.

FD¶s tend to give a high rate of return during rising interest rate scenario.However this is safe source of investment but in long run gives lower return than

equity.

Fixed Deposit Maturity Invested R eturnCorporation Bank 1 year 150000 8.40*

*- R evised R ate (as per the new rates brought out on 13 th December 2010)



Investment in Silver & Crude Oil

Investment in Commodity gives the portfolio a wider base to hedge the risk.Investment can be made:

y Goldy Silver y Copper y Gold ETFy Crude Oily Natural Gasy Aluminumy Nickely Leady Zinc

Commodity U nit Price per U nit Invested Invested SizeCrude Oil Barrels R s 4121 49452 12

Silver Kg R s 43855 50548 1.1526

Investment in silver is better than investing in gold, as silver can be used for industrial purpose. Also it is less volatile and risky than gold.

Crude Oil prices are going higher and higher, and the prices are expected toreach 100$ i.e R s 4500 (assuming 1$ - 45 R s).



If money available was around 10lakhs for commodity, one could also investwith SBI¶s Gold Deposit Scheme (Min 500grams) with a view to earn interest andsave the burden of storage cost of the gold.

Investment in IPO¶s

Knowing that the market has always shown:

1. Consistent IPO¶s by new entrants2. Share price rising when launched

It is advisable to keep money aside for such booms. These investments wouldgive an investor a great chance to make quick money.

But the money that is kept aside should be put into schemes wherein 4 to 5 % can be made, till the time IPO¶s are not introduced.



Conclusion

Following are the hypothetical returns which the portfolio will yield

Type %

Equity 20 ± 22Mutual Fund 20 - 22Fixed Deposit 8.40

Fixed Income Instrument 7.50Commodity 16 ± 18

IPO¶s 8 - 9

However it is important to note:

1. The portfolio should be reviewed continuously2. The portfolio has to be diversified3. The portfolio should have negative correlated scripts4. Government and Private sector investment would be a safe bet5. One should be alert to the smallest of changes

portfolio allocation

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