GROUP ASSIGNMENTPORTFOLIO ANALYSISPONDICHERRY UNIVERSITY

AJMAL P.PSALAHUDHEEN E.C

IRSHAAD K.KSHIBIN M.V

VARSHA VENUGOPAL

INTRODUCTION Initial step for our portfolio analysis is

selection of best companies from the different sectors.

For this we selected 3 companies each from 5 sectors forming 15 companies

From these 15 companies 5 companies from each sector were selected using CAPM with ASWATH DAMODARAN TEMPLATE. This analysis is undertaken for individual company selection.

A portfolio of 5 company is created after analysis of 15 companies from 5 sectors.

Portfolio analysis is measured by GLOBAL MINIMUM VARIANCE PORTFOLIO (GMVP) ANALYSIS found by Markowitz.

SECTORS SELECTED

AUTOMOBILE SECTOR BANKING SECTOR PHARMACEUTICAL SECTOR IT SECTOR REAL ESTATE SECTOR

WHY THESE SECTORS?

AUTOMOBILE SECTOR: Current market for automobile sector is low. So an expectation of future increase in the stock value drived us to take up this sector.

BANKING SECTOR :During the period banking sector has shown a constant growth. This was the criteria for our selection.

PHARMACEUTICAL SECTOR: Since it is a stable sector during this period this sector is selected.

IT SECTOR: In a recent study it was declared that India would become the third largest IT market within the Asia Pacific region by the end of 2016. This expectation made us take this industry.

REAL ESTATE SECTOR: It is showing an increasing trend and hence selected.

SELECTION CRITERIA FOR 3 COMPANIES FROM EACH SECTOR No measurement analysis Selection is based on leading companies

in each sector. Random selection

OBJECTIVE OF THE ANALYSIS

To create a profitable portfolio with minimum risk.

To make a diversified portfolio.

To ascertain the proportion of investments among different companies.

CAPITAL ASSET PRICING MODEL USING ASWATH DAMODARAN TEMPLATE

AUTOMOBILE SECTOR.

COMPANY ALPHA BETA R SQUARE EXPECTED RETURN

MRF 1.54% 0.746 5.05% 14.5%

TATA MOTORS

0.32% 0.997 7.16% 16.82%

BAJAJ AUTO LTD

1.04% -0.2822 0.65% 4.99%

Interpretation MRF shows the best performance. a) Beta value of 0.746 % meaning 1%

change in market brings in 0.746% change in stock prices which is better than other companies.

b) R square value Market condition explains 5.05% change in stock price.

c) Expected return estimated from the analysis is 14.5% which is not the highest return earning company but yet selected taking into consideration the market risk

d) Alpha reveals the company risk of 1.54% which is much greater than the other two.

Here though TATA MOTORS has better expected return we have taken MRF since the market risk is less compared to TATA motors while on the other hand the company risk is greater however it is manageable.

Beta value of Bajaj auto ltd of -0.2882 indicates that it is highly risky. Hence not taken into consideration.

BANKING SECTOR

COMPANY

ALPHA BETA R SQUARE

EXPECTEDRETURN

HDFC 1.33% 0.43 1.78% 11.62%

ICICI 7.13% -0.627 0.05% 1.80%

SBI 18.17% 4.20 0.40% 46.53%

Interpretation HDFC reveals the best performance. a) Beta value of meaning 0.43%

change in market brings in 0.43% change in stock prices which is better than other companies.

b) R square value Market conditions explain 1.78% change in stock price.

c) Expected return estimated from the analysis is 11.62% which is neither the lowest nor the highest value.

d) Alpha reveals the company risk of 1.33% which is much lesser than the other two.

Here we have taken HDFC instead of SBI having a higher margin of expected return since the market risk and company risk is very low in case of HDFC compared to SBI.

Icici indicating a negative beta value makes it highly risky hence rejected

PHARMACEUTICAL SECTOR

COMPANY ALPHA BETA R SQUARE

EXPECTED RETURN

CIPLA 1.20% 0.820 4.85% 15.19%

DR. REDDY’S LABORATORIES

1.47% 0.692 4.32% 14%

SUN PHARMACEUTICALS

1.23% 0.973 5.84% 16.61%

Interpretation Sun pharmaceuticals reveals the best

performance. a) Beta value of 0.973% meaning 1%

change in market brings in 0.973% change in stock prices which is better than other companies.

b) R square value Market conditions explain 5.84% change in stock prices.

c) Expected return estimated from the analysis is 16.61% which shows the best return from among the 3 companies.

d) Alpha reveals the company risk of 1.23%.

Even though the analysis values of three companies have a small difference among each other, Sun pharmaceuticals have a better advantage of inclusion in Portfolio.

We concluded this as the stock after analysing each company using GMVP Analysis.

IT SECTORCOMPANY ALPHA BETA R

SQUAREEXPECTED RETURN

INFOSYS 3.44% 1.79 2.75% 24.25%

TCS 1.01% 0.476 1.84% 12.01%

WIPRO 1.06% 0.57 2.10% 12.87%

Interpretation Infosys reveals the best performance. a) Beta value of 1.79% meaning 1%

change in market brings in 1.79% change in stock prices which is better than other companies.

b) R square value Market conditions explain 2.75% change in stock prices.

c) Expected return estimated from the analysis is 24.25% which shows the best return from among the 3 companies.

d) Alpha reveals the company risk of 3.44% which is much greater than the other two.

Here though the market risk and company risk is high for Infosys compared to other two we have chosen Infosys since it gives double the rate of return compared to the other companies.

Corresponding difference in market and company risk is low compared to return difference of Infosys in connection with the other two.

REAL ESTATE SECTORCOMPANY ALPHA BETA R

SQUAREEXPECTED RETURN

DLF 0.70% 0.9868 3.74% 16.73%

HDIL 0.60% 1.807 9.64% 24.32%

SOBHA 0.28% 1.175 7.37% 18.48%

Interpretation HDIL reveals the best performance. a) Beta value of 1.807% meaning 1%

change in market brings in 1.807% change in stock prices which is better than other companies.

b) R square value Market conditions explain 9.64% change in stock price.

c) Expected return estimated from the analysis is 24.32% which shows the best return from among the 3 companies.

d) Alpha reveals the company risk of 0.60%.

PORTFOLIO ANALYSIS Portfolio analysis is measured by using

GMVP ANALYSIS. Portfolio of 5 company shares is

measured.

RESULTS

GMVP MEAN RETURN 27.45%

GMVP VARIANCE 3.29%

GMVP STANDARD DEVIATION

18.13%

PROPORTION OF INVESTMENT FOUND FROM ANALYSIS

In this proportion HDIL has a negative proportion. So we can conclude this in 2 situations.

COMPANY PROPORTION OF INVESTMENT

MRF 48.41%SBI 35.21%INFOSYS 20.49%SUN PHARMACEUTICALS 55.05%HDIL -59.16%

1)Assuming ourselves as a new investor

• In this situation we can ignore HDIL showing negative proportion.

• After this when we look into the proportion of 4 companies it exceeds 100% i.e a total of 159.16%.

• This 159.16% is to be converted to 100% level. This shows the following proportion:

COMPANY PROPORTIONMRF 30.42%HDFC 22.12%INFOSYS 12.87%SUN PHARMACEUTICALS 34.59%

2) In case of existing investor• Since HDIL is showing a negative

proportion we have to enter into short sales.

• The concept of short sale is, at present we will go for the sales of the stock which would show a negative proportion by an agreement of buying it in future.

• So HDIL shares are given for short sales due to negative proportion.

• The rest would be assorted in the original proportion attained which would be equal to 100%.

We are planning to invest Rs.5crores as per the portfolio analysis created.

The proportion of Rs.50000000 as an Initial investor is as follows:

COMPANY PROPORTIONMRF 48.41%HDFC 35.21%INFOSYS 20.49%SUN PHARMACEUTICALS 55.05%HDIL -59.16%

15210000

11060000

6435000

17295000

proportion

MRFHDFCINFOSYSSUN PHARMA-CEUTICALS

SUMMARY Our objective was to set a portfolio with

minimum risk and maximum return. For this we considered 15 individual

companies from 5 sectors using CAPM MODEL with Aswath Damodaran template.

Analysis helped in selecting 5 companies.

One from each sector. Portfolio analysis was undertaken using

GMVP ANALYSIS. This analysis helped in achieving our

objectives.

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