project report on portfolio management

Analysis of Investment in Stock Market & Portfolio Management Using Instrument Derivatives – Futures - 1 -

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INDUSTRY PROFILE

Journey of Indian stock market

Indian Stock Markets are one of the oldest in Asia. Its history dates

back to nearly 200 years ago. The earliest records of security

dealings in India are meager and obscure. The East India Company

was the dominant institution in those days and business in its loan

securities used to be transacted towards the close of the eighteenth

century.

By 1830's business on corporate stocks and shares in Bank and

Cotton presses took place in Bombay. Though the trading list was

broader in 1839, there were only half a dozen brokers recognized

by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial

enterprise and brokerage business attracted many men into the

field and by 1860 the number of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from

United States of Europe was stopped; thus, the 'Share Mania' in

India begun. The number of brokers increased to about 200 to 250.

However, at the end of the American Civil War, in 1865, a

disastrous slump began (for example, Bank of Bombay Share which

had touched Rs 2850 could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of

Civil War in 1874, found a place in a street (now appropriately

called as Dalal Street) where they would conveniently assemble

and transact business. In 1887, they formally established in

Bombay, the "Native Share and Stock Brokers' Association" (which

is alternatively known as "The Stock Exchange "). In 1895, the

Stock Exchange acquired a premise in the same street and it was

B.R.C.M. College of Business Administration, Surat


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inaugurated in 1899. Thus, the Stock Exchange at Bombay was

consolidated.

Growth Pattern of the Indian Stock Market

Sr.No.

As on 31st

December

1946

1961

1971

1975

1980

1985

1991 1995

1

No. ofStock Exchanges

7 7 8 8 9 14 20 22

2No. of Listed Cos.

1125

1203

1599

1552

2265

4344

6229 8593

3

No. of StockIssues of

Listed Cos.

1506

2111

2838

3230

3697

6174

89671178

4

4

Capital of ListedCos. (Cr. Rs.)

270 753181

2261

4397

3972

33204

15958

3

5

Market value ofCapital of ListedCos. (Cr. Rs.)

971129

2267

5327

3675

025302

110279

478121

6

Capital perListed Cos. (4/2)(Lakh Rs.)

24 63 113 168 175 224 514 693

7 Market Value ofCapital per ListedCos. (Lakh

86 107 167 211 298 582 1770 5564



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Rs.)(5/2)

8

Appreciated value of Capital perListed Cos. (Lakh Rs.)

358 170 148 126 170 260 344 803



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COMPANY PROFILE

Kotak Securities Limited

Kotak Securities Ltd., a subsidiary of Kotak Mahindra Bank Limited,

is one of India’s largest private brokerage and distribution house,

set up in 1994, by Mr. Uday Kotak; it has equity participation from

Goldman Sachs L. I. P. (25%).

Kotak Securities is a corporate member of both the Bombay Stock

Exchange (BSE) and the National Stock Exchange (NSE). Its

operations include stock broking, distribution of various Investment

products – including private and secondary placement of debt and

equity, mutual funds, fixed deposits and the like. Currently Kotak

Securities is one of the largest broking houses in India with offices

in more than fifteen cities. In India as well as a presence in US,

Europe and the Middle East (through our associate companies

Kotak Mahindra U.K. Limited and Kotak Mahindra International

Limited, Kotak Mahindra Inc).

Our core strengths are our expertise in equity research and a wide

retail distribution network. We have an outstanding research

division involved in macro – economic studies, industry and

company specific equity research, with analyst specializing in

particular economic sectors and large cap stocks.

In August 2000, Kotak Securities launched Kotakstreet.com, its e –

broking service for retail investors on the net and currently has over

20,000 registered users.



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Kotak Securities Limited is one of the larger players in distribution of

IPOs - it was ranked number One in 2003-04 as Book Running

Lead Manager in public equity offerings by PRIME Database. It has

also won the Best Equity House Award from Finance Asia - April

2004.

The Company has a full-fledged Research division involved in

macro economic studies, sectoral research and Company specific

equity research combined with a strong and well networked sales

force which helps deliver current and up-to-date market information

and news.

Kotak Securities Limited is also a depository participant with

National Securities Depository Limited (NSDL) and Central

Depository Services Limited (CDSL) providing dual benefit services

wherein the investors can use the brokerage services of the

Company for executing the transactions and the depository services

for settling them.

The Company has 113 branches servicing around 1,00,000

customers, through our own offices and a large franchisee network.

It’s has an Online presence through Kotakstreet.com where we

offer Internet Broking services and also online IPO and Mutual Fund

Investments.

Kotak Securities Limited manages assets over Rs. 1700 crores

through it’s Portfolio Management Services (PMS) servicing high

net worth clients with a large investible surplus through its preferred

client services in the mass affluent and wealth management

segments.



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OBJECTIVE OF THE STUDY

To provide basic idea of different stock market investment

instruments to investor.

To provide knowledge to investor about various type of

risk associated with various investment instruments.

To provide investor knowledge about P\E, P\BV and Beta

that would help them in selection of script and creation of

portfolio.

To help investor in learning about derivative instrument –

future for the purpose of speculation and hedging.



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METHODOLOGY OF THE PROJECT

Research problem:

To identified the Stock Market Investment Avenue and methods to

help investor in selection of script to create portfolio. And the

measures of hedging the portfolio with the use of derivative

instrument future.

Research design:

Research design is exploratory as the basic objective is to identified

the stocks and methods to create and protect portfolio.

Data collection:

Primary data : - Primary data are collected by my regularly

tracking the stock price of various script selected

Secondary data :- Secondary data are collected from various

journals , websites and financial news paper.



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LIMITATIONS OF THE PROJECT

The time duration given to complete the report was

not sufficient.

The report is basically is made between the horizon of

two months and the situation of market is very

dynamic so the conclusion or the return might not

reflect the true picture.



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ANALYSIS OF INVESTMENT

WHAT IS INVESTMENT?

Investment is the activity, which is made with the objective of

earning some sort of positive returns in the future. It is the

commitment of the funds to earn future returns and it involves

sacrificing the present investment for the future return. Every

person makes the investment so that the funds he has increases as

keeping cash with himself is not going to help as it will not generate

any returns and also with the passage of time the time value of the

money will come down. As the inflation will rise the purchasing

power of the money will come down and this will result that the

investor who does not invest will become more poor as he will not

have any funds whose value have been increased. Thus every

person whether he is a businessman or a common man will make

the investment with the objective of getting future returns.

TYPES OF INVESTMENT:-

There are basically three types of investments from which the

investors can choose. The three kinds of investment have their own

risk and return profile and investor will decide to invest taking into

account his own risk appetite. The main types of investments are: -



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Economic investments:-

These investments refer to the net addition to the capital stock of

the society. The capital stock of the society refers to the

investments made in plant, building, land and machinery which are

used for the further production of the goods. This type of

investments are very important for the development of the economy

because if the investment are not made in the plant and machinery

the industrial production will come down and which will bring down

the overall growth of the economy.

Financial Investments:-

This type of investments refers to the investments made in the

marketable securities which are of tradable nature. It includes the

shares, debentures, bonds and units of the mutual funds and any

other securities which is covered under the ambit of the Securities

Contract Regulations Act definition of the word security. The

investments made in the capital market instruments are of vital

important for the country economic growth as the stock market

index is called as the barometer of the economy.

General Investments:-

These investments refer to the investments made by the common

investor in his own small assets like the television, car, house,

motor cycle. These types of investments are termed as the

household investments. Such types of investment are important for

the domestic economy of the country. When the demand in the

domestic economy boost the over all productions and the

manufacturing in the industrial sectors also goes up and this causes

rise in the employment activity and thus boost up the GDP growth



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rate of the country. The organizations like the Central Statistical

Organization (CSO) regularly takes the study of the investments

made in the household sector which shows that the level of

consumptions in the domestic markets.



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CHARACTERISICS OF INVESTMENT

Certain features characterize all investments. The following are the

main characteristics features if investments: -

1.Return: -

All investments are characterized by the expectation of a return. In

fact, investments are made with the primary objective of deriving a

return. The return may be received in the form of yield plus capital

appreciation. The difference between the sale price & the purchase

price is capital appreciation. The dividend or interest received from

the investment is the yield. Different types of investments promise

different rates of return. The return from an investment depends

upon the nature of investment, the maturity period & a host of other

factors.

2.Risk: -

Risk is inherent in any investment. The risk may relate to loss of

capital, delay in repayment of capital, nonpayment of interest, or

variability of returns. While some investments like government

securities & bank deposits are almost risk less, others are more

risky. The risk of an investment depends on the following factors.

The longer the maturity period, the longer is the risk.

The lower the credit worthiness of the borrower, the higher is the

risk.

The risk varies with the nature of investment. Investments in

ownership securities like equity share carry higher risk compared to

investments in debt instrument like debentures & bonds.



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3. Safety: -

The safety of an investment implies the certainty of return of capital

without loss of money or time. Safety is another features which an

investors desire for his investments. Every investor expects to get

back his capital on maturity without loss & without delay.

4. Liquidity: -

An investment, which is easily saleable, or marketable without loss

of money & without loss of time is said to possess liquidity. Some

investments like company deposits, bank deposits, P.O. deposits,

NSC, NSS etc. are not marketable. Some investment instrument

like preference shares & debentures are marketable, but there are

no buyers in many cases & hence their liquidity is negligible. Equity

shares of companies listed on stock exchanges are easily

marketable through the stock exchanges.

An investor generally prefers liquidity for his investment, safety of

his funds, a good return with minimum risk or minimization of risk &

maximization of return.



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IMPORTANCE

In the current situation, investment is becomes necessary for

everyone & it is important & useful in the following ways:

1. Retirement planning: -

Investment decision has become significant as people retire

between the ages of 55 & 60. Also, the trend shows longer life

expectancy. The earning from employment should, therefore, be

calculated in such a manner that a portion should be put away as a

savings. Savings by themselves do not increase wealth; these must

be invested in such a way that the principal & income will be

adequate for a greater number of retirement years. Increase in

working population, proper planning for life span & longevity have

ensured the need for balanced investments.

2. Increasing rates of taxation: -

Taxation is one of the crucial factors in any country, which introduce

an element of compulsion, in a person’s saving. In the form

investments, there are various forms of saving outlets in our

country, which help in bringing down the tax level by offering

deductions in personal income.

For examples: -

Unit linked insurance plan,

Life insurance,

National saving certificates,

Development bonds,

Post office cumulative deposit schemes etc.



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3. Rates of interest: -

It is also an important aspect for sound investment plan. It varies

between investment & another. This may vary between risky & safe

investment, they may also differ due different benefits schemes

offered by the investments. These aspects must be considered

before actually investing. The investor has to include in his portfolio

several kinds of investments stability of interest is as important as

receiving high rate of interest.

4. Inflation: -

Since the last decade, now a day’s inflation becomes a continuous

problem. In these years of rising prices, several problems are

associated coupled with a falling standard of living. Before funds

are invested, erosion of the resource will have to be carefully

considered in order to make the right choice of investments. The

investor will try & search outlets, which gives him a high rate of

return in form of interest to cover any decrease due to inflation. He

will also have to judge whether the interest or return will be

continuous or there is a likelihood of irregularity. Coupled with high

rate of interest, he will have to find an outlet, which will ensure

safety of principal. Beside high rate of interest & safety of principal

an investor also has to always bear in mind the taxation angle, the

interest earned through investment should not unduly increase his

taxation burden otherwise; the benefit derived from interest will be

compensated by an increase in taxation.



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5. Income: -

For increasing in employment opportunities in India., investment

decisions have assumed importance. After independence with the

stage of development in the country a number of organization &

services came into being.

For example: -

The Indian administrative services,

Banking recruitment services,

Expansion in private corporate sector,

Public sector enterprises,

Establishing of financial institutions, tourism, hotels, and education.

More avenues for investment have led to the ability & willingness of

working people to save & invest their funds.

6. Investment channels: -

The growth & development of country leading to greater economic

activity has led to the introduction of a vast array of investment

outlays. Apart from putting aside saving in savings banks where

interest is low, investor have the choice of a variety of instruments.

The question to reason out is which is the most suitable channel?

Which media will give a balanced growth & stability of return? The

investor in his choice of investment will give a balanced growth &

stability of return? The investor in his choice of investment will have

try & achieve a proper mix between high rates of return to reap the

benefits of both.

For example: -

Fixed deposit in corporate sector

Unit trust schemes.



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INVESTMENTS AVENUES:-

There are various investments avenues provided by a country to its

people depending upon the development of the country itself. The

developed countries like the USA and the Japan provide variety of

investments as compared to our country. In India before the post

liberalization era there were limited investments avenues available

to the people in which they could invest. With the opening up of the

economy the number of investments avenues have also increased

and the quality of the investments have also improved due to the

use of the professional activity of the players involved in this

segment. Today investment is no longer a process of trial and error

and it has become a systematized process, which involves the use

of the professional investment solution provider to play a greater

role in the investment process.

Earlier the investments were made without any analysis as the

complexity involved the investment process were not there and also

there was no availability of variety of instruments. But today as the

number of investment options have increased and with the variety

of investments options available the investor has to take decision

according to his own risk and return analysis.

An investor has a wide array of Investment Avenue. They are

as under:



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Investment

Fixed Income

Deposits

Life Insurance

Precious

Tax Sheltered

Real Estate

Financial Derivatives

Mutual Fund

Equity


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Types of Equity Instruments:

Ordinary Shares

Ordinary shareholders are the owners of a company, and each

share entitles the holder to ownership privileges such as dividends

declared by the company and voting rights at meetings. Losses as

well as profits are shared by the equity shareholders. Without any

guaranteed income or security, equity shares are a risk investment,

bringing with them the potential for capital appreciation in return for the

additional risk that the investor undertakes in comparison to debt

instruments with guaranteed income.

Preference Shares

Unlike equity shares, preference shares entitle the holder to dividends

at fixed rates subject to availability of profits after tax. If preference

shares are cumulative, unpaid dividends for years of inadequate

profits are paid in subsequent years. Preference shares do not

entitle the holder to ownership privileges such as voting rights at

meetings.

Equity Warrants

These are long term rights that offer holders the right to purchase

equity shares in a company at a fixed price (usually higher than the

current market price) within a specified period. Warrants are in the

nature of options on stocks.


EQUITY SHARES: -


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Classification in terms of Market Capitalisation

Market capitalisation is equivalent to the current value of a company

i.e. current market price per share times the number of outstanding

shares. There are Large Capitalisation companies, Mid-Cap

companies and Small-Cap companies. Different schemes of a fund

may define their fund objective as a preference for Large or Mid or

Small-Cap companies' shares. Large Cap shares are more liquid and

hence easily tradable. Mid or Small Cap shares may be thought of

as having greater growth potential. The stock markets generally

have different indices available to track these different classes of

shares.

Classification in terms of Anticipated Earnings

In terms of the anticipated earnings of the companies, shares are

generally classified on the basis of their market price in relation to

one of the following measures:

* Price/Earnings Ratio is the price of a share divided by the

earnings per share, and indicates what the investors are willing

to pay for the company's earning potential. Young and/or fast

growing companies usually have high P/E ratios. Established

companies in mature industries may have lower P/E ratios. The

P/E analysis is sometimes supplemented with ratios such as

Market Price to Book Value and Market Price to Cash Flow per

share.

• Dividend Yield for a stock is the ratio of dividend paid per share

to current market price. Low P/E stocks usually have high

dividend yields. In India, at least in the past, investors have

indicated a preference for the high dividend paying shares. What

matters to fund managers is the potential dividend yields based on

earnings prospects.



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Based on companies' anticipated earnings and in the light of the

investment management experience the world over, stocks are

classified in the following groups:

Cyclical Stocks are shares of companies whose earnings are

correlated with the state of the economy. Their earnings (and

therefore, their share prices) tend to go up during upward

economic cycles and vice versa. Cement or Aluminium

producers fall into this category, just as an example. These

companies may command relatively lower P/E ratios, and

have higher dividend pay-outs.

Growth Stocks are shares of companies whose earnings are

expected to increase at rates that exceed normal market levels.

They tend to reinvest earnings and usually have high P/E ratios and

low dividend yields. Software or information technology

company shares are an example of this type. Fund managers

try to identify the sectors or companies that have a high growth

potential.

Value Stocks are shares of companies in mature industries

and are expected to yield low growth in earnings. These

companies may, however, have assets whose values have not

been recognised by investors in general. Fund managers try to

identify such currently under-valued stocks that in their opinion

can yield superior returns later. A cement company with a lot of

real estate and a company with good brand names are

examples of potential value shares.



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Many instruments give regular income. Debt instruments may be

secured by the assets of the borrowers as generally in case of

Corporate Debentures, or be unsecured as is the case with Indian

Financial Institution Bonds.

A debt security is issued by a borrower and is often known by the

issuer category, thus giving us Government Securities and Corporate

Securities or FI bonds. Debt instruments are also distinguished by their

maturity profile. Thus, instruments issued with short-term maturities,

typically under one year, are classified as Money Market Securities.

Instruments carrying longer than one-year maturities are generally

called Debt Securities.

Most debt securities are interest-bearing. However, there are

securities that are discounted securities or zero-coupon bonds that

do not pay regular interest at intervals but are bought at a discount

to their face value. A large part of the interest-bearing securities are

generally Fixed Income-paying, while there are also securities that

pay interest on a Floating Rate basis.

A Review of the Indian Debt Market

The Wholesale Debt Market segment deals in fixed income

securities and is fast gaining ground in an environment that has

largely focused on equities.

The Wholesale Debt Market (WDM) segment of the Exchange

commenced operations on June 30, 1994. This provided the first

formal screen-based trading facility for the debt market in the

country.


FIXED INCOME SECURITIES


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This segment provides trading facilities for a variety of debt

instruments including Government Securities, Treasury Bills and

Bonds issued by Public Sector Undertakings/ Corporates/ Banks

like Floating Rate Bonds, Zero Coupon Bonds, Commercial Papers,

Certificate of Deposits, Corporate Debentures, State Government

loans, SLR and Non-SLR Bonds issued by Financial Institutions,

Units of Mutual Funds and Securitized debt by banks, financial

institutions, corporate bodies, trusts and others.

Large investors and a high average trade value characterize this

segment. Till recently, the market was purely an informal market

with most of the trades directly negotiated and struck between

various participants. The commencement of this segment by NSE

has brought about transparency and efficiency to the debt market,

along with effective monitoring and surveillance to the market.



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Business Growth in WDM Segment

YearMarket

Capitalisation(Rs.crores)

Number of

Trades

Net Traded Value

(Rs.crores)

Average Daily Value(Rs.crores)

Average Trade Size(Rs.crores)

2005-2006

1,553,448 60,159 458,434.94 1,833.74 7.62

2004-2005

1,461,734 124,308 887,293.66 3,028.31 7.14

2003-2004

1,215,864 189,518 1,316,096.24 4,476.52 6.94

2002-2003

864,481 167,778 1,068,701.54 3,598.32 6.37

2001-2002

756,794 144,851 947,191.22 3,277.48 6.54

2000-2001

580,835 64,470 428,581.51 1,482.98 6.65

1999-2000

494,033 46,987 304,216.24 1,034.75 6.47

1998-1999

411,470 16,092 105,469.13 364.95 6.55

1997-1998

343,191 16,821 111,263.28 377.16 6.61

1996-1997

292,772 7,804 42,277.59 145.28 5.42

1995-1996

207,783 2,991 11,867.68 40.78 3.97

1994-1995

158,181 1,021 6,781.15 30.41 6.64

Instruments in the Indian Debt Market

Certificate of Deposit


http://www.nseindia.com/content/debt/debt_busgrow1994-95.htm

























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Certificates of Deposit (CD) are issued by scheduled commercial

banks excluding regional rural banks. These are unsecured

negotiable promissory notes. Bank CDs have a maturity period of 91

days to one year, while those issued by FIs have maturities

between one and three years.

Commercial Paper

Commercial paper (CP) is a short term, unsecured instrument

issued by corporate bodies (public & private) to meet short-term

working capital requirements. Maturity varies between 3 months and

1 year. This instrument can be issued to individuals, banks,

companies and other corporate bodies registered or incorporated in

India. CPs can be issued to NRIs on non-repatriable and non-

transferable basis.

Corporate Debentures

The debentures are usually issued by manufacturing companies with

physical assets, as secured instruments, in the form of certificates

They are assigned a credit rating by rating agencies. Trading in

debentures is generally based on the current yield and market values

are based on yield-to-maturity. All publicly issued debentures are

listed on exchanges.



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Floating Rate Bonds (FRB)

These are short to medium term interest bearing instruments

issued by financial intermediaries and corporates. The typical

maturity of these bonds is 3 to 5 years. FRBs issued by financial

institutions are generally unsecured while those from private

corporates are secured. The FRBs are pegged to different reference

rates such as T-bills or bank deposit rates. The FRBs issued by the

Government of India are in the form of Stock Certificates or issued

by credit to SGL accounts maintained by the RBI.

Government Securities

These are medium to long term interest-bearing obligations issued

through the RBI by the Government of India and state governments.

The RBI decides the cut-off coupon on the basis of bids received

during auctions. There are issues where the rate is pre-specified and

the investor only bids for the quantity. In most cases the coupon is

paid semi-annually with bullet redemption features.

Treasury Bills

T-bills are short-term obligations issued through the RBI by the

Government of India at a discount. The RBI issues T-bills for different

tenures: now 91 -days and 364-days. These treasury bills are issued

through an auction procedure. The yield is determined on the

basis of bids tendered and accepted.

Bank/FI Bonds

Most of the institutional bonds are in the form of promissory notes

transferable by endorsement and delivery. These are negotiable

certificates, issued by the Financial Institutions such as the

IDBI/ICICI/ IFCI or by commercial banks. These instruments have

been issued both as regular income bonds and as discounted long-

term instruments (deep discount bonds).



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Public Sector Undertakings (PSU) Bonds

PSU Bonds are medium and long term obligations issued by public

sector companies in which the government share holding is

generally greater than 51%. Some PSU bonds carry tax

exemptions. The minimum maturity is 5 years for taxable bonds and

7 years for tax-free bonds. PSU bonds are generally not guaranteed

by the government and are in the form of promissory notes

transferable by endorsement and delivery. PSU bonds in electronic

form (demat) are eligible for repo transactions.

An investor can participant in various schemes floated by mutual

fund instead of buying equity shares. In mutual funds invest in

equity shares & fixed income securities. There are three broad

types of mutual fund schemes.

Growth schemes

Income schemes

Balanced schemes


MUTUAL FUND SCHEMES


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It is just like fixed income securities earn a fixed return. However,

unlike fixed income securities, deposits are negotiable or

transferable. The important types of deposits in India are:

Bank deposits

Company deposits

Postal deposits.

It provides benefits to those who participate in them. The most

important tax sheltered saving schemes in India is:

Employee provident fund scheme

Public provident fund schemes

National saving certificate

In a broad sense, life insurance may be viewed as an investment.

Insurance premiums represent the sacrifice & the assured sum the

benefit. In India, the important types of insurance polices are:

Endowment assurance policy

Money back policy

Whole life policy

Premium back term assurance policy


DEPOSITS

TAX-SHELTERED SAVING SCHEMESTAX-SHELTERED SAVING SCHEMES

LIFE INSURANCE


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For the bilk of the investors the most important asset in their

portfolio is a residential house. In addition to a residential house,

the more affluent investors are likely to be interested in the following

types of real estate:

Agricultural land

Semi-urban land

PRECIOUS OBJECTS: -

It is highly valuable in monetary terms but generally they are small

in size. The important precious objects are:

Gold & silver

Precious stones

Art objects

FINANCIAL DERIVATIVES: -

A financial derivative is an instrument whose value is derived from

the value of underlying asset. It may be viewed as a side bet on the

asset. The most import financial derivatives from the point of view of

investors are:

Options

Futures.


REAL ESTATE

PRECIOUS OBJECTS

FINANCIAL DERIVATIVES


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RISK – RETURN OF VARIOUS INVESTMENT

AVENUES

Every investment is characterized by return & risk. Investors

intuitively understand the concept of risk. A person making an

investment expects to get some return from the investment in the

future. But, as future is uncertain, so is the future expected return. It

is this uncertainty associated with the returns from an investment

that introduces risk into an investment. Risk arises where there is a

possibility of variation between expectation and realization with

regard to an investment.

Meaning of Risk

Risk & uncertainty are an integrate part of an investment

decision. Technically ‘risk’ can be define as situation where

the possible consequences of the decision that is to be taken

are known. ‘Uncertainty’ is generally defined to apply to

situations where the probabilities cannot be estimated.

However, risk & uncertainty are used interchangeably.



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Types of risks

1. Systematic risk: -

Systematic risk is non diversifiable & is associated with the

securities market as well as the economic, sociological, political, &

legal considerations of prices of all securities in the economy. The

affect of these factors is to put pressure on all securities in such a

way that the prices of all stocks will more in the same direction.

Example: -

During a boom period prices of all securities will rise & indicate that

the economy is moving towards prosperity. Market risk, interest rate

risk & purchasing power risk are grouped under systematic risk.

RISKS

SYSTAMATIC UNSYSTAMATIC

Market Risk Business Risk

Interest Rate Risk Financial Risk

Purchasing power Risk



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1. Systematic Risk

(A) Market risk

Market risk is referred to as stock variability due to changes in

investor’s attitudes & expectations. The investor reaction towards

tangible and intangible events is the chief cause affecting ‘market

risk’.

(B) Interest rate risk

There are four types of movements in prices of stocks in the

markets. These may termed as (1) long term, (2) cyclical (bull and

bear markets), (3) intermediate or within the cycle, and (4) short

term. The prices of all securities rise or fall depending on the

change in interest rates. The longer the maturity period of a security

the higher the yield on an investment & lower the fluctuations in

prices.

(C) Purchasing Power risk

Purchasing power risk is also known as inflation risk. This risk

arises out of change in the prices of goods & services and

technically it covers both inflation and deflation periods. During the

last two decades it has been seen that inflationary pressures have

been continuously affecting the Indian economy. Therefore, in India

purchasing power risk is associated with inflation and rising prices

in the economy.



- 33 -

2. Unsystematic Risk: -

The importance of unsystematic risk arises out of the uncertainty

surrounding of particular firm or industry due to factors like labour

strike, consumer preferences and management policies. These

uncertainties directly affect the financing and operating enviourment

of the firm. Unsystematic risks can owing to these considerations be

said to complement the systematic risk forces.

(A) Business risk

Every corporate organization has its own objectives and goals and

aims at a particular gross profit & operating income & also accepts

to provide a certain level of dividend income to its shareholders. It

also hopes to plough back some profits. Once it identifies its

operating level of earnings, the degree of variation from this

operating level would measure business risk.

Example:-

If operating income is expected to be 15% in a year, business risk

will be low if the operating income varies between 14% and 16%. If

the operating income were as low as 10% or as high as 18% it

would be said that the business risk is high.

(B) Financial Risk: -

Financial risk in a company is associated with the method through

which it plans its financial structure. If the capital structure of a

company tends to make earning unstable, the company may fail

financially. How a company raises funds to finance its needs and

growth will have an impact on its future earnings and consequently

on the stability of earnings. Debt financing provides a low cost

source of funds to a company, at the same time providing financial

leverage for the common stock holders. As long as the earnings of



- 34 -

the company are higher than the cost of borrowed funds, the

earning per share of common stock is increased. Unfortunately, a

large amount of debt financing also increases the variability of the

returns of the common stock holder & thus increases their risk. It is

found that variation in returns for shareholders in levered firms

(borrowed funds company) is higher than in unlevered firms. The

variance in returns is the financial risk.



- 35 -

Risk Return Of Various Investment Alternatives

Managem

ent

Decision

Required

Investment

Marke

t

Risk

Busines

s

Risk

Interes

t

Risk

Purchasin

g

Power

Risk

H Growth stock H H L L

H

Speculative

common

stock

H H L L

M Blue chips M M L L

MConvertible

referred stockM M L L

LConvertible

debenturesM M L L

LCorporate

bondsL L H H

LGovernment

bondsL L H H

LShort-term

bondsL L L H

LMoney

market fundsL L L H

O Life insurance L L L H

OCommercial

banksL L L H

O Unit trusts L L L M-H

O Saving a/c L L L H

O Cash L L L H

So, there are so many investment options & the different option

have different benefits & limitations in the sense risk associated



- 36 -

with it. So it is difficult for them to chose option, which give

maximum return at minimum risk.

PORTFOLIO

Meaning of portfolio:-

Portfolio

A combination of securities with different risk & return

characteristics will constitute the portfolio of the investor. Thus, a

portfolio is the combination of various assets and/or instruments of

investments. The combination may have different features of risk &

return, separate from those of the components. The portfolio is also

built up out of the wealth or income of the investor over a period of

time, with a view to suit his risk and return preference to that of the

portfolio that he holds. The portfolio analysis of the risk and return

characteristics of individual securities in the portfolio and changes

that may take place in combination with other securities due to

interaction among themselves and impact of each one of them on

others.

An investor considering investments in securities is faced with the

problem of choosing from among a large number of securities. His

choice depends upon the risk and return characteristics of individual

securities. He would attempt to choose the most desirable

securities and like to allocate is funds over this group of securities.

Again he is faced with the problem of deciding which securities to

hold and how much to invest in each. The investor faces an infinite

number of possible portfolios or groups of securities. The risk and

return characteristics of portfolio differ from those of individual

securities combining to form a portfolio. The investor tries to choose

the optimal portfolio taking in to consideration the risk return

characteristics of all possible portfolios.



- 37 -

As the economy and the financial environment keep changing the

risk return characteristics of individual securities as well as

portfolios also change. This calls for periodical review and revision

of investment portfolios of investors. An investor invests his funds in

a portfolio expecting to get a good return consistent with the risk

that he has to bear. The return realized from the portfolio has to be

measured and the performance of the portfolio has to be evaluated.

It is evident that rational investment activity involves creation of an

investment portfolio. Portfolio management comprises all the

processes involved in the creation and maintenance of an

investment portfolio. It deals specifically with the security analysis,

portfolio analysis, portfolio selection, portfolio revision and portfolio

evaluation. Portfolio management makes use of analytical

techniques of analysis and conceptual theories regarding rational

allocation of funds. Portfolio management is a complex process

which tries to make investment activity more rewarding and less

risky.



- 38 -

Before designing a portfolio one will have to know the intention of

the investor or the returns that the investor is expecting from his

investment. This will help in adjusting the amount of risk. This

becomes an important point from the point of view of the portfolio

designer because if the investor will be ready to take more risk at

the same time he will also get more returns. This can be more

appropriately understood from the figure drawn below.

R1

Expected ReturnsExpected Returns

R2

Risk less Investment M1 M2

Risk

From the above figure we can see that when the investor is ready

to take risk of M1, he is likely to get expected return of R1, and if

the investor is taking the risk of M2, he will be getting more returns

i.e. R2. So we can conclude that risk and returns are directly

related with each other. As one increases the other will also

increase in same of different proportion and same if one

decreases the other will also decrease.


PORTFOLIO DESIGN


- 39 -

From the above discussion we can conclude that the investors

can be of the following three types:

1. Investors willing to take minimum risk and at the same time

are also expecting minimum returns.

2. Investors willing to take moderate risk and at the same time

are also expecting moderate returns.

3. Investors willing to take maximum risk and at the same time

are also expecting maximum returns.



- 40 -

Your age will help you determine what a

good mix is / portfolio is

Age Portfoliobelow 30 80% in stocks or mutual funds

10% in cash10% in fixed income

30 t0 40 70% in stocks or mutual funds 10% in cash20% in fixed income

40 to 50 60% in stocks or mutual funds 10% in cash 30% in fixed income

50 to 60 50% in stocks or mutual funds10% in cash40% in fixed income

above 60 40% in stocks or mutual funds 10% in cash 50% in fixed income

These aren't hard and fast allocations, just guidelines to get you

thinking about how your portfolio should look. Your risk profile will

give you more equities or more fixed income depending on your

aggressive or conservative bias. However, it's important to always

have some equities in your portfolio (or equity funds) no matter

what your age. If inflation roars back, this will be the portion of your

investments that protects you from the damage, not your fixed

income.

Also, the fixed income of your portfolio should be diversified. If you

buy bonds and debentures directly or if you invest in FDs, then

make sure you have at least five different maturities to spread out

the interest rate risk.


PORTFOLIO – AGE RELATIONSHIP


- 41 -

Diversifying in equities and bonds means more than buying a

number of positions. Each position needs to be scrutinized as to

how it fits into the stocks or bonds that already are in your portfolio,

and how they might be affected by the same event such as higher

interest rates, lower fuel prices, etc. Put your portfolio together like

a puzzle, adding a piece at a time, each one a little different from

the other but achieving a uniform whole once the portfolio is

complete.

Types of portfolio for study:

In portfolio Design, we are considering only two types of portfolio.

They are as follow:

1. Random Portfolio

2. Sector Portfolio

1. Random portfolio

Random portfolio consists of the scripts that are randomly selected

by the investor by its own knowledge and preference of the stocks.

Here there is no analysis is done of the script, they are selected on

the tips and buts received by the investors from the external

sources.

Features of random portfolio

There is no method used for selection of the script in the

portfolio.

Selection is based on the individual criteria for the scripts.

The investment is made for higher return in short term.



- 42 -

Generally in India most of the portfolio are selected

according to this random methods as no investor himself in

that much analysis of the script.

Advantages of random portfolio

Easier to keep a track on the market as not much time

wasted in the analysis.

This portfolio seems to have perform better in short term as

script are generally which are performing better at that time.

Tips are available every where for the investor to pouch.

It is the experience of the individual that can fetch him good

return.

Disadvantages of random portfolio

There is every chance that you may select a script that has a

very bad background in the market.

Not every time the tips pay off for you. You need to have

strong reason to select that script.

Such portfolios are not able to sustain when there is a crisis

in the market.

There is a very high risk and return involve in such portfolio.



- 43 -

2. Sector specific portfolio

Sector specific portfolio includes securities of those companies

which are in the same business. Sector portfolios are very useful

when there is a particular sector which is doing very good and has a

bright future a head. Sector portfolio has the securities of those

companies that engage in same kind of business.

e.g. In late 1990’s sector that was providing the highest return was

information technology. Investors who have invested their money

in these securities had earned very high return.

Features of sector portfolio

Script form the same group of companies that are in to the

similar type of business.

Maximum exposure to the industry/sector. So any news or

event has the direct effect on the portfolio.

Risk regarding the portfolio increases as it is expose to

sector specific ups and downs.

Useful investment tools for speculator and short-sellers.

It is better suited for the sectors which have been providing

good revenue in the near past.

Advantages of sector portfolio

It is better suited to investors who are willing to take risk.

It provides better short term return then other portfolios.

It is easy to keep a watch on one sector rather than many.

You can have a good command over the things happening.

Limited exposure to other sectors keeps the portfolio safe

from the performance of other sectors in the economy.



- 44 -

Disadvantages of sector portfolio

It is a highly risky portfolio as risk associated with the sector

directly affects the performance of the portfolio.

These types of portfolios are not suited for long-term investor

as risk taken for the return can be too high.

There is always the possibly many scripts in the sector may not be

giving that much good attractive return as others. They may eat the

profits from other scripts.



- 45 -

Book value is based on historical costs, not current values, but can

provide an important measure of the relative value of a company

over time. Book value can be figured as assets minus liabilities, or

assets minus liabilities and intangible items such as goodwill; either

way, the figure that results is the company's net book value. This is

contrasted with its market capitalization, or total share price value,

which is calculated by multiplying the outstanding shares by their

current market price.

You can also compare a company's market value to its book

value on a per-share basis. Divide book value by the number of

shares outstanding to get book value per share and compare the

result to the current stock price to help determine if the company's

stock is fairly valued. Most stocks trade above book value because

investors believe that the company will grow and the value of its

shares will, too. When book value per share is higher than the

current share price, a company's stock may be undervalued and a

bargain to investors.

In case of our sensex as we can see that it is currently trading at a

P/B ratio of 4.41 this shows the average P/B ratio prevailing in the

market. So any script trading below the P/B of 4.41 can said to be

under valued if we keep the BSE SENSEX as bench mark. But it

would be advisable for an investor to also look at the sector leaders

P/B ratio to know what is the common industry P/B and based on

that he can decide about whether to invest in the company or not.

As such there is no guarantee that low P/B would able to give

better return but this stocks are considered to be undervalued so

one can think that this companies are undervalued so chances of

appreciation are very high in case of low P/B scrip. Such companies

having low P/B ratio can be considered as value stock and one can

thin about investing in those companies.



- 46 -

The P/E ratio as a guide to investment decisions

Earnings per share alone mean absolutely nothing. In order to get a

sense of how expensive or cheap a stock is, you have to look at

earnings relative to the stock price and hence employ the P/E ratio.

The P/E ratio takes the stock price and divides it by the last four

quarters' worth of earnings. If AB ltd is currently trading at Rs. 20 a

share with Rs. 4 of earnings per share (EPS), it would have a P/E of

5. Big increase in earnings is an important factor for share value

appreciation. When a stock's P-E ratio is high, the majority of

investors consider it as pricey or overvalued. Stocks with low P-E's

are typically considered a good value. However, studies done and

past market experience have proved that the higher the P/E, the

better the stock.

First, one can obtain some idea of a reasonable price to pay for the

stock by comparing its present P/E to its past levels of P/E ratio.

One can learn what is a high and what is a low P/E for the individual

company. One can compare the P/E ratio of the company with that

of the market giving a relative measure. One can also use the

average P/E ratio over time to help judge the reasonableness of the

present levels of prices. All this suggests that as an investor one

has to attempt to purchase a stock close to what is judged as a

reasonable P/E ratio based on the comparisons made. One must

also realize that we must pay a higher price for a quality company

with quality management and attractive earnings potential.

In the case if we look at the benchmark of BSE sensex on 1st of

December it is trading at a P/E of 24.49. So if we just keep the

benchmark P/E in mind then we can say that any stock which is

trading bellow the P/E of 24.49 is available cheaply. But for an

investor it is also advisable to look at the industry P/E as it is more

important because just looking at the above position we can see



- 47 -

that SBI is trading at a very low P/E of around 8 but if you see that

in banking sector that to public sector banks the normal industry

P/E is 8 all most all banks are trading around 8 or bellow the P/E of

8.

So always it is advisable to look at what is the P/E of industry in

which we want to invest to get the better idea, because if we take

the example of IT industry there almost you will find companies

around P/E of 30. so if any IT company having of P/E would

considered to be a cheap option for the investor to invest in to. So

the investor should also look at the industry average P/E. The new

investor can know about the industry P/E or any other companies

P/E in any financial magazine or from the internet also if he does

not know how to calculate the P/E or is not having the data

available with them.

The formula for calculating the P/E ratio is


P/E = Current Market Price

Earning Per Share


- 48 -

RANDOM PORTFOLIO

Random portfolio consists of the scripts that are randomly selected

by the investor by its own knowledge and preference of the stocks.

Here there is no analysis is done of the script, they are selected on

the tips and buts received by the investors from the external

sources.

We are considering BETA factor to design our Random Portfolio.

Beta Factor “Beta” indicates the proportion of the yield of a

portfolio to the yield of the entire market (as indicated by some

index). If there is an increase in the yield of the market, the yield of

the individual portfolio may also go up. If the index goes up by 1.5%

and the yield of your portfolio goes up by 0.9%, the beta is 0.9/1.5

i.e 0.6. in other words, beta indicates that for every 1 % increase in

the market yield, the yield of the portfolio goes up by 0.6%. High

beta shares do move higher than the market when the market rises

and the yield of the fund declines more than the yield of the market

when the market falls. In the Indian context a beta of 1.2% is

considered very bullish.

You can be indifferent to market swings if you know your stocks

well. Or you can put your portfolio into neutral or bias for the upside

if you're bullish or a little for the downside if you're bearish. One way

to do that is to have a mix of stocks that have certain betas in your

portfolio. When investors are bullish on the market, they like to have

high beta stocks in their portfolios because if they're right, then their

stocks go up faster than the market in general, and their

performance is better than the market. If investors are bearish on

the market, then they use the low beta or negative beta stocks

because their portfolios will go down less than the market and their

performance will be better than the general market. And if they want

to be neutral, they can then make sure that they have stocks with a

beta of 1 or develop a portfolio that has stocks with betas greater



- 49 -

than 1 and less than 1 so that they have the whole portfolio with an

average beta of 1.

A beta for a stock is derived from historical data. This means it has

no predictive value for the future, but it does show that if the stock

continues to have the same price patterns relative to the market in

general as it has in the past, you've got a way of knowing how your

portfolio will perform in relation to the market. And with a portfolio

with an average beta of 1, you can create your own index fund

since you'll move more or less in tandem with the market.



- 50 -

Interpretation of BetaInterpretation of BetaWhen When B = 1B = 1 means that the scrip has same volatility as compared means that the scrip has same volatility as compared

to Index. Suitable for moderate investor.to Index. Suitable for moderate investor.

When When B>1B>1 means that scrip is more volatile as compared to market means that scrip is more volatile as compared to market

suitable for aggressive investors.suitable for aggressive investors.

When When B<1B<1 then scrip is less volatile as compared to market and then scrip is less volatile as compared to market and

suitable for defensive investors.suitable for defensive investors.

Beta of scrips plays vital role in scrip selection in PortfolioBeta of scrips plays vital role in scrip selection in Portfolio

management. Portfolio can be created in many ways as sectormanagement. Portfolio can be created in many ways as sector

wise, diversified in various sector, beta wise scrip portfolio.wise, diversified in various sector, beta wise scrip portfolio.

SO BASED ON THIS BETA NOW WE WILL PREPARE THREE

PORTFOLIO TO MATCH THE RISK TAKING CAPACITY OF AN

INVESTOR

THAT IS

AGGRESSIVE MODERATE DEFENSIVE


PORTFOLIO


- 51 -

DEFENSIVE PORTFOLIO

SR NO. SCRIPT

BETA

PRICE ON 2-01-2006 Wi

1 ACC 0.72 530.45 9.68

2 CIPLA 0.78 440.00 10.48

3 DR REDDY 0.69 963.00 9.27

4 GRASIM 0.76 1375.3 10.22

5 HDFC BANK 0.76 713.45 10.22

6 ITC 0.81 140.10 10.89

7 RANBUXY 0.69 444.35 9.27

8HERO HONDA 0.8 846.10 10.75

9 HDFC 0.82 1191.3 11.02

10 GLAXO 0.61 1111.6 8.20

Total Portfolio Beta = Wi * BETA

=6.97 +8.18+6.40+7.76+7.76

+8.82+6.40+8.60+9.04+5.00

= 74.93 ~ 75


Total Portfolio Investment = 10,00,000 Rs.


- 52 -

RETURN ON INDIVIDUAL SCRIPTS

1ST MONTH

SR NO. SCRIPT

BETA

2-01-2006

31-01-06 RETUR

N IN %1 ACC 0.72 530.45 574.20 8.252 CIPLA 0.78 440.00 442.25 0.513 DR REDDY 0.69 963.00 1121.25 16.434 GRASIM 0.76 1375.30 1454.25 5.745 HDFC BANK 0.76 713.45 762.45 6.876 ITC 0.81 140.10 154.80 10.497 RANBUXY 0.69 444.35 399.40 -10.12

8HERO HONDA 0.80 846.10 857.20 1.31

9 HDFC 0.82 1191.30 1339.70 12.4610 GLAXO 0.61 1111.60 1282.80 15.40

2ND MONTH

SR NO. SCRIPT

BETA 2-01-06 28-02-06 RETURN

IN %1 ACC 0.72 530.45 626.30 18.072 CIPLA 0.78 440.00 552.15 25.493 DR REDDY 0.69 963.00 1306.10 35.63

4 GRASIM 0.761375.3

0 1742.60 26.715 HDFC BANK 0.76 713.45 737.15 3.326 ITC 0.81 140.10 172.45 23.097 RANBUXY 0.69 444.35 429.50 -3.34

8HERO HONDA 0.80 846.10 889.30 5.11

9 HDFC 0.821191.3

0 1365.65 14.64

10 GLAXO 0.611111.6

0 1315.55 18.35



- 53 -

RETURN IN DEFENSIVE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000

VALUE OF PORTFOLIO AS ON 28-02-2006 = 1166628.41

TOTAL RETURN IN % TERM = 16.66 %


TOTAL RETURN ON PORTFOLIO = 1166628.41 - 1000000

= 166628.41


- 54 -

MODRATE PORTFOLIO

SR NO. SCRIPT

BETA


1 BHARTI 0.99 340.0510.7

3

2GUJARAT AMBUJA 0.86 79.30 9.32

3 BAJAJ AUTO 0.85 450.05 9.21

4 HLL 0.88 195.10 9.53

5 HINDALCO 1.00 146.2010.8

3

6 LT 0.86 1825.65 9.32

7 MTNL 0.89 142.15 9.64

8 ZEE 0.90 157.90 9.75

9BHEL

1.00 1389.9010.8

3

10 PNB 1.00 472.0010.8

3


= 10.62 + 8.01+7.83+8.39+10.83+

8.01+8.58+8.78+10.83+10.83

= 92.72 ~ 93


Total Portfolio Investment = 10,00,000/- Rs.


- 55 -


1ST MONTH

SR NO. SCRIPT

BETA

2-01-2006

31-01-06 RETUR

N IN %1 BHARTI 0.99 340.05 357.25 5.06%

2GUJARAT AMBUJA 0.86 79.30 88.55 11.66%

3 BAJAJ AUTO 0.85 450.05 513.25 14.04%4 HLL 0.88 195.10 195.25 0.08%5 HINDALCO 1.00 146.20 164.80 12.72%

6 LT 0.86 1825.652172.1

0 18.98%7 MTNL 0.89 142.15 141.70 -0.32%8 ZEE 0.90 157.90 164.70 4.31%

9 BHEL 1.00 1389.901795.6

0 29.19%10 PNB 1.00 472.00 465.35 -1.41%

2ND MONTH

SR NO. SCRIPT

BETA

2-01-2006 28-02-

06RETURN IN %

1 BHARTI 0.99 340.05 361.05 6.18%

2GUJARAT AMBUJA 0.86 79.30 88.30 11.35%

3 BAJAJ AUTO 0.85 450.05 550.10 22.23%4 HLL 0.88 195.10 243.70 24.91%5 HINDALCO 1.00 146.20 153.35 4.89%

6 LT 0.86 1825.652396.9

5 31.29%7 MTNL 0.89 142.15 142.65 0.35%8 ZEE 0.90 157.90 196.60 24.51%

9 BHEL 1.00 1389.902027.0

0 45.84%10 PNB 1.00 472.00 442.10 -6.33%



- 56 -

RETURN IN MODRATE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000/- Rs..

VALUE OF PORTFOLIO AS ON 28-02-2006 = 1162912.70/- Rs.



TOTAL RETURN ON PORTFOLIO

= 1162912.70 Rs. - 1000000 Rs.

= 162912.70 Rs.


- 57 -

AGGRESSIVE PORTFOLIO

SR NO. SCRIPT

BETA


1ICICI BANK LTD 1.09 597.00 9.64

2 INFOSYS 1.07 2979.35 9.46

3 ONGC 1.02 1191.65 9.02

4 RELIANCE 1.05 441.05 9.28

5 SATYAM 1.23 731.55 10.88

6 SBIN 1.09 904.90 9.64

7 TATA POWER 1.11 434.20 9.81

8 TATA MOTER 1.19 639.55 10.52

9 TATA STEEL 1.13 379.00 9.99

10 WIPRO 1.33 461.70 11.76


=10.50+10.12+9.20+9.75+13.38+

10.50+10.89+12.52+11.29+15.64

= 113.80 ~ 114


Total Portfolio Investment = 10,00,000/- Rs.


- 58 -


1ST MONTH

SR NO. SCRIPT

BETA

2-01-2006

31-01-06 RETUR

N IN %

1ICICI BANK LTD 1.09 597.00 609.25 2.05

2 INFOSYS 1.07 2979.35 2880.30 -3.323 ONGC 1.02 1191.65 1237.30 3.834 RELIANCE 1.05 441.05 480.15 8.875 SATYAM 1.23 731.55 746.75 2.086 SBIN 1.09 904.90 886.35 -2.057 TATA POWER 1.11 434.20 471.80 8.668 TATA MOTER 1.19 639.55 708.45 10.779 TATA STEEL 1.13 379.00 404.45 6.72

10 WIPRO 1.33 461.70 529.70 14.73

2ND MONTH

SR NO. SCRIPT

BETA

2-01-2006

28-02-06 RETUR

N IN %

1ICICI BANK LTD 1.09 597.00 615.25 3.06

2 INFOSYS 1.07 2979.352828.9

5 -5.05

3 ONGC 1.02 1191.651136.4

0 -4.644 RELIANCE 1.05 441.05 500.55 13.495 SATYAM 1.23 731.55 769.65 5.216 SBIN 1.09 904.90 877.50 -3.037 TATA POWER 1.11 434.20 511.20 17.738 TATA MOTER 1.19 639.55 816.20 27.629 TATA STEEL 1.13 379.00 431.00 13.72

10 WIPRO 1.33 461.70 520.45 12.72



- 59 -

RETURN IN AGGRESSIVE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000/- Rs.

VALUE OF PORTFOLIO AS ON 28-02-2006 =10,84,397.28/- Rs.



TOTAL RETURN ON PORTFOLIO = 1084397.28 Rs - 1000000Rs

= 84397.28 Rs.


- 60 -

Interpretation of Random Portfolio

As in the theoretical way we have scene that the Beta shows

the movement or change in the price of script vis-à-vis index.

And a Beta >1 is more riskier and hence should give more

return as compared to the script having Beta < 1. as the

person is taking more risk then he should get more return.

But in our case we have scene that Moderate portfolio

having Beta < 1 has given more return as compared to

Aggressive Portfolio.

So we can easily say that the investment in equity market is

subject to market risk and any one having long-term

investment horizon should only enter into equity market. This

analysis that has been carried out was only for a period of

two month there are chances that in the long run aggressive

portfolio would outperform the other portfolio



- 61 -

DERIVATIVES

Derivatives is a product whose value is derived from the value of

one or more basic variables, called bases (underlying asset, index,

or reference rate), in a contractual manner. The underlying asset

can be equity, forex or commodity or any other asset. For example,

wheat farmer may wish to sell their harvest at a future date to

eliminate the risk of a change in prices by the date. Such a

transaction is an example of a derivative. The price of this derivative

is driven by the spot price of wheat which is the ‘underlying”.

In the Indian context the Securities Contracts (Regulation) Act.

1956 (SC(R)A) defines “derivative” to include –

1. A security derived from a debts instrument, share, loan

whether secured or unsecured, risk instrument or contract for

differences or any other form of security.

2. A contract, which derives its value from the prices, or index

of price, of underlying securities.

The derivatives are securities under the (SC(R)A) and hence the

trading of derivatives is governed by the regulatory framework

under the (SC(R)A).



- 62 -

TYPES OF DERIVATIVES

The most commonly used types of derivatives are as follows:

o Forwards : A forward contract is a customized contract

between two entities, where settlement takes place on a

specific date in the future at today’s pre-agreed price.

o Futures : A future contract is an agreement between two

parties to buy or sell an asset at a certain time in the

future at a certain price. Future contracts are special

types of forward contract in the sense that the former are

standardized exchange-traded contracts.

o Options : Options are of two types – call and put. Calls

give the buyer the right but not the obligation to buy a

gives quantity of the underlying asset, at a given price on

or before a given future date. Plus give the buyer the

right, but not the obligation to sell a given quantity of the

underlying asset at a given price on or before a given

date.



- 63 -

INTRODUCTION TO FUTURE

Future markets were designed to solve the problems that exist in

forward markets. A future contract is an agreement between two

parties to buy or sell an asset at a certain time in the future at a

certain price. But unlike forward contracts, the future contracts are

standardized and exchange traded. To facilitate liquidity in the

future contracts, the exchange specifies certain standard features of

the contract. It is a standardized contract with standard underlying

instrument, a standard quantity and quality of the underlying

instrument that can be delivered, (or which can be used for

reference purpose in settlement) and a standard time of such

settlement. A future contract may be offset prior to maturity by

entering into an equal and opposite transaction. More than 99% of

future transactions ate offset this way.

The standardized items in a future contract are:

Quantity of the underlying.

Quality of the underlying.

The date and the month of delivery.

The units of price quotation and minimum price change.

Location of settlement.

FEATURES OF A FUTURE CONTRACT

Future contracts are organized / standardized contracts,

which are traded on the exchanges.

These contracts, being standardized and traded on the

exchanges are very liquid in nature.

In futures market, clearing corporation/ house provides

the settlement guarantee.



- 64 -

DISTINCTION BETWEEN FUTURE AND FORWARD DISTINCTION BETWEEN FUTURE AND FORWARD CONTRACTS:CONTRACTS:

Future contracts are often confused with future contracts. The

confusion is primarily because both serve essentially the same

economic functions of allocating risk in the presence of future price

uncertainty. However futures are a significant improvement over the

forward contracts as they eliminate counterparty risk and offer more

liquidity.

Features Forward Contract Future Contract

Operational

Mechanism

Not traded on

exchange

Traded on exchange

Contract

Specifications

Differs from trade to

trade.

Contracts are

standardized

contracts.

Counterparty RiskExists Exists, but assumed

by Clearing

Corporation/ house.

Liquidation ProfilePoor Liquidity as

contracts are tailor

maid contracts.

Very high Liquidity as

contracts are

standardized

contracts.

Price DiscoveryPoor; as markets

are fragmented.

Better; as fragmented

markets are brought

to the common

platform.



- 65 -

FUTURE TERMINOLOGYFUTURE TERMINOLOGY

Spot Price: The price at which an asset trades in the spot

market.

Future Price: The price at which the future contracts trades

in the market.

Contract Cycle: The period over which a contract trades.

The index futures contracts on the NSE have one-month,

two-months and three-months expiry cycle, which expire on

the last Thursday of the month. Thus a January expiration

contract would expire on the last Thursday of January and a

February expiration contract would cease trading on the last

Thursday of February. On the Friday following the last

Thursday, a new contract having a three-month expiry would

be introduced for trading.

Expiry Date: It is the date specified in the future contract.

This is the last day on which the contract will be traded, at

the end of which it will cease to exist.

Contract Size: The amount of asset that has to be delivered

under one contract. For instance, the contract size on NSE’s

futures market is 200 Nifties.

Basis: Basis is usually defined as the spot price minus the

future price. There will be a different basis for each delivery

month for each contract. In a normal market, basis will be

negative. This reflects that futures prices normally exceed

spot prices.



- 66 -

Cost of Carry: The relationship between futures prices and

spot prices can be summarized in terms of what is known as

the cost of carry. This measures the storage cost plus the

interest that is paid to finance the asset less the income

earned on the asset.

Initial Margin: The amount that must be deposited in the

margin account at the time a futures contract is first entered

into is known as initial margin.

Marking-to-Market: In the future market, at the end of each

trading day, the margin account is adjusted to reflect the

investor’s gain or loss depending upon the futures closing

price. This is called marking-to-market.

Maintenance Margin: This is somewhat lower than the initial

margin. This is set to ensure that the balance in the margin

account never becomes negative. If the balance in the

margin account falls below the maintenance margin, investor

receives a margin call and is expected to top up the margin

account to the initial level before trading commences on the

next day.



- 67 -

DIFFERENCE BETWEEN FUTURES AND OPTIONSDIFFERENCE BETWEEN FUTURES AND OPTIONS

At a practical level, the option buyer faces an interesting situation.

He pays for the option in full at the time it is purchased. After this,

he only has an upside. There is no possibility of the options position

generating any further losses to him (other than the funds already

paid for option). This is different from futures, which is free to enter

into, but can generate very large losses. This characteristic makes

options attractive to many occasional market participants, who

cannot put in the time to closely monitor their future options.

Buying put option means that you are buying insurance. To buy a

put option on Nifty is to buy insurance which reimburses the full

extent to which Nifty drops below the strike price of the put option.

This is attractive to many people, and to mutual funds creating

“guaranteed return products”. The Nifty index fund industry will find

it very useful to make a bundle of a Nifty index fund and a Nifty put

option to create a new kind of a Nifty index fund, which gives the

investor protection against extreme drops in Nifty.

Selling put option is selling insurance, so anyone who feels like

earning revenues by selling insurance can set himself up to do so

on the index option market.

More generally, option offer “nonlinear payoffs” whereas futures

only have “linear payoffs”. By combining futures and options, a wide

variety of innovative and useful payoff structures can be created.



- 68 -

PAYOFF FOR DERIVATIVES CONTRACT

Payoff is likely profit/loss that would accrue to a market participant

with change in the price of the underlying asset. This is generally

depicted in the form of payoff diagrams, which show the price of the

underlying asset on the X-axis and the profit/losses on the Y-axis.

Payoff for Futures:Payoff for Futures:

Future contracts have linear payoffs. It means that the losses as

well as profits for the buyer and the seller of a future contract are

unlimited. These linear payoffs are fascinating as they can be

combined with options and the underlying to generate various

complex payoffs.

Payoff for buyer for futures: Long Futures

The payoff for a person who buys a futures contract is similar to

the payoff for a person who holds an asset. He has a potentially

unlimited upside as well as a potentially unlimited downside.

Take the case of a speculator who buys a two-month Nifty index

futures contract when the Nifty stands at 1220. The underlying

asset in this case is the Nifty portfolio. When the index moves

down it starts making losses.

Profit

1220

0

Nifty

Loss



- 69 -

Payoff for seller of futures: Short futures

The payoff for a person who sells a futures contracts is similar to

the payoff for a person who shorts an asset. He has a potentially

unlimited upside as well as a potentially unlimited downside.

Take the case of a speculator who sells a two-month Nifty index

futures contract when the Nifty stands at 1220. The underlying

asset in this case is the Nifty portfolio. When the index moves

down, the short future position starts making profits, and when

the index moves up, it starts making losses.

Profit

1220

0

Nifty

Loss



- 70 -

USING INDEX FUTURES

There is always risk involved when we trade in a stock market. The

risk cannot be eradicated fully but can be minimized up to some

extent. Following are the types of risks that can be minimized

through futures:

Basic objective of introduction of futures is to manage the

price risk.

Index futures are used to manage the systemic risk, vested

in the investment in securities.

Basically there are eight basic modes of trading on the index futures

market;

Hedging

H1 Long stock, short Nifty futures

H2 Short stock, long nifty futures

H3 Have portfolio, short Nifty futures

H4 Have funds, long Nifty futures

Hedge Terminology:

Long hedge- When you hedge by going long in futures market.

Short hedge - When you hedge by going short in futures

market.

Cross hedge - When a futures contract is not available on

an asset, you hedge your position in cash market on this

asset by going long or short on the futures for another asset

whose prices are closely associated with that of your

underlying.

Hedge Contract Month- Maturity month of the contract

through which hedge is accomplished.



- 71 -

Hedge Ratio - Number of future contracts required to hedge

the position.

Speculation

Speculation is all about taking position in the futures market

without having the underlying. Speculators operate in the market

with motive to make money. They take:

Naked positions - Position in any future contract.

Spread positions - Opposite positions in two future

contracts. This is a conservative speculative strategy.

Speculators bring liquidity to the system, provide insurance to the

hedgers and facilitate the price discovery in the market.

S1 Bullish index, long Nifty futures

S2 Bearish index, short Nifty futures



- 72 -

HEDGING

H1: long stock, short Nifty futures

A person who feels that the stocks will be intrinsically under

evaluated or the profits and the quality of the company will make it

more worth as compared to the market will always like to take a

long position on the cash market. While doing so he will have to

face the following kinds of risks:

1. His understanding can be wrong, and the company is really

not worth more than the market prices.

2. The entire market moves against him and generate losses

even though the underlying idea was correct.

The second outcome happens all time. A person may buy Reliance

at Rs.190 thinking hat it would announce good results and the stock

price would rise. A few days later, Nifty drops, so he makes losses,

even if his understanding of Reliance was correct.

There is a peculiar problem here. Every buy position on a stock is

simultaneously a buy position on Nifty. This is because a, LONG

RELIANCE position generally gains if Nifty rises and generally

losses if Nifty drops. In this sense, a LONG RELIANCE position is

not a focused play on the valuation of Reliance. It carries a LONG

NIFTY position along with it, as incidental baggage. The stock

picker may be thinking that he wants to be LONG RELIANCE but a

long position on Reliance effectively forces him to be LONG

RELIANCE + LONG NIFTY.



- 73 -

If we think that WIPRO is under evaluated, the position LONG

WIPRO is not purely about WIPRO; it is also partly about Nifty.

Every trader who has a LONG WIPRO position is forced to be an

index speculator, even though he may not have no interest in the

index.

Those who are bullish about the index should just buy

Nifty futures; the need not trade individual stocks.

Those who are bullish about WIPRO do wrong by

carrying along a long position on Nifty as well.

There is a simple way out. Every time we adopt a long position on a

stock, we should sell some amount of Nifty futures. This will help in

offsetting the hidden Nifty exposure that is every long-stock

position. Once this is done, we will have a position which will be

purely about the performance of the stock. The position LONG

WIPRO + SHORT NIFTY is a pure play on the value of WIPRO,

without any risk from fluctuation of the market index. When this will

be done the stockpicker has “hedged away” his index exposure.

The basic point of this hedging strategy is that the stockpicker

proceeds with his core skill, i.e. picking stocks, at the cost of lower

risk.

NOTE: hedging does not remove losses. The best that can be

achieved by using hedging is the removal of unwanted exposure,

i.e. unnecessary risk. The hedged position will make less profit than

the un-hedged position, half the time. One should not enter into a

hedging strategy hoping profit for sure; all that can come out of

hedging is reduced risk.



- 74 -

H2: Short stock, long Nifty futures

If a person feels that the stock is over evaluated or the profits and

the quality of the company made it worth a lot less as compared to

what the market thinks, he can take a short position on the cash

market. This will give rise to two types of risks:

1. His understanding can be wrong, and the company is really

worth more than the market price.

2. The entire market moves against him and generates losses

even though the underlying idea was correct.

The second outcome happens all time. A person may sell Reliance

at Rs.190 thinking that Reliance would announce poor result and

the stock price would fall. And if after few days if the Nifty rises, he

will incur loss, even if the intrinsic understanding of Reliance was

correct.

There is a peculiar problem here. Every sell position on a stock is

simultaneously a sell position on Nifty. This is because a SHORT

RELIANCE position generally gains if Nifty falls and generally loses

if Nifty rises. In this sense, a SHORT RELIANCE position is not a

focused play on the valuation of Reliance. It carries a SHORT

NIFTY position along with it, as incidental baggage. The stockpicker

may be thinking he wants to be SHORT RELIANCE, but a short

position on Reliance on the market effectively forces him to be

SHORT RELIANCE + SHORT NIFTY.



- 75 -

Even if we think that WIPRO is overvalued, the position SHORT

WIPRO is not purely about WIPRO; it is also about the Nifty. Every

trader who has a SHORT WIPRO position is forced to be an index

speculator, even though he may not have any interest in the index.

Those who are bearish about the index should just sell

Nifty futures; the need not trade individual stocks.

Those who are bearish about WIPRO do wrong by

carrying along a short position on Nifty as well.

There is a simple way out. Every time we adopt a short position on

a stock, we should buy some amount of Nifty futures. This will help

in offsetting the hidden Nifty exposure that is every short-stock

position. Once this is done, we will have a position, which will be

purely about the performance of the stock. The position SHORT

WIPRO + LONG NIFTY is a pure play on the value of WIPRO,

without any risk from fluctuation of the market index. When this will

be done the stockpicker has “hedged away” his index exposure.

The basic point of this hedging strategy is that the stockpicker

proceeds with his core skill, i.e. picking stocks, at the cost of lower

risk.



- 76 -

H3: Have Portfolio, short Nifty futures

Some of us might have experienced the feeling of owing an equity

portfolio, and then one day, we become uncomfortable about the

overall stock market. Sometimes we have a view that the stock

prices will fall in the near future. At other times, we may see that the

market is in for a few days or weeks of massive volatility, and we do

not have an appetite for this kind of volatility. The best example of

this volatility is the union budget. Market positions become volatile

for one week before and two weeks after the budget. Many

investors want to eradicate this three weeks volatility.

This becomes a peculiar problem if we are thinking of selling the

shares in the near future, for example, in order to finance a

purchase a house. This planning can go wrong if by the time we sell

shares, Nifty has dropped sharply.

There are two main alternatives, when one faces this type of

problem:

1. Sell shares immediately. This sentiment generates “panic

selling” which is rarely optimal for the investor.

2. Do nothing, i.e. suffer the pain of volatility. This leads to

political pressure for government to “do something” when

stock prices fall.

Here in this case, with the index futures market, a third and a

remarkable alternative becomes available:

3. Remove your exposure to index fluctuations temporarily

using index futures. This will allow rapid response to market

conditions, without “panic selling” of shares. It will allow an

investor to be in control of his risk, instead of doing nothing

and suffering the risk.



- 77 -

The idea here is that every portfolio contains a hidden index

exposure. This statement is true for all portfolios, whether a portfolio

is composed of index stock or not. In the case of portfolios, most of

the portfolio risk is accounted for by index fluctuations. Hence a

position LONG PORTFOLIO + SHORT NIFTY can often become

one-tenth as risky as the LONG PORTFOLIO position.

Is suppose we have a portfolio of Rs.1 billion, which is having a

beta of 1.25. Then a complete hedge is obtained by selling Rs.1.25

million of Nifty futures.



- 78 -

H4: Have funds, buy Nifty futures

A person may be in a situation where he is having funds, which

needed to be invested in equity, or he may be expecting to get

funds in future to be invested in equity. The following can be the

occurrences in the above conditions:

A closed-end fund, which just finished its initial public

offering, has cash, which is not yet invested.

If a person is planning to sell some of his shares. The

land deal is slow and will take time to complete. It takes

several weeks from the date that it becomes sure that the

funds will come to the date that the funds are actually are

in hands.

An open-ended fund has just sold fresh units and has

received funds.

To get oneself invested in equity sounds quite easy but it involves

the following problems:

1. A person may need time to research stocks, and carefully

pick stocks that are expected to do well. This process of

research takes time. For that time the investor is partly

invested in cash and partly invested in stocks. During this

time, he is exposed to the risk of missing out if the overall

market index goes up.

2. A person may have made up his mind on what portfolio he

seeks to buy, but going to the market and placing the market

order would generate large ‘impact cost’. The execution

would be improved substantially if he could instead place a

limit orders and gradually accumulate the portfolio at



- 79 -

favorable prices. This takes time, and during this time, he is

exposed to the risk of missing out if the Nifty goes up.

3. In some cases, such as land sale above, the person may not

simply have cash to immediately buy the shares, hence he is

forces to wait even if he feels that Nifty is unusually cheap.

He is exposed to the risk of missing out if Nifty rises.

The three alternatives that are available with an investor are as

follows:

The investor would obtain the desired equity exposure by

buying index futures, immediately. A person who expects

to obtain Rs.5 million by selling land would immediately

enter into a position LONG NIFTY worth Rs.5 million.

Similarly a close-end fund, which has just finished its

initial public offering and has cash, which is not yet

invested, can immediately enter into a LONG NIFTY to

the extent it wants to be invested into equity. The index

futures market is likely to be more liquid than individual

stocks so it is possible to take extremely large position at

a low impact cost.

Later, the investor / close-end fund can gradually acquire

stocks. As and when shares are obtained, one would

scale down the LONG NIFTY position correspondingly.

No matter how slowly the stocks are purchased, this

strategy would fully capture a rise in Nifty, so there is no

risk of missing out on a broad rise in the stock market

while this process is taking place. Hence, this strategy

allows the investor to take more care and spend more

time in choosing stocks and placing aggressive limit

orders.



- 80 -

SPECULATION

S1: Bullish index, long Nifty futures

We may sometimes think that the market index is going to rise and

we can make profits by adopting a position on the index. After a

good budget, or good corporate results, or the onset of the stable

government, many people may feel that the index would go up.

Now a days people have the following two strategies to get benefit

from an upward movement in the index:

1. Buy selected liquid securities, which move with the index,

and sell them at a later date.

2. Buy the entire index portfolio and then sell it at a later date.

The first alternative is widely used. A lot of the trading volume on

the liquid stock is based on using these liquid stocks as an index

proxy. However, these positions run the risk of making losses owing

to company. The second alternative is cumbersome and expensive

in terms of the transaction cost involved in it.

Taking a position on the index is effortless using the index futures

market. By using the index futures an investor can “buy “ or “sell”

the entire index by trading on one singe security. Once a person is

LONG NIFTY using the futures market, he gains if the index rises

and losses if the index falls.



- 81 -

S2: Bearish index, short Nifty futures

We may sometimes think that the market is going to fall and we can

make profit by adopting a position on the index. After a bad budget,

or bad corporate results, or the onset of a coalition government,

many people feel that the index would go down. So to get the

benefit from the downward movement in the index we are having

the following two choices:

1. Sell selected liquid securities, which move with the index,

and buy them at a later date.

2. Sell the entire index portfolio and then buy it at a later date.

The first alternative is widely used. A lot of the trading volume on

liquid stock is based on using these positions run the risk of making

losses owing to company.

The second alternative is hard to implement. This strategy is

cumbersome and also expensive in terms of the transaction cost

involved.

Taking a position on the index is effortless using the index futures

market. By using the index futures an investor can “buy “ or “sell”

the entire index by trading on one singe security. Once a person is

SHORT NIFTY using the futures market, he gains if the index falls

and losses if the index rises.

Now after learning about the futures what we can do is that as we

are having our three portfolios we would see how we could hedge

our position using the futures contract. As we know that Hedging



- 82 -

does not always make money. The best way that can be achieved

using hedging is the removal of unwanted exposure, i.e.

unnecessary risk. The hedged position will make less profit than the

unhedged position. One should not enter into a hedging strategy

hoping to make excess profits for sure; all that can come out of

hedging is reduced risk. So one should go for hedging only if the

movement of market makes him uncomfortable.

Here we are having a portfolio of script so to hedge our position we

would have to know what is the portfolio BETA

Where, Wi = the weightage of scrip in the portfolio

Beta = % Change in Scrip Return

% Change in Market Return

The BETA of a scrip can be easily found out from the website of

National Stock Exchange and also from the website of Bombay

stock exchange

Here for the purpose of hedging we will have to short nifty futures

as we are having the portfolio and the future contracts may not be

available for all the scrip. But as we have seen earlier that all scrip

have hidden exposure to nifty. So we will short the nifty future

contract for the purpose of hedging our portfolio.

The current nifty lot size is 200. Now for the purpose of hedging the

portfolio we will have to decide about the number of lots of Nifty that

the investor will have to sell in order to hedge his position. To find

out that figure we will have to do the following calculations: -


The Portfolio BETA = Wi * Beta


- 83 -

DEFENSIVE PORTFOLIO

As the nifty that are required to be short comes out to be 266.55 but

as we know that the nifty is available in the lot size of 300 so this

will give our portfolio a partial hedge as we are unable to short the

exact nifty figure that we have calculated.

During this two month the nifty has moved to 3064.4 this shows that

nifty has increased by 250.70 in % terms nifty has gone up by 8.91

%

Now as we have short position of one nifty contract we would

require to pay the buyer of contract 250.70*300 =75,210Rs.

If we take in to account the profit that we now earn is 1,66,628 –

75210= 91418/- Rs.

So we can easily see that the hedging as reduced our profit we

were earning 1,66,628 with hedging it has reduced to 75210. talking

in % terms we can say that we were earning 16.66% but due to

hedging the profit comes down to 9.14%

PROFIT ( Rs. ) PROFIT ( % )

WITHOUT HEDGING 1,66,628 16.66 %

WITH HEDGING 91,418 9.14 %


Amount of Nifty to be short = Investment * Portfolio Beta The current Nifty level

= 1000000 * 0.75

2813.7

= 266.55


- 84 -

MODERATE PORTFOLIO

As the nifty that are required to be short comes out to be 54 but as

we know that the nifty is available in the lot size of 100 so this will

give our portfolio a partial hedge as we are unable to short the


During 2 month the nifty has moved to 3064.4 this shows that nifty

has increased by 250.70 in % terms nifty has gone up by 8.91 %


require to pay the buyer of contract 250.70*100 =25,070 Rs.

If we take in to account the profit that we now earn Is 1,40,350–

25,070= 1,15,280Rs.


were earning 1,40,350 Rs. with hedging it has reduced to 25070.

talking in % terms we can say that we were earning 16.29% but due

to hedging the profit comes down to 11.53%


WITHOUT HEDGING 1,40,350 16.29 %

WITH HEDGING 1,15,280 11.53 %


Amount of Nifty to be short = Investment * Portfolio Beta

The current Nifty level

= 162612.70 * 0.93

2813.7

= 53.74 ~ 54


- 85 -

AGGRESSIVE PORTFOLIO

As the nifty that are required to be short comes out to be 405.16 but

as we know that the nifty is available in the lot size of 400 so this

will give our portfolio a partial hedge as we are unable to short the


During this two month the nifty has moved to 3064.4 this shows that

nifty has increased by 250.70 in % terms nifty has gone up by 8.91

%


require to pay the buyer of contract 250.70*400 =1,00,280Rs.

If we take in to account the profit that we now earn is 84,397 –

1,00,280 = ( 15,883) Rs.


were earning 84,397with hedging it has reduced to (15,883). talking

in % terms we can say that we were earning 8.44% but due to

hedging the profit comes down to ( 1.58 )%


WITHOUT HEDGING 84,397 8.44 %

WITH HEDGING ( 15,883) (1.58 ) %


Amount of Nifty to be short = Investment * Portfolio Beta

The current Nifty level

= 10,00,000 *1.14

2813.7

= 405.16


- 86 -

SECTOR PORTFOLIO

Sector specific portfolio includes securities of those companies

which are in the same business. Sector portfolios are very useful

when there is a particular sector which is doing very good and has a

bright future a head. Sector portfolio has the securities of those

companies that engage in same kind of business.

e.g. In late 1990’s sector that was providing the highest return was

information technology. Investors who have invested their money

in these securities had earned very high return.

We are considering Telecom Sector as our Sector Portfolio.



- 87 -

Industry analysis

Telecom sector

Objectives and targets of the New Telecom Policy 1999

The objectives of the NTP 1999 are as under:

Access to telecommunications is of utmost importance for

achievement of t

he country's social and economic goals. Availability of

affordable and effective communications for the citizens is at

the core of the vision and goal of the telecom policy.

Strive to provide a balance between the provision of

universal service to all uncovered areas, including the rural

areas, and the provision of high-level services capable of

meeting the needs of the country's economy;

Encourage development of telecommunication facilities in

remote, hilly and tribal areas of the country;

Create a modern and efficient telecommunications

infrastructure taking into account the convergence of IT,

media, telecom and consumer electronics and thereby propel

India into becoming an IT superpower;

Convert PCO's, wherever justified, into Public Teleinfo

centres having multimedia capability like ISDN services,

remote database access, government and community

information systems etc.

Transform in a time bound manner, the telecommunications

sector to a greater competitive environment in both urban

and rural areas providing equal opportunities and level

playing field for all players;

Strengthen research and development efforts in the country

and provide an impetus to build world-class manufacturing

capabilities.



- 88 -

Achieve efficiency and transparency in spectrum

management.

Protect defence and security interests of the country.

Service Provider Area of Operation1 BSNL All India (Except Delhi & Mumbai)2 MTNL Delhi & Mumbai3 Bharti Telesonic Ltd AP, MP, Delhi, Haryana, Tamil Nadu, Chennai, Karnataka, Kerala, Gujarat, Punjab, Maharashtra, Mumbai, UP(E), including Uttaranchal, West Bengal and Kolkata4 Tata Teleservices(Maharashtra) Ltd Maharastra, Mumbai5 Tata Teleservices Ltd AP, TN, Chennai, Karnataka, Gujarat, Delhi, Bihar, Orissa, Rajasthan, Punjab, Haryana, Himachal Pradesh, Kerala, Madhya Pradesh, U.P. (E), U.P (W) including Uttaranchal, West Bengal and Kolkata6 HFCL Infotel Ltd Punjab7 Shyam Telelink Ltd Rajasthan8 Reliance Infocomm.Ltd. AP, Bihar, Delhi, Gujarat, Haryana, HP, Karnataka, Kerala, MP, Maharashtra, Mumbai, Orissa, Punjab, Rajasthan, Tamil Nadu, Chennai, UP(E), West Bengal, Kolkata



- 89 -

Subscribers Base

The Mobile (GSM and CDMA) Industry has reached the 65.07

million subscribers mark (GSM 50.86 million & CDMA 14.21 million)

for the quarter ending 30th September 2005.

Addition in Subscribers Base

The subscriber’s base stood at 65.07 million as against 57.37

million for the quarter ending 30.9.2005. Around 7.70 million

subscribers were added in this quarter.

Growth Rate

The growth rate for this quarter is 13.42% (13.16% in GSM and

14.37% in CDMA) as against 9.86% (9.44% in GSM and 12.43% in

CDMA) for the quarter ending June 2005. M/s Bharti remains the

largest mobile operator followed by M/s Reliance and M/s BSNL.

Company wise Market Share:

a) The Subscriber Base of different Mobile operators is given in

Table 2.1. The top five Mobile operators on the basis of market

share are as under: -

Cellular Group Subscribers Market Share

Technology Used

Bharti 14.07 21.62 GSM

Reliance 12.99 19.96 GSM &

CDMA

BSNL 12.38 19.03 GSM &

CDMA

Hutchison 9.71 14.92 GSM

IDEA 5.94 9.13 GSM



- 90 -

Change in Market Structure

M/s Bharti, M/s Reliance and BSNL/MTNL has licenses to offer

mobile services in all 23 service area. The largest mobile operator,

M/s Bharti is offering services in all the 23 service areas. M/s

Reliance is presently offering services in all service areas except

J&K circle. BSNL is also offering services in all its 21 circles (Except

Delhi & Mumbai). M/s Tata Teleservices is offering services in all its

licensed 20 service areas. M/s Tata Teleservices does not have

license to offer access services in J&K, Assam & North East.

Market share of all company

Subscriber BaseBharat Sanchar Nigam Ltd. 37%Mahanagar Telephone Nigam Ltd. 20%Sify Ltd. 14%Videsh Sanchar Nigam Ltd. 8%Reliance Communications Infrastructure Ltd. 5%Data Infosys others 4%Bharti Televentures Ltd.(Bharti Infotel) 3%



- 91 -

Company analysis

Telecom sector

1. Bharti Tele-Ventures Ltd.

Company at glance

Industry: - Telecommunications 52 Week High: - 377.00 52 Week Low: - 195.80 Volume: - 59847 Face Value: - 10.00 P/E Ratio: - 57.24 EPS: - 6.29

Three Months chart

The bellow given chart shows the performance of the script in the

bse for last three months. It shows the volatility of the stock for the

months of November, December and January.



- 92 -

FINANCIAL PERFORMANCE

For the year

Mar-02 Mar-03 Mar-04 Mar-05

Operating Income

62.97 71.35 62.98 8,142.44

Net Profit 62.97 0.22 0.37 1,210.67

Net Worth 4,816.27 4,819.75 4,823.55 4,134.07

No. of Shares (in

crore)185.34 185.34 185.34 185.34

Adjusted EPS (Rs)

0 0 0 6.29

Book value per Share

(Rs)25.99 26.01 26.03 24.12

Dvdnd per Share (Rs)

0 0 0 0

Net Profit Margin (%)

0.19 0.58 0.58 14.83

Current Ratio

74.86 668.08 233.91 0.51

Lt Debt Equity

0 0 0.1 0.98



- 93 -

2. Tata Telecom Ltd.

Company at glance

Industry: Telecom 52 Week High: 531.00 52 Week Low: 289.00 P/E Ratio: 30.15 EPS: 13.73 Volume: 878 Face Value: 10.00

Three Months chart






- 94 -

FINANCIAL PERFOMANCE

For the year 02-Mar 03-Mar 04-Mar 05-MarOperating Income 228.2 285.5 394.5 323.8Net Profit 15.68 18.56 32.67 24.92Net Worth 70.52 85.06 110.5 128.1No. of Shares (in crore) 1.42 1.42 1.42 1.42

Adjusted EPS (Rs) 12.13 13.06 23.29 13.73

Book value per Share (Rs)

65.44 75.66 93.55 105.9

Dvdnd per2 2.5 4.5 4.5

Share(Rs)

Net Profit Margin (%) 6.06 5.78 8.24 7.65

Current Ratio 1.97 1.88 1.76 1.55

Lt Debt Equity 0.04 0.03 0.02 0.01



- 95 -

3. Videsh Sanchar Nigam Ltd.

Industry: Telecom52 Week High: 444.6052 Week Low: 161.00P/E Ratio: 31.18EPS: 12.21Volume: 2365926Face Value: 10.00

Three Months chart






- 96 -

FIANCIAL PERFOMANCE

For the year 02-Mar 03-Mar 04-Mar 05-Mar

Operating Income 6,508.09 4,538.55 3,163.54 3,303.04Net Profit 1,407.42 780.07 377.66 756.37

Net Worth 4,834.54 5,341.32 4,961.00 5,522.06No. of Shares (in crore)

28.5 28.5 28.5 28.5

Adjusted EPS (Rs) 46.05 29.62 13.12 12.21


176.98 194.75 181.3 200.98

Dvdnd per Share(Rs) 87.5 8.5 4.5 6Net Profit Margin (%) 20.08 16.12 11.24 22.19

Current Ratio 2.45 2.67 1.59 1.84Lt Debt Equity 0 0 0 0



- 97 -

4. Mahanagar Telephone Nigam Ltd.

Industry: Telecom52 Week High: 154.5052 Week Low: 108.00 P/E Ratio: 10.79EPS: 12.86Volume: 76690Face Value: 10.00

Three Months chart






- 98 -

FIANCIAL PERFOMANCE

For the year 02-Mar 03-Mar 04-Mar 05-MarOperating Income 6,145.07 5,807.26 6,370.40 5,593.25

Net Profit 1,300.68 877.16 1,234.60 948.43

Net Worth 7,795.60 8,250.63 8,947.49 9,492.66No. of Shares (in crore)

63 63 63 63

Adjusted EPS (Rs) 20.3 14.05 18.24 12.86


141.9 150.75 163.93 173.71

Dvdnd per Share(Rs) 4.5 4.5 4.5 4.5

Net Profit Margin (%) 20.56 14.61 18.79 16.1

Current Ratio 1.67 1.27 1.29 1.29

Lt Debt Equity 0.29 0 0 0



- 99 -

RATIO ANLYSIS

PER SHARE RATIO

Reported Cash EPS Ratio

Bharti Tele

Tata tele VSNL MTNL

Mar-01 0.4 13.49 63.05 36.93Mar-02 0.04 14.75 53.96 33.61Mar-03 0.04 16.63 32.53 27.69Mar-04 0.03 31.22 19.29 28.23Mar-05 12.9 24.27 35.11 24.39

13.41 100.36 203.94 150.85Average 2.682 20.072 40.788 30.17

Operatig Profit Per Share

Bharti Tele

Tata tele VSNL MTNL

Mar-01 2.96 -1.62 68.78 41.26Mar-02 0.07 4.44 57.63 39.11Mar-03 0.2 2.93 41.42 31.14Mar-04 0.14 46.74 18.62 31.62Mar-05 16.17 30.98 27.85 22.31

19.54 83.47 214.3 165.44Average 3.908 16.694 42.86 33.088

Book Value per Share

Bharti Tele

Tata tele VSNL MTNL


254.83 379.86 985.19 762.8Average 50.966 75.972 197.038 152.56



- 100 -



- 101 -

Net Operating Income Per Share

Bharti Tele

Tata tele VSNL MTNL


50.22 1004.12 892.53 471.49Average 10.044 200.824 178.506 94.298

Free Reserve per Share

Bharti Tele

Tata tele VSNL MTNL


203.01 265.91 898.75 614.58Average 40.602 53.182 179.75 122.916

Per Share Ratios

050

100150200250

BhartiTele

Tata tele VSNL MTNL

Company

Ave

rage

Rat

e

Reported Cash EPSRatio

Operatig Profit PerShare

Book Value per Share

Net Operating IncomePer Share

Free Reserve perShare



- 102 -

Profitability Ratio

Operatig Margin in %

Bharti Tele

Tata tele VSNL MTNL

Mar-01 56.48 -1.16 26.86 44.19Mar-02 23.45 2.76 25.23 40.09Mar-03 54.13 1.46 26.01 33.78Mar-04 43.21 16.86 16.77 31.27Mar-05 36.81 13.61 24.03 25.13

214.08 33.53 118.9 174.46Average 42.816 6.706 23.78 34.892

Gross Profit margin in %

Bharti Tele

Tata tele VSNL MTNL

Mar-01 50.29 -3.88 25.27 31.61Mar-02 18.33 0.75 23.23 26.8Mar-03 49.08 -0.32 22.77 18.85Mar-04 37.06 13.88 11.33 22.73Mar-05 24.29 10.33 16.64 14.62

179.05 20.76 99.24 114.61Average 35.81 4.152 19.848 22.922

Net Profit Margin in %

Bharti Tele

Tata tele VSNL MTNL


16.56 33.6 87.47 95.86Average 3.312 6.72 17.494 19.172



- 103 -

Return on long term fund in %

Bharti Tele

Tata tele VSNL MTNL


23.49 153.57 110.97 73.98Average 4.698 30.714 22.194 14.796

Profitability Ratio

01020304050

BhartiTele

Tatatele

VSNL MTNL

Company

Ave

rag

e R

etu

rn Operatig Margin in%

Gross Profitmargin in %

Net Profit Marginin %

Return on longterm fund in %



- 104 -

Portfolio in Telecom Sector

Average return

Portfolio Wi

Bharti Tele 143.87 79663.1 7.96631Tata Tele 415.04 229814 22.9814VSNL 722.26 399927 39.9927MTNL 524.81 290596 29.0596

1805.98 1000000 100

Price as on particular date

Company 02-01-06 28-02-06Bharti Tele 340.05 361.05TTML 27.8 24.75VSNL 381.15 364.95MTNL 142.15 142.65

Total Return on investment

= Total return – total investment

= 963730.3 – 1000000

= -36269.7

Bharti Tele 6.175562417TTML -10.97122302VSNL -4.250295159MTNL 0.351741119


Total Portfolio = 10,00,000 Rs.

Total return on investment ( in %) = - 3.62 %


- 105 -

Interpretation of Sector Portfolio

As we can see that sector specific portfolio has perform

negatively during the period of the report. That is due to the

fact that there is a systematic risk involve with the portfolio as

lack of diversification. If we look at the performance of the

Sensex during this period than we will find that Sensex has

perform better than the sector portfolio. It is mainly doe to

diversification of risk as Sensex has the 30 script from

different sectors, so any ups and downs in a sector’s

performance will not effect the overall Sensex that badly that

in the case of sector portfolio.

We can see in the plotted graph that all the four script in the

sector portfolio are following a same kind of trend in the

given one month of the study. It is due to the fact that they all

belong to the same sector and they all face same systematic

risk as other in the sector. So the performance of the scripts

rightly indicates the need of diversification to remove the

systematic risk from the portfolio. As its gets highly risky

investment, such portfolio are very rarely been used by

individual in the general scenario.



- 106 -

FINDING OF THE REPORT

Findings of the report gives the fruit of the all the analysis done on

the research of measuring and comparing performance of the

portfolio with the market portfolio.

Random portfolio

After understanding the various concepts about what are the

investments option and what are the risks associated with

the various investment avenues. And also about how one

can use Derivative to be specific Future for the purpose of

Hedging and Speculation.

But it is advisable to use the direct equity investment only if

the investors have adequate knowledge about selection of

stocks. There task does not ends with the selection of script

but they are also required to pay close attention to the

various happening in the economy that have direct or indirect

effect on stock market as we have learn that the price of the

script is affected by two factor, one is company specific news

and the other is economy specific news so any investor

investing in the equity directly has to keep the close track of

the economy as well as the company in which they invest to

look out for any new development that take place

As in the theoretical way we have scene that the Beta shows

the movement or change in the price of script vis-à-vis index.

And a Beta >1 is more riskier and hence should give more

return as compared to the script having Beta < 1. as the

person is taking more risk then he should get more return.



- 107 -

But in our case we have scene that Moderate portfolio

having Beta < 1 has given more return as compared to

Aggressive Portfolio.

So we can easily say that the investment in equity market is

subject to market risk and any one having long-term

investment horizon should only enter into equity market. This

analysis that has been carried out was only for a period of

two month there are chances that in the long run aggressive

portfolio would outperform the other portfolio.

And we have also scene the Derivative- Future how one can

use it for the purpose of speculation and hedging. But

hedging is only for the removal of unnecessary risk or

exposure one should not go for hedging for earning excess

return.

So if one does not have enough knowledge, expertise &

analytical capabilities then one should avoid going for direct

equity investment as the chances of loss increases. And the

other very important aspect is the regular monitoring of the

portfolio and reviewing is also an important aspect that one

needs to pay close attention to.



- 108 -

Sector portfolio

Sector portfolio has given negative return in the month of the

study as there is systemic risk as very high in the sector

portfolio because of non diversification. This portfolio has

given -3.62% returns on the one month performance so it is

advisable for the investor not to go for such a high risky

investment options.

All the individual scripts and the portfolio showing very

steady chart, there is very little movement in the performance

chart.

There is a very high Beta of majority of the scripts in the

portfolio edging more than 2 in most of the script. Only one

script having a Beta under 1 but it is too low to give a good

return on the investment. Because of that the overall portfolio

Beta is also sizing more than 2.

In the sector portfolio the volatility of the majority of script is

under 10. That’s shows less risk with the portfolio and also

less fluctuation means less chance of return.



- 109 -

RECOMMENDATION

From the above given findings and the conclusions of the study

done by me, here are the list of recommendations that comes out of

the study.

Form the study it is also proven that even in short run sector

portfolio is highly risky option for investment. Here in the

study it is providing negative return. That shows that

investors who want to have safe return must think twice

before selecting sector portfolio for a long term investment.

Though random portfolio is having scripts with highest return

and volatility, but for a long term prospect is becomes hard

to fetch good return out of it as it is hard to take use of high

volatility.

There is a requirement for frequent portfolio checking to

maintain the higher return and to make use of high volatility.



- 110 -

Bibliography

Books

1. Derivatives Module of NSE – ( NCFM )

2. Securities analysis and Portfolio Management

-B.K. Bhalla

Web – Bibliography

1. www.kotaksecurities.com

2. www.nseindia.com

3. www.bseindia.com

4. www.derivativesindia.com

5. www.moneycontrol.com

6. www.icicidirect.com

Others

1. Magazines

- Business World

2. News Papers

- Economic Times of India

- Times of India


http://www.icicidirect.com/

http://www.moneycontrol.com/

http://www.derivativesindia.com/

http://www.bseindia.com/

http://www.nseindia.com/

http://www.kotaksecurities.com/


- 111 -

Annexure

Balance Sheet of BHARTI TELE VENTURE

05/03-(12)

04/03-(12)

03/03-(12)

02/03-(12)

01/03(12)

CAPITAL & LIABILITIES Owners' Fund

Equity Share Capital

1,853.37 1,853.37 1,853.37 1,853.37 106.24

Share Application Money

2.72 0.00 0.00 0.00 46.31

Reserves & Surplus

2,675.38 2,971.49 2,971.12 2,970.90 1,515.69

Other Liabilities & Provisions

4,570.79 15.77 5.00 40.61 41.82

Total 9,102.26 4,840.63 4,829.49 4,864.88 1,710.06ASSETS

Cash & Balances with RBI

384.14 0.13 0.34 22.52 13.30

Investments 931.90 1,762.67 1,467.79 1,899.67 794.47Fixed AssetsGross Block 13,240.63 31.84 30.62 28.02 24.73Less: Revaluation Reserve

2.13 0.00 0.00 0.00 0.00

Less: Accumulated Depreciation

3,475.64 17.29 13.79 10.51 7.40

Net Block 9,762.86 14.56 16.83 17.51 17.33Capital Work-in-progress

994.46 0.10 0.00 0.00 4.36

Other Assets 2,348.99 3,688.36 3,341.31 3,040.22 893.90Miscellaneous Expenses not written off

58.35 1.30 4.74 7.99 0.00

Total 14,480.70 5,467.12 4,831.01 4,987.91 1,723.36Contingent liabilities

3,017.26 4,874.99 4,085.39 2,695.06 34.89

Book Value of Unqouted Investment

460.83 1,434.63 382.95 590.00 415.52

Market Value 472.71 334.24 38.79 473.21 155.32



- 112 -

of Qouted Investment

Balance sheet of TATA TELE

05/03 04/03 03/03 02/03 01/03 CAPITAL & LIABILITIES

Owners' Fund Equity Share Capital

14.23 14.23 14.23 14.23 14.23

Reserves & Surplus

2,675.38 2,971.49 2,971.12 2,970.90 1,515.69


216.00 167.34 113.68 91.48 77.04

Total 366.75 300.48 221.38 184.63 133.64ASSETS


101.57 87.17 32.42 19.39

21.65

Investments 9.09 0.09 0.09 0.05 0.11Fixed AssetsGross Block 66.93 65.62 61.53 57.87 57.21Less: Accumulated Depreciation

41.90 36.04 28.33 27.80 25.82

Net Block 25.03 29.58 33.20 30.06 31.39Capital Work-in-progress

0.72 0.12

0.12 0.00 0.00

Other Assets 333.91 294.88 213.41 180.56 173.87Miscellaneous Expenses not written off

0.00 0.00 0.00 0.00 0.72

Total 470.32 411.84 279.33 230.06 227.74Contingent liabilities

18.46 9.64

3.08 3.28 15.47


9.09 0.09 0.09 0.05 0.00

Market Value of Qouted Investment

0.00 0.00 0.00 0.00 0.12

Balance sheet of VSNL



- 113 -

05/03-(12)

04/03-(12)

03/03-(12)

02/03-(12)

01/03(12)


Equity Share Capital

285.00 285.00 285.00 285.00 285.00

Reserves & Surplus

5,443.05 4,882.18 5,265.42 4,758.98 6,303.74


1,978.87 1,976.65 1,708.24 2,062.85 3,480.52

Total 7,706.92 7,143.83 7,258.66 7,106.83 10,069.26ASSETS


1,409.12 1,046.71 2,358.59 2,534.94

4,840.07

Investments 1,200.58 2,089.14 655.87 366.29 110.65Fixed Assets

Gross Block 3,182.68 2,348.54 3,290.23 2,835.29 2,658.79Less: Accumulated Depreciation

835.65 590.81 1,015.19 862.12 742.99

Net Block 2,347.03 1,757.73 2,275.03 1,973.17 1,915.80Capital Work-in-progress

513.17 216.63

114.23 298.39 497.19

Other Assets 3,646.14 3,143.31 4,567.52 5,044.12 7,545.63Miscellaneous Expenses not written off

0.00 0.00 0.00 0.00 0.72


2,280.87 2,422.66

1,829.85 1,810.53 366.60


1,200.58 2,032.91 599.59 366.29 110.65


0.00 99.77 68.24 97.35 0.00

Balance sheet of MTNL

05/03-(12)

04/03-(12)

03/03-(12)

02/03-(12)

01/03(12)


Equity Share 630.00 630.00 630.00 630.00 630.00



- 114 -

Capital Reserves & Surplus

10,313.83 9,697.63 8,866.97 8,309.64 7,718.15


11,797.75 11,083.65 10,087.91 8,024.41 5,658.39

Total 22,741.58 21,411.28 221.38 184.63 133.64ASSETS


2,517.40 2,553.07 1,815.39 2,444.65

2,482.83

Investments 397.47 380.69 371.01 102.68 0.00Fixed AssetsGross Block 14,252.25 13,562.93 12,665.21 11,732.22 10,680.95Less: Accumulated Depreciation

7,783.62 7,352.65 7,148.03 6,420.43 5,653.07

Net Block 6,468.63 6,210.28 5,517.17 5,311.80 5,027.89Capital Work-in-progress

651.51 508.25

918.74 797.81 815.50

Other Assets 815.50 14,312.0

5 12,777.96 13,370.77 11,044.15

Miscellaneous Expenses not written off

0.00 0.00 0.00 0.00 0.72


6,477.15 4,853.10

3,965.93 3,922.25 15.47


9.09 0.09 0.09 0.05 0.00


0.00 0.00 0.00 0.00 0.12



- 115 -

NIFTY VALUES

S.No

Security Symbol Equity

Weightage %

Beta R2

Volatility %

1 ABB 423,816,750 0.75%0.7

10.1

5 1.6

2 ACC1,851,909,46

0 0.81%0.7

80.2

7 1.62

3 BAJAJAUTO1,011,835,10

0 1.84%0.8

20.2

1 2.19

4 BHARTI18,933,749,0

10 4.77%0.9

80.2

5 1.29

5 BHEL2,447,600,00

0 3.46%1.0

90.3

2 1.79

6 BPCL3,000,000,00

0 0.91%0.6

90.1

4 1.77

7 CIPLA 599,740,466 1.15%0.8

30.1

7 3.43

8 DABUR 573,302,784 0.44%0.9

80.1

9 1.62

9 DRREDDY 383,034,985 0.70% 0.70.1

3 3.21

10 GAIL8,456,516,00

0 1.61%1.0

50.3

5 1.27

11 GLAXO 847,030,170 0.78% 0.70.1

6 2.06

12 GRASIM 916,736,360 1.11%0.8

60.2

7 2.35

13 GUJAMBCEM2,705,593,00

0 0.83%0.9

70.2

6 1.53

14 HCLTECH 644,351,768 1.37%1.1

5 0.3 1.16

15 HDFC2,494,075,02

0 2.37%0.8

40.1

8 2.07

16 HDFCBANK3,127,855,08

0 1.61%0.7

90.1

9 1.8

17 HEROHONDA 399,375,000 1.24%0.8

10.1

7 1.93

18 HINDALCO1,159,684,96

3 1.24%1.1

60.3

9 1.87

19 HINDLEVER2,201,243,79

3 3.74%0.8

90.2

1 2.77

20 HINDPETRO3,393,300,00

0 0.77%0.8

10.2

4 1.67

21 ICICIBANK8,896,209,86

0 3.82%1.1

60.2

9 2.35

22 INFOSYSTCH1,372,625,81

5 5.41%1.0

30.3

9 1.38

23 IPCL2,482,256,22

0 0.40%1.1

60.3

6 1.78

24 ITC3,755,157,95

0 4.52%0.8

60.2

3 2.07

25 JETAIRWAYS 863,340,110 0.59%0.7

50.1

6 2.47

26 LT 273,798,272 2.29%0.9

40.2

2 3.1827 MARUTI 1,444,550,30 1.66% 1.1 0.3 1.77



- 116 -

0 4 4

28 M&M2,360,812,02

0 0.97%0.9

50.2

9 1.87

29 MTNL6,300,000,00

0 0.63%1.0

40.2

4 2.8

30 NATIONALUM6,443,096,28

0 1.25%1.2

70.3

2 3.45

31 ONGC14,259,339,9

20 11.30%1.0

30.3

7 1.81

32 ORIENTBANK2,505,397,00

0 0.42%0.9

60.2

3 1.44

33 PNB3,153,025,00

0 0.97%1.2

30.3

6 1.73

34 RANBAXY1,862,370,96

5 1.12%0.8

20.1

3 3.01

35 REL2,019,042,51

0 0.87%1.0

90.3

4 1.31

36 RELIANCE13,935,080,4

10 6.89%1.0

60.4

3 1.2

37 SAIL41,304,005,4

50 1.84%1.4

40.3

2 3.03

38SATYAMCOMP 646,924,048 1.74%

1.26

0.39 1.55

39 SBIN5,262,988,78

0 3.22%1.1

90.4

8 1.27

40 SCI2,823,024,30

0 0.30%0.7

90.2

1 1.82

41 SUNPHARMA 927,578,150 1.01%0.4

70.0

8 1.92

42 TATACHEM2,151,026,51

0 0.36%0.8

10.1

9 1.44

43 TATAPOWER1,978,978,64

0 0.71%1.2

70.4

3 1.72

44 TATATEA 562,198,570 0.36%0.7

80.2

4 2.68

45TATAMOTORS

3,767,922,890 2.14%

1.29

0.38 2.32

46 TCS 480,114,809 5.69%1.0

30.3

4 1.15

47 TATASTEEL5,534,728,56

0 1.66%1.2

30.4

2 1.71

48 VSNL2,850,000,00

0 0.73%1.6

50.3

1 1.72

49 WIPRO2,841,478,19

8 5.16%1.2

60.4

1 1.5

50 ZEETELE 412,505,012 0.51%1.0

50.1

6 2.86

NIFTY JUNIOR

S. No.

Security Symbol Equity

Weightage %

Beta R2

Volatility %

1ANDHRABANK

4,850,000,000 1.73%

1.17

0.25 2.04

2 APOLLOTYR 383,379,770 0.47% 0.6 0.1 1.55



- 117 -

E 2 3

3 ASHOKLEY1,189,294,20

0 1.86%1.2

4 0.3 2.88

4 ASIANPAINT 962,789,280 2.63% 0.40.0

8 2.09

5AUROPHARMA 266,350,000 1.21%

0.94

0.13 2.01

6 AVENTIS 230,306,220 1.71%0.6

50.1

5 2.42

7BANKBARODA

3,670,000,000 3.34%

1.55

0.39 1.94

8 BANKINDIA4,874,002,00

0 2.67%1.8

10.3

4 3.98

9 BEL 800,000,000 3.59%1.0

10.2

6 2.49

10BHARATFORG 441,018,830 3.75%

1.19

0.34 2.72

11 BIOCON 500,000,000 1.98%0.5

60.1

2 1.44

12 BONGAIREFN1,998,179,00

0 0.56%0.9

80.2

5 0.97

13 CADILAHC 314,034,270 1.37%0.4

40.0

8 1.45

14 CANBK4,100,000,00

0 4.79%1.3

70.3

1 3.95

15CHENNPETRO

1,489,432,000 1.36%

1.08

0.23 1.33

16 CMC 151,500,000 0.31% 0.50.0

7 1.17

17COCHINREFN

1,384,697,800 0.99%

0.76

0.18 2.03

18 CORPBANK1,434,400,00

0 1.97% 10.1

8 1.85

19 CUMMINSIND 396,000,000 1.82%0.9

10.1

5 3.74

20 GESHIPPING1,903,424,05

0 1.91%0.8

60.1

5 2.14

21 CONCOR 649,913,970 3.83%0.4

10.0

5 2.54

22 I-FLEX 380,429,100 3.30%0.8

30.1

7 1.53

23 IBP 221,473,690 0.50%0.6

20.1

5 2.1

24 IDBI7,236,162,58

0 2.47% 1.40.2

7 1.9

25 IFCI6,386,757,62

0 0.29%1.5

50.2

2 4.78

26 INGERRAND 315,680,000 0.49%0.7

20.0

8 2.92

27 IOB5,448,000,00

0 2.25%1.1

5 0.2 2.47

28 JPASSOCIAT1,855,970,84

0 3.36%1.2

30.1

8 2.58

29 KOTAKBANK3,092,166,25

0 2.89% 10.1

3 2.49

30 LICHSGFIN 849,326,000 0.69%1.0

20.2

4 1.9

31 LUPIN 401,411,340 1.53%0.7

50.1

3 2.55



- 118 -

32 MOSERBAER1,115,129,44

0 1.00%0.9

20.1

8 2.67

33 MPHASISBFL1,606,343,03

0 1.14%0.9

40.2

1 0.95

34 NICOLASPIR 418,035,212 2.02%0.9

40.1

8 1.56

35 NIRMA 793,824,840 1.58%0.8

10.1

6 2.45

36 PATNI 275,596,798 2.63%0.9

70.2

4 2.03

37 PFIZER 298,414,400 1.23% 0.50.0

7 2.42

38 POLARIS 490,710,810 0.44%1.4

40.2

5 2.3

39PUNJABTRAC 607,557,000 0.58%

0.67

0.15 1.5

40 RAYMOND 613,808,530 1.09% 0.80.1

8 1.7

41 SIEMENS 331,384,030 6.11%0.7

60.1

4 1.39

42 STER 556,549,450 6.02%1.2

70.2

7 2.75

43 SYNDIBANK5,219,682,82

0 1.99%1.2

60.2

4 2.92

44 TTML15,205,344,3

50 1.53%1.1

90.2

7 1.14

45 TVSMOTOR 237,543,557 1.16% 1.10.2

1 1.61

46 UNIONBANK4,601,179,00

0 2.29%1.2

30.2

7 1.78

47 UTIBANK2,786,241,46

0 3.72%0.8

30.1

2 2.4

48 VIJAYABANK4,335,178,00

0 1.01% 1.20.2

9 1.74

49 INGVYSYABK 905,644,160 0.55%0.9

4 0.2 1.35

50WOCKPHARMA 546,903,005 2.29%

1.02

0.24 2.04


project report on portfolio management

Documents

stock broking

stock exchanges

stock brokers association

bombay stock exchange

uday kotak

national stock exchange

market value of capital

brokerage business