INDEX

UNIT I: UNIT II: UNIT III: UNIT IV: APPENDIX: BIBLIOGRAPHY FINDINGS CONCLUSIONS AND SUGGESTIONS DATA ANALYSIS INTERPRETATIONS COMPANY PROFILE INTRODUCTION NEED OF THE STUDY OBJECTIVES OF THE STUDY RESEARCH METHODOLOGY SCOPE OF THE STUDY LIMITATIONS OF THE STUDY REVIEW OF LITERATURE

UNIT - I INTRODUCTION

INTRODUCTION TO PORTFOLIO: The portfolio analysis begins where the security analysis ends and this fact has important consequences for investors. Portfolio, where are combinations of securities may or may not take on the aggregate characteristics of there individual parts. Portfolio analysis considers the determination of future risk and return in holding various blends of individual securities. Portfolio expected return is a weighted average of the expected return of individual securities but portfolio variances, in sharp contrast, can be something less than a weighted average of security variances. As a result an investor can some times reduce portfolio risk by adding another security with grater individual risk that any other security in the portfolio. This seemingly curious result occurs because risk depends greatly on the covariance among return of individual securities. We will show how on investor can reduce expected risk through diversification, why this risk reduction result from proper diversification, and how the investor may estimate the expected return and expected risk level of a given portfolio of assets. Portfolio Management: Portfolio management portfolio is combination of assets held by the investors. This combination may be of various assets classes like equity and debt and of different issues like government bonds and corporate debt or of various instruments like discounts, bonds, warrants, debenture, and chip equity or scraps of emerging bluechip companies. Process of investment: Portfolio management is a complex activity which may be broken down into the Followings steps: 1]. 2]. 3]. Specification of investment objectives and constraints. Choice of asset mix. Formulation of portfolio strategy.

4]. 5]. 6]. 7].

Selection of securities. Portfolio execution. Portfolio rebalancing. Portfolio performance.

1. SPECIFIC INVESTMENT OBJECTIVE AND CONSTRAINS: The objective of an investment program consist of safety of principal, liquidity, income, stability adequate income, purchasing power stability, appreciation, freedom from management of investment, legality and transferability. a) Safety of principal: The investor, to be certain of the safety of principal, should carefully review the economic and industry trends before choosing the types of investments. Errors are avoidable and, therefore, to ensure safety of principal, the investor should consider diversification of assets. Adequate diversification involves mixing investments commitments by industry, geographically, by management, by finance type and by maturities. A proper combination of these factors would reduce losses. Diversification to a great extent helps in proper investment programmers but it must be reasonably accomplished and should not be out to extremes. b) Liquidity: Even investor requires a minimum liquidity in his investments to meet emergencies. Liquidity will be ensuring if the investor buys a proportion of readily saleable securities out of his total portfolio. He may, therefore, keep a small proportion of cash, fixed deposits and units which can be immediately made liquid like stock and property or real estate cannot be ensure immediate liquidity. c) Income stability: Regularity of income at a consistent rate is necessary in any investment pattern. Not only stability, it is also important to see that income is adequate after

taxes. It is possible to find out some good security which pays practically all their earnings in dividends. d) Appreciation and purchasing power stability: Investors should balance their portfolios to fight against any purchasing power instability. Investors should judge price level inflation, explore the possibility of gain and loss in the investments available to them, limitations of personal and family consideration. The investors should also try and forecast which securities will possibly appreciate. A purchase of property at the right time will lead to appreciation in time. Growth stocks will also appreciation over time. These, however, should be thoughtfully and not in manner of speculation or gamble. e) Legality and freedom from care: All investments should be approved by law. Law relating to minors, estate, trust, shares and insurance are studied. Illegal securities will bring out many problems for the investor. One way being free from care is to invest in securities like unit t trust of India, life insurance corporation or savings certificates. The management of securities is then left to care of the trust that diversifies the investments according to safety, stability and liquidity with the consideration of their investment policy. The identity of legal securities and investments in such security will also help in the investor in avoiding many problems. f) Tangibility: Intangible securities have many times lost their values due to price level inflation, confiscatory laws or social collapse. Some investor prefers to keep a part of their wealth invested in tangible proprieties like buildings, machinery, and land. It may, however, be consider that tangible propriety does not yield an income apart from the direct satisfaction of the possession or propriety. 2. Choice of the asset mix: The most important decision in portfolio Management is the mix decision. Very broadly, this is concerned with the proportions of stocks (equity shares and units/shares of equity oriented mutual funds) and bonds (fixed income investment

vehicles in general) in the portfolio. The appropriate stock-bound mix depends mainly on the risk tolerance and investment horizon of investor. 3. Formulation of portfolio strategy: Once a certain asset mix is chosen, an appropriate portfolio strategy has to be hammered out. Two broad choices are Available: an active portfolio strategy strives or a passive strategy. An active portfolio strategy strives to earn superior risk-adjusted returns by resorting to market timing, or sector rotation, or security selection, or some combination of these. A passive portfolio strategy, on the other hand, involves holding a broadly diversified portfolio and maintaining a pre-determined level of risk exposure. 4. Selection of securities: Generally, investors pursue an active stance with Respect to security selection. For stock selection investor commonly go by fundamental analysis or technical analysis the factor that are concerned in selecting bound or fixed income instrument are yield to maturity credit rating term to maturity tax shelter and liquidity. 5. Portfolio Execution: This is the phase of portfolio management which is concerned with implementing the portfolio plan by buying and or selling specified Securities in given amounts. Through often glossed over in portfolio management decisions, these important practical state that has a bearing on investment result. 6. Portfolio revision: The value of a portfolio as well as its composition the relative proportions of stock and bond components may change as prices of Stocks and bonds fluctuate of course the fluctuation in stock is often the dominant factor underlying this change. In response to such changes periodical rebalancing of the portfolio is required. These primary involve a shift to bonds are vice-versa. In additional, it may call for sector rotation as well as security switches.

7. Performance revolution: The performance of a portfolio should be evaluated periodically the key dimension of portfolio performance evaluation are risk and return and the key issue is weather the portfolio return is commensurate with its risk exposure. Such a review may provide useful feedback to improve the quality of portfolio management process on a continuing basis. Portfolio diversification: An important way to reduce the risk of investing is to diversify your investments. Diversification is akin to not putting all your eggs in one basket. For example, if your portfolio only consisted of stocks of technology companies. It would likely face a substantial loss in value if a major event adversely affected the technology industry. There are different ways to diversify a portfolio whose holdings are concentrated in one industry. You might invest in the stocks of companies belonging to other industry groups. You might allocate to different categories of stocks, such as growth, value, or income stocks. You might include bonds and cash investments in your asset allocation decisions. Potential bond categories include government, agency, municipal and corporate bonds. You might also diversify by investing in foreign stocks and bonds. Diversification requires you to invest din securities whose investment returns do not move together. In other words, their investment returns have a low correlation. The correlation coefficient is used to measure the degree that returns of two securities are related. For example, two stocks whose returns move in lockstep have a coefficient of +1.0. Two stocks whose returns move in exactly the opposite direction have a correlation of -1.0. To effectively diversify, you should aim to find investments that have a low or negative correlation. As you increase the number of securities in your portfolio, you reach a point where youve likely diversified as much as reasonably possible. Financial planners vary in

their views on how many securities you need to have a fully diversified portfolio. Some say it is 10 to 20 securities. Others say it is closer to 30 securities.

Mutual funds offer diversification at a lower cost. You can buy no-load mutual funds from an online broker. Often, you can buy shares fund directly from the mutual fund, avoiding a commission altogether. Asset allocation: Asset allocation is the process of spreading your investment across the three major asset classes of stocks, bonds, and cash. Asset allocation is a very important part of your investment decision-making. Professional financial planner frequently point out that asset allocation decisions are responsible for most of your investment return. Asset allocation begins with setting up an initial allocation. First, you should determine your investment profile. Specifically, this requires you to assess you investment horizon, risk tolerance, and financial goals: Investment horizon: Also called time horizon your investment horizon is the number of years you have to save for a financial goal. Since youre likely to have more than one goal, this means you will have more than one investment horizon. For example, saving for your fiveyear-daughters college has an investment horizon of 12 years. Saving for your retirement in 30 tears has an investment horizon of 30 year. When you retire, you will want to have saved a lump sum that is large enough to generate earnings every year until you die. Risk tolerance: Your risk tolerance is a measure of your willingness to accept a higher degree of risk in exchange for the chance to earn a higher rate of return. This is called the risk-return trade-Off. Some of us, naturally, are conservative investor, while others are aggressive investors.

As a general rule, the younger you are, the higher your risk tolerance and the more aggressive you can be. As a result, you can afford to allocate a higher percentage of your investments to securities with more risk. These include aggressive growth stocks and the mutual funds that invest in them. A more Aggressive allocation is viable because you have more time to recover form a poor year of investment returns. Financial goal: Your financial goal are also an important consideration in deciding on an initial allocations a general rule, younger and aggressive investors allocate 70%to 100%of their portfolios to stocks, with the remainder in bonds and cash. Conservative investors allocate 40%to60% in stocks, 30% to50%in bonds, and the remainder in cash. Moderate investor allocate somewhere between the allocation of aggressive and conservative to make an initial allocation, you need to build a portfolio of individual securities, mutual funds, or both. In general, mutual funds provide more diversification benefit for the buck. How you choose to precisely allocate among the major asset classes depends, in part, on other factors. For example, if example, if interest rates are expected to rise, you might allocate a greater percentage to money market mutual funds, adsorb other bank deposits. If rates are headed lower, you may choose to allocate more to stocks or bonds. Financial planners suggest that you rebalance, or reallocate, your portfolio from time to time. They differ in their views on how often you should reallocate. It may be once a year or it may be every three to six months. At a minimum, reallocation lets you up date any changes in your investment profile, or to take advantage of a change in interest rates. Rebalancing often involves nothing more than a fine-tuning of your current allocations. For example, a conservative investor may decide to shift 5%of her portfolio form stocks to cash to take advantage of higher rates that money market funds may be offering. Risk

Risk and uncertainty are an integral part of an investment decision. Technically risk can be defined as a situation where the possible consequences of the decision that is to be taken are known. Uncertainty is generally defined to apply to situation where the probabilities cannot be estimated. However, risk and uncertainty are used interchangeably. Risk is composed of demands that bring inn the variations in return of income. The main forces contributing to risk are price and interest. Risk is also influenced by external and internal considerations. External risks are uncontrollable and broadly affect the investment. These external risks are called systemic risk. Risk due to internal environment of a firm or those effecting particular industry are referred to as unsystematic risk. Systematic Risk It is non-diversification risk and is associated with the securities market as well as the economic, sociologic, political, and legal consideration of price of all securities in economy. The effect of these factors is put pressure on all securities in such a way that the price of all stock will move in same direction. For example, during a boom period prices of all securities will and indicate that the economy is moving toward prosperity. Systematic risk further divided into -Market Risk -Interest Risk -Purchasing power Risk Market Risk: Source of risk: market risk is referred to as stock variability due to changes in investors attitudes and expectations. The investors reaction towards tangible and intangible events is chief cause affecting market risk. The first set, that is, the tangible events has a real basis but the intangible events are based on a psychological basis or reaction to expectations or realities.

Market risk triggers off through real events comprising political, social and economic reasons. The initial decline or risk in market price will create an emotional instability of investors and causes a fear of loss are creating an undue confidence, relating possibility of profit. The reaction to loss will culminate in excessive selling and pushing prices down towards declaim in prices rather than increase in prices. Market risks cannot be eliminated while financial risks can be reduced. Through diversification also, market risk can be reduced but not eliminated because prices of all stocks moves together and any equity stock investor will be faced by the risk of a downwards market and declaim in security prices. Market risk cannot be eliminated while financial risks can be reduced. Through diversification also, marker risk can be reduced but not eliminated because prices of all stock moves together and equity stock investor will be faced by the risk of a download market and decline in security prices. Interest Rate Risk There are four types of movements in prices of stocks in the market. These may be termed as 1. long-term 2. cyclical(bulls and bears markets) 3. intermediate or within the cycle and 4. Short-term. The prices of securities will rise or fall, depending on the change in interest rate the longer the maturity period of a security the higher the yield on an investment and lower the fluctuations in price. Short-term interest rates fluctuate at a great speed and are now more volatile the long-term securities but their changes have a similar effect price. Traditionally investor could attempt to forecast cyclical swings in interest rates and prices merely by forecasting up and downs in general business activity. Some of the factors that are responsible complicated analysis are the difference between actual and expected inflation in monitory policy and industrial recessions in the economy. If

interest rate could be calculated and forecast accurately, investor would buy and sell securities with confidence. Interest rate risk can also be reduced by analyzing the different kinds of securities available for investment. A government bond or a bond issued by the financial institution like IDBI is a risk less bond. Even if government bonds give a slightly low rate of interest, in the long run they are better for a conservative investor because he is assured of his return. Then the price of securities in the private corporate sector will fall and interest rate will increase. The direct effect of increasing in the level of interest rate will raise the price of securities. Purchasing power Risk: Purchasing power risk is also known as inflation risk. This risk arises out of change in prices of goods and services and technically it covers both inflation and deflation periods. During last two decades, it has been seen that inflationary have been continuously affecting the Indian economy. Therefore, in India purchasing power risk is associated with inflation and rising prices in the economy. Inflation in India has been either cost push or demand pull. This type of inflation has been seen when costs of production rise or when there is demand for product but there is no smooth supply and consequently prices rise. In India, the cost push inflation has led to enormous problem as rise in prices of raw material has greatly increased costs of production. The increase in costs of production has shown a rising in wholesale price index and consumer price index. A rising trend in price index reflects a price spiral in economy All investors should have an approximate estimate in their minds before investing their funds of the expected return after making an allowance for purchasing power risk the allowance for raise in prices can be made through a check list of the cost of living index. The behavior of purchasing power risk can in some ways be compared to interest rate risk. They have a systematic influence on the price of both stocks and bonds if the consumer price index in a country shows a constant increasing of 4% and suddenly jumps to 5% in the next year the required rate of return will also have to be adjusted with an upward revision. Such change in the process will affect government securities corporate bonds and common stocks.

Unsystematic Risk: It is unique to a firm or industry. It does not affect an average investor. Unsystematic risk is caused by factor like labor strikes, irregular disorganized policies, the consumer preferences. These factors are independent of prices mechanism operating in the securities market. The problems of both systematic and unsystematic risk are inherent in industries dealing with basic raw materials as well as in consumer goods industries. The important of unsystematic risk arises out of the uncertain surrounding a particular firm or Industry due to the factory like labor strikes consumer preference and management policies. The uncertainties directly effect the financing and operating environment of the firm. Unsystematic risk can owing to these considerations be said to complement the systematic risk forces. Broadly Unsystematic risk can be classified into: -Business risk -Financial risk Business Risk Every corporate organization has its own objectives and goals and aims at particulars gross profit and operating income and also expects 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. For example, if operating income is expected to be15 % in year business risk will be low if the operating income varies between and 14 and 16%. If the operating income is as low, as 10% or as high as18% it would be said that the business risk is high. Business risk is also associated with risks directly affecting the internal environment of the firm and those of circumstances beyond its control. The former is classified as internal business risk and the latter as external business risk. Within these two broad categories of risk, the firm operates. Internal business risk may be represented by firms limiting environment with in which conducts its business. It is the frame work with in which the firm conducts

its business drawing its efficiency largely from the constraints with in which its functions. Internal risk will be of differing degrees in each firm and the degree to which each firm achieves its goals and attainment level is reflected in its operating efficiency External risks of the business are due to many factors. Some of factors that can be summarized are: Business cycle: some industries moves automatically with the business cycle, others move counter-cyclically; Demographic factors: such as geographical distribution of population by age, group and race; Political policies: change in decisions, topping of state government to some extent affect the working of an industry; Monetary policy: reserve bank of Indias policies with regard to monetary and fiscal policies may also affect revenues through an affect on cost as well as availability of funds. Environment: the economic environment of the economy also influences the firm and costs and revenues. Financial Risk: Financial risk in company is associated with 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 ion its future earnings and consequently on the stability of earnings. Debts 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 the company are higher than the cost of borrowed funds, the earnings per shares of common stock are increased. Unfortunately, large amount of debt financing also increases the variability of the returns of the common

stock holders and thus increases their risk. It is found that variation in returns is the financial risk. Financial risk and business risk are somewhat related. While business risk is concerned with an analysis of the incomes statements between revenues and earnings before interest and taxes (EBIT), financial risk can be stated as being between earnings before interest and taxes (EBIT) and earnings before taxes (EBT). Investors attitude towards return and risk Before concluding the discussion on risk and its measurements, let us turn back to the investors attitude towards risk and return. Understanding and measuring return and risk is fundamental to the investment process and increases an awareness of the investment problem. Most investors are risk averse. They must be aware of risk in different investment whether they are confronted with high, moderate or low risk and the kinds of risks investment are exposed to before making their investment. To have a higher return, the investor should be able to accept the fact that he has to be faced with greater risk. In commercial bank and life insurance saving, most of the risks are low but purchasing power risk. The investor has to decide for himself whether he would like to choose a group of securities which will give him 15%return with 10% risk or a return of 25% with 20% risk.

RISK RETURNS OF VARIOUS INVESTMENT ALTERNATIVES

Management decision High

Investment

Mutual risk

Business risk High

Interest risk Low

Purchasing power risk Low

Growth common High stock Speculative common stock High

High

High

Low

Low

Moderate

Blue cheeps(high Moderate quality common stock) Convertible preferred stock Convertible debentures Corporate bonds Government bonds Shortterm(government bonds) Moderate

High

Low

Low

Moderate

Moderate

Low

Low

Low

Moderate

Moderate

Low

Low

Low Low

Low Low

Low Low

High High

High High

Low

Low

Low

Low

High

Low

Money funds

market Low

low

Low

High

NEED OF THE STUDY Investing has been an activity confined to the rich and business class in the past. This can be attributed to the fact that availability of invisible funds is a prerequisite to deployment of funds .But, today, we find that investment has Become a house hold word and is very popular with people e from all walks of Life. Increasing popularity of investments can be attributed to the following factors: 1. Increase in working population, larger family incomes and consequent higher Savings; 2. Provision of tax incentives in respect of investments in specified channels; 3. Increase in tendency of people to hedge against inflation; 4. Availability of large and attractive investment alternatives; 5. Increase in investment related publicity; 6. Ability of investments to provide income and capital gains etc.

OBJECTIVES OF THE STUDY: To construct three portfolios of public sector units, public limited companies and foreign collaboration and find their ex-post return and risk for the period of three year. To make a comparative study of the risk-adjusted measure of portfolio performance using the sharpes and Treynors performance index under total risk and market risk situations, by taking ex-post returns for a period of three years. Learning objectives: 1. Calculate the total return, return relative, and cumulative wealth index. 2. Compute the arithmetic, mean, and geometric mean of a return series. 3. Explain the rationale for using standard deviation as the principle measure of Risk. 4. Measure the expected return and risk of a security.

RESEARCH METHODOLOGY Using a model consisting of two modules has carried out the work. The first module involves the selection of portfolio and the second module involved evaluation of portfolios performance. MODULE-1 Securities selection and portfolio construction has been made by taking scrips Public Sector Units, public limited companies and foreign collaboration units. Equal weight age has been given to industries like shipping, oil & gas and power growth oriented industries like pharmaceuticals, banking and FMCG and technology oriented industries like software and telecommunications. MODULE-2 Portfolio performance was evaluated by ranking holding periods return under total risk and market risk situation (measured by standard deviation and Beta coefficient) for the period of three years.

SCOPE OF THE STUDY The study of optimization portfolio risk & returns has been fulfilled within the effective study of different portfolio according to the companys information. This study also delivers the enumeration of different levels of analysis & strategy implementation. The software companies like Wipro provided the update data to the effective study. Some of the data has been grabbed from the outer sources which are not provided by the companies. This study has been put partial concentration on companys revenues as they did not provide the optimum information. The optimum information has been studied for giving an effective out comes by the minimum resources. Some of the study has been done externally due to non availability of sufficient data by the company.

LIMITATIONS OF THE STUDY The work has been carried out under the following limitations: The all portfolio consists of riskily assets there are no risk-free assets. Risky assets consists of equity shares and where as risk-free assets consists of investments in the saving bank account, deposits, treasury bills, bonds, etc The holding period for risky assets was for I yr i.e. shares were assumed to be purchased at the first day and sold at the second consecutive day and average return for I yr is considered. An equal no of shares i.e. I (one) share of each script is assumed to be purchased form the secondary market. Return on the saving bank account is considered as benchmark rate of return. The entire portfolio has been held constant for the whole period of the three years.

THEORETICAL ARTICLES Measurement of Risk: The risk of a portfolio can be measured by using the following measure of risk. Variability Investment risk is associated with the variability of rates of return. The more variable is the return, the more risky the investment. The total variance is the rate of return on a stock around the expected average, which includes both systematic and unsystematic risk. The total risk can be calculated by using the standard deviation. The standard deviation of a set of numbers is the squares root of the square of deviation around the arithmetic average. Symbolically, the standard deviation be expressed as-

Where, ri is the mean return of the portfolio and rit is the return from the portfolio for a particular year

SHARPES PERFORMANCE INDEX William Sharpes measure of portfolio performance is also known as reward to variability ratio (RVAR). It is simply the ratio of reward, which is defined as realized portfolio returns in excess of the risk free rate, to the variability of return measured by the standard deviation relation to total risk assumed by the investor. The measure can be defined follows:-

Rp-rf RVAR = Where, rp =the average return for the portfolio (P) during it HPR rf= risk free rate of return during HPR = the standard deviation of the portfolio (P) during HPR

CAPITAL MARKET LINE Capital market shows the conditions prevailing in the capital market in terms of expected return and risk. It depicts the equilibrium condition that prevails in the market for efficient portfolios consisting of the portfolio of risky assets or risk free asset or both. All combination of risky and risk free portfolio are bounded by the capital market line, and all investors will end up with portfolio somewhere on the capital market line. The capital market is usually derived under the assumptions that there exists a risk a risk-less asset available for investment. It is further assumed that investor can borrow or lend as much as desired at the risk free rate (rf). Given this opportunity, investors can then mix the risk free assets with a portfolio or risky assets to obtain the desired risk return combination. Using the capital market line can graphically represent Sharpes measure for portfolios. The vertical axis represents the return on the portfolios and the horizontal axis represents the standard deviation for returns. The vertical intercept is rf. RVAR measures the slope of the line form rf to the portfolio being evaluated. The steeper the line, the higher the slope (RVAR) and the better the performance

TREYNORS PERFORMNCE INDEX The measure is also referred to as reward to volatility ratio (RVOL). Treynor sought to relate return on a portfolio to its risk. He distinguished between total risk and systematic risk assuming that the portfolio is well diversified. In measuring the portfolio performance Treynor introduced the concept of characteristic line. The slope of the characteristics measures the relative volatility of the portfolios returns. The slope of this line is the beta co-efficient which is measure of the volatility (or responsiveness) of the portfolios returns in relation to those of the market index. Treynors ratio is the realized portfolios return in excess of the risk-free to the volatility of return as measured by the portfolio beta

RVOT = rp - rf Bp Average excess return of portfolio (P) = -------------------------------------------Systematic risk for portfolio Where, rp =the average return for the portfolio (P) during it HPR rf= risk free rate of return during HPR bp= beta portfolio

SECURITY MARKET LINE The security market line indicates the risk-return trade-off for portfolios and individual securities. Treynor extended his analysis to identify the component of risk that will be compensated by the market. It is known as systematic risk and is commonly measured by the beta. Beta is a measure of risk that applies to all assets and portfolios whether efficient or inefficient. Security market line specifies the relationship between expected return and risk for all assets and portfolios whether efficient or inefficient. The security market is obtained by taking the risk (beta) on the horizontal axis and portfolio return on the vertical axis. The security market line can be graphically shown as follows.

Beta Beta is a market risk measure employed primarily in the equity markets. It measures the systematic risk of a single instrument or an entire portfolio. William Sharpe (1964) first used the notion in his landmark paper introducing the capital asset pricing model (CAPM). The name beta was applied later. Beta describes the sensitivity of an instrument or portfolio to broad market movements. The stock market (represented by an index such as the S&P 500 or 100) is assigned a beta of 1.0. By comparison, a portfolio (or instrument) which has a beta of 0.5 will tend to participate in broad market moves, but only half as much as the market overall. A portfolio (or instrument) with a beta of 2.0 will Tend to benefit or suffer from broad market moves twice as much as the market overall. The formula for beta is XY- (X) (Y) nX2 (X) 2 Where X is the market return And Y is the security return Both quantities are calculated using simple returns. Beta is generally estimated form historical price time series. For example, 60 trading days of simple returns might be used with sample estimators for covariance and variance. It is possible to construct negative beta portfolios. Approaches include. Beta is sometimes used as a measure of a portfolios market risk. This can be misleading because beta does not capture specific risk. Because of specific risk. A portfolio can have a low beta, but still be highly volatile.

Its price fluctuations would simply have a low correlation with those of the overall market. It is said that a security or portfolio having higher beta will perform well provided market has to go up i.e., market index.

UNIT - II COMPANY PROFILE

INDIAN STOCK MARKET AN OVERVIEW

CAPITAL MARKET IN INDIA Indian markets have recently thrown open a new avenue for retail investors and traders to participate in: commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are the best option. Till some months ago, this wouldn't have made sense. For retail investors could have done very little to actually invest in commodities such as gold and silver or oilseeds in the futures market. This was nearly impossible in commodities except for gold and silver as there was practically no retail avenue for punting in commodities. Whatever it may be , with the setting up of three multi-commodity exchanges in the country, retail investors can now trade in commodity futures without having any physical stocks Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets may find commodities an unfathomable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option. Like any other market, the one for commodity futures plays a valuable role in information pooling and risk sharing. The market mediates between buyers and sellers of commodities, and facilitates decisions related to storage and consumption of commodities. In the process, they make the underlying market more liquid The trading of commodities consists of direct physical trading and derivatives trading. The commodities markets have seen an upturn in the volume of trading in recent years. In the five year up to 2010, the value of global physical exports of commodities increased by 17% while the notional value outstanding of commodity OTC(over the counter) derivatives increased more than 500% and commodity derivative trading on exchanges more than 200%.

The notional value outstanding of banks OTC commodities derivatives contacts increased 27% in 2010 to $9.0 trillion. OTC trading accounts for the majority of trading in gold and silver. Overall, precious metal accounted for 8% of OTC commodities derivatives trading in 2010, down from their 55% share a decade earlier as trading in energy derivatives rose. Global physical and derivatives trading of commodities on exchanges increased more than a third in 2010 to reach 1,684 million contacts. Agricultural contracts trading grew by 32% in 2010, energy 29% and industrial metals by 30%. Precious metals trading grew by 3% with higher volume in New York being partially offset by declining volume in Tokyo. Over 40% of quarter in China. Trading on exchanges in China and India has gained in importance in recent years due to their emergence as significant commodities consumers and producers. Present scenario Todays commodity market is a global market place not only for agricultural products, but also currencies and financial instruments such as Treasury bonds and securities futures. Its a diverse marketplace of farmers, exporter, importers, manufacturers and speculators. Modern technology has transformed commodities into a global marketplace where a Kansas farmer can match a bid from a buyer in Europe. The 2008 global boom in commodity prices- for everything from coal to corn was fueled by heated demand from the likes of China and India, plus unbridled speculation in forward markets. The bubble popped in the closing months of 2008 across the board. As a result, farmers are expected to face a sharp drop in crop prices, after years of record revenue. Other commodities, such as steel, are also expected to tumble due to lower demand. This will be a rare positive for manufacturing industries, which will experience a drop in some input costs, partly offsetting the decline in downstream demand. The Indian broking industry is one of the oldest trading industries that have been around even before the establishment of BSE in 1875.

Inception- The roots of a stock market in India began in the 1860s during the American Civil War that led to a sudden surge in the demand for cotton from India resulting in setting up of a number of joint stock companies that issued securities to raise finance.

Bubble burst- The early stock market saw a boom till 1865, and then in Jul 1865, what was then used to be called the share mania ended with burst of the stock market bubble. In the aftermath of the crash, banks, on whose building steps share brokers used to gather to seek stock tips and share news, disallowed them to gather there, thus forcing them to find a place of their own, which later turned into the Dalal Street. A group of about 300 brokers formed the stock exchange in Jul 1875, which led to the formation of a trust in 1887 known as the Native Share and Stock Brokers Association

Beginning of a new phase- A new phase in the Indian stock markets began in the 1970s, with the introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational companies, which created a surge in retail investing.

Growth supporting factors-The early 1980s witnessed another surge in stock markets when major companies such as Reliance accessed equity markets for resource mobilization that evinced huge interest from retail investors. A new set of economic and financial sector reforms that began in the early 1990s gave further impetus to the growth of the stock markets in India.

Setting up of SEBI- the Securities and Exchange Board of India (SEBI), which was set up in 1988 as an administrative arrangement, was given statutory powers with the enactment of the SEBI Act, 1992. The broad objectives of the SEBI includeo to protect the interests of the investors in securities o to promote the development of securities markets and to regulate the securities markets

Incorporation of NSE- NSE was incorporated in Nov 1992 as a tax paying company, the first of such stock exchanges in India, since stock exchanges earlier were trusts, being run on no-profit basis. NSE was recognized as a stock exchange under the Securities Contracts (Regulations) Act 1956 in Apr 1993. It commenced operations in wholesale debt segment in Jun 1994 and capital market segment (equities) in Nov 1994. The setting up of the National Stock Exchange brought to Indian capital markets several innovations and modern practices and procedures such as nationwide trading network, electronic trading, greater transparency in price discovery and process driven operations that had significant bearing on further growth of the stock markets in India. To speed the securities settlement process, The Depositories Act 1996 was passed that allowed for dematerialization (and dematerialization) of securities in depositories and the transfer of securities through electronic book entry. The National Securities Depository Limited (NSDL) set up by leading financial institutions, commenced operations in Oct 1996.

Despite passing through a number of changes in the post liberalization period, the industry has found its way towards sustainable growth. A stock Broker is a regulated professional who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors. To work as a broker a certificate of registration from SEBI is mandatory after satisfying all the terms and conditions.

FINANCIAL MARKETS The financial markets have been classified as Cash market (spot market) largest traded, the spot market or cash market is a commodities or securities market in which goods are sold for cash and delivered immediately. Derivatives market after cash market, the derivatives markets are the financial markets for derivatives. The market can be divided

into two that for exchange traded derivatives and that for over-the-counter derivatives. Debt market - The bond market (also known as the debt, credit, or fixed income market) is a financial market where participants buy and sell debt securities. Commodities market after commodities market, Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. PARTICIPANTS IN FINANCIAL MARKET There are two basic financial market participant categories, Investor vs. Speculator and Institutional vs. Retail. Action in financial markets by central banks is usually regarded as intervention rather than participation. Supply side vs. demand side A market participant may either be coming from the Supply Side, hence supplying excess money (in the form of investments) in favor of the demand side; or coming from the Demand Side, hence demanding excess money (in the form of borrowed equity) in favor of the Supply Side. This equation originated from Keynesian Advocates. The theory explains that a given market may have excess cash; hence the supplier of funds may lend it; and those in need of cash may borrow the funds supplied. Hence, the equation: aggregate savings equals aggregate investments. The demand side consists of: those in need of cash flows (daily operational needs); those in need of interim financing (bridge financing); those in need of long-term funds for special projects (capital funds for venture financing). The supply side consists of: those who have aggregate savings (retirement funds, pension funds, insurance funds) that can be used in favor of demand side. The origin of the savings (funds) can be local savings or foreign savings. So much pensions or savings can be invested for school buildings; orphanages; (but not earning) or for road network (toll ways) or port development (capable of earnings).

The earnings go to owner (Savers or Lenders) and the margin goes to the banks. When the principal and interest are added up, it will reflect the amount paid for the user (borrower) of the funds. Thus, an interest percentage for the cost of using the funds. Investor vs. Speculator Investor An investor is any party that makes an Investment. However, the term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. Less frequently the term is applied to parties who purchase real estate, currency, commodity derivatives, personal property, or other assets. Speculation Speculation, in the narrow sense of financial speculation, involves the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or interest. Speculation or agiotage represents one of three market roles in western financial markets, distinct from hedging, long term investing and arbitrage. Speculators in an asset may have no intention to have long term exposure to that asset. Institutional vs. Retail Institutional investor An institutional investor is an investor, such as a bank, insurance company, retirement fund, hedge fund, or mutual fund, that is financially sophisticated and makes large investments, often held in very large portfolios of investments. Because of their sophistication, institutional investors may often participate in private placements of securities, in which certain aspects of the securities laws may be inapplicable.

Retail investor A retail investor is an individual investor possessing shares of a given security. Retail investors can be further divided into two categories of share ownership. 1. A Beneficial Shareholder is a retail investor who holds shares of their securities in the account of a bank or broker, also known as in Street Name. The broker is in possession of the securities on behalf of the underlying shareholder. 2. A Registered Shareholder is a retail investor who holds shares of their securities directly through the issuer or its transfer agent. Many registered shareholders have physical copies of their stock certificates.

PROFILE OF THE COMPANY MERFIN INDIA LIMITED

NSE Membership HSE Membership BSE Membership The company was incorporated in 1995 with main objects of carrying Finance, Leasing, and capital Market activities such as Brokerage of various stocks exchanges, to act as various intermediaries of capital market. The company has obtained National Stocks Exchange membership in February 1996 and commenced its trading activities at present. It has six branches through out Andhra Pradesh having around 30 trading terminals. It has been doing trading for various clients, sub brokers both for equity and debt, market scripts like Bonds, Debenture etc. The company is also acting as a subbroker\dealer in Bombay Stoke Exchange the company in growing year after year in times of clients branches and turnover of the securities. Merfin Systems is an industry-leading innovator of value-added paper systems. Since 1984, Merfin has served the away- from home industry in North America with strong partnerships with our customers, employees and suppliers. With a full line of paper products for the hygienic and food service markets, we fulfill our mission of Innovation, Quality and Excellence for the customers we serve. Through Buckeye Technologies, our parent company, we have manufacturing operations in the United States. Canada, Brazil and Germany.

ABOUT US Merfin India ltd is one of the Indias leading wealth management, capital markets and advisory companies, with offices in 7 states and territories and total client assets of approximately Rs. 500 Crores. Merfin India ltd offers a broad range of services to private clients, small businesses, and institutions and corporations, organizing its activities into two interrelated business segments - Global Markets & Investment Banking Group and Global Wealth Management, which is comprised of Global Private Client and Global Investment Management. As an investment bank, it is a leading National trader and underwriter of securities and derivatives across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide. Were growing our business by helping clients grow theirs. Our client relationships are among our greatest competitive assets. We deepen and enrich these relationships through disciplined growth, innovation, and seamless execution. Corporate Governance Merfin India ltd demonstrates its commitments to clients and shareholders through the firm's emphasis on excellence, integrity and ethical behavior. We maintain a strong and engaged board of independent directors to oversee our business practices and make recommendations for improvement, if needed. With the exception of our CEO, all members of our board are independent.

Corporate Citizenship: Merfin India ltd is committed to corporate social responsibility. We implement a range of initiatives to help ensure that the communities in which we live and work are thriving with opportunities. Company Overview Merfin India ltd through its subsidiaries, offers capital markets services, investment banking and advisory services, wealth management, investment management, insurance, banking and related products and services on a global basis, including: Securities origination, brokerage, dealer and related activities in: Equities Futures Fixed income Forwards Mutual funds Commodities Swaps Currencies Options Other derivatives Investment banking Securities origination

Strategic advisory services, including: Mergers and acquisitions Strategic valuation Other corporate finance and advisory activities

Private equity and other principal investing activities Securities clearance, settlement, financing and services, including prime brokerage Wealth management products and services, including financial, retirement and generational planning Banking, trust, lending and related services, including: Mortgage loans Trust Commercial loans Deposit-taking Securities-based loans Cash management

Insurance and annuity products and annuity underwriting Investment management and investment advisory services Global investment research encompassing: Equities Economics Fixed income Equity strategy

Equity-linked securities Wealth management strategy

Strategic Positioning Merfin India ltd has positioned itself to be the preeminent global investment bank, wealth management and advisory company, an essential partner to its clients. Key facets of this positioning include: 1) Delivering value-added advice, products and services to clients with unmatched levels of quality and integrity 2) Investing in opportunities for growth and diversification that take advantage of the firm's strengths and global client franchise 3) Operating with discipline and focus throughout the firm to ensure that the appropriate resources are committed to each business opportunity 4) Managing risk and capital to ensure efficient deployment of, and appropriate returns on, stockholders' equity 5) Developing employee talent and leadership to its full potential to achieve superior results

UNIT - III DATA ANALYSIS AND INTERPRETATIONS

PORTFOLIO1 BANK OF INDIA

NSE CODE BANKINDIA

BHEL

HEL

HLL

HINDLEVER

M&M

M&M

SCI

SCI

SATYAM COMPUTER

SAYTAMCOMP

VSNL

VSNL

GLAXO

GLAXO

SAIL

SAIL

IBP

IBP

PORTFOLIO II

NSE CODE

TATA POWER

TATAPOWER

ITC

ITC

ESCORTS

ESCORTS

UTI BANK

UTIBANK

WIPRO

WIPRO

BHRATI

BHRATI

DRREDDYS

DRREDDY

IPCL

IPCL

TISCO

TISCO

PORTFOLIO III

NSECODE

ING VYSYA

VYSY ABANK

ABB

ABB

CADILA

CADILA

MICO BOSH

MICO

GE SHIPPING

GESHIP

HUGHES SOFTWARE

HUGHESSOFT

TATA TELECOM

TATATELECM

NICOLAS PHARMA

NICOLASPIR

ONGC

ONGC

ESSAR STEEL

ESSARGUJ

MODULE I HOLDING PERIOD RETURNS All the investment is made at a certain period of time. Holding period returns enables an investor to know his returns during that period of time. It can be computed by using the formula:Holding period returns (HPR) =

(Todays closing price-Yesterdays closing price) ________________________________________ Yesterdays closing price Holding period returns are used for comparative criterion. Holding period returns can be compared for making an assessment of relative returns.

Portfolio I for 2009-10 Name of the script BANK OF INDIA BHEL HLL M&M SCI SATHYAM COM VSNL GLAXO IBP SAIL Face value 10 10 1 10 10 2 10 10 10 10 Dividend declared (%) 0 40 300 0 0 0 0 0 100 0 Dividend Amount 0 4 3 0 0 0 0 7 10 0 Market price where purchased 10.5 128.7 222.2 119.2 30.0 243.7 286.2 417.8 294.3 5.7 %Return on dividend 0 3.11 1.35 0.00 0.00 0.00 0.00 1.68 3.40 0.00 %return on security -17.42 40.62 5.84 8.11 98.11 41.24 -20.27 -3.18 119.95 -3.98 Total Return -17.42 43.729 7.1901 8.11 98.11 41.24 -20.27 -1.504 123.35 -3.98

Return27.855

Portfolio I for 2010-11 Name of the script BANK OF INDIA BHEL HLL M&M SCI SATHYAM COM VSNL GLAX IBP SALI Face Dividend Dividend value declared Amount (%) 10 30 3 10 1 10 10 2 10 10 10 10 40 300 55 0 110 85 70 140 0 4 3 5.5 0 2.2 8.5 7 14 0 Market price where 26.5 180.8 227.25 112.8 72.55 257 188.5 342.7 891.35 5.65 %Return %return on on dividend security 11.32 89.32 2.21 1.32 4.88 0.00 0.86 4.51 2.04 1.57 0.00 24.99 -39.47 -6.52 -20.9 -28.55 -88.61 -6.5 -13.95 71.74 Total Return 100.6 27.2 -38.15 -1.644 -20.9 -27.69 -84.1 -4.457 -12.38 71.74

Return: 1.026 Portfolio I for 2011-12 Name of the script BANK OF INDIA BHEL HLL M&M SCI SATHYAM COM VSNL GLAXO IBP SAIL Face value 10 10 1 10 10 2 10 10 10 10 Dividend declared (%) 10 30 300 90 0 140 45 100 0 0 Dividend Amount 1 3 3 9 0 2.8 4.5 10 0 0 Market price where purchased 39.35 223.65 149.15 99.1 51.25 173.65 74.3 294.7 199.8 9.05 %Return on dividend 2.541 1.341 2.011 9.082 0.000 1.612 6.057 3.393 0.000 0.000 %return on security 49.06 107.1 8.43 164.23 109.51 67.29 59.51 77.02 123.8 153.06 Total Return 51.601 108.44 10.441 173.31 109.51 68.902 65.567 80.413 123.8 153.06

Return: 94.505 PORTFOLIO II FOR 2009-10

Name of the script UTI INDIA TATA POWER ITC ESORTS VARUNSHIPPING WIPRO BHARTI DR.REDDY IPCL TISCO

Face value 10 10 10 10 10 2 10 5 10 10

Dividend declared (%) 0 0 0 10 0 50 0 0 0 0

Dividend Amount 0 0 0 1 0 1 0 0 0 0

Market price where purchased 23.7 103.1 625 77.1 11.55 1268.45 44.35 914.95 54.15 115.75

%Return on dividend 0.000 0.000 0.000 1.297 0.000 0.079 0.000 0.000 0.000 0.000

%return on security 63.82 18.92 -10.19 -10.17 6.63 58.71 -13.12 22.24 52.26 -7.8

Total Return 63.82 18.92 -10.19 -8.873 6.63 58.789 -13.12 22.24 52.26 -7.8

Return: 18.268 PORTFOLIO II FOR 2010-11 Name of the script UTI BANK TATA POWER ITC Face value 10 10 10 Dividend declared (%) 22 65 0 Dividend Amount 2.2 6.5 0 Market price where purchased 40.7 114.05 706.3 %Return on dividend 5.40541 5.69925 0 %return on security 2.23 2.27 -8.61 Total Return 7.6354 7.9693 -8.61

ESORTS VARUN SHIPPING WIPRO BHARTHI DR.REDDY IPCL TISCO

10 10 2 10 5 10 10

10 0 50 20 100 22.5 80

1 0 1 2 5 2.25 8

61.15 11.7 1690 38.9 1096.1 87.5 97.85

1.63532 0 0.05917 5.14139 0.45616 2.57143 8.17578

-48.74 -21.4 -22.58 -23.04 -13.5 8.47 35.9

-47.105 -21.4 -22.521 -17.899 -13.044 11.041 44.076

Return: -5.9856

PORTFOLIO II FOR 2011-12

Name of the script UTI BANK TATA POWER ITC ESOCRTS VARUNSHIPPING WIPRO BHARTHI DR.REDDY IPCL TISCO

Face value 10 10 10 10 10 2 10 5 10 10

Dividend declared (%) 25 70 200 0 6 200 60 100 25 100

Dividend Amount 2.5 7 20 0 0.6 4 6 5 2.5 10

Market price where purchased 39.9 114.1 625.9 35.25 9.2 1231.2 29.1 914.95 83.85 135.1

%Return on dividend 6.26566 6.13497 3.1954 0 6.52174 0.32489 20.6186 0.54648 2.98151 7.40192

%return on security 150.56 128.11 54.68 76.54 105.49 21.35 183.36 14.92 89.2 112.82

Total Return 156.83 134.24 57.875 76.54 112.01 21.675 203.98 15.466 92.182 120.22

Return: 99.102 PORTFOLIO III FOR 2009-10

Name of the script INGVYSA ABB

Face value 10 10

Dividend declared (%) 35 0

Dividend Amount 3.5 0

Market price where purchased 112.2 238.9

%Return on dividend 3.11943 0

%return on security 89.95 16.72

Total Return

93.069 16.72

CADILA MICOBOSH GESHIPPING HUGHES TATATELECOM NICOLAS PHARMA ONGC ESSAR STEEL

5 100 10 5 10 10 10 10

0 0 0 40 0 0 140 0

0 0 0 2 0 0 14 0

124 2709 25.3 593.25 56.4 295.75 125.65 125.65

0 0 0 0.33713 0 0 11.1421 0

11.282 -4.06 22.45 -40.45 139.1 -0.047 87.97 87.97

11.28 -4.06 22.45 -40.113 139.1 -0.047 99.112 87.97

Return 42.548 PORTFOLIO III FOR 2010-11

Name of the script

Face value

Dividend declared (%) 40 60 70 40 40 40 25 105 130 0

Dividend Amount

Market price where purchased 247.25 263.9 129.55 2387.35 30.75 277.7 171.9 271.05 329.6 329.6

%Return on dividend 1.41557 2.27359 2.70166 1.6755 13.0081 0.7202 1.45433 3.87382 3.94417 0

%return on security 4.77 12.77 -3.31 47.45 25.99 -28.22 47.45 -24.88 13.43 13.43

Total Return

ING VYSA ABB CADILA MICO BOSH GESHIPPING HUGHES TATATELECOM NICOLASPHARMA ONGC ESSAR STEEL

10 10 5 100 10 5 10 10 10 10

3.5 6 3.5 40 4 2 2.5 10.5 13 0

6.1856 15.044 -0.6083 49.125 38.998 -27.5 48.904 -21.006 17.374 13.43

Return 13.995 PORTFOLIO III FOR 2011-12

Name of the script ING VYSA ABB CADILA MICOBOSH GESHIPPING HUGHES TATATELCOM NICOLASPHARMA ONGC ESSAR STEEL

Face value 10 10 5 100 10 5 10 10 10 10

Dividend declared (%) 40 60 70 40 40 40 25 105 130 0

Dividend Amount 3.5 6 3.5 40 4 2 2.5 10.5 13 0

Market price where purchased 247.25 263.9 129.55 2387.35 30.75 277.7 171.9 271.05 329.6 329.6

%Return on dividend 1.41557 2.27359 2.70166 1.6755 13.0081 0.7202 1.45433 3.87382 3.94417 0

%return on security 76.28 106.67 144.09 138.36 135.6 117.65 96.37 -24.88 95.26 95.26

Total Return 77.696 108.94 146.04 140.04 148.61 118.37 97.824 -21.006 99.204 95.26

Return 101.1727

EX-POST PORTFOLIO RETURNS YEAR 2010 2011 2012 RI PORTFOLIO-I 27.85 1.02 94.5 41.1233333 PORTFOLIO- II 18.26 -5.98 99.1 37.12666667 PORTFOLIO- III 42.54 13.99 101.17 52.567

MODULE -II PORTFOLIO PERFORMANCE EVALUATION Calculation of standard deviation of returns PORTFOLIO - I YEAR 2010 2011 2012 Return 27.85 1.02 94.5 Di=r-ri -13.273 -40.103 53.377 Di*di 176.18 1608.3 2849.1 48.133 S.D

Ri=

41.123

4633.5

PORTFOLIO II YEAR 2010 2011 2012 Return 18.26 -5.98 99.1 Di=r-ri -18.867 -43.107 61.973 Di*di 355.95 1858.2 3840.7 55.022 S.D

Ri= PORTFOLIO III YEAR 2010 2011 2012

37.127

6054.8

Return 45.54 13.99 101.17

Di=r-ri -8.0267 -39.577 47.603

Di*di 64.427 1566.3 2266.1

S.D

44.141

Ri=

53.567

3896.8

SHARPE PERFORMANCE MEASURE

Portfolio s

Avg portfolio Return (rp) in % 41.128 37.128 52.57

Risk free Rate (rf)% 5.25 5.25 5.25

Excess Return (rp-rf) 35.878 31.878 47.32

Standard Deviation 48.13 55.02 44.14

Sharpes Ratio rp-rf/ 0.745 0.579 1.072

Ranking

I II III

2 3 1

INTERPRETATION In this we have the three portfolios .In the three portfolios every Portfolio has given some profits. But according to the sharps methods we have to select the portfolios gives more returns that portfolios we have select that. Thats why we have selected the third portfolio. Because the third portfolio gives more Returns.

TREYNORS PERFORMANCE MEASURE CALCULATION OF BETA Beta for portfolio I Year 200910 201011 201112 Avg market return X 5.683 -8.827 72.886 X2 32.29 6 77.91 6 5890. 8 Avg stock return Y 27.855 1.025 123.38 XY 158.3 -9.0477 7334.4

Beta=1.05261 INTERPRETATION In this we have the three years portfolios. In the three portfolios Every Portfolio has given some profits at the same time some risks. But according To the treynors methods we have to select the portfolios gives less risks that Portfolios we have select that. Thats why we have selected the second portfolio. Because the second portfolio gives the less risks.

Beta for portfolio II Year 200910 201011 201112 Avg market return X 5.683 -8.827 76.03 72.886 X2 32.29 6 77.91 6 5780. 6 5890. 8 Avg stock return Y 18.267 -5.985 99.102 111.38 XY 103.81 52.83 7534.7 7691.4

Beta= 1.210018 INTERPRETATION This we have the three years portfolios. In the three portfolios Every Portfolio has given some profits at the same time some risks. But according To the treynors methods we have to select that portfolio which gives less risks that Portfolios we have select that. Thats why we have selected the second portfolio. Because the second portfolio gives the less risks. In the portfolio2 overall Performances risks is the some more high. Beta is always the less the 1.but in this Portfolio risk is 1.2 is their.

Beta for portfolio III Year 200910 201011 201112 Avg market return X 5.683 -8.827 76.03 72.886 X2 32.29 6 77.91 6 5780. 6 5890. 8 Avg stock return Y 42.548 13.99 101.17 157.71 XY 241.8 -123.49 7692.1 7810.4

Beta= 0.965732 INTERPRETATION;

This we have the three years portfolios. In the three portfolios Every Portfolio has given some profits at the same time some risks. But according To the treynors methods we have to select that portfolio which gives less risks that Portfolios we have select that. Thats why we have selected the second portfolio. Because the second portfolio gives the less risks. In the portfolio2 overall Performance risks are the some more high. Beta is always the less the 1.but in this Portfolio risk is 0.9is their. In the three portfolios the third portfolio is better.

TREYNORS PERFORMANCE INDEX Portfolio Avg Return (rp) 41.128 37.128 52.57 Risk free Rate (rf) 5.25 5.25 5.25 Risk premium 35.878 31.878 47.32 Tn rp-rf\ 34.104 6 26.345 5 49.036 3

Portfolios I II III

Beta 1.05 2 1.21 0.96 5

Ranking 2 3 1

INTERPRETATION Every portfolio gives the some of the returns and risks. But every Customer think the we wants gets the more returns at the same time in the while Getting the returns we have the some of the risks is their. According treynors we Want the select the portfolio which gives the less risk that is we have to select. Beta is always =1.so in that we portfolios gives the <1.That portfolios we have to Select it. So third portfolio is gives the less risk so we have selected it.

HOLDING PERIOD RETURNS In the year 2009 NSE INDEX gained 5.58% return during the same year portfolio I,II and III has registered a growth of 27.85, 94.50 respectively. Return wise portfolio III emerges as best portfolio subsequently PI and PII. During the year 2010 the NSE INDEX registered a negative growth rate of -8.82 during the same year portfolio I II and III has registered return of 18.26, -5.98 and 99.10 respectively. Return wise portfolio III performs well and portfolio I and II occupying subsequent position. In the year 2011 the NSE INDEX shows a fabulous growth rate of 76.88 and portfolio I, II and III performed el by 42.54, 13.29 and 101.17 and portfolio III emerged as best portfolio subsequently portfolio I and II OVERALL PERFORMANCE The overall performance of the market and the portfolios can be shown by taking the arithmetic average of return. For the previously said of three years market has registered growth rate of 24.58. Arithmetic average of portfolio I II and III are 41.128, 37.12 and 52.57 respectively. Portfolio III emerges as best performer.

SHARPES PERFORMANCE MEASURE Sharpes performance measure gives the appropriate return per unit of risk as measured by standard deviation. The reward of variability ratios computed has shown the ex-post return of per unit of risk for the three portfolios for the period of three years. The rate of risk of portfolio II is high deviation by 55.02 by an average return of 37.12, similarly the portfolio I has a deviation of 48.13 with a return of 41.128 and portfolio III with a deviation of 44.14 with an average return of 55.57.Portfolio III has a standard deviation of 48.13 with an average return of 55.57. Using 5.25 as return on saving bank account as a proxy for the risk free rate and substituting there value in Sharpes evaluation portfolio I gives a slope of 0.745, in portfolio I gives a reward of 35.87(41.128-5.25) for bearing a risk of 48.13 making the sharpes ratio to 0.745. For every additional 1% risk and investor has as additional pf 0.745 returns for above portfolio. Portfolio II gives a return of 37.12 while the standard deviation was 55.02 using 5% return on the saving bank account as proxy market sharpes ratio to o.579. Therefore for every additional 1% risk investor will earn an additional 0.579 of return. And portfolio II with a return of 52.57 with a standard deviation marking Sharpes ratio to 1.072 as additional return. OVERALL PERFORMANCE Overall performances of the portfolios are 41.12, 37.12 and 52.57 respectively. The risk free rate was 5.25. Investing in three portfolios during the same period provided a risk premium of 35 .87, 31.87, and 47.32 respectively. For every 1% of additional risk an investor will earn o.745, 0.579 and 1.07 of return. Portfolio III outperformed by 1.072 compared with other two portfolios. The investor will earn on return per unit of beta of 34.10, 26.34 and 49.036 by ranking the portfolio shows that portfolio III performs well as compared with other two portfolios.

TREYNORS PERFORMANCE MEASURE Treynors performance measure gives appropriate return per unit of risk as measured by the beta coefficient. Portfolio I, II and III provided a return of 41.12%, 37.12% and 52.57% with 1.05% 1.21% and 0.965% as beta coefficient respectively. Treynors ratio for the three portfolios above the risk free rate of 5.25%was 34.16%26.34%, 49.036% respectively. Investing in portfolio I II and III provides risk premium of 35.87, 31.87 and 47.32 for bearing a risk of beta of 1.052, % 1.21% and 0.965% respectively. Thus an investor will earn a return per unit of beta of 34.16% 26.34% and 49.03% respectively. Portfolio III emerging as the best performer, portfolio I and II occupies the subsequent position.

UNIT - IV FINDINGS, CONCLUSIONS & SUGGESTIONS

FINDINGS
1. The comparison of total return between bank of India and BHEL are showing much difference where the bank of India has -72.42 & BHEL 43.729. 2. The market price value in the year 2010-2011 is higher of Dr. Reddys and Wipro follows with 2nd place. 3. The ITC & Wipro has showed the similar dividend declared and this is the highest compare to other companies. 4. The average portfolio return of portfolio-3 is more than portfolio 1&2. 5. The excess return (rp-rf) of portfolio 3 is higher compare to portfolio 1 & portfolio 2. 6. The Beta value of portfolio 2 (1.210018) is more than portfolio 1(1.0526) & portfolio 3 (0.965732). 7. The over all performance of the portfolio are 41.12, 37.12, 52.57 respectively.

CONCLUSIONS AND SUGGESTIONS

1. Among the three portfolios I, II and III portfolio III gives a highest return with a proportionate risk of 44.14% with a return of 52.57%. 2. The portfolios II gives the lowest returns because of the proportionate risk is high i.e. 55.02% and the return is very low i.e. 37.12%. 3. The portfolio I gives minimum returns among the portfolio II &III the proportionate risk is 48.13% and the average portfolio return is 41.12%. 4. Portfolio III has outperformed in both Sharpes and Treynors measure. 5. It is advisable to invest in portfolio III i.e. foreign collaboration securities in long run and portfolio II i.e. public limited companies in short run because the later is more correlated with the market index. 6. Diversification of portfolios in various projects or securities may reduce high risk and it provides the high wealth to the shareholders. 7. Beta is used to evaluate the risk proper measurement of beta may reduce the high risk and it gives the high risk premium. 8. High risk free rate higher the return, lower risk free rate lower the return, according to risk free rate of return will decide. 9. Lower beta, standard deviation higher return. This value will effect on investment. 10. I was use two methods for calculating return, first method is traditional and second method is technical method, which is formulated by expects in portfolio management by using of second method can estimate correct return. 11. But according to my project portfolio III is given higher return, I will go for investment in portfolio III.

APPENDIX

BIBLIOGRAPHY
Prasanna Chandra (Security Analysis and Portfolio Management) Avadhani (Security Analysis and Portfolio Management) Francis and Taylor Francis Preeti Singh Sharp W.FAlexabder G.J.Bailey : Sandhak.h (Investment management) (Investment analysis and management) (Investment management) (Investments) (Mutual Fund in India)

Graham and Dodd Security Analysis, McGraw Hill WEB SITES www.Sharekhan.com www.indiainfoline.com www.amfiindia.com www.Merfin India ltd.com