Ajit Total Project

8/12/2019 Ajit Total Project

1/91

1

A PROJECT REPORT

ONA STUDY ON PORTFOLIO CONSTRUCTION AND INVESTMENT DECISION

AT

ANU SECURITIES

Submitted to department of business administration, OSMANIA UNIVERSTYT in the partial fulfillment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION(In finance)

Submitted to


2/91

2

ABSTRACT

The present project work A STUDY ON PROTFOLIOMANAGEMANT AND IVESTMENT DECISION

This project is categorized in to seven chapters

Chapter: - 1 Deals with the introduction this chapter sets the objective of the study andalso gives the need, scope, Research methodology and the limitations of the study

Chapter: - 2 Deals with the Review of literature this chapter introduces the concept

Chapter: - 3 Deals with the introduction to the industry profile and company profiles

Chapter: - 4 Deals with the analysis of the data

Chapter: -5 Deals with finding that are arrived at after making the data analysis

Chapter:-7 Deals with the suggestion and conclusion based on the finding


3/91

3

CONTENTS

CHAPTERNO

TITLES PAGE NO

1 INTRODUCTION 1OBJECTIVES 3

NEED OF THE STUDY 4SCOPE OF THE STUDY 5

RESEARCH METHODOLOGY 5LIMITATIONS OF THE STUDY 5

2 REVIEW OF LITERATURE 63 INDUSTRY PROFILE AND COMPANY PROFILE 254 DATA ANALYSIS AND INTERPRETATION 465 FINDINGS OF THE STUDY 836 SUGGESTIONS 84

CONCLUSION 86BIBLIOGRAPHY 87


4/91

4


5/91

5

CHAPTER NO. 1INTRODUCTION

A portfolio is a collection of securities. Since it is rarely desirable to invest

the entire funds of an individual or an institution in a single security, it is essential that

every security be viewed in the portfolio context. Thus it seems logical that the expected

return of each of the security contained in the portfolio.

Economic liberalization has accelerated the pace of development in the

securities market, which has undergone a sea change during the last 2 decades. In India,

the role of securities market in mobilizing & channelising private capital for the

economic development of the country has increased over the years and the securities

market itself has undergone structural transformation with the introduction of

computerized online trading & interconnected market system.

Investing in securities such as shares, debentures & bonds is profitable well as

exciting. It is indeed rewarding but involves a great deal of risk & need artistic skill.

Investing in financial securities is now considered to be one of the most risky avenues of

investment. It is rare to find investors investing their entire savings in a single security.

Instead, they tend to invest in a group of securities. Such group of securities is called a

Portfolio. Creation of a portfolio helps to reduce risk without sacrificing returns. Portfolio

Management deals with the analysis of individual securities as well as with the theory &

practice of optimally combining securities into portfolios.


6/91

6

PORTFOLIO CONSTRUCTOIN

Portfolio is a combination of securities such as stock, bond and money.

Marketing instruments the process of blending together. The broad asset classes so at to

obtain optimum return with minimum risk is called portfolio of construction.

Diversification of investment helps to spread risk over many assets. A diversification of

securities gives the assurance of obtaining the anticipated return on the portfolio. In a

diversified portfolio, some securities may not perform as expected, but others may exceed

the expectation and making actual return of the portfolio reasonably close to the

anticipate one keeping a portfolio of single security may lead to a greater likely hood ofthe actual return some what different from that of the expected return. Hence it is a

common practices to diversify securities portfolio.

Definition of investment

According to F. Amling Investment may be defined as the purchase by anindividual or institutional investor of a financial or real asset that produces a return

proportional to the risk assumed over some future investment period.

According to D.E. Fisher and R.J. Jordan, investment is a commitment of

funds made in the expectation of some positive rate of return. If the investment is

properly undertaken, the return will be commensurate with the risk the investor assumes.


7/91

7

OBJECTIVES OF THE STUDY

To study the investments pattern of on investor and its related risk and return.

To study how to construct portfolio using two securities.

To study what is the risk involved in the constructed portfolio.

To observe whether the risk in portfolio is diversified or not.


8/91

8

Need for portfolio management:

Portfolio management is a process encompassing many activities of

investment in assets and securities. It is a dynamic and flexible concept and involves

regular and systematic analysis, judgments and actions. The objective of this service is to

help the unknown investors with the expertise of professionals in investment portfolio

management. It involves construction of a of a portfolio bases upon the investors

objectives, constraints, preferences for risk and return and tax ability. The portfolio is

reviewed and adjusted from time to time in tune with the market conditions. The

evaluation of portfolio is to be done in terms of targets set for a risk and return. The

changes in the portfolio are to be effected to meet the changing conditions.

Portfolio construction refers to the allocation of surplus funds in hand among a

variety of financial assets open for investments. Portfolio theory concerns itself with the

principles governing such allocations. The modern view of investments is oriented more

towards the assembly of proper combinations of individual securities to form investment

portfolios. A combination of individual securities to form investments portfolios. A

combination of securities held together will give a beneficial result if they are grouped in

a manner to secure higher return after taking into consideration the risk elements.

The modern theory is of the view that by diversifications, risk can be reduced.

The investor can make diversification either by having a large number of shares of

companies in different region, in different industries or those producing different types

products lines. Modern theory believes in the perspective of combination of securities

under constraints of risk and return.


9/91

9

SCOPE OF THE STUDY

This study covers the Markowitz model. Here in, the study

covers the calculation of correlations between the different securities in order to find out

at what percentage of funds should be invested among the companies in the portfolio.

Also the study includes the calculation of weights of individual securities involved in the

portfolio. These percentages help in allocation the funds available for investments based

on the risky portfolios.

RESEARCH METHODOLOGY

Most of the study is based on secondary data. The various sources of secondary data

include

company manuals

various websites

LIMITATIONS OF THE STUDY

The time taken for the study is very limited

The study is based only on Markowitz model

Only few securities are taken into consideration in the study

Most of the study is based on secondary data


10/91

10

CHAPTER NO. 2

PORTFOLIO MANAGEMENTY Portfolio analysis considers the determination of future risk and return in

holding various blends of the individual securities. Portfolio expected return is a

weighted average of the expected return of individual securities but portfolio variances,

inshore contrast, can be something less then a weighted average of security variance. As a

result an investor can sometimes reduce portfolio risk by adding security with greater

individual risk than any other security in the portfolio. This is because risk depends

greatly on the co-variance among returns of individual security. Portfolio which is

combination of securities may or may not take aggregate characteristics of their parts.

Since portfolios expected return is a weighted average of the expected

return of its securities, the contribution of each security to the portfolios expected returns

depends on its expected returns and its proportionate share of the initial portfolios

market value. It follows that an investor who simply wants the greatest possible expected

return should hold one security; the one which is considered to have a greatest, expectedreturn. Very few investors do this, and very few investments advisors would counsel such

an extreme policy. Instead, investors should diversify, meaning that their portfolio should

include more than one security.


11/91

11

OBJECTIVES OF PORTFOLIO MANAGEMENT

The objectives of investments/portfolio management can be classified as follows

Basic objectives

The basic objectives of investment/portfolio management are

a) To Maximize Yield, and

b) To Minimize risk

Secondary objectives

The following are the other ancillary objectives are

a) Regular return

b) Stable income

c) Appreciation of capital

d) More liquidity

e) Safety of investments, and

f) Tax benefits.


12/91

12

Elements of portfolio management

Portfolio management is an on-going process involving the following the

following basic tasks:

1) Identification of the investors objectives, constraints and preferences.

2) Strategies are to be developed and implemented in tune with investments policy

formulated.

3) Review and monitoring of the performance of the portfolio.

4) Finally the evaluation of the portfolio

PORTFOLIO ANALYSIS

Portfolio analysis is needed for the selection of optimal portfolio by

rational risk adverse investors. Portfolio analysis is essential for portfolio construction.

The objective of the portfolio or maximize the risk subject to the desired level of return

on the portfolio or maximize the return subject to the constraint of a tolerable level of

risk. It enables the investors to identify the potential securities, which will maximize the

following objectives such as security of the principle, stability of income, capital growth

marketability, liquidity & diversification.


13/91

13

Concept of Risk

Investment in shares has its own risk or uncertainty, which arises out of

variability of returns, yields and uncertainty of appreciation or depreciation of shares

prices, loss of liquidity etc. this risk over time, is capital appreciation. This risk is

measured statistically by the degree of variance or standard deviation of returns.

Normally higher the risk that the investor taker higher is the return.

Diversification of Risk:

The process of combining securities in a portfolio is known as

diversification. The aim of diversification is to reduce total risk without sacrificing

portfolio. The risk in a portfolio can be reduced by a proper diversification into a number

of strips. The efforts to spread and minimizes portfolio risk takes the form of

diversification. Most investors prefer to hold several assets rather than putting all their

eggs into one basket with hope that if one goes bad, the other will provide some

protection from the extreme loss.


14/91

14

PORTFOLIO SELECTION

The determination and selection of a portfolio is a complicated affair as there

is a possibility of infinite number of combinations of various securities that can enter a

portfolio. The securities available to an investor can be combined in any proportion hence

any number of portfolios can be built. Each such portfolio can be described in terms of

return and risk. Portfolio construction refers to the allocation of funds among a variety of

financial assets open for investment. The objectives of the theory is to elaborate the

principle in which the risk can be minimized, subject to desired level of return on the

portfolio or maximized the return, subject to constrain of tolerable level of risk.

The most popular models used for portfolio selection are:

Markowitz model.

Capital assets pricing model.

Markowitz model

According to Markowitz, the portfolio theory establishes a relationship

between portfolios expected return and its level of risk as the criteria for selecting the

optimal portfolio. Thus two measures were suggested for evaluating the merits of

portfolio.

a. The expected return from the portfolio.

b. The level of risk exposure associated with the portfolio.


15/91

15

This theory believes in asset correlation and combining assets so as to lower

the risk. From the efficient set of portfolios the best one would be selected on the basis of

the risk and returns. These risk and returns are calculated using standard deviations and

the co efficient of variations. It is also called as the full co-variance model. The

expected return on the portfolio is calculated by using the following;

R p = RiXi

I = 1

Where, Rp = expected return on portfolio

Ri = expected return on security i

Xi = the proportion of portfolio investment in security i

N = total number of securities in the portfolio.

The risk of a portfolio comprising of shares A and B van be expressed using variance as

the measures of risk.

Covariance of AB = X 2 A2 A +X 2 B2 B + 2XAXBr AB A B

Cov.AB = the variance between the rates of return on shares A and B,

Where,

rab = Coefficient of correlation between A and B shares

X2 A = Proportion invested in shares A

X

2

B= proportion invested in shares B

2 A = Variance of the rate of return on share A.

2 B = Variance of the rate of return on share B.


16/91

16

The term covariance explains the relationship between the movements in the rates

of return from shares A and B; it is derived from the following formula:

Cov.AB = r AB A B

Capital asset pricing model

The Capital Asset Pricing Model (CAPM) attempts to measure the risk of a

security in the portfolio. It considers the required rate of return of a security on the basis

of its contribution to total portfolio risk. It provides that in a well-functioning efficient

market, the risk premium varies indirect proportion to risk. It also provides a measure of

risk premium and method of estimating market risk return line. The risk of well-

diversified portfolio depends on the market risk of the securities included in portfolio.

The market risk of the security is measured in terms of its sensitivity to the market

movements. The core idea of CAPM is that only non-diversifiable risk is relevant to the

determination of the expected return on any asset.

Capital Market Line (CMP )

The portfolio theory states that rational investors would chose a combination

of efficient frontier but in capital market line relationship of total risk and expected

return is reflected.


17/91

17

Security Market Line (sml)

For all well diversified portfolios nonsystematic risk tend to go to zero, and

the only relevant risk measured by beta SML describes the expected return for all assets

and portfolios of assets, efficient or not. The higher the beta the higher must be the return.

The relationship between expected return and beta is linear.

Portfolio revision

Irrespective of how well a portfolio is constructed, it soon tends to change

and hence needs to be monitored and revised periodically. Portfolio once constructed

undergoes changes in the market prices; reassessment of companies, the portfolio risk

and the proportion in each asset class will change to bring back the portfolio to the

targeted level of beta or risk and duration. Overtime several things are likely to happen.

This usually involves two things:

1) Portfolio rebalancing .

It involves reviewing and revising the portfolio compositions. There are

three basic policies with respect to portfolio rebalancing.

By and hold policy,

Constant asset mix, and

Portfolio insurance policy.


18/91

18

2) Portfolio upgrading .

While portfolio rebalancing involves shifting from stocks to bonds or vice versa, it calls

for reassessing the risk return characteristics of various securities, selling over priced

securities and buying under priced securities. It may also involve the other changes the

investor may consider necessary to enhance the performance of portfolio.

Portfolio evaluation

The performance of the portfolio should be evaluated periodically. The key

dimensions of a portfolio performance evaluation are risk and return and the key issue is

whether the portfolio return is commensurate with its risk exposure. Such a review may

provide useful to improve the quality of portfolio management process on a continuing

basis.

For evaluating the performance of a portfolio it is necessary to consider bothrisk and return. The following are the models for evaluating performance of a portfolio.

a) Treynor Measure.

b) Sharpe measure.

c) Jensen measure.


19/91

19

Investment Decision

According to D.E. Fisher and R.J. Jordan, investment is a commitment of

funds made in the expectation of some positive rate of return. If the investment is

properly undertaken, the return will be commensurate with the risk the investo r assumes.

Concept of investment

Investment will be generally be used in its financial sense and as such

investment is an allocation of monetary resources to assets that are expected to yield

some gain or positive return over a given period of time. Investment is a commitment of

persons funds to drive future income in the form of interest, dividends rent, premiums

pension benefits or the appreciation of the value of his principle capital

Any Investors would like to know the media or range of investment so that he

can use his discretion and save in those investments, which will give him both security

and stable return. The ultimate objective of the investor is to derive a variety of

investments that meets his preference for risk and expected return. The investor will

select the portfolio, which will maximize his utility. Another important consideration is

the temperament and psychology of the investor. It is not only the construction of a

portfolio that will promise the highest expected return, but it is the satisfaction of the

need of the investor.


20/91

20

Many types of investment media or channels for making investment are available.

Securities ranging from risk free instruments to highly speculative shares and debentures

are available for alternative investments.

All investments are risky, as the investor parts with his money. An efficient

investor with proper training, can reduce the risk and maximize returns, he can avoid

pitfalls and protect his interests.

There are different methods of classifying the investment avenues. A physical, ifsavings are used to acquire physical assets, useful for consumption or production. Some

physical assets like ploughs, tractors or harvesters are useful in agriculture production. A

few useful physical assets like cars, jeeps etc., are useful in business. Among different

types of investments some are marketable and transferable and other are not. Example of

marketable assets are shares and debentures of public ltd companies particularly the listed

companies on stock exchange, bonds of P.S.U. Government securities etc. non

marketable securities of investments are bank deposits, provident and pension funds,

insurance certificates, company deposits, private Ltd Company shares etc.,


21/91

21

Investment process

The investment process may be described in the following stages.

1. Investment Policy: The first state determines and involves personal financial

affairs and objectives before making investment. It can also be called the

preparation of the investment policy stage. The investor has to see that he should

be able to create an emergency fund, an element of liquidity and quick

convertibility of securities into cash. This stage may, therefore, be called the

proper time for identifying investment assets and considering the various features

of investment.

2. Investment Analysis: After arranging a logical order of type of investment

preferred, the next step is to analyze the securities available for kind of securities

etc. the primary concerns at this stage would be to form beliefs regarding future

behavior of prices and stocks, the expected return and associated risks.

3. Investment Valuation: Investment value, in general is taken to be the present

worth to the owners of future benefits from investments. The investor has to bear

in mind the value of these investments. An appropriate set of weights have to be

applied with the use of forecasted benefits to estimate the value of investment

assets such as stocks, debentures and bonds and other assets. Comparison of the

value with the current market price of the asset allows a determination of the

relative attractiveness of the asset must be valued on its individual merit.


22/91

22

4. Portfolio Construction and Feedback: Portfolio construction required a

knowledge of the different aspects of securities in relation to safety and growth of

principal, liquidity of assets etc, in this stage, we study determination of

diversification level, consideration of investment timing, selection of investment

assets, allocation of ingestible wealth to different investment, evaluation of

portfolio feedback.

Investment Decisions guidelines for the equity investment

Equity shares are characterized by price fluctuations, which can produce

substantial gains or inflict severe losses. Given the volatility and dynamism of the stock

market, investor requires greater competence and skill along with a touch of good luck to

invest in equity shares. Here are some general guidelines to play equity game,

irrespective whether you are aggressive or conservative.

Adopt a suitable formula plan

Establish value anchors.

Assess market psychology

Combine fundamental and technical analysis.

Diversify sensibly

Periodically review and revise your revise portfolio.


23/91

23

Requirement of portfolio

1. Maintain adequate diversification when relative values various securities in the

portfolio change.

2. Incorporate new information relevant for risk return assessment.

3. Expand or contract the size of portfolio to absorb funds or withdraw funds and,

4. Reflect changes in investor risk disposition.

Factors influencing investors decision and type of investors

THERE ARE FOUR TYPES OF INVESTORS IN A MARKET, THEY ARE AS

FOLLOWS:

Types of Investors:

Type A Investors: No market timing and no stock picking skills.

If the investor does not believe that he has any special skills in

picking undervalued stocks or in predicting the movement of the market, then the

portfolio design problem becomes relatively simple. The investor simply chooses a

diversified portfolio and then adjusts its beta to the desired level. If he weights the chosen

security in proportion to the market capitalization, he can expect to get a portfolio beta

close to one. To achieve a higher or lower beta, he can shift the weights towards high or

low beta stocks. He can achieve the same effects by increasing or decreasing the

allocation to the equity portfolio in the overall portfolio.


24/91

24

The type A investor would hold a passive, diversified portfolio with the constant beta

equal to the target beta. He may also prefer to invest his money in a mutual fund and let it

do the portfolio management for him.

Type B Investor: Only stock-picking skills

An investor who has and wishes to exploit his stock picking skills should start

with a base portfolio to that of type a investor. He should then adjust the weights of the

stocks, which are in his opinion mispriced. Specifically, he should overweight the stocksthat are over valued and underweighted those which are under value. For example, the

base portfolio may have 2% in stock X and 1.5% in stock Y. the investor who finds X

under valued and Y over valued may change the weights to 3% to X, he may have a

portfolio. This may not be legally or practically possible. The investors than has to raise

the weight X to 4%, eliminate Y from the portfolio and reduce the weight of some other

stocks by 0.5%.

The investor can deal with this problem in a slightly different manner. He can put,

say 90% of his equity investment in the diversified portfolio and reserve the remaining

10% for the mispriced stocks. How large a fraction he should devote to mispriced scripts

depends on how good analyst may choose a larger fraction. What we are doing in this

decision is to balance to profit potential of investing is undervalued stocks against the

benefits of diversification. Unless we are confident about our analysis, we should give

privacy to the need for diversification.


25/91

25

Since the average beta of the undervalued and overvalued stocks is likely to be closed to

one, the overall beta is likely to remain close to the target value, unless the target beta is

substantially different from one and the percentage of the portfolio devoted to mispriced

stocks is large. If, for some reason, this is not so, the investor would have to take future

action to maintain to the beta at the largest value. The portfolio of the type B investor is

concentrated but has a constant beta.

Type C Investor: Only market timing skills

The type C investor holds a well-diversified portfolio but switches actively

between defensive and offensive portfolios to take advantage of the market timing. If the

expects the market to rise, he should push his portfolio beta above his target level by any

of the techniques described in the section on market timing. The converse should be done

if the investor is bearish about the market. In either case, the portfolio would remain

diversified all through. The portfolio of this investor diversified, but its beta is managed

and not constant.

Type D Investor: Both stock picking and market timing skills

This type of investor would use the techniques used by both the type B and type

C investor. These investors would have the most active and aggressive portfolio

management strategies. Using their superior ability to predict boom and busts in the

markets as a whole and their skills in identifying undervalued scrips, they should hold

highly concentrated portfolios and let the beta fluctuate quiet sharply around the long run

target value.


26/91

26

A pitfall is a very strenuously avoided is that of assuming that one has a skill,

which one in reality does not have. For example, an investor who does not have very

good abilities in script selection may still think that he does not have suck stills. He

would then end up with an ill-diversified portfolio, which earns mediocre returns: he

would have been better off with a passive portfolio.

Qualities for successful investing

Contrary thinking

Patience

Composure

Flexibility and

Openness


27/91

27

Discounted cash flow (DCF) method of time adjusted technique

An important technique used by Karvy Stock Broking Limited for evaluating their shares

for trading purpose. The discounted cash flow technique is an improvement on the pay-

back period method. It takes into account both the interest factor as well as the return after

pay-back period. The method involves three stages:

1. Calculation of cash flow, i.e. both inflows and out flows (preferable after tax) over the

full life of the asset.

2. Discounting the cash flow so calculated by a discount factor.

3. Aggregating of discounted cash inflows and out comparing the total with discountedcash out flow

Discounted cash flow thus recognizes that Re1 of day (the cash out flow) is worth more

than Re1 received at a future date (cash inflow). Discounted cash flow method s for

evaluating capital investment proposal is of three types as explained below:

(a) NPV method.

(b) Excess present value index

(c) Internal rate of return.

(a) The net present value (NPV) method:

In this method cash inflow and cash outflows associated with each project

are first worked out. The present value pt these cash inflows and outflows are then

calculated at the rate of return acceptable to the management. This rate of return is

considered as the cut-off rate and is generally determined on the basis of cost of capital


28/91

28

suitable adjusted to allow for the risk element involved in the project. Cost outflows

represent the investment and commitments of cash in the project at various point of time.

The working capital is taken as a cash outflow in the year the project starts. Commercial

production profit after tax but before depreciation represents cash inflow. The Net

Present Value (NPV) is the difference between the total present value of future cash

inflows and the total present value of future cash outflows.

(b) Excess present value index:

This is refinement of the net present value index method. Instead of working

out the net present value, a present index is found out by comparing the total of presentvalue of future cash inflows and the total of the present value of future cash outflows.

(c) Internal Rate of Return:

IRR is that at which the sum of discounted cash inflows equals the sun of

discounted cash outflows. In other words, it is the rate which discounts their dash flows

to zero. It can be started in the form of a ratio as follows.

Cash inflows

Cash outflows =1

As for the technique followed shows only for the present value or an limited time period

where as the technique followed in analysis for portfolio building takes into account all

he long term capital gains.


29/91

29

CHAPTER NO. 3

INDUSTRY PROFILE

Following diagram gives the structure of Indian financial system:


30/91

30

FINANCIAL MARKET

Financial markets are helpful to provide liquidity in the system and for smooth

functioning of the system. These markets are the centers that provide facilities for

buying and selling of financial claims and services. The financial markets match the

demands of investment with the supply of capital from various sources.

According to functional basis financial markets are classified into two types.

They are:

Money markets (short-term)

Capital markets (long-term)

According to institutional basis again classified in to two types. They are

Organized financial market

Non-organized financial market.

The organized market comprises of official market represented by

recognized institutions, bank and government (SEBI) registered/controlled activities and

intermediaries. The unorganized market is composed of indigenous bankers,

moneylenders, individual professional and non-professionals.

MONEY MARKET:

Money market is a place where we can raise short-term capital.

Again the money market is classified in to

Inter bank call money market Bill market and

Bank loan market Etc.

E.g.; treasury bills, commercial papers, CD's etc.


31/91

31

CAPITAL MARKET :

Capital market is a place where we can raise long-term capital.

Again the capital market is classified in to two types and they are

Primary market and

Secondary market.

E.g.: Shares, Debentures, and Loans etc.

PRIMARY MARKET:

Primary market is generally referred to the market of new issues

or market for mobilization of resources by the companies and government

undertakings, for new projects as also for expansion, modernization, addition,

diversification and up gradation. Primary market is also referred to as New Issue

Market. Primary market operations include new issues of shares by new and existing

companies, further and right issues to existing shareholders, public offers, and issue

of debt instruments such as debentures, bonds, etc.

The primary market is regulated by the Securities and Exchange Board of India

(SEBI a government regulated authority).

Function:

The main services of the primary market are origination,

underwriting, and distribution. Origination deals with the origin of the new issue.

Underwriting contract make the shares predictable and remove the element of

uncertainty in the subscription. Distribution refers to the sale of securities to the

investors.


32/91

32

The following are the market intermediaries associated with the market:

1.Merchant banker/book building lead manager

2.Registrar and transfer agent

3.Underwriter/broker to the issue

4.Adviser to the issue

5.Banker to the issue

6.Depository

7.Depository participant.

Investors protection in theprimary market:

To ensure healthy growth of primary market, the investing public

should be protected. The term investor protection has a wider meaning in the primary

market. The principal ingredients of investors protection are:

Provision of all the relevant information

Provision of accurate information and

Transparent allotment procedures without any bias.


33/91

33

SECONDARY MARKET

The primary market deals with the new issues of securities.

Outstanding securities are traded in the secondary market, which is commonly known

as stock market or stock exchange. The secondary market is a market where

scrips are traded. It is a market place which provides liquidity to the scrips issued

in the primary market. Thus, the growth of secondary market depends on the primary

market. More the number of companies entering the primary market, the greater are

the volume of trade at the secondary market. Trading activities in the secondary

market are done through the recognized stock exchanges which are 23 in number

including Over the Counter Exchange of India (OTCE), National Stock Exchange of

India and Interconnected Stock Exchange of India.

Secondary market operations involve buying and selling of

securities on the stock exchange through its members. The companies hitting the primary

market are mandatory to list their shares on one or more stock exchanges in India. Listing

of scrips provides liquidity and offers an opportunity to the investors to buy or sell th

scrips.

The following are the intermediaries in the secondary market:

1. Broker/member of stock exchange buyers broker and sellers broker

2. Portfolio Manager

3. Investment advisor

4. Share transfer agent

5. Depository

6. Depository participants.


34/91

34

STOCK MARKETS IN INDIA:

Stock exchanges are the perfect type of market for securities

whether of government and semi-govt bodies or other public bodies as also for shares and

debentures issued by the joint-stock companies. In the stock market, purchases and sales

of shares are affected in conditions of free competition. Government securities are traded

outside the trading ring in the form of over the counter sales or purchase. The bargains

that are struck in the trading ring by the members of the stock exchanges are at the fairest

prices determined by the basic laws of supply and demand.

Definition of a stock exchange:

Stock exchange means any body or individuals whether

incorporated or not, constituted for the purpose of assisting, regulating or controlling

the business of buying, selling or dealing in securities. Thesecurities include:

Shares of public company.

Government securities.

Bonds


35/91

35

History of Stock Exchanges:

The only stock exchanges operating in the 19 th century were those

of Mumbai setup in 1875 and Ahmadabad set up in 1894. These were organized as

voluntary non-profit-marking associations of brokers to regulate and protect their

interests. Before the control on securities under the constitution in 1950, it was a state

subject and the Bombay securities contracts (control) act of 1925 used to regulate

trading in securities. Under this act, the Mumbai stock exchange was recognized in

1927 and Ahmadabad in 1937. During the war boom, a number of stock exchanges

were organized. Soon after it became a central subject, central legislation was

proposed and a committee headed by A.D.Gorwala went into the bill for securities

regulation. On the basis of the committees recommendations and public discussion

the securities contract (regulation) act became law in 1956.

Functions of Stock Exchanges:

Stock exchanges provide liquidity to the listed companies. By giving

quotations to the listed companies, they help trading and raise funds from the market.

Over the hundred and twenty years during which the stock exchanges have existed in this

country and through their medium, the central and state government have raised crores

of rupees by floating public loans. Municipal corporations, trust and local bodies have

obtained from the public their financial requirements, and industry, trade and commerce-

the backbone of the countrys economy-have secured capital of crores or rupees through

the issue of stocks, shares and debentures for financing their day-to-day activities,

organizing new ventures and completing projects of expansion, diversification and


36/91

36

modernization. By obtaining the listing and trading facilities, public investment is

increased and companies were able to raise more funds. The quoted companies with wide

public interest have enjoyed some benefits and assets valuation has become easier for tax

and other purposes.

Various Stock Exchanges in India:

At present there are 23 stock exchanges recognized under the securities

contracts (regulation), Act, 1956. Those are:

Ahmadabad Stock Exchange Association Ltd.

Bangalore Stock Exchange

Bhubaneshwar Stock Exchange Association

Calcutta Stock Exchange

Cochin Stock Exchange Ltd.

Coimbatore Stock Exchange

Delhi Stock Exchange Association

Guwahati Stock Exchange Ltd

Hyderabad Stock Exchange Ltd.

Jaipur Stock Exchange Ltd

Kanara Stock Exchange Ltd

Ludhiana Stock Exchange Association Ltd

Madras Stock Exchange

Madhya Pradesh Stock Exchange Ltd.

Magadh Stock Exchange Limited

Meerut Stock Exchange Ltd.


37/91

37

Mumbai Stock Exchange

National Stock Exchange of India

OTC Exchange of India

Pune Stock Exchange

Uttar Pradesh Stock Exchange Association

Vadodara Stock Exchange Ltd.

Out of these major stock exchanges were:

NSE

The National Stock Exchange of India Limited has genesis in the report of the High

Powered Study Group on Establishment of New Stock Exchanges, which

recommended promotion of a National Stock Exchange by financial institutions (FIs

to provide access to investors from all across the country on an equal footing. Based

on the recommendations, NSE was promoted by leading Financial Institutions at the

behest of the Government of India and was incorporated in November 1992 as a tax-

paying company unlike other stock exchanges in the country. On its recognition as a

stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993,

NSE commenced operations in the Wholesale Debt Market (WDM) segment in June

1994. The Capital Market (Equities) segment commenced operations in November

1994 and operations in Derivatives segment commenced in June 2000

NSE's mission is setting the agenda for change in the securities markets in India. The

NSE was set-up with the main objectives of:

Establishing a nation-wide trading facility for equities and debt instruments.


38/91

38

Ensuring equal access to investors all over the country through an appropriate

communication network.

Providing a fair, efficient and transparent securities market to investors using

electronic trading systems.

Enabling shorter settlement cycles and book entry settlements systems, and

Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology, have become

industry benchmarks and are being emulated by other market participants. NSE is

more than a mere market facilitator. It's that force which is guiding the industry

towards new horizons and greater opportunities .

BSE

The Stock Exchange, Mumbai, popularly known as "BSE" was

established in 1875 as "The Native Share and Stock Brokers Association". It is the

oldest one in Asia, even older than the Tokyo Stock Exchange, which was established

in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is

currently engaged in the process of converting itself into demutualised and corporate

entity. It has evolved over the years into its present status as the premier Stock

Exchange in the country. It is the first Stock Exchange in the Country to have

obtained permanent recognition in 1956 from the Govt. of India under the Securities

Contracts (Regulation) Act 1956.The Exchange, while providing an efficient and

transparent market for trading in securities, debt and derivatives upholds the interests

of the investors and ensures redresses of their grievances whether against the


39/91

39

companies or its own member-brokers. It also strives to educate and enlighten the

investors by conducting investor education programmers and making available to

them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which

decides the policies and regulates the affairs of the Exchange. The Governing Board

consists of 9 elected directors, who are from the broking community (one third of

them retire ever year by rotation), three SEBI nominees, six public representatives

and an Executive Director &Chief Executive Officer and a Chief Operating Officer.

The Executive Director as the Chief Executive Officer is responsible

for the day-to-day administration of the Exchange and the Chief Operating Officer

and other Heads of Department assist him.

The Exchange has inserted new Rule No.126 A in its Rules, Byelaws

pertaining to constitution of the Executive Committee of the Exchange. Accordingly,

an Executive Committee, consisting of three elected directors, three SEBI nominees

or public representatives, Executive Director & CEO and Chief Operating Officer has

been constituted. The Committee considers judicial & quasi matters in which the

Governing Board has powers as an Appellate Authority, matters regarding annulment

of transactions, admission, continuance and suspension of member-brokers,

declaration of a member-broker as defaulter, norms, procedures and other matters

relating to arbitration, fees, deposits, margins and other monies payable by the

member-brokers to the Exchange, etc.


40/91

40

Regulatory Frame Work Of Stock Exchange

A comprehensive legal framework was provided by the Securities Contract

Regulation Act, 1956 and Securities Exchange Board of India 1952. Three tier

regulatory structure comprising

Ministry of finance

The Securities And Exchange Board of India

Governing body

Members of the stock exchange:

The securities contract regulation act 1956 has provided uniform regulation

for the admission of members in the stock exchanges. The qualifications for becoming a

member of a recognized stock exchange are given below:

The minimum age prescribed for the members is 21 years.

He should be an Indian citizen.

He should be neither a bankrupt nor compound with the creditors.

He should not be convicted for fraud or dishonesty.

He should not be engaged in any other business connected with a

company.

He should not be a defaulter of any other stock exchange.

The minimum required education is a pass in 12 th standard examination.


41/91

41

STOCK EXCHANGE BOARD OF INDIA (SEBI)

The securities and exchange board of India was constituted in 1988 under a resolution

of government of India. It was later made statutory body by the SEBI act

1992.according to this act, the SEBI shall constitute of a chairman and four other

members appointed by the central government.

With the coming into effect of the securities and exchange board of India act, 1992

some of the powers and functions exercised by the central government, in respect of

the regulation of stock exchange were transferred to the SEBI.

OBJECTIVES AND FUNCTIONS OF SEBI

To protect the interest of investors in securities.

Regulating the business in stock exchanges and any other securities market.

Registering and regulating the working of intermediaries associated with

securities market as well as working of mutual funds.

Promoting and regulating self-regulatory organizations.

Prohibiting insider trading in securities.

Regulating substantial acquisition of shares and take over of companies.

Performing such functions and exercising such powers under the provisions of

capital issues (control) act, 1947and the securities to it by the central government.


42/91

42

SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK

EXCHANGES):

Board of Directors of Stock Exchange has to be reconstituted so as to include

non-members, public representatives and government representatives to the extent

of 50% of total number of members.

Capital adequacy norms have been laid down for the members of various stock

exchanges depending upon their turnover of trade and other factors.

All recognized stock exchanges will have to inform about transactions within 24

hrs.

TYPES OF ORDERS:

Buy and sell orders placed with members of the stock exchange by the

investors. The orders are of different types.

Limit orders: Orders are limited by a fixed price. E.g. buy Reliance Petroleum at

Rs.50.Here, the order has clearly indicated the price at which it has to be bought and the

investor is not willing to give more than Rs.50.

Best rate order: Here, the buyer or seller gives the freedom to the broker to execute the

order at the best possible rate quoted on the particular date for buying. It may be lowest

rate for buying and highest rate for selling.

Discretionary order: The investor gives the range of price for purchase and sale. The

broker can use his discretion to buy within the specified limit. Generally the

approximation price is fixed. The order stands as this buy BRC 100 shares around

Rs.40.


43/91

43

Stop loss order: The orders are given to limit the loss due to unfavorable price

movement in the market. A particular limit is given for waiting. If the price falls below

the limit, the broker is authorized to sell the shares to prevent further loss. E.g. Sell BRC

limited at Rs.24, stop loss at Rs.22.

Buying and selling shares:

To buy and sell the shares the investor has to locate register broker or sub broker who

render prompt and efficient service to him. The order to buy or sell specifying the number

of shares of the company of investors choice is placed with the broker. The order may b

of any type. After receiving the order the broker tries to execute the order in his computerterminal. Once matching order is found, the order is executed. The broker then delivers

the contract note to the investor. It gives the details regarding the name of the company,

number of shares bought, price, brokerage, and the date of delivery of share. In this

physical trading form, once the broker gets the share certificate through the clearing

houses he delivers the share certificate along with transfer deed to the investor. The

investor has to fill the transfer deed and stamp it. The stamp duty is one of the percentage

considerations, the investor should lodge the share certificate and transfer deed to the

register or transfer agent of the company. If it is bought in the DEMAT form, the broker

has to give a matching instruction to his depository participant to transfer shares bought

to the investors account. The investor should be account holder in any of the depository

participant. In the case of sale of shares on receiving payment from the purchasing

broker, the broker effects the payment to the investor.


44/91

44

Share groups:

The scripts traded on the BSE have been classified into

A,B1,B2,C,F and Z groups. The A group represents those, which

the carry forward system. The F group represents the debt market segment (fixed

income securit ies). The Z group scrips are of the blacklisted companies. The C

group covers the odd lot securities in A, B1&B2 groups

ROLLING SETTLEMENT SYSTEM:

Under rolling settlement system, the settlement takes place n days

(usually 1, 2, 3 or 5days) after the trading day. The shares bought and sold are paid in

for n days after the trading day of the particular transaction. Share settlement is likely

to be completed much sooner after the transaction than under the fixed settlement

system.

The rolling settlement system is noted by T+N i.e. the settlement

period is n days after the trading day. A rolling period which offers a large number of

days negates the advantages of the system. Generally longer settlement periods are

shortened gradually.

SEBI made RS compulsory for trading in 10 securities selected

on the basis of the criteria that they were in compulsory demat list and had daily

turnover of about Rs.1 crore or more . Then it was extended to A stocks in Modified

Carry Forward Scheme, Automated Lending and Borrowing Mechanism (ALBM)

and Borrowing and lending Securities Scheme (BELSS) with effect from Dec 31,

2001.


45/91

45

Company profile

ANU Securities limited are one of the Leading stock broking

Companies based in Andhra Pradesh. We strongly believe that value based investments

Advice will help our customers make money. Mr. .K.V. SUBBA RAO, an eminent stock

Broker, promotes Anu Securities limited and well know personalities in the stock broking

and investment fraternity in Andhra Pradesh. The company commenced its membership

on the Hyderabad stock exchange Ltd. It has the distinction of being the first corporate

member from Hyderabad and also the first Andhra Pradesh based broking firm to start

trading on the national stock exchange (NSE), the premier stock exchange in the country.

The company is a registered member on the capital market segment and

future & options segment of NSE. The company is also a depositary participant (DP)

with national securities depository Ltd (NSDL) The Company is also SEBI registered

portfolio manager offering portfolio management services to customer the company is

also has applied and got in principle approval; for membership into the capital market

segment of BSE


46/91

46

SERVICES OFFERED BY ANU SECURITIES LTD

Investment advisory service portfolio management services

Trading on NSE (capital market segment), BSE and HSE Trading on futures and option and on the NSE

Demat accounts Guidance and clients in dematerialization of physical shares

Tax saving and bands and instruments

Guidance to NRI clients regarding investing in the Indian market

IPOs/fixed income/ Mutual funds


47/91

47

THE COMPANY HAS TWO SUBSIDIARIES

ANU COM TRADE PVT LIMITED

It is a100% subsidiary of ZSL and is a member

of National commodities and derivatives and exchange limited (NCDEX), an exchange

co-promoted by NSE

ANU INSURANCE SERVICES PVT LIMITED

It has applied for license as an insurance broker

and the same is under consideration by insurance Regulatory development authority

(IRDA)

ZSL operates out of a spacious office in Hyderabad and has other branches/

franchises in the state of Andhra Pradesh& Tamilnadu. The company has over 32 VSAT

installation spread over Andhra Pradesh and one in Tamilnadu with approximately to

110CM trading terminals and 60 F&O trading terminals catering to the investors in the

state


48/91

48

K.V SUBBA RAO

(Managing Director)

Mr. Subba Rao has acquired his masters degree in the field of APPLIED

PHYSCIS with specialization in the field of instrumentation. He started his career as an

engineer with A.P PAPER MILLS in Rajmundhary.he has over a decade of experience in

the industry. A vastly experienced and a seasoned investor and stock broker he is the

guiding light for the company. He is the promoter of the ANU securities Ltd. Under his

leadership, ANU securities have grown to a stage of being a leading provider of financialservices in the state of Andhra Pradesh. The company continues to demonstrate

consistent growth over the year

P.SAMBA SIVA RAO

(Executive director)

Mr. Samba Siva Rao has done his masters in pharmacy (M PHARM) from a premier

institute. He worked with several multi national pharmaceutical companies before in cop

orating and running a successful pharmacy business venture in USA. He relocated to

India and started stock broking business as a member of the Hyderabad stock exchange

(HSE) in 1994


49/91

49

R.CH. DIWAKAR

(Director)

Mr. R.CH Diwakar has a done is bachelors in engineering in field of chemical

technology, from a premier institute. He has more than two decades of experience in

various fields of management administration and marketing in various capacities.

K. SATISH

(Head equity research)

Mr. Satish is chartered financial analyses and also has and master degree in financefrom a premier institute he is responsible for the equity research division of the company

J. SANDHEKAR RAO

(Director.ANU com trade and Head compliance)

Mr. J.Sandhekar Rao hold a bachelors degree in field of mech uncial engineering i.e. B.E

(mech). He has done his masters in business i.e. M.B.A and specialize in the filed of

finance M.B.A (finance) from a premier institute. He has a vast experience in the filed of

stock broking and a deep under standing of the regulator frame work in the capital

market. He is heading the commodity broking business of the company


50/91

50

CHAPTER NO.4

DATA ANALYSIS AND INTERPRETATIONS

1) Wipro Technology

Wipro Technologies is a global services provider delivering technology-

driven business solutions. Wipro is the No.1 provider of integrated business, technology

and process solutions on a global delivery platform. Azim Premji is the Chairman of

Wipro Technologies. He took over the mantle of leadership of Wipro at the age of 21 in

1966. Under his leadership, the fledgling US$ 2 million hydrogenated cooking fat

company has grown to a US$1.76 billion IT Services organization serving customers

across the globe. Wipro is presently ranked among the top 100 Technology companies in

the world. It has 66,000+ employees, serves 592 clients, and has 46 development centers

across globe.


51/91

51

Year Opening price Closing price return

2004 1060.68 1057.09 -0.33

2005 584.67 583.75 -0.15

2006 515.70 514.95 -0.14

2007 526.90 525.25 -0.31

2008 395.01 393.70 -0.33

(TABLE 4.1)

Risk return in Wipro

(TABLE 4.2)

Variance= total/no of year

=0.037/5

=0.0075

S.D = variance

= 0.0075

=0.086

Year Return Avg return (R-R) (R-R)*(R-R)

2004 -0.33 -0.25 -0.08 0.0064

2005 -0.15 -0.25 0.1 0.01

2006 -0.14 -0.25 0.11 0.012

2007 -0.31 -0.25 -0.06 0.003

2008 -0.33 -0.25 -0.08 0.0064

-1.26 0..037


52/91

52

2) Hero Honda Motors Limited

The Company's principal activity is to manufacture and market

motorcycles and spare parts. The Company is a joint venture between Hero Group, India

and Honda Motors Company of Japan. The motorcycle features include four stroke

technology, phenomenal fuel economy and low exhaust pollution levels. The major

brands of the Company include Splendor, CBZ and Passion. The Company has two

manufacturing facilitilocated at Dharuhera and Gurgaon in Haryana

Hero Honda values its relationship with customers. Its unique CRM

initiative - Hero Honda Passport Program, one of the largest programs of this kind in the

world, has over 3 million members on its roster. The program has not only helped Hero

Honda understand its customers and deliver value at different price points, but has also

created a loyal community of brand ambassadors.

Hero Honda has consistently grown at double digits since inception; and

today, every second motorcycle sold in the country is a Hero Honda. Every 30 seconds,

someone in India buys Hero Honda's top -selling motorcycle - Splendor. This festive

season, the company sold half a million two wheelers in a single month-a feat

unparalleled in global automotive history.


53/91

53

(TABLE 4.3)

Risk of Hero Honda Motors

(TABLE 4.4)

Variance= total/no of year

=0.908/5

=0.181

S.D= variance

= 0.181

=0.42

Year Opening price Closing price Return

2004 467.58 467.31 -0.05

2005 630.83 631.41 0.09

2006 787.88 785.50 -0.30

2007 691.22 690.56 -0.09

2008 755.91 758.31 0.31


2004 -0.05 -0.008 -0.04 0.001

2005 0.09 -0.008 0.098 0.009

2006 -0.30 -0.008 -0.29 0.008

2007 -0.09 -0.008 -0.89 0.79

2008 0.31 -0.008 0.318 0.10

-0.04 0.908


54/91

54

3) SAIL

The history of SAIL goes back to 1995. Within the Dutch higher education

law two sectors are distinguished: higher vocational training (HBO) and university

education (WO). The SAIL-institutes do not belong to one of these sectors. This is

due to the fact that they offer English-spoken (no-Dutch) post-graduate programs (no

bachelor-track) for a non-Dutch student population (mid-career professionals from

mainly developing countries) with Anglo-Saxon degrees (no Dutch degrees). This

actually led to an unclear legal and financial position of the institutes in the Dutch

higher education system. One of the Dutch MPs brought this confusing position in1991 to the attention of the entire Dutch Parliament. The Parliament called upon the

Minister for Education, Culture and Science to formulate a policy to clarify the issue.

The Minister established in August 1992 a committee to advice him: the

Wolfsan-committee. The committee suggested in its conclusion to specify a special

category (International Education) with its own budget and rights in the Dutch Higher

Education Act. The minister did not like the idea and requested six institutes (the current

five and Wageningen University) to form a foundation that would overcome the scale

problem of relatively small institutes, would foster the cooperation between the SAIL-

institutes, would link the five institutes to the university sector, and could monitor the

quality of education. Wageningen University should act as a linking pin with the

universities. The foundation established on February 3 1995 received a one-time subsidy

to stimulate the cooperation between the institutes. Also a scientific advisory council

(WAR) formed by independent university professors was attached to the foundation to

safeguard the academic quality of the SAIL-institutes


55/91

55

(TABLE 4.5)

Risk of SAIL

(TABLE 4.6)

Variance= Total/no. of year

= 0.352/5

=0.070

S.D =Variance

=0.07

=0.26


2004 41.29 41.18 -0.26

2005 57.60 57.32 -0.48

2006 75.14 75.14 0

2007 161.72 162.00 0.17

2008 155.02 154.08 -0.60


2004 -0.26 -0.23 -0.03 0.009

2005 -0.48 -0.23 0.25 0.062

2006 0 -0.23 0 0

2007 0.17 -0.23 0.4 0.16

2008 -0.60 -0.23 -0.37 0.13

-1.17 0.352


56/91

56

4) Ranbaxy Laboratories Limited

Ranbaxy Laboratories Limited is an integrated, research based, international

pharmaceutical company, producing a wide range of quality, affordable generic

medicines. Ranbaxy is ranked amongst the top ten global generic companies and has a

presence in 23 of the top 25 pharma markets of the world. The company is headquartered

in India. It has presence in 49 countries, with manufacturing facilities in 11 and a diverse

product portfolio.

Ranbaxy was incorporated in 1961. Bhai Mohan Singh was the founder of the

company. He bought the company from his cousins Ranjit Singh and Gurbax Singh.

Ranbaxy's name is a fusion of Ranjit and Gurbax's names. Ranbaxy went public in 1973.

Ranbaxy's first joint venture was set up in Lagos (Nigeria) in 1977. In 1985, Ranbaxy

Research Foundation was established and Stancare, Ranbaxy's second pharmaceutical

market division started functioning. In 1987, production started at Ranbaxy's Toansa

Plant (Punjab) and with this Ranbaxy became India's largest manufacturer of

antibiotics/antibacterials. In 1988, Ranbaxy's Toansa Plant got US FDA approval. In

1990, Ranbaxy was granted its first US patent, for Doxycyline. In 1993, Ranbaxy set up a

joint venture in China. In 1994, Ranbaxy established regional headquarters in UK and

USA. In the same year its GDR was listed in Luxembourgh Stock Exchange. In 1995,

Ranbaxy acquired Ohm Laboratories, a manufacturing facility in the US and inaugurated

state-of-the art new manufacturing wing at Ranbaxy's US subsidiary Ohm Laboratories

Inc.


57/91

57


2004 1026.32 1026.19 -0.01

2005 780.94 778.52 -0.30

2006 406.79 405.34 -0.35

2007 384.72 383.29 -0.37

2008 399.96 399.96 0

(TABLE 4.7)

Risk of Ranbaxy Laboratories


2004 -0.01 -0.20 0.19 0.046

2005 -0.30 -0.20 -0.11 0.01

2006 -0.35 -0.20 -0.15 0.02

2007 -0.37 -0.20 -0.17 0.02

2008 0 -0.20 0 0

-1.04 0.14

(TABLE 4.8)

Variance= Total/no. of year

=0.14/5

=0.028

S.D = Variance

= 0.028

= 0.16


58/91

58

5) Colgate

In 1806, when the company was founded by 23-year-old William Colgate, it

concentrated exclusively on selling starch, soap, and candles from its New York City-

based factory and shop. Upon entering his second year of business, Colgate became

partners with Francis Smith, and the company became Smith and Colgate, a name it kept

until 1812 when Colgate purchased Smith's share of the company and offered a

partnership to his brother, Bowles Colgate. Now called William Colgate and Company,

the firm expanded its manufacturing operations to a Jersey City, New Jersey, factory in

1820; this factory produced Colgate's two major products, Windsor toilet soaps and Pearl

starch.

In 1873 Colgate began selling toothpaste in a jar, followed 23 years later by the

introduction of Colgate Ribbon Dental Cream, in the now familiar collapsible tube. By

1906 the company was also producing several varieties of laundry soap, toilet paper, and

perfumes. Colgate & Company shifted its headquarters to Jersey City in 1910.


59/91

59

(TABLE 4.9)

Risk of Colgate


2004 -0.07 -4.97 4.9 24.01

2005 -0.12 -4.97 4.85 23.52

2006 -0.09 -4.97 4.88 23.81

2007 -23.63 -4.97 18.66 348.19

2008 -0.97 -4.97 4.00 16.00

-24.88 435.53

(TABLE 4.10)

Variance = Total/no. of year

=435.53/5

=87.10

S.D =Variance

=87.10

=9.33


2004 143.20 143.09 -0.07

2005 224.92 224.64 -0.12

2006 377.66 377.31 -0.09

2007 368.01 281.02 -23.63

2008 402.23 398.32 -0.97


60/91

60

6) ICICI BANK

ICICI Bank is India's second-largest bank with total assets of Rs. 3,767.00 billion (US$

96 billion) at December 31, 2007 and profit after tax of Rs. 30.08 billion for the nine

months ended December 31, 2007. ICICI Bank is second amongst all the companies

listed on the Indian stock exchanges in terms of free float market capitalisation. The Bank

has a network of about 955 branches and 3,687 ATMs in India and presence in 17

countries. ICICI Bank offers a wide range of banking products and financial services to

corporate and retail customers through a variety of delivery channels and through its

specialised subsidiaries and affiliates in the areas of investment banking, life and non-life

insurance, venture capital and asset management. The Bank currently has subsidiaries in

the United Kingdom, Russia and Canada, branches in Unites States, Singapore, Bahrain,

Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative

offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia

and Indonesia. Our UK subsidiary has established a branch in Belgium.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and

the National Stock Exchange of India Limited and its American Depositary Receipts

(ADRs) are listed on the New York Stock Exchange (NYSE)


61/91

61

(TABLE 4.11)

Risk of ICICI Bank

Variance =Total/no. of year (TABLE 4.12)

=0.99/5

=0.19

S.D =Variance

=0.19

=0.44


2004 278.51 279.69 0.40

2005 451.63 451.74 0.02

2006 632.14 632.31 0.02

2007 866.62 864.33 -0.26

2008 744.41 738.97 -0.73


2004 0.40 -0.10 0.52 0.27

2005 0.02 -0.10 0.12 0.01

2006 0.02 -0.10 0.12 0.01

2007 -0.26 -0.10 -0.16 0.022008 -0.73 -0.10 0.83 0.68

-0.53 0.99


62/91

62

7) Asian paint

Asian Paints is India's largest and Asia's third largest paint company

today, with a turnover of Rs 44.04 billion (around USD 1.1 billion). The company has an

enviable reputation in the corporate world for professionalism, fast track growth and

building shareholder equity. Asian Paints operates in 20 countries and has 28 paint

manufacturing facilities in the world servicing consumers in over 65 countries. Besides

Asian Paints, the group operates around the world through its subsidiaries, Berger

International Limited, Apco Coatings, SCIB Paints and Taubmans.

Asian Paints along with its subsidiaries has operations in 20 countries

across the world and 28 paint manufacturing facilities, servicing consumers in 65

countries through Berger International, SCIB Paints-Egypt, Asian Paints, Apco Coatings

and Taubmans. Asian Paints operates in 5 regions across the world viz. South Asia, South

East Asia, South Pacific, Middle East and Caribbean region through the five corporate

brands viz. Asian Paints, Berger International, SCIB Paints, Apco Coatings and

Taubmans. In 10 markets, it operates through its subsidiary, Berger International Limited;

in Egypt through SCIB Paints; in 5 markets in the South Pacific it operates through Apco

Coatings and in Fiji and Samoa it also operates through


63/91

63

(TABLE 4.13)

Risk of Asian paint

(TABLE 4.14)

Variance =Total/no. of year

= 1.88/5

= 0.37

S.D = Variance

=0.37

=0.61


2004 310.71 309.89 -0.26

2005 431.76 424.54 -1.67

2006 638.26 636.52 -0.27

2007 868.65 868.39 -0.02

2008 1115.22 1114.46 -0.06


2004 -0.26 -0.4 0.14 0.01

2005 -1.67 -0.4 -1.27 1.61

2006 -0.27 -0.4 0.13 0.01

2007 -0.02 -0.4 0.38 0.14

2008 -0.06 -0.4 0.34 0.11

-0.4 1.88


64/91

64

8) TATA Motors

Tata Motors Limited is Indias largest automobile company, with revenues of Rs.

35651.48 crores (USD 8.8 billion) in 2007-08. It is the leader in commercial vehicles in

each segment, and among the top three in passenger vehicles with winning products in

the compact, midsize car and utility vehicle segments. The company is the worlds fourt

largest truck manufacturer, and the worlds second largest bus manufacturer.

The companys 23,000 employees are guided by the vision to be best in the

manner in which we operate best in the products we deliver and best in our value system

and ethics. Established in 1945, Tata Motors presence indeed cuts across the length and

breadth of India. Over 4 million Tata vehicles ply on Indian roads, since the first rolled

out in 1954. The companys manufacturing base in India is spread across Jamshedpur

(Jharkhand), Pune(Maharashtra), Luck now (Uttar Pradesh) and Pantnagar (Uttarakhand).

Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture

with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata

cars and Fiat power trains. The company is establishing two new plants at Dharwad

(Karnataka) and Sanand (Gujarat). The compa nys dealership, sales, services and spare

parts network comprises over 3500 touch points; Tata Motors also distributes and

markets Fiat branded cars in India.


65/91

65

Risk of TATA Motors (TABLE 4.15)

Variance = Total /no. of year (TABLE 4.16)

= 0.36/5

= 0.072

S.D = Variance

= 0.072

= 0.26


2004 392.01 392.16 0.03

2005 484.95 484.35 -0.12

2006 821.31 820.11 -0.14

2007 751.36 748.32 -0.40

2008 478.24 474.61 -0.75


2004 0.03 -0.27 -0.3 0.09

2005 -0.12 -0.27 0.15 0.02

2006 -0.14 -0.27 0.13 0.01

2007 -0.40 -0.27 -0.13 0.01

2008 -0.75 -0.27 -0.48 0.23

-0.27 0.36


66/91

66

9) GAIL

GAIL (India) Ltd. is India's principal gas transmission and marketing

company. GAIL is involved in all aspects of the Natural Gas value chain, which include:

Exploration & Production, Processing, Transmission, Distribution and Marketing, and its

related services. In a scenario where society is increasingly concerned about the impact of

development on environment and Natural gas is one of most clean fuels available, GAIL

has a critical role to play. GAIL is currently spearheading the move to a new era of clean

fuel industrialization by creating a quadrilateral of green energy corridors that connect

major consumption centers in India with major gas fields, LNG terminals and other cross

border gas sourcing points. GAIL (India) Ltd. was previously known as Gas Authority of

India Ltd. It was set up by the Government of India in August 1984 to create gas sector

infrastructure for sustained development of the natural gas sector in the country. During

its short lifespan GAIL has achieved several major milestones.

Major Milestones of GAIL

The 2800-km Hazira-Vijaipur-Jagdishpur (HVJ) pipeline became operational in 1991.

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG

stations, catering to the city's vast public transport fleet.

In 1999, GAIL set up northern India's only petrochemical plant at Pata.

In 2001, GAIL commissioned world's longest and India's first Cross Country LPG

Transmission Pipeline from Jamnagar to Loni.

Gas Authority of India was renamed GAIL (India) Limited on November 22,

2002


67/91

67

(TABLE 4.17)

Risk of GAIL

(TABLE 4.18)

Variance = Total/no. of year

=5.00/5

=1

S.D = Variance

=1

= 1


2004 204.17 203.37 -0.39

2005 235.53 234.95 -0.24

2006 272.08 264.36 -2.83

2007 335.36 333.88 -0.44

2008 364.29 363.34 -0.26


2004 -0.39 -0.83 0.44 0.19

2005 -0.24 -0.83 0.59 0.34

2006 -2.83 -0.83 -2.00 0

2007 -0.44 -0.83 0.39 0.15

2008 -0.26 -0.83 0.57 0.32

-4.16 5.00


68/91

68

10) BHEL

BHEL or Bharat Heavy Electricals Limited is the largest engineering and manufacturing

enterprise in India in the energy-related/infrastructure sector. BHEL is one of the nine

large Public Sector Undertakings known as navratnas or nine jewels. BHEL offers over

180 products and provides systems and services to meet the needs of core sectors like:

power, transmission, industry, transportation, oil & gas, non-conventional energy sources

and telecommunication. BHEL was founded in 1950s. Its operations are organized

around three business sectors: Power, Industry - including Transmission, Transportation,

and Telecommunication & Renewable Energy - and Overseas Business. Today, BHEL

has a wide-spread network comprising 14 manufacturing divisions, 8 service centers, 4

power sector regional centers, 18 regional offices, and a large number of project sites

spread all over India and abroad. BHEL is one of the largest exporters of engineering

products & services from India. BHEL has established its references in around 60

countries of the world, ranging from the United States in the West to New Zealand in the

Far East. Its export range include: individual products to complete power stations,

turnkey contracts for power plants, EPC contracts, HV/EHV Sub-stations, O&M services

for familiar technologies, specialized after-market services like Residual Life Assessment

(RLA) studies and retrofitting, refurbishing & overhauling, and supplies to manufacturers

& EPC contractors.


69/91

69


2004 573.86 575.43 0.27

2005 985.18 986.27 0.11

2006 2127.49 2124.07 -0.16

2007 2161 2158.68 -0.13

2008 1702.90 1693.83 -0.53

Risk of BHEL ( TABLE 4.19)

(TABLE 4.20)

Variance = Total/ no. of year

= 0.358/5

= 0.071

S.D = Variance

= 0.071

=0.26


2004 0.27 -0.08 0.35 0.12

2005 0.11 -0.08 0.19 0.03

2006 -0.16 -0.08 -0.08 0.006

2007 -0.13 -0.08 -0.05 0.002

2008 -0.53 -0.08 -0.45 0.20

-0.44 0.358


70/91

70

(TABLE 4.21)

Companies Avg return Stranded deviation

Wipro -0.25 0.086

Hero Honda -0.008 0.42

SAIL -0.23 0.26

Ranbaxy -0.20 0.16

Colgate -4.97 9.33

ICICI -0.10 0.44

Asian paint -0.40 0.61

TATA MOTORS -0.27 0.26

GAIL -0.83 1.0

BHEL -0.08 0.26


71/91

71

(GRAPH 4.1)

Avg return of differents companies

-7

-5

-3

-1

1

3

5

W i p r o

H e r o H o

n d a

S A I L

R a n b a x y

C o l g a t

e

I C I C

I

A s i a n p

a i n t

T A T A

M O T O R S

G A I L

B H E L

company

A v g r e

t u r n

Avg return


72/91

72

(GRAPH 4.2)

Stranded deviation of different companies

0123456789

10

W i p r o

H e r o H

o n d a S A I L R a

n b a x y

C o l g a t e I C I C I

A s i a n

p a i n t

T A T A

M O T

O R S G A I L B H E L

companies

s t r a n

d e

d d e v

i a t i o n

Stranded deviation


73/91


74/91

74

2) Correlation between SAIL &RANBAXY

Year Dev of SAIL (dx) Dev of

RANBAX(dy)

dx*dy

2004 -0.03 0.19 -0.0057

2005 0.25 -0.11 -0.027

2006 0 -0.15 0

2007 0.4 -0.17 -0.468

2008 -0.37 0 0

-0.5

(TABLE 4.23)

Covariance (COVab) =1/n (dx*dy)

=1/5*-0.5

=-0.1

Correlation co-efficient = COVab / S.D of A) * (S.D of B)

= -0.1/0.26*0.16

=-0.1/0.0416

=-2.43


75/91

75

3) Correlation between COLGATE & ICICI BANK

Year Dev of COLGATE

(dx)

Dev of

ICICIBANK(dy)

dx*dy

2004 4.9 0.52 2.54

2005 4.85 0.12 0.58

2006 4.88 0.12 0.58

2007 18.66 -0.16 -2.98

2008 4.00 0.83 3.32

4.04

(TABLE 4.24)


=1/5*404

= 0.808

Relation co-efficient = COVab / S.D of A) * (S.D of B)

= 0.808/9.33*0.44

=0.808/4.10

= 0.19


76/91

76

4) Correlation between ASIAN PAINTS and TATA MOTORS

Year Dev of Asian

paint(dx)

Dev of Tata

motors(dy)

dx*dy

2004 0.14 -0.3 -0.042

2005 -1.27 0.15 -0.190

2006 0.13 0.13 0.016

2007 0.38 -0.13 -0.049

2008 0.34 -0.48 -0.163

-0.428

(TABLE 4.25)


=1/5*-0.428

=-0.085


=-0.085/0.61*0.26

=-0.085/0.158

=-0.53


77/91

77

5) Correlation between GAIL & BHEL

Year Dev of GAIL(dx) Dev of BHEL(dy) dx*dy

2004 0.44 0.35 0.15

2005 0.59 0.19 0.11

2006 -2,00 -0.08 0.16

2007 0.39 -0.05 -0.01

2008 0.57 -0.45 -0.25

0.16

(TABLE 4.26)


=1/5*0.16

=0.032


=0.032/1*0.26

=0.032/0.26

=0.12


78/91

78

Companies Covariance Correlation coefficients

Wipro & Hero Honda 0.00082 0.022

Sail & Ranbaxy -0.1 -2.43

Colgate & ICICI 0.808 0.19

Asian paints & Tata motors -0.085 -0.53

Gail & BHEL 0.032 0.12

(TABLE 4.27)

FORMULA TO CACULATE WEIGHTS

Wa= 22 -covab / 1

2 + 22 -covab

Wb= 1-Wa

1) Wipro &Hero Honda

Wa= 22 - covab / 1

2 + 22 -covab

= (0.42) 2-0.00082/ (0.086) 2+ (0.42) 2-0.00082

= 0.1764-0.00082/0.0073+0.1764-0.00082

=0.17558/0.1837-0.0082

=0.17558/0.18288

Wa= 0.960

Wb= 1-Wa

=1-0.960

=0.04


79/91

79

Rp= wiri

Rp = W 1 r 1+ w 2 r 2

=0.960+ (-0.25) +0.04*(-0.008)

= (-0.24) + (-0.0032)

Rp = -0.24

p= (w12 12+w 22. 22 + 2. W 1. W 2. 1. 2)

= (0.96) 2

(0.08) 2

+(0.04) 2

(0.42) 2

+2(0.022)(0.90)(0.04)(0.086)(0.42)

=0.96*0.0073+0.0016*0.1764+2*0.0000286

=0.00671+0.00028+0.0000572

= 0.0070648

Rp =0.0840


80/91

80

2) SAIL &RANBAXY

Wa= 22 - covab / 1

2 + 22 -covab

(0.16) 2-(-0.1)/(0.26) 2+ (0.16) 2-(-0.1)

=0.0256-(-0.1)/0.0676+0.0256-(-0.1)

=0.1256/0.0932-(-0.1)

=0.1253/0.1932

Wa =0.650

Wb= 1-Wa

= 1-0.650

Wb=0.35

Rp = W 1 r 1+ w 2 r 2

= 0.650*(-0.23) +0.35*(-0.20)

= (-0.149)*(-0.07)

= -0.219

p = (w12 12 +w 22. 22 + 2. W 1. W 2. 1. 2)

= (0.65) 2 (0.26) 2+ (0.35) 2 (0.16) 2+2(-2.43) (0.65) (0.35) (0.26) (0.16)

= 0.4225*0.0676+0.1225*0.0256+2(-2.43) (0.009464)

= 0.028561+0.003136

=0.01420

p = 0.1191


81/91

81

3) COLGATE & ICICI

Wa= 22 - covab / 1

2 + 22 -covab

= (0.44) 2-0.808/(9.33) 2+(0.44) 2-0.808

=0.1936-0.808/87.04+0.1936-0.808

= (-0.6144)/87.233-0.808

= (-0.6144)/86.425

Wa = -0.00710

Wb= 1-Wa

1-(-0.00710)

Wb= 1.0071

Rp = W 1 r 1+ w 2 r 2

= (-0.0071) (-4.97) +1.0071(-010)

= 0.0352+ (-0.100)

Rp = -0.0648

p = (w12 12 +w 22. 22 + 2. W 1. W 2. 1. 2)

= (-0.00710) 2 (9.33) 2 + (1.0071) 2 (0.44) 2 +2(0.19)(0.00710)(1.0071)(9.33)(0.44)

= (0.0000504) (87.04) + (1.014) (0.193) + 2(-0.0055)

= 0.0043+0.1957+ (-0.011)

= 0.189

p =0.4347


82/91

82

4) ASIAN PAINTS & TATAMOTORS

Wa = 2 2- covab / 1

2 + 22 -covab

= (0.26) 2-(-0.085)/(0.61) 2+ (0.26) 2-(-0.085)

=0.0676-(-0.085)/0.3721+0.0676-(-0.085)

=0.1526/0.4397-(-0.085)

=0.1526/0.5247

Wa =0.29

Wb= 1-Wa

1-0.29

Wb=0.71

Rp = W 1 r 1+ w 2 r 2

= 0.29*(-0.4) +0.71(-0.27)

= (-0.116)+ (-0.1917)

Rp= -0.3077

p = (w12 12 +w 22. 22 + 2. W 1. W 2. 1. 2)

= (0.29) 2 (0.61) 2+ (0.71) 2 (0.26) 2+2(-0.53) (0.29) (0.71) (0.61) (0.26)

= 0.0841*0.3721+0.5041*0.0676+2(-0.0173)

= 0.0312+0.340+ (-0.0346)

= 0.3366

p =0.580


83/91

83

5) GAIL& BHEL

Wa= 22 - covab / 1

2 + 22 -covab

= (0.26) 2-0.032/(1) 2+(0.26) 2-0.032

=0.0676-0.032/1+0.0676-0.032

=0.0356/1.0676-0.032

=0.0356/1.0356

Wa=0.034

Wb= 1-Wa

=1-0.034

Wb= 0.966

Rp= W 1 r 1+ w 2 r 2

= 0.034*(0.83) +0.966(-0.08)

= (-0.028) + (-0.077)

= -0.105

p = (w12 12 +w 22. 22 + 2. W 1. W 2. 1. 2)

= (0.034) 2 (1) 2+ (0.966) 2 (0.26) 2+2(0.12)(0.034)(0.966)(1)(0.26)

=0.0011*1+0.933(0.0676) +2*0.00102

=0.0011+0.0630+0.00204

=0.06614

p =0.257


84/91

84

Portfolio securities Weights Portfol

Ajit Total Project

Documents

Transcript of Ajit Total Project