INSTITUTE OF INFORMATION AND TECHNOLOGY MANAGEMENT

ITM UNIVERSE, GWALIOR (M.P)

SUMMER TRAINING PROJECT REPORT

ON

SELECTION OF AN PORTFOLIO USING MARKOWITZ MODEL

FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE DEGREE OF

MASTER OF BUSINESS AND ADMINISTRATION

SUBMITTED TO

INSTITUTE OF TECHNOLOGY MANAGEMENT

ITM UNIVERSE GWALIOR (M.P)

SUBMITTED BY:

KASTUBANAND BISHT

MBA 3rd SEM

(BATCH 2008-2010)

DECLARATION

I kastubanand Bisht hereby declare that the project entitled “Portfolio Analysis” with reference to

submitted in partial fulfillment of the degree in master of business administration is my own work. I

further declare that all the facts and figures furnished in this project report are the outcome of my

intensive research and findings.

This is the original report and is not the copy of any other report.

Kastubanand Bisht

MBA III SEM

ITM (SOM) Gwalior

ACKNOWLEDGEMENT

I take this opportunity to express my deep sense of gratitude towards all the persons who

helped me through their guidance and cooperation to complete the project successfully. It

is great privilege and honors to have an opportunity of doing project at

I would like to thank Mr. P.K Patankar (Sr. Manager Accounts) for guiding me in this

project and giving me necessary inputs. Without his constant and sincere support the

project would not have been completed.

Kastubanand Bisht

MBA III SEM

ITM (SOM) Gwalior

CONTENTS

Chapter 1 -  Industry Profile

Chapter 2 - Organizational Profile

Chapter 3 -  Need for the Study

Chapter 4 -  Literature Survey

Chapter 5 -  Research Methodology

Chapter 6 -  Analysis of the Study

Chapter 7 -  Findings and suggestions

Bibliography

Appendix

Chapter 1

INDUSTRY PROFILE

INTRODUCTION

Share khan is the retail broking arm of SSKI, an organization with more than eight

decades of trust & credibility in the stock market.

Business Leadership in:

INSTITUTIONAL BROKING & INVESTMENT BANKING

SSKI, a veteran equities solutions company with over 8 decades of experience in the

Indian stock markets.

Those who feel comfortable dealing with a human being and would rather visit a brick-

and-mortar outlet than talk to a PC, would be glad to know that Sharekhan offers the

facility to visit (or talk to) any of its share shops across the country. In fact Sharekhan

runs India's largest chain of share shops with over hundred outlets in more than 80 cities!

Sharekhan is also about focus. Sharekhan does not claim expertise in too many things.

Share khan’s expertise lies in stocks and that's what he talks about with authority. So

when he says that investing in stocks should not be confused with trading in stocks or a

portfolio-based strategy is better than betting on a single horse, it is something that is

spoken with years of focused learning and experience in the stock markets. And these

beliefs are reflected in everything Sharekhan does for its customers!

To sum up, Sharekhan brings a user- friendly online trading facility, coupled with a

wealth of content that will help you stalk the right shares. Sharekhan is one of India’s

leading broking houses providing a complete life-cycle of investment solutions in

EQUITIES, DERIVATIVES & COMMODITIES.

If experience their language, presentation style, content or for that matter the online

trading facility, one will find a common thread; one that helps you make informed

decisions and simplifies investing in stocks. The common thread of empowerment is

what Share khan’s all about!

Apart from Sharekhan, the SSKI Group also comprises of institutional broking and

corporate finance. The institutional broking division caters to domestic and foreign

institutional investors, while the corporate finance division focuses on niche areas such as

infrastructure, telecom and media. SSKI has been voted as the Top Domestic Brokerage

House in the research category, twice by Euro money survey and four times by Asia

money survey.

Chapter 2

ORGANISATIONAL PROFILE

SSKI – CORPORATE STRUCTURE  SSKI Securities Pvt. Ltd.

Owns 56% of Owns 50.5% of SSKI INVESTOR SERVICES PVT. LTD. SSKI

CORPORATE FINANCE PVT. LTD.

Retail broking arm of the group Investment Banking arm of the group

Shareholding pattern: Shareholding pattern:

55.5% Morakhia family (promoters) 50.5% SSKI Securities Pvt. Ltd.

18.5% HSBC Private Equity India Fund Ltd 49.5 % Morakhia family

18.5% First Carlyle Ventures, Mauritius

7.5% Intel Pacific Inc.

THE SSKI LEGACY

Sharekhan is the retail broking arm of SSKI, an organization with more than eight

decades of trust & credibility in the stock market.

Amongst pioneers of investment research in the Indian market

In 1984 ventured into Institutional Broking & Corporate Finance.

Leading domestic player in Indian institutional business

Over US$ 5 billion of private equity deals.

SHAREKHAN’S SERVICES

1. ONLINE SERVICES

a. Online Home

b. First Step

c. Classic Account

d. Speed Trade

e. Dial N Trade

2. SHARE SHOPS

3. MUTUAL FUNDS

4. COMMODITY FUTURES

5. PORTFOLIO MANAGEMENT

ONLINE SERVICES

With a Sharekhan online trading account, one can buy and sell shares in an instant!

Anytime one like and from anywhere he likes!

One can choose the online trading account that suits your trading habits and preferences -

the Classic Account for most investors and Speed trade for active day traders. Classic

Account also comes with Dial-n-Trade completely free, which is an exclusive service for

trading shares by using telephone.

Freedom from paperwork

Instant credit and money transfer

Trade from any net enabled PC

After hour orders

Online orders on the phone

Timely advice and research reports

Real-time Portfolio tracking

Information and Price alerts

FIRST STEP

A unique program designed especially for those who have never invested in shares.

Through First Step, Sharekhan informs and handholds one to become a stock market

The Sharekhan First Step is a brand new program designed especially for those who are

new to investing in shares. All one has to do is open a Sharekhan First Step account

and it'll guide one through the investing process.

Sharekhan as a guide

Been in the business for over 80 years, Sharekhan can provide one with the assistance

and the advice like no one else could. It has created special information tools for its

customers, to help answer any queries one may have. All one has to do is sign up to

receive all the tools one need to understand the markets and invest in shares! From the

right tools and right information at disposal to the host of services besides training, one

can trust Sharekhan to be true guide to the financial jungle.

Why the First Step program?

In the complex world of investing in shares in India, interested beginners didn't have any

place they could start out from. This is why Sharekhan started the First Step program - to

assist and guide new investors when they take their first steps into the world of investing

in shares. This program is explicitly designed for beginners. One will not feel

unintelligent when asking questions like "Who owns the Stock Market?" or "What is a

stock-split?" since our people are trained to assist those taking their first step in the

market.

Invest using Rational Research

At Sharekhan we understand that every investor's needs and goals are different. Hence we

provide a comprehensive set of research reports, so that you can the right investment

decisions regardless of your investing preferences. You get

In-depth analysis of the markets

Analysis Before, During (live market updates) and After market timings

Special sector tracking reports sent regularly

Friendly Assistance at All Levels!

Soon after you sign up for the First Step program, we'll provide you (along with a group

of other customers) a "Tutorial Session" at one of our Share Shops in your city. This

tutorial will cover:

An introduction to investing in shares and fundamental concepts of the stock

market

Using Share khan’s online trading services and tools

The exchange's settlement cycles for sending/receiving shares and money

How to read our research reports and take investment decisions

How to use our Dian-n-Trade services to execute trades and get investment advice

How to take assistance of our customer service team via phone, email and chat

Execution of First Order

Our sales executive will fix an appointment with the customers, and meet them to

personally assist in placing an order either online or using Dial-n-Trade.

Dedicated Customer Support

Sharekhan has a team of trained professional executives ready to answer any queries one

may have about products and services help him troubleshooting any problems one may

experience and assist in every way possible.

One can call customer service number (Toll-Free) for any kind of help related to

executing transactions or payments and billing information.

CLASSIC ACCOUNT

Investing Online is so much easier!

This account enables you to buy and sell shares through website. Customer’s get features

like

a) Streaming quotes (using the applet-based system)

b) Multiple watch lists

c) Integrated Banking, demat and digital contracts

d) Instant credit and transfer

e) Real-time portfolio tracking with price alerts and, of course, the assurance of secure

transactions.

Integration of: Online trading + Bank + Demat account

Instant cash transfer facility against purchase & sale of shares

Make IPO bookings

You get Instant order and trade confirmations by e-mail

Streaming Quotes

Personalized Market Scan with your own customized stock ticker!

Single screen interface for cash and derivatives

MUTUAL FUNDS

Mutual Fund

A mutual fund is a pool of money that is invested according to a common investment

objective by an asset management company (AMC). The AMC offers to invest the

money of hundreds of investors according to a certain objective - to keep money liquid or

give a regular income or grow the money long term. Investors buy a scheme if it fits in

with their investment goals, like getting a regular income now or letting the money

accumulate over the long term. Investors pay a small fraction of their total funds to the

AMC each year as investment management fees.

COMMODITIES FUTURES

The process of economic liberalization in India began in 1991. 

As part of this process, several capital market reforms were carried out by the capital

market regulator Securities and Exchange Board of India. One such measure was to allow

trading in equities-based derivatives on stock exchanges in 2000. This step proved to be a

shot in the arm of the capital market and volumes soared within three years. The success

of the capital market reforms motivated the government and the Forward Market

Commission (the commodities market regulator) to kick off similar reforms in the

commodities market. Thus almost all the commodities were allowed to be traded in the

futures market from April 2003. To make trading in commodity futures more transparent

and successful, multi-commodity exchanges at national level were also conceived and

these next generation exchanges were allowed to start futures trading in commodities on-

line.

Commodities exchanges have seen a surge in commodity futures volumes in the last few

months. This rise in volumes has been led by bullion (gold and silver) trading. Today a

whole lot of commodities are available for trading in futures and the list is getting bigger

by the day. No wonder then that the commodity futures market is being viewed as a

significant business segment by many– businessmen, investors, institutions, brokers,

banks et al.

DEMAT SERVICES

Convenient, Secure and Automated Demat services

Dematerialization and trading in the demat mode is the safer and faster alternative to the

physical existence of securities. Demat as a parallel solution offers freedom from delays,

thefts, forgeries, settlement risks and paper work. This system works through depository

participants (DPs) who offer demat services and the securities are held in the electronic

form for the investor directly by the Depository.

Sharekhan Depository Services offers dematerialization services to individual and

corporate investors. It has a team of professionals and the latest technological expertise

dedicated exclusively to its demat department, apart from a national network of

franchisee, making our services quick, convenient and efficient.

At Sharekhan, its commitment is to provide a complete demat solution which is simple,

safe and secure.

Chapter 3

NEED FOR STUDY

NEED FOR THE STUDY

Value and thereby create for the company is now considered the principal objective of a

business firm and in achieving such objective, proper and efficient management of

finance is quite essential. The four most vital and important aspects of portfolio

management are:

1. portfolio risk

2. expected return

3. systematic and unsystematic risk

4. liquidity

In order to facilitate the realization of the objective of maximization of investor’s wealth.

Hence, every business firm should devote considerable attention towards the effective as

well as efficient management of investments. In the management of investments both risk

and return are vital, to a great extent in creating value of the company.

Chapter 4

LITERATURE REVIEW

Literature Review

Boyle Phelim P. & Uppal Raman University of British Columbia - Division of Finance; China Academy of Financial Research (CAFR) March 18, 2009

1. Keynes Meets Markowitz: The Tradeoff Between Familiarity and Diversification

Model also has empirically testable implications for trading behavior: in response to a

change in idiosyncratic risk the Keynesian portfolio always exhibits more trading than the

Markowitz portfolio, while the opposite is true for a change in systematic volatility. In

the equilibrium version of the model with heterogeneous agents who are familiar with

different assets, we find that the risk premium of stocks depends on both systematic and

idiosyncratic volatility, and that the equity risk premium is significantly higher than in the

standard model out ambiguity.

Viju & Baourakis March 19, 2009; last revised: September 16, 2009

2. Portfolio Optimization Using Markowitz Model: An Application of the Buharest Stock Exchange

The Bucharest Stock Exchange, with all its economical, social and political problems and

sudden ups and downs, is a good reflection of the transition period that emerging

economy is currently undergoing. This study focuses on the use of an appropriate

methodology for constructing efficient stock portfolios in an extremely unstable market

that makes the trade-off between risk and return even more difficult to achieve. The

objective is set in order to assess the market behavior: employing the Markowitz model,

to construct a set of optimum portfolios under a number of varying constraints and to

compare them with the market portfolio

Anton Abdulbasah Kamil & Chin Yew Fei - Journal of Statistics & Management

Systems Vol. 9 (2006), No. 3, pp. 519–536

3. Portfolio analysis based on Markowitz model

This paper focused on Portfolio Analysis that set-up among 15 selected stocks traded in

Kuala Lumpur Stock Exchange (KLSE). Markowitz model (1959) is the main idea which

used to build up the optimal portfolio in order to achieve the objective of maximizes the

return and minimizes the risk. There are few scenarios are considered in constructing the

optimal portfolio, such as risk-free, taxes, transaction cost and benchmark portfolio

Zhidong Bai, Huixia Liu and Wing-Keung Wong - RMI Working Paper No. 09/02 April 13, 2009

4. On the Markowitz mean-variance analysis of self-financingPortfolios

This paper extends the work of Markowitz (1952), Korkie and Turtle (2002) and others

by first proving that the traditional estimate for the optimal return of self-financing

portfolios always overestimates from its theoretic value. We further demonstrate the

superiority of our proposed estimate over the traditional estimate by simulation.

Daniel Bertland

5. The Perfect Portfolio

Abstract: Nowadays investors have a large number of choices of how they can invest

their money. One of their biggest challenges is how to allocate their portfolio between

equities, bonds and properties. It can only be shown afterwards, which was the best

allocation. That is why it is so popular to look at historical mean-variance to predict the

future.

Chapter 5

RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

1. To have better understanding about the Markowitz model.

2. It helped me in understanding the importance of correlation among the different

stock’s returns in the construction of stock portfolio.

3. To minimize the portfolio variance i.e. risks.

4. To Eliminating the unsystematic risk through the diversification of securities.

5. The objective is to determine the percent to invest in each asset while minimizing

risk of the entire portfolio.

METHODOLOGY

The present study has been conducted on portfolio diversification on two groups including five companies each.

TYPE OF RESEARCH DESIGN

Empirical research

DATA COLLECTION

Secondary data - The secondary data are those which have already collected and stored. Secondary data easily get those secondary data from records, journals, annual reports of the company etc. It will save the time, money and efforts to collect data. Secondary data also made available through trade magazines, balance sheets, books etc.

ANALYSIS TOOLS APPLIED:

MARKOWITZ PORTFOLIO MODEL given by Harry Markowitz

PORTFOLIO MANAGEMENT

THE MARKOWITZ MODEL

Harry Markowitz is generally acknowledged as the father of modern portfolio theory

after publishing his seminal paper in 1952, for which he (jointly) received a Nobel Prize

in 1990. Markowitz (1952) and Tobin (1958) showed that it was possible to identify the

composition of an optimal portfolio of risky securities, given forecasts of future returns

and an appropriate covariance matrix of share returns. This research endeavours to apply

the theory of Markowitz to the Johannesburg Securities Exchange (JSE) to establish

whether an optimal portfolio can be identified and used as an effective trading rule.

Weekly data over 11 years on the top 40 JSE listed companies was analysed to construct

the study found that the trading strategy significantly outperformed the market in the

period under review Most people agree that holding two stocks is less risky than holding

one stock.

For example:-

Holding stocks from textile, banking and electronic companies is better than investing all

the money on the textile companies stock. But building up the optimal portfolio is very

difficult. Markowitz provides an answer. It is also known as modern portfolio theory.

Modern portfolio theory (MPT) is a theory of investment which tries to maximize

portfolio expected return for a given amount of portfolio risk, or equivalently minimize

risk for a given level of expected return, by carefully choosing the proportions of various

assets. Although MPT is widely used in practice in the financial industry and several of

its creators won a Nobel Prize for the theory, in recent years the basic assumptions of

MPT have been widely challenged by fields such as behavioral economics.

MPT is a mathematical formulation of the concept of diversification in investing, with the

aim of selecting a collection of investment assets that has collectively lower risk than any

individual asset. That this is possible can be seen intuitively because different types of

assets often change in value in opposite ways. For example, when prices in the stock

market fall, prices in the bond market often increase, and vice versa]. A collection of both

types of assets can therefore have lower overall risk than either individually. But

diversification lowers risk even if assets' returns are not negatively correlated—indeed,

even if they are positively correlated.

More technically, MPT models an asset's return as a normally distributed (or more

generally as an elliptically distributed random variable), defines risk as the standard

deviation of return, and models a portfolio as a weighted combination of assets so that the

return of a portfolio is the weighted combination of the assets' returns. By combining

different assets whose returns are not perfectly positively correlated, MPT seeks to

reduce the total variance of the portfolio return. MPT also assumes that investors are

rational and markets are efficient.

Assumptions underlying Markowitz Theory

Portfolio theory in the shape of Markowitz Theory makes the following assumptions

concerning the investment market and investors behavior within those markets. We

summaries these assumptions below:

1. Investors seek to maximize the expected return of total wealth.

2. All investors have the same expected single period investment horizon.

3. All investors are risk-adverse, that is they will only accept greater risk if they

are compensated with a higher expected return.

4. Investors base their investment decisions on the expected return and risk (i.e.

the standard deviation of assets historical returns).

5. All markets are perfectly efficient (e.g. no taxes and no transaction cost).

Risk and expected return

MPT assumes that investors are risk averse, meaning that given two portfolios that offer

the same expected return, investors will prefer the less risky one. Thus, an investor will

take on increased risk only if compensated by higher expected returns. Conversely, an

investor who wants higher expected returns must accept more risk. The exact trade-off

will be the same for all investors, but different investors will evaluate the trade-off

differently based on individual risk aversion characteristics. The implication is that a

rational investor will not invest in a portfolio if a second portfolio exists with a more

favorable risk-expected return profile – i.e., if for that level of risk an alternative portfolio

exists which has better expected returns

Under the model:

Portfolio return is the proportion-weighted combination of the constituent assets'

returns.

Portfolio volatility is a function of the correlations ρij of the component assets, for

all asset pairs (i, j).

In general:

Expected return:

where Rp is the return on the portfolio, Ri is the return on asset i and wi is the

weighting of component asset i (that is, the share of asset i in the portfolio).

Portfolio return variance:

Where ρij is the correlation coefficient between the returns on assets i and j. Alternatively

the expression can be written as:

Where ρij = 1 for i=j.

Portfolio return volatility = Standard Deviation

Portfolio return =

10 COMPANIES PROFILE

ACC LTD.

ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's

operations are spread throughout the country with 16 modern cement factories, more than

40 Ready mix concrete plants, 20 sales offices, and several zonal offices. It has a

workforce of about 10,000 persons and a countrywide distribution network of over 9,000

dealers.

AIRTEL COMPANY

We are one of Asia’s leading providers of telecommunication services with presence in

all the 22 licensed jurisdictions (also known as Telecom Circles) in India, and in Srilanka.

We served an aggregate of 133,708,496 customers as of April 30, 2010, in India; of

whom 130,616,487 subscribe to our GSM services and 3,092,009 use our Telemedia

Services either for voice and/or broadband access delivered through DSL. We are the

largest wireless service provider in the country, based on the number of customers as of

April 30, 2010. We offer an integrated suite of telecom solutions to our enterprise

customers, in addition to providing long distance connectivity both nationally and

internationally. We also offer DTH and IPTV Services. All these services are rendered

under a unified brand “Airtel”.

CIPLA LTD COMPANY

India’s second largest pharmaceutical firm Cipla Ltd, edged out the multinational giant

GlaxoSmithKline which was reigning supreme in the country for long, in terms of drug

sales last year.

Consistently maintaining a fast-track growth momentum, Cipla has registered an 80-

percent jump in net profit for the quarter ended on March 31 2006, driven by growth in

domestic sales and exports.

In the fourth quarter, Cipla posted a net profit of 1.90 billion rupees. Net sales grew 63

percent to 8.7 billion rupees. Cipla's exports in the quarter grew 63.7 percent while

domestic sales rose 56.4 percent. Cipla anticipates 15 to 20 percent growth in this year.

HDFC BANK

Housing Development Finance Corporation Limited, more popularly known as HDFC

Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian

Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive

an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank

was incorporated with the name 'HDFC Bank Limited', with its registered office in

Mumbai. The following year, it started its operations as a Scheduled Commercial Bank.

Today, the bank boasts of as many as 1412 branches and over 3275 ATMs across India

Infosys Technologies

Infosys, India's No. 2 software services exporter, Infosys customers are happy too: 19 out

of 20 come back to the Bangalore Company with repeat orders. Now, Infosys has its eye

on China. Of the 12,600 people it will hire this year; nearly 1,000 will be at its Shanghai

offices.

ITC COMPANY

ITC is one of India's foremost private sector companies with a market capitalisation of

over US $ 22 billion and a turnover of US $ 6 billion.* ITC is rated among the World's

Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by

Forbes magazine, among India's Most Respected Companies by BusinessWorld and

among India's Most Valuable Companies by Business Today. ITC ranks among India's

`10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and

published by the Economic Times. ITC also ranks among Asia's 50 best performing

companies compiled by Business Week.

WIPRO LTD

Wipro Technologies is the No.1 provider of integrated business; technology and process

solutions on a global delivery platform Wipro Technologies is a global services provider

delivering technology-driven business solutions that meet the strategic objectives of our

clients. Wipro has 40+ ‘Centers of Excellence’ that create solutions around specific needs

of industries. Wipro delivers

Unmatched business value to customers through a combination of process excellence,

quality frameworks and service delivery innovation. Wipro is the World's first CMM

Level 5 certified software services company and the first outside USA to receive the

IEEE Software Process Award.

Mahindra and Mahindra ltd

Mahindra Group is one of the largest corporate groups of India. It is a US $4.5 billion

conglomerate with employee strength of over 40,000. The group has diverse business

interests such as automotive, farm equipments, infrastructure, information technology,

hospitality, and financial services. Mahindra Group has global presence and it is ranked

amongst Forbes Top 200 list of the World's Most Reputable Companies and in the Top

10 list of Most Reputable Indian companies. The origins of Mahindra Group can be

traced back to October 2, 1945 when Mahindra brothers J.C. Mahindra & K.C. Mahindra

joined hands with Ghulam Mohammad, and Mahindra & Mohammad was set up as a

franchise for assembling jeeps from Willys, USA. After India's independence in 1947,

Mahindra & Mohammad changed its name to Mahindra & Mahindra. Ghulam

Mohammad migrated to Pakistan post-partition and became the first Finance Minister of

Pakistan. Since then, Mahindra Group has gone from strength to strength and today it has

evolved into a giant group.

Chapter 6

ANALYSIS OFDATA

Comparative analysis of two portfolios taking a group of five companies from the above table

Details of Portfolio A

Company Name Beta Return for 1 Year

Average volatility(Standard

Deviation)ACC Ltd 0.92 4.34 2.16

Bharti Airtel Ltd 0.60 -36.00 2.44Cipla Ltd 0.40 43.06 1.85

HDFC Bank 0.69 30.72 1.53Infosys Tech.

Ltd0.67 65.90 1.62

Covariance of Returns of Securities of Five Companies

Denoted as Portfolio A

Company Name

Probability Returns Deviation from expected return

Product of deviation and

probabilityACC Ltd 0.20 4.34 -17.26 -3.452

Bharti Airtel Ltd

0.20 -36.00 57.604 11.520

Cipla Ltd 0.20 43.06 21.456 4.291HDFC Bank 0.20 30.72 9.116 1.823Infosys Tech

Ltd.0.20 65.90 44.296 8.859

R = 108.02 Covar = 23.041

Company Name Returns Standard deviationACC Ltd. 4.34 2.16

Bharti Airtel -36.00 2.44Cipla 43.06 1.85

HDFC Bank 30.72 1.53Infosys Tech. Ltd 65.90 1.62

R = 108.02

Covariance A = 1\5 [(4.34-21.604) (-36.00-21.604) (43.06-21.604) (30.72-21.604) (65.90-21.604)]= 1/5 (-17.26*57.604*21.456*9.114*44.296)= -1722824.41

By multiplying all values of standard deviation, we get standard deviation A = 24.1669

Now computing the portfolio A risk as:Portfolio A Risk R = covariance /SD of 5 companies= -1722824.41/24.1669

= -71288.59

Expected Return on Portfolio A = ∑ (wt of securities * expected return on securities)= 0.20*4.34 + 0.20*(-36) + 0.20*43.06 + 0.20*30.72 + 0.20*65.90= 21.604%

Details of Portfolio B

Company Name Beta Return for 1 Year Average volatility(Standard

Deviation)ITC Ltd 0.68 54.18 1.90

Wipro Ltd 0.77 75.17 1.86Mahindra &

Mahindra Ltd1.22 69.61 2.59

TATA Steel Ltd. 1.68 23.21 3.14SBI 1.16 21.36 2.15

Covariance of Returns of Securities of Five Companies

Denoted as Portfolio B

Company Name

Probability Returns Deviation from expected return

Product of deviation and

probabilityITC Ltd 0.20 54.18 5.474 1.094

Wipro Ltd 0.20 75.17 26.464 5.292Mahindra &

Mahindra Ltd0.20 69.61 20.904 4.180

TATA Steel 0.20 23.21 -25.496 -5.099

LtdSBI 0.20 21.36 -27.346 -5.469

R = 243.53 Covar = -0.002

Company Name Returns Standard deviationACC Ltd. 54.18 1.90

Bharti Airtel 75.17 1.86Cipla 69.61 2.59

HDFC Bank 23.21 3.14Infosys Tech. Ltd 21.36 2.15

R = 243.53

Covariance B = 1\5 [(54.18-48.706) (75.17-48.706) (69.61-48.706) (23.21-48.706) (21.36-48.706)]= 1/5 (5.474*26.464*20.904*-25.496*27.346)= 422265.436

By multiplying all values of standard deviation, we get standard deviation B = 60.5994

Now computing the portfolio B risk as:Portfolio B Risk R = covariance /SD of 5 companies= 422265.436/60.5994= 6968.145

Expected Return on Portfolio B = ∑ (wt of securities * expected return on securities)= 0.20*54.18 + 0.20*75.17 + 0.20*69.61 + 0.20*23.21 + 0.20*21.36= 48.706%

Chapter 7

FINDINGS&

SUGGESTIONS

Findings

We found that as the number of securities in the portfolio increases, the portfolio

variance approaches the average covariance.

One more finding of my study is that B’s Portfolio covariance is negative.

We found that Return of Portfolio is more than B’s Portfolio so it will be

Beneficial.

We found that Portfolio Risk can be reduced by the simplest kind of Securities.

We found that Investment opportunities will be increase with the help of

Portfolio.

We found that level of risk exposure is measured with the help of the Standard

Deviation of Returns.

Suggestions

We should diversify our Investments because it helps to spread risk over many assets.

We should select securities on the basis of Risk and Return Analysis.

The Investor should be risk Averse because they will take risk only if they are

compensate for the risk.

Sharekhan should enhance investment opportunities for the Investors through the

Portfolio.

APPENDICES

Beta, R2, Volatility and Returns of SENSEX Scrips for One Year Period (June 2009 - May 2010)

MARKOWITZ Analysis of Portfolio Risk and Return

Company Name

Beta Co-efficient R2

Return for 1 year

Sensex Weightage

Average Daily

Volatility

ACC Ltd 0.92 0.35 4.34 0.64 2.16

Bharti Airtel Ltd

0.60 0.11 -36.00 2.64 2.44

Cipla Ltd 0.40 0.09 43.06 1.26 1.85

HDFC Bank 0.69 0.38 30.72 5.23 1.53

Infosys Tech. Ltd

0.67 0.33 65.90 9.82 1.62

ITC Ltd 0.68 0.24 54.18 5.73 1.90

Wipro Ltd 0.77 0.32 75.17 1.49 1.86

Mahindra & Mahindra

Ltd

1.22 .42 69.61 1.88 2.59

TATA Steel Ltd

1.68 0.55 23.21 2.36 3.14

SBI 1.16 0.56 21.36 4.91 2.15

BIBLIOGRAPHY

BOOKS:

Security analysis and portfolio management (Punithavathy Pandian)

Financial Management (I.M.Pandey)

WEBSITES:

bseindia.com

nseindia.com

yahoofinance.com

investopedia.com

networth.com

economictimes.com

en.wikipedia.org

studyfinance.com