final project report of beta analysis on portfolio managemet231

7/30/2019 Final Project Report of Beta Analysis on Portfolio Managemet231

1/56

COMPANY PROFILE

BACKGROUND AND INSPECTION OF THE COMPANY

AnandRathi (AR) is a leading full service securities firm providing

the entire gamut of financial services. The firm, founded in 1994 by Mr. Anand Rathi,

today has a pan India presence as well as an international presence through offices in

Dubai, Hong Kong and New York.

Founded by Mr. Anand Rathi and Mr. Pradeep Gupta, the group today

employs over 2,500 professionals throughout India and its international offices.

Milestones

1994:

Started activities in consulting and Institutional Beta sales with staff of 15.

1995:

Set up a research desk and empanelled with major institutional Investors

1997:

Introduced investment banking businesses. Retail brokerage services launched

1999:

Lead managed first IPO and executed first M & A deal


2/56

2001:

Initiated Wealth Management Services

2002:

Retail business expansion recommences with ownership model

2003:

Wealth Management assets cross Rs1500 crores. Insurance broking launched. Launch of Wealth Management services in Dubai. Retail Branch network exceeds 50.

2004:

Commodities brokerage and real estate services introduced. Wealth Management assets cross Rs3000crores. Institutional equities business re-launched and senior research team put in place. Retail Branch network expands across 100 locations within India.

2005:

Real Estate Private Beta Fund Launched. Retail Branch network expands across 200 locations within India.

2006:

AR Middle East, WOS acquires membership of Dubai Gold & CommodityExchange (DGCX)

Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by AsiaMoney 2006 poll


3/56

Ranked 6th in FY2006 for All India Broker Performance in Beta distribution inthe High Networth Individuals (HNI) Category

Ranked 9th in the Retail Category having more than 5% market share Completes its presence in all States across the country with offices at 300+

locations within India

2007:

Citigroup Venture Capital International picks up 19.9% Beta stake Retail customer base crosses 200 thousand Establishes presence in over 450 locations


4/56

NATURE AND BUSINESS CARRIED

The firmsphilosophy is entirely client centric, with a clear focus on providing long term

value addition to clients, while maintaining the highest standards of excellence, ethics

and professionalism. The entire firm activities are divided across distinct client groups:

Individuals, Private Clients, Corporate and Institutions. AnandRathi has been named The

Best Domestic Private Bank in India by Asia money in their Fifth Annual Private

Banking Poll 2009. The firm has emerged a winner across all key segments in Asia

moneys largest survey of high net worth individuals in India.

In year 2007 Citigroup Venture Capital International joined the group as a

financial partner.

VISION OF THE COMPANY:

TO BE A SHINING EXAMPLE AS A

LEADER IN INNOVATION

AND THE FIRST CHOICE FOR CLIENTS AND EMPLOYEES

MISSION OF THE COMPANY

To be Indias first multinational providing complete financial services solution across

the globe.

QUALITY POLICY:

Providing integrated financial care driven by the relationship oftrust and confidence.


5/56

Products

Equities I Bonds I Mutual Funds I Derivatives Managed Investment Services / PMS Commodities FX Trading Life Insurance General Insurance Alternative Assets

- Private Beta Funds

- Structured Products

- Real Estate Opportunities Fund

Special Situation Opportunities Offshore Structures & Global Investments

Services

Creation of a customized financial strategy Diversification of assets based on a formal process of asset allocation Active tracking, monitoring and review of portfolios Creation of private trusts Tax planning Estate planning.


6/56

AERA OF OPERATION

Globally, AnandRathis areas of operations are in Dubai, Hong Kong &

New York.

AnandRathi provides its operation all over in India operating with morethan 485 branches and AnandRathi is considered as a top 5thbroking house and financial

services in India.

AnandRathi was opened in Bidar on 28th march 2008. Its a branch

dealing with financial services & broking firm in Bidar.

OWNERSHIP PATTERN

AnandRathi is a one man show. AnandRathi itself is the president & owner of

the company.

COMPETITORS INFORMATION

Karvy stock broking Ltd. Kotak stock broking Ltd. ARCADIA stock broking Ltd. ICICI stock broking Ltd. Geojit Bnp Paribas

These are the branch and franchise which provide similar business

activities.


7/56

INFRASTRUCTURAL FACILITIES

It provides all facilities to his employees such as canteen, traveling

facilities, good environment, well furnished, individual employees had provided with a

separate PC.

ACHIEVEMENT RECEIVED

Win across all key segments in Asia moneys largest survey of high net

worth individuals in India.

ANANDRATHI has been ranked as the 1stprivate bank in domestic in

India by Asia money polls 2009.

ANANDRATHI ranked as the 2ndprivate bank overall in India by Asia

money polls 2009.

FUTURE GROWTH & PROSPECTS

Its future is very bright, because now a days people are interested in

financial services as it provides more profit to its clients.


8/56

WORK FLOW MODEL

Its work flow process is Top-middle-low level management.

Top level management :It consists of manager which looks after all the activities of the firm and

collects daily MIS reports from employees.

Middle level management:It consists of dealers such as Beta dealers & commodity dealers. These

dealers help in generating some returns to the firm by calling clients and making

business. It also consists of marketing executives.

Low level managementThese are the employees who look after the firms inward outward activities.


9/56

MCKENSYS 7S FRAME WORK

McKensys model with the seven important factors which determine the

future course of any organization namely structure, skill, style, strategy, system, staff and

shared value. These seven factors are important for any organization to achieve its

objectives.

Strategy, system and structure can be considered the hardware of

success whilst style, staff, skills and shared value can be seen as the software.

STRUCTURE:It refers to the organizational arrangements for performing the tasks and activity. The

structure could be functional, product wise etc. it also establishes the interrelationship

between various functions.


10/56

BOARD OF DIRECTORS:

Anand RathiFounder & Chairman Pradeep GuptaCo-founder & Vice Chairman Amit RathiManaging Director P. G. KakodkarDirector Dr. S. A. DaveDirector C. D. ArhaDirector Ajit. BhushanDirector

BUSINESS/ FUNCTIONAL HEADS:

Ratnesh KumarHead- Institutional Equities Rakesh RawalNational HeadWealth Mgmt Roy RodriguesHeadInvestment Banking Amardeep ChahalHeadRetail

SUBFUNCTIONAL TEAM OF WEALTH MANAGEMENT:

Rakesh RawalNational Head Wealth Management V. SrikanthDirectorMumbai Sreedhar ChallaDirectorHyderabad Nayan SoodaDirectorDelhi Sujan HajraChief economist


11/56

SUBFUNCTIONAL TEAM OF INVESTMENT BANKING:

Roy RodriguesCEO P. P. JainExecutive Director Puneet RenjhenAssociate Director Pankaj SarafAssociate Director Nishant TiwaryAssociate Director Rahul PorwalSenior vice President Puspen KarmakarVice president Rajani RaikarVice President

REGIONAL, TERRITORY, AND BRANCH FUNCTIONAL TEAM OF

INVESTMENT BANKING.

Kiran KumarVice President-South Raju KathaTerritory manager Satish.S.PatilBranch Manager


12/56

DEPARTMENTS IN ANANDRATHI

Accounts department: It deals with maintenance of client ledger balance and expenses

of each and every employee and branch.

Human resources department: It deals with process of employee recruitment &

selection.

Marketing department: It deals with D-mat a/c, mutual funds, life insurance, Non- life

insurance, loans and maintains relation with client.

Technical department: They are dealing with all the electrical and electronic problems

like networking, V-satellite connections etc.

RMS department: Dealing with order executing, exposure and holdings of all the

clients.

SKILLS:

Skill is the character that one should possess to perform a given job. It

includes those characteristics the company expects its member have to perform the

assigned job efficiently.

At AnandRathi they believe in providing an entrepreneurial environment,

with a strong focus on result orientation. At each level, AnandRathi employees have a

pre-defined career path and hence an opportunity for continuous growth. They also

believe in a complete meritocracy in deciding on promotions and reward systems.


13/56

They are a learning organization committed to continuous skill

enhancement and training of all their employees. They had a dedicated training cell that

focuses on enhancing behavioral and technical skills of employees across the group. Each

employee has a predefined, mutually set training calendar that is followed for the entireyear. In essence they lay emphasis on attracting, retaining and developing world-class

talent.

STYLE:

Style is the pattern of actions taken by members of the top management team over

a period of time. This include organization culture, the style of leadership etc. to perform

different functions, different departments have been established. These departments are

incharge of different functions and manager heads of the department.

The Manager is responsible for his department. The management at

AnandRathi is fully centralized and partially decentralized. A manager can take decisions

independently on certain matters, like particular department manager can organize

seminars, investors meets to give information to

public through media.

Every month the Executive director calls a meeting of Managers where

they brief tell their progress in the month. The monthly reports include complete details

about customer inflow, customer complaints, number of companies which have applied

for listing and delisting, any investor grievance not addressed, or any kind of new rules

from exchange or by top management.


14/56

company has a top to bottom style of workflow

NATIONAL LEVEL (BOARD OF DIRECTORS)

HEAD OFFICERS

REGIONAL OFFICERS

TERRITORY

BRANCH

FRANCHISES

The company has adopted both authoritarian and participative style.

Head office has whole and sole authority. Regional officers have both authoritarian and

participative responsibility. Territory has participative responsibility. Branch is having

both responsibilities with regional officers.

DECISION MAKING PARAMETER:

Every day MIS report should be submitted to the branch manager and

on that MIS report branch manager will take the decision for next day and further

activities.

STRATERGY:

Strategy is the choice of direction and action the company adopts to

achieve its objectives in a competitive situation, a strategy explain what are the objectives

of the organization and how the organization go about to achieve its objectives.

At AnandRathi they nurture talent. ARs ability to provide world-class

financial services is a result of its talented manpower pool. A strong focus on their human

resources operations is closely integrated into the firms business strategy.


15/56

Over the year company have a development cutting edge technology to ensure

confidentiality and safety of their clients transaction and sending clients daily ledger

balance. The company will send day by day their client transactions and market to market

profit and loss account and ledger balance.

SYSTEM:

System refers to all the rules, regulation and procedures, both

formal and informal that complement the organizational structure. This includes the way

of functions of different departments are carried out. Ex. MIS Accounting system,

Trading System etc.

One example for a system of trading that is followed by Anand Rathi is

as under:

Placing an order with the broker:

The client will place his order with the dealer either to buy or sell or

both at fixed prices or at best market price.

Execution of order:

The dealer or broker approaches to client in which the particular

share is traded. The bargain will appear in the secondary market daily official list that

will include number and price of shares that exchanged hand.

Reporting the deal to the client:

As soon as the deal is transacted, the details of the transaction are

recorded in the books of the brokers, after which a contract note is prepared and send to

the client.


16/56

STAFF:

Employees are the functional unit of one organization. Their selection,

training, placement and induction everything is important for the organization. Staff deals

with the process by which employees are recruited, deployed and developed, their current

position, future up-gradation etc.

The monthly report include complete details about the customer

inflow customer complaints, number of companies, which have applied for the listing and

delisting, any investor grievance not addressed, or any kind of new rules from Head

Office or Exchange. In addition to all these the top management holds informal meetings

with the Regional level and Manager to give them a feeling of oneness.


17/56

Human Resource at Anand Rathi

1) Actively involved in strategizing & designing compensation structure.

2) Conducted analysis of appraisal to facilitate mgmt decision.

3) Monitoring employee performance & engaging them towards higher performance.

4) Propose & executed HR Automations Manpower Budget & Approvals, Quality

Selection, Online Assessment Test, Generate Employee Record & Appointment Letter, e-

Learning, Web Joining, Employee Self Service & PMS underway etc.

5) Supervising monthly payroll processing & Compliance related activities.

6) Re-engineered HR processes along with introducing an exhaustive auto alert & MIS.

7) HRIS Administrator: Maintaining skills inventory of more than 3000 employees.

8) System Reports Movement Analysis, Employee Ageing, Headcount Tracking, New

Joiners, Payroll inputs, Compliance, Dealer, LI, Mutual Fund, GI, Manpower Headcount

and Cost/Profit centre codes etc.


18/56

SHARED VALUES:

This refers to the set a values and aspirations that the organization

believes in. it provides a strong basis for every action of the organization. It act as support

to future actions of the organization. This includes vision, mission statement of the

organization, the shared value of the organization

and organization culture.

As a members and higher authorities of the company they are having

high value skills and knowledge with rich experience, also they are having attitude of

sharing their values among themselves. In order to bring our organization to the top level.

They are having good sense of sharing all kind of values like human value, ethical value

& social values. Moreover organization behavior strengthen the efficiency other

employees at the work place.


19/56

SWOT ANALYSIS OF THE COMPANY:

STRENGTH:

EXCELLENT INTERNAL PROCESSES: Company has excellent skilled human resourcethey have both participative and authoritarian responsibilities.

GOOD PLANS ARE OFFERED: They provide good plans to their clients compare totheir competitors. Their plans are convenient and to invest in any mutual fund, not only

mutual fund they also provide lots of opportunities to their clients.

ESTABLISHED BRAND IMAGE: They have well established brand image as it is aleading full service securities firm providing entire facilities involved in financial

services.

LARGEST DISTRIBUTION NETWORKS: Anand Rathi is one of the top Indian mutualfund distribution houses. This success lies on their philosophy of providing consistently

superior independent and unbiased advised to their clients backed by in depth research.

ANANDRATHI is providing loans (auto/home) apart from investment.WEAKNESS:

CUT-THROUGH COMPETITION: Breaking the limitations of market area to acquire thelarge market place which is more difficult.

Customer does not try to understand that what actually mutual fund is?

OPPORTUNITIES:

Target customers are large in number. Customer is ready to purchase the product, if right approach is taken. Good financial position. It is taken as investment source. It is a way to save the taxes.


20/56

THREATS:

Growing market with lots of competitors. Promotional scheme of competitors. Less publicity may decrease its market share. Changing government policies will affect whole mutual fund plan.


21/56

ANNUAL REPORT:

RATHI GLOBAL FINANCE LIMITED

BALANCE SHEET FOR THE PERIOD UNDER MARCH 31 2012

(Amount in Rs)

PARTICULARS Schedule March 31 2012 March 31 2011

I. SOURCES OF FUNDSShare Holders Funds:

Share capital 1 79,000,000 15,683,040

Reserve and surplus 2 325,483,952 44,752,260

Loan Funds

Secured Loan 3 488,308,340 130,305,128

Unsecured Loan 40,033,517 168,750,000

TOTAL 932,825,809 359,490,428

II. APPLICATION OF FUNDSFixed Assets

Gross Block 4 7,394,051 7,094,072

Less: Provision for Depreciation 5,936,382 5,618,860

Net Block 1,457,669 1,475,212

Investments 5 20,540,800 70,430,233


22/56

Current assets, Loans & advances: 6

a) Stock-in-Trade 73,502,953 -b) Sundry Debtors 13,444,615 1,867,095c) Cash & Bank Balances 2,788,987 1,758,337d) Loans, Advances & Deposits 845,398,468 286,983,165

935,135,023 290,608,597

Less: Current liabilities & Provisions 7 26,586,848 5,222,720

Net current Assets 908,548,175 285,385,877

Deferred Tax Assets 2,279,166 2,199,107

TOTAL 932,825,809 359,490,428


23/56

RATHI GLOBAL FINANCE LIMITED

PROFIT & LOSS ACCOUNT FOR THGE PERIOD ENDED MARCH 31 2012

(Amount in Rs )

PARTICULARS Schedule March 31 2012 March 31 2011

INCOME:

Treasury & Financing Activities 8 107,781,343 36,808,539

Distribution & Advisory Services 31,036,288 14,501,437

(TDS of Rs.858,686/-Previous year Rs.1,807,910/-)

Other Income 9 305,024 88,654

TOTAL 139,122,656 51,398,631

EXPENDITURE:

Payment to & Provision for Employees 10 8,956,048 3,450,475

General & Administrative Expenses 11 4,923,614 6,504,060

Interest & Financial Charges 12 82,925,196 27,188,546

TOTAL 96,804,858 37,143,081


24/56

Profit before Depreciation & Taxation 42,317,797 14,255,550

Less: Depreciation 317,522 423,127

Profit Before Taxation 42,000,276 13,832,423

Provision for Taxation

Current Tax 14,579,238 4,680,000 Deferred Tax (80,059) (2,377,178) Fringe Benefit Tax 23,500 122,000

Profit after Taxation 27,477,596 11,407,601

Less: Prior year Taxes 13,744 -

27,463,852 11,407,601

Balance Brought/Forward from Previous year 30,438,503 21,315,263

Profit available for appropriation 57,902,355 32,722,864


25/56

APPROPRIATION:

Transfer to Statutory Reserve 5,495,519 2,281,520

Debenture Redemption Reserve 6,843,750 -

Balance Carried to Balance Sheet 45,563,086 30,441,344

TOTAL 57,902,355 32,722,864


26/56

Introduction:-

The NPV of an investment is the discounted value of its future cash

flows. The CAPM risk-return framework provides us with a method of determining the

discount rate of an investment. SML can be used to determine the required rate of return

of a firms Beta share. From the firms point of view, this required rate of return is its

scost of Beta . The firms cost of Beta can be used as the discount rate to calculate NPV

of an investment project that is a risky as the firm.

The market portfolio is approximated by a well diversified share price

index. We have several price indices available in India. For example, these indices are:-

1) The Bombay Stock Exchange Sensitivity Index (Sensex)

2) The Bombay Stock Exchange National Index

3) The National Stock Exchange Nifty

4) The economic Times Share Price Index

5) The Financial Express Share Price Index

Notice that these indices include only shares of companies. In theory, the

market portfolio should include all risky assets: shares, bonds, gold,silver, real estate, art

objects etc.

In computing beta by regression, we need data on returns on market and

the security for which beta is estimated over a period of time.


27/56

Meaning of Beta

Beta is a measure of a securitys future Risk. But investors do not have

future data to estimates beta. What they have are past data about the share prices and the

market portfolios. Thus, they can only estimate beta based on historical data. Investorscan use historical beta as the measure of future risk only if it is stable over time. Most

research has shown that the betas of individual securities are not stable over time. This

implies that historical betas are poor indicators of the future risk of securities.

BETA ESTIMATION:-

The risk of portfolio of securities is measured by its variance or standard

deviation. The variance of a portfolio is the sum of:

The variance of individual securities times (the square of) their respective weights. The covariance (that is, the correlation coefficient between securities times their

standard deviations) of securities times twice the product of their respective

weights.

In a well diversified portfolio the weights of individual securities will be very

small and

Therefore, the variances of individual securities will be quite insignificant.

But the covariance between the securities will be significant, and its magnitude will

depend on the correlation coefficients between securities. The covariance will be negative

if all securities in the portfolio are negatively correlated.

In practice securities may have some correlation because they all have a

tendency to movies with the market. This logic introduces the concepts of diversified risk

and non-diversified risk.

The unique or the unsystematic risk of a security can be diversified

when it is combined with other securities to form a well - diversified portfolio. On the

other hand, the market or the systematic risk of the security cannot be diversified because

like other securities, it also moves with the market.


28/56

DETERMINANTS OF BETA:-

We have explained that beta is the ration of covariance between returns

on market and a security to variance of the market returns. But what drives the variance

and covariance? The variance and covariance and therefore, beta depend on threefundamental factors:

1} Nature of Business

2} Operating Leverage

3} Financial Leverage

1} NATURE OF BUSINESS:-

All economies go through business cycles. Firms behave differently with

business cycle. The earnings of some companies fluctuate more with the business cycle.

Their earnings grow during the growth of phase of business cycle and decline during the

contraction phase.

We must distinguish between the earnings variability and the earnings

cyclicality. A companys earnings may be highly variable, but it may not have high beta.

The earnings variability is an example of a specific risk that can be diversified.

Cyclicality of a companys earnings, on the other hand, is the variability of a companys

vis--vis the aggregate earnings of the economy.

2} OPERATING LEVERAGE:-

Operating leverage refers to the use of fixed costs. The degree of operating

leverage is defined as the change in a companys earnings before interest and tax due to

change in sales. Since variable costs change in direct proportion of sales and fixed costs

remain constant, the variability in EBIT when sales change is caused by fixed costs.

Higher the fixed cost, higher the variability in EBIT for a given change in sales.


29/56

Other things remaining the same, companies with higher operating leverage (because of

higher fixed costs) are more risky. Operating leverage intensifies the effect of cyclicality

on a companys earnings. As a consequence, companies with higher degree of operating

leverage have high betas.

3} FINANCIAL LEVERAGE:-

Financial Leverage refers to debt in a firms capital structure.

Firms with debt in the capital structure are called levered firms. The interest payments on

debt are fixed irrespective of the firms earnings. Hence, interest charges are fixed costs

of debt financing. The fixed cost of operations results in operating leverage and cause

EBIT to vary with changes in sales. Similarly, the fixed financial costs result in financial

leverage and cause profit after tax to vary with changes in EBIT. Hence, the degree of

financial leverage is defined as the change in a companys profit after tax due to change

in its EBIT. Since financial leverage increases the firms (financial) risk, it will increase

the Beta of the firm.


30/56

BETA ESTIMATION AND THE COST OF BETA

Beta is the measure of systematic risk and it is the ratio of covariance

between Market return and the securitys return to the market return variance: Beta also

calculated by the market or index model. In the market model, we regress returns on asecurity against returns of the market index.

The market Model is given by the following regression equation:

j j m j RRe

Where

Rj is the expected return on securityj,

Rm is the expected market Return,

is intercept,

j is slope of the regression and ej is the error term

(with a Zero mean and constant standard deviation). The slope, j, of the regression

Measures the variability of the securitys returns relative to the market returns and It is

the securitys beta.

Problems in Beta Estimation: In practice, the market portfolio is

approximated by a well-diversified share price index. We have several prices Indices

available in India. Notice that these indices include only shares of companies. In theory,

the market portfolio should include all risky assets shares, Bonds, gold, silver, real

estate, art objects in computing beta by regression, we need data on returns on market

index and the security for which beta is estimated over a period of time. There is no

theoretically determined time period and time intervals for calculating beta. The time

period and the time interval may vary. The returns maybe measured on a daily, weekly or

monthly basis. One should have sufficient number of Observations over a reasonable

length of time. the return on a share and market index may be calculated as total return;

that is, dividend yield plus capital gain. In practice, one may use capital gains/loss Or

price returns [i.e. Pt/Pt-11] rather total returns to estimate beta of a.


31/56

INDUSTRIAL V/S COMPANY BETA

We show the NSE calculated betas of the software companies. You

may notice that betas for software companies are generally high, number of companies

have very close to or more than two. There is also evidence of wide differences in betascompanies.

Complete Trading Strategies

In the opening paragraph we stated that along with the

important contributions this MQP makes to the academic research on trading, we also

target individual investors who are willing to challenge their principles to achieve higher

returns and peace of mind. We believe that the only way to consistently compare

different approaches of trading CAN SLIM stocks is to develop complete trading

strategies. The characteristics and principles embedded in a complete trading strategy

allow for the collection and analysis of measurable data and their interpretation to form

conclusive suggestions to our audience as to how to invest in CAN SLIM stocks.

Complete trading strategies provide us with insight into many

areas but more importantly they do not allow us to confuse ourselves and limit our

performance by making decisions we are neither intellectually nor psychologically

capable of doing. Many people believe that trading is all about predicting where the

market is going and being right all the time. In reality, the market is comprised of

thousands of individuals taking positions every second so it is delusional, useless and

expensive to think that you can time its direction or understand its workings.

An obvious question arises: If I cannot predict the market, does that mean I cannot

outperform it and I should simply invest in a mutual fund getting the average return of

S&P 500? The answer is short: No. A guru of trading Charlie Wright, whose book

Trading as a Business we refer to numerous times in this MQP, argues that successful

traders make money because they do not predict the market but rather trade it correctly.


32/56

The latter is achieved by following sound trading rules which have nothing to do with

predicting the market.

In order to be profitable in the long-run trading requires a disciplinedapproach to developing a complete trading strategy by following proper trading

principles. In our MQP these take the form of five steps:

1. Set-up: Decide under what conditions you will enter the market

2. Entry: Decide how exactly you will enter the market

3. Exit with a profit: Decide how to exit the market and take your profits

4. Exit with a loss (Money Management Stop): Decide how much you are willing to

lose at each trade

5. Cash Management: Decide how much of your capital to allocate to each Position Due

to the complexity of creating an algorithm for implementing money management using

Trade Station, we do not use this aspect of the complete trading strategy in our MQP. We

focus on comparing the set-up while keeping the entry, the exit with a profit and the

money management stops constant. In the next five subsections we will walk you through

the details of each one of these rules for successful trading.


33/56

INTRODUCTION:

Beta Analysis can be approached by focusing on flow variable, such

as earning cash flows or dividends, or on a stock variable such as individual assets and

liabilities. In practice, these alternative approaches rarely give equivalent values.

The investment community is continually searching for new ways of

detecting mispriced securities, changes in the models used in this searchercan occur for

a variety of reasons new analytical or empirical insight new data bases, new disclosure

by firms new statistical tools, ad new developments in computer technology change can

also be in clouded by the need to develop in house replication of products already

available from competitors.

The price to earnings ratio can be used to gain insight in to the

relationship between current earnings, the capital market expectations of future earnings,

when using price-to-earnings, ratio, it is important to distinguish between the permanent

and the transitory components of reported earnings.

When pricing Beta, the capital market appears to have a multiyear rather than a single-

year horizon and earnings are (in past) function of the accounting methods used in theircomputation.

The valuation task is relatively straight forward in case of bonds and

preference shares, because benefits are generally constant and reasonably certain, Beta

Analysis is difficult and different because the return on Beta is uncertain and can change

from time to time. It is size of the return and the degree of fluctuation (i.e. risk) which

together determine the value of a Beta share to the investor. Therefore forecasting

abilities of the analyst are for more crucial in the Beta analysis.

Hence, the valuation of Beta assumes an important role in buying the Beta by

the retail investors and also in other areas of investment decision.


34/56

1.2 Statement of the Problem:

Reviewing of existing literature has revealed variety of models to value the

Beta. All these models suffer from their respective limitations. No comprehensive and

realistic model is suggested to value the Beta. Hence in this study, an attempt is made to

determine the Beta value taking a title

Beta Analysis A case Study of Anand Rathi Co. Ltd.


35/56

1.3 Objectives of the Study:

The following objectives were tentatively set for our study.

1. To determine the value of Beta stock using three models such as CDDM, PEM and

BVM.

2. To determine the intrinsic worth of Beta in weighted manner.

3. To know the reasons responsible for the change in value of Beta over the study period,

and

4. To offer recommendation in the light of our findings.

1.4 Scope of the Study:

Market Research is the part of the marketing information system. It is

a fundamental concept usually designed to aid market planning and often involves of the

company. Today Indian market is flooded with numerous companies with lot of better

facilities to the investors.

Further this study would cover the requirements of the company to

analyze the Beta of Different companies. So that decision on increase /decrease of the

return on the investment of different companies.


36/56

1.5 Limitations of the Study:

Inspire of the advantages of the study this study suffers from the

following limitations.

1. No. detailed study relating to the topic is undertaken

2. The study is applied only to Anand Rathi Co. Ltd.

3. No comparison has been made between manufacturers of Anand Rathi Co. Ltd.

4. No primary sources of information like questionnaire, interviews etc, is undertaken. It

is fully based on secondary source of information.

5. The Secondary data also collected from website, goole.com, Yahoosearch.com,

bseindia.com, nseindia.com hindalco.com


37/56

1.6 RESEARCH METHODOLOGY

This research study has been based on descriptive and explanative and

exploratory method. It describes securities market in India, and explains risk and returnsinvolved in equity investment. Finally it explores various alternatives regarding equity

investment.

TOOLS OF DATA COLLECTION

The present data is based upon secondary data sources:

a) Data collected from journals, magazines and newspapers.

b) Data collected from the reference books.


38/56

Table4.1: showing that EPS, DPS And Market Price of the Indian Oil

Company Ltd.

(Source: From Indian Oil Company Ltd)

As per the Indian Oil company Ltd, in the year 2008 the EPS was in Rs.4

per share DPS was Rs.1.6 and the market price of the per share was Rs.12 at the time ;of

2012 it were raised from 4 to 8 EPS and DPS Rs. 1.6 to 3.2 and the Market Price were

raised Rs. 12 to 14.5.The companys performance shows that the market price and

Dividend per share and Earning Per share continuously going should be increased.


39/56

Graph 4.1: showing that EPS, DPS And Market Price of the Indian Oil

Company Ltd.


40/56

Table 4.2: Beta calculation for Jaya InfoTech Limited

Where, Rj is expected return on security J, Rm is expected market

return, is intercept, j is slope of regression and ej is the error term the slope j , of the

regression measures the variability of the securities returns relative to the market returns

and it is the beta. Beta is the ratio of covariance between the securities returns and the

market returns to the variance of market returns.


41/56

Graph: 4.2 Beta calculation for Jaya InfoTech Limited


42/56

Table: 4.3 Table shows the Beta of the software companies.

(Source: Collected from Sensex)

The above table shows that Beta of 8 different companys , inthat table the CMC company Beta was 1.32 it is lowest among the 8companys and the

GTL company Beta was highest that is 3.23.


43/56

Graph: 4.3 Table shows the Beta of the software companies


44/56

Table:4.4 Table shows that Beta and Risk-free Rate of Return.


The above table shows that the Beta of Tata Power was the

lowest among the 6 companies and Risk free return was 5.80%, in the same waythe Infosys Company Beta was highest of among the 6 companys i.e. 1.79.


45/56

Graph:4.4 Table shows that Beta and Risk-free Rate of Return.


46/56

Table: 4.5 Table shows Market Premium and Expected Return of Different

Companys


The above table shows that the lowest Expected Return of Tata

Power and Telco Company was respectively 18.23% and 18.79% and Market Premium

was 9%, and Highest Expected Return was 25.85% of the Infosys Company and the

Market Premium was 9%.


47/56

Graph: 4.5 Table shows Market Premium and Expected Return of Different

Companys.


48/56

Table: 4.6 Table shows Intercept and Beta of Different Companys.


The above table shows that the ACC Companys lowest Intercept was

0.002 and the lowest Beta was 0.3 of the Nestle Company and the Highest Intercept was

0.0276 of Satyam Company and the Highest Beta was 2.09 of the Satyam Company.


49/56

Graph:4.6 Table shows Intercept and Beta of Different Companys.


50/56

Table: 4.7 Table shows the Average Return and Standard Deviation of

Return.


The above table shows that the lowest Average Return was 0.0011 of the

HPCL Company and Highest Average Return was 0.286 of Satyam Company and

Lowest Sandra Deviation of Return was 0.0459 of the Nestle Company and the Highest

Standard Deviation of Return was0.1073 of the Satyam Company.


51/56

Graph : 4.7 Table shows the Average Return and Standard Deviation of

Return.


52/56

FINDINGS

The Indian oil co. Ltd, EPS were decrease in the year 2008 and 2011.market pricewas increased 12 and 11.5.

The DPS of Indian Oil Co. Ltd, were decrease in the year 2008 &09 but marketprice were increased at the same time.

Beta of Jaya infotech Ltd, the average Rm 5.48 & Rj 3.95. In the software company the beta of CMC company was 1.32 it is better to

comparing GTL company.

The risk free rate of return on Beta was 0.97 return is 5.8% but the Infosyscompany Beta was 1.79 but return is same.

The ACC intercept is 0.002 and Beta is 1.44 if we compare to Bajaj intercept it isin i.e. 0.0022 and Beta is 0.62.

HPCL Average return is 0.0011 And Standard return is 0.0581 but ACC Averagereturn is 0.0026 and standard return is 0.0732.


53/56

CONCLUSION:

From this study and after anglicizing it the Beta of the Portfolio

companies. Set on the base of 1.5 beta And Market return of Portfolio of securities. So

the return on investment in different portfolio sector is depend on companies profits, risk

market return and distribution of dividend, after analyzing of Beta we can understand

how much the risk and return is there on the investment of investors in different sectors

of portfolio.


54/56

SUGGESTIONS

The Indian oil company EPS and market price should increase. The Beta of Jay InfoTech Ltd should be 0.5. GTL co. Ltd, it should decrease its value of Beta. Infosys co. Beta is 1.97 but rate of Beta is lowest so it has to improve. ACC intercept is 0.002 but Beta 1.44 it is not better. Standard return is low so it should improve.


55/56

BIBLIOGRAPHY

Security analysis and portfolio management

- Preeti Singh

Financial Management-M.Y Khan

Financial Management-I M Pande

Accounting for managerial Decision- S.P Gupta

Website:

www.rathi.com www.bse.com www.nse.com


56/56

ABBREVIATIONS

EPS- Earning Per Share

Rm-Market Return

Rj -Stock Return

SDV-Standard deviation

V-Value

MPS-Market Price of Share

final project report of beta analysis on portfolio managemet231

Documents