PORTFOLIO MANAGEMENT

MEANING:

A portfolio is a collection of assets. The assets may be physical or financial like Shares,

Bonds, Debentures, Preference Shares, etc. The individual investor or a fund manager would not

like to put all his money in the shares of one company that would amount to great risk. He

would therefore, follow the age old maxim that one should not put all the eggs into one basket.

By doing so, he can achieve objective to maximize portfolio return and at the same time

minimizing the portfolio risk by diversification.

Portfolio management is the management of various financial assets which comprise the

portfolio.

Portfolio management is a decision – support system that is designed with a view to meet

the multi-faced needs of investors.

According to Securities and Exchange Board of India Portfolio Manager is defined as:

“Portfolio means the total holdings of securities belonging to any person”.

PORTFOLIO MANAGER means any person who pursuant to a contract or

arrangement with a client, advises or directs or undertakes on behalf of the client

(whether as a discretionary portfolio manager or otherwise) the management or

administration of a portfolio of securities or the funds of the client.

DISCRETIONARY PORTFOLIO MANAGER means a portfolio manager who

exercises or may, under a contract relating to portfolio management exercises any degree

of discretion as to the investments or management of the portfolio of securities or the

funds of the client.

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RESEARCH(e.g. SecurityAnalysis)

PORTFOLIOMANAGERS

OPERATIONS(e.g. buying and selling of Securities)

CLIENTS

FUNCTIONS OF PORTFOLIO MANAGEMENT:

To frame the investment strategy and select an investment mix to achieve the desired

investment objectives

To provide a balanced portfolio which not only can hedge against the inflation but can

also optimize returns with the associated degree of risk

To make timely buying and selling of securities

To maximize the after-tax return by investing in various tax saving investment

instruments.

STRUCTURE / PROCESS OF TYPICAL PORTFOLIO

MANAGEMENT

In the small firm, the portfolio manager performs the job of security analyst.

In the case of medium and large sized organizations, job function of portfolio manager and secu

rity analyst are separate.

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CHARACTERISTICS OF PORTFOLIO MANAGEMENT:

Individuals will benefit immensely by taking portfolio management services for the

following reasons:

Whatever may be the status of the capital market, over the long period capital markets

have given an excellent return when compared to other forms of investment. The return

from bank deposits, units, etc., is much less than from the stock market.

The Indian Stock Markets are very complicated. Though there are thousands of

companies that are listed only a few hundred which have the necessary liquidity. Even

among these, only some have the growth prospects which are conducive for investment.

It is impossible for any individual wishing to invest and sit down and analyze all these

intricacies of the market unless he does nothing else.

Even if an investor is able to understand the intricacies of the market and separate chaff

from the grain the trading practices in India are so complicated that it is really a difficult

task for an investor to trade in all the major exchanges of India, look after his deliveries

and payments

TYPES OF PORTFOLIO MANAGEMENT :

1. DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE

(DPMS):

In this type of service, the client parts with his money in favor of the manager, who in

return, handles all the paper work, makes all the decisions and gives a good return on the

investment and charges fees. In the Discretionary Portfolio Management Service, to maximize

the yield, almost all portfolio managers park the funds in the money market securities such as

overnight market, 18 days treasury bills and 90 days commercial bills. Normally, the return of

such investment varies from 14 to 18 percent, depending on the call money rates prevailing at the

time of investment.

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2. NON-DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE

(NDPMS):

The manager functions as a counselor, but the investor is free to accept or reject the

manager‘s advice; the paper work is also undertaken by manager for a service charge. The

manager concentrates on stock market instruments with a portfolio tailor-made to the risk taking

ability of the investor.

IMPORTANCE OF PORTFOLIO MANAGEMENT:

Emergence of institutional investing on behalf of individuals. A number of financial

institutions, mutual funds and other agencies are undertaking the task of investing money of

small investors, on their behalf.

Growth in the number and size of ingestible funds – a large part of household savings is

being directed towards financial assets.

Increased market volatility – risk and return parameters of financial assets are continuously

changing because of frequent changes in government‘s industrial and fiscal policies,

economic uncertainty and instability.

Greater use of computers for processing mass of data.

Professionalization of the field and increasing use of analytical methods (e.g. quantitative

techniques) in the investment decision – making

Larger direct and indirect costs of errors or shortfalls in meeting portfolio objectives –

increased competition and greater scrutiny by investors.

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NEED & IMPORTANCE:

Portfolio management has emerged as a separate academic discipline in India. Portfolio

theory that deals with the rational investment decision-making process has now become an

integral part of financial literature.

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 as PORTFOLIO. Creation of 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.

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

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

different regions, in different industries or those producing different types of product lines.

Modern theory believes in the perspective of combinations of securities under constraints of risk

and return.

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OBJECTIVES OF THE STUDY:

To study the investment pattern and its related risks & returns.

To find out optimal portfolio, which gave optimal return at a minimize risk to the investor

To see whether the portfolio risk is less than individual risk on whose basis the portfolios

are constituted

To see whether the selected portfolios is yielding a satisfactory and constant return to the

investor

To understand, analyze and select the best portfolio

METHODOLOGY AND FRAMEWORK

SCOPE OF STUDY:

This study covers the Markowitz model. The study covers the calculation of correlations

between the different securities in order to find out at what percentage funds should be invested

among the companies in the portfolio. Also the study includes the calculation of individual

Standard Deviation of securities and ends at the calculation of weights of individual securities

involved in the portfolio. These percentages help in allocating the funds available for investment

based on risky portfolios.

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DATA COLLECTION METHODS

The data collection methods include both the primary and secondary collection methods.

Primary collection methods:

This method includes the data collection from the personal discussion with the authorized clerks

and members of the hdfc.

Secondary collection methods:

The secondary collection methods includes the lectures of the superintend of the department of

market operations and so on., also the data collected from the news, magazines and different

books issues of this study .

LIMITATIONS OF THE STUDY

1. Construction of Portfolio is restricted to two companies based on Markowitz model.

2. Very few and randomly selected scripts / companies are analyzed from BSE listings.

3. Data collection was strictly confined to secondary source. No primary data is

associated with the project.

4. Detailed study of the topic was not possible due to limited size of the project.

5. There was a constraint with regard to time allocation for the research study i.e. for a

period of five years.

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INDUSTRY PROFILE

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Banking in IndiaBanking in India originated in the last decades of the 18th century. The oldest bank in

existence in India is the State Bank of India, a government-owned bank that traces its

origins back to June 1806 and that is the largest commercial bank in the country. Central

banking is the responsibility of the Reserve Bank of India, which in 1935 formally took

over these responsibilities from the then Imperial Bank of India, relegating it to

commercial banking functions. After India's independence in 1947, the Reserve Bank

was nationalized and given broader powers. In 1969 the government nationalized the 14

largest commercial banks; the government nationalized the six next largest in 1980.

Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks

(that is with the Government of India holding a stake), 31 private banks (these do not

have government stake; they may be publicly listed and traded on stock exchanges) and

38 foreign banks. They have a combined network of over 53,000 branches and 17,000

ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks

hold over 75 percent of total assets of the banking industry, with the private and foreign

banks holding 18.2% and 6.5% respectively

Early history

Banking in India originated in the last decades of the 18th century. The first banks were

The General Bank of India which started in 1786, and the Bank of Hindustan, both of

which are now defunct. The oldest bank in existence in India is the State Bank of India,

which originated in the Bank of Calcutta in June 1806, which almost immediately

became the Bank of Bengal. This was one of the three presidency banks, the other two

being the Bank of Bombay and the Bank of Madras, all three of which were established

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under charters from the British East India Company. For many years the Presidency

banks acted as quasi-central banks, as did their successors. The three banks merged in

1921 to form the Imperial Bank of India, which, upon India's independence, became the

State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as

a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in

1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the

first though. That honor belongs to the Bank of Upper India, which was established in

1863, and which survived until 1913, when it failed, with some of its assets and liabilities

being transferred to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the

Confederate States, promoters opened banks to finance trading in Indian cotton. With

large exposure to speculative ventures, most of the banks opened in India during that

period failed. The depositors lost money and lost interest in keeping deposits with banks.

Subsequently, banking in India remained the exclusive domain of Europeans for next

several decades until the beginning of the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire

d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in

1862; branches in Madras and Pondichery, then a French colony, followed. HSBC

established itself in Bengal in 1869. Calcutta was the most active trading port in India,

mainly due to the trade of the British Empire, and so became a banking center.

The Bank of Bengal, which later became the State Bank of India.

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The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in

1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established

in Lahore in 1895, which has survived to the present and is now one of the largest banks

in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative

period of stability. Around five decades had elapsed since the Indian Mutiny, and the

social, industrial and other infrastructure had improved. Indians had established small

banks, most of which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange

banks and a number of Indian joint stock banks. All these banks operated in different

segments of the economy. The exchange banks, mostly owned by Europeans,

concentrated on financing foreign trade. Indian joint stock banks were generally under

capitalized and lacked the experience and maturity to compete with the presidency and

exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it

seems we are behind the times. We are like some old fashioned sailing ship, divided by

solid wooden bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the

Swadeshi movement. The Swadeshi movement inspired local businessmen and political

figures to found banks of and for the Indian community. A number of banks established

then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,

Bank of Baroda, Canara Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in

Dakshina Kannada and Udupi district which were unified earlier and known by the name

South Canara ( South Kanara ) district. Four nationalised banks started in this district

and also a leading private sector bank. Hence undivided Dakshina Kannada district is

known as "Cradle of Indian Banking".

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Company Profile

The Housing Development Finance Corporation Limited (HDFC) was amongst the first

to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a

bank in the private sector, as part of the RBI's liberalisation of the Indian Banking

Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank

Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations

as a Scheduled Commercial Bank in January 1995.

HDFC is India's premier housing finance company and enjoys an impeccable track record

in India as well as in international markets. Since its inception in 1977, the Corporation

has maintained a consistent and healthy growth in its operations to remain the market

leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling

units. HDFC has developed significant expertise in retail mortgage loans to different

market segments and also has a large corporate client base for its housing related credit

facilities. With its experience in the financial markets, a strong market reputation, large

shareholder base and unique consumer franchise, HDFC was ideally positioned to

promote a bank in the Indian environment.

HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build

sound customer franchises across distinct businesses so as to be the preferred provider of

banking services for target retail and wholesale customer segments, and to achieve

healthy growth in profitability, consistent with the bank's risk appetite. The bank is

committed to maintain the highest level of ethical standards, professional integrity,

corporate governance and regulatory compliance. HDFC Bank's business philosophy is

based on four core values - Operational Excellence, Customer Focus, Product Leadership

and People.

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Capital Structure

As on 31st December, 2009 the authorized share capital of the Bank is Rs. 550 crore. The

paid-up capital as on said date is Rs. 455,23,65,640/- (45,52,36,564 equity shares of Rs.

10/- each). The HDFC Group holds 23.87 % of the Bank's equity and about 16.94 % of

the equity is held by the ADS Depository (in respect of the bank's American Depository

Shares (ADS) Issue). 27.46 % of the equity is held by Foreign Institutional Investors

(FIIs) and the Bank has about 4,58,683 shareholders.

The shares are listed on the Bombay Stock Exchange Limited and The National Stock

Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed on

the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global

Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No

US40415F2002.

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network

of 1,725 branches spread in 771 cities across India. All branches are linked on an online

real-time basis. Customers in over 500 locations are also serviced through Telephone

Banking. The Bank's expansion plans take into account the need to have a presence in all

major industrial and commercial centres where its corporate customers are located as well

as the need to build a strong retail customer base for both deposits and loan products.

Being a clearing/settlement bank to various leading stock exchanges, the Bank has

branches in the centres where the NSE/BSE have a strong and active member base.

The Bank also has 4,000 networked ATMs across these cities. Moreover, HDFC Bank's

ATM network can be accessed by all domestic and international Visa/MasterCard, Visa

Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr.

Capoor was a Deputy Governor of the Reserve Bank of India.

The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25

years, and before joining HDFC Bank in 1994 was heading Citibank's operations in

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Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a wealth of

experience in public policy, administration, industry and commercial banking. Senior

executives representing HDFC are also on the Board.

Senior banking professionals with substantial experience in India and abroad head

various businesses and functions and report to the Managing Director. Given the

professional expertise of the management team and the overall focus on recruiting and

retaining the best talent in the industry, the bank believes that its people are a significant

competitive strength.

HDFC Bank operates in a highly automated environment in terms of information

technology and communication systems. All the bank's branches have online

connectivity, which enables the bank to offer speedy funds transfer facilities to its

customers. Multi-branch access is also provided to retail customers through the branch

network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology

available internationally, to build the infrastructure for a world class bank. The Bank's

business is supported by scalable and robust systems which ensure that our clients always

get the finest services we offer.

The Bank has prioritised its engagement in technology and the internet as one of its key

goals and has already made significant progress in web-enabling its core businesses. In

each of its businesses, the Bank has succeeded in leveraging its market position, expertise

and technology to create a competitive advantage and build market share.

HDFC Bank offers a wide range of commercial and transactional banking services and

treasury products to wholesale and retail customers. The bank has three key business

segments:

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Wholesale Banking Services

The Bank's target market ranges from large, blue-chip manufacturing companies in

the Indian corporate to small & mid-sized corporates and agri-based businesses. For

these customers, the Bank provides a wide range of commercial and transactional

banking services, including working capital finance, trade services, transactional

services, cash management, etc. The bank is also a leading provider of structured

solutions, which combine cash management services with vendor and distributor

finance for facilitating superior supply chain management for its corporate

customers. Based on its superior product delivery / service levels and strong

customer orientation, the Bank has made significant inroads into the banking

consortia of a number of leading Indian corporates including multinationals,

companies from the domestic business houses and prime public sector companies. It

is recognised as a leading provider of cash management and transactional banking

solutions to corporate customers, mutual funds, stock exchange members and

banks.

Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full

range of financial products and banking services, giving the customer a one-stop

window for all his/her banking requirements. The products are backed by world-

class service and delivered to customers through the growing branch network, as

well as through alternative delivery channels like ATMs, Phone Banking,

NetBanking and Mobile Banking.

The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank

Plus and the Investment Advisory Services programs have been designed keeping in

mind needs of customers who seek distinct financial solutions, information and

advice on various investment avenues. The Bank also has a wide array of retail loan

products including Auto Loans, Loans against marketable securities, Personal

Loans and Loans for Two-wheelers. It is also a leading provider of Depository

Participant (DP) services for retail customers, providing customers the facility to

hold their investments in electronic form.

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HDFC Bank was the first bank in India to launch an International Debit Card in

association with VISA (VISA Electron) and issues the Mastercard Maestro debit

card as well. The Bank launched its credit card business in late 2001. By March

2009, the bank had a total card base (debit and credit cards) of over 13 million. The

Bank is also one of the leading players in the “merchant acquiring” business with

over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at

merchant establishments. The Bank is well positioned as a leader in various net

based B2C opportunities including a wide range of internet banking services for

Fixed Deposits, Loans, Bill Payments, etc.

Treasury

Within this business, the bank has three main product areas - Foreign Exchange and

Derivatives, Local Currency Money Market & Debt Securities, and Equities. With

the liberalisation of the financial markets in India, corporates need more

sophisticated risk management information, advice and product structures. These

and fine pricing on various treasury products are provided through the bank's

Treasury team. To comply with statutory reserve requirements, the bank is required

to hold 25% of its deposits in government securities. The Treasury business is

responsible for managing the returns and market risk on this investment portfolio.

Credit Rating

The Bank has its deposit programs rated by two rating agencies - Credit Analysis &

Research Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed

Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by CARE, which

represents instruments considered to be "of the best quality, carrying negligible

investment risk". CARE has also rated the bank's Certificate of Deposit (CD) programme

"PR 1+" which represents "superior capacity for repayment of short term promissory

obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.) has assigned

the "AAA ( ind )" rating to the Bank's deposit programme, with the outlook on the rating

as "stable". This rating indicates "highest credit quality" where "protection factors are

very high"

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The Bank also has its long term unsecured, subordinated (Tier II) Bonds rated by CARE

and Fitch Ratings India Private Limited and its Tier I perpetual Bonds and Upper Tier II

Bonds rated by CARE and CRISIL Ltd. CARE has assigned the rating of "CARE AAA"

for the subordinated Tier II Bonds while Fitch Ratings India Pvt. Ltd. has assigned the

rating "AAA (ind)" with the outlook on the rating as "stable". CARE has also assigned

"CARE AAA [Triple A]" for the Banks Perpetual bond and Upper Tier II bond issues.

CRISIL has assigned the rating "AAA / Stable" for the Bank's Perpetual Debt programme

and Upper Tier II Bond issue. In each of the cases referred to above, the ratings awarded

were the highest assigned by the rating agency for those instruments.

Corporate Governance Rating

The bank was one of the first four companies, which subjected itself to a Corporate

Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating

Information Services of India Limited (CRISIL). The rating provides an independent

assessment of an entity's current performance and an expectation on its "balanced value

creation and corporate governance practices" in future. The bank has been assigned a

'CRISIL GVC Level 1' rating which indicates that the bank's capability with respect to

wealth creation for all its stakeholders while adopting sound corporate governance

practices is the highest.

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was

formally approved by Reserve Bank of India to complete the statutory and regulatory

approval process. As per the scheme of amalgamation, shareholders of CBoP received 1

share of HDFC Bank for every 29 shares of CBoP.

The merged entity will have a strong deposit base of around Rs. 1,22,000 crore and net

advances of around Rs. 89,000 crore. The balance sheet size of the combined entity

would be over Rs. 1,63,000 crore. The amalgamation added significant value to HDFC

Bank in terms of increased branch network, geographic reach, and customer base, and a

bigger pool of skilled manpower.

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In a milestone transaction in the Indian banking industry, Times Bank Limited (another

new private sector bank promoted by Bennett, Coleman & Co. / Times Group) was

merged with HDFC Bank Ltd., effective February 26, 2000. This was the first merger of

two private banks in the New Generation Private Sector Banks. As per the scheme of

amalgamation approved by the shareholders of both banks and the Reserve Bank of India,

shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of

Times Bank.

 

HDFC Bank Ltd. (BSE: 500180, NYSE: HDB) is a commercial bank of India,

incorporated in August 1994, after the Reserve Bank of India allowed establishing private

sector banks. The Bank was promoted by the Housing Development Finance

Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank

has 1,412 branches and over 3,295 ATMs, in 528 cities in India, and all branches of the

bank are linked on an online real-time basis. As of September 30, 2008 the bank had total

assets of INR 1006.82 billion. For the fiscal year 2008-09, the bank has reported net

profit of Rs.2,244.9 crore, up 41% from the previous fiscal. Total annual earnings of the

bank increased by 58% reaching at Rs.19,622.8 crore in 2008-09.

Business Focus

HDFC Bank deals with three key business segments - WholesaleBanking Services, Retail

Banking Services, Treasury. It has entered the bankingconsortia of over 50 corporates for

providing working capital finance, tradeservices, corporate finance and merchant

banking. It is also providingsophisticated product structures in areasof foreign exchange

and derivatives, money markets and debt trading and equityresearch.

Wholesale Banking Services

The Bank's target m inroads into the banking consortia of a number of leading Indian

corporates including multinationals, companies from the domestic business houses and

prime public sector companies. It is recognised as a leading provider of cash management

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and transactional banking solutions to corporate customers, mutual funds, stock exchange

members and banks.

Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full range of

financial products and banking services, giving the customer a one-stop window for all

his/her banking requirements. The products are backed by world-class service and

delivered to customers through the growing branch network, as well as through

alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile

Banking.

HDFC Bank was the first bank in India to launch an International Debit Card in

association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as

well. The Bank launched its credit card business in late 2001. By March 2009, the bank

had a total card base (debit and credit cards) of over 13 million. The Bank is also one of

the leading players in the “merchant acquiring” business with over 70,000 Point-of-sale

(POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank

is well positioned as a leader in various net based B2C opportunities including a wide

range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.

Treasury

Within this business, the bank has three main product areas - Foreign Exchange and

Derivatives, Local Currency Money Market & Debt Securities, and Equities. These

services are provided through the bank's Treasury team. To comply with statutory reserve

requirements, the bank is required to hold 25% of its deposits in government securities.

The Treasury business is responsible for managing the returns and market risk on this

investment portfolio.

Distribution Network

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HDFC Bank is headquartered in Mumbai. The Bank has an network of 1,725 branches

spread in 771 cities across India. All branches are linked on an online real-time basis.

Customers in over 500 locations are also serviced through Telephone Banking. The Bank

has a presence in all major industrial and commercial centres across the country. Being a

clearing/settlement bank to various leading stock exchanges, the Bank has branches in the

centres where the NSE/BSE have a strong and active member base.

The Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC Bank's

ATM network can be accessed by all domestic and international Visa/MasterCard, Visa

Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

Housing Development Finance Corporation Limited or HDFC (BSE: 500010),

founded 1977 by Ravi Maurya and Hasmukhbhai Parekh, is an Indian NBFC, focusing

on home mortgages. HDFC's distribution network spans 243 outlets that include 49

offices of HDFC's distribution company, HDFC Sales Private Limited. In addition,

HDFC covers over 90 locations through its outreach programmes. HDFC's marketing

efforts continue to be concentrated on developing a stronger distribution network. Home

loans are also Sharcket through HDFC Sales, HDFC Bank Limited and other third party

Direct Selling Agents (DSA).

To cater to non-resident Indians, HDFC has an office in London and Dubai and service

associates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi, Al Khobar, Jeddah and Riyadh

in Saudi Arabia.

AWARDS

2010

Euromoney Private

Banking and

Wealth

Management Poll

1) Best Local Bank in India (second year in a row)   2) Best

Private Banking Services overall (moved up from No. 2 last

year)

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2010

Financial Insights

Innovation Awards

2010

Innovation in Branch Operations - Server Consolidation

Project

Global Finance

Award

Best Trade Finance Provider in India for 2010

2 Banking

Technology

Awards 2009

1) Best Risk Management Initiative and 2) Best Use of

Business Intelligence.

SPJIMR Marketing

Impact Awards

(SMIA) 2010

2nd Prize

Business Today

Best Employer

Survey

Listed in top 10 Best Employers in the country

2009

Business India

Businessman of the

Year Award for

2009.

Mr. Aditya Puri, MD, HDFC Bank

Businessworld Best

Bank Awards 2009

Most Tech-savvy Bank

Outlook Money

NDTV Profit

Awards 2009

Best Bank

Forbes Asia Fab 50 Companies in Asia Pacific

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GQ India's Man of

the Year (Business)

Mr. Aditya Puri, MD, HDFC Bank

UTI MF-CNBC

TV18 Financial

Advisor Awards

2009

Best Performing Bank

Wall Street Journal

survey of Asia's

Best 200

Companies 2009

Our Bank among India's 10 Most Admired Companies

Rated 3rd Best in terms of Financial Reputation

Business Standard

Best Banker Award

Mr. Aditya Puri, MD, HDFC Bank

Fe Best Bank

Awards 2009

- Best Innovator of the year award for       our MD Mr.

Aditya Puri

- Second Best Private Bank in India

- Best in Strength and Soundness       Award

Euromoney Awards

2009

Best Bank in India

Economic Times

Brand Equity &

Nielsen Research

annual survey 2009

Most Trusted Brand - Runner Up

Asia Money 2009

Awards

Best Domestic Bank in India

IBA Banking

Technology

Awards 2009

Best IT Governance Award - Runner up

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Global Finance

Award

Best Trade Finance Bank in India for 2009

IDRBT Banking

Technology

Excellence Award

2008

Best IT Governance and Value Delivery

Finance Asia

magazine's annual

poll of Investors

and Analysts 2009

Mr. Aditya Puri - India's Best CEO

Our Bank is 3rd in 'Best managed Company' category

Asian Banker

Excellence in Retail

Financial Services

Asian Banker Best Retail Bank in India Award 2009

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STEPS IN PORTFOLIO MANAGEMENT:

Specification and qualification of investor objectives, constraints, and preferences in the form of an investment policy statement.

Determination and qualification of capital market expectations for the economy, market sectors, industries and individual securities.

Allocation of assets and determination of appropriate portfolio strategies for each asset class and selection of individual securities.

Performance measurement and evaluation to ensure attainment of investor objectives.

Monitoring portfolio factors and responding to changes in investor objectives, constrains and / or capital market expectations.

Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio strategy and security selection.

CRITERIA FOR PORTFOLIO DECISIONS:

In portfolio management emphasis is put on identifying the collective importance of all

investor’s holdings. The emphasis shifts from individual assets selection to a more

balanced emphasis on diversification and risk-return interrelationships of individual

assets within the portfolio. Individual securities are important only to the extent they

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affect the aggregate portfolio. In short, all decisions should focus on the impact which the

decision will have on the aggregate portfolio of all the assets held.

Portfolio strategy should be molded to the unique needs and characteristics of the

portfolio‘s owner.

Diversification across securities will reduce a portfolio‘s risk. If the risk and return are

lower than the desired level, leverages (borrowing) can be used to achieve the desired

level.

Larger portfolio returns come only with larger portfolio risk. The most important decision

to make is the amount of risk which is acceptable.

The risk associated with a security type depends on when the investment will be

liquidated. Risk is reduced by selecting securities with a payoff close to when the

portfolio is to be liquidated.

Competition for abnormal returns is extensive, so one has to be careful in evaluating the

risk and return from securities. Imbalances do not last long and one has to act fast to

profit from exceptional opportunities.

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Provides user interfaces that allow for the extraction of data based on user defined

parameters.

Provides a comprehensive set of tools to perform portfolio and risk evaluation

against parameters set within the risk framework.

Provides a set of tools to optimise portfolio value and risk position by:

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Considering various legs of different contracts to create an optimal trading

strategy.

The calculation of residual purchase requirements.

Performs analysis that provides the relevant information to create hedge and trade

plans.

Performs analysis on current and potential trades.

Evaluates the best mix of contracts on offer from counterparties to minimise the

overall purchase cost and maximize profits.

Creates and maintains trading and hedge strategies by:

Allocating trades to contracts and books.

Maintaining trades against contracts and books.

Reviewing trades against existing trading strategy.

Maintains an audit trail of decisions taken and query resolution.

Produces accurate and timely reports

Project Portfolio Management Software

The Business Need.

Project Professionals need a Project Management solution that enables them to

complete their projects faster, with higher quality and within a logical, easy-to-follow

roadmap.

Executives need a system that identifies the projects with the highest ROI potential,

provides broad, deep and timely reporting, and enables scalability.

The Power of Templates:

Standards, Consistency, Repeatability.

Your company and your industry have unique ways of managing

processes, procedures and projects at the highest level. Best Practice Templates, linked

training, productivity tools, and guidelines provide a framework for your optimal

performance.

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SigmaFlow’s Project Portfolio Management Solution is the only solution that uses

flexible templates with an integrated project management, document library and metric

management system to drive your workflow.

Best practice templates are the most efficient way to develop and maintain standards,

consistency and repeatability. With these Templates, new employees can become more

self-sufficient and deliver a higher quality work product - they know what to do next,

with easy access to reference materials and guidelines. The template roadmap provides

structure and enables the interchange of resources mid-process or project.

Once a project has been completed and designated as successful, the Template

framework can be used again, even by inexperienced employees, with the same benefits

at a fraction of the original implementation cost.

Reap the Benefit of Best Practices.

Whether you are a manufacturer or service organization, you can import selected best

practices, standards, and compliance requirements into SigmaFlow’s system to ensure

that your projects and processes perform at the highest possible level. Once you create

your workflow template in SigmaFlow, you’ll have a step-by-step methodology to guide

you through the process with all your training, documents, tools and deliverables at your

fingertips.

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The SigmaFlow Difference

SigmaFlow’s unique architecture includes operational level process productivity tools

and project management tools, as well as a strategic level web-based repository for

portfolio analysis and reporting. This means you are always working in the system of

record, where the process and project work actually take place. This leads to a fully

integrated information flow, from the lowest level tool to the highest level scorecard.

Optionally, SigmaFlow’s operational level tools can be integrated with your existing

Project Management system.

SigmaFlow’s system gives executives timely project status visibility without burdening

practitioners with redundant data entry into a web-based project tracking system. This

provides executives the ability to manage by exception and derive deeper and more

meaningful business insights. The system ensures relevance of information by

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automatically populating status detail whenever a SigmaFlow desktop project file is

saved into the system. It also reduces the risk of re-work and errors caused by having

multiple “unofficial” versions of project documents. As a result, your practitioners will be

more self-sufficient and productive.

By bridging desktop tools with an enterprise system, SigmaFlow’s solution is fully

scaleable. A small, growing company can start with a single license and expand into a

web system when ready. In addition, SigmaFlow offers integration with Microsoft

Project for easy import and export of project files.

Easy, Efficient & Effective.

SigmaFlow’s Project Portfolio Management System is designed to derive the greatest

benefit with the most efficient use of your time:

Create any template as easily as drawing a process map. The system is infinitely

flexible to match your unique needs.

Easily integrate Project Management Metrics, Document Library and

Performance Metrics with the template, giving you a one-stop shop for your

critical project resources.

Work where you are most efficient, online or offline.

Improve your project consistency: Know what to do next, when to use tools, and

how to use tools throughout your project or process.

Replicate your best practices. Easily convert your recent best practice project into

a template for tomorrow’s use

Portfolio Management

To sustain long-term growth, companies manage a number of products and candidates at

different stages of maturity. However, different product profiles and the therapeutic areas

they serve have disparate commercial opportunities.

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Our portfolio prioritization, pipeline analysis, category franchise strategy, and technology

licensing assessments provide a systematic means of optimizing development programs

and product opportunities. We outline and quantify the areas of greatest opportunity for

your organization and recommend actionable strategies that establish or expand your

position in target markets.

Key portfolio management questions that we address:

Which technologies and product candidates have the greatest potential

commercial value?

How can we broaden and deepen our therapy penetration?

What actions can we take to maximize return on investment for individual

candidates and discoveries?

Which proprietary rights do we buy, co-market, license, or sell?

How do we balance short and long term product needs to maximize therapeutic

franchise value?

We detail the value of discoveries in clinical phases, candidates in the pipeline, and

products on the market. These individual and therapeutic category evaluations enable

executives to make strategic investment, licensing and prioritization decisions to realize

their portfolio's full potential.

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Portfolio Management

You can now receive the same portfolio management services as many institutional

investors-whether it is a separately managed account or a mutual fund wrap portfolio.

Some benefits of managed portfolios include:

 

Providing access to top-tier investment management professionals

 

Tailored portfolios to meet specific investment needs

 

Ownership of individual securities

 

Ease of pre-designed mutual fund portfolios

 

Every investor is unique, and investment advisory services provide you with

professional investment advice and a personalized investment strategy. Whether

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you're seeking a tailored, professionally managed portfolio, or the convenience

and simplicity of a diversified mutual fund wrap program, your investment choice

should focus on meeting your financial goals. During this process, you should

consider current and future growth objectives, income needs, time horizon and

risk tolerance. These considerations form the blueprint for developing a portfolio

management strategy. The process involves, but is not limited to, the following

important stages.

 

Set investment objectives  

Develop an asset allocation strategy Evaluate/Select investment vehicle Portfolio review -- Ongoing portfolio monitoring

 

Risk Management

A sound financial plan must address the insurance coverages you, your spouse

and family members may require.

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 Life insurance is used to pay for funeral expenses, repay outstanding debts,

make charitable donations and provide living expenses for surviving family

members. It can also be used to cover estate taxes and probate fees to enable

your estate to be liquidated in the most appropriate manner.

 Disability income insurance§ is to help partially replace income of persons

who are unable to work because of sickness or accident. In terms of its

financial effect on the family, long-term disability can be just as severe as

death. Disability income protection can come from several sources: social

insurance programs, employer-provided benefits, and individually purchased

policies.

 

Portfolio Management Maturity

Summarizes five levels of project portfolio management maturity .each level represents

the adoption of an increasingly comprehensive and effective subset of related solutions

discussed in the previous parts of this 6-part paper for addressing the reasons that

organizations choose the wrong projects. Understanding organizational maturity with

regard to project portfolio management is useful. It facilitates identifying performance

gaps, indicates reasonable performance targets, and suggests an achievable path for

improvement.

The fact that five maturity levels have been identified is not meant to suggest that all

organizations ought to strive for top-level performance. Each organization needs to

determine what level of performance is reasonable at the current time based on business

needs, resources available for engineering change, and organizational ability to accept

change. Experience shows that achieving high levels of performance typically takes

several years. It is difficult to leap-frog several steps at once. Making progress is what

counts.

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Five levels of project portfolio management.

The detailed definitions of the levels, provided below, are not precise. Real organizations

will tend to be more advanced with regard to some characteristics and less advanced

relative to others. For most organizations, though, it is easy to pick one of the levels as

characterizing the current maturity of project portfolio management performance.

Level 1: Foundation

Level 1 organizes work into discrete projects and tracks costs at the project level.

Project decisions are made project-by-project without adherence to formal project

selection criteria.

The portfolio concept may be recognized, but portfolio data are not centrally

managed and/or not regularly refreshed.

Roles and responsibilities have not been defined or are generic, and no value-

creation framework has been established.

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Only rarely are business case analyses conducted for projects, and the quality is

often poor.

Project proposals reference business benefits generally, but estimates are nearly

always qualitative rather than quantitative.

There is little or no formal balancing between the supply and demand for project

resources, and there is little if any coordination of resources across projects,

which often results in resource conflicts.

Over-commitment of resources is common.

There may be a growing recognition that risks need to be managed, but there is

little real management of risk.

Level 1 organizations are not yet benefiting from project portfolio management, but they

are motivated to address the relevant problems and have the minimum foundation in

place to begin building project portfolio management capability. At this level,

organizations should focus on establishing consistent, repeatable processes for project

scheduling, resource assignment, time tracking, and general project oversight and

support.

Level 2: Basics

Level 2 replaces project-by-project decision making with the goal of identifying the best

collection of projects to be conducted within the resources available. At a minimum this

requires aggregating project data into a central database, assigning responsibilities for

project portfolio management, and force-ranking projects.

Redundant projects are identified and eliminated or merged.

Business cases are conducted for larger projects, although quality may be

inconsistent.

Individual departments may be establishing structures to oversee and coordinate

their projects.

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There is some degree of options analysis (i.e., different versions of the project will

be considered).

Project selection criteria are explicitly defined, but the link to value creation is

sketchy.

Planning is mostly activity scheduling with limited performance forecasting.

There are attempts to quantify some non-financial benefits, but estimates are

mostly "guestimates" generated without the aid of standard techniques.

Overlap and double counting of benefits between projects is common.

Ongoing projects are still rarely terminated based on poor performance.

The PPM tools being used may have good data display and management

capabilities, but project prioritization algorithms may be simplistic and the results

potentially misleading to decision makers.

Portfolio data has an established refresh cycle or is regularly accessed and

updated. Resource requirements at the portfolio level are recognized but not

systematically managed.

Knowledge sharing is local and ad hoc.

Risk analysis may be conducted early in projects but is not maintained as a

continual management process. Uncertainties in project schedule, cost and

benefits are not quantified.

Schedule and cost overruns are still common, and the risks of project failure

remain large.

Level 2 organizations are beginning to implement project portfolio management, but

most of the opportunity has not yet been realized. The focus should be on formalizing the

framework for evaluating and prioritizing projects and on implementing tools and

processes for supporting project budgeting, risk and issues tracking, requirements

tracking, and resource management.

Level 3: Value Management

Level 3, the most difficult step for most organizations, requires metrics, models, and tools

for quantifying the value to be derived from projects. Although project interdependencies

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and portfolio risks may not be fully and rigorously addressed, analysis allows projects to

be ranked based on "bang-for-the-buck," often producing a good approximation of the

value-maximizing project portfolio.

The principles of portfolio management are widely understood and accepted.

The project portfolio has a well-defined perimeter, with clear demarcation and

understanding of what it contains and does not contain.

Portfolio management processes are centrally defined and well documented, as

are roles and responsibility for governance and delivery.

Portfolio management can demonstrate that its role in scrutinizing projects has

resulted in some initiatives being stopped or reshaped to increase portfolio value.

Executives are engaged, provide tradeoff weights for the value model, and

provide active and informed support.

Plans are developed to a consistent standard and are outcome- or value-based.

Effective estimation techniques are being used within planning and a range of

project alternatives are routinely considered.

Data quality assurance processes are in place and independent reviews are

conducted.

There is a common, consistent practice for project approval and monitoring.

Project dependencies are identified, tracked, and managed.

Decisions are made with the aid of a tool based on a defensible logic for

computing project value that generates the efficient frontier.

Portfolio data are kept up-to-date and audit trails are maintained.

Costs, expenditures and forecasts are monitored at the portfolio level in

accordance with established guidelines and procedures.

Interfaces with financial and other related functions within the organization have

been defined.

A process is in place for validating the realization of project benefits.

There is a defined risk analysis and management process, with efforts appropriate

to risk significance, although some sources of risk are not quantified in terms of

probability and consequence.

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Level 3 organizations demonstrate a commitment to proactive, standardized project and

project portfolio management. They are achieving significant return from their

investment, although more value is available.

Level 4: Optimization

Level 4 is characterized by mature processes, superior analytics, and quantitatively

managed behavior.

Tools for optimizing the project portfolio correctly and fully account for project

risks and interdependencies.

The business processes of value creation have been modeled and measurement

data is collected to validate and refine the model.

The model is the basis for the logic for estimating project value, prioritizing

projects, making project funding and resource allocation decisions, and

optimizing the project portfolio.

The organization's tolerance for risk is known, and used to guide decisions that

determine the balance of risk and benefit across the portfolio.

There is clear accountability and ownership of risks.

External risks are monitored and evaluated as part of the investment management

process and common risks across the whole portfolio (which may not be visible to

individual projects) are quantified and in support of portfolio optimization.

Senior executives are committed, engaged, and proactively seek out innovative

ways to increase value.

There is likely to be an established training program to develop the skills and

knowledge of individuals so that they can more readily perform their designated

roles.

An extensive range of communications channels and techniques are used for

collaboration and stakeholder management.

High-level reports on key aspects of portfolio are regularly delivered to

executives and the information is used to inform strategic decision making.

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There is trend reporting on progress, actual and projected cost, value, and level of

risk.

Assessments of stakeholder confidence are collected and used for process

improvement.

Portfolio data is current and extensively referenced for better decision making.

Level 4 organizations are using quantitative analysis and measurements to obtain

efficient predictable and controllable project and project portfolio management. They are

obtaining the bulk of the value available from practicing project portfolio management.

Level 5: Core Competency

Level 5 occurs when the organization has made project portfolio management a core

competency, uses best-practice analytic tools, and has put processes in place for

continuous learning and improvement.

Portfolio management processes are proven and project decisions, including

project funding levels and timing, are routinely made based the value

maximization value.

Processes are continually refined to take into account increasing knowledge,

changing business needs, and external factors.

Portfolio management drives the planning, development, and allocation of

projects to optimize the efficient use of resources in achieving the strategic

objectives of the organization.

High levels of competence are embedded in all portfolio management roles, and

portfolio management skills are seen as important for career advancement.

Portfolio gate reviews are used to proactively assess and manage portfolio value

and risk.

Portfolio management informs future capacity demands, capability requirements

are recognized, and resource levels are strategically managed.

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Information is highly valued, and the organization's ability to mitigate external

risks and grasp opportunities is enhanced by identifying innovative ways to

acquire and better share knowledge.

Benefits management processes are embedded across the organization, with

benefits realization explicitly aligned with the value measurement framework.

The portfolio is actively managed to ensure the long term sustainability of the

enterprise.

Stakeholder engagement is embedded in the organization's culture, and

stakeholder management processes have been optimized.

Risk management underpins decision-making throughout the organization.

Quantitatively measurable goals for process improvement have been established

and performance against them tracked.

The relationship between the portfolio and strategic planning is understood and

managed.

Resource allocations to and from projects are intimately aligned so as the

maximize value creation.

Level 5 organizations are obtaining maximum possible value from project portfolio

management. By fully institutionalizing project portfolio management into their culture

they free people to become more creative and innovative in achieving business success.

Building Project Portfolio Management Maturity

Experience shows that building project portfolio management maturity takes time. As

suggested by, significant short-term performance gains can be achieved, but making step

changes requires understanding current weaknesses and the commitment of effort and

resources.

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Step changes can be made, but achieving high levels of maturity typically takes years

QUALITIES OF PORTFOLIO MANAGER:

1. SOUND GENERAL KNOWLEDGE : Portfolio management is an exciting and

challenging job. He has to work in an extremely uncertain and confliction environment. In the

stock market every new piece of information affects the value of the securities of different

industries in a different way. He must be able to judge and predict the effects of the information

he gets. He must have sharp memory, alertness, fast intuition and self-confidence to arrive at

quick decisions.

2. ANALYTICAL ABILITY : He must have his own theory to arrive at the

instrinsic value of the security. An analysis of the security‘s values, company, etc. is s

continuous job of the portfolio manager. A good analyst makes a good financial consultant. The

analyst can know the strengths, weaknesses, opportunities of the economy, industry and the

company.

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3. MARKETING SKILLS : He must be good salesman. He has to convince the

clients about the particular security. He has to compete with the stock brokers in the stock

market. In this context, the marketing skills help him a lot.

4. EXPERIENCE : In the cyclical behavior of the stock market history is often

repeated, therefore the experience of the different phases helps to make rational decisions. The

experience of the different types of securities, clients, market trends, etc., makes a perfect

professional manager.

PORTFOLIO BUILDING :

Portfolio decisions for an individual investor are influenced by a wide variety of factors.

Individuals differ greatly in their circumstances and therefore, a financial programme well suited

to one individual may be inappropriate for another. Ideally, an individual‘s portfolio should be

tailor-made to fit one‘s individual needs.

Investor‘s Characteristics:

An analysis of an individual‘s investment situation requires a study of personal

characteristics such as age, health conditions, personal habits, family responsibilities, business or

professional situation, and tax status, all of which affect the investor‘s willingness to assume

risk.

Stage in the Life Cycle:

One of the most important factors affecting the individual‘s investment objective is his

stage in the life cycle. A young person may put greater emphasis on growth and lesser emphasis

on liquidity. He can afford to wait for realization of capital gains as his time horizon is large.

Family responsibilities:

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The investor‘s marital status and his responsibilities towards other members of the family can

have a large impact on his investment needs and goals.

Investor‘s experience:

The success of portfolio depends upon the investor‘s knowledge and experience in

financial matters. If an investor has an aptitude for financial affairs, he may wish to be more

aggressive in his investments.

Attitude towards Risk:

A person‘s psychological make-up and financial position dictate his ability to assume the

risk. Different kinds of securities have different kinds of risks. The higher the risk, the greater the

opportunity for higher gain or loss.

Liquidity Needs:

Liquidity needs vary considerably among individual investors. Investors with regular

income from other sources may not worry much about instantaneous liquidity, but individuals

who depend heavily upon investment for meeting their general or specific needs, must plan

portfolio to match their liquidity needs. Liquidity can be obtained in two ways:

1. By allocating an appropriate percentage of the portfolio to bank deposits, and

2. By requiring that bonds and equities purchased be highly marketable.

Tax considerations:

Since different individuals, depending upon their incomes, are subjected to different marginal

rates of taxes, tax considerations become most important factor in individual‘s portfolio strategy.

There are differing tax treatments for investment in various kinds of assets.

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Time Horizon:

In investment planning, time horizon becomes an important consideration. It is highly

variable from individual to individual. Individuals in their young age have long time horizon for

planning, they can smooth out and absorb the ups and downs of risky combination. Individuals

who are old have smaller time horizon, they generally tend to avoid volatile portfolios.

Individual‘s Financial Objectives:

In the initial stages, the primary objective of an individual could be to accumulate wealth via

regular monthly savings and have an investment programmed to achieve long term capital gains.

Safety of Principal:

The protection of the rupee value of the investment is of prime importance to most investors.

The original investment can be recovered only if the security can be readily sold in the market

without much loss of value.

Assurance of Income:

`Different investors have different current income needs. If an individual is dependent of its

investment income for current consumption then income received now in the form of dividend

and interest payments become primary objective.

Investment Risk:

All investment decisions revolve around the trade-off between risk and return. All

rational investors want a substantial return from their investment. An ability to understand,

measure and properly manage investment risk is fundamental to any intelligent investor or a

speculator. Frequently, the risk associated with security investment is ignored and only the

rewards are emphasized. An investor who does not fully appreciate the risks in security

investments will find it difficult to obtain continuing positive results.

47

RISK AND EXPECTED RETURN:

There is a positive relationship between the amount of risk and the amount of expected

return i.e., the greater the risk, the larger the expected return and larger the chances of substantial

loss. One of the most difficult problems for an investor is to estimate the highest level of risk he

is able to assume.

Risk is measured along the horizontal axis and increases from the left to right.

Expected rate of return is measured on the vertical axis and rises from bottom to top.

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The line from 0 to R (f) is called the rate of return or risk less investments commonly

associated with the yield on government securities.

The diagonal line form R (f) to E(r) illustrates the concept of expected rate of return

increasing as level of risk increases.

TYPES OF RISKS:

Risk consists of two components. They are

1. Systematic Risk

2. Un-systematic Risk

1. Systematic Risk:

Systematic risk is caused by factors external to the particular company and uncontrollable

by the company. The systematic risk affects the market as a whole. Factors affect the systematic

risk are

economic conditions

political conditions

sociological changes

The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They

are

a) Market Risk

b) Interest Rate Risk

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c) Purchasing Power Risk

a). Market Risk

One would notice that when the stock market surges up, most stocks post higher price.

On the other hand, when the market falls sharply, most common stocks will drop. It is not

uncommon to find stock prices falling from time to time while a company‘s earnings are rising

and vice-versa. The price of stock may fluctuate widely within a short time even though earnings

remain unchanged or relatively stable.

b). Interest Rate Risk:

Interest rate risk is the risk of loss of principal brought about the changes in the interest

rate paid on new securities currently being issued.

c). Purchasing Power Risk:

The typical investor seeks an investment which will give him current income and / or

capital appreciation in addition to his original investment.

2. Un-systematic Risk:

Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of

raising finance and paying back the loans, involve the risk element. Financial leverage of the

companies that is debt-equity portion of the companies differs from each other. All these factors

affect the un-systematic risk and contribute a portion in the total variability of the return.

Managerial inefficiently

Technological change in the production process

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Availability of raw materials

Changes in the consumer preference

Labor problems

The nature and magnitude of the above mentioned factors differ from industry to industry

and company to company. They have to be analyzed separately for each industry and firm. Un-

systematic risk can be broadly classified into:

a) Business Risk

b) Financial Risk

a. Business Risk:

Business risk is that portion of the unsystematic risk caused by the operating environment of the

business. Business risk arises from the inability of a firm to maintain its competitive edge and

growth or stability of the earnings. The volatility in stock prices due to factors intrinsic to the

company itself is known as Business risk. Business risk is concerned with the difference between

revenue and earnings before interest and tax. Business risk can be divided into.

i). Internal Business Risk

Internal business risk is associated with the operational efficiency of the firm. The

operational efficiency differs from company to company. The efficiency of operation is reflected

on the company‘s achievement of its pre-set goals and the fulfillment of the promises to its

investors.

ii).External Business Risk

External business risk is the result of operating conditions imposed on the firm by

circumstances beyond its control. The external environments in which it operates exert some

pressure on the firm. The external factors are social and regulatory factors, monetary and fiscal

policies of the government, business cycle and the general economic environment within which a

firm or an industry operates.

b. Financial Risk:

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It refers to the variability of the income to the equity capital due to the debt capital. Financial

risk in a company is associated with the capital structure of the company. Capital structure of the

company consists of equity funds and borrowed funds.

PORTFOLIO ANALYSIS:

Various groups of securities when held together behave in a different manner and give

interest payments and dividends also, which are different to the analysis of individual securities.

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 element.

There are two approaches in construction of the portfolio of securities. They are

Traditional approach

Modern approach

TRADITIONAL APPROACH:

Traditional approach was based on the fact that risk could be measured on each

individual security through the process of finding out the standard deviation and that security

should be chosen where the deviation was the lowest. Traditional approach believes that the

market is inefficient and the fundamental analyst can take advantage of the situation. Traditional

approach is a comprehensive financial plan for the individual. It takes into account the

individual need such as housing, life insurance and pension plans. Traditional approach basically

deals with two major decisions. They are

a) Determining the objectives of the portfolio

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b) Selection of securities to be included in the portfolio

MODERN APPROACH:

Modern approach theory was brought out by Markowitz and Sharpe. It is the combination

of securities to get the most efficient portfolio. Combination of securities can be made in many

ways. Markowitz developed the theory of diversification through scientific reasoning and

method. Modern portfolio theory believes in the maximization of return through a combination

of securities. The modern approach discusses the relationship between different securities and

then draws inter-relationships of risks between them. Markowitz gives more attention to the

process of selecting the portfolio. It does not deal with the individual needs.

MARKOWITZ MODEL:

Markowitz model is a theoretical framework for analysis of risk and return and their

relationships. He used statistical analysis for the measurement of risk and mathematical

programming for selection of assets in a portfolio in an efficient manner. Markowitz apporach

determines for the investor the efficient set of portfolio through three important variables i.e.

Return

Standard deviation

Co-efficient of correlation

Markowitz model is also called as an “Full Covariance Model“. Through this model the

investor can find out the efficient set of portfolio by finding out the trade off between risk and

return, between the limits of zero and infinity. According to this theory, the effects of one

security purchase over the effects of the other security purchase are taken into consideration and

then the results are evaluated. 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 company‘s stock.

Markowitz had given up the single stock portfolio and introduced diversification. The

single stock portfolio would be preferable if the investor is perfectly certain that his expectation

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of highest return would turn out to be real. In the world of uncertainty, most of the risk adverse

investors would like to join Markowitz rather than keeping a single stock, because diversification

reduces the risk.

ASSUMPTIONS:

All investors would like to earn the maximum rate of return that they can achieve from

their investments.

All investors have the same expected single period investment horizon.

All investors before making any investments have a common goal. This is the avoidance

of risk because Investors are risk-averse.

Investors base their investment decisions on the expected return and standard deviation of

returns from a possible investment.

Perfect markets are assumed (e.g. no taxes and no transition costs)

The investor assumes that greater or larger the return that he achieves on his investments,

the higher the risk factor surrounds him. On the contrary when risks are low the return

can also be expected to be low.

The investor can reduce his risk if he adds investments to his portfolio.

An investor should be able to get higher return for each level of risk “by determining the

efficient set of securities“.

An individual seller or buyer cannot affect the price of a stock. This assumption is the

basic assumption of the perfectly competitive market.

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Investors make their decisions only on the basis of the expected returns, standard

deviation and covariance’s of all pairs of securities.

Investors are assumed to have homogenous expectations during the decision-making

period

The investor can lend or borrow any amount of funds at the risk less rate of interest. The

risk less rate of interest is the rate of interest offered for the treasury bills or Government

securities.

Investors are risk-averse, so when given a choice between two otherwise identical

portfolios, they will choose the one with the lower standard deviation.

Individual assets are infinitely divisible, meaning that an investor can buy a fraction of a

share if he or she so desires.

There is a risk free rate at which an investor may either lend (i.e. invest) money or

borrow money.

There is no transaction cost i.e. no cost involved in buying and selling of stocks.

There is no personal income tax. Hence, the investor is indifferent to the form of return

either capital gain or dividend.

55

THE EFFECT OF COMBINING TWO SECURITIES:

It is believed that holding two securities is less risky than by having only one investment

in a person‘s portfolio. When two stocks are taken on a portfolio and if they have negative

correlation then risk can be completely reduced because the gain on one can offset the loss on the

other. This can be shown with the help of following example:

INTER- ACTIVE RISK THROUGH COVARIANCE:

Covariance of the securities will help in finding out the inter-active risk. When the

covariance will be positive then the rates of return of securities move together either upwards or

downwards. Alternatively it can also be said that the inter-active risk is positive. Secondly,

covariance will be zero on two investments if the rates of return are independent.

Holding two securities may reduce the portfolio risk too. The portfolio risk can be

calculated with the help of the following formula:

CAPITAL ASSET PRICING MODEL (CAPM):

Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure of

Capital Asset Pricing Model. It is a model of linear general equilibrium return. In the CAPM

theory, the required rate return of an asset is having a linear relationship with asset‘s beta value

i.e. un-diversifiable or systematic risk (i.e. market related risk) because non market risk can be

eliminated by diversification and systematic risk measured by beta. Therefore, the relationship

between an assets return and its systematic risk can be expressed by the CAPM, which is also

called the Security Market Line.

56

R = Rf Xf+ Rm(1- Xf)

Rp = Portfolio return

Xf =The proportion of funds invested in risk free assets

1- Xf = The proportion of funds invested in risky assets

Rf = Risk free rate of return

Rm = Return on risky assets

Formula can be used to calculate the expected returns for different situations, like mixing

risk less assets with risky assets, investing only in the risky asset and mixing the borrowing with

risky assets.

THE CONCEPT:

According to CAPM, all investors hold only the market portfolio and risk less securities.

The market portfolio is a portfolio comprised of all stocks in the market. Each asset is held in

proportion to its market value to the total value of all risky assets.

For example, if wipro Industry share represents 15% of all risky assets, then the market

portfolio of the individual investor contains 15% of wipro Industry shares. At this stage, the

investor has the ability to borrow or lend any amount of money at the risk less rate of interest.

E.g.: assume that borrowing and lending rate to be 12.5% and the return from the risky

assets to be 20%. There is a trade off between the expected return and risk. If an investor invests

in risk free assets and risky assets, his risk may be less than what he invests in the risky asset

alone. But if he borrows to invest in risky assets, his risk would increase more than he invests his

own money in the risky assets. When he borrows to invest, we call it financial leverage. If he

57

invests 50% in risk free assets and 50% in risky assets, his expected return of the portfolio would

be

Rp= Rf Xf+ Rm(1- Xf)

= (12.5 x 0.5) + 20 (1-0.5)

= 6.25 + 10

= 16.25%

if there is a zero investment in risk free asset and 100% in risky asset, the return is

Rp= Rf Xf+ Rm(1- Xf)

= 0 + 20%

= 20%

if -0.5 in risk free asset and 1.5 in risky asset, the return is

Rp= Rf Xf+ Rm(1- Xf)

= (12.5 x -0.5) + 20 (1.5)

= -6.25+ 30

= 23.75%

EVALUATION OF PORTFOLIO:

58

Portfolio manager evaluates his portfolio performance and identifies the sources of

strengths and weakness. The evaluation of the portfolio provides a feed back about the

performance to evolve better management strategy. Even though evaluation of portfolio

performance is considered to be the last stage of investment process, it is a continuous process.

There are number of situations in which an evaluation becomes necessary and important.

i. Self Valuation : An individual may want to evaluate how well he has done. This

is a part of the process of refining his skills and improving his performance over a period

of time.

ii. Evaluation of Managers : A mutual fund or similar organization might

want to evaluate its managers. A mutual fund may have several managers each running a

separate fund or sub-fund. It is often necessary to compare the performance of these

managers.

iii. Evaluation of Mutual Funds : An investor may want to evaluate the

various mutual funds operating in the country to decide which, if any, of these should be

chosen for investment. A similar need arises in the case of individuals or organizations

who engage external agencies for portfolio advisory services.

iv. Evaluation of Groups : have different skills or access to different

information. Academics or researchers may want to evaluate the performance of a whole

group of investors and compare it with another group of investors who use different

techniques or who

NEED FOR EVALUATION OF PORTFOLIO:

We can try to evaluate every transaction. Whenever a security is brought or sold, we can

attempt to assess whether the decision was correct and profitable.

59

We can try to evaluate the performance of a specific security in the portfolio to determine

whether it has been worthwhile to include it in our portfolio.

We can try to evaluate the performance of portfolio as a whole during the period without

examining the performance of individual securities within the portfolio.

PORTFOLIO REVISION:

The portfolio which is once selected has to be continuously reviewed over a period of

time and then revised depending on the objectives of the investor. The care taken in construction

of portfolio should be extended to the review and revision of the portfolio. Fluctuations that

occur in the equity prices cause substantial gain or loss to the investors.

The investor should have competence and skill in the revision of the portfolio. The

portfolio management process needs frequent changes in the composition of stocks and bonds. In

securities, the type of securities to be held should be revised according to the portfolio policy.

An investor purchases stock according to his objectives and return risk framework. The

prices of stock that he purchases fluctuate, each stock having its own cycle of fluctuations.

These price fluctuations may be related to economic activity in a country or due to other changed

circumstances in the market.

If an investor is able to forecast these changes by developing a framework for the future

through careful analysis of the behavior and movement of stock prices is in a position to make

higher profit than if he was to simply buy securities and hold them through the process of

diversification. Mechanical methods are adopted to earn better profit through proper timing. The

investor uses formula plans to help him in making decisions for the future by exploiting the

fluctuations in prices.

60

FORMULA PLANS:

The formula plans provide the basic rules and regulations for the purchase and sale of

securities. The amount to be spent on the different types of securities is fixed. The amount may

be fixed either in constant or variable ratio. This depends on the investor‘s attitude towards risk

and return. The commonly used formula plans are

i. Average Rupee Plan

ii. Constant Rupee Plan

iii. Constant Ratio Plan

iv. Variable Ratio Plan

ADVANTAGES:

Basic rules and regulations for the purchase and sale of securities are provided.

The rules and regulations are rigid and help to overcome human emotion.

The investor can earn higher profits by adopting the plans.

A course of action is formulated according to the investor‘s objectives

It controls the buying and selling of securities by the investor.

DISADVANTAGES:

The formula plan does not help the selection of the security. The selection of the security

has to be done either on the basis of the fundamental or technical analysis.

It is strict and not flexible with the inherent problem of adjustment.

The formula plans should be applied for long periods, otherwise the transaction cost may

be high.

Even if the investor adopts the formula plan, he needs forecasting. Market forecasting

helps him to identify the best stocks.

61

TOPIC 1 ; PORTFOLIO MANAGEMENT

1. OVERVIEW : The main purpose of studying is to examine

the policy adopted for decision making in

the area of Portfolio management in General

Insurance Company with a special focus on

Portfolio.

2. SCOPE : In the presence study cover through

examination of procedures of decision

making portfolio management

environment, selection of securities

Weights of different securities and

Earning of Portfolio.

3. FINDINGS : The trend of Stock Exchange, securities in

India has shown increasing trend on an

Average the investments in such securities

increased by 153.47% yearly over the study

period. How ever the trend of investment in

stock exchange, securities both in India and

Outside India has shown investment incase

62

Is 154.77% per year over the study period.

TOPIC 2 : PORTFOLIO MANAGEMENT USING CAPM

1. OVERVIEW : Portfolio analysis to measure this actual risk

And return of securities and to calculate the

Expected returns of securities using

Security market line to compare the expected

Return with actual return to assist investor in

Making rational investment decision to which

Security to buy or sell using security market

Line which is to suggested the best portfolio

Mix .

2. SCOPE : The scope of the study is limited to this use of

Security market line as a tool of selecting

Security and advising the investors about the

Best portfolio mix.

3. FINDINGS : There is a significant difference between the

Expected returns and actual returns. The next

Step is to identify the securities which are under

Value when their expected returns is more than

Actual returns, it can be observed undervalued

63

Securities like Cipla, Dr. Reddy Labs, HDFC

Bank, wipro etc., wipro is linear since the

Weights (X) are the variables

INVESTMENT

Investment may be defined as an activity that commits funds in any financial form in the

present with an expectation of receiving additional return in the future. The expectations bring

with it a probability that the quantum of return may vary from a minimum to a maximum. This

possibility of variation in the actual return is known as investment risk. Thus every investment

involves a return and risk.

Investment is an activity that is undertaken by those who have savings. Savings can be

defined as the excess of income over expenditure. An investor earns/expects to earn additional

monetary value from the mode of investment that could be in the form of financial assets.

The three important characteristics of any financial asset are:

Return-the potential return possible from an asset.

Risk-the variability in returns of the asset form the chances of its value going down/up.

Liquidity-the ease with which an asset can be converted into cash.

Investors tend to look at these three characteristics while deciding on their individual

preference pattern of investments. Each financial asset will have a certain level of each of these

characteristics.

64

Investment avenues

There are a large number of investment avenues for savers in India. Some of them are

marketable and liquid, while others are non-marketable. Some of them are highly risky while

some others are almost risk less.

Investment avenues can be broadly categorized under the following head.

1. Corporate securities

2. Equity shares.

3. Preference shares.

4. Debentures/Bonds.

5. Derivatives.

6. Others.

Corporate Securities

Joint stock companies in the private sector issue corporate securities. These include

equity shares, preference shares, and debentures. Equity shares have variable dividend and hence

belong to the high risk-high return category; preference shares and debentures have fixed returns

with lower risk.The classification of corporate securities that can be chosen as investment

avenues can be depicted as shown below:

ANALYSIS & INTERPRETION

CALCULATION OF AVERAGE RETURN OF COMPANIES: _ Average Return (R) = (R)/N

65

Equity Shares

Preference shares

Bonds Warrants Derivatives

(P0) = Opening price of the share (P1) = Closing price of the share D = DividendWIPRO:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 1,233.45 1361.20 29 127.75 12.712006-2007 1,361.20 2,012 5 650.8 48.162007-2008 2012 1900.75 5 -111.25 -15.842008-2009 1900.75 1900.45 8 -0.3 1.382009-2010 1900.45 425.30 - -1475.15 -0.776 

TOTAL RETURN 27.809

Average Return = 27.81/6 = 4.6

ITC LTD:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 628.25 1043.10 20 414.85 69.252006-2007 1043.10 1342.05 31.8 298.95 31.72007-2008 1342.05 2932 2.65 1589.95 118.672008-2009 2932 2976 3.1 44 1.612009-2010 2976 206.35 3.5 -2769.7 -93

 TOTAL RETURN 120.5

Average Return = 120.5/6 =20.1

66

DR REDDY LABORATORIES LTD:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 916.30 974.35 5 58.2 6.892006-2007 974.35 739.15 5 23.52 -23.632007-2008 739.15 1,421.40 5 682.25 92.982008-2009 1,421.40 1456.55 3.75 35.15 2.742009-2010 1456.55 591.25 .75 -865.3 -59.4

 TOTAL RETURN 4.03

Average Return = 4.03/6 = .067

ACC:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 138.50 254.65 4 116.15 86.712006-2007 254.65 360.55 7 105.9 44.342007-2008 360.55 782.20 8 421.61 119.192008-2009 782.20 735.25 25 -46.95 -2.82009-2010 735.23 826.10 2 90.85 12.63

  TOTAL RETURN  252.09

Average Return = 252.09/6 =42.02

BHARAT HEAVY ELECTRICALS LTD:

67

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 223.15 604.35 9.5 38.12 175.082006-2007 604.35 766.40 8.5 162.05 28.22007-2008 766.40 2241.95 10.5 1475.55 193.92008-2009 2241.95 2261.35 18.5 19.4 1.692009-2010 2661.35 2056.55 1.53 -204.8 -8.99

  TOTAL RETURN  424.28

Average Return = 424.28/6 = 70.713

HEROHONDA AUTOMOBILES LIMITED:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002005-2006 188.20 490.60 20 302.40 171.32006-2007 490.60 548.00 20 57.40 15.772007-2008 548.00 890.45 20 342.45 66.142008-2009 890.45 688.75 17 -20.17 -20.742009-2010 688.75 9.5 1.45 1.45 1.958

 TOTAL RETURN 194.99

Average Return = 194.99/6 = 32.498

DIAGRAMATIC PRESENTATION

68

RETURN

CALCULATION OF STANDARD DEVIATION:

COMPANY RETURN

WIPRO 4.6

ITC 20.1

DR.REDDY .067

ACC 42.02

BHEL 70.713

HEROHONDA 32.498

69

Standard Deviation = Variance __Variance = 1/n (R-R)2

WIPRO:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 12.71 4.6 8.11 65.772006-2007 48.16 4.6 43.56 1897.52007-2008 -5.84 4.6 -10.44 108.992008-2009 .0405 4.6 -4.678 17.5982009-2010 -0.776 4.6 -4.678 21.881

  TOTAL 3,136.39

_Variance = 1/n (R-R)2 = 1/6 (3136.39) = 552.73

Standard Deviation = Variance = 552.73 =22.86

ITC LTD:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 69.25 20.1 49.17 2416.792005-2006 31.7 20.1 11.6 134.562006-2007 118.67 20.1 98.57 9,716.842007-2008 1.61 20.1 -18.49 341.892009-2010 -93 20.1 -113.1 12,791.6

  TOTAL 26,172.9

Variance = 1/n (R-R)2 = 1/6 (26,172.9) =4,362.14

Standard Deviation = Variance = 4,362.14= 66.04

DR. REDDY:

70

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 6.89 .067 6.22 38.692006-2007 -23.63 .067 -24.3 590.472007-2008 92.98 .067 92.31 8,521.1362008-2009 2.74 .06 2.07 4.28472009-2010 -59.4 .067 -60.07 3,646.24

 TOTAL 13,063.9

Variance = 1/n-1 (R-R)2 = 1/6 (13,063.9) = 2,177.32

Standard Deviation = Variance = 2,177.32= 41.7

ACC:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 86.71 42.02 44.67 1,996.3022006-2007 42.02 42.02 2.32 5.3832007-2008 119.19 42.02 77.17 5,955.202008-2009 -2.8 42.02 -44.82 -2008.832009-2010 12.63 42.02 -29.37 863.18

  TOTAL 13,09.52

Variance = 1/n-1 (R-R)2 = 1/6 (13,09.52) = 2,234.920

Standard Deviation = Variance = 2,234.920 = 47.27

71

BHEL:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2005-2006 175.08 70.71 104.37 10,893.12006-2007 28.2 70.71 -42.51 1,807.12007-2008 193.9 70.71 123.17 15,173.32008-2009 1.69 70.71 -69.02 4,763.762009-2010 -8.99 70.71 -79.7 6,352.09

  TOTAL 40,307.8

Variance = 1/n-1 (R-R)2 = 1/6 (40,307.8) = 6,717.96

Standard Deviation = Variance = 6,717.96 = 81.963

HERO HONDA:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2003-2004 171.3 32.59 138.71 19,240.52006-2007 15.77 32.59 -16.82 284.12007-2008 66.14 32.59 33.57 1,126.2732008-2009 -20.74 32.59 -53.33 2,844.12009-2010 1.598 32.59 -31 -960.8  

TOTAL 29,592.4

Variance = 1/n-1 (R-R)2 = 1/6 (29,592.4) = 4,232.1

Standard Deviation = Variance = 4,232.1 = 70.23

DIAGRAMATIC PRESENTATION

72

COMPANY RISK

WIPRO 22.86

ITC 66.04

DR.REDDY 46.66

ACC 47.963

BHEL 81.963

HEROHONDA 70.23

RISK

CALCULATION OF CORRELATION:

73

Covariance (COV ab) = 1/n (RA-RA)(RB-RB) Correlation Coefficient = COV ab/a*b

WIPRO WITH OTHER COMPANIESi. WIPRO (RA) & ITC (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 49.17 398.862006-2007 43.56 11.6 505.2962007-2008 -10.44 98.57 -1,029.12008-2009 -4.195 -18.49 77.572009-2010 -4.678 -113.1 529.1

    TOTAL 1,370.65Covariance (COV ab) = 1/6 (1,370.65) = 228.44Correlation Coefficient = COV ab/a*b

a = 22.86 ; b = 66.04 = 228.44/(22.86)(66.04) = .0151

ii) WIPRO (RA)&DR.REDDY (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 6.22 50.442006-2007 43.56 -24.3 -1,058.52007-2008 -10.44 92.31 -963.72008-2009 -4.195 2.07 -8.692009-2010 -4.678 -60.07 281.01

  TOTAL -1,180.3

Covariance (COV ab) = 1/9 (-1,180.3) = -196.72 Correlation Coefficient = COV ab/a*b

a = 22.86 ; b = 46.66 = -196.72/(22.86)(46.66) = -0.184

iii. WIPRO (RA) & ACC (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)

74

2005-2006 -32.01 -50.7 1,622.912006-2007 8.11 44.67 362.32007-2008 43.56 2.32 101.182008-2009 -10.44 77.17 -805.72009-2010 -4.195 -44.82 188.02

  TOTAL 1,606.11

Covariance (COV ab) = 1/6(1,606.11) = 267.69

Correlation Coefficient = COV ab/a*ba = 22.86 ; b = 47.27 = 267.69/(22.86)(47.27) = .0247

iv. WIPRO (RA) & BHEL (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 104.37 846.452006-2007 43.56 -42.51 -1,851.72007-2008 -10.44 123.17 -1,285.92008-2009 -4.195 -69.02 289.542009-2010 -4.678 -79.7 372.84

TOTAL -466.51

Covariance (COV ab) = 1/6(-466.51) = -77.8Correlation Coefficient = COV ab/a*b

a = 22.86; b = 81.963

= -77.8/(22.86)(81.96) = -0.042

v. WIPRO (RA) & HERO HONDA (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 8.11 138.71 1,124.9

75

2006-2007 43.56 -16.82 -732.682007-2008 -10.44 33.57 -358.482008-2009 -2.42 -59.44 143.82009-2010 -4.68 -31 145.1

  TOTAL 2,697

Covariance (COV ab) = 1/6 (2,697) = 449.7

Correlation Coefficient = COV ab/a*ba = 22.86 ; b = 70.23= 2,697/(22.86)(70.23) = 0.28

2. Correlation between ITC & other Companies:

i. ITC (RA) & DR REDDY (RB)

Covariance (COV ab) = 1/6 (16,417.2) = 2,736.2

Correlation Coefficient = COV ab/a*ba = 66.04; b =46.66 = 2,736.2/(66.04)(46.66) = .089

ii. ITC (RA) &ACC (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 44.67 2,196.42006-2007 11.6 2.32 26.9122007-2008 98.54 77.17 7,686.7

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 6.22 385.842006-2007 11.6 -243. -281.92007-2008 98.57 92.31 9,099.962008-2009 -18.49 2.07 -38.32009-2010 -113.1 -60.07 6,793.92

  TOTAL 16,417.1

76

2008-2009 -18.49 -44.82 828.722009-2010 -113 -29.37 3,321.75

 TOTAL 15,548.4

Covariance (COV ab) = 1/6 (15,548.4) = 2,591.4

Correlation Coefficient = COV ab/a*ba = 66.04; b = 47.23= 2,591.4/(66.04)(66.23) = 0.830

iii. ITC (RA) &BHEL (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 104.37 5,131.872006-2007 11.6 -42.51 -493.122007-2008 98.57 123.17 12,140.872008-2009 -18.49 -69.02 1,276.182009-2010 -113.1 -79.7 9,014.1

  TOTAL 28,078.3

Covariance (COV ab) = 1/6 (28,078.3) = 4,679.71

Correlation Coefficient = COV ab/a*ba = 66.04 ; b = 81.963= 4,679.71/(66.04)(81.963) = 0.865

iv. ITC (RA) & HERO HONDA (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 49.17 138.7 6,820.42006-2007 11.6 -16.71 -198.842007-2008 98.57 33.57 3,308.992008-2009 -18.49 -53.33 986.0722009-2010 -113.1 -31 3,506.1

  TOTAL 16,417.98

77

Covariance (COV ab) = 1/6 (16,417.98) = 2,736.33

Correlation Coefficient = COV ab/a*ba = 66.04; b = 70.23= 2,736.33/(66.04)(70.23) = 0.587

3. Correlation Between DR REDDY & Other Companies

i. DR REDDY(RA) &ACC(RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 44.67 277.852006-2007 -24.31 2.32 -56.3992007-2008 92.31 77.17 7,123.562008-2009 2.07 -44.82 -92.782009-2010 -60.07 -29.37 1,764.26

  TOTAL 9,838.84

Covariance (COV ab) = 1/6 (9,838.84) =1,639.81

Correlation Coefficient = COV ab/a*ba = 46.66 ;b = 47.27= 1,639.81/(46.66)(47.27) = 0.743

ii. DR. REDDY (RA) & BHEL (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 104.37 649.182006-2007 -24.31 123.17 1,033.422007-2008 92.31 -69.02 11,369.822008-2009 2.07 -84.96 -142.872009-2010 -60.07 -79.7 4,787.6

  TOTAL 18,286.1

78

Covariance (COV ab) = 1/6 (18,286.1) = 3,047.7

Correlation Coefficient = COV ab/a*ba = 46.66 ; b =81.96

=

3,047.7/(46.66)(81.96) = 0.796

iii. DR REDDY (RA) &HEROHONDA(RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 6.22 138.71 862.722006-2007 -24.3 -16.82 408.732007-2008 92.31 33.57 3,098.852008-2009 2.07 -53.33 -110.3932009-2010 -60.07 -31 1,862.2

  TOTAL 7,284.66

Covariance (COV ab) = 1/6 (7,284.66) = 1,214.109Correlation Coefficient = COV ab/a*b

a = 46.66 ; b = 70.23= 1,214.109/(46.66)(70.23) = 0.370

4. Correlation With ACC & Other Companies

i. ACC (RA) & BHEL(RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 44.67 104.37 4,662.292006-2007 2032 -42.51 -98.622007-2008 77.17 123.17 9,505.032008-2009 -44.82 -69.02 3,093.482009-2010 -29.37 -79.7 2,340.79

TOTAL 21,351.89

79

Covariance (COV ab) = 1/6(21,351.89) = 3,558.65

Correlation Coefficient = COV ab/a*ba = 47.27: b = 81.963=3,558.65/(47.27)(81.963) = 0.917

ii. ACC(RA) & HERO HONDA(RB)

Covariance (COV ab) = 1/6 (15,682.15) = 2,613.7Correlation Coefficient = COV ab/a*b

a = 47.27; b =70.23=2,613.7/(47.27)(70.23) = 0.787

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 44.67 138.71 6,196.182006-2007 2032 -16.82 -39.0222007-2008 77.17 33.57 2,590.592008-2009 -44.82 -53.33 2,390.2512009-2010 -29.37 -31 910.5

 TOTAL 15,682.15

80

CORRELATION BETWEEN BHEL(RA) &HERO HONDA

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2005-2006 104.37 138.71 14,477.22006-2007 -42.51 -16.82 715.822007-2008 123.17 33.57 4,134.822008-2009 -69.02 -53.33 3,680.842009-2010 -79.7 -31 2,470.7 

TOTAL 27,541.7

Covariance (COV ab) = 1/ (27,541.7) = 4,590.29

Correlation Coefficient = COV ab/a*ba = 81.96; b =70.23= 4,590.29/(81.96)(70.23) = 0.797

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CALCULATION OF PORTFOLIO WEIGHTS:

FORMULA :

Wa = b [b-(nab*a)] a2 + b2 - 2nab*a*b

Wb = 1 – Wa WEIGHTS OF WIPRO & OTHER COMPANIES:

i. WIPRO & ITC a = 22.86

b = 66.04nab = 0.151

Wa = 66.04 [66.04-(0151*22.86)] 2 + 2 – 2(0.151)**

Wa = 4,133.311 4,427.94

Wa = 0.93Wb = 1 – Wa Wb = 1- 0.93 = 0.066

i. WIPRO & DR. REDDY

a = 22.86b = 46.66nab = -0.184

Wa = 46.66 [46.66-(-0.184*)] 2 + 2 – 2(-0.184)**

Wa = 2,373.42 3,092.2615

Wa = 0.77Wb = 1 – Wa Wb = 1- 0.77 = 0.23

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ii. WIPRO (a) & ACC (b)

a = 22.86b = 47.27nab = 0.247

Wa = 47.27 [- (0.25*)] 2 + 2 – 2(0.5)**

Wa = 1,964.82 1,767.66

Wa =1.11

Wb = 1 – Wa

Wb = 1- 1.11 = -0.11

iii. WIPRO (a) & BHEL (b)

a = 22.86b = 81.963nab = -0.042

Wa = 81.96 [81.96 - (-0.042*)] 2 + 2 – 2(-0.042)**

Wa = 6,796.18 7,397.5

Wa = 0.92

Wb = 1 – Wa

Wb = 1-0.93 =0.08

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iv. WIPRO(a) & HERO HONDA(b)

a = 22.86b = 70.23nab = 0.28

Wa = 70.23 [70.23-(0.28*22.86)] 2 + 2 – 2(0.28)**

Wa = 4,482.88 4,555.77

Wa = 0.98

Wb = 1 – Wa

Wb = 1-0.98 = 0.02

CALCULATION OF WEIGHTS OF ITC & OTHER COMPANIES:

i. ITC (a) & DR.REDDY(b)

a = 66.04b = 46.66nab = -0.89

Wa = 46.66[46.66-(-0.89*66.04)] 2 + 2 – 2(-0.89)**

Wa = -565.31 1,053.49

Wa = -054

Wb = 1 – Wa

Wb = 1- (-054) = 1.54

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ii. ITC (a) & ACC (b) a = 66.04b = 47.27nab = 0.830

Wa = 47.27 [47.27-(0.830*66.04)] 2 + 2 – 2(0.830)**

Wa = 356.57 1,413.690

Wa = 0.25

Wb = 1 – Wa

Wb = 1- 0.25 = 0.75

iii. ITC (a) & BHEL (b)

a = 66.04b = 81.96nab = 0.87

Wa = 81.96 [81.96 - (0.87*66.04)] 2 + 2 – 2(0.87)**

Wa = 208.8 1,660.79

Wa =1.21

Wb = 1 – Wa

Wb = 1- 1.21 = -0.21

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iv. ITC(a) & HERO HONDA (b)

a = 66.04b = 70.23nab = 0.59

Wa = 70.23 [70.23-(0.59*66.04)] 2 + 2 – 2(0.59)**

Wa = 2,196.1 3,820.7

Wa = 0.57

Wb = 1 – Wa

Wb = 1- 0.57 = 0.43

WEIGHTS OF DRREDDY & OTHER COMPANIES:

DRREDDY (a) & ACC (b)

a = 46.7b = 47.7nab = 0.74

Wa = 47.7 [47.7- (0.74*46.7)] 2 + 2 – 2(0.74)**

Wa = 602.6 1,149.01

Wa = 0.52Wb = 1 – Wa Wb = 1- 0.52 = 0.48

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DRREDDY (a) & BHEL (b) a = 46.7

b = 81.96nab = 0.80

Wa = 81.96 [81.96-(0.80*46.7)] 2 + 2 – 2(0.80)**

Wa = 3,655.42 2,774.3

Wa = 1.32Wb = 1 – Wa

Wb = 1- 1.32 = -032

v. DRREDDY (a) & HEROHONDA (b)

a = 46.67b = 70.23nab = 0.37

Wa = 70.23 [70.23-(0.37*46.67)] 2 + 2 – 2(0.37)**

Wa = 3,722.2 2,506.9

Wa = 1.48Wb = 1 – Wa Wb = 1-1.48 = -0.48

WEIGHTS OF ACC & OTHER COMPANIES

ACC(a) & BHEL (b)

a = 47.3b = 81.7nab = 0.92

Wa = 81.7 [81.7-(0.92*47.3)] 2 + 2 – 2(0.92)**

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Wa = 3,119.6 1,801.7

Wa = 1.73

Wb = 1 – Wa

Wb = 1- 1.73 = -0.73

ACC (a) & HEROHONDA (b)

a = 47.3b = 70.23nab = 0.79

Wa = 70.23 [70.23- (0.79*47.3)] 2 + 2 – 2(0.79)**

Wa = 2,308.5 1,921.43

Wa = 1.20

Wb = 1 – Wa

Wb = 1- 1.20 = -0.20

WEIGHTS OF BHEL (a) & HEROHONDA(b)

a = 82b = 70.23nab = 0.80

Wa = 70.23 [70.23-(0.80*82)] 2 + 2 – 2(0.80)**

Wa = 325.464 7,049.21

Wa =0.046Wb = 1 – Wa Wb = 1-0.046 = 0.95

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CALCULATION OF PORTFOLIO RISK:

RP = (a*Wa)2 + (b*Wb)2 + 2*a*b*Wa*Wb*nab

CALCULATION OF PORTFOLIO RISK OF WIPRO & OTHER COMPANIES:

WIPRO (a) & ITC (b):

a = 22.86 b = 66.04Wa = 0.93Wb = 0.07nab = 0.151

RP = (22.86*0.93) 22+2(22.86)(66.04)(0.93)(0.07)(0.151)

502.88 22.4%

WIPRO (a) & DR.REDDY (b):

a = 22.86b = 46.66Wa = 0.78Wb = 0.23nab = -0184

RP = (22.86*0.78.)2+(46.66*0.23) 2(22.86)(46.66)(0.78(0.23)(-0.184)

355.6 18.86%

WIPRO (a) &ACC (b):

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a = 22.86b = 47.27Wa = 1.11Wb = -0.11nab = 0.25

RP = (22.86*1.11) 2+(47.27*-0.11) 2+2(22.86)(47.27)(1.11)(-0.11)(0.25)

551.2 23.5%

WIPRO (a) & BHEL (b):

a = 22.86b = 81.96Wb = 0.92Wa = 0.08nab = -0.042

RP = (22.86*0.9)2+(81.96*0.08) 2(22.86)(81.96)(0.92)(0.08)(-0.042)

491 = 22.2%

WIPRO (a) & HERO HONDA (b):

a = 22.86b = 70.23Wa= 0.98Wb=0.02nab = 028

RP = (22.86*0.98)2(70.23*0.02)2+2(22.86)(70.23)(0.98)(0.02)(0.28)

525 = 22.85%

CALCULATION OF PORTFOLIO RISK OF ITC & OTHER COMPANIES

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ITC(a) &DR.REDDY(b):

a = 66.04b = 46.66Wa = -0.54Wb = 1.54nab = 0.89

RP = (66.04*-0.54)2+(46.66*1.54)2+2(66.04)**(1.54)*(0.89)

-678.4 = 26.85%

ITC (a) & ACC (b):

a = 66.04b =47.27Wa= 0.25Wb= 0.75nab = 0.830

RP = (66.04*0.25)2+(47.27*0.75)2+2(66.04**(0.75)*(0.830)

2,500.67 =50%

ITC (a) & BHEL (b):

a = 66.04b = 81.96 Wa= 1.21Wb= -0.21nab = 087

RP = (66.04*1.21)2+(81.96*-021)2+2(66.04)**(-0.21)*(087)

3,696.2 = 60.79%

ITC (a) & HEROHONDA (b):

a = 66.04b = 70.23Wa= 0.57

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Wb= 0.43nab= 0.59

RP = (66.04*0.57)2+(70.23*0.43)2+2(66.04)**(0.43)*(0.59)

3,670.21 = 60.58%

CALCULATION OF PORTFOLIO RISK OF DR REDDY & OTHER COMPANIES

DRREDDY (a) & ACC (b):

a = 46.7b = 47.3Wa=0.52Wb= 0.48nab = 0.74

RP = (46.7*0.52)2+(47.3*0.48)2+2(46.7)**(0.48)*(0.74)

1,922.80 = 43.85%

DRREDDY (a) & BHEL (b):

a = 46.7b = 81.96Wa= 1.32Wb = -032nab = 0.80

RP = (46.7*1.32)2+(81.96**0.32)2+2(46.7)**(-0.32)*(0.80)

525.36 = 22.93

DRREDDY (a) & HERO HONDA (b):

a = 46.67b = 70.23

92

Wa = 1.48Wb= -0.48nab = 0.37

RP = (46.67*1.48)2+(70.23*-0.48)2+2(46.67)**(-048)*(0.37)

234.89 = 15.33%

CALCULATION OF PORTFOLIO RISK OF ACC & OTHER COMPANIES

ACC (a) & BHEL (b):

a = 47.3b = 81.7Wa = 1.73Wa = -073nab = 0.92

RP = (47.3*1.73)2+(81.7*-073)2+2(47.3)**( -0.73)*(0.92)

-3,972.12 = 63.82%

ACC(a) &HEROHONDA (b):a = 47.3b = 70.23Wa= 1.20Wb = -0.20nab = 0.79

RP = (47.3*1.20)2+(70.23*-0.20)2+2(47.3)**(-0.20)*(0.79)

1,764.84 = 42%

CALCULATION OF PORTFOLIO RISK OF BHEL (a) & HERO HONDA(b)

93

a = 82b = 70.23Wa = 0.046 Wa= 0.95nab = 0.80

RP = (82*0.046)2+(70.23*0.95)2+2(82)*70.23)*0.046)*0.95)*(0.80)

4,868.34 =69.77%

CALCULATION OF PORTFOLIO RETURN:

Rp=(RA*WA) + (RB*WB)

Where Rp = portfolio return RA= return of A WA= weight of A RB= return of B WB= weight of B

CALCULATION OF PORTFOLIO RETURN OF WIPRO & OTHER COMPANIES:

WIPRO (a) & ITC (b):

RA= 4.6 WA=0.93

RB=20.1 WB=0.07

Rp = (4.6*0.93) + (20.1*0.07)

Rp = (4.28+1.41)

Rp = 5.69%

WIPRO (a) & DR.REDDY (b):

RA= 4.6 WA=0.77

RB=0.67 WB=0.23

Rp = (4.6*0.77) + (0.67*0.23)

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Rp = (3.542 + 0.1541)Rp = 3.6961%

WIPRO (a) &ACC (b):

RA= 4.6 WA=1.11

RB= 42.02 WB=-0.11

Rp = (4.6*1.11) + (42.02*-0.11)Rp = (5.106+4.622)Rp = 0.484

WIPRO (a) & BHEL (b):

RA= 4.6 WA=0.92

RB= 70.713 WB=0.08

Rp = (4.6*0.92) + (70.713*0.08)Rp = (4.322+5.657)Rp = 9.889%

WIPRO (a) & HERO HONDA (b):

RA= 4.6 WA=0.98

RB= 32.498 WB=0.02

Rp = (4.6*0.9) + (32.498*0.02)

Rp = (4.508 + 0.6499)

Rp = 5.16%

CALCULATION OF PORTFOLIO RETURN OF ITC & OTHER COMPANIES

ITC(a) &DR.REDDY(b):RA= 20.1 WA=-0.54

RB= 0.67 WB=1.54

Rp = (20.1*-0.54) + (0.67*1.54)Rp = (-10.854+1.0318)

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Rp = -9.822%

ITC (a) & ACC (b):RA= 20.1 WA=0.25

RB= 42.02 WB=0.75

Rp = (20.1*0.25) + (42.02*0.75)

Rp = (5.23+31.52)

Rp = 36.54%

ITC (a) & BHEL (b):

RA= 20.1 WA=1.21

RB= 70.713 WB=--0.21

Rp = (20.1*1.21) + (70.713*-021)

Rp = (24.321-14.849)

Rp = 9.472%

ITC (a) & HEROHONDA (b):RA= 20.1 WA=0.57

RB= 32.498 WB=0.48

Rp= (20.1*0.57) + (32.498*0.43)

Rp= (11.45+13.978)

Rp= 25.43%

CALCULATION OF PORTFOLIO RETURN OF DR REDDY & OTHER COMPANIES

DRREDDY (a) & ACC (b):

RA= 0.67 WA=0.52

RB=42.02 WB=0.48

Rp = (0.67*0.52) + (42.02*0.48)

Rp = (.3487+20.139)

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Rp = 20.5%

DRREDDY (a) & BHEL (b):RA= 0.67 WA=1.32

RB=70.713 WB= -0.32

Rp (0.67*1.32)+(70.713*-0.32)

Rp (0.8844-22.628)

Rp -21.743%

DRREDDY (a) & HERO HONDA (b):

RA= 0.67 WA=1.48

RB=32.498 WB=-0.48

Rp (0.67*1.48) + (32.498*-0.48)

Rp (0.9916-15.599)

Rp -14.60%

CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER COMPANIES

ACC (a) & BHEL (b):

RA= 42.02 WA=1.73

RB=70.713 WB=--073

Rp = (42.02*1.73) + (70.713*-0.73)

Rp = (72.69-51.62)

Rp = 21.07%

ACC(a) &HEROHONDA (b):

RA= 42.02 WA=1.20

RB=32.498 WB=-0.20

Rp = (42.02*1.20) + (32.498*-0.20)

Rp = (50.424-6.499)Rp = 43.92%

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CALCULATION OF PORTFOLIO RETURN OF BHEL (a) & HERO HONDA(b)

RA= 70.713 WA=0.046

RB=32.498 WB=0.95

Rp= (70.713*0.046) + (32.498*098)

=(3.252+30.873)

= 34.13%

DISPLAY OF ALL CALCULATED VALUES

COMBINATION CORRELATION COVARIANCEPORTFOLIO RETURN

PORTFOLIO RISK

WIPRO & ITC 0.151 228.44 5.7 22.4

WIPRO & DR.REDDY -0.184 -196.72 3.7 18.9

WIPRO & ACC 0.247 267.69 0.49 23.5

WIPRO & BHEL -0.042 -77.8 9.9 22.2

WIPRO &H.HONDA 0.28 449.7 5.0 22.9

ITC & DR.REDDY 0.89 2736.2 -9.8 26.9

ITC &ACC 0.830 2591.4 36.542 50

ITC &BHEL 0.865 4649.71 9.5 60.8

ITC &HEROHONDA 0.587 2736.33 25.4 60.6

DR.REDDY & ACC .7434 1639.8 20.5 43.9

DR.REDDY & BHEL 0.7969 3047.7 -21.7 22.9

DR REDDY&HONDA 0.705 1,124.1095 -14.6 15.3

ACC&BHEL 0.917 3,558.65 21.07 63.8

ACC & H.HONDA 0.7873 2,613.7 43.9 42

BHEL & H.HONDA 0.797 4,590.29 34.13 69.8

I nterpretations

The analytical part of the study for the 6 years period reveals the following

interpretations,

wipro with itc:

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In this combination as per the calculations and the study the wipro bears a proportion of

investment of (0.93)and where as ITC bears a proportion of (0.07)which is less than compared to

wipro. The standard deviation of wipro is (22.86) and (66.04) in ITC.

From the return point of view wipro is (4.6) and (20.1) is ITC. From risk point of view wipro is

less risk than, ITC so the investors who are will to face high risk the better option will be

investing in ITC.

wipro with bhel:

In this situation the portfolio weights of the two companies are (0.92) is Wipro and (0.08)

in BHEL. The Standard deviation of Wipro is( 22.86) and (81.96) for BHEL. The returns of

wipro and BHEL are (4.6)and (70.713) respectively. The indication is to invest more funds in

BHEL.

Wipro investments are high but where as returns or less.

Wipro with acc:

Portfolio weights for wipro and ACC are (1.11)and (-0.11) respectively. This indicates

that the investors who are interested to take more risk they can invest in this combination, and

also can get high returns.

Itc& drreddys.

The investors have another alternative bearing the investment of ITC& DR REDDY

which are having weights are (-0.54) for itc and (1.54) for dr reddy. The standard deviation of

both are itc and dr reddy having (66.04)and (46.66) respectively.

And returns of them (20.1)and (0.67) respectively. The investors are reedy to to kake the high

risk they have to invest in itc. They can get more returns up to (66.04)

Itc&acc:

Here’s another best alternative of portfolio combination for the investor is investing in

the companies itc and acc which are having the portfolio weights of (.025) and (0.75)

respectively. The standard deviation of itc & acc are (66.04) and (47.27) respectively. And

99

returns of (20.1)and (42.02) in acc. Risk is more in itc , if investor wants low risk he can invest

in acc.

Itc&herohonda:

The portfolio combination of itc and herohonda gives the proportion of investment of

(0.57)and (0.43) respectively. The returns of itc and hero Honda are (20.1) and (32.49)

respectively. The standard deviation of itc and herohonda are (66.04) and (70..4) respectively.

Even if investor thinks the risk associated with itc is less but the returns is also poor.

Dr reddy & herohonda:

In this combination as per the calculation & the study of portfolio weights of dr reddy

and herohonda are (1.48) and (-0.48) respectively. Here the standard deviation of drreddy

&herohonda are (46.66) and (70.23) respectively. Returns are (0.67) is for dr reddy (32.43) is

for herohonda.In this, position invest in hero Honda is high risk as well as high returns also up to

(32.43) when compared to dereddy.

Dr reddy&acc:

The portfolio of weights of the both (0.52)is drreddy (.048) is for acc. The standard

deviation of dr reddy is (46.66) and (47.27) for acc. The returns of drreddy is (0.67) and (42.02)

is acc. According to this combination investor can invest acc, this is more risk as well as more

returns can get up to (42.02). If investor wants less risk he has to invest in acc.Dr reddy is a low

risk as well as low returns also.

Acc&herohonda:

According to this combination of the portfolio weights are (1.20) in acc and (-0.20) is

herohonda. The standard deviation of acc is less than herohonda 47.27>70.23. if the investor

100

wants to take low risk, acc is the better option. And the return point of view herohonda is

providing more returns that of acc.

According to this combination if the investor wants to get returns then he has to take the

more risk. This is the good combination for investors for investing in the acc&herohonda. For

more profits.

Bhel&herohonda:

The another combination of for portfolio decision making is bhel and herohonda. The

investment proportion of bhel is(0.046) and for herohonda is (0.95). The standard deviation of

bhel is (81.96) and (70.23) for herohonda. And the returns of them are (0.71) and (32.49). In

this combination, if investor wants high risk he can invest in bhel. If investor wants low risk a

he can invest in herohonda.

“Greater Portfolio Return with less Risk is always is an

attractive combination” for the Investors.

SUMMARY & CONCLUSION

SUMMARY

101

The investors who are risk averse can invest their funds in the portfolio

combination of ITC,ACC,HEROHONDA, BHEL AND WIPRO proportion. The

investors who are slightly risk averse are suggested to invest in WIPRO, DR.

REDDY, ACC& ITC as the combination is slightly low risk when compared with

other companies.

The analysis regarding the compaines ACC, HEROHONDA AND ITC has

howed a wise investment in public and in private sector with an increasing trend

where as corporate sector has recorded a decreasing trends income which denotes

an increasing trend throught out the study period.

CONCLUSIONS

The analytical part of study for the 6 years reveals the following as for as:

102

As far as the average return of the company is concerned ACC,BHEL, HEROHONDA is high with an average return of 48.41%. WIPRO, DR.REDDY are getting low returns. HEROHONDA securities are performing at medium returns.

As far as the Standard Deviation is concerned with BHEL is at highly risk security and next high securities is HERO HONDA and ITC, DR.REDDY and ACC are performing with moderate risk and other securities are performing with low risk.

As far as the correlation is concerned the securities ITC and DR.REDDY are high correlated with minimum portfolio risk. The investor who is risk averse will have to invest in this combination which gives good return with low risk.

RECOMMENDATIONS

103

As the average return of securities BHEL,ACC,HEROHONDA and ITC are HIGH, it is suggested that investors who show interest in these securities taking risk into consideration.

As the risk of the securities ITC, ACC, HEROHONDA and BHEL are risky securities it suggested that the investors should be careful while investing in these securities.

The investors who require minimum return with low risk should invest in WIPRO & DR.REDDY.

It is recommended that the investors who require high risk with high return should invest in ITC and HEROHONDA and BHEL.

The investors are benefited by investing in selected scripts of Industries.

BIBILOGRAPHY

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1.SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT-donald.E.Fisher,Ronald.J.Jordan

2.INVESTMENTS -William .F.Sharpe,gordon,J Allexander and

Jeffery.V.Baily 3.PORTFOLIOMANAGEMENT -Strong R.A

WEB REFERENCES

http;//www.nseindia.com

http;//www.bseindia.comhttp;//www.economictimes.comhttp;//www.answers.comhttp;//www.hdfc.com

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