PORTFOLIO MANAGEMENT

INTRODUCTION

Sharekhan is one of the leading retail broking house of SSKI group which

was running successfully since 1922 in the country. it is the retail broking

arm of the Mumbai-based SSKI group, which has over eight decades of

experience in the stock broking business.

The firm’s online trading and investment site - www.sharekhan.com - was

launched on Feb 8, 2000.

Contd

The site gives access to superior content and transaction facility to retail

customers across the country. Known for its jargon-free, investor friendly

language and high quality research, the site has a registered base of over two

lakh customers.

The number of trading members currently stands More than 8 Lacs.

PRODUCT PORTFOLIO - SHAREKHANEquities DerivativesCurrency futuresCommodity futureMutual fund distributionIPOPMSMargin funding3 in 1 account

PORTFOLIO MANAGEMENT?

Portfolio is a collection of asset.

The asset may be physical or financial like Shares Bonds, Debentures, and

Preference Shares etc.

Main objective is 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.

PHASES OF PORTFOLIO MANAGEMENT

1. Security analysis

2. Portfolio analysis

3. Portfolio selection

4. Portfolio revision

5. Portfolio evaluation

RESEARCH METHODOLOGY

Aim: The main aim of this study is to understand the portfolio management.

Objectives:

i. To calculate the return of various companies.

ii. To calculate the risk of various companies.

iii. To calculate the portfolio return & risk of different portfolios designed for the

combination of various companies.

iv. To evaluate the performance of various portfolios.

v. To understand, analyze and select the best portfolio.

vi. To understand the effect of diversification of investment.

Research Methodology

Research type: - Empirical

Type of sampling: - Convenient sampling

Sample size: - 5 companies from different sectors is selected from NSE CNX

Nifty

Sample universe: - Companies listed & trade in NSE

Data type: - Secondary data

Research tools used: -

a. Arithmetic average or mean

b. Return = Dividend + (Current price - Previous price) * 100

Previous price

c. Standard deviation

d. Variance

e. Correlation - Karl Pearson’s method

f. Sharpe’s Index

g. Treynor’s Index

h. Jenson’s Index

Data collection methods

The entire date were collected from the secondary source. Internet is main

source of secondary sources of date collection used. Magazines, Newspapers

and Journals were also used for collecting data

Analysis and Interpretations

The analysis and interpretation has been made with the help of graphs and

percentage of returns of securities. Microsoft Excel 2013 & IBM SPSS

Statistics 20 is the software used for this purpose.

Limitations of the study

i. The sample size is limited by 5 stocks from 5 different sectors.

ii. Markowitz modern portfolio theory is used here to calculate return & risk of portfolio.

iii. Portfolio created for the study is of 2 securities/stock combination, for making study easier and

understandable. Portfolios with 2 or more number of stock can give a wider image of portfolio

management.

iv. While constructing portfolios the stock are given equal weightage, return & risk will change if

weightage is different.

v. The data was collected from the time horizon of one financial year starting from April 2014 to March

2015.

vi. The data has been collected from secondary sources only, relevance of information may not fully

trustworthy.

ANALYSIS AND INTERPRETATION

Selected Stocks

1. HDFC Bank Limited

2. Lupin Limited

3. Hindustan Unilever

4. Tata Consultancy Services

5. Tata Motors

Return & Risk of Benchmark index: NSE CNX NIFTY

FY15 (MoM) Return for NSE CNX Nifty = 1.92%

FY15 (MoM) Risk for NSE CNX Nifty = 3.88

Return, Risk, & Beta of Stocks

Stocks Return, R Risk, SD Beta, β

HDFC Bank 2.90 5.22 1.13

Lupin 7.13 7.17 -0.41

HUL 4.37 8.49 1.73

TCS 6.98 16.80 0.07

Tata Motors 2.79 8.24 1.42

HDFC Bank Lupin HUL TCS Tata Motors-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Return, Risk & Beta Of Individual Stocks FY15 (MoM)

Return, R Risk, SD Beta, β

Correlation & Covariance of Portfolios

Portfolio Stocks Combination Correlation Covariance

1 HDFC Bank & Lupin -0.32 -11.81

2 HDFC Bank & HUL 0.80 35.46

3 HDFC Bank & TCS -0.16 -14.25

4 HDFC Bank & Tata Motors 0.53 22.77

5 Lupin & HUL 0.23 13.68

6 Lupin & TCS 0.57 68.15

7 Lupin & Tata Motors 0.20 11.89

8 HUL & TCS 0.28 39.59

9 HUL & Tata Motors 0.70 48.75

10 TCS & Tata Motors -0.07 -9.19

Return, Risk, & Beta of Portfolios

Portfolio Stocks Combination Return Risk Beta, β

1 HDFC Bank & Lupin 5.02 3.71 0.50

2 HDFC Bank & HUL 3.64 6.52 1.43

3 HDFC Bank & TCS 4.94 8.38 0.60

4 HDFC Bank & Tata Motors 2.85 5.93 1.28

5 Lupin & HUL 5.75 6.14 0.80

6 Lupin & TCS 7.06 10.84 -0.04

7 Lupin & Tata Motors 4.96 5.98 0.64

8 HUL & TCS 5.68 10.41 0.90

9 HUL & Tata Motors 3.58 7.71 1.58

10 TCS & Tata Motors 4.89 9.11 0.75

HDFC Bank & Lupin

HDFC Bank & HUL

HDFC Bank & TCS

HDFC Bank & Tata Motors

Lupin & HUL Lupin & TCS Lupin & Tata Motors

HUL & TCS HUL & Tata Motors

TCS & Tata Motors

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Return, Risk & Beta of Portfolios FY15 (MoM)

Return Risk Beta, β

Portfolio Performance Evaluation

Sharpe's Index - Sharpe's Performance IndexPortfolio Stocks Combination Rp T SD Sp Rank

1 HDFC Bank & Lupin 5.02 0.71 3.71 1.16 1

2 HDFC Bank & HUL 3.64 0.71 6.52 0.45 8

3 HDFC Bank & TCS 4.94 0.71 8.38 0.50 5

4 HDFC Bank & Tata Motors 2.85 0.71 5.93 0.36 10

5 Lupin & HUL 5.75 0.71 6.14 0.82 2

6 Lupin & TCS 7.06 0.71 10.84 0.59 4

7 Lupin & Tata Motors 4.96 0.71 5.98 0.71 3

8 HUL & TCS 5.68 0.71 10.41 0.48 6

9 HUL & Tata Motors 3.58 0.71 7.71 0.37 9

10 TCS & Tata Motors 4.89 0.71 9.11 0.46 7

Treynor's Index - Treynor's Reward-to-Variability Measure

Portfolio Stocks Combination Rp T βp Tp Rank

1 HDFC Bank & Lupin 5.02 0.71 0.50 8.70 1

2 HDFC Bank & HUL 3.64 0.71 1.43 2.05 7

3 HDFC Bank & TCS 4.94 0.71 0.60 7.05 2

4 HDFC Bank & Tata Motors 2.85 0.71 1.28 1.67 9

5 Lupin & HUL 5.75 0.71 0.80 6.34 4

6 Lupin & TCS 7.06 0.71 -0.04 -181.29 10

7 Lupin & Tata Motors 4.96 0.71 0.64 6.64 3

8 HUL & TCS 5.68 0.71 0.90 5.52 6

9 HUL & Tata Motors 3.58 0.71 1.58 1.82 8

10 TCS & Tata Motors 4.89 0.71 0.75 5.61 5

Jenson's Index - Reward to risk ratio

Portfolio Stocks Combination Rp ERM T βp ERP (%) Result

1 HDFC Bank & Lupin 5.02 1.92 0.71 0.50 1.31 Efficient

2 HDFC Bank & HUL 3.64 1.92 0.71 1.43 2.44 Efficient

3 HDFC Bank & TCS 4.94 1.92 0.71 0.60 1.44 Efficient

4 HDFC Bank & Tata

Motors

2.85 1.92 0.71 1.28 2.25 Efficient

5 Lupin & HUL 5.75 1.92 0.71 0.80 1.67 Efficient

6 Lupin & TCS 7.06 1.92 0.71 -0.04 0.67 Efficient

7 Lupin & Tata Motors 4.96 1.92 0.71 0.64 1.48 Efficient

8 HUL & TCS 5.68 1.92 0.71 0.90 1.80 Efficient

9 HUL & Tata Motors 3.58 1.92 0.71 1.58 2.62 Efficient

10 TCS & Tata Motors 4.89 1.92 0.71 0.75 1.61 Efficient

HDFC Bank & Lupin

HDFC Bank & HUL

HDFC Bank & TCS

HDFC Bank & Tata Motors

Lupin & HUL Lupin & TCS Lupin & Tata Motors

HUL & TCS HUL & Tata Motors

TCS & Tata Motors

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Return & Expected Return (ERP) of portfolios

Return Jenson's Index, ERP (%)

FINDINGS AND CONCLUSION

FINDINGS

Among the individual stock calculation, Lupin is better stock with return of 7.13% and risk of

7.17 and beta of -0.41. In terms of return TCS is also better with a return of 6.98%, but the risk is

16.80, which is too high and with a beta of 0.07. So, TCS is not a good option for investors to

invest.

HUL is also good in terms of return, which is 4.37% with risk of 8.49, but the beta is 1.73.

Therefore HUL is highly sensitive.

On portfolio construction, an equal combination of HDFC Bank & Lupin has given a better risk

adjusted return of 5.02% with risk of only 3.71. The beta of HDFC Bank & Lupin is 0.50. The

correlation and Covariance between HDFC Bank & Lupin are -0.32 and -11.81 respectively.

Lupin & HUL and Lupin & Tata Motors are also good enough in risk

adjusted return. The return and risk of Lupin & HUL are 5.75% and 6.14

respectively. The beta of Lupin & HUL is 0.80 with correlation and

covariance of 0.23 and 13.68 respectively. And the return and risk of Lupin

& Tata Motors are 4.96% and 5.98 respectively. The beta of Lupin & Tata

Motors is 0.64 with correlation and covariance of 0.20 and 11.89

respectively.

A combination of Lupin & TCS is the high return combination with a return

of 7.06%, but the risk is 10.84 and the beta is-0.04.

On evaluating portfolio performance, HDFC Bank & Lupin ranks 1st in

both Sharpe’s and Treynor’s Index, and also this combination is efficient in

Jenson’s Index.

On coming to Jenson’s Index all portfolios are efficient, they all beats the

expected return. Among them the combination of Lupin & TCS performed

well in beating estimation. The expected return from Lupin & TCS is

0.67%, but the actual return is 7.06%.

Finally the noticing thing is that, a portfolio with Lupin is well performed.

CONCLUSION

The aim and objectives of the study has achieved.

Investors with low risk averse can go for investing in a combination HDFC

Bank & Lupin, as the risk is very low.

Investors with moderate risk can go for investing in a combination of Lupin

& HUL and Lupin & Tata Motors, as the risk is not so high.

Investors, who are aggressive can for investing in a combination of Lupin &

TCS, HUL & TCS, TCS & Tata Motors, HDFC Bank & TCS, HDFC Bank

& Tata Motors, HDFC Bank & HUL, and TCS & Tata Motors.

Don’t put your trust in only one investment. It is like “putting all the eggs in

one basket” This will help to reduce the risk in the long term.

The investors are benefited by investing in selected scripts of Industries.

THANK YOU !

“Greater Portfolio Return with less Risk is always is an attractive combination”

for the Investors.