PROJECT REPORT

ON

A STUDY ON PORTFOLIO MANAGEMENT

AT

SUBMITTED IN PARTIAL FULFILLMENT OF REQUIREMENTS

FOR THE AWARD
OF

MASTER OF BUSINESS ADMINISTRATION

BY

Rachana.Shailar
(08U01E0026)

HASVITA Institute of Engineering & Technology

Jawaharlal Nehru Technological University
Keesara
Ranga reddy (dist)

STUDENTS DECLARATION ( Annexure-I )

I hereby declare that this project report titled A Study On Security Analysis and
Portfolio Management submitted by me to the

Department of Business

Management, Hasvita Institute of Engineering and Technology Hyderabad, is a

bonafide work undertaken by me and it is not submitted to any other University or
Institution for the award of any degree/diploma/certificate of published any time
before.

Name and address of the student

Signature of the student

ACKNOWLEDGEMENT
For completing this industrial analysis, a few people have been very helpful. I
would like to say the word of gratitude for them in printed.
First of all I would like to thank sincerely to our HOD Mr. Purnachandar sir for
his encouragement, motivation and kind of help to complete this industrial
analysis.
I would like to thank my project guide, especially.Deepthi madam for her
guidance, suggestions, help, support and encouragement.
I am grateful to MBA faculty for their steering guidance, valuable suggestions,
support and co-operation for the successful completion of this project work.

Place: Keesara

A.DEEPTHI

Date:

(08U01E0026)

INTRODUCTION
PORTFOLIO MANAGEMENT:
Portfolio Management:
Investing is simple but not easy. when it comes to managing your hard-earned money, making
sure it goes that extra mile is a task best left to the experts. And who better to do it for you than
the ICICI DIRECT.COM. The recently launched Portfolio Management Service is sheer music to
investors' ears with the perfect symphony of our varied expertise honed over the years with our
experience in the stock markets.
The whole raison d'etre of the Portfolio Management Service is ensuring that your money goes
that extra mile or earns that extra return, which dramatically improves the returns structure for
your investments.
To highlight the kind of value that we add to your investments, let us consider a small example.
From the age of 25 if you were to invest INR10000/ month and manage your investments and
consequently earn a good average of 14% p.a., your wealth at the time of retirement (at the age
of 60) would be INR 11.77 million. Simultaneously if we were to manage your investment of a
similar nature (INR10000/ month from the age of 25) using all the skills, experience technology
and infrastructure at our disposal and make an increment in your returns of just 2% p.a., your
wealth at the time of retirement would be INR 21.63 million which is a whopping increment of
about INR 10 million.
There are a number of factors, which contribute to earning such a great return on your
investments.

Research:
We have a team of over 15 research analysts, each with impeccable professional credentials.
With a collective experience spanning several hundred years, a veritable treasure-trove of
experience and understanding of the markets and of various sectors and companies, it comes as
no surprise that we are the obvious choice for none other than Forbes when it came to choosing
the Best of the Web for Asia. Under the Asian investing category, Forbes rates us as `a must
read for investors across Asia'.

Asset allocation:
Our investment committee led by two of our directors with impeccable reputation for stock
picking decides on asset allocation across sectors and product categories. They bring to the table
their enormous experience and knowledge of economy, market sentiment and sectoral trends. For
every portfolio, the investment strategy is decided after a careful assessment of several factors
like your investment needs, preferences and risk profile. To ensure a consistent performance, we
apply rigorous methods to measure and control risk. As our investment philosophy is not driven
by brokerage income, you may find a surprisingly low churn in the portfolios managed by us.

Timing:
Proponents of the traditional long-term investment would have you believe that in the long-term,
timing hardly makes any difference. But given the extent of volatility that is prevalent in the
modern markets, stocks could swing more even in a given day more than a conservative
investors targeted return for an entire year. We have a team of dealers and technical analysts
who can help you capitalize on precisely these fluctuations in the markets.

Relationship management:
As a Portfolio management customer you will have the services of your very own Relationship
Manager. Relationship Managers at India Info line are chosen after stringent checks related to the
character, integrity and the overall competence post which they undergo extensive training. You
can think of your Relationship Manager as your one point of contact for all your queries related
to your investments
BackOffice:
An online back office means you always have online and anytime access to your ledger account,
your contract notes, bills and portfolio performance report. This is the result of our immense
investment in technology and systems over the years.
Apart from these you will discover many small and thoughtful features, which will add value to
your experience, literally

OBJECTIVES

To study the investments pattern of an investor and its related risk and return.
To analyze and select the portfolio of investment.
To help investors to choose the combination of securities reducing risk and
Maximizing returns.
To study how to construct portfolio using two securities.
To study the overall profit of the portfolio
To study what is the risk involved in the constructed portfolio

NEED FOR THE STUDY

Portfolio management is a process encompassing many activities of investment in assets and
securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgments and actions. The objective of this service is to help the unknown investors with the
expertise of professionals in investment portfolio management. It involves construction of a of a
portfolio bases upon the investors objectives, constraints, preferences for risk and return and tax
ability. The portfolio is reviewed and adjusted from time to time in tune with the market
conditions. The evaluation of portfolio is to be done in terms of targets set for a risk and return.
The changes in the portfolio are to be effected to meet the changing conditions.
Portfolio construction refers to the allocation of surplus funds in hand among a variety of
financial assets open for investments. Portfolio theory concerns itself with the principles
governing such allocations. The modern view of investments is oriented more towards the
assembly of proper combinations of individual securities to form investment portfolios. A
combination of individual securities to form investments portfolios. A combination of securities
held together will give a beneficial result if they are grouped in a manner to secure higher return
after taking into consideration the risk elements.

SCOPE OF THE STUDY

This study covers the Markowitz model. Here in, the study covers the calculation of correlations
between the different securities in order to find out at what percentage of funds should be
invested among the companies in the portfolio. Also the study includes the calculation of weights
of individual securities involved in the portfolio. These percentages help in allocation the funds
available for investments based on the risky portfolios.

METHODOLOGY OF STUDY
For implementing the study, of securities or stocks consisting the sensex market are selected of
one year opening and closing share movement price date from BSE on date.

Closing price Opening price

R=

-------------------------------------------- 100
Opening price

To know the average (R) the following formula has been used

Average (R) = R
N
The next step is to know the risk of the stock or security; the following formula is given below.

Std.dev = Variance
n
Variance =1/n-1 (R-R)
t=1
Where
(R-R) = squares of different between sample and mean.
n = number of sample observations.
After that, the correlation of the securities is calculated by using the following formula;
Corrlation Coefficient (rAB) = COV AB

(A)(B)
Co-variance (COVAB) = 1/n (RA)-(RA)(RB-RB)
t =1
Where,
(RA-RA)(RB-RB) =combined deviations of A&B.
(A) ( B)

=Standard Deviations of A&B

COV AB

= Covariance between A&B

N= no of observations.
The next step would be the construction of the optimal portfolio on the basis of what percentage
of investment should be invested when two securities and stocks are combined ie, calculations of
assets portfolio weights by using minimum equation, which is given below

B ( B rABA)
WA =

A +B - 2rABAB

WB = 1 - WA
Where WA= proportion of investment in A
WB= proportion of investment in B
The next and final step is to calculate the portfolio risk (combined risk) that shows how much is
reduced by combining two stocks or securities by using this formula.

FORMULA:

p = A- WA + B W B + 2r AB A A WA WB
Where,
p = Portfolio Risk
A = Standard Deviation of securitiy A
WA = Proportion of investment in security B
B = Standard Deviation of security of B
WB = proportion of investment in security B
rAB = Co-relation Coefficient between security A&B.

Limitations of the study

The study has certain constrains which has limited to its scope and objects of the study.
The fulfillment of project to 45 days.
From BSE and NSE listing a very few and randomly selected scripts are
analyzed.
Construction of portfolio restricted to two- assets based in Markowitz model.
Limited industries are only covered in the study.

INDUSTRY PROFILE
NATIONAL STOCK EXCHANGE
The National Stock Exchange (NSE) of India became operational in the capital market
segment on 3rd November 1994 in Mumbai. The genesis of the NSE lies in the recommendations
of the pertains committee 1991. Apart from the NSE, it had recommended for the establishment
of national stock market system also. The committee pointed out some major defects in the
Indian stock market. The Defects specified are
1. Lack of liquidity in most of the markets in terms of depth and breadth.
2. Lack of ability to develop markets for debts.
3. Lack of infrastructure facilities and outdated trading system.
4. Lack of transparency in the operations that effect investors confidence.
5. Outdated settlement systems that are inadequate to cater to the growing volume, leading
to delays.
6. Lack of single market due to the inability of various stock exchanges to function
cohesively with legal structure and regulatory framework.
These factors led to the establishment of the NSE.
OBJECTIVES:
1) To establish a nationwide trading facility for equities, debt instruments and
hybrids.
2) To ensure equal access to investors all over the country through appropriate
communication network.
3) To provide a fair, efficient and transparent securities market to investors using an
electronic communication network.
4) To enable shorter settlement cycle and book entry settlement system.

5) To meet current international standards of securities market.

PROMOTERS:
Industrial Development Bank of India (IDBI)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Financing Corporation of India (IFCI)
Life Insurance Corporation of India (LIC)
State Bank of India (SBI)
General Insurance Corporation (GIC)
Bank of Baroda
Canara Bank
Corporation Bank
Indian Bank
Oriental Bank of Commerce
Union Bank of India
Punjab National Bank
Infrastructure Leasing and Financial Services
Stock Holding Corporation of India
SBI capital market
MEMBERSHIP:
The membership is based on the factors as capital adequacy, corporate structure,
Track record, Education, Experience etc. Admission is a two-stage process with applicants
required to go through a written examination followed by an interview. A committee consisting
of experienced professionals from the industry, to assess the applicants capability to operate as
an exchange member. The exchange admits members separately to wholesale debt Market
(WDM) segment and the Capital market segment. Only corporate members are admitted to the
debt market Segment whereas individuals and firms are also eligible to the capital market
segment.
Eligibility criteria for trading membership on the segment of WCM are as follows:The person
eligible to become trading members are bodies corporate, companies, institutions including

subsidiaries of banks engaged in financial services and such other persons or entities are may be
permitted from time to time by RBI\SEBI.

1. The whole-time Directors should possess at least two years experience in any activity related
to banking or financial services.
2. The applicant must be engaged solely in the business of the securities and must not be engaged
in any fund-based activities.
3. The applicant must possess a minimum of Rs.2crores

Eligibility criteria for the capital market segment are:

1. Individual, registered firms, corporate bodies, companies and such other persons may
be permitted under the SCR Act, 1957.
2. The applicant may be engaged in the business of securities and must not be engaged
in any fund-based activities.
3. The minimum net worth requirements prescribed are as follows:
Individuals and registered firms-Rs.75Lakhs.
Corporate bodies-Rs100Lakhs
In case of partnership firm each partner should contribute at least 5% of the
net worth of the firm.
4. A corporate trading member should consist only of individuals (maximum of 4) who
should directly hold at least 40% of the paid-up capital in case of listed companies
and at least 51% in case of these companies.
5. The minimum prescribed qualification of graduation and two years experience of
handling securities as broker, Sub-broker, authorized assistant etc., must be fulfilled
by

 Minimum two directors in case the applicant are a corporate

Minimum two partners in case of partnership firms

In case of individual or sole proprietary concerns. The two experienced directors in a corporate
applicant or trading member should hold minimum 5% of the capital of the company.
NSE-NIFTY
The national Stock Exchange on April 22,1996 launched a new Equity Index. The
NSE-50. The new Index which replaces the existing NSE-100 Index is expected to serve as an
appropriate Index for the new segment of futures and options.
Nifty means National Index for Fifty Stock.
The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an aggregate
market capitalization of around Rs.170000crores. All companies included in the index have a
market capitalization in excess of Rs.500crores each and should have traded for 85% of trading
days at an impact cost of less than 1.5%.
The base period for the index is the close of prices on Nov 3, 1995 which makes one year of
completion of operation of NSEs capital market segment. The base value of the Index has been
set at 1000.

BOMBAY STOCK EXCHANGE

The Stock Exchange, Mumbai, Popularly as Bombay Stock Exchange (BSE) was
established in 1875 as The Native Share and Stock Brokers Association, as a voluntary nonprofit making association. It has evolved over the year into its present status as the premier Stock
Exchange in the country. It may be noted that the Bombay Stock Exchange is the oldest one in
Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.
The Bombay Stock Exchange, while providing an efficient and transparent market for the trading
in securities, upholds the interests of the investsal of their grievances, whether against the
companies or its own member-brokers. It also strives to educate and enlighten the investors by
making available necessary informative inputs and conducting investor education programs.

A Government Board comprising of 9 elected Directors (one third of them retire every year by
rotation), Two SEBI Nominees, Seven Public representatives and an Executive Director is the
Apex Body, which decides the policies and regulates the affairs of the Bombay Stock Exchange.
The executive Director as the Chief Executive Officer is responsible for the day-to-day
administration of the Bombay Stock exchange.
SECURITIES TRADED:
The securities traded in the BSE are classified in to three groups namely specified shares of A
group and non-specified securities. The latter is sub-divided into B1 and B groups. A group
contains the companies with large outstanding shares, good track record and large volumes of
business in the secondary market. Settlements of all the shares are carried out through the
Clearing House. In order to enable the market participants, analysts etc., to track the various ups
and downs in the Indian Stock Market, the Exchange has introduced in 1986 an equity stock
index called BSE-SENSEX that subsequently became the barometer of the moments of the share
prices in the Indian Stock Market. It is a Market Capitalization-Weighted index of 30
components. The base year of SENSEX is 1978-79. The SENSEX is widely reported in both
domestic and international markets through print as well as electronic media.
SENSEX is calculated using a market capitalization weighted method. As per this
methodology, the level of the index reflects the total market value of all 30component stocks
from different industries related to particular base period. The total market value of a company is
determined by multiplying the price of its stock by the number of shares outstanding.
Statisticians call an index of a set of combined variables (such as price and number of shares) a
composite index. An indexed number is used to represent the results of this calculation in order
to make the value easier to work with and track over a time. It is much easier to graph a chart
based on indexed values than one based on actual values.
In practice, the daily calculation of SENSEX is done by dividing the aggregate market
of the 30 Companies in the Index by a number called the Index Divisor. The Divisor is the only
link to the original based period value of the SENSEX. The divisor keeps the index comparable
over a period of time and if the reference point for the entire Index maintenance adjustments.
SENSEX is widely used to describe the mood in the Indian Stock Markets.
Base year average is changed as per the formula:
New Base Year Average =Old Base Year Average * (New Market Value/Old Market Value)

RECENT DEVELOPMENTS IN INDIAN STOCK MARKET

Many steps have been taken in recent years to reform the Stock Market such as:
Regulation of Intermediaries.
Changes in the Management Structure.
Insistence on Quality Securities.
Prohibition of Insider Trading.
Transparency of Accounting Processes.
Strict supervision of Stock Market Operations.
Prevention of Price Rigging.
Encouragement of Market Making.
Discouragement of Price Manipulations.
Introduction of Electronic Trading.
Introducing of Depository System.
Derivates Trading.
International Listing.

Company Profile:
ICICI GROUP

ICICI

Securities

Indias

Leading

Investment

Bank

A subsidiary of ICICI Bank - the largest and most recognized private bank in India ICICI
Securities Ltd is premier Indian Investment Bank, with a dominant position in its core segments
of its operations - Corporate Finance including Equity Capital Markets Advisory Services,
Institutional Equities, Retail and Financial Product Distribution with a full-Service portfolio, a

roster of blue-chip clients and performance second to none, we have a formidable reputation
within the industry.
Under the able leadership of Mr.s Mukherji, Managing Director and CEO, ICICI Securities
is among the leading Financial Institutions both on the institutional as well as retail side.
The Corporate Finance team regularly ranks highest among the leading capital markets league
tables and recently topped the Prime Database League tables for funds mobilized through equity
instruments in the first half of CY 07.
Headquartered in Mumbai, I-Sec operates out of several locations in India.

ICICI Securities Limited (ICICI Securities)

History:
A subsidiary of ICICI Bank, ICICI Securities was set up in February 1993 to provide investmentbanking services to investors in India. As on date ICICI Bank holds 99.9% of the share capital of
ICICI Securities.

Overview:
ICICI Securities is a strongly positioned investment bank in India and provides products and
services in Fixed Income, Equities and Corporate Finance. In the fixed income business ICICI
Securities is a leading market participant in the country. ICICI Securities fixed income activities
include interest rate trading, derivatives trading, research and issue management.
The Corporate Finance business focuses on industry consolidation. ICICI Securities has been
involved in a number of mergers, cross border acquisition, equity and bidding for a number of

reputed companies. The equity business offers research, sales and execution services to
institutional investors in the secondary market and capital market related services such as
execution of public offerings, structuring and regulatory and legal documentation services.
In order to assist/provide corporate clients and institutional investors with investment banking
services in the United States of America, ICICI Securities has set up two subsidiaries namely,
ICICI Securities Holdings Inc and ICICI Securities Inc, ICICI Securities Inc, has become the
registered broker dealer with the National Association of Securities Dealers Inc, empowering it
to engage in a variety of securities transactions in the U.S. market.

ICICI Brokerage Services Limited

ICICI Brokerage Services Limited, a member of the National Stock Exchange of India Limited,
is the domestic broking subsidiary of ICICI Securities.

Year in review:
ICICI Securities is amongst the largest arranger of funds in Debt and Equity segments and also
amongst the leading advisors in Mergers and Acquisitions. Its clients include a wide range of
Indian and foreign corporations and institutional investors.
ICICI Securities continued to maintain its leadership position in the industry and delivered a
remarkable performance. ICICI Securities net worth was Rs. 3.51 billion, an increase of 10.03%
over the previous year. ICICI Securities was placed as a No. 1 advisor for M&As in India, with
closure of 4 deals aggregating to US $ 142.47 million (This is as per recent rankings published
by Bloomberg for the first quarter of 2003).

ICICI Securities raised Rs. 6.7 billion through initial public offerings (IPOs).

INSTITUTIONAL EQUITIES
I-Sec assists global institutional investors to make the right decisions through insightful research
coverage and a client focused Sales and Dealing team. A 30-member strong dedicated and
specialized research team ensures flow of well thought-out and well-researched stock ideas and
portfolio strategies. The Sales and Dealing team has demonstrated strong sales and execution
capabilities of actionable ideas to clients which have resulted in good relationships across
geographies.
I-Sec enjoys the first mover and market leader advantage in the derivatives segment. We have the
strongest derivatives desk and we offer the entire spectrum, from set-up to trading strategy. The
equity group leverages research and distribution reach to domestic and foreign institutional
investors in case of public offerings. The research team tracks over 15 key sectors of the Indian
economy and publishes in-depth research reports every year.
The equity group acts as a bridge for institutional investors and corporate clients with the
markets. For its expertise, ICICI Securities has been adjudged as the Best Brokerage House" by
Asia Money in 2003, a prestigious financial journal.

Retail Equities
ICICI Securities has the largest reach to the retail segment through its two pioneering brands
ICICIdirect.com and ICICI direct.

ICICIDirect.com
ICICIdirect.com is the most comprehensive website, which allows you to invest in Shares,
Mutual funds, Derivatives (Futures and Options), IPO, Commodities and other financial
products. Subscribers benefit from the unique 3-in-1 package - a demat account, a trading
account, and a bank account, thus giving the customer an efficient and hassle free trading
platform. An adept research team facilitates the consumer in taking more informed investment
decisions. ICICIDirect.com is a truly online share-trading site. This means that from the time you
punch in a buy or sell trade on your computer to the final settlement in your account, everything
happens completely online. The 3-in-1 e-invest account integrates your brokerage, bank and one
or more depository accounts to make sure that you can do the otherwise cumbersome share
trading from the comfort of your home or office, at absolutely any time of the dayor night.
ICICIdirect.com is the leader in the online share trading space with over 1.2 million customers,
which translates to a market share of over 65%. The firm has been winning the prestigious
Outlook Money - Indias Best e-Brokerage House for 2003-2004, 2004-2005 and 2006-07.

ICICI Securities has also set up a unique model of neighborhood financial superstores called
ICICIdirect. With an avowed purpose of turning money to wealth the stores offer a slew of
financial products like Mutual Fund, IPO, Loans as well as Share trading and assist Customers in
investing their funds wisely in options of their choice. The ICICIdirect centers, due to its
personalized advisory system, are firmly driven by the relationship with its customers.

HOW CAN ONE OPEN AN ACCOUNT IN DEMAT?

First an investor has to approach a DP and fill up an account opening form. The account opening
form must be supported by copies of any one of the approved documents to serve as proof of
identity (POI) and proof of address (POA) as specified by SEBI. Besides, production of PAN
card in original at the time of opening of account has been made mandatory effective from April
01, 2006.
All applicants should carry original documents for verification by an
authorized official of the depository participant, under his signature.
Further, the investor has to sign an agreement with DP in a depository prescribed standard
format, which details rights and duties of investor and DP. DP should provide the investor with a
copy of the agreement and schedule of charges for their future reference. The DP will open the
account in the system and give an account number, which is also called BO ID (Beneficiary
Owner Identification number).
The DP may revise the charges by giving 30 days notice in advance. SEBI
has rationalized the cost structure for dematerialization by removing account opening charges,
transaction charges for credit of securities, and custody charges vide circular dated January 28,
2005.
Further, SEBI has vide circular dated November 09, 2005 advised that with effect
from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a
DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to
another branch of the same DP or to another DP of the same depository or another depository,

provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e.
identical in all respects. In case the BO Account at transferor DP is a joint account, the BO
Account at transferee DP should also be a joint account in the same sequence of ownership.

INVESTING IN MUTUAL FUND:

ICICIdirect.com brings you the online convenience while investing in Mutual funds also Hassle free and Paperless Investing. You can now invest on-line in 19 mutual Funds through
ICICIdirect.com.

Alliance MF

UTI MF

Prudential ICICI MF

Birla Sun Life MF

ING Vysya MF

Reliance Capital MF

DSP Merrill Lynch MF

JM MF

Standard Chartered MF

Franklin Templeton MF

Kotak Mahindra MF

Sundaram MF

HDFC MF

Principal MF

Tata MF

CHOLA MF

Deutsche MF

HSBC MF

Fidelity MF
You can invest in mutual funds without the hassles of filling application forms or any other
paperwork.

You

need

no

signatures

or

proof

of

identity

for

investing.

Once you place a request for investing in a particular fund, there are no manual processes

involved. Your bank funds are automatically debited or credited while simultaneously crediting
or debiting your unit holdings. You also get control over your investments with Online order
confirmations and order status tracking. Get to know the performance of your investments
through online updation of MF portfolio with current NAV.

Awards:

Winning is a habit that is assiduously cultivated at ICICI Securities Limited (i-SEC). Be

it deals, mandates or awards, we manage them all in our quite and efficient way. For us winning
awards is a matter of pride and honor. Each new award is a manifestation of our hard work and
commitment to our clients. Since inception, i-SECs expertise has been time and again widely
recognized by both domestic and international agencies.
Our Fixed Income team for the last two years (CY 2004 and 2005) has been adjudged the Best
Bond House in India by both Asia money and Finance Asia. The equities team was adjudged the
Best Indian Brokerage House-2003 by Asia money. The Corporate Finance team, according to
Bloomberg topped the M&A league tables in 2003
The e-brokerage firm also won the CNBC AWAZ consumer Award for the most preferred

Brand of Financial Advisory Services.

The ICICI direct Advantages
A Unique 3-in-1 account that gives you:

Convenience: the 3-in-1 account integrates your banking, broking and demat accounts. This
enables you to trade in shares without going through the hassles of tracking settlement cycles,
writing cheques and Transfer Instructions, chasing your broker for cheques or Transfer
Instructions etc.

Speed: You can now get the latest quotes of scrips on ICICIdirect.com and place an order
almost instantly.

Control: You can be assured that you have in fact placed an order at the price you always
wanted to, but may not have been able to do so till now. Thereby giving you control over your
own trades.

Independence: Instead of transferring monies to a broker's pool or towards deposits, you can
manage your own demat and bank accounts when you trade through ICICIdirect.com.

Trust: ICICIdirect.com comes to you from ICICI, the organization trusted by millions of
Indians. Utilize it to the maximum of its potential and thereby reduce unnecessary paperwork

HISTORY OF THE ORGANIZATION:

The dematerialized form of shareholding and the depository mode of trade
(scrip less trade) have been in operation in developed financial markets for over 15 years. In
India, the first depository commenced operation a decade back and is relatively new. The Indian
financial market is in need of both scrip-based and scrip less trade, but the investing community,
which is used scrip-based trade, is bound to take some time to accept the latter. The scrip less
trading, till now a domain of the western world, institutional investors and GDR holders is now
mandatory even for small investors. All those who hold physical share certificates have to get
them dematerialized. If they do not, they will be forced to do so at the time of sale.
The countless numbers of conservative Indians have to digest it, whether they like it or not. First,
the institutional investors succumbed. Then the high net worth individuals, trading in more than a
certain numbers of shares, were forced to give in. now, it is the turn of the small investors of
select-companies.
With their share certificates being replaced by small slips and receipts,
naturally the average investors will have their share of fears and apprehensions. It is necessary to
educate and convince these investors about the benefit of Demat rather than forcing them to take
part in the game.

Companys Vision:
To make ICICI Direct the dominant online share trading by world class people and

Services. This we hope to achieve by:

Understanding the needs of customers and offering them superior product and Service.

Leveraging technology to service customers quickly and conveniently.

Developing and implementing superior risk management and investment strategic

to offer sustainable and stable return to our shareholder.

Providing and enabling environment to foster growth and learning for our
employees

Companys mission:
To judged by their sales and earnings growth rates than on the absolute value of their
sales and earnings. Look for companies that consistently grow faster than there peers. Investors
prefer companies that increase profit margins -- the percentage of sales that they keep -- every
year. This is accomplished either by lowering expenses or raising prices. Look for companies
that consistently find ways to squeeze more profits out of sales than their peers.
The financial health of a company is dependent on a combination of
profitability, short-term liquidity and long term liquidity. Companies, which are profitable, but
have poor short term or long term liquidity measures, do not survive the troughs of the trade
cycle
Anil Kaul, ceo Retail
Ashish Kaul, marketing & analysist
Rajendra Sharma, equity Analysist & MIS
Rohit Dhabolkar, marketing & Branding
Sanjiv Saraff, product Manager
Abhijit Ghosh, Sales zonal heads
Dharmesh dixit, project & operation.
Prasanan keshavan, Customer service & operation
Raman Addanki, Legal risk & Complain
Manoj kabra, Audit & cost control.
Harendra Kumar, Research
Joseph Abraham, HR.

Shikha sing, Compensation & Benefits.

Sujata kapoor, Talent Management.
Aloma Sing, Strategic & Sourcing.
Malachi Lopes, HRIS
Sanjita Chougle, Payroll
Santosh Nayak, Administration

OBJECTIVES OF THE STUDY

Study of ICICI Direct.com (online share trading)

Study of dematerialization in ICICI Capital Ltd.

Customers satisfaction and awareness of ICICI Capital Services Ltd.
ICICI Capital Services Ltd. is depository participant (DP) and it is
providing the financial services to the share holders and various other DPs also providing almost
same services which leads to a competition. So in order to retain the existing customers of ICICI
Capital Ltd. and to attract new customers knowing the customers need and preferences and
expectation is very important. The study involves knowing the expectation and satisfaction level
of ICICI Capital Ltd. customers.

PRODUCT PROFILE DE-MAT

The dematerialized form of shareholding and the depository mode of trade (scrip less trade) have
been in operation in developed financial markets for over 15 years. In India, the first depository
commenced operations a decade back and is relatively new. The Indian Financial Markets is in
need of both scrip-based trade, but the investing community, which is used to scrip-based and
scrip less trade, is bound to take some time to accept the latter. The scrip less trading, till now a
domain of the western world, institutional investors and GDR holders is now mandatory even for
small investors. All those who hold physical share certificates have to get them dematerialized. If
they do not, they will be forced to do so at the time of sale.

A process by which the physical certificates of an investor are taken back by the company /
registrar and actually destroyed and an equivalent number of securities are credited in the
electronic holdings of the investor.
Offers services to clients dealing in Government securities through the SGL A/C. besides
holding the securities, ICICI Capital Services Ltd.
Provides records update based on the transactions made by the clients.
Collects and credits the benefits and proceeds from sale to the clients account and
Supplies periodical reports on the transactions and holding of the clients.

TRADING:
Next function activates when an investor buys or sells in the market.

BUYING:
1.

An investor gets order executed and makes payment to the broker.

2. Investor instructs his Depository Participant to expect credit on settlement day.

broker instructs his DP to debit his Clearing Member account on settlement day.
3. Before settlement day Broker makes payment to clearinghouse through Clearing
bank.
4. On settlement day Clearing house releases shares to brokers Clearing Member account which
is then transferred to investors account through NSDL (National Securities Depository Limited).
Investor gets credit in his account.

SELLING:
1. An investor gets order executed.
2. Investor instructs his Depository Participant to debit his account with immediate effect.
The shares move from investors account to Brokers Clearing Member account via NSDL.
A broker clearing member accounts is credited.
3. Before settlement day broker transfers shares from his clearing member account to
Clearing house via NSDL. His account is debited.

4. On settlement day Broker receives payment from clearing house which he passes on
to the investor.

Organizational structure
Profile of the Organization
DEPARTMENT/FUNCTIONAL AREAS
Infrastructure financing, corporate financing and retail have been the strong pillars of ICICI's
growth. They expect these to remain thrust areas in the future too. The financial institution sees
significant opportunities in the power sector, and in the rapid de- regulation of the Telecom sector.
On the retail side, ICICI has established a retail franchisee through a physical presence across 42
cities. Its retail thrust has been on the planks of technology enabled low cost distribution channels
like the Internet, Call centers and ATMs.
It occupies the number one position in automobile financing (over 20% of the market share),
number one in credit cards on an incremental basis. It also has a growing presence in home
finance and on-line trading.

ICICI BANK
ICICI Bank is a commercial banking outfit set up by the ICICI Group. The Bank was registered
a banking company on January 5th, 1994 and received its banking license from the Reserve Bank
of India on May 17th, 1994. The Bank has an authorized capital of INR 300crore (USD 75.96
million), of which subscribed and paid-up capital is INR 165 crore (USD 41.78 million). The
first ICICI Bank branch was started in Madras in June 1994. The branches are fully

computerized with state-of-the-art technology and systems. All of them are fully networked
through V-SAT (Satellite) technology. The Bank is connected to the international SWIFT
network since March 1995. ICICI Bank offers a wide spectrum of domestic and international
banking services to facilitate trade, investment, cross- border business, and treasury and foreign
exchange services. This is in addition to a whole range of deposit services offered to individuals
and corporate bodies. ICICI Banks
Infinity was the first Internet banking service in the country, and a prelude to banking in
the next millennium. Currently the Bank has around 150,000 customers.

ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED

With the recent spurt in entrepreneurship in the country, venture capital and private equity capital
financing are fast attaining a role of prominence. Uniquely positioned to take the Indian
entrepreneur further is ICICI Venture Funds, the wholly owned subsidiary of ICICI, with its keen
understanding of the Indian Financial Markets, entrepreneurial ethos, access to global capital and
a network through influential global alliances. Strong parentage and affiliates provide ICICI
Venture with access to a broad spectrum of financial and analytical resources. An affiliation with
(Trust Company of the West) provides a platform for networking Indian Companies to global
markets and technology. ICICI Venture Funds currently manages / advises 11 Funds aggregating
US$ 400 million, making it the most significant private equity investor in the country. The
investment experience of ICICI Ventures professionals is the foundation its strengths and
success in several areas of investing. ICICI Venture seeks to invest in opportunities where its
network through ICICI and TCW can create value for all involved. ICICI Ventures primary
investment objective is capital investment through investments by way of equity or equityrelated securities in unlisted companies with significant growth potential. ICICI Ventures
investments span a broad spectrum of industries and stages of development, the investment focus
being on
Information Technology

 Biotechnology and Life Sciences

Media and entertainment
Retail Services

ICICI SECURITIES AND FINANCE COMPANY LIMITED

Formed in 1993 when ICICIs Merchant Banking Division was spun off into a new company, ISEC today are Indias leading Investment Bank and one of the most significant players in the
Indian capital markets. Its client list includes some of the best known, most respected names in
Indian business and industry, and I-SEC offers them what are probably the widest, most in-depth
range of services in the market, with the highest standards of professionalism. Backed by a
strong distribution network, I-SEC is acknowledged to be at the forefront of all new
developments in the Indian debt market. I- SEC Research Reports, Compendia, Updates, I-BEX
and sovereign Bond Index, have become industry standards, sought after by finance, business
and reputed publications alike. The Project Finance Group has helped take strategic projects
from the drawing board to financial closure, leveraging the expertise of parent organization. ISEC has also executed several assignments in M & A, including business valuations, spin-offs
and mergers, for both domestic and overseas clients. The range of products offered by i-SEC
includes:
Corporate Finance Mergers and Acquisitions, Equity, Bidding (especially for
Telecom Projects)
Fixed Income Primary Dealership, Debt Research
Equities Lend management, Underwriting, Syndication, Private Equity placement,
Sales, Trading, Broking, Sectoral and Company Research I - SEC
Continues to sustain a steady rate of growth by offering the most extensive range of
services combined with unrivalled standards of professionalism.

ICICI BROKERAGE SERVICES LIMITED

Set up in March 1995, ICICI Brokerage Services is a 100% subsidiary of I-SEC. It commenced
its securities brokerage activities in February 1996 and is registered with the National Stock
Exchange of India Limited and The Stock Exchange, Mumbai. We are a joint venture between
ICICI and the leading financial services provider in India, and prudential plc of U.K., one of the
finest Life insurance companies in the world. Together we provide you with an extensive range
of insurance products to suit your various needs at various life stages. We aim to keep you
covered, at every step in life. Their policies are need-specific and address particular age groups.
This means that no matter where in life you are, we offer specific products to suit your needs for
savings, protection and retirement. Our products can be categorized into the following:
Saving plans
Protection plans
Retirement plans

ICICI DIRECT.COM (ONLINE SHARE TRADING):

ICICI Direct.com is a truly online share-trading site. Which means that from the time you punch
in a buy or sell trade on your computer to the final settlement in your account, everything
happens completely online? The 3-in-1 e-invest account integrates your brokerage, bank and one
or more depository accounts to make sure that you can do the otherwise cumbersome share
trading from the comfort of your home or office, at absolutely any time of the day or night

PERFORMANCE AND OPERATIONS

The Sales turnover of the Company during the year was Rs.2, 602 million. There
is a decrease of 4% from the previous year. Decline in the sale of Carburettors for two wheelers
and four wheelers had contributed to the overall sales downturn though the Company has
improved the sale of MPFI parts to passenger cars.

The profit after tax of the Company for the year under review is Rs.377
million Due to inclusion of an extraordinary profit of Rs.250 million on sale of investments, the
Profit after Tax has registered an increase of 42% compared to previous year. The profit from the
manufacturing activities of the Company is lower mainly due to
1. Price reduction offered to customers
2. Increase in the input and raw materials cost
3. a particular customer in the two wheeler market witnessed a steep decline in the sale of
a model for which UFSL is supplying the Carburettors
Key Ratios 2005-06 2004-05
Current Ratio (Current Assets/Current Liabilities) 1.67:1 2.55:1 Debt - Equity Ratio 0.47:1 0.04:1
Debtors

Turnover

(Debtors/Gross

Sales)

1.18

Months

1.25

Months

Creditors

(Creditors/Purchases)1.86 Months 1.59 Months Dividend Pay-out Ratio 17 15.37

SWOT ANALYSIS OF THE COMPANY:

Strengths
1. Management philosophy and commitment to maximize shareholders returns
2. Upgraded product design and development facilities to develop new products and aid
diversification
3. Ongoing activities to support up gradation of operational performance and rise in
Productivity
4. Team of talented and committed professionals available to improve companies
Performance

Weakness
1. Competition from cheap imports
2. Low customer base

Opportunities
1. UFSL has initiated development of products for diesel application. This will provide

Turnover

tremendous scope for diversification and growth

2. Acquisition of AMTEC to provide opportunities to access global OEMs
3. Opportunity to support AMTECs operations by supplying products from India
4. The introduction of new emission norms will provide UFSL opportunity to develop injection
systems and thereby upgrade the status of the company from product to system supplier.

Threats, Risks & Concerns

1. Constant pressure to be cost competitive to meet customer expectations
2. Relentless pressure to maintain profitability due to rising input/raw material prices
3. Increasing popularity of alternative fuel vehicles, such as Hybrid, Hydrogen powered,
CNG and LPG vehicles poses new challenges for the company

INTRODUCTION TO PORTFOLIO MANAGEMENT

PORTFOLIO
A portfolio is a collection of securities. Since it is rarely desirable to invest the entire funds of an
individual or an institution in a single security, it is essential that every security be viewed in the
portfolio context. Thus it seems logical that the expected return of each of the security contained
in the portfolio.
Portfolio analysis considers the determination of future risk and return in holding various blends
of the individual securities. Portfolio expected return is a weighted average of the expected
return of individual securities but portfolio variances, in short contrast, can be something less
than a weighted average of security variance. As a result an investor can sometimes reduce
portfolio risk by adding security with greater individual risk than any other security in the

portfolio. This is because risk depends greatly on the co-variance among returns of individual
security. Portfolio which is combination of securities may or may not take an aggregate
characteristic of their part.
Since portfolios expected return is a weighted average of the expected return of its securities, the
contribution of each security to the portfolios expected returns depends on its expected returns
and its proportionate share of the initial portfolios market value. It follows that an investor who
simply wants the greatest possible expected return should hold one security; the one which is
considered to have a greatest, expected return. Very few investors do this, and very few
investments advisors would counsel such an extreme policy. Instead, investors should diversify,
meaning that their portfolio should include more than one security.

OBJECTIVES OF PORTFOLIO MANAGEMENT

The objectives of investments/portfolio management can be classified as follows
Basic objectives
The basic objectives of investment/portfolio management are
To Maximize Yield, and
To Minimize risk
Secondary objectives
The following are the other ancillary objectives are
Regular return
Stable income
Appreciation of capital
a) More liquidity

b) Safety of investments, and

c) Tax benefits.

Need for portfolio management

Portfolio management is a process encompassing many activities of investment in assets and
securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgments and actions. The objective of this service is to help the unknown investors with the
expertise of professionals in investment portfolio management. It involves construction of a of a
portfolio bases upon the investors objectives, constraints, preferences for risk and return and tax
ability. The portfolio is reviewed and adjusted from time to time in tune with the market
conditions. The evaluation of portfolio is to be done in terms of targets set for a risk and return.
The changes in the portfolio are to be effected to meet the changing conditions.
Portfolio construction refers to the allocation of surplus funds in hand among a variety of
financial assets open for investments. Portfolio theory concerns itself with the principles
governing such allocations. The modern view of investments is oriented more towards the
assembly of proper combinations of individual securities to form investment portfolios. A
combination of individual securities to form investments portfolios. A combination of securities
held together will give a beneficial result if they are grouped in a manner to secure higher return
after taking into consideration the risk elements.
The modern theory is of the view that by diversifications, risk can be reduced. The investor can
make diversification either by having a large number of shares of companies in different region,
in different industries or those producing different types products lines. Modern theory believes
in the perspective of combination of securities under constraints of risk and return.

Elements of portfolio management

Portfolio management is an on-going process involving the following the following basic tasks:
Identification of the investors objectives, constraints and preferences.
Strategies are to be developed and implemented in tune with investments policy
formulated.
Review and monitoring of the performance of the portfolio.
Finally the evaluation of the portfolio

PORTFOLIO ANALYSIS

Portfolio analysis is needed for the selection of optimal portfolio by rational risk adverse
investors. Portfolio analysis is essential for portfolio construction. The objective of the portfolio
or maximize the risk subject to the desired level of return on the portfolio or maximize the return
subject to the constraint of a tolerable level of risk. It enables the investors to identify the
potential securities, which will maximize the following objectives such as security of the
principle, stability of income, capital growth marketability, liquidity & diversification.

Concept of Risk
Investment in shares has its own risk or uncertainty, which arises out of variability of returns,
yields and uncertainty of appreciation or depreciation of shares prices, loss of liquidity
etc. this risk over time, is capital appreciation. This risk is measured statistically by the
degree of variance or standard deviation of returns. Normally higher the risk that the
investor taker higher is the return.

Diversification of Risk:

The process of combining securities in a portfolio is known as diversification. The aim of

diversification is to reduce total risk without sacrificing portfolio. The risk in a portfolio can be
reduced by a proper diversification into a number of strips. The efforts to spread and minimizes
portfolio risk takes the form of diversification. Most investors prefer to hold several assets rather
than putting all their eggs into one basket with hope that if one goes bad, the other will provide
some protection from the extreme loss.
PORTFOLIO SELECTION
The determination and selection of a portfolio is a complicated affair as there is a possibility of
infinite number of combinations of various securities that can enter a portfolio. The securities
available to an investor can be combined in any proportion hence any number of portfolios can
be built. Each such portfolio can be described in terms of return and risk.
Portfolio construction refers to the allocation of funds among a variety of financial assets open
for investment. The objectives of the theory is to elaborate the principle in which the risk can be

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

The most popular models used for portfolio selection are:

Markowitz model.
Capital assets pricing model.

Markowitz model
According to Markowitz, the portfolio theory establishes a relationship between portfolios
expected return and its level of risk as the criteria for selecting the optimal portfolio. Thus two
measures were suggested for evaluating the merits of portfolio.
The expected return from the portfolio.
The level of risk exposure associated with the portfolio.
This theory believes in asset correlation and combining assets so as to lower the risk.
From the efficient set of portfolios the best one would be selected on the basis of the risk
and returns. These risk and returns are calculated using standard deviations and the
coefficient of variations. It is also called as the full co-variance model. The expected
return on the portfolio is calculated by using the following;
N

Rp = RiXi
I=1
Where, Rp = expected return on portfolio
Ri = expected return on security i
Xi = the proportion of portfolio investment in security i
N = total number of securities in the portfolio.
The risk of a portfolio comprising of shares A and B van be expressed using variance as the
measures of risk.
Covariance of AB = X2 A2 A +X2 B2 B + 2XAXBrAB A B
Cov.AB = the variance between the rates of return on shares A and B,
Where,
rAB = Coefficient of correlation between A and B shares
X2 A = Proportion invested in shares A
2
X B

= proportion invested in shares B

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

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

The term covariance explains the relationship between the movements in the rates of
return from shares A and B; it is derived from the following formula:

Cov.AB = rAB A B

Capital asset pricing model

The Capital Asset Pricing Model (CAPM) attempts to measure the risk of a security in the
portfolio. It considers the required rate of return of a security on the basis of its contribution to
total portfolio risk. It provides that in a well-functioning efficient market, the risk premium
varies indirect proportion to risk. It also provides a measure of risk premium and method of
estimating market risk return line. The risk of well-diversified portfolio depends on the market
risk of the securities included in portfolio. The market risk of the security is measured in terms of
its sensitivity to the market movements. The core idea of CAPM is that only non-diversifiable
risk is relevant to the determination of the expected return on any asset.

Capital Market Line (CMP)

The portfolio theory states that rational investors would chose a combination of efficient
frontier but in capital market line relationship of total risk and expected return is reflected.

Security Market Line (sml)

For all well diversified portfolios nonsystematic risk tend to go to zero, and the only relevant risk
measured by beta SML describes the expected return for all assets and portfolios of assets,
efficient or not. The higher the beta the higher must be the return. The relationship between
expected return and beta is linear.

Portfolio revision
Irrespective of how well a portfolio is constructed, it soon tends to change and hence needs to be
monitored and revised periodically. Portfolio once constructed undergoes changes in the market
prices; reassessment of companies, the portfolio risk and the proportion in each asset class will
change to bring back the portfolio to the targeted level of beta or risk and duration. Overtime
several things are likely to happen.
This usually involves two things:
1) Portfolio rebalancing.
It involves reviewing and revising the portfolio compositions. There are three basic policies with
respect to portfolio rebalancing.
By and hold policy,
Constant asset mix, and
Portfolio insurance policy.
2) Portfolio upgrading.
While portfolio rebalancing involves shifting from stocks to bonds or vice versa, it calls for
reassessing the risk return characteristics of various securities, selling

over priced securities

and buying under priced securities. It may also involve the other changes the investor may
consider necessary to enhance the performance of portfolio.

Portfolio evaluation
The performance of the portfolio should be evaluated periodically. The key dimensions of a
portfolio performance evaluation are risk and return and the key issue is whether the portfolio
return is commensurate with its risk exposure. Such a review may provide useful to improve the
quality of portfolio management process on a continuing basis.
For evaluating the performance of a portfolio it is necessary to consider both risk and return. The
following are the models for evaluating performance of a portfolio.
Treynor Measure.
Sharpe measure.
Jensen measure.

Investment Decision
Definition of investment
According to F. Amling Investment may be defined as the purchase by an individual or
institutional investor of a financial or real asset that produces a return proportional to the risk
assumed over some future investment period.

According to D.E. Fisher and R.J. Jordan, investment is a commitment of funds made in the
expectation of some positive rate of return. If the investment is properly undertaken, the return
will be commensurate with the risk the investor assumes.

Concept of investment
Investment will be generally be used in its financial sense and as such investment is an allocation
of monetary resources to assets that are expected to yield some gain or positive return over a
given period of time. Investment is a commitment of persons funds to drive future income in the
form of interest, dividends rent, premiums, pension benefits or the appreciation of the value of
his principle capital
Any Investors would like to know the media or range of investment so that he can use his
discretion and save in those investments, which will give him both security and stable return. The
ultimate objective of the investor is to derive a variety of investments that meets his preference
for risk and expected return. The investor will select the portfolio, which will maximize his
utility. Another important consideration is the temperament and psychology of the investor. It is
not only the construction of a portfolio that will promise the highest expected return, but it is the
satisfaction of the need of the investor.
Many types of investment media or channels for making investment are available. Securities
ranging from risk free instruments to highly speculative shares and debentures are available for
alternative investments.
All investments are risky, as the investor parts with his money. An efficient investor with proper
training, can reduce the risk and maximize returns, he can avoid pitfalls and protect his interests.

There are different methods of classifying the investment avenues. A physical, if savings are used
to acquire physical assets, useful for consumption or production. Some physical assets like
ploughs, tractors or harvesters are useful in agriculture production. A few useful physical assets
like cars, jeeps etc., are useful in business. Among different types of investments some are
marketable and transferable and other are not. Example of marketable assets are shares and
debentures of public ltd companies particularly the listed companies on stock exchange, bonds of
P.S.U. Government securities etc. non marketable securities of investments are bank deposits,
provident and pension funds, insurance certificates, company deposits, private Ltd Company
shares etc.,

Investment process
The investment process may be described in the following stages.
Investment Policy: The first state determines and involves personal financial affairs and
objectives before making investment. It can also be called the preparation of the investment
policy stage. The investor has to see that he should be able to create an emergency fund, an
element of liquidity and quick convertibility of securities into cash. This stage may, therefore, be
called the proper time for identifying investment assets and considering the various features of
investment.
Investment Analysis: After arranging a logical order of type of investment preferred, the next
step is to analyze the securities available for kind of securities etc. the primary concerns at this
stage would be to form beliefs regarding future behavior of prices and stocks, the expected return
and associated risks.
Investment Valuation: Investment value, in general is taken to be the present worth to the
owners of future benefits from investments. The investor has to bear in mind the value of these
investments. An appropriate set of weights have to be applied with the use of forecasted benefits
to estimate the value of investment assets such as stocks, debentures and bonds and other assets.
Comparison of the value with the current market price of the asset allows a determination of the
relative attractiveness of the asset must be valued on its individual merit.

Portfolio Construction and Feedback: Portfolio construction required a knowledge of the

different aspects of securities in relation to safety and growth of principal, liquidity of assets etc,
in this stage, we study determination of diversification level, consideration of investment timing,
selection of investment assets, allocation of ingestible wealth to different investment, evaluation
of portfolio feedback.

Investment Decisions guidelines for the equity investment

Equity shares are characterized by price fluctuations, which can produce substantial gains or
inflict severe losses. Given the volatility and dynamism of the stock market, investor requires
greater competence and skill along with a touch of good luck to invest in equity shares. Here are
some general guidelines to play equity game, irrespective whether you are aggressive or
conservative.
Adopt a suitable formula plan
Establish value anchors.
Assess market psychology
Combine fundamental and technical analysis.
Diversify sensibly
Periodically review and revise your revise portfolio.

Requirement of portfolio

 Maintain adequate diversification when relative values various securities in the

portfolio change.
Incorporate new information relevant for risk return assessment.
Expand or contract the size of portfolio to absorb funds or withdraw funds and,
Reflect changes in investor risk disposition.

Factors influencing investors decision and type of investors

There are four types of investors in a market. They are as follows.
Types of Investors:
Type A Investors: No market timing and no stock picking skills.
If the investor does not believe that he has any special skills in picking undervalued stocks or in
predicting the movement of the market, then the portfolio design problem becomes relatively
simple. The investor simply chooses a diversified portfolio and then adjusts its beta to the desired
level. If he weights the chosen security in proportion to the market capitalization, he can expect
to get a portfolio beta close to one. To achieve a higher or lower beta, he can shift the weights
towards high or low beta stocks. He can achieve the same effects by increasing or decreasing the
allocation to the equity portfolio in the overall portfolio.
The type A investor would hold a passive, diversified portfolio with the constant beta equal to the
target beta. He may also prefer to invest his money in a mutual fund and let it do the portfolio
management for him.
Type B Investor: Only stock-picking skills

An investor who has and wishes to exploit his stock picking skills should start with a base
portfolio to that of type A investor. He should then adjust the weights of the stocks, which are in
his opinion mispriced. Specifically, he should overweight the stocks that are over valued and
underweighted those which are under value. For example, the base portfolio may have 2% in
stock X and 1.5% in stock Y. the investor who finds X under valued and Y over valued may
change the weights to 3% to X, he may have a portfolio. This may not be legally or practically
possible. The investor than has to raise the weight X to 4%, eliminate Y from the portfolio and
reduce the weight of some other stocks by 0.5%.
The investor can deal with this problem in a slightly different manner. He can put, say 90% of his
equity investment in the diversified portfolio and reserve the remaining 10% for the mispriced
stocks. How large a fraction he should devote to mispriced scripts depends on how good analyst
may choose a larger fraction. What we are doing in this decision is to balance to profit potential
of investing is undervalued stocks against the benefits of diversification. Unless we are confident
about our analysis, we should give privacy to the need for diversification.
Since the average beta of the undervalued and overvalued stocks is likely to be closed to one, the
overall beta is likely to remain close to the target value, unless the target beta is substantially
different from one and the percentage of the portfolio devoted to mispriced stocks is large. If, for
some reason, this is not so, the investor would have to take future action to maintain to the beta
at the largest value. The portfolio of the type B investor is concentrated but has a constant beta.
Type C Investor: Only market timing skills
The type C investor holds a well-diversified portfolio but switches actively between defensive
and offensive portfolios to take advantage of the market timing. If the expects the market to rise,
he should push his portfolio beta above his target level by any of the techniques described in the
section on market timing. The converse should be done if the investor is bearish about the
market. In either case, the portfolio would remain diversified all through. The portfolio of this
investor diversified, but its beta is managed and not constant.
Type D Investor: Both stock picking and market timing skills

This type of investor would use the techniques used by both the type B and type C investor.
These investors would have the most active and aggressive portfolio management strategies.
Using their superior ability to predict boom and busts in the markets as a whole and their skills in
identifying undervalued scrips, they should hold highly concentrated portfolios and let the beta
fluctuate quiet sharply around the long run target value.
A pitfall be a very strenuously avoided is that of assuming that one has a skill,
which one in reality does not have. For example, an investor who does not have very good
abilities in script selection may still think that he does not have suck stills. He would then end up
with an ill-diversified portfolio, which earns mediocre returns: he would have been better off
with a passive portfolio.

Qualities for successful investing

Contrary thinking
Patience
Composure
Flexibility and
Openness

Discounted cash flow (DCF) method of time adjusted technique

An important technique used by ICICI direct.com for evaluating their shares for trading purpose.
The discounted cash flow technique is an improvement on the pay-back period method. It takes
into account both the interest factor as well as the return after pay-back period. The method
involves three stages:
1. Calculation of cash flow, i.e. both inflows and out flows (preferable after tax) over the full life
of the asset.
2. Discounting the cash flow so calculated by a discount factor.
3. Aggregating of discounted cash inflows and out comparing the total with discounted cash out
flow
Discounted cash flow thus recognizes that Re1 of day (the cash out flow) is worth more than Re1
received at a future date (cash inflow). Discounted cash flow method s for evaluating capital
investment proposal is of three types as explained below:
(a)

NPV method.

(b) Excess present value index

(c)
(a)

Internal rate of return.

The net present value (NPV) method:

In this method cash inflow and cash outflows associated with each project are first worked out.
The present value pt these cash inflows and outflows are then calculated at the rate of return
acceptable to the management. This rate of return is considered as the cut-off rate and is
generally determined on the basis of cost of capital suitable adjusted to allow for the risk element
involved in the project. Cost outflows represent the investment and commitments of cash in the
project at various point of time. The working capital is taken as a cash outflow in the year the
project starts. Commercial production profit after tax but before depreciation represents cash
inflow. Thee Net Present Value (NPV) is the difference between the total present value of future
cash inflows and the total present value of future cash outflows.
(b) Excess present value index:

This is refinement of the net present value index method. Instead of working out the net present
value, a present index is found out by comparing the total of present value of future cash inflows
and the total of the present value of future cash outflows.
(c) Internal Rate of Return:
IRR is that at which the sum of discounted cash inflows equals the sun of discounted cash
outflows. In other words, it is the rate which discounts their dash flows to zero. It can be started
in the form of a ratio as follows.
Cash inflows
Cash outflows

=1

As for the technique followed shows only for the present value or an limited time period where
as the technique followed in analysis for portfolio building takes into account all he long term
capital gains.

DATA COLLECTION AND ANALYSIS

Symbol

Date

Open
Price

Close
Price

INFOSYSTCH

2-Mar-10

2631.55

2641

INFOSYSTCH

3-Mar-10

2651.1

2666.25

INFOSYSTCH

4-Mar-10

2662

2623.8

INFOSYSTCH

5-Mar-10

2633.9

2635.7

INFOSYSTCH

8-Mar-10

2653

2659.55

INFOSYSTCH

9-Mar-10

2650.05

2683.95

INFOSYSTCH

10-Mar-10

2674.9

2659.25

INFOSYSTCH

11-Mar-10

2665

2682.95

INFOSYSTCH

12-Mar-10

2699.9

2673.25

INFOSYSTCH

15-Mar-10

2654.4

2701.25

returns
0.359
0.571
-1.435
0.068
0.247
1.279
-0.585
0.674
-0.987
1.765

avg
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016

dif
0.375
0.587
-1.419
0.084
0.263
1.295
-0.569
0.689
-0.971
1.781

dif2
0.140
0.345
2.015
0.007
0.069
1.677
0.324
0.475
0.944
3.171

INFOSYSTCH

16-Mar-10

2700

2732.35

INFOSYSTCH

17-Mar-10

2735

2738.3

INFOSYSTCH

18-Mar-10

2740

2787.6

INFOSYSTCH

19-Mar-10

2780.1

2772.35

INFOSYSTCH

22-Mar-10

2752.1

2757.4

INFOSYSTCH

23-Mar-10

2770.05

2775.5

INFOSYSTCH

25-Mar-10

2771

2813.95

INFOSYSTCH

26-Mar-10

2816

2774.85

INFOSYSTCH

29-Mar-10

2758

2716.65

INFOSYSTCH

30-Mar-10

2715

2644.1

INFOSYSTCH

31-Mar-10

2653.9

2615.95

1.198
0.121
1.737
-0.279
0.193
0.197
1.550
-1.461
-1.499
-2.611
-1.430
-0.016

-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016
-0.016

1.214
0.136
1.753
-0.263
0.208
0.212
1.566
-1.446
-1.484
-2.596
-1.414

1.473
0.019
3.073
0.069
0.043
0.045
2.451
2.090
2.201
6.738
2.000
29.36
9

Risk=d2/n
=29.369/21
= 1.1825

INTERPRETATION:
The above graph shows individual return and risk as well as portfolio return and risk calculated
using Markowitz theory .this portfolio consist of one securities Infosys whose average returns are
-0.016.

Symbol

Date

Open
Price

Close
Price

WIPRO

2-Mar-10

675

701.25

WIPRO

3-Mar-10

705

698.5

WIPRO

4-Mar-10

697.5

693.75

WIPRO

5-Mar-10

695

685.85

WIPRO

8-Mar-10

687

697.7

WIPRO

9-Mar-10

702

702.05

WIPRO

10-Mar-10

702

696.3

WIPRO

11-Mar-10

702

709.4

WIPRO

12-Mar-10

714.8

710.05

WIPRO

15-Mar-10

715

728.65

WIPRO

16-Mar-10

731

727.7

WIPRO

17-Mar-10

734

739.1

WIPRO

18-Mar-10

745

728.95

WIPRO

19-Mar-10

731.9

726.5

WIPRO

22-Mar-10

719.7

728

WIPRO

23-Mar-10

720

720.25

WIPRO

25-Mar-10

715

719.15

return avera
s
ge
dif
D2
3.889
0.062
3.827 14.645
-0.922
0.062 -0.984
0.968
-0.538
0.062 -0.600
0.360
-1.317
0.062 -1.379
1.900
1.557
0.062
1.495
2.237
0.007
0.062 -0.055
0.003
-0.812
0.062 -0.874
0.764
1.054
0.062
0.992
0.984
-0.665
0.062 -0.727
0.528
1.909
0.062
1.847
3.412
-0.451
0.062 -0.513
0.264
0.695
0.062
0.633
0.400
-2.154
0.062 -2.216
4.912
-0.738
0.062 -0.800
0.640
1.153
0.062
1.091
1.191
0.035
0.062 -0.027
0.001
0.580
0.062
0.518
0.269

WIPRO

26-Mar-10

726

717.5

WIPRO

29-Mar-10

718

715.6

WIPRO

30-Mar-10

710

701.6

WIPRO

31-Mar-10

702

706.95

Risk= d2/n
=37.118/21
=1.3294

-1.171
-0.334
-1.183
0.705
0.062

0.062
0.062
0.062
0.062

-1.233
-0.396
-1.245
0.643

1.520
0.157
1.550
0.414
37.118

Symbol

HDFCBANK

HDFCBANK

Date

2-Mar-10

3-Mar-10

Open
Price

1724

1742.55

Close
Price

Return
s

AVG

1744.95

1644.9
5

1736.8
81

1776.65

1676.6
5

1736.8
81
1736.8
81

HDFCBANK

4-Mar-10

1775

1781.15

1681.1
5

HDFCBANK

5-Mar-10

1785.55

1784

1684

1736.8
81

HDFCBANK

8-Mar-10

1810

1784.2

1684.2

1736.8
81

1711.2

1736.8
81
1736.8
81
1736.8
81

HDFCBANK

9-Mar-10

1775

1811.2

HDFCBANK

10-Mar-10

1812

1814.45

HDFCBANK

11-Mar-10

1816

1826.95

1714.4
5
1726.9
5

1736.8
81
1736.8
81
1736.8

HDFCBANK

12-Mar-10

1827

1801.25

1701.2
5

HDFCBANK
HDFCBANK

15-Mar-10
16-Mar-10

1780
1805

1812.55
1804.6

1712.5
5
1704.6

Dif
91.93
1
60.23
1
55.73
1
52.88
1
52.68
1
25.68
1
22.43
1
-9.931
35.63
1
24.33
1
-

d2
8451.3
09
3627.7
73
3105.9
44
2796.4
2775.2
88
659.51
38
503.14
98
98.624
76
1269.5
68
591.99
76
1042.0

81

HDFCBANK

17-Mar-10

1804.6

1807.7

1707.7

1736.8
81

HDFCBANK

18-Mar-10

1812.4

1800.9

1700.9

1736.8
81

HDFCBANK

19-Mar-10

1814.8

1819.85

1719.8
5

HDFCBANK

22-Mar-10

1802

1837.1

1737.1

HDFCBANK

23-Mar-10

1835

1884

HDFCBANK

25-Mar-10

1880

1926.15

HDFCBANK

26-Mar-10

1931

1951.45

HDFCBANK

29-Mar-10

1628.85

1965.05

HDFCBANK

30-Mar-10

1965

1906.85

1784
1826.1
5
1851.4
5
1865.0
5
1806.8
5

HDFCBANK

31-Mar-10

1900

1933.5

Risk= d2/n
=81331.29/21
=62.2327

1833.5
1736.8
81

1736.8
81
1736.8
81
1736.8
81
1736.8
81
1736.8
81
1736.8
81
1736.8
81
1736.8
81

32.28
1
29.18
1
35.98
1
17.03
1
0.219
47.11
9
89.26
9
114.5
69
128.1
69
69.96
9
96.61
9

63
851.53
08
1294.6
32
290.05
5
0.0479
61
2220.2
7968.9
54
13126.
06
16427.
29
4895.6
61
9335.2
31
81331.
29

Symbol

Date

Open
Price

Close
Price

ICICIBANK

2-Mar-10

885.1

897.15

ICICIBANK

3-Mar-10

899.9

908.35

ICICIBANK

4-Mar-10

906

898.4

ICICIBANK

5-Mar-10

898.1

901.75

ICICIBANK

8-Mar-10

910

923.75

ICICIBANK

9-Mar-10

922

925.15

ICICIBANK

10-Mar-10

925

917.8

ICICIBANK

11-Mar-10

915

930.85

ICICIBANK

12-Mar-10

935.05

936.65

ICICIBANK

15-Mar-10

930

923.75

ICICIBANK

16-Mar-10

921

930.5

ICICIBANK

17-Mar-10

935

948.55

ICICIBANK

18-Mar-10

950.05

963.65

ICICIBANK

19-Mar-10

963

956.55

ICICIBANK

22-Mar-10

949

935.25

ICICIBANK

23-Mar-10

939

925.5

ICICIBANK

25-Mar-10

920

933.85

ICICIBANK

26-Mar-10

939

947.5

ICICIBANK

29-Mar-10

945

952.6

ICICIBANK

30-Mar-10

956.1

959.8

ICICIBANK

31-Mar-10

964.8

952.5

Risk= d2/n
=23.189/21
=1.0508

return avera
s
ge
dif
d2
1.361
0.326
1.035
1.072
0.939
0.326
0.613
0.376
-0.839
0.326 -1.165
1.357
0.406
0.326
0.080
0.006
1.511
0.326
1.185
1.404
0.342
0.326
0.016
0.000
-0.778
0.326 -1.104
1.220
1.732
0.326
1.406
1.978
0.171
0.326 -0.155
0.024
-0.672
0.326 -0.998
0.996
1.031
0.326
0.705
0.498
1.449
0.326
1.123
1.262
1.432
0.326
1.106
1.222
-0.670
0.326 -0.996
0.992
-1.449
0.326 -1.775
3.150
-1.438
0.326 -1.764
3.111
1.505
0.326
1.179
1.391
0.905
0.326
0.579
0.335
0.804
0.326
0.478
0.229
0.387
0.326
0.061
0.004
-1.275
0.326 -1.601
2.563
23.18
0.326
9

Symbol

Date

Open
Price

Close
Price

TATASTEEL

2-Mar-10

581.15

608.9

TATASTEEL

3-Mar-10

610

608.2

TATASTEEL

4-Mar-10

610

617.55

TATASTEEL

5-Mar-10

620

618.1

TATASTEEL

8-Mar-10

623.65

621.75

TATASTEEL

9-Mar-10

620

614.7

TATASTEEL

10-Mar-10

616.05

612.2

TATASTEEL

11-Mar-10

612

608.3

TATASTEEL

12-Mar-10

610

607.55

TATASTEEL

15-Mar-10

605.2

610.05

TATASTEEL

16-Mar-10

610.9

627.2

TATASTEEL

17-Mar-10

536

632.1

TATASTEEL

18-Mar-10

635

639.2

TATASTEEL

19-Mar-10

640.5

644.25

TATASTEEL

22-Mar-10

636.15

629.05

TATASTEEL

23-Mar-10

632

637.95

TATASTEEL

25-Mar-10

637

638.2

TATASTEEL

26-Mar-10

640

644.1

TATASTEEL

29-Mar-10

639.8

643.55

TATASTEEL

30-Mar-10

645

634.75

TATASTEEL

31-Mar-10

635

632.05

return
s

avera
ge

4.775
-0.295
1.238
-0.306
-0.305
-0.855
-0.625
-0.605
-0.402
0.801
2.668
17.92
9
0.661
0.585
-1.116
0.941
0.188
0.641
0.586
-1.589
-0.465

1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164

1.164

Risk= d2/n
=333.438/21
=3.9847

1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164

dif
3.611
-1.459
0.074
-1.470
-1.469
-2.019
-1.789
-1.769
-1.566
-0.363
1.504
16.76
5
-0.503
-0.579
-2.280
-0.223
-0.976
-0.523
-0.578
-2.753
-1.629

d2
13.03
9
2.129
0.005
2.162
2.157
4.076
3.200
3.128
2.451
0.131
2.263
281.0
69
0.253
0.335
5.199
0.050
0.952
0.274
0.334
7.580
2.652
333.4
38

Symbol

Date

Open
Price

Close
Price

SAIL

2-Mar-10

220

224.9

SAIL

3-Mar-10

225.4

226.6

SAIL

4-Mar-10

226.6

237

SAIL

5-Mar-10

238.85

234.5

SAIL

8-Mar-10

236.5

238

SAIL

9-Mar-10

238.05

233.7

SAIL

10-Mar-10

233

233.9

SAIL

11-Mar-10

234.25

235.35

SAIL

12-Mar-10

236

234.2

SAIL

15-Mar-10

236.9

229.85

SAIL

16-Mar-10

230

236.35

SAIL

17-Mar-10

238

239.65

SAIL

18-Mar-10

241

244.8

SAIL

19-Mar-10

248

247.3

SAIL

22-Mar-10

244.45

239.4

SAIL

23-Mar-10

241

242.15

SAIL

25-Mar-10

241.65

242.85

SAIL

26-Mar-10

244.5

244.05

SAIL

29-Mar-10

243.9

243.25

SAIL

30-Mar-10

246

244.2

SAIL

31-Mar-10

246.5

252.55

return
s
2.227
0.532

avera
ge
0.304
0.304

dif
1.923
0.228

4.590
-1.821
0.634
-1.827
0.386
0.470
-0.763

0.304
0.304
0.304
0.304
0.304
0.304
0.304

4.286
-2.125
0.330
-2.131
0.082
0.166
-1.067

-2.976
2.761
0.693
1.577
-0.282
-2.066
0.477
0.497
-0.184
-0.267
-0.732
2.454

0.304
0.304
0.304
0.304
0.304
0.304
0.304
0.304
0.304
0.304
0.304
0.304

-3.280
2.457
0.389
1.273
-0.586
-2.370
0.173
0.193
-0.488
-0.571
-1.036
2.150

0.304

Risk= d2/n
= 63.311/21
= 1.736

d2
3.699
0.052
18.36
6
4.517
0.109
4.543
0.007
0.027
1.138
10.75
8
6.036
0.152
1.620
0.344
5.616
0.030
0.037
0.238
0.325
1.073
4.624
63.31
1

Symbol

Date

Open
Price

Close
Price

BPCL

2-Mar-10

571

540.95

BPCL

3-Mar-10

542

541.9

BPCL

4-Mar-10

541

534.9

BPCL

5-Mar-10

536.8

540.25

BPCL

8-Mar-10

543

541.9

BPCL

9-Mar-10

546

536.45

BPCL

10-Mar-10

537

537.15

BPCL

11-Mar-10

536

530.05

BPCL

12-Mar-10

536

526.75

BPCL

15-Mar-10

537

528.2

BPCL

16-Mar-10

530

545.25

BPCL

17-Mar-10

547

538

BPCL

18-Mar-10

525

526.7

BPCL

19-Mar-10

530

522.6

BPCL

22-Mar-10

516

517.5

BPCL

23-Mar-10

529.7

511.6

BPCL

25-Mar-10

517

505.15

BPCL

26-Mar-10

505.15

510.1

BPCL

29-Mar-10

520

526.9

BPCL

30-Mar-10

530

522.1

BPCL

31-Mar-10

526

518.05

retuns

avera
ge

dif

-5.263
-0.018
-1.128
0.643
-0.203
-1.749
0.028
-1.110
-1.726
-1.639

-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863

-4.400
0.845
-0.265
1.506
0.660
-0.886
0.891
-0.247
-0.863
-0.776

2.877
-1.645
0.324
-1.396
0.291
-3.417
-2.292
0.980
1.327
-1.491
-1.511

-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863

3.740
-0.782
1.187
-0.533
1.154
-2.554
-1.429
1.843
2.190
-0.628
-0.648

-0.863

Risk= d2/n
= 61.028/21
= 1.704

d2
19.35
7
0.713
0.070
2.267
0.436
0.785
0.794
0.061
0.744
0.602
13.99
0
0.612
1.409
0.284
1.331
6.523
2.042
3.396
4.796
0.394
0.420
61.02
8

Symbol

Date

Open
Price

Close
Price

HINDPETRO

2-Mar-10

349.7

338.55

HINDPETRO

3-Mar-10

340.5

341.85

HINDPETRO

4-Mar-10

341.85

339.75

HINDPETRO

5-Mar-10

342.4

340.6

HINDPETRO

8-Mar-10

345

344.3

HINDPETRO

9-Mar-10

345

342.2

HINDPETRO

10-Mar-10

342.5

339.1

HINDPETRO

11-Mar-10

341.1

331.25

HINDPETRO

12-Mar-10

331.25

331.95

HINDPETRO

15-Mar-10

332

328.1

HINDPETRO

16-Mar-10

331.7

334.05

HINDPETRO

17-Mar-10

335

331.25

HINDPETRO

18-Mar-10

328.65

323.35

HINDPETRO

19-Mar-10

325

321.35

HINDPETRO

22-Mar-10

315

317.6

HINDPETRO

23-Mar-10

317.7

313.45

HINDPETRO

25-Mar-10

313.5

308.15

HINDPETRO

26-Mar-10

311.9

310.1

HINDPETRO

29-Mar-10

316

320.4

HINDPETRO

30-Mar-10

320.4

316.9

HINDPETRO

31-Mar-10

317

318.55

return
s
-3.188
0.396
-0.614
-0.526
-0.203
-0.812
-0.993
-2.888
0.211
-1.175
0.708
-1.119
-1.613
-1.123
0.825
-1.338
-1.707
-0.577
1.392
-1.092
0.489
-0.712

Risk= d2/n
=26.496/21
= 1.123

avera
ge
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712

dif
-2.476
1.108
0.098
0.186
0.509
-0.100
-0.281
-2.176
0.923
-0.463
1.420
-0.407
-0.901
-0.411
1.537
-0.626
-0.995
0.135
2.104
-0.380
1.201

d2
6.133
1.229
0.010
0.035
0.259
0.010
0.079
4.734
0.853
0.214
2.018
0.166
0.811
0.169
2.364
0.392
0.989
0.018
4.429
0.145
1.442
26.49
6

Symbol

Date

Open
Price

Close
Price

BHEL

2-Mar-10

2382

2428.1

BHEL

3-Mar-10

2442

2455.85

BHEL

4-Mar-10

2460.05

2446.65

BHEL

5-Mar-10

2454.3

2429.05

BHEL

8-Mar-10

2440

2431

BHEL

9-Mar-10

2439

2423.5

BHEL

10-Mar-10

2411

2432.45

BHEL

11-Mar-10

2430

2422.45

BHEL

12-Mar-10

2404

2379.45

BHEL

15-Mar-10

2380

2367.6

BHEL

16-Mar-10

2369

2379.55

BHEL

17-Mar-10

2384.7

2378.7

BHEL

18-Mar-10

2390

2383.45

BHEL

19-Mar-10

2388

2373.95

BHEL

22-Mar-10

2350

2333.65

BHEL

23-Mar-10

2349

2356.95

BHEL

25-Mar-10

2352.1

2381.95

BHEL

26-Mar-10

2389

2361.65

BHEL

29-Mar-10

2368

2394.8

BHEL

30-Mar-10

2400

2408.7

BHEL

31-Mar-10

2416.9

2390.65

return
s
1.935
0.567
-0.545
-1.029
-0.369
-0.636
0.890
-0.311
-1.021
-0.521
0.445
-0.252
-0.274
-0.588
-0.696
0.338
1.269
-1.145
1.132
0.362
-1.086
-0.073

Risk= d2/n
= 14.847/21
= 0.840

avera
ge
dif
-0.073
2.008
-0.073
0.640
-0.073 -0.472
-0.073 -0.956
-0.073 -0.296
-0.073 -0.563
-0.073
0.963
-0.073 -0.238
-0.073 -0.948
-0.073 -0.448
-0.073
0.518
-0.073 -0.179
-0.073 -0.201
-0.073 -0.515
-0.073 -0.623
-0.073
0.411
-0.073
1.342
-0.073 -1.072
-0.073
1.205
-0.073
0.435
-0.073 -1.013

d2
4.033
0.410
0.223
0.914
0.088
0.316
0.927
0.057
0.899
0.201
0.269
0.032
0.040
0.266
0.388
0.169
1.801
1.149
1.451
0.190
1.026
14.84
7

Symbol

Date

Open
Price

Close
Price

TATAMOTORS

2-Mar-10

720

798.05

TATAMOTORS

3-Mar-10

810

809.25

TATAMOTORS

4-Mar-10

808.9

813

TATAMOTORS

5-Mar-10

818

794.25

TATAMOTORS

8-Mar-10

800

797.65

TATAMOTORS

9-Mar-10

785

776.05

TATAMOTORS

10-Mar-10

778

778.75

TATAMOTORS

11-Mar-10

780

770.4

TATAMOTORS

12-Mar-10

773

760.9

TATAMOTORS

15-Mar-10

755

769.1

TATAMOTORS

16-Mar-10

773

786.05

TATAMOTORS

17-Mar-10

789.8

780.5

TATAMOTORS

18-Mar-10

782.7

780.3

TATAMOTORS

19-Mar-10

775.5

783.65

TATAMOTORS

22-Mar-10

777

760.2

TATAMOTORS

23-Mar-10

760

739.3

TATAMOTORS

25-Mar-10

745

725.2

TATAMOTORS

26-Mar-10

731.5

749.75

TATAMOTORS

29-Mar-10

753.1

740.6

TATAMOTORS

30-Mar-10

744.9

755.95

TATAMOTORS

31-Mar-10

758

757.7

return
s
10.84
0
-0.093
0.507
-2.903
-0.294
-1.140
0.096
-1.231
-1.565
1.868
1.688
-1.178
-0.307
1.051
-2.162
-2.724
-2.658
2.495
-1.660
1.483
-0.040
0.099

Risk=d2/n
=170.624/21
= 2.850

avera
ge
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099

dif
10.74
1
-0.192
0.408
-3.002
-0.393
-1.239
-0.003
-1.330
-1.664
1.769
1.589
-1.277
-0.406
0.952
-2.261
-2.823
-2.757
2.396
-1.759
1.384
-0.139

d2
115.3
75
0.037
0.166
9.015
0.154
1.535
0.000
1.768
2.770
3.128
2.526
1.629
0.165
0.906
5.113
7.968
7.599
5.740
3.093
1.917
0.019
170.6
24

returns
1

0.3591
04
0.5714
61
1.4350
1
0.0683
4
0.2468
9
1.2792
21
0.5850
7
0.6735
46
0.9870
7
1.7649
94
1.1981
48
0.1206
58
1.7372
26
0.2787
7
0.1925
8
0.1967
47

avg
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156

dif1
0.3747
7

returns2

0.0840
05

3.8888
89
0.9219
9
0.5376
3
1.3165
5

0.2625
56

1.5574
96

1.2948
87
0.5694

0.0071
23
0.8119
7

0.6892
12
0.9714
1

1.0541
31
0.6645
2

1.7806
6

1.9090
91
0.4514
4

0.5871
27
1.4193
5

1.2138
14
0.1363
24

0.2631

0.6948
23
2.1543
6
0.7378
1

0.2082
46
0.2124
13

1.1532
58
0.0347
22

1.7528
92

avera
ge
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062
0.062

dif2
3.8268
89
0.9839
9
0.5996
3
1.3785
5
1.4954
96
0.0548
8
0.8739
7
0.9921
31
0.7265
2
1.8470
91
0.5134
4
0.6328
23
2.2163
6
0.7998
1
1.0912
58
0.0272

d1*d2

dif22

1.434

14.64
5

-0.578

0.968

0.851

0.360

-0.116

1.900

0.393

2.237

-0.071

0.003

0.498

0.764

0.684

0.984

0.706

0.528

3.289

3.412

-0.623

0.264

0.086

0.400

-3.885

4.912

0.210

0.640

0.227
-0.006

1.191
0.001

1.5499
82
1.4612
9
1.4992
7
2.6114
2
1.4299
7
0.0156
7

7
0.0156
7
0.0156
7
0.0156
7
0.0156
7
0.0156
7

8
1.5656
48
1.4456
3
1.4836
1
2.5957
5
1.4143
1

0.5804
2

0.062

1.1708
0.3342
6

0.5184
2

0.812

0.269

1.782

1.520

0.588

0.157

0.062

1.2328
0.3962
6

1.1831

0.062

1.2451

3.232

1.550

0.7051
28

0.062

0.6431
28

-0.910

0.414

8.604

37.11
8

0.062

0.0619
36

COV =D1*D2/D22
=8.604/37.118
=0.2318
Correlation co-efficient:R1, 2=cov1, 2/1 2
= 0.2318/1.1825*1.3294
= 0.1474
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*-0.01567+ 0.5*0.061936
= 0.0231
Risk of portfolio: p =(w12 12 +w22 22 +2w1 w2 1 2 r1,2)
= 0.25*1.3983 +0.25*1.7673 +2*0.5*0.5*1.1825*1.3294*0.1474
= 0.9526

Return
s1

AVG

Dif1

return
s2

AVG

DIFF2

D1*D2

D22

91.93
1
60.23
1
55.73
1
52.88
1
52.68
1
25.68
1
22.43
1

1644.9
5

1736.8
81

1676.6
5

1736.8
81

1681.1
5

1736.8
81

1684

1736.8
81

1684.2

1736.8
81

1711.2

1736.8
81

1714.4
5

1736.8
81

1726.9
5

1736.8
81

1701.2
5

1736.8
81

1712.5
5

1736.8
81

1704.6

1736.8
81

1707.7

1736.8
81

1700.9

1736.8
81

1719.8
5

1736.8
81

-9.931
35.63
1
24.33
1
32.28
1
29.18
1
35.98
1
17.03
1

1737.1

1736.8
81

0.219

1784
1826.1

1736.8
81
1736.8

47.11
9
89.26

97.80
0
97.76
4
97.74
9
97.76
8
97.73
9
97.70
9
97.70
2
97.72
7
97.67
7
97.69
0
97.71
2
97.67
7
97.64
0
97.60
8
97.64
3
97.66
8
-

0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326
0.326

98.12
6
98.09
0
98.07
5
98.09
4
98.06
5
98.03
5
98.02
8
98.05
3
98.00
3
98.01
6
98.03
8
98.00
3
97.96
6
97.93
4
97.96
9
97.99
4
-

9020.8
57

9628.7
89

5908.0
39

9621.5
83

5465.7
94

9618.6
2

5187.3
22

9622.4
82

5166.1
54

9616.7
15

2517.6
39

9610.8
79

2198.8
59

9609.4
28

973.76
03

9614.3
11

3491.9
39

9604.5
56

2384.8
16

9607.0
49

3164.7
64

9611.4
44

2859.8
33

9604.6
37

3524.9
12

9597.3
22

1667.9
11
21.455
2
4617.3
6
-

9591.0
31
9597.8
79
9602.7
57
9612.0

81

1851.4
5

1736.8
81

114.5
69

1865.0
5

1736.8
81

128.1
69

1806.8
5

1736.8
81

69.96
9

1833.5

1736.8
81

96.61
9

97.71
5
97.66
8
97.65
3
97.62
6
97.60
4
97.69
2

1736.8
81

0.326
0.326
0.326
0.326

98.04
1
97.99
4
97.97
9
97.95
2
97.93
0

8752.0
2
11227.
1
12557.
9
6853.5
8

31
9602.7
92
9599.9
05
9594.5
16

9461.9

9590.2
95

41.343
08

201759

COV =D1*D2/D22
=41.343/201759
=2.0491
Correlation co-efficient:R1, 2=cov1, 2/
= 2.0491/62.2327*1.0508
= 0.0313
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*1736.881+ 0.5*-97.692
= 917.2865
Risk of portfolio: p =(w12 12 +w22 22 +2w1 w2 1 2 r1,2)
=

0.25*3873.1765

0.25*1.1041

2*0.5*0.5*62.2327*1.0508*0.0313
= 31.1382
returns
1

4.7750
15

avera
ge

dif1
3.6110
1.164
15

returns
2

2.2272
73

avera
ge

dif2
D1*D2
D22
1.9232
0.304
73
6.945
3.699

0.2950
8
1.2377
05
0.3064
5
0.3046
6
0.8548
4
0.6249
5
0.6045
8
0.4016
4
0.8013
88
2.6681
94
17.929
1
0.6614
17
0.5854
8
1.1160
9

1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164
1.164

0.9414
56

1.164

0.1883
83

1.164

0.6406
25
0.5861

1.164
1.164

1.4590
8
0.0737
05
1.4704
5
1.4686
6
2.0188
4
1.7889
5
1.7685
8
1.5656
4
0.3626
1
1.5041
94
16.765
1
0.5025
8
0.5785
2
2.2800
9
0.2225
4
0.9756
2
0.5233
7
-

0.5323
87
4.5895
85
1.8212
3
0.6342
49
1.8273
5
0.3862
66
0.4695
84
0.7627
1
2.9759
4
2.7608
7
0.6932
77
1.5767
63
0.2822
6
2.0658
6
0.4771
78
0.4965
86
0.1840
5
-

0.304
0.304
0.304

0.2283
87
4.2855
85
2.1252
3

0.304

0.3302
49
2.1313
5

0.304

0.0822
66

0.304

0.304
0.304
0.304
0.304
0.304

0.1655
84
1.0667
1
3.2799
4
2.4568
7
0.3892
77

0.304

1.2727
63
0.5862
6
2.3698
6

0.304

0.1731
78

0.304
0.304

0.304
0.304
0.304

0.1925
86
0.4880
5
-

-0.333
0.316

0.052
18.36
6

3.125

4.517

-0.485

0.109

4.303

4.543

-0.147

0.007

-0.293

0.027

1.670

1.138

1.189

10.75
8

3.696

6.036

6.526

0.152

-0.640

1.620

0.339

0.344

5.403

5.616

-0.039

0.030

-0.188

0.037

0.255
0.330

0.238
0.325

21
1.5891
5
0.4645
7
1.1644
23

0.5778
8
2.7531
5
1.6285
7

1.164
1.164

0.2665
0.7317
1
2.4543
61
0.3038
46

0.304

0.5705
1.0357
1

0.304

2.1503
61

2.851

1.073

-3.502
31.32
3

4.624
63.31
1

COV =D1*D2/D22
=31.323/63.311
= 0.4947
Correlation co-efficient:R1, 2=cov1, 2/
= 0.4947/3.9847*1.73 = 0.0715
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*1.1644 + 0.5*0.3038
= 0.7341
Risk of portfolio: p =(w12 12 +w22 22 +2w1 w2 1 2 r1,2)
= 0.25*15.877 + 0.25*3.0136 + 2*0.5*0.5*3.9847*1.736*0.0715
= 2.229

retuns1
5.2627
0.0184
5
1.1275
4
0.6426
97
0.2025

avera
ge
-0.863
-0.863
-0.863
-0.863
-0.863

returns
dif1
4.3997
0.8445
5
0.2645
4
1.5056
97
0.6604
22

3.1884
5
0.3964
76
0.6143
0.5257
0.2029

avera
ge

dif2

D1*D2

D22

-0.712

2.4764
5

10.89
6

6.133

-0.712

1.1084
76

0.936

1.229

-0.026

0.010

0.281
0.336

0.035
0.259

-0.712
-0.712
-0.712

0.0976
95
0.1862
99
0.5091
01

8
1.7490
8
0.0279
33
1.1100
7
1.7257
5
1.6387
3
2.8773
58
1.6453
4
0.3238
1
1.3962
3
0.2906
98
3.4170
3
2.2920
7
0.9799
07
1.3269
23
1.4905
7
1.5114
1
0.8627
7

-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863
-0.863

0.8860
8
0.8909
33
0.2470
7
0.8627
5
0.7757
3
3.7403
58
0.7823
4
1.1868
1
0.5332
3
1.1536
98
2.5540
3
1.4290
7
1.8429
07
2.1899
23
0.6275
7
0.6484
1

0.8115
9
0.9927
2.8877
2
0.2113
21
1.1747
0.7084
72
1.1194
1.6126
6
1.1230
8
0.8253
97
1.3377
4
1.7065
4
0.5771
1
1.3924
05
1.0923
8
0.4889
59
0.7116
2

-0.712

0.0995
9
0.2807
2.1757
2

-0.712

0.9233
21

-0.712
-0.712

-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712
-0.712

0.4627
1.4204
72
0.4074
0.9006
6
0.4110
8
1.5373
97
0.6257
4
0.9945
4

-0.712

0.1348
92
2.1044
05
0.3803
8

-0.712

1.2009
59

-0.712
-0.712

0.088

0.010

-0.250

0.079

0.538

4.734

-0.797

0.853

0.359

0.214

5.313

2.018

0.319

0.166

-1.069

0.811

0.219

0.169

1.774

2.364

1.598

0.392

1.421

0.989

0.249

0.018

4.608

4.429

0.239

0.145

-0.779

1.442

26.25
3

26.49
6

COV =D1*D2/D22
=26.253/26.496
= 0.9908
Correlation co-efficient:R1, 2=cov1, 2/
= 0.9908/1.704*1.123
= 0.5177
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*-0.8627 + 0.5*-0.7116
= 0.78715
Risk of portfolio: p =(w12 12 +w22 22 +2w1 w2 1 2 r1,2)
= 0.25*2.9036 + 0.25*1.2611 + 2*0.5*0.5*1.704*1.123*0.5177
= 1.2395
returns
1

1.9353
48
0.5671
58
0.5447
1.0288
1
0.3688
5
0.6355
1
0.8896
72
0.3107
-

avera
ge

returns

dif1
2.0083
-0.073
48

-0.073

0.6401
58
0.4717
0.9558
1
0.2958
5
0.5625
1
0.9626
72

-0.073
-0.073

0.2377
-

-0.073
-0.073
-0.073
-0.073
-0.073

10.840
28
0.0925
9
0.5068
61
2.9034
2
0.2937
5
1.1401
3
0.0964
01
1.2307
7
-

avera
ge
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099

dif2
D1*D2
D22
10.741 21.57
28
2
115.375
0.1915
9 -0.123
0.037
0.4078
61 -0.192
0.166
3.0024
2 2.870
9.015
0.3927
5 0.116
0.154
1.2391
3 0.697
1.535
0.0026 -0.003
7E-06
1.3297
7 0.316
1.768
- 1.578
2.770

1.0212
1
0.5210
1
0.4453
36
0.2516
0.2740
6
0.5883
6
0.6957
4
0.3384
42
1.2690
79
1.1448
3

-0.073
-0.073

0.9482
1
0.4480
1
0.5183
36

-0.073

0.1786
0.2010
6
0.5153
6
0.6227
4

-0.073

0.4114
42

-0.073
-0.073
-0.073

-0.073

1.3420
79
1.0718
3

1.1317
57

-0.073

1.2047
57

0.3625

-0.073

0.4355

-0.073

1.0131

1.0861
0.0729
6

-0.073

COV =D1*D2/D22
=19.286/170.624
= 0.1130
Correlation co-efficient:-

1.5653
3
1.8675
5
1.6882
28
1.1775
1
0.3066
3
1.0509
35
2.1621
6
2.7236
8
2.6577
2
2.4948
74
1.6598
1
1.4834
21
0.0395
8
0.0988
32

1.6643
3
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099
0.099

1.7685
5
1.5892
28
1.2765
1
0.4056
3
0.9519
35
2.2611
6
2.8226
8
2.7567
2
2.3958
74
1.7588
1
1.3844
21
0.1385
8

-0.792

3.128

0.824

2.526

0.228

1.629

0.082

0.165

-0.491

0.906

1.408

5.113

-1.161

7.968

-3.700

7.599

-2.568

5.740

-2.119

3.093

0.603

1.917

0.140

0.019

19.28
6

170.624

R1, 2=cov1, 2/
= 0.1130/0.840*2.850
= 0.4720
Returns of portfolio =
Rp1 = w1 r1 + w2 r2
= 0.5*-0.0729 + 0.5*0.0988
= 0.08585
Risk of portfolio: p =(w12 12 +w22 22 +2w1 w2 1 2 r1,2)
= 0.25*0.7056 + 0.25*8.1225 + 2*0.5*0.5* 0.840*2.850*0.4720
= 1.6649

FINDINGS
Present project work has been undertaken to construct a portfolio using Markowitz theory .
Markowitz theory in applied to construct a portfolio using only two securities. According to this
theory five securities were selected from profitable sectors, their retunes were calculated using
previous and current prices. Using their returns risks are calculated during the project work
following facts were found.

Axis is a profit making company from banking industry which is having a returns of
13.5% and risk 59%. Both returns and risk are very high for this company.
SBI is a profit making bank from banking industry which is having a return of 54% and
risk only 28%. Comparing the risk and returns, risk is less for this return.
ICICI is the another bank but an MNC which is having a return of 56% and risk of
28.6%. comparing SBI, these are more than that.

 Wipro is a good company from IT sector but its returns are negative i.e.; -13.9% and risk
is 24.5% which is very high for the returns.
Herohonda is a very good automobile company having a return of 24.6% and risk of
31.59% which is very high for these returns.

All five securities have corresponding returns and risk. These risks are used to calculate the
covariance for various combinations using two securities each time and correlation co-efficient.
The values are as follows.

portfolio name
Infosys &
wipro
Hdfc & Icici
Tata steel &
Sail
Bpcl & Hin
Bhel & Tata
motors

returns

risk

0.0231
917.2865

0.9526
31.1382

0.7341
0.78715

2.2293
1.2395

0.08585

1.6649

SUGGESTIONS:
The present project work has been undertaken to identify a best portfolio using different sets
of securities using their returns and risk along with correlation co-efficient on the basis of
analysis and findings, the following suggestions can be made the investors.
1) The best portfolio consists of the two companies Zuari industries and Asian paints with a
portfolio return of 2.177805 and portfolio risk 24.3944.
2) The best portfolio consists of the two companies Aurobindho pharmacy and Dabur
With a portfolio return of 0.43945 and portfolio risk 14.93772
3) The best portfolio consists of the two companies Indian bank and axis bank with a portfolio
return of 0.238295 and portfolio risk 22.9723
4) The best portfolio consists of the two companies California and Satyam software with a
portfolio return of 0.2277115 and portfolio risk 38.23
5) The best portfolio consists of the two companies Tata motors and Maruti suzuki with a
portfolio returns of 0.21949 and portfolio risk 8.3484.

CONCLUSION

The present project work has been undertaken to study the investment opportunities
available to investors.
These avenues are different for different profiles of investors.
However it is very important for an investor to identify the risk associated with the
returns of various securities.

In order to manage the risk associated with the returns one has to construct the
portfolio.

A portfolio is a set of securities which by adding reduces the risk in whole.

In this project work it is seen how the securities can be constructed as a portfolio.

 By using Markowitz theory a portfolio is constructed and the returns and risks are
calculated.
The entire project work is done to identify the best portfolio and it is found the results
are satisfactory.

Bibliography

-S kevin

Portfolio management

-V.K Bhalla

Security analysis and portfolio management.

-Fischer & Jordon

Security management and portfolio management

-V.K. Bhalla & R.M kishore

Websites :
www.nseindia.com
www.bseindia.com
www.icicidirect.com
www.valueresearch.com

Investment