Akash MBA Report

Internship Report
A STUDY ON CONSTRUCTION OF OPTIMAL PORTFOLIO

AT SHAREKHAN LTD, MYSORE.
Submitted By
AKASHA V T
USN: 4MH13MBA04
Submitted to
Visvesvaraya Technological University – Belgaum
In the partial fulfillment of the requirements for the award of degree of
MASTER DEGREE IN BUSINESS ADMINISTRATION
Under The Guidance Of
Internal Guide External Guide

Mr.Nagesh H G Mr. MUDDUKUMAR
Asst. Professor, Assistant Manager
Department of MBA Sharekhan Ltd
MIT Mysore. Mysore.
MAHARAJA INSTITUTE OF TECHNOLOGY –MYSORE

(Affiliated to VTU, Belgaum, Approved by AICTE, New Delhi, Recognized by Govt. of Karnataka)
Department of Post Graduate Studies in Management Science

2013– 2015
DECLARATION
I AKASHA V T, hereby declare that the Internship report entitled “A STUDY ON
CONSTRUCTION OF OPTIMUM PORTFOLIO AT SHAREKHAN

LTD, MYSORE.” Prepared by me under the guidance of Mr.Nagesh.H.G, faculty
M.B.A Department, MIT, Mysore and external guide Mr.Muddukumar, Assistant
manager, Sharekhan ltd, Mysore.
I also declare that this internship work is towards the partial fulfillment of the university
regulations for the award of degree of Master of Business Administration by Visvesvaraya
Technological University, Belgaum.
I have undergone a summer project for a period of Ten weeks. I further declare that this
project is based on the original study undertaken by me and has not been submitted for the
award of any degree from any other University/ Institution.
PLACE: MYSORE (AKASHA V T)

DATE: USN: 4MH13MBA06
ACKNOWLEDGEMENT
It is not possible to prepare a project report without the assistant and encouragement of
other people. On the very outset of this report, I would like to extend my sincere and
heartfelt obligation towards all the persons. Without their active guidance, help,
cooperation, and encouragement, I would not have made headway in the project.
I would thanks to Mr.Nagesh.H.G Assistant Professor, Dept of MBA, Maharaja

Institute of Technology, Mysore. For her continuous guide and help provided in
completing this project.
I would like to express my sincere thanks to Mr.Muddukumar (Assistant Manager, –

Sharekhan ltd, Mysore) who gave me the opportunity to work with such an esteemed
organization. I owe profound sense of regards and gratitude who has continuously
guided me and supported in all the tasks by giving the valuable insight into issues like
the meaning of Receivable management, its uses, Objectives & Tools as well as steps
to be considered in developing and studying and organizational structure. I am also
thankful to the entire employee at Sharekhan,ltd Mysore for their cooperation during
the project period.
My heartfelt thankful to Dr.Y.T.Krishnegowda, Professor, HOD, Dept of MBA,

Maharaja Institute Of Technology for his constant source of inspiration and guidance
throughout this project.
I also express my thankful to Dr. Naresh Kumar B.G, Principle, Maharaja

Institute of Technology – Mysore.
Last but not least I would like to thanks to my family and friends for helping in
completing this project.
DATE: AKASHA V T
PLACE: MYSORE
TABLE OF CONTENTS
Chapter CONTENT Page No.
1. Introduction about the internship

2. Topic chosen for the study
3. Need for the study
4. Objectives and Scope of the study 1-05
1 5. Methodology adopted
6. Literature review
7. Limitations of the study
1. INDUSTRY PROFILE
a. Overview of stock market
b. History 05-11
c. Stock Market in India
2. COMPANY PROFILE
a. Introduction
b. Background & inception of the Company
c. Nature of the Business Carried
d. promoters
e. Vision, Mission& Quality policy
2 f. Product profile
11-20
g. Area of Operation.
h. Infrastructural Facilities
i. Competitors Information
j. Work Flow Model
3. Future Growth and Prospects 20
4. Swot Analysis 22-21
5. Financial statement 22-25
3 Theoretical background of the study 26-33
4 Data analysis & Interpretation 34-59
1. Summary of findings & 60-67

5 suggestions
2. Conclusion 68
Bibliography 69
List of Tables and Graphs
List of Tables
Table Title Of The Table Page
No No
5.1 Balance sheet 22
5.2 Statement of profit and loss 23
5.3 Comparative balance sheet 23-24
5.4 Comparative statement of profit and loss 24-25
2.1 The details regarding the expected return, beta, residual variance of 34
the individual securities.
2.2 Calculation of excess return to beta ratio and assignment of ranks 34
2.3 Calculation of C values. 35
2.4 The securities included in the portfolio 36
2.5 Shows investment pro portion of securities in optimal portfolio 36
2.6 Shows the expected return and the proportion of the investment. 38
2.7 Shows beta, proportion of stock and residual variance of the 38
securities.
2.8 The details regarding the expected return, Beta, Residual variance 39
of the individual securities.
2.12 Shows investment proportion of securities in optimum portfolio 41
2.13 Shows the expected return And proportion of the investment. 43
securities.
securities.
securities.
2.29 The details regarding the Expected return, Residual variance of the 54
individual securities.
2.32 The securities included in the portfolio. 56
2.34 Shows the expected return and the proportion of the investment. 58
securities.
3.1 Shows Expected return, Beta and Proportion of optimum portfolio. 60
LIST OF GRAPHS
Graph Page
TITLE OF THE GRAPH
No No
4.1 Shows the weights on each security (Xi) and relative investment in
each security (Zi). 37
Executive Summary
The conduct of a study at sharekhan Ltd was initiated due to the need for understanding the
nature of organization, its culture, policies, procedures, nature and functioning of different
departments & their interrelationships, its internal & external environment etc.
The objective of the study was to provide a description of overall business operations of the
company along with the contours of the industry.
This study includes the industry profile, company profile, and ownership pattern &
organization structure. SWOT analysis has been undertaken to understand the firm’s
relationship with the external environment.
The objective of the in plant training is to enable a better understanding of the working of
the organization and to develop a comparative approach between the theory subjects and
their practical application.
The methodology employed in collecting information has been direct interactions with
managers, executives and training faculty and reference from websites and annual reports of
the company.
In plant training at sharekhan Ltd was intellectually very stimulating and I had an
opportunity to have a glimpse at the practices of the corporate world.
Second part of the project is about portfolio construction.
It deals with the construction of an optimal portfolio on the basis of risk-return evaluation
based on Sharpe’s single index model.
William F. Sharpe published a model simplifying the mathematical calculations required by

the Markowitz model. William Sharpe extended Markowitz’s work and came up with a
more simplified model; where he considered the fact that relationship between securities
occur only through their individual relationships with some index or indices of business
activity.
In the construction of optimum portfolio, Sharpe advocated that there should be a single
number to measure the desirability of including a security in a portfolio. This measure, he
calls as “Excess of return to beta ratio”.
If stocks are ranked by excess return to beta (from highest to lowest), the ranking represents
the desirability of any stocks selected depends on a unique cut off rate such that all stocks
with higher ratios (Ri-Rf)/Bi will be included and all stocks with lower ratios excluded.
Once an optimum portfolio is constructed, next step is to calculate the percentage invested in
each security in the optimum portfolio.
The main purpose of the study is how to create optimum portfolio in NSE Nifty.
CHAPTER 1:
INTRODUCTION
INTRODUCTION ABOUT THE INTERNSHIP
The project is on about the “A study on construction of optimum portfolio at sharekhan

ltd” portfolio is a combination of various securities such as stock, bond and money
market instrument. The method of mixing along the broad assets classes so as to obtain
optimum return with minimum risk is called portfolio construction.
It is rare to find investors investing their entire savings in single security. Instead, they
have a tendency to take a position in a very cluster of securities such cluster of securities
is called a portfolio. Construction of portfolio helps to reduce risk without sacrificing
returns. Portfolio management deals with the analysis of individual securities moreover
like the idea and practice of optimally combining securities into portfolio. An investor
who understand the fundamental principles and analytical aspects of portfolio
management as a better chance of success.
In a stock Brokerage firm sharekhan limited on the topic “construction of optimum

portfolio at sharekhan ltd” the project is taken by me. The stock market is broader thing
in this I’m choosen the ‘National Stock Exchange Market’ for my analysis of the
securities. I have taken 5 investors that is A, B, C, D, E. By analyzing there fundamental
and technical aspects of the of the each securities of investors and rank them on the basis
of their more return & less risk with this construct a healthy portfolio of securities.
Optimum portfolio is an activity to selecting the group of securities for investing the
money with the high return & minimum risk in investment.
TOPIC CHOSEN FOR STUDY
A STUDY ON CONSTRUCTION OF OPTIMUM PORTFOLIO AT SHAREKHAN

LTD, MYSORE.
NEED FOR THE STUDY

Portfolio is constructed to diversify the risk and maintain perfect negative correlation
between the securities held together. Farming portfolio by selecting securities based on
brand identity and recent performance does not turn in long term. This paper is built
around cooking op the portfolio by balancing the positive and negative correlation
existing between the securities and in turn getting returns closer to the anticipated
results.
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OBJECTIVES OF THE STUDY
• To identify where optimum portfolio accrued & analyzed construct the optimum
portfolio.
• To analyze the risk & return of the security.
• To study the factors to be considered in portfolio selection process.
• To examine & interpret volatility of companies in comparison with the market.
• Guide investors to company that give the maximum return with minimum risk.
SCOPE OF THE STUDY

• The study covers selected companies of nifty index only.
• The selected nifty companies are considered to analyze based on the performance
of past 3 years.
• No alternative factors aside from the share worth movements, index movements’
rate of come back on government securities and beta values for the securities for
past 3 years are taken for analysis.
METHODOLOGY ADOPTED
Research method
Casual research is using ‘Sharpe’s single index model’ is used for the study. The study
was conducted to construct an optimal portfolio.
This study involves more on secondary data that is journals, official records, websites,
newspaper, etc.
In this project a total of 32 companies that is different sectors of NIFTY have been
chosen on their performance of portfolio development.
The study considers only 12 months duration, its starts from January 2014 to December
2014.
Sources of data
Secondary data
• Daily Share market index( sensex, nifty)

• Books
• Company record Articles
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• Research papers and journals Published materials share khan ltd
• websites
www.Nseindia.com
www.moneycontrole.com
www.rediffmoney.com
LITERATURE REVIEW
Article name – optimal portfolio construction in stock market an empirical study

on selected stocks in manufacturing sectors in India
Author name - Dr. Sathya swaroop debasish
Volume no.2, no.2, December 2012
Page number: 2 to 8
Journal name- International journal of business management
Risk and return play an important role in making any investment selections. This study
aims at analyzing the chance that are available for investors as per as returns are
concerned and the investment of risk thereof. Out of 14 companies taken for the study, 3
companies are showing negative return and the other 11 companies are showing positive
returns. With regard to beta values, out of 14 companies elite, only {1} company stock
showed beta on top of 1, indicating that the investments during this stock is
outperforming than the broader market. Finally out of the 14 manufacturing sector stocks
that are included in NSE Nifty, only three stocks namely Hero Motor Corp., Tata Motors
and Asian Paints are included in the Optimal Portfolio constructed in this study with
maximum suggested investment in Hero Motor Corporation. Our study is based on the
Sharpe Single index model and thus limited to the lacunas of this model.
Article name – Sharpe’s single index model and its application portfolio
construction: an empirical study model.
Author name – mr.kapil sen & ms c a disha fattawat
Volume number6, no.6 (2014)
Page number: 1- 6
The construction of optimal Portfolio investment by using Sharpe’s Single Index Model
is easier and more comfortable than by using Markowitz’s Mean-Variance Model. In his
seminar Contribution Sharpe argued that there is a considerable similarity between
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efficient portfolios generated by Markowitz’s Model and SIM. This model can show
how risky a security is, if the protection is control during a well-diversified portfolio.
This study is created on the idea of tiny sample (n=30) i.e.30 sampled securities but the
time duration of the Study is being short i.e. monthly return of four year it gives more
accurate result if time Duration of the study will extend.
Article name: optimal portfolio construction: evidence from Dhaka stock exchange
in Bangladesh.
Author name: mokta rani sarkar
Journal name: world journal of social sciences
Volume no 3, no.6 November 2013, page no, 75-87
Risk and return play an important role in making any investment choices. This study
aims at analyzing the chance that square measure on the market for investors as per as
returns are concerned and the investment of risk thereof while investing in equity of
firms listed in the Dhaka exchange. Sharpe's single-index model was applied by
victimization the monthly closing prices of 164 companies listed in DSE and DSE all
share price index for the period from July 2007 to June 2012. From the empirical
analysis, it will be aforementioned that knowledge coverage of this paper is moreover
satisfactory to make an investment decision because it covers 69.79% of data. Out of 164
companies taken for the study, seven firms square measure showing negative returns and
therefore the different 157 firm’s square measure showing positive returns. Out of 164
companies, 61 companies where market beta is on top of one, show that the investments
in these stocks are outperforming than the market. The study shows that portfolio beta is
significantly lower than the market beta and portfolio return is much higher than the
portfolio variance. And also the framework of Sharpe's single index model for optimum
portfolio construction is very simple and helpful. The results are nearly like the sooner
results (e.g. Paudel and Koirala, 2006; Singh, 2007; Kumar, 2011; Elton et al., 1976; and
Meenakshi and Sarita, 2012). From this empirical analysis, to some extent one can able
to forecast individual security’s come through the market movement and can make use
of it.
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INVESTMENT MANAGEMENT SECURTIES AND PORTFOLIO
MANAGEMENT
Bhalla V.K."
Bhalla V.K." (1997) reviewed the various factors influencing the equity price and price
earnings ratio. He is of the opinion that equity prices are affected primarily by financial
risk considerations that, in turn, have an effect on earnings and dividends. He
collectively expressed that market risk in equity is way bigger than bound, and it
influences the worth conjointly.
ACTIVE PORTFOLIO MANAGEMENT AND PORTFOLIO CONSTRUCTION

IMPLEMENTING AN INVESTMENT STRATEGY
Author: Johan Christian hilsted (December 14th 2012)

The investment strategy of active portfolio management provides inferior return to
investing in the MSCI Denmark. However, maintaining a fixed level of systematic risk
upon portfolio repositioning, portfolio return inferior to the benchmark is justified as the
benchmark demands higher systematic risk in order to generate higher return. In
addition, given portfolio systematic risk exceeds benchmark systematic risk portfolio
return is in such case positively significant. In that regard active portfolio management
adds value to the investor
LIMITATION OF THE STUDY

• In the study only 3 years data has been considered for the construction of optimum
portfolio.
• The time period is limited for 10 weeks only.
• The portfolio is constructed purely on the basis of shape’s model which basically
considers the stock price movements and does not take into consideration company
specific factors, and economic factors. And economic specific factors.
• The study is based on historical factors.
• Limiting factors are confidential in nature.
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CHAPTER 2:
INDUSTRY PROFILE AND
COMPANY PROFILE
INDUSTRY PROFILE
Brokerage industry Overview:
The Securities Brokerage Industry is cyclical and comprised of two distinct types of
businesses. Brokerages, conjointly referred to as monetary services firms, attempt to
satisfy the finance wants of their shoppers, and exchanges facilitate securities
commercialism. Net profits correlate to the performance of the broader equity market.
Some hold up better than their peers during bear markets.
Stock brokerage firms have been an established feature in the financial industry for
nearly one thousand years. Dealing in debt securities, brokers employ a variety of
systems to aid investors with the purchase and sales of stocks and bonds in a variety of
markets. The firms have changed over the years, growing to massive organizations that
can affect the entire financial sector positively or negatively with their performance.
Changing with the times, the early twenty-first century saw a rise of online trading that
enabled the average investor to take part in the stock market for the first time.
History
During the 11th century, the French began regulating and trading agricultural debts on
behalf of the banking community, creating the first brokerage system. In the 1300s,
houses began to be set up in major cities like Flanders and Amsterdam in which
commodity traders would hold meetings. Soon, Venetian brokers began to trade in
government securities, expanding the importance of the firms.
In 1602, the Dutch East India Company became the first publicly traded company in
which shareholders could own a portion of the business. The stocks improved the size of
companies and became the standard bearer for the modern financial system.
The earliest brokerage firms were established in London coffee houses, enabling
individuals to purchase stocks from a variety of organizations. They formally founded
the London Stock Exchange in 1801 and created regulations and memberships. The
system was copied by brokerage firms across the world, most notably on Chestnut Street
in Philadelphia. Soon, the US exchange was moved to New York City and various firms
like Morgan Stanley and Merrill Lynch were created to assist in the brokering of stocks
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and securities. The firms limited themselves to researching and trading stocks for
investment groups and individuals.
Stock broking industry in India
The Indian broking industry is one of the oldest trading industries that have been around
even before the establishment of the BSE in 1875. Despite passing through a number of
changes in the post liberalization period, the industry has found its way towards
sustainable growth. With the purpose of gaining a deeper understanding about the role of
the Indian stock broking industry in the country’s economy, presented in this section
some of the industry insights gleaned from analysis of data received through primary
research.
Stock broking industry occupies an important position in the national economy of the
country. It facilitates the mobilization of the saving of individual pools them in reservoir
of capital, which can be deployed of the economic development of a country. Efficient
stock market is the key to the raising of capital by the corporate sector of the economy
and the protection of the interest of the investors. In the last decade for reaching
developments have taken place in the working of the stock market. Present stock market
is significantly different from is used to be in eighties and before. There appears to be
new opportunity what challenges and threats in stock market.
The Function of Exchanges
Exchanges provide a marketplace for traders to buy and sell securities. In years past,
trading took place on large open floors, where buyers and sellers engaged in face-to-face
transactions. Today, most exchanges utilize electronic systems, which allow for fast,
efficient trading. A few still use traditional trading floors, but in conjunction with an
electronic system.
Exchanges generate revenue in several ways. Those that concentrate on the equities
market collect fees from listed companies. Both equity and derivative exchanges receive
a payment for each trade that takes place on their platform. The top lines of these
companies perform quite well during volatile markets. Another source of revenue comes
from supplying market data to financial information providers. Too, revenue may be
produced from developing, marketing and distributing technology used in trading and
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information processing. Among other means of generating revenue, an exchange may
clear third-party or in-house trades.
Compared with those of brokerages, the cost structures of exchanges are more fixed in
nature. Operating performance is linked to transaction volume. Margins expand as
trading increases, and the reverse is true when activity slows. Reductions in fixed costs
enhance operating leverage. Generally, exchanges do not assume heavy debt burdens.
Substantial debt, however, will be taken on to complete a promising acquisition.
Managements endeavor to quickly lighten the burden with improved cash flow.
This sector of the industry has, indeed, undergone consolidation. Domestic exchanges
have merged with foreign bourses to gain diversification. Also, many have acquired
small competitors that offer attractive market niches complementing existing operations.
For instance, companies that focus on equity trading have expanded the scope of
business by acquiring options exchanges.
Broking industry growth and present status in India
The ever growing and fast maturity ‘India market’ is a lucrative business destination for
developed countries. With 7-8% of GDP growth, huge analytical young and English
speaking work forces the ‘pull’ for opportunities are luring. The bandwidth of ‘India
market’ is enviably wide and very deep.
With a liberal and proactive government at the center the road ahead for ‘markets of
India’ is very rosy. ‘Market India’ has witnessed exponential growth over past one and
half decade. Foreseeing sure and substantial returns on investments (ROI) companies are
pro-actively listing on the stock market indexes. Indian activity market at present is a
lucrative field for the investors and investing in Indian stocks are profitable for not only
the long and medium-term investors and investing in Indian stocks are profitable for not
only the long and medium term investors, but also the position traders, short-term swing
traders and also very short term intra-day traders. In terms of market capitalization, there
are over 2500 companies in the BSE chart list.
There are about 23 stock exchanges in India which in India which regulates the market
trends of different stocks. Generally the bigger companies are listed with the NSE and
the BSE, but there is the OTCEI or the over the counter exchange of India, which lists
the medium and small sized companies. There is the SEBI or the securities and exchange
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board of India which supervises the functioning of the stock markets in India. Indian
stock market including both NSE-national stock exchange and the BSE-Bombay stock
exchange has certainly taken a tremendous beating in the past few weeks. We are sure
most of us here knew that the correction in the trading curve was round the corner which
would be healthy, and the markets would bounce back with the help of mutual fund
investments & buying of Indian stocks again. However the anticipation went wrong, and
US recession story along with global and Indian commodity prices have added fuel to
global equity market turmoil on a whole.
Future of the stock broking industry in India
The stock market is booming in spite of the low agriculture output. The monsoon is good
in an overall sense but still the question remains who take the credit? The answer is the
karma of the people. I appreciate the Indian politicians and the industrialists who being
pawns of destiny are doing things positive and productive. India’ as a country is running
a very good period and the position of planets in the transit are giving wonderful results.
Less than one percent of populations own stocks and less than 1000 individuals
controlled the market, majority being the FIIs, the promoters of the company. The credit
should go to media for making stock market headlines.
Most of the tech companies and the main index will do well but slightly in the lower side
of expectations.
Opportunities for Foreign Investors in Stock Markets in India

Direct Investment opportunities for foreign investors in Stock markets in India: The
stock market in India now allows the foreign companies to hold majority shares of the
India companies apart from some restricted companies. Some companies the foreign
stake may be 100%.
• Investment through Stock Exchanges in Stock markets in India: The Foreign

Institutional Investors (FII) may operate in the Stock markets in India being
registered with the Reserve Bank of India (RBI) and the Securities and Exchange
Board of India (SEBI)
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BOMBAY STOCK EXCHANGE (BSE)
The Bombay stock exchange is popularly known as “BSE” was established in 1875 as
“the native share and stock brokers association”. It is the oldest one in Asia even
older than the Tokyo stock exchange, which was established in 1878. It is a voluntary
non-profit making association of persons (AOP) and is currently engaged in the
process in the process of converting itself into demutualised and corporate entity. It
has evolved over the years into its present status as the premier stock exchange in the
country. It is the first stock exchange in the country to have obtained permanent
recognition in1956 from the government of India under the securities contract act,
1956.
The exchange, while providing an efficient and transparent market for trading in
securities, debt and derivatives uploads the interests of the investors and ensures
redresses of their grievances whether against the companies or its own member-
brokers. It also strives to educate and enlighten the investors by conducting investor’s
education program and making available to them necessary informative inputs.
NATIONAL STOCK EXCHANGE (NSE)

NSE was incorporated in 1992 and was given recognition as a stock exchange in
April 1993. It started operations in June 1994, with trading on the wholesale debt
market segment. Subsequently it launched the capital market segment in November
1994 as a trading platform for equities and the futures and options segment in June
2000 for various derivative instruments. The technology has been harnessed to
deliver the services to the investors across the country at the cheapest possible cost. It
provides a nation-wide, screen based, automated trading system, with a high degree
of transparency and equal access to investors irrespective of geographical location.
The high level of information dissemination through on-line system has helped in
integrating retail investors on a nation-wide basis. The standards set by the exchange
in terms of market practices, products, technology and service standards have become
industry benchmarks and are being replicated by other market participants,
technology and service standards have become industry benchmarks and are being
replicated by other market participants. Within a very short span of time, NSE has
been able to achieve all the objectives for which it was set up. It has been able to
achieve all the objectives for which it was set up. It has been playing a leading role as
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a change agent in transforming the Indian capital market are a far cry from what they
used to be decade ago in terms of market practices, infrastructure, technology, risk
management, clearing and settlement and investor service.
COMPANY PROFILE
Share khan Ltd is one of the top retail brokerage houses in India with a strong trading
platform. Share khan has today a pan-India presence with over 1,800 outlets serving 12,
00,000 customers across 650 cities. It also has international presence through its
branches in the UAE and Oman. The company provides equity based products (such as
research, customer commitment, and superior technology, they provide trade execution
services through multiples such as, an internet platform, telephone and retail outlets.
Its strengths lay in its investment research capabilities. Its research division has several
analysts continually monitoring the global, national & regional political, economic &
social situations so as to assess their impact on the economy in general, the sectors &
companies they research which helps them if offering quality research & advice to
clients. The SSKI group comprises of institutional broking division caters to domestic &
foreign institutional investors, while the corporate finance division focuses on niche
areas such as infrastructure, telecom & media. SSKI has been voted as the top domestic
brokerage house in the research category by euro money survey and by Asia money
survey.
For the derivatives segment, to educate the political investors towards the share market
they provide a study kit named the ‘derivatives digest’. And for potential investors
wanted to start the trading in the share market also provide a study kit ‘first step to
investing in the share market’, gives them a general understanding about how the share
market operates, & it also gives an idea regarding the role share brokers in the capital
market. These are the wide ranging services offered by the share khan ltd to its
customers. And most importantly, share khan Ltd is blessed with well-dedicated sales
wings, who are looking after the various needs of the customers in a committed manner
and which provide the customers with tremendous amount of satisfaction and happiness
about their investment.
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Background and inception of the company
• Name of the company : sharekhan Ltd.

• Year of establishment : 2000
• Headquarter : sharekhan SSKI,
A-206 phoenix house
Lower Patel Mumbai-
Maharashtra, INDIA-400013
• Nature of business : service provider.
• Industry in operation : stock and securities market.
• Services : online trading services, depository services
and technical Research, commodities,
mutual fund.
• Number of employees : over 15,500.
• Website : www. sharekhan.com
• Slogan : your guide to the financial jungle.
• Branches : more than 600 branches of share khan in India.
• Turn over : over 600 crore.
Share khan is one of the leading retail stock broking house of SSKI (SHANTILAL
SHEWANTILAL KANTILAL ISWARNATH LIMITED) group which is running
successfully since 1922 in the country. It is the retail broking arm of the Mumbai-based
SSKI group, which has over eight decades of experience in the stock broking business.
Share khan offers its customers a wide range of equity related services including trade
execution on BSE, NSE, derivatives, depository services, online trading, investment
advice etc. the firm’s online trading and investment site- www.sharekhan.com – was
launched on feb8,2000. The site gives access to superior content and transaction facility
to retail customers across the country. Known for its jargon-free, investor friendly
language and high quality research, the site has a registered base of over one lakh
customers.
The content-rich and research oriented portal has stood out among it contemporaries
because of its steadfast dedication to offering customers best-of-breed technology and
superior market information. The objective has been to let customers make informed
decisions and to simplify the process of investing in stocks. On April 17, 2002 share
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khan launched speed trade, a net-based executable application that emulates the broker
terminals along with host of other information relevant to the day traders. This was for
the first time that a net-based trading station of this caliber was offered to the traders. In
the last six months speed trade has become a de facto standard for the day trading
community over the net.
Nature of the business carried

Share khan is Broking Company. The company offers a complete range of pre-trade,
trade, post-trade services on the BSE (Bombay stock exchange) and the NSE (National
stock exchange). Whether the client comes in to the company’s conventionally located
offices and trade in a dedicated ambience or issue instructions over the phone, share
khan’s highly trained team and sophisticated equipment ensure smooth transactions and
prompt services such as:
Investment advisory services.

Facilitation services to retail investors, corporate.
Depository services.
Investment option includes:
Online trading ( includes equity, derivatives)

Commodities trading
Mutual funds.
Portfolio management services.
Share khan branches are conceptualized to be the place where investors can come in
contact with investment opportunities in an atmosphere of convenience and comfort.
Professionals seeks to educate clients and end their confusion by customizing an
investment plan according to the needs of clients and is also today a part of company’s
induction program on advising employees on how to plan their investments.
Vision, mission and quality policy
Vision
• India’s most respected and admirer financial service brand.

• Passionate in creating magic in people’s lives through personalized service and
partnering them in realizing dreams.
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• Share khan will achieve this by demonstration of the highest level of integrity,
delivering consistently superior performance and creating values for their
employees, customers, shareholders and communities they work and live in.
Mission
• To be respected nationwide, a full-fledged service company with a focus on the

growth segment of the company.
• To be leader in their chosen segment, committed to excel in all they do.
• To be customer centric, creating a ‘wow’ experience through personalized
service.
• To build strong relationship with their employees, customers, and shareholders.
• To be of service of the community in which they work and live in.
Quality policy
• Integrity: walk and talk.

• Team work: one team one dream
• Customer centricity: serving the frontline.
• Passionate ownership: energy in action.
• Excellence: being the best.
Service profile
The company offers a complete range of pre-trade, trade, post-trade services on the BSE
(Bombay stock exchange) and the NSE (National stock exchange). Whether the client
comes in to the company’s conventionally located offices and trade in a dedicated
ambience or issue instructions over the phone, sharekhan’s highly trained team and
sophisticated equipment ensure smooth transactions and prompt services.
Sharekhan is one of India’s leading financial services companies. It provides a complete

life cycle of investment solution in equities, derivatives, commodities, IPO, mutual
funds, depository services, portfolio management services and insurance. It also offer
personalized wealth management service for high net worth individuals. With a
physical presence in over 650 cities of India through more than 1800 “share shops”, and
an online presence through sharekhan.com, India’s premier online destination, reach out
to more than 12, 00,000 trading customers.
Page 14
a. Trading facilities :
Sharekhan as a member of NSE & BSE provides both offline and online trading facilities
nationwide for trading the securities in secondary market to its clients. The company’s
wide network of outlets spread across the country facilities to executive the orders in
secondary market.
b. Derivatives : (futures & options)

The company facilities the trading system for trading in secondary market under future
and options segment of NSE and BSE. The equity dealers in the company will be eager
to give insights into the new sets introduction in the Indian capital market futures &
options.
c. Depositors services:
Sharekhan is a depository participant of national securities depository limited and central
depository and securities limited. Sharekhan will open De-mat accounts, which will
investors to convert physical certificates of shares into electronic balance in an account
maintained.
d. Margin financing :
In the present rolling settlement scenario, sharekhan understand investor need for
additional capital availability for daily purchaser shares it offers unique facility available
finance, for purchasing shares at a very competitive interest rates.
e. IPO’S and mutual fund :

Sharekhan offers the change of investing in the potential lucrative IPO market.
Sharekhan is distribution house for all mutual funds. This is the new scheme introduced
by the company and it also offers schemes catering to investors with varying risk return
profiles.
f. Equity research :
Sharekhan has a highly rated research using Involved in macroeconomics studies,
industry and company specific equity research. The research team’s inputs will be
available as daily trading calls, quarterly investment picks and long term investment
picks, babed on the fundamental of particular company and the industry as whole.
Page 15
g. Internet trading :
Investors can also trade their securities through this facility by logging into company’s
website. The virtual world that sharekhan offers online trading services through.
h. Portfolio management services :

Sharekhan securities are a registered portfolio manager with SEBI to manage portfolio’s
on behalf clients with discretionary and a non discretionary rights. This service is a
provision for those who may have the right time to manage their stocks investment or
require the service of company’s highly specialized professional team.
i. Online trading :
Sharekhan was amongst the pioneers of online trading in India and has launched
sharekhan.com in February 2000. Since then, they have been at the fore front in
understanding customer needs, analyzing trends and bringing innovation in their
offerings. They have online trading products that are customized to the habits and
preferences of investors as well as traders.
Summary of sharekhan’s product and services:

Free access to investment advice from sharekhan’s research team.
Online BSE and NSE executions (through BOLT & NEAT terminals).
Daily research reports and market review (high noon & eagle eye).
Pre-market report (morning cuppa).
Daily trading calls based on technical analysis.
Cool trading products (daring derivatives and market strategy).
Personalized advice.
Live market information.
Depository services: Demat & Remat transactions.
Derivatives trading (futures and options).
Commodities trading.
IPO’s & mutual funds distribution.
Internet-based online trading: speed trade.
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Bank connection
Sharekhan has affiliation with 10 banks, which allows its customers to enjoy the facility
of instant credit and transfer of funds from his savings bank account to his sharekhan
trading account. The affiliated banks are as follows:
AXIS BANK
CENTURIAN BANK
CITY BANK
HDFC BANK
ICICI BANK
IDBI BANK
INDUSLAND BANK
OBC BANK
SBI
UNION BANK
UTI BANK
Transaction charges:
0.5% inclusive for delivery single side.

0.1% inclusive for intra-day trading.
Trading account opening charges Rs.750 without any margin.
0.5 & 0.1% it will charge for both transactions.
Area of operations
Sharekhan has its 1800 share shops across 650 cities in India with the head quarter
situated at Mumbai. The registered office is centralized at residency road at Bangalore.
Sharekhan has its operations distributed throughout India that is in the north and
southern regions. The southern region covers areas like Karnataka, Andra Pradesh,
Kerala and Tamilnadu. These areas are managed by a regional branch head, which takes
care of operation in these respective areas.
Sharekhan is one of the top retail brokerage houses in India with a strong trading
platform. Sharekhan has today a pan-India presence with over 1,800 outlets serving 12,
00,000 customers across 650 cities. It also has international presence through its
branches in the UAE and Oman. The company provides equity based products (such as
Page 17
research, equities, derivatives, depository, margin funding etc…) with their research
expertise, customer commitment, and superior technology, they provide investors with
end-to-end solutions in investments, they provide trade execution services through
multiple channels such as, internet platform, telephone and retail outlets.
Ownership pattern
Sharekhan is one of the top retail brokerage houses in India with a strong trading
platform. It is a private organization managed by a set of professionals.
SHAREKHAN LTD’S MANAGEMENT TEAM:
Owner of the company : Dinesh muri

CEO of the company : Tarun p.shah
Director (operations) : Shankar vailaya
Director (products & technology) : Jaideep arora
Head or research : Pathik gandothra
Vice president of equity derivatives : Rishi kohli
Vice president of research : Nikhil vora
Morarkia family is the promoter of sharekhan ltd. Intel, Carlyle and city groups are the
stakeholders of this company.
COMPITETORS INFORMATION
ANAND RATHI SECUIRTIES.

ARTHAM BROKING
ANGEL BROKING.
HDFC SECURITIES.
INDIA INFOLINE.
ICICI DIRECT.
INDIA BULLS.
KARVY BROKERAGE.
KOTAK SECURITIES.
MOTILAL OSWAL.
RELIANCE MONEY.
RELIGARE.
Page 18
INFRASTRUCTURAL FACILITIES
Share khan investment outlets are designed to be places where retail investors can come
in touch with investment opportunities in an atmosphere of convenience and comfort.
The looks of the 15 offices across India projects a consistent branch image for the
company.
The features that unable a unique facility for retailing financial services include among
others:
Easily visible branches setup in the commercial spaces of potential investment

zones ranging between 750 sqft to 1000 sqft.
Most branches sporting huge glass frontage promoting easy accessibility and
reflecting our attitude of complete transparency.
The major portion of the branch area dedicated for customers use. The furniture
is in CKD formats to add flexibility in using the branch for investor’s purposes.
TV and other electronic mediums to facilitate real time update and dissemination
of information to our customers.
Each branch comprises of trained and qualified investment advisors to take care
of the needs of the customers.
ACHIEVEMENTS/AWARDS
Rated among the top 20 wired companies along with Reliance, HUJI, Infosys,
etc. by ‘Business today ‘, January 2004 edition.
Awarded ‘Top domestic brokerage house’ – four times by euro money and Asia
money.
Pioneers of online trading in India amongst the top 3 online trading websites
from India. Most preferred financial destination amongst online broking
customers.
Winners of the “Best financial website”.
Voted by CNBC awards as the most preferred stock broker in India in 2005.
WORK FLOW MODEL

At sharekhan it is believed that, “the clients are people, not accounts” hence successful
investment management relationship begins with a clear understanding of each client’s
specific needs, concerns and long-term objectives. Sharekhan investment philosophy
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applies a disciplined approach to building a customized strategy designed to meet
customer’s individual financial goals and tolerance for risk.
FUTURE GROWTH AND PROSPECTS

2, 00,000 plus retail customers to be serviced through centralized call
centers/web solutions.
Branches / semi/ branches / servicing affluent / aggressive traders through full
financial advisor.
250 independent investment managers/ franchisee servicing 50,000 highly valued
clients.
New initiatives portfolio management services and commodities trading.
SWOT ANALYSIS
A SWOT analysis is a tool, used in management and strategy formulation. It can help to
identify the strengths, weakness, opportunities and threats of a particular company.
Strength and weakness are internal factors that create value or destroy value. They can
include assets, skills or resources that a company has at its disposal, compared to its
competitors. They can be measured using internal assessments or external bench
marketing.
Opportunities and threats are external factors that create value or destroy value. A
company cannot control them. But they emerge from either the competitive dynamics of
the industry/ market or from demographic, economic, political, technical, social, cultural
factors.
STRENGTHS:
World class technology and infrastructure.

Well diversified portfolio.
Experienced senior management.
Multiple products
Loyal customers.
High R & D
Strict risk control system.
Global parentage expertise.
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Online growth
Effective communication.
Strong advisory role through fundamental and technical research.
Strong market condition
Strong financial position.
Strong brand recall.
Reputed brokerage center.
Nationwide reach in mass.
WEAKNESS:
Payment services are not good.

No direct marketing strategy.
No global reach
Homogeneous services provide by all broking centers.
Penetration limited to urban areas.
OPPORTUNITIES:
Global investors.
Increase in wealth.
Penetration in developing cities.
Product & services expansion.
Fast growing of Indian market.
New technology
Fast services & payments.
Positive market.
THREATS:
Uncertainty of the market and volatility.

Global economic slowdown.
Change in client needs.
Threats of foreign finance firms in Indian market.
Product substitution.
Exchange rate fluctuation.
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Analysis of Financial statement
Table 5.1: Balance Sheet (Rs. In Crores)
Particulars March 2014 March 2013

Sources Of Funds
Equity share capital 10.33 10.33
Reserve & surplus 41.74 40.54
Share Application Money 0 0
Preference Share Capital 0 0
Reserves 0 0
Revaluation Reserves 0 0
Net worth 52.07 50.87
Secured Loans 4.24 4.50
Unsecured Loans 0 0
Total Debt 0 0
Total Liabilities 56.30 55.37
Application Of Funds
Gross Block 37.88 37.95
Less: Accumulated. Depreciation 22.82 22.22
Net Block 15.06 15.73
Capital Work in Progress 0.28 0.35
Investments 0.03 0.03
Net current assets
Current assets, loans & advances 75.24 74.94

Less: current Liabilities & provisions 34.31 35.69
Total Net Current Assets 40.94 39.25
Total assets 56.30 55.37
Table 5.2: Profit and loss account (Rs. In Crores)
Particulars March 2014 March 2013

Income
Operating income 145.94 150.58
Expenses material consumed 124.16 125.71
Manufacturing expenses 3.82 5.08
Personnel expenses 5.15 4.82
Selling expenses 0 0
Administrative expenses 8.73 9.34
Cost of sales 141.85 144.94
Operating profit 4.09 5.63
Other recurring income 1.56 1.37
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Adjusted PBDIT 5.64 7.01
Financial expenses 0.26 0.44
Depreciation 1.2 1.15

Adjusted PBT 4.18 5.42
Tax charges 1.71 1.51
Adjusted PAT 2.46 3.9
Nonrecurring items 0 -0.21
Other non cash adjustments 0 0
Reported net profit 2.46 3.69
Earning before appropriation 9.14 8.77
Equity Dividend 0.86 1.29
Retained earnings 8.1 7.22
Table 5.3: Comparative Balance Sheet (Rs. In Crores)

Increase % Increase
March
Particulars March 2013 or or
2014
Decrease Decrease
Sources Of Funds
Equity share capital 10.33 10.33 0.6 5.81
Reserve & surplus 41.74 40.54 1.2 2.96
Share Application 0 0
Money 0 0
Preference Share 0 0
Capital 0 0
Reserves 0 0 0 0
Revaluation 0 0
Reserves 0 0
1.2 2.36
Net worth 52.07 50.87
Secured Loans 4.24 4.50 -0.26 -5.78
0 0
Unsecured Loans 0 0
0 0
Total Debt 0 0
Total Liabilities 56.30 55.37 0.93 1.68
Application Of -0.09 -0.24

Funds
0.6 2.63
Gross Block 37.88 37.95
Less: Accum. -0.67 -4.45
-0.07 -25
Net Block 15.06 15.73
Capital Work in 0 0
Progress 0.28 0.35
Page 23
Investments 0.03 0.03 0 0
Net current assets
Current assets, loans 0.3 0.39
& advances 75.24 74.94
Less: current -1.48 0.04
Liabilities &
provisions 34.31 35.69
Total Net Current 1.69 4.13
Assets 40.94 39.25
Total assets 56.30 55.37 0.93 1.65
Table 5.4: Comparative Statement of Profit and Loss (Rs. In Crores)

Increas %
e or Increase
Particulars
March Decreas or
2014 March 2013 e Decrease
Income
-5.04 -3.35
Operating income 145.94 150.58
Expenses material -1.55 -1.23
consumed 124.16 125.71
-1.26 -24.80
Manufacturing expenses 3.82 5.08
0.33 6.85
Personnel expenses 5.15 4.82
0 0
Selling expenses 0 0
-0.61 -6.53
Administrative expenses 8.73 9.34
Cost of -3.09 -2.13
sales 141.85 144.94
Operating -1.54 -27.35
profit 4.09 5.63
Other 0.19 13.87
recurring
income 1.56 1.37
Adjusted -1.37 13.87
PBDIT 5.64 7.01
Financial -0.18 -40.91
expenses 0.26 0.44
0.05 0.35
-1.24 -22.88
Adjusted PBT 4.18 5.42
0.2 13.24
Tax charges 1.71 1.51
-1.44 -36.92
Adjusted PAT 2.46 3.9
0 0
Nonrecurring items 0 -0.21
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Other non cash 0 0
adjustments 0 0
-1.23 -33.33
Reported net profit 2.46 3.69
Earning before 0.37 4.22
appropriation 9.14 8.77
-0.43 -33.33
Equity Dividend 0.86 1.29
0.81 12.19
Retained earnings 8.1 7.22
The following information is obtained by analyzing comparative balance sheet and

comparative profit and loss account,
• The share capital increases from 10.33 crores to 10.93 crores (i.e. 0.6 or
5.81%) during the year 2013-14. So it is satisfactory.
• The net fixed assets decreases from 37.97 crores to 37.88 crores (i.e. 0.09 or
0.24%) during the year 2013-14. So it is not satisfactory.
• Current assets increases from 74.94 crores to 75.24 crores (i.e. 0.3 or 0.39%)
during the year 2013-14. So it leads to liquidity position.
• The total income decreases from 150.58 crores to 145.94 crores (i.e. 5.04 or
3.3%) during the year 2013-14. So it is not satisfactory.
• Profit after tax decreases from 3.9 crores to 2.46 crores (i.e. 1.44 or 36.92)
during the year 2013-14. So it is not satisfactory
Page 25
CHAPTER 3:
THEORETICAL BACKGROUND
OF THE STUDY
THEORETICAL BACKGROUND OF THE STUDY
Portfolio management
Introduction:
In simple term portfolio can be defined as combination of securities that have return and
risk characteristic of their own. Portfolio may or may not take on the aggregate
characteristics of their individual parts. Portfolio is the collection of financial or real
assets such as equity shares, debentures, bonds, treasury bills and property etc. portfolio
is a combination of assets or it consists of collection of securities. These holdings are the
result of individual preferences, decisions of the holders regarding risk, return and a host
of other considerations.
Investing in securities such as shares, debentures bonds is profitable as well as exciting.

It indeed involves a great deal of risk. Very few investors invest in single security their
entire savings. But most of them invest in a group of securities such; group of securities
is called a portfolio. Creation of portfolio helps to reduce risk without reducing returns.
An investor invests in funds in a portfolio expecting to get a good return with less risk to
bear.
An investor considering investment in securities is face with problem of choosing from

among a large number of securities. His choice depends upon the risk-return
characteristics of individual securities. He would attempt choose the most desirable
securities and like allocate his funds over this group of securities. Again he faced with
the problem of deciding which securities to hold and how much to invest in each. The
risk and return characteristics of portfolios differ from these of individual securities
combining to form a portfolio.
Portfolio management concerns the construction & maintenance of a collection of

investment. It primarily involves reducing risks rather than increasing return. Return is
obviously important though the ultimate objective of portfolio manager has to get good
return to achieve a chosen level of return by immunizing the risk.
The investor tries to choose the optimum taking into consideration the risk return
characteristics of all possible portfolios. As the risk return characteristics of individual
securities as well as portfolios also change. This calls for periodic review and revision of
investment portfolio of investors.
Page 26
Portfolio management comprises all the processes involved in the creation and
maintenance of an investment portfolio. It deals specifically with security analysis,
portfolio analysis, portfolio selection, portfolio revision and portfolio evaluation.
Portfolio management makes use of analytical technique of analysis and conceptual
theories regarding rational allocation of funds.
Meaning of portfolio management

Investing in securities such as shares, debentures bonds is profitable as well as exciting.
It indeed involves a great deal of risk. Very few investors invest in single security their
entire savings. But most of them invest in a group of securities such; group of securities
is called a portfolio creation of portfolio helps to reduce risk without reducing returns.
An investor invests in funds in a portfolio expecting to get a good return with less risk to
bear. Portfolio management comprises all the processes involved in the creation and
maintenance of an investment portfolio. It deals specifically with security analysis,
portfolio analysis, portfolio selection, portfolio revision and portfolio evaluation.
Objectives of portfolio management

The objective of portfolio management is to invest in securities in such a way that:
a. Maximize one’s return and
b. Minimize risk
In order to achieve one’s investment objectives, a good portfolio should have multiple
objectives and achieve a sound balance among them. Any one objective should not be
given undue importance at the cost of others.
Some of the main objectives are given below:
• Safety of the investment

Investment safety or minimization of risks is one of the important objectives of portfolio
management. There are many types of risks, which are associated with investment in
equity stocks, including super stocks. We should keep in mind that there is no such as a
zero-risk investment. Moreover, relatively low-risk investments give correspondingly
lower returns.
Page 27
• Stable current returns:
Once investments safety is guaranteed, the portfolio should yield a steady current
income. The current returns should at least match the opportunity cost of the funds of the
investor. What we are referring is current income by way of interest or dividends, not
capital gains. The portfolio should give a steady yield of income i.e.; interest or
dividends. The returns have to match the opposite cost of funds of interest.
• Marketability:
If there are too many unlisted or inactive shares in our portfolio, we will have to face
problems in enchasing them, and switching from one investment to another.
• Liquidity:
The portfolio should ensure that there are enough funds available at short notice to take
care of the investor’s liquidity requirements. It is desirable to keep a line of credit from a
bank for a bank for use in case it becomes necessary to participate in right issues, or for
any other personal needs.
• Tax planning:
Since taxation is an important variable in total planning. A good portfolio should enable
its owner to enjoy a favorable tax shelter. The portfolio should be developed considering
not only income tax but capital gains tax, as well. What a good portfolio aims at is tax
planning, not tax evasion or tax avoidance.
Phases of portfolio management

1. Analysis of constraints.
2. Determination of objective
3. Choice of asset mix
4. Formulation of portfolio strategy
5. Selection of securities
6. Portfolio execution
7. Portfolio revision
8. Portfolio evaluation
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Portfolio management in India
In India, portfolio management is still in its infancy. A few Indian banks, and foreign
banks and UTI, no other agency had professional portfolio management until 1987. After
the setting up of public sector mutual funds, since 1987, professional portfolio
management, backed by competent research staff became the order of the day. After the
success of mutual funds in portfolio management, a number of brokers and investment
consultants some of whom are also professionally qualified have become portfolio
managers. They have managed the funds of clients on both discretionary bases. It was
found that many of them, including mutual funds have guaranteed a minimum return or
capital appreciation and adopted all kinds of incentives, which are now prohibited by
SEBI. They resorted to speculative over trading and insider trading, discounts, etc., to
achieve their targeted returns to the clients, which are also prohibited by SEBI.
SEBI Norms
SEBI has prohibited the portfolio manager to assume any risk on behalf of the client;
portfolio manager cannot also assure any fixed return to the client.
The investment made or advised by him are subject to risk, which the client has to bear.
The investment consultancy and management has to be charged at rates, which are fixed
at the beginning and transparent as per the contract. No sharing of profits or discounts or
cash incentives to clients is permitted.
The portfolio manager is prohibited to do lending. Bundle financing and bills

discounting as per SEBI norms. He cannot put the client’s funds in any investment, not
permitted by the contract, entered into with the client. Normally investment can be made
in capital market and money market instruments.
Client’s money has to be kept in a separate account with the public sector bank and
cannot and cannot be mixed up with his own funds or investments. All the deals done for
a client’s account are to be entered in his name and contract notes, bills and etc., are all
passed by his name. a separate ledger account is maintained for all purchases/sales on
clients behalf, which should be done at the market price. Final settlement and
termination of contract is as per the contract.
Page 29
During the period of contract, portfolio manager is only acting on a contractual basis and
on a fiduciary basis. No contract for less than a year is permitted by the SEBI.
Data analysis technique

Sharpe’s single index model
Casual observation of the stock prices over a period of time revels that most of the stock
prices moves with the market index. When the sensex increases, stock prices also trend
to increase and vice versa. This indicates that some underlying factors affect the market
index as well as stock prices. Stock prices are related to the market index & relationship
could be used to estimate the return on stock. Towards this purpose, the following can be
used.
Ri = αi + βi Rm + ei
Where, Ri – Expected return on security individual
αi – Intercept of the straight line or alpha co-efficient

\
βi – Slope of straight line or beta co-efficient
Rm – The rate of return on market index
ei - error term
According to the equation, the return of a stock can be divided into components, the
return due to the market and the return independent of the market. βi
Indicates the sensitiveness of the stock return to the changes in the market return . The
single index model represents the joint movement of securities.
The variance of securities returns σi2 = βi σ2m + σwei
The covariance of returns between securities i &j is σij2 = βi βj σm2

Systematic risk = βi2 × variance of market index
= βi2 × σm2
Page 30
Unsystematic risk = total variance - Systematic risk
ei2 = σ2i – systematic risk
The variance of the security has two components namely systematic risk or market risk
and systematic risk or unique risk. The variance explained by the index is referred to
systematic risk. The unexplained variance is called residual variance or unsystematic
risk.
Total Risk= Systematic risk + unsystematic risk

= βi2 σm2 + ei2
Portfolio variance:
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)]

Where,
σ2p= Variance of portfolio
σ2m= Expected variance if index.
ei2 = Variance in securities return not related to market index.
Xi = The portion of stock in the portfolio
Sharpe’s optimum portfolio

Sharpe had provided a model for the selection of appropriate securities in a portfolio.
The following steps have been followed in the analysis.
Step 1: Find out the “excess return to beta” ratio for each stock under consideration.
Step 2: Rank them from the highest to the lowest.
Step 3: proceed to calculate Ci for all the stocks according to the ranked order using the
following formula.
σm2 ∑n (Ri – Rf)βi
σei2
Ci =
1 + σm2 ∑n βi
σei2
Page 31
Where,
σm2 = Variance of the market index
σei2 = Variance of a stock’s movement that is not associated

With the movement of market index
Stop 4: The cumulated values of C start declining after a particular Ci and that point is
taken as the cut-off point and that stock ratio is cut-off ratio C
Step 5: The C values go on increasing up to a certain point & then stat decreasing. The
highest point is called cut off point(C) the security which is above the C choose to
portfolio.
Step 6: After determining the securities to be selected in that find out how much should
be invested in each securities.
Xi = Zi/∑Zi
Where,
Zi = βi Ri – Rf C
σei2 βi
Rf =Risk free market index
Step 7: Determination of portfolio risk & return
Portfolio return:
The actual return of a portfolio of assets over specific time period
Rp= ∑XiRi
Where,
Xi= rate of return on asset
Ri= the portion of stock in the portfolio
Page 32
Portfolio risk:
Portfolio risk is measured by the variance of its return
σ2p= [(∑Xiβi)2 σm2] + (∑Xi2 ei2)
Where,
σ2p = Variance of portfolio
σm2= expected variance of index
ei2 = Variation in securities retunes not related to the market index.
Xi = the portion of stock in the portfolio
Risk-free rate of return

The risk free rate of return on security (or a portfolio of securities) i.e. free from default
risk is uncorrelated with returns from anything else in the economy. The 364 days
Treasury bills rate of return is considered as the risk free rate of return for our calculation
purpose.
The 364 days T-Bill rate for the year is 8.00
Variance of market index

The variance of market index for the year 2014 is 1.77
Page 33
CHAPTER 4:
ANALYSIS AND INTERPRETATION
DATA ANALYSIS AND INTERPRETATION
The analysis and interpretation of 5 investors,
Investor A
Investor B
Investor C
Investor D
Investor E
Construction of optimum portfolio of investor A:
Table 2.1: The following tables gives the details regarding the Expected return, beta, and
residual variance of the individual securities.
Securities Ri βi σei2
Bajaj auto 17.06 0.28 2.09
Wipro 13.03 1.74 0.13
ICICI Bank 40.52 2.51 1.31
Sun pharma 37.21 1.65 1.10
Bharthi Airtel 0.94 0.15 0.40
Zee entertainment 50.19 1.23 8.10
SAIL 1.93 1.15 0.06
Calculation of excess to beta ratio and assignment of ranks:
Table 2.2: Rank the companies based on the decreasing value of the excess return to beta
ratio. i.e, Rank according to the decreasing order of) (Ri-Rf) / βi values.
Securities Ri βi σei2 (Ri -Rf) (Ri-Rf) / βi Rank

Bajaj auto 17.06 0.28 2.09 9.06 32.36 2
Wipro 13.03 1.74 0.13 5.03 2.89 5
ICICI Bank 40.52 2.51 1.31 32.52 12.96 4
Sun pharma 37.21 1.65 1.10 29.21 17.70 3
Bharthi 0.94 0.15 0.40 (7.06) (47.06) 7
Page 34
Airtel
Zee 50.19 1.23 8.10 42.19 34.30 1
entertainment
SAIL 1.93 1.15 0.06 (6.07) (5.28) 6
Calculation of C values for all the stocks according to the ranked order using the
following formula,
σm2 ∑ (Ri – Rf)βi

σei2
Ci =
1 + σm2 ∑ βi
σei2
Table 2.3: calculation of c values.
Rank Securities (Ri - Rf) (Ri -Rf)βi ∑(Ri -Rf)βi βi2 ∑βi2 Ci
βi σei2 σei2 σei2 σei2
(cumulative) (cumulative)
1 Zee 34.30 6.406 6.406 0.152 0.152 8.934

2 Bajaj 32.36 1.214 7.620 0.134 0.286 8.955
3 Sun pharma 17.70 43.815 51.435 1.500 1.786 21.879
4 ICICI 12.46 62.309 113.744 1.916 3.702 26.658c*
5 Wipro 2.89 67.324 181.068 13.385 17.087 10.658
6 SAIL (5.28) (116.341) 64.727 19.167 36.254 1.758
7 Bharthi airtel (47.06) (2.647) 62.080 0.375 36.629 1.669
Determination of C*
The Ci values goes on increasing up to a point and then start decreasing. The highest
point is called cut off point(c*). The securities which are above c* point are chosen to
the portfolio.

σei2
Ci =
1 + σm2 ∑ βi
σei2
Page 35
Table 2.4: the securities included in the portfolio are:
SL.NO Securities (Ri - Rf) (Ri - Rf)βi ∑(Ri- βi2 ∑βi2 Ci

2
βi σei R f) β i σei2 σei2
σei2
1 Zee 34.30 6.406 6.406 0.152 0.152 8.934
2 Bajaj 32.36 1.214 7.620 0.134 0.286 8.955
3 Sun pharma 17.70 43.815 51.435 1.500 1.786 21.879
4 ICICI 12.46 62.309 113.744 1.916 3.702 26.658c*
THE CUT OFF POINT IS = 26.658
Determination of investment proportion of securities in optimal portfolio:
This is calculated by using the formula showing below:
Xi = Zi / ∑Zi
Zi = βi Ri - Rf C
σei2 βi
Table 2.5: shows investment proportion of securities in optimal portfolio.
βi (Ri - Rf) βi C* Zi Xi
Securities σei2 %
Zee 0.152 34.30 26.658 1.161 2.7
Bajaj 0.134 32.36 26.658 0.764 1.8
Sun pharma 1.500 17.70 26.658 13.437 31.6
ICICI 1.916 12.46 26.658 27.203 63.9
Total 42.565 100
Page 36
Graph 4.1: showing Investment proportion
propotion
2.7 1.8
Zee
31.6
Bajaj
Sun
63.9 ICICI
In the above chart how much proportion of investment has to be made in the constructed
securities are showing. According to the chart 2.7% 0f the amount can be invested on
Zee entertainment, 1.8 % of investment can be made on Bajaj auto, 31.6% of the amount
can be invested on Sun pharma, 63.9% of the amount can be invested in ICICI Bank.
Determination of portfolio return and risk:
The actual return of a portfolio of assets over specific time period is calculated as fallows
Rp= ∑XiRi
Where
Rp = rate of return on the portfolio
Xi = rate of return on asset
Ri = the portion of stock in the portfolio
Page 37
Table 2.6: shows the expected return and the proportion of the investment.
Securities Ri Xi Xi Ri
Zee 50.19 0.027 1.355

Bajaj auto 17.06 0.018 0.307
Sun pharma 37.21 0.316 11.758
ICICI 40.52 0.639 25.892
39.312
Therefore portfolio return is 39.312
Portfolio Risk:
Portfolio risk is measured by the variance of its return. The portfolio variance can be
derived by:
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
Where I vary from 1 to N
σ2p = variance of portfolio
σ2m = expected variance of index
ei2 = variation in security’s return not related to the market index.
Xi2 = the portion of stock in the portfolio.
Table 2.7: shows beta, proportion of stock and residual variance of the securities.
Securities βi Xi Xi βi Xi2 σei2 Xi2 σei2
Zee 1.23 0.027 0.033 0.001 8.10 0.008

Bajaj auto 0.28 0.018 0.005 0.003 2.09 0.006
Sun pharma 1.65 0.316 0.521 0.099 1.10 0.109
ICICI 2.51 0.639 1.604 0.048 1.31 0.534
Total 2.163 0.657
Page 38
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
= [(2.163)21.77] + (0.657)
= [(4.68) 1.77] + 0.657
σ2p =8.94
σp = 2.99
Therefore portfolio risk is = 2.99
Construction of optimum portfolio of investor B:

Table 2.8: The following tables gives the details regarding the Expected return, beta, and
residual variance of the individual securities.
Hero motors 20.23 0.97 5.76
Infosys 15.54 1.59 6.64
SBI 31.79 1.63 5.63
Cipla 27.52 1.84 1.10
Reliance communication 13.51 5.98 3.54

Maruthi Suzuki 54.34 0.59 12.18
BHEL 4.41 1.64 3.66
Table 2.9: Rank the companies based on the decreasing value of the excess return to beta
ratio. i.e, Rank according to the decreasing order of) (Ri-Rf) / βi values.
Hero motors 20.23 0.97 5.76 12.23 12.61 3

Infosys 15.54 1.59 6.64 7.54 4.74 5
SBI 31.79 1.63 5.63 23.79 14.59 2
Cipla 27.52 1.84 1.10 19.52 10.61 4
Reliance 13.51 5.98 3.54 5.51 0.92 6
communication
Maruthi suzuki 54.34 0.59 12.18 46.34 78.54 1
BHEL 4.41 1.64 3.66 (3.59) (2.19) 7
Page 39
following formula,

σei2
Ci =
1 + σm2 ∑ βi
σei2
1 Maruti 78.54 2.24 2.24 0.048 0.048 3.755

2 SBI 14.59 6.89 9.10 0.289 0.337 10.092
3 Hero 12.61 2.06 11.16 0.168 0.505 10.429
4 Cipla 10.61 32.65 43.81 1.673 2.178 15.972*
5 Infosys 4.74 1.80 45.61 0.239 2.417 15.292
6 Reliance com 0.92 9.31 54.92 1.689 4.106 11.757
7 BHEL (2.19) (1.61) 53.31 0.448 4.554 10.415
Determination of C*
the portfolio.

σei2
Ci =
1 + σm2 ∑ βi
σei2
Page 40

2
βi σei Rf) βi σei2 σei2
σei2
1 Maruti 78.54 2.24 2.24 0.048 0.048 3.755
2 SBI 14.59 6.89 9.10 0.289 0.337 10.092
3 Hero 12.61 2.06 11.16 0.168 0.505 10.429
4 Cipla 10.61 32.65 43.81 1.673 2.178 15.972*
THE CUT OFF POINT IS = 15.972*
Xi = Zi / ∑Zi
Zi = βi Ri - Rf C
σei2 βi
Securities σei2 %
Maruti 0.048 78.54 15.972 3.003 23.21
SBI 0.289 14.59 15.972 0.399 3.084
Hero 0.168 12.61 15.972 0.565 4.367
Cipla 1.673 10.61 15.972 8.971 69.34
Total 12.938 100
Page 41
propotion
23.21
Maruti
SBI
3.084
Hero
4.367
69.34 Cipla
Maruti Suzuki, 3.084% of investment can be made on SBI, 4.367% of the amount can be
invested on Hero mtr, 69.34% of the amount can be invested in Cipla
Rp= ∑XiRi
Where
Page 42
Maruti 54.34 0.232 12.607

SBI 31.79 0.031 0.985
Hero 20.23 0.044 0.890
Cipla 27.52 0.693 19.071
33.553
Portfolio Risk:
derived by:
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
Maruti 0.59 0.232 0.137 0.054 12.18 0.658

SBI 1.63 0.031 0.050 0.001 5.63 0.006
Hero 0.97 0.044 0.043 0.002 5.76 0.011
Cipla 1.84 0.693 1.275 0.480 1.100 0.258
Total 1.505 1.203
Page 43
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
= [(1.505)21.77] + (1.203)
= [(2.26) 1.77] + 1.203
σ2p =5.20
σp = 2.28
Construction of optimum portfolio of investor C:
Table 2.15: The following tables gives the details regarding the Expected return, beta,
and residual variance of the individual securities.
TCS 32.39 2.48 0.8
MRF 80.19 0.71 5.81
PNB 18.94 1.52 11.04
Reliance industries 5.82 0.06 0.174
Asian paints 43.53 2.12 0.97
Tata motors 40.84 1.06 3.84
Nestle 13.64 0.35 0.05
Table 2.16: Rank the companies based on the decreasing value of the excess return to
beta ratio. i.e, Rank according to the decreasing order of) (Ri-Rf) / βi values.
TCS 32.39 2.48 0.8 24.39 9.83 5
MRF 80.19 0.71 5.81 72.19 101.68 4
PNB 18.94 1.52 11.04 10.94 7.19 6
Reliance industries 5.82 0.06 0.174 (2.18) (36.33) 7
Page 44
Asian paints 43.53 2.12 0.97 35.53 16.76 2
Tata motors 40.84 1.06 3.84 32.84 30.98 1
Nestle 13.64 0.35 0.05 5.64 16.11 3
following formula,

σei2
Ci =
1 + σm2 ∑ βi
σei2
1 Tata mtr 30.98 9.065 9.065 0.276 0.276 10.783

2 Asian paints 16.76 77.653 86.718 2.185 2.461 28.567*
3 Nestle 16.11 39.480 126.198 7.000 9.461 12.587
4 MRF 101.68 8.82 135.018 0.122 9.583 13.305
5 TCS 9.83 75.609 210.627 3.100 12.683 15.861
6 PNB 7.19 1.506 212.133 0.138 12.821 16.100
7 Reliance ind. (36.33) (0.752) 211.381 0.345 13.166 15.394
Determination of C*
the portfolio.
Page 45
σei2
Ci =
1 + σm2 ∑ βi
σei2

βi σei2 R f) β i σei2 σei2
σei2
1 Tata mtr 30.98 9.065 9.065 0.276 0.276 10.783
2 Asian paints 16.76 77.653 86.718 2.185 2.461 28.567*
Xi = Zi / ∑Zi
Zi = βi Ri - Rf C
σei2 βi
Securities σei2 %
Tata mtr 0.276 30.98 28.657 0.641 2.406
Asian paints 2.185 16.76 28.657 0.641 97.593
26.635 100
Page 46
propotion
2.406
Tata motors
Asian paints
97.593
Tata motors, 97.593% of investment can be made on Asian paints.
Rp= ∑XiRi
Where
Tata motors 40.84 0.024 0.980

Asian paints 43.53 0.975 42.442
43.422
Page 47
Portfolio Risk:
derived by:
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
Tata motors 1.06 0.024 0.025 0.001 3.84 0.004

Asian paints 2.120 0.975 2.067 0.951 0.970 0.922
Total 2.092 0.926
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
= [(2.092)21.77] + (0.926)
= [(4.38) 1.77] + 0.926
σ2p =8.68
σp = 2.95
Page 48
Construction of optimum portfolio of investor D:
Adani industries 20.98 2.34 9.07
Kotak Mahindra 42.62 2.04 1.31
Tata steel 4.51 0.35 1.54
United spirit
81.22 3.56 19.55
L&T 31.88 1.95 1.33
ACC 8.17 1.17 0.4
Adani Enterprise 20.98 2.34 9.07 12.98 5.55 4
Kotak Mahindra 42.62 2.04 1.31 34.62 16.97 2
Tata steel 4.51 0.35 1.54 (3.49) (9.97) 6
United spirit 81.22 3.56 19.55 73.22 20.57 1
L&T 31.88 1.95 1.33 23.88 12.25 3
ACC 8.17 1.17 0.4 0.17 0.14 5
following formula,
Page 49
σei2
Ci =
1 + σm2 ∑ βi
σei2
1 United spirit 20.57 13.33 13.33 0.17 0.18 17.887

2 Kotak 16.97 53.91 67.24 1.56 1.74 29.177*
Mahindra
3 L&T 12.25 35.01 102.25 1.47 3.21 27.085
4 Adani 5.55 3.35 105.6 0.26 3.47 26.171
enterprise
5 ACC 0.14 0.49 106.09 2.93 6.4 15.232
6 Tata steel (9.97) (0.79) 105.3 0.23 6.63 14.635
Determination of C*
the portfolio.

σei2
Ci =
1 + σm2 ∑ βi
σei2
Page 50

2
βi σei Rf) βi σei2 σei2
σei2
1 United spirit 20.57 13.33 13.33 0.17 0.18 17.887
2 Kotak 16.97 53.91 67.24 1.56 1.74 29.177*
Mahindra
Xi = Zi / ∑Zi
Zi = βi Ri - Rf C
σei2 βi
Securities σei2 %
United spirit 0.180 20.57 29.177 1.549 7.5
Kotak 1.501 16.97 29.177 19.043 92.5

Mahindra
20.592 100
Page 51
propotion
7.5
United spirit
Kotak mahindra
92.5
securities are showing. According to the chart 7% 0f the amount can be invested on
United spirit, 92.5% of investment can be made on Kotak Mahindra.
Rp= ∑XiRi
Where
Page 52
United spirit 81.22 0.075 6.091

Kotak Mahindra 42.62 0.925 39.423
45.514
Portfolio Risk:
derived by:
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
United spirit 3.56 0.075 0.267 0.006 19.55 0.117
Kotak Mahindra 2.04 0.925 1.887 0.856 1.31 1.12
Total 2.154 1.238
Page 53
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
= [(2.154)21.77] + 1.238
= [(4.64) 1.77] + 1.238
σ2p =9.45
σp = 3.07
Construction of optimum portfolio of investor E:
ONGC 9.32 0.49 0.19
Hindalco 10.69 0.68 1.05
Britannia 62.68 0.58 15
HUL 22.36 0.59 0.56
Bosch 42.51 1.87 2.35
Bajaj finance 58.2 3.16 7.67
ITC 23.28 0.61 2.24
Page 54

ONGC 9.32 0.49 0.19 1.32 2.69 7
Hindalco 10.69 0.68 1.05 2.69 3.95 6
Britannia 62.68 0.58 15 54.68 94.27 1
HUL 22.36 0.59 0.56 14.36 24.34 3
Bosch 42.51 1.87 2.35 34.51 18.45 4
Bajaj finance 58.2 3.16 7.67 50.2 15.89 5
ITC 23.28 0.61 2.24 15.28 25.05 2
following formula,

σei2
Ci =
1 + σm2 ∑ βi
σei2
1 Britannia 94.27 2.114 2.114 0.039 0.039 3.500

2 ITC 25.05 4.161 6.275 0.272 0.311 7.166
3 HUL 24.34 15.129 21.409 1.053 1.364 11.097
4 Bosch 18.45 27.461 48.865 0.796 2.16 17.933
5 Bajaj finance 15.89 20.682 69.547 0.412 2.572 22.172
6 Hindalco 3.95 1.792 71.289 0.648 3.22 18.835
7 ONGC 2.69 3.404 74.693 2.579 5.799 11.737
Determination of C*
Page 55
the portfolio.

σei2
Ci =
1 + σm2 ∑ βi
σei2

βi σei2 R f) β i σei2 σei2
σei2
1 Britannia 94.27 2.114 2.114 0.039 0.039 3.500

2 ITC 25.05 4.161 6.275 0.272 0.311 7.166
3 HUL 24.34 15.129 21.409 1.053 1.364 11.097
4 Bosch 18.45 27.461 48.865 0.796 2.16 17.933
5 Bajaj finance 15.89 20.682 69.547 0.412 2.572 22.172*
Xi = Zi / ∑Zi
Zi = βi Ri - Rf C
σei2 βi
Page 56
Securities σei2 %
Britannia 0.039 94.27 22.172 2.812 24.6
ITC 0.272 25.05 22.172 0.783 6.8
HUL 1.053 24.34 22.172 2.283 19.9
Bosch 0.796 18.45 22.172 2.963 25.9
Bajaj finance 0.412 15.89 22.172 2.588 22.6
11.429 100
propotion
22.6 24.6
Britannia
ITC
6.8 HUL
Bosch
25.9 Bajaj
19.9
Britannia, 6.8% of investment can be made on ITC, 19.9% of the amount can be invested
Page 57
on HUL, 25.9% of the amount can be invested in Bosch, 22.6% of the amount can be
invested on Bajaj.
Rp= ∑XiRi
Where
Britannia 62.68 0.248 15.545

ITC 23.28 0.068 1.583
HUL 22.36 0.199 4.449
Bosch 42.51 0.259 11.010
Bajaj finance 58.2 0.226 13.153
45.74
Portfolio Risk:
derived by:
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
Page 58
Britannia 0.58 0.248 0.144 0.061 15 0.915

ITC 0.61 0.068 0.041 0.004 2.24 0.009
HUL 0.59 0.199 0.117 0.039 0.56 0.022
Bosch 1.87 0.259 0.484 0.067 2.35 0.157
Bajaj finance 3.16 0.226 0.714 0.051 7.67 0.391
Total 1.5 1.494
σ2p = [(∑Xiβi)2 σ2m]+ (∑Xi2 ei2)
= [(1.5)21.77] + (1.494)
= [(2.25) 1.77] + 1.494
σ2p =5.48
σp = 2.34
Page 59
CHAPTER 5:
SUMMARY OF FINDINGS,
SUGGESTIONS CONCLUSION
FINDINGS AND RECOMMENDATIONS:
Investor A.
Findings:
Table 3.1: shows Expected return, Beta and proportion of optimum portfolio.
Securities Ri βi Xi
(%)
Zee 50.19 1.23 2.70

Bajaj auto 17.06 0.28 1.80
Sun pharma 37.21 1.65 31.60
ICICI 40.52 2.51 63.90
Portfolio return = 39.312
Portfolio risk = 2.99
1. The study found that in company Zee entertainment as more return over a period
of 3 years.
2. Βi value it is very lesser in the in the case of company bajaj and it increase in the
case of other companies.
3. Unsystematic risk is low in Bajaj Auto Compare to zee, sun, & icici bank.
4. Construction of portfolio is not just one time job & that continues change would
be required as the economic conditions & the market condition changing.
5. ICICI has more investment return compare to other securities.
6. Stock market in a good position so good return in all securities.
RECOMMENDATIONS:
1. From the portfolio return of 39.312% and the portfolio risk of 2.99%, it is
advisable to invest in the amount in these shares because the return is more than
the risks.
2. The stock prices movements are influenced by various fundamental & technical
aspects of each company before selecting the particular companies.
Page 60
3. Since, this portfolio provides for maximum returns with a given minimum level
of risk. It is advisable to have the above structured optimum portfolio.
4. Brokers should analyze the risk & return of the companies and suggest the
investor in which company they can invest.
5. The concept of the single index model cannot be easily understood by the
layman. So the common man is needed to be educated.
6. An investor has to continuously monitor the various internal & external factors
affecting the stock markets. Though the presence of a regulating body such as the
SEBI & RBI, assures the investors faith to the extent, yet it is for the investors to
keep a constant vigil.
7. Portfolio manager should suggest investors to select the company which earns
the consistent rate of return.
8. If the investor wants the high return of securities then the investors has to take
the higher risk.
9. Investing in Zee ENT. Bajaj auto, Sun pharma, ICICI Bank in the given
proportion is worth because the portfolio return is better compare to portfolio
risk.
Investor B
Findings:
(%)
Maruti 54.34 0.59 23.21

SBI 31.79 1.63 3.084
Hero 20.23 0.97 4.367
Cipla 27.52 1.84 69.34
Page 61
1. This portfolio has been constructed giving due to consideration to past 3
year’s performance of all the nifty companies.
2. The study was constructed on 7 companies of NSE NIFTY. Out of that, the
top 4 companies that are maruti, sbi, hero, cipla are including in the portfolio.
3. The portfolio consists of 4 companies of various sectors & hence the risk
involved in the portfolio is less when compared to the risk involved by
investing all the money in the one company . This portfolio consists of those
company are also the leaders in their respective sectors.
4. Return in high in case of Maruti Suzuki.
5. βi is more in case of cipla and βi is less in case maruthi Suzuki.
6. Unsystematic risk low of cipla compare to hero motor, sbi & maruthi Suzuki.
7. Construction of portfolio is not just one time job & that continues change
would require as the economic conditions & the market condition changing.
RECOMMENDATIONS:
1. The stock prices movements are influenced by various by fundamental &

technical aspects of each company before selecting the particulars
companies.
2. From portfolio return of 33.553% and the portfolio risk of 2.28%, it is
advisable to invest in the amount in the shares because the return is more
than the risks.
3. Since, this portfolio provides for maximum returns with a given minimum
level of risk. It is advisable to have the above structured optimum
portfolio.
4. Brokers should analyze the risk & return of the companies and suggest
the investor in which company they can invest.
6. An investor has to continuously monitor the various internal & external
factors affecting the stock markets. Though the presence of a regulating
body such as the SEBI & RBI, assures the investors faith to the extent, yet
it is for the investors to keep a constant vigil.
Page 62
7. Portfolio manager should suggest investors to select the company which
earns the consistent rate of return.
8. If the investor wants the high return of securities then the investor has to
take the higher risk.
9. Investing in cipla, hero motors, sbi & maruthi Suzuki in the given
proportion is worth because the portfolio return is better compare to
portfolio risk.
Investor C
Findings:
Tata motors 40.84 1.06 2.406

Asian paints 43.53 2.12 97.593

1. This portfolio has been constructed giving due to consideration to past 3 year’s
performance of all the nifty companies.
2. The study was constructed on 7 companies of NSE NIFTY. Out of that, the top
2 companies that is Tata motors and Asian paints.
3. The portfolio consists of 2 companies of different sectors & hence the risk
involved in the portfolio is less when compared to the risk involved by investing
all the money in the one company this portfolio consist of those companies are
also the leaders in their respective sectors.
4. Return in high in case of Asian paints.
5. βi is more in Asian paints and β is less in case Tata motors.
6. Unsystematic risk is low of Asian paints compare to Tata motors.
Page 63
RECOMMENDATIONS:
advisable to invest in the amount in these shares the return is more than the
risks.
affecting the stock markets. Though the presence of a regulating body such as
the SEBI & RBI, assures the investors faith to the extent, yet it is for the
investors to keep a constant vigil.
5. Broker should analyze the risk & return of the companies and suggest the
investors in which company they can invest.
the consistent rate of return.
the higher risk.
9. Investing in Tata motors & Asian paints in the given proportion are worth
because the portfolio return is better compare to portfolio risk.
Page 64
Investor D
Findings:
United spirit 81.22 3.56 7.5

Kotak Mahindra 42.62 2.04 92.5
1. This portfolio has been constructed giving due to consideration to padt 3 year’s
2. The study was constructed on 7 companies of NSE NIFTY. Out of that, the top
2 companies that is united spirit & kotak Mahindra are including in the
portfolio.
3. The portfolio consists of 2 companies of different sectors & hence the risk
all the money in the one company this portfolio consists of those company are
also the leaders in their respective sectors.
4. Return in high in case of united spirit.
5. βi is more in united spirit and less in the case of kotak Mahindra.
6. Unsystematic risk is low of kotak Mahindra compare to united spirit.
RECOMMENDATIONS:
advisable to invest in these shares because the return is more than the risks.
Page 65
affecting the stock markets. Though the presence of a regulating body such as
the SEBI & RBI, assures the investors faith to the extent, yet it is for the
investors to keep a constant vigil.
layman. so the common man is needed to be educated.
the consistent rare of return.
the higher risk.
9. Investing in united spirit & kotak Mahindra in the given proportion is worth
because the portfolio return is better is better compare to portfolio risk.
Investor E
Findings:
Securities Ri βi Xi (%)
Britannia 62.68 0.58 24.6

ITC 23.28 0.61 6.8
HUL 22.36 0.59 19.9
Bosch 42.51 1.87 25.9
Bajaj finance 58.2 3.16 22.6

1. This portfolio has been constructed giving due to consideration to past 3 year’s
2. The study was constructed on 7 companies of NSE NIFTY. Out of that , the top
4 companies are including in the portfolio.
3. The portfolio consists of 5 companies of various sectors & hence the risk
all the money in the one company. This portfolio consists of those companies
Page 66
are also the leaders in their respective sectors.
4. Return in high in case of Britannia.
5. βi is more in case of Bajaj finance and less in case Britannia.
6. Unsystematic risk is low of Britannia compare to ITC, HUL, Bosch and Bajaj
finance.
7. Construction of portfolio is not just one time job & that continues change
would be required as the economic conditions & the market condition changing.
RECOMMENDATIONS:
1. The stock prices movements are influenced by various fundamental &
technical aspects of each company before selecting the particular companies.
advisable to invest in the amount in these shares because the return is more
than the risks.
3. Since, this portfolio provides for maximum returns with a given minimum
level of risk. It is advisable to have the above structured optimum portfolio.
4. An investor has to continuously monitor the various internal & external
factors affecting the stock markets. Though the presence of a regulating
body such as the SEBI & RBI, assures the investors faith to the extent, yet it
is for the investors to keep a constant vigil.
layman. So common man needed to be educated.
7. Portfolio manager should suggest investors to select the company which
earns the consistent rate of return.
8. If the investor wants the high return of securities then the investors has to
take the higher risk.
9. Investing in Britannia, ITC, HUL, BOSCH and BAJAJ in the given
proportion is worth because the portfolio return is better compare to
portfolio risk.
Page 67
CONCLUSION:
It is being observed that casual observation of the stock prices over a period of time
revealed the most of the stock prices move the market index. When Nifty increases,
stock price also tend to increase & vice-versa. Also because of the very tricky stock
market behaviors it has become mandatory to manage portfolio efficiently so as to
reduce the risk while maximizing the returns taking into consideration the investor’s risk
return requirements, portfolio should be constructed and reviewed regularly.
Thus the portfolio construction table would help an investor in investment decisions. I
also hope this dissertation will help the investors as a guiding record in future and help
them to make appropriate investment decision
Sharpe’s single index model generates an efficient combination of securities. Thus, this
study provides the rational for forming an optimum portfolio instead of buying only a
single security.
Page 68
BIBLIOGRAPHY
BIBLIOGRAPHY
Journals :
1. International journal of business management.-Dr. sathya swaroop
debashish(volume no.2, December, 2012)
2. World journal of social sciences’.-Mokta rani sarkar(volume no.3, 6th
nov,2013.)
Books :
1. Fundamental of investment – Gordon j. Alexander, William F Sharpe
2. “Securities Analysis and Portfolio Management”- Punithavathy
Pandian,(second edition,vikas publishing house,2005)
3. Portfolio Management-S.Kevin
4. Prasanna Chandra, “ Investment analysis and portfolio
management”,(second edition)
Internet web portals :

1. www.nseindia.com
2. www.moneycontrole.com
3. www.rediffmoney.com
4. www.sharekhan.com
5. www.investmentwatch.com
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Internship Report

A STUDY ON CONSTRUCTION OF OPTIMAL PORTFOLIO

Under The Guidance Of

Internal Guide External Guide

MAHARAJA INSTITUTE OF TECHNOLOGY –MYSORE

Department of Post Graduate Studies in Management Science

I AKASHA V T, hereby declare that the Internship report entitled “A STUDY ON

CONSTRUCTION OF OPTIMUM PORTFOLIO AT SHAREKHAN

PLACE: MYSORE (AKASHA V T)

I would thanks to Mr.Nagesh.H.G Assistant Professor, Dept of MBA, Maharaja

I would like to express my sincere thanks to Mr.Muddukumar (Assistant Manager, –

My heartfelt thankful to Dr.Y.T.Krishnegowda, Professor, HOD, Dept of MBA,

I also express my thankful to Dr. Naresh Kumar B.G, Principle, Maharaja

1. Introduction about the internship

3. Future Growth and Prospects 20

4. Swot Analysis 22-21

5. Financial statement 22-25

3 Theoretical background of the study 26-33

4 Data analysis & Interpretation 34-59

1. Summary of findings & 60-67

Second part of the project is about portfolio construction.

William F. Sharpe published a model simplifying the mathematical calculations required by

The project is on about the “A study on construction of optimum portfolio at sharekhan

In a stock Brokerage firm sharekhan limited on the topic “construction of optimum

TOPIC CHOSEN FOR STUDY

A STUDY ON CONSTRUCTION OF OPTIMUM PORTFOLIO AT SHAREKHAN

NEED FOR THE STUDY

SCOPE OF THE STUDY

• Daily Share market index( sensex, nifty)

Article name – optimal portfolio construction in stock market an empirical study

Author name: mokta rani sarkar

Journal name: world journal of social sciences

Volume no 3, no.6 November 2013, page no, 75-87

ACTIVE PORTFOLIO MANAGEMENT AND PORTFOLIO CONSTRUCTION

Author: Johan Christian hilsted (December 14th 2012)

LIMITATION OF THE STUDY

Brokerage industry Overview:

Stock broking industry in India

The Function of Exchanges

Broking industry growth and present status in India

Future of the stock broking industry in India

Opportunities for Foreign Investors in Stock Markets in India

• Investment through Stock Exchanges in Stock markets in India: The Foreign

NATIONAL STOCK EXCHANGE (NSE)

• Name of the company : sharekhan Ltd.

Nature of the business carried

Investment advisory services.

Investment option includes:

Online trading ( includes equity, derivatives)

Vision, mission and quality policy

• India’s most respected and admirer financial service brand.

• To be respected nationwide, a full-fledged service company with a focus on the

• Integrity: walk and talk.

Sharekhan is one of India’s leading financial services companies. It provides a complete

b. Derivatives : (futures & options)

e. IPO’S and mutual fund :

h. Portfolio management services :

Summary of sharekhan’s product and services:

0.5% inclusive for delivery single side.