Report on Study of Security Analysis and Portfolio Management

A REPORT
ON
STUDY OF SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT ON EQUITIES
BY
Lokesh Kandula
17BSPHH01C0559
KARVY STOCK BROKING LIMITED

REPORT
ON
STUDY OF SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT ON EQUITIES
BY
Lokesh Kandula
17BSPHH01C0559
KARVY STOCK BROKING LIMITED
A report submitted in partial fulfilment of the requirement of

MBA Program of
IBS HYDERABAD
Distribution list:
Mr. Rajesh Kumar. V (Branch Manager)
Dr. Venkateswarao Korasiga ( Faculty Guide)
Date of Submission: 09/05/2018
AUTHORISATION
I hereby declare that the project entitled A STUDY ON " SECURITY ANALYSIS
AND PORTFOLIO MANAGEMENT ON EQUITIES " IN INDIA with reference

to “KARVY STOCK BROKING LTD”, submitted by me in partial fulfillment for the
requirement of MBA at IBS hyderabad, is genuine and bonafide work done by me and it is
not previously submitted by me for the award of degree or diploma in any other institute or
university.
Place: Hyderabad Lokesh Kandula
Date: 9/05/2018
ACKNOWLEDGEMENT
I would like to express my deep sense of gratitude to the management of “KARVY” for
giving me this opportunity to carry out project and providing an excellent learning
experience.
I Express my sincere thanks to my Internal guide Mr. Rajesh Kumar V , Branch Manager,
under his supervision my project has completed successfully completed.
I am very much thankful to our Internal Guide, Dr. Venkateswarao Korasiga for extending
his cooperation in doing this project.
I would like to thank my friends and family members especially my parents for their
cooperation in completing project successfully.
I also thank all the employees in KARVY for their cooperation and valuable opinions in
successful completion of my project.
Lokesh Kandula
ABSTRACT
The summer internship at karvy stock broking limited includes gaining knowledge about the
stock market and learning about the Equity and derivatives. Project on Security Analysis and
Portfolio Management started with the cold calling to the potential customers and existing
clients to know their investment pattern. Exercises on security analysis and portfolio
formation, valuation for investment decision making, portfolio rebalancing and performance
measures.
Active and passive investment strategies and to apply them in practice. Distinguish the
concept of portfolio theories and apply its principles in formation of investment portfolio
formation.
After analysing all the factors of individual's investment objectives , the most optimistic
portfolio for the client will be suggested.
INTRODUCTION
Stock Market is the place where shares of public listed companies are traded. The primary
market is where companies float shares to the general public in an Initial Public Offering
(IPO) to raise capital. Once new securities have been sold in the primary market, they are
traded in the secondary market. In secondary market , one investor will buys shares from
another at prevailing market price or whatever price both the buyer and seller agree upon. In
India, the primary and secondary market are governed by the Security and Exchange Board
of India(SEBI).
A stock exchange facilitates stock brokers to trade company stocks and other securities. A
stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place
of the stock buyers and sellers. India's premier stock exchanges are the Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE).
Most of the trading in the Indian stock market takes place on its two stock exchanges: the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been
in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading
in 1994. However, both exchanges follow the same trading mechanism, trading hours,
settlement process, etc. Overall BSE has around 8900 stocks listed in that only 3000 stocks
will be traded daily. It is the World's busy stock exchange with a median trade speed of 6
microseconds. BSE is the world's 11th largest stock Exchange. NSE is a platform where the
shares of company are traded. The NSE's index value, NIFTY is arrived at by taking the
market capitalization value of 50 companies from various industries. It is also called NIFTY
50. Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a
dominant share in spot trading, with about 70% of the market share, as of 2009, and almost a
complete monopoly in derivatives trading, with about a 98% share in this market, also as of
2009. Both exchanges compete for the order flow that leads to reduced costs, market
efficiency and innovation. The presence of arbitrageurs keeps the prices on the two stock
exchanges within a very tight range.
Trading at both the exchanges takes place through an open electronic limit order book, in
which order matching is done by the trading computer. There are no market makers or
specialists and the entire process is order-driven, which means that market orders placed by
investors are automatically matched with the best limit orders. As a result, buyers and sellers
remain anonymous. The advantage of an order driven market is that it brings more
transparency, by displaying all buy and sell orders in the trading system. However, in the
absence of market makers, there is no guarantee that orders will be executed.
All orders in the trading system need to be placed through brokers, many of which provide
online trading facility to retail customers. Institutional investors can also take advantage of
the direct market access (DMA) option, in which they use trading terminals provided by
brokers for placing orders directly into the stock market trading system. Different brokers
have different brokerage charges. Karvy charges 0.03% for Intraday and 0.3% in case of
delivery.
Equity spot markets follow a T+2 rolling settlement. This means that any trade taking place
on Monday, gets settled by Wednesday. All trading on stock exchanges takes place between
9:15 am and 3:30 pm, Monday through Friday. Delivery of shares must be made in
dematerialized form, and each exchange has its own clearing house, which assumes all
settlement risk, by serving as a central counterparty.
The two prominent Indian market indexes are SENSEX and NIFTY. Sensex is the oldest
market index for equities, it includes shares of 30 firms listed on the BSE. It represents about
45% of the index's free-float market capitalization. Another index is the Nifty, it includes 50
shares listed on the NSE. It represents about 62% of its free-float market capitalization.
About Karvy
The Karvy group was formed in year 1983 at Hyderabad, India and is now headed by Mr C.
Parthasaradhi as Chairman. The group has more than 30000 employees, spanning 900 offices
in about 400 cities and towns. Karvy is one of the leading financial services conglomerate.
Karvy ranks among the top players in almost all the fields it operates. Karvy stock broking
limited, a member of National stock exchange of India and Bombay stock exchange in India,
ranks among top 5 stock brokers. Over 600000 active accounts, ranks among the top 5
Depository participant in India.
Karvy offers the entire spectrum of financial services, via stock broking, depository
participant, distribution of financial products including mutual funds, bonds, commodities
broking, personal finance, advisory services, merchant banking and corporate finance, wealth
management and NBFC.
Karvy provides non-financial services including Date management services, International

BPO, Data analytics and Market Research.
Karvy Group of companies:

• Karvy Stock broking ltd
Equity broking, Depository participant, Distribution of Financial products, Wealth
management, Currency derivatives, portfolio management services.
• Karvy comtrade ltd
Commodities broking
• Karvy capital ltd
NBFC and Portfolio manager
• Karvy Investment advisory services ltd
Investment advisory services
• Karvy holdings ltd
Core Investment Company
• Karvy middle east ltd
Wealth Management products for NRI's
• Karvy financial services ltd

Non-Banking financial services
• Karvy Insurance Repository ltd
• Karvy Forex and currencies private ltd
• Karvy Consultants ltd
• Karvy Computer share private ltd
• Karvy Data management services ltd

• Karvy Investor services ltd
Major Competitors
• ICICI Direct
• IIFL
• Angel Broking
• India Bulls
• Motilal Oswal securities
• Religare
Financial performance
 The total paid-up capital INR 2.26 crores.

 The company have secured loans in amount of 395 crores
 Net profit after tax in year 2016-17 is INR1160.08 lakhs.
 Company’s net worth in 2017 ending is INR 42462 lakhs
Market share:
1. Karvy has 10 lakhs Demat accounts, holding stocks. 220000 are the average number
of traders per day through Karvy.
2. Karvy stands at 4th place among top stock brokers in India.
3. Turnover wise Karvy is in first place in stock broking business
4. Karvy stock broking has 460 branches in 25 states.
5. Client base of Karvy in year 2016-17 in NSE is 1746090 and BSE 3936800.
Chapter – 1
Introduction:
INVESTMENT:
Investment is a financial activity that involves risk. It is the commitment of funds for a return
expected to be realized in the future. Investment can be made in financial assets or physical assets.
In either case there is possibility that the actual return may vary from the expected return that
possibility is risk involved in it. Investment is generally distinguished from speculation in terms of 3
factors namely risk, capital gain and time period. Gambling is the extreme form of speculation.
Investors may be individual or institutions; there is large number of investment avenues for savers in
India. Corporate securities, deposits in the banks and Non-Banking companies, mutual funds
schemes, provident fund schemes, life insurance policies, government securities are some of the
important avenues.
Investment avenues:
There are a large number of investment avenues for savers in India. Some of them are marketable
and liquid, while others are non-marketable. Some of them are highly risky while some others are
almost risk less.
Investment avenues can be broadly categorized under the following head.
1. Corporate securities
2. Equity shares.
3. Preference shares.
4. Debentures/Bonds.
5. Derivatives.
6. Others.
Corporate Securities
Joint stock companies in the private sector issue corporate securities. These include equity shares,
preference shares, and debentures. Equity shares have variable dividend and hence belong to the
high risk-high return category; preference shares and debentures have fixed returns with lower risk.
The classification of corporate securities that can be chosen as investment avenues can be depicted
as shown below:
Equity Preference Bonds Warrants Derivatives

shares
Shares
Characteristics of investment are Return, Risk, Safety and liquidity. Risk and return of an investment
related. Normally, the higher the risk , the higher is the return. Hence an investor generally prefers
liquidity for his investment, safety of his funds, good return with minimum risk and maximum return.
Return:
The term Return from an investment refers to the benefits from that investment. In the field of
finance in general and security analysis in particular, the term return is almost invariably associated
with a percentage (say, return on investment of 12% ) and not a mere amount ( like, profit of Rs.
150.). In security analysis we are primarily concerned with return forms a particular investment say,
a share or a debenture or other financial instrument.
 Single period Returns:
It refers to a situation where an investor is concerned with return from a single period (say, one day,
one week , one month or one year).
 Multi period Returns:
It refers to situation where more than single period returns are under consideration. Investor is
concern with computing the return per period, over a longer period.
 Ex-Post Returns:
The measurement of return from the historical data can be referred to Ex- Post returns. This
includes the both current income and capital gains (or losses) brought about by gains price of the
security. The income and capital gains are then expressed as .a percentage of the initial investment.
 Ex-Ante Returns:
The majority of investors tend to emphasize the return they expect from a security while making
investment decision and the expected return of a security. This enables the investors to look into
future prospects from an investment and the measurement of returns from expectation of benefits
is known as ex-ante returns.
RISK AND EXPECTED RETURN:
There is a positive relationship between the amount of risk and the amount of expected return i.e.,
the greater the risk, the larger the expected return and larger the chances of substantial loss. One of
the most difficult problems for an investor is to estimate the highest level of risk he is able to
assume.
 Risk is measured along the horizontal axis and increases from the left to right.
 Expected rate of return is measured on the vertical axis and rises from bottom to top.
 The line from 0 to R (f) is called the rate of return or risk less investments commonly associated with
the yield on government securities.
 The diagonal line form R (f) to E(r) illustrates the concept of expected rate of return increasing as
level of risk increases.
TYPES OF RISKS:
Risk consists of two components. They are
1. Systematic Risk
2. Un-systematic Risk
1. Systematic Risk:
Systematic risk is caused by factors external to the particular company and uncontrollable by the
company. The systematic risk affects the market as a whole. Factors affect the systematic risk are
 economic conditions
 political conditions
 sociological changes
The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They are
a) Market Risk
b) Interest Rate Risk
c) Purchasing Power Risk
a) Market Risk:
One would notice that when the stock market surges up, most stocks post higher price. On the
other hand, when the market falls sharply, most common stocks will drop. It is not uncommon to
find stock prices falling from time to time while a company‘s earnings are rising and vice-versa. The
price of stock may fluctuate widely within a short time even though earnings remain unchanged or
relatively stable.
b) Interest Rate Risk:

Interest rate risk is the risk of loss of principal brought about the changes in the interest rate paid on
new securities currently being issued.
c) Purchasing Power Risk:

The typical investor seeks an investment which will give him current income and / or capital
appreciation in addition to his original investment.
2. Un-systematic Risk:
Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of raising
finance and paying back the loans, involve the risk element. Financial leverage of the companies that
is debt-equity portion of the companies differs from each other. All these factors affect the un-
systematic risk and contribute a portion in the total variability of the return.
 Managerial inefficiency
 Technological change in the production process
 Availability of raw materials
 Changes in the consumer preference
 Labour problems
The nature and magnitude of the above mentioned factors differ from industry to industry and
company to company. They have to be analyzed separately for each industry and firm. Un-
systematic risk can be broadly classified into:
a) Business Risk
b) Financial Risk
Business Risk:
Business risk is that portion of the unsystematic risk caused by the operating environment of the
business. Business risk arises from the inability of a firm to maintain its competitive edge and growth
or stability of the earnings. The volatility in stock prices due to factors intrinsic to the company itself
is known as Business risk. Business risk is concerned with the difference between revenue and
earnings before interest and tax. Business risk can be divided into
i). Internal Business Risk
Internal business risk is associated with the operational efficiency of the firm. The operational
efficiency differs from company to company. The efficiency of operation is reflected on the
company‘s achievement of its pre-set goals and the fulfilment of the promises to its investors.
ii).External Business Risk
External business risk is the result of operating conditions imposed on the firm by circumstances
beyond its control. The external environments in which it operates exert some pressure on the firm.
The external factors are social and regulatory factors, monetary and fiscal policies of the
government, business cycle and the general economic environment within which a firm or an
industry operates.
a. Financial Risk:
It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in
a company is associated with the capital structure of the company. Capital structure of the company
consists of equity funds and borrowed funds.
OBJECTIVES OF THE STUDY:
 To analyze securities.
 How portfolio management is done.
 To study the investment pattern and its related risk & returns.
 To understand, analyze and select the best portfolio.
 To help the investor to chose wisely between alternative investment.
 To strike balance between costs of funds, risk and returns.
REASEARCH METHODOLOGY
 SOURCES OF DATA COLLECTION: The methodology adopted or

Employed in this study was Mostly on secondary data collection i.e..,
 Companies Annual Reports
 Information from Internet

 Publications
 Information provided by Inter Connected Stock Exchange.
 Data from Capital Line
 Period of study:
For different companies, financial data has been collected from the year 2015-2018.
Selection of Companies:
Companies selected for analysis are
 Infosys
 Mindtree
 Tata Steel
 Vedanta
 HDFC
 AXIS
 DR.REDDY’S
 CIPLA
Chapter – 2
Review of Literature
PORTFOLIO MANAGEMENT & ITS PHASES
PORTFOLIO MANAGEMENT is a process encompassing many activities aimed at

optimizing investment of funds, each phase is an integral part of the whole process and the
success of portfolio management depends upon the efficiency in carrying out each phase.
Five phases can be identified:-
(1) Security analysis
(2) Portfolio analysis
(3) Portfolio selection
(4) Portfolio revision
(5) Portfolio evaluation
Security Analysis
It refers to the analysis of trading securities from the point of view of their prices, return, and
risk. All investment is risky and the expected return is related to risk. The securities available
to an investor for investment are numerous and of various types. The shares of over more
than 7000 are listed in stock exchanges of the country.
It examines the risk return characteristics of individual securities. A basic strategy in

securities investment is to buy under priced securities and sell over priced securities. But the
problem is how to identify such securities in other words mispriced securities. This is what
security analysis is all about.
Prices of the securities in the stock market fluctuate daily on the account of
continuous buying and selling. Stock prices move in trends and cycles and are never stable.
An investor in the stock market is interested in buying securities at low price and selling them
at high price so as to get a good return on his investment made. He therefore tries to analyse
the movement of share prices in the market.
Two approaches are commonly used for this purpose.
 Fundamental analysis where in the analyst tries to determine the intrinsic value of
the share based on the current and future earning capacity of the company.
 Technical analysis is an alternative approach to the study of stock price behaviour.
Portfolio Management
Many times the investors go on acquiring assets in an unplanned manner, the result is high
risk, low return profile that they may face. The wise investor not only plans his portfolio as
per risk return profile or preferences but manages his portfolio efficiently so as to secure the
highest return for the lowest risk possible at that level of investment. The basic principle is
that the higher the risk, the higher is the return. Risk return analysis is essential for the
investment & portfolio management. Investors choice depends upon the risk return
characteristics of individual securities. As the economic and financial environment keep
changing the risk return characteristics of individual securities as well as portfolios also
change. An investor invests his funds in a portfolio expecting to get a good return consistent
with the risk that he has to bear. Portfolio management comprises all the processes involved
in the creation & maintenance of an investment portfolio.
Portfolio Theories
1. MARKOWITZ MODEL
Markowitz model is a theoretical framework for analysis of risk and return and their
relationships. Markowitz model is also called as a “Full Covariance Model". It determines
for the efficient set of portfolio through three important variables i.e.
 Return
 Standard deviation
 Co-efficient of correlation
Through this model the investor can find out the efficient set of portfolio by finding out the
trade off between risk and return, between the limits of zero and infinity. According to this
theory, the effects of one security purchase over the effects of the other security purchase are
taken into consideration and then the results are evaluated. Most people agree that holding
two stocks is less risky than holding one stock. For example, holding stocks from textile,
banking and electronic companies is better than investing all the money on the textile
company‘s stock.
2. CAPITAL ASSET PRICING MODEL (CAPM)
Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure of Capital
Asset Pricing Model. It is a model of linear general equilibrium return. In the CAPM theory, the
required rate return of an asset is having a linear relationship with asset‘s beta value i.e. systematic
risk (i.e. market related risk) because non market risk can be eliminated by diversification and
systematic risk measured by beta. Therefore, the relationship between an assets return and its
systematic risk can be expressed by the CAPM, which is also called the Security Market Line.
Rp= Rf Xf+ Rm(1- Xf)
Where, Rp = Portfolio return
Xf = The proportion of funds invested in risk free assets
1- Xf = The proportion of funds invested in risky assets
Rf = Risk free rate of return
Rm = Return on risky assets
Formula can be used to calculate the expected returns for different situations, like mixing risk
less assets with risky assets, investing only in the risky asset and mixing the borrowing with
risky assets.
3. THE SHARPE’S INDEX MODEL
The investor always like to purchase a combination of stock that provides the highest return and has
lowest risk. He wants to maintain a satisfactory reward to risk ratio traditionally analysis paid more
attention to the return aspects of the stocks. Now a day’s risk has received increased attention and
analysts are providing estimates of risk as well as return.
Sharp has developed a simplified model to analyze the portfolio. He assumed that the return of a
security is linearly related to a single index like to market index. Strictly speaking the market index
should consist of all the securities trading on the exchange.
In the absence of it, a popular index can be treated as a surrogate for the market index.
Sharpe has provided a model for the selection of appropriate securities in a portfolio. The selection
of any stock is directly related to its excess return – beta ratio
Ri = Rf/ai
Where, Ri = the expected return on stock i
Rf = the return on a risk less asset
ai =the expected change in the rate of return on stock associated with one unit
change in the market return.
4. SINGLE INDEX MODEL
Causal observation of the stock prices over a period of time reveals that most of the stock process
move with the market index. When sensex increases, stock prices also tend to increase and vice
versa. This indicates that some underlying factor affect the market index as well as the stock prices.
Stock prices are related to the market index and this relationship could be used to estimate the
return on stock. Towards the purpose, the following equation can be used:
Ri = a+a iRm+ei
Where, R = expected return on security i
a = intercept of the straight line or alpha co-efficient
ai = slope of straight line or beta co-efficient
Rm = the rate of return on market index
ei = error term with a mean of zero and standard deviation which is a constant.
5. ARBITRAGE PRICING THEORY(APT)
According to this theory the returns of the securities are influenced by a number of
macroeconomic factors such as growth rate of industrial production rate of inflation, spread
between low-grade and high grade bonds.
The Law of One Price:
The foundation for APT is the law of one price. The law of one price states that two identical
goods should sell at the same price. If they sold at different prices anyone could engage in
arbitrage by simultaneously buying at low prices and selling at the high prices and make a
risk less profit.
Arbitrage also applies to financial assets. If two financial assets have the same risk, they
should have the same expected return. If they do not have the same expected return, a riskless
profit could be earned by simultaneously issuing(or selling short) at the low return and
buying the high return asset. Arbitrage causes prices to be revised as suggested by the law of
one price.
The arbitrage pricing line for one risk factor can be written as:
R = λ0+ λIβi
where, R is the expected return on the security
λ0 is the return on the zero beta portfolio
λI is the factor risk premium
βi is the sensitivity of the ith asset to the risk factor
Two factor Arbitrage pricing: The Two-factor model describes the return of ith security as
follows:
R = λ0+ λIβ1i+ λ2β2i
where, λ2 is the risk premium associated with risk factor2
β2i is the factor beta coefficient for factor 2 and the factor 1 &2 are uncorrelated
Portfolio Performance Measures
Portfolio performance evaluation involves determining periodically how the portfolio

performed in terms of not only the return earned, but also the risk experienced by the
investor. For portfolio evaluation appropriate measures of return and risk as well as relevant
standards are needed.
In general, the market value of a portfolio at a point of time is determined by adding the markets
value of all the securities held at that particular time. The market value of the portfolio at the end of
the period is calculated in the same way, only using end-of-period prices of the securities held in the
portfolio.
The return on the portfolio (Rp):

Rp = (P1 - P0) / P0
here: P0 - beginning value of the portfolio
P1 - ending value of the portfolio.
The essential idea behind performance evaluation is to compare the returns which were
obtained on portfolio with the results that could be obtained if more appropriate alternative
portfolios had been chosen for the investment. Such comparison portfolios are often referred
to as benchmark portfolios. In selecting them investor should be certain that they are relevant,
feasible and known in advance. The benchmark should reflect the objectives of the investor.
Portfolio Beta: It can be used as an indication of the amount of market risk that the portfolio
had during the time interval. It can be compared directly with the betas of other portfolios.
To adjust the return for risk before comparison of performance risk adjusted measures of
performance can be used:
 Sharpe’s ratio
 Treynor’s ratio
 Jensen’s Alpha.
Sharpe’s ratio shows an excess a return over risk free rate, or risk premium, by unit of total
risk, measured by standard deviation:
Sharpe’s ratio = (Rp– Rf) / σp
here: Rp - the average return for portfolio p during some period of time.
Rf - the average risk-free rate of return during the period.
σp - standard deviation of returns for portfolio p during the period.
Treynor’s ratio shows an excess actual return over risk free rate, or risk premium, by unit of
systematic risk, measured by Beta.
Treynor’s ratio = (Rp –Rf) / βp
here: βp – Beta, measure of systematic risk for the portfolio.
Jensen‘s Alpha shows excess actual return over required return and excess of actual risk
premium over required risk premium. This measure of the portfolio manager’s performance
is based on the CAPM.
Jensen’s Alpha = (Rp– Rf) – βp (Rm –Rf)
here: Rm - the average return on the market in period.
(Rm –Rf) - the market risk premium during period.
It is important to note, that if a portfolio is completely diversified, all of these measures

(Sharpe, Treynor’s ratios and Jensen’s alpha) will agree on the ranking of the portfolios. The
reason for this is that with the complete diversification total variance is equal to systematic
variance. When portfolios are not completely diversified, the Treynor’s and Jensen’s
measures can rank relatively undiversified portfolios much higher than the Sharpe measure
does. Since the Sharpe ratio uses total risk, both systematic and unsystematic components are
included.
FUNDAMENTAL ANALYSIS
It's a logical and systematic approach to estimating the future dividends & share price as
these two constitutes the return from investing in shares. According to this approach, the
share price of a company is determined by the fundamental factors affecting the Economy/
Industry/ Company such as Earnings Per Share, DIP ratio, Competition, Market Share,
Quality of Management etc. it calculates the true worth of the share based on its present and
future earning capacity and compares it with the current market price to identify the
mispriced securities.
Fundamental analysis involves a three-step examination, which calls for:
 Understanding of the macro-economic environment and developments.

 Analyzing the prospects of the industry to which the firm belongs.
 Assessing the projected performance of the company.
MACRO ECONOMIC ANALYSIS:
The macro-economy is the overall economic environment in which all firms operate. The key
variables commonly used to describe the state of the macro-economy are:
Growth Rate of Gross Domestic Product (GDP):
The Gross Domestic Product is measure of the total production of final goods and services in
the economy during a specified period usually a year. The growth rate of GDP is the most
important indicator of the performance of the economy. The higher the growth rate of GDP,
other things being equal, the more favourable it is for the stock market.
Industrial Growth Rate:
The stock market analysts focus more on the industrial sector. They look at the overall
industrial growth rate as well as the growth rates of different industries. The higher the
growth rate of the industrial sector, other things being equal, the more favourable it is for the
stock market.
Agriculture and Monsoons:
Agriculture accounts for about a quarter of the Indian economy and has important linkages,
direct and indirect, with industry. Hence, the increase or decrease of agricultural production
has a significant bearing on industrial production and corporate performance. A spell of good
monsoons imparts dynamism to the industrial sector and buoyancy to the stock market.
Likewise, a streak of bad monsoons casts its shadow over the industrial sector and the stock
market.
Savings and Investments:
The demand for corporate securities has an important bearing on stock price movements. So
investment analysts should know what the level of investment in the economy is and what
proportion of that investment is directed toward the capital market. The analysts should also
know what the savings are and how the same are allocated over various instruments like
equities, bonds, bank deposits, small savings schemes, and bullion. Other things being equal,
the higher the level of savings and investments and the greater the allocation of the same over
equities, the more favourable it is for the stock market.
Government Budget and Deficit:
Government plays an important role in most economies. The excess of government

expenditures over governmental revenues represents the deficit. While there are several
measures for deficit, the most popular measure is the fiscal deficit. The fiscal deficit has to be
financed with government borrowings, which is done in three ways:
 The government can borrow from the reserve bank of India.
 The government can resort to borrowing in domestic capital market.
 The government may borrow from abroad.
 Investment analysts examine the government budget to assess how it is likely to
impact on the stock market.
Price Level and Inflation:
The price level measures the degree to which the nominal rate of growth in GDP is
attributable to the factor of inflation. The effect of inflation on the corporate sector tends to
be uneven. While certain industries may benefit, others tend to suffer. Industries that enjoy a
strong market for these products and which do not come under the purview of price control
may benefit. On the other hand, industries that have a weak market and which come under the
purview of price control tend to lose. On the whole, it appears that a mild level of inflation is
good for the stock market.
Interest Rate:
Interest rates vary with maturity, default risk, inflation rate, productivity of capital, special
features, and so on. A rise in interest rates depresses corporate profitability and also leads to
an increase in the discount rate applied by equity investors, both of which have an adverse
impact on stock prices. On the other hand, a fall in interest rates improves corporate
profitability and also leads to a decline in the discount rate applied by equity investors, both
of which have a favourable impact on stock prices.
Balance of Payments, Forex Reserves, and Exchange Rates:
The balance of payments deficit depletes the forex reserves of the country and has an adverse
impact on the exchange rate; on the other hand a balance of payments surplus augments the
forex reserves of the country and has a favorable impact on the exchange rate.
Infrastructural Facilities and Arrangements:
 Infrastructural facilities and arrangements significantly influence industrial

performance. More specifically, the following are important:
 Adequate and regular supply of electric power at a reasonable tariff.
 A well developed transportation and communication system (railway transportation,
road network, inland waterways, port facilities, air links, and telecommunications
system).
 An assured supply of basic industrial raw materials like steel, coal, petroleum
products, and cement.
 Responsive financial support for fixed assets and working capital.
Sentiments:
The sentiments of consumers and businessmen can have an important bearing on economic
performance. Higher consumer confidence leads to higher expenditure on big ticket items.
Higher business confidence gets translated into greater business investment that has a
stimulating effect on the economy. Thus, sentiments influence consumption and investment
decisions and have a bearing on the aggregate demand for goods and services.
INDUSTRY ANALYSIS:
The objective of this analysis is to assess the prospects of various industrial groupings. Admittedly, it
is almost impossible to forecast exactly which industrial groupings will appreciate the most. Yet
careful analysis can suggest which industries have a brighter future than others and which industries
are plagued with problems that are likely to persist for while.
Concerned with the basics of industry analysis, this section is divided into three parts:
 Industry life cycle analysis

 Study of the structure and characteristics of an industry
 Profit potential of industries: Porter model.
INDUSTRY LIFE CYCLE ANALYSIS:
Many industries economists believe that the development of almost every industry may be
analyzed in terms of a life cycle with four well-defined stages:
Pioneering stage:
During this stage, the technology and or the product are relatively new. Lured by promising
prospects, many entrepreneurs enter the field. As a result, there is keen, and often chaotic,
competition. Only a few entrants may survive this stage.
Rapid Growth Stage:
In this stage firms, which survive the intense competition of the pioneering stage, witness
significant expansion in their sales and profits?
Maturity and Stabilization Stage:
During the stage, when the industry is more or less fully developed, its growth rate is
comparable to that of the economy as a whole. With the satiation of demand, encroachment
of new products, and changes in consumer preferences, the industry eventually enters the
decline stage, relative to the economy as a whole. In this stage, which may continue
indefinitely, the industry may grow slightly during prosperous periods, stagnate during
normal periods, and decline during recessionary periods.
STUDY THE STRUCTURE & CHARACTERISTICS OF AN INDUSTRY:
Since each industry is unique, a systematic study of its specific features and characteristics
must be an integral part of the investment decision process. Industry analysis should focus on
the following:
Structure of the Industry and nature of Competition:
 The number of firms in the industry and the market share of the top few (four to five)
firms in the industry
 Licensing policy of the government
 Entry barriers, if any
 Pricing policies of the firm
 Degree of homogeneity or differentiation among products
 Competition from foreign firms
 Comparison of the products of the industry with substitutes in terms of quality, price,
appeal, and functional performance
Nature and Prospect of Demand:
 Major customer and their requirements

 Key determinants of demand
 Degree of cyclicality in demand
 Expected rate of growth in the foreseeable future
Cost, Efficiency, and Profitability:
 Proportions of the key cost elements, viz. raw materials, labour, utilities, & fuel
 Productivity of labour
 Turnover of inventory, receivables, and fixed assets
 Control over prices of outputs and inputs
 Behaviour of prices of inputs and outputs in response to inflationary pressures
 Gross profit, operating profit, and net profit margins
 Return on assets, earning power, and return on equity
Technology and Research:
 Degree of technological stability

 Important technological changes on the horizon and their implications
 Research and development outlays as a percentage of industry sales
 Proportion of sales growth attributable to new products
CHAPTER – 4
Data Analysis
IT Sector: Infosys & Mindtree
INFOSYS
Closing Price % change in
2015-16 Opening Price (P0) (P1) Change in price (P1-P0) price
1st quarter 1099.45 984.35 -115.1 -10.47%
2nd quarter 989 1161.95 172.95 17.49%
3rd quarter 1169.9 1105.4 -64.5 -5.51%
4th quarter 1100 1205.95 105.95 9.63%
AVG RETURN 1099.45 1205.95 106.5 9.69%
1st quarter 1216 1,170.80 -45.20 -3.72%
2nd quarter 1180 1036.05 -143.95 -12.20%
3rd quarter 1035.5 1010.6 -24.90 -2.40%
4th quarter 1011.1 1022.25 11.15 1.10%
AVG RETURN 1216 1022.25 -193.75 -15.93%
1st quarter 1032.15 935.55 -96.6 -9.36%
2nd quarter 941.1 899.9 -41.2 -4.38%
3rd quarter 910.1 1042.05 131.95 14.50%
4th quarter 1037.7 1131.8 94.1 9.07%
AVG RETURN 1032.15 1131.8 99.65 9.65%
AVG ANNUAL RETURN 1.14%
Infosys
Average annualized Returns 0.01136 0.06182
Variance 0.00023 0.00007
Standard Deviation 0.01524 0.00854
Annualized Risk 0.41474 0.23244
Covariance 0.00005
Beta 0.75413
Rf 0.069
CAPM 0.063581926
Infosys is giving average annual return of just 1.13% compared to the market return of 6.2%
which indicated investing in Infosys is less profitable, also Beta indicates defencive as it is
less thn 1.
MindTree:
1st quarter 655 636.9 -18.1 -2.76%
2nd quarter 640.5 757.23 116.73 18.22%
3rd quarter 756.75 716.88 -39.87 -5.27%
4th quarter 721.5 653.25 -68.25 -9.46%
AVG RETURN 655 653.25 -1.75 -0.27%
1st quarter 653 664.85 11.85 1.81%
2nd quarter 667.75 482.15 -185.60 -27.79%
3rd quarter 485 521.65 36.65 7.56%
4th quarter 522 452.95 -69.05 -13.23%
AVG RETURN 653 452.95 -200.05 -30.64%
1st quarter 454 529 75 16.52%
2nd quarter 530.9 464.85 -66.05 -12.44%
3rd quarter 465 612.4 147.4 31.70%
4th quarter 610.8 771.95 161.15 26.38%
AVG RETURN 454 771.95 317.95 70.03%
AVG ANNUAL RETURN 13.04%
Mindtree
Variance 0.00041 0.00007
Covariance 0.00005
Beta 0.71950
Rf 0.06900
CAPM 0.06383
Mindtree is giving average return of 13.04 % compared to return on market as 6.1% which
indicates investing in mindtree is profitable. However Beta is less than 1 indicates defensive
Relation Between Infosys & MindTree:
COVAR(INFOSYS,MINDTREE) 0.000083
CORR(INFOSYS,MINDTREE) 0.268944762
VAR(INFOSYS,MINDTREE) 0.000320012
PORTFOLIO w1(30):w2(70) w1(50):w2(50) w1(80):w2(20)
Return 0.094711995 0.070897023 0.035174565
variance 0.000255734 0.000201508 0.000191394
risk 0.015991691 0.014195346 0.013834519
Beta (portfolio) 0.258736072
Conclusion:
Portfolio with different weightages as mentioned is calculated for Infosys & MindTree, From
the above table we can observe that 30% of Infosys and 70% of MindTree gives best Returns
i.e, annual average of 9.4% with a risk of 1.5%.
Metals:
Vedanta:
1st quarter 190.8 174.15 -16.65 -8.73%
2nd quarter 174.1 84.7 -89.4 -51.35%
3rd quarter 86.1 90.4 4.3 4.99%
4th quarter 90.9 89.85 -1.05 -1.16%
AVG RETURN 190.8 89.85 -100.95 -52.91%
1st quarter 89.75 131.95 42.20 47.02%
2nd quarter 132.95 172.05 39.10 29.41%
3rd quarter 173.85 216.15 42.30 24.33%
4th quarter 216.45 274.95 58.50 27.03%
AVG RETURN 89.75 274.95 185.20 206.35%
1st quarter 276.1 249.05 -27.05 -9.80%
2nd quarter 251 314.25 63.25 25.20%
3rd quarter 318.1 329.9 11.8 3.71%
4th quarter 331 277.85 -53.15 -16.06%
AVG RETURN 276.1 277.85 1.75 0.63%
AVG ANNUAL
RETURN 51.36%
Vedanta
Variance 0.000862672 0.00007
Annualized Risk 0.799524976 0.232440667
Covariance 0.00014861
Beta 2.038171356
Rf 0.069
CAPM 0.054356603
Vedanta is giving an average annual return of 51% compared to the return on market of 6.1%.
Investing in Vedanta is more profitable. Beta of 2 indicates stock is aggressive.
TataSteel:
1st quarter 302.02 290.2 -11.82 -3.91%
2nd quarter 290.59 202.55 -88.04 -30.30%
3rd quarter 204.84 247.52 42.68 20.84%
4th quarter 246.76 304.59 57.83 23.44%
AVG RETURN 302.02 304.59 2.57 0.85%
1st quarter 302.64 306.73 4.09 1.35%
2nd quarter 311.07 356.56 45.49 14.62%
3rd quarter 359.09 372.76 13.67 3.81%
4th quarter 374.86 459.89 85.03 22.68%
AVG RETURN 302.64 459.89 157.25 51.96%
1st quarter 463.03 519.96 56.93 12.30%
2nd quarter 519.72 621.71 101.99 19.62%
3rd quarter 625.47 697.79 72.32 11.56%
4th quarter 697.88 571.05 -126.83 -18.17%
AVG RETURN 463.03 571.05 108.02 23.33%
AVG ANNUAL
RETURN 25.38%
Tatasteel
Variance 0.000528502 0.00007
Annualized Risk 0.625795732 0.232440667
Beta 1.604674884
Rf 0.069
CAPM 0.057471091
Tatasteel is giving the return of 25.37% on an average compared to the 6.1% return on
market per year. Beta value of more than 1 represents stock is aggressive.
COV(VEDANTA,TATASTEEL) 0.000441195
CORR(VEDANTA, TATASTEEL) 0.65340728
VAR(VEDANTA, TATASTEEL) 0.000695123

Return 0.331734371 0.383692168 0.513586661
variance 0.000521909 0.000568391 0.000714433
risk 0.022845317 0.023840954 0.026728874
Beta 0.634700337
Conclusion: Portfolio with different weightages as mentioned is calculated for Vedanta &
Tatasteel, From the above table we can observe that 80% of Vedanta and 20% of Tatasteel
gives best Returns i.e, annual average of 51% with a risk of 2%.
Banking sector:
HDFC
1st quarter 1026.1 1067.15 41.05 4.00%
2nd quarter 1061.35 1068.8 7.45 0.70%
3rd quarter 1075.2 1082.15 6.95 0.65%
4th quarter 1082.4 1071.15 -11.25 -1.04%
AVG RETURN 1026.1 1071.15 45.05 4.39%
1st quarter 1068.8 1,176.45 107.65 10.07%
2nd quarter 1180 1272.85 92.85 7.87%
3rd quarter 1281 1206.2 -74.80 -5.84%
4th quarter 1209.45 1442.45 233.00 19.26%
AVG RETURN 1068.8 1442.45 373.65 34.96%
1st quarter 1446 1652.05 206.05 14.25%
2nd quarter 1652.6 1805.7 153.1 9.26%
3rd quarter 1808 1872.4 64.4 3.56%
4th quarter 1872.7 1886.1 13.4 0.72%
AVG RETURN 1446 1886.1 440.1 30.44%
AVG ANNUAL
RETURN 23.26%
HDFC
Variance 0.000094 0.000073
Beta 0.7895
Rf 0.069
CAPM 0.063328052
HDFC bank is giving return of 23.26% on an average per year which indicates good to
invest in the stock however beta indicates stock is defensive in nature.
AXIS:
1st quarter 557.7 558.95 1.25 0.22%
2nd quarter 558.8 495.65 -63.15 -11.30%
3rd quarter 500 449.9 -50.1 -10.02%
4th quarter 449.75 444.15 -5.6 -1.25%
AVG RETURN 557.7 444.15 -113.55 -20.36%
1st quarter 440.9 533.50 92.60 21.00%
2nd quarter 535.8 541.35 5.55 1.04%
3rd quarter 542.95 449.95 -93.00 -17.13%
4th quarter 451.4 449.25 -2.15 -0.48%
AVG RETURN 440.9 449.25 8.35 1.89%
1st quarter 495.7 517.35 21.65 4.37%
2nd quarter 517.1 509.15 -7.95 -1.54%
3rd quarter 514 563.95 49.95 9.72%
4th quarter 563.8 510.5 -53.3 -9.45%
AVG RETURN 495.7 510.5 14.8 2.99%
AVG ANNUAL
RETURN -5.16%
AXIS
Average annualized Returns -0.0516 0.0618
Variance 0.00036 0.000073
Beta 1.3220
Rf 0.069
CAPM 0.059502037
Axis bank is giving a loss of 5.1% which indicates investing in Axis is not a good decision.
COV(HDFC,AXIS) 0.00006741
CORR(HDFC,AXIS) 0.36725576
VAR(HDFC,AXIS) 0.000226036
Return 0.033663813 0.090508307 0.232619543
variance 0.000183837 0.000113008 7.45696E-05
risk 0.013558658 0.010630532 0.008635371
Beta 0.298241042
Conclusion: Portfolio with different weightages as mentioned is calculated for HDFC &
AXIS , From the above table we can observe that 80% of HDFC and 20% of AXIS gives
best Returns i.e, annual average of 23% with a risk of 0.8%.
DR.REDDY'S
1st quarter 3541 3559.45 18.45 0.52%
2nd quarter 3548 4162.35 614.35 17.32%
3rd quarter 4213.75 3108.6 -1105.15 -26.23%
4th quarter 3118.8 3035.2 -83.6 -2.68%
AVG RETURN 3541 3035.2 -505.8 -14.28%
1st quarter 3020 3,381.75 361.75 11.98%
2nd quarter 3430 3107.4 -322.60 -9.41%
3rd quarter 3114.6 3060.4 -54.20 -1.74%
4th quarter 3066 2690.1 -375.90 -12.26%
AVG RETURN 3020 2690.1 -329.90 -10.92%
1st quarter 2644.8 2690.1 45.3 1.71%
2nd quarter 2700 2328.75 -371.25 -13.75%
3rd quarter 2415 2414.2 -0.8 -0.03%
4th quarter 2410 2080.55 -329.45 -13.67%
AVG RETURN 2644.8 2080.55 -564.25 -21.33%
AVG ANNUAL
RETURN -15.51%
Dr.Reddy's
Variance 0.000334293 0.000073
Annualized Risk 0.497705484 0.232440667
Beta 0.67858865
Rf 0.069
CAPM 0.064124628
Dr.Reddy’s is indicating a loss venture with an average return of -15%, which shows
investing in Dr.Reddy’s is not a good idea.
CIPLA
1st quarter 714 615.4 -98.6 -13.81%
2nd quarter 619 636.05 17.05 2.75%
3rd quarter 642.9 649.75 6.85 1.07%
4th quarter 653.2 511.95 -141.25 -21.62%
AVG RETURN 714 511.95 -202.05 -28.30%
1st quarter 513.8 501.00 -12.80 -2.49%
2nd quarter 502 580.05 78.05 15.55%
3rd quarter 584.7 568.8 -15.90 -2.72%
4th quarter 569.75 592.95 23.20 4.07%
AVG RETURN 513.8 592.95 79.15 15.40%
1st quarter 595.3 555.6 -39.7 -6.67%
2nd quarter 559 586.1 27.1 4.85%
3rd quarter 590.1 608.5 18.4 3.12%
4th quarter 608 545.45 -62.55 -10.29%
AVG RETURN 595.3 545.45 -49.85 -8.37%
AVG ANNUAL
RETURN -7.09%
Cipla
Variance 0.000253149 0.000073
Annualized Risk 0.433108769 0.232440667
Beta 0.818549577
Rf 0.069
CAPM 0.063119068
Cipla is an other Pharmaceutical stock which is giving an annual loss of 7%.
COV(DR.REDDY'S, CIPLA) 0.000093200

CORR(DR.REDDY'S, CIPLA) 0.320378733
VAR(DR.REDDY'S, CIPLA) 0.000293547

Return -0.096166242 -0.113016133 -0.138290969
Variance 0.000193273 0.00019346 0.000253897
Risk 0.01390227 0.013908997 0.015934148
Beta 0.317494945
Conclusion: Portfolio with different weightages as mentioned is calculated for DR.REDDY’S &
CIPLA , From the above table we can observe that 30% of DR.REDDY’S and 70% of CIPLA
gives lesser loss on Returns i.e, annual average of 9.6% with a risk of 1.3%. Which indicats
it is riskier to invest in pharmaceutical sector.
Comparison of Four sectors:
Sector Average Returns per year (Best)

IT 9.4
Metals 51.00
Banking 23.26
Pharmaceutical -0.9
Based on the best portfolio investment analysis on each stock in each sector.
60
50
40
30
Series1
20
10
0
IT (W1) Metals (W2) Banking (W3) Pharmaceutical
-10 (W3)
PORTFOLIO w1(15):w2(50):w3(30):w4(5)
Return 33.843
Taking the weightages of 15% on IT sector 50% on Metals 30% on Banking sector and 5%
on Pharmaceutical sectors gives average return of 33.843% based on the past three years data.
Chapter – 5
Conclusion & Suggestions
Before investing in shares you should look at the type of shares, you want to buy and the way
in Want to deal on the stock market.
Their main routes for investing in shares:
 Invest your capital in a single company.
 Invest your capital in number of different companies, a portfolio of shares.
 Invest indirectly and spread your risk through collective investments such as
investment trusts and unit trust.
INVEST IN SHARES:
Public companies issue shares, which allow investors to buy a part of a particular company
share ownership entitles you to part of the company Profits of dividends are paid. Shares
may be classified in a range from conservative to speculative. Blue chip is often used to
describe the highest quality and shares, as they are shares in companies with a proven track
record, producing profits in good times and bad. They usually set the level of the market. All
shares are affected by share market fluctuation. Individual share process also varies based on
supply and demand from sellers and buyers.
Information about shares listed on the stock exchange is printed largely daily in
Newspapers. You can buy and sell shares listed on the stock exchange through a stockbroker.
When you buy a parcel of shares, you receive a CHESS statement of holdings form the
company, showing the number of shares you own and the date you bought them. As a share
holder you have to say in the company’s future through voting rights, you will be kept
informed about the company, through its annual reports and other correspondence.
THINGS TO CONSIDER:
 Share prices fall as well as rise. Large losses may occur, particularly if shares are sold
when market has dropped.
 If you are happy with the gains made with your share and are concerned about their
Future value, you could sell them and realize your profit. If you retain them with a
view
to profit further and the market value drops, it is important to remember this loss is
only on paper unless you sell.
 Incomes from dividends may vary, when profits are low, dividends may be low or
even Nil.
 Unless you plan to actively trade your shares, you should consider them a long term
investment
 You need to keep careful records, because capital gains tax collections can become
complex, especially in a dividend reinvestment paid.
THINGS TO REMEMBER:
 Remember, shares are not short term investment; usually the best returns will be
gained over the medium and long term.
 Past performance is not a reliable guide to future performance.
 As with any investment that offers capital growth, wide fluctuations in value can
occur.
 Spread you share holdings to include different companies across different markets
sectors, such as industry, mining of finance. This helps reduce the risk.
 Ask your stock broker for information about the company’s profile, performance
history and economic forecasts before buying or selling any shares. Much of his
information is also now available on various INTERNET site.
 Balance of the proportion of share in your overall investment portfolio with the level
of risk you are prepared to take. If a company goes into liquidation, shareholders are
the lost to be paid.
 Remember that event the most thoroughly research information research information
and advice given with the best intention may still result in a loss.
DO’S and DON’TS:
 The time spent increasing your knowledge will pay dividends later:
At the end of the day, it is your money and you owe it to yourself to know where and
why it is being invested. Use resource available today, take a course, read books,
browse the internet club, read newspapers and company Annual General Meetings.
 Almost the first & last rule( DIVERSIFY):
Make sure your investments are diversified. This means including in your portfolio
different assets classes such as property, shares and fixed interest, different industries
( to shield against economic impact on one category) and different countries ( to take
into account global cycles, economic dynamics and different exchange rates).
 Start conservatively:
If you are sure just starting out, build a firm base around Blue chip share and gain
experience form this. Investing in reputable managed funds is also as excellent way
to build a diversified portfolio without selecting specific securities.
Chapter – 6
Bibilogrphy
1. Books: 1.SECURITYANALYSIS AND PORTFOLIO MANAGEMENT

Donald.E.Fisher, Ronald.J.Jordan
2. INVESTMENTS
William .F. Sharpe, Gordon, J Alexander and Jeffery.V.Baily
3. PORTFOLIO MANAGEMENT
Strong R.A.
2. Report: ISE Reports

3. Newspaper: Economic Times of India
Business Standard
4. Magazines: Business World
5. Web-sites: www.nseindia.org
www.bseindia.org
www.iseindia.com
www.nsccl.com
www.capitalline.com

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A REPORT

STUDY OF SECURITY ANALYSIS AND PORTFOLIO

KARVY STOCK BROKING LIMITED

STUDY OF SECURITY ANALYSIS AND PORTFOLIO

A report submitted in partial fulfilment of the requirement of

AND PORTFOLIO MANAGEMENT ON EQUITIES " IN INDIA with reference

Place: Hyderabad Lokesh Kandula

Karvy provides non-financial services including Date management services, International

Karvy Group of companies:

• Karvy financial services ltd

• Karvy Data management services ltd

 The total paid-up capital INR 2.26 crores.

Investment avenues can be broadly categorized under the following head.

Equity Preference Bonds Warrants Derivatives

 Single period Returns:

 Multi period Returns:

RISK AND EXPECTED RETURN:

Risk consists of two components. They are

b) Interest Rate Risk

c) Purchasing Power Risk

b) Interest Rate Risk:

c) Purchasing Power Risk:

 Technological change in the production process

 Availability of raw materials

 Changes in the consumer preference

i). Internal Business Risk

OBJECTIVES OF THE STUDY:

 How portfolio management is done.

 To understand, analyze and select the best portfolio.

 To help the investor to chose wisely between alternative investment.

 To strike balance between costs of funds, risk and returns.

 SOURCES OF DATA COLLECTION: The methodology adopted or

 Companies Annual Reports

 Information from Internet

 Information provided by Inter Connected Stock Exchange.

 Data from Capital Line

PORTFOLIO MANAGEMENT & ITS PHASES

PORTFOLIO MANAGEMENT is a process encompassing many activities aimed at

(1) Security analysis

(2) Portfolio analysis

(3) Portfolio selection

(4) Portfolio revision

(5) Portfolio evaluation

It examines the risk return characteristics of individual securities. A basic strategy in

Two approaches are commonly used for this purpose.

 Technical analysis is an alternative approach to the study of stock price behaviour.

2. CAPITAL ASSET PRICING MODEL (CAPM)

Rp= Rf Xf+ Rm(1- Xf)

Where, Rp = Portfolio return

Xf = The proportion of funds invested in risk free assets

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

Rf = Risk free rate of return

Rm = Return on risky assets

3. THE SHARPE’S INDEX MODEL

Where, Ri = the expected return on stock i

Rf = the return on a risk less asset

4. SINGLE INDEX MODEL

Where, R = expected return on security i

a = intercept of the straight line or alpha co-efficient

ai = slope of straight line or beta co-efficient

Rm = the rate of return on market index

5. ARBITRAGE PRICING THEORY(APT)