Chapter 1 INTRODUCTION Portfolio management

Investing in securities such as shares, debentures, and bonds is profitable as well as exciting. It is indeed rewarding, but involves a great deal of risk and calls for scientific knowledge as well artistic skill. In such investments both rationale and emotional responses are involved. Investing in financial securities is now considered to be one of the best avenues for investing one savings while it is acknowledged to be one of the best avenues for investing one saving while it is acknowledged to be one of the most risky avenues of investment. It is rare to find investors investing their entire savings in a single security. Instead, they tend to invest in a group of securities. Such a group of securities is called portfolio. Creation of a portfolio helps to reduce risk, without sacrificing returns. Portfolio management deals with the analysis of individual securities as well as with the theory and practice of optimally combining securities into portfolios. An investor who understands the fundamental principles and analytical aspects of portfolio management has a better chance of success. An investor considering investment in securities is faced with the problem of choosing from among a large number of securities and how to allocate his funds over this group of securities. Again he is faced with problem of deciding which securities to hold and how much to invest in each. The risk and return characteristics of portfolios. The investor tries to choose the optimal portfolio 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 portfolios of investors.

An investor invests his funds in a portfolio expecting to get good returns consistent with the risk that he has to bear. The return realized from the portfolio has to be measured and the performance of the portfolio has to be evaluated. It is evident that rational investment activity involves creation of an investment portfolio. Portfolio management comprises all the processes involved in the creation and maintenance of an investment portfolio. It deals specifically with the security analysis, portfolio analysis, portfolio selection, portfolio revision & portfolio evaluation. Portfolio management makes use of analytical techniques of analysis and conceptual theories regarding rational allocation of funds. Portfolio management is a complex process which tries to make investment activity more rewarding and less risky. Selection of Portfolio The selection of portfolio depends upon the objectives of the investor. The selection of portfolio under different objectives are dealt subsequently Objectives and asset mix If the main objective is getting adequate amount of current income, sixty percent of the investment is made in debt instruments and remaining in equity. Proportion varies according to individual preference. Growth of income and asset mix Here the investor requires a certain percentage of growth as the income from the capital he has invested. The proportion of equity varies from 60 to 100 % and that of debt from 0 to 40 %. The debt may be included to minimize risk and to get tax exemption. Capital appreciation and Asset Mix It means that value of the investment made increases over the year. Investment in real estate can give faster capital appreciation but the problem is of liquidity. In the capital market, the value of the shares is much higher than the original issue price. Safety of principle and asset mix
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Usually, the risk adverse investors are very particular about the stability of principal. Generally old people are more sensitive towards safety. Risk and return analysis The traditional approach of portfolio building has some basic assumptions. An investor wants higher returns at the lower risk. But the rule of the game is that more risk, more return. So while making a portfolio the investor must judge the risk taking capability and the returns desired. Diversification Once the asset mix is determined and risk return relationship is analyzed the next step is to diversify the portfolio. The main advantage of diversification is that the unsystematic risk is minimized. Research: We have a team of over 15 research analysts, each with impeccable professional credentials. With a collective experience spanning several hundred years, a veritable treasure-trove of experience and understanding of the markets and of various sectors and companies, it comes as no surprise that we are the obvious choice for none other than Forbes when it came to choosing the Best of the Web for Asia. Under the Asian investing category, Forbes rates us as `a must read for investors across Asia'. Asset allocation: Our investment committee led by two of our directors with impeccable reputation for stock picking decides on asset allocation across sectors and product categories. They bring to the table their enormous experience and knowledge of economy, market sentiment and sectoral trends. For every portfolio, the investment strategy is decided after a careful assessment of several factors like your investment needs, preferences and risk profile. To ensure a consistent performance, we apply rigorous methods to measure and control risk. As our investment philosophy is not driven by brokerage income, you may find a surprisingly low churn in the portfolios managed by us.
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Timing: Proponents of the traditional long-term investment would have you believe that in the longterm, timing hardly makes any difference. But given the extent of volatility that is prevalent in the modern markets, stocks could swing more even in a given day more than a conservative investors targeted return for an entire year. We have a team of dealers and technical analysts who can help you capitalize on precisely these fluctuations in the markets. Relationship management: As a Portfolio management customer you will have the services of your very own Relationship Manager. Relationship Managers at IndiaInfoline are chosen after stringent checks related to the character, integrity and the overall competence post which they undergo extensive training. You can think of your Relationship Manager as your one point of contact for all your queries related to your investments BackOffice: An online back office means you always have online and anytime access to your ledger account, your contract notes, bills and portfolio performance report. This is the result of our immense investment in technology and systems over the years. Apart from these you will discover many small and thoughtful features, which will add value to your experience, literally OBJECTIVES

To study how to analyses securities

To know how to construct a portfolio To know the benefits of constructs a portfolio To know how to manage a portfolio

Evolution of Portfolio Management

Portfolio management is essentially a systematic method of maintaining ones investment efficiently. Many factors have contributed to the existence and development of the concept. In the early years of the century analyst used financial statements to find the value of the securities. The first to be analyzed using this was Railroad Securities of the USA. A booklet entitled The Anatomy of the Railroad was published by Thomas F. Woodlock in 1900. As the time progressed this method became very important in the investment field, although most of the writers adopted different ways to publish there data. They generally advocated the use of different ratios for this purpose. John Moody in his book The Art of wall Street Investing, strongly supported the use of financial ratios to know the worth of the investment. The proposed type of analysis later on became the common-size analysis. The other major method adopted was the study of stock price movement with the help of price charts. This method later on was known as Technical Analysis. It evolved during 19001902 when Charles H. Dow, the founder of the Dow Jones and Co. presented his view in the series of editorials in the Wall Street Journal in USA. The advocates of technical analysis believed that stock prices movement is ordered and systematic and the definite pattern could be identified. There investment strategy was build around the identification of the trend and pattern in the stock price movement. Another prominent author who supported the technical analysis was Ralph N. Elliot who published a book in the year 1938 titled The Wave Principle. After analyzing 75 years data of share price, he concluded that the market movement was quite orderly and followed a pattern of waves. His theory is known as Elliot Wave Theory According to J.C. Francis the development of investment management can be traced chronologically through three different phases First phase is known as Speculative Phase. Investment was not a wide spread activity, but a cake of few rich people. The process is speculative in nature. Investment management was an
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art and needed skills. Price manipulation was resorted to by the investors. During this time period pools and corners were used for manipulation. The result of this was the stock exchange crash in the year 1929. Finally the daring speculative ventures of investors were declared illegal in the US by the Securities Act of 1934. Second phase began in the year 1930. The phase was of professionalism. After coming up of the Securities Act, the investment industry began the process of upgrading its ethics, establishing standard practices and generating a good public image. As a result the investments market became safer place to invest and the people in different income group started investing. Investors began to analyze the security before investing. During this period the research work of Benjamin Graham and David L. Dood was widely publicized and publicly acclaimed. They published a book Security Analysis in 1934, which was highly sought after. There research work was considered first work in the field of security analysis and acted as the base for further study. They are considered as pioneers of security analysis as a discipline. Third phase was known as the scientific phase. The foundation of modern portfolio theory was laid by Markowitz. His pioneering work on portfolio management was described in his article in the Journal of Finance in the year 1952 and subsequent books published later on. He tried to quantify the risk. He showed how the risk can be minimized through proper diversification of investment which required the creation of the portfolio. He provided technical tools for the analysis and selection of optimal portfolio. For his work he won the Noble Prize for Economics in the year 1990. The work of Markowitz was extended by the William Sharpe, John Linter and Jan Mossin through the development of the Capital Asset Pricing Model (CAPM). If we talk of the present the last two phases of Professionalism and Scientific Analysis are currently advancing simultaneously with investment in various financial instruments becoming safer, with proper knowledge to each and every investor.

Role of Portfolio Management

There was a time when portfolio management was an exotic term. A practice which is beyond the reach of the small investor, but the time has changed now. Portfolio management is now a common term and is widely practiced in INDIA. The theories and concepts relating to portfolio management now find their way in the front pages of the financial newspapers and magazines. In early 90s India embarked on a program of economic liberalization and globalization, with high participation of private players. This reform process has made the Indian industry efficient, with rapid computerization, increased market transparency, better infrastructure and customer services, closer integration and higher volume. The markets are dominated by large institutional investors with their diversified portfolios. A large number of mutual funds have come up in the market since 1987. With this development investment in securities has gained considerable momentum Along with the spread of the securities investment way among Indian investors have changed due to the development of the quantitative techniques. Professional portfolio management, backed by research is now being adopted by mutual funds, investment consultants, individual investors and big brokers. The Securities Exchange Board of India (SEBI) is a regulatory body in INDIA. It ensures that the stock market is free from fraud, and of course the main objective is to ensure that the investors money is safe. With the advent of computers the whole process of portfolio management has become quite easy. The computer can absorb large volumes of data, perform the computations accurately and quickly give out the results in any desired form. Moreover simulation, artificial intelligence etc provides means of testing alternative solutions. The trend towards liberalization and globalization of the economy has promoted free flow of capital across international borders. Portfolio not only now include domestic securities but foreign too. So financial investments cant be reaped without proper management.

Another significant development in the field of investment management is the introduction to Derivatives with the availability of Options and Futures. This has broadened the scope of investment management. Investment is no longer a simple process. It requires a scientific knowledge, a systematic approach and also professional expertise. Portfolio management is the only way through which an investor can get good returns, while minimizing risk at the same time. So portfolio management objectives can be stated as: Risk minimization. Safeguarding capital. Capital Appreciation. Choosing optimal mix of securities. Keeping track on performance.

NEED FOR THE STUDY

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

SCOPE OF THE STUDY

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

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

Closing price Opening price R= -------------------------------------------- 100 Opening price To know the average (R) the following formula has been used

Average (R) = R

N The next step is to know the risk of the stock or security; the following formula is given below.

Std.dev = Variance n Variance =1/n-1 (R-R) t=1

Where (R-R) = squares of different between sample and mean. n = number of sample observations. After that, the correlation of the securities is calculated by using the following formula;

Corrlation Coefficient (rAB) = COV AB (A)(B)

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

= Covariance between A&B

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

The next and final step is to calculate the portfolio risk (combined risk) that shows how much is reduced by combining two stocks or securities by using this formula. FORMULA: p = A- WA + B W B + 2r AB A A WA WB Where, p = Portfolio Risk A = Standard Deviation of security A WA = Proportion of investment in security B B = Standard Deviation of security of B WB = proportion of investment in security B rAB = Co-relation Coefficient between security A&B.

Limitations of the study

The study has certain constrains which has limited to its scope and objects of the study.

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 The time given for the study is very less i.e. only 45 days,

By studying only 10 companies we cannot came to any reference regarding securities analysis and portfolio management completely
The data collected is purely historical, which is not sufficient for predictors future

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Chapter-2

INDUSTRY PROFILE
Bombay Stock Exchange (BSE) About the Bombay Stock Exchange

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatized entity incorporated under the provisions of the Companies Act, 1956,

BSE(Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board
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comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries.

In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based. The day-to-day operations of the Exchange are managed by the Managing Director and a management team of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietory system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified. History of the Bombay Stock Exchange : The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts. The development of Sensex options along with equity derivatives
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Followed in 2001 and 2002, expanding the BSE's trading platform. Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition.

NATIONAL STOCK EXCHANGE (NSE) INTRODUCTION:

The Organization The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. The National Stock Exchange of India Ltd. is the largest stock exchange of the country. NSE is setting the agenda for change in the securities markets in India. The last 5 years have seen us play a major role in bringing investors from 363 cities and towns online, ensuring complete transparency, introducing financial guarantee of settlements, ensuring scientifically designed and professionally managed indices and by nurturing the dematerialization effort across the country.

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NSE is a complete capital market prime mover. Its wholly-owned subsidiaries, National Securities Clearing Corporation Ltd. (NSCCL) provides clearing and settlement of securities, India Index Services and Products Ltd. (IISL) provides indices and index services with a consulting and licensing agreement with Standard & Poor's (S&P), and NSE.IT Ltd. forms the technology strength that NSE works on. Today, we are one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly working towards creating a more transparent, vibrant & innovative capital market. This invariably implies that our need for competent people is continuous. As the leading stock exchange and fiscal entity in the country, we believe in recruiting the finest of talent in the industry. We are looking for talent to be developed into future leaders of our organization by cross-departmental exposure, continuous self-development opportunities and ongoing reinforcement to develop & enhance customer orientation & leadership potential. Awaiting you is an excellent compensation package including medical benefits, superannuation benefits and a reward system designed to promote merit and professionalism

Our Technology Across the globe, developments in information, communication and network technologies have created paradigm shifts in the securities market operations. Technology has enabled organizations to build new sources of competitive advantage, bring about innovations in products and services, and to provide for new business opportunities. Stock exchanges all over the world have realized the potential of IT and have moved over to electronic trading systems, which are cheaper, have wider reach and provide a better mechanism for trade and post trade execution. NSE believes that technology will continue to provide the necessary impetus for the organization to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE's IT set-up is the largest by any company in India. It uses

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satellite communication technology to energies participation from around 320 cities spread all over the country. In the recent past, capacity enhancement measures were taken up in regard to the trading systems so as to effectively meet the requirements of increased users and associated trading loads. With up gradation of trading hardware, NSE can handle up to 6 million trades per day in Capital Market segment. In order to capitalize on in-house expertise in technology, NSE set up a separate company, NSE.IT, in October 1999. This is expected to provide a platform for taking up new IT assignments both within and outside India and attaining global exposure.

NEAT is a state-of-the-art client server based application. At the server end, all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault tolerant STRATUS main frame computer while the client software runs under Windows on PCs. The telecommunications network uses X.25 protocol and is the backbone of the automated trading system. Each trading member trades on the NSE with other members through a PC located in the trading member's office, anywhere in India. The trading members on the various market segments such as CM / F&O , WDM are linked to the central computer at the NSE through dedicated 64Kbps leased lines and VSAT terminals. The Exchange uses powerful RISC -based UNIX servers, procured from Digital and HP for the back office processing. The latest software platforms like ORACLE 7 RDBMS, GUPTA SQL/ORACLE FORMS 4.5 Front - Ends, etc. have been used for the Exchange applications. The Exchange currently manages its data centre operations, system and database administration, design and development of in-house systems and design and implementation of telecommunication solutions. NSE is one of the largest interactive VSAT based stock exchanges in the world. Today it supports more than 3000 VSATs. The NSE- network is the largest private wide area network in the country and the first extended C- Band VSAT network in the world. Currently more than 9000 users are trading on the real time-online NSE application. There are over 15 large computer systems which include non-stop fault-tolerant computers and high end UNIX
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servers, operational under one roof to support the NSE applications. This coupled with the nationwide VSAT network makes NSE the country's largest Information Technology user In an ongoing effort to improve NSE's infrastructure, a corporate network has been implemented, connecting all the offices at Mumbai, Delhi, Calcutta and Chennai. This corporate network enables speedy inter-office communications and data and voice connectivity between offices.

Careers with Us
The National Stock Exchange of India Ltd. is the largest stock exchange of the country. NSE is setting the agenda for change in the securities markets in India. The last 5 years have seen us play a major role in bringing investors from 363 cities and towns online, ensuring complete transparency, introducing financial guarantee of settlements, ensuring scientifically designed and professionally managed indices and by nurturing the dematerialization effort across the country. NSE is a complete capital market prime mover. Its wholly-owned subsidiaries, National Securities Clearing Corporation Ltd. (NSCCL) provides clearing and settlement of securities, India Index Services and Products Ltd. (IISL) provides indices and index services with a consulting and licensing agreement with Standard & Poor's (S&P), and NSE.IT Ltd. forms the technology strength that NSE works on. Today, we are one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly working towards creating a more transparent, vibrant & innovative capital market. This invariably implies that our need for competent people is continuous. As the leading stock exchange and fiscal entity in the country, we believe in recruiting the finest of talent in the industry. We are looking for talent to be developed into future leaders of our organization by crossdepartmental exposure, continuous self-development opportunities and ongoing reinforcement to develop & enhance customer orientation & leadership potential.

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Awaiting you is an excellent compensation package including medical benefits, superannuation benefits and a reward system designed to promote merit and professionalism. Trading NSE introduced for the first time in India, fully automated screen based trading. It uses a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest. The NSE trading system called 'National Exchange for Automated Trading' (NEAT) is a fully automated screen based trading system, which adopts the principle of an order driven market.

Risk Management A sound risk management system is integral to an efficient clearing and settlement system. NSE introduced for the first time in India, risk containment measures that were common internationally but were absent from the Indian securities markets. NSCCL has put in place a comprehensive risk management system, which is constantly upgraded to pre-empt market failures. The Clearing Corporation ensures that trading member obligations are commensurate with their net worth. Risk containment measures include capital adequacy requirements of members, monitoring of member performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached, etc. Market Updates IISL provides to specialized clients facts and figures, reports and equity market updates on regular intervals. This is a paid service.

Listing
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NSE plays an important role in helping an Indian companies access equity capital, by providing a liquid and well-regulated market. NSE has about 1016 companies listed representing the length, breadth and diversity of the Indian economy which includes from hitech to heavy industry, software, refinery, public sector units, infrastructure, and financial services. Listing on NSE raises a companys profile among investors in India and abroad. Trade data is distributed worldwide through various news-vending agencies. More importantly, each and every NSE listed company is required to satisfy stringent financial, public distribution and management requirements. High listing standards foster investor confidence and also bring credibility into the markets.

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

PROMOTERS: Industrial Development Bank of India (IDBI) Industrial Credit and Investment Corporation of India (ICICI) Industrial Financing Corporation of India (IFCI) Life Insurance Corporation of India (LIC) State Bank of India (SBI) General Insurance Corporation (GIC) Bank of Baroda Canara Bank

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Corporation Bank Indian Bank Oriental Bank of Commerce Union Bank of India Punjab National Bank Infrastructure Leasing and Financial Services Stock Holding Corporation of India SBI capital market MEMBERSHIP: The membership is based on the factors as capital adequacy, corporate structure, Track record, Education, Experience etc. Admission is a two-stage process with applicants required to go through a written examination followed by an interview. A committee consisting of experienced professionals from the industry, to assess the applicants capability to operate as an exchange member. The exchange admits members separately to wholesale debt Market (WDM) segment and the Capital market segment. Only corporate members are admitted to the debt market Segment whereas individuals and firms are also eligible to the capital market segment. Eligibility criteria for trading membership on the segment of WCM are as follows: 1. The person eligible to become trading members are bodies corporate, companies, institutions including subsidiaries of banks engaged in financial services and such other persons or entities are may be permitted from time to time by RBI\SEBI. 2. The whole-time Directors should possess at least two years experience in any activity related to banking or financial services.

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

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

BOMBAY STOCK EXCHANGE

The Stock Exchange, Mumbai, Popularly as Bombay Stock Exchange (BSE) was established in 1875 as The Native Share and Stock Brokers Association, as a voluntary nonprofit making association. It has evolved over the year into its present status as the premier Stock Exchange in the country. It may be noted that the Bombay Stock Exchange is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878. The Bombay Stock Exchange, while providing an efficient and transparent market for the trading in securities, upholds the interests of the investors and ensures redressal of their grievances, whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programs. A Government Board comprising of 9 elected Directors (one third of them retire every year by rotation), Two SEBI Nominees, Seven Public representatives and an Executive Director is the Apex Body, which decides the policies and regulates the affairs of the Bombay Stock
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Exchange. The executive Director as the Chief Executive Officer is responsible for the dayto-day administration of the Bombay Stock exchange.

SECURITIES TRADED: The securities traded in the BSE are classified in to three groups namely specified shares of A group and non-specified securities. The latter is sub-divided into B1 and B groups. A group contains the companies with large outstanding shares, good track record and large volumes of business in the secondary market. Settlements of all the shares are carried out through the Clearing House. In order to enable the market participants, analysts etc., to track the various ups and downs in the Indian Stock Market, the Exchange has introduced in 1986 an equity stock index called BSE-SENSEX that subsequently became the barometer of the moments of the share prices in the Indian Stock Market. It is a Market Capitalization-Weighted index of 30 components. The base year of SENSEX is 1978-79. The SENSEX is widely reported in both domestic and international markets through print as well as electronic media. SENSEX is calculated using a market capitalization weighted method. As per this methodology, the level of the index reflects the total market value of all 30component stocks from different industries related to particular base period. The total market value of a company is determined by multiplying the price of its stock by the number of shares outstanding. Statisticians call an index of a set of combined variables (such as price and number of shares) a composite index. An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over a time. It is much easier to graph a chart based on indexed values than one based on actual values. In practice, the daily calculation of SENSEX is done by dividing the aggregate market of the 30 Companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original based period value of the SENSEX. The divisor keeps the index comparable over a period of time and if the reference point for the entire Index

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maintenance adjustments. SENSEX is widely used to describe the mood in the Indian Stock Markets. Base year average is changed as per the formula: New Base Year Average =Old Base Year Average * (New Market Value/Old Market Value) RECENT DEVELOPMENTS IN INDIAN STOCK MARKET Many steps have been taken in recent years to reform the Stock Market such as: Regulation of Intermediaries. Changes in the Management Structure. Insistence on Quality Securities. Prohibition of Insider Trading. Transparency of Accounting Processes. Strict supervision of Stock Market Operations. Prevention of Price Rigging. Encouragement of Market Making. Discouragement of Price Manipulations. Introduction of Electronic Trading. Introducing of Depository System. Derivates Trading. International Listing.

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Chapter-3 COMPANY PROFILE Company Profile

Kotak Mahindra Bank Limited and its subsidiaries provide various financial products and services primarily in India. It operates through eight segments: Lending, Corporate Banking, Treasury and Investments, Retail Liabilities, Broking, Advisory and Transactional services, Asset management, and Insurance. The lending segment offers car finance, commercial vehicle finance, personal loans, home loans, agriculture finance, and other loans and services. The Corporate Banking segment offers wholesale borrowing, lending, and other services to the corporate sector. The Treasury and Investments segment deals in debt, equity, money market, forex market, derivatives, and investments. The Retail Liabilities segment provides retail borrowings, including savings accounts, current accounts, and branch banking network and services. The Broking segment distributes financial products and involves in forex broking. The Advisory and Transactional Services segment provides financial advisory and transactional services, such as mergers and acquisition advice, and equity/debt issue management services. The Asset Management segment engages in the management of investments on behalf of clients and funds. The Insurance segment provides life insurance. In addition, the company offers depository services, telephone banking, Internet banking, mobile banking, direct pay services, payment gateway for online shopping, debit cards, and fund transfer services. As of December 3, 2007, it operated a branch network of 147 branches across 96 locations in India. Kotak Mahindra Bank was founded in 1985 as Kotak Capital Management Finance Limited and changed its name to Kotak Mahindra Finance Limited in 1986. Further, it changed its name to Kotak Mahindra Bank Limited. The company is based in Mumbai, India.
27

Kotak Mahindra Bank Limited (the Bank) is a commercial bank. The Bank operates in four business segments: Treasury and Balance Sheet Management Unit (BMU), which includes dealing in money market, forex market, derivatives, investments and primary dealership of government securities; Retail Banking, which includes lending, commercial vehicle finance, personal loans, agriculture finance, other loans and home loans, branch banking, which includes retail borrowings covering savings, current, term deposit accounts and branch banking network/services including distribution of financial products, and credit cards; Corporate Banking, which comprises wholesale borrowings and lendings and other related services to the corporate sector. As of March 31, 2010, it had a network of 249 branches. The Bank caters to the myriad needs of Resident Individuals, NRIs and Businesses. Established in 1985, the Kotak Mahindra group has been one of India's most reputed financial conglomerates. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). This approval created banking history since Kotak Mahindra Finance Ltd. is the first non-banking finance company in India to convert itself in to a bank as Kotak Mahindra Bank Ltd. Today, we are one of the fastest growing bank and among the most admired financial institutions in India.

Our Reach

Kotak Mahindra Bank has over 245 branches and a customer base of over 8 lakhs. Spread all over India, not just in the metros but in Tier II cities and rural India as well, we are redefining the reach and power of banking.

Our Offerings We cater to the myriad needs of Resident Individuals, NRIs and Businesses.

28

We offer complete financial solutions for infinite needs of all individual & non-individual customers depending on the customer's need - delivered through a state of the art technology platform. Investment products like Mutual Funds, Life Insurance, retailing of gold coins and bars etc are also offered. The Bank follows a mix of both open and closed architecture for distribution of the investment products. All this is backed by strong, in-house research on Mutual Funds. We cater to the myriad needs of Resident Individuals, NRIs and Businesses. We offer complete financial solutions for infinite needs of all individual & non-individual customers depending on the customer's need - delivered through a state of the art technology platform. Investment products like Mutual Funds, Life Insurance, retailing of gold coins and bars etc are also offered. The Bank follows a mix of both open and closed architecture for distribution of the investment products. All this is backed by strong, in-house research on Mutual Funds. Our Savings Account goes beyond the traditional role of savings, and allows you to put aside a lot more than just money. The worry-free features of our Savings Account provides a range of services from funds transfer, bill payments, 2-way sweep through our Active Money feature & much more. You can place standing instructions for investment options that can be booked through Internet or through Phone banking services. The Savings Account thus provides for attractive returns earned through a comprehensive suite products and services that offer investment options, all delivered seamlessly to the customer by well integrated technology platforms. Apart from Phone banking and Internet banking, the Bank offers convenient banking facility through Mobile banking, SMS services, Netc@rd, Home banking and Bill Pay facility among others. The Depository services offered by the Bank allows the customers to hold equity shares, government securities, bonds and other securities in electronic or Demat forms. Our Salary 2 Wealth offering provides comprehensive administrative solutions for Corporate with features such as easy and automated web based salary upload process thereby eliminating the paper work involved in the process, a dedicated relationship manager to service the corporate account, customized promotions and tie - ups and many such unique
29

features. The whole gamut of investment products and investment advisory services is available to the salary account holders as well. For the business community, we offer comprehensive business solutions that include the Current Account, Trade Services, Cash Management Service and Credit Facilities, keeping in mind the myriad needs of your business.. Our Wholesale banking products offer business banking solutions for long-term investments and working capital needs, advice on mergers and acquisitions and equipment financing. To meet special needs of the rural market, we have dedicated business offerings for agricultural financing and infrastructure. Our Agriculture Finance division delivers customized products for capital financing and equipment financing needs of our rural customers. For financial liquidity we offer you loans that meet your personal requirements with quick approval and flexible payment options. To complete the personal financial offerings space, we now offer Kotak Credit Card which is a hassle-free, transparent product that also happens to be the first vertical credit card in the industry. Kotak Mahindra Bank addresses the entire spectrum of financial needs of Non-Resident Indians. Our tie-up with the Overseas Indian Facilitation Centre (OIFC) as a strategic partner gives us a platform to share our comprehensive range of banking & investment products and services for Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs). Our Online Account Opening facility and Live Chat service helps you to get in touch with us at the comfort of your homes and at your convenience. These offerings are specifically designed to suit the overseas Indians personal financial needs and give the global Indians a near to home feel. Banking & Savings Banking Accounts Demat Deposits NRI Services
30

Convenience Banking

Investments & Insurance Life Insurance Mutual Funds Share Trading Structured Products Gold EstatePlanning

Loans & Borrowings Car Finance Home Loans Loans Against Property PersonalLoans Corporate & Institutional Corporate Finance Investment Banking Institutional Equities Treasury

31

Kotak Mahindra

Rank - 8 2004-05 2005-06 78 3597

No. of Offices No. of Employees Business per Employee(in Rs. Lakhs) Profit per Employee( in Rs. Lakhs) Investments( in Rs. Crores)

54 2099

387.27

352

5.37 1827

4.15 2856

Our Story Milestones that have shaped the Kotak Mahindra Group, since 1986 Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a steady and confident journey leading to growth and success. The milestones of Kotak Mahindra's growth story are listed below by year. 200 9 200 8 200 6 200 5 200 4 200

Kotak Mahindra Bank Ltd. opened a representative office in Dubai Entered Ahmedabad Commodity Exchange as anchor investor. Launched a Pension Fund under the New Pension System. Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities. Kotak Group realigned joint venture in Ford Credit; their stake in Kotak Mahindra Prime was bought out (formerly Launched a real estate fund. known as Kotak Mahindra Primus Ltd) and Kotak groups stake in Ford credit Kotak Mahindra was sold. Launched a real estate fund. Launched India Growth Fund, a private equity fund. Kotak Mahindra Finance Ltd. converted into a commercial bank - the first Indian company
32

3 200 1 200 0

to do so. Matrix sold to Friday Corporation. Launched Insurance Services. Kotak Mahindra tied up with Old Mutual plc. for the Life Insurance business. Kotak Securities launched its on-line broking site. Commencement of private equity activity through setting up of Kotak Mahindra Venture Capital Fund. Entered the Funds Syndication sector Kotak Securities Ltd. was incorporated The Investment Banking Division was started. Took over FICOM, one of India's largest financial retail marketing networks The Auto Finance division was started Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market Kotak Mahindra Finance Ltd started the activity of Bill Discounting

199 2 199 4 199 1 199 0 198 7 198 6

Senior Management Core Kotak Mahindra Group team

33

Mr. Uday S. Kotak Executive Vice Chairman & Managing Director Mr. Uday Kotak, B.Com, MMS (Masters in Management Studies), aged 50 years, is the Executive Vice-Chairman and Managing Director of the Bank, and its principal founder and promoter. Mr. Kotak is an alumnus of Jamnalal Bajaj Institute of Management Studies. In 1985, when he was still in his early twenties, Mr Kotak thought of setting up a bank when private Indian banks were not even seen in the game. First Kotak Capital Management Finance Ltd (which later became Kotak Mahindra Finance Ltd), and then with Kotak Mahindra Finance Ltd, Kotak became the first non-banking finance company in India's corporate history to be converted into a bank. Over the years, Kotak Mahindra Group grew into several areas like stock broking and investment banking to car finance, life insurance and mutual funds. Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator of the Year Award in 2006 and the Ernst & Young Entrepreneur of the Year Award in 2003. He was featured as one of the Global Leaders for Tomorrow at the World Economic Forum's annual meet at Davos in 1996. He was also featured among the Top Financial Leaders for the 21st Century by Euromoney magazine. Most recently, he was named as CNBC TV18 India Business Leader of the Year 2008.

34

Mr. C Jayaram Executive Director Mr. C. Jayaram, aged 53 years, is an Executive Director of the Bank and is currently in charge of the Wealth Management Business of the Kotak Group. An alumnus of IIM Kolkata, he has been with the Kotak Group since 1990 and came on the Kotak board in October 1999. He also oversees the international subsidiaries and the alternate asset management business of the group. He is the Director of the Financial Planning Standards Board, India. He varied experience of over 25 years in many areas of finance and business, has built numerous businesses for the Group and was CEO of Kotak Securities Ltd. An avid player and follower of tennis, he also has a keen interest in psephology.

Mr. Dipak Gupta Executive Director An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has been with the Kotak Group since 1992 and joined the board in October 1999. Mr. Dipak Gupta, aged 48 years, is an Executive Director of Kotak Bank. He heads commercial banking, retail asset businesses and looks after group HR function. Early on, he
35

headed the finance function and was instrumental in the joint venture between Kotak Mahindra and Ford Credit International. He was the first CEO of the resulting entity, Kotak Mahindra Primus Ltd.

Our Corporate Identity

The Kotak Ace Savings Account with maximum free banking services. This top end Savings Account variant is suited for those who would like to avail maximum banking and investment related benefits, over and above the numerous FREE services provided by the Kotak Pro Savings Account. Some of the extra benefits of the Kotak Ace Savings Account include: Free Access to all Domestic and International VISA ATMs Free Gold Debit Card Free Add-on and Supplementary Gold Debit Card Three NMC Waived Edge Savings Accounts for family members* Free Demand Drafts (Unlimited at Kotak locations) Free RTGS Extended Debit Card withdrawal limit of Rs. 1.75 lac per day through ATM / POS

36

15% Discount on Locker Rent * 2% Discount on Gold Eternity Coins & Bars* Waiver on first year Demat Annual maintenance charge Free outstation cheque collection You can enjoy the advantages of the Kotak Ace Savings Account by maintaining an Average Quarterly Balance of Rs. 50,000. *Subject to maintenance of the required AQB in the Ace Savings Account. NMC: Non-Maintenance Charge At Kotak Mahindra Bank we believe that everyone has the right to worry free banking. So do take a closer look at the features of these accounts and decide which one fits your needs the best.

37

LITERATURE REVIEW
INTRODUCTION TO PORTFOLIO MANAGEMENT

PORTFOLIO
A portfolio is a collection of securities. Since it is rarely desirable to invest the entire funds of an individual or an institution in a single security, it is essential that every security be viewed in the portfolio context. Thus it seems logical that the expected return of each of the security contained in the portfolio. Portfolio analysis considers the determination of future risk and return in holding various blends of the individual securities. Portfolio expected return is a weighted average of the expected return of individual securities but portfolio variances, inshort contrast, can be something less then a weighted average of security variance. As a result an investor can sometimes reduce portfolio risk by adding security with greater individual risk than any other security in the portfolio. This is because risk depends greatly on the co-variance among returns of individual security. Portfolio which is combination of securities may or may not take an aggregate characteristic of their part. Since portfolios expected return is a weighted average of the expected return of its securities, the contribution of each security to the portfolios expected returns depends on its expected returns and its proportionate share of the initial portfolios market value. It follows that an investor who simply wants the greatest possible expected return should hold one security; the

38

one which is considered to have a greatest, expected return. Very few investors do this, and very few investments advisors would counsel such an extreme policy. Instead, investors should diversify, meaning that their portfolio should include more than one security.

OBJECTIVES OF PORTFOLIO MANAGEMENT

The objectives of investments/portfolio management can be classified as follows

Basic objectives The basic objectives of investment/portfolio management are To Maximize Yield, and To Minimize risk Secondary objectives The following are the other ancillary objectives are

Regular return Stable income Appreciation of capital a) More liquidity b) Safety of investments, and c) Tax benefits.

39

Need for portfolio management

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

40

Portfolio management is an on-going process involving the following the following basic tasks:

Identification of the investors objectives, constraints and preferences. Strategies are to be developed and implemented in tune with investments policy formulated. Review and monitoring of the performance of the portfolio. Finally the evaluation of the portfolio

PORTFOLIO ANALYSIS

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

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

41

Diversification of Risk: The process of combining securities in a portfolio is known as diversification. The aim of diversification is to reduce total risk without sacrificing portfolio. The risk in a portfolio can be reduced by a proper diversification into a number of strips. The efforts to spread and minimizes portfolio risk takes the form of diversification. Most investors prefer to hold several assets rather than putting all their eggs into one basket with hope that if one goes bad, the other will provide some protection from the extreme loss.

PORTFOLIO SELECTION

The determination and selection of a portfolio is a complicated affair as there is a possibility of infinite number of combinations of various securities that can enter a portfolio. The securities available to an investor can be combined in any proportion hence any number of portfolios can be built. Each such portfolio can be described in terms of return and risk. Portfolio construction refers to the allocation of funds among a variety of financial assets open for investment. The objectives of the theory is to elaborate the principle in which the risk can be minimized, subject to desired level of return on the portfolio or maximized the return, subject to constrain of tolerable level of risk. The most popular models used for portfolio selection are:

Markowitz model. Capital assets pricing model.

42

Markowitz model According to Markowitz, the portfolio theory establishes a relationship between portfolios expected return and its level of risk as the criteria for selecting the optimal portfolio. Thus two measures were suggested for evaluating the merits of portfolio.

The expected return from the portfolio.

The level of risk exposure associated with the portfolio.

This theory believes in asset correlation and combining assets so as to lower the risk. From the efficient set of portfolios the best one would be selected on the basis of the risk and returns. These risk and returns are calculated using standard deviations and the coefficient of variations. It is also called as the full co-variance model. The expected return on the portfolio is calculated by using the following; N Rp = RiXi I=1 Where, Rp = expected return on portfolio Ri = expected return on security i Xi = the proportion of portfolio investment in security i N = total number of securities in the portfolio. The risk of a portfolio comprising of shares A and B van be expressed using variance as the measures of risk. Covariance of AB = X2 A2 A +X2 B2 B + 2XAXBrAB A B

43

Cov.AB = the variance between the rates of return on shares A and B, Where, rAB = Coefficient of correlation between A and B shares X2 A = Proportion invested in shares A
2 X B

= proportion invested in shares B

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

The term covariance explains the relationship between the movements in the rates of return from shares A and B; it is derived from the following formula: Cov.AB = rAB A B Modern portfolio theory (MPT) is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets. Although MPT is widely used in practice in the financial industry and several of its creators won a Nobel memorial prize for the theory, in recent years the basic assumptions of MPT have been widely challenged by fields such as behavioral economics. MPT is a mathematical formulation of the concept of diversification in investing, with the aim of selecting a collection of investment assets that has collectively lower risk than any individual asset. That this is possible can be seen intuitively because different types of assets often change in value in opposite ways. For example, as prices in the stock market tend to move independently from prices in the bond market, a collection of both types of assets can therefore have lower overall risk than either individually. But diversification lowers risk even if assets' returns are not negatively correlatedindeed, even if they are positively correlated.

44

More technically, MPT models an asset's return as a normally distributed function (or more generally as an elliptically distributed random variable), defines risk as the standard deviation of return, and models a portfolio as a weighted combination of assets so that the return of a portfolio is the weighted combination of the assets' returns. By combining different assets whose returns are not perfectly positively correlated, MPT seeks to reduce the total variance of the portfolio return. MPT also assumes that investors are rational and markets are efficient. MPT was developed in the 1950s through the early 1970s and was considered an important advance in the mathematical modeling of finance. Since then, many theoretical and practical criticisms have been leveled against it. These include the fact that financial returns do not follow a Gaussian distribution or indeed any symmetric distribution, and that correlations between asset classes are not fixed but can vary depending on external events (especially in crises). Further, there is growing evidence that investors are not rational and markets are not efficient. Concept The fundamental concept behind MPT is that the assets in an investment portfolio should not be selected individually, each on their own merits. Rather, it is important to consider how each asset changes in price relative to how every other asset in the portfolio changes in price. Investing is a tradeoff between risk and expected return. In general, assets with higher expected returns are riskier. For a given amount of risk, MPT describes how to select a portfolio with the highest possible expected return. Or, for a given expected return, MPT explains how to select a portfolio with the lowest possible risk (the targeted expected return cannot be more than the highest-returning available security, of course, unless negative holdings of assets are possible.) MPT is therefore a form of diversification. Under certain assumptions and for specific quantitative definitions of risk and return, MPT explains how to find the best possible diversification strategy. History

45

Harry Markowitz introduced MPT in a 1952 article and a 1959 book. Markowitz classifies it simply as "Portfolio Theory," because "There's nothing modern about it." Mathematical model In some sense the mathematical derivation below is MPT, although the basic concepts behind the model have also been very influential. This section develops the "classic" MPT model. There have been many extensions since. Risk and expected return MPT assumes that investors are risk averse, meaning that given two portfolios that offer the same expected return, investors will prefer the less risky one. Thus, an investor will take on increased risk only if compensated by higher expected returns. Conversely, an investor who wants higher expected returns must accept more risk. The exact trade-off will be the same for all investors, but different investors will evaluate the trade-off differently based on individual risk aversion characteristics. The implication is that a rational investor will not invest in a portfolio if a second portfolio exists with a more favorable risk-expected return profile i.e., if for that level of risk an alternative portfolio exists which has better expected returns. Note that the theory uses standard deviation of return as a proxy for risk, which is valid if asset returns are jointly normally distributed or otherwise elliptically distributed . Under the model: Portfolio return is the proportion-weighted combination of the constituent assets' returns. Portfolio volatility is a function of the correlations ij of the component assets, for all asset pairs (i, j).

In general: Expected return: E(Rp)= i Wi E(Ri)

46

where Rp is the return on the portfolio, Ri is the return on asset i and wi is the weighting of component asset i (that is, the share of asset i in the portfolio). Portfolio return variance: p2=i Wi2i2+ i jiW iW j i jij where ij is the correlation coefficient between the returns on assets i and j. Alternatively the expression can be written as: , p2= i jW iW j i jij where ij = 1 for i=j. Portfolio return volatility (standard deviation): p = p2 For a two asset portfolio: Portfolio return: E(Rp)=WAE(RA)+ WBE(RB) Portfolio variance: p2=WA2A2+ WB2B2+ 2W AW B A BAB

For a three asset portfolio: Portfolio return: E(Rp)=WAE(RA)+ WBE(RB) + WCE(RC) Portfolio variance: p2=WA2A2+ WB2B2 + WC2C2 +2W AW B
C AC A

BAB+ 2W AW C

+2W BW C B

CBC

Diversification An investor can reduce portfolio risk simply by holding combinations of instruments which are not perfectly positively correlated . In other words, investors can reduce their exposure to individual asset risk by holding a diversified portfolio of assets. Diversification may allow for the same portfolio expected return with reduced risk.

47

If all the asset pairs have correlations of 0they are perfectly uncorrelatedthe portfolio's return variance is the sum over all assets of the square of the fraction held in the asset times the asset's return variance (and the portfolio standard deviation is the square root of this sum). The efficient frontier with no risk-free asset

Efficient Frontier. The hyperbola is sometimes referred to as the 'Markowitz Bullet', and is the efficient frontier if no risk-free asset is available. With a risk-free asset, the straight line is the efficient frontier. As shown in this graph, every possible combination of the risky assets, without including any holdings of the risk-free asset, can be plotted in risk-expected return space, and the collection of all such possible portfolios defines a region in this space. The left boundary of this region is a hyperbola, the upper edge of this region is the efficient frontier in the absence of a riskfree asset (sometimes called "the Markowitz bullet"). Combinations along this upper edge represent portfolios (including no holdings of the risk-free asset) for which there is lowest risk for a given level of expected return. Equivalently, a portfolio lying on the efficient frontier represents the combination offering the best possible expected return for given risk level. STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF ACC: symbol date prev close close
48

return

Avg

diff

D2

price 1-AprACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC ACC 11 4-Apr11 5-Apr11 6-Apr11 7-Apr11 8-Apr11 11Apr-11 13Apr-11 15Apr-11 18Apr-11 19Apr-11 20Apr-11 21Apr-11 25Apr-11 26Apr-11 27Apr-11 28Apr-11 29Apr-11 1074.5 5 1091.8 5 1116 1123.3 5 1129.3 5 1128.8 5 1120.8 5 1097.1 1117 1113.4 1098.2 1101.5 5 1106.9 5 1112.5 1112.5 5 1124.4 5 1110.1 1104.5 1091.85 1116 1123.35 1129.35 1128.85 1120.85 1097.1 1117 1113.4 1098.2 1101.55 1106.95 1112.5 1112.55 1124.45 1110.1 1104.5 1112.8 1.60997 6 2.21184 2 0.65860 2 0.53411 7 -0.04427 -0.70869 -2.11893 1.81387 3 -0.32229 -1.36519 0.30504 5 0.49021 8 0.50137 8 0.00449 4 1.06961 5 -1.27618 -0.50446 0.75147 1 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 1.40938 6 2.01125 1.98637

2 4.045136 0.45801 2 0.209775 0.33352 7 0.11124

-0.24486 0.059958 -0.90928 0.826783 -2.31952 5.380162 1.61328 3 2.602682 -0.52288 0.273405 -1.56578 0.10445 2.45166

5 0.010911 0.28962 8 0.083885 0.30078 8 0.090473 -0.1961 0.038453 0.86902 5 0.755204 -1.47677 2.180848 -0.70505 0.497094 0.55088 1 0.30347
49

0.20059 RISK: D2/(N-1) 21.90751/(18-1) 1.2886 1.1351 INTERPREPATION:

21.90751

THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF ACC FOR THE MONTH OF APRIL 2011. THE COMPANY HAS AN AVERAGE OF 0.20059 AN THE RISK 1.1351 .THE HIGHEST PRICE RUEING THE MONTH IS 1098.2 THE LOWEST PIECE IS 1104.5

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF AMBUJA CEMENT:

50

prev symbol AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE M AMBUJACE Date 1-Apr11 4-Apr11 5-Apr11 6-Apr11 7-Apr11 8-Apr11 11-Apr11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Aprclose 147.4 146.8 148.4 5 151.9 150.5 5 151.4 5 149.3 5 149 152.9 150.6 150 150.5 5 154.4 152.4 155.6 157.8 150.9

close price return avg 0.4138 diff D2 0.67391 9 0.50425 4 3.64865 3 1.6968 0.03383 3 3.24167 9 0.42018 8 4.85576 3 3.67918 9 0.65979 3 0.00222 8 4.59424 9 2.92138 8 2.84214 9 1.00002 3 22.6082 0.19980
51

146.8 -0.40706 1.12397 148.45 151.9 8 2.32401 5

7 -0.82093 0.4138 0.71010 7 0.4138 7 0.4138 8 1.91014 5

150.55 -0.88874 0.59780 151.45 149.35 8 -1.3866

7 -1.30261 0.4138 0.18393 7 0.4138 8

7 -1.80047 0.4138 7 -0.64822 0.4138 7 0.4138 2.20358

149 -0.23435 152.9 2.61745

150.6 -1.50425 150 -0.39841 0.36666 150.55 154.4 7 2.55729

7 -1.91812 0.4138 7 -0.81228 0.4138 7 0.4138 7 0.4138 -0.0472 2.14342

152.4 -1.29534 2.09973 155.6 157.8 8 1.41388 2

7 -1.70921 0.4138 1.68586 7 0.4138 7 0.4138 8 1.00001 2

150.95 -4.34094 150.9 -0.03312

7 -4.75481 0.4138 -0.44699

M AMBUJACE M

11 29-Apr11

5 4.83764 150.9 158.2 1 0.41387

7 0.4138 7

4.42377 1

3 19.5697 5 73.1518 6

RISK: D2/(N-1) 73.15186/17 4.3035 2.07437 INTERPREPATION: THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF AMBUJA CEMENT FOR THE MONTH OF APRIL 2011. THE COMPANY HAS AN AVERAGE OF 0.41387 AN THE RISK 2.07437 .THE HIGHEST PRICE RUEING THE MONTH IS 157.8 THE LOWEST PIECE IS 146.8

52

STATEMENT SHOWING CALCULATION OF CORELATION COEFFIGENT OF ACC AND AMBUJA CEMENT:

Date return Avg D1 return avg D2 1-Apr- 1.60997 0.2005 1.409386 - 0.4138 11 6 4-Apr- 2.21184 11 2 5-Apr- 0.65860 11 2 6-Apr- 0.53411 11 7 3 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9

D2 D1*D2 - 0.67391

27 0.40706 7 0.82093 9 -1.157 2.011252 1.12397 0.4138 0.71010 0.50425 1.42820 29 8 7 8 4 0.458012 2.32401 0.4138 1.91014 3.64865 15 0.333526 5 7 - 0.4138 5 7

3 0.87487 1.6968 0.43446 -

7 0.88874 3 8

7 1.30261

7-Apr- 0.04427 11

0.244863 0.59780 0.4138 0.18393 0.03383 7 8

3 0.04504
53

8-Apr- 0.70868 11 6 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9 0.2005 9

0.909275 8 2.319517 -1.3866 0.4138 - 3.24167 9 1.63712 7 1.80047

11-Apr- 2.11892 11 8 13-Apr- 1.81387 11 3 2 -

- 0.4138

- 0.42018 1.50355

6 0.23435 7 0.64822 8 5 1.613282 0.4138 4.85576 3.55499 94 2.61745 0.522881 9 1.50425 1.565777 7 2.20358 3 7

15-Apr- 0.32229 11

- 0.4138

- 3.67918 1.00295 9 1

7 1.91812

18-Apr- 1.36518 11 8 19-Apr- 0.30504 11 5 20-Apr- 0.49021 11 8 21-Apr- 0.50137 11 8

- 0.4138

- 0.65979 1.27184 4 -

7 0.39841 7 0.81228 3 0.104454 0.36666 0.4138 0.00222 62 0.289628 7 7 0.4138 -0.0472

8 0.00493 4.59424 0.62079 5 -

33 2.55729 7 2.14342 9 0.300787 - 0.4138 - 2.92138 66 1.29534 7 1.70921

8 0.51411 -

25-Apr- 0.00449 11 4 26-Apr- 1.06961 11 5 9 -

0.196095 2.09973 0.4138 1.68586 2.84214

6 8 7 8 9 0.33059 0.869024 1.41388 0.4138 1.00001 1.00002 0.86903 85 1.476769 2 7 2 3 5 7.02175 5

27-Apr- 1.27617 11

- 0.4138

5 4.34094 0.705049

7 4.75481 22.6082

28-Apr- 0.50445 11 9 29-Apr- 0.75147 11 1

- 0.4138

- 0.19980 0.31515

1 0.03312 7 0.44699 3 2 0.550881 4.83764 0.4138 4.42377 19.5697 2.43697 25 1 0.41387 7 1 5 2 73.1518 20.0511 6 3
54

CORELATION COFFIENT=d1d2/d22 =20.05113/(73.05113)2 =20.05113/5336.467 =0.00384

PORTFOLIO CONSTRUTION: W1=INVESTMENT WEIGHT1 50% W2=INVESTMENT WEIGHT2=50% R1=RETURN OF INDIVIDUAL SECURITIES 0.20059 R2=RETURN OF INDIVILDUAL SRCURITIES -0.03312 1= RISK OF 1ST SECURITIES 1.1351 2=RISK OF 2ND SECURITIES 2.07437 12=CORELATION COEFFICENT BETWEET SECURITIES1&2=0.00384. RETURN OF PORTFOLIO: = W1R1+W2R2 =0.5*0.20059+0.5*0.41387 =0.100295+0.206935 =0.30723.
55

RISK OF PORTFOLIO= = W1212+W2222+2W1W21212 =(0.5)2(1.1351)2+(0.5)2(2.07437)2+2(0.5)(0.5)(1.1351)(2.07437) (0.00384) =0.3221+1.07575+0.00199 =1.39984 =1.18314 STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF AXIS BANK Prev Symbol Date 1-AprAXISBANK 11 4-AprAXISBANK 11 5-AprAXISBANK 11 6-AprAXISBANK 11 7-AprAXISBANK AXISBANK 11 8-Apr11 1432.1 1424.7 5 1428.9 5 1445.7 5 1445.75 1449.7 1428.95 1424.75 -0.51323 0.29478 9 1.17568 8 0.27321 5 close 1403.8 5 1407.7 5 1432.1 1407.75 Close price return 0.27780 7 1.72971 1 avg 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 -0.04957 0.002457 0.75844 9 0.575244 1.63934 8 2.687463 0.73687 0.542984 5
56

Diff 0.74146

D2

7 0.549774 2.19337 1 4.810874

6 11-AprAXISBANK 11 13-AprAXISBANK 11 15-AprAXISBANK 11 18-AprAXISBANK 11 19-AprAXISBANK 11 20-AprAXISBANK 11 21-AprAXISBANK 11 25-AprAXISBANK 11 26-AprAXISBANK 11 27-AprAXISBANK 11 28-AprAXISBANK AXISBANK 11 29-Apr1377.3 1356.3 5 1343.8 5 1333.7 1333.7 1286.6 -0.75529 -3.53153 1343.85 -0.92159 1356.35 -1.52109 1448 1447.5 5 1377.3 -4.85303 1447.55 -0.03108 1389.8 1409.3 5 1448 1409.35 1429.9 1389.8 -2.80439 1.40667 7 2.74239 9 1438.3 1429.9 -0.58402 1449.7 1409.8 5 1438.3 1409.85 -2.74884 2.01794 5 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 0.4636 6 -0.29163 0.08505 -3.06787 9.411819
57

-2.28518 5.222069 2.48160 5 6.158364

-0.12036 0.014487

-2.34073 5.479026 1.87033 7 3.498161 3.20605 9 10.27881 0.43258 3 0.187128

-4.38937 19.26655

-1.05743 1.118162

-0.45793 0.209701

0.4636 11 -0.46366 6 70.09813

Risk:D2/(N-1) 70.09813/(18-1) 4.1234 2.0306 INTERPREPATION: THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF AXIS BANK FOR THE MONTH OF APRIL 2011. THE BANK HAS AN AVERAGE OF 0.46366 AN THE RISK 2.0306.THE HIGHEST PRICE RUEING THE MONTH IS 1449.7 THE LOWEST PIECE IS 1403.85

58

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF INDIAN BANK Prev Symbol Date Close 232.75 229.9 236.45 242.9 241.8 245.55 232.85 229.2 235.9 234.2 237.25 232.9 238.9 239.35 247.05 Close Price 229.9 236.45 242.9 241.8 245.55 232.85 229.2 235.9 234.2 237.25 232.9 238.9 239.35 247.05 247.2 return -1.22449 2.84906 5 2.72784 9 -0.45286 1.55086 8 -5.17206 -1.56753 2.92321 1 -0.72064 1.30230 6 -1.83351 2.57621 3 0.18836 3 3.21704 6 0.06071 6 avg 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 diff D2

INDIANB 1-Apr-11 INDIANB 4-Apr-11 INDIANB 5-Apr-11 INDIANB 6-Apr-11 INDIANB 7-Apr-11 INDIANB 8-Apr-11 11-AprINDIANB INDIANB INDIANB INDIANB INDIANB INDIANB INDIANB INDIANB INDIANB 11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11

-1.44622 2.091552 2.62733 5 6.902888 2.50611 9 6.280635 -0.67459 0.455073 1.32913 8 1.766609 -5.39379 29.093

-1.78926 3.201461 2.70148 1 7.298001 -0.94237 0.888069 1.08057 6 1.167644 -2.05524 4.224007 2.35448 3 5.54359

-0.03337 0.001113 2.99531 6 8.971919 -0.16101 0.025925

59

27-AprINDIANB INDIANB INDIANB 11 28-Apr11 29-Apr11 247.2 251.8 245.5 251.8 245.5 241.1

1.86084 1 -2.50199 -1.79226 0.22173

0.2217 3 0.2217 3 0.2217 3

1.63911 1 2.686686 -2.72372 7.418627 -2.01399 4.056159 92.07296

Risk:D2/(N-1) 92.07296/(18-1) 5.41605 2.3272

INTERPREPATION: THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF INDIAN BANK FOR THE MONTH OF APRIL 2011. THE BANK HAS AN AVERAGE OF 0.22173 AN THE RISK 2.3272 THE HIGHEST PRICE RUEING THE MONTH IS 251.8 THE LOWEST PIECE IS 232.8

60

STATEMENT SHOWING CALCULATION OF CORELATION COEFFIGENT OF AXIS AND INDIAN BANK

Date return avg 1-Apr- 0.27780 11 4-Apr11 5-Apr11 6-Apr11 7-Apr11 8-Apr11 11-Apr11 13-Apr11 7 1.72971 1 -0.51323 0.29478 9 1.17568 8 0.27321 5 -2.74884 2.01794 5

D1 return - 0.74146 7 2.19337 1 -0.04957 0.75844 9 1.63934 8 0.73687 5 -2.28518 2.48160 5 -1.22449 2.84906 5 2.72784 9 -0.45286 1.55086 8 -5.17206 -1.56753 2.92321 1

avg D2 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 -1.44622 2.62733 5 2.50611 9 -0.67459 1.32913 8 -5.39379 -1.78926 2.70148 1

D2 D1*D2 2.09155 2 6.90288 8 6.28063 5 0.45507 3 1.76660 9 29.093 3.20146 1 7.29800 1

61

0.46366 0.46366 0.46366 0.46366 0.46366 0.46366 0.46366 0.46366

-1.07232 5.762719 -0.12423 -0.51164 2.178921 -3.97455 4.088796 6.70401

15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11 -0.58402 -2.80439 1.40667 7 2.74239 9 -0.03108 -4.85303 -1.52109 -0.92159 -0.75529 -3.53153

0.46366 0.46366 0.46366 0.46366 0.46366 0.46366 0.46366 0.46366 0.46366 0.46366 -0.12036 -2.34073 1.87033 7 3.20605 9 0.43258 3 -4.38937 -1.05743 -0.45793 -0.29163 -3.06787 -0.72064 1.30230 6 -1.83351 2.57621 3 0.18836 3 3.21704 6 0.06071 6 1.86084 1 -2.50199 -1.79226

0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 0.2217 3 -0.94237 1.08057 6 -2.05524 2.35448 3 -0.03337 2.99531 6 -0.16101 1.63911 1 -2.72372 -2.01399

0.88806 9 1.16764 4 4.22400 7 5.54359 0.00111 3 8.97191 9 0.02592 5 2.68668 6 7.41862 7 4.05615 9 92.0729 6 0.113427 -2.52934 -3.84399 7.548611 -0.01443 -13.1475 0.170261 -0.7506 0.794324 6.178659 7.571072

CORRELATION COEFFICIENT:d1d2/d22 =7.571072/92.072962 =0.0676

PORTFOLIO CONSTRUTION: W1=INVESTMENT WEIGHT1 50% W2=INVESTMENT WEIGHT2=50%

62

R1=RETURN OF INDIVIDUAL SECURITIES 0.46366 R2=RETURN OF INDIVILDUAL SRCURITIES 0.22173 1= RISK OF 1ST SECURITIES 2.0306 2=RISK OF 2ND SECURITIES 2.3272 12=CORELATION COEFFICENT BETWEET SECURITIES1&2=00676. RETURN OF PORTFOLIO: = W1R1+W2R2 =0.5*0.46366+0.5*0.2217 =0.23183+0.11085 =0.34268 RISK OF PORTFOLIO= = W1212+W2222+2W1W21212 =(0.5)2(2.0306)2+(0.5)2(2.3272)2+2(0.5)(0.5)(2.0306)(2.3272) (0.0676) =1.03083+1.35396+0.15972 =2.54451 =1.5951

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF BAJAJ AUTO: Prev Symbol Date Close Close Price Return avg Diff D2
63

BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO BAJAJAUTO

1-Apr11 4-Apr11 5-Apr11 6-Apr11 7-Apr11 8-Apr11 11-Apr11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11

1463.2 5 1458.9 5 1456.9 5 1438.1 5 1451.6 1440.2 5 1416.9 5 1382.1 1398.7 5 1419.6 5 1437.8 1452.5 5 1474.4 1465 1477.7 1485.6 1474.4 5 1477.7

1458.9 5 1456.9 5 1438.1 5 1451.6 1440.2 5 1416.9 5 1382.1 1398.7 5 1419.6 5 1437.8 1452.5 5 1474.4 1465 1477.7 1485.6 1474.4 5 1477.7 1474 -0.29387 -0.13708 -1.29037 0.93522 9 -0.7819 -1.61777 -2.45951 1.20468 9 1.49419 1 1.27848 4 1.02587 3 1.50425 1 -0.63755 0.86689 4 0.53461 5 -0.75054 0.22042 1 -0.25039 0.04698

0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 -0.34085 0.116178 -0.18407 0.033881 -1.33735 1.788502 0.88824 7 0.788983 -0.82888 0.687038 -1.66476 2.771415 -2.50649 6.282493 1.15770 7 1.340284 1.44720 9 2.094415 1.23150 2 1.516598 0.97889 1 0.958227 1.45726 9 2.123633 -0.68453 0.468581 0.81991 2 0.672256 0.48763 3 0.237786 -0.79752 0.636039 0.17343 9 0.030081 -0.29737 0.08843 22.63482
64

2 Risk:D2/(N-1) 22.63482/(18-1) 0.2425

INTERPREPATION: THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF BAJAJ AUTO FOR THE MONTH OF APRIL 2011. THE COMPANY HAS AN AVERAGE OF 0.046982 AN THE RISK 0.2425 THE HIGHEST PRICE RUEING THE MONTH IS 1477.7 THE LOWEST PIECE IS 1382.1

65

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF TATASTEEL: Prev Symbol Date Close 622.2 TATASTEEL 1-Apr-11 5 626.6 Close Price Return 0.69907 6 0.72614 TATASTEEL 4-Apr-11 626.6 631.1 TATASTEEL 5-Apr-11 5 635.2 631.15 1 0.64168 6 Avg 0.0440 1 0.0440 1 0.0440 1 0.0440 TATASTEEL 6-Apr-11 635.2 634.4 -0.12594 0.62263 TATASTEEL 7-Apr-11 634.4 638.3 TATASTEEL 8-Apr-11 11-AprTATASTEEL 11 13-AprTATASTEEL 11 15-AprTATASTEEL TATASTEEL 11 18-Apr636.4 630.6 630.6 612.1 -0.91138 -2.93371 5 629.8 5 624.9 5 636.4 624.95 -0.77796 1.83214 7 629.85 -1.33156 638.35 6 1 0.0440 1 0.0440 1 0.0440 1 0.0440 1 0.0440 1 -0.86737 0.752325 -2.8897 8.350389
66

Diff 0.74308

D2

6 0.552177 0.77015 1 0.593133 0.68569 6 0.470179

-0.08193 0.006713 0.66664 6 0.444416

-1.28755

1.65778

-0.73395 0.538687 1.87615 7 3.519963

0.0440 11 19-AprTATASTEEL 11 20-AprTATASTEEL 11 21-AprTATASTEEL 11 25-AprTATASTEEL 11 26-AprTATASTEEL 11 27-AprTATASTEEL 11 28-AprTATASTEEL 11 29-AprTATASTEEL 11 627.4 620.0 5 613.4 5 616.5 613.45 -1.06443 0.49718 8 -0.04401 620.05 -1.1715 626.7 627.4 624.5 630.0 5 626.7 -0.5317 0.11169 6 630.05 609.4 624.5 612.1 609.4 -0.4411 2.47784 7 0.88871 1 1 0.0440 1 0.0440 1 0.0440 1 0.0440 1 0.0440 1 0.0440 1 0.0440 1 0.0440 1 -1.02042 1.041258 0.54119 8 0.292895 27.14066 -1.12749 1.271237 -0.48769 0.237845 0.15570 6 0.024244 -0.39709 0.157684 2.52185 7 6.359763 0.93272 1 0.869968

Risk:D2/(N-1) 27.14066/(18-1) 1.2635 INTERPREPATION:

67

THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF TATASTEEL FOR THE MONTH OF APRIL 2011. THE COMPANY HAS AN AVERAGE OF -0.04401 AN THE RISK 1.2635 THE HIGHEST PRICE DRUEING THE MONTH IS 638.35 THE LOWEST PIECE IS 609.4

STATEMENT SHOWING CALCULATION OF CORELATION COEFICENT OF BAJAJ AND TATASTEEL: 0.04698 1-Apr-11 -0.29387 2 -0.34085 0.69907 6 -0.04401 0.74308 6 0.552177
68

-0.25328

0.04698 4-Apr-11 5-Apr-11 6-Apr-11 7-Apr-11 8-Apr-11 11-Apr11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11 -0.13708 -1.29037 0.93522 9 -0.7819 -1.61777 -2.45951 1.20468 9 1.49419 1 1.27848 4 1.02587 3 1.50425 1 -0.63755 0.86689 4 0.53461 5 -0.75054 0.22042 1 -0.25039 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 0.04698 2 -0.18407 -1.33735 0.88824 7 -0.82888 -1.66476 -2.50649 1.15770 7 1.44720 9 1.23150 2 0.97889 1 1.45726 9 -0.68453 0.81991 2 0.48763 3 -0.79752 0.17343 9 -0.29737

0.72614 1 -0.04401 0.64168 6 -0.04401 -0.12594 -0.04401 0.62263 6 -0.04401 -1.33156 -0.04401 -0.77796 -0.04401 1.83214 7 -0.04401 -0.91138 -0.04401 -2.93371 -0.04401 -0.4411 -0.04401 2.47784 7 -0.04401 0.88871 1 -0.04401 -0.5317 -0.04401 0.11169 6 -0.04401 -1.1715 -0.04401 -1.06443 -0.04401 0.49718 8 -0.04401 0.04401

0.77015 1 0.68569 6 -0.08193 0.66664 6 -1.28755 -0.73395 1.87615 7 -0.86737 -2.8897 -0.39709 2.52185 7 0.93272 1 -0.48769 0.15570 6 -1.12749 -1.02042 0.54119 8 0.593133 0.470179 0.006713 0.444416 1.65778 0.538687 3.519963 0.752325 8.350389 0.157684 6.359763 0.869968 0.237845 0.024244 1.271237 1.041258 0.292895 27.14066 -0.14176 -0.91701 -0.07278 -0.55257 2.143454 1.839646 2.172039 -1.25526 -3.55868 -0.38871 3.675024 -0.63847 -0.39987 0.075927 0.899198 -0.17698 -0.16094 2.288981

69

CORELATION COFFIENT=d1d2/d22 =2.288981/27.140662 =0.00310 PORTFOLIO CONSTRUTION: W1=INVESTMENT WEIGHT1 50% W2=INVESTMENT WEIGHT2=50% R1=RETURN OF INDIVIDUAL SECURITIES 0.046982 R2=RETURN OF INDIVILDUAL SRCURITIES 0.04401 1= RISK OF 1ST SECURITIES 0.2425 2=RISK OF 2ND SECURITIES 1.2635 12=CORELATION COEFFICENT BETWEET SECURITIES1&2=-0.00310 RETURN OF PORTFOLIO:

= W1R1+W2R2 =0.5*0.046982+0.5*0.04401 =0.023491+0.02205 =0.045496 RISK OF PORTFOLIO= = W1212+W2222+2W1W21212 =0.5*0.2425+0.5*1.2635+2*0.5*0.5*0.2425*1.2635*0.00310 =0.12125+0.78494+0.000474

70

=0.90666 =0.9521 STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF HEROHONDA

Prev Symbol HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A Date 1-Apr11 4-Apr11 5-Apr11 6-Apr11 7-Apr11 8-Apr11 11-Apr11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 Close 1589.4 5 1602.7 5 1617.9 1643.2 5 1682.3 1694.8 5 1663.4 5 1638.3 1735.1 5 1831.7 5 1863.8 5 1766.8 5 1742.6

Close Price 1602.7 5 1617.9 1643.2 5 1682.3 1694.8 5 1663.4 Return 0.83676 7 0.94525 1.56684 6 2.37638 8 0.74600 2 Avg 0.44233 4 0.44233 4 0.44233 4 0.44233 4 0.44233 4 0.44233 Diff 0.39443 3 0.50291 6 1.12451 2 1.93405 4 0.30366 8 D2 0.15557 8 0.25292 5 1.26452 7 3.74056 6 0.09221 5 5.26704 9 3.81910 1 29.9130 4 26.2646 8 1.71633 2 31.8842 7 3.29361 9 4.48194 3
71

5 -1.85267 1638.3 -1.51192 1735.1 5.91161 5 1831.7 5 1863.8 5 1766.8 6 5.56724 2 1.75242 3

4 -2.29501 0.44233 4 -1.95425 0.44233 5.46928 4 0.44233 4 0.44233 4 0.44233 2 5.12490 8 1.31008 9

5 -5.20428 1742.6 1787.2 -1.3725 2.55939 4

4 -5.64662 0.44233 4 -1.81483 0.44233 4 2.11706

HEROHOND A HEROHOND A HEROHOND A HEROHOND A HEROHOND A

25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11 1787.2 1773.6 1771.3 5 1742.4 1695.4 5 1773.6 -0.76097 1771.3 5 -0.12686 1742.4 -1.63435 1695.4 5 -2.69456 0.85817 1710 9 0.44233 4

0.44233 4 0.44233 -1.2033

1.44793 3 0.32398 3 4.31260 3 9.84009 9 0.17292 7 128.243 4

4 -0.56919 0.44233 4 -2.07668 0.44233 4 -3.13689 0.44233 0.41584 4 5

Risk:D2/(N-1 128.2434/(18-1) 7.5437 2.7465 INTERPREPATION: THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF HEROHONDA FOR THE MONTH OF APRIL 2011. THE COMPANY HAS AN AVERAGE OF 0.442334 AN THE RISK 2.7465 THE HIGHEST PRICE DRUEING THE MONTH IS 1831.75 THE LOWEST PIECE IS 1589.45

72

STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF INFOSYS: Prev Symbol INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H Date 1-Apr11 4-Apr11 5-Apr11 6-Apr11 7-Apr11 8-Apr11 11-Apr11 13-Apr11 Close 3241.3 3218.1 5 3283.1 5 3283.2 5 3275.1 5 3245.9 3227.3 3241.6 Close Price 3218.1 Return Avg 0.57303 -0.14119 - 2.59282 0.57303 0.57303 0.57303 4 0.57607 6 0.32632 3 0.019935 6.722736 0.331863 0.106487 0.102438 3.51E-13 1.03251 6.583704
73

Diff

D2

5 -0.71422 3283.1 2.01979 5 3283.2 5 3275.1 4 0.00304 6

5 -0.24671 3245.9 -0.89309 3227.3 -0.57303 0.44309 3241.6 3306.2 5 1.99284 3

0.57303 -0.32006 0.57303 -5.9E-07 - 1.01612 0.57303 0.57303 5 2.56587 3

INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H INFOSYSTC H

15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11 3306.2 2989.5 2906.1 2887.3 5 2907.3 2910 2941.3 2942.3 5 2953.1 5 2929.1 5 2989.5 -9.57897 2906.1 -2.78976 2887.3 5 -0.64519 0.69094 2907.3 2910 2941.3 2942.3 5 2953.1 5 2929.1 5 0.09287 1.07560 1 0.03569 9 0.36705 4

0.57303 -9.00594 0.57303 -2.21673 0.57303 -0.07216 - 1.26397 0.57303 0.57303 0.57303 0.57303 0.57303 5 0.6659 1.64863 1 0.60872 9 0.94008 4 81.10701 4.91391 0.005208 1.597633 0.443422 2.717985 0.37055 0.883757 0.057438 0.043584 107.0402

5 -0.81269 2906.2 5 -0.7818 -0.57303

0.57303 -0.23966 0.57303 -0.20877

Risk:D2/(N-1 107.0402/(18-1) 107.0402/17 6.2964 2.50926 INTERPREPATION: THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF INFOSYS FOR THE MONTH OF APRIL 2011.

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THE COMPANY HAS AN AVERAGE OF -0.57303 AN THE RISK 2.50926 THE HIGHEST PRICE DRUEING THE MONTH IS 32953.15 THE LOWEST PIECE IS 2907.3

STATEMENT SHOWING CALCULATION OF CORELATION COEFICENT OF HEROHONDA AND INFOSYS

Date 1-Apr-11 4-Apr-11 5-Apr-11 6-Apr-11 7-Apr-11 8-Apr-11 11-Apr-11

Return

Avg

D1 -0.14119 2.59282 4 0.57607 6 0.32632 3 -0.32006 -5.9E-07 1.01612

Return -75.3609 -552.476 -200.532 -156.947 -44.1462 -99.9999 -277.325

Avg 0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 -

D2 -74.7878 -551.903 -199.959 -156.374 -43.5732 -99.4269 -276.752

D2 5593.22 1 304597 39983.4 24452.8 1 1898.62 4 9885.70 2 76591.5

D1*d2 10.55927 -1430.99 -115.191 -51.0284 13.94599 5.89E-05 -281.214

75

-0.71422 -0.57303 2.01979 4 -0.57303 0.00304 6 -0.57303 -0.24671 -0.57303 -0.89309 -0.57303 -0.57303 -0.57303 0.44309 -0.57303

5 1.99284 13-Apr-11 15-Apr-11 18-Apr-11 19-Apr-11 20-Apr-11 21-Apr-11 25-Apr-11 26-Apr-11 27-Apr-11 28-Apr-11 29-Apr-11 3 -0.57303 -9.57897 -0.57303 -2.78976 -0.57303 -0.64519 -0.57303 0.69094 5 -0.57303 0.09287 -0.57303 1.07560 1 -0.57303 0.03569 9 -0.57303 0.36705 4 -0.57303 -0.81269 -0.57303 -0.7818 -0.57303

5 2.56587 3 -9.00594 -2.21673 -0.07216 1.26397 5 0.6659 1.64863 1 0.60872 9 0.94008 4 -0.23966 -0.20877 -547.773 1471.63 5 286.844 3 -87.4065 -320.577 -216.207 -387.704 -206.23 -264.055 -58.1764 -63.5679 -100

0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 0.57303 -547.2 1472.20 9 287.417 4 -86.8335 -320.004 -215.634 -387.131 -205.657 -263.482 -57.6034 -62.9949

9 299427. 7 2167398 82608.7 5 7540.05 102402. 8 46497.9 1 149870. 5 42294.7 69422.6 7 3318.15 3 3968.35 6 3437752 -1404.05 -13258.6 -637.128 6.266301 -404.478 -143.59 -638.237 -125.189 -247.695 13.80532 13.15124 -18679.7

CORELATION COFFIENT= =d1d2/d22 =-18679.7/34377522 =0.00002

PORTFOLIO CONSTRUTION: W1=INVESTMENT WEIGHT1 50%

76

W2=INVESTMENT WEIGHT2=50% R1=RETURN OF INDIVIDUAL SECURITIES 0.4423 R2=RETURN OF INDIVILDUAL SRCURITIES -0.57303 1= RISK OF 1ST SECURITIES 2.7465 2=RISK OF 2ND SECURITIES 2.25092 12=CORELATION COEFFICENT BETWEET SECURITIES1&2=-0.00002 RETURN OF PORTFOLIO:

= W1R1+W2R2 =0.5*0.4423+0.5*-0.57303 =0.22115+0.2865 =0.507665 RISK OF PORTFOLIO= = W1212+W2222+2W1W21212 =0.5*2.7465+0.5*2.2509+2*0.5*0.5*2.7465*2.2509 =1.37325+1.12545+3.09104 =5.58974 = 2.3642 STATEMENT SHOWING THE CALCULATION OF RETURN AND RISK OF BATAINDIA Symbol Date Prev Close Return avg diff D2
77

Close BATAINDIA 1-Apr-11 BATAINDIA 4-Apr-11 BATAINDIA 5-Apr-11 BATAINDIA 6-Apr-11 BATAINDIA 7-Apr-11 BATAINDIA 8-Apr-11 11-AprBATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA BATAINDIA 11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11 391.2 393.05 406.55 420.65 417.4 434.45 416.5 410.8 417.2 413.55 406.55 419.95 422.8 418.45 418.8 415.3 433.5 421.05

Price 0.47290 393.05 406.55 420.65 417.4 434.45 416.5 410.8 417.2 413.55 406.55 419.95 422.8 418.45 418.8 415.3 433.5 421.05 427.75 4 3.43467 8 3.46820 8 -0.77261 4.08481 1 -4.13166 -1.36855 1.55793 6 -0.87488 -1.69266 3.29602 8 0.67865 2 -1.02886 0.08364 2 -0.83572 4.38237 4 -2.87197 1.59126 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 -0.05341 0.002852 2.90836 8 8.458602 2.94189 8 8.654764 -1.29892 1.687203 3.55850 1 12.66293 -4.65797 21.69669 -1.89486 3.590485 1.03162 6 1.064252 -1.40119 1.963334 -2.21897 4.923833 2.76971 8 7.671335 0.15234 2 0.023208 -1.55517 2.418539 -0.44267 0.195955 -1.36203 1.855129 3.85606 4 14.86923 -3.39828 11.54832 1.06495 1.134118
78

0.52631 RISK:D2/(N-1)
=104.4208/(18-1)

104.4208

=2.457

INTERPRETATION:

THE ABOIVE TABLE SHOWS THE CALCULATIOIN OF RETURN AND RISK OF BATAINDIAFOR THE MONTH OF APIRL 2011.

COMPANY HAS AN AVERAGE RETURN OF 0.52631 AN THE RISK OF HIGHEST PRICE DURING THE MONTH IS 427.75.THE LOWEST PRICE IS 391.2.

STATEMENT SHOWING THE CALCUATION OF RETURN AND RISK OF WIPRO : Prev symbol Date Close Close Price Return avg diff D2
79

WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO WIPRO

1-Apr-11 4-Apr-11 5-Apr-11 6-Apr-11 7-Apr-11 8-Apr-11 11-Apr11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11

480.2 476.05 481 481 465.95 472.45 465.55 460 472.4 449.8 445.4 449.55 463.65 463.15 466.2 464.7 451.1 446.6

476.05

-0.86422

-0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756 -0.33756

-0.52666 0.277374 1.37736 7 1.897139 0.33756 0.113947 -2.79134 7.791569 1.73255 9 3.001762 -1.12291 1.260931 -0.85458 0.730304 3.03321 2 9.200376 -4.44652 19.77155 -0.64065 0.410436 1.26930 7 1.61114

481 1.039807 481 0 465.95 -3.1289 472.45 1.394999 465.55 -1.46047 460 -1.19214

472.4 2.695652 449.8 445.4 -4.78408 -0.97821

449.55 0.931747 463.65 463.15 3.13647 -0.10784

3.47403 12.06888 0.22972 0.052771 0.99609 4 0.992203 0.01581 0.00025

466.2 0.658534 464.7 451.1 446.6 -0.32175 -2.92662 -0.99756

-2.58906 6.703228 -0.66 0.435602 1.16604 2 1.359654 67.67912

450.3 0.828482 -0.33756

RISK: D2/(N-1)

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67.67912/(18-1) 67.67912/17 =3.98112 INTERPREPATION: THE ABOUT TABLE SHOWS THE CALCULATION OF RETURN AND RISK OF WIPRO FOR THE MONTH OF APRIL 2011. THE COMPANY HAS AN AVERAGE OF 0.33756 AN THE RISK 3.98112 THE HIGHEST PRICE DRUEING THE MONTH IS 481 THE LOWEST PIECE IS 445.4

STATEMENT SHOWING CALCULATION OF CORELATION COEFFICENT OF BATA & WIPRO

Date Return avg 1-Apr-11 -0.86422

D1 Return avg D2 D2 D1*D2 -0.52666 0.47290 0.5263 -0.05341 0.00285 0.028127

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1.03980 4-Apr-11 5-Apr-11 6-Apr-11 7-Apr-11 8-Apr-11 11-Apr11 13-Apr11 15-Apr11 18-Apr11 19-Apr11 20-Apr11 21-Apr11 25-Apr11 26-Apr11 27-Apr11 28-Apr11 29-Apr11 7 0 -3.1289 1.39499 9 -1.46047 -1.19214 2.69565 2 -4.78408 -0.97821 0.93174 7 3.13647 -0.10784 0.65853 4 -0.32175 -2.92662 -0.99756 0.82848 2

0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756 0.33756

1.37736 7 0.33756 -2.79134 1.73255 9 -1.12291 -0.85458 3.03321 2 -4.44652 -0.64065 1.26930 7 3.47403 0.22972 0.99609 4 0.01581 -2.58906 -0.66 1.16604 2

4 3.43467 8 3.46820 8 -0.77261 4.08481 1 -4.13166 -1.36855 1.55793 6 -0.87488 -1.69266 3.29602 8 0.67865 2 -1.02886 0.08364 2 -0.83572 4.38237 4 -2.87197 1.59126 0.52631

1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1 0.5263 1

2.90836 8 2.94189 8 -1.29892 3.55850 1 -4.65797 -1.89486 1.03162 6 -1.40119 -2.21897 2.76971 8 0.15234 2 -1.55517 -0.44267 -1.36203 3.85606 4 -3.39828 1.06495

2 8.45860 2 8.65476 4 1.68720 3 12.6629 3 21.6966 9 3.59048 5 1.06425 2 1.96333 4 4.92383 3 7.67133 5 0.02320 8 2.41853 9 0.19595 5 1.85512 9 14.8692 3 11.5483 2 1.13411 8 104.420 8 4.005889 0.993067 3.625736 6.165314 5.230491 1.619304 3.12914 6.230422 1.421589 3.515621 0.529241 -0.35725 -0.44094 -0.02153 -9.98358 2.242871 1.241776 29.17529
82

CORELATION COFFIENT= =d1d2/d22 =29.17529/104.4208 =0.2594

PORTFOLIO CONSTRUTION: W1=INVESTMENT WEIGHT1 50% W2=INVESTMENT WEIGHT2=50% R1=RETURN OF INDIVIDUAL SECURITIES 0.52631 R2=RETURN OF INDIVILDUAL SRCURITIES -0.33756 1= RISK OF 1ST SECURITIES 2.457 2=RISK OF 2ND SECURITIES 3.98112 12=CORELATION COEFFICENT BETWEET SECURITIES1&2=-0.2594 RETURN OF PORTFOLIO:

= W1R1+W2R2 =0.5*0.52631+0.5*-0.33756 = 0.26315+0.1687

83

= 0.43193

RISK OF PORTFOLIO= = W1212+W2222+2W1W21212 =0.5*2.457+0.5*3.9811+2*0.5*0.5*2.457*3.9811*0.2594 =0.9213+1.9905+1.2686 =4.1804 = 2.0446 FINDINGS: THE PRESENT PROJECT WORK HAS BEEN UNDERTAKEN TO STUDY THE PORTFOLIORETUEN AND RISK DURING THE STUDY THE FOLLOWING FACTS HAVE BEEN IDENTIFIED.
THE COMPANY ACC HAS AN AVERAGE OF RETURN 0.20059 AND

RISK OF 1.1451.THE COMPANY AMBUJA CEMENT HAS AN AVERGE RETURN OF 0.41387 AND RISK OF 2.0743. BY COMBINATION THERE TWO THE CO-EFFIICIENT OF CORRELATION IS 0.00384 . THE PORTFOILO OF ACC AND AMBUJA HAS AN AVERAGE RETURN OF 0.30723 RISK OF 1.18314.

THE COMPANY AXIS BANK HAS AN AVERAGE OF RETURN

-0.46366 AND RISK OF 2.0306.THE COMPANY INDIAN BANK HAS AN AVERGE RETURN OF 0.22173 AND RISK OF 2.3272. BY COMBINATION THERE TWO THE CO-EFFIICIENT OF CORRELATION IS 0.0676 . THE PORTFOILO OF AXIS BANK AND
84

INDIAN BANK HAS AN AVERAGE RETURN OF 0.34268 RISK OF 1.5951

THE COMPANY BAJAJ AUTO HAS AN AVERAGE OF RETURN

0.046982 AND RISK OF 0.2425.THE COMPANY TATA STEEL HAS AN AVERGE RETURN OF 0.04401 AND RISK OF 1.2635. BY COMBINATION THERE TWO THE CO-EFFIICIENT OF CORRELATION IS 0.00310 . THE PORTFOILO OF BAJAJ AUTO AND TATA STEEL HAS AN AVERAGE RETURN OF 0.04549 RISK OF 0.9521

THE COMPANY HERO HONDA HAS AN AVERAGE OF RETURN

0.442334 AND RISK OF 2.7465.THE COMPANY INFOSYS HAS AN AVERGE RETURN OF -0.57303 AND RISK OF 2.50926. BY COMBINATION THERE TWO THE CO-EFFIICIENT OF CORRELATION IS 0.00002. THE PORTFOILO OF HERO HONDA AND INFOSYS HAS AN AVERAGE RETURN OF 0.507665 RISK OF 2.3642

THE COMPANY BATA HAS AN AVERAGE OF RETURN 0.52631 AND

RISK OF 2.457.THE COMPANY WIPRO HAS AN AVERGE RETURN OF -0.33756 AND RISK OF 3.98112. BY COMBINATION THERE TWO THE CO-EFFIICIENT OF CORRELATION IS 0.2594. THE PORTFOILO OF BATA AND WIPRO HAS AN AVERAGE RETURN OF 0.43193 RISK OF 2.0446

85

SUGGESTIONS.
After the analysis, about constructing a portfolio the investors can be given the suggestions as follows. 1. Select your investments on economic grounds. Public knowledge is no advantage. 2. Buy stock with a disparity and discrepancy between the situation of the firm-and the expectations and appraisal of the public (Contrarian approach vs. consensus approach). 3. Buy stocks in companies with potential for surprises. 4. Take advantage of volatility before reaching a new equilibrium. 5. Listen to rumors and tips, check for yourself. 6. Dont put your trust in only one investment. It is like putting all the eggs in one basket. This will help lessen the risk in the long term. 7. The investor must select the right advisory body which is has sound knowledge about the product which they are offering. 8. Professionalized advisory is the most important feature to the investors. Professionalized research, analysis which will be helpful for reducing any kind of risk to overcome. As for the study we can suggest the investors to invest in the following two portfolios. THE PORTFOILO OF AXIS BANK AND INDIAN BANK HAS AN AVERAGE RETURN OF 0.34268 RISK OF 1.5951

86

 THE PORTFOILO OF ACC AND AMBUJA HAS AN AVERAGE RETURN OF 0.30723 RISK OF 1.18314.

CONCLUSION:
The present project work has been undertaken to study the process of constructing the portfolio and finding the benefits of portfolio investment. Investing in financial assets are exposed to risk. To reduce such risk, one has to invest in a portfolio. Markowitz has proposed a theory which is known as a modern portfolio theory. This theory explains how to construct a portfolio using only two securities. The main advantage of constructing a portfolio is to use two securities having negative correlation. The project has taken ten sample equity and constructed five portfolios. The best portfolios can be selected and investors are suggested. The overall project shows satisfactory result.

BIBLIOGRAPHY.
Books referred: Security analysis and portfolio management by V.A.Avadhani. Security analysis and portfolio management by Fischer & Jordan. Investments decisions by V.K.Bhalla. Security analysis and portfolio management by Robbins.

Websites:
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 www.investopedia.com www.capitalmarket.com www.icicidirect.com www.bse.com

www.nse.com

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