Portfolio Building

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Group 1 Chirag Parikh Jay Joshi 126 Anuroop Krishna Ameya Khaladkar Abhishek Passi Ameya Walvekar Haresh Pandia 142 132 129 144 156 140

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Agenda

Case Description Funds

Mutual Equity Gold

& Silver Weights Risk & Return

Portfolio Portfolio

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Case
Given

Age 50 Working in manufacturing company Savings of 1 Crore all in FDs earning around 9.25%

Assumptions

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Regular income needed after 10 years. Retirement age 60(assumed)

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Investment Options
FDs Equity Mutual Gold

Funds

& Silver

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Mutual Funds
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Assumptions
Purpose Time

Wealth accumulation & regular income Period 10 years risk level

Moderate

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Basis of selection
Fund Size Past

managers' experience

performance Weightings Concentration turnover Ratio

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Sector Funds

Portfolio Expense

Funds identified
Fund 10 yr Return(%)

Funds chosen from Hybrid Mutual funds

Portfolio Manager Tenure(yrs) Expense Ratio(%) Top 5 holding Assets(cr) Turnover(%) Beta

Portfolio

HDFC Prudence(equit y oriented) Tata Balanced(equit y oriented) ICICI Prudential AdvisorAggressive Birla Sun Life Asset Allocation Moderate Escorts Income Bond HDFC MIP Long-term

28.22

Prashant Jain, Miten Lathia Murthy Nagarajan, M Venugopal

17, 1

2.34

17.1

6131.13

37.85

1.14

E-74.12 D-22.54 C-3.34 E-74.26 D-23.28 O-2.46 E-42.77 D-27.28 O-29.96 E-47.62 D-44.25 O-8.13 E-13.58 D-79.47 O-6.95 E- 24.47 D-71.55 O-3.98 8

21.59

1, 6

1.8

19.23

306.38

57

1.02

18.19 Mrinal Singh 16.35

.75

7.16

.86

Satyabrata Mohanty Rajat Budhiraja Prashant Jain, Shobhit Mehrotra

.35

11.27

.65

16.56

2.25

10.62

1.61

.05

12.35

7,4

1.52 5/5/12

6.29

9778.89

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Equity Investments

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Equity Investments
Key

Elements

Invest in defensive sectors Identify such sectors with low volatility & stable growth Identify stocks in these sectors with low volatility & stable growth Only BSE sectors & stocks considered
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Assumption

Defensive Sectors
Following

Defensive sectors were analyzed based on past 5 years monthly data

FMCG

Actual Average Annual Return: 13%

Healthcare
Actual

Average Annual Return: 16%

Banking
Actual

Average Annual Return: 36.72%

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Capital Goods

Analysis of Defensive Sectors

BSE Banking Beta=0.841 State Probability Return Expected Return Expansion 0.2 52.66 10.532 Normal 0.5 36.72 18.36 Recession 0.3 -47 -14.1 14.792 BSE FMCG Beta=0.29 State Probability Return Expected Return Expansion 0.2 23.43 4.686 Normal 0.5 13.33 6.665 Recession 0.3 -7.15 -2.145 9.206
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Analysis of Defensive Sectors

BSE CG State Expansion Normal Recession Beta=1.15 Probability 0.2 0.5 0.3 Return 78.32 40.4 -54.26 Expected Return 15.664 20.2 -16.278 19.586

Healthcare Beta=0.63 State Probability Expansion 0.2 Normal 0.5 Recession 0.3
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Return 18.49 16.06 -25.1

Expected Return 3.698 8.03 -7.53 4.198

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Analysis of Defensive Stocks

FMCG Beta Average Annualis ed 16.62406 17.557 38.427 59.964 84.081 43.054 Return 74 2 51 63 34 52 Capital Goods ABB Punj L&T BHEL Beta 0.795487 1.361354 1.123096 0.990148 Average Annualised Return -4.43712 -23.3203 14.39352 10.5582 HUL ITC Colgate Nestle UB US 0.468733 0.5755 0.0705 0.2063 0.6441 0.9025 49 4 45 79 68 58

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Analysis of Defensive Stocks

Banking SBI HDFC ICICI PNB Beta 1.100796 0.964576 1.462998 0.934124 Average Annualised Return 49.00577 17.43721 38.96628 47.6104 Healthcare & Pharma Pirama Glaxo Ranba Dr. l Return Cadilla xy Biocon Reddy's 0.4465 0.2630 0.3502 0.6952 0.6573 0.419443 6 9 4 2 0 46

Beta Average Annualis ed 33.158 25.574 27.714 21.028 15.713 15.40798 5/5/12 Return 9 6 7 8 Portfolio Building: 6 92
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Investment in Gold & Silver

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Price of Gold/Ounce from 19682011

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Why invest in Gold ?

History

shows that there is a direct correlation between inflation rate and prices of gold a return of 18 CAGR for the past 10 years

Provided

Took six years for gold to double from 250 to 500 and only three years for gold to double from 500 to 1000
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Low The

volatality-16.1% in 2010, down from 21.4% in 2009 price of Gold cannot become zero whereas the price of an equity can become zero ETF provide an opportunity to trade gold like the way equity is traded as a hedge against inflation
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Gold

Acts

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Future prospects
Increase

in prices due to

Depreciation of dollar Chinese govt. encouraging people to buy Significant potential: gold represents less than 1% of total global investment assets People diversifying the risk Uses of Gold increasing: jewelry, electronics, medical equipments, 5/5/12 Portfolio Building:
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Silver: the next Gold

Anyone watching the gold market from Mars "would be scratching their head" to see it "dug up in Africa" only to be buried again in a vault underground ~ Warren Buffett
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Some facts..
Gold

silver ratio

15:1 silver togoldprice ratio was legally fixed by the United States with the passage of the Coinage Act of 1792 As of now, the ratio is 84:1 meaning that silver is very much undervalued

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Spot market Prices of Silver from 1975 onwards..

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Returns on Silver on an investment of 1 lakh invested in Jan 2010

10 9 8 7 6 5 4 3 2 1 0

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Why invest in Silver?

Acts

as a hedge against inflation

Undervalued Immense Lesser

industrial use thus, demand is high money required as compared to Gold returns delivered
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Excellent Gold

is constantly being 5/5/12 Portfolio Building: transferred based on price

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Disadvantages
Weight Bulk Volume Storage Portability Fear

of theft

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Suggestion
Invest

60% in Silver since it mitigates risk as the consumption of silver is going to increase as it is used for industrial purposes against inflation too 40% Gold in the form of ETF and sell it when the price is too high or the value of dollar depreciates to a very low level
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Hedge Keep

Portfolio Weight Allocation

Final

Investments

FDs Mutual Fund Equity Gold & Silver

Note:

We would invest in NCDs if found attractive from Mutual Fund (Equity) 5/5/12 Portfolio Building: 32
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Portfolio Weight Allocation

Weight

Allocation

FDs : 20% Equity : 30% Mutual Fund: 30% Gold & Silver: 20% FMCG: 10% Banking: 8%
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Equity

Portfolio Weight Allocation

Gold

& Silver

Gold: 8% Silver: 12%

Mutual

Fund

Equity: 13.84% Debt: 13.42% Cash: 2.74%

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Portfolio Risk & Return

Portfolio

Return Beta

18.72% 0.35924

Portfolio

Analysis.xlsx

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Thank You

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